Overview of Enron Scandal
Enron Corporation is an energy trading, natural gas, and electric utilities company based in Houston , Texas that employed around 21,000 people by mid-2001, before it went bankrupt.
Fraudulent accounting techniques allowed it to be listed as the seventh largest company in the United States , and it was expected to dominate the trading it had virtually invented in communications, power, and weather securities.
Instead, it became the largest corporate scandal in history, and became emblematic of institutionalized and well-planned corporate fraud.
Enron cynically and knowingly created the phony California electricity crisis of 2000 and 2001.
There was never a shortage of power in California . Using tape recordings of Enron traders on the phone with California power plants, the film chillingly overhears them asking plant managers to "get a little creative" in shutting down plants for "repairs."
Between 30 percent and 50 percent of California's energy industry was shut down by Enron a great deal of the time, and up to 76 percent at one point, as the company drove the price of electricity higher by nine times.
Its European operations filed for bankruptcy on November 30, 2001, and it sought Chapter 11 protection in the U.S. on December 2.
Enron's global reputation was undermined, by persistent rumors of bribery and political pressure to secure contracts in Central and South America, in Africa, and in the Philippines .
Especially controversial was its $30 billion contract with the Maharashtra State Electricity Board in India , where it is alleged that Enron officials used political connections within the Clinton and Bush administrations to exert pressure on the board. On January 9, 2002, the United States Department of Justice announced it was going to pursue a criminal investigation of the Enron scandal and Congressional hearings began on January 24.
After a series of scandals involving irregular accounting procedures bordering on fraud involving Enron and its accounting firm Arthur Andersen, it stood at the verge of undergoing the largest bankruptcy in history by mid-November 2001. A white knight rescue attempt by a similar, smaller energy company, Dynegy, was not viable.
During 2001, Enron shares fell from US$85 to US$0.30.
As Enron was considered a blue chip stock, this was an unprecedented and disastrous event in the financial world. Enron's plunge occurred after it was revealed that many of its profits and revenue were the result of deals with special purpose entities.
The result of this accounting scandal was that many of the losses that Enron encountered were not reported in its financial statements.
Following the 2001 bankruptcy filing, Enron has been attempting to restructure in order to compensate as many creditors as possible.
Enron's innovative core energy trading business was sold early in the bankruptcy proceedings to Merrill Lynch and Company. A last-ditch survival attempt was made in 2002 through a planned merger with arch-rival Dynegy Corporation. Dynegy backed out during merger talks, acquiring control of Enron's original, predecessor company- Northern Natural Gas- in the process.
Enron is currently pursuing legal action against Dynegy over the takeover of Northern Natural Gas, which has since been sold by Dynegy to MidAmerican Energy Holdings Company.
Enron's final bankruptcy plan provides for the creation of three new businesses to be spun off from Enron as independent, debt-free companies.
The reorganization process commenced in 2003, with the formation of two new Enron subsidiaries, CrossCountry Energy L.L.C., and Prisma Energy International Inc.
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