Now with all these rules and regulations in place to create a sense of trust in the business accounting community, within a year the first CEO was punished under the new set of laws. This means that these CEO’s knowingly signed off on fraudulent or untrue documents. “Chief Executive Officer Calixto Chaves and Chief Financial Officer Gina Siqueira settled the charges, with Chaves agreeing to pay a $25,000 fine. Siqueira cooperated with the SEC and will not be required to pay a fine. The two executives and the company itself agreed to be subjected to stiffer future penalties if they violate SEC laws again. The two, who are Costa Rican residents, did not admit to or deny the charges.” (Yun). These two executives were not deterred by the laws or …show more content…
punishment of the fine. They were also not punished as severely as the law stated, that the executives would be reproved. This brings in to question the reliability, effectiveness, and honorability of the laws and the people upholding them. The SEC put out a statement about the misdeeds of DGSE a corporation in Nevada headquartered in Dallas, Texas that buys and sells jewelry and bullion products for individual consumers, dealers, and institutions, the statement was released to comment on the repercussions and the laws broken by its executive officer Dr. L.J. Smith who was the Chairman of the Board of Directors and Chief Executive Officer of DGSE from 1980 until 2011. The Securities & Exchange Commission delivered this administrative proceeding, "the Securities and Exchange Commission [deemed] it appropriate that cease-and-desist proceedings be…instituted pursuant to Section 21C of the Securities Exchange Act of 1934 against Dr. L.S. Smith”. (Fields). This case arises out of financial reporting, books and records, and internal controls violations by DGSE Companies Inc. and its former Chief Financial Officer, John Benson, that arose during Smith's tenure as DGSE's Chief Executive Officer. These desecrations led to numerous accounting misstatements in DGSE's publicly-filed annual and quarterly reports, which were caused by fraudulent accounting entries made or directed by Benson. Therefore, with Benson being CEO at the time of the fraudulent practices, he is held responsible for these actions. As a result, DGSE was required to restate its financial statements. The commission did not imply that Benson was the reason for the noncompliance and he willfully did it for profit, but the fact that the financial statements were “materially overstated inventory and went undetected because of DGSE's failure to maintain appropriate accounting systems, policies, procedures, and controls. The overstatement of inventory leads to a false amount of profitability of the company, which could increase their stock price" (Fields). This would, in turn, make anyone who invested in the company a great deal of profit, people such as board members, investors, and of course the executive officers. Coupled with the fact that Benson did not compensate the company for the money that he took which he is required to do so by Section 304(a) of the Sarbanes-Oxley Act of 2002. Leading to the assumption that he did know of the fraud occurring in his company, and willfully profited from it. Bringing into question the morality of this man, he appeared to have gotten away effortlessly with a plethora of crimes with an agreeable profit. Once over, the act did not do what it was set out to accomplish, and that is not the fault of the words on paper, but the fault of the people who decide the punishments. People can become corrupt and have their own motives and reasons for doing whatever it is that they do. Those illegal acts all led to the “DGSE filing Forms 10-Q and 10-K for the fiscal years 2009 and 2010 that were in material non-compliance with its financial reporting requirements under the federal securities laws” (Fields). Due to DGSE's substantial non-compliance with its financial reporting requirements under the federal securities laws, and because of its misconduct that improperly inflated DGSE's inventory accounts, DGSE restated its financial statements for the fiscal years ended 2009 and 2010. This all gave rise to even more interesting and almost incriminating financial statements saying that during the twelve-month period following DGSE's filing of its inaccurate financial statements, and before any restatement or correcting disclosure, Smith received from DGSE, incentive bonuses as part of his employment with DGSE. During the same period, he also profited from the sale of DGSE stock. This all led to the Commission deciding that it was proper to impose the sanctions on the company for the lack of compliance. They were then forced to reimburse the total of “$106,250 and 59,738 shares of DGSE stock pursuant to Section 304(a) of the Sarbanes-Oxley Act, 15 U.S.C. section 7243” (Fields). In this case, once again, it shows that people are not deterred from committing a crime if there is a large amount of money involved and an excellent chance of not receiving jail time. Another example of similar activity was committed by the well-known bank Wells Fargo, in recent years Wells Fargo was put under scrutiny because employees may have opened as many as 1.5 million checking accounts and obtained as many as 565,000 credit cards without customer authorization. The employees stated that they did this because they were urged by management to reach a quota, unsurprisingly principle members of Wells Fargo deny this. The CEO of Wells Fargo had to speak in front of a panel of our legislatures in the “Senate Banking Committee” (Targeted News Service). He was questioned extensively for a few hours and was broadcasted on national television because a scandal such as this did make the national news. “Mr. Stumpf [self-proclaimed] that he became aware of widespread fraud at the bank in 2013, yet neither he nor the company disclosed that information to investors until the CFPB Consent Order became public in September 2016” (Target News Service). While hiding this information from the company’s investors Stumpf bragged about how well Wells Fargo was doing during quarterly earnings calls, arrogantly touting about the new accounts that were being opened and how much business was being created.
He did this knowingly and willfully to prop himself and the company up while “apparently with the knowledge that many of these retail accounts were created without customer authorization” (Target News Service). Leading to the assumption that the executives of the company did tell the lower level workers to meet a quota by whatever means necessary. The SEC has previously found securities fraud when an executive makes misleading statements on earnings calls. “During the Senate Banking Committee hearing, Mr. Stumpf claimed under oath that the firing of more than 5000 employees for creating more than two million possibly fake accounts was not "material" to investors” (Target News Service). Mr. Stumpf emphasized the company's increasing number of retail accounts and growing to cross-sell ratio on quarterly earnings calls with investors and analysts, and several analyst reports from that period recommend purchasing Wells Fargo stock in part because of those strong numbers. Mr. Stumpf and Wells Fargo investors clearly believed that the cross-sell ratio and the number of retail accounts were material to investment decisions and yet, Mr. Stumpf did not disclose that those numbers had been inflated by millions of fraudulent accounts, which must be pointed out is illegal and unethical. The fact of the matter is that this man decided to lie to his investors to show false profit margins to inflate the size of his pockets. At the expense of average American citizens, he lied to his investors who are trusting him with a company that they have a say/vote in. Wells-Fargo may have violated the regulations of whistleblowers which too is illegal. The firing of whistleblowers shows that the executives were guilty of what they claimed that
they did not do and that they were trying to keep these whistleblowers quiet, so the average American would trust the bank with their money. The only punishment the CEO of Wells Fargo faced was that he was forced to step down. Now the company is moving on, they have released a new commercial where they are assuring the public they are no longer a fraudulent firm. However, with what has happened, there is no reason that it cannot happen again. There are plenty of other similar cases such as the one that happened in April 2014, where the SEC entered into a $20 million settlement with CVS a well-known store and pharmaceutical company based on mostly allegations that the executives of CVS had intentionally misled investors on how much profit the company had been making. Which has been stated previously to be a crime under Sarbanes-Oxley? Another case made by the SEC had an analogous situation where they entered into a $75 million settlement with Citigroup and two of its executives which was also based in mostly allegations that bank executives decided to give misleading information during investor phone calls about the bank's subprime mortgage exposure, this too is illegal and the executives deserve to be fired, pay a fine, as well as serving jail time. Even if a few companies decide to break the law for greed these few do not speak for all the publicly traded companies.
So just how did Scott Welch fit the profile of the average perpetrator? Based off the information reported by the Association of Certified Fraud Examiners’ (ACFE) 2010 Report to the Nation, Welch fit directly into the median for a perpetrator – he was male, between the ages of 46 – 50, had a tenure of at least 6 – 10 years, an executive position as a Vice President. According to the ACFE’s report a perpetrator’s position within the company, age, tenure, gender and education level all have a have consideration in a fraud. In the 2010 report, it is noted that 66.7% of all frauds are perpetrated by men, more than likely due to the fact that more men hold a position of authority. Of the cases studied, 74% of all managers and 88% of all owners/executives were men (Association of Certified Fraud Examiners (ACFE), 2010). The combination of Welch’s tenure and authoritative position may have exacerbated the losses suffered by Wachovia and may also have helped him hide the fraud from detection for an extended period of time of eight years (“Former Wachovia,” 2011). This period is well above and beyond the 24 months reported by the ACFE as the median time frame in which frauds perpetrated by executives/owners were detected (ACFE, 2010). Taking into consideration all the kn...
First of all, they will not be able to buy tangible properties such as house, car and etc. because of that their credit ratings got a huge hit. Moreover, only 5,300 of the employees that were fired from the Bank, 10% were Managers. What could have motivated them to engage in this sham? This is not an attempt to imply all were of malicious but certainly most them led the way. The aggressive sales goals pushed employees to break the rules. “On average one percent 1 percent of employees have not done the right thing, and we terminated them. I don’t want them here if they don’t represent the culture of the company,” says John Stumpf, the company’s longtime chief executive, in an interview with The Washington Post. It is obvious that simple employees and managers could not break the law if someone from the top did not allow them to do so. But the executive board of Wells Fargo claimed that they only fired 1 percent of below employees and some managers for fraudulent accounts, however they also might be involved in that business crime although to build a case against a company executive, prosecutors would have to show “they knew there was a plan to create false accounts to drive up sales,” said Brandon L. Garret, a professor at the University of Virginia School of Law. Even if it appears that the executive purposefully attempted to avoid knowing about the fraud, prosecutors may be able to build a case. Because they don’t have to participate if there is willful
As Wells Fargo convicted all the requirements of fraud they are involved to the business crime called fraud, they are liable to their fraud crime. There was a false statement which respectively conducted to the injury to the alleged victim as a result. Wells Fargo has been ordered to pay $185 million in fines, but that's a pittance compared with the $5.6 billion the bank earned in just the second quarter of this year. Meanwhile, the bank's victims weren't just nickel-and-dimed with overdraft and maintenance fees. Many of them took "significant hits" to their credit scores for not staying current on accounts they did not even know about. They will likely have difficulty securing home and car loans at reasonable rates for years to come, simply because their bank decided to defraud
Employees were using the cross-selling which is a concept of attempting to sell multiple products to consumers. This concept led to fraudulent actions, in fact employees were encouraged to order credit cards for pre-approved customers without their consent, and to use their own contact information when filling out requests to prevent customers from discovering the fraud. " The Wells Fargo scandal was far different. Instead of a select few doing bad things, the unethical behavior was widespread at the bank, with thousands of employees engaged in secretly creating new bank and credit-card accounts for customers without their knowledge, resulting in overdraft and other fees." (Kouchaki, 2016). According to the Los Angeles City Attorney, employees were opening and funding accounts without customers' permission or knowledge in order to "satisfy sales goals and earn financial rewards under the bank's incentive-compensation program." This means that the board members of the bank were aware of that it wasn't by the employees' own wills. In fact, they were pressured by aggressive goals and performance which led them to immoral behaviors. Facing this problem, Wells Fargo bank had to take some measures to avoid bankruptcy, losing customers, or loosing brand
Just like people, corporations have the capability of committing criminal acts. The Enron scandal in 2001; the Bernard Madoff ponzi-scheme of 2008-2009; both of these examples show that despite internal and external controls, regulations, and oversight, corporations still are a multi-faceted entity that have the propensity to partake in crime. That being true, that criminal entity must be punished and held responsible for their actions. One tool in the prosecutorial tool belt is the use of deferred prosecution and non-prosecution agreements. According to Lanny Breuer, the United States Department of Justice’s Criminal Division, “over the last decade, deferred prosecution agreements have become a mainstay of white collar criminal law enforcement” (Warin, 2012).
In Wells Fargo “Vision and Values Guide Our Actions” each section has an “our standard” (2017, March) portion to help employees understand the expectations Wells Fargo has for them in their employment pertaining to ethical standards and the laws they have to follow. As stated in the Vision and Values Guide Our Actions handbook from Wells Fargo, the company states, “In order to maintain our reputation as a trusted ethical company, we must do our part to ensure that our values come alive through our actions” (2017, March). In this guide, the company has laid out blatantly how to respond and act ethically as a Wells Fargo employee, but this did not stop the company from performing illegal acts and starting the credit card and bank
Individual Article Review Lily Cobian LAW/421 March 31, 2014 Ramon E. Ortiz-Velez Individual Article Review Introduction My article review is based on Sarbanes-Oxley and audit failure, a critical examination why the Sarbanes-Oxley Act of 2002 was established and why it is not a guarantee to prevent failure of audits. Sarbanes-Oxley Act talks about scandals of Enron which occurred in 2001 and even more appalling the company’s auditor, Arthur Anderson, found guilty of shredding company documents after finding out Enron Company was going to be audited. The exorbitant amounts of money auditors get paid to hide audit discrepancies was also beyond belief. The article went on to explain many companies hire relatives or friends to do their audits, resulting in fraud, money embezzlement, corruption and even the demise of companies. Resulting in the public losing faith in the accounting profession, the Sarbanes-Oxley Act passed in 2002 by congress was designed to restrict what company owners and auditors can and cannot do. From what I gathered in the article, ever since the implementation of the Sarbanes- Oxley Act there has been somewhat of an improvement but questions are still being asked as to why there are still issues that are not being targeted in hopes of preventing more audit failures. The article also talked about four common causes of audit failure: unintentional auditor mistakes, fraud, fatigue and auditor client relationships. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct clearly states an independent auditor because it produces a credible audit, however, when there is conflict of interest, the relation of a former employer, or a relative or even the fear of getting fire...
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
Although Hollate introduced a compliance program and code of conduct when it went public, the programs were put on “the back burner”. This outcome is not surprised for that the company does not pay attention to the programs. It is, therefore, important to “reinforce the values” and “employee a boundary system when actions are inconsistent with the code of conduct” for the purpose of early detection. Tyco provides a good example after its scandal, by initiating “mandatory annual compliance training for all its employees worldwide” and creating the Tyco Guide to Ethical Conduct to familiarize employees with company expectations and help them make ethical decisions. As tips is the most useful method for internal and external sources to detect frauds, the whistleblower hotline should be well communicated with encouragement on reporting any suspicious activity. In addition, to improve the effectiveness of the compliance program and code of conducts, Hollate should implement management monitoring and evaluation on a regular
In contrast, the whistleblowers will be saving the company both from the private and public sector. Also, the company may have been blacklisted into other contracts because of the corruption (Nicol, 2015,
The Wells Fargo scandal started in 2016 when it came to light that starting back in 2011 employees created over 1.5 million fraudulent bank
Rather than being sticklers for following GAAP accounting principles and internal controls, this company took unethical behavior to a whole new level. They lied when the truth would have been easier to tell. It is almost as if they had no comprehension that the meaning of the word ethics is “the principles of conduct governing an individual or a group (professional ethics); the discipline dealing with what is good and bad and with moral duty and obligation”, (Mirriam-Webster, 2011). To be ethical all one has to do is follow laws, rules, regulations and your own internal moral compass, all things this company seemed to know nothing about.
In regards to culpability for the Wells Fargo scandal, who deserves to accept the responsibility? On one hand, the employees themselves actually generated the false accounts. While the pressure for success and lucrative incentives constantly loom over their heads, the decision to create fraudulent accounts belongs solely to employees. These employees had complete understanding that the consequences of their actions had much greater ramifications for the company and its customers than for the employees themselves. To put this idea in perspective, if an employee underperformed, he risks losing his job, while problematic, the side effects remain temporary. On the contrary, if held accountable for credit card debt she never accrued, a customer
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.
While Stephen Richards was the head of global sales at Computer Associates he was a faciliter in the illegal extension of the fiscal quarter. He also allowed his employees to obtain contracts after the end of the quarter, and then backdate them so that they would add to the expired quarter's revenues. In the eyes of the DOJ (Department of Justice) and SEC (Securities and Exchange Commission) the deliberate misreporting or omittance of financial accounting information is viewed as a felony, punishable with time in prison. Yet, according to Richards’ “This was simply a timing issue of a deal coming in and being recognized two or three days earlier as opposed to two or three days later.” Had Richards and his team been honest and thorough about