In this article we are going to list the 15 Biggest Stock Scams In Recent Years. Click to skip ahead and jump to the 5 Biggest Stock Scams In Recent Years.
Money doesn't bring happiness is a fine saying, but only if you have enough money not to have to worry about basic things. Ask a person who doesn't know how to pay next month's rent, or reducing his food portions so his children can eat properly, whether money would bring happiness or not. This is why nearly every person in the world would like to be rich, or at least well-off.
Most people work at least eight hours a day and many of them generally tend to only make enough to make basic ends meet, and maybe if they're lucky enough, they still get to save some money for a rainy day. Only a few are lucky enough to make much more than they need, and live a life of wealth and luxury. And the fact is, things are getting even tougher now. A few decades ago, even earning the minimum salary would allow people in the United States to fulfil their basic necessities. Even an average job with little to no mental pressure would allow you to raise a family and buy a decent house with a mortgage that wouldn't overwhelm you and little to no student loans that would stifle the very existence of your being. But, cost of living has increased a lot over the past few decades while wages unfortunately, have not followed suit. This is why the minimum wage of $7.5 an hour is not even close to enough to allow someone to cover basic necessities.
On the other hand, even if you have a decent job with savings, simply putting the savings in a bank will not be sufficient to sustain you if you fall on hard times, or even when you're looking at retirement. If all the money you save remains in your bank, you are basically actually losing money as inflation decreases the monetary worth of your earnings. Hence, the one and only way to actually consistently increase your savings and remain comfortable is to invest your money.
You can invest money in various ways, one of the most common in the US being investing in shares of publicly-traded companies. The way it works is ostensibly simple; the price of a share in a company reflects the value of the company, and is intrinsically linked to the perception as well as the performance of a company. You invest in a company after performing due diligence, and with the firm belief that the value of the company is expected to increase based on even better performance. Again, there are two types of investors in the stock market; those with long positions and those engaged in daily trading. The former are traditional investors, who invest in a company because they foresee long term growth and are not in any hurry to sell the shares and make a quick profit. On the other hand, daily traders quickly buy and sell stock in order to maximize short term positions and profits.
You might have heard about one of the biggest stock stories of the year recently, in reference to the GameStop Corp (NYSE:GME) fiasco. Basically, some major hedge funds had shorted the stock of GameStop Corp (NYSE:GME), considering it to be overvalued. However, a band of Redditors on a subreddit 'Wall Street Bets' came together and purchased a lot of shares of GameStop Corp (NYSE:GME), driving the value of the shares by more than 400%, resulting in losses worth billions of dollars to the hedge funds who had a short position, with some even having to be bailed out.
While the above example is not an example of a pure stock scam, there are other huge examples present everywhere. Finance is often a complex field, made deliberately complex so only a few people are able to maneuver through the market efficiently. Hence, the stock market is ripe to major scams and scandals which aren't immediately discovered. So without further ado, let's take a look at the biggest stock scams in recent years, which constitutes the past 25 years, starting with number 11:
Our list of biggest stock scams in recent years starts with one that should be quite fresh in our memories. Retrophin was founded by Martin Shkreli, perhaps the most infamous person in the pharma industry. But when Shkreli wasn't busy jacking up prices to make life saving drugs unaffordable for those who needed them, he was also busy engaging in security scams, which led to the board of Retrophin deciding to remove him and suing him for $65 million. Shkreli was subsequently investigated and convicted of securities fraud and has to spend 7 years in jail while facing fines of more than $7 million.
10. Waste Management, Inc. (NYSE:WM)
Waste Management, Inc. (NYSE:WM) is currently one of the biggest recycling companies in the world. However, just before the turn of the 21st century, it was revealed that there were a lot of accounting inconsistencies, which were only uncovered after a new CEO came and ordered a review of accounting properties. This had falsely boosted the profits of Waste Management, Inc. (NYSE:WM) by $1.7 billion. The revelation saw the Waste Management, Inc. (NYSE:WM) shareholders lose $6 billion, according to SEC allegations.
9. HealthSouth (Currently Encompass Health Corp (NYSE:EHC))
One of the biggest provider of post-acute healthcare services in the United States, HealthSouth (currently known as Encompass Health Corp (NYSE:EHC) became mired in controversy when its CEO Richard Scrushy sold $75 million worth of stock before the company made public a large loss. It was later revealed that the company had falsely inflated earnings by $1.6 billion, which had artificially increased the price of the stock significantly as well. This fraud continued for multiple years, and at one point in time, saw the company overstate profits by 4,700%! The CEO was removed and the company made a lot of efforts to restore its profitability and good name. In 2014, HealthSouth acquired Encompass Home Health & Hospice and in 2018 it changed its name to Encompass Health Corp (NYSE:EHC) and was listed on NYSE.
On the eighth spot in our list of biggest stock scams in recent years is Tyco. In 2002, two top level executives were charged with committing large scale fraud which increased their own bank balances, while defrauding investors and shareholders. After 5 years, the company agreed to pay $3 billion to settle the lawsuits against them on securities and accounting fraud.
7. Bre-X Minerals
Sometimes the act of deception is so brazen, that it completely takes everyone by surprise. Bre-X Minerals represented a group of companies in Canada, and was a penny stock before it soared above $250 per share after announcing the discovery of massive gold deposits in Indonesia. Once the gold samples were found to be fake, the company collapsed and subsequently went bankrupt in 1997. Among Bre-X's investors that lost the most money were a number of Canadian public sector organizations that cumulatively lost over $200 million.
6. Valeant Pharmaceuticals (currently Bausch Health Companies (NYSE:BHC))
Pharmaceutical company Valeant often attracted controversy, especially in 2015 when it increased the prices of all its drugs by at least 66% which was many times greater than their competitors. It also increased the prices of two new drugs it acquired by at least 200% and 500%. However, it was also accused of falsely recording sales to another pharmaceutical company, which resulted in the company's financials being inflated. The reveal resulted in a massive drop in company stock. Several of Valeant former executives were arrested and charged with fraud. In 2018, Valeant said it would change its name to Bausch Health Companies (NYSE:BHC) and started trading under the new ticker. The rebranding, changes in management and strategy probably helped as over the last year, Bausch Health Companies (NYSE:BHC)'s stock has climbed by more than 60%.
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Disclosure: None. 11 biggest stock scams in recent years is originally published at Insider Monkey.