Scam. Or Fraud is a rapid money generating plot in which an individual or a group of individuals falsify the data and facts of the organization to obtain money from another person or a group when they are presenting a deal or an offer.
Under the tenure of CEO and Chairman Kenneth Lay, the
company had such a growth that it was ranked 7th among the Fortune's top 500 US companies.In the Fiscal year 2000, the company showcased a net revenue of $111 billion and employed around 21,000 employees. But over the next year, the stock prices fell from $90 to $0.3.
Enron used many ambiguous, illusive, and fraudulent
accountingpracties to cover up its debts.The sources inside the company who knew about the loss and practices began to sell their shares by misleading the investors that the vales would go even higher. So, the shares we dumped from internally by many people who knew about it while in the books the company made huge profits. One of the practices included using its partnerships to sell contracts to itself and thus showcasing the increasing the revenue.
Internal whistle blower Sherron Watkins made everyone aware of the situation. The shareholders lost $74 billion and many lost their pension/retirement account and many more were left jobless. The people responsible were the former CEO Kenneth Lay, the latter CEO Jeff Skilling and the Chief of Finance. The retribution was a settlement of $457 million and Aurthur Andersen(accounting firm for ENRON) was fined $7million.
With the globalization of the world through internet, scams have become more and more common in daily life. We receive fraud emails, messages, phone calls stating various offers regarding unexpected money and winnings, charities, buying or selling, jobs and investments.
Sometimes one could receive information on a purchasing that the person really did not make and to login with our credentials to verify it. Deceptively, the link directs us to a fake website thus recording our username and password information. This type of fraud is called Pishing, which is common.
Another common scam is the 419 or Nigeria scam. In an email, some unknown person gives the impression that he or she needs to deposit a large amount of money in you account and just needs the credentials. The credentials thus obtained might be misused in several ways.
Other kinds of frauds include donation fraud, auction fraud, cold calls, chain mail, online surveys scams, to name the most.
People might or might not be the victims of the frauds mentioned above. But, there have been some scams at such a large base that the loss was in billions because of which too many people lost their jobs and many saw their pension liquidized. Mentioned below are some of the BIGGEST SCAMS the WORLD has seen till now.
ENRON was found in 1985 as the merger between Huston Natural Gas Company and InerNorth, based in Huston Texas. After the merger, ENRON quickly rose to be one of the world's major electricity, natural gas, communications and pulp-paper companies. Other kinds of frauds include donation fraud, auction fraud, cold calls, chain mail, online surveys scams, to name the most.
People might or might not be the victims of the frauds mentioned above. But, there have been some scams at such a large base that the loss was in billions because of which too many people lost their jobs and many saw their pension liquidized. Mentioned below are some of the BIGGEST SCAMS the WORLD has seen till now.
#1. ENRON
Under the tenure of CEO and Chairman Kenneth Lay, the
company had such a growth that it was ranked 7th among the Fortune's top 500 US companies.In the Fiscal year 2000, the company showcased a net revenue of $111 billion and employed around 21,000 employees. But over the next year, the stock prices fell from $90 to $0.3.
Enron used many ambiguous, illusive, and fraudulent
accountingpracties to cover up its debts.The sources inside the company who knew about the loss and practices began to sell their shares by misleading the investors that the vales would go even higher. So, the shares we dumped from internally by many people who knew about it while in the books the company made huge profits. One of the practices included using its partnerships to sell contracts to itself and thus showcasing the increasing the revenue.
Internal whistle blower Sherron Watkins made everyone aware of the situation. The shareholders lost $74 billion and many lost their pension/retirement account and many more were left jobless. The people responsible were the former CEO Kenneth Lay, the latter CEO Jeff Skilling and the Chief of Finance. The retribution was a settlement of $457 million and Aurthur Andersen(accounting firm for ENRON) was fined $7million.
#2. PONZI SCHEME
Ponzi scheme, which is a well- known name for a common fraud in which the culprit promises to increase one's investments hugely in a very short period of time. This scheme is named after Charles Ponzi of USA who is considered as one of the biggest swindlers even now.
It was the time of 1920s. And Ponzi started a scheme by taking investments and promising a 50% return to the investors in a very short period of time. And to the investors, it was an offer they couldn't refuse. People started investing money in the scheme awaiting for their easy and high returns. He had $5000 by February through the scheme and by March he had $30,000.
He offered a 50% return of the investment in 45 days or the double in 90. This quickly got attention throughout and his scheme had $420,000. He was up millions by July 1930.
But this did not workout well for a long time as Ponzi wasn't, in fact making real returns. He was paying himself and the old investors with the moey from new investors. As a result, investors lost an estimated of $20 million, which is approximately about $225 million now.
#3. BERNARD L. MADOFF INVESTMENT SECURITIES LLC
Bernand L. Madoff, also known as Bernie Madoff was the founder the Wall Street firm Bernrd L. Madoff Investment Securities LLC. He was one of the most prominent figures in the financial field. Apart from his own firm, he had been a former member of NASDAQ, the second largest stock exchange in the world. He was vital member of National Association of Securities Dealers and advised Securities and Exchange commission on trading securities. His fame was one of the reasons why he could hide his embezzlement for a long time.
The fraud by Madoff is condsidered as the largest investment fraud or Ponzi scheme in history. He made only $20 billion but through the records he tricked the investors showcasing the clients $64.8 billion as the revenue.
The main players were Bernie Mdoff, his accountant David Friefhling and one of the top men if the firm, Frank DePascalli. As a Ponzi scheme works, the investors were paid from their own money or from the the investments of other clients. Things came into the picture when he was asked by the clients to to pay $7 billion in return for their investmenst but he only had $200-$300 million.
Madoff told his sons about the scheme and they reported it to the SEC. He was sentenced for 150 years in prison under 11 counts and $170 billion in restitution.
#4. WORLD COM
At one point of time World Com was the second largest long distance telephone company in USA, the largest being AT&T. It was seen as a major corporation after the merger between World Com and MCI Communications, MCI World Com. The succeeding name of this corporation was World Com. It was acquired by Verizon in 2006.
World Com scandal was masterminded by its CEO and founder Bernie Ebbers. Bernie, CFO Scott Sullivan and Controller David Meyers used unethical accounting practices to hide the company's decreasing earnings and profits to maintain the stock price in NASDAQ. They did this by Under reporting line costs by capitalizing rather than expending and inflated revenues with fake accounting entries. An internal audit uncovered $3.8 billion fraud. More over, by the end of 2003 the company had $11 billion inflated assets. This was the biggest scam in the history before Bernie Madoff's $64 billion scam.
The Report described the accounting shenanigans as follows: "... As enormous as the fraud was, it was accomplished in a relatively mundane way: more than $9 billion in false or unsupported accounting entries were made in WorldCom's financial systems in order to achieve desired reported financial results ..."
Bernie Ebbers was sentenced to 25 years of imprisonment under 9 counts. As a result of this scandal, the Congress passed Sarbanes-Oxley Act to protect the general public and shareholders from malpractices in enterprises and corporations releasing a new set of business regulations. It is overseen by Securities and Exchange Commission (SEC).
#5. LEHMAN BROTHERS SCANDAL
Lehman Brothers has a long history. It was founded by the Lehman brothers, Henry, Emanuel and Mayer in 1850. Since then Lehmam Brothers survoved through several grave periods like the Great Depression in 1930s, WW I and WW II and Russian default debt of 1998.
Insiders called the scheme a "Repo 105". Lehman entered into repurchase agreement with banks in the Cayman /islands. Under the deal, Lehman would "Sell" toxic assets to the other bank; with the understanding that they would buy them back in short time. Lehman's executives and the comapny's auditors, Ernst & Young cooked the books in this way and showed that they had $50 billion more in cash and $50 billion less in toxic asssts than it really did.
The fraud was caught when Lehman filed for bankruptcy on 2008 with $639 billion of assets and $613 billion of debts. This is the largest bankruptcy in the history till date.
Well, these are by far some of the largest scandals in the history. There are several other scandals like the AIG scandal, Freddie Mac, Satyam Computers Scams, etc., which have been taken as case studies to analyse.
Below are some links which can give you more information on some of the above mentioned scams and also other frauds which have not been mentioned.
Last but not the least, do comment about the themes or topics you want me to write blogs.
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