Plus, a Maryland CPA and a California CPA both get jail time for embezzlement. Newton accountant charged with wire fraud and filling false tax return [U.S. Justice Department] Jeffrey Kellem, an accountant from Newton, MA, was charged with four counts of wire fraud and one count of filing a false tax return on Aug. 5 […]
Plus, an accountant is accused of keeping a domestic slave at his house and an accounting officer is going to jail for swindling his firm out of £3 million. Former Walton Beverage financial officer sent to jail for embezzling company funds [The Bellingham Herald] David McLeod, CPA, the former CFO of Walton Beverage in Ferndale, […]
Here are some accountants who failed badly at being a trusted advisor. Delaware County accountant charged with multiple tax offenses [Justice Department] Myles Hannigan, an accountant from Newtown Square, PA, was charged by the U.S. Attorney’s Office for the Eastern District of Pennsylvania on July 3 with one count of obstructing the due administration of […]
Good morning, GCers. Some friends of ours at the University of Illinois at Urbana-Champaign and Queen’s University in Kingston, Ontario are conducting research on group fraud and other highly unethical acts, and we’re hoping you can do them a solid and help them with their project. While I’m sure they wouldn’t pass up an opportunity […]
Yes, there actually are accountants who behave badly who don’t work at KPMG U.S. or Deloitte U.K.: X Factor star’s accountant is banned from his profession [Essex Echo] Here’s an update to an article Adrienne wrote earlier this year: A south Essex accountant who defrauded X Factor winner James Arthur of almost £600,000 has been […]
A former Deloitte accountant in the U.K. pulled a Houdini and somehow escaped prison time after he tried to screw the firm out of £95,540 ($121,202) by expensing bogus ride-share receipts over a three-year period to fund a secret gambling addiction. Gurgyan Singh Kaley pleaded guilty to two charges of fraud by abuse of position. […]
Here’s a roundup of some bad stuff accountants did or were accused of doing over the past week or so. Auto shop accountant charged with stealing over $175K from employer [Chicago Sun-Times] Rungnapa Correia is accused of stealing more than $175,000 from a Bensenville, IL, auto repair shop she used to work at as an […]
To me, WGN-TV in Chicago is synonymous with three things: the Chicago Cubs (sadly, only for one more year), Bozo the Clown, and Tom Skilling. For more than three decades, Skilling has been chief meteorologist at WGN, and he celebrated his 40th year with the station last August. While other meteorologists in Chicago get three- […]
During his illustrious 21-year NBA career, Kevin Garnett was a 15-time all-star, named the league’s MVP in 2004, and won a championship with the Boston Celtics in 2008. He also is the Minnesota Timberwolves’ all-time leader in steals. But Garnett doesn’t take too kindly to having $77 million stolen from him. That’s what he is […]
The trick to fraud is maintaining control. If you’re siphoning company funds into a bank account that you own through a dummy vendor, it’s key that you’re the person who approves those transactions and it’s even ideal if you can literally or figuratively cut the check. Yes, those are atrocious internal controls, but as we’ve documented […]
In the waning days of 2017, a judge in Alabama found PwC was negligent in its audit of Colonial Bank. The Federal Deposit Insurance Corporation had sued the firm for failing to detect the fraud at the root of Colonial’s 2009 failure. Although Judge Barbara Jacobs Rothstein denied other claims brought by FDIC and the […]
It’s not every day that you come across a controller who had worked on the Allen Stanford and Bernie Madoff Ponzi scheme investigations. But Bridget Meacham Kowalski, CPA, CFE, did just that. Now the controller of the Pittsburgh Symphony Orchestra, Kowalski was working as a financial and litigation consultant for FTI Consulting at the time […]
This Sunday, July 30, 2017, marks the 15th anniversary of the enactment of the Sarbanes-Oxley Act (“SOX”) of 2002. SOX emerged after the “smartest guys in the room” caused Enron to implode, and WorldCom magically erased billions in earnings overnight. The scandals shook the public’s confidence in the reliability of financial reporting and led to […]
Cybersecurity experts and IT auditors better saddle up — the world just experienced its first successful digital bank robbery. The Tesco heist Last weekend cyber criminals executed a sophisticated attack on Tesco Bank (subsidiary of the British grocery chain) and successfully stole £2.5 million (~$3.1 million) from customer accounts. While the money was refunded quickly […]
My grandma got wrapped up in an illegal money-making scheme once. She started taping movies off TV, editing out the commercials, hand-labeling the VHS tapes, and selling them for $3 out of a cardboard box on her driveway. When I caught her, I quickly shut her new business venture down. Luckily, it's 2016 and none […]
If you or someone you know have been thinking about getting into the IRS Crank Yanker business, you might want to be aware of the consequences should the authorities come calling: Sahil Patel was sentenced to 175 months in prison and $1 million in forfeiture for his role in organizing the U.S. side of a […]
Auditors facing over 100 years in prison should take note: Madoff auditor David Friehling to get 2 yrs supervised release which includes 12 months home detention. So no prison time — Matthew Goldstein (@MattGoldstein26) May 28, 2015 Friehling given credit for cooperation which included days of testimony at long criminal trial last year. DOJ called […]
Boonlomp Soonthornchai handled trustee, executor and accounting services as a partner at Yount, Hyde and Barbour in Middleburg, Virginia. In 2004, he began depositing client funds into his personal accounts, concealing the "the source of the money in his personal ledger." He then admitted to the embezzlement, "[w]hen confronted by firm board members and […]
According to my halfassed research, the oldest person in the world is Jeraleen Talley. She’s 115 years old, and her hobbies include sleeping, eating hog’s head cheese, and not dying. And, as the defender of the title “World’s Oldest Person,” she’s the reigning champ in the world’s longest-running death sport. Keeping her title is […]
Paul Anderson, a former Delta Airlines employee, defrauded Northwest and Delta Airlines out of $36 million. In a just world, we would proclaim him a hero who sees the injustice of horrendous business practices and does right by all of us who have been fucked over by an airline. Alas, we live in nation of […]
A man who spent his entire 32-year-career in the accounting department of Frisch's Restaurants — purveyors of the iconic Big Boy — has been accused of stealing $3.3 million from the company, which he may or may not have blown at the casino. In a statement filed with the SEC, the company assured shareholders that […]
Remember Satyam? That Satyam? Yeah, it's been awhile for us, too. Satyam's PwC India auditors already received a lifetime ban, but what about Satyam's founder? Surely you've been wondering what sort of slap on the wrist he'd get for one of the largest and most blatant frauds in history? Wonder no longer: A local court […]
The ACFE says 7 percent of frauds are detected by accident and only 3 percent are discovered by the external auditor, proving that fraudsters are 4 percentage points dumber than auditors are smart. That’s pretty much what happened with poor, dumb Alice Riley, the 61-year-old former clerk for the City of Auburn, Kansas, who was […]
The Securities and Exchange Commission today announced an expected award of more than $30 million to a whistleblower who provided key original information that led to a successful SEC enforcement action. The award will be the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a […]
Times may change and fraud schemes may evolve with those changes but for the most part, the root cause and therefore the subsequent behavior of would-be fraudsters generally remains the same. As the Journal of Accountancy wrote way back in 2000: It’s said that accountants’ predecessors were the scribes of ancient Egypt, who kept the […]
Paul Konigsberg is going with the guilty but ignorant and terrible at accounting defense: A longtime former accountant to Bernard Madoff pleaded guilty Tuesday to falsifying records and other charges in connection with the convicted financier's Ponzi scheme. "I'm here today to take responsibility for what I did that was wrong," Paul Konigsberg, a former […]
Let this be a lesson to anyone considering joining up with a "rogue group" of tax-sheltering jerks at your firm, you've been warned: Former BDO Seidman LLP Vice Chairman Charles Bee’s cooperation with prosecutors in a $1 billion tax fraud probe didn’t spare him from prison, as a judge, citing the magnitude of the crime, […]
Last week, ex Crazy Eddie CFO, notorious convicted felon and known Twitter troll Sam Antar tipped us off to a questionable AICPA webcast called "Voices of Fraud," which ended up on his radar likely because he has a robust Google Alert for his own name. Here's what he told us: The AICPA is offering a […]
You may have read that dedicated criminal Barry Minkow has once again been sentenced to prison, this time for ripping off a church to the tune of $3 million. A CHURCH. $3 MILLION. If that isn't the sign of large, brass cojones given his criminal past, I'm not sure what is. But you see, some […]
We all know zebras can't change their stripes, and former Crazy Eddie CFO Sam Antar has taught us not to believe criminals when they claim they are sorry and repentant. One Peter In Cho, the former head of a Chicago securities brokerage, was so repentant after he was sentenced to 5 1/2 years in prison […]
Where exactly does "sexting extortion" fall on the fraud triangle, anyway? In today's sordid tale of embezzlement gone wrong, we present Shelly Lough of West Virginia. Shelly worked as a Bethany College cashier before a single misdirected text turned her whole life upside down. Usually, the recipient of a text not intended for their number […]
It *is* innnnnsaaaaaane outside.
No, really, that's actually what the paper says. The abstract: What factors explain the behaviors of corporate leaders who engage in spectacular frauds? Is it greed? Is it power? Are these leaders, as some critics allege, simply psychopaths? Or is something else going on? In this Essay created for a symposium on the “agency problem,” […]
In addition to CLA coughing up their share, Fifth Third Bank will pay $3 million, and the city's auditor Sam Card will pay $1 million for a nice round sum of $40 million total, according to Saukvalley.com. CLA provided us with a statement from CEO Gordon Viere: The allegations of fraud committed by City of Dixon Comptroller […]
Siegfried Group is looking for Client Service Directors in Washington, DC, Chicago, and San Francisco. [GCJ] We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale. — Twitter (@twitter) September 12, 2013 Hatch: IRS nominee has 'great many questions' to answer [The […]
Some ad agency/pump-and-dumper really needs to reboot this approach
“In my opinion, the problem today is 10 times worse than it was when Enron had its implosion in what was called the era of corporate fraud,” said Fastow. “The things that Enron did, and that I did, are being done today. In many cases, they’re being done in such a manner that makes me […]
Any licensed CPA caught perpetrating a lapping scheme should have his or her license revoked immediately and permanently — not for committing an act discreditable to the profession, but for being a giant dumbass. There so many types of fraud that are way easier than lapping. No. Wait. Every type of fraud is way easier […]
Ed. note: We welcome back Greg Kyte after a brief post-April 15th vacation. He'll join us every month in his Accumulated Deprecation column. Go here to read more of Greg's posts. Somebody stole $60 out of my desk drawer at work. Not my money. My company's money. You know, the stuff that, as an […]
The other day I asked my wife if she'd be mad if I started a new religion. I clarified that she would not be required to join my new religion; I just wanted to know if I'd have her support. She didn't really answer. Not out loud. But her nonverbal message was as clear as an auditing standard that was clarified in the Clarity Project1. What she wasn't saying was either (a) she'd be pissed if I really did it, or (b) she'll tolerate my stupid questions, or (c) she'd be shocked if I could get more religious followers than I have Twitter followers2.
For God's sake, get a good education.
This poor bastard has been sentenced to a year and a day for gyping the IRS out of their chunk of the money he stole from his employer: [Jeffrey] Scher, a certified public accountant, was employed as the chief financial officer at Bodek and Rhodes, a Philadelphia-based T-shirt wholesaler. Scher received cash receipts from Bodek […]
If you and some cohorts are fed up with walking the straight and narrow, be advised that a recent study by Ernst & Young discovered something that may help assist you in making your future fraudulent endeavor a wild success: Phrases such as “nobody will find out”, “cover up” and “off the books” are […]
What the heck is going on in South Carolina? First we find out last week that an "international hacker" got into the SC Department of Revenue and managed to get his or her hands on 3.6 million tax returns going all the way back to 1998. It is being called "the largest cyber-attack against a […]
Back in 2010, some criminal masterminds perpetrated a scheme where bogus checks bearing the PwC logo were sent to random people informing them that they have been selected to be "secret shoppers" requesting them to cash the checks at specific banks and then to wire them to another secret shopper. It would sound pretty good […]
Last week, the SEC announced that it had paid out its first whistleblower award and that the program was coming along just grand as the Whistleblower Office said that the Commission receives "about eight tips a day" since the it started last August. That's great and all, but the internal auditors might be feeling slighted […]
42-year-old Anita Guzzardi worked at the Philadelphia archdiocese since the ripe old age of 20, rising through the ranks to make $124,000 a year as their CFO until she was canned last year for embezzling $900,000 from the church. Her lawyer says she gave in to gambling and shopping addictions after feeling betrayed by the […]
My fraud IQ sucks. The Journal of Accountancy told me that when I took the "What's Your Fraud IQ" quiz in the August issue. I usually do pretty well. Not this month – 40 percent. I should've cheated. The answers are right there. But like you, I live my life according to a Code of […]
The bright side in all this is…oh, let's face it: when your broker's auditor is in jorts, the situation is hopeless: Peregrine Financial Group's bankruptcy trustee has hired a team of forensic accountants to help figure out what remains at the failed futures brokerage after its CEO's arrest and confession to years of stealing from customers. PricewaterhouseCoopers […]
Gary Gensler, who may or may not be aware that PFGBest's auditor preferred to don jorts at the (home) office, is familiar enough with auditing standards to know there are certain ones that always need to happen: Commodity Futures Trading Commission Chairman Gary Gensler told lawmakers on Wednesday that Peregrine Financial Group's outside auditors should […]
Indianapolis TV station WTHR is reporting IRS tax examiner Howard Antelis has apparently developed some concerns about the way his esteemed employer handles Individual Taxpayer Identification Numbers and, more importantly, what possible abuse and fraud mean for the Service's flawless record. "I'm horrified and ashamed and embarrassed by what I've seen. It's not supposed to […]
Alright listen, we're all busy. Sometimes I forget to scoop out the litter box or to take a shower for, you know, a few days. It's hard to balance work and your personal life and, in the case of 37-year-old Summer Payne, the work and personal life of an employee made up just so she […]
Anyone remember Frederick Darren Berg? He's a guy who had a thing – nay, a passion – for charter buses. It just so happens that he also was running Washington's largest ever Ponzi scheme to finance his passion. Moss Adams (who Berg says is not at fault) was the auditor for FDB's Meridian funds – […]
The Associated Press reports that some property of alleged Dixon, Illinois sticky fingers Rita Crundwell will be put up for sale. The property includes her four homes in Illinois, a home in Florida, and a $2.1 million motorhome. So if you're in the market for a place in the Illinois countryside or in a state […]
Shaun Horan is no Rita Crundwell (allegedly!): A former Oak Brook accountant stole nearly $300,000 from his employer by writing checks to himself over a five-year span, prosecutors said Wednesday. Shaun Horan, 31, of the 1600 block of Blackwell Lane in Aurora, appeared in DuPage County bond court on a felony theft charge. Horan is accused of […]
Accordingly, Dixon Mayor Jim Burke is putting the brakes on any investigation because "[it] would cost the city hundreds of thousands of dollars" and the woman who had the magic credit card is in a bit of trouble. Hey, someone had to apply the tourniquet after the city bled out. [WAND]
How big? In the neighborhood of $53 million, according to the indictment. Earlier reports had put it closer to $30 million and change. It further alleges that Rita Crundwell stated the scheme in December of 1990 and was "[creating] fictitious invoices purported to be from the State of the Illinois to show the auditors for […]
Crundwell reported to the city's finance commissioner, a member of the City Council, but the mayor declined to comment on whether that current commissioner, David Blackburn, or former Commissioner Roy Bridgeman should have detected the alleged thefts. As Bridgeman left office last year, he praised Crundwell for being an asset to the city and said […]
Joseph Traxler was the CFO of Centennial Mortgage and Funding Inc. in Bloomington. He helped run an $8 million fraud by misleading banks that allowed Centennial to obtain more loans. He also hid defaults and double-funded mortgages from lenders, as well as little check kiting in order to keep the business afloat (rather than enrich […]
As you know, the former CFO of DIxon, Illinois, Rita Crundwell, has been accused of misappropriating $30,236,503 and 51¢ from Ronald Reagan's boyhood home. It's a haul of Sue Sachdeva proportions, although it appears that obsessive shopping wasn't so much the motive as it was a My Little Pony fascination for a grown woman. ANYWAY, […]
Last week we learned that the CFO/comptroller/treasurer for the city of Dixon, Illinois, Rita Crundwell, was arrested for allegedly stealing $30,236,503 and 51¢. She also stands accused, in the court of public opinion, of having awful taste in automobiles, as federal agents seized a Ford Thunderbird upon her arrest. Regardless, these allegations came as a surprise […]
If you've been following the Olympus scandal, it's made for a pretty entertaining affair. It involves $1 billion+ in accounting shenanigans, two feeble Big 4 firms, selective communication with investors, a small shifty auditor, OH! and a former CEO of the company blew the whistle on the whole thing. So of course you'd expect shareholders meeting follow suit. […]
Rita Crundwell has been the CFO/comptroller of Dixon, Illinois since the 1980s; a typical tenure for even an unelected Illinois official. In those 30-ish years, it appears that she performed her duties adequately enough, but she was just put on unpaid leave. You see, at some point in 2006, it is alleged that Ms. Crundwell […]
As you know, convicted embezzling-mother-of-all-hoarders, Sue Sachdeva, had a bit of a shopping problem. She did her damnedest to spend all of $30+ million that she stole from headphone cobbler Koss, but now that she's resting comfortably in Danbury, all that loot needs a home. Back in December, we were tipped to an auction that […]
Ahh, Vermont. Foliage, second-rated skiing, and, of course, hippies. But apparently, the Green Mountain should be known for something else – stealing from your employer! According to Marquet International Ltd., Vermont "Vermont topped the list of states with highest risk for loss due to embezzlement in 2011." What's the reason for this? Well, it's not […]
Remember the good ol' Koss fraud? It's been quite some time since we were on the Milwaukee beat but this morning we received an email informing us that a little auction is being held by Gaston & Sheehan that has several lots (97 to be exact) under "US Marshal Service Assets." Our tipster informed us […]
Provident Capital Indemnity Ltd’s former outside auditor admitted in federal court this week to participating in a $670 million fraud in the life settlement bond market, according to the Department of Justice.
56-year-old Jorge Castillo pleaded guilty Monday to one count of conspiracy to commit mail and wire fraud, U.S. Attorney Neil MacBride in Alexandria, Virginia, said in a call with reporters. He could face up to 20 years in prison.
Castillo admitted to conspiring with PCI president Minor Vargas Calvo to prepare false financial statements that reflected contracts PCI held with other reinsurance companies. Castillo admitted to prosecutors that he never audited PCI’s financial statements and that he was aware PCI did not actually enter into the contracts with other reinsurance companies listed on the company’s financials. PCI paid him about $84,000 from 2004 to 2010.
Castillo will be sentenced in a Richmond, VA federal court on May 22.
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.
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.
Let this serve as a warning to any would-be embezzlers out there, if you steal, you better report it to the IRS.
42-year-old Collette Snyder of Timonium, MD pleaded guilty earlier this month to filing false tax returns in 2007 and 2008 after she neglected to claim over $382,000 embezzled from her former employer, Towson, MD-based Maple Leaf Title.
As part of her duties at the title company, Snyder had signature authority over the company’s operating, settlement and recording accounts, which allowed her to begin embezzling money from MLT accounts starting in 2007. She deposited company checks directly into her personal bank account, as well as made checks payable to her husband without his knowledge, forging his signature to deposit those checks in an account he was not aware of. At that point, Snyder had been an employee of MLT for two years.
Snyder took around $149,560 in 2007 and $232,968 in 2008. These embezzled funds were used to purchase jewelry, a BMW, trips, home improvements and private school tuition.
Because reporting this money to the IRS without it clearly declared on her W-2 (despite her writing “payroll” in the memo section of company checks she wrote out to herself) would have alerted authorities to the fraud, Snyder neglected to mention the ill-gotten gains. This resulted in an estimated tax loss of $115,529.37 for her 2007 and 2008 returns.
Due to the embezzlement by Snyder and MLT President Anthony Weis, MLT was unable to perform its duties as a provider of settlement services. With MLT’s escrow account drained, existing mortgage notes could not be paid off by MLT, meaning clear and free title could not be passed to the new lender and borrower of those notes. An insurance company that had issued title insurance policies to the borrowers guaranteeing clear title ultimately paid out $3.9 million to financial institutions that held mortgage notes.
Weis pleaded guilty to wire fraud, was sentenced to 78 months in prison and was ordered to pay restitution of $4,007,705, which includes the loss to the title insurance company and the expenses of the individual victims. He began his sentence in May of this year. The interesting part of this story is that Weis stole money intended for his clients’ real estate closings. And then Snyder stole from the company. Birds of a feather…
Snyder faces a maximum sentence of three years in prison and a fine of $250,000. U.S. District Judge Catherine C. Blake has scheduled her sentencing for February 3 , 2012 at 11:00 am.
“Mortgage fraud adds to the underground economy that erodes the integrity of our tax system and threatens the financial health of our communities. IRS Criminal Investigation is committed to ‘following the money trail’ to ensure that those who engage in these illegal activities are vigorously investigated and brought to justice,” said IRS – Criminal Investigation Special Agent in Charge Jeannine A. Hammett.
As you probably heard, the PCAOB officially put out a proposal earlier this week for audit partners to be named in the annual reports of public companies. It would also require “registered firms to disclose the name of the engagement partner for each audit report already require the form” and “disclosure in the audit report of other accounting firms and certain other participants that took part in the audit.”
While most Big 4 audit partners are probably feeling a little chapped by this whole proposal, there is at least one person going on record (by way of PCAOB comment letter) that feels that it doesn’t go far enough. That would be Carson Block, the CEO and founder of research firm Muddy Waters. In Block’s letter (in full on page 2) to the Board he writes that not only should the engagement partner be identified but that he or she should be putting their name on the audit opinion because “[it] will decrease investors’ future losses to fraud and gimmicky accounting by billions of dollars.”
That on it’s own is enough to get more than a few people riled up. But as we indicated, there are some conspiracy and fraud accusations as well:
Even the most reputable auditors in China seem to be in a race to the bottom. We believe that there are particularly egregious situations in which some Big Four partners in China offices have actually conspired with their clients to defraud investors. Further, it is a reasonable proposition that the conflict of interest inherent in the Chinese auditors’ business model also affects the quality of US company audits.
Now before your knickers in a twist, don’t forget that this is the guy who called Sino-Forest a “Ponzi Scheme for the 23rd Century” which more or less looks to be accurate. Further, if you consider all the trouble Big 4 firms have had with Chinese companies listed in the U.S. and elsewhere, it doesn’t seem to be that much of a stretch that some partners would just say fuck it and work with their clients to keep a lid on the shenanigans than go through the pain of actually doing their jobs.
Regardless, with these accusations the PCAOB may try to make another run at getting the Chinese to play ball.
What’s most interesting about this particular scam is that it involved more people – 55 – than some accounting firms’ entire headcount.
A grand jury has indicted 55 people for participating in scams that tried to bilk the government out of more than $250 million in undeserved tax refunds, prosecutors in California said on Monday. Thirty-two indictments were returned by the grand jury accusing the people of various schemes to obtain the refunds. Millions of dollars were paid out, including a check worth almost $1.2 million, the prosecutors said. The owners of one California company were accused of making presentations that claimed customers could get tax refunds from a “secret government account” after making payments to the company and agreeing to pay a percentage of any refunds they received, the prosecutors said.
As we mentioned briefly, Deloitte has been sued for $7.6 billion by the bankruptcy trustee of Taylor, Bean & Whitaker and Ocala Funding, LLC. If you’ve never heard of Taylor, Bean & Whitaker then check out Jr. Deputy Accountant who’s been all over it since the Feds starting kicking down the doors. Long story short – TBW was a giant fraud perpetrated by its management, Colonial Bank owned a lot of TBW’s mortgages, Colonial failed, Bank of America bought up a bunch of the mortgages, Fannie Mae says they’re owed money, CHRIST, it’s a mess.
“Deloitte missed this fraud because it simply accepted management’s conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by documents in Deloitte’s possession,” one of the lawsuits says.
Of course Deloitte isn’t amused by this, as Deloitte spokesman Jonathan Gandal’s statement attests:
Gandal said the blame for the fraud and losses should rest squarely on Taylor Bean, Ocala Funding and Farkas. “The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law,” Gandal said on behalf of Deloitte.
If this statement strikes you as a little confusing, then you’re not alone. First off, when Mr. Gandal is referring to the “the law” he’s probably referring to this. In less legalese, basically what Deloitte is saying is that Lee Farkas and his merry band of crooks are the ones responsible for this shitshow not the Green Dot and therefore, this whole thing is ludicrous. I mean, come on guys, what could a firm that just reported nearly $29 billion in revenue could possibly have done differently? Crooks are just far too smart far auditors. Just ask one.
Apparently he is still “cooperating with federal investigators” which leads some to believe that he might be giving them the lowdown on the Madoffs’ tax returns but really he probably is just trying to convince someone – ANYONE – to give back his beloved CPA. [Lohud via Forbes]
James Li and David Chow used to run a shop called Syntax-Brillian Company as the CEO and Chief Procurement Officer respectively. They sold high-def, LCD TVs under the Olevia brand in China. Problem was, they didn’t really sell TVs under the Olevia brand in China. According to the SEC:
[F]rom at least June 2006 through April 2008, Li and Chow engaged in a complex scheme to overstate Syntax’s financial results by publicly reporting significant sales of LCD televisions in China, when in fact the vast majority of these sales never occurred. Li and Chow initially concealed the scheme through the use of fake shipping and sales documents.
Of course, they couldn’t do it alone. They needed a CFO. A CFO who would backdate things when asked and ignore obvious signs of bogus revenue. That man was Wayne Pratt who, from the sounds of it, wasn’t too concerned about ANYTHING:
The SEC alleges that Wayne Pratt, Syntax’s Chief Financial Officer, ignored red flags of improper revenue recognition and participated in preparing backdated documentation that was provided to Syntax’s auditors to support fictitious fiscal 2006 year-end sales. Pratt also ignored indications of impaired assets, agency sales, and potential collectability issues.
So, budding criminals, get on the look out for a guy/gal who is accustomed to shrugging their shoulders and responding “Meh. Whatever.” to your demands. Should work out well for you.
Are you an accounting undergrad interested in forensic accounting and cold hard cash? If you are, you might be interested in the 2011 AICPA Accounting Competition, which asks college students to flex their fraud and forensic skills in advising a fictional client on a major overseas expansion. The top three teams will strut their stuff in Washington D.C. on the AICPA’s dime, and the one that does the best job keeping the project on track — and on the right side of the law — gets a very legal $10,000. Legal if you pay taxes on the prize money, of course.
The American Institute of Certified Public Accountants has launched its second annual case competition, challenging college students across the country to test their fraud and forensic accounting skills in a complex scenario that will earn the top performing team a $10,000 award.
The 2011 AICPA Accounting Competition, which unfolds in three stages, focuses on a fictional Texas company looking to expand its business into the Nigerian oil fields. The competition is open to undergraduate students at 2-year and 4-year degree institutions in all 50 states, the District of Columbia, Puerto Rico, Guam, American Samoa, the Northern Mariana Islands and the U.S. Virgin Islands. Because this contest is open to any 2 or 4 year accounting students, this would be a great opportunity for a few future fraud fighters from smaller, less prestigious accounting programs – so if any enthusiastic professors happen to see this, please pass it along.
“The competition is an opportunity for students to get a hands-on, real-life understanding of one of the fastest-growing interest areas in accounting: fraud and forensics,” said Jeannie Patton, AICPA vice president for students, academics and membership. “Those who participate will hone their teamwork and leadership skills, deepen their understanding of financial risks in international business strategy and potentially bring national attention to their college or university.”
Participants in the competition must work in teams of four students, two of whom must be accounting majors. One of the accounting majors must serve as team leader. First round submissions, which are due September 30, will be evaluated to determine a pool of 10 semifinalists. Those semifinalists will compete for three finalist spots, a chance to travel to Washington, D.C. for the final round and three cash awards: $10,000 for first place; $5,000 for second; and $2,500 for third.
Entrants will be expected to outline, in 750 words or less, double-spaced, the top three fraud risks for High Prairie Construction’s plan to expand into the Nigerian oil fields. Would this move increase the risk of fraud within the company? Are there factors within the company’s culture that leave it vulnerable to fraud? Is High Prairie exposed to risk under the FCPA and UK Bribery Act? All of these are considerations you’d make in your summary.
In aren’t you glad these aren’t your internal controls news, former SDN Communications chief accountant Bradley Whitsell of Sioux Falls, SD pleaded guilty to mail fraud on Monday. The U.S. Attorney’s office states that 46-year-old Whitsell used his various oversight positions to embezzle more than $392,000 over a 10 year period beginning in 2000.
According to court documents, Whitsell used company accounts to pay his credit card bills and pay private school tuition. He also wrote checks to himself, redirected electronic payments to cover his expenses, created company checks on his office printer and requested reimbursement for expenses that already were paid by SDN to pay for various personal expenses, including a large landscaping project at his residence and his country club membership.
Whitsell used access to the company’s accounts payable system to change approved vendors’ names with his own, or with those of companies to which he owed money. He would then print out these checks on his office printer and change the names back to the appropriate vendor in the A/P system.
Whitsell could end up in prison for up to 20 years. He initially pleaded not guilty in June to one count each of Mail Fraud and Wire Fraud, each of which could potentially carry a 20 year sentence and a $250,000 fine. U.S. Attorney Brendan Johnson states that Whitsell has agreed to pay back the $392,111.65 and will also cover the $84,000 cost of the audit that uncovered his theft.
SDN CEO Mark Shlanta stated officials started noticing “financial irregularities” connected to Whitsell last year, at which time he was put on administrative leave so the company could conduct a forensic audit and internal investigation. Whitsell resigned before the investigation began (hint: red flag). “It’s been embarrassing for me,” Shlanta said. “I’ve been saddened by the events. Really, I felt betrayed in this past year. Brad was someone I hired and trusted.”
The interesting part of this otherwise droll and useless story is that before the house of cards came crashing down all around him, Whitsell served on the City of Sioux Falls audit committee, not only as a member but as its chair.
Back in June, Sioux Falls Councilor Vernon Brown told one SD blogger that Brad Whitsell received high marks from committee members for his work on the Audit Committee in setting up internal controls for city government. Oh the irony.
Whitsell is currently free on bond and returns to court for sentencing November 7th.
Earlier this week we shared with you the latest analysis from KPMG that listed “key fraudster traits” and some of them seemed to describe a lot of the people you have worked or are currently working for. Things like “volatile,” “unreliability,” “unhappy,” and “self-interested” describes everyone I’ve ever been in around in the corporate world to one extent or another.
Since I was skeptical of this list, I asked Sam Antar what he thought of it. If you’ve been reading us for awhile, you’re familiar with Sam. If you’re new, I’ll do a quick refresher. Sam was the CFO of Crazy Eddie’s and was one of the masterminds behind one of the biggest financial frauds of the 1980s. While you (and I) were eating cereal in front of the TV on Saturday morning, Sam and his cousin Eddie were selling electronics and home appliances to our parents for rock bottom prices, while ripping off the government and investors for untold millions of dollars. In other words, the guy is a crook and knew/knows lots of crooks and knows their hopes (read: money), their dreams (read: money) all that crap (read: more money) and what they’ll do to get them. With that, Sam told me what he thought of KPMG’s analysis:
I was both a friendly and likable crook who treated my enablers real well as I took advantage of them. I treated my victims even better than my enablers, as I emptied their pockets. Old saying, “You can steal more with a smile, than a gun.” KPMG knows nothing about the character traits of criminals. They couldn’t even catch me as Crazy Eddie’s auditors. They trusted me!
So maybe – JUST MAYBE – you should also be wary of the client or co-worker that you really like because he/she takes you to lunch every day, gets you laid, takes you for rides in a fancy car or invites you to coke-fueled weekend ragers with seemingly no strings attached. Plus any client that has a viral marketing campaign should get an extra look:
Of course not all of your bosses are crooks…or are…nah. But just to be on the safe side, make sure you’re giving the stinkeye to anybody with the following characteristics:
• Volatility and being melodramatic, arrogant and confrontational, threatening or aggressive, when challenged.
• Performance or skills of new employees in their unit do not reflect past experiences detailed on resumes.
• Unreliability and prone to mistakes and poor performance, with a tendency to cut corners and/or bend the rules, but makes attempts to shift blame and responsibility for errors.
• Unhappy, apparently stressed and under pressure, while bullying and intimidating colleagues.
• Being surrounded by “favorites,” or people who do not challenge the fraudster, and micromanaging some employees, while keeping others at arm’s length.
• Vendors/suppliers will only deal with this individual, who also may accept generous gestures that are excessive or contrary to corporate rules.
• Persistent rumors or indications of personal bad habits, addictions or vices, possibly with a lifestyle that seems excessive for their income, or apparently personally over-extended in their finances.
• Self-interested and concerned with their own agenda, and who has opportunities to manipulate personal pay and rewards
But as we all know, the ex-stripper wife is the clincher.
U.S. District Judge Lynn Adelman has dismissed Grant Thornton as a defendant in a class-action shareholder lawsuit against GT, Koss Corp. and CEO Michael J. Koss, filed in January 2010 on behalf of plaintiff David Puskala and other Koss shareholders.
In his ruling, Adelman stated that the plaintiffs failed to make a case for GT’s epic failure to detect former Koss executive Sue Sachdeva’s $34 million embezzlement/hoarding scheme. Reasonable, considering GT auditors scared the crap out of old Sue, even though they were sticking newbies on the gig. “Fear was one thing. I thought it was imminent,” she said in a court deposition last year. “Their auditors, every time they walked in, I’d say, ‘This is it. They’re going to catch me.’” Shareholders’ issue – we assume – is that they didn’t. Year after year after year after year until 2009 rolled around and the whole house of cards came tumbling down.
The judge also dismissed claims of willful or reckless behavior against Michael Koss, saying “I conclude that the innocent explanations are more compelling than the inference of recklessness.” Meaning Mike couldn’t possibly have known Sue had been siphoning off millions in company money over a six year period, absent hanging out at her house and noticing all the fancy new shit she had strewn everywhere. And stashed in closets. And bursting out of her garage.
As for Grant Thornton, the judge wrote that the occurrence of fraud and failure to detect it doesn’t imply recklessness on the part of the accounting firm, but rather that the firm was negligent. While it is clear that Sachdeva used her position with Koss to bypass the company’s not-rock-solid internal controls, it is also believed that the controls were sufficient so as not to be obviously unreliable to a reasonable person (or auditor fresh out of accounting school). We’re looking forward to hearing how audit professors use this decision to emphasize the cavernous depth between “negligence” and “recklessness” on the part of auditors.
Sachdeva is still a defendant in the Puskala lawsuit and is currently serving 11 years for the fraud.
Grant Thornton dismissed from Koss shareholder lawsuit [Milwaukee Journal-Sentinel]
As far as embezzlements go, Gary Williams did all right for himself. As the CFO of Marian Gardens Tree Farm, he allegedly walked away with $15 million or so before he was convicted of tax evasion and mail fraud related to said allegations. He was pretty good at disposing of the money, as the Orlando Sentinel reports, “[he] spent $1,800 at John Craig Clothiers in Winter Park, treated himself to nearly $9,000 in Prada luggage and leather goods, and indulged in $15,000 in services at an exclusive resort in Montego Bay, Jamaica.” Obviously this leaves $14 mil or so to throw around and it doesn’t appear that this was a problem:
[Prosecutor Mark] Simpson said Gary Williams, who had blamed cocaine addiction for influencing his behavior, drew a six-figure salary from his employers from 2002 through 2007 while he was embezzling millions, destroying business records and encumbering farm equipment for secret loans for personal use.
He made large withdrawals from company accounts, telling bank officials that it was for “employee bonuses.”
Simpson said Williams, who divorced his wife of 35 years and became estranged from his two children, lavished younger men with jewelry, luxury automobiles, Caribbean vacations and gifts that could not be recovered. “This was not just theft,” Simpson said. “This was financial rape.”
Drugs! Phony bonuses! Hot men in hot cars in hot locations probably having hot sex! This is the stuff that straight-to-DVD movies are made of! But unfortunately the victims in this case aren’t doing as well as they have seen a dime of the money that disappeared:
The Hillary family, which owns the farm and employed Williams for two decades, has yet to receive any restitution from its portly former chief financial officer. According to court documents and interviews with prosecutors, Williams blew hundreds of thousands of dollars at lavish resorts in San Francisco, Rio de Janeiro, the Bahamas, Jamaica and the West Indies. He flew friends on chartered jets and helicopters; dined at five-star restaurants; hired a private chef; and partied at marquee nightclubs.
He explained frequent work absences by falsely claiming to have pancreatic cancer. His employers say they thought he was undergoing experimental treatments.
Williams did lose 100 pounds — but from gastric-bypass surgery, a farm executive said.
For whatever reason, the Sentinel felt it necessary to drag Williams’ big-bonededness into this story as it isn’t clear whether or not some of the loot was used to fund the surgery. At the very least, Williams, who is serving 12 years, can hopefully keep his figure in prison.
Jet-setting CFO gets dual terms for embezzling $15M at tree farm [Orlando Sentinel]
First, if you hate your inventory counts, can you only imagine what it’s like to have to keep tabs on tank after tank of frozen bull semen? Count your blessings, people.
A woman in Ohio pleaded not guilty last week to stealing a tank of bull semen valued at $110,000 from her employer. Authorities say 45 year-old Karen Saum planned to use the semen to extort money out of her employer – the rightful owner of the sperm – to start her own business. I can only imagine what kind of business she planned on starting with the seed money.
Detectives said a tip led them to Saum’s garage, where they found the stolen semen. Just a tip.
Det. James Hollopeter told WHIO TV that Saum used her knowledge of the company’s internal workings to lift only the high quality semen. “She knew where this semen would have been located,” he said. “It was actually locked in an interior closet because it was more valuable that some of the other that they had out.”
Right. Because everyone knows you don’t leave the good shit lying around where any old creepy criminal can get their paws on it.
Next week I’ll be attending the ACFE Fraud and Conference Exhibit in San Diego where many forensic and fraud sleuths will be enjoying each other’s company and one-upping each other with stories on how many criminals they’ve busted over the years. It looks like you can still register so if my presence is the dealmaker for you, then I suggest you get on this.
John Walsh, the host of America’s Most Wanted will be giving a keynote although I’m a little confused as to what he’ll share with people that comb through ledgers for a living. Anyway, if you want to get in touch with me at the conference or while I’m in San Diego, you can email me, DM or @ me on Twitter or shoot me a message on LinkedIn or Facebook. I promise I’ll respond at some point especially if you offer to drive me to the beach or buy me an old fashioned in the Gaslamp Quarter.
And if you’re not in San Diego or attending the conference, don’t worry, I’ll be on a regular posting schedule so there will be the regular dose of inflammatory nonsense coming your way.
A hospital in Winnipeg is suing Deloitte after an ATM scam went undiscovered for over ten years. Luckily some vigilant RN, janitor or cafeteria worker (it’s not clear from the article) noticed something amiss and alerted the proper authorities.
Police arrested a long-time hospital employee last year after she allegedly skimmed $1.5 million from automated teller machine (ATM) deposits between 2000 and 2010.
According to a lawsuit filed last week, the fraud was uncovered by hospital staff, not the auditor. The lawsuit accuses Deloitte & Touche of preparing financial statements not in accordance with “generally accepted accounting principles” and “materially misleading” the hospital about its financial position.
“MHC says that D & T owed it a duty in contract and owed it a duty of care not to act negligently or make negligent misrepresentations to MHC and to ensure that cash and liquid assets as reported in the financial statements were not materially misstated.”
According to the lawsuit, a former finance clerk deposited Worker’s Compensation Board cheques into the hospital operated ATM, understated the amount and pocketed the difference.
All this trouble and no one was even taken hostage. Not good, Green Dot.
Misericordia Health Centre files suit against auditor [Winnipeg Sun]
In what might be a lagging indicator of recession-spawned misdeeds, the percentage of reported corporate frauds compared with all other reported incidents increased to 20.3% in the first quarter of 2011, a rise of more than 60 basis points from the previous quarter, according to data from 1,000 organizations worldwide. Of the 30,000 ethics- and compliance-related reports from people at those organizations in the first quarter, more than 6,100 concerned accounting or auditing irregularities, embezzlement, kickbacks, and other forms of fraud. [CFO]
Stephen Siddell’s dishonesty led to 16 people losing their jobs while he and his wife, Louise Siddell, took luxury foreign holidays. They even posted photographs of their stay in a six bedroom villa in Cyprus on Facebook boasting, “because we’re worth it”. Liverpool Crown Court heard the couple had lock-up garage in Bromborough, which was an “Aladdin’s cave” full of their expensive furniture and designer goods. 24-year-old Louise Siddell had also used their ill-gotten gains to pay for jewellery and breast enhancement. [Wirral Globe]
Deroy Murdock seems to feel that the government should revisit its accounting practices since it appears government accounting is little more than legal fraud. Obviously he has absolutely no idea how accounting really works or he’d call the entire thing fraudulent (I mean, let’s be real, it is and everyone knows it), so let’s humor his opinion for a moment and consider government accounting.
Rep. John Shimkus (R., Ill.) grilled Health and Human Services secretary Kathleen Sebelius about this before the House Energy and Commerce Subcommittee on Health. He wondered how, in essence, the Obama administration could move $500 billion from its left pocket (Medicare) to its far-left pocket (Obamacare) and somehow finance $1 trillion worth of Medicare and Obamacare.
“Your law cuts $500 billion in Medicare,” Shimkus reminded Sebelius at a March 3 hearing. “Then you’re also using the same $500 billion to say you’re funding health-care [reform]. Your own actuary says you can’t do both.”
“So,” the eight-term congressman continued, “are you using it [the $500 billion] to save Medicare, or are you using it to fund health-care reform? Which one?”
Secretary Sebelius confessed: “Both.”
“So, you’re double-counting,” Shimkus replied.
“The same dollar can’t be used twice,” observed Health Subcommittee chairman Rep. Joe Pitts (R., Pa.). “This is the largest of the many budget gimmicks Democrats used to claim Obamacare would reduce the deficit.”
As any college business major knows, such double counting would earn a big, fat F on an accounting final. Far worse, this is illegal.
Obviously Joe Pitts is not at all familiar with how accounting works. The funny part, as Murdock points out, is that the SEC does not consider non-GAAP financial statements to be anything but misleading and inaccurate. It’s a good thing the federal government won’t be trying to file an IPO any time soon.
Financial statements filed with the Commission which are not prepared in accordance with generally accepted accounting principles will be presumed to be misleading or inaccurate.
Question: is there a particular reason “generally accepted accounting principles” is not capitalized? Because GAAP and gaap are two different things, one of which is a set of rules (not principles, no matter what James Kroeker may believe) while the other is basically a bunch of bullshit that we call “accounting” and agree is OK. Sort of like Don’t Ask Don’t Tell for financial statements.
Maybe! David Friehling was supposed to be sentenced last week but apparently it got pushed back again.
On November 3, 2009 Friehling pleaded guilty to various charges ranging from securities fraud to filing false reports to the SEC. He was to be sentenced for these crimes in February 2010 but because of his cooperation with the government, that was postponed until September 2010….that was then postponed until March 15, 2011….now that has been postponed until September 16, 2011. […] So what does a guy know who claims he did not know a lot? Is Friehling working with the Feds and Irving Picard (Madoff Trustee) on strong-arming Mets’ owners Saul Katz and Fred Wilpon? I doubt it. Can Friehling put a finger on one of the Bernard Madoff family members, who have yet to be charged criminally? Maybe.
Of course this could mean that Friehling also knows the location Jimmy Hoffa, the true identities of the participants in the Kenneday assassination and the Coke formula. Oh wait, everyone knows that one now. ANYWAY, the investigators may just be enjoying the anecdotes and would hate to see the poor guy shipped upstate. But most likely, he’s trying to save his ass from a sentence in FPMITAP like his #1 client received.
Giving Friehling the benefit of the doubt, he is cooperating to do the right thing now but he is also trying to get his sentence reduced in the process. With a fraud so large, I do not see how the Federal Sentencing Guidelines keep this guy in prison for less than 20 years.
Madoff Accountant — Now Auditing To Save His A#$ [Forbes/Walter Pavlo]
A report in Bloomberg apparently thinks so.
From the ‘Berg:
HSBC Holdings Plc (HSBA), Europe’s biggest lender, was warned twice by auditors that entrusting as much as $8 billion in client funds to Bernard Madoff opened it up to “fraud and operational risks.”
KPMG LLP told the London-based bank about the risks in 2006 and 2008 reports. The firm was hired to review how Madoff invested and accounted for the funds, for which HSBC served as custodian. KPMG reported 25 such risks in 2006, and in 2008 found 28, according to copies of the reports obtained by Bloomberg News.
Okay l there for two before everyone gets too excited. Let’s just get one thing straight right off the bat – KPMG probably leaked these reports to Bloomberg (I only say probably because I don’t know for an absolute fact but – COME ON – who else?). Secondly, even though the report says “warned twice by auditors” this was not an audit performed by KPMG; it was “[a] review how Madoff invested and accounted for the funds.” What exactly that entails isn’t clear; possibly agreed-upon procedures? Anyway, here’s what the story says were in the two reports:
In the list of risks in KPMG’s report, number 2 was that “BLM embezzles client funds,” using the initials as shorthand for Bernard L. Madoff. To prevent it, KPMG recommended in both 2006 and 2008 that HSBC “establish a process to monitor monthly statements” and reconcile them with contributions from clients.
The 2006 report listed fraud risk number 5 as “client cash is diverted for personal gain” and risk number 18 as “trade is a sham in order to divert client cash.” It went on to say there were concerns “Madoff LLC falsely reports buy/sell trades without actually executing in order to earn commissions” and “BLM falsifies accounting records which are provided to HSBC.”
KPMG reviewed samples of trades and account statements for both its 2006 and 2008 reports to test the risks and detected no discrepancies, the reports said. Even so, the firm suggested HSBC “consider undertaking a periodic review which includes tracing a sample of client trades back to the bulk order.”
After reading that you might think that KPMG hit a home run but what if the “risk factors” listed are just standard boilerplate risks that are included in every single one of these reports? If that’s the case, then KPMG was slapping in the applicable information as it related to BLM, handed it over and collected a nice fee. Maybe KPMG was all over this but there’s no way to know because A) Bloomberg didn’t republish the reports in full; B) Other KPMG teams close to Madoff are getting their asses sued which means they either ignored the risks or couldn’t get a hold of these two reports and C) HSBC throws KPMG under the bus, essentially saying that they were duped by Berns:
HSBC confirmed hiring KPMG in 2005 and 2008 to review Madoff’s firm, adding it now believed Madoff had tricked the auditors. “It appears from U.S. government filings that Madoff and his employees foiled these reviews by, among other things, providing forged documentation to KPMG,” the bank said in an e- mailed statement.
“KPMG did not conclude in either of its reports that a fraud was being committed by Madoff,” HSBC said. “HSBC did not know that a fraud was being committed and lost $1 billion of its own assets as a victim.”
So did KPMG warn HSBC or not? This Bloomberg story seems to think so but there are is a lot of evidence that KPMG was just as clueless as as everyone else who didn’t walk – or run away screaming, arms flailing – away from Madoff.
For Michelle Lynn Shelton, who is accused of taking $760k of her employer’s money, the answer is “NOT LONG!”
Detectives launched their investigation in December after another accountant, who was filling in while Shelton was away from work, discovered the apparent transfer of a large amount of money between two personal bank accounts, police said. Police said the company conducted an audit and contacted police. Shelton started working for the company in June 2007 and the evidence suggested she began diverting funds two months later, police said.
Allegedly! Admittedly, we’re a little behind on this one but you know how it is. Anyway, your Ponzi scheme du jour comes by way of the great Northwest, where Frederick Darren Berg, who seems to have some sort of charter bus fetish, is being prosecuted for orchestrating the largest Ponzi scheme in Washington.
When he was at the University of Oregon in the 80s, Berg allegedly helped himself to his fraternity’s cash to fund a “charter bus venture” and then pleaded guilty to a check-kiting scheme with another bus company a few years later. After those nickel and dime failures, Fred was done messing and decided to really do this:
The 48-year-old founder and chief executive officer of Meridian Group is accused of defrauding hundreds of more than $100 million invested in his Seattle company’s mortgage funds between 2003 and 2010.
Prosecutors allege Berg spent tens of millions on a ritzy lifestyle, including a posh Mercer Island mansion, two yachts and two jets.
But investigators say Berg diverted a bigger chunk, estimated at $45 million, to create a luxury bus line that served tour groups and sports teams, including the Seahawks and the Oregon Ducks.
And we all know what happened to mortgage funds, don’t we? Okay, then. So your next question probably is, “how did the auditors miss this one?” Well!
Berg used some simple stratagems to mislead auditors at Moss Adams, a large Seattle-based firm, which produced audits for a trio of Meridian funds for three years.
The standard procedure is to send out confirmation letters to a random sample of mortgage borrowers and compare what they say they’ve paid with what the lender’s records say.
But Moss Adams didn’t notice most of the confirmations it sent out were going to post-office boxes and coming back with the same handwriting, said [bankruptcy trustee Mark] Calvert.
Berg had rented more than 20 P.O. boxes and had the mail forwarded to another address in Seattle. He was replying to the auditors’ queries himself, according to the indictment.
[Cringe] Oops. To be fair, auditors can’t be expected to be hand-writing experts…can they? Mr. Calvert seems to think so and told the Seattle Times that he plans on suing Moss Adams and Deloitte for their roles. Oh, right! How do they fit in? To wit:
Berg also hired Deloitte Financial Advisory Services to do a “valuation report” on funds V through VII, meant just for Meridian management. Meridian, however, used it to reassure investors, touting Deloitte’s conclusion “the sample mortgage pool appears to be of higher quality and better performance” than comparable loan portfolios.
But Calvert said Deloitte’s supposedly random sampling “was not completed as outlined” in its agreement with Meridian. He declined to be more specific.
Moss Adams and Deloitte would not comment on their work for Meridian.
Golf is probably the furthest thing from most of your minds right now because a) it’s somewhere between 0 and 20 degrees Fahrenheit outside or b) you hate golf. For the latter, you can continue reading in so you may engage in laughing and pointing. For the former, despite it being the offseason in most parts of this fair land, a report from the Manchester Evening News should cause you to temper down your love for a
good walk nice spin in a cart spoiled.
A golf fanatic accountant who stole thousands from his employers and then funnelled it into his ailing club has been jailed. David Beech, 59, showed a ‘bizarre misplaced sense of loyalty’, when he siphoned over £70,000 from his bosses into struggling Oldham Golf Club, where he was treasurer.
But Beech, of Holly Grove, Chadderton, was rumbled when a company auditor went through the books. He pleaded guilty straight away and repaid £51,262 of the cash back although £19,300 was still unaccounted for, Sheffield Crown Court heard. At court it also emerged he received an 18-month suspended sentence 23 years ago for stealing from another employer. Defending, Robert Smith said Beech had demonstrated a “bizarre, strange, misplaced sense of loyalty” to the golf club. “It had a negative impact on the club in that they were under a false impression as to their own finances,” he said
Typical reaction of the members:
About a year ago at this time, we just started learning about Sue Sachdeva, the convicted embezzler extraordinaire of headphone cobbler Koss. It took a little less than a year for everything to get sorted out including quite the inventory of