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Acc 260 Week 2 Assignment Worldcom Essay

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Enron

1. Which segment of its operations got Enron into difficulties?

I believe that the main segment of operations that led to difficulties in Enron was Chewco. Chewco required an outside equity of only three percent from an investor which was absent. The 3% interest, or $11.5 million dollars, was made to look like it was invested from Chewco’s general and limited partners (Brooks, 2007, p. 97)   Then the development of LJM1 and LJM2 were used to make the Enron financial statements seem favorable (Brooks, 2007, p. 100-101). Enron employee, Kopper, was managing Chewco was reporting to Fastow. These employees were not looking out for the best interest of Enron or the investors and instead were interested in their own benefits.

3. Did Enron’s directors understand how profits were being made in this segment? Why or why not?

It is speculated that the Enron directors did understand how the profits were being made though it is questionable whether or not it is true. It seems possible that Jeffrey Skilling was aware of how the profits were being made because he was aware that Michael Kopper was acting as manager of Chewco and an Enron employee (Brooks, 2007, p.97). It was necessary for Enron to have an outside investor of at least three percent of Chewco for Enron to reflect the Chewco activities. Enron attorneys had also advised Enron against using an employee when Andrew Fastow proposed that he be appointed to manage Chewco. This would require a proxy disclosure (Brooks, 2009, p. 97).   It seems as though Jeffrey Skilling understood the wrongdoing by placing Kopper as the manager but did not say anything since the design was working.

5. Ken Lay was the chair of the board and the CEO for much of the time.   How did this probably contribute to the lack of proper guidance?

The board acts as a check system on the CEO to make sure the company is working in the interest of the stakeholders. There was a conflict of interest with Ken Lay. Ken Lay was working a...

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