Top Accounting Scandals
In this article, we will talk about top 10 accounting scandals of all time. If you’re curious about the history of each, read them all in one go.
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1 # Scandal of Arthur Anderson Company:
It happened in the year 1998. Arthur Anderson, a waste management company reported around $1.7 billion in fake earnings. They deliberately increased the time period of depreciation of their plant, equipment, and property. While the new CEO, A. Maurice Meyers and his team members went through the books of accounts, they found out this unprecedented scenario. Arthur Anderson has to pay $7 million as a penalty to Securities and Exchange Commission (SEC) and the shareholder class-action suit settled for $457 million. After …show more content…
Enron, a commodity and energy based service company was in trouble for removing a huge amount of debt from their balance sheet. As a result, the shareholders of Enron lost $74 billion. Many employees lost their jobs. Many investors and employees lost their retirement savings. It is one of the most cited accounting scandals of all time. It was the work of then CEO Jeff Skilling and former CEO Ken Lay. Ken Lay died even before serving time. Jeff Skilling was imprisoned for 24 years. Enron filed for bankruptcy and it was found that Arthur Anderson was also guilty of falsifying Enron’s accounts. Sherron Watkins had acted as an internal whistleblower. And the suspicions increased as Enron’s stock price increased.
3 # Scandal of WorldCom:
It occurred in the year 2002. WorldCom was a telecommunication company. The name of WorldCom has not changed; it is MCI, Inc. now. The fraud happened due to the inflated assets of the company. Then CEO, Bernie Ebbers didn’t report the line costs by capitalizing and he also inflated the revenues of the company by recording fake entries. As a result, 30,000 people lost their jobs and investors lost around $180 billion. The internal audit team of WorldCom found out $3.8 billion fraud. After the fraud was discovered, WorldCom filed for bankruptcy and Ebbers got a sentence of 25 years.
4 # Scandal of …show more content…
As the name suggests American Insurance Group was a multinational insurance company. The fraud was huge. The fraud was about $3.9 billion. The complaints were that this huge sum of money was alleged and there was also manipulation of the stock price and bid rigging. The person responsible for the fraud was the CEO, Hank Greenberg. It was not exactly known how SEC found out, but possibly a whistleblower hinted it to SEC. The CEO was fired and AIG had to pay $10 million to SEC in the year 2003 and $1.64 billion in the year 2006.
8 # Scandal of Lehman Brothers
It happened in the year 2008. It was another most cited scandal in the history of accounting frauds. Lehman Brothers was a global financial service provider. The actual fraud was done by hiding the losses of around $50 billion as sales. When the company went bankrupt, the actual scenario got public. The key players were the executives of Lehman Brothers and also the auditors of Ernst & Young. They sold toxic assets to Cayman Islands banks to showcase that they had $50 billion more in cash. SEC couldn’t prosecute them due to lack of evidence.
9 # Scandal of Bernie
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In 2002 the Securities Exchange Committee filed the suit against Adelphia Communications Corp and all the members listed previously. Adelphia owned several subsidiary companies and the first SEC suit against them is for hiding the liabilities of Adelphia in these companies. The second was for making false statements to deceive others such as Wall
The officials were also found guilty of conspiracy; therefore, charges were later dropped against Curley, Spanier, and Schultz (Carpenter, 2011). All three of the officials were sentenced to jail time, fines, and probation as a result of the scandal. Spanier received a sentence of 4 to 12 months in prison, 7,500 dollars in fines, and two years of probation (CNN, 2013). There were emails, and notes from meetings included as evidence of the accounts being reported and discussed with officials
One example was the Credit Mobilier scandal where major stockholders of the Union Pacific Railroad formed the Credit Mobilier company and sold their shares to influential congressmen. These executives essentially hired themselves and stole taxpayer money, a very lucrative scandal. Scandals like the Credit Mobilier were widespread and executives from many other railroad companies often stole from their own companies. Many executives would manipulate the rail companies' stocks to profit greatly. Executives would often bribe influential politicians, and work together to profit themselves.
The business world wasn’t the only thing corrupt but the railroads were too. With the railroad industry growing the companies knew they could charge huge rate and gain a large profit. Congressmen were paid off to be quite about the scandal and kept it to themselves. The railroads raised the stocks and were given to well-liked companies.
The AIG Scandal 2005 started when AIG management was issuing a press release describing its third quarter earnings in 2000 to the public. The report showed that the premium of AIG was significantly increasing, while its loss reserves was decreasing by $59 million. However, according to many industry analysts, along with the positive earnings, AIG in fact should show an increase in its loss reserves as well. This caused the investors of AIG suspected that AIG was drawing down its loss reserves to boost its profits. The suspicious of the investors has unfortunately led to the falling of AIG stock price from $99.60 to $93.30 on New York Stock Exchange (NYSE).
The controversy came about when the president and CEO of the organization who had been in that position since 1970, William Aramony, resigned amid allegations of money laundering among other things. Aramony was under investigation for fraud and mismanagement of funds. The trial that involved Mr. Aramony and the two codefendants lasted until 1995, when Aramony was convicted. He was convicted on charges of 23 of 27 counts of fraud, filing false tax returns, conspiracy, and money laundering. He and two top officials were also convicted of looting $1.2 million to fund an extravagant and lurid lifestyle.
The Credit Mobilier scandal took place in 1872 it involved Union Pacific Railroad and Credit Mobilier of America Construction Company. Also it involved fake of contracts and post war corruption. Major stockholders in the railroad formed a company and called it and Credit Mobilier of America. Thomas Durant thought of a money making machine that would make him so rich. It was an idea to make a railroad that would make more profit than the Union Pacific Company.
Ebbers leadership style changed from ethical to unethical during the downturn of the stock market and the effects it had on WorldCom shares. Ebber leadership style created an environment that left for little room for error. During telecommunications stock downturns Ebber was unable to come up with a strategy that would turn things around. During the initial phases of the Commission investigation into WorldCom’s accounting practices, Ebber was questioned concerning several low-interest loans he acquired from the board of directors. Shortly after Ebber was forced out by outside board members.
Executive Summary Lehman Brothers were an investment bank involved in transactions worth billions of dollars and one of the most powerful investment banks in the world. Lehman Brothers collapsed in 2008 following bad investment in the sub-prime mortgage market and used bad accounting practices called Repo 105 transactions to try and cover up the bad assets. This report sets out the use of the fraud triangle when describing the actions which led to the collapse. The pressure applied on the bank, the opportunity due to the lack of regulation to carry out the actions and the ability of the bank to rationalise their decision making.
Can we truly believe that just one or two bad apples cause these scandals? The environment is such that performance is rewarded, such behavior leads to rewards and everybody around them gets away with it, so why not do it too? Their managers may not direct them to behave unethically but certainly created the culture to behave so. Can Rupert Murdoch and his senior management get away with the excuse of “being in the dark”? I agree that they can’t be responsible for everything that happens in an organisation, but they must certainly shoulder some of the blame for creating conditions for the actions.
Background WorldCom, once known as one of the most powerful telecommunication organizations of the world, is now studied as a case of a fraudulent company that carried out unethical financial activities to cover its weakening position in the market. After some aggressive investment decisions, the company started to witness huge financial pressure. The management used various forged accounting entries to conceal its weakening position. Cynthia Cooper, Vice President Internal Audit, discovered the unethical activities and raised the issue with the management and relevant departments and received bitter responses. She carried out internal audits in her own capacity with her colleagues and compiled evidence against fraudulent activities.
In this Enron Scandal ,several moral issues and values are being discussed .The moral issues is the misconduct of code of ethics by management level of a corporation , violation of code of professional ,ethical dilemma that faced by a management level when involved own interest . The first moral issues that discussed in Enron Scandal is misconduct code of ethics by management level of a corporation .In this case ,the mastermind of this scandal is the company CEO , Mr .