The Rise And Falls of Enron

By Adrian DSouza
Early History of Enron
Enron was a corporation formed in 1985, when Kenneth Kay had merged two
natural gas pipeline companies together, Houston Natural Gas and Internorth
to form Enron Corporation. In this way he had create a new way of selling
electricity at market prices, and after the US congress allowed the
legislation of deregulating sale of natural gas, Enron could sell gas at a
higher price point. By 1992, Enron was known as the largest seller of Natural
Gas in North America, and its trading of gas contracts were considered the
second largest contributor to the companys net income. In order to create
higher profits, Enron had started a number of other operations alongside its
gas contracts. Since Enron was owner of a large number of asses including
gas pipelines, electric and water plants and broadband services, it tried to
gain revenue by conducting businesses witch companies that provided
similar types of products and services. It had also opened up a website to
help manage this contract trading businesses called EnronOnline. Altogether
this had cumulated in the company considered the most innovative big
company in America, having their stocks increase by 311% in the 90s
The Fall Of Enron

Enrons method of handling the financial and accounting system throughout

their lifespan was an unethical corrupted method. From modifying balance
sheets to show favourable performances from the business side , to using
accounting limitations to show incorrect earnings, Enrons company had
been made to show profitable situations , when in reality the company had
been robbing money from the company through various means .Some of the
forms of unethical practices included
-Allowing use of mark to market accounting which offered present value of
future cash flow , while offering misrepresented values or even false reports
e.g. When Enron and Blockbuster signed an agreement for on demand
entertainment, Enron had continued to show profit even when Blockbuster
withdrew from the contract and the deal had created a loss
--Using External credit borrowing to expend for luxuries, such as buying
corporate airlines, that in reality would have cost the business several times
more than just taking commercial airlines.
-Reckless Auditing standards, which included having audit firms such as
Andrew Andersen shred thousands of documents and emails that had shown
any relation to the audits of Enron, which cause Andersens to lose their
license and also caused 85000 people to lose their jobs. They had also set
the audit committees up so that they would only meet up a few times so that
they could never cover the amount of materials during their meetins.Enrons
audit committee also did not have the knowledge on questioning auditors on

the accounting problems that may have concerned their companies as well
as prevent the auditing committee from questioning the companys
management
Due to these reasons and many more Enron business practices came onto
suspicion and after several investigations done under the company, Enron
was charged with criminal charges of security fraud, wire fraud, money
laundering etc.

People Responsible for the losses

Andrew Fastow was responsible for misleading all the executive board
members of the issues that were occurring within the firms as well as the
auditing members. He had also pressurized the Andersen Auditing firm to
ignore these problems. Due to the situation with Enron , Andrew Andersen
had dissolved
Jeffrey Skilling, as CEO of Enron was responsible for committing bank fraud,
offering false statements to the investors, auditors and bank, as well as
committing wire fraud, money laundering , inside trading within the firm
Finally Kenneth Lay who was the main head of Enron had received the
highest amount of charges by the field and had try to dismiss these

attributes to the cause of Fastow , who was in charge of all financial

operations and was the main person hiding the business loss to the public.
Results of the aftermath
Fastow was charged with 98 counts of fraud, money laundering, insider
trading and conspiracy , while facing two charges of conspiracy, therefore
being sentenced to ten years with no parole
His wife Life was sentenced to one year for helping her husband to one year
due to assistance of hiding her husbands income from the government
Kenneth Lay was charged with 11 criminal charges and as such was
sentenced to 45 years in prison. However Lay had passed away on 2006 and
as such, couldnt be carried out
Jeffrey Skilling was charged with 19 out of 28 counts of security fraud and as
such was sentenced to 24 years and 4 months in prison
Many of the other employees had pleaded guilty for the crimes committed,
many of which included former Merrill Lynch. Kenneth Rice, one of the former
chiefs of Enron Corp high speed internet unit had testified against Lay and
Skilling and as such received a 27 month sentence
There were still a few people who received acquittal including Micheal
Krautz,a former Enron account, after a month long jury trial for federal
criminal fraud

In my opinion I feel that each of the people, had deserved jail time for the
actions they have committed. Not only the case of giving faulty reports and
wasting creditor funds on a losing business but also robbing investors and
shareholders of their money, breaking ethical codes for several years while
still maintaining a profitable business until it reached bankruptcy .Jail time
seem to be the most fitting punishment for all those involved
Relation to Sarbanes-Oxley Requirement
The main act which could connect Enron scandals to the current SOX
requirements would be the requirements for executives to sign off financial
reports .In the case of Enron, all financial documents regarding the sales
growth, income entering in and all balance sheets and financial statements
were kept hidden from the public and as such this played a very negative
impact on the company. Also the financial disclosure of relations between
other business should also be taken into consideration
International Quality Control
By introducing new International accounting standards and producing new
accounting methods to asses any risks situations, executive management
control as well as having new methods to ensure quality assurance from
each member of the team

References:

1.The Rise and Fall of Enron. (n.d.). Retrieved May 26, 2015, from
http://www.sjsu.edu/faculty/watkins/enron.htm#ENRON
2. http://www.meaning.ca/archives/archive/art_lessons-fromenron_P_Wong.htm
3. (n.d.). Retrieved May 26, 2015, from
http://en.wikipedia.org/wiki/Enron_scandal#Rise_of_Enron