The Enron Scandal

Contents

Introduction1

Background of the Scandal1

The Financial Misrepresentation (Fraud)3

Sarbanes Oxley Act after the Scandal4

Conclusion6

References7

Enron and Arthur Andersen

Introduction

It is known that Enron went bankrupt around ten years ago and disappeared from corporate world, but ethical standards affected by Enron case are not forgettable. The fame Enron earned in the world during 16 years of struggle and established its asset value from USD 10 billion to USD 65 billion, took less than a month to go bankrupt (Mclean & Elkind, 2004).

Historically, the market has always lived with the business scandals. Moreover, always have been and always will be. The company who was once ranked 7th largest company in fortune 500 and also ranked 6th among largest energy businesses in the world. In December 2001, Enron filed for bankruptcy protection in the biggest bankruptcy case in United States at that time (Jennings, 2009). In November 2001, Enron's stock was at its lowest price of USD 1, which has been traded for USD 90 in good days of the company. This condition of Enron brought disaster to investors and employees of the company (Skilling V. United States, 2010). As a result to bankruptcy of Enron, thousands of its employees lost their pensions and jobs, the Enron bankruptcy also affected investors as they lost billions of dollars invested in Enron.

Background of the Scandal

In the early 1990s introduced the U.S. Congress a new law that deregulated the sale of electricity. The same had been done for natural gas a year earlier. This had led to energy markets where it was possible for companies like Enron to succeed, while manufacturers and local authorities often complained about the price volatility that had occurred. Strong lobbying by Enron and others, however, kept the system in place.

Towards the end of the 90th century, Enron's stock traded for 80-90 bucks and get really concerned about the lack of clarity around the financial exposure of the company. In July 2001, Enron reported a turnover of $ 50.1 billion, nearly tripled since the beginning of the year, beating analysts' estimates by 3 cents per share. In spite of this kept Enron's profit margin at a modest average of about 2.1%; and the stock price had fallen by over 30% since the same quarter in 2000.

The Scandal “Enron” explained the biggest scandal ever in much detail. However, the film was laced with many ethical issues, out of which some of them are going to be discussed. The bottom line of all ethical issues was that each and everyone in the film were greedy enough for money i.e. dollar. Employees were encouraged to buy and invest in stock in Enron when they already knew the truth about the stock and its lack of value.

The October 16, 2001, Enron recognized losses of $ 618 million. At the same time, it reduced its assets by U.S. $ 1,000 million and shareholders' equity of U.S. $ 1,200 million. Dynegy announced a bid of U.S. $ 9,000 million by Enron, which recognized that you ...