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The Enron scandal was an accounting scandal involving Enron Corporationan American energy company based in HoustonTexas. Upon being The Enron Scandal Of The United States in Octoberthe company declared bankruptcy and its accounting firm, Arthur Andersen — then one of the five largest audit and accountancy partnerships in the world — was effectively dissolved. In addition Statees being the largest bankruptcy reorganization in U. Several years later, when Jeffrey Skilling was hired, Lay developed a staff of executives that — by the use of accounting loopholes, special purpose entitiesand poor financial reporting — were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives misled Enron's board of directors and audit committee on high-risk accounting practices and pressured Arthur Andersen to ignore the issues.

Securities and Exchange Commission SEC began an investigation, and rival Houston competitor Dynegy offered to purchase the company at Ernon very low price.

Many executives at Enron were indicted for a variety of charges and some were later sentenced to prison. Arthur Andersen was found guilty of illegally destroying documents relevant to the SEC investigation, which voided its license to audit public companies and effectively closed the firm. By the time the ruling was overturned at the U. Supreme CourtArthur Andersen had lost the majority of its customers and had ceased operating. Enron employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices.

As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. The resulting markets made it possible for traders such as Enron to sell energy at higher prices, thereby significantly increasing its revenue. The November creation of the EnronOnline trading website allowed the company to better manage its contracts trading business.

In an attempt to achieve further growth, Enron pursued a diversification strategy. Or company owned and operated a variety of assets including gas pipelines, electricity plants, paper plants, water plants, and broadband services across the globe. Enron also gained additional revenue by trading contracts for the same array of products and services with which it was involved. In addition, Enron was rated the most innovative large company in America in Fortune' s Most Admired Companies survey.

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Enron's complex financial statements were confusing to shareholders and analysts. The combination of these issues later resulted in the bankruptcy of Enron, and the majority of them were perpetuated by the indirect knowledge or direct actions of Lay, Skilling, Andrew Fastowand other executives such as Rebecca Mark.

Lay served as the chairman of Enron in its last few years, and approved of the actions of Skilling and Fastow, although he did not always inquire about the details. Skilling constantly focused on meeting Wall Street expectations, advocated the use of mark-to-market accounting accounting based on market value, which was then inflated and pressured Enron executives to find new ways to hide its debt. Fastow and other executives "created off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them. Enron and other energy suppliers earned profits by providing services such as wholesale trading and risk management in addition to building and maintaining electric power plants, natural gas pipelines, storage, and processing facilities.

In contrast, an " agent " The Enron Scandal Of The United States a service to the customer, but does not take the same risks as merchants for buying and selling.

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Service providers, when classified as agents, may report trading and brokerage fees as revenue, although not for the full value of the transaction. Although trading companies such as Goldman Sachs and Merrill Lynch used the conventional "agent model" for reporting revenue where only the trading or brokerage fee would be reported as revenueEnron instead elected to report the entire value of each of its trades as revenue.

This "merchant model" was considered much more aggressive in the accounting interpretation than the agent model. Other energy companies such as Duke EnergyReliant Energy Eneon, and Dynegy joined Enron in the largest fifty of the revenue-based Fortune owing mainly to their adoption of the same trading revenue accounting as Enron. Enron also used creative accounting tricks and purposefully misclassified loan transactions as sales close to quarterly reporting deadlines, similar to the Lehman Brothers Repo scheme in the financial crisisor the currency swap concealment of Greek debt by Goldman Sachs. In Enron's case, Merrill Lynch bought Nigerian barges with an alleged buyback guarantee by Enron shortly before the earnings deadline.

The Enron Scandal Of The United States to the government, Enron misreported a bridge loan as a true sale, then bought back the barges a Ejron months later.]