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    Enron Scandal: The Fall of A Wall Street Darling

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    Ela Gloria Molar
    Enron was once one of the largest companies in the US, but collapsed almost overnight in 2001 due to fraudulent accounting practices. At its peak, Enron's stock was worth $90.75 per share but plummeted to $0.26 when it declared bankruptcy. The company had used mark-to-market accounting and off-balance sheet partnerships to hide debts and inflate profits. This allowed Enron to appear highly successful and innovative for years before investors and regulators discovered the deception.

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    Enron Scandal: The Fall of A Wall Street Darling

    Uploaded by

    Ela Gloria Molar
    18 views2 pages
    Enron was once one of the largest companies in the US, but collapsed almost overnight in 2001 due to fraudulent accounting practices. At its peak, Enron's stock was worth $90.75 per share but plummeted to $0.26 when it declared bankruptcy. The company had used mark-to-market accounting and off-balance sheet partnerships to hide debts and inflate profits. This allowed Enron to appear highly successful and innovative for years before investors and regulators discovered the deception.

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    Enron was once one of the largest companies in the US, but collapsed almost overnight in 2001 due to fraudulent accounting practices. At its peak, Enron's stock was worth $90.75 per share but plummeted to $0.26 when it declared bankruptcy. The company had used mark-to-market accounting and off-balance sheet partnerships to hide debts and inflate profits. This allowed Enron to appear highly successful and innovative for years before investors and regulators discovered the deception.

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    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    18 views2 pages

    Enron Scandal: The Fall of A Wall Street Darling

    Uploaded by

    Ela Gloria Molar
    Enron was once one of the largest companies in the US, but collapsed almost overnight in 2001 due to fraudulent accounting practices. At its peak, Enron's stock was worth $90.75 per share but plummeted to $0.26 when it declared bankruptcy. The company had used mark-to-market accounting and off-balance sheet partnerships to hide debts and inflate profits. This allowed Enron to appear highly successful and innovative for years before investors and regulators discovered the deception.

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    Enron Scandal: The Fall of a Wall Street Darling

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    BY TROY SEGAL

    Updated Sep 20, 2018


    The story of Enron Corp. is the story of a company that reached dramatic
    heights, only to face a dizzying fall. Its collapse affected thousands of employees
    and shook Wall Street to its core. At Enron's peak, its shares were worth $90.75;
    when it declared bankruptcy on December 2, 2001, they were trading at $0.26.
    To this day, many wonder how such a powerful business, at the time one of the
    largest companies in the U.S, disintegrated almost overnight and how it managed
    to fool the regulators with fake holdings and off-the-books accounting for so
    long.

    Enron's Energy Origins


    Enron was formed in 1985, following a merger between Houston Natural Gas Co.
    and Omaha-based InterNorth Inc. Following the merger, Kenneth Lay, who had
    been the chief executive officer (CEO) of Houston Natural Gas, became Enron's
    CEO and chairman and quickly rebranded Enron into an energy trader and
    supplier. Deregulation of the energy markets allowed companies to place bets on
    future prices, and Enron was poised to take advantage. In 1990, Lay created the
    Enron Finance Corp. To head it, he appointed Jeffrey Skilling, whose work as a
    McKinsey consultant had impressed Lay. Skilling was at the time one of the
    youngest partners at McKinsey.

    Volume 0%

    Why Enron Collapsed

    Skilling joined Enron at an auspicious time. The era's regulatory environment


    allowed Enron to flourish. At the end of the 1990s, the dot-com bubble was in full
    swing, and the Nasdaq hit 5,000. Revolutionary internet stocks were being
    valued at preposterous levels and consequently, most investors and regulators
    simply accepted spiking share prices as the new normal.

    Mark-to-Market
    One of Skilling's early contributions was to move Enron from a traditional
    historical cost accounting method to a mark to market (MTM) accounting method,
    for which the company got official SEC approval in 1992. MTM is a measure of
    the fair value of accounts that can change over time, such as assets and
    liabilities. Mark to market aims to provide a realistic appraisal of an institution's or
    company's current financial situation. It is a legitimate and widely-used
    practice. However, in some cases it can be manipulated, since MTM is not based
    on "actual" cost but on "fair value," which is harder to pin down. Some believe
    MTM was the beginning of the end for Enron, as it essentially started logging
    estimated profits as actual ones.

    "America's Most Innovative Company"


    Enron created Enron Online (EOL) in October 1999, an electronic trading website
    that focused on commodities. Enron was the counterparty to every transaction on
    EOL; it was either the buyer or the seller. To entice participants and trading
    partners, Enron offered up its reputation, credit, and expertise in the energy
    sector. Enron was praised for its expansions and ambitious projects, and named
    "America's Most Innovative Company" by Fortune for six consecutive years
    between 1996 and 2001.

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