Enron's Origins

Enron was formed in 1985 following a merger between Houston Natural Gas Company and Omaha-based
InterNorth Incorporated. Following the merger, Kenneth Lay, who had been the chief executive officer
(CEO) of Houston Natural Gas, became Enron's CEO and chairman. Lay quickly rebranded Enron into an
energy trader and supplier. Deregulation of the energy markets allowed companies to place bets on future
prices, and Enron was poised to take advantage. In 1990, Lay created the Enron Finance Corporation and
appointed Jeffrey Skilling, whose work as a McKinsey & Company consultant had impressed Lay, to head
the new corporation. Skilling was then one of the youngest partners at McKinsey.

Skilling joined Enron at an auspicious time. The era's minimal regulatory environment allowed Enron to
flourish. At the end of the 1990s, the dot-com bubble was in full swing, and the Nasdaq hit 5,000.
Revolutionary internet stocks were being valued at preposterous levels and, consequently, most investors
and regulators simply accepted spiking share prices as the new normal.
What Enron did ?

 Mark-to-Market

One of Skilling's early contributions was to transition Enron's accounting from a traditional historical cost
accounting method to a mark-to-market (MTM) accounting method, for which the company received
official SEC approval in 1992. MTM is a measure of the fair value of accounts that can change over time,
such as assets and liabilities. Mark-to-market aims to provide a realistic appraisal of an institution's or
company's current financial situation, and it is a legitimate and widely-used practice. However, in some
cases, the method can be manipulated, since MTM is not based on "actual" cost but on "fair value," which
is harder to pin down. Some believe MTM was the beginning of the end for Enron as it essentially
permitted the organization to log estimated profits as actual profits.
The Collapse of ENRON

By the fall of 2000, Enron was starting to crumble under its

own weight. CEO Jeffrey Skilling hid the financial losses of
the trading business and other operations of the company
using mark-to-market accounting. This technique measures
the value of a security based on its current market value
instead of its book value. This can work well when trading
securities, but it can be disastrous for actual businesses.

In Enron's case, the company would build an asset, such as a

power plant, and immediately claim the projected profit on
its books, even though the company had not made one dime
from the asset. If the revenue from the power plant was less
than the projected amount, instead of taking the loss, the
company would then transfer the asset to an off-the-books
corporation where the loss would go unreported. This type
of accounting enabled Enron to write off unprofitable
activities without hurting its bottom line.

The mark-to-market practice led to schemes that were

designed to hide the losses and make the company appear
more profitable than it really was. To cope with the
mounting liabilities, Andrew Fastow, a rising star who was
promoted to chief financial officer in 1998, developed a
deliberate plan to show that the company was in sound
financial shape despite the fact that many of its subsidiaries
were losing money.
How Did Enron Use Special Purpose Vehicles (SPVs) to Hide its Debt?

Fastow and others at Enron orchestrated a scheme to use off-balance-sheet special purpose vehicles
(SPVs), also known as special purposes entities (SPEs) to hide its mountains of debt and toxic assets from
investors and creditors. The primary aim of these SPVs was to hide accounting realities rather than
operating results.

The standard Enron-to-SPV transaction would be the following: Enron would transfer some of its rapidly
rising stock to the SPV in exchange for cash or a note. The SPV would subsequently use the stock to hedge
an asset listed on Enron's balance sheet. In turn, Enron would guarantee the SPV's value to reduce
apparent counterparty risk. *) pau tolong gambar dibawah di buat jadi 1 slide aja setelah slide yang gue
highlight kuning ini ya

Although their aim was to hide accounting realities, the SPVs were not illegal. But they were different
from standard debt securitization in several significant—and potentially disastrous—ways. One major
difference was that the SPVs were capitalized entirely with Enron stock. This directly compromised the
ability of the SPVs to hedge if Enron's share prices fell. Just as dangerous was the second significant
difference: Enron's failure to disclose conflicts of interest. Enron disclosed the SPVs' existence to the
investing public—although it's certainly likely that few people understood them—but it failed to
adequately disclose the non-arm's length deals between the company and the SPVs.

Enron believed that its stock price would continue to appreciate—a belief similar to that embodied by
Long-Term Capital Management, a large hedge fund, before its collapse in 1998. Eventually, Enron's stock
declined. The values of the SPVs also fell, forcing Enron's guarantees to take effect.
Arthur Andersen (ACCOUNTING FIRM) and Enron

In addition to Andrew Fastow, a major player in the Enron scandal was Enron's accounting firm Arthur
Andersen LLP and partner David B. Duncan, who oversaw Enron's accounts. As one of the five largest
accounting firms in the United States at the time, Andersen had a reputation for high standards and quality
risk management.

However, despite Enron's poor accounting practices, Arthur Andersen offered its stamp of approval,
signing off on the corporate reports for years. By April 2001, many analysts started to question Enron's
earnings and the company's transparency.
Criminal Charges (ini maksudnya mau ngejelasin, siapa aja sih yang kena charge sebagai criminal di
kasus enron)

a. Arthur Andersen was one of the first casualties of Enron's prolific demise. In June 2002, the firm
was found guilty of obstructing justice for shredding Enron's financial documents to conceal them
from the SEC. The conviction was overturned later, on appeal; however, the firm was deeply
disgraced by the scandal and dwindled into a holding company. A group of former partners bought
the name in 2014, creating a firm named Andersen Global.

b. Several of Enron's executives were charged with conspiracy, insider trading, and securities fraud.
Enron's founder and former CEO Kenneth Lay was convicted on six counts of fraud and conspiracy
and four counts of bank fraud. Prior to sentencing, he died of a heart attack in Colorado.

c. Enron's former star CFO Andrew Fastow pled guilty to two counts of wire fraud and securities
fraud for facilitating Enron's corrupt business practices. He ultimately cut a deal for cooperating
with federal authorities and served more than five years in prison. He was released from prison
in 2011.

d. Ultimately, former Enron CEO Jeffrey Skilling received the harshest sentence of anyone involved
in the Enron scandal. In 2006, Skilling was convicted of conspiracy, fraud, and insider trading.
Skilling originally received a 24-year sentence, but in 2013 it was reduced by 10 years. As a part
of the new deal, Skilling was required to give $42 million to the victims of the Enron fraud and to
cease challenging his conviction. Skilling remains in prison and is scheduled for release on
February 21, 2028.
New Regulations As a Result of the Enron Scandal

Enron's collapse and the financial havoc it wreaked on its shareholders and employees led to new
regulations and legislation to promote the accuracy of financial reporting for publicly held companies. In
July 2002, President George W. Bush signed into law the Sarbanes-Oxley Act. The Act heightened the
consequences for destroying, altering, or fabricating financial statements, and for trying to defraud
shareholders.

The Enron scandal resulted in other new compliance measures. Additionally, the Financial Accounting
Standards Board (FASB) substantially raised its levels of ethical conduct. Moreover, company boards of
directors became more independent, monitoring the audit companies, and quickly replacing poor
managers. These new measures are important mechanisms to spot and close loopholes that companies
have used to avoid accountability.

Tahun pertama cash flow :

Modal 50 juta

Asset 18 juta
The Bottom Line (INTINYA)

At the time, Enron's collapse was the biggest corporate bankruptcy to ever hit the financial world (since
then, the failures of WorldCom, Lehman Brothers, and Washington Mutual have surpassed it). The
Enron scandal drew attention to accounting and corporate fraud as its shareholders lost $74 billion in
the four years leading up to its bankruptcy, and its employees lost billions in pension benefits. As one
researcher states, the Sarbanes-Oxley Act is a "mirror image of Enron: the company's perceived
corporate governance failings are matched virtually point for point in the principal provisions of the
Act." (Deakin and Konzelmann, 2003).

Increased regulation and oversight have been enacted to help prevent corporate scandals of Enron's
magnitude. However, some companies are still reeling from the damage caused by Enron. Most
recently, in March 2017, a judge granted a Toronto-based investment firm the right to sue former Enron
CEO Jeffrey Skilling, Credit Suisse Group AG, Deutsche Bank AG, and Bank of America's Merrill Lynch unit
over losses incurred by purchasing Enron shares.