Introduction:The Enron scandal remains today one of the biggest corporate scandals of all time. Using a system called mark-to-market accounting, Enron recorded money before it had come in. Essentially if they signed a deal worth 3 million dollars over three years, they would record the 3 million dollars on the day the deal was signed, therefore giving them a false representation of how much money they had. This technique gave investors the impression that Enron was dominating the market, causing their stock price to sky rocket as high as $90.75 per share in mid-2000. It took just a year for the stock prices to fall to less than $1 in late 2001. The chief architects behind the scandal were Jeffrey Skilling, Andrew Fastow and Kenneth Lay.Ethical contraventions:Enron stopped at nothing to ensure that they appeared to be making profits.
It didn’t matter how their deceiving operations affected people, as long as they were making money they didn’t care. The main reason for which Enron participated in all the illegal activities was so that high ranked employees within the business could be paid massive bonuses. They constantly lied to investors and auditors with untrue profit statements. They did this by making lots of off the book companies (or special purpose entities) in which they hid their debt, therefore making it appear as if Enron had no debt at all. Investors were tricked and they were therefore persuaded into investing more money into Enron, driving their stock price up.
By deceiving Arthur Anderson (their auditors) it gave the audit company a bad name and made them look as if they weren’t doing their job properly. After the scandal, Arthur Anderson had lost its reputation and all of its customers and were forced into closing down, this lead to thousands of people losing their jobs.Enron also participated in insider trading which is ‘the illegal practice of trading on the stock exchange to one’s own advantage through having access to confidential information’.