The Arthur Anderson and Enron Scandals

The Enron and WorldCom Scandals

1.Which segment of its operations got Enron into difficulties?

SPE’s , These are Special Purpose Entities.
“A special purpose entity, or SPE, is an entity created solely to carry out an activity or series of transactions directly related to a specific purpose. An SPE may take the legal form of a corporation, a partnership, a limited liability company, or even a trust. Typically, an SPE is created for one purpose, usually with little or no other activity and usually benefiting only
one company.” (For the Record, 2001)

3. Did Enron’s directors understand how profits were being made in this segment? Why or why

It would appear that the board of directors knew what was going on as they allowed Enron to “engage in high risk accounting, inappropriate conflict of interest transactions, extensive undisclosed off-the-books activities, and excessive executive compensation.” (Brooks, 2007)

“Enron's board of directors is in a tight spot. Like Lay, the directors blessed or signed off on practically all of the company's controversial accounting practices. It waived the company's code of ethics in 1999 to allow Fastow to manage some of the partnerships. Not surprisingly, the Powers Report, commissioned by the board, provides some cover: It blames Enron managers for hiding key facts about some of the limited partnerships from the board.” (Greg Farrell, Jayne O'Donnell, 2002)

5. Ken Lay was the chair of the board and the CEO for much of the time. How did this probably contribute to the lack of proper governance?

governance - the act of governing; exercising authority; Definition from

Ken Lay allowed somewhat of a high-risk, free-wheeling environment.
“…believed that if Enron's employees were constantly cost-centered, it would hinder original thinking. As a result, extravagant spending was rampant throughout the company, especially among the executives. Employees had...