The past few decades have been riddled with accounting scandals that shed light on a wide range of concerns. In a few extreme cases, companies have been forced to close their doors for good because of such debilitating scams.
Here are three of the most notable accounting scams since the beginning of the 21st Century.
1. Exxon Mobil (2000)
In December of 2000, Exxon Mobil was convicted of defrauding the state of Alabama out of royalties they were entitled to from natural gas wells drilled off the coast. End result: Exxon was fined $60 million in royalties, $27 million in interest and $3.42 billion in punitive damages.
Why such a large fine? BBC News published the following statement from an Alabama Circuit Court judge in May of 2001: “Exxon has shown no contrition or even changed its royalty payment calculation. Only a substantial punitive award can punish Exxon and deter it and others.”
The verdict was reversed due to flaws in the evidence, but a new ruling in 2003 set a state record: $63,769,568 in unpaid royalties, $39,235,154 in interest and $11.8 billion in punitive damages. After a rehearing, punitive damages were decreased back down to $3.5 billion to comply with guidelines set forth by the United States Supreme Court. Since the initial lawsuit, Exxon Mobil has undergone several organizational changes. If you’re interested in learning more about how Exxon got its start, check out a brief history on The Payroll Blog.
2. Bernie L. Madoff Investment Securities LLC (2008)
Prior to getting caught up in lies and corruption, Bernie L. Madoff Investment Securities LLC was riding the wave of success, or so it seemed. In 2008, Madoff revealed to his sons that the company was far worse off than what the financials showed. The firm had been operating a complex Ponzi scheme (the biggest in history) for many years, which means they were paying investors with the investors’ money instead of profits. In reality, the stellar performance of securities generating profits were fabricated.
Unfortunately, investors took the biggest hit, with approximately $64.8 billion in losses. To add insult to injury, the news hit the media waves shortly following the onset of the United States’ financial meltdown of 2008. As for Bernie Madoff, he received a 150-year prison sentence and was ordered to pay $170 billion in restitution. The other primary masterminds behind the operation, Frank DiPascali, Jr. and David Friehling, also earned an extended vacation in federal prison, and in 2014, five more former employees of Madoff’s were found guilty of aiding and profiting from the scheme.
[mckenna float=”right”]3. Lehman Brothers (2008)
The downfall of Lehman Brothers, once known as one of the world’s largest financial services firms, began when they filed for bankruptcy on September 15, 2008. The fatal blow: a fabricated $50 billion transaction to Cayman Island banks that was classified as a sale instead of a loan. With the help of executives from the firm and their auditor, Ernst & Young, the company was able to cover their tracks and disguise the alleged sale using the Repo 105 accounting gimmick.
To demonstrate the extent of damages caused by the blatant misstatements, the company’s balance sheet reflected $639 billion in assets and $619 billion in debt at the time of filing, making the bankruptcy the largest in U.S. history.
