Securities

During the early 2000s, a number of high-profile companies became embroiled in major scandals that adversely affected consumer confidence in the companies and led to a number of investigations by the SEC. The most notorious of these scandals involved Houston-based Enron Corporation, one of the world's largest energy, commodities, and service companies. The company suffered a collapse in 2001 that resulted in the largest bankruptcy in U.S. history and numerous lawsuits alleging violations of federal securities laws.

As recent as December 2000, Enron's stock sold for $84.87 per share. However, stock prices fell throughout 2001. On October 16, 2001, the company reported losses of $638 million in the third quarter of 2001 alone. It also announced that it was reducing shareholder equity by $1.2 billion. The SEC began a formal investigation shortly thereafter regarding potential conflicts of interest within the company regarding outside partnerships. Many of the problems centered on flawed accounting practices by Enron and its accounting firm, Arthur Andersen, L.L.P. In 2002, Arthur Andersen was found guilty of obstructing justice by destroying thousands of Enron documents.

Despite the outrage surrounding the Enron fiasco, by May 2003, only 12 individuals had been charged with wrongdoing in relation to their dealings with the company. However, only seven of these individuals were insiders in the company. In August 2002, Michael Kopper, who served as an aide to Enron's chief financial officer Andrew Fastow, pleaded guilty to charges of MONEY LAUNDERING and conspiracy to commit fraud. In November 2002, the JUSTICE DEPARTMENT indicted Fastow on 78 counts, including fraud, money laundering, and OBSTRUCTION OF JUSTICE. None of the other top executives with the company, including the former chief executive officer, had been charged as of May 2003.

Enron's downfall was followed by investigations of alleged improprieties by other major companies. The major companies investigated and charged by the SEC in 2002 and 2003 included Xerox Corporation, WorldCom, Inc., and Bristol-Myers Squibb. The scandals had a major effect on the accounting profession, and the SEC was at the center of attention by those calling for enhanced disclosure requirements and enforcement mechanisms.