Please review the facts of the Enron case. What went wrong with Enron? Does the Sarbanes Oxley Act of 2001 set up mechanisms to prevent the problems of Enron? Can "Enron" happen again?
Enron was founded on January 1, 1985 with the merger of Houston Natural Gas (Houston, TX) and InterNorth (Omaha, NE), and became the nation's largest gas pipeline system with a network of more than 34,000 miles. The company was at a compound annual rate of more than 60 percent from 1995 through 2000. The highest and amazing growth came in 2000, which its revenues increased from $40 billion in 1999 to over $100 billion just a year later. At the time it filed for bankruptcy on December 2, 2001, it was
considered the seventh largest publicly traded corporation in the United States. Enron's bankruptcy caught and shocked many investors because they were surprised that the company's executive members like Cindy Olsons were unaware of the firm's financial obligations. These obligations were "contingent liabilities related to unconsolidated off-balance sheet special purpose entities SPEs substantial liabilities appeared on the balance sheet as "liabilities from risk management activities." (Grazian).
What went wrong?
Infact the executives like Cindy Olson and insiders at Enron knew about the offshore accounts that were hiding losses for the company, however, the investors knew nothing of this. Chief Financial Officer Andrew Fastow led the team which created the off-books companies, and manipulated the deals to provide himself, his family and his friends with hundreds of millions of dollars in guaranteed profits, at the expense of the corporation he worked for and its stockholders. (BBC NEWS, 2002)
In August of 2000, Enron's stock price hit its highest value of $90. It was at this point in time that Enron's executives, who possessed the inside information of the hidden losses, began to sell their stock. At the same time, the general public and Enron's investors were told to buy the stock, as the sky was the limit. Enron's executives told the investors that the stock would continue to climb until it reached possibly into the $130 to $140 range, while secretly unloading their shares as they knew the opposite to be true.
As executives were selling off their shares of stock, the price continued to drop. As the price dropped, investors were told to continue buying stock or hold steady if they already owned Enron because the stock price would rebound in the near future. Kenneth Lay's strategy for responding to Enron's continuing problems was in his appearance. As he did many times, Lay would issue a statement or make an appearance to calm investors and assure them that Enron was headed in the right direction. (Booth, 2002)
Thus we can clearly see how managers at the top level involve in corruption by ...
Enron saga is highlighted.