Presented by
Celine Israel, Conrad Pereira, Edward
Charfauros, and Tawnya Tunudra
-------
Business Law BUS/415
January 10,...
1. Introduction/About Enron
2. Background Facts
3. Legal Issues
4. Risk Assessment
5. Protection from Future Liability
6. ...
• Enron was an energy, commodities, and
communications trading company
• based in Houston, Texas
• Employed around 22,000 ...
1985 1990 2001 2007
• Kenneth Lay - former CEO of Houston Natural Gas, chairman and CEO of Enron
• Jeffrey Skilling - Enro...
1985 1990 2001 2007
• 1985 - Houston Natural Gas company merges with InterNorth. Attempting to
develop a natural gas natio...
1985 1990 2001 2007
• 2000 - total revenues reach $100 billion (doubling 1999 revenues) becoming
world’s sixth largest ene...
1985 1990 2001 2007
• Elements of Tort
• Intentional Misrepresentation (Fraud)
• Negligence
• Professional malpractice
• B...
1985 1990 2001 2007
• Enron was the second largest company to declared bankrupt
• Causes of Enron’s fall
• Enron former CE...
1985 1990 2001 2007
a. Enron’s Financial risk management tools
1. Effectiveness in business planning
2. Regulated competit...
1985 1990 2001 2007
• Enron scandal further exposed corrupt business practices accepted by the United
States
• Insider tra...
1985 1990 2001 2007
• Serbanes-Oxley Act
• Passed on July 30, 2002
• Public Accounting Oversight board is established
• De...
• Skilling was found guilty on 19 counts of conspiracy, fraud, false statements, and
insider trading.
• Not guilty on nine...
• Government Printing Office. (2012). II. History of the company. U. S. Government Printing
Office. Retrieved from www.gpo...
JOB OPENINGS
1985 1990 2001
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Copyright 2013 Edward F. T. Charfauros. Reference, www.YourBlogorResume.net.

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Ltc pp bus415_wk5 Copyright 2013 Edward F. T. Charfauros. Reference, www.YourBlogorResume.net.

  1. 1. Presented by Celine Israel, Conrad Pereira, Edward Charfauros, and Tawnya Tunudra ------- Business Law BUS/415 January 10, 2012 Moanikeala Colon 2001 1985 2007
  2. 2. 1. Introduction/About Enron 2. Background Facts 3. Legal Issues 4. Risk Assessment 5. Protection from Future Liability 6. Conclusion 7. References 8. Questions and Answers
  3. 3. • Enron was an energy, commodities, and communications trading company • based in Houston, Texas • Employed around 22,000 people • Was one of the world's leading pulp and paper, electricity, natural gas, and communications companies • Claimed revenues of nearly $101 billion • Became the seventh largest company in the United States • Invested interests in communications, power, and weather assets • Became largest failure in corporate history before Worldcom in June 2002 .
  4. 4. 1985 1990 2001 2007 • Kenneth Lay - former CEO of Houston Natural Gas, chairman and CEO of Enron • Jeffrey Skilling - Enron president and Chief Operating Officer • Andrew Fascow - Enron finance chief. Chewco founder and LJM partner • Richard Causey - Chief accounting officer • Sherron Watkins - Finance executive • Arthur Andersen, LLP. - Enron auditor
  5. 5. 1985 1990 2001 2007 • 1985 - Houston Natural Gas company merges with InterNorth. Attempting to develop a natural gas national pipeline system. Enron is announced! • 1986 - former CEO of Houston Natural Gas, Kenneth Lay, becomes chairman and CEO of Enron. • 1996 - Jeffrey Skilling becomes president and Chief Operating Officer. • 1997 - Fastow creates Chewco, a partnership to buy the University of California pension fund's stake in another joint venture dubbed JEDI, but Chewco doesn't meet requirements to be kept off Enron's balance sheet. • 1998 - Fastow named finance chief. • 1999 - Causey named chief accounting officer. Fastow creates first partnership, LJM, help Enron hide debt ($30 billion through “structured finance” model) and inflate profits through director approval.
  6. 6. 1985 1990 2001 2007 • 2000 - total revenues reach $100 billion (doubling 1999 revenues) becoming world’s sixth largest energy company. • 2000 - Jeffrey Skilling succeeds as new CEO with Kenneth Lay remaining as chairman. • 2001 – Skilling resigns and Lay resumes as CEO again. • Enron’s bankruptcy resulted with 25,000 employees losing their jobs and medical insurance. • The average severance pay was $4,500, and top executives were paid bonuses totaling $55 million. • 2001 - employees lost $1.2 billion in retirement funds. • Retirees lost $2 billion in pension funds. • Enron’s top executives cashed in $116 million in stock. • Criminal charges resulted with fifteen guilty pleas, six convictions, one acquittal, and eleven pending cases. • Three California traders pled guilty to wire fraud • four Merrill Lynch executives convicted of fraud in the Nigerian barge case.
  7. 7. 1985 1990 2001 2007 • Elements of Tort • Intentional Misrepresentation (Fraud) • Negligence • Professional malpractice • Breach of fiduciary duty • Liability- mass complicity across the board • Enron executives and traders • Arthur Anderson • Investment banks • Damages • Largest corporate bankruptcy in American history • More than 20,000 employees lose their jobs and medical insurance • Over $2 billion loss retirement and pension funds
  8. 8. 1985 1990 2001 2007 • Enron was the second largest company to declared bankrupt • Causes of Enron’s fall • Enron former CEO and former CFO implemented ideas that led to the problem • Crisis that was initiated could not be legally fixed. • Performance of Enron’s risk management team was scanty • The idea of creating asset-light company backfired • Trading skills to the asset-facilities owned by third parties • The expansion of expertise in the energy-trading sector
  9. 9. 1985 1990 2001 2007 a. Enron’s Financial risk management tools 1. Effectiveness in business planning 2. Regulated competition in the environment b. Establishment of long-term operations to hedge risk 1. Cushion the organization against any instability in energy prices 2. Hedging the organization’s risks with the distinct purpose subsidiaries c. Complex transactions were not considered 1. Ignore ineffective support or enforcement of an entity’s values 2. Or ethical standard in performing its activities d. Determination of risk strategy Vital
  10. 10. 1985 1990 2001 2007 • Enron scandal further exposed corrupt business practices accepted by the United States • Insider trading, false reports & shady accounting • The Enron scandal tarnished American business practices forever • The public does not trust big corporations • Enron inflated their earnings to fool investors • Their accounting firm, Andersen validated the data • Two of the top firms in their field are guilty of misconception • Their employees and shareholders lose millions • A multitude of lawsuits follow
  11. 11. 1985 1990 2001 2007 • Serbanes-Oxley Act • Passed on July 30, 2002 • Public Accounting Oversight board is established • Developed to uphold standards in audit reports • Audits Committee members, Executives and the businesses they deal with
  12. 12. • Skilling was found guilty on 19 counts of conspiracy, fraud, false statements, and insider trading. • Not guilty on nine counts of insider trading. • Lay was found guilty on six counts of conspiracy and fraud. • In a separate bench trial, Judge Sim Lake ruled Lay was guilty of four counts of fraud and false statements. • Lay’s prison sentence: Maximum of 45 years and 4 months. • Lay died prior to the sentence hearing. • Skilling’s prison sentence: maximum of 24 years.
  13. 13. • Government Printing Office. (2012). II. History of the company. U. S. Government Printing Office. Retrieved from www.gpo.gov/congress/joint/jcs-3-03/vol1/056-058.pdf • Cheeseman, H. R. (2010). The legal environment of business and online commerce: Business ethics, e-commerce, regulatory, and international issues. (6th ed.) Upper Saddle River, NJ: Pearson Prentice Hall. • Madura, J. (2009). Financial Markets and Institutions. London: Cengage Learning • Gibney, A. (Producer). (2005). Enron: the smartest guys in the room [DVD]. Available from Magnolia Pictures. • Healy, P. M., & Palepu, K. G. (2003). The fall of Enron. Retrieved from http://www- personal.umich.edu/~kathrynd/JEP.FallofEnron.pdf • Jickling, M. (2002). The Enron Collapse: An Overview of Financial Issues. Retrieved from http://fpc.state.gov/documents/organization/9267.pdf • Sargent, M. A. (2002). The Real Scandal: Enron’s ’crimes’ were legal- legality of Enron’s business practices is examined. Retrieved from http://findarticles.com/p/articles/mi_m1252/is_5_129/ai_84817523/
  14. 14. JOB OPENINGS 1985 1990 2001

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