Corporate Scandals and Sarbanes-Oxley
Table 10.5 Corporate Scandals
Celebrity scandals often create “buzz” and actually make celebrities richer. But scandals in the business world
often lead to the forfeiture of millions of dollars as well as prison sentences. We illustrate some notable corporate
scandals below.
Ponzi schemes are named after Charles Ponzi,
who in the 1920s paid returns to investors using
money from new investors rather than firm
profits. Inevitably this kind of scheme falls
apart because it becomes impossible to attract
enough new investors to pay existing ones.
More than one wry cynic has noted the
similarity between Ponzi schemes and how the
Social Security system is funded.
Enron executives used accounting
loopholes to create shell companies to
hide billion in debt from failed deals
and projects. Although these smug
executives thought they were always
“the smartest guys in the room,” the
loss of $11 billion in stock value and
the prison time served by many of
them proves otherwise.
Corruption was a family affair at Adelphia
Communications Corporation, which was
named after the Greek word for brothers.
Adelphia was the fifth largest cable company in
the United States until father and son team John
and Timothy Rigas were found guilty on
securities violations tied to their theft of $100
million. Another Rigas son, Michael, pled
guilty to falsifying financial reports.
First off the ground in 1930, American Airlines
flew atop the headlines in 2009 when the Wall
Street Journal accused the airline of hiding
repeated maintenance lapses on over a dozen
MD-80 aircraft.
Although Chiquita Brands sells
healthy snacks, their corporate actions
upset many stomachs in 2007 when
they were fined $25 million by the
U.S. Justice Department for having
ties to a Columbia paramilitary group
on the department’s list of foreign
terrorists organizations.
The Madoff investment scandal that broke in
2008 provided a modern twist on the classic
Ponzi scheme. NASDAQ chairman Bernard
Madoff pled guilty to eleven federal crimes that
constituted the largest investor fraud ever
committed by an individual. Madoff was
sentenced to 150 years in prison.
In the 1990s and early 2000s, several corporate scandals were revealed in the United States that showed a lack of
board vigilance. Perhaps the most famous involves Enron, whose executive antics were documented in the film
The Smartest Guys in the Room. Enron used accounting loopholes to hide billions of dollars in failed deals. When
their scandal was discovered, top management cashed out millions in stock options while preventing lower-level
employees from selling their stock. The collective acts of Enron led many employees to lose all their retirement
holdings, and many Enron execs were sentenced to prison.
In response to notable corporate scandals at Enron, WorldCom, Tyco, and other firms, Congress passed sweeping
new legislation with the hopes of restoring investor confidence while preventing future scandals (Table 10.5
“Corporate Scandals”). Signed into law by President George W. Bush in 2002, Sarbanes-Oxley contained eleven
aspects that represented some of the most far-reaching reforms since the presidency of Franklin Roosevelt. These
reforms create improved standards that affect all publicly traded firms in the United States. The key elements of
each aspect of the act are summarized as follows:
1. Because accounting firms were implicated in corporate scandal, an oversight board was created to
oversee auditing activities.
2. Standards now exist to ensure auditors are truly independent and not subject to conflicts of interest in
regard to the companies they represent.
3. Enron executives claimed that they had no idea what was going on in their company, but Sarbanes-Oxley
requires senior executives to take personal responsibility for the accuracy of financial statements.
4. Enhanced reporting is now required to create more transparency in regard to a firm’s financial condition.
10.3 CORPORATE ETHICS AND SOCIAL RESPONSIBILITY • 349
5. Securities analysts must disclose potential conflicts of interest.
6. To prevent CEOs from claiming tax fraud is present at their firms, CEOs must personally sign the firm’s
tax return.
7. The Securities and Exchange Commission (SEC) now has expanded authority to censor or bar securities
analysts from acting as brokers, advisers, or dealers.
8. Reports from the comptroller general are required to monitor any consolidations among public
accounting firms, the role of credit agencies in securities market operations, securities violations, and
enforcement actions.
9. Criminal penalties now exist for altering or destroying financial records.
10. Significant criminal penalties now exist for white-collar crimes.
11. The SEC can freeze unusually large transactions if fraud is suspected.
The changes that encouraged the creation of Sarbanes-Oxley were so sweeping that comedian Jon Stewart
quipped, “Did Wall Street have any rules before this? Can you just shoot a guy for looking at you wrong?”
Despite the considerable merits of Sarbanes-Oxley, no legislation can provide a cure-all for corporate scandal
(Table 10.6 “Sarbanes-Oxley Act of 2002 (SOX)”). As evidence, the scandal by Bernard Madoff that broke in
2008 represented the largest investor fraud ever committed by an individual. But in contrast to some previous
scandals that resulted in relatively minor punishments for their perpetrators, Madoff was sentenced to 150 years
in prison.
350 • MASTERING STRATEGIC MANAGEMENT
Table 10.6 Sarbanes-Oxley Act of 2002 (SOX)
In the early 2000s, highly publicized fraud at Enron, WorldCom, Tyco, and other firms revealed significant issues
including conflicts of interest by auditors and securities analysts, boardroom failures, and inadequate funding
of the Securities and Exchange Commission. In response, Senator Paul Sarbanes and Representative Michael
Oxley sponsored legislation that contained what former President George. W. Bush called “the most far-reaching
reforms of American business practices since the time of Franklin D. Roosevelt.” We outline the eleven key aspects
of the law below.
Accounting firms were complicit in some fraudulent events. In
response, SOX created a board to oversee auditing activities
within these firms.
To restore investor confidence in securities analysts, SOX expands the
SEC’s authority to censure or bar them from acting as a broker, advisor,
or dealer.
Concerns about conflicts of interests arising from accounting
firms acting as consultants and auditors for the same firm led
SOX to establish standards to ensure that auditors would be
truly independent.
The comptroller general and the SEC are now required to carefully
monitor any consolidation among public accounting firms, the role of
credit agencies in securities market operations, securities violations, and
enforcement actions.
Senior executives must take individual responsibility for the
accuracy of their firms’ financial reports and they must forfeit
the benefits arising from any non-compliance.
To preserve potentially incriminating documents, SOX creates criminal
penalties for altering or destroying financial records.
To create more transparency, SOX enhances reporting
standards for off-balance-sheet transactions and requires timely
reporting of material changes in a firm’s financial condition.
In the past, white collar crimes often received a proverbial slap on the
wrist. SOX significantly increased the penalties associated with
white-collar crimes and conspiracies.
Securities analysts must disclose any conflicts of interest
involving a firm.
In response to past fraud and records tampering, the SEC can
temporarily freeze transactions deemed unusually large.
The CEO is required to sign his/her firm’s tax return. This may
prevent CEOs from claiming that they did not know tax fraud
was occurring within their firms.
Measuring
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
Computer science is a tough subject. Fortunately, our computer science experts are up to the match. No need to stress and have sleepless nights. Our academic writers will tackle all your computer science assignments and deliver them on time. Let us handle all your python, java, ruby, JavaScript, php , C+ assignments!
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
There is a very low likelihood that you won’t like the paper.
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
GET A PERFECT SCORE!!! 
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more