Fraud: The Bernie Madoff Scandal

Following are some of the most extreme examples of gross misconduct regarding fraud in our history.
The Waste Management Scandal in 1998. They reported 1.7 billion in fake earnings by increasing the length of depreciation time for property, plant and equipment on the balance
Page 2 sheets. The fraud was detected when a new CEO was brought in and the new management team went through the books. Motivation seems to be that this publicly traded company needed to keep stock prices up to keep investors and shareholders happy. Incentive, opportunity and rationalization are all at play here.
The Enron Scandal in 2001. Enron was inflating its income by $586 million. Thousands of employees and investors lost their retirement accounts. Thousands
Lehman hid over $50 billion in loans by reported that amount in sales. Not only were the CEO and Lehman Brothers executives involved but also the auditing firm Ernst & Young was suspected but not prosecuted because of lack of evidence. The fraud was uncovered when the firm was forced into bankruptcy. This was the largest bankruptcy in US history.
The Bernie Madoff Scandal in 2008. Investors were tricked out of $4.8 billion through the largest Ponzi scheme in history. There were no profits and returns to investors were paid from the investors own money or the money of other investors. Bernie Madoff’s accountants were involved in this fraud. Bernie Madoff’s own sons reported him to the SEC. He was arrested the following day.
“The worst thing about these scams, is that you never know until it's too late. Those convicted of fraud might serve several years in prison, which in turn costs investors/taxpayers even more money. These scammers can pick a lifetime's worth of garbage and not even come close to repaying those who lost their fortunes. The SEC works to prevent such scams from happening, but with thousands of public companies in North America, it is nearly impossible to ensure that disaster never strikes again.”
Effective prevention activities usually involve maintaining an organizational culture of honesty and high ethical standards, assessing fraud risk, and reducing the opportunities to commit fraud.”
BY MARK J. NIGRINI, PH.D. AND NATHAN J. MUELLER
August 1, 2014
- See more at: http://www.journalofaccountancy.com/issues/2014/aug/fraud-20149862.html#sthash.svcQtV3l.dpuf
Andrew Ceresney the Co-director of the Division of Enforcement for the SEC did a talk in 2013 concerning accounting fraud.
He said that in the wake of the financial crisis, the SEC was very focused on financial crisis cases with little emphasis and fewer resources devoted to accounting fraud. His belief is that the Sarbanes-Oxley action was responsible for a greater focus over the last 10 years on accounting issues resulting in an improvement in financial reporting.
Page 4 However, he goes on to say he has doubts about whether we have experienced such a drop in actual fraud in financial reporting. Although there may not be such Scandals as WorldCom or Enron, he doesn’t believe that a reduction in fraud will occur just because of Sarbanes-Oxley or other