ENRON SCANDAL IN USA,2001

ENRON SCANDAL IN USA,2001

Enron was one of the most powerful companies of USA. It was ranked in the US’Fortune Top 10 companies based on turnover.Enron was formed in 1985 from the merger of two American natural gas pipeline companies Houston Natural Gas and Internorth in Texas. In 2001 it employed 21000 people and was the world’s largest energy trading company. Such a large company ended it’s days as one of the largest bankruptcies in the world history which also resulted in the collapse of Anderson which was among the top 5 global accounting firms.

The company’s share price was at all time high in the early 2001 because of the breakout performance of the company as stated in the books. The reality of a bit different. The debt in the balance sheet rode to $13 million by the end of 2000. In 2001 because of the fear of US recession a slide in the market caused the price of the share of fall at it’s all time low.The main reason of failure of Enron was lost confidence of investors in this company which resulted in no new borrowings from the market.The third quarter disclosed a loss of $618 million. In November 2008 the share price of Enron was only 75 cents and it was declared junk in the market.Enron simply ran out of cash due to its incompetency to raise new borrowings.Enron was delisted from the stock market in January 2002.Kenneth Lay former CEO and Jeffrey Skilling were taken on trial in 2006 for their part in the scandal.The auditors of the company were also taken for trails.

The main causes of failure of enron were many, one of them was the accounting fraud. The assets and profits were shown at an inflated rate and many debts and losses were not shown in the books.The public image of the company was also undermined because of rumors of bribery to get many important contracts.Andrew Fastow, who knew about the losses of the company , manipulated the accounts in a manner which resulted in huge profits for him and his family at the cost of the company.

This was all about one the most biggest scam in the history of USA. This scam emerged the need of corporate governance not only in America but in other countries as well.

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