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Aspects of Enron Scandal


Throughout the modern history of the United States, there have been several notable corporate bankruptcy scandals, including Enron and WorldCom. The former scandal revolves fake holdings, off-the-books accounting, and general financial fraud. The Enron bankruptcy in 2001 was unexpected to the whole business world and left thousands of people unemployed. At present, this case is used as one of the canonic examples of accounting fraud to demonstrate how dire the consequences of financial crimes might be. The current essay examines the history of the Enron scandal and highlights the primary reasons for the corporate failure.

Company Overview

Despite the abrupt bankruptcy in 2001, the Enron Corporation was a highly successful organization in the energy industry for many years prior. The company was established in 1985 via the merger of Houston Natural Gas Company and InterNorth Incorporated (Segal, 2021). The industry was prospering, and Enron took advantage of the market by making a series of profitable deals and bets (Segal, 2021). Furthermore, the legal regulations from 1985 to 2000 were highly flexible compared to the contemporary standards, which also benefitted the development of Enron (Segal, 2021). Enron also initiated the trends for innovative research and was one of the first companies to apply online methods of trading in 1999 (Segal, 2021). As a result, Enron became one of the largest conglomerates in the world and was highly praised for its business strategies and rapid speed of development.

Reasons for Corporate Failure and Misrepresentation

Nevertheless, the success of the organization, which peaked in early to mid-2000, did not last for a long time. In late 2000, the financial world began suspecting the possibility of accounting fraud and machinations from the company (Segal, 2021). In reality, the organization was using SPV (special purpose vehicle) transactions to hide its debts from the legal institutes (figure 1).

SPV Transaction Scheme
Figure 1. SPV Transaction Scheme (Segal, 2021).

SPV fraud was the primary means of economic misrepresentation since the executives did not disclose this information in the financial statements and balance sheets (Segal, 2021). However, the company utilized other schemes for additional money laundering as well. For instance, Andrew Fastow – CFO of the company in 2000 – was responsible for debt concealment and undocumented partnerships with other organizations (Rashid, 2020). Jeffery Skilling – the CEO in 2000 – was proved guilty of service fraud and condemned to 24 years in jail (Rashid, 2020). Lastly, Kenneth Lay – a former CEO of the company – was accountable for insider trading (Rashid, 2020). As a result, several of the executives were found guilty of various financial machinations, which ultimately led to bankruptcy.

Furthermore, Arthur Andersen – an accounting firm of Enron – has contributed to the concealment of debts and the ultimate demise of the company. The Securities and Exchange Commission (SEC) started its investigation in late 2001 and quickly found about the SPV transactions and the impact of Arthur Andersen (Segal, 2021). The accounting firm was withholding relevant documents from SEC to avoid the disclosure of financial statements, which is a transparent example of misrepresentation (Rashid, 2020). As a result, Arthur Andersen was banned from its accounting policies and suffered immense reputation damage (Segal, 2021). Shortly after, Enron acknowledged the inevitable disclosure of its fraud and filed for bankruptcy on December 2, 2001.

Ethical Perspective

Unfortunately, Enron’s machinations not only negatively impacted the business segment but also left thousands of people unemployed. On the national scale, the confidence of customers in business and economics significantly dropped after Enron and WorldCom crises (Rashid, 2020). On the local scale, Enron has always hired only the most competent workers from top universities while making a profit for the executives (MBA Knowledge Base, n.d.). In addition to the competitive and unhealthy organizational culture in Enron, the employees lost their jobs due to the illegal activities of the higher-ups. Personally, I acknowledge that the primary purpose of business is to make a profit; however, fraud schemes and behavior of the executives are unacceptable. They were completely aware that their actions might not only bring the company to its demise but also harm innocent employees.

On the positive side, the government and financial institutions learned a valuable lesson from several accounting scandals and economic crises in the 2000s. As a result, contemporary regulations are more comprehensive and address a large number of possible loopholes in the laws (Segal, 2021). Therefore, while the system can never be perfect, it is unlikely that such immense fraud operations will be overlooked in the future.


The Enron bankruptcy remains one of the largest accounting scandals in the financial history of the world. Concealment of debt, off-the-books trades, and scheming are some of the methods used by Enron to hide its debts. The executives demonstrated the most unethical behavior not only toward the industry and the business segment but also to the employees who were unaware of the illegal activities. As a result, more than 4000 workers lost their jobs due to the incompetence of the higher-ups. Ultimately, the Enron bankruptcy has negatively impacted thousands of lives and will be remembered as one of the largest accounting scandals in history.


Rashid, M. M. (2020). Case analysis: Enron; ethics, social responsibility, and ethical accounting as inferior goods? Journal of Economics Library, 7(2), 97-105.

Segal, T. (2021). 5 most publicized ethics violations by CEOs. Web.

Segal, T. (2021). Enron scandal: The fall of a wall street darling. Web.

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