I Put a Spell on You, and Now Your Money is Mine

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GUEST BLOGGER

Emily Primeaux, CFE
Associate Editor, Fraud Magazine

In my favorite Halloween movie, Hocus Pocus, Winifred Sanderson, played by Bette Midler, sings to the adults of the town while at their Halloween dance. As the lines of, “I Put a Spell on You,” drift around the dance hall, the townspeople fall under Sanderson’s sinister spell to keep them dancing until they die. Winifred then leaves to “suck the lives” out of the children of Salem to keep her young and beautiful.

Sure, Winifred doesn’t quite resemble your typical fraudster. But bewitching others to escape prosecution isn’t too far outside the world of white-collar crime thanks to one Chevy Chase woman.

According to an Aug. 29 Bethesda Magazine article, Dawn J. Bennett, a 55-year-old former financial radio host, faces prosecution from both the U.S. Department of Justice and the U.S. Securities and Exchange Commission (SEC) for allegedly defrauding people out of millions of dollars in what is described as a Ponzi scheme.

According to the article, Bennett is accused of taking more than $20 million from dozens of investors for her company DJBennett. But instead of putting the investments toward the business, Bennett reportedly used much of the money to pay back earlier investors and make purchases to support an extravagant lifestyle.

Things get a bit spookier, though, when a chronology of the case showed she attempted to cast spells on authorities who were pursuing her. On Aug. 2, when FBI agents searched her Chevy Chase condo and D.C. office, they allegedly found instructions for putting people under a “Beef Tongue Shut Up Hoodoo Spell” — a spell intended to keep people from talking to her. Winifred would be proud.

Fraudsters come in many forms, not just the bewitching kind. In another case, a straightforward Halloween hoax left one Seattle woman bewildered. According to an Oct. 19 Q13 News article, Elizabeth Bender was upset when she never received a refund for a canceled “Haunted Booze Cruise.” Her $65 ticket promised food, drinks and revelry, but when it became clear that she, and others who’d signed up for the event, weren’t getting their money back, calls to the “entertainment” company went unanswered.

Veronica Craker of Better Business Bureau Northwest says in the article that there are a lot of “event scams” popping up. She explains if the event doesn’t have a specific time and location or the event’s pages have stock-looking photos, these could be red flags. Craker suggests calling the event location before signing up for the event and using your credit card when signing up, because there are more consumer fraud protections with credit card companies.

Halloween is a spooky, but fun, time of year. Don’t let tricksters ruin your fun. And if Winifred Sanderson just happens to show up in your town, do as Max, Dani and Allison suggest and “cover your ears!”

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.

3 Tough Life Lessons From the Bernie Madoff Ponzi Scheme

FROM FRAUD MAGAZINE

Courtney Howell, ACFE Community Manager

On Sept. 9, 2016, Audible released the first episode of “Ponzi Supernova: Madoff Speaks,” a six-part series hosted and reported by Steve Fishman. The series focuses on the $65 billion Ponzi scheme at Bernard L. Madoff Investment Securities LLC, spearheaded by Madoff, which crumbled with the 2008 financial crisis. The last episode aired in February, and I waited until they were all available before diving in and devouring them in less than two days. As many have said before me, this is a great series for fans of the “Serial” podcast, but for anti-fraud professionals this also serves as an in-depth look into a disturbing case of widespread, unchecked fraud.

The series starts with Fishman’s exclusive telephone interviews with an imprisoned Madoff. It then works through the mechanics of the scheme and finishes with Fishman speaking to both perpetrators and victims of the crime. The most shocking aspect of the Madoff scheme is the sheer scope of it. When I first heard about it years ago, the two biggest questions I found myself asking were “how?” and “why?” But as I continued to listen, and as Fishman interviewed several peripherally involved in the scheme, I found myself asking a much tougher question — what would I do if I’d been an investor interested in Madoff’s scheme?

With that in mind, I’ve put together a list of three tough life lessons from the Madoff Ponzi scheme that fraud fighters can implement right now to improve future fraud examinations.

Lesson No. 1: Trust your instincts and don’t ignore red flags

Cynthia Keuppers, one of Fishman’s investigation subjects, once worked in the investment world and now owns a Japanese-Brazilian fast-food restaurant called Uma Temakeria. Fishman wanted to know how a scheme of this magnitude could persist for such a long period of time (more than 40 years) without anyone detecting it. This led him to Keuppers.

In 2006, Keuppers worked for Presidio, a wealth management firm in San Francisco. Some clients came to her asking about Madoff’s fund — they’d heard good things and wanted her to take a look at it. Initially she was impressed by the consistency of the returns, but before she could recommend buying in, she wanted to make sure she understood how the Madoff investment strategy worked.

“If I can’t understand it, I’m not someone that sort of says, ‘Well, if I can’t get it, somebody else must be able to get it, and I’m just not going to get there,’ ” Keuppers tells Fishman. “You have to be able to understand all the way down to where something is coming from. You might have to do a little work to get there, but you should be able to understand what a certain driver is.” This unwavering certainty in her own skills and knowledge is notable. When faced with such a highly regarded investment entity, she didn’t back down or doubt herself.

Keuppers wasn’t dealing with Madoff himself. She was working with Fairfield, the largest of the Madoff feeder funds. She had a meeting with Fairfield’s chief risk officer, and she asked him question after question, trying to drill down into the Madoff strategy. She didn’t need to understand the secret to Madoff’s success. She just needed to know why and how it was so consistent. Her objective was to see data from five years ago, but as Fishman reports, “Fairfield wouldn’t give her anything — red flag.”

The CRO assured her that he’d done the work that she was wanting to do, but he wasn’t at liberty to share the actual data with her. Basically, he wanted her to trust him. Keuppers says, “That right there was also a red flag.”

The final nail in the coffin was when Fairfield told Keuppers that the Madoff fund was closed and wasn’t accepting more investors, but he liked working with Presidio so much that they’d be willing to sell some of its holdings to Keuppers’ investors. You can hear the skepticism in Keuppers’ voice when she rhetorically asks, “Why would you sell me something that you’re not going to sell to anyone else? What makes me special?” Then she laughs and says, “Usually, you’re not that special in this industry.”

Although it wasn’t the information she was looking for, Keuppers had all the information she needed to decide. She advised against investing in the Madoff fund. As anti-fraud professionals, you might be put in similar situations. Clients push you one way, but your gut tells you to go in another. How do you make the hard decision when you know it will disappoint, or even anger, someone?

In “4 Reasons Why People Ignore Red Flags,” Jeffrey Aucoin, CFE, says that trust “is probably the biggest reason why owners and executives ignore red flags.” Keuppers made the right decision not recommending the Madoff shares to her client. Keuppers couldn’t place her trust in the validity of this investment because of Fairfield’s lack of transparency. It might have been a disappointment to her clients in the short run, but in the long run, I’m going to safely assume they’re happy with her recommendation.

Want more? Read Courtney's other two life lessons in the full article on Fraud-Magazine.com.

Et Tu Brute? Heartbreaking Tales of Fraudsters Betraying Friends and Family

Et Tu Brute? Heartbreaking Tales of Fraudsters Betraying Friends and Family

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.

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Naughty or Nice: Who Made the List in 2016?

GUEST BLOGGER

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.

Naughty

  1. 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.
     
  2. 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.
     
  3. 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.

Nice

  1. 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.
     
  2. 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. 
     
  3. 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!