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  • Enron Scandal: Magneto Compass

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    Three members of Enron's executive committee orchestrated fraudulent accounting schemes that artificially inflated the company's stock price and profits. This led to Enron's bankruptcy in 2001. The directors breached their duties of care, loyalty and disclosure to shareholders. Shareholders lost billions of dollars, and over 20,000 employees lost their jobs due to the fraud. While the directors were convicted, shareholders were not fully compensated for their losses, resulting in an incomplete resolution to the scandal. The case demonstrates the need for stricter laws and oversight to prevent similar corporate fraud in the future.

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    Workout

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    Three members of Enron's executive committee orchestrated fraudulent accounting schemes that artificially inflated the company's stock price and profits. This led to Enron's bankruptcy in 2001. The directors breached their duties of care, loyalty and disclosure to shareholders. Shareholders lost billions of dollars, and over 20,000 employees lost their jobs due to the fraud. While the directors were convicted, shareholders were not fully compensated for their losses, resulting in an incomplete resolution to the scandal. The case demonstrates the need for stricter laws and oversight to prevent similar corporate fraud in the future.

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    24 views3 pages

    Enron Scandal: Magneto Compass

    Uploaded by

    pedquiig
    Three members of Enron's executive committee orchestrated fraudulent accounting schemes that artificially inflated the company's stock price and profits. This led to Enron's bankruptcy in 2001. The directors breached their duties of care, loyalty and disclosure to shareholders. Shareholders lost billions of dollars, and over 20,000 employees lost their jobs due to the fraud. While the directors were convicted, shareholders were not fully compensated for their losses, resulting in an incomplete resolution to the scandal. The case demonstrates the need for stricter laws and oversight to prevent similar corporate fraud in the future.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 3

    Magneto

    Compass
    Magneto Compass Workout

    Enron Scandal
    Main Law Related to Corporate Environment
    Author: Pedro Quintero Igeo
    Internship company: Airbus Helicopters Espaa

    This document develops the answers to the questions about Main Law Related to Corporate
    Environment which were proposed as work for the Magneto Compass Module.

    Pedro Quintero Igeo

    Magneto
    Compass
    1. After selecting and studying the case, answer the following questions:
    The case I will study during this workout is the Enron Scandal
    1.1 What was the role of the director in the scandal?
    Three members of the Executive Committee orchestrated the operations which led to the
    bankruptcy of Enron. These people were convicted by the Court of Houston:

    Kenneth L. Lay: President and CEO of Enron from 1985 till 2001.

    Jeff Skilling: CEO from February-August 2001.

    Andrew Faslow: Financial Director of Enron at the time this scandal took place.

    These three people designed and built a complex network of more than 3000 frontcompanies. They used this structure in order to take illegal actions for artificially
    increasing the value of Enron, which led to unpayable debts and the bankruptcy of the
    company.
    Also, by the time they were selling their stocks (which the consequent profits for
    theirselves) they encouraged their workers to buy stocks.
    1.2 Which duties have been breached by either the Director or the board? Why?
    The three mentioned people tried to increase their own profits independently of
    the real financial state of the company: they acted on behalf of their own profit
    instead of acting on behalf of the interests of the company, which was their duty
    as former of the Executive Committee.
    They also lied about the situation of the company: They built a complex illegal
    accounting structure with the aim of hiding the debts of Enron and remark the
    profits. Because of this they were breached the duty of disclosure.
    The duty of care was also broken because of their unfair acts while performing
    their duties.

    Pedro Quintero Igeo

    Magneto
    Compass
    1.3 How have the shareholders been affected by the fraud? Which position has
    been adopted by the shareholders? Which shareholders rights have been
    infringed?
    The stocks shares lost their value. The consequence of this was shareholders lost a lot of
    money (billions of dollars) because of this fraud (we have to remember that, prior to the
    revealing of this scandal the shareholders thought they were investing on a wealthy
    company).
    The right to vote was also broken because they were completely uninformed of the real
    situation of the company.
    Moreover, not only shareholders were harmed. More than 20000 people lost their jobs
    because of this fraud.

    1.4 Do you think this scandal has had a good resolution? Why?
    No, this scandal had not a good resolution. Although the main responsible of the fraud
    were jailed, the shareholders losses were not compensated.
    These people were demanded for $40 billion and they finally only paid $7.2 billion (less
    than a 20%).
    1.5 Draw a conclusion about the case based on the knowledge that you have
    acquired in the iBook.
    This case can make us to think that the cases about corruption are not only a fact of
    nowadays. The current world situation is the result of the actions which were taken by
    this kind of people for many years. The Enron Scandal is not an isolated case of
    financial engineering and accounts make up.
    In conclusion, in order to avoid this cases on the future, I think national and
    international laws should be stricter and public controls should be taken in order to
    predict when a case like this could take place.

    Pedro Quintero Igeo

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