On the Street to Failure
Fraud and company collapses have been all the time a part of enterprise panorama, however they turned extra frequent and extreme within the late twentieth and early twenty first centuries as a result of globalization, deregulation, technological innovation, and monetary engineering. With wild array of circumstances involving accounting fraud, insider buying and selling, market manipulation, Ponzi schemes false claims, and way more. They resulted in large losses for traders and collectors, layoffs and unemployment, diminished client confidence and spending, regulatory reforms and litigation prices, and erosion of belief and ethics within the enterprise world. Nevertheless, not all company failures are attributable to fraud. Generally, poor administration choices, strategic blunders, or exterior elements can result in the downfall of an organization. Even profitable and established corporations can fail if they don’t reply to altering buyer wants, technological traits, and aggressive pressures.
1. Worldcom
WorldCom was the USA’s second-largest long-distance phone firm. From 1999 to 2002, senior executives at WorldCom led by founder and CEO Bernard Ebbers orchestrated a scheme to inflate earnings with a purpose to keep WorldCom’s inventory value and keep away from potential takeover bids. They did this by improperly recording $3.8 billion in bills as capital expenditures, which boosted their reported income and money circulate. The fraud was uncovered by an inside audit and resulted in WorldCom submitting for chapter in July 2002, the biggest chapter in U.S. historical past on the time. The SEC charged WorldCom with civil fraud and reached a $2.25 billion settlement. A number of executives and the CEO have been indicted on fees of securities fraud, conspiracy, and submitting false paperwork with regulators. Ebbers was convicted and sentenced to 25 years in jail, however was launched on compassionate grounds in 2020 as a result of his deteriorating well being.
Presentation by Arthur Andersen (auditor of Worldcom and main auditing agency on the time) to the audit committee of the corporate. Arthur Andersen collapsed by mid-2002, as particulars of its questionable accounting practices for power firm Enron and Worldcom have been revealed amid the 2 high-profile bankruptcies.
2. Enron
The Enron scandal was an accounting scandal involving Enron Company, an American power firm primarily based in Houston, Texas. Upon being publicized in October 2001, the corporate declared chapter and its accounting agency, Arthur Andersen – then one of many 5 largest audit and accountancy partnerships on the earth – was successfully dissolved.
The scandal concerned Enron’s executives using accounting practices that falsely inflated the corporate’s revenues and income, whereas hiding its money owed and losses. Enron additionally engaged in fraudulent buying and selling actions that manipulated the power markets and induced blackouts in California. The scandal resulted in one of many greatest chapter filings within the historical past of the US, with greater than $60 billion in belongings.
A number of Enron executives, together with former CEO Jeffrey Skilling and former chairman Kenneth Lay, have been convicted of assorted crimes, comparable to conspiracy, fraud, insider buying and selling and obstruction of justice. Skilling acquired the harshest sentence of anybody concerned within the scandal, with 24 years in jail. Lay died of a coronary heart assault earlier than he could possibly be sentenced.
Presentation to main collectors of Enron, which was given after the scandal and outlined the state of affairs and motion plan. A few weeks later, Enron filed for Chapter 11 chapter safety.
3. Bear Stearns
Bear Stearns was a New York Metropolis-based international funding financial institution and monetary firm that was based in 1923. It was one of many largest and most revered companies on Wall Avenue, with a repute for innovation and risk-taking. It provided numerous companies comparable to securities buying and selling, brokerage, funding banking, asset administration, non-public fairness and extra. Nevertheless, Bear Stearns collapsed in 2008 as a part of the worldwide monetary disaster and recession. The principle explanation for its failure was its heavy publicity to the subprime mortgage market, which led to very large losses and liquidity issues when the housing bubble burst and the credit score markets froze. Bear Stearns couldn’t discover sufficient funding to remain afloat, and confronted a run on the financial institution by its purchasers and collectors. It was rescued by a government-backed sale to JPMorgan Chase on the shockingly low value of $2 per share, down from $170 a yr earlier. Bear Stearns’ collapse was a shocking and dramatic occasion that marked the start of the worst monetary disaster for the reason that Nice Despair. It additionally uncovered the fragility and interconnectedness of the worldwide monetary system, and raised questions in regards to the position of regulation and oversight.
4. Lehman Brothers
Lehman Brothers was an American international monetary companies agency based in 1847 by three German brothers who emigrated to the US. It was one of many largest funding banks on the earth, with about 25,000 workers and operations in additional than 40 nations. It offered numerous companies comparable to funding banking, buying and selling, funding administration, non-public banking, analysis, brokerage, non-public fairness and extra. Nevertheless, Lehman Brothers collapsed in 2008 after submitting for chapter, changing into the biggest chapter in U.S. historical past. The principle explanation for its failure was its heavy involvement within the subprime mortgage market, which uncovered it to very large losses when the housing bubble burst and the monetary disaster started. Lehman Brothers couldn’t discover a purchaser or a authorities bailout to reserve it from insolvency, and its collapse triggered a world panic and a credit score crunch that worsened the financial downturn.
5. Theranos
Theranos was an American well being know-how firm that claimed to have developed a revolutionary blood testing machine that might carry out lots of of exams with a single drop of blood. The corporate was based in 2003 by Elizabeth Holmes, who was hailed as a visionary and a billionaire by the media and traders. Nevertheless, Theranos was uncovered as a large fraud in 2015, when it was revealed that its machine was unreliable, inaccurate, and sometimes used typical blood testing machines from different corporations. Theranos confronted a number of lawsuits, investigations, and sanctions from regulators, clients, traders, and former workers. The corporate dissolved in 2018, and Holmes was convicted of 4 counts of fraud and 4 counts of conspiracy in 2022. She was sentenced to 11 years in jail, however has appealed the decision and delayed the beginning of her sentence.
Early Theranos pitch deck utilized by the corporate whereas in search of to boost $30 million for what it known as a “pre-IPO transaction” and claiming that blood testing accuracy is akin to “gold requirements”, whith enterprise mannequin geared toward scientific and preclinical trials for pharma corporations, somewhat than at broader client market.
Presentation outlining the science, know-how and key “innovations” underpinning the Theranos mini-lab. It was made in August 2016, a yr after the scandal started to unravel in 2015 when a whistleblower raised considerations about Theranos’ flagship testing machine.
6. Greensill Capital
Greensill Capital was a monetary companies firm primarily based in the UK and Australia. It targeted on the supply of provide chain financing and associated companies. The corporate was based in 2011 by Lex Greensill, a former banker and adviser to the UK authorities. It claimed to have revolutionized the way in which companies pay their suppliers and entry working capital. It had over 1,000 purchasers and 5 million suppliers in 175 nations by 2020. Nevertheless, Greensill Capital collapsed in March 2021 after dropping its essential insurer and going through a liquidity disaster. The corporate was accused of misrepresenting its belongings, overexposing itself to a single shopper (GFG Alliance), and interesting in questionable practices comparable to reverse factoring and future receivables. The corporate filed for insolvency safety on 8 March 2021 and was offered to Apollo World Administration for $60 million134. The collapse of Greensill Capital triggered a collection of investigations, lawsuits, and scandals involving its traders (comparable to Credit score Suisse and SoftBank), its clients (comparable to GFG Alliance and Sanjeev Gupta), its regulators (such because the UK Monetary Conduct Authority and the Swiss Monetary Market Supervisory Authority), and its lobbyists (comparable to former UK Prime Minister David Cameron).
7. Fyre Pageant
Fyre Pageant was a fraudulent luxurious music competition that was speculated to happen within the Bahamas in April and Could 2017. The competition was based by Billy McFarland, a con artist, and Ja Rule, a rapper, and was promoted by celebrities and influencers on social media. The competition promised a glamorous expertise with high musical acts, gourmand meals, luxurious villas, and yachts. Nevertheless, the competition turned out to be an entire catastrophe, because the organizers did not ship on any of their guarantees. The festival-goers arrived to discover a chaotic and unsafe website with no music, no meals, no lodging, and no transportation. A lot of them have been stranded on the island for days, going through starvation, dehydration, and theft. The competition was broadly mocked and criticized by the media and the general public, and have become the topic of two documentaries and a number of other lawsuits. McFarland was arrested and convicted of fraud and sentenced to 6 years in jail.
Notorious pitch deck accommodates most of the exaggerated claims and outright lies, touting festivals lineup of greater than 60 “Fyre Starters,” social-media influencers who have been enlisted to advertise the competition Pitch deck leans closely on Fyre’s partnership with Kendall Jenner who reportedly acquired $250k for a single Instagram submit, which she has since deleted
8. Wirecard
Wirecard was a German cost processor and monetary companies supplier that was based in 1999 and have become a part of the DAX index. The corporate claimed to supply revolutionary options for digital funds, threat administration, and card issuing. It had over 5,000 workers and 300,000 clients in 200 nations by 2019. Nevertheless, Wirecard was concerned in a large accounting fraud that led to its insolvency in 2020. The corporate was accused of inflating its revenues, income, and money balances by falsifying its accounts and transactions. It admitted that €1.9 billion of its money was lacking and couldn’t be traced. The fraud was uncovered by whistleblowers, journalists, and auditors after years of allegations and investigations. The scandal resulted within the arrest and resignation of a number of executives and board members, together with former CEO Markus Braun. It additionally triggered a collection of lawsuits, inquiries, and reforms involving its traders, collectors, clients, regulators, auditors, and banks.
9. Celsius Community
Celsius Community was a cryptocurrency lending firm that allowed customers to deposit, earn, borrow, and ship numerous digital belongings. The corporate was based in 2017 by Alex Mashinsky, a serial entrepreneur and inventor of Voice over IP (VoIP). Celsius claimed to have over 1 million customers and $20 billion in belongings below administration by 2021. Nevertheless, Celsius confronted regulatory scrutiny, authorized challenges, and safety breaches that undermined its credibility and solvency. In July 2022, Celsius filed for chapter after struggling a large withdrawal of funds by its clients and collectors. The corporate revealed a $1.2 billion deficit in its chapter filings and confronted a number of lawsuits from traders and regulators. In February 2023, Celsius selected NovaWulf Digital Administration, an asset supervisor, because the profitable bidder for its chapter exit. NovaWulf will take over the operations of a brand new firm that may honor the claims of Celsius clients and collectors.
10. Nikola
Nikola Company is an American producer of professional quality business battery-electric automobiles, fuel-cell electrical automobiles, and power options. It was based in 2014 by Trevor Milton and went public on June 4, 2020, at one level changing into probably the most helpful automobile inventory on the earth by market cap.
Nikola has confronted a number of challenges and controversies in its historical past, comparable to accusations of fraud, delays in manufacturing, partnership disputes, and government departures. In September 2020, Trevor Milton resigned as government chairman amid allegations of deceptive traders and making false claims in regards to the firm’s know-how. In February 2021, Nikola agreed to pay $125 million to settle a class-action lawsuit by shareholders who claimed they have been defrauded by the corporate.
Regardless of these setbacks, Nikola has additionally made some progress and achievements in its enterprise, comparable to launching new merchandise, securing orders, increasing its presence, and enhancing its financials. In September 2022, Nikola launched its first battery-electric truck, the Tre BEV, in Europe and started taking orders from clients. In February 2023, Nikola introduced that it had delivered 400 automobiles in 2022 and projected to ship between 600 and 800 automobiles in 2023. Nikola additionally reported a income of $79 million and a web lack of $383 million for 2022.
11. FTX
FTX was a centralized cryptocurrency change specializing in derivatives and leveraged merchandise. It was based by Sam Bankman-Fried in 2019 and was one of many world’s largest cryptocurrency exchanges. It enabled clients to commerce digital currencies for different digital currencies or conventional cash, and vice versa. FTX collapsed in November 2022 and filed for chapter safety within the U.S. The collapse was triggered by a information report that exposed that Alameda Analysis, the quantitative buying and selling agency behind FTX, had been manipulating the crypto market by utilizing pretend trades and bots. This led to a lack of belief and a large sell-off of FTX tokens, which plunged by greater than 90% in worth. FTX additionally confronted authorized actions from regulators and traders who accused it of fraud, market manipulation, and violating securities legal guidelines.
FTX pitch deck which reportedly was used to taise over $1bn in 2021.
12. Silvergate Financial institution
Silvergate Financial institution was a California financial institution that specialised in offering companies for cryptocurrency customers and companies. The financial institution was based in 1988 and began serving the crypto sector in 2016. It carried out an IPO in 2019 and have become one of many main banks for crypto innovation. It provided a platform known as the Silvergate Trade Community (SEN) that enabled quick and safe transactions between crypto exchanges and institutional investors123. Nevertheless, Silvergate Financial institution collapsed in March 2023 after being hit by a collection of shocks within the crypto market. The financial institution suffered a large run on deposits after the chapter of FTX, one in every of its main clients and companions. The financial institution additionally confronted losses from the autumn in cryptocurrency costs and the regulatory crackdown on crypto actions. The financial institution introduced that it was shutting down and liquidating its belongings after failing to safe a bailout or a purchaser. The collapse of Silvergate Financial institution triggered a wave of panic and uncertainty within the crypto sector, as many shoppers and companies misplaced entry to their funds and companies. The financial institution’s failure additionally raised questions in regards to the viability and sustainability of crypto banking and innovation.
13. Silicon Valley Financial institution
Silicon Valley Financial institution (SVB), a subsidiary of SVB Monetary Group, was the sixteenth largest financial institution in the US. The financial institution had belongings of about $209 billion in December 2022. Silicon Valley Financial institution offered enterprise banking companies for corporations at each stage, but it surely was notably well-known for serving startups and venture-backed companies. Silicon Valley Financial institution noticed large progress between 2019 and 2022, which resulted in it having a major quantity of deposits and belongings. In March 2023 SVB was shut down after its investments enormously decreased in worth (largely as a result of fast enhance of rates of interest by the Federal Reserve Financial institution) and its depositors withdrew giant quantities of cash, amongst different elements. Later in March, First Residents Financial institution purchased up all deposits and loans of the failed financial institution.
By the top of 2021, SVB reached peak outcomes demonstrating “excellent earnings” and “distinctive progress” on the again of traditionally low charges and fast progress of tech sector
Rising charges put excessive strain on SVB’s steadiness sheet, which to a big diploma consisted of quickly depreciating treasuries, and led firm to announce sudden capital elevate on March 8, 2023. Transaction was poorly communicated and led to wide-spread panic amongst purchasers.
On March 10, 2023, SVB was take over by FDIC with core belongings later offered to First Residents Financial institution.
14. Credit score Suisse
Credit score Suisse was a number one international monetary companies firm headquartered in Zurich, Switzerland. It was based in 1856 and provided a variety of companies, together with funding banking, non-public banking, wealth administration, and asset administration. It had over 50,000 workers and 1.3 trillion Swiss francs in belongings below administration by 2022. Nevertheless, Credit score Suisse collapsed in March 2023 after struggling enormous losses from its involvement in a number of scandals and dangerous bets. The financial institution was hit by the collapse of Greensill Capital, a provide chain finance agency that it had invested in and offered to its purchasers. It additionally confronted large losses from the implosion of Archegos Capital Administration, a household workplace that defaulted on its margin calls. As well as, Credit score Suisse confronted authorized troubles from its position within the Mozambique debt scandal and the 1MDB corruption case. These occasions eroded the financial institution’s capital, repute, and confidence, and led to the resignation of a number of senior executives and board members. Credit score Suisse filed for chapter in March 2023 and was purchased by rival UBS for 3 billion CHF (about $3.3 billion USD).