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Enron: The Brief Explanation

With the news of the NatWest Three’s extradition and the conviction and death of the ex-CEO, the Enron scandal is hitting the headlines again. Most people know that Enron has had its troubles, although not many of them actually understand the problem. I would like to take this opportunity to concisely explain, in simple terms, the Enron scandal so that you can understand it better. So, without further delay I give you: ‘The Enron Scandal in Under 500 Words’

In addition to that linked article, here are some other news-worthy pieces of information:

The former Chief Financial Officer (CFO), Andrew Fastow, who was the mastermind behind the huge fraud, was found guilty on 78 counts. He accepted a plea agreement and will serve 10 years in prison and pay $24m; in return providing testimony against other Enron corporate officers. Kenneth Lay died after suffering a massive heart attack only months before his sentencing. The US SEC was seeking more than $90 million from him at the time.

Arthur Andersen – the accounting firm responsible for the fraud – were investigated and exposed for another serious fraud at WorldCom. This huge telecommunications firm then went bankrupt and soon became the new biggest bankruptcy in history. Many more companies filed bankruptcy after this, exposing high-level corruption, accounting errors, and insider trading. Arthur Anderson still trades as a bona-fide accounting firm due to “flaws in the jury instructions” at their trial. Although, they now have around 200 staff – down from over 110,000 worldwide – almost exclusively handling the numerous lawsuits against the company.

The NatWest Three? These men used to work for Greenwich NatWest – part of the NatWest group of financial institutions owned by the Royal Bank of Scotland Group. The three instigated the selling of the company’s stake in an investment company (at much less than market value) to a small company controlled by Fastow (Enron’s CFO). The three then left their jobs, bought shares in Fastow’s company which was later sold on to Enron for more than ten times what NatWest had received. The three gained around $2.3m each.

Their case, and particularly that relating to their extradition to the US, has been in the media a lot recently. They have received almost unanimous sympathy from most media outlets, politicians and the public – most arguing against their extradition. No matter what your opinion on this matter, you should know that they have received the unpaid support of two London-based public relations firms to change the law and appeal against their extradition. Spin is all around us.