Investing

The 24/7 Wall St. Fifty Least Trustworthy Companies in America

24/7 Wall St., working together with independent research firm Audit Integrity, has compiled a list of the companies with the least transparent governance and accounting practices. The list is based on publicly available information updated for the year ending 12/31/2009. Shares of all the companies on this list are publicly traded on U.S. stock exchanges. This list is based on the same methodology that is used to produce The 100 Most Trustworthy Companies, as published by Forbes.  In our opinion, the companies with the lowest transparency scores are the least trustworthy companies in America.

“Least Trustworthy” refers to companies that have accounting and governance practices that pose risks to the company – and as a result, to shareholders. These practices include whether financial results may be misrepresented in public disclosures. According to Audit Integrity, “Accounting and governance practices have been shown to be highly predictive of negative events such as SEC enforcement actions, class action shareholder litigation and severe stock loss.”

Audit Integrity’s analysis and models, covering all U.S. publicly traded companies, are designed to address the need for transparency in publicly filed documents. This goal is achieved by using objective and quantitative information to find potentially fraudulent activity. In the past decade, over 500,000 Audit Integrity Accounting and Governance Risk Rating Scores (AGR®) have been assigned to these companies in the fiscal quarters of this sample period.

To report which firms have the greatest shareholder risk, Audit Integrity’s methodology breaks companies down into four groups. The AGR scores range from 0 to 100, worst to best and are classified as follows:

  • Very Aggressive – highest-risk companies, comprising approximately 10% of the total universe;
  • Aggressive – high-risk companies, comprising approximately 25% of the total universe;
  • Average – moderate-risk companies, comprising approximately 50% of the total universe; and
  • Conservative – low-risk companies, comprising approximately 15% of the total universe.

Audit Integrity’s analysis has proved to be a highly accurate forecasting tool for corporate risk. It identified problems at Lehman Brothers, American International Group, Washington Mutual, and Huron Consulting. James Kaplan, Audit Integrity’s Chairman, says his research’s ability to detect risk with accuracy is because the analysis focuses on forensic data. “Companies that are obfuscating results or misleading investors use a number of strategies to achieve this. Those strategies may involve revenue manipulation, asset overvaluation, and/or capitalizing expenses,” Kaplan says. “We examine over 100 metrics in order to assess the level of transparency.”

The 24/7 Wall St. list focused on the lowest scores, which range from 1 to 5. These are the worst offenders in the “Very Aggressive” segment.

The list is in two segments, each composed of  25 companies. The first list covers firms with market caps over $1 billion. The second list covers companies with market caps between $1 billion and $200 million.

Based on the events of the last two years, it is not surprising that several large banks are on the list-Bank of America, Citigroup, Wells Fargo, and Goldman Sachs. There are also several companies in the drug and pharmaceuticals industry-Merck, Pfizer, and Warner Chilcott plc.

According to Kaplan, the ultimate value of the list is to avoid negative surprises that result in defaults, litigation and price drops.

The 25 Least Transparent Large-Caps

Company industry Market Cap ($Million) Current AGR Total Flagged Metrics Flagged Governance Metrics Flagged Accounting Metrics
Altria Group, Inc. Tobacco 43754.71118 1 13 5 8
Apollo Group, Inc. Personal Services 8413.578 3 10 6 4
Bank of America Corporation Banks 160426.8012 1 14 8 6
Carter’s, Inc. Retail – Apparel / Accessories 1795.229858 2 10 6 4
Chesapeake Energy Corporation Oil / Gas Exploration / Production 13675.68257 2 13 5 8
Citigroup Inc. Banks 108674.5475 1 14 8 6
Compuware Corporation Software 1812.452169 3 13 4 9
Fiserv, Inc. IT Services / Consulting 7238.303446 3 12 5 7
General Mills, Inc. Food Processing 23795.01904 3 11 4 7
Goldman Sachs Group, Inc. Investment Services 72389.60893 1 13 6 7
Hewlett-Packard Company Computer Hardware 109234.434 3 15 7 8
IAC/InterActiveCorp IT Services / Consulting 2381.835533 3 12 4 8
McCormick & Company, Incorporated Food Processing 4582.855938 3 11 3 8
Merck & Co., Inc. Pharmaceuticals – Diversified 99908.8019 1 15 8 7
Monsanto Company Chemicals – Agricultural 29978.39496 3 14 6 8
NuVasive, Inc. Medical Equipment / Supplies / Distribution 1586.552038 2 13 5 8
Pfizer Inc. Pharmaceuticals – Diversified 124218.4607 1 17 5 12
Plains Exploration & Production Company Oil / Gas Exploration / Production 3185.874 3 10 3 7
PulteGroup, Inc. Homebuilding 4147.28515 2 11 4 7
Steel Dynamics, Inc. Steel 3033.650923 1 12 3 9
Synutra International, Inc. Food Processing 1117.814759 3 12 3 9
Terex Corporation Construction / Agricultural Machinery 2302.266 2 13 7 6
Tutor Perini Corporation Engineering / Construction 1033.442287 3 11 4 7
Warner Chilcott Plc Pharmaceuticals – Diversified 5983.964461 1 13 3 10
Wells Fargo & Company Banks 156743.9659 1 18 6 12

The 25 Least Transparent Small-Caps

Company industry Market Cap ($Million) Current AGR Total Flagged Metrics Flagged Governance Metrics Flagged Accounting Metrics
Air Transport Services Group Inc. Air Freight / Courier Services 330.9962255 1 11 2 9
American Dairy, Inc. Food Processing 371.6199917 1 11 5 6
Belo Corp. Broadcasting 714.4019691 5 13 3 10
China Information Security Tech, Inc. Software 254.884472 2 13 4 9
China Security & Surveillance Tech. Inc. Business Support / Supplies 322.5254102 3 10 4 6
Clinical Data, Inc. Medical Equipment / Supplies / Distribution 395.58236 2 14 5 9
Dolan Media Company Business Support / Supplies 375.2157141 5 11 2 9
Flagstar Bancorp, Inc. Banks 673.8585187 3 10 4 6
FreightCar America, Inc. Construction / Agricultural Machinery 309.7734372 1 14 3 11
Headwaters Incorporated Construction – Supplies / Fixtures 246.0002953 5 11 3 8
Home System Group Appliances / Tools / Housewares 303.705747 2 10 2 8
Huron Consulting Group Business Support / Supplies 490.978877 3 10 4 6
Kaiser Aluminum Corp. Aluminum 681.741006 1 13 3 10
KapStone Paper and Packaging Corp. Paper Packaging 489.3886942 2 10 2 8
Kenexa Corporation Business Support / Supplies 307.7350061 5 10 2 8
Navios Maritime Holdings Inc. Marine Transportation 566.9998386 2 12 3 9
Rudolph Technologies, Inc. Semiconductor Equipment / Testing 265.398366 3 11 2 9
Sequenom, Inc. Advanced Medical Equipment 367.4584284 1 13 7 6
Skilled Healthcare Group, Inc. Healthcare Facilities 266.9151255 3 10 4 6
SkyWest, Inc. Airlines 832.889065 2 10 2 8
TeleCommunication Systems, Inc. IT Services / Consulting 263.5541645 3 14 4 10
United Online, Inc. Retail – Specialty 589.8948647 3 14 4 10
UTStarcom, Inc. Wireless Telecommunications Services 244.6132147 2 12 3 9
Wonder Auto Technology, Inc. Auto / Truck / Motorcycle Parts 266.8167527 1 15 4 11
Yongye International, Inc. Chemicals – Agricultural 322.4134248 1 10 3 7

Douglas A. McIntyre

Find a Qualified Financial Advisor (Sponsor)

Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.