Learning from the Enron Case
By Steven D. Grossman, Ph.D., Associate Professor, Texas A&M University; Nicholas G. Apostolou, DBA, DABFA, Cr.FA, CPA, Louisiana State University, Department of Accounting; and D. Larry Crumbley, Ph.D., DABFA, Cr.FA, CPA, Louisiana State University, Department of Accounting
When Jeffrey K. Skilling suddenly resigned on Aug. 14, 2001, a clear red flag, the company’s chairman, Kenneth L. Lay, retook the job saying, “absolutely no accounting issue, no trading issue, no reserve issue, no previously unknown problem issues” were behind the departure. On Aug. 21, Mr. Lay sent an e-mail to employees, reassuring them about the stability of the company and concluding, “one of my highest priorities is to restore investor confidence in Enron. This should result in a significantly higher stock price.”
On Aug. 22, Ms. Sherron Watkins, a vice president of corporate development, met with Mr. Lay and gave him a seven-page letter in which she said that Enron may be an “elaborate accounting hoax.” In an online chat with employees on Sept. 26, Mr. Lay said that Enron stock is a good buy and that the company’s accounting methods are “legally and totally appropriate.”
On Oct. 16, Enron reported a third-quarter loss of $618 million. One day later, the company reduced shareholder equity by $1.2 billion to account for transactions involving Enron and some partnerships created by Andrew S. Fastow, Enron’s chief financial officer. On Oct. 22, the Securities and Exchange Commission opened an inquiry into the partnerships. On Oct. 23, in a conference call, Mr. Lay reassured investors that there was no conflict of interest resulting from the transactions with the partnerships. Directors, he stated, “continue to have the highest faith and confidence” in Mr. Fastow. The next day, Mr. Fastow was fired.
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http://www.acfei.com/ce-enron-case.phpBTW, Ken Lay sold $100 million worth of Enron stock in 2001. That's an awful lot of stock to unload. Since his salary was approximately $45 million a year, I doubt he was strapped for cash.
In Enron’s 2000 Annual Report, the chairman and CEO said that "Enron's performance in 2000 was a success by any measure"
I guess that depends on what you consider success. A bank robber who robs a bank and gets away with it may consider his actions a "success by any measure".