ENRON Smartest Guys in the Room

ENRON

By UniversalFIN 301 SEC: A1Group Name: UniversalAli Ahmmed ID# 082020132Companys ProfileUSA based Company formed in 1985 by Kenneth Lay

Headquarters: Houston, TX, United States of America

By early 2001, Enron had morphed into the 7th largest U.S. company

Enron employed approximately 22,000 employees.

It was one of the world's leading electricity, natural gas, pulp, paper, and communications companies

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3Areas of BusinessBackground created by m62 Visualcommunications, visit www.m62.net for more information

4Enrons ProductsEnron traded in more than 30 different products, which included the following:

Petrochemical, Plastics, Power, Pulp & Paper, Steel, Weather Risk Management.Oil & LNG Transportation. Broadband.Principal Investments.Risk Management for Commodities.Capital and risk management services.Energy and commodities services, etc.

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5Special Purpose Entities ( SPE)Some Important SPEs created by Enron:

BRAVEHEART

JEDI

CHEWCOBackground created by m62 Visualcommunications, visit www.m62.net for more information

61. BRAVEHEARTEnron entered into a partnership with Blockbuster (A major Video rental Company).

CIBC Canadian Imperial Bank of Commerce.

Braveheart An SPE owned by Enron and CIBC.

Outcomes of the SPE.

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72. JEDI Joint Energy Development InvestmentsEnron entered into partnership with CALPERS.

ENRONCALPERSJEDI50% INTEREST

$250 million IN ENRON STOCK50% INTERESTBackground created by m62 Visualcommunications, visit www.m62.net for more information

83. CHEWCO Enron entered into a second partnership with CALPERS.

CALPERS wanted to cash out from JEDI and invest in new partnership.

To keep JEDI afloat, Enron needs new 3% partner.

It creates another partnership Chewco

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9Chewco ChartCHEWCOBARCLAYS BANK BIG RIVER&LITTLE RIVER

JEDICALPERSENRON$240 millionGuarantee$383 million$11.4 millionLoan given by Barclays for a cash reserve of $6.6 million (security) given by JEDI.Credit of $132 millionWILLIAM DOBSON &MICHAEL KOPPER$1,25,000Background created by m62 Visualcommunications, visit www.m62.net for more information

10Group Name: UniversalSahadat HossainID# 13302019

Practice of Public Accounting and Auditing Public accounting regulation includes rules of professional and ethical conduct, testing and licensing of auditors, and similar items.Financial Reporting Conduct of Audits

12Accounting and Auditing IssuesAccountingMark-to marketSPEs (off-balance sheet financing)AuditingCommercialization and independentInternal Control Weakness

13Group Name: UniversalHasan Mohammad ForhadID# 13202029ENRONS Misleading ACCOUNTS Bankruptcy Filing Came After Series Of Revelations' That Giant Energy Trader Had Been Using Special Purpose Entities

Companys CFO In 2001 Stated That Enron Has Established SPEs To Move Assets And Debt Off Its Balance Sheet And To Increase Cash Flow.

According To John, a University Law Professor ,Once SPE Is Formed By Enron, It Will Then Borrow Debt From Banks And Enron Would Guarantee That Debt .

In reality SPE founded by ENRON were used as a means of storage,transportation,or other energy related operations.

The cash flow of ENRON from its operations declined from positive 127 million dollar in 2000 to a negative of 753 million dollar in 2001.

ENRON finally filed for bankruptcy on December 2,2002

Group Name: UniversalAvijit Sarker ParagID# 13302051

Understanding Enron What happened?

Why did it happen?

What were the results?

What happened?Enron morphed from a sleepy gas pipeline into a rogue trading company

Enron officers used their political clout affect policy, e.g., electricity deregulation;

Enron traders caused Californias energy crisis

Enrons profits were the product of accounting fraud

Enron used SPEs to hide billions of dollars of debt

Cont..Skilling left before the collapse because he knew something

Top management, auditors, and banks were all part of the conspiracy

The Board and regulators were asleep at the wheel

Lay sold his shares while touting the company to employees and investors

The Enron collapse was the (inevitable?) result of management greed

Group Name: UniversalShirajul IslamID# 13302038

Factor of CollapsedAuditing FraudRole of AuditorCorporate CultureGroup Name: UniversalPorimal Chandra SharkerID# 14202258

What were the results?Company downfall

Many people suffered from Enrons failure, but employees were hit especially hard. Thousands were laid off with just $4,500 in severance pay.

Finally, even with its downfall, some good has come regulators are seeking to improve standards and practices in accounting, corporate governance, risk control, and pension fund administration, to ensure that another Enron does not emerge.

What to do to avoid downfall? Examine ethical climate and put safeguards in place Publicly commit to being an ethical organization Separate auditing from consulting functionsTalk with employees at all levels Build ethical conduct into corporate systems Keep the lines of communication open

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