Famous Crimes and Corporate Corruption
White collar crime has become more prevalent in the last few decades, prompting a
public demand for increased corporate transparency and accountability. Here’s a brief
overview of five of the biggest corporate accounting scandals of the last decade.
- Lehman Brothers’ Toxic Assets Scandal (2008)
After hiding more than $50 billion in loans, which they disguised as profitable sales,
executives at Lehman Brothers, a global financial services firm, were forced to file
the largest corporate bankruptcy in United States history. Here’s what happened: Lehman
allegedly sold toxic assets (i.e. ones whose value had dropped significantly) to banks
in the Cayman Islands with the supposed intention of buying them back at some point
in the future. This transaction gave investors the false impression that Lehman had
$50 billion more in hard cash and $50 billion less in undesirable toxic assets than
it really did.
Interestingly enough, in 2007 – the year before this major scandal – Fortune Magazine
ranked Lehman Brothers the #1 Most Admired Securities Firm. Neither Lehman Brothers
nor their auditors, Ernst & Young, were prosecuted due to a lack of concrete evidence.
- Bernie Madoff’s Ponzi Scheme Scandal (2008)
The fraudulent activities taking place at Bernard L. Madoff Investment Securities
LLC were exposed just months after the U.S. financial collapse of 2008. In this scandal,
founder Bernie Madoff, Frank DiPascalli and his accountant, David Friehling, carried
out the largest Ponzi scheme in history, tricking investors out of a whopping $64.8
billion. Instead of being paid returns from profits, investors were paid returns out
of their very own money, or that of other investors’ money.
Madoff’s sons clearly valued ethics and integrity more than their father, as they
reported him to the U.S. Securities and Exchange Commission (SEC) immediately after
he told them about his scheme. Bernie was arrested the very next day, and has since
been charged with 150 years in prison plus $170 billion in restitution.
- Olympus’s Buried Losses Scandal (2011)
In 2011, two weeks after being promoted to CEO of Olympus – a Japanese camera-making
company – British-born Michael Woodford revealed that the company had been falsifying
financial statements for more than 20 years. More specifically, Woodford revealed
that Olympus had hidden more than $1.7 billion in losses, making it one of the largest,
longest-running cases of fraud in Japanese corporate history.
Woodford was fired shortly after blowing the whistle, and several company executives
– including an advisor and former chairman – were charged with suspended prison sentences.
- Toshiba’s Overinflated Profits Scandal (2015)
In May 2015, Toshiba was exposed for having overstated their profits over the previous
seven years by approximately $2 billion. These accounting issues were reportedly due
to aggressive and unrealistic profit targets set by managers that made it nearly impossible
for subordinates to meet without falsifying statements. Toshiba responded to this
scandal by firing top executives and making drastic management changes, just as many
other companies in similar scenarios have done.
- Wells Fargo’s Fake Accounts Scandal (2016)
The 2016 Wells Fargo scandal was similar to Toshiba’s scandal of 2015 in that they
were both the result of managers putting excessive pressure on employees to hit unrealistic
profit targets/sales quotas. While Toshiba’s employees merely falsified reports, a
number of Wells Fargo’s employees took it to a whole new level by fraudulently opening
fake accounts under the names of real customers. While the majority of these accounts
were closed before customers noticed, there were a number of instances where customers
faced fees and/or took blows to their credit score.
After all details of the scandal were revealed, Wells Fargo was hit with $186 million
in government fines and forced to repay the $2.6 million in ill-gotten fees associated
with these fake customer accounts. The biggest repercussion of all, though, was the
impact this scandal had on Wells Fargo’s reputation, which received harsh criticism
from the media and government officials alike. In addition to firing 5,300 employees
for opening false, unauthorized accounts, the scandal also cost John Stumpf, the company’s
former CEO, his job.
The Demand for Ethical Accountants Has Reached an All-Time High
Individuals who work in corporate finance and accounting are constantly under immense
pressure to meet short-term market expectations, both in terms of financial and share
price performance. So long as these market pressures exist, we can expect firms to
falsify or “creatively cushion” their company’s performance from time to time. That’s
why now more than ever before, our country desperately needs honest, ethical and transparent
men and women like you to pursue careers in corporate finance and accounting.
If you’d like to pursue a career in this booming industry, visit the Upper Iowa University accounting degree program page to learn more about the program curriculum, career opportunities, job outlook and
more, or click here to apply today!