A Brief Description of the Companies and People Involved in the Legal Violations.
Among the companies affected, by this insider trading ring was International Business Machines (IBM). IBM has a rich company history stretching back over 100 years. International Business Machines (2008) states that the current company was founded in 1911, with the merger of three 19th century companies: the Tabulating Machine Company, the International Time Recording Company, and the Computing Scale Company of America; to form the Computing-Tabulating-Recording Company. Continuing on, in 1914 Thomas J. Watson Sr. joins the company, and it is renamed International Business Machines in 1924 (p. 3). In 1936, IBM provides the equipment to the Federal Government, in support of the Social Security Act. (P. 10). IBM had to shutter its International business during World War II, however that capacity was used for Wartime production (P. 15). Not long after the War, in 1949, IBM promotes diversity, philanthropy, and begins to focus on recruiting minorities, women, and the disabled (P. 15). In 1952 Thomas Watson Jr. becomes president, focusing on electronic computing technologies, and codifies the unwritten culture and norms into rules and programs (p. 29). In the 1960s, Watson Jr., to stay ahead of the competition, made a “bet-the-company” move in the 360 mainframe computer systems, and was met with wild success (p. 47). Throughout the 1970s, IBM, continued to the mainframe computer, and in the 1980s, developed the first personal computers (P. 61). In the 1990s and into the 2000s, IBM begins to focus on new growth opportunities in services and software (International Business Machines, 2008, P. 73).
Other major companies that were affected include: Galleon Group LLC and New Castle Funds LLC. In January 1997, after spending 11 years working at Needham & Company, analyzing technology and healthcare sectors, Raj Rajaratnam founded Galleon Group (Bernheim, April 1997). According to Rajaratnam, Galleon’s fund delivered exceptional returns all throughout the technology boom of the 1990s, with the company’s flagship hedge fund rising 93 percent in 1999 (2013). As the technology bubble came to an end, Galleon’s funds didn’t suffer losses as many other funds did according to Berenson (Nov. 2009). Further more, Galleon didn’t suffer a down year until 2008 (Nov. 2009). After the Arrest of Rajaratnam in October 2009, according Pulliam and Zuckerman, Galleon saw a huge increase in withdrawal requests, to the tune of $1.3 billion of only $ 3.7 billion under management (Oct.
The seriousness of insider trading was not brought to light until some time after the stock market crash of 1929. This specific event can be summed up as a day where many investors traded around 16 million shares
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
Naturally, it was singled out for criticism by the entire industry and the government. IBM also attracted anti-trust legislation as a result. IBM lost out once the Personal Computer industry began to boom. It found that the old paradigm of closed proprietary systems applicable to the mainframe business was not relevant to PCs.
The major groups that were directly affected are investors, employees, and suppliers. Here we should make the distinction between different types of investors. There are two major types of investors: insiders and outside investors. Insiders are the investors who know the information that is not known publicly and may benefit them in some way. Outside investors are the investors who only know publicly known information. In our case, outside investors was the group that lost the most. On the other hand, insiders, notably Mickey Monus and David Shapiro, were the one that gains millions on IPO. The group who suffered was employees of Phar-Mor. After the scandal was revealed, most of the stores were closed to cover up losses. As a result, thousands of employees got fired. Another party that was damaged by the scandal was Coopers&Lybrant, the firm that did the audit for Phar-Mor, lost its reputation as a firm who does an audit with integrity. The secondary effect of the scandal was the overall mistrust among investors. They thought that if a giant retailer can forge its accounting books, why smaller companies wouldn’t do the same. As a result, investors became reluctant in investing into businesses that caused harm to the economy as a whole. The last but not least group that was affected by the scandal is Phar-Mor’s suppliers. Mickey Monus was fiercely fighting with them to make the chipset deals to cover up his losses, sometimes using inappropriate pressure and causing suppliers making unprofitable deals. In additions, Monus forced them to pay fees and sponsor his basketball League using buyer power of his company. In addition, a lot of bills for supplies were unpaid for months by Phar-Mor. Some suppliers said that they hated doing business with Phar-Mor, but had no choice since it had an access to vast amount of customers.
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.
The primary purpose of the “Statute of Frauds” (SOF) is to protect the interests of parties once they are involved in litigating a contract dispute (Spagnola, 2008). The relevant statutes are reliant upon state jurisdictions to determine whether the contract falls under the SOF, and whether the writing of the contract satisfies the requirements of the statute of frauds (Spagnola, 2008). However, all contracts are not covered under the SOF. In essence, for a contract to be deemed as legal by definition of the SOF, there must be verification of the following requirements for formation of the contract, which are as follows: (1) There must be least two parties to the contract, (2) There must be a mutual agreement and acceptance on the price to pay for goods and services offered, (3) The subject matter or reason for entering the contract, must be clearly understood by all parties to the contract, (4) and there must be a stipulated time for performance of duties under the contractual obligations (Spagnola, 2008). Lastly, there are five categories of contracts that are covered under the SOF, which are as follows: (1) The transfer of real property interests, (2) Contracts that are not performable within one year, (3) Contracts in consideration of marriage, (4) Surtees and guarantees (answering to the debt of another), and (5) Uniform Commercial Code (U.C.C.) provisions regarding the sale of goods or services, legally valued over five hundred dollars ($500.00) (Spagnola, 2008).
This case study is not about Ms. Stewart direct participation with illegal insider trading as the media had steered the public to believe. To begin, Ms. Stewart received a phone call from Ann Armstrong, her assistant, stating that Peter Bacanovic, her stockbroker, “thinks ImClone is going to start trading down.” (Arnold, Beauchamp, Bowie, 2013, p. 390) Although Ms. Stewart was not able to get a hold of Peter, she talked to his assistance, Douglas Faneuil,
But since the latter part of the 1960’s, stricter enforcement of insider trading practices has been put into place because of financial scandals. The first to be discussed is a concrete definition of “insider trading” as it is discussed in this essay. According to the “European Communities 1989 Insider Dealing Directive”, insider trading is the dealing on the basis of materials, unpublished, price-sensitive information possessed as a result of one’s employment. (Insider Trading)” Ivan Boesky pleaded guilty to the biggest insider-trading scheme discovered by the United States Securities and Exchange Commission (SEC). He made $200 million by profiting from stock-price volatility in corporate mergers.
Everything is stored on the internet including highly classified government information, and your bank information. How do we make sure no one steals, views, or sells your passwords, and private information? Congress passed a law in 1986 called the Computer Fraud and Abuse Act (CFAA) to protect the government’s information. Many laws have been passed that revises the CFAA. The CFAA has imprisoned many people, and many people want changes to the CFAA today.
Shareholders are important to the continued success of corporations all around the globe. An ethical issue that could have impacted the relationship that Apple had with its shareholders is the less than upfront approach that Apple took in regards to the health of Steve Jobs. In an article found on Time.com Steve Jobs is referred to as “a modern-day Thomas Edison.” As stated in the article it is believed that Apple was not completely honest about the condition of Steve Jobs health as far back as 2004, and also again in 2008 when he took time away from the company due to health concerns. It is also alleged that this could have had an impact on the shareholders and the decisions made in regards to their stock in the company (Berr, 2011). This one of the many ways that Apple could be seen as a company with something to hide. Although, Apple has tried to be more transparent with how they conduct business with their suppliers, as well as how their suppliers treat employees. One of the ways they have tried to do this is by allowing outside monitors to investigate their production facilities in China (Moore, 2012). They have also shown some good faith in publishing the list of their suppliers to the public in 2012 (Moore, 2012). The Suppliers Code of Conduct that was mentioned earlier has had an impact on the relations that Apple has with many of their suppliers since its implementation. As of
In 1985, the board members of Apple Inc stripped Steve Jobs from all his duties making him responsible for being unable to bridge the gap between Apple and IBM/Microsoft. Steve Jobs resigned from Apple. Aftermath, Apple stock dropped and it lost millions of dollars. IBM on the other hand became more successful day after day as Apple languished in competition failure after failure.
Lyke, B and Jickling, M. (2002). WorldCom: The Accounting Scandal. CRS Report for Congress, p2.
The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,
The existence of bribery and unethical behavior is rampant in the world market and may not change overnight. The question of bribery has been distilled in business literature as a question of ethics. In this situation at the airport with the customs officer, it is important to distinguish between business ethics and personal ethics. In a business ethics situation, the Foreign Corruption Practices Act would prohibit offering any bribe to the custom office – for example to free a shipment of goods that was lost in red tape (Pitman & Sanford, 2006). Most companies also have policies against bribery as well. In this situation, however the main issue at hand is that of personal ethics. When in a situation where your company is unknown and there is no business being conducted, normal business ethics and laws (including FCPA) do not apply only personal ethical standards.