Enron, the smartest guys in the room
Enron was one of the biggest scandal of all time in the stock market. The three main guys leading the pack was Ken Lay, Jeffrey Skilling, and Andy Fastow. The company was not making profit so they decided to do “future value accounting”. This was shown to shareholders so they can spend money and invest in Enron. The future value accounting just shows a list of future profit that was predicted. What actually happened? Why it can happen again? What can be done to prevent it? and What is now being don’t to prevent it? These are the question that will be answered and explained.
What actually happened? Andy Fastow was the one who created several smaller companies that would hide the losses Enron had made. Enron showed that they were making great increases in the stock market and others wanted a piece of that. They even convinced their own employees to buy stocks. Enron wanted to hide their scandal so bad that they paid investment company to fire the employee that had any concerns. Enron was behind the California Energy Crisis and made billions off the state. They had the power plants shut down and resold energy for much higher and made outrageous profit.
Their company got so big within a short amount of time, but so did their losses. It was getting much harder for them to hide the scandal as their company progresses. A writer at Forbes magazine was the one who started the collapse of Enron. She released an article and what Enron was truly doing and it went downhill from there. Jeffrey Skilling bailed on the company and sold all his stocks and left Ken Lay and Andy Fastow to run the company. Enron eventually collapsed and all the employee lost everything. Jeffrey Skilling and Andy Fastow were sent to prison for the scandal and Ken Lay passed away after the trials.
The main thing that can be done to prevent another Enron scandal is the involvement of the investors themselves. The stockholders need to know about everything and anything that goes on in the company they are investing to the best of their abilities. Management and the Board members also play a very big role in avoiding another Enron. They are the one to keep track of the funds coming in and out of the company. Calpers are the current members that watch over the investors money and make sure everything is where they’re suppose to be.
Regulators are also important in having strict regulations for companies, but lenient enough so there is room for competition. The Enron Scandal can happen again if a company is using the “future value of accounting”, but with the new check and order that is set up, it is very unlikely it will happen. These new check and order are very strict and precise on company so that they can prevent another major scandal. Audit committee’s have the right to access the company’s financial statements and have the company cooperate with them at all times.
The reason why Enron got away with their scandal for so long was because they had their own audit committee “checking up” on them. There is no way to completely prevent another scandal, but a scandal as big as Enron will surely not happen again. In the end, check and balance comes in to play to keep any company from pulling a scandal as big as Enron. Because there was a loose leash over the company, Enron took advantage of that to the max and scammed every investor for their money. Now the lesson has been learned and companies are being regulated and watched for the best of the investors.