Enron Corp.

Group 5

Andrew BeamonBrandon Hall

Joseph GaspariniMatthew Pugh

• Founded– 1985– Kenneth Lay–Merger of Houston Natural Gas and

InterNorth

• An American Energy Corporation• External Auditor: Arthur Andersen

LLP

Background

Accounts Affected

• Mark-to-Market Accounting

• Losses –Written off to SPE

• Assets inflate profits– Purchased assets– Projected revenues immediately

recorded to books

Key Individuals

• Kenneth Lay– Founder/CEO– Retired 2001

• Jeffrey Skilling– CEO– Retired after 6 months

• Andrew Fastow – CFO– Mastermind of fraud

Detecting the Fraud

• Bethany McLean– Fortune Magazine writer

• Sherron Watkins– VP of Corporate Development–Wrote an anonymous letter to Lay about

accounting practices

Concealing the Fraud

• Executives circumvented accounting rules to artificially increase earnings

• The use of special purpose entities aka “Raptors” to buffer earnings

• Picked out bad investments, then hedged them

Arthur Andersen

• Shredded subpoenaed documents• Was paid $25 million for auditing

services and $27 million for consulting services

• Prior allegations with Waste Management and Sunbeam

• Senior executives of Enron worked for Arthur Andersen

Preventative Actions

• Arthur Andersen– External auditor and consultant

• Board of Directors– Too much upper management involved– Lack of attention caused overlook of

financials due to incentives and compensation

• CEO/CFO–Wasn’t responsible for signing off on

financial statements

Preventative Actions

• Consolidation– Didn’t have to show all entities together

which inflated assets and revenues

• Disclosure Requirements– Less requirements for detailing certain

accounts

• Sarbanes Oxley Act 2002

Key People Today

• Kenneth Lay- Deceased

• Jeffrey Skilling- Currently in prison

• Andrew Fastow- Completed prison time and now traveling the country