Headquartered in Houston, Texas, HNG was a utility gas company acquired by InterNorth in 1985. With InterNorth CEO EnterOn or Enron.
Soon after settling the debt incurred as a result of the purchase of HNG by InterNorth, Kenneth Lay came up with the idea of using ‘EnterOn’ (in Camel case) as the name for the new company. As it was about to be released after printing all the stationary, they realized that the word when translated into Greek meant “intestines”, the name was quickly changed to Enron.
Enron soon emerged into the market as a leading energy distribution company, simultaneously dealing in industries ranging from coal, paper, pulp, plastics to pipes and wind energy distribution systems etc.
Usage of Special Purpose Entities (SPEs), shell firms formed by sponsors, that enable joint investment ventures with partners, while allowing for the disclosure of financial information (debts) but to a limited extent off the balance sheet, to hide billions of dollars of debt. SPEs require atleast in amount to 3% of the overall assets to be owned by independent equity owners (Healy). Investigations found that there were significant amounts of violations to this rule. Through ignorance of this rule, Enron was able to avoid carrying out consolidation on these SPEs, resulting in the company’s balance sheet to understate liabilities and overstating equities as well as its earnings.
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