Great frauds in history: Albert Dunlap – “Chainsaw Al”

Albert Dunlop gained a reputation for turning around companies – until his methods were found out.

943-Al-634

Albert Dunlop: also known as "Chainsaw Al"

Albert Dunlap was born in New Jersey in 1937 and studied at West Point Military Academy, briefly serving in the army before moving into the paper industry. Despite being dismissed as president of paper-mill Nitec in 1976 for manipulating earnings, he ran several companies in the 1980s and 1990s, gaining a reputation for saving troubled firms with mass redundancies (hence his nickname, "Chainsaw Al").

In 1996 he was put in charge of Sunbeam, a struggling manufacturer of grills and garden furniture. The stock jumped by 50% after he was hired and then tripled as the company announced an increase in profits.

What was the scam?

Dunlap hired his friend, Russell Kersh, as Sunbeam's new financial officer. Kersh deliberately started attributing costs incurred in 1997 to the previous year, helping exaggerate the positive impact of Dunlap's appointment.At the same time, Dunlapgave customers massive discounts, and even the right subsequently to cancel their orders if they bought Sunbeam's grills out of season in late 1997, rather than the following spring.

What happened next?

Dunlap's strategy of boosting current profits by attributing costs to the previous year and bringing forward future revenue was clearly unsustainable and by early 1998, following a sharp drop in profits, board members were asking serious questions about the firm's accounting. Dunlap was fired in June. The US Securities and Exchange Commission charged him with fraud he would later settle the case in return for a $500,000 fine and he was banned for life from serving as a company director.

Lessons for investors

Dunlap's shenanigans, combined with the group's debt load, forced Sunbeam to file for bankruptcy in 2002. Although shareholders eventually received $125m from lawsuits against auditors Arthur Andersen and Dunlap, this was a fraction of Sunbeam's peak market value of $4bn.

The main mistake that investors and board members seem to have made was being blinded by Dunlap's celebrity status and bluster: he once posed as Rambo and published a bestselling memoir subtitled How I Save Bad Companies and Make Good Companies Great.

Recommended

Rob Arnott: Covid's hidden investment opportunities
Investment strategy

Rob Arnott: Covid's hidden investment opportunities

Merryn talks to Rob Arnott of Research Affiliates about some of the unexpected consequences of Covid and their opportunities for investors, plus the "…
24 Sep 2021
University spin-outs: where to find companies involved in cutting-edge science
Share tips

University spin-outs: where to find companies involved in cutting-edge science

Universities are innovation incubators and often launch businesses involved in fast-growing fields ranging from biotechnology to artificial intelligen…
24 Sep 2021
Investing in football clubs: how you can profit from the beautiful game
Share tips

Investing in football clubs: how you can profit from the beautiful game

Football clubs may often be money pits for oligarchs, but they are also huge global brands, says John Chambers – and investors are now starting to rec…
24 Sep 2021
I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021

Most Popular

Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021