The U.S. government reaction to the Enron Scandal Research Paper

The U.S. government reaction to the Enron Scandal - Research Paper Example This paper focuses on response made by the government as a result of Enron scandal. The chaos caused economic losses to it stockholders and people have lost trust to the financial community. It has rendered the Code of Conduct and Ethics an insubstantial piece of covenant that could be disobeyed by seniors when they chose to do so. This paper used published literatures and materials in order to review government’s reaction on the said scandal so that risks of same incident are apprehended. An aftermath of the investigation showed perpetrators of the crime were persecuted, and the creation of a legislative Act that offered strict regulations and changes on the financial reporting. Enron was the 7th biggest corporation in the United States in 2001. It was founded in1985 and was involved in electricity, natural gas, communications and paper companies. The collapse of Enron in 2001 created ripple effects to its investors, its creditors, banks, employees, and the government. It has shattered the confidence of people to the financial markets and brought financial losses to its stakeholders, unemployment, and closure of two giant corporations, the Enron, and Arthur Anderson (AA). AA was also one of the largest accountancy and auditing firms in the world, and was the auditing firm of Enron. A long period of time has passed since then, and it is the duty of the government to take action on this big financial mess. Focus of this paper is to know what have been the reactions of the U.S. government toward this. Methodology Qualitative research using secondary sources of information, published articles, and journals will be used to establish information required. Knowing what the government has done to give justice to the people who lost money and employment will rebuild its trust to the financial system. Background Enron was the 7th biggest corporation in the United States in 2001. It was founded in1985 and was involved in electricity, natural gas, communications an d paper companies, but was better known for its matchless style of business operation of futures trading of gas and electricity and creation of new unusual markets of commodities as broadcast time for advertisers, internet bandwidth, and weather futures. From a $9 billion revenue in 1995, its annual revenues rose to over $100 billion in 2001. So, the world was shocked to find out that it has filed for bankruptcy in the mid -2001. What was unknown to the public before the bankruptcy was that Enron’s reported financial condition was covered with systematic, organized and planned activities to cover up the losses of Enron. The drop of Enron’s stock price from $90 per share in the mid-2000 to less than $1 per share at the end of 2001 caused 11 billion dollars of losses to shareholders (Yuhao Li, 2010). Findings and discussions a. Violations of Ethical Practices Causes of bankruptcy in Enron is a tangled web of unethical practices committed by the Auditor, senior management , laxity of government rules, investment houses, banks and board of directors, stock analysts who kept on pushing Enron’s stocks and media frenzy.(Tesfatsion, L. 2011) Causes of bankruptcy is also deeply seated on breaking the rules of The Code of Conduct and Ethics wherein truthfulness was not followed by management by not announcing the true health of the company and conflict of interest. There was conflict of interest between the role of Andersen as Auditor and as a Consultant for Enron. The report of accounting irregularities on reports of Enron, and the admission of AA’s employees tearing of documents and evidences related to Enron’s involvement had totally eroded AA’s reputation and the quality of his audits on the Accountancy field were put to doubt by his clients. As an Auditor and Consultant of Enron, AA has the duty to inform the shareholders the correct information as the report influences economic benefits for its shareholders. But in this ins tance, Anderson chose to betray the stockholders for his best