Enron Essay

1860 Words Jan 28th, 2008 8 Pages
As Bethany McLean and Peter Elkind portray in The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, there was a chain-reaction of events and a hole that dug deeper with time in the life-span of, at one time the world's 7th largest corporation, Enron. The events were formulated by an equation with many factors: arbitrary accounting practices, Wall Street's evolving nature and Enron's lack of successful business plans combined with, what Jeff Skilling, CEO of Enron, believed was the most natural of human characteristics, greed. This formula resulted in fraud, deceit, and ultimately the rise and fall of Enron.
Kenneth Lay created Enron in 1985 as a result of the merger of Houston Natural Gas and Internorth. Within a
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Andy Fastow, CFO of Enron, used complex financial structures and hundreds of fictitious companies to cover up the fact that Enron was losing money year after year, but showing growing earnings. The fictitious companies covered Enron's debt so that investors could not see it. On the other hand, Fastow used these companies to raise money using Enron's stock as collateral. In other words, the nature of accounting rules, specifically, mark-to-market accounting was causing the financial statements to be manipulated, thus causing the stock to go up. This resulted in giving Fastow collateral for investment banks to recognize, and ultimately persuaded them to invest in Fastow's fictitious companies (SPEs [Special Purpose Entities]). Enron's ultimate goal was to capture the heart and minds of stock analyst and in turn, drive the stock price up for more collateral. It was a vicious cycle. The company had a massive public relations campaign and was fixated on the stock price, so much so that the price was posted in the elevator. Analysts that had any questions were told to contact Jeff Skilling, and whatever Skilling told them, they believed. "Any remaining vestiges of skepticism were washed away in the torrent of praise that showered over the company and its top executives. Enron's nearly incomprehensible financial statements? Nobody worried about them," (229). Any analyst that doubted Enron was ostracized. John Olson, an analyst skeptical of

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