The Stock Market

One major scandal revealed in 2001 was Enron, a major energy company located in Houston, Texas (Auerbach, 2010, pp. 6). This organization collapsed because of their deceptive accounting practices and mismanagement. In 2001, Enron fraudulent practices became a public scandal, and because of these practices, shareholders lost $74 billion and thousands of employees (pp. 2). Unfortunately, investors lost their retirement accounts and because they lost many employees, it left many people unemployed. Essentially, Enron kept huge debts off their balance sheets. There were so many businesses and investors that were linked to Enron, and its bankruptcy was a major movement in Congress to make a legislative initiative towards the Sarbanes-Oxley Act of 2002.

Enron was an energy trading and communications company located in Houston, Texas. During 1996-2001 Enron was given the name of America’s Most Innovative Company by Fortune magazine as it was the seventh-largest corporation in the US. The problem that led this company to bankruptcy was due to the fact that fraudulent accounting practices took place allowing Enron to overstate their earnings and tuck away their high debt liabilities in order to have a more appealing balance sheet (Forbes.com, 2002). Enron’s accounting team “cooked” the books to every meaning of the word so that their investors would not see anything wrong with the failing organization. This poorly structured company led people to jail time, unemployment, and caused retirement stocks to be dried up. Enron had a social responsibility to its stockholders and rather than being up front and honest about the failing company they hid every financial flaw in order to keep receiving money from its investors. By Enron not keeping a social

Enron had the largest bankruptcy in America’s history and it happened in less than a year because of scandals and manipulation Enron displayed with California’s energy supply. A few years ago, Enron was the world’s 7th largest corporation, valued at 70 billion dollars. At that time, Enron’s business model was full of energy and power. Ken Lay and Jeff Skilling had raised Enron to stand on a culture of greed, lies, and fraud, coupled with an unregulated accounting system, which caused Enron to go down. Lies were being told by top management to the government, its employees and investors. There was a rise in Enron 's share price because of pyramid scheme; their strategy consisted of claiming so much money to easily get away with their tricky ways. They deceived their investors so they could keep investing their money in the company.

The word “fraud” was magnified in the business world around the end of 2001 and the beginning of 2002. No one had seen anything like it. Enron, one of the country’s largest energy companies, went bankrupt and took down with it Arthur Andersen, one of the five largest audit and accounting firms in the world. Enron was followed by other accounting scandals such as WorldCom, Tyco, Freddie Mac, and HealthSouth, yet Enron will always be remembered as one of the worst corporate accounting scandals of all time. Enron’s collapse was brought upon by the greed of its corporate hierarchy and how it preyed upon its faithful stockholders and employees who invested so much of their time and money into the company. Enron seemed to portray that the goal of corporate America was to drive up stock prices and get to the peak of the financial mountain by any means necessary. The “Conspiracy of Fools” is a tale of power, crony capitalism, and company greed that lead Enron down the dark road of corporate America.

Companies such as Enron from approximately 1996 to 2001 were thriving and the stock price rising constantly. Such a move on the company’s stock was attracted millions of investors who wanted to invest in a stable company they could trust. Little did they know that the company with over 60 Billion dollars in market capitalization at one point, was about to collapse. The company’s stock reached a high of approximately 90 dollars per share in 2000, and the following year shares plummeted to less than one dollar. As one can imagine, investors were terrified, millions lost the entire retirement savings, and other were just afraid to trust the financial markets. Enron, and others were taking advantage of the loose accounting regulations to recognize revenue improperly, make use of special purpose entities to create “fake” revenue, and weak corporate governance.

The time frame is early 2002, and the news breaks worldwide. The collapse of corporate giants in America amidst fraud and stock manipulations surfaces. Enron, WorldCom, HealthSouth and later Adelphia are all suspected of the highest level of fraud, accounting manipulation, and unethical behavior. This is a dark time in history of Corporate America. The FBI and the CIA are doing investigations on all of these companies as it relates to unethical account practices, and fraud emerges. Investigations found that Enron, arguably the most well-known, had long shredding sessions of important documents and gross manipulation of stocks and bonds. This company alone caused one of the biggest economic

The stock market is what one would know as a collective group of buyers/sellers that trade stocks, also known as shares on a stock exchange. These securities are listed on the exchange itself and trade freely each and every day. On the exchange, stocks move hands day in and day out. Companies are able to get their stock listed on the exchange at any time that they want. There are other stocks, too...known as OTC stocks or over the counter stocks that go through a specific dealer. Larger companies tend to have their stocks listed on exchanges all throughout the world. Participants in the market can be anyone from your grandma, to retail investors, day traders, institutional investors, and so forth. One notable exchange is the NYSE; also known as The New York Stock Exchange. Moving forward, a stock market crash is when a decline of stock prices takes place throughout the stock market that results in a catastrophic loss of wealth via paper. The crashes are driven strictly by panic 9 times out of 10 a crash takes place. As a crash is happening, panic occurs; the panic keeps evolving and ends up like the snowball effect before you know it. A crash occurs when economic events take place. These events are always bad news... The behavior of traders follows, which leads to a crash when panic ensues. Crashes normally occur of a seven day period and may extend even further. Crashes happen in bear markets as the market is already weak to begin with. Once traders see a drop in prices,

In 2001, Enron, the largest energy company in the U.S., collapsed after a vast creative-accounting scandal. Enron practiced a type of accounting called mark-to-market practice which it used to hide losses. Mark-to-market accounting it not illegal on its own but it was used improperly by Enron. The CFO and CEO of Enron were able to write off any losses to an off-the-book balance sheet and made the company appear financially healthy (Seabury, 2008). Investors lost $74 billion while thousands of employees lost their jobs and

a. Stockholders at first reaped tremendous gains from their investments in Enron stock, because the company’s value rose a lot of quicker than market averages throughout the late Nineteen Nineties. In 2001, because the stock value folded, investors lost $70 billion in value. Each individual and institutional shareholders were hurt. Significantly blasted were Enron workers whose 401(k) retirement plans were heavily endowed in their company’s stock. Even shareholders who failed to own any Enron stock were hurt, as stock costs fell across the board within the wake of the scandal as investors doubted the integrity of the many companies’ monetary reports.

The focus of the corporation soon changed direction once it was realized that investing in selling intangible assets on the market could provide easier and higher revenue returns. This type of trading on the open stock market, with little regulations is what allowed the infamous criminal acts to take place and led to one of the world’s worst bankruptcy cases in United States history. An investigation finally occurred when investors found suspicious stock prices increasing exponentially and a whistleblower raised concern that finally revealed the fraudulent operations of Enron’s top executives conspiring with multiple businesses.

The United States stock market has experienced many interesting events this year, testing the nerves of millions of people around the world. The market started the year with the worst two-week performance in its history, creating a lot of uncertainty for the year to come. A severe decline in oil prices caused many firms within the energy industry to suffer. However, despite these negative events, gold saw its best quarter in 30 years, the market had a large reversal, and oil has been recovering. These volatile movements provided an amazing opportunity to make money for investors, relief for those who had holdings during this time, and a better outlook for firms. Two firms that have had an interesting year so far are ExxonMobil Corp. and Apple Inc. Exxon has experienced the effects of macroeconomic variables, while Apple has had some internal issues that lead to some stock price fluctuations.

Even the small profits reported by Enron in 2000 were eventually determined to be only a illusion by court-appointed bankruptcy examiner Neal Batson. Batson’s report reveals that over 95% of the reported profits in these two years were attributed to Enron’s misuse of MTM and other accounting techniques. But while financial analysts could not be expected to know that the company illegally manipulated the earnings, the reported profit margins in 2000 were so low and were declining so steadily that they should have merited ample skepticism from analysts about the company’s profits.

The case study is about Enron and about their biggest failure that lead the company towards bankruptcy. Enron got bankrupt to the extent that was no point of returning back and reversing its wrong doings. The only thing that the company had to think about was how to return the losses of its creditors. Enron Corp. was left with $12 billion in assets which was to be distributed among more than 20,000 creditors. Around 80% of creditors of Enron backed the long-awaited reorganization plan of the company. Creditors were seeking to recover more than $1200 billion. According to Stephen F. Cooper, who was the interim chief executive officer of the company said that only $67 billion was the justified amount. The amount of assets that was available to creditors could grow if the management of Enron succeeded with the mega-claim against financial institutions and leading banks that helped the organization in creating complex deals which helped it inflate cash flow and hide debt (Niskanen, 2005).

The story of Enron begins in 1985, with the merger of two pipeline companies, orchestrated by a man named Kenneth L. Lay (1). In its 15 years of existence, Enron expanded its operations to provide products and services in the areas of electricity, natural gas as well as communications (9). Through its diversification, Enron would become known as a corporate America darling (9) and Fortune Magazine’s most innovative company for 5 years in a row (10). They reported extraordinary profits in a short amount of time. For example, in 1998 Enron shares were valued at a little over $20, while in mid-2000, those same shares were valued at just over $90 (10), the all-time high during the company’s existence (9).

The case of Enron Corporation and Andersen, LLP can be noted as one of the most infamous fraud scandals in US history. Investors lost millions of dollars and ruined the public’s trust. Enron was once the seventh largest public company in the United States and Andersen LLP was the world’s largest and most respected business organizations. Enron’s stock prices soared to approximately $100 to less than $10 in 2001. How did these two big giants fall into oblivion and what could have been done to avoid the disaster of these companies?