Fraud Prevention in the Banking Industry

According to a recent article on Bloomberg, banks are considering using blockchain technology, the same platform used in bitcoin transactions. This change could prevent losses that are due to one particular type of fraud. Some companies are applying for and receiving financing from multiple banks, but are using the same invoice as proof of collateral for all of the banks. This allows the company to receive much more financing than they should be able to receive, and the banks lose a lot of money if the company defaults on their loan. This fraud is similar to if an individual were to receive several mortgages from various banks for a single house. If the individual were to default on their mortgage, they would keep a lot of cash, and the banks would each be left with only a portion of a house as collateral. The losses due to this financing fraud have been close to $700 million for banks such as Standard Chartered Plc and JPMorgan Chase.

Expert Witnesses in the Armstrong Case: Are their Opinions Valid?

It’s been over three years since Lance Armstrong admitted to doping throughout his career, but the lawsuit between the United States Postal Service (USPS) and Armstrong continues. The main question that is still unresolved is whether or not the USPS actually suffered losses due to sponsoring Armstrong with more than $30 million between 1998 and 2004. If the USPS can prove they experienced losses due to sponsoring Armstrong and subsequently learning of Armstrong’s doping, then they will have strong evidence to win the case. On the other hand, if Armstrong can prove that the USPS didn’t experience any loss, he will have a better chance at winning the case. How is the dispute resolved? By hiring expert witnesses at $700 – 900 per hour.

New Detection Method Could Have Caught Lance Armstrong

There are several articles on Fraudbytes discussing doping in professional sports, but is there a way to stop doping? A recent article on road.cc discusses research that claims it could have caught Lance Armstrong. The current methods for detecting drugs in an athlete’s system are extremely sophisticated (i.e., if there was a drop of drugs in an Olympic sized pool, they would detect that drop). However, they are only able to detect the drug if it was used in the last 48 hours. According to Yannis Pitsiladis, a professor of sport and exercise science with a particular interest in genetics, his new method can detect if the athlete has doped in the past several months and, potentially, even years.

Financial Crime Registry: Will it Deter Fraud and Improve Restitutions?

Every state in the United States has a sex offender registry that is publicly available for everyone to see in order to identify people who have been convicted of a sex crime in the past. Could such an approach also prove effective at lowering financial crime rates? A recent article in The Wall Street Journal discusses the creation of a White Collar Crime Offender Registry in Utah. Utah is the first state to implement such a registry, making them, according to the article, the “most aggressive jurisdiction in the country when it comes to publicly shaming financial criminals.” The registry will list first time offenders of financial crime for five years, second time offenders for ten years, and third time offenders will never have the option of being removed. In addition, convicts who fully comply with court orders and pay their restitutions in full will not be added to the list.

How to Avoid Being Asked to Commit Fraud

A recent article in The Economist discusses how to avoid being asked to commit fraud. It can be very uncomfortable if your manager asks you to alter the books or do anything that is unethical. Often there are not only repercussions for committing the fraud (i.e., fines or jail time), but also for not committing the fraud (21% of employees who reported unethical behavior at work said they experienced some form of punishment from their employer). If you refuse to commit a fraud, your manager may choose not to promote you or may even fire you.  Rather than refusing to commit a fraud, the best scenario for an employee would be to never be asked to commit a fraud. A study that was done by Dr. Sreedhari Desai (professor at the University of North Carolina at Chapel Hill) found one approach that dissuades managers from asking employees to engage in unethical behavior.

Doping and Match Fixing: Has Tennis Crossed the Line?

News of professional tennis player Maria Sharapova failing a drug test at the Australian Open has spread rapidly, especially since tennis is generally considered a more sophisticated sport, and people don’t usually think of tennis players when they think about athletes that are doping (see the video below of the press conference where Sharapova made the announcement). While Sharapova says that the drug she was taking was a medicine given to her for health reasons that was only just recently banned by WADA (World Anti-Doping Agency), she still takes responsibility for taking it after it became a banned substance. Additionally, this situation has brought to light other instances of potential fraud in professional tennis, including doping and fixing matches.

Advances in Technology for Auditing Firms: KPMG to Announce Deal with IBM Watson

A recent article in The Wall Street Journal discussed the technological improvements among auditing firms (KPMG in particular). KPMG is expected to announce an alliance with IBM to use their artificial-intelligence technology, IBM Watson, which will allow KPMG to audit all of the data for their clients rather than only samples of the data. The technology is not meant to replace human auditors, but will help them know where abnormalities may exist in the client’s books.

Ponzi Scheme in China: $7.6 Billion Lost

A recent article in The Economist elaborates on a massive Ponzi scheme that recently collapsed in China and caused 900,000 investors to lose about $7.6 billion.

Ponzi schemes are not new in China. In fact, China’s current lack of regulation in the peer-to-peer lending industry has created an environment ripe for fraud. This article points out how the lack of government regulation can lead to an economic environment where investors find it nearly impossible to distinguish between fraud schemes and legitimate businesses. We can also learn a few additional things from this Ponzi scheme that might help investors identify when something really is too good to be true.

Dodd-Frank Whistleblower Program Makes its Annual Report to Congress

The Whistleblower Program was instituted in August of 2011 with the purpose of incentivizing people with inside, original information about potential securities law violations to come forward and share that information with the SEC. In order to incentivize whistleblowers, the Whistleblower Program may award whistleblowers an amount between 10% and 30% of the monetary sanctions collected. The Whistleblower Program recently released its 2015 annual report to Congress.

Some interesting things from the report are the following:

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.