What Are We Learning from the Microsoft Case?
Microsoft Antitrust -Transcript of Which Remedies?
Enron
WorldCom
The following summary is re-posted here from Wikipedia (http://en.wikipedia.org/wiki/Worldcom)
In June 2002, an internal audit discovered that US$3.8 billion had been 'miscounted.' The U.S. Securities and Exchange Commission (SEC) launched an investigation into these matters on June 26, 2002. (See accounting scandals.)
On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection in the largest such filing in United States history. Its founder and former CEO, Bernard Ebbers, came under fire for his failure to prevent the bankruptcy.
In August 2002, an additional $3.3 billion in improper accounting since 1999 was announced. By the end of 2003, it was estimated that the company's assets had been inflated by around $12 billion.
In May, 2003, the company was given a no-bid contract by the United States Department of Defense to build a cellular telephone network in Iraq. The deal has been criticized by competitors and others who cite the company's lack of experience in the area. [3]
The company emerged from Chapter 11 bankruptcy in 2004 with a new name, MCI, and about $5.7 billion in debt and $6 billion in cash. About half of the cash was intended to pay various claims and settlements. Previous bondholders ended up being paid 35.7 cents on the dollar, in bonds and stock in the new MCI company. The previous stockholders' stock was valueless.
Under the bankruptcy reorganization agreement, the company paid $750 million to the SEC in cash and stock in the new MCI, which was intended to be paid to wronged investors.
On March 15, 2005 Bernard Ebbers was found guilty of all charges and convicted on fraud, conspiracy and filing false documents with regulators — all related to the $11 billion accounting scandal at the telecommunications company he founded. He was sentenced to 25 years in prison. Other former WorldCom officials facing criminal penalties in relation to the company's financial misstatements include former CFO Scott Sullivan (entered a guilty plea on March 2, 2004 to one count each of securities fraud, conspiracy to commit securities fraud, and filing false statements [4]), former controller David Myers (pleaded guilty to securities fraud, conspiracy to commit securities fraud, and filing false statements on September 27, 2002 [5]), former accounting director Buford Yates (pleaded guilty to conspiracy and fraud charges on October 7, 2002 [6]), and former accounting managers Betty Vinson and Troy Normand (both pleading guilty to conspiracy and securities fraud on October 10, 2002 [7]).
On July 13, 2005 Bernard Ebbers received a sentence that would keep him in prison (potentially Yazoo City in Mississippi) for 25 years. At the time of the sentence Ebbers was 63 years old. He may potentially be let out of prison at the age of 83 on terms of good behavior. In March of 2005, 16 of WorldCom's 17 former underwriters reached settlements with the investors ([8]). Citigroup settled for $2.65 billion on May 10, 2004([9]).List of companies implicated in Mutual Fund fraud
- Alliance Capital
- Bank One
- Canary Capital Partners LLC
- Invesco
- Janus
- Nations Funds (BofA)
- Prudential Securities
- Putnam Investments
- Strong Funds
| Settlements in major mutual fund scandals Source: USA TODAY research |  |
|
||||||||||||||||||||||||||||||||||
|
Alliance Capital Management
In September 2003, his office revealed widespread illegal trading in the mutual fund industry. One of the biggest cases to come out of Spitzer's investigations ended in a $600 million settlement with Alliance Capital Management, which allegedly engaged in abusive fund-trading practices.
The settlement calls for Alliance to pay $100 million in penalties and $150 million in returned profits. In addition, Spitzer's office required Alliance to cut its fund fees by 20 percent and freeze them at the lower rate for five years, costing the company an estimated $350 million.
Spitzer's wider probe into the mutual fund industry was a primary reason he was named The Chronicle's Businessperson of the Year. His office's investigations snagged more than two dozen firms believed to be involved in abusive practices. But beyond that, he showed the ordinary Joe investor that white-collar crimes need not affect high-stakes players only.
"Just about everyone in America has a mutual fund," said Edward O'Neal, an assistant professor of finance at Wake Forest University's Graduate School of Management.
Although Spitzer grabbed much attention last year when he took on stock analysts and investment bankers, his discovery of corruption within the $7 trillion mutual fund industry stirred far greater outrage by the sheer volume of people affected.
"He's just had a tremendous impact to get the federal regulators to pay more attention to what needs to be done, and he's raised public awareness across the country," said Joel Bernstein, an attorney and partner at Goodkind, Labaton, Rudoff and Sucharow in New York City, where he specializes in securities and antitrust litigation.
The two widespread practices now under attack in the mutual fund industry are late trading and market timing.
Late trading is the illegal act of buying shares at the daily closing price after regular trading hours.
Market timing involves rapid in-and-out trading. It is not illegal per se, but many fund companies restrict it because it skims profits from longer-term shareholders. The technique becomes abusive if the fund waives its rules and doesn't disclose the arrangements to shareholders.
Spitzer said that his investigations have likely eroded the public's trust in the mutual fund industry, but at the same time, they have helped stimulate much-needed reform.
"The industry is working up to the problems and addressing them," he said in a recent phone interview.
Bernstein, the attorney, said the only reason the industry is now working on the problems is because of Spitzer.
"If not for Eliot Spitzer, it seems to me that a lot of the stuff would have still been hidden from federal regulators and the public," Bernstein said.
But some say that Spitzer may be encroaching on the Securities and Exchange Commission's territory.
"I think he's getting close to stepping into areas that were meant for federal regulation," said Joseph Del Raso, an attorney at Pepper Hamilton in Philadelphia who began his legal career in the SEC's Division of Investment Management.
Del Raso and others also argue that Spitzer overreached in his settlement with Alliance Capital Management when he required the company to lower its fund fees, which are normally dictated by the market.
"Alliance was not a good precedent," Del Raso said.
Spitzer denies that he went too far.
"Those who are critical of Alliance are the same people who have done nothing for 30 years," he said.
Bernstein argued that Spitzer stepped in because others had dropped the ball.
"There have been critics of Eliot Spitzer who say he is doing the SEC's job, but I think he should be credited for that because the SEC wasn't doing it," he said.
Adelphia
Haliburton
Major Accounting Fraud
Accounting Scandals (Wikipedia)
List of Recent Accounting Scandals (Companies are followed by their prominent executives, known to be culpable in committing fraud.)
1989
1998
2000
- AOL
- Adelphia
- Bristol-Myers Squibb
- CMS Energy
- Computer Associates
- Duke Energy
- Dynegy
- El Paso Corporation
- Freddie Mac
- Global Crossing
- Halliburton
- Harken Energy (Published report 10-9-2002)
- HealthSouth
- Homestore.com
- ImClone Systems (Sam Waksal, Martha Stewart, John B. Landes, Ronald A. Martell)
- Kmart
- Lucent Technologies
- Merck & Co.
- Merrill Lynch
- Mirant
- Nicor Energy, LLC
- Peregrine Systems
- Qwest Communications International
- Reliant Energy
- Sunbeam
- Tyco International (L. Dennis Kozlowski, Mark H. Swartz)
- Waste Management
- WorldCom (Bernard Ebbers)
- Xerox
2001
- One.Tel (Australia)
- Enron ( Jeffrey Skilling, Kenneth Lay, Andrew Fastow, Richard Causey )
2005
Major Labor Violations
Ralphs
WalMart