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This page discusses corporate and shareholder fraud.  We include some the most famous frauds at the bottom of this page.

We also have books below that cover the subject of fraud.

CORPORATE SHAREHOLDER FRAUD
Corporate fraud or shareholder fraud occurs when a corporation conceals information or misrepresents itself before the public. Because corporations are designed to function as entities of their own, directors have a lower level of personal responsibility for the outcome of business decisions than they would if they were direct owners. In addition, corporation directors operate under limited liability. Under limited liability, the partner or investor takes no loss greater than the amount he has invested in the business. The partners and shareholders are not personally responsible for company debts. The liability for corporation failure or debt, because of the dissemination of responsibility and ownership, is harder to pinpoint than it would be under a sole proprietorship or a limited partnership.

Corporations have an interest in maintaining a successful front in the eyes of shareholders and securities analysts because investors buy shares of companies that are healthy and growing. Corporate fraud, also known as shareholder fraud, occurs when, to maintain this front, corporations deliberately conceal or skew information.

The Ten-Point Plan

To prevent corporate fraud, President Bush instated a “Ten-Point Plan to Improve Corporate Responsibility and Protect America’s Shareholders.” This plan was proposed in March of 2002 and has been implemented since by the SEC. 

The overriding aims of this plan are to:

To put the plan into practice, a number of measures have been taken:

 
FAMOUS CORPORATE SHAREHOLDER FRAUD 

WORLDCOM
During the yearlong investigation into WorldCom's accounts, nine billion dollars in discrepancies were found. The SEC levied charges against the corporation's CEO and several executives. Among these, Scott Sullivan (WorldCom's CFO) was indicted on counts of securities fraud, and David Myers (WorldCom's controller) pled guilty to committing securities fraud and falsifying SEC filings. 

In order to present a successful face to investors when company profits began to wane, former CFO Scott Sullivan led a series of accounting adjustments. Over five financial quarters Sullivan masked $3.8 billion in WorldCom operation costs. Another charge against WorldCom centers on the fact that the corporation's CEO, Bernard Ebbers, took 408 million dollars in personal loans from the corporation's funds.

ENRON
Former top executives of Enron have been accused of hiding the company's debts by falsely adjusting financial records. Enron's accounting firm, Arthur Anderson, also began a process of shredding incriminating documents weeks before the SEC could investigate. The corporate fraud committed by Enron had huge repercussions for employees who had invested most of their savings and 401k retirement funds in presumably secure company stock. The investigation against Enron continues, and charges are being filed against the company's directors and leading accountants.

TYCO
CEO Dennis Kozlowski and CFO Michael Swartz faceD criminal charges for taking private loans from Tyco in excess of 170 million dollars. The loans, many of which were interest free or fully forgiven, were not revealed to shareholders. Mark Belnick, Tyco's former General Counsel, was also charged for receiving fourteen million dollars in loans for houses he purchased in New York and Utah. 

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