Martin Shkreli: The Downward Spiral of Fraud and Greed

Martin Shkreli, former CEO of a pharmaceutical company is known for buying up old drugs and immediately raising the price to consumers by as much as 5,000% overnight. He recently raised the price of one drug that treats a devastating infection in babies and people with AIDS from $13.50/pill to $750/pill. Mr. Shkreli has often spoken out against critics, and has become known as the “bad boy of pharmaceuticals,” portrayed by his excessive greed. On December 17^th, Mr. Shkreli was arrested for securities fraud and wire fraud charges, not because he raised prices so quickly in his current company, Turing Pharmaceuticals, but because of fraud he committed in two prior hedge funds and a previous biopharmaceutical company, Retrophin.

Mr. Shkreli lied to investors for both of his hedge funds while losing millions of dollars. He then paid them off by using funds from Retrophin without consent from the board of directors. Throughout the process, he and a partner fabricated consulting agreements so that external auditors would not be suspicious of the transactions taking place between Retrophin and the investors of the two hedge funds. This article from The New York Times and the video below (posted by the Associated Press) give more information about what Mr. Shkreli did and what he has been charged for.

Swisher Executives Charged with Fraud

In 2012, Swisher, a janitorial and cleaning-supply services company, was charged with allegations of financial wrongdoings.  Now, three years later, Michael Kipp (former CFO) and Joanne Viard (former director of external reporting) face charges of conspiracy to defraud the United States, wire fraud, securities fraud, and obstruction of justice.

The fraud was carried out largely so that executives could meet earnings targets. While it may not have initially seemed like a big deal to Kipp and Viard to commit the fraud, the investing public was put at risk, and fraud is a crime that is punished. Jill Rose, the U.S. Attorney for the Western District of North Carolina, made it clear that whenever there is fraud it will be punished, and in this case the two executives may face up to 30 years in prison.

See this article from The Charlotte Observer for more information.

Volkswagen Cheats the Emissions Test and Gets Caught Big Time

The Volkswagen scandal has been all over the news the past several days (TIME, CNN, Economist). In summary, Volkswagen committed a massive fraud by installing a chip in at least 11 million of their diesel cars that slowed down emissions only when the car was plugged in to the emissions machine. Then as soon as the test was finished and the car was unplugged, the car emitted anywhere from 10 to 40 times the amount of nitrogen oxides than what the test results showed. The amounts emitted normally by the car far exceed environmental regulations in the United States. (For more information on the story, see the video below.)

Computer Chip Credit Cards – What it Means for Credit Card Security

Have you ever received a call from Visa, American Express, or another credit card company telling you that your credit card information was hacked and your card is being cancelled while new replacement cards are sent? I have, and it can be a hassle resolving the fraudulent charges and waiting for a new card. And it’s an even bigger hassle for the credit card company who has to track down where the card was used to try to get the money back to minimize their losses. However, due to new technology, the amount of fraudulent charges will be drastically decreasing. By the end of 2015, US financial institutions will have distributed more than 600 million chip cards—a credit card with a computer chip embedded into the card that will increase its security and decrease consumer fraud. A recent article in The Deseret News highlights why the new cards are becoming more popular and what it means for consumers.

The Hospital Room Incident: Did Lance Armstrong Pay Off Doctors to Remain Silent?

While it has been several months since we posted about the Lance Armstrong investigation (see this link for previous posts), the case against Armstrong continues to grow. A recent article in the Daily Camera discusses what is known as “The Hospital Room Incident.” This article discusses why the U.S. Government subpoenaed his medical records from the Indiana University School of Medicine. Allegations are that Armstrong paid off his doctor to remain silent through a donation to his medical school.

Detecting Fraud in Academic Research

The scientific community is often considered to be less filled with fraud than other disciplines. Typically when we think of fraud, we think of it occurring in businesses and think of someone walking away with a lot of money. However, fraud can also easily happen in academic research (see these previous posts for examples) where someone walks away with a lot of published papers. Discover Magazine recently posted an article titled The Perfect Scientific Crime. The article outlines several ways that someone could commit fraud without being detected by creating and using fictitious data. The purpose of the article, however, is not to help fraudsters, but rather to point out a few things that others should be aware of to help deter fraud in the academic community.

Business Email Fraud

According to the FBI, companies worldwide have lost more than $1 billion from October 2013 through June 2015 due to business email fraud, an increasingly popular fraud tactic used by criminals to infiltrate a company’s email system and request large sums of money via wire transfer. A recent article in The Wall Street Journal discusses business email fraud in further detail. For this type of fraud, emails typically come from a vendor that the company does business with regularly, or sometimes they even come from the CEO of the company with instructions of how and where to wire the money. While it is sometimes possible to find errors in the email and identify the fraud, other times it can be impossible to detect without additional investigation. Because the fraud can be nearly impossible to detect, it is necessary to use extra precautions and sound security procedures whenever companies wire money.

Vegetable Gardens and Rationalizing

I recently spoke with a friend who used to pick vegetables at a vegetable garden when he was younger. At the vegetable garden, workers were paid by the pound for some types of vegetables and by the bucket for other types. He told me that many people would “accidentally” add a few rocks to their buckets for the vegetables that were paid by the pound. He also said that workers would stack the vegetables in the bottom of the bucket in a log cabin style so as to use up as much space with the fewest amount of vegetables for the vegetables that were paid by the bucket. My friend is an honest person, and if he did participate in this behavior in the past, I doubt he would do so now. The story got me thinking about fraud in the business world and some of the similarities we see in this type of rationalization.

What Has the Red Cross Done with Almost Half a Billion Dollars of Donations?

After the 2011 earthquake in Haiti, the American Red Cross raised half a billion dollars and announced plans to build hundreds of permanent homes in Haiti. However, according to an article by Pro Publica, co-published with NPR, to this day the Red Cross has completed only six homes. Where has the half a billion dollars in donations gone?

Even Cancer Research Lacks Integrity

An article in Discover Magazine details some of the practices that occurred for 50 years in cancer research that both slowed and misled cancer research for decades. In cancer research, scientists use cancer cell lines (cells that contain a particular type of cancer) taken from tumors infected with the cancer in order to test possible treatments. The problem is that it is very easy for these cell lines to become contaminated, thereby changing the characteristics of the cell line. For years scientists used contaminated cell lines for their research, with numerous publications occurring based on false lines. 

How Chocolate Was Used to Fool Millions

You may have seen headlines in the news a couple months ago proclaiming things such as “Dieting? Don’t forget the Chocolate,” or “Chocolate Accelerates Weight Loss: Research Claims it Lowers Cholesterol and Aids Sleep.” These articles referenced a study which supposedly showed that chocolate can help you lose weight. What you may not have seen is the recent article by John Bohannon, the real author of the study. In the article, Bohannon explains exactly how he ran the study and how he was able to fool millions of people around the world into actually believing that chocolate is a healthy food that can help reduce weight and increase quality of life.

Fake Diplomas: Too Good to Be True

An example of a fake diploma issued by one of Axact's
fictitious schools, Grant Town University.

Earning a diploma for high school, college, and especially for a doctoral program requires a lot of work and a lot of time. You can’t just buy a diploma—or can you? A recent New York Times article discusses some allegations made against Axact, a Pakistani software company. Former employees of Axact and complaints from victims throughout the world accuse Axact of operating a massive diploma mill scheme by secretly operating websites for over 370 fictitious high schools, colleges, and universities which lure people in by promising them a good education and diplomas from accredited schools. The websites all look professional and appear to be from a real university. There are even phone numbers to call and people waiting to answer questions through online chat sessions. Several of the fictitious universities even have similar names to respected universities (i.e., Barkley, Columbiana, Grant Town), and the bank accounts for all of these schools funnel back to Axact, according to The New York Times.

Industries that Rely on the Illusion of Causality

I've been intrigued (and somewhat disgusted) by industries that sell worthless products to people who desperately want to find a cure for some condition in their life. These types of products are rampant in the multi-level-marketing industry (see our other posts on MLMs) but also can be found in the nutritional supplement industry. Often, amazing, too-good-to-be-true claims are made because the government doesn't regulate these industries or they make their outrageous claims off the record in private conversations, etc. Well, psychologists have a name for the illusion that these industries rely on. Read on to see what I'm talking about...