News and analysis on the global fight against fraud
White-collar crime, an insidious and complex category of offenses, extends far beyond the conventional image of criminal activity. Understanding white-collar crime is crucial for individuals and finance, law and security professionals in our interconnected world. This guide delves into the multifaceted landscape of white-collar offenses, illuminating the covert operations that underpin them.
Read MoreWhen deciding on a business name, it is best to choose one that is unique, grabs attention and conveys meaning. The following fraudsters did not take that advice to heart when they named the businesses they owned. They each chose business names that allude to riches, steady cash flow and smart money management. In reality, the fraudsters used these companies to orchestrate a variety of fraud schemes. While these company names might sound enticing, before investing in anything, it’s always wise to dig beneath the surface to make sure you understand the true intent and nature of an entity’s operational purposes.
Read MoreONLINE EXCLUSIVE
Bruce Dorris, J.D., CFE, CPA, CVA
Vice President and Program Director at the ACFE
The Supreme Court's decision not to review a recent insider trading case produces a cloudy precedent for white-collar prosecutions.
The U.S. Supreme Court recently decided that they would not hear the Justice Department's challenge of a major appeals court decision, United States v. Newman, which overturned two counts of insider trading in 2014. The case against former hedge fund managers Todd Newman, of Diamondback Capital Management, and Anthony Chiasson, of Level Global Investors, was initially brought by the U.S Attorney's Office for the Southern District of New York. The government alleged that Newman and Chiasson used a round-robin ring of insider trading tips to earn a combined total of $72 million for their funds.
After a six-week trial on securities-related charges in 2012, a federal district court jury found the defendants guilty on all counts. Newman was sentenced to 54 months in prison, and Chiasson received a sentence of 78 months. In 2014, a three-judge panel of the U.S. Court of Appeals for the Second Circuit overturned the convictions. The Justice Department filed a petition to the Supreme Court to review the case in July 2015.
A conviction for insider trading requires proof that the person who disclosed the information, the tipper, received a "personal benefit." Under some circumstances, a "personal benefit" may be proven if there is a "meaningfully close personal relationship" between the tipper and the tippee. The Second Circuit reversed the convictions based on a very narrow interpretation of the term "personal benefit." The court also found that the Justice Department had not established that there was a "meaningfully close personal relationship" between either Newman or Chiasson (the tippees), and the providers of the insider trading tips (the tippers). The Second Circuit interpreted the 1983 case Dirks v. SEC to mean that for insider trading to have occurred, the providers of the tips must have benefitted from sharing the tips, which, the appellate court wrote, could not be proven.
The jury heard a lot of evidence in six weeks, enough to convict on all counts for each defendant. The Dirks decision gave the fact-finder fair latitude regarding the "objective facts and circumstances" to determine culpability in the case. But the Second Circuit's interpretation will create problems for prosecutors in future cases, as the margin for that connection just shrank. It seems illogical to think that both the tippers and tippees did not see the potential for misuse of the confidential information repeatedly provided over the span in this case. These are not your average investors. These are really smart, sophisticated traders, who understand the nuances in securities law and now appear to have a more vague definition to use as a defense.
Read the full article at Fraud-Magazine.com.
When did Jordan Belfort, “The Wolf of Wall Street,” make the majority of his money committing fraud? According to former U.S. Attorney Joel M. Cohen, Belfort’s fraudulent activities picked up dramatically in 1994, after he was charged with securities fraud and barred from brokering by the Securities and Exchange Commission (SEC).
Former U.S. Attorney Joel M. Cohen, who led the prosecution against Belfort, shared his viewpoint of the case against Belfort and his company, Stratton Oakmont, Tuesday during the final part of a two-part session. FBI Special Agent Gregory Coleman, who led the investigation, shared his account of events during Part One yesterday.
Cohen said he first became aware of the case when he took over as a federal prosecutor in the Eastern district of New York in Brooklyn in 1997. Coleman, who had been investigating the case for more than six years and had previously worked with five other federal prosecutors, went to meet with Cohen to walk him through the status of the case. “Much of the investigation into Belfort up to that point was in Greg’s head,” Cohen recalled. “He knew everything about him and what he was up to. My predecessor left me one box of some files, but Greg came in my office and rolled out a 14-foot-long roll of paper that showed a long flow chart of funds.”
Some of the information detailed in Coleman’s roll of paper was a trend called “cockroaching.” Cockroaching is what happens when a firm gets pushed down and crushed (or closed) and the employees (the cockroaches) scurry off to other firms. Belfort used these cockroaches that he already had relationships with to use his services to continue to commit pump and dump schemes without any regulation. “Belfort became a more powerful force after the SEC put him out of business,” Cohen said. “He had an even greater ability to manipulate stocks.”
When Coleman and Cohen decided to officially prepare an indictment they opted to attack the top of the scam rather than the players at the bottom. As I mentioned in Monday’s post, they went after the money Belfort was hiding in Geneva. What I didn’t cover yesterday was what Cohen said was a major hurdle in the investigation: getting the Swiss government to cooperate under something called “dual criminality.” In order for the Swiss to help with the investigation, the case had to fall under dual criminality, meaning both nations had to consider the offense a crime. Unfortunately, Switzerland didn’t technically consider securities fraud a crime… yet. Cohen and Coleman worked hard to convince them that their laws in fact did prohibit this activity, just in a different way.
With the necessary documents from the Swiss, as well as surveillance, Coleman and Cohen convinced Belfort in just 36 hours to admit to his almost decade-long frauds. “This guy woke up every day and committed fraud,” Cohen said.
Cohen closed by expressing his disappointment with how the 3-hour movie ended its provocative tale of Belfort. In the closing scene, Belfort, played by Leonardo DiCaprio, is shown years after his crimes speaking in front of a group of people. The person who introduces him to the podium is played by none other than Jordan Belfort. He also conveniently stands in front of a sign displaying the name of Belfort’s current speaking company, “Straight Line.” As if that isn’t enough, Cohen played a clip of DiCaprio in real life giving a gushing endorsement of Belfort’s motivational speaking skills. As Cohen said, I guess one more person has been fooled by the self-proclaimed “Wolf of Wall Street.”
For even more conference coverage, visit FraudConference.com.
AUTHOR’S POSTMandy Moody, CFE
ACFE Social Media Specialist
There has never been a more important time to shine a spotlight on fraud. Just last week SAC Capital announced it will plead guilty to insider trading and pay $1.8 billion in a plea agreement, the largest fine ever for the offense. And, in Chicago, an attorney and CPA was convicted in what is being called the largest tax fraud ever.
While fraud is a year-round concern, organizations are focusing on this issue with their employees, clients and the public during International Fraud Awareness Week. This weeklong campaign encourages business leaders and employees to proactively take steps to minimize the impact of fraud by promoting anti-fraud awareness and education.
Here are some free ACFE videos you can use this week to promote fraud awareness at your company:
Be sure to visit ACFE Insights tomorrow for more fraud resources and tips!
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