Suchergebnisse

• eBook-Kapitel aus dem Buch Accounting Fraud

  Case 13: WorldCom (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …was going to be the next fraudulent company. It turned out to be WorldCom, Inc., at the time the second largest long-distance telecommunications… …SEC said that WorldCom’s accounting improprieties were of “unprecedented magnitude”. But as enormous as the fraud was, it was accomplished in a… …relatively mundane way. The modus oper- andi of the fraud was rather simple, and it was carried out over a comparatively short period of time. Yet the… …Corp. because of antitrust objections. WorldCom’s position as fast-growing provider of integrated telecommunications services (it provided a broad… …demanded that his subordinates met those expectations. It was when he had the greatest need to keep WorldCom’s stock price up that the largest part of the… …standards others will follow.” It was shortly after Ebbers had left that the fraud was discovered and disclosed. Fraud detection and disclosure As… …that it was not her problem. When she continued to raise her concerns, she was told by WorldCom’s CFO, Scott Sullivan (to whom internal audit reported)… …advised of the issue, took it seriously and directed prompt attention to it. On June 20, Cooper attended an audit committee meeting at which Sullivan was… …. Accounting Fraud in U.S. Companies 95 WorldCom announced that it intended to restate its financial statements for 2001 and the first quarter of… …2002. It stated that certain transfers from “line cost expenses” to asset accounts, totalling USD 3.85 billion during this period, were not made in…

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  Case 14: Dynegy (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …, Deutsche Bank and Credit Suisse First Boston), but to make it appear that the loan was cash generated from operations. Boosting operations-based cash flow… …failed to disclose the true financing nature of the USD 300 million cash flow related to Project Alpha. Thus, it created the appearance that its… …operations were generating far more cash than they actually were. Furthermore, it concealed from the investing public the true extent of the gap between its…

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  Case 15: Xerox (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …copier). Xerox was defined as “the copier company” in its very DNA, and it was even in the dictionary as a syno- nym for photocopy. The copiers were “money… …machines” nonpareil. The 1990s, however, would be a time of crisis for the company. It was confronting intense product and price competition from its… …focus on high-margin, high-end copying equipment. To succeed in the new digital age, the company needed to reinvent itself. However, it was far better at… …management. In May 2000, Xerox made a public announcement that it had discovered accounting irregularities associated with its Mexican operations. CEO… …outside auditors. KPMG was so concerned about ROE and margin normalization that it internally referred to these methodologies as “half-baked revenue… …“Rank reserve” for items unrelated to any risks arising from the acquisition. It continued to draw down on this reserve for unrelated expenses each… …quarter until it was exhausted at the end of 1999. Internally, Xerox regarded the reserve as “interdivisional opportunity” or “unencumbered reserve”… …receivables at a deep discount. In other words, it sold its future stream of cash at far less than its full value to realize instant cash.) – In certain… …the lease term. US-GAAP prohibited increasing the estimated residual value for any reason after it was first established. However, Xerox often… …actions to “close the gap” between its actual results and the numbers it wished to and did report to the public. Yet the company continued to portray…

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  Case 16: Tyco International (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …and speciality products, packaging materials, as well as undersea telecommunications networks and financial services. It operated in 100 countries… …, while being nominally based in a tax haven, Tyco continued to operate out of Exeter, New Hampshire, and Boca Raton, Florida. (At this point, it is also… …shareholder suits.) – Tyco accumulated a massive amount of so-called “goodwill” on its balance sheet. It paid high prices for acquired companies, and rather… …than writing this cost off as an expense (which would have to be reported to shareholders as a reduction in earnings), it created goodwill. Since the… …middle of 2000, Tyco accumulated over USD 20 billion of goodwill on companies that it acquired for USD 24 billion. In other words, the actual hard assets… …acquisitions would create in the course of the further development of the companies. – Tyco did not report acquisitions that it stated were small enough to be… …con- sidered “immaterial” under US-GAAP. From 1991 through 2001, Tyco spent USD 8 billion on more than 700 acquisitions that it said were not material… …acquisitions, but it had ultimately decided not to take action. In Kozlowski’s view, the SEC probe qualified as an endorsement, and he emerged from the… …York City’s Upper East Side. (Later on, Kozlowski became the object of ridicule after it was revealed that the furnishings at his opulent Fifth Avenue…

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  Case 17: Global Crossing (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …Accounting Fraud in U.S. Companies 118 Case 17: Global Crossing (2002) Had the attention not been for Enron (the scandal that had it all at… …Crossing abruptly collapsed into bankruptcy in early 2002. On January 28, the company filed for Chapter 11, making it one of the biggest bankruptcies in… …is also part of the wider story of the meltdown in the telecom- munications industry. It epitomized the boom and bust of the so-called “broadband… …network and to sell capacity on that network to other providers and users of telecommunications services. Within four years, it built a 100,000-mile… …registered in Hamilton, Bermuda and run from Florham Park, New Jersey) was a stock market darling during the high-tech mania. But in 2001, when it became… …clear that there were not enough customers paying for the network, Global Crossing began its descent. Ultimately, the company had to acknowledge that it… …not have met analysts’ estimates. In its disclosures, Global Crossing stated that it had sold substantial amounts of capacity to customers to… …whom it had also made substantial cash commitments. The company disclosed the gross dollar amounts of these sales and purchases as well. Nevertheless… …specify that it was becoming increasingly reliant on the reciprocal transactions as a source of cash revenue. Eventually, it failed to disclose that in… …several reciprocal transactions, it purchased capacity that would not be ready for service until some time after the end of the quarter (in some cases…

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  Case 18: Qwest Communications International (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …capacity as an investment. Doing so had the effect of inflating reve- nues, making it seem as if the communications markets were far more robust than they… …aries even further: instead of accounting for revenue from these deals over the life of the contracts, Qwest accounted for much of it upfront, producing… …of USD 1.9 billion in August 2002, a 98% decline for the period. In September 2002, the company announced that it would restate its financial… …Wall Street that it used any means necessary to meet its “outrageously optimistic revenue projec- tions”. “Qwest senior management created a… …employees inter- nally referred to such transactions as “one hit wonders”). When senior management realized that it could not meet the projected growth… …through increases in recurring revenue, it directed the sale of portions of Qwest’s fiber optic network originally held for own use. Thus, Qwest began… …fourth- largest long-distance telephone service provider, he had been ultimately swayed by greed. In 1999 and 2000, it had become apparent that the revenue…

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  Case 19: Adelphia Communications (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …prosecutions in U.S. history. The SEC called it “one of the most extensive financial frauds ever to take place at a public company”. However, the thing that… …of all the cases. It should become a show-and-tell in all busi- ness schools as the antithesis of public company management and stewardship.” In… …March 27, 2002, when it disclosed that the Rigas family had borrowed USD 2.3 billion from banks through various family-owned partnerships, using… …was already too deeply in debt. Barraged with questions, the company stated that it reviewed its accounting and would not meet the deadline for filing… …series of sham transactions (backed by fictitious documents) to give the false impression that it had actually repaid debts when, in truth, it had simply… …shifted them to off-balance sheet affiliates. Furthermore, it cre- ated misleading financial statements by giving the false appearance (through the use of… …footnotes) that the listed liabilities included all outstanding bank debt. Because Adelphia massively understated its liabilities, it falsely represented in… …public filings that it was complying with financial covenants and related financial ratio require- ments, when it was not. Misrepresentations… …secretly inflated its basic cable subscription numbers to make inves- tors think it was still growing at a healthy pace and expanding its customer base. For… …plant that had been “rebuilt” or made “two-way capable”, in order to convey the false impression that it had modernized its network. For Adelphia…

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  Case 20: AOL Time Warner (2002)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …entertainment giant headquartered in New York. The implied market value of the merged company was approximately USD 200 billion, making it the then-largest… …started to flatten. It was during this period that AOL engaged in accounting fraud to mask the fact that it was also beginning to experience a rapid… …for goods and services it purchased in exchange for the vendors’ purchases of online advertising in the same amount as the mark-up – “Business… …and services. In the third quarter of 2000, AOL paid PurchasePro USD 2 million for software licenses it neither needed nor intended to use. In… …parties it referred to PurchasePro entered into commercial arrangements with this company. AOL essentially paid third parties to Accounting Fraud in… …from PurchasePro, but falsified documents in order to create the appearance that it had actually referred third-party purchases to PurchasePro. In the… …these memberships as sub- scribers, although it knew that the memberships mostly would not be activated by the employees. The so-called “attach rates” –… …several instances, AOL counted bulk subscribers although it failed to complete the transactions within the respective quarters. In last-minute efforts to… …meet the quarterly targets, AOL shipped non-conforming membership kits to the customers prior to the quarter end – with the understanding that it would… …management of AOL Europe; for example, it caused its own designated directors and steering committee members to act in accordance with AOL’s directions. How-…

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  Case 21: HealthSouth (2003)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …, but hindsight proved otherwise. It be- came apparent that for many years, HealthSouth’s financial disclosures had neither represented economic reality… …country as well as in Australia, Puerto Rico, and the United Kingdom. It employed 51,000 workers and had generated USD 4.3 billion in reve- nue in 2002… …. But shortly after it had become publicly traded in 1986, the company had begun to artificially inflate its earnings to match analysts’ expectations and… …of Wall Street’s expectations, Scrushy would tell management to “fix it” by recording false earnings to make up the shortfall. (The conspirators also… …from hospitals and clinics, add bogus amounts at headquarters and blend it altogether. Thus, while the rehabilitation hospitals and medical centres… …tried to persuade CEO Scrushy to abandon it. But, according to the SEC complaint, Scrushy insisted that the scheme continue because he did not want the… …August 27, 2002, HealthSouth issued a press release stating that it expected Transmittal 1753 to reduce its annual earnings by approxi- mately USD 175… …an SEC accounting probe at the healthcare rehabilitation company. Following news of the probe, Standard & Poor’s announced that it lowered… …belonged in a psychiatric facility, not a rehab facility, but we had a bed available and we were encouraged to take them.” “In this sea of fraud, is it… …, Accounting Fraud in U.S. Companies 141 citing systematic deception on the part of HealthSouth’s executives. It was a well- conceived and -executed…

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  Case 22: Symbol Technologies (2004)

  Prof. Dr. Klaus Henselmann, Dr. Stefan Hofmann

  …in a variety of channel stuffing, known at the company as “three way candy deals”. It paid off smaller resellers to “purchase” Symbol products from a… …crimes (see SEC 2004): – They employed multiple schemes for claiming revenue before it was earned, such as shipping the wrong product when the… …to refrain from scanning new components or returned goods into SAP. Moreover, they arranged transactions with third parties to make it appear that… …Symbol had sold inventory when, in fact, it retained possession of the goods. – Finally, the manipulation of stock option exercise dates had a… …established unrealistic financial performance targets, and he made it clear to executives and employees at all levels that they were expected to do whatever… …it took to achieve those figures. According to the SEC, “there was often a mad scramble at the end of reporting periods to hit the numbers”. Many… …and made a strong commitment “to root out fraud”. It realized that Symbol’s only way to continue as a business was to sever all ties to those engaged… …it agreed to pay a USD 37 million penalty and continue a program to tighten its accounting controls. As part of its settlement of private shareholder…

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