Fraud Friday: The Room Where It Happens

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Today’s Fraud Friday has a theme: Public-Sector Shenanigans.

Given the subject, it seems most appropriate to quote the ol’ Ten Dollar Founding Father himself, A. Ham, from The Works of Alexander Hamilton, (Federal Edition), vol. 3 [1791]: Hamilton was nothing if not verbose, and the prose here is, let’s be honest, very purple. But damn if he doesn’t nail the human condition:

“With some men the hardest thing to forgive is the demonstration of their errors,—the manifestation that they are not infallible. Mortified vanity is one of the most corroding emotions of the human mind; one of the most unextinguishable sources of animosity and hatred.

It was equally to have been foreseen, that personal disappointments would be likely to alienate from the government some individuals who had at first advocated its adoption, perhaps from motives not the most patriotic or commendable; that personal rivalships and competitions would throw others into an opposition to its measures, without much regard to their intrinsic merits or demerits; and that a third class would embrace the path of opposition as the supposed road to popularity and preferment, raising upon every colorable pretext the cry of danger to liberty, and endeavoring to disseminate among the people false terrors and ill-grounded alarms.

Phenomena like these have deformed the political horizon, and testify the depravity of mankind, in all countries and at all times.

It was likewise to have been expected that among the well-meaning friends of the government, there would be a part, competent to the proper management of the affairs of the Union, who, sensible from experience of the insufficiency of the former system, gave their assent to the substitute offered to their choice, rather from general impressions of the necessity of a change, than from an accurate view of the necessary compass of the authorities which ought to constitute it.

When they came to witness the exercise of those authorities upon a scale more comprehensive than they had contemplated, and to hear the incendiary comments of those who will ever be on the watch for pretexts to brand the proceedings of the government with imputations of usurpation and tyranny, and the factious and indiscreet clamors of those who, in and out of the Legislature, with too much levity, torture the Constitution into objections to measures which they deem inexpedient;—it was to have been expected, I say, that some such men might be carried away by transient anxieties and apprehensions, and might for a moment add weight to an opposition which could not fail to grow out of other causes, and the real objects of which they would abhor.

There is yet another class of men, who, in all the stages of our republican system, either from desperate circumstances, or irregular ambition, or a mixture of both, will labor incessantly to keep the government in a troubled and unsettled state, to sow disquietudes in the minds of the people, and to promote confusion and change. Every republic at all times has its Catilines and its Cæsars.

Men of this stamp, while in their hearts they scoff at the principles of liberty, while in their real characters they are arbitrary, persecuting, and intolerant, are in all their harangues and professions the most zealous; nay, if they are to be believed, the only friends to liberty. Mercenary and corrupt themselves, they are continually making a parade of their purity and disinterestedness, and heaping upon others charges of peculation and corruption. Extravagant and dissipated in their own affairs, they are always prating about public economy, and railing at the government for its pretended profusion. Conscious that as long as the confidence of the people shall be maintained in their tried and faithful servants, in men of real integrity and patriotism, their ambitious projects can never succeed, they leave no artifice unessayed, they spare no pains to destroy that confidence, and blacken the characters that stand in their way.

Convinced that as long as order and system in the public affairs can be maintained, their schemes can never be realized, they are constantly representing the means of that order and system as chains forged for the people. Themselves the only plotters and conspirators, they are for ever spreading tales of plots and conspiracies; always talking of the republican cause, and meaning nothing but the cause of themselves and their party; virtue and liberty constantly on their lips, fraud, usurpation, and tyranny in their hearts.

Couldn’t have said it better myself, Ham-bone. Food for thought. Now, let’s get on with the show!


Israeli Prime Minister Benjamin Netanyahu indicted on charges of bribery, fraud, breach of trust (Washington Post)

“JERUSALEM — Prime Minister Benjamin Netanyahu was formally charged with bribery, fraud and breach of trust on Thursday, making him the first Israeli premier to be indicted while in office and sending Israel’s already stalemated political system into further disarray.

Israeli Attorney General Avichai Mandelblit capped almost three years of investigation and months of speculation by issuing a 63-page indictment against the country’s longest-serving prime minister and its center of political gravity for the last decade.

The cases against Netanyahu center on allegations that the prime minister and his wife, Sara, accepted more than $260,000 worth of luxury goods in exchange for political favors and that Netanyahu interceded with regulators and lawmakers on behalf of two media companies in exchange for positive news stories.

Netanyahu, 70, has steadfastly denied wrongdoing during a wide-ranging probe that he has dismissed as a politically motivated ‘witch hunt.'”

Hmmmm…That last sentence sounds…familiar.


Former Baltimore Mayor Pleads Guilty to Fraud and Tax Evasion Charges (CBS News)

Former Baltimore Mayor Catherine Pugh pleaded guilty Thursday to four charges of federal conspiracy and tax evasion in the ‘Healthy Holly’ book scandal. In the 11-count indictment unsealed Wednesday, prosecutors said Pugh defrauded purchasers of her self-published ‘Healthy Holly’ children’s book series and used the money to fund her mayoral campaign.

Pugh, 69, pleaded not guilty to seven other charges involving wire fraud. 

In court on Thursday, Hugh showed little emotion as she admitted to taking $100,000 from a connected businessman under the guise of ‘Healthy Holly’ payments to buy herself a bigger house for entertaining once she became mayor, CBS Baltimore reported.  She also admitted to funneling ‘Healthy Holly’ money to her campaign out of fear she’d appear desperate if the public learned she was giving so much money to her campaign.

Pugh faces 35 years in prison. She is set to be sentenced in February. 

U.S. Attorney Robert Hur said Pugh’s guilty plea shows she betrayed the trust placed in her by the public.

Well, Mayor Pugh will have plenty of time to get healthy in the fedeal pen, it would appear…


Mayor of Muncie, Indiana, indicted for allegedly accepting $5,000 bribe (CNN)

“Dennis Tyler, the Democratic mayor of Muncie, Indiana, was indicted Monday on a charge of accepting a $5,000 bribe, according to the US Attorney’s Office.
Tyler accepted the bribe in exchange for awarding contracts to a company from Gaston, Indiana, that performs demolition, excavation and construction projects for Muncie, according to the indictment. The mayor faces up to 10 years in federal prison if convicted.
‘Tyler not only betrayed the trust of his community, but violated federal law, and all in an effort to serve his own personal interests,’ said Josh J. Minkler, acting US attorney for the Southern District of Indiana.
Authorities arrested Tyler, 76, at his home Monday morning, according to the FBI.
He is currently in FBI custody, according to Chris Bavender, spokeswoman with the FBI in Indianapolis. Tyler made a court appearance Monday afternoon in a federal courtroom in Indiana, a US Attorney’s office news release said.
CNN has reached out to Tyler’s attorney, but has not heard back.
Tyler’s arrest is part of a ‘multi-year and on-going investigation’ by the FBI and Internal Revenue Service looking into the payment of kickbacks in exchange for public works projects and other corruption-related matters in Muncie, the release said.”

$5K? That’s all this dude could shake down out of a crooked contractor? It’s a sad day in Whoville when people are willing to go to prison for a bribe that won’t even buy a decent Hawaian vacation or pay off a season’s worth of football bookie debt…

Alright, until next time. Have a great Thanksgiving and don’t get trampled on Black Friday!

Malfeasance Monday – Under Armour Gets Probed, WeWork CEO Gets Away With It, and Ex-CEO of Woodbridge Gets 25 Years in the Pen.

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Have I got a deal for you on some synthetic fabric underwear and a million square feet of new-age office space!

Happy Monday, fellow fraud-connoisseurs! Much like the falling leaves of Autumn, the waning year brings us no shortage of falling stock prices, falling investment valuations, and C-suite executives taking falls. Let’s dive right in…


Under Armour faces federal investigation over its accounting practices (CNBC)

Under Armour is the subject of federal investigations by the Justice Department and Securities and Exchange Commission over its accounting practices, the company confirmed Sunday. 

Under Armour began responding in July 2017 to requests for documents and information related to its accounting practices and related disclosures. Under Armour is cooperating with both investigations and believes its accounting practices and disclosures were appropriate, a company spokesperson said. 

The Justice Department is conducting a criminal investigation and is coordinating with civil investigators at the SEC, according to The Wall Street Journal, which first reported the story. The SEC declined to comment. The Justice Department did not immediately respond to requests for comment.

Under Armour has struggled on its home turf as of late in the face of stiff competition from Nike, Adidas and Lululemon. Its sales in North America dropped 2% in 2018 to $3.7 billion. Analysts say the retailers’ “performance” focused gear, like sweat-proof shirts, does not resonate with as many shoppers. 

Under Armour has also faced turmoil in its executive ranks. The company went through three CFOs in the period between 2016-2017 and is currently in the midst of a transition in its management.

CEO and founder Kevin Plank plans to step down from the top job on Jan. 1, and will be replaced by COO Patrik Frisk. Plank plans to stay on at the company as executive chairman and brand chief.

Plank said the change was part of the company’s succession planning.

There has also been public controversy over Under Armour’s work culture. Employees reportedly charged visits to strip clubs on their corporate cards to win over athletes. Under Armour ended the practice and Plank promised to build a “diverse” and “inclusive” environment at the company in the wake of the controversy.  

The company’s stock closed up 2.37% at $21.41 Friday. Under Armour’s stock is down nearly 11% over the past 12 months.

https://www.cnbc.com/2019/11/03/under-armour-is-the-subject-of-a-federal-accounting-probe-wsj-reports.html


Too White To Catch: NYU Professor Says WeWork Is Like Theranos Fraud (The Mogouldon Nation)

One of our favorite reads is NYU Marketing Professor Scott Galloway’s Blog No Mercy/No Malice. If all Prof. Galloway had ever accomplished was coining the business term “Yogababble,” That would have been enough in my book to elect him to the business-blogger Hall of Fame (if such a thing existed. Get on it, WordPress!). However, he’s done much more than that. Back in August, he called the WeWork debacle before it all came crashing down. He also rightly identified it for what it was – a scam, specifically a scam perpetrated by founder Adam Neumann. Galloway predicted that Neumann would bail when the house of cards he had built started to collapse, and would take an ungodly sum of cash with him when he left, essentially leaving investors and employees holding the bag.

Now, Isheka N. Harrison has expanded on Prof. Galloway’s thesis, and made the case for why Neumann will very likely get away absolutely scot-free. It’s hard to argue against the benefits of Upper Middle Class Pseudo Hippie Sociopath White Privilege when confronted with the We Work story. It’s a crazy one, and worth diving into!

https://www.profgalloway.com/wewtf

https://moguldom.com/229869/too-white-to-catch-nyu-professor-says-wework-is-like-theranos-fraud/


Is There a Wine Cellar in Federal Prison? Former Woodbridge Group CEO gets 25 years in $1.3-billion fraud (San Diego Union-Tribune)

Robert Shapiro, the former chief executive of Woodbridge Group of Cos., received the maximum sentence of 25 years in prison for running a $1.3-billion fraud that caused more than 7,000 retirees and other investors to lose money.

Shapiro, 61, of Sherman Oaks, promised returns as high as 10% from investments in loans to property developers. Instead, he used money from new investors to repay earlier ones and used $36 million to buy luxury homes, wines, paintings and custom jewelry for his wife.

U.S. District Judge Cecilia Altonaga in Miami sentenced Shapiro on Tuesday, giving him twice the amount of prison time suggested by his lawyers, according to court records.

Shapiro’s team argued that he’s in poor health and that the 25-year term recommended by prosecutors is harsher than the sentence he would probably have gotten for armed bank robbery, hijacking an airplane, sexual abuse of a child or even murder.

Prosecutors said Shapiro moved money through a network of 270 limited liability companies that he controlled. Investors lost $450 million, according to the government.

The scam ran from July 2012 until December 2017, when Woodbridge filed for Chapter 11 bankruptcy protection.

Shapiro pleaded guilty to conspiracy and tax evasion in August. In November 2018, he agreed to pay $120 million to resolve related civil claims by the U.S. Securities and Exchange Commission. Two alleged co-conspirators are scheduled for trial in June.

Prosecutors said Shapiro used investor money for his $6.7-million home and $3.1 million for chartering planes and personal travel. He agreed to forfeit artworks by Pablo Picasso, Alberto Giacometti, Marc Chagall and Pierre-Auguste Renoir; 603 bottles of wine; numerous pieces of luxury jewelry; and a 1969 Mercury convertible.”

https://www.sandiegouniontribune.com/business/story/2019-10-16/former-woodbridge-group-ceo-gets-25-years-in-1-3-billion-fraud


See you on Whistleblower Wednesday!

Fraud Friday – To Steal & Protect: One of the Craziest Public Embezzlement Cases in History


Usually, embezzlement cases in public agencies are, if not boring, at the very least extremely predictable:

  • Municipality/Agency/Authority X finds out that Trusted Longtime Employee Y has been running a fake vendor scam for several years, and has stolen $Z.Z million dollars in order to satisfy their addiction to Indian casino slot machines and flowery Vera Bradley purses.
  • Everyone is “shocked. shocked I tell you” that Y is a con-artist. Why, she went to church every Sunday and fed the local stray cats, and she used to always bring in her famous turducken/donut sandwiches for the employee holiday potluck! A person such as this COULDN’T POSSIBLY be a (whispered) criminal. I mean, she’s not even a black guy for chrissake!
  • The Mayor/City Council/Board of Trustees of said public entity shits bricks in private, then professes to have known nothing in public, having been hoodwinked by a Master Criminal and kept in the dark by the career managers.
  • The media creates a temporary firestorm of publicity, whipping up the locals into a state of understandable rage. Then, as quickly as they appeared, the Nancy Grace’s of the world are off to the next Pretty White Girl Kidnapping or heartwarming animal story
  • Staff who aren’t fired or indicted are left to figure out what the hell happened and how to continue to do the business of the agency with little or no executive management, reduced budgets, and sky-high stress levels
  • The perp tearfully confesses to the judge at her sentencing hearing, insisting that “she just doesn’t know what got into her,” and blaming her financial transgressions on the death of her labradoodle ten years ago. The judge, while moved by this vacuous display of self-interested apologia, realizes he can’t just let this perp walk free, because he’s been handing out 25-to-life sentences to the poor and the unconnected like traffic tickets to the locals in Ferguson, Missouri, so he gives her eighteen months in County and a “strong admonishment” not to do it again.
  • Perp does her time quietly, and then, once paroled, seems to spend an awful lot of time in her flower garden, digging up something that appears to have been buried there.
  • Lather, rinse, repeat. The names, places, and amounts change, but it’s always some variation of that timeline.

Not in this story, though. This shit is NUTS. It’s got it all: Embezzlement, money laundering, perjury, wire fraud, bank fraud, insurance fraud, suicide, document fabrication, death threats, the entire county executive team getting indicted by a grand jusry, and so much more. Seems like sleepy little Front Royal, Virginia was more less like Mayberry (per the story), and more like Twin Peaks. From the WaPo:

FRONT ROYAL, Va. — Before the $21 million allegedly went missing, before the sheriff put his gun in his mouth and fired, before Tuesday’s announcement that the entire top tier of the Warren County government had been indicted, there was the dream.

It was a dream of renewal for this town 70 miles from Washington, which fell on hard times after a rayon manufacturing plant closed in 1989, leaving 1,300 people jobless and 440 acres full of toxic waste… 

Twenty-five years later, with the land cleaned up and Front Royal increasingly attractive to tourists and former city dwellers, officials announced plans for a data center and retail complex that would bring 600 jobs and act as a catalyst for other projects.

The deal was brokered by Jennifer McDonald, a longtime Front Royal resident who directed the Warren County economic development authority. Washington-area developer Truc “Curt” Tran pledged to finance it with $40 million from wealthy immigrant investors and a $140 million federal contract his technology company had secured. As an added bonus, Tran would fund a police training academy overseen by longtime Sheriff Daniel T. McEathron.

But those were lies, documents in Warren County Circuit Court allege.

Tran never had the money to build the data center project on the 30 acres his company bought from McDonald’s agency for $1, a civil lawsuit alleges. And the training academy was one of several hoaxes that, prosecutors and civil lawsuits claim, allowed Tran, McDonald, McEathron and others to siphon away millions in public funds, which they allegedly used to buy properties, pay bills and gambling debts, and enrich relatives and friends.

Now McEathron is dead, Tran is being sued by the economic development authority and there are state and federal investigations underway. McDonald faces 28 state counts of embezzlement, money laundering and obtaining money through false pretenses. She has denied the allegations and did not return interview requests, while Tran declined to comment through his attorney.

The claims against them, industry groups say,reflect the perils of weak oversight in economic development agencies — quasi-public entities that oversee large, complicated transactions, and whose boards often lack the financial savvy and investor scrutiny that protect their corporate counterparts.In Montgomery County, Md., an economic development official pleaded guilty this year to embezzling $6.7 million. The head of economic development in St. Louis pleaded guilty to steering lucrative contracts to the county executive’s political donors. In New Jersey, a grand jury is investigating how $500 million in tax incentives went to firms that, in part, allegedly lied on their applications.

“The lessons here are that there’s a need for better financial accountability,” said Jeff Finkle, head of the nonprofit International Economic Development Council. “People beyond one person who is managing a project where the temptation may be too great.”

On Tuesday, the Virginia State Police announced that 14 current and former local officials — including all five county supervisors — were charged with misdemeanor misfeasance and nonfeasance “based on the individuals’ knowledge of and inaction [regarding] the EDA’s mismanagement of funds.”

Read the full, insane story here

Here’s another account from the Northern Virginia Daily, a local newspaper that’s done a lot of investigative work on the story as well.

Then there’s the Mad Mother, a Facebook page that has become a repository of news about the case, run by a Front Royal local who is, well, mad as Hell. Apparently, there’s been a proverbial GOBN (Good Ole’ Boy Network) in picturesque Warren County for many decades. I can’t say the info posted on her site is verified journalism, but it sure makes for interesting reading…

At the end of it all, one can only reach the same conclusions that are always there in these cases: Where was the oversight? The internal controls? Why wasn’t this caught sooner? What will it take for people to learn that when the opportunity for fraud exists, there WILL be (not MAY be) people who steal. As the anonymous quote states: “The lesson will be repeated until it is learned.”

Whistleblower Wednesday – Inspector’s General & Defending the Rule of Law in our Republic

Welcome to a new (semi)regular series – Whistleblower Wednesday. I can hardly think of a better day to kick this one off. Truth is stranger than, well, any episode of The West Wing ever aired.

If there is a single non-political takeaway that is relevant to the audit/investigation community from the past few days, it’s that many, many, MANY people have no idea how the concept of whistleblowing and independent public investigative functions are supposed to work.

Rather than a long-winded exposition from me on the philosophical concepts of morality/ethics/freewill and the duty individuals have to protect organizational integrity, I’ll just share a link to one of my favorite websites, www.oversight.org, managed by the association of Inspectors General. COGIE have produced an outstanding free informational publication, Whistleblowing Works: How Inspectors General Respond to and Protect Whistleblowers that lays out all the basic principles. If you’re not familiar with it, I highly suggest downloading it and giving it a thorough review. If you ARE familiar with this world, but get frustrated trying to explain it to non-audit/investigative professionals, point them to this document.

Regardless of how this whole mess plays out politically, it’s clear that, once again, auditors and investigators are being called to defend the rule of law upon which our republic is based. Without that, we are just a kleptocracy on a long, slow, painful decline.

Tax Evasion Tuesday – Sackler Family Wires a BILLION dollars in Opioid Blood Money Offshore Prior to Bankruptcy Declaration

Outrage Fatigue. It’s a thing, people. I don’t know about you, but I feel like the past few years have been one non-stop freakshow parade of horrors. If you’re a semi-sentient being, there’s no need for me to list them all, and I’m sure you’ve got your own personal hit parade of disturbing, enraging idiocy that you mentally project onto your bedroom ceiling each night before the Xanax/Ambien/Kava Kava takes hold and drags you down into the slumbery depths. I’ve got three words that are quite enough for me: Children in cages.

However, I’d like to think that I possess enough residual humanity to still be startled into a “WTF?” moment now and then. Today was one of those moments. From FoxBusiness:

Purdue Pharma’s Sackler family wired billions through Swiss bank accounts: Report

“The Sackler family, which owns embattled OxyContin maker Purdue Pharma, may have gone to great lengths to shield their profits and fortune from litigators.

The New York attorney general’s office on Friday said the family made about $1 billion in wire transfers through Swiss bank accounts, as reported by The New York Times.

A spokesperson for the company declined to comment.

The Purdue family was paid more than $4 billion from Purdue Pharma over the course of about a decade.

According to Forbes, the family is worth an estimated $13 billion.

As reported by The Associated Press last week, the Sacklers shielded much of that wealth in “an intricate web of companies and trusts,” some registered in offshore tax havens like Bermuda.

New York has issued subpoenas to 33 investment advisers and banks to get more information on funds transferred out of Purdue.

Earlier this week, there was a tentative settlement announced for the part Purdue Pharma played in the national opioid crisis – which would require the company to file for structured bankruptcy and pay $12 billion – including about $3 billion from the Sackler family.

The family would also have to give up ownership of the company and sell another one of its pharmaceutical companies – Mundipharma.

Not everyone is satisfied with the terms, however.

When there is a bankruptcy filing, often all other litigation is halted. It is unclear whether a settlement would shield the family, however.

New York Attorney General Letitia James said in a statement on Wednesday that the company continued to “lowball the millions of victims of the opioid crisis,” adding that she would “continue to seek justice for victims.”

Sixteen states have sued family members by name.

The Sacklers paid $75 million as part of a $270 million settlement with the state of Oklahoma earlier this year.

Opioid addiction has resulted in hundreds of thousands of American fatalities.”

 

Outrageous doesn’t BEGIN to cover the depth and breadth of the “alleged” actions of the Sackler family and their army of paid enablers – the shadow inhabitants of the global underground finance infrastructure. It would be most interesting to find out the current locations of the transferred funds. Someone should get on that.

If the Sacklers were your garden-variety members of the kleptocratic elite, these revelations would hardly raise an eyebrow anymore. OF COURSE weasely billionaires are going to use any means at their disposal to avoid giving up even a nickel to the jurisdictions whose populations they’ve fleeced. It’s kind of built into the Late Stage Capitalism model.

In this particular instance, however, it’s appears that the Sacklers and their front corporation, Purdue Pharma, have stepped over the invisible line that even the present administration realizes exists. The public has a really difficult time understanding how mortgage securitization blew up the global financial system a decade ago, but even the slowest among us get how a drug dealer operates, and we’ve all seen, directly or indirectly, to paraphrase Neil Young, The Needle and the Damage Done.

The hubris is staggering. A family already worth an estimated $13 billion goes to enormous lengths, breaking all sorts of laws, to hide a billion dollars beyond the reach of virtually anyone, international law enforcement authorities included. Think about that: They were willing to brazenly wire unfathomable sums of money via the SWIFT interbank transfer system, knowing full well that U.S. authorities would receive SAR reports on the transfers, and literally NOT GIVING A SHIT and doing it anyway. The only logical explanation: They figured they would get away with it. That they were, quite literally, above the law. This would be bad enough if the transferred money was earned ‘honestly,’ through corporate M&A or selling shares in one of their companies. But this cash is the very definition of Blood Money. Each dollar in that fortune represents human suffering, and the Sacklers know it, and simply do not care.

I desperately hope the Southern District of New York can get individual indictments and eventual convictions on these despicable weasels, but I won’t hold my breath.

Thoughts? Questions? Comments? email me at jdmcdaid@gmail.com, or follow me on Twitter @JustinMcDaid, Facebook, or LinkedIn.

 

Fraud Friday: “Inception” Bank Fraud, Cryptocurrency Vanishes, College Admissions Fraud

Greetings from the hazy heat of Summer here in the American Middle West. While it came late after a very wet Spring, it’s finally arrived in all its ridiculously humid glory. Fireflies are cool, though…anyway, one thing that never took a break was fraud, so here we go…


Bank manager hid employee’s fraud to hide his own $500,000 fraud, police say

A senior manager at the Commonwealth Bank, who stole almost half a million dollars, failed to report a member of his team for fraudulently transferring an alleged $64,000 to her personal account, lest his own fraud be discovered, police allege.

Lee Zaragoza, a self-described ‘results driven’ senior manager in the bank’s payment operations unit, is accused of funding a gambling habit by redirecting $463,240 from the bank into his own personal account between 2013 and 2018.” – Sydney Morning Herald

I love it – “results driven.” Yeah, the only result from you being a first-class asshole, Mr. Zaragoza, is that YOU’RE now going to jail, along with your fellow embezzling senior manager. It’s like the movie “Inception,” where everything is a crazily-related M.C. Escher-esque house of mirrors. This kind of situation actually happens more than one might think, particularly in organizations without a strong sense of ethics or a poor or dishonest managerial culture.


Where’d Your Bitcoin Go, Bro?

Losses from the theft of cryptocurrencies from exchanges and fraud-related activities surged in the first quarter of the year to $1.2 billion, or 70 percent of the level for all of 2018, cybersecurity firm CipherTrace said on Tuesday.” – Reuters

Shocking – shocking, I tell you: A bunch of criminal hackers invent a virtual form of money, and then use their superior technical skills to use that invention as an efficient method for separating the stupid from their cash.

Two years ago, I was getting yelled at online for being skeptical about the Bitcoin Bubble. Anyone who questioned the safety and security of blockchain-based cryptocurrencies was shouted down and branded a Luddite, and those without a blind self-interest in profiting from a bunch of suckers got badgered into silence. Well, the separation of idiots from their funds appears to be continuing apace…


Long before college admissions scandal, universities saw signs of fraud on campus

More than a year before the college admissions scandal investigation began, Georgetown University “discovered irregularities” in the athletic credentials of two tennis recruits, initiated a secret investigation and eventually forced coach Gordon Ernst to resign, court records show. University officials say those two athletic recruits were denied admission.

But none of Ernst’s conduct would become public until he was arrested in March on charges he accepted $2.7 million in bribes between 2012 and 2018. He has pleaded not guilty to racketeering conspiracy.” – LA Times

Once again, I’m surprised that anyone was surprised by this scandal. It’s been clear for several decades to anyone willing to see and hear that these sorts of schemes have been going on for a long time. Well, hopefully someone will have plenty of time on their hands to “get educated” about the issues from inside a correctional institution.

That’s all for now. Have a great weekend, and be on the lookout for some exciting format and layout changes arriving soon!

FRAUD FRIDAY: SCOTUS Gives the SEC its Groove Back, Crypto-fraud Arrest, Sleeping on the (State) Job

Apologies for my extended absence from the proverbial blogosphere. It was a combination of circumstances, none of which would be particularly interesting to anybody, so we’ll just say I’m glad to be back amongst the digital proles, where I belong. Lots going on in the World of Fraud, so let’s get after it…


Supreme Court Widens Scope for Fraud Claims

Last week, the Supreme Court ruled in favor of the Security and Exchange Commission’s (SEC) growing sentiment to expand the horizons of rules that dictate who may be held liable for fraudulent activity.

The opinion was a conclusion of the court’s investigation of the Lorenzo v. SEC case, where the agency argued that the defendant, Francis Lorenzo, is liable for disseminating a note falsely claiming to investors that a prospective company’s assets are worth more than $10 million, while being aware that they were in fact worth under $400,0000.

The SEC has been on a years-long losing streak, essentially getting its butt handed to it every time it enters an appelate or higher courtoom. Things have gotten so bad that some journalists are concluding, rather convincingly, that we essentially no longer prosecute white collar crimeChief Investment Officer Online

The Lorenzo case is a much-needed win and morale booster for the SEC folk. It’s no fun losing all the time – just ask the Cleveland Browns or the Baltimore Orioles!


Shady Characters Arrested for Running Cryptocurrency Pyramid Scheme. Also, Water is Wet

Cryptocurrency scams are nothing new, but they’re rarely as large as this. US law enforcement has arrested Konstantin Ignatov over a fraud charge relating to OneCoin, the cryptocurrency he helped found. Ignatov, his sister Ruja Ignatova (also charged, but hiding) and others allegedly orchestrated a “multibillion-dollar pyramid scheme” where people received commissions for persuading people to buy OneCoin packages that themselves were junk. OneCoin reportedly rigged prices, sold people non-existent coins and didn’t even have a true blockchain to manage the currency.”  Engadget

Gee, who could’ve thought that this wasn’t legit? It’s got all the signs of a transparent, cleanly-owned-and-operated Eastern European mega-grift pyramid scheme. These guys DIDN’T EVEN HAVE A BLOCKCHAIN. They were basically just updating the age-old game of trying to not be the last person holding the (empty) bag. The more I learn about cryptocurrentices, the less like legit alternatives to “fiat” currencies they seem. It’s the 2019 version of the Nigerian 419 scam, and I have to ask myself essentially the same question: WHO in their right mind gets a call from a sketchy international phone number or a pitch email from some weird domain like @Theft.Biz and says “Sure. This sounds fantastic, give me a few days to make an early withdrawl from my Roth account & I’ll wire the money to you there at the Bank of Eastern Vampiristan. What could POSSIBLY go wrong?”


Ahhh, Memories: Investigations of Improper Activities by State Agencies and Employees

My first audit shop was the California State Auditor, under the superlative leadership of the legendary Elaine Howle. After a couple of years of stumbling around as a baby auditor and managing not to get fired, I was lucky enough to be selected for the Investigations Unit, which turned out to be one of the best professional moves that could have happened to me. I learned so much from the seasoned pros in the I-Unit, had a ton of fun, and helped the state identify, save, and recover a not insignificant amount of dough. While the I-Unit answers well over 5,000 calls and emails per year, much of the unit’s activity is summarized in a twice-yearly summary report, always titled as some close variation of the title above. There’s so much more that goes on that the public knows nothing about, and even when the results of investigations and audits are made public, there’s always a ton of allegations that are probably true, but are left on the editing room floor because, you know, ALIENS made me fall asleep at work for several years. Really. They even killed my hamster and “arranged it in in a sacrificial manner on my living room carpet.” (absolutely true story, I swear)

Anyhow, the CSA just released the latest I-summary, and as always, it’s entertaining reading:

“California state employers cost the state tens of thousands of dollars in wasted funds by leaving work early, misusing leave time and in one case literally sleeping on the job.
That’s the finding of a new report from California State Auditor Elaine Howle, which examined more than 800 whistleblower complaints between July and December of 2018.The auditor found that 30 employees, in eight departments, cost the state an estimated $150,000 in taxpayer money.” Sacramento Bee

That’s all for now, kids. Keep on fighting the good fight!

 

Turkey Tuesday Fraud Roundup, a Cornucopia of Misdeeds and Malfeasance

Greetings, Gentle Readers!

As many of you know, we normally post on Fraud Fridays. However, because many of you will be busy this upcoming Friday (despite your urges, please don’t punch that 75-year-old woman who grabbed the last inflatable Baby Jesus right out of your hands at the Big Box store – there will be plenty more blow-up nativity scenes imported from China, I promise), and Wednesday is Dante’s previously unnamed Tenth Circle of Hell, aka Travel Day, that it might be more convenient to post today.

Enjoy stuffing your face, watching football, visiting relatives, & don’t forget to remind your racist uncle that Thanksgiving is a lie.  That should make for fun conversation ’round the family holiday table!


  1.   Ghosn, Ghosn, Gone: Nissan Exec Arrested Over Financial Misconduct

    You know it’s bad when they *arrest* the Big Guy at a politically-connected multi-billion global corp. – CNN Business
  2. New, Improved 1MDB Scandal – Now With More Vampire Squid: The 1MDB Scandal Moves Apace

    So, Goldman Sachs helped Former Malaysian Prime Minister Hajib Razak steal and launder hundreds of millions, if not billions of dollars? I’m shocked, shocked I tell you! ACFE Insights Blog

  3. A Few Billion Shekels Here, A Few Billion Shekels There, & Pretty Soon, We’re Talking About Real Money: Israeli Police Say Minister Should Be Charged With Fraud

    Police spokesman Micky Rosenfeld said there is an ‘evidentiary basis’ that Aryeh Deri committed fraud and breach of trust, as well as millions of shekels in tax offenses and money laundering, and the disruption of court proceedings.

    Police have questioned Deri and his wife on suspicion of receiving illicit payments from businessmen. They deny any crimes were committed.

    Deri was previously sentenced to three years in prison for bribery, fraud and breach of trust in 2000 during his previous stint as interior minister in the 1990s. He served 22 months in prison but made a political comeback and retook the reins of the ultra-Orthodox Shas party in 2013.” – Associated Press

  4. To Serve & Protect (Herself): St. Johns County Sheriff’s Office Finance Director Arrested for $700,000 Fraud Scheme

    It never ceases to amaze me that vendor-fraud schemers use readily identifiable names and addresses for their fake vendors. I guess Narcissistic Personality Disorder comes with it’s own built-in weaknesses. WOKV Radio, Jacksonville, FL

  5. Nothing is Easier to Spend Than Someone Else’s Money: University of Louisville Foundation audit ‘paints disturbing picture’ of excessive spending and attempts to conceal truth
    Under former University of Louisville President James Ramsey, the U of L’s nonprofit foundation depleted the university’s endowment to fund excessive spending on things ranging from compensation to real estate to football tickets, according to special audit released Thursday.

    And, emails revealed in the audit show Ramsey’s former chief of staff, Kathleen Smith, ‘expressed an interest in concealing’ the foundation’s more-than $20 million in extra compensation from public records and journalists, according to the report.

    In 2014, for example, Smith told the foundation’s outside attorney that an obscure name was needed for the foundation’s new subsidiary company that handled deferred compensation – to make it ‘difficult to figure out for (the) media.'” – WDRB TV, Louisville, KY


    Food Recommendation: You haven’t lived until you’ve had some spectacular, delicate Povitica (aka Kolachi, Strudel, etc.) from the Strawberry Hill Bread Co. 

    Music Recommendation: An excellent live album from simply the best singer-songwriter in the business today, along with his crack band. Jason Isbell and the 400 Unit – Live From the Ryman captures a group of musicians at their creative peak, pushing the boundaries of musical genres.

     

 

Fraud Friday: All The Queen’s Horses

It’s not too often that us auditor/fraud investigator/forensic accountant-types find ourselves in the bright light of mainstream celebrity. In a way, our entire collective professional identity is primarily as anonymous bean-counting corporate drones. We even revel in it, and use it to our advantage when trying keep an ultra-low profile during an investigation.

Really, accountants and auditors tend to only make the news when it’s BAD (here’s looking at you, Arthur Anderson). To be fair, the ACFE and their wonderfully named trade magazine, FRAUD, is full of stories of intrepid, tenacious defenders of truth, justice, and the American Way, but let’s face it: Nobody but us reads those stories.

The closest I’ve seen any frauditor-types come to mainstream celebrity is Harry Markopolous, the kick-ass CFE who unearthed the Bernie Madoff Ponzi scheme, which remains the largest confirmed Ponzi/Pyramid-type fraud scheme in world history, with estimates of up to $100-billion dollars stolen (although Mr. Markopolous insists that at least $35 billion of that figure consists of fictional profits that Madoff reported, but that never really existed). Regardless, I highly recommend Mr. Markopolous’ fantastic book about the Madoff scandal, No One Would Listen.

But now we’ve got a new contender for fraud-world celebrity, such as it is: Kelly Richmond Pope, PhD., CPA:

KRPope
Source: https://www.allthequeenshorsesfilm.com/filmmakers/

Dr. Pope, in addition to being a professor of forensic accounting, ethics and leadership, and managerial accounting at DePaul University, is a self-described “Left-handed CPA who uses filmmaking to teach people about decision-making.” I recently had a chance to attend a private showing, of her latest documentary film, All The Queen’s Horsesand it is remarkable. It may be the single best documentation of the complex psycho-social web that surrounds every fraud scheme.

You may remember the surreal headlines coming out of the sleepy small-town of Dixon, Illinois in 2012:
Crundwell Indictment Press Release
Source: FBI press release, 5/1/12

“Financial controls in Dixon were the ‘perfect storm of embezzlement,’ an expert says”
Chicago Tribune

“Woman accused of bilking $53 million from Reagan’s boyhood hometown”
Reuters

The story seems utterly banal: Small-town has poor-to-non-existent internal controls in its municipal government operations, and a long-time employee sees an opportunity for malfeasance and takes it. But this case is really something else – Rita A. Crundwell, the long-time town controller, stole AT LEAST $53 million over a period of twenty years. This from a small farming community of less than 16,000 people.

Dr. Pope began working on the film shortly after Ms. Crundwell’s arrest in 2012. Recognizing that there was a compelling story beyond just the dollar amount in this case, Pope and her production team took six years to ensure that the entire tale was told – from Rita Crundwell’s humble and quasi-idyllic childhood, all the way through arrest, indictment, and sentencing and the subsequent human, political, and economic aftermath.

I think what I found so compelling about All The Queen’s Horses was how well the film captures the emotional roller-coaster that whistleblowers find themselves on, and the ripples of fallout that affect people far beyond the primary participants in the saga.

Narrated by Dr. Pope in a crisp, entertaining style, the film intersperses dozens of interviews with experts and laypeople, politicians and taxpayers, academics and activists, while also taking an educational approach, with numerous animated info-graphics and concurrent storylines.

A key theme that emerges is that Rita Crundwell could never have pulled off the largest municipal fraud in U.S history without a number of unwitting assistants. It’s a textbook case of failure of multiple lines of defense against fraud: A bank that fails to adhere to anti-money-laundering procedures. A good-ol-boy city council that was asleep at the wheel. Dozens of colleagues, friends, and family members that never seriously questioned Rita’s expertly delivered but suspicious cover stories. And a global audit firm that failed their fiduciary duty to their client (the City of Dixon), that their shame (and liability) should be infinite. It’s all quite a tale, told in a fast-moving and entertaining 1 hour, 10-minute film that is very well-produced.

Most of all, All The Queen’s Horses serves as a vivid reminder that every entity involving humans is susceptible to fraud in all its forms. The thing I keep going back to when thinking about the film is the fundamental decency of virtually everyone in Dixon. Hard-working, honest, charitable, polite folks. The proverbial salt-of-the-earth-midwesterners that I’ve come to know and love after living in Kansas for nearly a decade. These folks trusted Rita Crundwell with their tax dollars. She stole nearly all of it, and roads, sidewalks, buildings, and other public infrastructure in Dixon steadily decayed. Kelly Richmond Pope captures the pain and betrayal that these folks feel, and their confusion and angst at realizing that it was “one of their own” that did it.

All The Queen’s Horses is available on all major streaming platforms, and has been one of the most-watched documentary films of the past two years on Netflix, iTunes, Amazon Prime Video, and Google Play.  I highly recommend taking the time to watch it and research the story and the film!


Music Recommendation: Nathaniel Rateliff & The Night Sweats, Live at Red Rocks A tasty stew of blue-eyed soul, greasy garage-band rock-n-roll, and classic R&B, along with an assist from the amazing Preservation Hall Jazz Band of New Orleans. A new favorite – highly recommended!

Food Recommendation: The short-rib griller sandwich at Q39, Kansas City Pitmaster Rob Magee’s incredible restaurants in Kansas City and Overland Park, Kansas. This thing is worth getting on an airplane for – trust me. Truly sublime. Magee’s Q39 has rapidly ascended the ultra-competitive KC BBQ ladder.

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