Scandal

1985
1985

Enron was formed by Kenneth

Lay.
1985

Enron corporation was an

American energy, commodities,
and services company based in
Houston, Texas.
Formed by Merger

Kenneth Lay merged the

natural gas pipeline companies
of Houston Natural Gas and
Inter North to from Enron.
About InterNorth

One of Enron’s primary current

holder was the Northern
Natural Gas Company, Which
was formed in 1930, in Omaha,
Nebraska.
About InterNorth

The low cost of natural gas and

cheap labour supply during the
Great Depression helped to fuel
the company’s early beginnings.
The company doubled in size by
1932 and was able to bring the
first natural gas to Minnesota.
About Houston Natural Gas

The Houston Natural Gas

(HNG) corporation was
initially formed from the
Houston Oil Co. in 1925 to
provide gas to customers.
About Houston Natural Gas

In 1981, the company become a

large dominant force in the
energy industry with a large
pipeline network.
After Merger

The company was initially

named “HNG/InterNorth Inc.”,
even through InterNorth was
technically the parent.
1985
1985

Lay was appointed as a

chairman and CEO od Enron.
Lay moved the headquarters of
the new company back to
energy capital Houston
For new name company spent
$100,000 in focus groups and
consulting before “Enteron”
was suggested afterwards it
shortened to “Enron.”
1989
1989

Over tome, the firm’s business

focus shifted from the regulated
transportation of natural gas to
unregulated energy trading
markets.
1990
1990

Skilling an energy consultant

was hired to run a new
subsidiary called Enron
Finance Crop.
1992
Diversification-1992

Natural Gas Pipeline Electricity Plants

Broadband Paper & Pulp Plant

Diversification-1992

Philippine Indonesia

India
February 12, 2001
Skilling become CEO while Lay stays on as Chairman

February 12, 2001

Enron Share Price Movement
Enron Facts & Figures

Market Capitalization- 60 Billion Dollars

Price Earning Ration- 70 Times
Prize to Book Value- 6 Times
What went Wrong?

Mark to Market method of Accounting &

Revenue Recognition.
Hiding of Debt in the company by transferring it
to SPVs
Managing the Bankers, Lawyers & Auditors
Parties Involved
Jeffrey Skilling
• Hired Accountants to
do poor Financial
Reporting to Hide
Debt.
Parties Involved
Andrew Fastow
• Mislead the BoD &
Audit Committee on
Financial Issues
August 14, 2001
August 14, 2001
Skilling resigned
and Lay become
CEO again.
 Sherron Watkins,
vice president of
Enron, warned
Lay that the
company could
“implode in a
wave of
accounting
scandals.
August, 2001
Analyst- John Olson
• He was the Only
Analyst skeptical of
Enron Story.
• Merrill Lynch fired
him & got rewarded
with 2 investment
banking Jobs worth $50
million each.
October 16, 2001
October 16, 2001

Enron announces a third-

quarter loss of $618 million.
The company later reveals that
it overstated earning dating
back to 1997.
October 31, 2001
October 31, 2001

The company discloses that it

is under formal investigation by
the Securities and Exchange
Commission (SEC).
November 9, 2001
November 9, 2001

Enron confirms that it has

agreed to be purchased by a
rival company, Dynegy for $9
billion.
While Dynegy announces it has
terminated merger talks with
Enron.
December 2, 2001
December 2, 2001

Enron files for Chapter 11

bankruptcy protection.
Enron was ranked as America’s
fifth largest company by
Fortune magazine in 2002,
despite its 2001 bankruptcy
filing.
January 9, 2001
January 9, 2002

The US Department of Justice

opens a criminal investigation
into Enron’s collapse.
January 10, 2002
January 10, 2002

Arthur Andersen LLP, the

accounting firm that handled
Enron’s audits, discloses that
its employees had destroyed
company documents.
January 15, 2002
January 15, 2002

The New York Stock

Exchange suspends trading
of Enron shares.
January 23, 2002
January 23, 2002

Lay resign as CEO. He later

steps down from the board
of directors.
May 25, 2006
May 25, 2006
Skilling and Lay were
convicted of conspiracy and
fraud.
Skilling was also convicted
on one count of insider
trading and five counts of
making false statements.
July 5, 2006
July 5, 2006
Lay died of a heart attack
while awaiting sentencing.
Impact on Shareholders
Impact on Government
Enron’s fraud prompted the U.S.
congress to pass SARBANE-OXLEY
ACT 2002 (SOX 2002) which forces
corporate executive to take personal
responsibility