10 Biggest Recent Accounting Scandals in America

The 10 biggest recent accounting scandals in America have shaken the nation and affected investor confidence. Though not all scandals are the same, they tend to lead to large investor losses and depending on the magnitude of the scandal, may even affect confidence in the financial system at large. Corporate accounting scandals are by no means confined solely to America, but are also commonly seen in other regions and countries as well. In 2015, Toshiba, the large Japanese multinational conglomerate was accused of an accounting scandal worth $1.2 billion, through the overstating of operating profits.

America houses many multinational companies and firms and many of the brightest minds work in the country. However, the U.S is not immune to organizational fraud or scandals, and though the country has seen many accounting scandals in the past and has taken corrective measures to check them, the fact is that they haven’t stopped occurring. A few corrupt employees generally manipulate financial statements to misrepresent facts. They do so either by overstating revenue and assets or by understating expenses and liabilities to mislead investors/creditors and make money dishonestly. These cases are exposed either by SEC investigations or by whistleblowers (the SEC rewards these corporate whistleblowers to encourage them, as well as protect them).

There are numerous instances of accounting scandals in American corporate history. The world’s most infamous bankruptcy, of Enron in 2001, left investor confidence shaken in the American financial system and led to the passage of the Sarbanes-Oxley Act in 2002. However, even this law has not prevented corporate fraud. MF Global, which was a reputed commodity broker, went bankrupt in 2011 after funds totaling $1.6 billion went missing from customer accounts. Top officials of another major multinational company (Tyco) stole millions of dollars from the company’s accounts. Other cases include HealthSouth in 2003, where officers were accused of overstating earnings by $1.4 billion to meet shareholder expectations.

Over the next few pages, you will read about the 10 biggest recent accounting scandals in America. The slides show that accounting scandals have been most commonly seen in financial services companies, though they have also occurred in other industries like oil, telecom, and pharma. We have gathered the data from sources such as Forbes, accountingdegree.org and Wikipedia, and the companies have been ranked based on the estimated magnitude of loss. For further scandalous reading, you might also want to check out our list of the top 10 accounting scandals of all time. And now, let’s see the list of biggest recent accounting scandals in America.

10. Qwest Communication

2001 – $44 million

Qwest Communication allegedly boosted its stock price through manipulation. The telecommunications company inflated revenue by $2.2 billion and earnings by $358 million during 1999-2001. The company’s top officials made millions of dollars through this practice. The SEC convicted several executives of insider trading activities and also sentenced Qwest’s CEO Joseph Nacchio to six years of imprisonment (which frankly is a joke, but these clowns somehow always get off light).

9. Weatherford International (NYSE:WFT)

2012 – $900 million

The accounting executives of the oil services company were blamed for using deceptive income tax accounting which led to the company’s earnings increasing by more than $900 million between 2007 and 2012. The company agreed to pay a $140 million penalty and restated its financial statements.

8. American International Group (NYSE:AIG)

2005 – $3.9 billion

The CEO of the multinational insurance company was alleged to be the mastermind of a major accounting fraud and stock price manipulation that rank 8th in our list of biggest recent accounting scandals in America. A series of fraud investigations conducted by the SEC in 2005 led to the restatement of the company’s financial statements for several years. Though the CEO did not face any criminal charges during that time, he recently admitted to the accounting fraud and has agreed to pay $9 million to New York.

7. Freddie Mac

2003 – $5 billion

An SEC investigation probed whether top executives intentionally misstated financial statements issued by the mortgage financing giant. A fine of $125 million was imposed on the President, Chairman, CFO and VPs. And nowm let’s see what else we have in our list of biggest recent accounting scandals in America.

6. WorldCom

2002 – $7 billion

WorldCom, then the second-largest phone company in America ranks sixth on our list of the 10 biggest recent accounting scandals in America, with an accounting scandal worth $7 billion. The chief financial officer and controller were arrested and face 65 years of imprisonment. The company claimed $3.8 billion in expenses as capital investment and $3.3 billion in accounting errors.

5. Fannie Mae

2004 – $11 billion

Top executives at the mortgage firm were found guilty of misstating financial statements from 1998 to 2004. A fine of $400 million was imposed by the SEC, which charged the officers not only for violating accounting and corporate governance standards, but also with poor risk management. And now let’s see the top four entries in our list of biggest recent accounting scandals in America.

4. Merck & Co (NYSE:MRK)

2002 – $14 billion

Medco, a subsidiary of Merck & Co., recorded $14 billion in revenue over a three-year period beginning in 1999. These were actually co-payments made by customers to its pharmacy. However Merck denied any wrongdoing, stating it was ignorant of the accounting treatment.

3. Lehman Brothers

2008 – $50 billion

In 2008, global financial services firm Lehman Brothers went bankrupt. The executives and their auditor Ernst & Young sold assets worth $50 billion of investors’ funds to banks in the Cayman Islands, which they masked as revenue. Though Lehman Brothers’ bankruptcy was the largest in U.S. history, the SEC has yet to file any charges due to lack of evidence.

2. Bernie Madoff

2008 – $65 billion

Bernie Madoff and his accountant accumulated $65 billion from investors through a Ponzi scheme. Madoff’s sons were the whistleblowers. The fraud was unveiled a few months after the Great Recession. Madoff was penalized with a $170 billion fine and 150 years in prison (that’s more like what these scum deserve).

1. Enron

2001 – $78 billion

With $78 billion in losses of shareholder funds, Enron ranks first on our list of the 10 biggest recent accounting scandals in America. Sherron Watkins, Enron Corp’s whistleblower, exposed details of the financial scandal to the world, leading to the company’s bankruptcy. The infamous Enron bankruptcy led to the passage of the Sarbanes-Oxley Act in 2002 and to the downfall of its auditors, Arthur Anderson.

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