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  • Enron Case Study

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    Enron was an American energy company that employed over 21,000 people and claimed $111 billion in revenues in 2000. However, Enron concealed billions of dollars in debt through fraudulent accounting and partnerships. Key figures like CEO Ken Lay and CFO Andrew Fastow were found guilty of fraud and conspiracy for their roles in Enron's collapse. The downfall was fueled by deregulation allowing gas prices to fluctuate, an accounting practice letting Enron book future profits immediately, and the use of special purpose entities to isolate risk and hide debts. In the end, a lack of oversight and honest questioning allowed the fraud at Enron to persist until its ultimate downfall.

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    Enron was an American energy company that employed over 21,000 people and claimed $111 billion in revenues in 2000. However, Enron concealed billions of dollars in debt through fraudulent accounting and partnerships. Key figures like CEO Ken Lay and CFO Andrew Fastow were found guilty of fraud and conspiracy for their roles in Enron's collapse. The downfall was fueled by deregulation allowing gas prices to fluctuate, an accounting practice letting Enron book future profits immediately, and the use of special purpose entities to isolate risk and hide debts. In the end, a lack of oversight and honest questioning allowed the fraud at Enron to persist until its ultimate downfall.

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    46 views14 pages

    Enron Case Study

    Uploaded by

    vlabrague6426
    Enron was an American energy company that employed over 21,000 people and claimed $111 billion in revenues in 2000. However, Enron concealed billions of dollars in debt through fraudulent accounting and partnerships. Key figures like CEO Ken Lay and CFO Andrew Fastow were found guilty of fraud and conspiracy for their roles in Enron's collapse. The downfall was fueled by deregulation allowing gas prices to fluctuate, an accounting practice letting Enron book future profits immediately, and the use of special purpose entities to isolate risk and hide debts. In the end, a lack of oversight and honest questioning allowed the fraud at Enron to persist until its ultimate downfall.

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    Structure:
    Company profile The ethical point of view The guilty parties Main ingredients of the downfall Closing thought

    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.

    Ethical Point Of View

    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

    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

    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

    The Guilty Parties


    Arthur Andersen was one of the worlds five leading accounting firms (Big Five) Was paid $52m in 2000, the majority for non-audit related consulting services. Type: Limited Liability Partnership Founded: 1913 Industry: Accounting, Professional Services,Tax, Consulting; Licenses of Certified Public Accountants surrendered in 2002

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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

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    The main ingredients for the downfall of ENRON


    SPECIAL PURPOSE ENTITIES - 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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