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Biggest stock scams

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  • 1. Entrepreneurship Ref: 0005INVESTMENT NOTICE: Message Web Site Content LimitationsWe make no guarantees as to the accuracy, thoroughness or quality of the information on this web site, which isprovided only on an “AS-IS” and “AS AVAILABLE” basis at User’s sole risk. Investopedia shall not be responsibleor liable for any errors, omissions or inaccuracies in the web site content. The information and investmentstrategies provided at this site are neither comprehensive nor appropriate for every individual. Some of theinformation is relevant only in Canada or the U.S., and may not be relevant to or compliant with the laws,regulations or other legal requirements of other countries. It is your responsibility to determine whether, how and towhat extent your intended use of the information and services will be technically and legally possible in the areas ofthe world where you intend to use them. You are advised to verify any information before using it for any personal,financial or business purpose. The web site content and services may be modified at any time by us, withoutadvance notice or reason, and Investopedia shall have no obligation to notify you of any corrections or changes toany web site content.Biggest Stock ScamsBiggest Stock ScamsIts unfortunate, but money and greed often go hand in hand. As such, its no surprise that fraud and scams happenin the investing world, despite regulatory supervision aimed to prevent them. Public companies are supposed to actin the best interests of shareholders - but it doesnt always work out that way. Here we take a look at some of thebiggest financial frauds. These companies betrayed their investors and in many cases, the financial fallout wasntpretty. Would you have seen it coming? For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  • 2. 1985: EF HuttonThis American stock brokerage fell from one of the most respected in its field, to total ruin. In 1980, the companybegan writing checks for more than what it had on hand, a strategy known as check kiting. Hutton used thisstrategy to obtain the use of $250 million of interest-free money a day. In 1985, the company pleaded guilty to2,000 counts of mail and wire fraud. In exchange for the guilty plea, no Hutton executives were prosecuted and thecompany was allowed to stay in business.1986: ZZZZ Best Inc.Owner Barry Minkow posited that the carpet cleaning company would become the "General Motors of carpetcleaning". He appeared to be building a multimillion dollar corporation, but he was actually churning out thousandsof phony documents and sales receipts. In the end, the company turned out to be little more than a front designedto lure investors into a Ponzi scheme, which, according to Minkows 1988 indictment, defrauded ZZZZ BestsInvestors and lenders out of $50 million. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  • 3. 1996: Centennial Technologies Inc.This company was hailed as a winner on Wall Street when, in 1996, its stock price rose 451% to $55.50 per shareto become the best performing NYSE stock that year. But rather than raking in revenue on PC memory cards,Centennial was actually orchestrating sales of nonexistent products to executives friends, who received fruitbaskets from the company and falsely acknowledged that they had received Centennial products. According to theSEC, Centennial overstated its earnings by about $40 million over a two-year period. In the fallout, more than20,000 investors lost almost all of their investment in this former Wall Street darling.1997: Bre-X MineralsThis Canadian companys Indonesian gold property was reported to contain more than 200 million ounces, makingit the richest gold mine ever. The stock skyrocketed, making millionaires out of ordinary people overnight, but theparty ended on March 19, 1997: the gold mine proved to be fraudulent, and the stock became nearly worthless.Major pension funds in Quebec and Ontario, which had invested heavily in the stock, lost millions. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  • 4. 2001: EnronThis Houston-based energy trading company was, based on revenue, the seventh largest company in the U.S. Butthrough some fairly complicated accounting practices that involved the use of shell companies, it was able to keephundreds of millions worth of debt off its books and create incredible earnings figures. When the SEC launched andinvestigation in 2001, it revealed a complex scam that had brought the company the verge of collapse. When itfinally fell, the stock price plummeted from more than $90 to less than $0.70; thousands of Enron employees lostsavings, college funds and pensions and investors lost billions.2002: WorldcomThis telecommunications giant came under intense scrutiny after it engaged in some serious book cooking, andbegan recording operating expenses as investments. In total, $3.8 billion worth of normal operating expenses wererecorded as investments, grossly exaggerating profits. Tens of thousands of employees lost their jobs in the falloutand investors suffered as the stock dropped from $60 to less than $0.20. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  • 5. 2002: Tyco InternationalTyco was considered a safe blue chip investment, manufacturing electronic components, healthcare and safetyequipment until CEO, Dennis Kozlowski began siphoning money from Tyco in the form of unapproved loans andfraudulent stock sales. Along with CFO Mark Swartz and CLO Mark Belnick, Kozlowski received $170 million inlow- and no-interest loans - without shareholder approval. Kozlowski and Belnick arranged to sell 7.5 million sharesof unauthorized Tyco stock for a reported $450 million. As the scandal began to unravel, Tycos share priceplummeted nearly 80% in a six-week period.2002: AdelphiaThis cable company, once the fifth-largest in the U.S., fell from grace when the companys three founders and twoother executives were charged with securities and other violations, including theft, conspiracy and wire fraud. TheSEC also charged that the company fraudulently excluded billions of dollars of liabilities from its consolidatedfinancial statements. The company collapsed into bankruptcy, leaving investors holding the bag. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  • 6. 2003: HealthSouth CorporationBy 1996, Healthsouth had become one of Americas largest healthcare service providers, thanks to rapid growthand several acquisitions through the 1990s. But around this time, company CEO and founder Richard Scrushybegan instructing senior officers and accountants to inflate revenues and overstate HealthSouths net income. Thescandal unfolded in March 2003, when the SEC announced that HealthSouth had exaggerated revenues by $1.4billion; the stock fell from a high of $20 to a close of $0.45 in a single day.2008: Bernard MadoffMaking for what could be an awkward Christmas, Bernard Madoff, the former chairman of the Nasdaq and founderof the market-making firm Bernard L. Madoff Investment Securities, was turned in by his two sons and arrested onDecember 11, 2008 for allegedly running a Ponzi scheme. The 70-year-old kept his hedge fund losses hidden bypaying early investors with money raised from others. This fund consistently recorded a 11% gain every year for 15years. The funds supposed strategy, which was provided as the reason for these consistent returns, was touse proprietary option collars that are meant to minimize volatility. This scheme duped investors out ofapproximately US$50 billion. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009

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