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![RECOMMENDATIONS FOR STUDENTS
Learning from Enron’s Case Study Shows Us What Not To Do As Students
You will be faced with challenges in your studies
Challenges of Time or the lack thereof
High Levels of Course Difficulty
Recommendations
Push Forward
Don’t Give Up
Believe in Your Work
Don’t Take Shortcuts
Spend the Time Needed to Learn
Remember why you started your degree
Untitled Illustration of Graduation Cap and Diploma [Online image]. (n.d)](https://image.slidesharecdn.com/charpiajmgt7019-8-8-151021162417-lva1-app6892/75/Case-Study-Enron-s-Fraud-14-2048.jpg)
![REFERENCES, CONTINUED
Jeffrey Skilling [Online Image]. (2011). Retrieved October 9, 2015 from http://dailybail.com/home/enrons-jeff-skilling-may-get-decade-knocked-off-sentence.html
Judge Simeon Lake III [Online Image.] (2007). Retrieved from http://johnfenzel.typepad.com/john_fenzels_blog/2007/01/page/10/
Kenneth Lay, Enron CEO [Online image]. (2006). Retrieved from http://www.eoearth.org/view/article/152569/
Lawry, R. P. (2015). Lawyers' ethics in a post-Enron world. Phi Kappa Phi Forum, 95(1), 27-30
Laobc (2010). Scales of Justice [Online image]. Retrieved October 7, 2015 from https://openclipart.org/detail/62989/scales-of-justice
Nehrams2020, (2015). Enron Stock Price. Retrieved October 7, 2015 from https://commons.wikimedia.org/wiki/File:EnronStockPrice
Schupp, R. W. (2014). Enron, Sarbanes-Oxley, and the supreme Court, a discussion of the Lawson v. FMR, 134 S. Ct. 1158, (2014). Franklin Business & Law Journal,
2014(2), 2-20
Sherron Watkins. [Online image]. (2012). Retrieved October 7, 2015 from http://www.abc.net.au/news/2012-02-23/sherron- watkins/3844796
New York Times, 2006. 10 Enron Players: Where They Landed After the Fall. Retrieved from http://www.nytimes.com/2006/01/29/business/ b
usinessspecial3/29profiles.html?pagewanted=all
Untitled Illustration of Graduation Cap and Diploma [Online image]. Retrieved October 7, 2015 from http://ibi.edu.mk/?page_id=186
Wikipedia, (2015). Enron scandal Retrieved October 6, 2015 from https://en.wikipedia.org/wiki/Enron_scandal](https://image.slidesharecdn.com/charpiajmgt7019-8-8-151021162417-lva1-app6892/75/Case-Study-Enron-s-Fraud-17-2048.jpg)
Uploaded byJill Charpia
Case Study, Enron's Fraud
This document provides an overview of Enron's fraud scandal and case study. It discusses Enron's history as a large energy corporation that collapsed in 2001 due to widespread corporate fraud. It examines the unethical behaviors that took place, such as removing debts from financial statements and executives selling stock before the scandal broke. The document also considers the impact on stakeholders, compares the legal consequences faced by those involved, and provides recommendations for actions around ethics and whistleblowing going forward.
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Case Study, Enron's Fraud
- 1. ENRON’S FRAUD & SCANDALA CASE STUDY PRESENTED BY: JILL CHARPIA COURSE MGT7019-8-8 Enron Logo, (2006)
- 2. OVERVIEW Overview Enron’sBrief Historical Study Unethical Behavior Determination Reflection on Ethical Standards and Social Responsibility Response Influence of Leadership, Related Cultural, Environmental, and Legal Implications Impact on stakeholders and Outcome of Event Comparison of Consequences Fairness of Punishment Recommendations for Action Recommendations for Students Conclusion
- 3. ENRON’S BRIEF HISTORICAL SUMMARY Background $138 Billion Dollar Energy Corporation in (as reported in 2001) Formed by Kenneth lay by merging Houston Natural Gas and InterNorth Operated from 1985 until 2001 Sherron Watkin’s, VP for Corporate Development and her involvement Scandal was brought to light in 2001 (Wikipedia, 2015) Enron’s Top Executives sold their shares prior to report of scandal Stock price dropped from $90.75 to less than $1.00 a share (Schupp, 2014) 5 year investigation, 1,800+ interviews 16 Enron employees and 4 Merrill Lynch employees were indicted and charged (Federal Bureau of Investigation, 2006) Shareholders and Employees sued to recoup funds, recouped only a fraction (CNN, 2015)(Kenneth Lay, Enron CEO 2014)
- 4. UNETHICAL BEHAVIOR EXAMINATION Removing Debts from Balance Sheet Showing Increased Profits Covering up of financial issues Acquiring funding (Enron & Investment Banks) Lack of Whistle Blowing (Ms. Watkins) Executive and Spouses selling stock prior to downfall Shareholders and Employees receiving small settlement Judge giving less than appropriate sentences Who else was involved? (Sherron Watkins, 2012) (Judge Simeon Lake, 2007)
- 5. REFLECTION ON ETHICAL STANDARDS& SOCIAL RESPONSIBILITY RESPONSE Reflection on Ethical Standards and Laws Some requirements approved prior to Enron and the remainder approved after 1) Prevent death or substantial bodily harm 2) Preventing a crime or fraud 3) To prevent, mitigate or rectify a situation where financial injury, where lawyer’s services were used 4) To obtain legal advice in regards to rule compliance 5) To establish a claim or defense of the lawyer (Lawry 2015)
- 6. INFLUENCE OF LEADERSHIP& RELATED CULTURAL, ENVIRONMENTAL & LEGAL IMPLICATIONS How Far Did the Leadership of Enron Extend into it’s Internal Culture Levels of Corruption Merrill Lynch, Investment Bankers Loss of Control Environmental Implication Community Effects Legal Implication Development of Sarbanes-Oxley Act (SOX) Used to instill trust in public organizations once again They added a Public Company Accounting Oversight Board (PCAOB) (Aßländer, 2005) (Laboc, 2010) (Cernusca, 2011)
- 7. IMPACT ON STAKEHOLDERSM &OUTCOME OF EVENTS (Nehrams2020, 2015)
- 8. COMPARISON OF CONSEQUENCES Indicted Total of 32 People Charged Total 16 Enron employees 4 Merrill Lynch employees 12 Acquitted Company Loss: Total loss: $74 Billion Loss due to Fraud: $45 Billion Recovered: Approximately $2.85 Billion (Jeffrey Skilling, 2011) (CNN, 2015)
- 9. FAIRNESS OF PUNISHMENT Kenneth Lay (CEO) Earnings: $217 Million (4 years + stock options) + $19 Million Bonus Salary Indictment: 11 counts, one count of conspiracy to commit security and wire fraud, 2 counts wire fraud, 4 counts securities fraud, 1 count of bank fraud and 3 counts false statements Sentence: Was to be scheduled for a total max of 45 years in prison and an possible fine of $90 million. Prior to sentencing he died from a heart attack. The case was dropped. Mrs. Linda Lay (Kenneth Lay’s Wife) Case: She sold approximately 500,000 shares at a value of $1.2 Million of Enron stock approximately 30 minutes prior to the announcement of Enron’s collapse. Funds donated to charity Charge: Never charged (High Security Restraints, n.d.) (New York Times, 2006)
- 10. FAIRNESS OF PUNISHMENT, CONTINUED Sherron Watkins, (Former Vice President) No indictment or charges brought even with her knowledge and lack of whistle blowing. Submitted written letters and testified in House of Representatives Now has lucrative book deal and speaking career Jeffrey Skilling (Former CEO) Annual Salary: $132 Million Indictment: 28 Counts of securities and wire fraud. Charge Found guilty on 19 counts of conspiracy, fraud, false statements and insider trading. Sentenced: 24 Years and 4 months in prison later reduced by 10 years to agree to stop challenging his conviction and forfeit roughly $42 million. Houston Chronicle, 2011
- 11. FAIRNESS OF PUNISHMENT, CONTINUED AndrewFastow (CFO of Enron that began a company called Swap Sub) Charge: 98 counts of fraud, money laundering, insider trading, and conspiracy. Pled to: 2 charges of conspiracy Actual Sentence: 6 years in prison, 4 less than his plea agreement Lea Fastow (Assistant Treasurer) Indictment: 6 felony counts Actual Charge: 1misdemeanor for filing a false tax return Actual Sentence: 1 year in prison Richard Causey (Former Chief Accounting Officer) Indicted: 5 felony county of securities fraud and 1 count conspiracy to commit securities fraud Possible Sentence: 55 years in prison and $5,250,000 fine Actual Sentence: 5 years & 6 months in prison for 1 count securities fraud, $1.25 Million restitution (Houston Chronicle, 2007) Michael Kopper (Finance Managing Director) Indictment: 1 count money laundering, 1 count conspiracy Possible Sentence: Up to 15 years in prison Actual Sentence: 3 years and 1 month, served less that 2/3 of the sentence, $12 Million forfeiture in illegal gains, and a fine of $50,000 Kenneth Rice (Chief of High Speed Internet Unit) Indictment: 40 charges, including fraud and conspiracy Pled 1 count of securities fraud and agreed to cooperate with federal prosecutors. The other charges were dropped. Actual Sentence: 27 months (Hays, 2007) (Houston Chronicle, 2011) (New York Times, 2006)
- 12. FAIRNESS OF PUNISHMENT, CONTINUED Kevin Howard (Chief Financial Officer), 5 counts fraud, conspiracy/falsifying records, Potential Sentence: Up to 30 years in prison, Actual: 1 year probation Ben Gibson (Treasurer), Pled to 1 count conspiracy, Sentenced 5 years, only served 2/3 in prison Mark Koenig (Head of Investor Relation, 1 Count Conspiracy, Sentenced 18 months Paula Rieker (Former Enron Vice President), Pled: Insider Trading, 6 Counts Conspiracy and Fraud, 2 years probation Lawrence Lawyer (Vice President, Global Markets), Pled to failing to report income, Served 18 months in prison David Delaney, (Former CEO of Retail Energy), Pled to insider trading, served 9 months in prison Arthur Andersen, (Owner of Audit Firm), Charged with obstruction of justice, Charge was overturned, CPA license surrendered and business was closed David Duncan, (Auditor) Charged with securities violations but was not convicted. Plea withdrawn Timothy Balden (Head of Trading, Enron Energy), Pled to manipulating power markets, served 2 years’ probation Jeffrey Richter (Trader, Enron Energy), Pled guilty to manipulating power markets, served 2 years probation John Forney (Energy Trader), Pled guilty to manipulating power markets, served 2 years probation Joe Hirko (Co-CEO, Enron Broadband Services), Pled guilty to charge arising from overstating performance of broadband division, served 16 months in prison Rex Shelby (Vice President of Engineering Operations), Pled guilty to 2 years probation Scott Yeager (Strategic Business Executive) Acquitted on all charges Kevin Hannon (Chief Operating Officer), Pled guilty to Conspiracy, served 2 years in prison Michael Krautz (Accountant), 5 counts fraud, conspiracy and falsifying records, Acquitted William Fuhs (Merrill Lynch Banker), 47 months in prison Robert Furst (Merrill Lynch Banker), Convicted but appealed and won Daniel Bayly (Former Head of Investment Banking), Convicted but appealed and won Sheila Kahanek (Accountant), Acquitted Giles Darby, David Bermingham, and Gary Mulgrew, 7 Counts of Wire Fraud, Pled to 1 count of Wire Fraud, Each Sentenced: Each sentenced 37 months Dan Boyle, (Vice President Global Finance Group), Sentence 3 years 10 months (Houston Chronicle, 2011)
- 13. RECOMMENDATIONS FOR ACTION Proper Ethics Training Program Create an environment that is safe for whistleblowing Implement laws and punishments in an appropriate manner (Hays & Ariail 2013)
- 14. RECOMMENDATIONS FOR STUDENTS Learning from Enron’s Case Study Shows Us What Not To Do As Students You will be faced with challenges in your studies Challenges of Time or the lack thereof High Levels of Course Difficulty Recommendations Push Forward Don’t Give Up Believe in Your Work Don’t Take Shortcuts Spend the Time Needed to Learn Remember why you started your degree Untitled Illustration of Graduation Cap and Diploma [Online image]. (n.d)
- 15. CONCLUSION Overview Enron’sBrief Historical Study Unethical Behavior Determination Reflection on Ethical Standards and Social Responsibility Response Influence of Leadership, Related Cultural, Environmental, and Legal Implications Impact on stakeholders and Outcome of Event Comparison of Consequences Fairness of Punishment Recommendations for Action Recommendations for Students Conclusion
- 16. REFERENCES Aßlünder, M. S.(2005). How could it happen? Enron and the architecture of wrongdoing. EBS Review, (20), 63-73 Cernusca, L. (2011). Ethics in accounting the consequences of the Enron scandal. Agricultural Management /Lucrari Stiintifice Seria I, Management Agricol, 13(3), 35-42 CNN, (2015). Enron Fast Facts. Retrieved from http://www.cnn.com/2013/07/02/us/enron-fast-facts/ Federal Buearu of Investigation. (2006). Crime in the Suites, A Look Back at the Enron Case. Retrieved October 5, 2015 from https://www.fbi.gov/news/stories/2006/december Frayter, K. (2008). Enron investors to split billions from lawsuit. Retrieved from http://www.cnn.com/2008/US/09/09/enron.settlement/ Gordon, M. (2004). Ex-Enron Workers To Get $85 Million In Suit Settlement. Retrieved from http://www.washingtonpost.com/wp-dyn/articles/A22684-2004May12.html Hays, J. B., & Ariail, D. L. (2013). Enron should not have been a surprise and the next major fraud should not be either. Journal of Accounting & Finance (2158-3625), 13(3), 134-145 Hays, K., (2007). Rice gets 27-month sentence. Retrieved from http://www.chron.com/business/enron/article/Ex-Enron-insider-Rice-gets-27-month- sentence-1841354.php High Security Restraints, (n.d.) Retrieved October 7, 2015 from http://www.peerless.net/tl_files/content/handcuffs/B%20Series/B%20Series%20- %20High%20Security/M703BHS%20Metal.jpg Houston Chronicle, (2011). Where are the faces of the Enron trial? Retrieved from http://fuelfix.com/blog/2011/11/28/the-defendants-of-the-enron-era-and-their- cases/#1875101=0
- 17. REFERENCES, CONTINUED Jeffrey Skilling[Online Image]. (2011). Retrieved October 9, 2015 from http://dailybail.com/home/enrons-jeff-skilling-may-get-decade-knocked-off-sentence.html Judge Simeon Lake III [Online Image.] (2007). Retrieved from http://johnfenzel.typepad.com/john_fenzels_blog/2007/01/page/10/ Kenneth Lay, Enron CEO [Online image]. (2006). Retrieved from http://www.eoearth.org/view/article/152569/ Lawry, R. P. (2015). Lawyers' ethics in a post-Enron world. Phi Kappa Phi Forum, 95(1), 27-30 Laobc (2010). Scales of Justice [Online image]. Retrieved October 7, 2015 from https://openclipart.org/detail/62989/scales-of-justice Nehrams2020, (2015). Enron Stock Price. Retrieved October 7, 2015 from https://commons.wikimedia.org/wiki/File:EnronStockPrice Schupp, R. W. (2014). Enron, Sarbanes-Oxley, and the supreme Court, a discussion of the Lawson v. FMR, 134 S. Ct. 1158, (2014). Franklin Business & Law Journal, 2014(2), 2-20 Sherron Watkins. [Online image]. (2012). Retrieved October 7, 2015 from http://www.abc.net.au/news/2012-02-23/sherron- watkins/3844796 New York Times, 2006. 10 Enron Players: Where They Landed After the Fall. Retrieved from http://www.nytimes.com/2006/01/29/business/ b usinessspecial3/29profiles.html?pagewanted=all Untitled Illustration of Graduation Cap and Diploma [Online image]. Retrieved October 7, 2015 from http://ibi.edu.mk/?page_id=186 Wikipedia, (2015). Enron scandal Retrieved October 6, 2015 from https://en.wikipedia.org/wiki/Enron_scandal
Editor's Notes
- #4 Enron was an $138 Billion dollar U.S. based energy corporation that sold natural gas selling to a variety of customers. The company was formed in 1985 by Kenneth Lay. He was the conductor of a merger between Houston Natural Gas and InterNorth. The effective growth strategy involved hiring top level executives and providing significant salaries. The company was in business from the period of 1985 to 2001 when the scandal was revealed (Wikipedia, 2015). The scandal was revealed when the company declared bankruptcy in 2001. The bankruptcy of $138-Billion-dollar organization peaked the interest of the FBI. While the web shows that Sherron Watkins was part of the fall of the company, she had effectively covered her tracks. She served as the Vice President for Corporate Development. She attempted to notify Kenneth Lay and a number of top executives at Enron about the issues in the accounting department and the potential for disaster. Mr. Lay disregarded her, but during the investigations her letters came to light, which it appears sufficiently covered her tail. Some believe she wrote the letters specifically for that purpose and others do not. What is know is that Ms. Watkins was not indicted and she has subsequently published her own book and conducts speaking agreement (CNN, 2015). Prior to the revelation that Enron was in trouble and seeking bankruptcy, Enron’s Top Executives sold their stocks at $90.75 a share, whereas after the day after, the shares dropped to less than $1.00 a share (Shupp, 2014). Upon completion of the 5 year investigation and over 1800 interviews, 16 Enron employees and 4 Merrill Lynch employees were found guilty of charges. While some were ordered to pay restitution to the victims (shareholders and employees), they received only a small fraction of what they were truly owed (Federal Bureau of Investigation, 2006).
- #5 There were so many different levels of unethical behavior that took place in the Enron Scandal that it is difficult to know where to start. If there’s ever a place to start it all began moving debts off of the balance sheet to showing increase profits to be able to acquire additional funding as well as stay off S&P’s radar. The cover up that was provided from the CEO to the Accountants, all the way to outside organizations such as auditors and Investment Bankers. Then there’s the concept of now fully knowing the issues that are going on, and while she may not have been part of the initial scandal, Ms. Watkins became part of it, and subsequently rewarded for her testimony which was only provided after the fact. The amounts confiscated and returned to the shareholders and employees was so small in comparison to their loss, it makes you wonder where all the money went. It then moves to the ridiculousness of the sentences given out by U.S. District Judge Simeon T. Lake III. The actual charges that held up, the number of years in prison given, and the pathetic amount of restitution ordered makes you wonder how dirty the Judge truly was. The Judge went after the top two in the company, but cut corners on the others involved. If this isn’t apparent by reviewing the potential charges and the actual located on slides 9, 10, 11, and 12 of this presentation, I don’t know what is. It then also begs the question, how far up did this scandal really go? At what level of politician and at what level of government did this actually stop? While the indictments and charges ran as far as the CEO of the company, one in business at upper echelons for any period of time knows that a $138 Billion dollar company doesn’t get where they are without political ties. While the FBI stopped their investigation at the CEO level, there’s no doubt that this trailed into the upper echelons of the U.S. Government and potentially foreign government.
- #6 Lawry (2015) brings to light the discussion on an update in lawyer’s requirements to disclose various types of information. Prior to the Enron scandal there were a number of areas to vote on in regards to the items lawyers must disclose. While only certain areas were approved prior to the scandal, the remainder were subsequently approved after the events took place. This list of disclosures consist of the following reflections of ethical standard and the response to social responsibility: 1) Preventing death or bodily harm, 2) Preventing a crime or fraud, 3) to prevent, mitigate or rectify a situation where financial injury, where lawyer’s services were used, 4) to obtain legal advice in regards to rule compliance, 5) to establish a claim or defense of the lawyer.
- #7 Influence of Leadership & Cultural Implications By taking a look at Enron’s business culture, one can attempt to make the appropriate changes to try to implement a better structure to avoid this type of situation from happening in the future. According to Aßländer (2005), Enron did not properly develop their internal structures and strategies that worked with the supervision within the chain. As one can see, a number of the lead supervisors lost the ability to control their own areas and in some cases, gave into pressure of the machine that was moving forward. The level of influence that leadership held over its employees was certainly an impact on the way business was conducted. He also discusses how the various investment bankers at Merrill Lynch were also influenced. It may have started out as simple agreements between the employees at Enron and Merrill Lynch but one can see how over time, the partnership became tainted. The amounts of money involved and the levels of greed surrounding the transactions became be all to end all. These individuals saw an opportunity and they all bought into the fact they wouldn’t be caught. The leadership structure bred this type of action all the way from the top. It goes to show an organization can be infiltrated from it’s leadership and if there isn’t a strong enough structure in the organization to prevent it, all levels can be corrupted. Environmental Implication Enron initially was concerned about the environment, it’s impacts, and how it effected the community. After a period, leadership became more concerned with making money than it was about the environment. Legal Implication Enron’s and several other large companies’ actions caused Congress to enact the Sarbanes-Oxley Act (SOX). The purpose of the act is to attempt to instill trust back in public owned companies. This act implemented a Public Company Accounting Oversight Board (PCAOB). The overall concept is that this is an audit agency designed to audit the auditors. It’s purpose also incorporated a method to protect whistleblowers (Cernusca, 2011). .
- #8 The impact on stakeholders was extremely significant. The company ended up filing for bankruptcy after the scandal was announced. The all time high share price of $90 a share dropped to $0.67 cents a share afterwards (Nehrams2020, 2015). Shareholders lost approximately $45 Billion Dollars due to fraudulent activities. They managed to recover a fraction of their owned amount to a tune of approximately $7.2 Billion (Frayter, 2008). The payments came from CIBC, JPMorgan Chase, Citigroup, as well as small amounts from Arthur Andersen, Lehman, and Bank of America after the lawsuit. In addition, employees lost approximately $2.1 Billion in pensions, some members losing up to $900,000. To create even a basic understanding, the overall level of salary compensation of the top executives compared to the average employee was insignificant compared to even the annual salary of the key managers within the organization. The overall recovery of funds amounted to $85 Million from the insurance policy put in place with a total approximate recovery of $1.5 Million. That is a far cry from the $2.1 Billion that they lost ( . After seeing the impacts to the individuals that were charged and sentenced in this case, one can see that each of the individuals involved got away with so much more than they had to pay out. The sentenced individuals, by the looks of it are actually recovering quite nicely (Houston Chronicle, 2011).
- #9 Throughout this long drawn out, 5-year process, there were a total of thirty-two people that ended up being indicted. Out of those thirty-two people sixteen Enron employees were actually charged and sentenced. Another four Merrill Lynch employees were charged and sentenced, and a total of twelve people were acquitted. The total company’s loss was approximately $74 Billion; of which $45 Billion of that was due to fraud or fraudulent activities. There were several settlements that were awarded back to investors throughout the process of lawsuits which included $4.2 billion the first year, $7.2 billion (out of the main $40 billion lawsuit). (CNN, 2015) The attorneys in this deal received a little over $688 million plus interest in fees. This number is not even inclusive the time and money that it took for the federal government to process utilizing American Taxpayer dollars. Overall as we compare the level of deception that took place within this company’s tenure, the consequences were far from comparable or equitable. The specific level of punishment for each individual involved will be discussed later on in this presentation. As one reviews this case, the associated judicial system, and the rights and wrongs that took place, one can certainly see that there is a serious disconnect in our government’s legal system.
- #10 The loss associated with the Enron scandal was close to $74 billion with close to $45 billion involved with fraudulent activity. Only a portion of the funds were recouped and paid back to investors by selling off the company’s assets. The employees were also affected. They lost compensation that they were promised by way of pensions to the tune of $2 billion. Their lawsuit allowed them to recover $85 million (New York Times, 2006). . The numbers certainly do not add up and the payback was certainly unfair. While the financial payback was extremely unfair, the convictions and punishments were quite frankly, a joke. It certainly goes to show that with exceptional lawyers, a significant amount of money and the ability to pay off politicians that anyone can get away with short sentences or have them reduced down to nothing. When comparing something of this level to that of a convicted drug dealer at a much lesser offense rate, the years of imprisonment are insignificant. It goes back to the ethical level of our very own justice system. To start with, one can review Lea’s wife and the transaction of closing out $1.2 million dollars’ worth of shares 10-30 minutes before the company collapsed. At minimum was insider trading and wire fraud. Wire fraud in the form of a felony charge holds a 20-year sentence, but yet, she walked away scot-free. The funds were given to various charities. It can only be assumed that there was a negotiation to have her cleared of charges. The game that our legal system plays with charges and potential charges is absurd and the standard does not apply across the board. Mr. Lay on the other hand, ended up paying the ultimate price with stress and a heart attack prior to sentencing. His sentence was potentially up to a 45-year maximum in prison. He had another case as well that could have placed him in prison for 100+ years. Even if he had been sentenced for the amount of years shown above, he was a 64-year-old man and should have spent the rest of his life in prison.
- #11 Sherron Watkins served as the Vice President for Corporate Development. She recognized what was going wrong with the company and typed up an anonymous letter to Mr. Lay to outline the accounting issues. She later put in place a package to discuss the issues with Mr. Lay and others at the Top Executive levels. She did not in fact, whistle blow. What she did do was testify in the House of Representatives of what had gone on during her time at the company and brought to light the letters she had written. None of this was done prior to the FBI investigation. So while she has been noted as a whistleblower, she actually was not. Now, the question is, if she knew about everything that was going on and did not report it to authorities, the questions remain: 1) Why was she not convicted as well? 2) Why does she have a book deal and an increasing net worth? 3) Why does she have speaking engagements and served as Time’s 2002 person of the year? There are a lot of questions to be asked and it again seems far from unfair that she remains free and untouched, as well as holds an increased level of notoriety from this scandal and her role within it. Jeffery Skilling quite as lucky. He was the former CEO of Enron who was convicted on 28 counts of wire and security fraud. He was sentenced to 24 years and 4 months in prison. After a number of appeals, the Judge agreed to decrease his sentence by 10 years, if Mr. Skilling would first pay $42 million that would go back to the victims as well as if he agreed to stop appealing his case. While some may think this is an excessive amount to pay back, one would have to look at his salary while employed. Mr. Skilling was paid an annual salary of $132 million dollars. To be able to pay only $42 million and have a sentence reduced by 10 years seems like a pretty good deal (Houston Chronicle, 2011).
- #12 There is another set of major players, inclusive of the Fastows, Richard Causey, Michael Cooper, and Kenneth Rice. The players were all indicated on a variety of charges, but as one can see, the difference between the actual indictment, potential sentences, and the actual sentence are drastically different. The players range from the Chief Financial Officer, Assistant Treasurer, to the Chief Accounting and Finance leads to the Chief of the Broadband section. There were a variety of crimes that took place from each person listed within this list, but as one can see, the actual sentences didn’t add up. Our judicial system certainly rewards those that provide testimony on others. Let us begin with Andrew Fastow, the CFO of Enron. He was initially charged with 98 counts of fraud, money laundering, insider trading, and conspiracy. How it is possible to plead down to only 2 charges of conspiracy and end up in prison for 6 years and 4 months. His wife Lea helped him hide money. She was charged with 6 felony counts but only charged for 1 misdemeanor count. A felony can ruin one’s life, but a misdemeanor can be overlooked. The difference between charged and actually sentenced is significant to say the least. Take a look at Richard Causey. He had a possible sentence of 55 years in prison and a $5 million dollar fine that aligned with 5 felony counts of securities fraud and one count of conspiracy. He ends up serving only 5 ½ years and is required to pay back $1.25 million. How does that even happen? One must also question how a person that has 40 separate charges against him, including fraud and conspiracy, each falling into possible 20 year sentences each, end up with 27 months total, which does not take into account good time. When questioning the fairness of the crime and the sentences that actually are given, one can see the serious discrepancy between the right and wrong of what is taking place.
- #13 As one goes down the list from CFO to Treasurer, to Vice Presidents, Business Executives, all the way to the Merrill Lynch Investment Bankers, one can see how far widespread that this scandal moved throughout the company. It is a wonder that it took a bankruptcy and an FBI investigation to be the cause of indicting all of these individual and this is what can be proved. One has to wonder how many people were involved that not brought up on charges. The list in the above slide shows the remaining individuals received the same treatment of most of the others. They were indicted with significant charges and the end result was unbelievably less than what it could have been. Some were even acquitted in the process. Understanding that the system was looking to have people testify about those above them in the chain of command is understandable, but the concept remains ridiculous. How does testifying against someone negate what was done? Why should that hold any weight at all? This is a concept that makes little to no sense. The charges and the actual sentences “feel” as if someone is playing God and there is little rhyme or reason to any of it. One has to wonder how often this happens and if there will ever be any true justice on any level.
- #14 First and foremost, a company must have a proper plan for educating and implementing a proper ethics training program. The second point is to ensure there is a safe environment for whistleblowing. Hays and Ariail (2013) makes mention of the fact that whistleblowing is the number one way to detection. One of the issues that a company has is the negative impact to people that do come forward. If there is wrongdoing in a company and an individual has the desire to report it, they may not feel comfortable enough to do so. By setting up an external reporting system that allows protection to the whistleblower, there will be a greater chance that an individual will come forward. The last point to add is one of personal opinion. If the US Government and its legal system would actually implement the laws to the appropriate extent rather than allowing for wiggle room due to the amount of money or a position a person has, it is possible that this type of scandal is less likely to happen again. The SOX law is but a band-aide that government officials attempt to implement. In the end, it costs smaller businesses far to much to implement, lessening competition in the market.
- #15 As a student you will be faced with a number of choices throughout your studies. You will be challenged for time, and faced with hardships from the start to the end of your PhD. By taking a lesson from Enron and other companies that fall into this category you can see that taking shortcuts will only lead to issues in the end. Throughout your studies you will you be presented with opportunities to look outside the box for answers or find ways to circumvent the system. While these are ways to make it through your studies, you can’t fake it for long. While we all know time is limited and the course is difficult, it will only get more difficult if you cut corners. It will be up to you to stay true to why you started the program in the first place. Was it to copy answers or papers from online sources or was it to learn the material to make you successful in life. At this point you are at the furthest point of your educational career and you wouldn’t want to jeopardize what you have worked so hard to accomplish. If there are any tips I can give you, it’s 1) Push forward 2) Don’t give up, 3) Believe in your work, 4) Don’t take shortcuts, and 5) spend the time necessary to learn everything you can soak up, and 6) Remember why you started your degree in the first place. Best of luck in all your studies.