Off-Balance Sheet Financing Cases and Examples

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Jaap de Jonge, Editor, Netherlands
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  Hira Aziz, Pakistan
 

Example of Off Balance Sheet Financing: Enron and Worldcom

In 2001, the world's leading energy company, Enron, filed for bankruptcy. Its stock price was $80 and Wall Street analysts were appreciating the company for its innovation and management success. But the energy giant dramatically collapsed within a year because of its hidden debt. It's CFO, Andrew Fastow, had arranged many partnerships whose debt were guaranteed by Enron, but not reported in its financial statements.
Consequently, the company had to face losses and filed for bankruptcy. After this, analysts and its auditor company were heavily criticized and the auditor company, Arthur Andersen, was dissolved for this criminal blindness about Enron's activities.
This bankruptcy was followed by another leading company WorldCom in 2002, also due such off balance sheet financing.

 
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