Types of scams
List of scams
• Global Crossing
• Bre-x Minerals
• Lehman brothers
• 2G scam
• Common wealth games scam
• Fodder scam
• Satyam scam
• Telgi scam
• Harshad Mehta scam
• Ketan parekh securities scam
About Bre-x Minerals
• Mining company
• Founded by David walsh in 1989
• Group of Canadian companies based in Calgary, alberta
• Involved in a major scandal
Timeline of Scandal
• May 1988- shares trading at 0.3 dollars
⁻ John Felderhof became new vice chairman.
⁻ He suggests exploration in busang, Indonesia
⁻ Hired Geologist Michael de Guzman as project manager.
₋ During initial stages company claimed promising results
₋ Stock price increased to $14.87
₋ claimed gold to be 30 million ounces
₋ stock price increased to $5o
₋ Started trading at Toronto stock exchange at $180
₋ Networth reaches 6 billion
₋ Gold estimated to be 39 million ounces
Mysterious story of Bre-x
• Positive intervention of government.
• 1997- Insignificant amounts of gold.
• Smartly using false gold samples.
• Usage of gold dust.
• Destroying all the records.
• Shares plunges to $2.80
• False Suicide of Michael D’Guzman.
• Vanishing easily.
• Was it a fair ending?
• What about the investors?
What can be done to stop such scam??
Montgomery Hendry Lehman New York USA Richard S.
Alabama Emanuel Lehman Fauld jr
USA (1850) Mayer Lehman,
HISTORY OF LEHMAN BROTHERS
How big is Lehman Brothers?
• Prominent Investment bank in Wall Street.
• Huge Diversion
• Investment banker
Initialization of Crisis
• Federal reserve chairman lowers interest rate to 1%.
• Banks on Wall St. started taking loan form Federal at 1% other
countries like China, Japan, Middle east also gave loans to
banks on Wall St.
• Banks started leverages.
The Weekend that changed wall street
why did Lehman brothers
• Lehman Brothers was a big player in the mortgage-
backed securities market
• Most exposed banks to the US sub-prime
•It became bankrupt as a large part of their loan
portfolio comprised of loans for buying real estate.
•It had a bank debt of $613 billion, $155 billion in
bond debt, and assets worth $639 billion.
It all begins with…
Houston Natural Gas = a gas utility headquartered in Houston, TX.
InterNorth Inc. = (1979) Large Energy company based in Omaha, NE.
Specialized in Natural Gas pipelines, and also a force in plastics,
coal and petroleum exploration and production.
1985: Merger between InterNorth and HNG.
1986: Company run by former HNG CEO Kenneth Lay.
Enron- The company
• World wide leading energy concern
• fusion of two major gas providers.
• Largest gas provider in Britain and America.
• Active in 40 nations with a sales volume of 140 billion US$.
• Enron Online : Petrochemical, Plastics, Power, Pulp & Paper, Steel,
Weather Risk Management.
• Oil & LNG Transportation.
• Principal Investments.
• Risk Management for Commodities.
• Energy transportation and upstream services.
• Capital and risk management services.
• Energy and commodities services, etc.
Enron Before its bankruptcy
Fortune magazine chose Enron
as it’s “Best Managed and
Most Innovative company”
#1 – Quality of Management
#2 – Employee Talent
Chosen “the most innovative company” for 6 years in a
Enron’s Surge to the top
• From Energy to Trading
• Mark-to-Market accounting
• Special purpose Entity
• A new Strategy
• Skilling’s plan
Enron Scandal- From Riches to Rags
So what went wrong???
Mark to Market accounting
“Enron was in charge of putting any possible number of earnings
(manipulation) and the technique became a generator of huge
SPECIAL PURPOSE ENTITIES
SPE’s reflect a common financing technique for companies.
Companies can cut their risk by moving assets into separate
partnerships that can be sold to outside investors.
Accounting rules-> SPE´s legally isolated from the company
that created it.
Losing money assets
were sold to partnerships
Listed as earnings.
Hide and to manipulate cash flows
June 13 2006
Pump and Dump
• During Enron’s fall, executives would encourage
employees and investors to buy more stock, telling
them the company would rebound, while selling large
amount of Enron stock themselves.
• By Enron’s collapse
• Skilling made over $200M in Enron stock
• Lay made over $300M in Enron stock
The “Smartest Guys in the Room”
Kenneth lay Jeffrey Skilling Andrew Fastow
The key Players…
Then were said to be “ THE GUILTIEST
GUYS IN THE ROOM”
•Provided multi million
•Paid substantial fees to
•Provided good investment
Aftermath of Enron’s Bankrupcy
• 4500 employees lost their jobs
• 60 billion dollars went for a toss
• Citizens trust in the system was destroyed.
• worst stock value loss in peaceful times.
• The rules for company financial reporting were drastically
sharpened: Sarbanes-Oxley Act(2002).
What could Enron have done to prevent what
An ethical corporate culture
In Brief about Arthur Andersen
• Founded in December 1913 by Arthur Anderson and Clarence
• By 2000:
-350 offices in 84 countries
-Top 5 accounting firm
-1,00,000 clients including government and MNC’s.
• Provided auditing and accounting services
company started in 1913 in Chicago
named as Andersen, Delany & Co.
After Denlay left, company was
renamed as Arthur Andersen & Co
1930’s- public companies to submit
their financial statements to
1947 Andersen died and Leonard
Spacek became the new CEO
Opened international offices in 1950
In 1954 they launched computer
In 1960 they made huge profits
In 1970s Consulting business
By 1979 half of its worldwide fees
came from consulting
• Enron was Andersen’s second largest client.
• Provided both external auditing and Consultations.
• unethical methods used by AA
• Blind fold by their own will.
• Funeral of documents.
• Bankrupcy of both companies.