Two decades ago, when Enron Corp. was a fledgling natural gas pipeline, Barry Minkow was busy bilking Wall Street and investors out of hundreds of millions of dollars with his ZZZZ Best Co., a sham of a carpet-cleaning company that never made a profit.
Minkow eventually reformed himself as a minister and corporate-fraud investigator, but if he were still a financial crook, "I'd run a carpet-cleaning hedge fund," he offers. "Or you go offshore, baby. It's the latest twist in investment fraud. You get American money without American regulation."
The convictions yesterday of Enron's fallen chief executive officers, Kenneth L. Lay and Jeffrey K. Skilling, were widely described as providing closure to an era of accounting scandals that brought down several companies and executives in recent years. But corporate malfeasance has proved cyclical, often erupting when the stock market is riding high and euphoria trumps vigilance.
Fraud has come in waves, from widespread stock fraud suspected before the 1929 market crash that led to greater regulation of securities, to the insider trading scams of the 1980s, to the savings and loan failures that lasted into the 1990s, to executives and analysts exaggerating the fortunes of dot-com companies later that decade.
Though the next scandal is impossible to foresee, market experts see a number of potential trouble spots, including the hedge-fund world that is lightly regulated but increasingly popular and accessible to everyday investors. Also, with expanding globalization, many investors are looking for the next hot investment overseas where accounting standards vary and U.S. regulators often can't reach.
"This is the end of a chapter, though certainly not the closing of the book on fraud," said John J. Carney, a former federal prosecutor and lawyer specializing in complex financial cases. "Not only will there be new kinds of investments that people manipulate, but the kid in high school today who thinks he'll be immune from this because he's smarter and better will one day be CEO."
Underscoring the endurance of fraud, the Association of Certified Fraud Examiners recently found that U.S. losses from fraud, including corruption, fraudulent statements and asset misappropriation, rose to an estimated $638 billion last year, up from about $400 billion a decade ago.
