AKASH DEEP

ABDUL AHAD MALIK

ABDUL WAHAB
ABHINAV ANAND
AFTAB ALAM
 Company Profile
Enron Corporation was an American energy, commodities,
and services company based in Houston , Texas

It was formed in 1985 by Kenneth Lay

In 1985, Enron merge between Houston natural gas company

and Inter north inc.

In 1995, Enron is named most innovative company of America

by fortune and company won this award for six consecutive
years
 Merger of the Company
It was formed by the merger of two natural gas pipeline
companies of Houston natural gas and Inter North to form
ENRON
INTER NORTH:
•It was natural gas company and formed in 1930 in Omaha
•It was very old company and it was main work in distribution of natural
gas
HOUSTON NATURAL GAS:
•The HNC was initially formed from Houston Oil Co. in 1925 to provide
the gas to the customers
•In 1981 this company has large dominance in energy sector due to
huge pipeline network
 After Merger
•It has huge network in manufacturing and distribution of energy till
1981

•The company was initially named as HNG/Internorth Inc.

•In 1986, Lay was appointed as CEO of Enron

•He had spent $1,00,000 to change the name of company from

ENTERON

•In 1989, the firm business focuses from the regulated transportation of
natural gas to the unregulated energy trading market

•It has started the trading in energy sector and it was first time in the
world and due to that they gain the trust of customers
 Turning Point
•In 1990, Jeffery Skilling is appointed as a consultant for the Enron
Finance Corp.

•He was the main culprit of this scandal

•He has started hiring of new skilled person and energy consultant
to grow their finance in trading of energy

• In 1992, the organisation has entered in the other field like

Natural gas pipe lines, Electricity plants, Broadband, Paper and
Pulp
 Important fact
Market Capitalization : 60 Billion Dollars
Price Earning Ratio : 70 times
Price to book value : 6 times

•According to the financial advisor, it was showing 400 to 500

times higher growth rate per year of the company

•In NYSE the share revenue price was jumping very high and
customer had start to invest blindly
 What went wrong ?
•Mark to Market method of accounting and Revenue
recognition

•Hiding of Debt in the company by transferring it to SPV’s

•Managing the Bankers, Lawyers, Auditors

•Support of Politician and govt. of other countries

 Parties Involved
The financial auditing company Arthur Andersen & Co. was
involved in auditing

They ignore the accounting issue because they were taking the
fees $52 million per year
Jeffrey Skilling: Hide accountants to do poor financial reporting to
hide debt
Andrew Fastow: Mislead the Board of Director and auditing
committee on financial issues

•He had great intellectual skills to mislead anyone easily

•In 2000, Enron’s share reached to all time high $90.56

•In Feb 12, 2001, Jeffery Skilling replaces Kenneth Lay as CEO.

•Aug 14, 2001, Skilling resign suddenly and Lay takes over
once again

•In Aug 2001, the vice president of the company warned to

the lay that company could imploded in a wave of accounting
scandals
All the head officer of the company were waiting for
the higher price of the share till 2001

Merrill Lynch’s financial advisor John Elson found the

financial defects of the company and revealed to the
world
 ENRON’s SCANDAL
•On October 16, 2001 in the first major public sign of trouble
•Enron announces a huge third quarter loss of $618 million
•Enron stock drops further to $ 33.84

•On October 22, 2001 the securities and exchange

commission (SEC) begins an inquiry into Enron’s accounting
practices

•On December, 2001, Enron files for bankruptcy

November 9, 2001: ENRON confirmed that it has agreed to
purchased by a rival company by Dynegy for $9Billion

But all announcement was completely false

While Dynegy announces it has terminated merger talks with

ENRON

In 9Jan 2002,The US department of justice opens a criminal

cases and start investigation on ENRON
Jan 10, 2002: Arthur Andersen LLP, that handled Enron’s
audits, disclosed that its employees had destroyed company
documents

They had lost their all client due to this case only

Jan 15, 2002: The NYSE suspends trading of ENRON’s share

Jan 23, 2002: Lay resign as CEO. He later steps down from the
board of director

That was the right time for him to resign

 Impact on Shareholders
The share price became $0.67 in 25th Feb 2002, but in Aug
2000 the price was $87.88
 Reason
•Sale of insider trading of stock

•They had $100 to $ 400 million price share

•They exist at the same time from the company

 Result
•ENRON’s fraud promoted the US govt. to pass
SARBANEOXLEY ACT 2002(SOX2002)

•Which forces corporate executive to take personal

responsibility

•Independent Director’s provision came in INDIA also due to

this incident only

•This act helps the govt. to regulate the company

•Movie: Smartest guys in the room

Thanks