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THE ENRON SCANDAL

THE ENRON SCANDAL. Jing Li Chrissie Parsons Holy Moye Charles Rollins. BACKGROUND. Texas-based pipeline company formed in 1985. One of America’s largest energy companies From 1996 and 2000 , revenues increased by more than 750%. Scandal revealed in 2001.

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THE ENRON SCANDAL

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  1. THE ENRON SCANDAL Jing Li Chrissie Parsons Holy Moye Charles Rollins

  2. BACKGROUND • Texas-based pipeline company formed in 1985. • One of America’s largest energy companies • From 1996 and 2000, revenues increased by more than 750%. • Scandal revealed in 2001. • Stock price fell from $90 per share to less than $1

  3. KEY PLAYERS • Kenneth Lay – Chairman and CEO • Jeffrey Skilling – COO, then CEO • Andrew Fastow - CFO • Rick Causey - CAO • Other Executives

  4. HOW WAS THE FRAUD PERPETRATED? • Poor corporate governance • Fraudulent accounting and unethical behavior • Inflated assets and profits • Understated liabilities and losses • Audit failure

  5. HOW WAS THE FRAUD CONCEALED? • Arthur Andersen • Deceptive transactions • Creative accounting

  6. HOW WAS THE FRAUD DETECTED? • SherronWatkins • Raptor losses • spotty cash flow

  7. HOW WAS THE FRAUD DETECTED? • Revenue growth report • Stock prices

  8. FRAUD PREVENTION • Code of Ethics • Ethical Environment • Ethical Management

  9. FRAUD PREVENTION • Conflict of Interest • Acted as “Auditor & Consulant” • Mark to Market Accounting

  10. THE IMPACT • Bankruptcy of Enron • Dissolution of the Arthur Andersen accounting firm • Employees and shareholders lost billions in pensions and stock prices • 20,000 employees lost their jobs and health insurance • Changes in corporate governance • Sarbanes-Oxley legislation

  11. SARBANES-OXLEY ACT • Passed in response to recent accounting scandals • Anti-fraud legislation • Aimed to protect investors • Corporate accountability • New financial reporting responsibilities

  12. QUESTIONS?

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