ENRON SCANDAL

Prepared by
Student of group
6.02.072.080.18.1
Rita Syrova
Enron Corporation
Enron Corporation was an American energy,
commodities, and services company based in Houston,
Texas.
Enron employed approximately 20,000 staff and was
one of the world's major electricity, natural gas,
communications, and pulp and paper company.
It claimed revenues of nearly $111 billion during
Fortune named Enron "America's Most Innovative
Company" for six consecutive years.
Rise of Enron
In the early 1990s, he helped to initiate the selling
of electricity at market prices, and soon after, the
United States Congress approved legislation
deregulating the sale of natural gas. The resulting
markets made it possible for traders such as Enron
to sell energy at higher prices, thereby
significantly increasing its revenue.
As Enron became the largest seller of natural gas
in North America by 1992, its trading of gas
contracts earned $122 million, the second largest
contributor to the company's net income.
 Enron's stock increased from the start of the 1990s until year- end 1998 by 311%, the
stock increased by 56% in 1999 and a further 87% in 2000.
By December 31, 2000, Enron's stock was priced at $83.13 and its market capitalization
exceeded $60 billion, 70 times earnings and six times book value.
Between 1996 and 2000, Enron's revenues increased by more than 750%, rising from
$13.3 billion in 1996 to $100.8 billion in 2000.
What was the scheme?

The mark-to-market practice led to schemes that

were designed to hide the losses and make the
company appear to be more profitable than it really
was. Andrew Fastow, a rising star who was
promoted to CFO in 1998 and Jeffrey Skilling the
former CEO and architect of Enron’s business
model came up with a devious plan to make the
company appear to be in great shape, despite the
fact that many of its subsidiaries were losing
money.That scheme was achieved through the use
of special purpose entities (SPE)
An SPE could be used to hide any assets that were losing money or business ventures that had gone
under; this would keep the failed assets off of the company's books.In return, the company would
issue to the investors of the SPE, shares of Enron's common stock, to compensate them for the losses.
In total, by 2001, Enron had used hundreds of special purpose entities to hide its debt. Enron's
balance sheet understated its liabilities and overstated its equity, and its earnings were overstated.
Notable examples of special purpose entities that Enron employed were JEDI, Chewco, Whitewing,
and LJM.
Parties Involved
■ Jeffrey Skilling - the former CEO and architect of Enron’s business model, is in prison
in Englewood, Colo., five years into a 24-year sentence for conspiracy, fraud, and
insider trading. He continues to maintain his innocence and in November 2011, filed a
second petition with the U.S. Supreme Court for a new trial.
■ Andy Fastow - the former chief financial officer and one-time Skilling protégé, pleaded
guilty to two conspiracy counts and agreed to a 10-year sentence in exchange for his
testimony. He ultimately served only five years, completing the final months at home
while working as a clerk at a Houston law firm. The sentence ends Dec. 17, 2011.
■ Sherron Watkins - the Enron vice president who famously warned the company would
“implode in a wave of accounting scandals,” gained fame as a whistleblower, but she
says the label made her “radioactive” in the business world. Watkins makes her living
on the lecture circuit, where she says business groups and students are still eager to hear
about Enron.
ECONOMIC EFFECTS
■ Enron stands for the greatest company scandal in the history of the US economy and
has become a symbol of corruption for the whole Western economic system.
■ At least 4500 employees lost their jobs.
■ Investors lost some 60 billion dollars within a few days; for many it meant losing their
old-age security.
Economic effects
■ Losses on the financial market amounted to the worst stock value loss in peaceful
times.
■ Banks were suspected of collusion.
■ The auditing firm Arthur Anderson lost its accreditation.
■ The rules for company financial reporting were drastically sharpened: Sarbanes-Oxley
Act (2002)
Thanks for your attention!