Fall of Enron

Q1- Who were the report stakeholders involved in, or affected by the collapse of Enron? How and to what degree were they hurt or helped by the actions of Enron management? Ans- The key stakeholders affected by the collapse of Enron were its employees and retirees. Stakeholders and mutual funds investors bemused $ 70billion securities industry value. Banks were also affected by the meltdown of the company. They included big banks wish J P Morgan Chase and Citigroup. Not only the stakeholder and bondholder lose pop, the agency in the company also fell. This was the major setback for the company.The actions of Enron management leave a deep sc be for its 4000 employees which lost out their jobs and also squeeze others around them. Some blamed Arthur Andersen Enrons accounting firm and some blame the board of directors for insufficient oversights. The damage was so big that it was potential to take years for the court to sort the wreckage. The company did not guess of its futu re and took many bad steps just to earn m superstary. The chief operating officer should have imagineed into the company matters long time ago and took action so that hundreds of jobs could have been saved. The companies who were associated with the big firm were affected on a very(prenominal) large scale. This was the biggest bankruptcy of a firm with $63.4 billion in assets.Q2- Considering every last(predicate) aspects of the fictional character, what factor or factors do you believe most contributed to the collapse of Enron? In your answer, please consider both external and internal factors. Ans Enrons non transparent fiscal statements did not clearly depict its operations and pay with shareholders and analysts. The company started manipulating the revenue figures. Enron used many methods to pay off the companies agent looking better by starting different accounting practices.They also broke the legal and ethical integrity of the company by overseeing the companys financ ial reports. Even supporting the political parties didnt help them. They had a complex business model and they misrepresented their financial status to the globe so that they can have a better position in the eyes of the public and earn money on basis of that. alone the above issues that led to the bankruptcy of the company were perpetuated by the actions of Lay, Skilling, Fastow and other executives.They either led to the collapse of the company. Lay did not enquire round the decisions that Skilling and Fastow were taking. He just approved to everything that they kept in front of him. Skilling always treasured to keep up to the Wall Street expectations and for this he gave pressure on his executives to find new was to entomb the dept. This was the major setback for the company as they didnt know that in future everything was going to come out and it would have led to bad consequences. Lay did not enquire about all this and approved of all the work Skilling was doing.Q3- What steps should be taken now by corporate managers, stakeholders, and policy makers to prevent a comparable event from occurring in the future? Ans- People should not lie about the companys financial status just to bring it up In the market. Eventually the truth is going to come out one day or the other. Auditors should properly keep track of the finances. Managers, stakeholders and directors should be cognisant of everything that is happening in the company. Policy makers should think about what steps they are taking and how it will affect other people lives. They should not make policies for the benefits of the big companies who give them finances for their political endeavours.Updated caseMany executives at Enron were indicated of variety of charges and then sentence to prison. Enrons auditors, Arthur Anderson, was found guilty in a united states district court, but by the time the judgement was over turned at the US supreme court, the firm has lost most of its customers and had to shut down. Employees and shareholders received restrain returns in the lawsuits they filed. As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial describe for public companies.Special persona entities Enron used special purpose entitieslimited partnerships or companies created to fulfil a temporary or specific purposeto fund or manage risks associated with specific assets. The company elected to snitch minimal details on its use of special purpose entities. These bawl out firms were created by a sponsor, but funded by independent equity investors and debt financing. For financial reporting purposes, a series of rules dictates whether a special purpose entity is a separate entity from the sponsor.In total, by 2001, Enron had used hundreds of special purpose entities to hide its debt. The special purpose entities were used for more than just circumventing accounting conventions. As a result of one violation, Enrons b alance sheet understated its liabilities and magnify its equity, and its earnings were overstated. Enron disclosed to its shareholders that it had hedged downside risk in its own illiquid investments victimisation special purpose entities. However, the investors were oblivious to the fact that the special purpose entities were real using the companys own stock and financial guarantees to finance these hedges.This setup prevented Enron from being protected from the downside risk. Notable examples of special purpose entities that Enron employed were JEDI and Chewco, Whitewing, and LJM. The justices agreed to look at two issues in the appeal of Mr. Skillings 2006 conviction that could have broader repercussions, take legal observers. One deals with the governments contention that Mr. Skilling violated his legal obligation to endure honest services to Enron shareholders because he lied about the postcode-trading companys financial condition before it collapsed into bankruptcy in December 2001. Mr. Skillings attorneys maintained that prosecutors misapplied the honest-services statute, arguing their knob hadnt lied and didnt cheat Enron or its shareholders.The second issue involves Mr. Skillings claim that he wasnt able to get a fair trial in Houston, pose of Enrons headquarters, because of anger in the community over the companys collapse. Daniel Petrocelli, Mr. Skillings lead attorney, said the unconditional dallys decision means the defense will finally get an fortune for a full, frank and fair hearing of issues that led to Jeffs wrongful conviction. The jurist Department declined to comment. The compulsory Court earlier accepted for review other appeal related to corporate honest-services fraud. That case involves the conviction of former Hollinger international Inc. Chairman Conrad Black.Oral arguments in Mr. Blacks Supreme Court case are scheduled for December. No date has been set for oral arguments in the case of Mr. Skilling, who is in feder al prison in Colorado. The question of what constitutes honest-services fraud is under debate. The lack of clear guidance on the statute has been a occupation in this area of criminal law for years, said Mark Biros, a former federal prosecutor and now a partner in the Washington office of Proskauer Rose LLP. It would be helpful to everyone if the Supreme Court steps in. Mr. Biros said the court might be considering treating the Skilling and Black appeals as companion cases.The justices could use the two cases to provide a broader interpretation of the honest-services issue, he said. The courts agreement to hear Mr. Skillings arguments on the location of his trial surprised capital of South Carolina Law School professor John Coffee. The area of venue is something the Supreme Court hasnt touched for a long, long time, Mr. Coffee said. If the court agrees with Mr. Skilling, whose attorneys argued for a venue change before the trial, it could have a wide impact. In the 2006 trial, Mr. S killing and former Enron Chairman Kenneth Lay were convicted of fraud and conspiracy. Mr. Skilling was also convicted of insider trading.Shortly later on the trial, Mr. Lay died of heart-related problems and his conviction was vacated. Former Enron chief financial officer Andrew Fastow, 44, was sentenced to sextet years in prison Tuesday, more than two years afterward he pleaded guilty to two counts of conspiracy for his involvement in the energy companys 2001 collapse. Jurors in the Houston trial of Enron founder Kenneth Lay and former CEO Jeffrey Skilling reached a verdict Thursday, the sixth day of deliberations, finding both defendants guilty of most conspiracy and fraud charges.