Analysis of Enron Corporation Scandal

It was a company related with natural gas and electricity that served to industries and markets. It was founded on 1985 in Omaha Nebraska, U.S., by the union of two companies Houston Natural Gas and InterNorth, in which the responsible was Kenneth Lay and then Jeffrey Skilling arrived, who is also considered responsible of the facts. 

This company collapsed just 5 years after its creation. All this fraud started when after two weeks Lay said that the company was doing well, there were losses of 638 million euros. When the company reported on the results of the third quarter of 2001, in October of that year, it revealed a black hole that decreased the price of its shares. The Securities Exchange Commission (SEC), started an investigation of the company and its results. Enron admitted that it had inflated profits and requested bankruptcy protection on December 2 of that year. It was discovered that millions of dollars in debt had been hidden in a network of transactions. Government hearings and inquiries from regulatory agencies were followed by a criminal investigation to find those guilty of the fall of Enron. Kenneth Lay quit of the presidency of the company because the creditors Committee wanted to. An investigation by the auditor of the company started, and then Clifford Baxter, vice president of the company until May 2001, was found dead, then the jury finds Andersen which was the company in charge of auditing, guilty for obstruction of justice in the case for destroying documents on the losses of more than one billion dollars in the company it audited. Skilling and Lay are charged. The financial director of the company in that time, Andrew Fastow, was considered guilty to criminal charges and agreed to collaborate in the investigation of the case, in order for the court just to give him only ten years in jail. The trial for case began, and lasted 15 weeks, throughout this time 54 witnesses presented their arguments and provided a lot of documentary evidence that provided many details of the financial situation that led to the collapse of the company. 

Those responsible for the Enron scandal, Ken Lay and Skilling, were convicted of fraud and deception. The founder and chief executive in that time faced between 45 and 275 years in jail. As a consequence this case was the largest in a series of scandals that affected the reputation of the corporations in America against the world, also the US Congress created a stricter legislation, known as the Sarbanes-Oxley Act, which imposed higher requirements on business accounting. Finally it left $ 31.8 billion in debt, its shares lost all value, and 21,000 people around the world were left without jobs. Enron came out of bankruptcy protection in 2004, and there was a long time trying to sell their assets in order to continue paying their creditors for their mistakes. 

By analyzing this case we learned that we always need to be pending on the auditors, and that they do not have to be related with the client, and can’t work as a consultant. Having a “strong company”, or saying that is doing well doesn’t mean that we are going to trust the financial results only by those comments, we always need to investigate a little bit more.