Enron scandal

Presented by – Pankaj paswan

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 CONTENTS
• INTRODUCTION
• BACKGROUND
• RISE
• FACTS AND FIGURES
• WHAT WENT WRONG
• PARTIES INVOLVED
• FALL
• IMPACT

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 1985
• Founder of enron kenneth
lay.
• American energy
corporation,commodities
and services based in
houston ,texas.
• Formed by merger of
internorth and houston
natural gas pipeline

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INTERNORTH ,1930 HNG ,1925
• Manufacturing ,distribution
• Mainly distribution OF
OF NATURAL GAS
OIL gas to customer
• Bought electricity to many • Huge pipelines
places
• Large dominant force

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 1989

• It grew like anything

• Focus shifted from regulated

transportation to unregulated
energy trading markets commercial
website

• Political relations

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 1990
• Skilling, an energy consultant
was hired to run a new
subsidiary called enron
finance corporation
• Tuning point

• This was the person behind

the enron scandal. Jeffery skilling

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 Diversification-1992

Natural gas pipe lines Electricity plants

Broadband business
Paper & pulp plants
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 Diversification – Across globe
(developing countries)

Philipines
Indonesia

India
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FEBRUARY 12,2001

CEO CHAIRMAN

• Multiple times
growth
• Skilling was CEO and
ley was chairman
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ENRON SHARE PRICES - 1ST
NOVEMBER, 2000

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 ENRON FACTS AND FIGURE

• MARKET CAPITALIZATION – 60 BILLION DOLLARS

• PRICE EARNINGS RATIO – 70 TIMES

• PRICE TO BOOK VALUES – 6 TIMES

(BULLISH PHASE)

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 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

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Parties involved –

Ignored the accounting issues & was paid

weekly fees of $1 million (approx.)

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 Parties involved -

Jeffrey skilling –
hired accountants to do poor financial
reporting to hide debt

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Parties involved –

Andrew fastow [CFO] – Mislead the BOD &

audit committee on financial issues

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August 14,2001
• Skilling resigned and lay became CEO
again.

CEO
August 2001

• Sherron watkins warned lay that the company

could “ implode in wave of accounting
scandals.”

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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.
JOHN OLSON

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 October 16,2001
• Enron announces a third
quarter loss of $618 million.

• The company later reveals

that it overstated earnings
datings back to 1997.
October 31,2001

• Company discloses that it is

under formal investigation by
securities & exchange
commission (SEC )
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 November 9,2001

• Enron confirms that it has

agreed to be purchased by a
rival company, dynegy for
$9 billion.

• While dynegy announces

that it terminated merger
talks with enron.

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 December 2,2002
• Enron files for chap. 11 bankruptcy protection.

• Enron was still ranked Americas 5th largest co. by fortune magazine
in 2002, despite its bankruptcy filing.

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 January 9,2002

• The US dept. of justice opens a criminal

investigation into Enron's collapse

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 January 10,2002

• Arthur Anderson LLP, the

accounting firm that
handled Enron's audits,
discloses that its employees
had destroyed company
documents.

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 January 15,2002
• The new york stock
exchange suspends trading
of enron shares

January 23, 2002

• lay resigns as CEO . He later

steps down from the BODs.

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 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.

• Lay died of a heart-attack

while awaiting sentencing.
(July 5, 2006)
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Impact on shareholders

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 Impact on government
• Enron’s fraud promoted the U.S.
congress to pass SARBANE-
OXLEY ACT 2002(SOX 2002)

• Which forces corporate

executive to take personal
responsibility

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THANK YOU

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