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Accounting in ERP Systems
Enron stock. Shareholders lost an estimated $40 billion dollars—in many cases,
individuals lost their entire life savings. A class-action lawsuit against financial institutions
that had dealings with Enron (including Canadian Imperial Bank of Commerce, JPMorgan,
and Citigroup) produced more than $7 billion in settlements, although legal fees consumed
a significant portion of this.
Thousands of Enron workers lost their jobs, and 31 individuals were either charged or
pled guilty to criminal charges. J. Clifford Baxter resigned as Enron’s vice chairman on
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May 2, 2001. He was found shot to death in his car on January 15, 2002, in an apparent
suicide. In 2006, Andrew Fastow, Enron’s former chief financial officer, was sentenced to
six years in prison. His sentence had been limited to a maximum of 10 years as part of a
plea agreement in which he agreed to testify against former CEO Jeffrey Skilling and CEO
Ken Lay. Fastow’s wife, Lea, also received a one-year prison sentence for filing a false
income tax return. In October 2006, Jeffrey Skilling was convicted on 19 counts of
conspiracy, fraud, insider trading, and making false statements to auditors. He was ordered
to pay nearly $45 million into a restitution fund for Enron’s victims, and was sentenced to
24 years in jail. Although he is appealing his conviction, he began serving his sentence in
late 2006. Ken Lay was convicted on fraud and conspiracy charges in May 2006, but two
months later, prior to being sentenced, he died of a heart attack.
On June 15, 2002, jurors convicted the accounting firm Arthur Andersen of
obstructing justice by destroying Enron documents while on notice of a federal
investigation. Andersen executives had claimed that the documents were destroyed as part
of general housekeeping duties, and not as a ruse to keep Enron documents away from the
regulators. That October, U.S. District Judge Melinda Harmon sentenced Andersen to the
maximum: a $500,000 fine and five years’ probation. Those events were anticlimactic,
however, as the former auditing giant had been all but dismantled by then. Once a world-
class firm with over 85,000 employees globally, Andersen has since been whittled down to
almost nothing. As of early 2012, Andersen has not declared bankruptcy or been dissolved,
but it is no longer an active company.
As a result of the failure of Enron, as well as the high-profile bankruptcies of
WorldCom and Global Crossing, the United States Congress passed the Sarbanes-Oxley
Act of 2002. This act was intended to prevent the kind of fraud and abuse that led to the
Enron downfall.

Key Features of the Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act is designed to encourage top management accountability in firms
that are publicly traded in the United States. Frequently, top executives involved in
corporate scandals claim that they were unaware of abuses occurring at their company. Title
IX of the Sarbanes-Oxley Act requires that financial statements filed with the SEC include a
statement signed by the chief executive officer and chief financial officer, certifying that the
financial statement complies with the SEC rules. Specifically, the statements must certify
that “the information contained in the periodic report fairly presents, in all material
respects, the financial condition and results of operations of the issuer.” Anyone who
willfully certifies a statement “knowing that the periodic report accompanying the statement
does not comport with all the requirements set forth in this section shall be fined not more
than $5,000,000, or imprisoned not more than 20 years, or both.”

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