| #533 - January 8, 2008 |
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| #533 Updated: 1/8/08 8:40 a.m. Fraud and Financial Reporting Research Released webcpa.com | 1/8/08 | Staff Writer Financial Executives International has released two research studies on fraud prevention and financial reporting. One of the reports, "FERF Fraud Risk Checklist," from FEI's Financial Executives Research Foundation, presents a series of questions to help companies assess the potential risk factors associated with fraudulent financial reporting and misappropriation of assets. The checklist provides a framework for evaluating a company's reporting, along with a sample structure to use in documenting management's thought process and conclusions. The checklist is available for $49.95 from FEI. The other new study, "What's New in Financial Reporting: Financial Statement Notes from Annual Reports," examines disclosures from the 2006 annual reports of the 100 largest publicly traded companies that used innovative techniques to address difficult accounting issues. The study identifies and analyzes recent reporting trends and common practices in financial statements. For example, 25 out of 100 filers in the 2006 reporting season reported tangible asset impairments as a critical accounting policy. The report is available for $129 from FEI. Law firm seeks $688 million for Enron work chron.com | 1/7/08 | Kristen Hays The California law firm that led the effort to gain the largest civil securities settlement in history in massive Enron shareholder litigation wants $688 million for its work. San Diego- based Coughlin Stoia Geller Rudman & Robbins said in court filings this month that the proposed fee is 9.52 percent of the $7.3 billion in settlements amassed since the litigation was filed shortly before Enron imploded in late 2001. U.S. District Judge Melinda Harmon is slated to consider approving the request at a Feb. 29 hearing in Houston. The fee request was expected. The University of California system, the lead plaintiff in the $40 billion lawsuit, last year proposed a plan to distribute the settlements to shareholders who lost money when Enron imploded. Harmon will consider final approval of that plan at the hearing next month as well. Several law and business professors as well as a retired federal district and appellate judge say in accompanying filings that the fee request is reasonable given the scope of the litigation and the settlements it helped secure. John Coffee Jr., a securities law expert at Columbia University Law School, said in a filing that the bulk of settlements in shareholder litigation usually comes from the stock issuer — like Enron — and the issuer's auditor. But Enron was bankrupt. The auditor, Arthur Andersen LLP, was barely breathing by mid-2002 after clients and workers bolted as the company was prosecuted for destroying Enron-related documents. That left shareholders seeking meaty settlements to pursue deep-pocketed banks that conducted transactions with Enron, Coffee said. The plaintiffs alleged that they have helped the energy company disguise loans as income, hide poorly performing assets and otherwise cook its books to help Enron maintain a public illusion of success. "Because of its notoriety, Enron could not have been settled as a practical matter for a modest amount, even if such a recovery reflected the high odds facing plaintiffs' counsel in their litigation against basically secondary participants," Coffee said. The bulk of the settlements came from Citigroup, JPMorgan Chase, and the Canadian Imperial Bank of Commerce, which settled for a combined $6.6 billion. That alone surpassed WorldCom's $6.1 billion, the second-largest settlement ever reached to resolve securities litigation. The rest came from Bank of America and Lehman Bros.; Andersen and its former umbrella organization, Andersen Worldwide; law firm Kirkland & Ellis; LJM2, a former partnership once run by Enron finance chief Andrew Fastow to conduct deals with Enron; and most of Enron's former directors. None admitted wrongdoing in reaching the settlements. The law firm said it spent $112 million on the case in the last six years. The remaining defendants — Merrill Lynch & Co., Barclays and Credit Suisse First Boston — were slated to go to trial in April last year. Shortly before the trial the 5th U.S. Circuit Court of Appeals ruled the plaintiffs could not allege that the banks were primary players in fraud that helped fuel Enron's failure. The ruling sided with the banks' argument that they could not be viewed as anything more than fringe players. As such, they could be sued by the Securities and Exchange Commission, but they cannot be targets of securities class-action litigation, which can pursue only primary violators. Feds to enforce tighter restrictions to help prevent Medicare fraud latimes.com | 1/8 /08 | Molly Hennessy-Fiske Federal officials are expected to announce in Los Angeles today a nationwide effort to combat fraudulent Medicare billing by medical equipment suppliers in 70 urban areas. Such fraud in the federal healthcare program for the elderly has increased in recent years, particularly in the sprawling urban areas of Southern California and south Florida where many of the most vulnerable Medicare recipients live. In one case, 84-year-old Alice Christoff, who is legally blind and cannot walk, says she went shopping for a new electronic wheelchair last year only to have a saleswoman foist upon her a series of products she didn't need or want, including costly -- but subpar -- electronic wheelchairs, a hospital bed and hydraulic bathroom lift. All of it was billed to Medicare, at a cost of more than $28,300. "I don't understand anything about medical equipment," said Christoff, a retired accountant in Santa Maria. "When she said I had to have it, I just said OK." As part of their effort to stop such fraud, officials from the U.S. Department of Health and Human Services plan to require medical equipment suppliers to be vetted by approved accrediting agencies, some of the same ones that vet pharmacies and hospitals. Moreover, suppliers would have to set their prices through a competitive bidding process. The rules will begin to take effect this spring. Decrying the new rules as too heavy-handed, some of the country's 116,000 medical equipment suppliers say they may quit serving Medicare patients. Under the current process, suppliers apply to the government to participate in the program, undergo an inspection and meet general standards for running a legitimate business -- proof of address, phone number and inventory, for example. Patients pay about 20% of the government's listed price, and suppliers bill Medicare for the rest. Until last year, suppliers usually were screened and inspected only once, when they applied for a Medicare billing number. Many posed as legitimate businesses but billed Medicare for equipment that they never delivered, that wasn't prescribed or that patients didn't need, Medicare officials said. Last year, Medicare began requiring suppliers to renew their applications every three years and undergo more frequent inspections. But with abundant advance notice, many suppliers fooled inspectors into believing they were operating legitimately or closed up shop before inspectors arrived. "It's relatively easy for people to present the facade of meeting all those [federal] standards," said Kimberly Brandt, Medicare's director of program integrity. "They know when the inspector is going to come, they know what he's looking for, so they can make it look like they meet all of those things." Southern California recently has proved a hot spot for such illicit operations. For the year preceding April 2007, 123 California suppliers had their Medicare billing privileges revoked. Of those, 108 were in Los Angeles, Orange, Riverside and San Bernardino counties. Eighty-three were in Los Angeles County alone. That is almost double the 42 suppliers revoked statewide in fiscal year 2002. In L.A. County alone, home to nearly 5,000 suppliers, Medicare investigators have uncovered $300 million in potentially fraudulent billing during the last two years, Brandt said. Many of the victims are non-English speakers, Asian and Latino Medicare recipients unfamiliar with federal paperwork and rules, Brandt said. Marcelino Arroyo, 74, of Santa Ana was caught up in what Medicare officials said is a typical scheme. Spanish-speaking solicitors -- in this case, over the telephone -- persuaded Arroyo to accept a ride to a Los Angeles clinic, promising free medical supplies. Arroyo, a retired strawberry picker, wasn't ill, but the supplier told him he might need the supplies someday. At the clinic on Whittier Boulevard, which he said looked more like a run-down house, staffers in white coats drew his blood and placed sensors on his chest and arms. He was never sent any results. Instead, he says, the supplier sent two electronic wheelchairs and billed Medicare more than $10,400. Arroyo reported the fraud to Medicare and started warning his friends. "They promised all these free things and did not tell me who was going to be billed. I believed them," Arroyo said in Spanish. "They shouldn't be allowed to lie to people." Under the new rules, suppliers will have to pay to apply to one of 10 accrediting organizations. Fees will range from $1,500 to $10,000, Brandt said. During accreditation, suppliers will face stricter background checks and more frequent inspections with short notice, Brandt said. If those checks raise suspicions of fraud or the potential for fraud -- for instance, if a manager has had a felony conviction during the last five to 10 years -- the supplier could be bounced from the program, Brandt said. N. Philly family faces trial in alleged money-laundering scheme philly.com | 1/8/08 | Kitty Caparrella German Quiles thought he could retire quietly in 2004 after 28 years as a Municipal Court officer. But yesterday, the 68-year-old North Philadelphia retiree was back in court - as a defendant in an international money-laundering trial, which opened before U.S. District Judge Jan E. DuBois. Quiles; his wife, Maria, 50, and daughter Gloria, 26, are accused of laundering $175,900 in "drug money" at Aruba Inc., an auto-tag service and check-cashing agency that the Quiles family owned on 5th Street near Susquehanna Avenue. The three are charged with conspiracy, money laundering, and aiding and abetting. If convicted, they face forfeiture of $131,575 in property and jail time. Assistant U.S. Attorney Jennifer Chun vowed each of the defendants would "implicate themselves on tapes" recorded by a confidential informant, with no criminal history, who has been working for the feds for 20 years. Defense attorney Jack McMahon Jr. dared the jury to find the informant, telling his client, German Quiles, on the tapes: "This is drug money," even though he admitted that his client had mentioned "money laundering" in a conversation. McMahon portrayed Quiles as a family man born in Puerto Rico who came here at age 6. After working in clothing and furniture stores, he won a 1968-1969 term as a state representative, and later became a deputy sheriff for a year before becoming a court officer. An agent with Immigration and Customs Enforcement testified that he had been tipped off about the alleged money laundering and provided the informant with what was purported to be the "drug money" to be laundered between September 2006 and last January. According to the government, the informant visited Aruba Inc. 35 times over 16 days. He obtained 83 money orders, four wire transfers to the Dominican Republic totaling $6,000, and exchanged small bills for $100 bills 20 times. Aruba was paid $9,800 in fees for these services. In his opening, attorney Brian McMonagle told the jury that his client and Quiles' wife of 26 years helped build the check-cashing and auto-tag business, despite an affliction of lupus in 2000. Maria was working behind a bulletproof glass barrier taking care of other customers, while the informant was talking, McMonagle said. "Then you'll hear this: 'And you know this is drug money.' " "There isn't a response," he added, "from a person who has lived her whole life in a good way." Attorney John J. Griffin said Quiles' daughter Gloria, a former law student, dropped out of school to help her parents. Griffin urged the jury to listen to the "unintelligible" tapes and "give these people a fair shot." As Gloria wiped her tears, Griffin added: "This is every citizen's worst nightmare." Shannon Ridge bookkeeper charged with embezzlement record-bee.com | /18/08 | Tiffany Revelle LAKE COUNTY -- A bookkeeper for Shannon Ridge Winery was arrested on a charge of embezzlement Jan. 2 for allegedly taking more than $150,000 from her employer. Lower Lake resident Michelle Lynn Davis, 23, turned herself in to the Lake County Sheriff's Department after her defense attorney made arrangements, according to Sheriff Rodney Mitchell. Superior Court Judge Richard Martin issued the felony warrant Jan. 2. Davis faces an embezzlement charge with a special allegation that the amount was more than $150,000, according to chief deputy district attorney Richard Hinchcliff. Hinchcliff said Davis worked for Shannon Ridge Winery in Clearlake Oaks, but did not say how long she worked there. "Shannon Winery management reported the embezzlement to our department on December 14, 2007," Mitchell said in a prepared statement. "Shannon Winery management discovered a number of irregularities in their accounting. Examples include suspicious charges to a company credit card and canceled checks that did not match the checkbook ledger. The suspected embezzlement is believed to have begun about one year ago," Mitchell wrote. Davis has not been arraigned, and Hinchcliff said he was not aware of her next court date. Davis' booking information, found at www.lakesheriff.com, says her next court date is March 7. According to California law, a person who is arrested has a right to be arraigned within 48 hours of the arrest. "Once they're arrested if they have not bailed out they have these rights under (Penal Code section) 825. ________________________ |