What is the scandal for `Reliant Energy`, and how could it of been avoided?

Running Head : Reliant Energy Scandal

Name

University

Course

Tutor

Date

Reliant Energy produces and supplies energy across in several parts of the country . In 2002 , the company found itself buried in a serious scandal that led to investigation by several authorities . This article will evaluate Reliant 's scandal in three phases . The first section will illustrate how the scandal happened . The second part will extrapolate on how the scandal would have been avoided , and the last part will conclude with some key points made throughout the article p

How the Scandal Happened

According to Forbes Magazine (Patsuris , 2002 , Reliant scandal was caused by round-trip-trading , which meant selling units of energy then buy them units back at same the same price . Such practices tend to boost volumes and revenues , but have no effect on profits . Reliant 's round-trip trading ' was performed in collaboration with Reliant Resources - 80 percent owned by the former - (Schiff , 2002 . Schiff further reports that Reliant Resources ' revenues had been boosted by over 10 percent as a result of three consecutive years of round-trip trading . The parent company , Reliant Energy was accused of overstating revenues by over 8 billion , which was double the 4 billion that the now collapsed WorldCom . The huge figure and the irregular energy trading had caused deep concern among stakeholders , because companies that had had such exposure were going bankrupt , WorldCom and Enron being prime examples . Stakeholders were therefore questioning whether Reliant was headed the same route . Luckily , it didn 't

The parent company was investigated by Securities and Exchange Commission (SEC ) for the accounting malpractices that led to reinstatement of profits , and by the Commodity Futures Trading Commission for matter relating to improper energy trading and CFTC . SEC investigated reliant because of accounting matters and that originated from . The parent company 's financial officer was replaced during investigations several senior managers also left Reliant Resources (Schiff , 2002 . The scandal was all over the media because such practices were partially responsible for Enron 's downfall , which could explain why the company was willing to cooperate with investigation and talk to the media . Another reason could be that just few people in the senior management were involved with the scandal . The company was also accused of overstating revenues by over 8 billion , which was double the 4 billion that the now collapsed WorldCom had been accused of

Avoiding the Scandal

Senior management should have adhered to the corporate governance principles they are bound to follow in their professions . They understood , but chose to ignore , the trust and accountability owed to shareholders and other stakeholders in the energy industry . Such actions obviously led to stakeholders making wrong decisions that ended up creating huge losses in the long run , especially shareholders who had bought Reliant shares owing to the prospective revenue that were accruing to increased energy trading . The management should have thus assumed the duties and responsibilities accorded to them without backtracking on the promises made during take over

Reliant 's senior management should have asked...