Tyco International Scandal

What is Corporate Social Responsibility?

The Tyco International Scandal

By: Abu, Uzma, Miruna, Rebecca and Brekhna

Corporate social responsibility is when companies take the initiative to evaluate and act responsibly for the effects that the way they conduct business processes, have on the environment and society at large. This may mean that the company will try to exceed the requirements set by regulators and other environmental protection groups. If businesses are international there may be different priorities and thus they need to comply with laws from other countries as well.

Corporate Social Responsibility should also mean that companies should try to help the environment regardless of if their actions affect it as they can often have quite an impact at large on other companies and individuals who would follow in their footsteps.

Accountability

Integrity

Fairness

Transparency

Dedication

Financial Security Enforcers

"Forcing Security on the Nation and Investors"

Satyam Scandal (2009)

Freddie Mac (2003)

Summary of Scandal

Company: Indian IT services and back-office accounting firm.

What happened: Falsely boosted revenue by $1.5 billion.

Main player: Founder/Chairman Ramalinga Raju.

How he did it: Falsified revenues, margins and cash balances to the tune of 50 billion rupees.

How he got caught: Admitted the fraud in a letter to the company's board of directors.

Penalties: Raju and his brother charged with breach of trust, conspiracy, cheating and falsification of records. Released after the Central Bureau of Investigation failed to file charges on time.

Fun fact: In 2011 Ramalinga Raju's wife published a book of his existentialist, free-verse poetry.

What Happened:

Company: Federally backed mortgage-financing giant.

What happened: $5 billion in earnings were misstated.

Main players: President/COO David Glenn, Chairman/CEO Leland Brendsel, ex-CFO

Vaughn Clarke, former senior VPs Robert Dean and Nazir Dossani.

How they did it: Intentionally misstated and understated earnings on the books.

How they got caught: An SEC investigation.

Penalties: $125 million in fines and the firing of Glenn, Clarke and Brendsel.

Fun fact: 1 year later, the other federally backed mortgage financing company, Fannie Mae, was caught in an equally stunning accounting scandal.

What Happened:

• They got away with stealing the money in the beginning as they concealed information from Tyco's board of directors and took control of internal audits instead of sending it to a board

• The CEO Dennis Kozlowski and CFO Mark Swartz stole $170 million and inflated company income by $500 million, including $2 million that was used for a birthday party for Kozlowski’s wife that was thrown in Sardinia.

• Mark Belnick, the former general council of Tyco also falsified accounting records

• Stole this money through unapproved loans and fraudulent stock sales.

• Money was smuggled out of the company disguised as executive bonuses and benefits

• They also bribed employees who they thought may disclose information that would reveal them

HealthSouth Scandal (2003)

Parmalat Scandal (2003)

Company: Used to be the biggest dairy company in Europe but it collapsed in 2003 and subsequently declared bankruptcy.

Main Players: Calisto Tanzi (Parmalat founder) and Fausto Tonna (CFO).

How he did it: Through, investment disasters; non-existent cash in bank; fake transactions; hidden debts and the use of derivatives and accounting fraud to hide these facts. Cash siphoning through these companies was estimated to be total of € 10 Bn.

How he got caught: Through investigation found a 14.3 billion euro hole in Parmalats account.

Penalties: Tanzi was sentenced to 10 years in prison for fraud relating to the collapse of the dairy group

Company: Largest publicly traded healthcare company in the U.S.

What happened: Earnings numbers were allegedly inflated $1.4 billion

to meet stockholder expectations.

Main player: CEO Richard Scrushy.

How he did it: Allegedly told underlings to make up numbers and transactions from 1996-2003.

How he got caught: Sold $75 million in stock a day before the company posted a huge loss, triggering SEC suspicions.

Penalties: Scrushy was acquitted of all 36 counts of accounting fraud, but convicted of bribing the governor of Alabama, leading to a 7-year prison sentence.

Fun fact: Scrushy now works as a motivational speaker and maintains his innocence

Repercussions:

Who was involved?

• On September 19, 2005 both Kozlowski and Swartz were sentenced to 8-25 years in prison.

• SEC and Manhattan D.A investigations uncovered questionable accounting practices, including large loans made to Kozlowski that were then forgiven.

• In early 2002, the scandal slowly began to unravel and Tyco's share price plummeted nearly 80% in a six-week period.

• Robert Morganthau from the Manhattan D.A was the one who accused them

• After the scandal, the company also faced the loss of reputation as before the scandal it was a safe blue chip company

• A class-action law suit forced Tyco to pay $2.92 billion to investors

Type of Unethical Breach:

Statistics on Accounting Fraud:

)Embezzlement of Company Funds1

Thank you for your attention.

• Embezzlement is a kind of financial fraud. It involves the act of dishonestly appropriating assets by one or more individuals to whom such assets have been entrusted.

• It is estimated that scandals costs U.S. companies more than $660 billion annually

• Also it is estimated that the average organization loses about 6 percent of its annual revenue to fraud committed by employees.

2)Bribery

• Bribery involves offering or accepting something of value in a situation where the person who accepts the bribe is expected to perform a service which goes beyond his or her normal job description.

• 77% of fraud within companies are not publicly reported upon detection

3) Accounting Fraud

• Accounting fraud can be described as any act or attempt to manipulate the financial statement for financial gain. It can be one of the legal issues in this case because it consists of fraud which is unlawful in written law.