Corporate Crisis Update
Carolyn Hotchkiss and Eli Bortman
Babson College
Updated September 2005
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David Duncan pled guilty to
obstruction of justice in shredding
Enron Documents. Sentencing
deferred until he testifies in other
cases.
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Arthur Andersen convicted by jury
of obstruction of justice in Enron
case in 2002, sentenced to 5 yrs
probation and $500,000 fine.
Conviction overturned by US
Supreme Court in May 2005
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Andersen surrendered all licenses
to practice accountancy, but faced
multimillion dollar lawsuits from
investors and former clients. Out
of business.
Andersen Partner David Duncan
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John and Timothy Rigas were
convicted in June, 2005 of fraud
and looting the company.
Sentenced to 15 and 20 years.
(Out on bail pending appeals.)
Rigases forfeit $1.5 billion in deal
to settle civil cases.
Investors lose $60 billion
Company declares bankruptcy in
2002, assets are sold to Comcast
and Time Warner June 2005
John Rigas
Michael Rigas
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Insider Trading: Did Waksal tip off
members of his family and Martha
Stewart about FDA rejection of
new drug Erbitux?
ImClone Founder Sam Waksal
pled guilty to six counts of fraud,
perjury, conspiracy. Sentenced to
7 years in prison and fined $4.3
million.
Faneuil pled guilty to accepting
gifts for silence.
Martha Stewart served 5 months
in prison, 5 months of house
arrest, for lying to investigators.
Had to resign from NYSE board.
Baconovic also got 5 months in
prison.
Dr. Samuel Waksal
Martha Stewart
Broker Peter Baconovic
Broker’s Assistant Douglas
Faneuil
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CEO Dennis Kozlowski charged
with evading $1 million in sales tax
on art works purchased. Case still
pending.
Kozlowski and CFO Mark Swartz
were convicted in NY court of
grand theft -- looting the company
of over $150 million.
Kozlowski must repay $167
million, Swartz, $72 million.
Suit by Tyco and shareholders
against them for damages also
pending.
Former CEO Dennis Kozlowski
Renoir’s “Fleurs
et Fruits”
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CFO Andrew Fastow indicted on
78 counts of fraud, money
laundering, obstruction of justice.
Plea bargain – 10 years in prison,
and must testify in trials of other
Enron defendants.
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Lea Fastow served 1 year for tax
fraud.
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Ken Lay and Jeff Skillings are
scheduled for trial in 2006
CFO Andrew Fastow
Former CEO Ken Lay
CEO Jeff Skillings
Enron civil suits settled, so
far, against the following
defendants …………
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$ 2.4 billion -- Canadian
Imperial Bank of Commerce
$ 2.2 billion -- JPMorgan Chase
$ 2 billion – Citigroup
$ 222.5 million --Lehman Bros.
$ 69 million -- Bank of America
$ 168 million -- Enron's outside
directors.
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WCOM announced revised $9b
restatement of earnings
Myers pled guilty to fraud, got 1
year.
Ebbers was convicted in July
2005, sentenced to 25 years, is
free pending appeal
Scott Sullivan pled guilty, testified
against Ebbers, got 5 years.
WCOM declared bankruptcy,
reorganized in Chapter XI,
changed name to MCI, was
acquired by Verizon.
Bernie Ebbers
Controller David Myers
CFO Scott Sullivan
Worldcom Investors’ suits --- $6.1
billion in settlements approved by
court:
Nov. 2004 –
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Citigroup $2.6 billion
Sept. 2005 –
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J.P. Morgan Chase $2.0 billion,
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Deutsche Bank, $325 million;
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Andersen, $65 million;
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former directors, $55 million;
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Ebbers, $45 million.
Bondholders will recover $426 per $1000
Stockholders will recover $0.56 per share
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Analyst Jack
Grubman
Involvement with Enron and
WorldCom-setting up sham
transactions
Investigation for “spinning
IPOs”-giving special deals
to CEOs in return for
investment banking
business
Stock analysis manipulated
for
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Boardroom struggles?
Investment banking
business?
Nursery school admission?
THE TIP OF THE ICEBERG?
Energy
Telecoms and
Media
Financial Services