The main goal of a business is to make as much money as it possibly can. Sometimes, it is by any means necessary, illegal or not. When money begins to come in, an individual can become greedy and immoral. They begin to do things they would never imagine themselves doing in order to maintain their status in society. However, it's only a matter of time before the truth is revealed. Enron was the epitome of corporate crimes. When the executives at Enron realized they could make billions of dollars by manipulating the stock market prices, they had an ending result of one of the largest and most complex bankruptcy in U.S history.
Enron was a natural gas company based in Houston, Texas. It had about 22,000 workers, and became one of the leading power distributing companies in the world. The purpose of Enron was to send gas through pipelines across the United States. Ken Lay was Enron's chief executive officer in 1984. Assets such as oil wells that pumped crude are very costly and was the way Enron made all of his money. To finance these, Lay used “junk bonds.” These bonds are also costly. Large assets made Enron look good to the investing community, however, Enron made no money off it.
Keeping the stock prices as high as possible was the main objective. Enron's stock was skyrocketing, but the profits were doing the complete opposite. People saw them as a good investment, but in fact they were all fraud. Some individuals even decided to put their savings and retirement funds in Enron stock. But, little did they know Enron would later lose $2 billion in pension and retirement funds placed in his corporation.
Andy Fastow, Enron's chief financial officer, was covering up Enron's losses. He used “off- balance special purpose entities” to hide the company's debt. Fastow created hundreds of different companies. Each company had strange names, such as Raptor or LJM. Fastow made $45 million for himself using these names. Everyone that knew about the corruption received a part of the profit and used it for personal use. They needed someone brilliant who could bring in money to the company so he hired Jeff Skilling, who had many investment strategies.
One's motivation plays a major role when dealing with corrupton. Before Ken Lay became the founder of Enron, he lived a simple life in Missouri as a preacher's son. He worked all his life and strived to make a better life for himself. He had a strong ambition to be wealthy and was willing to make whatever sacrifices he needed to. Jeff Skilling though was cleaver and quick to figure things out. Continuing the fraud, he did not believe Enron could fail. Skilling was a risk-taker and in the movie, “ The Smartest Guys in The Room”, Skilling says, “ We take risks because it makes money.” Meaning he will do whatever it takes to get where he desires to go.
According to the book, What Went Wrong At Enron, by Peter Fusaro and Ross Miller, Skilling had a system called “rank and yank.” This meant that the bottom 15% of the company was fired. As a result, people would do anything to not lose their jobs, even if they had to lie, cheat, and steal (white collar crime). Enron gave shares of stock for retirement and if the stock went down, they would do anything to get it back up.
The major way in which this crime was able to take place was because of the deregulation of the markets or government restrictions. In the movie, “ The Smartest Guys in the Room”, Ronald Reagan stated that “ the government is not the problem-the government is the problem.” Blackouts occurred in California, but in fact they had plenty of power but still manipulating the market to make prices go up. People were willing to pay anything to have electricity. “Mark-to-market” accounting allowed Enron to book future profits. On the day a deal was signed-Enron could manipulate what the profits looked like and even if money was low, no one would know.
One problem that occurred was “conflict of interest.” Arthur Anderson allowed Enron to place false financial statements. The statements were supposed to be honest because they tell their investors about it. The statements include; the company's liabilities, profits, assets, and losses. Enron pushed his scheme too far and eventually they were bankrupt. Enron declared bankruptcy on December 2, 2001 and Arthur Anderson was found guilty of obstruction in 2002. Jeff Skilling was found guilty of conspiracy, insider trading, securities fraud, and making false statements. He served 24 years and 4 months in prison. Ken Lay was found guilty of securities fraud, conspiracy, wire fraud, and misleading statements, but died before being sentenced. Andy Fastow was sentenced to two years in jail.
Professionals continued to look at Enron and what is company was doing. This caused the downfall of Enron. To prevent this crime from happening again, auditors should focus on their responsibility of accounting, rather than talking about it. However, this has been hard to change. Other crimes like Enrons have helped contribute to business ethics taught in business schools. They're taught about how important honestly is in the real world and how doing the right thing should always be in the back of their minds. People may disagree on how much the government should have over a business but there needs to be these regulations. If businesses have total power, it is no surprising that they will manipulate anyone for their own benefit, but in the end only resulting in their loss.
Holly Carneiro
Craig Little
White Collar Crime
May 10, 2011
Memo: To the President of the United States
From: Holly Carneiro, President's Advisor on Crime Policy
Re: Corporate and Financial Crime in America: The Problem and Policy Recommendations
Businesses and corporations are committing white-collar crimes everyday without us having any knowledge of it. For years businesses have been able to hide their assets and earnings (when they plummet) so that no one will discover their crude secrets that lie beneath the truth of their corporation. Corporate and financial crime or fraud is discovered all around the world today and will continue to be found for years to come if someone doesn't do something to fix it. One negative aspect that influences a corporation to commit a form of fraud or crime is the desire to be on top of everyone else. When a corporation's main objective is to make money, it will sometimes over power the idea of knowing right from wrong. Therefore, this caus many individuals to do things that they never believed they would do. Furthermore, causing known problems in a corporation to be looked past that in actuality need to be addressed.
One of the most successful corporations ever exposed around the world was and still is Tobacco Corporations. Cigarettes, cigars, etc. are all manufactured by these businesses, and bring in much revenue from their continuously found consumers. This is beneficial to the corporation, however people are coming down with health problems, which is not a plus to their commodities. In the Tobacco Case, found in the novel by Friedrichs, he states “tobacco is found to be one of the leading causes of death in the United States.” It is proven that smoking not only harms oneself if consumed directly, but as well confirmed to be unsafe for individuals around you. For years tobacco industries have hidden these recognized secrets from their consumers, furthermore causing many to not know the consequences to their “supposedly” harmless actions.
Every manufacturing industry or corporation should know inside and out the faults and benefits to their products. Regarding the negatives to their products, you as a consumer would hope to not be mislead or deceived by the manufacturers but unfortunately this is done on the regular and needs to be addressed to the public. We the people have the right to know what we are consuming. Corporations falsely informing us is unjust and immoral. Friedrich's explains that corporations such as this “use their enormous economic and political clout to shield themselves from more legal restrictions on demonstrably harmful products.” As a corporation, they hide or “conceal information about the harms to their products, despite clear evidence from their own laboratories and studies to the contrary” (Friedrichs 74). Manufacturers too are everyday appealing their products to the youth of this country and are causing children to start younger and younger with smoking these products. When a corporation appeals to the youth, they use advertisements, songs, “seductive campaigns”, or even have famous individuals speak about their product so that one then desires to be as they are. Most importantly, it is found that these manufacturers place an addictive material in their cigarettes, cigars, etc. so that one will keep buying their product because they believe they need it on the regular. Cigarettes not only cause health problems such as lung cancer, but also majorly cause birth defects if consumed by a pregnant woman, whether directly or indirectly consumed. Since you will find that there are so many negativities to these products, and there does not seem to be any benefits to consumers, why are we not making changes to fix the problem? Simply, why have we not made then illegal?
Although cigarettes will most likely never be made illegal in America, we the people can derive ways in which to make these products less harmful or more importantly allow consumers to be more informed about what they are purchasing. Changes need to be made. Rules and regulations are a great way in which one can manage the specifics to a corporation. “Greater reliance on and financial support of government regulations through regulatory agencies such as, Consumer Product Safety Commission and Occupational Health and Safety Administration” (little review sheet) can help assist with lessening a corporations abilities to distribute harmful products. Another way to aid in improving safer merchandise for Americans would be to comprise consequences or penalties for corporations that commit illegal or unjust actions. A “greater use of incapacitation as a sanction against offenders (removal of license to practice),” can perhaps be one way in which to minimize a businesses desire to falsely inform individuals. Since these manufacturers are stationed all around the world, it's un-feasible to change everyone. However, one can hopefully transform these issues into a learning experience for future business owners or employers. “Teaching business ethics in business school” will possibly allow for individuals at the beginning of their career to obtain more helpful (right to wrong) knowledge about constructing a better corporation or business, in addition to receiving their education about businesses and how they are developed and constructed.
