Enron: the Nigerian Burst Deal

 Enron: the Nigerian Burst Deal Article

April four, 2006

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1 Advantages: The Nigerian Barge Deal

Enron Corporation was an energy company located in Texas and created once InterNorth obtained Houston Natural Gas Company in 1985. Enron's growth was fast, it was named \America's Most Innovative Company" for 6 consecutive years and this soon became the 7th largest company in the United States, until its individual bankruptcy was reported in 2001. Accounting scams, money washing and conspiracy are some of the prices which Enron stood offender of in a series of scandals that nally came to a head in the largest individual bankruptcy in history.

One of these scandals was named the Nigerian Barges case ([Fleischer1, 2005]). Enron tried to offer an interest in three power-generating barges in the coast of Nigeria unsuccessfully. When Enron failed to offer it by Dec of 1999, Merrill Lynch, one of the planet's leading nancial management and advisory companies, agreed to buy that curiosity. That purchase was shut at the end of December 1999, and therefore Enron could publication about a dozen million dollars in earnings that 12 months and satisfy earning objectives.

But the deal was a fraud ([Kirkendall, 2005]). The main issue with this offer was that Merrill Lynch acted only as being a temporal client to help Enron look even more protable than it really was. Enron's Key Financial Ocer Andrew Fastow promised verbally to Merrill Lynch that Enron might buy back the barges at a determined prot within just six months, or perhaps Enron would nd a third company to do this. This reality turned the transaction to be a simple financial loan, and not an absolute sale, because Enron believed. Enron's goal with this kind of transaction was not other than making its nancial statements look better so that it could improve the income statement and then, for instance, borrow money from banking companies and the public in a lower rate of interest, or simply spend the business owners in Enron unwarranted additional bonuses. Six months afterwards, Enron could not nd a purchaser to get the interest that Merrill Lynch had bought. Thus, Toby Fastow organized for LJM2 ([Fleischer2, 2005]), a company that he was functioning at that moment, to fulll the verbal guarantee of purchasing Merrill Lynch's curiosity. Enron as well agreed to arrange for another other to purchase LJM2's interest. 1

As a result of this kind of transaction, four Merrill Lynch's executives had been accused of lying, ob- structing justice, conspiracy and fraud to mislead Enron investors, and they were ruined to face jail sentences ([Chron, 2005]).

two The Nigerian Barge Agreement

Every business has di erent associations with other business and it is determined by them. The main way to excercise these relationships is through legal agreements between a number of parties termed as contracts. A contract can be dened as follows (extracted from the document [Segal, 2005]): \a contract is a between two or more parties that may be legally enforceable in the event of a breach".

Enron and Merrill Lynch a new contract by which Merrill Lynch decided to get the barges in Nigeria by December 99, and verbally Enron began to buy them back within just six months. Next sale grew to be considered as a fraud, a few lawyers claimed there was no global agreement between the celebrations (and after that that the agreement was not valid), and some other folks simply stated the fact that agreement was oral. To ensure a contract to get considered valid, four standard elements are required to be accomplished.

The rst requirement for an agreement is that, because extracted to sum up denition of the contract, there has to be an agreement ([Segal, 2005, Bagley, 2005]) between the parties inside the contract. This kind of agreement is merely obtained when ever one get together accepts the particular other party o ers.

Enron o ered to Merrill Lynch 3 barges in Nigeria to get seven million dollars. Enron's CFO Andrew Fastow also confident Merrill Lynch that it will not lose any money with the transaction, even predicting that it will earn any of 22: 5% for it, since Enron yet another...

References: [Bagley, 2005] Bagley, C. Electronic. Using Deals to Sobre

ne and Strengthen Relationships

[Capacity, 2006] Wikipedia, the free Encyclopedia. Capacity Sobre

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http://en.wikipedia.org/wiki/Capacity (law)

[Chron, 2005] Chron. com Ex-Enron, Merrill executives sentenced

[Contract, 2006] Wikipedia, the free of charge Encyclopedia. Agreement De

nition

http://en.wikipedia.org/wiki/Contract

[Cornell, 2005] Cornell Law Institution

http://www.law.cornell.edu/wex/index.php/Contracts

[Fleischer1, 2005] Fleischer, V

[Fleischer2, 2005] Fleischer, V. More on Financial Engineering. Obtainable from:

http://www.theconglomerate.org/2005/08/more on financi. html

[Glisan, 2003] Usa District Court. Souther Area of Arizona, Houston Split.

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[Kirkendall, 2005] Harrisburg 's Crystal clear Thinkers, Kirkendall T

[Segal, 2005] Segal, Martin Electronic. The Function of Deals. In Preventative Law for Business

Professionals

[Skilling & Causey, 2004] United states of america District Courtroom. Souther District of Arizona, Houston

Division

secskllng21904cmp. pdf

[Smith, 2005] Smith, Craig A

http://www.west.net/ smith/offer and acceptance. htm

[Statute, 1990] Statute of Frauds

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