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Essay on Fraudulent Accounting Practices perpetrated by Enron and WorldCom
Enron
Enron Corp. collapsed last fall because of massive failures by its management, board and outside advisers as well as self-enrichment by some employees "in a culture that appears to have encouraged pushing the limits.
“Smitten by the genius with which it manipulated successive U.S. presidencies, the late great Enron Corporation tried to manipulate its own investors. Shareholders — who had not balked at Enron’s political machinations — forced it into the largest bankruptcy in U.S. history by dumping its stock when they learned that Enron had played them for chumps” (Web, 1). Senior officers and the board of directors made a "fundamentally flawed" decision that ultimately led to the collapse of the company, once ranked as the nation's seventh-largest corporation.
The board, on recommendation from Chairman Kenneth L. Lay and president Jeffrey Skilling, waived ethics rules in 1999 and allowed Enron's chief financial officer, Andrew Fastow, to head up private partnerships that would buy and sell assets with the company, even while Fastow kept his position at Enron. The board and top executives then neglected to monitor Fastow's activities, or even ask how much he made -- $30 million -- until last October, after media reports.
In one transaction in 2000, Fastow turned one partnership investment of $25,000 into a personal $4.5 million profit in two months. He also brought two other employees into the deal, with each making $1 million from a $5,800 investment in the same period.
The $1 billion in overstated profits from September 2000 to September 2001 is much more than the $586 million over five years that the once high-flying energy trader reported last November after revealing accounting errors related to some of the partnerships. That announcement triggered a dive in Enron's stock price, costing shareholders and employees billions of dollar and prompting a dozen congressional and federal investigations into the Houston Company’s demise....
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