Enron: The Smartest Guys in the Room Flashcards
Who are the two CEOs of Enron?
- Kenneth Lay: Founded Enron in 1985
- Jeffrey Skilling: Visionary, who wished to transform Enron from being an energy supplier to an energy trader
What accounting standard/approach contributed to the Enron situation?
Why is this approach used?
Mark-to-Market Accounting: Allows the company to record potential profits on certain projects immediately after contracts are signed, regardless of actual profits the deal would generate.
Why? To appear profitable, even if not! It records non-existent profits for failed ventures.
Who is the CFO, and which actions (2) did he take?
Andrew Fastow, who:
- Created a network of shell companies designed to solely do business with Enron –> Send money, hide debt;
- Pressured banks to invest in these shell entities.
Who was Enton’s accounting firm (auditors)?
What happened to the firm?
Arthur Andersen LLP.
As it was guilty of crimes in its auditing of Enron, the firm voluntarily surrendered its licenses to practice as Certified Public Accountants in the United States in 2002.
What president was in power during the Enron crisis?
Why would he support/favour Enron?
George W. Bush
Enron received political support from Bush.
In return, Lay and Enron were Bush’s ‘fundraiser’ in his political campaigns. Also, during the California Energy Crisis, Enron’s actions could have been to sabotage the Californian governor Gray Davis, a potential challenger to Bush during the Presidential election.
What is the core of the Enron scandal?
Enron trapped its employees into a ‘stock-lock’ –> they were not allowed to sell share options bought by way of savings.
Who was the individual inside Enron who is credited for “blowing” the whistle (exposed secretive information or activity that is deemed illegal, unethical, or not correct within a private or public organization)?
Sherron Watkins
When did Enron announce its bankruptcy?
December 2, 2001
Who commits suicide following the Enron scandal and bankruptcy? When?
What is the individual’s relationship with Enron?
On January 25, 2002, Cliff Baxter is found dead in his Benz, with a self-inflicted gunshot.
Baxter joined Enron in 1991, where he rose to the executive position of Chief Strategy Officer.
Baxter would later be sued personally for $30 million after the bankruptcy of Enron Corporation due to his sale of $30 million worth of Enron stock in the months prior to Enron’s bankruptcy in December 2001.
