...Historical background of the collapsed Enron corporation • How the corporate was founded and its growth • The corporate culture of the collapsed corporation. 2. What caused the collapse of Enron • How bonuses to the executives lead to their financial misreporting. • How greedy auditors colluded to misrepresent financial statements. 3. How collapse of Enron could have been prevented. • Did the relevant act negligently abetting in the corporate collapse. • How loopholes in financial laws can be exploited • How the investors were blinded by quick gains preventing them being cautious when investing. • How over speculation can lead to huge loses. 4. Lessons from the collapsed corporation. • Lesson that were taught to the policy makers and the investing public from the collapse. • Lessons that the collapse taught other corporations. 5. Conclusions and recommendations. 1. Historical background of the collapsed Enron corporation • How the corporate was founded and its growth • The corporate culture of the collapsed corporation. 2. What caused the collapse of Enron • How bonuses to the executives lead to their financial misreporting. • How greedy auditors colluded to misrepresent financial statements. 3. How collapse of Enron could have been prevented. • Did the relevant act negligently abetting in the corporate collapse. • How loopholes in financial laws can be exploited • How the investors...
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... Ratner (SER-0015) UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -------------------------------------------------------In re ENRON CORP., et al., Debtors. -------------------------------------------------------ENRON CORP., Plaintiff, v. CREDIT SUISSE FIRST BOSTON INTERNATIONAL and CREDIT SUISSE FIRST BOSTON LLC , f/k/a CREDIT SUISSE FIRST BOSTON CORPORATION, Defendants. --------------------------------------------------------x : : : : : : : x : : : : : : : : : : : : : : : : : x Chapter 11 Case No. 01-16034 (AJG) Jointly Administered Adversary Proceeding No. 03 - ____________ (AJG) COMPLAINT FOR THE AVOIDANCE AND RECOVERY OF PREFERENTIAL AND FRAUDULENT TRANSFERS, RECOVERY OF ILLEGAL PAYMENTS TO A SHAREHOLDER WHILE THE DEBTOR WAS INSOLVENT, AND FOR OTHER RELIEF Plaintiff Enron Corp. (“Enron”), as a debtor and debtor in possession, by its special litigation counsel, Venable LLP, and its bankruptcy co-counsel, Togut Segal & Segal LLP, for its complaint against Defe ndants Credit Suisse First Boston International and Credit Suisse First Boston LLC, f/k/a Credit Suisse First Boston Corporation (collectively, “CSFB”), alleges the following facts and claims: NATURE OF THIS ACTION 1. Enron brings this suit to recover large pre-petition illegal and preferential payments to a stockholder, made at times when Enron was insolvent, notwithstanding that other...
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...does Enron Corporation, one of the world’s major electricity, one of the world's major electricity, natural gas, and communications companies, with claimed revenues of nearly $111 billion during 2000, went bankrupt eventually. In this film, the interviewers narrated the process of bankruptcy. This is a famous scandal in accounting area and there are lots of illegal behaviors related. We can learn a lot from this scandal in order to behave legally and avoid losing money. Facts: Two years after the corporation founded by Kenneth Lay, there were two traders began betting on the oil markets and transferred the money they earned to the offshore accounts. Instead of fire them, Lay encouraged them to use this unethical way to make money for the corporation. Finally the two traders were fired since they gambled away Enron’s fortune. Then Lay hired Jeffrey Skilling as the new CEO. They began to use mark-to-market accounting, which allowed them to report the potential profits instead of the actual profits. In addition, the new CEO’s aggressive management idea which fires the bottom fifteen percent employees gave the employees incentives to make the profits better than the actual profits. Skilling hired more people to help him make money for Enron Corporation. Under the bull market, executives pushed up the stock prices and cashed in their multi-million dollar options. Even they suffered the poor performing, they still portrayed Enron was profitable. In 2000, Enron became...
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...bulk of the securities industry including: U.S. stock exchanges, options markets, and other electronic exchanges and securities markets. The Securities Exchange Act of 1934 created the laws that regulated it. The Securities Exchange Act of 1934 is a law governing the secondary trading of securities in the U.S. The commission's division of enforcement investigates possible violations of federal securities related laws and can take civil action with other law enforcement agencies when it comes to criminal cases. The market crash of 1929 and subsequent Great Depression took a toll on the public's trust in capital markets. Investors looking to go from rags to riches turned to the stock market during the roaring 20s. According to the SEC, an estimated $50 billion in new securities were offered, and half became worthless. Congress passed the Securities Act of 1933 and The Securities Exchange Act of 1934 (which created the SEC) in an effort to restore confidence in the markets. Publicly traded companies were now obligated to disclose investment risks and provide full information about the state of their business. Brokers, dealers and exchanges were now legally required to put the interests of the investors first and treat them in a fair and honest manner. Congress established the SEC to enforce these laws for the sake of the investors and the future of market stability. The president of the United States appoints five commissioners who each serve five-year staggered terms. The chairman...
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...Auditing 1/26/15 Enron Enron began as Northern Natural Gas in 1932. In 1979 the company reorganized and became InterNorth. InterNorth was in the business of creating energy products such as natural gas and plastics. Later InterNorth merged into what was known as Enron with the new CEO Kenneth Lay running the show. He then began moving the headquarters to Houston, where they began selling off assets to limit their losses initially. The misleading financial accounts began when Jeffrey Skilling wanting to hide their losses. He and Andrew Fastow used special purpose entities to off load liabilities to those company to keep their main business looking as if they were profiting. Which intern made them look as though their business is successful and made their stocks increase because investors saw that the business was profiting not failing. A way that they were able to show the company as profitable was transferring debits and losses to offshore businesses that made it look as though on the books they were profiting and to make those unprofitable parts of the company disappear into an offshore business. To hide their losses in the trading business Skilling used mark-to-market accounting. Mark-to-market accounting is used in the security business but what Skilling did was use it for everyday business. Doing this let them write out what they thought a certain venture would be making in the future, without having to have actually made a dime. This let Enron show on the books that...
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...Enron Corporation was a company that provided services which related to energys, commodities and services based in Houston Texas. Enron employed approximately 22,000 staff. It was one of the world's leading electricity, natural gas, communications, pulp, and paper companies. Enron claimed revenues of nearly $101 billion in 2000 before it filed bankruptcy in late 2001. Enron was named "America's Most Innovative Company" for six years in a row by Fortune. In 2001, Enron was accused of accounting fraud which later was recognized as the "Enron Scandal" and forced to file bankruptcy. The scandal led attention to other corporation's practices and activities from this result. The creation of the Sarbanes-Oaxely Act of 2002 was influenced by the Enron scandal as well. Enron's roots go back to a company that was formed in 1932 known as the "Northern Natural Gas Company". The company was reorganized in 1979 as leading subsidiary of a holding company known as InterNorth Inc. The company was a leader in natural gas, transmissions, and marketing. It was also a provider of natural gas liquids as well as an innovator in the plastic industry. InterNorth owned "Peak Antifreeze" as well as developing "EVAL" resins for food packaging. The Enron Corporation led itself into scandel, fraud, lies, and illegal financial cover-ups that would later be known as one of the biggest corporation scandels in history. 1. Discuss how Enron could have been structured differently to avoid such activities...
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...Lab #1 assignment Assess the impact of sarbanes-oxley (sox) compliance law on Enron Course Name: Information Technology Audit & Control Student Name: Abdullah Shafea, Ammar Alshehri and Mohammed Rammal Instructor Name: dr. k. Mustafa Lab Due Date: 23/2/2016 Overview Enron, a corporation headquartered in Houston, operated one of the largest natural gas transmission networks in North America, totaling over 36,000 miles, in addition to being the largest marketer of natural gas and electricity in the United States. Enron managed the world's largest portfolio of natural gas risk management contracts and pioneered innovative trading products. The company was on Fortune's "Most Innovative" in the United States listing for several years running and reached 7 on the Fortune 500 list in 2000. Its bankruptcy in December 2001 was the largest such filing in United States history. The name Enron became synonymous with corporate greed and corruption, and its demise cost investors and employees over $70 billion in lost capitalization and retirement benefits. Enron shows us what a company and its leadership are capable of, when they are obsessed with making profits at any cost. One of Enron's lasting effects was the creation of the Sarbanes-Oxley Act of 2002, which tightened disclosure and increased the penalties for financial manipulation. Second, the Financial Accounting Standards Board (FASB) substantially raised...
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... 1 2. Summary of facts of the scandals at Enron ................................................................................. 1 3. Summary of facts of the scandals at WorldCom ........................................................................ 2 4. Enron and WorldCom executives prosecution ........................................................................... 5 5. Effects of the scandal, legislative perspective ............................................................................ 5 6. Comment and lesson to Rwandan business sector ...................................................................... 7 6.1. Corporate governance .......................................................................................................... 7 6.2. Committed crimes during the scandals .............................................................................. 10 6.2.1. Insider trading .............................................................................................................. 10 6.2.2. Wire fraud .................................................................................................................... 11 7. Conclusion ................................................................................................................................ 12 8. Authorities................................................................................................................................. 13 1 Lessons from Enron and WorldCom...
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...Study 1: Enron The story of Enron is one of corporate greed and intense competition. Former Enron executive Jeffrey Skilling appears to be the person that created such competition between employees. He created a system where employees are ranked every six months, the employees ranked in the bottom 20% were forced out of the company. This ranking system led to a belief that high performance meant everything to the company. Ethical behavior was falling by the wayside at Enron and top executives either failed to notice it, or were too blinded by the stacks of money they were collecting to care. Sherron Watkins was a vice president at Enron. At the time she had been employed there eight years. It was at this time she was given the task of finding some assets to sell off. Watkins was quite possibly the first person to become concerned by Enron’s shoddy accounting practices. What she found was that many of Enron’s transactions were unclear at best, and most of them appeared to be backed only by their deflating stock. Concerned about what she saw she took her concerns to Mr. Ken Lay. Lay assured her that her concerns would be looked into by Vinson & Elkins, the company’s law firm. However, it appears that Vinson & Elkins quickly dismissed any concerns brought forward by Watkins. In fact, the law firm may have helped structure some of Enron’s special-purpose partnerships. The law firm never did claim liability, but did pay $30 million to Enron for contributing...
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...ASSIGNMENT: LOCAL LAWSUIT Business Law April 23, 2012 LOCAL LAWSUIT Enron was a corporation founded in 1985, when a merger combined Houston Natural Gas and InterNorth (Thomas, 2002). Throughout the first years of Enron’s existence, they had many struggles. According to Salter (2005), the first five years had many “near death” experiences. Eventually Enron was able to prevail over their many “near death” experiences. In 1989, “Enron locked in its first fixed price contract to supply natural gas, to Louisiana aluminum producer” (Salter, 2005, p.2). They continued to promote and gain success by recruiting employees from MBA schools. Only the biggest and best were hired to maximize the success of Enron. Enron expanded to trading electricity in 1994. Since the breakthrough of trading electricity, Enron continued to grow a continued to become an incredibly successful corporation. However, due to unfortunate decisions both within and outside of the company Enron declared bankruptcy on December 2, 2001 (Salter, 2005). Workforce Enron was a company made up of the elite group of workers. Enron focused on hiring the “best and brightest traders” (Thomas, 2002, p.42) to maintain their status of being the top energy trading company. MBA schools were the sole focus of recruiting for Enron. However, there was a screening process that each recruit was required to go through. Enron screened for a sense of urgency, intelligence, a strong work ethic, and problem-solving ability...
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...Introduction Enron was a landmark case that taught the business world more about ethics. The company’s accounting procedures were not effective in keeping the company’s book accurate. By showing a high amount of cash flow and a low amount of debt, Enron looked great to investors, but in all reality the company was in trouble. A great example of Enron’s problematic accounting procedures is in 2000 when the company reported $3 billion in cash flows when it actually had negative $154 million. (Ferrell, Fraedrich, and Ferrell 487) Not only did Enron’s accounting procedures cause trouble within the company, but also the people that were in charge. Chief Executive Officer Jeffrey Skilling, put in a system where employees were rated every six months and the bottom 20 percent were fired. Shilling called the system, “rank and yank.” (Ferrell, Fraedrich, and Ferrell 487) This system held employees to a higher standard. It helped them reach their full potential no matter what they had to do to reach it, ethical or unethical. Similar to most scandals of this size, Enron was not the only company involved in the fraud. In their case, their law firm, banking partner, and auditors were all questioned for their role in the scandal. Our statement was “Enron’s bankers, auditors, and attorneys contributed to Background 2 After reading about the Enron case, our issue of whether or not “Enron’s bankers, auditors...
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...American Business Ethics: Enron Born from the merger of InterNorth Inc. and Houston Natural Gas Company in 1985, Enron began an energy trading corporation. At the time of its creation, the natural gas market was extremely volatile. As such, a considerable amount of uncertainty existed about the future price of natural gas. Consumers could not obtain reliable prices for natural gas because suppliers and sellers of natural gas could agree to long-term prices due to this volatility. From these circumstances, Enron emerged as an innovator and market leader because it understood that it could help calm volatility in the natural gas market by acting as an intermediary between producers and sellers of natural gas. They did this by purchasing large amounts of short-term natural gas contracts from suppliers and subsequently contracting long-term agreements with sellers. This, in effect, eased volatility and allowed consumers to obtain constant or steady prices for natural gas. Though it began as a trading company, Enron diversified by buying many different types of assets, both energy and other consumer goods. At its peak, Enron was worth $60 billion dollars and had a stock price of $90 per share. In fact, Fortune Magazine named Enron “The Most Innovative Company” for six straight years. Enron’s downfall began with poor and misleading financial reporting which led to the discovery of fraudulent activity by Enron’s officers. The fraud Enron perpetrated center around...
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...Enron Corp. Ivan Rodriguez Professor Daniel Smith Legal 100 April 30, 2011 2. Discuss whether Enron’s officers acted within the scope of their authority. 3. Describe the corporate culture at Enron. 4. Discuss two alleged irregularities in the actions between sellers of securities and Enron. 5. Discuss whether or not Enron was liable for the actions of its agents and employees. The format of the report is to be as follows: o Typed, double spaced, Times New Roman font (size 12), one inch margins on all sides, APA format. o Type the question followed by your answer to the question. * In addition to the 3-4 pages required, a title page is to be included. The title page is to contain the title of the assignment, your name, the instructor’s name, the course title, and the date. Describe how Enron could have been structured differently to avoid such activities. Using computers, the Internet, and other resources, research the activities of the Enron Corporation (Enron), its officers, and its agents (auditors and sellers of securities). Using all the material presented thus far in the course, analyze the activities you researched. The Enron Corporation was an American energy company, which since its merger in 1985 with two other natural pipeline gas companies Houston Natural Gas and InterNorth failed to structure a corporation built around strong ethics and accordance with the law. It would be fair to predominantly commence by...
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...LEG100: Business Law I Professor Young March 5, 2011 Enron was an old line energy company, owning electric power production facilities and natural gas pipelines. It engaged in several acquisitions during the late 1980s and the 1990s that dramatically increased its size. Its acquisitions included power companies in the U.S. and abroad, as well as investments in various energy and technology companies. In the 1990s, Enron reorganized itself as an energy trading company, whose primary form of business was to trade in various energy vehicles, including contracts to provide electric power in the future at pre-determined prices and similar contracts to deliver natural gas, water rights, wind power systems, broad band transmission systems, insurance, and other products. 1. Describe how Enron could have been structured differently to avoid such action. Enron, like most public companies was required by law to describe its party transaction to shareholders and the members of the investing public in several different disclosure documents. Overall, Enron failed to disclose facts that were important for understanding the substance of the transaction. Although they did disclose that there were large transactions that the CFA had interest. Enron did not give the CFO’s actual or expected benefits from these transactions or provide complete financial statements. The organizational structure could have been different by not changing the original structure. When Enron decided to...
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...Case 1 ENRON: WHAT CAUSED THE ETHICAL COLLAPSE? case summary | Kenneth Lay, former chairman and chief executive officer (CEO) of Enron Corp., claimed to be a moral and ethical leader and exhorted Enron’s officers and employees to be highly ethical in their decisions and actions. In addition, the Enron Code of Ethics specified that “An employee shall not conduct himself or herself in a manner which directly or indirectly would be detrimental to the best interests of the Company or in a manner which would bring to the employee financial gain separately derived as a direct consequence of his or her employment with the Company.” Enron’s ethics code was based on the values of respect, integrity, communication, and excellence. Given this code of conduct and Ken Lay’s professed commitment to business ethics, one wonders how Enron could have collapsed so dramatically? The answer to this question seems to be rooted in a combination of the failure of top leadership, a corporate culture that supported unethical behavior, and the complicity of the investment banking community. The failure of Enron’s top leadership was evident in the activities of Andrew Fastow, Jeff Skilling, and Ken Lay, all of whom faced multiple counts of criminal activity with respect to their decisions and actions at Enron. Included among these criminal charges were money laundering, wire fraud, securities fraud, conspiracy, making false statements on financial reports, and insider trading. Some of the activities...
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