Some of the greatest accounting scandals of all time have rocked the financial and even political worlds with their repercussions, and have been felt from Wall Street to India. The majority of these scandals are perpetrated on the investors of the companies in question, who were falsely led to believe that the company’s financial situation was better than it actually was.
Such misdeeds generally involve complex accounting methods that skillfully hide the real situation from prying eyes. In other cases there’s no skill or subtlety at all, and the books are flat-out falsified to tell the story the fictional author wants told, which is usually that the company is doing great, and it’s stock price (and the wealth of its owners) should increase. This can be accomplished in a number of ways, including overstating the value of corporate assets, understating the existence of liabilities, showcasing an over-exposure of revenues and/or under-exposure of expenses, etc. There many tricks of the trade for unscrupulous accountants.
It’s also interesting to note that many of these most egregious accounting scandals of all time have taken place within just the last 15 years or so, prompting the question of why this is the case. Is the modern stock market to blame, a system which now emphasizes making off with fast gains rather than investing in companies for the long haul and seeing gradual increases in one’s investment? Or are there other factors that are causing more and more executives to try and game the system and make off with billions of dollars before anyone’s the wiser for it?
Here, we present you with a list of the ten biggest accounting scandals of all time to try and make sense of the chaos. The list is in chronological order, rather than trying to break down the scandals into their significance or monetary loss. Instead we want to focus on how the scandals happened. If you’re interested in more on this topic afterwards, be sure to read our article on The 10 Biggest Corporate Scandals In Modern History.
10. Waste Management Inc. (1998)
Waste Management Inc., founded in 1894, has its headquarters in Houston, Texas. It is a publicly traded waste management and environmental services company. In 1998, the company reported $1.7 billion of fake earnings by falsely increasing the ‘depreciation time length’ for their property, plant and equipment. A shareholder class-action lawsuit was launched for $457 million, and the company auditor Arthur Andersen was fined $7 million.
9. Enron Corporation (2001)
Enron Corporation, founded in Houston, Texas in 1985 was one of the world’s leading commodities, energy and service corporations. In 2001, it shockingly collapsed under the weight of bankruptcy. The company’s main accountants kept huge debts off the balance sheets and as a result, the shareholders lost $74 billion, thousands of employees and investors lost their retirement accounts, and the company’s employees lost their jobs. This scandal is one of the most well-known in history.
8. WorldCom (2002)
WorldCom was the United States’ second largest telecommunications companies, founded in 1983. In 2002, the company inflated its assets as much as $11 billion, leading to 30,000 people losing their jobs, and the $180 billion in cost to investors. The former CEO, Bernie Ebbers was the mastermind behind the scheme, which was accomplished by under-reporting line costs, and inflating revenues with fake accounting entries. He was sentenced to 25 years in prison.
7. Tyco International (2002)
Tyco International was a blue-chip Swiss security systems company, founded in 1960. The company’s former CEO Dennis Kozlowski and former CFO Mark Swartz were convicted of stealing $150 million and falsely inflating the company’s income by $500 million in 2002. Both of them were sentenced to 8-25 years in prison, and a class-action lawsuit forced Tyco to pay $2.92 billion to the affected investors.
6. Health South Corporation (2003)
Health South Corporation, the largest publicly traded US company was founded in 1984 to offer healthcare services. Though the company’s accounts were not trustworthy since 1996, the scandal wasn’t disclosed until 2003. The company’s income was falsely overstated by as much as 4700 percent, and $1.4 billion was inflated to meet the stockholders’ expectations. Convicted of bribing the governor of Alabama, CEO Scrushy was sentenced to 7 years in prison.
5. Freddie Mac (2003)
Freddie Mac is a public government-sponsored enterprise headquartered in Virginia, created in 1970. This mortgage financing giant intentionally misstated $5 billion in earnings in 2003. Then-president David Glenn, along with other top executives were fired and fined $125 million.
4. American International Group (AIG) (2005)
AIG is a major American multinational insurance corporation, though it was originally founded in Shanghai, China, in 1919. The company was embroiled in a $3.9 billion accounting scandal, along with bid-rigging and stock price manipulation in 2005. The company’s CEO Hank Greenberg was fired and the company was fined billions of dollars as a result.
3. Lehman Brothers Holdings Inc. (2008)
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring economic failure in 2008, it was the fourth largest investment bank in the US. The company hid more than $50 billion in loans by disguising them as sales. Executives, auditors, and Ernst & Young all allegedly manipulated the firm’s balance sheets using an accounting trick called ‘Repo 105’. But, SEC (the US Securities and Exchange Commission) could not prosecute due to a lack of evidence.
2. Bernie Madoff (2008)
Bernard L. Madoff Investment Securities LLC, a Wall Street investment firm founded by Bernie Madoff in 1960, was at the center of arguably the biggest scandal in history back in 2008. Bernie will spend the rest of his life in prison for orchestrating the scandal, which tricked investors out of $64.6 billion through the largest Ponzi scheme ever.
1. Satyam (2009)
The Satyam scandal is the most recent major one on our list. Satyam Computer Services, founded in 1987 by Ramalinga Raju in Hyderabad, India was an information technology services and back-office accounting firm. In just 22 years, this company magically boosted revenue by 20 percent, which was $1.5 billion by falsifying revenues, margins and cash balances to the tune of 50 billion rupees. Though Raju and his brother were charged for the incident, they were later released after the CBI failed to file the charges on time.
