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Enron — one of the greatest frauds in American history


The Enron fraud scandal is undoubtedly unparalleled to any case of its kind.  After a 56 day trial, former CEO and president Jeffrey K. Skilling and former chairman Kenneth L. Lay were found guilty of hiding more than a billion dollars of debt, manipulating energy markets, bribing foreign governments and wiping out their shareholder equity.  Now, a textbook example of how not to conduct business, the case of Enron stands at the center of business ethics.

Google “biggest business ethics scandal” and what comes up? Enron, of course.  The Enron scandal severely damaged the reputation of corporate America.  The downfall began when Enron failed to accurately report their financial statements.  Instead of admitting the company wasn’t performing as well as in previous quarters, executives jumped through several loopholes to modify the company’s balance sheet to portray a favorable depiction of its performance.  Moreover, the company’s accounting practices became sketchier when they chose not to release their financial statements.  What did they have to hide?  Well, apparently a lot.

By the late 1990s, Enron appeared to be performing quite well — or so people thought. Its stock was trading for about $80-$90 per share.  Then, strangely, CEO Skilling quit, citing that he wanted to spend more time with his family and that it had nothing to do with the fact that Enron was about to collapse.  Later in trial, Skilling argued “on the day I left, I absolutely and unequivocally thought the company was in good shape.” Sure he did…

Needless to say, the company fell apart.  Enron declared bankruptcy and shareholders lost around $70 billion dollars — all because of a deliberate ignorance to fraud and ethics.  Now because of the Sarbanes-Oxley Act (SOX), there is more protection for the investors by improving the accuracy and reliability of corporate disclosures.  Hopefully with more responsibility placed on the top management team, an Enron-like scandal will never occur again.  Moral of the story: do the right thing!

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Discussion

5 thoughts on “Enron — one of the greatest frauds in American history

  1. Oh Enron. Why’d you have to do it?

    Sadly, this is not the only case of fraud. It seems that every day the SEC brings suit with another company from insider trading to non-disclosure issues. What are these guys doing up there in those skyscrapers? Can no one run a legitimate business anymore? I grew up a southern gentleman in Texas and manners and respect were of the utmost importance in my upbringing. I do not have any tolerance for these kinds of frauds. For me, an alert automatically pops up when something or a situation doesn’t seem right. It’s hard to believe that these wall street gurus continue to believe they will get away with the illegal activity many participate in. Just the other day in class Jordi had us find articles dealing with business ethics and all of us found unethical situations. As I begin my quest on wall street this summer, I hope my strong moral background will continue to stay with me. Well done Jenna.

    Posted by Patrick | January 31, 2012, 10:46 pm
  2. I think this case is a classic example of the high pressures public companies face when dealing with their performance for their stakeholders. As we have discussed in class, there are many different stakeholders to consider when evaluating a business decision on moral fiber, yet most of these stakeholders are lost when dealing with aggressive, public companies. Enron was known as a “best in class” stock at their time. They were rated safe by every rating agency on the Street and consistently outperformed quarter after quarter and year after year. Yet what they did exactly was known by a very small percentage of their investors. Therefore, Enron was able to live up to this greater than life being for the one stakeholder that they cared for, the investors contributing capital to the firm. Everything that was possibly done to increase the stock price of this company was done, and no one was asking questions because it was so profitable. Only once the entire system was taken down did anyone realize the unsustainable nature of Enron’s business (when analyzing their financial statements along with any knowledge of what the company actually did). Therefore, I believe that there needs to be more consistent and thorough checks on businesses. Even the institutions checking the companies need people checking on their work. We can only trust the moral toughness of individuals to go so far, thus structures need to be put in place to ensure ethical work is being utilized across the board.

    Posted by Derek | January 31, 2012, 11:40 pm

Trackbacks/Pingbacks

  1. Pingback: Extra Resources for AIG, Enron « Business Government & Society III - February 11, 2012

  2. Pingback: Enron, stock price manipulation, and organized piracy « JRFibonacci’s blog: partnering with reality - February 17, 2012

  3. Pingback: The Integrity Test | YOU DECIDE - April 16, 2012

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