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BUSINESS ETHICS Does

anybody really care about it?

ENRON Case Study

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About ENRON

The Enron Corporation was created out of the merger of 2 major gas pipeline companies in 1985.

Provided natural gas, electricity and communications services

In 2000 Enron’s annual revenues reached $100 billion and was ranked 6th largest Energy Co. in the world.

From 1998 to 2000 alone, Enron’s revenues grew from about $31 billion to more than $100 billion, making it 7th largest Co of the Fortune 500.

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Key Men involved in the scandal

Kenneth LayChairmanJeffrey SkillingChief Executive OfficerAndrew FastowChief Financial Officer

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About the scandal Enron’s case was a clear picture of high level

accounting fraud through which the Co’s top level officials profited personally through illegal transfer of funds.

In 2001 Enron filed for bankruptcy It collapsed under a mountain of debt which had

been concealed through a complex scheme of “off-balance-sheet partnerships.”

Enron used “special-purpose entities”(SPE’s), to conceal losses.

Enron had established the SPE’s to move assets and debt off its balance sheet & to increase cash flow by showing that funds were flowing through

its books when it sold assets.

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Enron’s Partners in the Scandal

Vinson & ElkinsLegal firm which supported all of

Enron’s illegal activities. Merrill LynchInvestment banking firm Arthur Andersen LLP Audit firm which helped Enron in all its

accounting frauds.

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The Impact/Effect of Enron’s Scandal

Caused tens of billions of dollars of investor losses

Collapse of electricity-trading markets Global loss of confidence in corporate integrity 4000 employees struggling to find jobs 1 senior Enron executive committed suicide Many retirees were forced to return to work in a

bleak job market as their Enron-heavy retirement portfolios were wiped out

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Consequences

Enron faces many law actions Arthur Andersen faces some 40 shareholder

lawsuits for damages more than $32 billion In July 2003 Enron announced its intention to

restructure & plan to pay off its creditors Most creditors would receive b/w 14.4 cents &

18.3 cents for each dollar they owed The most important result Enron’s scandal was

the passage of the Sarbanes-Oxyley Act of 2002.

This Act prescribes the internal control requirements for publicly traded companies

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