Financial History 142 Summer 2022 - Page 21

Two of the most notable post-Sarbanes-Oxley Act frauds were committed by Ponzi scheme perpetrator Bernie Madoff ( left ) and Theranos founder Elizabeth Holmes ( right ).
fast-growth stocks and those available to most investors in the public markets . Late last year , one economic historian told Time magazine : “ Now smaller investors are shut out and all the big economic profits go to venture capitalists and the like .”
Fraud was one thing that didn ’ t get eliminated . It got moved . Instances of accounting fraud seem to have largely disappeared from US listed companies . At least , they are not hitting headlines in the way that Enron and WorldCom did . However , fraud did happen post-Sarbox . Notably , in March 2009 Bernie Madoff confessed to masterminding a $ 65 billion Ponzi scheme at his private investment company . He was eventually sentenced to 150 years in prison and forfeited $ 170 billion of assets . The scam , in which new investments were used to pay investors already in the funds , was perpetrated as part of so-called affinity fraud . That ’ s one where people in a distinct ethnic or social group are targeted as victims .
Another notable fraud came from a privately funded company founded in 2003 by Stanford University drop-out Elizabeth Holmes . The blood-testing firm , which was soon known as Theranos , was meant to radically lower the cost and increase the speed of blood testing . By 2014 , investors sank more than $ 400 million into
Theranos , including money from techpioneer and founder of Oracle , Larry Ellison . In May 2018 , following investigations by The Wall Street Journal ’ s John Carreyrou , the SEC charged Holmes with fraud in excess of $ 700 million . In January 2022 , Holmes was convicted on four counts of fraud . At the time of writing , she hadn ’ t been sentenced but likely faces harsh penalties .
Currently , there seems little appetite for legislators to want to revise the Sarbox regulations . The impact on the small investor seems to be invisible to many lawmakers . At the same time , politicians are considering tightening up the rules on what private companies need to disclose to their “ accredited investors .” In other words , the US government is considering more of the same despite the drawbacks already identified .
Simon Constable is a fellow at the Johns Hopkins Institute of Applied Economics , a financial journalist and a broadcaster . You ’ ll find his written work in Time magazine , The Wall Street Journal , Barron ’ s , Forbes and other distinguished publications . He ’ s a regular contributor to CBS Radio ’ s “ Eye on the World ” with John Batchelor .
Sources
Auletta , Ken . “ Blood , Simpler .” The New Yorker . December 15 , 2014 .
Constable , Simon . “ Financial Flashback .” The Wall Street Journal ( print only ). July 5 , 2022 .
Constable , Simon . “ How the Enron Scandal Changed American Business Forever .” Time . December 2 , 2021 .
Griffith , Erin and Erin Woo . “ Elizabeth Holmes Is Found Guilty of Four Counts of Fraud .” The New York Times . January 3 , 2022 .
“ Madoff to Forfeit $ 170 Billion in Assets Ahead of Sentencing .” Bloomberg News . June 27 , 2009 .
O ’ Brien , Sara Ashley . “‘ Bad Blood ’ Explores the Culture Inside Disgraced Startup Theranos .” CNN Money . May 21 , 2018 .
Pepitone , Julianne and Stacy Cowley . “ Facebook ’ s First Big Investor , Peter Thiel , Cashes Out .” CNN Money . August 20 , 2012 .
“ SEC Proposes to Enhance Private Fund Investor Protection .” US Securities & Exchange Commission press release . 2022 – 19 .
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