"Enron Collapse": The causes for the collapse of Enron Corporation.

Essay by trey682University, Bachelor'sA+, October 2005

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The fall of the colossal entity called Enron has forever changed the level of trust that the American public holds for large corporations. The wake of devastation caused by this and other recent corporate financial scandals has brought about a web of new reforms and regulations such as the Sarbanes-Oxley Act, which was signed into law on July 30th, 2002. We are forced to ask ourselves if it will happen again. This essay will examine the collapse of Enron and detail the main causes behind this embarrassing stain of American history.

Whenever someone hears the word "Enron" today, they usually think of the transgressions committed by the top-level executives who successfully managed to destroy the company's reputation and achievements. Actually, the company has been in business for more than 20 years and was once well known for being one of the premier American energy corporations [1]. The key to its inevitable downfall was greed.

A group of Enron management made the decision to put their own personal desires for wealth and power ahead of the company, its employees, and the thousands of investors who trusted in the stocks they held. How did they do it?

The problems began in 1999 when Enron created two non-consolidated special purpose entities, or SPEs [2]. The investment companies were formed by Enron's CFO Andrew Fastow with the approval of the board of directors [3]. A major conflict of interest lied in the fact that Mr. Fastow became managing director of these companies while holding onto his title of Enron CFO [3]. Enron used the SPEs to help reduce visible losses and spread the overall risk by using them as separate investment entities [2]. These entities dumped millions of dollars into various investment deals and outside projects [3]. The entire operation was complex to say...