Word

Enron was the most important corporate scandal of our lifetimes. It was one of the immediate causes of the Sarbanes-Oxley Act, the governance reforms of the New York Stock Exchange and NASD, and the most consequential reorientation of corporate behavior in living memory,” claimed the securities law historian Joel Seligman. Indeed, the rapid rise to power and precipitous downfall of Enron, a Houston-based energy corporation with assets estimated at $111 billion at its height, represents the most notorious corporate fraud and bankruptcy in United States history. Nonetheless, government regulations on so-called free market corporate business have emerged from the ruins of Enron, and undoubtedly the corporate world has been duly warned about the consequences of unethical business practices in the twenty-first century. Enron was founded in 1985 in Omaha, Nebraska, by the chief executive officer of Houston Natural Gas, Kenneth Lay. As a consequence of the deregulated energy market in California, Enron rapidly acquired a large share of the US energy market and hired 21,000 employees at its apex. By 2000, Enron became the world’s premier electricity, natural gas, and communications corporation with assets (falsely) estimated at $111 billion in 2000. Furthermore, Enron was granted the title “America’s Most Innovative Company” six consecutive times by Fortune magazine. Such positive publicity bolstered Enron’s stock price and gave investors confidence in Enron’s financial stability. However, in 2001, after investigations into Enron’s specious financial statements, Enron revealed that it had reported profits that were sustained by accounting fraud and mark to market accounting. Since Enron used mark to market accounting (the act of assigning an estimated future value to a financial instrument based on current market prices), its financial statements all reported positive economic profits, while in reality the corporation faced enormous losses. The company’s executives...