Enron Case

Topics: Enron, Enron scandal, Risk Pages: 2 (702 words) Published: December 1, 2014

Enron Case

The internal controls that were ignored when LJM1 was created were one, LJM’s books were kept separate from Enron's. LJM1 ignored some of Enron’s entries in the books that were missing. Outsiders owned less than 3% of the Special Purpose Entities equities. There was an error made by Arthur Andersen to let LJM’s financial statement to remain unconsolidated. If the financial statements had been consolidated, some of the errors could have been found. They may have even had some time to correct these errors before that had gotten so far out of control. There was not governing controls in place and fraudulent activities were unlimited. Andrew Fastow created LJM1 to handle investments with Rhythms NetConnections, high-speed Internet service provider. The stock that they bought at $10 million was worth $300 million after a year. Enron tried to sell the stocks to an investor, in case the stock price dropped. They could not find an investor to purchase the stock at the put option because of the risks that was involved. This is a clear violation as it created a scenario where Enron was basically insuring itself, and therefore, without insurance Enron's harsh performance review could have significantly aided their company, because the performance review was so strict that if someone was not performing in a given period of time, they would indicate a poor rating to that employee and fire them. Enron harsh performance review committee aided company executives in committing fraud in that up to 15% of Enron’s work force was been replaced annually as a result of vicious internal competition causing reigning short term results above promising long term goals. This caused employees to be at the top if they expected to remain an employee. Strict guidelines could have ensured that Enron employees followed all government guidelines and any Code of Ethics that Enron had in place. Therefore, this delusion with the company succeeded and several limited confidential...
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