* From the e-Activity, examine ethical behavior within firms in relation to financial management. Provide two (2) examples of companies that have been guilty of ethics-based malfeasance related to financial management and determine why their comeuppance was deserved.
Although there are many instances where companies have displayed unethical behavior when it comes to financial management the two that stuck out most to me while researching this topic were the Enron scandal, and the Bernie Madoff scandal.
In 2001, Enron a Houston based energy, commodities and services company were found to have been leaving huge debt they had incurred off of the balance sheets provided to both employees and shareholders. By doing this they caused many employees and investors their retirement account and many were left unemployed, but the ones who took the greatest loss were the shareholders, who lost approximately $74 billion due to this. The only reason the discrepancy was noticed is a whistleblower by the name of Sherron Watkins noticed how high stock prices became which made her suspicious. The penalty that was set amongst the key players in this scandal, former CEO Ken Lay, and the companies then current CEO Jeff Skilling were pretty intense however very much so deserved. Unfortunately Ken Lay dies before serving his time, however Jeff Skilling was sentenced to 24 years and the company was forced to file bankruptcy.
The next company I have examined was Bernie Madoff Investment Securities LLC, and the scandal they went through back in 2008. The unethical behavior displayed by the companies CEO Bernie Madoff, and his accountants David Friehling and Frank DiPascilli tricked the companies investors out of $64.8 billion through the “largest Ponzi scheme ever”. What they did was they were paying investors returns out of their own funds, or funds provided to them by other investors rather than profits made. This scandal went on for years until Bernie decided to let his sons in on his little scam and in return they decided to contact the SEC and inform them of what they’d just learned, which led to their father arrest the very next day. After going through trial a judge sentenced Mr. Madoff to 150 years in prison, along with paying $170 billion in restitutions; both of his accountants Friehling and DiPascalli received jail terms as well that weren’t as excessive. When it comes to this case I definitely feel that all parties involved got just punishment for their actions because they left many people struggling after this situation due to their greed and personal gain.
- From the scenario, recommend two (2) actions that Trevose Fitness Center (TFC) could take in order to raise capital that will, in turn, enable it to reach its expansion goals. Defend your response. Support your recommendation with two (2) real-world examples of successful implementations of these actions.
Two actions I believe TFC could take in order to raise capital for expansion would first be to simply go to your local bank and apply for a business loan. This is a very traditional route that many have used over the years and has been very effective when earning needed funds to expand a business. When doing so they must be sure to include the profits they plan to acquire from said expansion, along with the profits they’ve currently earned at the business they already have established. The second route they would be able to take would be to reach out to businesses and investors in the area for sponsorship. With doing that there may be some stipulations that come with depending on the corporation and how much they’d like to be involved in the expansion. Some may want their names involved in the expansion where they would have their name involved such as TFC sponsored by “said investor”. This is something that has also worked for years, but also has some backlash occasionally due to an investor wanting to be too involved and ultimately turning your business into their own.
Two examples of times where these two recommendations have worked would be one where I threw a party and received sponsorship from Ciroc liquors. When doing so I was required to advertise their product at the venue and on all flyers for the event and they provided the liquor at a discounted rate, and also provided some free cases of Ciroc for free. Another instance where sponsorships have worked were at different charity walks, one I just participated in happened to be sponsored by Nestle and they provided free waters to everyone who participated in the cancer walk with stipulations similar to Ciroc where they wanted their company to be advertised at the event.
When it comes to getting loans for expansions I myself own an online clothing boutique and I was able to do so by creating a sufficient and very detailed business plan to where the bank was able to see when they’d receive a return on their investment and also why this business would be a benefit to consumers. Another time where using a bank loan was beneficial for a business owner is for a friend of mines who decided to expand his tattoo shop from one location to three. This is something that was a little bit harder for him because the bank felt as if opening two locations at one time may be a risk however after showing them the benefits and the revenue he planned on receiving from moving to a more rural location the banks decided to back up his loan.
The 10 Worst Accounting Scandals of All Time. (n.d.). Retrieved July, 2016, from http://www.accounting-degree.org/scandals/
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