Corporate Crisis Update

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Corporate Crisis Update

• Carolyn Hotchkiss and Eli Bortman
• Babson College
• Updated September 2005

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(No Transcript)
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• David Duncan pled guilty to obstruction of
  justice in shredding Enron Documents. Sentencing
  deferred until he testifies in other cases.
• Arthur Andersen convicted by jury of obstruction
  of justice in Enron case in 2002, sentenced to 5
  yrs probation and 500,000 fine. Conviction
  overturned by US Supreme Court in May 2005
• Andersen surrendered all licenses to practice
  accountancy, but faced multimillion dollar
  lawsuits from investors and former clients. Out
  of business.

Andersen Partner David Duncan
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• John and Timothy Rigas were convicted in June,
  2005 of fraud and looting the company. Sentenced
  to 15 and 20 years. (Out on bail pending
  appeals.) Rigases forfeit 1.5 billion in deal to
  settle civil cases.
• Investors lose 60 billion
• Company declares bankruptcy in 2002, assets are
  sold to Comcast and Time Warner June 2005

John Rigas
Michael Rigas
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• Insider Trading Did Waksal tip off members of
  his family and Martha Stewart about FDA rejection
  of new drug Erbitux?
• ImClone Founder Sam Waksal pled guilty to six
  counts of fraud, perjury, conspiracy. Sentenced
  to 7 years in prison and fined 4.3 million.
• Faneuil pled guilty to accepting gifts for
  silence.
• Martha Stewart served 5 months in prison, 5
  months of house arrest, for lying to
  investigators. Had to resign from NYSE board.
• Baconovic also got 5 months in prison.

Dr. Samuel Waksal
Martha Stewart
Broker Peter Baconovic
Brokers Assistant Douglas Faneuil
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• CEO Dennis Kozlowski charged with evading 1
  million in sales tax on art works purchased.
  Case still pending.
• Kozlowski and CFO Mark Swartz were convicted in
  NY court of grand theft -- looting the company of
  over 150 million.
• Kozlowski must repay 167 million, Swartz, 72
  million.
• Suit by Tyco and shareholders against them for
  damages also pending.

Former CEO Dennis Kozlowski
Renoirs Fleurs et Fruits
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• CFO Andrew Fastow indicted on 78 counts of fraud,
  money laundering, obstruction of justice. Plea
  bargain 10 years in prison, and must testify in
  trials of other Enron defendants.
• Lea Fastow served 1 year for tax fraud.
• Ken Lay and Jeff Skillings are scheduled for
  trial in 2006

CFO Andrew Fastow
Former CEO Ken Lay
CEO Jeff Skillings
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Enron civil suits settled, so far, against the
following defendants

• 2.4 billion -- Canadian Imperial Bank of
  Commerce
• 2.2 billion -- JPMorgan Chase
• 2 billion Citigroup
• 222.5 million --Lehman Bros.
• 69 million -- Bank of America
• 168 million -- Enron's outside directors.

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• WCOM announced revised 9b restatement of
  earnings
• Myers pled guilty to fraud, got 1 year.
• Ebbers was convicted in July 2005, sentenced to
  25 years, is free pending appeal
• Scott Sullivan pled guilty, testified against
  Ebbers, got 5 years.
• WCOM declared bankruptcy, reorganized in Chapter
  XI, changed name to MCI, was acquired by Verizon.

Bernie Ebbers
Controller David Myers
CFO Scott Sullivan
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Worldcom Investors suits --- 6.1 billion in
settlements approved by court

• Nov. 2004
• Citigroup 2.6 billion
• Sept. 2005
• J.P. Morgan Chase 2.0 billion,
• Deutsche Bank, 325 million
• Andersen, 65 million
• former directors, 55 million
• Ebbers, 45 million.

Bondholders will recover 426 per
1000 Stockholders will recover 0.56 per share
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• Involvement with Enron and WorldCom-setting up
  sham transactions
• Investigation for spinning IPOs-giving special
  deals to CEOs in return for investment banking
  business
• Stock analysis manipulated for
• Boardroom struggles?
• Investment banking business?
• Nursery school admission?

Analyst Jack Grubman
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THE TIP OF THE ICEBERG?
Energy
Telecoms and Media
Financial Services