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Global Research Limited

Edition: February 2010

STOCK MARKET

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Global Research Limited
STOCK MARKET - WORLD SCAMS
World Stock Market Scams Crisis !!
The Worst Thing About These Scams
February 2010
Edition
White Paper - Stock Market World Scams !!
Edition: February 2010
I
nvesting in a stock in the future. With
takes a lot of that in mind, we'll
research, but it also look at some of the all-
requires us to make a time greatest cases of
lot of assumptions. companies betraying
For example, we their investors. Some
assume reported of these cases are truly
earnings and revenue amazing; try to look at
figures are correct, them from a
and that management shareholder's
is competent and s t a n d p o i n t .
honest. But these Unfortunately, these
assumptions can be shareholders had no
disastrous. way of knowing what
was really happening
as they were being
U
nderstanding
how disasters tricked into investing.
happened in
the past can help
investors avoid them
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White Paper - Stock Market World Scams !!
Global Research Limited
STOCK MARKET - WORLD SCAMS
B
ZZZZ Best Inc., 1986 arry Minkow, the
owner of this business,
Barry Minkow posited that this carpet
(Owner)
cleaning company of the
1980s would become the
"General Motors of carpet
cleaning". Minkow appeared
to be building a multi-million
dollar corporation, but he did
so through forgery and theft.
He created more than 10,000
Scam phony documents and sales
1986 receipts without anybody
suspecting anything.
Although his business was a
I
Centennial Technologies n December 1996,
Inc., 1996 Emanuel Pinez, the CEO of
Centennial Technologies,
Enabyel Pinez and his management recorded
(CEO) that the company made $2
million in revenue from PC
memory cards - the company
was really shipping fruit
baskets to customers. But the
employees then created fake
documents to appear as
Scam though they were recording
1996 sales. Centennial's stock rose
451% to $55.50 per share on
the New York Stock Exchange
(NYSE). According to the
Securities and Exchange
Commission (SEC), between
April 1994 and December
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complete fraud designed to
deceive auditors and investors,
Minkow shelled out more than
$4 million to lease and
renovate an office building in
San Diego. ZZZZ Best went
public in December of 1986,
eventually reaching a market
capitalization of more than
$200 million. Amazingly, Barry
Minkow was only a teenager
at the time! He was sentenced
to 25 years in prison.
1996, Centennial overstated
its earnings by about $40
million. Amazingly, the
company reported profits of
$12 million when it really lost
about $28 million! The stock
plunged to less than $3. Over
20,000 investors lost almost all
of their investment in a
company that was once
considered a Wall Street
darling.
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White Paper - Stock Market World Scams !!
Global Research Limited
STOCK MARKET - WORLD SCAMS
T
Bre-X Minerals, 1997 his Canadian company
was involved in one of
Canadian Company the largest stock
(Largest Stock Swindles In History)
swindles in history. Its
Indonesian gold property,
which was reported to contain
more than 200 million ounces,
was said to be the richest gold
mine ever. The stock price for
Scam Bre-X skyrocketed to a high of
1997 $280 (split adjusted), making
millionaires out of ordinary
people overnight. At its peak,
Bre-X had a market
capitalization of US$4.4
P
Enron, 2001 rior to this debacle,
Enron, a Houston-based
Energy Trading Co. energy trading
(Accounting Disaster) company was, based on
revenue, the seventh largest
company in the U.S. Through
some fairly complicated
accounting practices that
involved the use of shell
companies, Enron was able to
keep hundreds of millions
worth of debt off its books.
Scam Doing so fooled investors and
2001 analysts into thinking this
company was more
fundamentally stable than it
actually was. Additionally, the
shell companies, run by Enron
executives, recorded fictitious
revenues, essentially recording
one dollar of revenue multiple
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billion. But the party ended on
March 19, 1997, when the
gold mine proved to be
fraudulent, and the stock
tumbled to pennies shortly
after. The major losers were
the Quebec public sector
pension fund, which lost $70
million; the Ontario Teachers'
Pension Plan, which lost $100
million and the Ontario
Municipal Employees'
Retirement Board, which lost
$45 million.
times, thus creating the
appearance of incredible
earnings figures. Eventually,
the complex web of deceit
unraveled, and the share price
dove from over $90 to less
than $0.70. As Enron fell, it
took down with it Arthur
Andersen, the fifth leading
accounting firm in the world at
the time. Andersen, Enron's
auditor, basically imploded
after David Duncan, Enron's
chief auditor, ordered the
shredding of thousands of
documents. The fiasco at
Enron made the phrase "cook
the books" a household term
once again.
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White Paper - Stock Market World Scams !!
Global Research Limited
STOCK MARKET - WORLD SCAMS
N
WorldCom, 2002 ot long after the
collapse of Enron, the
Telecommunications equities market was
(Serious Book Cooking)
rocked by another billion-
dollar accounting scandal.
Telecommunications giant
Wo r l d C o m c a m e u n d e r
intense scrutiny after yet
another instance of some
serious "book cooking".
WorldCom recorded
operating expenses as
investments. Apparently, the
Scam company felt that office pens,
2002 pencils and paper were an
investment in the future of the
company and therefore
expensed (or capitalized) the
cost of these items over a
number of years. In total $3.8
billion (yes, with a 'b') worth of
normal operating expenses -
which should all be recorded
as expenses for the fiscal year
Harshad Mehta Aka
Deep Chhaya
Harshad Mehta
(Benefitted From Loopholes In Banking )
w as an Indian
stock broker and
is alleged to have
engineered the rise in the
Bombay Stock Exchange in the
year 1992. Exploiting several
loopholes in the banking
system, Mehta and his
associates siphoned off funds
Scam from inter-bank transactions
1992 and bought shares heavily at a
premium across many
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in which they were incurred -
were treated as investments
and were recorded over a
number of years. This little
accounting trick grossly
exaggerated profits for the
year the expenses were
incurred; in 2001, WorldCom
reported profits of around
$1.3 billion. In fact, its
business was becoming
increasingly unprofitable.
Who suffered the most in this
deal? The employees - tens of
thousands of them lost their
jobs. The next ones to feel the
betrayal were the investors
who had to watch the gut-
w re n c h i n g d o w n f a l l o f
WorldCom's stock price, as it
plummeted from more than
$60 to less than $0.20.
segments, triggering a rise in
the BSE Sensex. When the
scheme was exposed, the
banks started demanding the
money back, causing the
collapse. He was later charged
with 72 criminal offenses and
more than 600 civil action suits
were filed against him. He died
in 2002 at the age of 47 with
many litigations still pending
against him.
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White Paper - Stock Market World Scams !!
Global Research Limited
STOCK MARKET - WORLD SCAMS
W
Tyco International (NYSE: i t h Wo r l d C o m
TYC), 2002 having already
shaken investor
Dennis Kozlowski confidence, the executives at
(CEO)
Tyco ensured that 2002 would
be an unforgettable year for
stocks. Before the scandal,
Tyco was considered a safe
blue chip investment,
manufacturing electronic
components, healthcare and
safety equipment. During his
reign as CEO, Dennis
Kozlowski, who was reported
as one of the top 25 corporate
Scam managers by BusinessWeek,
2002 siphoned hordes of money
from Tyco in the form of
unapproved loans and
fraudulent stock sales. Along
with CFO Mark Swartz and
CLO Mark Belnick, Kozlowski
received $170 million in low-
to-no interest loans, without
shareholder approval.
Kozlowski and Belnick
arranged to sell 7.5 million
shares of unauthorized Tyco
stock for a reported $450
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million. These funds were
smuggled out of the company,
usually disguised as executive
bonuses or benefits.
Kozlowski used the funds to
further his lavish lifestyle,
which included handfuls of
houses, an infamous $6,000
shower curtain and a $2
million birthday party for his
wife. In early 2002, the
scandal slowly began to
unravel and Tyco's share price
plummeted nearly 80% in a
six-week period. The
executives escaped their first
hearing due to a mistrial, but
were eventually convicted and
sentenced to 25 years in jail.
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White Paper - Stock Market World Scams !!
Global Research Limited
STOCK MARKET - WORLD SCAMS
A
HealthSouth (NYSE: HLS), ccounting for large
2003 corporations can be a
difficult task
Richard Scrushy especially when your boss
(CEO)
instructs you to falsify
earnings reports. In the late
1990s, CEO and founder
R i c h a rd S c r u s h y b e g a n
instructing employees to
inflate revenues and overstate
HealthSouth's net income. At
the time, the company was
one of America's largest
healthcare service providers,
experiencing rapid growth
Scam and acquiring a number of
2003 other healthcare related firms.
The first sign of trouble
surfaced in late 2002, when
Scrushy reportedly sold
HealthSouth shares worth $75
million, prior to releasing an
earnings loss. An independent
law firm concluded the sale
was not directly related to the
loss, but investors should have
taken the warning. The
scandal unfolded in March,
2003, when the SEC
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announced that HealthSouth
exaggerated revenues by $1.4
billion. The information came
to light when CFO William
Owens, working with the FBI,
taped caught Scrushy talking
about the fraud. The
repercussions were swift, as
the stock fell from a high of
$20 to a close of $0.45 in a
single day. Amazingly, the CEO
was acquitted of 36 counts of
fraud, but was later convicted
o n c h a r g e s o f b r i b e r y.
Apparently, Scrushy arranged
political contributions of
$500,000, allowing him to
ensure a seat on the hospital
regulatory board.
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 February 2010
Edition

White Paper - Stock Market World Scams !!

Global Research Limited Edition: February 2010

STOCK MARKET - WORLD SCAMS

Satyam Scam'2009
an accrued interest of Rs. 376
crore (US$ 77.46 million)
Ramalinga Raju which was non-existent.
(Company Chairman)
an understated liability of Rs.
1,230 crore (US$ 253.38
million) on account of funds
was arranged by himself.
an overstated debtors'

O n 7th January 2009,

company Chairman
Ramalinga Raju
position of Rs. 490 crore (US$
100.94 million) (as against Rs.
2,651 crore (US$ 546.11
million) in the books)
resigned after notifying board
Raju claimed in the same letter
members and the Securities
that neither he nor the
and Exchange Board of India
m a n a g i n g d i re c t o r h a d
(SEBI) that Satyam's accounts
benefited financially from the
had been falsified.
inflated revenues. He claimed
that none of the board
Raju confessed that Satyam's
m members had any knowledge
Big Sca balance sheet of 30
of the situation in which the
2009 September 2008 contained:
company was placed
inflated figures for cash and
bank balances of Rs 5,040
crore (US$ 1.04 billion) (as
against Rs 5,361 crore (US$
1.1 billion) crore reflected in
the books).

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 February 2010
Edition

White Paper - Stock Market World Scams !!

Global Research Limited Edition: February 2010

STOCK MARKET - WORLD SCAMS

Conclusion
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 Security bodies works hard to prevent such scams from happening, but with
thousands of public companies in the World, it is nearly impossible to ensure that disaster never strikes
again. Is there a moral to this story? Sure. Always invest with care and diversify, diversify, diversify.
Maintaining a well-diversified portfolio will ensure that occurrences like these don't run you off the
road, but instead remain mere speed bumps on your path to financial independence.

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