I believe Andy was extremely young when he first took the CFO position at Enron…low 30’s? His victims might be pleased to know that Fastow appears condemned to forever make his penance. I asked Fastow if he believes other CFOs ever feel compelled to exploit the rules. One was Enron lawyer Kristina Mordaunt, who in March 2000 was invited into a Fastow venture called Southampton Place. For the story, I interviewed Fastow, Enron’s CEO Kenneth L. Lay, and president and COO Jeffrey K. Skilling. Enron’s use of mark-to-market (or fair-value) accounting, instead of the historical cost method, allowed it to recast deals that had resulted in a loss and recognize them as future profit. He has invented a groundbreaking strategy.”. I reached out to three finance and accounting professionals who attended the “InTheBlack” summit. The CFO article on Fastow was the first in-depth piece of journalism to lay out the complex finance and accounting strategies that underpinned Enron’s meteoric rise. Fastow… Criminal charges were brought against some of the corporate officers, including Fastow, who went to prison for six years as a result. Bethany McLean, co-author (with Peter Elkind) of the book, “The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron,” has stated on more than one occasion that what Fastow perpetrated was “legal fraud,” an oxymoron suggesting that a CFO can follow the rules and exploit them to such an extent that the end result is fraud. Andersen, a common denominator in all of these giant frauds walks off with a slap of a double digit million fine, when they make double, maybe triple, digit billions. Andrew Fastow was the Chief Financial Officer of Enron when the company infamously collapsed into bankruptcy in December 2001. Although I was simply the messenger, I still felt guilt and shame. “SOX is only asking `Are you following the rules?’” Fastow said. His financial wizardry, as it turned out, was “smoke and mirrors” designed to mask Enron’s true financial performance. He then raised both arms and said, “How is it possible to go from a CFO of the year to federal prison for doing the same deals?”, The thesis of Fastow’s presentation is rules vs. principles, his argument that someone can follow the rulebook and still fail to do the right thing. Fastow started the session by sharing his personal cell phone number so students could ask him questions. In our conversations, Fastow repeated the fact that all his structured transactions were approved by Enron’s accountants, senior management, and board of directors; internal and external attorneys; bank attorneys; and its audit firm, Arthur Andersen. He provided 2 key pieces of info this author published in the article that fraud investigators could use now, but they’ll just wait until the next big fraud case to make changes. P.S. Contextualize the problem. In his right hand, he was holding his CFO Excellence trophy. For that, I deserved to go to prison.”. they were in charge of the fraud going on in the finances complex business model and unethical practices required that the company use limitations to misrepresents earnings and modify the balance sheet to indicate favorable performance. That was Fastow’s wrongdoing, according to him. Two years after the story appeared, Enron became the biggest accounting scandal in American history. There was a time, about 13 years ago, when Andrew Fastow had achieved the pinnacle of success and fame that could be expected of a chief financial officer. The choices will not appear on the last page of a booklet, separated neatly into buckets of right and wrong. Why did Jeffery Skilling and Andrew Fastow go to jail for their involvement in Enron’s collapse? In Part 1 of the Enron Scandal, we discussed interesting facts about Enron Scandal.Then we learned about how Enron was formed & Accounting treatment used. "Andrew S. Fastow, Former Enron Chief Financial Officer, Pleads Guilty, Settles Civil Fraud Charges and Agrees to Cooperate with Ongoing Investigation." “The algorithm pinpointed the day when the most existential decision was made,” Fastow said. One was his assertion that the factors causing the collapse of Enron are in play at other companies. Two of the algorithm designers for KeenCorp met Andrew Fastow in Amsterdam after he had finished a public-speaking gig. That, right there is wrong. However, in his speech, Fastow stressed that it is dangerous to regard business ethics as obvious. Fastow worked hard to enrich himself and others who could be of use to him. Fastow ended his speech with a simple but powerful call to action: “Set a reminder on your phone every year, even every quarter, with just two questions: One, am I following the rules? Here is where things went wrong. The nation has just celebrated its 237th birthday. Bank robber Willie Sutton spent his last years consulting with banks on theft-deterrent techniques. In our subsequent discussions via Skype, two of his comments stood out. View the profiles of professionals named "Andrew Fastow" on LinkedIn. Six years was not long enough to deter the next Enron lurking out there somewhere. Returning to each case, he revealed more information that left the audience with a better idea of the bigger picture. I had already seen the Enron doc so I couldn’t believe how many conflicts of interest I had to deal with. Fastow was charged with 78 counts of fraud for his central role in developing the off-balance-sheet special-purpose entities that led to the company’s collapse. “Fair value accounting is a good example of where ethics come into play, as it provides you with all these gray areas that allow for creative flexibility,” Fastow said. Why did Jeffery Skilling and Andrew Fastow go to jail for their involvement in Enron’s collapse? These gray areas stain all regulations, claimed Fastow, including the Sarbanes-Oxley legislation. I write this prologue for a reason. Andy didn’t just bend the rules and use loopholes, he structured deals and lied about side deals. The company filed for bankruptcy on December 2, 2001, putting thousands out of work. The imposition of Sarbanes-Oxley, a direct result of the Enron fraud, alone increased the cost, time, complexity, and personal liability related to the preparation of US financial statements. However, ethics and rules are not interchangeable. Print . Wanchai, Hong Kong, 551 Windermere Road It is, therefore, our responsibility as future business leaders to be responsible for and conscious of our own agency. What is one to make of Andy Fastow today? And in WorldCom employees were even encouraged to put all of their money in the pension funds which were then depleated by the CEO via a loan the board gave the CEO because his salary was also all in shares. Andrew Fastow knows about the gray areas. Enron’s infamous ex-CFO Fastow to testify. I don’t think I would want to be in the same room with him. Email. Lea Fastow, right, former Enron assistant treasurer and wife of ex-CFO Andrew Fastow, arrives at the federal courthouse Thursday in … Andrew has 1 job listed on their profile. It was clear. They said he appeared humbled by his ethical lapses and had something useful to offer. For each, he spent a few minutes explaining the situation, and asked if the actions of the company were ethical. Over the past two years, Fastow has been on the public speaking circuit. Fastow was perhaps the world’s best rule user of his time. At its height, Enron was the seventh largest company in America; its market capitalization hit $35 billion. Most of Enron’s employees had invested their retirement savings in the company’s stock. 1 Harbour Road Andrew Stuart Fastow was born on 22 December 1961, in Washington, D.C., USA, and is of Jewish descent. The upsurge in market capitalization that Fastow crowed about had been whittled down to nothing. Because it is disgusting. Yet, two years earlier, on June 28, 1999, when Enron seemingly was on top of the world, equally low scores were posted. Before Gerard Seijts of the Ian O. Ihnatowycz Institute for Leadership introduced Andrew Fastow as Enron’s last CFO, he reminded the crowd that Enron was FORTUNE Magazine’s Most Innovative Company in Corporate America for six consecutive years. Linkedin. “What makes Enron scary is that it was a bunch of people sitting in a brightly lit conference room, flanked by accountants and lawyers, thinking that what they were doing is the right thing to do, and yet they were committing fraud.”. Andersen was very favored indeed to have been able to go through time doing the same scheme across so many companies, for years, without any ‘guilty plea’ and to simply pay out, because for them it is quicker than waiting out a trial. And there was an intense company culture of being the smartest people that were compensated disproportionately for finding and exploiting loopholes in everything they did (hence the energy crisis in CA…which I find hard to believe Andy had anything to do with). We process risk in a biased way.”, Pressed to elaborate, Fastow offered this example to me, a resident of Los Angeles: “You realize that virtually every seismologist agrees that California is 1,000 years overdue for a catastrophic earthquake. Fastow’ harm extends well beyond the financial losses of Enron employees and investors. Andrew is a businessman, best known for being the chief financial officer of the energy trading company Enron Corporation, from which he was fired after the company was declared bankrupt leading to a criminal case. He caused hundreds of good, hard working families to lose their life savings. It explored his financial wizardry in helping turn a sleepy natural gas pipeline company into a blazing energy trading firm. Because that means more money (hard cash) for Andersen via fees for accounting, auditing, & advisory services. Andrew Fastow, former chief financial officer (CFO) of Enron Corp., a now-defunct energy trading company swept up in a massive fraud scandal in the early 2000s, warned a … She wrote a blog about former Enron Chief Financial Officer (CFO) Andrew Fastow’s virtual talk to Ivey students on March 23. In all three cases, there was an unequivocal sentiment that the companies were behaving unethically. Former Enron CFO, Andrew Fastow Photo credit: LinkedIn “The only reason I’m here is because I went to prison,” prefaced Andrew Fastow Tuesday evening, Sept. 27 in the jam-packed Crum Auditorium. As the audience was HBA1 students, most of us were only four years old in 2001. I realize he may have been fully aware things were past the point of “finding loopholes” by the time LJM appeared, but if that were me, I don’t know if I would have know how to pull the rip cord. Andy Fastow, the former Enron CFO, served six years in prison. Short version : Andrew Fastow was the chief financial officer of Enron Corporation, an energy trading company based in Houston, Texas, until he was fired shortly before the company declared bankruptcy. “But what I did was unethical and unprincipled. I received anonymous emailed death threats, perhaps from embittered employees and shareholders. Asked what boards of directors can do to feel confident that they have a clear picture of financial results, Fastow touted the data transparency provided by finance and accounting software. I am not an expert by any means and not have had work in Admin or Accounting but as a student of accounting, yes, I know a mere student, I have noticed that when you go and see how these ‘fraudsters” live and why they are “lost in lies” then read and see how their employees are ruined over that greed, then it hits home. The other was his contention that the Sarbanes-Oxley Act, created in 2002 to prevent another Enron debacle, will not stop another Enron from happening. Would you feel different about him if he went to the FBI, snitched everyone else out, and didn’t do any time? So, it dismisses or minimizes the risk.”, Making company results appear better than they are is actually not dissimilar. The firm reached out to Fastow in 2016 for an explanation. Other shareholders lost billions. By now his point is clear: Ethics in corporate governance, an even timelier subject these days, is crucial. This is where the term disgust comes into play. I remember Fastow well, as I wrote that October 1999 story. Former CFO-Enron “Rules vs Principles- Understanding the Difference Between What is Right to do and What You Have the Right to do.” Despite today’s more regulated and enlightened business environment, we continue to witness “Enron-esque” failures of corporate governance and compliance. Fastow and Co. caused irreparable harm to all finance professionals in the US and even abroad. “My just asking the question, ‘Am I following the rules?’ was insufficient,” Fastow said. Perhaps Lou was smarter than all of them! Your email address will not be published. Andy Fastow should not be allowed to profit at all…not one penny from his unethical behavior. (Fastow has since become an investor in KeenCorp, it should be noted.). He subsequently entered a plea agreement, forfeited his net worth of $24 million, and served a six-year prison sentence in a federal detention center in Oakdale, Louisiana. Next, Fastow reasoned to the audience that it was not fair that he gave us the cases without the accounting and legal rules governing each situation. But to say he shouldn’t be able to make money again is nuts. He further noted the possible use of an artificial intelligence (AI) tool developed by software provider KeenCorp that analyzes employee emails for evidence of negative tension in a company. 2016/10/03 at 1:01 PM - Lili Johnston - 4y ago 4. “CFOs know the answer they want—hitting the quarterly target,” he said. He responded with an analogy about Bill Belichick, head coach of the New England Patriots, who says he uses obscure football rules to his team’s competitive advantage and to make sure it wins. After we got introduced to the main player's Ken Lay & Jeff Skilling let us move to know about Andrew Fastow the CFO & … Terms of Use  |  Privacy Policy  |  Western University, COVID-19 Information for the Ivey and Western Community, Ian O. Ihnatowycz Institute for Leadership, A case competition with an international perspective, Outside the gates: Ivey gives back to London community, International Women’s Day 2018: Celebrating women at Ivey. Your email address will not be published. They intimidated market analysts, they manipulated energy in California that led to blackouts. Fastow: In His Own Words Andrew Fastow, former Enron CFO and convicted fraudster, to share his account at the ACFE Global Fraud Conference Go inside the mind of a fraudster during the closing session of the 24th Annual ACFE Global Fraud Conference, June 23-28 in Las Vegas, Nev. Andrew Fastow, former Enron CFO, was one of the accounting masterminds behind a complex web of off … Enron was before our time. T.H.A.N.K.S. N.O. As someone linked to him in perpetuity, I’m happy for that. See the complete profile on LinkedIn and discover Andrew’s connections and jobs at similar companies. What Fastow and Co. did was a lot more than bending the rules. London, Ontario, Canada. And that’s exactly what they were. The software’s analysis of emails that day intuited negative tension about the deals. And while the United States stands for many things, “forgiveness” is an indelible virtue that runs through America’s veins. Andrew Fastow, the former CFO of the bankrupt energy-trading firm Enron, admitted to the wrongs he committed, but also blamed the accountants at the defunct firm Arthur Andersen, in a speech at the Association of Certified Fraud Examiners Global Fraud Conference. Before Gerard Seijts of the Ian O. Ihnatowycz Institute for Leadership introduced Andrew Fastow as Enron’s last CFO, he reminded the crowd that Enron was FORTUNE Magazine’s Most Innovative Company in Corporate America for six consecutive years. In other words, you can commit fraud and still be technically within the rules. The more insidious and dangerous problem is the rule ‘users’—the rule exploiters who find the loopholes.”. Linkedin; Business News. "We chose Houston as our U.S. headquarters because Andy (Fastow) is a vital member of our team, and he said Houston was the best major city in which to conduct business in America." We had conflated the definitions of rules and principles. Sherry Lu is an HBA1 student at Ivey. With all that being said, he still should have gone to jail and he did. A U.S. Securities and Exchange Commission investigation followed, as did a criminal investigation by the U.S. Department of Justice. In 1999, a 37-year-old Andrew Fastow received a CFO Magazine award for capital structure work at Enron. Let me play devil’s advocate here. Twenty years ago, CFO gave Enron finance chief Andrew S. Fastow a CFO Excellence Award in the category of “capital structure management.” In a feature story naming him an award recipient, Fastow said, “Our story is one of a kind.” Little did he know how prophetic those words would soon become. For these transactions, Fastow owns two mementos: a CFO of the Year trophy and a prison ID. Accessed Feb. … When he asked us whether we thought these actions were unethical, the number of hands raised drastically decreased. This article is more than 10 years old. It’s a difficult question. I was there. Former Enron CFO Andrew Fastow could be a wild card for prosecutors and unlikable to jurors. Makes me sick! Provided the choice between a discernible right and wrong you can commit fraud and be... 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