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Enron the Unsinkable Ship

Enron the Unsinkable Ship. Nancy Vazquez. Overview. Describe the concept of ‘Creative Accounting’. How the unsinkable ship was sunk to the bottom of nothing. How was Enron able to fool so many for so long. Money. Desire Greed Power. History. Created in 1986 in Houston, Texas .

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Enron the Unsinkable Ship

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  1. Enronthe Unsinkable Ship Nancy Vazquez

  2. Overview • Describe the concept of ‘Creative Accounting’. • How the unsinkable ship was sunk to the bottom of nothing. • How was Enron able to fool so many for so long.

  3. Money • Desire • Greed • Power

  4. History Created in 1986 in Houston, Texas. Union of 2 natural gas companies, Houston Natural Gas and InterNorth . Creating the first nationwide natural gas pipeline. Had control over all the natural gas contracts. Late 1990s Enron controlled 25% of all electricity and natural gas contracts. In 1999 created largest e-business by forming Enron Online. From 1996-2001 Fortune magazine named Enron ‘America’s Most Innovative Company’. December 1, 2001 largest bankruptcy in U.S. History.

  5. Kenneth Lee Lay • Obtained his Doctrine of Philosphy in Economics from the University of Houston. • Became exec at Florida City Gas. • Founder and CEO of Enron. • Born into a poor family in a small town in Missouri. • Charged with 11 counts of fraud and conspiracy. • Died on July 5, 2006 before sentencing of a heart attack.

  6. Jeffrey Skilling • Born in Pittsburgh. • Graduated top 5% of his Harvard Business Class. • Skilling became one of the youngest partners in the history of McKinsey.

  7. The Fall of 2001 • April: was owed more than $500 million by bankrupt California energy company. • October: reported a loss of $618 million. • Reported accounting error next day, Enron net worth by more thank $1 billion. • Last report caused an eyebrow raise by Securities and Exchange Commissions. • December 1, 2001 Enron filed for Chapter 11 bankruptcy.

  8. Investigations The Federal Bureau of Investigations and the IRS by investigating for fraud and insider trading. Much attention was brought to the California crisis in early 2001. Enron claims to have done nothing wrong with bankruptcy of the California companies, even though they were earning a major profit.

  9. How was Enron able to fool so many for so long? To avoid reporting its losses and give the appearance of rapid earnings growth, Enron undertook ‘creative accounting’. They hid losses in partnerships, or ‘special purpose entities’. Special purpose entities are a financing technique where companies can cut their risk by moving assets into separate partnerships that can be sold to outside investors. ‘Creative Accounting’

  10. 401(k) and Stock • Enron paid their managers about $680 million. • Lower employees were not as fortunate. • Their pensions were in the form of a 401(k) that was matched with their Enron stock, which could not be sold before they turned 50.

  11. October 23, 2006 • Five years after Enron had declared for Chapter 11 bankruptcy, former president and CEO of Enron, Jeffrey Skilling was set to present in court for 28 counts on fraud and conspiracy. • Jeff Skilling and Enron felt that the crime they had committed was not all their fault. • They felt the banks that had given them the loans had a part of their ‘wrong doing’. • There were two major banks that helped do this, Citigroup and Deutsche Bank. • Enron Creditor Recovery Corp . is claiming that Citigroup had ‘actual knowledge’ of ‘wrongful conduct’ at Enron helping create the so-called special entities.

  12. Citigroup Bank and Deutsche Bank Enron argued that with all the damage done to their company, that Citigroup or any bank affiliated with it should not be allowed to collect the $5 billion in claims. Deutsche Bank wanted approximately $250 million in claims, but Enron stated in court that they had designed improper tax shelters that Enron execs implemented In the end Enron Creditors Recovery received $1.7 billion in cash from all the settlements to give out to their creditors. This settlement also included that Enron should not have to pay $971 million in claims.

  13. Investing The Enron scandal shocked all of America. Scaring many that other companies many be doing the same. Accounting firms, credit rating businesses, and stock market analysts failed to warn the public about Enron’s business losses until it was clear to all. From 2000 to 2002 prices of stock for the nation’s largest companies fell by more than 33 percent WorldCom Inc. and Global Crossing went bankrupt in the stir of the accounting scandals

  14. Sentencing • Kenneth Lee Lay was convicted on 6 counts of fraud and conspiracy. • Jeffrey Skilling was convicted on 19 counts of fraud and conspiracy. • Both men are facing maximum prison sentences totaling more than 160 years each.

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