Week 2 Assignment - The Enron and WorldCom Scandals

Week 2 Assignment - The Enron and WorldCom Scandals - Week...

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Week 2 Assignment-The Enron and WorldCom Scandals Melissa Krol Enron’s Questionable Transactions 1. Which segment of its operations got Enron into difficulties? In my opinion the segment of operations that got Enron into trouble was the management level of operations. The CFO, CEO and others in the management team made decisions to set up SPE’s to offset Enron’s losses. At first these units may have been set up innocently, but over time the management team found that they personally could gain from these SPEs and continued to form them whenever it would look like Enron would have to show a significant loss on their financials. This all started with the formation of Chewco to buy out CalPERS 50% interest in JEDI . 3. Did Enron’s directors understand how profits were being made in this segment? Why or why not? Yes I do think the directors knew how the profits were being made. They knew that setting up the SPEs as hedges was actually using Enron’s assets as startup equity (particularly Enron shares) and they continued to manipulate the funds and assets of these SPEs when Enron stock prices did not increase. They would combine SPEs into one entity to make those SPEs look creditworthy. But we also have to take into consideration that these people knew that they personally would gain even if in the long run Enron did not. I do not think that everyone on Enron’s board of directors understood everything that was going on though because certain Board members that also acted as Enron employees kept crucial information from the other members of the
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Week 2 Assignment - The Enron and WorldCom Scandals - Week...

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