SUMMARY OF ENRON CORPORATION

FRAUD CASE
Enron case may be also termed as worlds most famous fraud scandal in United States. As a
result of further deep investigations it was found that the Corporation was forced to file for
bankruptcy in DECEMBER 2001. In MAY 2006 the former Chief Executive of Enron JEFFERY
SKILLING was sentenced to jail for 24 years and the ex-chairman KENNTH LAY died for heart
attack in JULY 2006.

The following summary give an insight about the scandal and the reason that why it was
emerged along with the discussion of its schemes and financial highlights of the corporation and
also puts a light on its falls.

HISTORY OF THE CORPORATION

Enron Corporation is referred as the worlds largest fraud scandals in history. As a result of the
fraud investigations, the company was forced to file for bankruptcy in DECEMBER 2001. Enron
provided products and services related to natural gas, electricity and communications to
wholesale and retail customers.

Enron Corporation has its roots in OMAHA, NEBRASAKA (US). In 1985, Houston Natural
Gas was merged with Inter North to establish an energy company based in Huston, Texas (US).
The company united or combined several number of pipeline systems and hence created the first
nationwide natural gas pipeline system.
In 1986 Ken Lay, the former chief executive officer of Houston Natural Gas, was named as the
chairman and chief executive officer at the young energy company. Its the time when the
company chose its name as Enron Corporation. In 1987, after the discovery of the oil traders in
New York have overextended the company's accounts by almost $1 billion, the company works
its loss down to $142 million. The loss immediately leads to Enron Corporation developing
different sort of services in order to decrease the risk of price level.

After one year, Enron Corp. started its first overseas office. The companys new strategy was
revealed to the executives: pursue unregulated markets in addition to its regulated pipeline
business in England In a gathering known as the Come to Jesus meeting. Jeffrey Skilling
joined Enron Corporation in 1989 and launchthe Gas Bank, such a program thatallows the buyers
of natural gas to get lock in long-term supplies at fixed prices. In the main while, the corporation
also started to offer financing for oil and gas producers.

Enron Corp. expended to South America by acquiring Transportadora de Gas del Sur In 1992.
The company started to push to extend on the continent. In the same year. Enrons Teesside
power plant began operations a year later in England.
It proved itself to be the first successes for Enrons international strategy.

In 1994 the corporation made its first electricity trade which would turn into one of Enrons
biggest profit centers in the next years. Enron entered the European wholesalers market with the
establishment of a trading center in London, part of Enron Europe, in 1995.

In 1996, construction started on the Dabhol power plant in India. However, the project would be
tortured by political problems and finally Enron put the project up for sale in 2001. After one
year, Enron bought Portland General Electric Corporation the utility serving the Portland,
Oregon (US), which would be sold in 2001 to Northwest Natural Gas Corporation for about $1.9
billion.

In the same year, Enron Energy Services was made to provide energy management services to
commercial and industrial customers. Enron doesnt quit its policy of acquiring companies. In
1998 it acquired Wessex Water in the United Kingdom which formed the strong base for its
water subsidiary Azurix.

But after one year, when one-third of Azurix is sold to the public in an offer made to publicthe
companys problems become more prominent as the shares fell quickly after an early rise. In The
same year 1991 Enron Online, the company's commodity trading Internet site, started to work. In
the last of the year, Enron Energy Services pulled out its first profit.

In 2000, Enrons annual revenue was $100 billion, more than the year before we can say twice
was the profit, which reflects the growing importance of trading. However, the problems with
Azurix didnt come to an end and Rebecca Mark resigned from her position of chairwoman
whereas Enron announced its intention to take the subsidiary private. In the same year on the
basis of market capitalization the Energy Financial Group ranked Enron the sixth-largest energy
company in the world.

In April 2001 by bankrupt California utility Pacific Gas & Electric Co Enron disclosed it had
owned $570 million. Where the top executives were likely to be aware of the heavy debt and all
the illegal and unethical practices.

Until October 2001 the fraud was not revealed to the public. When Enron announced that the
company was actually worth $1.2 billion less 195 than previously reported. This problem quickly
started an investigation by the Securities and Exchange Commission , which has revealed
deception and illegal practices at different levels which were committed by high-ranking Enron
executives, investment banking partners, and the companys accounting firm, Arthur Anderson.

At the end of the year Enrons shares closed at $8.63 per share, there was 89 percent drop since
the beginning of the year which is disastrous for any corporation whether its working on a large
scale or a small scale. The critical dates which are much notable in the scandal are October 16,
2001 and November 8, 2001.

On October 16, Enron disclosed that it had made a huge loss of $618 million that quarter, while
on the second date it revealed that it had overstated its earnings since 1997 by $586 million.

In clear and bold words, Enrons accounts for the last four years
had not shown the true state of its huge obligation.

Analyzing the Fraud and Financial Highlights

As the bankruptcy of a small company is taken as a routine, Enrons case is different as the
company was ranked seventh by Fortune. Enrone which proved itself to be so strong until
DECEMBER 200 made a decision to restate its financial statements this proved to be fatal and
the corporation had to go for a bankruptcy.

During the 1990s, Enron unfolded quickly into several areas such as developing a power plant
and a pipeline. This expansion, however, thus required a large initial capital investments and
long development period. By that time, Enron already has raised a large number of debt funds
from the market and hence at that time any other attempt to raise funds would definitely affect
Enrons credit rating position.

But in order to continue business Enron had to maintain the credit ranking at investment rate. On
top of that, the company wasnt making enough profits either at that time, as much as it promised
to its investors. Hence for the sake to survive Enron began making partnerships and other special
arrangements (Special Purpose Entity, or SPE).
 These companies were used to keep Enrons heavy debts and losses away from its balance
sheets definitely which would affect the financial condition of the corporation badly, therefore
they allowed it to have a good credit rating and look good in front of the investors here they
made use of a technique called WINDOW DRESSING which means showing that financial
condition of the business which is far away from the reality.

Window dressing means

an adroit but superficial or misleading presentation of something, designed to

create a favourable impression

Enron: Discovering Fraud

On August 15, Sherron Watkins, an Enron Vice President, wrote an undefined letter to Ken Lay
that suggested that Skilling had left because of the accounting wrong doings or misconduct and
other illegal actions. She questioned Enron's accounting methods and specifically cited the
Raptor transactions.

Later in the same month, Chung Wu, a UBS PaineWebber broker in Houston, sent an e.mail to
almost 73 investment clients saying Enron was in trouble and then giving them a piece of advice
to them to consider selling their shares.

Sherron Watkins then met with Ken Lay in person, adding more details to her charges. She noted
that the SPEs had been controlled by Enron's Chief Finance Officer, Fastow, and that he and
other Enron employees had made their money and left only Enron at risk for the support of the
Raptors. When Enron's stock fell below than a certain point, the Raptors' losses would begin to
appear on Enron's financial statements.

On October 16, Enron announced a third quarter loss of $618 million. During 2001, Enron's
stock fell from $86 to 30 cents. On October 22, the Security Exchange Comission started doing
an investigation into Enron's accounting procedures and partnerships.

In November, Enron officials finally admitted that they have overstated company earnings by
$57 million since 1997. Enron, then was filed for bankruptcy in December of 2001.

What about them all?

Enron's Chief Finance Office, Andrew Fastow, was actually behind the suspicious and difficult
network of partnerships and many other questionable practices. He was charged with a large
number of 78 counts of fraud, conspiracy, and the illegle activities money laundering as well.
Fastow accepted a appeal agreement in January 2004. After pleading guilty to two counts of
conspiracy, he was given a 10-year punishment and was sentenced to jail and ordered to pay
$23.8 million in exchange for performing such acts against other Enron executives.According to
the web site of the corporation
"Enron is in the midst of liquidating its remaining operations and distributing its assets to
its creditor

Jeff Skilling and Ken Lay were both accused in 2004 for their roles in the fraud.,Both Skilling
and Lay were found guilty. Jeff Skilling was convicted of 19 counts of conspiracy, fraud, insider
trading and making wrong statements. Ken Lay was declared to guilty of six counts of
conspiracy and fraud On May 25, 200 by, a jury in a Houston, Texas federal court. In another
separate trial, Lay was also found guilty on four counts of bank fraud.

Kenneth Lay died of a heart attack on July 5, 2006, and a federal judge ruled that his conviction
was void because he died before he had a chance to appeal. On October 23, 2006, Skilling was
sentenced to 24 years in prison.

How the Hidden game ended

New requirements from the Financial Accounting Standards Board now require SPEs to be listed
on a company's balance sheet. Section 401(a) of the Sarbanes-Oxley Act requires that annual and
quarterly financial reports disclose all material off-balance sheet transactions, arrangements, and
obligations. The rules also require most companies to provide an overview of known contractual
obligations in an "easy-to-read tabular form
Now This new ruling has necessarilyeradicated the days of the SPE and the
synthetic lease -- even though they are still legal practices.