15 Biggest Corporate Frauds in US History

Published on November 5, 2023 at 3:21 pm by Khadija Shafaat Khan in Business, Lists, News

In this article, we will explore 15 biggest corporate frauds in US history. You can skip our comprehensive analysis and proceed directly to the 5 Biggest Corporate Frauds in US History.

Corporate fraud is a long-standing issue in commerce, dating back to the 17th century when trade expansion and the rise of corporations provided opportunities for unethical practices. Early cases involved embezzlement, accounting fraud, and information exploitation. As commerce evolved, corporate governance also developed.

The 19th and 20th centuries witnessed the rise of industry giants that played pivotal roles in shaping the American economy. Companies like Standard Oil, US Steel, and General Electric wielded immense power, driving industrialization and economic growth. They achieved this status through strategies such as vertical integration, aggressive expansion, and innovative technologies.

History notes that in 1934, during the Great Depression, President Franklin D. Roosevelt established the Securities and Exchange Commission (SEC) to clean up the financial markets, protect investors, and enforce securities laws. It marked a significant step towards regulating the chaos and fraud that had plagued the market.

Corporate Fraud – Overview, Examples, & Precursors

Corporate fraud takes on various forms, including money laundering, insurance fraud, tax evasion, mortgage fraud, embezzlement, credit card fraud, identity theft, and a slew of other deceitful practices such as business, cheque, trade, and counterfeiting fraud, phishing, securities fraud, Ponzi schemes, accounting scandals, cheque fraud, forgery, advance fee fraud, payroll fraud, account takeover, payment fraud, procurement fraud, inventory theft, and application fraud.

The SEC’s Fiscal Year 2022 Agency Financial Report has shed light on the red flags of investment fraud. One of the most common tactics used by fraudsters is luring potential victims with promises of immense wealth and luxurious lifestyles. These enticing claims often play on individuals’ desires for financial success and can lead them into dangerous traps. Additionally, be cautious when confronted with offers of high guaranteed returns with no apparent risk, as such promises often come with elevated levels of danger. Another telltale sign of investment fraud is the exaggeration of credentials and experiences by the perpetrators, aimed at building a false sense of trustworthiness.

Furthermore, individuals should be wary of the pressure tactics that fraudsters employ to compel quick decision-making based on claims of artificial scarcity or time-bound opportunities. The use of fake testimonials and celebrity endorsements is also a red flag, as these can easily be fabricated using paid actors or public figures. Lastly, some scammers disguise themselves as experts who claim to protect you from other scammers, using this guise to establish credibility. To safeguard one’s investments, it is imperative to conduct thorough research and exercise prudence before committing to any financial opportunity.

Can Corporate Frauds be Prevented?

A Reuters report, published on June 30, underscores the essential role of technology in combating business-to-business fraud. It emphasizes the need for organizations to use technology for fraud screening and risk management, given the distinct challenges and heightened risks associated with interactions between businesses. The report also highlights AI’s role in exacerbating fraud concerns in business relationships, including the creation of synthetic businesses by fraudsters. These concerns, coupled with potential fines and regulatory actions, are the primary worries for organizations when onboarding new business customers or vendors. Consequently, many businesses face difficulties in scrutinizing and accepting new vendors or customers due to these fraud-related concerns.

An article by Forbes, published on March 2, discusses the need to integrate fraud prevention and cybersecurity practices within organizations. It highlights that traditionally, these two areas have been managed separately, but they are interconnected in today’s high cyber-threat environment. Cybersecurity emphasizes systematic security, while fraud prevention focuses on continuous monitoring of customer transactions. Integrating these two disciplines may improve overall security by empowering both teams, sharing tools and knowledge, and addressing the interdependence of cybersecurity breaches and modern fraud. This approach is seen as essential in the face of evolving threats and potential vulnerabilities caused by the separation of these practices.

Several notable organizations have risen to prominence within the cybersecurity industry including CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Zscaler, Inc. (NASDAQ:ZS), and Cisco Systems, Inc. (NASDAQ:CSCO). Let’s discuss these companies and recent developments by them.

On September 19, CrowdStrike Holdings, Inc. (NASDAQ:CRWD) announced its acquisition of Bionic, a leader in application security posture management (ASPM). This acquisition aims to enhance CrowdStrike’s cybersecurity platform, providing comprehensive visibility and protection for cloud infrastructure and extending its capabilities to application behavior and vulnerability prioritization. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) 2023 Global Threat Report reveals a 95% rise in cloud exploits and a threefold increase in cloud-centric threat actors over the past year. This growth is attributed to cloud computing expansion, faster DevOps practices, and the adoption of no-code/low-code development platforms. Organizations now manage numerous applications with thousands of microservices, often with inadequate security and IT oversight.

Zscaler, Inc. (NASDAQ:ZS) announced on September 19 that it had partnered with CrowdStrike Holdings, Inc. (NASDAQ:CRWD) and Imprivata Inc (NYSE:IMPR) to provide a tailored zero trust cybersecurity solution for medical institutions. This integration enhances access control, threat protection, and traceability, helping healthcare organizations meet regulatory requirements. As ransomware threats grow, this collaboration enables more effective protection for patient data and critical medical services. It addresses the unique challenges of shared workstations in healthcare, offering granular access management and compliance support.

On September 21, CNBC reported that Cisco Systems, Inc. (NASDAQ:CSCO) is embarking on its most substantial acquisition to date by purchasing the cybersecurity company Splunk for a total of $28 billion in cash. In this all-cash transaction, Cisco Systems, Inc. (NASDAQ:CSCO) is acquiring Splunk at $157 per share. The financing for this acquisition will be sourced from a blend of cash and debt. This move represents a significant milestone for Cisco Systems, Inc. (NASDAQ:CSCO) as it strengthens the company’s commitment to the realm of security software. Cisco Systems, Inc. (NASDAQ:CSCO) CEO Chuck Robbins said in a statement,

“Our combined capabilities will drive the next generation of AI-enabled security and observability. From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes more secure and resilient.”

Now that we have discussed the companies that are working actively to mitigate corporate fraud, including Cisco Systems, Inc. (NASDAQ:CSCO), Zscaler, Inc. (NASDAQ:ZS), and CrowdStrike Holdings, Inc. (NASDAQ:CRWD), let’s move on to 15 biggest corporate frauds in US history.

15 Biggest Corporate Frauds in US History

Methodology

Our approach to identify the 15 biggest corporate frauds in US history encompassed a consensus-based methodology. Our criteria focused on the extent of financial deception, with larger swindled amounts signifying more significant frauds, and sources included The Washington Post, The Motley Fool, Forbes, Think Advisor, and the US Securities and Exchange Commission. To present the information effectively, we ranked the cases in ascending order based on the severity of the fraud, allowing our readers to understand the scale and impact of each case progressively.

15 Biggest Corporate Frauds in US History

15. Financial Advisory Consultants

Estimated Losses: $300 Million

Among the most famous frauds is Financial Advisory Consultants, a financial services company that defrauded more than 3000 investors out of over $300 million. According to the US Securities and Exchange Commission, the company’s founder and CEO James P. Lewis, JR. was convicted of fraud and pleaded guilty.

14. Fannie Mae

Estimated Losses: $400 Million

Fannie Mae, a US government-sponsored enterprise, was accused of accounting irregularities and mismanagement. Allegations included financial statement manipulation and a role in the subprime mortgage crisis. These allegations triggered regulatory scrutiny and the implementation of reforms to address perceived issues and risks within the organization.

13. Theranos

Estimated Losses: $600 Million

Theranos claimed to have developed a revolutionary blood testing technology. However, it was later revealed that Theranos’ technology was not accurate and that the company had falsified its testing results. Theranos’ founder and CEO, Elizabeth Holmes, was convicted of fraud and sentenced to 11 years in prison.

12. Tyco International

Estimated Losses: $2 Billion

Tyco International, which began as an investment and holding company in the 1960s, expanded into various industries including healthcare, security, and engineering services. In the early 2000s, its CEO Dennis Kozlowski and CFO Mark Swartz were embroiled in an accounting scandal, accused of embezzling over $150 million and inflating profits by $500 million. Both were found guilty and sentenced to prison, and Tyco paid $2.9 billion to investors, eventually breaking up the company.

11. HealthSouth

Estimated Losses: $2.8 Billion

According to the SEC, HealthSouth was embroiled in a substantial accounting fraud scheme spanning from 1996 to 2002. This fraudulent activity led to the inflation of earnings by a minimum of $1.4 billion. Multiple individuals within the company, including Richard Scrushy, who served as the CEO and Chairman of HealthSouth, as well as several Chief Financial Officers (CFOs), were responsible for perpetuating this fraud.

10. Bre- X Minerals

Estimated Losses: $3 Billion

Bre-X Minerals Ltd., a Canadian company, fooled investors and regulators with a massive gold fraud in Indonesia. The company claimed to have discovered the world’s biggest gold deposit, but it was later revealed that it had been salting worthless rocks with foreign gold dust. The fraud caused significant losses and led to criminal investigations and civil lawsuits. Bre- X Minerals ranks on our list as top 10 frauds in the world.

9. Wirecard

Estimated Losses: $4 Billion

Wirecard was a German payments processing company that collapsed in 2020 after it was revealed that $4 billion in cash reserves did not exist. Wirecard’s CEO was arrested and charged with fraud, and the company’s two other executives were also implicated in the scandal. The Wirecard scandal is amongst the biggest company frauds in history.

8. Waste Management

Estimated Losses: $6 Billion

In 1998, under the leadership of a new management team, a closer examination of Waste Management’s financial records revealed that the former executives had artificially inflated profits by $1.7 billion through the manipulation of depreciation rates for their property, plant, and equipment.

7. FTX

Estimated Losses: $9 Billion

The FTX scandal which unfolded in 2022 with the collapse of the cryptocurrency exchange FTX, is a significant financial controversy. FTX’s CEO, Sam Bankman-Fried, faces allegations of secretly diverting customer funds to his control over Alameda Research, mismanaging risk, and misleading investors about the financial health of FTX and Alameda Research. Bankman-Fried’s subsequent arrest and multiple charges of fraud and money laundering have compounded the damage, leaving billions of dollars in customer funds lost, investors in financial ruin, and FTX embroiled in legal battles with both investors and regulators.

According to Bloomberg on October 18, the revelation of the $9 billion disappearance from FTX customer funds emerged during the trial of Sam Bankman-Fried. This discovery came in June 2022, just five months before the company filed for bankruptcy. At that time, a forensic accountant sought to shed light on the matter. Peter Easton, an accounting professor at the University of Notre Dame, unveiled that $11.3 billion, designated for FTX customer funds, should have been securely held by Alameda Research. However, only $2.3 billion of these funds were discovered in their bank accounts. It was subsequently exposed that the remaining funds had been allocated for various purposes, which included investments with SkyBridge Capital, under the supervision of Anthony Scaramucci, and Modulo Capital, managed by Lily Zhang.

6. WorldCom

Estimated Losses: $11 Billion

Bernard Ebbers stood as the first in a cohort of former WorldCom executives to face sentencing. He received a 25-year prison term, marking one of the harshest penalties ever levied upon a corporate leader. Ebbers’ conviction encompassed a range of charges, including securities fraud, conspiracy, and the submission of false reports to regulatory authorities. The WorldCom scandal is often highlighted among the top corporate frauds in US history.

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