Enron Scandal

What is the Enron Scandal?

The Enron Scandal involves Enron duping the regulators by resorting to off$-$the$-$books accounting practices and incorporating fake holding. The company utilized special purpose vehicles to hide its toxic assets and big amounts of debts from the investors and creditors.

Explanation

The Enron corporation was regarded as a corporate giant. But after a good run, it failed miserably and ended up as a bankrupt business. The failure and bankruptcy of the Enron Corporation jolted Wall Street as well as it put several employees on the verge of the financial crisis. The corporation had massive debts in its name. It tried to conceal these with the help of special economic entities as well as special purpose vehicles. Enron traded at the highest market price of $$90\mathrm{.}75$ at the period of December $2,2001.$ And when the accounting scandal emerged, stock prices went down to a record low of $$0\mathrm{.}26$ per share.

Rise of Enron Scandal

The scandal began with the Enron misdeeds in the video rental chains. The business collaborated with a blockbuster to penetrate the VOD market. After entering the market, the business overstated the earnings basis for the growth of the VOD market.

The business executed $$350$ billion in trades, but it did not last long as the dot com bubble came in$.$ It spends a significant amount on broadband projects, but the business was unable to recover costs from the spending

made. The company was exposed to massive exposures, and investors lost money as market capitalization deteriorated.

In $2000,$ the business started to crumble. CEO Jeffrey Skilling concealed all financial losses resulting from the trading business and broadband projects by applying the accounting concept of mark$-$to$-$market accounting. The company kept building assets. It reported profits that were yet to be earned. If the actual profit earned were less than the reported earnings, the loss was never reported. Additionally, the business transferred the asset to the off$-$the$-$books corporation. Like this, the corporation concealed their losses.

To add to the agony, the chief financial officer of the business Andrew Fastow deliberately resorted to the plan that displayed that the business is in good financial shape even though its subsidiaries lost a lot of investor$$s money.

Summary of Enron Scandal with Timeline of Downfall

#$1$ Business Background

$$ The year was $1985,$ and Enron was incorporated as the merger of Houston Natural Gas Company and Internorth Ince. In $1995,$ the business was recognized as the most innovative business by the Fortune, and it made it successful run for the next six years. In $1998,$ Andrew Fastow became the CFO of the business, and the CFO created SPVs $($Special Purpose Vehicle Definition$)$ to conceal the financial losses of the Enron. During the period of $2000,$ the shares of Enron traded at the price levels of $$90\mathrm{.}56.$

#$2$ Initial Ripples

$$ On February $12,2001,$ Jeffrey Skilling came in place of Kenneth as a chief executing officer. On August $14,2001,$ Skilling abruptly resigned, and Kenneth took over the role once again. Same period, the broadband division of the business reported a massive loss of $$137$ million, and the market prices of stock fell to $$39\mathrm{.}05$ per share.

In the period of October, the CFO$$s legal counsel instructed auditors to destroy the files of the Enron and asked to maintain only the utility or necessary information.

$$ The business reported a further loss of $$618$ million and a write off of

$$ $$1\mathrm{.}2$ billion. The price of the stock deteriorates to $$33\mathrm{.}84.$

#$3$ fall of Giant

$$ On October $22,$ the business got into a probe from securities and exchange commission. With this news, the stock of Enron further deteriorated and was reported at $$20\mathrm{.}75.$ In November $2001,$ the business for the first time admitted and made the revelation that it inflated its income levels by $$586$ million. In addition, that it has been doing so since $1997.$ On $2$nd December $2001,$ the business files for bankruptcy and the stock prices end up flat at $$0\mathrm{.}26$ per share

#$4$ Criminal Probe

$$ On January $9,2002,$ the justice department ordered a criminal proceeding against the business. On January $15,2002,$ the NYSE suspended Enron, and the accounting firm, along with Arthur Andersen was convicted on the grounds of obstruction of justice. were selected to be a member of committee that is responsible to rebuild the company image and reputation suggest five decisions needs to be taken urgently in order to achieve the task and justify your answer?