Kevin Trudeau Has Learned Nothing

Does anyone remember Kevin Trudeau? He’s been in prison for the last six years, so you may have forgotten about him.

Kevin Trudeau used to be called the “infomercial king” because he did a bunch of wildly successful infomercials selling “natural cures.” Between the natural cures and the weight loss cures he peddled, he made millions off unsuspecting consumers.

But Kevin Trudeau was a special kind of criminal. He was a repeat offender who didn’t learn anything from his many legal troubles..

He did time in the early1990s for credit card fraud. The FTC went after Trudeau in 1998 for false and misleading information in the infomercials, and he had to pay a $500,000 fine. Then in 2003 they went after him for violating the order in the 1998 case when he made claims that Coral Calcium Supreme cured cancer. In 2004, he had to pay a $2 million fine related to this violation.

Read moreKevin Trudeau Has Learned Nothing

Using Facebook in Financial Investigations

I did a divorce investigation a few years ago that I like to call the Instagram Investigation. The husband was accused of marital waste (dissipation), as he was spending lots of money on his new girlfriend while his divorce was pending. The wife needed to quantify how much he was spending on the girlfriend, but it wasn’t clear who was spending money just by looking at the credit card statements. Until you looked at the girlfriend’s Instagram account and saw all the pictures from her shopping trips. It was a matter of comparing 150+ dated photos (also tagged with locations) to credit card charges to determine what was spent on the girlfriend.

Can we use Facebook to assist with financial investigations? Sometimes. I find that Facebook is most useful when researching relationships between people and tracking the activities of a party. It hasn’t proven to be particularly useful in terms of financial analysis, except when an occasional vacation or automobile purchase is documented on Facebook.

Even if the information I find may be limited, I still often check Facebook to see if there is anything I can use. I have found that Instagram accounts are very often public, so they don’t require permission from the user to see what he or she is posting. On the other hand, most people seem to have privacy safeguards in place on their Facebook accounts. That means you’re not going to see much of their activity unless you are FB friends with them.

Read moreUsing Facebook in Financial Investigations

Don’t Cash Out Your 401(k) in Divorce

It is common for divorcing spouses to cash out retirement funds at divorce time. And it seems to make sense at the time. There are expensive lawyers and all sorts of expenses to establish a new residence. Support payments may be delayed or non-existent. A retirement fund seems like great solution. It’s a pile of money that you weren’t going to use for a long time, and you have financial needs now.

But it should be the absolute last resort, because it’s so costly in both the short term and long term.

Retirement accounts like 401(k)s and IRAs create a tax deduction now (when money is contributed to it), and then taxes are paid when the funds are withdrawn at retirement time. The government wants us to keep the money in those accounts until we retire, so there are disincentives to withdraw the money early. If you take an early distribution from a retirement account, you’re going to pay income taxes on the money you withdraw, plus a 10% federal penalty for early withdrawal, plus any penalties your state may impose. I tell people to count on losing about 50% of the money they withdraw to taxes and penalties.

Read moreDon’t Cash Out Your 401(k) in Divorce

Divorce Fraud Red Flags

The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of “red flags” of fraud. A red flag is simply a warning sign or an unusual item or circumstance.

Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something does not feel right, it probably should be investigated. A client is often suspicious of the spouse even before they are separated. The spouse may even be known to manipulate the money.

Beyond using intuition to determine if something is wrong, there are plenty of warning signs that indicate the finances should be evaluated carefully. These red flags by themselves do not mean that money has disappeared or the finances are being manipulated. But they are signs that an investigation is warranted. Because divorce is so adversarial, it is likely that one or both of the spouses will conceal or manipulate financial facts.

Read moreDivorce Fraud Red Flags

Divorce Lifestyle Analysis Data Entry

A question often comes up relative to the lifestyle analysis in divorce cases: Isn’t is just data entry that anyone could do? Why do I need a forensic accounting expert? As I explain below, the lifestyle analysis is NOT just a data entry exercise. A level of quality control is necessary in order to ensure … Read more Divorce Lifestyle Analysis Data Entry

Green Mountain Coffee Roasters Securities Fraud Litigation

gmcr green mountain coffee roastersWay back in 2011, a class action suit was filed against Green Mountain Coffee Roasters (GMCR)… you know, the Keurig coffee maker guys. The gist of the suit was that the company was misrepresenting its inventory and revenues. The company was facing a ton of criticism over its financial statements. David Einhorn criticized the company heavily in a presentation he called “GAAP-uccino” at the Value Investing Conference.

Lo and behold, on November 9, 2011, Green Mountain announced earnings that were below expectations, and the stock price tumbled. In step the class action lawyers.

The case was finally settled in 2018, with Green Mountain agreeing to pay $36.5 million into a settlement fund. Sounds lovely, right? Except if you’re one of the investors who lost money during the relevant time period. All together, more than 25,000 claims were received by Epiq, the company in charge of claims administration.

Read moreGreen Mountain Coffee Roasters Securities Fraud Litigation

Miley Cyrus and Liam Hemsworth Divorce: No Spousal Support

Miley Cyrus and Liam Hemsworth were married in December 2018, and filed for divorce less than a year later. They had dated on and off for ten years before getting married, and the reasons for their split are in dispute.

It was widely reported a couple of days ago that the divorce was final, but actually the divorce doesn’t become final until six months after the filing date. That means Miley and Liam will be officially divorced in February.

Miley and Liam worked out a divorce settlement in December, and it involves neither of them receiving spousal support from the other. Why is no one receiving alimony? Two reasons may be in play here. First, it has been reported that there was prenuptial agreement, and it likely says that no one receives spousal support.

Second, even if there was not a prenup dictating these terms, it is likely that neither would receive spousal support because they each make plenty of money independently. In other words, neither Liam nor Miley needs money from the other person to maintain their lifestyle.

Read moreMiley Cyrus and Liam Hemsworth Divorce: No Spousal Support

Business Lifestyle Analysis

iStock_000019355019XSmall

Closely held businesses present special challenges in the family law setting. Typically, only one spouse is actively involved in the business. Therefore, not only does the spouse control the family’s finances, he or she also controls all of the records of the business. When a spouse is attempting to quantify the income from the business or the value of the business, the spouse who works actively in the business can purposely (and often very effectively) obstruct attempts to get accurate and complete data.

Certain types of businesses, such as restaurants and retail stores, can be prone to manipulation because they have so many cash transactions. Construction companies, real estate ventures, and auto dealerships are notorious for “creative” bookkeeping. Professional service providers, such as doctors, dentists, and attorneys are at risk for financial maneuvering because it is so difficult to verify the amount of professional services actually provided to patients or clients.

Any business that is closely held and has finances that are easily manipulated by the owner is at risk. If this happens, the “out” spouse is left looking for alternatives to get to the bottom of the finances. Techniques used in a personal lifestyle analysis can also be applied to businesses to ferret out the truth about the money.

Read moreBusiness Lifestyle Analysis

Who Has FIVE Foreclosures?

Jennifer McKinney, that’s who!

Years ago I delighted in writing about mommy bloggers who earned gobs of money at the expense of their readers (and the advertisers who wanted to get in front of them), but were dishonest in one way or another. I’ve written about the shenanigans of Dooce, but we spent a lot of time on Jennifer McKinney, known as MckMama. She frauded her way through bankruptcy court and went on to shill for MLM company Xyngular.

McKinney is currently one of the top producers for Xyngular, and has been recognized as a “million dollar earner.” She started with Xyngular in 2012, and by mid-2014 she made $500,000. (Made… means commissions paid to her plus the value of trips and prizes given to her.) In late 2015 she was up to $1 million cumulative. Then $2 million cumulative by the middle of 2017. It was $3 million cumulative by mid-2018. She has likely surpassed $4 million cumulative by now… which is an average of $500,000 per year for the last 8 years.

Read moreWho Has FIVE Foreclosures?

Deposition Questions for Financial Expert Witnesses

The second edition of Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets has more than 25% new material. I’ve updated the book for tax law changes, I have added material that clarifies topics covered the first time around, and there is brand new material.

One of the new parts of the book relates to the direct examination of financial expert witnesses, especially during depositions. The deposition is the time for the attorney to dig into the background and qualifications of the forensic accountant. It is also the time to ask probing questions about the work done, the the choices made with respect to the financial analysis, and the opinions expressed in the report (or maybe opinions they have but didn’t enumerate in the report).

I have a Direct Examination Checklist in the book that I think attorneys will find invaluable. I can’t replicate the entire list of questions here, but I’m going to give you some snippets of the list of general lines of questioning that you can use with a financial expert witness:

Background and qualifications

  • Educational background—Include both formal education and continuing professional education.
  • Credentials obtained—When were they obtained? How?
  • Credentials not obtained—Why not? Is the expert not qualified for them or did the expert simply choose to not get them?

Read moreDeposition Questions for Financial Expert Witnesses