Major accounting scandals are uncovered every year all over the world, and within the last two decades, some of the world’s largest companies have been caught in the act. Finances are a complicated game with high stakes for everyone involved. Those who are trusted to keep track of the money for major companies can sometimes hide shady practices in a maze of complexity for a short time. But the consequences of attempting it can be disastrous, not only to the perpetrator or to the company, but also to the global economy. These five cases are among the most devastating in modern history.
Resource: Top 10 Online Accounting Degree Programs
The legendary Enron scandal of 2001 is one of the most notorious cases in the modern world of big business. Enron was an energy company in Houston. The company had been thriving in the years leading up to its dramatic fall, to the point that Fortune Magazine had named them the most innovative company in the United States six years in a row. The company fell apart when Vice President Sherron Watkins exposed the fact that the company had been hiding massive debts to raise stock prices. The illegal accounting practices forced Enron to file for bankruptcy, costing many employees their jobs and costing shareholders over $70 billion. CEO Jeff Skilling was sentenced to 24 years in prison, and former CEO Ken Lay would have received a similar sentence had he not passed away during the proceedings.
The Tyco scandal was exposed in 2002 when the SEC and the Manhattan D.A. began to look into irregularities in the company’s bookkeeping. Tyco International was an electrical and security systems company in New Jersey. CEO Dennis Kozlowski and CFO Mark Swartz had been siphoning millions into their pockets from illegal loans and fake stocks, and Kozlowski had been using the money on wildly extravagant purchases including a $2 million birthday celebration for his wife. Kozlowski and Swartz both received 8-25 year prison sentences and the company had to pay nearly $3 billion in total to its investors.
The American Insurance Group was caught in a bookkeeping fraud of nearly $4 billion in 2005. The man responsible for the scandal, CEO Hank Greenberg, used several illegal methods including disguising loans as revenue and pulling strings with paid traders to falsely manipulate stock prices. The SEC uncovered the illegal practices and forced AIG to pay over $2 billion in total fines. Greenberg managed to escape the affair without a prison sentence, although he was fired from the company.
Lehman Brothers, a global financial services firm, filed for bankruptcy in 2008. The company’s fall marked the largest bankruptcy filing in the history of the United States. The company had been around since 1850 and in the years leading up to the company’s collapse, it was one of the largest American investment banks. Lehman had been using a number of questionable practices that contributed to its downfall, such as doctoring its quarterly reports to give the appearance of stability and reporting billions of dollars that were actually tied up in toxic assets in the Cayman Islands. Because of a lack of evidence, the SEC did not press charges, but the global economy suffered the consequences of their shady practices.
The Bernie L. Madoff Investment Securities LLC case was one of the most devastating blows in the wake of 2008’s economic crisis. The branch of the company in charge of wealth management was a Ponzi scheme, meaning that the company would pay back investors with money coming from new investments rather than with profits. The arrangement is fundamentally unstable and destined to collapse eventually, but the company fell apart when Madoff confided with his sons about the scheme. They reported him to the SEC, who arrested him in 2008. Madoff was sentenced to 150 years in prison.
As the world’s economies become increasingly intertwined in complex ways, illegal manipulation of finances will only become harder to detect. But the potential for disaster will increase just as much. In the coming years, sound practices will be more important than ever to maintain global stability and to prevent the next string of great accounting scandals.