Sarbanes-Oxley: Protecting Workers from Corporate Fraud - Essay Sample

Introduction

Before the enacting of the Sarbanes-Oxley Act in 2002, workers were exploited at the erroneous financial decisions from their CEOs and chief accountants. Workers remained under the mercy of the megalomaniac exploitive CEO. Therefore, most of the decades saving of many workers was tremendously reduced into fewer thousands of dollars by the time of their retirements. However, the enacting of the Sarbanes-Oxley Act paved a diverse way to fight a one-sided Corporate fraud, that had dominated many American corporations. Therefore, the essay will critically elucidate the countermeasures imposed on the Sarbanes-Oxley Act on the fight against corporate fraud.

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How Sarbanes-Oxley Changed the Responsibility of People Involved in Companies Whose Stock Is Publicly Traded

Corporate fraud affects the diversity and growth of the firm, despite luring most of the workers and clients into the sinking ship. Therefore, corporate fraud has turned the American dream of many clients and workers into a living nightmare, yet despite the backbreaking experience most of the workers have to endure to help increase their retirement plan, corporate fraud still subjects them into the yoke of hardship. Enron's corporate fraud incident is one of the most excruciating and most grandiose examples of corporate fraud that took the world by storm in 2002.

According to Rosoff et al., (2002), Janice, a 64-year-old office manner, got the shock of her life when she applied for her retirement in 2002. For more than 16 years, the older woman had profoundly made numerous sacrifices in order to contribute to her maximum-allowed 15% from her paycheck to the retirement plan each month. Her savings soon mushroomed to nearly $700,000, while Enron built a firm grip on the trust as one of the first growing and most profitable enterprises in the world (Rosoff et al., 2002). However, increased levels of corporate fraud increased, as clients watched in disbeliefs their great savings to live the American dream washed in a matter of months.

Poor leadership and lack of openness to the clients among other stakeholders was the reason behind the colossal failure that ended up in washing most of the stakeholder's decades of savings. Lack of cooperation and fear of losing jobs among the Enron employees and their top officials was among the major concerns that paved the way for the massive destruction of most of the stockholder's futures. However, despite the extensive destruction, the formation of the Sarbanes-Oxley Act cast limelight in ending the devastation and protecting stakeholders from future exploitation that could have resulted in similar corporate fraud activities.

Sarbanes-Oxley Act on Accounting Firms

According to Rosoff et al., (2002), the Sarbanes-Oxley Act 2002 offers an extensive range of capabilities to audits and firms to help increase transparency and consistency of financial reports within an organization. As a way of ensuring that a similar mistake is not repeated in the American industries, Sarbanes-Oxley created a new set of auditors, playing the role of watchdog, through the Public Company Accounting Oversight Board (PCAOB), which helps to set standards for the audit reports.

The board mandates all auditors of public companies to register with them as a means of reducing the chances of fraud activities, which may be masked between the two companies. The role of the PCAOB investigates and inspects the compliance as per the guidelines and the report from these firms. Moreover, the PCAOB prohibits the accounting firms from doing business consulting with the companies they audit to help reduce the potential possibility of increasing the chances of swiping fraud activities under the carpet.

As Rosoff et al., (2002), outlined, Enron had engaged in a risky business, with tremendous deceptive accounting practices. Moreover, the company's cash flow bore little relationship to the report earnings. Never the less, the company's auditing team had ignored the advice of the in-house auditing experts to please the demand of the clients. As the Sarbanes-Oxley Act 2002, outlines, the relationship between the firm under audit should be limited to reduce the possibilities of fraud activities being practiced, during the audit.

Sarbanes-Oxley Act on Directors and Company Officers

The Sarbanes-Oxley Act 2002, further gives each company official their duty to perform, ranging from minor officials to the top CEOs. Every worker involved in financial auditing and preparation has a role to play in the final report to help reduce the possibilities of fraud, which were masked by directors, to help cover their fraud tracks within the organization that lured more clients into their traps.

The enacting of the Sarbanes-Oxley Act 2002 became a game-changer in the corporate world, as now erroneous mistakes will be punished based on individual, rather than that pointing blaming fingers on the firm. As Rosoff, et al., (2002), outlined, section 404 and certification rewires the executives to certify the accuracy of financial statements personally. If any violations are encountered in the report, the CEOs and other executives could face a 20-year jail.

Managers are held responsible for their colossal mistakes that led to financial losses and destruction of economic growth. Through this, the adoption of the new legislative, paved ways of holding the managers and other cooperate members responsible for their colossal mistakes that were not highly punished.

How Much Were the Enron Insiders or Their Families/Spouses Left With After Fines

Enron's downfall was highly fueled by higher levels of greed and a lack of respecting public property. During the trial of the suspects, many details were retrieved, depicting the magnitude and degree of theft committed by numerous board members. One of the grandiose successful firms was Mr. Andrew's $125,000 company, which soon transformed into a $12 million company, under Mr. Kooper's leadership, after it was issued a partnership to work with Enron enterprise (Rosoff et al., 2002). The company skyrocketed in capital and assets growth at an astonishing rate. While the $62 billion worth Enron enterprise was raised to the ground, due to fraudulent activities, the federal requested to be granted permission to freeze about $23 million controlled by Fastow and other executives in the hope of the court forfeiting (Rosoff et al., 2002).

In January 2004, Andrew Fastow changed his prolonged plea to guilty, agreeing to a 10-year prison sentence without parole, forfeiting over $20 million acquired unlawfully from Enron's gradual bankruptcy (Rosoff et al., 2002). On the contrary, Andy agreed to cooperate with the government in future proceedings, which targeted both Ken Lay and Jeff Skilling, who was deemed as the main perpetrators in the fall of Enron.

Skilling's prosecution proved to be essential, especially when questioned about his $180,000 firm he had established claiming he had only pumped only $60,000 in a business run by his former girlfriend. The firm had done business with Enron worth $45,000, yet Skilling testified to be only $3,000 (Rosoff, et al., 2002). In 2008, Lou Pai, in charge of Enron Energy Services, paid over $31.5 million, an amount that was only second to Jeff Skilling's $45 million criminal fine (Rosoff et al., 2002). By the end of the convictions, the Jury had swept the room clean, leaving no stone unturned. Most of the family and friends of the convicted workers and board members were left with nothing, as most of their fraud investments and profits acquired under phony means retrieved to contribute to the federal plan to help distribute the amount to the investors and workers, who were affected by the scandal.

The Involvement of Vinson &Elkins Firm in Killing Enron

The dawn of 2002 saw Enron enterprise moving from one of the promising global companies in development and growth reduced into a bankrupt frame of a multinational company (Gupta, 2018). Enron's leadership and board of directors fueled the bankrupt of the company, with employees and numerous investors bearing the hefty price. Even though the board tried its level best in trying to help revive the company before the announcement of the company being bankrupt went live. However, the fraud activities within the corporate were far beyond repair, a concept that left the CEO pleading with the employees to pump in what they had towards their retirement plan within the company. The essence of this concept was to increase the possibilities of the company ever resurfacing from such a toxic loss.

According to Rosoff et al., (2002), Enron engaged in a series of fraudulence activities, irrespective of the company sailing deep into the ocean of corruption and public embezzlement. Despite the increased fraudulence activities, Vinson & Elkins, Enron's lawyer's company, facilitated an avenue to practice and conduct open fraud activities, without interjecting or filing any fraud activities.

During Andrew Fastow's trial in 2003, much information regarding the fraudulent activities involving the company, and its lawyer's company resurfaced. One of the accounts, that explicitly indicated that Vinson & Elkins, were the main role players in authorizing and legally violating the rules. Fastow's trial linked the persecutors to the involvement and role of Michael Kooper, a former employee of Enron, who had retired from his position to head one of the side enterprises established by Andrew Fastow. The partnership between Enron and Fastow's enterprise under Kooper revealed the degree of fraudulence activities, which transpired to the stealing of more than $30 million. The payment of the money back to Fastow was made via kickbacks, without Vinson &Elkins firm intervention or raising any major concerns and complaints in terms of fraudulence activities.

While the magnitude of the illegal activates was further booming, Vinson &Elkins firm failed to interject or distant itself with the increasing fraud activities. Tax evasion is an illegal practice in any enterprise, as it violated federal and state laws (Yin et al., 2020). However, despite the Vinson &Elkins firm's better understanding of the matter, the company went ahead and supported the act for the board members to benefit from these practices.

On the contrary, inside trading, which remains to be one of the serious cooperate fraud activities that seek to affect the company's' performance, was highly practiced, and legally approved by the Vinson &Elkins firm, without considering the consequences that will befall Enron enterprise. The approval of selling the shares, which was not done through a legal means, was rather done under the law firm's approval. Some of the means through which the shares were sold, was through writing off the lagers, which affected the financial and shares of Enron enterprise.

As Rosoff et al. (2002), outlined Timothy Belden, a former chief trade for Enron Power marketing, finally pleaded guilty for making false statements to federal investigators, which were approved and overseen by the law firm. Even though the law farm protected Enron's board members and its staff members involved in the fraud activities, Vinson &Elkins firm is one of the major players that cultivated and broadened the area for conducting the fraudulence activities.

References

Gupta, S. (2018). Corporate frauds and the auditor's responsibility. Nice Journal of Business, 13(2).

Rosoff, S. M., Pontell, H. N., & Tillman, R. (2002). Profit without honor: White-collar crime and the looting of America (pp. 37-41). Upper Saddle River, NJ: Prentice-Hall.

Yin, C., Cheng, X., Yang, Y., & Palmon, D. (2020). Do Corporate Frauds Distort Suppliers' Investment Decisions?. Journal of Business Ethics, 1-18.