ENRON SCANDAL AND STAKEHOLDERS

Enron Scandal and Stakeholders

Enron Scandal and Stakeholders

Introduction

The study is related to the Enron Scandal which has impacted various stake holders as the acts or policies that were being implemented, or followed by the Enron Corporation was to get profits from illegitimate means. Moreover, due to this scandal of Enron Corporation, the leadership of Enron Corporation was held liable for the acts or policies of the company as due to these the economy got affected.

Enron Scandal

The founder that is Ken Lay, the CEO that is Jeffrey Skilling and the CFO that is Andy Fastow cam to know that the Enron Corporation was not making profits; so what the Enron Corporation did is that they implemented the “future value accounting” with the approval of Arthur Andersen. The future value accounting is the accounting technique which is used to predict the profit of future that the Enron Corporation will be going to make and list it as part of their profit of the future to the share holders of Enron Corporation.

The use of creative accounting take to Fastow to create “outside companies” that were directly involved in hiding the losses of Enron Corporation that the company is making; as Enron Corporation announced large numbers to Wall Street, people started to take an interest in the Enron Corporation and began to buy shares of the Enron. The company also expectant that the employees to buy the shares of the company, and the price of shares of Enron Corporation was going up to as high as $ 90. The craze of stock of Enron Corporation was, so huge within the company; they had a stock ticker running throughout the company so employees could keep track of shares of Enron Corporation.

Fraud and Manipulation

Internally, Enron created more than 3,000 offshore companies. The primary goal of these companies was to enable investors to co-finance infrastructure to make profitable long through securitization. These companies also allowed outsourcing certain risks of the parent company to avoid putting at risk.

Enron used these non-consolidated companies for these purposes and later out of the assets or liabilities. These companies, whose headquarters located in the Cayman Islands, the Bermuda or the Bahamas, making the stock more presentable; however, summary information on these subsidiaries specified in notes at the bottom of page of financial information documents. The company simultaneously pursuing a policy of assertive communication; thus, the charismatic chairman Kenneth Lay sent a letter to employees announcing that he thought the share price gain 800 % before 2010.

Example of a financing package of Enron

The aim is to allow Enron to borrow money without appearing in its accounts. The transaction involves three parties: Enron, an Enron subsidiary offshore and a bank that is bank A. All are accomplices of the assembly. The operation here is greatly simplified.

First, the subsidiary sells for a million dollars of gas in the bank A. The subsidiary, controlled by Enron, then receives million dollars from Bank A (a gas supply contract signed, but the delivery does not occur; only ...