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Stock Exchange ScandalsA factor that has been associated with the stock exchange downturn and bear market was a series of revelations regarding the accuracy of financial statements issued by corporations. This also questioned the integrity of the independent public accounting firms that audit these financial statements. The most famous of these cases involved the Enron Corporation and Arthur Andersen LLP, an accounting firm. Enron, an energy company that traded in derivatives, engaged in a series of money-losing partnership transactions that were not reflected in its financial statements. Arthur Andersen, one of the largest accounting firms and the auditor of Enron, overlooked these questionable practices, providing credibility to Enron’s misleading financial statements. The losses were finally revealed in the fall of 2001 when Enron officials admitted that the company’s net worth had been overstated by more than $1 billion. As you might imagine, revelations like this casued the price of Enron stock to fall from $83 per share in December 2000 to less than $1 per share in December 2001. Arthur Andersen was convicted of obstruction of justice charges in June 2002 in connection with its Enron activities. The loss of its reputation as an independent auditor was even more telling, causing Arthur Andersen to discontinue much of its auditing activity. Such massive frauds can only harm the image and standing of a stock exchange. At the same time that the Enron scandal was being reported, similar problems with financial statements were reported at a number of other companies including WorldCom, Inc. and Global Crossing. The accounting fraud uncovered at WorldCom proved to be the largest in U.S. history. The company overstated its earnings by $11 billion, and its subsequent bankruptcy cost investors an estimated $200 billion. The United States DOJ brought criminal charges against WorldCom’s former chief financial officer, and the SEC filed civil lawsuits against former WorldCom executives. Would you like to learn more about trading? You would? Great! Then please click here for an excellent free online trading movie
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