“He who doesn’t risk never gets to drink champagne” – through following this proverb many business giants become involved in shady financial affairs. By walking on the razor’s edge, many have achieved career heights and glory, establishing financial security not just for themselves but also for generations to come. However, not everybody is so successful. Here we present to you three of the largest and most influential cases of fraudulent accounting.
The Collapse of Enron
In its heyday Enron, a production and sales company founded in 1985, was the seventh largest company in America. In July 2001 the company, regarded by everyone as very reliable, announced revenue figures exceeding 50 billion dollars, while the price of a single Enron share was reaching close to 90 dollars. Early suspicions were raised when Jeffrey Skilling, the company’s CEO resigned. By the autumn of the same year, when the gate was just beginning to break out, the stock prices dropped from 90 dollars to just a few cents. The lawsuit for Enron’s bankruptcy, started in December was recognized as the largest in history. Shareholders lost 74 billion dollars, thousands of investors and employees lost their pension funds and many people have been left jobless. Enron’s vice president Kenneth Lay died before hearing the court decision and Skilling was sentenced to 24 years in prison. The corporation announced bankruptcy while their partner accounting firm Arthur Andersen was ruled guilty for forging Enron’s accounts.
Lehman Brothers Gate
The brothers Emanuel and Mayer Lehman came to the USA from Germany and founded a bank in 1850, which later proceeded to become one of the largest investment banks in America. In 2008, the company’s capital reached 691 billion dollars and the company had over 20 thousand employees. The crisis ensued when the bank took on too high a risk. Lehman Brothers lost its reliable image and the bank wasn’t able to borrow enough funds to solve its problems. In 2008, Lehman Brothers filed for bankruptcy. Information emerged that the company allegedly sold some illiquid property to banks on Cayman Islands with the alleged agreement to buy it back later. This created the illusion that the bank had more than 50 billion dollars cash, and 50 billion dollars-worth less of illiquid property, than it really did. A particular system of financial operations was used, which allowed for an extremely quick removal of debt records before reporting the public balance information. Overall, Lehman Brothers debt reached 613 billion dollars. The Securities Commission didn’t find enough evidence to convict anyone but this case of bankruptcy holds the title of the largest one in the USA as well as the most important attribute of this century’s financial crisis.
In its heyday, WorldCom was the second largest telecommunications company in the USA, with 104 billion dollars-worth of property at its disposal. The company, founded in 1983, was growing fast due to its rather aggressive policy on acquiring new companies. This tactic has led to a failure in 2000 when the US Department of Justice prevented WorldCom from merging with a company called Sprint. After huge losses, the firm attempted to hide its complicated situation by publishing false accounting documents. During an audit in 2002, the WorldCom Department of Internal Audit found out about cases of fraud worth 3.8 billion dollars. By the end of 2003 it became clear that the company’s estate had been falsely exaggerated, with over 11 billion dollars missing. 30 thousand people lost their jobs, while the losses of investors reached 180 billion dollars. The company announced bankruptcy, and its founder and president Bernard Ebers was found guilty of fraud, collusion and document forgery, and sentenced to 25 years in prison.