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Archive for the ‘Fraud’ Category

Less than three months ago I started a free trial subscription to Netflix.  Since then I have continued paying a minimal monthly fee ($7.99) to continue the service.

Netflix streams video (TV shows and movies) to subscribers like myself.  There are hardly any new releases, yet there are many films that missed my notice when they first appeared as video rentals months or years ago.  Some of these are most definitely putrid.  But a few are both interesting and entertaining.

One such tiny little gem is a low budget (est. $60,000, IMDB) independent comedy film titled, Memron.  In style, it reminds me of The Office.   It is sarcastic, cynical, mocking, and unpredictable.  It is also funny in a guilty pleasure sort of way.

Memron takes aim at Enron with its crooked executives and clueless employees.  At the start of the film, a text announcement mentions the 60,000 employees who have lost their jobs.  Memron, surviving in name only, sponsors “Where is my parachute,” career seminars to help former employees who are now unemployed and destitute.  After hearing a suggestion that they should start a business, a small group dreams up AirFlow, a company that sells fresh natural air.  The air is captured in plastic garbage bags at a local park, resulting in one arrest for theft of a natural resource.

The new Memron CEO (who was ordered by the ex-CEO  to spy on the group) steals the idea.  Airflow then makes millions for Memron.  At film’s end, company stock has rebounded making former executives filthy rich.

Actor Michael McShane portrays ex-con, ex-CEO and perpetual fraudster Ken Clay.  It is McShane’s film and he does a fine job in the lead role.  He isn’t memorable for any prior role, but he really nails this part.  Nor are any of the other actors recognizable except for Claire Forlani (who appears in a small role) and Tim Bagley.

This film is worth a view.  You will find it at Amazon and on Netflix.

Debit and credit – – David Albrecht

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Cheating.  About 99.9% of humanity does it at one time or another. It’s common in education.  It’s common in business.  It’s common everywhere.

Accounting is one profession where honesty and integrity is part of the job description.  Yet, cheating exists.  A friend, former accountant and CFO Sam Antar, orchestrated much of the splashiest fraud of the 1980s at Crazy Eddie. Accountant cheating, as in financial statement manipulation, is pandemic.

In my surfing, I came across a website with this catchy banner:

Pic credit: WeTakeYourClass.com

WeTakeYourClass will take your on-line class and guarantee at least a grade of B.  It says it will get you an A 99% of the time. It specializes in taking math, business and sciences.  It specifically mentions accounting.

It is frustrating for me to know that while I spend my life trying to teach students to do the right thing, there are people trying to get them to do the wrong thing.

Pic credit: WeTakeYourClass.com

The site claims to get a student an A about 99% of the time, and it also claims to be risk free to the student. Are they being honest about cheating?

A comment to a similar story at Carpe Diem says, “I … found out that there are many sites that offer this service. One quotes a fee a low as $695 for grad level courses and only $430 for undergrad economics courses.”  Hey, that’s affordable.

If you are a student and are reading this, please don’t do it.

I prefer F2F classes where a student can look you in the eye while he/she cheats.  It’s more honest that way.

Thanks to Jim Ulvog for the tip.

Debit and credit – – David Albrecht


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According to an Associated Press story published in both the Chicago Tribune and Peoria Journal Star, a federal judge allowed a motion to sell some, but not all, of Rita Crundwell’s assets.  According to the AP story, the affected assets are four properties in Illinois, one property in Florida, and a $2.1 million motor home.  Her large horse ranch, Meri J, in Beloit, Wisconsin is not affected.  The horse ranch is being operated by federal marshals.

Quoting from the story:

Rita Crundwell has pleaded not guilty to a single count of wire fraud alleging she stole from the small northern Illinois city to pay for a lavish lifestyle and create one of the nation’s foremost horse-breeding operations.

Prosecutors allege that since 1990, the 58-year-old Crundwell stole more than $53 million from Dixon, where she oversaw public finances as the city comptroller since the 1980s. They say she diverted the money to an account she had set up for personal use and misled city officials.

Prosecutors say her scheme unraveled only when a co-worker filling in for Crundwell while she was on an extended vacation stumbled upon the secret bank account. Her arrest stunned tiny Dixon, a small city along a picturesque vein of the Mississippi River about a two-hour drive west of Chicago in Illinois farm country.

Photos of the luxury motor home were uploaded to the HorseForum.  I’m reposting them for readers who have never seen the interior of a motor home valued at $2.1 million.

(more…)

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Ligia Baciu

Sorry, I just can’t resist this one.  Several California news outlets are reporting that Ligia Baciu, 35, has been arrested on several charges related to her alleged fraudulent activities at Sweet Life Enterprises.  She is due to be arraigned today.  Allegedly, she stole over $230,000.

I can’t help but wonder if she ever mouthed Ralph Krambden’s line from The Honeymooners, “How sweet it is.”  I also wonder if James Taylor in similar circumstances might have sung, “How sweet it is to stealing from you.”

According to CBS Los Angeles,

Prosecutors allege she used the stolen money to buy an engagement ring, pay for fertility treatments [emphasis added], put a down payment on an Audi, as well as paying for car insurance, groceries and other goods at Costco, Deputy District Attorney Marc Labreche said.

CBS Los Angeles had this description after interviewing  Deputy DA Labreche and hearing his allegations:

Baciu, who was responsible for the company’s credit card accounts, allegedly began stealing from the company in February 2008, Labreche said.

She managed to conceal the theft by ordering bills from the credit card companies that she could manipulate to make it look like the expenses were from various other employees, Labreche alleged.

Baciu was laid off from her job in October 2009, but allegedly kept using the credit cards. Her replacement in accounting uncovered the alleged theft in January 2010, Labreche said.

Sweet Life Bakeries, with 251-500 employees, is a subsidiary of Fresh Start Bakeries.

Thanks to Going Concern for the tip.

Debit and credit – – David Albrecht


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Anton Valukas is a Chicago attorney who as alternated stints as a federal attorney with the Justice Department prosecuting white collar criminals, with a law practice defending white collar criminals.  He is well known for serving as court appointed bankruptcy examiner in the bankruptcy of Lehman Brothers.  After an 18 month investigation, his team published a nine volume, 2200 page report.

Valukas carefully documents how Lehman Brothers engaged in Repo 105 & 108 transactions to improve the appearance of the company’s liquidity on its balance sheets.  Valukas concludes that there are reasonable grounds for the government to purse litigation against Lehman Brothers executives.  The State of New York has already filed a civil fraud lawsuit against Ernst & Young for its part in what is alleged as accounting fraud.

On Sunday, April 22, 2012,  Steve Kroft interviewed Valukas on the popular CBS show, 60 Minutes. The following clip from the interview is a CBS teaser or advertisement for the show.

In the short clip, Valukas says the only reason for Lehman Brothers to engage in Repo 105 transactions was to impact the leverage numbers on the company’s balance sheet.

The entire 60 Minutes segment, “The Case Against Lehman Brothers,” can be viewed by clicking on the following link:

http://www.cbsnews.com/video/watch/?id=7406224n 

The transcript of the segment is available at the 60 Minutes site.

A key exchange between Kroft and Valukas is,

Steve Kroft: Did these quarterly reports represent to investors a fair, accurate picture of the company’s financial condition?

Anton Valukas: In our opinion, they did not.

Steve Kroft: And isn’t that against the law?

Anton Valukas: It certainly, in our opinion, was against civil law if you will. There were colorable claims that this was a fraud, yes.

By colorable claims Valukus means there is sufficient evidence for the Justice Department or the Securities and Exchange Commission to bring charges against top Lehman executives, including CEO Richard Fuld, for overseeing and certifying misleading financial statements, and against Lehman’s accountant, Ernst and Young, for failing to challenge Lehman’s numbers.

Anton Valukas: They’d fudged the numbers.

At the end of the segment, Kroft speculates that the reason the SEC has not filed any suits is because it does not have a winnable case, given that it had personnel on premise3s at Lehman, and these personnel were aware that Repo transactions were going on.  Valukis wonders if the personnel had the expertise to fully comprehend what was going on.

Debit and credit- – David Albrecht


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Al Lewis, Dow Jones Newswire columnist (Al’s Emporium) and blogger (Tell It to Al), poses an interesting notion to the Sunday edition of the online Wall Street Journal.  He says that the easiest way to understand Wall Street scandals and implosions is to attribute them to the work of psychopaths, or psychos   He might have a good idea.

Psychos on Wall Street”  is a good read, in part because Lewis shines the light on one of my favorite people, Sam Antar.  Sam’s cousin, Eddie Antar, had a company called Crazy Eddie’s.  Crazy Eddie’s sold electronics in the Northeast.  Eddie starred in some over-the-top televised commercials. Together, Sam and Eddie orchestrated a series of frauds, victimizing insurance companies, suppliers and eventually stockholders.  Their securities fraud was the largest of the 1980s.

Back to Sam in a minute.  First, a discussion of psychopathy.  A diagnosis of psychopathy is, as I understand it, more of a judgment call than a scientific test.  If a person exhibits a sufficient number of symptoms, then he/she can be diagnosed as a psychopath.  These symptoms include:  disregard for the rights of others, a total lack of empathy and remorse, selfishness, insensitivity, dishonesty, aggressiveness, impulsiveness, irresponsibility, and pleasure seeking.   A psychopath is not controlled by a sense of right or wrong, and frequently preys on fellow humans.

I’ve looked over several checklists used in psychopath identification, and I’m sure that I’ve worked with at least one psychopath in most places I’ve been employed as a professor.  In business, they frequently end up in charge.  This is not to say that every business boss is a psychopath, but probably a lot are.

Lewis cites Sherree DeCovny (a former investment broker) as saying that at least 10% of the professionals on Wall Street are psychopaths.  This is where my friend Sam Antar re-enters this story.

Lewis quotes Sam Antar as admitting he is a psychopath. And Sam Antar estimates that 80% of the professionals on Wall Street are psycho.  “It’s a bunch of crooks dealing with other crooks.”

I’ve had enough conversations with Sam to know that he probably was (and still is) a psychopath.  I’ll never forget his description of the mindset of someone committing fraud.  Other people are marks to be exploited.  Good people, he calls them, with a sense of right and wrong.  Having no such sense himself, when he was younger he had no qualms about stealing from them. Stealing from them was fun.  Sam viewed good people as deserving of being stolen from.

For some unknown reason, Sam says he respects me.  He thinks I have the visibility to warn other good people (and my students) to always remain vigilant of people like him. Being wary of others is the key to protecting yourself.  And once you spot a fraudster (aka psycho), do whatever is needed to eliminate the threat.

Yes, I think Wall Street is populated by psychopaths.  And like at the Bates hotel, there is always a vacancy for the next victim.

Debit and credit – – David Albrecht


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This tears me up, it absolutely rips me.   Ernst & Young lost extremely sensitive data while auditing Regions Bank (15th largsst). I consider this a significant data breach.

Unless you subscribe to the Birmingham News, you probably missed this.   Russell Hubbard reports on January 31, 2012, that, “Regions Says Employee 401k Data Lost When Auditor Ernst & Young Mailed Flash Drive and Code Key Together.”  Info Security Magazine provides additional information.

Ernst & Young mailed the data from one of its offices to another.  The envelope contained an encypted flash drive with employee personal identity and 401K data, and a sheet of paper containing the decryption key.  During transit the envelope was ripped open.  At the destination, the flash drive was gone, but the decryption key remained.

There are three documents that ProfAlbrecht is trying to obtain:  (1) letter from Ernst & Young to Regions Bank explaining the incident, (2) letter from Regions Bank to its to its employees explaining the incident, (3) letter from Ernst & Young to employees.

Hubbard reports that Ernst & Young regrets any inconvenience and concern that Regions employees might experience.   Both Hubbard and Info Security Magazine quote one of the Ernst & Young letters as saying, “… we deeply regret that this incident occurred,”

EY regrets that the incident’s consequences but not having caused the incident.  I strongly dislike such non-apologetic apologies.

Regions has a reputation for lock-down tight data security.  Unfortunately, Ernst & Young doesn’t.

I wonder if Ernst & Young will get fired over this incident.

I’ll report more on this in the future.

Debit and credit – – David

David Albrecht


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Michael Douglas, Academy Award winner and star of Wall Street and several other motion pictures, has answered the call to public service.  He is featured in a new FBI public service announcement video in which he calls on citizens to report securities fraud and insider trading.

 

Thank you very much, Michael Douglas.

Transcript of public service video:

Hello, I’m Michael Douglas. In the movie Wall Street I play Gordon Gekko, a greedy corporate executive who cheated to profit while innocent investors lost their savings.

The movie was fiction, but the problem is real.

Our economy is increasingly dependent on the success and the integrity of the financial markets. If a deal looks too good to be true, it probably is.

For more information on how you can identify securities fraud, or to report insider training, contact your local FBI office. Or submit a tip online at tips.fbi.gov.

Thank you.

Debit and credit – – David

Albrecht


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Inject a bit of information technology into everyday life, and you can increase productivity.  Inject it indiscriminately and there is a control problem.

A year ago, I wrote about the security problem associated with high tech photocopiers in, “A Control Problem.”  Today I’m writing about the RFID chip embedded in new credit cards and bank cards.

RFID is the acronym for radio frequency identification.  When radio waves of a specified frequency bounce off whatever contains an RFID chip, it returns information embedded on the chip (At least, I think that’s how it works).  It’s very useful for paying tax on tollroads, or for tracking items during shipment.

As reported by Bob Segal, credit card companies are now embedding RFID chips into traditional plastic credit cards.  When such a card is within range of a specialized RFID reader, it reads key data off the credit card, such as card holder name, card number, expiration date, and security code.  Such information can easily be used to create a duplicate credit card which in turn can be used practically anywhere by anybody.  Protection is available, if you take it.

David Fordham of JMU reminds there is protection in the form of special lined wallets and plastic credit card sleeves with embedded metal flaking.  New credit cards sent through the mail should contain such sleeves, but I don’t remember seeing one.

I never cease to be amazed at how well the media can exploit the Fear, Uncertainty and Doubt Factor (FUD) with the uninformed general public rather than straightforward information delivery. And how beautifully some fast-buck artists exploit the public’s fear.

This issue was widely publicized several years ago when the state department began issuing the RFID passports. The big question I have is: “Why is there anyone still around who doesn’t have the wallet with the foil built into it?” My neighbor across the street, who is a perennial Luddite, was all up in the air about this a few months ago, so I went over to Dollar General and got him one of the new wallets with the foil lining. For $2.98 plus tax. Sheesh.

My credit union has a stack of the RF-protection sleeves free for the taking sitting in a box by the door.

Still, the metal lining isn’t a perfect defense. Credit cards are at risk of having information being intercepted when removed from the protective wallet. A poacher could camp out near any check out kiosk and steal the information.

There’s a similar problem with the potential for pregnancies from sex. Some sort of barrier, like condoms, works effectively in preventing sperm from reaching the egg. However, failure to use a condom (happens all the time) can result in unwanted pregnancy. I think the same danger exists here. The metal sleeves can prevent identity theft, if only they are used.

Thanks to Bob Jensen of AECM for the alerting me to the danger, and to David Fordham for attempting to allay my fear.

Debit and credit – – David Albrecht


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I’m a social media guy–blogging, tweeting, connecting via LinkedIn, and updating through a Facebook page.  Social media usage has helped transform me into a better listener and a kinder, gentler speaker.  That’s enough proof for me to believe that social media makes a person more social (although reliable research findings collaborate this conclusion).

I’m not the only one hooked on social media.  Hundreds of millions are active on Facebook, and someday the number might reach one billion.  And why do so many people use various social media?  It’s because human beings are social creatures.  We tend to do things in families and groups.  We like interacting.

There are benefits to being social, such as companionship, friendship, love, respect, and sharing information.  There are costs, too.  Some are unskilled at being social and alienate instead of befriend.  And others reveal too much, too often.  Although loose lips get kissed, they also sink ships.

Businesses are flocking to social media, and using it for marketing, communication, employee education and image branding.  The primary reason is increased profit.  However, a downside is starting to emerge.

Enter corporate espionage, a thriving industry.  Have you seen the movie Duplicity?  Clive Owen plays Ray Koval, formerly of MI6, and Julia Roberts plays Claire Stenwick, formerly of the CIA.  They now work for corporate rivals who employ their own spy networks.

Far less interesting than Duplicity is Broker, Trader, Lawyer, Spy: The Secret World, by Eamon Javers.  Javers’ book is a history of the corporate espionage business, which really does exist.  From page one of BTLS:

There was no way for [KPMG accountant] Enright to know that Hamilton was not at all who he suggested he was.  He couldn’t know that several clandestine operatives were right now following him from his office at KPMG Financial Advisory Services to the restaurant, working in an efficient tag-team relay to ensure that Enright wouldn’t spot anything unusual. And Enright certainly didn’t notice that, among the crowd of well-dressed international business people and tourists dining at Little Venice, one woman watched as he took his seat.  She, too, was working for Hamilton, and she was there to make sure Enright didn’t have backup of his own.

Enright did not.  He was way out of his league.  The British-born was just like millions of mid-level white collar workers around the world.  What did he know about espionage? But his position as a senior manager in corporate recovery gave him access to documents for which a wealthy client might pay millions of dollars.  Might lie for.  Might steal, if necessary.  And that client hired the man who called himself Nick Hamilton.  Hamilton’s team was a mix of American CIA veterans, former officers of the British MI5 security service, and young, adventure-seeking American college graduates.

They were corporate spies.

Oh, to be young, athletic and good looking again.  I might enjoy a spate of adventure.

Corporate espionage represents a serious threat to business, in general, and accounting/auditing firms in particular.  Although economic espionage is illegal, it has spawned a thriving industry.  Moreover, it is just a step removed from outsider fraud aimed at small to medium sized business.  Linda Kotze, in “Corporate Espionage Highlighted in the Movie Duplicity,”  describes the scope of the problem,

Research from consulting firm PricewaterhouseCoopers, estimates that Corporate Espionage costs the world’s 1,000 largest companies in excess of US$45 billion  every year. Unfortunately, these surveys and estimates do not include the over 600,000 businesses in the US with more than 20 employees or the 98,000 companies with more than 100 employees.

Daniel J. Benny, a private investigator and security consultant has placed his PowerPoint presentation, “Corporate Espionage Countermeasures,” on-line.

Corporate espionage and corporate fraud from outsiders are serious threats.  Accounting/auditing firms are frequently targets of such espionage activities because of their access to inside corporate information.  That so  many businesses and employees are using social media just makes the job of spies that much easier.

Unpublished research reveals that both SMBEs and their accountants/auditors know next to nothing about combatting it.  Perhaps it is time they learned.

Debit and credit – – David Albrecht

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The Pittsburgh Post Gazette yesterday reported that former BDO Seidman partner George Mark, 51, was sentenced to probation and fined $30,000 for cheating on his taxes.  According to the paper, Mark claimed $90,000 in bogus travel expenses.

Mark’s crime came to light as a by-product of an investigation into a $37 million fraud at Le-Nature’s, a Pennsylvania company.  A conviction for bogus tax deductions is often called low-hanging fruit.

I’m guessing he was a suspect in the Le-Nature’s fraud, and so far they can only hang tax evasion on him.  It is natural to suspect him because if he would commit fraud for himself, it is reasonable to suspect that he would commit fraud for others if they paid him a lot of money.

Mark avoided jail time because of his record of charitable giving.  Baloney!  Fraudsters frequently make charitable donations, just in case they get caught.

Auditors, it is said, should be held to a higher standard because they serve the public interest and have a fiduciary responsibility.  Why does the profession attract so many who hold themselves to a lower standard?

In related news, on August 1, the PCAOB fined and banned former E&Y auditor for falsifying audit work papers.  From PCAOB Release No. 105-2011-005:

By this Order, the Public Company Accounting Oversight Board (“Board” or “PCAOB”) is (1) barring Peter C. O’Toole, CPA (“O’Toole” or “Respondent”) from being an associated person of a registered public accounting firm, and (2) imposing a civil money penalty in the amount of $50,000 against him.  The Board is imposing these sanctions on the basis of its findings concerning Respondent’s violations of PCAOB rules and auditing standards in connection with the improper creation, addition, and backdating of audit documentation prior to a Board inspection.

We need some sort of public humiliation for guys like these.

Debit and credit – – David Albrecht

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