Why did Enron go Bankrupt?

Why did Enron go Bankrupt?
  1. Introduction

    Enron Corporation was one of the most successful natural gas merchants in North America. They were involved in one of the biggest economic scandals of the 20th century. It was formed in 1985 as the merger of two gas companies called Houston Natural Gas and Internorth.

  2. Its name was listed in Fortune 500 companies

    The companies were doing really well under chairman and CEO Kenneth Lay. It got ranked number seven in the list of Fortune magazine’s list of top 500 U.S. companies. It had 21,000 people working in it in 2000 and showed up revenue of 111 million dollars.

  3. Sudden downfall

    It was bizarre that happened; Enron saw a sudden downfall in the share prices. In August 2000, its stock price was $90.75, and out of a sudden, it was $0.26 on November 30, 2001.

  4. Lay sold a large number of stocks

    As the prices fell, Lay sold his stocks, because of which the employees had to buy the shares so that the company could be saved. But, unfortunately, employees say their savings get finished because of this. Another company was supposed to buy Enron, but they did not, so they filed for Bankruptcy.

  5. Huge loss

    It was a massive loss for numerous people as it wiped out more than 5500 employees and liquidated around $2.1 billion in pension plans.

  6. History of the company

    The primary reason for its Bankruptcy was faulty and alleged false financial reports shared by the company since 1997. The other reason is its poor decision of investment in South America and India. Also, the other purpose was the alleged declining performance of the Internet broadband market. (See Why did Radioshack fail?)

  7. Fraudulent profits posted

    The firm’s auditor said that Enron overstated the earnings by around $600 million before June 30 in 2001. As this fraudulent data was posted, its stock value declined from $83.13 to $0.10. Employees also say that the resignation of their CEO Jeffrey Skilling was an alarm for the shareholders, which was why the U.S Securities and Exchange thought of investigating its Bankruptcy.

  8. Charges against Lay and Skilling

    After the investigation, in 2004, there were 35 counts, including conspiracy, fraud, and insider trading, by Houston Court. Also, there were similar charges with 11 crimes levied on Lay. The trial started in January 2006, and various employees were called. After several trials, Skilling was sentenced to more than 24 years of imprisonment. (See Why is Groupon failing?)

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