Archive for June, 2006
Tue 20 June 06 · Filed under Fraud Detection & Prevention
Fraud is expensive when you look at the dollars lost under the various schemes perpetrated by employees. An estimated 5% of revenues is lost to occupational fraud each year, which amounts to $652 billion in the U.S. alone. These statistics come from the 2006 Report to the Nation on Occupational Fraud and Abuse, published by the Association of Certified Fraud Examiners (ACFE).
Yet people fail to consider the fact that there are many additional costs that are incurred as a result of fraud. Certainly, it becomes expensive to investigate and prosecute these acts. It also causes stress and anger for employees, and that could lead to unexpected turnover. For more on the true cost of fraud, read my article from the Wisconsin Law Journal.
Tags: Fraud, occupational fraud, Report to the Nation, Association of Certified Fraud Examiners, ACFE, Wisconsin Law Journal
Tue 20 June 06 · Filed under Fraud Detection & Prevention
Payments from Milberg Weiss Bershad & Schulman to expert witness John Torkelsen are being examined by federal prosecutors. They are trying to determine whether Milberg Weiss improperly used money recovered in lawsuits to pay Torkelsen for work performed in earlier cases.
Torkelsen is a financial analyst who gave expert witness testimony in [/tag]shareholder lawsuits[/tag] filed by Milberg Weiss in the 1980s and 1990s. He was reportedly paid tens of millions of dollars for his testimony.
It has been alleged that Torkelson was paid out of shareholder recoveries for work performed in a separate case. Any such payment made out of shareholder recoveries in an unrelated case would be inappropriate.
Torkelsen’s ex-wife has agreed to provide evidence to the criminal investigators, but the nature of the information is not currently known. The ex-wife pleaded guilty last year to federal charges related to the theft of $1.9 million from a venture capital partnership called Acorn Technology Fund.
Last year, Torkelson himself was convicted of making a false accounting entry into the books of Acorn. It is also alleged that he wrongfully converted $5 million of Acorn’s funds.
Tags: Milberg Weiss, expert witness, federal prosecutors, expert witness testimony
Mon 19 June 06 · Filed under Fraud News Stories
Verizon Communications Inc. has filed a patent infringement lawsuit against Vonage Holdings Corp. The suit is based upon information in technical documents and diagrams, which was filed with the SEC in their pursuit to go public.
In the suit, Verizon alleges that Vonage is using technology that was developed by Verizon and its predecessor companies. Seven patents related to voice over Internet protocol (VOIP), the technology that facilitates Internet calls, have been identified in the suit. Specifically, Verizon alleges that its patents cover techonology that routes call from the Internet to landline phones. Other Verizon patents include calling features such as voicemail and Internet call waiting.
Vonage counters that the technology the company uses has been developed internally or is licensed through third parties. The company has 1.6 million subscribers, which is a small fraction of the telephone market in the U.S.
This suit is a headache for Vonage, which had a far-from-stellar IPO. The offering was so horendous, that shareholder lawsuits have already started. The launch price of the Vonage stock was $17, but since the offering last month, the share price has dropped fifty percent.
Tags: patent infringement, lawsuit
Fri 16 June 06 · Filed under Auditing & Regulations
An internal examination of the stock option grant practices and procedures at Home Depot has uncovered about $10 million in unrecorded stock option expense. However, the company says the amount is not material, so no prior year financial statements will be restated. The internal examination also found that in five instances prior to the end of 2000, the date of a meeting or resolution approving stock option grants was later than the date used for the stock option exercise price. After December 2000. the company changed its policy to grant stock options with exercise prices based upon the market price of Home Depot’s stock on a specified grant date after approval.
Tags: stock option, stock option expense, exercise price
Fri 16 June 06 · Filed under Fraud Detection & Prevention
Michael Gral, a former partner in the law firm Michael Best & Friedrich has been sentenced in the Bielinski Brothers fraud and conspiracy case. Gral pleaded guilty to mail fraud for his role in the fraud perpetrated by Bob Brownell, the former CEO of Bielinski Brothers. He received two years of prison followed by probation, and will pay $4.2 million to Bielinski Brothers. The payment to the company includes $1.7 million in restitution and $2.5 million in damages, and will be paid over four years. He is the eighth person to plead guilty to participating in the fraud which cost the company at least $20 million.
Gral was outside counsel for Bielinski Brothers for four years, and reportedly charged the company $4.2 million for legal fees during that time period. Prosecutors say that while Gral was charging Bielinski Brothers for legal representation, he was also conspiring with Brownell to defraud the company via real estate deals and fake construction billings.
A defense attorney said that Gral did not intend to steal money from the Bielinskis, and never directly stole any money from them.
Read my article about the things we can learn from the Bielinski Brothers fraud here.
Tags: Michael Best & Friedrich, sentenced, fraud, conspiracy, mail fraud, prison, probation, restitution, damages
Thu 15 June 06 · Filed under Fraud News Stories
I haven’t posted in a while on Kurt Eichenwald’s book Conspiracy of Fools This true story of the rise and fall of Enron has been interesting. I have been marking pages as I read…
John Forney, an Enron energy trader, came up with an idea to skirt the trading rules in California. Enron and Portland General were considered related, so California did not allow them to deal with each other on energy trading transactions. California was worried that since they were related, business done with each other might drive up prices for consumers.
To get around the rules, Enron would create a loop by purchasing electricity in California, passing it to one of its trading companies in another state, and then selling to Portland General, who sent it to California. The electricity was marked up at each stage of the loop, so Enron earned greater profits than it should have.
This scheme eventually became known internally as The Forney Perpetual Loop. Other schemes that Enron used to exploit California’s power market were created. They all had “clever” names such as Death Star, Fat Boy, and Get Shorty. Imagine what happened when officials found out about the scams, and imagine the embarassment when the nicknames for the scams were exposed.
Tags: Conspiracy of Fools, Enron, energy trading, schemes, Death Star, Fat Boy, Get Shorty, scams
Wed 14 June 06 · Filed under Auditing & Regulations
From CFO Magazine:
In April, the chairman of the House Small Business Committee accuse the IRS of unfairly going after small businesses with audits and complex rules. In 2005, the number of IRS audits of small companies increased in all categories.
However, IRS commissioner Mark Everson disputed the claim. He says large companies are far more likely to get audited than small companies. In 2005, the IRS audited 44% of the largest companies.
What is fueling the audits of small businesses? A study in 2001 estimated a tax gap of $300 million between what taxpayers should be paying and the actual tax they pay. It is possilbe that the IRS is targeting smaller companies based upon these numbers. I also suggest that the IRS might target these small business owners because of their lack of sophistication and therefore the ease of creating uncontested audit findings.
Tags: Small Business, IRS, audits, tax gap
Mon 12 June 06 · Filed under Uncategorized
Georgia Thompson was found guilty of 2 federal felonies of misapplication of funds and participation in a scheme to defraud the state of the right to honest services.
Thompson was a purchasing division supervisor who was part of a team of state employees who reviewed bids for a three-year state travel contract. The selection process has more recently been referred to as “Travelgate.”
The $750,000 travel contract was pushed to Adelman Travel by Thompson. She says she followed proper procedure in the process of awarding the contract, and was not pressured to push the contract toward Adelman. However, Omega World Travel had the best scores, and Thompson decided that there should be a “best and final offer” bid process in spite of this.
Committe members believe that there was outside pressure on Thomspon to push the contract toward Adelman. Thompson inflated Adleman’s scores in the contract selection process, and did so “to cause political advantage for her supervisors” and increase her job security, according to the indictment.
Adelman’s executives were big contributors to Governor Jim Doyle’s campaign fund.
Tags: misapplication of funds, defraud, honest services, Travelgate
Mon 12 June 06 · Filed under Fraud News Stories
It seems that our dear friends at Microsoft continue to spy on us. It is all in our best interest, of course, so that the company can give us what they think we need. (Tongue firmly implanted in cheek.)
I’m joining in the latest rant on Microsoft’s “Windows Genuine Advantage,” spyware that Microsoft touts as an anti-piracy program. This article from eWeek.com provides all the gory details, but I’ll summarize here.
Basically, the first time you use Windows XP, Microsoft gathers your product key, PC manufacturer, operating system version, PC BIOS information, and user locale setting and language. Microsoft says that they can’t identify people or programs they’re using.
Every time you fire up your computer, though, Microsoft is gathering more information from you. This has been going on for the last year without the knowledge of users. And imagine that this sneaky little program has been going undetected by firewalls. Don’t you wonder why Microsoft had to be so sneaky about it?
If the program is so harmless, why didn’t Microsoft tell us about it? Here’s an interesting commentary on the whole issue, and it certainly doesn’t make me feel all warm and fuzzy. As users of Microsoft products, we really don’t have the ability to opt-out of these spyware programs.
Tags: Microsoft, Windows Genuine Advantage, spyware, anti-piracy
Sun 11 June 06 · Filed under Auditing & Regulations
The IRS issued a press release touting the success of its corproate e-filing program. The nation’s largest tax return comes from General Electric (GE), and if printed, would be 24,000 pages long. This is the first year that large corporations with assets in excess of $50 million are required to file electronically.
Tags: IRS, e-filing, tax return
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