Other // Bigger than Enron
Bigger than Enron
1. Laws Broken/Ethical Rules Violated
After a six-week trial on June 15, 2001, a jury in Houston, Texas convicted the 89-year-old gold-standard-for integrity accounting firm, of obstruction of justice in the investigation of its largest client, Enron Corporation (Teach, 2015). After a merger with Houston Natural Gas and InterNorth, Kenneth Lay formed Enron, an American energy company, in 1985. He later hired Jeffrey Skilling who headed a team of executives that managed to conceal billions of dollars from failed projects and agreements. They accomplished this by creating accounting loopholes, entities for special purposes, and inferior financial reporting. Chief Financial Officer Andres Fastow and executive accomplices misled Enron’s board of directors and the audit committee on their very risky practices. They also pressured Arthur Andersen to gloss over these practices and issues. Many Enron executives were also charged for different violations, some of whom were later sentenced with imprisonment. Andrersen was indicted for unlawfully destroying documents from the Securities and Exchange Commission on the voiding of its license to audit public companies. This voiding automatically closed the company. The US Supreme Court later reversed the decision but by then, the company had lost most of its customers and stopped operating. Employees and shareholders who sued received very little returns (Teach, 2015).
Andersen was found not only to have failed in its legal responsibility to watch and protect the interests of investors through its spurious accounting practices (Teach, 2015). It also tried to hide its guilt. This event forever changed the business environment. This and other scandals discovered in the ensuing months put the American market, investors specifically, at its psychological edge. If auditors can no longer be trusted, who can be? New rules and regulations were enacted to broaden and insure the accuracy of auditing for public companies (Teach, 2015).
2. Parties Responsible and their Motivation
On top was Arthur Andersen for obstruction of justice through documents shredding for its biggest client, Enron (Teach, 2015). Sharing hits guilt were many Enron executives, other supposed corporate watchdogs – the bankers, regulators, lawyers, politicians and accountants, most of all – and Congress itself. An ensuing report delved into and brought out the entrenched system of controls, which was ripped by conflicts of interest and congressional interventions. This defeated efforts at protecting the rights of investors and the trusting public. Culminating the line-up are the large accounting firms that failed their responsibility to protect investor interest and public trust (Teach, 2015). Anderesen’s fiasco was the key to this wider scenario.
3. Business Laws Remain Despite Disaster, Changes Needed
A quick response was the filing of the Sarbanes-Oxley Act, which sought to increase penalties for the destruction, alteration or fabricatio of records in federal investigations or for acts meant to defraud shareholders (Teach, 2015). At the same time, it aimed at increasing the accountability of auditing firms and intensifying their independence and unbiased performance. In its sustained call for reform, Congress held bicameral hearings for the purpose. But no bill was passed and Congress moved slowly and remained soft towards accounting firms. SEC Chairman Harvey Pitt proposed for a new Public Accountability Board. But critics view it as too weak and doubted his capability and willingness to cross paths with his former clients at Wall Street in the whole 90s. Critics say that the earnest implementation of major reforms alone would retrieve investor trust. If this does not happen, trouble would brew at the US markets. They also commented that without major reports, more damage could be inflicted. If no effective reforms are established, there might be more destructions, loss of morale, and damages. More Enrons should be expected (Teac, 2015).
WORK CITED
Teach, M. (2015). Bigger than Erol (Frontline 2012). Youtube video presentation by Hedrick
Smith and Mare Shaffer. Retrieved on September 26, 2017 from https://www.youtube.com/watch?v=TCpZUDIquQw
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