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Joshua Co

ACETHIC K31 Reflection paper


Enron is the creation of years of financial misstatement and accounting fraud. It literally
survived on its ability to fake its financials. It was powered through market speculation, and
nurtured through poor governance and weak regulations. Moonlighting as a gas/energy/trading
company, Enron was able to deceive and cheat its way into becoming a blue chip solid stock in
the US stock exchange. The company made us of financial projections to show that they were
profitable when they had millions of dollars in debts and losses. The highly unregulated
environment as well as the bare complexity of this mark-to-market accounting system paved way
for Enrons fraudulent success.

The whole Enron scandal began when Louis Borget was found to be gambling Enrons
reserves away, and at the same time diverting cash away. Borget had an account under, M. Yass.
This account name is a testament to how smart these traders were and how arrogant they were.
Another way of saying, my ass, this account name clearly defied and disrespected the company,
but instead of reporting this to the fed and closing up shop, Ken Lay, the CEO at the time, saw
this as a way to earn even more money. This paved way for the mark-to-market accounting that
allowed Enron to record potential forecasted profits, regardless if it happened or not. When
Jeffrey Skilling was hired, the problems started to take off. Enron started recording record profits
despite massive losses. Enron tried to get into broadband technology and even the weather, but
both failed miserably. If not for Andrew Fastow and his shell companies to hide these failures,
Enron would have already been doomed. Then they found a way into California. What Enron
basically did was to deregulate the energy industry in California and allow for free market forces
to take place. Enron was able to manipulate this and caused massive blackouts and the suffering
of many people in California. Enron of course profited from this. They caused scheduled black
outs and hoped the price of electricity would drop. They would purchase these and when the
power would be schedule by them to go back, the price would return, and Enron would earn
from this. In line with Skillings survival of the fittest mentality, he didnt gave a rats ass about
the individuals affected, the hospitals, schools, and homes that suffered from these outages. And
as a testimony for the lack of remorse for anything but profits, Enron had many ridiculous names
like fat boy, get shorty, and even deathstar. This showed the lack of sincerity in these projects for
anything but to earn Enron higher profits. In addition to this, the use of special purpose entities
by Andrew Fastow to hide and fund Enrons debt was further able to hide the terrible condition
of Enron. One of Fastows special companies was LJM, named after his wife and children, Lea-
Jeffrey-Michael. In exchange for removing Enrons debt and losses, Fastow was able to steal
millions of dollars for himself.

Under Skillings command, he hired 2 lieutenants, his guys with spikes: J. Clifford
Baxter and Lou Pai. Baxter was a rather emotional figure who was violent at times. Despite his
personality issues, he was hired for his skill in trading. As one of the higher positioned officers,
he was able to cash in on Enrons profits. He eventually shot himself due to depression from the
pressures of the Enron scandal. Lou Pai on the other hand, was more charismatic and ill-
tempered. He was also a womanizer, and a bit of a pig. He also had a megalomaniac attitude
issue, but was still hired for his skill in trading. He was also one of the high positioned officers
who cashed in on Enrons fake profits.
In the wake of Enrons eventual demise, there were 3 main actors in the scandal. Jeffrey
Skilling, Andrew Fastow, and Ken Lay. Jeffrey Skilling, without any bias, was a talented,
intelligent person. He was ambitious and a visionary. He wanted to be successful, and he wanted
everything, and this could be attributed to his insecurities. He had an image transformation to
appear more dominant. He was also very harsh and cruel in his Darwinism mentality. He
implemented ranking employees to foster competition in the work place. He did not grow up too
well off, and when he got a taste of money, it became insatiable for him. He could arguably be
dubbed a pathological liar for his continuous lies to his employees, the government, and maybe
even himself about the fall of Enron. Andrew Fastow was the chief financial officer in Enron.
Fastow was also a simple man, who also fell into the path of greed and corruption. He went to
small schools and married his high school sweet heart, Lea. He however was smart, and as the
CFO of Enron, he helped orchestrate its fraudulent position. He was the evil genius who created
the special purpose entities that was used to hide the losses of Enron. Because of his position, he
was the immediate fall guy since there would be clear and voluminous evidence against him. I
think in a way he did have a change of heart when he got caught because he testified against all
the others involved in the Enron scandal. Whether to save himself or because he had a change of
heart, he aided in the investigation of those involved in the scandal. Last but not the least was
Ken Lay, the founder of Enron. Much like the other two, Lay was a genius in his own right. He
had many friends in high places that helped him further Enrons ambitions. He had the favor of
the Bush administration which helped him deregulate the energy market in California. Aside
from that, he like the other 2, was charismatic and a thrill seeker. He and the rest of the top
executives would go on crazy and dangerous excavations, which showed the kind of mentality
they had. He was able to keep Enron afloat before its eventual demise.

Based on the documentary I dont think I would have noticed anything. For one thing, as
a rank and file employee, we would not have any access to any of the classified documents.
Secondly, the financial statements and documents were meant to be hidden and secretive. If they
were found, they were meant to be incredibly complicated and unnecessarily confusing. This was
obviously so that the truth of Enrons shortcomings could be kept away. Aside from that, the
fact that the CEOs of Enron (ie. Skilling and Lai), would always come out to comfort and
reassure the employees that everything was alright and would even be better in the future, made
it harder for anyone to guess what was really happening. Also working in a blue chip company
entails security in job position, meaning that there would be nothing to worry about. All in all I
believe that is why Enron was able to get so big without getting caught. Because there were
doing so well, no one thought to look at the financials and find out what was really going on. It
was the complacency and ignorance that allowed Enron to cheat and steal from so many
If I were next in line to Andrew Fastow, I would have stopped operations and reported it
already to the Fed. Assuming I did have prior knowledge to the fraud of Enron, I still would have
risked my career for the greater good. To allow something so bad and so wrong to continue
growing and prospering, is in itself the worse evil. To perpetuate the wrong-doings of someone
because it is the norm or because we wouldnt get caught is precisely the reason why Enrons
existence went on undetected. As future leaders in our country, we must understand the
responsibility we will be entrusted in the future. We must recognize the impact we will
eventually have in the world. We will be the ones to shape it, and we must ensure that it is
shaped properly and for the greater good. We all must learn to take a stand for what is right, and
not be tempted by the grasps of greed and corruption.