Term Paper: Equities Market Crash: Criminality, Ethics

Pages: 8 (2771 words)  ·  Bibliography Sources: 5  ·  Level: College Junior  ·  Topic: Economics  ·  Buy This Paper

¶ … Equities Market Crash: Criminality, Ethics, and the Enron Corporation

Between the years 2000 and 2002, the equities market crash had potential to cause a lot of criminal activity and unethical conduct by the people who lost much of what they had before. Whether that conduct actually took place is the main focus of this paper. If these kinds of behaviors did occur, identifying them and then analyzing them will become necessary. Conduct such as this, (i.e. conduct that involves criminal and unethical ideals), is one of the most significant issues that can occur when there is a crash in a stock market or in an equities market. This occurs because so many people get desperate when they see their money disappearing. They do not know what else to do, so they are much more tempted by behaviors that they would normally not become involved with.

Unfortunately, not all of the people who engage in these types of behavior are discovered and eventually prosecuted, and some of the people who do get caught are able to avoid it for years before it finally catches up with them. This is a serious concern, and it is also becoming increasingly more important to identify deceptive individuals and ensure they are stopped early on. To do this, the issues surrounding their behavior must be considered and studied, or important (and often necessary) changes will not be made to any of the existing systems that are currently used to check for the kinds of problem that were seen when the equities market suffered such a setback.

Some people feel as though this type of criminal activity does not really occur, but there is a very serious concern that people who share this opinion may be misinformed about what actually goes on when an equities market experiences difficulties. Instead, the beliefs of many people are that equities market problems create a potential for a lot of criminal activity and unethical conduct, since many people feel as though this kind of behavior is the only way they can stand a chance of making back any money they lost.

Based on this understanding of the situation, it is believed this type of activity does, indeed, occur. Because of that, the following hypothesis will apply here:

Unethical and criminal conduct is quite likely to occur, and presumably it does occur when there has been an equities market crash. Further, this kind of behavior did actually occur between 2000 and 2002, when (and because) the equities market crashed.

The hypothesis used here has been presented based on the opinion that this kind of unsavory behavior occurs more often than is realized by the general population, and it is only individuals who are caught that make news and come to light within the media. There are others who get away with these kinds of behaviors, and because the equities market is so large and the stakes are often so high, some people feel as though they have to recoup their losses, whatever the risk to them, personally, might be.

Equities trading is risky in and of itself, so people who work in that kind of market are already used to the idea of taking risks with their money. Whether those risks are seen to be legal or illegal depends on the kind of person involved, and it is therefore quite possible that the line becomes blurred for some people at various points in time. This is especially important to pay attention to if there is a lot of fluctuation in the market, because that could indicate a downward turn and make investors very nervous.

Much of the problem that actually occurred when the equities market crashed in 2000 was related to the way that regulations dealt with specific issues, and also the way that regulators themselves set up rules and handled problems (Clements, 2002). Having too much confidence in their investment abilities is a common problem that investors face and is also one of the problems that leads toward unethical behavior and criminal activity, since many of the people who think they are good at investing but really are not end up losing a lot of money (Langevoort, 2003).

This comes from assuming they know what they are doing when taking an investment risk they normally should not or would not take (Langevoort, 2003). Because they choose to take that risk, a lot of the money they would have made ends up lost and they have to find a way of trying to get it back again (Langevoort, 2003). For some people, this leads to criminal activity (Langevoort, 2003). These people look at what kind of investing might provide the best return with the least risk. Shortly before the 2000 crash, this good return was in technology stocks (Langevoort, 2003). There was very little risk because the stocks were growing rapidly and investors assumed there would be no chance these stocks would fall or start to lose their value in the foreseeable future (Langevoort, 2003).

When the Enron scandal took place, it was considered a large event and investors went in the opposite direction (Langevoort, 2002). They overreacted, and that caused them to become so concerned that they were largely unwilling to invest in any type of technology company, even the companies that were legitimate, because the risk of being defrauded somehow was simply too high (Langevoort, 2002).

Not all technology companies or other big companies that were growing quickly had problems. Unfortunately, a lot of investors did not see that. This lead to behaviors which greatly changed the way people invest in specific companies and stocks in the United States (Langevoort, 2002). Investors who had a lot of money tended not to look at the money as being as important as they would if they would have had to work for it (Langevoort, 2002). Investors, though, are not the only people who have biases into particular stocks, issues, or companies (Langevoort, 2002; Choi, 2001).

Many of the people who consider themselves financial professionals also have biases. When they see that some investors have the same biases, they can use them to their advantage (Jacob, Lys, & Neale, 1999). These investors place a lot of trust in their brokers and, even if a decision appears to be unsound, they will often stay with it once it has already been made (Jacob, Lys, & Neale, 1999). Brokers who are interested in making a lot of money off of something like this make sure these investors are directed toward investments that are not appropriate and will not do as well (Jacob, Lys, & Neale, 1999).

This is rather unethical, but it is done often by brokers who want to make a lot of money but do not want to have to work hard (Jacob, Lys, & Neale, 1999). Much of this took place with stock that was involved in the technology crash that occurred in 2002 (Jacob, Lys, & Neale, 1999). Because of this, many people suffered for problems they would not normally have (Jacob, Lys, & Neale, 1999).

A summary of study information would make it appear that the hypothesis is valid and that there was both unethical and criminal activities carried out between 2000 and 2002. This was due to the crash of mostly technology stocks within the equities market. It is important that the issue be examined more closely, because there is not that much information which relates to the issue, with the exception of some information regarding SEC rules and regulations that are utilized.

For the future, there are few recommendations that the researcher is able to make. It would appear necessary to have the SEC create rules which are stronger and more thorough than the rules that now have. Many of the SEC rules were broken, others were bent, and loopholes were often utilized. Because of the ways around many of the rules, the SEC could not prosecute a large number of people who really should have been prosecuted. Some of the unethical things that were done by these people were not actually against any particular rule or guideline, other than the moral guidelines that the majority of people use in daily decisions and choose to live their lives by.

These are, unfortunately, unenforceable when it comes to these kinds of issues. Because of that, there was little the SEC could actually do to these people. It is clear this needs to be taken care of and adjusted, and also clear that there needs to be stronger investigations and accounting practice studies done when companies seem to be growing so rapidly that they almost cannot be contained. If they are just that fortunate, they will have nothing to fear. Investigating them, though, would help to ensure that their growth was legitimate, and not something that was done just as a result of unethical practices.

This kind of review would stop people from lying about how much money and assets a company has, and would also help… [END OF PREVIEW]

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