Part 1
From the e-Activity, examine ethical behavior within firms in relation to financial management. Provide two (2) examples of companies that have been guilty of ethics-based malfeasance related to financial management and determine why their comeuppance was deserved.
Bernie Madoff started a Ponzi scheme and defrauded thousands of investors in a period of seventeen years, and took their money that amounted to tens of billions of dollars. He was a leading executed for an electronic trading company that was called Nasdaq in early 1990s. He had convinced investors that he was generating large, steady returns by investing through a strategy that was called “split-strike conversion” (Brigham & Ehrhardt, 2011, p. 271). This trading strategy involved depositing clients’ funds into a single bank and lending it out to clients who needed it. He was able to attract more customers by offering them “redemption money,” which was some form of interest money that was meant to attract new clients to invest their money ( Warren, Reeve & Duchac, 2017, p. 9). However, this strategy turned out to be a fraud because he was unable to maintain the payment of the interest after the market collapsed during the 2008 economic crisis. He was said to have acted unethically because engaging in security fraud, wire fraud, and money laundering. The Ponzi scheme was described as a symbol of the culture of greed and dishonesty, making him to face charges of 11 federal felony counts.
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Another example that reveals an unethical managerial misconduct was the Arthur Andersen LLP, a company that put under scrutiny by the United States court for being a complicit to the auditing firm, Enron. Enron was involved in systematic accounting fraud in 2001 and Arthur Anderson Company failed to provide the correct accounting report of Enron ( Markham, 2015, p. 360 ). Anderson shredded important accounting documents that would have been used to show the financial position of Enron so that investors would not spend their money on false contracts which were offered through third-party transactions. The company was convicted for committing felony charges and forced to surrender its CPA licenses because of engaging in faulty audits. This was a corporate misconduct which caused bankruptcy to many other companies that had been deceived by Enron using fake contracts, which included Lehman Brothers, Sunbeam, Waste Management, and WorldCom among others.
Part 2
From the scenario (the video attachment), recommend two (2) actions that Trevose Fitness Center (TFC) could take in order to raise capital that will, in turn, enable it to reach its expansion goals. Defend your response. Support your recommendation with two (2) real-world examples of successful implementations of these actions.
The Trevose Fitness Center (TFC) can raise capital for its expansion goals in the following manner
The company can raise capital by offering its equity shares in the open market and can raise long term capital from the investors who are willing to invest in the company. Company can use that fund for its expansion goals.
The second option is the company can use the private placements of its shares through venture capitalist to raise capital for its expansion goals. Second option is better option for the company as they can explain their expansion plan one-to-one to their investors and cost of raising the capital are also low in this method.
The two real-world examples of successful implementations of these actions are as follows-
There are many successful companies in real-world who had raised the capital by offering its equity shares in the open market for its expansion plans for example Google Inc. and McDonalds etc.
There are many successful companies in real-world who had raised the capital by the private placements of its equity shares through the venture capitalists for its expansion goals for example Reid Hoffman was venture capitalist for LinkedIn and Face book.
References
Brigham, E. & Ehrhardt, M. (2011). Financial management: Theory & practice . Boston, Massachusetts, U.S.: Cengage Learning.
Markham, J. W. (2015). A financial history of modern U.S. corporate scandals: From Enron
to reform . New York, NY: Routledge.
Warren, C., Reeve, J. M., & Duchac, J. (2017). Financial accounting . Belmont:
Cengage Learning.
