Greed has many faces

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: 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.

Impact: The company’s downfall from WorldCom to ‘WorldCon’ is a story best known of a corporate feeding its greed through financial and accounting manipulations. A severe cash crunch forced the company to layoff 17,000 workers. The financial crisis forced WorldCom to file for reorganisation under chapter 113 of the Bankruptcy Code in July 2002. The company changed its name to MCI and paid $750 million to the cheated investors.

Company: Xerox

Year: 2000

Scandal: Falsifying financial results for five years and boosting income by $1.5 billion.

Money Involved: $1.5 billion

Sequence of events: Confronted with declining revenue during the late 1990s that should have led to lower than expected earnings reports-thereby reflecting the true nature of the company’s deepening problems, Xerox decided to cook the books. Executives at the company apparently calculated the exact amount that would have to be altered in order to allow the company to just meet or slightly exceed “first call consensus” expectations on Wall Street, which are determined prior to a company’s release of earnings data.

Impact: Xerox agreed to pay a $10 million and to restate its financials dating back to 1997 but not before laying off thousands of workers.

Company: AOL TimeWarner

Year: 2002

Scandal: AOL inflated sales by booking barter deals and ads it sold on behalf of others as revenue to keep its growth rate up and seal the deal. The company also boosted sales via “round-trip” deals (a company selling an unused asset to another company while at the same time agreeing to buy back the same or similar assets at about the same price) with advertisers and suppliers.

Money Involved: $49 million

Sequence of events: Just before and after AOL’s merger with Time Warner in January 2001, top executives at the internet company used tricks and bogus transactions to inflate the value of AOL stock while liquidating their shares in a selling frenzy to enrich themselves to the tune of $936 million. The scheme began in the period leading up to the merger when AOL executives engaged in “falsifications” to create a “grossly distorted” e-commerce advertising business that pumped up AOL stock prices, according to the complaint. The advertising deals included swaps with other Internet companies that AOL misleadingly counted as revenues or transactions involving AOL’s own funds that were provided to purported customers.

Impact: The merger was called “a terrible deal” by Dow Jones, the “worst deal of the century” by Time and “one of the great train wrecks in corporate history” by Fortune. The New York Times said that case “pulled off one of the sweetest deals in business history…by managing to acquire Time Warner with AOL’s inflated stock.” Time Warner agreed to pay securities regulators $300 million and restate three years of financial results to settle civil fraud charges.

Company: Tyco

Year: 2004

Scandal: Former Tyco CEO Dennis Kozlowski, who headed the company from 1992 to 2002, was convicted in 2005 of misappropriating more than US$400 million of company funds. Tyco International became synonymous with corporate greed after it was revealed that Kozlowski had used Tyco money for lavish parties and furnishings for his New York apartment.

Amount of money: $400 million

Sequence of events: Under Kozlowski, Tyco grew dramatically through acquisitions and saw its stock price hit a high of $63.21 in 2001. But in 2002, the Securities and Exchange Commission (SEC) concluded that Tyco used aggressive accounting for acquisitions to inflate profits, that it had hidden millions in executive compensation. The investigation found that Kozlowski; Mark Swartz, Tyco’s former CFO; and Mark Belnick, the company’s chief legal officer, had taken over $170 million in loans from Tyco without receiving appropriate approval from Tyco’s compensation committee and notifying shareholders. For the most part these loans were taken with low to no interest. The SEC also charged that Kozlowski and Swartz sold seven and a half million shares of Tyco stock for $430 million without telling investors.