Financial Reporting Ethics
- John Rigas, other Rigas family members, Michael Mulcahey
- Adelphia backed off-the-book loans for the Rigas family totaling 3.1 billion dollars. The company also overstated earnings and purchased luxury items for the Rigas family.
- Companies are supposed to serve the stockholders interests and not the founder’s interests. The Rigas family illegally used the money and the resources of the company for their own gain.
- Money was stolen from the business and the stock price fell and was taken off the charts.
- The Rigas family wanted to use the company resources for their own gain and were helped by people in the company.
- Shareholders had money stolen from them and lost money when the stock price fell.
- David B. Duncan
- Signed off on Enron’s faulty accounting and then shredded related documents after the SEC launched an investigation into Enron’s accounting.
- An auditor must look at a companies financial statements objectively. It is also illegal to destroy information that is part of an investigation.
- Arthur Anderson and Enron went out of business.
- Anderson knew if they confronted Enron about their faulty accounting they would lose their account.
- Arthur Anderson went out of business and their employees had to find jobs elsewhere. Owners of stock in Enron and Arthur Anderson lost money.
- CEO Kenneth Lay, CFO Andrew Fastow
- Inflated profits with off-the-books partnerships. Illegally manipulated the energy markets in Texas and California.
- Enron fraudulently made it appear that they were making more money than they actually were. They also forced energy prices up using questionable and in some cases illegal methods.
- Enron filed the largest bankruptcy in history and took their auditor, Arthur Anderson down with them. Their collapse brought the stock market down and brought the accounting practices of many other companies under scrutiny.
- Management wanted to increase profits and Enron’s stock price using any and every method available.
- Employees lost their life savings in 401k plans. All stockholders lost money.
1. Ex-CEO Robert Annunziata
2. Inflated revenue by swapping network capacity with other providers. Provided excess compensation to management.
3. Swapping contracts made it look like Global Crossing was doing more business than they actually were. Their CEO contract was also criticized by many for giving too much compensation to the CEO, this may have been a result of a lack of proper corporate governance.
4. Global Crossing went out of business.
5. Management wanted the company to look more attractive to investors.
6. Stockholders and employees.
1. Chairman and CEO Richard Scrushy, CFO William T. Owens
2. Overstated earnings by 1.4 billion dollars.
3. Not adhering to GAAP, fraud.
4. Company stock price fell to an all time low, barely avoided bankruptcy.
5. CEO wanted to beat Wall St. profit estimates to raise his stock price.
6. HealthSouth stockholders.
1. CEO Sam Waksal
2. After learning that the FDA wasn’t going to review ImClone’s new drug Waksal sold his stock and advised friends and family to do the same.
3. Waksal’s actions violated insider trading laws.
4. ImClone stock lost most of its value, Martha Stewart stock also substantially dropped in value after she was linked to the incident.
5. Waksal wanted to take his money out of company stock because he knew it was about to drop on news from the FDA.
6. Waksal, ImClone Investors, Martha Stewart
Salomon Smith Barney
1. Jack Grubman
2. Stock analysts made buy recommendations for clients of their companies’ investment banking services to increase their share prices.
3. The recommendations of Jack Grubman and other analysts were biased towards their clients and they didn’t inform the public of their conflicts of interest.
4. The Internet stock market bubble grew larger and many novice investors poured money into companies with no earnings.
5. They cared more about getting business for other areas of their company and keeping clients happy than providing objective investment advice.
6. Investors who followed the analysts advice.
1. CEO Dennis Kozlowski
2. Kozlowski was indicted for tax evasion. He has also been accused of using company funds inappropriately for private parties.
3. It usually isn’t in the shareholders best interest for the company to pay for private purchases for the CEO.
4. Tyco stock lost most of its value.
5. Kozlowski didn’t like taxes and didn’t want to pay for his lavish parties.
6. Tyco shareholders.
1. Founder Bernie Ebbers, CFO Scott Sullivan
2. Improper accounting resulting in WorldCom overstating earnings by 3.8 billion. Company also gave 400 million in off-the-book loans to its founder, Bernie Ebbers.
3. WorldCom lied to its investors by overstating earnings and committed fraud by doing so.
4. WorldCom filed for bankruptcy.
5. Company executives were desperately trying to make it appear to stockholders that they were maintaining their previous levels of growth.
6. WorldCom stockholders and employees who lost their jobs.
The Corporate Library – Governance – Spotlight Topics – Scandals – http://www.thecorporatelibrary.com/Governance-Research/spotlight-topics/scandals.html
Forbes.com: The Corporate Scandal Sheet – http://www.forbes.com/2002/07/25/accountingtracker.html
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