MBA 509 Managerial Finance

Eric Diamond Atsuko Mori Feng Zhu

Step 1: Get yourself a company

+
Houston Natural Gas

Step 2: Find all the real assets of that company.

Step 3: Get rid of those pesky business that actually make stuff and arent sexy and new economy enough.

Step 4: Cook.

selling off key assets

= less diversied company (too much reliance on deregulated energy market)

special purpose entities offshore entities

avoid tax hide debts and losses

= liability doesnt show up on Enrons accounts

= not included in Enrons nancial statements

mark to market accounting

future anticipated prots listed as actual prots (Enron Online)

2 + 3 + 4 = Enron looked protable when it was losing money

The Aftermath

Uh, oh.

Shareholders lost $74 billion.

(thats billion, with a b)
Source: Washington Post

Banks took a bath.

Banks took a bath.

J.P. Morgan Chase, announced losses of $456 million as of Jan. 2002 related to Enron's demise

Citigroup recorded $228 million as of Jan. 2002 in Enron-related losses

Criminal Charges

Former Merrill investment banking chief Daniel Bayly Former Enron nance executive Daniel O. Boyle Former Merrill strategic nancial group chief James A. Brown Former Merrill managing director Robert S. Furst Former Merrill vice president William R. Fuhs Former Enron CEO Kenneth Lay Former Enron COO Jeff Skilling

Big Five

4 Big Five ^

Sarbanes-Oxley

Enhanced Financial Reporting Corporate responsibility Conicts of interest Whistleblower protections Increased funding for SEC 404: Assessment of internal controls