Just to prove that white collar crime has caused more damage than any other disaster, one has to consider some of the largest US based accounting scandals as listed below. What’s good is that all large cases are from prior to 2008 and hopefully auditors are better equipped now. The summary here is to enable people to learn from such examples and influence auditors to protect public interest wherever possible.
⏩ 1. Waste Management Scandal (1998)
Reported $1.7 billion in fake profits. Falsely increasing the depreciation time for the property, plant and equipment.
Penalties: Settled a shareholder class-action suit for $457 million. SEC fined ArthurAndersen $7 million.
⏩ 2. Enron Scandal (2001)
Shareholders lost $74 billion, with thousands of employees and investors losing retirement benefits. They had off balance sheet debts and inflated revenues.
Penalties: Ken Lay died before serving time; Skilling got 24 years in prison. The company filed for bankruptcy. Arthur Andersen was found guilty of fudging Enron’s accounts.
⏩3. WorldCom Scandal (2002)
Investors lost $180 billion. The scheme inflated assets through incorrect capitalization of costs and inflated revenues with fake accounting entries.
Penalties: CFO was fired, controller resigned, and the company filed for bankruptcy. The CEO Ebbers was sentenced to 25 years for fraud, conspiracy and filing false documents with regulators.
⏩4. Tyco Scandal (2002)
CEO and CFO stole $150 million and inflated company income by $500 million. Siphoned money through unapproved loans, executive bonuses and fraudulent stock sales.
Penalties: The CEO Kozlowski and CFO Swartz were sentenced to 8-25 years in prison. A class-action lawsuit forced Tyco to pay $2.92 billion to investors.
⏩5. Freddie Mac Scandal (2003)
$5 billion in earnings were misstated, mostly underreporting them for 2000-2002 to smooth quarterly volatility in earnings and meet Wall Street expectations.
Auditors: PwC (inherited from Arthur Andersen in 2002)
Penalties: $125 million in fines and the firing of President/COO David Glenn, Chairman/CEO Leland Brendsel and CFO Vaughn Clarke.
⏩6. American International Group (AIG) Scandal (2005)
Accounting fraud of booking loans as premium income to the tune of $3.9 billion was alleged, along with stock price manipulation using traders.
Penalties: Settled with the SEC for $10 million in 2003 and $1.64 billion in 2006, with a Louisiana pension fund for $115 million, and with 3 Ohio pension funds for $725 million. The CEO Greenberg was fired, but has faced no criminal charges.
⏩7. Cendant (1998)
This was an accounting fraud at CUC a group entity of Cendant. About $500 million in fake revenue was created over a three-year period in an attempt to ensure CUC’s earnings matched analysts’ expectations. It was estimated to have cost investors at least $19 billion
Auditors Ernst & Young
Penalties: SEC class action lawsuits settled for more than $3 billion. Prison time for former chairman Walter Forbes of 12 years and seven months in federal prison and was ordered to pay $3.275 billion in restitution. Ernst & Young settled a lawsuit brought by Cendant Corp. for almost $300 million
⏩8. HealthSouth Scandal (2003)
Earnings numbers allegedly inflated by $1.4 billion to meet stockholder expectations. CEO sold $75 million in stock a day before the company posted a huge loss.
Auditors Ernst & Young
Penalties: CEO Richard Scrushy was acquitted of all 36 counts of accounting fraud, but convicted of bribing the governor of Alabama, leading to a 7-year prison sentence.
⏩9. Lehman Brothers Scandal (2008)
Hid over $50 billion in loans disguised as sales. Short term repurchase agreements were classified as sale of toxic assets to Cayman Island banks with the understanding that they would be bought back eventually.
Auditors Ernst & Young
Penalties: Forced into the largest bankruptcy in U.S. history. A $10 million settlement of a lawsuit filed against the auditing firm Ernst & Young LLP along with some $99 million being paid by Ernst & Young to settle a private federal class action that relied in part on facts uncovered by the Attorney General’s investigation. SEC did not prosecute the company officials.
⏩10. Bernie Madoff Investment Securities Scandal (2008)
Madoff tricked investors of $64.8 billion through the largest Ponzi scheme in history. They were paid returns out of their own money or that of other investors rather than from profits.
Auditors Friehling & Horowitz
Penalties: 150 years in prison for Madoff + $170 billion restitution. Prison time for Friehling and DiPascalli.
There are many others that could be quoted but these are the famous scandals in the US. The two scandals outside the US that were in the billion range would be Satyam from India (2009) and Toshiba from Japan (2015). Significantly both falsified revenues. The auditors league in the top 10 is equally spread among the former big 3 with one of them permanently shut down and only Bernie Madoff using a small accounting firm.