Wednesday, May 18, 2011

Enron

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Assignment Mini-Paper


Custom Essays on Enron


Enron is a large, complex corporation that has made a killing selling electricity. Enron baffles even the lawyers, economists, and government cops who are prying into its dealings, trying to decide whether the energy giant should be praised or buried. Much like many big corporations, Enron has its good side and bad side. In the year of 00, the bad side of Enron Corp. has been reveled. Enron filed for the largest bankruptcy in American history. Enron was one of the largest energy providers in the U.S. and assumed to be doing just fine, but they are now filed for bankruptcy and leaving many people confused about what has happened.


Enron was a Texas based company. It was formed in 185, out of the junk-bond merger of two old-line natural gas pipeline companies. These companies were known as Houston Natural Gas and Omaha InterNorth. The deal integrated several pipeline systems to create the first nationwide natural gas pipeline system. Ken Lay, who had been chief executive officer of Houson Natural Gas, was named chairman and chief executive officer of the company we known now as Enron (Houston Chronical - Enron Timeline). In 14, Enron made its first electricity trade, beginning what would turn out to be one of the company’s biggest profit centers in the next few years (Also Houston Chronicle). In just over 15 years, Enron had turned itself into one of the world’s largest energy traders (BBC - rise and fall).


In the past decade, Enron had become far and away the most vigorous agent of change in its industry, fundamentally altering how billions of dollars’ worth of power, both gas and electric, is bought, moved, and sold everywhere in the nation (Lavelle). Enron reinvented the energy business, fashioning itself into something closer to a brokerage than a power provider (Lavelle). This newly found brokerage aspect was a sure bet for upcomming customers. Enron offered the first future contracts on natural gas, allowing buyers and sellers to lock in deals that would protect them against price spikes or drops in the furture (Lavelle). Enron’s method in selling electricity went by just as smooth, but came across as more productive in profit. Never before had gas and electricity been traded like commodities (Houston Chronicle - Timeline). Enron also branched into other businesses new to commodity trading, including the sale of paper, steel, and freight. They had their own meteorologists to help clients hedge against the weather. Enron even built its own fiber optic network, laying cable alongside old gas pipelines, so it could sell Internet bandwith as a commodity. Enron grew into a large corporation by pioneering they way to being a brokerage in the power business and creating new commodities to their advantage.


Enron’s method of selling electricity as a commodity was questioned after they started to provide California with their energy needs. Enron has made a killing selling electricity, particularly in power-starved California, where residents are paying billions of dollars more to turn on the lights than they did just three years ago. This has happened in part because Enron has mastered the art of buying and selling kilowatts. This art mastering was all made part by the 16 law that deregulated the electricity market from signing long-term contracts for power. Enron used this law to their fullest advantage. Now, instead of long-term contracts, the people of California were required to buy megawatts day to day on the volatile spot market. California officials charge that Enron and others have been able to overcharge the spot market. Officials believe that Enron will either reduce the amount of power they offer for sale on a given day or simply raise prices. California’s electricity bill, which was $ 7 billion in 1, topped $ 40 billion in 000. In Marianne Lavelle’s “A Hand in Everything”, chief engineer adviser, David Freeman said “A new river has been created, a river of green thousand-dollar bills floating from California to the Southwest” (qtd Lavelle 8). Enron believes that they are right in profiting from California’s energy problem. After all, our country’s financial success is based on “survival of the fittest”.


Although Enron grew to be one of the best at buying and selling power at a profiting rate, there is another side to their increasing popularity. On Wednesday, Oct., 00, Andrew Fastow, 40, surrendered to the FBI for file charges related to partnerships with fueling Enron’s swift descent into bankruptcy last year. This former chief officer is the most prominent Enron figure targeted so far by the Justice Department. Other suspects were chief executive Jeffrey Skilling and former chairman Kenneth Lay. The criminal complaint charges that Fastow and others crreated a scheme to defraud Enron and its shareholders through transactions with off-the-books partnerships that made the company look more profitable than it was. These partnerships were used to hide some $1 billion in debt from shareholders and federal regulators. In Mark Babineck’s article “Ex-Enron CFO Charged With Fraud”, Deputy Attorney General Larry Thompson told a Justice Department news conference in Washington “Fastow and his co-conspirators systematically and thoroughly corrupted the business of one of the largest corporations in the world” (qtd Babineck). Also, Fastow is alleged to have stolen millions of dollars from the various transactions for his benefit and the benefit of his friends and co-conspirators. Maximum penalties for the charges against Fastow include 0 years for money laundering, 10 years for security fraud, and five years each on the mail fraud and conspiracy charges.


When energy giant Enron collapsed in December, thousands of employees lost their jobs and life savings. Although Enron had cost these people their jobs, former Enron employees and people who knew the company all had one thing in common. They all said that Enron was an amazing company to work for. Over 15 years, Enron had transformed itself from a local natural gas company into a swashbuckling energy trader. While it basked in the sunshine of its apparent success, it was careful not to neglect its employees. Employees enjoyed a free state-of-the-art gym in the basement, fridges full of canned drinks, taxis home after pm, and even arranged flowers for their mothers. There were 5 aerobic classes a week and all the towels and shampoo were provided free. The company matched employee pension contribution with Enron stock (bbc). This method was known as the 401(k) retirement plan that Enron used to con their employees with. “Enron executives were profiting from an elaborate shell game, using the hard-earned retirement savings of their loyal employees,” said Randy McClanahan, one of the lawyers for the employees (Houston Chronicle - file suit over 401k). Evidently, Enron worked hard to build up a culture of company loyalty and was not afraid to throw its cash around (bbc - how they let down employees). Also, shortly before the hundreds of Enron employees were laid off and the company declared bankruptcy, about 500 of the energy giants’s executives were awarded hefty bonuses. These bonuses ranged from $1,000 to $5 million. This sparked anger among laid-off employees, who believe that the money should have been used to give them severence packages. What was the motive for the bonuses? One former executive told CNN the bonuses were awarded to Enron’s inner circle and to people who worked at setting up the questionable financial partnerships that led to the company’s demise. Enron president, Jeffrey McMahon, said, “If we were to go into bankruptcy, these key individuals would remain with the company to protect the businesses’ and assets’ values for the creditors” (CNN - hefty bonuses). Therfore, the reasoning behind the so-called retention payments, was to asure that the company’s best employees would be there during a crisis. Enron used their lavishing money to social engeener the employees and in the end, the loyalty of the employees hurt them.


Enron was one of the largest energy providers in the U.S. and assumed to be doing fine, but they are now filed for bankruptcy and leaving many people confused about what has happened. The Enron executives were wrong in doing what they did. They should have never hidden their company’s loses. They may have done it out of embarrassment of failure. After all, they were one of the largest and richest energy providers in the world. They could have even done it out of greed. To be honest, nobody will ever “really” know the truth behind the Enron scandal. Works Cited


Babineck, Mark. “Ex-Enron CFO Charged With Fraud”. AP Online Oct. 00. Texshare.


Lavelle, Marianne. “A Hand in Everything”. U.S. News and World Report June 18 001. Texshare 8.


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