Enron

Enron Fraud

The Enron Fraud Enron Corporation began as a

small natural gas distributor and over the course of

15 years grew to become the seventh largest company

in the United States. Soon after the federal deregulation

of natural gas pipelines in 1985, Enron was born by the

merging of Houston Natural Gas and InterNorth, a

Nebraska pipeline company. Initially, Enron was

merely involved in the distribution of gas, but it later

became a market maker in facilitating the buying and

selling of futures of natural gas, electricity, broadband,

and other products. However, Enron’s continuous

growth eventually came to an end as a complicated

financial statement fraud and multiple scandals sent

Enron on a downward spiral to bankruptcy.

During the 1980s, several major national energy corporations

began lobbying Washington to deregulate the

energy business. Their claim was that the extra competition

resulting from a deregulated market would

benefit both businesses and consumers. Consequently,

the national government began to lift controls on who

was allowed to produce energy and how it was marketed

and sold. But, as competition in the energy market

increased, gas and energy prices began to fluctuate

greatly. Over time, Enron incurred massive debts and

no longer had exclusive rights to its pipelines. It needed

some new and innovative business strategies.

Kenneth Lay, chairman and CEO, hired the consulting

firm McKinsey & Company to assist in developing a

new plan to help Enron get back on its feet. Jeff Skilling,

a young McKinsey consultant who had a background

in banking and asset and liability management, was

assigned to work with Enron. He recommended that

Enron create a “gas bank” to buy and sell gas. Skilling,

who later became chief executive at Enron, recognized

that Enron could capitalize on the fluctuating gas prices

by acting as a middleman and creating a futures market

for buyers and sellers of gas; it would buy and sell gas...