...(Bernard Madoff, 2011) This paper discusses the massive Ponzi scheme that Mr. Madoff created and those that were affected by it. 1. Describe three types of illegal business behavior alleged against Mr. Madoff and for each type of behavior, explain how the behavior is illegal or unethical in the conduct of business. Madoff reportedly admitted to investigators that he had lost $50 billion of his investors' money, and pled guilty to 11 felony counts—securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the United States Securities and Exchange Commission (SEC), and theft from an employee benefit plan—on March 12, 2009. (Biography, 2011) Mail fraud includes any scheme that attempts to unlawfully obtain money or valuables in which the postal system is used at any point in the commission of a criminal offense. (Mail fraud, 2011) By using the postal system for any of his illegal activities, he was committing mail fraud. Mail fraud is protected by the United States Code. Madoff also admitted to money laundering. Money laundering is disguising illegal sources of money so that it looks like it came from legal sources. (Money laundering, 2011) Madoff was taking the money from his investors and moving it back and forth between accounts. He was continually gaining new investors to keep his scheme going. By gaining new investors, he was able to channel millions of dollars illegally through...
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...least two forms of fraud techniques from your research. Include the identity of the government agencies that provide awareness for these types of fraud techniques. Tax fraud is something that seems to be on the rise these days, especially due to those that are completing their returns electronically, which is known as e-filling. With e-filing, evidence of fraud is difficult to find. There are no signed tax forms, envelopes or fingerprints, and e-filing promises quick refunds. Another type of fraud is when an unscrupulous return preparer modifies the bank – routing information on a return so the direct deposit refund will wind up in his/her own bank account, the victim wouldn’t know anything unless the IRS sends an audit, by this time, it would be too late (New York Times, 2013). It is reported that electronic Tax fraud is a major issue for state returns as well, An example that was giving in my research, a 25-year old woman e-filed a fraudulent Oregon state return reporting wages of $3 million and claiming a $2.1 million refund, and the Oregon Department of Revenue actually sent her the refund, without proper investigation. Another instance reported was in October 2013, a hacker stole 3.8 million unencrypted tax records from the South Carolina Department of Revenue (New York Times, 2013). When it comes to Tax fraud, the IRS has many ways of alerting the public on the aware of electronic tax fraud and how to notice if something is indeed incorrect with your return, which goes for...
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...Frauds and Schemes Introduction This paper is about the lies and deceits of people, and how they take advantage of everyone around them. We will be looking at two major insurance frauds and a major ponzi scheme between a father, son, and a small town in rural Utah. All of the people involved in these insurance frauds and ponzi schemes represent poor business ethics. Frauds and Schemes At the beginning of the economy going under some people weren’t sure where to turn to when their houses started to go into foreclosure, or they were so far in dept that they didn’t know what to do. A large number of those people got an idea that they could “accidently” start their house on fire, or make it look like a fault of some sort that they could collect their insurance money and life would go back to normal. Well they were wrong that just landed them a hefty fine and quite a few years in federal prison. A great example of this is an incident that happened to a man by the name of Marc Thompson. He was a high living executive of a Chicago grain company that went under and put him deeply into debt. In desperation, he torched his home for the $730,000 in insurance money. To make it appear like a suicide, he led his 90-year-old mother Carmen downstairs, doused the basement with accelerant and tossed the match. Marc Thompson was sentenced to 190 years in federal prison. (Quiggle) People all over the U.S. want to have health insurance that will cover their doctor’s visits and hospitalizations...
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...Sarbanes–Oxley, Sarbox or SOX, is a United States federal law which was introduced in 2002. It is also known as the “Public Company Accounting Reform and Investor Protection Act” and “and 'Corporate and Auditing Accountability and Responsibility Act”. The main objective of the act is to protect investors by improving the accuracy and reliability of corporate disclosures. New aspects are created by SOX act for corporate accountability as well as new penalties for wrong doings. It was basically introduced after major corporate and accounting scandals including the scandals of Enron, WorldCom etc so that the same kind of scandals do not repeat again. There are 11 titles on the act. Each title consists of several sections. The Securities and Exchange Commission needs to implement rulings on the requirements to comply with the law. These major elements are- 1. Public Company Accounting Oversight Board: This title establishes the Public Company Accounting Oversight Board. It provides specific processes and procedures for compliance audits, policies for control purposes. Basically it provides an oversight of public accounting firms that do auditing. 2. Auditor Independence: It provides standards for external auditor independence, so that conflicts of interest can be minimized. It also mentions the requirements for appointing new auditor and auditor reporting requirements. Auditing companies are prohibited from providing non-audit services (consulting) for the clients for...
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...ESSAY CASE: ‘Ponzi schemes’ ‘Ponzi schemes’ are scams in which investors are promised exaggerated profits (often short-term) from supposedly can’t-miss investments. If and when early investors are paid returns, the money doesn’t come from actual investment gains; it comes from new cash pouring in from later investors. Initially the promoter will pay out high returns to attract more investors, and to lure current investors into putting in additional money. Other investors begin to participate, leading to a cascade effect. The "return" to the initial investors is paid out of the investments of new entrants, and not out of profits. Often the high returns lead investors to leave their money in the scheme, leading the promoter not to have to pay out very much to investors; they simply have to send statements to investors showing them how much they earned. This maintains the deception that the scheme is a fund with high returns. Ponzi scammers promise windfall returns, counting on their victims to be either gullible or greedy—and sometimes both. The appeal of quick and hefty profits is precisely why some people fall for Ponzi schemes, even though they clearly fall into the category of too good to be true. Charles Ponzi, an Italian immigrant living in Boston in the early 20th century, was a master at playing the gullibility-greed game. He was clever, yes, but more than that, he was charming and charismatic, easily convincing people to jump aboard his pie-in-the-sky schemes. He...
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...is understanding the concept of a ponzi scheme and how they are spotted on the markets. The operations of a ponzi scheme are complex and are reliant on the joint effort between multiple scam artists to be successful. Unlike common market schemes where a company or organization attempts to gather victims in mass for a large return, a ponzi scheme focuses solely on a small group or individual. The idea behind a ponzi scheme is to promise large returns to the small group of investors over a period of time. A key issue behind convincing a small group of investors to give up their money is proving that the investment and the return is legitimate and not fraud. So, during that time period that the scam company promised the return on investment, it needs to find another set of more investors to pay off the previous group with interest....
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...business front for one of the largest investment frauds in American history. Barry Minkow started working in the cutthroat carpet cleaning industry at a young age. A risky Minkow began perpetrating frauds on a small scale and eventually took his Ponzi scheme public. Red flags went unnoticed from banks, investors, and auditors. Crucial auditor mistakes postponed the uncovering of Minkow’s scam. ZZZZ Best, Inc. significantly impacted both the accounting and auditing industry both in practice and standards. Barry Minkow founded ZZZZ Best Company at the age of sixteen. Minkow’s exposure to the carpet cleaning industry came from his mother. She answered phones and conducted clerical work for a carpet cleaning company in the San Fernando Valley of California (Knapp). The carpet cleaning industry required very little start-up capital, even less experience, and no licensing requirements. These attributes enticed Minkow, a young entrepreneur, to start his own company.. However, the competition in the carpet cleaning industry made it difficult for Minkow to make profitable sales. Vendors wanted money from Minkow and sales were not enough to cover his costs. Banks refused to loan him money because his company barely made a profit (Knapp). These financial struggles Minkow incurred led him to perform illegal acts to make ends meet. He stole jewelry from his mother, staged break-ins to collect insurance claims, committed credit card fraud, and wrote bad checks to make ends meet (Knapp)...
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...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 legitimate investment activity. The returns are repaid out of new investors’ principal, but not from profits. This can continue as long as new investors line up with cash, and old investors don’t try to withdraw too much of their money at once. Ponzi scheme is named after Charles Ponzi, known as the Father of the Ponzi scheme and the infamous swindler, who paid out returns with other investors' money. Charles Ponzi was born in 1882 in Parma, Italy. Ponzi marked what would become known as the Ponzi scheme in December 1919. An alliance of international postal services had begun selling postal reply coupons after World War I ended. Each coupon was good for one stamp in the affiliated countries. This allowed the mail services to continue operations smoothly despite the instability of most European currencies at the time. That’s when Ponzi established the Securities Exchange Company, a one-man operation that offered coupons reflecting a supposed investment in international reply coupons (IRCs). IRCs are legitimately sold in the postal facilities in many nations, intended to be enclosed with international correspondence and redeemed for return postage from the receiver's nation. At the time, IRCs were sold for a fraction of a cent less than the price of the stamps they could be redeemed for, so the plan's profitability seemed reasonable...
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...millions in tax refund Over the past few years prisoner tax refund fraud has sky rocketed. According to the article - (Prisoners rake in millions from tax fraud, 2013) “In 2010, more than 91,000 inmate returns claimed $759 million in fraudulent refunds.” 1 That figure was more than double from the previous year. How is it a convicted felon who is behind bars still gets to cheat the system by robbing innocent tax payers of billions in tax refunds on an annual basis? This type of white collar crime is easily committed, all that is needed is the use of a computer with internet access and a great deal of time which a prisoner is in no shortage of having. They can educate themselves on how to hack into hundreds of databases that contains people’s personal information including social security numbers. Once that information is gathered they can begin the process of stealing tax refunds they are certainly not due by filing fraudulent income tax forms, sometimes hundreds at a time by using legitimate names and social security numbers, sometimes the names of their inmates, relatives or even people who are deceased. It is the duty of the IRS to fix this problem. This paper will highlight a few cases of inmate tax refund fraud and what measures the IRS has taken and will continue to take in order to protect innocent victims against this type of fraud. Case summaries involving inmate tax refund fraud The following cases are classic examples of how easily criminals in...
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...In addition to the benefits associated with monetary or financial rewards with by faking an illness online, the prospect of insurance or disability fraud could also explain why some individuals are more likely to exaggerate or fake symptoms of chronic illness and permanent disability than others. For instance, some of the more conservative estimates regarding disability benefit fraud suggest that “approximately $60 billion in annual Medicare payments are fraudulent. In short contrast, current efforts to prevent, detect, and prosecute healthcare fraud have produced only modest returns, recovering only $4.1 billion in 2011” (Gray et al., 2013, p. 749). Offenders looking to commit medical fraud, for example, might decide to feign symptoms of illness...
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...Importance of forensic accounting and fraud awareness in Malaysia As a result of recent, highly publicized financial scandals; reported increases in occupational fraud; and heightened concerns over money laundering to support terrorism and racketeering, legislative mandates and public expectations have heightened the necessity to hrther define the auditor's and accountant's responsibility for detecting fraud within organizations. Successful fraud or forensic accounting analyses and findings reported by practicing professionals may be the difference between whether perpetrators avoid detection of their illegal activities or they are brought to justice. In most cases, success is directly and primarily dependent upon the knowledge, skills, and abilities of the professionals performing the work. Consequently, the demand for entry-level professionals with formal education in fraud and forensic accounting has grown. Academic institutions and stakeholder organizations that provide education in these fields are faced with a number of questions regarding the nature, extent, and format of a worthwhile curriculum. A review of existing higher education institution offerings indicates that the number of courses available varies from a single class to programs of 4-10 different courses. Programs are offered at the undergraduate and graduate level as majors, minors, tracks, or as nondegree "certificate" programs. Further, job opportunities and the student applicant pool are likely to vary...
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...Anatomy of a Fraud Project Abraham Kennard: The False Profit Alisan James Forensic Accounting November 25, 2013 Dr. N. Sharma Abstract The goals and objectives of a fraud investigation are to think critically and creatively to be able to prepare and organize ideas to uncover a suspected fraud. Crook, hustler, swindler, fraudster and con artist are all used interchangeably to describe someone who will spare no expense to deliberately and intentionally achieve an advantage over another by false statements and suppression of truth. Fraud is elevated to another level when the con artist aims and targets investments scams towards members of a specific group, particularly religious groups. This is commonly referred to as, affinity fraud. This paper will extensively and thoroughly evaluate the anatomy of the fraud perpetrated by Abraham Kennard, an inappropriately named man of God who viewed the weaknesses of the African-American church to use his big personality and persuasive attitude to ultimately scam nearly 1,600 churches in 41 states, totaling almost $9 million. This paper will also discuss and analyze the application of the fraud triangle, the application of the fraud theory, explain the evidence and damages of the fraud, describe the disposal of the case and the lessons learned in relation to this ponzi scheme. The goal of this paper is to not only increase awareness of this type of scheme, but to also educate and prevent those who may be potential targets from...
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...industry. Problems came to light in 2003, when the chief financial officer as well as to other highly ranked financial managers resigned unexpectedly. The fraudulent activity was difficult to figure out because it had many layers of fraudulent loan agreements. These loans created a false perception of a successful company. Characterized as a Ponzi scheme, the fraud was using newly invested money to pay off earlier debt obligations. Le-nature falsified invoices, checks, account statements, and other financial documents to verify business transactions and activity that never actually occurred. This falsely inflated the value of the company to banks and investors, who saw the business as a successful company that needed additional capital to expand its productions. According to one of the lawsuits, Le-Nature falsely reported $135 million in sales in 2002, when actual net sales were less than $2 million. Tammy Andreycak, Le-Nature’s accounting director, cooperated with prosecutors in hopes of getting only probation or house arrest for her involvement in the fraud. In 2008, Tammy pleaded guilty to wire fraud, bank fraud,...
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...Sarbanes–Oxley, Sarbox or SOX, is a United States federal law which was introduced in 2002. It is also known as the “Public Company Accounting Reform and Investor Protection Act” and “and 'Corporate and Auditing Accountability and Responsibility Act”. The main objective of the act is to protect investors by improving the accuracy and reliability of corporate disclosures. New aspects are created by SOX act for corporate accountability as well as new penalties for wrong doings. It was basically introduced after major corporate and accounting scandals including the scandals of Enron, WorldCom etc so that the same kind of scandals do not repeat again. There are 11 titles on the act. Each title consists of several sections. The Securities and Exchange Commission needs to implement rulings on the requirements to comply with the law. These major elements are- 1. Public Company Accounting Oversight Board: This title establishes the Public Company Accounting Oversight Board. It provides specific processes and procedures for compliance audits, policies for control purposes. Basically it provides an oversight of public accounting firms that do auditing. 2. Auditor Independence: It provides standards for external auditor independence, so that conflicts of interest can be minimized. It also mentions the requirements for appointing new auditor and auditor reporting requirements. Auditing companies are prohibited from providing non-audit services (consulting) for the clients for...
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...Accounting: Accounting Fraud at WorldCom Date: 1/26/2015 3. What are the pressures that lead executives and managers to "cook the books"? The CEO and CFO of WorldCom wanted to “cook the books” because they wanted to keep the company’s stock price growing. Managers and accountants “cook the books” because they are forced to do so by their CEO and CFO. WolrldCom CEO Ebbers believed that increasing the stock price is their number one priority, so he set up a goal for the corporation--“The goal of WorldCom is to be the No.1 stock price on Wall Street”. In the 1990s, WorldCom built their revenues quickly by acquiring other companies. That’s how they do to meet their expected growth. However, when they tried to merger Spring, they were blocked by the Justice Department. When they failed to expand their company by merging other companies, the executive team got lost and not sure how to expand the company in a legal way. As a result, WorldCom’s revenue growth slowed. At the same time, the Dot-com bubble started to burse, so the revenue for the whole telecommunication industry begun to decrease. However, Ebbers wanted to remain the same Expense-to-Revenue Ratio to ensure stock price moving in favorable direction. Which was impossible at that time for WorldCom to fulfill without making the number up. Therefore, the executives decided to “cook the book” to increase the stock price and meet their goal by making the false entries. For the accountant, they are...
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