Welcome to the Daily Compliance News. Each day, Tom Fox, the Voice of Compliance, brings you compliance-related stories to start your day. Sit back, enjoy a cup of morning coffee, and listen to the Daily Compliance News. All from the Compliance Podcast Network. Each day we consider four stories from the business world: compliance, ethics, risk management, leadership, or general interest for the compliance professional.
Stories we are following in today’s edition:
Super Sunday is here. The NFL finally gets the game in the spotlight after weeks of brutal PR. Who ya got? “Who Dey” or Hollywood? Tom and Jay are back look at some of the week’s top compliance and ethics stories this week in the Super Sunday edition.
Stories
1. Do compliance professionals need a union? Dick Cassin in the FCPA Blog.
2. Jailed employees under the FCPA. Bill Jacobsen explores in the FCPA Blog.
3. New workplace normal for policies and training. Ingrid Freeden in Risk and Compliance Matters.
4. New SOE risk management framework. Alexandra Gillies and Thomas Shipley in the FCPA Blog.
5. 3 questions from KPMG and Carillion tribunal. Neil Hodge in Compliance Week. (sub req’d)
6. SFO investigation protocol announced. Mengqi Sun in the WSJ Risk and Compliance Journal.
7. Companies yet again ask EU for rules around ESG. Lawrence Heim in practicalESG.
8. CCOs say self-reporting a hard sell. Evren Esen in CCI.
9. What comes next for ABC and the Olympics? Andy Spalding in GAB.
10. The Spotify imbroglio. Matt Kelly with a 2-parter in Radical Compliance, Part 1 and Part 2.
Podcasts and More
11. In February on The Compliance Life, I visit with Ellen Smith, a former Director of Trade Compliance who recently started her own consulting firm. In Part 1, she discussed her academic background and early professional career. InPart 2, Ellen moves in-house.
12. Tom and Richard Lummis begin their annual review of Best Picturing winning movies on 12 O’Clock High, a podcast on business leadership. In Part 1 they review Schindler’s List for leadership and ethical lessons. Upcoming episodes will look at Gladiator, A Man for All Seasons and Platoon.
13. CCI releases new e-book from Tom “FCPA 2021 Year in Review”. Available free from CCI.
14. Trial of the Century-the Enron Trial. This week, Tom premiered a 5-part podcast series on the Enron Trial with Loren Steffy, who covered the trial for the Houston Chronicle. In Part 1, run up to the trial. In Part 2, the trial begins. In Part 3, the star witnesses and key testimony. In Part 4, the Verdict comes in. In Part 5, what did it all mean. It is be available on the Compliance Podcast Network, Megaphone, iTunes, Spotify and all other top podcast platforms.
15. In a special 2-part series on the Sunday Book Review, Tom looks at the Notre Dame Deloitte Center for Ethical Leadership’s top books on ethical leadership from 2021. Part 1 and Part 2.
Tom Fox is the Voice of Compliance and can be reached at tfox@tfoxlaw.com. Jay Rosen is Mr. Monitor and can be reached at jrosen@affiliatedmonitors.com.
The final episode in The Enron Trial series is here. In part 5, Tom Fox and Loren Steffy take a look at Enron’s legacy, fifteen years after the trial.
Why Should the Trial Be Remembered?
“What the trial really brought home for everyone was the human toll that these kinds of corporate malfeasance cases can have,” explains Loren. When companies try to do whatever is necessary to keep their stock prices up at all costs, a lot of long-term harm comes out of it, “Enron wasn’t only an accounting failure… above all else, it was a human failure.”
Enron’s Innovations
Looking back on Enron’s successes, you begin to wonder, ‘What if?’ Loren highlights how unfortunately it panned out for the corporation, stating that, “They really were out in front of a lot of these trends. Unfortunately they shot themselves in the foot with their accounting.”
Fifteen Years Later – What Has Changed?
There’s a lot that can be learned from the fall of Enron; corporate responsibility is viewed differently, now. It’s no longer only about shareholder value, but also an improved focus on corporate governance. “We’ve realised that our corporations have greater responsibilities in that they have responsibilities to their employees, and they have responsibilities to their communities,” Loren tells Tom.
RESOURCES
Loren Steffy | LinkedIn | Twitter
Loren Steffy and Tom Fox have another conversation as The Enron Trial series nears the end. In episode 4, Loren Steffy recalls the aftermath of the guilty verdict.
The Verdict and Counts of Conviction
Jeffrey Skilling was convicted of 19 counts, his sentence totaling 185 years, and Kenneth Lay was looking at 120 years in prison. Skilling was actually sentenced to 17 years, which was then reduced to 12. Kenneth Lay passed away prior to his sentencing, and so, the verdict was vacated.
The Prosecution and Defence
“The defense team was stunned,” said Loren, “I think that the attorneys, as well as the defendants, believed that they were going to get a not guilty verdict.” The prosecution, on the other hand, felt a great sense of relief and accomplishment; this was an uphill battle from a prosecution standpoint in many ways. Jeffrey Skilling appeared stoic; though there were stories that indicated he disagreed with the verdict, he seemed to have accepted his fate.
The Jurors and The Judge
Loren commends the jurors, believing they deserve a lot of credit for their involvement in the trial. “I think they did a really good job of listening to the arguments and considering them,” he said. What was interesting, to him, was their response to Andrew Fastow’s testimony, one that Loren found to be credible, “It was like that didn’t really factor into their decision nearly as much as we thought it would when we were watching all of it unfold.” According to him, the judge certainly understood the magnitude of the case, and tried to be very careful in his administration of the case to avoid mistakes that could have led to a mistrial, “Everyone really understood that this was a big trial, and they were playing on the big stage.”
RESOURCES
Loren Steffy | LinkedIn | Twitter
Loren Steffy and Tom Fox sit down for part 3 of The Enron Trial series. In this episode, they discuss some of the significant testimonies by witnesses, and the effect they had on the trial.
The Star Witnesses
Loren names Andrew Fastow, former CFO, and Ben Glisan, former Treasurer, as the star witnesses in the trial. However, the most moving testimony for him, as an observer, was that of Joanne Cortez, Enron’s bookkeeper. “She was a very credible witness,” said Loren, “and to me, it just showed how there were so many innocent people at Enron that didn’t want to believe what was happening. And when they finally found it out, there was just no denying it.”
Employee Losses
The goal of the prosecutors was to emphasize the real-world consequences of Enron’s malfeasance. Many employees were encouraged to invest their entire retirement savings into the company, and ended up paying a significant price. Loren details the heartbreaking story of a pipeline worker by the name of Johnnie Nelson. “He didn’t really know anything about the stock market,” Loren tells Tom. “Enron was a good company to work for, and they told him, ‘Take your retirement money, buy the stock. It’ll benefit you in the long run.’ He did it because that’s what they told him to do. Then, one day he comes into the field office, and everybody’s long in the face and looking scared, and he realizes he’s basically lost everything he’s been working for.”
Executive Testimonies
The testimonies of Jeffrey Skilling and Kenneth Lay mimicked their personalities; Skilling being very professorial, and Lay acting like he was conducting an investor seminar. “I think they were very convinced that they were going to get off, or at least get a light sentence,” Loren told Tom. Ben Glisan’s testimony was very damaging to Kenneth Lay, revealing that Lay was more aware of what was happening at Enron than he let on.
RESOURCES
Loren Steffy | LinkedIn | Twitter
Loren Steffy and Tom Fox are back for another episode in The Enron Trial series. Here, Loren discusses the atmosphere in the courthouse, and what he observed over the course of the five-month-long trial.
The Trial Begins
“This was a criminal trial, but it was the trial of the century,” Loren believes; not only due to the company’s popularity, but because prosecution of executives was something that was not often seen. They are very difficult cases to prove, and Enron was no different.
The Prosecutor’s Strategy
The prosecutor avoided going into too much accounting detail, and instead kept the focus on the emotional aspect of the trial. “Enron was a great company to work for … People wanted to work there; they thought they were doing all these innovative things. Nobody wanted to lose their position in the company. They didn’t wanna lose their jobs, and they wound up getting caught up in this,” Loren tells Tom.
The Defence
The defence had a really tough time. Loren recounts one moment where Kenneth Lay was on the stand and openly questioned his attorney, “A couple of defence attorneys that were providing perspective said, ‘This is the turning point in the case.’ I mean, that was just so devastating that, you know, you just showed the jury that you don’t trust your own lawyer.” Jeffrey Skilling’s legal team employed an unusual tactic of commenting anonymously under Houston Chronicle blogs. In court, screenshots of these comments were actually utilised when the team made a motion to have the trial moved. “It was interesting,” Loren laughs about it.
The Closing Arguments
Again, it was less about accounting, and more about the deliberate attempt that was made to bamboozle their shareholders and employees – many people were hurt by it. “It wasn’t just a harmless lie,” said Loren, “there were real world consequences.”
RESOURCES
Loren Steffy | LinkedIn | Twitter
The five-part series on the Enron Trial kicks off with Tom Fox and actual trial attendee, Loren Steffy. This first episode highlights the major events that led up to the beginning of the trial, many years ago.
Enron in the Early Years
Enron was once the seventh biggest publicly traded company in America. When natural gas trading was deregulated, Enron made a name for themselves by creating a platform that allowed for easy trade of natural gas contracts.
The Downfall of Enron
As Enron grew, they attempted to expand their trading mentality to other markets. There was intense pressure to prove their successes due to being publicly traded, and eventually, they found a way to hide debt and fabricate numbers. However, in mid 2001, their stock began to fall and the questions flooded in. Enron’s lies quickly unraveled, leaving them bankrupt by early December – they went from being the seventh largest company in America, to being broke.
The Arrest and Key Charges
One of the stunning things about Enron, as a corporate scandal, was that it was really the first time this sort of widespread fraud was seen. In the case of Enron, there were dozens of indictments, but many unindicted co-conspirators. Most of the executives cut plea deals, agreeing to testify against the chairman, Kenneth Lay, and former CEO, Jeffrey Skilling. Though there had been past cases of corporate malfeasance, there had never before been a corporate culture so focused on malfeasance as Enron Corporation. “Looking back at Enron,” Loren says, “it was a culture that really encouraged people to break the rules.”
Off-the-books Partnerships
Enron’s partnerships began with an operation called JEDI, done with a small oil and gas company, CODA Energy. Their debt was placed into this entity, and essentially, hidden. This became the model that they used, eventually being done on a larger scale with more interlocking companies passing debt back and forth. A partnership with LJM was where most of the debt was parked. Conflicting documents related to this partnership are what led to the exposure of Enron’s sharp practice.
Other famous partnerships included Enron Broadband, and the Nigerian barge deal.
Andrew Fastow’s Role
Andrew was the CFO at Enron, and quite the unusual one, at that. He was more of a behind-the-scenes guy in the company, but became a critical player in the trial. Agreeing to a plea deal, he testified against Lay and Skilling in exchange for a ten year sentence. As an observer in the trial, Loren stated that, “His testimony was very striking. He seemed very sincere in the fact that he believed that the company had done things wrong, and that he had committed crimes.”
RESOURCES
Loren Steffy | LinkedIn | Twitter
In this episode of The Ethics and Compliance Library Podcast features ‘The Smartest Guys in the Room,’ by Peter Elkind and Bethany McLean. After discussing the Enron scandal, host Lauren Siegel interviews Peter followed by Sherron Watkins, the Enron whistleblower. Many have either read the book or watched the documentary and know the ins and outs of this scandal, but this episode takes it a step further than what you may already know. It explores the failures of the system, not just of the company, diving into speak up culture and how to avoid becoming the next Enron. As you listen, ask yourself how you are building a culture of trust internally. Ask yourself whether your organization is asking the necessary questions of leadership and employees. Ask yourself if the tone from the top is one encouraging that trust and questioning. This case study is not just for Ethics and Compliance leaders, but also leadership and all employees alike. The conversation will continue for all in the CONVERGE Community.
You can also check out the topic and issues in the CONVERGE thread here.
Welcome to the first episode of Fraud Eats Strategy – the newest show on the Compliance Podcast Episode.
In this first episode of Fraud Eats Strategy with Scott Moritz, he speaks to former Enron Whistleblower Sherron Watkins about the many red flags that were ignored, the ill-fated board decisions and the wide-ranging complicity that led to Enron’s implosion.
Sherron’s memo to former Enron leadership warned of the accounting irregularities that would cause the company to “implode in a wave of accounting scandals” and sparked what is now one of the biggest fraud and misconduct cases in American history.
Scott Moritz is a leading authority on white-collar crime, anti-corruption, and in the evaluation, design, remediation, implementation, and administration of corporate compliance programs, codes of conduct. He is also considered an authority in the establishment, training, and oversight of the investigative protocols carried out by financial intelligence, corporate security, and internal audit units.
MARCH 15, 2019 BY TOM FOX
In today’s edition of Daily Compliance News:
