Enron paid for profitable managers
28. Apr 2025 at 18:00
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The scandal revealed the imperfection of the markets.
When Kenneth Lay took over the leadership of the local energy company Houston Natural Gas in 1984, no one could have guessed that he would build over $ 100 billion for half a decade with its managers.
In the mid -1990s, Fortune magazine declared his Enron for six consecutive years as the most innovative company in the US when he connected energy trading with tools from the world of finance.
Kenneth Lay worked his way up among the business elite, and was well based with the then US President George Bush the elders.
In 2001, the economic miracle turned into a nightmare. Enron went bankrupt and a wide range of plenty practices of company managers led by Lay.
The collapse of Enron deprived thousands of people for the work and erased shareholders’ property for more than $ 60 billion.
The story of Enron we describe in The series Podfukáriin which we dedicate ourselves to the most famous financial fraudsters from the world and Slovakia.
In the text you can read:
- How the world corporation has become a local gas company.
- How can losses be charged as profits.
- What the appetite of Enron managers encountered.
- How many years did they sit in prison?
Inspiration from capital markets
Enron was established in 1985 by joining Houston Natural Gas and Internorth. Initially, he traded gas and electricity and also operated the second longest gas pipe in the US.
The key moment came in the year 1989when the then consultant of McKinsey’s consulting company Jeff Skilling proposed to extend the possibilities to sell gas to customers.
The result was the establishment of the « gas bank » Enron Finance Corp., which traded gas as a commodity and looked for smaller mining companies. Skilling became its director.
The company launched the first online energy trafficking system and introduced options and swaps, which had been used only in financial capital markets. In addition, she successfully lobbyed for the deregulation of the gas and electricity market.
Over the 1990s, Enron was transformed from an original gas company into investment and earned more on commissions in gas trades than on its transport.
Accounting machinations
Enron also expanded abroad. Initially, he bought energy companies, launched projects in the United Kingdom, Germany, France or Argentina. In 1996, foreign branches were up to a quarter of its sales.
Two years later Enron took over the British Water Company Wessex Water for $ 2.9 billion. Her fate typically captures the practices of managers of the American conglomerate.
In The Smartest Guys in the Room: The Amazing Rise and Scandous Fall of Enron (the most crucial guys in the room: amazing rise and scandalous fall of Enron) were described by journalists from Fortune Bethany McLean and Peter Elkind.
In short, Enron has successfully stated the waterworks on the stock exchange, but then he « broke » more than one billion dollars in cash, leaving debts.
Another secret of Enron’s success was creative accounting when the expected profits from long -term contracts and projects were entered in the accounting books as real. In other words, the company showed fictitious gains and inflated its assets.
The Financial Director of Enron Andrew Fastow and the head of the gas bank Jeffrey Skilling created a comprehensive system to cover its debts and financial problems. For example, they used the network of offhore companies to which they transferred business liabilities.
The result of the machinations was the growth of the ENRON stock course. And also high bonuses for the company bosses.
Internet adventure
At the turn of the millennium, Enron wanted to feed himself on a fool around Internet companies. He owned a network of optical cables that led from Portland to Las Vegas, where he wanted to build a large Internet user data center throughout the US.
Reports of this plan expelled the ENRON shares in a few months to more than double, from $ 40 to $ 90. During 2000, the company sold new shares for $ 924 million.
But Enron plans quickly earn on high -speed internet cables. There was already a sharp competition of giants such as Verizon Communication, who built their own optical networks.
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