Archive for October, 2006
Thu 12 October 06 · Filed under Fraud News Stories
It appears that many students in MPS are repeating grades…
As of September 25, Milwaukee Public Schools had 9,000 students in ninth grade. Freshmen. Kids who are usually 14, going on 15 years old.
3,000 of those ninth graders were in ninth grade for at least the second time.
636 of those ninth graders were at least 17 years old. That’s right. 7% of the ninth graders are at least three years “behind” in school. (The discussion in the Journal Sentinel says that they’re two years behind. But I can do math. 17 minus the typical age of 14 at the beginning of the school year in September is 3 years.)
Of the 636 who are so far behind, 64% are boys.
Of the 636 who are so far behind, 30% have been labeled “special needs”.
The best part about this report… The Journal Sentinel says that “several major attempts to improve success at the eighth- and ninth-grade levels have not yielded dramatic improvement.”
Apparently the billions that we’ve been pumping into public education haven’t been too effective. Clearly, money is not the answer.
And they wonder why School Choice is so important.
Thu 12 October 06 · Filed under Fraud Detection & Prevention
As reported yesterday
, the former CFO of the Milwaukee Public Museum has been charged with four criminal counts against him for his part in the raiding of the organization’s endowment fund.
Here is a summary of the criminal complaint against Terry Gaouette:
Count 1 - Theft By Officer - From March 1, 2004 and February 28, 2005, transfered money out of the endowment fund without the owner’s consent.
This relates to the transfer of endowment funds into an operating account for the Museum. The endowments funds were not to be used for regular operating expenses, except for a very small amount (3%) each year. The Milwaukee Public Museum Endowment Fund Board was not aware that funds were being used for operating expenses. By March 2004, the endowment fund had been exhausted.
At a March 12, 2004 Endowment Fund Board meeting, Gauoette stated that the museum’s operating budget was now based upon the endowment’s draw down policy. He further stated that the endowment fund was preserved, when a transfer of $500,000 out of the endowment fund was done on March 11, 2004.
When confronted by museum controller Gail Boym, Gauoette stated that he was authorized to borrow money from the endowment fund for operating expenses.
The total transferred without authorization was $3.8 million.
Count 2 - Fraudulent Writings - On May 16, 2003, falsified a record.
A report prepared by Gaouette indicates a balance of $6,127,673 in an investment account, when that money did not exist.
Count 3 - Fraudulent Writings- On June 4, 2004, falsified a record.
Gaouette reported to the Endowment Committee that the Endowment Fund was $1 million lower
than the previous quarter because of a transfer of $500,000 for the final payment to M&I for bond
reduction, and two other transactions. The $500,000 bond payment was not made.
Count 4 - Fraudulent Writings - On September 10, 2004 , falsified a record.
A report from Gaouette indicated funds available included $4.6 million investable and $1.1 million cash. He also reported that no draws or requests for trust activity were made in the six months ending June 30, 2004. The cash of $1.1 million did not exist, and draws of $1.825 million were made from the investment accounts in the six months.
The first count has a maximum penalty of $25,000 fine and 10 years in prison. Counts 2 through 4 have maximum penalties of $10,000 fine and 6 years in prison each.
Tags: Theft, endowment fund
Wed 11 October 06 · Filed under Uncategorized
The Milwaukee county district attorney’s office has brought criminal misconduct charges against Terry Gaouette, the former CFO of the Milwaukee Public Museum. He is charged with four felonies related to illegally transferring endowment funds and falsifying records. He could receive up to 28 years in prison if found guilty on all counts.
Gaouette was the museum’s CFO until April 2005, and was the acting COO at one point. The financial problems of the museum were made public in May 2005, and a short time later it was made public that the endowment fund was drained. Gaouette admitted to members of the media that he did authorize transfers from the endowment fund, but claimed that they were done to keep the museum afloat. (The endowment fund reportedly did NOT allow such transfers for operating expenses.)
Tags: misconduct
Tue 10 October 06 · Filed under Scam Busting
I decided to play an active role in the “anti-Mary Kay” world, and became a regular contributor to the conversations on a few different websites and discussion groups. I tried to withhold my identity during my investigation, as I wanted to quietly gather as much information as possible.
I shared my opinion of the company, its representatives, and its sales and recruiting practices, and in return I got an opportunity to see other women’s stories. The more I found out, the more disgusted I became with this 43-year-old company that was founded on the principles of “Faith first, family second, and career third.” It seemed common for women to be told to set their families aside in pursuit of the career goal.
I found evidence of women inflating their earnings claims in order to recruit new salespeople. I found them downplaying the signficant time commitment required to move up the pyramid. I found them underreporting the expenses associated with running an MLM business. I found specific instances where information was deliberately withheld from recruits.
Eventually I came into contact with a writer who had begun a book on the Mary Kay experience. We shared many of the same strong opinions about the company, and we began jointly researching the issue.
Again, the research included active participation in online discussions about many aspects of Mary Kay. We also gathered training documents that clearly showed a disconnect between the company’s motto and the real world.
The more we found, the more I became convinced that it was important to get this information in the hands of the women who needed it most: those who were current sales force members, and those who were considering becoming a part of the sales force. Without the full story, they could not make informed decisions about their future with (or without) Mary Kay.
Tue 10 October 06 · Filed under Fraud News Stories
John Grisham’s most recent book is not a fictional crime thriller. Rather, it is the true story of a former minor league baseball player who spent eleven years in prison for a crime he did not commit. Although the story is non-fiction, Grisham says he found it as compelling as any legal thriller he has written.
The Innocent Man: Murder and Injustice in a Small Town details the case of Roy Williamson. He was once a promising baseball player who was drafted 41st out of 800 players chosen in the 1971 major league baseball draft. He played in the minor leagues until 1976, when arm injuries and alcoholism brought his career to an end.
Williamson went home to a life of drinking, womanizing, and signs of bipolar disorder. He couldn’t hold down a job, and had several arrests. He was charged with rape twice, but was found innocent in both jury trials.
In 1982, a cocktail waitress in his hometown was raped and murdered. Williamson and his friend Dennis Fritz were accused of the murder and put on trial. The authorities had no proof that the men committed the crime. There were no fingerprints at the scene and no eyewitnesses. The best piece of “evidence” presented by the prosecutor was a vague identification of them as the killers.
Both men were convicted of the murders, with Williamson receiving the death sentence and Fritz receiving a life sentence in prison. Eleven years later, they were both cleared of any involvement in the crime when DNA tests exonerated them. Those same DNA tests proved that the killer was actually the man who provided the identification of Williamson and Fritz at their trial.
Grisham’s book explores how the system denied these men their rights throughout their trial, and eventually robbed them of more than eleven years of their lives. They were released from prison in 1999, a mere five days before Williamson was scheduled to be put to death. He died of cirrhosis of the liver five years later.
Mon 9 October 06 · Filed under Fraud News Stories
Due to some technical difficulties, we have only an abbreviated version of the Carnival of Fraud this week. Look for the full Carnival to be back next week!
Tags: Carnival of Fraud
Sun 8 October 06 · Filed under Pyramid Schemes & MLM
Arbonne International is another skin care and cosmetics multi-level marketing company (MLM). They are nowhere close in size to the big two, Avon and Mary Kay, but they have been experiencing pretty rapid growth in the sales force. In 2005, they had around 350,000 independent consultants.
Like other MLMs, Arbonne has a bona fide product offered, but the “big money” comes via recruiting. However, the money doesn’t seem so big. The average commissions earned by the majority of the sales force are well under $1,000 per quarter per person.
At the very top levels of the sales force, commissions of almost $100,000 per quarter were paid to each person, but there are very, very few who ever reach that level. Company statistics say that only 0.04% (four one-hundredths of one percent) of the sales force is at that level.
The company advertises the products as being “botanically-based.” Arbonne also touts the fact that their products contain no mineral oil. These are used as major selling points, but again, the focus appears to be on recruiting new sales force members and encouraging those members to “invest” heavily in inventory.
Sat 7 October 06 · Filed under Fraud Detection & Prevention
On Friday, Enron’s former executive in charge of investor relations, Paula Rieker, was sentenced to two years of probation. She could have received up to ten years in prison, but was given a lighter sentence because she has cooperated with the investigation of other Enron executives.
Specifically, Reiker was instrumental in the trails of Kenneth Lay and Jeffrey Skilling. She testified that Lay hid bad news from Wall Street, and that board members were upset at his personal financial gains from Enron. Reiker also testified that on two occasions, Skilling ordered that Enron inflate its earnings-per-share figures to meet or beat stock market expectations.
Reiker was one of 16 ex-executives from Enron who pleaded guilty to charges related to the company’s collapse.
Fri 6 October 06 · Filed under Fraud News Stories
U.S. Attorney Steven M. Biskupic has filed federal charges against two Milwaukee police officers who have agreed to plead guilty and testify against others in the Frank Jude Jr. beating case. Joseph Schabel was the first on-duty officer to respond to the 911 which reported the beating in Bayview, outside the home of an off-duty officer.
Schabel admits to kicking Jude in the head but lying about it. He is pleading guilty to depriving Jude of his civil rights by assaulting him and obstructing justice by lying to investigators. He has been suspended from the police department (and will be fired soon) and faces up to 20 years in prison.
Jon Clausing is pleading guilty to charges of conspiring with other officers to violate the civil rights of Jude and Lovell Harris by injuring, oppressing, threatening and intimidating them. He was off-duty at the time of the beating, and he admits to cutting Jude’s friend, Harris, with a knife. He faces up to 10 years in prison. Both men will probably receive lighter sentences because of their cooperation with federal prosecutors. Clausing was fired in mid-2005 for not cooperating in the internal investigation. He initially appealed his firing, but dropped the appeal earlier this year.
Three former Milwaukee police officers, Jon Bartlett, Andrew Spengler, and Daniel Masarik, went on trial in Milwaukee County for the beating of Jude. Spengler and Masarik were acquitted, and the jury was deadlocked on charges against Bartlett. Steven Biskupic committed to doing a federal investigation into the same matter.
On the evening in question, October 24, 2004, Jude and Harris went to a party hosted by Spengler and attended by several off-duty police officers. They left quickly, but Jude was accused of stealing a wallted and badge. Up to twelve off-duty officers beat and kicked Jude, shoved pens into his ears, and threatened him with a knife. Many of the officers have failed to cooperate with the investigations, and they are accused of perpetuating a “code of silence” among police officers.
Tags: guilty, testify, civil rights, obstructing justice, acquitted, federal investigation
Thu 5 October 06 · Filed under Auditing & Regulations, Fraud Detection & Prevention
Mark Everson, commissioner of the Internal Revenue Service, is proposing that corporations stop offering stock options to Chief Financial Officers. The recent option backdating problems are fueling his comments, and he says that CFOs are already rich and shouldn’t have to cheat companies out of more money by manipulating stock options.
Everson suggests that CFOs, general counsel, and non-executive board chairs should receive only fixed compensation. He says that the opportunity for huge gains from stock options makes it tempting for executives to manipulate them. The IRS is considering changes to the tax code for executive compensation packages.
Tags: Internal Revenue Service, stock options, option backdating, IRS
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