There's fraud, and then there's the Equity Funding scandal. The fraud at Equity Funding Corp. of America ranks as a landmark event in the history of cooking the books. In 1972, the seller of mutual funds and insurance was a Wall Street wonder, ranked by Fortune as the fastest-growing financial conglomerate in America. A year later, the company had virtually collapsed amid the revelation that earnings were completely fabricated, the soundness of its business a sham.Just as Enronians created phony SPE's to hide debt, the Maple Drive Gang made up the Equity Funding books:
But what really made the fraud memorable was its final stage, reached after the company had cut deals to have other companies reinsure the life insurance policies it sold. Equity Funding wasn't selling enough policies to meet the demand that other companies had for policies to reinsure. So Equity Funding made them up. The Maple Drive Gang As the fraud progressed, more and more employees got recruited to help, and people started to get really creative. The problem with phony policies was that the company's auditors would randomly select some every now and then and ask to see the real-world files behind them. There were no files, of course, since there was no insurance. So to prop up the scam, conspirators threw late-night "fraud parties" to create phony files. When that solution proved inadequate, conspirators set up a secret office devoted exclusively to fabricating medical records and application forms on demand. The employees at the office, known as the Maple Drive Gang, spent most of their days killing time with knitting, champagne and Quaaludes, according to The Impossible Dream -- except when the clueless auditors at the main office would ask to see files for phantom policies. That's when the Maple Drive Gang would spend a frenzied few days creating dozens of policy files -- then return to their endless round of office parties. Meanwhile, a computer programmer had created software especially for concocting policies out of thin air. And at the time the fraud collapsed, the company was developing additional software that would easily "kill off" a certain number of phantom policyholders without arousing the suspicions of the reinsurers. By the time the company collapsed, more than half of the insurance policies on the company's books were fake.Also, look at this article in the January 16, 2002 Christian Science Monitor, subsciption or payment required, entitled "Lessons of Enron: How could no one have seen it?" Corporate fraud - how could we laugh without it?