Fall of Arthur Andersen

This announcement led to a sharp decline in the stock price of Enron (40%). Following this, suspecting Enron of financial misappropriations, the SEC launched an investigation into Enron's financial dealings in late October. The investigation revealed serious accounting misappropriations by Enron between 1996 and 2001.

In November 2001, Enron restated its financial statements for the years, 1997 to 2000 and for the first two quarters of 2001, and reported a loss of $586 million for that period. According to reports, Enron had huge accumulated debts on account of its dubious financial dealings with its partners and had even traded its shareholders' equity...

Duncan testified that though at first the Andersen audit team had known about certain accounting errors at Enron, it did not force Enron to reflect it in its financial statements. This was because the team found that amount to be negligible compared to the company's vast revenues and shareholders' equity.

However, in mid-2001, the team changed its mind and forced Enron to write-down $1.2 billion in shareholders' equity and asked it to attribute the write-down to an accounting error. Commenting on this, analysts felt that Duncan had been willing to play the same game his colleagues played at Waste Management and at other companies, 'Let it go and hope it fixes itself later'...