***** Corporate Crooks: How Rogue Executives Ripped Off Americans…and Congress Helped Them Do It! By Greg Farrell; published by Prometheus Books; www.prometheusbooks.com (Web); 225 pages; $25.
The period from the late 1990s into the early years of the 21st century is likely the best-documented era of corporate scandal in history. Anyone researching the topic would be overwhelmed by a staggering array of books, Web sites, and articles it generated. In Corporate Crooks, Greg Farrell, an investigative reporter for USA Today, offers a simple primer on the subject.
In each of Corporate Crooks’ chapters, Farrell offers a short, insightful synopsis of a recent financial scandal, covering the crimes and excesses of Enron, HealthSouth, Tyco, and WorldCom. He also examines broader issues such as how stock options and bonuses attached to earnings reports lead to “creative” accounting practices and outright fraud.
Most importantly, Farrell details how accounting firms and stock analysts became both enablers of crime and criminals themselves. For example, accounting firms that provided both auditing and consulting services incurred obvious conflicts of interests. If these firms provided strict, independent auditing that shed negative light on their clients, they risked losing their business.
The same dilemma applied to stock analysts who provided both research and investment banking services. Analysts who predicted that certain companies’ stock prices would fall risked losing investment banking fees. Consequently, both auditors and stock analysts were fired for doing their jobs honestly, while others were lavishly rewarded for approving cooked accounting records or recommending stocks they knew were bad investments.
Corporate Crooks also includes a chapter on the U.S. Securities and Exchange Commission (SEC). Farrell contends that budget cuts and understaffing at the government watchdog agency created an organization ill-equipped to deal with the wave of scandals that erupted after the tech stock meltdown of 2000. He calls for a stronger SEC with a larger budget and criminal enforcement powers. But his suggestion to fund the SEC with fees collected from public companies is questionable.
Another dubious addition is a chapter-long indictment of executive compensation, arguably out of place in a book that is about “how rogue executives ripped off Americans.” The author cites the case of former New York Stock Exchange chief executive Richard Grasso, who received $81 million in salary and bonuses over a four-year period. Grasso’s compensation spawned a legal battle and may have been excessive, but it was not ill-gotten and hardly deserves coverage in a book on corporate fraud.
Faults aside, Corporate Crooks is meticulously researched and provides an excellent primer for readers seeking to familiarize themselves with financial crime.
Reviewer: Dan Bergevin is principal of Catfield International, an intelligence and security firm based in the Salt Lake City, Utah, area.