Fraud Friday: Crime Pays, or Talking Animals Discuss the Finer Points of Escrow

On a tight deadline this week for a project, so no lengthy analytical post today. Rumors of impending treasonweasel activity are rampant, so I suspect the news cycle is about to heat up and bury this blog anyway. In that spirit, I’ll leave you with a classic:
Dilbert

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Fraud Friday: When Auditors Attack, or Fear & Loathing in Clay County, MO

State auditors tend to embody the excellent advice of President Teddy Roosevelt: They speak softly and carry a big stick. Most state audit shops work under a broad legislative mandate – this includes the ability to examine any and all records of state and local agencies, and this includes subpoena power, when necessary.

In practice, state audit shops rarely threaten to flex their legal muscles, and this is mostly because their legislative mandate and mission are widely understood by public policy makers and managers. When the State Auditor calls, you pick up the phone and give them what they need, so to speak. Now, there are definitely instances where an agency will dig in and try to refuse a specific records request, etc., but that almost invariably ends poorly for that agency. It’s even rarer for an agency to not only refuse to cooperate, but to also engage legal counsel to threaten legal action against the state auditor for even insinuating their intention to audit an agency. And yet, here we are…

For those unfamiliar with the greater Kansas City metropolitan area, Clay County occupies roughly the northeast quadrant of the KC metro. The county’s population is about 250,000 and growing, and it’s a fairly large county geographically, so while Clay County residents are part of a relatively bustling urban midwestern city, the county retains a rural, provincial character. This is attractive for many residents who move there seeking reasonably-priced land, good schools, an increasing number of amenities and retail options, and a sane commuting distance to almost any part of the Kansas City area.

Unfortunately, small-town living also tends to include small-town politics, and things have been getting a bit…testy…up in Clay County recently.

KC television station WDAF “Fox 4 KC” has been conducting an extensive, in-depth journalistic investigation of Clay county commissioners and numerous reports of government waste, fraud, and abuse associated with the county government. In my experience, it is unusual for a local TV news department to devote such a significant amount of resources to a local public policy matter, and I’d like to recognize the excellent reporting of Megan Dillard and the entire Problem Solvers team at Fox 4.

Last year, reports of wasteful spending and poor oversight began surfacing in Clay County. $600 coffee makers. Unexplained $5,000 cash transfers to Paypal.  The hiring of ELEVEN legal firms to conduct legal work on behalf of the county and the commissioners. Procurement card abuse by county management. Failure to follow the approval process for significant expenditures. Managers signing their own expense reimbursements. In other words, the familiar tale that we public-sector auditors too often end up investigating as fraud and turning over to law enforcement for prosecution. WDAF aired their first story about this mess on Feb. 28, 2018, and it’s a doozy:

Missouri Auditor Weighs in on Clay County’s Alleged Misuse of Taxpayer’s Money

This Northland county is facing growing public outrage after slashed budgets, salary increases for elected officials and possible misuse of taxpayer money.

Stop wasteful spending. It`s a message, a mantra, that Clay County citizens have made their battle cry. They’re frustrated by what they see as a misuse of taxpayer money, overspending, lack of internal controls and budget cuts to much-needed county departments.

‘I was just embarrassed by how our county was being run. Enough was enough,’ said Clay County resident Jason Withington. He started the petition drive along with former Clay County employee Sherry Duffett.

We’ve got everything in this story: Arrogant public employees, both elected and appointed, who resent open records requests and do everything they can to avoid accountability? Check!

Ridiculous-seeming expenses, that even if justified, still look terrible on an investigative report on television? Check!

A whistleblower putting their livelihood on the line for coming forward to resist and/or expose the avarice and greed of the villainous county employees? Check!

Clay County residents have noticed all of this alleged malfeasance and are understandably pissed off. Part of their collective response has been to start a petition drive to implore Missouri State Auditor Nicole Galloway’s office to conduct a thorough, comprehensive, non-partisan/non-political audit and investigation of the alleged waste, fraud, and abuse.

There’s a lot more to this story, and I encourage any of you who are interested in good governance and fraud investigation to view and follow the story. However, recent developments in this story have kind of blown my mind. Essentially, Clay County hired an attorney to send threatening letters to both the County Clerk AND THE STATE AUDITOR. That’s right – these local government “public servants” are insinuating that the State Auditor not only has no jurisdiction to conduct an audit or investigation of the county’s books but that even attempting to do so will result in legal action against the State Auditor herself! In addition to the letter to Galloway, the law firm also served whistleblowing Clay County Clerk Megan Thompson with a similarly-worded threatening letter in late March. Needless to say, Galloway ain’t having any of that nonsense.

Days after voicing concerns about the red flags FOX4’s investigation uncovered, Missouri State Auditor Nicole Galloway also received a threatening letter from Pearson…”It is clear there are questionable activities,” Galloway previously said of Clay County spending.

The eight-page letter she received said Galloway’s comments to FOX4 “reflect an inappropriate prejudging of issues based on far less than all the facts,” and her comments “violate the state law that defines the duties of the auditor. Frankly, the comments make clear that you and your office are now incapable of objectively performing an audit or any other activities regarding clay county,” Pearson said in his letter…

…Pearson says Galloway and her office should recuse themselves from such action, not participate in any activities in Clay County, and refer all Clay County matters to an external accounting firm. ‘”t is unfortunate that such measures are necessary to ensure an independent process that complies with state law,” Pearson wrote, “but given the comments on camera, I see no other alternative.”

Pearson gave Galloway 10 days to heed his request. “If you do not do so, Clay County, on behalf of its taxpayers, reserves all rights to take legal action to enjoin any unlawful actions,” he said.

Galloway’s office sent its own letter in which she repeated, “there are legitimate concerns” in Clay County and “citizens concerns appear to be numerous and widespread.” Galloway’s general counsel also said Pearson “mischaracterized” and took the auditor’s comments “out of context.”

“While we could speculate as to your motivations for doing so, this office takes any concern related to these matters seriously,” general counsel Paul Harper wrote.

He added that Galloway’s comments in FOX4’s story “clearly demonstrate that the auditor remains objective and has neither made any predetermined assessment of the facts nor predetermined any recommendations for a future report.”

The letter concludes, “We stand ready to assist any citizens with their concerns about how public funds are handled.” – Fox4KC

That takes some pretty big brass ones to tell a state auditor’s office that they have 10 days to stand down. Elected officials in Clay County are now backpedaling, stating that the law firm in question did not bring the letter before the County Commission for review and approval before it was sent, blah blah blah.

Plausible deniability – The provenance of weasels worldwide! I suspect there will be much more to this story going forward, and we’ll update as things develop.


Music Recommendation: All Them Witches from Nashville, TN. These guys aren’t breaking any particularly new ground, but they definitely ARE producing some groovy, stoned-out, blues-space-rock jams. I particularly dig https://open.spotify.com/embed/track/2EvUjCWg5zeaeKxGeOaHPh“>When God Comes Back, Heavy/Like A Witch, and Elk.Blood.HeartGo ahead, eat an edible or three, and trip out on these spacey sounds. Tip of the hat to my cousin-in-law (I think), Jack Vogel for turning me on to these dudes!

Food Recommendation: Look, it was just recently Easter, and holidays require, nay, they DEMAND high-quality, high-calorie sugary treats. For my (considerable) money, it’s impossible to beat See’s Candies

If they were good enough for Warren Buffet to buy the entire company after trying them, they’re good enough for your broke ass. My personal favorites in the See’s lineup: Milk/Dark Bordeaux, Toffee-ettes, and Butterscotch Squares. As Amy, my lovely & talented spouse says, “They’re just little drops of Heaven.”

Until next time, keep fighting the good fight!


 

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Asset Misappropriation Monday – Have a Dr. Pepper at Your New Beachouse

Hello, we’re back after a bit of a hiatus that included a couple of home remodeling projects that were, shall we say, challenging. All I can say is try to pay your contractors & vendors with a credit card whenever possible – disputing a charge can be a project-saver.

It’s also been a quite busy time in the fraud world. Seems like we’re particularly rich in employee embezzlement stories this quarter. Most of these stories are well, let’s face it: boring. Myrna the kindly, trusted bookkeeper for local business figures out that nobody but her is watching the main checking account for the septic tank cleaning business she’s worked at for years, and next thing you know she’s in Vegas at the high-roller slots and buying the entire Vera Bradley flowered-purse line on QVC.

Of course, Myrna eventually gets caught when the business owner can’t make payroll, gets suspicious, and hires a forensic accountant to figure out where all his money’s gone. Myrna tearfully pleads guilty, does some time in County lockup, and has to figure out a new way to pay for her Branson trips. Business owner keeps telling anyone that will listen that he still can’t understand how he got ripped off “because I only hire trustworthy people.” Lather, rinse, repeat.

It’s no revelation to anyone in the fraud field that there is still an extraordinary amount of denial in the business community about due diligence in hiring and implementing and maintaining robust preventive and detective internal controls against employee embezzlement. In my experience, owners and managers unconsciously divide people into “trustworthy” and “suspicious” categories with little more evidence than their own unconscious bias, brought to life by Fox News and their buddy who owns a bail bonds business. The research is clear – due diligence in pre-employment screening helps reduce the incidence of hiring career criminals, but there are many pitfalls – stay tuned for an upcoming two-part series on this blog about ways to minimize the likelihood of hiring every business owner’s nightmare – the serial embezzler.


I’m A Pepper, You’re a Pepper, We’re All Convicted…


PROVIDENCE, RI – A national sales executive for Dr. Pepper/Seven Up, Inc., a subsidiary of Dr. Pepper Snapple Group (Dr. Pepper), today pleaded guilty to charges that he submitted more than $1.7 million dollars worth of fraudulent invoices to Dr. Pepper through a promotions and marketing company he formed in his wife’s name. – USDOJ Press Release

As a reminder, if there’s anyone you know who MIGHT have, say, laundered Russian money through a series of inflated value real-estate transactions & then failed to declare the resulting income on their tax return…

“Wire fraud is punishable by statutory penalties of up to 20 years imprisonment and a fine of $250,000. Filing a false tax return is punishable by statutory penalties of up to 3 years imprisonment and a $100,000 fine.

Interesting.


When the Hunter Becomes the Hunted

A former state fraud investigator was sentenced Friday to two years in federal prison for bank fraud and money laundering.

Steven Arthur Knigge, 71, had pleaded guilty to the crimes, which took place over a three-month period in 2015 and involved people out-of-state and overseas.” – Rapid City Journal

What is interesting about this otherwise fairly conventional confirmation fraud/social engineering scheme is the fact that it appears that the perpetrator was also HIMSELF a victim of a Nigerian 419 scam, which is kind of mind-boggling, considering Mr. Knigge is a (now former) professional fraud investigator:

Knigge wired $30,000 of the fraudulently obtained money to people overseas, including $9,500 to Nigeria, which constituted money laundering.

“You were perfectly armed not to get caught in such a scheme,” U.S. District Court Chief Judge Jeffrey Viken told Knigge during his sentencing in Rapid City on Friday. Before retiring, Knigge worked for 32 years at the South Dakota Department of Revenue, where he was an auditor and fraud investigator.”

Judge Viken: “Dude, how did you screw this up? You’re supposed to be a pro! I’m sentencing you to prison because you were dumb and got caught!”


The Cryptocurrency Bubble Loses Some Air

NEWSFLASH: An anonymous method of transferring value has been…gasp…utilized by bad people to do bad things.

In a recent LinkedIn post, Chris McCall referenced crypto-fraud expert Greg Hays’ recent excellent article to drop some very revealing data points about crypto in general, and Bitcoin specifically:
Cryptocurrencies

  • 1,526 cryptocurrencies (coins & tokens)
  • 170 new initial coin offerings this year
  • $434 billion market cap for all cryptocurrencies
  • 5,000 cryptocurrency investment frauds
  • 1 SEC receiver appointed

Bitcoin

  • $150 billion market cap
  • 40% of Bitcoins are owned by 1,000 people
  • 17% to 23% estimate of all Bitcoins mined that have been lost
  • 70% of Bitcoin trading is in China
  • 30% of Koreans own Bitcoins
  • 98% of trading addresses have less than $100 invested
  • 58% of purchasers are under age 34
  • 20% of Bitcoin purchases are with debt
  • 802 total investors in the US have reported Bitcoin income to the IRS $172 million in hacks at prices at the time of theft
  • 1 hour to process a Bitcoin transaction
  • $28 transaction fee when most accounts have less than $100

Others are even more direct. Paul Ford at Bloomberg Businessweek ain’t having it, so to speak:

On the days when Bitcoin crashes, a holiday atmosphere takes over in my corners of the internet. People tweet screengrabs of Reddit fights. It’s always good fun to watch strangers grieve as their digital nonsense nickels melt into slag.”

That all of this adds up to money is ridiculous, and we should probably mock it more than we do

It’s a good read, and worth your time, even if you are a true believer (Full Disclosure: I’m not).


Music RecommendationFirepower, Judas Priest. Don’t question my inner 14-year-old metalhead’s musical taste! Just turn it up as loud as it will go, and hear how metal is REALLY supposed to sound.

Food Recommendation: The Z-Man sandwich from Joe’s Kansas City BBQ. I live a mile from one of the 13 places Anthony Bourdain says you must eat before you die. Life is good.

Until next time…Rock, Chalk, Jayhawk – Go KU!

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Fraud Friday: Ain’t Superstitious

Capture


The truth always comes out. 13 is a very interesting number.

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Welcome to the Jungle or, The Taxman Cometh

“It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things” – Niccoló Machiavelli, The Prince


Fraud Friday is coming to you from the long & winding road this week. Accompanying the lovely & talented spouse to a corporate awards event & enjoying a brief respite from the deep freeze of the Central Plains has been a much-needed change of pace.

However, there is no escaping the increasingly-chaotic situation brought about by the recent sweeping changes to the federal tax code. We’ll focus on the implications for increased tax fraud & the deterioration of enforcement capabilities on the part of the regulatory agencies (aka the IRS).

As most of you are surely aware, Congress passed H.R. 1, the Tax Cuts & Jobs Act in late December of last year. While this blog assiduously attempts to avoid discussing the overt political aspects of the legal & regulatory environment, a couple of key developments pertain specifically to those of us in the compliance and investigative universes:

1) Loopholes in loopholes inside loopholes that also contain loopholes

Look, I am FAR from being an expert on tax structuring/avoidance, but minds far greater than mine have pointed out how the new legislation contains enough vague, opaque language to provide decades of billable hours to the tax nerds:

35 pages of Loopholes in the New Tax Law

Of particular concern is the potential for clever manipulation of individual earned income into lower tax rates by creating what are essentially one-person corporations. As explained by Vox:

‘Under the new law, the top ordinary rate on labor income will be much higher than the top rate on corporate income. As a result, many taxpayers will be able to shield a portion of their labor income from tax by setting up a corporation. So Joe Smith, previously an assistant account director for a PR firm, can become Joe Smith, Inc., a new startup company! The firm makes payments to the new corporation instead of to Smith. Thus, Smith shields his labor income from the higher individual tax rate.

The IRS might investigate whether the new corporation pays Smith a reasonable fee for his services, which some tax-law precedents suggest it is obliged to. That’s one check against this tax dodge, and there could be others. But how many new corporations can the IRS investigate? And if Smith can find a few friends to join his new corporation, it will be even harder for the IRS to challenge.” Which brings us to our second point:

2) The IRS is Hosed

It’s no secret that there has been an exodus of the IRS workforce over the past several years. And who can blame them? Years of significant budget cuts, failure to recruit new talent, and a seemingly infinite supply of political contempt for the entity that administers the collection of the vast majority of federal funds.

Predictably, the enforcement rate has plummeted, and academics and tax experts generally agree that the “rate of non-compliance” (i.e. tax cheating) is under-estimated, because it’s common sense that many people who cheat won’t volunteer that information on a survey, and enforcement actions against non-compliers by definition clearly don’t capture the full picture of tax cheating. As for that dreaded staple of American life, the audit, rates have never been lower. From CNBC:

The number of people audited by the IRS in 2016 dropped for the sixth straight year, to just over 1 million. The last time so few people were audited was 2004. Since then, the U.S. has added about 30 million people.

The IRS blames budget cuts as money for the agency shrunk from $12.2 billion in 2010 to $11.2 billion last year. Over that period, the agency has lost more than 17,000 employees, including nearly 7,000 enforcement agents. A little more than 80,000 people work at the IRS.

IRS Commissioner John Koskinen said budget cuts are costing the federal government between $4 billion and $8 billion a year in uncollected taxes.

‘We are the only agency if you give us more people and money, we give you more money back,’ Koskinen said in an interview.”

3) Which leads to Some Unsettling Possible Societal Outcomes

Besides the obvious fact that in order to function, the US gov’t requires revenue, there are additional sociological implications to a steady erosion in the willingness of the populace to pay what they owe. Income taxes are unlike many other forms of taxation in that they rely to a large degree on the voluntary compliance of taxpayers. As that obligation becomes less ingrained in the American psyche, questions arise about long-term societal stability and the underlying fundamental assumptions of our Republic: https://www.vice.com/en_us/article/d33daz/dont-look-now-but-americas-tax-system-may-collapse-soon

It will be certainly be interesting and scary to see how this plays out over the next several years.


Music Recommendations

Gotta go with a couple of classics on this one. Topically appropriate: “You know where you are? you’re in the jungle, baby! And you gonna die!”

And of course: “Let me tell you how it will be. There’s one for you, nineteen for me.”

Food Recommendation

Norman Love Confections. While in Southwest Florida this week, we visited this shop on the urgent recommendation of our Über driver, and we are quite glad we did. All manner of indescribably delicious confections that are also miniature works of art. The chocolate alligator looked absolutely real! A must-visit if you’re in the Ft. Myers/Na-les area, and they ship worldwide.

Until next time, keep up the good fight!

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Fraud Friday – The Revolving Door, or How I Aced My PCAOB Inspection

hero_Big-Lebowski-2017-7Happy Friday! We’re currently working on a post about the practical, legal, and financial considerations surrounding employee theft cases, how to avoid them, and how to deal with them if you are unfortunate enough to have one crash-land in your universe. As noted philosopher Jeffrey Lebowski once said, “Lotta ins. Lotta outs. Lotta what-have-yous.” It’s a complicated subject, and there’s much to discuss.


So, while we work on that post (and do our day job(s)), we have news of a KPMG executive arrested for quite literally “stealing the exam”, which (allegedly) facilitated numerous subsequent malfeasances. Via the Atlanta Journal-Constitution:

Ex-KPMG exec arrested for alleged role in audit fraud scheme

A former leader at one of the world’s largest accounting firms was arrested on Monday as part of a sweeping fraud investigation, according to the Department of Justice.

David Middendorf, of Marietta, was one of six people charged and was the head of KPMG’s Department of Professional Practice, which oversees the training and internal/external quality control of auditing.

Others charged in the indictment reported to Middendorf, including those he allegedly helped hire away from an organization that inspects KPMG. And, as prosecutors allege, a couple of those hires upon their departure downloaded confidential information about what parts of the Big 4 firm would be inspected by that oversight group.

Having that information on which areas would be targeted by inspectors allowed KPMG to clean them up in advance, essentially making inspections useless.

Brian Sweet was an associate director at the Public Company Accounting Oversight Board, or PCAOB, before he was hired away by KPMG.

The PCAOB is a nonprofit with oversight from the Securities and Exchange Commission created after Congress passed the Sarbanes-Oxley Act of 2002, which increased scrutiny on corporations and their financial disclosures, the indictment explains.

Sweet pleaded guilty of giving PCAOB documents to KPMG and acting as a conduit to alert the accounting firm of where they’d be inspected. According to the Justice Department, Sweet has decided to cooperate with prosecutors.

As alleged, these accountants engaged in shocking misconduct — literally stealing the exam — in an effort to interfere with the PCAOB’s ability to detect audit deficiencies at KPMG,” said Steven Peikin, co-director of the SEC’s Enforcement Division. “The PCAOB inspections program is meant to assess whether firms are cutting corners, compromising their independence, or otherwise falling short in their responsibilities.”

Middendorf allegdly used the information to make business decisions and moved resources around to be most efficent knowing what parts of of the company would and wouldn’t be inspected.

“He’s a career professional in the public accounting business. He’s dedicated his life to KPMG and intends to defend himself,” Middendorf’s attorney Gregory Bruch told The Atlanta Journal-Constitution on Wednesday. Middendorf, 53, faces a maximum sentence of 85 years, the Justice Department said.

The years of allegedly gaming the system was pre-empted by one bad year. KPMG got dinged about 2014 with twice as many negative comments by the PCAOB compared to its competitors. To improve their image after that year, KPMG promised bonsuses to teams that performed well when it came time for inspection by the PCAOB. So, “in an effort spearheaded by David Middendorf and Thomas Whittle,” they started in July 2014 to hire Brian Sweet away from the PCAOB to KPMG. Sweet interviewed with Middendorf and others and was offered a job in April 2015. Shortly before his last day at the PCAOB, “Sweet copied various confidential documents from the PCAOB internal newtork” onto a hard drive and took physical papers, the indictment said. Included in what he took was a list of specific divisions PCAOB was planning to inspect at KPMG, which he was asked about during a lunch with Middendorf in his first week at the firm.

Later that week, Middendorf “told Sweet to remember where Sweet’s paycheck came from and to be loyal to KPMG,” according to the indictment.

Days after, Whittle pulled the new employee aside and told him that “he was most valuable to KPMG at that moment and would soon be less valuable,” the indictment said.

Later that day, Whittle emailed Middendorf the list of inspection targets. “The complete list. Obviously, very sensitive. We will not broadcast this,” Whittle wrote, according to the indictment. At the request of his new bosses, Sweet also reached back out to folks at the PCAOB to see what at KPMG was slated for inspection and relayed that back to his bosses. According to the indictment, Sweet recruited Cynthia Holder, a PCAOB employee tasked with inspecting KPMG. Prosecutors allege that while she was being recruited, she would get documents that Sweet requested. Holder was eventually hired and allegedly copied PCAOB documents onto a flash drive.

And like Sweet did with Holder, she kept in touch with a PCAOB employee who funneled her information for 2016 and 2017 inspsections, which was forwarded to Middendorf, the indictment said. Middendorf then ordered “stealth” re-reviews of departments that were set to be inspected, according to the indictment.

In February 2017, Sweet told a high-ranking employee that their group would be inspected by PCAOB. That employee reported the conversation to the KPMG general counsel on Feb. 13, 2017. Middendorf “was separated” from KPMG in April 2017, the indictment said. “These defendants were each meant to be the watchmen of our financial system,” said Manhattan U.S. Attorney Geoffrey S. Berman. He continued: “The defendants who formerly worked for KPMG were vested with the responsibility to audit publicly filed financial statements and issue audit opinions relied upon by the investing public. The defendants who formerly worked for the PCAOB were supposed to help ensure the quality of the work behind those audits. But, as alleged, these defendants chose to cheat the system and to undermine the safeguards put in place to protect investors.”

The revolving door is nothing new, nor in any way exclusive to the PCAOB and the large public accounting firms. In fact, the European Finance Association published (academic access or purchase required) a 2016 study that found a nearly 25% increase in direct hires from financial regulatory agencies and, more importantly, a SIGNIFICANT change in regulated firm managerial strategy immediately following the hire. From the abstract:

The number of top executives with regulatory experience per firm has increased 24% over 2001–15, and hiring is associated with positive average announcement returns and a salary premium. In the quarter after hire, market and balance sheet measures of firm risk decrease significantly and measures of risk management activity increase, especially for hires from prudential regulators, who directly monitor financial firm risk. The absence of this result for unregulated firms and for exogenous shocks to regulatory experience suggests that firms hire ex-employees of their regulators when they perceive a need to reduce risk, consistent with a schooling hypothesis. (Emphasis added)

The KPMG/Sweet/Middendorf case might appear to be an extreme example of revolving-door malfeasance between the regulator and the regulated, but anecdotal evidence points to a higher incidence of such behavior than even pessimistic industry observers estimate. It will be very interesting to see how this plays out for KPMG and the public accounting industry as a whole.

Music Recommendation: Nigel Stanford, Automatica. cool song and a *spectacular* video from late last year. I, for one, welcome our new robot overlords. Worth watching in 4K HD: https://www.youtube.com/watch?v=bAdqazixuRY

Food Recommendation: Caramel apple fried empanada at Taco Bell. DON’T JUDGE ME! Besides, how do you know I’m not one of the Belluminati? Hint: I’m not.


The views of the author are his alone. Any similarity to real tacos, living or dead, is purely coincidental.

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Fraud Fridays 2018 – An Embarrassment of Riches!

Welcome back, fellow believers in Objective Facts, Truth, Justice, and the Norweigan American Way.* We’re less than three weeks into the new year, and 2018 is already showing signs of being another banner year for financial fraud schemes, collusion, and general white-collar malfeasance. But first, let’s recap on some of 2017’s greatest hits:

A $1.2 billion Boca Raton Ponzi Scheme – South Florida Business Journal

According to the SEC complaint, Woodbridge Group offered investors, many of them seniors, interests in commercial real estate loans made to third parties. The company said these loans were short-term financing with interest rates of 11 to 15 percent, the SEC said. This is generally known as ‘hard money’ lending.

The SEC alleged that these loans were not actually made to third parties, but to Shapiro-owned companies that had no income and never made payments on the loans. The complaint alleged that Shapiro and Woodbridge used investors’ money to pay other investors; paid $64.5 million in commission to sales agents; and diverted $21 million for Shapiro’s personal use, including for charter planes, country club fees, luxury vehicles and jewelry.

Our complaint alleges that Woodbridge’s business model was a sham,” said Steven Peikin, co-director of the SEC’s Enforcement Division. ‘The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.’”

 

Offshore Is Where All the Cool Kids Stash Their Questionably-Obtained Cash – The New York Times 

The Paradise Papers, released by the ICIJ in November, were a jaw-dropping and startlingly comprehensive expose of the vastly complex world of offshore banking and how it serves as a global shadow-banking system for the finances of the global elite. We’re talking TRILLIONS of dollars of tax fraud, money-laundering, etc. It’s well worth exploring the high-quality investigative journalism demonstrated by the ICIJ.

 

We Were Somewhere Around Washington D.C., On the Edge of the Beltway, When The Drugs Began to Take Hold – Healthcare Finance

The Department of Health and Human Services Office of Inspector General, state and federal law enforcement executed a massive fraud takedown this month that charged more than 400 defendants in connection with healthcare fraud schemes that involved roughly $1.3 billion in fraudulent billings to government payers including Medicare and Medicaid, the OIG announced.

The takedown is being called the largest in history, both for the number of defendants charged and the amount of money lost, OIG said.

Additionally, OIG issued exclusion notices to 295 doctors, nurses, and other providers related to opioid diversion and abuse. The notices ban participation in or claim submissions to, all Federal healthcare programs.Those who got the notices include 57 doctors, 162 nurses, and 36 pharmacists.

20140531_USD001_0

 

Meanwhile, Back Here in the Upside Down…

2018 promises to continue to be at least as surreal as 2017, and until we either get spit out of whatever weird quantum wormhole we’re currently inhabiting, or my doctor gets my medications properly adjusted, we’re bound to have no shortage of material for this year and beyond. Just a few potential sources of financial fraud, in no particular order, are:

  • Federal tax reform – I’m hearing that this thing has more loopholes than a hand-knitted cat-bed blanket, and you can bet there are armies of accountants and tax preparers hard at work finding and exploiting them.
  • Offshore Banking – the ICIJ, ProPublica, and many other worthy organizations will continue to expose the seedy underbelly of global finance and trade.
  • Bitcoin/Cryptocurrencies/Blockchain – It’s amazing! It’s going to change everything! Atlas is Shrugging! Nazis are getting rich! What could possibly go wrong?

Recommendations:

P.T. Barnum famously noted that a new sucker is born every minute, and Edward Balleisen’s book Fraud: An American History From Barnum to Madoff is a thoroughly readable and informative primer on the long tradition of ripping off one’s fellow Americans. – Princeton University Press Blog

Fans of the venerable TV series American Greed (that would be all of us, right?), can look forward to a new Netflix documentary, Dirty Money, that promises to be both entertaining and educational. Of particular interest to us here in the Kansas City area is an upcoming episode on convicted payday-loan fraudster Scott Tucker. Tucker, if you don’t know, stole over a billion dollars by running an absolutely deplorable set of online payday lending operations. He tried to hide his operations with a classic straw-man defense in which he claimed the payday lenders were owned by Native American tribes and were thus exempt from most federal lending and usury laws and regulations. It didn’t work, and now he’s staring down 16.5 years in a federal penitentiary. The “money quote’ (sorry, couldn’t resist) from the trailer:

“In the trailer for ‘Dirty Money,’ Tucker is asked whether he is a moral person. ‘I’m a businessperson,’ he responds.

It’s gonna be good!

Music Recommendation: The somewhat-awkwardly-titled live album from The 1975, DH00278 (Live from the O2, London. 16.12.16) is just really, really good. Pop? Punk? Alternative? Rock? White-Boy Funk? – all of the above. Get your groove on…

Food Recommendation: Costco’s Kirkland Signature butter cinnamon loaves. Good God, that stuff is addictive. And we ain’t fancy – Costco is just fine for us humble public servants. It’s worth getting a Costco membership just for this stuff.

See you soon, fellow fraud fans! Hey, if you feel so inclined, give me a follow on Twitter @JustinMcDaid, or connect with me on LinkedIn or Facebook –  Justin McDaid

Thanks!

*Not a shithole, unlike some individuals we shall not name in this blog

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