The Enron Fraud and Scandal and What It Means to Business Today
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A Case of Corporate Deceit: the Enron Way / 18 (7) 3-38
NEGOTIUM Revista Científica Electrónica Ciencias Gerenciales / Scientific e-journal of Management Science PPX 200502ZU1950/ ISSN 1856-1810 / By Fundación Unamuno / Venezuela / REDALYC, LATINDEX, CLASE, REVENCIT, IN-COM UAB, SERBILUZ / IBT-CCG UNAM, DIALNET, DOAJ, www.jinfo.lub.lu.se Yokohama National University Library / www.scu.edu.au / Google Scholar www.blackboard.ccn.ac.uk / www.rzblx1.uni-regensburg.de / www.bib.umontreal.ca / [+++] Cita / Citation: Amol Gore, Guruprasad Murthy (2011) A CASE OF CORPORATE DECEIT: THE ENRON WAY /www.revistanegotium.org.ve 18 (7) 3-38 A CASE OF CORPORATE DECEIT: THE ENRON WAY EL CASO ENRON. Amol Gore (1) and Guruprasad Murthy (2) VN BRIMS Institute of Research and Management Studies, India Abstract This case documents the evolution of ‘fraud culture’ at Enron Corporation and vividly explicates the downfall of this giant organization that has become a synonym for corporate deceit. The objectives of this case are to illustrate the impact of culture on established, rational management control procedures and emphasize the importance of resolute moral leadership as a crucial qualification for board membership in corporations that shape the society and affect the lives of millions of people. The data collection for this case has included various sources such as key electronic databases as well as secondary data available in the public domain. The case is prepared as an academic or teaching purpose case study that can be utilized to demonstrate the manner in which corruption creeps into an ambitious organization and paralyses the proven management control systems. Since the topic of corporate practices and fraud management is inherently interdisciplinary, the case would benefit candidates of many courses including Operations Management, Strategic Management, Accounting, Business Ethics and Corporate Law. -
Conspiracy of Fools”
Submitted version of review published in GARP Risk Review Review of “Conspiracy of Fools” Joe Pimbley Kurt Eichenwald’s Conspiracy of Fools (Broadway Books, 2005) is a spellbinding account of the rise and fall of Enron. In nearly 700 pages the reader finds answers to “what happened?” and “how did it happen?” Based on retrospective interviews with more than a hundred primary and secondary actors in this drama, the author creates multiple, parallel story lines. He jumps back and forth between these sub-plots in a manner that maintains energy and gives the reader many natural stopping points. The great strengths of Conspiracy are that it’s thorough, extremely well- written, captivating, and, finally, it rings true. The author avoids the easy, simple conclusions that all the executives are “guilty” of crimes or plain greed and that the media-lionized whistle-blower is pure of heart. We see the ultimate outcome as personal tragedies for Jeff Skilling (President) and Ken Lay (CEO) even though they are undeniably culpable. Culpability and guilt are not synonymous, however, and different readers will have widely different judgments to render on these two men. The view of Andrew Fastow is not so murky. He and a handful of his associates did indeed lie, cheat, and steal for personal gain. Fastow’s principle “contribution” to Enron was the creation of structured finance transactions to skirt accounting rules. This one-sentence description doesn’t tell the reader much. Eichenwald gives many examples to flesh out the concept. The story of “Alpine Investors” provides the simplest case. The company wished to sell the Zond Corporation, a wind-farm operator, prior to the closing of Enron’s purchase of Portland General. -
Former Enron Broadband Chief Executive Officer Kenneth Rice Sentenced on Securities Fraud Charge
FOR IMMEDIATE RELEASE CRM MONDAY, JUNE 18, 2007 PH: (202) 514-2007 WWW.USDOJ.GOV/ TDD: (202) 514-1888 Former Enron Broadband Chief Executive Officer Kenneth Rice Sentenced on Securities Fraud Charge WASHINGTON – Kenneth Rice, a former chief executive officer of Enron Broadband Services (EBS), was sentenced to 27 months in prison and ordered to forfeit approximately $15 million to be used to compensate victims of the Enron fraud, Assistant Attorney General Alice S. Fisher of the Criminal Division announced today. Rice was sentenced today at a hearing before Judge Vanessa Gilmore at U.S. District Court in Houston. Rice pleaded guilty on July 20, 2004 to the securities fraud charge, and cooperated with the government’s investigation into the collapse of Enron. Rice admitted that while he was at EBS, a unit of the now-defunct Enron Corp., he and others made a series of false statements about the products, services and business performance of EBS in order to mislead investors and others about the success of the company and to inflate artificially the price of Enron stock. Rice admitted that while serving as EBS’s CEO, he conspired with others to make false statements about the company’s development of various software capabilities and its fiber-optic network. Rice admitted that he falsely portrayed EBS as a commercial and business success, and falsely claimed that network control software developed by EBS was “up and running” – when in fact the software had not progressed beyond the internal development stage. These and other misrepresentations, including a failure to disclose to the investing public that the company stood to sustain operating losses in 2001, contributed to a sharp rise in Enron’s stock price. -
Opening Statement of Rick Caplan
Opening Statement of Rick Caplan Before the Senate Permanent Subcommittee on Investigations July 23, 2002 Thank you Mr. Chairman and Members of the Committee. My name is Rick Caplan. I am a Managing Director of Citigroup’s Corporate and Investment Bank and co-head of the North American Credit Derivatives Group, one of several business groups at Citi that structures transactions for sophisticated corporate clients. I began working in the derivatives business at Citibank in 1997, and I first became involved in structuring certain transactions for Enron in 1999. A prepaid swap transaction – the transaction you have invited us to talk about today – is a form of structured finance. Structured financings have been used over the past several decades by virtually all sophisticated companies as a way of raising money. Just as companies always consider the tax, legal, and accounting consequences of every transaction they enter into and attempt to structure those transactions so as to achieve the most favorable results, the same is true when companies seek to finance themselves. Often times, the most efficient and effective form of financing for a company is not a straight loan, but a structured finance transaction that, in addition to generating liquidity, can address these other business considerations. Most large public companies use many different forms of structured financing. In each instance, they choose the form of financing that best addresses their unique business and capital needs. While many structured financings have the same economic impact as a loan, they often are treated differently for accounting purposes. Such transactions are commonplace in corporate America and play an integral role in our capital markets. -
KNOWLEDGE MANAGEMENT Managing Corporate Reputation and Risk.Pdf
Managing Corporate Reputation and Risk Developing a Strategic Approach to Corporate Integrity Using Knowledge Management This Page Intentionally Left Blank Managing Corporate Reputation and Risk Developing a Strategic Approach to Corporate Integrity Using Knowledge Management D N Amsterdam Boston Heidelberg London New York Oxford Paris San Diego San Francisco Singapore Sydney Tokyo Butterworth–Heinemann is an imprint of Elsevier. Copyright © , Dale Neef. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Recognizing the importance of preserving what has been written, Elsevier Science prints its books on acid-free paper whenever possible. Library of Congress Cataloging-in-Publication Data Neef, Dale, – Managing corporate reputation and risk / Dale Neef. p. cm. Includes bibliographical references and index. ISBN --- . Corporate image. Corporations—Moral and ethical aspects. Business ethics. Integrity. Risk management. Knowledge management. I. Title. HD..N .–dc British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. The publisher offers special discounts on bulk orders of this book. For information, please contact: Manager of Special Sales Elsevier Science Wheeler Road Burlington, MA Tel: -- Fax: -- For information on all Butterworth–Heinemann publications available, -
Enron: Where Are They Now?
University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Supervised Undergraduate Student Research Chancellor’s Honors Program Projects and Creative Work Spring 5-2004 Enron: Where Are They Now? Aaron Montgomery Vickers University of Tennessee - Knoxville Follow this and additional works at: https://trace.tennessee.edu/utk_chanhonoproj Recommended Citation Vickers, Aaron Montgomery, "Enron: Where Are They Now?" (2004). Chancellor’s Honors Program Projects. https://trace.tennessee.edu/utk_chanhonoproj/802 This is brought to you for free and open access by the Supervised Undergraduate Student Research and Creative Work at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Chancellor’s Honors Program Projects by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. Enron: Where Are They Now? Aaron Montgomery Vickers Senior Honors Project 4/30/04 Table Of Contents Introduction ....................................................................................................................... 1 The Collapse Firsthand .................................................................................................... 2 The Fastows, First to Fall ............................................ ,.................................................... 9 Jeffrey Skilling at Rock Bottom .................................................................................... 13 Conclusion ...................................................................................................................... -
Sarbanes-Oxley and Corporate Greed Adria L
University of Connecticut OpenCommons@UConn Honors Scholar Theses Honors Scholar Program Spring 5-8-2011 Sarbanes-Oxley and Corporate Greed Adria L. Stigliano University of Connecticut - Storrs, [email protected] Follow this and additional works at: https://opencommons.uconn.edu/srhonors_theses Part of the Accounting Commons, and the Business Law, Public Responsibility, and Ethics Commons Recommended Citation Stigliano, Adria L., "Sarbanes-Oxley and Corporate Greed" (2011). Honors Scholar Theses. 207. https://opencommons.uconn.edu/srhonors_theses/207 Sarbanes-Oxley & Corporate Greed Adria L. Stigliano Spring 2011 Sarbanes-Oxley & Corporate Greed Adria L. Stigliano Spring 2011 Adria L. Stigliano Honors Thesis Spring 2011 Sarbanes-Oxley and Corporate Greed Sigmund Freud, the Austrian psychologist, believed that every human being is mentally born with a “clean slate”, known as Tabula rasa , where personality traits and character are built through experience and family morale. Other psychologists and neurologists believe individuals have an innate destiny to be either “good” or “bad” – a more fatalistic view on human life. Psychological theories are controversial, as it seems almost impossible to prove which theory is reality, but we find ourselves visiting these ideas when trust, ethics, reputation, and integrity are violated. The Sarbanes-Oxley Act is still a relatively new federal law set forth by the Securities Exchange Commission in 2002. Since its implementation, individuals have been wondering if Sarbanes-Oxley is effective enough and doing what it is meant to do – catch and prevent future accounting frauds and scandals. With the use of closer and stricter rules, the SOA is trying to prevent frauds with the use of a created Public Company Accounting Oversight Board. -
A Theory of Corporate Legal Compliance
The Journal of Business, Entrepreneurship & the Law Volume 8 Issue 2 Article 1 5-15-2015 “Because That's Where the Money Is”: A Theory of Corporate Legal Compliance William C. Bradford Follow this and additional works at: https://digitalcommons.pepperdine.edu/jbel Part of the Business Organizations Law Commons, and the Law and Psychology Commons Recommended Citation William C. Bradford, “Because That's Where the Money Is”: A Theory of Corporate Legal Compliance, 8 J. Bus. Entrepreneurship & L. 337 (2015) Available at: https://digitalcommons.pepperdine.edu/jbel/vol8/iss2/1 This Article is brought to you for free and open access by the Caruso School of Law at Pepperdine Digital Commons. It has been accepted for inclusion in The Journal of Business, Entrepreneurship & the Law by an authorized editor of Pepperdine Digital Commons. For more information, please contact [email protected], [email protected], [email protected]. “BECAUSE THAT’S WHERE THE MONEY IS”: A THEORY OF CORPORATE LEGAL COMPLIANCE WILLIAM C. BRADFORD I. Introduction .................................................................................................... 341 II. Toward a Theory of CLC ............................................................................. 345 A. Personality Theory ........................................................................... 345 1. General Premises and Assumptions .......................................... 345 2. Personality Constructs .............................................................. -
Enron: What Caused the Ethical Collapse? Introduction Kenneth Lay
Enron: What Caused the Ethical Collapse? Introduction Kenneth Lay, former chairman and chief executive officer (CEO) of Enron Corp., is quoted in Michael Novak’s book Business as a Calling: Work and the Examined Life as saying, “I was fully exposed to not only legal behavior but moral and ethical behavior and what that means from the standpoint of leading organizations and people.” In an introductory statement to the revised Enron Code of Ethics issued in July 2000, Lay wrote: “As officers and employees of Enron Corp., its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner.” Lay went on to indicate that the 64-page Enron Code of Ethics reflected policies approved by the company’s board of directors and that the company, which enjoyed a reputation for being fair and honest, was highly respected. Enron’s ethics code also specified that “An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company.” Enron’s ethics code was based on respect, integrity, communication, and excellence. These values were described as follows: Respect. We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here. -
Lessons from Enron: an Oversight Hearing on Gas Prices and Energy Trading”
Senate Democratic Policy Committee Hearing “Lessons from Enron: An Oversight Hearing on Gas Prices and Energy Trading” Robert McCullough Manager McCullough Research May 8, 2006 Thank you for the opportunity to testify this morning. Six years ago, market prices for electricity and natural gas in western markets literally exploded. Prices quickly increased to multiples of comparable prices elsewhere in the United States and Canada. Although it is the sole responsibility of California’s Independent System Operator to declare any system-wide emergencies, the integrated nature of the energy markets rapidly communicated the enormity of the crisis from Alberta to West Texas. Market manipulators – even today – blamed the economic catastrophe on a drought in the Pacific Northwest and a capacity shortage. In fact, the drought occurred after the crisis, while investigations have been unable to document the shortage. In reality, physical withholding in gas and electricity deprived California of needed – and readily available – capacity. Fraudulent schedules and trading schemes shipped power out of California until the state declared a crisis, and then miraculously returned it at far higher prices. Imaginary loads and resources congested critical transmission lines, and imaginary transactions established contractual prices. Enron occupied a central role in this western crisis. Its boastful traders used recorded phone lines and email in a casual fashion, and created detailed instructional presentations about their fraudulent schemes. Demonstrating a keen understanding of the western markets’ lack of regulation, attorneys retained by Enron to judge the legality of one of its schemes observed: The Contemplated Transaction, though questionable on business, political, and social grounds, does not appear to be prohibited under current law. -
If the Auditors Sign Off, Does That Make It Okay?
LAWRENCE WEISS Lawrence Weiss is Professor of International Accounting at The Fletcher School of Law and Diplomacy at Tufts University, and an expert on corporate bankruptcy. If the Auditors Sign Off, Does That Make It Okay? Tuesday May 1, 2012, by Lawrence Weiss Andrew Fastow, the former chief financial officer of Enron, recently completed a six-year prison sentence for his part in the scandalous deception that hid Enron's financial troubles from investors. After I was quoted late last year in an article on the 10th anniversary of the Enron debacle , Fastow contacted me and offered to speak to the Financial Statement Accounting class I teach at Tufts University's Fletcher School of Law and Diplomacy. Last month, Fastow made good on his offer. Why did he commit fraud? Why did a bright, aspiring, stereotypical MBA cross the line and misrepresent the true financial picture of Enron? According to Fastow, greed, insecurity, ego, and corporate culture all played a part. But the key was his proclivity to rationalize his actions through a narrow application of "the rules." Fastow's message, an important one for all managers and potential managers, has two key points. First, the rules provide managers with discretion to be misleading. Second, individuals are responsible for their actions and should not justify wrongful actions simply because attorneys, accountants, or corporate boards provide approval. After his guilty plea for fraud, Fastow forfeited $23.8 million in cash and property. He has helped the Enron Trust recover over $27 billion, of which $6 billion has gone to shareholders. (And he was not compensated for his presentation to my class.) He began the presentation by admitting he committed fraud and taking full responsibility for his actions. -
Status of Charges Against Former Enron Executives
Status of Charges Against Former Enron Executives Accounting What They Did Wrong Legal Status Scandal Kenneth Lay Former Enron CEO and Chairman of the On May 25, 2006, Lay was found guilty on six Board, he is accused of participating in charges that relate to Enron fraud, including widespread schemes to mislead government conspiracy to commit wire fraud, perpetrating wire regulators and investors about the company’s and bank fraud, and making false and misleading earnings, and of insider trading. Between statements to employees at a company meeting, 1998 and 2001, Lay received $300 million as well as to banks, securities analysts and from the sale of Enron stock, netting more corporate credit-rating agencies. Lay faces a than $219 million in profit, and was paid more maximum of 45 years in prison. And Lay will also than $19 million in salary and bonuses. face an additional hefty term in prison (maximum 120 years) for his conviction on four other bank fraud counts that relate to his personal banking. Sentencing is scheduled for the week of Sept. 11. Jeffrey Former Enron CEO, he is accused of On May 25, 2006, Skilling was found guilty on 19 Skilling participating in widespread schemes to counts of conspiracy, fraud, false statements and mislead government regulators and investors insider trading. He was found not guilty on nine about the company’s earnings, and of insider counts of insider trading. Skilling faces a trading. Between 1998 and 2001, Skilling maximum of 185 years in prison. Sentencing is received $200 million from the sale of Enron scheduled for the week of Sept.