Whistleblowing: the Legal and Ethical Case of Enron

Whistleblowing: The Legal and Ethical Case of Enron

August 7, 2011

Whistleblowing: The Legal and Ethical Case of Enron

Situation

The Enron Corporation was an American energy, commodities, and services company, based in Houston, Texas. It employed approximately twenty-two thousand employees and claimed revenues of nearly one hundred one billion dollars in 2000. Kenneth Lay formed Enron in 1985, after merging Houston Natural Gas and InterNorth. Several years later, Jeffrey Skilling was hired, and developed a staff of executives that, by using accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives misled Enron's board of directors and audit committee on high-risk accounting practices and pressured Andersen to ignore the issues.

The Enron scandal was revealed in October 2001, a result of whistle blowing by Sherron Watkins and Margaret Ceconi. Shareholders lost nearly eleven billion dollars when Enron's stock price, which hit a high of ninety dollars per share in middle of 2000, dropped to less than one dollar by the end of November 2001. The United States Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor, Dynegy, offered to purchase the company at a fire sale price. The deal did not go through. Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Its bankruptcy was, at the time, deemed the largest bankruptcy reorganization in American history.

Key Issues

Whistle blowing means calling attention to wrongdoing, illegal or immoral that is occurring within an organization. Examples of alleged wrongdoing may be a violation of a regulation or law and/or a threat to public interest, such as fraud. A whistle blower is a member of the organization who reveals non-public information about its misconduct or that of its members. The...