Case Study on Enron’s Fall

Course No : MBA 513 Course Title : (Business Ethics)

Submitted to,Muhammad Shariat Ullah, PhD

East West University

Submitted by,Runu Sarker

ID No: 2012-2-95-073East West University

Date: 27th June 2014

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SUMMERY OF THE CASE STUDY

Enron was famous throughout the business world and was known as an innovator, technology powerhouse, and a corporation with no fear. The sudden fall of Enron in the end of 2001 shattered not just the business world but also the lives of their employees and the people who believed that their soar to greatness was genuine. Their collapse was followed by a series of revelations on how they manipulated their success.

Enron shocked the world from being “America’s most innovative company” to America's biggest corporate bankruptcy at its time. At its peak, Enron was America's seventh largest corporation. Enron gave the illusion that it was a steady company with good revenue but that was not the case, a large part of Enron’s profits were made of paper. This was made possible by masterfully designed accounting and morally questionable acts by traders and executives. Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under Chapter 11 of the United States Bankruptcy Code.

The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure.

Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that, by the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions of dollars in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron's board of directors and audit committee on high-risk accounting practices, but also pressured Andersen to ignore the issues.

Enron shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston

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competitor Dynegy offered to purchase the company at a very low price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom's bankruptcy the next year.

Many executives at Enron were indicted for a variety of charges and were later sentenced to prison. Enron's auditor, Arthur Andersen, was found guilty in a United States District Court, but by the time the ruling was overturned at the U.S. Supreme Court, the company had lost the majority of its customers and had closed. Employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices. As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes-Oxley Act, increased penalties for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders. The act also increased the accountability of auditing firms to remain unbiased and independent of their clients.

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Question 1 :What are the systemic, corporate and individual ethical issues rise by this case?

Answer :In the case of Slvery and the choolate industry contains sytemetic, corporate and individual ethical issues in many different ways. Looking at the economical repercussions, it would not be logical to do business with these countries considering that close to half of the worlds chocolate is made from cocoa beans that are grown in the Ivory Coast and Ghana. If we refused to do business with these countries the ost of these goods would be un-affordable to consumers. In a political aspect, we tend to be the leaders the moment we stop doing business with these individuals many other countries will follow along or vis versa; those countries who refuse to do to stop doing business with them might then stop doing business with us. The last systematic issue raised is legal. As stated in the article slavery on the farms is in illegal in the Ivory Coast. Whether it is or how well the laws are enforced is for the most part out of our control.

1. The Systematic Issues:It is common knowledge that Enron is arguably to biggest corporate collapse in recent history. It is not common knowledge, however, what exactly happened within Enron that lead to its demise. Kenneth Lay founded Enron in 1985 when he configured the merging of two natural gas companies. Enron continued to grow by acquisition, leading to large amounts of debt. Lay hired Jeffery Skilling in 1989 to head the company’s finance department. The company, it was revealed, had made about a dozen "partnerships" with companies it had created, and it used those partnerships to hide huge debts and heavy losses on its trading businesses. At the same time, Arthur Andersen, the company that audited Enron's books, at best neglected to recognize the company's problems. At worst, investigators now say, the auditor was complicit in perpetrating one of the biggest frauds in corporate history.

Auditing IssuesFederal securities law requires that the accounting statements of publicly traded corporations be certified by an independent auditor. Enron’s outside

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audits have received much attention. While external audits do not prevent corporations from making financial mistakes, let alone bankruptcy, problems with recent Enron audits may have contributed to both the rapid rise and the sharp fall in its stock price. Outside investors, including financial institutions, may have been misled about the corporation’s net income (which was subsequently restated) and contingent liabilities (which were far larger than generally known). The auditor, Arthur Andersen, has admitted some mistakes. Andersen fired the partner in charge of Enron audits on January 15, 2002, and Enron dismissed Andersen on January 17. One issue is whether Andersen’s extensive consulting work for Enron may have compromised its judgment in determining the nature, timing, and extent of audit procedures and in asking that revisions be made to financial statements, which are the responsibility of Enron’s management. Questions have also been asked about Andersen destroying documents and e-mails related to its audits. Oversight of auditors has primarily rested with the American Institute of Certified Public Accountants (a nongovernmental trade group) and state boards of accountancy. On January 17, 2002, the Chairman of the Securities and Exchange Commission (SEC) proposed a new oversight board that would be responsible for disciplinary actions.

Accounting IssuesThe Enron controversy involves several accounting issues. One concerns the rules governing whether the financial statements of special purpose entities (SPEs) established by a corporation should be consolidated with the corporation’s financial statements; for certain SPE partnerships at issue, consolidation is not required if among other things an independent third party invests as little as 3% of the capital, a threshold some consider too low. A second issue concerns the latitude allowed in valuing derivatives, particularly nonexchange traded energy contracts. Third, there are calls for improved disclosure, either in notes to financial statements or a management discussion and analysis, especially for financial arrangements involving contingent liabilities. Accounting standards for corporations are set by the Financial Accounting Standards Board (FASB), a nongovernmental entity, though there are also SEC requirements. (The SEC has statutory authority to set accounting standards for firms that sell securities to the public.)

Pension IssuesLike many companies, Enron sponsors a retirement plan – a “401(k)” – for its employees to which they can contribute a portion of their pay on a tax-deferred basis. As of December 31, 2000, 62% of the assets held in the

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corporation’s 401(k) retirement plan consisted of Enron stock. Many individual Enron employees held even larger percentages of Enron stock in their 401(k) accounts. Shares of Enron, which in January 2001 traded for more than $80/share, were worth less than 70 cents in January 2002. Consequently, the company’s bankruptcy has substantially reduced the value of its employees’ retirement accounts. The losses suffered by participants in the Enron Corporation’s 401(k) plan have prompted questions about the laws and regulations that govern these plans. Should there be a limit on the amount of employer stock that a 401(k) plan can hold? Should companies be allowed to restrict the sale of stock that they contribute to the plans? Should the guarantees that the Pension Benefit Guarantee Corporation extends to traditional “defined benefit” plans also apply to 401(k)’s?

Securities Analyst IssuesSecurities analysts employed by investment banks provide research and make “buy,” “sell,” or “hold” recommendations for the use of their sales staffs and their investor clients. These recommendations are widely circulated and are relied upon by many investors throughout the markets. Analyst support was crucial to Enron because it required constant infusions of funding from the financial markets. On November 29, 2001, after Enron’s stock had fallen 99% from its high, and after rating agencies had downgraded its debt to “junk bond”status, only two of 11 major firm analysts rated its stock a “sell.” This performance added to concerns that were raised in 2000 in the wake of the “dot.com” stock crash. Is analyst objectivity compromised by pressure to avoid alienating lucrative investment banking clients? Are regulations needed to require disclosure of analysts’ personal holdings or their employers’ dealings with the firms they cover, or to prohibit the linking of analyst pay to investment banking profits? Should analysts’ performance and qualifications be monitored by the SEC or by a self-regulatory organization such as the National Association of Securities Dealers (NASD)?

Derivatives IssuesThe core of Enron’s business appears to have been dealing in derivative contracts based on the prices of oil, gas, electricity and other variables. For example, Enron sold long-term contracts to sell energy at fixed prices. These contracts allow the buyers to avoid, or hedge, the risks that increases (or drops) in energy prices posed to their businesses. Since the markets in which Enron traded are largely unregulated, with no reporting requirements, little information is available about the extent or profitability of Enron’s

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derivatives activities. Did Enron earn money from dealer commissions and spreads, or was it actively speculating on future price trends? Speculative losses in derivatives, perhaps masked by “creative” accounting, could have contributed to the firm’s downfall. On the other hand, the trading operations may have been profitable and troublefree, and Enron’s financial difficulties the result of other unrelated operations. Enron’s collapse raises the issue of supervision of unregulated derivatives markets. Would it be useful if regulators had more information about the portfolios and risk exposures of major dealers in derivatives? Although Enron’s bankruptcy appears to have had little impact on energy supplies and prices, a similar dealer failure in the future might damage the dealer’s trading partners and its lenders, and might set off widespread disruptions in financial and/or real commodity markets.

2. The Corporate Issues :Healy and Palepu write that a well-functioning capital market "creates appropriate linkages of information, incentives, and governance between managers and investors. This process is supposed to be carried out through a network of intermediaries that include assurance professionals such as external auditors; and internal governance agents such as corporate boards." On paper, Enron had a model board of directors comprising predominantly of outsiders with significant ownership stakes and a talented audit committee. In its 2000 review of best corporate boards, Chief Executive included Enron among its five best boards. Even with its complex corporate governance and network of intermediaries, Enron was still able to "attract large sums of capital to fund a questionable business model, conceal its true performance through a series of accounting and financing maneuvers, and hype its stock to unsustainable levels."

Executive compensationAlthough Enron's compensation and performance management system was designed to retain and reward its most valuable employees, the system contributed to a dysfunctional corporate culture that became obsessed with short-term earnings to maximize bonuses. Employees constantly tried to start deals, often disregarding the quality of cash flow or profits, in order to get a better rating for their performance review. Additionally, accounting results were recorded as soon as possible to keep up with the company's stock price. This practice helped ensure deal-makers and executives received large cash bonuses and stock options.

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Risk managementBefore its scandal, Enron was lauded for its sophisticated financial risk management tools. Risk management was crucial to Enron not only because of its regulatory environment, but also because of its business plan. Enron established long-term fixed commitments which needed to be hedged to prepare for the invariable fluctuation of future energy prices. Enron's bankruptcy downfall was attributed to its reckless use of derivatives and special purpose entities. By hedging its risks with special purpose entities which it owned, Enron retained the risks associated with the transactions. This arrangement had Enron implementing hedges with itself.

Ethical and political analysesCommentators attributed the mismanagement behind Enron’s fall to a variety of ethical and political-economic causes. Ethical explanations centered on executive greed and hubris, a lack of corporate social responsibility, situation ethics, and get-it-done business pragmatism. Political-economic explanations cited post-1970s deregulation, and inadequate staff and funding for regulatory oversight. A more libertarian analysis maintained that Enron’s collapse resulted from the company’s reliance on political lobbying, rent-seeking, and the gaming of regulations.

3. The Individual Issues :On the surface, the motives and attitudes behind decisions and events leading to Enron’s eventual downfall appear simple enough: individual and collective greed born in an atmosphere of market euphoria and corporate arrogance.

Arthur AndersenArthur Andersen was charged with and found guilty of obstruction of justice for shredding the thousands of documents and deleting e-mails and company files that tied the firm to its audit of Enron. Although only a small number of Arthur Andersen's employees were involved with the scandal, the firm was effectively put out of business; the SEC is not allowed to accept audits from convicted felons. The company surrendered its CPA license on August 31, 2002, and 85,000 employees lost their jobs. The conviction was later overturned by the U.S. Supreme Court due to the jury not being properly instructed on the charge against Andersen.[150] The Supreme Court

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ruling theoretically left Andersen free to resume operations. However, the damage to the Andersen name has been so great that it has not returned as a viable business even on a limited scale.

Employees and shareholdersEnron's headquarters in Downtown Houston was leased from a consortium of banks who had bought the property for $285 million in the 1990s. It was sold for $55.5 million, just before Enron moved out in 2004. Enron's shareholders lost $74 billion in the four years before the company's bankruptcy ($40 to $45 billion was attributed to fraud). As Enron had nearly $67 billion that it owed creditors, employees and shareholders received limited, if any, assistance aside from severance from Enron. To pay its creditors, Enron held auctions to sell assets including art, photographs, logo signs, and its pipelines.

Capitalism at Work In the latter part of the 1990s, companies such as Dynegy, Duke Energy, El Paso and Williams began following Enron’s lead. Enron’s competitive advantage, as well as its huge profit margins, had begun to erode by the end of 2000. Each new market entrant’s successes squeezed Enron’s profit margins further. It ran with increasing leverage, thus becoming more like a hedge fund than a trading company. Meanwhile, energy prices began to fall in the first quarter of 2001 and the world economy headed into a recession, thus dampening energy market volatility and reducing the opportunity for the large, rapid trading gains that had formerly made Enron so profitable. Deals, especially in the finance division, were done at a rapid pace without much regard to whether they aligned with the strategic goals of the company or whether they complied with the company’s risk management policies. As one knowledgeable Enron employee put it: “Good deal vs. bad deal? Didn’t matter. If it had a positive net present value (NPV) it could get done. Sometimes positive NPV didn’t even matter in the name of strategic significance.” Enron’s foundations were developing cracks and Skilling’s house of paper built on the stilts of trust had begun to crumble.

Related Parties & Complex Special Purpose Entities In order to satisfy Moody’s and Standard & Poor’s credit rating agencies, Enron had to make sure the company’s leverage ratios were within acceptable ranges. Fastow continually lobbied the ratings agencies to raise

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Enron’s credit rating, apparently to no avail. That notwithstanding, there were other ways to lower the company’s debt ratio. Reducing hard assets while earning increasing paper profits served to increase Enron’s return on assets (ROA) and reduce its debt-to-total-assets ratio, making the company more attractive to credit rating agencies and investors.

Enron, like many other companies, used “special purpose entities” (SPEs) to access capital or hedge risk. By using SPEs such as limited partnerships with outside parties, a company is permitted to increase leverage and ROA without having to report debt on its balance sheet. The company contributes hard assets and related debt to an SPE in exchange for an interest. The SPE then borrows large sums of money from a financial institution to purchase assets or conduct other business without the debt or assets showing up on the company’s financial statements. The company can also sell leveraged assets to the SPE and book a profit. To avoid classification of the SPE as a subsidiary (thereby forcing the entity to include the SPE’s financial position and results of operations in its financial statements), FASB guidelines require that only 3% of the SPE be owned by an outside investor.

The Human Factor The Enron story has produced many victims, the most tragic of which is a former vice-chairman of the company who committed suicide, apparently in connection with his role in the scandal. Another 4,500 individuals have seen their careers ended abruptly by the reckless acts of a few. Enron’s core values of respect, integrity, communication and excellence stand in satirical contrast to allegations now being made public. Personally, I had referred several of our best and brightest accounting, finance and MBA graduates to Enron, hoping they could gain valuable experience from seeing things done right. These included a very bright training consultant who had lost her job in 2000 with a Houston consulting firm as a result of a reduction in force. She has lost her second job in 18 months through no fault of her own. Other former students still hanging on at Enron face an uncertain future as the company fights for survival.

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Question 2If the value of Enron’s stock had not fallen, the special purpose entities perhaps could have continued to operate indefinitely. Suppose that Enron’s stock did not fall, and suppose that its accounting adhered to the letter, if not the spirit, of GAAP rules. In that case, in your view, was there anything wrong with what Enron did?

Answer :Enron's complex financial statements were confusing to shareholders and analysts. In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance.The combination of these issues later resulted in the bankruptcy of the company, and the majority of them were perpetuated by the indirect knowledge or direct actions of Lay, Jeffrey Skilling, Andrew Fastow, and other executives. Lay served as the chairman of the company in its last few years, and approved of the actions of Skilling and Fastow although he did not always inquire about the details. Skilling constantly focused on meeting Wall Street expectations, advocated the use of mark-to-market accounting (accounting based on market value, which was then inflated) and pressured Enron executives to find new ways to hide its debt. Fastow and other executives "...created off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them."

Revenue recognitionEnron and other energy suppliers earned profits by providing services such as wholesale trading and risk management in addition to building and maintaining electric power plants, natural gas pipelines, storage, and processing facilities. When accepting the risk of buying and selling products, merchants are allowed to report the selling price as revenues and the products' costs as cost of goods sold. In contrast, an "agent" provides a service to the customer, but does not take the same risks as merchants for buying and selling. Service providers, when classified as agents, are able to report trading and brokerage fees as revenue, although not for the full value of the transaction.

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Although trading companies such as Goldman Sachs and Merrill Lynch used the conventional "agent model" for reporting revenue (where only the trading or brokerage fee would be reported as revenue), Enron instead elected to report the entire value of each of its trades as revenue. This "merchant model" was considered much more aggressive in the accounting interpretation than the agent model. Enron's method of reporting inflated trading revenue was later adopted by other companies in the energy trading industry in an attempt to stay competitive with the company's large increase in revenue. Other energy companies such as Duke Energy, Reliant Energy, and Dynegy joined Enron in the wealthiest 50 of the Fortune 500 mainly due to their adoption of the same trading revenue accounting as Enron.

Mark-to-market accountingIn Enron's natural gas business, the accounting had been fairly straightforward: in each time period, the company listed actual costs of supplying the gas and actual revenues received from selling it. However, when Skilling joined the company, he demanded that the trading business adopt mark-to-market accounting, citing that it would represent "... true economic value." Enron became the first non-financial company to use the method to account for its complex long-term contracts. Mark-to-market accounting requires that once a long-term contract was signed, income is estimated as the present value of net future cash flow. Often, the viability of these contracts and their related costs were difficult to estimate. Due to the large discrepancies of attempting to match profits and cash, investors were typically given false or misleading reports. While using the method, income from projects could be recorded, although they might not have ever received the money, and in turn increasing financial earnings on the books. However, in future years, the profits could not be included, so new and additional income had to be included from more projects to develop additional growth to appease investors. As one Enron competitor stated, "If you accelerate your income, then you have to keep doing more and more deals to show the same or rising income." Despite potential pitfalls, the U.S. Securities and Exchange Commission (SEC) approved the accounting method for Enron in its trading of natural gas futures contracts on January 30, 1992. However, Enron later expanded its use to other areas in the company to help it meet Wall Street projections.

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Off-the-Balance-Sheet FinancingEnron had a great array of foreign assets such as powerplants and pipelines that were not doing as well financially as the company hoped and counted on in its accounting. Enron set up a subsidiary in 1997 called Whitewing. Whitewing was created to purchase the underperforming Enron assets. Whitewing was then to sell off the underperforming assets. As a subsidiary the financial state of Whitewing would show up in the accounts for its parent company Enron. In 1999 Enron sold off slightly more than half of Whitewing so it would not be treated as a subsidiary in the accounts of Enron. Whitewing was created to buy the underperforming assets from Enron at a generous price, a price higher than it could sell those assets for. So Whitewing was destined to take losses on its assets acquired from Enron. In order for Enron to find buyers for the half share in Whitewing it had to agree to compensate Whitewing for any losses on its sale of the underperforming assets with shares of Enron stock. A group of investment bankers was found to acquire the half share of Whitewing.

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Question 3Whi, in your judgment, was morally responsible for the collapse of Enron?

Answer :This qestion investigates the weaknesses of Enron’s corporate governance structures, weaknesses that lead to the collapse of the company. Overall, poor corporate governance and a dishonest culture that nurtured serious conflicts of interests and unethical behaviour in Enron are identified as significant findings in this paper. Enron’s ethics code was based on respect, integrity, communication, and excellence. These values were described as follows:

Respect. We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don’t belong here.Integrity. We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won’t do it.Communication. We have an obligation to communicate. Here we take the time to talk with one another . . . and to listen. We believe that information is meant to move and that information moves people.Excellence. We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.

Given this code of conduct and Ken Lay’s professed commitment to business ethics, how could Enron have collapsed so dramatically, going from reported revenues of $101 billion in 2000 and approximately $140 billion during the first three quarters of 2001 to declaring bankruptcy in December 2001? The answer to this question seems to be rooted in a combination of the failure of top leadership, a corporate culture that supported unethical behavior, and the complicity of the investment banking community.

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Many factors affected Enron's surge to the top and its sudden fall. In this report we will discuss and present what we think were the main reasons of their rise and fall.

Accounting ProblemsThe conventional wisdom is that it was "innovative" accounting practices and their consequences that started the tide of losses that brought the energy giant down. Enron collapsed not so much because it had gotten too big, but because it was perceived to be much bigger than it really was in the first place. By decentralizing its operations into numerous subsidiaries and shell corporations, Enron was able to hide huge derivative losses that would have halted its growth much sooner if widely understood. Publicly traded corporations are required to make their financial statements public, but Enron's finances were an impenetrable maze of carefully crafted imaginary transactions between itself and its subsidiaries that masked its true financial state. In other words, losses were held off the book by subsidiary companies, while assets were stated.

Fallout From FraudTaken at its word, this rosy scenario made the company the darling of Wall Street, and it was able to borrow almost endlessly and expand into e-commerce and other questionable ventures. Its stock literally soared, which made employee compensation and pensions in the form of stock options seem very attractive. But what were already considered accounting practices on the edge of acceptable standards were eventually revealed to be outright fraudulent. The disgrace drove so much business away from and created such liability for accounting firm Arthur Anderson that it was itself forced out of business. By this time, though, the true value of the company had been revealed and the stock price collapsed, leaving employees with worthless options and pension packages. Of course, executives that understood the real picture sold their shares in advance of the collapsed and waltzed away with billions.

Management CultureOf course, the Enron fiasco did not happen by accident. It was facilitated by a corporate culture that encouraged greed and fraud, as exemplified by the energy traders who extorted California energy consumers. Rather than focus on creating real value, management's only goal was in maintaining the appearance of value, and therefore a rising stock price. This was

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exacerbated by a fiercely competitive corporate culture that rewarded results at any cost. Some divisions of Enron replaced as much as 15 percent of its work force annually, leaving employees to scramble for any advantage they could find to justify their continued employment.

Preferential TreatmentWhile the internal integrity of the company remained thusly challenged, the facade was the exact opposite. The company leveraged political connections in both the Clinton and Bush administrations, as well as on Wall Street, for preferential treatment and the air of legitimacy that allowed it to perpetrate its frauds. In this context, the accounting practices widely considered the cause of the Enron collapse can be seen as just a symptom of a larger management culture that exemplified the dark side of American capitalism.

Complicity of the Investment Banking Community According to investigative reporters McLean and Elkind, “One of the most sordid aspects of the Enron scandal is the complicity of so many highly regarded Wall Street firms” in enabling Enron’s fraud as well as being partners to it. Included among these firms were J.P. Morgan, Citigroup, and Merrill Lynch. This complicity occurred through the use of prepays, which were basically loans that Enron booked as operating cash flow. Enron secured new prepays to pay off existing ones and to support rapidly expanding investments in new businesses.

Epilogue  The Enron Code of Ethics and its foundational values of respect, integrity, communication, and excellence obviously did little to help create an ethical environment at the company. The full extent and explanation of Enron’s ethical collapse is yet to be determined as legal proceedings continue. Fourteen other Enron employees—many high level—have pled guilty to various charges; 12 of these are awaiting sentencing, while the other two, one of whom is Andrew Fastow’s spouse, have received prison sentences of at least one year. Juries have convicted five individuals of fraud, as well as Arthur Andersen, the accounting firm hired by Enron that shared responsibility for the company’s fraudulent accounting statements.

Enron’s Top Leadership  In the aftermath of Enron’s bankruptcy filing, numerous Enron executives were charged with criminal acts, including fraud, money laundering, and

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insider trading. For example, Ben Glisan, Enron’s former treasurer, was charged with two-dozen counts of money laundering, fraud, and conspiracy. Glisan pled guilty to one count of conspiracy to commit fraud and received a prison term, three years of post-prison supervision, and financial penalties of more than $1 million. During the plea negotiations, Glisan described Enron as a “house of cards.”

Andrew Fastow, Jeff Skilling, and Ken Lay are among the most notable top-level executives implicated in the collapse of Enron’s “house of cards.” Andrew Fastow, former Enron chief financial officer (CFO), faced 98 counts of money laundering, fraud, and conspiracy in connection with the improper partnerships he ran, which included a Brazilian power plant project and a Nigerian power plant project that was aided by Merrill Lynch, an investment banking firm. Fastow pled guilty to one charge of conspiracy to commit wire fraud and one charge of conspiracy to commit wire and securities fraud. He agreed to a prison term of 10 years and the forfeiture of $29.8 million. Jeff Skilling was indicted on 35 counts of wire fraud, securities fraud, conspiracy, making false statements on financial reports, and insider trading. Ken Lay was indicted on 11 criminal counts of fraud and making misleading statements. Both Skilling and Lay pled not guilty and are awaiting trial.

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