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Here are 12 fraud scandals that rocked the business world…

Wirecard has become the latest in a lengthy list of companies to find itself embroiled in a major accounting scandal.

The payments processing firm has just filed for insolvency after a turbulent week which saw the firm admitting it had a £1.7billion black hole in its accounts.

Its CEO Markus Braun resigned last week and was subsequently arrested by the police on suspicion of inflating the Munich-based company’s finances. He has now been freed on bail. 

The payments processing firm has just filed for insolvency after a turbulent week which saw the firm admitting it had a £1.7billion black hole in its accounts

Here, This is Money looks back over some of the biggest scandals and failures to rock the financial world.

1990 POLLY PECK

Polly Peck chief executive Asil Nadir was sentenced to 10 years in prison in 2012

Polly Peck chief executive Asil Nadir was sentenced to 10 years in prison in 2012 

Polly Peck was a British stock market darling in the Eighties, attracting many small investors, and by one measure the fastest-growing share on the London Stock Exchange during that decade.

Its interests ranged from fruit, electronics, domestic appliances and textiles to hotels. At one time it owned the Del Monte fruit company and Russell Hobbs, the kitchen appliance business.

In 1990, the firm collapsed following an investigation by the Serious Fraud Office and 70 charges of false accounting and theft were brought against chief exec Asil Nadir.

Eventually in 2012 he was found guilty of 10 counts of theft totalling £29million and sentenced to 10 years in prison.

1991 BCCI

The Bank of Credit and Commerce International had over 400 branches in 78 countries and assets in excess of US$20billion.

Investigations by financial regulators and intelligence agencies revealed that it was involved in massive money laundering and other financial crimes, and had illegally gained the controlling interest in a major American bank.

The liquidators, Deloitte & Touche, filed a lawsuit against the bank’s auditors, Price Waterhouse and Ernst & Young, which was settled for $175million in 1998.

After 21 years, 95,000 box files, and £415million in accountants’ and lawyers’ fees, the BCCI files were eventually closed in 2012. 

2000 MICROSTRATEGY

Michael Saylor founded MicroStrategy in 1989 as a consulting firm and had a roaring decade that culminated in the bursting of the dot-com bubble. The company’s clients included McDonald’s, AT&T, and Johnson & Johnson and its revenues grew by 100 per cent each year between 1990 and 1996. 

But after a review of its accounting practices in 2000, the US business analytics company announced that it would restate its financial results for the preceding two years.

Its stock price, which had risen from $7 per share to as high as $333 per share in a year, fell $120 per share, or 62%, in a day in what is regarded as the bursting of the dot-com bubble. A lawsuit was subsequently filed against MicroStrategy and senior executives who settled with the SEC without admitting wrongdoing.  

2001 ENRON

US energy giant formed in 1985. Senior executives, by the use of accounting loopholes, special purpose entities, and poor financial reporting, hid billions of dollars in debt from failed deals and projects.

They misled Enron’s board of directors and audit committee on high-risk accounting practices, and also pressured their auditor Arthur Andersen to ignore the issues.

Enron shareholders filed a $40billion lawsuit after the company’s stock price, which achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001. 

Enron filed for Chapter 11 in December, its $63.4billion in assets making it the largest corporate bankruptcy in U.S. history until the WorldCom scandal the next year.

The scandal effectively ruined Arthur Andersen too.

2002 WORLDCOM

WorldCom CEO Bernard Ebbers

WorldCom CEO Bernard Ebbers

WorldCom was one of the world’s largest telecommunication companies and a core dividend-paying stock that many retirees held in their portfolios. It had attempted to falsely inflate its earnings by nearly $4billion, by manipulating its accounting procedures.

In June 2002, WorldCom confessed to accounting wrongdoings and the next month filed for bankruptcy—the biggest in American history until Lehman. This and Enron meant new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies.

Its former CEO Bernard Ebbers received a 25-year sentence in 2005 for his role in the affair. He was released late last year on compassionate grounds before dying in February.   

2004-08 AIG

American International Group is a financial services and insurance giant, whose companies still employ nearly 50,000 people.

In 2005, AIG became embroiled in a series of fraud investigations conducted by US authorities, leading to a $1.6billion fine for AIG and criminal charges for some of its executives.

During the financial crisis of 2008, the Federal Reserve bailed the company out for $180billion and assumed control.

AIG’s failure was later blamed on the mass sales of unhedged insurance. In 2011 the nationalization of AIG was ruled illegal, and after regaining autonomy, AIG repaid $205billion to the United States government in 2012.

2008 LEHMAN BROTHERS

A Lehman Brothers worker leaves the Canary Wharf office in September 2018

A Lehman Brothers worker leaves the Canary Wharf office in September 2018

This global financial services firm was founded in 1847 and when it filed for bankruptcy in the midst of 2008’s financial crisis, it revealed bank debt of $613billion, $155billion in bond debt, and assets worth $639billion.

It was the fourth-largest investment bank in the United States, and its collapse was the signature moment of the global financial crisis. It followed the exodus of most of its clients, drastic falls in its share price, and devaluation of its assets by credit rating agencies.

This was largely sparked by Lehman’s involvement in the subprime mortgage crisis and its exposure to illiquid assets. Its bankruptcy is the largest in US history, led to massive job losses and reverberated throughout the world’s banking system.

2008 BERNIE MADOFF

Bernie Madoff, the former NASDAQ chairman and founder of the Wall Street firm Bernard L. Madoff Investment Securities In 1960, admitted that the wealth management arm of his business was an elaborate multi-billion-dollar Ponzi scheme.

Alerted by his sons, federal authorities arrested Madoff on December 11, 2008 and months later he pleaded guilty to operating the largest private Ponzi scheme in history – estimated at nearly $65billion.

It has been estimated that at least $35billion of the money Madoff claimed to have stolen never really existed, but was simply fictional profits he reported to his clients.

2011 AUTONOMY

Mike Lynch leaves the High Court in London in March 2019

Mike Lynch leaves the High Court in London in March 2019

The Cambridge-founded company became the UK’s largest and most successful software business by 2010.

It was acquired by Hewlett-Packard in October 2011 in a deal that valued Autonomy at $11.7billion (£7.4billion) with a premium of around 79 per cent over the stock market price. Within a year, HP had written off $8.8billion of Autonomy’s value. The firm’s boss Mike Lynch is currently fighting an extradition request after he was charged with fraud by the US Department of Justice over the deal.

He was accused of having cooked the company’s books. For ten months, he has been battling a separate £4billion damages claim over the sale of Autonomy in the British High Court. It is thought to be the biggest fraud trial in English legal history.

2014 TESCO

The grocery giant issued a series of profit warnings in the run up to a September 2014 announcement about overstated profits, as the group reeled under the disastrous reign of then-chief executive Philip Clarke.

In the bombshell disclosure, the company admitted that issues uncovered in its UK food business meant it was likely to have overstated profits by £250million.

The disclosures wiped £2billion off the supermarket’s share price in one day, and the overstatement was later revised up to £326million.

Tesco suspended eight directors and the Serious Fraud Office charged three former executives with fraud after the black hole was discovered. The scandal contributed to Tesco’s £6.4billion loss in 2015, one of the largest in corporate history.

2018 1MDB

1Malaysia Development Berhad (1MDB) is a Malaysian state investment fund that was meant to improve the living standards of ordinary Malaysians.

However, around $4.5billion is estimated to have been stolen from the fund, from individuals who used it to buy expensive real estate, artworks and even finance The Wolf of Wall Street, a movie about…financial fraud.

The scandal brought down the Malaysian Prime Minister Najib Razak but has also cast a shadow over Goldman Sachs. The bank helped raise £5billion for the fund and was paid around $600million in fees for their work.

Malaysian prosecutors have accused Goldman of working to ‘dishonestly misappropriate’ money from 1MDB. One of the bank’s former Asia partners Timothy Leissner has pleaded guilty to conspiracy to commit bribery and money laundering and violating anti-corruption laws by bribing foreign officials.

2018 Patisserie Valerie

The cafe chain underwent a rapid expansion in the decade from the mid-Noughties onwards and became a common presence among British high streets.

In 2018 though, trading in the firm’s shares was suspended after the board of directors discovered that overdrafts totalling £10million were in two secret accounts. Finance director Chris Marsh was subsequently arrested.

Patisserie Valerie went into administration in January 2019 and was bought by a management buyout firm for £5million. Another five people were arrested over alleged accounting fraud five months later. The investigation continues.

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Read more at DailyMail.co.uk


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