| Corporation |
Scandal in short |
| Adelphia Communications |
Under investigations by the SEC and two federal grand juries for multibillion dollar, off-balance-sheet loans to its founders, the Rigas family. Former CEO John Rigas, his son and former CFO Timothy Rigas were arrested for securities fraud. |
| AES |
Use of secured equity-linked loans (SELL) that grossly inflated revenues and bolstered stock prices. These loans are not carried on the company expense sheets, since they are paid back by issuing stocks — further diluting value and ownership of company. |
| AOL Time Warner |
AOL accused of erroneously inflating advertisement revenue to keep stock prices inflated through mega-merger with Time Warner and beyond. |
| Arthur Andersen |
Company found guilty of obstruction of justice in the Enron investigation. David Duncan, former partner, accused of ordering the destruction of Enron-related papers, pled guilty to obstruction of justice. CEO Joseph Berardino quit. Other scandals include: 1. WorldCom ($3.9 billion in hidden expenses), 2. Boston Market Trustee Corp (Agreed to pay $10.3 million in suit claiming a façade of corporate solvency), 3. Baptist Foundation of Arizona ($217 million settlement), 4. Department 66 ($11 million settlement), 5. Sunbeam ($110 million settlement), 6. Colonial Reality ($90 million settlement), 7. Waste Management ($75 million settlement). |
| Bristol-Myers Squibb |
Accused of purposefully inflating sales by offering incentives to wholesalers — including warnings that it planned to raise prices — in order to meet last year’s revenue expectations. CEO Fred Schiff resigned. |
| Cendant |
Paid $2.83 billion to shareholders after internal audits revealed CUC Intl. (which merged with HFS to form Cendant) inflated income by $500 million through fraud and accounting errors. |
| Citigroup |
Congressional investigators testified that Citigroup helped Enron and others set up “sham” transactions to alter their finances. These transactions included loans that allowed Enron to hide nearly $4 billion of debt. |
| CMS Energy |
Disclosed it overstated revenue by nearly $4.4 billion in 2000 and 2001 by using artificial “round trip” energy trades. CEO William T. McCormick, Jr. and Rodger Kershner, general counsel and senior vice-president, resigned. |
| Duke Energy |
Investigations into “round trip” energy trades with other energy producers to inflate volumes and revenues. These falsified trades added $1 billion to revenues over three years. |
| Dynegy |
Tried to merge with Enron; target of several federal probes into alleged sham trades aimed at artificially pumping up revenue and volume. Dynegy’s longtime chief executive, Chuck Watson, resigned in May, and the company has announced a major restructuring. |
| El Paso |
Identified 125 “round trip” trades used to bolster revenues and market share. |
| Enron |
Once the nation’s largest energy trader, collapsed into the largest-ever U.S. bankruptcy on December 2 amid an investigation surrounding off-the-book partnerships that were allegedly used to hide debt and inflate profits. Company Chair Ken Lay and most of the company leadership has resigned. |
| Global Crossing |
Faces probes by the SEC and the FBI regarding its accounting practice and for allegedly engaging in network capacity swaps with other telecommunications firms to inflate revenue; CEO acknowledges that Global Crossing’s actions “may in some fashion [have] misled the market.” |
| Halliburton |
Faces probes by the SEC and the FBI regarding its accounting practice and for allegedly engaging in network capacity swaps with other telecommunications firms to inflate revenue; CEO acknowledges that Global Crossing’s actions “may in some fashion [have] misled the market.” |
| ImClone |
Under investigation by a Congressional committee to determine if it correctly informed investors that the U.S. Food and Drug Administration had declined to accept for review its experimental cancer drug; Samuel Waksal, former chief executive of ImClone, was arrested June 12 on insider trading charges. |
| JP Morgan Chase |
Congressional investigators testified that JP Morgan Chase helped Enron and others set up “sham” transactions to alter their finances. These transactions included loans that allowed Enron to hide nearly $4 billion of debt. |
| KPMG |
SEC alleges accounting missteps by KPMG that allowed Xerox to post knowingly erroneous profits/earnings. |
| Merck |
Recorded $12.4 billion in revenue from the company’s pharmacy-benefits unit over the past three years that the subsidiary, Medco, never actually collected. |
| Merrill Lynch |
Agreed to $100 million settlement with New York State Attorney General regarding charges it tailored stock research to win investment banking business. Suspended two employees including Martha Stewart’s broker after an internal probe relating to sale of ImClone shares. |
| Pricewatershouse Coopers |
Accounting scandals include: 1. Phar-Mor: overestimation of profits; 2. Gazprom: suits over false and misleading statements; 3. Pinnacle Holdings: accounting violations; 4. Avon Products: accounting violations; 5. PwC Securities: independence standards. |
| Qwest Communications |
Under investigation to determine if it inflated revenue for 2000 and 2001 through capacity swaps and equipment sales. CEO Joseph P. Nacchio resigned. |
| Reliant Energy |
Admitted it inflated revenue by counting artificial “round trip” energy trades. Under SEC investigation for accounting matters and energy trades relating to restatement of profits. |
| Rite Aid |
Indicted for fraud after it inflated profits by $1.6 billion from 1997-1999. Scandal missed by auditor KPMG which resigns as auditor for company. |
| Tyco |
Under investigation into whether executives used corporate cash to buy art and a home. Tyco’s former chairman, Dennis Kozlowski, resigned June 3, a day before being indicted for evading about $1 million in sales taxes from art purchases. Accused of improperly creating “cookie jar” reserves that were supposed to cover merger costs but instead were drawn on to boost profits; and improperly “spring loaded” earnings from acquisitions by accelerating their pre-merger outlays. |
| Vivendi Universal |
May incur $1.1 billion charge as the result of off-balance sheet accounting. Attempted to add $1.5 billion in net profit in deal relating to sale of British Sky Broadcasting Group. Moody’s relegated Vivendi’s credit rating to “junk bond status.” CEO John-Marie Messier was forced to quit. |
| WorldCom |
Hid $3.85 billion in expenses, allowing it to post net income of $1.38 billion in 2001, instead of a loss. Charged with fraud by SEC. New York State pension fund files $300 million suit. CEO Bernard Ebbers quit; he is under fire for borrowing $408 million from WorldCom to cover margin calls. |
| Xerox |
Xerox said June 28 it would restate five years of results to reclassify more than $6 billion in revenues. In April, the company settled claims that it used “accounting tricks” to defraud investors. |