Ethical Theories & Justice Department’s Ruling On Enron Case

Ethical Theories & Justice Department’s Ruling On Enron Case

Introduction

Before 2001, when Enron Corporation was declared as being bankrupt, it was one of the largest enterprises in the US with interests spanning the service, energy and commodity markets. The strength of the company was exemplified by an enormous workforce in its payroll; it had employed over 20 thousand Americans. Many households and industries were dependent on the enterprise for their energy, communication and stationery needs (Brewer & Hansen, 2002; Eichenwald, 2005).

Enron Corporation is estimated as having been about a hundred billion dollars by the close of the year 2000. In the succeeding year, it was established that the company had a history of falsifying financial documents (Eichenwald, 2005). The ensuing revelations indicated that the company’s management had abetted an institutionalization of fraud in the financial audits and financial reporting of the company which was not in line with established accounting procedures, ethics and principles as set out within the law (Brewer & Hansen, 2002; Fusaro & Miller, 2002).

Accounting Malpractices, the Actors and the Ethical Dilemma

            On one hand, the Justice Department (JD) was aware that the publicity that its investigation and prosecution of the actors in the scandal was to result to various bad effects; loss of investor investments in the company, laying off of over 20000 workers of the company and 8500 workers of Arthur Andersen loss of investor confidence in the US markets (Eichenwald, 2005; Fusaro & Miller, 2002). The prosecution of the individuals involved in the scum would have occasioned them and their families much public ridicule and pain of prison sentences (Brewer & Hansen, 2002; Devettere, 2002; Stephen, 2005).

JD was awake to the possible collapse of the company in the wake of the investigations and prosecution of the various actors (Fusaro & Miller, 2002). To save these interests, the JD could have stooped its pursuit of the various actors, and recommended relevant changes to bring the accounting practices of the company in line with accepted standards (Eichenwald, 2005). On the other hand, the department was awake to its mandate of prosecuting all persons and corporate bodies who transgressed the federal legal provisions (Brewer & Hansen, 2002).

The company’s management worked in cahoots with the appointed auditor, Arthur Andersen, to fleece the shareholders and evade the company’s tax obligations to the government. The court proceedings against the auditing and accounting firm, which had a global reach, affected numerous businesses across the globe. The immediate impact of the Justice Department’s (JD) quest to prosecute Enron Corporation top management was the depleting of the value of the company’s’ shares; dwindling from highs of over ninety dollars per share to pennies (Brewer & Hansen, 2002; Eichenwald, 2005).

The shares had over time been highly valued in the stocks markets, and the high values were found to have been inflated through partnerships which were limited and controlled by the company. The partnerships were responsible for annually reported large revenue bases and high returns (Fusaro & Miller, 2002). Using the limited partnerships, Enron Corporation through Arthur Andersen, was not indicated the worrying trend of the company’s debt portfolio and the mounting losses which they company had successively suffered from one year to the next (Brewer & Hansen, 2002).

Contrary to established ethics in accounting circles, Arthur Andersen was found guilty of destroying financial documents related to her client; documents which would have indicated the culpability of Enron Corporation in the scandal and the court ordered that the audit firm be dissolved in 2002 (Brewer & Hansen, 2002). The firm successfully appealed for the reverse of the order to fold in 2005, but the damage done on it by the scandal was so immense that even presently, the firm is a pale shadow of its former stature (Brewer & Hansen, 2002; Eichenwald, 2005).

The other parties hurt by JD’s decision to investigate and subsequently prosecute Enron Corporation include the Houston Astros, which was to earn from a deal to have its name associated with the former Enron Field. The main gripe of JD was that the company had entities, under its control which were used to circumvent the tax obligations of the company, allowing it to post high profits. The management was aware and even was accused for orchestrating the hiding of the enterprise’s losses. However the shareholders were kept in the dark about the losses, raising stern ethical concerns (Brewer & Hansen, 2002; Eichenwald, 2005).

The other impropriety for which the company was roundly claimed to have committed was the failure to reveal the whole picture of the company’s financial position to its shareholders. This was especially with regard to the large losses that the company was incurring over the years (Fusaro & Miller, 2002). With each deceptive quarterly presentation of the company as being profitable, it was succeeded by a need to extenuate the extent of the deception in the following quarter, indicating that the company did not suffer from a rapidly falling profitability. The deception was responsible for upping the share prices, with the management taking to wide usage of insider trading information to move the company’s stocks (Brewer & Hansen, 2002).

Among those charged in court by JD were Andrew Fastow who was the company’s chief financial officer; with illegally aiding in the creation of the limited entities in foreign markets which were used to hide information on the losses made by Enron Corporation (Eichenwald, 2005). He also faced 98 counts of corrupt practices which entailed fleecing of Enron Corporation and Enron Corporation’s shareholders; for his material gain. His wife was also tried for a charge of aiding his husband to defraud the government. The husband was sentenced to a mandatory 10-year custodial sentence, while the wife earned herself a year in jail (Brewer & Hansen, 2002).

Others Enron Corporation’s officers charged for their various fraudulent roles in the scandal included Skilling, Lay, Rick Causey and Kenneth Rice. The court pronounced jail sentences for each of them; 24-and-a-third year, 45 years, 7 years and two and a two-and-third year sentences respectively (Eichenwald, 2005). Merrill Lynch’s four workers were also found guilty of their various roles in the scandal. Arthur Andersen was found guilty of obstructing the course of the audit into the form by destroying evidence and was ordered to close shop, effectively rendering its 85000-strong workforce jobless (Brewer & Hansen, 2002).

Virtue Ethics and JD’s Decision on Enron Case

            An ethical practice according to virtue ethics is one which takes into consideration and is sensitive to morality as the sole motivation behind an act or acts (Eichenwald, 2005). It is evidently different from the deontological ethics which are involve wrongs or rights based on set rules and regulations or consequential ethics which are hinged on the nature of an act’s outcomes. In virtue ethics the falsification of documents and presentation by Enron Corporation on its financial outlook would focus on the motivations behind the falsification, rather on the falsification by per se (Devettere, 2002; Brewer & Hansen, 2002).

By looking at the motivation, a JD based on virtue ethics would have been concerned about the motivation and whether in depicted each of the actors in the scandal as moral or otherwise, case after another. Using this theory, a number of decisions would have been made (Kamm, 2007). One, the motivation to illegally aid in the formation of the partial entities in distant markets which were used to veil information on the losses made by the company would have been found as being greed for material gain, which is immoral (Devettere, 2002; Stephen, 2005).

JD would have found the greed which led to fraudulent activities in the company unethical; and the courts would most likely found the fraud hinged on greed for material gain unacceptable, ethically (Eichenwald, 2005). Thus Enron Corporation’s Andrew Fastow, Skilling, Lay, Rick Causey and Kenneth Rice would have been found as being guilty as charged by the court. Similarly, Arthur Andersen, who worked in concert with the officers of her client to hide the client’s losses to her share holders, would have been charged in court by JD (Brewer & Hansen, 2002; Fusaro & Miller, 2002; Kamm, 2007).

The department would have found that the motivation behind this arrangement was to receive kickbacks from Enron Corporation, which would be immoral (Eichenwald, 2005). Andrew Fastow’s wife’s motivation behind aiding her husband siphon money from the company’s coffers would also have been seen as being motivated by greed. She thus would also have also been charged by JD in court (Brewer & Hansen, 2002; Kamm, 2007).

Utilitarianism and JD’s Decision on Enron Case

Utilitarians hold that an ethical act is one which results in most happiness to the greatest number of people (Flew, 1979).  In the case of the scandal, the JD would not prosecute the various actors involved in the light of utilitarianism, it would advise on more strictures in preventing the deterioration of the situation and offer future safeguards against similar scandals in the future (Brewer & Hansen, 2002). Non-prosecution of the case would not have attracted the publicity which led to the collapse of the company, loss of over 28500 jobs in the company and in Arthur Andersen and the loss of investor’s assets in the company (Eichenwald, 2005). Non-prosecution would also have been beneficial to the actors who underwent trials and imprisonment (Kamm, 2007).

Deontological ethics and JD’s Decision on Enron Case

            If the JD’s decision on Enron Case was to be based on deontological ethics, it would have been determined purely on the bases of existing laws and regulations governing the various aspects of the scandal (Brewer & Hansen, 2002). In this regard the various Enron Corporation’s officers and the accounting firm would have been deemed by JD as being in contravention of various laws. The various laws which would have been considered as having been transgressed include ones against the fraudulent acts in financial transactions (Kamm, 2007; Waller, 2005).

Other laws under which the decision to charge the actors in the scandal, falsification of documents which is evidently intentional, conducting of insider trading of stocks and corrupt acquisition of material gains. Andrew Fastow’s wife would have been found to be guilt over her role in abetting the commission of crimes, which various laws are explicitly against. Deontological ethics would have required the JD to prosecute cases against the actors who had been suspected of transgressing specific provisions in the federal law (Brewer & Hansen, 2002). The prosecution would be devoid of consideration of any exonerating arguments pertaining to the pertaining to the motivations behind their acts or the consequences of the acts. The officers were expected to abide by the various rules and legal provisions to avoid the occurrence of the scandal (Eichenwald, 2005; Kamm, 2007).

Conclusion

The decision to prosecute the case seems to have been mainly hinged on deontological ethics. If I were in the position of JD, I would prosecute the actors in the Enron rip-off in the light of existing laws against the malpractices which led to the scandal and attendant losses. Before collapsing, Enron Corporation had a record of fabricating financial documents. The JD revelations indicated that had institutionalized fraud in the financial audits and financial reporting of the company.

Reference:

Brewer, L. & Hansen, M. S. (2002). House of Cards, Confessions of an Enron Executive.

New York: Virtual Book Worm Publishing.

Devettere, R. J. (2002). Introduction to Virtue Ethics. Washington, D.C.: Georgetown

University Press.

Eichenwald, K. (2005). Conspiracy of Fools: A True Story. New York: Broadway Books

Flew, A. (1979). Consequentialism In A Dictionary of Philosophy, (2nd Ed.). New York:

St Martins

Fusaro, P. & Miller, R. M. (2002). What Went Wrong at Enron: Everyone’s Guide to the Largest Bankruptcy in U.S. History. New York: Wiley.

Kamm, F. M. (2007). Intricate Ethics: Rights, Responsibilities, and Permissible Harm.

New York: Oxford University Press

Stephen M. (2005). Virtue Ethics, Old and New. Ithaca: Cornell University Press.

Waller, B. N. (2005). Consider Ethics: Theory, Readings, and Contemporary Issues. New

York: Pearson Longman.

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