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Presentatio N On Enron Scandal Case Study: Made By
Presentatio N On Enron Scandal Case Study: Made By
N ON
ENRON
SCANDAL
CASE STUDY
MADE BY:-
NANDINI – 341
PANKAJ- 1122
ALIZA- 995
SIMRAN- 1130
NIDHI- 1119
ABOUT ENRON…
Enron Corporation was an American energy,
commodities, and services company based
in Houston, Texas.
It was founded in 1985 by Kenneth Lay as the result
of a merger between Houston Natural Gas and
InterNorth.
Enron Corporation was one of the leading supplier of
Natural Gas, Communications , Pulp and Paper
Enron employed approximately 20,000 staff with
claimed revenues of nearly $101 billion during 2000.
Fortune named Enron "America's Most
Innovative Company" for six consecutive years.
WHAT MADE IT A SCANDAL?
• During 2001, after a series of revelations involving irregular
accounting procedures bordering on fraud perpetrated throughout
the 1990s involving Enron and its accounting company Arthur
Andersen, Enron suffered the largest Chapter 11 bankruptcy in
history
• Some highlights of the scandal are:-
$30 Million of self dealings by the Chief Financial Officer
$700 Million of Net earnings disappeared
$1.2 Billion of Equity Shareholders disappeared
Over $4 billion hidden liabilities
• Many of Enron’s recorded assets and profits were inflated or totally
fraudulent and non-existent. Debts and losses were put into entities
formed offshore that were not included in the company’s financial
statements
1) KENNETH LAY
• Enron founder and former CEO
• Lay took up the reins at Enron in 1986. Prior to Enron’s collapse, he
was credited with building Enron's success. Lay resigned as CEO in
December 2000, and was replaced by Jeffrey Skilling. In August 2001,
he resumed leadership after Skilling resigned. Lay resigned again in
January 2002. He Drew Down His $4 Million enron credit line
repeatedly and then repaid the company with the enron shares after
becoming the focus of the anger of employees, stockholders and
pension fund holders who lost billions of dollars in this disaster.
2) Jeffrey Skilling:
• Former Chief Executive, President and Chief Operating Officer.
• He joined Enron in 1990 from the consultancy firm McKinsey, where
he had developed financial instruments to trade gas contracts. He
was also seen as a key architect of the company’s gas-trading
strategy. He resigned his post as Enron’s chief executive in August
2001 without a pay-off.
3) Andrew Fastow:
• Former Chief Financial Officer.
• He was fired in October 2001, when Enron made
losses amounting to $ 600 million. He was allegedly
responsible for engineering the off-balance sheet
partnerships that allowed Enron to cover its losses. He
was also found by an internal Enron investigation to
have secretly made $30 million from managing one of
these partnerships.
4) David Duncan:
• Enron’s Chief Auditor at Andersen
• His job was to check Enron’s accounts. He is accused of
ordering the shredding of thousands of Enron related
documents in an effort to hide them from the Securities
and Exchange Commission.
5) Enron’s accounting firm –Arthur Andersen
• Arthur Andersen, was Enron’s auditing firm.
• It’s job was to check that the company’s accounts
were a fair reflection of what was really going on.
The company earned large fees from its audit work
for Enron and from related work as consultants to
the same company. When the scandal broke, the US
government began to investigate the company’s
affairs, Andersen’s Chief Auditor for Enron, David
Duncan, ordered the shredding of thousands of
documents that might prove compromising. That was
after the Securities and Exchange Commission (SEC)
had ordered an investigation into the speculative
actions of Enron. Andersen fired Duncan.
WHISTLE BLOWER
Sherron Watkins was Vice President of Corporate Development at
the Enron Corporation. In June 2001, she was given the task of
finding some assets to sell off but it was very difficult for her. She
prepared a Memo regarding the various problems and placed it into
the box but this Memo was not taken into consideration. On August
22,Watkins handed CEO Lay a seven page letter and told him that
ENRON would implode in a wave of accounting scandals.
• In August 2001, Watkins alerted then-Enron CEO Kenneth Lay of
accounting irregularities in financial reports. In February 2002,she
revealed the various facts regarding ENRON partnerships and finally
resigned in November. But Watkins Revealed all the facts only after
Enron filed for bankruptcy.
• However, Watkins has been criticized for not reporting the fraud
to government authorities and not speaking up publicly sooner
about her concerns, as her memo did not reach the public until five
months after
What went
wrong??
AUDITING AND ACCOUNTING
ISSUES
As per federal securities law, accounting statement of publicly traded
corporations be certified by an independent auditor.
accounting fraud
on
different parties
• Impact on employees
a) Thousands of employee lost their jobs as well as their
retirement savings with the company.
b) The pension fund for the employees was obliterated.
c) After bankruptcy, Enron fired 5000 workers, one quarter of
its 21000 employees. The company expects to fire more
workers as it sells or shut s down business units.
d) Laid off workers received $4500 severance payment, no
matter how many years they had worked for the company.
e) Lower-level employees were prevented from selling their
stock due to 401k restriction and many subsequently lost
their life savings.
f) More than half of employees invested about $1.2billion in
Enron stock.Those shares are now nearly worthless.
IMPACT ON SHAREHOLDERS
a)Enron share holders received limited returns in law suits despite losing
billions in stock prices.
b)Eligible shareholder whose Enron holding became worthless when the
company crumbled in scandal will receive $7.2billion in settlements under a
distribution plan approved in federal court.
c) No one wants to do any more investment in the Enron
d)Undermine the investors trust in the reliability of mandated corporate
filings
e) At Enron peak ,its shares were worth $90.75 but
after the company declared bankruptcy on
december2,2001,they plummeted to $0.67 by
January 2002.
IMPACT ON COMPETITORS