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Scandals
November 26, 1872 - An article in the San Francisco
Evening Bulletin exposed The Great Diamond Hoax, one of the most
notorious mining swindles of the time; Kentucky cousins Philip
Arnold and John Slack convinced San Francisco capitalists to
invest in a worthless mine in the northwestern corner of Colorado;
arrived in San Francisco in 1872, tried to deposit bag of uncut
diamonds at a ban; when questioned, two men quickly disappeared,
acted as if they were reluctant to talk about their discovery;
bank director named William Ralston tracked down the men; assumed
he was dealing with unsophisticated country bumpkins, set out to
take control of diamond mine; two cousins agreed to take a
blindfolded mining expert to the site; reported mine was rich with
diamonds and rubies; Ralston joined with number of other prominent
San Francisco financiers, formed New York Mining and Commercial
Company, capitalized at $10 million; began selling stock to eager
investors. Arnold and Slack received about $600,000 (small change
in comparison to supposed value of diamond mine); at least 25
diamond exploration companies formed in subsequent months
(convinced American West must have many other major deposits of
diamonds); Clarence King, little-known young leader of a
geographical survey of 40th parallel, exposed cousins' diamond
mine as a hoax; was suspicious of mine from the start; correctly
deduced the location of supposed mine, raced to investigate,
realized swindlers had salted the mine (some gems showed
jewelers-cut marks); exposed the fraud in newspapers, Great
Diamond Hoax collapsed; Ralston returned $80,000 to each of his
investors, never able to recover $600,000 given to two cousins;
Arnold lived out the few remaining years of his life in luxury in
Kentucky, died of pneumonia in 1878; Slack last reported to have
worked as coffin maker in New Mexico; King's role in exposing
fraud brought him national recognition, became first director of
the United States Geological Survey.
1926 - McKesson & Robbins, Inc.
(merged with Foremost Dairies, San
Francisco, after
hostile takeover in 1967) acquired by Frank D. Coster of Adelphi Pharmaceutical
Manufacturing Company, manufacturer of high alcohol-content
products such as hair tonic, cosmetics (real name
Philip Musica, twice-convicted criminal); enlisted three brothers in scheme to
skim cash, inflate assets; 1938 - true
identity revealed; company treasurer became suspicious of large
payments to one customer; ordered Dun & Bradstreet credit reports
on customer - customer fictitious; December 6, 1938
- SEC opened investigation into company's accounting, New York
Stock Exchange suspended trading of company’s shares;
investigation revealed Coster had
embezzled $3 million, inflated company's assets by more than 20%
fictitious (inventories, accounts receivable); led to changes
in audit procedures in accounting profession.
October 11, 1972
- Securities Exchange Commission (SEC) filed charges against Bank of
America Vice President George L. Bates and Western Oil Development
Corp.; charged Bates with "fraud and deceit" while trading stocks of
Western Oil; accused Western Oil officials of using "fraudulent
statements" to boost company's stock price (to use as resource to
"acquire valuable properties"); SEC also convened hearings on charges of
anti-fraud violations by Continental Investments and two of its
subsidiaries; stemmed from charges that Continental Investment
manipulated its investment relationship with the United Fund group,
mutual fund company, for improper fiscal gain. Continental Investment
officials maintained their innocence, described their dealings with
United Fund group as "complex" and "technical," but not corrupt.
October 30, 1972 - All Nippon Airline (ANA) announced
its decision to purchase 21 Lockheed Tristar L101 (about $5
million each); primary candidate for its supplier of new Jumbo passenger
aircraft to replace its old Boeing 747 believed to be McDonald Douglas
(for its DC10) because of its ties with Mitsuibussan, who was a majority
shareholder of ANA; discovered that Lockheed paid 2.4 billion yen as a
bribe to earn purchase contract of its Tristar from ANA (500 million yen
to then Prime Minister Tanaka; 160 million yen to ANA's officials.; 1.7
billion yen to Kodama, right-wing middle man used by Lockheed to
distribute the rest of bribe among other political leaders); July
27, 1976 - Kakuei Tanaka, former Japanese prime minister,
arrested in Lockheed bribery scandal; August 16 - Tanaka
indicted along with former officers of the Marubeni Trading Corp.;
Lockheed payoffs an example of what the Japanese poetically refer to as
kuroi kiri (black mist), or corruption; Fall 1972 - Tanaka
connection involved two Lockheed sales coups: 1) decision of All Nippon
Airways, Japan's principal domestic carrier, to buy six Lockheed TriStar
jetliners instead of McDonnell Douglas or Boeing competitors (order grew
to 21); 2) government decision to consider purchasing Lockheed P-3C
Orions instead of developing a Japanese-made antisubmarine aircraft;
Tanaka convicted of having received about $2 million in bribes from
Lockheed to promote sales while he was in office; August 26, 1976
- Prince Bernhard of the Netherlands resigned all his military and
political posts after accusations that he was involved in a Lockheed
bribery scandal; subsequently admitted (posthumously, in an interview
prior to his death) he took a million-dollar bribe in exchange for
providing contacts and helping the firm win a government order for
Starfighter 104 planes; gave rise to the American Foreign Corrupt
Practices Act of 1977.
November 3, 1975 - An independent audit of Mattel,
one of the United States's largest toy manufacturers, revealed that
company officials fabricated press releases, financial information to
"maintain the appearance of continued corporate growth."
October 1982 - Barry
Minkow started small carpet cleaning business in mother's garage in Los Angeles
suburb; expanded into insurance restoration company (damaged buildings);
December 1986 - went public (clean audit opinions from two accounting
firms, registration statement from large Wall Street firm); reached market
capitalization of $280 million; youngest person to take company public in Wall
Street history; June 1987 - fraud discovered - - no restoration
projects, minimal revenues relative to reported sales, no profits; July 2,
1987 - Minkow (20) resigned; January 1988 - indicted on 54
counts of racketeering, securities fraud (valued at $26 million), embezzlement,
mail fraud, tax evasion; convicted, sentenced to jail; April 1995
- released.
December 21, 1988 - Drexel Burnham Lambert Inc. pleaded
guilty to charges of mail, wire, and securities fraud; agreed to hand
over a record $650 million in fines, as well as to cooperate with
authorities in their ongoing investigation of other Wall Street figures;
provided evidence against Michael Milken, junk-bond king (indicted
in 1990 on nearly one hundred counts of racketeering).
April 7, 1990 - Michael Milken pleaded innocent to security
law violations; April 24, 1990 - pleaded guilty to 6
felonies.
November 21, 1990 - U.S. District Judge Kimba Wood
sentenced Michael Milken (former Drexel Burnham junk-bond king) to a
ten-year prison term for various securities law infractions (insider
trading and "stock manipulation").
April 10, 1992 -
Financier Charles Keating Jr. was sentenced in Los Angeles to nine years
in prison for swindling investors when his Lincoln Savings and Loan
collapsed (convictions later overturned).
December 6, 1994
- Orange County, CA filed for bankruptcy protection due to investment losses of
about $2 billion; single biggest bankruptcy filing by a municipality; Orange
County officials over-leveraged county's fund, borrowed significantly for
securities trading via use of reverse repurchase agreements (investors borrow
money to buy securities, put up securities as collateral); fund suffered losses
for a year, lenders' risk increased, county forced to put up more collateral;
fund's losses rose to about $2 billion, county officials filed for Chapter 9
bankruptcy.
(Columbia Pictures),
David McClintick (1982). Indecent Exposure: A True Story of Hollywood
and Wall Street. (New York, NY: Morrow, 546 p.). Begelman, David;
Robertson, Cliff; Columbia Pictures Industries; Embezzlement--New York
(State)--New York; Motion picture actors and actresses--California--Los
Angeles; Extortion--New York (State)--New York;
Industries--California--Los Angeles; Hollywood (Los Angeles,
Calif.)--History. David Begelman, embezzler.
(Drexel Burnham), Benjamin Stein (1992). A License to Steal: The
Untold Story of Michael Milken and the Conspiracy to Bilk the Nation.
(New York, NY: Simon & Schuster, 219 p.). Milken, Michael; Drexel
Burnham Lambert Incorporated; Stockbrokers--United States--Biography;
Junk bonds--United States; Securities industry--Corrupt
practices--United States.
(Drexel Burnham), Daniel R. Fischel (1995). Payback: The
Conspiracy to Destroy Michael Milken and His Financial Revolution.
(New York, NY: HarperBusiness, 332 p.). Professor of Corporate Law
(University of Chicago). Milken, Michael; Drexel Burnham Lambert
Incorporated; Junk bonds--United States; Insider trading in
securities--United States.
Michael Milken (http://www.forbes.com/images/
2001/01/22/milken_168x238.jpg)
(Equity Funding), Raymond L. Dirks and Leonard Gross (1974). The
Great Wall Street Scandal. (New York, NY: McGraw-Hill, 295 p.).
Equity Funding Corporation of America; Fraud--United States; Stock
exchanges--United States.
(Equity Funding), Ronald L. Soble and Robert E. Dallos (1975). The
Impossible Dream: The Equity Funding Story, the Fraud of the Century.
(New York, NY: Putnam, 313 p.). Equity Funding Corporation of America;
Fraud--United States; Stock exchanges--United States.
(Equity Funding), [edited by] Lee J. Seidler, Frederick Andrews, Marc
J. Epstein (1977). The Equity Funding Papers: The Anatomy of a Fraud.
(Santa Barbara, CA: Wiley, 578 p.). Equity Funding Corporation of
America; Securities fraud--United States.
(Julian Petroleum), Guy W. Finney (1929). The Great Los Angeles Bubble, A Present-Day Story of Colossal Financial Jugglery and of Penalties Paid (Los Angeles, CA: The Milton Forbes Company, 203 p.).
(Julian Petroleum), Jules Tygiel (1996). The Great Los Angeles
Swindle: Oil, Stocks, and Scandal During the Roaring Twenties.
(Berkeley, CA: University of California Press, 398 p. [orig. pub.
1994]). Julian Petroleum Corporation; Julian Petroleum Corporation;
Petroleum industry and trade--Corrupt practices--California--Los
Angeles.
C. C. Julian- Julian Petroleum(http://catalog1.lapl.org/cgi-bin/
cw_cgi?fullImage+ 10324+28173+968)
(Lincoln Savings & Loan), Michael Binstein and Charles
Bowden (1993). Trust Me: Charles Keating and the Missing Billions.
(New York, NY: Random House, 420 p.). Keating, Charles H.; Lincoln
Savings & Loan Association -- Corrupt practices; Savings and loan
association failures -- California; Securities fraud -- United States.
Charles Keating(http://www.nndb.com/people/
648/000050498/charles-keating-45.jpg)
(Lockheed), Berkeley Rice (1971).
The C-5A Scandal;: An Inside Story of the Military-Industrial Complex.
(Boston, MA: Houghton Mifflin, 238 p.). Lockheed Aircraft
Corporation--Corrupt practices; Corporations--Corrupt practices--United
States--Case studies; Corporations, American--Corrupt practices--Case
studies.; Commercial crimes--Case studies.Lockheed Aircraft; C-5A.
(Lockheed), David Boulton (1978). The Grease Machine. (New
York, NY: Harper & Row, 289 p.). Lockheed Aircraft Corporation--Corrupt
practices; Corporations--Corrupt practices--United States--Case studies;
Corporations, American--Corrupt practices--Case studies.; Commercial
crimes--Case studies.
(LA Kings), Bruce McNall with Michael D'Antonio (2003). Fun
While It Lasted: My Rise and Fall in the Land of Fame and Fortune.
(New York, NY: Hyperion, 368 p.). Former Owner L. A. Kings. McNall,
Bruce, 1950- ; Commercial criminals--California--Biography;
Fraud--California--Case studies; Businessmen--California--Biography;
Capitalists and financiers--California--Biography; Hockey team
owners--California--Biography.
(McKesson), Charles Keats (1982). Magnificent Masquerade:
The Strange Case of Dr. Coster and Mr. Musica.
(New York, NY: Garland Pub., 276 p. [orig. pub. 1964]). Musica,
Philip, 1884-1938; McKesson and Robbins, Inc.
(National Medical Enterprises), Leon Bing (1997).
A Wrongful Death: One Child’s Fatal Encounter with Public Health and
Private Greed. (New York, NY: Villard Books, 285 p.). Scheck,
Christy; National Medical Enterprises--Corrupt practices; Psychiatric
errors--United States--Case studies; Hospitals, Proprietary--Corrupt
practices--United States; Psychiatric hospitals--Corrupt
practices--United States; Insurance crimes--United States;
Teenagers--Suicidal behavior--United States--Case studies; Wrongful
death--United States--Case studies.
(Orange County), Philippe Jorion, with the assistance of Robert Roper
(1995). Big Bets Gone Bad: Derivatives and Bankruptcy in Orange
County. (San Diego, CA: Academic Press, 176 p.). Only Professor in
Orange County who teaches and researches derivatives. Citron, Robert L.;
Investment of public funds--California--Orange County; Derivative
securities; Debts, Public--California--Orange County; Municipal
bankruptcy--California--Orange County.
(Orange County), Mark Baldassare (1998). When Government Fails:
The Orange County Bankruptcy. (Berkeley, CA: University of
California, 317 p.). Senior Fellow at the Public Policy Institute of
California (PPIC) and Professor and Chair of Urban and Regional Planning
at the University of California, Irvine. Citron, Robert L.; Investment
of public funds--California--Orange County; Derivative securities;
Debts, Public--California--Orange County; Municipal
bankruptcy--California--Orange County.
(ZZZ Best), Joe Domanick (1989). Faking It in America: Barry
Minkow and the Great ZZZZ Best Scam. (Chicago, IL: Contemporary
Books, 288 p.). Minkow, Barry; Swindlers and swindling--California--Case
studies; Corporations--Corrupt practices--California--Case studies;
Success in business--California--Case studies; Swindlers and
swindling--California--Biography.
(ZZZ Best), Daniel Akst (1990). Wonder Boy: Barry Minkow, the Kid
Who Swindled Wall Street. (New York, NY: Scribner's, 280 p.). Minkow,
Barry; Businesspeople--United States--Biography; Success in
business--United States; Fraud--United States; Wall Street.
(ZZZ Best), Barry Minkow (1995).
Clean Sweep: The Inside Story of the ZZZZ Best Scam--One of Wall
Street's Biggest Scams. (Nashville,
TN: Nelson Publishers, 244 p.). Founder of ZZZ Best Co., Perpetrator
of Fraud. Minkow, Barry; Businesspeople--United States--Biography;
Christian converts--United States--Biography; Success in
business--United States; Fraud--United States; Wall Street.
(ZZZ Best), Barry Minkow (2005). Cleaning Up: One Man's
Redemptive Journey Through the Seductive World of Corporate Crime.
(Nashville, TN: Nelson Current, 330 p.). 7 Years in Jail for
Securities Fraud. Minkow, Barry; Businessmen--United
States--Biography; Swindlers and swindling--United States--Biography;
Christian converts--United States--Biography; Fraud--United States.
Donald C. Bauder (1985). Captain Money and the Golden Girl: the J.
David Affair. (San Diego, CA: Harcourt Brace Jovanovich, 244 p.).
Dominelli, J. David; Hoover, Nancy; Securities fraud -- California,
Southern; Swindlers and swindling -- California, Southern.
Robert Wilson (2006).
The Explorer King: Adventure, Science, and the Great Diamond Hoax,
Clarence King in the Old West. (New York, NY: Scribner, 320
p.). Editor (American Scholar). King, Clarence, 1842-1901;
Geologists--United States--Biography; West (U.S.)--Intellectual life.
Collision of science and business. Portrait of Clarence King,
first director of the United States Geological Survey; groundbreaking
land survey of the American West.
Business History Links
Virtual Museum and Archive of the SEC and Securities History
http://www.sechistorical.org/
On the surface, the subject may not seem terribly interesting, but the
importance of providing historical materials relating to the growth and
development of the Securities and Exchange Commission (SEC) is
tremendously important. Since 1999, the Securities and Exchange
Commission Historical Society has been collecting materials in this
area, and for the past several years it have included many of these
materials on this website. On the site, visitors can view a timeline of
the SEC's history, peruse (and listen) to a number of oral histories,
and view crucial primary documents. The "Online Programs" area is also
worth a look, as it contains full broadcasts with experts on such topics
as "Developments in the Mutual Fund Industry" and "Transformation of
Wall Street". The site is rounded out by a photograph archive, which can
be browsed alphabetically.
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