Enron: The Smartest Guys in the room | MyPaperHub


Fraud is the false depiction of a matter of fact in the conduct or words, making false or misleading allegations or by concealing what should have been disclosed. Therefore, fraud in law is the deliberate deception to secure unfair or unlawful gains at the expense of another party. A fraud is both a civil and a criminal wrong and results in monetary gains or other benefits. It is most common in the selling or buying of property and among companies selling their stocks or inflating their value. It may be witnessed in real estate, personal property, and even intangible assets such as bonds, copyrights, and stocks (Hussain, 2014).. While proving fraud, the plaintiff must prove that the defendant’s actions involved five separate elements namely:

·         A false representation of a material fact. For the false statement to be fraudulent, it must relate to the material fact. In that, it should affect a person’s decision to get into the contract or follow a particular course of action. A wrong action that does not bear on the disputed transaction is not considered as fraudulent at all. A statement of belief is not a statement of fact or is not material.

·         Then defendant was aware that the statement is not true. A statement of fact that is just mistaken is not fraudulent at all. For a false statement to constitute a fraud, the false statement must be made with the intention to deceive the individual. It is the easiest element to prove because once the falsity and the materiality elements are proved because the majority of the materially false statement are made to mislead the individual.

·         The defendant had the intent to deceive the victim. It means that the false statement needs to be designed with the intention of depriving the victim of some of their legal rights as offered for in the law.

·         The alleged victim has a justifiable reliance on the statement. The reliance on the false statements needs to be reasonable. The reliance on a patently absurd false statement with generality does not lead to fraud. People are, however, gullible, ignorant, or superstitious, or those that are illiterate may recover damages for fraud if the defendant was aware and took exploited such a condition.

·         Injury to the victim. The falsified information or statement needs to have caused the victim injury in that they leave the victim in a worse situation or position that they were before the fraud.


A Houston-based company called Enron Corporation went from having $65 billion in assets to bankruptcy ion less a month. It was a business built on lies and fraudulent behavior over the course of time and hence its collapse at the end. The management of the company were well aware that what they were doing was mostly smoke and mirrors that were largely illegal at the expense of the working class and the shareholders and still proceeded with greed and arrogance. There are two top individual responsible for the structuring corporate culture that is the Chair and CEO Kenneth Lay and COO Jeff Skilling (Enron: The Smartest Guys in the room., 2005). The company cooks its books to deceive the public that they were making massive profits and in one case, one of the company traders Louis Borges was caught diverting the business money to an offshore account. The company instead labels him as having made lots of money for the enterprise covering up the crucial losses from the public and interested parties. Lay also hires Skilling, who recorded potential profits instead of actual profits making the company look very profitable. The public relied on the inflated value of the business and bought stocks (Enron: The Smartest Guys in the room., 2005). The top managers, however, liquidated their assets before the company collapsed leaving the public in the cold. The questions arising are:

•         What is the legal offense committed by the corporation and its management?

•         Is the offense criminal or civil?

•         Who are liable for the damages caused to the victims of the legal issue?


The relevant law in the issue is corporate fraud laws. It occurs whenever a person intentionally deceives others for personal gain. Corporate frauds cases may involve various people and may have complicated schemes, as is the case in the Enron: The Smartest Guys in the room film. The plots and complex systems are enacting to deceive the public, investigators, and investors among others. It may involve an accounting system that is faulty to conceal information that may be crucial in making a decision on investing or being part of such a company (Hussain, 2014). The scheme in a corporate fraud allows the fraudulent officers to benefit from the inflated stock prices or increased salaries, and the actions lead to a violation of various state and federal laws.


The Enron company Chief financial officers led by Jeff Skilling in full knowledge of Kenneth Lay the Chief Executive Officer and other top management involved the cooking of financial records. It was done through a complex financial system that made up balance sheets and the accounts of profit and loss as they recorded projected profits and not the actual profits making the company on the verge of bankruptcy seem profitable beyond imagination. It had growing debtors but still concealed the information by inflating the income. The shareholders, even employees, felt secure, and a sense of pride in affiliation to the company yet it faced bankruptcy. The biggest beneficiaries of the scheme were the top management who liquidated their assets and stocks in the company before its collapse at the defrauding value before letting collapse leading to massive losses to the public and shareholders.

The Enron Company and its officials have all the elements of fraud present. It is because, the material information on the value of the stocks as was floated on the stock market was falsified and the CEO with his financial managers were aware as they engaged in cooking the books of accounts themselves. The company also intentionally and fraudulently concealed information on a theft that occurred from one of the traders that sent the money to an offshore account causing financial losses and instability to the company. It made the image of the company look sound, and so the shareholders and the public remained confident as they relied on the information provided to buy shares and continue supporting the entity (Enron: The Smartest Guys in the room., 2005). The intention of the lie was for financial gains to the management as they liquidated their stocks before the collapse of the company at the expense of other deceived stockholders. An example of the resulting injury and financial losses accruing to the public that relied on the false information was one of the customers that had invested 401k. The electrical man that had saved up to buy the stocks had been made to believe that the 401k he invested was worth $300,000. However, upon the collapse of the scheme, the investment was worth $1,200. He relied on the information and it led to massive financial losses on him among others.


The company has engaged in a form of fraud that is both criminal and civil. The criminal fraud is against the state because of defrauding the public and then there are the civil frauds against the individual such as the electrical man that had invested in the company. The company having engaged in a corporate fraud, the top management who were aware of the scheme is also liable since they engineered the frauds although the entity is liable for its losses and debts as well.

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