Enron Case

Enron Corporation

Background:

Enron was named in 1986 followed by the acquisition of Houston Natural Gas Company by InterNorth, Inc. back in 1985. The CEO of Enron, Kenneth Lay, employed aggressive growth management strategy and hired Jeffrey Skilling as one of his top subordinates. Throughout the 1990s, Skilling developed and implemented a plan to transformed Enron from a natural gas supplier into an energy-trading company that serves as an intermediary between the producers of energy products and the end users. Enron discussed its four principal lines of business on its 2000 annual financial report are 1) Energy Wholesale Services, 2) Retail Energy Services, 3) Transportation Services, and 4) Boardband Services. In early 2001, Skilling assumed Lay's CEO position while Lay remained as the chairman of board. Shortly after by June 2001, Skilling was named as the "No.1 CEO in the entire country" and Enron was named as "America's most innovative company". Enron's CFO Andrew Fastow was granted with the Excellence Award for Capital Structure Management.

Unfortunately for Enron and its top executives, good time didn't last. By mid October of 2001, Enron issued its quarterly earnings report for the 3rd quarter of 2001. The report revealed that the firm had suffered from a huge loss for the third quarter. Even more startling to the public is that the report shows a questionable reduction of $ 1.2 billion in owner's equity and assets. On November 8th, 2001, the company restated it reported earnings for the previous five years, reduced approximately $ 600 millions of profits that the company previous reported. This restatement leads Enron to file for bankruptcy in December 2001 due to intense pressure from creditors. Enron then became the largest corporate bankruptcy in U.S history.

With the fall of Enron, their independent auditing firm, Anderson, was pressed by the public to provide an explanation of why their audit of Enron failed to result in a more accurate and reliable financial statements of the company through out all the years. Joseph Berardino, representative of the Anderson firm responded that the auditing firm did work with Enron to try to fix the financial statements. The auditing firm did not practice with Enron's fraudulent transactions and did not cause the fail of Enron. The response didn't satisfy the angry public. Even more startling, it was reveled later that the Anderson's Houston office had been starting to shred auditing documents related to the Enron firms since September 2001 and continue through November 2001 after the SEC disclosed it was conducting a formal investigation on Enron's financial matters. The report of the shedding caused Anderson to face massive lawsuits filed by the angry public including Enron's stockholders and creditors. In June