MAJOR CORPORATE SCAMS eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeePRESENTATION.pptx

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1. MAJOR CORPORATE SCANDALS IN INDIA AND ABROAD

2. Corporate Frauds??? Which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities. Sometimes with the cooperation of officials in other corporations or affiliates.

3. We will Discuss… Enron (USA) Worldcom (USA) Xerox (USA) Tyco International ltd. ( Republic of Ireland, ) Satyam (India)

4. ENRON Overview (1985 – 2000 s ) (2001 – Lose of more than $11 billion to shareholders) Enron Corporation is an energy trading, natural gas, and electric utilities company based in Houston, Texas. Employed around 21,000 people more than 40 Countries by mid-2001, before it went bankrupt. Fraudulent accounting techniques allowed it to be listed as the seventh largest company in the US.

5. ENRON ( Contd ) … Tactics used by Enron EARNINGS/(EPS) MANIPULATION Enron's executives and senior managers engaged in wide-ranging profitabilty schemes to deceive the investors. Enron's financial results were wrongly reported and making false and misleading information to investors.

6. ENRON ( Contd ) T actics used by Enron… The scheme's objectives were: - To produce that reported earnings steadily grew by approximately 15-20% Per Annum. T o persuade the investing public that Enron's future profitability would continue to grow.

7. ENRON ( Contd ) EARNING MANIPULATION How? Q uarterly earnings targets were imposed on each of the company's business units based on EPS goals and not on true forecasts. When the budget targets could not be met, through results from business operations, they were achieved through the use of fraudulent devices. The primary purpose was to increase the share price which increased from $30 per share in 1998 to $80 in 2001 even after a stock split.

8. ENRON ( Contd ) EARNING MANIPULATION How? The rising stock prices enriched Enron's senior managers in the form of: - S alary, Bonuses, Grants of Artificially A ppreciating S tock O ptions, Restricted S tock, and Phantom stock, and Prestige within their professions and communities.

9. ENRON ( Contd ) EARNING MANIPULATION Other Methods… Manipulating reserve accounts to maintain the appearance of continual earnings. fraudulent manipulation of "segment reporting," and deceptive use of reserved earnings to cover losses in one segment with earnings in another. Manufacturing earnings through fraudulent inflation of asset values and avoiding losses. using improper accounting techniques

10. ENRON ( Contd ) CONCEALMENT OF UNCOLLECTIBLE RECEIVABLES How? C onceal huge receivables (valued in the hundreds of millions of dollars), accumulated during the California energy crisis. Enron concluded that it should book a large reserve for these unrecoverable receivables.

11. ENRON ( Contd ) At the end! Enron filed for bankruptcy. Enron has sought to salvage its business by spinning off various assets. Enron's core business, the energy trading arm, has been tied up in a complex deal with UBS Warburg. Centrica, part of the former British Gas, has bought Enron's European retail arm for £96.4m. Dynegy, a smaller rival, has won a key pipeline in the US after merger talks fell through. The pipeline was then resold to Warren Buffet.

12. WorldCom WorldCom, now known as MCI Inc., was founded in 1983 as LDDS (Long Distance Discount Service). The telecommunications company experienced rapid growth in the 1990s primarily due to several large acquisitions. However, the company’s steady growth and profits came to a halt when fraudulent financial reporting was eventually uncovered. In early 2002, during an internal audit, it was discovered that WorldCom had made several transfers that were not in accordance with generally accepted accounting principles, or U.S. GAAP

13. WorldCom In March of 2002, shortly after the internal audit, the SEC requested documentation from WorldCom in connection to these transfers. WorldCom had improperly accounted for 12 almost $3.8 billion in expenses. Cash flows of $3.055 billion from 2001 and $797 million from the first quarter of 2002 had to be taken off the books, erasing all profits WorldCom had reported for that period (money.cnn.com). The incorrect accounting used involved internal transfers within expense and capital expenditure accounts, as well as large personal loans by the company totaling around $400 million. Had WorldCom reported these transactions correctly, the company would have recorded a net loss for the period.

14. WorldCom The SEC officially filed fraud charges against WorldCom on June 26, 2002. Immediately following this news, the stock price of WorldCom shares plummeted. Stocks had recently been trading around $15 per share, but fell to $0.20 following reports of the fraud charges. Many top management officials were blamed and investigated for the fraudulent reporting that had transpired. WorldCom Chief Executive Officer Bernard Ebbers , who had been President and CEO since 1985, had resigned in April of 2002 in the midst of the SEC investigation, specifically because he was largely involved in the $400 million of personal loans being investigated

15. XEROX XEROX Xerox Corporation  is an American  multinational  document management corporation that produces and sells a range of colour and black-and-white  printers , multifunction systems,  photocopiers , digital production printing presses. Xerox is headquartered in  Norwalk, Connecticut

16. On April 11, 2002, the U.S.  Securities and Exchange Commission  filed a complaint against Xerox. [34]  The complaint alleged Xerox deceived the public between 1997 and 2000 by employing several "accounting irregularities,“ the most significant of which was a change in which Xerox recorded revenue from copy machine leases – recognizing a "sale" when a lease contract was signed, instead of recognizing revenue over the entire length of the contract.

17. In response to the  SEC's  complaint, Xerox Corporation neither admitted nor denied wrongdoing. It agreed to pay a $10 million penalty and to restate its financial results for the years 1997 through 2000. On June 5, 2003, six Xerox senior executives accused of securities fraud settled their issues with the SEC and neither admitted nor denied wrongdoing . They agreed to pay $22 million in penalties, disgorgement, and interest. The company received approval to settle the securities lawsuit in 2008

18. Tyco International Tyco International was founded in 1960 by Arthur J. Rosenburg . The company was originally an investing and holding company specializing in government and military research . In the midst of continued growth and expansion at Tyco arose a corporate scandal. In 2002, CEO Dennis Kozlowski, CFO Mark Swartz, and general counsel Mark Belnick were 16 indicted on charges of fraud and conspiracy. They were suspected of conning investors out of hundreds of millions of dollars that they had paid themselves in unauthorized bonuses and compensation since 1992.

19. Kozlowski and Swartz had also sold $430 million worth of company stock without informing investors (lawyershop.com). Kozlowski, especially, was known for his lavish lifestyle and habit of spending corporate funds. He reportedly held a $2 million birthday party in Italy for his wife using company funds . Both Kozlowski and Swartz were for guilty of fraud, conspiracy, and grand larceny charges in June of 2005 (nytimes.com). The jury decided that, together, the two had defrauded shareholders of over $400 million between 1996 and 2002 by failing to disclose loans and compensation they granted to themselves. Dennis Kozlowski was sentenced to 25 years in prison and fined $70 million, while Mark Swartz was sentenced to 8 1/3 years in prison and fined $35 million

20. SATYAM SCANDAL SATYAM SCANDAL Satyam Computer Services Limited was a ‘rising-star’ in the Indian ‘outsourced’ IT-services industry. The company was formed in 1987 in Hyderabad (India) by Mr. Ramalinga Raju . Mr. Ramalinga Raju and the Satyam Scandal On January 7, 2009, Mr. Raju disclosed in a letter, as shown in Exhibit-2, to Satyam Computers Limited Board of Directors that “he had been manipulating the company’s accounting numbers for years.”

21. . Raju claimed that he overstated assets on Satyam’s balance sheet by $1.47 billion and understated liabilities to the extent of nearly $1.04 billion. Using his personal computer, Mr. Raju created numerous bank statements to advance the fraud. Mr. Raju falsified the bank accounts to inflate the balance sheet with balances that did not exist. He inflated the income statement by claiming interest income from the fake bank accounts. Mr. Raju also revealed that he created 6,000 fake salary accounts over the past few years and appropriated the money after the company deposited it. The company’s global head of internal audit created fake customer identities and generated fake invoices against their names to inflate revenue. The global head of internal audit also forged board resolutions and illegally obtained loans for the company.” It also appeared that the cash that the company raised through American Depository Receipts in the United States never made it to the balance sheets.

22. Ramalinga Raju and his brother Rama Raju were arrested and charged with fraud, forgery, and criminal conspiracy . The scam was estimated to be worth around Rs. 14,000 crore and shook the confidence of investors, shareholders, and stakeholders in the Indian corporate sector.

23. The government introduced several reforms to improve corporate governance and transparency, such as The Companies Act of 1956 was repealed, and the Companies Act of 2013 went into force.

24. Thanking You For Patience!