Equity Funding Corporation of America was a Los Angeles-based U.S. financial conglomerate that marketed a package of mutual funds and life insurance to private individuals in the 1960s and 70s. It collapsed in scandal in 1973 after ex-employee Ronald Secrist and securities analyst Ray Dirks blew the whistle on massive accounting fraud, including a computer system dedicated exclusively to creating and maintaining fictitious insurance policies. Investigation found that from 1964 onward, as many as 100 company employees had engaged in organized deception of investors, auditors, reinsurers and regulatory authorities.
Equity Funding was founded in 1960. Its two top officials and shareholders were Stanley Goldblum and Michael Riordan (brother of future Mayor of Los Angeles Richard Riordan). (Michael Riordan was killed in January 1969 in a mudslide that destroyed his home in Los Angeles.) The company went public in 1964. By 1972, it was one of the ten largest life insurance companies in the United States, as well as the fastest growing one,with (claimed) assets of $500 million.
The company created more than 60,000 bogus life insurance policies that it sold to reinsurance companies for a fee. In order to pay the premiums on the policies, Equity Funding created additional bogus policies that they would also sell. Sometimes they would claim the bogus policyholder died and then receive the death benefits from the reinsurance company.
The company filed for bankruptcy in April 1973. Stanley Goldblum pled guilty and was sentenced to eight years in prison (of which he served four years) and was fined $20,000. Fred Levin, an executive vice president, was sentenced to seven years. In all, 22 people involved in the fraud either pled guilty or were convicted. Numerous other employees involved in the fraud were never charged.
An important sidelight was the filing of insider trading charges against whistleblower Dirks. The ensuing case of Raymond L. Dirks v. Securities and Exchange Commission went all the way to the U.S. Supreme Court where Dirks was finally acquitted. The case has been termed historic in helping to define insider trading, as well as the treatment of whistleblowers, analysts and the press.
Video Equity Funding
See also
- History of information technology auditing
- The Billion Dollar Bubble - the Equity Funding scandal retold in the form of a movie starring James Woods in the role of the actuary
Maps Equity Funding
References
- The Great Wall Street Scandal. By Raymond L. Dirks and Leonard Gross. New York: McGraw Hill Book Company, 1974. ISBN 978-0070170254
- The Impossible Dream: The Equity Funding Story; The Fraud of the Century. By Ronald L. Soble and Robert E. Dallos. New York: G. P. Putnam's Sons, 1975. ISBN 978-0399113789
External links
- Billion Dollar Bubble on IMDb --
- Madoff-size Money, Monstrous Misapplication - LOGON by Rick Stelnick in Decoded Science
Source of article : Wikipedia
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