Biggest big-money blunders

For connoisseurs of scandal, the current flap over options backdating is weak tea. Greg Reyes, a former chief executive of Brocade Communications Systems (BRCD, news, msgs), isn't even accused of enriching himself. Rather than stealing from shareholders, Steve Jobs has boosted the value of Apple (AAPL, news, msgs) stock 1,000% in six years.

No,
this stuff is grade school for scandal. Where are the Dennis Kozlowskis
and John Rigases, the Enrons and WorldComs? These are the MBAs of
swindling in the 21st century. They cost investors hundreds of billions
of dollars.

And they teach a more meaningful lesson than
backdating, which isn't even illegal. Swindles by their nature are
secret, but swindlers often give themselves away very publicly. Two of
the great financial scams of this new century -- late trading at mutual
funds and bogus research from stockbrokers -- were so obvious they were
exposed by a local politician.

The folks who should sniff out
these scams, the money managers with billions of dollars at stake --
much of it yours and mine -- have consistently missed even the most
obvious of clues. Though it's easy to blame the scammers, the so-called
professional investors deserve a healthy dose of scorn, too.

Here's a look back at the top 10 money mistakes of the new century and the folks who made them.

No. 1: The big crooked E That
was Enron's logo, and it was a fitting symbol of a Texas-size swindle
that took in everybody, including the president of the United States.
George W. Bush's nickname for the power company's chairman, Kenneth
Lay, was Kenny Boy.

Enron was the favorite utility of
environmentalists because its real business wasn't distributing natural
gas but rather conducting exotic (but nonpolluting) financial
manipulations. But the greens weren't alone: The five largest
shareholders of Enron were Fidelity Management, Alliance Capital, Janus Capital Group (JNS, news, msgs), Putnam Investment Management and Barclays (BCS, news, msgs).

In
reality, what Enron did was something of a mystery; the company's own
Web site called it "difficult to define." What it really did was fraud:
private partnership deals that favored insiders over the company. The
deals were disclosed in varying degrees in the fine print of regulatory
filings.

When Enron collapsed, it erased $63 billion in
shareholder equity, including the life savings of many of its
employees. The financial mastermind, Jeffrey Skilling, is serving a
24-year prison sentence. Lay would be in prison, too, if he hadn't
died.

No. 2: A not-so-independent auditor In
its final year, Enron paid accounting fees of $25 million to the Arthur
Andersen company, but it paid even more, $27 million, in consulting
fees. CPAs are supposed to be independent, but Andersen clearly was
not.

Only a handful of Andersen employees were implicated in
illegal activity, but prosecutors went after the company itself,
especially when it emerged that Andersen was also auditing what would
become the biggest accounting fraud in history, an $11 billion swindle
at WorldCom. Tens of thousands of innocent Arthur Andersen employees
lost their jobs when the company collapsed.

No. 3: Pumping up the revenue The
largest bankruptcy filing in U.S. history, at WorldCom, followed the
largest accounting fraud, for which a court ultimately held founder
Bernard Ebbers responsible, sentencing him to a 25-year prison term.

WorldCom
had set public financial goals for itself during the 1990s technology
boom that became impossible to meet. Failing to meet them, however,
would have weakened the price of the company's stock. So Ebbers and
other executives manipulated the books to inflate revenue. So did
others, and the entire telecom industry was subsequently gutted.

Among the collateral damage: Citigroup (C, news, msgs).
"There is no doubt that Bernard J. Ebbers, the founder and former
chairman of WorldCom, was a top client for Citigroup and that his care
and feeding were Job One at the firm," The New York Times wrote in late
2002. "Between heaping his plate with almost one million shares of hot
stock offerings and raising billions of dollars from investors to fund
his business, Citigroup worked to keep Mr. Ebbers happy."

New
York's comptroller, in 2002, said Citigroup had a $679 million interest
in helping WorldCom's stock price, although Citigroup disputed the
accusation, according to Reuters.

No. 4: Shower power Another
emblem of the 2002 corporate scandals was a $6,000 shower curtain
purchased, with company money, by Dennis Kozlowski. It was part of
perhaps $400 million the former chief executive of Tyco International (TYC, news, msgs)
was convicted of stealing from the company. According to news-media
accounts, he is allowed three showers a week at the New York prison
where he's spending a sentence of eight to 25 years.

Kozlowski's
excesses included a multimillion-dollar birthday party for his second
wife on the Mediterranean island of Sardinia. He was also accused of
manipulating Tyco's financials to prop up the stock price, but his
lifestyle wasn't hidden under a basket.

Tyco's shareholders in late 2002 included the Northern California Pipe Trades Pension Trust Fund a