10 Stories of White Collar Crime Run Amok
From Enron to Bernie Madoff's scheme, these tales of white collar crime will definitely have you rethinking investments.
If you ask most people what a criminal looks like, acts like, or does, they will talk about what criminals stereotypically are. Criminals are supposed to look rough. They're supposed to be violent, uneducated, and up to their wrists in drugs.
When you hear the word "criminal," you don't really think about people who are in suits and ties. You don't think about individuals with an MBA from Wharton or working a high-powered executive position in a publicly-traded company.
Yet, that's exactly what white collar criminals look like.
White collar crime is at an all-time high. It's a class of crime marked by corruption: rigging the stock market, bilking investors out of money, or otherwise doing crimes involving commerce.
Most of the time, this type of crime doesn't make major news headlines, or if they do, they're called money making schemes that are brushed under the rug. That's why, when it does, it's a doozy. These stories show how far greed goes in the white collar world and what happened to everyone involved.
Enron was once one of the most highly respected energy companies to hit the stock market. It was an "evergreen" stock that was known for raking in profits during times of trouble and for having excellent management.
Until, of course, reality hit.
People began to question how Enron was able to create such enormous revenues. Enron's alleged revenues of $101 billion were found to be the product of institutionalized fraud, willfully negligent accounting, and some of the most corrupt practices ever seen.
Arthur Andersen, the accounting firm that handled Enron's books, was also embroiled in the scandal. Arthur Andersen has never been able to recover from its ruined reputation, and went from a "Big Five" firm to a total dissolution within years.
Enron's stock went from $90 to pennies, flatlining after the corporation was forced to file Chapter 11 bankruptcy. It was the largest Chapter 11 bankruptcy filed in history.
The ricochet from the white collar crime perpetuated by this company were felt throughout the country. The Enron scandal was the reason why the Sarbanes-Oxley Act was passed, and why other major corporations came under scrutiny by the SEC.
Two people served time due to the crimes committed at Enron: CEO Jeffrey Skilling and COO Andrew Fastow. Fastow served six years, while Skilling served 24 years and four months. Kenneth Lay, who initiated the scamming, died before he could be sentenced.
Shortly after Enron was caught using using corrupt accounting practices, officials began to take a look at other companies to determine whether fraud was happening there, too.
Worldcom was one of the companies that was caught in the wake of investigations into white collar crime after Enron. CEO Bernard Ebbers noticed that telecom was in decline and had decided to make up for it by using accounting fraud to falsify profits.
Worldcom fudged cost lines and revenues to the tune of $3.8 billion, defrauding investors by artificially inflating its stock price. Upon being caught, Worldcom ended up suffering the same fate as Enron.
Oddly enough, Worldcom's dissolution was the second largest Chapter 11 bankruptcy. Ebbers was sentenced to 25 years in prison for fraud shortly after he resigned from Worldcom.
It just goes to show you that following a bad example will lead you to similarly bad results. This puts many online business schemes to shame, don't you think?
During the late 2000s, the telecom industry was a very different world. Many telecom companies were booming—or so it seemed, until revelations of white collar crimes came to light.
One of the biggest telecom providers in the United States was Adelphia, and it was suffering under the telecom bust. However, it wasn't the telecom industry's struggles that did it in.
CEO John Rigas and his family was caught embezzling around $3.1 billion from the company's funds and from investors. The company immediately tanked, and Rigas was sentenced to 15 years in prison.
Most people have heard of the term "Ponzi Scheme" at least once in their lives, but many don't realize Ponzi was a real person. This category of white collar criminal activity is named after Charles Ponzi, a crook from the 1920s.
Ponzi talked investors into buying into his company, then used their money to buy discount postage stamps. He promised guaranteed returns and people listened. As more investors came in, he used new investors' money to pay dividends to the original investors.
Ponzi served 14 years in prison and died penniless.
Tyco International was yet another company that got caught in the web of intensified scrutiny of major corporations during the early 2000s. This security system company was headed by CEO Dennis Kozlowski and CFO Mark Swartz.
Prior to the scandal, Kozlowski was known for his aggressive acquisition of companies under the corporation's umbrellas and for spearheading a massive expansion that landed Tyco on the S&P 500. The company was even a darling of the best S&P 500 index funds due to its seemingly solid foundation.
In 2001, Kozlowski was named one of the top 25 corporate managers in the world by Business Insider. A year later, it was discovered that both Kozlowski and Swartz had stolen about $150 million from the company and investors.
A clear case of embezzlement, the money was used to supply an excessively lavish lifestyle—including a $2 million party for Kozlowski's wife. The money went quick and the company folded.
As for the men behind the theft, a mistrial was declared after a juror was spotted giving the "OK" gesture to one of them. After the juror's name became public, jurors were given death threats and were viewed as compromised.
They were then tried once more. Both Swartz and Kozlowski were sentenced to eight years in prison after the conclusion of the second trial.
HealthSouth is a name that many medical care providers might recognize from the early aughts, primarily because it shows what happens when you mix white collar crime with healthcare.
This massive chain of hospitals and specialty clinics made international headlines after auditors discovered a jaw-dropping $2.7 billion in accounting fraud, along with $500 million in incorrect accounting.
The Department of Justice notes that HealthSouth paid the government over $325 million for defrauding Medicare. Richard Scrushy, who led the company at the time, was charged with 84 counts of fraud. At least six former CFOs have been charged as well.
Scrushy was acquitted but would later serve six years for mail fraud-related crimes.
Remember when Wells Fargo was opening banks across the country and spreading like wildfire? The bank became one of the most popular in the nation and boasted record profits as America came out of the Great Recession.
Everything was going well and investors loved Wells Fargo for quite some time. However, all was not as it seemed. The company's employees were opening up accounts in users' names without telling them as a way to boost profits.
Around 1.5 million fraudulent accounts were opened by people who wanted to keep up with increased demands from management since 2011. Customers were also charged fees based on those fraudulent accounts.
The crimes were so widespread, it wasn't certain who they should indict. Wells Fargo was ordered to pay $185 million in fines and refund $5 million to clients.
Though Marcus Schrenker wasn't rolling in funds as large as others on this list, his case was so dramatic and twisted that it's hard not to mention. Schrenker was the owner and operator of three different financial companies—all of which worked with million-dollar retirement accounts.
When Schrenker was found defrauding his clients by failing to inform clients about high fees associated with switching annuities, the fees cost clients $250,000 each. The victims filed a complaint with Indiana's Department of Insurance.
An investigation was launched after his financial advising license expired and Schrenker realized how screwed he was. So, like any normal human being, he decided to fake his death in a plane crash by parachuting out at the last moment.
He was caught and sentenced to four years in prison.
Bernie Madoff was in the perfect position to pull a Ponzi scheme. He founded Bernard L. Madoff Investment Securities, rose through the Wall Street ranks to become a thought leader, and eventually held a position as the non-executive chair of the NASDAQ exchange.
So, when Madoff offered a specialized account that he claimed would offer guaranteed returns when clients wanted to cash out, people trusted him. Madoff himself claimed that the returns his fund obtained came from "split-strike conversion," a legitimate trading strategy.
In reality, all he did was store the money in an account and send money to people who wanted to leave the fund at his discretion. He would pocket whatever people didn't spend and use it for his own funds.
When the market took a downturn in 2008, Madoff could no longer keep the scheme going. It fell through. Madoff admitted his fraud to his sons, who quickly turned him into the police. It was then revealed that Madoff had defrauded investors of over $50 billion dollars.
To date, this is the most expensive of all the Ponzi schemes ever committed. Entire retirement accounts were wiped out, and many investors found themselves penniless overnight.
Madoff pled guilty to 11 felony counts, including money laundering, wire fraud, mail fraud, securities fraud, and more. He was sentenced to 150 years in prison for his crimes, where he allegedly still asked people to invest with his advice.
However, Bernie himself was not the only one who was hit with charges. Many of his coworkers were also indicted and served prison sentences. His eldest son later committed suicide after being ostracized due to his father's actions.
Allen Stanford was the head of Stanford International Bank, and was one of the first American men to be knighted by a Commonwealth nation. Business was booming, and he was able to sell $8 billion dollars worth of Certificates on Deposit to investors.
His standing was golden, but it all fell apart when it became clear that the returns he offered on Certificates of Deposit would never materialize and that his bank's profits were fraudulent. He overstated bank assets by billions, funneled $1 billion into personal loans, and even overstated how much his Antigua island was worth.
Believe it or not, it wasn't the SEC or the IRS that caught Stanford in the act. Rather, it was a casual investor who asked for a second opinion that uncovered the problems. Alex Dalmady, who was hired to do due diligence on the independent investor's investment found a $50 billion hole within hours of his work.
Dalmady then posted about it on his blog... and then Stanford was caught. It makes you wonder how many other white collar crimes could be uncovered by careful blog reading, doesn't it?