Enron Scandal

 BUSC51F20S033 Isha Akram
 BUSC51F20S021 Fahad Tariq

 BUSC51F20R028 Saba Mukhtar
ENRON?? (1985)
 Enron was formed by

Kenneth Lay.
ENRON:
 Enron corporation was an American

energy, commodities, and services
company based in Houston, Texas.
Formed By:
 Kenneth Lay merged the

natural gas pipeline companies
of Houston Natural Gas and
InterNorth to form Enron.
InterNorth:
 One of Enron’s primary current holder

was the Nothern Natural Gas Company,
which was formed in 1930, in Omaha,
Nebraska.
 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 natuarl gas
to Minwsota.
Houston Natural Gas:
 The Houston Natural Gas (HNG)

corporation was initially formed from
the Houston Oil Co. in 1925 to provide
gas to customers.
 In 1981, the company became a large
dominant force in the energy industry
with a large pipeline network.
After Merger:
 The company was initially

named “HNG/InterNorth
Inc.”, even though InterNorth
was technically the parent.
1986
 Lay was appointed as a

chairman and CEO of Enron.
 Lay move the headquarters
back to energy capital
Houston.
 “Enteron” was suggested
afterwards its shortened to
“Enron.”
1989 (Focus Shifted)
 Over time, the firm’s business focus

shifted from the regulated transportation
of natural gas to unregulated energy
trading markets.
1990
 Skilling, an energy consultant

was hired to run a new
subsidiary called Enron
Finance Corp.
Diversification - Across Globe
February 12, 2001
 Skilling becomes CEO while

Lay stays on as chairman.
Enron Share Price Movement:
Enron Facts & Figures:
 Market Capitalization - 60 Billion $

 Price Earning Ratio - 70 times
 Price 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-
 Arthur Andersen & Co, Ignored the Accounting

Issues & was paid Weekly Fees of $1 million
( Approx)
 Jeffrey Skilling – Hired Accountants to do poor
Financial Reporting to Hide Debt
 Andrew Fastow – Mislead the BoD & Audit
Committee on Financial Issues
August 14, 2001
 Skilling resigned and Lay

became CEO again.
August 2001
 Sherron Watkins, vice

president of Enron, warned
Lay that the company could
‘implode in a wave of
accounting scandals.’
Analyst – John Olsan
 He was the only analyst

skeptical of Enron story.
 Merrill lynch fired him and
got rewarded with two
investment banking jobs worth
$50 million each.
0ctober 16,2001
 Enron announces a third

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

is under formal investigation
by the Securities and
Exchange Commission (SEC)
November 9,2001
 Enron confirms that it has

agreed to be purchased by a
rival company, Dynegy for &9
billion.
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, 2002
 The US Department of justice

opens a criminal investigation
into Enron’s collapse.
January 10, 2002
 Arthure Anderson LLP, the

Accounting firm that handled
Enron’s audits, discloses that
its employees had destroyed
company documents.
January 15, 2002
 The New York Stock

Exchange suspends trading of
Enron shares.
January 23, 2002
 Lay resigns as CEO.

 He latter steps down from the
Board of Directors.
May 25, 2006
 Skilling and Lay where convicted of

conspiracy and fraud.
 Skilling was also convicted on one
count of insider trading and five
counts of making false statements.
Skilling Lay
July 5, 2006
 Lay died of a heart attack

while awaiting sentencing.
Impact on Shareholers
Impact on Government
 Enron’s fraud prompted the U.S.

congress to pass SARBANE –
OXLEY ACT 2002 ( SOX 2002)
which forces corporate executive to
make personal responsibility.

Enron Scandal

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 BUSC51F20S033 Isha Akram

 BUSC51F20S021 Fahad Tariq

 Enron was formed by

 Enron corporation was an American

 Kenneth Lay merged the

 One of Enron’s primary current holder

 The Houston Natural Gas (HNG)

 The company was initially

 Lay was appointed as a

 Over time, the firm’s business focus

 Skilling, an energy consultant

 Skilling becomes CEO while

 Market Capitalization - 60 Billion $

 Mark to Market method of Accounting & Revenue Recognition

 Arthur Andersen & Co, Ignored the Accounting

 Skilling resigned and Lay

 Sherron Watkins, vice

 He was the only analyst

 Enron announces a third

 The company discloses that it

 Enron confirms that it has

 Enron files for chapter 11

 The US Department of justice

 Arthure Anderson LLP, the

 The New York Stock

 Lay resigns as CEO.

 Skilling and Lay where convicted of

 Lay died of a heart attack

 Enron’s fraud prompted the U.S.

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