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HomeReiman, The Rich Get Richer Corporate Fraud 2002 > Scoundrel Capitalism chart

Getting Tough on Corporate Crime?

Enron and a Year of Corporate Financial Scandals

Jeffrey Reiman and Paul Leighton


This essay is published by Allyn & Bacon, and distributed as a supplement to Jeffrey Reiman's The Rich Get Richer & the Poor Get Prison, 6th ed (2001) starting in Winter 2003.

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Tough on Corporate Crime Intro + Huff and Puff and.. Do Little 
Hot Deals, Looting and Covering Up: Understanding the Frauds of 2002
Sarbanes-Oxley legislation & critique + Conclusion
Scoundrel Capitalism - Chart detailing the major wrongdoing

whole article as printable adobe.pdf

see 2004 update: A Tale of Two Criminals: We're tougher on Corporate Criminals, But They Still Don't get What They Deserve

Table 1: Scoundrel Capitalism, 2002 *

See Washington Post's Corporate Scandal Primer for additional information
Company Alleged Wrongdoing Status


The 6th largest cable company declared bankruptcy soon after announcing it was responsible for $2.3 billion in off-balance-sheet loans to the founding Rigas family. 

Investors lost $60 billion in value when stock fell to $0.15 from a high of $66; the company has filed for bankruptcy and is restating earnings for the last several years.
The founding Rigas family used the company as their personal bank and allegedly improperly took money and loans, then created sham transactions and forged financial documents to cover it up. The SEC found “rampant self-dealing” including the use of $252 million in Adelphia funds to repay stock market losses; other company money was used to purchase $28 million in timber rights, a $12.8 million golf club, the Buffalo Sabres hockey team ($150 million), and “luxury condominiums in Colorado, Mexico, and New York City for the Rigas Family”; the family also used, without reimbursement, 3 airplanes owned by Adelphia, including for a safari vacation in Africa. At one point, Timothy Rigas grew concerned about his father's "unacceptably large" spending of company money and put him on an allowance of $1 million a month. John Rigas, his sons, and two other executives are under criminal indictment and currently free on bail; they also face SEC fines in what an official describes as "one of the most extensive financial frauds ever to take place at a public company."

Arthur Andersen

Accountants and financial consultants.
Andersen audited many companies that had to restate earnings in the current scandals and has settled with the SEC in numerous past cases involving deceptive bookkeeping: Enron; WorldCom ($8 billion restatement); Global Crossing; Qwest Communications; Baptist Foundation of Arizona ($217 million settlement); Sunbeam ($110 million settlement); Colonial Realty ($90 million settlement). The Waste Management case ($1 billion overstated earnings) led to an SEC settlement of $7 million, a $229 million shareholder settlement and an SEC “cease and desist” order on misleading accounting. 

Andersen officials ordered the shredding of important Enron documents after an SEC investigation started. To help dispose of 30 boxes of documents, Andersen called a company named Shred-it, whose motto is “Your secrets are safe with us.” Andersen also deleted large numbers of emails relating to its internal debates on Enron’s financial problems.

Andersen was convicted of obstruction of justice in June and admitted to expediting the shredding of documents. The firm will cease auditing public firms by Aug. 31, 2002, although it will continue to do financial consulting.


Described by executive Skilling as “the world’s coolest company,” Enron declared the largest corporate bankruptcy in history, Dec 2, 2001. It restated its earnings and assets downward by $1.5 billion, wiping out 4,200 jobs and $60 billion in market value lost to shareholders.

See also Enron and the Bush Administration

The Collapse of Enron: A Bibliography of Online Legal, Government and Legislative Resources

A special committee of Enron's board (The Powers Committee) concluded that partnership arrangements allowed high-level Enron executives to hide Enron's losses and liabilities, while earning tens of millions of dollars in fees for themselves. The report was based on a three month review without subpoena power or access to many documents. Nevertheless, it "found a systematic and pervasive attempt by Enron's Management to misrepresent the Company's financial condition" and that Enron employees involved in the partnerships received “tens of millions of dollars they should never have received."  

Investigations conclude that Enron manipulated the California power crisis for financial gain, entered into transactions presenting conflicts of interest, engaged in fraudulent transactions to book revenue, and punished whistleblowers and those who questioned the appropriateness of business transactions and practices. 

Enron executives and directors sold $1 billion worth of shares in the three years before the company collapsed. While executives were selling off shares just before the bankruptcy announcement, employees were locked out of selling their shares because of “administrative changes” to the stock plan.During this period, Enron stock lost 28% of its value. Ken Lay took $19 million in cash advances during this time, which he repaid with Enron stock that was rapidly losing value.

UPDATE: The Justice Department in 1999 declined to pursue a criminal referral from the Internal Revenue Service of possible bribes paid by Enron Corp. officials to Guatemalans close to former president Jorge Serrano to win a lucrative electric-power contract, according to a congressional investigation to be made public today. The payments identified by the Senate report "were disguised as add-on fuel charges to conceal them from U.S. and Guatemalan tax authorities," the congressional report states. (Justice Rejected IRS Call for Enron Probe, Washington Post, July 29, 2003; Page E01)

Three British bankers have been indicted because of Enron related fraudulent transactions amounting to $7.3 million (although they are still in Britain). 

Fastow protégé Michael Kopper pleaded guilty to conspiracy to engage in money laundering and wire fraud charges; he agreed to cooperate with prosecutors and return $12 million. 

On Sept 3, 2002 Lay’s lawyers feared the SEC “may soon move to freeze his assets” but it had not happened yet. 

Although a criminal investigation started in the US Justice Dept in Jan, no indictments have been returned against Lay or Skilling.  On Oct 2, 2002, prosecutors charged Fastow with fraud.

Global Crossing

Optical fiber company filed the 4th largest bankruptcy under the weight of $12 billion in debt. 

The company is chartered in Bermuda to avoid US corporate taxes, even though it is headquartered and run out of the US, as well as enjoying all the rights and access to government contracts that US corporations enjoy
Engaged in capacity swaps with Qwest Communications (see below) to improperly book revenue to inflate stock price. In one Congressional hearing, Rep. Billy Tauzin (R., La.), said executives "pursued sham transactions to put revenue on the books, to mislead investors, and to prevent further drops in their stock prices." Many of these transactions were done in the last few days, sometimes the last minutes, of the financial quarter to help meet earnings expectations.

CEO Casey may have misled Wall Street analysts when he denied on several occasions Global Crossing used swaps. 

Chairman Winnick, who works out of a replica of the Oval Office inside a gated plaza, sold more than $730 million in shares before the announcement and devaluation of the stock.

Global Crossing and Winnick’s sale of shares are the subject of investigations, but no indictments have been returned. Winnick is still CEO and will remain at that post through the company’s reorganization. Winnick has refused to cooperate with Congressional investigations. 

CEO John Legere was forgiven a $10 million balance on an interest-free loan, and given a $2.75 million severance payout, even though share prices were down 90% and the bankruptcy stopped severance payments to workers who had already been laid off.

No action is planned on companies moving overseas to avoid taxes, but retaining full rights and government contracts.

Qwest Communications

The dominant local telephone company in 14 states improperly accounted for about $1 billion and may have to restate another $500 million in sales. Shares dropped to $1 each, down 89% from the start of the year and a high of $66.
Engaged in hollow trades and capacity swaps with Global Crossing and other telecoms to boost revenue and meet earnings expectations. "Investors in Global Crossing and Qwest lost billions of dollars when the truth came out about these companies' finances, while insiders walked away with billions of dollars," according to Rep. James Greenwood (R., Pa.), who chairs a Congressional committee investigating the companies. 

On several occasions executives asked that the details of the swaps not be put in writing to avoid scrutiny. An internal memo by the CFO Szeglia indicated Qwest would penalize anyone who questioned the company’s handling of swaps and followed through by blocking business to Morgan Stanley, which publicly questioned Qwest’s reliance on swaps. Qwest lays the blame with Arthur Andersen, which it says approved the accounting related to the capacity swaps. 

Qwest’s founder and largest shareholder, Philip Anschutz, sold $213.5 million in shares prior to the restated earnings report.
Investigations by the SEC and the Dept of Justice regarding the inflated revenue reports started in March 2002, but no action has taken place. Anschutz’s sale of stock is a subject of investigation, although it is a small part of the $1.6 billion in Qwest stock he sold


This large conglomerate is chartered in Bermuda to avoid US corporate taxes, even though it is headquartered and run out of the US, as well as enjoying all the rights and access to government contracts that US corporations enjoy.
Former CEO Dennis Kozlowski and former Chief Financial Officer Mark Swartz looted company and shareholders of $600 million that went to themselves and others who helped them cover up improper secret loans that were forgiven without proper authorization. Tyco also seems to have taken losses on certain business transactions that it improperly booked as profit, which then justified bonuses for executives. 

The two men used the money to buy houses, art and luxury items for themselves, including a $1 million birthday party for Kozlowski’s wife on the Italian island of Sardinia that included toga-clad waiters and an ice sculpture of Michelangelo’s “David” with Vodka pouring from his genitals. 

Kozlowski also improperly bought valuable paintings by Renoir and Monet worth $13.2 million using funds borrowed from Tyco, only some of which has been repaid, and he evaded $1.1 million in New York State sales tax by falsifying documents related to the art purchases and sending empty boxes to the company’s New Hampshire address.

Criminal indictments and SEC action have been announced against Kozlowski and Swartz. Both men are currently free on bail even though the Manhattan DA’s office argued that the $10 million Kozlowski’s wife put up for bail and the $5 in Tyco stock used by Swartz was tainted money they stole from Tyco.

Even though a grand jury was investigating Swartz, he received a $45 million severance package from Tyco, which remains in effect even if he is convicted of a felony. Kozlowski’s severance package is potentially worth $100 million. 

No action is planned on companies moving overseas to avoid taxes, but retaining full rights and government contracts.

WorldCom (now MCI)

Telecommunications giant announced a series of restatements totaling about $9 billion so far, and it displaced Enron as the largest bankruptcy filing in US history. The stock price fell from a high of $64 to $0.09, reducing their total value from $120 billion to about 4400 million; 17,000 employees have been laid off. 

NY state pension plan lost $300 million because of WorldCom investments.

NEW: The Justice Department is investigating allegations that WorldCom Inc. improperly rerouted long-distance calls in the United States and Canada to evade paying hundreds of millions, if not billions, of dollars in access fees to other phone companies, sources said yesterday. U.S. Probes WorldCom On Evading Access Fees (Washington Post July 27, 2003; Page A01)

Deputy Attorney General Thompson said CFO Scott Sullivan and Controller David Myers “systematically flouted rules of accounting and lied outright to investors to perpetuate the false image that WorldCom was succeeding.” In response to overbuilding and excess capacity in telecommunications, business was deteriorating, and executives put pressure on numerous others to, in Myer’s words, engage in accounting adjustments for which “there was no justification or documentation and were not in accordance with generally accepted accounting principles." WorldCom executives pressured whistleblowers to remain quiet and Myers warned employees who had questions not to discuss their concerns with outside auditors. 

Co-founder and CEO Bernie Ebbers borrowed $400 million from the company just before it crashed and has yet to repay the loan, which he used to cover margin calls related to purchases of WorldCom stock.  Ebbers was removed from his position when WorldCom declared bankruptcy, but he negotiated a severance package worth $1.5 million a year for life.

Sullivan faces up to 65 years if convicted on all counts of fraud, conspiracy and false statements; he is free on $10 million bond. 

Myers, stating he was ordered by superiors, pleaded guilty to three counts of wire fraud and related offenses, and faces a maximum of 20 years plus fines, which will likely be reduced for his cooperation. 

Accounting Director Buford Yates pleaded guilty to “assisting in a massive fraud”; he is free on $500,000 bail.

May 2003: SEC in 'largest fine ever' fined Worldcom $500 million to settle all wrongdoing. See "Worldcom Stockholders Owe SEC Thanks for Almost Nothing" Washington Post 26 May 2003 E 01.

27 Aug 2003: Oklahoma Files Criminal Charges Against Ebbers, WorldCom. Oklahoma Attorney General, noting the state lost $64 million in Worldcom related investments, said: "We allege the company and these six employees executed a scheme to artificially inflate the value of WorldCom stock and bonds by intentionally falsifying information filed with the Securities and Exchange Commission." 

He added: "It is rare that we name a company in a criminal complaint, but in this case it is justified. The decision to commit this fraud was a company decision. This is not some rogue employee trying to line his own pockets. This was a conscious decision made for the benefit of the company."


Tough on Corporate Crime Intro + Huff and Puff and.. Do Little [part 1]

Hot Deals, Looting and Covering Up: Understanding the Frauds of 2002 and Legislation in Response [part 2]

Sarbanes-Oxley legislation & critique + Conclusion [part 3]

Wall Street Sees Chance To Put Off Reforms: Pitt's Departure, GOP Win Prompt Go-Slow Sentiment (Washington Post 11/8/02)

*The title comes from a phrase used by Simon Shama, in “The Dead and the Guilty,” The Guardian (Sept 11, 2002),,12361,789978,00.html. In the article, he notes that “Enron Corporation['s] implosion began the unraveling of scoundrel capitalism.” Other sources include: Devin Leonard, “The Adelphia Story” Fortune, (August 12, 2002),; CNNMoney, “Rigas and Sons Arrested,” (July 25, 2002); George Mannes, “Adelphia Charges Up the Ante,” “,” (July 24, 2002),; Carrie Johnson and Christopher Stern, “Adelphia Founder, Sons Charged,” Washington Post (July 25, 2002), p. A1; “Swartz Got Rich Severance Deal,” Boston Globe, September 26, 2002,; Peter Behr and Dan Eggen, “Enron Is Target of Criminal Probe,” Washington Post (January 10, 2002), p. A1; Peter Behr and April Witt, “Visionary's Dream Led to Risky Business,” Washington Post (July 28, 2002), p A1; Jonathan Krim, “Fast and Loose At WorldCom: Lack of Controls, Pressure to Grow Set Stage for Financial Deceptions,” Washington Post (August 29, 2002), p A1; Jonathan Krim, “WorldCom Staff Told Not to Talk to Auditor, E-Mails Show,” Washington Post (August 27, 2002), p E3; David M. Ewalt and John Kreiser, “Sidgmore Steps Down As WorldCom CEO; Ebbers May Lose Golden Parachute,” (September 10, 2002),; Motley Fool, “The Motley Fool Take on Wednesday, Feb. 27, 2002,”; Motley Fool, “The Motley Fool Take on Wednesday, June 5, 2002,”; Robert O’Harrow, “Tyco Executives Free on Bond of $15 Million,” Washington Post (September 28, 2002), p E1; Carrie Johnson and Ben White, “WorldCom Arrests Made,” Washington Post (August 2, 2002), p A1; Ben White, “WorldCom Officer Pleads Guilty to Fraud,” Washington Post (October 8, 2002), p E1; Citizen Works, “Corporate Crookbook: Corporate Scandal Sheet,” Gimein, “You Bought. They Sold.”


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