1. 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

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

3. FIGURE 9.3 ENRON JEDI BARCLAYS BANK CHEWCO PLC Sources
CHEWCO FINANCING, IN MILLIONS
ENRON
KOPPER & DODSON’s
Company
DODSON
Companies
$0.125
$11.4
$11.4 Loan*
JEDI
$132 Revolving Credit
BARCLAYS
BANK
PLC
CHEWCO
Sources
$240 Loan
Bank $251.4
Non-cash
Investors
Total $383.5

4. TABLE 9.1 ENRON’S KEY SPECIAL PURPOSE ENTITIES (SPEs) SPE SCHEME
IMPACT
Chewco/JEDI
Syndicated investment
Off balance sheet liabilities hidden ($628 million), Revenues recognized early, Profits on own shares
LJM
Provided market for assets
Artificial profits, Off balance sheet liabilities hidden Equity overstated ($1.2 billion)
LJM1/Rhythms
Investment “hedge”
Unrecognized losses ($508 million)
LJM2/Raptors
Unrecognized losses ($544 million)

5. 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

6. 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

7. 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

8. 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 First Enron-related US Bank settlement. The bank denied wrongdoing.
August Fine imposed by the SEC. JP Morgan’s Q2/Q3 profits were $1.83bn.
Citigroup
1.7bn
120m
June Citigroup did not admit liability, and said money already set aside for legal costs would cover the payment.
August Fine imposed by the SEC. Citigroup’s Q2/Q3 profits were $4.3bn.
Canadian Imperial Bank of Commerce
2.8bn
June More than annual profit yr 2005.
December 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 for press releases on Megaclaims settlements.

9. 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
= Cooperates with prosecutors

10. TABLE 9.6 SELECTED ENRON FINANCIAL STATEMENT DETAILS 2000 1999 1998
Summary Income Statement (millions)
Revenues
$101,789
$40,112
$31,260
Operating income
1,953
802
1,378
IBIT
2,482
1,995
1,582
Net Income before Cumulative Accounting Changes
979
1,024
703
Net Income
893
EPS (in dollars)- basic
1.22
1.17
1.07
- diluted
1.12
1.10
1.01
Detail of IBIT (millions)
Transport & distribution
Trans. Services
$391
$380
$351
Portland General
341
305
286
Wholesale Services
2,260
1,317
968
Retail Energy Services
165
(68)
(119)
Broadband Services
(60)
Exploration & prod. - 65
128
Corporate and other
(615)
(4)
(32)
Summary Balance Sheet (billions)
Current assets
$30.4
$7.3
Investments, other
23.4
15.4
Property, plant, equip, net
11.7
10.7
Total Assets
65.5
33.4
Current liabilities
28.4
6.8
Long-term Debt
8.6
7.2
Deferred credits and other
13.8
6.5
Shareholders’ Equity
11.5
9.6
Total Liabilities & Shareholders’ Equity

11. TABLE 9.7 KEY CHANGES IN GOVERNANCE GUIDELINES AND REGULATIONS
ANNOUNCED
SOURCE OF CHANGE
1994
The Dey Report, “Where were the Directors?”, Toronto Stock Exchange To review corporate governance and make recommendations for best practice.
1999
Five Years to the Dey Report on Corporate Governance, Toronto Stock Exchange and The Institute of Corporate Directors To survey and analyze governance procedures at TSE companies.
May 2000
The Combined Code: Principles of Good Governance and Principles of Best Practice Based on the Hempel (1998), the Cadbury (1992) and Greenbury Reports (1995), used by companies listed on the London Stock Exchange.
2000
Guidance for Directors on the Combined Code, The Turnbull Report See Combined Code purpose.
Nov. 21, 2001
The Saucier Report, “Beyond Compliance: Building a Governance Culture”, Joint Committee on Corporate Governance, CICA/TSE To review the current state of corporate governance in Canada, compare Canadian and international best practices, and make recommendations for changes that will ensure Canadian corporate governance is among the best in the world.
Apr. 26, 2002
Toronto Stock Exchange (TSX) Guidelines Amended Revisions effective Dec.31, 2002 to adopt some Saucier Report recommendations.
Apr. 4, 2002
SEC Blue Ribbon Committee Discussions
2002 Various
Business Roundtable – various statements
June 6, 2002
NYSE Corporate Governance Listing Requirements, Effective Aug. 2002, after SEC approval A review at the request of Harvey Pitt, SEC Chairman, to enhance the accountability, integrity, and transparency of companies listed on the NYSE.
June 28, 2002
SEC Order effective Aug, 14, CEO and CFO to certify 8-K, quarterly and annual financial reports.
July 9, 2002
President George Bush’s Proposals Speech Visit the text’s Website for links to the organizations’ Websites

12. TABLE 9.8 ORGANIZATION OF THE SARBANES-OXLEY ACT of 2002 SECTIONS
TITLE
1, 2, 3
Short Title, Definitions, Table of Contents I
Public Company Oversight Board II
Auditor Independence
III
Corporate Responsibility Public Company Audit Committees (including whistle-blower encouragement) Corporate Responsibility for Financial Statements (including CEO and CFO certification) IV
Enhanced Financial Disclosures Management Assessment of Internal Controls Code of Ethics for Senior Financial Officers
501 V
Analyst Conflicts of Interest VI
Commission Resources and Authority
VII
Studies and Reports
VIII
Corporate Criminal Fraud Accountability IX
White Collar Crime Penalty Enhancements
1001 X
Corporate Tax Returns XI
Corporate Fraud and Accountability