Sordid case of Enron company.

INDEPTH: ENRON
From collapse to convictions: a timeline

By:- S.Shiva Kumar

http://www.wix.com/sianshiv/marketing

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 The World
famous logo
among the best 10
corporate
company’s in the
world at that
time.

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Contents
Company profile
The ethical point of view
The guilty parties
Timeline : collapse to conviction
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.

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 Ethical Point Of View

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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
He was one of the world’s five
leading accounting firms (Big Five)
•Was paid $52m in 2000, the
majority for non-audit related Arthur An
dersen’s H
branch ouston
consulting services.
said
h e firm uments
•Type: Limited Liability Partnership T
ro y i n
dest was rout
c
g do e
in

•Founded: 1913
•Industry: Accounting, Professional
Services,Tax, Consulting;
Licenses of Certified Public
Accountants surrendered in 2002
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Structure of company……..

1985: Enron began in 1985, it started operations as an

interstate pipeline company. Enron is formed by the
merging of Houston Natural Gas and Omaha-based
InterNorth

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Expansion of company…….
1988: Enron opens offices in the U.K. after the country's
privatizes its power industry.

1989: Enron opens its Gas Bank, where consumers can

buy long-term supplies of natural gas at a fixed price,
even as the real price fluctuates.

1990-1998: Enron expands its holdings in the U.K., Europe,

South America and India. It moves away from natural gas
and pipeline operations to marketing in other energy-
related commodities

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Enron entered into world market..

1999: Enron launches its broadband services unit and

Enron Online, the company's website for trading
commodities, which soon becomes the largest
business site in the world. About 90 per cent of its
income would eventually come from trades over
Enron Online.

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Best achievement of company……..
August 2000: Enron's shares hit an all-time high of
more than $90 US. Annual revenues reach $100 billion
US. It is ranked the sixth-largest energy company in
the world.

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Ups &Downs Of company……..
October 2001:
Enron reports its first quarterly loss in four years,
$618 million US, and a reduction in shareholder
equity of over $1 billion. CFO Andrew Fastow is
replaced. The Securities and Exchange
Commission begins an investigation related to
investment partnerships led by Fastow. Their
investigation would later show that the complex
web of partnerships was designed to hide Enron's
debt.

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Enron shares plunge; Dynegy abandons take
over
November 2001:
Enron announces it had overstated its earnings back
to 1997 by about $600 million. Its shares plunge to
"junk" status by the end of the month. The SEC adds
accountancy firm Arthur Andersen, the auditor for
Enron, to its investigation.

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Enron files for Chapter 11; lawsuits loom

Dec. 2, 2001: Enron files for bankruptcy protection,

the largest bankruptcy in U.S. history at the time.
(The dubious title would later go to WorldCom in July
2002.) Thousands of workers would be laid off.

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Lay’s Decisions……….

January 2002: The U.S. Justice Department begins its

investigation of Enron. Lay resigns as chairman and
chief executive.

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Enron documents destroyed: auditor

Jan. 10, 2002:

Arthur Andersen says its employees destroyed a
"significant but undetermined" number of Enron
documents.

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Fired auditor refuses to answer Enron que
stions

Jan. 24, 2002:

David Duncan, a former Arthur Andersen auditor who
handled the Enron bankruptcy, invokes his Fifth
Amendment right not to incriminate himself and
refuses to testify before Congress.

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Former Enron executive found dead

Jan. 25, 2002:

John Clifford Baxter, former Enron vice-president, is
found dead in his car. He was shot once in the head,
and authorities treat his death as a suicide. Baxter
resigned as vice-president in May 2001.

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Lay resigns from Enron board ahead of subpoena &
U.S. Senators subpoena Enron's Lay poena

Feb. 4, 2002: Ken Lay resigns from Enron's board of

directors.
 Feb. 5, 2002: The U.S. Senate Commerce Committee
subpoenas former Enron CEO Ken Lay.

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Former Enron CEO says was 'not aware' of financi
alirregularities
Feb. 7, 2002: Former Enron CEO Jeffrey Skilling
denies any knowledge of financial or accounting
irregularities. At the same hearing before Congress,
four Enron executives, including former CFO Andrew
Fastow, invoke their Fifth Amendment right against
self-incrimination and decline to testify.

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Enron's Lay refuses to testify

Feb. 12, 2002:

Former CEO Lay declines to testify before Congress,
citing his Fifth Amendment right against self-
incrimination.

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Arthur Andersen charged with obstruction in Enron ca
se

March 14, 2002: Arthur Andersen is charged with

obstruction of justice for destroying paper and
computer documents related to Enron as the SEC
investigation started.

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Michael Kopper becomes first ex-Enron exec to pl
ead guilty

Aug. 21, 2002:

Former Enron executive Michael Kopper pleads guilty
to money laundering conspiracy and conspiracy to
commit wire fraud. He becomes the first former Enron
executive to plead guilty to criminal charges. Kopper
agrees to co-operate with federal investigators.

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Former Enron CFO charged with fraud, money lau
ndering

Oct. 2, 2002: Former Enron CFO Andrew Fastow is

arrested on charges of fraud and money laundering.
He would eventually face 98 charges.

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Arthur Andersen fined, given probation over Enr
on scandal

Oct. 16, 2002: Accountancy firm Arthur Andersen is given

the maximum sentence for obstruction of justice after
shredding Enron documents: five years' probation and a
$500,000 fine.

May 1, 2003: Lea Fastow, Enron's former assistant

treasurer and wife of former CFO Andrew Fastow, is
charged with conspiracy and filing false tax forms for her
role in some of her husband's deals to hide Enron's debt.

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Enron unveils restructuring plan

July 11, 2003: Enron unveils a bankruptcy

restructuring plan that would see most of Enron's
20,000 creditors receive about 20 per cent of the $63
billion US they are owed.

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First Enron executive goes to prison

Sept. 10, 2003:

Ben Glisan, a former Enron treasurer, pleads guilty to
a charge of conspiracy. He is sentenced to five years in
prison, making him the first former Enron executive
to go to jail.

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Andrew Fastow agrees to plea deal; will cooperate in E
nron case

Jan. 14, 2004: Former Enron CFO Andrew Fastow

agrees to a plea agreement and a 10-year prison
sentence. He pleads guilty to one count of
conspiracy to commit wire fraud and one count of
conspiracy to commit securities fraud. He also
agrees to co-operate with federal prosecutors. His
wife, Lea Fastow, also pleads guilty, but would
later withdraw the plea.

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Former Enron chief faces 40 federal charges

Feb. 19, 2004:

Former Enron CEO Jeffrey Skilling pleads not guilty
to 40 federal charges, from insider trading to making
false statements to auditors. He posts a $5-million
bond.

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Lea Fastow pleads guilty to tax charge, gets 12-month
sentence

May 6, 2004:
Lea Fastow, Enron's former assistant treasurer and
wife of former CFO Andrew Fastow, agrees to a plea
agreement and a one-year prison term. She pleads
guilty to filing false tax forms.

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Enron's Kenneth Lay pleads not guilty on 11 coun
ts

July 7, 2004:
Former Enron founder and CEO Kenneth Lay turns
himself in to the Houston office of the Federal Bureau of
Investigation. He is led in handcuffs to a courthouse,
where he is charged with 11 criminal charges, including
securities and wire fraud, and making false statements. He
pleads not guilty to all of them. The U.S. Securities and
Exchange Commission also files civil charges of insider
trading against Lay.

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Enron approved to emerge from bankruptcy prot
ection

July 15, 2004:

A New York judge gives his approval for Enron's plan
to emerge from bankruptcy protection, which will see
the company pay $12 billion US of the $63 billion US it
owes to about 20,000 creditors.

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Arthur Andersen's Enron conviction overturned

May 31, 2005:

The U.S. Supreme Court unanimously overturns the 2002
conviction of Arthur Andersen for destroying documents
in the Enron case. The decision says instructions to the
jury were too broad.
July 15, 2005:
Enron agrees to a $1.5 billion US settlement to end claims
that it manipulated the electricity market during the
California energy crisis of 2000 and 2001.

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Enron settles California price-gouging claim

July 15, 2005:

Enron agrees to a $1.5-billion US settlement to end
claims that it manipulated.

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Enron exec pleads guilty to securities fraud

Dec. 28, 2005:

Richard Causey, former chief accountant at Enron
Corp., pleads guilty to a single count of securities
fraud as part of a deal with prosecutors. Causey
originally pleaded not guilty to 34 counts in early
2004. The other charges were dropped, and Causey
will be sentenced to seven years in prison.

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Jury selection underway for trial of former Enron
bosses

Jan. 30, 2006:

Jury selection in the trial of Enron Corp. founder Ken
Lay and former CEO Jeffrey Skilling begins in
Houston. The trial is expected to last about four
months.

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Prosecution rests in Enron trial as some charges
dropped against Skilling, Lay

March 28, 2006: The prosecution rests in the trial

of Enron Corp. founder Ken Lay and former chief
executive officer Jeffrey Skilling. Three charges
against Skilling and one charge against Lay are
dropped after the prosecution doesn't present
evidence to support them. Skilling still faces 28
counts of conspiracy, fraud and insider trading.
Lay faces six counts of conspiracy and fraud.

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'Absolutely innocent,' ex-CEO tells Enron trial

April 10, 2006: Former Enron chief executive Jeffrey

Skilling testifies in his own defence on 28 charges
relating to the company's bankruptcy, telling a
Houston court that he is "absolutely innocent" and he
would "fight these charges until the day I die.

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 Enron's Lay found guilty on all counts, Skilling on 19

 May 25, 2006: In the sixth day of deliberations, a jury finds Enron founder
Kenneth Lay guilty of all six counts against him, including conspiracy to
commit securities and wire fraud. As well, former Enron chief executive
Jeffrey Skilling is convicted of one count of conspiracy, 17 counts of fraud
and making false statements and one count of insider trading.
Lay and Skilling had blamed the collapse of what was once the seventh-
largest company in the United States on bad publicity and lost market
confidence. Prosecutors had a different theory: they accused the two men
of repeatedly lying to investors and employees about Enron's financial
health and of running an elaborate fraud that gave the company the
illusion of success as it was hurtling toward bankruptcy.
Both men face lengthy prison sentences – but are expected to appeal. A
total of 19 former Enron executives have either pleaded guilty or been
convicted for their part in the company's failure.

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Disgraced Enron founder Lay dead

July 5, 2006: Ken Lay, 64, dies of a heart attack at a

family home in Aspen, Colo.

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Ex-Enron executive Fastow gets 6-year sentence

Sept. 26, 2006:

Andrew Fastow, Enron's former chief financial officer,
is sentenced to six years in prison. He could have
been given up to 10 years, but the judge notes his
guilty plea and his co-operation with authorities,
saying "These factors call for mercy."

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Judge vacates criminal convictions of Enron's Ken
Lay

Oct. 17, 2006: A U.S. judge throws out the criminal

convictions of Kenneth Lay because he died before he
could appeal his case.

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Enron's Skilling jailed for years

Oct. 23, 2006:Former Enron chief executive officer

Jeffrey Skilling is sentenced to 24 years, four months
in jail for his role in the collapse.

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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

SPECIAL PURPOSE ENTITIES –

It 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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