when WorldCom’s auditing firm noticed, $3.8 billion in fake accounts. The promoter andcompany’s CEO, Berine Ebbers was imprisoned for 25 years under charges of fraud, deceit andficilitious accounts. This caused a loss of 30,000 jobs and over $180 billion investment. Bernie Madoff Scandal (2008)Adding to the list of largest accounting scandals was the Ponzi scheme committed by ex-American shareholder, Bernie Madoff. He was the owner of Bernard L. Madoff InvestmentSecurities LLC. Following the 2008 financial recession, it was found that Madoff had cheatedshareholders out of over $64.8 billion. Promoters of this scandal included Madoff, his auditorDavid Friehling and second in command Frank DiPascalli. All were charged law suits butMadoff was imprisoned for 150 years and had to pay a compensation of $170 billion. HealthSouth Scandal (2003)An exemplary financial fraud was perpetuated by Health South Company. This American PLC ofthe healthcare industry was established out of Birmingham, Albam. In 2003, the company’srevenues were discovered to be overstated to $1.8 billion. Prior to the firm posting a huge loss,its’ CEO, Richard Scrushy was already under investigation by the SEC for selling $75 millionshares coincidently before the scandal. Nevertheless, he was arrested under the charges ofenticing Don Siegelman, Governance of Alabama during that time and imprisoned for sevenyears. Lehman Brothers Scandal (2008)14
One of the largest investment banks in the U.S Lehman Brothers was invaded in a financialscandal. The financial recession of 2008 revealed that the firm’s loans of over $50 billion weredisguised as sales in financial reports. The company’s illegal dealings with the banks in theCayman Islands were discovered by the SECI. This showed that Lehman Brothers had excess%50 billion cash and $50 billion less of toxic assets. Due to this Lehman Brothers becameinsolvent. An increase in financial fraud has created intense arguments over biased financial reportingsystems and their incapability to notice fake financial activities. Below are the names of Indiancompanies that were involved in financial scandals from 2002-2008. Huge gaps in financialstatements and the incompetence of auditing firms were revealed in the Satyam case. The biasedfinancial scandals in all these firms were not due to minor miscalculate accounting but, it was aculture widely practiced by the senior management that ultimately led to devastating scandals.15
Chapter 3: Methodology3.1 Research TypeSecondary data is used for studying this case as many lessons have been derived from thescandal. Financial data has been prepared by extracting financial records from Satyam’sFinancial Year 2008-09 and the quarterly results for the First and Second Quarter for the fiscalyear 2009-10. Apart from this, information was collected from many magazines, journal articlesand similar cases to fully understand the research. Examples of online sources include, SFIO Report published in the Pioneer, New Delhi, May 4, 2009, The WallStreet Journal, The Financial Times, Economic Times and the Associated Press.