8 Most Catastrophic Business Collapses in American History

Wednesday, June 6, 2012 at 7:24pm by Sandy Jones

Business collapses are typically marked by one of two things — either the business was unable to keep up with advancements in consumerism or technology, or the business broke the law in a big way. When big businesses fail, countless people lose their jobs. There can be a lot of finger-pointing. At the end of the day, quite a few of these major businesses wind up filing for Chapter 11 bankruptcy in hopes that they can eventually revive their dying conglomerate. Unfortunately, when the media takes hold of these businesses, they are often unable to dispel their unfortunate reputations.

  1. Enron Corporation

    Enron was an energy company based in Houston, Texas, originally founded in 1985 in Omaha, Nebraska. In simple terms, Enron’s downfall stemmed from failure to report their losses and debt from small investment partnerships. Arthur Anderson, a global accounting firm, signed financial statements that misrepresented Enron’s gains and losses and shredded documents that would provide evidence of this crime. Enron committed security fraud when it gave botched copies of their 10K report to potential investors and shareholders. They were also charged with insider trading, as Enron executives sold their stock for $1 billion before declaring bankruptcy. Lastly, they were charged with tax fraud. Kenneth Lay, Enron’s founder, died of a heart attack in 2006, not surprising considering his impending prison sentence.

  2. Napster

    Napster was created by Shawn Fanning as a peer-to-peer music sharing software in 1999. With its sleek, user-friendly interface, users could easily share music with one another from their own personal mp3 libraries for free. However, within months of its conception Napster found itself in massive violation of copyright infringement, and the Recording Industry Association of America filed a major lawsuit that would eventually lead to its downfall. Bands such as Metallica and Dr. Dre were angered by the free sharing of their music, some of which hadn’t even been publicly released. Amidst the drawn-out lawsuit, Napster experienced a surge in publicity that attracted millions of new users, but the fame was short-lived. In July 2001, Napster had to shut down its service, and filed for bankruptcy shortly thereafter in 2002.

  3. Atkins Nutritionals Inc.

    Formed in 1989, Atkins Nutritionals was the backbone of Dr. Robert C. Atkin’s ever-popular Atkins Diet, which dictated that dieters swap out carbohydrates for proteins like steak and cheese. The company sold products such as nutritional packets and packaged foods for consumption while on the diet, also making it easier to find low-carb versions of staples such as muffins, pasta, and cereal. Ultimately, followers of the Atkins diet preferred their own solutions or eating at restaurants to the foods sold by Atkins Nutritionals. Likewise, a number of other companies also began offering low-carb, pre-packaged foods, which caused the company to drop dramatically in sales. It was further weakened when Dr. Atkins himself died in April of 2003. Finally, in 2004, many dieters began abandoning the Atkins diet in favor of other diets that allowed the necessary indulgence of carbs. Those who had lost significant weight on the Atkins diet found that they rapidly gained it back the minute they could no longer eliminate carbohydrates from their diet, outing it as a fad diet. In 2005, Atkins Nutritionals filed for bankruptcy.

  4. Lehman Brothers Holdings Inc.

    Lehman Brothers was a financial services firm founded in 1850 by Henry, Emmanuel, and Mayer Lehman. What began as a general merchandising business blossomed into the fourth largest investment bank in the United States. However, in the midst of the economic crisis, Lehman Brothers began to make some faulty decisions when it came to the subprime mortgage market. As money was lent to people and businesses for homes when they did not have enough collateral, the economy worsened. Those that had simply put small down payments on their homes began to default on their loans. Stockholders began to get nervous and sold off their shares. As a result, Lehman Brothers was never able to get their investor’s confidence back. Lehman Brothers filed for bankruptcy in 2008, and was the biggest bankruptcy case in American history at the time.

  5. Borders

    Borders opened its first bookstore in 1971 in Ann Arbor, Michigan. Founded by two brothers, Louis and Tom Borders, it was right alongside Barnes and Noble as a book store mecca which was often multi-storied and carried a diverse collection of books both fiction and non. Borders once had a technological advantage when it created a software for its stores that predicted sales and helped keep inventory. However, Borders took a crucial misstep in the mid-1990s when the market was changing to primarily digital media. While competitors such as Barnes and Noble created the Nook tablet to satisfy digital needs, Borders outsourced its online market to Amazon. Borders also swapped out much of its inventory for CDs and DVDs, while Barnes and Noble pulled back on such items. Many customers were finding that it was easier to simply order books online or read them on their tablets. In February of 2011, Borders filed for bankruptcy, and then announced its pending liquidation in July. Over 10,000 people lost their jobs as a result.

  6. AOL Time Warner

    AOL, or America Online, saw its heyday in the early 90′s when the internet was becoming a staple for the average American. Complete with an extremely recognizable dial-up tone, AOL served as a place where content could be published and accessed, with its own email service. You paid for internet access by the hour and used keyword searches to score information on the web. This internet service provider had, at its prime, 30 million subscribers. Yet, as internet innovation grew with things like broadband, AOL was unable to keep up. In 2001, AOL merged with Time Warner, which turned out to be a giant error. The merger caused AOL’s customer base to shrink to under 19 million users, and Time Warner sought to spin off AOL into a separate publicly traded company. It did so in 2009, after the eight-year merger. AOL has never recovered.

  7. WorldCom

    WorldCom is a telecommunications company that underwent a major scandal in 2000. Founded by Bernard Ebbers, WorldCom inflated its profits by $4 billion via shady accounting methods, such as reporting expenses as company investments. At its peak, the company employed upwards of 80,000 people and was worth $180 billion. In 2002, WorldCom filed for bankruptcy. It claimed $107 billion in assets, topping Enron as the biggest bankruptcy in American history. The company was in debt by $41 billion.

  8. Kodak

    In 1888, Kodak’s founder George Eastman realized that producing a film camera that the average person could use would be an extremely lucrative business model. However, when digital photography began to take the forefront, Kodak failed to embrace the new technology. They projected that they had at least ten years before digital photography would become mainstream, what with the cost of equipment, the discrepancies in quality between the two mediums, and the difficulties in compatibility with printers and other extraneous equipment. Yet, in their ten-year window, they failed to adapt. Even when they did embrace digital imaging, they ran out of money and could no longer catch up to rapidly growing technology. Finally, Kodak declared bankruptcy in 2012.

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