Creating Fraud Awareness‪.‬

Enron, WorldCom, Adelphia, Tyco ... these names bring to mind images of executives in handcuffs. They represent bankruptcies and billions of dollars lost by investors, retirees, and lenders. Speaking at the 13th Annual Fraud Conference and Trade Show of the Association of Certified Fraud Examiners, Sherron Watkins, stated that, "In less than two years, investors lost more than $60 billion in the value of their shares in Enron, and the company filed bankruptcy without ever disclosing a poor quarter relative to recurring earnings." (1) At WorldCom, financial officers and their subordinates reclassified more than $3.8 billion of lease expense for communications lines owned by third parties from the income statement to the fixed assets section of the balance sheet in order to maintain a higher stock price. (2) Adelphia founder John J. Rigas and his two sons have been accused of treating the company's funds as their personal piggy bank, using more than $250 million in Adelphia funds to pay personal margin calls, diverting additional funds to build a golf course on their private property, and using corporate apartments and jets for personal use without reimbursing the company--all while Adelphia carried more than $2.3 billion in "off balance sheet debt." (3) Tyco's CEO, CFO, and general counsel have been charged with fraud for receiving millions of dollars in low- or no-interest loans for personal purposes without disclosure to investors; further, they have failed to disclose related-party transactions and executive compensation arising from the forgiveness of loans in their financial statements. (4) These cases have drawn widespread attention because of the billions of dollars involved, but they are not isolated incidents. In March 2002, a shareholder suit was revived against A.T. Cross, makers of Cross pens, for fraudulently overstating revenues. (5) Also, the former CFO of Media Vision Technology was found guilty in August 2002 of five counts of fraud for lying to investors and financial analysts about numerous schemes employed to overstate the company's financial position, including falsifying inventories, misdating transactions, and recording nonexistent products. A trial for the same charges against the CFO had resulted in a hung jury a year earlier. (6)