Coursework Week 8 Documentary Film - Enron: The Smartest Guys in the Room (2005) Film Summary ‘Enron: The Smartest Guys in the Room’ is a 2005 documentary film detailing the biggest corporate scandal and collapse in American history. Enron is the story of insatiable greed made possible by the perpetrators’ ingenious ability to invent highly questionable methods to portray the company as a successful company and win the trust and admiration of a gullible public with devastating outcomes. The outcomes include: suicides by corporate executives, jail sentences, the dismissal of more than 20,000 employees and the loss of life savings by thousands more while the company’s top executive walk away with more than $1 billion. The company gave itself an appearance of profitability by inflating its profits and concealing its losses through corrupt bookkeeping practices, with the acquiescence of its highly paid firm of accountants, Arthur Anderson. Within two years of its founding in 1985 by Kenneth Lay, the company becomes embroiled in a scandal after two of its traders begin betting on the oil market resulting in consistent profits. But betting and the publication of consistent profits, which very few questioned, would be the hallmark of the company right up to its collapse.    Enron’s ambition was to reinvent the energy industry as a market place where gas and electricity could be traded like shares and bonds. Put simply, Enron gambled in the energy market and manipulated it and other commodities and even considered ‘trading weather’ at some point. Its executive officers were involved in the company’s unethical and often criminal activities. These include: · its founder Kenneth Lay who gambled away all of the company’s assets and reserves and encouraged the company’s president to gambled more in trading and also claimed that the company was the ‘best energy company in the world’ when he should have known that the company was bankrupt and had been worthless for years; · its president Louise Bourget who diverted the company’s profits into his personal bank account, destroyed the company’s record and gambled the company’s money; · its new CEO, Jeffrey Skilling who used an accounting tactic, mark-to-market, to record the company’s projected future profits as its current income as soon as a contract was signed regardless of the actual profit that the contract would generate; · Lou Pai, the elusive CEO of Enron Energy Services who had an obsession of gambling and visiting strip clubs using shareholder money and who left suddenly with a $250 million pay-out when his department was $1 billion in debt. · Andrew Fastow the Chief Financial Officer who breached his duty to Enron and its shareholders and made more than $45 million through the creation of a number of front companies designed to hide Enron’s losses. By maintaining an appearance of profitability, the company’s executives were able to consistently reward themselves with huge bonuses. .

1. Coursework Week 8
Documentary Film -
Enron: The Smartest Guys in the Room
(2005)
Film Summary
‘Enron: The Smartest Guys in the Room’ is a 2005 documentary
film detailing the biggest corporate scandal and collapse in
American history. Enron is the story of insatiable greed made
possible by the perpetrators’ ingenious ability to invent highly
questionable methods to portray the company as a successful
company and win the trust and admiration of a gullible public
with devastating outcomes. The outcomes include: suicides by
corporate executives, jail sentences, the dismissal of more than
20,000 employees and the loss of life savings by thousands
more while the company’s top executive walk away with more
than $1 billion. The company gave itself an appearance of
profitability by inflating its profits and concealing its losses
through corrupt bookkeeping practices, with the acquiescence of
its highly paid firm of accountants, Arthur Anderson.
Within two years of its founding in 1985 by Kenneth Lay, the
company becomes embroiled in a scandal after two of its traders
begin betting on the oil market resulting in consistent profits.
But betting and the publication of consistent profits, which very
few questioned, would be the hallmark of the company right up
to its collapse.
Enron’s ambition was to reinvent the energy industry as a
market place where gas and electricity could be traded like
shares and bonds. Put simply, Enron gambled in the energy
market and manipulated it and other commodities and even
considered ‘trading weather’ at some point.

2. Its executive officers were involved in the company’s unethical
and often criminal activities. These include:
·
its founder Kenneth Lay who gambled away all of the
company’s assets and reserves and encouraged the company’s
president to gambled more in trading and also claimed that the
company was the ‘best energy company in the world’ when he
should have known that the company was bankrupt and had been
worthless for years;
·
its president Louise Bourget who diverted the company’s profits
into his personal bank account, destroyed the company’s record
and gambled the company’s money;
·
its new CEO, Jeffrey Skilling who used an accounting tactic,
mark-to-market, to record the company’s projected future
profits as its current income as soon as a contract was signed
regardless of the actual profit that the contract would generate;
·
Lou Pai, the elusive CEO of Enron Energy Services who had an
obsession of gambling and visiting strip clubs using shareholder
money and who left suddenly with a $250 million pay-out when
his department was $1 billion in debt.
·
Andrew Fastow the Chief Financial Officer who breached his
duty to Enron and its shareholders and made more than $45
million through the creation of a number of front companies
designed to hide Enron’s losses.
By maintaining an appearance of profitability, the company’s
executives were able to consistently reward themselves with

3. huge bonuses.
Question
Assume that Mr Kenneth Lay, the founder of Enron had
provided a loan of £1 million to the company and that following
the collapse of the company Mr Lay attempted to recover his
money from the company but the liquidator resisted his claim on
the ground that there was no difference between Mr Lay and the
company since he had overall control over the company and that
instead of trying to claim money from the company he should be
made liable for its debts.
In the film, Mr Louis Bourget the president of Enron diverted
the company’s profit into his personal account, destroyed the
company’s records, and gambled the company’s money. Mr
Andrew Fastow, the company’s Chief Financial Officer created
a number of front companies which he uses to defraud Enron of
tens of millions of dollars.
You are a legal team summoned to attend a case conference.
The liquidator of the company has asked your team to prepare a
legal analyses of the company law issues raised in the film and
advise on:
a)
The merits of the liquidator’s arguments, in British company
law, that Mr Lay cannot recover his loan from the company and
that he should instead be made to contribute to the company’s
debt on the ground that there is no difference between him and
the company. Do not deal with any criminal element involved,
(40 marks).

4. b)
Mr Louis Bourget’s and Mr Andrew Fastow’s duties as directors
of Enron, explaining which duty, if any, they breached under
the Companies Act 2006, (60 marks).
You are required to
individually
prepare a written answer to the question and hand it in to your
seminar tutor at the start of your case-conference in week 8.
The answer should be between 750 – 1000 words long and
should address all the issues raised in the question. The written
answer carries 50% of the marks available for this case
conference. The group presentation carries the remaining 50%.
Marks may be deducted if you do not keep within the word
margin. You are expected to word count your work and make a
note of this at the end. You are expected to work in your groups
for the purposes of the presentation, but the written answer must
be prepared INDIVIDUALLY. Collaborative work is an
assessment offence. You are reminded that you must support
your answer with relevant company law cases and statutory
provisions.
Assessment Rationale and Criteria
The assessment method for this part of the module is designed
to meet the objectives of the module and facilitate its outcomes.
The coursework will allow students to develop their research
and data interpretation skills both as members of a team, in
respect of the group presentation, and as individuals in respect

5. of the written answers. The written part of the coursework will
allow students to develop their legal writing skills. Students
must ensure that they satisfy the assessment criteria their work
will be marked against. The pass mark is 40%. Students will be
assessed on the following examination assessment criteria:
1.
Identification of the legal issue
2.
Identification of all relevant areas of law
3.
Demonstration of knowledge and understanding of relevant
legal rules and case-law
4.
Application of relevant law to the facts
5.
Presentation
Grade A
·
Precise identification of the legal issue.
·
Precise identification of all the relevant areas of law.
·
Demonstration of a thorough knowledge and understanding of
the relevant principles and case law including a critical analysis
thereof.
·

6. Accurate
application
of law to question so as to address precisely legal issues raised
therein.
·
Use of authority (that is, cases and statutes) to support the
arguments advanced and conclusions reached.
·
Presentation of work which is legible.
·
Clarity of expression.