The biggest scandal of the early 21 th century was that of "Enron". The financial collapse of US energy giant happened with the participation of offshore companies. In the 90s the company began to trade, not only gas but also electricity. The Corporation has entered the stock market, which allowed it to have room for financial maneuvering. "Enron" was the largest trader in the electricity market in 2001 and reached TOP-10 in the "Fortune 500" list. Naturally, there were close links with major policies - it is the "Enron" has become a sponsor of the longwall-George W. Bush in his election campaign (Ferrell, Hirt, & Ferrell, 2013). The company is mainly sponsored by Republicans, while Democrats received their piece of the pie. Many employees of the Presidential Administration in the end turned out to be closely related to the energy giant, as its shareholders, advisors or former employees. As a result, "Enron" received unprecedented benefits in the electricity supply, affects the choice of the persons exercising control over this market (Ferrell, Hirt, & Ferrell, 2013).
Such action, by the way, was quite legitimate, but in the accounting giant was not going smoothly. Thus, the management of the company to conceal the true state of affairs had been created thousands of legal entities, mainly offshore. So, at Georgetown, and / I in 1350 that in the Cayman Islands, 692 subsidiaries "Enron" has been registered. Interestingly, all the offshore companies were established legally, filed the appropriate reports to public services, moreover, all this abundance of small partners were approved by the board of directors and its auditors and lawyers (Ferrell, Hirt, & Ferrell, 2013).
The operating principle of the whole scheme was simple: they conducted transactions with electricity, allowing to inflate the value of the entire company through subsidiaries, however, these subsidiaries were shifted to offshore debts that "Enron" was not going to show. That is why the performance of the company grew up, the management received a multimillion-dollar bonuses, the value of the also grew up significantly. Parallel guide kept pace and profit from offshore companies themselves, so Andrew Fastow, the main financier of "Enron", who actually created the whole scheme was able to get $30 from one of the offshore companies (Ferrell, Hirt, & Ferrell, 2013).
For tax authorities, in contrast to the shareholders, the company revealed all its losses, being unprofitable, and received tax refunds in the amount of $380 million. On the "Enron" worked the best lawyers and accountants, so it may be thought that almost any company's operation could be considered legitimate or challenged in court with a good chance of success.
However, the debt did not cease to grow, accumulate like a snowball. In 2001, the company's senior management secretly beginning to dump their shares, although stated to the employees about the bright prospects. By October it became impossible to hide the debt, the company said on losses at 640 million and a decrease in equity by 1.2 billion. In this the chief accountant of the company has been accused, immediately fired for offshore fraud (Ferrell, Hirt, & Ferrell, 2013).
Shares of "Enron" began to plummet. Already in November, the company reduced the balance sheet profit for 5 years, 586 million, and the debt rose by another 2.5 billion. Now drop the company could no longer be avoided, the shares have depreciated to $ 80 per share to the one in December 2001 "Enron" filed for bankruptcy protection, which has become the largest in the history of the country (Ferrell, Hirt, & Ferrell, 2013). There were also fired about 4 thousand employees in the US and a thousands in Europe.
One of the world leaders in this industry, not only participated in the development of the scheme, and, in anticipation of the collapse, destroyed a great number of valuable information relating to the company. Lenders have put forward a number of requirements to the bankers. Among the respondents were also the leading US banks, who are charged with that giant helped mislead investors.
The scandal spread and Europe. In England, the "Enron" has sponsored the winning Labour Party, which is now charged with the construction of the energy policy of the state in favor of the company (Ferrell, Hirt, & Ferrell, 2013). What happened with the giant caused a chain reaction in the US economy, because this practice was used hundreds of other companies who are now revised its financial results.
In July 2002, fell another giant of the American economy - the company "Vorldkom» (WorldCom). The largest Internet operator in the world, declared bankruptcy, leaving assets at 107 billion dollars (Wagner & Dittmar, 2006). The reason - the discovery of a month before reporting an error in the amount of $ 3.8 billion. A company's auditors was all this time notorious firm "Arthur Andersen".
These events prompted the society to reflect on the relation of big business and government, as well as conflict of interest, while providing advisory services and audit nature. The government has adopted a number of bills such as Sarbanes-Oxley Act of 2002, the efforts of the state control over the economy, stricter control on the part of shareholders and officers, was also increased jail time for executives scam (Wagner & Dittmar, 2006). Under those rules fall even foreign companies, but only on the New York Stock Exchange listed more than 1,300 issuers.
References
Ferrell, O., Hirt, G., & Ferrell, L. (2013). Business. Boston: McGraw-Hill/Irwin.
Wagner, S. & Dittmar, L. (2006). The Unexpected Benefits of Sarbanes-Oxley. Harvard Business Review. Retrieved from https://hbr.org/2006/04/the-unexpected-benefits-of-sarbanes-oxley
