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Questions And Answers About The Enron Scandal

863 words - 4 pages

The Enron scandal
Question 1: What happened to Lay, Skilling and Fastow?
Kenneth Lay created in 1985 after assimilation InterNorth and Houston Natural Gas . Later, he employed the likes of Jeffrey Skilling and Andrew Fastow, who were to be involved with him in committing gross accounting misconducts. Together with these men and many others, Lay hid huge sums of cash in debt from unsuccessful contracts and plans. This was possible through the use accounting loopholes, poor financial reporting and special purpose entities.
Andrew Fastow, the Chief Financial Officer, and other Enron executives often misled the Enron’s audit committee and the board of directors regarding these high-risk accounting practices. Furthermore, they put immense pressure on Lay that he could not give attention to the details.
It is through these schemes that Enron became the main firm dealing in natural gas in the continent as at 1992. Natural gas trade brought became the second leading benefactor to Enron's net earnings. For instance, Enron achieved an earnings before interest and taxes (EBIT) totaling to $122 million owing to the natural gas trade. The formation of the online trading model, Enron Online, in November 1999 enabled Enron to further expand and expand its abilities to consult and run its trading business
It was not until November 2001 that the shareholders of Enron filled a complaint worth $40 billion. These shareholders could not understand how Enron’s share prices would flop from $90.75 per split in mid-2000 to $1 as at the close of the month, November 2001. According to these shareholders, this was beyond the logics of stock market, which even in the most risky moments would not yield such poor results. This suit prompted the Securities and Exchange Commission (SEC) to start an investigation.
Kenneth Lay the Chairman and chief executive was condemned of six counts of conspiracy, securities fraud, wire fraud, bank fraud and faced a maximum of 45 years behind bars. However, he was deceased and died and therefore was vacated. Jeffrey Skilling the Chief executive was found guilty of Conspiracy, Securities fraud, Insider trading, Perjury or lying to investigators and auditors and was sentenced for a period of 24.3 years in prison. Andrew S. Fastow the Chief financial officer was found guilty of conspiracy and was convicted for a period of 6 years behind bars.
Question 2: Regulations that arouse as a result of Enron’s scandal

Reforms
The US Congress reacted hastily to the Enron disaster and other indignities by assuming an extensive set of reforms. Most of the improvements are contained in the Sarbanes-Oxley Act of 2002. This act applies only to those companies that sell shares in interstate commerce. Even...

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