In this piece, we will take a look at the 5 biggest financial scandals in U.S. history. For more financial scandals, head on over to the 12 biggest financial scandals in U.S. history.
5. FTX
While FTX was incorporated in the Bahamas, we believe it be relevant for the biggest financial scandals in U.S. history, as that’s where the proceedings are taking place, and that’s where a large number of impacted people are based. FTX was a cryptocurrency exchange, and one of the largest in the world at the time, but collapsed in November 2022 after the discovery of the improper relationship between the exchange and a trading company Alameda, which saw the entire house of cards for FTX crashing down, and impacting the global cryptocurrency market.
4. Bernard L. Madoff Investment Securities
The biggest Ponzi scheme in history is also one of the biggest financial scandals in U.S. history. Bernie Madoff, the ex-chairman of Nasdaq, with estimates of the frauds ranging form $35 billion to $70 billion, though a large portion of this is based on non-existent investments and fake profits reported by Madoff.
3. The Goldman Sachs Group, Inc. (NYSE:GS)
The 2008 financial crisis saw many companies receive massive fines from the SEC in the aftermath but the biggest was reserved for The Goldman Sachs Group, Inc. (NYSE:GS), which was accused of defrauding investors by misstating and not mentioning important facts regarding a financial product connected to subprime mortgages. The Goldman Sachs Group, Inc. (NYSE:GS) paid a record amount of $550 million for its actions.
2. Enron
Enron was an energy company based in Texas. Enron declared over $100 billion in annual revenue before its downfall, though of course the figure was incorrect because of widespread accounting manipulations. To represent favorable performance, Enron continued to misrepresent its financials, and because of its complex financial statements, was already confusing to not just shareholders but analysts too. In 2001, Enron earned $138.7 billion in revenue in just the first nine months. Among the numerous frauds perpetrated by the company, loan transactions were misclassified as sales, while mark to market accounting saw Enron record the present value of earnings over the period of a contract at the start. In one such example, Enron not only recorded profits of more than $110 million after a failed deal with Blockbuster, but even when Blockbuster withdrew from the deal, Enron continued to report profits despite the reality being significant losses.
1. WorldCom
Topping the list of the 12 biggest financial scandals in U.S. history is WorldCom’s scandal, which occurred in 2002, and was discovered by the company’s internal audit team after attempting to discover what “prepaid capacity” accounting entries were. The team found 28 such entries made by the WorldCom team where expenses were capitalized instead of being recorded in the balance sheet. If these 28 entries hadn’t been recorded, a profit of $148 million would have been a loss of $395 million. By the time the Audit Committee meeting was called, the internal audit team had discovered around $3 billion worth of such transactions, which later increased to $3.8 billion. The combined collapse of WorldCom and Enron led to the enactment of the Sarbanes-Oxley Act, which was passed for tighter control on financial accounting.
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