Top 10 Crooked CEOs
Bernie Madoff, who is scheduled to be sentenced June 29 for perpetrating history's biggest Ponzi scheme, is just be the latest in a long line of industry titans turned crooks
Bernard Madoff
Bernard L. Madoff Investment Securities LLC
Pleaded guilty: March 12, 2009 to 11 charges of fraud
Next to Bernie Madoff, the rest of the sticky-fingered CEOs on this list seem like dime-store shoplifters. Madoff's decades-long, $65 billion Ponzi scheme, which came to a screeching halt with his Dec. 11, 2008 arrest and earned him 150 years in prison, is perhaps history's biggest financial swindle, and his trademark thin-lipped smile became the defining image of the avarice that last fall nearly brought the global financial system to its knees. What made his deception doubly painful was Madoff's sterling reputation—for years, he was regarded a pillar of the investment community, a taciturn superstar whose clockwork returns had clients nearly breaking down his door. From the 17th floor of the Lipstick Building in Manhattan, the 70-year-old money manager bilked thousands of investors, picking the deep pockets of his country-club counterparts, bankrupting charitable foundations, ransacking tycoons and celebrities alike. When he pleaded guilty in March to federal charges that carry up to 150 years in prison, millions cheered his comeuppance. What we've yet to come to terms with, however, is the way in which his unalloyed greed exposed our own.
Kenneth Lay & Jeffrey Skilling
CEOs: Enron
Convicted: May 25, 2006 of fraud and conspiracy
Enron imploded with breathtaking speed in the early 2000s, going virtually overnight from being the nation's seventh-largest company to a bankrupt shell synonymous with corporate greed and deceit. Kenneth Lay and Jeffrey Skilling were at the helm as the company collapsed, taking the jobs and savings of thousands along with it. Lay helped create Enron in 1985 as a natural gas provider and presided as it grew into an energy-trading behemoth worth some $68 billion in 2000. Skilling joined in 1990 and, as he rose, pushed an aggressive growth strategy that, in retrospect, relied on shady accounting to reflect chimerical profits. In 2001, Skilling briefly became the company's CEO while Lay moved to chairman; Skilling abruptly resigned months later as the energy giant neared the breaking point, later cashing out nearly $60 million in stock. The company filed for Chapter 11 on December 2, 2001 — at that point the largest bankruptcy in U.S. history.
Skilling and Lay were tried together and convicted in May 2006 on fraud and conspiracy charges. Lay died of heart disease two months later while awaiting a prison sentence that could have lasted 45 years. Skilling was fined $45 million and is currently serving a 24-year sentence in federal prison. He has appealed his conviction.
Dennis Kozlowski
CEO: Tyco International Ltd.
Convicted: 06/17/2005 of misappropriation of corporate funds
In a 60 Minutes interview defending his innocence, former Tyco CEO Dennis Kozlowski maintained that "nothing was hidden." That's for sure. Innocent or guilty, Kozlowski clearly wasn't modest, living a life of opulent luxury. The question of the case wasn't whether he took the money (he did), but rather whether he was authorized to do so — an issue he considered a jury unfit to rule on. "I was a guy sitting in a courtroom making $100 million a year and I think a juror sitting there just would have to say, 'All that money? He must have done something wrong.'"
There's no denying Kozlowski led a lavish lifestyle. His $30 million New York City apartment was allegedly paid for by the company. (The shower curtains alone, it was revealed in court, cost $6,000.) Tyco also footed half of the $2 million bill for an extravagant birthday party for Kozlowski's second wife in 2001. Disguised as a shareholder meeting, it took place on an Italian island and featured an ice sculpture of the Statue of David urinating Stolichnaya vodka. The bash—which became known as the Tyco Roman Orgy—probably didn't help his case. Kozlowski is currently serving up to 25 years in prison.
John Rigas
CEO: Adelphia Communications Corporation
Convicted: 07/08/2004 of bank, wire and securities fraud.
John Rigas' story is an increasingly common version of the typical American dream: from rags to riches to Federal court. Born in a rural New York town to Greek immigrant parents, Rigas was busing tables by the age of nine, joined the Army during World War II and earned a bachelor degree in management engineering, working nights at his family's small movie theater. Starting with a stake in a small cable TV franchise, the Rigas family built the Adelphia Communications Corporation, the fifth largest cable provider in the country, with 5.6 million customers in 30 states. But he was forced to retire as CEO in 2002 after being indicted for securities, bank and wire fraud; prosecutors charged him with the personal misuse of corporate funds and with hiding $2.3 billion in liabilities from investors. Rigas was convicted and sentenced to 15 years in prison; Adelphia filed for bankruptcy after admitting that the former CEO and his two sons had failed to record $3.1 billion in loans. Rigas, who petitioned for a Presidential pardon in January 2009 and was rejected, will be 92 years old when his sentence runs out in 2017.
Joe Nacchio
CEO: Qwest International
Convicted: 4/19/2007 of insider trading. Appeal pending.
In the wake of a multibillion-dollar accounting scandal that nearly destroyed the Denver-based telecommunications company, former Qwest CEO Joe Nacchio was convicted in April 2007 on 19 counts of insider trading. Prosecutors said he illegally sold $52 million in stock in 2001, even as he knew the company was taking on water. Nacchio was sentenced to 6 years in prison but remained free on $2 million bail pending an appeal.
In 2008, a U.S. appeals court overturned Nacchio's conviction, saying a key expert witness had been wrongfully barred from testifying. But the ruling was hardly a vote of confidence in the disgraced executive: the judges also concluded there was sufficient evidence to convict him. This February the guilty verdict was reinstated, and Nacchio was ordered him to serve out the remainder of his term. In a last-ditch effort to stay out of the slammer, Nacchio asked a federal judge in March to reconsider his request to remain free on bail while he appealed to the Supreme Court for a new trial. No such luck: in April he was ordered to report to prison. Nacchio is now sharing a cell at a minimum-security Federal prison camp at Minersville, Pa. His Supreme Court appeal is still pending.
James McDermott Jr.
Canadian pornographic film actress Kathryn Gannon, known as "Marilyn Star," is accused of illegally profiting from inside information gained from an intimate relationship with James McDermott Jr., former chief executive at an investment bank.
CEO: Keefe, Bruyette & Woods
Convicted: April 27, 2000 of insider trading
Once upon a time, James McDermott earned $4 million a year as chairman and CEO of the Wall Street investment bank KBW, making regular appearing on CNBC and CNN to showcase his financial prowess. Until, that is, he brought his business expertise into the bedroom. In December 1999, McDermott, a married father of two, was arrested for leaking secrets about five pending bank mergers to his mistress. The "McDermott mess" took a turn for the tabloids when it was discovered that his mistress, Kathryn B. Gannon, had some secrets of her own — she was an X-rated film star with another lover on the sly who, along with Gannon, had made an estimated $80,000 off of McDermott's tips.
McDermott's lawyers blamed his lapse in judgment on alcohol, depression and family problems. "During this trial I was called a stud stock-picker and a master of the universe," he told the court. "Those things could not be further from the truth. I'm just an average person who's tried to work hard and to give back." In the end, U.S. District Judge Kimba Wood reduced his sentence from 24 months to just 8 months. (Reporters later overheard KBW attorney Mitch Kleinman in the courthouse saying, "She bought it hook, line and sinker.") Though an appeals court overturned McDermott's conviction in 2001, saying his mistress had been unfairly portrayed as a prostitute, McDermott decided against a new trial and instead pleaded guilty to one charge of insider trading. In the end, he lost $25,000 in fines and five months of freedom.
Sam Waksal
CEO: ImClone
Convicted: October 15, 2002 of securities fraud, bank fraud, obstruction of justice, and perjury
Known for his networking skills as much as for his scientific expertise, immunologist Sam Waksal founded ImClone in 1984. The New York-based biotech firm remained relatively unknown until 1999, when it announced the creation of Erbitux — a cancer-fighting drug so promising it convinced pharmaceutical giant Bristol-Myers to purchase $1 billion of ImClone stock in one of the largest biotechnology partnerships in U.S. history. But when the Food and Drug Administration rejected the drug, Waksal alerted several relatives and friends to dump their stock as soon as possible — before the FDA's decision had been made public. Waksal's father and daughter sold $9.2 million worth of ImClone, a move that caught the attention of the SEC and eventually led to his arrest.
Though Waksal pleaded guilty and publicly apologized to his family, his colleagues, and the millions of cancer patients who had held such high hopes for Erbitux, Judge William Pauley dismissed calls for leniency, noting that Waksal had contributed a mere one-half of 1 percent of his $133 million fortune to charity. In the end, the fallen entrepreneur paid $4.3 million in fines and tax restitution, and served 87 months in prison; he was released on Feb. 9, 2009. The scandal's most infamous casualty, however, turned out to be Waksal's pal, Martha Stewart, who had unloaded all 3,928 of her company shares just days before the FDA's decision had been announced to avoid losing an estimated $45,673; the domestic diva got five months in prison as a result.
Sam Israel
CEO: Bayou Group hedge fund
Convicted: Fraud in April 2008
Sam Israel III, 49, didn't hear any fat lady sing. After his conviction for defrauding investors of more than $450 million, the Connecticut-based executive decided 20 years in prison wasn't quite his style. Instead of reporting for jail in June 2008, he faked his own suicide — not very well, it must be said — by leaving his SUV on a bridge in upstate New York with the message "Suicide is Painless" (from the M.A.S.H. theme song) scrawled on the vehicle's dusty hood. Israel never really had authorities fooled. Video captured by a nearby security camera showed another car pulling up behind his GMC Envoy shortly before it was abandoned; police suspected it was a getaway car being driven by an accomplice. Days later, Israel's girlfriend Debra Ryan was arrested in connection with his disappearance. Finally, after about a month on the lam (and a place of honor on the U.S. Marshals' most wanted list), Israel rode a scooter to a Southwick, Mass. police station on July 2 and turned himself in at his mother's urging. She had been in touch with U.S. Marshals to let them know she had spoken to her son and coaxed him to do the right thing. For failing to report to prison, Israel faces an additional 10 years behind bars; he will be sentenced June 24.
Bernie Ebbers
CEO: WorldCom
Convicted: 03/15/2005 on nine counts of conspiracy, securities fraud and making false regulatory filings
Note to aspiring CEOs: If your company is staggering under massive debt, don't orchestrate an $11 billion accounting fraud to try to cover it up. It doesn't' work.
Bernie Ebbers turned WorldCom into the nation's second largest long distance telecommunications company through a series of rapid acquisitions that left it heavily in the red. In 2002, the Mississippi-based company admitted to improperly reporting $3.8 billion in expenses, prompting Justice Department to open a criminal investigation into its business practices. The Securities Exchange Commission, meanwhile, focused on $400 million that WorldCom personally loaned Ebbers.
WorldCom eventually filed for bankruptcy, and its stock price tumbled from $64 per share to a little over $1. Ebbers' "I had no idea what was going on" defense didn't work; he was convicted of securities fraud, conspiracy and seven counts of filing false reports with regulators. Ebbers is now serving a 25-year sentence in a minimum-security Louisiana prison.
Update: Gregory Reyes, former CEO of Brocade Communications Systems, has been removed from this list after his conviction on charges of backdating stock options was thrown out by a Federal appeals judge in August 2009.
