If there were ever a compelling argument for campaign finance reform, this is it. Big time. Final finger of blame: the Bush White House. No matter how hard he tries to distance himself from Enron, President Bush can't. The ties are too many and too close. Bush was the number one recipient of Enron's campaign largesse. He filled his administration with former Enron consultants, lawyers, advisers, officers and shareholders. And he provided Enron unprecedented access to the highest-levels of decision-making.
That, in the end, is why Enron is such a political problem for President Bush. It's not that he, or any member of his administration, is necessarily guilty of criminal conduct. Most likely, they're not. It's because, while Bush enjoys high ratings for his war agenda, Enron illustrates what's wrong with his domestic agenda.
As governor and president, he helped pave the way for Enron's rise and fall. Time and time again, when Enron came calling, Bush delivered. On economic policy, Enron wanted complete deregulation with no government interference. They got it. On energy policy, Enron wanted no caps on electricity prices in California. On tax policy, Enron wanted elimination of the corporate alternative minimum tax. Enron was Bush's best friend.
Enron disclosed the SPVs' existence to the investing public—although it's certainly likely that few people understood them—it failed to adequately disclose the non-arm's-length deals between the company and the SPVs. Enron believed that their stock price would continue to appreciate—a belief similar to that embodied by Long-Term Capital Management , a large hedge fund, before its collapse in The values of the SPVs also fell, forcing Enron's guarantees to take effect.
Duncan, who oversaw Enron's accounts. As one of the five largest accounting firms in the United States at the time, Andersen had a reputation for high standards and quality risk management. However, despite Enron's poor accounting practices, Arthur Andersen offered its stamp of approval, signing off on the corporate reports for years.
By the summer of , Enron was in freefall. By Oct. This action caught the attention of the SEC. A few days later, Enron changed pension plan administrators, essentially forbidding employees from selling their shares for at least 30 days. Fastow was fired from the company that day. Also, the company restated earnings going back to By Dec.
Once Enron's Plan of Reorganization was approved by the U. The company's new sole mission was "to reorganize and liquidate certain of the operations and assets of the 'pre-bankruptcy' Enron for the benefit of creditors. Its last payout was in May Arthur Andersen was one of the first casualties of Enron's notorious demise. In June , the firm was found guilty of obstructing justice for shredding Enron's financial documents to conceal them from the SEC.
Several of Enron's executives were charged with conspiracy, insider trading, and securities fraud. Enron's founder and former CEO Kenneth Lay were convicted on six counts of fraud and conspiracy and four counts of bank fraud.
Prior to sentencing, he died of a heart attack in Colorado. Enron's former star CFO Andrew Fastow pled guilty to two counts of wire fraud and securities fraud for facilitating Enron's corrupt business practices. He ultimately cut a deal for cooperating with federal authorities and served more than five years in prison.
He was released from prison in In , Skilling was convicted of conspiracy, fraud, and insider trading. Enron's collapse and the financial havoc it wreaked on its shareholders and employees led to new regulations and legislation to promote the accuracy of financial reporting for publicly held companies.
In July , President George W. Bush signed into law the Sarbanes-Oxley Act. The act heightened the consequences for destroying, altering, or fabricating financial statements and for trying to defraud shareholders.
As one researcher states, the Sarbanes-Oxley Act is a "mirror image of Enron: the company's perceived corporate governance failings are matched virtually point for point in the principal provisions of the act. The Enron scandal resulted in other new compliance measures.
Moreover, company boards of directors became more independent, monitoring the audit companies, and quickly replacing poor managers. These new measures are important mechanisms to spot and close loopholes that companies have used to avoid accountability. At the time, Enron's collapse was the biggest corporate bankruptcy to ever hit the financial world since then, the failures of WorldCom, Lehman Brothers, and Washington Mutual have surpassed it. Increased regulation and oversight have been enacted to help prevent corporate scandals of Enron's magnitude.
However, some companies are still reeling from the damage caused by Enron. Joint Committee on Taxation. Accessed Jan. Securities and Exchange Commission. Andrew S. Texas State Historical Association. Federal Reserve Bank of St.
Committee on Governmental Affairs. Commodities Futures and Trading Commission. Department of Justice. Skilling, Richard A. Federal Bureau of Investigation. University of Cincinnati Law Review. General Accounting Office. David B. Duncan, Civil Action No. January 28, Dan says his team were subject to extensive surveillance. The German authorities even initially accused them of manipulating Wirecard's share price. Wirecard's auditors were the accountancy firm, EY, one of the "Big Four" largest global firms.
EY told us the fraud was brought about by "a highly complex criminal network designed to deceive everyone including auditors". I've sat through some big fraud trials in my time, and I always wonder what kind of person is willing to fiddle the books. According to counter-fraud expert Mark Button, criminology professor at Portsmouth University, one study shows fraudsters are likely to be extroverts with an ability to lie, able to "rationalise fraud as a normal sort of task, just shifting money around".
Dan McCrum says in his experience of reporting numerous frauds, such businesses are run "by psychopaths" with the ability to "look people in the eye and lie and lie again". If these characters are liable to push the envelope with our accounting rules, how are the authorities dealing with that?
In the UK, radical reform of external auditing has been long overdue, according to three independent reviews. Last year the Financial Reporting Council said more than a third of audits fell below expected standards and that there wasn't enough scepticism among auditors, or challenge of company directors. In April the UK government published a White Paper which would hold directors of large companies responsible for the accuracy of financial statements.
A new independent regulator of auditing will be set up and the Big Four firms may be forced to share audit work with smaller rivals. There will be a "separation" of consulting and auditing arms in these firms, though this stops short of a break-up. According to Prem Sikka, the measures do not address the "corrosive culture" in accountancy firms, devoted to keeping clients happy. He argues companies "don't really need to perpetrate frauds" as there is so much discretion available to directors to use accounting loopholes.
Lord Callanan, minister for corporate responsibility says: "The vast majority of companies, the vast majority of audits are honest and truthful.
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