Accounting Scandals Case Study Example | Topics and Well Written Essays - 2000 words

score Scandals - Case Study ExampleRefco became a public company on August 11, 2005 when a puffy number of make outs were floated to the public to raise 583 million dollars.In October, the Companys financial crisis was made public through an contract that the CEO, Philip R Bennett had concea take as much as 545 million dollars in bed debts from the Companys investors and auditors by safekeeping them off the account books, in order to artificially inflate earnings and boost up the Companys simple eye price.(White and OHara 2005D01). This anomaly in the accounts was discovered during a process of internal review which was carried out over the preceding weekend. Refcos stock prices plunged immediately once the announcement was made, resulting in losses of more than $1 billion in shareholder value, with its bonds also plummeting to insolvency levels.(White and OHara 2005D01).The Company reportedly engaged in a series of circular transactions, whereby an nameless business entity ow ned by Mr. Bennett was buying off Refcos bad debts at every quarter, so that they did not show up on Refcos books. The unidentified company owned by Mr. Bennett assumed those debts of third parties which were promising to be difficult or impossible to collect (Teather, 2005). The Chairman arranged for a Refco subsidiary, Refco Capital Markets to bestow money to a hedge fund company named Liberty Corner Capital, which in turn lend the money to Refco Group Holdings, which paid off the debt to Refco Inc.(White and OHara 2005D01). In this way, at the end of every quarter when story statements became due, debt was temporarily moved off Refcos books and onto Libertys account. Such accounting scandals generate fears of a liquidity squeeze and trade contagion, highlighting the need for tighter regulation and higher levels of disclosure and transparency in hedge funds (The propound 2005). Accountants and banks are being sued as a part of the shareholder class action suits against Refco, because the circular figure of transactions which occurred regularly at the end of every fiscal quarter and then unwound after the billet ended were themselves a warning alarm bell which should have sounded in the minds of auditors and accountants (White and OHara 2005D01). Goldman Sachs, CSFB and other leading investing banks are being sued for negligence in underwriting and advising on Refcos float issue and on its bond issues, which led to the perpetration of accounting fraud.(Walsh, 2005).Refco Capital Markets is at the centre of the regulatory investigations, because this was the corporate entity through which Bennett was able to catch loan funds, which were hidden from Company auditors and officers. A commodity funds Company is suing Refco for diverting its assets to an insolvent entity equivalent Refco Capital markets, while senior executives at an Australian bank, Bawag, are also being scrutinized for their role in the scandal, because the bank approved a loan of 420 m illion dollars which was just prior to the accounting manipulation that was winning place.(Fortune, 20065)The Polly Peck ScandalPolly Peck was initially a small clothing company on the capital of the United Kingdom stock exchange which did not demonstrate any remarkable profits, but its fortunes began to change when it came under the attention of Asil Nadir, a Turkish businessman, in 1980. Over the next ten years, the Company experienced an unprecedented level of growth. In 1980, it also moved into the harvesting packing business through a public share funded acquisition of Uni-Pac, which was a company already owned by Nadir.(Wearing, 2005 41). The move away from clothing into fruit packing represented a risk for the