Deck 7: Corporate Fraud

Question 1

Enron limited partnerships were named after all of the following except:

A)Jurassic Park characters.
B)birds.
C)Star Wars characters.
D)constellations.

Answer 1

D

Question 2

Lay's paying back loans with questionable assets accomplished with of the following besides putting money in his bank account?

A)Avoided alerting regulators
B)Took advantage of his co-conspirators
C)Was a last-ditch effort to improve the company's bottom line
D)Avoided substantial tax consequences

Answer 2

A

Question 3

29 executives and directors sold __________ worth of stock knowing Enron was in danger of collapse.

A)$1.4 million
B)$1.1 billion
C)$550 million
D)$5.6 million

Answer 3

B

Question 4

Enron's annual report issued in late 2000 proudly claimed to have __________ in two years.

A)tripled its revenue
B)doubled its revenue
C)quadrupled its revenue
D)matched the revenue for all previous years combined

Question 5

Skilling's resignation happened in conjunction with an energy crisis in what area?

A)California
B)The Southwest United States
C)Texas
D)The Northeast United States

Question 6

Andrew Fastow made more than $30 million while at Enron based on a _________ investment.

A)$1 million
B)zero out-of-pocket
C)few thousand dollar
D)$100,000

Question 7

Unlike the captain and the officers of the Titanic, Enron leadership:

A)grabbed the first lifeboat.
B)was not on board.
C)went down with the ship.
D)saved the ship.

Question 8

The __________ hypnotized by Enron's success missed a critical wake-up call with the Skilling resignation.

A)Enron board members
B)financial press
C)stockholders
D)regulators

Question 9

Jeff Skilling's reign as a successful CEO came to an end with his resignation after only:

A)two years.
B)18 months.
C)five months.
D)one year.

Question 10

Arthur Andersen, the accounting firm who audited Enron and was also paid for consulting work, met shortly before Jeff Skilling became CEO and agreed that all of the following were matters of concern about Enron except:

A)the annual report was a house of cards.
B)the cash flow was the only accurate part of the annual report.
C)the company had been engaging in risky and deceptive accounting practices.
D)limited partnerships were being used to disguise debt.

Question 11

Lay told securities analyst that the major loss was caused by:

A)an accounting error.
B)downturn in the energy market.
C)employee embezzlement.
D)bad investments.

Question 12

Enron experienced the beginning of the end with major losses in the third quarter of 2001.The company had to explain a __________ loss to corporate credit-rating agencies.

A)$250 million
B)$638 million
C)$1 billion
D)$2 billion

Question 13

When Ken Lay stepped down as CEO in 2000 he planned to:

A)start a new company.
B)take early retirement and travel.
C)pursue political office.
D)become more involved in charity work.

Question 14

Enron's limited partnerships were all of the following except:

A)a way to raise money.
B)a tool permitting insiders to reap huge profits.
C)used to conceal colossal debt.
D)a mechanism to limit employee losses.

Question 15

Which of the following is true about limited partnerships?

A)A common way to share losses
B)A legal way to raise venture capital
C)A method to divide responsibility
D)A way to limit the power of executives

Question 16

Enron may have been involved in __________ limited partnerships and shell companies.

A)500
B)3000
C)5000
D)1000

Question 17

Enron, the seventh-largest corporation in the United States, lost __________ % of its value in a matter of months.

A)85
B)60
C)99
D)50

Question 18

The whistleblower in the Enron case was:

A)Vinson Elkins.
B)J.Clifford Baxter.
C)Sherron Watkins.
D)A.Andersen.

Question 19

Ken Lay, in an apparent move toward self-preservation, borrowed $70 million from the company after losses were announced and paid back the money with:

A)partnership interests.
B)Enron stock.
C)his wife's real estate holdings purchased with money she received from Enron.
D)money he had already stolen.

Question 20

Lay's connections and contributions to political candidates resulted in the spouse of what elected official being named to the Enron board?

A)Kay Bailey Hutcheson
B)Phil Gramm
C)Tom DeLay
D)Barack Obama

Question 21

Enron seemed more interested in selling its own stock than in selling anything else.As a result, the Enron debacle can be characterized as a gigantic version of all of the following except:

A)insider trading scam.
B)pump and dump operation.
C)confidence game.
D)Ponzi scheme.

Question 22

WorldCom has cooked its books by __________. The net effect of this was to make a huge loss look like a sizeable profit.

A)classifying ordinary expenses as capital expenditures
B)misrepresenting bonuses paid to Ebbers and others
C)maintaining two set of books-one with real expenses and cash flow and the other with false numbers
D)exaggerating cash flow

Question 23

Explanations of the Enron collapse include all of the following except:

A)auditors who failed to audit.
B)over-analysis by stock analysts.
C)inattentive board of directors.
D)executive compensation plans.

Question 24

Jeff Skilling was the Enron executive receiving the greatest prison sentence.

Question 25

The Enron whistleblower was concerned about advice from a certain law firm because of:

A)malpractice lawsuits against the firm.
B)its conflict of interest because of partnership fees.
C)family ties between Enron and the law firm.
D)the law firm's investment in Enron stock.

Question 26

During the Andersen criminal trial, the judge made a controversial ruling that was very adverse to the defendant.The court ruled that evidence of __________ could be admitted for consideration by the jury.

A)Andersen internal e-mails concerning the Enron partnerships
B)Andersen's history of willingness to agree with client demands and approve questionable financial statements
C)Andersen's discussions with Enron lawyers about how to conceal wrongdoing
D)Andersen's shredding of documents

Question 27

An Enron executive would eventually plead guilty to price manipulation related to the energy crisis referenced previously. The following are all elements of Enron machinations in the energy crisis except:

A)selling the same store of emergency power to three different communities.
B)selling nonexistent emergency back-up power.
C)using false energy schedules to create appearance of congestion.
D)payments to Enron for easing fake congestion.

Question 28

The financial press, mesmerized by Enron's dazzling bottom line, missed a critical wake-up call.

Question 29

WorldCom and Enron had all of the following in common except:

A)an executive compensation plan to die for.
B)a CFO who was implicated in the scandal simply for not doing his job.
C)a CEO who borrowed large sums from the company.
D)the same accountant.

Question 30

Ken Lay stepped down as CEO from Enron to start a new company.

Question 31

Fastow would eventually cooperate with the government and cooperate with the government and testify against Lay and Skilling for which reason?

A)Government videotapes of meetings
B)Government threats against his father-in-law
C)Indictment of wife
D)1000-year sentence he was facing

Question 32

The deregulation of the energy market in the mid-1990s provided a golden opportunity for Enron.

Question 33

Ken Lay borrowed $70 million from the company after losses were announced and paid back the money with MCI stock.

Question 34

A.Andersen was the whistleblower in the Enron case.

Question 35

Directors of privately held corporations' paramount responsibility is to protect the best interests of shareholders.

Question 36

Arthur Andersen demonstrated its culpability when it suddenly:

A)withdrew from Enron representation.
B)proposed revising the annual report.
C)became concerned about conflict of interest policy.
D)paid an unusual amount of attention to its document retention policy.

Question 37

Enron's profitability was largely an article of faith.

Question 38

Jeff Skilling's resignation happened in conjunction with an energy crisis in Texas.

Question 39

Post mortems of the Enron collapse have targeted the "Casablanca maneuver" by members of the Enron board of directors. What does this reference mean?

A)Distancing themselves by being unavailable for questioning
B)Secretly furnishing information to the government
C)Pointing an accusatory finger at everyone but themselves
D)Denying any knowledge of questionable activity despite damming evidence

Question 40

Limited partnerships are typically set as a perfectly legal way to raise venture capital.

Question 41

How do you think corporate fraud affects consumer confidence in the economy?

Question 42

Discuss what limited partnerships are. How did Enron used them to conceal its debt?

Question 43

What commonalities exist among the corporate disasters identified in this chapter? Are there some types of wrongdoing that are more problematic than others? Why or why not?

Question 44

________________ was a financial services company best known as a commodities and futures broker.

Question 45

Jeff Skilling's resignation happened in conjunction with an energy crisis in ________________.

Question 46

Arthur Andersen was the accounting firm that ________________ WorldCom's books.

Question 47

The ________________ press, hypnotized by Enron's success, missed a critical wake-up call with the resignation of Jeff Skilling.

Question 48

Andrew Fastow was the Chief Financial Officer of ________________.

Question 49

WorldCom cooked its books by classifying ordinary expenses as ________________ expenditures.

Question 50

Enron has been dubbed as "Greed Incorporated" by former employees.

Question 51

Qwest was accused of artificially pumping up its revenue over a period of several years.

Question 52

What role did the financial press play in the Enron debacle? What happenings should have been noticed, and why?

Question 53

WorldCom cooked its books by classifying ordinary expenses as capital expenditures.

Question 54

Dennis Kozlowski was the CEO behind Adelphia at the time the company filed for bankruptcy.

Question 55

The Federal National Mortgage Association (FNMA) is commonly known as ________________ Mae.

Question 56

What part did Wall Street, with its stockbrokers, investment advisors, and stock analysts, play in the Enron debacle?

Question 57

The purpose of Fannie Mae is to purchase and securitize mortgages in order to ensure that funds are consistently available to the institutions that lend money to home buyers.

Question 58

In 2000, Enron proudly claimed to have ________________ its revenue in just two years.

Question 59

Lost shareholder equity for ________________ was estimated at $63 billion.

Question 60

Identify the major players in the Enron scandal. Discuss their jobs, what effects their conduct had on Enron, what effects their conduct had on stock prices, and their history with the company. How did they profit from their activities?

Question 61

How has the Sarbanes-Oxley Act changed the responsibility of people involved in companies whose stock is publicly traded? Can accounting firms still audit and accept consulting fees? How about directors and company officers-are their duties different now?