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Enron summary essay
The problem with enron
Summary of enron case study
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Enron Overview. For those who do not know what fraud is, it’s basically deception by showing people what they want to see. In business it’s the same concept, but in a larger scale by means of manipulating figures that will be shown to shareholders and investors. Before Sarbanes Oxley Act there was “Enron Corporation”, a fortune 500 company that managed to falsify their statements claiming revenues over 101 billion in a span of 15 years. In order for us to understand how this corporation managed to deceive the public for so long, the documentary or movie “Smartest Guys in the Room” goes into depth by providing viewers with first-hand information from people that worked close with or for “Enron”. In this movie we witness that behind every successful …show more content…
As a prosecutor I believe he who runs the finance and accounting department of a corporation is as powerful as the CEO appointed reason being they have the knowledge to understand where the company is headed for example, “Enron’s” Andrew Fastow had the chance to report “Enron’s” illegal practices as he handled the biggest accounts of the corporation, but instead participated in the charade by benefiting his own bank account and “arguably” that of the co-owners. The charges brought forward in 2000 will be the same charges I would present as a prosecutor, conspiracy, fraud and over 90 counts of money laundering, but slightly change the punishment as I believe a plea deal of 10 years in prison does not account for the amount of money he embezzled for his benefit and the other executives. This was a major setback for the middle and lower class that traded and invested in “Enron”, which is why a 15 to 20 years in prison with no possibility of …show more content…
One may ask, how is that different from the “Enron” scandal? There isn’t much to separate these two, it could be said that they are cousins. They both managed to cover their debts by overstating their revenue and profits and using other companies they owned to make profit or at least attempted to, but ultimately drowning in debt and committing fraud. What makes these two companies different would be the cooperation of the executives with the prosecutors or officials, which goes back to why Andrew Fastow only faced 10 years because he took a plea deal. On the other hand I believe 25 years for conspiracy, misrepresentation of statements and 7 counts filing false statements was well deserved because not only did that make a statement to the public, but in the eyes of the law Ebbers should have learnt from “Enron’s”
It took for the losing in the case with two Bear Stearns hedge fund managers for the government to realize that there was a problem within their justice system. If they couldn’t take down two people accused of deceiving investors, how did they assume that they would be able to take down numerous high-end executives within Wall Street? So in fall 2009, over a year after the initial hit of the financial crisis, Obama introduced the Financial Fraud Enforcement Task to oversee prosecution for fraud and financial crime a week before the hearing to discuss ’08 financial crisis prosecution. With such a department now put in place, the government believed they could go back and review the “fraud” that took place within Wall Street years before and place a blame somewhere, revealing another flaw of the US government and justice system. The government wasn’t taking the cases as serious as they should have. They weren’t finding ways to filter through Due Diligence underwriters and they weren’t calling forth whistleblowers. They were losing the case before it could even
On the surface, the motives behind decisions and events leading to Enron’s downfall appear simple enough: individual and collective greed born in an atmosphere of market euphoria and corporate arrogance. Hardly anyone—the company, its employees, analysts or individual investors—wanted to believe the company was too good to be true. So, for a while, hardly anyone did. Many kept on buying the stock, the corporate mantra and the dream. In the meantime, the company made many high-risk deals, some of which were outside the company’s typical asset risk control process. Many went sour in the early months of 2001 as Enron’s stock price and debt rating imploded because of loss of investor and creditor trust. Methods the company used to disclose its complicated financial dealings were all wrong and downright deceptive. The company’s lack of accuracy in reporting its financial affairs, followed by financial restatements disclosing billions of dollars of omitted liabilities and losses, contributed to its downfall. The whole affair happened under the watchful eye of Arthur Andersen LLP, which kept a whole floor of auditors assigned at Enron year-round.
Reputation is a company’s biggest asset so you would think that organisations would avoid engaging in any sort of business that would put its reputation in jeopardy. Nevertheless, many organisations find their credibility destroyed due to practices that are harmful and illegal, which could land a CEO’s in prison.
...FO at the Houston airport. While Mr. Fastow's parents were undergoing a random search, he stopped to chat with Mr. Schwieger. "I never got an opportunity to explain the partnerships to you," he said, according to Mr. Schwieger. Mr. Schwieger replied, "With everything that has come to light, I probably wouldn't like the answer I would have gotten."
Enron deliberately created artificial shortages in California for electricity, two days in a row, causing the price to skyrocket. Enron is a natural gas and electricity plant/business that buys and sells energy. The most influential historical event that has happened during the 21ST century is The Enron Scandal because the loss sustained by investors exceeded $70 billion and only a small amount of the lost money was returned.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
Take into consideration the auditors from Arthur Andersen. They did not take into consideration the greatest good for the greatest number of people. The auditors from Arthur Andersen took into consideration the consequences only for their own firm and their own well-being. Vinson & Elkins lawyers should not have destroyed evidence in order to protect their client Enron. Lawyers do take an oath to help protect and defend their client but they are not to help find ways for their client to violate 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...
Many other businesses may not want to do business as the company was involved with immoral behavior. The unethical business practices of the company will also gain exposure in the media and to the public (Nicol, 2015, n.p). Employees no longer keep unethical activities of the company to themselves. As a whistleblower, they may be perceived as a traitor, but in this case the senior executives are being traitors. They are taking money from immoral behavior and tarnishing the name of the company (Nicol, 2015, n.p).
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.
- a person oblivious of the pattern though engaged in it, and thoroughly stunned an unprepared to be caught and “treated” like a criminal””. (p.113).
An allusion of success and wealth fueled by poor motives as well as a thirst for survival in this competitive energy trading market. “Enron The Smartest Guys in the Room” was a documentary produced in 2005, that gave a deeper look into the behind the scenes fraud and inflation involving Enron’s accounting and revenue. Alex Gibney shows why people like Jeff Skilling, Andrew Fastow, and Kenneth Lay were able to pull of such a massive success while being nearly bankrupt and destroyed financially and socially. Gibney does not want to glorify them or give them props for their actions whatsoever, so he does this by identifying their financial and ethical weaknesses. Enron is one huge scandal, full of numerous illegal actions
Accounting fraud refers to fraud that is committed by a company by maintaining false information about the sales and income in the company books, when overstating the company's assets or profits, when a company is actually undergoing a loss. These fraudulent records are then used to seek investment in the company's bond or security issues. By showing these false entries, the company attempts to apply fraudulent loan applications as a final attempt to save the company by obtaining more money from bankruptcy. Accounting frauds is actually done to hide the company’s actual financial issues.
“When a company called Enron… ascends to the number seven spot on the Fortune 500 and then collapses in weeks into a smoking ruin, its stock worth pennies, its CEO, a confidante of presidents, more or less evaporated, there must be lessons in there somewhere.” - Daniel Henninger.
The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,