The Top 13 Most Scandalous Business Bankruptcy Cases

13. Atkins Nutritionals

Just four years ago, in 2003, the Atkins Diet was sweeping the nation. People who wished for an easy way to get thin were having their wishes granted. Dr. Robert Atkins, had the answer in his New Diet Revolution: cut the carbs, dummy! Dr. Atkins had actually been preaching this type of lifestyle since the late 1960s, and had published his original Diet Revolution in 1972. While he had treated many people prior to 2003, that's when the diet really took America by storm.

The doctor and his company were soon met with criticism from people within the food industry. There was great emphasis placed on protein, no matter how fatty, and it downplayed the importance of fruits and vegetables, a natural and vital source of fiber. However, amidst the rumblings, the Atkins Diet continued its high degree of popularity.

However, the company became popular despite a curious warning sign: Dr. Atkins had suffered a cardiac arrest in 2002. He released a statement, though, stating that "I have had cardiomyopathy, which is a non-coronary condition and is in no way related to the diet." A year later, though, Atkins suffered a slip and fall outside of his office in New York City, which sent him into a coma. The official cause of death was deemed as kidney failure, though the record stated that his weight was roughly 255 pounds upon death. According to Body Mass Index, this would qualify him as obese.

The claims were later debunked, but the damage had been done. The controversy over its founder's death, combined with intense competition from other diet plans, led the company to file for Chapter 11 bankruptcy protection. Though it did recover just under six months later, it would never approach the popularity it once enjoyed.

12. Big Idea Productions

The company was founded in 1993, and almost immediately gained popularity with its Christian children' series Veggie Tales. It was a completely digital animation, featuring such likable characters as Bob the Tomato and Larry the Cucumber. In each episode, the two main characters would describe a moral dilemma, which would be discussed among the other characters.

Along with the videos, Big Idea Productions also created children's books and toys based on the Veggie Tales characters. Ten years after the company's creation, it released Jonah: A Veggie Tales Movie. Although it grossed $25 million, the cost of production far outweighed the gains. Big Idea Productions had reduced staff from 200 to roughly 40 over the course of 2003. It was also suffering the loss of a lawsuit for breach of contract against Lyrick Studios, one of its major distributors. This all led Big Idea to file for bankruptcy.

Fans of the series were glad to hear that they were bought for $19.6 million by Classic Media, who kept the series running. They plan to release another movie, The Pirates Who Don't Do Anything: A Veggie Tales Movie, in 2008, which will be produced by Starz Media.

11. Delta & Northwest Airlines

Both companies have histories dating back to the 1920s. Northwest was founded in 1926 with the intention of hauling mail for the US Post Office Department. Delta was founded in 1924 as a crop dusting company. Both enjoyed rises through the 70s and 80s, growing into two of the nation's top passenger airlines.

Delta traveled through the 90s rather smoothly, expanding into Latin America. They were also the founding partners of Orbitz, an online travel agency. Northwest saw some growths in that decade, too, as they began running non-stop flights to China. However, their reputation as a company suffered on January 2 and 3, 1999, when they stranded passengers in planes on taxiways for up to 8 1/2 hours.

The airline industry was universally rocked by the September 11 terrorist attacks. Passenger flights decreased, which unfortunately coincided with the introduction of newer aircrafts. This led to decreasing profits all around, while flights took years to get back to some semblance of a normal level.

However, there were two aspects that wouldn't get better for the two companies: low-fare competition and fuel costs. Airlines like Southwest and JetBlue were gaining momentum, leaving the older companies with a much more even market. It was fuel costs that would ultimately lead the two companies to file for Chapter 11 bankruptcy protection on the same day, September 15, 2005.

10. Covad Communications Group

The Telecommunicatons Act of 1996 allowed competing companies access to lines set up by local telephone companies. This was an enormous step forward for communications, as information services could then run Internet services through these lines. Such was the birth of the digital subscriber line -- DSL.

Covad Communications Group was founded in the same year, and just a calendar turn later had launched the first commercially available DSL service. By 1999, they were offering these DSL services to local phone companies, which would then be passed on to their customers. The world of broadband Internet was growing, and Covad was at the helm.

However, their reign would not last long. Soon after the turn of the millennium, cable Internet services were introduced. While there were a few drawbacks -- an entire block was shard a fixed bandwidth -- cable Internet was generally much faster than DSL. This took some steam out of the DSL industry. When coupled with Covad's ongoing problem of unreliable installation and service, it spelled doom for the company.

They filed for Chapter 11 bankruptcy protection in August of 2001, citing $1.4 billion in debt. Some quick arrangements were made to temporarily satisfy its creditors and shareholders, which bought the company enough time to recover. As of the third quarter of 2006, the company had 530,000 subscribers.

9. Thinking Machines Corporation

Supercomputers were all the craze in the early 1980s, as consumers felt they were getting a glimpse of the future. Danny Hillis understood this, and made supercomputer one of his foci at MIT. After graduating, he began experimenting with parallel computing, which eventually led to his creation of the Connection Machine, a series of supercomputers working together to perform the same task. This spawned Thinking Machines Corporation.

It took Hillis quite some time to make his company profitable. It took a number of contracts from the Defense Advanced Research Projects Agency (DARPA), an agency of the US Department of Defense, to finally achieve profitability in 1989. However, there were cries of foul play from competing companies like IBM. When DARPA began more evenly distributing its contracts, Thinking Machines began suffering losses.

In August of 1994, the company filed for Chapter 11 bankruptcy protection. It knew it had to sell most of its assets to pull itself out, which it did to Sun Microsystems. The company stuck around to provide service and support to its exiting supercomputers, and eventually developed both software tools or its parallel networks and data mining software.

Sun acquired the parallel software in late 1996, leaving Thinking Machines with data mining as its lone venture. That ended in 199, though, as it was bought by Oracle Corporation.

8. K-Mart

1962 ended up being a good year for the retail industry -- Wal Mart, Target, and Kmart all opened their initial stores. Kmart grew the fastest, opening a total of 18 in the year, and soon became a household name. They set themselves apart from the competition by adding the gimmicky Blue Light Specials, where a spontaneous blue siren would indicate a sale in a certain department.

Kmart did well for itself during the 70s and 80s, putting many competitors out of business and acquiring such retails stores as The Sports Authority and Waldenbooks. However, the focus on the new acquisitions led many stores to fall into peril. They were looking old and decrepit, repelling customers. They made an attempt in the 90s to renovate stores, but the plan was not fully executed.

Another problem cropped up for Kmart: they had failed to jump on the technology bandwagon, and were struggling to implement computerized supply chain management. This set them behind Wal Mart and Target, who had made the necessary upgrades when the technology became available.

Competition became too great, and in early 2002, the company filed for Chapter 11 bankruptcy protection. Amidst the filing, chairman Chuck Conway and president Mark Schwartz were accused of misleading share holders, and were forced to step down. Over 300 stores were closed as part of the restructuring. Nearly a year and a half later, Kmart emerged from bankruptcy with a new business plan.

Still, things didn't look great for the company. Wal Mart and Target had grabbed an even larger percentage of the market. Eventually, in November 2004, Kmart Holdings Corporation -- the company's name after bankruptcy emergence -- merged with Sears, Roebuck and Company, forming Sears Holding Corporation, which continued to operate both Sears and Kmart stores.

7. New Century Financial Corp.

In 1994, three managers from Option One Mortgage left the company to form New Century Financial Corporation, which provides subprime mortgage loans. Subprime carries a high degree of risk, because they are offered to individuals who don't qualify for traditional mortgages, due to either a lack of income or low credit score.

As the year turned from 2006 to 2007, New Century was the second largest lender of subprime mortgages. However, just two full months into the new year, the company stopped accepting loan applications. The reason given was that its financial backers were no longer providing financing.

This red flag was further revealed on March 9, 2007, as New Century announced it did not have the funds to repay creditors who were demanding their money. Further, the company announced that it was the subject of a federal criminal investigation. As a result, the New York Stock Exchange halted trading of the company.

It was revealed over the next few weeks that the company was in shambles. It had breached a number of contracts, including some with Fannie Mae. The Securities and Exchange Commission notified the company of a preliminary investigation into accounting errors and the trading of the company's securities. Amidst the turmoil, the company filed for Chapter 11 bankruptcy protection on April 2, 2007, citing roughly $100 million in debt. Bankruptcy hearings are ongoing.

6. Trump Organization

There is perhaps no American with a higher profile than Donald Trump. He rose to prominence in the 1980s, famously undertaking a renovation of Central Park at cost -- even finishing under budget. He also made waves as he entered the gambling industry, building three casinos in Atlantic City.

Unfortunately, a recession put a stranglehold on Trump and his businesses. The Trump Taj Mahal was financed mostly with high-risk junk bonds, a popular form of financing in the 1980s. The recession removed most of the value from these bonds, leaving banks and bondholders with big losses. This led to Trump filing for Chapter 11 in 1991.

However, he emerged less than a year later, with a restructuring plan that involved bestowing bondholders 50 percent of the company in exchange for lower interest rates and an elongated payment plan. This would not be the end of Trump's business woes, though, as his Trump Plaza Hotel filed for Chapter 11 in November 1992, citing a $550 million debt. This was also solved by handing out stake in the hotel -- 49 percent divided among six creditors.

Even as recently as 2004, Trump's businesses haven't fared well. Trump Hotels & Casino Resorts was forced into bankruptcy in November of that year. This reduced Trump's stake in the business by over half. It did reemerge in May of 2005.

5. Polaroid

How can a company ensure its demise? By not adapting to evolving technology. No matter how successful it once was, and no matter how well known the brand, the failure to adapt is fatal. Just ask the Polaroid Corporation. They were the household name in instant photos for decades -- over half a century, actually.

Things were going smashingly for the company for much of its existence. Amid increasing competition in the 1980s, it won a patent battle with Kodak, forcing them out of the instant camera business. With the competition gone, Polaroid could focus on business at hand.

Unfortunately, management did not view the emergence of digital cameras as something they needed to be concerned with. Of course, digital photography erupted, leaving Polaroid in the dust. They filed for Chapter 11 in October of 2001. The company would not reemerge, selling most of its assets to a subsidiary of Bank One (which has since been purchased by Chase). Polaroid Corporation changed its name to Primary PDS, but it is nothing more than an administrative shell, and is still under Chapter 11.

The Polaroid name is still in use under certain licenses. While instant cameras are still part of the picture, they are seemingly being phased out. The Polaroid name has also been pasted on LCD and plasma televisions, as well as portable DVD players.

4. Enron

In the late 1990s, Enron was riding high. They were at the apex of the energy industry, and had earned accolades from many sources. Fortune magazine named it America's Most Innovative Company for every year from 1996 through 2001, as well as one of the 100 Best Companies to Work for in America in 2000.

True, Enron had long been receiving praise for its work environment, effective management, and comprehensive pension plans. Combined with its large earnings, it looked to be one of America's top companies. Then, of course, came the scandals that rocked the nation.

In reality, the company was suffering large losses. They hid these well from the public, though. The stock hit its peak in August of 2000, $90. Knowing that this was an optimal time, Enron executives began selling stock while encouraging the public to buy it, claiming that it could increase in value by 50 percent. A year later, the stock had actually decreased by 50 percent, though the public still trusted the optimistic statements of CEO Ken Lay.

In October, the stock was trading at a paltry $15. On November 28, 2001, Lay's wife Linda sold her stake for $1.2 million. Not even an hour later, Enron announced that it had been hiding enormous losses. The company filed for Chapter 11 on December 2 and were liquidated rather than restructured.

3. Mirant Corp.

Enron isn't the only energy company that was mired in debt and forced into bankruptcy. The Atlanta based Mirant Corporation, formed in 2001, was forced into the same predicament in 2003, citing a debt of $1.45 billion.

There was much faith placed in Mirant's ability to restructure. The judge appointed to the case allowed the appointment of a committee of equity holders. This is an unusual ruling in that most companies emerging from Chapter 11 don't have equity interest.

After two and a half years of reorganization, Mirant emerged and was relisted on the New York Stock Exchange. It is not out of trouble, though, as one of its plants in New York is scheduled to be shut down in 2008, while the other has been denied upgrades by the Town, County, and State.

2. WorldCom

In the late 1990s, WorldCom was one of the largest communications companies in America. Having acquired MCI in 1997 in what was then the largest merger in US history, WorldCom was ready to compete with the big boys in telecommunication. The company continued to grow through various other acquisitions. However, the company was on the brink of failure.

From 1999 through 2002, the company has misrepresented earnings and growth, covering up a marred financial condition. In June of 2002, an internal audit uncovered $3.8 billion in fraud. An SEC investigation was launched later that month, ultimately uncovering an asset inflation of over $11 billion.

A month later, WorldCom filed for the largest case of Chapter 11 in US history. The company changed its name to MCI less than a year later, and settled with the SEC for $750 million in cash and MCI stock. This was to be paid to misled investors. The company eventually emerged from Chapter 11 in 2004, though still $5.7 billion in debt. In 2005, Verizon Communications acquired MCI for $7.6 billion. Its CEO at the time of the fraud, Bernard Ebbers, was found guilty and sentenced to 25 years in prison.

1. Refco

The rapid rise of a company may not always be what it seems. So it was for Refco, a New York-based financial services company that went public in August of 2005. Upon its Initial Public Offering, the company was valued at $3.5 billion, and was backed by a four-year history of excellent gains.

The first sign of trouble appeared on October 10, 2005, just two months after the successful IPO. CEO Philip Bennett disclosed that the company had $430 in bad debt. This was the result of a financing scam spearheaded by Bennett, involving a hedge fund called Liberty Corner Capital Strategy. Less than two weeks after the discovery, Refco was delisted from the New York Stock Exchange. It cited $16.8 billion in debt.

The company, mired in scandal and lawsuits, has yet to emerge from bankruptcy.


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