The Fall of…

							The Fall of…

 Enron and Arthur
    Andersen

          http://money.cnn.com/ne
             ws/specials/enron/
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What was Enron?
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    The Smartest Guys in the
    Room - California and Traders
   http://www.youtube.com/watch?v=dvLZBv8HsO4&feature=related
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Who were some of Enron’s
clients?
   Teeside
   Bahia Las Minas
   Puerto Quetzal Power Project
   PQP LLC
   Empresa Energetica Corinto
   EcoElectrica
   Puerto Plata Power Project
   Modesto Maranzana Power Plant
   Cuiaba Integrated Project
   Nowa Sarznya Power Plant
   And many more…
Key Events

1.) In early July 2001,
   Enron surprised its investors by
   saying it would post a large loss in its
   quarterly statement.
   The company blamed losses on the
   California energy crisis, poor results
   from its investments in India and
   South America, and a moribund
   broadband Internet market.
Key Events Continued…
2.) Sometime between July and October
   2001, the SEC began an inquiry into
   Enron's troubling losses.

3.) In October, Enron said it would reduce
   shareholder value by $1.2 billion.
      The company now blamed the losses on
       Andrew Fastow, the CFO, for allegedly
       arranging deceptive and failing partnerships
       what were being used to hide millions of
       dollars in Enron losses.
      Falsifying Sales
 Key Events Continued…
4.) During this time, the SEC publicly
   upgraded its inquiry into a formal
   investigation of Enron's suspected
   fraudulent financial statements.

5.) In early November, Enron conceded it
   had overstated its profits by nearly 16
   percent, or $600 million, since 1997.
       Enron's auditors, Arthur Andersen,
   also alerted shareholders that they
   should not trust any financial reports
   issued before June 30, 2001.
 Enron's market value plunged, as
   shareholders and investors sold their
   shares as fast as they could.
Key Events Continued…
          Key people
       1.) Kenneth Lay
 Enron's CEO and chairman
from 1986 to January 2002.
                 Key people:
    http://www.youtube.com/watch?v=hPqH3DrWEEU

           2.)Jeffrey Skilling
    President of Enron, heading Enron's
         North American operations.
               Key people
3.)Andrew Fastow
   CFO: from May 1998 until October 2001.
   Fastow, who was promoted to CFO in his
    mid-thirties, earned accolades for
    diminishing Enron's debt and
    restructuring the company's finances to
    allow Enron to diversify its business.
   Created false business partnerships with
    fictional companies throughout the world
    in order to hide debt
              Key people

         4.) Arthur Andersen
   Andersen served as Enron's sole
    internal auditor throughout the
    energy giant's sixteen years, also
    performing internal audits and
    consulting services.
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               Key people
5.) Harvey Pitt
   Chairman of the SEC who prosecuted the
    Enron/Andersen court case
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    
Sarbanes-Oxley Act

   The Sarbanes-Oxley Act of 2002
       commonly called SOX
       is a United States federal law signed
        into law on July 30, 2002 in response
        to a number of major corporate and
        accounting scandals, primarily
        led by Enron/Andersen
Effects of the Sarbanes-Oxley Act

   Increased Efforts by Audit
    Committees on public
    companies
   Increase in Accounting and Audit
    Costs
   Salary Increases
   Demand for Accounting/Finance
    majors
   Influence on SEC Sanctions and
    regulations
   Change in the Audit Process
Enron’s Stock Price from
Jan 2001- Jan 2002
Wall Street dumps
Enron, January 15, 2002

   The New York Stock Exchange
    suspended trading of Enron stock
    moved to formally de-list the firm,
    whose shares once were priced at
    $90 each but now trade for less
    than $1.
Lead Plaintiffs

1. The University of California
      155,000 employees retirement funds tied to
       Enron stock
      Purchased over 2 million shares at inflated
       prices
      Suffered damages of over $144 million



2. Washington State Investment Board
      Manages and invests state‟s retirement funds
      Purchased debt securities at inflated prices
Lead Plaintiffs
3. San Francisco City and County
     Employees„
Retirement System
      Provides benefits for retired employees
      Purchased equity securities at inflated prices


4. Teamsters Nos.175 & 505 Pension Trust
     Fund
      Oversees retirement savings
      Purchased debt securities at inflated prices


5. Hawaii Laborers Pension Plan
      Administers retirement savings
      Purchased debt securities at inflated prices
Defendants
1. Enron
      Kenneth Lay, Jeffrey Skilling, Andrew Fastow, and
       various other Executives
      Accused of illegal insider trading

2. “Andersen”
      consisted of Arthur Andersen LLP and Andersen
       Worldwide S.C.

3. Law Firms
      Vinsin & Elkins, Kirkland & Ellis

4. Investment Banks
    J.P. Morgan & Chase, CitiGroup,
   Bank of America, etc.
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The Verdicts…

   http://www.youtube.com/watch?
    v=di2XVJljadA&NR=1&feature=f
    vwp
What happened to Kenneth Lay?

   On July 7, 2004, Lay was indicted and
    found guilty by a grand jury on 11 counts of
    conspiracy, securities fraud and related
    charges.


   Lay could have faced 20 to 30 years in
    prison.

   However, he died while vacationing in
    Snowmass, Colorado on July 5, 2006,
    about three and a half months before his
    scheduled October 23 sentencing.
     What happened to Jeffery
            Skilling?
   Skilling was indicted on 35 counts of
    fraud, insider trading, and other crimes
    related to the collapse of Enron.
   pleaded not guilty to all charges.
   About a month after quitting Enron,
    Skilling sold almost $60 million of his
    stake in the company
       leading to the prosecutors' allegation that he
        sold those shares with inside information
        of Enron's impending bankruptcy.
   On October 23, 2006, Skilling was
    sentenced to 24 years and 4 months in
    prison, and fined $45 million.
    What happened to Andrew
            Fastow?
   Despite entering into a plea agreement to
    serve 10 years in prison, on 26 September
    2006, Fastow was sentenced to six years,
    followed by two years of probation.
Enron Assignment

   http://www.nytimes.com/learning
    /teachers/featured_articles/2002
    0117thursday.html