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6-14 Ethics & Social Responsibility [CH 6

several hundred million dollars. At the time, Enron was ranked the sixth-largest
energy company in the world. Top Enron executives sold their company stock prior
to the company’s downfall (insider trading), whereas lower-level employees were
prevented from selling their stock held in 401K pension plans due to government-
imposed 401K restrictions. Enron filed for Chapter 11 protection in December 2001
and instantly became the largest bankruptcy in U.S. history at that time. This left
thousands of workers across the nation with worthless stock in their pensions. The
lower-level employees lost their life savings due to Enron’s collapse. The U.S.
Department of Justice subsequently opened a criminal investigation into Enron’s
collapse in January 2002.
When an Enron collapses and the investigations begin, the finger-pointing and
assignment of blame also commences. Employees of Enron's auditor, Arthur
Anderson, an accounting firm, shredded thousands of pages of Enron documents at
the urging of Andersen executives in Chicago. Six months after Enron's bankruptcy,
the firm of Arthur Anderson, was convicted of obstruction of justice, though the U.S.
Supreme Court reversed that conviction in 2005 because of a flawed jury instruction.

The Enron debacle finished Arthur Andersen, formerly one of the nations "Big Five"
accounting firms, putting its 85,000 employees out of work. Andersen argued
(rationalized) that its audits technically complied with the law, at least in instances
where they were not lied to by Enron employees. However, their argument ignored
that Andersen knowingly helped present to the world, as described by Bethany
McLean and Peter Elkind in The Smartest Guys in the Room, a “completely illusory
picture of Enron's financial health.” Securities analysts who covered Enron also
failed to do their job; they failed to analyze. Many analysts retained a “Buy”
recommendation for Enron stock right up to the day the company sought bankruptcy
protection. Investment banks, including J. P. Morgan and Citigroup, eagerly and with
a wink and a nod of their executives, provided the financial participation that made
Enron's scandal possible, but refused to accept responsibility. It is possible to ask,

since the task of an accountancy firm is to perform fiduciary duties on the
information that they possess, did they act ethically?
Ken Lay, CEO of Enron, Jeffrey Skillng, President of Enron, Andrew Fastow,
Chief Financial Officer of Enron were indicted for their fraud. Andrew Fastow
created a bewildering array of special purpose entities—entities whose special
purpose were to hide Enron’s underperforming assets, and as one witness called it
“low quality paper and equity ‘nuclear waste’” allowing Fastow to skim tens of
millions of dollars for his personal use.
Fastow wrote out a plan to ensure himself against any losses in the many side
deals he had made with Enron to hide the company's losses. Under trial examination
it was revealed that Fastow also concealed his illegal conduct from Ken Lay, and his
‘fanciful’ accounting resulting in Lay and Skilling being “rewarded with stock
options and bonuses.” Fastow was not the lone thief in this case when answering the

prosecutions questions stating, “What I'm saying is when you misrepresent the nature
of your company, when you artificially inflate earnings, when you improperly hide
losses, when you do things like this to cause your stock price to go up so you can sell
your stock and cause yourself to make earnings targets, that otherwise you'd be
unable to make so you get high salaries and bonuses, that is stealing.”
Who or What facilitated Enron?
Note: It is common
practice, and not illegal, In the case of Enron, it falsified its accounting and the people in-charge
for private company deliberately misrepresented the company to the public. Yet, when the public looks at
personnel to accompany a company, they lay blame on the company and forget that it is people who chose the
federal and state actions taken.
government members on False accounting and reporting were the foundation for the financial crises of
trade missions for fact 2008 when the mortgage markets crashed, homes were foreclosed, banks lost billions
finding and business and insurance companies that guaranteed the loans failed. Lenders went to insurance
opportunities. These trips underwriters to misrepresent the soundness of mortgages that eventually brought
create opportunities for down many financial houses, and accounting firms. Price Waterhouse, an accounting
America’s business. firm, mortgage lenders such as Sterns Bank N.A., Lehman Brothers, Royal Bank of

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