GIVEN:
ENRON Scandal Issues:
Auditing and Accounting Issues
Creates a new oversight board to regulate independent auditors of publicly traded companies â a private sector entity operating under the oversight of the Securities and Exchange Commission;
Raises standards of auditor independence by prohibiting auditors from providing certain consulting services to their audit clients and requiring preapproval by the clientâs board of directors for other non audit services;
Requires top corporate management and audit committees to assume more direct responsibility for the accuracy of financial statements;
Enhances disclosure requirements for certain transactions, such as stock sales by corporate insiders, transactions with unconsolidated subsidiaries, and other significant events that may require âreal-timeâ disclosure;
Directs the SEC to adopt rules to prevent conflicts of interest that affect the objectivity of stock analysts;
Authorizes $776 million for the SEC in FY 2003 (versus $469 million in the Administrationâs budget request) and requires the SEC to review corporate financial reports more frequently; and
Establishes and/or increases criminal penalties for a variety of offenses related to securities fraud, including misleading an auditor, mail and wire fraud, and destruction of records.
Pension Issues
Like many companies, Enron sponsors a retirement plan â a â401(k)â â for its employees to which they can contribute a portion of their pay on a tax-deferred basis. As of December 31, 2000, 62% of the assets held in the corporationâs 401(k) retirement plan consisted of Enron stock. Many individual Enron employees held even larger percentages of Enron stock in their 401(k) accounts. Shares of Enron, which in January 2001 traded for more than $80/share, were worth less than 70 cents in January 2002. Many employeesâ retirement accounts were wiped out. The losses suffered by participants in the Enron Corporationâs 401(k) plan have prompted questions about the laws and regulations that govern these plans.CRS-5
Securities Analyst Issues
Securities analysts employed by investment banks provide research and make âbuy,ââsell,â or âholdâ recommendations. These recommendations are widely circulated and are relied upon by many public investors. Analyst support was crucial to Enron because it required constant infusions of funds from the financial markets. On November 29,2001, after Enronâs stock had fallen 99% from its high, and after rating agencies had downgraded its debt to âjunk bondâ status, only two of 11 major firm analysts rated itsstock a âsell.â Was analyst objectivity â towards Enron and other firms â compromised by pressure to avoid alienating investment banking clients?
Banking Issues
One part of the fallout from Enron's demise involves its relations with banks. Prominent banking companies, notably Citigroup and J.P. Morgan Chase, were involved in both the investment banking (securities) and the commercial banking (lending and deposit) businesses with Enron, and have suffered from Enron's collapse. The two activities had been separated by the 1933 Glass-Steagall Act, until P.L. 106-102 (the Gramm-Leach-Bliley Act) allowed their recombination. Observers have begun to question whether that 1999 repeal of Glass-Steagall en courage conflicts of interest and unsafe bank lending in support of the investment banking business with Enron.
QUESTION: what laws (official names) are involved throughout this scandal? (through a business law standpoint)
