A corporate collapse typically involves the insolvency or bankruptcy of a major business enterprise. A corporate scandal involves alleged or actual unethical behavior by people acting within or on behalf of a corporation. Many recent corporate collapses and scandals have involved some type of false or inappropriate accounting (see list at accounting scandals).
List of major corporate collapses
The following list of corporations involved major collapses, through the risk of job losses or size of the business, and meant entering into insolvency or bankruptcy, or being nationalised or requiring a non-market loan by a government.
Scottish economist John Law convinced the French government to support a monopoly trade venture in Louisiana. He marketed shares based on great wealth, which was highly exaggerated. A speculative bubble grew and then collapsed, and Law was expelled.
After the War of Spanish Succession, Great Britain signed the Treaty of Utrecht 1713 with Spain, ostensibly allowing it to trade in the seas near South America. In fact, barely any trade took place as Spain renounced the Treaty, however this was concealed on the British stock market. A speculative bubble saw the share price reach over £1000 in August 1720, but then crash in September. A Parliamentary inquiry revealed fraud among members of the government, including the Conservative PartyChancellor of the ExchequerJohn Aislabie, who was sent to prison.
This huge early publicly listed multinational company founded in 1602 fell victim of declining markets in the late 18th century, internal corruption and excessive distribution of dividends (in excess of its profits), and finally Anglo-Dutch wars. It was nationalised by the Batavian Republic in 1796 but nevertheless closed down at the end of 1799.
After Samuel Gurney's retirement, the bank invested heavily in railway stocks. It went public in 1865, but was badly affected by a general fall in stock prices. The Bank of England refused to advance money, and it collapsed. The directors were sued, but exonerated from fraud.
At the start of the Great Depression, after rumours about the solvency of the Norddeutsche Wollkämmerei & Kammgarnspinnerei, there was a bank run, and Danatbank was forced into insolvency.
Commodities trader Tino De Angelis defrauded clients, including the Bank of America into thinking he was trading vegetable oil. He got loans and made money using the oil as collateral. He showed inspectors tankers of water, with a bit of oil on the surface. When the fraud was exposed, the business collapsed.
Settlement risk. Counterparty banks did not receive their USD payments, where Herstatt had received DEM earlier, prior to government forced liquidation.
After a legal battle with Pennzoil, whereby it was found to owe a debt of $10.5 bn, Texaco went into bankruptcy. It was later resurrected and taken over by Chevron.
Qintex CEO Christopher Skase was found to have improperly used his position to obtain management fees prior to the $1.5 billion collapse of Qintex including $700m unpaid debts. Skase absconded to the Spanish resort island of Majorca. Spain refused extradition for 10 years during which time Skase became a citizen of Dominica.
After a raid by the UK Serious Fraud Office in September 1990, the share price collapsed. The CEOAsil Nadir was convicted of stealing the company's money.
Following market deregulation, there was a housing price bubble, and it burst. As part of a general rescue as the Swedish banking crisis unfolded, Nordbanken was nationalised for 64 billion kronor. It was later merged with Götabanken, which itself had to write off 37.3% of its creditors, and is now known as Nordea.
An employee in Singapore, Nick Leeson, traded futures, signed off on his own accounts and became increasingly indebted. The London directors were subsequently disqualified, as being unfit to run a company in Re Barings plc (No 5).
In November 1998, Livent sought bankruptcy protection in the US and Canada, claiming a debt of $334 million. Garth Drabinsky, co-founder of Livent, was convicted and sentenced to prison for fraud and forgery. A judgment has been obtained against Deloitte & Touche in respect of Deloitte's negligence in conducting the audit for Livent's 1997 fiscal year.
After purporting to have discovered a scientific method of calculating derivative prices, LTCM lost $4.6bn in the first few months of 1998, and was rescued by a private sector consortium.[1]
FlowTex operated a Ponzi scheme in which non-existing construction equipment was sold to investors in order to immediately be leased back by FlowTex. This required an exponentially growing number of investors to afford the lease payments. The fraud was the largest corporate scandal in German history and caused financial damages of about 4.9bn DM (≈€3.3bn).
The insurance company's directors unlawfully used money from people holding guaranteed annuity rate policies to subsidise people with current annuity rate policies. After a House of Lords judgment in Equitable Life Assurance Society v Hyman, the Society closed. Though never technically insolvent, the UK government set up a compensation scheme for policyholders under the Equitable Life (Payments) Act 2010.
Micheline Charest and Ronald Weinberg, the co-founders of this animation studio, were accused of transferring over $120 million to the Bahamas without the approval of its board of directors.[2] The company was later sold in 2004 to a consortium that includes Nelvana founder Michael Hirsch and was subsequently renamed Cookie Jar Group.[3] Cookie Jar in turn was acquired in 2012 by what is now called WildBrain. In 2016, Weinberg was sentenced to 8 years and 11 months in prison, and is currently on parole.[4]
In early 2000, after increase in size of the business, it was determined that the insurance company's solvency was marginal, and a small asset price change could see the insurance company become insolvent. It did. Director Rodney Adler, CEO Ray Williams and others were sentenced to prison for fraudulent activity.
After a change in regulation in California, PG&E determined it was unable to continue delivering power, and despite the California Public Utilities Commission's efforts, it went into bankruptcy, leaving homes without energy. It emerged again in 2004.
After becoming one of the largest Australian public companies, losses of $290m were reported, the share price crashed, and it entered administration. In ASIC v Rich[5] the directors were found not to have been guilty of negligence.
Overexpansion in the late 1990s and the aftermath of the September 11 attacks led to a dramatic fall in share prices. In 2007, several of the company's board members were charged over the airline's bankruptcy.[6] Assets were taken over by subsidiary Crossair which became Swiss International Air Lines, eventually purchased by Lufthansa of Germany.
Accumulated debts, after a series of accusations relating to breaches of labour and environmental standards. It entered a pre-packaged insolvency, and emerged with similar management in 2002.[9]
After falling share prices, and a failed share buy back scheme, it was found that the directors had used fraudulent accounting methods to push up the stock price. Rebranded MCI, it emerged from bankruptcy in 2004 and the assets were bought by Verizon.
After diminishing demand, and getting a £6.5m loan from the UK government in April 2005, the company went into administration. After the loss of 30,000 jobs, Nanjing Automobile Group bought the company's assets.
Samuel Israel III defrauded his investors into thinking there were higher returns, and orchestrated fake audits. The Commodity Futures Trading Commission filed a court complaint and the business was shut down after the directors were caught attempting to send $100m into overseas bank accounts.
Bear Stearns invested in the sub-prime mortgage market from 2003 after the US government had begun to deregulate consumer protection and derivative trading. The business collapsed as more people began to be unable to meet mortgage obligations. After a stock price high of $172 a share, it was bought by JP Morgan for $2 a share on 16 March 2008, with a $29bn loan facility guaranteed by the US Federal Reserve.
Northern Rock had invested in the international markets for sub-prime mortgage debt, and as more and more people defaulted on their home loans in the US, the Rock's business collapsed. It triggered the first bank run in the UK since Overend, Gurney & Co in 1866, when it asked the UK government for assistance. It was nationalised, and then sold to Virgin Money in 2012.
Lehman Brothers' financial strategy in from 2003 was to invest heavily in mortgage debt, in markets which were being deregulated from consumer protection by the US government. Losses mounted, and Lehman Brothers was forced to file for Chapter 11 bankruptcy after the US government refused to extend a loan. The collapse triggered a global financial market meltdown. Barclays, Nomura and Bain Capital purchased the assets which were not indebted.
Out of $441 billion worth of securities originally rated AAA, as the US sub-prime mortgage crisis unfolded, AIG found it held $57.8 billion of these products. It was forced to take a 24-month credit facility from the US Federal Reserve Board.
Following the takeover of ABN-Amro, and the collapse of Lehman Brothers, RBS found itself insolvent as the international credit market seized up. 58% of the shares were bought by the UK government.
After a takeover battle between Banco Santander, Fortis and RBS, ABN-Amro was split up and divided between the banking consortium. Fortis and RBS were found to be heavily indebted due to the sub-prime mortgage crisis. Fortis was split and the Dutch part of Fortis was taken under government ownership by The Netherlands, thus reinstating the company in ABN-Amro The Belgian part was taken over by BNP-Paribas. RBS was taken under government ownership by the UK.
Following the purchase of Bankwest by the Commonwealth Bank (CBA), there have been calls for a royal commission specifically into the conduct of bank following allegations made that the CBA engineered defaults of Bankwest customers in order to profit from clawback clauses under the purchase agreement.
After struggling to maintain business levels at its brand names Karstadt and KaDeWe, Arcandor sought help from the German government, and then filed for insolvency.
Depfa, one of the companies subsidiaries ran into liquidity problems in 2008 as a result of the financial crisis. This combined with heavy losses reported by Hypo Real Estate itself led to a bailout by the Deutsche Bundesbank and later to a complete nationalization of the company.
After a series of attempted takeover bids, and a finding of fraud in a subsidiary's purchase of another subsidiary, it filed for Chapter 11 bankruptcy. It emerged from bankruptcy on 2 October 2012.
In 2009, an anonymous letter alleging possible illegal and fraudulent activities by management since 2007 was sent to KPMG Hong Kong, then CMED's auditor, and investigated by law firm Paul Weiss Rifkind Wharton & Garrison. Since 27 July 2012, pursuant to an Order by the Grand Court of the Cayman Islands, CMED has been under the control of Joint Official Liquidators. Post-bankruptcy filing, CMED's liquidator found itself probing an alleged $355 million insider fraud. In March 2017, the U.S. Department of Justice criminally indicted the CMED founder and CEO, as well as former Chief Financial Officer, charging them with securities fraud and wire fraud conspiracy for stealing more than $400 million from investors as part of a seven-year scheme.
National Bank of Anguilla and Caribbean Commercial Bank
In 2013, the two indigenous banks of Anguilla were intervened in by the East Caribbean Central Bank due to alleged irregular loans practices. After 3 years, both banks were put into bankruptcy, a new nationalized bank was created and the assets of the two bankrupt banks and the bank accounts of local account holders were transferred to the new bank and the local depositors were made whole by stealing about $180 million of money belonging foreign depositors, who lost their entire savings. The central bank was accused of fleecing the foreign depositors.[11][12]
An audit performed in 2013, for a capital raise performed in May 2014, uncovered severe financial irregularities and a precarious financial situation of the bank. In July 2014, Salgado was replaced by economist Vítor Bento, who saw BES in an irrecoverable situation. Its good assets were bought by Novo Banco, a vehicle founded by Portugal's financial regulators for that purpose, on August 3, which hired Bento as CEO, while its toxic assets stayed in the "old" BES, which got its banking license revoked by Portugal's regulators.
Theranos claimed to have developed devices to automate and miniaturize blood tests using microscopic blood volumes. Theranos dubbed its blood collection vessel the "nanotainer" and its analysis machine the "Edison". Elizabeth Holmes, founder and CEO, reportedly named the device "Edison" after inventor Thomas Edison, stating, "We tried everything else and it failed, so let's call it the Edison."[13] This was likely because of a well-known Edison quote: "I've not failed. I've just found 10,000 ways that won't work."
€1.9 billion, which apparently never existed, were found missing in a special audit. The CEO was arrested, the board filed for insolvency, and a warrant for the missing COO was issued.
Australia & New Zealand Banking Group allegations of racial bigotry toward billionaire businessman Pankaj Oswal and his wife. Court was presented with emails where an ANZ staff member comments to ANZ CEO Mike Smith: "We are dealing with Indians with no moral compass and an Indian woman as every bit as devious as PO (Mr Oswal)."[23][24][25]
Australia & New Zealand Banking Group toxic culture. Court case where allegations were made by ex-employees that the bank's senior management tolerated drugs and strip clubs.[26]
Brown & Williamson, for chemically enhancing the addictiveness of cigarettes, becoming the leading edge of the tobacco industry scandals of the 1990s, eventually resulting in the Tobacco Master Settlement Agreement
Commonwealth Bank facts uncovered that showed the insurance arm of the bank denied life insurance policy holders despite having legitimate claims, resulting in calls for a Royal Commission into the Australian insurance industry.[30]
Commonwealth Bank provision of unsuitable financial advice to a large number of customers between 2003 and 2012 and continuous delay in providing compensation to victims.[31]
Panama Papers International. Leak of hundreds of thousands of confidential documents pertaining to the bank accounts and companies held by politicians, High-net-worth individuals and other people, some in off-shore tax havens.[35] The focus was Panama law firm Mossack Fonseca.
Xerox[8][10] alleged accounting irregularities involving auditor KPMG, causing restatement of financial results for the years 1997 through 2000 and fines for both companies[7]
^Carreyrou, John (21 May 2018). Bad blood: secrets and lies in a Silicon Valley startup (First ed.). New York. ISBN978-1-5247-3165-6. OCLC1029779381.{{cite book}}: CS1 maint: location missing publisher (link)
