LEGL 2700 Chapter Notes - Chapter 17: Andrew Fastow, Mail And Wire Fraud, Jeffrey Skilling

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CHAPTER 17: SECURITIES REGULATION
1. Enron: Smartest Guy in the Room don’t need to know sentencing time or money owed back
a. Banks were involved in hiding the loans and the asset transfers
1) Were sued in a class action and settled for a 2 billion $$ for each investor
b. Ken Lay Founder, chairman, CEO (once Skilling resigned) of Enron; told them to keep
going when all signs said stop, died before sentencing so family didn’t have to pay for
anything
c. Jeff Skilling original CEO, wanted Enron to be stock market of natural gas, Darwinian
view, rank and yank employees, convicted of security fraud, insider trading, 24 years in
prison
d. Andy Fastow got $30 mil from side stock negotiations, CFO, losing cash bases but
increasing profits (fantasy), actually cooperated with prosecution and testified against
others, showed the prosecutors how it was done, 6 years in prison, created fake
partners like LJM to hide their debt
e. Arthur Anderson accounting firm, handled the auditing, obstructed justice, got shut
down
f. Profited from internal stock, shredded evidence, invested in )ndia but )ndia couldn’t
afford the power, manipulated financial statements so they look successful, mark to
market (predict how much money something will generate and then not adjust if it was
less), energy traders committed wire fraud and had to forfeit their money
2. What is a security?
a. Is this investment in a common business activity?
b. Is the investment based on a reasonable expectation of profits?
c. Will these profits be earned through the efforts of someone other than the investor?
d. If yes to all three, then a security exists
e. Think of it as one person investing money and relying on another to manage it for profit
f. Also must comply with federal securities laws
3. Securities and Exchange Commission (SEC) agency
a. Responsible for administering federal securities laws possesses both quasi-legislative
and quasi-judicial powers
4. Securities Act of 1933 (one time disclosure law) all about when you FIRST go public (around
time of the Great Depression)
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