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By Hook Or By Crook — Or Just Plain Greed

|Includes: Sony Corporation (SNE)
Summary

America’s corporate landscape is littered with the bodies of failed businesses.

Some went down because of digital fraud and manipulation, others were dismantled because of the oldest sin known: greed.

Each story should be a cautionary tale.

The bodies of failed businesses litter America’s corporate landscape. Some went down because of digital fraud and manipulation. Others were dismantled because of the oldest sin known: greed. Each story should be a cautionary tale.

Fashion Café

Fashion Cafe was nothing much more than a New York City based restaurant merchandising celebrity models. Founded by Buti and Tommaso Buti in 1995, the brothers were detained three years later. Accused of fraud and money laundering in 1998, the company, supported by supermodels Naomi Campbell, Elle Macpherson, Claudia Schiffer, and Christy Turlington, never had much of a chance. Even the reserved Associated Press called it a weird mixture of “Planet Hollywood and Hard Rock Cafe.”

The link between food and models wasn’t apparent and fashion just isn’t a theme to get people hungry.

Once the restaurant ran into problems, Campbell and MacPherson confronted Tommaso Buti of walking off with $10,000 a day. The pair figured Tommaso was using company money to pay for his playboy lifestyle.

Fashion Cafe is now a footnote to the ‘90s, an era which also saw Hulk Hogan’s Pastamania rise, boil and fall.

The Hit Factory

New York City’s Hell’s Kitchen was home to the world’s most recognized music studio: The Hit Factory. Everyone from Tony Bennett to U2 trekked to the art creation center begun by Edward Germano in 1975. Janice Germano, Edward’s wife, took over the shop in 2003 when Eddie died. Blaming the ‘digital age,’ she shut the doors, sold the building and moved to Miami.

The Hit Factory wasn’t brought down by a shift to the digital age or stock fraud. It fell as a victim to the oldest sin of all: avarice.

Edward’s son, Troy, said his mom closed the business out of greed. Today, it is a luxury condo where prices began at a rocking $1 million. One of the occupants: Music Theatre International.

Betamax (SNE)

College textbooks and Stanford studies have been published about the facts, figures and dates to explain the fantastic fail of Betamax. It all comes down to being bulky, complicated, ugly and expensive. The developers didn’t understand marketing and they weren’t good at developing the product to begin with. While VHS format soared, BetaMax crawled into the dusty bind of also-rans.

After 41 years of production and sales, Sony announced the end was at hand and closed in March 2016.

The final straw for the format? Most Hollywood movies people wanted to see were just over an hour in length. Betamax maximum recording time: 60-minutes.

The VHS-Betamax fight turned into a classic case study of marketing and students still autopsy the story today.

Swissair

The national airline of Switzerland, Swissaire was named the “Flying Bank” because of financial stability. The airline epitomized transportation from it’s founding in 1931 until the end of the ‘90s when the board went on a borrowing and aggressive acquisition spree. In the middle of the buy-it-and-cost-be-damned corporate attitude, 9/11 happened. Passenger counts plummeted, revenue followed the downward glide and Swissair found itself wrapped in debt.

Unlike other airlines, Swissair couldn’t manage the financial hit stemming from managements bad ideas and worse implementation. One typical example of management’s screw ups was the idea to have each pilot carry a large suitcase of cash to buy fuel at foreign airports.

The board failed to manage Phillippe Bruggisser, Chief Operating Officer and Eric Honegger, board president. The duo left a convoluted corporate structure and tangled financial commitments.

Switzerland was embarrassed when it grounded its fleet in 2002 — for good. It’s successor, Swiss International Air Lines, was founded in April of the same year.


Bernie Madoff

Not everyone managed to have a financial scam named after them, but Charles Ponzi, an Italian immigrant did. During a 6-month scheme in 1920, Ponzi slid over $15 million from more than 40,000 investors and his name is engraved in the con he perfected: Ponzi Scheme.

A moral heir to Ponzi was a New York stockbroker, Bernie Madoff. Madoff built Bernard L. Madoff Investment Securities beginning in 1960 and remained the chairman of the board until 2008. A top market maker doing business on Wall Street, Madoff bypassed boutique and specialist firms and dealt with brokers over the phone.

Madoff focused on wealthy American Jewish communities for clients. His cultural background help him weasel into the good graces of Jewish charitable organizations and some, such as The Lappin Foundation, closed temporarily because of losses through trading with Madoff.

Found guilty of 11 charges, Madoff was sentenced to 150 years in prison.

Ponzi’s scheme backfired and he ultimately spent time behind bars and died, years later, penniless, in a Brazilian charity hospital.

In the popular tk movie, “The Sting,” Paul Newman’s character is asked how he could pull off such a magnificent scam. Newman looked into the camera and said, “He can only con a greedy man.”

Enron

The ‘E’ was crooked for a reason.

Enron, a massive energy sector leader, began to poke around in e-commerce areas like ‘weather futures.’ In 2001, Enron, which had been valued at over $90 billion went bankrupt. When the ship sank, jobs, savings, retirement accounts and even some lives went down with it.

Subsequent investigations found that documents were shredded, incestuous corporate relationships were formed and inside trading was the sport for executives. Enron is now synonymous with the result of run-away greed and fraud.

The financial scandal resulted in the largest bankruptcy reorganizations in American business history, Enron was also cited as the biggest audit failure.

Founded by Kenneth Lay in 1985, a cadre of staff executives used accounting loopholes, special purpose entities and lousy financial reporting to hide billions of dollars in debt.

Enron’s stock peaked at $90.75 per share in the summer of 2000. By November 2001, it was valued at less than $1.

Many of Enron's executives were indicted with many going to prison. Andrew Fastow, Chief Financial Officer pleaded guilty to two — of 98 counts — and sented to ten years. Skilling was convicted of 19 counts of securities fraud and sentenced to 24 years behind bars.

Lay pleaded not guilty but was found guilty of six counts of securities fraud and sentenced to 45 years behind bars.

Before he was sentenced, Lay died and the Securities and Exchange Commission gave up on trying to recoup the $90 million in civil fines they were chasing.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.