Bill Dixon

Section AE3
Group 4

Understanding Corporate Structure and Culture

I-1)
A publicly traded company is one that issues stocks that are traded on the open market (stock
exchange). A publicly traded company means that the individual shareholders are the owners of
the company, and have final say in all decisions made by this company and it’s managers.
I-2)
Within a publicly traded firm’s management structure, the board of directors is the highest
governing authority. Their primary responsibility is to protect the interest of the shareholders and
make sure they get a decent return on their investment. They deal with issues such as how much
the firm’s dividend will be, what stock options will be distributed to employees and the
hiring/firing and compensation of executives.
I-3)
The board of directors should ideally be made up of people who have experience in the same
market as the firm itself. These directors should be former CEOs, CFOs or top executives of
major publicly traded corporations. The optimal makeup of a board of directors should be
experienced executives who have worked for other billion dollar publicly traded firms in similar
markets.
I-4)
The role of an external auditor is to examine and issue a public opinion about the reliability of a
firm’s financial reports. They report on the reliability of the firm’s financial reports and also
make recommendations about internal control systems over financial reporting for that firm. The
external auditor reports to the audit committee within the firm, but eventually the results are
made available to all shareholders in a publicly traded firm.
I-5)
The CEO is the highest-ranking employee in a company, and is hired by the board of directors.
Consequently, the CEO reports directly to the board of directors. The CEO is responsible for
hiring managers and other employees, meeting the goals set by the board of directors and
mapping a new vision for the firm. Also the CEO must oversee the operations of the firm itself
and ensure everything is compliant with laws and standards.

E-1)
The major players in the Enron scandal were CEO Jeff Skilling and CFO Andrew Fastow. CEO
Jeff Skilling’s role was that he hid the financial losses of the company by using mark to market
accounting. All their losses were transferred to off the books accounts, so the bottom line was
never affected. CFO Andrew Fastow had a way to make Enron appear that it was in great shape
even though many people were losing money. He issued SPE’s that kept Enron’s failed assets
and business ventures, and in turn he would just issued common stock to the investors of these
SPEs.
E-2)
 Enron’s executives had complete control over the financial reports and were able to
manipulate them to hide losses so they could attract more investors.
  Enron would build an asset (ex. Power plant) and project revenue prematurely. If they
lost money instead of taking a hit they would transfer losses to side accounts in a mark to
market strategy.
 Wrote off losses and maintained an attractable bottom line
 Issued SPEs which kept failed assets off the books: paid investors of these SPEs by
issuing more shares of meaningless common stock
 When Enron was falling they closed the SPEs and never issued some 58 million shares
of stock
 Forbid employees to sell shares and later reported losses of $591 million and had $628
million in debt: December 2, 2001 declared bankruptcy
 Executives embezzled millions of dollars while the shareholders and employees took all
the hit

E-3)
The biggest losers were the investors of Enron who had been mislead by financial reports and in
total had lost over $70 billion. The other big losers were the employees who lost upwards of $2
billion in money owed to pension funds, stock options and savings plans. Since Enron was an
LLC, only a small fraction of this money was ever returned.
E-4)
1. Jeffrey Skilling went to trial and was convicted on 19 of 28 counts of securities fraud and wire
fraud. He was sentenced to 24 years and 4 months in prison where he currently resides.
2. Kenneth Lay was convicted on 6 accounts of securities fraud and was to be sentenced for up to
45 years in prison. Before this happened Lay died.
3. Andrew Fastow served time in prison but currently works as a document review clerk for a
Houston law firm that represented him in civil matters.
4. David Duncan is no longer an accountant and works as head of player/personnel services for
the Cincinnati Bengals.
5. Joseph Berardino is a managing director in the business consulting practice at Alvarez &
Marsal.
E-5)
The government created the Sarbanes-Oxley Act of 2002, which tightened disclosure and
increased the penalties for manipulation of financial reports. As a result of this act the Public
Company Accounting Oversight Board was created to develop standards for audit reports. In
addition, executives must sign off on financial reports. The FASB also raised its levels of ethical
conduct and accountability.

M-1)
Madoff ran a secretive side business that managed money for high net worth individuals and
other hedge funds. Madoff traded and lost investor money and then paid certain investors
purported returns on their investments with money he had received from other, different
investors.
M-2)
A ponzi scheme is a fraudulent investing scam where the business promises high rates of return
and uses the principal of new investors to pay off older investors.
M-3)
Bernard L. Madoff was the main conspirator and director of the Ponzi scheme. As the head of
the investment advisory business he attracted more and more investors with promises of big
payouts. Sonja Kohn was one of Madoffs’ “international ambassadors” for securing billions of
dollars from rich people outside the US to invest in the scheme. Robert Jaffe was another
middleman involved with Madoff and he convinced tycoons to invest with Madoff and fed into
the ponzi scheme. Lastly, Walter M. Noel and Jeffery Tucker who were part of Fairfield
Greenwich are also major players because they used their ties to Europe and set up feeder
programs that brought millions of dollars in capital from these wealthy foreign investors right
into the hands of Madoff’s ponzi scheme
M-4)
The biggest losers in the Madoff scandal were all the investors who were either in with their own
money or through hedge funds and other feeder programs like the Fairfield Greenwich sentry
fund. There are losers on both foreign and domestic soil and some are still filthy rich while
others like 46 year old, single mother Susan Leavitt have had their entire life savings scammed
by this ponzi scheme.

G-1)
A system of moral principles and conduct guidelines of how one should act in relation to the
good and bad in the world and what is morally right and wrong.
G-2)
A big part of ethics in your academic life is academic integrity. Your own system/belief of ethics
dictate how you act and the decisions you make when presented with an academic situation. For
example if you see the answer sheet on a professors desk you make a conscious decision based
on your code of ethics whether or not to look at the answers and consequently cheat on the test.
Our own ethics are a big part in academic life because some individuals might pressure us to do
something wrong and cut corners but we must rely on our own ethic code to make the right
decision and resist peer pressure.
G-3)
Ethics should play a big role in your professional life and should be used on a daily basis in the
workplace. Your ethics shape how you interact with peers and are important to ensure that you
treat fellow employees and mangers with respect. Your actions and ethic code shape who you are
and how you present yourself to the world. Ethics should play a big role in your professional life
especially in situations of conflicts of interest. It is important to have a strong ethical framework
in these situations where you might have to balance the interests of a client and the firm itself. In
today’s world people’s cultural, personal and societal values differ; a strong ethical background
in your professional life will help you make the right decision and the outsiders will be grateful
you took their values into account.
G-4)
In terms of direct situations the roles discussed in the last two questions differ a little, but the
ethical framework that outlines these decisions does not. Whether at school or in the professional
workplace the role of ethics in your life affect the decisions you make and interpersonal
relationships. If you decide to cheat during school, your code of ethics will probably influence
you to make a similar decision in the workplace. Both might help you cut the corners in the short
term, but in the long term aren’t the right choices and can jeopardize everything you’ve worked
for. A properly constructed ethical framework can help you make the right decision in any
situation.