Ten years ago Saturday, the European Union celebrated the launch of the first euro coins and notes with fireworks, parties and solemn speeches.

Today, several members are on the edge of bankruptcy. First-world Europe is reduced to asking the IMF and China for help. The euro itself is at risk of unraveling.

How could it all have gone so wrong?

In a series of interviews with architects of the euro - a former president, a former prime minister, two former finance ministers, a former central banker, a former EU commissioner and a former EU Affairs minister - common explanations emerged.

The single currency would not have sparked the euro zone debt crisis, they argued, if the pro-European dynamic that led to its creation had continued into its first decade. But instead of launching an economic and political integration of Europe, the low interest rates and easy money that arrived with the euro led peripheral states on a path of profligacy, widening the gap with frugal, export-oriented economies of the north.

Meanwhile, as rapid enlargement made EU decision-making more cumbersome and as citizens' enthusiasm for Europe waned, EU leaders hollowed out the authority of the European Commission, the union's chief executive body and guardian of its treaties and of fiscal probity.

Most of all, some of the architects now admit that after the first few euphoric years, it became clear the euro itself was a flawed concept, laying a single currency over a group of countries that stuck to national sovereignty over their economies.

The euro was a dare from the get-go. Former British Prime Minister Margaret Thatcher famously spurned the currency as unworkable and a threat to sovereignty; Sweden stayed out, too. Euro boosters themselves pushed ahead with the project despite sharing misgivings about its inherent political and economic flaws.

"One thing was evident to me from the beginning," said Guy Verhofstadt, leader of the European Parliament's Alliance of Liberals and Democrats, Belgian prime minister from 1999 to 2008, and one of Europe's most federalist politicians. "A state can exist without a currency, but a currency cannot exist without a state."

FROM UNION TO DISUNION

One of the driving forces of European integration is former French President Valery Giscard d'Estaing. Now 85, he resides in a stately Parisian townhouse filled with museum-quality 18th-century furniture.

As president from 1974 to 1981, Giscard, with German Chancellor Helmut Schmidt, helped create the European Monetary System and the European Council summits of EU leaders. Early last decade, he chaired the drafting of the European Constitution that later became the Lisbon Treaty, which governs EU institutions as they function today.

For Giscard, one of the key reasons for today's euro zone debt crisis is the EU enlargement of the past decade, in particular in 2004, when 10 countries - mostly former East Bloc nations - joined the European Union. "By the time the euro was introduced, the group was no longer homogeneous," Giscard said in an interview.

The European Union now counts 27 members and is set to receive a 28th - Croatia - in 2013. Enlargement has made the European institutions hard to govern, he says, notably the executive European Commission, which has a commissioner for every member country.

The crisis erupted first in Greece. Giscard, a hellenophile, did as much as anyone to bring Athens into the European Union. He championed its EU candidacy at a crucial moment in 1979, fending off German objections and European Commission reservations at the time against admitting the country just seven years after the fall of its military junta.

Greece joined what was then called the European Economic Community in 1981. Two decades later, in 2001, it joined the euro.

Standing in his ballroom-sized entrance hall, decorated with deer antlers and two enormous elephant tusks, Giscard now voices the unthinkable: Greece should consider leaving the euro.

Giscard said that a deflation, or economy-wide drop in prices, of 40 or 50 percent would be necessary to restore competitiveness if Greece remains in the euro. That is probably too hard for its citizens to bear, which makes a euro exit and consequent devaluation a more acceptable outcome.

The Greek people need to study "seriously and honestly" whether to go back to the drachma or stay in the euro. "It's a Greek choice."

WALKS WITH A LIMP

On the other side of the French political spectrum is Michel Sapin, 59, who was finance minister in a Socialist government from 1992 to 1993 and dealt with Europe's foreign exchange crisis of the early nineties. He is likely to hold a senior office if Socialist Francois Hollande beats conservative incumbent Nicolas Sarkozy in the April-May presidential election.

To Sapin, the euro zone's problems stem from a fundamental design flaw in the 1992 pact that created the European Union and led to the euro, the Maastricht Treaty.

"The Maastricht Treaty was built on two pillars. The monetary pillar has been an extraordinary success, because, say what you want, there is no monetary crisis - the euro is strong," he said. "The second pillar was the economic government. We knew from the start we had to build a second pillar for economic, budget and fiscal matters, because countries cannot share the same currency if they have divergent economic policies."

European Investment Bank President Philip Maystadt, a veteran of EU monetary integration, could not agree more. He took part in the Maastricht Treaty negotiations as Belgian finance minister from 1988 to 1998. He recalls that Germany at the time was suspicious of unified economic government, fearing it would impinge on the independence of the future European Central Bank. But protecting the bank's independence was not a good reason to abandon the concept of economic governance, he said.

"(Former European Commission President) Jacques Delors said the single currency walked with a limp - it had one strong leg, the monetary part, and one weak leg, the economic governance," he said. "Clearly, this ersatz economic government was utterly insufficient."

TURNING POINT

European leaders were aware of the shortcomings of Maastricht. They spent two years negotiating the 1997 Stability and Growth Pact, which threatens escalating sanctions on states that fail to limit annual deficits to three percent of GDP and outstanding debt to 60 percent of GDP.

But the focus on these two indicators meant that other measures of economic health, such as private debt, wage costs and the current account balance, were ignored.

As a result, EU finance ministers overlooked the build-up of tensions in the Irish and Spanish economies. Their public finances looked to be in excellent shape by Maastricht Treaty standards, until Ireland's banking crisis and the Spanish real estate collapse. Those implosions forced authorities to turn private debt into public debt, wrecking their nations' finances.

Imperfect as it was, the Stability Pact was the one mechanism that could have kept the single currency on the rails. But it was discarded the first time it was tested.

When the 2002-2003 economic crisis pushed French and German public finance indicators beyond Maastricht limits, the two big EU nations cast it aside. Exceptions were made, and in 2005 the pact's provisions were watered down further.

"That was a real turning point. When the other finance ministers saw what France and Germany were getting away with, that's when they said, 'Ah, ok, we don't have to respect the Stability Pact'," Maystadt said.

In the debt-fueled prosperity of the first half decade of this century, this did not seem to matter. Euro zone interest rates were low, growth was fast, stock markets went up. At the start of the decade it looked like the lack of policy coordination would only cause member states' economies to be a bit out of sync.

From around 2004 that changed. It became obvious that two very different models were cutting Europe in two: export-oriented manufacturing with strong wage control in the north, and debt-financed consumption in the south.

Books have been written about this trend, but a picture says more than a thousand words: the charts of net foreign assets and current account balances in north and south look like mirror images.

The combined net foreign assets of Germany, the Netherlands, Belgium, Austria and Finland grew more than four-fold to nearly two trillion euros by the end of the decade, as their current account surplus swelled to more than six percent of GDP, according to figures from Thomson Reuters Datastream and French investment bank Natixis.

But net foreign debt in France, Italy, Spain, Greece, Portugal and Ireland grew to more than 1.5 trillion euros as the southern zone's current account deficit widened to around four percent.

"When we voted the Maastricht Treaty, it was with the firm intention to continue on the path of political integration. Then there was a sort of sigh of relief when we saw that, actually, the single currency could work without it," said Sapin, the former French finance minister. "It has taken us ten years to understand that it could not."

After a decade of defying common sense and with their countries' credit ratings crumbling, euro zone leaders are finally admitting that Maastricht was flawed.

In a letter to European Council President Herman Van Rompuy before the December 9 EU summit, French President Nicolas Sarkozy and German Chancellor Angela Merkel made a remarkable admission: "The current crisis has uncovered the deficiencies in the construction of (European monetary union) mercilessly."

COMMISSION DEFANGED

The letter does not mention how Sarkozy and Merkel, and their predecessors Jacques Chirac and Gerhard Schroder, gradually undermined the foundations of economic governance that earlier generations of EU leaders built.

One of the oldest debates in the European Union is over who should drive EU affairs: the supranational body that is the European Commission or by the heads of state or government of its member nations, represented in the European Council. First created as an informal discussion forum in 1974, the Council formally became an EU institution in 2009 as part of the Lisbon Treaty reforms.

During the long reign of Jacques Delors - three successive terms, from 1985 to 1994 - the Commission played a leading role. With the backing of socialist French President Francois Mitterrand, under whom he had been a finance minister, Delors drove a strong federal agenda, often clashing with eurosceptic EU leaders, most famously with Margaret Thatcher.

The Delors Commission created the single market, shepherded the Maastricht Treaty and set the continent on track for the single currency. None of his successors would have that kind of influence again.

"After Delors' departure, the EU leaders did not want such an active Commission president again. They wanted someone who would not bother them," said Yves-Thibault de Silguy, who was commissioner for economic, monetary and financial affairs in the 1995-99 Jacques Santer commission.

Santer, then prime minister of Luxembourg, was chosen after the UK had vetoed the candidacy of Belgian Prime Minister Jean-Luc Dehaene, saying he represented an outdated tradition of centralism and "big government".

"What happened was a progressive loss of confidence in the very thing that had made Europe successful: the community method," de Silguy said.

Under this method, an independent European Commission makes proposals to the Council and the European Parliament, and implements them once they are approved.

But in the past decade, governments clipped the Commission's wings year after year, in favour of an "intergovernmental" approach whereby governments make decisions for the Commission to execute, often in ad-hoc summits that rubber-stamp decisions prepared in an even closer circle of French and German leaders.

Intergovernmental decision-making itself is a source of delay and dilution, as it requires unanimity, giving each member state a blocking veto.

De Silguy said the intergovernmental approach explains a lot of today's problems and is particularly inappropriate for economic matters.

"Europe needs fluid and homogenous markets, with a policeman to make sure the rules are obeyed, and that policeman is the European Commission. The entire European construct is based on that premise," he said.

In October 2001, a group of elder statesmen led by Delors and including former German chancellors Helmut Kohl and Helmut Schmidt raised the alarm, criticising their successors' growing tendency to bypass the Commission and micro-manage EU affairs. To no avail.

Giscard sums it up like this: "The Commission murmurs in Brussels and nobody listens."

EUROPEAN HANGOVER

The German and French leaders who bucked Brussels, to be sure, had a sound argument for doing so.

Their nations have the euro zone's largest and second-largest economies and populations, respectively. But the European Commission gives each of the 27 nations one representative. That ties down Germany and France like Gulliver to their Lilliputian neighbors - a non-starter for their peoples.

"The problem with the Commission is that the Baltic states have a bigger weight than Germany," said Giscard. "That is not reasonable."

Indeed, the EU leaders' increasingly nationalistic stance went hand in hand with a growing disenchantment of the European public with the federal ideal, as can be read from the EU's "Eurobarometer" opinion polls.

Since 1974, the EU has asked citizens twice a year whether they think their country's EU membership is "a good thing". The percentage of people agreeing with that slipped from 63 percent in 1975 to 50 percent in 1981, the year Mitterrand was elected French president.

From 1981, positive feeling about European integration rose non-stop for a decade, to hit an all-time high of 71 percent in 1991, the year before the Maastricht Treaty was signed.

But in 60 years of European construction, the eighties and early nineties were the exception to a general climate of reluctant stop-and-go integration.

After Maastricht, pro-European feeling fell off a cliff, with the number of people considering their countries' EU membership a good thing falling to an all-time low of 46 percent in the spring of 1997.

The launch of the euro as an accounting currency in 1999 and the arrival of the euro notes and coins in 2002 restored good feeling for a few years. But the rejection of the European Constitution in French and Dutch referendums in 2005 showed the tide had turned again.

Pro-European feeling slid from 59 percent in a Continent-wide poll in autumn 2004 to 50 percent in autumn 2005 and to 47 percent in spring 2011. It will likely hit a new all-time low in the next wave of measurement, according to an official involved with the poll.

BRIDGE OF DISCORD

With a flawed single currency, an emasculated EU Commission, and an increasingly eurosceptic public, the euro zone would have hit a bump sooner or later.

But there was one euro side-effect that magnified all the other problems.

Besides being a medium of exchange, an accounting unit and a store of value, a currency is also a feedback mechanism for economic policy.

If a country's policies are lax, and spending and wages are out of control, then its currency weakens and its interest rates rise, forcing the government to correct course with a devaluation or austerity programmes. With one currency for many states, devaluation is no longer an option.

The introduction of the euro brought a stable exchange rate, low interest rates and a flow of money to southern European countries that for decades had used devaluation as their main policy adjustment factor.

This caused speculative bubbles in real estate and banking, pushed up wages to uncompetitive levels, and led to a build-up of debt that in 2010 began to collapse.

One of the few founding fathers to have clearly articulated the euro's flaws was Otmar Issing, the German former European Central Bank chief economist and board member. In a 1996 paper, he warned that inherent in the currency was the potential for requiring transfers of cash from wealthier states to poorer ones. That could spark political tensions, he warned. "There is no example in history of a lasting monetary union that was not linked to a state entity," Issing wrote.

Fifteen years later he recalls that the warning signals appeared very early in the euro's life - divergences in labor costs among euro members, the violation of the budget-deficit cap. "What I didn't foresee was the dimension of the crisis," he told Reuters.

Another thing few forecast was the degree of discord the euro-zone crisis would engender: the EU flag being burnt in Athens, Greek street theatre portraying German leaders as Nazis, and a French socialist politician comparing Angela Merkel to Otto von Bismarck, who unified Germany by waging war on France.

In this climate, Europe's far-right parties have flourished, and few more than France's Front National, led by Marine Le Pen. She is running for president in the 2012 election on a pledge to take France out of the euro.

With an acute sense of history, Le Pen organised a little ceremony at the river Seine. On September 6 this year, Le Pen and activists of her party threw fake 500 euro notes off the Pont de la Concorde, which connects Place de la Concorde, site of the guillotine used for public executions during the French Revolution, to the French parliament.

"I will put an immediate end to all bail-outs of countries that have fallen victim to the euro," said Le Pen in front of a wall of cameras. "It is time for France to rediscover its national interest."

In the months ahead, as today's leaders hammer out a new treaty for deeper integration, they will have the voices of their predecessors ringing in their ears.

"The call for a more federal Europe has never been stronger than today, not out of conviction, but out of necessity," said Verhofstadt, the fomer Belgian prime minister. "I hope we make the jump. If we dither, we'll end up in the ravine."

(Additional reporting by Yves Clarisse, Elizabeth Pineau, Anna Maria Jakubek, Eva Kuehnen and Jonathan Gould; editing by Paul Taylor and Michael Williams)

Russia hands over Nerpa nuclear attack submarine to India at $920 mn deal

Russia has handed over the much- awaited nuclear-powered attack submarine Nerpa to India on a 10-year lease, boosting the Indian navy's fire-power. 


The Akula-II class Nerpa nuclear submarine had recently finished sea trials. 


"The signing ceremony happened yesterday at the Bolshoi Kamen ship building facility in the (Far East) Primorye region where the Nerpa is now based," ITAR-TASS news agency quoted a senior Russian navy official as saying. 


The deal for the submarine, which is being transferred on a 10-year lease, was worth USD 920 million. The report said an Indian crew would sail the Akula II class craft to its home base at the end of January. "All of the naval tests and performance checks have been completed," the Russian navy official said. 


The submarine, capable of remaining underwater for months, will be rechristened as 'INS Chakra' and it would be for the first time in more than two decades that the Indian navy would have a nuclear attack submarine. 


When Russia makes the delivery, it will make India only the sixth operator of nuclear submarines in the world. The submarine deal had figured during Prime Minister Manmohan Singh's visit to Russia earlier this month. 


The Nerpa, an Akula II-class attack submarine, had originally been scheduled for delivery in 2008 but an accident during sea trials on November 8 that year had forced the Russian authorities to put it on hold. 


Twenty people, mostly civilians, had been killed when a fire-suppressant gas was released on the Nerpa during shakedown trials, in one of Russia's worst naval accidents. 


The Akula-II class submarines are equipped with 28 nuclear-capable cruise missiles with a striking range of 3,000 km. The Indian version is reportedly expected to be armed with the 300-km Club nuclear-capable missiles. 


India had funded the completion of the Nerpa nuclear submarine at Amur Shipyard before the collapse of the Soviet Union in 1991.

Letter That Led to Downfall of Hewlett Chief Surfaces

The June 2010 letter that led to Mark V. Hurd's downfall as the head of Hewlett-Packard paints a portrait of an executive who pressed a contract employee for sex, touched her inappropriately and asked her to spend the night with him.

A Delaware court ruled Wednesday that the letter, from the lawyer Gloria Allred to Mr. Hurd, who at the time was chief executive of H.P., may be made public. The letter set in motion internal investigations at the company that led to Mr. Hurd's resignation on Aug. 6, 2010.

Running eight pages, the letter accuses Mr. Hurd of sexual harassment, saying he repeatedly pressed Ms. Allred's client, Jodie Fisher, a former actress in pornographic movies and reality show contestant, for sex. It also claims that he boasted about his wealth and knowledge of business deals.

Mr. Hurd, now a president of the Oracle Corporation, had fought to keep the letter private, asserting California's privacy laws. But the court found that the letter, while "mildly embarrassing," was not protected in the same way as trade secrets and certain financial information.

In Oct. 2007, the letter says, Mr. Hurd met Ms. Fisher, who was working as a contract employee for H.P., in Atlanta. On the pretext of showing her some documents for China's vice premier, the letter says, Mr. Hurd invited Ms. Fisher to his room at the Ritz-Carlton, where Mr. Hurd propositioned her.

"Ms. Fisher was horrified," the letter says, and after an hour of refusals, she eventually left. "You told her that no one had ever rejected you before and were clearly miffed." After describing several such encounters in detail, the letter says that Ms. Fisher's employment with H.P. ended.

A source briefed on the case, however, says that an outside counsel for H.P. prepared a timeline of e-mails that Ms. Fisher sent around the time of the events recorded in the letter. An e-mail sent soon after the Atlanta event had the subject line "great to see you" and talked about how she was looking forward to seeing Mr. Hurd again.

Ms. Fisher settled with Mr. Hurd two days before his resignation from H.P. In a letter following the settlement, she stated that the letter from Ms. Allred contained many inaccuracies.

"The letter was recanted by Ms. Fisher," said Ken Glueck, a senior vice president at Oracle. "She admitted it was full of inaccuracies." A spokeswoman for H.P. declined to comment.

An H.P shareholder, Ernesto Espinoza, had filed a lawsuit against H.P. and sought a copy of the letter in court to investigate corporate wrongdoing and waste associated with the relationship and Mr. Hurd's resignation. The Delaware court did not release the letter on Thursday, but the documents were obtained by The New York Times from sources close to the case.

Soon after receiving the letter from Ms. Allred, Mr. Hurd turned it over to H.P.'s corporate counsel, Michael Holston. Mr. Holston, acting on behalf of the company, began an internal investigation of Mr. Hurd's behavior.

While the letter from Ms. Allred was mostly a narrative of a powerful man's pursuit of a woman for sex (after the settlement Ms. Fisher also stated that she and Mr. Hurd never had sexual relations), it also states that in March 2008, Mr. Hurd told Ms. Fisher that he was working on a deal to purchase Electronic Data Systems. H.P. announced in May 2008 that it would buy E.D.S. for $13.9 billion.

If these accusations are true, Mr. Hurd could be found guilty of leaking insider information. Sources close to the H.P. board, however, say that its internal investigation did not prove any such transgression. Tension emerged between Mr. Hurd and the board, they say, over his changing explanations about his relationship with Ms. Fisher and discrepancies in his expense reporting.

A spokeswoman for the Securities and Exchange Commission, citing commission policy, would not comment on whether the agency looked into the charge. Given the time that has elapsed since the letter was known to several corporate lawyers and the government, it seems unlikely that there was sufficient evidence for a case.

In an e-mail to employees a few days after Mr. Hurd resigned in 2010, the company's interim chief, Cathie Lesjak, said Mr. Hurd resigned over "inappropriate behavior in which he engaged that violated H.P.'s standards of business conduct and undermined his ability to continue to lead the company."

Since Mr. Hurd's departure, Hewlett-Packard has struggled to regain its bearings. He was first replaced as chief by Leo Apotheker, who himself was ousted on Sept. 22. Meg Whitman, the former chief executive of eBay, is now H.P.'s chief.

10 of the Biggest Lies in History

http://history.howstuffworks.com/american-history/10-biggest-lies-in-history.htm

Case Study: Tyco

Tyco Background

Tyco International has operations in over 100 countries and claims to be the world's largest maker and servicer of electrical and electronic components; the largest designer and maker of undersea telecommunications systems; the larger maker of fire protection systems and electronic security services; the largest maker of specialty valves; and a major player in the disposable medical products, plastics, and adhesives markets. Since 1986, Tyco has claimed over 40 major acquisitions as well as many minor acquisitions.

How the Fraud Happened

According to the Tyco Fraud Information Center, an internal investigation concluded that there were accounting errors, but that there was no systematic fraud problem at Tyco. So, what did happen? Tyco's former CEO Dennis Koslowski, former CFO Mark Swartz, and former General Counsel Mark Belnick were accused of giving themselves interest-free or very low interest loans (sometimes disguised as bonuses) that were never approved by the Tyco board or repaid. Some of these "loans" were part of a "Key Employee Loan" program the company offered. They were also accused of selling their company stock without telling investors, which is a requirement under SEC rules. Koslowski, Swartz, and Belnick stole $600 million dollars from Tyco International through their unapproved bonuses, loans, and extravagant "company" spending. Rumors of a $6,000 shower curtain, $2,000 trash can, and a $2 million dollar birthday party for Koslowski's wife in Italy are just a few examples of the misuse of company funds. As many as 40 Tyco executives took loans that were later "forgiven" as part of Tyco's loan-forgiveness program, although it was said that many did not know they were doing anything wrong. Hush money was also paid to those the company feared would "rat out" Kozlowski.

Essentially, they concealed their illegal actions by keeping them out of the accounting books and away from the eyes of shareholders and board members.

How it Was Discovered

In 1999 the SEC began an investigation after an analyst reported questionable accounting practices. This investigation took place from 1999 to 2000 and centered on accounting practices for the company's many acquisitions, including a practice known as "spring-loading." In "spring-loading," the pre-acquisition earnings of an acquired company are underreported, giving the merged company the appearance of an earnings boost afterwards. The investigation ended with the SEC deciding to take no action.

In January 2002, the accuracy of Tyco's bookkeeping and accounting again came under question after a tip drew attention to a $20 million payment made to Tyco director Frank Walsh, Jr. That payment was later explained as a finder's fee for the Tyco acquisition of CIT. In June 2002, Kozlowski was being investigated for tax evasion because he failed to pay sales tax on $13 million in artwork that he had purchased in New York with company funds. At the same time, Kozlowski resigned from Tyco "for personal reasons" and was replaced by John Fort. By September of 2002, all three (Kozlowski, Swartz, and Belnick) were gone and charges were filed against them for failure to disclose information on their multimillion dollar loans to shareholders.

The SEC asked Kozlowski, Swartz, and Belnick to restore the funds that they took from Tyco in the form of undisclosed loans and compensations.

Where Are They Now?

Kozlowski and Swartz were found guilty in 2005 of taking bonuses worth more than $120 million without the approval of Tyco's directors, abusing an employee loan program, and misrepresenting the company's financial condition to investors to boost the stock price, while selling $575 million in stock. Both are serving 8 1/3-to-25-year prison sentences. Belnick paid a $100,000 civil penalty for his role. Since replacing its Board Members and several executives, Tyco International has remained strong.

The difference in the Tyco case and some of the others is that it is more related to greed than accounting fraud.

Enron: Discovering Fraud

On August 15, Sherron Watkins, an Enron VP, wrote an anonymous letter to Ken Lay that suggested Skilling had left because of accounting improprieties and other illegal actions. She questioned Enron's accounting methods and specifically cited the Raptor transactions.

Later that same month, Chung Wu, a UBS PaineWebber broker in Houston, sent an e-mail to 73 investment clients saying Enron was in trouble and advising them to consider selling their shares.

Sherron Watkins then met with Ken Lay in person, adding more details to her charges. She noted that the SPEs had been controlled by Enron's CFO, Fastow, and that he and other Enron employees had made their money and left only Enron at risk for the support of the Raptors. (The Raptor deals were written such that Enron was required to support them with its own stock.) When Enron's stock fell below a certain point, the Raptors' losses would begin to appear on Enron's financial statements. On October 16, Enron announced a third quarter loss of $618 million. During 2001, Enron's stock fell from $86 to 30 cents. On October 22, the SEC began an investigation into Enron's accounting procedures and partnerships. In November, Enron officials admitted to overstating company earnings by $57 million since 1997. Enron, or "the crooked E," filed for bankruptcy in December of 2001.

Where Are They Now?

Enron's CFO, Andrew Fastow, was behind the complex network of partnerships and many other questionable practices. He was charged with 78 counts of fraud, conspiracy, and money laundering. Fastow accepted a plea agreement in January 2004. After pleading guilty to two counts of conspiracy, he was given a 10-year prison sentence and ordered to pay $23.8 million in exchange for testifying against other Enron executives.

Jeff Skilling and Ken Lay were both indicted in 2004 for their roles in the fraud. According to the Enron Web site, "Enron is in the midst of liquidating its remaining operations and distributing its assets to its creditors. "

On May 25, 2006, a jury in a Houston, Texas federal court found both Skilling and Lay guilty. Jeff Skilling was convicted of 19 counts of conspiracy, fraud, insider trading and making false statements. Ken Lay was convicted of six counts of conspiracy and fraud. In a separate trial, Lay was also found guilty on four counts of bank fraud.

Kenneth Lay died of a heart attack on July 5, 2006, and a federal judge ruled that his conviction was void because he died before he had a chance to appeal. On October 23, 2006, Skilling was sentenced to 24 years in prison.

Case Study: Enron

Background

Once the seventh largest company in America, Enron was formed in 1985 when InterNorth acquired Houston Natural Gas. The company branched into many non-energy-related fields over the next several years, including such areas as Internet bandwidth, risk management, and weather derivatives (a type of weather insurance for seasonal businesses). Although their core business remained in the transmission and distribution of power, their phenomenal growth was occurring through their other interests. Fortune Magazine selected Enron as "America's most innovative company" for six straight years from 1996 to 2001. Then came the investigations into their complex network of off-shore partnerships and accounting practices.

How the Fraud Happened

The Enron fraud case is extremely complex. Some say Enron's demise is rooted in the fact that in 1992, Jeff Skilling, then president of Enron's trading operations, convinced federal regulators to permit Enron to use an accounting method known as "mark to market." This was a technique that was previously only used by brokerage and trading companies. With mark to market accounting, the price or value of a security is recorded on a daily basis to calculate profits and losses. Using this method allowed Enron to count projected earnings from long-term energy contracts as current income. This was money that might not be collected for many years. It is thought that this technique was used to inflate revenue numbers by manipulating projections for future revenue.

Use of this technique (as well as some of Enron's other questionable practices) made it difficult to see how Enron was really making money. The numbers were on the books so the stock prices remained high, but Enron wasn't paying high taxes. Robert Hermann, the company's general tax counsel at the time, was told by Skilling that their accounting method allowed Enron to make money and grow without bringing in a lot of taxable cash.

Enron had been buying any new venture that looked promising as a new profit center. Their acquisitions were growing exponentially. Enron had also been forming off balance sheet entities (LJM, LJM2, and others) to move debt off of the balance sheet and transfer risk for their other business ventures. These SPEs were also established to keep Enron's credit rating high, which was very important in their fields of business. Because the executives believed Enron's long-term stock values would remain high, they looked for ways to use the company's stock to hedge its investments in these other entities. They did this through a complex arrangement of special purpose entities they called the Raptors. The Raptors were established to cover their losses if the stocks in their start-up businesses fell.

When the telecom industry suffered its first downturn, Enron suffered as well. Business analysts began trying to unravel the source of Enron's money. The Raptors would collapse if Enron stock fell below a certain point, because they were ultimately backed only by Enron stock. Accounting rules required an independent investor in order for a hedge to work, but Enron used one of their SPEs.

The deals were so complex that no one could really determine what was legal and what wasn't. Eventually, the house of cards began falling. When Enron's stock began to decline, the Raptors began to decline as well. On August 14, 2001, Enron's CEO, Jeff Skilling, resigned due to "family issues." This shocked both the industry and Enron employees. Enron chairman Ken Lay stepped in as CEO.

In the next section we'll look at how the fraud was discovered. 

China launches own GPS to gain 'independence' from US satellites

China has begun operating a homegrown satellite navigation service in order to reduce its 'dependence' on the US' Global Positioning System (GPS). 


The new system called 'Beidou', or 'Big Dipper', would cover most parts of the Asia Pacific by next year and then the world by 2020, said Ran Chengqi, a spokesman for the system. 


Beidou started providing initial positioning, navigation and timing operational services to China and its surrounding areas from Tuesday, a spokesman for the system said. 


China was keen to assemble a home grown satellite system of its own to reduce dependence on GPS, specially for its armed forces who apprehend that that the reliance on US systems could be dangerous for the security. 


Six more satellites will be launched in 2012 to further improve the Beidou system and expand its service area to cover most parts of the Asia-Pacific region, spokesman Ran Chengqi, who is also director of the management office of the China Satellite Navigation System, told media here. 


China began to build the Beidou system in 2000 with a goal of breaking its dependence on the GPS and creating its own global positioning system by 2020. 


So far, China has launched 10 satellites for the Beidou system, with the tenth being lifted into orbit earlier this month. 


The Beidou system is compatible and interoperable with the world's other major global navigation satellite systems, according to Ran. 


Ran encouraged enterprises at home and abroad to join the research and development of application terminals compatible with Beidou, saying a beta version of the system's Interface Control Document (ICD) could be accessed online starting Tuesday, state-run Xinhua news agency reported.

BSNL to tap into the Indian Telecom Service pool for filling 700 posts

State-run Bharat Sanchar Nigam Ltd (BSNL) is looking at filling 700 positions at deputy general manager and higher grades to prevent a collapse of the state-owned telecom company, a top company executive with direct knowledge told ET. 


The company lost more than 90% of its top managers last month. It is exploring ways to woo back telecom professionals from the Indian Telecom Service (ITS) cadre. 


"The board is about to approve an emergency recruitment plan to cherry pick some 700 senior managers at the levels of DGM and above from the ITS pool," said a top BSNL executive. The board is scheduled to meet later this week. 


BSNL had recorded staggering losses of 6,384 crore for the year ended March 2011. Cash-strapped company had 1,300-plus ITS officers who were deputed to it nearly 11 years ago when the telco was carved out as a separate corporate entity from the DoT. Last month, barring 13 officers, virtually the entire ITS cadre comprising executives in the ranks of DGM, GM, PGM and CGM opted to return to the telecom department, robbing BSNL of its middle and senior management. 


While over 300-odd ITS officers have already reported to the telecom department's technical wing, the Telecom Engineering Centre, most don't have much work. It is precisely this situation that the BSNL leadership is trying to cash-in by setting in motion a special emergency recruitment drive to buy back the best ITS talent that is available. A selection board will shortly be constituted to complete the process in the next three months. 


"We are looking at hiring 400 executives in the rank of DGM and another 300-odd in the rank of GM and above. We will only target ITS officers in the first phase. In case, the numbers prove hard to come by, we will have to take the more expensive route of poaching top industry talent from the private sector," said another BSNL executive familiar with the matter.

Micromax poaches senior executives from Airtel, HTC & Sony Ericsson

Indian handset maker Micromax has roped in senior executives from Airtel, HTC and Sony Ericsson in a bid to strengthen its management and its position in the Rs 30,000-crore domestic handset market.

Giving the company a slight makeover from an entrepreneurial venture to a corporate, Micromax has created a new position of chief executive officer. It has divided its handset business into feature phones and smartphones, which will be lead by separate directors, the phone maker said in a statement on Tuesday.

Bharti Airtel's Deepak Mehrotra has joined the handset maker as chief executive officer, a new position created in the company. Mehrotra was working as operations director of mobility business at Airtel before joining Micromax.

"We will move up (the company's) share in the market and map geographies were under-represented in each category," Mehrotra told ET and added that his experience of sensing the customer's requirements and infusing it into the brand in his former company would help him at Micromax.

HTC's former country head Ajay Sharma will head the mobile phone maker's smartphone business. The smartphone division was created recently to focus on creating affordable high-end phones as the company intends to move up the value chain and differentiate itself from others in the market.

Sharma said Micromax is looking at garnering 10% market share. Sony Ericsson's head of modern trade Khaja Muzaffarullah will now lead sales of Micromax's feature phone business. In his new role, Muzaffarullah will leverage his expertise on emerging markets and create stronger distribution channels and robust network.

China building Asia's biggest thermal power plant

China's Shenhua Group will build the largest coal-fired power station in Asia over the next five years, the official Xinhua news agency said today, as the country struggles to meet its energy needs. 


China's biggest coal company and officials in the Guangxi Zhuang Autonomous Region signed a deal for the 8-gigawatt thermal plant yesterday, according to Xinhua and the local government's website. 


The plant would be built in the southern port city of Beihai to help ease power shortages caused by drought, which has strained power supplies. 


China relies on coal for nearly 70 per cent of its energy needs, which have soared in recent years as the country's economy grew at a blistering pace. 


Power outages and rationing have been imposed in 17 provinces this year and shortages could worsen if coal supplies are not increased or if the country's north sees particularly harsh winter weather. 


Shenhua's plans come days after local governments were ordered to reduce emissions of "major pollutants" by as much as 10 percent by 2015, amid growing public anxiety over bad air. 


China is the world's biggest greenhouse gas emitter with many of its cities cloaked in a polluted haze. 


Shenhua and the Guangxi government will ensure the new plant's eight power generators get a steady supply of coal from company mines in Indonesia and Australia by building four 100,000-tonne deepwater loading docks, Xinhua said. 


Beihai city will also build a coal storage facility capable of handling 30 million tonnes a year in the nearby port of Tieshan.

Vajpayee turns 88, PM, senior leaders greet him

Former Prime Minister Atal Behari Vajpayee, who turned 88 on Sunday, was greeted by a host of senior leaders including Prime Minister Manmohan Singh. 



Singh presented a bouquet to the senior BJP leader. Vajpayee's birthday is being observed as good governance day by the BJP. 

"Today is Atalji's birthday and we have decided to observe his birthday as good governance day. Because people still remember the good governance during Vajpyee-led NDA rule," BJP president Nitin Gadkari told reporters after meeting Vajpayee. 

Senior BJP leader LK Advani followed byRajnath Singh, Arun Jaitley, Ravi ShankarPrasad and many others also visited Vajpayee's residence to greet him on his birthday. 

"Greetings and well wishes are coming from all over the country for Atalji. He is the tallest leader of the BJP and is our source of inspiration. Though he is not able to work actively, his presence is still a source of inspiration for all party workers," BJP spokesperson Prakash Javadekar said. 

Scores of BJP workers and supporters carrying bouquets had come to greet Vajpayee. Vajpayee has not been keeping well for sometime now and did not contest the 1999 Lok Sabha elections. 

Deputy Speaker of Lok Sabha Karia Munda, Uttarakhand chief minister B C Khanduri, Bihar deputy chief minister Sushil Modi and BJP leader Najma Heptullah were among others who greeted Vajpayee on the occasion.

Stock song of 2011: Why This Kolaveri Di?

'This is investors' cry. A loud cry. For the year going by. Why this kolaveri, di?' 

This is how a broker sums up the stock market trend for 2011, while copying the grammar-less lyrics and format of one of the most talked about song of the year. 

The chartbuster song could well be the stock market's unofficial anthem for the year, where investors are crying about a 'murderous rage' that has cost them millions of dollars in every single minute of trade in 2011. 


The song, 'Why This Kolaveri, Di (Why this murderous rage, girl?), has crossed 20 million hits on the video sharing internet platform YouTube, becoming one of the biggest ever chartbusters from the Indian entertainment industry. 

On the other hand, the stock market is fast approaching towards a full-year loss of Rs 20 trillion in 2011, thanks to the ever-growing 'murderous rage' of the bears (a term used for the factors behind a stock market downslide). 

A deeper look at the statistics indeed presents a gory picture of the state of affairs in Dalal Street, once home to a vast majority of share trading activities in the country and still widely used as a kind of synonym for the stock market. 

The market has suffered an average loss of one million dollars in every ten seconds of trade so far in 2011 and the final figures might not be much different as only five days of trading is left for the year. 

This came after a year 2010, when the market had gained one million dollar in every 20 seconds of trade. 

The total erosion in the investor wealth for 2011 currently stands at about 600 million dollars -- a figure nearly double the quantum of gain in 2010. 

The investors' wealth, measured in terms of total value of all listed stocks in the country, grew by 317 million dollars in 2010, but has fallen by $600 million this year. 

The total market wealth even fell below the trillion dollar mark last week and is now barely keeping above the mark at $1.02 trillion. 

In rupee terms, the total market wealth has fallen by about Rs 19 lakh crore since the beginning of 2010 and currently stands at about Rs 54 lakh crore. In comparison, it was close to Rs 73 lakh crore at the end of 2010. 

The market barometers, the Sensex and the Nifty, have fallen by about one-fourth in 2011, as against a gain of about 18 per cent in the previous year. 

In absolute value terms, the sensex has fallen by 4,770 points so far in 2011, as against a gain of over 2,000 points last year. The index, comprising of large names like Reliance Industries, ICICI Bank, Infosys and TCS, is currently trading at 15,738.70 points and some experts have forecast a fall to a level as low as 11,000-12,000 in the coming months. 

It was trading over 20,000-mark at the end of 2010 and even scaled its record high closing level in November that year.