Accounting Scandal Updates and Other Fraud Between July 1 and September 30, 2014
Bob Jensen at Trinity University

Bob Jensen's Main Fraud Document --- http://www.trinity.edu/rjensen/fraud.htm 

Bob Jensen's Enron Quiz (and answers) --- http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

Bob Jensen's Enron Updates are at --- http://www.trinity.edu/rjensen/FraudEnron.htm#EnronUpdates 

Other Documents

Many of the scandals are documented at http://www.trinity.edu/rjensen/fraud.htm 

Resources to prevent and discover fraud from the Association of Fraud Examiners --- http://www.cfenet.com/resources/resources.asp 

Self-study training for a career in fraud examination --- http://marketplace.cfenet.com/products/products.asp 

Source for United Kingdom reporting on financial scandals and other news --- http://www.financialdirector.co.uk 

Updates on the leading books on the business and accounting scandals --- http://www.trinity.edu/rjensen/Fraud.htm#Quotations 

I love Infectious Greed by Frank Partnoy ---  http://www.trinity.edu/rjensen/Fraud.htm#Quotations 

Bob Jensen's American History of Fraud ---  http://www.trinity.edu/rjensen/415wp/AmericanHistoryOfFraud.htm

Future of Auditing --- http://www.trinity.edu/rjensen/FraudConclusion.htm#FutureOfAuditing 

"What’s Your Fraud IQ?  Think you know enough about corruption to spot it in any of its myriad forms? Then rev up your fraud detection radar and take this (deceptively) simple test." by Joseph T. Wells, Journal of Accountancy, July 2006 --- http://www.aicpa.org/pubs/jofa/jul2006/wells.htm

What Accountants Need to Know --- http://www.trinity.edu/rjensen/FraudReporting.htm#AccountantsNeedToKnow

Richard Campbell notes a nice white collar crime blog edited by some law professors --- http://lawprofessors.typepad.com/whitecollarcrime_blog/ 

Lexis Nexis Fraud Prevention Site ---  http://risk.lexisnexis.com/prevent-fraud

Global Corruption (in legal systems) Report 2007 --- http://www.transparency.org/content/download/19093/263155

Tax Fraud Alerts from the IRS --- http://www.irs.gov/compliance/enforcement/article/0,,id=121259,00.html

White Collar Fraud Site --- http://www.whitecollarfraud.com/
Note the column of links on the left.

Bob Jensen's threads on fraud are at http://www.trinity.edu/rjensen/Fraud.htm

Investor Protection Trust --- http://www.investorprotection.org/
This site provides teaching materials.

The Investor Protection Trust provides independent, objective information to help consumers make informed investment decisions. Founded in 1993 as part of a multi-state settlement to resolve charges of misconduct, IPT serves as an independent source of non-commercial investor education materials. IPT operates programs under its own auspices and uses grants to underwrite important initiatives carried out by other organizations.

Bob Jensen's threads on fraud prevention and fraud reporting ---
http://www.trinity.edu/rjensen/FraudReporting.htm

Bob Jensen's personal finance helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

French welfare fraud costs 20-25 billion euros per year - report ---
http://mobile.reuters.com/article/idUSKBN0HC1DI20140917?irpc=932

In a “coordinated effort,” officials at the University of North Texas manipulated payroll spending to receive extra money ($75 million) from the state, says a report from the Texas state auditor ---
http://chronicle.com/blogs/ticker/jp/u-of-north-texas-took-more-than-75-million-extra-from-state-auditor-finds?cid=at&utm_source=at&utm_medium=en

Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm

"Bookkeeper banged to rights over tax:  A Surrey bookkeeper has been jailed for committing tax fraud, following an investigation by HMRC ," by Oliver Griffin, Economia, September 25, 2014 ---
http://economia.icaew.com/news/september-2014/bookkeeper-banged-to-rights-over-tax 

Judith Auclair was sentenced to 15 months in prison after it was discovered she falsely claimed £17,254 in tax refunds.

In addition, Auclair also stole a further £4,927 of tax and NIC contributions, which had been wrongly deducted from other employees’ wages.

Auclair was able to do this because she regularly submitted PAYE tax returns on her employer’s behalf, and added false employee details to the company’s payroll and claimed they were owed tax refunds. These refunds were paid into her personal bank account.

John Cooper, HMRC’s assistant director of criminal investigation, said, “Judith Auclair abused her position of trust as a bookkeeper by stealing from her employers and UK taxpayers and continued to do so even after she was arrested.

“Committing tax fraud is a serious criminal offence and yesterday’s result shows that HMRC will take action against anyone doing so.”

Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm

Seeking a Gargantuan Refund
"Georgia woman files bogus $94 million tax return, gets arrested," by Deborah Hastings, NY Daily News, September 27, 2014 ---
http://www.nydailynews.com/news/national/ga-woman-cash-fake-94-million-tax-return-article-1.1955126

Brigitte Jackson is nabbed by cops in elaborate sting. She gets caught when she tries to cash fake state check for $94,323,148.

From the CFO Journal's Morning Ledger on September 24, 2014

Fraudulent transactions surface in wake of Home Depot breach ---
http://online.wsj.com/articles/fraudulent-transactions-surface-in-wake-of-home-depot-breach-1411506081?mod=djemCFO_h
The transactions are rippling across financial institutions and, in some cases, draining cash from customer bank accounts. Criminals are using stolen card information to buy prepaid cards, electronics and even groceries, and financial institutions are stepping up efforts to block the transactions by rejecting them if they appear unusual. Fraud losses from existing bank accounts and credit-card accounts rose 45% last year to $16 billion, according to Javelin Strategy & Research.

"SEC Is Looking Into Whether PIMCO Artificially Boosted Returns," by Matt Johnston and Lynette Lopez, Business Insider, September 23, 2014 ---
http://www.businessinsider.com/report-sec-probing-pimco-for-artifically-boosting-returns-2014-9

Bob Jensen's Fraud Updates ---
http://www.trinity.edu/rjensen/FraudUpdates.htm

The teaching cases in Issues in Accounting Education for August 14, 2014 are devoted to famous recent frauds ---
http://aaajournals.org/toc/iace/current

  • Satyam Fraud: A Case Study of India's Enron by Veena L. Brown, Brian E. Daugherty and Julie S. Persellin

    Grand Teton Candy Company: Connecting the Dots in a Fraud Investigation by Carol Callaway Dee, Cindy Durtschi and Mary P. Mindak

    Blurred Vision, Perilous Future: Management Fraud at Olympus by Saurav K. Dutta, Dennis H. Caplan and David J. Marcinko

    Bob Jensen's Fraud Updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

    From the CFO Journal's Morning Ledger on September 22, 2014

    Brooklyn insider-trading middleman pleads guilty ---
    http://online.wsj.com/articles/brooklyn-man-charged-as-middleman-in-insider-trading-ring-1411152266?mod=djemCFO_h
    A Brooklyn man pleaded guilty to acting as the middleman in a $5.6 million insider-trading scheme that involved passing tips through napkins and sticky notes near the clock at Grand Central Terminal, U.S. Attorney Paul J. Fishman said in a statement.

    Bob Jensen's Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

    Mexico's Drug Cartels Have An Ingeniously Simple Method Of Laundering Money ---
    http://www.businessinsider.com/laundering-mexicos-drug-money-washing-up-2014-9

    Bob Jensen's Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

    LIBOR --- http://en.wikipedia.org/wiki/Libor
    Also scroll own to this term at
    http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#L-Terms

    "Why LIBOR Manipulation Poses an Ongoing Risk:  A finance professor explains what it will take to fix the problem," by Darrell Duffie, Stanford University Graduate School of Business, September 2014 --- Click Here
    http://www.gsb.stanford.edu/news/headlines/darrell-duffie-why-libor-manipulation-poses-ongoing-risk?utm_source=Stanford+Business+Re%3AThink&utm_campaign=154e75cce1-Stanford_Business_Re_Think_Issue_46_9_21_2014&utm_medium=email&utm_term=0_0b5214e34b-154e75cce1-70265733&ct=t%28Stanford_Business_Re_Think_Issue_46_9_21_2014%29

    "AgFeed Agrees to Pay $18 Million to Settle SEC Accounting Fraud Case:  AgFeed, Which is in Chapter 11 Bankruptcy, Didn't Admit or Deny Allegations in Agreeing to Settle," by Michael Rapoport, The Wall Street Journal, September 15, 2014 ---
    http://online.wsj.com/articles/agfeed-agrees-to-pay-18-million-to-settle-sec-accounting-fraud-case-1410815266

    A Chinese animal-feed and hog-production company has agreed to pay $18 million to settle Securities and Exchange Commission allegations that it reported fake revenue to meet financial targets and boost its stock price, the SEC said Monday.

    AgFeed Industries Inc. inflated its revenue by $239 million by creating fake invoices for the sale of feed and purported sales of hogs that didn't actually exist, among other methods, the SEC said when it filed suit against the company in March. The moves boosted the company's annual revenue over a 3 ½-year period by amounts ranging from 71% to 103%, according to the SEC.

    AgFeed, which is in Chapter 11 bankruptcy, didn't admit or deny the allegations in agreeing to the settlement. Five former AgFeed executives and a former audit committee chairman still face related SEC allegations, also filed in March.

    A lawyer for AgFeed couldn't immediately be reached for comment.

    AgFeed is now based in Tennessee, but it was based in China before it merged with a U.S. company in 2010 and spread its operations between the two countries. The company was delisted from the Nasdaq Stock Market in 2012 and filed for bankruptcy protection in 2013.

    The case against AgFeed is among more than 20 the SEC has filed against U.S.-traded Chinese companies and their officials over alleged accounting fraud and other issues. Over the past few years, regulators, auditors and investors have raised questions about more than 170 U.S.-traded Chinese companies about their accounting and disclosure practices.

    The $18 million settlement will be distributed to victims of the company's fraud, the SEC said. The settlement is subject to approval by both the Tennessee court where the SEC's lawsuit was filed and the Delaware court overseeing AgFeed's bankruptcy.

    Jensen Comment
    AgFeed's auditor Goldman Parks Kurland Mohidin LLP, a California CPA firm, failed to detect the fraud.

    Bob Jensen's Fraud Updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

    "Walmart Spokesman Resigns Over a Lie on His Résumé," Time Magazine, September 16, 2014 ---
    http://time.com/3381672/wal-mart-spokesman-resigns-resume-david-tovar/?xid=newsletter-brief

    David Tovar represented himself as a graduate of the University of Delaware but in fact had no such degree

    In the middle of a probe over alleged corruption in its international division, Walmart has caught its own spokesman in a lie.

    David Tovar, Walmart’s vice president of communications, and the company’s spokesperson as it responds to allegations that it violated the Foreign Corrupt Practices Act, has said he is leaving the job he has held since 2006, Bloomberg reports.

    Continued in article

    The above revelation reminds me of a 2007 case at MIT
    "MIT dean of admissions confesses fraud, resigns," by Kimberly Chow Friday, Yale Daily News, April 27, 2007 ---
    http://yaledailynews.com/blog/2007/04/27/mit-dean-of-admissions-confesses-fraud-resigns/

    Marilee Jones, dean of admissions at the Massachusetts Institute of Technology in Cambridge, Mass., resigned Wednesday after university officials discovered she had fabricated her academic credentials.

    Jones’ resume stated that she had earned degrees from Rensselaer Polytechnic Institute, Union College and Albany Medical College, but MIT administrators said these were all false claims. After receiving a phone call last week suggesting that the university investigate Jones’ credentials, MIT officials determined that Jones had misrepresented her academic record. Jones, whose resignation was effective immediately, worked at MIT for 28 years and had acted as dean of admissions since 1997.

    Senior Associate Director of Admissions Stuart Schmill will act as interim director of admissions, and a search for a new dean of admissions will begin presently, MIT Dean for Undergraduate Education Daniel Hastings said in an e-mail to the MIT community Wednesday.

    Jones issued a statement explaining that she had falsified her resume when she first applied for a lower-level position at the university.

    Continued in article

    Bob Jensen's threads on cheating ---
    http://www.trinity.edu/rjensen/Plagiarism.htm

     

     

    Mary Schneir, 42, of Bethel Park admitted that as office manager of the Karna C. Goldsmith CPA firm she shuffled money into and out of the accounts of three clients to hide funds she stole to pay off credit card debt and a mortgage ---
    http://www.post-gazette.com/local/city/2014/09/10/Former-South-Hills-accounting-firm-office-manager-guilty-wire-fraud/stories/201409100169

    Bob Jensen's Fraud Updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

    'PwC to face U.S. lawsuit over Colonial Bank collapse - court ruling,"  by Dena Aubin, Reuters, September 10, 2014 ---
    http://www.reuters.com/article/2014/09/10/pricewaterhousecoopers-colonial-bancgrp-idUSL1N0RB0VF20140910?irpc=932

    Accounting firms PricewaterhouseCoopers and Crowe Horwath must face a lawsuit accusing them of professional malpractice and breach of contract for not catching a fraud that led to the 2009 collapse of Colonial Bank, a federal judge has ruled.

    Filed in 2011 by the bank's parent Colonial BancGroup Inc and its trustee, the lawsuit accused the accounting firms of making "reckless and grossly inaccurate" reports to the bank's board, allowing Colonial to conceal a seven-year fraud that drained it of $1.8 billion.

    In an opinion on Tuesday, U.S. District Judge Keith Watkins rejected the auditors' motion to dismiss the complaints, saying the bank made "plausible" claims that PwC and Crowe breached their contract with Colonial.

    PwC was the public auditor for Montgomery, Alabama-based Colonial before its collapse, while Crowe provided internal audit services.

    Caroline Nolan, a spokeswoman for PwC, said it audited Colonial "in full accordance with professional standards" and is confident it will prevail on the merits of the case, which will now go forward in district court.

    Jan Lippman, a spokeswoman for Crowe, said the audit firm was hired to help Colonial with internal services but did not serve as the bank's internal auditor. She said the claims are without merit.

    Rufus Dorsey, a lawyer for Colonial, said he was pleased with the decision.

    The fraud, one of the biggest stemming from the last decade's mortgage crisis, went undetected until a raid by federal authorities on Aug. 3, 2009. One of the largest U.S. regional banks, Colonial was seized by regulators and filed for bankruptcy protection later that month.

    PwC and Crowe are facing a similar lawsuit by the Federal Deposit Insurance Corporation, receiver for the bank. The 2012 FDIC lawsuit said that PwC and Crowe missed "huge holes" in Colonial's balance sheet caused by the diversion of money to now bankrupt Taylor Bean & Whitaker Mortgage Corp.

    Lee Farkas, former chairman of Taylor Bean, was sentenced to 30 years in prison in 2011 for his role in the fraud. Several other officers of Taylor Bean and Colonial pleaded guilty for their roles in the scheme.

    In Tuesday's opinion, Watkins rejected Crowe's argument that it had no professional duty to Colonial because it was not the bank's internal auditor but merely a provider of services, calling that a "reed thin" distinction.

    He also rejected PwC's argument that the negligence claim against it must be dismissed because Colonial's own negligence played a role in its fate, saying that is a question of fact for a jury to decide.

    The case is: The Colonial BancGroup Inc et al v PricewaterhouseCoopers et al, U.S. District Court, Alabama Middle District, No 11-cv-00746 (Reporting by Dena Aubin; Editing by Kevin Drawbaugh and Tom Brown)

    Bob Jensen's threads on PwC ---
    http://www.trinity.edu/rjensen/Fraud001.htm

    "How Much of a Writer's (or Blogger's) Income is Subject to the 3.8% Investment Income Tax?" by Paul Caron, TaxProf Blog, September 10, 2014 ---
    http://taxprof.typepad.com/taxprof_blog/2014/09/how-much-of-a-writers-or-bloggers-income-.html
    Quotation from Forbes:  Tax Thriller: Best Selling Crime Writer Karin Slaughter Versus The IRS, by Janet Novack:

    Since her first crime thriller, Blindsighted, became a bestseller in 2001, Karin Slaughter’s books have sold more than 30 million copies  and earned her tens of millions in royalties.  Now, the 43-year-old Atlanta writer has a new and fearsome antagonist: the Internal Revenue Service. ...

    But the biggest dollar issue and the most intriguing legal one in both cases is this: for nearly six decades, the IRS has held (see Revenue Rulings 55-385 and 68-498) that 100% of book royalties received by an active writer (as opposed to one who is no longer in the writing biz) is self-employment income subject to Social Security and Medicare taxes. (The IRS has taken a similarly hard line in its internal audit guides for entertainers and musicians, saying royalties they receive are all for services rendered and subject to self-employment taxes, according to Claudia Hill, a Cupertino, Cal. tax pro and Forbes contributor.) ...

    That IRS position became a much bigger deal for best selling authors and other celebrities after 1993, when Congress removed the cap on the amount of self-employment earnings subject to the 2.9% Medicare levy. (The Social Security tax is still imposed on only a fixed amount of wages or net self-employment income–$117,000 in 2014.) Since then, successful self employed folks have looked for ways to move earnings off of Schedule C, which reports profit and loss from a sole proprietorship i.e. self employment income. One ploy, used by former House Speaker and President candidate Newt Gingrich, among others, is to form an S corporation (which pays no corporate tax, but passes all of its income and losses through to its owners’ personal tax return) and then write a book, deliver speeches and otherwise earn income as an employee of that corporation, classifying most of the S corp’s earnings as profits, not compensation for services.  Not surprisingly, the IRS often challenges such accounting, arguing more of the profits should be treated as pay subject to Social Security and Medicare taxes. ...

    Slaughter and her tax advisers, for their part,  reduced the Medicare bite by reporting the bulk of her book income on Schedule E as “Royalties” instead of on Schedule C as self-employment income. In the new suit they argue that this is proper because most of  the millions she receives are for use of “her name, her image, intellectual property rights, fan base, and other assets, and not for services rendered.”

    In 2008, Slaughter originally assigned just 18% of her $4.6 million in book income to her Schedule C and put the rest on Schedule E.  In 2010 and 2011, she put only  16% and 26% of her book royalties, respectively, on Schedule C.  In all cases, IRS auditors said 100% of her royalties belonged on Scheduled  C. For 2008 alone, they demanded  nearly $116,000 more in self employment tax. ...

    In the last few years, the services versus intellectual property issue has gained even greater salience for successful authors, sports figures and other high-earning celebrities as a result of tax increases in ObamaCare. Beginning in 2013, an extra Medicare “surcharge” of 0.9% is levied on wages and self-employment income in excess of $200,000 for a single or $250,000 for a couple, bringing the total Medicare levy up to 3.8%. (Yes, there’s also a new 3.8% net investment income tax that hits singles with adjusted gross income above $200,000 and couples with AGI above $250,000. But while royalties are generally subject to the NII tax, that isn’t the case if they’re generated by a business you materially participate in, explains Colorado CPA Anthony Nitti, a Forbes contributor who has written extensively about the complicated regulations surrounding the NIIT. That means an author like Slaughter can avoid an extra 3.8% tax bite on that part of book income that is deemed paid for her intellectual property and image, rather than her writing services. )

    How big a difference might Slaughters’ cases make for other writers? Unclear. Kelly Phillips Erb, a Philadelphia tax lawyer and Forbes contributor, notes that some writers, blissfully ignorant of the IRS position, incorrectly report all their income as royalties. “Bloggers, in particular, almost always try to put their blogging income on a Schedule E because they’ve been told that it qualifies as royalties. Often the IRS doesn’t catch it, especially If it’s a small amount,’’ Erb wrote in in email.

     

     

    HP --- http://en.wikipedia.org/wiki/Hewlett-Packard

    HP Autonomy --- http://en.wikipedia.org/wiki/HP_Autonomy#As_a_Hewlett_Packard_company:_2011_.E2.80.93_present

    HP Purchases Autonomy for nearly $12 billion before massive accounting fraud was suspected ---
    http://www.businessinsider.com/hp-autonomys-former-cfo-2014-8

    "HP Believes This Email Shows Autonomy 'Covered Up' Lack Of Revenue In $11 Billion Deal," by Jim Edwards, Business Insider, September 5, 2014 ---
    http://www.businessinsider.com/hp-says-autonomy-email-covered-up-lack-of-revenue-2014-9

    HP has produced an email in court that it believes shows executives at Autonomy, a British software company, knew they were representing their revenues fraudulently when HP acquired their business for $11 billion.

    The email, which comes from federal court documents filed by HP, was sent to Autonomy CEO Mike Lynch as the acquisition was going down. It appears to state the company "covered up" a revenue shortfall by booking sales from Bank of America that allegedly never materialized,* and that Autonomy's sales reps were chasing "imaginary deals."

    The backstory stems from HP's purchase Autonomy for $11 billion in 2011. A year later, HP wrote off $8.8 billion and alleged Autonomy had improperly inflated its revenues and margins by $5 billion. HP called it fraud.

    Autonomy execs deny HP's accusations, arguing that HP's mismanagement caused the revenue shortfall and the subsequent write-down. They say the email is being deliberately taken out of context. What the email doesn't say, Autonomy says, is that even though the exec who wrote it was complaining that revenue was coming in behind target, that revenue was nonetheless greater than the company's projections.

    Here is the email, which was written by Autonomy CFO Sushovan Hussain:

    Continued in article

    HP Also Blames Deloitte
    Read Deloitte's Glowing Audit Report o Autonomy
    "H.P. Takes Huge Charge on ‘Accounting Improprieties’ by Michael J. De La Merced and Quentin Hardy, The New York Times, November 20, 2012 ---
    http://dealbook.nytimes.com/2012/11/20/h-p-takes-big-hit-on-accounting-improprieties-at-autonomy/

    Hewlett-Packard said on Tuesday that it had taken an $8.8 billion accounting charge, after discovering “serious accounting improprieties” and “outright misrepresentations” at Autonomy, a British software maker that it bought for $10 billion last year.

    It is a major setback for H.P., which has been struggling to turn around its operations and remake its business.

    The charge essentially wiped out its profit. In the latest quarter, H.P. reported a net loss of $6.9 billion, compared with a $200 million profit in the period a year earlier. The company said the improprieties and misrepresentations took place just before the acquisition, and accounted for the majority of the charges in the quarter, more than $5 billion.

    Shares in H.P. plummeted nearly 11 percent in early afternoon trading on Tuesday, to less than $12.

    Hewlett-Packard bought Autonomy in the summer of 2011 in an attempt to bolster its presence in the enterprise software market and catch up with rivals like I.B.M. The takeover was the brainchild of Léo Apotheker, H.P.’s chief executive at the time, and was criticized within Silicon Valley as a hugely expensive blunder.

    Mr. Apotheker resigned a month later. The management shake-up came about one year after Mark Hurd was forced to step down as the head of H.P. after questions were raised about his relationship with a female contract employee.

    “I’m both stunned and disappointed to learn of Autonomy’s alleged accounting improprieties,” Mr. Apotheker said in a statement. “The developments are a shock to the many who believed in the company, myself included. ”

    Since then, H.P. has tried to revive the company and to move past the controversies. Last year, Meg Whitman, a former head of eBay, took over as chief executive and began rethinking the product lineup and global marketing strategy.

    But the efforts have been slow to take hold.

    In the previous fiscal quarter, the company announced that it would take an $8 billion charge related to its 2008 acquisition of Electronic Data Systems, as well as added costs related to layoffs. Then Ms. Whitman told Wall Street analysts in October that revenue and profit would be significantly lower, adding that it would take several years to complete a turnaround.

    “We have much more work to do,” Ms. Whitman said at the time.

    Hewlett-Packard continues to face weakness in its core businesses. Revenue for the full fiscal year dropped 5 percent, to $120.4 billion, with the personal computer, printing, enterprise and service businesses all losing ground. Earnings dropped 23 percent, to $8 billion, over the same period.

    “As we discussed during our securities analyst meeting last month, fiscal 2012 was the first year in a multiyear journey to turn H.P. around,” Ms. Whitman said in a statement. “We’re starting to see progress in key areas, such as new product releases and customer wins.”

    The strategic troubles have weighed on the stock. Shares of H.P. have dropped to less than $12 from nearly $30 at their high this year.

    The latest developments could present another setback for Ms. Whitman’s efforts.

    When the company assessed Autonomy before the acquisitions, the financial results appeared to pass muster. Ms. Whitman said H.P.’s board at the time – which remains the same now, except for the addition of the activist investor Ralph V. Whitworth – relied on Deloitte’s auditing of Autonomy’s financial statements. As part of the due diligence process for the deal, H.P. also hired KPMG to audit Deloitte’s work.

    Neither Deloitte nor KPMG caught the accounting discrepancies. Deloitte said in a statement that it could not comment on the matter, citing client confidentiality. “We will cooperate with the relevant authorities with any investigations into these allegations,” the accounting firm said.

    Hewlett-Packard said it first began looking into potential accounting problems in the spring, after a senior Autonomy executive came forward. H.P. then hired a third-party forensic accounting firm, PricewaterhouseCoopers, to conduct an investigation covering Autonomy sales between the third quarter 2009 and the second quarter 2011, just before the acquisition.

    The company said it discovered several accounting irregularities, which disguised Autonomy’s actual costs and the nature of the its products. Autonomy makes software that finds patterns, data that is used by companies and governments.

    H.P. said that Autonomy, in some instances, sold hardware like servers, which has higher associated costs. But the company booked these as software sales. It had the effect of underplaying the company’s expenses and inflating the margins.

    “They used low-end hardware sales, but put out that it was a pure software company,” said John Schultz, the general counsel of H.P. Computer hardware typically has a much smaller profit margin than software. “They put this into their growth calculation.”

    An H.P. official, who spoke on background because of ongoing inquiries by regulators, said the hardware was sold at a 10 percent loss. The loss was disguised as a marketing expense, and the amount registered as a marketing expense appeared to increase over time, the official said.

    H.P. also contends that Autonomy relied on value-added resellers, middlemen who sold software on behalf of the company. Those middlemen reported sales to customers that didn’t actually exist, according to H.P.

    H.P. also claims that that Autonomy was taking licensing revenue upfront, before receiving the money. That improper assignment of sales inflated the company’s gross profit margins.pfront, before receiving the money. It had the effect, the company said, of significantly bolstering Autonomy’s gross margin.

    Continued in the article

    Bob Jensen's Fraud Updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

    Billions in European Bank Fraud:  KPMG Implicated

    From the CFO Journal's Morning Ledger on August 29, 2014

    KPMG faces criticism over Espķrito Santo collapse ---
    http://online.wsj.com/articles/kpmg-faces-criticism-for-espirito-santo-audit-work-1409227480?mod=djemCFO_h
    Espķrito Santo Group    ‘s collapse raises questions about whether its auditor KPMG LLP should have detected problems before the bank’s unraveling sent shock waves across European markets this summer. KPMG was the auditor of Espķrito Santo Financial Group SA, which filed for creditor protection in July, Banco Espķrito Santo SA, which was bailed out in August, and of dozens of related companies. It was also the auditor of three offshore investment vehicles that trafficked in Espķrito Santo debt. Critics say the scope of the audit work could have put it in a position to identify the billions of euros that were secretly flowing amount group companies.

    From the CFO Journal's Morning Ledger on August 29, 2014

    A former detective working for Austria’s struggling Hypo Alpe-Adria-Bank International Group AG is teasing out the details of a lending catastrophe that has already cost taxpayers in Europe billions of euros, and is likely to cost billions more. Six of the bank’s former bosses have already received criminal convictions, and the investigation has turned up seedy details including land purchased from the wrong owner, leased sports cars that were never delivered, and a missing yacht that was later found, abandoned, with North Korean currency aboard.

    The small bank’s downfall has cost the governments of Austria and Germany $11.93 billion so far. Now, Austria’s plan to wind down the nationalized bank has set Vienna up for a new struggle with former investors, including a Bavarian bank that bought it in 2007 and one of the hedge funds that recently pushed Argentina to default.

    Bob Jensen's Fraud Updates are at
    http://www.trinity.edu/rjensen/FraudUpdates.htm

    "MIT Sloan Kept Madoff-Linked Professor on Staff for Years After Fraud," by Natalie Kitroeff, Bloomberg Businessweek, August 14, 2014 ---
    http://www.businessweek.com/articles/2014-08-14/mit-sloan-didnt-fire-professor-who-funneled-cash-to-madoff-scheme 

    Prosecutors announced that Gabriel Bitran, a former associate dean at Massachusetts Institute of Technology’s Sloan School of Management, has agreed to plead guilty to criminal charges of conspiracy to commit fraud for using a hedge fund to secretly funnel investors’ cash into Bernard Madoff’s Ponzi scheme. His son, Marco, will also plead guilty in the case. Bitran’s misdeeds were made public as early as 2009, yet he stayed on Sloan’s faculty until 2013.

    Bitran and his son paid almost $5 million in April 2012 to settle Securities and Exchange Commission charges that they lied to investors. Years earlier, a Reuters report detailed his fund’s involvement in the Madoff scheme. Bitran remained on Sloan’s staff until he retired in January 2013, teaching classes on operations and management. His lawyer did not return a call seeking comment.

    The elder Bitran was sued unsuccessfully in 1992 for sexual harassment by a woman who worked as an assistant in his office on Sloan’s campus. While her case failed, the decision spurred widespread protest and prompted the school to overhaul its policies on such incidents.

    Continued in article

    Bob Jensen's Fraud Updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

     

    Question
    Can you believe our highest-ranking elected representatives would cheat us?

    The House and Sutter are fighting the subpoenas. Their lawyers argued in a July 4 filing that staff members are “absolutely immune” from having to comply with subpoenas from a federal regulator in an insider-trading probe.
    "SEC Says House Insider Probe Involves 44 Funds, Entities," by Patricia Hurtado, Bloomberg Businessweek, July 17, 2014 ---
    http://www.businessweek.com/news/2014-07-17/sec-says-house-insider-trading-probe-involves-44-funds 

    An insider-trading probe involving the U.S. House Ways and Means Committee and a top staff member also includes dozens of hedge funds, investment advisers and other firms, the U.S. Securities and Exchange Commission said in a court filing.

    In arguing against the House’s motion to dismiss the case or send it to a court in Washington, the SEC told a Manhattan federal judge that the geographic scope of its investigation is “much wider” than described by lawyers for the House and involves a total of 44 entities.

    The probe concerns some of the largest hedge funds and asset-management advisers in the U.S., the SEC said in the July 16 filing. Twenty-five of the 44 are based in New York, it said.

    The agency subpoenaed the House committee and the staff member, Brian Sutter, for its inquiry into whether non-public information was illegally passed about a change in health-care policy that resulted in a spike in share prices of insurance companies. The case is testing whether U.S. insider-trading laws allow regulators to investigate the committee or its staff.

    According to the regulators, minutes before the government announced the policy change, an analyst at Height Securities LLC sent clients a flash report outlining the proposal. Sutter may have been a source used by a lobbyist at Greenberg Traurig LLP who disclosed the health policy changes to the Height Securities analyst, the SEC said.

    Trading Spike

    The government announced an increase, rather than decrease, in payments to health insurers, boosting the shares of companies including Humana Inc.

    “The Humana investigation is substantially concerned with the investor clients of Height Securities who received the subject Height e-mail, and who the commission believes may have engaged in relevant trading,” the SEC said in a filing to U.S. District Judge Paul Gardephe. It didn’t name the investors.

    Sanjay Wadhwa, senior associate director of the SEC’s New York regional office, said in a memo to the court that 25 of the firms the agency is looking at have headquarters in New York, while the rest are based predominantly in Connecticut, Massachusetts, Illinois and California. One is in Washington. The probe is being handled by SEC lawyers in New York, he said.

    2012 Law

    The SEC cited a law Congress passed in 2012 that requires public officials to keep confidential non-public information about government matters that could move stock prices.

    The House and Sutter are fighting the subpoenas. Their lawyers argued in a July 4 filing that staff members are “absolutely immune” from having to comply with subpoenas from a federal regulator in an insider-trading probe.

    Kerry W. Kircher, the top lawyer for the House, said the information the SEC is seeking concerns legislative activities protected by the Constitution, which can’t be reviewed by federal judges. If Gardephe won’t dismiss the case, it should be moved to federal court in Washington, Kircher said.

    The case is SEC v. The Committee on Ways and Means of The U.S. House of Representatives and Brian Sutter. 14-mc-00193. U.S. District Court, Southern District of New York (Manhattan).

    Nancy Pelosi Alleged Insider Trading--- http://en.wikipedia.org/wiki/Nancy_Pelosi#Allegations_of_insider_trading

    In November 2011, 60 Minutes alleged that Pelosi and several other member of Congress had used information they gleaned from closed sessions to make money on the stock market. The program cited Pelosi's purchases of Visa stock while a bill that would limit credit card fees was in the House. Pelosi denied the allegations and called the report "a right-wing smear.

    Question
    Trading on insider information is against U.S. law for every segment of society except for one privileged segment that legally exploits investors for personal gains by trading on insider information. What is that privileged segment of U.S. society legally trades on inside information for personal gains?

    Hints:
    Congress is our only native criminal class.
    Mark Twain --- http://en.wikipedia.org/wiki/Mark_Twain

    We hang the petty thieves and appoint the great ones to public office.
    Attributed to Aesop

    Answer (Please share this with your students):
    Over the years I've been a loyal viewer of the top news show on television --- CBS Sixty Minutes
    On November 13, 2011 the show entitled "Insider" is the most depressing segment I've ever watched on television ---
    http://www.cbsnews.com/video/watch/?id=7387951n&tag=contentMain;contentBody#ixzz1dfeq66Ok
    Also see http://financeprofessorblog.blogspot.com/2011/11/congress-trading-stock-on-inside.html

    Jensen Comment

    • It came as no surprise that many (most?) members of the U.S. House of Representatives and the U.S. Senate that writes the laws of the land made it illegal for to trade in financial and real estate market by profiting personally on insider information not yet available, including pending legislation that they will decide, wrote themselves out of the law making it legal for them to personally profit from trading on insider information. What came as a surprise is how leaders at the very top of Congress make millions trading on inside information with impunity and well as immunity.
       
    • The Congressional  leader that comes off the worst in this Sixty Minutes "Insider" segment is former House Speaker and current Minority leader Nancy Pelosi. When confronted with specific facts on how she and her husband made some of their insider trading millions she fired back at reporter Steve Kroft with an evil glint saying what is tantamount to:  "How dare you question me about insider trades that are perfectly legal for members of Congress. Who are you to question my ethics about exploiting our insider trading privileges. Back off Steve or else!" Her manner can be extremely scary. Other Democratic Party members of Congress come off almost as bad in terms of insider trading for personal gain.
       
    • Current Speaker of the House, John Boehner, is more subtle. He denies making any of his personal portfolio investment decisions and denies communicating with the person he hires to make such decision. However, that trust investor mysteriously makes money for Rep. Boehner using insider information obtained mysteriously. Other Republican members of Congress some off even worse in terms of insider trading.
       
    • Members of Congress on powerful committees regularly make insider profits on legislation currently being written into the law that is still being held secret from the public. One of my heroes, former Senator Judd Gregg, is no longer my hero.
       
    • Everybody knows that influence peddling in Congress by lobbyists, many of them being former members of Congress, is a dirty business of showering gifts on current members of Congress. What is made clear, however, is that these lobbyists are personally getting something in return from friendly members of Congress who pass along insider information to lobbyists. The lobbyists, in turn, peddle this insider information back to the private sector, such as hedge fund managers, for a commission. Moral of story:  Voters do not stop insider trading by a member of Congress by voting him or her out of office if they become peddlers of insider information obtained, as lobbyists, from their old friends still in the Congress.
       
    • Five out of 435 members of the House of Representatives are seeking to sponsor a bill to make it illegal for representatives and senators to profit from trading on inside information. The Sixty Minutes show demonstrates how Nancy Pelosi, John Boehner, and other House leaders have buried that effort so deep in the bowels of the legislative process that there's no chance in hell of stopping insider trading by members of Congress. Insider trading is a privilege that attracts unethical people to run for Congress.

    "UPDATE 3-Whistleblower alerted L-3 to accounting misconduct," by Sagarika Jaisinghani, Sweta Singh and Alwyn Scott, Reuters, July 31, 2014 ---
    http://www.reuters.com/article/2014/07/31/l-3-communi-hldg-results-idUSL4N0Q66RI20140731

    July 31 (Reuters) - An employee complaint exposed accounting misconduct at L-3 Communications Holdings Inc, according to people familiar with the matter, prompting the aerospace and defense supplier to fire four people, revise two years of earnings statements and cut its earnings forecast.

    L-3's shares plunged as much as 17 percent - their biggest intraday percentage drop ever - after the company said on Thursday it would take a pretax charge of $84 million for misconduct and accounting errors, including cost overruns and overstated sales figures from 2013 and 2014.

    The surprise announcement prompted some analysts to cut ratings on the company, and raised concern about a broader problem at L-3, which also suffered an ethics scandal in 2010.

    The sources said the latest misconduct stemmed from a single fixed-price contract for maintenance and logistics support with the U.S. military that began in December 2010 and runs through January 2015.

    The Pentagon has not barred L-3 from bidding on other contacts as a result of the misconduct, the sources added.

    The pretax charge includes adjustments for accounting errors L-3 found as it scrubbed its books during the review, said the sources, who spoke on condition that they not be named.

    "The profit L-3 expected in the contract just wasn't there," said one of the sources.

    The sources declined to say which branch of the military had the contract, or precisely which part of L-3 was involved, other than that it was in its aerospace unit. They also would not say how recently the employee lodged the complaint.

    However, they said the New York-based company quickly fired four employees and hired law firm Simpson Thatcher to conduct the investigation and consulting firm AlixPartners to perform forensic accounting.

    "We had some bad actors and they are no longer part of L-3," Chief Executive Michael Strianese said on a conference call with analysts.

    Another employee resigned in connection with the review. The whistleblower is still with the company, and the review is continuing, but not expected to turn up significant additional charges, the sources said.

    L-3, founded in 1997 and built through mergers and acquisitions of smaller companies, supplies a wide range of military and civil electronics equipment and services, including aircraft "black boxes," communications transponders and cockpit display panels.

    The accounting errors surprised investors, but they stopped short of triggering a "restatement" of L-3's accounting. Instead, the financial statements are being "revised" to reflect what are considered non-material adjustments, and the statements can still be relied on by investors, the sources said.

    L-3 also reported on Thursday preliminary sales of $3.02 billion for the second quarter ended June 27, but said the figure could be revised lower after the review is finished.

    The company cut its full-year earnings forecast by 30 cents a share, to $7.90-$8.10 per share from $8.20-$8.40, reflecting expected charges in the second half related to the review.

    Analysts peppered Strianese and CFO Ralph D'Ambrosio with questions on the conference call about whether other misconduct could appear elsewhere.

    "We have no reason to believe that this issue occurred at any other segment of the company," Strianese said.

    Accounting irregularities tend to unnerve investors and bring further scrutiny of company's operations, analyst said. The incident raised memories of a 2010 event in which an L-3 unit was suspended from doing contract work for the U.S. Air Force for allegedly using a government computer to gather business information for its own use.

    Strianese said that case found no evidence that anyone at L-3 "did anything wrong" and "actually proved that we did not have any bad actors."

    Still, "situations involving accounting misconduct with government contractors do not end quickly and generally are expanded in scope," said CRT Capital analyst Brian Ruttenbur, who cut his rating on L-3 stock to "sell" from "fair value."

    D'Ambrosio said the contract involved in the review had average annual sales of about $150 million.

    "It's a low-margin contract and with these adjustments, it is now in a loss position," he said.

    L-3 said about $50 million of the $84 million charge related to periods prior to 2014 and about $30 million related to the second quarter of 2014.

    Continued in article

    "L-3 fires 4 workers over accounting misconduct," The Wall Street Journal, July 31, 2014 ---
    http://online.wsj.com/article/AP8cd259fb873b4499bac589d59ae14e39.html

    Defense contractor L-3 Communications said Thursday that it fired four employees after discovering they overstated the company's profit and sales from a contract with the U.S. government.

    The New York company said a fifth employee resigned. It said the employees, who worked for its aerospace systems business, also inappropriately deferred some cost overruns associated with the contract. L-3 described the contract as a maintenance and logistics support contract with the U.S. Department of Defense, and said the deal began Dec. 1, 2010, and ends January 31. The deal brings in about $115 million in annual revenue for the company.

    "The misconduct included concealment from L-3's Corporate staff and external auditors," L-Communications 3 Chairman and CEO Michael Strianese said during a conference call.

    The company did not disclose the names or positions of the employees or provide other details about the contract. Government spokespeople were not able to confirm the specifics of the contract.

    L-3 Communications said it is conducting an internal review and will take an $84 million charge associated with the misconduct. It said $34 million of that total will come from the first half of 2014. Separately, it will reduce its net sales by $43 million. The company also cut its estimate for second-half operating income for the aerospace systems business by $35 million.

    Shares of L-3 Communications Holdings Inc. tumbled $14.68, or 12 percent, to $104.96 Thursday as the markets slumped.

    Also see Bloomberg Businessweek --- Click Here
    http://investing.businessweek.com/research/stocks/news/article.asp?docKey=600-201407311656BIZWIRE_USPRX____BW6560-1&params=timestamp||07/31/2014%204:56%20PM%20ET||headline||INVESTOR%20ALERT%3A%20Investigation%20of%20L-3%20Communications%20Holdings%2C%20Inc.%20Announced%20by%20Glancy%20Binkow%20%26%20Goldberg%20LLP||docSource||Business%20Wire||provider||ACQUIREMEDIA||bridgesymbol||US;LLL&ticker=LLL

    . . .

    According to the Company, the adjustments primarily relate to “contract cost overruns that were inappropriately deferred and overstatements of net sales, in each case with respect to a fixed-price maintenance and logistics support contract,”¯ and are the result of “misconduct and accounting errors”¯ at the Aerospace Systems segment, which “included concealment from L-3's Corporate staff and external auditors.”¯

    If you purchased shares of L-3, if you have information or would like to learn more about these claims, or if you have any questions concerning this announcement or your rights or interests with respect to these matters, please contact Casey Sadler, Esquire, of Glancy Binkow & Goldberg LLP, 1925 Century Park East, Suite 2100, Los Angeles, California 90067, by toll-free telephone at (888) 773-9224 or by telephone at (310) 201-9150, by e-mail to shareholders@glancylaw.com, or visit our website at http://www.glancylaw.com. If you inquire by email, please include your mailing address, telephone number and number of shares purchased.

    This press release may be considered Attorney Advertising in some jurisdictions under the applicable law and ethical rules.

    Bob Jensen's Fraud Updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

    Question
    In accounitng, what is the difference between "cooking the books" and "misrepresenting the books"?

    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on August 8, 2014

    SEC Charges QSGI Executives of Misrepresenting Books
    by: Maria Arnental
    Jul 30, 2014
    Click here to view the full article on WSJ.com
     

    TOPICS: Fraud, Internal Controls, Misrepresentation

    SUMMARY: Top executives of Florida computer-equipment company QSGI Inc. have been charged with misrepresenting the company's books to increase the amount of money they could borrow. The authorities allege that co-founders Messrs. Sherman and Cummings misled the company's external auditors and had poor internal controls. The deficiencies continued until the company filed for bankruptcy in July 2009.

    CLASSROOM APPLICATION: This article is good to use for coverage of both internal controls and also misrepresentation. The case is a good illustration of the implications of having weak internal controls that lead to intentional or unintentional misstatements in the financial statements.

    QUESTIONS: 
    1. (Introductory) What are the facts of the case in the article? What agency was involved? Why was it involved in the case?

    2. (Advanced) What were the inventory control problems detailed in the article? Do those problems seem to be a result of negligence or intentional actions? Why? What responsibilities do CEOs and CFOs have to insure that financial records properly record the situation in the company?

    3. (Advanced) What sanctions did Mr. Cummings agree to accept? Do these seem appropriate sanctions for his actions?

    4. (Advanced) The article states that Mr. Cummings did not admit or deny wrongdoing. Why would the SEC not require an admission of wrongdoing? Why did he agree to sanctions if the SEC did not prove he participated in wrongdoing?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "SEC Charges QSGI Executives of Misrepresenting Books," by Maria Arnental, The Wall Street Journal, July 30, 2014 ---
    http://online.wsj.com/articles/sec-charges-florida-computer-company-executives-1406751620?mod=djem_jiewr_AC_domainid

    Top executives of Florida computer-equipment company QSGI Inc. QSGI -42.50% have been charged with misrepresenting the company's books to increase the amount of money they could borrow, the Securities and Exchange Commission said Wednesday.

    QSGI Inc.'s Co-Founder and former Chief Financial Officer Edward L. Cummings has agreed to pay a $23,000 a penalty to settle the charges, the agency said. Under the terms of the settlement, Mr. Cummings, who didn't admit or deny wrongdoing, agreed to a five-year ban from practicing as an accountant of any entity regulated by the SEC and from serving as an officer or director of a publicly traded company, the agency said.

    The case against Co-Founder and Chief Executive Marc Sherman is pending. Mr. Sherman is to file an answer within 20 days, according to the SEC.

    Attempts to reach Mr. Sherman and the company for comment were unsuccessful.

    The authorities charge Messrs. Sherman and Cummings misled the company's external auditors, withholding, for example, that inventory controls at the company's Minnesota operations were inadequate.

    The authorities charge the West Palm Beach, Fla., company failed to design inventory-control procedures that took into account such things as employees' qualifications and experience levels. Sales and warehouse employees often failed to document the removal of items from inventories and when they did, accounting personnel often failed to process the paperwork and adjust inventory in the company's financial reporting system, the SEC said.

    The inventory control problems emerged at the Minnesota facility beginning in 2007, when key personnel left, according to the SEC. Workers assigned to replace the accounting staff, however, lacked the necessary accounting background, the authorities said, adding, training either didn't take place or was inadequate, the SEC says.

    The deficiencies continued until the company filed for bankruptcy in July 2009, the SEC added.

    Also, the authorities alleged, Mr. Sherman directed Mr. Cummings to accelerate the recognition of certain inventory and accounts receivables by as much as a week at a time, improperly increasing revenue, to maximize how much money the company could borrow from its chief creditor.

     

    Bob Jensen's threads on "Cooking the Books" ---
    http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

    "Minnesota Accuses For-Profit Colleges of Misleading Students," by Nick DeSantis, Chronicle of Higher Education, July 22, 2014 ---
    http://chronicle.com/blogs/ticker/minnesota-accuses-for-profit-colleges-of-misleading-students/82573?cid=at&utm_source=at&utm_medium=en

    Attorney General Lori Swanson of Minnesota has accused two for-profit colleges in a lawsuit of misleading students about job opportunities and whether credits earned at those institutions would transfer elsewhere, the Star Tribune reported.

    The lawsuit against Globe University and the Minnesota School of Business, which are held under common ownership, seeks injunctive relief, civil penalties, and restitution. Both institutions operate campuses in Minnesota. Globe also has campuses in Wisconsin and South Dakota.

    Last August a jury ordered Globe to pay nearly $400,000 to a former dean who had sued the university under the state’s whistle-blower law. A spokeswoman for the institutions told the newspaper that she would respond once she had seen the new lawsuit’s allegations.

    Where are governmental payments (especially tax refund, Medicaid, Medicare, disability, and unemployment fraud) internal controls? What controls?

    From the CPA Newsletter on July 9, 2014

    Improper government payments reached $100B in 2013
    By its own reckoning, the U.S. government made $100 billion in improper payments last year in the form of tax credits and unemployment benefits to people who didn't qualify, and medical payments for unnecessary procedures. Improper payments peaked in 2010, reaching $121 billion. The government has been trying to put controls in place to address this issue. The House Subcommittee on Government Operations is holding a hearing today on the matter. San Francisco Chronicle (free content)/The Associated Press (7/9

    Bob Jensen's threads on the sad state of governmental accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting

    Stalin Becomes the Hero of the European Union:  White Washing History in the Public Record

    "Google Is Being Forced To Censor The History Of Merrill Lynch — And That Should Terrify You," by Jim Edwards, Business Insider, July 3, 2014 ---
    http://www.businessinsider.com/google-merrill-lynch-and-the-right-to-be-forgotten-2014-7

    The European Union's new law giving people a "right to be forgotten," which requires Google to remove links to information about them, is having exactly the effect its critics predicted: It is censoring the internet, giving new tools that help the rich and powerful (and ordinary folk) hide negative information about them, and letting criminals make their histories disappear.

     

    Exhibit A: Google was required to delete a link to this BBC article about Stan O'Neal, the former CEO of Merrill Lynch. O'Neal led the bank in the mid-2000s, a period when it became dangerously over-exposed to the looming mortgage crisis. When the crisis hit, Merrill's losses were so great the bank had to be sold to Bank of America. O'Neal lost his job, but he exited with a $161.5 million golden parachute.


    Read more: http://www.businessinsider.com/google-merrill-lynch-and-the-right-to-be-forgotten-2014-7#ixzz36PCsbM4P
     

    Jensen Comment
    For the record if you really want to document the criminal and unethical behavior of Merrill Lynch over many decades and the fraudulent Stan O'Neal do a word search on "Merrill Lynch" at
    http://www.trinity.edu/rjensen/FraudRotten.htm
    For example, Merrill Lynch was behind the $1 billion in derivatives trading frauds in Orange County --- one of the many Merrill Lynch frauds.

     

    T-Mobile's Hundreds of Millions in Bogus Charges
    From the CFO Journal's Morning Ledger on July 2, 2014

    FTC Sues T-Mobile Over Unauthorized Wireless Charges.
    The Federal Trade Commission sued     T-Mobile US Inc. on Tuesday, accusing the wireless carrier of adding hundreds of millions of dollars in bogus charges to subscribers’ bills as recently as December. In a civil complaint filed in federal court in Seattle, the FTC alleged that T-Mobile charged consumers monthly fees for third-party services that in many cases the subscribers hadn’t ordered. These included ringtones, wallpaper and text messages the agency said. The complaint alleges that T-Mobile continued to charge for the services even after mass complaints. The FTC said the company typically retained 35% to 40% of the fees.

    Bob Jensen's Fraud Updates ---
    http://www.trinity.edu/rjensen/FraudUpdates.htm

    Ray Nagin --- http://en.wikipedia.org/wiki/Ray_Nagin

    Clarence Ray Nagin, Jr. (born June 11, 1956), also known as C. Ray Nagin, was the 60th mayor of New Orleans, Louisiana from 2002 to 2010. He is a member of the Democratic Party. He became internationally known in 2005 in the aftermath of Hurricane Katrina, which devastated the New Orleans area. In 2014 Nagin was convicted of 20 out of 21 charges of wire fraud, bribery, and money laundering related to bribes from city contractors before and after Hurrican Katrina.

    Continued in article

    "Stacey Jackson pleads guilty, delivers another black eye to Ray Nagin's administration," by Richard Rainey, The Times-Picayune, July 2, 2014 ---
    http://www.nola.com/crime/index.ssf/2014/07/stacey_jackson_pleads_guilty_d.html#incart_m-rpt-2 

    With a few nods and a clear-voiced "yes, ma'am," Stacey Jackson on Wednesday ended her year-long resistance against accusations that she orchestrated an elaborate kickback scheme to rob a federally financed anti-blight program during now-disgraced Mayor Ray Nagin's tenure in City Hall. She struck a plea deal with prosecutors and admitted to U.S. District Judge Mary Ann Vial Lemmon that she was guilty of one count of conspiracy to receive kickbacks involving federal money.

    She faces a maximum sentence of five years in prison and three years probation, although such a harsh sentence would be rare for first-time federal offenders. She also could be fined hundreds of thousands of dollars and ordered to pay restitution to any victims Lemmon identifies.

    Assistant U.S. Attorney Fred Harper told Lemmon he plans to drop the three other charges against Jackson when she is sentenced. Jackson is scheduled to be sentenced Oct. 16.

    Jackson's change of heart -- she had pleaded not guilty last year -- followed the collapse of her defense team's two-pronged strategy to have the case against her tossed. Attorney Eddie Castaing had accused prosecutors of filing the charges too late and of unjustly tainting the jury pool through anonymous disparaging comments posted to online stories about Jackson's alleged transgressions on NOLA.com.

    But Lemmon ruled in April that prosecutors had timely indicted Jackson in June 2013 on four counts of conspiracy, theft, accepting a bribe and obstruction of justice. Then she and U.S. Magistrate Judge Joseph Wilkinson ruled in May that two former prosecutors who admitted making online comments on other cases while disguising their identities were not the commenters who attacked Jackson online.

    Jackson, 47, was the focus of prosecutors' five-year investigation of the New Orleans Affordable Homeownership program, the troubled non-profit that she ran as its executive director. She eventually became another black eye for Nagin, whom a jury convicted of 20 corruption charges in February. He is scheduled to be sentenced July 9.

    Federal agents stormed NOAH's offices in August 2008 as suspicions grew that little to no work had been done at hundreds of properties assigned to the agency. What followed led to guilty pleas from four contractors, including Jackson's cousin, Richard Hall. Hall stood accused of stealing $117,000 from NOAH while performing few of the house repairs he was hired to do. He admitted his guilt in 2012, but he did not admit kicking cash back to Jackson.

    Prosecutors alleged that Jackson overpaid NOAH's contractors so that they could then shunt some of the extra cash back to her to keep the money flowing. A roofer, Jamon Dial pleaded guilty in July 2012. His wife, Shantrice, was a special projects coordinator for NOAH who struck a deal with prosecutors and entered a pretrial diversion program.

    Continued in article

    Prison Bound Ex-KPMG Partner Scott London --- http://online.wsj.com/articles/prison-bound-kpmg-ex-partner-remorseful-for-insider-tips-1403736301

    "Scott London Rationalizes Insider Trading prior to going to Prison:  Ethical Blindness Motivates Egregious Behavior," by Steven Mintz, Ethics Sage, July 1, 2014 ---
    http://www.ethicssage.com/2014/07/scott-london-rationalizes-insider-trading-prior-to-going-to-prison.html

     

    Diploma mills are almost as old as the university itself. Scott McLemee wonders why there isn't more scholarship on the real problem of fake degrees.

    "A Degree of Fraud," by Scott McLemee, Inside Higher Ed, July 2, 2014 ---
    http://www.insidehighered.com/views/2014/07/02/essay-diploma-mills#sthash.8YfosLC9.dpbs 

    It’s surprising how many house pets hold advanced degrees. Last year, a dog received his M.B.A. from the American University of London, a non-accredited distance-learning institution. It feels as if I should add “not to be confused with the American University in London,” but getting people to confuse them seems like a pretty basic feature of the whole AUOL marketing strategy.

    The dog, identified as “Peter Smith” on his diploma, goes by Pete. He was granted his degree on the basis of “previous experiential learning,” along with payment of £4500. The funds were provided by a BBC news program, which also helped Pete fill out the paperwork. The American University of London required that Pete submit evidence of his qualifications as well as a photograph. The applicant submitted neither, as the BBC website explains, “since the qualifications did not exist and the applicant was a dog.”

    The program found hundreds of people listing AUOL degrees in their profiles on social networking sites, including “a senior nuclear industry executive who was in charge of selling a new generation of reactors in the UK.” (For more examples of suspiciously credentialed dogs and cats, see this list.)

    Inside Higher Ed reports on diploma mills and fake degrees from time to time but can’t possibly cover every revelation that some professor or state official has a bogus degree, or that a “university” turns out to be run by a convicted felon from his prison cell. Even a blog dedicated to the topic, Diploma Mill News, links to just a fraction of the stories out there. Keeping up with every case is just too much; nobody has that much Schaudenfreude in them.

    By contrast, scholarly work on the topic of counterfeit credentials has appeared at a glacial pace. Allen Ezell and John Bear’s expose Degree Mills: The Billion-Dollar Industry -- first published by Prometheus Books in 2005 and updated in 2012 – points out that academic research on the phenomenon amounts is conspicuously lacking, despite the scale of the problem. (Ezell headed up the Federal Bureau of Investigation's “DipScam” investigation of diploma mills that ran from 1980 through 1991.)

    The one notable exception to that blind spot is the history of medical quackery, which enjoyed its golden age in the United States during the late 19th and early 20th centuries. Thousands of dubious practitioners throughout the United States got their degrees from correspondence course or fly-by-night medical schools. The fight to put both the quacks and the quack academies out of business reached its peak during the 1920s and ‘30s, under the tireless leadership of Morris Fishbein, editor of the Journal of the American Medical Association.

    H.L. Mencken was not persuaded that getting rid of medical charlatans was such a good idea. “As the old-time family doctor dies out in the country towns,” he wrote in a newspaper column from 1924, “with no competent successor willing to take over his dismal business, he is followed by some hearty blacksmith or ice-wagon driver, turned into a chiropractor in six months, often by correspondence.... It eases and soothes me to see [the quacks] so prosperous, for they counteract the evil work of the so-called science of public hygiene, which now seeks to make imbeciles immortal.” (On the other hand, he did point out quacks worth pursuing to Fishbein.)

    The pioneering scholar of American medical shadiness was James Harvey Young, an emeritus professor of history at Emory University when he died in 2006, who first published on the subject in the early 1950s. Princeton University Press is reissuing American Health Quackery: Collected Essays of James Harvey Young in paperback this month. But while patent medicines and dubious treatments are now routinely discussed in books and papers on medical history, very little research has appeared on the institutions -- or businesses, if you prefer -- that sold credentials to the snake-oil merchants of yesteryear.

    There are plenty still around, incidentally. In Degree Mills, Ezell and Bear cite a Congressional committee’s estimate from 1986 that there were more than 5,000 fake doctors practicing in the United States. The figure must be several times that by now.

    The demand for fraudulent diplomas comes from a much wider range of aspiring professionals now than in the patent-medicine era – as the example of Pete, the canine MBA, may suggest. The most general social-scientific study of the problem seems to be “An Introduction to the Economics of Fake Degrees,” published in the Journal of Economic Issues in 2008.

    The authors -- Gilles Grolleau, Tarik Lakhal, and Naoufel Mzoughi – are French economists who do what they can with the available pool of data, which is neither wide nor deep. “While the problem of diploma mills and fake degrees is acknowledged to be serious,” they write, “it is difficult to estimate their full impact because it is an illegal activity and there is an obvious lack of data and rigorous studies. Several official investigations point to the magnitude and implications of this dubious activity. These investigations appear to underestimate the expanding scale and dimensions of this multimillion-dollar industry.”

    Continued in artilce
    Read more: http://www.insidehighered.com/views/2014/07/02/essay-diploma-mills#ixzz36KBEe825
    Inside Higher Ed
     

    Bob Jensen's threads on diploma mills ---
    http://www.trinity.edu/rjensen/FraudReporting.htm#DiplomaMill

    The biggest scandal in higher education is still grade inflation in legitimate universities ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#GradeInflation

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

  • Other Links
    Main Document on the accounting, finance, and business scandals --- http://www.trinity.edu/rjensen/Fraud.htm 

    Bob Jensen's Enron Quiz --- http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

    Bob Jensen's threads on professionalism and independence are at  file:///C:/Documents%20and%20Settings/dbowling/Local%20Settings/Temporary%20Internet%20Files/OLK36/FraudUpdates.htm#Professionalism 

    Bob Jensen's threads on pro forma frauds are at http://www.trinity.edu/rjensen//theory/00overview/theory01.htm#ProForma 

    Bob Jensen's threads on ethics and accounting education are at 
    http://www.trinity.edu/rjensen/FraudProposedReforms.htm#AccountingEducation

    The Saga of Auditor Professionalism and Independence ---
    http://www.trinity.edu/rjensen/fraud001.htm#Professionalism     

    Incompetent and Corrupt Audits are Routine ---
    http://www.trinity.edu/rjensen/FraudConclusion.htm#IncompetentAudits

    Bob Jensen's threads on accounting theory are at http://www.trinity.edu/rjensen/theory.htm 

    Future of Auditing --- http://www.trinity.edu/rjensen/FraudConclusion.htm#FutureOfAuditing 

     

     

     

    The Consumer Fraud Portion of this Document Was Moved to http://www.trinity.edu/rjensen/FraudReporting.htm 

     

     

     

     

    Bob Jensen's home page is at http://www.trinity.edu/rjensen/