ENRON SCANDAL

Created by:
Mufassil Haque
Enron Corporation

 Enron Corporation was an American energy, commodities, and

services company based in Houston, Texas.
 It was founded in 1985 as a merger between Houston Natural
Gas and InterNorth, both relatively small regional companies.
 Enron was famous throughout the business world and was known
as an innovator, technology powerhouse, and a corporation with
no fear.
Contnd..

 By early 2001, Enron had morphed into the 7th largest U.S. company,
and the largest U.S. buyer/seller of natural gas and electricity.
 Before its bankruptcy on December 2, 2001, Enron employed
approximately 20,000 staff with claimed revenues of nearly
$101 billion during 2000.
 Fortune (business magazine) named Enron "America's Most
Innovative Company" for six consecutive years.
Enron Scandal
Enron Scandal
 On October 16, 2001, in the first major public sign of trouble, Enron
announces a huge loss of $618 million..
 On October 22, 2001, the Securities and Exchange Commission
(SEC) begins an inquiry into Enron’s accounting practices.
 In December 2, 2001, Enron files for bankruptcy.
 Enron was charged with securities fraud(fraudulent manipulation of
publicly reported financial results, lying to SEC,…)
Key Players

 Kenneth Lay. Former CEO and chairman of Enron.

 Jeff Skilling; former CEO of Enron convicted of and found guilty of 19
counts of conspiracy, fraud, insider trading, and making false
statements.
 Andrew Fastow; former CFO of Enron, charged with 78 counts of
fraud, conspiracy, and money laundering.
KENNETH LAY

 Founder, CEO and Chairman of Enron Corporation for most of its

existence.
 Lay was indicted by a grand jury and was found guilty of 10 counts
of securities fraud.
 Lay died of a heart attack while vacationing, three months before
his October 23 sentencing.
 Investigative Findings
Enron also used complex & dubious accounting schemes

 to reduce Enron’s tax payments;

 to inflate Enron’s income and profits;
 to hide losses in off-balance-sheet subsidiaries;
 to fraudulently misrepresent Enron’s financial condition in public
reports.
 When Jeffrey Skilling(Part time CEO) was hired, he developed a staff
of executives that – by the use of accounting loopholes, special
purpose entities, and poor financial reporting – were able to hide
billions of dollars in debt from failed deals and projects.
 Many of Enron's recorded assets and profits were inflated or even
wholly fraudulent and non-existent.
 Debts and losses were put into entities formed "offshore" that were
not included in the company's financial statements.
 It managed to conceal its debt from shareholders by getting into
partnerships with other companies, practicing fraudulent
accounting, and getting illegal loans.
Enron Stock Price from Aug 23,2000 to Jan 11,2002
Aftermath of Enron’s bankruptcy

 The bankruptcy affected at least the 21,000 Enron

employees.
 A lot of people lost their steady income, their security to
feed their families and many people's futures were
shattered due to the loss of pension.
 Shareholders lost a total of $74 billion.
Sarbanes-Oxley Act (2002)
Sarbanes-Oxley Act is a US federal law that came after the Enron
scandal.

 This act was enacted by the U.S. Congress to protect

shareholders and the general public from fraudulent
practices and accounting errors carried out in
enterprises; and also improve the accuracy of corporate
disclosures.
 Before the Enron scandal, Arthur Andersen was one of
the ‘Big Five’ accounting firms.
 They were Enron’s auditors yet failed to declare the real
financial position of Enron.
 Andersen was found guilty of obstruction of justice since
it shredded its Enron audit files.
When the scandal broke, the
world was shocked that not
only could a Fortune 500
company pull off such massive
fraud, but one of the world’s
largest accounting firms
looked the other way during
the audacious crimes .
THANK YOU