Accounting Fraud: A 'How-To' Guide
NEW YORK (TheStreet) -- When Anthony "Tino" De Angelis, a soybean-oil magnate based in Bayonne, New Jersey, wanted to fool his auditors, he filled his warehouse tanks almost to the brim with water, then floated a few yards of oil on top. Uncritical auditors took a peek into a handful of those tanks, saw what they'd come to see, and signed off on the De Angelis audit: all clear.
With his assets officially sanctified by his accounting firm, De Angelis used those Bayonne assets as collateral for loans from many banks, including Chase Manhattan. And he used the funds from those loans to attempt a bold ploy: the cornering of the soybean-oil market. The inevitable collapse of his scam brought American Express (AXP) (one of his creditors) to its knees; its stock lost half its value. Two Wall Street brokerages went belly up. Fifty banks failed.
This was in 1962 and 1963. The scam cost investors, banks and their counter-parties nearly $220 million. In today's dollars, that's $1.6 billion.
"It was a textbook example of accounting fraud," says Louis Straney, an expert on high-level financial larceny and, as it happens, the author of the textbook Securities Fraud: Detection, Prevention and Control. And its lessons are the lessons of all corporate accounting deceit, from Enron to Lehman Brothers. "De Angelis presents the classic example of how a man can exploit a complicated situation and use the credulity of high financiers for tremendous gain," commented Time magazine when De Angelis was arraigned in federal court in 1965. White-collar swindling on a possibly massive scale has yet again entered the minds of investors in recent months, this time caused by a burgeoning raft of fraud revelations and allegations directed at Chinese companies that have sold shares in the U.S. So many China-based companies -- such as China Media Express (CCME) and Longtop Financial (LTF) -- have blown up amid accusations of fictitious profits that some investors have come to doubt the financial reports of an entire nation.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV