enron scandal

18
S Enron Scandal By Matt Wong Thesis: The Enron Scandal influenced by greed and immoral actions led to the American market becoming more strict upon the economic practices of large corporations that affect millions of people.

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Enron Scandal. By Matt Wong Thesis: The Enron Scandal influenced by greed and immoral actions led to the American market becoming more strict upon the economic practices of large corporations that affect millions of people. Brief Summary. - PowerPoint PPT Presentation

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Page 1: Enron Scandal

S

Enron ScandalBy Matt Wong

Thesis:The Enron Scandal influenced by greed and immoral actions led to

the American market becoming more strict upon the economic practices of large corporations that affect millions of people.

Page 2: Enron Scandal

Brief Summary

One of the greatest and most significant accounting frauds in American history

7th largest corporation in the United States in 2001, filed for bankruptcy at the end of the year

Greedy top executives led an immoral path to quick money, Social Darwinism/greed influenced many to lose sight of moral acts and thinking consciously of their decisions

22,000 workers unemployed, 401k’s diminished, 60 billion dollars of debt

Page 3: Enron Scandal

Who is Enron?

In 2001, they were the world’s leading energy company

$90 per share in the year 2000 22,000 employees International powerhouse of trading energy Invested in innovative ideas such as selling

broadband space on the internet and even in weather

Page 4: Enron Scandal

History of Enron 1985

Ken Lay merges Houston Natural Gas with Internorth, 37,000 miles worth of gas pipelines

1989 Enron begins to trade natural gas

1990 Jeff Skilling hired by Lay to lead natural gas trading commodities in

deregulated markets Schilling hires Andrew Fastow into Enron

1990-2000 Great success in deregulated markets Partial profits stated were false (confidence into company) Fortune’s “America’s Most Innovative Companies” for 6 years

Page 5: Enron Scandal

History of Enron (Cont.)

2000 Enron’s stock is at an all time high ($90 per share) Skilling named CEO

2001 Skilling resigns as CEO SEC turns formal investigation for Enron

2002 Powers Report is released Congressional Hearings Top executives are arrested

Page 6: Enron Scandal

Survival of the Fittest

Enron’s environment was correlated to the mentality of Social Darwinism

Workers were ranked 1-5, the 1’s would be fired Traders were influenced to invest money into

practices that were risky and immoral, but the mentality of having the most money and the quick buck blinded moral compasses

Top executives always reserved more for themselves, took advantage of those lower

Page 7: Enron Scandal

Cause of Exposure

Mark to Market Accounting Could not hide numbers forever

Pressure on top executive to continue the lieExample: Skilling resigns as CEO after 6 months for “personal reasons”

International projects failed India’s power plant never received enough support

from Enron’s stock or the confidence of the national government to be utilized

Page 8: Enron Scandal

How come Enron was never exposed during its

peak years? Mark to Market Accounting

Numbers seemed to flourish, no one questioned the numbers

Marketers As they were able to profit from the practices of

Enron, they never questioned the ethics or decisions of the company

Page 9: Enron Scandal

Ken Lay

Founder of Enron $200 million annual salary during the 1990’s Close relations to Bush administration (George W.

Bush) Guilty of 10 federal charges Died July 6, 2006

Page 10: Enron Scandal

Jeff Skilling

Former CEO of Enron Creator of Mark to Market Accounting

Predicted revenues without actual value CEO form 2001 to beginning of 2002

Left for “personal reasons” Ironic because Enron files for bankrupt the same

year of resignation

Page 11: Enron Scandal

Andy Fastow

Former CFO of Enron Took advantage of deregulations

Worked with Skilling to take out smaller corporations Creating partnerships that were strictly beneficial

to Enron Hid losses, partnerships were gained through fraud

Page 12: Enron Scandal

Sherron Watkins

Former Vice President of Enron Spoke out against the immoral and illegal acts of

Enron after receiving a memo Top executives did not listen to her warnings,

company is already on downfall

Page 13: Enron Scandal

401K Plans

Retirement plans that has certain percentage of your money is put into each year or monthly, some are invested into stocks that inflate the total amount for the account

Money put into stocks of Enron fell from hundreds of thousands to mere thousands of dollars

Roy Rinard- 35 year 401k plan worth over $400,000 that decreased to 40,000 dollars in a year

Page 14: Enron Scandal

Historical Significance

California Rolling Blackouts June 2000 Over 100,000 businesses and residential areas affected

Sarbanes-Oxley Act New standards for corporate accounting Larger penalties upon practices like Enron Corporations are required to give access to all financial

documents, external and internal, to the government boards in control of regulating the Sarbanes-Oxley Act

Page 15: Enron Scandal

Look into the Past…

Credit Mobilier Scandal Railroad company insiders that bribed over 30 congressman for support to

continue the increasing price to build railroads Done through billing

Credit Mobilier’s front was Pacific Union, when money came through Union Pacific, the fees would go directly to Credit Mobilier, hard to uncover

Teapot Dome Scandal Secretary of Interior Albert Fall during Harding’s presidency leased 2 oil

reserves (Teapot Dome and Naval Reserves at Elk Hill) to 2 of his colleagues, Sinclair and Doheny, who were major players of the oil market

Fall was given money to lease out these reserves to private oil companies without the public knowledge

Page 16: Enron Scandal

Factual Questions

What 2 companies merged to form Enron in 1985? Houston Natural Gas and Internorth

How much was an Enron stock during the year 2000? $90 per share

Page 17: Enron Scandal

Analytical Questions

Could such a large scale international scandal occur again? Yes, greed blinds people from their immoral compasses. The

environment also has a huge influence on how people make decisions such as Enron. Loopholes of regulations and accounting will always be found, and be taken advantage of eventually by those whose greed is more dominant than caring.

Will the Sarbanes-Oxley Act be effective? Why or why not? The act’s effective will all be upon the boards responsible to practice

the regulations and restrictions of the “Sox Act”. If the boards are not funded enough and not utilized by the government, it can easily be taken advantage of and this is when such corporations such as Enron would take control of the free market.

Page 18: Enron Scandal

Bibliography

Roston, Eric. "The Enron Players - TIME." Breaking News, Analysis, Politics, Blogs, News Photos, Video, Tech Reviews - TIME.com. 27 Jan. 2002. Web. 18 May 2011. <http://www.time.com/time/magazine/article/0,9171,1101020204-197668,00.html>.

"Enron Corp. – News, Trials and the History of the Scandal | Chron.com - Houston Chronicle." Houston News, Entertainment, Search and Shopping | Chron.com - Houston Chronicle. Web. 18 May 2011. <http://www.chron.com/news/specials/enron/>.

"BBC News | Enron: The Rise and Fall." BBC News - Home. Web. 18 May 2011. <http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/timeline/default.stm>.

Jackson, Brooks. "CNN.com - Report: Enron Execs Hid Losses, Made Millions - February 2, 2002." CNN.com International - Breaking, World, Business, Sports, Entertainment and Video News. 02 Feb. 2002. Web. 18 May 2011. <http://edition.cnn.com/2002/LAW/02/02/enron.report/index.html>.

"401(k) Investors Lose on Enron - Nov. 26, 2001." Business, Financial, Personal Finance News - CNNMoney. 26 Nov. 2001. Web. 18 May 2011. <http://money.cnn.com/2001/11/26/401k/q_retire_enron_re/>.

Leopold, Jason. "Enron Caused California Blackouts, Traders Say - MarketWatch." MarketWatch - Stock Market Quotes, Business News, Financial News. 16 Mar. 2002. Web. 18 May 2011. <http://www.marketwatch.com/story/enron-caused-california-blackouts-traders-say>.

Keko, Don. "Credit Mobilier: America's Greatest 19th Century Scandal - National American History | Examiner.com." Washington DC News, Washington DC Information, Washington DC Events | Examiner.com. 22 Sept. 2010. Web. 18 May 2011. <http://www.examiner.com/american-history-in-national/credit-mobilier-america-s-greatest-19th-century-scandal>.

"Teapot Dome Scandal." Spartacus Educational - Home Page. Web. 18 May 2011. <http://www.spartacus.schoolnet.co.uk/USAteapot.htm>.