Enron scandal revision

Question 1

When was the enron scandal publicised?

Answer 1

2001

Question 2

Before the Enron scandal how successful was Enron ?

Answer 2

Enron was a very successful energy company, building up a value of $70 billion.

Question 3

What utimately happened in 2001?

Answer 3

In 2001, they were forced to file for bankruptcy after their stocks crashed in value – from $90.75 to $0.24.

Question 4

What was the company enron involved in?

Answer 4

Enron were involved in illegal debt hiding and fabricating account details.

Question 5

How did Enron trick the market?

Answer 5

Enron hid debt in special purpose vehicles (SPV)

Question 6

What is a Special purpose vehicles (SPV)?

Answer 6

is a subsidiary of a company which is protected from the parent company’s financial risk ( basically it is a created separate company, which has its own balance sheet, meaning they are not damaging the parent club. Hiding debt.

Question 7

What would Enron do to its rapidly rising stock?

Answer 7

Enron would transfer its rapidly rising stock to the SPV in exchange for cash or a note. Enron would guarantee the SPV’s value to reduce counterparty risk( when SPV went bankrupt they cut ties with it)

Question 8

Due to Enron transfer stock to SPV, what did it mean they could do to investors?

Answer 8

This hid the company’s debt from investors and ensured the share price did not fall.

Question 9

Who was the CEO of Enron?

Answer 9

CEO Jeff Skilling

Question 10

By Autumn 2000, what was happening to Enron’s debt?

Answer 10

It was getting bigger. By the end of 2000, the company had losses of $591 million and had $628 million in debt.

Question 11

How did the CEO hid losses in 2020?

Answer 11

losses using mark-to-market accounting. This measures value based on market value instead of book value so can be easily manipulated by firms

Question 12

What happened in 2020 involving analysts?

Answer 12

They were getting suspicious whether or not Enron was making profit, so they were investigated

Question 13

What did the analysts find out?

Answer 13

By the end of 2000, the company had losses of $591 million and had $628 million in debt.

Question 14

What was the final blow with Enron?

Answer 14

The final blow was dealt when Dynegy, a company that had announced it would merge with Enron, backed out of the deal on November 28th.

Question 15

What did Enron do 4 days later after Dynegy backed out of the merge?

Answer 15

Enron had filed for bankruptcy.

Question 16

What were 2 main consequences of the scandal?

Answer 16

4500 employees lost their jobs

Shareholders lost $74bn

Question 17

What happened to the businesses hierachy?

Answer 17

Many of the business’ hierarchy served jail time including CEO Jeff Skilling who had 14 years in prison and had to give $42 million to fraud victims.

Question 18

What was signed in 2002? ( give name)

Answer 18

In July 2002, President Bush signed the Sarbanes-Oxley Act. This increased the consequences for destroying, altering, or fabricating financial statements and for trying to defraud shareholders.