Neil DennisWhen China's Huishan Dairy discovered in March that one of its chief finance executives had left due to "work stress", it was just the start of a disturbing story of mysterious disappearances.
Just days later, the next thing to vanish was $4.1bn (£3.18bn) of the company's market value after the shares fell 91% in a single day.
Now the company has said it is missing about $357m in cash.
In a statement on Monday, Huishan said its accounts had indicated it should have $426m in cash, but its banks could only account for $69m.
Meanwhile, the company has said it had "encountered tremendous difficulties" in preparing its financial statements.
While Huishan tries to make sense of its accounts, it is pertinent for investors to be reminded of one of the – thankfully rare – risks to equity investing. The accounting scandal.
Although rare occurrences, it is also rare for equity investors to get anything back should a company go bust following such an event.
Let's look at some historical examples.
Masters of deception: Enron chiefs built special companies to hide growing debts - Source: HanneorlaEnron
The biggest audit failure in US history, the energy trading firm's actions not only destroyed Enron, but also one of the biggest audit firms in the world – Arthur Andersen.
The saga begins during the late 1990s as Enron's unwieldy business structure is found to be hiding a network of companies designed to hide its losses.
Two of the main antagonists, Jeffrey Skilling and Kenneth Lay, are indicted following the reporting of $137m loss at the company's broadband division, then in October 2001 a further $618m loss and a $1.2bn writedown.
Arthur Anderson legal counsel tells auditors to destroy all but Enron's most basic files.
Days later, the company is told it faces an SEC probe, and by December's Chapter 11 bankruptcy filing, its stock ends its days at 26 cents. Just a year earlier, the shares had hit a record $90.56.
Several directors served custodial sentences, including Andrew Fastow, who served four years. Jeffrey Skilling received a 24-year sentence, commuted by 10 years in 2013. Kenneth Lay died of a heart attack just days before he was due to be sentenced.
This scandal gave rise to the Sarbanes-Oxley Act, designed to clean up corporate governance.
A number of shareholders won a class action settlement of $7.185bn – the largest of all time.
Following bankruptcy, the reorganised company paid its creditors $21.7bn. Shareholders lost $74bn in the four years up to its bankruptcy filing.
Worldcom chief executive remains in prison after being sentenced to 25 years in 2005 - Wikimedia CommonsWorldCom
In 2005 WorldCom chief executive Bernie Ebbers became an overnight sensation after being sentenced to 25 years in jail for his part in one of the largest accounting frauds in history that led to $180bn in losses for shareholders.
Three years earlier, the telecoms company had been found to have inflated the value of assets by as much as $11bn, by under-reporting costs and over-inflating revenues with fabricated accounting entries.
WorldCom's own auditing department finally uncovered the fraud with the discovery of a $3.8bn hole in the books.
The company's shares peaked at $64.50 in 1999 and stopped trading at 83 cents, all but wiping out employee retirement accounts and costing investors at least $175bn.
Under its re-organisation agreement, the company paid $750m to the SEC to be paid back to investors.
Going, going . . . . Gone: Lehman Brothers office paraphernalia sold off at Christies auctioneers - Source: Wikimedia CommonsLehman Brothers
Soon to be dead US bank entered into repurchase agreements on $50bn of its toxic assets with Cayman Island banks to try to hide the extent of its exposure to the sub-prime asset-backed securities market.
Lehman marked the repos as sales on its books rather than loans to make it appear to have more cash.
Within a few months, however, Lehman Brothers was the biggest casualty of the financial crisis, going bankrupt in September 2008 – the biggest bankruptcy in history.
The bankruptcy examiner's report two years later discovered Lehman had been cooking its books since at least 2007.
American Insurance Group (AIG)
The multinational insurance company was found to be involved in fraudulent transactions, possibly going back two decades, to the tune of $3.9bn.
The company avoided bankruptcy thanks to a massive $185bn bailout in 2005. AIG was considered too big to fail due to its credit default swaps dealings with other organisations that would have gone bust also if AIG had faltered.
AIG settled with the SEC for $10m in 2003 and $1.64bn in 2006; for $115m with a Louisiana pension fund and £725m with three Ohio pension funds in 2006.
Fannie Mae HQ: The mortgage financier paid $400m to settle fraud charges - Source: Wikimedia CommonsFannie Mae and Freddie Mac
The largest and second largest home mortgage financiers in the US both had to settle civil lawsuits for misstating financial statements in the years leading up to the financial crisis.
Freddie Mac said in 2003 that it had understated earnings by around $5bn during the previous two years and was ordered to pay a $50m fine to settle with regulators.
In 2006, Fannie Mae was ordered to pay $400m to settle charges dating between 1998-2004. In 2011, the SEC bought a civil suit against three former top executives for misleading investors about the extent of its exposure to higher risk mortgage loans.
Repayments
In such cases of bankruptcy and massive equity loss, it is highly unusual for shareholders to be compensated.
Liquidators and creditors – including bondholders – are the first to be paid any money left after a company is dissolved. Shareholders come last.
