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Enron Corporation was founded in 1985. This was after a merger of two natural gas pipeline companies. The company grew rapidly in the next fifteen years. It became one of the largest companies in the world in terms of revenues by 2000. It recorded more than $100 million in earnings and revenues. The corporation expanded into other business areas such as fiber optic and communication allowing it to improve its financial performance.
However, in the late 2001 Enron Corporation collapsed after becoming bankrupt. The share value of the company had drastically dropped leading to losses that amounted to millions of dollars. This was due to reduced investor confidence and creditors’ trust. The corporation suffered accusations of deliberately excluding debts from its financial reports and inflating its apparent profits. This led to a sharp increase in share value.
The collapse of Enron Corporation occurred owing to the lack of business ethics in the senior leadership. This lack of business ethics by the senior management corrupted the corporate culture of the entire organization. The company omitted substantial amount of liabilities and losses in its financial statements. Most of the company’s high-risk deals went sour in early 2001 superseding the risk control ability of the corporation.
It is important to note that the major cause of the collapse of the giant corporation was due to unethical behavior by the senior management and loss of investor and creditor’s confidence. The corporation’s former CEO and other executive officers were jailed for years owing to charges relating to fraudulent activities. In addition, the company faced stiff competition from existing and emerging companies that reduced its profit margins and sales.
Enron did not disclose its actual financial details and records leading to the misuse of funds and resources by top executive officers. The corporation did not generate enough cash flow from operations amidst reports of attractive earnings and growth. The exit of investors, creditors and clients led to the demise of the corporation, which had set a great ace in the energy industry.
Andrew Fastow served as the Chief Finance Officer (CEO) of Enron until the collapse of the corporation in 2001. The executive officer was inked with the deliberate alterations of the company’s profits and the omission of debts and losses in the financial reports. The finance officer ensured that Enron did business with companies it had established in an effort to conceal the huge debts of the company and fuel its share growth. Fastow was able to evade the exposure of the real financial position of the corporation through publication of forged balance sheets and other financial reports. The former finance officer faced charges of fraud and conspiracy for the years he served as an executive officer.
Andrew Fastow served a jail term of six years owing to wire and fraud charges. In addition, the jury advocated for the freezing of assets acquired through fraudulent dealings. Fastow was released from prison in 2011 after serving his jail sentence and sought management position at a firm in Houston. It is imperative to note that Fastow was working closely with the former CEO and other top executive officers in committing unethical practices of fraud and alteration of financial figures. In one way or the other, Fastow contributed to the collapse of Enron Corporation.
Enron’s collapse and demise affected all its stakeholders including employees, shareholders and clients. The share price of the company, which had exceeded $80, dropped drastically owing to lack of customer confidence and the revelation of real financial position of the company. Investors and shareholder lost almost $60 billion after the official collapse of the corporation. The employees of the company were the hardest hit by the collapse.
The employees had most of their retirement benefits in Enron’s stocks that suffered huge losses after the collapse. The employees’ lost their jobs and their retirement savings. The benefits were depleted owing to the company’s inability to pay benefits and compensation to workers. In addition, the clients such as banks and suppliers that were conducting business with Enron also suffered huge losses after the collapse of the corporation. Concisely, the collapse of the corporation affected all stakeholders and the growth of the national economy.
The United States government developed laws to foster better disclosure of company’s financial details after the collapse of Enron. The Sarbanes–Oxley Act of 2002 aimed at improving the accounting and auditing principles and advocates for heavier penalties for company officers that indulge in fraud and other unethical practices. It has titles that protect auditor’s independence and enhance financial disclosure. This ensures that companies do not alter financial figures in an effort to increase share value. The auditors ought to be transparent and accurate in disclosing the real financial position of a company to allow stakeholders to evaluate the company.
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