Background Legato Systems, Inc. was a software company created in 1988 that provided data storage databases and services as an intermediary for other firms within the industry. Legato was listed on the NASDAQ exchange and was audited by Pricewaterhouse Coopers, LLC. In 2003, Legato was acquired and merged into EMC Corp., another company specializing in computer hardware and software, who later merged with Dell Technologies, Inc. in 2016. The executives allegedly responsible for the fraud were Executive Vice President of Worldwide Sales David Malmstedt and Vice President of North American Sales Mark Huetteman. The two executives had worked together for Legato for less than a year before the suspicious activity began, and individually had less than three years of experience working for Legato. When hired, both executives were offered stock incentives and bonuses for meeting sales quotas each quarter. Fraud Risk Fraud risks associated with Legato were rooted in being listed on a stock …show more content…
Mark Huetteman settled the charges in July of 2003, in which he neither admitted nor denied the SEC’s allegations. Huetteman paid $160,000 in disgorgement and $40,000 in penalties. David Malmstedt pleaded not guilty to all charges, and the jury came to the verdict of not guilty in June 2004. Malmstedt held the position that his subordinate, Huetteman, had operated the fraud outside of his knowledge and was therefore not responsible for the fraudulent activities. Legato Systems also suffered reparations as a result of the lawsuit. Legato paid $90 million in settlements to shareholders. At the time of the settlements, Legato had already been purchased by EMC, but Legato was still required to restate their financial statements since 1999.
Overview of the Case: The Securities and Exchange Commission claims Mark D. Begelman misused proprietary information regarding the merger of Bluegreen Corporation with BFC Financial Corporation. Mr. Begelman allegedly learned of the acquisition through a network of professional connections known as the World Presidents’ Organization (Maglich). Members of this organization freely share non-public business information with other members in confidence; however, Mr. Begelman allegedly did not abide by the organization’s mandate of secrecy and leveraged private information into a lucrative security transaction. As stated in the summary of the case by the SEC, “Mark D. Begelman, a member of the World Presidents’ Organization (“WPO”), abused his relationship of trust and confidence and misappropriated material, non-public information he obtained from a fellow WPO member about the pending merger. It was the specific written policy of the WPO that matters of a confidential nature were to be kept confidential (Securities and Exchange Commission). Mr. Begelman maintained a relationship with a fellow WPO member, an insider with BFC Financial, who provided access to non-public information regarding the merger. Mr. Begelman used this information to purchase 25,000 shares of Bluegreen stock prior to the announcement of the acquisition. After the merger was made official and disclosed to the street, Mr. Begelman sold his stake for a net gain of $14,949. He maintained ownership of Bluegreen securities for fifteen days (Gehrke-White).
Dennis Kozlowski was living his dream as a multimillionaire and if anyone got in the way of his dream to create his empire then they would be stepped on like a bug. This is what happened to Jeanne Terrile at Merrill Lynch. Terrile smelled something funny coming from Tyco and when she acknowledged that something was wrong, she was shut down quickly. Nobody knows for sure if Kozlowski paid off the CEO of Merrill Lynch, David Komansky, or not and nobody knows what they talked about. The fact is that Jeanne Terrile was replaced and the stock recommendation for Tyco soon changed after their talk. Terrile decided to do what she thought was right and make sure to notify people of what she thought of the company. Because of Terrile’s ethical decision
Nathan Mueller’s employer, ReliaStar was acquired by the large insurance company ING in 2000. Mueller had a deep understanding of accounting systems and was in charge of transitioning his old employer to the new ERP system. Mueller learned “all aspects of the ERP system including financial reporting, journal entries, and most importantly, checks and wire payment processing” (“Lessons Learned,” 2014). Mueller was an accounting manager of the reinsurance division at one of ING’s offices. He stole almost $8.5 million in a little over four years. Mueller’s department at ING was the reinsurance division, which gave him the ability to approve company checks of up to $250,000. He embezzled this significant amount of money from his employer by requesting
Dennis Kozlowski was an accounting major from modest beginnings who worked his way to the top of Tyco, but along the way he made an important career stop at Nashua Corporation, as the Director of Audit and Analysis. In keeping with his tactic to handpick his management team, along came his new CFO Mark Swartz. He was an impeccable choice for Kozlowski, fitting the requirements of being “smart, poor, and wants-to-be-rich” (Symonds) and since he began his career as a CPA auditor for Deloitte & Touche he had the perfect skill set to assist in Kozlowski’s corruption (Hamilton and Micklethwait 82). Before they could begin to pillage the company they needed to establish a way to avoid detection by the SEC, the board of directors and the auditors. In much the same way a bank robber would disable security cameras, they made their thieveries invisible or paid off those that would help them. First, Kozlowski organized the company so that the internal audit team reported directly to him ins...
In 1952, John Rigas paid $100 for a cable TV franchise in Pennsylvania and ran it as a small family business with only 25 customers. (Bennett, Thau, Scouten, 2005) The business was expanding and in 1972, the company was officially incorporated as Adelphia Communications Corporation. Shortly after, in 1986, Adelphia started publicly trading on the NASDAQ stock exchange. In the 1990s, in the light of a weakening cable industry, Adelphia began expanding into Internet access, paging services and business telecommunications for which it used cash, stock and debt to finance numerous acquisitions. (Bennett, et al) Adelphia’s fraud was finally discovered in March 2002, when Tim Rigas, the company’s CFO revealed that Adelphia owes $2.3 billion in loans made to partnerships run by the Rigas family. This revelation resulted in SEC’s investigation that discovered fraud activities which dated as far back as mid-1999. Shortly after, all members of Rigas family resigned from Adelphia. When Adelphia’s fraud was finally discovered, in March 2002, the price of its stock went from $28 to 79 cents within a month. (Bennett, et al)
...markets. This was accomplished by focusing on design and engineering. However, without strong sales, marketing and production resources, the company will not be able to secure these alternative markets. Since the product is nearly completed, Ecton should stay with their original plan. This would allow Ecton to take advantage of their position as the first to market when negotiating with a potential buyer. By selling the business now, Ecton could avoid the necessity of giving up additional equity to secure additional funding. This would give the original investors (which include the founders) the greatest return on their investment. Michael Cannon has already developed an exit strategy in his Phase III plan. This plan should be followed through. Since Ecton is close to perfecting their product the time is right to make the best deal possible for an acquisition.
Legal actions against Dunlap did not stop at the shareholders action in the civil courts, the Securities and Exchange Commission brought charges against Dunlap, Russell Kersh, Robert Gluck, Donald R. Uzzi and Lee B. Griffith, all former officers of Sunbeam Corporation in May 2001. (CNN Money Staff, 2001). The SEC allegations included that Dunlap had engineered a massive accounting fraud with the cooperation and in collaboration with the four other former Sunbeam executives and the Sunbeam’s lead partner with Arthur Andersen
Sunbeam committed the following two fraud schemes while Al Dunlap was the company’s Chief Executive Officer (CEO): (1) Improper Timing of Revenue Recognition via Bill Hold Sales, Consignment Sales, and Other Contingency Sales and (2) Overstating Earnings via Improper Use of Restructuring Reserves. A series of detection methods were utilized in each fraud scheme to determine the indicators that proved that Sunbeam was involved in manipulating its financial data. The most utilized method for detecting Sunbeam’s fraud was Financial Statement Analysis. Utilization of Annual Reports and Disclosures were utilized just as much as Corporate Research and Media while Business Plan Analysis was ranked as being the fourth most used. Finally; leadership
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.
Martha Stewart, the countries top icon for homemaking has been in the eye of the public since June 2002, but not for her craftiness or culinary abilities. Stewart instead has the spotlight on her for crimes of insider trading. A tip from her former broker Peter E. Bacanovic, persuaded her into selling her IMClone stock after sharing information about a close friend of Stewart’s getting rid of his shares. Stewart’s companion, Sam Waksal, was also the chief executive of IMClone Systems Inc. IMClone Systems is a well-known company specializing in the research and development of therapies treatments of cancer. The stock selling was provoked due to a leak of information about The Food & Drug Administration rejecting IMCLONE’s drug outfit application their cancer drug Erbitux. Before the information reached the public about the FDA’s decision and share price plunged, Stewart sold her 3,928 shares of IMClone. Martha sold her shares at $58, and by the time the news hit, prices fell to $45, resulting in a savings of only 50,000 for the celebrity. But the whole situation of the Martha Stewart case is not a question of insider trading but a question of ethics and management in business: it’s an issue of ethics and the choices people have between right and wrong and the determining factors that cause us to make those choices. While researching this subject I have found many interesting topics. One topic I found very interesting was the fact that a highly qualified executive of Merrill lynch, one of the top brokerage firms in the world, was Martha Stewart’s financial advisor. Another interesting point is that Martha Stewart the mom of home cookery and cuisine, a profession based on honesty and founded on the basis of motherhood would lie about the tips she took to earn an extra buck while already being a multibillionaire. After more research I found that the most important point and the topic of the whole situation was the point that even the most perfect and idolized individuals can be manipulated by money or even the thought of more money in the case of Martha Stewart.
Employees who played along were rewarded; others were threatened. Company employees who tried to bring initial problems to Ebert’s attention were discouraged, and Ebbers made it clear he only wanted to hear good news (“Principle of Management,” 2015). For example, WorldCom’s accounting department, headed by CFO, Scott Sullivan, knowingly underreported line costs and inflated revenues with bogus accounting entries. Sullivan later testified that Ebbers had repeatedly put pressure on him to meet Wall Street expectation, even as the firm's finances were crumbling (Teather, 2005). Ultimately, corporate deviance is the result of how a corporation is lead, how employees are motivated, the nature of the work, and the degree of individual
Although at the same time functional goals encourage unnecessary risk-taking and increased the probability of unethical and possibly unlawful behavior (James, 2015). All the same, the purpose of executive compensation is an incentive for well-trained executives that make the most of the firm’s value (James, 2015). Further, the benefit that is put in place for the executive is structured to remove all conflicts of interest amongst the executive and shareholders (James, 2015). Although, some workers feel as though the executive compensation is unethical; but according to James (2015) it is given to the executives that are well trained, therefore, it is ethical from his point of view. Additionally, the compensation package assists as an enticement for executives to participate in potentially risky, maximizing activities, and profits that benefit the shareholders whenever ventures are successful (James,
... the jury could not agree on verdict. He later plead guilty in making false entry in Adelphia’s records. For this he was sentenced to ten months of home confinement and demanded to pay a fine of $2,000.000 (Barlaup, Hanne, & Stuart, 2009). James R. Brown, the star witness, admitted to orchestrating much of the alleged fraud, remains free and awaits sentencing (Gilliland, 2012).
Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly, shredding