For my “fallen corporate hero,” I chose Andrew Fastow, the former CFO of Enron. I was particularly intrigued in learning more about him because of my interests in accounting. We just spent a large amount of time in class discussing Enron, but took on more of an outsiders’ view of what happened there, which is necessary to understand what happened there. I was very interested into diving into an insider’s view of what happened.
Between the Harvard Business Case that we read for class and this article from TIME that I found, it is easy enough to piece together the basics of what happened to Fastow inside Enron. In short, Fastow worked to get Enron’s debt off their balance sheet while keeping the assets that they had on it. Enron’s CEO Skilling’s goal was an “asset-light” company, and he was the one mainly driving the strategy at Enron. It seems as though Fastow was just trying to please Skilling with many of his efforts. The TIME article describes Fastow as very number oriented and not so much a “people person,” and that people only feared the power that he had, not necessarily his presence. Even though Enron’s aggressive growth strategies seem to have come from Skilling, it was Fastow that figured out how to manipulate the balance sheet in ways to meet these goals. Fastow created many off-balance sheet partnerships for Enron and profited handsomely from them. He found himself arguing with many people about these partnerships, such as Enron’s chief risk manager Richard Buy, as well as various “whistle-blowers” throughout the company. It seems as though Fastow got so caught up in his own perceived power that he got complacent with his position and started to make riskier and riskier investments, which eventually contributed to Enron’s demise. Fastow painted this false picture of the company’s financial statements, and he ended up paying for his mistakes.
Now: flash forward. Where is Fastow now? After being charged with 78 counts of fraud (mainly connected to the off-balance sheet partnerships), he pled guilty to two counts, landing him in prison for more than five years. He also agreed to testify against other Enron executives and give up around $30 million of the money he made from these deals. In June 2013, he gave an unpaid talk at a conference of the Association of Certified Fraud Examiners. In his talk, he admits that what he did was wrong and that he feels remorse for the people who he screwed over. He said that Enron saw the vagueness of accounting regulations as an opportunity for the company, not a limitation. He argued that what he did was wrong, but that he did receive approval for every transaction. He said, “How can it be that you get approvals… and it’s still fraud?” But, in hindsight, it is clear how these manipulations were considered fraud.
Now, in my opinion, Fastow’s prison sentence seems fairly light for his crimes, but it is obvious to me that he has suffered greatly from his mistakes. His potential prison sentence was lowered by his willingness to testify against some of Enron’s other executives. I see why the lawyers used this tactic because if Fastow told them about the crimes of other executives, then they will be able to arrest and send more people to prison for their crimes. Fastow forfeiting $30 million of his own was certainly a large punishment, but for good reason. If these investments he was making weren’t sound and he profited handsomely off them, this is simply not fair. Overall, I think Fastow should have spent some more time in prison just because of his huge role in Enron’s demise and the effect that had on so many people, but I do not think anyone can argue the fact that he has definitely suffered from his mistakes. Whether or not the remorse he talked about in the CNN article was true or not, he had to feel some level of guilt for the people that lost everything because of him. What do you think, is his remorse real? Was he punished fairly?