Crime Does Pay . . .Until You Get Caught
-by Phyllis Davis
It’s a proven fact; crime does pay. . . until you get caught.
In 2001 and 2002, I was on a 20-city media tour about Ethics and Etiquette in American Business. During my tour, I was asked about the corporate downfall of two major companies that were charged for historic financial scandals during my tour, Enron and WorldCom.
I’m reporting this story to remind my readers that there are laws in place that prosecute for illegally procured financial gains and the perpetrators of these scandals are sent to jail. Today’s media news is filled with corporate scandals based on accounting practices and weak corporate governance.
The following examples remind companies and people of the laws that hold them accountable for their financial crimes.
Both Enron and WorldCom were charged with greed and deception. They had been rewarded for meeting financial targets in any way possible, including lying and cheating. Both companies were charged with weak corporate governance that encouraged executives to commit crimes without being held accountable for many years.
Following the collapse of WorldCom and Enron, laws were created to strengthen corporate governance, such as The Sarbanes-Oxley Act of 2002 and the Dod-Frank Wall Street Reform and Consumer Protection Act of 2010.
WorldCom (now part of Verizon) is an American telecommunications company that was ranked the second-largest carrier in the US at the time. WorldCom was forced to file for bankruptcy because of accounting fraud to inflate its earnings by $11 billion. Their accounting scandals were considered the largest in history but were surpassed by Washington Mutual and Lehman Brothers during the 2008 financial crisis. The country’s largest public pension fund, the California Public Employees’ Retirement System, lost $565 million on WorldCom bonds and stock, according to a 2002 report in The New York Times.
Did anyone at WorldCom go to jail? Why yes, they did.
Bernard Ebbers: WorldCom’s former CEO, Ebbers was convicted of nine counts of securities fraud, conspiracy, and falsifying documents filed with regulators. He was sentenced to 25 years in prison but was released early in 2019 due to health reasons and has since died at the age of 78.
- Scott Sullivan: WorldCom’s former CFO, Sullivan was convicted of seven counts of conspiracy, securities fraud, and making false statements to auditors. He was sentenced to five years in prison.
- Betty Vinson: WorldCom’s former director of accounting, Vinson pleaded guilty to one count of conspiracy and one count of making false entries in accounting records. She was sentenced to five months in prison and five months of home confinement.
- Troy Normand: WorldCom’s former vice president of finance, Normand pleaded guilty to one count of conspiracy and one count of making false entries in accounting records. He was sentenced to three years of probation.
- Buford Yates: WorldCom’s former director of accounting operations pleaded guilty to one count of conspiracy to commit securities fraud and one count of making false statements to investigators. He was sentenced to two years of probation.
- David Myers: WorldCom’s former vice president of controllership, Myers pleaded guilty to one count of conspiracy to commit securities fraud and one count of making false statements to investigators. He was sentenced to two years of probation.
Enron (no longer in business) was an American Energy Company in the US. In 2001, Enron collapsed and filed for bankruptcy because it had engaged in accounting fraud to hide debts and inflate earnings by billions of dollars. Its collapse eroded public trust in corporate America.
Did anyone at Enron go to jail? Why yes, they did.
- Kenneth Lay: Enron’s founder and former chairman, Lay was convicted of six counts of conspiracy, fraud, and insider trading. He died of a heart attack before he could be sentenced.
- Jeffrey Skilling: Enron’s former CEO, Skilling was convicted of 19 counts of fraud, insider trading, and conspiracy. He was sentenced to 24 years in prison but was released on parole in 2019.
- Andrew Fastow: Enron’s former CFO, Fastow played a central role in the company’s accounting fraud. He pleaded guilty to two counts of conspiracy and two counts of wire fraud and served more than five years in prison.
- Michael Kopper: Enron’s former managing director, Kopper also admitted to his role in the company’s fraud. He pleaded guilty to conspiracy and wire fraud and served more than three years in prison.
- Tyco International CEO Dennis Kozlowski: Kozlowski was convicted of grand larceny and other charges related to over $160 million theft from Tyco. He was sentenced to eight years and four months in prison.
- Adelphia Communications CEO John Rigas: Rigas and his sons were convicted of fraud and other charges related to the looting of $3.9 billion from Adelphia. They were sentenced to prison terms ranging from 18 to 20 years.