Enron

Enron Corporation

In October, 2001 employees and shareholders of Enron Corporation (“Enron”) watched as the company unraveled amid one of the largest accounting scandals in U.S history. Enron was an energy company based in Houston, Texas that was formed in 1985 by Kenneth (“Ken”) Lay. He was the mastermind behind the merger between Houston Natural Gas and Internorth, which eventually formed Enron Corporation. From a senior management perspective, Kenneth Lay was the Chief Executive Officer (“CEO”) of Enron, Jeff Skilling was the President and Andrew Fastow was the Chief Financial Officer (“CFO”). In terms of leadership, this was the senior management team.

Several years after the creation of Enron, Jeff Skilling hired a team of executives that had a very aggressive business plan. In 1985, the company initially started as a pipeline company selling gas. They became a household name, particularly on Wall Street, when they eventually became a staunch advocate in the deregulation of energy trading rules. An important factor worth mentioning is in the late 1980’s and early 1990’s, energy markets where not heavily regulated by any regulatory agency. Enron increasingly became an energy broker, selling electricity and later other commodities (Sridhar, 2002).

In the 1990’s Enron basically began acting as a “broker” where they arranged contracts between buyers and sellers. Enron entered into a separate contract between the parties, where they profited on the spread between the buyer and the seller. From the three parties involved (the buyer, seller and Enron), only Enron new both sets of prices. This is a standard practice for Investment Banks and Brokerage Firms; not Energy Company’s. As years went on, Enron management team became involved in more complex trading strategies. It is estimated that between 1996 and 2000, Enron’s sales increased from $13.3 billion to $100.8 billion. Its stock price hit an all time high in 2000 when...