Fastow And The Spe's Case Study

Fastow and the SPE’s

Special purpose entities, or SPE, were created by the chief financial officer Andy Fastow. The purpose of the partnerships with the newly established entities was the high debt of Enron and to record some profit on the sale of Enron assets to these companies. This kind of company needed to be independent from Enron. To establish independence and to comply with GAAP it had to meet two criteria. A. the existence of independent investor who controls at least 3 % of the entity assets. B. investors should act as the controlling shareholder and in making the entity business decisions. Chewco was one of those entities created by Fastow, they wanted it to be used to cover the loses of another entity called JEDI (which had a partnership with CALPERS). They needed this company so they didn’t have to report this loss on their balance sheet therefore they needed some independent investor to take over the 3% of the entity. The outside investors were aware of Enron business in this kind of entity so they wouldn’t participate in such entity. One Enron executive, Michael Kopper, informed Fastow that he is willing to take over the 3% needed to run the company. Kopper made a lot of profit off his new position and also managed to

The investors saw the stock price go from an all-time high of $90 per share down to nothing in a blink of an eye. Even with the uncertainty surrounding Enron in the late part of 2001, stock analysts were still rating the stock very well. Unfortunately, investors listened to their advice and kept their stock in place. After all was said and done, the investors ended up losing $40 billion and were only able to recover about $7.27 billion from settlements with the banks and auditors. The creditors didn 't fare any better. All in all, they lost around $16 billion. After an initial loss of $21 billion, $5 billion was