ENRON SCANDAL

AKASH PAL (03)

PRATIKSHA NAMAYE (28)
VISHAL BAGADIA (41)
PRATIKSHA LOHIYA (56)
AISHNI CHHABRA (58)
 ENRON???

1985-Enron was formed by Kenneth

Lay.
Enron corporation was an American
energy, commodities, and services
company based in Houston, Texas.
FORMED BY
MERGER

Kenneth Lay merged the

natural gas pipeline
companies of Houston
Natural gas and
InterNorth to form
Enron..
INTERNORTH HOUSTON NATURAL GAS

One of Enron’s primary The Houston Natural

current holder was the Gas(HNG) corporation
Northen natural gas was initially formed from
Company, which was the Houston Oil Co. in
formed in 1930, in 1925 to provide gas to
Omaha, Nebraska. customer.
AFTER MERGER

The company was

initially named
“HNG/InterNorth
Inc.”, even though
InterNorth was
technically the
parent.
1986- lay became the CEO of the
company.
For new name company spent $
100,000 in focus groups and consulting
before “Enteron” was suggested
afterwards it shortened to “Enron”.
 1990

Skilling, an energy consultant was

hired to run a new subsidiary called
Enron Finance Corp.
 DIVERSIFICATION – Across Globe

Developing countries:

Indonesia Philippines

India
ENRON SHARE PRICE MOVEMENT

Enron shares reach high of $90.

February 12, 2001

Skilling becomes CEO while Lay stays as Chairman of the
company.
Stock hits 52-week high of $84.87
 FACTS & FIGURES

Market capitalization – 60 Billion Dollars

Price Earning Ratio – 70 times
Price to Book value – 6 times
All the financial advisors recommended this company for Wealth
Maximization. With continuous increase in share price, market was in
bullish phase.
WHAT WENT WRONG?

Mark to Market method of Accounting and Revenue

Recognition.
Hiding of Debt in the company by transferring it into
SPEs called the Raptors.
At that time there were consolidation rules. But their
holdings in the SPEs were below the set margin.
Represented certain Debt as Equity.
PARTIES INVOLVED
1. Arthur Andersen &Co was one of the Big 5 accounting
firms.
Ignored the Accounting issues & was
paid weekly
fees of $1 million approximately.
2. Jeffrey Skilling – hired Accountants
to do poor Financial Reporting to Hide Debt
3. Andrew Fastow – Mislead the Board of Directors &
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 Olson was skeptical of Enron Story.

Merril Lynch fired him & got rewarded with 2 investment
banking jobs with worth $50 million each.
Oct 16,2001- ENRON ANNOUNCED
LOSSES
Enron announced third quarter loss of
$6180 million
The company later revealed that it had
overstated earing since 1997
This had a huge impact on the share price of
the company
 Oct 31,2001 – INVESTIGATION

The company
disclosed that it was
under investigation
by Securities and
Exchange
Commission.
 November 9,2001

Enron States that DYNEGY, a rival company

has decided to buy purchase the company
at $9 Billion
However, in reality they were only
under the discussion stage
DYNEGY announced that it had terminated
merger talks with Enron
 December 2,2001

Enron filed bankruptcy under Chapter 11 of the UN act.

Despite this, Enron was ranked America’s 5th largest
company by Fortunes magazine in 2002

January 9,2002
 The US Department of Justice opened a criminal investigation against
Enron
 Thousands of peoples life was at stake because of Enron Collapse
 January 10,2002

Arthur Anderson LLP, that

handled Enron’s audit, disclosed
that employees had destroyed
company documents.
As a punishment, they we
banned to audit any Listed
Company in the world
 January 15,2002

NYSE suspended trading of Enron shares

January 23,2002

• Lay Resigned as the CEO and stepped down from the Board Of
Directors.
 May 25,2006

Skilling and Lay were convicted of conspiracy and fraud.

Skilling was also encountered on the account of Insider
Trading and 5 counts of making false statements

July 5,2006

 Lay died of heart attack while awaiting sentencing

IMPACT OF SCAM

Impact on Shareholders: There was a massive fall in share

price from $87.88 fell down to $0.67 in the span of few
months.
Enron’s fraud promoted the U.S. congress to pass
SARBANE OXLEY 2002 (SOX 2002) which forces corporate
executive to take personal responsibilities of the affairs of
the company.
THANK YOU …!!!