CORRUPTION AND ETHICS IN GLOBAL BUSINESS

Financial
Scandals
Castillo and Garcia
Financial Scandals ENRON

What to Know Worldcom

Vivendi

Parmalat

Other Financial Scandals

What is Financial
Scandal?
It is a business scandal which arise from
intentional manipulation of financial statements
with the disclosure of financial misdeeds by
trusted executives of corporations or
governments.
ENRON
energy company located in Houston, Texas
• the most infamous financial scandal in
U.S. history
• Fortune magazine had identified Enron
as “America’s Most Innovative Company”
for six years in a row
• Sarbanes–Oxley Act of 2002
• Mark to market accounting
⚬ accounting practices that update the
value of an asset to its current
market levels
Worldcom
one of the world's largest telecommunications
companies
• Long Distance Discount Services, Inc.
(LDDS)
• Two techniques used:
⚬ underreporting “line costs” by
recording them as assets on the
balance sheet
⚬ overstating revenues through
recording fraudulent transactions
regarding “corporate unallocated
revenue accounts.”
Vivendi
French-based multinational corporation, has
operations in music, television and film, publishing,
telecommunications, the Internet, and video games

• reported losses of Euro 23.3 billion for the

financial year 2001-02 which was the
biggest corporate loss reported in French
corporate history.
• Causes of Downfall:
⚬ Heavy Debts
⚬ Misleading Information
⚬ Aggressive Accounting
⚬ Dubious Role of Credit Agencies
Parmalat
Italian-based multinational corporation, specializes in
dairy and food products
• In the late 1990s, Parmalat entered into
world financial markets
• 2001, a number of the new operations
were losing money
• purchasing its own credit-lined notes
• 2003, the company was no longer able
to pay off debts and make bond
payments
• ]the Italian government used the legal
means to save the trademark.
Other Financial
Scandals
• Teapot Dome scandal - Albet Fall
• Edison Power Company- Samuel Insull
• Charles Ponzi
⚬ Ponzi scheme - a type of fraud, also
called a pyramid scheme, in which
money received from later investors is
used to provide returns to earlier
investors, thus giving an appearance of
a profitable investment