Legal Issue-Enron

July 4, 2018

Golden Papers

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However, with few exceptions, business ethicists are usually less interested in the foundations of ethics (meta-ethics) or by the principles of justification ethical principles: they show themselves more concerned with practical issues, and any obligation specific practice that may apply to the activity and the relationship to economic (Swartz, 2004). Discussion and Analysis Government regulators have been quite willing to act as enforcer for the reformers. In the process, they have criminalized common business practices and created crimes of full disclosure out of whole cloth where there had been none before.

This activity made for great theater and lurid headlines that furthered the political ambitions of prosecutors, but it was certainly not at all helpful to the economy. Corporate governance reforms affect every aspect of life in America when they impose unneeded restrictions on management, and the full disclosure system is the most burdensome of all. SEC regulations govern every aspect of securities trading, from the initial offering and the underwriting process to the secondary markets. The “Enron Scandal” is already a landmark in the history of capitalism that may significantly influence its necessary transformation.

The current capitalism “has been a mother,” which has escaped all the regulations and controls that kept him within an ethical context. Business Ethics, Applied Ethics The trend in recent decades has been to integrate these concepts ever within companies. Be prescriptive, legislating (eg, through the sanction of insider trading, bribes, accounting rules, executive compensation, discrimination, respect for privacy, the sanction of barriers to competition etc.. ). The question that arises is that Law and business ethics are they compatible?

However, ethics and law remain to distinguish, since the law seeks to maintain order, where ethics seeks only to indicate a course of conduct (soft law) that economic actors should adopt. O’Fallo (2005) explains this difference by showing that no law can be both judge and party, while ethics refers to the personal views and thus the judgment of consciousness leads to a reparability between the rule moral and appreciation. Background Enron was one of the largest companies U. S. by its capitalization market.

In addition to its own activities in the natural gas, this Texan company had set up a system of brokerage by which she bought and sold electricity, including the network of current distributors of the State of California, communication. In December 2001, it was bankrupt because of its losses from speculative trading on the electricity market, which had been disguised as profits via accounting manipulation. This failure resulted in its wake of Arthur Andersen, which audit it accounts. The Reality Before Enron, Corp Fin had a goal of reviewing each company’s annual report at least once every three years.

That goal was not met. Only 53 percent of public companies filing with the SEC had their annual reports reviewed in the three years preceding Enron’s collapse. Interestingly, Corp Fin did review the annual reports filed by Enron in 1991, 1995, 1996, and 1997. The division also conducted full reviews of Enron’s proxy statements in 1993 and 1994, as well as documents submitted for a merger and acquisition of some subsidiaries in 1996 and 1997. Corp Fin conducted full reviews of two securities offerings by Enron in 1992 and 1998 and undertook partial reviews on particular issues of seven other Enron offerings.

No serious problems were revealed in any of those examinations (Dharan, 2004). The Enron Code of Ethics When the accounting scandals of the last decade hit, Enron became the prime target, not only for their other-worldly abuse and unethical conduct but because of the fact that their code of ethics was so contradictory to their actions. Fraud and Manipulation Internally, Enron created more than 3,000 offshore companies. The primary goal of these companies was to enable investors to co-finance infrastructure long to return through securitization.

These companies also allowed outsourcing certain significant risks of the parent company to avoid the compromising. Enron used widely this type of non-consolidated companies for these purposes and later out of assets or liabilities of the balance sheet. These companies, whose headquarters were located in the Cayman Islands, the Bermuda or the Bahamas, and the results made more “presentable”. However, brief information on these subsidiaries was specified in notes at the bottom of page of financial information documents. The company simultaneously pursued a policy of aggressive communication.

Thus, its charismatic chairman Kenneth Lay sent a letter to employees announcing that he believed the share price gain 800% before the year 2010. Many Enron executives were charged with a variety of positions and were subsequently sentenced to prison. The auditor of Enron, Arthur Andersen was found guilty in U. S. District Court, but by the time the Supreme Court of the United States reversed the judgment, the company had lost most of its customers and had closed. In particular, the Sarbanes-Oxley Act expanded the impact by destroying, altering or fabricating records in federal investigations or trying to defraud the shareholders.

The law also increased the liability of accounting firms to remain neutral and independent from their clients (O’Fallo, 2005). Enron Exposed another Problem Another problem that needs to be identified is that the information it filed with the SEC was stale. Although the Enron financial reports were raising some eyebrows on Wall Street as a result of its rapid growth, changes in its business operations, and widespread use of special purpose entities, no one at the SEC was concerned. The SEC had planned to review Enron’s 2001 annual report after concerns over its accounting were raised in the press, but

Enron’s bankruptcy mooted the issue, and no report for that period was ever filed by Enron. After Enron’s failure, Sarbanes-Oxley required the SEC to review the financial statements of all public companies at least every three years, one-third each year. The SEC was able to conduct a cursory review of only 23 percent of filings in 2003 and had trouble finding staff to do more, filling less than a third of its vacancies in the first half of fiscal 2004. A Government Accounting Office report also found that the SEC was lagging behind in computer technology to aid in its mission. Auditor Liability

As noted, the SEC and the Justice Department have broad powers to investigate that far exceed those of the auditors, but SEC and Justice Department investigations, for even a limited reporting period, take years and the resulting prosecution even more years. A case in point is Enron. Even after the disclosure of its problems, the government with all its powers took years to indict Enron’s top executives, using some strong-arm tactics that might be abhorrent to the rest of the civilized world. Even then, no senior executive’s trial was set to commence until well over four years after Enron’s collapse (Swartz, 2004).

Those trials will take months to conclude with no assurance of success. In contrast, Arthur Andersen had only a few months to review those same figures and was limited to a few cursory tests for verifying data. Certain question arises because of the Enron scandal, which can be discussed in the project: Can investors recover the credibility? The foreign firms and U. S firms are listed in the U. S stock exchanges which needs for demonstrating that they have eradicate all the off-books accounts that has been distorting the public’s understanding for the financial health of the company.

Moreover, each and every organization needs to demonstrate that the board of director is vigilant and vigorous and also their procedure will lead to enable them for uncovering any behaviour that is questionable for the company (O’Fallo, 2005). What’s the impact of Enron scandal on U. S Economy? During 2000 and 2001 and the United States experienced its first failure: electronic commerce in what is known as the domain “dot com”, large virtual companies that mined or produced anything, without even having sold only local or sellers. Now what happened at Enron can be extended, which would experience a new collapse.

If such, the beneficiary will be the European Community with stronger economic basis, with a euro that now competes with the dollar and a more subtle system of protectionism. Enron has clearly done damages for the U. S economy, however, it would not hold up the recovery from the present recession. It is a fact that the fundamental health for the U. S economy is strong enough and it’s getting stronger. Majority of the individuals are aware of the fact that the new economy companies will face a depress stock prices for some time, however they will recover in the end as they demonstrate that they are prepared for preventing Enron-like behaviour.

Conclusion In the end, one can conclude by saying that the Enron case is a perverse system model, which has contributed significantly to the large-scale corruption, and has created unemployment, which has lost confidence in the “police power” of National state for the good of all, who has broken all ethical principles, he has left on the street to tens of thousands of people, which has bankrupted thousands of companies. It has misused the money from investors, which has squandered the savings of their employees and therefore should be considered to cause massive evil.

The highly developed world today lives sustained global growth euphoria at the cost of mass unemployment and its consequences of hunger and violence. Capitalist government’s today act in practice as gendarmes of large concentrations of capital, structured and amorphous giant corporations to “go in vice” could not be controlled either by states or by its owners: the shareholders. In practice, large concentrations are those that dictate what must be done each time in a less dissimilate, officials on duty.

The Enron case must be studied thoroughly because it is a typical example of such high concentrations, perhaps one of the largest and most aggressive.