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bartermania   Sunday, 12/18/05 09:53:46 AM
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Accounting and Securities Fraud

MBA 8423

Law and Ethics and Business Employment Environments

July 24, 2003

“I am incredibly nervous that we will implode in a wave of accounting scandals. My eight years of Enron work history will be worth nothing on my resume, the business world will consider the past successes as nothing more than an elaborate accounting hoax.”

- Sherron Watkins, “Whistle Blower memo to CEO Kenneth Lay”

“I affirm that I have not received any impermissible assistance from others nor any unfair advantage in connection with this assignment”

Team 3

Mark Higgins ______________________________

Sean Lindsay ______________________________

Jill Miller ______________________________

Elstan Sippola ______________________________


In January of 2000, Enron Corporation was one of the top company’s in the United States, ranked the seventh largest in terms of revenue at roughly 100 billion dollars.[1] Investors that held 1,000 shares of Enron stock at that time would roughly a $70,000 investment. What happened next was one of the biggest examples of corporate corruption, accounting fraud and securities fraud in the history of American Business. The same investors that had a comfortable investment of $70,000 in early 2000, now have an investment valued at only $40 (Based on closing price of $.07 on July 22. 2003.) The final tally of losses to Enron investors was $63 billion dollars, roughly equal to the 2002 Gross Domestic Product of Chili.[2]

Today, the energy giant is bankrupt, thousands lost their savings and are unemployed, and the world is still trying to figure out how they were duped by this once powerful and respected company. The complexity of the Enron fraud case is staggering. Congressional Committees are holding hearings to determine what went wrong and what changes in laws or regulations can prevent another Enron in the future. Shareholders are filing class action lawsuits. The Securities and Exchange Commission (SEC) is investigating insider trading and changing rules on auditing and disclosure to protect investors. The IRS is investigating Tax Code abuse by both Enron and its executives. The Justice Department is conducting criminal investigations against individuals for securities fraud, wire fraud, mail fraud, money laundering, concealing evidence, defrauding the pension fund, shredding of documents, obstruction of justice and conspiracy. Focusing on allegations of accounting and securities fraud, it is easiest to understand how Enron’s aggressive corporate policies and practices misled and confused the public and will ultimately lead to improvements in SEC and GAAP rules, while continuing the trend of a heightened sense of ethics and corporate responsibility to shareholders.


Based in Houston, Texas, the company was formed in 1985 when Houston Natural Gas merged with Omaha, Nebraska-based InterNorth. The primary scope of business originally pertained to energy trade on an international and domestic basis. The initial merger created the first nationwide natural gas pipeline system. In 1986 Kenneth Lay, formally chief executive officer of Houston Natural Gas, was named chairman and chief executive officer of Enron. In 1987, taking advantage of England’s privatization of its power industry, Enron opened an overseas office, making their first step towards global expansion while pursuing both regulated and unregulated markets.

In 1991, Jeffrey Skilling joined the company and Enron launched its Gas Bank, a program under which buyers of natural gas were able to lock in long-term supplies at fixed prices. The company also began to offer financing for oil and gas producers. In 1994, expanding on their successful international growth and growth in unregulated markets, Enron began trading electricity. The energy trading market would turn out to be one of the company's biggest profit centers over the next few years. In December of 1996, Jeffrey Skilling was elected president and chief operating officer while continuing his role as chairman and CEO of Enron Capital & Trade Resources. In 1997, Enron Energy Services was formed to provide energy management services to commercial and industrial customers. In 1999, Enron Online, the company's commodity trading Internet site was formed. It quickly becomes the largest e-business site in the world.

In 2000, Annual revenues reach $100 billion, more than double the year before, reflecting the growing importance of energy trading. Enron Field was opened in downtown Houston. In addition to buying the naming rights, Enron Chairman Ken Lay helped raise financial support for the construction project. The Energy Financial Group ranked Enron as the sixth-largest energy company in the world, based on market capitalization. Enron and strategic investors, IBM and America Online, launch The New Power Company to provide electric service in deregulated markets.

In 2001, Jeff Skilling took over as chief executive officer. Ken Lay remains as chairman. In August, Skilling unexpectedly resigns for personal reasons. Lay takes back the CEO job and investors start to question the motivation behind Skilling’s shocking resignation. Meanwhile, seven officers of Enron dumped $175 million worth of stock in 2001. In total, 18 top officers and directors executed 64 stock sales.[3]


Suspicions rose and Wall Street started cranking up its requests for Enron to provide clearer and more detailed financial information about its performance. In October of 2001, Enron released its third-quarter earnings, with Non-recurring charges totaling $1.01 billion including $35 million related to investment partnerships formerly headed by Andrew Fastow, Enron's chief financial officer. “After a thorough review of our businesses, we have decided to take these charges to clear away issues that have clouded the performance and earnings potential of our core energy businesses,” according to Ken Lay.[4] Fastow was replaced as CFO. The Securities and Exchange Commission launches a formal investigation into the partnerships. In November, Enron restated its earnings for 1997 through 2000 and the first three quarters of 2001.[5] In December, Dynegy announced it wanted to merge with Enron. Enron's stock closed at $8.63 per share, an 89% drop since the beginning of 2000.

In January of 2001, roughly 60% of Enron employee’s 401K accounts were comprised of Enron stock. Kenneth Lay, CEO and Chairman of the Board, encouraged employees to maintain their holdings of Enron stock. On September 26, 2001 Lay wrote on Enron’s internal “ethink” intranet chat site, "My personal belief is that Enron stock is an incredible bargain at current prices and we will look back a couple of years from now and see the great opportunity that we currently have.” [6] Meanwhile Lay was liquidating much of his holdings to the tune of a $100 million profit from 1998 through 2001.[7]

Enron was able to camouflage a mountain of debt under a complicated matrix of partnerships. They had thousands of them, many offshore accounts, mostly throughout the late 90s and 2000-2001. The fraud was not revealed to the public until October of 2001 when Enron announced that the company was actually worth $1.2 billion less than previously reported. There was mounting evidence that the Enron board knew in 1997 that “aggressive” accounting helped bury the facts. The Securities and Exchange Commission began an investigation which has revealed many levels of deception and illegal practices committed by high-ranking Enron executives, investment banking partners, and the company’s accounting firm, Arthur Anderson. Many of the executives have been charged with wire fraud, money laundering, securities fraud, mail fraud, and conspiracy.


Reported Revised True debt True Equity
Income Income

1997 $105m $77m up $771m down $258m

1998 $733m $600m up $561m down $391m

1999 $893m $645m up $685m down $710m

2000 $979m $880m up $628m down $754m

Reported and revised income, debt and shareholder equity.

Source: Enron/Power Special Report

The strongest evidence against the executives was a “smoking gun” memo sent to Kenneth Lay by Ms. Sherron Watkins shortly after the departure of Jeffery Skilling. This document raised many questions about Enron’s historical accounting practices, the motivations of internal executives and the outlook for the future due to the gross misuse of a myriad of special purpose entities. This document named multiple key executives and requested Mr. Lay’s assistance in correcting the improper dealings that had occurred. While disregarding this memo professionally, Lay personally sold 1.77 million shares of stock from February thru October of 2001 at prices from $78.79 down to $15.40. The proceeds from these sales totaled $70.1 million. He is regarded by many to have been an ineffective CEO that did not have a firm understanding of the operations of his organization. It seems that his main role was to maintain high level political relationships including a close personal relationship with George W Bush.[8]

CFO, Andrew Fastow and his web of 6 known tipees, or people that Fastow shared his inside trading information with, made roughly $42 million in profit on total investments of $161,000. Fastow was named managing director of Enron Energy Services in 1996 and failed miserably. He was then relegated to a finance position where he was the mastermind of the tangled web of “special purpose entities”, or SPEs, that were used to hide debt for Enron and create personal wealth for himself. For these transgressions, Fastow has been indicted on 78 counts of securities fraud, money laundering, wire and mail fraud, as well as conspiracy to inflate Enron’s profit.

CEO, Jeffrey Skilling has maintained complete innocence throughout Senate hearings in February, 2002. He claims that when he left the company in August of 2001 he had no idea of the company’s coming collapse. The Watkins “Smoking Gun” document tells a different story of an informed CEO that did not take action. Skilling was regarded as an extremely intelligent individual who could solve complex problems in minutes, yet he claims that he had no idea that his company was at risk of demise. Skilling, sold 160,000 shares of Enron stock in June of 2001 prior to leaving in August.

J. Clifford Baxter, the Vice Chairman of Enron, worked his way up through the Enron organization. He began as the chairman and Chief Executive of Enron North America before he became Chief Strategy Officer and then he moved up to Vice Chairman. Baxter was referenced in the Watkins memo as someone who complained mightily to Jeff Skilling and all who would listen about [the] inappropriate accounting actions”. Baxter died in an apparent suicide in January 2002.

So what was the root cause of the problems at Enron? What follows is an in depth analysis of the aspects of accounting fraud and securities fraud that led to the demise of Enron.


Enron was looking a whole lot better on paper than it had any right to, but a savvy outsider would have had to do an amazing amount of tedious research to realize it. The public is required to trust and rely on the financial inspection performed by auditors. Auditors perform the inspection of it's clients financial statements and other important documents in order to put their stamp of approval on the operation, which in turn allows investors to act with confidence. The questions about the rapid demise of Enron also turned to the auditors, in this case Arthur Andersen, one of the biggest accountancy companies in the world.

Arthur Andersen's relationship with Enron began in the mid 1980's when Enron's predecessor, Internorth, hired Andersen as it's auditor. Andersen's reputation and prestige gave the fledgling company legitimacy, as Andersen was the oil industry's largest accounting firm. When Internorth became Enron, CEO Kenneth Lay found no reason to change accountants. As Enron grew in size and prestige, the balance of power shifted. Enron outsourced much of their consulting work to Andersen, who even had an office in Enron's Houston headquarters which rivaled the size of other Andersen regional offices. By the mid 1990's, Andersen had become extremely dependent on Enron, both for prestige and for billings, which almost eclipsed $1 Million on a weekly basis.

Enron's fast paced, win at all costs corporate culture also rubbed off on Arthur Andersen. Any Andersen auditors that questioned Enron's accounting techniques were either demoted or told that they "just didn't get it." At this time Andersen was also giving more power to their local managers and the pressure on these managers to make their numbers mounted. By 2001, Andersen had settled lawsuits and paid fines to the SEC for its dealings with Sunbeam and Waste Management. Another scandal, especially one involving one of its largest clients, proved to be disastrous to Andersen.


In the 1990's, the stock market soared, as did Enron's stock price. Enron began manipulating its earnings, just as many other companies did at the time and some still do. Enron would hold back net profits from good years and apply them to bad years in order to make Wall Street analysts’ earnings predictions. This practice while technically legal, is thought of as unethical in the business world. This caused a big problem for Enron in 1996 when they found out they were going to fall $190 Million short of their target earnings and they had no "left over earnings" to cover it with. Consequently, they decided to implement a new accounting practice for revaluing assets. They would claim that many of the assets that it held in its equity investment fund (JEDI) were being held for resale, rather than as part of the company's core investment plan. Therefore, Enron could include the unrealized gains, or the money they think they could make by selling these assets at a higher price, as profits. They entitled this method as "fair value" accounting. The problem with this method was that Enron had no intention of selling these assets and Enron could use any estimate it wanted for the future value of these assets. Therefore, Enron was able to make its earning target in 1996 once again and the stock continued to rise.

In 1991, Enron adapted a similar accounting technique involving the valuation of its energy contracts. This aggressive technique called “mark to market” accounting enabled Enron to show the projected profits from long-term energy contracts for the entire life of the project as earnings for the current quarter. This accounting method also allowed Enron to determine the total value of such deals by manipulating the factors of the long-term price of the commodity being sold. Mark-to-market helped earnings meet expectations, pump up the stock price and increase the value of the thousands of executive stock options. Many employees' bonuses were tied to the value of these deals, not the actual profit from these deals. The deal makers (or the salesmen), not the risk managers were allowed to determine the final valuation of these contracts. Therefore, these employees had a personal interest, via bonuses and incentives, to inflate the profits of these deals. Since all profits on long-term deals were realized immediately, Enron needed to continue to make more deals in order to remain profitable. As more companies entered the energy market in the late 1990's, these deals became harder to make. Therefore, future value estimates of new deals were grossly inflated to make up for the drop in the number of contracts that were sold. This translated to Enron having much more money on paper from these deals than it really had coming in the door.


Enron's most complicated and controversial accounting technique was the use of special purpose entities. SPEs were created to help isolate companies from large financial risks for projects that require a large amount of funding. Many large corporations have only two or three SPEs at the most. Enron had over 900 of these partnerships that were not shown on its Balance Sheets.[9] Enron would borrow massive amounts of capital and they were able to push off large amounts of this debt into these SPEs. The accounting rules provided that if at least 3 percent of the equity in an SPE partnership was provided by outside investors, then the debt does not have to be disclosed on the company’s balance sheet. Enron would find a "friendly" partner that was willing to invest in the SPE in order to meet these requirements and it would also issue more of it’s own stock to the SPE as equity. Although, the use of SPEs is legal, at times Enron would not meet their 3% funding requirement and many times they would not report the SPEs existence in the footnotes of the company's annual report. Enron never mentioned the existence of these entities and the massive amounts of its debt in their letters to the stockholders in their annual and quarterly reports. It is in these letters that a company has the duty to disclose relevant and important information that will most likely impact the company in the future, so that stockholders may better understand their financial risk. Enron's silence on the massive debt stored away in these SPEs along with the inaccurate footnotes constitutes a breach in their fiduciary duty to their shareholders.

Neal Batson, an Atlanta lawyer who was appointed by the federal bankruptcy court in New York to investigate Enron's financial transactions, concludes in his report that the company relied on six complex accounting maneuvers to enhance it's financial standings such as noneconomic hedges, tax transactions and other devices discussed above. All of these techniques accounted for 96% of Enron's reported $979 million in net income for 2000, the report concludes. Enron also reported debt of only $10.2 billion rather than the $22.1 billion that should have been reported.[10] The Senate's July 8, 2002 report The Role of the Board of Directors in Enron's Collapse stated that, "Andersen regularly informed [Enron's] Audit Committee that Enron was using accounting practices that, due to their novel design, application in areas without established precedent, or significant reliance on subjective judgments by management personnel, invited scrutiny and presented a high degree of risk on non-compliance with generally accepted accounting principles." Enron started by taking advantage of accounting loopholes and managed to push them morally and ethically to the brink of fraud through their deceit and greed. Corporate America's current backup is the audit system, which is in place to catch such accounting discrepancies as Enron's. The audit procedure failed miserably due to massive conflicts of interest, self-dealing and the persistence of Enron’s corrupt corporate culture at the Executive level.

Source: Swartz & Watkins, Power Failure: The Inside Story of the Collapse of Enron


The University of California, the lead plaintiff in the Enron shareholders lawsuit, initially filed a complaint against 29 current and former account executives. The complaint was later amended to include nine financial firms, two law firms, and additional individual defendants. The law firms accused included Vinson and Elkins, Enron’s Houston based corporate counsel, and Kirkland and Ellis, which represented Enron in a number of special purpose entities. Vinson and Elkins were closely involved in creating the special purpose entities and drawing up true sale opinions, which Enron needed in order to enter into many of the transactions leading to their demise. The law firms were also involved in reviewing SEC filings, press releases and shareholder reports. The allegations against Kirkland and Ellis were dismissed on the grounds that no material misrepresentations were ever made by the law firm.


The amended University of California complaint added nine financial institutions to the list of defendants. The list included JP Morgan, Citigroup, CS First Boston, Canadian Imperial Bank of Commerce, Merrill Lynch, Bank of America, Barclays, Deutsche Bank and Lehman Brothers. The plaintiffs alleged that the financial institutions used derivatives and secret guarantees to assist Enron in hiding debt and create false profits in exchange for outrageous fees and interest rates almost double the normal rate in return. Many bank executives are also accused of personally investing millions of dollars in these transactions. JP Morgan disguised loans as forward commodities trades. Several institutions engaged in total return swaps to disguise loans. Charges against Lehman Brothers, Bank of America, and Deutsche Bank were dismissed by Judge Harmon in the Southern District of Texas.[11]


The collapse at Enron caused congress to pass one of the most influential pieces of securities legislation since 1934. The Sarbanes-Oxley Act requires public company's top executives to certify annual and quarterly reports and make new disclosures on internal controls, ethics codes and the makeup of their audit committees. It also prohibits auditors from providing certain non-auditing functions. These controls are to assure investors that companies have the proper processes in place to prevent gross misuse of accounting techniques that executives are held responsible for company's financial statements and that conflicts of interest are prevented within each company and their accounting firm.

Both President Bush and Congress are proposing legislation to stiffen penalties on those involved in securities fraud including increasing jail time from 5 years to 10 years. Harsher penalties are also being sought for those convicted of obstruction of justice, increasing jail time from 18 months to 3 years. Bush has also asked Congress to increase the SEC budget by $100 million in 2003 to allow them to hire new enforcement officers and upgrade their technology. President Bush has also requested a Corporate Fraud Task Force to coordinate civil and criminal investigations. The Public Company Accounting Reform and Investor Protection Act of 2002, S. 2673, bans accounting firms from providing consulting services to clients they audit. This requirement is to ensure independence of the auditors and audit reports regarding the client’s financial status. S. 2673 also provides additional funding to the SEC and creates the Public Company Accounting Oversight Board. President Bush has also requested a Corporate Fraud Task Force to coordinate civil and criminal investigations.[12]

Congress created the five member Public Company Accounting Oversight Board in July of 2002 to combat a wave of corporate accounting scandals. The SEC Board agreed to seek members for a new advisory group that will consist of about two dozen individuals that mixes investors, corporate finance experts and accounting industry professionals. The advisory group must hold public meetings semiannually and annually. All recommendations by the advisory group must be made in public. Any action made by the Board itself must be approved by the SEC prior to implementation and must proceed through standard rule making process which includes notice of proposed rule to the public, evaluation of comments and adoption of rule.


Responding to the turmoil surrounding Enron's use of the SPEs, the Financial Accounting Standards Board (FASB) voted to change the rules governing when partnerships can be kept off a company's books. Now, publicly traded companies that use SPEs will have to add debt to their books or raise funds from outside investors. The new rules will require newly formed partnerships to have independent, outside investors provide cash totaling at least 10% of such partnership funding; rather than the 3% that Enron was required prior to its collapse.


The class action lawsuit filed on behalf of Enron employees and shareholders by Milberg Weiss Bershad Hynes and Lerach, LLP allege that Enron officers and directors were involved in securities fraud and insider trading and that these acts were successfully executed with the cooperation and assistance from Arthur Andersen, Vinson and Elkins, and nine different banks. In order to win the lawsuit and recover damages, Milberg Weiss, et al must demonstrate the elements of SEC Rule 10b-5 were committed by the defendants. The elements of 10b-5 are as follows: (1) defendant used a facility of a national securities exchange; (2) defendant made a misrepresented statement or omitted a fact; (3) the fact was material; (4) the misrepresentation or omission was made with scienter; (5) the statement was made in connection with the purchase or sale of securities; (6) plaintiff acted in reliance of the misrepresentation or that the market price of the security accurately reflected its value; (7) the misrepresentation or omission caused the plaintiff to suffer losses.

1) The use of a facility of a national securities exchange is the first element of Rule 10b-5, which provides Congress with the power to regulate the acts of the defendant under the constitution. In the case against Enron, this requirement is easy to establish because Enron was a publicly traded company on the New York Stock Exchange with trades in all 50 states.

2) When a defendant makes a misrepresentative statement or omits a fact, they have just satisfied the second element of Rule 10b-5. Statements made by third parties can also be attributed to the company when the company is entangled with the third party. Enron misrepresented their earnings by understating its debt by billions of dollars while overstating earnings by hundreds of millions of dollars. Enron defends itself by stating that in the 10-K filing for the year 2000, a consolidated balance sheet was provided for the unconsolidated affiliates that had debt secured by Enron. However, analysts have stated that not all Enron’s partnerships were listed in this balance sheet and in the notes of the 10-K it states, “Management does not consider it likely that Enron would be required to perform or otherwise incur any losses associated with the above guarantees.” SPE’s were created to keep Enron from having to take out loans, thus increasing their debt. The funds from outside lenders were guaranteed with Enron stock. Enron then would sell assets to the SPE’s and record the sales as revenue. Therefore, Enron received the money from the lenders and investors of the SPE’s, but recorded the monies as revenue instead of as debt which construes a misstatement

3) Next, the plaintiff has to prove that the misstatement was of material importance. In order for a fact to be material, a reasonable investor would have to deem it important in deciding how to act. Materiality is determined at the time the statement was made and is not affected by the intent of the party making the statement. Generally any statement about earnings, distributions, or assets of a company will be considered material by the courts. Significant facts about a parent-subsidiary relationship are normally material.[13] In October 2001, Enron announced that the company was worth $1.2 billion less than previously reported. Financial statements for years 1997 through 2000 and the first two quarters of 2001 would be restated to correct the misstatement. This announcement ultimately resulted in Enron’s stock being downgraded to junk bond status and the company filed for Chapter 11 bankruptcy in December 2001.[14] Clearly, these misstatements had a material impact.

4) Probably the most important element of Rule 10b-5 is the element of scienter. A misstatement or omission must be made with scienter. Scienter is a mental state of mind with intent to deceive, manipulate, or defraud. However, scienter is more than negligence of lack of care. When a defendant makes a statement that they know is untrue in hopes that others will rely on the statement, the defendant is acting with scienter. The plaintiff is claiming all dependants acted with scienter because they were all aware of the dealings going on and all stood to receive significant financial gains as the stock price increased.

5) The next element of Rule 10b-5 narrows the parties who can file suit under this rule. Conduct must involve the purchase or sale or securities. This means that only those who actually purchase or sale securities can file suit under 10b-5. Those that can be sued under Rule 10b-5 include the parties that make or are responsible for misstatements or omissions that influence investors.

6) Plaintiffs filing suit under 10b-5 must prove they relied on the misrepresentative statements or that the market price of the stock accurately reflected its value. Enron’s schemes inflated earnings reported in their 10-k filings, which in turn over-inflated their stock price. Investors relied on the financial statements Enron submitted to the SEC, which were audited and approved by Arthur Andersen.

7) Finally, the plaintiffs must prove the misrepresentation caused them to suffer losses. When Enron did finally announce that earnings would be restated, their stock price dropped 91%. Enron stock had peaked at $90 and dropped to $0.26 a share after the company was downgraded to junk bond status.[15] Shareholders suffered enormous losses and employees’ 401k accounts were rendered worthless. However, inside traders sold 20.8 billion shares worth $1.2 billion in proceeds. In addition to the proceeds from the stock, Enron executives received over a billion dollars in cash bonuses based on the false revenue numbers and stock price. The accountants, law firm and banks involved in the Enron scandal also received billions in fees and commissions.

The SEC is proposing many new amendments to enhance the current financial reporting and disclosure rules as well as shorten the time it takes to get such information into the hands of the public. There has also been discussion on expanding the types of information companies must report in their 8-K filings such as officer and director securities transactions, material changes in customers, contracts, accounting policies, and equity security offerings not included in a prospectus filing. The SEC held roundtable discussions including experts from corporate America, securities regulation, financial services, academia and other fields to further determine what actions need to be taken to ensure fraud of this magnitude does not happen again.


Major changes have occurred in the accounting industry due to the Enron debacle and many more are coming. One major change that is needed is the change from a rules based accounting system to a principle based accounting system. FASB's current accounting rules are extremely complex and offer various loopholes exposed by companies on a regular basis. A principle based system would focus on broad principles and professionals exercising judgment. Accountants and auditors may be subjected to greater liability, although that liability could be decreased with the proper controls and balances. Many countries, such as Japan, already use the principal based accounting system and many more plan on switching, such as the European Union in 2005. To date, there have not been any major catastrophes in their system such as Enron's fall in the rule based system.

Corporations should also have to change accounting firms every 3 or 4 years. This allows for the auditor to work without the threat of being fired for its honest actions. Finally, accounting firms should not be allowed to police themselves. Just as corporations need auditors to report to, accounting firms need to be culpable to someone other than themselves. Businesses and the government need to help FASB institute the proper accounting principles and rules while also helping institute and enforce them. Otherwise, the accounting world can make the rules as they see fit and enforce them too.

Corporations should have to simplify the reports given to the public. It is far too easy for them to confuse the average investor with lengthy reports and complicated financial terms. The Internet and other changes have made it easy for everyone to buy and sell stocks on their own. Therefore, corporations should aim their reports at the average investor and the footnotes to financial statements should be limited in length and simplified. Investors rarely have the time or acumen to dig through 200 pages of footnotes from one company's statements, as was typical of Enron's financial statements.

The accounting and securities fraud scandal, resulting from Enron’s aggressive corporate policies and practices, has already caused major improvements in rules and regulations that govern how public companies conduct their business. The scary reality of the Enron scandal is that no matter what rules and regulations the government puts into place, it will still be up to the individuals with the resources and abilities to defraud the public to act with a heightened sense of ethics and integrity. Officers and directors have a duty to manage the company in the best interest of the shareholders. Unfortunately, many incentive programs reward for positive performance, which often results in management taking measures to enhance performance in the short run instead of considering the future repercussions of the acts.


[1] Enron Annual Report, 2000

[2] World Bank, July 2003

[3] Tallahassee Democrat, January 25, 2002

[4] Enron 3rd Quarter Press Release, October 16, 2001

[5] Enron Press Release, November 8, 2001

[6] Gaurdian Unlimited, Special Report – Enron, January 24, 2002

[7] Annex Bulletin, Volume XVII, No. 2002-09, April 1, 2002

[8] Truthout.org, March 6, 2002

[9] Fortune Magazine, February 18, 2002, http://accounting-net

[10] The NY Times, March 6, 2003, http://accounting-net

[11] www.ucop.edu/news/enron/art408.htm

[12] www.llrx.com/features.enron.htm

[13] Constance E. Bagley, Managers and the Legal Environment

[14] The Enron Fraud, www.enronfraud.com

[15] The Enron Fraud, www.enronfraud.com

Additional Sources:

Bush Demands Corporate Responsibility

The Business Journal, March 3, 2003

The Collapse of Enron: A Bibliography of Online Legal, Government and Legislative Resouces

Enron.com, July 8, 2002

Enron Fraud Info Center

The Houston Chronicle, October 20, 2002

Political Cartoons

Resources Supply Management, Inc, March 2002

Stiffer penalties ahead for Corporate Criminals

Smart Pros, July 1, 2003

Swartz, Mimi with Sherron Watkins, Power Failure: The Inside Story of the Collapse of Enron, March 2003 pp. 86-100

Testa, Hurwitz & Thibeault, LLP, September 16, 2002

Update on US’s Enron Investment and Lawsuit

ps. The original article is here: http://www.seanhlindsay.com/EnronProject.htm

- I will not be a slave to or of death cults - n/b/k - NO QUARTER FOR CORRUPTION http://investorshub.advfn.com/boards/board.asp?board_id=3319
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