Enron Corporation Essay

I The BeginningWhen Enron Corporation declargond a Chapter 11 bankruptcy in December 2001, it left the unrestricted oddly its investors and stockholders reeling from such fiscal grease and go. Enron had allegedly overstated its profits by $586 gazillion since 1997 in order to protect the firms relief sheet and practiced insider occupation as intimately dissembler and cabal.Enron had been the seventh largest participation in the United States and had been atomic number 53 of the largest fiscal contributors to the Presidential elections, especially the Bush family. To the outside world, Enron portrayed a picture of success. However, upon closure critique on the inside, Enron was on the brink of collapse.When Enrons stock price progress to its highest at $90, the executives who allegedly knew of the offshore accounts of Enron started selling their respective shares and to encouraged the public to continue buying the verbalise stocks. However, the executives knew that the stock prices would not increase any longer but still reassured the public and its investors that the prices of stock would reach a high $130-140 per share. By August 2001, Enrons stock prices had dropped from $90 to a measly $42. It became evident that the caller-out had dish angiotensin converting enzymestly induced and fooled the public, investors and stockholders to buying the communitys stocks and shares.Amidst all these, Enron founder and former chairman Kenneth take down act to reassure the public to remain calm, and asked the investors to buy the corporations shares as the company will regain its profits in the succeeding months. Nonetheless, in October of 2001, the stocks plunged to $15 but the investors saw this as an opportunity to buy Enron stocks at such low prices. But the truth about the companys financial standing became public and the stock price finally make water rock bottom at $1 per share.II Basis of the ChargesStockholders and investors garner and insti tuted a class-action suit against Enron and its ships officers in order to recover the billions of investment they do on Enron as result of the infatuated representation and fraud by the company. Enron slip by executives specifically its Chief Executive Officers, Kenneth cast and Jeffrey Skilling were charged and convicted with the collapse of the get-up-and-go giant. Kenneth dumbfound faced seven counts of fraud and conspiracy charm Skilling faced 31 counts of fraud, conspiracy, insider trading and lying to auditors about Enrons financial position.In 1987, Enron auditors found out a billion-dollar oil trading scandal in its New York offices. Traders had been engaged in this kind of practice refutal transactions in order to boost their volume and profit in that locationby fattening their bonuses as considerably. Although CEO Kenneth Lay knew of this, he did not free the traders nor contacted the authorities in order to cover up their problems. But this sequent did no t deter the traders and six months later, competitors began to grow suspicious because if word got out, Enrons trading partners could prolong demanded that the company cover its positions with cash, which the company did not have (Fowler). Thus, the traders were fired and charged but not until they were able to transfer million of dollars into their ad hominem accounts. Enron for its part was able to get away by bluffing the food marketplace and reported $85 million in loss but sources conduct that the loss totalled to at least $135 million.CEO Jeffrey Skilling, who joined Enron in 1990, did not care much about the expenses incurred by the company as long as the margins looked good. He was to a fault more concerned with the revenues increases and output profit margins instead of the cash flows which was practiced by his predecessor. So enamoured were the exit executives in increasing business profit that when a deal failed or fell apart, more effort was placed into hiding the consequences instead of rectifying and owning up to the problem. After taking over as chief operating officer, he renewed the well-nigh non-existent post of chief financial officer and delegated legion(predicate) of the management responsibilities.In theory, Enron had mechanisms that would assess risk and accurately report financial numbers. These mechanisms required that deals should be strictly analyzed which included review by the legal department of the originating unit, the corporate legal department, chief risk officer and chief accounting officer. However, due to the insidious practice of the company, auditors and accountants were bullied to over driveway the system and departments were able to determine the total value of their proposals by manipulating the long price of whatever product was sold or bought. The company also used a mark-to-market accounting system pushed by Skilling which allows a company to report as current revenue the total value of a deal over its pro jected lifetime (Fowler). This system make earning expect good which in turn pumped up the stock prices and change magnitude the value of stocks which executives received as bonuses.III TrialAs the astonished investors witnessed Enrons stock prices plunged, the government began a massive crackdown on the executives who were obligated for the collapse of the company, and would end up in the conclusion of convincing and proving to the board that Lay and Skilling, the two top executives of the company, where guilty of massive fraud and were frankincense guilty.Government prosecutors were at first overwhelmed with the girth of the corporate fraud. Nevertheless, they began to take measures to do to these kinds of crimes and a barrage of criminal and civil investigations and prosecutions began to surface. Thus, in 2002, the Presidential unified Fraud Task Force filed criminal charges against more than 900 defendants, of which 60 are chief executive or president level and successful ly prosecuted or convicted 500 of them.The case against Lay and Skilling were heard by US territory Judge Sim Lake and lasted nearly four months while the jury deliberated for six days. The abnegation counsel initially attempted to persuade the judge to move the rivulet away from Houston, Enrons hometown as they were afraid that the jury might be influenced by anger due to the resulting loss of jobs and money and would see them as a way of revenge.Kenneth Lay faced seven counts of fraud and conspiracy fraud and conspiracy while Skilling on the different(a) hand, faced 31 counts of fraud, conspiracy, insider trading and lying to auditors about Enrons financial position. Although both insist their innocence of the charges against them, they were convicted for a total of 29 criminal counts as well as conspiracy to track the failing health of the company by selling boosterich optimism to Wall Street and the public (MSNBC).Lay, who was convicted to 6 counts of conspiracy, securiti es and wire fraud in the corporate trial and 4 counts on separate personal banking trial, surrendered his passport and posted a $5 million bond secured by the family. His sentence also carried a maximum penalty of 45 historic boundary in prison for the corporate trial while 120 historic period in personal trial respectively. Skilling on the other hand, was convicted by 19 counts out of the 28 charged as well as one count of insider trading while being acquitted with the remaining charges.The charges against these Enron top executives prospered as other executives turned the table and plead guilty in their respective charges in order to receive lower sentences than that prescribed. Among the former employees who testified against Lay and Skilling was Ben Glisan who is now serving a 5-year prison sentence after appeal guilty to a charge of conspiracy. According to Glisan, both Lay and Skilling knew that the company was in deep financial trouble but tried to get across it instead. Ultimately, the jury rejected Skillings defense that no fraud happened at Enron save for those committed by a number of executives skimming millions in secret side deals, while bad publicity and poor market confidence resulted in the collapse of the energy giant.III. Effects of the Enron CollapseAs the jurors found that these once-wealthy and force-outful executives repeatedly lied to cover up the documentary position of the company by covering up accounting and auditing failures which finally led to its collapse in 2001, the left a devastating forcefulness in the business world as well as the lives of the investors and shareholders. The demise of Enron wiped out more than $60 billion in market value, almost $2.1 billion in retirement savings and costs more than 5,600 to move fend for their jobs. The anger of the public over the recent corporate scandals led to the expiration of the Sarbanes-Oxley Act, which was designed to make company executives more accountable.Although p ublic distrust for pink-collar trial could not actually reverse the damage done to investor confidence, the Lay and Skilling trial however has become a start of a heal process for public-investor relations to be righted again.IV Timothy BeldenApart from the other key witnesses who were former Enron employees and who testified against the top two Enron officials, Timothy Belden particularly made the charges against Lay and Skilling stick, ending in their conviction. Belden who was the first person to be charged in the manipulation of Western Energy markets, initially engaged in lengthy dance with federal officials over his plea and eventual cooperation in testifying against Lay and Skilling. He pleaded guilty in 2002 to conspiracy and admitted that he gave false information to calciums electrical grid operators. Belden is also verbalize to be the mastermind behind the strategies described in memos that spelled out how Enron manipulated the calcium market (Schreiber).Beginning in t he mid-nineties, calcium was among the first states to deregulate electricity. The deregulating occurred just as when companies were leaving the state in numbers thereby creating a recession. The deregulation was supposed to reduce the ten percent of the assess payers bill while breaking the old methods of greedy companies. As California deregulated the sweeping side of its energy markets, it also kept price caps in the retail side. It coincided with the States decision to bar utilities from signing long-term cheap fixed prices which forced them to into an unpredictable market. Thus, the utilities were made to pay horrid prices but were not able to pass on to their consumers the prices they incurred. Enron promised to deliver power more efficiently and build new plants that can run on cheaper fuels.Commencing in 1998 until 2001, Belden as well as other executives from Enron devised a fraudulent abstract in order to obtain increased revenue for Enron from wholesale electricity c onsumers and other market participants in the State of California. The schemes perpetrated by Belden and the other Enron executives required them to submit false information to the companies supplied by Enron and misrepresented the record of electricity which the company was supposed to supply. Despite being paid to arrogate congestion, the company however, did not do so and instead imported as well as exported electricity in order to receive higher(prenominal) prices from the companies they supply.Of particular interest in the course of the trial is a imitation of conversation between Belden and one of the operators of the power plant wherein the two discussed shutdown down one of Reliants power plants in California to create a shortage in order for the prices to skyrocket. As the scheme worked, causing the power prices to arrive at high and unjust levels in California, it thereby became illegal under the Federal Energy Policy Act.In his testimony, he called Californias post-der egulation power market dysfunctional and said his company bought cheap electricity in the Northwest to sell in California at a profit (Baker). This practice created the appearance among consumers that there was shortage of electricity, thereby having the need to jack up the prices. Enron was able to liquid ecstasy off almost $1 billion in a period of nine months in 2000 and 2001. Belden admitted however, that he only met with Lay and Skilling once during a colleagues party. But nevertheless, Beldens testimony turn out to be a very crucial one as it confirmed and proved that Lay and Skilling knew of what was happening in California but turned to hide it instead.As company vice-president and head of Enrons West Coast trading operation, Belden supervised a staff of 120 that went from $50 million in earnings in 1999 to $800 million in 2001, while Californias power markets disintegrated into panic and sky-high prices. When one of Enrons lawyers started investigating these irregularitie s as a response to the investigation conducted by the California Public benefit Commission.The lawyers found out of Enrons tactic of using advantage of the energy crisis and revealed through a memo that Enron created false congestion lines, transferred energy in and out of state to avoid price caps and charged for services the company never actually provided (Swartz). And yet, inspite of the information the lawyer gave to the top executives, and traders have been told to devolve the money made on improper trading, the executives at Enron still pertinacious against it despite knowing that the practice was illegal. For Belden and the other traders, sending the money back would mean that the other companies will know what Enron was doing. Nevertheless, Belden and Enron continued on with the practice. Skilling, on the other hand, fully knew well of the said practice by the company in 2001 as he was already tipped by one of the executives who learned of the previous investigation.Duri ng examination, Belden admitted to US District Judge Martin Jenkins that he did it because he was trying to maximize profit for Enron. Belden claimed that he was only following Enrons instructions as he handled his trades (CBS News). According to Beldens counsel, Enron knew fully well of Beldens action but was never disciplined nor sanctioned at all. In fact, Belden may have reaped bonus for such practice as revenues from his trading unit climbed from $50 million in 1999 to $500 million in 2000 to $800 million in 2001. When he was charged with conspiracy, Belden after a long time of dealing and negotiating with the federal government, decided to turn against Kenneth Lay and Jeffrey Skilling, claiming that the two top executives knew of the practice he and other traders did as indicated by the internal company memos which described how Enron took power out of California at a time of rolling blackouts and shortages and how it sold out of state to get away price caps (CBS News).