...Business Fraud Strayer University ACC564 James Ridilla Jr. January 25, 2012 Business Fraud Stanford Financial Group was a privately held international group of financial services controlled by Allen Stanford. Stanford financial Group was comprised of several affiliated companies: Stanford Capital Management, Stanford Group Company, Stanford International Bank, Stanford Trust Company, Bank of Antigua and the Stanford Coins and Bullions. Stanford Group Company was a diversified financial services company. The organization offered brokerage and investment advisory, private and commercial banking, investment advisory, trusts, real estate investment services, and investment banking services. It also had private equity investments through the Stanford Venture Capital Holding, Inc. The company’s headquarters was in Houston, Texas with additional offices in Baton Rouge, Louisiana; Irving, Texas; Memphis, Tennessee; Miami, Florida; and Denver, Colorado. This large international financial group controlled by Allen Stanford came crashing down in 2009 when it was discovered that these companies had claimed higher rates of returns on their CDS than those offered by commercial banks in the U.S. and consistent double-digit returns on his bank investment portfolios were nothing more than a Ponzi scheme. In this Ponzi scheme Stanford perpetrated a scheme to defraud investors who purchased his Stanford International Bank (certificates of deposit) of billions of dollars by soliciting...
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...Fraud Schemes and Fraud Investigation Acc 571 Instructor: Dr. Ole Ruankaew Diane Phillips November 22, 2015 Fraud Schemes and Fraud Investigations The problem that organization faces today, are employee fraud. Many organizations feel that long term success of any company comes from the quality of their employees and workers loyalty. While during my research, I discovery that Association of Certified Fraud Examiners, Inc. has shown that organization have lost five percent of their annual revenue each year because of employee fraud. Every organization needs to have a plan in places for fraud detention. In preventing fraud in the work place, a good strategy for any organization is to implement internal control. These are plans; programs and procedures put in place to safe guard the company assets, and ensure the integrity of its accounting records. As prevention fraud is much easier than recovering losses after a fraud has been committed. This study will focus on the case of Stanford Financial Group Company fraud in which Robert Allen Stanford, chairman of Stanford International Bank (SIB), was involved in a Ponzi scheme. Stanford was convicted of orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion form SIB to finance his personal businesses. The Stanford Financial Group claimed to have pulled in retail, wealthy and commercial investors from 136 countries on six continents. Lopez and Kuhrt was aware of what Stanford ...
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...Case #1- Stanford Financial R. Allen Stanford, a Texas financier and the founder of the Stanford financial Group, was arrested in June 2009 for a civil charge of conducting an $8 billion fraud by deceiving more than 20,000 investors. He cheated investors in a Ponzi scheme through bogus certificates of deposit at the Stanford International Bank located in Caribbean island of Antigua. Stanford International Bank promised investors substantially higher rates of return on their CDs than U.S. banks. It offered investors an annual interest rate anywhere from “7.45 percent to 10 percent” (Goldfarb), which is more than double what rivals offered. Stanford’s clients were told that their funds were put into shares and bonds issued by “stable governments, strong multinational companies and major international banks” (Clark. A). In fact, Allen Stanford used his investor’s money to buy two airlines, build a cricket team and stadium, and he also transferred investor’s money to his bank account in Switzerland. He lied to the investors about how their money was being used. According to the Securities and Exchange Commission (SEC), 90% of the money went into illiquid property and private equity (Clark. A). The trial was delayed after Stanford was involved in a prison beating which held the U.S government back from liquidating his assets to repay investors who claim losses in the billions. Stanford’s investors would not have lost billions of dollars if the auditors audited the right opinions...
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...Case #2- Stanford Financial Former Chairman and CEO of Stanford Financial, R. Allen Stanford has been convicted of 13 out of 14 counts of fraud which caused investors to loss over $7 billion in Assets. Stanford has been sentenced to serve 110 years in prison as of June 2012. Stanford's crimes included conspiracy, wire fraud, obstruction and money laundering (new york times). Stanford's scheme affected over 20,000 individuals and caused many them to lose their savings, retirement funds, and in more extreme cases their homes. Outraged investors everywhere are asking questions, where were the auditors? How can such a scheme go uncovered by accounting professionals? Did Stanford's auditors perform their duties in accordance to Generally Accepted Auditing Standards (GAAS)? According to various sources apparently there were two accounting firms named in the scandal that were involved with Stanford Financial, CAS Hewlett, and BDO USA LLP. According to Andrew Clark's article "Confusion surrounds 'auditor' of Allen Stanford's business empire"(The Guardian) it was alleged that CAS Hewlett, a small Antigua based firm was responsible for the auditing of Stanford International Bank (SIB). However when the small firm had been approached about the accusations they denied having any knowledge of who Allen Stanford even was. Apparently the only person who would have had that information was CAS Hewlett's chief executive Charlesworth Hewlett who died January 1st 2009. BDO USA LLP was responsible...
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...weaknesses in the “control environment” of Stanford Financial Group. The weaknesses include: the integrity and ethical values of management, the structure of the organization, the participation of the organizations board of directors and the audit committee, managements operating style, management’s methods for assessing performance, and the organizations policies and practices for managing human resources. The board of directors consisted of 3 members; himself, his father and Oliver Goswick who had no banking experience. Independence from management and the board, the experience and stature of its members and involvements are all factors that affect the effectiveness of the board. His management consisted of a small and tightly knit group of managers consisting of mostly friends. His college friend being his CFO and Laura Pendergest-Holt who had no banking experience when she was hired. If employees asked too many questions they were either fired or reassigned. Most of the important financial information was kept very secretive from outsiders and only the close group of management was kept informed of how the company was doing. His operating style consisted of taking big risks and poor financial reporting. Stanford Groups convinced investors into believing the C.D. purchases were safe by advertising investments in “liquid” securities that could be bought and sold easily and could be returned at higher than normal rates. Stanford also made a small public accounting firm as...
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...A “Ponzi Scheme” is an investment fraud that involves the payment of alleged returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often seek new investors by showing potential in their company; they entice investors to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legal investment activity. The system is destined to collapse because the earnings are less than the payments to investors. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. The system eventually will collapse under its own weight. The scheme is named for Charles Ponzi, who became well known for his illegal techniques for using the Ponzi method in early 1920. He had emigrated from Italy to the United States in 1903. His operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted investors' money to support payments to earlier investors and Ponzi's personal wealth. At that time when the annual interest...
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...Ponzi scheme The alleged fraud is over $200 million. Durham’s main holdings were his leveraged buyout firm Obsidian Enterprises, Inc. and Fair Financial Services, both headquartered in Indianapolis, IN. When Durham acquired Fair in a 2002 leveraged buyout, it was a factoring company that purchased accounts receivable from businesses at a discount, profiting when the accounts were paid in full. It financed its operations by selling “investment certificates” to individual investors. According to the indictment, Durham and his cohorts immediately changed Fair’s business. Rather than using the $200 million they raised from investors to purchase receivables, they instead loaned the funds to themselves and their various business entities. When the loans went unpaid, Fair turned into a Ponzi scheme—taking money from new investors to pay certificates that came due. Now that the merry-go-round has stopped, it is estimated that over 5,400 parties—many of them small mom-and-pop investors—have lost over $200 million. The legal battles began with claims from disgruntled investors. In November 2009, the FBI raided the Obsidian offices in Indianapolis and seized its records. On February 8, 2010, the unpaid investors forced Fair into an involuntary bankruptcy proceeding. Shortly after his appointment, the bankruptcy trustee filed suit seeking to recover the money that had been improperly diverted from Fair. The lawsuit language promised to prove a “fraud of shocking proportions and...
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...convicted McClendon of 28 counts of mail fraud. Claiming that Pryor, McClendon, Counts & Co. illegally got business to manage approximately $9.8 billion of the city’s investments. It was accused that McClendon used his ties to a city of Atlanta investment officer Theresa Sanford, to monopolize the investment activity of the city. They had known each other prior, in the early 1980’s when McClendon was the boss of Stanford in the city’s finance department. In the early 1990’s, Stanford’s husband Charles, the owner of Montclaire Financial Group Inc., was hired for consulting work at PMC. The city of Atlanta requires their city officials to fill out a conflict of interest form, but during the early years of the 90’s, the form had no spousal provisions, allowing PMC to handle more than 90% of the city’s transactions of U.S. Treasury zero-coupon securities known as STRIPS (Separate Trading of Registered Interest and Principal Securities). The SEC believes that Theresa Stanford was a channel for PMC, and held the STRIPS holdings from competing broker-dealers, made superfluous buying and selling transactions, and earned PMC an extra $15.3 million in commissions. The prosecutions felt that Stanford did nothing illegal not violated any provisions of the city’s ethics code, she however violated her duty to act in the interest of the city (Hocker). In July of 2000, both Theresa Stanford and Raymond McClendon were convicted of mail fraud...
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...fight misconduct and can be at any level of management. In my opinion, if I were in the situation of being encouraged to inflate my expense account, it would be my moral philosophy that most impacts my decision rather than the cultural values of the organization for which I work. The term Business Ethics is defined as a set of rules, principles and standards that guide behaviours in the world of business, with an emphasis on determining what is correct and what is incorrect. Unethically leads to financial misconduct. For the past 15 years, businesses have been faced with the arisen of false accounting frauds which caused significant damage and losses to companies. It was reported in the 2012 Report to the Nations on Occupational Fraud and Abuse by The Association of Certified Fraud Examiners that approximately 14.5% of all asset misappropriations investigated involved expense reimbursement frauds. Employee’s inflating their spending accounts is one among many expense fraud schemes that are reported. It occurs when employees try to: * Make use of first class services such as first class flights, 5-star hotels and luxurious transportation means. * Claim meals and entertainment reimbursement exceeding company’s allowance policy. * Claim added tips which are already included. * Use inflated mileage...
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...was dramatically affected by the events leading up to and after the passing of this law. In the days before SOX, there were many high valued fraudulent activities. The news was flooded with employees, managers, and executives who were committing fraud against their investors, their organizations, or both. Millions and billions of dollars were being lost. The acts that brought about SOX began many years before its inception but were especially prevalent during the dot-com boom. These company’s executives fraudulently reported increases in revenue dollars, bringing their net income up in order to keep pace with their growth projected by analysts. The collapse of these “fast and furious” companies did not mean the last of the major fraudulent activities by executives against organizations or their investors. The 1990s was a time that saw many changes affecting business. The Internet was beginning to open more to commercial use, no more was it just for academics and the government. The age of technology that had started in the 1960s truly took off. The turn of the century was laying the groundwork for the scandalous events that rocked the business world and brought the changes of today. Our corporate history has been speckled with fraud schemes and swindlers alike. Corrupt organizations and their executives have been prevalent since the inception of the corporation. The stock market crash of 1929-1932 (Shilit, 2002, pg 235), which was...
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...Financial Statement Insurance System For years, investors in Chinese companies have used the reputations of outside auditors, institutional investors, and global investment banks as a proxy for reliable financial reporting. In fact, the Securities and Exchange Commission led to increasing battles with Deloitte Touche Tohmatsu, which discovered the bookkeeping fraud at Longtop Financial Technologies of China. Deloutte audited the company’s book and stated that Longtop sill recorded $332 million off-balance sheet (S.E.C. clashes with deloitte in China over fraud, 2011). However, this has become worse. Since March, Chinese Government announced that more than two dozen companies said they will resign their auditors because of some accounting problems, according to the U.S. Securities and Exchange Commission. As a result, the SEC charged the overseas companies listed in the United States according to these scandals (Jubak, 2011). Since the financial statements were not disclosed transparently and accurately, even misstated, the independence of auditors in Deloitte Touche Tohmatsu obviously was lost. Nowadays, since the independence of the auditor is lacking, the fraudulent cases, such as financial misstatement, have occurred frequently in China. One major cause is that an inherent conflict of interest is created between the management of clients and the auditor. The auditors are paid by the client companies; they thus depend on CEOs and CFOs, who effectively decide...
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...interests are not so straightforward, others who have a stake in the success or failure of the business. These include employees, suppliers, and the community in which the business operates. For all of these stakeholders, the business has responsibilities beyond profit, including transparency, non-discrimination, and sustainability. Customers should be able to expect not only a valuable product or service, but also a safe and reliable one. They should also expect that the service rendered is non-discriminational, i.e. priced and provided to all potential customers on an even playing field regardless of race, religion, color, age, or any other factor other than ability to pay. Shareholders and investors have a right to honest and accurate financial reporting. Employees have the right to be treated fairly and non-discriminatorily, and to be provided a workplace that is not hostile. Suppliers make up a large line of economic dominoes, whose own success or failure can depend not only on the distributor’s honesty and...
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...an overview of the case of Bernard “Bernie” Madoff, a businessman and investment manager who is believed to have stolen as much as $65 billion from his investors (Stanwick & Stanwick, 2014). Bernie Madoff was operating not only the largest Ponzi scheme in history, but is also believed to have perpetrated the largest financial fraud in history. His network of investors included many prominent people from the financial world as well as the social elite. Madoff’s criminal career came to an end in 2008 when the recession developed. His supply of available funds began to diminish, and he was no longer able to pay his investors. Madoff was subsequently arrested, prosecuted, and sentenced to one hundred and fifty years in prison. The authors also discuss the question of how Madoff was able to maintain such a massive criminal operation over a twenty year period (Stanwick & Stanwick, 2014). In particular, the question is examined concerning why the Securities and Exchange Commission was not more thorough in its investigations of Madoff’s activities, especially after Harry Markopoulos had been warning the SEC for the better part of a decade that Madoff’s financial operations were questionable in nature. A discussion is also provided of how various warning signs were available, but how Madoff was able to manipulate potential investigators into failing to thoroughly investigate what he was doing. The impact of Madoff’s crimes are explained by the author, including tens of billions...
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...Trinidad and Tobago and the Caribbean, is the worst financial shock experienced by the region to date. Today, more than two years later, its devastating effects are still being felt as the government continues to struggle with the bailout to stabilize the financial system, mitigate contagion risk, and resolve the CLICO crisis. Even one year after the bailout, there was still no resolution of the crisis. In view of the intractable nature of the CLICO collapse, the People’s Partnership government that came to power on May 24, 2010 established a commission of enquiry to investigate the causes of CLICO’s collapse, the scope of the MOU, the cost of the bailout, and the failure to provide a bailout to the Hindu Credit Union (HCU) that collapsed in 2008. There are many questions that are still unanswered. What were the root causes of CLICO’s collapse? What corporate governance structures and practices precipitated the collapse? Did the bailout create moral hazard? Who or what was to blame for the collapse? What action has the government taken to date? What lessons have been learnt and, more importantly, how can this situation be prevented from being repeated in the future? This concept paper examines these questions, analyzes the evidence to find answers, and in the conclusion, suggests ways to improve corporate governance and the empowerment of regulators to provide competent regulatory oversight and enforcement. Key words: financial collapse, bailout, corporate governance, moral hazard...
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...increase in white collar financial, political and cybercrime is observed. The extensive usage of technology for trading and business has also instigated the escalation of cybercrime activities. The business and individuals are prone to numerous risks of financial losses through white-collar crimes. The laws and regulation to reduce white-collar internet crime should be improved and implemented. The process of recoup of losses for victims of cybercrime is complicated and could be very time consuming, not to mention very costly. Although, after winning the lawsuit, lawyer fees can be asked to be compensated, but in the beginning, the lawyer fees are the company’s or individual’s responsibility. It requires adequate measures for dressing of the grievances. The involvement of political parties in personal and political white-collar crimes are challenges for an effective legal system. The economic conditions and lack of jobs lead to vocational crimes. White-collar legislation: There are multiple types of white-collar crime and the case law has recognized several types. It is evident that insider trading has been recognized well before other cybercrimes as an important type of white-collar crime. The provisions of law as well as the remedies available for white-collar crime are developed and improved frequently in today’s world. The changes in technology and online presence of shopping, trading, and e-commerce activity is also prone to fraud and numerous other crimes...
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