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Enron, World Com, & Tyco Scandals

In: Business and Management

Submitted By dglong01
Words 947
Pages 4
Case Paper 4 Danielle Long Indiana Institute of Technology

Enron, World Com, & Tyco Scandals Three of the biggest frauds in American history, were committed by the companies Enron, World Com and Tyco. All three CEO/CFO’ks of these companies’ indulged in malicious intend to create a better financial standing within the company and for themselves. All of them were ethically wrong, regardless of the details. These individuals violated many different ethical principles which lead them all to be charged with criminal offenses and jail time. Enron used an accounting method known as “mark to market.” With this practice, the price or value of a security was recorded on a daily basis to calculate the profits and losses. Using this method allowed Enron to count projected earnings from long-term energy contracts as current income. This was money that might not be collected for many years. It is a thought that this was used to inflate revenue numbers by manipulating projections for future revenue. Sherron Watkins, an Eron VP, wrote an anonymous letter suggesting that the CEO had left the company because of improprieties and other illegal actions. She questioned the accounting methods and specifically citied certain transactions. Once Enron’s stock began to fall below a certain point, the results started to show on the financial statements. Finally in November of 2001 Enron officials admitted to overstating company earnings and filed for bankruptcy. This resulted in jail time and 78 counts of fraud for Andrew Fastow, CFO and 24 years in prison for prior CEO Jeff Skilling. WorldCom had a similar situation, as the expenses as a percentage of their total revenue increased because the growth rate of its earnings dropped. As a result, WorldCom reduced the money it held in reserve by $2.8 billion and moved this money into the revenue line of its financial…...

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