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Lessons of Enron

Lessons of Enron

On December 2, 2001, Enron Corporation of Houston, Texas and 13 of its major subsidiaries filed for Chapter 11 bankruptcy in a New York court.  With assets of approximately $49.53 billion and reported revenues of over $100 billion, Enron was the largest bankruptcy in U.S. history.  What separates Enron from most cases, however, and will forever enshrine the company into history was the magnitude of arrogance, mismanagement and fraud that not only led to its downfall but also that of its Big Five auditing firm, Arthur Andersen.  Ten of Enron's former executives, including its CEO, CFO and Chief Accounting Officer, went to prison.  The lessons of Enron must never be forgotten.

Recent Articles

Enron Lesson No. 3: Conflict of Interest

July 19, 2011

From senior management to its Board of Directors, Enron flouted even elementary conflict-of-interest standards and as a result conflict of interest is Lesson No. 3 in CreditPulse's lessons of Enron.

"Setting aside the accounting, idea of a venture entity managed by CFO is terrible from a business point of view.  Conflicts of interest galore.  Why would any director in his or her right mind ever approve such a scheme?"  So wrote Benjamin Neuhausen, a member of the elite Professional Standards Group at Arthur Andersen, in May 1999 after learning of Fastow's

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Enron Lesson No. 2: Special Purpose Entities

April 11, 2011

Special purpose entities, or SPEs, played a pivotal role in Enron's culture of concealment and financial engineering and as a result is Lesson No. 2 in CreditPulse's lessons of Enron.  "Complex dealings with itself."

In 1987, a former McKinsey & Company partner named Lowell Bryan became one of the innovators of something called securitization, a process of pooling loans together and selling them to outside investors in the form of a security, according to the bestseller Enron book The Smartest Guys in the Room by Bethany McLean and Peter Elkind.

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Enron Lesson No. 1: Mark To Market (Fair Value) Accounting

May 30, 2008

Abuses specifically related to mark-to-market, or fair value, accounting helped to facilitate the fraud and deceipt that occurred at Enron.  Although gaining in usage, mark-to-market accounting can be easily manipulated as lesson No. 1 in this 10-part series documents.

On January 30, 1992, a champagne celebration took place on the thirty-first floor of the Enron corporate office in Houston, Texas. No, the celebration wasn't for a record quarterly or annual performance.  Read further to learn the dangers of mark-to-market accounting in certain accounting applications.

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