Biggest Accounting Fraud in History

The BBQ Pit
41

(1) Sniff What’s that? Mmmmmmm, red herring!!!

When the FASB started making motions to tighten accounting standards, the Republican Congress slapped them down in the late 1990s. So yes, there does exist govt. corruption and misinformation. The best examples of this is when they betray the public trust to protect their corporate masters.

(2) Too frickin few, honcho. (a) Ok, (toning down the rhetoric a tad) I presume that most companies stay within GAAP. The problem is that GAAP has been prevented from keeping up with advances in creative accounting. Specifically, net earnings since the mid 1990s have been massively underestimated due to company’s ability to define stock options granted to top executives as something other than a cost.

I’m talking about sums topping $100 billion dollars - that’s something like 1/4 or more of reported profits.

(3) Until around 1996, the US had the best, most advanced capital market in the world. That it should have mutated into something more corrupt is an outrage and scandal that should exercise the entire political spectrum, sane Libertarians included.

42

Spooje’s prediction:

Not one of them will see the inside of a jail cell. Nor will any Enron executive. You can count on it.

They should be in the slammer…but they won’t get there. There will be some fining and some gentle wrist-slapping…

43

No sirree. The implication was that there should be much tighter government restrictions on big businesses, as if more government would equal less corruption.

That’s a very cute assumption on your part, but you’re forgetting that if the Republican party simply disagreed with big restrictions on businesses in the first place, we’d see the exact same result.

Perhaps, but I haven’t any hard evidence on it… and I’ll bet that you don’t, either. To point to TWO instances - out of dozens upon dozens - of poor accounting and corruption and using that as proof of “The system doesn’t work!” smacks highly of knee-jerk sensationalism.

44

The problem with Enron and WorldCom is not poor government regulation, the regs are there, perhaps outdated, but they are there. The problem, IMHO, is the almost criminal actions of Arthur Anderson. They were hired by the stockholders to audit the books that managment submitted. That is why every annual report carries the same sort of certification that I quoted above. The auditors are stating to the stockholders “we checked the books, and they are A-OK.”

AA failed to do their job. This is not “failing” along the lines of incompetance, this is “failing” along the lines of doing the exact opposite of what they were hired to do. Rather than uncover improper accounting practices, they chose to hide them.

The depth of my contempt for AA knows no bounds. They were hired to protect shareholders, and instead chose to defraud them. My only hope in this is that the other big accounting firms get to watch AA crash and burn, taking all the employees down with it. If they see AA fall apart, perhaps they will look at themselves and make sure they don’t suffer the same fate.

45

Fuck you, pal.

Around a third of my friends and colleagues have lost their jobs through no fault of their own. Guess how many worked on Enron, or WorldCom, or any other high-profile client? How about the entire finance department? Or the technology support and facilities staff?

I have no qualms about seeing those involved punished. I know a lot of employees of other companies and innocent shareholders have lost their livelihoods. That’s why statement like yours wishing job losses on others not involved in causing these situations strike me as insensitive at best and pig-ignorant at worst.

46

Um . . . can I please ask why anyone is assuming that libertarians (or Libertarians) would be even remotely supportive of an atmosphere in which corporations are able to purchase legislation which allows them to lie when reporting financial information?

The Noncoercion Principle–the guiding principle of libertarianism-- I should remind you, states that people should be free from initiated force or fraud. Now, enticing Congressmen to create a legislative atmosphere permitting rampant dishonesty and lying to your investors in order to increase your own wealth would be what? Anyone? Five letter word, rhymes with “baud.”

47

Arthur Anderson defrauded their clients. They were the security company that decided to steal from their customers. They helped management hide the company’s deficiencies from the stockholders, when they were supposed to reveal them. They are a rotten piece of shit company, and their acts are creating a serious lack of confidence in our country’s entire stock market.

They have created a situation where the average investor, and the market analysts themselves, do not have the slightest idea if a company is solid or falling apart. They have caused untold numbers of people to lose their jobs, through their own fradulent policies.

Banks loaned money to Enron and WorldCom, on the assumption that the books were correct. That money could have gone to good companies that would grow and earn more money. Instead, that money went down a fucking toilet, thanks AA! Investors decided to buy into these companies instead of others that are actually solvent, thanks AA! How many people have lost huge portions of their retirement savings thanks to Arthur Anderson?

I bet half the people on these boards don’t really know if their company is solvent. They’re hoping that their company didn’t participate in this sort of fraud, only to go belly up in the next 6 months.

This type of shit doesn’t start and end with the upper echelons of management. The worker bees have to agree to this stuff too. The individuals working on these contracts knew damn well (or should have known) that their customers were violating standard accounting rules, and decided to keep quiet.

People around me got laid off too, and my company didn’t commit billions of dollars of fraud against our customers, we just didn’t make enough profits last quarter. Boo fucking hoo. I have friends and family that are unemployed, you know why… because their company defrauded their clients, and destroyed confidence in our nation’s stock market? No, because their company wasn’t profitable enough.

We had all just better hope that Arthur Anderson is the only big auditor doing this shit, if the other companies are, we are really headed for disaster.

48

Well, if you would not frame it in quite such a manner as to be self-serving for the libs, it would likely be rather clearer, even elementary. Reflect for a moment, if you will, on the prevalence of ‘self-regulation’ arguments in the libertarian side of … I hesitate to call it economics, perhaps their belief system.

Rather in this line of argument, some subset -I hesitate to try to characterize the ratio- of libbies have argued against the very existence of government regulation of markets, and barring that, for the weakest possible oversight. See spoofe supra for the usual clear-headed thinking on these matters.

It is a wonderful world, abstracting away from costs of one’s own pet project.

Yes, wonderful principle. Rather like that “Thou Shalt Not Kill,” “Love Thy Neighbor” etc. platitudes that have worked so well over the years in governing behaviour.

49

[1] Even if (and I don’t know) the tiny number of ‘worker bees’ involved knew something was going on, how does that justify your glee at anywhere up to 80,000-odd people losing their jobs? I’m not taking issue with what happened, just your reaction to it. Surely, by the same token, those WorldCom and Enron employees deserved their redundancies - after all, some of them must have known what was going on, right?

[2] You bet all audit firms are involved. The regulatory framework is weak enough that only a fool would believe it could only happen once. Not even small audit firms can guarantee true independence in the current set-up.

[3] (nitpick, I know) It’s Andersen, not Arthur Anderson.

50

I’m not saying the worker bees shouldn’t have jobs, just that Andersen as a corporation deserves what it gets. Every contract that Andersen loses will be picked up by some other firm, and that firm will need experienced workers to perfom the contract. There isn’t an unlimited supply of skilled labor out there, a whole lot of of these people will get picked back up.

Corporate America is a brutal place, and people get laid off for reasons a lot less striking than what is going on with these three companies. All three had/have problems deep within themselves that are causing them to fall apart, the same thing happens to other companies, just not as spectacularly. Andersen really, really, screwed the pooch, I don’t really want the individuals to get hurt, but a message MUST be sent that this type of stuff is unacceptable.

You’re right, all the firms do things like this from time to time, I just hope that there aren’t any more quite this big floating around.

51

Well, Coll, I can’t speak for Spoofe, only for me. And while the kinds of kooks that characteritize the Libertarian Party outside the SDMB may believe more along the lines you’re talking about, I would wager a sizeable amount of money that most Dopers who self-identify as “libertarian” are highly opposed to a system in which companies are allowed to, essentially, steal people’s money with impunity. It is most decidedly not a good thing.

As far as guiding principles go, there are certainly people who would take noncoercion or any other and try to make it a “whole of the law” kind of thing. I’m not one of them. A guiding principle is just that–guiding. All other principles and legislation should be derived with that guidance in mind, but it isn’t a summation except in the most literal sense.

52

Okay, that’s cool. Your first post seemed to suggest that the employees deserved to suffer, which seems harsh given the vast majority were no more responsible than, say, Enron shareholders. I don’t have any problems with companies facing the punishment the market sees fit to dole out.

I’m not so concerned about people in my friends’ position, since they will probably find something else. I’m more concerned for the thousands of support staff – secretaries, security guards, caterers, receptionists, finance clerks etc – who were the first to go when job losses hit.

53

Well, Price-Waterhouse (or Pricewaterhouse-Cooper–I don’t remember the exact chronology of the scandal and the merger) was caught in an almost identical mess in Florida just a couple of years ago.

I have worked at companies where KPMG was involved and know that they are generally open to “explanations” from management.

Ernst & Young is generally respected, but I have heard about an incident in which their loyalties appeared given to the officers who could arrange their next contract rather than to the company as a whole. (And, of course, unless they have cleaned up Cap Gemini, that does not speak well of them.)

Your better bet is to hope that fewer companies have been playing the WorldCom games (old-fashioned lies) and the Enron games (creative accounting) and that there are simply few corporations with such exposures.

54

These numbers are seriously mangled. I retract that statement and hope to elaborate later.:smack: :smack: :smack:

55

Ok, before I try to reconstruct the proper numbers, let me get some items out of the way.

rjung, SPOOFE and I have been trading wisecracks. Nonetheless, as PLDennison has noted, no sane Libertarians will tolerate fraud; for example Nozick’s minimal state easily allows for a strong Securities and Exchange Commission (SEC).

As for SPOOFE’s point on fraud: As a response to rjung’s wisecrack, it was ok (notwithstanding my attempt at a followup). Within this context though, I’ll assert that the aggregate fraud perpitrated by the SEC is but a tiny fraction of the fraud commited by Corp America. Thus, it makes sense to empower SEC to regulate the latter. The fact that corp america is larger by 4-7 orders of magnitude than the SEC (and has proportionately? higher fraud levels) only underscores the strategic advantage a small regulator (or police dept) has in controlling crime.

Again though, I know of no serious people who would really disagree on this narrower point, SPOOFE included (IMHO).

SPOOFE’s 2nd point, that I haven’t demonstrated that our system is rotten to the core, is correct. Patience, young Jedi, while Master Flowbark prepares the appropriate argument in GD. Or tries to.

56

Bastards.

My UNCLE works for Worldcom. Fuckers. My mother just told me that today. He’s only been there three years.

That fucking sucks.

57

One interesting aspect that has not been adequately commented on regards the speculation as to whether the CEOs of the companies (Lay & Ebbers) were aware of the deceptions. There’s been much speculation about it, but apparently it is thought to be at least possible that they were genuinely unaware. To me, this is one of the scariest aspects of the entire scandals - that you could be the CEO of the company, making having ultimate decision-making authority, and be unaware of the most basic information about your business, i.e. whether you are making or losing huge amounts of money. Incredible.

58

Yes, if they take a few moments, but then recognizing certain failings of libertarianism’s self-help model doesn’t seem to be a strong point. Structural issues. Structural.

Nothing that a good critical study of game theory, behavioural economics and application of critical thinking to one’s one suppositions might not cure.

However your question was as to why commentators would presume that libertarians might be sanguine as to the crisis. The answer is look to the argumentation by libertarians in regards to the very issue.

Very good, but you know very well that the most vocal proponents, self-identified, of the line of analysis have frequently applied rather magical thinking as to the principal’s application.

59

As far as the stock in accounting firms goes they are forbidden from being publically traded. Ownership interests must be held by the firms’ individual partner/members. Only another accounting firm can buy out an accounting firm. Andersen is being bought up -or sold out, depending on how you look at it - piece by piece by competitor firms within each market.

60

Hard evidence provided here.

That new thread was my 1000th post, by the way. (Woo-hoo!)