Statement of Facts
- Jeffery K.Skilling, the former CEO of the Enron Corporation was found guilty of securities fraud, conspiracy, engagement in insider trading, and made misrepresentations to auditors by a Jury of District Court for the Southern District of Texas.
- However, Skilling denounced this allegation that the district court applied erroneous jury’s findings and the jury was biased. He also alleged that prosecutors were pursued unconstitutional delinquency and his sentence was not awarded on a proper basis. He started calmly serving 292 months imprisonment at the Federal Correctional Institution situated in Waseca, Minnesota.
- He was sentenced for conspiracy, fraud, lying to auditors, and engaged in insider trading for 31 counts. On appeal to the court of appeals for the fifth court, it had confirmed the conviction made by the lower court and vacated the sentence, and remanded for commutation. (Welytok, 34).
Legal Issue Statement
- The prosecution side tried to persuade the jury that compliance by Enron with the legal obligations or rules was not primary and are secondary to a general technique of deceptive attitude that was either approved or masterminded by Skilling.
- The jury while arriving at their verdict, they sent two vibrant signals to Skilling. The first one was that they can be punishable for conspiracy to cheat investors not only by publishing deceptive financial statements to SEC and investors but also their financial practices and policies which might not be an irrefutable infringement of law. ( Salter 3)
Applicable Legal Rules
- During the trial stage, the jury witnessed many confront like working through the legal indistinctness that was present in the case presented by the government. There were also many other provisions that getaway inclusions. Despite this indistinctiveness, which contains, for instance, the employment and revelation of off-balance-sheet relationships, corporate restructure that camouflaged business failures and supposed prepay transactions to jack up the reported earnings.
- In U.S v Brown, the charges against Merrill Lynch employees in the Enron Nigerian Barge fraud case were overturned on the ground that Merrill employees did not infringe the “honest-services” stipulations detailed in the Federal Criminal Code. The court observed that Merrill Lynch employees were under the impression that they were performing in the best concerns of Enron even while observing that Enron engaged in some questionable operations mainly to dress its balance sheet. Shilling relied on this decision to prove his innocence.
- In U.S v Brown, the court observed that an employee who deems his acts advantageous for the corporation and cannot have the aim to deprive the corporation of the individual’s honest services. Thus, this decision overturned the earlier decision of convicting Merrill employees. Based on this decision, Skilling argued that his alleged functions were supposedly not conflicting with Enron’s interest and hence he should not be penalized for having executed an “honest-service.”
- Skilling’s key argument is that where an employee activity could be termed as “fraudulent, dishonest, criminal or wrongful, the activity nonetheless shall not fall under federal crime under the honest-services theory of fraud particularly had the employer offered a scheme of incentives to attain a corporate objective. (Salter, 336).
- In U.S v Simon1, it was held that proof of observance with normally acknowledged yardsticks was “evidence” which maybe can be persuasive but need not necessarily be conclusive that the action of the defendant was in good faith and the truths as certified were not considered misleading or false.
In this case, in the lower court, jurors who were educators, office workers, a nurse, and engineers observed that Skilling was final repository as he was the main brain behind binding “side-deals” to perpetuate his technique to defraud. According to Jurors, the top officials like Skilling should owe some standards of accountability and honesty to his profession which he would practice in his personal life. (Vega 21).
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In a criminal case, the prosecution must establish beyond reasonable doubt that an employee had precise knowledge of fraud and acted to back it. As per Sarbanes–Oxley Act, to establish a crime, there should be a customer of culpability footed on “conscious avoidance.”
Thus, if an executive is having the knowledge that a chance for fraud remains, but inevitably of the fraud itself, the omission to probe is enough to establish a criminal fault. This corroborates Aristotle’s theory that moral liability is not rationalized by willful ignorance. (Steiner 193).
Ethical Analysis Model
Statement of Facts
As stated in the legal statement of facts.
Ethical Issue Statement
- This case law raises many ethical issues like how to shun persistent non-adherence of corporate governance and its impact on the economy and society. It is essential to have organizational procedures that are essential to underpin ethical discipline and that were obviously absent at Enron despite its finely printed “code of ethics.”
- Had Skilling acted in an ethical manner, he would not remain in prison now.
- How to make sure that executives of a corporation are following the ethical code and how to bring it to the limelight when there is a deviation?
Support for Ethical Issues
- Though a corporate executive has an ethical duty both to the company and its shareholders, they should not intend to harm the interests of shareholders by engaging in misrepresentation.
- Ethics exchanges some features with the law like banning homicide but also blame or praise or such other indications of disfavor or favor2.
An ethical alternative is available by disclosing the serious financial debacles and to overcome them by either merger or by reconstruction process rather than engaging in fraud and duping shareholders.
Choosing an Ethical Option
- Had Enron used the ethical alternatives available, it would have saved further financial losses and earned the confidence of the shareholders and investors.
- Thus, the Enron case is an eye-opener to all the corporations who want to disregard their ethical responsibilities as regards their financial debacles by camouflaging them by dubious means.
Salter Malcolm S. Innovation Corrupted. The Aims and Legacy of Enron’s Collapse. Harvard: Harvard University Press, 2008.
Steiner John F. Business, Government and Society. McGraw –Hill Professional, 2005.
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Vega Elizabeth De la. United States v George W.Bush et al. Seven Stories Press.2006.
Welytok Jill Gilbert. Sarbanes –Oxley For Dummies. For Dummies, 2008.
- 425 F2, D 796, 805-806 (2d Cir.1969).
- Williams K.frankena, Ethics, Englewood Cliffs, New Jersey: Prentice-Hall. 1973, P.7.