Enron Presentation
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Business Ethics Case
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Structure: • • • • • •
Company profile The ethical point of view The guilty parties Main “ingredients” of the downfall Case study Closing thought
2
Enron Company Profile • •
• • • •
Enron Corporation was an American energy company based in Houston, Texas. Enron employed around 21,000 people and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of $111 billion in 2000. Fortune named Enron "America's Most Innovative Company" for 6 consecutive years. It was formed in 1985 when Houston Natural Gas merged with InterNorth. After several years of international and domestic expansion involving complicated deals and contracts, Enron was billions of dollars into debt. All of this debt was concealed from shareholders through partnerships with other companies, fraudulent accounting, and illegal loans.
Ethical Point Of View
The Guilty Parties Kenneth Lee Lay • Born April 15, 1942 Died July 5, 2006 (age 64) • Charge(s): Fraud, false statement ; • Penalty: Could have faced 40 years in prison plus monetary fines, but died before sentencing 5
The Guilty Parties Jeffrey Skilling • Born November 25, 1953 (1953-11-25) • Charge(s): conspiracy, securities fraud, false statement, insider trading • Penalty: originally sentenced to 24 years and 4 months and fined $45 million USD, pending resentencing 6
The Guilty Parties Andrew Stuart Fastow • Born: December 22, 1961 • Charge(s): conspiracy, securities fraud, false statement, insider trading • Penalty: 6 years, followed by 2 years of probation • Status: Incarcerated 7
The Guilty Parties •Arthur Andersen was one of the world’s five leading accounting firms (Big Five) •Was paid $52m in 2000, the majority for non-audit related consulting services. •Type: Limited Liability Partnership •Founded: 1913 •Industry: Accounting, Professional Services,Tax, Consulting; Licenses of Certified Public Accountants surrendered in
Arthur A n Housto dersen’s n branc h
g oyin r t s ne de aid s routi s wa firm The ments u doc
9
The main “ingredients” for the downfall of DEREGULATION – government decision to let gas prices float with the currents of the market MARK-TO-MARKET – accounting practice that allowed Enron to book potential future profits on the very day a deal was signed 10
The main “ingredients” for the downfall of • SPECIAL PURPOSE ENTITIES -
is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives. SPE's are typically used by companies to isolate the firm from financial risk. A company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk.
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Closing thought… “Every fraud could have been prevented if honest people had asked the right questions at the right time”
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1
Structure: • • • • • •
Company profile The ethical point of view The guilty parties Main “ingredients” of the downfall Case study Closing thought
2
Enron Company Profile • •
• • • •
Enron Corporation was an American energy company based in Houston, Texas. Enron employed around 21,000 people and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of $111 billion in 2000. Fortune named Enron "America's Most Innovative Company" for 6 consecutive years. It was formed in 1985 when Houston Natural Gas merged with InterNorth. After several years of international and domestic expansion involving complicated deals and contracts, Enron was billions of dollars into debt. All of this debt was concealed from shareholders through partnerships with other companies, fraudulent accounting, and illegal loans.
Ethical Point Of View
The Guilty Parties Kenneth Lee Lay • Born April 15, 1942 Died July 5, 2006 (age 64) • Charge(s): Fraud, false statement ; • Penalty: Could have faced 40 years in prison plus monetary fines, but died before sentencing 5
The Guilty Parties Jeffrey Skilling • Born November 25, 1953 (1953-11-25) • Charge(s): conspiracy, securities fraud, false statement, insider trading • Penalty: originally sentenced to 24 years and 4 months and fined $45 million USD, pending resentencing 6
The Guilty Parties Andrew Stuart Fastow • Born: December 22, 1961 • Charge(s): conspiracy, securities fraud, false statement, insider trading • Penalty: 6 years, followed by 2 years of probation • Status: Incarcerated 7
The Guilty Parties •Arthur Andersen was one of the world’s five leading accounting firms (Big Five) •Was paid $52m in 2000, the majority for non-audit related consulting services. •Type: Limited Liability Partnership •Founded: 1913 •Industry: Accounting, Professional Services,Tax, Consulting; Licenses of Certified Public Accountants surrendered in
Arthur A n Housto dersen’s n branc h
g oyin r t s ne de aid s routi s wa firm The ments u doc
9
The main “ingredients” for the downfall of DEREGULATION – government decision to let gas prices float with the currents of the market MARK-TO-MARKET – accounting practice that allowed Enron to book potential future profits on the very day a deal was signed 10
The main “ingredients” for the downfall of • SPECIAL PURPOSE ENTITIES -
is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives. SPE's are typically used by companies to isolate the firm from financial risk. A company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk.
11
12
13
14
15
16
17
18
19
Closing thought… “Every fraud could have been prevented if honest people had asked the right questions at the right time”
20
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