CORPORATE GOVERNANCE

ENRON SCANDAL

Submitted by:
R Harshad (17040142060) BBA LL.B (Hons.)
Batch [2017-22]

Course Teacher: Prof. Aisha Ahemad Shariff

Alliance School of Law

Alliance University, Bangalore

DATE OF SUBMISSION: 30/03/2020

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 TABLE OF CONTENT
CHAPTER -1
1. Abstract.…………………………………………………………03
1.1 Scope and objectives……………………………………………04
1.2 Literature review………………………………………………..04
1.3 Hypothesis………………………………………………………04
1.4 Research problem..……………………………………………..04
1.5 Research methodology………………………………………….04
CHAPTER – 2
2. Introduction……………………………………………………….05-06
3. Enron corporate profile ……………………………………………03-07
4. The fall of Enron ………………………………………………….07-12
5. Punishment(laws involved)………………………………………..13

CHAPTER-3
Research question……………………………………………………14

CHAPTER -4
Conclusion………………………………………………………..14-16
Bibliography…………………………………………………........16

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ABSTRACT:
The Enron scandal started at October 2001 and on top officials abused they had
privileges and power manipulated information put their own interest about those
their employees and therefore the public and did not exercise proper oversight or
shoulder responsibility for ethical falling which eventually led to bankruptcy often
American energy company based in Houston Texas and therefore the dissolution of
our tour Anderson which was one among the five largest audit and accountancy
partnerships within the world additionally to big being the most important
bankruptcy reorganization in America history at the point Enron undoubtedly is
that the biggest audit failure its own among companies which fell down to fast this
paper will analyze the rational for the event intimately including the management
conflict of interest and encountering fraud meanwhile it will make analysis the
moral view from individuals angle and cooperation triangle therefore this paper
will prove the bankruptcy of Enron was due to managerial scandal for the self-
benefit then shareholders advantage of this company.

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SCOPE AND OBJECTIVE:
The scope and objectives of this research paper is to find out the reasons for the failure of the
most well know corporate “Enron” and list out the failure of different committee of the corporate
and figure out the solution to get over form that downfall and progress for the success of the
company.

LITERATURE REVIEW:
Nelson KK, price RA and Rountree BR (2008). The market reaction to Arthur Andersen’s role in
the Enron scandal: loss of reputation or confounding effects (journal of accounting and
economics, 46(2) : 279-293-december 2008)
The conference board, Inc 845 Third Avenue, New York, Ny 10022-6679. Retrieved from:
conference board org on 5 may 2016.
Barreveld, the Enron collapse: creative accounting, wrong economics or criminal acts (San Jose:
writer’s club press -2002)
Gillan, B and smith, R, Kenneth Lay disaster Wall street journal, 26April2002.
Hays, Kristen (5may 2016). Fastow’s wife pleads guilty in a Enron case .USA today. Archived
from the origination: 2010-10-17, accused on: 5may 2016.

HYPOTHESIS:
Focus on ferreting out SPE abuse should be primarily placed on the abusers themselves not the
does formed to perpetrate such abuse. Wide spread legislation and accounting reform merely
casts a board net with the hopes that the abusers will get snared along with the rest of the fish.

RESEARCH PROBLEM:
This was the corporation with the unprecedented complex and risky business mode that entered
into highly questionable transaction the market capitalization of Enron had reached exceptional
valuations related to the realism of the company's ability to supply recurring excess income what
finally bought the company down is finalized internal policies investment advisors investment
banks and determined criminal activity poor auditing and poor rating probably all played a task
in its rapid demise.

RESEARCH METHODOLOGY:
For the purpose of research problem we have selected doctrinal research methodology as many
things can be studied only through empirical condition through relevant article, books and
internet.

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INRODUCTION:
Enron corporation was an American in energy commodity and service providing company based
in Houston Texas before it's bankruptcy on December 2 2001 in John employed approximately
20,000 staff and was among the world's major electricity gas communication and help and paper
companies would claim revenues of nearly $111 billion during 2000 fortune and American
business magazine named in John America's most innovative company for six consecutive years
the story ends with the bankruptcy of one of America's largest corporations entrance collapse
affected the lives of thousands of employees shareholders and other investors at the end of 2001
it had been revealed that its reported financial condition was sustained by an institutionalized
systematic and creatively planned accounting fraud No known since because the Enron scandal
Enron has since became a well-known example of willful corporate fraud and corruption the
scandal also brought into the question of the counting practices and activities of the many
corporations within the US and was an element within the enactment of sarbanes – Oxley act of
20021 the scandal also affected the greater business world by causing the dissolution of the
Arthur Anderson accounting firm.

2.1 HISTORY AND BACKGROUND OF THE COMPANY:

birth of the corporate in John began as northern gas company organized in Omaha Nebraska in
1930 by three other companies North American light and power service and united light and
railways company he each held a 35% stake within the new enterprise while loan star gas
corporation owned the remaining 30%, the company's founding came just a couple of months
after the stock exchange crash of a 1929 2 and in a specious time to launch a replacement venture
several aspects of the good depression actually worked in northern favor however consumers
initially variant hooked into gas has heating fuel but it's a low-cost led to its acceptance during
tough economic times high unemployment brought the new company already supply of cheap
labor to create its pipeline system initially the 24-inch steel pipe which could transport six-fold
the quantity of gas carried by 12-inch forged iron pipe had just been developed northern grew
rapidly within the 1930s doubling its system capacity within 2 years of its incorporation and
bringing the primary gas supply to the state of Minnesota.

2.2. PUBLIC OFFERINGS (1940):

The 1940s brought changes in Northern regulation and ownership in 1941 United light and
railways sold its share of Northern under the general public and in 1942 lone Star gas distributed

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The Sarbanes-Oxley Act of 2002 (often shortened to SOX) is legislation passed by the U.S. Congress to protect
shareholders and the general public from accounting errors and fraudulent practices in the enterprise, as well as
improve the accuracy of corporate disclosures. The U.S. Securities and Exchange Commission (SEC) administers
the act, which sets deadlines for compliance and publishes rules on requirements
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The Wall Street Crash of 1929, also known as Black Tuesday (October 29) that began on October 24, 1929 and
was the most devastating stock market crash in the history of the United States.

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its holdings to its stockholders North American light and power would hold on to which state
until 1947 when it sold the chairs to underwriters who then offered the stock to the general
public Northern was listed on the stock market that year.

2.3. GROWTH THROUGH ACQUISITION:

Northern continued expanding during the 1970s during the 1970s Northern became a principal
investor within the development of the Alaska pipeline 3completed that pipeline allowed northern
to tap vast gas resource it had acquired in Canada in 1980 northern change its name to inter north
inc. Over subsequent few years company management extended the scope of the company's
operations by investing in ventures outside of the gas industry including oil exploration
chemicals coal mining and fuel trading operations but the company's principal focus reminder
the gas industry in 1985 resulted in internet controlling f-40,000 mile network of gas pipelines
and allowed it to realize it's long sought goal of becoming the most important gas company
within the United States.

2.4. ENRON: BEFORE COLLAPSE:

Enron's 2000 annual report discussed the company's four principal lines of business energy
wholesale service ranked because the company's largest revenue producer that the division 60%
increase in transaction volume during 2000 was fueled by the rapid development of Enron online
a b2b electronic marketplace for the energy industries created in late 1999 by Enron during fiscal
2011 Android online proceeds quite $335 billion of transactions easily making and run the most
important e-commerce company within the world on the opposite hand lace position because the
chief executive of the nation 7th largest firm gave him direct access to keep political and
governmental officials in June 2001's killing was signed out as the number one CEO within the
entire country while Enron was hailed as America's most innovative company endurance chief
treasurer CFO Andrew fasto was recognized for creating the financial infrastructure for one
among the nation's largest and most complex companies in 1999 CFO magazine presenter
excellence award for capital structure management for his pioneering work on unique financing
techniques.

2.5 RENAME TO ENRON:

A 1986 inter North changed its name to Enron Kenneth Leigh the previous chairman of Houston
Gas emerged because the top executive of the newly created form that choose Houston Texas as
its corporate headquarters Lake weekly adopted the aggressive growth strategy that had long
dominated the management policies of internet and its predecessor lay hired Jeffrey skilling to
serve as one of his top subordinates during the 1990s killing developed and implemented a plan
to transform and run from a standard natural gas supplier into an energy trading company that
served as an intermediary producers of energy products principally natural gas and electricity
and end users of these commodities in early 2001 killing assumed lace position as Enron's chief
military officer CEO although lay retained the title of chairman of the board.

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One of the world's largest pipeline systems. It is 800 miles (1,287 km) pipeline with the diameter of 48 inches (122
cm) that conveys oil from Prudhoe Bay, to Valdez, Alaska.

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3. ENRON’S CORPORATE PROFILE:
CENTRAL MANAGEMENT OF ENRON CORPORATION:
- Kenneth Lay: Chairman, and Chief executive officer

- Jeffrey Skilling: President, Chief operating officer, and CEO (February–August 2001)
- Andrew Fastow: Chief financial officer
- Triton Dietrich: Chief accounting officer
- Rebecca Mark-Jusbasche: CEO of Enron International and Azurix
- Lou Pai: CEO of Enron Energy Services
- Forrest Hoglund: CEO of Enron Oil and Gas
- Dennis Ulak: President of Enron Oil and Gas International
- Jeffrey Sherrick: President of Enron Global Exploration & Production Inc.
- Richard Gallagher: Head of Enron Wholesale Global International Group
- Kenneth "Ken" Rice: CEO of Enron Wholesale and Enron Broadband Services
- J. Clifford Baxter: CEO of Enron North America
- Sherron Watkins: Head of Enron Global Finance
- Jim Derrick: Enron General Counsel
- Mark Koenig: Head of Enron Investor Relations
- Joan Foley: Head of Enron Human Resources
- Richard Kinder: President and COO of Enron (1990-December 1996); co-founder of Kinder
Morgan
- Greg Whalley: President and COO of Enron (August 2001– Bankruptcy)
- Jeff McMahon: CFO of Enron (October 2001-Bankruptcy)

4. THE FALL OF ENRON:

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In May 2001, Enron’s executive Clifford Baxter left the corporate, apparently in uncontroversial
circumstances. it had been rumored that Baxter, who later committed suicide, had clashed with
Jeff Skilling (Enron’s CEO), over the righteousness of Enron’s partnership transactions. On 14th
August 2001, Jeff Skilling resigned as Chief Executive, citing personal reasons and Kenneth Lay
became Chief executive officer. Skilling’s departure was prompted by concerns over Enron's
bungled accounting and bad management. In mid-August 2001, Sherron Watkins, Enron’s
Corporate Development Executive, who was later mentioned because the “whistleblower” within
the Enron scandal, wrote a letter to Kenneth Lay warning him of accounting irregularities that
would pose a threat to the corporate . This development shocked investors who suddenly
panicked. The shortage of transparency sent a selling wave within the market. Investors sold
many shares, knocking almost $ 4 off the price to less than $40 over the course of the third week
of August 2001. In spite of the drop by price, management still insisted all was well. Despite the
air of impending doom, Kenneth Lay found two banks willing to increase credit. But the worst of
revelations were to return yet. On 8th November 2001, the corporate took the highly unusual
move of restating its profits for the past four years. Enron effectively admitted that it had inflated
its profits by concealing debts in its complicated partnership arrangements (Special Purpose
Entities). On 9th November 2001, the humiliation of Enron appeared complete because it entered
negotiations to be appropriated by its much smaller rival, Dynegy. The subsequent graph shows
how Enron’s restated accounts. Enron filed for bankruptcy in December 2001 and filed a suit
against Dynegy for coitus interrupts of the proposed merger. Enron’s share price collapsed from
around $ 95 to below $ 1. Enron’s employees lost their savings also as their jobs. Mr. Kenneth
Lay, the once renowned visionary chairman of the firm, resigned in January 2002.It appears now
that the exceptional success of Enron was a daydream and it seems to possess sunk into a
financial predicament that's largely of its own creation in only sixteen years, Enron grew into one
among America's largest companies; however, its success was supported artificially inflated
profits, questionable accounting practices and fraud. Several of the company’s businesses were
losing operations; a proven fact that was concealed from investors using off record vehicles or
structured finance vehicles.

4.1 WHY ENRON FELL FROM GRACE:

SPE
A special purpose entity, sometimes called a special purpose vehicle, may be a legal entity
created for one very limited, particular task. Typically, SPEs are subsidiaries of a bigger
corporation. Usually the task of a special purpose entity is to isolate risk. By fixing an SPE
dedicated to the acquisition and financing of specific assets, the parent corporation is protected
just in case of bankruptcy, loan default or other loss on those assets. Another use for an SPE is
managing a single asset that has exceptionally complex financial transactions and requires
numerous permits for its operation, like a factory or an influence plant. By placing the asset
within the SPE, it’s easier to stay track of income and expenses related to this entity. Plus, if the
owner wants to sell the asset, any required permits will transfer with the SPE, eliminating the
necessity to assign them over separately. This greatly simplifies a potentially difficult sale.
ACCOUNTING ISSUE

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Enron was one among the primary amongst energy companies to start trading through the web,
offering a free service that attracted a huge amount of consumers. But while Enron boasted about
the worth of products that it bought and sold online around $880 billion in only two years, the
corporate remained silent about whether these operations were actually making any money It is
believed that Enron began to use sophisticated accounting techniques to stay its share price high,
raise investment against its own assets and stock and maintain the impression of a highly
successful company. These techniques are mentioned as aggressive earnings management
techniques Losses from its books if it passed these “assets” to those partnerships. Equally,
investment money flowing into Enron from new partnerships ended up on the books as profits,
albeit it had been linked to specific ventures that weren't yet up and running. It now appears that
Enron used many manipulative accounting practices especially in transactions with Special
Purpose Entities (SPE) to decrease losses, enlarge profits, and keep debt faraway from its
financial statements so as to reinforce its credit rating and protect its credibility within the
market. The main reason behind these practices was to accomplish favorable budget results, to
not achieve economic objectives or transfer risk. These partnerships would have been considered
legal if reported consistent with present accounting rules or what's referred to as “applicable
accounting rules”. one among these partnership deals was to distribute Blockbuster videos by
broadband connections. The plan fell through, but Enron had posted $110 million venture capital
cash as profit. Although these practices were generally disclosed to Enron’s investors, the
disclosure was inadequate. This inadequacy may have stemmed from conflict of interest to avoid
revealing, the extent to which some top Enron executives were enriching themselves, which
simply represents fraud. Another explanation may relate to Enron’s governance whereby Enron’s
structured finance transactions were so complex that disclosure becomes necessarily imperfect.
Therefore Enron’s investors had to believe their business judgment of Enron’s management, but
such reliance failed thanks to a tangled web of conflicts of interests. This becomes crystal clear
when it had been known that the majority of the senior Enron executives, especially Andrew
Fastow, served because the SPE’s principals, receiving massive amounts of compensation and
returns, so as to skew their loyalty in favor of the SPEs.

4.2 THE CRSH OF ENRON:

The shockwaves of the company crash resonated worldwide as investors round the world
demanded answers. Congressional hearings began in December 2001. Four of Enron's most
senior executives (Andrew Fastow, Richard Buy, Michael Kopper and Kenneth Lay) pleaded
Fifth Amendment protection against self-incrimination and refused to testify. In January 2002,
the US department of justice announced a criminal investigation. For the average layman, the
collapse of Enron may be a scandal of a serious energy provider that won’t to be the seventh
largest corporation in America and have become the most important bankruptcy within the US
corporate history. As revelations of the Enron affair still tumble out, employees and investors are
furious at the way a senior executive behaved and at how auditors, analysts, banks, rating
agencies and regulators turned a blind eye to what was happening. The Enron fiasco is an
unprecedented situation. This was a corporation with a unprecedented complex and risky
business model that entered into highly questionable transactions. The market capitalization of
Enron had reached exceptional valuations relative to the realism of the company’s ability to

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supply recurring excess income. What finally brought the company down is finalized? Internal
policies, investment advisors, investment banks, undetermined criminal activity, poor auditing,
and poor rating probably all played a task in its rapid demise.

4.3 ENRON’S AUDITOR: (Arthur Andersen)

Arthur Andersen, one among the world's five leading accounting firms, was Enron’s auditing
firm. This suggests that Andersen’s job was to see that the company’s accounts were a good
reflection of what was really happening. As such, Andersen should are the primary line of
defense within the case of any fraud or deception. Arguments about conflict of interest had been
thrown at Andersen since they acted as both auditors and consultants to Enron. The corporate
earned large fees from its audit work for Enron and from related work as consultants to an
equivalent company. When the scandal broke, the United States government began to research
the company’s affairs, Andersen’s Chief Auditor for Enron, David Duncan, ordered the
shredding of thousands of documents which may prove compromising. That was after the
Securities and Exchange Commission (SEC) had ordered an investigation into the speculative
actions of Enron. Duncan said he was working on an e-mail from Nancy Temple, a lawyer at
Andersen, but Temple denied giving such advice. While Andersen fired Duncan, its Chief
military officer, Joseph Berardino, insisted that the firm did not act improperly and will not have
detected the fraud. Berardino conceded that an error of judgment was made in shredding
documents, but he still protested Andersen’s innocence.

4.4 LINKS WITH GOVT: (Bush Administration)

In spite of the very fact that there are not any suggestions currently that there have been any
illegal connections between the present US administration and Enron officials, there are close
links that exist between Enron and therefore the current administration in the least levels whether
personal, social, financial, professional or political. Consistent with reports, thirty five
administration officials have held Enron stock, some had six figure investments. Several, less
senior officials, have served as paid consultants for Enron. According to the US Center for
Public Integrity, Lay (CEO of Enron) and Enron donated more than $ 500,000 to the Bush
campaign, thus making Enron the President’s largest single patron. Bush has championed some
issues Enron considered important, like deregulating utilities and limiting compensation awards.
Bush has also favored more oil exploration and drilling in spite of opposition from
environmentalists. As for the US vice chairman, Dick Cheney, he's imagined to have met Enron
executives four times in 2001 to debate energy policy. Cheney’s critics say that no company
within the US stood to gain more from the energy policies than Enron. Later the overall
Accounting Office, the investigative arm of the Congress, demanded that the vice chairman
releases documents relating to the formulation of state energy policy but he resisted. It’s also
known that Cheney was the previous Chief Executive of an oil services company named
Halliburton, which built the Enron Field stadium in Houston, when Mr. Cheney was its Chief
Executive. Paul O’Neil, the present US Treasury Secretary, had been contacted by Lay who
asked O'Neil to encourage US banks to increase their credit to Enron, an invitation refused by

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O’Neil. SEC Chairman Harvey Pitts was hand-picked by Lay for the position, thanks to his
notorious aversion to governmental regulation of any kind.

4.4 THE LINK OF ENRON WITH BRIRISH FRONT:

Shock waves of the Enron scandal are felt in Britain too, where Enron acted as a sponsor of the 2
main political parties, Labor and Conservatives. The Labor Party was accused of taking Enron’s
money reciprocally for access to government ministers. The party had apparently changed its
policy on gas-fired power stations after being lobbied by companies, including Enron. This was
seen by some as possible evidence of Enron's influence on government policy. However, the
United Kingdom Government insists its links with Enron have neither changed policy nor bought
access to ministers. The row has renewed campaigners’ involves political parties to be funded by
the state instead of counting on business donations. A second front of allegations emerged over
Labor’s close ties with Andersen, Enron’s accountants, a corporation barred from government
work for failing to stop the DeLorean car company collapse. This ban was later lifted, which has
caused the increase of awkward questions faced by the Labour Party now. Furthermore, Lord
Wakeham, a former Conservative Cabinet Minister and a nonexecutive director in Enron. Lord
Wakeham served on the audit committee that was meant to oversee Enron’s auditing procedures,
which is at the guts of the scandal, and alleged to protect shareholders’ interests. In response to
those allegations, Lord Wakeham stepped down as Chairman of the Media Watchdog, the Press
Complaints Commission (PCC).

4.4 THE RESULT OF ENRON COLLAPSE:

Enron stands for the best company scandal within the history of the US economy and has
become a logo of corruption for the entire Western financial system.
• 4500 employees lost their jobs.
• Investors lost some 60 billion dollars within a couple of days; for several it meant losing their
old age security.
• The pension fund for the company's employees was obliterated.
• Citizen’s trust within the American financial system was destroyed.
• Losses on the financial market amounted to the worst stock value loss in peaceful times.
• Banks were suspected of collusion.
• The auditing firm Arthur Anderson lost its accreditation.
• The principles for company financial reporting were drastically sharpened: Sarbanes-Oxley Act
(2002).
• The close ties of the company's founder, Kenneth Lay, to US President George W. Bush –

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Lay was a crucial financial supporter of Bush – came under sharp criticism

4.5 THE VICTIM: EMPLOYEES AND PENSION FUND HOLDERS:

The collapse of Enron has left thousands of individuals out of labor. Thousands lost their
personal investments and pensions after the scandal broke out and Enron's stock plunged. Many
employees had personal pension funds made from Enron shares - a standard situation in
America, where occupational schemes supported final salary payments are increasingly rare and
money purchase schemes, referred to as 401(K) plans, are the norm. Employees at Enron were
encouraged to try to so by the corporate, which also forbade them from selling their stocks,
when the corporate share price decreased. In contrast, many Enron executives were ready to cash
in their share options when the company’s fate became clear.

4.6 CREATION OF SARBANES-OXLEY ACT:

In response to the auditing and accounting problems laid bare by Enron and other corporate
scandals, Congress enacted the Sarbanes-Oxley Act of 2002 (P.L. 107-204), containing perhaps
the foremost far-reaching amendments to the securities laws since the 1930s. Very briefly, the
Act does the following:
 Creates a replacement oversight board to manage independent auditors of publicly traded
companies – a personal sector entity operating under the oversight of the Securities and
Exchange Commission;

 raises standards of auditor independence by prohibiting auditors from providing certain

consulting services to their audit clients and requiring preapproval by the client’s board
of directors for other non-audit services;

 Requires top corporate management and audit committees to assume more direct
responsibility for the accuracy of monetary statements;

 Enhances disclosure requirements surely transactions, like stock sales by corporate

insiders, transactions with unconsolidated subsidiaries, and other significant events which
will require “real-time” disclosure;

 Directs the SEC to adopt rules to stop conflicts of interest that affect the objectivity of
stock analysts;

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  Authorizes $776 million for the SEC in FY 2003 (versus $469 million within the
Administration’s budget request) and requires the SEC to review corporate financial
reports more frequently; and

 Establishes and/or increases criminal penalties for a spread of offenses associated with
securities fraud, including misleading an auditor, mail and wire fraud, and destruction of
records.

5. Punishment
Kenneth Lay
 Born April 15, 1942

 Tyrone, Missouri, USA

 Died July 5, 2006

 Conviction(s) fraud, falsehood

 Penalty died before sentencing, conviction vacated

 Status died of a attack before his sentencing

Jeffrey Skilling
 Born November 25, 1953

 Conviction(s) conspiracy, securities fraud, falsehood , trading

 Penalty imprisoned 24 years and 4 months, fined $45 million

 Status in prison

 Occupation prisoner/Failed Businessman

 Spouse Rebecca Carter

Andrew Fastow
 On October 31, 2002, Fastow was indicted by a federal jury in Houston, Texas on 78
counts including fraud, concealment, and conspiracy.

 On January 14, 2004, he pled guilty to 2 counts of wire and securities fraud, and agreed
to serve a ten-year prison sentence.

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  He also agreed to become an informant and cooperate with federal authorities within the
prosecutions of other former Enron executives so as to receive a reduced sentence. As of
November 2006, Fastow is Inmate #14343-179 at the Federal prison (FDC) in Oakdale,
Louisiana, with a projected release date of December 17, 2011.

6. Research question:
1. Is Enron having a ripple effect on the public's perception of the economy more
generally?
2. The Enron situation seems to have many facets. What is it that bothers the public the
most about Enron?

6. CONCLUSION:
The issues addressed during this pepper or complex and trying to resolve these issues post on
even greater challenge but before real effective change are often achieved we must first be able
to target the basis of the matter complex problems tend to involve complex solutions the band aid
of legislation more guidance or clearer guidance if you will quite likely end in nothing quite the
tag and pull between standard sectors and issuers to continue along this move counter no
approach that has gotten us to where we are today until we are ready to focus more narrowly on
the matter and affect it from that more directed approach will probably be seeing more of an
equivalent better mouse trap .the entrance analyst taken into account to be one among the four
most notorious within American history at the time of indoor collapse it had been the most
important corporate bankruptcy ever to hit the financial world scandal through attention to
accounting and company fraud as it is shareholders lost dollar for $74 billion within the four
years leading up to its bankruptcy and its employees lost billions in pension benefits.

SOLUTIONS:
If there is any good that came from a situation like Enron it's that collectively as an investigating
public we are better worst on accounting fraud of this nature the financial market the analyst the
securities and exchange commissions and therefore the public accountants have all by now
observed many of the intricacies of s p e abuse in short we now know for what to see and efforts
can be focused accordingly so how can we prevent another Enron from happening again the
standard sectors and therefore gatekeepers in spite of all the accounting disclosure reform got to
appreciate with what they are dealing a deficiency or received deficiency in the accounting rule
is not the matter the matter is person that seeks to obfuscate commit and fraudulently report
financial information accordingly specialize in ferreting out s p e abuse should be primarily

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placed on the abusers themselves not the SPE's formed to perpetrate such abuse widespread
legislation and accounting reform may really cast abroad met with the hopes that abuser will get
snared alongside the reminder of the fish hence hypothesis has been proven but within the
meantime those fish are burned with the added cost of complex and sophisticated compliance
once they weren't doing anything wrong under the old regime nor had problems complying under
the old regime so what's the alternator the four front of the approach should be and narrow and
isolated focus on SPE abusers although the matter hasn't been completely resolved the evidence
suggests that actual SPE abusers present a little pool of complaints related to entire population of
public companies this might be achieved by SEC and or other related gatekeepers taking a risk
based approach towards the matter first the gatekeeper should narrow its scope by first that
specialization in those scopes or industries lend themselves or could potentially lend themselves
towards SPE abuse.
Those industries that tend to deal heavily in derivatives intangibles search like the buying and
selling of futures contract could be good place to start out additionally those industries or
companies that stand to return under earnings pressure having trouble reaching financial forecast
or earning target or seem to be engaging in creative ways at maintaining earnings and revenue
growth the over weaking idea is that since we have seen it before that accumulated knowledge is
taken and applied going forward it could very well be possible that in terms of SPE abuse the
proprietary abuse that Enron perpetrated Boston area and isolated event the SEC report though
useful within the information it contained did little to deal with the question of whether or not
that is widespread SPE and the of balance sheet abuse the report may really focused on SPE and
of balance sheet used which is helpful but does not tell the entire story not tell the foremost
important a part of the story with all of the collective knowledge and insight on the accounting
fraud that Enron perpetrated its responsible to conclude that the SEC could drive some kind of
search criteria or corporate profiling of either industries or particular companies that show
identia for potential SPE abuse those companies could then be targeted and special attention and
focus could be placed on those companies and the strand that the initial stage of such action
could be non-intrusive the initial stages of the main target would merely involve and depth and
scrutinizing look at those companies annual and periodic reports of for evidence of SPE abuse or
other type of financial reporting regularities.

7. Bibliography:

 Robert Bryce, Pipe Dreams: Greed, Ego, and the Death of Enron (PublicAffairs,

2002) ISBN 1-58648-138-X.
 Lynn Brewer, Matthew Scott Hansen, House of Cards, Confessions of An Enron
Executive (Virtualbookworm.com Publishing, 2002) ISBN 1-58939-248-5 ISBN 1-58939-
248-5.
 Kurt Eichenwald, Conspiracy of Fools: A True Story (Broadway Books, 2005) ISBN 0-
7679-1178-4.

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 Peter C. Fusaro, Ross M. Miller, What Went Wrong at Enron: Everyone's Guide to the
Largest Bankruptcy in U.S. History (Wiley, 2002), ISBN 0-471-26574-8.
 Loren Fox, Enron: The Rise and Fall. (Hoboken, N.J.: Wiley, 2003).
 Judith Haney Enron's Bust: Was it the result of Over-Confidence or a Confidence
Game? USNewsLink/ December 13, 2001.
 Marc Hodak, The Enron Scandal, Organizational Behavior Research Center Papers
(SSRN), June 4, 2007
 www.britancia.com
 www.nytimes.com

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