Corporate Malfeasance Examples

Police car sirens

Some corporate malfeasance results in police action.

Corporate malfeasance can be illegal or highly unethical. It occurs when senior executives  a board member or other officer at a corporation engages in an unlawful or wrongful act. Many corporate malfeasance incidents are classified as Securities and Exchange Commission (SEC) violations. Some SEC violations, including accounting coverups, result in penalties, while others result in criminal prosecution, typically pursued by the FBI.

Both unlawful and wrongful acts qualify as corporate malfeasance examples.  Another example of malfeasance which may or may not qualify as a U.S. law violation is knowingly operating under poor work conditions in another country because that country does not have the same standards as the U.S. or Europe. But, in the modern world, this behavior is definitely considered unethical.

Accounting Issues

As some of you may know, I formerly worked at Enron but left ~1.5 years before it filed for bankruptcy. I remember the Arthur Anderson debacle. It left me feeling sick that the actions of a few partners in Houston could bring down an entire, global firm. (Thank goodness Arthur Anderson Consulting had already separated from its parent and rebranded itself under the name Accenture or who knows what would have happened to them!)

However, Arthur Anderson does serve as a representative example of a company that committed a number of ethical violations which qualify as corporate malfeasance. It was originally convicted of fraud but the conviction was overturned on appeal. However, once the US government announced its intention to prosecute Arthur Anderson for the role it played in the Enron fraud case, Arthur Anderson began to implode. As a renowned CPA firm, one of the Big 5, its business was based on its credibility and reputation. With the government alleging that Arthur Anderson regularly engaged in corporate malfeasance with regards to its auditing procedures, Arthur Anderson’s reputation, and subsequently the company, was destroyed.


NBC News site capture of SAC plea

Stephen A. Cohen’s SAC Capital Advisors pled guilty to fraud to avoid trial.

More recently, in November 2013 SAC Capital Advisors, a hedge fund founded by billionaire Stephen A. Cohen, pled guilty to fraud charges. Fraud, of course, is a corporate malfeasance example. These charges included both securities fraud and wire fraud charges. Six people associated with SAC had already pled guilty to fraud individually. According to the prosecutors involved in the case, the government’s pursuit of SAC Capital Advisors on fraud charges stemmed from the institutional failures to prevent insider trading.

Poor Safety

On December 3, 1984 an explosion at a Union Carbide plant in Bhopal, India killed between 3,800 – 15,000 people. Union Carbide claimed the lower number while Bhopal municipal workers claimed the higher number. Since then, thousands more have died as a result of the noxious gas released into the environment when the plant exploded. Investigations uncovered a systematic disregard for safety and precautions including the nonexistence or nonfunctioning of alerts and backup systems. Although the CEO had to appear before Congress, no criminal charges were ever filed in the US, although they were filed in India. Therefore, this example of corporate malfeasance is one of poor ethics.

Key Concepts

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