PHIL215 Lecture Notes - Enron Scandal, Bethany Mclean, Jeffrey Skilling

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26 Nov 2012
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Tuesday, January 10, 2012
Enron: The Smartest Guys in the Room
- A movie about how smart and education people can decide to do something ethically questionable and
have it blow up in their faces
- Jeffery Skilling: former Enron President and CEO
- Ken Lay: CEO of Enron
- Andrew Fastow: CFO - Financial
- Cliff Baxter: committed suicide for the fall of Enron (two gun shots to the head) 7 weeks after Enron
bankruptcy
Downfall of Enron: Ken Lay
- 7th largest corporation valued at 7 billion dollars
- 1985 Ken Lay founded Enron
- View of deregulation of taking government out of energy business
- Oil trading (like gambling) on whether or not the oil prices will go up or down
o Enron always won
o Gamblers gambled all of Enron’s money
- Taking corporate funds and manipulating earnings
Man With Big Ideas: Jeff Skilling
- After other man got fired
- Transform energy into financial instruments that can be traded as stocks and bonds
- Mark to mark accounting treatment: Enron allowed to book potential profits even though actual cash has
not been processed (allows manipulation to occur because Enron can say their profits are whatever they
say they are)
o Even an idea could be booked as profit
- PRC: graded from 1-5, everyone had to be a 5 or else they get fired (aggressive culture)
- Traders are extremely aggressive at Enron
- Jeff Skilling, came across as a smart well put together man, but he was a risk taker. He gambled away
his money before the age of twenty in the market
Guys With Spikes
- Ken Rice: deal maker of Enron
- Cliff Baxter:
- Lu Pi: CEO of EES
Love Me, Love Me
- Fixated on the stock price to inform the public that Enron was powerful and profitable
- In reality profits were going down
o India couldn’t afford for the energy that they were producing
o Enron bought it out for millions
- They then merged with PGE: to become the largest provider of natural gas and electricity
o All PGE became Enron stock (people started doubling money because of it)
Love For Sale
- Sell bandwidth to other companies and make it a commodity
- Enron’s stock rose by 34% in two days
- They booked 50 million on a deal that didn’t go through yet (creating the illusion that they are
profitable)
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