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Business Ethics Case

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Structure:
• Company profile
• The ethical point of view
• The guilty parties
• Main “ingredients” of the downfall
• Case study
• Closing thought

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Enron Company Profile
• Enron Corporation was an American energy company based in Houston, Texas.
• Enron employed around 21,000 people and was one of the world's leading
electricity, natural gas, pulp and paper, and communications companies, with
claimed revenues of $111 billion in 2000.
• Fortune named Enron "America's Most Innovative Company" for 6 consecutive
years.
• It was formed in 1985 when Houston Natural Gas merged with InterNorth.
• After several years of international and domestic expansion involving complicated
deals and contracts, Enron was billions of dollars into debt.
• All of this debt was concealed from shareholders through partnerships with other
companies, fraudulent accounting, and illegal loans.
Ethical Point Of View
The Guilty Parties
Kenneth Lee Lay
• Born April 15, 1942
Died July 5, 2006
(age 64)
• Charge(s): Fraud, false
statement ;
• Penalty: Could have
faced 40 years in
prison plus monetary
fines, but died before
sentencing

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The Guilty Parties
Jeffrey Skilling
• Born November 25,
1953 (1953-11-25)
• Charge(s): conspiracy,
securities fraud, false
statement, insider
trading
• Penalty: originally
sentenced to 24 years
and 4 months and
fined $45 million USD,
pending resentencing
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The Guilty Parties
Andrew Stuart Fastow
• Born: December 22,
1961 
• Charge(s): conspiracy,
securities fraud, false
statement, insider
trading
• Penalty: 6 years,
followed by 2 years of
probation
• Status: Incarcerated

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The Guilty Parties
•Arthur Andersen was one of the
world’s five leading accounting
firms (Big Five)
•Was paid $52m in 2000, the
majority for non-audit related
consulting services.
•Type: Limited Liability Arthur A
n
Housto dersen’s
Partnership n branc
h
•Founded: 1913
•Industry: Accounting,
Professional Services,Tax,
Consulting;
Licenses of Certified Public
Accountants surrendered in s t royin
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said s routi
firm wa
The ments
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The main “ingredients”
for the downfall of
DEREGULATION – government
decision to let gas prices float with
the currents of the market

MARK-TO-MARKET – accounting
practice that allowed Enron to book
potential future profits on the very
day a deal was signed

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The main “ingredients”
for the downfall of
• SPECIAL PURPOSE ENTITIES - is a
legal entity (usually a limited company of some
type or, sometimes, a limited partnership)
created to fulfill narrow, specific or temporary
objectives. SPE's are typically used by companies
to isolate the firm from financial risk. A
company will transfer assets to the SPE for
management or use the SPE to finance a large
project thereby achieving a narrow set of goals
without putting the entire firm at risk.

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Closing thought…

“Every fraud
could have been
prevented
if honest people
had asked the right
questions
at the right time” 20