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Company Law: Enron Company

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Mr. Lay as the founder of the Enron Company had committed a criminal offence by committing a fraud to the Enron Company. A fraud can be referred to the act of unlawful gain of property or cash. In the case of Mr. Lay, he gambled away with the company’s assets and reserves. This was by first winning the trust of potential investors and making the company appear as if it was the best energy company in the world. This was a move to attract potential investors then later deceive them. He also allowed the company’s president to gamble with the trading and yet they knew very well that the company was already bankrupt. Since Mr. Lay was the director, he allowed his company to engage in corrupt practices that involved concealing of the company’s losses and even keeping of record books that contained altered information so that people would think that the company was a profitable organization.

If one happens to be a company director he is charged with the following responsibilities: the director should use his skill, knowledge and fair judgment towards the success of the company. In our case, Mr. Lay used the same elements to tactfully bring down the company. There must have been rules in their article of association that were obviously meant to protect the interests of the shareholders but Mr. Lay failed to observe this rules. My lay was also expected to make decisions for the company that were beneficial but in his case the best decision he made was to deceive other people. Mr. Lay was also expected to keep unbiased company records and report any changes but on his case, he engaged in corrupt activities of altering the information in the record books. He was also charged with the responsibility of ensuring that that the company’s accounts indicated a true and fair view of their business finances but he chose not to do that and instead came up with false information that the company was indeed making profits yet that was not the case. Mr. Lay had failed to show legal responsibility by allowing the company to go on with trading activities yet he knew very well that the company was not in a position to pay debts. He had also failed to show responsibility by using the company’s money for his own benefit. Just like others who had given loan to the company, it was unjust for him to try and recover the loan yet others were not allowed. In this case, he was supposed to treat himself equally just like the others who couldn’t recover their loans. It is quite strange that Mr. Lay tried to recover his own loan yet he was the master mind of this fraud that led to the collapse of the company. According to company law, these act of fraud calls for severe penalties. In his case, his penalty was to pay the company’s debt by compensating everyone who was part of this scandal. Apart from being charge with a crime of committing a fraud, Mr. Lay should also be charged for making false statements and should also be charged on insider trading. He committed an offence as an officer in default since other officers were also in default.

Mr. Louis Bourget was the president of the Enron Company and was supposed to protect the interest of the employees but instead went against that rule. He diverted the company’s profits into his own account and submitted false records by destroying the company’s meaningful records. He also gambled the company’s money.

Mr. Andrew Fastow was the chief financial officer. Apart from being a financial officer he was also supposed to advice the Enron’s board of directors and give room for the audit committee to carry out a transparent audit. Instead of doing this, he mislead the board of directors and even engaged the auditor into a corrupt deal so that he would deliver a biased report. He even went ahead to advice Mr. Lay that he should come up with ways of hiding the company records. He was also behind the creation of front companies that he used to defraud Enron Company of millions of dollars. He also took advantage of Wall Street Investment Banks by tricking them to invest in his companies in an attempt to transact business with his own companies. This move was meant to hide away Enron’s profits. Under the company act, Fastow violated his professional ethics. He also committed a crime of malfeasance. He used the mark to market approach to hide the stock price.

Both Mr. Louis and Mr. Andrew were not truthful in their positions as they helped Mr. Lay carry out the fraud. They were supposed to face charges of company mismanagement, conflict of interest and finally accounting fraud.

References

· Bonnie, Richard J.; et al. (1997). Criminal Law. Westbury, New York: The Foundation Press, Inc. ISBN 1-56662-448-7.

· Bratton, William W. (May 2002). "Does Corporate Law Protect the Interests of Shareholders and Other Stakeholders? Enron and the Dark Side of Shareholder Value"

· "Enron shareholders look to SEC for support in court". New York Times (New York Times). May 2007.

· Gillian SL and Martin JD. [2007] corporate governance post-Enron: effective reforms, or closing the stable door? Journal of corporate finance, 13[5] 929-958 [December 2007]