Public outrage grows, governance credibility falls FIGURE 9.1 GOVERNANCE REFORM TIMELINE Public outrage grows, governance credibility falls Enron Bankruptcy December 2, 2001 WorldCom Restatement June 25, 2002; Bankruptcy July 21, 2002 SEC Regulations Stock Exchange Guidance Arthur Andersen Court Case Winter/Spring 2002 Sarbanes-Oxley Act Signed July 30, 2002

Enron Corp. (last price N/A) FIGURE 9.2 ENRON STOCK CHART, WEEKLY PRICES, 1997-2002 Enron Corp. (last price N/A) $ 90.00 $ 80.00 $ 70.00 $ 60.00 $ 50.00 $ 40.00 $ 30.00 $ 20.00 $ 10.00 $ 0.00 US Dollars Reprinted courtesy of StatPro Canada, Inc.

TABLE 9.2 PAYMENTS TO FASTOW & HELPERS INVESTMENT RETURN, IN MILLIONS OTHER, IN MILLIONS A. Fastow $25,000 $ 4.5 in 2 mo. $30 + stock options M. Kopper 125,000 10.0 incl. Dodson $2 in fees B. Glisan 5,800 1.0 K. Mordaunt

TABLE 9.3 ENRON WHISTLE-BLOWERS BLEW TO ACTION SUBSEQUENTLY Cliff Baxter, Vice Chair Lay None Exercised $32 million in stock options, just agreed to testify to Congress, found shot dead in his car–an apparent suicide–on Jan. 25, 2002 McMahon, Treasurer Fastow Reassigned, later returned as CEO Kaminski, Risk Mgr. Continued Sherron Watkins Discussed with Skilling and asked Vinson & Elkins to review

FIGURE 9.4 ENRON’S GOVERNANCE & CONTROL STRUCTURE WAS SHORT-CIRCUITED BOARD Outside Law Firm Ken Lay: Chair; Co-chair Baxter Committees: Audit and Compliance Compensation, Finance, Nominating Financial Reports SPEs Internal Audit … AA MANAGEMENT CEO: Lay, Skilling CFO: Fastow CAO: Causey CRO: Buy Others: Kopper, McMahon, Glisan Watkins, Kaminsky Whistle-blowers Company Policies Code of Conduct LEGEND Missing Guidance AUDITOR Arthur Andersen Missing Compliance Consultant: Arthur Andersen Suspended Guidance

TABLE 9.4 ENRON’S ACCOMPLICE BANKS’ LAWSUIT SETTLEMENTS $ COMMENT Merrill Lynch 80m March 2003 Fine imposed by the SEC. Four of the Bank’s executives were found guilty of fraud and conspiracy, facing sentences of up to 15 years in prison (Daniel Bayly, Robert Furst, William Fuhs,and James Brown). JP Morgan Chase 2.2bn 135m August 2005. First Enron-related US Bank settlement. The bank denied wrongdoing. August 2003. Fine imposed by the SEC. JP Morgan’s Q2/Q3 profits were $1.83bn. Citigroup 1.7bn 120m June 2005. Citigroup did not admit liability, and said money already set aside for legal costs would cover the payment. August 2003. Fine imposed by the SEC. Citigroup’s Q2/Q3 profits were $4.3bn. Canadian Imperial Bank of Commerce 2.8bn June 2005. More than annual profit yr 2005. December 2003. Fine imposed by the SEC. Two CIBC executives also will pay fines totaling $600,000. Toronto Dominion Bank 130m August 2005 Royal Bank of Canada 25m Royal Bank of Scotland 42m Sources: SEC files, newspaper articles and Enron’s website at http://www.enron.com for press releases on Megaclaims settlements.

TABLE 9.5 ENRON KEY EXECUTIVE INDICTMENTS INDICTED BY FOR PLEA/ COOPERATE  RESULT Ken Lay, Chair, Chair and CEO Jul 2004, 2 trials: 1 jury, 1 judge Conspiracy, fraud & false statements Not guilty Guilty in both trials, but died before sentencing, so verdicts vacated Jeffrey Skilling, CEO Feb 2004 Conspiracy, fraud, false statements, insider trading 24 yr, 4 month sentence Restitution $45 million Andrew Fastow, CFO Jan 2004 Securities fraud Plea agreement (guilty)  10 yr sentence, later reduced to 6 yrs, forfeit $23.8 mil Lea Fastow, Assistant Treasurer May 2004 Tax fraud 1yr sentence Richard Causey, CAO Dec 2005 7yr sentence Forfeit $1.25 million Michael Kopper Aug 2002 Fraud and money laundering 37 month sentence Forfeit $12 million Mark Koenig Investor Relations Aug 2004 Plea agreement (guilty)  18 month sentence Forfeit $1.49 million Ben Glisan, Treasurer Dec 2002 Sep 2003 Fraud Fraud Denied wrongdoing, later  5yr sentence,  later brought favors, forfeit $625,000. Kenneth Rice, CEO Broadband Services Apr 2005 Plea agreement (guilty) 10yr sentence Forfeit $29.4 million Kevin Hannon Sep 2005 Guilty 5yr sentence Forfeit $250,000 Timothy Despain Assistant Treasurer Apr 2004 5yr sentence, released on $100,000 bail Enron Board of Directors (18 members) Jan 2005 Breach of Fiduciary Duty Settlement $168 million; $155 million covered by insurance Source: SEC Files, newspaper articles, see also http://www.chron.com/news/specials/enron/ = Cooperates with prosecutors