Archive for November, 2006
Thu 16 November 06 · Filed under Pyramid Schemes & MLM
The Texas Attorney General recently announced that it is investigating Mannatech, another multi-level marketing company scam That offers “nutritional supplements.” The company’s main products, Abrotose (formerly known as glyconutritional) is a sugar pill that the company’s representatives claim cure all sorts of illnesses, including cancer. (Someone even claimed it cured Down’s Syndrome!?!?!?!?)
The Attorney General’s office says that it anticipates filing a lawsuit against Mannatech for multiple alleged violations, including possibly violating the state’s Deceptive Trade Practices Act and other laws meant to protect consumers. The Texas Department of State Health Services has also gotten involved because of the company’s unproven claims about their products and their ability to heal many illnesses. Making such statements without the approval of the Food and Drug Administration (FDA) is a violation of state and federal law.
A recent story in the Fort Worth Star-Telegram quotes Mannatech’s Chairman and CEO, Sam Caster, saying, “We walk the fine line of always stating our case appropriately and always training our people: We’re not into the treatment, cure or mitigation of disease. We’re into the improvement of quality of life. Now, who can benefit from good nutrition? Sick people, well people, everybody. Everybody benefits from good nutrition.”
Mon 13 November 06 · Filed under Fraud News Stories
CNNMoney.com has published a recent article from Fortune Magazine about the fall of Milberg Weiss, dubbed the meanest law firm in America.
It’s a long article, but here are the high points.
The law firm of Milberg Weiss, along with Melvin Weiss and Bill Lerach, singlehandedly transformed securities class action litigation. The firm held itself out as helping the little people, and has claimed that they’ve collected $45 billion for cheated investors.
But Weiss and Lerach got rich at this work. In one of the better years, they each made more than $16 million. They split their operations in 2004, but they are back together again via federal prosecutors. In addition to Weiss and Lerach, prosecutors have also charged David Bersahd and Steven Schulman. Other people are expected to still be indicted.
Milberg Weiss has been indicted for alleged kickbacks totaling $11.4 million for 180 cases. The federal government says that the firm even continued paying the kickbacks after they knew they were under investigation.
An eye surgeon named Dr. Steven Cooperman first became known to authorities via a 1992 insurance fraud scam, but prior to that had been the “lead plaintiff” in dozens of Milberg Weiss securities class-action suits. Cooperman, as lead plaintiff, claimed to be a typical investor who was innocently defrauded. In 1993, he admitted to being a plaintiff in 38 securities class-action suits. Some described Cooperman as a “professional plaintiff.”
After being convicted in the insurance fraud case, and facing a possible sentence of 10 years prison, Cooperman offered to give up information about the alleged crimes of Milberg Weiss.
The class action lawsuit business was lucrative for Milberg Weiss, who typically took 30% of any settlement. Nine out of ten cases they worked on settled. It was cheaper for defendants to settle. Investors recovered only about 15 cents for each dollar they lost, but the law firm pocketed millions on these cases.
The secret to making the big money on the class action cases was being the law firm in charge. As lead counsel, Milberg Weiss took the biggest fees and controlled the cases. The key was having the lead plaintiff in your law office. Cooperman said that Milberg paid him about 10% of its fees in order to serve as lead plaintiff in the cases. This is illegal, as lead plaintiffs are to get only their share of any settlement and no special compensation.
Cooperman offered up evidence in order for a reduced sentencing recommendation in his own criminal case. He told the federal prosecutors that he and friends and relatives had served as lead plaintiffs in about 70 cases, and had been paid $6.5 million to do so. He also alleged that Lerach told him to by stock in different companies in order to position themselves as plaintiffs in future class action suits. Cooperman says he received his money from Milberg Weiss via third parties, in order to get around the laws.
The plot thickens. More players are exposed, the federal government starts investigating, and the law firm refuses to cooperate. Read the whole story at CNNMoney.com.
Mon 13 November 06 · Filed under Fraud News Stories
Another week, another set of scams, swindles, and frauds to boggle your mind!
In today’s carnival, we feature the following bloggers:
Submit your entry for next week’s Carnival of Fraud!
Fri 10 November 06 · Filed under Fraud News Stories
Merge Technologies went from a $9.6 million profit in the third quarter of 2005, to a $10.8 million loss in the same period this year. The dramatic swing is related to a drop in sales from $35 million to $14 million for the quarter. Company executives say the revenue drop is because of one large contract in 2005.
The company is also recovering from the discovery of an accounting issue that forced Merge to restate its financial statements for 2202 through 2005. Merge reports that employee morale has been affected by the accounting problems, and that the company’s reputation with current and potential cusomers may have been damaged.
The net loss for the first nine months of 2006 totals $231.4 million, which includes a write-down of goodwill of $219.4 million. The prior year’s loss for the same period was far lower, at $5.4 million.
Thu 9 November 06 · Filed under Fraud News Stories
The six biggest accounting firms in the United States have suggested that companies should be forced to submit to forensic audits every three to five years. These types of engagements would be aimed at finding fraud.
The six firms include PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, KPMG, Grant Thornton and BDO Seidman. They say their proposal is aimed at starting discussions about what investors should expect from auditors when it comes to fraud. (Incidentally, traditional independent audits are not designed to detect fraud, and the users of financial statements are mistaken if they think the audits will detect fraud.)
One accounting educator remarked that audit firms should just change traditional audits to be “done properly” and detect fraud.
Tags: forensic, fraud, accounting
Wed 8 November 06 · Filed under Fraud News Stories
Here is a follow-up to last week’s post on my visit to New Orleans and my tour of hurricane-damaged areas.
These two are pictures of the levees being rebuilt: [Read more...]
Tue 7 November 06 · Filed under Pyramid Schemes & MLM, Scam Busting
As the anti-Mary Kay sentiments reach fever pitch, the executives at corporate attempt to do some damage control. As I mentioned in a previous post, the voices of those who believe Mary Kay Cosmetics and its representatives are engaged in unethical business practices have become louder.
In response, the president of U.S. operations of Mary Kay Inc. issued a letter to its top sales force members. The letter essentially advised the representatives to ignore the complaints and work harder.
While this may have seemed like a legitimate response at the time the letter was written, what does that really say to the company’s representatives? Some have suggested that this is equivalent to the executives saying “pay no attention to the man behind the curtain”, as quoted from the Wizard of Oz.
Certainly, a directive that does not confront the issue at hand lacks something. Does it lack credibility? Does it lack a true appreciation for the “other” voices out there? Will Mary Kay Inc.’s failure to act affect the company in the long term?
Mon 6 November 06 · Filed under Fraud News Stories
…on November 13. We accept blog posts that are related to fraud, scams, and other shady dealings. Submit your entry here.
Fri 3 November 06 · Filed under Fraud Detection & Prevention
Sanjay Kumar, the former chief executive of Computer Associates International (now called CA Inc.) has been sentenced to 12 years in prison and fined $8 million for his guilty plea to charges of securities fraud and obstruction of justice.
Prosecutors say that Kumar created “35-day months” in order to book additional revenue after a quarter ended and the books should have been closed. He then engaged in a cover-up scheme meant to silence a witness to the accounting misdeeds. It is believed that the fraud cause the company to misstate revenue by $2.2 billion
Kumar was born into poverty in Sri Lanka, but came to the United States and became the chief executive officer of the world’s second largest maker of mainframe software He received stock worth hundreds of millions of dollars. He could have received a life sentence, but the judge did not feel that was necessary. With an opportunity to be released early, he will likely serve ten years in prison. Kumar must report to prison at the end of February.
Tags: prison, securities fraud, obstruction of justice
Thu 2 November 06 · Filed under Fraud News Stories
In late September, I visited New Orleans and took a tour of the hurricane-damaged areas. Specifically, we visited one of the hardest-hit areas, the Ninth Ward and Lower Ninth Ward.
These are just a few of the pictures that I took. [Read more...]
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