ENRON SCANDAL

Question 1

Enron Scandal Period:

Answer 1

Early 2000s; Enron filed for bankruptcy in December 2001.

Question 2

Enron Scandal Event

Answer 2

Enron, an energy company based in Houston, engaged in deceptive accounting practices to inflate profits and hide debts.

Question 3

CEO; misled investors with false financial statements and off-balance-sheet transactions.

Answer 3

Kenneth Lay:

Question 4

CEO; implemented a “rank and yank” system, manipulated financial statements, and concealed debts.

Answer 4

Jeffrey Skilling:

Question 5

CFO; masterminded complex off-balance-sheet schemes to hide losses and inflate stock prices.

Answer 5

Andrew Fastow:

Question 6

As profits shrank, Enron relied on dubious ______________, notably mark-to-market accounting, to report unrealized future gains as current profits.

Answer 6

accounting practices

Question 7

Created ___________________________ (SPEs) to offload troubled assets, keeping them hidden from financial statements.

Answer 7

special purpose entities

Question 8

In 2001, analysts discovered discrepancies, leading to a SEC investigation. Enron’s stock plummeted from ____ to under ____, resulting in bankruptcy on December 2, 2001.

Answer 8

$90 - $1

Question 9

Principles Ignored:
Enron engaged in deceptive practices instead of transparent accounting. This led to loss of trust and financial collapse, impacting investors and employees.

Answer 9

Ethical Behavior Is Doing the Right Thing:

Question 10

Principles Ignored:
Enron’s use of mark-to-market accounting created a misleading picture of profitability, preventing an accurate assessment of the company’s real value, disrupting efficient capital markets.

Answer 10

Efficient Capital Markets:

Question 11

Principles Ignored:
Investors were misled into believing in high returns based on manipulated financial statements, taking on excessive risk without understanding the true nature of the investments.

Answer 11

Risk-Return Trade-Off: