Expand Further On Enron

Expand further on Enron’s Financial Collapse:
 Enron's financial collapse is one of the biggest known corporate bankruptcy to ever hit the
financial world. It became a scandal that drew attention to accounting and corporate fraud as its
shareholders lost $74 billion in the four years before its declare of bankruptcy; resulting in its
employees loosing billions in pension benefits.
 Enron was starting to fail at the fall of 2000 when its CEO Jeffrey Skilling hid the financial losses
of the trading business and other operations of the company using mark-to-market accounting.
In Enron's case, the company would build an asset, such as a power plant, and immediately
claim the projected profit on its books, even though the company had not made one dime from
the asset. If the revenue from the power plant was less than the projected amount, instead of
taking the loss, the company would then transfer the asset to an off-the-books corporation
where the loss would go unreported. This type of accounting enabled Enron to write off
unprofitable activities without hurting its bottom line.
 The mark-to-market practice led to schemes that were designed to hide the losses and make the
company appear more profitable than it really was. To cope with the mounting liabilities,
Andrew Fastow, promoted as Chief Financial Officer in 1998, developed a deliberate plan to
show that the company was in sound financial shape despite the fact that many of its
subsidiaries were losing money. Fastow and others at Enron orchestrated a scheme to use off-
balance-sheet special purpose vehicles (SPVs) to hide its huge debt and toxic assets from
investors and creditors. The primary aim of these SPVs was to hide accounting realities rather
than operating results. Enron believed that their stock price would continue to appreciate—a
belief similar to that embodied by Long-Term Capital Management, a large hedge fund, before
its collapse in 1998. Eventually, Enron's stock declined. The values of the SPVs also fell, forcing
Enron's guarantees to take effect.
 In addition to Andrew Fastow, a major player in the Enron scandal was Enron's accounting firm
Arthur Andersen LLP and partner David B. Duncan, who oversaw Enron's accounts. However,
despite Enron's poor accounting practices, Arthur Andersen offered its stamp of approval,
signing off on the corporate reports for years. By April 2001, many analysts started to question
Enron's earnings and the company's transparency.
 By 2001, Enron descent was in full-motion. CEO Kenneth Lay had retired in February, turning
over the position to Jeffrey Skilling. In August 2001, Skilling resigned as CEO citing personal
reasons. Around the same time, analysts began to downgrade their rating for Enron's stock, and
the stock descended to a 52-week low of $39.95. By October 16, the company reported its first
quarterly loss and closed its "Raptor" SPV so that it would not have to distribute 58 million
shares of stock, which would further reduce earnings. This action caught the attention of
the SEC.
 Eventually, Enron changed pension plan administrators, essentially forbidding employees from
selling their shares for at least 30 days. Shortly after, the SEC announced it was investigating
Enron and the SPVs created by Fastow. Fastow was fired from the company that day. Also, the
company restated earnings going back to 1997. Enron had losses of $591 million and had $628
million in debt by the end of 2000. The final blow was dealt when Dynegy (NYSE: DYN), a
company that had previously announced would merge with Enron, backed out of the deal on
November 28. By December 2, 2001, Enron had filed for bankruptcy.
 Arthur Andersen was one of the first casualties of Enron's prolific demise. In June 2002, the firm
was found guilty of obstructing justice for shredding Enron's financial documents to conceal
them from the SEC. The conviction was overturned later, on appeal; however, the firm was
deeply disgraced by the scandal and dwindled into a holding company. Several of Enron's
executives were charged with conspiracy, insider trading, and securities fraud. Enron's founder
and former CEO Kenneth Lay were convicted on six counts of fraud and conspiracy and four
counts of bank fraud. Prior to sentencing, he died of a heart attack in Colorado. Enron's former
CFO, Andrew Fastow, pled guilty to two counts of wire fraud and securities fraud for facilitating
Enron's corrupt business practices. He ultimately cut a deal for cooperating with federal
authorities and served more than five years in prison. He was released from prison in 2011.
 Ultimately, former Enron CEO Jeffrey Skilling received the harshest sentence of anyone involved
in the Enron scandal. In 2006, Skilling was convicted of conspiracy, fraud, and insider trading.
Skilling originally received a 24-year sentence, but in 2013 it was reduced by 10 years. As a part
of the new deal, Skilling was required to give $42 million to the victims of the Enron fraud and to
cease challenging his conviction. Skilling remains in prison and is scheduled for release on
February 21, 2028.

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