Biggest Stock Market Scams in the World

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Global Research Limited

STOCK MARKET

Edition: February 2010

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White Paper - Stock Market World Scams !!Edition: February 2010

2010Edition

February

nvesting in a stock in the future. With

takes a l ot of that in mind, we'll

Iresearch, but it also look at some of the all-

requires us to make a time greatest cases oflot of assumptions. companies betraying

For example, we their investors. Some

as sume repo r t ed of these cases are truly

earnings and revenue amazing; try to look at

figures are correct, t h e m f r o m a

and that management s h a r e h o l d e r ' 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 beingnderstandingtricked into investing.how disasters

happened in

Uthe past can helpinvestors avoid them

World Stock Market Scams Crisis !!The Worst Thing About These Scams

STOCK MARKET - WORLD SCAMS






2010Edition

February

ZZZZ Best Inc., 1986


ar ry Minko w, the complete fraud designed to

owner of this business, deceive auditors and investors,Bposited that this carpet Minkow shelled out more than

cleaning company of the $4 million to lease and

1980s would become the renovate an office building in

"General Motors of carpet San Diego. ZZZZ Best went

cleaning". Minkow appeared public in December of 1986,

to be building a multi-million eventually reaching a market

dollar corporation, but he did capitalization of more than

so through forgery and theft. $200 million. Amazingly, Barry

He created more than 10,000 Minkow was only a teenager

phony documents and sales at the time! He was sentenced

receipts without anybody to 25 years in prison.

s u s p e c t i n g a n y t h i n g .

Although his business was a

Scam

1986

Barry Minkow(Owner)

Centennial TechnologiesInc., 1996

n D e c e m b e r 1 9 9 6 , 1996, Centennial overstated

Emanuel Pinez, the CEO of its earnings by about $40ICentennial Technologies, mi ll io n. Am az in gl y, th e

and his management recorded company reported profits of

that the company made $2 $12 million when it really lost

million in revenue from PC about $28 million! The stock

memory cards - the company plunged to less than $3. Over

was real ly shipping fruit 20,000 investors lost almost allbaskets to customers. But the of their investment in a

employees then created fake company that was once

documents to appear as considered a Wall Street

though they were recording darling.

sales. Centennial's stock rose

451% to $55.50 per share on

the New York Stock Exchange

(NYSE). According to the

Securities and ExchangeCommission (SEC), between

April 1994 and December

Enabyel Pinez(CEO)

Scam

1996






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February


Bre-X Minerals, 1997 his Canadian company billion. But the party ended on

was involved in one of March 19, 1997, when theTt he l ar g es t st oc k gold mine proved to be

sw indles in hi st or y. It s fraudulent, and the stock

Indonesian gold property, tumbled to pennies shortly

which was reported to contain after. The major losers were

more than 200 million ounces, the Quebec public sector

was said to be the richest gold pension fund, which lost $70

mine ever. The stock price for million; the Ontario Teachers'

Bre-X skyrocketed to a high of Pension Plan, which lost $100

$280 (split adjusted), making mi ll ion and the Ontario

millionaires out of ordinary M u n i c i p a l E m p l o y e e s '

people overnight. At its peak, Retirement Board, which lost

B r e - X h a d a m a r k e t $45 million.

capitalization of US$4.4

Canadian Company(Largest Stock Swindles In History)

Scam

1997

Enron, 2001 rior to this debacle, times, thus creat ing the

Enron, a Houston-based appearance of inc rediblePe n e r g y t r a d i n g earnings figures. Eventually,

company was, based on the complex web of deceit

revenue, the seventh largest unraveled, and the share price

company in the U.S. Through dove from over $90 to less

some fa ir ly comp li ca ted than $0.70. As Enron fell, it

accounting practices that took down with it Arthur

involved the use of shell Andersen, the fifth leadingcompanies, Enron was able to accounting firm in the world at

keep hundreds of millions the time. Andersen, Enron's

worth of debt off its books. auditor, basically imploded

Doing so fooled investors and after David Duncan, Enron's

analysts into thinking this chief auditor, ordered the

c o m p a n y w a s m o r e shredding of thousands of

fundamentally stable than it documents. The fiasco at

actually was. Additionally, the Enron made the phrase "cook

shell companies, run by Enron the books" a household termexecutives, recorded fictitious once again.

revenues, essentially recording

one dollar of revenue multiple

Energy Trading Co.(Accounting Disaster)

Scam

2001






2010Edition

February


WorldCom, 2002 ot long after the in which they were incurred -

collapse of Enron, the were treated as investmentsNequities market was and were recorded over a

rocked by another billion- number of years. This little

dollar accounting scandal. account ing tr ick gross ly

Telecommunications giant exaggerated profits for the

Worl dCo m cam e und er year the expenses were

intense scrutiny after yet incurred; in 2001, WorldCom

another instance of some reported profits of around

serious "book cooking". $1.3 billion. In fact, its

W o r l d C o m r e c o r d e d busi nes s was bec omi ng

op er at in g ex pen se s as increasingly unprofitable.

investments. Apparently, the Who suffered the most in this

company felt that office pens, deal? The employees - tens of

pencils and paper were an thousands of them lost their

investment in the future of the jobs. The next ones to feel the

co mpany and therefore betrayal were the investors

expensed (or capitalized) the who had to watch the gut-

cost of these items over a wre nchi ng dow nf a l l of

number of years. In total $3.8 WorldCom's stock price, as it

billion (yes, with a 'b') worth of plummeted from more than

normal operating expenses - $60 to less than $0.20.

which should all be recorded

as expenses for the fiscal year

Telecommunications(Serious Book Cooking)

Scam

2002

Harshad Mehta AkaDeep Chhaya

as an Indian segments, triggering a rise in

stock broker and the BSE Sensex. When thewis alleged to have scheme was exposed, the

engineered the rise in the banks started demanding the

Bombay Stock Exchange in the money back, causing the

year 1992. Exploiting several collapse. He was later charged

loopholes in the banking with 72 criminal offenses and

sy ste m, Meht a and hi s more than 600 civil action suits

associates siphoned off funds were filed against him. He died

from inter-bank transactions in 2002 at the age of 47 with

and bought shares heavily at a many litigations still pending

pr em iu m ac ro s s ma ny against him.

Harshad Mehta(Benefitted From Loopholes In Banking )

Scam

1992






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February


Tyco International (NYSE:TYC), 2002

it h Wor ld Co m million. These funds were

hav ing alread y smuggled out of the company,Wshaken investor usually disguised as executive

confidence, the executives at b o n u s e s o r b e n e f i t s .

Tyco ensured that 2002 would Kozlowski used the funds to

be an unforgettable year for further his lavish lifestyle,

stocks. Before the scandal, which included handfuls of Tyco was considered a safe houses, an infamous $6,000

bl ue chi p in ve st me nt , shower curtain and a $2

manufacturing electronic million birthday party for his

components, healthcare and wife. In early 2002, the

safety equipment. During his scandal slowly began to

re ign a s CEO , Denn i s unravel and Tyco's share price

Kozlowski, who was reported plummeted nearly 80% in a

as one of the top 25 corporate s i x - w e e k p er i o d . T he

managers by BusinessWeek , executives escaped their first

siphoned hordes of money hearing due to a mistrial, but

from Tyco in the form of were eventually convicted and

unappro ved l oans and sentenced to 25 years in jail.

fraudulent stock sales. Along

with CFO Mark Swartz and

CLO Mark Belnick, Kozlowski received $170 million in low-

to-no interest loans, without

s h a r e h o l d e r a p p r o v a l .Koz lowsk i and Be ln i ck

arranged to sell 7.5 million

shares of unauthorized Tyco

stock for a reported $450

Dennis Kozlowski(CEO)

Scam

2002






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February


HealthSouth (NYSE: HLS),2003

ccounting for large announced that HealthSouth

corporations can be a exaggerated revenues by $1.4Ad i f f i c u l t t a s k billion. The information came

especially when your boss to light when CFO William

in st ru ct s you to fa ls if y Owens, working with the FBI,

earnings reports. In the late taped caught Scrushy talking

1990s, CEO and founder ab ou t th e fr au d . Th e

Ri chard Sc rushy be gan repercussions were swift, as

instruct ing employees to the stock fell from a high of

inflate revenues and overstate $20 to a close of $0.45 in a

HealthSouth's net income. At single day. Amazingly, the CEO

the time, the company was was acquitted of 36 counts of

one of America's largest fraud, but was later convicted

healthcare service providers, on cha rges of b r ibe ry.

experiencing rapid growth Apparently, Scrushy arranged

and acquiring a number of pol it ical contributions of

other healthcare related firms. $500,000, allowing him to

The first sign of trouble ensure a seat on the hospital

surfaced in late 2002, when regulatory board.

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 theloss, but investors should have

taken the warning. The

scandal unfolded in March,

2 0 0 3 , w h e n t h e S E C

Richard Scrushy(CEO)

Scam

2003






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February


Satyam Scam'2009 an accrued interest of Rs. 376

crore (US$ 77.46 million)

which was non-existent.

an understated liability of Rs.

1,230 crore (US$ 253.38

million) on account of fundswas arranged by himself.an oversta ted debtors '

position of Rs. 490 crore (US$

100.94 million) (as against Rs.

2,651 crore (US$ 546.11

million) in the books)

Raju claimed in the same letter

that neither he nor the

managing director had

benefited financially from the

inflated revenues. He claimed

that none of the boardRaju confessed that Satyam's

members had any knowledgeb a l a n c e s h e e t o f 3 0

of the situation in which theSeptember 2008 contained:

company was placed

inflated figures for cash and

bank balances of Rs 5,040crore (US$ 1.04 billion) (as

against Rs 5,361 crore (US$

1.1 billion) crore reflected in

the books).

Ramalinga Raju(Company Chairman)

Big Scam

2009

n 7th January 2009,Ocompany Chairman

R a m a l i n g a R a j u

resigned after notifying board

members and the Securities

and Exchange Board of India(SEBI) that Satyam's accounts

had been falsified.



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Global Research LimitedWhite Paper - Stock Market World Scams !!

Edition: February 2010

2010Edition

February


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.

Conclusion


Biggest Stock Market Scams in the World

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