The Enron and Worldcom Scandals

Good Essays
E. Boos – Week 2 – Assignment
February 17, 2013
The Enron and WoldCom Scandals


1. The segment of Enron’s operations that got them into difficulties had several parts. They published misleading financial reports. They could not meet their bridge financing commitment with Barclay Bank because outside investors were not found. Because of this, they restated activities of JEDI and Chewco SPEs so they could be retroactively consolidated into Enron’s accounts. The SPEs helped to hide the inaccurate accounting records. Enron’s legal department wrote contracts that helped provide a cover for misuse of funds regarding the SPEs. Future revenue was reported as current revenue. Stocks were paid with promissory
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5. Ken Lay was chairperson of the board. He reassumed the position of CEO after Skilling resigned. As CEO he oversaw all of Enron’s activities. Lay and Whaley directed Causey to sell the Raptor SPEs. The sale price of was privately negotiated between Fastor, on behalf of Enron, and Kopper on behalf of LJM2. Lay did not interfere when Arthur Andersen directed Enron to record the buyout excess money as income. He knowingly allowed fraudulent activities and false information to be included in the financial reports. This was unethical. The Powers Report identifies seven questionable accounting issues concerning the sale of the Raptors (Brooks, 2007). 6. The board of directors did not insist that full disclosure of Enron’s earning be made available to the public and the shareholders. They allowed inaccurate reports to be published. Since they did not challenge management involvement in fraudulent activities, this meant the shareholders interests were not protected (Brooks, 2007).

9. Conflict of interest concerning SPE activities occurred because Enron employees were active in managing certain SPEs. Losses were not reported in end of year reports to offset other nonprofitable dealings. Arthur Andersen did not report all of the earnings and helped Enron cover up losses. When Andrew Fastow, wanted to manage
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