Cases of corporate fraud damage the business industry and consumers
Corporate fraud is defined as any illegal conduct taken by a firm or an individual acting in their role as a company employee, intended to benefit the perpetrator.
From falsified bookkeeping to misrepresentation of services, the variety of corporate fraud is a wide spectrum, and is often extremely hard to detect because of its complexity – it can take months for a team of forensic accountants to fully investigate one.
If you are an investor, it is best to be aware of how corporate frauds operate and seek expert opinion to safeguard your money and spare you from any trouble. If you’re in any doubt, it may be worth seeking criminal law advice for a professional opinion. Here are five of the most shocking corporate fraud cases in the last decade that rocked the business world.
The Fall of Enron
The Enron Corporation scandal from 2001-2002 is one of the most infamous examples of corporate fraud. Raking in billions of dollars in revenues at its peak, the energy giant’s leaders used fictitious holdings and tampered with bookkeeping to conceal the truth when the company began to have problems.
Several Enron executives were criminally charged with insider trading, securities fraud, and conspiracy. Founder and former CEO Kenneth Lay was found guilty of six charges of fraud and conspiracy, as well as four charges of bank fraud. He died of a heart attack just before he was sentenced.
The Wells Fargo Cross-Selling Scandal
In 2013, employees at Wells Fargo Bank resorted to corporate fraud to fulfill their daily cross-selling objectives motivated by the bank’s policy of establishing daily sales quotas, which if not met will be added to the next day’s objectives. Employees created new accounts and issued debit or credit cards without the knowledge of customers. They admitted that in five years, about 2 million accounts were established without client authorization.
This corporate fraud boosted short-term revenues, but it wasn’t worth it in the long run. Wells Fargo announced a $185 million settlement, was ordered to pay $3 billion in fines, and lost the trust of its customers.
The Volkswagen Diesel Dupe
In 2015, Volkswagen attempted to circumvent vehicle emission standards around the world by installing special software in around 11 million of its diesel-powered vehicles that could detect when those vehicles were being tested for pollutants and alter the findings in a corporate fraud dubbed as “diesel dupe”.
The company was compelled to pay a $25 billion fine and recall almost 480,000 vehicles in the United States alone. This corporate fraud resulted in the resignation of then-CEO Martin Winterkorn, continuing financial obligations, and lawsuit risk as a result.
The Luckin Coffee Scam
In 2019, the Chinese coffee business Luckin Coffee, which soared from an IPO price of little over $20 in May 2019 to highs of more than $50 per share by January 2020, was exposed to be doctoring its figures.
An internal probe showed that the business had manufactured nearly $310 million in sales in 2019 by selling coffee vouchers in bulk to organizations linked to its chairman and reportedly fabricated a bogus employee to obtain $140 million in raw supplies from vendors as well. Exactly a year after going public, Luckin’s stock plummeted to a low of $1.39 as a result of the two-pronged attack, and the stock remains weak as leaders attempt to fix the mess.
The Wirecard Controversy
In early 2020, accounting auditors discovered a whopping $2 billion corporate fraud by Wirecard, a payment transfer and processing company in Germany. They found a discrepancy between the books and the actual money held by the company.
Like many corporate fraud schemes, Wirecard’s book-tampering had been going on for several years before it was detected. The company was forced to declare bankruptcy, and its CEO was arrested by German authorities.
The Bottom Line
Corporate fraud can happen to any company when bad faith is given a chance to take hold. Utmost care and expert opinion must be taken when considering an investment.
Would you consider asking for expert legal help when you begin investing? Let us know in the comments!