This document provides an overview of the Enron scandal, which led to the bankruptcy of Enron in 2001. It describes Enron's rise as an energy company valued at $60 billion, and then the series of events that led to its collapse, including misleading accounting practices, hiding debts through special purpose entities, and overstating profits. Key players like Kenneth Lay, Jeffrey Skilling, and Andrew Fastow played roles in orchestrating an accounting fraud scheme. The scandal highlighted the need for improved corporate governance and led to new regulations like the Sarbanes-Oxley Act.

1. THE BIGGEST FRAUD IN
HISTORY –ENRON
Submitted By : GROUP 10
Course : B.COM(H)
Section : ‘A’
UNDER THE GUIDANCE OF :-
ANITA MA’AM (DEPARTMENT OF COMMERCE)
“A COMPANY THAT WENT FROM A
VALUATION OF $60B TO BANKRUPTCY
IN A MONTH”
(BY THE STUDENTS OF DELHI COLLEGE OF ARTS & COMMERCE)
GROUP MEMBERS :-
1. HARDIK NANDA (958)
2. NEERAJ KUMAR (954)
3. RAHUL RAJ (964)
4. ADARSH ANAND (977)
5. RITIK VAID (979)

2. ACKNOWLEDGEMENT
This Presentation on the “ENRON SCANDAL” has been prepared
with the combined efforts of the given group members and under
the guidance of our teacher – ‘ANITA MA’AM’. We would like to
extend our thanks and gratitude towards our teacher for providing
us with the opportunity to explore new avenues through this
project. We are grateful to her for providing us with her support
and guidance.
CONTENT SLIDE NO.
● COMPANY PROFILE & KEY ATTRIBUTES 03
● WHAT LED TO THE COLLAPSE OF ENRON 04-05
● HIGHLIGHTS OF THE SCAM 06
● CAUSES OF THE SCAM 07
● KEY PLAYERS AND THEIR ROLES 08
● WHISTLE BLOWER & CORPORATE GOVERNANCE 09-10
● WHAT SHOULD HAVE BEEN DONE? 11

3. COMPANY PROFILE
‘ENRON’
 In 1985, ENRON came into existence with the merger of Houston Natural Gas &
InterNorth. It was based in Houston, Texas.
 Kenneth Lay , the former CEO of Houston Natural Gas, became the CEO.
 Enron started as a company involved in transmitting and distributing electricity and
natural gas throughout the US. Later, it diversified into as many as 30 products, such
as Plastics, Steel, Broadband etc.
KEY ATTRIBUTES
1. One of the world’s major electricity, natural gas and communications
company. Accounted for 25% control of the gas business.
2. Employed more than 20,000 employees. Revenues of nearly $101 Billion.
3. Named ‘ AMERICA’S MOST INNOVATIVE COMPANY’ by FORTUNE for 6
consecutive years. (1996-2001)
4. It was a Wall Street Darling.

4. SERIES OF EVENTS THAT CRUMBLED THE
WALL STREET DARLING
 1985 : Enron is formed with a merger between Houston Natural Gas Co. &
InterNorth Inc.
 1995 : Enron is named “America’s Most Innovative Company” by Fortune for
six consecutive years.
 1998 : Andrew Fastow is promoted to CFO, he ultimately leads the creation
of a network of companies that help to hide Enron’s LOSSES.
 2000 : Enron’s shares surge to an all time high of $90.56
 12 FEBRUARY, 2001 : Jeffrey Skilling ( formerly a Mckinsey Consultant)
replaces Kenneth Lay as CEO. However, Lay remains a member of the Board.
 14 August, 2001 : Skilling resigns, Lay takes over. Enron’s broadband division
reports a massive $137 million loss. Analysts drop ratings for Enron’s stock. In
turn, the company’s share price dives to $39.95, a 52-week low.
 12 October, 2001 : Arthur Andersen (Enron’s Auditor) tells auditors to
destroy all Enron’s files, except basic documents.

5.  22 October, 2001 : Enron reports a $618 million loss. Stock falls further to $33.84.
 8 November, 2001: Enron admits it has been INFLATING its income by around $586
million since 1997.
 29 November, 2001: Arthur Andersen becomes another casualty of Enron scandal as
the SEC (Securities Exchange Commission of U.S.) expands its investigation.
 2 December , 2001: Enron files for Bankruptcy. It’s stock closes at $0.26
 9 January, 2002 : A criminal investigation is launched against Enron. Enron is
suspended from the NYSE.
 15 June , 2002 : Arthur Andersen , Enron’s accounting firm, is convicted of
obstructing justice.

6. HIGHLIGHTS OF THE SCAM
 $30 Million of Self Dealings by the Chief Financial
Officer of the company.
 $700 Million of net earnings disappeared.
 $1.2 Billion shareholders’ equity disappeared.
 Over $4 Billion in hidden liabilities.
 Share price went from $90.75 to $0.26.
Many of Enron’s recorded assets and profits were inflated or even wholly fraudulent
and non-existent. Debts and losses were put into entities formed “offshore” that
were not included in the company’s financial statements, and other sophisticated
financial transactions between Enron and related companies were used to eliminate
unprofitable entities from the company’s books.

7. CAUSES OF THE SCAM
 DUBIOUS ACCOUNTING POLICIES , Enron asked for a change in it’s accounting
policies. For instance, it changed it’s Historical cost method to Mark-to-Market
method.
 MISLEADING ACCOUNTS, the accounts were highly manipulated and inflated to
deceive the various stakeholders.
 MARK TO MARKET ACCOUNTING, this practice was followed to overvalue the assets
belonging to the company.
 SPECIAL PUPROSE ENTITES (SPE’s), were made to hide it’s mountain debts and
toxic assets from the investors and creditors.
 POOR FINANCIAL AUDIT , as the auditor offered approval despite poor accounting
practices adopted by Enron.
 OVER- STATEMENT OF PROFIT , the statements of profit and loss were highly
overvalued by window dressing.

8. KEY PLAYERS IN THE SCAM & THEIR
ROLES
 KENNETH LAY ( CEO OF ENRON): He developed and approved the initial
plans of the fraud. He hid the information that could have been detrimental
to his position. All this was done by him to deceive the various stakeholders.
 ANDREW FASTOW ( CFO OF ENRON) : He orchestrated a scheme to use off
balance sheet special purpose vehicles(SPV) to hide Enron’s debts and assets.
The purpose of these SPV’s was to hide accounting realities and operating
results.
 JEFFREY SKILLING ( PRESIDENT & COO) : He hid the financial losses of the
trading business and other operations of the company by using mark to
market accounting which turned out to be disastrous for the company.
 ARTHUR ANDERSEN ( ACCOUNTING FIRM OF ENRON) : It was among the 5
biggest firms in the field of audit. It was accused of applying reckless
standards in it’s audits because of a conflict of interest over the significant
consulting fees generated by Enron.

9. THE WHISTLE BLOWER
 On February 14, 2002 the former vice president of Enron Corporation,
Sherron Watkins broke the silence. She testified before a congressional panel
against Kenneth Lay and Jeffrey Skilling. She also had written in the past to
Lay about the malpractices carried out in accounting.
CURRENT STATUS OF
THE COMPANY AND KEY
PLAYERS :-
Jeffrey Skilling, the architect of the scam, currently resides in Albama. He is trying to
get back to some work. Andrew Fastow recently completed his 6 year prison, now he
speaks on ethics. Lay died in 2006 ,of heart attack. All his wealth was seized.
Arthur Andersen’s auditing activities were ended in 2002, though it tried to get back in
business 12 years later.

10. CORPORATE GOVERNANCE
 The dimensions showed of business showed by Enron overlap with
corporate governance, since good corporate governance will not be
achieved in the absence of an ethical corporate culture. The dividing
line between corporate governance and corporate ethics is difficult to
specify.
ENACTMENT OF SARBANES OXLEY ACT
Due to the extent of the Enron scam, the need for corporate governance and
protection of investor’s rights was felt worldwide. This led to the advent of the
given act. This Sarbanes Oxley Act seeks to :-
1. Restore the public confidence in both public accounting and public traded
securities.
2. Assure the ethical business practices through heightened levels of executive
awareness and accountability.

11. WHAT SHOULD HAVE BEEN DONE :-
 Shareholders should have been encouraged to attend General
Assembly/Meetings and the agenda must be discussed clearly.
 Shareholders should be allowed to express their opinions and the
voting process should be transparent.
 An internal audit committee must be formed to monitor and
maintain internal controls. It must be held responsible for risk
management.
 The Audit Committee must comprise of independent members and
they must have full control on the audit procedures. They must
monitor that accounts are prepared with precision and don’t include
any fake items.
 Windrow Dressing and Manipulations must be avoided at all costs.
 The auditors must perform the audit to provide reasonable
assurance. Their opinion must be free from any influence .