The Enron Scandal By Aleksandra Whistle, Rachel Davis and Jie
li
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Background Information
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Kenneth Lay Chairman and CEO of Enron
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Jeffrey Skilling CEO of Enron
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Andrew Fastow Chief Financial Officer
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Arthur Andersen One of the top 5 largest accounting firms in
the U.S. Found guilty of criminal charges; lost license Destroyed
Enron documents
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Sharron Watkins Vice President for Corporate Development at
Enron Whistle-Blower Wrote an autonomous letter to Lay informing
him of financial discrepancies
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Mark to Market Accounting allowed them to record estimated
future net cash flow from deals at the same time the deal was
signed. Enron never changed their assumptions even through there
was evidence that those assumptions were no longer valid.
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Enron in India Constructed a power plant in India Lost $1
billion on the investment Executives earned multi-million
bonuses
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Special Purpose Entities (SPEs) Removes liabilities off of the
balance sheet and hides them in SPEs SPEs were created by Fastow to
hide the companys debt and losses
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Implications
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Collateral Damage 20,000 employees lost their jobs and medical
insurance Employees lost $20 billion in retirement funds Retirees
lost $2 billion in pension funds But the top executives were paid
bonuses of $55 million and cashed in $116 million in stock
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Sarbanes-Oxley Act Established the Public Company Accounting
Oversight Board to develop standards for the preparation of audit
reports Requires executives to sign off on financial reports and
individually certify the accuracy of financial information Requires
the company to disclose knowable conflicts of interest Enhances
penalties for white collar crime and protects whistle-blowers
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Sociocultural Implications Society was disillusioned with
corporate culture Support for deregulation before the scandal;
after, people were not so sure anymore Millions of dollars were
lost in Enron stock investments by individual and institutional
investors
