The 10 Worst Corporate Accounting Scandals of All Time

THE 10 WORST

Corporate Accounting Scandals of All Time



Corporate malfeasance has earned a place among the defining themes of the last decade-and-a-half, helping give birth to the present global recession and the Occupy Wall Street movement.

Here���s a look back at the who, what, when and how of some of the worst corporate accounting scandals.



WASTE MANAGEMENT SCANDAL [1998]

COMPANY -Houston-based. publlcly traded waste management company

HOW THEY DID IT The company allegedly falsely waste increased the depreciation time lengt for their property. plant and equipment on the balance sheets

WHAT HAPPENED Reported $1.7 billion in fake earnings

HOW THEY GOT CAUGHT A new CEO and management team went through the books

PENALTIES Settled a shareholder class-action suit for $457 million; SEC fined Arthur Andersen $7 million.

MAIN PLAYERS Deal L Buntrock and Arthur Andersen

FUN FACT

After the scandal, the new CEO Q Founder/CEO/Chairman n Arthur Andersen A Maurice Meyers Set up an anonymous company hotline where employees could report dishonest or improper behavior.



ENRON SCANDAL 2001

COMPANY Houston-based commodities energy and service corporation

HOW THEY DID IT Kept huge debts off the balance sheets

WHAT HAPPENED

Shareholders lost $74 billion thousands of employees and investors lost their retirement accounts, and many employees lost their jobs

HOW THEY GOT CAUGHT

Turned in by internal whistle blower Sharron Watkins; high

stock prices fueled suspicions

PENALTIES

Lay died before serving time; Skilling got 24 years in prison. The company filed for bankruptcy. Arthur Andersen was found guilty of fudging Enron's accounts



WORLDCOM SCANDAL 2002

COMPANY WORLDCOM Telecommunicauons company; now MCI, Inc,

HOW he got caught Worldcom's internal auditing department uncovered $3.8 billion in fraud.



What happened Inflated assets by as much as $11 billion leading to 30,000 lost jobs



Penalties: CEO was fired , controller reassigned, and the company filed for bankruptcy.



Main player: CEO Bernie Ebbers



How he did it: underreporting line costs by capitalizing rather than expensing and inflated revenues fake accounting entries



Fun facts:

Following the scandal, congress passed the sarbanes-oxley act , introducing the most sweeping set of new business regulations since the 1930's



TYCO SCANDAL [2002]

Company

New Jersey_based blue chip swiss security systems company



How they got caught SEC and Manhattan D.A. investigations uncovered unquestionable accounting practices including large loans made to Kowzlowski that were then forgiven.



What happened

CFO and Ceo stole $150 million and inflated company income by $500 million



Penalties

Kowzlowski and Swartz were sentenced to 8-25 years sentence in prison.

Tyco to pay $2.92 billion to investors.



Main players

Ceo Dennis Kowslowski and former CFO Mark Swartz



How they did it

Siphoned money through unapproved loans and fradulent stock sales. Money was smuggled out of the company disguised as executive bonuses and benefits



Fun fact

At the height of the scandal, Dennis threw a $2.5 million birthday party for his wife on an island with a complete Jimmy Buffett performance.





HEALTHSOUTH SCANDAL [2003]

Largest publicly traded health care company in the U5.



How he got caught

Sold $75 million in stock a day before the company posted a huge loss, triggering SEC susplclons



WHAT HAPPENED

Earnings numbers were allegedly inflated billion to meet stockholder expectations.



PENALTIES

Scrushy was acquitted of all 36 counts of accounting fraud, but convicted of bribing the governor of Alabama. leading to a 7-year prison sentence.



How he did it

Allegedly told underlings to make up numbers and transactions lrom 1996-2003.



FUN FACT

Scrushy now works as a motivational speaker and maintains his innocence. THE 10 WORST 2??? Corporate Accounting Scandals of All Time Corporate malfeasance has earned a place among the defining themes of the last decade-and-a-half, helping give birth to the present global recession and the Occupy Wall Street movement. Here's a look back at the who, what, when and how of some of the worst corporate accounting scandals. WASTE MANAGEMENT SCANDAL (1998) COMPANY HOW THEY DID IT Houston-based, publicly traded waste management company The company allegedly falsely increased the depreciation time length for their property, plant and equipment on the balance sheets. WHAT HAPPENED Reported $1.7 billion in fake earnings. HOW THEY GOT CAUGHT A new CEO and management team went through the books. 24 PENALTIES %24 Settled a shareholder class-action suit for $457 million; SEC fined Arthur Andersen $7 million. $7m = $100 million $457m FUN FACT MAIN PLAYERS After the scandal, the new CEO A. Maurice Meyers set up an anonymous company hotline where employees could report dishonest or improper behavior. Founder/CEO/Chairman Dean L. Buntrock Arthur Andersen Company (auditors) and top executives ENRON SCANDAL (2001) ENRON %24 COMPANY HOW THEY DID IT Houston-based commodities, Kept huge debts off the balance sheets. energy and service corporation HOW THEY GOT CAUGHT WHAT HAPPENED Shareholders lost $74 billion, thousands of employees and investors lost their retirement Turned in by internal whistle- blower Sherron Watkins; high stock prices fueled suspicions. accounts, and many employees lost their jobs. FUN FACT Fortune Magazine named Enron "America's Most Innovative OY Company" for six years in a row prior to the scandal. MAIN PLAYERS CEO Jeff Skilling and former CEO Ken Lay PENALTIES Lay died before serving time; Skilling got 24 years in prison. The company filed for bankruptcy. Arthur Andersen was found guilty of fudging Enron's accounts. * = 1 year WORLDCOM SCANDAL (2002) WORLDCOM HOW HE GOT CAUGHT COMPANY Telecommunications company; now MCI, Inc. WorldCom's internal auditing department uncovered $3.8 billion in fraud. WHAT HAPPENED Inflated assets by as much as $11 billion, leading to 30,000 lost jobs and $180 billion in losses for investors. PENALTIES CFO was fired, controller resigned, and the company filed for bankruptcy. Ebbers sentenced to 25 years for fraud, conspiracy and filing false documents with regulators. $11B INFLATED 30,000 JOBS $180B LOSSES MAIN PLAYER CEO Bernie Ebbers HOW HE DID IT FUN FACT Underreported line costs by capitalizing rather than expensing, and inflated revenues with fake Following the scandal, Congress passed the Sarbanes-0xley Act, introducing the most sweeping set of new business regulations since the 1930s. accounting entries. TYCO SCANDAL (2002) tyco COMPANY HOW THEY GOT CAUGHT New Jersey-based blue-chip Swiss security systems company SEC and Manhattan D.A. investigations uncovered questionable accounting practices, including large loans made to Kozlowski that were then forgiven. WHAT HAPPENED PENALTIES CEO & CFO stole $150 million and inflated company income by $500 million. $150 m Kozlowski and Swartz were sentenced to 8-25 years in prison. A class-action lawsuit forced Tyco to pay $2.92 billion to investors. MAIN PLAYERS 8-25 YEARS CEO Dennis Kozlowski and former CFO Mark Swartz 2.92 Bill. HOW THEY DID IT FUN FACT Siphoned money through unapproved loans and fraud- ulent stock sales. Money was smuggled out of the company disguised as executive bonuses or benefits. At the height of the scandal Kozlowski threw a $2 million birthday party for his wife on an island, complete with a Jimmy Buffett performance. HEALTHSOUTH SCANDAL (2003) OHEALTHSOUTH. COMPANY HOW HE GOT CAUGHT Largest publicly traded health care company in the U.S. Sold $75 million in stock a day before the company posted a huge loss, triggering SEC suspicions. и WHAT HAPPENED 1.4 B PENALTIES Earnings numbers were allegedly inflated $1.4 billion to meet stockholder expectations. Scrushy was acquitted of all 36 counts of accounting fraud, but convicted of bribing the governor of Alabama, leading to a 7-year prison sentence. MAIN PLAYER CEO Richard Scrushy FUN FACT NOT GUILTY? HOW HE DID IT Allegedly told underlings to make up numbers and transactions from 1996-2003. Scrushy now works as a motivational speaker and maintains his innocence. FREDDIE MAC SCANDAL (2003) |Freddie Mac COMPANY MAIN PLAYERS Federally backed mortgage-financing giant President/C00 David Glenn, Chairman/CEO Leland Brendsel, ex-CFO Vaughn Clarke, former Sr. VPs Robert Dean and Nazir Dossani WHAT HAPPENED $5 billion in earnings were misstated. HOW THEY DID IT Intentionally misstated and understated earnings. 24 %24 2$ %$4 $ %24 2$ HOW THEY GOT CAUGHT An SEC investigation. %2$ 24 2$ %$4 %$4 %$4 2$ %24 PENALTIES %24 2$ 2$ %24 %24 %24 %24 %24 $125 million in fines and the firing of Glenn, Clarke and Brendsel. 2$ %$4 $ 24 24 %$4 FUN FACT %24 2$ 2$ %24 %$4 %24 1 year later, Fannie Mae, the other federally backed mortgage financing company, was caught in an equally stunning scandal. %24 2$ = $100 million Fannie Mae AMERICAN INSURANCE GROUP SCANDAL (2005) COMPANY HOW HE GOT CAUGHT AIG Multinational insurance SEC regulator investigations, possibly tipped off by a whistle-blower. corporation WHAT HAPPENED PENALTIES Massive accounting fraud to the tune of $3.9 billion was alleged, along with bid-rigging and stock price manipulation. Settled with the SEC for $10 million in 2003 and $1.64 billion in 2006, with a Louisiana pension fund for $115 million, and with 3 0hio pension funds for $725 million. Greenberg was fired, but has faced no criminal charges. MAIN PLAYERS CEO Hank Greenberg HOW HE DID IT FUN FACT Allegedly booked loans as revenue, steered clients to insurers with whom AIG had payoff agreements, and told traders to inflate stock prices. After posting the largest quarterly corporate loss in history in 2008 ($61.7 billion) and getting bailed 165 m out with taxpayer dollars, AIG execs rewarded themselves with over $165 million in bonuses. BONUS LEHMAN BROTHERS SCANDAL (2008) COMPANY HOW THEY GOT CAUGHT LEHMAN BROTHERS Global financial services firm Went bankrupt. WHAT HAPPENED Hid over $50 billion in loans disguised as sales. $50 b. PENALTIES Forced into the largest bankruptcy in U.S. history. SEC didn't prosecute due to lack of evidence. MAIN PLAYERS & the company's auditors, Ernst & Young Lehman executives FUN FACT In 2007 Lehman Brothers was HOW THEY DID IT ranked the #1 "Most Admired Securities Firm" by Fortune Magazine. Allegedly sold toxic assets to Cayman $50 BILLION Island banks with the understanding that they would be bought back eventually. Created the impression Lehman had $50 billion more cash and $50 billion less in toxic assets than it really did. BERNIE MADOFF SCANDAL (2008) COMPANY HOW THEY GOT CAUGHT Bernard L. Madoff Investment Securities LLC, a Wall Street investment firm founded by Madoff Madoff told his sons about his scheme; they reported him to the SEC. He was arrested the next day. WHAT HAPPENED PENALTIES Tricked investors out of $64.8 billion through the largest Ponzi scheme ever. $65 b. 150 years in prison for Madoff + $170 billion restitution. Prison time for Friehling and DiPascalli. MAIN PLAYERS FUN FACT Bernie Madoff, his accountant, David Friehling, and Frank DiPascalli Madoff's fraud was revealed just months after the 2008 U.S. financial collapse. HOW THEY DID IT Investors were paid returns out of their own money or that of other investors rather than profits. SAYTAM SCANDAL (2009) COMPANY HOW HE GOT CAUGHT Indian IT services and Admitted the fraud in a letter back-office accounting firm Satyam to the company's board of directors. WHAT HAPPENED PENALTIES Falsely boosted revenue Raju and his brother charged with breach of trust, conspiracy, cheating and falsification of records. Released after the Central Bureau of Investigation failed to file charges on time. by $1.5 billion. MAIN PLAYER Founder/Chairman Ramalinga Raju FUN FACT HOW HE DID IT In 2011 Ramalinga Raju's wife published a book of his existentialist, free-verse poetry. Falsified revenues, margins and cash balances to the tune of 50 billion rupees. PROVIDED BY: ACCOUNTING-DEGREE.ORG Sources http://www.huffingtonpost.com/2010/03/17/biggest-accountingscanda_n_502181.html#s74418&title=Madoff_Scandal http://en.wikipedia.org/wiki/Accounting_scandals http://www.spiegel.de/international/business/the-libor-scandal-could-cost-leading-global-banksbillions-a-847453.html http://en.wikipedia.org/wiki/Tyco_lInternational http://en.wikipedia.org/wiki/Madoff_investment_scandal http://www.foster.washington.edu/centers/facultyresearch/Pages/karpoff-scandals.aspx http://voices.yahoo.com/worldcom-scandal-look-back-one-biggest-225686.html http://www.accountantslike.com/2011/03/top-10-biggest-white-collar-crimes-and.html http://en.wikipedia.org/wiki/Libor_scandal http://www.bbc.co.uk/news/business-18671255 http://www.wealthdaily.com/articles/lehman-brothers-enron-accounting-gimmicks/2375 http://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers http://online.wsj.com/article/SB10001424052748703597804576194871565429108.html http://voices.yahoo.com/tyco-scandal-business-case-analysis-11330744.html?cat=3 http://ibnlive.in.com/news/satyams-ramalinga-raju-becomes-a-poet-now/162770-60-114.html http://en.wikipedia.org/wiki/American_International Group http://www.cheatingculture.com/accounting-fraud/2010/11/8/aig-before-the-crash-there-wasthe-fraud.html http://money.cnn.com/2010/07/16/news/companies/AIG_Ohio_billiondollar settlement.fortune/index.htm http://www.cheatingculture.com/accounting-fraud/2010/11/8/aig-before-the-crash-there-wasthe-fraud.html http://www.huffingtonpost.com/2009/03/24/aig-fraud-history_n_178545.html http://en.wikipedia.org/wiki/Waste_Management, Inc http://www.sec.gov/news/headlines/wastemgmt6.htm http://news.bbc.co.uk/2/hi/business/2147095.stm http://en.wikipedia.org/wiki/Freddie_Mac http://www.msnbc.msn.com/id/21027918/ns/business-us_business/t/freddie-mac-settlesaccounting-fraud-charges/#.UHCCUFGZQ10 25 lulule ЛЛ %3D