Top 10 Biggest Business Corporate Scandals

Since the time, man has become imaginative and creative to run his or her system of making money business, organizations have risen out of grounds like radishes all over the world. The economy of the world has seen many ups and downs. Its hierarchy runs in a planned way. A company “X” provides a certain kind of service and then there is company “Y” which is functioning to check if company “X” is doing its work properly and legally. There are over approx. 10 million companies in the whole world. Some of these companies have plummeted to greater heights within short period of time which has lead to suspicious stares directed towards them. Clever minds which tried to make a very good use of loopholes and their loyal sources, have led to greater damages and downfalls of many high esteemed companies. Let’s have a look at such top 10 biggest corporate business scandals and frauds of all times.

Top 10 Corporate Scandals of the world:


1. Enron:

Founded: 1985
Headquarters: Houston, Texas, US
Stock Exchange: ENE (NYSE)
Industry: Energy
No. of Employees: 22000 (approx.)
Type of scandal: Bankruptcy

Start-up: Enron Corporation was founded by an American businessman Kenneth Lay who started this company after the merger of two natural gas pipeline companies i.e. Inter North & Houston Natural Gas. Enron mainly dealt in natural gas, electricity, commodities and services. Due to its substantial growth in the market, it not only became the one of the world’s major company in this industry but also was honoured as “America’s Most Innovative Company” by Fortune magazine for six consecutive years.

Scandal: Largest bankruptcy in American history, Enron Scandal surfaced in October 2001, which led to end of one of the “Big 5” audit and accounting firms at that time i.e. Arthur Anderson. It all started when one of the employees named Jeffery Skilling was hired to work for this organization. With the help of various accounting strategies like ambiguous financial reporting and SPE (special purpose entity: Legal entity which is used by companies to hide debts), they managed not only to lie about their illegally increasing profits but also, managed to conceal the billions of debts which were results of failed projects and deals. Bankruptcy amount turned out to be $63.4 billion. Due to all this, its auditor Arthur Anderson also came to an end which was supposedly pressurized to ignore the issues in beginning by Enron. This also led to 85,000 employees ofAnderson loosing their jobs when it got shut down in 2002.


2. WorldCom:


Founded: 1983

Headquarters: Ashburn, Virginia, USA
Stock Exchange: WCOM (NASDAQ) changed to MCIP (NASDAQ)
Industry: Telecommunications
No. of Employees: 30,000+
Type of scandal: Fraud


Start-up: WorldCom began as Long Distance Discount Services (LDDS) in 1983 and was later renamed as WorldCom in 1995. Before its acquisition by Verizon, it was the second largest long distance phone company in theUS. In 1997, WorldCom announced a merger with MCI which turned out to be largest merger in the history of US but later on, in year 2002 WorldCom filed the largest (till 2002) bankruptcy in the history of US.


Scandal: Bernard Ebbers (then CEO and one of the co-founders of the company) built his company by aggressively acquiring new companies throughout his tenure. Because of this strategy, the company accumulated more than 40 billion dollars of debt. Further, their merger with Sprint was cancelled in the year 2000. To mask the financial condition of the company, Scott Sullivan (CFO), David Myers (Controller) and Buford Yates (Director of Accounting) used illegal methods to fraudulently represent bogus accounting figures in the market. They inflated revenue with fake entries and misrepresented interconnection expenses (charges given to other networks for creation of connection) as capital. This fraud was discovered by WorldCom’s internal audit department June 2002. For this fraud, Bernard Ebbers was given a sentence of 25 years. The company now operates as MCI Inc. and is a part of Verizon.


3. HealthSouth Corp.:


Founded: 1984
Headquarters: Birmingham, Alabama, US
Stock Exchange: HSRC (NASDAQ) changed to HLS (NYSE)
Industry: Healthcare
No. of Employees: 23,000
Type of scandal: Fraud


Start-up:Alabama based company; HealthSouth Corp. was founded by the name of Amcare, Inc. by Richard M. Scrushy in 1984, and after one year, it got its present name. It isAmerica’s largest owner of rehabilitation centres. They provide care to patients recovering from neurological or cardiac disorders.


Scandal: In the year 2002, then CEO Richard Scrushy sold his 75 million worth of company stocks just before company reported huge losses. When HealthSouth hired a law firm to investigate this deal, it was discovered that Scrushy had instructed his officers to release fake earning reports to satisfy investors and to control company’s stock prices. To accomplish this, company’s previous performance figures were increased by 4700%. The total inflation at the time of exposure of scandal was 10 billion dollars which was 10% of company’s total worth. In order to save itself from bankruptcy, company sold many of its business divisions, hospitals, jet planes and even its bullet proof cars. Since then the company has recovered substantially. In 2011, company witnessed 80% growth and is currently in profit of more than 2 billion dollars. HealthSouth has also bought back all the bullet proof cars it sold.


4. Ponzi Scheme:


Type: Fraudulent Investment operation
Type of scandal: Fraud


Foundation: An organisation ‘A’ asks investors to invest money and promises very lucrative short-term returns. When investment comes in, the owner of the company starts paying out interests to the investor from their own investment or from the investment of others (and not from the profit earned by the company). These returns are usually very high (though less than what they had invested) and inconsistent. Ultimately the whole system fails because the whole organisation was fraudulent from the very beginning. This was a perfect example of what the world knows as “Ponzi Scheme”. Normally an investment company in the market would guarantee a return of principal amount and 20% (imaginary figure) interest compounded monthly at the maturity of investment. However, in Ponzi Scheme, this interest percentage can be as high as three or four times the usual percentage.


Scandal: World’s biggest Ponzi scheme was exposed when one evening Bernard Madoff, former chairman of NASDAQ, admitted to his son that his wealth management company was actually a big Ponzi scheme. Later on, his son admitted in front of the authorities about the conversation and the very next day, on 11 Dec 2011, Bernard Madoff was arrested. Bernard Madoff had founded his company in 1960s and confessed that he started the Ponzi scheme in late 1980s; however authorities believe that it was somewhere in early 1970s that he initiated the whole scheme. The investors are believed to be cheated of approx 18 billion dollars. In June 2009 Bernard Madoff was sentenced to 150 years imprisonment.


5. Tyco International:

Founded: 1960
Headquarters: Princeton, New Jersey, US
Stock Exchange: TYC (NYSE)
Industry: Security
No. of Employees: 102,000
Type of scandal: Theft


Start-up: In the year 1960 Arthur Gandua founded a semiconductor research company with the name of Tyco Inc. Today, Tyco International is a company of Swiss origin that deals in security equipments, pipeline construction, and fire safety systems. The company has headquarters inSwitzerland as well asUnited States of America. As of now, the company has revenue of over 17 billion with net income of over 1.7 billion.


Scandal: In the year 2002 chief executive Dennis Kozlowski was accused of stealing more than 120 million dollars from company funds. During his trial, it was discovered that he received bonus of 80 million dollars which was never authorized by the directors. Along with the bonus, it was also discovered that he paid 20 million dollars as personal investment fee and used approx. 14 millions dollars in purchase of artefacts. All this money was taken from company funds and was never authorised by company. In 2005, he was sentenced with imprisonment of 8 – 25 years.


6. Xerox:


Founded: 1906
Headquarters: Norwalk, Connecticut, US
Stock Exchange: XRX (NYSE)
Industry: Document services, Digital imaging, IT services, IT consulting
No. of Employees: 139,650
Type of scandal: Securities Fraud


Start-up: Xerox is anAmerica based company that sells document management solutions throughout the world. The range of products includes printers, printing press, photocopiers, etc. The company was founded in 1906 and is now closely associated with photocopy machines. Getting a Xerox of document is a phrase that is more commonly used instead of getting a document photocopied. Xerox is also closely related to the modern computing in many ways. Steve Jobs, founder of Apple, who is credited for starting the era of “personal computing”, got the idea of mouse when he saw a similar device while on a visit to Xerox facility. The device was a product of Xerox and was in testing phase.


Scandal: In the year 2002 it was discovered that Xerox had shown incorrect entries in its balance sheets during 1997 – 2000. Money received due to photocopy machine lease business was being shown as one time sale and transaction instead of a long, timely and recurring income. For sake of simplicity, let’s assume that Xerox gave machines on lease and earned 100 dollars over a period of 10 months (10 dollars per month). But instead of showing 10 dollars in the balance sheet of 10 subsequent months, Xerox represented one transaction of 100 dollars. This malpractice was highlighted by U.S. Security and Exchange Commission (government agency that deals with security agency). Xerox had to pay a penalty of 10 million dollars and made amendments in its accounts.


7. BP Oil Spill:


Occurrence: April 2010
Location: Gulf of Mexico near Mississippi River Delta, US
Reason: Wellhead blowout
Industry: Petroleum
Recognized as: Deepwater Horizon oil spill
Type of scandal: Largest marine oil spill


Start-up: British Petroleum is 4th largest company and 3rd largest energy company in the world with production of approx 3.5 million barrels of oil every day. It is second largest oil and gas producer inUnited States withAmerica being its largest division. It was founded in 1906 as Anglo-Persian Oil Company. It got its current name in 1954.  It is most widespread energy oil and gas company which operates in more than 75 countries. It owns the brand Castrol.


Scandal: In 2010 the BP was involved in largest accidental marine oil spill in the history of humankind. For three months, from mid April 2010 to Mid July 2010, massive amount of oil kept leaked from one of the BP’s well in the Gulf of Mexico. The leak was the result of an explosion that happened during the process of digging. 11 people were killed in this explosion. As per an estimate the quantity of total oil spill was somewhere around 4.9 million barrels. The spill caused massive harm to the marine life and affected close to 800 kms of American coastline. It took BP two whole months to put a lid on the well and later on, it was declared that the well would never be used again. The spills caused many major setbacks to BP. Apart from humongous financial loss, BP faced serious decline in its face value with people in America abandoning BP products. However, the situation is getting better now. Almost 1 million damage claims have been processed by BP so far and has paid out close to 5 billion dollars to the claimants. BP is still yet to clear thousands of other claims of fishermen, businesses who were harmed by oil spill. For this sole purpose, British Petroleum has set up a relief fund on 20 billion dollars. On top of this, BP may have to pay a fine of 21 billion dollars under ‘Clean Water Act’.


8. ImClone Systems Inc.

Origin: America

Company involved: ImClone Systems

Scandal surfaced: December 2001
Type of scandal: Fraud


Start-up: ImClone Systems Inc., was founded in 1984, is a pharmaceutical company based inNew York City. The company is in production of oncology (cancer) medicines. In 2008, the company was acquired by Eli Lilly and Company.


Scandal: In the end of 2001, one of the most anticipated medicines developed by ImClone was rejected to Food and Drug Administration of America. During 2002, a fact was made public that chief executive and founder of the company Samuel D. Waksal sold his shares and advised his family members and relatives to do the same before releasing the news of rejection of medicine. He feared that after the disclosure of news, the share price of the company would plunge. Influencing relatives, family members and close associates / friends in buying or selling shares of one’s company (owner or employee) by disclosing confidential news about the business is known as ‘insider trading’. Samuel was sentenced to imprisonment for 7 years on the grounds of insider trading & fraud. Martha Stewart, famous media magnate was also sentenced to imprisonment of 5 months because she had also sold her shares following the advice of Samuel Waksal.


9. Compass Group:

Founded: 1941

Headquarters: Churtsey, Surrey, England

Stock Exchange: CPG (LSE)

Industry: Support Services

No. of Employees: 4,71,108

Type of scandal: Bribery


Start-up: Compass is world’s biggest food serving company that operates in over 50 countries. Compass group delivers catering service to industry, schools, armed forces, public gatherings, etc. The history of the company dates back to 1941 when founder Jack Bateman started canteen to support British war support staff. From a small canteen in 1941, the company has now grown to become world leader in the field of contract catering.

Scandal: In 2005, a UN procurement office along with Vladimir Kuznetsov, who was then head of UN committee for budgetary issues were arrested on the grounds of corruption. Later, they accepted to have taken a bribe of 1 million dollar from Compass authorities. The exchange of bribe happened for a contract for providing food supplies to UN peace keeping forces inLiberia. The total value of the contract was approx 235 million dollar. Later, Compass Group declared that only few of its officials were involved in the whole affair without the knowledge of company management. All the involved employees were terminated from services.


10. Union Carbide:

Founded: 1917

Headquarters: Houston, Texas

Stock Exchange: DOW (NASDAQ)

Industry: Chemical Manufacturing

No. of Employees: 2400

Type of scandal: Industrial Disaster


Start-up: Union Carbide (now a part of DOW Chemical Company) was founded in 1917. Union Carbide is known as pioneer of petrochemical industries because it was the first company that created economical procedures to make ethane and propane from natural gases. Before getting into a financial turmoil the company once owned big brands like Eveready, Energizer, Prestone etc. In present days, Union Carbide produces chemical products that are used by various industries (paint, pharmaceutical, oil & gas, household products) as raw material.

Scandal: On the night of 2nd December 1984, more than 5,00,000 people in Bhopal,India were exposed to Methyl Isocyanate gas that leaked from Union Carbide’s pesticide plant. By the advent of next morning, approx. 4000 people and 2500 cattle had died due to the exposure to harmful gas. 4000 more people died in the week that followed. Of all the injured people, approx. 3900 people suffered permanent disabilities. Stillborn rate in the area increased to almost 300% in coming years. Union Carbide was sued by Government of India and later on a fine of 480 million dollars was levied on them in the year 1989. Bhopal gas tragedy is considered one of the worst industrial disasters in the history.


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