| #529 - January 2, 2008 |
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| #529 Updated: 1/2/08 10:27 a.m. Whistleblower Rewards Top $2 Billion reuters.com | 1/2/08 | PRNewswire LYNCHBURG, Va., Jan. 2 /PRNewswire/ -- The government reached an important landmark by topping $2 billion in rewards paid to citizens for reporting fraud. The average whistleblower reward was $1.5 million. The largest reward exceeded $100 million. Last year, the government spent more than $2.5 trillion dollars. Under many of its programs it is losing 10% to corporate fraud, with the total amount of fraud exceeding $150 billion each year. In response, Congress authorized the Department of Justice to create the Whistleblower Reward Program and pay up to 25% of what it collects against cheating companies as rewards to private citizens who report fraud. Without the help of whistleblowers, the government catches only 1% of corporations who defraud more than 20 government agencies, like the military, the post office, Medicare, and Homeland Security. Under the reward program, the Department of Justice has already recovered $12.5 billion. Whistleblowers are now responsible for one-half of all recoveries for fraud against the government. There is no limit to the amount of rewards paid and there is no cap to the dollar amount paid to an individual. The reward is a formula based upon the size of the fraud case you report. Recently, the IRS adopted its own whistleblower reward program. It hopes to be able to start paying billions of dollars in rewards because it estimates that companies are evading taxes by over $300 billion each year. There is a new book that walks you step-by-step through the process of determining if you are eligible for a reward and how to properly file your application. It is named Whistleblowing, A Guide to Government Reward Programs: How to Collect Millions of Dollars for Reporting Fraud, and is available at your favorite bookstore. The author, Joel Hesch, worked for 15 years as an attorney in the Fraud Division of the Department of Justice helping administer the National Whistleblower Reward Program. He is now a legal professor at Liberty University School of Law. His website offers free information and up-to-the-minute updates on reward programs at www.HowToReportFraud.com. SKorea Grants Amnesty to Ex-Daewoo Chief ap.google.com | 1/2/08 | Staff Writer SEOUL, South Korea (AP) — South Korea announced a New Year's Eve amnesty Monday for 75 politicians and businessmen, including the former chairman of collapsed conglomerate Daewoo Group. Kim Woo-choong, who was sentenced last year to 8 1/2 years in prison for embezzlement and accounting fraud, was pardoned under the presidential amnesty. Others received reduced sentences or had suspended rights restored. Daewoo collapsed under massive debt following the 1997-98 Asian financial crisis, when South Korea's government was forced to accept a $58 billion International Monetary Fund bailout. Parts of Daewoo were broken up and sold, with Detroit-based General Motors Corp. acquiring a major stake in Daewoo Motor to create GM Daewoo in 2002. The Justice Ministry said the pardons would take effect Tuesday. Also among those pardoned were Lim Dong-won and Shin Gunn, the two former chiefs of the country's spy agency. The two were convicted last year of masterminding the illegal tapping of the mobile phones of about 1,800 of South Korea's leading figures. The eavesdropping scandal, which rocked South Korea in 2005, erupted after revelations of a tapped phone conversation between the head of a leading newspaper and a top Samsung Group executive about providing illicit campaign funds to candidates in the 1997 presidential race. The scandal forced South Korea's ambassador to the U.S., who was the publisher of the newspaper involved, to leave his diplomatic post. The ministry also commuted the death sentences for six inmates to life imprisonment. South Korea issues special presidential amnesties a few times each year to mark major national holidays or anniversaries. Museum gives fraud its sordid place in history usatoday.com | 1/2/08 | Greg Farrell Baseball has a hall of fame, as does rock 'n' roll. So why not one of the world's oldest professions? The Fraud Museum, a traveling exhibit based in Austin, houses memorabilia from some of the most infamous scam artists, con men and snake-oil salesmen in the history of Western commerce. It's an eye-opening reminder that financial malfeasance didn't begin with Enron's overstatement of its earnings from 1998 to 2001. The museum does pay tribute to Enron, and other disgraced companies from this century — WorldCom and Adelphia — with a collection of now-worthless stock certificates, but much of the exhibition is devoted to financial transgressions from an earlier era. Joe Wells, chairman of the Association of Certified Fraud Examiners, which sponsors the museum, says the idea is to call attention to a major economic problem. "There are no official statistics on fraud," he says. "No government agency keeps a complete score. But worldwide, fraud is a part of the underground economy that includes such offenses as money laundering and tax evasion, which probably exceeds a trillion dollars a year. The ultimate defense against fraud is to educate those that might become victims of these nefarious schemes. The Fraud Museum is part of that effort." In addition to the stock certificates of giant companies felled by fraud, the collection includes a broad assortment of items, each of which is connected to a person or fraud of some historical note. But Wells admits the collection is haphazard. After all, it grew out of his own stash of artifacts. "I just started sort of randomly collecting pieces of cases that I worked on, or was familiar with," he says. "Then I started putting them on the wall, and the next thing you know, we've got the fraud museum." Some artifacts are related to notorious figures from a generation ago: a 1975 check signed by Ivan Boesky, who pleaded guilty about a decade later to trading on inside information; a wanted poster featuring Eddie Antar, founder of the "Crazy Eddie" electronics store chain, who overstated his company's earnings in the 1980s, costing investors more than $100 million; a 1970 certificate of stock in a company called Investors Overseas Services, founded in Switzerland by Bernard Cornfeld, which ultimately was exposed as a pyramid scheme. Other items delve further into the history of fraud: •A 1945 Life magazine article details exploits of Mike Romanoff, a master of impersonation who passed himself off as a Russian prince as well as a Rockefeller. •A photograph of Clarence Hatry, an Englishman whose role in the great stock market crash of 1929 is often overlooked. While many events led to the crash and the ensuing depression, the revelation in September 1929 that Hatry had forged $67 million in municipal bonds forced shareholders in his company to sell their U.S. holdings, which helped sow panic in an already jittery market. •A portrait of an angry group of Georgia residents, led by U.S. Sen. James Jackson, burning a bill passed by the state legislature in 1795 that transferred 35 million acres of land in what is now Mississippi and Alabama to four companies for $500,000. The companies had bribed and cajoled the legislators into passing the law, transferring the land for about 1½ cents per acre. Ralph Summerford, a fraud examiner based in Birmingham, Ala., says the artifacts in the museum are invaluable tools for training accountants Museum gives fraud its sordid place in Advertisement historyin the art of fraud detection. "It puts a face on some of the most horrendous crimes in history," he says. Summerford says he recalls meeting a woman from Mississippi shortly after WorldCom declared bankruptcy in 2002, following revelations that it had claimed billions of dollars in phony earnings. "When you sit there and look at a stock certificate from WorldCom, suddenly you see the face of that woman in Mississippi, who worked over 30 years and was planning on retirement, but now she couldn't retire." The more aware people are of fraud, the more difficult it is for a con artist to succeed, says Don Mullinax, a principal at Deloitte Financial Advisory Services. "We're not trying to say everyone is a liar or a cheat, but we're trying to tell people that they have to be a little more skeptical." How a bank fell victim to loan fraud latimes.com | 12/31/07 | Diane Wedner & Kim Christensen As home values skyrocketed earlier this decade, "banks gave money to anybody with a pulse," said UCLA economist Ryan Ratcliff. That included first-time buyers who couldn't afford the payments, speculators looking to flip property for a fast profit and, as authorities are increasingly discovering, con artists. "Everything was more lax," said Jack Guttentag, a finance professor emeritus at the University of Pennsylvania's Wharton School. "It was just easier to commit fraud." Evidence of that can be found in FBI reports of mortgage fraud, which increased eightfold from 5,623 in 2002 to 46,717 this year. But of all those cases, few compare with an alleged three-year scam that used trumped-up appraisals to fraudulently secure $142 million in loans from Lehman Bros. and another lender. The Beverly Hills-based ring followed a simple plan: Buy inexpensive houses in exclusive areas at market value, fabricate paperwork showing them to be worth two or three times as much, and then secure loans based on the inflated numbers, authorities say. The masterminds were developers Mark Alan Abrams, 46, who had a previous $2-million civil fraud judgment against him, and Charles Elliott Fitzgerald, 47, a bigamist who fled the country in 2003 and was later arrested in Samoa, according to interviews, federal prosecutors and a civil lawsuit filed by Lehman Bros. Bank. They allegedly were assisted by star real estate agents Joseph Babajian, 54, and Kyle Grasso, 36, who earlier this year shared the listing for a $22-million Beverly Hills mansion bought by soccer star David Beckham and his wife, Spice Girl Victoria Beckham. Abrams and Fitzgerald are accused of reaping millions, spending some of the cash on private jet flights and vintage wines -- and much of the rest to buy more houses to keep the alleged scam alive from 2000 to 2003. Five people, including Abrams, await sentencing after pleading guilty to bank fraud and other charges. Fitzgerald, Babajian, Grasso and two others pleaded not guilty and are slated for trial next year. Lehman sued them all in U.S. District Court in Los Angeles, but the lawsuit is on hold while the criminal cases play out. The bank, a subsidiary of the New York-based investment house, declined to comment. Fitzgerald and Abrams popped onto the Beverly Hills real estate scene as the 1990s ended and the Westside market took off again after a long downturn. The median home price in the 90210 ZIP Code -- which includes most of Beverly Hills and the canyons to the north -- was $310,000 in 1992. A decade later, at the height of Abrams and Fitzgerald's alleged scam, it had shot to $1.16 million. Houses were snatched up within days. Interest rates fell and lenders capitalized on the frenzy by writing anything-goes loans, some requiring no proof of borrowers' ability to repay them. "The market was starting to levitate," recalled Christian Stevens, a Brentwood real estate agent. "We all did really well." That included Fitzgerald, whose sister called him "the crowning jewel" of their large Utah family, and Abrams, who made headlines in 1979 as a Los Alamitos High School senior elected to the local school board. Fitzgerald had moved to Southern California from Utah in the 1980s and later launched a residential development business in the Beverly Hills area. Abrams also had gone into real estate, his early efforts culminating in a 1989 liquidation bankruptcy that listed 700 creditors with more than $30 million in claims. One creditor won a $2-million civil fraud judgment against Abrams in 1997 but recently said he had yet to be paid any of it. In 1999, Fitzgerald and Abrams met through Babajian, whose big- name clients have included Ryan Seacrest, Oscar De La Hoya and British pop star Seal. The two developers hit it off and became partners. They founded Beverly Hills Estates Funding Inc. in 2001 and "came to control various trusts, partnerships and corporations," according to records in the criminal case. They based their companies in the heart of Beverly Hills, in a suite of offices at 9595 Wilshire Blvd., where other tenants remember them aslow-key and cordial. "They did not look ostentatious at all, except for the cars they drove," said real estate investor Max Baril, whose offices were next door. Prosecutors say the pair recruited real estate agents, including Babajian and Grasso, to find properties, negotiate sales, falsify listings and jack up the "comps," or comparable sales figures, from other transactions in the area. They allegedly enlisted two appraisers to inflate houses' values, and an Americorp Funding broker to package fraudulent applications for 40 loans directly funded by Lehman, according to the bank's lawsuit. "In addition to the direct funded loans, Lehman also acquired an additional 44 loans from other lenders, which appear to show the same pattern," the lawsuit states. The two men used their own escrow companies to crank out fake settlement documents and their own notary to validate them, prosecutors say. They relied on Babajian and Grasso to get title insurance for the homes' inflated values, the government claims, and they installed renters in some of the houses to help cover the payments. Crucial to the alleged chain of fraud were "straw buyers" -- some of them unwitting players whose identities had been stolen -- who prosecutors say appeared legitimate but were not. (Excerpt) Former Terex CFO accused of fraud courant.com | 12/28/07 | Associated Press The U.S. Securities and Exchange Commission has accused a former chief financial officer of Terex Corp. of participating in a fraudulent accounting scheme with the former chief financial officer of United Rentals Inc. Joseph F. Apuzzo, 52, participated in the scheme to make year- end sales of new equipment to United Rentals and improve Terex's financial results by prematurely recognizing the revenue from the sales, according to the civil complaint filed in federal court on Thursday. Attempts to reach Apuzzo were unsuccessful because his answering machine mailbox at home was full. A spokesman for Terex Corp., which makes construction equipment, had no immediate comment. Apuzzo has not been charged criminally. The SEC said the scheme involved two sale-leaseback transactions carried out between 2000 and 2002 by United Rentals and its former chief financial officer, Michael J. Nolan, and others. Nolan, 47, of Raleigh, N.C., pleaded guilty this month in a criminal case to making false filings with regulators that enabled him to make a profit of $11 million, federal prosecutors said. United Rentals, based in Greenwich, rents equipment ranging from heavy machines to hand tools. Nolan faces up to 10 years in prison, a fine up to about $22 million and restitution of $11.1 million. Nolan and others fraudulently inflated the company's earnings per share for 2000 by engaging in a transaction that the company improperly accounted for as a minor sale leaseback, authorities said. United Rentals said the company has fully cooperated with federal authorities and restated financial statements. Embezzlement suspect held after weeks on run courierpostonline.com | 12/29/07 | Staff Accountant A man accused of stealing more than $200,000 from former employers has been captured after a weeks-long search, authorities said Friday. Anthony Fussell, 35, of Gloucester Township was arrested in Mount Holly Thursday after an investigation by the U.S. Marshal's regional fugitive task force. Authorities allege Fussell took $23,000 from an unidentified business in Cherry Hill and more than $200,000 from employers in several other jurisdictions. They said Fussell used fraudulent information to gain management jobs, then stole from the firms. Fussell, who lives in the 1500 block of Little Gloucester Road, was being held in Camden County Jail in lieu of $20,000 bail. Embezzlement is a growing business sierrasun.com | 12/28/07 | Jim Porter In the United States billions of dollars are lost every year to employee theft and fraud. I have seen estimates ranging from $50 billion a year to $400 billion. I have also seen a handful of embezzlement cases right here in our community. Embezzlement is a personal affair. It's also disgusting. Embezzlement is done by your friends, your employees, those in positions of trust with access to the company's assets. Statistically, your most trusted employee is often the one who is the culprit. Of course, only a small percentage of businesses, profits and non- profits, have had an embezzlement, but it is almost always a shock when the crime is discovered. Sometimes the business has insurance or a bond to cover employee theft, but more often than not that is not the case. This form of asset misappropriation can be theft of inventory or supplies, but the most common criminal activity involves either cash or the business’ checking account, whether it is theft of cash on hand or from deposits, skimming of receivables or fraudulent disbursements — sometimes with the assistance of a coworker or a vendor. My observation is that embezzlers have often had something happen at work that causes them to rationalize their theft, like “the company has been unfair to me.” What may start as a small scheme to “get paid what I'm worth” mushrooms. Sometimes health costs or a gambling habit or other form of financial hardship is the rational. Alcohol or drug abuse sometimes play a part. Watch for a lifestyle inconsistent with income. Again, my observation is that embezzlers are somewhat like wife-beaters, even after they are caught and charged criminally, they move on to another business and pick up their old ways. Amazingly, most embezzlers are not prosecuted. Where nonprofits have a unique potential for abuse, and I have seen no abuse, is the collection of cash at fundraisers. Cash should be collected and counted by at least two people with a tally verified by a third person. Cash should be immediately deposited and cash carriers should be escorted by others to prevent robbery. Most of us have never stolen in our lives and therefore assume everyone else shares those values. Unfortunately, that is not always the case. There are lots of procedures that can be implemented to minimize the chance of embezzlement, and they vary depending upon the nature and size of the business. Always have a system of checks and balances — layers of control. Never allow the person who opens the mail to also create the bank deposits; don't allow the person who deposits the money to also do the bank reconciliations. Bank reconciliations. Painful but necessary. Take care to coordinate the accounts receivables with deposits. Review vendor's bills and, if possible, sign the checks yourself. Pay attention if you see checks going to named individuals or checks for materials out of the mainstream of your business. Every article I have read suggests that you make sure your key staff takes at least one solid week of vacation a year, as embezzlements are often discovered while the embezzler is on vacation. Be wary of someone who never takes a vacation. (Um, I thought those were the good employees!) Monthly financial statements are a good tool to discover fraud and embezzlement. It goes without saying that the check signer should not sign a check to himself/herself, although I think we do that regularly at our firm. But one thing is for sure, embezzlement would never happen at our place. And that's what they always say. Fortunately, embezzlement is a rare occurrence. So keep the odds low and be smart. ________________________ |