ENRON and Faudulent Record Keeping Practices - 1369 Words

Introduction Enron went from modestly outperforming the Standard Poor’s 500 in the early 1990’s to drastically outperforming it in 1999 and 2000. In 1999 and 2000, Enron stock increased 56 percent and 87 percent, respectively; compared with to only a 20 percent increase and 10 percent decline for the index during the same years (Healy and Palepu, 3 2003). While these increases were originally attributed to innovation (being rated the most innovative company in America by Fortune), it was later found that the stock increases were due to severe financial statement manipulation. Ultimately, Enron stock fell to under $1.00 by the end of 2001 and entered into bankruptcy on December 2, 2001 (Healy and Palepu, 3 2003) and Enron’s former chairman and CEO Kenneth Lay and former CEO and COO Jeffrey Skilling were sentenced to prison for lying to Wall Street and investors about their crumbling finances (Johnson, 2006). Cooked Books Enron conducted several fraudulent record keeping practices to keep mounting debt off their financial statements. Initially, Enron kept complex financial statements that were confusing to both its shareholders and analysts. This was the first step to cover-up and misinterpret its debt and earnings. However, as Enron’s practice grew and became more involved, Jeffrey Skilling pressured other Enron executives to â€Å"†¦create off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them.† (Elkind and