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Enron
Acquired
The Bonanza for Enron: Market Accounting and Special Purpose Entities
Market accounting allows assets to include 20 years of future cash flows in the stock price, especially in industries like oil and gas where predictable revenues can be expected. Enron took advantage of special purpose entities to offload undesirable assets, recognizing revenues twice by selling to these entities at inflated prices. Enron recognized forecasted cash flows as revenue and then sold its equity in the project to a special purpose entity, recognizing the inflated value as revenue, portraying a double-dipping scenario. All these transactions were paper transactions with no actual cash exchange, portraying a complex and fraudulent financial scheme akin to a Ponzi scheme.
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