Enron: Selected Securities, Accounting, and Pension Laws Possibly Implicated in its Collapse

Publication Date: January 2002

Publisher: Library of Congress. Congressional Research Service

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Research Area: Law and ethics

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Abstract:

On December 2, 2001, Enron Corporation filed the largest corporate bankruptcy in United States history. Both the Congress and the Executive branch have begun investigations into whether Enron may have defrauded investors by deliberately concealing important information about its finances and whether it may have violated federal pension laws. A number of civil suits have also been filed. Major federal financial statutes and policies which Congress and the Executive branch will likely focus on include the federal securities laws, accounting standards, and the federal pension laws.

The prevailing philosophy of the federal securities laws is that reporting companies must disclose all material information to the investing public so that the public will have the necessary information to make investment decisions. In accordance with this philosophy, the two major federal securities statutes, the Securities Act of 1933 and the Securities Exchange Act of 1934, have a number of provisions concerning the registration of securities and information which must be disclosed.

Among the disclosures of publicly traded companies are accounting statements. Since financial information is of little use to investors unless all firms use comparable accounting methods, the securities laws give the Securities and Exchange Commission broad authority to establish standards for financial reporting. The SEC has delegated the task of writing accounting standards to private sector bodies, and since 1973 the Financial Accounting Standards Board has been charged with formulating accounting and financial reporting standards.

Federal pension laws are designed to encourage private sector employers to provide retirement plans for their employees and to regulate the administration of those plans so that the funds in them are used exclusively for the benefit of plan participants and their beneficiaries. The rules are contained in the Employee Retirement Income Security Act and enforced by the Department of Labor and the Internal Revenue Service. Plan fiduciaries who violate these rules may be subject to personal liability under ERISA section 409(a) and/or subject to excise taxes under ERISA section 502 or the Internal Revenue Code's section 4975.