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Financial scandals have been common in corporations for a considerable length of time. In this particular paper, fraudulent financial activities that have affected three companies have been discussed. The rigging of financial markets and large well established corporations is not a new phenomenon. However, the trend seems to be getting out of control in the modern economy.
There are growing allegations that systematic robbing of financial institutions has been taking place in the past 3 decades or so. One of the worst impacts of financial fraud in these institutions is that the global interest ad exchange rates have always been forcibly fixed by a few fraudulent individuals.
In other words, the market forces of demand and supply are hardly left to play their roles in the contemporary liberalized economies. This paper offers a succinct discussion of three top financial scandals that have been witnessed in the recent past.
When banks in London are engaged in the process of borrowing from each other, there is a specific charge that is levied on the service. This average interest rate is referred to as Libor. The Thomson Reuters usually play the role of calculating this value (Snyder, 2012).
There are several instances when Libor matters a lot especially when it comes to the net value of a product or when borrowing loans from banks and other financial institutions. For instances, it is highly likely that Libor affects credit card usage and property loans in several ways. Even the US economy is significantly affected by Libor. Other scandals discussed in this paper include the Enron and WorldCom scandals.
The London Interbank Offered Rate (Libor)
To begin with, it is perhaps necessary to explore the culprits behind the Libor scandal. The fixing scandal for interest rates is believed to have involved close to twenty major banks both in Europe and the United States. It has also been found out that banks spread across three continents were embroiled in the scandal.
The scandal remarkably jeopardized the career of Bob Diamond who was serving as the chief executive officer at that time. Pressure mounted each day for the CEO to surrender his office while other several top professionals in the banking sector across the world were being compelled to quit their offices so that investigations could be started (Snyder, 2012).
In order to assist the trading position of the bank immediately before the onset of global financial meltdown in 2007, submissions that were never true were made to the committee charged with the role of setting interest rates for Libor. This was a critical way of manipulating interest rates so that the overall financial performance of the bank could improve.
Besides, this move boosted the profitability of the Barclays Bank (Snyder, 2012). This was a serious fraud bearing in mind that Libor is a leading interest rates benchmark across the global financial markets. The integrity of the interest rates was adversely affected by the Barclays’ behavior since it generally posed a gross financial threat to other market players.
The Enron scandal has also been noted as one of the most popular financial frauds that took place in the last decade. At the onset of the new century, Enron was a company to reckon with in several ways due to its performance and market stability (Foster, 2010). It recorded a tremendous success that several other companies could hardly attain.
Nonetheless, a harbinger of elaborate challenges was recognized by investors when earnings restatement was announced by Enron in mid 2001. Within a period of merely one and a half months, Enron was declared bankrupt and unable to run its financial obligations in spite of the fact that it was powerful market performer and oozed with adequate wealth.
The fraudulent financial activities that took place at Enron could be grouped into two categories. First, basic fabrication of numbers took place in the financial records of the company (Salter, 2008). For instance, when its venture with Blockbuster did not succeed, it was poorly valuated. Second, complex financial maneuvers were also witnessed prior to the fall of the company.
Nonetheless, the American economic system is largely believed to have significantly contributed to the decline of Enron (Foster, 2010). The people’s trust in the performance of the entire economy was also weakened after the scandal. The executives of the company were described as greedy individuals who could not maintain their integrity as outlined in the code of ethics (Fox, 2003).
Both the accounting fraud and erosion of profits affected the performance and market stability of WorldCom company. Illusionary earnings amounting to billons were created in the eyes of investors whereas the company was headed to serious state of bankruptcy.
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One of the major impacts of this fraud was felt in the telecommunications sector. Millions of users were negatively affected by the declined performance of WorldCom Company (Romero, 2002).
According to the financial records of this company, the net value of assets owned by the firm was estimated at $107 billion. Before this filing could be released to shareholders, the company reported that expenses amounting to about $3.8 billion had been improperly accounted for in the records.
Telephone companies, suppliers, and banks were adversely affected by the fraudulent activities at the firm after the scandal was exposed. Before its bankruptcy, the total debts accumulated by the company stood at $41 billion. This marked the beginning of its downfall (Romero, 2002).
In recap, it can be seen that the financial scandals discussed caused major economic hitch in all the three companies. However, the common attributing factor was poor management of the firms’ resources.
Foster (2010). The decade’s worst financial scandals. Web.
Fox, L. (2003). Enron: The Rise and Fall. New York: John Wiley & Sons.
Romero, S. (2002). WorldCom’s collapse: the overview; WorldCom files for bankruptcy; largest U.S. case. Web.
Salter, M. (2008). Innovation Corrupted: The Origins and Legacy of Enron’s Collapse. Cambridge: Harvard University Press.
Snyder, M. (2012). The Biggest Financial scandal in History? Web.