Enron Stakeholders Essay

1708 words - 7 pages

Enron Stakeholder Assignment

Enron was a dream come true for a lot of people, but it was also a nightmare waiting to happen for many more. I am going to examine the collapse of Enron from the management perspective. The three examples of Enron behaving badly that I am going to study are the incidents in Valhalla, the electricity trading in California and the conflict of interest between Andy Fastow and his special purpose entities (SPE). These are just a few cases that led to the failure of the "World's Leading Company."
In 1985 Houston Natural Gas merged with InterNorth, of Omaha, Neb., to form Enron and Ken Lay was named chief executive officer. The company was basically a producer of natural gas and had control over enormous reserves throughout the oil belt. The Valhalla trading scandal was the beginning of the end for Enron. Enron acquired the Valhalla trading group through the merger. Valhalla did not produce oil, but bought and sold oil futures. It bought oil long if it thought the market would rise and short if it thought oil prices would fall (2). In January 1987, a security officer at Apple Bank in New York alerted Enron auditors of a strange set of transactions by two of the company's oil traders: Louis Borget and Thomas Mastroeni. The bank security man said that $100,000 transfers were coming from an Enron account at Standard Chartered Bank in Britain's Channel Islands. Transactions from the Channel Islands were a red flag to bank security men because the islands are a source of secret offshore bank accounts and frequently the address of convenience for firms of suspicious character. The transfers, signed by Mastroeni, came from a U.S. Enron account, then went to the Channel Islands and then landed in an account opened by Mastroeni at Apple. Stated simply, Borget and Mastroeni seemed to be writing checks to themselves (2). This new information was hard for Ken Lay to swallow for a number of reasons. First of all, the Valhalla trading company was bringing in profits of $30 million a year, which accounted for one-third of Enron's earnings. The trading company was also off-setting the bleak natural gas prices. Finally, Ken Lay, along with COO Rich Kinder and a few internal auditors made a trip to New York to investigate the trading group. Within a short time of investigating, auditors stated that foul play had occurred (1 p31). Mastroeni and Borget explained the transactions with an absurd story to carry their enormous profits from 1986 into 1987 so as to start the year with a positive balance on the company books. Enron had exceeded its budget estimate for 1986, they said, and they created the Apple account to move money to 1987. The traders got caught in cooking the books; they were keeping two sets of accounting books, one was legitimate for Author Anderson and the other recorded the real transactions (1 p31). At this point Ken Lay had the chance to do the right thing and get rid of the greedy,...

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