Conspiracy Part 2 - Conspiracy of Fools Part II Raptors...

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Conspiracy of Fools Part II “Raptors” Page Fraudulent Activities, Groups Errors, and Agency Conflicts CHAPTER 6 138 Agency Conflict: Andersen served as both auditor and consultant to Enron, with many senior accountants developing close friendships with Enron managers. Veterans of Andersen also jumped to Enron as internal auditors, which facilitated a growing relationship (familiarity) between the two firms. Furthermore, incentives were not aligned with the best interest of the shareholders since Enron paid Andersen and could change auditors at any time. 140 Group Error: Carl Bass did not think Rick Causey was qualified for his job, but no one from Andersen shared his opinion because they were all close friends with Causey. This is a group error on the part of Andersen’s accountants because they unanimously accepted Causey because of his close relationship with Enron’s managers. 140 Fraudulent Activity: Enron pushed Carl Bass to be “creative” with accounting, so favorable financials could be recorded. 140 Fraudulent Activity: Causey helped Enron devise a way to do the Calpine deal without highlighting the loss. Instead, Calpine announced the loss, and Enron “accidentally” left a closing document unsigned, pushing the deal into the following quarter where the loss could be buried so no one would find it. 144 Fraudulent Activity: Fastow devised a dishonest solution to ensure RADR’s independence. The partnership had to generated 3% of its capital from independent investors, but in reality, Fastow put up the money by making a “loan” to Kopper, who then funneled the money to Bill Dodson and Kathy Wetmore. Dodson and Wetmore agreed to act as fronts and pretended the money was theirs.
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146-7 Fraudulent Activity: Enron did not want purchase Calper’s interest in JEDI, so Fastow set up Chewco Investments to purchase the interest and keep it off Enron’s balance sheet. The 3% of outside capital necessary to make Chewco independent came from unnamed institutional investors (likely Fastow). While lawyers knew Enron’s management would have an interest in Chewco, they allowed it anyways. 150 Agency Conflict: Rick Causey did not take Anderson’s advice regarding the booking of income from the Bonneville Power contract. While Anderson told him not to report the value as income, Causey did it anyways. Anderson also wanted to keep Enron happy and ruled that the amount reported as income by Causey (which doubled Enron’s profits) was not important enough to report to investors on the adjustment sheet. 152 Fraudulent Activity: Michael Kopper transfers $481,850 into Lea and Andy Fastow’s bank account to repay them for the money they put up in place of the bogus investors in RADR. This is an obvious example of fraud on Andy Fastow’s part.
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Conspiracy Part 2 - Conspiracy of Fools Part II Raptors...

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