Accounting Fraud Rising

Enron is simply the latest case as accountants face increasing client pressure.
By Staff Writer John Chartier

NEW YORK (CNN/Money) - As details unfold about the accounting shenanigans that led to Enron's collapse, federal regulators note the case is simply the latest in a growing string of high profile scandals at major U.S. corporations in recent years.

The number of fraud cases investigated by the Securities and Exchange Commission jumped 41 percent in the last three years, according to agency data, resulting in tens of millions of dollars in fines to settle the charges.

Regulators said such cases are becoming all too common in an increasingly cutthroat atmosphere where client pressure to make sure the numbers add up often leads to ethical breaches.

"Accountants don't have that sensitivity. They don't have the sense that numbers hurt," said one former corporate accountant who asked not to be identified. "Early on in their career they learn to shave the truth."

Before Enron (ENE: unchanged at $0.67,Research,Estimates)  slid into bankruptcy, wiping out the retirement savings of many of its employees, several high-profile companies attracted SEC interest, and ultimately paid fines, to settle accounting charges.Waste Management (WM: up $0.39 to $33.55,Research,Estimates) ,Cendant (CD: up $0.14 to $19.02,Research,Estimates) , Sunbeam and MicroStrategy (MSTR: down $0.03 to $4.00,Research,Estimates)  all faced federal scrutiny.

Pressure from clients on their accountants to make the numbers add up is so great that accountants are faced with a dilemma when there's a problem, betray the client, or overlook it, hoping no one notices and risk getting caught, industry watchers said.

Much of the pressure brought to bear on accountants stems from the cozy relationships the firms have with corporate clients. Corporations often hire accountants and other personnel from their auditors and accountants, regulators said.

That's what happened in Waste Management's case.

"I think for all the relevant periods, the chief accounting officers at Waste Management came from Arthur Andersen," said one SEC regulator. "The relationship is too cozy."

Statistics appear to support the idea that companies are increasingly trying to get away with cooking the books. According to SEC data, regulators investigated 112 cases in 2001. That's a 41 percent increase from the 79 cases investigated in 1998.

"There are more financial misstatements and fraud now," SEC spokesman Thomas Newkirk said. "There was a time it was a rare day to get caught in a fraud case. In the last year or two lots of big capitalization, nationally known companies have been involved in financial fraud."

The list keeps growing

Andersen, which admitted late Thursday to destroying Enron-related documents, was fined $7 million in June, the biggest civil penalty ever assessed against a Big Five accounting firm, after the SEC said its audits of Waste Management's financial statements were "false and misleading."

The SEC said the company failed to stand up to the biggest U.S. trash hauler to prevent accounting irregularities.

In November, Waste Management itself paid $457 million in fines to settle charges of violating securities laws in its 1998 merger with USA Waste Services and its 1999 financial statements.

In 1999, Cendant Corp., the travel and transportation conglomerate that owns Ramada Hotels and the Avis car rental chain, agreed to pay shareholders $2.83 billion to settle a suit alleging irregularities in its merger with CUC International Inc. The company's auditor, Ernst & Young LLP, was not fined. Appliance maker Sunbeam Corp. was forced to restate financial results for 1996 and 1997 last May, and the SEC sued former CEO Al Dunlap (Chainsaw Al) and other executives after he was accused of using phony accounting to boost profits. The company later filed for bankruptcy. Again, Arthur Anderson was the auditor, but was not fined.

And three top executives of software firm MicroStrategy, including CEO Michael Saylor, were ordered to pay $350,000 apiece for similar practices. The company and its auditor, PricewaterhouseCooopers LLC, were not fined.

Newkirk said it's important for regulators to catch the small, seemingly insignificant irregularities early on in order to prevent them from ballooning into Enron-sized situations that hurt employees and investors.

"If you fail to arrest problems when you first find them you end up in a situation of either having to go along with bigger violations in the future, or of standing up to the client and correcting it," Newkirk said. "Of course doing that involves both embarrassment to the firm and the auditor."



source: CNN Money

The mutual fund scandal and you

There seems no end to the mutual fund industry's dirty deeds. Here's what all the fuss is about, how it might affect your portfolio and what you should do now.

By Timothy Middleton

For decades, we've been told the safest way to invest is to put our money in mutual funds. They have become so popular that about half of all American families now own them, often in IRAs or company pensions called 401(k) plans.

Recently, scandals have spread through funds like wildfire, raising questions for individual investors. What have fund managers done wrong? And what are we supposed to do about it?

Although they are the worst in the industry's history, these scandals are easier to understand than you might think. And figuring out what you need to do with your own fund investments is pretty easy, too.

Here's a primer on the scandal to date:

The nitty gritty

Q: Who is affected by this scandal?

A: Potentially half of the American public. In the last 20 years, total fund assets have grown 1,787% to $7 trillion, from $371 billion in 1984. About one-third of fund assets are held in IRAs, 401(k)s and other tax-deferred accounts. The total number of funds available has swelled to more than 8,000 from 1,200.

Among mutual fund companies, one of the world's largest ,Putnam Investments, has been implicated. And some big names in the financial world -- such as brokerageMerrill Lynch (MER,news,msgs) and Bank of America (BAC,news,msgs), which sponsors some of the problem funds -- have been tarnished by the scandal.

Most of the tainted fund companies themselves are smaller. And so far, at least, the very largest fund companies, Fidelity Investments, Vanguard Group and American Funds, have not been accused of illegal or improper activities.

Q: What did they do wrong?

A: The scandals focus on two areas, both of them involving unscrupulous stock-trading practices that siphon money from mutual-fund shareholders at large -- in other words, you and me.

The first area is called late trading. Legally, funds are required to stop accepting new purchases and sales at 4 p.m. ET to get that days price. Funds are priced once a day, at 4 p.m. Any orders placed after 4 p.m. are supposed to be assigned a share value based on the following day's closing price.

But as it turns out, many funds appear to have allowed exceptions -- costly exceptions. The beneficiaries typically were so-called hedge funds, which are essentially independent investment funds run for groups of wealthy investors. In the worst cases, certain hedge funds and other favored investors were allowed to make late-day purchases. What difference does it make? Well, sometimes news breaks after 4 p.m. that will produce big swings in stock prices the following day. Late traders took advantage of events like that.

Legitimate exceptions also have been made, such as to allow pension-plan administrators to forward the days transactions. But these practices apparently spiraled out of control. The Securities and Exchange Commission and some state officials have charged that some late trading was clearly illegal, allowing hedge funds and other large investors to break the deadline repeatedly.

The second abuse is called market timing. Hedge funds and some other investors were allowed to dive into certain funds to capture stale prices -- taking special advantage of time lags among stock markets around the globe. For example, European stocks finish trading several hours before the official U.S. close of 4 p.m. If in the intervening hours American stock prices went up sharply, Europe could be expected to follow suit the next day. Timers would buy the fund today and sell tomorrow to capture this increase.

Q: Those two things don't sound like a big deal. Is this just a tempest in a teapot?

A: No way. Any profits these short-term traders made came directly out of the pockets of long-term shareholders. Here's an example. Assume a mutual fund with $500 million in assets sees its investments rise 2%, or $10 million, during the trading day. After hours, a hedge fund throws in $50 million. Even though that money was never invested, it claims a share of the profits. Now that $10 million profit is spread over $550 million in assets, not $500 million, and a 2% return has become 1.8%. Late-traders walk away with net profits of $900,000, or 9 cents of every dollar earned -- and every penny subtracted directly from the rightful profits of long-term shareholders.

Q: If it hurts shareholders so directly, and the profits all go to the traders, why would the fund companies allow it?

A: In some cases, employees of the fund companies were the traders, according to federal and state charges. The founders of two mutual fund companies, Strong and PBHG, have been ousted on such charges.

In other cases, the fund companies participated in back-door agreements that would benefit both parties. The traders would get special buying and selling access in return for a commitment to invest some of their longer-term accounts with the fund companies. The fund companies -- which earn a small percentage in "management fees" for every dollar invested -- would thus gain more in fees.

Finally, in some cases, fund companies were simply the dupes of stock brokers who engineered the trades for commission income.

What's the punishment?

Q: Is anybody going to jail?

A: Most of the charges so far have been civil, not criminal. (It takes a criminal conviction to land someone in jail.) Authorities have struck deals with some fund companies requiring them to reimburse shareholders who were harmed. Some fund officials and stock brokers have lost their jobs and could be barred from working in the industry again.

Proving criminal charges could be harder and take much longer than the civil actions. Some of those implicated in the scandal have asserted they got legal opinions approving the trading in advance, which would be a strong defense in a criminal case.

All said, some criminal charges have been filed, including actions against officials of Security Trust Co., a Phoenix bank that's been accused of late trading.

Q: How many companies have been dragged into the scandals?

A: Nearly 20. Fund companies include Alliance Capital, Federated Investors, Fred Alger Management, Invesco Funds, Janus Capital, Loomis Sayles, Nations Funds (part of Bank of America), One Group (part of Bank One (ONE,news,msgs)), PBHG, Putnam Investments and Strong Capital Management. Brokerage firms, some of whose employees allegedly orchestrated improper trading of funds shares, include Bear Stearns, Merrill Lynch, Smith Barney (part of Citigroup (C,news,msgs)), US Trust Co. (part of Charles Schwab (SCH,news,msgs)), UBS (formerly Paine Webber) and Wachovia (formerly Prudential Securities).

Security Trust has been ordered by federal authorities to close.

Q: Which cops are going after these guys?

A: The scandals originally surfaced when the New York attorney general's office cracked down on a hedge fund, Canary Partners, on Sept. 3. But the chief regulator of mutual funds is the SEC. Unfortunately, that agency has had to play catch-up with Eliot Spitzer, the aggressive New York attorney general. Nonetheless, the SEC has now filed a number of complaints itself.

In addition, the SEC has proposed new rules that would permit no exceptions to the 4 p.m. deadline. Also, it's considering other rule changes, such as imposing nearly universal redemption fees on funds to discourage short-term trading.

Don't panic

Q: Should I sell all my mutual funds?

A: Absolutely not. Funds from companies that are not implicated in the scandals are probably OK, and only some individual funds at accused firms were involved. Most of the abuses involved funds focused on foreign and domestic-growth stocks. Index, value and income funds were not employed widely by the traders.

Still, you should consider dumping funds from companies where the abuses were the most blatant, and many shareholders already have. Putnam has lost $32 billion in investor assets in the last three months, nearly 12% of its assets.

Q: Do I need to hurry to change my investments?

A: No. If you have built up substantial capital gains in a tainted fund, or would face hefty redemption fees, getting out immediately might be the wrong move. Also, in many cases restitution will be made to the funds, meaning you'll have to be a current shareholder to benefit.

The fallout

Q: Is this scandal going to take the whole stock market down, sort of like Enron helped do?

A: It hasn't so far. Many of the redemptions have come from institutions, such as insurance companies, which have taken their assets in kind, or in the form of securities rather than cash. There has been no widespread selling to meet redemptions from individuals.

Q: How can I be sure there isn't another scandal out there waiting to be discovered?

A: You cant. But don't cut off your nose to spite your face. Most of us are no good at picking stocks to buy, let alone knowing when to sell them. Funds are the best way for most individual investors to benefit from diversification and expert management.


At the time of publication, Timothy Middleton didn't own any securities mentioned in this article.

source: MSN Money

The Sad But Overblown Mutual Fund Scandal

NEW YORK - It's hard to know, but there's evidence that there may be less than meets the eye in the nascent mutual fund scandal.

Yesterday was a big day in the scandal--USA Today called it "cataclysmic"--as the chief executive of Putnam Investments resigned, regulators testified on Capitol Hill and Massachusetts regulators prepared civil fraud charges against former Prudential Securities employees. There was something new, too: Regulators indicated that nearly 450 brokerages have overcharged on fund purchases and ordered them to notify their customers of possible refunds.

The National Association of Securities Dealers, which regulates brokers, announced that it was requiring the 450 brokerages to notify clients that they may not have received so-called "breakpoint" discounts and that they may be due an average refund of $243 per transaction. But the total overcharge is said to be $86 million for 2001 and 2002.

Eighty-six million dollars is nothing to sneeze at. But in the context of the mutual fund industry, it's not a big number--and it's also not clear whether most of this overcharge was a form of fraud as opposed to bookkeeping error. (Note: the mutual fund industry is often called a $7 trillion industry. This is nonsense. The entire U.S. GDP is roughly $11 trillion, and the mutual fund industry does not account for 64% of the total. The big, misleading number refers to assets under management, not industry revenue, which are a tiny fraction of those assets.)

In general, the data relating to the scandal is tossed around with some abandon. In his testimony on Nov. 3 to the Senate Governmental Affairs subcommittee, Stephen Cutler, the head of the SEC's enforcement division, referred to "The unholy trinity of illegal late trading, abusive market timing and related self-dealing practices." These three practices may be a trinity, but late trading (buying shares after the 4 P.M. market close based on after-hours information, while getting the 4 P.M. price) is generally considered illegal, but market timing is not--at worst it is vaguely unethical. What Cutler means by "related self-dealing practices" is not clear.

Cutler also said that more than 25% of brokerage firms that sell mutual funds and 10% of the funds surveyed had permitted customers to engage in late trading that may have been improper. "As my colleagues and I have gathered evidence of one betrayal after another, the feeling I'm left with is one of outrage," Cutler said.

These statements raise two questions: How did the SEC find this out so quickly, and was what they did improper or not? In general, it would seem to require the consent of the funds to allow late trading so that, for firms that merely sell fund shares, to "allow" late trading would seem to be irrelevant.

That mutual fund companies and brokers sanctioned market timing (taking advantage of time differences and price movements in international markets by buying international mutual funds in U.S. markets) by large investors when their own sales documents discourage the practice, that's sleazy. It's fine that Lawrence Lasser, chief of Putnam, a unit of Marsh & McLennan (nyse:MMC - news -people ), was forced to resign and that Prudential Securities (nyse:PRU - news -people ) brokers might be charged. There are too many mutual funds anyhow and if a few go under, it's no loss. Still, it's way too early to suggest that there is something fundamentally wrong about the industry--aside from the fact that most funds don't even equal the market averages.

It's also sad that the geniuses who run hedge funds spend their lives seeking such tiny advantages and are so richly rewarded for their miniscule efforts. This assumes, of course, that they have in fact been rewarded. While Richard Strong said he made $600,000 in three years from his improper trading--much worse than most because it was in his own fund--that was pretty small-time from his perspective.

Edward Stern, the billionaire's son who started the scandal rolling, managed to run his scheme for just three years before essentially closing his hedge fund. It's not clear at all what Stern and the other funds made from illegal practices or from improper practices. Let's hope the corner cutters get drummed out of the business and that they are made to pay back their ill-gotten gains--and fines, too.

But it remains to be seen if the scandal really is big money as opposed to the work of a few hundred grubby brokers seeking a legal, if pathetic, edge.

source: Forbes

Celebrities in Trouble

#1 Richie Sambora

Bon Jovi guitarist Richie Sambora has plead no contest to one misdemeanor count of driving with a blood-alcohol level above the legal limit stemming from a March 25 arrest. Prosecutors dropped a second charge of driving under the influence.

#2 Richard Quest

Boisterous CNN host Richard Quest was arrested in Central Park early Friday morning, allegedly telling police: "I have meth in my pocket." He was later arraigned on a misdemeanor drug charge.

#3 Brigitte Bardot

Parisian prosecutors are calling for former film star Brigitte Bardot to be given a two-month suspended sentence and a hefty fine for anti-Muslim statements made in a letter to France's then interior minister, Nicolas Sarkozy.

#4 Rob Van Winkle

Vanilla Ice, known on his birth certificate as Rob Van Winkle, landed himself in handcuffs and with a domestic battery charge after he reportedly shoved his wife during an argument.

#5 Mischa Barton

Former 'O.C.' problem child Mischa Barton, seen in her mug shot, was pulled over and arrested on Dec. 27 by West Hollywood police for driving under the influence and driving on a suspended license. On Thursday she was sentenced to three years probation and ordered into an alcohol education program.

#6 Raffaelo Follieri

Raffaelo Follieri, who's been dating actress Anne Hathaway for more than a year, was detained by police on April 3 after an incident involving Follieri and a bad check worth nearly a quarter-million dollars.

#7 Naomi Campbell

Naomi Campbell, the supermodel who's no stranger to handcuffs or assault allegations, is arrested at London's Heathrow airport after allegedly assaulting a police officer there.

#8 Rikki Rockett

Poison drummer Rikki Rockett was arrested on a Mississippi rape warrant in Los Angeles, Feb. 24. He was picked up at the airport following a concert over the weekend in New Zealand.

#9 Shia LaBeouf

Shia LaBeouf, who already got off of trespassing charges for a possibly-drunk Walgreens arrest, briefly had a $1,000 bench warrant against him after failing to appear in court for a smoking offense. The warrant was subsequently dismissed when LaBeouf's attorney entered a not-guilty plea.

#10 Thomas Jane

Actor Thomas Jane was arrested on March 17 after driving at excessive speeds in California. He was charged with DUI after reportedly failing a breathalyzer.

#11 Joe Francis

Joe Francis is a free man after pleading no contest to filming underage girls for his hit DVD series 'Girls Gone Wild.' He was sentenced to time already served. He had spent 11 months behind bars on a tax evasion charge. He plans on continuing to fight those charges.

#12 Dawn Wells

Police stopped Dawn Wells, who played Mary Ann on 'Gilligan's Island,' on Oct. 18, 2007 and allegedly found marijuana in her car. After possession charges were dropped, she later pleaded guilty to reckless driving and is currently serving six months probation.

#13 Scott Weiland

Velvet Revolver and STP rocker Scott Weiland, seen with his wife Mary, pleaded innocent March 5 to driving under the influence of drugs, a charge stemming from his November arrest on a Los Angeles freeway onramp.

#14 Boy George

Eighties icon Boy George showed up in court on Feb. 28 to deny charges that he handcuffed a male escort to a wall in his London home last year. The singer, seen at a fashion show in September, will remain free on bail until trial in November.

#15 Bai Ling

Bai Ling, who has appeared in movies like 'The Crow' and also had a brief role on the hit TV ABC show 'Lost,' was arrested after being accused of stealing batteries and magazines at Los Angeles International Airport on Feb. 13.

#16 Steve-O

'Jackass' star Steve-O, real name Stephen Glover, was arrested at his Hollywood Hills home on March 3, following a dispute with his neighbors, on several charges including vandalism and drug possession.

#17 Kid Rock

Kid Rock, seen in his mug shot, found himself charged with simple battery following an Oct. 21 brawl at an Atlanta waffle house.

#18 James Barbour

Broadway actor James Barbour, 41, who played the beast in the musical "Beauty and the Beast," was sentenced to 60 days in jail plus 3 years probation on Friday after agreeing to a plea deal in a case involving sexual contact with a 15-year-old girl in 2001.

#19 Aaron Carter

Child star Aaron Carter, now 20, was arrested after police in Texas pulled him over and reportedly found more than two ounces of marijuana in his car.

#20 Barron Hilton

Like his sister Paris in the past, 18-year-old hotel heir Barron Hilton was arrested on the morning of Feb. 12 in Malibu for allegedly driving under the influence.

#21 Heidi Fleiss

The notorious "Hollywood Madam," Heidi Fleiss, was arrested by members of the Nye County Sheriff's Office in Nevada on Feb. 7 and charged with illegal possession of prescription drugs and driving under the influence.

#22 Vincent "Don Vito" Margera

Shortly after getting ten years to life probation for sexually assaulting two teenage girls, Vincent "Don Vito" Margera of 'Viva La Bam' fame got another two years for possession of cocaine.

#23 Roger Avary

Roger Avary, who co-wrote Quentin Tarantino's bloody gangster drama 'Pulp Fiction,' was charged with vehicular manslaughter and DUI after crashing his car in the early morning of Jan. 14. The wreck killed a passenger and ejected Avary's wife from the car.


Source: AOL - Star Scandals

Top 10 Scandals of 2007

By Elisabeth Salemme

#1. Firings Fallout

It's true that federal appointees serve at the pleasure of the President. But the circumstances surrounding the dismissal of eight U.S. attorneys, seven in December 2006, prompted a Congressional investigation and helped lead to the resignation of Attorney General Alberto Gonzales. Critics contend some of the attorneys — six of whom had recently received outstanding job-performance ratings — were fired as retribution for prosecuting Republicans or for failing to prosecute Democrats. In July, President Bush invoked executive privilege and declared that Karl Rove and other aides would not testify on the matter if subpoenaed by Congress. It remains unclear who ordered the firings or why.

#2. Star Athlete Dogged by Animal Cruelty

Falcons quarterback Michael Vick, who was the NFL's first draft pick in 2001, was suspended indefinitely from the league in August after he admitted to funding a dogfighting ring on his property and to being complicit in the killing of at least six dogs using such methods as hanging and drowning. NFL commissioner Roger Goodell freed the Falcons to recover $22 million of Vick's signing bonus, but has yet to decide whether to reinstate him after his incarceration ends. "I'm totally responsible," Vick said at a press conference. "Dogfighting is a terrible thing." On Dec. 10, he was sentenced to 23 months in jail.

#3. Shock Jock Cold-Cocked

Don Imus is no stranger to racist and sexist humor, but he crossed the line in April when he called Rutgers' mostly black women's basketball team "nappy headed hos." Although he initially dismissed the incident as "some idiot comment meant to be amusing," he soon apologized publicly amid mounting criticism and even met privately with the Rutgers team. But as several advertisers pulled out of deals with his CBS radio show and its MSNBC simulcast, both networks fired him. Imus settled his $40 million wrongful termination suit against CBS in August and in December returned to the air on ABC.

#4. Have TB, Will Travel

Atlanta attorney Andrew Speaker flew to Europe two days after being diagnosed with drug-resistant tuberculosis. While in Italy, the Centers for Disease Control (CDC) informed the honeymooner — whose father-in-law is a TB expert at the agency — that he had an extensively drug-resistant strain of the disease and that his name was being placed on a no-fly list. Speaker somehow managed to fly from Prague to Montreal and drive to New York City, where he was placed under federal isolation. A border-patrol agent was fired for failing to detain the newlywed, who was later found to have a more treatable strain of TB than the CDC had believed.

#5. Who's Her Daddy?

After Anna Nicole Smith — the former Playboy Playmate of the Year and Guess-jeans model, perhaps best known for marrying a billionaire octogenarian — died in February of an accidental overdose, speculation intensified over who had fathered her baby daughter, Dannielynn, who stands to inherit big bucks if Smith's estate wins a decade-long battle over her late husband's fortune. Although Smith's attorney, Howard K. Stern, was listed as Dad on the birth certificate, several other men claimed to be the father. In April, after a media spectacle that included a judge weeping in court, DNA evidence confirmed that Smith's ex-boyfriend Larry Birkhead had sired the wee lass. Said the proud papa: "I told you so."

#6. The NBA's Dirty Ref

Blame it on his gambling addiction. Veteran NBA referee Tim Donaghy resigned in July just before word spread that the FBI was investigating him for betting on games — including some he officiated — during the past four years. In August, Donaghy admitted that since December 2006, he had been paid by gambling associates for correctly predicting which team would win a particular game. He also passed along such insider tips as which players were injured. NBA commissioner David Stern called the Donaghy affair "the worst situation" he had experienced in 40 years with the league. Donaghy pleaded guilty and could face up to 25 years in prison.

#7. NASA Love Triangle

It was definitely the diapers. When Lisa Nowak was arrested in Orlando in February and accused of trying to kidnap a fellow astronaut's girlfriend, police found a steel mallet, knife, latex gloves and rubber tubing in her car, but what vaulted her into the upper stratosphere of infamy was the diapers she reportedly told police she used to reduce the number of pit stops on her 900-mile drive from Houston. (She now denies wearing the diapers.) Nowak, who pleaded not guilty, was dismissed from the astronaut corps as was her former paramour. Her trial is ongoing.

#8. A Legacy of Steroids

For years Marion Jones denied taking performance-enhancing drugs and even went so far as to sue an accuser for defamation. But in October, the track superstar admitted she had lied about her steroid use to federal investigators, the same ones who a month later brought perjury charges against baseball's career home-run leader Barry Bonds. "I have betrayed your trust," Jones said at a press conference. "I have let my country down." She returned the five medals she won in Sydney to the International Olympic Committee, which nullified her results and asked her relay team members to return their medals as well.

#9. Dog in the Doghouse

The A&E network halted production of its hit reality show, Dog the Bounty Hunter, after star Duane "Dog" Chapman was caught repeatedly using a racial slur. According to Chapman's lawyer, Chapman's son sold The National Enquirer a recording of his father telling him to break up with his African-American girlfriend. "It's not because she's black," Chapman says on the tape. "It's because we use the word 'n-----' sometimes here, and I'm not going to take a chance ever in life of losing everything ... because" — and we'll paraphrase here — an African-American person heard us use the slur "and turned us in to the Enquirer." Oh, the irony!

#10. High School Nudity

Disney's High School Musical is a mega-hit among tweens and teens, so its star Vanessa Hudgens was in a bit of a pickle when a nude photo of her hit the Internet in September. In a statement, Hudgens said she felt "embarrassed over the situation" and that she "regrets having ever taken these photos." A Disney Channel spokesperson responded, in a separate statement, by saying, "We hope she's learned a valuable lesson." Despite speculation that the then-18-year-old singer would be dropped from future installments of the High School Musical movies, in November Hudgens said, "we're all on board" for High School Musical 3.


Source: TIME