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Two major events occurred in mid-July, one was that China successfully bid for the Olympics and won the right to host the 2008 Summer Olympics, and the other was the fraud scandal of Enron in the United States.

Enron is an American energy tycoon with a natural gas transmission network across the United States and Canada, and the company is headquartered in Houston, Texas, the home of the Bush family.

As the world's largest energy trader, the company operates in 40 countries and regions around the world, employs more than 20,000 people, and has assets of up to $62 billion. The company controls 20 percent of U.S. electricity and natural gas trading, including energy wholesale and retail, broadband, energy transportation, and financial transactions.

Last year, it was ranked seventh on Fortune magazine's U.S. 500 list, and has been named America's Most Innovative Company by the magazine for six consecutive years. Enron stock is a high-performance stock strongly recommended by all securities rating agencies, with a stock price of more than $70 and still rising, becoming the target of many investors, and because of its close relationship with the Bush administration, the company's development has been more smooth.

However, in the second quarter, Enron's financial report attracted a lot of attention from investors, the media and management.

Because Enron, which has been growing its earnings for 21 consecutive months, suddenly announced a second-quarter loss of $600 million, and it was this report that kicked off the Enron affair.

Under strong pressure from government regulators, the media, and the market, Enron submitted documents to the US Securities and Exchange Commission admitting that there had been financial fraud, and that from 1997 to this year, it had falsely reported profits of more than $500 million, and had not recorded huge debts.

After Enron's financial fraud was exposed, it was violently attacked by the media, and its stock was sold off by investors, and the stock price fell all the way, from more than $80 billion at its peak to less than $200 million.

The revelation of Enron's fraud has caused a great shock in the US government and the public, and the case involves a large number of high-ranking government officials and congressmen, and will also cause the retirement funds of teachers, firefighters, and some government employees to lose more than $1 billion.

Wall Street stocks have repeatedly fallen, constantly setting new stock market lows, and investors have lost $2.5 trillion in assets invested in the U.S. stock market, equivalent to a quarter of the U.S. GDP that year.

The decline in the US stock market has also affected global stock markets, with major European stock markets and stocks such as Tokyo, Hong Kong, Singapore and Australia also falling sharply, the US dollar continuing to depreciate, the bond market also being volatile, and gold prices rising all the way.

The Enron incident also triggered a chain reaction of a series of enterprise failures, and large enterprises such as IBM and Xerox were also reported to have financial irregularities, and at the same time, American enterprises also triggered a series of bankruptcy storms, with the second-largest retailer in the United States, Kmart Corporation, the United States Globe Telecommunications Company, and the sixth-largest cable television company in the United States successively announcing bankruptcy protection, and the world's second-largest long-distance telephone company, surpassed Enron with assets of $107 billion, creating the latest bankruptcy record in the United States.

This series of bankruptcies has further dealt a blow to the U.S. financial markets, and it is such a business giant* that is regarded as a classic teaching case by all business schools has collapsed in just three months, so what caused Enron to collapse? Why did the Enron incident cause such a big shock in American society?

The Enron affair is actually a huge business scandal involving American politics and economics, top government officials and senior corporate officials, the main problem of which is the company's financial fraud.

In the United States, as long as you own no more than 50 percent of the shares of a company, even if you are the actual controlling shareholder, you do not need to record the company's debts in the name of your own company, since the mid-90s, Enron has established a complex corporate system through capital reorganization, and the number of its various subsidiaries and partnership companies exceeds 3,000, forming a typical pyramid-type affiliated enterprise group.

Enron forced these affiliated enterprises at the bottom of the pyramid to borrow for the top capital reserves, and these liabilities were not reflected in the financial statements of the head office, but their profits could be reflected in the financial statements of the head office, so that the company's return on the books continued to increase.

Moreover, because the U.S. law stipulates that different forms of organization bear different taxes on enterprises, and the general sole proprietorship, partnership, and limited liability company only have their shareholders to pay individual income tax, but do not have to pay corporate income tax.

In addition, Enron also used self-dealing to commit fraud, using the income from the sale of assets as business income and fictitious profits, and the sale of assets was mostly carried out in affiliated enterprises, and the price was significantly higher than the normal market price.

For example, in the second quarter of this year, an affiliated company of Enron bought a factory from another affiliated company of Enron for $120 million, and this transaction caused great controversy on Wall Street and in the investment circles, because no one wanted this factory two years ago, and it was actually sold to another company at such a high price, but it was this transaction that caused Enron's profit per share to increase sharply, and the market tracking caused by this transaction greatly increased.

In order to increase the amount of investment by shareholders, Enron also continued to create concepts to make investors believe that the company had entered a high-growth, high-profit field, and recorded the possible future earnings of the company in the current earnings, but did not disclose the uncertainty, which seriously misled investors.

At this point, one might ask, what are the U.S. government regulators doing? Why wasn't the problem detected in time?

As a matter of fact, the United States is one of the countries with the most developed market economy in the world, and the essence of the market economy is a contract economy, a credit economy, and a developed market economy based on this kind of credit.

Major U.S. companies generally rely on accounting firms, other credit rating agencies, and investment banks to conduct assessments and audits, and the government is very confident about this market regulatory system, so it rarely intervenes.

When the Enron fraud scandal occurred, the first thing people speculated about was whether Arthur Andersen, the well-known accounting firm responsible for Enron's audit, had any ulterior motives with Enron.

In fact, it was Arthur Andersen's illegal operations that helped Enron misrepresent profits, conceal huge debts, and mislead investors into investing.

In fact, since the 80s of the last century, Arthur Andersen has been in charge of Enron's audit work at the same time, but also to do accounts and provide consulting services for it, and last year Arthur Andersen obtained from Enron Company of 52 million US dollars, consulting services income was as high as 27 million US dollars, which shows that Arthur Andersen and Enron have a long-standing relationship of material interests.

For fear of offending these big customers, Arthur Andersen turned a blind eye to Enron's fraud, and took into account the huge consulting income, so it was natural to be open to financial auditing.

The collapse of Enron is not only a matter of the collapse of a company, it is the collapse of a system, which is not due to backwardness and imperfection, but due to **.

In fact, doubts have long been expressed about Enron's profit model, pointing out that while Enron's business looks brilliant, it doesn't actually make much money. However, because Enron had close contacts with the US government, the procuratorial organs did not dare to act rashly.

It wasn't until May of this year that an insider finally discovered Enron's huge financial problems, and that person was Enron's vice president, Sharon. Watkins, who wrote a seven-page memo to Kenneth, the former CEO of Enron, about the company's crisis. But the memo didn't get Kenneth seriously, because the CEO himself was involved in the company's deception.

After the Enron incident, the U.S. federal executive, legislative, and judicial agencies immediately activated emergency procedures to deal with the crisis, and made necessary additions and amendments to the original laws on how to effectively ensure the authenticity and fairness of the financial reports of listed companies.

Although the collapse of Enron affected the U.S. market, it also had a certain impact on domestic enterprises, and some domestic companies planned to go public in the U.S. before, due to problems such as high implementation costs in the implementation of internal control over financial reporting, a considerable number of domestic companies willing to raise funds in the U.S. postponed their listing in the U.S. or finally chose the capital markets in other regions for financing, such as Air China's shares due to the harsh regulations in the bill. It was decided to change the listing location from Hong Kong and the United States to Hong Kong and the United Kingdom, and Bank of China and China Construction Bank, which had planned to list in New York, eventually abandoned the US market.

He clearly pointed out that due to the Enron incident, the world economy has entered a new period of development, and with the fall of a large number of old huge enterprises, countless new companies have stood up.

"In this new era, we should think about what kind of model the company should develop so as not to repeat the mistakes of the past." At the meeting, Fan Wuxian put forward his requirements for many executives.

But it is clear that due to the collapse of Enron, many of the contents of economic textbooks have become inapplicable to this era, although many executives are very professionally trained, and they are also at a loss at this time.

However, as executives of Fan's Investment Group, they are still lucky, because the company's profits continue to grow at an astonishingly high rate, at least the safety of the business, is far from them.

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