Fraud at the Top: The Costly Effect of Fraud Committed by Owners and Executives

Fraud at the Top: The Costly Effect of Fraud Committed by Owners and Executives

Olympus scandal: $1.7 billion. Bernie Madoff’s Ponzi scheme: $65 billion. Enron’s estimated total losses: $74 billion. Occupational frauds committed by owners and executives tend to be extremely costly, but why are they more costly and how do they differ from other types of fraud?

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Former Enron CFO to Speak on Gray Areas at ACFE Fraud Conference in Dubai


Interview with Andrew Fastow, former Enron CFO and convicted fraudster,* and keynote speaker at the upcoming 2017 ACFE Fraud Conference Middle East, January 29-31

What are you most hoping attendees will take away from your presentation?
This is my first time to speak in this region, so I am looking forward to the opportunity. I am hoping attendees will take away that there is more than one way to think about fraud. Fraud can often occur even when people don’t realize they are committing fraud, and this is something that fraud examiners need to be thinking about. It’s not just about bribery, embezzlement and faking numbers or accounts, but about certain behaviors. I hope people will gain some insight into the behaviors that can lead to fraud.

Why do you think the Enron scandal and message you share remains relevant today?
It remains relevant because of its size and its magnitude, and also the spectacular way and speed with which it imploded. It’s scary because almost no one saw it coming. It is also particularly relevant today because of the human behaviors exhibited there; they are universal human behaviors. Some people are just better at controlling them than others. It really is a story about human nature more than a story about business. I think that’s why it resonates with people. Almost everyone is guilty of this type of behavior at varying degrees and at some point professionally or personally. A comment I often get after my presentations is, “I could think of a dozen situations I have been in where I rationalized things, and now I am second guessing what I did.”

When you are delivering your presentation and sharing your story, are you most trying to highlight the controls that were not in place or red flags missed, or do you think you could potentially sway executives to think twice before crossing blurry ethical lines?
I hope that people walk out of my talk confused. I am not there to lecture them on what the answers are. I want them to walk out thinking, “Whoa, I was thinking everything was black and white, but there really are many shades of gray.” It is not just the black area that leads to fraud, but the gray area as well.

Read more about Fastow and other keynote speakers at

*The ACFE does not compensate convicted fraudsters.

Why No Top Execs Prosecuted After the Great Recession?


James D. Ratley, CFE
ACFE President

In the last 30 years, we've seen top executives prosecuted during the S&L debacle, the junk bond scandal, Enron, WorldCom, Tyco and other monumental crimes. However, we never saw prosecutions of any high-level execs after the recent Great Recession. Why?

Jed S. Rakoff, U.S. district judge for the Southern District of New York, says in Fraud Magazine's most recent cover article that the reasons for the government's lack of prosecutions ranged "from the diversion of FBI agents to other priorities to prosecutors' increasing unfamiliarity with how to pursue such cases."

But two primary reasons stand out, he says. "First, beginning in the late 1990s, the Department of Justice became increasingly enamored with the vague — and in my view misguided — notion that prosecuting corporations instead of individuals would affect a change in ‘corporate culture' that would make companies more law-abiding," says Rakoff, a keynoter at the upcoming 27th Annual ACFE Global Fraud Conference, June 12-17 in Las Vegas.

"Second, and probably most important, prosecuting companies is easy — because companies ultimately have to settle or face potential ruin — and enables prosecutors to trumpet quick successes without employing substantial resources or courting defeat," he says.

In a November 2011 ruling, Rakoff tossed out a settlement between the Securities and Exchange Commission (SEC) and Citigroup that allowed the firm, without admitting guilt, to pay a $285 million fine for allegedly selling a billion-dollar fund filled with toxic mortgage debt. On June 4, 2011, the Second Circuit Court of Appeals overturned the Citigroup ruling. But Rakoff was able to say his piece.

In his opinion, he wrote, "The SEC's long-standing policy — hallowed by history, but not by reason — of allowing defendants to enter into consent judgments without admitting or denying the underlying allegations, deprives the court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact. …

"In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth," Rakoff wrote.

Read Rakoff's full interview on

The ACFE, during the 27th Annual ACFE Global Fraud Conference, will present Rakoff with the Cressey Award.

My Lunch With Andy Fastow


Emily Primeaux
Assistant Editor, Fraud Magazine

It was on a hot, muggy day in Singapore, at a corner table in Beijing Number One — one of the many restaurants in the Marina Bay Sands Hotel mall — that I sat down with Andrew Fastow, former Enron CFO, to talk about one of the most infamous fraud schemes of the past 15 years. We were the only ones in the restaurant — just two unassuming people in the corner of a traditional Asian eatery. Andy asked if I’d be interested in sharing a whole Peking duck. When in Singapore, right?

While we waited for our roasted duck, I pulled out my two recorders, set them on the table and said, “Now I know you’re typically against being recorded in any way, but I have to record this so that I quote you accurately. Are you comfortable with this?” Andy looked me in the eye and replied, “That’s fine. I trust you.”


What a short and seemingly simple word. It can be tough to gain and very simple to lose. Trust is present every day in so many aspects of our lives. We trust our significant others to fulfill their promised duties. We trust our employers to pay us the amount we’re owed and on time. Many of us innately believe people will make just and ethical decisions, no matter how hard.

And here in my little corner of Singapore, I was about to pry into the unsavory parts of his past. I was going to poke and prod and ask him to reveal things that, until this point, he’d never truly opened up about. Sure, he’s spoken at conferences, but I had free reign to delve into the true machinations of the Enron scandal and for the first time he didn’t have time to completely prepare.

In his interview with Fraud Magazine, Andy explained that he tried to technically follow the rules, but he also undermined the principle of the rule by finding the loophole. "I think we were all overly aggressive,” he said. “If we ever had a deal structure where the accountant said, 'The accounting doesn't work,' then we wouldn't do those deals. We simply kept changing the structure until we came up with one that technically worked within the rules.” He now calls his machinations fraud.

“I was the gatekeeper. I should have been making the tough calls and I didn’t. I just abdicated,” Andy told me. “We had senior executives, like myself, who were doing deals that sent a bad ethical message.”

To read the full interview, visit

Insight Into The Mind of a Fraudster


By Emily Primeaux
Assistant Editor, Fraud Magazine

“You can follow all the rules and still commit fraud and that’s what I did at Enron,” said Andrew Fastow, former Enron CFO and convicted fraudster*, at the 2015 ACFE Asia-Pacific Fraud Conference. “I followed the rules — but undermined the principle of the rule by finding the loophole.”

Fastow told a packed room of attendees that he became the master at gaming the system, explaining that his title at Enron should have been “chief loophole officer.” By creating structured financing transactions that kept debts off-the-balance sheets, Fastow made the company appear healthier than it actually was.

Holding up his trophy for CFO of the Year in 2000 and then subsequently showing his prison ID, Fastow said, “I got this trophy and this prison ID for doing the same deals.” He explained that a CFO can fundamentally change how a company looks, but that doesn’t change the economic standings of the company, which is incredibly misleading.

But his message went beyond the Enron scandal. Fastow explained that what he did is still being done today, and in a bigger way. Referring to it as the “grey area” of accounting, he stated that “there are over $1 trillion off-the-balance-sheet operating leases in the U.S.” — and banks are some of the largest culprits. While these entities might be following the rules, are they considering the ethical implications of each deal? 

“If your role today as fraud examiners is to make sure companies are following the rules, you’re not detecting fraud,” said Fastow. “It’s not just the rules, it’s the principles too. I focused just on the rules and that was my mistake.”

Ultimately, Fastow’s mistake caused irrepreparable damage at Enron. “What I did was wrong and it was illegal and for that I’m very sorry, very remorseful. I wish I could undo it,” he said. “But I’m trying to explain how someone who didn’t necessarily set out to commit fraud or do harm could come to do that and on such a grand scale.”

Other Speakers Cover Money Laundering, the FIFA Scandal and More

While Fastow’s presentation allowed attendees to look into the mind of a fraudster, other featured keynoters and breakout sessions provided tools and techniques to help anti-fraud professionals enhance their fraud-fighting skills.

Jonathan Davison, Chief Executive Officer of Forensic Interview Solutions, kicked the conference off in his Pre-Conference session, Managing Internal Investigations. He asked attendees to look at their investigation as a product and took them through the stages of an internal investigation, from planning, to evidence collection and analysis, and finally to effective report writing.

On day two, James D. Ratley, CFE, President and CEO of the ACFE, opened the main conference by welcoming attendees and speaking about the state of the ACFE and the anti-fraud profession. Ratley encouraged attendees to embrace technology and data analytics. “When the ACFE was founded in 1988, the life of the Certified Fraud Examiner was not as complicated as it is today,” said Ratley. “The computer was still in limited use, and we were just beginning to hear a new term: ‘the Internet’. There was also a new device sitting on people’s desk called the fax machine. Little did we know how technology was about to change our profession.” In order to embrace the changes of the future, he stressed the importance of continuing education and to always remember that knowledge is power.

In one of the first breakout sessions of the day, Jarrod Baker, ACA, Senior Managing Director at FTI Consulting, discussed the recent arrests of numerous FIFA officials for racketeering, fraud and money laundering, and the subsequent resignation of FIFA president Sepp Blatter. Baker then covered lessons anti-fraud professionals could take from the FIFA scandal, including:

  • A company cannot use the pretense of charitable contributions as a way to funnel bribes
  • Bribery laws can be breached even if the purpose of the payment is not achieved
  • You can be subject to international laws based on your conduct, and there is increasing cooperation between international authorities

During lunch, Gunawan Husin, MBCI, CBCP, CAMS, Principal Consultant at Continuum Asia PTE Ltd, spoke to attendees about fraud as a predicate act to money laundering and terrorist financing. “I’m going to mainly be talking about money laundering today, but I don’t want to downplay fraud prevention,” said Husin. “Fraud is key. You need to look at the bigger picture.”

Husin then showed a video that highlighted how money changes hands from institutions to criminals and back again and asked attendees, “Are we doing the right thing as a sector? Are we doing what we are supposed to do to safeguard our institution and community?” He asked people to raise their hands if they’d like to do business with criminals. Not a single hand shot up. “No one wants to do business with criminals? Well what do the statistics say?” he continued. “We’re still doing business with bad guys. They’re still abusing your systems.”

A spirited panel discussion moderated by Roger Darvall-Stevens, CFE, Partner, National Head of Forensic Services, RSM, closed out the final day of the conference. Panelists included Tony Prior, CFE, CAMS, Director, Ernst & Young LLP; Rachael Mah, CA, CPA, PMIIA, Managing Director, AusAsia Training Institute Pty Ltd; and Simon Goddard, CFE, Managing Director, Global Insight Ltd. These international anti-fraud professionals discussed best practices to use when a fraud extends beyond a country’s borders and how to keep on the right side of the law while conducting fraud investigations.

"A pragmatic approach to cross-border or international interactions is necessary as there are many pitfalls of which to be aware to make your fraud examination a success," said Darvall-Stevens. "Understanding the local culture and laws is also essential to ensure that you as fraud examiners don't inadvertently contravene laws or disrespect cultural nuances which is likely to inhibit fact-gathering investigations and anti-fraud work."

As we wrap up another successful ACFE Asia-Pacific Fraud Conference, we look forward to putting on more regional conferences across the globe in 2016: the Middle East Fraud Conference in Dubai (February 14-15), the European Fraud Conference in Brussels (March 20-22) and the Canadian Fraud Conference in Montreal (September 11-14). We hope to see you at one of these events! (Learn more at 

*The ACFE does not compensate convicted fraudsters.