Economic Scandal Of Enron: A Result Of Unethical Actions

Whether political, social, or economic in theme, the world will always have scandals. One specific scandal changed the face of accounting and business through the years. With hundreds of schemes and undercover lies, Enron built up its empire into one of the top companies in the country, until the collapse in the early 2000s, when the collapse caused effects that are still evident today. Through the infamous economic scandal of Enron, Michael Kopper and other employees demonstrate the greedy and corrupt human nature and how unethical actions affect others. The scandal originated with the company of Enron, formerly known as the merged company between Houston Natural Gas and Omaha-based InterNorth until 1985. This process of merging companies caused Enron to accumulate large amounts of debt and it was forced to adopt new profitable activities. Though Enron was originally an oil and gas corporation, it was soon rebranded into an energy trader and supplier. Ken Lay was appointed CEO of the company, and quickly hired Jeffery Skilling, a former employee of McKinsey & Co. to aid in the process. As an energy consultant, Skilling was in charge of a supplementary company called Enron Finance Corporation. In addition to this transition, the accounting method of Enron was changed from a traditional accounting method to a mark-to-market (MTM) method.

This new method provided Enron with a way of measuring profits and losses, as well as valuing positions. This was an important change for the company, as it essentially allowed Enron to conceal accounting frauds, since the MTM method permitted it to document estimated profits as actual profits, which led to inflated numbers. Enron continued to create innovative ways of making money, such as the establishment of Enron Online (EOL), an electronic trading website that permitted Enron to earn money from transactions made on the website. The company was quickly given praise for its innovation, growth, and value. Within a couple of years, Skilling was promoted to CEO, Ken Lay became chairman, and other critical people, such as Andrew Fastow and Michael Kopper, were introduced. All this growth of Enron, however, came through unethical means. After the stocks of Enron greatly benefitted and grew, the company gained worth. Internally, however, the company was accumulating extensive amounts of debt. Enron would conceal information from the public, essentially tricking partnerships and investors into believing Enron was a stable company. The corporation kept these horrific numbers off the balance sheets through misrepresentation of earnings so that the public was oblivious to the reality of the company. More corrupt actions continued within the corporation. The executives used embezzled funds from other investments to both increase current or attract new investors. The troubled company was also transferred to a form of special purpose entities (SPEs). These limited partnerships were formed with outside parties and allowed Enron to use SPEs as dump sites for the bad assets of the company. Often headed by Fastow, this further enabled Enron to keep troubled financial information concealed from the public, by making the individual losses seem less harsh than in reality. In addition to these schemes, Arthur Anderson, an accounting and consulting firm, approved much of Enron’s accounting practices, despite the fact that these practices did not follow regulation. This only escalated the irregularities in the accounting processes of Enron. Essentially, the series of accounting practices that Enron possessed were continually abused in order to inflate the success of the business.

At the peak of Enron’s success, the severity of the situation began to unfold into public light. In the mid year of 2001, various analysts and investigators began analyzing the details of Enron’s most recent financial statement. Suddenly, the company was under investigation of many of their transactions, such as the SPEs, headed by the Securities and Exchange Commission (SEC). Enron could no longer hide the inside business they worked so hard to conceal. Though Enron’s worth was already declining by late 2000, the financial condition of the company severely crumbled. Lay and other employees retired or resigned, with the prospect that the company could no longer stay afloat - and they were correct. Enron’s stock fell dramatically by October, and the losses for the company escalated. After investigations and revelations of Enron’s schemes, Enron was forced to file bankruptcy in December. Among those involved, Michael Kopper was a financial sophisticate within the company and executive of Enron. He assisted Fastow in manufacturing multiple arcane partnerships which provided a multi-million dollar salary, and he is considered the first Enron executive to make an unethical deal with a partner. Michael Kopper, along with many of his other employees were convicted of conspiracy, insider trading, and securities fraud. Specifically, Kopper plead guilty to his court conviction and offered information against Fastow, receiving 37 months in jail. Kopper was released early from the original sentence and now works at Legacy as a grant writer. In addition to the consequences for the employees, thousands of jobs were destroyed and the stock market was affected. The effects of this notorious scandal have rippled through history. Because of this widespread event, investors and employees in and out of the accounting field are subject to stricter regulations to promote the integrity of financial reporting. One of these includes the Sarbanes-Oxley Act, created by George W. Bush in 2002, soon after the collapse of Enron and its partners. The act called for increased punishment for false financial reports. Ethical regulations were also heightened through the Financial Accounting Standards Board and various other laws. Enron was one of the largest companies in the country at the time of its collapse.

In addition to the extensive amount of money left and the jobs that were destroyed, the fall of such a prominent and successful represents the major consequences tied to unethical practices. This not only led to regulations that could prevent future events like Enron, but it taught corporations, investors, and employees all over the world the lesson of morals in the business field.

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