The Case Study Analyzes Crazy Eddie

During my courses, I frequently remind students that most corporate executives, accountants, and auditors are honest and ethical. This case provides a stark and powerful example of one such individual. When I discuss a case such as this in my courses, I try to provide other examples of positive role models among corporate executives. Granted, most of these examples do not involve accounting or auditing matters, but, nevertheless, they help to blunt the impression that students may receive from studying my cases that most corporate executives are “crooks.”

The word “fraud” was magnified in the business world around the end of 2001 and the beginning of 2002. No one had seen anything like it. Enron, one of the country’s largest energy companies, went bankrupt and took down with it Arthur Andersen, one of the five largest audit and accounting firms in the world. Enron was followed by other accounting scandals such as WorldCom, Tyco, Freddie Mac, and HealthSouth, yet Enron will always be remembered as one of the worst corporate accounting scandals of all time. Enron’s collapse was brought upon by the greed of its corporate hierarchy and how it preyed upon its faithful stockholders and employees who invested so much of their time and money into the company. Enron seemed to portray that the goal of corporate America was to drive up stock prices and get to the peak of the financial mountain by any means necessary. The “Conspiracy of Fools” is a tale of power, crony capitalism, and company greed that lead Enron down the dark road of corporate America.

Armstrong and Dennis R. Balch in the Journal of Legal, Ethical and Regulatory Issues, Volume 18, Number 2, 2015 they interview two former Chief Financial Officers, Aaron Beam and Weston Smith to conduct qualitative assessment using the Banality of Wrongdoing Model. During the assessment Mr. Beam and Mr. Smith were asked fourteen questions to gauge “the culture of competition, ends-biased leadership, missionary zeal, legitimizing myth, the corporate cocoon, banality of wrongdoing and greed.” The authors of this study concluded that Mr. Beam and Mr. Smith did not attempt to justify or rationalize their behaviors or their part in unethical practices and accounting fraud but rather admitted to being fully aware of their actions and knew the ramifications of doing such. Rather than trying to justify their behaviors it became more of anxiety and stress to both of them, however they “used the defense that they were more or less forced into the behavior by the Chief Executive Officer, Richard

In conclusion, Kozlowski and Swartz were both found guilty of breaking the law on different accounts, and receiving jail time as a part of their sentences was the correct punishment (Sorkin, 2002). These two men stole hundreds of millions of dollars from Tyco International through fraudulent claims, and used the money to pay for houses, apartments, events, and shopping expenses (Sorkin, 2002). Over the amount of time Kozlowski and Swartz were stealing from their company, they had a plan of how they were going to obtain extra profits, which was committing fraud and scamming the customers and company, and even the employees (Sorkin, 2002). It is important that large corporations, and even small businesses, do not oversee white-collar crime because

The agencies not only discovered the complex web of fictitious partnerships that hid Enron’s massive debt but also that the company’s external accounting firm, Arthur Anderson, was creating materially false and misleading audit reports. . The true nature of Enron’s massive financial losses was shown to the public and the stock price plunged, causing investors to lose billions of dollars. Enron, however, was just the first and largest scandal to become public. Numerous companies including Tyco, WorldCom, and Kmart were found to have inflated earnings (Martin & Combs, 2010, 103). Investors had been manipulated to invest into companies that followed unethical business practice thereby shattering future investor confidence.

Undoubtedly, the corporate executives’ and in some cases managers’ greed literally destroyed the credibility and reputation of the entire corporations. As indicated by Friedrichs (2012), if executives and managers are best positioned to steal millions, sometimes lower-level employees succeed in doing so as well. Unfortunate, these white-collar crimes are increasing in society. As a matter of fact, estimates provided by the Federal Bureau of Investigation (FBI) routinely suggested that far more is lost to white-collar crimes than to traditional property crimes such as larceny, robbery, and burglary. In addition, white-collar offenses have the potential to cause serious physical and emotional damage to victims (Payne, 2016).

Enron’s ride is quite a phenomenon: from a regional gas pipeline trader to the largest energy trader in the world, and then back down the hill into bankruptcy and disgrace. As a matter of fact, it took Enron 16 years to go from about $10 billion of assets to $65 billion of assets, and 24 days to go bankruptcy. Enron is also one of the most celebrated business ethics cases in the century. There are so many things that went wrong within the organization, from all personal (prescriptive and psychological approaches), managerial (group norms, reward system, etc.), and organizational (world-class culture) perspectives. This paper will focus on the business ethics issues at Enron that were raised from the documentation Enron: The Smartest Guys

In today’s society crime occurs everyday across all aspects of life. One particular crime is that of white collar and corporate level crime. It is important that we as a society study this type of crime in depth because many individuals believe that white collar and corporate level crimes are victimless crimes when in reality they have the potential to destroy major corporations and economies all with one single case. The news or media rarely talk about this type of crime because it is often difficult to understand and individuals typically lack interest in these types of cases. One particular case is that of Jordan Belfort. Dubbed the infamous “Wolf of Wall Street” Jordan Belfort is a former stockbroker who robbed investors of over $200 million dollars to create his wealth through “pump and dump” schemes, insider trading, money laundering securities fraud, and stock-market manipulation. As an attempt to further understand these complex cases I will break down Belfort’s case as far as the methods and means as to how he got started, his use of “pump and dump” schemes and other means as to how he acquired his wealth. In addition to this I will discuss the sanctions and disciplinary action that Jordan Belfort was given, how the case affected society and what new regulations were

This paper introduces Bernard L. Madoff a fraudster who orchestrated a multi-billion dollar Ponzi scheme. The paper discusses elements that make up a Ponzi scheme and explains what a Ponzi scheme is. The paper goes on to introduce some of the victim’s and examines some reasons why someone might fall victim to a Ponzi scheme. The paper describes the three elements making up the fraud triangle and how they relate to the fraud and the fraudster. This paper covers Bernard Madoff’s background and history and how he committed the fraud analyzing the fraud triangle. The paper describes ways to correct the issue, accounting principles violated, and recommendations for a fix. Finally, the paper looks at internal and external controls violated and ends with a conclusion.

1) The following table provides key financial ratios for Crazy Eddie during the period 1984-1987:

In Crazy Eddie Case, a former CPA, Sam E. Antar, was a key individual who helped Eddie Antar mastermind one of the largest securities frauds uncovered during the 1980s. Sam admitted that he had no empathy whatsoever for investors because he never concerned about morality or the suffering of those victims. Next I’ll analysis Crazy Eddie Case from ethical perspective and use Ethical Decision Making Model to evaluate Sam’s possible behaviors.

A key factor to Enron’s fall from grace, was due to the foibles of its corporate leadership, in particular, how certain executives were willing to overlook unethical behavior in lieu of profits. For example, Ken Lay, Enron’s Chairman, espoused the ideals that Enron had higher level of morals than the average company (Gibney, 2005). However, on several instances, he failed to enforce or show that level of commitment. In the Vahalla case, he allowed traders that were involved in manipulating and gambling the company’s earnings to continue their operations, despite being warned of their fraudulent behavior (Gibney, 2005). His justification, at the time, was that Vahalla was the only part of the company that was making any money (Gibney, 2005).

Walt Pavlo is an industrial engineer that continued to make multiple poor, unethical decisions in a row that inevitably caused him to lose his job and serve a 25-month sentence for white-collar crime (Pavlo). This was not due to his lack of education, though. He had a degree in industrial engineering as well as a MBA that helped him secure a prestigious job at a large communication company (Pavlo). The pressure of meeting goals and deadlines for his company, MCI, proved to be too much for Pavlo and he began to alter the numbers in his company’s books and received pay-outs from clients that were put into an off-shore bank account. These decisions violated multiple fundamental canons in the NSPE Code of Ethics.

This case study was about different accounting company's that were investigated and charged with making fraudulent documents and records with money. These different company's in this case study were Enron, WorldCam, and Adelphia Communications (Ferrell, 2009). Enron was founded by former CEO Kenneth Lay, former CEO Jeffrey Skilling and former CEO Andrew Fastow. Enron was one in several other major corporations (most famous) accused of dirty dealings (Ferrell, 2009). Enron had reported 111 billion in 2000. The Corporation collapsed in debt after it had been concealed through a complex scheme of off balanced sheet partnership called mark-to-market. Mark-to-market accounting is assets that are yet to be obtained based on the current market prices. Mark-to-market allowed Enron to record future profits on books as present and ignoring sources of debt boosting the company's revenue on paper (Ferrell, 2009). Enron Corporation was forced to file Chapter 7 bankruptcy and had to lay-off 4,000 employees and a thousand more lost their retirement savings that had been invested in Enron stock. Later former chief financial officer Andrew Fastow was sentenced to six years in prison in exchange for giving prosecutors important information (Ferrell, 2009). Jeffery Skilling was sentenced to 24 years in prison and was ordered to pay back 45 million in restitution for his part in the scandal. Kenneth Lay died before he could began serving his 20-30 year sentence in prison (Ferrell, 2009).

Over the past two years, corporate America has endured a plethora of fraudulent acts committed by those of high status within their respective corporations, most of which involve internal fraud. Internal fraud has two main aspects, misappropriation of assets and fraudulent financial reporting, with the focus of this discussion lying within the former. Misappropriation of assets is defined as fraud for personal gain. It is the most common type of fraud found among employees and frequently includes theft of cash and inventory.