I would like to propose the following changes and/or additions to the Security and Exchange Commission’s regulations. These changes are in regards to the last ten years of corporate fraud in the financial world involving such companies as Enron, WorldCom, Tyco, and Xerox. The primary changes include the addition of a Reserve Bond and an adjustment in the Bounty Payment program. Secondary changes include a Board of Directors mix-up program for securities companies, and SEC involvement in external auditing. Reason / Background The major downfall and/or reorganization of companies have cost: lost securities, downsized or vacancies in employment, lost or minimized retirements, and assisted in the economic recession. The following companies have been involved in varying experiences that led to financial improprieties and unethical decisions. Enron “Boosted profits and hid debts totaling over $1 billion by improperly using off-the-books partnerships; manipulated the Texas power market; bribed foreign governments to win contracts abroad; manipulated California energy market” (Brag, 2002, para. 9). The behavior exhibited by Enron’s former CEO Kenneth Lay showed that large and successful appearing companies are not exempt from human error. This human error caused unethical decisions to be made that adversely affected thousands of lives. WorldCom’s lack of corporate governance and questionable financial follies led to “Overstated cash flow by booking $3.8 billion in operating expenses as capital expenses; gave founder Bernard Ebbers $400 million in off-the-books loans” (Brag, 2002, para. 21). This unethical behavior led to even more financial losses after further investigations, and resulted in billions of dollars in losses... ... middle of paper ... ... (2008). Retrieved from http://www.caslon.com.au/whistlecasesnote.htm#xerox Hansen, K. O., Valesquez, M., Moberg, D., & Calkins, M. (n.d). What Really Went Wrong With Enron? A Culture of Evil?. Retrieved from http://www.scu.edu/ethics/publications/ethicalperspectives/enronpanel.html Kotz, D. H. (2010, March 29). Assessment of the SEC’s Bounty Program (Assessment United States Security and Exchange Commission 474). Retrieved from Security and Exchange Commission: http://www.sec-oig.gov/reports/auditsinspections/2010/474.pdf Lyke, B., & Jickling, M. (2002, August 29). WorldCom: The Accounting Scandal (Report). Retrieved from U.S Department of State: http://fpc.state.gov/documents/organization/13384.pdf Retrieved from http://money.cnn.com/2005/06/17/news/newsmakers/tyco_trialoutcome/index.htm Retrieved from http://www.forbes.com/2002/07/25/accountingtracker.html
Enron was a Houston based energy, commodities and services company. When people hear the name Enron they automatically associate their name with one of the biggest accounting and ethical scandals known to date. The documentary, “Enron: The Smartest Guys in the Room,” provides an in depth examination of Enron and the Enron scandal. The film does a wonderful job of depicting the downfall of Enron and how the corporate culture and ethics were key to Enron’s fall. As the movie suggests, Enron is “not a story about numbers, it is a story about people.”
Applying the idea of moral goodness with business, however, is often a contradictory concept in lieu of the malicious and often scandalous behavior that businesses are notoriously publicized with. Enron, an energy company based out of Houston, Texas, is perhaps the most popular of scandals of the century thus far. Their name is synonymous with corporate fraud and corruption after the allegations of accounting fraud hit the headlines in 2001. The scandal was also considered a landmark case in the field of business fraud and brought into question the accounting practices of many corporations throughout the US (Raslan, 2009). Under this shroud of deceptive business practices and activities, applying the idea of moral goodness with business is a difficult sell to readers.
Romero, S., & Berenson, A. (2002, June 26). WorldCom says it hid expenses, inflating cash flow from $3.8 billion. The New York Times. Retrieved from http://www.nytimes.com
Many organizations have been destroyed or heavily damaged financially and took a hit in terms of reputation, for example, Enron. The word Ethics is derived from a Greek word called Ethos, meaning “The character or values particular to a specific person, people, culture or movement” (The American Heritage Dictionary, 2007, p. 295). Ethics has always played and will continue to play a huge role within the corporate world. Ethics is one of the important topics that are debated at lengths without reaching a conclusion, since there isn’t a right or wrong answer. It’s basically depends on how each individual perceives a particular situation. Over the past few years we have seen very poor unethical business practices by companies like Enron, which has affected many stakeholders. Poor unethical practices affect the society in many ways; employees lose their job, investors lose their money, and the country’s economy gets affected. This leads to people start losing confidence in the economy and the organizations that are being run by the so-called “educated” top executives that had one goal in their minds, personal gain. When Enron entered the scene in the mid-1980s, it was little more than a stodgy energy distribution system. Ten years later, it was a multi-billion dollar corporation, considered the poster child of the “new economy” for its willingness to use technology and the Internet in managing energy. Fifteen years later, the company is filing for bankruptcy on the heels of a massive financial collapse, likely the largest in corporate America’s history. As this paper is being written, the scope of Enron collapse is still being researched, poked and prodded. It will take years to determine what, exactly; the impact of the demise of this energy giant will be both on the industry and the
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.
In (Complaint 17588)we find that they were directly involved in a fraudulent improper accounting scheme. With the intent to manipulate said earnings to keep them on point with Wall Street's expectations as well as support WorldCom's stock price.
WorldCom started out as Long Distance Discount Services (LDDS) a long distance telephone service provider from Mississippi 1983. Bernard Ebbers was selected as their CEO and with his help; WorldCom was placed as number 52 on the Fortune 500 Companies in 2001.( ) The company’s success came from their ability to provide an alternative to the major long distance carriers by tailoring service to each customers calling patterns. Through acquisitions of multiple companies allowed LDDS to grow at a very rapid rate. The fraud began in the late 1990’s; the company's revenue stream had slowed so the stock price of the company was falling. The company took 2.8 billion out of reserve that was meant to cover liabilities in some of the companies it had acquired, and then put that money into its revenue line in the financial statements.( ) By 1998, their stock was slowly declining. During 2001, Ebbers persuaded the board of directors to provide him corporate loans. Ebbers wanted to cover the margin, but the strategy ...
Sarbanes-Oxley Act of 2002 (SOX), Pub. L. No. 107-204, 116 Stat. 745 (codified as amended in scattered sections of 15 U.S.C.)
Pulliam, Susan and Deborah Solomon. "How Three Unlikely Sleuths Exposed Fraud at WorldCom." 30 October 2002. The Wall Street Journal Online. 2 February 2011 .
When codes of ethics are breached, positive outcomes are rare. An illustrative case is the now defunct Enron Corporation. In the movie, Enron: The Smartest Guys in the room, (Gibney A, 2005) We observed how Enron traders sham...
Enron Corporation was based in Houston, Texas and participated in the wholesale exchange of American energy and commodities (ex. electricity and natural gas). Enron found itself in the middle of a very public accounting fraud scandal in the early 2000s. The corruption of Enron’s CFO and top executives bring to question their ethics and ethical culture of the company. Additionally, examining Enron ethics, their organization culture, will help to determine how their criminal acts could have been prevented.
Wilson, A. C., & Key, K. G. (2012). Enron: A Case of Deception and Unethical Behavior. Feature Edition, 2012(1), 88-97.
WorldCom began as a small provider of long distance telephone service. During the 1990s, the firm made a series of acquisitions of other telecommunications firms that boosted its reported revenues from $154 million in 1990 to $39.2 billion in 2001 (Lyke and Jickling, 2002).