Kyle Wright Enron Enron was an American energy, commodities, and services company who filed for bankruptcy. Up until this point, Enron was considered “America’s Most Innovative Company” by Future​
for six consecutive years. According to Enron’s annual records, they generated $111 billion in revenue just a year before they filed for bankruptcy, but how is a company able to revenue such an enormous amount of money, and be eligible to file for bankruptcy the next year? The answer is in their accounting method, and their stocks. Enron used a unique type of accounting called “Mark­to­Market.” But this wasn’t the only factor that assisted in Enron’s downfall, a great deal of other events finally led them to their demise. On December 2, 2001, Enron filed for bankruptcy leaving thousands of people without a job, and stocks worth pennies. As mentioned previously, the accounting method that Enron used is called Mark­to­Market. This type of accounting used imaginary numbers. For example, Enron executives estimated the amount of money they believed they would make, and then they used that number as their real amount of money made. Bethany McLean, a ​
Fortune ​
magazine reporter, asked, “How does Enron make its money?” to Jeff Skillings, the CEO of Enron. Skillings was appalled by this question, and he never could answer it, which raised some red flags. Enron claimed that they made $111 billion dollars in revenue in the year 2000, but for some reason, the CEO of Enron could not answer how his company makes their money. Believe it or not, Enron’s Mark­to­Market was approved by the SEC, which was ultimately the reason for Jeff Skillings coming to Enron. The vast majority of Enron’s actual business projects were failures, to say the least. Enron effortly tried to build a power plant in India, which ended up as a loss of $1 billion. Their attempt to be the leading company in broadband services with Blockbuster, eventually led to the vanishment of Blockbuster stores all around the country. With all of Enron’s failures, you may be thinking, “How in the world does Enron have any money at all, and how are their executives so rich?” The answer lies within Enron’s stocks. Because of their accounting method that was approved by the SEC, Enron lied about their earnings, giving them an amazing stock price. This is why Enron was considered “America’s Most Innovative Company” by ​
Future ​
for six consecutive years, and also the reason why Jeff Skillings could not answer the reporter’s question. But when Enron’s stock price fell, their company collapsed and the majority of their top executives were charged with fraud. Enron was a functional corporation for nearly sixteen years, which means the corruption in Enron lasted for that exact amount of time. The banks are one of the main reasons why the corruption was allowed to continue. The banks definitely knew what was going on. They knew about their fraudulent schemes, and they knew about the debt that Enron was covering. An argument could definitely be made that the lawyers knew what was going on, but they never received any consequences. One of the largest reasons for the banks working with Enron is because they were guaranteed stocks. Andy Fastow was the man in charge of hiding Enron’s debt, and the man who made the deals directly with the banks. As a form of currency in the deals, Fastow gave the banks a certain number of stocks. As mentioned previously, Fastow was the man behind hiding Enron’s debt. To accomplish this, Fastow created nearly a thousand fake companies that all took a small piece of Enron’s debt. December 2, 2001, Enron filed for bankruptcy. The first major factor that led to the downfall of Enron was the reporter asking the question, “How does Enron make it’s money?” After this significant landmark in Enron’s history, and a number of other events, Enron’s stock price went from over $90 to being worth pennies, which ultimately killed Enron.