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• eBook-Kapitel aus dem Buch Accounting Fraud

  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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  Case 18: Qwest Communications International (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 122 Case 18: Qwest Communications International (2002) Denver, Colorado-based Qwest Communications… …revenue im- mediately rather than rateably. The fraud surfaced in the summer of 2002, after several critics had publicly ques- tioned why Qwest was… …billionaire investor Philip F. Anschutz (the company’s founder) resigned as chairman of the board. Accounting Fraud in U.S. Companies 123 The… …. “Accounting rules, policies or controls that in- terfered with meeting revenue targets were stretched or ignored outright, creating an environment for fraud… …. Accounting Fraud in U.S. Companies 124 Eventually, Qwest understated USD 231 million in expenses from 1999 to 2002, relating to employee vacations… …former CEO Joseph Nacchio and six other execu- tives with engineering a “massive financial fraud” at the telecommunications com- pany. “This was definitely… …of fear” and enormous pressure on employees to meet those targets. Former CFO Robin Szeliga (who was described as the “overseer of the fraud… …cluded a suspension from appearing or practicing before the SEC as an accountant. Ex-CEO Joseph Nacchio attacked the SEC’s fraud case against him as “a… …collection of unsupported allegations”. In April 2007, however, while still facing the SEC lawsuit that accused him of accounting fraud, Nacchio was… …generated by sell- Accounting Fraud in U.S. Companies 125 ing services on Qwest’s network was not increasing as Nacchio had projected. Also, other…

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  Case 19: Adelphia Communications (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 126 Case 19: Adelphia Communications (2002) The Adelphia case ranks among the biggest corporate fraud… …, Adelphia filed for Chapter 11 bankruptcy protection. Accounting Fraud in U.S. Companies 127 On July 24, 2002, federal prosecutors arrested… …. Accounting Fraud in U.S. Companies 128 Adelphia deliberately shifted liabilities onto the books of unconsolidated Rigas en- tities. The company created a… …capable” a greater percentage of its cable plant that in fact had been upgraded. Accounting Fraud in U.S. Companies 129 Third, Adelphia… …While most of the fraud took its form in hidden debt and misrepresentations con- cerning operational performance, the Adelphia case is especially notable… …: Accounting Fraud in U.S. Companies 130 – The Rigases created a special accounting system to mask their personal transactions, using the company’s… …disclosed to investors. Accounting Fraud in U.S. Companies 131 The SEC investigation found that chairman John Rigas and his sons had… …sentenced to 20 years in prison. The sentence was among the harshest handed down in any U.S. court for accounting fraud. The Rigas’s cases were low-hanging… …715 million. The funds were to be used to compensate Adelphia security holders who lost money as a result of the fraud. Adelphia and the Rigases also… …resolved civil fraud charges as part of a joint settlement with the SEC. In July 2006, the company sold substantially all of its assets, including the…

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  Case 20: AOL Time Warner (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 133 Case 20: AOL Time Warner (2002) AOL Time Warner Inc. was formed by the merger of AOL and Time Warner… …started to flatten. It was during this period that AOL engaged in accounting fraud to mask the fact that it was also beginning to experience a rapid… …transactions”, in which AOL and its counterparties falsely created and reported revenue Accounting Fraud in U.S. Companies 134 In September 2000, for… …parties it referred to PurchasePro entered into commercial arrangements with this company. AOL essentially paid third parties to Accounting Fraud in… …flow as well as under- statements of total debt). Accounting Fraud in U.S. Companies 136 The accounting irregularities at AOL occurred before… …consequence of the fraud), the merged company dropped “AOL” from its corporate name. The move was widely seen as an admission that the 2001 merger had failed… …. In December 2004, Time Warner agreed to pay the U.S. Department of Justice USD 210 million, in order to settle criminal fraud charges related to AOL… …. How- ever, it did not admit any fault. In March 2005, Time Warner announced a separate USD 300 million settlement of civil fraud charges filed by the… …to US-GAAP. In August 2005, Time Warner reached a USD 2.5 billion settlement to securities fraud litigation. The money was paid to shareholders… …fraud class-action settlements ever. Obviously, Time Warner was eager to get the AOL affair behind it. Time Warner chairman and chief executive Richard…

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  Case 21: HealthSouth (2003)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 138 Case 21: HealthSouth (2003) In 2002, WorldCom, Tyco, Adelphia and several other U.S. companies joined… …2003, the SEC charged HealthSouth and its founder, chairman and CEO, Richard M. Scrushy, with accounting fraud. SEC director of enforcement Stephen… …revenues to derive net Accounting Fraud in U.S. Companies 139 revenues, which were disclosed on the periodic reports filed with the SEC. Because… …PricewaterhouseCoopers found additional fraud and concluded that HealthSouth’s cumulative earnings were overstated by at least USD 3.8 billion. PwC’s post-mortem report… …forensic experts (brought in by HealthSouth’s law firm to unravel the scheme) described the recipe for the fraud as follows: take legitimate numbers… …“Transmittal 1753”) for reduced future earnings. Transmittal 1753 Accounting Fraud in U.S. Companies 140 required certain healthcare providers to bill… …, the fraud’s impact was greater than USD 4 billion. But the fraud didn’t end there. In late 2003, federal law enforcement officials began to… …investigate Medicare fraud at HealthSouth, after a Texas jury had awarded USD 1.5 million in damages to the former medical director of a Houston hospital, Dr… …belonged in a psychiatric facility, not a rehab facility, but we had a bed available and we were encouraged to take them.” “In this sea of fraud, is it… …they exercise their fiduciary duty and responsibility to sharehold- ers?” However, the auditors, Ernst & Young, disavowed knowledge of the fraud…

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  Case 22: Symbol Technologies (2004)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 144 Case 22: Symbol Technologies (2004) To the outside world, Symbol Technologies, Inc. was an icon of… …Holtsville, New York-based com- pany was more fittingly viewed as a classic case study in accounting fraud. “This was a veritable playbook of corporate… …fraud,” the chief prosecutor, Roslynn R. Mauskopf, said. “They cooked the books every which way they could. The execu- tive misconduct was breathtaking in… …its scope.” The investigation of fraud at Symbol began in April 2001 with an anonymous letter sent to the SEC. The letter described two specific… …charged 11 former Symbol executives with securities fraud. According to the Commission, the wide-ranging deception ran from at least 1998 until early… …, they were induced to place orders by the following common features of the “Frank spe- cials” (see SEC 2004): Accounting Fraud in U.S. Companies… …manipulating raw data to match the forecasts given to analysts. Accounting Fraud in U.S. Companies 146 Cookie jar reserves Company executives also… …picked” from a 30-day “look-back period” so as to reduce the cost of the exercise to the executives. Accounting Fraud in U.S. Companies 147… …In addition to committing fraud, some of the executives engaged in efforts to cover up the misconduct and to impede the SEC’s investigation as well as… …sanitize” key portions of schedules that they intended to provide to the investigators. The fraud at Symbol was orchestrated by CEO Tomo Razmilovic…

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  Case 23: Computer Associates International (2004)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 149 Case 23: Computer Associates International (2004) Computer Associates International, Inc. may not be… …on a shenanigan called the “Extended Quarters Practice”. In September 2004, the SEC filed securities fraud charges against Computer Associates, Kumar… …, Accounting Fraud in U.S. Companies 150 when the company reported USD 557 million in revenues beyond the USD 1.047 billion it could properly claim. Thus… …unexpired portion of the old license. Accounting Fraud in U.S. Companies 151 For contracts under its pre-2000 business model, Computer Associates… …. Thus, the USD 3.7 million essen- tially amounted to hush money. In April 2006, Kumar pleaded guilty to accounting fraud charges. Along with Stephen… …sentenced to 12 years in prison for orchestrating the accounting fraud at Computer Associates; he was also fined USD 8 million. Judge Leo Glasser repeatedly… …other things, donations to tsunami relief in Sri Lanka; girls’ education programs in Accounting Fraud in U.S. Companies 152 Kenya; emergency… …225 million to a restitution fund in order to compensate victims of the fraud. It also agreed to take various steps to strengthen its corporate… …monitoring for at least 18 months. In 2006, as part of an attempt to improve its image in the wake of the fraud charges, Computer Associates changed its… …involved in day-to- day matters. But Wang blamed his hand-picked successor Sanjay Kumar and other company executives for the fraud. Wang, the owner of the…

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