Casestudies Flashcards
1
Q
The Siemens case
A
- end of the 90s- started getting accusations of bribery
- 2006- a former employee explained that secret accounts existed outside Germany and were used to pay bribes for contracts
- after an investigation five employees were taken into custody for being engaged in fraud
- 100 millón euros diverted to Dubai and channeled into Swiss accounts- suspected this money was to ensure attractive contracts for the 2004 Olympic Games in Athens
- 2006- Siemens had tried to bribe AUB, a small union, to gain support for its policies
- 2007- one of the senior executives arrested, bringing out the “black money” scandal –> later on two more managers were convicted for bribery and corruption (had paid kickbacks to two officials in an Italian, state-owned energy company) –> justified themselves by saying the employees had asked for money in return for the contract
- even more cases like that were discovered in different countries–> fined 201 million euros in oct 2007
- April 2007- the CEO stepped down after his confidence was lost even though he was not directly implicated in the scandals
2
Q
Slush funds
A
An auxiliary monetary account or reserve fund generally used for illegal payments
3
Q
The ENRON case
A
- established in 1985 as a traditional pipeline company distributing natural gas during the early years of the liberalization of energy markets in the US
- Enron decided to start buying and selling natural gas- guaranteed long-term fixed prices and became the leading company in the sector by 1995
- began to act as a broker shortly after
- became one of the largest companies in North America in terms of sale but behind the fasade they had a lot of debt
- invested abroad in power plants as a solution to the debt problem but this did not go well –> some Enron managers started manipulating its books to deliver elusive earnings growth (headed by Andrew Foster, CFO and vice-president)
- started using a technique called “mark-to-market accounting” which is permitted by American law however the application in this case was questionable
- also set up a complex network of SPEs to hedge the value of certain assets to take on some current and future debts (turned out to be 3000 SPEs)
- Enron avoided consolidation of the SPEs due to a loophole in the accounting rules = the financial situation by Enron’s balance sheet was far from the real picture
- The burst of the internet bubble in 2000 led to a tumbling in their stock price, and this dropped even further when they revealed a $618 million loss in oct 2001
- filed for bankruptcy in December 2001
- an investigation was opened and by July 2005 there had been 16 guilty pleas and 6 convictions
- after the fall of Enron the Sabanes-Oxley Act was promulgated in the US in 2002- the most significant change in US security law since 1930s and contained measures to avoid situations such as those of Enron
- it introduced more transparency in corporate accounting practices –> some do complain that compliance with it is very costly for companies
4
Q
SPEs
A
Special purpose entities
5
Q
The Arthur Anderson case
A
- one of the “Big five” in the 90s
- integrity was very important for Arthur Anderson
- “think straight, talk straight”- the accountants responsibility was to investors, not to their clients
- expanded into consulting to grow profit but it compromised their auditing independence
- 1989- split into Arthur Andersen and Andersen Consulting, to separate units of Andersen Worldwide
- 2001- Andersen Consulting had to change their name to Accenture
- June 2001- the SEC issued a cease-and-desist order against Andersen regarding security violations for its participation in a 1,7 billion dollar accounting fraud at Waste Management
- June 2002- convicted of obstruction of justice and shredding documents related to the Enron case
- The CEO of AA notified the SEC about David Duncan, the man on the Enron case, and the shredding of documents
- After this the firm lost all of its clients
- The new leaders had changed the view from integrity to profit and corrupted it by greed
6
Q
SEC
A
the Securities and Exchange Commission
- the US government agency responsible for enforcing the federal securities laws and regulating the security industry/ stock market
