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
$17.20
8/16
$36
8/23/
$90
10/15
$19
12/4/01
$.04
1. What is “mark-to-market” accounting?
Book future profits before they occurred
2. Name two of the five “watchdogs”.
A. Stock analysts
D. SEC
B. lawyers
E. accountants
C. bankers
3. Explain the working environment of Enron under Skilling’s management.
Cut-throat. Believed in Darwinism. PRC Performance Rating Committee,
employees rated employees.
4. How much money did Lu Pi leave Enron with?
$250 million
5. What was the broadband business supposed to provide?
Movies on demand
6. What is “structured finance”?
Covering up a company’s debts and making the company look like it was making
large profit
7. By law, accountants have responsibility to ensure what?
That the financial reports are honest.
8. Executives in Enron pumped up stock prices and keep money through stock options.
9. Stock options were a hidden cost that never showed up on what financial statement?
Balance Sheet
10. What is FASB set up to do?
Set accounting standards; tried to close the options loophole
11. 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.
12. 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.
13. What agency gave in to trying to stop outside consulting by the auditing firms? SEC
14. Why was Bass removed from the Enron Account?
Tried to uphold accounting standards with strict audits.
15. How did traders make money off California power?
Created artificial blackouts by shutting down power plants; gaining from
increased prices of energy
16. How much money did the energy crisis cost the state of California?
$30 billion
17. What are some things Sharon Watkins’ memo said to Ken Lay?
Warned about incorrectness of accounting; fraudulent activities.
18. How much money did Andy Fastow make with the LJM partnership?
$45 Million
19. What happened on December 4, 2001?
Enron filed bankruptcy.
20. After his trial, what was Andy Fastow’s sentence?
Forfeit $23 million in assets; 10 years prison
21. How many people lost their jobs when Arthur Anderson fell?
29,000
22. 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.)
23. 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
Lea Fastow
1 year
Andrew Fastow
6 years (doesn’t agree
with video)
Richard Causey
5 years 6 months
Michael Kopper
3 years 1 month
Mark Koenig
18 months plus
probation
Paula Rieker
2 years probabion
Jeffrey Richter
Awaiting sentencing
Lawrence Lawyer
2 years probation
Dave Delainey
2 years 6 months
Ken Rice
Awaiting sentencing
Timothy Belden
Awaiting sentencing
(Trading floor
supervisor)
Kevin Hannon
Awaiting sentencing
John Forney
Awaiting sentencing
Timothy Despain
4 years probation
Christopher Calger
Awaiting sentencing
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
Giles Darby, Extradited, awaiting trial
David Bermingham, Extradited, awaiting trial
(http://www.chron.com/news/specials/enron/