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Our assumptions

Earning figures = correct

Revenue figures = correct

These assumptions can be disastrous!

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ZZZZ Best Inc., 1986

A carpet cleaning company

Barry Minkow, the owner, created more than 10,000phoney documents and sales receipts.

He managed to get $4 million.

The company went public in December 1986, eventuallyreaching a market capitalization of more than $200million.

Later he was jailed for 25 years.

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Centennial Technologies Inc., 1996

The CEO and CFO recorded revenue from nonexistentsales, including overvalued fake items in inventory, falseadditions to fixed assets and overvalued loans andinvestments.

The management recorded $2 million in revenue fromPC cards but was really shipping fruit baskets tocustomers. The employees created fake documents toshow them as sales.

From 1994-1996, Centennial overstated its earnings by$40 million. The company reported profits of $12 millionwhen it was actually suffering a loss of $28 million.

Stock price fell from $55.50 to $3.

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Bre-X minerals, 1997

A Canadian company with ownership of gold mines.

Its Indonesian gold property was said to be the richestgold mine ever, reported to contain more than 200

million ounces.

At its peak, Bre-X had a market capitalization of $4.4billion.

The gold mine proved to be fraudulent.

The $280(pre-split of 10 for 1) stock fell to bellow adollar.

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Enron, 2001

An energy trading company.

Used shell companies to keep hundreds of millions worth

of debt off the books.

These also recorded fictitious revenues with each dollarrecorded multiple times.

Share price fell from $90 to $0.70

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Worldcom, 2002

A telecommunications company.

WorldCom recorded $3.8 billion worth of operatingexpenses from pens, pencils and paper as investments

and expensed the cost over a number of years.

Reported false profit of $1.3 billion while actuallysuffering losses.

Share price fell from $60 to $0.20

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Tyco International, 2002

Considered a blue chip investment, manufacturingelectronic components, healthcare and safetyequipments.

The CEO and CFO received $170 million in secret low-interest and interest-free loans from the company forpersonal expenses.

Later, secretly caused Tyco to forgive tens of millions of

dollars they owed the company.

Also arranged to sell 7.5 million shares of unauthorizedTyco stock for a reported $450 million.

Share price fell almost 80% in six-weeks.

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HealthSouth, 2003

A healthcare service provider.

At the CEOs instruction, the company began toartificially inflate revenues and overstate net income andintentionally overstated its earnings by $1.4 billion.

IfHRC's actual results fell short of expectations, themanagement would "fix it" by recording false earnings onHRC's accounting records to make up the shortfall.

The first sign of trouble surfaced when the CEOreportedly sold HealthSouth shares worth $75 million,prior to releasing an earnings loss.

The stock fell from a high of $20 to a close of $0.45 in a

single day.

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What to do?

The worst thing about these scams is that you never knowuntil it's too late.

The moral:Always invest with care and most importantly, diversify.Maintaining a well-diversified portfolio will ensure that

occurrences like these don't create losses for you as great

as your investments.