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| Author | Kurt Eichenwald |
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| Publisher | Broadway Books, New York |
Publication date | 2005 |
| ISBN | 978-0-7679-1178-8 |
| OCLC | 474721230 |
Conspiracy of Fools is a 2005 book by Kurt Eichenwald detailing the Enron scandal. [1]
Conspiracy of Fools tells the story of the 2001 collapse of Enron. Enron's Chief Financial Officer (CFO) Andrew Fastow is depicted as voraciously greedy, using front corporations and partnerships, paying himself "management" and "consultant" fees as if he were an outsider, all while cooking Enron's books to show fictitious profits. In the 1980s there were questionable activities at the company, but the bulk of the events depicted in the book occur from 1997 onward and led to Enron's collapse.
In addition to Fastow, there are stories of the complicity of Enron's auditors (at Arthur Andersen), their lawyers (internal and external), the senior management (Kenneth Lay and Jeffrey Skilling), Fastow's partner in many of his deals, Michael Kopper, and Enron's board of directors.
The picture that emerges of Enron is that of an out-of-control corporate culture that ignored the basic principles of business, allowing it to be manipulated by greedy incompetents for their own personal gain. The focus on reporting profits — rather than actually making money — created a situation that both encouraged and enabled a small group of insider criminals to game the system. Enron's business losses were masked by accounting tricks, while the insiders raked off huge "profits" and bonuses for themselves.
The game was eventually undone by huge losses, bad investments and the structure of the outside partnerships themselves, the solvency of which depended on ever-rising Enron stock prices. When Enron's stock began to fall, the financial structures imploded, leaving Enron with billions of dollars in losses and few assets.
Eichenwald also reminds readers that Enron fell not just because of the greed of the company people, but also because of the greed of thousands of investors who fell for this Ponzi scheme. [2]
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional companies. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,600 staff and was a major electricity, natural gas, communications, and pulp and paper company, with claimed revenues of nearly $101 billion during 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years.
Andrew Stuart "Andy" Fastow is a convicted felon and former financier who was the chief financial officer of Enron Corporation, an energy trading company based in Houston, Texas, until he was fired shortly before the company declared bankruptcy. Fastow was one of the key figures behind the complex web of off-balance-sheet special purpose entities used to conceal Enron's massive losses in their quarterly balance sheets. By unlawfully maintaining personal stakes in these ostensibly independent ghost-entities, he was able to defraud Enron out of tens of millions of dollars.
Arthur Andersen was an American accounting firm based in Chicago that provided auditing, tax advising, consulting and other professional services to large corporations. By 2001, it had become one of the world's largest multinational corporations and was one of the "Big Five" accounting firms. The firm collapsed by mid-2002, as details of its questionable accounting practices for energy company Enron and telecommunications company Worldcom were revealed amid the two high-profile bankruptcies. The scandals were a factor in the enactment of the Sarbanes-Oxley Act of 2002.
MCI, Inc. was a telecommunications company. For a time, it was the second-largest long-distance telephone company in the United States, after AT&T. WorldCom grew largely by acquiring other telecommunications companies, including MCI Communications in 1998, and filed bankruptcy in 2002 after an accounting scandal, in which several executives, including CEO Bernard Ebbers, were convicted of a scheme to inflate the company's assets. In January 2006, the company, by then renamed MCI, was acquired by Verizon Communications and was later integrated into Verizon Business.
Creative accounting is a euphemism referring to accounting practices that may follow the letter of the rules of standard accounting practices, but deviate from the spirit of those rules with questionable accounting ethics—specifically distorting results in favor of the "preparers", or the firm that hired the accountant. They are characterized by excessive complication and the use of novel ways of characterizing income, assets, or liabilities, and the intent to influence readers towards the interpretations desired by the authors. The terms "innovative" or "aggressive" are also sometimes used. Another common synonym is "cooking the books". Creative accounting is oftentimes used in tandem with outright financial fraud, and lines between the two are blurred. Creative accounting practices are known since ancient times and appear world-wide in various forms.
Chewco Investments L. P. was a limited partnership associated with the Enron scandal, which resulted in the bankruptcy of Enron. It was named after the Star Wars character Chewbacca, because it was created to hide losses from the Joint Energy Development Investment Limited, known by its acronym "JEDI". Like Chewbacca, the Jedi Knights were prominent characters in Star Wars.
Jeffrey Keith Skilling is an American businessman who is best known as the CEO of Enron Corporation during the Enron scandal. In 2006, he was convicted of federal felony charges relating to Enron's collapse and eventually sentenced to 24 years in prison. The US Supreme Court heard arguments in the appeal of the case March 1, 2010. On June 24, 2010, the Supreme Court vacated part of Skilling's conviction and transferred the case back to the lower court for resentencing.
An agency cost is an economic concept that refers to the costs associated with the relationship between a "principal", and an "agent". The agent is given powers to make decisions on behalf of the principal. However, the two parties may have different incentives and the agent generally has more information. The principal cannot directly ensure that its agent is always acting in its best interests. This potential divergence in interests is what gives rise to agency costs.
Kurt Alexander Eichenwald is an American journalist and a New York Times bestselling author of five books, one of which, The Informant (2000), was made into a motion picture in 2009. Formerly he was a senior writer and investigative reporter with The New York Times, Condé Nast's business magazine, Portfolio, and later was a contributing editor with Vanity Fair and a senior writer with Newsweek. Eichenwald had been employed by The New York Times since 1986 and primarily covered Wall Street and corporate topics such as insider trading, accounting scandals, and takeovers, but also wrote about a range of issues including terrorism, the Bill Clinton pardon controversy, Federal health care policy, and sexual predators on the Internet.
Enron: The Smartest Guys in the Room is a 2005 American documentary film based on the best-selling 2003 book of the same name by Fortune reporters Bethany McLean and Peter Elkind, who are credited as writers of the film alongside the director, Alex Gibney. It examines the 2001 collapse of the Enron Corporation, which resulted in criminal trials for several of the company's top executives during the ensuing Enron scandal, and contains a section about the involvement of Enron traders in the 2000-01 California electricity crisis. Archival footage is used alongside new interviews with McLean and Elkind, several former Enron executives and employees, stock analysts, reporters, and former Governor of California Gray Davis.
Lea Weingarten Fastow is a former Enron assistant treasurer who pleaded guilty to tax evasion and filing fraudulent Income Tax returns. The wife of former Enron executive and convicted felon Andrew Fastow, she was the second former Enron executive to go to prison after Enron collapsed due to fraud in December 2001.
Vincent Julian Kaminski was born in Poland and worked as the Managing Director for Research at the failed energy trading corporation Enron until 2002. In this capacity he led a team of approximately fifty analysts who developed quantitative models to support energy trading. In the months preceding Enron’s bankruptcy Kaminski repeatedly raised strong objections to the financial practices of Enron’s Chief Financial Officer, Andrew Fastow, designed to fraudulently conceal the company’s burgeoning debt.
The trial of Kenneth Lay, former chairman and CEO of Enron, and Jeffrey Skilling, former CEO and COO, was presided over by federal district court Judge Sim Lake in 2006 in response to the Enron scandal.
The NatWest Three, also known as the Enron Three, are three British businessmen – Giles Darby, David Bermingham and Gary Mulgrew. In 2002 they were indicted in Houston, Texas on seven counts of wire fraud against their former employer Greenwich NatWest, at the time a division of National Westminster Bank, as part of the Enron scandal.
Kenneth Lee Lay was an American businessman who was the founder, chief executive officer and chairman of Enron. He was heavily involved in the eponymous accounting scandal that unraveled in 2001 into the largest bankruptcy ever to that date. Lay was indicted by a grand jury and was found guilty of 10 counts of securities fraud at trial. Lay died in July 2006 while vacationing in his house near Aspen, Colorado, three months before his scheduled sentencing. A preliminary autopsy reported Lay died of a heart attack caused by coronary artery disease. His death resulted in a vacated judgment.
Rebecca P. Mark-Jusbasche, known during her international business career as Rebecca Mark, is the former head of Enron International, a subsidiary of Enron. She was also CEO of Azurix Corp., a publicly traded water services company originally developed by Enron International. Mark was promoted to Vice Chairman of Enron in 1998 and was a member of its board of directors. She resigned from Enron in August 2000.
LJM, which stands for Lea, Jeffrey, Matthew, the names of Andrew Fastow's wife and children, was a company created in 1999 by Enron Corporation's CFO, Andrew Fastow, to buy Enron's poorly performing assets and bolster Enron's financial statements by hiding its debts.
The Enron scandal was an accounting scandal involving Enron Corporation, an American energy company based in Houston, Texas. Upon being publicized in October 2001, the company declared bankruptcy and its accounting firm, Arthur Andersen – then one of the five largest audit and accountancy partnerships in the world – was effectively dissolved. In addition to being the largest bankruptcy reorganization in U.S. history at that time, Enron was cited as the biggest audit failure.
"Tone at the top" is a term that originated in the field of accounting and is used to describe an organization's general ethical climate, as established by its board of directors, audit committee, and senior management. Having good tone at the top is believed by business ethics experts to help prevent fraud and other unethical practices. The very same idea is expressed in negative terms by the old saying "A fish rots from the head down".
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