Enron Corp. founded in the latter 90s was a leading American company with massive transactions and a number of creditors and investors.
At the opening of the 21st century, the company had a fall which is still considered the biggest collapse ever in the history of the U.S. The company completely ceased its operations in 2007.
On taking up his new position as the CEO of FTX, the restructuring specialist, John Ray analyzed the condition of FTX as similar to the one that was faced by Enron.
Enron: Origin And History
Enron Corporation was founded in 1985 as a U.S.-based energy company. Enron Corporation was founded by Kenneth Lay. It was a merger between InterNorth Inc and Houston Natural Gas Corporation.
InterNorth Inc was an energy company expertizing in natural gas pipelines and in the plastics industry, and the exploration and production of coal and petroleum. It was based in Omaha, Nebraska.
Houston Natural Gas Corporation (HNG) was an energy company that was founded in 1940 in Houston, Texas. It was a unit selling gas products of the Houston Pipe Line Company.
Kenneth Lay was the Chief Executive Officer (CEO) of the Houston Natural Gas. On the merger, he succeeded as the Chief Executive Officer and Chairman of Enron Corporation.
Enron took advantage of the subsequent conditions then present in the energy market. There was deregulation in the market that opened a path before the companies to place bets on future prices.
Enron Corporation Growth
Kenneth Lay gave form to Enron Finance Corporation in 1990. Jeffrey Skilling was appointed to lead the new corporate venture. Prior to that Skilling was a consultant and one of the youngest partners at McKinsey & Co.
Skilling made a historic contribution to the accounting of Enron. It was he who made the company’s transition from the traditional accounting method to the MTM (market to market). MTM is an approach utilized to measure the fair value accounts that can have variations over time like the assets or liabilities.
In October 1999, Enron launched EnronOnline (EOL). It was a virtual platform in the form of a website that enabled electronic trading by applying a primary focus on commodities.
Enron functioned as the counterparty in every transaction that was made through EnronOnline. It sometimes took over the role of the buyer and at other times, the role of the seller.
Enron had employees above 20,600 in number and was one of the largest American companies. It had forces in electricity, natural gas, communications, and in pulp and paper. As per the revenue records of 2000 Enron was supposedly claiming above 101 billion USD that year.
Enron held the title position of “America’s Most Innovative Country” for 6 succeeding years which was powered by Fortune, a multinational business magazine rooted in New York, USA. Enron was widely regarded as the Wall Street Darling.
During the prominent years, Enron had shares worth 90.75 USD.
Enron In Controversies
Enron: The Fall
The fall of the energy giant took place in 2001. On December 2, 2001, the company declared chapter 11 bankruptcy. It was later revealed that at that time the company was trading at 0.26 USD. It is referred to as the Enron scandal. The company was charged with accounting fraud and corporate corruption.
The prior reason for the company hitting its rock bottom is considered that the axis leadership fooled their regulators with fake holdings and off-the-books accounting practices, which ran for a considerably long time.
The company was also reported of using special purpose vehicles (SPV s) or special purpose entities (SPE s) in an attempt to conceal their crowding debts and other illegal assets from the creditors and investors.
Following this, in the years from 2004 to 2011 the company was entitled to pay above 21.7 billion USD to its creditors.
John Ray is appointed as the new chief executive officer of FTX. He is a U.S. attorney known for his expertise in insolvency. He is regarded as the turnaround titan in corporate and law circles. Ray is noted for both his oversight in the restructuring and bankruptcy procedures.
He was the general counsel for the Fruit of Loom, Pac- West Telecomm, National Century Financial Enterprises, Overseas Shipholding Group, and Nortel Networks.
Ray is best known for leading Enron Corporation, in oversewing its liquidation in bankruptcy proceedings.
Enron was one of the most revenue-generating American companies. The firm hit rock bottom because of the fake holdings, and off-the-book accounting practices that fooled regulators. The company lost its position in the market overnight.
After the company filed for bankruptcy, it changed its name to the Enron Creditors Recovery Corp. The chapter 11 bankruptcy declaration of Enron is to date the largest one ever.
Ray being appointed as the CEO of FTX, and his action was filing for Chapter 11 bankruptcy. He had appointed Sullivan and Cromwell as the restructuring advisors of FTX. He is reportedly holding a plan in development for the process of restructuring the whole crypto exchange.
John Ray handled the liquidation of Enron’s operations in a way that generated 20 billion USD back for the investors.
Later in 2003, he made an appearance in Enron as a response to the call for the purpose of fighting back a civil lawsuit in opposition to Citigroup, Deutsche Bank, and other banks that had been charged with the manipulation of the finances of Enron. As a result of this, an additional 7 billion USD was dispersed between the creditors.
Ray was talking about FTX in the light of his previous experiences at Enron and he made a view that the Enron scandal involved highly sophisticated crimes and FTX consists of a not-at-all-sophisticated embezzlement in an old fashion.
He had previously commented despising the way of operation that was being followed in FTX in the recent time.
He said that he has never seen such an irresponsible absence of record keeping with no internal controls whatsoever and he said that it would not be possible to recover all the losses because of the aforementioned practices.
Ray has not revealed the approach that would be adopted on regulation but he pressed that the most important thing that is needed now is records and controls. As there is a need to segregate the money of people.