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The10WorstCorporateAccountingScandalsofAllTime

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The10WorstCorporateAccountingScandalsofAllTime

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The10WorstCorporateAccountingScandalsofAllTime
Ifthereisonethemetorivalterrorismfordefiningthelastdecadeandahalf,itwouldhavetobecorporategreedandmalfeasance.Manyofthebiggest
corporateaccountingscandalsinhistoryhappenedduringthattime.Here'sachronologicallookbackatsomeoftheworstexamples.

WasteManagementScandal(1998)
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The10WorstCorporateAccountingScandalsofAllTime

Company:Houstonbasedpubliclytradedwastemanagementcompany
Whathappened:Reported$1.7billioninfakeearnings.
Mainplayers:Founder/CEO/ChairmanDeanL.BuntrockandothertopexecutivesArthurAndersenCompany(auditors)
Howtheydidit:Thecompanyallegedlyfalselyincreasedthedepreciationtimelengthfortheirproperty,plantandequipmentonthebalancesheets.
Howtheygotcaught:AnewCEOandmanagementteamwentthroughthebooks.
Penalties:Settledashareholderclassactionsuitfor$457million.SECfinedArthurAndersen$7million.
Funfact:Afterthescandal,newCEOA.MauriceMeyerssetupananonymouscompanyhotlinewhereemployeescouldreportdishonestor
improperbehavior.

EnronScandal(2001)
Company:Houstonbasedcommodities,energyandservicecorporation
Whathappened:Shareholderslost$74billion,thousandsofemployeesandinvestorslosttheirretirementaccounts,andmanyemployeeslosttheir
jobs.
Mainplayers:CEOJeffSkillingandformerCEOKenLay.
Howtheydidit:Kepthugedebtsoffbalancesheets.
Howtheygotcaught:TurnedinbyinternalwhistleblowerSherronWatkinshighstockpricesfueledexternalsuspicions.
Penalties:LaydiedbeforeservingtimeSkillinggot24yearsinprison.Thecompanyfiledforbankruptcy.ArthurAndersenwasfoundguiltyof
fudgingEnron'saccounts.
Funfact:FortuneMagazinenamedEnron"America'sMostInnovativeCompany"6yearsinarowpriortothescandal.

WorldComScandal(2002)
Company:TelecommunicationscompanynowMCI,Inc.
Whathappened:Inflatedassetsbyasmuchas$11billion,leadingto30,000lostjobsand$180billioninlossesforinvestors.
Mainplayer:CEOBernieEbbers
Howhedidit:Underreportedlinecostsbycapitalizingratherthanexpensingandinflatedrevenueswithfakeaccountingentries.
Howhegotcaught:WorldCom'sinternalauditingdepartmentuncovered$3.8billionoffraud.
Penalties:CFOwasfired,controllerresigned,andthecompanyfiledforbankruptcy.Ebberssentencedto25yearsforfraud,conspiracyandfiling
falsedocumentswithregulators.
Funfact:Withinweeksofthescandal,CongresspassedtheSarbanesOxleyAct,introducingthemostsweepingsetofnewbusinessregulationssince
the1930s.

TycoScandal(2002)
Company:NewJerseybasedbluechipSwisssecuritysystems.
Whathappened:CEOandCFOstole$150millionandinflatedcompanyincomeby$500million.
Mainplayers:CEODennisKozlowskiandformerCFOMarkSwartz.
Howtheydidit:Siphonedmoneythroughunapprovedloansandfraudulentstocksales.Moneywassmuggledoutofcompanydisguisedasexecutive
bonusesorbenefits.
Howtheygotcaught:SECandManhattanD.A.investigationsuncoveredquestionableaccountingpractices,includinglargeloansmadetoKozlowski
thatwerethenforgiven.
Penalties:KozlowskiandSwartzweresentencedto825yearsinprison.AclassactionlawsuitforcedTycotopay$2.92billiontoinvestors.
Funfact:AttheheightofthescandalKozlowskithrewa$2millionbirthdaypartyforhiswifeonaMediterraneanisland,completewithaJimmy
Buffetperformance.

HealthSouthScandal(2003)
Company:LargestpubliclytradedhealthcarecompanyintheU.S.
Whathappened:Earningsnumberswereallegedlyinflated$1.4billiontomeetstockholderexpectations.
Mainplayer:CEORichardScrushy.
Howhedidit:Allegedlytoldunderlingstomakeupnumbersandtransactionsfrom19962003.
Howhegotcaught:Sold$75millioninstockadaybeforethecompanypostedahugeloss,triggeringSECsuspicions.
Penalties:Scrushywasacquittedofall36countsofaccountingfraud,butconvictedofbribingthegovernorofAlabama,leadingtoa7yearprison
sentence.
Funfact:Scrushynowworksasamotivationalspeakerandmaintainshisinnocence.

FreddieMac(2003)
Company:Federallybackedmortgagefinancinggiant.
Whathappened:$5billioninearningsweremisstated.
Mainplayers:President/COODavidGlenn,Chairman/CEOLelandBrendsel,exCFOVaughnClarke,formerseniorVPsRobertDeanandNazir
Dossani.
Howtheydidit:Intentionallymisstatedandunderstatedearningsonthebooks.
Howtheygotcaught:AnSECinvestigation.
Penalties:$125millioninfinesandthefiringofGlenn,ClarkeandBrendsel.
Funfact:1yearlater,theotherfederallybackedmortgagefinancingcompany,FannieMae,wascaughtinanequallystunningaccountingscandal.

AmericanInternationalGroup(AIG)Scandal(2005)
Company:Multinationalinsurancecorporation.
Whathappened:Massiveaccountingfraudtothetuneof$3.9billionwasalleged,alongwithbidriggingandstockpricemanipulation.
Mainplayer:CEOHankGreenberg.
Howhedidit:Allegedlybookedloansasrevenue,steeredclientstoinsurerswithwhomAIGhadpayoffagreements,andtoldtraderstoinflateAIG
stockprice.
Howhegotcaught:SECregulatorinvestigations,possiblytippedoffbyawhistleblower.
Penalties:SettledwiththeSECfor$10millionin2003and$1.64billionin2006,withaLouisianapensionfundfor$115million,andwith3Ohio
pensionfundsfor$725million.Greenbergwasfired,buthasfacednocriminalcharges.
Funfact:Afterpostingthelargestquarterlycorporatelossinhistoryin2008($61.7billion)andgettingbailedoutwithtaxpayerdollars,AIGexecs
rewardedthemselveswithover$165millioninbonuses.

LehmanBrothersScandal(2008)
Company:Globalfinancialservicesfirm.
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The10WorstCorporateAccountingScandalsofAllTime

Whathappened:Hidover$50billioninloansdisguisedassales.
Mainplayers:Lehmanexecutivesandthecompany'sauditors,Ernst&Young.
Howtheydidit:AllegedlysoldtoxicassetstoCaymanIslandbankswiththeunderstandingthattheywouldbeboughtbackeventually.Createdthe
impressionLehmanhad$50billionmorecashand$50billionlessintoxicassetsthanitreallydid.
Howtheygotcaught:Wentbankrupt.
Penalties:ForcedintothelargestbankruptcyinU.S.history.SECdidn'tprosecuteduetolackofevidence.
Funfact:In2007LehmanBrotherswasrankedthe#1"MostAdmiredSecuritiesFirm"byFortuneMagazine.

BernieMadoffScandal(2008)
Company:BernardL.MadoffInvestmentSecuritiesLLCwasaWallStreetinvestmentfirmfoundedbyMadoff.
Whathappened:Trickedinvestorsoutof$64.8billionthroughthelargestPonzischemeinhistory.
Mainplayers:BernieMadoff,hisaccountant,DavidFriehling,andFrankDiPascalli.
Howtheydidit:Investorswerepaidreturnsoutoftheirownmoneyorthatofotherinvestorsratherthanfromprofits.
Howtheygotcaught:MadofftoldhissonsabouthisschemeandtheyreportedhimtotheSEC.Hewasarrestedthenextday.
Penalties:150yearsinprisonforMadoff+$170billionrestitution.PrisontimeforFriehlingandDiPascalli.
Funfact:Madoff'sfraudwasrevealedjustmonthsafterthe2008U.S.financialcollapse.

SatyamScandal(2009)
Company:IndianITservicesandbackofficeaccountingfirm.
Whathappened:Falselyboostedrevenueby$1.5billion.
Mainplayer:Founder/ChairmanRamalingaRaju.
Howhedidit:Falsifiedrevenues,marginsandcashbalancestothetuneof50billionrupees.
Howhegotcaught:Admittedthefraudinalettertothecompany'sboardofdirectors.
Penalties:Rajuandhisbrotherchargedwithbreachoftrust,conspiracy,cheatingandfalsificationofrecords.ReleasedaftertheCentralBureauof
Investigationfailedtofilechargesontime.
Funfact:In2011RamalingaRaju'swifepublishedabookofhisexistentialist,freeversepoetry.

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