Waste Management Scandal Case Study

Some of the most well-known accounting frauds in the U.S., in the past two decades are the Waste Management Scandal (1998), Enron (2001), WorldCom (2002) that brought the Sarbanes-Oxley Act, Tyco (2002), HealthSouth (2003), Freddie Mac (2003), Fannie Mae (2004), AIG (2005), and Lehman Brothers (2008), to name a few (Accounting-degree.org, n.d.). (Dear Our topic is corporate collapses, not accounting frauds, i think we should talk about some of the most well known corporate collapses in US)

This project will look at two specific corporate collapses in the U.S. resulting from the Bernie Madoff Ponzie Scheme of 2008 and the Le-Nature Soda Company Pyramid-Ponzie Scandal of 2006. The diverse nature of these organizations (one dealing in financial investments and the other in product manufacturing), yet both their abilities to successfully operate Ponzi schemes , is the primary reason for their selection in this project. This report highlights the accounting and non-accounting frauds conducted within these organizations and analyses the reasons for their collapse.

3 CASE STUDY 1 – THE BERNARD MADOFF SCHEME (2008)

Bernard L. Madoff Investment Securities (BLMIS) LLC was the largest ever Ponzi scheme in the history of the U.S. In December 2008, BLMIS collapsed when Madoff was arrested after he admitted to have been involved in a Ponzi scheme for decades (Benson & Chumney, 2011, pp. 274). The Global Financial Crisis (GFC), specifically, the 2007 credit crunch was one of the primary reasons behind the collapse of 190 Ponzi schemes in the U.S. during 2008 and 2009, with Madoff being the largest. According to trustee Irvin Picard, the loss in the Madoff scandal was estimated to be close to $17.5 billion in principal (SIPA, 2008). If pro...

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...Office of Investigations, 2009).

BLMIS was also a huge audit failure and fraud. A company with an investments volume of $65 billion was being audited by a three member firm, Friehling & Horowitz, since 1991. After the collapse of BLMIS, it was discovered that the auditor never conducted any independent audits nor did they carry out any verification of revenues, assets, liabilities, bank accounts, or trading records. (Lewis, 2013b, pp. 370).

The sudden advent of the credit crisis in 2007 drove various investors in the Madoff Securities scheme to liquidate their investments. Madoff’s inability to liquidate and return such vast amounts of capital from an organization that showcased assets that didn’t exist led to his confession to running a massive Ponzi scheme, first to his brother and then to his sons, who turned him in to the authorities (Benson & Chumney, 2011).