Everybody is aware of no less than slightly in regards to the Enron story and the devastation it created in the lives of is employees. It's a story that belongs in any discussion of ethical accounting processes and what occurs when accounting standards and ethics are discarded for private greed.
Enron began in 1985 promoting natural gasoline to fuel corporations and businesses. In 1996, energy markets were changed so that the value of energy may now be determined by competitors amongst power corporations as an alternative of being fixed by authorities regulations. With this transformation, Enron started to perform extra as a intermediary than a standard energy provider, trading in power contracts as an alternative of shopping for and promoting natural gas. Enron's speedy growth created pleasure amongst traders and drove the inventory price up. As Enron grew, it expanded into other industries akin to Web services, and its financial contracts became more complicated.
To be able to continue to grow at this fee, Enron began to borrow money to invest in new projects. Nevertheless, as a result of this debt would make their earnings look much less impressive, Enron started to create partnerships that would allow it to maintain debt off of its books. One partnership created by Enron, Chewco Investments (named after the Star Wars character Chewbacca) allowed Enron to keep $600 million in debt off of the books it confirmed to the government and to people who own Enron stock. When this debt did not show up in Enron's stories, it made Enron appear way more successful than it truly was. In December 2000, Enron claimed to have tripled its earnings in two years.
In August 2001, Enron vp Sherron Watkins despatched an nameless letter to the CEO of Enron, Kenneth Lay, describing accounting methods that she felt could lead Enron to "implode in a wave of accounting scandals." Additionally in August, CEO Kenneth Lay sent e-mails to his staff saying that he anticipated Enron stock costs to go up. In the meantime, he offered off his own inventory in Enron.
On October twenty second, the Securities and Exchange Fee (SEC) introduced that Enron was underneath investigation. On November eighth, Enron mentioned that it has overstated earnings for the past 4 years by $586 million and that it owed over $6 billion in debt by next year.
With these bulletins, Enron's stock value took a dive. This drop triggered certain agreements with traders that made it mandatory for Enron to repay their cash immediately. When Enron could not give you the money to repay its collectors, it declared for Chapter 11 bankruptcy.
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