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Corporate Scandals and Their Macroeconomic Impact
Corporate Scandals and Their Macroeconomic Impact
Corporate Scandals and Their Macroeconomic Impact
and their
Macroeconomic Impact
Jeff Miller
4/27/2005
Corporate Scandals and Their
Macroeconomic Impact
Macroeconomic Effect
Corporate scandals are not new
Early 1900’s: Charles Ponzi
Ivar Krueger
1920’s: Samuel Insull
or
st
y
1940’s: Richard Whitney
1960’s: GE, Westinghouse
1970’s: Investors Overseas Services
Robert Vesco
Corporate scandals are not new
1980’s
Ivan Boesky Insider Trading
$100 million – 3 years
or
Michael Milken Securities Fraud
st
y
10 years
Charles Keating Savings & Loans
Investors lost $200 million
Source: A Century of Greed, Scams, Scandals and Swindles - A Look at the Seamy Side of 20 th Century Wealth cnn.com
Enron
Rece
Scan
February 2000
dals
nt
Scan
February 2000: Fortune
dals
nt
Magazine
#1 – Quality of Management
#2 – Employee Talent
Energy producer
to an energy trader
to an energy “bank”
Maze of partnerships
Derivatives
Enron – What Happened?
Rece
Scan
“Enron apparently, with the approval
dals
nt
Scan
dals
nt
Most Innovative
Enron
Rece
Scan
Enron Corporation
dals
nt
Corporate
Social
Responsibility
Report
WorldCom
Rece
Scan
dals
$3.9 billion in expenses hidden
nt
Scan
dals
Tax evasion
nt
Evidence tampering
1500 jobs lost
Additional 4,500 laid off
Down $86 billion in one year
from peak share price
Global Crossing
Rece
Scan
dals
Ghost transactions
nt
Scan
dals
nt
Questionable loans
Loss of $6.5 billion in market value
in one year
Company in bankruptcy
Wall Street Analysts
Rece
Scan
Investment Banking Firms
dals
nt
Biased research
10 firms fined $1.4 billion by SEC
Citigroup Salomon Smith Barney
Credit Suisse Group’s CSFB
Merrill Lynch & Co.
Goldman Sachs Group
Morgan Stanley
Source: Regulators Finalize $1.4 Billion Settlement Against Wall St. Firms
- PBS Newshour
Mutual Funds
Rece
Scan
Market Timing
dals
nt
Scan
dals
nt
Largest Insurance broker
Soliciting rigged bids for insurance
contracts
Will pay $850 million
AON Corporation
Second largest Insurance broker
Fraud and anti-competitive practices
Will pay $190 million
Source: “Classic Financial and Corporate Scandals” website
Fannie Mae - Mortgages
Rece
Scan
dals
nt
Avoids trial next year on charges that
KMPG willfully ignored warning signs
related to Xerox’s accounting maneuvers
Largest accounting firm settlement in
history
"This is a fairly egregious fraud on the
part of Xerox, and KPMG didn't live up to
its role as gatekeeper," said Paul Berger,
associate director of enforcement at the
SEC.
Source: USA Today – KPMG to pay $22.5M to settle Xerox questions – 4/19/2005
Widespread Moral Deficit
Rece
Scan
“Accountants held no one to account,
dals
nt
Arthur Andersen
ti
Enron’s Law firm
Investment bankers
Countries with Enron operations
Argentina, Mozambique, India, Poland
Companies in other countries
Shell, BP, Mobil, Total
Source: Ethics in Organizations – Learning From Enron
Enron Wasn’t Just Enron
“Among other states’ pensions affected by
on
ac
ti
Enron’s bankruptcy were California’s
Public Employees’ Retirement System,
which lost $195 million, and the Ohio
Public Employees Retirement System and
State Teachers Retirement System, which
lost about $127 million.”
Source: Texas Retirement System – Slight Loss From Enron Investments
Loss of Confidence
Companies
on
ac
ti
Auditors
Boards of Directors
Credit-raters
FERC – Federal Energy Regulatory
Commission
Wall Street Analysts and
Underwriters
The Stock Market Speaks
on
ac
ti
act
no
Imp National economy reduced
mic
eco
act
no
Unemployment
Source: Cooking the Books: The Cost to the Economy - The Brookings Institution
Estimates of the Costs
Imp Consumer Spending
mic
eco
act
no
Investment
Interest rates
Source: Cooking the Books: The Cost to the Economy - The Brookings Institution
Stock Market
Imp
mic
eco
act
no
act
no
act
no
Imp
Let’s have more scandal!!!!
mic
eco
act
no
Foreign Investors/Companies
act
no
act
Sarbanes-Oxley will reach
no
act
no
Source: Lincoln, Abraham. The Lincoln Encyclopedia - The Spoken and Written Words of A. Lincoln
A Considerable Effect
Stock Market
Public Confidence
vi
w
e
e
Cost of Compliance
Foreign Investors/Companies
w
e
e
Shameless Plug
Ahead
e
vi
e
w
Corporate Scandals
and their
Macroeconomic Impact
Jeff Miller
4/27/2005