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STOCK MARKET
Edition: February 2010
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White Paper - Stock Market World Scams !!Edition: February 2010
2010Edition
February
nvesting in a stock in the future. With
takes a l ot of that in mind, we'll
Iresearch, but it also look at some of the all-
requires us to make a time greatest cases oflot of assumptions. companies betraying
For example, we their investors. Some
as sume repo r t ed of these cases are truly
earnings and revenue amazing; try to look at
figures are correct, t h e m f r o m a
and that management s h a r e h o l d e r ' s
is competent and s t a n d p o i n t .
honest. But these Unfortunately, these
assumptions can be shareholders had no
disastrous. way of knowing what
was really happening
as they were beingnderstandingtricked into investing.how disasters
happened in
Uthe past can helpinvestors avoid them
World Stock Market Scams Crisis !!The Worst Thing About These Scams
STOCK MARKET - WORLD SCAMS
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ZZZZ Best Inc., 1986
STOCK MARKET - WORLD SCAMS
ar ry Minko w, the complete fraud designed to
owner of this business, deceive auditors and investors,Bposited that this carpet Minkow shelled out more than
cleaning company of the $4 million to lease and
1980s would become the renovate an office building in
"General Motors of carpet San Diego. ZZZZ Best went
cleaning". Minkow appeared public in December of 1986,
to be building a multi-million eventually reaching a market
dollar corporation, but he did capitalization of more than
so through forgery and theft. $200 million. Amazingly, Barry
He created more than 10,000 Minkow was only a teenager
phony documents and sales at the time! He was sentenced
receipts without anybody to 25 years in prison.
s u s p e c t i n g a n y t h i n g .
Although his business was a
Scam
1986
Barry Minkow(Owner)
Centennial TechnologiesInc., 1996
n D e c e m b e r 1 9 9 6 , 1996, Centennial overstated
Emanuel Pinez, the CEO of its earnings by about $40ICentennial Technologies, mi ll io n. Am az in gl y, th e
and his management recorded company reported profits of
that the company made $2 $12 million when it really lost
million in revenue from PC about $28 million! The stock
memory cards - the company plunged to less than $3. Over
was real ly shipping fruit 20,000 investors lost almost allbaskets to customers. But the of their investment in a
employees then created fake company that was once
documents to appear as considered a Wall Street
though they were recording darling.
sales. Centennial's stock rose
451% to $55.50 per share on
the New York Stock Exchange
(NYSE). According to the
Securities and ExchangeCommission (SEC), between
April 1994 and December
Enabyel Pinez(CEO)
Scam
1996
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STOCK MARKET - WORLD SCAMS
Bre-X Minerals, 1997 his Canadian company billion. But the party ended on
was involved in one of March 19, 1997, when theTt he l ar g es t st oc k gold mine proved to be
sw indles in hi st or y. It s fraudulent, and the stock
Indonesian gold property, tumbled to pennies shortly
which was reported to contain after. The major losers were
more than 200 million ounces, the Quebec public sector
was said to be the richest gold pension fund, which lost $70
mine ever. The stock price for million; the Ontario Teachers'
Bre-X skyrocketed to a high of Pension Plan, which lost $100
$280 (split adjusted), making mi ll ion and the Ontario
millionaires out of ordinary M u n i c i p a l E m p l o y e e s '
people overnight. At its peak, Retirement Board, which lost
B r e - X h a d a m a r k e t $45 million.
capitalization of US$4.4
Canadian Company(Largest Stock Swindles In History)
Scam
1997
Enron, 2001 rior to this debacle, times, thus creat ing the
Enron, a Houston-based appearance of inc rediblePe n e r g y t r a d i n g earnings figures. Eventually,
company was, based on the complex web of deceit
revenue, the seventh largest unraveled, and the share price
company in the U.S. Through dove from over $90 to less
some fa ir ly comp li ca ted than $0.70. As Enron fell, it
accounting practices that took down with it Arthur
involved the use of shell Andersen, the fifth leadingcompanies, Enron was able to accounting firm in the world at
keep hundreds of millions the time. Andersen, Enron's
worth of debt off its books. auditor, basically imploded
Doing so fooled investors and after David Duncan, Enron's
analysts into thinking this chief auditor, ordered the
c o m p a n y w a s m o r e shredding of thousands of
fundamentally stable than it documents. The fiasco at
actually was. Additionally, the Enron made the phrase "cook
shell companies, run by Enron the books" a household termexecutives, recorded fictitious once again.
revenues, essentially recording
one dollar of revenue multiple
Energy Trading Co.(Accounting Disaster)
Scam
2001
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STOCK MARKET - WORLD SCAMS
WorldCom, 2002 ot long after the in which they were incurred -
collapse of Enron, the were treated as investmentsNequities market was and were recorded over a
rocked by another billion- number of years. This little
dollar accounting scandal. account ing tr ick gross ly
Telecommunications giant exaggerated profits for the
Worl dCo m cam e und er year the expenses were
intense scrutiny after yet incurred; in 2001, WorldCom
another instance of some reported profits of around
serious "book cooking". $1.3 billion. In fact, its
W o r l d C o m r e c o r d e d busi nes s was bec omi ng
op er at in g ex pen se s as increasingly unprofitable.
investments. Apparently, the Who suffered the most in this
company felt that office pens, deal? The employees - tens of
pencils and paper were an thousands of them lost their
investment in the future of the jobs. The next ones to feel the
co mpany and therefore betrayal were the investors
expensed (or capitalized) the who had to watch the gut-
cost of these items over a wre nchi ng dow nf a l l of
number of years. In total $3.8 WorldCom's stock price, as it
billion (yes, with a 'b') worth of plummeted from more than
normal operating expenses - $60 to less than $0.20.
which should all be recorded
as expenses for the fiscal year
Telecommunications(Serious Book Cooking)
Scam
2002
Harshad Mehta AkaDeep Chhaya
as an Indian segments, triggering a rise in
stock broker and the BSE Sensex. When thewis alleged to have scheme was exposed, the
engineered the rise in the banks started demanding the
Bombay Stock Exchange in the money back, causing the
year 1992. Exploiting several collapse. He was later charged
loopholes in the banking with 72 criminal offenses and
sy ste m, Meht a and hi s more than 600 civil action suits
associates siphoned off funds were filed against him. He died
from inter-bank transactions in 2002 at the age of 47 with
and bought shares heavily at a many litigations still pending
pr em iu m ac ro s s ma ny against him.
Harshad Mehta(Benefitted From Loopholes In Banking )
Scam
1992
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STOCK MARKET - WORLD SCAMS
Tyco International (NYSE:TYC), 2002
it h Wor ld Co m million. These funds were
hav ing alread y smuggled out of the company,Wshaken investor usually disguised as executive
confidence, the executives at b o n u s e s o r b e n e f i t s .
Tyco ensured that 2002 would Kozlowski used the funds to
be an unforgettable year for further his lavish lifestyle,
stocks. Before the scandal, which included handfuls of Tyco was considered a safe houses, an infamous $6,000
bl ue chi p in ve st me nt , shower curtain and a $2
manufacturing electronic million birthday party for his
components, healthcare and wife. In early 2002, the
safety equipment. During his scandal slowly began to
re ign a s CEO , Denn i s unravel and Tyco's share price
Kozlowski, who was reported plummeted nearly 80% in a
as one of the top 25 corporate s i x - w e e k p er i o d . T he
managers by BusinessWeek , executives escaped their first
siphoned hordes of money hearing due to a mistrial, but
from Tyco in the form of were eventually convicted and
unappro ved l oans and sentenced to 25 years in jail.
fraudulent stock sales. Along
with CFO Mark Swartz and
CLO Mark Belnick, Kozlowski received $170 million in low-
to-no interest loans, without
s h a r e h o l d e r a p p r o v a l .Koz lowsk i and Be ln i ck
arranged to sell 7.5 million
shares of unauthorized Tyco
stock for a reported $450
Dennis Kozlowski(CEO)
Scam
2002
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STOCK MARKET - WORLD SCAMS
HealthSouth (NYSE: HLS),2003
ccounting for large announced that HealthSouth
corporations can be a exaggerated revenues by $1.4Ad i f f i c u l t t a s k billion. The information came
especially when your boss to light when CFO William
in st ru ct s you to fa ls if y Owens, working with the FBI,
earnings reports. In the late taped caught Scrushy talking
1990s, CEO and founder ab ou t th e fr au d . Th e
Ri chard Sc rushy be gan repercussions were swift, as
instruct ing employees to the stock fell from a high of
inflate revenues and overstate $20 to a close of $0.45 in a
HealthSouth's net income. At single day. Amazingly, the CEO
the time, the company was was acquitted of 36 counts of
one of America's largest fraud, but was later convicted
healthcare service providers, on cha rges of b r ibe ry.
experiencing rapid growth Apparently, Scrushy arranged
and acquiring a number of pol it ical contributions of
other healthcare related firms. $500,000, allowing him to
The first sign of trouble ensure a seat on the hospital
surfaced in late 2002, when regulatory board.
Scrushy reportedly sold
HealthSouth shares worth $75
million, prior to releasing an
earnings loss. An independent
law firm concluded the sale
was not directly related to theloss, but investors should have
taken the warning. The
scandal unfolded in March,
2 0 0 3 , w h e n t h e S E C
Richard Scrushy(CEO)
Scam
2003
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STOCK MARKET - WORLD SCAMS
Satyam Scam'2009 an accrued interest of Rs. 376
crore (US$ 77.46 million)
which was non-existent.
an understated liability of Rs.
1,230 crore (US$ 253.38
million) on account of fundswas arranged by himself.an oversta ted debtors '
position of Rs. 490 crore (US$
100.94 million) (as against Rs.
2,651 crore (US$ 546.11
million) in the books)
Raju claimed in the same letter
that neither he nor the
managing director had
benefited financially from the
inflated revenues. He claimed
that none of the boardRaju confessed that Satyam's
members had any knowledgeb a l a n c e s h e e t o f 3 0
of the situation in which theSeptember 2008 contained:
company was placed
inflated figures for cash and
bank balances of Rs 5,040crore (US$ 1.04 billion) (as
against Rs 5,361 crore (US$
1.1 billion) crore reflected in
the books).
Ramalinga Raju(Company Chairman)
Big Scam
2009
n 7th January 2009,Ocompany Chairman
R a m a l i n g a R a j u
resigned after notifying board
members and the Securities
and Exchange Board of India(SEBI) that Satyam's accounts
had been falsified.
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Global Research LimitedWhite Paper - Stock Market World Scams !!
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STOCK MARKET - WORLD SCAMS
The worst thing about these scams is that you never know until it's too late. Those convicted of fraud
might serve several years in prison, which in turn costs investors/taxpayers even more money. These
scammers can pick a lifetime's worth of garbage and not even come close to repaying those who lost
their fortunes. The Security bodies works hard to prevent such scams from happening, but with
thousands of public companies in the World, it is nearly impossible to ensure that disaster never strikes
again. Is there a moral to this story? Sure. Always invest with care and diversify, diversify, diversify.
Maintaining a well-diversified portfolio will ensure that occurrences like these don't run you off the
road, but instead remain mere speed bumps on your path to financial independence.
Conclusion
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