Sarbox effect on accounting litigation

Essay by castooneUniversity, Bachelor'sB, May 2009

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The corporate scandals of 2001 and 2002 have been referred to as the "perfect storm". (Green, 2004) One of the biggest and most publicized scandals during this time was an American energy group based out of Texas named Enron. Before its bankruptcy in late 2001, Enron employed around 22,000 people and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies. From 1998 to 2000, Enron stockholders annual return was $40, $57.7 and $88.6 percent respectively, compared to the S&P 500 and S&P energy market indexes. (Unhappy Returns, n.d)In October of 2001, Enron reported a $638 million third quarter loss, and disclose $1.2 billion reduction in the value of shareholders' stake in the company. This scandal gave the U.S market a black eye. In other words, stockowners of Enron saw their stock drop from $84.87 in December of 2000 to less than a $1 in November of 2001.

Enron had been considered a "blue chip stock" which was the nickname for a stock that is thought to be safe, in excellent financial shape and firmly entrenched as a leader in its field. (Kennon, n.d) As a result, this was considered a disaster in the financial world. Moreover, Enron was the biggest Chapter 11bankruptcy in U.S history and investors suffered more than $ 50 billion in total losses. (Summary of Enron Scandal, n.d)Likewise, WorldCom, who at time was America's second largest long distance and data provider, was found guilty for falsify its cash flow statement had increased by $3.8 billion dollars. After restating its financial statement, it was shown that WorldCom had a net loss in 2001 and for the first quarter of 2002. (Patsuris, 2002) WorldCom also announced that it would write off $50 billion in goodwill and other assets that have dropped in value...