CEOs behind bars

Ten of the most high-profile chief executives and chief financial officers behind bars in the US and the UK are serving a total of 134 years. The oldest will be an octogenarian when he is released, assuming he serves his full sentence, and the youngest will be 47.

  1. Bernard Ebbers, WordCom ($11 billion accounting fraud)
  2. Scott Sullivan, WorldCom ($11 billion accounting fraud)
  3. Dennis Kozlowski, Tyco International (stole more than $150 million from the company)

Can you tell who the other seven are?

The phone is where the whistle is blown

What’s the best way for an employee to blow the whistle on fraud or related infractions? The most popular way seems to be via hotlines or similar reporting tools. According to a joint report from the CSO Executive Council, an organization of corporate and government security executives, and The Network (a hotline provider), almost two-thirds of the nearly 200,000 reports it studied were made via hotlines without first alerting anyone in management. (…)

The study, which tracked incidents at 500 organizations over the past four years, found that 65 percent of the reports were serious enough to warrant investigation, while 46 percent led to some type of action being taken. Corruption and fraud accounted for 10 percent of the incidents, well behind personnel-management situations (51 percent). Company and professional-code violations accounted for 16 percent and employment-law violations 11 percent. (CFO.com)

Backdating is no game

The founder and former chairman and CEO of video game publisher Take-Two Interactive Software Inc [Ryan Brant] has been convicted of backdating Take-Two’s records to backdate stock option grants. (…)

Brant entered a plea of guilty in New York County Supreme Court to falsifying business records in the first degree, a Class E felony. In settlements with the District Attorney’s Office and the United States Securities and Exchange Commission, Brant will make a total payment of $7,261,606. Of this, $6,261,606 representing disgorgement of the benefits derived from back-dating the stock option grants, interest and a civil penalty, will be distributed to harmed investors pursuant to Brant’s agreement with the SEC. The remaining $1 million, less costs of prosecution, will be paid to the City and State of New York.

In addition, Brant has submitted to an immediate and permanent bar from holding any “control management positions” in publicly traded companies. It is expected Brant will be sentenced to a term of probation. (Video Game CEO Convicted Of Stock Fraud)

Corporate Hall of Shame 2-12-07

The CFO of Douglas Development has pleaded guilty to a single count of tax evasion, according to the U.S. attorney’s office for D.C.John Brownell, 45, of Rockville, pleaded guilty Feb. 8 in U.S. District Court for the District of Columbia and could face five years in prison. He is to be sentenced June 7, according to the U.S. attorney’s office.

Brownell is the third high-level official of D.C.-based Douglas Development who has been found guilty of felony charges. (…)

Between 1996 and 2004 Douglas Development made payments totaling more than $270,000 to a credit line account of Brownell at Potomac Valley Bank, where the funds were then used by him for personal purposes, according to the prosecutor. Those payments were disguised in the books of Douglas Development to appear as routine financial obligations of the company to the bank, the government says. (Washington Business Journal)

The fraud never stops

A federal judge in Topeka sentenced former Westar Energy CEO David Wittig to 24 months in prison for bank fraud (Houston Chronicle via Business Week)

Price fixing

Samsung Electronics of South Korea, the world’s largest maker of memory chips, has agreed to pay $90 million to settle civil charges that it conspired with six other makers of computer chips to fix prices, the attorneys general of 41 states announced. (…) The other companies involved included Infineon Technologies, Mosel Vitelic, Nanya Technology, Elpida Memory and NEC Electronics America.

Five of the companies have paid $310 million to settle separate actions brought by direct buyers, like small computer makers and repair shops. (IHT)

Ben Stein’s wisdom

[I]n capitalism, the most fundamental building block is trust. When yeoman farmers sent their savings to banks in London and Glasgow and Paris, they had to be able to count on it not being stolen. That was what allowed capital to be accumulated and deployed, and for the entire world economy to take off.

When I see what the top dogs at all too many corporations are now doing to that trust, I feel queasy. Outrageous — yes, obscene — pay. Greedy backdating of stock options, which in my opinion is straight-up theft. Managers buying assets from their trustors, the stockholders, at pennies on the dollar, then forestalling competing bids with lockups and insane breakup fees.

These misdeeds and many, many more are hammer blows at the granite foundation of trust we built in the 1940s and ’50s. How long democratic capitalism can survive these blows before it gives in and gives birth to revolution or to an out-and-out aristocracy, I am not sure.

Empires come and go. Economic systems come and go. There is no heavenly guarantee that capitalism will last forever as we know it.

It’s built on man’s notion that he can trust his neighbor with his money, and that if the neighbor misbehaves, the law will chase him and catch him, and that the ladder of law has no top and no bottom, that even the nobles get properly handled (…) once they have been caught.

If that trust disappears — if the system is no longer a system for the ordinary citizen but only for the tough guys — how much longer can the miracle last?

EACH day’s newspaper, it seems, brings more tidings of unrestrained selfishness and self-dealing and rafts of powerful people saying it’s good for us to be robbed if only we truly understood the system.

The problem is, we’re getting to understand it all too well. (New York Times)