ENRON- The fall of Wall Street Darling.pdf - Enron Scandal...

This preview shows page 1 - 5 out of 11 pages.

4/30/2019 Enron Scandal: The Fall of a Wall Street Darling 1/11 BY TROY SEGAL Updated Apr 16, 2019 Enron Scandal: The Fall of a Wall Street Darling The story of Enron Corporation depicts a company that reached dramatic heights only to face a dizzying fall. The fated company's collapse affected thousands of employees and shook Wall Street to its core. At Enron's peak, its shares were worth $90.75; when the firm declared bankruptcy on December 2, 2001, they were trading at $0.26. To this day, many wonder how such a powerful business, at the time one of the largest companies in the United States, disintegrated almost overnight. Also difficult to fathom is how its leadership managed to fool regulators for so long with fake holdings and off-the-books accounting.
4/30/2019 Enron Scandal: The Fall of a Wall Street Darling 2/11 Enron's Energy Origins Enron was formed in 1985 following a merger between Houston Natural Gas Company and Omaha-based InterNorth Incorporated. Following the merger, Kenneth Lay, who had been
4/30/2019 Enron Scandal: The Fall of a Wall Street Darling 3/11 Why Enron Collapsed the chief executive officer (CEO) of Houston Natural Gas, became Enron's CEO and chairman. Lay quickly rebranded Enron into an energy trader and supplier. Deregulation of the energy markets allowed companies to place bets on future prices, and Enron was poised to take advantage. In 1990, Lay created the Enron Finance Corporation and appointed Jeffrey Skilling, whose work as a McKinsey & Company consultant had impressed Lay, to head the new corporation. Skilling was then one of the youngest partners at McKinsey.
4/30/2019 Enron Scandal: The Fall of a Wall Street Darling 4/11 Mark-to-Market "America's Most Innovative Company" Skilling joined Enron at an auspicious time. The era's minimal regulatory environment allowed Enron to flourish. At the end of the 1990s, the dot-com bubble was in full swing, and the Nasdaq hit 5,000. Revolutionary internet stocks were being valued at preposterous levels and, consequently, most investors and regulators simply accepted spiking share prices as the new normal. One of Skilling's early contributions was to transition Enron's accounting from a traditional historical cost accounting method to a mark-to-market (MTM ) accounting method, for which the company received official SEC approval in 1992. MTM is a measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark-to-market aims to provide a realistic appraisal of an institution's or company's current financial situation, and it is a legitimate and widely-used practice. However, in some cases, the method can be manipulated, since MTM is not based on "actual" cost but on "fair value," which is harder to pin down. Some believe MTM was the beginning of the end for Enron as it

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture