Enron Scandal: Fraud, Bankruptcy, and Impact on Corporate Governance

Business Law and Ethics-2

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Issue.................................................................................................................................................3
Rules................................................................................................................................................4
Corporate scandal of 2002...........................................................................................................4
WorldCom scandal 2002..............................................................................................................4
Sarbanes-Oxley (SOX) Act of 2002............................................................................................4
Application.......................................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1

Issue
Enron scandal resulted in banking fraud of the United state energy because of series of
events that happened in country. After country's new laws in the year1990s related to natural
gas effected on company's exclusive rights to operate its pipelines. Jeffrey who is consultant to
company use his skills and transformed company into a trader which deals energy derivative
contracts, acts as a mediator between natural-gas producers and their consumers (Segal, 2019 ).
Jeffrey use loopholes in accounting and submit poor financial report to auditing firm. It helps
firm to hide millions of dollars in debt and also failed deals and project to stakeholders. CFO
Andrew Fastow and other superior join hand in this scandal and mislead Board of director of
the firm. They pressurized Arthur Andersen for ignore issue associated with accounting details.
Shareholders of firm filed a case against after decrease of share to $1 in November 2001 which
was US$90.75 per share in mid-2000. After the disputes U.S. Securities and Exchange
Commission enter and investigate case and find cause behind it also in the same time
competitor of firm Houston competitor Dynegy offer for purchasing firm from Enron. However,
for various reason deal was not succeeded and in end of December 2, 2001 company filed that
they are bankrupt under chapter 11 of US Bankruptcy code. $63.4 billion in assets bankruptcy
of organization make one of the largest bankrupt company in United states but in next year
another scandal occured which is known as WorldCom scandal. Senior leaders and officials
charged under many sections but only few are sent to prison by the court. Arthur Andersen was
charged for illegal destruction of Information related to the SEC investigation also found
guilty and in later stage close the company for wrong auditing. However, company lost majority
of the customers till case judgement change by Supreme court of United states. Shareholder of
the company lost large amount of money related to pensions and stock price and hence only gain
few amounts from the claimed. Lay and Skilling give resign and fastow fired from the
workstation after the initiation of investigation(Boddy, 2017). There are large number of
lawsuits filed against Anderson by shareholders and hence company is unable to operate in later
stage. Scandal highly impacted laws related to accounting leads to new regulation and legislation
to it.