Enron scandal

  • enron corporation
    former type
    public
    traded asnyse: ene
    industryenergy
    fatebankruptcy
    predecessor
    • northern natural gas company
    • houston natural gas
    successor
    • dynegy
    • prisma energy international
    foundedomaha, nebraska, u.s. (1985 (1985))
    founderkenneth lay
    defunctdecember 2001 (2001-12)
    headquarters
    1400 smith street
    houston, texas
    ,
    united states
    key people
    kenneth lay, founder, chairman and ceo
    jeffrey skilling, former president, and coo
    andrew fastow, former cfo
    rebecca mark-jusbasche, former vice chairman, chairman and ceo of enron international
    stephen f. cooper, interim ceo and cro
    divisionsenron.com

    the enron scandal, publicized in october 2001, eventually led to the bankruptcy of the enron corporation, an american energy company based in houston, texas, and the de facto dissolution of arthur andersen, which was one of the five largest audit and accountancy partnerships in the world. in addition to being the largest bankruptcy reorganization in american history at that time, enron was cited as the biggest audit failure.[1]:61

    enron was formed in 1985 by kenneth lay after merging houston natural gas and internorth. several years later, when jeffrey skilling was hired, he developed a staff of executives that – by the use of accounting loopholes, special purpose entities, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. chief financial officer andrew fastow and other executives not only misled enron's board of directors and audit committee on high-risk accounting practices, but also pressured arthur andersen to ignore the issues.

    enron shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a high of us$90.75 per share in mid-2000, plummeted to less than $1 by the end of november 2001.[2] the u.s. securities and exchange commission (sec) began an investigation, and rival houston competitor dynegy offered to purchase the company at a very low price. the deal failed, and on december 2, 2001, enron filed for bankruptcy under chapter 11 of the united states bankruptcy code. enron's $63.4 billion in assets made it the largest corporate bankruptcy in u.s. history until worldcom's bankruptcy the next year.[3]

    many executives at enron were indicted for a variety of charges and some were later sentenced to prison. arthur andersen was found guilty of illegally destroying documents relevant to the sec investigation, which voided its license to audit public companies and effectively closed the firm. by the time the ruling was overturned at the u.s. supreme court, the company had lost the majority of its customers and had ceased operating. enron employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices.

    as a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies.[4] one piece of legislation, the sarbanes–oxley act, increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders.[5] the act also increased the accountability of auditing firms to remain unbiased and independent of their clients.[4]

  • rise of enron
  • causes of downfall
  • timeline of downfall
  • trials
  • aftermath
  • see also
  • notes
  • references
  • further reading
  • external links

Enron Corporation
Public
Traded asNYSE: ENE
IndustryEnergy
FateBankruptcy
Predecessor
Successor
FoundedOmaha, Nebraska, U.S. (1985 (1985))
FounderKenneth Lay
DefunctDecember 2001 (2001-12)
Headquarters,
United States
Key people
Kenneth Lay, Founder, Chairman and CEO
Jeffrey Skilling, former President, and COO
Andrew Fastow, former CFO
Rebecca Mark-Jusbasche, former Vice Chairman, Chairman and CEO of Enron International
Stephen F. Cooper, Interim CEO and CRO
Divisionsenron.com

The Enron scandal, publicized in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was cited as the biggest audit failure.[1]:61

Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that – by the use of accounting loopholes, special purpose entities, and poor financial reporting – were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron's board of directors and audit committee on high-risk accounting practices, but also pressured Arthur Andersen to ignore the issues.

Enron shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001.[2] The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a very low price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom's bankruptcy the next year.[3]

Many executives at Enron were indicted for a variety of charges and some were later sentenced to prison. Arthur Andersen was found guilty of illegally destroying documents relevant to the SEC investigation, which voided its license to audit public companies and effectively closed the firm. By the time the ruling was overturned at the U.S. Supreme Court, the company had lost the majority of its customers and had ceased operating. Enron employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices.

As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies.[4] One piece of legislation, the Sarbanes–Oxley Act, increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders.[5] The act also increased the accountability of auditing firms to remain unbiased and independent of their clients.[4]

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