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Corporate Crisis Update. Carolyn Hotchkiss and Eli Bortman Babson College Updated September 2005. David Duncan pled guilty to obstruction of justice in shredding Enron Documents. Sentencing deferred until he testifies in other cases.

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corporate crisis update

Corporate Crisis Update

Carolyn Hotchkiss and Eli Bortman

Babson College

Updated September 2005

David Duncan pled guilty to obstruction of justice in shredding Enron Documents. Sentencing deferred until he testifies in other cases.
  • Arthur Andersen convicted by jury of obstruction of justice in Enron case in 2002, sentenced to 5 yrs probation and $500,000 fine. Conviction overturned by US Supreme Court in May 2005
  • Andersen surrendered all licenses to practice accountancy, but faced multimillion dollar lawsuits from investors and former clients. Out of business.

Andersen Partner David Duncan

John and Timothy Rigas were convicted in June, 2005 of fraud and looting the company. Sentenced to 15 and 20 years. (Out on bail pending appeals.) Rigases forfeit $1.5 billion in deal to settle civil cases.
  • Investors lose $60 billion
  • Company declares bankruptcy in 2002, assets are sold to Comcast and Time Warner June 2005

John Rigas

Michael Rigas

Insider Trading: Did Waksal tip off members of his family and Martha Stewart about FDA rejection of new drug Erbitux?
  • ImClone Founder Sam Waksal pled guilty to six counts of fraud, perjury, conspiracy. Sentenced to 7 years in prison and fined $4.3 million.
  • Faneuil pled guilty to accepting gifts for silence.
  • Martha Stewart served 5 months in prison, 5 months of house arrest, for lying to investigators. Had to resign from NYSE board.
  • Baconovic also got 5 months in prison.

Dr. Samuel Waksal

Martha Stewart

Broker Peter Baconovic

Broker’s Assistant Douglas Faneuil

CEO Dennis Kozlowski charged with evading $1 million in sales tax on art works purchased. Case still pending.
  • Kozlowski and CFO Mark Swartz were convicted in NY court of grand theft -- looting the company of over $150 million.
  • Kozlowski must repay $167 million, Swartz, $72 million.
  • Suit by Tyco and shareholders against them for damages also pending.

Former CEO Dennis Kozlowski

Renoir’s “Fleurs et Fruits”


CFO Andrew Fastow

  • CFO Andrew Fastow indicted on 78 counts of fraud, money laundering, obstruction of justice. Plea bargain – 10 years in prison, and must testify in trials of other Enron defendants.
  • Lea Fastow served 1 year for tax fraud.
  • Ken Lay and Jeff Skillings are scheduled for trial in 2006

Former CEO Ken Lay

CEO Jeff Skillings


Enron civil suits settled, so far, against the following defendants …………

  • $ 2.4 billion -- Canadian Imperial Bank of Commerce
  • $ 2.2 billion -- JPMorgan Chase
  • $ 2 billion – Citigroup
  • $ 222.5 million --Lehman Bros.
  • $ 69 million -- Bank of America
  • $ 168 million -- Enron's outside directors.

WCOM announced revised $9b restatement of earnings

Myers pled guilty to fraud, got 1 year.

Ebbers was convicted in July 2005, sentenced to 25 years, is free pending appeal

Scott Sullivan pled guilty, testified against Ebbers, got 5 years.

WCOM declared bankruptcy, reorganized in Chapter XI, changed name to MCI, was acquired by Verizon.

Bernie Ebbers

Controller David Myers

CFO Scott Sullivan


Nov. 2004 –

Citigroup $2.6 billion

Sept. 2005 –

J.P. Morgan Chase $2.0 billion,

Deutsche Bank, $325 million;

Andersen, $65 million;

former directors, $55 million;

Ebbers, $45 million.

Worldcom Investors’ suits --- $6.1 billion in settlements approved by court:

Bondholders will recover $426 per $1000

Stockholders will recover $0.56 per share

Involvement with Enron and WorldCom-setting up sham transactions
  • Investigation for “spinning IPOs”-giving special deals to CEOs in return for investment banking business
  • Stock analysis manipulated for
    • Boardroom struggles?
    • Investment banking business?
    • Nursery school admission?

Analyst Jack Grubman




Telecoms and Media

Financial Services