Recent Business Scandals

April, 2002 Adelphia Communications

Founding Rigas family collected $3.1 billion in off-balance-sheet loans backed by Adelphia; overstated results by inflating capital expenses and hiding debt.

Three Rigas family members and two other ex-executives have been arrested for fraud. The company is suing the entire Rigas family for $1 billion for breach of fiduciary duties, among other things.


July, 2002 AOL Time Warner

As the ad market faltered and AOL's purchase of Time Warner loomed, AOL inflated sales by booking barter deals and ads it sold on behalf of others as revenue to keep its growth rate up and seal the deal. AOL also boosted sales via "round-trip" deals with advertisers and suppliers.

Fears about the inquiry intensified when the DOJ ordered the company to preserve its documents. AOL said it may have overstated revenue by $49 million. New concerns are afoot that the company may take another goodwill writedown, after it took a $54 billion charge in April.



November, 2001 Arthur Andersen

Shredding documents related to audit client Enron after the SEC launched an inquiry into Enron.
Andersen was convicted of obstruction of justice in June and will cease auditing public firms by Aug. 31. Andersen lost hundreds of clients and has seen massive employee defections.



July, 2002 Bristol-Myers Squibb

Inflated its 2001 revenue by $1.5 billion by "channel stuffing," or forcing wholesalers to accept more inventory than they can sell to get it off the manufacturer's books. Efforts to get inventory back to acceptable size will reduce earnings by 61 cents per share through 2003.


May, 2002 CMS Energy

Executing "round-trip" trades to artificially boost energy trading volume. Appointed Thomas J. Webb, a former Kellogg's CFO, as its new chief financial officer, effective in August.


July, 2002 Dynegy

Executing "round-trip" trades to artificially boost energy trading volume and cash flow. Currently conducting a re-audit. Standard & Poor's cut its credit rating to "junk," and the company said it expects to fall as much as $400 million short of the $1 billion in cash flow it
originally projected for 2002.


May, 2002 El Paso

Executing "round-trip" trades to artificially boost energy trading volume Oscar Wyatt, a major shareholder and renowned wildcatter, may be engineering a management shakeup.


October, 2001 Enron

Boosted profits and hid debts totaling over $1 billion by improperly using off-the-books partnerships; manipulated the Texas power market; bribed foreign governments to win contracts abroad; manipulated California energy market. Ex-Enron executive Michael Kopper pled guilty to two felony charges; acting CEO Stephen Cooper said Enron may face $100 billion in claims and liabilities; company filed Chapter 11; its auditor Andersen was convicted of obstruction of justice for destroying Enron documents.


Febuary, 2002 Global Crossing

Engaged in network capacity "swaps" with other carriers to inflate revenue; shredded documents related to accounting practices..
Company filed Chapter 11; Hutchison Telecommunications Limited and Singapore Technologies Telemedia will pay $250 million for a 61.5% majority interest in the firm when it
emerges from bankruptcy; Congress is examining the role that company's accounting firms played in its bankruptcy.


May, 2002 Halliburton

Improperly booked $100 million in annual construction cost overruns before customers agreed to pay for them.Legal watchdog group Judicial Watch filed an accounting fraud lawsuit against Halliburton and its former CEO, Vice President Dick Cheney, among others.


January, 2002 Homestore.com

Inflating sales by booking barter transactions as revenue. The California State Teachers' Retirement pension fund, which lost $9 million on a Homestore investment, has filed suit against the company.



January, 2002 Kmart

Anonymous letters from people claiming to be Kmart employees allege that the company's accounting practices intended to mislead investors about its financial health. The company, which is in bankruptcy, said the "stewardship review" it promised to complete by Labor Day won't be done until the end of the year.


July, 2002 Merck

$12.4 billion in consumer-to-pharmacy co-payments that Merck never collected. The SEC approved Medco's IPO registration, including its sales accounting. The company has since withdrawn the registration for the IPO, which was expected to raise $1 billion.


July, 2002 Mirant

The company said it may have overstated various assets and liabilities. An internal review revealed errors that may have inflated revenue by $1.1 billion.


July, 2002 Nicor Energy, LLC

Independent audit uncovered accounting problems that boosted revenue and underestimated expenses.Nicor restated results to reflect proper accounting in the first half of this year.



May, 2002 Peregrine Systems

Overstated $100 million in sales by improperly recognizing revenue from third-party resellers Said it will restate results dating back to 2000; slashed nearly 50% of its workforce to cut costs; is on its third auditor in three months and has yet to file its 2001 10-K and so, consequently, is in danger of being delisted from the Nasdaq.


Febuary, 2002 Qwest Communications International

Inflated revenue using network capacity "swaps" and improper accounting for long-term deals. Qwest admitted that an internal review found that it incorrectly accounted for $1.16 billion in sales. It will restate results for 2000, 2001 and 2002. To raise funds, Qwest says it is selling its phone-directory unit for $7.05 billion.


May, 2002 Reliant Energy

Engaging in "round-trip" trades to boost trading volumes and revenue.Recently replaced Chief Financial Officer Steve Naeve with Mark M. Jacobs, a managing director of Goldman Sachs and a Reliant adviser.


May, 2002 Tyco

Ex-CEO L. Dennis Kozlowski indicted for tax evasion. SEC investigating whether the company was aware of his actions, possible improper use of company funds and related-party transactions, as well as improper merger accounting practices.Said it will not certify its financial results until after an internal investigation is completed.
The Bermuda-based company is not required to meet the SEC's Aug. 14 deadline. Investors looking to unseat all board members who served under Kozlowski may launch a proxy fight to do so.


March, 2002 WorldCom

Overstated cash flow by booking $3.8 billion in operating expenses as capital expenses; gave founder Bernard Ebbers $400 million in off-the-books loans.The company stunned the Street when it found another $3.3 billion in improperly booked funds, which will bring its total restatement up to $7.2 billion, and that it may have to take a goodwill charge of $50 billion. Former CFO Scott Sullivan and ex-controller David Myers have been
arrested and criminally charged, while rumors of Bernie Ebbers' impending indictment persist.


June, 2002 Xerox

Falsifying financial results for five years, boosting income by $1.5 billion. Xerox agreed to pay a $10 million and to restate its financials dating back to 1997


SEC: Securities and Exchange Commission. CFTC: Commodity Futures Trading Commission. DOJ: U.S. Department of Justice

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