Instruct: Given a question, retrieve passages that can help answer the question.
Query: Were the people from Enron prosecuted?
Fastow and his wife, Lea, both pleaded guilty to charges against them. Fastow was initially charged with 98 counts of fraud, money laundering, insider trading, and conspiracy, among other crimes.[137] Fastow pleaded guilty to two charges of conspiracy and was sentenced to ten years with no parole in a plea bargain to testify against Lay, Skilling, and Causey.[138] Lea was indicted on six felony counts, but prosecutors later dismissed them in favor of a single misdemeanor tax charge. Lea was sentenced to one year for helping her husband hide income from the government.[139]
Sean M. Berkowitz (born 1967) is a former director of the Department of Justice's Enron Task Force. He prosecuted former employees of Enron who were accused of white collar crimes, principally accounting fraud. Most significantly, he was the lead prosecutor in the joint trial of Kenneth Lay and Jeffrey Skilling. In 2006, shortly after securing guilty verdicts against both, Berkowitz left the Department of Justice to become a partner at Latham & Watkins LLP in Chicago.
During 1999, Enron initiated EnronOnline, an Internet-based trading operation, which was used by virtually every energy company in the United States. Enron president and chief operating officer Jeffrey Skilling began advocating a novel idea: the company didn't really need any "assets". By promoting the company's aggressive investment strategy, he helped make Enron the biggest wholesaler of gas and electricity, trading over $27 billion per quarter. The corporation's financial claims, however, had to be accepted at face value. Under Skilling, Enron adopted mark to market accounting, in which anticipated future profits from any deal were tabulated as if currently real. Thus, Enron could record gains from what over time might turn out to be losses, as the company's fiscal health became secondary to manipulating its stock price on Wall Street during the so-called Tech boom. But when a company's success is measured by undocumented financial statements, actual balance sheets are inconvenient. Indeed, Enron's unscrupulous actions were often gambles to keep the deception going and so increase the stock price. An advancing price meant a continued infusion of investor capital on which debt-ridden Enron in large part subsisted (much like a financial "pyramid" or "Ponzi scheme"). Attempting to maintain the illusion, Skilling verbally attacked Wall Street Analyst Richard Grubman, who questioned Enron's unusual accounting practice during a recorded conference telephone call. When Grubman complained that Enron was the only company that could not release a balance sheet along with its earnings statements, Skilling replied, "Well, thank you very much, we appreciate that ... asshole." Though the comment was met with dismay and astonishment by press and public, it became an inside joke among many Enron employees, mocking Grubman for his perceived meddling rather than Skilling's offensiveness. When asked during his trial, Skilling declared that industrial dominance and abuse was a global problem: "Oh yes, yes sure, it is."
Mark's exit from Enron in August 2000 was at a fortunate time, when Enron's stock was at its peak; she sold her stock for $82.5 million long before the company collapsed in 2001. She was never accused of wrongdoing in the ensuing series of scandals and prosecutions.
The special purpose entities were used for more than just circumventing accounting conventions. As a result of one violation, Enron's balance sheet understated its liabilities and overstated its equity, and its earnings were overstated.[27] Enron disclosed to its shareholders that it had hedged downside risk in its own illiquid investments using special purpose entities. However, investors were oblivious to the fact that the special purpose entities were actually using the company's own stock and financial guarantees to finance these hedges. This prevented Enron from being protected from the downside risk.[27] Notable examples of special purpose entities that Enron employed were JEDI, Chewco, Whitewing, and LJM.
By 2000, the Dabhol plant was nearly complete and Phase 1 had begun producing power. Enron as a whole, however, was heavily overextended, and in the summer of that year Mark and all the key executives at Enron International were asked to resign from Enron in an effort to reshape the company and get rid of asset businesses. Shortly thereafter a payment dispute with MSEB ensued, and Enron issued a stop-work order on the plant in June 2001. Enron executives were unable to resolve the payment conflict with Indian government officials, and by December 2001 the Enron scandal and bankruptcy cut short any opportunity to revive the construction and complete the plant. Enron had invested $900 million in Dabhol and lost most of it; GE and Bechtel purchased Enron's equity position in the project in bankruptcy court. In 2005, an Indian government-run company, Ratnagiri Gas and Power, was set up to finish construction on the Dabhol facility and operate the plant. 
"Donkey punch" was one of several slang terms used by Enron traders to refer to their price gouging methods. During investigations into the 2004 Enron scandal over manipulation of the electricity market in California, recordings of Enron traders were uncovered dating from 2000 and 2001. In the recordings, fraudulent accounting schemes were referred to using slang terms, including "Donkey Punch." The 2007 report by the Federal Energy Regulatory Commission was unable to identify the meaning that Enron had attached to the term "Donkey Punch." U.S. Senator Maria Cantwell, in a 2004 press release about the Enron hearings, identified the Donkey Punch as "a crude pornographic term," one of many "lewd acts" that Enron employees used to describe their schemes. Cantwell asked the Federal Energy Regulatory Commission to take down the emails that were on its website due to the content.
Enron's aggressive accounting practices were not hidden from the board of directors, as later learned by a Senate subcommittee. The board was informed of the rationale for using the Whitewing, LJM, and Raptor transactions, and after approving them, received status updates on the entities' operations. Although not all of Enron's widespread improper accounting practices were revealed to the board, the practices were dependent on board decisions.[54] Even though Enron extensively relied on derivatives for its business, the company's Finance Committee and board did not have enough experience with derivatives to understand what they were being told. The Senate subcommittee argued that had there been a detailed understanding of how the derivatives were organized, the board would have prevented their use.[55]
Another major correction of Enron's earnings was announced on November 9, with a reduction of $591 million of the stated revenue of years 1997–2000. The charges were said to come largely from two special purpose partnerships (JEDI and Chewco). The corrections resulted in the virtual elimination of profit for fiscal year 1997, with significant reductions for the other years. Despite this disclosure, Dynegy declared it still intended to purchase Enron.[114] Both companies were said to be anxious to receive an official assessment of the proposed sale from Moody's and S&P presumably to understand the effect the completion of any buyout transaction would have on Dynegy and Enron's credit rating. In addition, concerns were raised regarding antitrust regulatory restrictions resulting in possible divestiture, along with what to some observers were the radically different corporate cultures of Enron and Dynegy.[112]
Enron grew wealthy due largely to marketing, promoting power, and its high stock price. Enron was named "America's Most Innovative Company" by the magazine "Fortune" for six consecutive years, from 1996 to 2001. It was on the "Fortune"s "100 Best Companies to Work for in America" list during 2000, and had offices that were stunning in their opulence. Enron was hailed by many, including labor and the workforce, as an overall great company, praised for its large long-term pensions, benefits for its workers and extremely effective management until the exposure of its corporate fraud. The first analyst to question the company's success story was Daniel Scotto, an energy market expert at BNP Paribas, who issued a note in August 2001 entitled "Enron: All stressed up and no place to go", which encouraged investors to sell Enron stocks, although he only changed his recommendation on the stock from "buy" to "neutral".
Closely working alongside employees from Enron, he got to know the staff as well as the accounting procedures. He left Arthur Andersen and joined the Enron Capital and Trade Division. He eventually was promoted to Chief Accounting Officer, where he signed off on the Special Purpose Entities that were Enron's downfall. He was fired from Enron on February 14, 2002, as part of an investigation by the U.S. Securities and Exchange Commission.
Following the bankruptcy of Enron, telecommunications holdings were sold for "pennies on the dollar". In 2002, Rob Roy of Switch Communications purchased Enron's Nevada facility in an auction attended only by Roy. Enron's "fiber plans were so secretive that few people even knew about the auction." The facility was sold for only $930,000. Following the sale, Switch expanded to control "the biggest data center in the world".
In February 2001, Chief Accounting Officer Rick Causey told budget managers: "From an accounting standpoint, this will be our easiest year ever. We've got 2001 in the bag."[77] On March 5, Bethany McLean's Fortune article Is Enron Overpriced? questioned how Enron could maintain its high stock value, which was trading at 55 times its earnings.[78] She argued that analysts and investors did not know exactly how Enron was earning its income. McLean was first drawn to the company's situation after Chanos suggested she view the company's 10-K for herself.[79] In a post-mortem interview with The Washington Post, McLean recalled finding "strange transactions", "erratic cash flow", and "huge debt." The debt was the biggest red flag to McLean; she wondered how a supposedly profitable company could be "adding debt at such a rapid rate."[80] Later, in her book, The Smartest Guys in the Room, she recalled that many people in the investment community were cooling about Enron, but few were willing to go on the record about their suspicions.
From 2002 to 2005, Weissmann was deputy director and then director of the task force investigating the Enron scandal. His work resulted in the prosecution of more than 30 people for crimes including perjury, fraud, and obstruction including three of Enron's top executives, Andrew Fastow, Kenneth Lay. and Jeffrey Skilling. In a follow-up case in U.S. District Court, Weissmann also was successful at arguing that auditing firm Arthur Andersen LLP had covered up for Enron. In that case, which resulted in the destruction of Andersen, he convinced the district judge to instruct the jury that they could convict the firm regardless of whether its employees knew they were violating the law. That ruling was later unanimously overturned by the Supreme Court in "Arthur Andersen LLP v. United States", in which the court held that "the jury instructions failed to convey the requisite consciousness of wrongdoing."
In January 2000, Kenneth Lay and Jeffrey Skilling announced to analysts that they were going to open trading for their own "high-speed fiber-optic networks that form the backbone for Internet traffic". Investors quickly bought Enron stock following the announcement "as they did with most things Internet-related at the time", with stock prices rising from $40 per share in January 2000 to $70 per share in March, peaking at $90 in the summer of 2000. Enron executives obtained windfall gains from the rising stock prices, with a total of $924 million of stocks sold by high-level Enron employees between 2000 and 2001. Head of Enron Broadband Services, Kenneth Rice, sold 1 million shares himself, earning about $70 million in returns. As prices of existing fiber optic cables plummeted due to the vast oversupply of the system, with only 5% of the 40 million miles being active wires, Enron purchased the inactive "dark fibers", expecting to buy them at low cost and then make a profit as the need for more usage by internet providers increased, with Enron expecting to lease its acquired dark fibers in 20 year contracts to providers. However, Enron's accounting would use estimates to determine how much their dark fiber would be worth when "lit" and apply those estimates to their current income, adding exaggerated revenue to their accounts since transactions were not yet made and it was not known if the cables would ever be active. Enron's trading with other energy companies within the broadband market was its attempt to lure large telecommunications companies, such as Verizon Communications, into its broadband scheme to create its own new market.
During the summer of 2001, Enron made an attempt to sell a number of Enron International's assets, many of which were not sold. The public and media believed it was unknown why Enron wanted to sell these assets, suspecting it was because Enron was in need of cash. Employees who worked with company assets were told in 2000 that Jeff Skilling believed that business assets were an outdated means of company worth, and instead he wanted to build a company based on "intellectual assets".
The SEC announced it had filed civil fraud complaints against Andersen.[125] A few days later, sources claimed Enron and Dynegy were renegotiating the terms of their arrangement.[126] Dynegy now demanded Enron agree to be bought for $4 billion rather than the previous $8 billion. Observers were reporting difficulties in ascertaining which of Enron's operations, if any, were profitable. Reports described an en masse shift of business to Enron's competitors for the sake of risk exposure reduction.[126]
As was later discovered, many of Enron's recorded assets and profits were inflated or even wholly fraudulent and nonexistent. One example of fraudulent records was during 1999 when Enron promised to repay Merrill Lynch & Co.'s investment with interest in order to show a profit on its books. Debts and losses were put into entities formed "offshore" that were not included in the company's financial statements, and other sophisticated and arcane financial transactions between Enron and related companies were used to eliminate unprofitable entities from the company's books.
In April 2000, owing to the decreasing value of Rhythms stock and a calculated 68% chance that the hedge would default, Enron unwound the transaction. As per agreement, Swap-Sub took from Enron its $207 million-valued Rhythms stock, but instead returned unrestricted Enron stock supposedly valued $234 million. The Enron shares were, however, still under contractual restrictions and should have been devalued to around $161 million. Thus, Enron posted a slight profit instead of a true $70 million loss.
In 2002, Caldwell was selected to lead a team of investigators and prosecutors in the Department of Justice’s Enron Task Force. In that role, she recruited a team of federal prosecutors and agents from around the country to investigate the collapse of the former Fortune No. 7 company. Under Caldwell's leadership, more than 30 individuals were successfully prosecuted for their roles in fraud at Enron.
Eid was appointed as the United States Attorney for the District of Colorado on June 9, 2006. Among the cases Eid inherited from his predecessor, acting U.S. Attorney Bill Leone, was the ongoing prosecution of Joseph Nacchio, the former chairman of the board and chief executive officer of Qwest Communications International indicted on 42 counts of insider trading. Nacchio was accused of selling $101 million of Qwest stock in the first five months of 2001 despite knowledge from company insider's that Qwest's financial condition was deteriorating. Leone had been lead prosecutor on the Nacchio case since 2002, but several members of the prosecution team had left throughout the years due to infighting that threatened to derail the case. Due to the problems with the Nacchio team and prior failures to achieve convictions against other Qwest employees, U.S. Department of Justice officials became concerned about the Denver office's ability to get a conviction and considered taking over the prosecution. Eid persuaded them otherwise in part by hiring Cliff Stricklin, who prosecuted the case against former Enron officials Jeffrey Skilling and Kenneth Lay in response to the Enron scandal. Although Stricklin was difficult to woo following his Enron success, Eid successfully hired Stricklin in August 2006 as First Assistant U.S. Attorney of Colorado and the head prosecutor for the Nacchio case
Enron used a variety of deceptive, bewildering, and fraudulent accounting practices and tactics to cover its fraud in reporting Enron's financial information. Special Purpose Entities were created to mask significant liabilities from Enron's financial statements. These entities made Enron seem more profitable than it actually was, and created a dangerous spiral in which, each quarter, corporate officers would have to perform more and more financial deception to create the illusion of billions of dollars in profit while the company was actually losing money. This practice increased their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars' worth of Enron stock. The executives and insiders at Enron knew about the offshore accounts that were hiding losses for the company; the investors, however, did not. Chief Financial Officer Andrew Fastow directed the team which created the off-books companies, and manipulated the deals to provide himself, his family, and his friends with hundreds of millions of dollars in guaranteed revenue, at the expense of the corporation for which he worked and its stockholders.
The collapse of Enron is a well-known example of
the risks and abuses of Mark-to-Model pricing of Futures contracts. Many of Enron's contracts were difficult 
to value since these products were not publicly traded, thus computer models were used to generate prices. When Enron's profits began to fall with increased competition, accounts manipulated the mark-to-market models to put a positive spin on Enron's earnings.
Whitewing was the name of a special purpose entity used as a financing method by Enron.[32] In December 1997, with funding of $579 million provided by Enron and $500 million by an outside investor, Whitewing Associates L.P. was formed. Two years later, the entity's arrangement was changed so that it would no longer be consolidated with Enron and be counted on the company's balance sheet. Whitewing was used to purchase Enron assets, including stakes in power plants, pipelines, stocks, and other investments.[33] Between 1999 and 2001, Whitewing bought assets from Enron worth $2 billion, using Enron stock as collateral. Although the transactions were approved by the Enron board, the asset transfers were not true sales and should have been treated instead as loans.[34]
As the scandal progressed, Enron share prices decreased from US $90.56 during the summer of 2000, to just pennies. Enron had been considered a blue chip stock investment, so this was an unprecedented event in the financial world. Enron's demise occurred after the revelation that much of its profits and revenue were the result of deals with special purpose entities (limited partnerships which it controlled). This meant that many of Enron's debts and the losses that it suffered were not reported in its financial statements.