Enron was formed in 1985 as a result of a merger between two companies. The company was first named HNG InterNorth, after the two companies that merged, Houston Natural Gas Corporation and InterNorth, Inc. In 1986, the company was renamed Enron. After being renamed, Enron was known as an energy supplier and trader. In 1990, the CEO and chairman of Enron, Kenneth Lay, created the Enron Finance Corporation. Lay made Jeffrey Skilling the head of the corporation.
At the time, the company was doing very well. By 1992, Enron was the largest seller of natural gas in North America. Not only were they providing natural gas, by 1994 they were also providing electricity. In 1999, Enron Online was launched, allowing trades worth $2.5 billion a day to be executed. Enron was one of the most successful companies worldwide. Enron was awarded “America’s Most Innovative Company” by Fortune for six years in a row. This being said, some of their records were simply not adding up.
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A combination of issues caused Enron to file for bankruptcy. One of these issues was their very complicated business models. They were also practicing very unethical practices. They were recording their finances incorrectly. They would record profits they never actually made and not record losses. This is called Mark-to-Market accounting, which some people believe started their downfall.
In 2001, Enron filed for bankruptcy. Their stock prices were exponentially lower than they had ever been at a mere $0.61. It was estimated that Enron was $23 billion in debt. Kenneth Lay and Jeffrey Skilling were both on trial for money laundering, fraud, insider trading, and more. Skilling was given a harsh sentence, with twenty-four years and four months in prison. Later, his sentence was reduced by twenty years. He is still in prison today and is required to give $42 million to the Enron victims. Lay was going to get a maximum sentence of forty-five years, but died before ever being sentenced or going to prison.
People who owned Enron stock were hurt greatly by the downfall of Enron. About $74 billion was lost. More than half of that $74 billion was connected to fraud. Enron started to auction off their assets. A lawsuit was filed and won by former Enron employees.
There were many new reforms and regulations put in place because of the Enron scandal. The Sarbanes-Oxley act created rules for audit reports. The Financial Accounting Standards Board raised its level of ethics. The government is very strict of financial records now, partly because of the Enron scandal. They need to be very accurate. The Enron scandal is not the largest scandal to ever happen, but it started to make people notice financial fraud. Many Enron employees suffered greatly from this, losing great benefits they once had. This scandal remained very popular for a very long time and is still relevant to this day. It would be very hard to fall as hard as Enron did today.
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