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The Enron Collapse: An Overview of Financial Issues, August 12, 2004 1 (August 12, 2004)

handle is hein.tera/crser0090 and id is 1 raw text is: Order Code RS21135 Updated August 12, 2004 CRS Report for Congress Received through the CRS Web The Enron Collapse: An Overview of Financial Issues Mark Jickling, Coordinator Specialist in Public Finance Government and Finance Division Summary The sudden and unexpected collapse of Enron Corp. was the first in a series of major corporate accounting scandals that has shaken confidence in corporate governance and the stock market. Only months before Enron' s bankruptcy filing in December 2001, the firm was widely regarded as one of the most innovative, fastest growing, and best managed businesses in the United States. With the swift collapse, shareholders, including thousands of Enron workers who held company stock in their 401(k) retirement accounts, lost tens of billions of dollars. It now appears that Enron was in terrible financial shape as early as 2000, burdened with debt and money-losing businesses, but manipulated its accounting statements to hide these problems. Why didn't the watchdogs bark? This report briefly examines the accounting system that failed to provide a clear picture of the firm's true condition, the independent auditors and board members who were unwilling to challenge Enron's management, the Wall Street stock analysts who failed to warn investors of trouble ahead, the rules governing employer stock in company pension plans, and the unregulated energy derivatives trading that was the core of Enron's business. This report also summarizes the Sarbanes-Oxley Act (P.L. 107-204), the maj or response by the 107th Congress to Enron' s fall, and related legislative and regulatory actions during the 108th Congress. It will be updated as events warrant. Other contributors to this report include William D. Jackson, Bob Lyke, Patrick Purcell, and Gary Shorter. Enron: What Went Wrong? Enron Corp., the first nationwide natural gas pipeline network, shifted its business focus during the 1990s from the regulated transportation of natural gas to trading in unregulated energy markets. Until late 2001, nearly all observers- including Wall Street professionals- regarded this transformation as an outstanding success. Enron's reported annual revenues grew from under $10 billion in the early 1990s to $139 billion in 2001, placing it fifth on the Fortune 500. Enron continued to transform its business but, as it diversified out of its core energy operations, it ran into serious trouble. Like many other Congressional Research Service ** The Library of Congress

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