Accounting Scams

8/8/2019 Accounting Scams

1/15

ACCOUNTING

SCAMS


2/15

SATYAM COMPUTERS

y On 7 January 2009, company ChairmanRamalinga Raju resigned after notifyingboard members and the Securities andExchange Board of India (SEBI) that

Satyam's accounts had been falsifiedy Raju confessed that Satyam's balance

sheet of 30 September 2008 contained:

y inflated figures for cash and bankbalances ofRs 5,040 crore (US$ 1.04billion) (as against Rs 5,361 crore(US$ 1.1 billion) crore reflected in thebooks).

y an accrued interest ofRs. 376 crore(US$ 77.46 million) which was non-existent.

y an understated liability ofRs. 1,230 crore(US$ 253.38 million) on account of fundswas arranged by himself.

y an overstated debtors' position ofRs. 490crore (US$ 100.94 million) (as against

Rs. 2,651 crore (US$ 546.11 million).


3/15

SATYAM SAGA"What started as a marginal gap betweenactual operating profit and the onereflected in the books of accountscontinued to grow over the years. It hasattained unmanageable proportions as

the size of company operations grewsignificantly (annualized revenue runrate ofRs 11,276 crore (US$ 2.32 billion)in the September quarter of 2008 andofficial reserves ofRs 8,392 crore(US$ 1.73 billion)).The aborted Maytasacquisition deal was the last attempt tofill the fictitious assets with real ones. Itwas like riding a tiger, not knowing how

to get off without being eaten.


4/15

WORLDCOM

y WorldCom was one of the world's largesttelecommunications companies with 20million customers and 80,000 employees.

y US telecommunications giantWorldCom

dug its own grave by manipulating itsfinancial records during the 1990s.y This led to its bankruptcy with about $40

billion in debt and a $3.85 billionaccounting scandal. The company's CFOScott Sullivan who cooked up the bookswas fired. CEO Bernie Ebbers also had toresign following the scam.

y The company which dealt with about halfof the world's Internet traffic, was chargedwith fraud by the US Securities and

Exchange Commission in 2002.y The company owed banks around the

world about $4.5 billion and US insurers'estimated exposure stood at $5.4 billion.Trading inWorldCom Group shares, whichpeaked at more than $64 in 1999, washalted, it crashed to 9 cents a share.


5/15

XEROX CORPORATION

y Founded in 1906, Xerox Corporation is aglobal document management companywhich manufactures and sells a range ofcolor and black-and-white printers,

multifunction systems, photo copiers anddigital production printing presses.y Xerox was found guilty of accounting

irregularities to the tune of $3 billion in2002.

y The Securities and Exchange Commission(SEC) filed a civil suit against Xerox formisstating four years of profits.

y Xerox, however, negotiated a settlementwith the federal regulatory agency. As partof the agreement, Xerox agreed to pay a $10million fine and agreed to restate fouryears' of trading statements.

y KPMG was the company's auditor.


6/15

ENRON

y The Enron scandal sent shock waves across theglobe.

y Enron's growth was remarkable, in 15 years itgrew to be America's seventh largest companywith 21,000 employees in more than 40countries.

y The Fortune magazine named Enron "America'sMost Innovative Company" for six consecutiveyears. Little did the world know what wascooking in the company's balance sheet.

y Enron misappropriated profits, it tactfully hid

debts to offer a rosy picture of the companysaccounts. Enron's recorded assets and profitswere inflated, or even wholly fraudulent andnon-existent.


7/15

ENRONy The Enron fraud raised several questions about the accounting practices of many

corporations throughout the United States.

y The key players in the Enron scandal were Andrew Fastow, former chief financial officerwho orchestrated the scam was fired. Enron's former chief executive and chairmanKenneth Lay and David Duncan, Enron's chief auditor at Andersen also played a role in

the scam.

y The scam led to Enron filing for bankruptcy.


8/15

MIRANT

y Mirant also created a storm with accounting malpractices,however after a six-year legal battle, the company managed tocome clean on the alleged fraud.

y Shareholders had alleged that the company had rigged prices toearn more profits and push up stock prices. The company

reports high growth by inflating energy prices i llegally, it wasalleged.However, the cour t turned down their complaints.

y Mirant made its foray in California in 1999 as Southern EnergyInc. In September 2000, Mirant became an independentcompany.

y In two years it grew to become the 13th largest owner of powergeneration plants in the US. It also marketed commodities likeelectricity, natural gas, coal and oil.Mirant shareholders in theircompliant said that that Mirant illegally manipulated Californiaenergy prices in 2000 and 2001.

y

Mirant's stock crashed to less than $4. The company was foundto overstate its assets and liabilities. The company eventuallywent bankrupt.


9/15

TIME WARNER

y Time Warner executives were proved guilty of fraudulentlyinflating the company's online advertising revenues by more than$1 billion between 2000 and 2002.

y The executives agreed to settle the civil charges brought by theSecurities and Exchange Commission by paying a total of about

$8 million as penalty. They also agreed to return the gains theyreceived.

y David Colburn, Eric Keller, Jay Rappaport and JamesMacGuidwin. MacGuidwin wwere found guilty in May 2008.

y Time Warner Inc. agreed to pay regulators $300 million to settlefraud charges related to online advertising deals in 2005.

y In 2002, shareholders f iled a fraud suit against AOL Time Warneralleging that the company had manipulated its advertisingrevenues.


10/15

BANK OF CREDIT AND COMMERCE

INTERNATIONAL

y Bank of Credit and Commerce International

y The Karachi-based Bank of Credit and Commerce International(BCCI) was founded by Agha Hasan Abedi. The company wasregistered in Luxembourg and had operations in 78 countrieswith over 400 branches, and assets of over $20 billion.

y It soon became the world's 7th largest private bank in terms ofassets. However, it later hit the headlines for the wrong reasons.

y In 1991, a scam of over $20 bil lion was unearthed. The bankfaced several charges of money laundering, bribery, supportingterrorism, arms trafficking and tax evasion, smuggling, illegalimmigration.

y It was also found to be involved in illegal purchases of banks andreal estate. The bank was nicknamed 'Bank of Crooks andCriminals International'.


11/15

MC AFEEy The US Securities and Exchange Commission (SEC) has

slapped an unusually heavy fine on McAfee for inflatingits revenues during the dot.com era.

y The SEC has stated that between 1998 and 2000specifically, McAfee overstated its revenues by $622million, and that for 1998 alone revenues were hiked

131 percent, or $562 million.y In order to settle the embarrassing episode quickly, the

company has agreed to stump up $50 million aspunishment for the mis-statements, though it has notadmitted to the charges in a formal way.

y The money will be distributed between McAfeeshareholders reckoned by the SEC to have suffered as aresult of the drop in the companys marketcapitalisation when it announced its need to re-state

revenue.


12/15

CRB CAPITALCRB Capital Markets Limited (1996)

Amount Involved: Rs 1200 crorey Type of Fraud: Chairman Chain Roop

Bhansali, was accused of siphoning off Rs12 billion in the CRB scam. CRB wasaccused of using its SBI accounts to siphonoff bank funds, claiming it was encashinginterest warrants and refund warrants.

y Impact: The Unit Trust of India and theGujarat government also incurred losses.


13/15

AIGAIG was founded in 1919 in Shanghai,China by Cornelius Vander Starr, itwent to public in 1969. It is a majorAmerican Insurance Corporation

based in New York City with 116,000employees.y Allegations:y The company maintained lucrative

payoff agreements, soliciting riggedbids for insurance contracts andinflated financial position by $2.7billion in 2005.


14/15

TYCOy Tyco international was a global

manufacturing company founded in 1960.Its operational headquarters is inPrinceton, New Jersey. With 118,000employees it is composed ofsecurity

services

y , safety products, fire protection services,flow control, electrical and metal products.

y Allegations:y CEO Dennis Kozlowski and former CFO

Mark H. Swartz were accused of the theftof $600 million from the company in2002.


15/15

HEALTH SOUTH

CORPORATIONy Health South Corporation was founded by

Richard M. Scrushy in 1984 inBirmingham, Alabama, USA to offerhealthcare services. The company has22,000 employees and operates 100

Inpatient Rehabilitation Hospitals. Thoughthe companys accounts are falsified since1996, the scandal came into exposure in2003.

y Allegations:y The companys income was overstated by

as much as 4700 percent and $1.4 billionwas inflated to meet the expectations ofinvestors.

Documents

Accounting Scams