Where Did The Money Go?
When you look ahead to what you envision for your company, the media attention that you may aspire to achieve is distinction in the business pages as a business success story that you hope will serve as an inspiration to others. Certainly, nobody wants ever to find themselves the subject of front page news as occurred in these incidents, rated among the ten worst corporate accounting scandals of all time. Some of these names and companies have been forever tarnished as a result of their misdeeds.
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Tyco (2002)
Tyco experienced a company decline and the loss of investor confidence when it was discovered that its CEO Dennis Kozlowski had been involved in a series of unethical business transactions using company money that were not included in the company’s financial reports. It is alleged that Kozlowski as well as other key administrators within the organization stole $150 million from the firm and mis-represented the company’s income by an estimated $500 million. Kozlowski and others involved in the scandal did receive time behind bars as a result of their actions.
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Health South (2003)
The largest healthcare provider in the United States for outpatient surgery and diagnostic and rehabilitative care found itself with a diagnosis of guilty after an extensive investigation by the Securities and Exchange Commission in 2003. At the direction of company CEO and chairman Richard Scrushy, earnings were allegedly overstated on a quarterly basis from 1999 to 2002, inflated by $1.4 billion to meet the expectation of the company’s stockholders. Scrushy was charged with accounting fraud and later indicted.
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Satyam (2009)
Collusion among the leadership at Satyam Computer Services resulted in the conviction of eleven people, including the company’s chairman Ramalinga Raju. Upon his resignation from the company in 2009, Raju admitted to manipulating accounts in the value of $1.47 billion dollars. In the wake of the scandal, just months after the fraudulent activity was made public, the company was acquired in whole by a competitor, while the court action played out over the next six years to convict the disgraced directors.
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Waste Management (1998)
Dean Buntrock, the CEO and founder for Waste Management as well as his auditing firm were found to have falsely lengthened the depreciation time of their assets which was discovered when a new administration team assumed control and conducted their own audit of the books. The fraud, which amounted to $1.7 billion in fictitious earnings landed before the courts in a class action lawsuit which settled for $457 million and the auditing firm was levied a hefty ten figure fine. To prevent further incidents of the same nature, the company’s new CEO has established an anonymous reporting channel for employees to come forward with any improper or dishonest behavior at any level of the organization.
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American International Group (2005)
Three years before the American International Group (AIG) was bailed out by the American federal government to the tune of $180 million in 2008, they found themselves embroiled in another significant financial crisis when they were alleged to have been responsible for a large-scale accounting fraud amounting to $3.9 billion. An investigation by the New York Attorney General resulted in criminal charges for some of the executives and a fine levied in the amount of $1.6 billion.
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Freddie Mac (2003)
Slapped with a $50 million fine, one of the United State’s largest home mortgage financing companies was found guilty of mis-stating an estimated $5 billion in earnings. Four senior directors with the firm were also found guilty for their individual involvement and issues civil fines for restitution amounting to more than $275,000.
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Lehman Brothers (2008)
Lehman Brothers was a global investment company with a 158 year legacy in the industry at the time it declared bankruptcy in 2008. The company’s involvement in the sub-prime mortgage crisis, as depicted in the recent Hollywood blockbuster “The Big Short” included hiding more than $50 billion in loan transactions disguised as ad sales. Their bankruptcy filing is regarded as the largest of its kind in American history and is believed to have contributed to the further downward spiral of the markets that followed their demise.
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Bernie Madoff (2008)
Bernie Madoff was a respected stock broker and financier with his own firm for 48 years until his career came to a sudden halt when it was discovered that he had manipulated investors out of a total of $64.8 billion. His criminal activity resulted in the largest Ponzi scheme in history – an elaborate con where investors are paid out from the investments of new contributors instead of from the legitimate performance of their fund or operation. While most of the scandals appearing on this list were perpetrated by individuals, their scandal is worn by a parent company. Not in this case, the name Bernie Madoff has become infamous in investment circles and has even been lampooned in mainstream pop culture. Madoff was sentenced to 150 years in prison in 2009.
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Enron (2001)
Through slick financial reporting, under the direction of Jeffrey Skilling, elaborate loopholes were created to hide billions of dollars in debt from poor management and development projects. As a result, shareholders lost an estimated $74 billion and thousands of e16mployees and investors lost their retirement savings. When the company was forced into bankruptcy after being discovered, the company set the bar for the largest company to do so up to that point in history. They would later be eclipsed by Lehman Brothers in 2008.
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World Com (2002)
The media reported a stock market “jolt” in 2002 when World Com, an American telecommunications company announced that it had fired its Chief Financial Officer and Vice President after discovering evidence of improper accounting. In the following weeks, it was identified that the mismanagement had resulted in $180 billion in losses for its investors through inflated reporting of assets as high as $11 billion. In the ensuing controversy, 30,000 jobs were lost.
