The Overview Of Enron Corporation Scandal

Table of Contents

Narrative of Accounting Scandal

The central figures

What Did They Do?

How Did They Get Caught?


In conclusion

Enron began in 1985 when Kenneth Lay merged Houston Natural Gas Company into InterNorth Incorporated in Houston, Texas. Kenneth Lay, after taking over leadership of Houston Natural Gas Company in 1985, created Enron as an energy broker and supplier. Kenneth Lay founded Enron Finance Corporation under Jeffrey Skilling’s leadership.

The Accounting Scandal’s NarrativeThe Enron Corporation was bankrupted and Arthur Andersen was dissolved as a result of its accounting scandal. The accounting fraud caused many investors to lose money. When the company was not properly protected, it became an opportunity for massive exposures. The employees’ pensions were also affected. Shareholders lost $74 billion. Flanagan reported that Enron’s loss for the third-quarter was $618 millions and dropped suddenly. Andrew Fastow’s manipulation of accounting rules was used to conceal Enron debts totaling billions in losses. Arthur Andersen LLP hid the debts incurred by Enron by claiming their documents were destroyed.

Primary Actors

Jeffrey Skilling was the CEO at Enron from 1990 to 2000. After earning his MBA, Jeffrey worked for McKinsey.

Kenneth Lay, the founder and CEO of Enron for 15 years.

Skilling hired Andrew Fastow as CFO in 1998.

Segal said that Enron faked their holdings as well as the off-the book practices. Enron used Special Purpose Entities or Special Purposes Vehicles to hide their huge losses. Enron deliberately overstated income derived from a collaboration with a major market. Jeffrey Skilling, Enron’s CEO, concealed the financial losses of the company operations as well the projects in which they had partnered through mark-tomarket accounting. This accounting practice favored the recognition of current market values over book values. Andrew Fastow, the CFO of Fastow Financial Services, was instrumental in controlling financial transactions.

Arthur Andersen Enron’s accounting partner, concealed the true extent of losses to Jeffrey Skilling’s leadership. They also instructed their auditors that they should destroy all documents and files containing falsification.

How Did They Get Caught? Sherron W. Watkins VP Enron sent Ken Lay a formal letter about Skilling and the illegal activities that had been performed. Sherron and Ken Lay met to discuss the CFO’s control of Special Purpose Entities. Some employees involved in accounting also took their shares, leaving Enron with a lot of suspicion from the authorities.

SEC launched their investigation in response to the sudden loss and decrease of stock. Authorities began their investigations by investigating Enron’s business transactions and CFO Fastow’s SPE-related work. Enron and its accounting practices were also examined to determine the connection between the fraud. Enron’s officials also admitted that the company had overstated its revenues from 1997.

Segal reports that Kenneth Lay died from a heart attack shortly after his sentence. He was accused of six counts, including conspiracy and fraud. Jeffrey Skilling’s sentence was 24 years for 19 counts including fraud, insider dealing, false statements, and conspiracy. Further investigations and behavioral observations were made, resulting in a reduction of Skilling’s sentence from 24 years to 14 years. After settling the accounting fraud with the victims, he was fined $42 Million. He was due to be released in the year 2028. But he was actually released two years before, on 22 February 2019. Andrew Fastow was the Enron’s CFO and he was convicted of two counts. He served more than five-years in prison. He was also ordered to pay a $23.8 million settlement as part of his testimony against other executives in the accounting scandal. He was freed in 2011. Arthur Andersen was found guilty of obstruction in justice by covering the losses.

ConclusionEnron is the largest bankruptcy in history with assets exceeding $60 billion. Enron’s accounting practices have led to a greater accuracy in accounting standards through legislation and regulation.


  • jaycunningham

    Jay Cunningham is a 36-year-old educational blogger and professor. He has written for various publications and online platforms, focusing on topics such as teaching and learning, assessment, and higher education. He has also served as an adjunct professor at several universities.