Securities and Exchange Commission (SEC)
Take a position on the following statement: SEC regulations used when obtaining venture financing stifles entrepreneurial endeavors. Provide support for your position.
Securities and Exchange Commission (SEC) is an independent federal government regulatory agency that is responsible for protecting investors, facilitating capital formation, and maintaining orderly and fair functioning of the securities markets. It was created by Congress to regulate securities markets. SEC began to control organizations and investors in securities exchange, brokerage institutions, and protecting all investment funds from fraud activities in the market (Sack, 2015). SEC regulations do not stifle entrepreneurial activities. Market institutions require guiding rules and principles for their stability and efficiency. It prevents unhealthy business practices from occurring in the market that may result in loss of finances by investors. Investors are attracted by markets where strict rules and regulations are followed. Moreover, financial institutions that provide credit to finance businesses are well governed by SEC regulations. Investors are comfortable when obtaining loans from them rather than from private individuals.
From the e-Activity, briefly discuss the details of the business and the security laws it violated. Then, evaluate how the business could have avoided the violation(s).
The business was ENRON which was one of the biggest audit and accounting companies in the USA. It was formed in 1985 following a merger between Houston Natural Gas Company and Omaha-based InterNorth Incorporated (Markham, 2015). After the merger, Kenneth Lay became the Enron’s CEO and chairman. ENRON began to crumble in the late 90s because of its online security trading. During that period most companies collapsed due to economic recession. The reputation of the company was so good that it tried all means to protect it. ENRON Company came up with a way of covering up their losses from the public through mark-to-market accounting. ENRON accounting moved from traditional historical cost accounting method to mark-to-market. The mark-to-market is a measure of the fair value of accounts that can be altered after some time like assets and liabilities (Markham, 2015). The mark-to-market is not based on ”actual” cost but ”fair value”. The company could begin an investment and immediately record the projected profits even before it was obtained. It was discovered later to have violated any laws. Among the violated laws were overestimating profits of company and securities fraud and bank fraud. ENRON Company could have avoided violations of laws by using the recommended accounting principles which focus accountability and openness to its shareholders.
References
Markham, J. W. (2015). A financial history of modern U.S. corporate scandals: From Enron to reform. Routledge.
Sack, R. J. (2015). Securities and Exchange Commission. Wiley Encyclopedia of Management, 1-2. https://doi.org/10.1002/9781118785317.weom020175