FINANCIAL MANAGEMENT
CASE STUDY
ENRON CORPORATION: AN ENERGY COMPANY
FOUNDING OF ENRON
TIMELINE
1985
o Enron was founded
o Houston Natural Gas Corp.
and InterNorth, Inc. merged,
becoming HNG InterNorth.
1986
o Renamed as Enron
1990s
o The US Congress adopted a
series of laws to deregulate
the sale of natural gas
leading to the company to
lose its exclusive right to
operate its pipelines.
o Skilling contributed to Enron
in transforming itself into a
trader of derivative
contracts, acting as an
intermediary between
natural-gas producers and
their customers.
o The trades allowed the
producers to mitigate the risk
of energy-price
o Enron capitalized on the
1990s bull market, trading
derivatives for various
commodities, including
electricity, coal, paper, steel,
and even weather contracts.
o Enron Online was launched
during the dot-com boom,
facilitating online trades
worth about $2.5 billion daily
by 2001.
o Enron also invested in
building a broadband
telecommunications network
to support high-speed
trading.
EXTRA INFOS ABOUT THE CHARACTERS
Jeffrey Skilling
o Initially a consultant and
later became the
company’s chief operating
officer (COO).
o Focused on expanding the
trading operation.
Andrew Fastow
o Recruited by Skilling, rose to
Chief of Financial Officer.
o Oversaw financing through
complex instruments.
Ken Lay
o Founder of Enron
DOWNFALL AND BANKCRUPTCY
TIMELINE
2000
o Enron signed a 20-year
contract with Blockbuster
(lost $100,000,000 but
recorded it as revenue)
o Enron's profits declined due
to increased competition
and the end of the boom
years, leading executives to
resort to dubious accounting
practices.
o Troubled operations were
transferred to Special
Purpose Entities (SPEs), hiding
losses off Enron's books.
o Mark-To-Market Accounting
was used; being able to
recognize revenue when
you have no revenue.
2001
o Enron's CEO Jeffrey Skilling
resigned abruptly in August
2001, amidst growing
 concerns about accounting
scandals.
o Enron's financial troubles
became evident in mid-2001,
with a $638 million loss
announced in October,
triggering an SEC
investigation.
ADDITIONAL INFORMATION
Skillen released on February 2019
Ken Lay died of a heart attack in the
time between the verdict and the
sentencing in 2006, he was 64 years
old.

o Enron's stock price

plummeted, attempts to
salvage the company failed,
and it filed for bankruptcy in
December 2001.

2002
o Arthur Andersen, Enron's
auditor, faced scrutiny. Since
it is detected that Arthur
Andersen did a poor job at
auditing, almost all of their
customers switched to the
other four accounting firms
namely; Deloitte, KPMG,
PwC, and Erns & Young. It
was indicted for obstruction
of justice, leading to its
collapse in 2002.

Estimated time is 2002 onwards

o Many Enron executives,
including Skilling and Lay,
were indicted and
sentenced to prison for
conspiracy and fraud.

o The Enron scandal led to

numerous civil suits, new
regulations, and legislation
such as the Sarbanes-Oxley
Act of 2002 to improve
financial reporting accuracy.

The auditors now have a lot

stricter independent rules.
Also the CEO and the CFO
have to certify the financial
statements so they can’t
deny that they never saw
them which happened to
Enron.