Assignment No.

01

“FINANCIAL SCAMS”

Subject: Financial Accounting

Submission date: 30-Sep, 2023

Submitted to: Ma’am Aleena Abbas

Submitted by: Rabbia Khalid

Program: 1th Semester MBA (IB) Weekend

INSTITUTE OF BANKING AND FINANCE

BAHAUDDIN ZAKARIYA UNIVERSITY
 Financial Scam of 10 Companies Due To Fake Transparency

Financial Scam of 10 Companies Due To Fake Transparency

SATYAM COMPUTER SERVICES

The Satyam Computer Services scandal, which broke in 2009, was a shocking case of dishonesty
and financial trickery. Satyam was a big IT services company in India, and its founder,
Ramalinga Raju, was at the center of this deceitful plot.

One day, Raju confessed to a colossal financial fraud. He admitted that for years, he had been
faking the company's financial records to make it look much more profitable and financially
stable than it actually was. The fraud amounted to a staggering $1.5 billion.

To pull off this scheme, Raju and his team employed complex tactics. They made up numbers,
lied about how much money the company had, and even created fake clients to make it seem like
Satyam was doing a lot more business than it actually was. It was a big illusion, and many people
were fooled.

When the truth came out, it had a devastating effect. The company's stock price plummeted, and
everyone lost faith in Satyam and its leadership. The impact was felt by thousands of employees,
investors, and others connected to the company.

To try and fix the mess, the government stepped in. They removed the dishonest management
and brought in new people to save the company. Eventually, another company named Tech
Mahindra bought Satyam and worked hard to rebuild its reputation.

This scandal had far-reaching consequences. It made everyone take a hard look at how
companies are managed and watched over. There were changes in how companies were audited
and regulated to make sure something like this wouldn't happen again. It was a wake-up call for
businesses and governments, reminding them to be honest, transparent, and vigilant.

In a nutshell, the Satyam scandal was a big lesson in honesty and trust. It showed the world that
even big and successful companies can be built on lies. It taught us all the importance of integrity
in business and the need for strong rules and oversight to keep everyone playing fair.

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 Financial Scam of 10 Companies Due To Fake Transparency

ENRON

The Enron scandal was a massive case of dishonesty and deceit that rocked the business world in
the early 2000s. Enron, once a respected energy company in the United States, turned out to be
involved in a massive web of lies and fraud.

Enron pretended to be making a lot of money when it was actually losing big. The leaders of the
company did this by playing with the numbers, kind of like how you might cheat at a game. They
lied about how much money the company was making and how much debt it had.

They created special secret accounts to hide their losses and debt. Imagine if you had a secret
hiding spot for your snacks, and nobody knew about it. That's what they did, but with money.
These secret accounts weren't fair or legal.

To keep their stock prices high and investors happy, they lied about how well the company was
doing. It's like saying you have a big box of cookies when you only have a few. People trusted
them and invested their money, thinking they were making a good choice.

When the truth came out, it was like a storm. Enron's stock prices crashed, and lots of people lost
their jobs and their savings. It was a tough time for employees and everyone connected to the
company.

People were very upset because they had trusted Enron, and the leaders had let them down. It
made everyone realize how important it is for companies to be honest and transparent. New rules
were made to make sure companies tell the truth about their finances so that nobody could do
something like this again.

In the end, the Enron scandal taught the world a big lesson: honesty and trust are the most
important things in business. If you're honest and treat people fairly, everyone can succeed. But
if you lie and cheat, things will eventually fall apart, and a lot of people will get hurt.

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 Financial Scam of 10 Companies Due To Fake Transparency

HARSHAD MEHTA STOCKMARKET

Harshad Mehta, a stockbroker from India, was at the center of one of the most infamous financial
scandals in the country's history. The Harshad Mehta scam, which unfolded in the early 1990s,
involved manipulating the stock market to a colossal extent.

Harshad Mehta was a stockbroker who became known as the "Big Bull" due to his aggressive
and manipulative trading strategies. In the late 1980s and early 1990s, he devised a fraudulent
scheme that involved exploiting loopholes in the banking system to manipulate stock prices.

Mehta realized that banks could be used to inflate stock prices artificially. He colluded with bank
officials to fabricate bank receipts, essentially creating fake demand for shares. He used these
fake receipts to obtain massive loans from banks. The funds were then used to buy large
quantities of stocks, which drove up their prices.

As stock prices soared due to his large-scale purchases, Mehta sold these shares at inflated
prices, making significant profits. The profits were used to repay the initial bank loans and pay
off interest, further fueling the illusion of a booming market.

To maintain the facade, Mehta constantly rotated the money through a chain of transactions,
creating a false perception of high trading volumes and robust market activity. He also bribed
officials and manipulated the media to project an image of success and financial acumen.

However, this fraudulent scheme couldn't be sustained forever. When the discrepancies were
eventually discovered, the stock market crashed, causing immense losses to investors. The scam
exposed weaknesses in the banking system, stock market regulations, and oversight mechanisms.

Harshad Mehta and his associates were held accountable for their actions. Mehta faced legal
action and was banned from trading in the stock market. He passed away in 2001 before all legal
proceedings could conclude.

The Harshad Mehta scam had a lasting impact on the Indian financial sector. It led to reforms
and improvements in regulatory and oversight frameworks to prevent similar manipulative
practices in the future. The incident remains a cautionary tale, emphasizing the importance of
transparency, vigilance, and robust regulatory mechanisms in financial markets.

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 Financial Scam of 10 Companies Due To Fake Transparency

WORLDCOM

WorldCom was a colossal corporate scandal that unfolded in the early 2000s in the United
States, revealing massive accounting fraud. It involved the leading telecommunications
company, WorldCom, which eventually filed for bankruptcy in 2002.

WorldCom was once a major player in the telecommunications industry, providing services like
long-distance calling and internet access. However, behind its facade of success lay a web of
deception and financial wrongdoing. The scandal came to light when internal auditor’s
uncovered fraudulent accounting practices within the company. WorldCom's executives,
including its CEO Bernard Ebbers, orchestrated a scheme to inflate the company's profits and
hide its losses.

The primary fraudulent accounting technique used was "capitalizing expenses," where regular
expenses were treated as long-term investments. For instance, normal operating costs were listed
as investments in the company's assets, making the company's financial health seem much better
than it actually was. By manipulating the books and inflating profits, WorldCom painted a rosy
picture for investors and analysts, consequently boosting its stock price. The artificially inflated
stock price allowed the company to make acquisitions and grow, all while masking its financial
instability.

As the company's financial health deteriorated and losses mounted, the executives continued
their fraudulent activities to hide the truth from investors and regulators. The fraudulent practices
involved billions of dollars, making it one of the largest corporate accounting scandals in history.
However, the deception couldn't be sustained forever. In 2002, an internal auditor named Cynthia
Cooper and her team uncovered the accounting irregularities. WorldCom then disclosed the
fraud, which amounted to approximately $11 billion, and filed for bankruptcy protection. The
fallout was immense. Shareholders faced massive financial losses, employees lost jobs, and
pension funds were significantly impacted. The scandal exposed significant weaknesses in
corporate governance, oversight mechanisms, and financial reporting standards.

The aftermath of the WorldCom scandal led to increased regulatory scrutiny, resulting in the
Sarbanes-Oxley Act of 2002. This legislation aimed to improve corporate governance, financial
transparency, and the accuracy of financial reporting to prevent such large-scale fraud in the
future.

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 Financial Scam of 10 Companies Due To Fake Transparency

In conclusion, the WorldCom scandal serves as a stark reminder of the importance of honesty,
transparency, and strict regulatory oversight in the corporate world. It had a lasting impact on
corporate governance and financial reporting standards, ushering in a new era of accountability
and transparency.

BANK OF CREDIT AND COMMERCE INTERNATIONAL (BCCI)

The Bank of Credit and Commerce International (BCCI) scandal was one of the largest financial
frauds and money laundering cases in history, involving a major international bank.

BCCI was once considered one of the world's leading financial institutions, with a presence in
over 70 countries. However, beneath its façade of legitimacy, it was orchestrating one of the
most significant financial frauds of the 20th century.

The scandal revolved around money laundering, fraud, and other illegal activities on a massive
scale. BCCI had a complex and opaque structure that allowed it to engage in these illicit
activities, often operating beyond the reach of regulators.

The bank was involved in facilitating money laundering for various clients, including drug
traffickers, dictators, arms dealers, and criminal organizations. It was also involved in accounting
fraud, concealing its true financial position from regulators and stakeholders.

To maintain this facade of legitimacy, BCCI created shell companies and conducted transactions
through them. They engaged in fictitious loans, document forgery, and other fraudulent activities
to hide losses and inflate assets.

Regulators and law enforcement agencies from multiple countries, including the United States
and the United Kingdom, began investigating BCCI in the late 1980s and early 1990s. Their
investigations revealed a vast network of illegal activities, prompting authorities to shut down the
bank in 1991.

The fallout from the scandal was significant. Depositors lost their savings, creditors faced
massive losses, and the scandal raised questions about the efficacy of global banking regulation.
It also eroded trust in the international banking system.

The BCCI scandal had far-reaching consequences, leading to a reevaluation of banking

regulations and enforcement mechanisms. The incident underscored the need for enhanced cross-
border cooperation and stricter oversight to prevent financial institutions from engaging in
fraudulent and illegal activities.

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 Financial Scam of 10 Companies Due To Fake Transparency

In conclusion, the BCCI scandal was a stark reminder of the dangers of a poorly regulated
financial system. It exposed the vulnerabilities of the international banking sector and
emphasized the critical need for robust oversight and transparency to ensure the integrity of the
global financial framework.

WASTE MANAGEMENT, INC.

The Waste Management scandal in the late 1990s was a prominent case of corporate fraud and
financial misconduct in the United States. Waste Management, Inc., one of the largest waste
management companies in the country, was at the center of this controversy.

Waste Management, Inc. was a giant in the waste disposal and environmental services industry,
responsible for collecting, transporting, processing, and disposing of waste across the United
States and beyond. In the mid-1990s, the company faced immense pressure to show consistent,
positive financial performance to satisfy shareholders and Wall Street expectations.

To meet these expectations, Waste Management engaged in accounting fraud and manipulative
practices to inflate its reported profits and portray a rosy financial picture. The fraudulent
activities involved improper accounting entries and aggressive accounting methods, allowing the
company to overstate its earnings significantly. One of the primary methods of inflating profits
was "Big Bath" accounting, where the company exaggerated future expected expenses, recording
them in the current period to create reserves. These reserves were then used to offset actual
expenses in future years, artificially boosting profits in those years. Another tactic involved
capitalizing costs that should have been expensed immediately. For instance, costs related to
repairs and maintenance were capitalized and spread over multiple years, making the expenses
seem smaller and profits appear larger than they actually were.

These fraudulent accounting practices were executed with the assistance of Arthur Andersen,
Waste Management's auditing firm at the time. The auditors, instead of acting independently and
uncovering the discrepancies, were involved in approving and facilitating the fraudulent
accounting maneuvers.

The scheme eventually collapsed, and in 1998, the Securities and Exchange Commission (SEC)
exposed the accounting fraud. Waste Management restated its earnings for several years,
resulting in a massive reduction in reported profits. The revelation led to a sharp decline in the
company's stock price and significant losses for investors.

In the aftermath of the scandal, Waste Management faced lawsuits, regulatory penalties, and a
loss of investor trust. The scandal highlighted the importance of transparency, accurate financial
reporting, and the role of auditors in upholding ethical accounting practices within publicly
traded companies.

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 Financial Scam of 10 Companies Due To Fake Transparency

In conclusion, the Waste Management scandal serves as a reminder of the dangers of financial
manipulation and the critical need for honest and transparent financial reporting. It underscores
the vital role that regulators, auditors, and shareholders play in maintaining the integrity of
financial markets and ensuring companies adhere to ethical accounting standards.

HEALTHSOUTH

The HealthSouth scandal in the early 2000s was a significant case of corporate fraud in the
healthcare sector in the United States. HealthSouth Corporation, one of the largest providers of
outpatient surgery, diagnostic imaging, and rehabilitative healthcare services, was at the center of
this scandal.

HealthSouth, led by its CEO Richard Scrushy, was once a prominent and respected player in the
healthcare industry. However, behind the scenes, the company was involved in a massive
accounting fraud scheme that came to light in 2003. The accounting fraud at HealthSouth was
elaborate and involved inflating the company's earnings to meet or exceed Wall Street
expectations and maintain a high stock price. The scheme was orchestrated by top executives,
including Scrushy, and involved altering the company's financial statements to overstate assets
and revenues. The fraudulent practices included inflating revenues, understating expenses, and
creating fictitious transactions. HealthSouth's executives manipulated the company's books and
records to make it appear more profitable and financially stable than it actually was.

To maintain the illusion of financial health, the executives engaged in a practice known as
"cookie jar accounting." They improperly reported reserves and released them in later years to
boost profits during periods of underperformance, creating a misleading trend of consistent
earnings growth. Moreover, the company fabricated revenue through fraudulent accounting
entries, such as recognizing revenue from services that were never provided or inflating the cost
of assets to overstate their value on the balance sheet.

The fraud eventually came to light when an internal whistleblower, Weston Smith, a CFO at
HealthSouth, reported the irregularities to the board and the government. Following this
revelation, the SEC and the FBI initiated investigations into the company's accounting practices.

In 2003, Richard Scrushy was ousted as CEO, and criminal charges were filed against him for
his involvement in the accounting fraud. Subsequently, HealthSouth restated its earnings,
acknowledging that the financial statements from 1999 to 2002 were materially incorrect. The
scandal resulted in a loss of billions of dollars in shareholder value, legal penalties, and damaged
reputations for the company and its executives. It also raised concerns about corporate
governance, the role of auditors, and the need for stronger oversight and regulation in the
healthcare industry.

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 Financial Scam of 10 Companies Due To Fake Transparency

In conclusion, the HealthSouth scandal serves as a stark reminder of the importance of

transparency, ethical accounting practices, and effective corporate governance. It underscores the
need for vigilance in detecting and preventing fraudulent activities within organizations to
protect investors and maintain trust in the financial markets.

TYCO INTERNATIONAL

The Tyco International scandal in the early 2000s was a high-profile case of corporate fraud and
misconduct that rocked the business world. Tyco International, a multinational conglomerate
known for its security, fire protection, and other diversified products and services, was at the
center of this scandal. At the helm of Tyco was Dennis Kozlowski, the CEO, and Mark Swartz,
the CFO, who were the masterminds behind the fraudulent activities. Their actions involved
looting the company's finances through a series of unethical and illegal practices, leading to one
of the most infamous corporate scandals of the early 21st century.

The primary fraudulent activities included insider trading, fraudulent accounting, and
unauthorized compensation. Kozlowski and Swartz were involved in backdating stock options,
which allowed them to purchase shares at reduced prices, making huge profits when they sold
them. Additionally, the executives engaged in accounting fraud to portray a better financial
image of Tyco. They inflated the company's revenues and understated its expenses, creating a
false perception of profitability to investors and analysts. The accounting manipulations involved
improper capitalization of expenses and fraudulent reporting of earnings.

A significant component of the scandal was the unauthorized compensation received by

Kozlowski and Swartz. They took hefty bonuses and loans from the company without proper
authorization from the board of directors or shareholders. The loans were then forgiven or
forgotten, essentially turning them into fraudulent compensation.

The executives used various means to hide their fraudulent activities, including creating secret
slush funds and off-balance-sheet entities. They would move money in and out of these entities
to conceal their actions and deceive stakeholders and regulators.

The scandal came to light in 2002 when suspicions were raised about the company's finances and
the luxurious personal spending of Kozlowski, notably an extravagant birthday party for his wife
funded by Tyco. An internal investigation revealed the extent of the financial misconduct.
Kozlowski and Swartz were indicted on multiple charges, including grand larceny, conspiracy,
and securities fraud. They were found guilty in 2005 and sentenced to imprisonment. The Tyco
scandal had far-reaching consequences, severely damaging the company's reputation and eroding
trust in corporate America. It also led to regulatory and legislative changes aimed at improving

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 Financial Scam of 10 Companies Due To Fake Transparency

corporate governance, transparency, and accountability to prevent such incidents from occurring
in the future.

In conclusion, the Tyco scandal underscores the importance of ethical leadership, transparent
financial practices, and effective oversight. It serves as a cautionary tale, highlighting the
devastating impact of greed and financial manipulation on corporations, investors, and the
broader economy...

HASCOL

The Hascol scam revolves around a colossal case of financial fraud and money laundering
amounting to over Rs54 billion by Hascol Petroleum Ltd (HPL), major petroleum company in
Pakistan. The scandal involved collusion between HPL's directors, management, stakeholders,
and officials of National Bank of Pakistan (NBP) and other commercial banks from 2015 to
2020.

The fraudulent activities included obtaining bank loans and financing facilities from NBP, often
in violation of prudent banking laws and practices. HPL inflated its revenues and understated
expenses through deceptive accounting practices, creating a false impression of financial health.
This manipulation amounted to criminal breach of trust, causing wrongful losses to the NBP and
the national exchequer while benefiting Hascol.

The scam also involved illicit borrowing relationships with banks like Summit Bank and NBP,
with the latter increasing its exposure to HPL significantly. Notably, key individuals within the
NBP, such as Syed Iqbal Ahmed Ashraf and Saeed Ahmed, allegedly abused their positions,
facilitating the extension of substantial financial facilities to HPL.

Evidence emerged of funds being siphoned off through middlemen for bribing bankers, with
significant amounts transferred without proper contracts. Fake LCs (Letters of Credit) were
created, increasing liquidity for Hascol and involving a substantial sum of Rs95 billion.
Additionally, the company engaged in over-invoicing and illegal fund transfers outside Pakistan,
amounting to millions of dollars.

The investigation also revealed tax evasion by Hascol, potentially amounting to Rs4-5 billion,
and fraudulent petroleum product dumping through middlemen, causing a loss of Rs9 billion to
the company.

Overall, the Hascol scam highlights the complex network of financial malpractice, fraud, and
money laundering that took place within the company and involved key stakeholders. The
investigation sheds light on the need for tighter regulations, improved corporate governance, and
stringent measures to curb such fraudulent activities in the future.

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 Financial Scam of 10 Companies Due To Fake Transparency

OLYMPUS CORPORATION

The Olympus Corporation scandal was a significant case of corporate fraud and financial
misconduct that unfolded in the early 2010s. Olympus, a renowned Japanese manufacturer of
optical and reprography products, faced allegations of a massive accounting cover-up that came
to light in 2011.

In October 2011, the CEO of Olympus Corporation, Michael Woodford, was abruptly fired after
raising concerns about suspicious acquisitions and accounting irregularities within the company.
Woodford, the first non-Japanese CEO of Olympus, had been digging into some questionable
transactions that he found puzzling.

These transactions were related to the acquisition of companies with seemingly high premiums,
such as the purchase of Gyrus Group in 2008 and three other small Japanese companies in 2009.
The prices paid for these acquisitions were significantly above market standards, leading to
suspicions of financial misconduct.

As Woodford delved deeper into the financial records, he discovered a complex web of
fraudulent activities. The company had been concealing losses by using improper accounting
techniques, particularly through inflated advisory fees and overvalued acquisitions. The motive
behind this fraud was to offset past investment losses and present a healthier financial image to
shareholders and stakeholders.

Olympus had set up offshore entities to facilitate these questionable transactions. The funds from
these entities were then used to cover the losses and create a false appearance of profitability.
Additionally, some of the inflated payments were traced to criminal syndicates, making the
scandal even more alarming. Upon discovering the magnitude of the accounting fraud, Woodford
blew the whistle and brought the matter to the attention of regulators, shareholders, and the
media. This revelation led to a massive drop in Olympus' stock price and triggered investigations
by authorities in Japan, the United States, and the United Kingdom.

In the aftermath of the scandal, several top executives were either fired or resigned. The
company faced legal actions, including lawsuits from shareholders for the loss in stock value.

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 Financial Scam of 10 Companies Due To Fake Transparency

Ultimately, Olympus admitted to the fraudulent activities and restated its financial statements,
revealing a substantial accounting hole of over $1.7 billion.

The Olympus scandal served as a wake-up call regarding corporate governance and
accountability in Japan. It highlighted the need for greater transparency, stronger regulatory
oversight, and a cultural shift to encourage internal reporting of misconduct. The scandal's
impact reverberated through the business world, emphasizing the importance of ethical conduct
and honest financial reporting to maintain trust and credibility.

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