Reaction Paper on Enron Case: a Taste of Their Own Medicine

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Submitted By mait
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Pages 4
Background of the Case
In 1930, Enron began as Northern Natural Gas Company; founded by the North American Light & Power Company (35%), United Light & Railways Company (35%) and the Lone Star Gas Corporation (30%). After a decade, the company was able to double its system capacity and expand its business through acquisitions.
In 1985, a merger acquisition with Houston Natural Gas (HNG) took place. The following year, the company’s name was changed to Enron Corporation. Shuffling the management, Kenneth L. Lay (HNG’s chairman), emerged as chairman.
In 1991, Enron began overseas expansion. From being a natural gas pipeline company, the company shifted to brokering energy commodities as energy markets were deregulated. Although targets and projections were not met as promised to investors, Enron continued to spend heavily in advertising and lobbying for deregulation.
In 1999, Enron ventured into the e-commerce market with the launching of EnronOnline to make the company more attractive to investors. The company stock prices went up but losses were disguised in elaborate partnerships and joint ventures. Such high stock prices fueled suspicion.
In 2001, the U.S. Securities and Exchange Commission looked into Enron transactions and its partnerships. Andersen (auditing firm of Enron) destroyed Enron documents that could have been used as evidence. The company’s credibility was still questionable, thus, creditors and investors pulled out. In the latter part of the year, Enron announced its overstatement of earnings dating back to 1997 by almost $600 million. Stock price hit rock bottom and then the company filed for bankruptcy.
The verdicts of the case? Altogether, 16 former Enron executives were sentenced to prison. Andersen, the former auditing giant, collapsed after being found guilty of deliberately destroying evidence of its relationship with Enron.
Insight…...

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