KEY KEY KEY KEY KEY KEY KEY KEY
Name: _______KEY________________
Ken Lay- Founder of Enron
Jeff Skilling- CEO
Andy Fastow- CFO
“The Smartest Guys in the Room”
Throughout the story pay attention to the ticker listing the date and stock price. Keep timeline below:
1/21 8/16 8/23/ 10/15
12/4/01
$.04
$17.20 $36 $90 $19
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What is “mark-to-market” accounting?
Book future profits before they occurred
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Name two of the five “watchdogs”.
A. Stock analysts B. lawyers C. bankers D. SEC E. accountants
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Explain the working environment of Enron under Skilling’s management.
Cut-throat. Believed in Darwinism. PRC Performance Rating Committee, employees rated employees.
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How much money did Lu Pi leave Enron with?
$250 million
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What was the broadband business supposed to provide?
Movies on demand
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What is “structured finance”?
Covering up a company’s debts and making the company look like it was making large profit
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By law, accountants have responsibility to ensure what?
That the financial reports are honest.
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Executives in Enron pumped up stock prices and keep money through stock options.
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Stock options were a hidden cost that never showed up on what financial statement? Balance Sheet
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What is FASB set up to do?
Set accounting standards; tried to close the options loophole
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What was the “long-running” cover-up that Arthur Anderson allowed?
Allowed companies to publish financials knowing there were mistakes as long as the company would correct them in the future.
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In the late 1990’s big firms turned to “consulting”. Why is it considered a conflict of interest to have the big firms providing consulting services?
Lose big clients if the audit report were bad.
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What agency gave in to trying to stop outside consulting by the auditing firms? SEC
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Why was Bass removed from the Enron Account?
Tried to uphold accounting standards with strict audits.
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How did traders make money off California power?
Created artificial blackouts by shutting down power plants; gaining from increased prices of energy
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How much money did the energy crisis cost the state of California?
$30 billion
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What are some things Sharon Watkins’ memo said to Ken Lay?
Warned about incorrectness of accounting; fraudulent activities.
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How much money did Andy Fastow make with the LJM partnership?
$45 Million
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What happened on December 4, 2001?
Enron filed bankruptcy.
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After his trial, what was Andy Fastow’s sentence?
Forfeit $23 million in assets; 10 years prison
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How many people lost their jobs when Arthur Anderson fell?
29,000
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Did Ken Lay ever end up going to jail? Why or Why not?
No, died. (As of 4/2007 Lay’s estate was being sued. Lay’s wife said she should get estate worth $13 million. Over the course of criminal activity, Lay received $99 million.)
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Why shouldn't accounting standards be moved into political or commercial environment?
Loss of control of whether standards are the “best” standards.
Prosecution Scorecard
Criminal defendants
Total: 34
Guilty pleas: 16
Ben Glisan, Jr.
5 years
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Lea Fastow
1 year
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Andrew Fastow
6 years (doesn’t agree with video)
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Richard Causey
5 years 6 months
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Michael Kopper
3 years 1 month
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Mark Koenig
18 months plus probation
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Paula Rieker
2 years probabion
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Timothy Belden
Awaiting sentencing
(Trading floor supervisor)
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Jeffrey Richter
Awaiting sentencing
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Lawrence Lawyer
2 years probation
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Dave Delainey
2 years 6 months
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Ken Rice
Awaiting sentencing
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Kevin Hannon
Awaiting sentencing
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John Forney
Awaiting sentencing
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Timothy Despain
4 years probation
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Christopher Calger
Awaiting sentencing
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Jury Conviction: 5
Ken Lay, Died before sentencing, conviction vacated Jeff Skilling, 24 years 4 months in prision
Dan Boyle, 3 years 10 months James Brown, 3 years, 10 months
Acquittal: 2;
Shelia Kahanek, not guilty Michael Krautz, found not guilty in second trial
Conviction overturned: 2
Arthur Anderson, Government won’t retry Kevin Howard, Judge orders five convictions overturned
Case dropped: 1
David Duncan, plea and charge withdrawn
In limbo: 2
Robert Furst, Conviction overturned on appeal Daniel Bayly, Conviction overturned on appeal
Others charged: 8 Broadband Division
British Bankers
Gary Mulgrew, Extradited, awaiting trial David Bermingham, Extradited, awaiting trial
Giles Darby, Extradited, awaiting trial (http://www.chron.com/news/specials/enron/ |