BUS-115 Introduction to Business
Business Ethics-Options and Enron
Mark the ONE best answer on the BACK of your Scantron sheet.
For True/False questions, A=True and B=False
Do not fold or crease the Scantron sheet. Remove any stray marks.
51. Which of the following statements concerning options is FALSE?
a. More than 60 companies have disclosed investigations into whether
they've backdated executive stock options to coincide with days when
their stock prices were low.
b. Christopher Cox, Chairman of the SEC, says forging documents and lying
to corporate directors and shareholders about option grants could be the
basis of criminal as well as civil charges.
c. SEC Commissioner, Paul Atkins, disagrees with Cox and argues that
companies who manipulate the timing of their executive options may not
even be guilty of violating securities laws.
d. Robert Reich agrees with Paul Atkins.
52. True or False? The purpose of executive stock options is to better align executive
incentives with the interests of investors; inducing executives to work harder to
raise share prices.
53. True or False? Backdating stock options creates a huge executive windfall, which
means companies can get by with even lower executive compensation costs.
54. True or False? A federal jury acquitted Ken Lay and Jeff Skilling of lying to
investors about the financial health of Enron, the company they both led as
CEOs.
55. True or False? Ken Lay and Jeff Skilling’s successful defense was that they
believed Enron's earnings statements were fair and accurate because those
statements had been blessed by internal accountants and lawyers.
56. True or False? The federal government’s Enron Task Force was largely
unsuccessful (no convictions and only 1-guilty plea).
57. Which of the following statements is FALSE?
a. Enron prosecutors used the same strategy that was successful in
convicting HealthSouth CEO of fraud
b. A federal jury in Manhattan convicted former WorldCom CEO Bernie
Ebbers of encouraging his subordinates to cook his company's books.
c. Former Adelphia CEO John Rigas was convicted of fraud and misuse of
investor funds.
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d. Former Tyco CEO Dennis Kozlowski and his CFO, Mark Swartz were
convicted of fraud..
58. Which of the following statements is TRUE?
a. There were 100’s of emails tying Lay and Skilling directly to fraud.
b. The Enron jury was presented with massive amounts of internal evidence
showing accounting fraud.
c. The Enron jury was presented with confidential documents showing that
Enron’s attorneys and accountants warned executives that their actions
were completely illegal.
d. Enron prosecutors convinced the jury that Lay and Skilling lied to the
outside world about what was going on at Enron.
e. None of the above statements are true (Lay and Skilling were acquitted).
59. Which of the following statements is TRUE?
a. Ken Lay did NOT testify in his own defense.
b. Jeff Skilling did NOT testify in his own defense.
c. While Enron was collapsing, Ken Lay quietly sold $70 million in stock back
to Enron while urging employees to buy more.
d. Jeff Skilling, dazzling the jury with his brilliance, was able to show that he
was too busy to know what corrupt subordinates were doing because he
was completely focused on the details of energy trading.
e. None of the above statements is true (Skilling got off because Andy
Fastow, the government’s main witness, committed suicide).
60. True or False? Ken Lay blamed Enron's implosion on a lethal combination of bad
press that siphoned market confidence in a skittish market roiled by the 2001
terrorist attacks.
61. True or False? Sherron Watkins manipulated Enron earnings through her
partnerships while skimming millions from other scams on the side.
62. True or False? Enron's collapse resulted in the loss of $60 billion in market value
on Wall Street, almost $2.1 billion in pension plans and 5,600 jobs.
63. True or False? Jeff Skilling believed in the Socioeconomic model of social
responsibility.
64. True or False? Ronald Reagan believed in the magic of the marketplace and was
critical of government regulation of business.
65. True or False? Ken Lay was an early proponent of energy industry re-regulation
(guaranteed rates of return in exchange for government regulation).
66. True or False? Andy Fastow was the ‘man with a big idea;’ a new way to deliver
energy (a stock market for natural gas).
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67. True or False? Mark-to-Market accounting allowed Enron to book past earnings
in the next quarter (to offset future losses).
68. True or False? ‘Pump-and-dump’ was an Enron natural gas technique used to
generate low cost electricity in India.
69. True or False? Enron skillfully cultivated stock analysts in an effort to keep its
stock price rising.
70. True or False? Betheny McKlean, a Fortune magazine reporter, was one of the
first to suggest that Enron’s stock price was over-valued (the cash flow
statements did not make sense).
71. True or False? Enron’s accounting firm, Price Waterhouse, shredded over a ton
of accounting records.
72. True or False? Most of Enron’s legal, accounting and banking partners did NOT
voice any concerns because they were making so much money doing business
with Enron.
73. True or False? Enron manipulated the electricity market in Texas (exporting
electricity out and then bringing it back in again when the price went up) in order
to make huge profits.
74. True or False? George W. Bush, then governor of Texas, instigated emergency
price caps to keep Enron from damaging the economy with high electricity prices.
75. True or False? The case of Enron suggests that adequate regulation and
oversight is necessary for markets to work properly.
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