Enron – A case of financial fraud and its consequences

22/01/2014 | Sara González Gómez (Alumna UC)

Enron was one of the most important American energy companies. This company was founded after the merger of Houston Natural Gas and InterNorth. Its recognition was such that the magazine “FORTUNE” gave it the award for the most innovative company for six years straight.

In 2001, it was discovered that Enron´s profits were false. In general, Enron was a huge fraud. In addition, the managers of the company, Kenneth Lay and Jeffrey Skilling, were charged with lying to the employers and investors before the collapse of the company.

Enron´s auditor was Arthur Andersen, who was one of the most important entities of auditing and accountantcy in the world, was accused of fraud, lost its customers and was closed. Because of this, The Big Five was lost and now is called The Big Four (Deloitte, Ernst and Young, KPMG and PWC, without Arthur Andersen).

Enron´s investors lost around 11 billion dollars because the price of the shares went down to less than $1, when the normal value was at $90.

Enron´s manager and its director were accused of fraud, were convicted and were sentenced 10 years of prison. This is a good measure to prevent of fraud; in Spain, there were managers who stole from companies and never went to prison. For example, in the case of Bankia, actions taken by the management and Rodrigo Rato (the director) led to a financial bailout of this bank and no one was accused of fraud or went to prison because they denied the financial situation of the bank. Now Rodrigo Rato is working for Telefónica because he was a politician before working in Bankia. Many politicians and other public figures, for example, the daughter of the King of Spain, worked for this type of companies (La Caixa, Iberdrola, Eon, etc.) and they are favorably treated when in power or when they worked for big companies.

In conclusion, since Spain doesn´t penalize companies for financial fraud, this means that the companies are willing to steal public money and later, the citizens have to bail out these banks and the companies. In my opinion, if one company is in bankruptcy, it should be closed and the consequences of these wrong decisions should be condemned because it affects investors, customers and citizens in general.

Nota: Este artículo ha sido elaborado por Sara González Gómez, alumna de la Universidad de Cantabria, como una de las actividades enmarcadas dentro del programa de capacitación lingüística, dando su permiso para la publicación del mismo en FxM.

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