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White-Collar Crime - Corporate Fraud

enron fixing price companies

Investors buy stocks and bonds to make money, therefore they generally invest in companies that appear to be successful. Corporate fraud occurs when a company misleads the public and analysts by manipulating information to make itself look strong and profitable when in reality it is not.

In 2004 one of the largest corporate fraud cases ever involved a Houston, Texas-based energy company, Enron. Enron was formed in 1985 as a merger of Houston Natural Gas and InterNorth. The corporation expanded rapidly both in the In one of the largest corporate fraud cases ever, the debt of energy company Enron was purposely hidden from stockholders by fraudulent accounting and continually forming new partnerships with other companies through buying and selling stock (AP/Wide World Photos) United States and internationally through complex deals and contracts. Unknown to all but a few top executives and its accountants (from the accounting firm Arthur Anderson), Enron fell billions of dollars into debt.

Enron's growing debt was purposely hidden from stockholders by fraudulent accounting and continually forming new partnerships with other companies through buying and selling stock. Much of the money used in these stock transactions did not go into Enron but into the pockets of its executives. The fraud was revealed in October 2001 when Enron announced it was worth $1.2 billon less than it had been reporting. Enron fell into bankruptcy and many of its officials were charged on multiple fraud counts, including securities fraud. Investors and employees lost millions; many lost their entire life savings.

Other classic types of corporate white-collar crime include price-fixing and antitrust or restraint-of-trade violations. During the late 1880s leaders of several major industries brought their companies together to prevent competition and ruin smaller rivals. The organizations they formed were called "trusts." To stop these trusts from controlling the markets and the American economy, Congress passed the Sherman Antitrust Act in 1890. This act was the cornerstone of U.S. antitrust and price-fixing law.

Price-fixing involves companies with little competition to set high prices for the products they produce. The Antitrust Division of the FBI prosecutes price-fixing and antitrust cases. One successfully prosecuted high profile case of the late 1990s involved Archer Daniels Midland Company (ADM) and seven other companies. The charges against ADM and the others stemmed from the price-fixing of two chemicals, lysine and citric acid.

By fixing the prices of these chemicals, the companies—which were the largest manufacturers of these valuable products—were able to control sales worldwide. Lysine is used by farmers in feed products for poultry and pigs. Citric acid is a flavor additive and preservative used in many items such as soda drinks, processed foods, and cosmetics. Over a billion dollars in sales worldwide were affected by this price-fixing scheme. Eight corporations and six individual defendants admitted to the price-fixing and were fined about $200 million.

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