Episode Notes for Fraud Talk Podcast: Mailing Madoff

GUEST BLOGGER

Sarah Hofmann
ACFE Public Information Officer

When you think of pen pals, you usually think of kids staying in touch after friendships forged at summer camp. In stark contrast of that sunny scene, for David Weber, J.D., CFE, his pen pal was the result of a U.S. Securities and Exchange Commission (SEC) investigation. Weber, academic director of fraud management programs at the Smith School of Business at the University of Maryland, regularly corresponds with infamous fraudster Bernie Madoff.

In the latest episode of Fraud Talk, Weber describes how the two first crossed paths when Weber was working as the assistant inspector general for the SEC and directed the reporting of misconduct in the Madoff case. After leaving the SEC, and becoming a professor, Weber received an email from none other than Madoff. The two began talking on a regular basis and Madoff even answers questions posed by Weber’s students. “He’s very direct in the emails; he’s not a man that minces words,” Weber said. “He really does express remorse, and he does continue to be of the view, and I agree with him, that the regulatory agencies really failed to do their jobs.”

His close relationship with a man who cheated hundreds of people and organizations out of billions may raise eyebrows, but Weber believes there is more to be gained from talking to convicted fraudsters than refusing to on hear their stories.  

“There’s no question that we can learn from fraudsters,” he said. “As fraud fighters, we are frequently in a position where clearly being proactive is part of our role, but in many cases, when there is spectacular fraud, we are not learning of the fraud until the incident has finally occurred. We are part of the response team.”

Weber likened investigating fraud to coming to the scene of a car crash after the fact. “There are injured people, there are people who need to be triaged, there are cars that are damaged, there is debris in the road,” he said. “Many times, it’s hard to figure out through the victims what transpired, so having any person on the scene who is still able to speak is helpful, even if they were a drunk driver. Even if they were somebody who drove recklessly, hearing what they have to say is very important to reconstructing the scene.”

Weber acknowledges that hearing from fraudsters may be controversial, as anti-fraud professionals understandably don’t want to glamourize their actions. “I have been at the fraud conference many times where I have heard some of these convicted felons speak … and I agree it can put some of them on a pedestal,” he said. “But anything we can get from these people to help us reconstruct the scene, and build a better mousetrap in the future — we should embrace the ability to speak to them.”

To hear more from Weber, register for the 28th Annual ACFE Global Fraud Conference June 18-23 in Nashville where he will be teaching a session on the Panama Papers.

Health Care Fraud Expert Focuses On Cleaning Up Private Practices

MEMBER PROFILE

Dr. Richard Lyschik, DDS, CFE, FAGD
President of Practice Rescue

Dr. Richard Lyschik, DDS, CFE, FAGD, President of Practice Rescue, was in the health care industry for many years before he added fraud prevention and detection to his skillset. While providing management consultation to many practices, he observed a variety of fraud schemes and was disheartened at how many medical professionals were hesitant to do anything about it. He warns that perpetrators in health care fraud schemes can be anyone and that doctors need to get more serious about punishing fraud.

How did you become interested in fraud prevention and detection?
My parents came to America from Austria and I traveled frequently to Europe as a child to visit family. Learning how to calculate exchange rates and even interpret travel schedules made me analyze groups of data. Traveling from country to country introduced me to strict border crossing protocols and accurate documentation requirements. Seeing the world definitely got my CFE analytical training off to an early start.

I later learned how to run three private practices and began to assist other doctors with their office operations. Eventually I became a management consultant for practices across the country and was exposed to a variety of fraud schemes. I was finally able to validate all of the fraud observations I made over the years as a health care provider when I joined the ACFE.

What are the most challenging aspects of investigating health care fraud?
It is shocking at how difficult it is to get doctors to believe that there could be fraud in the practice and just as hard to convince them to clean it up. I am always surprised at how when we initially discover fraud. Many doctors’ first reactions are that they don’t want to “rock the boat.” They don’t want you to upset the cash flow or their associated lifestyle, and they don’t want to go through a stressful firing and hiring encounter. They also worry about upsetting the morale of the employees — they often say, “What are the other staff going to think?” Some doctors believe they can solve the matter by having a staff meeting and others have even naively thought that if they speak to the fraudster the fraud will stop occurring.  

Another type of doctor I’ve encountered is the one who thinks they are untouchable because they can call upon their CPA, their lawyer, or their malpractice carrier to get them out of “hot water.” It is rewarding though when the doctor recognizes the gravity of the fraud — we have assisted in successfully getting fraudsters fired, prosecuted and incarcerated. Unfortunately, there are times when a casual approach is taken and the fraudster mysteriously disappears and moves on to another similar health care business. It’s unfortunate to know the fraudster has access to money, supplies, drugs and confidential patient files again.

What is your most memorable health care fraud case?
I will never forget the office manager who took home the entire office computer while the doctor was on vacation. She had it cloned by her uncle to capture more than 2,000 patient records filled with social security numbers, insurance policy numbers and credit card data. When the doctor returned from vacation, and the patients’ credit card charges appeared on their monthly statements, it was discovered that the office manager went on a shopping spree for jewelry, exercise clothes, diet pills and more. My team assisted the doctor in the proper termination and subsequent prosecution of that employee.

Additionally, other employees in the practice were let go and strict new fraud prevention guidelines were introduced into the practice. The end result is that the practice became more profitable and added a second doctor within a year because of enhanced practice methods and controls. 

Read Dr. Lyschik's full interview on ACFE.com.

Kozlowski's $6,000 Shower Curtain Added to the ACFE Fraud Museum

Dennis Lynch, former Tyco VP and Chief Litigation Counsel, delivers the infamous shower curtain to ACFE Chief Operations Officer Jeanette LeVie.

Dennis Lynch, former Tyco VP and Chief Litigation Counsel, delivers the infamous shower curtain to ACFE Chief Operations Officer Jeanette LeVie.

AUTHOR'S POST

Mandy Moody, CFE
Content Manager

Corporate greed at the executive level has destroyed hundreds of companies, drained stockholders of their investments and left innocent employees without work. Ken Lay, Jeffrey Skilling, and Andrew Fastow from Enron; Bernie Ebbers from MCI/WorldCom; and Dennis Kozlowski at Tyco have become household names, and too many exemplify what can go horribly wrong when the tone at the top goes askew.

Dubbed the “archetype of avarice” by The New York Times, Kozlowski could have written the book on how NOT to set an ethical tone at the top. This gold and burgundy shower curtain, which was hung in his maid’s bathroom at his residence on 5th Avenue in New York, was reported to cost more than $6,000.

However, his lavish lifestyle did not stop at bathroom décor. In 2001, he reportedly threw a $2 million Roman-themed party for his second wife’s birthday in Sardinia. According to the Times, Jimmy Buffet played the guitar and an ice sculpture of David was displayed urinating Stolichnaya vodka. He owned impressionist paintings and a 130-foot yacht that was originally built for the 1934 American Cup.

His empire came crashing down when he was indicted for tax evasion on a $14 million piece of artwork. This led to a larger internal investigation into his business practices at Tyco. In 2005, Kozlowski was convicted of stealing nearly $100 million from Tyco and was sentenced to a maximum of 25 years in prison. He served the minimum sentence of eight and a half years, and was released in 2014.

You can view the shower curtain in all its glory at the upcoming ACFE Global Fraud Conference in Nashville, June 18-23, in the Traveling Fraud Museum Exhibit. Remember, you can still save $100 if you register by May 10!