Greed has many faces

Font Size

Print

Feedback

Email

Discuss

Related Articles

Anil Ambani tops pay chart; Mukesh biggest dividen...India says no to legally binding emission cutSix Indian cos, CII ink deals in USCBI arrests CLB member for taking bribe

: Company: Enron

Year: 2001

Scandal: Enron lied about its profits and was accused of a range of shady dealings, including concealing debts that they did not show up in the company’s accounts

Money Involved: $1 billion

Sequence of events: Fortune magazine had labelled it United States’ ‘most innovative company’ for six straight years from 1996 to 2001 and it was widely praised as the ‘business model’ for the ‘new economy’. By December 2001 the Enron Corporation became one of the largest bankruptcies in US history. Kenneth Lay, the former Chairman of the Board and Chief Executive Officer and Jeffrey Skilling, former Chief Executive Officer and Chief Operating Officer, went on trial for their part in the Enron scandal in January 2006. Lay died on July 5, 2006, before sentencing was scheduled. The scandal shook the confidence of the investors in American business as the firm was able to hide the fraud for more than five years.

Impact: The company’s shares were worth pennies with more that 25,000 people losing their jobs. Their life savings were trapped in their personal (401k) pension plans, administered by Enron. Most of the company’s workers had invested a majority of their savings in Enron shares, which were worthless by the time they lost their jobs. The company after the scam changed its name to Enron Creditors Recovery Corporation, a shadow of its former self, with the goal to pay off the old creditors of the tainted company.

Company: WorldCom

Year: 2002

Scandal: Misrepresentation of financial statements; overstated cash flows and fraudulent accounting practices. ?

Money Involved: $4 billion

Sequence of events: WorldCom was the quintessential new economy company. The company admitted that it had resorted to fraudulent accounting practices for five quarters (four quarters of 2001 and the first quarter of 2002). With the sudden appearance of a $4 billion hole in its balance sheet, WorldCom was in an acute financial crisis. In August 2002, WorldCom shocked company observers and stakeholders yet again by reporting an additional improper reporting in its financial statements. This time around, the amount involved was $3.3 billion. By late 2002, the extent of misappropriation by WorldCom was estimated to be well over $9 billion. From being one of the world’s most valuable companies, WorldCom came to be known as one of the biggest instances of the ‘fraud wave’ sweeping the global corporate world since the late 1990s.