When a corporation deliberately conceals or skews information to appear healthy and successful to its shareholders, it has committed corporate or shareholder fraud. Corporate fraud may involve a few individuals or many, depending on the extent to which employees are informed of their company’s financial practices. Directors of corporations may fudge financial records or disguise inappropriate spending. Fraud committed by corporations can be devastating, not only for outside investors who have made share purchases based on false information but for employees who, through 401ks, have invested their retirement savings in company stock.
Some not so recent corporate accounting scandals have consumed the news media and ruined hundreds of thousands of employees’ lives who had their retirement invested in the companies that defrauded them and other investors. The nuts and bolts of some of these accounting scandals are as follows:
WorldCom
WorldCom admitted adjusting accounting records to cover its operation costs and present a successful front to shareholders. Nine billion dollars in discrepancies were discovered before the telecom corporation went bankrupt in July 2002. One of the hidden expenses was $408 million given to Bernard Ebbers (WorldCom’s CEO) in undisclosed personal loans. For more on the downfall of WorldCom, here is an excellent article, https://bit.ly/3pYY2lJ.
Tyco
At Tyco, shareholders were not informed of the $170 million in loans taken by Tyco’s CEO, CFO, and chief legal officer. The loans, many of which were taken interest-free and later written off as benefits, were not approved by Tyco’s compensation committee. Kozlowski (former CEO), Swartz (former CFO), and Belnick (former chief legal officer) faced continuing investigations by the SEC and the Tyco Corporation, which is now operating under Edward Breen and a new board of directors. For more on Tyco and the excessive and outlandish behavior of CEO Kozlowski, visit https://bit.ly/3pJrdc4.
Enron
At Enron, investigators uncovered multiple acts of fraudulent behavior within the vast company. Enron used illegal loans and partnerships with other companies to cover its multi-billion-dollar debt. It presented erroneous accounting records to investors, and Arthur Anderson, its accounting firm, began shredding incriminating documentation weeks before the SEC could begin investigations. Money laundering, wire fraud, mail fraud, and securities fraud are just some of the indictments directors of Enron have faced and will continue to face as the investigation continues. One of the last Enron executives to be released from prison was Jeffery Skilling in February 2019. For more, read https://nyti.ms/3rNR3ye.
While I am not an investigator or CPA, I have an MS in Accounting and have a basic idea of what to look for in a company’s public filings that could be considered suspect. Investing is indeed for everyone, but first, you need to understand what you are investing in and how they profit. A general understanding of the business sector they operate in.
For more information, please feel free to contact me directly if you are in or near Nashville, Tennessee. Though I can help you no matter where you are located, it may be beneficial if you seek out a fee-only Registered Financial Consultant near you.
