Tuesday, June 30, 2009
"Stanford is a serious flight risk and there is no condition or combination of conditions of pretrial release that will reasonably assure his appearance as required for trial."Apparently, evidence was presented to the judge that Stanford had a friend get his Antigua passport and bring it to him in Houston and that he had withdrawn $100 million from a Swiss bank account.
The questioning of Ramesh Rajan, chairman and CEO of PricewaterhouseCoopers, India (PwC) by CBI last week, has revealed that the Satyam balance sheets were in fact audited by Lovelock & Lewes and not Price Waterhouse (PW). It is also learnt that the auditing fees, though deposited in the name of Price Waterhouse, Bangalore, was later transferred into the account of Lovelock & Lewes. "It is from here that the partners S Gopalakrishnan and Srinivas Talluri withdrew the money," sources involved in the investigation of the case told TOI.
Apart from Rajan, other senior partners of PW, from Delhi and Kolkata, were also summoned by the CBI last week. The partners denied any association with PW, Bangalore and said that Gopalakrishnan and Talluri were not entitled to sign any balance sheet on behalf of PW. "So as it turns out, the auditors who are partners with PW, Bangalore, wrongly signed under the name of PW, and also outsourced the work to Lovelock & Lewes," said sources adding that investigations confirm that the entire auditing team at Satyam is from Lovelock & Lewes.I am left wondering how all of this could happen without the knowledge of PwC India...
Monday, June 29, 2009
I am breaking my silence now, because my reluctance to speak has been interpreted as indifference or lack of sympathy for the victims of my husband Bernie's crime, which is exactly the opposite of the truth.
From the moment I learned from my husband that he had committed an enormous fraud, I have had two thoughts -- first, that so many people who trusted him would be ruined financially and emotionally, and second, that my life with the man I have known for over 50 years was over. Many of my husband's investors were my close friends and family. And in the days since December, I have read, with immense pain, the wrenching stories of people whose life savings have evaporated because of his crime.
My husband was the one we (and I include myself) respected and trusted with our lives and our livelihoods, often for many, many years, and who was respected in the securities industry as well. Then there is the other man who stunned us all with his confession and is responsible for this terrible situation in which so many now find themselves.
Lives have been upended and futures have been taken away. All those touched by this fraud feel betrayed; disbelieving the nightmare they woke to. I am embarrassed and ashamed. Like everyone else, I feel betrayed and confused. The man who committed this horrible fraud is not the man whom I have known for all these years.
In the end, to say that I feel devastated for the many whom my husband has destroyed is truly inadequate. Nothing I can say seems sufficient regarding the daily suffering that all those innocent people are enduring because of my husband. But if it matters to them at all, please know that not a day goes by when I don't ache over the stories that I have heard and read.
The WSJ reports that Mrs. Madoff has agreed to relinquish her fur coats (valued at $49k), linens and bedding ($18k) and silverware ($9k). Stripped of the means to stay warm, sleep, or eat, life will be burdensome for her now...
Meanwhile, another report says that Bernie was given the maximum sentence of 150 years. That sounds like a new precedent for white collar criminals.
Saturday, June 27, 2009
If he really is the mastermind behind a $7 billion Ponzi scheme, do you think he would be worried about losing $500k?
Meanwhile, Bernie's prosecutors are asking for the maximum sentence for the crimes he has admitted to -- 150 years. They are arguing that since this fraud went on for a generation and was so enormous in scope that Bernie should get the maximum sentence. Apparently, Bernie's victims wrote numerous letters that appear to agree with the prosecutors.
Right now, fraud is at the forefront of everyone's mind, and many investors are taking due diligence seriously. But even so, some advisers notice their clients slipping back into the sort of habits that got Madoff investors in trouble in the first place. Peter Turecek, a senior managing director at risk-consulting firm Kroll, says people are desperate to make back the money they lost in the past 18 months. That makes them susceptible to Madoff-like scams. "It's almost a catch-22," Turecek says.Investors would do well to remember not to let greed outweigh common sense and a healthy dose of skepticism when considering possible investment options.
Jason Thomas, chief investment officer at wealth manager Aspiriant, says he already has clients coming to him with investments that appear too good to be true. When he asks them why they want in, the answer is inevitably the same: A smart friend is making a bundle in it. It's human nature, Thomas says. "We're greedy," he says. "We don't want to be riding the bus. We want to be in the town car."
Friday, June 26, 2009
Because of this, I get concerned when I read the following (via LAT):
Los Angeles County’s top prosecutor has warned that a budget proposal by Gov. Arnold Schwarzenegger would so weaken court sentencing guidelines that if a swindler such as Bernard Madoff were to be brought to justice in California he would not face state prison time.
Thursday, June 25, 2009
Each of these two tests provides strong evidence that the numbers released by Iran's Ministry of the Interior were manipulated. But taken together, they leave very little room for reasonable doubt. The probability that a fair election would produce both too few non-adjacent digits and the suspicious deviations in last-digit frequencies described earlier is less than .005. In other words, a bet that the numbers are clean is a one in two-hundred long shot.As many fraud investigators know, digital analysis has been used to look for financial chicanery too. However, traditional digital analysis generally looks at the first two digits and compares them with Benford's Law to see if they are distributed randomly. The approach used to investigate election fraud is an interesting twist on digital analysis.
Tuesday, June 23, 2009
Leroy King allegedly was paid more than $100,000 in bribes in exchange for his positive reports on Stanford's Antigua banking operation before it collapsed earlier this year, according to a federal indictment unsealed in Houston Friday.Even though the U.S. Justice Department is stepping up FCPA enforcement, bribery seems to be becoming even more prevalent overseas. With businesses embracing a more global focus, audit firms must have the network and resources to service global clients. However, I imagine that audit firms face major challenges in ensuring audit quality overseas, especially in less-developed nations.
In many less-developed nations, audit firms face the prospect of hiring employees who have been raised in a culture that views bribery as acceptable. Also, accounting education may be of lower quality and audit standards may be less stringent in such countries. Further, because salaries are lower in less-developed nations, firm employees are more likely to be enticed by a bribe from a client.
Leroy King's alleged price, $100,000 in bribes, seems like a very small price to pay to keep a $7 billion fraud running. With huge incentives and a high likelihood of rationalization for international employees to accept bribes from clients, I hope that audit firms have been able to establish effective controls to ensure audit quality overseas. Perhaps the scarcity of cases where auditors have been accused of accepting bribes is indirect evidence that audit firms are able to prevent such behavior.
Monday, June 22, 2009
“Madoff cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “In fact, he needed a constant in-flow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them.”You can read more about the charges here.
James Clarkson, Acting Director of the SEC’s New York Regional Office, added, “These Madoff solicitors collectively received several hundred million dollars in fees over the past few decades while Madoff ruined the finances of countless investors.”
Friday, June 19, 2009
The largest financial penalty ever to be levied against a single executive has been given to 56 year-old Richard Scrushy for his role in the HealthSouth financial statement fraud--$2.88 billion! Scrushy managed to avoid criminal prosecution for the fraud when jurors bought into his claims that subordinates orchestrated the massive fraud without his knowledge.
The WSJ reports that the judge in the civil suit, Judge Horn, rejected those arguments and "said Mr. Scrushy either knew or should have known about the fraud, giving no credence to Mr. Scrushy's repeated insistence that subordinates perpetrated the scheme without his knowledge."
Scrushy is essentially broke now and has five years remaining in jail on a bribery conviction.
Thursday, June 18, 2009
President Obama swept to office on the promise of a new kind of politics, but then how do you explain last week's dismissal of federal Inspector General Gerald Walpin for the crime of trying to protect taxpayer dollars? This is a case that smells of political favoritism and Chicago rules.From the little I know about this situation, it sounds like Mr. Walpin was trying to protect taxpayer dollars in a time when taxpayer dollars are flowing out the door so fast that nobody knows where they are ending up! That sounds like sufficient cause for dismissal to me...
Tuesday, June 16, 2009
Saturday, June 13, 2009
Wells (Fargo)'s Boston-based mutual fund Evergreen Investment Management Co. agreed along with its brokerage unit to pay $40 million to end civil state and federal securities-fraud allegations that it overvalued the holdings of its Evergreen Ultra Short Opportunities Fund and then, when it was going to lower the value of the securities, informed only select investors -- many of them customers of an Evergeen affiliate -- allowing them to cash out of the fund and lessen their losses....I wonder if Wells Fargo's settlement in this case involved the same people who were lobbying Congress to get the FASB to loosen the fair-value accounting rules for banks...
The Wells case highlights the valuing of securities as a key issue during the financial crisis as banks, hedge funds and now mutual funds have failed to take losses on their holdings even though there was evidence in the market these securities were trading at lower prices.
The thick-muscled man with close-cropped hair who called himself Rick Duncan seemed right out of central casting as a prop for a Democratic candidate running against Bush administration policies last fall.It's fascinating to me how some individuals seem to gain the confidence of everyone they meet. Ocassionally, individuals who have this charisma seem to thrive on telling tales that are bigger than life. When this happens in a hedge fund we see investors losing millions and even billions. In this case, it happened with an individual who claimed he was trying to do good. Others are not so sure now and wonder if he just liked the attention and power he was getting. Regardless of the reality in this case, it's a sad fact that we need to be skeptical of any individual who gains the confidence of all those around him or her. Watch out for the 'con' man who seems to effortlessly gain nearly everyone's confidence. They seem to be attracted to politics and business.
A former Marine Corps captain who suffered brain trauma from a roadside bomb in Iraq and was at the Pentagon during the Sept. 11 attacks. An advocate for veterans rights who opposed the war. An Annapolis graduate who was proudly gay. With his gold-plated credentials, he commanded the respect and attention of not just politicians, but also police chiefs, reporters and veterans advocates for the better part of two years.
Yet, except for his first name, virtually none of his story was true. In reality, he was Richard G. Strandlof, a charismatic drifter with a history of mental illness and petty crimes who had moved from Montana to Nevada to Colorado, assuming different names and identities along the way.
Friday, June 12, 2009
We have recently posted on the need to get rid of moonlighters, and the shortage of truly independent directors. A host of other issues, such as executive compensation, would be reduced or perhaps solved by stronger governance from directors. So what needs to change in order to strengthen the governance of the board?
Perhaps one way we could improve upon our current situation is to increase the consequences of negligence. Ideally, stricter penalties for a failure in oversight would weed out directors who are not adding value to the corporation on behalf of the shareholders. Although firms may need to look outside of the 'club' for independent directors, the resulting increase in independence and oversight would go a long way toward reducing the occurrence of fraud.
Wednesday, June 10, 2009
Monday, June 8, 2009
The customers say that, by law, they should be given credit for the full value of the securities shown on the last account statements they received before Mr. Madoff’s arrest in mid-December, even though they were bogus and none of the trades were ever made. According to court filings, those account balances add up to more than $64 billion.The calculation of losses is especially relevant when considering eligibility requirements for SIPC compensation:
Aside from the fact that many of these individuals are undergoing serious hardships because of their losses, I don't see any possible justification for the calculation of losses based on fictitious gains. The bottom line: why should we give taxpayer dollars to individuals who profited from Madoff's Ponzi scheme?
Customers who qualify are eligible for up to $500,000 in immediate compensation from SIPC. Those whose eligible losses exceed that amount would divide up the assets recovered by the trustee.Thousands of long-term investors, including elderly people who lived for decades on withdrawals from their Madoff accounts, do not qualify for SIPC payments because they withdrew considerably more over time than they originally entrusted to Mr. Madoff, Barry Lax, a lawyer for the plaintiffs, said.
The Wall Street Journal just reported that the U.S. Supreme Court ruled that a West Virginia judge had a conflict of interest in a case that involved a company that gave the justice over $3 million in campaign contributions. Given that the judge received these contributions, the court ruled that the judge's failure to recuse himself before overturning a lawsuit against the company needed to be rectified.
What is a bit shocking to me is that the ruling on the bench was 5-4. What were the other four justices thinking? My guess is that they never saw the classic movie "A Man for All Seasons" in which Sir Thomas Moore explains to Richard Rich that being a judge can involve incredible pressure in the form of bribes and that Rich should avoid those conflicts because he lacked the integrity that Moore exhibited when he gave his life on principle. In my opinion, Moore's life is an amazing story and "A Man for All Seasons" is one of the GREATEST movies ever filmed!
You may be asking: what does this have to do with fraud? Well it may only be indirectly applicable. More on point, however, is the news that the Supreme Court refused to hear appeals from Tyco's former executives, Dennis Kozlowski and Mark Swartz. It looks like Kozlowski's statement that "We have no perks, not even parking spaces" is now going to come true for several years as he lives out his life in jail. Maybe Kozlowski was prophesying...
Saturday, June 6, 2009
Right now, boards are made up of moonlighters. And, if the last few years have shown anything, it’s that protecting shareholder interests is a full-time job.
The article describes one distributor's experience of receiving excess and damaged inventory during the period when the company was channel stuffing in order to boost its sales numbers to keep financing coming. This distributor summed up his view of Catterton's role in the failure of the Cookie Company by saying:
“What soured me on this experience is that these private equity firms that come in and buy companies don’t look at a company to grow it. Whether it sinks or swims doesn’t really matter to them ... They don’t think about the people whose livelihoods depend on that company. I hope I never have to go through that again.”
Wednesday, June 3, 2009
From the Boston Globe:
FBI director Robert Mueller says the government's stimulus package, including the Troubled Asset Relief Program, has "the potential to be the next wave" of cases the agency investigates.
"These funds are inherently vulnerable to bribery, fraud, conflicts of interest, and collusion," he said yesterday at the Economic Club of New York. "There is an old adage: Where there is money to be made, fraud is not far behind, like bees to honey." With trillions of dollars at stake, "even a small percentage of fraud would result in substantial, substantial taxpayer losses," he said.
Neil Barofsky, Special Inspector General for TARP has already launched over a dozen investigations into possible misuses of bailout funds. In addition, he said the following regarding the oversight of TARP (source):
Inadequate oversight and insufficient information about what companies are doing with the money leaves the program open to fraud, including "conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering,"
I almost wonder if some lawmaker, discussing oversight of the federal stimulus programs, said, "You know, I hear that Bernie Madoff has a great auditor," followed by, "I wonder if they are accepting new clients?"
As a footnote, anyone interested in getting a piece of the action should check out this EZ-CASH bailout application.
Monday, June 1, 2009
A New York Times article explains the partners' situation as follows:
The prison, opened in the 1800s, is surrounded by high watchtowers and a concrete wall. Behind its hulking, metal-studded front door live more than 900 men, held for crimes like pick-pocketing and murder. Then there are the two accountants....
The auditors, who are technically in “judicial custody,” are luckier than most prisoners here. Their wives can bring them food from outside during their twice-weekly visits. But they receive few other privileges. They sleep on the floor in a cell with other inmates, in temperatures that often exceed 100 degrees...
Accounting experts say that while authorities may be treating the PricewaterhouseCoopers partners particularly harshly, making an example of them may prevent more serious repercussions for the country’s economy and even the audit firm itself.
I wonder what they do when they catch terrorists in India...