In 2009, Satyam Computer Services’s chairman Ramalinga Raju has confessed that the company’s book of accounts has been falsified and he had manipulated the accounts by Rs 14262 crore (USD 1.47 billion).
On December 2014, Hyderabad Court sentenced Satyam founder B Ramalinga Raju and his brother Rama Raju to 6 months in jail and imposed a fine of Rs 5 lakhs on each of them.
Satyam corporate scandal was perhaps India’s biggest corporate fraud case which has caused huge loss to investors.
Now let us look into world’s 8 biggest corporate scandals ever and the person behind it.
Bernard Lawrence “Bernie” Madoff’s Ponzi Scheme
In 1960, Bernie Madoff founded “Bernard L Madoff Investment Securities LLC” to buy and sell shares that were not listed on the New York Stock Exchange.
As per FBI, from at least the 1980s until his arrest on December 11, 2008, Bernie Madoff perpetrated a scheme to defraud the clients of Bernard L Madoff Investment Securities LLC by soliciting billions of dollars of funds under false pretences, failing to invest investors’ funds as promised, and misappropriating and converting investor’s funds to his own benefit and the benefit of others without the knowledge or authorization of the investors.
Bernie Madoff was sentenced to the maximum sentence of 150 years in prison for perpetrating Ponzi scheme that resulted in billions of dollars of losses.
Also Read: How Bernie Madoff ponzi scheme worked
In order to meet stock holder’s expectation, HealthSouth’s founder, chairman and CEO, Richard M Scrushy has directed company’s senior employees to falsely report company’s earnings. In late 2002, Richard M Scrushy sold USD 100 million in stock few days before the company posted a large loss.
On 19th March 2003 , the SEC filed a civil lawsuit claiming that HealthSouth and its chairman, Richard M. Scrushy, had committed “massive accounting fraud” by overstating company’s earnings up to USD 1.4 billion since 1999.
Fortune magazine once selected Enron as America’s most innovative company for six straight years from 1996 to 2001. In 2001, Huston based Energy Company Enron which once considered being a blue chip stock and share market darling collapses with bankruptcy.
CEO of Enron, Jeffrey Skilling and former CEO Ken Lay, used a method called mark-to-market to hide the financial losses of the trading business and other corporation of the company.
Enron was able to fool investors and others into thinking that the company is fundamentally very stable than it really was.
On 16th October 2001, Enron reported its third quarter loss of USD 618 million. This caught the attention of the security exchange commission. On 22nd October 2001, SEC begins an enquiry in Enron’s accounting practices. On 2nd December 2001, Enron files for bankruptcy.
Shareholders of Enron lost USD 74 billion, employees lost their jobs and investors lost their retirement fund.
Ken Lay died before serving term but Jeffrey skilling got 24 years in prison.
Due to Enron Accounting fraud, Chicago based audit firm Arthrur Andersen voluntarily relinquished its license to practice as Certified Public Accountants in the USA. Arthrur Andersen was one of the top five accounting firms before the scandal.
Waste Management Scandal
Senior officials of Waste Management Inc fraudulently manipulated the company’s financial results to meet predetermined earnings targets.
For examples, to avoid depreciation expenses, they assigned unsupported and inflated salvage values and extended their useful lives.
On 26th march 2002, the Securities and Exchange Commission filed suit in US District court in Chicago against the founder Dean L Buntrock and five other former top officers of Waste Management Inc. charging them with perpetrating a massive financial fraud lasting more than five years.
Company settled a shareholder class action suit for USD 457 million. SEC fined Arthur Andersen LLP and three partners more than USD 7 million in connection with audits of Waste Management Inc’s annual financial results.
After Enron USA market rocked by WorldCom’s billion dollar accounting scandal in 2002. To hide losses, WorldCom recorded USD 3.8 billion worth of normal operating expenses as investments over a number of years.
This practice was uncovered by WorldCom’s internal auditing department. Due to this CFO was fired, controller resigned and the company filed for bankruptcy.
WorldCom’s CEO Bernie Ebbers sentenced to 25 years for fraud, conspiracy and filing false documents with regulators.
Due to Enron and WorldCom scandal, USA congress passes the Sarbanes-Oxley Act.
Tyco International Ltd is a security company incorporated in Switzerland. Its main USA headquarters is in Princeton, New Jersey. Before the scandal, Tyco was considered as a safe blue chip investment by many investors.
Tyco’s CEO, Dennis Kozlowski along with CFO Mark Swartz and CLO Mark Belnick, received USD 170 million in low to no interest loans without shareholders approval.
Mr Dennis Kozlowski and Mark Belnick sold 7.5 million shares of unauthorised Tyco stocks and smuggled that money out of the company by showing as executive bonus and benefits.
In early, 2002 their scandal unravelled and both were sentenced to 25 years in jail.
Freddie Mac Scandal
Federal Home Loan Mortgage Corporation or known as Freddie Mac is a public government sponsored enterprise headquartered in the USA.
Feddie Mac’s president David Glenn, CEO Leland Brendsel, CFO Vaughn Clarke and others have intentionally misstated and understated earnings by around USD 5 billion.
After SEC investigation, USD 125 million charged as fine.
American Insurance Group Scandal
American Insurance Group which is also known as AIG, is one of the largest insurance and financial service companies provide life insurance and retirement services.
CEO Hank Greenburg with others, booked loans as revenue, made traders to inflate stock prices. The CFO, Howard Smith supported the CEO Hank Greenburg in this scandal as well.
After investigation, CEO and the company paid penalty to SEC.