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Enron Scandal

Enron Scandal. By Matt Wong Thesis: The Enron Scandal influenced by greed and immoral actions led to the American market becoming more strict upon the economic practices of large corporations that affect millions of people. Brief Summary.

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Enron Scandal

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  1. Enron Scandal By Matt Wong Thesis: The Enron Scandal influenced by greed and immoral actions led to the American market becoming more strict upon the economic practices of large corporations that affect millions of people.

  2. Brief Summary • One of the greatest and most significant accounting frauds in American history • 7th largest corporation in the United States in 2001, filed for bankruptcy at the end of the year • Greedy top executives led an immoral path to quick money, Social Darwinism/greed influenced many to lose sight of moral acts and thinking consciously of their decisions • 22,000 workers unemployed, 401k’s diminished, 60 billion dollars of debt

  3. Who is Enron? • In 2001, they were the world’s leading energy company • $90 per share in the year 2000 • 22,000 employees • International powerhouse of trading energy • Invested in innovative ideas such as selling broadband space on the internet and even in weather

  4. History of Enron • 1985 • Ken Lay merges Houston Natural Gas with Internorth, 37,000 miles worth of gas pipelines • 1989 • Enron begins to trade natural gas • 1990 • Jeff Skilling hired by Lay to lead natural gas trading commodities in deregulated markets • Schilling hires Andrew Fastow into Enron • 1990-2000 • Great success in deregulated markets • Partial profits stated were false (confidence into company) • Fortune’s “America’s Most Innovative Companies” for 6 years

  5. History of Enron (Cont.) • 2000 • Enron’s stock is at an all time high ($90 per share) • Skilling named CEO • 2001 • Skilling resigns as CEO • SEC turns formal investigation for Enron • 2002 • Powers Report is released • Congressional Hearings • Top executives are arrested

  6. Survival of the Fittest • Enron’s environment was correlated to the mentality of Social Darwinism • Workers were ranked 1-5, the 1’s would be fired • Traders were influenced to invest money into practices that were risky and immoral, but the mentality of having the most money and the quick buck blinded moral compasses • Top executives always reserved more for themselves, took advantage of those lower

  7. Cause of Exposure • Mark to Market Accounting • Could not hide numbers forever • Pressure on top executive to continue the lie Example: Skilling resigns as CEO after 6 months for “personal reasons” • International projects failed • India’s power plant never received enough support from Enron’s stock or the confidence of the national government to be utilized

  8. How come Enron was never exposed during itspeak years? • Mark to Market Accounting • Numbers seemed to flourish, no one questioned the numbers • Marketers • As they were able to profit from the practices of Enron, they never questioned the ethics or decisions of the company

  9. Ken Lay • Founder of Enron • $200 million annual salary during the 1990’s • Close relations to Bush administration (George W. Bush) • Guilty of 10 federal charges • Died July 6, 2006

  10. Jeff Skilling • Former CEO of Enron • Creator of Mark to Market Accounting • Predicted revenues without actual value • CEO form 2001 to beginning of 2002 • Left for “personal reasons” • Ironic because Enron files for bankrupt the same year of resignation

  11. Andy Fastow • Former CFO of Enron • Took advantage of deregulations • Worked with Skilling to take out smaller corporations • Creating partnerships that were strictly beneficial to Enron • Hid losses, partnerships were gained through fraud

  12. Sherron Watkins • Former Vice President of Enron • Spoke out against the immoral and illegal acts of Enron after receiving a memo • Top executives did not listen to her warnings, company is already on downfall

  13. 401K Plans • Retirement plans that has certain percentage of your money is put into each year or monthly, some are invested into stocks that inflate the total amount for the account • Money put into stocks of Enron fell from hundreds of thousands to mere thousands of dollars • Roy Rinard- 35 year 401k plan worth over $400,000 that decreased to 40,000 dollars in a year

  14. Historical Significance • California Rolling Blackouts • June 2000 • Over 100,000 businesses and residential areas affected • Sarbanes-Oxley Act • New standards for corporate accounting • Larger penalties upon practices like Enron • Corporations are required to give access to all financial documents, external and internal, to the government boards in control of regulating the Sarbanes-Oxley Act

  15. Positive from Enron Scandal • Only top executives of the entire scheme were able to achieve any success from the scandal • Enron exposed the flaws of deregulation • Government realized they had to evaluate problems in large corporations • America had to be more cautious of their markets

  16. Negative from Enron Scandal • Millions of Americans cheated of their money • Corporations that were associated with Enron had huge consequences (ex. economic losses) • Enron caused blackouts which affected countless businesses • Turned normal people to blood thirsty investors • Thousands lost jobs • Flaws of large corporations uncovered

  17. Look into the Past… • Credit Mobilier Scandal • Railroad company insiders that bribed over 30 congressman for support to continue the increasing price to build railroads • Done through billing • Credit Mobilier’s front was Pacific Union, when money came through Union Pacific, the fees would go directly to Credit Mobilier, hard to uncover • Teapot Dome Scandal • Secretary of Interior Albert Fall during Harding’s presidency leased 2 oil reserves (Teapot Dome and Naval Reserves at Elk Hill) to 2 of his colleagues, Sinclair and Doheny, who were major players of the oil market • Fall was given money to lease out these reserves to private oil companies without the public knowledge

  18. Factual Questions • What 2 companies merged to form Enron in 1985? • Houston Natural Gas and Internorth • How much was an Enron stock during the year 2000? • $90 per share

  19. Analytical Questions • Could such a large scale international scandal occur again? • Yes, greed blinds people from their immoral compasses. The environment also has a huge influence on how people make decisions such as Enron. Loopholes of regulations and accounting will always be found, and be taken advantage of eventually by those whose greed is more dominant than caring. • Will the Sarbanes-Oxley Act be effective? Why or why not? • The act’s effective will all be upon the boards responsible to practice the regulations and restrictions of the “Sox Act”. If the boards are not funded enough and not utilized by the government, it can easily be taken advantage of and this is when such corporations such as Enron would take control of the free market.

  20. Bibliography • Roston, Eric. "The Enron Players - TIME." Breaking News, Analysis, Politics, Blogs, News Photos, Video, Tech Reviews - TIME.com. 27 Jan. 2002. Web. 18 May 2011. <http://www.time.com/time/magazine/article/0,9171,1101020204-197668,00.html>. • "Enron Corp. – News, Trials and the History of the Scandal | Chron.com - Houston Chronicle." Houston News, Entertainment, Search and Shopping | Chron.com - Houston Chronicle. Web. 18 May 2011. <http://www.chron.com/news/specials/enron/>. • "BBC News | Enron: The Rise and Fall." BBC News - Home. Web. 18 May 2011. <http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/timeline/default.stm>. • Jackson, Brooks. "CNN.com - Report: Enron Execs Hid Losses, Made Millions - February 2, 2002." CNN.com International - Breaking, World, Business, Sports, Entertainment and Video News. 02 Feb. 2002. Web. 18 May 2011. <http://edition.cnn.com/2002/LAW/02/02/enron.report/index.html>. • "401(k) Investors Lose on Enron - Nov. 26, 2001." Business, Financial, Personal Finance News - CNNMoney. 26 Nov. 2001. Web. 18 May 2011. <http://money.cnn.com/2001/11/26/401k/q_retire_enron_re/>. • Leopold, Jason. "Enron Caused California Blackouts, Traders Say - MarketWatch." MarketWatch - Stock Market Quotes, Business News, Financial News. 16 Mar. 2002. Web. 18 May 2011. <http://www.marketwatch.com/story/enron-caused-california-blackouts-traders-say>. • Keko, Don. "Credit Mobilier: America's Greatest 19th Century Scandal - National American History | Examiner.com." Washington DC News, Washington DC Information, Washington DC Events | Examiner.com. 22 Sept. 2010. Web. 18 May 2011. <http://www.examiner.com/american-history-in-national/credit-mobilier-america-s-greatest-19th-century-scandal>. • "Teapot Dome Scandal." Spartacus Educational - Home Page. Web. 18 May 2011. <http://www.spartacus.schoolnet.co.uk/USAteapot.htm>.

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