Saturday, February 15, 2014

Fraud in the Detroit Bankruptcy and the Role of Investment Banks

I read an interesting analysis of what's happening in the Detroit Bankruptcy proceedings. In a nutshell, it appears to be another case where the investment banks were able to take out millions of dollars in fees as they structured deals that ended up crippling the economy. In this case, the deals may be considered fraudulent according to this analysis. This seems to be business as usual in the investment banking world for about two decades or more.

Enron and WorldCom were frauds that were fueled by investment bankers and ended up becoming the largest bankruptcies in history. The mortgage meltdown was also fueled by investment bankers and that led to even larger bankruptcies and the world economy being brought to its knees in what is now known as the Great Recession. Now, the largest municipal bankruptcy in history also appears to have been fueled by some cleaver investment bankers who undoubtedly made out like bandits as it appears that they structured deals that gave them huge fees.

Tuesday, October 1, 2013

Lance Armstrong Investigation: I can't believe it's come to this....

Here we are, nearly three and a half years after Floyd Landis's first confession came out and I posted that I was 99.9% confident that pro cyclists had been doping for the past 15-20 years. I ended that first post by saying "Sadly, what would be surprising to me is if someone who is dominating pro cycling such as Alberto Contador was actually not doping!" Of course, soon after that, Alberto failed a doping test in the Tour de France and was suspended from racing.

Since that first post, there have been many posts to follow (this makes number 150 with the label of Lance Armstrong Investigation) and

Saturday, September 28, 2013

Scientific Research Fraud is on the Rise--Especially in China

In accounting research, we had the first retraction in decades in the past year. Soon after the retraction, evidence was provided suggesting that the retracted article reported some very suspicious claims that were essentially impossible. The author(s) never provided a rebuttal to the claims and the author who claimed to obtain the amazing data for the article suddenly retired and is reportedly very hard (or impossible) to contact. While the retraction never stated that the article was a fraud, it all seems very suspicious...

In the harder sciences, The Economist reported this week that there has recently been a sudden uptick in fraudulent scientific research, especially in China. Here is a taste of the article:

Tuesday, August 27, 2013

Monitoring Matters

In a surprising development (to no one familiar with auditing or internal controls), it turns out that monitoring can actually make a difference in the way people behave!

Actually, a field study focused on monitoring and described in the NYT provides some interesting insights. While it isn't really surprising that monitoring focused on deterring theft actually deterred theft, what is less expected is that anti-theft monitoring actually increased productive efforts by employees. From the NYT article:

Monday, July 8, 2013

Fraudster gets Scammed

I always like it when I read about a fraudster who gets scammed. This reminds me of the groups who are dedicated to wasting time of the internet scammers. One group goes by ScamBaiter and another is 419 Eater. They basically waste time of scammers who send out the emails to people saying they're going to send them huge amounts of money if they will help them out. Well, I read about another scammer who got scammed today. This time, it involved a local power company in Utah. A scammer had notified a cookie company that they needed to pay their bill or their power would be turned off. You can read what happened next here....

Monday, June 24, 2013

Enron CEO, Jeff Skilling, Received Shorter Jail Sentence

Various news agencies reported last week that a federal judge reduced Jeff Skilling's prison sentence by about ten years. If Skilling is found to be on good behavior and take a drug and alcohol rehabilitation course, he could be out of prison within four years. Part of the agreement is for Skilling to quit trying to get his conviction overturned. This new ruling also frees up some money from Skilling's estate that will be used to compensate victims of the fraud, including former Enron employees who lost their retirement when the company went bankrupt. Diana Peters is one of many former Enron employees who was at the latest trial and is quoted as follows:
"I pray that your decision is to give Jeff Skilling the maximum sentence for his crimes." 
Fraud always ends in a sad story as innocent victims deal with the aftermath by experiencing serious devastation, suffering and heartache. My heart goes out to these former Enron employees who had nothing to do with the crazy games Skilling, Fastow, Lay and others were playing...

Monday, June 17, 2013

Whistleblowing is Paying Off

The WSJ reported this week that the SEC has handed out it's second ever Dodd-Frank award for whistleblowing. the article says that the SEC expects more awards in the future. Here's a quote...

Monday, June 3, 2013

City Governments Committing Financial Statement Fraud

The Wall Street Journal reported recently that city governments in Pennsylvania, Florida, California, New Jersey and Illinois are increasingly being charged with financial statement fraud in their bond offerings. In the case of Harrisburg, Pennsylvania, the SEC stated that:
...this is the first time the (SEC) has "charged a municipality for misleading statements made outside of its securities disclosure documents."
According to "Anthony Figliola, a vice president at Empire Government Strategies, a Long Island-based consulting firm to local governments. 'Harrisburg is the tip of the iceberg.'"

Sunday, June 2, 2013

Lance Armstrong Investigation: Betsy Andreu & Bill Bock Interviews
This short video discusses some aspects of the fraud in pro cycling that was perpetuated by Lance Armstrong. Betsy Andreu and Bill Bock (USADA General Counsel) spoke at UT Austin recently and this video was produced. They speak of omertà, truth, and how one person with moral courage can make a difference. Check it out, it's worth the four minutes...

Friday, May 31, 2013

SEC to Focus more on Financial Reporting Fraud

According to the Wall Street Journal, the SEC is ready to get back to work looking for financial reporting fraud. After the mortgage meltdown, the article states that the SEC turned its attention to cases related to the financial crisis and took its eye off of fraudulent financial reporting. Interestingly, the article identifies one new tool that the SEC plans to use to identify fraudulent financial statements...

Wednesday, May 15, 2013

Former Enron CEO Working a Deal to Get out of Prison

Mainstream news sources are saying that Jeffrey Skilling, former Enron CEO, is working a deal to cut his prison sentence by more than a decade. The reports say that...

Saturday, May 11, 2013

Is Fraud Committed by a Spiritual Advisor and an Accountant One and the Same?

Yes according to the Manhattan district attorney who prosecuted a fortune teller for committing fraud. Here's a quote from the NY Times:
“Larceny is larceny, no matter what form it takes,” Cyrus R. Vance Jr., the Manhattan district attorney, said in a statement. “Fraud by a spiritual adviser is no different than fraud committed by an attorney, an accountant or any other person who gains an individual’s trust in order to steal from him or her.”
If you are interested in what this fortune teller did, I'd check out the short article on the NY Times... I personally think the commonalities in various forms of fraud (such as gaining trust) are informative.

Ernst & Young Corruption Survey Results

Ernst and Young surveyed over 3,000 employees from 36 countries in Europe, the Middle East, Africa and India and found that a large percentage are aware of fraud in their organizations. The percentage admitting they knew of fraud seems to increase as you move up the management ladder of the organization. For example, 42% of board members and senior managers admitted to knowing about financial reporting irregularities. Apparently they admitted that either sales or costs had been manipulated...

Before you're tempted to dismiss this as due to corruption in the under developed nations, it turns out that while the rates are much higher in the third world, even highly developed countries in Europe report significant amounts of fraud (including financial reporting fraud) is going on in their companies. My guess is that the US is probably not as good as the best European nations

So much for fairly stated financial statements, not to mention, bribery and other forms of corruption...