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SOC 205 – Society Law and Government 1
The Enron (Kenneth Lay and Jeffrey Skilling) Trial
Summary of the Trial
The Enron Trial dates as one of high profile case of corporate fraud in the US. Enron was founded in 1985 by Kenneth Lee Lay and was reported as the largest seller of Natural gas in North America by 2000. The American energy company recorded a spectacular rise with revenues increasing to over $100 billion in 2000 from $9 billion in 1995 and an increase of Enron’s stock prices recording a high of US$90.75 per share. Enron Corporation was ranked consistently as America's Most Innovative Company" between 1996 and 2001 by Fortune Magazine. The end of 2001 saw an unprecedented collapse of Enron’s stock price from US$90.75 per share to less than a dollar following an announced of $1billon loss in the first quarter of 2001 and resulting to declaration of bankruptcy by December 2001 as a result of negatively restating earnings by $405 million which saw the Enron’s debt grown by $628 million. The collapse resulted in economic loss to the employees and investors with the shareholders recording a loss of an estimated $11 billion. The federal investigation identified that the crumbling fall was as a result of institutionalized and creative accounting fraud that hid Enron’s losses and debts between 1997 and 2000. Enron got approval to use Mark-to-market (MTM) accounting method, a method that enabled writing off unprofitable business lines without negatively affecting the bottom line which in essence presented the company more as profitable than the actual figures which was the impendence for the accounting fraud (Thomas, 2006; Li, 2010).
A task force headed by Leslie Caldwell was established by the chief of the Justice Department’s Criminal Division Michael Chertoff to investigate Enron. The task force identified 3500 separate transactions with investments funds and banks that were configured to conceal Enron’s financial losses. Jeff Skilling was indicted for thirty-five counts entailing insider trading, fraud, and conspiracy, while Ken Lay was indicted for twenty-one counts entailing conspiracy to commit securities fraud, false bank statement, wire fraud, security fraud and bank fraud by the Houston grand jury in 2004. While Kenneth Lay passed before the ruling by Judge Simeon Lake, Jeff Skilling was fined $45 million and sentenced to 24 years of prison in 2006 (Moncarz, Moncarz, Cabello, & Moncarz, 2006).
Main Laws Violated in the Enron Scandal
Civil charges were initiated by The Securities and Exchange Commission (SEC) against the former Enron CEO Kenneth L. Lay and Jeff Skilling for orchestrating a wide-ranging scheme to defraud through misleading public representation and falsified financial results. The commission identified violation of federal securities laws including the Securities Exchange Act of 1934 - Section 10(b), the Securities Act of 1933 - Section 17(a); and the Exchange Act - Sections 13(a), and 13(b)(2)(A) and (B). The Securities Exchange Act (1933) governs companies issuance of securities while the Securities Exchange Act of 1934 governs the sale, purchase, and trading of securities (SEC 2004).
The Securities Exchange Act of 1934 - Section 10(b) provides anti-fraud regulations to deter deceptive and manipulative practices in the stock market. "Rule 10b-5: Employment of Manipulative and Deceptive Practices” is the commonly quoted provision in charging people engaging in...…sentencing held on October 23rd, 2006 presided by Judge Simeon Lake. The judges pronounced the jury’s verdict for Jeff Skilling of a civil penalty of 24 years $45 million, 24 years of imprisonment and permanent injunction from taking an officer or director role in a public traded company. A resentencing by the federal appeal court pronounced by US District Judge Sim Lake III in 2013 saw the years of imprisonment reduced by 12 years to 14 years following an agreement of seizure of $40 million from Skilling’s fortune to be redistributed to the victims of the Enron scandal. The resentencing saw the release of Jeffrey Skilling from Prison in 2017 after serving 14 years (SEC, 2006; Moncarz, Moncarz, Cabello, & Moncarz, 2006).
The opinion of the Case Outcome
The bankruptcy of Enron occurred six months after the resignation Jeffrey Skilling. Although Enron share price was already declining, the September 11 attack left a devastating impact on the NYSE which arguably caused a further reduction of Enron’s stock price. Therefore, the verdict that bankruptcy was entirely on accounting fraud may be unqualified. Again A deal by Andy Fastow - Enron Chief Financial Officer to reduce his sentencing term was a foundation for the 19 counts of falsified statements charged against Jeffrey Skilling. Andy Fastow confessed to entering into a secret deal with Skilling and Lay to misrepresent troubled assets which would conceal losses in Enron’s financial statement which had an implication on the verdict. Lastly, holding the trial hearing in Houston which was the headquarters of Enron, hence the Enron scandal was highly publicized would manifest in prejudice by the jury…
Enron could engage in their derivative trading strategy with no fear of government intervention because derivative trading was specifically exempted from government regulation. Due in part to a ruling by the Commodity Futures Trading Commission's (CFTC) chairwoman, Wendy Graham, derivatives remained free of regulatory oversight. Ms. Graham, wife of Texas senator Phil Graham, made this ruling 5 weeks before resigning as chairwoman of the CFTC and joining the Enron Board
THE PEOPLE BEHIND THE RISE AND FALL OF ENRON Kenneth Lay being one of the pioneers of Enron from its establishment in 1986, had lead the way of Enron's emergence as one of the leading company in the U.S. And eventually to its collapse and declaration of bankruptcy on December 2001. Kenneth Lay held the position as the CEO and chairman of Enron from 1986 to January 23, 2002. Lay is
Enron was a Texas based, low profile, gas pipeline Company that progressed from delivering energy to brokering energy futures. Exploiting de-regulation, it pioneered an innovative mark- to- market pricing strategy and started selling electricity in 1995, entering the European energy market in 1995. Enron broke new ground by buying, selling and hedging electricity against market risk just like shares and bonds. In 1999 Enron entered the hi-tech, Internet bandwidth market buying
Enron Ethics The Enron/Arthur Andersen affair was perhaps the worst business and accounting scandal in the history of the United States. Indeed, Enron was engaging in a massive amount of malfeasance at all levels of the organization while Arthur Andersen, who was supposed to be an ethical and impartial third party, was at least partially in on the fraud. The circumstances were major as the power brokers for both firms paid
Skilling v. USA The seminal court case that was Skilling v. The United States was an affirmation and confirmation that Jeffrey Skilling was rightly convicted and that he was not being railroaded. Much of this report will focus on the case itself but the aftermath will also be discussed. In the end, the case centered on the idea that Jeff Skilling asserted that he was wrong convicted, was not given a
blow the whistle" on what you heard in the garden? If so, how will you blow the whistle? If you decide to blow the whistle, what are your reasons for doing so? Your discussion should reflect knowledge of what Boatright says about issues, problems and justifications for whistle-blowing. Also, in discussing the answers to these questions you should include the following: 1) you should evaluate real and potential conflicts