FULFILLING ALL NATIONAL

OBLIGATIONS UNDER
VARIOUS LAWS
CONTENTS
 ENRON
• Founder – Kenneth Lay and former CEO
• Jeffrey Skilling – CEO at the time its collapse.
• Rated – “America's Most Innovative Company” for six
consecutive years by Fortune Magazine (1996 -2001) based on
its acclaimed Corporate Governance principles
• Claimed US$111 billion revenue in 2000
• Enron was the US’s seventh-largest company, based on its
claimed sales of over $100bn. Enron reported profits of over
$1bn. Its stock rose to $90 a share. 
Graph of Enron’s stock prices
in 2001
$90.00

$80.00

$70.00

$60.00

$50.00

$40.00

$30.00

$20.00

$10.00

$0.00
January

February

March

April

May

June

July

August

September

October

November

December
 ENRON

• ENRON was issuing false and misleading information

that materially misstated the company’s condition and
prospects to the investing public.
• After several years of international and domestic
expansion involving complicated deals and contracts,
Enron was billions of dollars into debt.
• Reported third quarter loss of $618 million in Oct 2002
• Filed for bankruptcy in December 2002
• ENRON external auditors Arthur Andersen covered up
the fraud and destroyed all evidence.
• Second largest long distance Telecom company in the U.S.
• CEO – Bernard Ebbers
• 1983- Long distance discount service, hattiesburg, mississippi
• 1989-merger with advantage co.(LDDC Worldcom in 1995)
• 1997-merger with MCI worth $37 billion(MCI worldcom in
1998)
• 1999- merger with sprint corp. worth $129billion
• 2000- name changed to WORLDCOM

• Did 65 acquisitions, and got position as a significant player in

the telecommunications industry
• Classified day–to–day expenses as investments and long term
expenses associated with the acquisition as capital assets
• Some former top executives of WorldCom have been accused
of altering transaction and account records to conceal
company debt.
• WorldCom admitted to a $11 billion adjustments from 1999-
2002
• WorldCom had a combined loss for the years 2000 through
2002 amounted to a staggering $79.5 billion
• The accounting books were cooked up by the external auditors
– Arthur Andersen
 The SOX act
• The Sarbanes-Oxley Act of 2002 is legislation enacted in response
to the high-profile Enron and WorldCom financial scandals to
protect shareholders and the general public from accounting errors
and fraudulent practices in the enterprise.
• It defines which records are to be stored and for how long.
• The CEO &CFO are required to take ownership for the financial
statements, which was not for their prior SOX
• The Sarbanes-Oxley Act states that all business records, including
electronic records and electronic messages, must be saved for "not
less than five years.“
• The consequences for non-compliance are fines, imprisonment, or
both
 Sarbanes – Oxley Act
HIGHLIGHTS
• Section 103: Your auditor (and therefore, you should) maintain
all audit related records, including electronic ones, for seven
years.
• Section 201: Firms that audit your company’s books can no
longer provide you with IT related services.
• Section 301: You must provide systems or procedures that
allow employees to communicate effectively with the audit
committee
• Section 302: Your CEO and CFO must sign statements verifying
the completeness and accuracy of financial reports.
• Sections 404 CEO’s, CFO’s and outside auditors must attest to
the effectiveness and accuracy of financial reports.
 Sarbanes Oxley– Act

Behavior Consequence
Any CEO or CFO who “recklessly” violates his Fine of up to $1,000,000  and/or up to 10 years
or her certification of the company’s financial imprisonment.
statements.
Fine of up to $5 million and/or up to 20 years
If “willfully” violates.
imprisonment.

Any person who “corruptly” alters, destroys,

conceals, etc., any records or documents with Fine and/or up to 20 years imprisonment.
the intent of impairing the integrity of the record
or document or use in an official proceeding.
 SATYAM CASE- BASIC FACTS
• Fourth largest Indian IT Company listed in India & US
• Over US $ 2 billion annual revenue size Co
• Established in mid 1980s, grown to 53,000 employees;
• 600 plus customers including 185 fortune 500 Cos
• Operations in 66 countries across the globe
• Financial advisor: Merrill Lynch (now Bank of America)
• Auditors: Price Water House Coopers
• Bankers: Citi bank; BNP Paribas, HSBC & HDFC
 REASONS FOR DOWNFALL OF SATYAM

• Inflated billing to customers

• Non-existent cash & bank balances $ I bn
• Overstated Debtors $ 100 million
• Operating margin shown high at 24% in Q2 (Sept 2008) as
against 3% real profit margin
• Such manipulation done in earlier years( 6 yrs-$ 1.2 Bn)
• Increased costs to justify higher level of operations
• Attempt to merge Son’s Company ‘Maytas’ with huge land
Bank to bridge the gap failed
• Unmanageable gap between actual and book profit
 SEBI

• Bitten by the Satyam fraud, the SEBI is finally waking up to a

more proactive role in ensuring corporate governance by India
Inc.
• SEBI had asked listed companies to compulsorily appoint
external auditors to conduct their internal audit.
• SEBI is planning to even ask them to restate profits if a
random scrutiny of their books of accounts throws up nasty
surprises.
• The SFIO is a multi-disciplinary organization under Ministry
of Corporate Affairs, consisting of experts in the filed of
accountancy, forensic auditing, law, information technology,
investigation, company law, capital market and taxation for
detecting and prosecuting or recommending for prosecution
white-collar crimes/frauds.
 SOME OTHER ACTS:-

• The Prevention of Money Laundering Act

The Prevention of Money Laundering Act, 2002
(PMLA) forms the core of the legal framework put in place by
India to combat money laundering.

The PMLA and rules notified thereunder impose

obligation on banking companies, financial institutions and
intermediaries to verify identity of clients, maintain records
and furnish information to FIU-IND.
• Know your customer (KYC) is the due diligence and
bank regulation that financial institutions and other regulated
companies must perform to identify their clients and ascertain
relevant information pertinent to doing financial business with
them.
• The Whistleblower Protection Act of 1989 is a
United States federal law that protects federal
whistleblowers, or persons who work for the
government who report agency misconduct.
• THE Whistleblower Protection Act in INDIA
Closing thought…

“Every fraud
could have been prevented
if honest people
had asked the right questions
at the right time”

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