He had given presentations over the past two years to university business students and organizations of certified fraud examiners, but these were his people—finance and accounting professionals. When he asked us whether we thought these actions were unethical, the number of hands raised drastically decreased. LJM (Lea Jeffrey Michael) LJM (Lea Jeffrey Michael) refers to the names of Andrew Fastow’s wife and children and a company created by Fastow, the CFO for Enron. Or what about if he ditched his wife to marry a stripper like Lou Pi? The choices will not appear on the last page of a booklet, separated neatly into buckets of right and wrong. Article content (Bloomberg) — Andrew Fastow, who was at the center of the fraud which brought down Enron Corp., said he now accepts full responsibility for his actions after originally viewing himself as a “hero” while chief financial officer at the energy trading giant. Immediately, he was bombarded by messages: Unfazed, Fastow asserted that at this point in his life, having served a six-year prison sentence, there was little we could do to embarrass or insult him. What you can’t do, though, is successfully argue in a court of law that because you didn’t break the rules you are not guilty. Linkedin; Business News. The software’s analysis of emails that day intuited negative tension about the deals. With the disclaimer that he was not attempting to minimize, make excuse, or pass blame for his behaviour, Fastow set out to sensitize the audience to his thought process in the year 2000 via what Ivey students do best: analyze case studies. 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. This is how they were being PAID. However, ethics and rules are not interchangeable. “So, their brains minimize risk in order to get there. Yet, two years earlier, on June 28, 1999, when Enron seemingly was on top of the world, equally low scores were posted. Required fields are marked *, Copyright © 2020 CFO. This article is more than 10 years old. 50 Broad Street, New York, N.Y. 10004. Dennis Cook / AP. The upsurge in market capitalization that Fastow crowed about had been whittled down to nothing. After he had served his sentence he became a public speaker about his experience. 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 … And that’s exactly what they were. During a Skype interview, he set up his laptop so I could watch a video of his keynote speech on trust and ethics in front of 2,000 people at the “InTheBlack: Accounting & Finance Innovation Summit” in Las Vegas, sponsored by BlackLine. Let me play devil’s advocate here. That is not bending. Thank God I wasn’t in control of the checkbook, but damn I couldn’t imagine being a CFO at that age, worrying about providing for your family, worrying about providing for every employee’s family (since the company’s employees were so heavily compensated thru stock), and then having to balance those pressures with conflicts of interest. Wanchai, Hong Kong, 551 Windermere Road 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. Enter last name: 2. 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. His victims might be pleased to know that Fastow appears condemned to forever make his penance. I write this prologue for a reason. “My just asking the question, ‘Am I following the rules?’ was insufficient,” Fastow said. Why did Jeffery Skilling and Andrew Fastow go to jail for their involvement in Enron’s collapse? And it caused harm to people. Linkedin; Business News. Yet, as Fastow admits, would not prevent the next Enron. For these transactions, Fastow owns two mementos: a CFO of the Year trophy and a prison ID. 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? As someone linked to him in perpetuity, I’m happy for that. What I had failed to capture, in a story meant to celebrate Fastow as a CFO wunderkind, was his shrewd manipulation of the accounting rules, which was unbeknownst to me and the impartial panel of CFOs who selected him for the award. [However,] if the government proves that a defendant was responsible for financial reports that intentionally and materially misled investors, the [securities fraud] statute is satisfied.” Simply put, the intent to mislead investors signifies a criminal purpose, irrespective of accounting rule loopholes. Over the past two years, Fastow has been on the public speaking circuit. Fastow is proof that the road to ignominy is most often not well marked. Andrew Fastow | Estonia | Independent Accounting Professional | 0 connection | See Andrew's complete profile on Linkedin and connect Fastow is giving talks about rules vs. principles and consulting with corporate management and non-executive board directors about corporate culture and unrecognized risks—the “dangers of the gray areas.”. As the audience was HBA1 students, most of us were only four years old in 2001. Why did Jeffery Skilling and Andrew Fastow go to jail for their involvement in Enron’s collapse? Fastow said a lot of business schools teach ethics with black and white cases, so he decided to write his own, focusing on ethics in the grey area. And yet you don’t wake up every morning worrying about your family dying in a massive quake or your net worth being obliterated. For each, he spent a few minutes explaining the situation, and asked if the actions of the company were ethical. 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. I reached out to three finance and accounting professionals who attended the “InTheBlack” summit. Andy Fastow should not be allowed to profit at all…not one penny from his unethical behavior. Why? Like Fastow, disgraced former CEO Bernie Ebbers of WorldCom learned this the hard way, when the Second Circuit Court of Appeals rejected his argument that the government had to prove violations of generally accepted accounting principles (GAAP) for his conviction on fraud and conspiracy to stand. However, none of them had personally suffered from Fastow’s criminal manipulations. I believe Andy was extremely young when he first took the CFO position at Enron…low 30’s? They were arrogant and aggressive. It’s not unusual for former convicts to leverage their “expertise” in helping law enforcement. Makes me sick! These gray areas stain all regulations, claimed Fastow, including the Sarbanes-Oxley legislation. Andrew Fastow. By now his point is clear: Ethics in corporate governance, an even timelier subject these days, is crucial. At its height, Enron was the seventh largest company in America; its market capitalization hit $35 billion. His talk was part of the Choices & Challenges series organized by the Center for Business and Society. Phase 1, Room S320A, Level 3 A few months ago, I reached out to him on LinkedIn to request an interview. N.O. As one finance executive in the audience later told me, “I wanted to know what the world’s greatest CFO criminal mastermind could possibly have to say about ethics and trust.”, A few minutes into the speech, Fastow walked offstage and came back. T.H.A.N.K.S. 2016/10/03 at 1:01 PM - Lili Johnston - 4y ago 4. You’re processing risk in a biased way—`it won’t happen to me and even if it does it won’t be that bad.’ Your brain knows the answer you want—that you want to live in L.A. I received anonymous emailed death threats, perhaps from embittered employees and shareholders. He should be completely outlawed from the financial world. In his left hand was his prison identification card. The company filed for bankruptcy on December 2, 2001, putting thousands out of work. Accessed Feb. … All he needed were accounting assumptions and structured finance to transform the appearance of Enron. The more insidious and dangerous problem is the rule ‘users’—the rule exploiters who find the loopholes.”. Fastow urged us to always look for more information. 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. Your email address will not be published. “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. It is, therefore, our responsibility as future business leaders to be responsible for and conscious of our own agency. And while the United States stands for many things, “forgiveness” is an indelible virtue that runs through America’s veins. 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. He was released from prison in December 2011. Lea Fastow, right, former Enron assistant treasurer and wife of ex-CFO Andrew Fastow, arrives at the federal courthouse Thursday in … 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. Andrew Fastow Wiki Biography. Andrew Fastow knows about the gray areas. It explored his financial wizardry in helping turn a sleepy natural gas pipeline company into a blazing energy trading firm. 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. © Ivey Business School  |   Perhaps Lou was smarter than all of them! 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. It was resounding advice for a group of students that has grown comfortable with Case-Method Learning. 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. Because it is disgusting. 1. I asked Fastow if he believes other CFOs ever feel compelled to exploit the rules. There are 6 professionals named "Andrew Fastow", who use LinkedIn to exchange information, ideas, and opportunities. For the story, I interviewed Fastow, Enron’s CEO Kenneth L. Lay, and president and COO Jeffrey K. Skilling. I may have been trying to stay within the rules, but I was also, most definitely, trying to be misleading.”. 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. Share to Facebook; Share to Twitter; Share to Linkedin; People Search: 1. 1. Although I was simply the messenger, I still felt guilt and shame. Andy Fastow, the former Enron CFO, served six years in prison. Two of the algorithm designers for KeenCorp met Andrew Fastow in Amsterdam after he had finished a public-speaking gig. And furthermore, one cannot even accuse the shareholders for having shares vs. cash to sock away under the mattress. He defined these transactions as technically legal but misleading. I was there. Andrew Fastow. COVID-19 Information for the Ivey and Western Community. You’re sitting on a major fault line. 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. His financial wizardry, as it turned out, was “smoke and mirrors” designed to mask Enron’s true financial performance. 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. 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. Russ – you may have struck out again. "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." Andrew Fastow | Houston, Texas | Investor at KeenCorp | 500+ connections | View Andrew's homepage, profile, activity, articles But rulebreakers are only part of the problem. That was Fastow’s wrongdoing, according to him. You are no longer talking words and weighing ideas, you are seeing their reality. It’s a difficult question. View Andrew Fastow’s profile on LinkedIn, the world’s largest professional community. Other shareholders lost billions. It is easy to do the legal thing. 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. Despite it all, though, his family held together, offering him a measure of solace. 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