1. Is the regulation of the financial sector sufficient to prevent white collar crime and corporate fraud? 2.Are markets capable of self-regulating in this aspect? Why or why not?

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mwestwood eNotes educator| Certified Educator

1. It is significant that in the recent past the Business Schools of colleges and universities across the United States have courses in Ethics as requirements for their students. That there are businessmen who are much less than ethical has been proven repeatedly with such cases as that of Enron, Bernard L. Madoff Investment Securities LLC, and Stratton Oakmont.

Begun in 1985, Enron was an energy corporation in Houston, Texas, in which the CEO of Enron, Kenneth Lay was convicted of securities fraud and related charges six years after this company began in 2001. Oddly enough, ten to thirty minutes before the news of Enron's collapse was released, Mrs. Linda Lay sold 30,000 shares of Enron stock, and never received any charges against her.

Like Enron Corporation, the auditor firm of Arthur Andersen also applied reckless and unethical standards to its audits. Andersen shredded hundreds of documents and 30,000 e-mails before investigations took place. CEO Lay stated, "We will cooperate fully with the S.E.C. (the US Securities and Exchange Commission) and look forward to the opportunity to put any concern...to rest." However, he had employees move around in order to make it look as though more were employed, and used other methods of deception. 

That financial regulators fell short of being sufficient to regulate markets and prevent white-collar crime and corporate fraud are clearly evinced in this history of Enron. For instance, this observation has been made in the records of the history of Enron, 

Despite potential pitfalls, the SEC approved the accounting method for Enron in its trading of natural gas futures contracts on January 30, 1992.

Of course, as mentioned previously, it was not until three years later that the illegal activities of Enron was stopped. Other examples of the ineffectiveness of the SEC are the Ponzi schemes of Bernie Madoff (his investment and securities company was started in 1960) that were not made public until 2008, only because the company started to collapse when new investors were not enough in number to hold up the scheme. One historical report mentions,

The...SEC has also come under fire for not investigating Madoff more thoroughly; questions about his firm had been raised as early as 1999. 

Certainly, Jordan Belfort, CEO of Stratton Oakmont side-stepped the SEC from 1989-1992. Finally, in 1999, Belfort was compelled to plead guilty to securities fraud and money laundering.

2. In an earlier society in America there was laissez-faire in which the markets operated independent of the government. But, with such entrepreneurs as John D. Rockefeller, who was brutal in every financial and humanitarian respect, it became necessary to initiate regulations such as the Anti-Trust Laws. Thus, with the eternal existence of greed in man and the concept of situation ethics evinced by such companies as Arthur Andersen, who complied with Enron accountants, one of whom declared, "We tried to aggressively use the literature and GAAP (General Accepted Accounting Principles) to our advantage," there is an absolute need for government regulations to be imposed upon markets.