Archive for March, 2006
Fri 31 March 06 · Filed under Auditing & Regulations
The SEC press release:
The Securities and Exchange Commission today announced settled administrative actions finding improper professional conduct by a former KPMG engagement partner and senior manager for failing properly to complete the audit of Tenet Healthcare Corporation’s fiscal year 2002 financial statements and for making after-the-fact modifications to the audit working papers which created the false impression that the audit had been adequately performed. The KPMG manager on the Tenet audit was also charged for his role in the improper modifications to the audit working papers.
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Tags: SEC, Securities and Exchange Commission, KPMG, Tenet Healthcare Corporation
Fri 31 March 06 · Filed under Fraud News Stories
I have recently begun reading the true story of the rise and fall of Enron. The book is Conspiracy of Fools: A True Story by Kurt Eichenwald. It is fascinating so far, so I thought I’d post here about it every so often. You’ll be able to find the posts under the Enron category, and I’ll start all of them with “Book:”, just so you can find them easily.
My first comment…
The book talks about what I perceive to be the extreme arrogance of many involved with Enron. At the beginning, there was a problem with one division. Management believed that the head of the division was stealing significant sums of money, so they sent in the auditors. The auditors were told that part of the money went for a severance payout to an employee who was terminated.
The employee’s name was supposedly M. Yass.
There was never such an employee. You figure out the joke. Wasn’t the head of that division clever?
Tags: Enron
Thu 30 March 06 · Filed under Uncategorized
Employers are putting the brakes on the use of internet services by employees. They are stooping the use of instant messaging and downloading of files, for starters, in an attempt to protect company computers from viruses, data bottlenecks, and potential legal problems.
General Electric, for one, has stopped the use of outside instant message programs and access to online email accounts like those by Yahoo and Hotmail. Some companies are blocking access to Skype, the internet phone service owned by ebay.
Employers are saying that the banning of these services is necessary to protect company resources and keep employees on task. Any service that is not essential to an employee’s job function might not be accessed from work.
Wed 29 March 06 · Filed under Fraud News Stories
Milwaukee County has sued its former actuarial firm, Mercer Human Resource Consulting, for malpractice and breach of contract related to the 2000 county pension deal. Mercer advised the county on the cost of the pension enhancements under a contract signed by the former personnel director Gary Dobbert. (Dobbert crafted the pension package and went to jail in 2004 for lying about the deal’s costs.)
The lawsuit alleges that Mercer
…made repeated, serious actuarial mistakes, grossly underestimated costs and totally failed to assess the actuarial effect..
The lawsuit is being brought by Milwaukee County, the county’s Employee Retirement System, and the county’s Pension Board.
Tags: Milwaukee County, malpractice, breach of contract, pension enhancements, Employee Retirement System
Wed 29 March 06 · Filed under Fraud News Stories
The European Union’s chief antitrust regulator has warned Microsoft Corp that it can’t sell the Windows Vista operating system in Europe if it has certain features. One concern is Microsoft’s potential to unfairly direct users to Microsoft’s internet search service. The EU is also concerned about certain security functions in the system which may prevent consumers from being able to choose various software packages. Symantec Corp., for example, is concerned that if Microsoft included antivirus software in Vista, their product lines would suffer.
A 2004 EU antitrust order against Microsoft fined the company $600 million, ordered it to sell a version of Windows XP without audio-visual software attached, and ordered the company to create a how-to manual for competitors trying to write software that works with Windows.
Tue 28 March 06 · Filed under Fraud Detection & Prevention
Federal prosecutors in New York, Alabama, and New Hampshire have threatened to label companies uncooperative if they continue to pay the legal fees of indicted executives. Prosecutors want individuals to pay their own legal fees, even though the fees can easily be upwards of $100,000 in a white collar crime case.
The New Hampshire case involves 5 former executives of Enterasys Networks Inc. They are charged with accounting fraud for inflating 2001 revenue, but the trial has been postponed because prosecutors pressured the company to not pay the legals fees of the defendants. U.S. Attorney William Morse denies that they pressured the company to stop paying legal fees, rather the prosecutors were going to consider the payments when assessing the company’s cooperation with the case.
Mon 27 March 06 · Filed under Fraud Detection & Prevention
A long post, compliments of the Wall Street Journal. I thought this was a great piece. They chronicled how various high-profile white collar defendants fared. The lineup includes Frank Quattrone, Bernie Ebbers, Richard Scrushy, John Rigas, Dennis Kozlowski, Mark Belnick, Andrew Fastow, Martha Stewart, Joseph Nacchio, Walter Forbes, Martin Grass, and Jamie Olis.
Frank Quattrone (CSFB) - Conviction Overturned
After one mistrial, a subsequent conviction and an 18-month prison sentence, Frank Quattrone was granted a new trial. Mr. Quattrone, a former star investment banker whose success epitomized the Internet-stock boom of the late 1990s, had been convicted of obstruction of justice after forwarding an email in December 2000 urging employees to “clean up” their files during an investigation of allocations of initial public offerings at the firm then known as Credit Suisse First Boston. A federal appeals court Monday overturned the verdict, citing erroneous instructions given to the jury. The successful appeal was based partly on a May 2005 Supreme Court decision voiding a criminal conviction of Arthur Andersen LLP, the former accounting giant charged with shredding documents during an investigation of its client Enron Corp. The appeals court remanded the Quattrone case to the district court for retrial and ordered that it be assigned to another judge.
Bernard Ebbers (WorldCom) - Guilty
Bernard Ebbers, milkman-turned-WorldCom CEO, was convicted on all nine counts for his role in an $11 billion accounting scandal, the largest in U.S. history. In July 2005 a judge sentenced Mr. Ebbers to 25 years in prison — one of the stiffest sentences handed out in a white-collar case in recent years.
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Mon 27 March 06 · Filed under Scam Busting
England’s Qualifications and Curriculum Authority (QCA) has reported that mobile phones in exam halls make up 25% of the situations in which students are caught cheating. Students are not even supposed to have cell phones with them during exams.
Mon 27 March 06 · Filed under Fraud News Stories
Martin Frankel, infamous looter of insurance companies, was sentenced to 17 years in prison for his theft of more than $200 million. This is the same sentence he received in 2004, and he was resentenced pursuant to a Supreme Court ruling on sentencing guidelines.
Frankel pleaded guilty to 24 counts of fraud and racketeering, for his stealing from insurance companies that he took over in Arkansas, Mississippi, Oklahoma, Missouri and Tennessee. Those insurance companies were purchased through a trust which hid his involvement. His involvement was hidden because Frankel was barred from securities trading because of a theft he committed previously. Frankel claimed he was investing the assets of the insurance companies, but in reality he used the $200 million for personal purchases.
He fled the country in 1999 to avoid prosecution, but was found in Germany 4 months later. Frankel will be eligible for release in 2015.
Sun 26 March 06 · Filed under Fraud Detection & Prevention
The trial of former Enron executives Jeffrey Skilling and Kenneth Lay will continue this week, with the prosecution expected to wrap up its case. However, according to the Wall Street Journal:
…there has been no smoking gun — no emails or incriminating papers — conclusively tying the defendants to illegal acts.
The prosecution’s case has been laid out by former executives who have testified about illegal deals to hide Enron’s ailing finances. The witnesses say that Skilling and Lay either directed or knew about the various schemes.
Ben Glisan Jr., the former treasurer of Enron testified about some of the schemes. According to the Wall Street Journal, he testified that:
…he spoke with Mr. Skilling in 2000 of a plan to use Enron stock to absorb losses on company investments through off-balance-sheet entities known as the Raptors. An outside partnership, run and partly owned by Enron’s then-chief financial officer, Andrew Fastow, also took part in the Raptor deals.
Glisan also testified that he told Skilling about a feature of the partnership that helped Enron hide millions of dollars of losses, and that Lay “giggled” about the plan.
The defense case will likely rely heavily on testimony from Skilling (former president) and Lay (former chairman).
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