27 August 2007
The Enron Scandal
Of all the financial scandals in American business history, there has never been a case quite like Enron. In 2001, Enron was the seventh largest corporation in the United States; by 2002 it had collapsed into bankruptcy. The value of the company’s stock fell from $90 per share to less than $1 per share. The stunning swiftness of Enron’s demise stemmed directly from fraudulent business practices that made the company’s rise possible in the first place. The scandal widened when it became known that employees of Arthur Andersen, one of the nation’s largest and most respected accounting firms, had conspired with Enron executives to fabricate Enron’s public financial records. In the scandal’s wake, Arthur Andersen filed for bankruptcy and ceased operations. Enron’s demise had many other consequences and implications, Kenneth Lay, Enron’s chief executive officer, was a friend of President George W. Bush and had contributed large sums to Bush’s election campaigns. The Enron scandal also coincided with a number of other major scandals in corporate America that heightened public cynicism toward big business, particularly in the midst of a sluggish national economy. As such, in the Enron scandal’s wake, Congress pledged to pass strict new accounting reforms, and federal prosecutors began criminal proceedings against corrupt executives. (Britannica)
Enron began business in 1986 as a result of the merger of two natural gas companies intent on creating the first nationwide natural gas pipeline. At that time, energy production was a government-sanctioned monopoly. The government regulated the construction of power plants, the rates to be charged for power, and the maximum profits energy companies could earn. That all changed after the federal government deregulated the natural gas industry in the late 1980s and the electricity industry in the 1990s. Under the leadership of its president, Kenneth Lay, Enron decided to take...