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Corporate Fraud

Your Voice Assistant Works Today Thanks to Fraudsters Who Destroyed a $10 Billion Company

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February 1998. Bill Gates, the richest man in the world, walks up the steps of a Brussels government building. He turns to wave at someone behind him, smiling as he faces forward again. Then it happens: a cream pie hits him square in the face. Then another. And another.

Just days earlier, Microsoft had invested $45 million in Belgian speech recognition company Lernout & Hauspie. The pie-throwing activist who orchestrated this pastry protest later described his feelings as “the exhilaration of victory, exquisite pleasure.” But the real mess Microsoft had just stepped into would prove far stickier than whipped cream.

In this episode of Oh My Fraud, host Caleb Newquist unravels one of tech history’s most fascinating fraud cases. It’s a story where revolutionary innovation and elaborate deception became so intertwined that even today, the technology you speak to through Siri carries the DNA of a spectacular Belgian scandal.

Two Guys, One Vision: Kill the Keyboard

In late 1987, two West Flanders natives started what seemed like an impossible mission: eliminating the computer keyboard. Jo Lernout, the visionary salesman, was a former teacher turned MBA who’d worked his way through sales positions at Merck and Wang Laboratories. Paul Hauspie was the detail-oriented worker type who’d inherited his father’s accounting firm but spent his spare time developing software.

Together, they founded Lernout & Hauspie Speech Products (L&H) in Ypres. While we take voice assistants for granted today, in the late 1980s, the idea that computers could be operated by voice alone was revolutionary.

The technology was groundbreaking. By 1997, their products could recognize more words than a standard collegiate dictionary. The system could even handle tricky sentences like “Please write a letter right now to Mrs. Wright. Tell her that two is too many to buy.” For the late 1990s, this was nothing short of miraculous.

But like many startups, the early years were brutal. Lernout and Hauspie proved resourceful in securing financing to keep the lights on, including from local residents and the Flanders government. But year after year, they plowed money into research and development while making virtually no revenue.

When Your Hometown Believes in You (Maybe Too Much)

The company’s roots ran deep into West Flanders soil. One account described it as “a company set up by West Flanders natives with West Flanders capital and a West Flanders mentality: work hard and smart, take well-calculated risks.”

Lernout and Hauspie genuinely wanted their success to benefit their home region. They helped create the Flanders Language Valley, convincing the government to make Ypres a tax haven for tech companies. Research grants flooded the area, spawning new businesses.

In 1994, when L&H needed more funding, they tapped into the locals with something called automatic convertible bonds. These were essentially IOUs that would turn into stock if the company ever went public. Through sheer personal will and persuasion, Lernout and Hauspie raised money from 600 small Flemish investors, each contributing an average of $33,000. These weren’t venture capitalists; they were farmers, grocers, and small traders betting their savings on their hometown heroes.

The duo even approached a local pig farmer for investment. After hearing their pitch, he produced a half-eaten bank savings certificate worth about $60,000 that he’d salvaged after it was accidentally fed to his pigs. The farmer said if the bank would accept the damaged certificate, he’d let them invest the funds. After much convincing, the bank took it.

The technology started attracting serious attention. AT&T invested $10 million in 1993. Intel put in $30 million. Then came Microsoft with $45 million in early 1998, with their chief technology officer declaring they were “taking a big leap forward in transforming that vision into a reality.”

The company went public on the Nasdaq in November 1995 at $12.50 per share, despite skepticism from analysts who worried the technology was still too primitive. But beneath this genuine innovation and community support, troubling signs were already emerging.

The Art of Moving Money in Circles

As L&H struggled to generate revenue, it constructed an increasingly complex web of related-party transactions to maintain the illusion of explosive growth.

The centerpiece was the Flanders Language Valley Fund (FLV), co-founded and advised by L&H’s founders. This venture fund took a 49% stake in the Belgian unit of Quarterdeck Corporation, which just happened to be L&H’s largest customer, accounting for 30% of its revenue.

The new CEO of Quarterdeck was Gaston Bastien, a Belgian executive infamous for rushing Apple’s Newton operating system to market to avoid losing a wine cellar bet. The result was faulty handwriting recognition that disappointed consumers. Now he was running L&H’s biggest customer, which was partially owned by a fund controlled by L&H’s founders.

L&H also created something called Dictation Consortium to keep expensive R&D costs off its books while somehow claiming $26.6 million in revenue from this entity in 1996 and 1997. Who owned 61% of Dictation Consortium? The FLV fund. The other investors, according to Lernout, were “five or six people who were anonymous because they were rolled up into companies that were organized in Luxembourg and the British Virgin Islands.”

Even Microsoft threw $3 million into the FLV fund alongside their $45 million L&H investment, apparently missing these red flags entirely.

The Asian Revenue Miracle That Wasn’t

The real magic happened in Asia. In 1999, Bastien (now L&H’s CEO) claimed Asian sales had exploded to more than $150 million versus just $10 million the year before. Korean revenue jumped from $97,000 to $58.9 million in a single quarter—a mind-boggling 60,000% increase. Singapore contributed $80.3 million in 1999 after generating less than $300,000 the previous year.

But here’s where it gets weird. Singapore sales then mysteriously plummeted to $501,000 in the first quarter of 2000. Bastien had perfectly reasonable explanations for everything, of course. The company had sold licenses in Singapore that couldn’t be sold again. Korea had opened up thanks to an acquisition. Everything was great.

When Wall Street Journal reporters investigated these miraculous Asian numbers in August 2000, they uncovered a house of cards. Some companies that L&H identified as Korean customers said they did no business with the company at all. Others said their purchases were much smaller than L&H claimed. Only one customer would go on record confirming the numbers were accurate.

One major customer, Hung-chang Lin, supposedly doing between $5 million and $10 million in business with L&H, had a CEO who didn’t even know about the joint venture that was allegedly purchasing the products. When confronted about the discrepancies, L&H’s contact at Hung-chang admitted they had lied about everything.

The scheme involved creating sales agreements that let “customers” defer paying licensing fees until they made money from L&H’s products. The company booked these as sales anyway, then made deals with banks where the banks would take over the receivables in exchange for cash. L&H claimed these were sales of receivables, but they were essentially disguised loans.

The $100 Million That Vanished

The drama reached its peak in November 2000 when new CEO John Duerden flew to Korea to retrieve $100 million the company desperately needed to avoid bankruptcy. After waiting an hour, Duerden was grilling the Korean unit head about the missing money when three men kicked open the door, shouting and gesticulating before dragging the unit head out of the room.

Duerden fled the country, later telling the Journal, “The only thing I know for certain is that the money is not in the bank accounts.”

The end came officially on November 9, 2000, when L&H announced it would restate its financial filings due to “errors and irregularities.” The company admitted its third-quarter revenue would be about $40 million less than reported. Lernout and Hauspie resigned as executive co-chairmen, though they kept 30% of the voting rights. Weeks later, the company filed for bankruptcy. The stock that had soared to $72.50 in March 2000 (a 2,500% increase from its IPO price) was worthless. Ten billion dollars in market value had evaporated.

Justice came slowly. In September 2010, a full decade after the collapse, Lernout, Hauspie, and Bastien were found guilty in Belgium. Lernout and Hauspie each received five-year sentences with two years suspended. In December 2021, a Belgian court awarded 4,000 shareholders €655 million—but as one news source noted, “the compensation ruling is largely symbolic as the six former board members don’t have the financial means with which to pay it.”

The Technology Lives On (Under New Management)

Lernout maintains to this day, “The technology was real and great.” And he’s not wrong.

After ScanSoft acquired L&H’s assets from bankruptcy in 2001, the speech recognition technology began a remarkable journey. ScanSoft merged with Nuance Communications in 2005. By 2013, Nuance’s natural language processing algorithms, which were built on L&H’s foundation,  powered Apple’s Siri. In spring 2021, Microsoft acquired Nuance for $19.7 billion.

The same technology that L&H claimed would revolutionize computing actually did—just not under their ownership. The speech recognition in your phone and the voice assistant in your home all carry the DNA of a company that destroyed itself through fraud despite having a product that actually worked.

Lessons for the Number Crunchers

For accounting professionals, the L&H case offers a masterclass in red flags:

  • Circular related-party transactions: When a company’s venture fund invests in its own customers, the revenue isn’t real
  • Explosive geographic revenue shifts: A 60,000% increase should trigger every skeptical bone in an auditor’s body
  • Anonymous investors in tax havens: Luxembourg and the British Virgin Islands aren’t known for transparency
  • Revenue recognition without cash: Booking sales to customers who don’t have to pay isn’t revenue; it’s fiction

As Newquist emphasizes, “It isn’t enough just to have a great product or just great tech. If you cook the books, it doesn’t matter how good your product is. Bad numbers are bad numbers, and people get real upset about bad numbers.”

The L&H story proves that no amount of revolutionary technology can overcome the fundamental truth of financial reporting: when you cook the books, everyone gets burned except, ironically, the technology itself, which lives on in every voice command you give your phone today.

Listen to the full Oh My Fraud episode to hear Newquist’s complete investigation into this cautionary tale. CPAs can earn free NASBA-approved CPE credits through the Earmark app while learning these crucial fraud detection lessons. And remember, if you win a wine cellar on a bet, make that idiot pay up.

Stock Options Weren’t Lucky Timing—They Were Backdated Fraud

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In 2005, a Norwegian professor at the University of Iowa discovered something that would shake corporate America: CEOs weren’t getting lucky with their stock option timing; they were cheating. By looking backward and cherry-picking dates when their company’s stock hit rock bottom, executives at more than 130 major corporations were guaranteeing themselves millions in profits.

That professor, Erik Lie, shared his story with Caleb Newquist in a recent episode of the Oh My Fraud podcast.

The Accidental Fraud Fighter

Erik never set out to expose corporate fraud. Growing up in Norway, spending time skiing in the mountains and playing by the water, he was just a kid who was good at math. His path to becoming one of TIME magazine’s 100 Most Influential People in 2007 started with simple curiosity.

Erik’s work at the University of Iowa’s Tippie College of Business didn’t involve trying to catch cheaters. He was studying how stock options affected executive behavior. But what he found in the data was too strange to ignore.

Stock options give executives the right to buy company stock at a fixed price in the future, usually set at the market price on the grant date. Thanks to a 1993 tax law, they’d become hugely popular as “performance-based” compensation that companies could still deduct from their taxes. By the early 2000s, tech companies were handing them out like candy.

When Lucky Timing Becomes Mathematically Impossible

Erik was looking at what happened to stock prices around option grant dates, following up on earlier work by NYU professor David Yermack. But where Yermack found a modest pattern in early 1990s data, Erik discovered something explosive in more recent numbers.

“You see the stock price during the month beforehand, on average, go down by about 4%. And then right on the grant date, it turns and it goes up 4% afterward,” Erik explained. “This is crazy to find something like this.”

The pattern wasn’t just in individual stocks; it showed up in the entire market. As Erik put it, “The whole market is moving in that same direction. And you ask yourself, how could these guys predict the market? And how come they’re not working for a hedge fund in that case, instead of for a company out there in the Midwest?”

Some companies hit stock price lows for their option grants five years in a row. The odds of this happening by chance were astronomical. While defense lawyers would later claim their clients just “got lucky,” the concentration of perfect timing across hundreds of companies told a different story.

Breaking Academic Boundaries

When Erik read a Wall Street Journal article about the SEC investigating companies for “spring loading”—granting options before releasing good news—he did something unusual for an academic: he reached out to regulators.

“I contacted SEC, and this is not normal for me either,” Erik recalled. “Usually I stay in my bubble. But something compelled me to contact SEC and say, ‘Hey, I think you’re on the wrong path here.'”

His theory was simple. Companies didn’t have to disclose option grants until months later in their proxy statements. This meant executives could look backward and pick the most favorable dates. “They can essentially stand in March of a year and say, ‘Hey, we’ve got some grants last year, didn’t we? Let’s just pick a date to make that official date. And look at that—June 7th had a very low price.'”

Unlike Harry Markopolos, who was desperately trying to get the SEC to investigate Bernie Madoff during the same period, Erik found a receptive audience. One SEC staff member called him, asked for data, and appeared to take his findings seriously.

The Story Goes Public

To strengthen his case, Erik teamed up with colleague Randall Heron to study what happened after Sarbanes-Oxley required option grants to be reported within two days. Their findings were damning: companies that complied with the new rule showed no suspicious timing patterns. The magical ability to pick perfect grant dates vanished the moment executives had to report in real-time.

But academic papers rarely make waves. “People will not read these academic journals for the most part,” Erik admitted. “No one cares about these things.”

Enter Mark Maremont, a senior Wall Street Journal reporter who immediately grasped the story’s explosive potential. His team spent months analyzing data and contacting companies. The resulting March 2006 article, “The Perfect Payday,” featured colorful graphics showing company after company somehow granting options at exact stock price bottoms.

“One executive fled the country very quickly,” Erik noted about the aftermath. “I think it’s pretty clear that something is going on.”

The Journal won a Pulitzer Prize for its coverage. More than 130 companies faced investigations. Seventy executives lost their jobs.

Why Proving Fraud Is Harder Than Finding It

Despite overwhelming statistical evidence, criminal prosecutions produced mixed results. The challenge was, while Erik’s data showed undeniable patterns across hundreds of companies, prosecutors had to prove criminal intent for specific individuals.

“With enough data, you can see these patterns, but if you narrow it down to one data point, you can’t see what’s happening in that context,” Erik explained.

Smart executives had even built in deniability. “Some of them would intentionally not pick the lowest because it would seem so obvious,” Erik revealed. By choosing the second or third-lowest price, they created enough ambiguity to defeat prosecution while still enriching themselves.

The harm was real. Shareholders were deceived about compensation costs. Companies illegally claimed tax deductions. And as Erik pointed out: “If this is all harmless, then why not just do it out in the open?”

Lessons for Today’s Fraud Fighters

Erik’s story demonstrates what Caleb calls the “privatization of enforcement,” where academics, journalists, and others help catch fraud that overwhelmed government agencies might miss. But unlike traditional whistleblowers who face retaliation, Erik experienced little pushback.

“I wasn’t scared at all. I just thought it was a whole lot of fun,” he said, attributing his lack of fear partly to Norwegian culture where “any celebrity can go around in the street or take the bus.”

His new book, “Catching Cheats: Everyday Forensics to Unmask Business Fraud,” shares these and other stories about using data to spot deception. For accounting professionals dealing with an era of sophisticated financial manipulation, his work offers an important lesson: patterns in aggregate data can reveal frauds invisible at the individual level.

The backdating scandal largely ended once transparency was required. When executives could no longer manipulate timing in secret, the practice stopped. As Caleb observes in the episode, “These are rich and powerful people, executives at public companies. And we should want those people to be accountable for their actions.”

Sometimes catching cheats doesn’t require being a traditional whistleblower risking everything. Sometimes it just takes curiosity, rigorous analysis, and the courage to tell regulators when they’re looking in the wrong direction. In a world drowning in data, the ability to spot patterns others miss might be our best tool for keeping the powerful honest.

Listen to the full episode to hear Erik’s complete story, from his Norwegian childhood to becoming one of TIME’s most influential people, and learn how academic curiosity exposed one of the most widespread corporate frauds of our time.

From the Courtroom to the Classroom: How a Former Prosecutor Views White-Collar Crime

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When Bernie Madoff received his 150-year prison sentence for a massive Ponzi scheme, it seemed like justice had been served. Yet after the 2008 financial crisis, which devastated millions of Americans, virtually no high-level Wall Street executives faced criminal charges. Why not?

In this episode of the “Oh My Fraud” podcast, Miriam Baer—a former prosecutor with the prestigious Southern District of New York, corporate compliance professional, and former Vice Dean at Brooklyn Law School and currently Dean and President of California Western School of Law—shares insights from her unique career journey that help explain this paradox.

From Princeton to the Prosecutor’s Office

Baer’s journey through the world of white-collar crime began far from where she expected. After attending Princeton (where, yes, she knew Ted Cruz) and Harvard Law School, she initially had no intention of becoming a prosecutor.

Her path changed after working at a law firm on securities fraud cases, which gave her a crash course in understanding how companies manipulate their books. From there, she joined the prestigious U.S. Attorney’s Office for the Southern District of New York under then-U.S. Attorney Mary Jo White.

At the prosecutor’s office, Baer handled everything from mail and wire fraud to bank fraud and money laundering, learning the intricacies of federal criminal prosecution. This experience gave her first-hand knowledge of how prosecutors decide which cases to pursue—knowledge that helps explain why some financial criminals face justice while others seem to escape it.

Why Some Cases Get Prosecuted While Others Don’t

When massive financial scandals don’t result in criminal charges, public frustration often follows. “Why aren’t these people in jail?” becomes a common refrain. But Baer identifies a more nuanced reality than simple theories about wealthy people being above the law.

“There’s a tendency to look at the scope of the harm,” Baer explains. “Someone says, ‘Well, he caused all that horrible harm. Why aren’t you prosecuting him?’ The answer is, well, I’m bound by the statute.”

Baer identifies two distinct thresholds prosecutors consider:

  1. The “threshold of liability” – Whether a crime technically occurred under statute
  2. The “threshold of viability” – Whether prosecutors believe they can win the case

This second threshold is crucial but often overlooked in public discussions. Based on past wins, prosecutors develop mental “prototypes” of successful cases that shape how they evaluate new evidence.

“When someone says, ‘Is this a fraud case? Is it a viable fraud case?’ [prosecutors] think in their minds about what most recently was viable,” Baer notes.

During the 2008 financial crisis, prosecutors’ mental prototype of fraud was based on early 2000s accounting scandals that featured whistleblowers, clear paper trails, and cooperating witnesses—elements largely absent in the financial crisis cases.

“My whole theory is that especially what happened with the financial crisis is, yeah, there were folks who had passed the threshold of liability, but the prosecutors weren’t sure they were over the threshold of viability,” Baer explains.

This framework helps explain why more recent cases like Elizabeth Holmes and Sam Bankman-Fried resulted in prosecution. Both featured the crucial elements prosecutors recognize from successful cases: cooperating witnesses and defendants who “constantly talk all the time” and eventually contradict themselves.

The Problems with White-Collar Criminal Statutes

Beyond prosecutorial decision-making, Baer identifies fundamental flaws in the design of white-collar criminal statutes. Her book, “Myths and Misunderstandings in White Collar Crime,” explores these issues in depth.

“The statutes themselves are confusing us,” Baer explains. She identifies three primary problems:

1. “Flat” statutes that lack gradation

Unlike homicide laws that distinguish between first-degree murder, second-degree murder, and manslaughter, fraud statutes don’t meaningfully differentiate between degrees of severity.

“If I look up fraud, it’s just all falling under the fraud umbrella of mail fraud or wire fraud. And it really doesn’t matter that you were charged with mail fraud and I was charged with wire fraud from a moral valence,” Baer notes. “It just means you use the mails and I use the wires.”

2. “Bundled” statutes that combine vastly different crimes

Baer points to the Hobbs Act as a prime example—a single statute that criminalizes both robbery affecting interstate commerce and bribery by public officials.

“That’s very different from robbery…it’s all under the same statute,” she explains.

3. Statutes that fail to generate useful information

Perhaps most importantly, these flaws create a system that doesn’t effectively track patterns or provide clear information about white-collar crime.

“The system itself should produce information because we are the ones in charge,” Baer argues. “We can’t do that job if the system doesn’t give us information or information that we could get at.”

These structural issues create an “insider/outsider” divide in criminal justice. Those working within the system understand its peculiarities, while the public is left confused and suspicious.

“It leads to this level of people feeling estranged from the system and feeling like this system is rigged,” Baer says.

Case Studies: Timing, Complexity, and Expertise Gaps

Several practical challenges further complicate white-collar crime prosecution. One is simple timing—evidence of sophisticated fraud often emerges years after the fact, sometimes through academic research long after the statute of limitations has expired.

Baer references a paper published in 2015 that uncovered significant misrepresentations in mortgage-backed securities markets from the 2008 crisis. “Little late,” she observes wryly.

Another challenge involves proving intent at the highest corporate levels, where decisions flow through layers of management.

“The public hungers for the very top person to fall,” Baer explains. “They don’t want to hear that you got Mister mid-level dude.” Yet proving that a CEO directed fraudulent activities is often nearly impossible without direct evidence.

A third challenge stems from expertise gaps. As Baer candidly acknowledges: “I think people don’t realize the degree to which lawyers in particular are generalists… after three years of law school, I absolutely did not have forensic accounting skills.”

This knowledge gap means prosecutors must learn sophisticated financial concepts while simultaneously building cases against defendants represented by specialists in these areas.

To illustrate how criminal law sometimes misses the mark, Baer points to the “Varsity Blues” college admissions scandal. While the fraudulent behavior was clear, she questions whether criminal prosecution addressed the deeper issues.

“Whatever way you should deal with this type of behavior, which of course is terrible…it wasn’t clear to me that criminal law was doing anything to really fix it,” Baer reflects.

Implications for Accounting Professionals

For accounting professionals, Baer’s insights offer a valuable perspective. Understanding the gap between technical violations and “viable” criminal cases is crucial for effective compliance work.

“Being a world-class jerk is not the same thing as violating the mail fraud statute,” Baer points out, highlighting the gap between unethical behavior and criminal conduct.

The expertise gap between legal and financial professionals creates both challenges and opportunities. Accounting professionals who can effectively translate complex transactions for non-specialists provide immense value in both preventing and addressing potential misconduct.

Baer’s solutions include creating gradations within fraud statutes, unbundling combined statutes, and designing systems that generate better information about financial misconduct patterns. These changes would not only improve enforcement but potentially rebuild public trust.

Moving Beyond Simple Narratives

The paradox of white-collar crime enforcement shapes how our financial system operates and who faces consequences when it fails. As Baer’s analysis reveals, the seemingly contradictory patterns of prosecution stem not primarily from corruption, but from structural challenges built into our legal framework.

“If you want to have a better understanding of where the problems are and how you fix them, you need better information,” Baer emphasizes.

Baer’s book “Myths and Misunderstandings in White Collar Crime” explores these themes in greater depth. For those interested in hearing more of her insights, the whole conversation on the Oh My Fraud podcast offers a fascinating look into the world of financial crime prosecution from someone who’s seen it from multiple perspectives.

From Mob Graves to Corporate Fraud: A Prosecutor’s Journey Through America’s Most Notorious Cases

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When former federal prosecutor Sam Buell received an unexpected phone call asking if he wanted to join the Enron Task Force, he had zero background in accounting or corporate finance. “I just got the Enron case. Do you want to come work with me?” asked his former supervisor Leslie Caldwell. Just like that, Buell found himself thrust into what would become one of the most significant corporate fraud cases in American history.

In a fascinating episode of “Oh My Fraud” podcast, Caleb Newquist and Greg Kyte interview Buell about his remarkable journey from prosecuting mob bosses to untangling Enron’s complex accounting schemes. Now the Bernard M. Fishman Distinguished Professor of Law at Duke University, Buell offers rare insider perspective on how major fraud cases are built and why corporate criminals are so difficult to prosecute.

From Organized Crime to Corporate Fraud

Before tackling Enron’s financial mysteries, Buell cut his teeth on cases straight out of a crime drama. After graduating from NYU Law School, he clerked for a federal judge in Brooklyn’s Eastern District of New York during the early 1990s.

“That courthouse was the most interesting place I had ever been in my life,” Buell explains. “At that time, in the early 90s, there was more crime than anybody knew what to do with. The murder rate in New York City was around 2,000 murders a year at its peak.”

The district was a hotbed of criminal organizations – not just the Italian Mafia, but diverse groups organized around various ethnic communities. These enterprises ran everything from drug trafficking to extortion, illegal gambling, and even human smuggling operations.

“These guys aren’t doing fraud,” Buell notes. “What they’re doing is real… it’s black markets. The question is simply what’s getting detected and caught and what isn’t. It’s a pure cat and mouse game.”

After moving to Boston, Buell joined the infamous Whitey Bulger investigation. Though Bulger himself was a fugitive, his lieutenant, Kevin Weeks eventually cooperated with authorities.

“Weeks took us to some locations where we recovered a total of five bodies,” Buell recounts. “The bodies were exactly where he said they were going to be. After 20 years, vegetation changes, everything changes. But I don’t think you forget that.”

Working on these cases taught Buell to “follow the money” – a skill that would prove invaluable when he later tackled corporate crime.

The Call That Changed Everything

In late 2001, while still working on the Bulger case, Buell received the call that would redirect his career. Leslie Caldwell, his former supervisor from New York who was now heading the Enron Task Force, invited him to join the investigation of America’s most spectacular corporate collapse.

Despite having a young child and a new house, Buell’s wife encouraged him to take the opportunity. “This is the one shot to do something,” she told him.

The learning curve was steep. “I needed a high-speed education,” Buell admits. “I didn’t even know what LIBOR was. People would say ‘LIBOR plus basis points,’ and I’d be like, ‘what is LIBOR?'”

Fortunately, prosecutors worked closely with SEC experts who could explain the complex accounting issues. “You’re talking to a lot of people who are experts, including lots of the witnesses who were CPAs. You’re like, ‘explain it to me like I’m your mother.'”

Despite the technical complexity, Buell found the fundamental challenge familiar: follow the money and identify the deception. “The people you’re dealing with speak a different language, but that doesn’t mean they’re smarter than you or capable of understanding things you’re not capable of understanding.”

The Slippery Slope of Corporate Fraud

Unlike TV crime dramas where villains set out to commit fraud from day one, Buell explains that most corporate fraud cases follow a pattern of gradual escalation.

“Once you tell the first lie, once you mess with the first number, it’s like… you read about what happened in Worldcom,” he says. What eventually became a billion-dollar accounting scandal often begins with small manipulations that executives might consider minor stretches of the rules.

Buell calls this “the creep effect” – a series of increasingly problematic decisions driven by pressure to maintain appearances and stock prices.

“These companies are being lauded as great success stories. And no CEO wants to say, ‘actually, we’re not succeeding,'” Buell explains. This reluctance creates enormous pressure, especially when executive compensation is tied directly to stock performance.

At Enron, “the tail was wagging the dog,” as Buell puts it. “Everything was designed not to have the stock price be a reflection of fundamental value, but a reflection of excitement about all the things they were going to do.”

Personal financial entanglements made this pressure even more intense. Many executives had borrowed against their company stock to finance lavish lifestyles.

“Ken Lay at Enron was being told to buy things like yachts and horses and cars and real estate—not very liquid stuff,” Buell explains. “So when the stock price starts coming down, there’s margin calls coming from the personal bankers, and they can’t be satisfied with selling other assets because you’ve put all your money into illiquid things.”

This creates a powerful motivation to keep the stock price up at all costs.

The Arthur Andersen Controversy

One of the most controversial aspects of the Enron case was the prosecution of Arthur Andersen, Enron’s accounting firm, for obstruction of justice. When Andersen employees shredded Enron-related documents as the SEC investigation began, prosecutors saw a clear case of obstruction.

“To have a big five accounting firm that was already in trouble with the SEC…suddenly have the relationship partner and somebody in the in-house counsel’s office telling all the junior people in Houston to shred everything other than the official working papers…because the SEC is looking at Enron – this was shocking,” Buell explains.

The Justice Department offered Andersen a settlement, but the firm refused to admit wrongdoing, fearing this would destroy them in civil litigation. When prosecutors proceeded with an indictment, Andersen launched a massive PR campaign with “full page ads in the Wall Street Journal about how the Justice Department is trying to put 10,000 people out of work.”

Though a jury convicted Andersen, the Supreme Court later overturned the conviction on a technical point regarding jury instructions. By then, however, Andersen had already collapsed.

The case had lasting repercussions for corporate prosecutions. “It explains a lot about why the settlement market in corporate criminal prosecutions has boomed over the last 20 years,” Buell notes. Defense attorneys now routinely argue, “You don’t want to have another Arthur Andersen,” to secure deferred prosecution agreements for corporate clients.

“Boeing got a deferred prosecution agreement and hundreds of people died,” Buell points out. “General Motors got a deferred prosecution agreement. The argument was being made, ‘Hey, you can’t slam GM. You know, you want to win Michigan.'”

Proving Criminal Intent in Corporate Settings

The central challenge in prosecuting corporate fraud isn’t just finding misleading statements – it’s establishing criminal intent in environments where some level of deception is normalized.

“When we say someone has the intent to defraud, what we really mean is that they have the intent to engage in a kind of deceit that is wrongful in the context. And they know it,” explains Buell.

He illustrates this through a comparison: “Think about the difference between poker and golf. In poker, it’s part of the game that everyone is trying to deceive each other… In golf, you’re supposed to apply the rules very strictly to yourself.”

This distinction extends to financial markets, where different sectors have different norms about acceptable negotiation versus fraudulent misrepresentation.

Applying this framework to Enron reveals why the case was so complex. “It wasn’t like there was no there there,” Buell explains. Unlike a pure Ponzi scheme, Enron had legitimate business operations. “The criminal case was a collection of pieces of the business and incidents over time where they stepped over the lines and told lies. That doesn’t mean that the whole company was a fraud.”

Buell describes Enron as “a Rube Goldberg device…cantilevered off of itself constantly.” This complexity made it challenging not only to identify fraud but also to explain it to juries.

Why Corporate Fraud Persists

Despite landmark prosecutions and regulatory reforms like Sarbanes-Oxley, corporate fraud continues to plague our financial system. When asked what continues to surprise him, Buell answers simply: “That the scandals never stop.”

He points to ineffective regulation as a key factor. “Every single one of these cases almost…you can see directly the story of taking advantage of ineffective regulators.” From Boeing’s relationship with the FAA to Volkswagen’s emissions cheating, companies exploit weak oversight.

Sarbanes-Oxley, passed after Enron, had limited impact on criminal enforcement. More troublingly, it “never took up the question of what kind of products are being traded, by whom, and what is the danger of that…the shadow banking problem.”

Buell sees Enron as “a canary in the coal mine” that foreshadowed the 2008 financial crisis. “Enron, even though it was an energy company, was basically trying to run itself like an investment bank, trading products that were not regulated by the banking system in ways that ended up being much riskier than people realized.”

Most disappointing is how little we seem to learn from these cases. “Every time one of these things blows up, there’s all this talk about lessons learned. But the lessons don’t actually seem to get learned.”

For a fascinating first-hand account of how major corporate fraud cases are built from the prosecutor’s perspective, listen to the full conversation with Sam Buell on the Oh My Fraud podcast. His experiences provide essential context for understanding why corporate fraud remains so persistent despite our best efforts to prevent it. 

You can also earn free CPE for listening with Earmark.

From Sponsorships to Fake Consultants—Inside the Airbus Bribery Scheme

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Modern corporate bribery rarely looks like someone handing over a briefcase of cash. It often masquerades as something legitimate: a sports sponsorship, an inflated “consulting” contract, or a generous commission payment. 

As discussed in an episode of Oh My Fraud, one of the most striking examples is the Airbus bribery scandal, which resulted in the largest bribery fine in world history—€3.6 billion.

From Watergate to the FCPA

Corporate bribery isn’t new, but its legal and ethical landscape changed significantly in the 1970s after the Watergate scandal revealed a web of illicit corporate payments. In response, Congress passed the Foreign Corrupt Practices Act (FCPA) in 1977, prohibiting bribery of foreign officials and requiring accurate financial records. The FCPA doesn’t just apply to U.S. companies; it also covers foreign companies listed on U.S. stock exchanges or operating within the United States. This means that industry giants like Airbus can face American prosecution if they’re caught bribing, no matter where they are located.

Airbus Takes Flight—and Then Self-Reports

Founded in 1970 by French, German, and British aerospace firms (Spain joined later), Airbus’s mission was to compete with American manufacturers like Boeing. By 2003, Airbus surpassed Boeing and became the world’s largest commercial aircraft maker. 

Yet in 2016, an internal Airbus audit discovered a systemic bribery operation: “secret agents” were allegedly bribing officials to secure plane sales worldwide. Faced with French laws that would revoke operating licenses for bribery convictions—and an even steeper potential fine of €8 billion—Airbus surprised everyone by self-reporting to the Parquet National Financier (PNF), France’s financial crimes investigative body.

Inside the Massive Bribery Scheme

The Airbus bribery setup was surprisingly elaborate:

Secret Agents and Shell Companies
Airbus hired intermediaries—sometimes called “secret agents”—to close deals. These agents requested large “commissions” Airbus paid to shell companies with opaque ownership. A portion of that money went to officials in Ghana, Sri Lanka, Malaysia, Taiwan, Indonesia, China, and elsewhere.

Sports Sponsorships as Kickbacks
In one example, Airbus paid $50 million to sponsor a sports team owned by an airline executive. In return, the airline ordered 180 planes. Even if each plane were the least expensive model (over $70 million apiece), Airbus captured a staggering deal in exchange for a $50 million bribe concealed as “sponsorship.”

Consulting Contracts for Spouses
Another scheme involved hiring an airline executive’s spouse as a highly paid consultant. The spouse had zero aviation experience, making it clear the contract’s real purpose was to influence purchasing decisions.

These arrangements gave Airbus “plausible deniability”: officially, they were paying for legitimate-sounding services.

The Record-Breaking Settlement

By cooperating fully after their self-disclosure, Airbus negotiated a Deferred Prosecution Agreement (DPA) rather than face trial. Under the DPA:

Historic Fine
Airbus agreed to pay €3.6 billion—the largest bribery fine ever imposed. If they hadn’t turned themselves in, estimates suggest it could have topped €8 billion.

Three-Way Split
The French PNF, the UK’s Serious Fraud Office (SFO), and the U.S. Department of Justice (DOJ) shared the settlement. The DOJ alone collected roughly half a billion euros.

Leadership Shakeup
Although he wasn’t forced out, CEO Tom Enders resigned, expressing genuine remorse and a desire for Airbus to reform. An ongoing class action lawsuit from Airbus shareholders claims the company misled investors about its business practices.

Is It Marketing or a Bribe?

One reason corporate bribery is so insidious is that it can closely resemble legitimate business development. From event tickets to lavish client dinners, there is often no bright line defining when hospitality veers into bribery. Private-sector organizations don’t always have a rigid gift limit—like the $20 rule, the U.S. military has—making it even harder to police.

According to the 2024 ACFE Report to the Nations, the median loss to corruption is $200,000. Yet tracking actual losses is complicated. In Airbus’s case, officials needed new aircraft either way, so the “loss” might be seen as switching from one vendor to another for questionable reasons. It underscores how intangible “costs” can be when bribes drive commercial decisions.

Lessons for Finance Professionals

The Airbus scandal highlights a rapidly evolving corruption landscape:

Structural Sophistication
Bribes are concealed through sponsorships, commissions, and consulting contracts rather than suitcases of cash.

Gray Areas vs. Bright Lines
Understanding intent is crucial. Based on purpose and scale, the same “thank you” gift can be innocent or corrupt.

Robust Compliance Measures
Basic compliance and traditional red flags may fail to uncover cleverly disguised bribery. Periodic internal audits, detailed transaction analysis, and cultural shifts emphasizing ethics are vital.

Global Enforcement
In an interconnected world, bribery probes are often multinational. Being listed or doing business in certain countries (like the U.S.) exposes companies to multiple layers of enforcement.

In the end, Airbus’s self-reporting likely saved the company from greater financial and operational damage, yet the scandal still cost billions and tarnished its reputation. To hear a more in-depth discussion of how Airbus got “AirBusted,” check out the full Oh My Fraud podcast episode.