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BUSI NESS E TH ICS
Does anybo dy real ly care abo ut it?
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q The Enron Corporation was created out of the merger of 2 major gas pipeline companies in 1985. q Provided natural gas, electricity and communications services q In 2000 Enron’s annual revenues reached $100 billion and was ranked 6th largest Energy Co. in the world. q From 1998 to 2000 alone, Enron’s revenues grew from about $31 billion to more than $100 billion, making it 7th largest Co of the Fortune 500.
Key Men involved in the scandal
Kenneth Lay Chairman Jeffrey Skilling Chief Executive Officer Andrew Fastow Chief Financial Officer
About the scandal
v Enron’s case was a clear picture of high level accounting fraud through which the Co’s top level officials profited personally through illegal transfer of funds. v In 2001 Enron filed for bankruptcy v It collapsed under a mountain of debt which had been concealed through a complex scheme of “off-balancesheet partnerships.” v Enron used “special-purpose entities”(SPE’s), to conceal losses. v Enron had established the SPE’s to move assets and debt off its balance sheet & to increase cash flow by showing that funds were flowing through its books when it sold assets.
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Enron’s Partners in the Scandal
Vinson & Elkins Legal firm which supported all of Enron’s illegal activities. n Merrill Lynch Investment banking firm n Arthur Andersen LLP Audit firm which helped Enron in all its accounting frauds.
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The Impact/Effect of Enron’s Scandal
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Caused tens of billions of dollars of investor losses Collapse of electricity-trading markets Global loss of confidence in corporate integrity 4000 employees struggling to find jobs 1 senior Enron executive committed suicide Many retirees were forced to return to work in a bleak job market as their Enron-heavy retirement portfolios were wiped out
Enron faces many law actions Arthur Andersen faces some 40 shareholder lawsuits for damages more than $32 billion In July 2003 Enron announced its intention to restructure & plan to pay off its creditors Most creditors would receive b/w 14.4 cents & 18.3 cents for each dollar they owed The most important result Enron’s scandal was the passage of the Sarbanes-Oxyley Act of 2002. This Act prescribes the internal control requirements for publicly traded companies
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