20 Companies That Committed Massive Fraud
Corporate America operates on a level all its own. The amount of money flowing in and out of businesses is mind-boggling to think about. While most CEOs are chasing new revenue streams, finding tax loopholes, and more, others have chosen to outright lie, cheat, and steal in an attempt to line their pockets with cash. These 20 companies and their leaders committed a massive amount of fraud and were thankfully caught, although some should have been caught much sooner.
Theranos Gets Caught Red Handed
Elizabeth Holmes, the founder and Chief Executive of Theranos was charged with an "elaborate, years-long" fraud in 2018. According to reports, she, along with company president Ramesh Balwani tricked investors into believing one of their portable blood analyzers was far more powerful than it actually was.
The blood-testing company lied to its investors, stating the device could conduct comprehensive blood tests from a few drops of blood. Holmes, for her part in the fraud, agreed to pay a $500,000 penalty and is not allowed to serve as a high ranking official in a public company for the next 10 years.
Bernie Madoff Gets Life
Bernie Madoff, through his company Bernard L. Madoff Investment Securities LLC, was arrested in 2008 and sentenced to life in prison for running the biggest Ponzi scheme of all time. In 2009 Madoff plead guilty to his crimes and was sentenced to 150 years in prison along with $170 billion in restitution fees.
In a Ponzi scheme, an investor gets a client to invest money into a non-existent enterprise they are told will be successful. When Madoff was arrested, it was revealed that he had secured over $64 billion from investors, a number of whom had to file for bankruptcy afterward.
Enron Is En-Rocked
When the Enron Scandal rocked the business world in 2002 a number of very powerful people lost everything. The incredibly wealthy corporation had an incredibly complicated and illegal way of recording their earnings. The eventual bankruptcy of the company ended one of the largest investor fraud schemes in America.
During the Enron trial, CFO Andrew Fastow was charged with 98 counts of fraud and received 10 years in prison without parole. Company founder Kenneth Lay and COO Jeffrey Skilling were hit with a 65-page indictment chronicling their fraudulent practices. Skilling was sentenced to 24 years in prison. Lay died before his sentencing.
WorldCom Becomes WoldCon
When WorldCom Chief Executive Bernie Ebbers was on trial for billions of dollars of investor fraud in 2002, it was clear he going away for a long time. On trial for reporting false profits so that WorldCom could meet Wall Streets's estimates and slow the decline of the company stock, Ebbers found it extremely difficult to prove his innocence.
In his closing statements against Ebbers, Assistant U.S. Attorney General William Johnson said, "WorldCom has truly become WorldCon. Bernie Ebbers was... the leader of the con." Ebbers was ultimately found guilty of all 15 charges and is currently serving a 25-year prison sentence.
ImClone Fights The FDA
In 2001, after having a cancer drug rejected by the FDA for concerns over the structure of test trials, ImClone founder Sam Waksal took matters into his own hands. He took the rejection public in a move that backfired and crippled him. This is why you never fight a government agency!
Waksal, knowing company stocks would fall, advised friends and family to begin selling theirs. It was also revealed that Waksal had planned to buy stock in the company as collateral for a bank loan. Unfortunately, he had already done this once before, making the move fraudulent in the eyes of the law. In the end, Waksal was convicted of perjury, bank fraud, wire fraud, security fraud, and obstruction of justice.
Fannie Mae Pays Up
In 2006 Fannie Mae was penalized $400 million after a report was released detailing multiple account manipulations by the company. The company lied to investors about its high profits and fast growth rate. The fraud succeeded in increasing the income of high-ranking executives. Until they were caught, kind of.
In total, U.S. regulators filed 101 civil charges against CFO J. Timothy Howard, Chief Executive Franklin Raines, and former Controller Leanne G. Spencer. The suit claimed the trio lied about Fannie Mae's earnings to increase their executive bonuses. After eight years of litigation, the case was dropped due to insufficient evidence, although the damage was already done in the public eye.
Freddie Mac Doesn't Deny The Charges
In 2003, mortgage finance company Freddie Mac cleaned its house after getting caught lying about earnings. In total, the company paid $50 million in order to settle federal fraud charges in relation to $5 billion of falsely reported earnings. The company was the nation's second-largest buyer and guarantor of home mortgages at the time of the scandal.
After the settlement, Freddie Mac fired top executives David Glenn, Vaughn Clark, and Chairman of the Board Leland Brendsel. The company was also forced to pay a $125 million civil fine handed down by the Office of Federal Housing Enterprise Oversight, which blamed management misconduct for fraudulent reporting.
Rite-Aid Is Wrong
In 2002, the Securities and Exchange Commission (SEC) filed accounting fraud charges against a number of top Rite Aid executives. The charges claimed that former CEO Frank Bergonzi and Vice Chairman Franklin Brown had conducted a "wide-ranging ranging fraud scheme."
From 1997 until 1999, the two executives falsely reported billions of dollars of profit. When the inaccuracies were discovered, Rite-Aid was forced to restate its net income from that period by $1.6 billion and its pre-tax income by $2.3 billion. CEO Martin Grass was sentenced to seven years in prison after being found guilty of fraud and the company's stock prices plummeted.
MF Global Goes Belly Up
For MF Global Holdings LTD, lying about fraud turned out to be their nail in the coffin. Investors forced the company into bankruptcy after alleging they inflated MF Global's ability to manage risk, therefore obscuring investment risk. Unable to pay its investors back, MF Global filed for Chapter 11 bankruptcy. Angry investors took action and dragged Jon Corzine and other officials to court.
Ultimately, a $64.5 million cash settlement was reached with Corzine. The settlement helped investors recoup close to $204.4 million in losses following similar settlements with underwriters and company auditor PricewaterhouseCoopers (PwC). Not shockingly, all parties have denied wrongdoing, although being forced into a settlement is usually proof enough for the public these days.
HealthSouth Gets Fat For Seven Years
In 2002 HealthSouth found themselves embroiled in a massive accounting scandal after overreporting profits for seven years. Suspicions about the company arose when CEO Richard Scrushy sold $75 million in stock a few days before the company posted a large loss. It was later revealed that Scrushy had been forcing the company's accountants to falsify earning reports to meet investor expectations.
The seven-year-long scandal cost Scrushy his job, although he served no jail time. Luckily for him, there was not enough evidence for a conviction of fraud to be made. However, in 2009 he was sued for — wait for it — fraud by HealthSouth investors and was ordered to repay the company $2.8 billion.
Waste Management Gets Taken To The Curb
Beginning in 1992 and continuing until 1997, the senior officers of Waste Management engaged in some of the worst fraud the decade. Fraudulent acts of the company included lying about vehicle (garbage trucks) depreciation yearly, as well and lying about the decrease in values of landfills.
Overall, Waste Management had to restate their earnings for the five year period by a whopping $1.7 billion! The scandal, as it is known today is called the Waste Management, Inc. 1998 Fraud Scandal. As a penalty, the company had to pay shareholders $457 million. The company's auditor, Arthur Andersen, was also fined $7 million for his part in the scandal.
Tyco Goes To Prison
Tyco International, based out of New Jersey, was one of the biggest security systems companies in 2002 when they got caught for fraudulent activity. The company's CEO Dennis Kozlowski and CFO Mark Swartz were siphoning money through unapproved loans and stock sales. That money was then smuggled out of the company and paid to its executives as bonuses or benefits.
When all the damage was done, the CEO and CFO had stolen upward of $150 million, falsely inflating the company's income as reported to investors. For their part in the crimes, Kozlowski and Swartz were given 8-25 year prison sentences. Tyco was also forced to pay back investors $2.92 billion.
AIG Needs Their Own Insurance
The American Insurance Group was rocked hard in 2005 after it was revealed the company had manipulated stock prices and rigged bidding for investors. CEO Hank Greenberg also booked loans as revenue, told traders to inflate stock prices, and told clients to work with insurers the company already had payoff agreements with.
The $3.9 billion alleged fraud was settled with the SEC for $1.64 billion in 2005 and Greenberg was fired. WIth no official charges or arrests, Greenberg was never subjected to sentencing or possible jail time. Three years later, after posting the largest loss ever in company history, AIG execs rewarded themselves with almost $200 million in bonuses. No new investigation is pending.
Lehman Brothers Loses The Country's Trust
In 2007 Lehman Brothers was ranked as the most admired security firm in the United States. One year later that reputation crashed through the floor when the company filed for bankruptcy after years of fraudulent activity were revealed.
During the bankruptcy, it was revealed that Lehman Brothers had had over $50 billion in loans disguised as sales. They did this by selling toxic assets to Cayman Islands banks, claiming they would buy them back. You know, eventually. Ultimately, the company didn't just go bankrupt, they were forced into the largest bankruptcy in American history. Unfortunately, the SEC was unable to press legal charges due to a lack of evidence.
Satyam Admits Wrongdoing With A Nice Letter
Satyam was one of the most successful Indian IT accounting firms until 2009 when it was revealed the books were being cooked! In order to falsely boost revenue by $1.5 billion company founder, Ramalinga Raju faked revenues, margins, and cash balances.
Oddly enough, Raju was only caught after he admitted to his fraudulent activities in a letter sent to Satyam's Board of Directors. How nice and convenient for him to do without any reported reason why. Maybe he suddenly grew a conscious? In the end, he was charged with cheating and falsification of records, as well as breach of trust. When the Central Bureau of Investigation failed to file charges on time, Raju was released.
CUC International Blows Its Merger
After merging with the Cendant Corporation in 1998, it was uncovered that CUC International had been inflating the companies revenue for the last three years. In total, CUC International's revenue was overreported by $500 million. In 1997, for instance, CUC international reported a net income of $55.4 million when they had actually recorded a net loss of $217.2 million.
Top executive Kirk Shelton and Walter Forbes were indicted by a federal grand jury in 2001. Shelton was sentenced to 10 years in prison, and was released early for "exemplary behavior." Forbes was sentenced to 12 years in prison and there are no reports about his behavior so far.
Computer Associates Defers Prosecution
After being charged with securities fraud, conspiracy and obstruction of justice in connection with a multi-billion dollar accounting scandal, Computer Associates Chairman Sanjay Kumar had his prosecution deferred. The deferment came about after the company agreed to pay shareholders $225 million as part of a settlement.
In 2006, when Kumar finally was prosecuted for overstating $2.2 billion in revenue, he pleaded guilty to all charges. At the end of the trial, he was sentenced to 12 years in prison and fined $8 million. He was released from federal prison in 2017.
Qwest Barely Stays Afloat
Qwest Communication was nearly sunk in the early 2000s after CEO Joe Nacchio came under fire for selling $52 million in stock. Nacchio was ultimately put on trial for his fraudulent activity and was found guilty in 2007. For each conviction, he now faces 10 years in prison and a $1 million fine. With 19 convictions, that's a possible 190-year prison sentence and a $19 million fine.
By selling $52 million in stock, Nacchio was actually trying to save Qwest by increasing the companies yearly revenue. However, because he engaged in insider trading to sell that stock, he almost bankrupted Qwest. Oops.
Adelphia, Built From The Ground Up, Crumbles Under Its Own Weight
John Rigas built Adelphia Communications up from the ground up. The founder took a hefty $300 million investment and turned his company into a behemoth in the cable industry. Under the weight of running such a massive company, Rigas ultimately found himself buried in debt, and instead of working out of it, stole $100 million from his company and distributed it among his family.
For his crimes, the 80-year-old Rigas was sentenced to 20 years in prison. However, because of his age, he could be released two years into his sentence if doctors determined he had less than three months to live. He was not.
Crazy Eddie Proves His Nickname Right
In 1993, a federal grand jury in Newark, Connecticut convicted Eddie Antar of 17 counts of conspiracy, securities and mail fraud, and racketeering. For his crimes, the founder of Crazy Eddies discount electronic stores, faced up to 100 years in prison.
Antar, along with his two brothers, were accused of running an $80 million stock fraud scheme that ruined the company. With the company set to go public in 1984, Antar inflated the value of his company and skimmed cash from it. In 1989 Eddie Antar filed for bankruptcy and his stockholders lost huge sums of money as a result. He fled the country to avoid charges but was caught in Israel in 1992 and you know the rest.
