Enron Scandal

In 1985 the Kenneth Lay merges two corporation which was the Hoston

Natural Gas and internorth corporation and become the Enron Corporation.

Enron was the American largest 7th Gas pipeline and Energy Corporation

which Establish and Formed in 1985 which was the largest buyer/seller

natural gas and energy company.

The Enron corporation Export a huge amount of gas to alla over the world in

1990 the Enron corporation become the U.S largest Company. In the Start of

1990 they sale the gas on the market price and with the passage of time

according to the quality they increase the prices of Gas

They earned before the interest and taxes about $122 million

The Enron Corporation creates facilities day by day for the customers and

dealers. In 1999 they developed online website from this way they sale it’s

product. And Enron find the popularity globally.

The Enron corporation revenue increase day by day which they facilitate the

customers and operate a variety of Assets, New Technologies, Plants,

Pipeline and electricity plant, water plant and broad band services around

the world.

The Enron Corporation stock increase from 1990 until 1998 about 311%

percent and the share of Enron was too high in standard and poor index 500

On October 16, 2001 the Enron faced the first major lost which they

announce huge losses of $ 618 million

On October 22, 2001 the security exchange commission (SEC) begins the

inquiry about the Enron accounting practice. While On December 2, 2001

the Enron Corporation involved in bankruptcy

Causes of Downfall

The Enron financial statement was confused to the shareholder or

stockholder. The business model was too complex and had unethical

practice.

The combination of these practice and issue resulted in bankruptcy of the

company and the majority cause and perpetuated by the indirect knowledge

and direct action of Lay-Jeffrey skilling, Andrew fastow and other executive

Lay was the chairman of corporation for the last few year and skilling,

fastow did not inquire about the details. Skilling always focused on the

meeting.

The Andrew fastow which was the executive of Enron Corporation always on

try to find new ways to hide its debt of the corporation

Some others executives created off balance sheet vehicles Complex financial

structure.

Revenue Recognition

The Enron Earned profit by providing services as a wholesale trading and

wholesale to build hire the powerful plants and other equipment’s

Natural gas pipeline electronic power plants

Between 1996 and 2000 Enron revenue increased more than 750% rising

to $13.3 billion to 100.8% billons in 2000

For just the first nine months of 2001 Enron reported $138.7 billons in

revenue which placed the company at six positions on fortune global 500

Audit Committee

The Enron Corporation audit committee just meets for a few times in the

year and they had lack of experience.

The Enron Corporation had more expertise then other corporations

Robert Jaundice of Stanford University, a widely respected accounting professor and former dean of Stanford Business School

John Mendelsohn, President of the University of Texas M.D. Anderson Cancer Center

Paulo Pereira, former president and CEO of the State Bank of Rio de Janeiro in Brazil

John Wareham, former United Kingdom Secretary for Energy

Ronnie Chan, a Hong Kong businessman

Wendy Gramm, former Chair of U.S. Commodity Futures Trading Commission

The Enron Audit committee Criticized for its short meeting that should cover large amount of material for meeting especially for corporation. In one meeting on February 12, 2001, the committee met for an hour and a half. Enron's audit committee did not have the technical knowledge to question on accounting issues. The committee is also unable to question about the Enron management due to pressure of the committee.

Losses and SEC Investigation

On October 16, 2001, Enron announced that restatements to its financial

statements for years 1997 to 2000 were necessary to correct accounting

violations. The restatements reduce the earning about $613. And reduce the

equity in 2000 about $1.2 billons.

The management team of Enron claimed the losses were due to investments

which $180 billons spent on broadband trading units.

For the investment they need to convince the investors these earnings are real, that the company is for real and that growth will be realized.

Fas taw disclosed (board of Director) on October 22 he earned about $30 million from compensation. And the losses accord when our share price downfall from $20.65 to 5.40 in one day which was a billions losses to the organization.

Credit Rating Downgrade

The main short-term danger to Enron's survival at the end of October

2001 seemed to be its credit rating. It was reported at the time that Moody’s and Fitch, two of the three biggest credit-rating agencies, had

slated Enron for review for possible downgrade. Such a downgrade

would force Enron to issue millions of shares of stock to cover loans it

had guaranteed, which would decrease the value of existing stock

further. Additionally, all manner of companies began reviewing their

existing contracts with Enron, especially in the long term, in the event

that Enron's rating were lowered below investment grade, a possible

hindrance for future transactions

Analysts and observers continued their complaints regarding the

difficulty or impossibility of properly assessing a company whose

financial statements were so mysterious. Some feared that no one at

Enron apart from Skilling and Fas tow could completely explain years

of mysterious transactions. "You're getting way over my head," said

Lay during late August 2001 in response to detailed questions about

Enron's business, a reaction that worried analysts

On October 29, responding to growing concerns that Enron might

have insufficient cash on hand, news spread that Enron was seeking a

further $1–2 billion in financing from banks The next day, as feared,

Moody's lowered Enron's credit rating from Baa1 to Baa2, two levels

above junk status. Standard & Poor's also lowered Enron's rating to

BBB+, the equivalent of Moody's rating. Moody's also warned that it

would downgrade Enron's commercial paper rating, the consequence

of which would likely prevent the company from finding the further

financing it sought to keep solvent

November began with the disclosure that the SEC was now pursuing

a formal investigation, prompted by questions related to Enron's

dealings with "related parties". Enron's board also announced that it

would commission a special committee to investigate the transactions,

directed by William C. Powers, the dean of the University of Texas law

school The next day, an editorial in The New York Times demanded

an "aggressive" investigation into the matter. Enron was able to

secure an additional $1 billion in financing from cross-town

rival Dynegy on November 2, but the news was not universally

admired in that the debt was secured by assets from the company's

valuable Northern Natural Gas and Trans western Pipeline

Bankruptcy Graph

Key player in Enron Corporation

Enron was a housed by bright and talent employees and every one think

about that they are so smart and efficient.

Jaffrey Skilling was a responsible for implementing the mark to market

accounting to Enron. He developed a website (online Enron) for the online

orders trade of Energy and Gas. This was internet base service. At the end

Enron could not cover the capital cost of transaction so this was also one

reason for the bankruptcy.

Andrew Fas tow was a financial officer of Enron Corporation who was

mastermind of special purpose of entities. He made complicated financial

structure to hide the company losses and debt.

Rebecca Mark was the head of failed businesses of Enron. Some of project

equipment s of Enron was in Dublin and India. She also used the Enron jet

for the trips of a round of the world. One executive mentioned that

whenever mark attend meeting it cost the company at least $60,000 (that

he cover just for the transportation)

The Chairman and CEO were also involved in bankruptcy of Enron

Corporation Mr. Kenneth Lay was too busy in socializing and his family

misused the Corporation Assets. They were all using the company jet for

personal traveling. He was also involved in the company fraud and

bankruptcy.

Kenneth Lay

Former CEO of Enron, helped start the company.

Enron extended to him $7.5 million revolving credit

line, which he reportedly used and repaid with Enron

stock 15 times within a period of just several months

He quit as CEO in February 2001

He returned as CEO in August 2001until he resigned

on Jan. 23, 2002

He quit the Enron board altogether on Feb. 4.

Sharron Watkins said Lay was "duped" by top

executives

Jeffrey Skilling

Enron's chief executive in the first half of 2001

Since joining the company in 1990, Skilling helped

transform Enron from a natural-gas pipeline

company into an energy-trading powerhouse.

Between January and August 2001 he sold off about

$20 million in Enron stock

Resigned after the close of markets on Aug. 14 2001

Being charged with conspiracy, fraud and insider

trading

David Duncan

Enron's chief auditor at Anderson

His job was to check Enron’s accounts

He is accused of ordering the shredding of thousands

of Enron-related documents in an effort to hide

them from Securities and Exchange Commission

investigators.