What led to the legal infraction for the company?

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RESPONSE:

1. What led to the legal infraction for the company?

The Enron Corporation was charged with accounting fraud, amongst other charges, for "cooking the books?to make the company appear more profitable than it actually was. Enron's questionable accounting actually "kept hundreds of millions of dollars in debt off its books?(http://news.bbc.co.uk/2/hi/business/2047122.stm).

This legal infraction had a long history of questionable actions by Enron employees. Specifically, in 2001, the Enron scandal began to unfold, which involved the Enron Corporation as well as its accounting firm Arthur Andersen. Jeffrey Skilling, the Enron CEO for 6 months resigned, although he has joined Enron in 1990, raised a red flag to the stockholder, who were assured by the new CEO, Kenneth Lay, that all was well Enron. The company was also questioned throughout the 1990s about their irregular accounting practices, by Wall Street and others, because irregular accounting practices made proper assessment difficult for Wall Street. Indeed, Enron admitted to regularly using "related-party transactions," which raised fears for an easy transfer of losses (which were actually happening) that might otherwise appear on Enron's own balance sheet. Also questionable was that several of the "related-party" entities had been or were being controlled by Enron's Chief Financial Officer (CFO), Andrew Fastow (Source: Berenson, Alex (Sept 9, 2001). A self-inflicted wound aggravates angst over Enron.(Statistical Data Included). The New York Times)

Shocking to the stockholders and the world, on November 2001, the company was on the verge of bankruptcy, and then filed bankruptcy on December 2, 2001 (http://www.cbc.ca/news/background/enron/).

2. What could the company have done differently to prevent this outcome?

First, more governmental oversight could have prevented this-as opposed to complete deregulation that occurred in the 1990s in California (http://www.citizen.org/pressroom/release.cfm?ID=983), along with mandatory accounting practices were governmental standard (which has been legislated since this Enron scandal). Third, the Board of Directors should have a larger oversight responsibility and be willing to question and stop questionable practices, which did not occur at Enron. Everyone turned a blind eye to quite apparent and questionable practices by Enron Corporation. This should not have been, and it could have prevented this outcome that robbed the "unknowing?shareholders and investors. However, application of corporate and leaders' ethics is another factor that could have prevented this incident. It sounds much like what we are now seeing with the banks, who were also using hedging practices and, like Enron, not considering the shareholders and ...