Enron: The Smartest Guys in the Room (The Amazing Rise and Scandalous Fall of Enron)

Some background on capitalism

Discuss these questions with the members of your group. Focus on using correct grammar and simple language in your explanations.

1. How do companies raise capital when they want to expand?

2. What different jobs do analysts and traders perform in investment banks? How can there be a conflict of interest between those two functions?

3. How did Enron “cook the books”?

4. What innovation did Ken Lay and Jeff Skilling bring to the energy business?

5. What did “mart-to-market accounting” allow Enron to do that made it easy for Enron to pretend to be making lots of money? Why is this system open to manipulation in the energy business?

Vocabulary

Match these financial and legal terms with their definitions.

1. to go bankrupt	A. the practice of bending accounting rules to disguise questionable financial activities
2. insiders	B. someone who buys and sells things, including financial instruments, like stocks, bonds, derivatives
3. to shred evidence	C. the amount of money that a company makes or loses
4. to hide debt	D. something that has been left out of a law or legal document that allows people to avoid obeying it
5. creative accounting	E. people with knowledge available only to those inside a company
6. to do the math	F. to destroy documents that could be used as proof in a court of law
7. the facts just don’t add up	G. to add up the numbers and draw the right conclusion from them
8. the bottom line	H. to conceal money the company owes
9. trader	I. this does not make sense
10. loophole	J. to go out of business

Watch the movie “Enron: The Smartest Guys in the Room (The Amazing Rise and Scandalous Fall of Enron)” at http://www.rottentomatoes.com/m/enron_the_smartest_guys_in_the_room/

Enron: The Smartest Guys in the Room

UNDERSTANDING THE DEBACLE (something that fails completely in an embarrassing way)

Discuss these questions in your group. Be prepared to justify your answers to the class. Try to use the suggested vocabulary shown in parentheses.

1. At the beginning of the film, the journalist Bethany McLean says that people think the Enron story is about numbers but it is really about people; it is a “human tragedy.” Why does she think that? (Fatal flaws: intolerance, greed, to get away with something)

2. Let’s do the numbers! Use these numbers to fill in the facts on Enron. You will need one number twice.

1 2 7 16 24 30 66 70 20,000 300

A .______________ largest corporation in the US

B. valued at _________________billion dollars before collapse

C. took ________________ years to build and _________ days to bankrupt

D. _____________employees lost jobs

E. $ __________million: money made by Andrew Fastow

F. $ __________million: money lost by Mr. and Mrs. Ken Lay

G. $ __________billion: amount of stock sold by insiders before bankruptcy

H. $ __________amount of pension and retirement funds squandered

I. $ ___________amount of money made by Jeff Skilling, who sold his stock before the company foundered.

3. What do you know about Ken Lay’s background?

4. What, if any, political connections did Mr. Lay have? How can you explain those connections? (subsidies, deregulation)

5. Check the things did not happen in the Enron Oil Scandal (also known as the Valhalla Scandal).

1. two traders misappropriated Enron money

2. one trader set up off-shore accounts to hide profits

3. two sets of accounting books were kept

4. bank records were falsified

5. auditors reported that the traders were manipulating earnings

6. the company lost $90 million in five days

7. an Enron executive from Houston threatened to kill the traders if they did not show him the real books

8. the traders made a lot of money for Enron

9. the rough traders were fired

10. Ken Lay put honesty before profits

6. How is the Enron sketch (short, funny play) "HFV: Hypothetical Future Value Accounting" related to the mart-to-market approach Jeff Skilling asked the SEC to approve for Enron? (auditors, loopholes)

7. Describe what it was like to work at Enron when Jeff Skilling was in charge, (rank and yank, macho culture, nerds, guys with spikes, notorious trips)

8. What was Lou Pai like? How did he fit into the Enron corporate culture? (Ruthless)

9. What happened to the energy analyst John Olson from Merrill Lynch when he voiced skepticism about Enron’s ability to continually show profits on its balance sheet?

10. What kind of publicity was Enron getting prior to the Fortune article “Is Enron Overpriced?” (Poster child for the new economy)

11. Bethany McLean from Fortune called Jeff Skilling and asked him, “How exactly does Enron make money?” What was Jeff Skilling’s response?

12. The movie calls Andrew Fastow, the Chief Financial Officer, “The Sorcerer’s Apprentice.” What did Andy do to deserve this name?

13. The movie quotes Lenin, who used the term “Useful Idiots” to describe gullible, well-intentioned people in Western democracies who became apologists (supporters) of the Soviet state, despite its brutality, because they thought that the socialist ideology behind the brutality would eventually produce a better society. How were the investment banks the “useful idiots” for Enron?

14. How did Enron contribute to the energy crisis in California? (manipulation, blackouts)

15. In the summer of 2001, Jeff Skilling resigned “out of the blue.” (unexpectedly) The film describes his departure as “a rat leaving a sinking ship.” Why?

16. At that time Sherron Watkins wrote a letter to Ken Lay in which she suggested that there might be massive accounting fraud going on. How was her whistle-blowing greeted?

17. True or False

The accounting firm Arthur Andersen shredded documents to conceal its complicity in Enron’s irregular accounting practices.

LANGUAGE STUDY

Culture-based idioms used in the film

Explain how each of these idioms is related to the Enron scandal.

1. That old black magic – magic believed to be done with the help of evil spirits and used for evil purposes.

2. The Emperor has no clothes.

Refers to a story by Hans Christian Anderson in which an emperor is tricked into paying a lot of money for some new clothes. The clothes do not exist, but the emperor is told that they are magic clothes which cannot be seen by stupid people. Not wanting to say he cannot see them himself, the emperor wears clothes in a public procession and everyone pretends to see and admire the clothes until a child shouts, “But he doesn't have anything on!” This is often used to describe situations where there is really nothing there, but nobody will say it.

3. Never was heard a discouraging word.

There is an American folk song called “Home on the Range.” Its words are often used and repeated:

Oh give me a home where the buffalo roam,

Where the deer and the antelope play:

Where seldom is heard a discouraging word.

And the skies are not cloudy all day.

Like rats deserting a sinking ship, a phrase used when people are leaving a person or company that is having a lot of difficulties. Like the rats on an old ship, they want to leave before it finally sinks.

4. The Sorcerer’s Apprentice

A piece of music by the French composer Paul Dukas (1865 – 1935), based on a poem by Goethe about a boy who works for a sorcerer and lazily tries to do his work using magic, but everything goes wrong.

6. To kill the golden goose

A magical goose in an old story, which laid one golden egg each day. The owners of the goose tried to open the goose up, to get out all the eggs that were inside, but in doing so they killed the goose.

7. The inmates have taken over the asylum.

When there is no one in charge of a company or a group of people, then the mob takes control.

8. I did not have business relations with that man. This is a spoof of President Clinton’s famous denial that he did not have “sexual relations with that woman,” i.e. Monica Lewinsky.

DISCUSSION

Who’s who? Identify the people who played these roles in the Enron scandal.

Sharron Watkins; Lou Pai; Ken Lay and Jeff Skilling; Jeff Skilling; Ken Lay; Trader at Enron Oil; Andy Fastow ; John Olson

1. An apostle of deregulation (Someone with strong belief in an idea.)

2. Rogue (Member of a group who does not behave like others in group and is considered dangerous.)

3. A whistle-blower (Person who reports dishonest activity within an organization to someone in authority.)

4. A fall-guy

(Someone who is blamed or punished for what someone else has done.)

5. An Enron skeptic

6. The Smartest Guys in the Room

7. An aficionado of strip clubs (someone who is very interested in something and knows a lot about it)

8. A nerd turned mogul (an important or powerful person in an industry)

Discussion questions

1. What made so many people at Enron behave so badly?

2. Is this a particularly American scandal, or could it happen anywhere?

3. Should the government step in to restore the pensions of the 20,000 Enron employees who lost their pensions and retirement accounts? Will the US government do so?

4. True or false: The movie Enron is an accurate portrayal of life in corporate America.

5. True or False: It must have been easy to convict Ken Lay and Jeff Skilling of the white-collar crime of fraud, especially since the prosecution has Andrew Fastow as one of their chief witnesses.

6. What do you think would be a suitable punishment for these people?

7. What do you think made Sherron Watkins blow the whistle? What would you have done if you had been in her shoes?

8. Critique the movie, “Enron.” What do you think is good about it? What suggestions would you have for the film makers?