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• eBook-Kapitel aus dem Buch Accounting Fraud

  Case 8: Sunbeam (1998)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 61 Case 8: Sunbeam (1998) Sunbeam Corp., the Boca Raton, Florida-based maker of such well-known brands… …relied on question- able accounting gimmicks and outright fraud to enhance earnings. It happened under the direction of now disgraced CEO Albert J… …Accounting Fraud in U.S. Companies 62 million. “We are winning in every aspect of our business,” Dunlap told analysts in the conference call announcing… …the suppliers had no room for them; they would not be delivered and paid for Accounting Fraud in U.S. Companies 63 until spring. A similar… …be). SEC enforcement officer Thomas C. Newkirk noted that the fraud was engineered to dress up Sunbeam, in order to make the company look much more… …attractive than it actually was to potential buyers: “This Accounting Fraud in U.S. Companies 64 was a primer in the techniques of financial fraud, in… …from accounting fraud. Dunlap was ordered to pay a USD 500,000 fine and had to accept a lifetime ban from ever serving again as an officer or… …bestseller. Unknown to Sunbeam investors and to the Sunbeam board was that Dunlap had faced similar allegations of accounting fraud at a much smaller… …thereby concealed, when results improved later. Edwards also claimed that the accounting fraud had masked serious operating problems at Nitec. In 1982… …, Nitec filed for bankruptcy. The fraud accusations (which Dunlap denied) were never proved, as all his orders to alter the books had been oral. Dunlap…

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  Case 9: Cendant/CUC (1998)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 66 Case 9: Cendant/CUC (1998) The Cendant Corporation was formed in December 1997 by a merger of two com-… …creation of Cendant, a significant accounting fraud came to light at the CUC division. Before Enron, the case was considered the biggest accounting fraud… …ever. From its beginnings in 1983, the fraud was directed by Walter A. Forbes, CUC’s chairman and CEO, and his top lieutenant, E. Kirk Shelton, CUC’s… …president and COO. Commenting on the fraud, one FBI agent said: “Some people have referred to this as a case of earnings management. But this is an attempt… …Street analysts expected. In the earlier years, however, an important part of the fraud was improper revenue and expense recognition. CUC stated that its… …totally fictitious, including, for exam- ple, USD 500 million over the three-year period from fiscal 1995 to 1997. One fraud investigator commented: “It… …extended amortization periods. By shifting current expenses to a later period, the company further inflated its reported earnings. Accounting Fraud in… …U.S. Companies 67 In later years, the fraud extended well beyond improper revenue and expense rec- ognition practices. As time went on and… …improperly charged asset write-offs and other operating expenses against these acquisition reserves. By far, the largest part of the CUC fraud came from… …had been created, Forbes and Shelton congratulated each other on being masterful “financial engineers” who had been able to nurture the fraud through…

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  Case 10: MicroStrategy (2000)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 71 Case 10: MicroStrategy (2000) In 2000, the reversal of fortune could not have been greater for… …66 million, nearly one-fifth of the total USD 365 Accounting Fraud in U.S. Companies 72 million reported. It also wiped out USD 56 million in… …had not been signed by the close of the just-ended quarter, they clearly should not have been counted as that quarter’s revenue. Accounting Fraud… …MicroStrategy internally or sold to a third party. In December 2000, the SEC accused three MicroStrategy officers of fraud: CEO Michael Saylor, COO Sanjeev… …the SEC settlement in December 2000, the company and its officers ended all litigation stemming from the accounting fraud. “To have all this behind… …, in August 2003, the SEC ended its investigation of PwC with no enforcement action against the audit firm. Accounting Fraud in U.S… …recovery turned out to be a tough challenge. References: Biegelman, Martin T. / Bartow, Joel T.: Executive Roadmap to Fraud Prevention and… …Internal Control, Hoboken/New Jersey 2006, p. 159 Krishnan, Sudha: Revenue Recognition Fraud or Error – The Case of MicroStrategy, Inc… …Schilit, Howard: Financial Shenanigans – How to detect accounting gimmicks and fraud in financial reports, 2nd edition, Boston 2002, pp. 42–44… …, December 14, 2000 MicroStrategy, SEC settle, www.cnnmoney.com, December 14, 2000 MicroStrategy Chairman Accused of Fraud by SEC, The New York Times…

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  Case 11: American Tissue (2001)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 75 Case 11: American Tissue (2001) Mehdi Gabayzadeh may not be as familiar a name as Adelphia founder… …. district attorney said, noting that the fraud cost lenders and bondholders about USD 300 million, and ultimately cost 2,700 employees their jobs. In… …ran into all sorts of obstacles) commented: “The more we investigated, the more fraud we uncovered.” American Tissue was founded in 1981 by two… …the books – in what the indictment later said was a futile effort to gain new Accounting Fraud in U.S. Companies 76 financing, even as it was… …, the affiliated companies, together with Accounting Fraud in U.S. Companies 77 the Gabayzadeh and Elghanayan families, owed American Tissue… …. In July 2001, the fraud was uncovered when it was figured out that the numbers at American Tissue didn’t add up. Two months later, the company… …and otherwise helped American Tissue destroy records that might have supported accusations of accounting fraud. “The paper trail of phony sales… …transactions, bogus supporting Accounting Fraud in U.S. Companies 78 documentation, and numerous accounting irregularities ended quite literally with… …defunct, gained notoriety for helping Enron cover up fraud. Gabayzadeh was accused of stealing nearly USD 300 million from banks, financial… …in the indictments, Gabayzadeh was convicted of spearheading a USD 300 million fraud. His sentencing was delayed several times because his attorneys…

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  Case 12: Enron (2001)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 80 Case 12: Enron (2001) Perhaps more than any other company facing scandal in recent years, Enron stands… …out as the poster child for corporate fraud. The crimes of Enron’s top executives resonated the most in the public mind, and the company’s name has… …become synonymous with corporate malfeasance. However, compared to other accounting frauds, the Enron fraud was very complicated; it involved many… …reports. They didn’t have to lie. All they had to do was to obfuscate it with sheer complexity – although they lied, too.” The impact of the fraud was… …since October 1929”. Besides, the fraud ushered in a wave of prosecutions against white-collar crime at the highest levels of American business, and it… …U.S. Accounting Fraud in U.S. Companies 81 borders; “Enron International”, a wholly owned subsidiary, was created to manage energy assets… …resigned, citing “personal reasons” (August 14); he was replaced once again by Kenneth Lay. Accounting Fraud in U.S. Companies 82 - Sherron Watkins… …transactions that involved setting up complex special purpose entities. Accounting Fraud in U.S. Companies 83 Enron’s financial reporting (I)… …Fraud in U.S. Companies 84 forward markets in the services Enron promised to provide; extremely optimistic numbers were simply conjured up out of… …structure in order to create false profits, to hide losses and to understate liabilities. It may be helpful Accounting Fraud in U.S. Companies 85…

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  Case 13: WorldCom (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 93 Case 13: WorldCom (2002) When Enron collapsed at the end of 2001, worried investors searched for who… …were managed. Former President George W. Bush condemned the fraud as “outrageous” and vowed to address the problems shaking Corporate America. The… …SEC said that WorldCom’s accounting improprieties were of “unprecedented magnitude”. But as enormous as the fraud was, it was accomplished in a… …relatively mundane way. The modus oper- andi of the fraud was rather simple, and it was carried out over a comparatively short period of time. Yet the… …reverberations of the fraud would echo around the world of business for years to come. Background: WorldCom from 1983–2002 The fraud was the consequence… …source of the culture that gave birth to this fraud. In 1983, he had discovered the telecom business and founded WorldCom. In the 1990s, the Clinton… …in this endeavour. Yet he continued to feed Wall Street’s expectations of double-digit Accounting Fraud in U.S. Companies 94 growth, and he… …fraud occurred. In the spring of 2002, amid questions regarding USD 400 million in personal loans, Ebbers was facing dismissal (although the board… …did not yet know about the fraud that had been committed). Knowing that the company had accumulated mas- sive levels of debt and that he could not… …standards others will follow.” It was shortly after Ebbers had left that the fraud was discovered and disclosed. Fraud detection and disclosure As…

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  Case 14: Dynegy (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 102 Case 14: Dynegy (2002) At the beginning of the new millennium, Houston-based Dynegy Inc. was a high-… …flying business rival of the Enron Corporation. Of course, the accounting fraud at Dynegy never reached the scale of notoriety of that at neighbouring… …positions generate no current cash flow (this treatment was required under US-GAAP). Accounting Fraud in U.S. Companies 103 In order to… …of the fraud caused Dynegy’s stock to plunge. Alpha’s impact on Dynegy’s financial statements was especially significant, because the statement of… …Dynegy’s lack of cooperation in the early stages of the investigation. Accounting Fraud in U.S. Companies 104 In August 2003, two of the three tax… …the most severe sentences for accounting fraud in recent memory. “I take no pleasure in sentencing you to 292 months, but my job is to follow the… …Alpha alone. Olis argued he didn’t personally benefit from the fraud scheme and had acted with the knowledge and approval of Dynegy’s financial… …case. Accounting Fraud in U.S. Companies 105 References: Securities and Exchange Commission: SEC v. Dynegy Inc., Litigation… …Dynegy Face Charges of Fraud, The New York Times, June 13, 2003 Jury convicts former Dynegy exec of fraud, The Houston Business Journal, November 14, 2003… …Dynegy executive jailed for 24 years after $300m fraud, The Guardian, March 26, 2004 Dynegy Agrees to Settlement of Suit by its Shareholders, The New York…

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  Case 15: Xerox (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 106 Case 15: Xerox (2002) For most of the second half of the 20th century, the Xerox Corporation was a… …the problems became public, the Accounting Fraud in U.S. Companies 107 SEC launched an investigation into what happened at the Mexican… …audi- tors refused to sign off on the company’s annual report until they had rechecked the numbers. They said they had not uncovered any signs of fraud… …director Stephen Cutler said in a statement. “In a pattern of pervasive fraud, investors were misled and betrayed over the course of four years.” The alle-… …lessees. Accounting Fraud in U.S. Companies 108 Under US-GAAP, Xerox was required to book revenue from the box at the be- ginning of the lease… …, and, according to KPMG, the potential tax exposure arising out of the transaction was Accounting Fraud in U.S. Companies 109 “remote to low”… …values of the machines by as much as 50%. Accounting Fraud in U.S. Companies 110 Xerox grew progressively dependent on these accounting… …its accounting controls. However, it neither admitted nor denied the fraud allegations in the Com- mission’s complaint. The SEC also filed a civil suit… …also filed fraud charges against the audit firm KPMG for its involvement in the accounting scandal. The Commission alleged that KPMG was part of… …investing public expects auditors to do,” said Paul R. Berger, an associate director of enforcement at the Accounting Fraud in U.S. Companies 111…

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  Case 16: Tyco International (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 112 Case 16: Tyco International (2002) Under the leadership of CEO Dennis Kozlowski, Tyco International… …. Nevertheless, taken as a group, these 700 deals certainly had a material Accounting Fraud in U.S. Companies 113 impact on Tyco’s results. As a… …and employees with outsized compensation. Accounting Fraud in U.S. Companies 114 The SEC filed a separate but related civil lawsuit… …, charging Kozlowski, Swartz and Tyco general counsel Mark Belnick with grand larceny, conspiracy, corruption, securities fraud and falsifying business… …. Thus, this executive compensation was never disclosed. Accounting Fraud in U.S. Companies 115 In 2000, Kozlowski and Swartz engineered… …Swartz indicated that they would appeal Accounting Fraud in U.S. Companies 116 the verdict. The pair had testified that they were unaware of… …securi- ties fraud, but was not sentenced to prison. Before the sentencing, Kozlowski had asked the judge to be as “lenient as possible” and to… …. district attorney told the judge that Kozlowski should not be shown any leniency: “He stole. He committed fraud. He committed perjury. And he engaged in a… …that could have uncovered the fraud. However, sources close to the Tyco investigation suggested that Kozlowski (who had trained as an auditor himself)… …return of his Accounting Fraud in U.S. Companies 117 income and benefits since 1997 as well as the forfeiture of all his severance pay. The…

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  Case 17: Global Crossing (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 118 Case 17: Global Crossing (2002) Had the attention not been for Enron (the scandal that had it all at… …the same or Accounting Fraud in U.S. Companies 119 similar. In the second quarter of 2001, for example, reciprocal transactions ac- counted… …. Under the settlement agreement, Global Crossing was accused of faulty disclosure, not fraud, and was not fined. The company had realized little to no… …20 years), and because these revenues were Accounting Fraud in U.S. Companies 120 in similar amounts to the depreciation of investments for… …. Accounting Fraud in U.S. Companies 121 Global Crossing emerged from bankruptcy protection in late 2003 with new owner- ship, new top executives, and a…

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