Discuss two major corporate scandals dealing with investment banks, pension funds, or mismanagement of funds by portfolio managers. Were there any warning signs? What could investors have done better to protect themselves?

Enron, 2001 and HealthSouth, 2003

Prior to this debacle, Enron, a Houston-based energy trading company was, based on revenue, the seventh-largest company in the United States. Through some complicated accounting practices that involved the use of shell companies, Enron was able to keep hundreds of millions worth of debt off its books. Doing so fooled investors and analysts into thinking this company was more fundamentally stable than it actually was. Additionally, the shell companies, run by Enron executives, recorded fictitious revenues, essentially recording one dollar of revenue, multiple times. This practice created the appearance of incredible earnings figures.

Eventually, the complex web of deceit unraveled, and the share price dove from over $90 to less than 70 cents. As Enron fell, it took down with it Arthur Andersen, the fifth leading accounting firm in the world at the time. Andersen, Enron's auditor, basically imploded after David Duncan, Enron's chief auditor, ordered the shredding of thousands of documents. The fiasco at Enron made the phrase "cook the books" a household term, once again.

Signals/Warning:

The worst thing about these scams is that you investors were blindsided. Those convicted of fraud might serve several years in prison, which costs investors/taxpayers even more money. The SEC works to prevent such scams, but with thousands of public companies in North America, it is nearly impossible to ensure that disaster will not strike again.

What could investors have done better to protect themselves?

There are things to do, Yes. Always invest with care, and diversify, diversify, diversify. Maintaining a well-diversified portfolio will ensure that occurrences like these do not run you off the road, but instead remain mere speed bumps on