In 2001, the United States faced its biggest financial market fraud scandal by the worldwide known corporation Enron. The top management was found guilty for using accounting loopholes to overstate revenues and stock price. The discovery of the Enron scandal lead to the exposure of several more corporate fraud cases from more well-known companies including WorldCom. This decreased the confidence in our markets and question the adequacy of the United States disclosure practices and the reliability in the required independent audits. Consequently, the biggest accounting legislation was passed known as The Sarbanes-Oxley Act of 2002.
This act was signed by President Bush after the financial scandals revolving around Enron, Worldcom, amongst others. People want to know, why was there not one single arrest of a high ranked executive following the biggest market crash in history. Sarbanes Oxley was supposed to help prevent this kind of disastrous situation. During the crash, executives from Countrywide mortgage amongst other bankers packaged toxic securities and sold them to their customers knowing that they were practically worthless. These subprime mortgage derivatives were the entire center of the meltdown that resulted in millions of jobs being lost, and millions of lives ruined.
Adoption of the Sarbanes-Oxley Act of 2002 as an Important Piece of Legislation. Introduction In 2001-2002, the business and finance world was rocked, by the Enron and WorldCom scandals. These two scandals alone led to billions of dollars being lost to share holders, because of misleading financial reports. “Enron Corporation was an American energy, commodities, and Services Company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000.” (Enron, n.d., para.
Impacts of Unethical Behavior: Enron Jessica Shutiva XACC/280 September 4, 2013 Jaclyn Strauss Impacts of Unethical Behavior: Enron In 2001 American-based energy natural gas pipeline company, Enron, formed by CEO and Chairman, Kenneth Lay in 1985, made a reinstatement announcement of its earnings beginning from 1997 in order to reflect a reduction of $586 million dollars, after reports of first quarter losses in four years. Enron’s business and accounting practices were made apparent to be unethical controversial practices. Such practices led Enron to its collapse with filing of bankruptcy. Accounting Practices Involved Enron’s complex mark-to-market practices brought forth by the 1990 hire of CEO and Chairman, Jeffrey Skilling, “anticipated future profits from any deal were accounted for by estimating their present value rather than historical cost”, (“Wikipedia”, 2013). However, the accounting practice falsely increased Enron’s revenue which made it the largest U.S.
Enron was an American energy company based in Houston, Texas (Ayala & Giancarlo 2006). Not only was this one of the most prevalent bankruptcy reorganization in American history at that time, Enron indisputably was the biggest audit catastrophe. Enron started in 1985 by Kenneth Lay after assimilation of Houston Natural Gas and InterNorth. Numerous years later, Jeffrey Skilling was employed. He industrialized a body of executives that used accounting loopholes, special purpose entities, and poor financial reporting, to veil billions in debt from unsuccessful deals and projects (Bratton, 2003).
The Fall of Enron – Who’s to Blame? By: Leigh Miller Southwestern University Auditing – Accounting 36-524 The Fall of Enron – Who’s to blame? Before filing for bankruptcy in December of 2001, Enron Corporation was one of the largest integrated natural gas and electricity companies in the world. Enron entered the year 2001 as the seventh largest public company in the U.S., only to exit the year as the largest company to ever declare bankruptcy in U.S. History. In 2001, Enron’s stock fell from a high of $90.00 a share to a low of $0.09.
Enron had losses of $591 million and had $628 million in debt, by the end of 2000. The U.S. Securities and Exchange Commission (SEC) started an examination, Enron declared for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron's $63.4 billion in resources made it the biggest corporate bankruptcy in U.S. Subsequently fiduciary responsibilities hold that fiduciaries must protect the interests of the laborers and retirees in their advantage arranges but Enron neglected to do so. However, reporting of incorrect profits, insider trading and the use of accounting methods that constituted accounting fraud breaches the duty to care.
The solution that they did was only temporary. The Special Purpose Entity created by Andy Fastow and his assistant Michael Kopper served to very important purposes, by selling troubled assets to the partnerships to fund new investment activities and sell of the troubled investments to the partnerships then use to make its quarterly earnings commitment to Wall Street. As Enron's share price plummeted in the early fall of 2001, the equity in the SPEs would no longer meet accounting guidelines for remaining off balance sheet. 3. People
Investors cling to their findings like lint on Velcro. But leave us not forget that the credit raters got just about everything wrong leading up to the 2008 economic collapse. For example, the thousands of residential mortgages rated triple and double A by Standard and Poor's, more than 70 per cent were near or in default by the end of that year. And Moody's kept pumping out good news about Enron and didn't downgrade its value until the day before the company collapsed. Incidentally, Matt Taibbi, the much feared and much respected financial writer for Rolling Stone, calls Moody's, " the most whorishly corrupt ratings company in modern history."
Enron Information 4/25/12 Called to Account In “Called to Account” the court case involving Arthur Andersen’s trial for its part in the Enron scandal. Arthur Anderson was the accounting firm that was auditing Enron for the year in which it falsified its financial statements to appear profitable in years that it was really taking losses. Nancy Temple, Andersen’s lawyer was one of the main culprits in the scandal being that she tried to cover up and hide things from the SEC. The article also brought to realization that the incident was so bad in the eye of the public that Arthur Andersen would most likely no longer exist. Thomas, Cathy Booth.
Executives and insiders knew about these offshore accounts that were mainly used to hide losses with the investors completely left in the dark. As a result their stock price was driven up. In their fallout, company executives began to liquidate their assets, trading millions of dollars worth of Enron stock. As the scandal unraveled, shares in Enron dropped from $90.00 to merely just pennies. The liquidity of most of Enron’s assets was apparent when the company reported its third-quarter results on October 17, 2001 as negative due to one-time charges of over $1 billion.
1. What problems did Enron encountered? * 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 (or creatively obscure) it’s complicated financial dealings were erroneous and, in the view of some, downright deceptive * The company’s lack of transparency in reporting its financial affairs, followed by financial restatements disclosing billions of dollars of omitted liabilities and losses, contributed to its demise 2. How did the management react? * Enron did not report debt on its balance sheet.
On December 2nd, 2001, the energy giant Enron filed for bankruptcy, “Enron's collapse had cost investors billions of dollars, wiped out some 5,600 jobs and liquidated almost $2.1 billion in pension plans” (History.com). On December 11th, 2008, billionaire Bernard Madoff was arrested after it was reported by his son’s the day before that he was the mastermind behind a long running Ponzi scheme (History.com). These are merely three examples in an exhaustive list of the apparent lack moral and ethical understanding in the United States from the political and business leadership arenas. Did any of the people involved in any of the events listed above, take a moment to consider the ethical ramifications of their actions? Did they perhaps lack the training and understanding of how to do so?
What Happened to Enron? The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure. Causes of downfall Enron's complex financial statements were confusing to shareholders and analysts. In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to indicate favorable performance.
that used accounting loopholes that covered up billions of dollars in debt failed project, and busted deals. Among the companies’ debt and fraud, the exec expressed an atmosphere of threat to its unsuspecting chief financial Officer Andrew Fastow. He was misled to believe that all of his companies’ deals were successful & profitable, but also forced to ignore Enron’s unethical practices. As unethical practices progressed, Enron came to its demise of bankruptcy by December 2, 2001, and a pending criminal investigation by January 24, 2002. Describe how Enron could have been structured differently to avoid such activities.
What Enron did in their accounting procedures and what eventually happened to the company. Enron was an American energy company based in Houston, Texas. It was formed in 1985 by the merging of Houston Natural Gas – a gas utility headquartered in Houston, Texas -- and InterNorth -- a large energy company based in Omaha, Nebraska. Former HNG CEO Kenneth Lay became the newly formed Enron’s CEO. Revealed in 2001, the Enron scandal made national news because of the meteoric rise of Enron stock over the company’s relatively short life and the even greater losses foisted on shareholders at its demise.
Accounting Fraud Examination October 12, 2011 Introduction As we look back on the first decade of the 21st Century, we see that Corporate America and the Financial Markets were riddled with corruption and fraud. At the beginning of the decade we saw the likes of Enron and WorldCom become insolvent due to accounting frauds of epic proportions. The one case that stands out amongst all of them is the Bernard Madoff case, which is considered to be the largest fraud case of all time. “Madoff managed to lure billions of dollars away from huge charities, as well as wealthy individuals in both the United States and Europe by getting them to invest in his hedge fund. He did so by claiming extraordinary returns (generally in the low double digits).
1. Enron Enron was a major energy corporation based in Houston Texas that experienced a great deal of success during the 90’s. In fall of 2001 it was discovered that everything people had come to know about the Enron Corporation was a lie. From the outside looking in it had appeared that Enron was a very profitable business whose stock was worth investing in, when in reality the company was billions of dollars in debt. The Enron illusion was carried out by the major executives within the company such as CEO Jeffery Skilling and Chairman Kenneth Lay.
Enron reported that their financial condition was sustained by institutionalized, systematic, and planned accounting fraud. There were reports of involving irregular accounting procedures bordering on fraud, perpetrated throughout the 1990s, involving Enron and its accounting firm Arthur Andersen; it stood at the verge of the latest bankruptcy in history by mid November 2001. Enron’s shares dropped from over $90 to $0.30 per share. Enron had been considered a blue chip stock, which was an
1. What were the individual factors that contributed to the failure of Enron? Briefly explain two key factors. Ken Lay& Jeffrey Skilling& Andrew Fastow As the video shows Ken Lay’s professed commitment to business ethics, how could Enron have collapsed so dramatically, going from reported revenues of $101 billion in 2000 and approximately $140 billion during the first three quarters of 2001 to declaring bankruptcy in December 2001? This problem seems to be rooted in a combination of the failure of top leadership, a corporate culture that supported unethical behaviour, and the complicity of the investment banking community.