DUTY OF DISCLOSURE AND CORPORATE FRAUD: A CASE STUDY OF ENRON (THE COLLAPSED MULTI BILLION DOLLAR CONGLOMERATE IN THE UNITED STATES OF AMERICA)

Abstract

Enron is a multi-billion dollars business conglomerate in the United States of America that collapsed as a result of the fraudulent practice of some of her directors who took shelter in the corporate conduct of company law practice that treated artificial entities as if they are not run by natural persons. The sudden collapse of the company brought into fore the age long argument amongst intellectuals and corporate executives that the entire management of a company is at the discretion or initiative of the board of directors could be fraught with a lot of dangers. Their opinion is that directors should be monitored at all material times to guide against collusion and fraud, since they may fail to give a true and fair picture of the financial state of a company to shareholders. And when this is done the company suddenly goes around. Shareholders and the general public suffer most in the circumstance as tax payer's money is used to pay for the cost of prosecution while shareholders run the risk of losing their investment and stake in a company they laboured so much to invest in. Put differently, directors represent the interest of shareholders in a company whom they owe the duty of care and good faith. These responsibilities portend, exercising appropriate diligence in overseeing the management of a company. Negligence connivance on their part amounts to corporate fraud which is a crime that is highly reprehensible. That was the lot of Enron as the apparent negligence on the part of her directors led to its sudden collapse. When the warning signals of the company's imminent collapse came into fore, some of their directors who were taken aback argued that since all their transactions were approved by their management whom they saw as one of the most creative and talented in the world and since their accounts were audited by Arthur Anderson - a top flight auditing company in the world, they had no cause to doubt the sincerity of their questions. The truth however remains that behind this smoke screen of due diligence purportedly painted by Enron management lies deceit and collusion amongst her directors who colluded with the corporations Chief Executive to abuse financial techniques and manufacture results it has not achieved. Acting in consent with J.P.M Chase City Bank U.S.A. the company falsified its accounts and presented a wrong picture of the company's state of accounts to the unsuspecting public. The consequence of all the manipulations led to the collapse ofEnron - one of the most accomplished business conglomerates in the United States of America. A step by step legal analysis of what went wrong and how the company collapsed forms the central focus of this paper. Drawing lessons from the sad experience, the paper intends to proffer legal solutions to forestall similar occurrence and at the same time serve as a stop gap measure for future conglomerates that may be moving towards the directors Enron traded into before its imminent collapse.