Maximizing Student Learning Through Enron: The Ultimate B-Law Case Study

Maximizing Student LearningThrough Enron: The UltimateB-Law Case StudyStephanie R. Sipen

It has been described as ‘‘the corporate scandal of the century.’’ Books have

been written about it, its full-length documentary film was nominated for

an Academy Award, it appears as an ethical case study in nearly every

college business law textbook written since 2002, and for five years

running, it has captivated the press and fascinated the publicFthe Enron

scandal.1 In the introductory business law course, we typically hold up

Enron as an example of how unethical business practices can lead to

disaster. However, in giving the Enron case such limited treatment, are we

maximizing our students’ understanding of all that Enron represents? The

Enron scandal is too rich a learning experience to be a mere case study on

unethical accounting practices. Enron can be used as the central case study

in an introductory business law course to exemplify the ways in which the

Constitution, administrative agencies, government regulation, and crim-

inal and civil liability, not to mention ethical decision making, have the

potential to impact Big Business. This article suggests a teaching strategy to

maximize student learning about the law and its relationship to business

practices using the Enron scandal as ‘‘The Ultimate B-Law Case Study.’’2

r 2007, Copyright the AuthorJournal compilation r Academy of Legal Studies in Business 2007

325

Journal of Legal Studies EducationVolume 24, Issue 2, 325–337, Summer/Fall 2007

nAssistant Professor of Legal Studies, Georgia Southern University.

1See Matthew W. Seeger & Robert R. Ulmer, Explaining Enron, 17 MGMT. COMM. Q. 58 (Aug.2003). In describing the Enron case, the authors note that it has been ‘‘widely publicized as astory of corporate whistle-blowing, an example of corporate greed run amok, an illustration ofpolitical influence, as well as a morality play about the relationship between accounting firmsand their clients.’’ Id. at 67.

2See Jeffrey D. Van Niel, EnronFThe Primer, in ENRON: CORPORATE FIASCOS AND THEIR

IMPLICATIONS 3–26 (Nancy B. Rapoport & Bala G. Dharan eds. 2004). ‘‘The beauty of Enronas a case study is that it presents so many complex issuesFand so many learningopportunities.’’ Id. at 26.

In any introductory business law course, professors begin the learn-

ing process at a distinct disadvantage. Our students come to us to learn

about government regulation, contracts, torts, crimes, ethics, and the other

topics covered in this course, but the students often lack personal business

experience. As we begin to explicitly teach them about the ways in which

the law impacts business in these various areas, we also have to implicitly

create an understanding about business and the way in which business is

practiced that can be understood by college students, who have had little or

no exposure to the corporate world. Herein lies a dilemma: how can we

expect students to put together the complex pieces of the business law

puzzle when their basic understanding of business practices is not

fully developed? The task is not impossible, but sometimes we are required

to leave the classroom to find context for the material we teach.3 Thus,

business law faculty use tools, such as case studies and hypothetical

case scenarios, to create frames for learning. What business law faculty

may not use enough, though, is the power of mass media4 and its portrayal

of current events. The mass media attention that has grown around

the Enron scandal is teeming with learning opportunities that can and

should be exploited to maximize student learning about law, ethics, and

business.

Research has shown that case study is an appropriate pedagogical

tool in management and business ethics courses.5 Further, the use of

multimedia in college instruction is considered successful, because the

images and music in a multimedia presentation stimulate conversation on

3See Lucille M. Ponte, The Case of the Unhappy Sports Fan: Embracing Student Centered Learningand Promoting Upper-Level Cognitive Skills Through an Online Dispute Resolution Simulation, 23 J.LEGAL STUD. EDUC. 169 (2006). Professor Ponte indicates that ‘‘[s]tudents absorb legal conceptsbetter when faculty provide a context or foundation for the review of complex legalmaterials.’’ Id. at 173.

4See, e.g., http://www.informationheadquarters.com/20th_century/Mass_media.shtml (last vis-ited Feb. 12, 2007). ‘‘Mass media are those media reaching large numbers of the public viaradio, television, movies, magazines, newspapers and the World Wide Web. The term wascoined in the 1920s with the advent of nationwide radio networks, mass-circulation news-papers and magazines.’’ Id.

5Julie A.B. Cagle & Melissa S. Baucus, Case Studies of Ethics Scandals: Effects of Ethical Perceptionsof Finance Students, 64 J. BUS. ETHICS 213 (2006). Although the methodology used by Cagle andBaucus relied on student-developed case studies, the authors indicate in their conclusions thatthe ‘‘process of researching and thinking through the complexities of cases such as Enron,Tyco and so forth [will] help improve students’ understanding of ethical and unethicalconduct.’’ Id. at 227.

326 Vol. 24 / The Journal of Legal Studies Education

the issues presented.6 Thus, a business law course that uses a case

study approach, supplemented with various multimedia presentations, is

likely to create a positive and successful learning experience for its

participants.

HOW THE ENRON CASE STUDY FITS IN ANINTRODUCTORY BUSINESS LAW CURRICULUM

The tools available to a business law professor who decides to use Enron as

the ‘‘Ultimate Case Study’’ include, in addition to the course textbook,

newspaper articles, such as those found in The Wall Street Journal; magazine

articles, such as those found in Time, Newsweek, and BusinessWeek; and

online resources, such as Wikipedia,7 resources that students are already

or should become used to consulting for basic information. The Enron

scandal should be introduced to students at the very beginning of the

semester as a case study that will be followed throughout the course.

Professors may choose to assign to students their first reading about Enron

on the Wikipedia Web site. This Web site gives the historical background of

Enron, its rise to power, and details some of the factors that led to its

downfall.8 Students are likely to have used the Wikipedia Web site before,

and an article on Enron provides a comfortable forum to begin learning

about the organization.

Following the initial student exposure to the Enron scandal, business

law professors can then assign outside reading on Enron to follow the

6L. Murphy Smith et al., Application and Assessment of an Ethics Presentation for Accounting andBusiness Classes, 61 J. BUS. ETHICS 153 (2005). The authors define ‘‘multimedia’’ as the ‘‘use ofdifferent media such as words, pictures, audio, and video recordings.’’ Id. at 157. Theycontend that multimedia can be effective in teaching ethics, because ethics has receivedincreased attention in recent years with the scandals of Enron and Arthur Anderson, but thetextbook coverage of these events today is lacking. Id.

7http://www.wikipedia.org (last visited Feb. 12, 2007). The Wikipedia Web site was created in2001 and is a free online encyclopedia written collaboratively by people all over the world.Because the information on the Wikipedia site can be edited by anybody (albeit with internalcontrols set up by the Web host), it is recommended that students verify information found onthis Web site with an additional resource.

8Id. The contents of this Web site include general information about Enron, its products,EnronOnline, the decline of Enron, insider trading, Enron’s fallout, pensions, restructuring,and facts and figures.

2007 / Maximizing Student Learning Through Enron 327

chapters covered in whatever textbook the professor is using in the class.

For example, students should be assigned either specific or self-researched

articles on topics, such as Enron and Government Regulation, Enron and

Ethics, Enron and Corporate Criminal Liability, Enron and Corporate

Civil Liability, and Enron and Securities Fraud and Insider Trading to

follow along with classroom learning.9 The Wikipedia Web site contains

links to information on some of these specific topics, and a Web or

university library search turns up literally hundreds if not thousands of

articles on these issues. Business law professors can have students post

reactions to their outside readings on venues such as Blackboard or

WebCT, turn in article summaries, or even have a discussion block of five

or ten minutes at the beginning of each class on the topic of the day led by

student discussion leaders. A mixture of these approaches serves several

purposes and can accomplish multiple teaching objectives, as well as

promote student-centered learning activities.10 Student postings on class-

room Internet platforms better facilitate use and understanding of the

technology that enhances learning outside of the classroom. Written

summaries aid in the development of critical writing skills and the use of

appropriate citation systems to which students may not have yet been

exposed, such as the Publication Manual of the American PsychologicalAssociation.11 The use of classroom discussion blocks not only encourages

reading before class (a common problem faced by university professors

everywhere) but also gives students practice speaking before an audience.

Once different Enron readings have been used to frame discussions

and supplement student learning about topics, such as ethics, constitu-

tional law, administrative regulation, and criminal law, then business law

professors should use the film Enron: The Smartest Guys in the Room12 as a

capstone to a discussion of the basic business law concepts that can be

taught with Enron as a case study. The film can also be used as a launching

point into some of the more sophisticated business law topics, such as

9For a list of relevant articles, see the Suggested Student Readings section at the end of thisarticle.

10See Ponte, supra note 3. In moving away from a teacher-centered model of learning,Professor Ponte notes that ‘‘[m]ore instructors are incorporating student-centered learninginto their courses.’’ Id. at 177.

11PUBLICATION MANUAL OF THE AMERICAN PSYCHOLOGICAL ASSOCIATION (5th ed. 2001).

12ENRON: THE SMARTEST GUYS IN THE ROOM (Magnolia Home Entertainment 2005).


securities fraud, insider trading, and the impact of the Sarbanes-Oxley

Act.13

USING THE ENRON DOCUMENTARY

The Enron movie is a documentary that, in a span of 110 minutes, breathes

life and energy into the Enron scandal in a way that cannot be achieved by

print media alone. It is important that the Enron film not be shown too

early in the semester. The danger of an early viewing is not only that the

students’ perceptions of the Enron scandal may be formed by the film but

also that they will have less incentive to actively research and educate

themselves about the case. In the movie, viewers are able to hear from the

people who were there from the beginning of Enron to the end. The movie

shows us the major players, such as Kenneth Lay, Jeffrey Skilling, Andy

Fastow, Lou Pi, and Sherron Watkins, to name a few, in the context of in-

terviews, publicity promotions, and corporate meetings where the student

audience can see and hear the evidence of their alleged misdeeds.14

Further, the movie takes the students’ learning on ethics, government

regulation, corporate fraud, and criminal liability and makes it real, thus

providing the next best thing to being there. Business law faculty will find

students’ interest in Enron and business law grow with each reading and

discussion of the Enron issues, but they will likely see students who are

passionate about these topics once the Enron movie has been viewed.

USING ENRON TO TEACH THE ETHICALENVIRONMENT OF BUSINESS

Instruction on ethics in the introductory business law class covers such

topics as the definition of business ethics, the importance of business ethics,

13Sarbanes-Oxley Act of 2002, Pub. L. No. 107–204, 116 Stat. 745 (2002). See, e.g., ROBERT

PRENTICE, STUDENT GUIDE TO THE SARBANES-OXLEY ACT (2005). The passage of the SarbanesOxley Act (SOX) by Congress in June 2002 was prompted by recent corporate scandalsinvolving not only Enron but Global Crossing, Tyco, WorldCom, Adelphia, and HealthSouth,creating what many recognize as the ‘‘most significant securities law changes since the passageof the original securities laws in 1933 and 1934.’’ Id. at 1.

14See Joe Morgenstern, That’s Enron-tainment: Company’s Chief Cheats Give ‘Smartest Guys’ Energy,WALL ST. J. (EAST. ED.), Apr. 29, 2005, at W1. ‘‘The ‘Smartest Guys in the Room’ gives us thesame sort of perverse pleasure that’s been a staple of ‘60 Minutes’ over the yearsFwatchingworld-class crooks tell world-class lies.’’ Id.


ethical leadership, ethical systems, and approaches to ethical reasoning,

such as duty-based ethical approaches and outcome-based ethical ap-

proaches. Classroom discussions of business ethics often focus on how

businesses can create a system of ethics, as well as some of the factors that

can lead to unethical business practices. Research has shown that ethics

education using case study positively impacts students’ ethical perceptions

and is an effective pedagogy for teaching ethics.15 The Enron scandal

provides an opportunity to look at the issue of business ethics not only

from an academic perspective, but also in the real-world context.

Enron Corporation had an amazing sixty-four-page corporate Code

of Ethics that, on its face, promoted the highest values of corporate ethical

responsibility.16 On the Web site http://www.thesmokinggun.com/enron/

enronethics1.html, students can read for themselves Enron’s articulated

commitment to ethical behavior, including its commitment to ‘‘conduct

business according to all applicable local and international laws and

regulations . . . and with the highest professional and ethical standards.’’17

In addition to its Code of Ethics, Enron also published a ‘‘Statement of

Human Rights’’ in 1996, which was a formal statement of its alleged

human rights principles, including the ‘‘RICE’’ values of ‘‘respect, integ-

rity, communication and excellence.’’18 Students should read Enron’s

Code of Ethics or its Statement of Human Rights, critique its contents,

and then begin to discuss how it failed to prevent the unethical business

practices of Enron’s employees.

This analysis can also lead to an examination of the importance of

ethical leadership and a discussion of factors that either overtly or

implicitly encourage unethical business practices. When people are under

15Cagle & Baucus, supra note 5 and accompanying text.

16ENRON CODE OF ETHICS, JULY 2002, available at http://www.thesmokinggun.com/enron/enronethics1.html (last visited Sept. 8, 2006). See also Duane Windsor, Business Ethics at ‘‘TheCrooked E,’’ in ENRON: CORPORATE FIASCOS AND THEIR IMPLICATIONS 659–87 (Nancy B. Rapoport& Bala G. Dharan eds. 2004). ‘‘Enron leadership made a public display of professed ethicalstandards, corporate citizenship, and consumer welfare innovations having nothing to do withactual motives or conduct.’’ Id. at 660.

17Windsor, supra note 16.

18Seeger & Ulmer, supra note 1. The authors note that the RICE values ‘‘appeared to functionlargely as platitudes, discussed yet dismissed in favor of more pragmatic issues of profit.’’ It isnow generally recognized that these values were neither ‘‘modeled by [Enron’s] leaders norintegrated into operations.’’ Id. at 11.


significant pressure to produce or risk negative consequences, such as loss

of pay or even loss of job, an environment where unethical behavior can

fester may result. An examination of Enron gives numerous examples of

these environmental pressures, including its use of performance review

committees, which were charged with the responsibility of ranking em-

ployees so that the lowest 15 percent were terminated on an annual basis,

whether or not they were meeting performance expectations.19 Other

factors include the exorbitant bonuses that were paid to Enron’s energy

traders, which contributed to their abuse of California’s deregulated

energy system and impacted the rolling blackouts of the 1990s.20 Further,

Enron had a history of ignoring unethical practices as shown by the

Valhalla scandal, in which key employees gambled with Enron’s money

and transferred significant amounts to their own personal bank accounts

but were basically slapped on the wrist and told to continue making money

when the scandal first unfolded.21

Enron’s articulated ethical system and its practiced ethical system can

be compared and contrasted to illuminate the difference between duty-

based ethics and outcome-based ethics. There is no doubt that Enron’s

written Code of Ethics is based on a duty-based perspective. On its face,

Enron appears to be a true corporate citizen. However, its practices of

abusing California’s energy system, misusing the mark-to-market account-

ing system to claim hypothetical future profits as current earnings,22 and

19Windsor, supra note 16, at 676. ‘‘The Peer Review Committee (‘PRC’) processFnicknamedinternally ‘rank and yank’Fin effect deliberately drove out the bottom 15% of employeesevery six months and put others on notice that their careers were in jeopardy. And the ‘rankand yank’ system was itself reportedly corrupt: it was not strictly peer evaluation ofperformance, but who you knew, accompanied by ‘horse trading’ among managers. ThePRC created a culture within Enron that replaced cooperation with corruption.’’ Id.

20See Van Niel, supra note 2. Enron and several other energy companies, following thederegulation of California’s energy market, successfully ‘‘gamed’’ the California energymarkets between 2000 and 2001.

21Carrie Johnson, Prosecutors Link Enron Fall to 1987 Scandal, WASH. POST, Nov. 5, 2005, at A10.According to federal prosecutors, Kenneth Lay knew that in 1987 two traders in the EnronInternational Oil Inc. made and fraudulently covered up risky bets that caused an $85 millionloss for Enron. Lay allegedly defended the actions of these traders, because they had a historyof generating millions for Enron.

22See Windsor, supra note 16, at 677. ‘‘This accounting system in effect simply booked Enron’sown internal estimates of what markets were worth, virtually unregulated pro forma estimates.’’Id. See also Jacqueline Lang Weaver, Can Energy Markets be Trusted? The Effect of the Rise and Fall ofEnron on Energy Markets, in ENRON: CORPORATE FIASCOS AND THEIR IMPLICATIONS 237–99 (Nancy B.


its approval and use of special purpose entities (SPEs) to transfer debt from

Enron’s books23 show that at best it followed an outcome-based theory of

corporate social responsibility.

USING ENRON TO TEACH THE IMPACT OFGOVERNMENT REGULATION

In the introductory business law course, the topics of constitutional law and

administrative law risk the danger of being regarded as ‘‘lofty’’ and

‘‘abstract’’ to university students. They are exposed to concepts, such as

government regulation of business through the Commerce Clause, state

police powers, and the roles and functions of administrative agencies.

Many students appear to be resistant to the idea of government regulation

of business and tend to see regulation in negative terms. A study of the

Enron case, however, shows the necessity of some government regulation

and the risks of too much deregulation.

Students should be encouraged to discuss how the actions of the state

of California, along with the actions of the federal administrative agency

FERC (Federal Energy Regulatory Commission),24 contributed to the

ability of Enron to profit from the system. They will be surprised to learn

of the link between government acts of deregulation of the energy market

and the rolling blackouts experienced by California in the late 1990s.25

Business law instructors can initiate a discussion about how Enron’s profits

began to skyrocket when California’s energy market became deregulated.

Research on the topic will show that Enron traders began to exploit

Rapoport & Bala G. Dharan eds. 2004). Enron became the first nonfinancial institution to getmark-to-market accounting approval from the SEC. Id. at 253.

23See Van Niel, supra note 2. Enron ‘‘used and abused the accounting rules to obscure its truefinancial condition . . . using special purpose entities (‘SPEs’) and mark-to-market account-ing.’’ Id. at 13. Enron violated the basic principles of SPEs because ownership was notindependent and because Enron guaranteed the SPEs that it would cover any losses the SPEsuffered in any deal with Enron. Id. at 14.

24See Weaver, supra note 22. ‘‘FERC regulates the interstate sale of electricity at wholesale, byregulating both the wholesale price of electricity and the rates charged for the use of thetransmission wires.’’ Id. at 245.

25Id. at 268. ‘‘Not until after Enron’s bankruptcy in 2001 and subsequent investigations of itsactivities did evidence come to light showing all of the schemes that Enron traders hadinvented to game the California system.’’ Id.


loopholes in the new system and thus were able to create artificial

shortages of power, which led to artificial demands for power, which led

to artificially inflated prices for powerFresulting in California’s rolling

blackout crisis.26 During the rolling blackout crisis, the state of California

petitioned the federal government to put price caps on energy costs, but

the federal regulatory agency with this power, FERC, failed to answer

California’s requests.27 California thus had its hands tied by the preemp-

tion doctrine and was powerless to act without federal intervention.28

An examination of the abuses of deregulation gives rise to a discus-

sion of when, where, and how business can be effectively regulated, the

special roles of administrative agencies in regulating certain industries, and

the tension between the ability of the states to act in the face of existing

federal regulation. Further, an examination of the actions of the Financial

Accounting Standards Board (FASB) and the Securities and Exchange

Commission (SEC) in approving Enron’s use of mark-to-market account-

ing, along with the actions of FERC in delaying action to stabilize the cost of

energy in California, provides opportunities for students to learn about

and discuss the powers of administrative agencies, the limits on their

power, as well as the advantages and disadvantages of a bureaucratic

system of government. Students should learn that administrative agencies

have a broad range of authority and that often their actions give rise to

controversy.

USING ENRON TO TEACH CORPORATE CRIMINAL ANDCIVIL LIABILITY

The year 2006 was a ripe time to follow the criminal trials of Enron leaders

Kenneth Lay and Jeffrey Skilling. The guilty verdicts handed down in May

26See Van Niel, supra note 2. Enron and other companies created schemes such as Death Star,Fat Boy, Richocet, Load Shift, and others to extract ‘‘huge profits’’ from the California energymarket. Id. at 21.

27Id. at 24. ‘‘FERC’s role in the California crisis has been correctly criticized in light of thisderegulation disaster. Since the major suppliers came from out of state, they were underFERC’s exclusive regulatory jurisdiction. Most important, FERC failed in its duty to deter anddiscipline the anti-competitive behavior that was driving the price increases.’’ Id.

28See Weaver, supra note 22. When FERC finally did step in and impose price caps on the costof power, California’s crisis ended and shortly thereafter Enron became bankrupt. Id. at 270.


2006 ended much speculation about the ability of executives to use the

‘‘ostrich in the sand’’ defense.29 The Lay and Skilling trial and its aftermath

provide numerous educational opportunities for business law students.

Further, the criminal charges that were filed against Enron traders and

other executives, as well as the criminal conviction of Arthur Anderson,

LLP in June 2002 for obstruction of justice,30 provide business law

professors with a platform in which to discuss white-collar crime, criminal

procedure, burden of proof, and corporate criminal liability.31

The prosecution of Enron executives shows the legal implications of

corporate criminal liability, in which both the corporation and its indivi-

dual officers and directors can be held accountable for corporate criminal

acts under the ‘‘responsible corporate officer’’ doctrine.32 Further, the

allegations of fraud that have been made against Kenneth Lay and Jeffrey

Skilling serve to highlight the major differences between civil and criminal

law, such as the parties involved, the differences in the burden of proof,

and of course consequences and remedies, as well as how criminal acts can

provide the basis for civil liability.33

29Although Ken Lay was convicted of six counts of wire, securities, and bank fraud, hissentence was vacated after he died of a heart attack on July 5, 2006. In keeping withprecedent, federal Judge Sim Lake vacated the conviction against Lay, because he died priorto the exhaustion of his appeals. Federal Judge Vacates Fraud Conviction of Enron’s FormerChairman Ken Lay, GLOBAL POWER REP., Oct. 19, 2006, at 6.

30See Geraldine Szott Moohr, An Enron Lesson: The Modest Role of Criminal Law in PreventingCorporate Crime, in ENRON: CORPORATE FIASCOS AND THEIR IMPLICATIONS 431–65 (Nancy B.Rapoport & Bala G. Dharan eds. 2004) (citing Mary Flood & Tom Fowler, Enron’s Auditor isGiven the Max, HOUST. CHRON., Oct. 17, 2002, at A1). Note that Arthur Anderson’s obstructionconviction was later overturned on a technicality. See Nina Totenburg, High Court Tosses ArthurAnderson Conviction, May 31, 2005, at http://www.npr.org/templates/story/story.php?storyID=4673482.

31Jeffrey Skilling reported to a federal minimum security prison in Minnesota in December2006 to serve a twenty-four-years-and-two-month sentence. Andrew Fastow was sent to amedium security prison in Louisiana in November 2006 to serve out a six-year sentence, andEnron’s former chief accountant Richard Causey was sentenced to five and a half years infederal prison. See Once on Top of the World, Former Executives Learn Their Fates as Enron CasesWind Down, MCGRAW HILL’S POWER MARKETS WEEK, Nov. 20, 2006, at 13.

32See WEST’S LEGAL ENVIRONMENT OF BUSINESS 148 (Frank Cross & Roger LeRoy Miller eds. 6thed. 2007).

33See Moohr, supra note 30, at 436. Professor Moohr notes that fraud is at the heart of mostwhite-collar offenses and that in both criminal and civil fraud the main component of theoffense is deceit. Id.


Students can be given a flow chart of the criminal process and

directed to fill in a timeline of the federal case against Lay and Skilling

from their arrests to trial to sentencing. This exercise can give students a

working model of criminal procedure. Students can also be required to

create a chart that contrasts the criminal fraud charges that were filed

against Lay and Skilling with the numerous class action civil lawsuits that

are still pending in the following categories: parties involved, burden of

proof, and possible outcomes.34 For a creative exercise, students could be

encouraged to write a fictional appellate argument for either the prosecu-

tion or the defense in the Skilling case. Further, the prosecution of former

Chief Financial Officer Andrew Fastow can provide a framework for the

discussion of Fifth Amendment protections, immunity from prosecution,

and plea bargaining.35

BEYOND THE BASICS

The Enron scandal provides business law professors with numerous

opportunities to give real-world examples of the basic ideas and concepts

discussed in the introductory business law curriculum. Enron also provides

opportunities to examine the law at a more complex level. In particular, a

study of the Sarbanes-Oxley Act, which was passed as a direct result of the

Enron catastrophe, can lead students to a discussion of the importance of

self-regulation in business, for when professions fail to appropriately

regulate themselves, the government is likely to step in.36 Although some

34In a civil suit, the Department of Justice is seeking the forfeiture of about $35 million inassets from the estate of the late Ken Lay. The Department of Labor has already settled a claimagainst Lay’s estate for $12 million, with the proceeds to be paid to participants covered byEnron’s pension plans. See DOJ Seeks $35 Million from Lay’s Estate, Despite Vacated Convictions ofEx-Enron CEO, GLOBAL POWER REP., Nov. 2, 2006, at 5. A separate settlement was reached in acivil suit on behalf of Enron shareholders against Jeffrey Skilling for $45 million. See EnronPension Case Reaches Closure in Deals with Skilling and Estate of Lay, GLOBAL POWER REP., Dec. 7,2006, at 3.

35See supra note 30. Andrew Fastow, former Chief Financial Officer for Enron, pleaded guiltyto two charges of conspiracy to commit fraud. In exchange for an agreement to serve just tenyears in prison, Fastow agreed to forfeit $23.8 million and to testify against other Enronexecutives, including Jeffrey Skilling and Ken Lay. Fastow was sentenced to six years infederal prison. See also John C. Roper, Fastow’s Sentencing Pushed Back a Month, HOUST. CHRON.,July 20, 2006, at B3.

36See Moohr, supra note 30, at 443.


argue that the Sarbanes-Oxley Act does not ‘‘create radically new substance

offenses or realize genuine change in existing legal standards,’’ it has

significantly increased the criminal penalties for corporate fraud.37 For

instance, criminal defendants convicted under Sarbanes-Oxley face penal-

ties for obstruction of justice that have increased 200 percent, penalties for

insider trading that have increased 250 percent, penalties for wire fraud

and conspiracy to commit fraud that have increased 400 precent, and

penalties for pension fraud that have increased 1,000 percent.38

Further, a study of the downfall of Enron illustrates the elements of

insider trading, the misuse of financial reporting instruments, and com-

plexities in the relationship between business and politics that most

introductory law courses are not equipped to tackle. For business law

courses taught to upper-level students, honors students, or to highly

academically skilled students, the inquiry does not have to stop at the

fundamentals. There is an excellent resource, Enron: Corporate Fiascos andTheir Implications, which is a collection of thirty-six articles by legal scholars

that addresses issues such as Enron in Perspective, Enron and the Business

World, Enron and the Legal Environment, Enron and Ethics, and Lessons

for Society.39 For a final project, students could be grouped in teams and

assigned a particular article or two from this collection for the purpose of

writing a critical analysis of the important points made in the article(s) and

then present their findings to the class. The variety of scholars and

scholarly treatment of these issues related to the Enron scandal will show

the students how serious this event has been in U.S. corporate history, and

student reports will expose the class to the diversity of treatments of this

topic.

The Sarbanes-Oxley Act was enacted to protect investors by improving the accuracy andreliability of corporate disclosures relating to securities laws . . . [I]t was an effort torestore confidence in securities markets in a sagging economy. Although the Act focuseson the administrative regulatory scheme, especially as to accounting standards, thecriminal law is to play a major role in the effort to eradicate corporate fraud.

37Id. at 445.

38Id.

39ENRON: CORPORATE FIASCOS AND THEIR IMPLICATIONS (Nancy B. Rapoport & Bala G. Dharaneds. 2004).


CONCLUSION

This article suggests a teaching strategy that provides business law faculty

with ideas and tools on how to maximize student learning about the law

and its relationship to business practices using an in-depth case study

approach. An introductory law course should educate students on the basic

elements of legal environment of business, but it should also encourage

students to seek out the bigger picture. A course that uses Enron as the

‘‘Ultimate Case Study’’ has the potential to do both.

SUGGESTED STUDENT READINGS

The following is a list of suggested articles that can be assigned as outside

readings to support the use of Enron as the ‘‘Ultimate B-Law Case Study’’:

(1) Douglas G. Baird & Robert K. Rasmussen, Four (or Five) Lessons fromEnron. 55 VAND. L. REV. 1787 (2002).

(2) Curt C. Vershoor, Were Enron’s Ethical Missteps a Major Cause of itsDownfall, 83(8) STRATEGIC FINANCE 22 (2002).

(3) Holman W. Jenkins, Business World: How Could They have Done It, WALL

ST. J. (EAST. ED.), Aug. 28, 2002, at A15.

(4) Matthew W. Seeger & Robert R. Ulner, Explaining Enron, 17 MGMT.

COMM. Q. 58 (2003).

(5) Evan Thomas, Every Man for Himself, NEWSWEEK, Feb. 18, 2002, at 22.

(6) Business: The Drama Goes to Trial, ECONOMIST, Jan. 28, 2002, at 73.

(7) Bethany McLean & Peter Elkind, The Guiltiest Guys in the Room,

FORTUNE, June 12, 2006, at 26.

(8) Christopher Allegaert et al., Class Action Litigation Against Enron’sAdvisors and Bankers. 74(3) THE CPA J. 11 (2004).

(9) Bracing for a Backlash: After Enron Business may be Subjected to a New Waveof Regulation, BUS.WEEK, Feb. 4, 2002, at 34.

(10) ROBERT PRENTICE, STUDENT GUIDE TO THE SARBANES-OXLEY ACT (2005).

(11) ENRON: CORPORATE FIASCOS AND THEIR IMPLICATIONS (Nancy B. Rapo-

port & Bala G. Dharan eds. 2004).


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Maximizing Student Learning Through Enron: The Ultimate B-Law Case Study