123
Kenneth Lay arrives at his fraud and
conspiracy trial on 26 April 2006, under
intense scrutiny from the media. He
was convicted but died of a heart
attack before he could be sentenced.See also: Charles Ponzi 102–07 ■ Bernie Madoff 116–21 ■ Jérôme Kerviel 124–25WHITE COLLAR CRIMES
Financial Officer Andrew Farstow
was instrumental in creating a
network of companies to help hide
the losses. To the public and the
media, the company appeared to
be growing rapidly.
It was only on 14 August 2001,
when Skilling suddenly resigned
on the day that Enron’s broadband
division reported a $137 million
(£150 million) loss, that confidence
began to fall in the company.The penny drops
Shareholders only learned of the
state of the company’s finances on
16 October 2001, when Enron filed
a $618 million (£680 million) third-
quarter loss. It was later discovered
that four days before, lawyers at
Enron’s auditor Arthur Andersen had
destroyed almost all of Enron’s files.
After the company’s stock price
spiralled from a peak of $90.75 (£91)
per share in mid-2000 to less than
$1 (£1.10) by the end of November
2001, shareholders filed a $40 billion
(£44 billion) lawsuit against the
corporation. The suit claimed that
Enron executives had misledEnron’s board of directors and audit
committee on the company’s high-
risk accounting practices.The fallout
The suit prompted the SEC to
investigate. On 2 December 2001,
Enron filed for bankruptcy and
Chapter 11 protection – at the time,
the largest bankruptcy in US
history. The US Senate convened
a committee, which summonedcompany leaders to hearings to
explain Enron’s collapse. The
hearings revealed that Enron’s
aggressive accounting practices
had been approved by the board of
directors. The Senate committee
also discovered that the company’s
financial statements were so
complex that investors could not
understand what they were looking
at and did not understand the risks.
In June 2002, Arthur Andersen
was charged with obstruction of
justice for destroying Enron’s
documents. The decision was
overturned by the Supreme Court
but the damage to the company’s
reputation was irreversible.
Kenneth Lay and Jeffrey Skilling
were each convicted of securities
and wire fraud in a federal court in- Lay died a month later. In
total, 22 other Enron executives
were convicted in the scandal. ■
Forensic accounting
Forensic accounting is a
specialized branch of accounting
used to investigate, analyze,
and interpret complex financial
and business issues.
Forensic accountants
are often employed by public
accounting firms, law
enforcement agencies, insurance
companies, government
organizations, and by financial
institutions to examine
allegations of fraudulent
practices, and regularly give
expert evidence in court.The Enron scandal occurred at
a time during the early 2000s
when the number of corporate
fraud cases investigated by the
FBI surged by an incredible 300
per cent, hugely increasing the
need for forensic accountants.
The fallout from the scandal
has led to more robust
legislation and stricter
regulation to improve corporate
governance. Financial
institutions and auditors also
increasingly employ forensic
accountants to prevent
fraudulent activities from taking
place within their organizations.122-123_Enron.indd 123 13/12/2016 11:24