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.



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?


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


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

Leave a comment

Filed under Uncategorized

The Beautiful Game (Of Money Laundering)


Sorry to have been away so long, but now we’re back just in time for a veritable cornucopia of fraud-related news. Much more to come shortly, and I’m working on some ideas to provide additional in-depth analysis of fraud and internal-control failures both in the public and private sectors. So on to today’s debacle…

The FIFA arrests are top-of-mind for the collective consciousness of much of the world, and boy, they do not disappoint. Rather than rehash them, I’ll just link to this excellent analysis from Screamer, the soccer sub-blog for the sports-related site Deadspin, as well as provide a link to the 176-page indictment document in all its unvarnished glory:



This will be interesting to watch from a legal perspective, to see how the Justice Dept. applies the Foreign Corrupt Practices Act and the Foreign Tort Claims Act to prosecute. Perhaps we’ll try and solicit a guest post from an attorney who can shed additional light on this aspect of the case.

Finally, as we were writing this post, it appears that FIFA President Seth Blatter (awesome supervillain name, btw), has been re-elected to a fifth term, and has essentially become FIFA President-For-Life:

Favorite quote from the Yahoo story, and it is oh-so-true:

“If you grease the skids and take care of the corners then no amount of cries of scandal from the wealthy elite, howls from the media and complaints – or even convictions – of illegal behavior can unseat you.”

More as the case develops. Thanks for reading, and please feel free to suggest topics for future postings!

Now Here’s Some Rock Music:

Echosmith – Cool Kids

Leave a comment

Filed under Uncategorized

Money Laundering Made Easy or, Remember Kid, It’s All About Location, Location, Location…


Today we once again turn our attention to the fascinating world of international money laundering. As I mentioned in a previous post, it’s no secret that in recent years the US government has made a concerted effort to close the Swiss-cheese-like loopholes in both the federal tax and criminal codes that have allowed so many to essentially completely dodge their tax obligations.

However, yesterday a landmark piece of legislation called the Foreign Account Tax Compliance Act (FACTA) took effect that may essentially put an end to the time-honored tradition of stashing your ill-gotten gains/Nazi blood money/FIFA World Cup bribes/despotic-dictator-corruption-skim, etc. in a handy-dandy numbered Swiss account.

This is great news if you’re a law-abiding citizen of the world, or a sovereign government trying to collect taxes that it’s owed, but it may significantly complicate matters for the criminal underworld and big-time tax dodgers. After all, once you steal a billion dollars, you gotta launder a billion dollars. Ask any old-school mafioso or Russian oligarch: Cleaning the money is often more difficult than stealing the money.

Fear Not, Thou Amoral Criminal, New York Real Estate Brokers Have a Solution For This Conundrum:

As detailed by New York Magazine, and referenced by Alison Griswold in today’s Slate, money is flowing into high-end Manhattan real estate transactions faster than you can say “Jamie Dimon”:

The original piece by Andrew Rice, perfectly titled “Stash Pad,” is fascinating and well worth a read:

Leave a comment

Filed under Uncategorized

Who Knew it was That Easy? Or, How to Sound Like a McKinsey Consultant

Bang Head


Leave a comment

Filed under Uncategorized

In the Belly of the Beast, or: How I learned to Stop Worrying and Love High-Frequency Trading Algorithms

Things are getting weird(er)

Sure, your money is safe with us...

Sure, your money is safe with us…

As part of my so-called career development plan, I was able to somehow convince my primary employer to sponsor my membership in a local leadership program here in the Greater Kansas City Metroplex.

Part of the curriculum is visiting local businesses of note, and thus recently I found myself in lovely Lenexa, Kansas, preparing to enter one of the single most dangerous places in America: The headquarters of BATS, the electronic stock exchange that allegedly facilitates a great deal of overt and covert fraud perpetrated on you, the honest, hardworking, gun-and-internet-porn-loving American people.

Stay out of Malibu, Lebowski...

Stay out of Malibu, Lebowski…

Beyond the clearly obvious, which is that BATS doesn’t bother to conduct background checks on visitors (or I would never have been allowed in), I noticed a gripping similarity with other spooky places I’ve visited (think Dachau, any midwestern Wal-Mart, etc.) where great evil has occurred/is occurring: The sheer banality of evil. For a stock exchange that regularly has the highest daily trading volume in the world, BATS keeps it real: subdued furniture and finishes throughout, appropriately frumpy/vaguely-hostile receptionist, etc.

Overall, the aesthetic was remarkably similar to what anyone would run across in a mid-size insurance agency in, say, Sheboygan (not to disparage my Wisconsonite friends, I love that place. Go Badgers!) In a way, it’s a reminder that without the fingernail scratches on the walls inside the “showers” or the cast-iron entrance-gate reminder that “Arbeit Macht Frei,” Auschwitz appears to be just another dreary German summer camp.

Anyway, I suppose I should back up a bit. Who/what the Hell is BATS, and why should we care? A fair question…

In a proverbial nutshell, BATS is an electronic stock exchange, one created to replace the “classic” version of a stock exchange, which in the 20th-century collective consciousness is usually pictured as a bunch of angry white dudes in colored jackets screaming prices at each other on a trading “floor.” If you take nothing else from this post, take this: That image and the world it represents is gone. History. Doesn’t exist anymore. Stocks are now traded electronically, utilizing extremely fast computer networks. In addition to many other changes in the equity-trading world, these computer networks and the entities that deploy them are engaged in a hugely complex and opaque struggle to produce obscene profits, through a variety of legal and no-so-legal means.

One of the strategies for creating profit is called High-Frequency Trading (HFT), and it’s pretty much what it sounds like: Using computers to make kajillions of stock trades, in some cases buying and selling millions of shares within microseconds. HFTs hire lots of very smart computer programmers to create HFT algorithms. These algorithms can evaluate an enormous array of input information, on which they then make trading decisions. Everything from market news to weather patterns to trending Twitter hashtags can (and are) used as input for the HFT algos.

In some fashion, this is remotely similar to the way equities have always traded, even when us slow humans made the trading decisions. For example, I see that Google has missed their quarterly earnings projection, and I become concerned that perhaps Google’s revenue and earnings growth in the future is in jeopardy, and I decide to place a “sell” order on my Google stock. Nothin’ wrong with that (unless I had inside info. on the earnings before they were publicly released, and I acted on it in order to benefit financially. That’s called insider-trading, and ask Martha Stewart how that can turn out.)

But the HFT algos go way, way farther than that quaint example. As detailed in Michael Lewis’ excellent new book Flash Boys: A Wall Street Revolt*, The HFT programmers and traders have figured out a plethora of ways to garner information about stocks BEFORE that knowledge is publicly available, thus allowing them to use their blinding speed to execute stock transactions and profit from the information advantage that they have over not only other investors, BUT THEIR OWN CUSTOMERS.  BATS was specifically designed from the ground up as a platform for HFT traders to employ these strategies.

“But wait,” you say; “Isn’t that basically front-running?”:

Front running (noun): The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients have been given the information.

Well, sure. But if there’s one thing that the last ten years of economic history have proven, it’s that ethics and the law are no match for human greed. Besides, this stuff is super-duper complex, and involves a lot of math and computer code, and it’s not like it’s something TRULY criminal and scary, like, you know, a brown person wearing a hoody and acting suspicous.

So it continues to happen, nobody is charged with a crime or goes to jail, the SEC and other regulatory entities don’t really do anything about it, and we all just accept the mafia tax on our investments that involve equities, to the tune of billions of dollars per year. It’s not like any of us earned and need that money or anything…

All of This is Very Interesting, But What Does it Have to do With Your Visit to BATS?

Well, it just so happened that in addition to our tour of BATS headquarters, we were supposed to have a meeting with Joe Ratterman, BATS CEO and until recently, President and Board Chairperson. After our facility tour, and prior to our scheduled meeting with Mr. Ratterman, our group of fifteen watched a short PR video on BATS and engaged in a brief Q&A with BATS CFO Brian Schell.

I think Mr. Schell thought it was going to be a ‘grip and grin,’ softball-type interaction. Luckily, one other person in our group besides myself had read Flash Boys and understood what BATS was up to, and he began to politely, but firmly, question the CFO about BATS and their role in facilitating HFT front-running. Schell acted stunned that anyone would dare to ask that type of question, and proceeded to enter into a long, confusing narrative that essentially asserted that:

  1. This stuff is really complex, Man. Lotta ins, lotta outs, lotta what-have-yous, Maude.
  2. Michael Lewis doesn’t know what he’s talking about, and he made shit up for the sake of a better narrative for his book.
  3. Anyway, the SEC is totally on the case in regards to any potential fraud in HFT trading.

Okay, up to this point, it’s just typical corporate weaseldom. Dude makes a boatload of dough for lying to himself and the public, and that’s that. This is not a moral hazard unique to the officers of BATS, that’s for sure. But here’s where it gets much more interesting…

After that third non-answer, I ask CFO Schell a follow-up question: “So you’re saying the SEC now has a full audit trail capability, even into trades that are conducted on dark pools?” The moment I finished the question, I saw our PR handler, who had greeted us and conducted the office tour, quickly rise from the back of the conference room and exit a side door into a main corridor. Hmmm.

Mr. Schell continued to try and use dry-erase markers on a whiteboard to show that BATS was shocked, shocked I tell you, that there could be any HFT front-running facilitated by his stock exchange. A few minutes later, the PR staffer returned to the room and announced that our time was up, and that unfortunately, CEO Ratterman had been called away to an urgent meeting and couldn’t meet with us after all. They then shuffled us out a side door, collected our visitor badges, and sent us on our way.

I want to be clear that I have no proof that Ratterman decided to bag out on our meeting because he didn’t want to answer any non-softball questions. However, the circumstances were interesting, to say the least. Couple our abrupt itinierary change with the fact that I took this photo of Ratterman’s office door during our tour, and draw your own conclusions:


I know I did.

Note: For those interested in learning more about the material detailed in Flash Boys, and delving into the sordid underbelly of the financial world, I suggest the quasi-anonymous website
Additional Note: For a good review of Flash Boys and some additional analysis, see my fellow blogger Thoughts of a Raving Geek at:

Leave a comment

Filed under Uncategorized

Fuzzy Math at JP Morgan

Happy New Year – Particularly for JP Morgan, where $20 Billion in fines is…substantially less than that in cash outlay:

Leave a comment

January 8, 2014 · 11:56 am

Cognitive Dissonance, or Why I’m Conflicted About Kwame Kilpatrick Getting 28 Years in Federal Prison…

Welcome to The D

Welcome to The D

Watch out for the Vampire Squid...

Watch out for the Vampire Squid…

I’m an auditor and a fraud investigator, so anytime I hear about a corrupt public official receiving actual prison time for fraud, I feel satisfied. Not happy per se, because I’m all too aware of how devastating the effects of fraud are on families, communities, institutions, and society overall. However, a nice public conviction does make me feel somewhat vindicated and proud of my profession and those who do the hard work of bringing malfeasance to light and helping ensure that justice is done, even if that outcome is all too rare.

So the news yesterday that former Detroit mayor Kwame Kilpatrick received a 28-year sentence in federal prison for his 23 felony convictions related to a veritable cornucopia of fraud charges made me momentarily giddy. “Good. I hope he does all 28 years,” I thought. But as the day wore on, I noticed that underneath the glow of righteous satisfaction I felt at hearing the news of Kilpatrick’s conviction there was a definite undercurrent of unease. It took me a little while to figure out why I was feeling the creeping dread of cognitive dissonance, but I think I finally nailed it down:

Kwame Kilpatrick is a two-bit crook, compared to the sorts of long-con fraud schemes perpetrated by many financial industry executives in the last ten years. What’s worse? – NONE OF THOSE WALL STREET CATS ARE IN PRISON.

“But still,” you say, Kilpatrick stole a bunch of money, diverted public funds to friends, family, and business associates, and was, by all accounts, an a-hole of staggering proportions. He’s getting what he deserves.” Fine, all true, but let’s take a look at what he did and what he got, and quantitatively compare his sentence to some other miscreants who haven’t been charged or convicted…

From the Detroit News:

“Prosecutors and defense attorneys haggled over the estimated $9.6 million in profits reaped by Kilpatrick and co-defendant contractor Bobby Ferguson in their racketeering scheme. After hearing roughly 20 minutes of arguments on that key point, U.S. District Judge Nancy Edmunds set a conservative estimate of $4.6 million for sentencing purposes.”

So, setting aside all the various and sundry illicit activities that were an integral part of the overall fraud (tax evasion, wire fraud, perjury, etc.) and looking at Kilpatrick’s crimes from a purely financial point of view, we can solve the following equation:

$4.6 million / 28 years = $164,286 stolen per year of prison sentence.  

That’s using Judge Edmund’s conservative estimate. Suppose one were to use the prosecutor’s $9.6 million figure:

$9.6 million / 28 years = $342,857 stolen per year of prison sentence.

Okay, I’ll grant you that $4.6 million is a lot more than one could expect to haul in from knocking over the corner liquor store, but when we start talking about .0001%-er-hedge-fund-manager-private-jet-chartering-let’s-do-a-bunch-of-cocaine-off-a-stripper’s…well, you know what I’m getting at. Or, in case you don’t, there’s this. Or this. Or this.

See my point? How many of the principals involved in those financial industry scandals have been charged, convicted, and sentenced? Answer: This many.

Let’s do some more math. Using the “Kilpatrick Ratio” of a year of prison sentence for roughly $165,000 in fraudulently-obtained or “missing” funds, we would get the following prison sentences:

MF Global/Jon Corzine = 9,697 years ($1.6 billion)

Goldman Sachs/Lloyd Blankfein/Fabulous Fabrice Tourre = 6,060 years ($1.2 billion)

JP Morgan Chase/Jamie Dimon = 37,576 years ($6.2 billion and counting, NOT counting the big settlements that are pending)

“But wait, we can’t do that,” scream The Apologists. “These banks, and the super-smart ( and TOTALLY coincidentally, entirely white male) people who manage them are far too valuable to the global economy to prosecute, it will send the wrong message, it would inhibit capitalism, blah blah blah.” We all know the deal, but that doesn’t mean that it isn’t enormously frustrating.

Now, I’m not saying Kwame Kilpatrick didn’t deserve to go to prison, in fact quite the contrary – throw the book at him.

But it just doesn’t seem right that he doesn’t have a bunch of fellow inmates who were formerly employed on Wall St.

In the end, as Georgle Carlin liked to remind us, it’s a club, and you ain’t in it. 


Leave a comment

Filed under Uncategorized