There has been a tremendous increase in the number of corporate frauds during the last century. These frauds have been found to have spirally affected the incomes and savings of common man. Losses in billions are the outcome of such fraudulent corporate sector. Here is a list of 10 greatest frauds that shook the corporate world.
1. Satyam Computers (India)
The fourth largest IT company in India with 53,000 employees was charged with manipulating the balance sheet by illegal means. Satyam’s operating margin wasn’t the 24% as shown in its accounts audited by Price water house Coopers, but just 3%. And Satyam had nothing close to the reported Rs. 5,360 crore ($1.1 billion) cash pile on its balance sheet. The real amount was just a measly $78 million. On January 9, 2009, chairman Ramalinga Raju surrendered to the police and confessed to the Rs. 7,100 crore fraud case.
2. Daewoo Group (South Korea)
Daewoo, the second largest conglomerate in South Korea with interests in about 100 countries, went bankrupt, with debts of about 80 billion won ($84.3 million). In 2005, chairman of Daewoo Group, Kim Woo Choong, was charged with masterminding accounting fraud worth 41 trillion won ($43.4 billion), illegally borrowing 9.8 trillion won ($10.3 billion) and smuggling $3.2 billion out of the country.
3. Fannie Mae and Freddie Mac (America)
In a major investigation of FBI, Fannie Mae and Freddie Mac were charged with fraud in connection with the September 2008 economic crisis on Wall Street. Millions of investors have seen their portfolios and retirement accounts devastated by the collapse of Fannie Mae and Freddie Mac, which should have been prevented. In 2006, Fannie Mae was fined $400 million for using accounting procedures that gave a more optimistic picture of the financial health of the mortgage giant that was actually the case.
4. Barlow Clowes (United Kingdom)
The Barlow Clowes affair in the late 1980s cost the government £150m in compensation to thousands of mainly elderly investors, many of whom lost their life savings when Barlow Clowes was closed down by the Department of Trade and Industry in 1988. Peter Clowes and others were jailed in 1992 for their part in the affair, which remains one of the worst scandals to hit Britain’s savings industry.
5. American International Group (America)
On Mar. 30, the largest aircraft leasing company AIG acknowledged that it had improperly accounted for the reinsurance transaction to bolster reserves, and detailed numerous other examples of problematic accounting. It also announced the delay of its annual 10-K filing and said the moves may have inflated its net worth by up to $1.7 billion.
6. Bernie Madoff (America)
The former chairman of Nasdaq Stock Market and well known as the founder of Bernard L. Madoff Investment Securities, Bernie Madoff was alleged for $50 billion fraud. Within hours, investors who had trusted the 70-year-old Madoff for years – including the owner of the New York Mets – were reeling at charges that one of the most trusted names on Wall Street was a full-time fraud.
7. Subprime Mortgage (America)
This organized corporate fraud has gone through stages. First, during late 2007, over 100 mortgage lending companies went bankrupt as subprime mortgage-backed securities could no longer be sold to investors to acquire funds. Second, starting in Q4 2007 and in each quarter since then, financial institutions have recognized massive losses as they adjust the value of their mortgage-backed securities to a fraction of their purchased prices. These losses as the housing market continued to deteriorate meant that the banks have a weaker capital base from which to lend. Third, during Q1 2008, investment bank Bear Stearns was hastily merged with bank JP Morgan with $30 billion in government guarantees, after it was unable to continue borrowing to finance its operations.
8. Bank of Credit and Commerce International (United Kingdom)
Touche Ross reported that BCCI had a £5.6bn deficit at the time of closure. It was the largest financial fraud in the world to that date. The Abu Dhabi government tried to rescue the bank with a £1.8bn cash injection proposal. It later emerged that BCCI had stolen £1bn from the personal account of Sheikh Zayed of Abu Dhabi.
9. Worldcom (America)
The United State’s second largest long distance phone company admitted that its profits had been inflated by $3.8bn (£2.5bn) between January 2001 and March 2002, to keep them in line with Wall Street expectations. Later, it was investigated that chief financial officer Scott Sullivan improperly booked expenses as an investment in order to make the company look much healthier than it actually was.
10. Enron (America)
One of the largest securities frauds in the history of the 21st century and the investigation into the extent of the fraud committed by Enron is still ongoing. As a result, Enron was forced to file for bankruptcy in December 2001. The problem for Enron was that those who had invested had been promised and expected to get more money from selling gas and electricity and this was not happening. Like the majority of other companies in this position, it sought to hide the truth from the public and borrow more money to fill the hole. Enron’s stock price, which hit a high of US$90 per share in mid-2000, caused shareholders to lose nearly $11 billion when it plummeted to less than $1 by the end of November 2001.