Sam E. Antar's Fraud Case

(3) Sullivan kept bugging Chick Gandil to get Jackson involved and told him to offer $20,000. (1) Lefty Williams went to Joe Jackson’s hotel room one night to give Joe $5,000 in an envelope. (2) Joe refused to accept it and after an argument left his own room. Lefty threw the envelope in the room and left. This was huge in the trial because Joe claimed to never have never have accepted the envelope and Lefty said that he just left it in the room after the argument and that Joe had never accepted it. Because Williams wouldn’t have gained anything from lying for Joe we should believe their testimonies. (2)

Our project team analyzed the Fraud and Illegal Acts Case (True blood Case Studies- Case 08-9), which involves a questionable sales transaction made between Jersey Johnnie’s Surfboard, an SEC registrant, and Mr. Sinaloa, an independent sales representative of the company. As a simplified overview of the case, an external audit firm was hired on to perform a year-end audit of Jersey Johnnie’s Surfboards, Inc. Towards the end of the audit, the engagement partner notified the auditors that there could be a possibility of fraud and illegal acts made by the company.

to the U.S. District Attorney's Office in Maryland. In September 2015, a federal jury convicted Ajrawat,

The word “fraud” was magnified in the business world around the end of 2001 and the beginning of 2002. No one had seen anything like it. Enron, one of the country’s largest energy companies, went bankrupt and took down with it Arthur Andersen, one of the five largest audit and accounting firms in the world. Enron was followed by other accounting scandals such as WorldCom, Tyco, Freddie Mac, and HealthSouth, yet Enron will always be remembered as one of the worst corporate accounting scandals of all time. Enron’s collapse was brought upon by the greed of its corporate hierarchy and how it preyed upon its faithful stockholders and employees who invested so much of their time and money into the company. Enron seemed to portray that the goal of corporate America was to drive up stock prices and get to the peak of the financial mountain by any means necessary. The “Conspiracy of Fools” is a tale of power, crony capitalism, and company greed that lead Enron down the dark road of corporate America.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

In 1998, an angry shareholder who described themselves as “fleeced shareholder” had e-mailed auditors and financial regulators questioning how HealthSouth was cooking their books. It is the date and detail in the e-mail that proves the most frightening. The e-mail displays that the fraud should have been caught long before it was uncovered. Unlike most investors, it was evident that this person had a background in accounting and raised legitimate concerns. Ernst & Young admitted to receiving this email in November of 1998. However, Ernst & Young felt the questions raised by the anonymous writer did not affect the presentation of the financial statements. Moreover, a former bookkeeper of HealthSouth, Michael Vines, also e-mailed Ernst & Young about specific area of fraud. His background qualified for his email to be considered worthy evidence. Nevertheless, Ernst & Young claimed that the accounting practices being question were

Records falsification was not the only illegal activity the Rigas family was wrapped up in. The family used company funds, unbeknownst to their investors, to finance personal endevours and interests. Examples include using corporate money to build a $12.8 million golf course on the Rigas property, using the company plane for personal vacation trips including a safari to Africa, and funding for two Manhattan apartments for his family (Markon, 2014). Not only this, but John Rigas purportedly used the company jet to fly a Christmas tree two times to his daughter in New York (Barlaup, 2009)! All of these incidents are just brief excerpts of the fraud and misuse of company funds that John Rigas and his family committed without any intention of ever paying back into the company. These actions, namely lying and stealing, prove to be the heart of the two moral issues that will be further analyzed.

For instance, Enron that recorded as the seventh largest corporation by its market capitalization in US, averaging $90 per share and worth US$70 billion in 2000, was suddenly collapsed in late 2001. Morrison (2004) asserts that the cause of the collapse is the largest corporate fraud and audit failure. Then, it can be understood that the massive corporate fraud caused by fraudulent financial reporting have contributed to a very sharp decline in the US stock market.

As a result of these precautions and many more, explained in the next section, it took until late 2008 before the scam was exposed, although people had accused the so-called hedge fund for fraud as early as 2001.

The story of Enron’s bankruptcy, an US company that provided products and services related to natural gas, electricity and communications has been one of the most serious cases of unethical practices in the American economy. The company directors in association with their accountants and lawyers created subsidiaries in order to generated false earnings, avoid taxes, inflated assets and hide losses. Finally in 2001 the company lost the credibility in the market and the scandal was exposed affecting thousands of employees and investors. (Tonge, Greer, & Lawton, 2003)

WorldCom CEO Bernard Ebbers, former partner said “He didn’t know anything about the long distance or telephone business, but he knew how to read numbers, he was a number cruncher.”(“Inside”) This should have been a warning sign to those investing in the company that Ebbers wasn’t the best choice to run the 2nd biggest telecom company in America. WorldCom was just one of many accounting frauds that took place in the early 2000’s. But unfortunately that trend of dishonest accounting didn’t stop. The reason behind writing this report is to examine the $11 billion accounting fraud the biggest in US history, the collusion between Ebbers and the CFO Scott Sullivan to deceive investors, causing the loss of thousands of jobs and costing investors billions of dollars. Hopefully covering this event thoroughly will make other CEO’s think twice before stealing investors’ money.

The perfect fraud storm occurred between the years 2000 and 2002 involving two of the largest energy and telecom corporations in the United States: Enron and WorldCom. It was determined that both organizations fraudulently overstated assets, created assets from expenses or overstated revenues, costing investors billions of dollars and resulting in both organizations declaring bankruptcy (Albrecht, Albrecht, Albrecht & Zimbelman, 2012). Nine factors contributed to fraud triangle creating this perfect fraud storm, and assisting management in concealing the fraud until exposed and rectified.

The two stories talk about the meteoric price surge in the stock of a company called Cynk Technology Corporation, with no actual revenue and tangible assets, and the purported manipulation of the stock price through a “pump and dump” strategy. It can be seen how the Securities and Exchange commission together with the Department of Justice unsealed an indictment charging several people with conspiracy, tax fraud and money laundering involving up to $500 million in assets channeled through offshore shell companies that allowed clients to influence stock prices and hide their profits. Generally the scam artists, gain control of an enterprise and offer to sell a block of shares usually to the unsuspecting public with promises of very high returns. Promoters broadcast the company’s prospects by telling financiers to get in early before the rest of the market dives in — the pump. Shares are often bought and sold between nominees to give the appearance of active trading, further amplifying interest as brokers contact clients to buy stock. Once the price starts rising, the control block can be dumped on the market, leaving investors with shares in a nearly worthless business.. It also parleys the increase of penny stock fraud and the Securities and Exchange Commission’s inability to prosecute the fraudsters and protect investors.

Before writing this report, I read some articles from The Economic Times, The Times of India, The Hindu and a blog by Shweta Rajpal. In this report, I have tried to figure out what the scam is all about, how it happened, why it was done and the aftermath, exploring corporate governance issues simultaneously.

There are many definitions for the word fraud available from many sources, for example, dictionary.com defines fraud in a fairly basic sense as “deliberate, deception, trickery, or cheating intended to gain an advantage” (Dictionary.com, 2014). However for the case of this report, the definition by google.com is more appropriate and thorough with “wrongful or criminal deception intended to result in financial or personal gain” (Google). In all instances in the definition of fraud however, it can be concluded that an act or instance of fraud is goes breaks the rules of modern society, and as we shall soon see can frequently break the rules of modern law, and lead to negative legal action against the perpetrators of the fraudulent act.