Kenneth Lay former CEO was indicted on 11 criminal counts of fraud and making misleading statements. Jeff Skilling was indicted on 35 counts of wire fraud, securities fraud, conspiracy, making false statement on financial reports, and insider trading. Hence both were responsible for collapse of Enron. There are a several reasons that led to Enron’s collapse namely; a corrupt leadership at the top, violation of laws that were not impose by the company’s CEO, and Lack of regulation Enron had one of the best ethics code in the industry. First, not work out with written ethics and compliance codes clearly describe how was the company collapse, moreover corruption from leaders at the top and middle level of organizations is a recipe for disaster.
Ethicality of Accounting Activities Ethicality of Accounting Activities The case involving WorldCom, a telecommunications company, was one of the biggest accounting scandals to happen in the US. The company filed for bankruptcy in 2002 after an internal auditor, Cynthia Cooper, discovered discrepancies in the accounting data. After a complete audit with a team, Cynthia found that the discrepancies were fraudulent and unethical. More than one department in the company played a role in covering up the accounting activities that were not ethical or legal. Accounting Activities in Detail The key accounting activity in the case dealt with incorrect journal entries for capital expenditures.
A lengthy investigation and several hearings pressed JPM leaders on their trading practices. One hearing in particular, conducted by the Permanent Subcommittee on Investigations accused the banking giant of misleading investors and regulators about the risks taken during trading. In his testimony, JPM’s chief financial officer, Douglas Braunstein, “said his statements were based on what he knew at the time, conceding that in hindsight the credit portfolio ‘did not act as a hedge, it changed dramatically and we misunderstood the risks’” (www.4-traders.com, 2013). Later in his testimony, Braunstein mentioned that his 2012 pay was cut in half to approximately $5 million, because of the trading debacle. Other bank officials made similar statements in an attempt to dispel public opinion that they, and everyone in the banking industry, were overpaid and over-privileged.
Because of Enron’s shady accounting and false representation of itself, their stock price dropped dramatically, and they became one of the biggest companies to ever go bankrupt. Who is Responsible, and What Did They Do? Kenneth L. Lay was Enron’s Chief Financial Officer during the time of the collapse. He was a part of one of the biggest energy trading companies in the world. “…using the Internet to buy and sell natural gas and electric power supplies for utilities and industrial power users and helping them hedge against fluctuations in power prices.” (Oppel 2001) Through a Security and Exchange Commission formal investigation, Enron had shifted billions of dollars of debt that it owed into several different partnerships.
During 2002 and 2003, the company found itself involved in fraudulent activities. As a result of these fraudulent activities, which are further described below, the company, some of its employees, and certain other related parties all suffered serious consequences. On an international level, the Parmalat scandal fueled legislative intervention that created an external awakening by imposing new regulations and accounting standards. Fraudulent Activities In an effort to hide its financial downfall, Parmalat overstated its financial status. Parmalat reported a net debt of 1.8 billion Euros at the end of September 2002, when, in actuality, its debt stood at more than eight times that amount.
The U.S. banking group has said it is cooperating with authorities in India, where a series of sizable scams have come to light in the past several months, tarnishing the image of the country as a business destination. Most recently, eight senior officials of state-run banks and financial companies were arrested on charges of taking bribes to facilitate loans to companies in late November of 2010 (See International Business Times, January 4, 2011). The Three Elements of the Opportunity Triangle: Commit, Conceal, and Convert The alleged Citibank fraud emerged when Gurgaon police arrested Shivraj Puri, a Citibank relationship manager, for allegedly luring wealthy clients to invest in schemes that promised higher returns but weren't backed by the bank. The arrest followed a complaint by the U.S. bank after it noticed "suspicious transactions" at the branch. Sanjay Gupta, the chief financial officer of Hero Corporate Services Ltd., which is part of Hero Group, was arrested.
The investigation unveiled that Tyco’s top executives had taken over $170 million in loans from Tyco without receiving appropriate approval from Tyco's compensation committee and notifying shareholders (Tyco Fraud, 2008). Tyco’s former CEO; Mark Swartz, Tyco's former CFO; and Mark Belnick, the company's chief legal officer were found guilty of these crimes. These crimes committed by Tyco’s top executives set the company back hundreds of millions of dollars and the company lost respect from
That the fraud continued as long as it did was due to a lack of courage to blow the whistle on the part of others in WorldCom’s financial and accounting departments; inadequate audits by Arthur Andersen; and a financial system whose controls were sorely deficient. The setting in which it occurred was marked by a serious corporate governance failure. The company's auditors held Sullivan responsible for the accounting mess and Sullivan was soon arrested on charges of fraud and misrepresentation. Adding fuel to the fire was the fact that Arthur Anderson was WorldCom's auditor while the inappropriate accounting was taking place.2 However, Arthur Andersen tried to wash its hands off the crisis stating that it was not aware of the accounting discrepancies. They
Accounting Fraud at WorldCom WorldCom Group, a telecommunications company, caused one of the largest fraud and bankruptcy scandals in American and global corporate history. In total, more than $11 billion worth of fraudulent accounting entries and misstatements were detected. On July 21, 2002, the company filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. Bernie Ebbers, Former CEO, was sentenced to 25 years in prison on July 13, 2005. Major Factors Contributed to Fraud The following were several major factors that contributed to the fraud at WorldCom: Company Culture According to the facts given in the case, Bernard Ebbers and Scott Sullivan, the CEO and CFO of the company at that time, had created a company culture, in which leaders and managers were not to be questioned.
Arthur Andersen which had been Enron’s auditor since its formation in 1985 had warned the board of directors many times about the suspicious nature of many transactions and the extensive risk that some of these transactions represented. In addition, the poor control and the influence of Skilling regarding trading futures on the delivery of gas had led Enron to bankruptcy. Skilling’s confidence on the his risky strategy drove the firm to its grave, especially with September eleven crisis that lead many shareholders to cash their short term securities and trigger the Enron collapse. Moreover, as auditors, Andersen had failed to address the issue to the board of directors and to the overruling authorities. Furthermore, the method used in the transaction was also innovative and used the different voids in the regulatory system to commit unethical financial and business transactions.