Enron was created in 1985 after a merger between Houston Natural Gas and Internorth. By 2002 it was gone forever. Its stock price rose to $90/share in August of 2000 before bottoming out at $0.40/share when they filed for bankruptcy on Dec. 2nd 2001. It only took 16 years for one of the largest Fortune 500 companies to completely dissolve, taking employee jobs, pensions, Arthur Andersen, and the American public’s faith with it. Enron and its young McKinsey consultant created the energy derivative and used it to form the new natural gas division that dominated the market. However, the use of mark-to-market accounting and the creation of Special Purpose Entities (SPEs) led to overstated profits and inaccurate balance sheets. By the fall of 2001 nobody could find out how Enron was making its money. A disclosure on the October financial statements for a $1.2 billon dollar reversal caught the Security and Exchange Commission’s (SEC) attention. They launched an investigation and in less than two months Enron filed for bankruptcy protection. A large part of the scandal also focused around Arthur Andersen, at the time of the of the Big Five accounting firms, because of its qualified auditing opinions of Enron. It ultimately ceased to exist because of its involvement with the Enron fraud. The Enron scandal showed the public that changes in accounting and auditing standards and practices were needed, and it was a major catalyst in the creation of Sarbanes Oxley Act of 2002. It is important to note how quickly Enron’s rise was cut short by fraudulent behaviors that ultimately caused its demise and the lessons learned from their scandal.
The Rise of Enron
Enron took on massive amounts of debt when it was created and it needed a new, innovative business plan
