Tyco Scandal Essay

Greg Whalley, (former Enron President and Chief Operation Officer) had six to eight conversations last fall with the Treasury’s Department Peter Fisher, including one in which he asked Fisher to call Enron’s lenders as they decided whether to extend credit to the company.

Tyco International Ltd. is a security systems company founded in 1960 by Arthur J. Rosenberg. The company is incorporated in Switzerland with U.S. headquarters in Princeton, New Jersey. It is currently composed of two major business segments: Secu-rity Solutions and Fire Protection. For fiscal year 2001, the company had revenue of $36 billion and roughly 240,000 employees worldwide. Tyco shares closed at a high of $59.76 on the New York Stock Exchange in December 2001. After the corporate fraud scandal of 2002, the company stood $28 billion in debt and its shareholders had lost over $90 billion, more than 80% of Tyco’s peak market value.

A. Belnick, Dennis Kozlowski, and Mark Swartz. They were charged with falsifying business records in order to conceal their questionable tactics in regards to getting loans without obtaining anyone’s approval. The earnings per share was affected negatively by the fraudulent record keeping, and the president of the Fire and Security division, Jerry Boggess, was an accomplice and fired as a result . After avoiding a million dollar tax bill for the purchase of artwork worth $14 million, Dennis Kozlowski was indicted for tax evasion by the DA of New York. Richard Scalzo was responsible for auditing the financials of Tyco. He participated in improper conduct because he did not implement the proper measures within his audit duties as it pertains

Ray Bowen, a Citigroup banker at the time and now Enron's chief financial officer, once asked Mr. [Andrew Fastow] about a batch of complex equations that filled a whiteboard in the conference room next to the Mr. Fastow's office. "You can't tell me you understand those equations," Mr. Bowen commented to Mr. Fastow. Mr. Fastow replied: "I pulled them out of a book to intimidate people."

Most notably was the Tyco International scandal which happened in 2002, during which the SEC filed fraud charges against the CEO of Tyco, Dennis Kozslowski.

According to regulatory filings, in 2008, the Madoff firm had more than $17 billion in assets under management. He founded his frim in 1960. Also, the FBI and civil action brought by the Securities and Exchange Commission(SEC), Madoff estimate the loss his fraud exceeded $50 billion. The banks reported the losses. Moreover, wealthy investors and hedge funds climbed over the weekend for about $20 billion. Also, banks all over the world in the US, Britain, Spain, Italy, France, Japan and Switzerland reported for about billions of dollars. Madoff scandal has had its impact on the social layers testifies to the depth of the underlying crisis that produced it.

1. The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe are most responsible for that crisis. Briefly justify each of your choices.

Ethical behavior, in a general sense, is a definition of moral behavior in regards to lawfulness, societal standards, and things of that nature. In the business world, ethics commonly refer to acceptable and unacceptable business practices within the workplace, and all other related environments. The acceptance of colleges regardless of ethnicity, gender, and beliefs, as well as truthfulness and honesty in relation to finances within the company are examples of ideal ethical business conducts. Unethical business behavior would include manipulating procedures based on bias or discrimination, engaging in activities that promote political gain, as well as blatant fabrication of monetary factors within the company and “can affect

Main character in this fraud is Mr. Dennis Kozlowski, the CEO of Tyco. He misappropriated around $270 million through unauthorized loans, sale of Tyco securities and undisclosed compensation. In order to conceal these amounts, the compensation was incorrectly offset against unrelated gains. This led to violation of GAAP and misrepresented financial statements. For example, $44.6 million of bonuses were offset against gain from IPO of one of Tyco’s subsidiaries. They have also netted the bonuses with gain on disposal of business and gain on sale of common stock. According to ASC 718 Compensation, these and other bonuses should have been disclosed in operating earnings and should have decreased operating income. However, since they were offset against one-time gains, they did not have any impact on operating income. This “hiding” of compensation occurred on several occasions – the expenses were also netted against gain on sale

Enron Corporation was an energy company founded in Omaha, Nebraska. The corporation chose Houston, Texas to home its headquarters and staffed about 20,000 people. It was one of the largest natural gas and electricity providers in the United States, and even the world. In the 1990’s, Enron was widely considered a highly innovative, financially booming company, with shares trading at about $90 at their highest points. Little did the public know, the success of the company was a gigantic lie, and possibly the largest example of white-collar crime in the history of business.

It seems like business morals and ethics are being whisked to the side in lieu of the ever growing demand of higher stock prices, rising budget goals and investor profits. Despite the increased regulation of corporations through legislation, such as, Sarbanes-Oxley, some corporations still find themselves struggling to maintain ethics and codes of conduct within the workplace. In reviewing the failings of the Enron Scandal, one can heed the mistakes that both individual and organization malaise, such as, conflicts of interest, lack of true transparency and the sever lack of moral courage from the government, executive board, senior management and others, contributed to the energy giant’s downfall.

Tyco International as a whole was no different any other company in that it contained a chief executive officer (CEO) that wanted to achieve success. But at some point that success turned into greed. Dennis Kozlowski began working for Tyco in 1975 and was named the CEO in 1992. Kozlowski had a reputation for being aggressive in his field and during his tenure at Tyco was named one of the “Top 25 Managers of the Year” and became one of the highest-paid CEOs (Kaplan, 2009, p. 14). Along his rise to the top, Kozlowski became subjected to a lavish lifestyle of extravagant vacations, company jets and cars, and memberships. During this rise, he also treated himself to a

As competition increased and the economy started to plunge in the early 2000s, Enron struggled to maintain their profit margins. Executives determined that in order to keep their debt ratio low, they would need to transfer debt from their balance sheet. “Reducing hard assets while earning increasing paper profits served to increase Enron’s return on assets (ROA) and reduce its debt-to-total-assets ratio, making the company more attractive to credit rating agencies and investors” (Thomas, 2002). Executives developed Structured Financing and Special Purpose Entities (SPE), which they used to transfer the majority of Enron’s debt to the SPEs. Enron also failed to appropriately disclose information regarding the related party transactions in the notes to the financial statements.Andersen performed audit work for Enron and rendered an unqualified opinion of their financial statements while this activity occurred. The seriousness and amount of misstatement has led some to believe that Andersen must have known what was going on inside Enron, but decided to overlook it. Assets and equities were overstated by over $1.2 billion, which can clearly be considered a material amount (Cunningham & Harris, 2006). These are a few of several practices that spiraled out of control in an effort to meet forecasted quarterly earnings. As competition grew against the energy giant and their

For these reasons, corporate financial accounts do not provide accurate or sufficient information to corporate managers, investors, or regulators. This leads us to recommend that the SEC allow each stock exchange to set the accounting standards for all firms listed on that exchange and to promote the development of industry-specific non-financial accounts to complement the financial accounts (After Enron 53). The most important lesson of the Enron collapse is that every link in the audit chain including: the audit committee and the board, the independent public auditor, the bankers and lawyers that aided and abetted the misrepresentation of Enron’s financial condition, the credit-rating agencies, and the Securities and Exchange Commission failed to deter, detect, and correct the conditions that led to that collapse. Although not a part of the formal audit chain, most of the market specialists in Enron stock and the business press were also late in recognizing Enron’s financial weakness (Corporate Aftershocks 12).

There were several people responsible for the WorldCom scandal, as well as, whistleblowers that first discovered the accounting fraud. The former CEO, Bernard Ebbers was found to be the main offender of the fraud. He did it by capitalizing inflated revenues with phony accounting entries and he was eventually sentenced to 25-years for fraud, conspiracy and filing false documents with regulators. Scott Sullivan, the former CFO, pleaded guilty to one count of conspiracy to commit securities fraud and was sentenced to 5-years after testifying against Bernard Ebbers. The former Director of General Accounting, David Myers, pleaded guilty to