Beginning in 2000, CMS Marketing, Services and Trading Company began to make energy trades that had no economic justification. As stated in the Securities and Exchange Commission cease and desist order ¡§CMS materially overstated its revenues, expenses and energy-trading volumes in 2000 and 2001 through the use of undisclosed round-trip energy transactions conducted by its Houston-based energy-trading division, MS&T.¡¨ These trades have now become known as "round-trip" trades. CMS issued false Press Releases describing the trades as low margin trades when in fact there were no margins. The Company admits that $5.2 billion of these trades were made in 2000 and 2001.
Round Trip Trades
Round trip or wash trades are simultaneous, pre-arranged buy-sell trades of energy with the same counter-party, at the same price and volume, and over the same term, resulting in neither profit nor loss to either transacting party. No money is made or lost, but the deals can create the appearance of higher trading volumes and revenues.
The Securities and Exchange Commission found in 2004 that by recording revenues and expenses from the round-trip trades, CMS overstated its revenues and expenses by a total of $5.2 billion over a one-year period: $1.0 billion (10% of revenue) in 2000 and $4.2 billion (36% of revenue) for the first three quarters of 2001. Likewise, CMS overstated MS&T's reported energy-trading volume by 78% in 2000 and 72% in 2001. The round trip trades inflated CMS sales and influenced stock prices. As pressure grew on companies to increase their trading activity, these wash trades apparently became a common practice.
Along with CMS Energy, Duke Energy, Dynegy Inc. and Reliant Resources Inc. have all admitted to conducting round-trip trades. CMS energy stated that all of its round-trip trades were made with either Dynegy Inc. or Reliant Energy Services. LCG consulting found that the SEC has been conducting a formal investigation of Dynegy, and last week Reliant disclosed its involvement in round-trip trading amounting to a ten percent boost in revenue between 1999 and 2001. Reliant's round-trip trades made up 20 percent of all its trading last year. Dynegy has denied taking part in anything improper and has reportedly cooperated with investigators. Four major energy companies all have made and unethical decision and have had a hand in manipulating the energy market.
The outcome
In 2002 management admitted that CMS Energy booked $4.4 billion in round-trip trades and inflated its revenue by as much.
Wells Fargo account fraud scandal One of the most recent white-collar crimes involved Wells Fargo, a banking and financial services provider. In 2016, San Francisco-based bank Wells Fargo (WFC) employees secretly created millions of unauthorized bank and credit card accounts without permission of their customers. Opening about 1.5 million fraudulent deposit accounts and submitting 565,443 credit card applications allowed Wells Fargo employees to boost their sales targets and receive bonuses. Consequently, customers were wrongly charged fees for accounts they did not know existed. In this business crime scenario, Wells Fargo is involved in paying $185 million in fines and refunding $5 million to affected customers.
CenTrust held more than $1 billion in junk bonds and worked closely with Drexel. The relationship was launched when Drexel led an underwriting syndicate of five investment bankers that raised $12 million in subordinated debt to bolster CenTrust's capital base. Eventually, CenTrust also bought $1.4 billion in junk bonds from Drexel. Moreover, in early 1989, Lincoln and CenTrust sold warrants and other assets to each other through Drexel, with each recognizing s...
Prior to the year of 1999, Exxon and Mobil were the two largest American oil companies, which were direct descendants of the John D. Rockefeller’s broken up Standard Oil Company. In 1998 Exxon and Mobil signed an eighty billion dollar merger agreement in hope to form Exxon Mobil Corporation, the largest company ever created. Such a merger seems astonishing, not only because it reunited parts of Rockefeller’s Standard Oil Company, but also because it would be extremely difficult for the Federal Trade Commission (FTC) to approve this merger due to its size and importance in the oil market. In fact, it took the FTC an entire year after the merger was proposed to make a decision due to its rigorous analysis in the product and its geographic market, the concentration of the oil market, the potential anticompetitive effects of the merger, the effects towards their growth and labor force, and lastly, the likelihood of entry and the efficiencies that may affect anticompetitive concerns. Although all of these notions are played a role in the analysis of the merger, it is important to remember that the merger’s result efficiencies did outweigh the the anticompetitive risks that were involved, especially since the oil market was headed towards decreasing prices to expand production.
Over the years, the Exxon Mobil Corporation have repeatedly earned the ranking of a top-rated Fortune 500 company by flawl...
Day trading is a fairly new development of the stock market. Day trading refers to buying and selling a stock in the same day. Day traders normally trade common stocks, currencies, or stock options. Day trading is normally done by professional investors. However, it has also become a popular way to make money at home for others.
James, Tom, and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? Hoboken, NJ: John Wiley and Sons, Inc, 2006. Print.
Roberts, MJ, Lassiter, JB & Nanda, R 2010, US Department of Energy & Recovery Act Funding: Bridging the “Valley of Death”, Harvard Business School, Cambridge, USA.
Wall Street's demand for high growth motivated Peregrine Systems' executives, to fraudulently inflate revenues and stock prices. According to the SEC, "Peregrine filed materially incorrect financial statements with the commission for 11 consecutive quarters." Steven Spitzer, a member of Peregrine's sales team admitted to meeting regularly with senior management near the end of the quarter to determine how much revenue was needed to exceed Wall Street's expectations. The primary fraud committed by Peregrine was done by inflating revenue by booking revenue when sales never occurred. By recognizing revenue from sales that never occurred, the accounts receivable balance and net income were fraudulently overstated; the accounts receivable would never be collected, because the merchandise was never sold. To cover up their high, outstanding, accounts receivable balance as a result of booking sales that did not occur, Peregrine fraudulently engaged in financial agreements with banks.
In 1985, after federal deregulation of natural gas pipelines, Enron was born from the merger of Houston Natural Gas and InterNorth, a Nebraska pipeline company. In the process of the merger, Enron incurred a lot of debt and, as the result of deregulation, no longer had exclusive rights to its pipelines. In order to survive, the company had to come up with a new and innovative business strategy to generate profits and cash flow. Kenneth Lay, CEO, hired McKinsey & Co. to assist in developing Enron’s business strategy. It assigned Jeffrey Skilling to the task. Skilling, who had a background in banking and asset and liability management, proposed a revolutionary solution to Enron’s credit, cash, and profit worries in the gas pipeline business: create a “gas bank” in which Enron would buy gas from a network of suppliers and sell it to a network of consumers, contractually guaranteeing both the supply and the price, charging fees for the transactions and assuming the associated risks. Thanks to the young consultant, the company created both a new product and a new paradigm for the industry—the energy derivative. Lay was so impressed with Skilling’s ...
...ent expense the year it incurred. Due to the reporting error, in 2001 $3.055 billion was misclassified and 4791 million in the first quarter of 2002 (Law Maryland). In order to avoid getting caught, WorldCom was trying to be slick by leaving some line costs as current expense so that the error in classifying would not be easily detectible. This error in classifying expenses cause WorldCom to increase net income and assets. This fraud was found by the companies internal audit, Cynthia cooper, on May 2002. This detection was not good news to Arthur Anderson as they were the outside auditors of WorldCom. Anderson had already been affected by Enron scandal and neglecting to do to their job correctly. But with WorldCom they claimed that the chief financial officer Scott Sullivan did not tell them about the line costs being capitalized and they were unaware of this fact.
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
...ample of insider trading information because Charlie Sheen a family member of a person working in the airline industry distributed information about a publicly traded company before it was introduced to the public officially making it illegal. Therefore this is official insider trading.
Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly, shredding
In 2002, WorldCom’s bankruptcy was the largest in US history; WorldCom admitted that it had falsely booked $3.85 billion in expenses to make the company appear more profitable. Ebber who was CEO of WorldCom created fictitious some more than questionable accounting practices. Thus began the practice of taking an operating expense and reclassifyin...
Enron Corp. is a company that reached dramatic heights, only to face a dizzying collapse. The story ends with the bankruptcy of one of America 's largest corporations. Enron 's collapse affected the lives of thousands of employees and shook Wall Street to its core. At Enron 's peak, its shares were worth $90.75, but they plummeted to $0.67 in January 2002 following bankruptcy. To this day, many wonder how such a powerful business disintegrated almost overnight and how it managed to fool the regulators with fake, off-the-books corporations for so long.