10 White Collar Crime Cases That Made Headlines

Written By CriminalJustice.com Staff

Since the collapse of Enron a decade ago due to shoddy and deceptive accounting practices, America has become more aware of the seriousness of white collar crimes. The work of a small handful of people can result in the demise of a multi-billion dollar company, the complete loss of value of its stock, and most problematically, the loss of numerous jobs ranging from the innocent higher-ups to the hardworking office managers. The next time you hear about someone receiving a 12-year sentence because of a marijuana offense, remember the real harm done in these cases of corporate corruption.

1. Enron collapse

With revenues exceeding $100 billion and the distinction of being named by Fortune as “America’s Most Innovative Company,” Enron was a seemingly indestructible energy giant during the beginning of the 2000s. However, even during its rise in the ’90s, rumors swirled that it was involved in illegal accounting procedures with its accounting firm Arthur Anderson, then one of the “Big Five” accounting firms. Jeffrey Skilling, who served as president COO and CEO, along with a staff he assembled, hid billions of dollars of debt through poor financial reporting, accounting loopholes and the use of special purpose entities. Andrew Fastow, COO, deceived the board of directors about the company’s accounting practices and convinced Arthur Anderson to go along for the ride. After stocks plummeted, the SEC conducted an investigation that ultimately resulted in the 24-year, 4-month prison sentence of Skilling and six-year sentence of Fastow. Founder Kenneth Lay died of a heart attack before he was sentenced.

2. Worldcom accounting scandal

Enron’s impressive collapse was followed by the implosion of Worldcom, which was the doing of CEO Bernard Ebbers. His plan to compensate for the downturn of the telecommunications industry in 2000 and Worldcom’s declining stock included the use of fraudulent accounting methods in order to deceive investors into thinking the company was in good health. The underreporting of line costs and inflation of revenues accumulated $3.8 billion in fraud and ended with the company’s bankruptcy, then the largest in U.S. history. Ebbers, who resigned from Worldcom in April 2002, was sentenced to 25 years in prison for conspiracy and securities fraud and filing false statements with securities regulators.

3. Bernie Madoff Ponzi scheme

The word “Ponzi” was introduced into America’s lexicon in late 2008 when Madoff was arrested and charged with securities fraud. The former lifeguard, sprinkler installer and chairman of NASDAQ managed to build a multi-billion dollar investment firm with false trading reports and without assistance from the major derivatives firms, each of which refused to trade with him. Although he had been suspected of being a sham a decade before, it wasn’t until 2008 that he was arrested after his misdeeds were reported by one of his sons. In 2009, he pled guilty to 11 federal crimes including securities fraud, money laundering, and theft from an employee benefit plan. The penalty: 150 years in prison and $170 billion in restitution — investors lost billions of dollars due to the scandal, and three people involved with the business, including Bernie’s son Mark, committed suicide.

4. InStock trading scandal

Another chapter in the white collar crime saga of the early 2000s, the InStock trading scandal made headlines because of the involvement of Martha Stewart, who sold about $230,000 of the company’s stock a day before an experimental cancer drug failed to gain FDA approval. Memorably, she was found guilty of obstruction of justice, conspiracy and lying about a stock sale, and served five months in prison. Founder Samuel Waskal, who advised friends and family to sell stock and attempted to sell his own stock prior to the announcement, pled guilty to charges of bank fraud, securities fraud, obstruction of justice and perjury. He was sentenced to a seven-year, three-month prison sentence in 2009, but was released in 2009.

5. Adelphia collapse

At the time of its bankruptcy in 2002, Adelphia was the fifth-largest cable provider in the U.S., and in 2003, it generated more than $3.6 billion in revenue — that’s just $1.3 billion more than the off-balance-sheet debt accumulated by the company, which led to its demise. John Rigas, the founder, and Timothy Rigas, his son who ran the company, are currently serving 15-and 20-year prison sentences respectively for embezzling the money from corporate investors and using corporate funds as their own. Adelphia’s run of more than 50 years officially ended in 2006 when the remainder of its revenue-generating assets were purchased by Comcast and Time Warner.

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6. Tyco accounting scandal

A year after he was named one of the top 25 corporate managers of 2001 by Business Week, it was uncovered that Tyco CEO Dennis Kozlowski, along with former CFO Mark Swartz, stole more than $150 million from the company, including $2 million that was used for a birthday party for Kozlowski’s wife that was thrown in Sardinia. The thieving men were spared after their first trial was declared a mistrial because a juror said she received a letter urging her to side with the prosecution. The second trial ended with the convictions of Kozlowski and Swartz as both were sentenced to no less than eight years and four months in prison.

7. HealthSouth accounting scandal

One of the largest comprehensive rehabilitative services companies in the country, HealthSouth had been suspected of unethical financial practices since its emergence in the late ’80s. Under the leadership of Richard Scrushy, it was discovered that it falsified at least $2.7 billion worth of profits between 1996 and 2002 and later agreed to pay $325 million for allegedly defrauding Medicare and other federal healthcare programs, according to the Department of Justice. Scrushy was acquitted of charged related to the matter, but later sentenced to a six-year, 10-month prison sentence for bribery in mail fraud in an unrelated case.

8. Jack Abramoff lobbying scandal

In an unmistakably Washington saga deserving of its own movie, Abramoff’s cluster of scandals had far-reaching consequences implicating politicians and even the mob. In 2006, he pled guilty to fraud, conspiracy and tax evasion for his efforts to cheat Indian casino gambling interests out of roughly $85 million in fees. A couple of months later, he was sentenced to 70 months in prison for using a fake wire transfer in order to qualify for a $60 million loan in the purchase of SunCruz Casinos, a deal which resulted in the murder of former owner Konstantinos “Gus” Boulis. Most notably, then-Republican Ohio Representative Bob Ney was sentenced to a prison term for accepting bribes from Abramoff, helping the Democrats in their effort to gain a majority in Congress during the 2006 midterm elections.

9. Countrywide political loan scandal (and contribution to the subprime mortgage crisis)

Politicians and big businesses need each other. And while their relationships are often too cozy, as evidenced by the Countrywide political loan scandal of 2008 and 2009, as long as campaigns are privately financed and businesses have stake in the political game, those uncomfortable relationships will continue to exist. Former Countrywide CEO Angelo Mozilo can attest to the discomfort, as his Friends of Angelo program, which provided politicians mortgage financing at noncompetitive rates, helped tarnish his already floundering reputation. He resigned on July 1, 2008 and a later reached settlement with the SEC in which he agreed to pay $67.5 million in fines because he misled shareholders regarding the internal dealings of the company.

10. Marcus Schrenker fraud and attempted fake death

Although he didn’t wield the same kind of power as guys such as Lay, Ebbers or Kozlowski, Schrenker, who owned three financial companies, accumulated a bounty of wealth as an investment advisor responsible for multi-million dollar pension funds. But it all disappeared in an instant. His failure to inform seven investors of high fees for switching annuities, and the resulting loss of $250,000, brought forth a complaint from The Indiana Department of Insurance in 2008 that intensified suspicion of his unethical practices. Ultimately, the expiration of his Indiana state financial adviser’s license prompted an investigation. In 2009, instead of facing the consequences of his action, Schrenker attempted to fake his death by faking a plane crash, parachuting out before the damage was done. He was eventually captured and sentences to four years in prison for the fiasco. He still faces charges of securities fraud.