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Structure:

• Company profile• The ethical point of view• The guilty parties• Main “ingredients” of the downfall• Closing thought

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Enron Company Profile• Enron Corporation was an American energy company based in Houston, Texas.

• Enron employed around 21,000 people and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of $111 billion in 2000.

• Fortune named Enron "America's Most Innovative Company" for 6 consecutive years.

• It was formed in 1985 when Houston Natural Gas merged with InterNorth.

• After several years of international and domestic expansion involving complicated deals and contracts, Enron was billions of dollars into debt.

• All of this debt was concealed from shareholders through partnerships with other companies, fraudulent accounting, and illegal loans.

Ethical Point Of View

The Guilty Parties

• These include Ken Lay, Jeff Skilling, and Andrew Fastow

• Believe Enron was great for economy• Circulated money, provided jobs, dealt with

international companies• Did not inform public in order to keep Enron

in business

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The Guilty Parties

Kenneth Lee Lay • Born April 15, 1942

Died July 5, 2006 (age 64)• Charge(s): Fraud, false

statement ; • Penalty: Could have faced

40 years in prison plus monetary fines, but died before sentencing

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The Guilty Parties

Jeffrey Skilling• Born November 25,

1953 (1953-11-25)• Charge(s): conspiracy,

securities fraud, false statement, insider trading

• Penalty: originally sentenced to 24 years and 4 months and fined $45 million USD, pending resentencing

• Status: Incarcerated

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The Guilty Parties

Andrew Stuart Fastow • Born: December 22, 1961 • Charge(s): conspiracy,

securities fraud, false statement, insider trading

• Penalty: 6 years, followed by 2 years of probation

• Status: Incarcerated

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The Guilty Parties

•Arthur Andersen was one of the world’s five leading accounting firms (Big Five)•Was paid $52m in 2000, the majority for non-audit related consulting services.•Type: Limited Liability Partnership•Founded: 1913 •Industry: Accounting, Professional

Services,Tax, Consulting;Licenses of Certified Public

Accountants surrendered in 2002

Arthur Andersen’s Houston branch

The firm said destroying

documents was routine

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The main “ingredients” for the downfall of ENRON

DEREGULATION – government decision to let gas prices float with the currents of the market

MARK-TO-MARKET – accounting practice that allowed Enron to book potential future profits on the very day a deal was signed

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The main “ingredients” for the downfall of ENRON

• SPECIAL PURPOSE ENTITIES - is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives. SPE's are typically used by companies to isolate the firm from financial risk. A company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at

risk.

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Closing thought…

“Every fraud could have been prevented

if honest people had asked the right questions

at the right time”

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