Allen Stanford

Auditor Denies That an Auditor Was Paid Too Much Money to Audit

Yes, even if it was Allen Stanford's auditor: CAS Hewlett, an accountant in the Caribbean nation of Antigua where Stanford operated a bank and numerous other business interests, received $4.6 million for auditing services, said Morris Hollander, a certified public accountant who testified as an expert witness. “Are amounts paid for auditing these companies in any way […]

Has an Auditor Ever Been Whacked For Snitching on Fraudsters?

I’ve gotten some crazy questions over the years but this one pretty much takes the cake. I’m not saying it’s stupid, nor am I saying it’s all that crazy, it’s just… well… out there, is all. Read on.

Dear Adrienne,

I’m a college student at the University of North Texas. Fraud has been a hot topic in my courses this month. We covered many scandals including Crazy Eddie, Barry Minkow, NextCard, Enron, and Bernie Madoff. This has got me thinking a lot about how I would react if I was in the shoes of the auditor. The students in my class always say to just report the fraud, however they never put themselves in the shoes of the fraudster to determine how the fraudster would act nor do they think about protecting the reputation o watched enough movies to know that if a fraudster finds out that somebody knows “too much,” then that person probably won’t make it home alive that night, unless they cooperate. I remember in that movie, “The Other Guys,” the auditing partner got killed because the fraudsters didn’t want him snitching out any information to authorities.

Another thing is that if it is found out that a partner is involved in fraud, this will ruin the firm’s reputation if this gets reported to the SEC. However, if the firm handles this internally, fire the partner, admit mistake, and let the public know that it doesn’t want anything to do with the partner, then perhaps only the partner would get in trouble and not the firm.

So exactly how are you suppose to act in situations of fraud? Of course AICPA tells us to first report it to your supervisor, then to the audit committee, and then the SEC. But still though, you got to get this out before someone kills you and you’ve got to handle it in a manner that best protects the reputation of the firm. Am I right? Also, have you ever heard of any auditors that were murdered because they knew too much? When you read about Enron or the Bernie Madoff scandal, there are talks about death threats, but you don’t necessarily hear about any murders involved. So it may be something that only happens in the movies.

Well, since you brought up Crazy Eddie, my first instinct was to pose this question to Crazy Eddie’s corrupt CPA, Sam Antar. Thankfully Sam obviously checks his Twitter account every five minutes and had some thoughts for me almost immediately.

“Yes, the potential is there. Depends on the client. Have that person contact me if worried,” he tweeted. Now isn’t that sweet? If anyone out there is feeling the heat, you know who to hit up.

His thought? It’s rare, if not impossible. Why would a fraudster whack the auditor? By the time the fraud is uncovered, it’s too late. The workpapers would likely document said fraud, so the fraudster would then be forced to whack the entire chain on up to the partner and who has time to do all that killing? “No logic in whacking outside auditor unless part of conspiracy,” Sam said.

That being said, does anyone remember Allen Stanford’s sketchy auditor C.A.S. Hewlett (“C.A.S.H.” get it?!)? He apparently kicked the bucket on January 1st (a real accountant would have kicked the bucket on December 31st, pfft), just a month before Stanford was charged with fraud (though he didn’t get arrested until June of that year). The circumstances surrounding his death were, uh, weird to say the least but I don’t think anyone is going to go so far as to say he got whacked.

Or how about Ken Lay? I mean, does anyone really believe he had a heart attack? There is even an entire website dedicated to exposing Ken Lay’s post-mortem life.

Now, here’s where it gets tricky, and I don’t expect you to know this since you haven’t made it out into the real world yet. What is an auditor’s job? Is it to uncover fraud? Or is it to verify with a minimum of certainty (a.k.a. “reasonable assurance”) that the financial information presented by a company is probably legit? If you answered the latter, you win. Forensic accountants dissect fraud, auditors simply check boxes. I’m sorry if this offends any of you hardcore auditors out there but in your hearts, even you guys know I’m right. Auditing is a joke, an intricate dance (read: performance) that exists more for entertainment than functionality. If you don’t agree with me, I’d be happy to name any number of companies that prove my point for me (let’s see… Enron, Worldcom, Overstock, Satyam, Olympus…).

What do you think the odds are that a first or second year auditor would even be able to detect fraud? Don’t you think the criminals behind it are at least clever enough to hide their wrongdoing from a bunch of fresh-faced kids with their SALY checklists? Look at the lengths Crazy Eddie went to – to success until their greed got the best of them and a chick ruined the whole scam. And that’s the thing, the auditors rarely uncover fraud, it’s usually the fraudsters themselves who end up exposing themselves though greed or just plain stupidity.

Whistleblowers don’t make friends but they don’t have to hire armed guards either. Like I said, by the time the fraud is exposed, it’s too late to start killing people to hide the truth.

And thanks to SOX, it is illegal to “discharge, demote, suspend, threaten, harass or in any manner discriminate against” whistleblowers, so a more likely scenario is that revelations of fraud will come from within the firm, not from the outside auditors who are pissed off to be doing inventory counts on New Year’s Day.

You watch too many movies, kiddo. Just check the list, collect the bank recs and call it a day.

Investors in Allen Stanford’s (Alleged) Ponzi Scheme Sue BDO

Nearly two years after Texas financier Allen Stanford was indicted in an alleged massive Ponzi scheme, investors have just filed a $10 billion proposed class action suit against his auditor—the giant accounting firm BDO.

The suit—filed Thursday in federal court in Dallas—says BDO did not only aid and abet the $7 billion dollar fraud…it was a “co-conspirator.” “BDO’s cozy relationship with the Stanford Financial Group was steeped in conflicts of interest and required ongoing deceptive and duplicitous manipulation of the facts to allow the Ponzi scheme’s exponential growth for over a decade,” the complaint says. “The result of this deception is the loss of thousands of investors’ life savings.” [CNBC]

Accounting News Roundup: BP Weighing Options on Dividend; Will the “New Wealth Taxes” Affect You?; Medifast Keeps Things Vague | 06.14.10

BP unlikely to cancel dividend, but mulls several ideas: source [Reuters]
They may defer it, pay it in shares or “pay into a ring-fenced account until the oil spill liabilities become clearer.” All of which will please absolutely no one.

Auditors to reveal bank talks under new plans [FT]
Proposals by the ICAEW would require auditors to disclose their private discussions with bank audit committees afteshowed that “the value of bank audits had shown investors especially were dissatisfied by the audit report. The internal process involved was perceived as helping to keep bank executives in check, but investors felt the report was only a box-ticking exercise.”

The Big 4 have historically resisted these types of proposals, arguing that it will expose them to additional legal liability.

Suggestions cited include assurance on the “front half of annual reports,” as well as an audit of the banks’ summaries of risks. The ICAEW said it was aware that this would add to the auditors’ workload.


Vantis trading suspension follows difficult financial period [Accountancy Age]
The court-appointed liquidator for Allen Stanford’s bank, Vantis, has had trading of its shares suspended by the AIM after the company was unable to obtain any funds for their services related to the Stanford case, among other financial difficulties.

Ernst & Young had issued a going concern opinion for the company back in February, warning that continued lack of cash flow would have to be remediated quickly for any possibility for the continuation of the business.

How the New Wealth Taxes Will Hit You [WSJ]
Are you one of those “rich” people? That is, do you have an adjusted gross income of $200,000 or more ($250,000 for joint filers)? If so, you’ll probably want to know that two new tax levies will come your way in 2013 as a result of the new healthcare legislation – a 0.9% levy on wages and a new 3.8% tax on investment income.

The 0.9% tax is on any wages over $200k/$250k. For example, if you are single and made $300,000, your additional tax would be $900.

Similarly, the investment income tax would tax any investment income in excess of the $200k/$250k threshold and the 3.8% tax would be applied. What’s investment income you ask?

Interest, except municipal-bond interest; dividends; rents; royalties; and capital gains on the sales of financial instruments like stocks and bonds. The taxable portion of insurance annuity payouts also counts, unless it is from a company pension. So do gains from financial trading, as well as passive income from rents and businesses you don’t participate in. All are subject to the 3.8% tax on amounts above the $250,000 or $200,000 threshold, as described above.

Income that is not considered investment income include: distributions from IRAs, pensions and Social Security, annuities that are part of a retirement plan, life-insurance proceeds, muni-bond interest, veterans’ benefits, and income from a business you participate in, such as a S Corporation or partnership.

KPMG considering move to 1801 K [Washington Businsess Journal (subscription required)]
KPMG might move their Washington, DC office location to 1801 K St. NW from 2001 M St. NW according to “real estate sources.” KPMG’s spokesman said that the firm is continuing to “examine all of our options.” The situation is fluid.

Open Letter to the [SEC]: Why You Must Review Medifast’s Revenue Accounting Disclosures [White Collar Fraud]
Sam Antar would like to put the SEC on notice that Medifast seems to be less than transparent when it comes to its disclosures, “it seems that Medifast is recognizing revenue upon shipment and not delivery. As a minimum, Medifast, like Overstock.com, should be required to expand and clarify its disclosures to avoid confusing investors.”

Accounting News Roundup: Strange Letter Disrupts Ernst & Young’s Iraq Plans; Allen Stanford Is the Worst; Debunking a Tax Preparer Regs Conspiracy Theorist; Medifast Gets the Bird | 05.20.10

Mysterious letter rattles E&Y’s Iraq ambitions [Accountancy Age]
Ernst & Young has been trying to get its audit on in Iraq shortly after Saddam Hussein’s party ended in 2004. The firm has been providing services there, however not yet been approved to perform auditing services. E&Y has been claiming that it was making headway, “on the verge of obtaining an accounting license” but now a letter from somewhere within the dense Iraqi bureaucracy seems to have delayed those plans.

It came as a shock when the firm learned of a letter sent to the Iraqi Supreme Court, the Central Bank of Iraq, the Commission of Integritygistrar and the Iraqi Banks Union, among other senior institutions, from the Iraq Union of Accountants and Auditors, which claimed the firm had been banned.

“It has been decided to forbid the accreditation of any financial statements audited by Ernst & Young (E&Y) company and forbid its operations in accountancy and auditing for governmental and private sectors in Iraq,” the letter stated.

The letter, in Arabic and signed by the Union Secretary Dr Rafed Obaid Al Nawwas, said the union reserved the right to go to “legal authorities to stop non-Iraqis from conducting audit and accountancy in Iraq”.

So in case you missed it, E&Y did not actually receive this purported letter but heard of it second-hand and then responded that the Iraq Union of Accountants and Auditors has no authority on the matter, since it’s just an “association of Iraqi accountants.” So it sounds like the AICPA of Iraq basically tried to tell the Iraqi version of the SEC, PCAOB, et al. that E&Y was not fit to be in country (if you’ve got another idea, by all means).

Iraq’s chief accounting regulator claims to not knowing about the letter and that E&Y is “just about to obtain its license” so this may be a nuisance more than anything else.

How Stanford is worse than Madoff [Fortune]
Mostly because CDs are the basic financial instrument that is usually held by little old ladies and other common folk. Not Kevin Bacon.

Unenrolled Tax Preparer: Preparer Regulation is a CPA Plot to Put Me Out of Business [Tax Lawyer’s Blog]
Naturally, there are some unlicensed tax preparers that are taking the IRS’ proposed regulations a little personally. Peter Pappas at TLB tells us about one unlicensed preparer who did some bellyaching to the Service. This sage of taxes challenges anyone to question his expertise:

1. “I prepare my returns accurately and would challenge anyone to find errors.

2. “I have seen numerous returns prepared by CPAs and other similar preparers that were incorrect. [the man strives for perfection]”

3. “I am willing to take some courses or some certification, but to become an enrolled agent or CPA would cause an undo burden on my business. [i.e. require me to work more than 8 hours a day]”

And that’s just a sampling. Mr Pappas kindly debunks all of these (and more):

1. “A self-serving declaration by an unenrolled tax preparer that the returns he prepares are 100% accurate is about as valuable as an NBA player announcing that nobody can guard him.”

2. “This is utterly irrelevant and, if anything, an argument for more regulation, not less…[This] is dumber than texting while driving.”

3. “Becoming an enrolled [preparer] would force Mr. Jamieson to make expenditures of time and money he does not wish to make, therefore, because he is not prepared to make those sacrifices he believes that people who have made them should get no benefit from it whatsoever.”

Barry Minkow Gives Medifast the Middle Finger [White Collar Fraud]
At this point we’re assuming it’s only the figurative bird, by way of a report that states that Medifast’s business model is effectively a multi-level marketing scheme.

Despite Being a ‘Wreck of a Man,’ Allen Stanford Managed to Fire Another Attorney

Things are not going so well for the Stan as he awaits trial in H-town.

For starters, he managed to fire another lawyer, which is not going to go over well with Judge David Hittner. Judge Hittner warned Stan about his Steinbrenner-ish ways last month, “You’ve had 10 attorneys attempt to enter this case on your behalf. I will not entertain any further substitutions.”

And secondly, Al doesn’t seem to be very good at making friends:

When Mr. Stanford surrendered to authorities, he was a healthy 59-year-old man,” Stanford’s Houston-based lawyer, Robert Bennett, wrote in a brief on which Harvard Law Professor Alan Dershowitz consulted.

“Mr. Stanford’s pretrial incarceration has reduced him to a wreck of a man: he has suffered potentially life-impairing illnesses; he has been so savagely beaten that he has lost all feeling in the right side of his face and has lost near-field vision in his right eye,” Bennett said.

Naturally, AS’s lawyers want him out and placed on house arrest ASAP since his trial doesn’t start until January but so far no one is convinced that Al won’t bolt the second he gets outside the prison walls.

“Savagely beaten” Stanford asks to be freed [Reuters]

Quote of the Day: No Ponzi Scheme Bailouts | 03.11.10

“[I]t is hard to justify giving special compensation to the investors of Mr. Madoff and Mr. Stanford just because they lost significant amounts of money with little prospect of any recovery.”

~ Peter J. Henning, on Madoff and Stanford victims lobbying members of Congress for a law that would compensate them for some of their losses.

SEC Would Like the Stanford Receiver to Relax a Little

r.jpgRalph Janvey, the court appointed receiver in the Allen Stanford “where’s the f’n money Lebowski” case is what some people might call, shrewd.
Janvey is fighting to have certain brokerage accounts held by investors frozen because the holders of said accounts made principal withdrawals prior to the uncovering of the fraud.
The SEC kinda, maybe thinks that this is a little overboard and filed papers opposing Janvey’s suing of what the Commission calls “innocent fraud victims”.
We’re thinking that since Janvey is on the wildest of wild goose chases, he has had to resort to suing regular people that had the fortunate dumb luck to pull their money out of a Stanford Bank Institution garbage bag prior to the poop + fan.
SEC Opposes Motions in Stanford Case [WSJ]

The SEC Knew Who Allen Stanford was Before 2009, Thankyouverymuch

stanford10.jpgThe SEC would like everyone to know that it was “actively investigating” Stan the Man “well before the multibillion-dollar fraud by Bernard Madoff was revealed” but was “hampered by a lack of cooperation” from the Gun Show.
The investigation started back in 2005 but the SEC decided it wasn’t really time to get serious with Stan until after the whole Madoff SNAFU broke. So it sounds like from 2005 to late 2008, the “actively investigating” consisted of the following:
SEC: Hi. Are you running a Ponzi scheme?
Stan: I’ll die and go to hell if it’s a Ponzi Scheme
SEC: Good enough for us. Thanks for your help.
Give the SEC a break people. They were really trying on this one.
Stanford Hampered SEC Probe [WSJ]

Someone is Getting Testy

r.jpgAllen Stanford is pissed. How on Earth can a man with those guns not be allowed to invoke his rights to counsel if you don’t let him get his mitts on some cash?
We’re not talking about a public defender here, judge. We’re talking downtown, probably wears a Stetson to the courthouse, Houston representation we’re talking about. Serious scratch.
“‘The government’s unfettered, and thus far successful, attempts to prevent Mr. Stanford from being able to mount a defence in his criminal proceedings amount to a deprivation of both his Sixth Amendment right to counsel and his Fifth Amendment privilege against self-incrimination,’ attorney Dick DeGuerin argued in in the filing.”
The judge is like, IDGAF: “Judge [David] Godbey replied to – and denied – that request last week, saying Sir Allen had ‘not shown that he has $10m dollars, or any lesser amount, in personal assets untainted by potential fraud.'”
Fine, but Stan would just like you to know that selling tickets to the gun show inside the joint doesn’t work the cons like it does the fine Texas ladies.
Stanford lashes out at federal prosecutors [FT.com]

Stanford CFO to Plead Guilty After Pleading Not Guilty

This after speculation earlier about whether Davis would flip. Looks like he’s going to sing:

James Davis, the former chief financial officer of Stanford Financial Group and who is facing charges related to an alleged $7bn fraud at the group, intends to plead guilty to the three charges against him, his attorney told the Financial Times.
Attorney David Finn, who is representing only Mr Davis, told the FT there would likely be a “procedural not guilty plea” entered at his arraignment, but that his client would ultimately plead guilty to the charges against him “once all the details are worked out.” Mr Davis is due to appear in court in Houston on July 13.

You got that ticket to hell stamped, Stan?
Stanford CFO James Davis “intends to plead guilty”, laywer [sic] says [FT Alphaville]

Stanford CFO Flipping?

Chief Financial Officer Bean Counter Number-Maker-Upper Officer at Stanford Financial, James Davis, is appearing in court Wednesday to answer fraud and conspiracy charges.
Davis has spent the last few months cooperating with prosecutors and may flip on Stan the Man regarding the small matter of some money gone missing.
No agreement has been reached yet for Davis but considering the number of years being handed out and Stan’s potential fate of multiple centuries in prison, he may at the very least, consider cooperating.

Stanford CFO to appear in court
[Accountancy Age]

New Bail Hearing for Stanford Set for Monday Because He Just Might Split

Stan the Man will spend the weekend pumping iron in a Houston jail because all signs are kinda, sorta pointing to the possibility of him going on the lam after a judge granted the silver medalist in the Ponzi competition a measly $500,000 bail.
Stanford’s attorney called bullshit because “he had already shown the financier was no flight threat.”
Judge David Hittner didn’t buy it and remanded Stan to jail until Monday based on the evidence presented by prosecutors:

testimony from a pilot who flew Mr. Stanford to Libya and Switzerland before government officials raided his Houston offices; testimony from a friend of Mr. Stanford’s daughter who gave him $36,000 in cash, and claims that $100 million was withdrawn from a Swiss bank account Mr. Stanford controlled

C’mon, your honor, that’s just walking around money! My client can’t be expected to strut around without serious money on hand!

New Bail Hearing Set for Stanford
[WSJ]