Enron Corp. was the result of merger between Houston Natural Gas and Internorth. There was a shift to unregulated energy trading markets from regulated transportation of natural gas. Enron was a Fortune 500 company and was in #7 in 2001 was deleted from New York Stock Exchange. According to the mangers of Enron who reviewed the accounts of the company, during California energy crisis Enron has kept undisclosed reserves of up to $1.5 billion in trading profits.
Enron came under fire from politicians of price gouging. The hidden reserves would have doubled the Enron's reported profits. It is also reported that Enron manipulated reports on reserves to have steady profit growth to Wall Street and credit rating agencies. The executives also claimed that the reserves were held back and used to fulfil the political and financial ends.
In 1990 Enron reported its total revenue as $10 billion and in the next subsequent ten years it grew by $101 billion. It emerged as one of the fast growing companies in the United States. The main reasons for its collapse is not due to the core energy operations but the company's new ventures in dot com sector and investments Internet and communication business.
According to investigators of the security of exchange commission gone into investigate the case, have interviewed witnesses to come to a conclusion that the methods or practices violated the laws for doctoring quarterly earning refers to start cookie jar reserves. The existence of Enron reserves puts strange twist to it.
The executives of Enron inflated profits and concealed losses with official balance sheet. Partnership in this scenario of reports that Enron has shown wrong accounts in December 2000, the company filed for bankruptcy protection but interviews with more than a dozen ex-Managers and Executives revealed that the Enron many a time paid the profits on trading to meet the needs of politicians and financiers.
The major portion of the gains were Shown on paper only on long term contracts only had it been the cash that could have put off liquidity crisis that led to its collapse. As per one of the former Executives, before a few months of Enron bankruptcy, the reserves were depleted.
It is common to use reserves to manage profits through it is unlawful. The former long time chairman and company's president chief executive were aware of the reserves and felt them proper. Judy Leon, Skilling's spokes woman said that Skilling did have any knowledge of unlawful and illegally activity with the reserve account. Further she said that many kept in credit reserves to save the Enron form the risk as California facilities could be bankrupted by the crisis, which may lead to situations where they cannot pay their debts.
Slowly the Enron's activities came into light when the then CEO Jeffrey Skilling resigned in August 2001 from his position without giving any proper reason. This was the starting phase of its collapse. In October Enron incurred first quarterly in four years that was up to $1 billion because of poor business performance. In November 28 2001 Enron's debt was downgraded to below investment grade by the bond rating agencies.
The Justice Department was handed over the Enron's case and it conducted a criminal investigation and the case was brought to the Senate and the House, which held