Those of you who have studied famous fraudsters, you will know the name of Barry Minkow. Barry was the apparent whiz kid entrepreneur who started ZZZZ Best Carpet Cleaning in the 1980's. ZZZZ Best was a too-good-to-be-true business that ended up being one massive lie. A fraud that cost investors, banks and others millions of dollars when it came to light.
Enter Bernie Madoff on the scene in 2008 when the largest Ponzi scheme of all time comes to light due to the fact that the economic downturn led Madoff's investors to try to redeem too much of the $65 billion that Madoff said they had with him. Bernie could no longer find enough cash to provide the redemptions that were being requested so he confessed his crime and is now serving a 150 year sentence. Bernie's business was also one massive lie.
So what do these two fraudsters have in common? For one, they both have the initials of "BM." Interesting as it is and coincidental that this is a less than flattering acronym, that's not what I had in mind. It turns out that one key connection that they have is that the key to both these massive lies was there skill at being paperwork manufacturing machines.
This week, Madoff's top lieutenant, Frank DiPascali, admitted to creating the paperwork needed to fool about everyone but Harry Markopoulos. DiPascali provided some details to his job of "CPA" (Chief Paperwork Automator) when he admitted to his crimes this week by telling the judge: "I knew it was criminal, and I did it anyway."
Mark Morse was Minkow's chief lieutenant and once said that he could use a copy machine to create any document that anyone wanted. The key is, that's about all anyone wanted: documents.
It seems that for a truly outlandish fraud to survive, the fraudsters simply need to create paperwork. Many professions in our society put a lot of trust in seeing a document. Auditing is one profession that builds its foundation almost exclusively on paperwork.
The scary truth is that with computers and printers today, anyone with a high school education from Queens New York such as Frank DiPascali can be a paperwork manufacturing machine and create the illusion necessary to dupe so called sophisticated investors out of billions!