The Enron Company Collapse

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People over the world want to know what happened to Enron. Although this company's name was splashed over every news network and periodical paper in the United States, few people know the long and torrid story that lead to the collapse of an energy giant.

Enron began in the eighties as an energy company selling natural gas. When energy markets were deregulated in the mid-nineties, Enron, like many energy companies, began to focus on selling energy from other sources rather than creating it. The corporation expanded exponentially, and its stock prices soared. Because the company was so wildly successful, they began to branch out into a variety of hot markets, such as the internet. By the beginning of the millennium, Enron was a well-diversified and seemingly indestructible conglomerate with no sign of trouble in sight.

However, cracks were forming in Enron's foundation. To sustain their rapid rate of growth, the company had to borrow money. Having excess debts would make the stock look less valuable to potential investors, so the company kept its debts buried in 'partner' corporations that it began solely as a means to hide the truth about their company.

Enron was looking better and better because of their illegal and unethical bookkeeping practices. They also began another illegal practice: offering secret information to large potential investors. Legally, companies must give their smaller investors the same inside information as their larger shareholders.

Although Enron was beginning to show signs of financial failure by 2001, they hid this unfortunate fact by continuing with their unethical accounting. Industry peers were beginning to question how this one company made so much money so consistently. While the CEO Kennth Lay insisted that the company was on the up-and-up, he secretly sold his stock.

On October 16th, 2001, Enron was finally unable to hide the truth about their company. They announced a loss of $638 million dollars. When this news hit the stock market, the stock price plummeted until it was worth nothing. Creditors immediately moved in and wanted their debts paid before the company closed. When the company could not pay its debt, it was forced to file bankruptcy.

This news tore through the business and energy markets like a tidal wave. Enron had been a seemingly stable giant of industry, at one time the seventh largest business in the United States. What had seemed like a meteoric rise from an originally small Texas company was actually smoke and mirrors. People began to doubt the actual value of all of their stocks and investments, which jeopardized the entire stock market. Retirement accounts accumulated over decades were wiped out almost overnight, leaving people suddenly without their lifetime savings. The hardest hit were Enron employees. Not only did they lose their jobs, but they lost their retirement accounts, their employee stock options, and in many cases, any chance of finding another job in their field.

The good news about Enron is that it opened an era of increased government regulation and scrutiny on large corporations. People are increasingly better protected as a result of this industrial giant's collapse. Although it is unfortunate that so many were hurt by the Enron scandal, many people have learned a valuable lesson from this incident.

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Sam Simon Jones has 1 articles online

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The Enron Company Collapse

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This article was published on 2010/04/02