Archive for September, 2006
Sat 30 September 06 · Filed under Uncategorized
On Friday, Cingular Wireless filed a lawsuit against CAS Agency Inc. in U.S.District Court in Atlanta. Cingular claims that the company fraudulently accessed the records of one of its cutomers during the investigation of the Hewlitt-Packard board of directors information leak.
Specifically, Cingular says CAS Agency illegally accessed the records of CNET reporter Dawn Kawamoto, one of the reporters who wrote about discussions among members of H-P’s board.
Also included in the lawsuit are 100 unidentified companies and 100 “John Does” who have attempted to obtain and sell customer records. This lawsuit follows the Verizon Wireless lawsuit filed on Thursday against 20 unidentified people who fraudulently obtained their records in cnnection with the H-P pretexting scandal.
Tags: investigation, pretexting
Sat 30 September 06 · Filed under Pyramid Schemes & MLM
I’ll talk more in later posts about my personal experience as a Mary Kay representative. There are many facets of the company, its representatives, and its training programs that I think will interest my readers. In a nutshell, however, I joined the company as an independent sales representative, and quickly started moving up the ladder of “management”, recruiting other independent beauty consultants.
After a couple of years in Mary Kay, I lost interest in what the company had to offer. By this time, I had opened my forensic accounting practice and was devoting most of my time to client development opportunities. I also started teaching college courses, and found that I didn’t have time for Mary Kay. The things about the cosmetics company that appealed to me in the beginning, no longer held my interest.
Several years later, however, my interest in Mary Kay was renewed as I began researching pyramid schemes and multi-level marketing companies as part of a book project. I started searching the Internet for information on these schemes, and found many sites about Amway, likely the most popular (yet most disputed) multi-level marketing company out there.
I also came upon information about Mary Kay, and my prior involvement with the company and knowledge of its sales and recruiting techniques led me to investigate further. I quickly found websites, chat rooms, and discussion boards dedicated to the discussion of Mary Kay Cosmetics. Some spoke of the postive aspects of the company, while others emphasized the negatives.
In recalling my own experience with Mary Kay, I knew that the company was really not what I believed it to be when I first heard the marketing plan. It was then that I decided to go “undercover” on these anti-Mary Kay sites and learn all that I could about Mary Kay Inc. and its sales representatives.
Wed 27 September 06 · Filed under Uncategorized
The founder and chairmain of the Association of Certified Fraud Examiners, Joseph T. Wells, CFE, CPA has been named to Accounting Today’s Top 100 Most Influential People. This is Joe’s ninth consecutive year on the list, which will be published in the October 2006 issue of the magazine. Joe is recognized for his creation of ACFE and his worldwide fight against fraud and abuse, chiefly through anti-fraud education and resources. Congratulations Joe! We knew someone was listening to you!
Tags: Association of Certified Fraud Examiners, fraud, anti-fraud
Wed 27 September 06 · Filed under Fraud Detection & Prevention
Kobi Alexander, the former CEO of Comverse Technology was arrested in the African republic of Namibia and is going to be extradited to the United States. Alexander is a citizen of both the U.S. and Israel, and has been missing for the last month, after he failed to show up for a hearing in federal court.
Alexander is the co-founder of Comverse, a telecommunications company in New York. He and two other former executives have been charged with conspiracy to commit mail fraud, conspiracy to commit wire fraud, and conspiracy to commit securities fraud. These charges related to their alleged plan to manipulate stock options.
The FBI issued a warrant for Alexander’s arrest on July 31. He reportedly was living openly in Namibia, a country which has an active Israeli expatriate community.
Tags: conspiracy, mail fraud, wire fraud, securities fraud, stock options
Tue 26 September 06 · Filed under Fraud News Stories
Andrew Fastow, former CFO of [tag]Enron, was sentenced to six years in federal prison today. Following his prison term, Fastow is required to serve two years of full-time community service.
Fastow reached a plea deal in early 2004, in which he agreed to plead guilty to two counts of conspiracy to commit fraud. That deal included a recommended prison sentence of 10 years, but Judge Kenneth Hoyt had discretion to sentence him to less time.
It is believed that the actual sentence was less than agreed because of Fastow’s cooperation in the case against Kenneth Lay and Jeffrey Skilling, along with a document submitted by Fastow in the Enron shareolders’ lawsuit. In that document, Fastow named names, and it is possible that his help with this case influenced the judge’s decision.
Fastow was immediately taken into federal custody, rather than being allowed to turn himself in later. His wife, Lea, pleaded guilty to a misdeameanor tax charge in 2004 and served one year in prison.
Kenneth Lay passed away shortly after being found guilty of federal charges related to Enron. Jeffrey Skilling was also found guilty on related charges, and will be sentenced in late October.
Tags: Andrew Fastow, former CFO of [tag]Enron, prison
Mon 25 September 06 · Filed under Fraud News Stories
Milwaukee Alderman Michael McGee (Jackson) has drafted an ordinance to allowed all alderman to be designated Peace Officers, and allow them to carry guns. This would include himself.
Recall that McGee/Jackson is without a driver’s license, due to the fact that license #1 was revoked because of an unresolved traffic incident. License #2 was revoked when it was determined that he got #2 with a false name, in order to get around the revocation of #1.
McGee/Jackson has also had numerous run-in with the legal authorities, including an incident in front of a Blockbuster Video where he got arrested for disorderly conduct. He publicly referred to the police officers involved in the Frank Jude Jr. beating “faggots”.
He’s been accused of physically abusing his mistress, which he denies. (But he also denied having a “romantic” relationship with her, and her new baby was proven to be his with a paternity test.) Additionally, McGee/Jackson has at least two different Social Security numbers.
Do we really want a guy like this carrying a gun?
Thanks to BadgerBlogger for drawing attention to this issue.
Tags: Michael McGee, Peace Officers
Mon 25 September 06 · Filed under Fraud News Stories
Welcome to our fourth weekly edition of the Carnival of Fraud.
I had an interesting week, as I visited New Orleans and spoke to about 350 CFOs about Hurricane Katrina and the risks of financial statement fraud. I took a couple of tours while I was there, and had the opportunity to see the damage from the hurricane firsthand. It is amazing, even a year after the storm.
The race for governor in Wisconsin is really heating up! The Marquette Warrior is pointing out the very questionable tactics being used by the Doyle campaign in the Governor’s race. More on Doyle and his buddies found here. If you want a really good laugh, you should check out the Doyle For Sale website. Oh, and State employee Georgia Thompson was sentenced for her role in the “Travelgate” scandal involving the Doyle administration.
The doctor is in, and he wants everyone to know about being guinea pigs in clinical trials. But you won’t ever become a doctor unless you study hard. Freeman Hunt blogs about a new report that shows that the science education in our elementary and middle schools is severely lacking.
The lawyers have also gotten in the mix for this week’s carnival. The Anonymous Lawyer has a post about billable time and asscoiates at law firms. Don’t they know that a billable minute lost can never be recovered? If you want a really good laugh, you should read the Anonymous Law Firm website. It is all satire, but if you’ve ever looked at a real website for a big law firm, you’ll get the joke.
White Collar Crime Prof comments on the situation involving Hewlett-Packard and the California Attorney General, who is apparently still seeking documentation from the company.
And finally, Charlie Sykes has an interesting commentary about the crime rate in Milwaukee, and the outrage over a politician drawing attention to it.
Contribute your blog post to next week’s Carnival of Fraud.
Tags: Carnival of Fraud, crime rate
Mon 25 September 06 · Filed under Fraud News Stories
Ponzi demonstrated to himself that he could achieve astronomical profits with the postal reply coupons, a far better return on investment than interest paid by the banks or profits created in the stock market.
His investment pitch included the mention of the International Reply Coupons, as he was depending upon the legitimacy of the U.S. Postal Service to bolster his image. However, Ponzi was careful not to give away too many details of his plan, lest potential investors would become skeptical or steal his idea and start companies of their own.
Investors were promised returns of 50% on their initial investment in 90 days. By any standard, this is an unbelievable rate of return. Yet investors believed in Ponzi and his ability to produce such returns. He began his grassroots marketing effort by carrying around stacks of investment certificates. While he hadn.t sold them, he said that he had, and gave untrue assurances that he had many more investors. He got young men to sell them to their friends and coworkers, with a ten percent commission for their efforts.
Some of the initial investors cashed out after the first ninety days. Ponzi knew that it was important for them to be paid promptly. They would tell their friends about the wonderful return on their investment, and soon more customers would flock to the Securities Exchange Company. He was right.
As more investors believed their money was safe with Ponzi, the dollars started flooding in. Many who had money with the company were leaving their money there, rather than cashing out every ninety days. This was an ideal situation for Ponzi. His cash pile kept growing. In the event that a small number of investors decided to cash out, there was always plenty of money coming in from new investors to pay off the old ones.
Charles Ponzi never carried out the plan he pitched to investors. He never started investing in the postal reply coupons, and he never attempted to profit from the differences in exchange rates. Instead of using investor money to carry out the plan with the postal reply coupons, Ponzi just spent investor money on himself and his family.
So began the original pyramid scheme, which eventually also became known as a Ponzi scheme. Money is never invested in a legitimate for-profit venture and no actual returns are generated. Instead, the money from new investors in the plan is used to pay off old investors who are exiting the plan.
Fri 22 September 06 · Filed under Fraud News Stories
On Friday, I took a tour of New Orleans. Specifically, we took the Hurricane Katrina tour offered by Grayline Tours. Before I went to New Orleans, I was told by several people that the devastation is at a level that you cannot even imagine. That pictures and video footage cannot fully convey the damage.They were right.
It was amazing to see the buildings heavily damaged, and not even cleaned up or repaired at all in the last year. We saw water lines on many buildings, which showed exactly how high the water went. If you were lucky, it was only a few feet. If you were like most, it went up between six and twelve feet.
Windows remain broken. Roofs were torn off. Some have been repaired. Many have not. Tarps cover some roofs. Homes have spray paint on the front, left by relief workers traveling (mainly in boats) from home to home, checking for people and pets. They painted symbols on the front of the houses so that other workers would know that the properties were already checked.
We visited the 9th Ward, one of the hardest hit areas. Until recently, the tour buses were not allowed to go through this area. Now they are allowed to drive through, but are prohibited from stopping and letting out passengers. Most of the businesses are gone. Strip malls are empty and completely destroyed. Some buildings are merely shells, with almost nothing on the interior. I could see all the way through.
Some properties are being rebuilt. It seems that so few are being rehabbed, when you compare them to the number that remain destroyed. I commend the businesses that are repairing and taking a chance on the community. Those businesses are needed by the residents who have returned, and hopefully more residents will return in order to support the businesses. They need each other.
Tags: Hurricane Katrina
Fri 22 September 06 · Filed under Fraud Detection & Prevention
Allegations of fraud have been raised against “Painter of Light” Thomas Kinkade and his executives. The allegations that they induced investors to open art galleries and then ruined them financially are being investigated by the FBI.
To date, at least six former Thomas Kinkade Signature Gallery owners have filed civil suits against Kinkade. They claim they invested tens of thousands of dollars each, but that policies set up by Kinkade Co. drove them out of business. They said they had limited edition itgems that they couldent sell, they were forced to open stores in saturated markets, and that they were undercut by discounters who offered identical pieces at reduced prices, which they were prohibited to match.
The claims against Kinkade include allegations that he used Christianity to persuade them to invest in independent stores that only sell Kinkade’s works. They say he used the “Christian hook” to get them involved, but Kinkade denies this.
Former dealers have said that the FBI asked them to provide copies of certain information about their contracts with Kinkade, including dealer agreements, retail sales policies, and training materials from “Thomas Kinkade University”.
A spokesman for Kinkade Co. said, “The Thomas Kinkade Co. asserts that there is no legitimate grounds for a federal investigation of any kind.” However, earlier this year an arbitration panel awarded $860,000 to two former owners of Kinkade galleries after they made similar allegations.
Tags: fraud, federal investigation
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