Enron Scandal

Company Profile
Public Company
Founded: 1985 in Omaha, Nebraska, United States
Founder: Kenneth Lay
Industry: Energy (oil, gas, and coal)
Employees: 21 000

Revenue
$101 000 000 000.00 (year 2000)

How the scandal happened

Enron's complex financial statements were confusing to shareholders and analysts. In
addition, its complex business model and unethical practices required that the company use
accounting limitations to misrepresent earnings and modify the balance sheet to indicate
favorable performance.
The combination of these issues later resulted in the bankruptcy of the company, and the
majority of them were perpetuated by the indirect knowledge or direct actions of Kenneth
Lay, Jeffrey Skilling, Andrew Fastow, and other executives such as Rebecca Mark. Lay served
as the chairman of the company in its last few years, and approved of the actions of Skilling and
Fastow although he did not always inquire about the details. Skilling constantly focused on
meeting Wall Street expectations, advocated the use of mark-to-market accounting (accounting
based on market value, which was then inflated) and pressured Enron executives to find new
ways to hide its debt. Fastow and other executives "created off-balance-sheet vehicles, complex
financing structures, and deals so bewildering that few people could understand them."

Amount of money involved

Due to the actions of the ENRON executives, the ENRON Company went bankrupt. The
loss sustained by investors exceeded $70 billion. Furthermore, these actions cost both trustees
and employees upwards of $2 billion; this total is considered to be a result of misappropriated
investments, pension funds, stock options, and savings plans as a result of the government
regulation and the limited liability status of the ENRON Corporation, only a small amount of the
money lost was ever returned.

People involved
Kenneth Lay
Lay faces seven counts of fraud and conspiracy on allegations of perpetuating the ruse
upon Skilling's resignation in 2001, less than three months before Enron crumbled into
bankruptcy.
 Jeffrey Skilling
Skilling faces 35 counts, including fraud, conspiracy and insider trading, on charges
connected to various alleged schemes to fool investors into believing Enron was financially
healthy so they could pocket millions from sales of inflated stock.
Andrew Fastow
Indicted in October 2002 on what eventually grew to 98 counts of fraud, conspiracy,
insider trading, money laundering and others. Pleaded guilty to two counts of conspiracy,
admitting to orchestrating myriad schemes to hide Enron debt and inflate profits while enriching
himself with millions.
Mr. Fastow, who is now 44, faces 10 years in prison and is cooperating with federal
prosecutors. He could be the first major witness at the trial of Mr. Lay and Mr. Skilling.
Ben F. Glisan, Jr.
Glisan was the first Enron executive to go to prison after he pleaded guilty in 2003 to
conspiracy to commit wire and securities fraud.
He was released from home confinement in January 2007, making him the first Enron
executive to be released.
Lou Lung Pai
Pai is the founder and chairman of Element Markets, a renewable energy company that is
now home to several former Enron senior employees.
He had resigned from Enron six months before it filed for bankruptcy. Pai cashed out
almost $300m in Enron stock in May 2001- just before the company's collapse.
In July 2008 he agreed with the SEC to pay $31.5m in fines and disgorged profits,
including $6m previously forfeited for the benefit of Enron shareholders. The SEC alleged that
Pai sold Enron stock in May and June 2001 on the basis of material, non-public information
concerning Enron. Pai simultaneously settled with the SEC without admitting or denying the
allegations.
Sherron Watkins
Watkins was the whistleblower in the Enron scandal when she warned Ken Lay in an
anonymous letter that Enron would "implode in a wave of accounting scandals". Her letter led to
an investigation by Enron's law firm Vinson & Elkins.
She has co-authored a book called Power Failure: The Inside Story of the Collapse of
Enron, and is a public speaker on Enron and ethics in business.
She now makes a living through public speaking and consultancy through her advisory
firm, Sherron Watkins & Company.
Rebecca Mark-Jusbache
Mark-Jusbasche resigned her post at Enron in August 2000 and sold her stock in the
company for $80m just before its collapse. She was not accused of wrongdoing in the ensuing
series of prosecutions.
But in early 2005 she agreed to pay $5.2m made from the sale of her shares in Enron to
settle her share of a lawsuit brought by former Enron stockholders. She was one of 18 named
defendants in a lawsuit brought by the University of California, the lead plaintiff for investors in
Enron, in a $186m case.
 She is currently the president of a company called Resource Development Partners, an oil
and gas consultancy firm. She is also on the advisory board of Plebys International, an emerging
market-focused venture capital firm.
Greg Whalley
In August 2001, after Mr. Skilling left the company, Mr. Lay tapped Mr. Whalley to be
the companys president. Weeks later, after he realized the depth of Enrons financial woes, Mr.
Whalley fired Mr. Fastow without even waiting for formal approval from the companys board.
Since Enrons collapse, Mr. Whalley has been questioned by federal investigators and
sued by investors.
He later landed at Centaurus Energy, the Houston hedge fund founded by John Arnold,
who worked under Mr. Whalley at Enron as a natural gas trader.

Individuals Affected
Enron's shareholders lost $74 billion in the four years before the company's bankruptcy
Employees lost $2 billion worth of pension but received compensations