Archive for February, 2007
Wed 28 February 07 · Filed under Auditing & Regulations
This information was posted Monday on Blawgletter:
The Second Circuit today held an auditor potentially liable for federal securities fraud if it doesn’t correct a false or misleading report on its audit. The court said:
The precise issue on appeal is whether an auditor may incur primary liability under § 10(b) and Rule 10b-5 when the auditor provides a certified opinion that is false or misleading when issued, subsequently learns or was reckless in not learning that the earlier statement was false or misleading, knows or should know that potential investors are relying on the opinion, yet fails to take reasonable steps to correct or withdraw its opinion and/or the underlying financial statements. We hold that under such circumstances, an auditor becomes primarily liable for securities fraud, assuming all the other elements of a securities fraud claim are present. Since the complaint pleads precisely this theory of liability, we vacate the District Court’s dismissal and remand for further proceedings consistent with this opinion.
Overton v. Todman & Co., CPAs, P.C., No. 06-2496-cv (2d Cir. Feb. 26, 2007).
I think it is safe to say that this decision will definitely have an impact on the future of independent audits.
Tags: securities fraud, audit
Wed 28 February 07 · Filed under Fraud News Stories
Milwaukee alderman Michael McGee (Jackson) has been issued a restraining order for harassing Leon Todd, a man involved in the effort to recall McGee/Jackson and to expose him for the thug and scofflaw that he is. McGee/Jackson is notorious for his criminal behavior, and these threats come as no surprise.
The restraining order is currently temporary, and there will be a hearing on March 13 to determine if it should be made permanent. In December, McGee/Jackson made a statement on his father’s radio show that Todd should be “hung” for his “betrayal of the community.”
Todd has also allegedly receiving harassing phone calls, some with death threats. The restraining order prohibits McGee/Jackson from contacting Todd in any way, or from having any third parties contact him on McGee/Jackson’s behalf. Not that something like this would ever stop McGee/Jackson.
Wed 28 February 07 · Filed under Fraud News Stories
Two facilities in Florida were raided in a steroid bust, and four people were arrested as a part of it. The raids happened at two Signature Pharmacy stores, and the company officials arrested were charged with criminal diversion of prescription medications and prescriptions, criminal sale of a controlled substance and insurance fraud.
The four officials who are considered the “producers” of the drugs included Stan and Naomi Loomis (owners of Signature Pharmacy in downtown Orlando), Stan’s brother Mike Loomis, and Kirk Calvert (Signature’s marketing director). Also arrested were three “distributors” from a Texas company called Cellular Nucleonic Advantage. More charges are expected.
The steroid investigation was based out of New York. The investigators found that testosterone and “performance enhancing” drugs were being fraudulently prescribed over the internet to professional althletes, college athletes, high school coaches, and a couple of bodybuilders.
While no customer names were given by the investigators, a secret source revealed that Angels outfielder Garry Matthews Jr. was one of them. The investigators have spoken with Richard Rydze, a team doctor for the Pittsburgh Steelers who allegedly used a personal credit card to purchase $150,000 in testosterone and human growth hormone in 2006.
Tue 27 February 07 · Filed under Fraud News Stories
Kent Roberts, the former general counsel at McAfee Inc. (fka Network Associates) was charged with seven criminal counts of fraud, nine months after being fired for improper handling of stock options. The charges include manipulating the value of his own stock options to increase his profits and then falsifying records to cover up this misconduct. Roberts faces up to 20 years in prison and as much as a $5 million fine.
Roberts was allegedly part of an ethics committee formed by McAfee in 2002, related to some of the prior accounting problems at the company.
At one point, Roberts was granted 20,000 stock options which carried an exercise price of $29.62. In late 2000, Roberts allegedly altered the exercise price to $19.75. In a 2002 internal investigation, Roberts allegedly recommended that the controller who helped in this alteration be removed from the finance department. It is further alleged that in the same year, Roberts helped to backdate 420,000 stock options owned by George Samenuk, the former chairman and CEO.
It is estimated that McAfee will have to incur a non-cash charge of about $100 million to $150 million to correct this problem.
Mon 26 February 07 · Filed under Fraud News Stories
Welcome to our 25th Carnival of Fraud. Don’t forget to get in your submission for next week’s carnival.
Weboma discusses SiteAdvisor, a service from McAfee that supposedly analyzes websites and tells you how safe they are. The writer thinks that eventually all the major search engines will rely on SiteAdvisor to help determine website rankings.
Laura Ricci questions whether your reputation could cost you sales. Would you want your company associated with the likes of Enron?
Wisebread demonstrates for us some of the common scams that could cost you money. You might not have heard of some of these, such as a waitress scanning your credit card in a special skimmer that captures all your data.
SoxFirst discusses the link between fraud and political lobbying.
Matt Paulson discusses the problem with PayPal, which has become a widely popular way to pay people. It appears that the things PayPal touts, such as “seller protection”, offer little real relief to consumers who have problem transactions.
And my contribution to this week’s carnival… a little discussion of blog fraud. There are scam artists out there who make a living ripping of blog posts from other people. This may not describe the person who ripped of the writings in question, but what the blog owner did is certainly unethical.
Sat 24 February 07 · Filed under Fraud News Stories
Yes, you read that correctly. There’s fraud happening all over the internet, and blogs are no different. Recently I became aware of the fact that a blog post was published entitled “Great Mortgage Fraud Info THANK YOU Tracy Coenen.” I thought that was odd, as I don’t write about mortgage fraud.
I went and took a peek and verified that I’ve never seen this information before, much less written about it. I assumed that the blog was one of those slimy little types that plagiarizes posts from other blogs. Usually the motive is Google ad revenue (the blogs are geared specifically toward getting search engine traffic there and hoping people will click on your ads).
Then the article started popping up on other blogs with the same title, and I just knew that it was the work of more slimy blog stealer types. But what could I do? They didn’t steal my words, just my name. I assumed they were trying to get some of the “fraud” Google mojo associated with my name.
And then this blog post showed up…. “They say that the best form of flattery is being copied. However, I wonder if you might call it flattery or Plagiarism?”
Gena Riede is the real author of the mortgage fraud article. She exchanged several emails with the owner of the original blog (Mortgage Fraud Blog) who posted Gena’s article (word for word, in its entirety) with my name. Their response was priceless: “Thank you very much for contacting us regarding your article. My sincerest apologies as we obtain information from countless sources and are unable to verify the origins of them all. Please refer to our blog for our corrections.”
So the Mortgage Fraud Blog is apparently copying lots of articles from lots of different sources, without any permission, and without taking care to make sure that they’re actually citing the right sources. How low can you go?
Fri 23 February 07 · Filed under Auditing & Regulations
Japanese authorities are looking into the accounting practices of Sanyo Electric Co. The Securities and Exchange Surveillance Committee is investigating the company for allegedly misrepresenting losses in its results for the fiscal year ended March 2004. Sanyo had ?190 billion ($1.56 billion) in losses to book, but only booked ?50 billion of losses for that year. The unbooked losses would have left Sanyo with a net loss for the year.
This is having an impact on investors, particularly Goldman Sachs, which invested over $1 billion and was reportedly planning on selling soon at a big profit. The stock was down 21% in Tokyo. The company also faces possible delisting on the stock exchange.
Tue 20 February 07 · Filed under Auditing & Regulations
Is the regulatory response to past scandals softening? In the last few months, the SEC has eased guidance on Sarbox 404, the PCAOB has announced a potential repeal of AS2, the Department of Justice has renounced some of the tactics used to prosecute companies, and banking regulators have dropped plans to have banks police their corporate customers. Even a new Democratic Congress seems willing to consider changes to the Sarbanes-Oxley Act. What.s more, the number of securities-fraud class-action lawsuits plunged last year (though settlement amounts are still rising). CFO.com tracks the regulatory pendulum.s swing at: www.cfo.com/pendulum
Tue 20 February 07 · Filed under Fraud News Stories
Since he can’t cry “racism” regarding his opponent in the upcoming recall election, Michael McGee Jackson is now resorting to accusing mythical figures of wrongdoing. The current alderman, with a history of very public acts of criminal behavior, is upset that the recall initiated by ViAnna Jordan is going forward. However, he has dropped his challenge of the recall itself.
McGee Jackson is blaming the recall on “principalities of darkness.” Yes, you read that correctly. Some evil ghosts are causing these things to happen. There is a conspiracy amongst the ghosts against McGee Jackson. Also part of the conspiracy is a gay rights activist (remember McGee’s words about “faggots”?), Milwaukee Mayor Tom Barrett, the local media, and Milwaukee’s Election Commission. McGee also said that the democratic process was being foiled by “the demon-cratic process, where it’s ruled by the devil.”
Certainly the recall effort doesn’t have anything to do with his behavior which is unusual at best and criminal at worst.
Mon 19 February 07 · Filed under Fraud News Stories
Welcome to this week’s carnival!
Sox First discusses an interesting study on whistleblowers. It seems that whistleblowers have decreased since the implementation of Sarbanes-Oxley, which requires companies to implement anonymous reporting mechanisms (hotlines).
Home With the Kids brings up a scam that is quite similar to the usual Nigerian scam.
Stockmarket Beat highlights Applied Materials, a company in the semiconductor industry, which the author says has too much capacity.
Matthew Paulson hits up one of my favorite topics again - multi-level marketing companies (mlm), also known as pyramid schemes. This week he beats up on Quixtar (Amway) and their brainwashed representatives. They just don’t know how to take “no” for an answer.
My highlighted post of the week is on Bank of America, which is now offering credit cards for illegal immigrants.
Submit your post for next week’s Carnival of Fraud here.
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