Enron Scandal

Key People

Kenneth Lay: Chairman and Founder, Enron.

Jeff Skilling: COO & former: Consultant, Mc. Kinsey.
Sherron Watkins: VP, Corporate development.
Fastow: CFO
Timeline

1985: Kenneth Lay formed Enron was formed after merging Houston
Natural Gas and InterNorth.
setup a gas bank through which buyers and sellers of natural gas could
transact with each other.
Recruits Jeff Skilling, a McKinsey consultant.
1990s: major gas trading operations were established.
Extended business to power supply business in a global scale.
Expanded power supply business world wide.
Skillings vision was to transform Enron into a giant, asset-light
operation, trading power generally and his next target was trading
electricity.
Lay was lobbying Washington hard to deregulate electricity and Skilling
took Enron into California, buying a power plant on the west coast.
Timeline

2001: Skilling was appointed as COO.

2001: Enron faces several serious operational challenges, namely
logistical difficulties in operating a new broadband communications
trading unit,
losses from constructing the Dabhol Power project, a large power plant
in India.
There was also increasing criticism of the company for the role that its
subsidiary Enron Energy Services had in the California electricity crisis of
20002001.
On August 14, 2001 Skilling Resigns as COO.
On August 15, Sherron Watkins, vice president for corporate
development, sent an anonymous letter to Lay warning him about the
company's accounting practices.
 Watkins contacted a friend who worked for Arthur Andersen and he
drafted a memorandum to give to the audit partners about the points she
raised.
On August 22, Watkins met individually with Lay and gave him a six-page
letter further explaining Enron's accounting issues. Lay questioned her as
to whether she had told anyone outside of the company and then vowed
to have the company's law firm, Vinson & Elkins, review the issues.
September 9, one prominent hedge fund manager noted that "[Enron]
stock is trading under a cloud." The sudden departure of Skilling
combined with the opacity of Enron's accounting books made proper
assessment difficult for Wall Street.
On October 15, Vinson & Elkins announced that Enron had done nothing
wrong in its accounting practices as Andersen had approved each issue.
 By the end of August 2001, company's stock value still falling.
Some observers suggested that Enron's investors were in
significant need of reassurance, not only because the company's
business was difficult to understand but also because it was
difficult to properly describe the company in financial
statements.
Analysts stated it is really hard to determine where Enron is
making money it is losing money.
Lay accepted that Enron's business was very complex, but
asserted that analysts would "never get all the information they
want" to satisfy their curiosity.
 By the end of August 2001, company's
stock value still falling.
Some observers suggested that the
company's business was difficult to
understand and it was difficult to
properly describe the company in
financial statements.
 Suspicions grew that Enrons earnings had been manipulated and
in late summer 2001 it emerged that its Chief Finance Officer,
Fastow had privately made himself rich at Enrons expense
through the off-balance sheet vehicles.
December 2001, Enron filed for the biggest bankruptcy the USA
had yet seen.
This, in turn, took down one of the largest accounting firms in the
world, Arthur Andersen, which was deemed to have so
compromised its professional standards in its dealings with its
client Enron that it was in many ways complicit in Enrons
criminal behaviour.
What Happened?

Enrons focus was on rapid expansion of its business over multiple

domains.
For this they tried lobbying governments to dilute its policies such as
decentralising power generation in Washington.
The company was also violated contracts in projects spread across the
world.
The companys expenses where more than its revenue. This was kept
under cover form the share holders by preparing fake financial
statements and arranging funds form various financial vehicles.
This caused increase Enrons liabilities / debt.