this is only so i can work on this project in school
Engaging in questionable or completely illegal business is one of the most damaging and damning things a company can do. Enron, the seventh largest company in America at the time of its collapse, inflated its profits, practiced irresponsible accounting, and concealed debts so they would not be visible to the public on company accounts.
Enron, started out in the fuel industry, oil and gas pipelines, however moved on to dominate the energy market place by packaging and trading energy futures commodities. In 1985 the companies Houston Natural Gas and Inter-North merged with one another, the chief executive of this new company, Enron, was Kenneth Lay. Energy corporations petitioned Washington to reduce limitations on the energy industry, in the 1980’s. The Government co-operated and began an almost lassie faire like policy with the energy corporations. As a result of the new government policies the Energy market place became very competitive. The price of Energy became unstable and changed often. It was at this point that Enron set it self apart from other competitors, acting almost like an energy retailer Enron could provide secure prices for energy but profit through selling the energy for more than it was worth.
“Buyers and sellers use futures markets to get what they hope will be a better deal on commodity prices than they would do on the open market.”(news.bbc.co.uk) Enron began trading futures in gas contracts, supplier to consumer. Enron began selling gas to clients for the future at a price of the day. The federal government signed contract that Enron could record an anticipated thirty years of business as part of one sale. For example if they made a sale of $1 million to a client in one year it would go into the books as $30 million, A major problem was that Enron accountants would make up growing numbers, these predictions were often incorrect and therefore the numbers needed to be changed, eventually the entire records were all lies. The practice of booking future revenues fueled Enron’s growth; at its peek the company controlled one forth of the energy industry and 90% of its income came from trading.
Enron began getting involved with trading bandwidth capacity, during the dot.com boom, this helped drive the price of the company’s stock. They were buying and selling billions of dollars worth of commodities online, but never commented about if these trades resulted in a net gain for the company.
I
At about this time, it is believed that Enron began to use sophisticated accounting techniques to keep its share price high, raise investment against it own assets and stock and maintain the impression of a highly successful company.
Enron could also legally remove losses from its books if it passed these “assets” to an independent partnership.
Equally, investment money flowing into Enron from new partnerships ended up on the books as profits, even though it was linked to specific ventures that were not yet up and running.
One of these partnership deals was to distribute Blockbuster videos by broadband connections. The plan fell through, but Enron had already posted some $110m venture capital cash as profit.
By the summer, Enron's shares had hit an all time high of more than $90. But there was also controversy.
California was suffering an energy crisis, blamed by many on its poor handling of deregulation.
Some claimed Enron had profiteered by buying futures in electricity supplies and passing them on at higher costs. Enron dismissed the allegation saying it was merely the market-maker.
Enron's 2000 annual report reported global revenues of $100bn. Income had risen by 40% in three years.
In reality, real revenue would have been far lower had it not been for the special partnerships established by chief finance officer Andrew Fastow.
Enron's growth was increasingly dependent on these accounting tools. Enron made investments and then shifted the debt off its books to theoretically independent partnerships, in return for potential income that provided a buffer against future losses.
Meanwhile, Enron kept up it political donations. Chief among the individual donors was Kenneth Lay himself.
Enron and Kenneth Lay each donated $100,000 to incoming President Bush's inaugural committee fund, early in 2001. The incoming president invited Mr Lay to become and advisor to his transition team.
A prime concern for Enron was the new president's planned energy policy review, headed by Vice-President Dick Cheney.
Mr Lay and other Enron directors met Mr Cheney and others three times in the first half of the year, the last meeting a month before he published his conclusions on 17 May 2001.
The review, as predicted, was favourable to the energy industry. It advocated more power stations, more exploration and a national grid. While it did not meet all of Enron's wishes, it nevertheless was good news.
On 14 August 2001, seemingly from nowhere, Jeff Skilling resigned as chief executive, citing personal reasons. Kenneth Lay became chief executive once again.
The development was a shock to investors who suddently began to fear that all was not well in Houston.
Investors sold millions of shares, knocking some $4 off the price by the end of the week. As the price dropped below $40, Mr Lay insisted that there were "no issues".
But there was a very large issue - perhaps one that the board was not fully aware of.
In May of that year, Enron executive Clifford Baxter left the company, apparently in uncontroversial circumstances.
But there were rumours among executives that Mr Baxter - soon to become a tragic figure in the affair when he tookk his own life - had clashed with Jeff Skilling over the propriety of some of the partnership transactions.
When Mr Skilling resigned, one executive who knew of Mr Baxter's concerns decided to act, and warned Mr Lay that Enron was on the verge of "imploding".
12 October:
Meanwhile, the depth of Enron’s problems were beginning to dawn on Andersen.
Because Enron had hedged against its own stock, it could never recover its losses while its share price was falling.
Andersen told Enron that it had no other choice but to change the way it was accounting for its special partnerships.
On 12 October, an Andersen lawyer contacted a senior partner in Houston to remind him that company policy was not to retain documents that were no longer needed.
At some point after this, staff in Andersen’s Houston office began shredding documents relating to Enron.
Around the same time, Enron's internal legal examination of Sherron Watkin's concerns concluded that the partnerships in question, Raptor and Condor, had been approved by Andersen.
1 - 9 November:
Despite the air of impending doom, Kenneth Lay found two banks willing to extend credit. But the worst of revelations was to come.
On 8 November, the company took the highly unusual move of restating its profits for the past four years. It effectively admitted that it had inflated its profits by concealing debts in the complicated partnership arrangements.
The following day, the humiliation of Enron appeared complete as it entered negotiations to be taken over by its much smaller rival, Dynegy.
2 Dec:
No longer able to cope with its debt, Enron filed for bankruptcy protection in a New York court on 2 December 2001, simultaneously launching a legal action against Dynegy for pulling out of the merger.
In three months Enron had gone from being a company claiming assets worth almost £62bn to bankruptcy. Its share price collapsed from about $95 to below $1.
"Uncertainty has severely impacted the market's confidence in Enron and its trading operations," Kenneth Lay commented as he saw his company implode.
"We are taking the steps announced today to help preserve capital, stabilise our business and enhance our confidence to pay our creditors."
9 - 10 Jan:
While America reeled from the bankruptcy and Enron employees, past and present, worked out what they had left, the Justice Dept announced a criminal investigation.
Attorney General John Ashcroft, who had received campaign funds from the company in 2000, excluded himself from the investigation along with the 100 federal investigators in Houston.
The following day, Andersen, its role increasingly in the spotlight, admitted that employees had disposed of Enron documents.
The White House also confirmed speculation that Kenneth Lay had appealed to members of the administration for help.
The shockwaves of a corporate crash are always keenly felt - but few failures have led to the kind of investigations Enron and its managers now face.
February opened with the publication of the company's own internal investigation into the crash.
William Powers, the academic who chaired the report, didn't pull any punches when he pinned the blame firmly on executives who had personally benefited from the partnerships to the tune of millions of dollars.
"There was a fundamental default of leadership and management," he said.
"We found a systematic and pervasive attempt by Enron's management to misrepresent the company's financial condition."
Congress continued hearings began in December as America and investors around the world demanded answers.
Four of Enron's most senior executives pleaded Fifth Amendment protection against self-incrimination and refused to testify: Andrew Fastow, chief risk officer Richard Buy, finance executive Michael Kopper and Kenneth Lay himself.
Jeff Skilling did testify but insisted that he knew nothing of the complex web of intra-company deals that are almost impossible for ordinary investors to unravel.
On Valentine's Day, the woman who originally raised fears of an "implosion", took the stand.
Sherron Watkins said that Ken Lay and the board had been "duped" by Mr Fastow and Mr Skilling. Mr Lay had never really understood the gravity of the situation, she said.
Enron, started out in the fuel industry, oil and gas pipelines, however moved on to dominate the energy market place by packaging and trading energy futures commodities. In 1985 the companies Houston Natural Gas and Inter-North merged with one another, the chief executive of this new company, Enron, was Kenneth Lay. Energy corporations petitioned Washington to reduce limitations on the energy industry, in the 1980’s. The Government co-operated and began an almost lassie faire like policy with the energy corporations. As a result of the new government policies the Energy market place became very competitive. The price of Energy became unstable and changed often. It was at this point that Enron set it self apart from other competitors, acting almost like an energy retailer Enron could provide secure prices for energy but profit through selling the energy for more than it was worth.
“Buyers and sellers use futures markets to get what they hope will be a better deal on commodity prices than they would do on the open market.”(news.bbc.co.uk) Enron began trading futures in gas contracts, supplier to consumer. Enron began selling gas to clients for the future at a price of the day. The federal government signed contract that Enron could record an anticipated thirty years of business as part of one sale. For example if they made a sale of $1 million to a client in one year it would go into the books as $30 million, A major problem was that Enron accountants would make up growing numbers, these predictions were often incorrect and therefore the numbers needed to be changed, eventually the entire records were all lies. The practice of booking future revenues fueled Enron’s growth; at its peek the company controlled one forth of the energy industry and 90% of its income came from trading.
Enron began getting involved with trading bandwidth capacity, during the dot.com boom, this helped drive the price of the company’s stock. They were buying and selling billions of dollars worth of commodities online, but never commented about if these trades resulted in a net gain for the company.
I
At about this time, it is believed that Enron began to use sophisticated accounting techniques to keep its share price high, raise investment against it own assets and stock and maintain the impression of a highly successful company.
Enron could also legally remove losses from its books if it passed these “assets” to an independent partnership.
Equally, investment money flowing into Enron from new partnerships ended up on the books as profits, even though it was linked to specific ventures that were not yet up and running.
One of these partnership deals was to distribute Blockbuster videos by broadband connections. The plan fell through, but Enron had already posted some $110m venture capital cash as profit.
By the summer, Enron's shares had hit an all time high of more than $90. But there was also controversy.
California was suffering an energy crisis, blamed by many on its poor handling of deregulation.
Some claimed Enron had profiteered by buying futures in electricity supplies and passing them on at higher costs. Enron dismissed the allegation saying it was merely the market-maker.
Enron's 2000 annual report reported global revenues of $100bn. Income had risen by 40% in three years.
In reality, real revenue would have been far lower had it not been for the special partnerships established by chief finance officer Andrew Fastow.
Enron's growth was increasingly dependent on these accounting tools. Enron made investments and then shifted the debt off its books to theoretically independent partnerships, in return for potential income that provided a buffer against future losses.
Meanwhile, Enron kept up it political donations. Chief among the individual donors was Kenneth Lay himself.
Enron and Kenneth Lay each donated $100,000 to incoming President Bush's inaugural committee fund, early in 2001. The incoming president invited Mr Lay to become and advisor to his transition team.
A prime concern for Enron was the new president's planned energy policy review, headed by Vice-President Dick Cheney.
Mr Lay and other Enron directors met Mr Cheney and others three times in the first half of the year, the last meeting a month before he published his conclusions on 17 May 2001.
The review, as predicted, was favourable to the energy industry. It advocated more power stations, more exploration and a national grid. While it did not meet all of Enron's wishes, it nevertheless was good news.
On 14 August 2001, seemingly from nowhere, Jeff Skilling resigned as chief executive, citing personal reasons. Kenneth Lay became chief executive once again.
The development was a shock to investors who suddently began to fear that all was not well in Houston.
Investors sold millions of shares, knocking some $4 off the price by the end of the week. As the price dropped below $40, Mr Lay insisted that there were "no issues".
But there was a very large issue - perhaps one that the board was not fully aware of.
In May of that year, Enron executive Clifford Baxter left the company, apparently in uncontroversial circumstances.
But there were rumours among executives that Mr Baxter - soon to become a tragic figure in the affair when he tookk his own life - had clashed with Jeff Skilling over the propriety of some of the partnership transactions.
When Mr Skilling resigned, one executive who knew of Mr Baxter's concerns decided to act, and warned Mr Lay that Enron was on the verge of "imploding".
12 October:
Meanwhile, the depth of Enron’s problems were beginning to dawn on Andersen.
Because Enron had hedged against its own stock, it could never recover its losses while its share price was falling.
Andersen told Enron that it had no other choice but to change the way it was accounting for its special partnerships.
On 12 October, an Andersen lawyer contacted a senior partner in Houston to remind him that company policy was not to retain documents that were no longer needed.
At some point after this, staff in Andersen’s Houston office began shredding documents relating to Enron.
Around the same time, Enron's internal legal examination of Sherron Watkin's concerns concluded that the partnerships in question, Raptor and Condor, had been approved by Andersen.
1 - 9 November:
Despite the air of impending doom, Kenneth Lay found two banks willing to extend credit. But the worst of revelations was to come.
On 8 November, the company took the highly unusual move of restating its profits for the past four years. It effectively admitted that it had inflated its profits by concealing debts in the complicated partnership arrangements.
The following day, the humiliation of Enron appeared complete as it entered negotiations to be taken over by its much smaller rival, Dynegy.
2 Dec:
No longer able to cope with its debt, Enron filed for bankruptcy protection in a New York court on 2 December 2001, simultaneously launching a legal action against Dynegy for pulling out of the merger.
In three months Enron had gone from being a company claiming assets worth almost £62bn to bankruptcy. Its share price collapsed from about $95 to below $1.
"Uncertainty has severely impacted the market's confidence in Enron and its trading operations," Kenneth Lay commented as he saw his company implode.
"We are taking the steps announced today to help preserve capital, stabilise our business and enhance our confidence to pay our creditors."
9 - 10 Jan:
While America reeled from the bankruptcy and Enron employees, past and present, worked out what they had left, the Justice Dept announced a criminal investigation.
Attorney General John Ashcroft, who had received campaign funds from the company in 2000, excluded himself from the investigation along with the 100 federal investigators in Houston.
The following day, Andersen, its role increasingly in the spotlight, admitted that employees had disposed of Enron documents.
The White House also confirmed speculation that Kenneth Lay had appealed to members of the administration for help.
The shockwaves of a corporate crash are always keenly felt - but few failures have led to the kind of investigations Enron and its managers now face.
February opened with the publication of the company's own internal investigation into the crash.
William Powers, the academic who chaired the report, didn't pull any punches when he pinned the blame firmly on executives who had personally benefited from the partnerships to the tune of millions of dollars.
"There was a fundamental default of leadership and management," he said.
"We found a systematic and pervasive attempt by Enron's management to misrepresent the company's financial condition."
Congress continued hearings began in December as America and investors around the world demanded answers.
Four of Enron's most senior executives pleaded Fifth Amendment protection against self-incrimination and refused to testify: Andrew Fastow, chief risk officer Richard Buy, finance executive Michael Kopper and Kenneth Lay himself.
Jeff Skilling did testify but insisted that he knew nothing of the complex web of intra-company deals that are almost impossible for ordinary investors to unravel.
On Valentine's Day, the woman who originally raised fears of an "implosion", took the stand.
Sherron Watkins said that Ken Lay and the board had been "duped" by Mr Fastow and Mr Skilling. Mr Lay had never really understood the gravity of the situation, she said.