University of North Carolina's Fraud Running Deeper?

Forbes:

In early December, former Governor of North Carolina, Jim Martin, declared the University of North Carolina free from any wrongdoing in an alleged athletic scandal, which revolved around questionable classes within the Department of African American Studies. Martin claimed that officials tried to raise red flags on a couple different occasions. Specifically, Martin said that in 2002 and 2006, officials informed the Faculty Committee of Athletics of the abnormally higher than expected number of independent enrollments and lecture courses that had all of a sudden turned in to independent studies. Martin reported that this committee responded by stating that the professors operated with “high latitude on how to teach a course”, and Martin firmly stated that while the courses were filled with mainly athletes, there was no athletic scandal.

After the proclamation by the former Governor, the University of North Carolina seemed to have mitigated some of its potential damage. However, a recent review of the faculty minutes do not allude to any such red flags ever being raised. In fact, several faculty members have specifically addressed the proclamation and asserted that the alleged red flags were never raised or that they do not remember them existing.

A former committee chair in 2002, Dr. Stanley Mandel, commented on the alleged red flags being brought up. “You won’t find any reference to it in the committee minutes because there was no reference to it,” said Mandel. “There was no discussion. Nothing was brought up.” A former committee member from 2006 stated, “It seemed like everyone around the table was congratulating themselves about what a squeaky clean program they had.”  With this recent news about the red flags never being brought up via the evidence of the committee minutes, it seems as if Martin has potentially made some borderline fraudulent statements. Still, Martin’s report showed that 216 classes had either proven or potential problems, and 560 classes were suspected to have incurred unauthorized grade changes. The opposite of squeaky-clean.

Full article by Darren Heitner can be found here.

SEC Warns on Rise of Affinity Fraud

From AdvisorOne:

The Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy on Wednesday issued an Investor Alert to help educate investors about affinity fraud, a type of investment scam that the agency is seeing more of that preys upon members of identifiable groups, such as religious or ethnic communities or the elderly.

As the SEC explains, affinity fraud almost always involves either a fake investment or an investment where the fraudster lies about important details (such as the risk of loss, the track record of the investment, or the background of the promoter of the scheme). "Many affinity frauds are Ponzi or pyramid schemes, where money given to the promoter by new investors is paid to earlier investors to create the illusion that the so-called investment is successful," the SEC says.

Fraudsters who carry out affinity scams frequently are (or pretend to be) members of the group they are trying to defraud. “Fraudsters target any group they think they can convince to trust them with the group members’ hard-earned savings,” the SEC says.

For instance, a recent SEC action was against a Ponzi scheme promoter who sold promissory notes bearing purported annual interest rates of 12% to 20%, telling primarily African-American investors that the funds would be used to purchase and support small businesses such as a laundry, juice bar, or gas station. The promoter, the SEC says, also sold “sweepstakes machines” that he claimed would generate investor returns of as much as 300% or more in the first year.

At its core, the SEC says, “affinity fraud exploits the trust and friendship that exist in groups of people who have something in common.” And “because of the tight-knit structure of many groups, it can be difficult for regulators or law enforcement officials to detect an affinity scam.” Victims often fail to notify authorities or pursue legal remedies. Instead, they try to work things out within the group. This is particularly true where the fraudsters have used respected community or religious leaders to convince others to join the investment.

Full article can be found here.

IRS Boosts Staff in Tax Refund fraud

Tampa Bay Online:

The Internal Revenue Service is tripling the number of staff members nationwide who are dedicated to addressing the issue of identity theft tax refund fraud, U.S. Rep. Kathy Castor said.

Castor, the Tampa Democrat, said she was briefed Friday by IRS officials regarding progress the agency is making to tackle the epidemic of fraud in which the Tampa area leads the nation.

Thieves use stolen personal information — such as names, dates of birth and Social Security numbers — to file tax returns with fake income information and obtain fraudulent tax refunds.

According to a recent inspector general report, thieves in the Tampa area alone stole more than $400 billion last year from federal taxpayers this way. Nationwide, identity thieves are stealing billions from the federal government through refund fraud.

Castor said the IRS assured her it is increasing its screening filters, designed to detect fraudulent returns before refunds are issued. Across the board, law enforcement officials have repeatedly said the fraud is so pervasive, it cannot be stopped by arrests and prosecutions — that the IRS needs to stop sending "refunds" to thieves.

The IRS told Castor that so far this year, it has prevented 2.3 million fraudulent refunds from being issued, totaling $15 billion. That's compared to 1.4 million fraudulent refunds stopped in 2011, worth $11 billion.

Part of that effort apparently involves increasing scrutiny of tax filings originating from Tampa, Castor noted.

"I said, 'Geographically, where you know there is an epidemic, like the Tampa Bay area and the state of Florida, I assume filters are place.' They said yes.

"They say they're on the cusp of instituting many, multiple new filters to prevent the fraud from happening in the first place," Castor said.

"So they will flag, for example, multiple returns coming to the same address. That's a question I keep getting. How can it be that the IRS is sending multiple debit cards and returns to the same address over and over?"

Castor also noted something police have been saying: often crooks will use the same fake numbers repeatedly on numerous returns. For example, two suspects indicted this week were accused of filing 17 tax returns, each seeking refunds of $1,453.

The new filters, Castor says she was assured, "will flag that."

While Castor was encouraged by the new IRS approach, she added, "I know from the folks coming to my office with checks and calls and people I see in the grocery store, this is still a huge problem and we've got to continue to press the IRS until Tampa no longer is number one for tax fraud."

Full article can be found here.

Financial Statement Fraud

5/2/2011 - 5/3/2011

Holiday Inn Cleveland South - Independence

6001 Rockside Road

Independence, OH

Hotel Phone: +1 (216) 524-8050

Room Rate: $89 single, double (subject to availability)*

Hotel Cut-off Date: 4/1/2011

Early Registration Deadline: 4/1/2011

The complexity of financial statement fraud has received considerable attention over the past few years and will continue to cause concern. This course is designed for those who regularly review and evaluate financial statements. Auditors, both internal and independent, will benefit from an enhanced understanding of what the numbers mean and the increased ability to detect indicators of fraud.

This two-day, instructor-led course also discusses what the professional responsibilities of the financial professional are in relation to the accuracy of statements, especially in light of new legislation and revised fraud standards.

Course Leader: Christopher Rosetti, CFE, CPA

Registration Form

22nd Annual ACFE Fraud Conference and Exhibition

From the ACFE: The 22nd Annual ACFE Fraud Conference and Exhibition will address the challenges and critical issues faced by fraud fighters during top-level educational sessions and participate in unparalleled networking opportunities with the premier practitioners and thought leaders in today’s fight against fraud.

22nd Annual ACFE Fraud Conference and Exhibition Keynote Speakers have been announced. See the lineup here.

The Profiles Series - Association of Certified Fraud Examiners

The Association of Certified Fraud Examiners is dedicated to fighting fraud globally. http://www.acfe.com

Sherry Peel Jackson Ex IRS Agent on Income Tax (1 of 2)

Sherry Peel Jackson Ex IRS Agent on Income Tax (2 of 2)

For Group of Skeptics, the Truth Is Out There

From the Wall Street Journal:

Corporate conspiracy theorists, whistle-blowers and suspicious financial minds long have struggled to get an audience for accusations of business fraud.

But on the heels of the Bernard Madoff scandal and a host of smaller Ponzi schemes and misdeeds, these skeptics are enjoying newfound appreciation.

"We're suddenly on Broadway, on the tip of everyone's tongue," said Lewis Freeman, who has a forensic-accounting firm in Miami. "Before it was off-Broadway, or even in Boston."

Last month, more than 2,000 accountants, auditors and attorneys who run their own investigative firms met in Sin City to compare tips for rooting out wrongdoing and to identify fertile ground for future scandals. Mortgage workouts and corporate espionage were top candidates.

The group, the Association of Certified Fraud Examiners, said it has 47,000 members, up more than 25% in the past few years. They feted Harry Markopolos, a Boston investigator who for years tried in vain to persuade regulators that Mr. Madoff was a scam artist.

He received the organization's annual award and a standing ovation from the group, whose outlook might be summed up this way: "There are only two types of people: the caught and the uncaught," Mr. Freeman said.

Now attention is switching to Mr. Markopolos's fellow fraud examiners, as the recession shows new tales of corporate abuse and presents temptation for other would-be fraudsters. Examiners are busier than ever, they said.

"It's an exciting time in my life, I feel I might actually get somewhere," said Thomas Gober, an attendee who has been chasing alleged improprieties he sees in the insurance industry for decades, often in frustration.

For two years, Mr. Gober said he wore a hidden tape recorder to help authorities gather evidence in an insurance probe. He said he also has taken on health-care fraud, sometimes working with the Federal Bureau of Investigation and Justice Department. The FBI and Justice Department didn't comment.

Among the tips he shared at the conference: When hired by a company to unearth internal problems, cozy up to information-technology directors who can access all kinds of incriminating emails.

Most fraud examiners share a suspicion that criminal activity is rampant within companies, and regulators are incapable of stopping it. Between sessions, attendees chatted about ways to encrypt electronic files or foil snoops.

Full article here.

Pirate of the Caribbean

From Vanity Fair:

With little more than laserlike ambition and a brash Texas charm, Allen Stanford built an $8 billion Caribbean banking empire, exposed in February as perhaps the second-largest Ponzi scheme (after Madoff’s) in history. How did a bankrupt Waco health-club owner vault onto the Forbes Four Hundred, while the S.E.C., the F.B.I., and others mounted investigation after investigation of his shadowy business? From Stanford Financial’s Antiguan headquarters, the author follows Stanford’s improbable trail, complete with multiple families, a moated Miami mansion, and a passion for cricket.

In 2006, a Miami attorney named Milton M. Ferrell Jr. boarded a private plane bound for the Caribbean island of Antigua. Ferrell had a meeting there with the country’s top private banker, R. Allen Stanford, a muscular, boisterous Texan billionaire whose $8 billion Stanford Financial Group had grown so profitable he had attained the No. 205 spot on the Forbes Four Hundred. Ferrell represented a number of wealthy Latin Americans, and Stanford had invited him for a tour of his Antiguan bank, hoping to attract money from Ferrell’s clients.

With Ferrell that day was a security consultant I’ll call Trevor, an expert on the shadowy world of Caribbean banking. Trevor had heard the rumors about Stanford Financial—the suspiciously high returns on its certificates of deposit, the money-laundering investigations—but wanted to see Stanford’s offices up close. Stanford himself—six feet four, with a mustache, close-cropped brown hair, wide-set eyes, and a crushing handshake—was waiting at his hangar when they landed. After a tour of the adjacent complex some called Stanfordville, which included three bank buildings, a vast cricket field, and a restaurant called the Sticky Wicket, Stanford ushered the men into his crown jewel, Stanford International Bank, an imposing structure that resembled a columned mansion, overlooking the airport. Inside, the company’s gold-eagle logo was everywhere—on doors, walls, coffee mugs, and lapel pins. It even appeared, it was whispered, on the toilet seats.

“The first thing Allen says is how they use all these sophisticated financial techniques to get such good returns on these C.D.’s, which consistently didn’t make sense to me,” Trevor recalls today. “So I said, ‘Can I see your trading desk? Is it in London, New York?’ Allen says, ‘No, we do it right here in Antigua.’ So he takes us into this room with a big desk, full of computers. There’s a bunch of 300-pound Antiguan women in there, you know, like these women who sell fruit in the market. Milton and I looked at each other like, ‘No way.’”

At that point, Trevor asked to meet the bank’s compliance officer, the executive tasked with making sure the firm’s trades conformed to securities regulations. “So Allen takes us back to a corner of this room,” Trevor goes on. “And I swear, the door was creaking on its hinges, and out comes this 70-year-old guy who clearly had nothing to do with banking. I mean, he looked like a janitor. Milton and I, we said to ourselves, This is just a giant Ponzi scheme. Clearly this outfit doesn’t have the facilities to support this kind of business.”

They were right: it didn’t—though it took an awfully long time for American authorities to realize it. On February 17, 2009, after years of rumor and several weeks of intense investigation, U.S. marshals raided Stanford Financial’s Houston headquarters. Even as camera crews filmed them toting out boxes of paperwork, the Securities and Exchange Commission filed a suit charging Stanford and his two top aides with fraud, freezing all of Stanford Financial’s assets and shutting down a financial empire that catered to 30,000 customers in 131 countries, though the bulk of its business was in Latin America. The company, the S.E.C. charged, was in fact little more than an $8 billion Ponzi scheme—the second largest of the era, it appears, after Bernard Madoff’s. Billions of dollars in deposits, the agency alleged, were simply missing. Nine days later Stanford’s chief investment officer, Laura Pendergest-Holt, was arrested for lying to the S.E.C. (Stanford and Pendergest-Holt deny any wrongdoing.)

Full article can be found here.