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Business Ethics A Lacuna at some Companies By A V Raghu Vamshi 08IT-001 Aseem Sidhu 08IT-009 G Lakshmanan 08IT-012 Praveen Sebastian 08IT-021 Puneet Kukreja 08IT-022 Rishabh Garg 08IT-025 ENRON & WORLDCOM Chapter 11 Sarbanes – Oxley Act FRAUDULENT ACCOUNTING PRACTICES FAILURE OF BOARD OF DIRECTORS PROBLEMS MANIPULATION OF FINANCIAL STATEMENTS Enron…The Scandal • Mark-to-Market Accounting – Once a contract is signed income is estimated as a net present value of future cash flows. (The viability of such contracts was doubted) • Inflated Earnings – Used off balance sheet items • Board of Directors – Inefficient ImClone Systems & Qwest & Global Crossing PROBLEMS INSIDER TRADING ImClone Systems • Martha Stewart – Head of ImClone Systems • Denial by the FDA – A drug ‘Erbitux’ manufactured by ImClone Systems was denied FDA approval • Insider Trading – Martha Stewart was accused of ‘Insider Trading’ as she sold a majority portion of the stock before the news of ‘Erbitux’ being denied FDA permission broke out Global Crossing..something different?? • Inflated Stock Value – The then president ‘Clinton’ awarding a lucrative contract to the tune of 450 million $ • South heading Stock – The contract was cancelled under the orders of the new administration and the stock tumbled • Different case of Insider Trading – Winnick sold off many shares before the stock plummeted Stakeholders Affected Suppliers Regulators Shareholders Customers Company Distributors Employees Society Creditors How were the stakeholders affected? • Shareholders – Their personal wealth had evaporated • Employees – Their jobs had been confiscated • Creditors – Their trust and money had been nullified • Regulators – Their job had become much more tougher Thank You..!