The Collapse of Enron Corporation

Enron Corporation was a company that dealt with energy, commodities and other services. Under energy, Enron sold natural gas and electricity and provided services such as financial assistance and risk management to clients across the world. It also provided commodities such as internet connection. Enron was founded in July1985 after merger between Houston Natural Gas and InterNorth. It had headquarters in Houston, Texas. Enron started by selling energy and later expanded to electricity.

In 1995 Enron penetrated the European energy market and by 2001, had greatly expanded and employed many people around the world. Enron was so successful that at one time was touted as the seventh largest corporation in America. Unfortunately, it turned out to be the greatest corporation’s failure in the history of America. In fact, Enron is a perfect example of a well-planned and executed fraud. Poor management and poor leadership were the main causes of the collapse. Lack of proper corporate culture, lack of accountability and poor transparency in the corporation characterized its leadership. This led to its collapse in 2001, 16 years after establishment. It filed for bankruptcy and restructuring started in 2003. After collapse, Enron split into three companies. Money from the sale of one company repaid debts while the other two continued to operate as independent companies.

Signs of the collapse of Enron were first observed in 1997 when it made a financial move that served to hide debts and increase profits.Fastow and Chewco, who were executives created a partnership under the name of JEDI and bought pension funds of the University of California. Most of Fastow’s financial decisions and moves covered Enron’s debts.In 1999, Fastow falsely claimed to purchase Enron assets that were performing poorly and certain investments that were supposed to eliminate asset risks. This move served to hide debts and increase profits by great margins. Directors approved the move and appointed two officers to monitor similar deals in order to maintain the integrity and investment interests of Enron. Because of high profits earned, Enron shares appreciated and traded at $90 at one time. There were frequent changes in the management that contributed to the downfall. At the close of 2000 Enron announced that in 2001 Skilling would take over as the Chief Executive Officer from Kenneth Lay who would then serve as the chairperson. In August 2001 Sherron Watkins, who was the finance executive met with Lay to discuss financial matters that led to collapse of Enron.

In October 2001 Enron announced $683 million in losses that resulted from failed investments in broadband services, water trade and fall of stocks created to eliminate possible risks against Enron assets. In the same month, the Securities and Exchange Commission started investigations into the finances of Enron. The commission realized some fraudulent dealings and dismissed Fastow. In addition the commission also dismissed the treasurer and the attorney for taking part in the fraud. They had invested $5,800 each and earned one million dollars within a few weeks. After thorough assessment, debts in the range of $690 million emerged. Dynergy Inc, Enron’s former rival, planned to buy Enron but later pulled out. This led to a reduction in the value of their share that went below the $1 mark. In December of 2001, Enron went bankrupt and laid off thousands of workers. This marked the collapse of Enron. Poor management and bad financial decisions were the main cause of the collapse.

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