Enron: The White-Collar Thief

J. Melanson

Enron: The White-Collar Thief

Jonathan Melanson University of Southern Maine White-Collar Crime Professor James Messerschmidt April 12, 2013

Enron: The White-Collar Thief

J. Melanson

Can you imagine riding to work on the subway, walking into a high rise office building, seeing men and women, briefcases in hand all around you? Now wait, what if they were all criminals? Is it possible? They dont look like criminals? Yes, the observance is correct . A man in a three piece suit does not fit the mold of the conventional criminal. The crimes of assault, larceny, and murder dont fit here. In reality, we are talking about the other side of crime, the person who blends in with main stream society, your boss, your friend, or the person at Starbucks with you in the morning. This criminal is a white-collar criminal. Embezzlement, fraud, and dishonest business schemes are representative of the white collar criminal. These non-physical types of crimes normally involve large sums of money that end up in the hand of the criminal.1 Now that there is an understanding of who and what the white-collar criminal represents we can look at Enron. Enron was an American energy, commodities, and service based company out of Texas. During the early 2000s they claimed revenues that topped $100 Billion dollars, and even had a six year streak as Americas most innovative company. For a period of time they were the whos who of the business world and eventually would become the whos who of the white-collar criminal world. The Rise Enron Enron was founded in 1985 and eventually became one of the worlds leading electric, natural gas, communication, and paper companies. Having their hands in many resourceful revenue producers they saw annual revenue of 9 Billion in 1985 climb to over 100 Billion in the early 2000s. The leadership panel at Enron consisted of the following:
1

(www.legal-dictionary.com)

Enron: The White-Collar Thief

J. Melanson

Kenneth Kay: Chairman and CEO Jeffrey Skilling: CEO Andrew Fastow: CFO Sheron Watkins: VP if Corporate Development Clifford Baxter: Vice Chairman Rebecca Mark: CEO of Enron International Michael Kopper: Managing Director of Enron Global

It was the abilities of the above individuals that allowed Enron to capitalize on new markets, and become what was one of the most innovative companies in existence at their times of success. In the late 1990s and the early 2000s the internet boom became prominent in business expansion as it allowed companies to reach new areas, without actually being there. Enron capitalized on the boom, as well as, becoming a leader in broadband services. 2 Due to the magnitude of their success the executives of Enron reached top compensation levels within their industries in a very short period of time. In the mid 1990s a stock price of $90 was so successful that it allowed Enron to pay its executives bonuses in the six to eight figure ranges. The success level that Enron was enjoying seemed too good to be true. Luckily, in the age of the internet boom regulatory agencies were a step behind and Enron was able to cook the books behind the scenes.3 Beginnings of Crime As we learned earlier the white collar criminal is in no way conventional. Business people, day traders, hedge fund managers, and actual businesses fall into the realm and they are able to interact with people on a day-to-day basis when a crime is being committed. It is these acts of fraudulent activity that constitute the crime, well, along with taking the money.
2 3

(Li, 2010) (Li, 2010)

Enron: The White-Collar Thief

J. Melanson

In the case of Enron the executives became enamored with the success. They went from the classic domestic energy provider to a global icon in the energy world. The success was seen by many, but most importantly by investment banks and industry analysts thus allowing Enron numerous refinancing opportunities, which consequently put their stock price in a position of power. Little did they know, it was this happening that caused them to lose concentration on the success and their focus moved solely to the keeping the stock price up. In the case of Enron this is where the white collar crime began. The investigation and fault Enron was a company that had value in many different areas: energy, broadband internet, and trade. The diversified portfolio along with complicated and confusing accounting practices allowed the executives, the accountants, and the consultants to commit the crime. The investigation was carried out by the FBI over a five year period beginning in 2002. It was the largest white collar crime investigation in FBI history. A unique task force was built to dive into the books of Enron, look at the balance sheets and follow the money.4 It was the trail that led them to the fraudulent acts and helped them build the case against Enron. The investigation eventually led to the convictions of Enrons top executives, as well as, Arthur Anderson. In the end the authorities seized over $168 million dollars in assets that were found to be obtained through the fraudulent acts. The complicated world of energy commodities has equal value when the company and the shareholders are working in unison, but Enron was not playing that game. Arthur Anderson was a consultant to Enron, an auditor to Enron but more importantly the head of the

(Crime in the Suites: A look back on the Enron case, 2006)

Enron: The White-Collar Thief

J. Melanson

accounting firm on retainer. Mr. Anderson put the interests of the Enron management team, along with himself ahead of the business for the sole purpose of maximizing personal profit. The shareholders had no idea what was happening and they could not see what was coming. The slick maneuvering of Mr. Anderson, when fabricating the accounting numbers kept Enron s stock price constant or on the rise, allowing the shares to continue to sell.5 Now, it is unfair to put all of the responsibility on Arthur Anderson, he may have been the brains behind the accounting piece but it was the high ranking executives at Enron who were calling the shots. The following executives of Enron were also found to be at fault: Kenneth Lay Jeffrey Skillings Andrew Fastow

It was these three individuals that represented the white-collar criminal at Enron. They took part in insider trading, they ordered employees to commit an act they knew was wrong, they transferred property illegally, and most importantly they acted unethically both internally and externally. The shareholders lost millions of dollars; employees lost their jobs and their pensions, all due to the greed of a few individuals. In many ways they took the approach of mark to market, which in turn meant to cover up losses for the sake of continuing to look profitable and productive. The accounting methods allowed for this to happen as there were not many regulations that regulated the accuracy of reporting. What happened next? The actions taken again Enron and its executives led to the companys share price dropping to $0.26 per share in November and it inevitably led to the company filing Chapter 11

(Ablander, 2005)

Enron: The White-Collar Thief

J. Melanson

Bankruptcy. Trading of Enron shares was suspended.6 The large scale financial catastrophe made many investors hesitant to hand their money over. The government was forced to take action as the passed the Sarbanes-Oxley act, which was put in place to stop accounting fraud. 7 Some other pieces of the act are as follows: Establishment of an accounting oversight board. More intense penalties if caught. Prevention of audit firms from providing consulting services.

Enron made a name for itself in Corporate America and forced government intervention. In the end they were caught, they were punished, but there were still many people who suffered due to the veracity of a few individuals. In this case the white-collar criminal was the business executive. As stated in the beginning the white collar criminal could be in your day-to-day life, it could be someone you know, or it could be someone you work with. As seen in the Enron case this type of criminal is just as dangerous as the conventional criminal as they have the ability to affect ones life financially.

6 7

(Dossani, 2010) (Dossani, 2010)

Enron: The White-Collar Thief

J. Melanson

Works Cited Ablander, Michael. "How could it happen? Enron and the architecture of wrong doing.." EBS Review 2 (2005): 63-73. www.ebs.ee. Web. 8 Apr. 2013. Date. "FBI A Look Back at the Enron Case." FBI Homepage. N.p., n.d. Web. 13 Apr. 2013. <http://www.fbi.gov/news/stories/2006/december>. Dossani, Asad. "Corporate governance and the Fall of Enron." Review of Business Research 10.3 (2010): 13-24. www.iabe.org. Web. 9 Apr. 2013. Li, Yuhao. "The Case Analysis of the Scandal of Enron." International Journal of Business Management 5.October 2010 (2010): 37-41. www.ccsnet.org/ijbm. Web. 9 Apr. 2013. "white collar crime legal definition of white collar crime. white collar crime synonyms by the Free Online Law Dictionary.." Legal Dictionary. N.p., n.d. Web. 13 Apr. 2013. <http://legal-dictionary.thefreedictionary.com/white+collar+crime>.