Enron started as a pipeline business in 1985. However over time, Enron decided to move into electricity and natural gas in the beginning of the 1990’s. The issue with moving into a new sector of business is that debt can accumulate very fast.
Forbes even named Enron, “America’s Most Innovative Company” for 6 straight years prior to its sudden collapse in 2001. Enron’s collapse was a result of manipulating the balance sheet in an attempt to keep the stock price rising. Enron kept large portions of their debt off of the balance sheet to keep the stock price rising by keeping investors optimistic. Furthermore, Enron inflated their earnings by hundreds of millions of dollars.
However; this financial fraud caused Enron’s stock price to plummet from 84 dollars in the beginning of 2001 into 0 by the end of the year. In total 74 billion dollars were lost, including many people’s retirement accounts. At the time of Enron’s bankruptcy they were 38 billion dollars in debt. If it weren’t for internal whistle blower Sherron Watkins, this stock could have maintained its fraudulent activity and been an even bigger disaster. Both the CEO and former CEO were sentences to 26 years in prison. How do you believe such a big company can not only get away with this scale of fraud but also be named “America’s Most Innovative Company” without proper do-diligence by Forbes?
DiLallo, Matthew. “Enron Scandal: A Devastating Reminder of the Dangers of Debt.” The Motley Fool. The Motley Fool, 21 June 2015. Web. 17 Feb. 2017.
Website: https://www.fool.com/investing/general/2015/06/21/enron-scandal-a-devastating-reminder-of-the-danger.aspx