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The fall of Enron Corporation in early 2002 shortly after it was named as "the America's most innovative company" from 1996 to 2001 by Fortune magazine, was a huge bankruptcy case that took place in the American history, and its stock price had plummeted near to zero. after that it is Enron is known as a greed and fraud. Enron was the operating in Energy sector and later he expanded his business in to various field such as natural gas and electricity operation and gas pipeline network.  The reason for the downfall of Enron was the use of the specific purpose entities (SPV's) to engage in off balance sheet activities, Enron basically used the SPV's to manipulate financial results. 
Enron's origins date back to 1985 when it began life as an interstate pipeline company throughÂ the merger with Houston Natural Gas and Omaha-based Intermonth. Kenneth Lay, the chief executive officerÂ of Houston natural gas,Â was the chairman. From the pipeline sector, Enron began moving into new fields. In 1999, the company launched its broadband services unit and Enron Online, the company's website for trading commodities, which soon became the largest business site in the world. About 90 per cent of its incomeÂ eventually came from trades over Enron Online. Growth for Enron was rapid.Â In 2000, the company's annual revenue reachedÂ $100 billion US. ItÂ ranked as the seventh-largest company on the Fortune. The company's stock price peaked at $90 US. However, cracks began to appear in 2001. In August of that year, Jeffrey Skilling, a driving force in Enron's revamp and the company's CEO of six months, announced his departure. In 2001, Enron reported a loss of $618 million, its first quarterly loss in four years, and the U.S. Securities and Exchange Commission launched an investigation into investment partnerships led by Fastow. That investigation would later show that a complex web of partnerships was designed to hide Enron's debt. By late November, the company's stock was down to less than $1 US. Investors had lost billions of dollars. 
Enron grew so rapidly extending their business to up to 22, 000 employees, in various industries.  Company engaged in to a lot of business, for which it required a huge amount of money for gas and oil business and for that they utilised the special purpose entities, which was a huge move.  Enron had an upper hand into moving in a lot of other business because it was already involved in the gas and oil business, the company know a lot more than the other competitors. 
Enron's downfall in the 2001, as because of these issues, fortune business magazine first raises the question "How, exactly, does Enron make its money?" Enron employee, sherron Watkins, meets Lay to alert him to her concerns about dodgy finance and accounting practices at the firm. However in, October Enron shocks the markets by announcing a $638m loss for the past three month, and write-offs worth $1.2bn; three days later the US stock market watchdog launches an inquiry into Enron's finances. A week later Fastow is sacked. Enron agrees to be bought by rival firm Dynegy. Shortly thereafter Enron announces even further losses. As Enron's share price falls below $1, Dynegy breaks off the takeover talks and in December, Enron declares itself bankrupt.  Enron was considered bankrupt, after that a lot of questions raised, that whether the shares were overpriced. 
After the melt down of the shares it was declared one of the biggest bankruptcies and many financial experts had a lot of critique to it, `Deakin' stated that the reason for the failure can be the accounting methods the conflict among the senior management, financial norms, misreporting of financial accounts, severely damaged the market confidence and the extreme diversification of business were some of the factors which led to the company being bankrupt. 
The reasons for the down fall can be considered to be the accounting method , `Fusaro and miller`, stated that the financial institutions have got into trouble when they have misinterpretated the figures generated by mark to model mechanism , by reading the values as real price from the existing market. Enron made the same mistake, and a particular point when their profit started to fall, they even manipulated the model in a drive to create a positive image for the company and their earning.  Another mistake can be the SPE where there were structured in such a way that the operated as off balance sheet items.  Internal disciplinary issues were of a concern that the employee's had insecurity about their jobs and moving into so many fields at the same time and away from company's objectives was also one of the factors that led to Enron downfall.
After that various regulation were made within the US and UK, which shall be discussed in the next part however the Enron downfall could be that the increased use of the information technology and the growth of operational complexity were noticed because of the market competition, and maintain a disciple is a challenge for all the industries.
`John' argues that the compensation packages granted to Enron's top executives gave them extremely high-powered incentives to focus on the share price. This contributed to their willingness to misstate the financial affairs of the company so as to please analysts and investors. `Skeel' compares this with the behaviour of errant executives argues that in each case, the problems were caused by a combination of a culture in which risk-taking by executives was linked to reward with excessive competition. These encouraged managers to take ever-increasing gambles.  However these factors led to the downfall of the Enron Company.
Appraise the changes in laws which were implemented in the US after this scandal. Are there equivalent implementations in the UK?
The Enron case was the biggest in a series of scandals that damaged the reputation of corporate America. As a direct result the US Congress passed a tough new law, called Sarbanes-Oxley, which imposed stricter rules on auditors and made corporate directors criminally liable for lying about their accounts.  The reason for the reform was to restore the public confidence on the stock markets which was affected by the Enron scandal, which enhanced the independent operation ability of the directors and auditors which could align managerial operations to the best interest of their shareholders. 
There have been a lot of changes made in the US regulation after the Enron downfall , a few of the changes were the important ones, new requirement to have the audit committee which should include a financial expert, auditors which comprise of directors, periodic reports on the company operation, internal effective control, requirement of corporate lawyers to report any suspected violence of security, prohibition on giving managers and directors company loans and restrictions on stock sales by executives during certain black out period. 
S (301) of SOX Act  , it directs the national security exchange, to prohibit the listing of any company that does not place in an audit committee. S (202) SOX Act  , however, requires the audit committee to pre approve all audit and most non-audit services. S(203) of SOX Act provides that most accounting firms may not provide audit services to a publicly traded company, usually referred to as an issuer, if the lead audit partner or the reviewing audit partner has performed audit services for the issuer in each of the issuer's previous five fiscal years.  S ( 302) of SOX Act  , Management assessment of disclosure controls, disclosure of information to the SEC. S (402) SOX Act, states management assessment of internal controls over financial reporting. 
The Sarbanes Oxley promises a long term benefit investors will face lower risk of losses from fraud and theft, mere reliable financial report, greater transparency and accountability. The economy will benefit because better allocation of recourse and faster growth.  These and similar suggestions are often reflected in the discussion about new laws and in the final legal framework itself. The collapse of Enron influenced policies related to corporate governance in many countries, but the strongest and quickest reactions were in the USA and the UK.
Morrison (2004) summarizes the main US legal responses. In the USA, corporate governance is regulated by several authorities. Corporations are subject to federal legislation, SEC rules and state laws. The most comprehensive reform of corporate governance law since the Securities and Exchange Act of 1934 was the Sarbanes-Oxley Corporate Reform Act of 2002 (SOA).As Morrison (2004) notes, SOA is not a new code of corporate governance, but rather a set of statutory reforms concerning financial controls, auditing and accounting. In a nutshell, most of the provisions of SOA concern the independence of members of the audit committee, on auditors performing certain types of non-audit work, a revision of accounting standards for debts of special purpose entities, the disclosure of off-balance sheet transactions and the protection of so-called whistle-blowers  .By contrast the UK the financial reporting review panel will be granted powers under the companies ( audit investigation and community enterprise Act 2004 to require the companies officer and employees to provide the information it needs to carry on with the investigation into the company, the secretary of the state has greater power to direct a supervisory body. 
According to SOA, the CEO and the CFO must also certify annual reports, and may face criminal penalties in cases of reckless certification. SOA also prohibits personal loans to directors and disgorges incentive-based compensations and stock sales profits if accounts are overstated. It also requires senior financial officers to disclose their corporate code of ethics.  Under the UK law 2004 Act, the secretary of the state can require more detailed disclosure by the listed companies of the audit and non audit services provided by their auditor and with regards to the loan under the S (330) of 1985 Act, UK law restricts loans to directors and person connected with them, whereas the US law extends to senior executive officer who are not board member, however the US law does not have so many exceptions. 
There is an ability of the SEC to prohibit the persons from serving as a director however under the UK law there is Director Disqualification Act (1986) which has similar powers. There are however measures from Independence of audit committee and their effectiveness and under the UK very similar provisions can be seen under the combined code and Smith Guidance. Critics also objected that the Higgs Report recommendations could result in the application a One-size-fits-all template to companies that are in essence different. However, considering the "comply or explain" principle maintained by the Higgs Report, this objection could be dismissed because it is after all up to the companies to convincingly explain to the Shareholders their deviations from the Combined Code. In September 2002, another group chaired by Sir Robert Smith was set up to review and develop rules for audit committees to be included in the Combined Code. Based on both the Higgs Report and the Smith Report, the UK government delegated the Financial Reporting Council to take the reports' recommendations into account when drafting the new Combined Code. 
The first requirement demands greater accountability of top management, as recommended by stakeholder theorists, while the following two could be seen as revisions of the original shareholder model.SOA does not address the problem of independent board directors, per se. Neither does regulate equity-based compensation. These issues are however dealt with in the updated 2002 NYSE Listing Standards. According to which, the majority of the board should not have any material relationship with the company, former employees of the company and its auditor must wait five years before serving on the board, the audit committee must have sole responsibility for hiring the audit firm and shareholders must approve all share-based compensation.
Dewing and Russell (2003) summarize the legal responses to Enron and similar scandals in the UK. Long before Enron's demise, the Cadbury Report of 1992 was the first ad hoc study that reacted to the rising importance of corporate governance. Its findings were incorporated in the so-called Combined Code. In 2002, Derek Higgs was chosen by the UK government to review the role and effectiveness of non-executive directors. The Higgs Report maintained the "comply or explain" principle established by the Cadbury Report. Furthermore, Dewing and Russell (2003) consider the following as the most controversial, a senior independent director should be identified, at least half of the members of the board should be independent non-executive directors; the senior independent director should attend a sufficient number of the regular meetings of management with major shareholders to develop a balanced understanding of the themes, issues and concerns of shareholders. 
The UK has implemented changes after the US act and they have been, the aim for director to provide auditor with correct information. The new regimes were set out in the Companies Audit Investigations and Community Enterprise Act (2004) , which ensures to have more stringent security measures in the accuracy of the records and that the directors need to provide the right information to the auditor if they do it negligently in that case they can fined or imprisoned, another major change that could have been seen was that the government could investigate the company's record, however companies are obliged to ensure control and efficiency over the procedure by these company law procedure. 
These recommendations aimed to improve the board's autonomy, make the decision making process more transparent, and prevent conflicts of interest. One of the main criticisms was that the constraint that half the board members be non-executive directors could prevent the promotion of talented executives, and result in cumbersome boards and poorer company performance. 
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