Corporate scandals can encompass anything from fraud and accounting to exposure of poor ethics and working conditions, and can sometimes lead to the downfall of well-known companies. From ImClone's insider trading to Elizabeth Holmes' Theranos, read all about the biggest American business scandals of recent times.
Enron's accounting scandal is one of the largest and most notorious in history. The energy company, which was founded in 1985, took advantage of the deregulation of energy markets in the 1990s and placed bets on future prices. Headed up by then-CEO Kenneth Lay (pictured), the firm manipulated market-to-market accounting methods to log its estimated profits as actual profits. Yet by fall of the year 2000, the company was struggling.
Market-to-market accounting had allowed it to write off its unprofitable business ventures without harming its profits, but the hidden losses caught up with the firm. Its share price peaked at $90.75 in mid-2000, and in August 2001 analysts began to downgrade their valuation of Enron's stock, and in October the company reported its first quarterly loss.
Shortly afterwards, the SEC announced it would be investigating Enron. It was revealed that Enron actually had made losses of $591 million and had $628 million of debt at the end of 2000. The company's shareholders launched a $40 billion lawsuit and by the end of 2001 Enron's share price was less than $1. On 2 December 2001, Enron filed for bankruptcy and it had to pay its creditors more than $21.7 billion between 2004 and 2011.
In April 2010, it was discovered that there had been a massive oil spill in the Gulf of Mexico, just 41 miles off the coast of Louisiana, linked to the Deepwater Horizon oil rig which was leased by BP. On the night of 20 April, a surge of natural gas blasted through a concrete core which had been too weak to withstand the pressure, and the natural gas traveled up to the rig platform, killing 11 workers and injuring 17. Two days later the rig itself collapsed and sank, which caused a further rupture and caused an offshore oil spill in the Gulf of Mexico, the effects of which are still being felt today.
The oil spill released more than 130 gallons of crude oil, which created a slick of oil stretching 57,500 square miles in the gulf, with oil even reaching Louisiana's beaches. To clean it up, 1.8 million gallons of dispersants were pumped into the slick. At the time BP's chief executive Tony Hayward was criticized by the public for his flippant reaction to the disaster, and he was replaced in October that year. By 2011, BP's value had decreased by nearly a quarter and the company had spent more than $40 billion on the clean-up and recovery. The area's wildlife, including deep-sea coral, common loons, and spotted sea trout, is still struggling today.
Facebook got into hot water in March 2018, when a joint investigation by The Guardian, The Observer and The New York Times found that the social media platform had allowed data company Cambridge Analytica to harvest 87 million users' data and target voters with political advertisements. Cambridge Analytica used a digital app called "thisisyourdigitallife", which asked users questions in order to build psychological profiles of them.
In 2018, former Cambridge Analytica employee and whistleblower Christopher Wylie (pictured) disclosed information about the data company. Facebook publicly apologized for its involvement and Mark Zuckerberg testified in front of Congress in America. In 2019, Facebook was fined $5 billion by the Federal Trade Commission for mishandling user data, a record fine for the Commission. But that wasn't the end of it. Later that year, Facebook was fined $609,000 by the UK's Information Commissioner's Office for failing to keep UK users' data safe.
Theranos, an exciting start-up that promised to revolutionize medical testing with blood tests that it claimed only needed tiny volumes of blood, was initially lauded. In fact, the business that CEO Elizabeth Holmes started in 2003 during her freshman year at Stanford University had attracted a valuation of $9 billion by the time she was in her late 20s. And so Holmes' 50% stake in the business meant that Forbes named Holmes as America's richest self-made woman in 2015.
However, things started to fall apart once Theranos came under closer scrutiny. The tech that it was claimed was able to perform blood tests with only tiny volumes of blood simply didn’t exist. Not only that but Holmes was using money from the company to fund a very luxurious lifestyle including private jets, personal security and a $25,000-a-month personal publicist. In 2018, Holmes was charged with nine counts of wire fraud and two counts of conspiracy to commit wire fraud. She has since been found guilty on four charges and is waiting to start her prison sentence, having recently given birth to her second child. Unsurprisingly, Theranos ceased trading in 2018.
Bernard Madoff (pictured) made his billions as a high-flying financial advisor running his investment firm Bernard L. Madoff Investment Securities. He attracted a number of investors because he gave off an air of respectability, offering high returns on their investments and used a strategy which he claimed was legitimate, known as split-strike conversion.
However, what Madoff did differently was to deposit client funds into one bank account, which he then used to pay clients who wanted to get their money out, rather than paying them in profits. His Ponzi scheme was the biggest in history, tricking investors out of $64.8 billion.
When the stock market took a downwards turn in 2008, Madoff was no longer able to cover up his fraud and he admitted what he had done to his sons on 10 December that year. They handed him over to the authorities the next day. In 2009, Madoff pleaded guilty to securities fraud, wire fraud, mail fraud, perjury, money laundering, and other federal felony counts. He was sentenced to 150 years in jail.
His family have suffered greatly as a result of his actions. His son Mark killed himself in 2012 after struggling with the disgrace of what his father did, and being named in lawsuits from investors trying to get back their money. His other son Andrew's wife Deborah filed for divorce on the day of Bernie Madoff's arrest. Andrew later died from cancer in 2014 aged 48. He had first been diagnosed in 2003, but blamed a relapse on the stress caused by his father's scandal.
Another company that was embroiled in a scandal after it emerged it had cooked its books is Worldcom. The telecommunications company was one of America's biggest long-distance phone companies at the peak of the dot-com bubble, valued at $186 billion in April 1999, but it turned to accounting tricks to maintain the appearance that it was still making a profit.
Worldcom recorded expenses as investments in order to increase its net income, which ultimately meant it exaggerated its profits by a massive $3 billion in 2001 and $797 million in the first quarter of 2002. However, once it became clear what was happening Worldcom filed for bankruptcy in July 2002. The company's CEO Bernard Ebbers was sentenced to 25 years in prison in 2005, while former CFO Scott Sullivan was given a five-year sentence. In 2003, Worldcom emerged from bankruptcy thanks to financing from Citigroup, J.P. Morgan, and G.E. Capital, going under the new name of MCI, a company Worldcom had previously acquired.
Businesswoman Martha Stewart was famed for being America's best-known homemaker in the early 2000s. In 2001, she sold her shares in ImClone Systems, after she heard from a friend that the price of ImClone's stock was about to plummet. Two days later the stock fell by 16% when it was revealed the company's key pharmaceutical product hadn't been approved.
The company's CEO Samuel Waksal also sold his stock worth $5 million, and was quickly convicted for insider trading, which led to a seven-year prison sentence and $4.3 million in fines in 2003. While Martha Stewart shared the same broker as Waksal and was also investigated for insider trading, it was difficult to prove she was guilty, but her lies surrounding the case meant that she didn't avoid trouble...
In 2004, Stewart was convicted for obstruction of justice, making false statements and conspiracy for lying to the investigators who had looked into her insider trading case. She ended up serving five months in prison and paid $195,000 to settle civil charges with the Securities and Exchange Commission.
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