Facts
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.
Issue
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?
Law
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.
Discussion
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.
Conclusion
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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