Rhythms also provided the first-and perhaps most dramatic-example of how the purportedly "arm's-length" negotiations between Enron and the ]LJM partnerships resulted in economic terms that were skewed toward LJM and enriched Fastow and other investors.
In the case of Rhythms, those investors included several Enron employees who were secretly offered financial interests by Fastow and who accepted them in apparent violation of Enron's Code of Conduct. In March 1998, Enron invested $ 10 million in the stock of Rhythms Net Connections, Inc.
Limited liability is a type of liability that does not exceed the amount invested in a partnership or limited liability company.
The limited liability feature is one of the biggest advantages of investing in publicly listed companies.
Limited liability is especially desirable when dealing in industries that can be subject to massive losses, such as insurance.Enron has since become a well-known example of willful corporate fraud and corruption.The scandal also brought into question the accounting practices and activities of many corporations in the United States and was a factor in the enactment of the Sarbanes–Oxley Act of 2002.The Rhythms transaction was Enron's first business dealing with the LJM partnerships.The transaction is significant for several reasons.