Introduction
White collar crime refers to peaceful offense committed with an intention of gaining unlawful monetary gain. There are a number of white collar crimes that can be committed. They include extortion, insider trading, money laundering, racketeering, securities fraud, and tax evasion.
This paper carries out an analysis of the Enron scandal as an example of a white collar crime.
Background of the Crime
Enron Company was an American based energy company. It was the largest supplier of natural gas in America in the early 1990’s. The company had a stunning performance in the 1990’s. Despite the excellent performance, stakeholders of the company were concerned about the complexity of the financial statements.
The management of the company used complex nature of the financial statements and the weaknesses in the accounting standards to manipulate the financial records.
“Top officials at the company cheated investors and enriched themselves through complex accounting gimmicks like overvaluing assets to boost cash flow and earnings statements, which made the company even more appealing to investors” (Federal Bureau Investigation, 2011).
The white collar crime was characterized by inflating the asset values, overstating the reported income and cash flow and failure to disclose the liabilities in the financial records.
Members of top management of the company were closely involved in the crime. The first person was Kenneth Lay. He was the chairman of the company during that period. He permitted actions of the other management without getting to know the nature of the transactions.
The second person was the Chief Operating officer, Jeffrey Skilling. He was involved in negotiating dubious investment deals for the company. The third person was the Chief Financial officer, Andrew Fastow. He had the overall responsibility of ensuring that the books of accounts reflected true and fair view of the company.
In addition, he also created a special purpose company knows as Chewco Investment limited partnership. The debt for the company was guaranteed by Enron. Besides, he did not disclose losses arising from the company in the financial statement of Enron (Santa Clara University, 2012).
Type of the Crime
The crimes committed by the top management were of different types. They can be categorized into four these are, conspiracy, securities fraud, false statement, insider trading and fraud.
Profit without honor shows the “encounter between personal gain and individual integrity” (Pearson Education, 2012). Profit without honor was evident in the actions of the managers who were involved in the crime. The managers made gains without taking into account the underlying professional code of conduct and ethics.
Theories of White Collar Crime
Edwin Sutherland came up with the theory of white collar crime. He explained it “as a crime committed by a person of respectability and high social status in the course of his occupation” (Pearson Education, 2012).
Sutherland further explained that the white collar crime is different from the blue-collar crimes such as arson, rape, vandalism among others.
These blue collar crimes are instigated by factors relating to structures, associations of people and emotions. He further stated that white collar crimes are committed by people in the upper class who are opportunistic and would like to take advantage of situations to make monetary gain.
In the Enron scandal, it is evident that the crime was committed by wealthy, smart and high profile individuals. In addition, their jobs lacked close supervision. They were the overall bosses in the company.
In addition, it is evident that their sole intention was to enrich themselves without taking into account the integrity of their actions.
Social and Economic Impact of the Crime
Enron scandal resulted in a massive loss that had never been experienced in the history of the United States of America at that time. First, shareholders of the company lost about $74 billion as a result of the falling share prices in four years.
Secondly, Enron’s creditors and energy entities incurred hefty losses. Finally, over 20,000 jobs were lost. The employees also suffered losses resulting from the loss in value of the shares because over 50% of the amounts in the savings plans were used to purchase the company’s shares.
The total market failure that resulted from the Enron scandal amounted to over $100billion (Santa Clara University, 2012).
Type of Analysis
A number of analyses have been carried for the Enron scandal. This can be attributed to the fact that it impacts heavily on the economy. The analyses revolve around the causes and effects of the scandal.
For instance, institutions such as Santa Clara University use the case during learning process to help students understand fraud in real life (Santa Clara University, 2012).
Secondly, analysis carried out by the US Federal aimed at improving accounting and auditing profession and also to mitigate the risk which stakeholders are exposed to.
Recommendations
In the case of Enron Company, a number of recommendations can be made to mitigate the possible recurrence of the crime. First, composition of directors of a company should include independent directors as the majority.
Such directors are necessary for their decisions will be in the best interest of the company and not for individual gains. Secondly, all important committees such as audit committees, human resource committee should have independent directors.
Finally, committees dealing with finance issues such as audit committees should comprise of competent and experienced personnel.
References
Federal Bureau Investigation. (2011). Ten Years Later: The Enron Case. Web.
Pearson Education. (2012). Profit without honor. Web.
Santa Clara University. (2012). Lessons from the Enron scandal. Web.