The document discusses the 2001 Enron scandal, where Enron filed for bankruptcy after hiding hundreds of millions in losses. Thousands of investors and employees lost their retirement savings. Possible causes included lax accounting practices by Arthur Andersen, dishonest actions by Enron senior management like CEOs Jeff Skilling and Kenneth Lay to hide losses, and lack of oversight from stock analysts. In response, the US government passed the Sarbanes-Oxley Act in 2002 to increase accounting regulations for public companies and enhance oversight of financial disclosures.

1. Ethics in the Financial
World
Dennis Leutwiler
Enron Scandal
Moral hazard & ethical
issues
Ethics in the Financial
World
Dennis Leutwiler

2. Ethics in the Financial
World
Dennis Leutwiler
7th largest company in the US circa 2001
Files for bankruptcy (2001)
Investor & retirees left with worthless
stock
Charged with securities Fraud

3. Ethics in the Financial
World
Dennis Leutwiler

4. Ethics in the Financial
World
Dennis Leutwiler
Thousands of
investors affected
by this effectively
losing all their
money including
Enron employees
which had their
retirement plans in
the company

5. Ethics in the Financial
World
Dennis Leutwiler
Mark-to-Market
https://www.youtube.com/watch?
v=hR45ja3VjGE

6. Ethics in the Financial
World
Dennis Leutwiler

7. Ethics in the Financial
World
Dennis Leutwiler
Blame?
Lax accounting by Arthur Anderson?
AA auditor David Duncan ”Shredder”
Senior Management (Enron) Hiding losses
CEO Jeff Skilling
CEO/Founder Kenneth Lay
Media Exaggeration
Public Frenzy
Stock Analysts

8. Ethics in the Financial
World
Dennis Leutwiler
Government Response
Sarbanes-Oxley act (SOX) – 2002
• Compliance from publicly traded companies in regards
to major accounting reforms
• Track and list material risks
• CEO’s required to vouch for financial statements
• Boards of directors must have audit committees
independent of company senior management
• Companies can’t make loans to company directors
Special purpose entity rule(adding to the balance sheet)
changed from 3% of independent ownership to 10%