Fraud is always an unfortunate occurrence that shakes the confidence of its victims. They often doubt themselves and wonder how they could have missed the signs. While every type of fraud is damaging to the psyche of those fleeced, insult is added to injury when victims are defrauded by friends or loved ones. In honor of the Ides of March, the infamous day Julius Caesar was stabbed by members of the Roman Senate led by his friend Brutus, let’s look at some fraud cases where personal betrayal may have hurt more than the loss of money.Read More
Emily Primeaux, CFE
Assistant Editor, Fraud Magazine
He sees you when you're sleeping. He knows when you're awake. He knows when you've been bad or good...
"He," or "she," of course, is the ever present fraud fighter. And in 2016, fraud fighters saw a slew of unsavory characters who clearly ignored the elf on the shelf and instead stole, bribed or colluded to illegally line their own pockets. But for every bad apple, there are unsung heroes — the whistleblowers, journalists, investigators ... the list goes on and on. These heroes go to battle in the trenches every day to root out the crooks and thieves.
In honor of the holiday season, let's ruminate on the past year and the characters that made it onto either the naughty or the nice list.
- Wells Fargo: On Sept. 9, 2016, Wells Fargo negotiated a deal to settle a lawsuit filed by the U.S. Consumer Financial Protection Bureau, the Office of Comptroller of Currency, and the City and County of Los Angeles. Though Wells Fargo didn't admit to any wrongdoing, it did confirm that employees had opened more than two million checking, savings and credit card accounts without customer approval. And in a stunning turn of events, former employees then came forward to say they had called the ethics hotline to report dubious sales practices. However, according to these accounts, some whistleblowers claimed that the bank's strategy for dealing with whistleblowers was to find ways to fire them in retaliation. Though the case is ongoing, John Stumpf has stepped down as the bank's chief executive.
- Andrew Caspersen: On Nov. 4, 2016, this disgraced scion of a wealthy Wall Street family was sentenced to four years in prison for robbing his friends, family and a large hedge-fund foundation in a Ponzi-like scheme. The judge who sentenced him? None other than the ACFE's 2016 Cressey Award winner, Senior U.S. District Judge Jed S. Rakoff. Looks like Caspersen most likely received coal in his stocking this year.
- The Panama Papers: A giant leak of more than 11.5 million financial and legal records from the world's fourth biggest offshore law firm, Mossack Fonseca, detailing financial and attorney-client information for more than 214,488 offshore entities ... otherwise known as the Panama Papers. According to the papers, the leak "exposes a system that enables crime, corruption and wrongdoing, hidden by secretive offshore companies." The leaked documents outed scores of politicians, business leaders and celebrities for fraudulent business practices, including Iceland's Prime Minister, Sigmundur David Gunnlaugsson. He stepped down after documents revealed that he and his wealthy wife had sheltered money offshore.
- The Panama Papers: The papers themselves were a great feat of international cooperation when the International Consortium of Investigative Journalists, the German newspaper Süddeutsche Zeitung and more than 100 news organizations released the Panama Papers. These are the good guys.
- Tyler Schultz: When he discovered that Theranos, a health technology and blood-testing company, was using proprietary Edison machines that frequently failed quality-control checks and produced widely varying results, Schultz (an employee of the company at the time) decided to speak up. He drafted an email to founder Elizabeth Holmes to complain that Theranos had doctored research and ignored failed quality-control checks. What makes this move even more incredible is that Schultz is the grandson of George Schultz, a Theranos board member. Since then, a major investor has sued Theranos for fraud and the company has had to stop blood tests, shut down labs and cut jobs.
- Clare Rewcastle Brown: In 2010, Rewcastle Brown founded The Sarawak Report and Radio Free Sarawak to disseminate news that concerned the Sarawak region of Malaysia and eventually, news surrounding the emerging 1MDB (1Malaysia Development Bhd) scandal. 1MDB is currently being investigated by Swiss, Singh and U.S. authorities. And she's not backing down, despite a Malaysian court issuing a warrant for her arrest for "activities detrimental to parliamentary democracy" and the "dissemination of false reports." She'll be speaking about the scandal at the 2017 ACFE Fraud Conference Europe in London, March 19-21.
The naughty list may never be empty, but at least we have those on the nice list to turn to. And while 2016 saw some pretty egregious schemes, we can enter 2017 knowing that there are those willing to investigate and speak up. Here's to the new year!
ACFE Public Relations Specialist
Although still not officially a U.S. holiday, the Super Bowl ranks up there with the Fourth of July and Thanksgiving as one of the most American days of the year. Families and friends gather around food and yell at the television as if the players can hear them. While football players are often lauded as heroes on the field, some players fall far from grace by turning to fraud when their sometimes short careers are over. Here are some of the most notable footballers-turned-fraudsters.
After 11 years in the NFL as a cornerback, Allen found himself intercepted by the SEC when he was arrested for orchestrating a $32 million Ponzi scheme. The former New York Giant and Miami Dolphin ran Capital Financial Partners LLC with his partner Susan Daub. Allen convinced investors the company would provide short-term, high-interest loans to athletes, while he pocketed nearly $4 million for himself. When questioned by the SEC, Allen allegedly forged signatures on important documents to cover up his crimes. He has yet to be formally charged but faces 23 felony counts and up to 240 years in prison.
Fryar may have been lucky enough to score the only touchdown for the New England Patriots in Super Bowl XX in 1986, but the wide receiver’s luck ran out 15 years after he retired from the league. In 2015, Fryar and his mother were found guilty of mortgage fraud in New Jersey Superior. In 2009, they obtained multiple home equity loans while using the same property as collateral. Fryar was ordered to pay $615,600 in restitution to the banks affected by the fraud and was sentenced to five years in prison.
He played in Super bowl XXXIX, but former Philadelphia Eagles wide receiver Mitchell may have flown a little too high when he created the company Chameleon LLC. That company, along with him as an individual, filed a number of fraudulent tax returns, amounting up to $3.3 million. He pleaded guilty and, according to Accounting Web, he blames multiple concussions he sustained during his football career for making him too trusting of a person. He alleges that he was the victim of a fraudster posing as an IRS agent. He was sentenced to 37 months in prison in 2013.
Arthur J. Marshall Jr.
Marshall Jr. never made a splash on the field, spending only five years in the NFL from 1991-1996, but he managed to leave his mark in another way when he was convicted of an elaborate mortgage fraud scheme in 2009. He was charged with 22 felonies including falsifying sales contracts and personal finance records that left multiple banks on the hook for millions in bad debt. He was ordered to pay $3.6 in restitution and was sentenced to 69 months in prison.
Mark Ingram Sr.
Ingram Sr. may have a Super Bowl ring from being a wide receiver for the Super Bowl XXV champion New York Giants, but he also has a less impressive record as a felon. He retired from football in 1996 and was charged with federal money laundering and bank fraud charges in 2008. He was sentenced to seven years in prison and was ordered to pay $252,000 in restitution. His son, Mark Ingram Jr. is currently a running back for the New Orleans Saints; he was picked in the same round and at the same number as his father.
So while you cheer on your favored team in the big game, keep in mind that there may be a future fraudster playing on that field.
John Gill, J.D., CFE
ACFE VP of Education
“The only thing necessary for the triumph of evil is for good men to do nothing.”
This quote has been attributed to the philosopher Edmund Burke. The verdict this week convicting five of Bernard Madoff’s former employees reinforces this wise observation.
No one reasonably believed that Madoff could have pulled off a multi-billion dollar Ponzi scheme for decades without assistance. The employees’ defense consisted of basically, “we did as we were told and we never knew the whole picture.” Similar defenses were tried during the war crimes trials after World War II, and they didn’t succeed then either.
I hope that the verdict will be noticed by employees who at this very minute are being asked to do things that they believe may be wrong, or at least questionable. Individuals, regardless of where they are on the organizational chart, must be held accountable for their actions. If an employee suspects that her boss is falsifying financial statements, stealing company funds, or lying to the government and does nothing, then she should be held accountable.
Thankfully the jury in this case did not buy the “I just did as I was told” defense. The U.S. Department of Justice is doing the right thing by sending the message to employees who are complicit in fraud schemes that if they know of wrongdoing and don’t come forward, they too can be prosecuted.
However, it’s not just about saying no to fraud; in many cases, it is about standing up to fraud. Both the Sarbanes-Oxley Act and the Dodd-Frank Act provide for substantial rewards for those who blow the whistle on fraud. Last October, the Securities and Exchange Commission (SEC) announced that it had awarded more than $14 million to a whistleblower who provided information that led to a successful enforcement action.
I sincerely hope that this verdict will cause employees across the U.S. and beyond to consider what they are doing or being told to do and ask themselves, “Am I assisting in breaking the law even though I’m just doing what I was told?” If the answer is yes, I hope they will not allow evil to triumph by doing nothing. Ignoring the problem may land them in jail.
ACFE Senior Media Relations Specialist
In 2008, we were still looking back on the massive accounting frauds at Enron and WorldCom when, almost overnight, Bernie Madoff became a household name. News broke that an enormous Ponzi scheme had unraveled, a scheme orchestrated by Madoff that was rumored to have cost investors tens of billions of dollars.
In case you let the five-year anniversary of Bernie Madoff’s fall from grace sneak up on you this year, chances are that, by now, you’ve noticed at least some of the press coverage surrounding this milestone.
Today, we know the dollar amount lost is close to $18 billion, as estimated by Madoff trustee Irving Picard. About half of that amount has been recovered, though the process of providing burned investors with a portion of their money is a slow, complicated one.
You can read about one those victims, Morton Chalek, whose $2.3 million account with Madoff ended up being nothing more than “fiction,” MSN Money reports. Chalek is 90 years old, and wonders if he will see any of the money before he dies. The Wall Street Journal provides an even more intense look at some of Madoff’s victims in “Madoff Victims Recount the Long Road Back” (please note, however, that the article requires a subscription).
Among the tales in the WSJ piece: A man whose wife died in January after they lost the bulk of their retirement nest egg in the fraud. The sudden loss of financial security left her “wrecked,” according to her husband, her whole mindset having changed since that fateful day.
Another interesting article comes from CNNMoney: “Five things you didn’t know about Bernie Madoff’s Epic Scam.” Here’s one of them that surprised me (spoiler alert): No one is really sure when Madoff’s scheme began. Madoff has claimed it started in the late 80s, and then later claimed it didn’t begin until the 90s. According to this piece, it is believed to have taken shape many years earlier.
For those who would like to read the comments of a fraudster (arguably) in some degree of denial, those stories are out there, too. Madoff has granted a few prison interviews to eager journalists, including recently. Here are the main points I gleaned from those interviews: he believes his victims should have known better, he says the banks knew what he was up to, and his prison experience is “laid back.” Not exactly the degree of contrition I would be looking for had I lost my retirement fund to his fraud.
I’d rather instead focus on the words of Harry Markopolos, CFE, the whistleblower who, for years, saw straight through Madoff’s smoke and mirrors. Named CFE of the Year in 2009, Markopolos still travels the country speaking about his experience chasing Madoff. Accepting an award last month in Erie, Penn., Markopolos said: "I didn't do it by myself, I assure you that. I had a lot of help and it (the award) is really for those people … We didn't do it for any kind of glory or any kind of awards. We just did it to stop Bernie Madoff.”
Markopolos has referred to his helpers as “the bloodhounds,” a tight group of investigators who worked hard (and lost a lot of sleep) trying to expose Madoff. Five years later, it occurs to me that while the world doesn’t need any more Bernie Madoffs, we could sure use a lot more bloodhounds.