Winners and Losers in Multiple Failures at Enron and Some Policy Changes
11 Pages Posted: 13 Feb 2002
Date Written: April 9, 2002
Many of us in the anticorruption community have been calling for better enforcement of "Conflict of Interest" provisions of existing laws, ban on shell corporations, especially those in money laundering havens. It is clear that if these had been followed, Enron fraud might have been detected and thousands of investors may have saved billions of dollars in losses due to Enron bankruptcy of December 2, 2001. Enron paid no taxes in four out of the last five years, had 5000 partnerships for shifting losses and debt off-balance sheet. It used fancy mark-to-market accounting devices to hide and defraud. Why various checks and balances failed in this case? Besides listing the various failures we indicate eleven groups of winners and six groups of losers. While it is fashionable to count Enron employees among losers due to their 401(k) losses, we argue that employees were also among bulk recipients in the mass transfer of wealth from investors. We include many specific policy proposals to promote transparency, curb corruption, and prevent various abuses. Since the so-called "Chinese Wall" regulations separating investment banking and other business of brokerages have failed, we call for a break-up of such brokerages. An Appendix includes the two cows joke updated for Enron.
Keywords: Corporate Governance Corruption Accounting Money Laundering Conflict of Interest
JEL Classification: G34, G28, D21, D43, D73, F36, M41
Suggested Citation: Suggested Citation