Business Ethics in the Case Case Study

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This can hurt the returns of the portfolio over the long-term.

Although legally not all information must be disclosed, should companies be obligated to disclose the true nature of investor risk? Or are investors responsible for determining such risk?

Yes, under the Securities and Exchange Act of 1934 all firms must provide material changes in their financial condition to regulators. However, investors also need to understand that investing in common stocks entails more risks in comparison with CDs or U.S. Treasuries.

Did Enron's overstating of profits amount to a manipulation of investors? Was the manipulation intentional? Should investors assume a high level of risk unless told otherwise?

Yes, the reason why is because the stock was valued for much more than it was really worth.

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This harmed investors who believed what management was telling them the about future profit margins. The fraud was intentional. This is because executives knowingly lied to everyone about the financial state of the company. Yes, investors should assume a high degree of risk. The reason why is based on the asset class they are purchasing (i.e. common stocks). This is when the risks and rewards are much higher. Anybody who is buying these areas must understand that there will be greater amounts of volatility.

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