Rel228weekone - REL 228/MGT 228 Business, Ethics, and...

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REL 228/MGT 228 Business, Ethics, and Society Prof. . Douglas Lamont WEEK ONE: LECTURE/DISCUSSION Theme for the week: The value shift in business ethics. I. Corruption, crime, chicanery Enron, Arthur Andersen, Tyco, Adelphia, and other once highly regarded companies have caused a crisis of confidence among executives, managers, employees, and investors. Question : Are the problems so severe as to represent an irreparable fault in the American free enterprise capitalist system? Other countries: Italy’s Parmalat. Historical examples: 1600-1800: The British East India Company is known as the “conqueror” of India. Employees smuggled goods to Europe and dealt in opium with China. The Company’s tea was dumped in Boston Harbor at the start of the American Revolution (1775). 18 th century: Sir John Blunt manipulated stock, caused the South Sea bubble, and produced the crash of the London stock exchange. 19 th century in the US: Charles Ponzi, a Boston swindler, borrowed money for 45 days at 50 percent interest, and paid early investors with cash from later suckers whose money he kept. 1920’s: Teapot Dome scandal during President Warren Harding’s administration. 1950’s: Robert Vesco looted Investors Overseas Services. He lives in Cuba. 1960’s: Michele Sindona caused the collapse of several banks in the US and Italy (including the Vatican). He was found hung from a bridge in Milan. See the movie Godfather III. 1980’s: Michael Milken, the junk bond king, went to jail for his work. 1990’s: Nicholas Lesson, the rogue trader in Singapore, who brought down Barings Bank, went to jail for his work. 1
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2000’s: Enron : Andrew S. Fastow, who, while serving as Enron’s chief financial officer, also ran partnerships set up by Enron to keep debt off Enron’s books. Andy and his wife, Lea, the assistant treasurer of Enron, pleaded guilty. He got ten years and she six months of sequential jail time. Jeff Skilling (Tom Skilling of WGN is his brother), who was Enron’s CEO, has pleaded not guilty to charges of fraud, money laundering, conspiracy, and obstruction of justice. Ken Lay, who was Enron’s chairman of the board of directors, has not been charged in the Enron scandal. Arthur Andersen : This CPA firm audited the records of Enron, and the former said the books of the latter were OK. The federal government closed Arthur Andersen and put it out of business. CIBC : Enron’s special purpose entities (SPEs) sold 3% of its assets to CIBC, an independent firm, with the understanding that CIBC would get its money back plus a return, regardless of whether the asset lost value—the equivalent of a loan. Enron retained control of the assets and would receive any increase in their value, even after the purported sale. This is asset parking , and the SEC considers it illegal. CIBC pays a fine to the SEC and disbands its Enron unit. Tyco
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This note was uploaded on 01/05/2012 for the course REL MGT 228 taught by Professor Douglaslamont during the Fall '11 term at DePaul.

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Rel228weekone - REL 228/MGT 228 Business, Ethics, and...

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