For that, I deserved to go to prison.”. It is easy to do the legal thing. Enron was before our time. Fastow ended his speech with a simple but powerful call to action: “Set a reminder on your phone every year, even every quarter, with just two questions: One, am I following the rules? He was released from prison in December 2011. “But what I did was unethical and unprincipled. “How is it possible to have all these smart people approve these deals and end up committing the greatest fraud in corporate history?” Fastow asked me. All Rights Reserved. With that, Enron’s former Chief Financial Officer Andy Fastow has spent five years in prison and after two years of freedom, he is publicly expressing remorse for his crimes against investors. ReddIt. “What makes Enron scary is that it was a bunch of people sitting in a brightly lit conference room, flanked by accountants and lawyers, thinking that what they were doing is the right thing to do, and yet they were committing fraud.”. With all that being said, he still should have gone to jail and he did. His talk was part of the Choices & Challenges series organized by the Center for Business and Society. “So, their brains minimize risk in order to get there. You’re processing risk in a biased way—`it won’t happen to me and even if it does it won’t be that bad.’ Your brain knows the answer you want—that you want to live in L.A. Fastow was charged with 78 counts of fraud for his central role in developing the off-balance-sheet special-purpose entities that led to the company’s collapse. Andrew Fastow, the former CFO of the bankrupt energy-trading firm Enron, admitted to the wrongs he committed, but also blamed the accountants at the defunct firm Arthur Andersen, in a speech at the Association of Certified Fraud Examiners Global Fraud Conference. Two, is this the right to do?”, 130 King St. West His victims might be pleased to know that Fastow appears condemned to forever make his penance. In all three cases, there was an unequivocal sentiment that the companies were behaving unethically. And furthermore, one cannot even accuse the shareholders for having shares vs. cash to sock away under the mattress. Its legacy has become attached to its stark downfall, rather than its business prowess in energy and commodities. Because it is disgusting. But rulebreakers are only part of the problem. "Andrew S. Fastow, Former Enron Chief Financial Officer, Pleads Guilty, Settles Civil Fraud Charges and Agrees to Cooperate with Ongoing Investigation." I write this prologue for a reason. But to say he shouldn’t be able to make money again is nuts. The software’s analysis of emails that day intuited negative tension about the deals. The firm reached out to Fastow in 2016 for an explanation. He subsequently entered a plea agreement, forfeited his net worth of $24 million, and served a six-year prison sentence in a federal detention center in Oakdale, Louisiana. Not surprisingly, when Enron approached insolvency, index scores fell precipitously, signaling high amounts of tension among executives. Email. Although I was simply the messenger, I still felt guilt and shame. T.H.A.N.K.S. At its height, Enron was the seventh largest company in America; its market capitalization hit $35 billion. I may have been trying to stay within the rules, but I was also, most definitely, trying to be misleading.”. View Andrew Fastow’s profile on LinkedIn, the world’s largest professional community. His financial wizardry, as it turned out, was “smoke and mirrors” designed to mask Enron’s true financial performance. The CFO article on Fastow was the first in-depth piece of journalism to lay out the complex finance and accounting strategies that underpinned Enron’s meteoric rise. It explored his financial wizardry in helping turn a sleepy natural gas pipeline company into a blazing energy trading firm. Your email address will not be published. And it caused harm to people. Asked what boards of directors can do to feel confident that they have a clear picture of financial results, Fastow touted the data transparency provided by finance and accounting software. She put down $5,800, expecting to make a little money over … During a Skype interview, he set up his laptop so I could watch a video of his keynote speech on trust and ethics in front of 2,000 people at the “InTheBlack: Accounting & Finance Innovation Summit” in Las Vegas, sponsored by BlackLine. Former Enron CFO Andrew Fastow could be a wild card for prosecutors and unlikable to jurors. Why? I doubt anyone reading this has dealt with anything remotely as conflicting as what this guy dealt with. Terms of Use  |  Privacy Policy  |  Western University, COVID-19 Information for the Ivey and Western Community, Ian O. Ihnatowycz Institute for Leadership, A case competition with an international perspective, Outside the gates: Ivey gives back to London community, International Women’s Day 2018: Celebrating women at Ivey. A few months ago, I reached out to him on LinkedIn to request an interview. That, right there is wrong. In his right hand, he was holding his CFO Excellence trophy. “The books and articles suggest the Enron story is a group of sinister people sitting in a dimly lit conference room,” Fastow said. Before Gerard Seijts of the Ian O. Ihnatowycz Institute for Leadership introduced Andrew Fastow as Enron’s last CFO, he reminded the crowd that Enron was FORTUNE Magazine’s Most Innovative Company in Corporate America for six consecutive years. In our conversations, Fastow repeated the fact that all his structured transactions were approved by Enron’s accountants, senior management, and board of directors; internal and external attorneys; bank attorneys; and its audit firm, Arthur Andersen. Why did Jeffery Skilling and Andrew Fastow go to jail for their involvement in Enron’s collapse? How can a person pit billions of dollars for themselves against life savings and day to day meals for thousands? Would you feel different about him if he went to the FBI, snitched everyone else out, and didn’t do any time? The upsurge in market capitalization that Fastow crowed about had been whittled down to nothing. Other shareholders lost billions. 2. He caused hundreds of good, hard working families to lose their life savings. The imposition of Sarbanes-Oxley, a direct result of the Enron fraud, alone increased the cost, time, complexity, and personal liability related to the preparation of US financial statements. In Part 1 of the Enron Scandal, we discussed interesting facts about Enron Scandal.Then we learned about how Enron was formed & Accounting treatment used. The choices will not appear on the last page of a booklet, separated neatly into buckets of right and wrong. And these CEOs were all turned by those astute advisors and accountants at Andersen and what is worse is that none of them saw any real jail time at all and barely paid fines compared to what losses there actually were. Because then there would never have been all of these later frauds and or jail sentences and or tricks being taught to perpetuate these creative and aggressive accounting strategies across decades. Andersen was very favored indeed to have been able to go through time doing the same scheme across so many companies, for years, without any ‘guilty plea’ and to simply pay out, because for them it is quicker than waiting out a trial. Bethany McLean, co-author (with Peter Elkind) of the book, “The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron,” has stated on more than one occasion that what Fastow perpetrated was “legal fraud,” an oxymoron suggesting that a CFO can follow the rules and exploit them to such an extent that the end result is fraud. Andersen is the teacher and the manipulator of these mulitmillion dollar corporations, and now, though Arthur Andersen is defunct, their people are all over, sprinkled like jimmies over hundreds of companies and perhaps using these Andersen tricks to infect yet more corporations. He should be completely outlawed from the financial world. Andrew Fastow Wiki Biography. In the story, Fastow was lauded. P.S. Next, Fastow reasoned to the audience that it was not fair that he gave us the cases without the accounting and legal rules governing each situation. Fastow urged us to always look for more information. He responded with an analogy about Bill Belichick, head coach of the New England Patriots, who says he uses obscure football rules to his team’s competitive advantage and to make sure it wins. Share to Facebook; Share to Twitter; Share to Linkedin; People Search: 1. “I found every way I could to technically comply with the [accounting] rules,” he told the assembled. Fastow gave us three cases. Criminal charges were brought against some of the corporate officers, including Fastow, who went to prison for six years as a result. London, Ontario, Canada. Most of Enron’s employees had invested their retirement savings in the company’s stock. It is, therefore, our responsibility as future business leaders to be responsible for and conscious of our own agency. They said he appeared humbled by his ethical lapses and had something useful to offer. Enron’s use of mark-to-market (or fair-value) accounting, instead of the historical cost method, allowed it to recast deals that had resulted in a loss and recognize them as future profit. This is how they were being PAID. Andy didn’t just bend the rules and use loopholes, he structured deals and lied about side deals. So, it dismisses or minimizes the risk.”, Making company results appear better than they are is actually not dissimilar. Fastow… Your email address will not be published. Or what about if he ditched his wife to marry a stripper like Lou Pi? Fastow gets one year in prison. They both ignored the regulations and eventually lost all the company’s money and all of their investor’s shares from $90 dollars per share to about $1 by the end of November. One was Enron lawyer Kristina Mordaunt, who in March 2000 was invited into a Fastow venture called Southampton Place. As the audience was HBA1 students, most of us were only four years old in 2001. Share to Linkedin; The criminal complaint against Andrew Fastow Andrew Fastow, Enron's defrocked chief financial officer, paints a picture of how he … I reached out to three finance and accounting professionals who attended the “InTheBlack” summit. Andy Fastow, the former Enron CFO, served six years in prison. Enron’s Andrew Fastow speaks on work ethics at SMU. Andrew Fastow knows about the gray areas. They were arrogant and aggressive. COVID-19 Information for the Ivey and Western Community. A U.S. Securities and Exchange Commission investigation followed, as did a criminal investigation by the U.S. Department of Justice. There was a time, about 13 years ago, when Andrew Fastow had achieved the pinnacle of success and fame that could be expected of a chief financial officer. That is not bending. The company filed for bankruptcy on December 2, 2001, putting thousands out of work. I received anonymous emailed death threats, perhaps from embittered employees and shareholders. As one finance executive in the audience later told me, “I wanted to know what the world’s greatest CFO criminal mastermind could possibly have to say about ethics and trust.”, A few minutes into the speech, Fastow walked offstage and came back. Russ Banham is a Pulitzer-nominated financial journalist and best-selling author. 1. In his left hand was his prison identification card. book deals, speaking gigs, consulting, training etc.). If I understand Fastow correctly, he believes human nature leads some people to do whatever they can to win, including bending the rules. Phase 1, Room S320A, Level 3 Returning to each case, he revealed more information that left the audience with a better idea of the bigger picture. After he had served his sentence he became a public speaker about his experience. With a series of inventive off-balance sheet reporting that explored and exploited accounting loopholes, Enron went from the top of the Fortune 500 to bankruptcy in four short months. Andrew Stuart Fastow was born on 22 December 1961, in Washington, D.C., USA, and is of Jewish descent. I am not an expert by any means and not have had work in Admin or Accounting but as a student of accounting, yes, I know a mere student, I have noticed that when you go and see how these ‘fraudsters” live and why they are “lost in lies” then read and see how their employees are ruined over that greed, then it hits home. By now his point is clear: Ethics in corporate governance, an even timelier subject these days, is crucial. Fastow is giving talks about rules vs. principles and consulting with corporate management and non-executive board directors about corporate culture and unrecognized risks—the “dangers of the gray areas.”. “SOX is only asking `Are you following the rules?’” Fastow said. What I had failed to capture, in a story meant to celebrate Fastow as a CFO wunderkind, was his shrewd manipulation of the accounting rules, which was unbeknownst to me and the impartial panel of CFOs who selected him for the award. "We chose Houston as our U.S. headquarters because Andy (Fastow) is a vital member of our team, and he said Houston was the best major city in which to conduct business in America." All would soon become notorious. © Ivey Business School  |   He defined these transactions as technically legal but misleading. On top of all of that, your board and one of the big 5 acct firms is auditing your special purpose vehicles and signing off on them. [However,] if the government proves that a defendant was responsible for financial reports that intentionally and materially misled investors, the [securities fraud] statute is satisfied.” Simply put, the intent to mislead investors signifies a criminal purpose, irrespective of accounting rule loopholes. These ideas all came from Andersen. He had been the chief engineer of the deals that made Enron’s financial performance and balance sheet appear much stronger than they were. Immediately, he was bombarded by messages: Unfazed, Fastow asserted that at this point in his life, having served a six-year prison sentence, there was little we could do to embarrass or insult him. What Fastow and Co. did was a lot more than bending the rules. We had conflated the definitions of rules and principles. You’re sitting on a major fault line. “My just asking the question, ‘Am I following the rules?’ was insufficient,” Fastow said. Two years after the story appeared, Enron became the biggest accounting scandal in American history. Yet, two years earlier, on June 28, 1999, when Enron seemingly was on top of the world, equally low scores were posted. And while the United States stands for many things, “forgiveness” is an indelible virtue that runs through America’s veins. Back then, people inside and outside of the Houston-based company, including stock analysts and credit-rating experts, were falling over themselves to say good things about Enron’s spectacular transformation from domestic pipeline business to fully integrated global energy company. 1 Harbour Road Despite it all, though, his family held together, offering him a measure of solace. For these transactions, Fastow owns two mementos: a CFO of the Year trophy and a prison ID. Lea Fastow, right, former Enron assistant treasurer and wife of ex-CFO Andrew Fastow, arrives at the federal courthouse Thursday in … Russ – you may have struck out again. It was resounding advice for a group of students that has grown comfortable with Case-Method Learning. Here is where things went wrong. Read his plea agreement. Article content (Bloomberg) — Andrew Fastow, who was at the center of the fraud which brought down Enron Corp., said he now accepts full responsibility for his actions after originally viewing himself as a “hero” while chief financial officer at the energy trading giant. Like Fastow, disgraced former CEO Bernie Ebbers of WorldCom learned this the hard way, when the Second Circuit Court of Appeals rejected his argument that the government had to prove violations of generally accepted accounting principles (GAAP) for his conviction on fraud and conspiracy to stand. She wrote a blog about former Enron Chief Financial Officer (CFO) Andrew Fastow’s virtual talk to Ivey students on March 23. View the profiles of professionals named "Andrew Fastow" on LinkedIn. “The algorithm pinpointed the day when the most existential decision was made,” Fastow said. It’s a difficult question. Former CFO-Enron “Rules vs Principles- Understanding the Difference Between What is Right to do and What You Have the Right to do.” Despite today’s more regulated and enlightened business environment, we continue to witness “Enron-esque” failures of corporate governance and compliance. For each, he spent a few minutes explaining the situation, and asked if the actions of the company were ethical. Because that means more money (hard cash) for Andersen via fees for accounting, auditing, & advisory services. Andrew Fastow. Short version : Andrew Fastow was the chief financial officer of Enron Corporation, an energy trading company based in Houston, Texas, until he was fired shortly before the company declared bankruptcy. The other was his contention that the Sarbanes-Oxley Act, created in 2002 to prevent another Enron debacle, will not stop another Enron from happening. I was 29 when I became a VP at a public company and signed the 2-line certification each quarter for Sarbanes-Oxley. 2016/10/03 at 1:01 PM - Lili Johnston - 4y ago 4. Yet, as Fastow admits, would not prevent the next Enron. Over the past two years, Fastow has been on the public speaking circuit. Perhaps Lou was smarter than all of them! Makes me sick! Enron’s infamous ex-CFO Fastow to testify. Fastow worked hard to enrich himself and others who could be of use to him. First off, Alex Gibney’s documentary, which is based on the book they talked about, is great. Said one Lehman Brothers analyst, “Thanks to Andy Fastow, Enron has been able to develop all these different businesses, which require huge amounts of capital, without diluting the stock price or deteriorating its credit quality—both of which actually have gone up. I don’t think I would want to be in the same room with him. What you can’t do, though, is successfully argue in a court of law that because you didn’t break the rules you are not guilty. The nation has just celebrated its 237th birthday. Andrew has 1 job listed on their profile. We process risk in a biased way.”, Pressed to elaborate, Fastow offered this example to me, a resident of Los Angeles: “You realize that virtually every seismologist agrees that California is 1,000 years overdue for a catastrophic earthquake. Let me play devil’s advocate here. However, none of them had personally suffered from Fastow’s criminal manipulations. Data is messy in the real world. Linkedin; Business News. 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