Slack Audits Facilitate Corporate Fraud

Slack Audits Facilitate Corporate Fraud
By Darren Pauli

Up to 70 percent of corporate fraud is committed by employees and occurs because of broken processes, according to consulting firm Deloitte.

Deloitte forensic specialist Kelvin Kennedy, who was in charge of fraud reduction at SunCorp for three years, said fraud is inevitable for business because anti-fraud structures such as payroll master reports and whistle blower facilities are under-resourced.

"If you haven't had fraud against you in the last two years, you missed it," Kennedy told a Sydney conference.

Kennedy, also a former federal police officer, refuted claims by other analysts that it is possible to map a typical fraudster, or act of fraud.

"Red flags are always different between organisations," Kennedy said. "It can be done by new customers, staff or triggered by a change in behaviour in existing trusted staff."

However, he said most fraud is unoriginal, poorly planned and only successful because of "broken controls".

"So you've got your payroll master report that logs every change to standard payments. They are printed and filed... but who actually looks through them?," Kennedy said, adding much of the fraud he sees can be detected early if basic audit trails are reviewed.

Like many analysts, he suggests the Australian recession will push redundant and financially strung staff to committ fraud. About 80 percent of the average company's workforce would not normally committ fraud, Kennedy said, while the bottom and top 10 percent are respectively "career criminals" and "saints".

While staff screening and background checks keep most career criminals out of organisations, Kennedy said a personal crisis can turn long term staff who have intimate knowledge of business processes into very successful fraudsters.

He said business should consider ongoing background checks to detect emerging propensities for fraud in trusted staff, regularly check audits trail and ensure investigations into suspected fraudulent employees are admissable in court.

Kennedy said businesses must consider looming quasi-US data breach laws when deciding whether to report incidents of fraud to the police or Australian Securities Exchange.

Deloitte offers a data mining tool, Dtect which searches corporate information for similarities and anomalies that may indicate fraud.

http://www.networkworld.com/news/2009/032409-slack-audits-facilitate-corporate.html

Did AIG explicitly lie about its bonuses?

Did AIG explicitly lie about its bonuses?
(updated below)

One of the bizarre aspects of Secretary Geithner's claims not to have known about AIG bonuses until recently is that these bonuses have been the subject of intense controversy for months. Numerous members of Congress, such as Rep. Elijah Cummings, have been pressuring AIG since at least November, in the form of numerous letters, for details on AIG's retention bonus plan (more on that in a minute).

But this December 11, 2008 article -- from CBS News -- contains what seems to be a rather significant statement from AIG about its bonus plan:

Insurance giant AIG was given $152 billion in bailout money by the federal government since nearly collapsing in September. Now the company is planning to take millions of that money and hand it over to employees in a program that sounds a lot like bonuses. . . .

But so far, no one's stopping AIG from paying millions to some employees in its new retention program. The company has told 168 employees they'll receive between $92,500 and $4 million per individual if they stay with the company for one year. . . .

Nicholas Ashooh, AIG's senior vice president of communication, acknowledges that the perception of his company has taken a hit.

"Oh, it's terrible, it's terrible," he told CBS News.

Ashooh said the retention program does not include anyone in the firm's financial products business, the tiny arm of the company that torpedoed AIG with its high-risk, bad loans.

That AIG was scheduled to make millions of dollars in bonus payments has been public knowledge for many months -- since well before Geithner pressured Chris Dodd to insert an exception into executive compensation limits for already-existing employment contracts. But what is so notable here is AIG's express denial that "the retention program does not include anyone in the firm's financial products business," given what we now know is the truth:

[AIG's CEO Edward] Liddy gave skeptical committee members what amounted to a tutorial in the practice of paying retention bonuses -- he did not call them that -- to executives.

He said the money was offered to executives in AIG's financial products section, where risky investments finally became the entire company's undoing.

And:

Retention pay was thrust into the executive-compensation debate with the disclosure by AIG that it paid $165 million to employees of its financial products division.

The unit made disastrous bets on securities known as credit-default swaps that ultimately led to billions in losses and necessitated a government bailout costing $170 billion to keep a failure of the company from bringing down the global financial system.

Assuming the CBS News story reported the comments of AIG's spokesperson accurately, this seems to be a rather flagrant case of AIG outright lying about what its retention bonus plan entailed.

UPDATE: To convey (a) how well-known the AIG retention bonuses were in Washington for months and (b) how evasive, recalcitrant and misleading was AIG in disclosing even the most basic information about these bonuses, I've uploaded a series of letters from last November and December between Rep. Cummings and Liddy, in which the former tries relentlessly to extract basic information about AIG's retention plan and, when unsuccessful, finally demands that a Committee hearing be scheduled to force Liddy to testify under oath about these imminent payments (links fixed):

(1) A November 8, 2008 letter (.pdf) from Cummings to Liddy, demanding information on various AIG events;

(2) A December 1, 2008, letter (.pdf) from Cummings to Liddy, demanding that AIG "fully disclose to the public the extent of the payments being made to senior executives under your 'retention program'" -- including, specifically: "Which employees in which divisions are receiving the retention payments, and how much is each executive receiving"?

(3) A December 5, 2008, letter (.pdf) from Liddy to Cummings, noting that "the retention awards range from $92,500 to $4,000,000," but failing to identify the specific employees or even their divisions scheduled to receive the payments (that was sent a week before an AIG spokesperson publicly denied that the retention payments were being made to executives in the FP division);

(4) A December 9, 2008, letter (.pdf) from Cummings to Liddy, specifying the information that had been requested but not furnished, and again specifically asking AIG to "specify the units within AIG for which the individuals scheduled to receive the payments work";

Cummings' letter also notes:



Cummings was told by AIG that it was Treasury officials and the Fed (at the time Geithner was at the New York Fed) that helped shape AIG's retention bonus program.

(5) A December 16, 2008, letter (.pdf) from Cummings to the Chair and Ranking Member of the Committee on Oversight and Government Reform, requesting a full hearing to explore, under oath, AIG's retentions bonus program, on the ground that AIG's responses to Cummings' inquires have been wildly inconsistent and plainly evasive. Critically, Cummings also noted (click to enlarge image):



Elijah Cummings was quite obviously very suspicious about what was going on at AIG for months, and he did everything possible to expose it. He also noted that AIG appeared to be in cahoots with Treasury and Federal Reserve officials over these retention bonuses and sought to determine if those officials really did approve these bonuses or if AIG mislead them about what they were. It's extremely difficult to understand how top financial officials could have been unaware of this issue when it was the subject of a rather intense political storm for months before it erupted in last week public.

It's hard to know which is worse: that Geithner was aware of all these issues and now claims he wasn't, or if, while at the New York Fed working on AIG's bailout, he somehow remained blissfully unaware of all of this. Given the relative amounts involved, the bonus payments themselves may not be significant in the scheme of things, but the window this scandal provides into the insider dealing, arrogance and corruption driving the trillions of dollars in public money flying around (and disappearing) certainly is significant.

http://www.salon.com/opinion/greenwald/2009/03/19/aig/

Madoff Business Interests Include Mets Owner Wilpon’s Fund

March 18 (Bloomberg) -- Bernard Madoff, jailed after pleading guilty in a $65 billion Ponzi scheme, or his wife, Ruth, had interests in more than a dozen businesses and partnerships, including restaurants, radiology providers and real estate funds associated with New York Mets baseball team owner Fred Wilpon, according to prosecutors.

Prosecutors, who on March 15 said they planned to seize more than $100 million in real estate, cash and bonds from the couple, filed another document yesterday listing more assets they seek to take. The assets include jewelry and watches, more than $30 million in loans owed to the couple by their sons, and Ruth Madoffs’ interest in real estate funds sponsored by Sterling Equities, whose partners include Wilpon.

The government’s “notice of intent to seek forfeiture” is not an actual seizure request. Rather, it alerts U.S. District Judge Denny Chin and the Madoffs that prosecutors will be filing documents seeking seizure. The notice doesn’t say when the request will be made.

Madoff, 70, pleaded guilty March 12 to defrauding investors of as much as $65 billion in the biggest Ponzi scheme in history. His attorneys filed a request with the U.S. Court of Appeals in New York asking that he be freed until he is sentenced on June 16. Madoff faces a prison term of as long as 150 years for using money from new investors to pay off old ones in a global fraud that ran from at least the early 1990s.

Ruth Madoff hasn’t been accused of any wrongdoing. Her lawyer, Peter Chavkin, didn’t immediately return a call seeking comment. Bernard Madoff’s lawyer, Ira Sorkin, declined to comment.

Madoff ‘Shunned’

Prosecutors said yesterday in their response to Madoff’s bail appeal that he should remain behind bars while he awaits sentencing. They said that Madoff is a flight risk because he is likely to spend the rest of his life in prison, has been “shunned by the community,” owns a home abroad, and has spent decades lying to clients.

“There is a presumption of detention,” Assistant U.S. Attorney Lisa Baroni said in the filing. “Madoff faces a lengthy term of imprisonment.”

Yesterday’s forfeiture filing discloses that Madoff family members were investors in Wilpon’s businesses. It has previously been known that Wilpon’s Sterling Equities invested with Madoff.

Richard Auletta, a Sterling Equities spokesman, said in a statement that Ruth Madoff and “in certain instances” Peter Madoff, who is Bernard’s brother, invested as “passive limited partners” in real estate funds sponsored by the company, as well as other venture investments. “Any potential forfeiture of these investments will have no material impact,” Auletta said.

Business Interests

Assets sought by prosecutors include the Madoffs’ interest in Hoboken Radiology LLC. Ruth Madoff is one of nine members of Hoboken Radiology, a radiology practice in Hoboken, New Jersey, said Gary Berger, its administrator. She invested in the business in 2004, Berger said. He declined to say how much she invested.

The seizure targets also concern Delivery Concepts LLC and the couple’s stake in Madoff La Brea LLC. Prosecutors are seeking the Madoff interest in the restaurant PJ Clarke’s on the Hudson LLC. Prosecutors offered no further details about the businesses.

Nancy Silverton, founder of the La Brea Bakery in Los Angeles, told the Los Angeles Times on Dec. 24 that she lost millions of dollars that she invested with Madoff after selling the eatery in 2001.

Restaurant, Food Service

A woman who answered the phone at PJ Clarke’s declined to comment and wouldn’t provide her name. A manager at Delivery Concepts LLC, an online food ordering service in midtown Manhattan that operates as delivery.com, didn’t have an immediate comment.

Nancy Colman, a lawyer for Boca Raton, Florida-based Viager II LLC, another entity prosecutors are seeking to seize, didn’t immediately return a call.

The government also said it will seek to recover promissory notes given to the Madoffs by their sons Andrew and Mark from 2001 to last October. Mark Madoff owes his parents $22 million, and Andrew Madoff owes $9.5 million, according to the filing.

There were two loans last year from Bernard Madoff to Andrew Madoff: $4.3 million on Oct. 6 and $250,000 on Sept. 21, prosecutors said. The earlier loans were made from 2001 to 2005, the document says.

Martin Flumenbaum, an attorney for the two Madoff sons, didn’t immediately return a call seeking comment.

Separately, the trustee liquidating Bernard L. Madoff Investment Securities LLC said in court papers on March 16 that some of Madoff’s assets may be in Gibraltar.

Jewelry, Watches

Prosecutors say they intend to seize $2.6 million in jewelry owned by Ruth Madoff and about 35 sets of watches and cufflinks owned by Bernard Madoff, the document shows.

In a March 15 filing, the government said it intends to seize the Madoffs’ $7 million Upper East Side apartment in Manhattan and homes in Montauk, New York, Palm Beach, Florida, and France. Prosecutors said they also will seek $17 million in cash and $45 million in bonds in accounts in Ruth Madoff’s name.

Lawyers for Ruth Madoff claim the Manhattan apartment, the cash and the bonds are her own property and are unrelated to the fraud, a judge said. Separately, she applied for and received a homestead exemption for the Florida property, said Dorothy Jacks, assistant property appraiser for Palm Beach County.

Tax Break

The exemption, which applies to an owner’s primary residence, will entitle Ruth Madoff to a 2009 tax reduction since it cuts the county’s appraisal of the property by $50,000, said Jacks. Ruth Madoff paid $157,298 in property taxes on the 8,753-square-foot home in 2008, according to county records.

She applied for the tax exemption Sept. 18 and received it Jan. 12, according to the appraiser’s office.

The appraised value of the home was $9.4 million in 2008, according to Palm Beach County records. Ruth Madoff bought the property in 1994 for $3.8 million, according to county records.

The Florida constitution protects homeowners who have obtained the exemption and seizing the property may be difficult, said Danaya Wright, a law professor at the University of Florida in Gainesville.

The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).

Motive in Madoff case murky as expected plea nears

By Martha Graybow and Paul Thomasch

NEW YORK (Reuters) - The U.S. government has brought a massive case against Bernard Madoff, chronicling 11 crimes he is accused of committing over more than 20 years, but prosecutors still have not clearly stated any motive in their case.

His lawyer, Ira Lee Sorkin, said on Tuesday at a court hearing there was a "fair expectation" that Madoff would plead guilty on Thursday.

People who gathered in a Manhattan federal courtroom for a glimpse of Madoff heard him give short answers, mostly "yes" or "no", to the judge's questions. In one revealing moment at the hearing, Madoff told the judge he had never been treated for mental illness or addiction, that his mind was clear and he was feeling alright.

The 70-year-old, silver-haired, veteran investor has been under house arrest at his Manhattan penthouse since he was arrested last December. Dressed in a neat gray suit, he arrived early for his appearance, followed by the usual throng of reporters and cameras, but as with his prior visits to the courthouse, he made no comments to the press.

The hearing mostly dealt with issues of whether Madoff's defense lawyer had a conflict of interest in handling his case, raised by issues such as investments with Madoff's firm by Sorkin's late parents.

Irate clients have hoped to learn more about what may have driven Madoff if he indeed committed the crimes of which is he accused.

In court papers filed on Tuesday, prosecutors from the U.S. Attorney's Office in Manhattan said the former Nasdaq chairman and once-respected investing professional started his life of crime in the 1980s.

They said he hired people with little or no relevant experience in the investment business, directing them to create bogus documents such as client account statements and fake trade slips. No one else has been charged in the case.

Prosecutors said that to further the fraud, Madoff concocted phony balance sheets, income statements, cash flow documents and internal control reports. They said he then sent those documents to would-be clients and regulators at the U.S. Securities and Exchange Commission.

Madoff is accused of having bilked investors out of $50 billion.

Observers of the case have speculated that if he did it, he might have been motivated by greed, or malice, or an effort to hide trading losses.

On Thursday, if Madoff pleads guilty, he could help answer some of the questions about motivation. Investors, wishing to weigh in on any plea, will be allowed to speak to the court. The anger they have expressed since Madoff's arrest could turn into fireworks in the courtroom.

U.S. District Judge Denny Chin, who is presiding over the case, has urged the public to stay calm.

While "emotions are high," he said on Tuesday, all sides must "conduct ourselves appropriate to a courtroom proceeding."

(Reporting by Martha Graybow; editing by Jeffrey Benkoe

Hitch Quote

Sara: What should we toast to?
Hitch: Never lie, steal, cheat, or drink. But if you must lie, lie in the arms of the one you love. If you must steal, steal away from bad company. If you must cheat, cheat death. And if you must drink, drink in the moments that take your breath away.

Two Arizona Men Sentenced to Prison for Elaborate Securities and Tax Fraud Scheme

On March 3, 2009, in Phoenix, Ariz., Ira W. Gentry Jr., of Scottsdale, Ariz. and Randy W. Jenkins, of Glendale, Ariz., were sentenced to 180 months in prison and 90 months in prison, respectively.

In September 2008, Gentry and Jenkins were convicted of securities and tax fraud relative to an elaborate scheme to defraud UniDyn Corporation’s investors, the Securities and Exchange Commission and the Internal Revenue Service (IRS). As part of the sentence, Gentry and Jenkins were also ordered to forfeit assets that they acquired by virtue of their crimes, including a 2006 Mercedes Benz and approximately $2 million in cash from various accounts and investments.

In addition, the court entered a money judgment against the pair in the amount of $9,469,841. Gentry was ordered to pay $3,300, and Jenkins $2,100, in court imposed financial assessments. According to the indictment and evidence presented at trial, Gentry was the CEO and a member of UniDyn Corporation’s board of directors. Gentry conspired with Jenkins, a disbarred Arizona attorney, to secretly acquire approximately 20 million shares of UniDyn stock. They then artificially inflated the value of the stock through the filing of misleading UniDyn SEC filings, through the filing of false corporate income tax returns, and through the issuance of false and misleading press releases. In order to conceal their activities, Gentry and Jenkins used aliases, offshore nominee entities, Canadian brokerage accounts, nominee bank accounts and false tax identification numbers.

From December 1997 through April 2003, Gentry and Jenkins sold more than 3.9 million shares of UniDyn common stock held in nominee names for more than $9 million. Gentry and Jenkins used the illegal proceeds to purchase assets in the name of nominee entities including a $1.2 million Scottsdale residence, a $139,000 Mercedes, a $62,000 custom Trans Am and $300,000 in gold and silver coins. Neither Gentry nor Jenkins reported the income they earned from the stock sales to the IRS. The tax loss associated with the scheme exceeded $1.5 million.

http://www.irs.gov/compliance/enforcement/article/0,,id=187268,00.html

The FBI is conducting more than 500 investigations of corporate fraud amid the financial meltdown

The FBI is conducting more than 500 investigations of corporate fraud amid the financial meltdown, the bureau's deputy director told a Senate panel Wednesday.

Deputy Director John Pistole also said 38 of the 530 total active corporate fraud investigations involve fraud and financial institution matters directly related to the economic crisis.

Additionally, the FBI has more than 1,800 mortgage fraud investigations, more than double the number of such cases just two years ago.

There are so many mortgage fraud cases, Pistole said, that the bureau is not focusing on individual purchasers, but industry professionals generating fraud schemes that could total as much as hundreds of millions of dollars.

"It is a matter of lawyers, brokers or real estate professionals that are systematically trying to defraud the system," Pistole said.

Agents have even seen some instances of organized crime getting involved in mortgage fraud, he said.

Judiciary Committee Chairman Patrick Leahy, D-Vt., urged the FBI and the Justice Department to put people who have committed mortgage fraud behind bars.

"I want to see people prosecuted.... Frankly, I want to see them go to jail," he said.

Neil Barofsky, who was appointed the inspector general of the ongoing financial bailout plan, suggested the best way to clean up mortgage fraud is to pursue licensed professionals in the industry, and make examples of them.

"They have the most to lose, they're the most likely to flip, and they make the best examples," said Barofsky, a former federal prosecutor in New York.

"What we're trying to do is get out in front as much as we can," Pistole told the Senate Judiciary Committee.

The Senate held the hearing, titled "The Need for Increased Fraud Enforcement in the Wake of the Economic Downturn," a day after the Obama administration announced reforms to the $700 billion financial bailout program. The revamped program would combine up to $2 trillion in public and private money to free up credit and aid ailing banks. But bailout recipients have already come under criticism for wasting the money they've received.

Pistole said a lot of the oversight didn't come into place until much of the first $350 billion was out the door, but that law enforcement agencies would be able to prevent fraud much more efficiently with the rest of the money.

"Coordination, coordination, coordination," said Rita Glavin, acting assistant attorney general. "That's going to make the biggest impact."

Senate Democrats are urging more spending to expand the ranks of the FBI's financial fraud investigators.

After the 2001 terror attacks, about 2,000 FBI agents were moved to counterterrorism work, and Pistole said they are moving some of them back to buttress anti-fraud efforts.

The Associated Press contributed to this report.

http://www.foxnews.com/politics/2009/02/11/fbi-probing-corporate-fraud-cases/

American Teenagers Lie, Cheat & Steal More at "Alarming Rates"

American teenagers lie, steal and cheat more at "alarming rates," a study of nearly 30,000 high school students concluded Monday.

The attitudes and conduct of some 29,760 high school students across the United States "doesn't bode well for the future when these youngsters become the next generation's politicians and parents, cops and corporate executives, and journalists and generals," the non-profit Josephson Institute said.

In its 2008 Report Card on the Ethics of American Youth, the Los Angeles-based organization said the teenagers' responses to questions about lying, stealing and cheating "reveals entrenched habits of dishonesty for the workforce of the future."

Boys were found to lie and steal more than girls.

Overall, 30 percent of students admitted to stealing from a store within the past year, a two percent rise from 2006. More than one third of boys (35 percent) said they had stolen goods, compared to 26 percent of girls.

An overwhelming majority, 83 percent, of public school and private religious school students admitted to lying to their parents about something significant, compared to 78 percent for those attending independent non-religious schools.

"Cheating in school continues to be rampant and it's getting worse," the study found. Amongst those surveyed, 64 percent said they had cheated on a test, compared to 60 percent in 2006. And 38 percent said they had done so two or more times.

Despite no significant gender differences on exam cheating, students from non-religious independent schools had the lowest cheating rate, 47 percent, compared to 63 percent of students attending religious schools.

"As bad as these numbers are, it appears they understate the level of dishonesty exhibited by America's youth," the study warned, noting than more than a fourth of the students (26 percent) admitted they had lied on at least one or two of the survey questions.

"Despite these high levels of dishonesty, these same kids have a high self-image when it comes to ethics."

Some 93 percent of students indicated satisfaction with their own character and ethics, with 77 percent saying that "when it comes to doing what is right, I am better than most people I know."

http://www.breitbart.com/article.php?id=081201214432.rjut4n2u&show_article=1

Lie! Cheat! Steal!

Haha. This is not a wrestling site, and I really have no intention of ever mentioning "professional" wrestling ever again, but this just fits the site so perfectly.

Welcome

Welcome to liecheatandstealyourwaytoriches.blogspot.com

I hope we can expose those that lie, cheat, and steal at the expense of the honest, hard-working man, in order to get rich.