Finance Lecture 9.ppt

Finance Lecture 9 Outline Lecture 9 Enron Was An Energy Distribution Company Dramatis Personae Enron’s Problems Centered Around“Related-Party Transactions” Enron Collapsed In Fall 2001When Arrangements Were Revealed The Department Of Justice Had To FigureOut Whom To Prosecute And For What Arthur Andersen’s Role With EnronRemains Controversial To This Day What Is The AppropriateRole Of An Accountant? Outline Lecture 9 Sarbanes And Oxley Sponsored2002 Accounting Reform Bill Sarbanes-Oxley Was SignedInto Law July 30, 2002 Key Sections of Sarbanes-Oxley SOX Increases Criminal PenaltiesFor Corporate Malfeasance Subsequent To Its Enactment,Concerns Have Been Raised About SOX There May Be Advantages To SOX SOX’s Effect On AccountingFirms Has Been Ironic It Seems Reasonable To Suspect SOX’s Impacts,Positive And Negative, Will Diminish Over Time Keating FA 9-* Spring 2008 Enron Sarbanes-Oxley Started out as Northern Natural Gas Company, later InterNorth, merged with Houston Natural Gas, became Enron Also involved with electricity transmission and distribution, water utilities, bandwidth For many years, this was a “real” company that was legitimately innovative in creating tradable financial instruments Kenneth Lay (1942-2006), founder, CEO of Enron Convicted of ten counts of securities fraud Died before sentencing Jeffrey Skilling (1953- ), COO, later CEO of Enron Convicted of conspiracy, insider trading, securities fraud Currently serving 24-year prison sentence Andrew Fastow (1961- ), CFO of Enron Pled guilty to wire and securities fraud Currently serving 6-year prison sentence David Duncan (1960- ), chief Arthur Andersen partner dealing with Enron Pled guilty to obstruction of justice but later withdrew plea Fastow set up separate legal entities (with “Star Wars”-derived names, e.g., Jedi, Chewco) that absorbed Enron losses temporarily Made Enron financial statements look artificially good Fastow received large fees from the