Running Head : Assignment 1

Enron Corporation

Instructor: MATTHEW MIKO
Strayer University
LEG 100
10/27/2010

* Describe how Enron could have been structured differently to avoid such activities.
Investment bankers and auditors will often carry out due diligence, learning much about a company and its business. They also read the filings made by public companies. It is important that the corporate executives, auditors and investment bankers ensure that the financial statements and other disclosures included in offering documents, include all the material information that those market participants would want if they were investing in the company themselves.
Management’s apparent lack of respect for accounting systems that underlie financial reporting may have contributed to Enron downfall. Instead of attempting to avoid disclosure of its true financial condition, Enron should have used the accounting system as the tool for researching sound decision and should have warned market about its potential losses.
As the text book stated for the action that do not maximize shareholder value but are ethically required “when managers take actions that could have a material adverse effect on today’s shareholder, they should disclose the actions and the reason for taking them to the shareholder. Disclosure is important to prevent managers from using social responsibility as a fig leaf to cover up mediocre performance or self - dealing”. (Bagley) p.31.

* Discuss whether Enron’s officers acted within the scope of their authority.
Enron’s officers acted outside the scope of their authority. Chief Financial officer Andrew Fastow led the team which created the off-books companies, and manipulated the deals to provide himself, his family, and his friends with hundreds of millions of dollars in guaranteed revenue, at the expense of the corporation for which he worked and its stockholders, and employees and the whole market.
He had breached the fiduciary duty “The duty of care” a responsibility to act with a due care (duty of care theory), which includes avoiding mistakes and acting negligent, reckless, or intentional misconduct.
Court could determent this act as a “frolic” refers to conduct that in no way serves the interest of the employer.

Describe the corporate culture at Enron.
Enron's first scandal was in 1987. The dubious response by Lay, Arthur Andersen, and others suggests their interest in profits over ethics and willingness to hide bad news. The company had a smart energy-trading subsidiary in New York called Enron Oil. It was started and run by Louis Borget. Although profitable (important for a slumping Enron), it was fraudulent from the start. Part of the manipulation was moving profits from one period to the next, apparently based on orders from Houston. Enron's auditor, Arthur Andersen, investigated and discovered several unusual transactions and potentially fraudulent acts. They reported to Enron's audit committee, but would not comment on the illegality of the acts. If material, Enron would have to disclose the impropriety to the Securities and Exchange Commission (SEC) and restate earnings. Rather than face these sanctions (and possible bankruptcy), Enron declared the problems immaterial and did not disclose the bogus transactions.
Basically Enron goals were concerned on short term stock options goals rather than long term goals that will benefit the corporation and its shareholders.

Discuss two alleged irregularities in the actions between sellers of securities and Enron. The allegations listed in the indictment depict violations of various provisions of the Securities and