Thursday, December 1, 2011

Doping in Cycling and the Mafia

The head of the World Anti Doping Association (WADA), David Howman, gave an interview in New York City that gives some insights into the difficulty of battling doping in cycling and other sports. Here are some of the meatier quotes from an article on CyclingNews, along with my comments:

Wednesday, November 23, 2011

Madoff and Watergate

No, Bernie Madoff didn't play a role in the Watergate scandal (at least as far as we know) but it turns out that his Ponzi scheme may have been going way back then. If so, it will go down in history as not only the largest Ponzi scheme we know of but also the longest running scheme too (by far!). This new revelation is according to the guilty plea of 66 year old David L. Kugel who was apparently associated with Madoff even back when Richard Nixon was in the Whitehouse. Here are a few quotes:

Saturday, November 19, 2011

Free Markets, Families and Regulating Fraud

I’ve been reading several calls for prosecution of fraud on Wall Street lately. No, these aren’t coming from the Occupy Wall Street crowd. Instead, top economic and business commentators and scholars are noting the dearth of prosecution and the role this is playing in our economic challenges. This is a fascinating debate and I only have time to capture enough to spark your interest in hopes that you will check out some of the sources I post. For starters,

Friday, November 18, 2011

Tuesday, November 8, 2011

Olympus is Accused of Massive Financial Statement Fraud

The camera and electronics company, Olympus, is being reported to have engaged in a massive financial statement fraud. Reports are pretty ambiguous right now but this could be one of the largest financial reporting frauds we've seen in a long time. Here are some excerpts from the NY Times article today:

Monday, November 7, 2011

A New Madoff Interview

60 Minutes Overtime aired a video recently of an interview with Ruth and Andrew Madoff discussing such things as the decision and process of turning Bernie in to the authorities, etc. Andrew and his mother also talk about Bernie and Ruth's failed effort to commit suicide. Crazy stuff for sure...Check it out here.

Thursday, October 20, 2011

A Potentially Costly Combination: Deloitte, Taylor Bean and the PCAOB

If you follow news affecting auditors, you may have noticed that the PCAOB made a very rare disclosure yesterday about one of the big four firms, Deloitte. The PCAOB said that Deloitte was previously sanctioned for not being skeptical enough to challenge statements made by management and that they still have problems with this.

Normally, the PCAOB tells the big audit firms what they did wrong and gives them a year to fix it with the threat that they will disclose their failures after a year if the firm doesn't fix it. Well, they decided Deloitte was still dropping this ball so they disclosed it publicly. Importantly, the timing of this ball dropping may have been very detrimental to Deloitte. Here is why...

Wednesday, October 19, 2011

Widow of Mark Madoff Talks

ABC News has an article about Mark Madoff's widow, Stephanie Madoff Mack, and her view of what Bernie did to her. Here are a few quotes I found interesting:

Saturday, October 15, 2011

Fraud in Amateur Sports

Photo taken from
So, I was appalled to read about a marathon runner who caught a bus over the last six miles of the race and then waited until the 1st and 2nd place racers passed him before taking 3rd place with a personal record! I can just see this guy bragging about his PR to his friends at work! In my book, he's a bigger loser than the last place finisher who followed the rules. It gives a whole new meaning to the phrase "The biggest loser!"

Monday, October 10, 2011

Avoiding Consumer Fraud [Guest Post]

“You’ve just won $10,000! Act now! This opportunity won’t last long!” Every day, millions of consumers run into ploys like this one, and some of these people fall victim to the scam. Americans lose hundreds of billions of dollars to consumer fraud every year.

Victims of mass market fraud could potentially lose their life savings and/or have the need to file for bankruptcy. Con artists can find these innocent people through the internet, by telephone, email, and even post mail. People easily get tricked into trusting these scams and give out money or their very valuable personal information.

What is Consumer Fraud?

Wednesday, September 28, 2011

Madoff and the SEC: Serious Conflicts Existed

The NY Times recently discussed the results of a report on the SEC showing that a lawyer with heavy involvement in the Madoff case had serious conflicts of interest. Here are a few key quotes from the article:

Monday, September 26, 2011

Lance Armstrong Investigation: Money Trails and Ferraris

I apologize for being so slow to comment on this news but last week I was taken out of commission by a long-boarder who ran into me while riding my bike. I ended up with a broken arm, broken rib and broken bike frame, not to mention a lot of road rash and a concussion. I was unconscious for about ten minutes, or so they say. But, enough of the excuses. What do I make of this news about Lance and Michele Ferrari? Here is my take:

Deloitte and Taylor Bean: Real Money is on the Line

Another of the Big 4 is being sued regarding their audit of a firm that was allegedly committing serious fraud during the mortgage meltdown, Taylor Bean. Here is an excerpt from an article on Bloomberg which describes the lawsuit involving Deloitte:

The Cost of Loss [Guest Post]

Fraud affects everyone. According to a recent survey, US businesses lose an estimated $400 billion due to fraud each year. The Association of Certified Fraud Examiners found that one in four employees commits fraud at some point in their careers, and a quarter of those employees worked for their employer for more than ten years! Every industry feels the loss associated with fraud, and the public often foots the bill. Despite the best efforts of auditors and accountants to detect fraud, the losses remain steady from year to year. As a question of forensic psychology, what motivates loyal and otherwise trustworthy people to take dishonest advantage of employers? Regardless of individual circumstances, we find surprisingly similar motives and means.

Rouge Traders and Double Standards

You may have seen the recent news of a rouge trader at UBS whose trading activity led to a $2 billion loss for the company.  In a recent blog post, the WSJ highlights what may be a double standard in unauthorized trades:

Wednesday, September 14, 2011

Ernst & Young and Lehman Case is Still Cooking

Fox News published a short article about litigation involving Lehman and its executives and mentioned that the lawsuit against EY is still progressing. The article says that testimony may be recorded in the near future about the motivation for Lehman's extensive use of Repo 105 transactions. Here are a few quotes:

Monday, September 5, 2011

Tuesday, August 2, 2011

The Latest on Bernie Madoff's Victims

An excellent NYT editorial discusses the latest in the Bernie Madoff saga.  For those of you who may not be following the story very closely, last Thursday the judge overseeing the civil suits brought against alleged beneficiaries and enablers of the Madoff fraud threw out a suit against HSBC, dealing a pretty substantial blow to the efforts to recover funds for Madoff's victims.  The entire editorial is worth reading, but here are a few tidbits that stood out to me:

Thursday, July 28, 2011

An Update on Lehman and EY

According to an article in the Wall Street Journal:
A lawsuit contending that Lehman Brothers Holdings Inc.'s former officials, underwriters and auditors are responsible for investor losses should go forward for the most part, a federal judge ruled Wednesday.
According to the article, the judge ruled that:

Wednesday, July 20, 2011

More on the Cheating Scandals in Public Schools

Imagine if the response to Enron and WorldCom was to say that business leaders are set up to commit fraud because the market is too interested in accounting information so we should have businesses report less economic data about their performance. According to an article in The New Republic, that is essentially the reaction by some in education to the recently reported cheating scandals in Atlanta and elsewhere. Here are a few quotes:

Tuesday, July 12, 2011

International Auditing

Finding fraud in any company can be very hard.  The most egregious financial statement frauds are often the result of a coordinated effort by multiple individuals, who design the fraud in a way that will allow it to go undetected by standard audit procedures.  Even nonstandard audit procedures can fail to detect a well designed, strategic fraud.  Combine that with international audit clients operating in emerging economies, and you have a recipe for disaster.  This is creating problems for auditors in China, as highlighted by the WSJ:

Friday, July 8, 2011

A Fraudster Cyclist with a Defective Moral Compass

If you know Michael Rasmussen's story, you know that he was leading the Tour de France in 2007 when he got kicked out of the race and fired by his team. Why? Because he was caught breaking the rules with respect to doping. So what is he doing now? He's suing his former team because they fired him! I'm totally amazed by this! Here is what we know...

Thursday, July 7, 2011

More Teaching Scandals in the News

Last October, I wrote about a teaching scandal in Georgia schools where teachers were apparently erasing and correcting students answers on standardized tests so as to obtain funding and accolades. Yesterday, Freakonomics discussed this and linked a news report showing that Atlanta has had massive teacher fraud going on for several years. In addition...

Tuesday, June 28, 2011

Lehman Update

A few days ago my dad and I were wondering when we were going to hear additional news about the status of the Lehman Bros Repo 105 case.  It turns out we missed a Bloomberg article about the issue a few weeks ago.  According to the article the SEC is having a hard time finding sufficient evidence to sue Lehman for their use of Repo 105 transactions.  Here is an excerpt from the article:

Tuesday, June 21, 2011

Madoff Investors vs Rajaratnam Investors

A NYTimes op-ed raises an interesting question: When we sue Madoff investors who were "net winners" to recover their ill-gotten gains, why don't Rajaratnam's Galleon investors face consequences of a similar nature--why are they allowed to keep their ill-gotten gains?  From the op-ed:

Tuesday, June 14, 2011

Lance Armstrong Investigation: New Charges May Be in the Works

(photo taken from ESPN website)
The incident that I blogged about yesterday regarding a hostile confrontation between Lance Armstrong and his former friend and chief lieutenant, Tyler Hamilton, may be more serious than Lance had imagined. Tyler's attorneys have reported the incident to federal authorities since it potentially involves witness tampering. A few more details are coming out today. For example...

Monday, June 13, 2011

Lance Armstrong Investigation: Tyler and Lance Have Confrontation

(photo courtesy of NBC website)
Abe Streep of Outside Magazine is reporting that Tyler Hamilton took a group of cyclists on a bike tour for the magazine and then took them to dinner at the Cache Cache Restaurant in Aspen, Colorado. The reports say that Hamilton mistakenly thought Armstrong was out of town. To his surprise, when Tyler was leaving the restroom, an arm blocked the hallway and...

Wednesday, June 1, 2011

Lance Armstrong Investigation: Odds and Ends

In today's news, various sources are reporting that Lance's lawyers are demanding an on-air apology from 60 Minutes. I personally am not holding my breath...

Well, aside from that news, I have had questions about the Lance Armstrong investigation asked to me from some friends and thought I'd document my thoughts to these questions. Some of you may have had similar questions or may hear similar questions as the public starts hearing more about the investigation. For example, a friend in my neighborhood asked me "How could he be guilty when he was tested so many times?" My response...

Tuesday, May 31, 2011

Political Perks: Evidence of Insider Trading in Washington

When it comes to insider trading cases, probably none have been as big as the recent conviction of the billionaire Raj Rajaratnam, former hedge fund manager and founder of Galleon Group. (See our prior posts on Rajaratnam here.)

Rajaratnam had a huge web of contacts that fed him with insider information which he then traded on to make billions and to obtain abnormal returns for investors in his hedge funds. His case has been hailed as a huge victory for the US Justice Department in an effort to crack down on what is believed by some to be a widespread problem in our capital markets.

There is now evidence suggesting that the Justice Department may not need to look so far from Capital Hill to find rampant insider trading. A new study...

Friday, May 27, 2011

Lance Armstrong Investigation: More Evidence Coming Out

Several news sources are reporting today that the head of the Swiss lab that was involved in testing Lance Armstrong's urine during the 2001 Tour of Switzerland, Martial Saugy, has confirmed that he did meet with both Lance and his manager, Johan Bruyneel.

This is consistent with the story that Tyler Hamilton and Floyd Landis have told regarding Lance having a positive test for EPO in the 2001 Tour of Switzerland. However, details of the meeting as told by Saugy, if correct, show that Hamilton's understanding was mistaken in some respects. Here is Saugy's story:

Tuesday, May 24, 2011

Lance Armstrong Investigation: Latest News

It sounds like Jeffrey Novizky's investigation of Lance Armstrong will probably be in the news quite a bit over the summer as the Grand Jury is likely to indict Lance. This news comes from Lance's home town newspaper, The Statesman, which quotes several "legal experts" on the case. Here are some quotes from the article:

Monday, May 23, 2011

Lance Armstrong Investigation: Bill Strickland Talks Again

CBS News is reporting that Bill Strickland, editor of Bicycling Magazine was on "The Early Show" today and commented on the latest news about Lance Armstrong. According to the report Strickland said that " he has evidence that Armstrong had used drugs."

We have known since April that Strickland believes Lance doped. However, in this report it appears that Strickland has evidence to support his belief that he has not before revealed. From the report, it sounds like Strickland discovered evidence of Lance's alleged failed test in the Tour of Switzerland. In particular, it's being reported that Strickland said the following:
(Strickland) told co-anchor Chris Wragge, "I wrote a story in May for Bicycling ... that said I thought he was guilty, I knew he had doped. In the course of investigating around him, I finally found the conviction. So I've known for awhile. This is just inevitable, I think."
This statement was made in the context of the claim first made by Floyd Landis and later by Tyler Hamilton that Lance failed a doping test in the 2001 Tour of Switzerland. Both Landis and Hamilton claim that Lance was able to hide that test through cooperation with the UCI and the Swiss drug lab that found the result.

Hopefully, more of what Strickland was referring to will come out soon...

Sunday, May 22, 2011

Lance Armstrong Investigation: What I Learned from 60 Minutes

I watched three 60 Minutes videos about the Lance Armstrong investigation, including a segment on 60 Minutes Overtime. In these videos, Tyler Hamilton states that the claims he made on 60 Minutes are what he told the Grand Jury that is investigating Lance Armstrong for his use of performance enhancing drugs while racing on the U.S. Postal Team. Here are a few claims made by Tyler and other takeaways from the videos:

Saturday, May 21, 2011

Lance Armstrong Investigation: George Hincapie's Response

CBS News reported yesterday that when Jeffrey Novitzky's investigation brought Lance Armstrong's number one lieutenant and close friend, George Hincapie, in to testify, that Hincapie confirmed that Lance had doped by using EPO and testosterone. Here is the quote from the CBS website where you can read about it and also watch a video that was shown on the news yesterday:

Friday, May 20, 2011

Lance Armstrong Investigation: George Hincapie Adds His Witness that Lance Doped

An incredibly credible witness add his testimony to Floyd Landis and Tyler Hamilton. Prior to today, we had Tyler and Floyd as eye witnesses to Lance's doping. These two will probably not even be on the witness stand in a case brought against Lance since the jury will have to hear hours of testimony where these two have lied vehemently in the past about their own personal doping.

However, anyone who knows cycling would say that the biggest witness against Lance would be his top lieutenant, George Hincapie. George has never failed a drug test and was on Lance's team every year that Lance won the Tour de France. So, if George testified, as is being reported by VeloNation, that he saw Lance doping, then anyone who is still holding out hope that Lance was clean should have no doubts that he doped now. This is at least the fourth teammate who has testified against Lance, if you include Frankie Andreu. Frankie had some comments about todays news too.VeloNews reported that Frankie had the following to say:

Lance Armstrong Investigation: Tyler Hamilton Returns Olympic Gold

Now that Tyler Hamilton has publicly stated that he has personal knowledge of Lance Armstrong doping, some of the question people are asking are as follows:

  1. Is Hamilton lying again or is this finally the truth?
  2. Can Hamilton be put in jail for admitting to doping?
  3. What motives might there be for Hamilton to make these claims?
These are valid questions that will undoubtedly be brought up if Jeffrey Novitzky's investigation of Lance Armstrong ever gets out of the Grand Jury. However, today we saw at least one consequence for Hamilton....

Thursday, May 19, 2011

Lance Armstrong Investigation: Tyler Hamilton Spills the Beans

The news broke today that CBS's 60 Minutes has been conducting a six-month investigation of doping in cycling. The full program will be aired this Sunday. For now, the link above has a short part of Tyler's interview. They interviewed Tyler Hamilton and Frankie Andreu and, undoubtedly, others. We probably already knew what Frankie would say but Tyler is shown telling 60 Minutes host, Scott Peller, that he saw Lance "inject (EPO) more than one time." As quoted on VeloNation

Doping in Cycling: McQuaid Wants Former Dopers Out of Management

VeloNation is reporting that Pat McQuaid, President of the UCI, has proposed that any rider who has been caught doping should be banned from later taking a position managing a cycling team.  The rationale for McQuaids proposal is based on the following premise:

Monday, May 16, 2011

EPO and the Amgen Tour of California (A Flashback)

As I read in the news that yesterday's first stage of the Amgen Tour of California was cancelled due to snow, I thought back to last year when I blogged about the irony in the name of America's number one stage race. That's right, this is America's "Tour de France" so to speak. I thought it might be fitting to comment again on this irony since the race has retained the name of the marketer of the most abused drug in cycling in it's title: Amgen. The rest of this short post is a flashback from last May 31, 2010:

Friday, May 13, 2011

Raj Rajaratnam Conviction

Posting to Blogger was down for over 24 hours, so this is a bit delayed.  Two days ago, Galleon Group founder Raj Rajaratnam was convicted of 14 counts of securities fraud and conspiracy.  One of the things that stands out to me about this case is the breadth of Rajaratnam’s insider trading network.  The WSJ has an interactive graphic that maps out Rajaratnam’s network, and seeing the number of people involved in the network blows me away. 

Remember, this isn't a diagram of Rajaratnam's golfing buddies--these are people who have at least been accused of passing on insider information.  More than anything, seeing such a network makes it hard for me to believe that this is an isolated incident.  Indeed, current trends suggest that we are just starting to see how pervasive insider trading really is.  According to the WSJ:

Wednesday, May 11, 2011

Lance Armstrong Investigation: Leaks About Scope

Several news articles are reporting that Jeffrey Novitzky's investigation into doping and fraud related to Lance Armstrong has led to a formal request from U.S. authorities for assistance by foreign prosecutors. This leak is being attributed to about a half-dozen people who are supposedly familiar with the case but requested anonymity and who were interviewed by AP reporters in the U.S. and Europe. According to these sources, the request was in the works since late 2010 but has been formalized in the past month. It's also being reported that the "evidence request specifically targets U.S. Postal and mentions Armstrong by name."

While this news about a formal request, in itself, is interesting in that it shows progress is still being made, it isn't very surprising to me. It was previously reported that Novitzky's team went to France late last year and met with officials from France, Belgium and Italy and that the officials said they would help with the investigation. However, some other information is being reported in these articles that, if true, I find more interesting. For example...

Tuesday, May 10, 2011

Lance Armstrong Investigation: Will Perjury Charges Stick?

As soon as Jeffrey Novitzky started his investigation against Lance Armstrong, conventional wisdom has been that Novitzky's strategy will be to get Lance convicted on perjury. This is how he convicted other top athletes, such as Marion Jones, who were found to have perjured themselves in the Balco investigation.

Today, I read a very interesting transcript of a live chat with the author of the book: "Tangled Webs: How False Statements Are Undermining America From Martha Stewart to Bernie Madoff." The author, James B. Stewart, considers four fraudsters and their obvious perjuries including: Martha Stewart, Bernie Madoff, Barry Bonds and Lewis "Scooter" Libby. Here are some of the points that came out of the chat that suggest Novitzky has his work cut out for him when it comes to making a perjury charge stick:

Friday, May 6, 2011

Lance Armstrong Investigation: News About and From Floyd Landis

You might have heard that Floyd Landis is being sued in Switzerland by the Pat McQuaid, Hein Verbruggen and the UCI regarding his statements that former and past leadership of the UCI have been corrupt. This is similar to a lawsuit filed by the UCI against the former head of the WADA, Dick Pound that was dismissed a year ago when Pound made a vague statement that allowed the UCI to bow out without losing too much face.

An analysis of the Landis lawsuit on VeloNews suggests that the UCI really will get very little from this lawsuit even if they win it. In the end, the article provides this conclusion:
As one attorney looking at the case noted, “it looks like a PR move on the part of the UCI, one where they pull out all of their resources to try and shut someone up. I doubt it will go anywhere, though.”  
In response to the UCI's apparent PR move, VeloNews is reporting that Floyd Landis has stated that he plans to vigorously defend his statements. Apparently, he has a law firm willing to represent him. In addition, he sent an email to VeloNews that has some insightful statements that I've copied below...

Monday, April 25, 2011

Lance Armstrong Investigation: Sources Say Progress is Being Made

In case you were wondering if the Lance Armstrong fraud and doping investigation was losing steam, according to VeloNation and some sources who have information on the investigation that VeloNation spoke with, the case against Armstrong is still progressing.

The article discusses, among other things, the implications of the Michelle Ferrari money trail stating:

Saturday, April 23, 2011

First Major Criminal Conviction Related to the Mortgage Meltdown

Lee Farkas in front of his private jet in 2005
The Justice Department is celebrating this week after finally landing a major criminal conviction in the aftermath of the mortgage meltdown. The Justice Department was able to stick 14 counts of fraud and conspiracy on Lee Farkas in what is reported to be a $2.9 billion mortgage fraud scheme. Mr. Farkas operated a huge mortgage business, known as Taylor, Bean and Whitaker.

Taylor Bean apparently sold billions of dollars of mortgages to Fannie Mae and Freddie Mac and obtained loans from large U.S. and foreign banks that were collateralized with fictitious mortgages or mortgages already sold to others.

As is common with many fraudsters, Mr. Farkas had an appetite for material possessions that led him to spend at least $20 million of other peoples' money on things like fancy homes, classic cars and even a private jet (see the photo to the right). According to the NY Times,

Thursday, April 21, 2011

Lance Armstrong Investigation: Ferrari's Money Trail

CyclingNews is reporting some potentially key evidence in the Lance Armstrong investigation that started nearly a year ago when Floyd Landis accused Lance and his teams of systematic doping. The article said that an Italian newspaper is reporting that "the investigation headed by...Jeff Novitzky has evolved from a doping investigation into a financial investigation." The article explains that investigators are working to follow the money trail into and out of Michelle Ferrari's bank accounts and have seized his accounts to do so. As I told VeloNation last year...

Monday, April 18, 2011

What does LiveStrong and Three Cups of Tea have in Common?

A more direct question might be whether Lance Armstrong's charitable foundation, LiveStrong, is managed like Greg Mortenson, author of "Three Cups of Tea" is managing his charity, The Central Asia Institute (CAI). Mortenson became famous and influential when he published his inspiring stories about how he came to dedicate his life to helping educate women in Afghanistan and Pakistan in "Three Cups of Tea" and its sequel, "Stones Into Schools: Promoting Peace with Books, Not Bombs, in Afghanistan and Pakistan." However, yesterday Mortenson was accused of committing fraud to create his initial success and lying about how he has used donations given to his charity to help educate the poor in these countries. According to a 60 Minutes report, Mortenson has been using his charity as a tool for self promotion and dipping into the piggy bank. In addition... 

Friday, April 15, 2011

Lance Armstrong Investigation: More Connections to Dr. Ferrari

Click Here for All Fraudbytes Posts on the Lance Armstrong Investigation

If you follow pro cycling, you probably know that Dr. Michelle Ferrari is one of, if not, the most controversial doping doctors in the world of cycling. He has been linked several times to doping and worked exclusively with Lance's teams when Lance won the Tour de France seven times. Lance worked with Ferrari since the mid 1990's until Ferrari was convicted of sporting fraud seven years ago. At the time, Lance said he cut off all contact with Ferrari.

VeloNation is reporting today that an "Italian law enforcement official said today that (Lance Armstrong) met the controversial Italian doctor repeatedly since (formally claiming to have severed ties to Ferrari in 2004), including prior to his final Tour de France last July. The unnamed official spoke to AP on the subject, saying that the Texan met Ferrari ‘frequently,’ most often in St. Moritz in Switzerland, but also in Monaco." So what does this mean?

Thursday, April 14, 2011

Lance Armstrong Investigation: What Does Barry Bonds Say About It?

Actually, I don't know that Barry Bonds has said anything about Lance Armstrong's doping/fraud investigation. In fact, he tried not to say much in his testimony and that's what the jury didn't like about him. However, the Bonds case may have something to say about what will happen in Lance's case. I'll get back to that in a minute.

If you haven't heard, the Bonds trial is over and the jury found him guilty of one count of obstruction of justice and could not come to a unanimous decision about the other charges so the judge threw them out. Bonds could serve up to ten years for this one charge. However, other scenarios are pretty likely. For example...

Saturday, April 2, 2011

Lance Armstrong Investigation: Bicycling Magazine editor is convinced Lance is guilty

According to several news sourcesBicycling editor-at-large Bill Strickland has stated that he thinks Lance Armstrong is definitely guilty of doping. Here is a quote:
Strickland, who has followed Armstrong’s entire career and spent a season on tour with Armstrong’s team to pen 2010’s critically-acclaimed book Tour de Lance, writes that he has at last become convinced that Armstrong indeed doped during his career.
I think this is pretty significant since Bicycling magazine seems to be a politically correct magazine when it comes to publishing about the big players in the bike industry. Since they get ad money from all the major bike companies, including Trek who is pretty tight with Lance, I've always observed that they tend to say good things about everyone. For Strickland to say that he is convinced Lance has doped is like saying that Bicycling is willing to write off Lance and any companies that Lance has influence over.

Strickland also explains (albeit with a lot of ambiguity) what it took for him to come to this conclusion. Here is a key quote:

Fraud Professionals are the Real Winners in Madoff Case

The fees paid to fraud professionals such as attorneys, consultants and accountants to clean up the mess that Bernie Madoff's famous Ponzi scheme left is projected to reach over $1 billion! According to the Washington Post the fees paid to such professionals last year were almost $300 million and an additional $800 million is projected. Almost half of the fees went to the law firm of the trustee, Irving Picard. These fees are being criticized by those overseeing the case as described in the following quote from the Washington Post:

Wednesday, March 30, 2011

Ponzi Schemes and Sophisticated Investors

So when you read about a small, $50 million dollar, Ponzi scheme coming to light, you almost always read about some gullible investors who had no idea they couldn't make 50% returns in a legitimate business deal. The list of victims was recruited from friends or family in an affinity fraud and almost always includes a bunch of doctors and dentists who have too much money and think they need a bunch more but don't understand risk and return. It is very rare that the so-called sophisticated investors who understand risk and return get duped. The following story was sent to me by a former student, Robert Madsen, who pointed out that this is what makes this story incredible...

Thursday, March 24, 2011

Contador Investigation: UCI Says "Not So Fast Alberto..."

The UCI announce today that they will put their foot down in the Alberto Contador-clenbuterol case and has appealed his decision to the Court of Arbitration for Sport. As you know, this case first came to light last Fall after it was announced that Alberto failed some tests during last year's Tour de France which showed that he had trace amounts of clenbuterol in his system during the tour. Interestingly, the clenbuterol just showed up one day in very small amounts.

As I have blogged earlier, soon after we learned Alberto had clenbuterol in his system it was also revealed that Alberto also had plasticizers in his system. A new, unapproved, test for plasticizers was used to see if Alberto had been blood doping and it appeared he was. However, the test was not yet an approved part of the regulators' arsenal of tools that they could use to find a cheater. Even so, the word was that the plasticizer test could be used to shed light on another test, as it appeared to in this case. The plasticizer theory goes like this:

Monday, March 21, 2011

Madoff's Dealings with the Mets: Lookin' Shady to Me

The New York Mets have made the news recently but, unfortunately for them, it's not because their spring season is boding well for the rest of the season. Instead, the Mets are finding serious opposition is coming from the trustee in the Madoff case, Irving Picard, who is suing the Mets' owners, the Wilpon and Katz families, for $1 billion.

As it turns out, the Mets may have thought their biggest rivals were  the Yankees or the Phillies, but this year, they may start wondering if Picard is working for one of their rivals. Picard's amended case is 381 pages long and is likely to be a bigger challenge to the organization than any of those teams can muster. From what I can tell, the most potentially damning allegation in the case is Picard's contention that the Mets' owners knew Madoff was accustomed to doing shady business and that he transacted some such business with the owners. Here are some details that may pose a challenge to the owners as stated in a recent NY Times article on the matter:

Saturday, March 19, 2011

Regulating Audit Firms: News and a Short Wishlist

In the last week, some news agencies have reported that the PCAOB is investigating the role of auditors in the financial crisis. It appears that auditors have been able to avoid much scrutiny from the latest economic meltdown whereas when the dot-com/telecom meltdown took place around the turn of the millennium, auditors took much of the blame. Below is a rundown of the two recommended regulatory changes that are being talked about in the news followed by a short discussion of changes that I would make if I was in charge.

Thursday, March 17, 2011

Barry Minkow Will Plead Guilty to Insider Trading

Barry Minkow, the mastermind behind the ZZZZ Best fraud, will plead guilty to one count of insider trading, according to the WSJ.  Minkow spent seven years behind bars for his crimes related to the ZZZZ Best fraud, and since serving his time has worked as a minister for a California church and as a fraud buster.  Minkow has received accolades from the FBI for his role in exposing a number of frauds.  To fund his fraud busting operation, Minkow would short the stock of the companies he investigated just prior to publicly releasing his reports on the questionable activity of those companies.  In one of those cases, it appears that Minkow traded on privileged information.

Monday, March 7, 2011

Winners and Losers in the Madoff Case

Irving Picard
Irving Picard, the trustee in the Madoff case, was in court last week as a panel of three judges heard arguments on whether net winners in the Madoff case ought to be able to collect money from the government. Net winners are those who took more cash out of Madoff's funds than they put in. Apparently, there are several of these guys who think they should get more money. Hmmmm.....

The WSJ had this to say about the case: "The judges' decision is likely to determine which Madoff customers may collect up to $500,000 apiece from the Securities Investor Protection Corp., an industry association created under federal law to insure investors in failed brokerages. It is also expected to affect how to divide billions of dollars Mr. Picard is recovering through legal settlements with people who withdrew money from the Ponzi scheme."

Now, it seems just a bit greedy to me that investors who got more money from Madoff than they put in would also be trying to collect from the taxpayers simply because Madoff sent them a statement showing they had more fictitious profits than they had already withdrawn! Apparently, the judges showed signs of wonder too as the WSJ reported the following:

Saturday, March 5, 2011

Some Thoughts on Sports, Fraud and Life

Jabaal Sheard
Brandon Davies

From my limited perspective sitting in my office in Provo, Utah, there have been two main events that have captured the national sporting news this week: 1) Brandon Davies and BYU basketball and 2) the Sports Illustrated / CBS News investigation of top 25 football programs.  Given all the blogging I've done on fraud in sports (especially pro and amateur cycling) over the past year, I thought I'd offer a few comments about this news.

Tuesday, March 1, 2011

Online Application Fees

As global trade increases, fraudsters are presented with new opportunities to make money.  The influx of international students to US institutions of higher education has apparently created one such opportunity to commit fraud.  Want to create a fake school to scam international students out of application fees?  Simple--copy an existing school's web site, change the name of the institution and some other minor details, promote your school on international forums and blogs, and sit back and watch the application fees roll in.  Finally, send applicants a rejection letter/email after a few weeks and your bank account has suddenly gotten bigger with little concern that your victims will ever know they were scammed.

Wednesday, February 23, 2011

Lance Armstrong Investigation: French to Give Armstrong's 1999 Samples to Novitzky

Today's cycling news sources are saying that the "French anti-doping agency (AFLD) will provide American federal investigators with Lance Armstrong's urine samples from the 1999 Tour de France."
These are the same samples that I blogged about last fall in discussing Dr. Michael Ashenden's statement that "there is no doubt in my mind he (Lance Armstrong) took EPO during the '99 Tour."

An article in CyclingWeekly states:

Friday, February 18, 2011

Lance Armstrong Investigation: A Doping History of Lance's Tour Teams

FraudBytes encourages guest posts. The following post was written by Mark Fellows, part owner of Kinetic Cycles in Elk Grove, California. Mark originally wrote this commentary on May 21st, 2010 after Floyd Landis alleged that Lance Armstrong was involved in systematic doping for many years. He has updated the post now that Lance Armstrong has officially retired from racing again.

As I’ve read and listened to the press conferences regarding Floyd Landis's accusations along with the denials, the blogs, and other commentary on Lance Armstrong's involvement in doping, I decided I wanted to take a little different slant and provide a few other things to think about. First, these facts should be read in the following context:

Thursday, February 17, 2011

The Pros and Cons of the Dodd-Frank Whistleblower Bounty

I listened to an interesting debate on this topic at this link. Just click on the audio play arrow right under Bernie's picture...

Wednesday, February 16, 2011

Bernie Madoff Implicates Banks and Hedge Funds

The Correctional Facility that Houses Bernie Madoff
The NY Times is reporting that Bernie Madoff was interviewed in prison and has said that, at least some of, the banks and feeder funds knew he was operating a Ponzi scheme. This is not going to be well received by JP Morgan Chase who is being sued by the Madoff trustee who asserts the bank should have known or did know that Madoff was operating a Ponzi scheme. Here are some key paragraphs from the article:

Sir Allen Stanford: Prison Beating and Drug Treatment

Allen Stanford--Accused of $7 billion Ponzi Scheme
Although it's been some time since I've posted anything on Sir Allen Stanford and his $7 billion Ponzi scheme investigation (see this link for prior posts mentioning Stanford), I've been following his case and thought I'd share the latest news on the Knight from Antiqua or the Scammer from Texas, depending on who you talk to.

Stanford was supposed to go to trial last month. However, it appears now that his trial will be postponed for several months. The reason is because he's recovering from his cushy life in prison (not). Just yesterday, in my fraud class, I talked about the myth that white collar criminals have a cushy life in prison. I showed my class what Mark Morze, the former ZZZZ Best fraudster, said about white-collar-prison life.

In an interview several years ago, Morze explained his five years in prison in Lompoc, California. Here are some quotes from an article describing Morze's experience:

Tuesday, February 15, 2011

Contador Investigation: Ruling Overturned by Spanish Federation

 News reports that are hot off the press are saying that Alberto Contador's one-year suspension has been overturned by the body that gave him the suspension: the Spanish cycling federation.

This is the same body that gave Contador the reduced, one-year, sentence last month! What gives?! Here are my thoughts.

Tuesday, February 8, 2011

Bernie Madoff News: NY Mets and JP Morgan Chase

The past week has led to two new stories related to Bernie Madoff's massive Ponzi scheme. I'm going to provide a short blurb and a link to an article in case you want to read more.

Monday, February 7, 2011

Bernie Madoff's Personality Disorder

I read an intriguing article in the International Business Times about Bernie Madoff's personality disorder. According to the article, Madoff and many fraud perpetrators have what is known as "narcissistic personality disorder (NPD), a condition in which the sufferer is absolutely convinced that he or she is better than everyone else." Among other things, the article explains the following:

Wednesday, February 2, 2011

WikiLeaks versus the SEC

No, (to my knowledge) Wikileaks hasn't released detailing corruption in the SEC.  Instead, Sherron Watkins, the primary whistleblower in the Enron fraud, weighed in on the SEC's new incentives for whistleblowers.  In a panel discussion about whistleblowers held by the New York State Society of Public Accountants, Watkins said the following (via the PaperTrail):

Taxi Cab Fraud in Las Vegas: The Fraud Triangle

FraudBytes encourages guest posts. The following post was written by Professor Jason L. Smith, PhD, CPA, who teaches and researches about fraud at the University of Nevada Las Vegas.

A recent article by E.C. Gladstone in the Las Vegas Sun details allegations of taxi cab fraud as drivers are taking tourists on “long hauls” around Sin City in order to meet aggressive fare quotas.  Although the author makes no explicit reference to the Fraud Triangle, each of its three elements – pressure, opportunity, and rationalization – are clearly evident in this intriguing description of a serious problem in a city with more than 2,200 taxis serving more than 35 million visitors each year. Below is an analysis of how pressure, opportunity and rationalization all exist in this industry and lead to the fraud detailed in the Las Vegas Sun article.

Monday, January 31, 2011

Utah may get more serious about affinity fraud

Utah has had more than it's share of affinity fraud cases over the years. Authorities say that in the past year alone, more than 4,000 Utahns have lost over $1.5 billion due to fraud. In many cases, the fraudsters engage in what is known as "affinity fraud" which refers to any type of fraud involving the exploitation of a relationship of trust. We naturally trust those we go to church with or those who are like us in some way including ethnicity. If exploits that trust to commit fraud, it is referred to using this phrase.

In Utah, the religious community provides an easy target for someone who wants to commit fraud. As such, fraud perpetrators build trust among a group of individuals in a social setting such as at church and then they exploit those relationships by getting people to invest in bogus business opportunities. Affinity fraud was involved in many fraud cases including Bernie Madoff's famous $50 billion Ponzi scheme. In that case, the Jewish community was exploited by Bernie.

Affinity fraud has been found in every religious community but also exists in other communities such as racial or ethnic groups. A large Ponzi scheme in Florida involved affinity fraud among the Haitian community. The deaf community also has been exploited by fraud perpetrators who developed relationships of trust and then exploited them to commit fraud.

Today's Deseret News reports that one Utah State Senator is sponsoring legislation to increase the penalties for any Utahn who is found to exploit relationships of trust. The article summarizes the proposed bill as follows:
The bill, which would modify the Utah Uniform Securities Act, would exact harsher penalties on those who use "undue influence" to "exploit the trust, dependence or fear of another person or gain their confidence" and "deceptively" influence their decisions. Harsher penalties would apply, as well, if the fraud victim is a "vulnerable adult." The bill would enable prosecutors to file second-degree felony charges in such cases.
The article also explains that, in addition to this bill, Sen. Ben McAdams is proposing other legislation to provide incentives for people to "whistle blow" by bringing forth information about questionable business deals. The article doesn't go into detail about the incentives but, if it resembles federal legislation, it may provide whistle blowers with some percentage of penalties that are collected by the state when a fraud case is uncovered.

I'm all for both of these bills. I have had people come to me and tell me their story about how they lost their life savings because a trusted friend exploited that relationship. It's not uncommon for these individuals to be near or in their retirement years and then to find they have lost much or all of their assets. These are tragic stories that tear your heart out to hear about.

I personally hope this legislation will help lock some of these perpetrators up for a long time!

Sunday, January 30, 2011

Contador Investigation: A History of Smoke

As I posted previously in regards to Lance Armstrong, when an athlete has a history of doping allegations, it's wise to ask yourself whether the proverbial saying that "where there is smoke, there is fire" applies. So what about Alberto Contador? Does he have much doping smoke in his past?

Interestingly, VeloNews answered this question for us in an article titled "Alberto Contador's Doping Timeline" which details Alberto's history of doping suspicions and associations. (Incidentally, I may be wrong, but my impression of VeloNews is that they are hesitant to write much about this darker side of pro cycling. My impression is that it's rare for them to say much about Lance's allegations. They seem to be the last to discuss these topics. This time, they are leading the way.)

Here is a summary of the points raised in the article, along with some other links and elaboration by me. See if you think there is enough smoke to conclude a fire exists:

Wednesday, January 19, 2011

Lance Armstrong Investigation: What the SI Article Tells Us

Now that the full version of the SI article is out, it looks like we had the most significant news in yesterday's synopsis. Although much of what SI wrote about is old news, they did give a lot of new details that we didn't have before. In addition, at least one new item from the article is a potential bomb shell for Lance in terms of the Novitzky investigation: the HemAssist issue. Here is why...

Tuesday, January 18, 2011

Lance Armstrong Investigation: Sports Illustrated Story

Sports Illustrated (SI) posted on their website details of a story coming out tomorrow about Lance Armstrong. Although we will have to wait until the full story is released to get all the details, here is a short list of the significant allegations that SI reported today and that appear to be new:

Wednesday, January 5, 2011

Scientific Fraud: Autism and Child Vaccines

CNN is reporting that researchers are labeling academic research that linked autism to childhood vaccines as "fraudulent." Here is a quote:

Tuesday, January 4, 2011

Now this is a serious cycling ban!

VeloNation reported today that the Portuguese cycling federation handed out a record ban to a pro cyclist for multiple doping offenses. The federation insured that Pedro Lopes will not race again until he is 50! Here is a brief quote from the article:
Former Tour of Portugal stage winner Pedro Lopes has been handed a record ban by his national federation, and will be unable to compete as a rider for 15 years. The 35 year old has had multiple doping infringements and will be 50 years of age by the time he is eligible to race again.
I'd like to see more serious bans given to serious doping offenses. Two years is too little for someone who is caught deliberately injecting some PED into his or her body (e.g., EPO, CERA, HGH, etc.). Hopefully the pros would think twice before cheating if they knew that getting caught meant their career was over...