(AP) Former Rite Aid Corp. chief executive Martin L. Grass was sentenced to eight years in prison Thursday for conspiring to falsely inflate the value of the company his father founded and cover up the scheme. Grass, 50, who headed up the nation's third-largest pharmacy chain in the late 1990s before being forced out in October 1999, also was fined $500,000 and given three years' probation for his role in a billion-dollar accounting fraud that sent the company's stock tumbling. Before U.S. District Judge Sylvia H. Rambo handed down the sentence, Grass apologized to Rite Aid, its stockholders and employees. "For the harm caused to them, I am truly sorry," he said. Grass was indicted by a federal grand jury two years ago.
Bernard Madoff was a legend” (Gregoriou, et al, 2009). His persona and BMIS came crashing down on December 11, 2008, when he was arrested by the FBI on securities fraud charges. The night prior to the 11th, he confessed to his two sons, who were top employees of the firm, and his wife that BMIS was “a big lie” and amounted to nothing but a huge Ponzi scheme. His sons turned him into authorities and he was arrested the next morning (Gagnier, 2008). BMIS and
These scandals cost investors billions of dollars when the share prices of affected companies collapsed, and shook the publics’ faith in the security markets. When examining the SOX act you can see that since 2002 many things have changed in the past eight years. Corporate governance is one of many things that have changed; Public companies must now have a totally separate audit committee composed of entirely independent directors and must contain one financial expert. Security fraud now has much more extreme punishments for those who commit or conspire to commit fraud. Since the introduction of SOX auditors of public companies must keep documentation of an audit for seven years, destruction of any documentation or evidence that someone has committed fraud is now punishable by jail time and fine.
ACRC: CORPRORATE GOVERNANCE FAILURE AT SATYAM 1. What are the reasons for the inadequate corporate governance at Satyam? The fall of Satyam can be attributed to many causes as mentioned below: * Raju had been manipulating Satyam’s financial books for a period of seven years and the major corporate governance issue was that the Board of Directors and the auditors were unable to catch hold of the issue for so long. * Raju and his family founded a group of companies called Maytas. It was owned by his sons and to ensure billion dollar targets for Maytas, Raju inflated cash and bank balances in Satyam’s financial records.
With a pay package that included more than seven million shares and options, Dunlap stood to make more than $200 million personally if he could keep Sunbeam's stock price flying. In the spring of 1998, when Dunlap and his team ran out of tricks, Sunbeam corrected its books, declared bankruptcy, and the stock price plunged from $53 at its peak to just pennies today. In an ominous harbinger of the Enron scandal, the SEC discovered that Andersen accounting documents had been destroyed. In the case of Waste Management -- which in 1998 issued the largest corporate restatement before Enron -- the company had exaggerated its earnings by $1.7 billion. The SEC's investigation found a long-running cover-up -- not just by Waste Management, but by Andersen as well.
As a result, multitudes became jobless, and the trend went from bad to worse throughout the decade. these accounting anomalies was the heart of all that frauds. The accountancy profession and the role it plays came into focus. Accountants have helped in misleading the public by certifying and endorsing that the financial reports of fraudulent companies were all true and 100% correct. Investors placed their faith in the accompanying audit reports, which
However, the traders were fired once it was revealed that Enron's reserves were gambled away which nearly destroyed the company. After these facts were brought to light, Ken Lay denies having any knowledge of wrongdoing. Needless to say, when required to testify before the U.S. Congress on the reasons for Enron’s collapse, Ken Lay, Jeff Skilling and Andrew Fastow, sought refuge under the Fifth Amendment. Andrew Fastow, Jeffrey Skilling, and Kenneth Lay are among the most notable top-level executives implicated in the collapse of Enron’s. Kenneth Lay, the former chairman of Enron was prosecuted on 11 criminal counts of making misleading statements and fraud.
Brief overview of WorldCom’s case and general discussion of its fraud nature: Beresford, Katzenbach and Jr (2003) stated that, from 1999 until 2002, a few executives at WorldCom perpetrated accounting fraud that led to the largest bankruptcy in history. The principle business strategy of its CEO – aggressive growth through acquisitions underlined its collapse and eventually imposed pressure to management to commit fraud. In fact, WorldCom’s fraud was a consequence of a set of complex factors, including the existence of dominant senior management, structurally weak internal controls, inadequate audits by Arthur Andersen, the poor oversight of the Board, and pressure from Wall Street’s expectation, etc. The large scale collapses of WorldCom and Enron triggered immediate remedies of corporate governance, essentially the Sarbanes-Oxley Act, which aimed to solve the issue of “lack of confidence” in the reported financials. WorldCom’s fraud was an intentional misconduct of the perpetrated senior management that results in an $11 billion material misstatement in the financial statements via two principle forms: reduction of the reported line costs and exaggeration of reported revenues, in order to create an image of increased earnings and revenue and hold the line costs lower than the industry average rather than indicate the truth and fairness of WorldCom’s wealth and progress (Beresford et al, 2003).
The irregular accounting practices, including manipulating stock prices, caused Enron to have to file bankruptcy in December of 2001 (Thomas, 2002). The scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s (Hanson, 2002). Enron collapsed for many reasons. .Among the many reasons were the lack of attention shown by members of the Enron board of directors to the books financial entities and the lack of truthfulness by management about the health of the company and its business operations (Hanson, 2002). The firm’s senior managers had engaged in fraud for an extended period through a scheme in which partnerships owned by the managers could receive payment for goods and services never provided to Enron.
Finally, this position was ended because of the scandal that an employee was charged with manipulating auctions of Treasury bonds. Several senior managers left afterwards. 2 years later, LTCM (long-term capital management) is founded with pursuing the same strategies, it has generated huge returns in the first couple years until Russia defaulted on its domestic debt. Another reason should be VaR’s wrong assumptions. VaR is used under assumption that positions can be undone rapidly at low cost, while it’s not applicable to systems has potential of vicious circle losses like in this case; the assumptions of hacing normal distribution of returns is also not practical; VaR does not inform on the size of loss that might occur beyond that confidence level; It’s being generated by using historical data,