Don't Trust The Pictures Hotels Post On Their Websites ---
http://www.businessinsider.com/hotel-real-v-fake-photos-2013-12

Did Tesla engage in fraud?
You be the judge ---
http://doubtingisthinking.blogspot.com.es/2013/10/tesla-carbon-credits-ongoing-scandal.html

How Sad on Such a Memorable and Inspirational Day
The Sign Language Interpreter At Mandela’s Memorial Was 'A Complete Fraud' Making Nonsense Gestures ---
http://www.businessinsider.com/mandela-sign-language-interpreter-fake-2013-12

Jensen Comment
Was this intended to be faked by higher ups or was it just a stupid mistake? I suspect that the archived replays will be captioned for the hearing impaired with various language choices.

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

IRS warns of "dirty dozen" tax scams in 2014 ---
http://www.journalofaccountancy.com/News/20137666.htm

The 2013 list is little changed from a year earlier and for a second year is headed by:

1. Identity theft: The IRS spotlighted its measures, including its new Identity Protection web portal, to prevent and combat the growing problem of tax fraud involving stolen identities, which it called one of its top priorities. During 2012, the IRS prevented issuance of $20 billion in fraudulent refunds including those related to identity theft, up from $14 billion in 2011, it said. The IRS also noted that its identity theft enforcement sweep in January led to nearly 300 indictments, complaints, and arrests, on top of thousands of enforcement actions against identity theft tax fraud in 2012. (See “Dozens indicted on stolen identity tax refund fraud charges.”)

2. Phishing: The IRS again this year warned against fake electronic communications designed to obtain recipients’ information, reminding that the IRS does not initiate contact with taxpayers by email, text messages, or social media to request personal or financial information.

3. Return preparer fraud: In addition to suggesting taxpayers make sure paid preparers sign returns and enter their preparer tax identification number (PTIN), the IRS this year included information about using Form 14157, Complaint: Tax Return Preparer, to report abusive tax preparers.

4. Hiding income offshore: This warning also updated the number of participants in the IRS’s Offshore Voluntary Disclosure Program to 38,000 and its collections to $3.4 billion from the 2009 program alone (March 23, 2009, through Oct. 15, 2009) and $1 billion so far in “up-front” payments from the 2011 program (Oct. 16, 2009, through Sept. 9, 2011). In 2012, the program was extended indefinitely. (See “IRS announces third offshore voluntary disclosure program.”

5. “Free money” from the IRS and tax scams involving Social Security: With fliers and advertisements “appearing in community churches around the country,” promoters of schemes promising refunds for returns with little or no documentation have enticed “unsuspecting and well-intentioned” victims, some of whom have spread the word to friends and relatives, the IRS said. One scheme falsely advises taxpayers to claim the American opportunity tax credit even if they have no current qualifying educational expenses.

6. Impersonation of charitable organizations: Some fraudsters have doubly victimized people hit by a natural disaster by claiming to be working on behalf of the IRS to help them claim a tax casualty loss but instead steal their financial and personal information. This replaced “abuse of charitable organizations and deductions” from the 2012 list.

7. False/inflated income and expenses: Exaggerating wage or self-employment income is a common ploy by some unscrupulous preparers to inflate refundable credits, including the earned income tax credit, by more than any additional tax.

8. False Form 1099 refund claims: One scheme involves issuing a bogus information return, often Form 1099-OID, Original Issue Discount, to the IRS. A refund is then claimed on a corresponding tax return. The IRS says this is based on the theory that “the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.”

9. Frivolous arguments: The IRS maintains a webpage describing some of the more common and legally fanciful of these theories.

10. Falsely claiming zero wages: A Form 4852, Substitute Form W-2, or “corrected” Form 1099-MISC, Miscellaneous Income, is fraudulently filed to reduce or eliminate income on a legitimate information return. Sometimes it is accompanied by a frivolous argument regarding the income.

11. Disguised corporate ownership: The IRS said it works with state authorities to identify entities by which taxpayers underreport income, claim bogus deductions, and engage in other misconduct.

12. Misuse of trusts: The IRS said it has seen an increase in improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses.

Jensen Comment
To this we will soon add underreporting of income for fraudulent claims to Medicaid and health care subsidies ---
http://www.trinity.edu/rjensen/Health.htm
The sad thing is that the IRS refuses to enforce rules against such fraud. For example, half the Medicaid recipients in Illinois purportedly are not eligible for such free medical care and medications. As far as I can tell nobody is doing anything to prevent this type of fraud.

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

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

"Trial Lawyer Protection Act:  A new study shows that consumers lose in most class actions," The Wall Street Journal, December 23, 2013 ---
http://online.wsj.com/news/articles/SB10001424052702304367204579266692175139848?mod=djemEditorialPage_h

Trial lawyers market themselves as champions of the little guy against corporate America. So how's that working out for the little guy? Not so well, according to a new study by the Mayer Brown law firm for the Chamber of Commerce Institute for Legal Reform, which shows that in the vast majority of class actions, the class members end up empty-handed. In two-thirds of the resolved class actions studied, the class members didn't see a penny.

Out of 148 federal class actions reported by two major litigation publications in 2009, none of the cases went to trial and won a judgment for the plaintiffs. Zero. Fourteen percent of the cases remain pending. Of the 127 cases that had been resolved by September 2013, 35% were voluntarily dismissed by the plaintiff, 31% were dismissed on the merits by the court and 33% were settled.

Settlements are the real goal of plaintiffs lawyers, who know that many companies will cave to frivolous charges because they can't afford the legal bills and reputational damage from fighting a high-profile lawsuit. Lawyers profit handsomely from these agreements that give them a cut of the winnings off the top, but the odds for regular Joe Plaintiff aren't good. According to the study, only 33% of federal class actions settled compared with 67% for all federal cases.

It gets worse. Settlement details aren't always available, but in consumer class actions many class members don't collect their winnings at all and procedures to seek out class members and distribute the cash are rare. Mayer Brown says that "of the six cases in our data set for which settlement distribution data was public, five delivered funds to only miniscule percentages of the class: 0.000006%, 0.33%, 1.5%, 9.66%, and 12%."

The firm launched its study out of concern that an ongoing review of arbitration agreements by the new Consumer Financial Protection Bureau could be headed toward regulating or banning the agreements altogether. Under Dodd-Frank, the bureau has the authority to override the Federal Arbitration Act but it is required to do a study first. While it is studying—no extra credit for guessing the outcome—Minnesota Democrat Al Franken is pushing legislation that would effectively ban arbitration in all consumer and employment contracts.

While arbitration agreements are often an efficient way for consumers to settle claims with companies cheaply and quickly, liberals don't like anything that threatens the primacy of class actions. In its preliminary research released in early December on the use of arbitration agreements related to consumer financial products, the CFPB noted that nine out of 10 arbitration agreements allowed banks to keep consumers from joining class actions.

Considering the pitiful track record of class actions delivering for consumers, that's a good thing. The only beneficiaries of expanding the potential pool of class-action lawsuits are the plaintiffs attorneys—and their yacht-builders.

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

Fraud Beat
My wife just got off the phone with a woman XXXXX who has been her friend for over 40 years. They used to work together in a hospital. The woman said her daughter and two grandchildren living across the street in Longview, Texas got a divorce. But the only reason for the divorce was to be able to quit her job and collect welfare and food stamps. The former husband who makes $73.000 per year still lives in the same house as if the divorce never happened. They're expecting another baby in April. The daughter is also on Medicaid and has been receiving free medical care since the "divorce."

XXXXX and her husband gave them $40,000 for a down payment on a wonderful home across the street and are now making the mortgage payments until their daughter and her "former" husband get out from under a mountain of debt. I think the house is in her "former "husband's name so XXXXX's daughter can collect the welfare and Medicaid assistance. That would no longer be necessary if they lived in one of the Medicaid expansion states where with proper financial planning millionaires can be on Medicaid since the only test for Medicaid is now income and not assets.

The daughter claims she's now living with her parents, but that is a bold faced lie. Both the daughter her "former" husband are recovering drug addicts and living in that house across the street. . I wish them well. Yeah Right!

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

Bell, California --- http://en.wikipedia.org/wiki/Bell,_California

"Does Bell toll for excessive public pay? Controller's compensation database tells shocking story," by Steven Greenhut, UT San Diego, December 21. 2013 ---
http://www.utsandiego.com/news/2013/dec/21/does-bell-toll-for-excessive-public-pay/all/?print

. . .

Coincidentally, the controller’s update was released just as Angela Spaccia, former administrator in the scandal-plagued Los Angeles County city of Bell, was found guilty on 11 corruption charges that included the misappropriation of public funds. She was accused of creating a secret pension fund for herself and then-city manager Robert Rizzo, who at one point “earned” a salary of $800,000 a year plus benefits.

Rizzo — the rotund racehorse-owning poster child for municipal greed — previously pled “no contest” to corruption charges. Five other Bell officials were convicted, also. The scandal, which erupted in 2010, sparked a widespread debate about public pay levels and oversight. Trial evidence included an email string where officials joked about getting “fat together” and “taking all of Bell’s money.”

In fact, Controller John Chiang created this statewide compensation Website, based on data provided by cities and agencies, in direct response to Bell. The database has been widely praised as thorough and easy to navigate. But as scary as the information it provides may be, it may even understate the problem.

Its municipality pay averages “are in orders of magnitude too low,” argued Steve Frates, director of research at Pepperdine University’s Davenport Institute. That’s because it includes part-time and occasional workers in the average. Furthermore, the database doesn’t include other benefits public employees receive. It only calculates the direct costs of pensions and medical-care benefits — not the tens of billions of dollars in unfunded liabilities.

Chiang says that public disclosure of compensation information is the first step toward reform. Critics complain, however, about a lack of follow-up steps from other state officials. “The illegality, the excesses of Bell, are an aberration of the real problem,” said Richard Rider, president of San Diego Tax Fighters. “The most powerful force in local politics are the public-sector unions. They elect people who are most compliant. The result is what you would expect.”

The public has seen only modest reform. Gov. Jerry Brown and legislative leaders were concerned last year that their tax-increasing ballot measure (Proposition 30) was in trouble because the public didn’t trust that they would spend new dollars wisely. So they cobbled together a tepid pension-reform measure that mostly pares back excesses for new employees. That was it from the state.

Some localities, including San Diego and San Jose, passed pension reform measures last year. Bankruptcy forced Stockton to pull its far-above-average compensation levels down to the state average. But nothing fundamental has changed in California.

Now that the Legislative Analyst’s Office is predicting years of budget surpluses (provided the economy recovers and legislators control their spending), any hope of compensation reform from the Capitol is dim. Reform efforts have thrived only when it seemed as if the state was running out of cash.

On the hopeful front, San Jose Mayor Chuck Reed, a Democrat, is championing a 2014 statewide initiative that would allow cities to cut future benefits for current employees. Union activists are portraying that as an attempt to “eliminate” pensions, which clearly isn’t the case. But that measure could spark the next public-employee compensation battle. Reed recently argued that union-driven overpayment for police leads to higher crime because cities don’t have money left to hire additional officers.

Supporters of Reed’s effort are bolstered by a new Field Poll that reveals plummeting public support for labor unions, as a plurality (45 percent) of Californians say they do more harm than good. And despite the “no reform” approach in Sacramento, more troubling numbers trickle out — even from unlikely sources.

Treasurer Bill Lockyer, a union ally, told a small group in Thousand Oaks this month that the California State Teachers' Retirement System (CalSTRS) is in “crisis mode” and that “there will be a ratcheting down of retirement promises and commitments.” He did, however, defend the condition of the larger California Public Employees' Retirement System (CalPERS).

Sound or not, the list of those who receive pensions of $100,000 or more from CalPERS now tops 12,000 and is growing by about 40 percent each year. There’s plenty of accessible information, from the controller and elsewhere, suggesting that the public-employee compensation system is unsustainable and unfair. Union Watch reports that in struggling Desert Hot Springs the average city worker actually receives an all-included package of $144,000 a year and the average police and fire employee receives $164,000.

Increasingly, the public may be seeing that the problem isn’t a handful of officials who illegally gamed the system, but a system that — as Voltaire understood — allows a powerful minority to legally game the majority

"Research Fraud Found in Iowa State AIDS Study," Inside Higher Ed, December 24, 2013 ---
http://www.insidehighered.com/quicktakes/2013/12/24/research-fraud-found-iowa-state-aids-study 

The U.S. Department of Health and Human Services announced Monday that it had found that Dong-Pyou Han, until recently an assistant professor at Iowa State University, falsified results of research he was conducting on a vaccine that could be used to prevent the spread of HIV. The agency found him to have engaged in "intentional spiking" of lab samples, and concluded that the results of these samples prompted considerable interest in the research involved -- including the awarding of more research grants. Han apparently added human blood to samples that were supposed to be rabbit blood, and the additional blood skewed the results, The Des Moines Register reported. HHS said that Han had admitted his actions. The Register reported that he had resigned from Iowa State and that he could not be reached for comment.

Continued in article

Bob Jensen's threads on professors who cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

Having paid off bond holders for one penny on the dollar, what fool would loan it another dollar to pay its bloated unfunded pensions?

"California City’s Return to Solvency, With Pension Problem Unsolved," by Rick Lyman and Mary Williams Walsh, The New York Times, December 3, 2013 ---
http://www.nytimes.com/2013/12/06/us/stockton-set-to-return-to-solvency-with-pension-problem-unsolved.html

Before Detroit filed for bankruptcy, there was Stockton.

Battered by a collapse in real estate prices, a spike in pension and retiree health care costs, and unmanageable debt, this struggling city in the Central Valley has labored for months to find a way out of Chapter 9. Now having renegotiated its debt with most creditors, cobbled together layoffs and service cuts and raised the sales tax to 9 percent from 8.25 percent, Stockton is nearly ready to leave court protection.

But what Stockton, along with pretty much every other city in California that has gone into bankruptcy in recent years, has not done is address the skyrocketing public pensions that are at the heart of many of these cases.

“No city wants to take on the state pension system by itself,” said Stockton’s new mayor, Anthony Silva, referring to the California Public Employees’ Retirement System, or Calpers. “Every city thinks some other city will take care of it.”

While a federal bankruptcy judge ruled this week that Detroit could reduce public pensions to help shed its debts, Stockton has become an experiment of whether a municipality can successfully come out of bankruptcy and stabilize its finances without touching pensions. It is an effort that has come at great cost to city services and one that some critics say will simply not work once the city starts trying to restore services and hire 120 police officers it promised to get the sales-tax increase passed.

“They wanted to get out of bankruptcy in the worst possible way, and that’s just what they did,” said Dean Andal of the San Joaquin County Taxpayers Association, which fought the sales-tax increase. “If they go ahead and hire those new police officers, the city will be back in insolvency in four years.”

Stockton declared fiscal emergencies in 2010 and 2011, giving it the power to renege on annual pay increases for city workers. City services were slashed. Hundreds of municipal workers were laid off. And many retirees who had been promised health coverage for life learned that they would have to begin paying for it.

“That was the hardest part,” Councilman Elbert Holman said, “looking people in the eye and telling them sorry, you are losing your health care, but it’s absolutely necessary.”

By the time the judge found Stockton eligible for Chapter 9 bankruptcy on April 1, the city had about $147 million in unfunded pension obligations and about $250 million in debt from various bond issues.

The years of fiscal emergency and bankruptcy have left their mark, including a skyrocketing crime rate, which city officials and many residents attribute to staffing and service cuts in the Police Department.

“I suddenly realized a few years ago that, just in my tiny, two-block neighborhood, there had been 11 residential burglaries in the previous nine months,” said Marci Walker, an emergency room nurse.

Cities go bankrupt for many reasons: a collapse in real estate prices, a spike in pension and retiree health care costs, a burden of debt from expensive city projects. Stockton has experienced all three.

When real estate prices shot up in Silicon Valley in the last decade, many commuters decided that Stockton’s cheaper housing was worth the long commute to the Bay Area. That drove up local housing prices, so when the bubble burst it had a bigger impact, giving Stockton one of the nation’s highest foreclosure rates.

City leaders had also gone on a construction spree during the flush years, building a new sports arena, a minor-league baseball stadium and a marina. Citizens still bitterly mention the 2006 concert that opened the arena, where Neil Diamond was paid $1 million to perform.

And through it all, the pension costs for city workers — particularly for police officers and firefighters, who can retire early and draw on those pensions for decades — kept going up.

No part of the city has been left unscathed. Ms. Walker’s comfortable neighborhood near the University of the Pacific campus was hit with rising crime almost immediately after the police layoffs. “When the economy got bad and we lost police officers, it all started,” she said.

So she started the Regent Street Neighborhood Watch, the first of more than 100 such organizations to sprout up in the city in the last few years.

“We don’t confront anybody, we just let them know that we know they’re there,” Ms. Walker said. She added, “Criminals do not like eyeballs on them.”

Continued in article

Jensen Comment
Off the cuff Governor Brown complained that California has to deal with a trillion dollars in unfunded pensions (he may have exaggerated). The sad ttruth is that many of these were fraudulent pensions with criminal amounts (e.g., the pensions of Bell, California) and absurd early retirement provisions at age 50 or earlier.

City of Bell Scandal --- http://en.wikipedia.org/wiki/City_of_Bell_scandal

Before the Stockton declaration of bankruptcy there was the 2008 bankruptcy of Vallejo where the bankruptcy judge screwed bondholders but not pensioners.. Detroit's pensioners may not go unscathed, but the pattern of favoritism of pensioners over bond holders will eventually hurt cities that rob Peter Bondholder to pay Paul Pensioner.

"Why Investors Are Fleeing Muni Bonds At Record Rates," by Wolf Richter, Business Insider, December 16, 2013 ---
http://www.businessinsider.com/fear-and-trembling-in-muni-land-2013-12 

Municipal bond investors, a conservative bunch who want to avoid rollercoaster rides and cliffhangers, are getting frazzled. And they’re bailing out of muni bond funds at record rate, while they still can without losing their shirts. So far this year, they have yanked out $52.8 billion. In the third quarter alone, as yields were soaring on the Fed’s taper cacophony and as bond values were swooning, net outflows from muni funds reached $32 billion, which according to Thomson Reuters, was more than during any whole year.

Muni investors have a lot to be frazzled about. Municipal bonds used to be considered a safe investment – though that may have been propaganda more than anything else. Munis are exempt from federal income taxes, hence their attractiveness to conservative investors in high tax brackets. Munis packaged into bond funds appealed to those looking for a convenient way to spread the risk over numerous municipalities and states. While the Fed was repressing rates, muni bond funds were great deals.

Then came the bankruptcies.

The precursor was Vallejo, CA, a Bay Area city of 115,000 that filed for Chapter 9 bankruptcy protection in 2008 and emerged two years ago. But it’s already struggling again with soaring pension costs that had been left untouched. Jefferson County, which includes Alabama’s largest city, Birmingham, filed in 2011 when it defaulted on $3.1 billion in sewer bonds, the largest municipal bankruptcy at the time [but it’s already issuing new bonds; read..... Municipal Bankruptcy? Why Not! And so The Floodgates Open].

Stockton, CA, filed in June 2012. Mammoth Lakes, CA, filed in July 2012. San Bernardino, CA, filed in August 2012. They were dropping like flies in the “Golden State.” Detroit filed in July this year, crushing all prior records with its debt of up to $20 billion. That’s $28,000 per person for its population of 700,000.

But Detroit is just a fraction of what is skittering toward muni investors: the Commonwealth of Puerto Rico. The poverty rate is 45.6%. Unemployment is 14.7%. The economy has been in recession since 2006. The labor force has shrunk 16% from 1.42 million in 2007 to 1.19 million in October. The number of working people, over the same period, has plunged from 1.8 million to 1.1 million, a breathtaking 39%.

Puerto Rico had a good run for decades as federal tax breaks lured Corporate America to set up shop there. But when these tax breaks were phased out by 2005, the companies went in search for the greener grass elsewhere. To keep splurging, the government embarked on a borrowing binge that left the now lovingly named “Greece of the Caribbean” with nearly $70 billion in debt.

That’s 70% of GDP, and for its population of 3.67 million, about $19,000 per capita, or about $64,000 per working person. And then there is the underfunded pension system. But unlike Detroit, Puerto Rico is struggling to address its problems with unpopular measures, raising all manner of taxes and cutting outlays. Not even the bloated government payrolls have been spared. Too little, too late? Given the enormous poverty rate and long-term shrinking employment, what are the chances that this debt will blow up?

Pretty good, according to Moody’s Investors Service. Last week, it put $52 billion of Puerto Rico’s debt under review for a downgrade – to junk. Moody’s litany of factors: “Failure to access the public debt market with a long-term borrowing, declines in liquidity, financial underperformance in coming months, economic indicators in coming months that point to a further downturn in the economy, inability of government to achieve needed reform of the Teachers’ Retirement System.” This followed a similar move by Fitch Ratings in November.

Alas, Puerto Rico has swaps and debt covenants with collateral and acceleration provisions that kick in when one of the three major credit ratings agencies issues the threatened downgrade. Which “could result in liquidity demands of up to $1 billion,” explained Moody’s analyst Lisa Heller. It would “significantly narrow remaining net liquid assets.”

Now Puerto Rico is under pressure to show that over the next three months or so it can still access the bond markets at a reasonable rate. If not....

Puerto Rico’s debt was a muni bond fund favorite because it’s exempt from state and federal taxes. Now fears of a default on $52 billion or more in debt are cascading through the $3.7 trillion muni market. But Puerto Rico isn’t alone. Numerous municipalities and some states have ventured out on thinner and thinner ice.

Default risks are dark clouds on the distant horizon or remain unimaginable beyond the horizon. And hopes that disaster can be averted by a miracle still rule the day. However, the Fed’s taper cacophony is here and now, and though the Fed is still printing money and buying paper at full speed, the possibility that it might not always do so hangs like a malodorous emanation in the air.

Continued in article

Bob Jensen's threads on pension accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Pensions

High Income Nations, especially EU nations, are troubled with lax tax enforcement with Exhibit A being Greece.

In the USA it's the $2 trillion "informal economy" otherwise known as the cash-only underground labor economy. Mostly we think of states having higher concentrations of undocumented workers (such as house cleaners, child care givers, roofers, construction workers, and and ranch hands), but I'm suspicious of Erika's extremely competent dentist who charged us only $8,000 cash for about half of what the credit card billing would have been for an especially complicated correction of another dentist's mistake. We did get other estimates from dentists who never suggested such a whopping cash discount.

"Tax Rates, Governance, and the Informal Economy in High‐Income Countries," by Zoe Kuehn (Spain), SSRN, January 14, 2013 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2357227 

Bob Jensen's threads on the underground economy in the USA ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm

'The Daily Show' Visits New York Times, BuzzFeed To Learn Why Media's Ignoring Wall Street Scandal," by By Ross Luippold, The Huffington Post, December 12, 2013 ---
http://www.huffingtonpost.com/2013/12/05/the-daily-show-blackstone_n_4390714.html?utm_hp_ref=fb&src=sp&comm_ref=false

. . .

Jon Stewart brought out a story broken by Bloomberg Business Week, in which the private equity firm Blackstone bought a credit default swap that would allow them to collect money from a Spanish gambling company called Codere if Codere missed a loan payment. Then, Blackstone paid Codere $100 million to pay that loan late, allowing them to collect the money trigged by the credit event they had just bought.

"The Daily Show" couldn't believe that such a shady dealing was not only legal, but received virtually no attention from the media. So they sent Samantha Bee to investigate.

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

"Report: IRS sent out billions of dollars in fraudulent returns," The Hill, November 7, 2013 ---
http://thehill.com/blogs/on-the-money/domestic-taxes/189621-report-irs-sent-out-billions-of-dollars-in-fraudulent

The IRS sent billions of dollars' worth of refunds to tax cheats around the globe in 2011, according to a new federal report.

Treasury’s inspector general for tax administration found that well over 1 million fraudulent tax returns made their way through the IRS’s defenses, costing the Treasury just under $4 billion. That includes more than $1 million sent to far-flung locales like Bulgaria, China, Ireland and Lithuania.

Still, the inspector general also noted that the IRS had improved its efforts to stop tax cheats who file returns using real Social Security numbers or other tax identification numbers.

The IRS reduced the amount it lost to identity thieves by around 30 percent in 2011, from more than $5 billion in 2010.

“Identity theft continues to be a serious problem with devastating consequences for taxpayers and an enormous impact on tax administration,” Russell George, the tax administration inspector general, said in a statement.

“Undetected tax refund fraud results in significant unintended federal outlays and erodes taxpayer confidence in the federal tax system.”

The IRS has long acknowledged that identity theft is a big problem, and has made battling it a top priority. Taxpayers who file after an identity thief uses their Social Security number can face significant delays in the processing of their legitimate return.

For instance, the agency has more than twice as many employees working on identity theft cases now – around 3,000 – than it did in 2011, and has trained roughly 35,000 employees to deal with the issue. The IRS has also put new filters into place to weed out potential fraudulent returns, and beefed up its cooperation with local law enforcement.

But in a statement, the IRS also acknowledged that it was a challenge to keep up with “constantly evolving tactics used by scammers” while it had fewer resources at its disposal.

“Given significant budget cuts, the IRS continues to balance and shift our limited resources as our work on identity theft and refund fraud continues to grow, touching nearly every part of the organization to better protect taxpayers and help victims,” the agency said.

“Over the past two years, we have continued to improve our processes and systems for helping identity theft victims and have considerably decreased the time it takes to resolve these complex cases.”

Jensen Comment
To add pain to misery, many of those refunds went to cheats who receive cash income in the underground economy that's not reported to the IRS. Thus the cheats get a good deal both ways due to IRS failures ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm
To add tragedy on top of misery about 68 million of 137 million taxpayers in the USA pay no income tax, 98% of whom have reported earnings less than  $100,000 according to Bloomberg. Sounds like even more of a free ride now the the government will also subsidize medical insurance for these taxpayers who either pay no tax or receive a net refund on their tax returns.

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

"Pentagon’s bosses thwart accurate audit of DOD’s main accounting office," by James Rosen and Marisa Taylor, The Tribune, November 22, 2013 ---
http://www.sanluisobispo.com/2013/11/22/2796531/pentagons-bosses-thwart-accurate.html 

"The Pentagon's Doctored Accounting Ledgers Conceal Epic Waste," by Scot J. Paltrow, Reuters, November 19, 2013 --- 
http://www.businessinsider.com/pentagon-accounting-conceals-epic-waste-2013-11

LETTERKENNY ARMY DEPOT, Chambersburg, Pennsylvania (Reuters) - Linda Woodford spent the last 15 years of her career inserting phony numbers in the U.S. Department of Defense's accounts.

Every month until she retired in 2011, she says, the day came when the Navy would start dumping numbers on the Cleveland, Ohio, office of the Defense Finance and Accounting Service, the Pentagon's main accounting agency.

Using the data they received, Woodford and her fellow DFAS accountants there set about preparing monthly reports to square the Navy's books with the U.S. Treasury's - a balancing-the-checkbook maneuver required of all the military services and other Pentagon agencies.

And every month, they encountered the same problem. Numbers were missing. Numbers were clearly wrong. Numbers came with no explanation of how the money had been spent or which congressional appropriation it came from. "A lot of times there were issues of numbers being inaccurate," Woodford says. "We didn't have the detail … for a lot of it."

The data flooded in just two days before deadline. As the clock ticked down, Woodford says, staff were able to resolve a lot of the false entries through hurried calls and emails to Navy personnel, but many mystery numbers remained. For those, Woodford and her colleagues were told by superiors to take "unsubstantiated change actions" - in other words, enter false numbers, commonly called "plugs," to make the Navy's totals match the Treasury's.

Jeff Yokel, who spent 17 years in senior positions in DFAS's Cleveland office before retiring in 2009, says supervisors were required to approve every "plug" - thousands a month. "If the amounts didn't balance, Treasury would hit it back to you," he says.

After the monthly reports were sent to the Treasury, the accountants continued to seek accurate information to correct the entries. In some instances, they succeeded. In others, they didn't, and the unresolved numbers stood on the books. STANDARD PROCEDURE

At the DFAS offices that handle accounting for the Army, Navy, Air Force and other defense agencies, fudging the accounts with false entries is standard operating procedure, Reuters has found. And plugging isn't confined to DFAS (pronounced DEE-fass). Former military service officials say record-keeping at the operational level throughout the services is rife with made-up numbers to cover lost or missing information.

Read more: http://www.businessinsider.com/pentagon-accounting-conceals-epic-waste-2013-11#ixzz2l7VUc9wz

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

Jensen Comment
One of our sons, David, went to Iraq working as an exterminator --- mostly trapping wild dogs and jackals. He lived on a huge army base and reported back that the meals were unbelievable. Every night was a buffett of steamed lobsters, lobster thermadore, steaks of all varieties and sizes, wild game (including partridge and quail) and on and on and on. In the mornings he liked the eggs Benedict, and at noon he liked the prime rib sandwiches on freshly baked bread.

Meals on base were prepared by outside contractors rather than Army cooks.

I can vouch for the fact that Navy chow in my day was never like that . We had lots of powdered milk (yuk) and s--- on a shingle and beans, beans, and more beans. On ship the cooks baked fresh bread every day but were not allowed to serve it until it sat in the air for two days. Some regulation in those days declared fresh bread to be bad for digestion.

PS
What also surprised me is when David remarked that the base perimeter guarding our military personnel and outside contractors was not guarded by the U.S. military. Instead this enormous military base in Iraq was guarded by mercenaries from Uganda. Go figure!

"Were Nook's Books Cooked? Barnes & Noble's Accounting Investigated By SEC," by Brian Solomon, Forbes, December 6, 2013 ---
http://www.forbes.com/sites/briansolomon/2013/12/06/were-nooks-books-cooked-barnes-nobles-accounting-investigated-by-sec/

Bad news for Barnes & Noble this Christmas: the SEC thinks the bookseller’s accounting practices may have been naughty.

In Barnes & Noble’s quarterly report filed Thursday, the company noted that the SEC “notified the Company that it had commenced an investigation into: (1) the Company’s restatement of earnings announced on July 29, 2013, and (2) a separate matter related to a former non-executive employee’s allegation that the Company improperly allocated certain Information Technology expenses between its NOOK and Retail segments for purposes of segment reporting.” The company announced that it is cooperating with the SEC on this matter.

Barnes & Noble stock fell with the news. At 1:15pm EST, it was down 7.69%.

Analysts at Stifel issued a note Friday expressing uncertainty about how the SEC investigation will affect Barnes & Noble. “While we have no way to judge the allegations, the risk is towards the viability of a sale of NOOK,” they said. “The announcement certainly suggests NOOK questions are not yet behind the company.”

The analysts also indicated more downward movement for the stock: “We’ve long discussed a $10-$23 range for this sum-of-the-parts, and this news could push BKS toward the lower end.”

Prior to today, Barnes & Noble stock was up 8.61% on the year. It opened Friday at $16.39 per share.

Bob Jensen's threads on book-cooking ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

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

Caterpillar Adds Fraud Meaning to Deep Sixing Perfectly Good Train Parts

From the CFO Journal's Morning Ledger on November 22, 2013

Caterpillar unit probed for dumping
Federal investigators are probing a subsidiary of Caterpillar to determine whether it was dumping train parts into the ocean as part of a possible scheme to bill railroad companies for unneeded repairs, the WSJ reports. Caterpillar disclosed in a securities filing three weeks ago that it had received a federal grand jury subpoena to provide documents and information on its Progress Rail unit, which repairs locomotives and railcars. The grand jury investigation is examining whether Progress Rail was dumping brake parts and other items as a way of concealing evidence that Progress Rail was charging owners of rail equipment for replacing parts that were still in good shape. Union Pacific was one customer believed to have been affected by the alleged Progress Rail activities.

"San Antonio Businessman Pleads Guilty to Role in $133 Million Real Dollar Loss Fraud and Tax Case." FBI, November 21, 2013 ---
http://www.fbi.gov/sanantonio/press-releases/2013/san-antonio-businessman-pleads-guilty-to-role-in-133-million-real-dollar-loss-fraud-and-tax-case

Ethics Issues for Sweden
From CFO Journal's Morning Ledger on December 2, 2013

TeliaSonera fires CFO as fallout from probe widens
TeliaSonera fired CFO Per-Arne Blomquist and three other senior executives as the fallout from an ethics investigation into the Swedish phone company’s business practices in former Soviet countries widened, Bloomberg reports. Lars Nyberg resigned as CEO on Feb. 1 after a law firm hired to look into corruption accusations concluded TeliaSonera should have been more careful when it bought an Uzbeki phone license in 2007. Mr. Blomquist, who joined TeliaSonera in 2008, “hasn’t done enough in his capacity to prevent these transactions from being conducted in the way they have,” CEO Johan Dennelind said. He declined to elaborate on what conduct should have been prevented or on what the dismissed employees did wrong.

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

Ethics Issues for Large Banks:  When will the real crooks be held accountable personally?
From CFO Journal's Morning Ledger on December 2, 2013

No penalties planned in swaps probe
A four-year-old Justice Department probe into allegations that large banks and others conspired to thwart competition in the $24.3 trillion market for credit-default swaps is winding down and penalties aren’t planned, the WSJ reports. People close to the matter said that investigators in U.S. civil probes generally seek injunctions to stop anticompetitive conduct from occurring. But if investigators believe the relevant behavior has been remedied—as prosecutors involved in the CDS probe think Dodd-Frank has largely succeeded in doing—investigators might see less reason to seek penalties.

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

His Weakness Apparently Was Not Owning Expensive Horses --- but he didn't divorce his old nag!

"Town left high and dry after director is accused of siphoning funds to mistress," by Haimy Assefa and Laura Ly, CNN, October 18, 2013 ---
http://www.cnn.com/2013/10/17/us/connecticut-affair-financial-crisis/index.html?hpt=hp_t2

The arrest of a Connecticut town's finance director -- who is accused of embezzling $2.3 million while financially supporting his mistress in Florida -- has left the small community in financial crisis.

Henry L. Centrella Jr., 59, was arrested in August on five counts of first-degree larceny after several months of investigation found more than $2 million of misappropriated funds from January 2008 through November 2012, according to his arrest warrant.

Centrella had served as the finance director for the town of Winchester since 1982 and had unrestricted access to the town's assets and finances for more than 30 years. He was fired in January, the warrant said.

A private auditing firm discovered an irregularity in the town's finances, which led to criminal allegations, Connecticut State Attorney David Shepack told CNN.

Centrella, who lived in neighboring Winsted according to the arrest warrant, allegedly gathered the large sum of money by using various schemes such as filing inflated tax information and misappropriating town funds. According to sworn statements written by members of his staff, Centrella never allowed anyone to assist him with depositing the town's money in the bank, even if he was on vacation, insisting that money be kept in a drawer for him until his return.

The financial consequences for the small Connecticut town of Winchester have been "wide-ranging and deep," according to Kevin Nelligan, the town's attorney. The town has had to lay off police officers and other government workers because of the financial strain, he said.

Unable to pay bills on time, repair public roads and facing the possibility of schools missing payroll, Nelligan expressed it might take years for the town to recover.

The state investigation also claims that Centrella had a mistress in Florida whom he met in 2000 at a casino he frequented.

In 2008, he told the woman his divorce was finalized and the two became romantically involved. Centrella and the woman were engaged from 2009 until December of 2012, when she discovered he was still married to his wife, Gregg Centrella.

During their relationship, Centrella convinced the woman to quit her job and move south. He supported the woman financially, even buying her a wedding dress, the warrant says. She told investigators he made plans to purchase a home with her, and told her he would soon move to Florida to be with her.

Centrella paid for all of these expenses in cash. He reportedly told his mistress he acquired his money from selling 88 acres of land to Disney World and by investing in Google stock, according to the warrant.

Based on Centrella's alleged activities, there is approximately $7 million in cash that was not used for intended purposed, leading to a cash flow problem for the town, said Town Manager Dale Martin.

The town is now seeking $2 million in private loans from local banks, Martin told CNN. The money will be used for pending payments until the town collects the remaining tax for the year.

The man responsible for the town's financial turbulence was once respected and trusted by the tightknit community, said Martin.

Centrella is being held at the New Haven Correctional Facility on $100,000 cash bail. With a civil suit pending against Centrella and his wife, all of their assets have been frozen, said Nelligan.

Gregg Centrella reportedly told investigators that although they still reside together, she had not spoken to her husband in months. She claims the only knowledge she had of her husband's activities were from what she read in the newspaper, the warrant says.

Continued in article

The Tried and True Fake Invoice Ploy: She got over $2 million before getting caught for this and drunk driving
"Accountant accused of stealing $1.2 million," by Kerano Todorov, Napa Valley Register, November 14, 2013 ---
http://napavalleyregister.com/news/local/accountant-accused-of-stealing-million/article_f9931ca4-4d93-11e3-add4-0019bb2963f4.html

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

LIBOR --- http://en.wikipedia.org/wiki/Libor

"Dutch Rabobank fined $1 billion over Libor scandal, by Sara Web, Reuters, October 29, 2013 ---
http://www.reuters.com/article/2013/10/29/us-rabobank-libor-idUSBRE99S0L520131029

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

Although the government's bailout of selected banks was deemed in the media as "The Greatest Swindle in the History of the World," Professor Catanach suggests that the Big Four attempt to thrust IFRS on the USA is the Great IFRS Scandal." Some folks on the AECM (no names mentioned) are not going to like this essay.

"The Great IFRS Swindle: Accountants Scamming Accountants Swindle. Intransitive verb: to obtain money or property by fraud or deceit," by Anthony H. Catanach Jr. Grumpy Old Accountants, November 10, 2013 ---
http://grumpyoldaccountants.com/blog/2013/11/10/the-great-ifrs-swindle-accountants-scamming-accountants

When we think about the worst U.S. accounting scandals ever, those new to the profession usually cite the Lehman collapse or Madoff scam of 2008,  or maybe even the Enron tragedy in 2001 which has become symbolic for bad accounting and auditing.  And those of us with gray (or no hair) might recall the ZZZZ Best, Crazy Eddie, or Equity Funding debacles.  However, many of us may have missed what may be the largest and longest running accounting swindle ever, one that finds accountants scamming accountants.

For almost a decade now, accounting educators, local and regional practitioners, students, and regulators have been bilked of their limited financial resources by the large global accounting firms (GAFS).  Yes, those of us that make up what’s left of the “real” accounting profession may have been victimized, forced to spend our cold, hard cash (and time) to stimulate the IFRS conversion advisory practices of these revenue-crazed consulting behemoths.

Why resurrect IFRS now you ask?  Well, most of you that have followed the Grumpies in the past, already know that “IFRS is for Criminals.”  But in case you missed it, IFRS adoption in this country is on a deathwatch, and Tom Selling of the Accounting Onion has even been so bold as to proclaim its actual death.  And how did you miss the news of the demise, you ask?  Well, you don’t really believe that the GAFS, or the major industry trade associations they dominate, will go public with any news that negatively impacts their revenue generating abilities, do you?  The deathwatch began last summer with the issuance of a staff report by the US Securities and Exchange Commission (SEC) that failed to endorse IFRS adoption.  Instead, it offered no recommendations or adoption time line, and also raised serious implementation concerns.  And preparations for the wake have accelerated since we learned that our accounting brethren “across the pond,” also now are having second thoughts about IFRS.  Given these developments, it just seemed appropriate to evaluate who paid the price for the IFRS adoption initiative forced upon us by the GAFS.  Here’s how the swindle worked…  

With revenues from Sarbanes-Oxley compliance consulting beginning to wane, the GAFS needed a “new wave” to ride.  They found one in the European Union’s required adoption of IFRS in 2005, and then planned to extend this to other markets including the US.  But given the SEC’s role in standard-setting, the GAFS had to “build” a demand for IFRS adoption that would effectively force the SEC to mandate their use.  Their well coordinated marketing plan included the following components:

• Convince the accounting community that not only did everyone favor IFRS adoption, but that everyone was preparing to adopt. This was accomplished via poorly constructed surveys delivered to heavily biased samples, that yielded weekly newsletters touting IFRS support.
• Large industry trade associations were enlisted in the scam by promises of new revenues from IFRS training courses which they would provide to prepare practicing accountants for adoption.
• Many accounting educators also became unwitting accomplices enticed by grant monies provided by the GAFS to create new IFRS courses and conduct research into the benefits of IFRS adoption.

So, if awareness and demand could be built, and enough political muscle exercised, the SEC could be pushed into adopting IFRS in the US.  The result: a really “big wave” of revenue for the GAFS.  And who would pick up the tab for creating this “make believe” demand for IFRS adoption services?  You guessed it…companies, educators, students, practitioners…anyone foolish enough to embraced the GAFS propaganda.  And fooled we were by the numerous half-truths (i.e., the deception) intended to stimulate the demand for their consulting services.  This Grumpy Old Accountant found one particular assertion particularly offensive: that the entire world except the US was adopting IFRS. What the GAFS forgot to tell you was that this global IFRS adoption was not unconditional, and was based on numerous “carve-outs,” and often contingent on IFRS consistency with local GAAP. Hence, the swindle: the GAFS together with large industry associations generated large revenues by creating and selling products to meet a largely fictitious need.  So there we have it: accountants scamming accountants.

But we were warned!  David Albrecht addressed the GAFS motivation for adopting IFRS in “They Still Don’t Get It” when he so eloquently and passionately stated:

“Audit firm principals and corporate executives stand to profit, one way or another, by billions and billions and billions and billions of U.S. dollars. It is self-debasing greed. It is avarice of the corrupted soul.”

Paul Miller and Paul Bahnson in “The top 11 falsehoods about the IASB, IFRS and U.S. adoption” hinted at the GAFS’ conspiracy in the following statement:

“Although weary from writing about the concerted push to embrace the International Accounting Standards Board and adopt IFRS in the U.S., we remain wary because lobbyists continue publishing propaganda-like announcements to advance their dubious interests.”

And Tom Selling in his three-part series titled “Ten Claims in Support of IFRS Adoption by the SEC – and Why They are False” effectively debunked the pro-IFRS arguments key to the GAFS’ sales pitch, and concluded that:

“For the sake of investor protection and the public interest, the SEC should have long ago made a U-turn on its Roadmap to IFRS adoption.”

Fortunately, the “good guys” appear to have prevailed (at least for now).  And on page 2 of its staff report, the SEC recognized that a demand for IFRS adoption simply does not exist in this country, thus clearly exposing the GAFS’ contrived consulting market:

“However, early in the Staff’s research, it became apparent to the Staff that pursuing the designation of the standards of the IASB as authoritative was, among other things, not supported by the vast majority of participants in the U.S. capital markets and did not appear to be consistent with the methods of incorporation employed by the other major capital markets around the world.”

So there you have it…we were scammed!  But exactly how much did we lose? It’s really hard to tell, but the number appears to be fairly substantial.  In an incremental analysis of IFRS adoption in the United States, David Albrecht suggests that the total net cost potentially could reach $5 trillion if complete adoption were to occur.  Thank goodness we dodged that bullet.  But what losses have actually been sustained…let’s look a little deeper at a couple of the more seriously “injured” parties. 

First, there are the companies electing to adopt IFRS.  According to the SEC, costs to adopt could consume up to 13 percent of revenue in the first year of adoption, creating for some large companies an estimated $32 million in “extra” 10-K filing costs. And recent research also suggests that IFRS adoption drives up audit costs by over 20 percent in the adoption year. These are pretty hefty price tags for any early adopters who bought into the GAFS propaganda, especially for something you don’t really need.

Next, there are the non-trivial sunk costs imposed on both academics and their students by the GAFS’ IFRS agenda.  Now to be fair, several of the GAFS did provide “seed” money to select universities to develop courses and materials in advance of IFRS adoption.  However, most institutions did not receive any such financial support.  So, reacting to artificial market pressures created by the GAFS, these programs were forced to fund development of IFRS related courses and instructional tools largely on their own. And then there is the time wasted by teachers in preparing themselves to teach and deliver this “valuable” IFRS content.  Also, let’s not forget the monies and time squandered on IFRS adoption research in the US.  Not only are there “hard” costs associated with data collection, travel costs, and the like, but there also are countless opportunity costs associated with NOT researching other more important topics, particularly in today’s challenging financial reporting environment. Yes, accounting educators paid a stiff price in this accounting swindle. 

Then there are the students.  Textbook publishers embraced the GAFS IFRS fable wholeheartedly and rushed to revise all accounting related texts at both undergraduate and graduate levels to include IFRS related content.  And naturally, they could charge more for these new editions.  No longer could students rely on used books, they had to buy the new editions with the new IFRS content.  And let’s not forget the cost of enrolling in the newly-created IFRS accounting courses whose benefit to professional competence remains questionable.  Finally, our accounting students bear the cost of having to study for IFRS related questions on the CPA exam. Yes, this shows you just how far the GAFS went to create demand…isn’t the exam hard enough testing just US GAAP?  With today’s rising tuition costs and student debt a growing problem, the GAFS should be ashamed of themselves for fleecing our youth for the sake of their IFRS adoption “wave.”

Continued in article

Bob Jensen's threads on accounting standards setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

"Johnson and Johnson to pay $2.2B to end drug-label and kickback probes," NBC News, November 4, 2013 ---
http://www.nbcnews.com/business/j-j-pay-2-2b-pharma-kickback-probe-source-8C11518989

In one of the largest health care fraud settlements in U.S. history, Johnson & Johnson will pay $2.2 billion to end civil and criminal investigations into kickbacks to pharmacists and the marketing of pharmaceuticals for off-label uses, U.S. Attorney General Eric Holder said on Monday.

The resolution of the long-running case covers the marketing of the anti-psychotic drugs Risperdal and Invega and the heart drug Natrecor over several years.

From 1999 through 2005, J&J and its subsidiary Janssen Pharmaceuticals promoted Risperdal for unapproved uses, including controlling aggression and anxiety in elderly dementia patients and treating behavioral disturbances in children and in individuals with disabilities, according to the complaint.

The off-label marketing cost U.S. government insurance programs hundreds of millions of dollars in uncovered claims, the complaint said.

Under the settlement, Janssen will plead guilty to a single misdemeanor violation for its promotion of Rispersdal.

Meanwhile, the company paid millions of dollars in kickbacks to Omnicare, the nation's largest pharmacy specializing in dispensing drugs to nursing home patients, under various guises including "educational funding."

Johnson & Johnson's conduct "recklessly put at risk" the health of children, dementia patients and others to whom the drug was prescribed at a time it was only approved by the U.S. Food and Drug Administration to treat schizophrenia, Holder said.

Janssen's sales representatives "aggressively" promoted Risperdal to doctors and other prescribers who treated elderly dementia patients, and through a special "ElderCare sales force" targeted nursing home operators.

"The company also provided incentives for off-label promotion" and based sales representatives' bonuses on total sales, not just sales for FDA-approved uses, the DOJ said.

Under FDA regulations, doctors may prescribe drugs for unapproved, or off-label, use. But pharmaceutical companies are allowed to market their drugs in the United States only for FDA-approved uses.

The FDA said it had delivered repeated warnings to Janssen about "misleading marketing messages" to doctors, and later initiated a criminal complaint.

Continued in article

"The Secrets of Online Money Laundering," MIT's Technology Review, October 18, 2013 --- Click Here
http://www.technologyreview.com/view/520501/the-secrets-of-online-money-laundering/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20131021

Criminals are increasingly using the internet to turn dirty money into a spotless shade of green. Now a report written for the United Nations lifts the lid on many of these increasingly popular techniques.

Money laundering is increasingly becoming a cybercrime. Gone are the days when the bad guys would pop down to the casino and hope to convert their loot into a clean win on the roulette table. And less popular is the old scam of taking out an insurance policy and then redeeming it at a discount.

Instead, modern criminals are focusing on the internet. And the opportunities for turning dirty money into a spotless shade of green are plentiful.

So today, Jean-Loup Richet, a research associate at the ESSEC Business School just outside Paris, surveys the new techniques that criminals are using in a report written for the United Nations Office on Drugs and Crime. And he reveals just how creative and opportunistic money launderers have become.

Researching these kinds of operations is inherently difficult. As Richet puts it: “Bad guys and their banks don’t share information on criminal pursuits. “

Instead, he has had to cast his net a little wider. Richet’s main sources of information are online hacker forums where anonymous criminals exchange tips on the best ways to launder money and are surprisingly frank about their methods.

In some ways, many of these methods are unsurprising. A common approach until recently was to use the Costa Rican digital currency service called Liberty Reserve. This converted dollars or Euros into a digital currency called Liberty Reserve dollars or Liberty Reserve Euros, which could then be sent and received anonymously—one of the few services to allow this. The receiver can then convert the Liberty Reserve currency back into cash for a small fee.

In May this year, however, the US authorities shut down the service and charged its founder and various others with money laundering.

But Richet says the closure of Liberty Reserve is unlikely to end these practices because there so many alternatives. These include WebMoney, Bitcoins, Paymer, PerfectMoney and so on.

Another increasingly common way of laundering money is to use online gaming. In a growing number of online games, it is possible to convert money from the real world into virtual goods services or cash that can later be converted back into the real thing. “Popular games for this type of scam include Second Life and World of Warcraft,” says Richet.

Then there are the money mule scams. Most people will be familiar with the spam in which a high level official from a developing country asks your help to transfer significant amounts of money and are prepared to pay well for your services. But first, they require your banking details which they promptly use to empty your account and then disappear.

In a growing number of cases, however, the criminals do actually transfer large amounts of money into your account and then ask you to forward it. However, since this involves stolen funds that are being laundered, you are accountable for the crime.

Another scam is to offer people jobs in which they can make a substantial income working from home. However, the ‘job’ involves accepting money transfers into their accounts and then passing these funds on to an account set up by the employer. In other words, money laundering!

Continued in article

Options Backdating --- http://en.wikipedia.org/wiki/Options_backdating

From the CFO Journal's Morning Ledger on November 26, 2013

Backdating scandal carried steep legal costs
The legal fallout from the stock-option backdating scandal that surfaced in 2006 is over, and the price tag was high, Emily Chasan reports. A total of 181 lawsuits alleged that executives were overpaid through improperly timed stock-option awards at companies, including UnitedHealth Group and Broadcom. A settlement in the final suit, involving fiber-optics supplier Finisar, was approved last month. The settlements cost companies and their executives, auditors and advisers a combined $7.3 billion. The scandals also changed how stock options are granted, making them less popular as a form of compensation and pushing companies to become stricter about their procedures, according to Robin Ferracone, chief executive of compensation consultant Farient Advisors. “The process and paperwork behind this has gotten much more rigorous,” Ms. Ferracone said.

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

Apps for Illegal Acts (well maybe not in some parts of the world)
Apps to Find a Prostitute ---
Search for the phrase "apps for a prostitute" at http://www.google.ca/advanced_search

And for apps that are legal are there added ethical and social responsibilities?
"Do Apps Have Social Responsibility? by Gretchen Gavett , Harvard Business Review Blog, October 18, 2013 ---
http://blogs.hbr.org/2013/10/do-apps-have-social-responsibility/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&cm_ite=DailyAlert-102113+%281%29&cm_lm=sp%3Arjensen%40trinity.edu&cm_ven=Spop-Email

"Jordan Belfort, the Real Wolf of Wall Street is Back in Business," by Sheelah Kolhatkar, Bloomberg Businessweek, November 7, 2013 ---
http://www.businessweek.com/articles/2013-11-07/jordan-belfort-the-real-wolf-of-wall-street?campaign_id=DN110813

"We are not the mistakes of our past," Jordan Belfort told Sheelah Kolhatkar. Leonardo DiCaprio is starring in a movie about Belfort's life, and the former stock swindler is back in business.

One Piece at a Time by Johnny Cash
http://www.youtube.com/watch?v=0ynSm1Ngfn8

She entered like Twiggy and exited like Dolly:  The "loss should have been spotted sooner"

Nobody Questioned Why Her Bras Were Twice as Big as She Could Justify
"Accountant suspected of embezzling school lunch money in Rialto:  Judith Oakes faces the prospect of embezzlement and grand theft charges. As much as $3.16 million might be missing," by Richard Winton, Los Angeles Times, October 4, 2013 ---
http://www.latimes.com/local/la-me-rialto-lunch-money-20131005,0,3922960.story

Usually it's the school bully who steals lunch money from the kids.

But in Rialto, it's allegedly the accountant hired to keep an eye on the lunch money.

When accountant Judith Oakes was arrested on suspicion of embezzling from the school district's nutrition services department this summer — allegedly caught on surveillance tape stuffing cash in her bra — officials said they were staggered when they were told that as much as $3.16 million might be missing.

Oakes faces the prospect of embezzlement and grand theft charges, but the fallout from the lunch money episode could continue as law enforcement agencies and the state Department of Education investigate why the loss was not spotted sooner. FOR THE RECORD: Rialto accountant: An article in the Oct. 5 LATExtra edition about the arrest of accountant Judith Oakes on suspicion of embezzling from the Rialto school district's nutrition services department said her late husband had been a school principal in Rialto. He was a principal in San Bernardino. —

An investigative firm hired by the Rialto Unified School District has so far found a "documented" loss of at least $1.8 million but warned it could reach as high as $3.16 million, including discrepancies that could not be documented. School records go back only to 2005.

The district's superintendent and his deputy have been placed on leave by the school board.

"That is money that should have been going to students," said school board Vice President Edgar Montes. "That this betrayal may have been going on for approximately 14 years is disturbing and disgusting."

Oakes, 49, resigned the day after her arrest Aug. 7 on suspicion of embezzlement and grand theft. A mother of three, Oakes earned $60,000 in her accounting job. Her late husband was a well-respected school principal in Oakes, 49, resigned the day after her arrest Aug. 7 on suspicion of embezzlement and grand theft. A mother of three, Oakes earned $60,000 in her accounting job. Her late husband was a well-respected school principal in Rialto San Bernadino.

Rialto police Capt. Randy De Anda said Oakes, who had worked for the district 16 years, kept tabs on lunch money for 29 district schools.

"The lunch money can really add up," he said. "She had unfettered access to enormous sums of money over the years — much of it in cash."

Continued in article

Bob Jensen's Fraud Updates since 2002 ---
http://www.trinity.edu/rjensen/FraudUpdates.htm

"Ex-Ernst & Young Executive Rebuffed in Tax Shelter Case," by Greg Stohr, Bloomberg News, October 7, 2013 ---
http://www.bloomberg.com/news/2013-10-07/ex-ernst-young-executive-rebuffed-in-tax-shelter-case.html

The U.S. Supreme Court turned away an appeal by Robert Coplan, a former Ernst & Young LLP executive convicted of selling illegal tax shelters that cost the federal government as much as $2 billion.

The justices today left intact Coplan’s seven-count conviction and three-year prison sentence. His appeal, which challenged one of the seven counts, sought to narrow the scope of the federal law that criminalizes conspiracies to defraud the U.S. government.

Coplan, a tax lawyer, is one of four Ernst & Young executives convicted in 2010 for developing and marketing tax shelters sold from 1999 to 2001. Two of the men, Richard Shapiro and Martin Nissenbaum, have since won reversals.

Prosecutors said Coplan also took steps to conceal the shelters from the Internal Revenue Service, lied to the IRS in audits and encouraged clients to do likewise.

In his appeal, Coplan pointed to a 2010 Supreme Court decision that limited the reach of a separate federal fraud law in the case of former Enron Corp. Chief Executive Officer Jeffrey Skilling.

Continued in article

Earned Income Tax Credit --- http://en.wikipedia.org/wiki/Earned_Income_Tax_Credit

This is the Real IRS Scandal
That's $110.8 Billion with a "B" Mistake (yeah right, supposedly a "mistake" With No End in Sight!

"IRS mistakenly distributed at least $110.8B in earned income tax credits," by Bernie Becker, The Hill, October 22, 2013 ---
http://thehill.com/blogs/on-the-money/domestic-taxes/329879-audit-irs-allowing-billions-in-improper-tax-payments

The IRS has failed to clamp down on improper refundable tax credit payments, according to a new federal audit.

In all, the IRS said it wrongly distributed as much as a quarter of Earned Income Tax Credit (EITC) payments, to the tune of between $11.6 billion and $13.6 billion, according to Treasury’s inspector general for tax administration. Between 2003 and 2012, the IRS erroneously paid out at least $110.8 billion and as much as $132.6 billion, the new report says. 

Due to a 2009 executive order, the IRS is supposed to have targets for rolling back those improper payments. But the agency has yet to do so, and the Treasury inspector general says in its audit that the IRS needs to rethink its methods for cutting down on waste in EITC payments.

Russell George, the tax administration inspector general, noted that the IRS had made some strides in stopping inappropriate payments, and in educating taxpayers about EITC eligibility. Still, George said the billions of dollars lost to waste each year was “disturbing.”

“The IRS must do a better job of reining in improper payments in this and in other programs,” George said in a statement.

Sen. Orrin Hatch (Utah), the top Republican on the Finance Committee, called on the IRS to “aggressively crack down on these erroneous payments,” insisting the agency’s issue with the EITC “doesn’t bode well” for its oversight of subsidies for President Obama’s healthcare law.

“Refundable tax credits are a nightmare to administer and lead to far too much of the American people’s money going out to those who aren’t eligible,” Hatch said in a statement.

For its part, the IRS said it is doing its best to balance the need to target mistaken payments and to ensure that eligible taxpayers know to claim the EITC, which is aimed at helping low-income workers. Improper payments have also declined since 2010, the IRS added in a statement.

Democrats successfully fought to extend expanded versions of the EITC and other refundable tax breaks in the fiscal-cliff deal signed early this year. Taxpayers who claim the EITC or other refundable tax breaks receive payments from the government if those credits are worth more than their tax burden.

IRS officials told the inspector general that they were meeting with the Office of Management and Budget to search for ways to supplement their efforts to reduce improper EITC payments. 

The 21 percent to 25 percent figure the IRS uses includes payments that should have never been made and both over- and underpayments.

“The IRS appreciates the Inspector General’s acknowledgment of all our work to implement processes that identify and prevent improper EITC payments,” the agency said in its statement. “The IRS protects nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims.”

Still, the IRS acknowledges that complexities in the tax law, and confusion and high turnover among those claiming the EITC have hampered its efforts to reduce those payments.

Continued in article

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

Tate George --- http://en.wikipedia.org/wiki/Tate_George

Jury Convicts Former NBA Player Of $2 Million Ponzi Scheme ---
http://www.ponzitracker.com/main/2013/10/1/jury-convicts-former-nba-player-of-2-million-ponzi-scheme.html

Teaching Case
From The Wall Street Journal Accounting Weekly Review on October 4, 2013

Accountant Linked to Madoff Is Indicted
by: Reed Albergotti
Sep 27, 2013
Click here to view the full article on WSJ.com
 

TOPICS: Code of Ethics, Code of Professional Conduct, Ethics, Fraud, Ponzi Schemes

SUMMARY: "Nearly five years after the Madoff Ponzi scheme was first discovered, agents from the FBI arrested Paul Konigsberg, 77 years old. He was the accountant to whom Bernard Madoff directed "many of his clients-including some of his most important customers, in whose accounts Madoff executed the most glaringly fraudulent transactions..." Mr. Konisgerber is accused of conspiracy and falsifying records but not of having knowledge of the Ponzi scheme.

CLASSROOM APPLICATION: The article may be used in any class discussing accountants' professional responsibilities, including an ethics class.

QUESTIONS: 
1. (Advanced) What is a Ponzi scheme?

2. (Advanced) Summarize what you know about Bernard Madoff's Ponzi scheme, including the length of time and extent of Mr. Madoff's fraud. (Hint: access the indictment linked to the article or search the WSJ site for information if you are unfamiliar with the Madoff fraud.)

3. (Introductory) According to the article, why is this indictment being made almost 5 years after the Madoff fraud came to light?

4. (Advanced) Madoff's accountant, Paul Konigsberg, has been indicted on charges of conspiracy and falsifying records, but not of having knowledge of the Ponzi scheme. How do you think this is possible? (Hint: consider the responsibility of a CPA under the code of ethics as well as the responsibility not to knowlingly or recklessly contribute to violations of the ethics code.)
 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Accountant Linked to Madoff Is Indicted," by Reed Albergotti, The Wall Street Journal, September 27, 2013 ---
http://online.wsj.com/article/SB10001424052702304526204579099193990812048.html?mod=djem_jiewr_AC_domainid

Paul Konigsberg, a long-time former accountant to Bernard Madoff, was indicted Thursday for allegedly keeping false books that helped the convicted Ponzi-scheme operator cover up the fraud for decades.

Mr. Konigsberg, 77 years old, was arrested at 6 a.m. by agents from the Federal Bureau of Investigation, nearly five years after the Madoff Ponzi scheme was first discovered. Mr. Konigsberg pleaded not guilty and was released on bail Thursday.

Mr. Konigsberg's attorney, Reed Brodsky, said his client "is an innocent victim of Bernie Madoff."

"He looks forward to clearing his good name at trial," Mr. Brodsky said. "In their witch hunt arising out of the largest Ponzi scheme in history, the government conveniently ignores that the sociopath Bernie Madoff deceived everyone around him—from the most sophisticated investors to the SEC itself."

In a five-count criminal indictment, prosecutors accused Mr. Konigsberg of conspiracy and of falsifying records. They didn't accuse him of having knowledge of Mr. Madoff's Ponzi scheme.

"In order to keep his scheme hidden for so long, Madoff needed the assistance of certain willing outsiders that could be trusted to handle otherwise suspicious activity," the indictment said.

"In particular, Madoff directed many of his clients—including some of his most important customers, in whose accounts Madoff executed the most glaringly fraudulent transactions—to use Paul J. Konigsberg, the defendant, as their accountant."

The charges come just weeks before a criminal trial of five former Madoff employees is slated to begin. Five back-office employees, including two computer programmers and a secretary, are accused of a host of crimes, including conspiracy, securities fraud and falsifying records. The former employees have denied wrongdoing

According to a person briefed on the investigation, prosecutors believe they have less than a year to bring cases against people they suspect of having played a role in the Ponzi scheme, given the five-year statute of limitations on securities-fraud cases.

Mr. Madoff, 75 years old, admitted in March 2009 that he carried out a decades-long Ponzi scheme, and is serving a 150-year sentence in federal prison in North Carolina. He has always insisted he acted alone.

So far, prosecutors have focused their investigation on easier-to-prove charges like making false statements to investors and government agencies. Nine people, including Mr. Madoff, have pleaded guilty to criminal charges in connection with the probe but none other than Mr. Madoff have admitted to knowing about the fraud. Last year, Mr. Madoff's brother, Peter, pleaded guilty to filing false documents as chief compliance officer at the firm, but denied knowing about the Ponzi scheme. He was sentenced to 10 years in prison.

Mr. Konigsberg, a partner at accounting firm Konigsberg Wolf & Co., is the second former accountant to come under scrutiny in the criminal investigation. David Friehling, Mr. Madoff's former outside accountant, has previously pleaded guilty to criminal charges.

According to a person familiar with the matter, federal criminal investigators also are looking into whether J.P. Morgan Chase JPM -0.29% & Co. or its employees funneled money into the Madoff scheme while ignoring warning signs about the fraud. J.P. Morgan didn't respond to a request for comment.

J.P. Morgan is one of a number of banks that faced civil lawsuits in recent years filed by court-appointed trustee Irving Picard, who is tasked with recovering funds for victims. Mr. Picard's lawsuit alleges that J.P. Morgan was "at the very center" of Mr. Madoff's fraud, and "thoroughly complicit in it."

However, in June, 2013, Mr. Picard's lawsuit against J.P. Morgan and other banks was blocked from going forward because an appeals court ruled that the lawsuit didn't comply with bankruptcy laws. The appeals court didn't address the validity of Mr. Picard's allegations against J.P. Morgan and other banks. Mr. Picard is weighing his options.

Last year, investigators focused on Shana Madoff, Peter Madoff's daughter, who served as in-house counsel and compliance director. It is unclear whether prosecutors are considering any action against her. She hasn't been accused of wrongdoing. A lawyer for Shana Madoff said he is no longer representing her. She couldn't be reached for comment.

Prosecutors also continue to investigate Andrew Madoff, Bernie Madoff's son, according to people familiar with the matter. A lawyer for Andrew Madoff didn't respond to a request for comment.

The coming trial of the five ex-employees could offer further insight into Mr. Madoff's operation, which went undetected for decades by regulators and investors. At a pretrial hearing on Wednesday, prosecutors were told by the judge that they couldn't introduce evidence of the defendants' lavish lifestyle while employed with Mr. Madoff, including purchases of expensive cars and vacation homes, lest that unfairly colors jurors' perceptions. However, prosecutors would be allowed to share evidence of other purchases funded directly by the Madoff enterprise, including a Caribbean vacation.

Continued in article

Madoff Book's 9 Juiciest Bits --- Click Here
http://www.thedailybeast.com/articles/2011/10/21/bernie-madoffs-daughter-in-law-on-husbands-suicide-and-bernies-crime.html

Bob Jensen's threads on Ponzi schemes ---
http://www.trinity.edu/rjensen/FraudRotten.htm#Ponzi

"J.P. Morgan's Mortgage Troubles Ran Deep:  Deals With Subprime Lenders at Heart of $5.1 Billion Settlement," by Al Yoon, The Wall Street Journal, October 27, 2013 ---
http://online.wsj.com/news/articles/SB10001424052702304470504579161532779973534?mod=djemCFO_h

A 1,625-square-foot bungalow at 51 Perthshire Lane in Palm Coast, Fla., is among the thousands of homes at the heart of J.P. Morgan Chase JPM +0.55% & Co.'s $5.1 billion settlement with a federal housing regulator on Friday.

In 2006, J.P. Morgan bought one of two mortgage loans on the home made by subprime lender New Century Financial Corp. J.P. Morgan then bundled the loan with 4,208 others from New Century into a mortgage-backed security it sold to investors including housing-finance giant Freddie Mac. FMCC +11.89%

By the end of 2007, the borrower had stopped paying back the loan, setting off yearslong delinquency and foreclosure proceedings that halted income to the investors, according to BlackBox Logic LLC, a mortgage-data company. Current Account

Settlement Puts U.S. in Tight Spot

The Palm Coast loan wasn't the only troubled one in the New Century deal: Within a year, 15% of the borrowers were delinquent—more than 60 days late on a payment, in some stage of foreclosure or in bankruptcy—according to BlackBox. By 2010, that number exceeded 50%.

"That's much worse than anyone's expectations when the deal was put together," said Cory Lambert, an analyst at BlackBox and former mortgage-bond trader. "It's all pretty bad."

J.P. Morgan sidestepped many of the subprime-mortgage problems that bedeviled rivals during the financial crisis, and avoided much of the postcrisis scrutiny that dragged down others on Wall Street. But now its own behavior during the housing boom is coming under close examination as investigators work through a backlog of cases.

The bank dealt with some of the biggest subprime lenders of the time, including Countrywide Financial Corp., Fremont Investment & Loan and WMC Mortgage Corp., a former unit of General Electric, according to the Federal Housing Finance Agency complaint.

J.P. Morgan's relationship with New Century, a subprime lender that went bankrupt in 2007 and later faced a Securities and Exchange Commission investigation and shareholder suits, shows that the New York bank was part of the frenzied push to package mortgages for investors at the end of the housing boom.

The New Century deal, J.P. Morgan Mortgage Acquisition Trust 2006-NC1, was one of 103 cited in the lawsuit against J.P. Morgan brought by the FHFA, which oversees Freddie Mac and home-loan giant Fannie Mae. FNMA +13.40%

The $5.1 billion settlement is part of a larger tentative deal with the Justice Department and other agencies that would have J.P. Morgan pay a total of $13 billion. That deal is expected to be completed this week.

"While these settlements seem huge, given the nature of the offenses, they are trivially small," said William Frey, chief executive of Greenwich Financial Services LLC, a broker-dealer that has participated in investor lawsuits against banks that packaged mortgages. J.P. Morgan declined to comment on the settlement or any loans in the bonds it bought.

The FHFA has gotten aggressive in recouping losses from mortgages and securities sold to Fannie and Freddie. In 2011 it sued 18 lenders, and J.P. Morgan was only the fourth to settle.

To be sure, the New Century deal was among J.P. Morgan's worst performers, and other mortgage-backed securities it issued at the time have held up better. An improving economy and housing market have lifted many mortgage bonds sold in 2006 and 2007.

But that is of little consolation to Freddie Mac, which bought more than a third of the $910 million New Century bond deal in 2006 and still is sitting on losses.

The group of loans backing Freddie's chunk of the deal had more high-risk loans than the rest of the pool. Nearly 44% of Freddie's piece had loan-to-value ratios between 80% and 100%, compared with 31% for the rest, according to the deal prospectus.

What's more, nearly half the loans backing the New Century deal were from California and Florida, two states hit hard by the housing bust. Of the 4,209 loans in the bond, more than half have some experienced distress, according to BlackBox data.

Three debt-rating firms gave the top slice of the deal AAA ratings. But as the housing market soured, a series of downgrades starting in 2007 took them all into "junk" territory by July 2011. As of last month, nearly a quarter of the principal of the underlying loans in the deal had been wiped out, with a third of the remaining balance delinquent or in some stage of foreclosure, according to BlackBox.

Continued in article

From the CFO Journal's Morning Ledger on October 28, 2013

J.P. Morgan settlement puts government in tight spot
Will the U.S. government have to refund J.P. Morgan part of the bank’s expected $13 billion payment over soured mortgage securities? The question is the biggest stumbling block to completing the record settlement between the bank and the Justice Department, writes the WSJ’s Francesco Guerrera. The crux of the issue is whether the government can go after J.P. Morgan for (alleged) sins committed by others. And investors, bankers and lawyers are watching the process closely, worried that it could set a bad precedent for the relationship between buyers, regulators and creditors in future deals for troubled banks.

"JPMorgan's $13 Billion Settlement: Jamie Dimon Is a Colossus No More," by Nick Summers, Bloomberg Businessweek, October 24, 2013 ---
http://www.businessweek.com/articles/2013-10-24/jpmorgans-13-billion-settlement-jamie-dimon-is-a-colossus-no-more

Thirteen billion dollars requires some perspective. The record amount that JPMorgan Chase (JPM) has tentatively agreed to pay the U.S. Department of Justice, to settle civil investigations into mortgage-backed securities it sold in the runup to the 2008 financial crisis, is equal to the gross domestic product of Namibia. It’s more than the combined salaries of every athlete in every major U.S. professional sport, with enough left over to buy every American a stadium hotdog. More significantly to JPMorgan’s executives and shareholders, $13 billion is equivalent to 61 percent of the bank’s profits in all of 2012. Anticipating the settlement in early October, the bank recorded its first quarterly loss under the leadership of Chief Executive Officer Jamie Dimon.

That makes it real money, even for the country’s biggest bank by assets. Despite this walloping, there’s reason for the company to exhale. The most valuable thing Dimon, 57, gets out of the deal with U.S. Attorney General Eric Holder is clarity. The discussed agreement folds in settlements with a variety of federal and state regulators, including the Federal Deposit Insurance Corp. and the attorneys general of California and New York. JPMorgan negotiated a similar tack in September, trading the gut punch of a huge headline number—nearly $1 billion in penalties related to the 2012 London Whale trading fiasco—for the chance to resolve four investigations in two countries in one stroke. In both cases, the bank’s stock barely budged; its shares have returned 25 percent this year, exactly in line with the performance of Standard & Poor’s 500-stock index.

That JPMorgan is able to withstand penalties and regulatory pressure that would cripple many of its competitors attests both to the bank’s vast resources and the influence of the man who leads it. The sight of Dimon arriving at the Justice Department on Sept. 26 for a meeting with the attorney general underscored Dimon’s extraordinary access to Washington decision-makers—although the Wall Street chieftain did have to humble himself by presenting his New York State driver license to a guard on the street. As news of the settlement with Justice trickled out, the admirers on Dimon’s gilded list rushed to his defense, arguing that he struck the best deal he could. “If you’re a financial institution and you’re threatened with criminal prosecution, you have no ability to negotiate,” Berkshire Hathaway (BRK/A) Chairman Warren Buffett told Bloomberg TV. “Basically, you’ve got to be like a wolf that bares its throat, you know, when it gets to the end. You cannot win.”

STORY: JPMorgan's $13 Billion Settlement: Let's Crunch the Numbers

The challenges facing Dimon and his company are far from over. With the $13 billion payout, JPMorgan is still the subject of a criminal probe into its mortgage-bond sales, which could end in charges against the bank or its executives. And other federal investigations—into suspected bribery in China, the bank’s role in the Bernie Madoff Ponzi scheme, and more—are ongoing.

The ceaseless scrutiny has tarnished Dimon’s public image, perhaps irreparably. Once seen as the white knight of the financial crisis, he’s now the executive stuck paying the bill for Wall Street’s misdeeds. And as the bank’s legal fights drag on, it’s worth asking just how many more blows the famously pugnacious Dimon can take.

Although the $13 billion settlement would amount to the largest of its kind in the history of regulated capitalism, it looks quite different broken into its component pieces. While the relative amounts could shift, JPMorgan is expected to pay fines of only $2 billion to $3 billion for misrepresenting the quality of mortgage securities it sold during the subprime housing boom. Overburdened homeowners would get $4 billion; another $4 billion would go to the Federal Housing Finance Agency, which regulates Freddie Mac (FMCC) and Fannie Mae (FNMA); and about $3 billion would go to investors who lost money on the securities, Bloomberg News reported.

STORY: Wall Street Seeks Justice (From Wall Street)

JPMorgan will only pay fines (as distinct from compensation to investors or homeowner relief) related to its own actions—and not those of Bear Stearns or Washington Mutual, the two troubled institutions the bank bought at discount-rack prices during the crisis. Aside from shaving some unknown amount off the final settlement, this proviso enhances Dimon’s reputation as the shrewdest banker of that era. In 2008, with the backing of the U.S. Department of the Treasury and the Federal Reserve, who saw JPMorgan as a port in a storm, Dimon got the two properties for just $3.4 billion. Extending JPMorgan’s retail reach overnight into Florida and California, Bear and WaMu helped the bank become the largest in the U.S. by 2011. The portions of the settlement attributable to their liabilities are almost certainly outweighed by the profits they’ve brought and will continue to bring.

STORY: How Not to Waste the $4 Billion JPMorgan's Going to Give Homeowners

"The Business End of Obamacare," by James Surowiecki, The New Yorker, October 14, 2013 ---
http://www.newyorker.com/talk/financial/2013/10/14/131014ta_talk_surowiecki

Of the countless reasons that congressional Republicans hate the Affordable Care Act enough to shut down the government, the most politically potent is the claim that it will do untold damage to the economy and cripple small companies. Orrin Hatch has said that Obamacare will be “devastating to small business.” Ted Cruz argues that it is already “the No. 1 job killer.” And the vice-president of the National Federation of Independent Businesses called it simply “terrible.” So it comes as some surprise to learn that Obamacare may well be the best thing Washington has done for American small business in decades.

The G.O.P.’s case hinges on the employer mandate, which requires companies with fifty or more full-time employees to provide health insurance. It also regulates the kind of insurance that companies can offer: insurance has to cover at least sixty per cent of costs, and premiums can’t be more than 9.5 per cent of employees’ income. Companies that don’t offer insurance will pay a penalty. Republicans argue that this will hurt companies’ profits, forcing them to stop hiring and to cut workers’ hours, in order to stay below the fifty-employee threshold.

The story is guaranteed to feed the fears of small-business owners. But the overwhelming majority of American businesses—ninety-six per cent—have fewer than fifty employees. The employer mandate doesn’t touch them. And more than ninety per cent of the companies above that threshold already offer health insurance. Only three per cent are in the zone (between forty and seventy-five employees) where the threshold will be an issue. Even if these firms get more cautious about hiring—and there’s little evidence that they will—the impact on the economy would be small.

Meanwhile, the likely benefits of Obamacare for small businesses are enormous. To begin with, it’ll make it easier for people to start their own companies—which has always been a risky proposition in the U.S., because you couldn’t be sure of finding affordable health insurance. As John Arensmeyer, who heads the advocacy group Small Business Majority, and is himself a former small-business owner, told me, “In the U.S., we pride ourselves on our entrepreneurial spirit, but we’ve had this bizarre disincentive in the system that’s kept people from starting new businesses.” Purely for the sake of health insurance, people stay in jobs they aren’t suited to—a phenomenon that economists call “job lock.” “With the new law, job lock goes away,” Arensmeyer said. “Anyone who wants to start a business can do so independent of the health-care costs.” Studies show that people who are freed from job lock (for instance, when they start qualifying for Medicare) are more likely to undertake something entrepreneurial, and one recent study projects that Obamacare could enable 1.5 million people to become self-employed.

Even more important, Obamacare will help small businesses with health-care costs, which have long been a source of anxiety. The fact that most Americans get their insurance through work is a historical accident: during the Second World War, wages were frozen, so companies began offering health insurance instead. After the war, attempts to create universal heath care were stymied by conservatives and doctors, and Congress gave corporations tax incentives to keep providing insurance. The system has worked well enough for big employers, since large workforces make possible the pooling of risk that any healthy insurance market requires. But small businesses often face so-called “experience rating”: a business with a lot of women or older workers faces high premiums, and even a single employee who runs up medical costs can be a disaster. A business that Arensmeyer represents recently saw premiums skyrocket because one employee has a child with diabetes. Insurance costs small companies as much as eighteen per cent more than it does large companies; worse, it’s also a crapshoot. Arensmeyer said, “Companies live in fear that if one or two employees get sick their whole cost structure will radically change.” No wonder that fewer than half the companies with under fifty employees insure their employees, and that half of uninsured workers work for small businesses or are self-employed. In fact, a full quarter of small-business owners are uninsured, too.

Obamacare changes all this. It provides tax credits to smaller businesses that want to insure their employees. And it requires “community rating” for small businesses, just as it does for individuals, sharply restricting insurers’ ability to charge a company more because it has employees with higher health costs. And small-business exchanges will in effect allow companies to pool their risks to get better rates. “You’re really taking the benefits that big companies enjoy, and letting small businesses tap into that,” Arensmeyer said. This may lower costs, and it will insure that small businesses can hire the best person for a job rather than worry about health issues.

Continued in article

Jensen Comment
The New Yorker is a liberal (er progressive) magazine that generally backs anything said or done by President Obama. But The New Yorker was also among the first magazines to warn of deceptions early on in the Affordable Health Care Act.

Once the reforms are up and running, some employers will have a big incentive to end their group coverage plans and dump their employees onto the taxpayer-subsidized individual plans, greatly adding to their cost.
John Cassidy, The New Yorker, March 2010

Fuzzy CBO Accounting Tricks
"ObamaCare by the Numbers: Part 2," by John Cassidy, The New Yorker, March 2010 ---
http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-2.html

This is a long and somewhat involved followup to my previous post on ObamaCare. . For those of you with O.A.D.D. (online attention-deficit disorder), I’ve provided an express and local version.

EXPRESS:

The official projections for health-care reform, which show it greatly reducing the number of uninsured and also reducing the budget deficit, are simply not credible. There are three basic issues.

The cost and revenue projections rely on unrealistic assumptions and accounting tricks. If you make some adjustments for these, the cost of the plan is much higher.

The so-called “individual mandate” isn’t really a mandate at all. Under the new system, many young and healthy people will still have a strong incentive to go uninsured.

Once the reforms are up and running, some employers will have a big incentive to end their group coverage plans and dump their employees onto the taxpayer-subsidized individual plans, greatly adding to their cost.

LOCAL:

For future reference (or possibly to roll up and beat myself over the head with in my dotage) I have filed away a copy the latest analysis (pdf) of health-care reform from the Congressional Budget Office. By 2019, it says, the bills passed by the House and Senate will have cut the number of uninsured Americans by thirty-two million, raised the percentage of people with some form of health-care coverage from eighty-three per cent to ninety-four per cent, and reduced the federal deficit by a cumulative $143 billion. If all of these predictions turn out to be accurate, ObamaCare will go down as one of the most successful and least costly government initiatives in history. At no net cost to the taxpayer, it will have filled a gaping hole in the social safety net and solved a problem that has frustrated policymakers for decades.

Does Santa Claus live after all? According to the C.B.O., between now and 2019 the net cost of insuring new enrollees in Medicaid and private insurance plans will be $788 billion, but other provisions in the legislation will generate revenues and cost savings of $933 billion. Subtract the first figure from the second and—voila!—you get $143 billion in deficit reduction.

The first objection to these figures is that the great bulk of the cost savings—more than $450 billion—comes from cuts in Medicare payments to doctors and other health-care providers. If you are vaguely familiar with Washington politics and the letters A.A.R.P. you might suspect that at least some of these cuts will fail to materialize. Unlike some hardened skeptics, I don’t think none of them will happen. One part of the reform involves reducing excessive payments that the Bush Administration agreed to when it set up the Medicare Advantage program in 2003. If Congress remains under Democratic control—a big if, admittedly—it will probably enact these changes. But that still leaves another $300 billion of Medicare savings to be found.

The second problem is accounting gimmickry. Acting in accordance with standard Washington practices, the C.B.O. counts as revenues more than $50 million in Social Security taxes and $70 billion in payments towards a new home-care program, which will eventually prove very costly, and it doesn’t count some $50 billion in discretionary spending. After excluding these pieces of trickery and the questionable Medicare cuts, Douglas Holtz-Eakin, a former head of the C.B.O., has calculated that the reform will actually raise the deficit by $562 billion in the first ten years. “The budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed,” he wrote in the Times. “So fantasy in, fantasy out.”

Holtz-Eakin advised John McCain in 2008, and he has a reputation as a straight shooter. I think the problems with the C.B.O.’s projections go even further than he suggests. If Holtz-Eakin’s figures turned out to be spot on, and over the next ten years health-care reform reduced the number of uninsured by thirty million at an annual cost of $56 billion, I would still regard it as a great success. In a $15 trillion economy—and, barring another recession, the U.S. economy should be that large in 2014—fifty or sixty billion dollars is a relatively small sum—about four tenths of one per cent of G.D.P., or about eight per cent of the 2011 Pentagon budget.

My two big worries about the reform are that it won’t capture nearly as many uninsured people as the official projections suggest, and that many businesses, once they realize the size of the handouts being offered for individual coverage, will wind down their group plans, shifting workers (and costs) onto the new government-subsidized plans. The legislation includes features designed to prevent both these things from happening, but I don’t think they will be effective.

Consider the so-called “individual mandate.” As a strict matter of law, all non-elderly Americans who earn more than the poverty line will be obliged to obtain some form of health coverage. If they don’t, in 2016 and beyond, they could face a fine of about $700 or 2.5 per cent of their income—whichever is the most. Two issues immediately arise.

Even if the fines are vigorously enforced, many people may choose to pay them and stay uninsured. Consider a healthy single man of thirty-five who earns $35,000 a year. Under the new system, he would have a choice of enrolling in a subsidized plan at an annual cost of $2,700 or paying a fine of $875. It may well make sense for him to pay the fine, take his chances, and report to the local emergency room if he gets really sick. (E.R.s will still be legally obliged to treat all comers.) If this sort of thing happens often, as well it could, the new insurance exchanges will be deprived of exactly the sort of healthy young people they need in order to bring down prices. (Healthy people improve the risk pool.)

If the rules aren’t properly enforced, the problem will be even worse. And that is precisely what is likely to happen. The I.R.S. will have the administrative responsibility of imposing penalties on people who can’t demonstrate that they have coverage, but it won’t have the legal authority to force people to pay the fines. “What happens if you don’t buy insurance and you don’t pay the penalty?” Ezra Klein, the Washington Post’s industrious and well-informed blogger, asks. “Well, not much. The law specifically says that no criminal action or liens can be imposed on people who don’t pay the fine.”

So, the individual mandate is a bit of a sham. Generous subsidies will be available for sick people and families with children who really need medical care to buy individual coverage, but healthy single people between the ages of twenty-six and forty, say, will still have a financial incentive to remain outside the system until they get ill, at which point they can sign up for coverage. Consequently, the number of uninsured won’t fall as much as expected, and neither will prices. Without a proper individual mandate, the idea of universality goes out the window, and so does much of the economic reasoning behind the bill.

The question of what impact the reforms will have on existing insurance plans has received even less analysis. According to President Obama, if you have coverage you like you can keep it, and that’s that. For the majority of workers, this will undoubtedly be true, at least in the short term, but in some parts of the economy, particularly industries that pay low and moderate wages, the presence of such generous subsidies for individual coverage is bound to affect behavior eventually. To suggest this won’t happen is to say economic incentives don’t matter.

Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)

In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.

Even if the government tried to impose additional sanctions on such firms, I doubt it would work. The dollar sums involved are so large that firms would try to game the system, by, for example, shutting down, reincorporating under a different name, and hiring back their employees without coverage. They might not even need to go to such lengths. Firms that pay modest wages have high rates of turnover. By simply refusing to offer coverage to new employees, they could pretty quickly convert most of their employees into non-covered workers.

The designers of health-care reform and the C.B.O. are aware of this problem, but, in my view, they have greatly underestimated it. According to the C.B.O., somewhere between eight and nine million workers will lose their group coverage as a result of their employers refusing to offer it. That isn’t a trifling number. But the C.B.O. says it will be largely offset by an opposite effect in which employers that don’t currently provide health insurance begin to offer it in response to higher demand from their workers as a result of the individual mandate. In this way, some six to seven million people will obtain new group coverage, the C.B.O. says, so the overall impact of the changes will be minor.

The C.B.O.’s analysis can’t be dismissed out of hand, but it is surely a best-case scenario. Again, I come back to where I started: the scale of the subsidies on offer for low and moderately priced workers. If economics has anything to say as a subject, it is that you can’t offer people or firms large financial rewards for doing something—in this case, dropping their group coverage—and not expect them to do it in large numbers. On this issue, I find myself in agreement with Tyler Cowen and other conservative economists. Over time, the “firewall” between the existing system of employer-provided group insurance and taxpayer-subsidized individual insurance is likely to break down, with more and more workers being shunted over to the public teat.

At that point, if it comes, politicians of both parties will be back close to where they began: searching for health-care reform that provides adequate coverage for all at a cost the country can afford. What would such a system look like? That is a topic for another post, but I don’t think it would look much like Romney-ObamaCare.  

Read more: http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-2.html#ixzz0jrFSFK3j

"Audit reveals half of people enrolled in Illinois Medicaid program not eligible," by Craig Cheatham, KMOV Television, November 4, 2013 ---
http://www.kmov.com/news/just-posted/Audit-reveals-half-of-people-enrolled-in-IL-Medicaid-program-not-eligible-230586321.html?utm_content=buffer824ba&utm_source=buffer&utm_medium=twitter&utm_campaign=Buffer

The early findings of an ongoing review of the Illinois Medicaid program revealed that half the people enrolled weren’t even eligible.

The state insisted it’s not that bad but Medicaid is on the federal government’s own list of programs at high risk of waste and abuse.

Now, a review of the Illinois Medicaid program confirms massive waste and fraud.

A review was ordered more than a year ago-- because of concerns about waste and abuse. So far, the state says reviewers have examined roughly 712-thousand people enrolled in Medicaid, and found that 357-thousand, or about half of them shouldn't have received benefits. After further review, the state decided that the percentage of people who didn't qualify was actually about one out of four.

"It says that we've had a system that is dysfunctional. Once people got on the rolls, there wasn't the will or the means to get them off,” said Senator Bill Haines of Alton.

A state spokesman insists that the percentage of unqualified recipients will continue to drop dramatically as the review continues because the beginning of the process focused on the people that were most likely to be unqualified for those benefits. But regardless of how it ends, critics say it's proof that Illinois has done a poor job of protecting tax payers money.

“Illinois one of the most miss-managed states in country-- lists of reasons-- findings shouldn't surprise anyone,” said Ted Dabrowski.

Dabrowski, a Vice-President of The Illinois Policy Institute think tank, spoke with News 4 via SKYPE. He said the Medicaid review found two out of three people recipients either got the wrong benefits, or didn't deserve any at all.

We added so many people to medicaid rolls so quickly, we've lost control of who belongs there,” said Dabrowski.

Continued in article

"Illinois's Fake Pension Fix:  The most dysfunctional state government lives down to its reputation," The Wall Street Journal, December 2, 2013 ---
http://online.wsj.com/news/articles/SB10001424052702303670804579233901035185122?mod=djemEditorialPage_h

Democrats in Illinois have dug a $100 billion pension hole, and now they want Republicans to rescue them by voting for a plan that would merely delay the fiscal reckoning while helping to re-elect Governor Pat Quinn. The cuckolded GOP seems happy to oblige on this quarter-baked reform.

Legislative leaders plan to vote Tuesday on a bill that Mr. Quinn hails as a great achievement. But the plan merely tinkers around the edges to save a fanciful $155 billion over 30 years, shaves the state's unfunded liability by at most 20%, and does nothing for Chicago's $20 billion pension hole.

Most of the putative savings would come from trimming benefits for younger workers. The retirement age for current workers would increase on a graduated scale by four months for 45-year-olds to five years for those 30 and under. Teachers now in their 20s would have to wait until the ripe, old age of 60 to retire, but they'd still draw pensions worth 75% of their final salary.

Salaries for calculating pensions would also be capped at $109,971, which would increase over time with inflation. Yet Democrats cracked this ceiling by grandfathering in pensions for workers whose salaries currently top or will exceed the cap due to raises in collective-bargaining agreements.

Democrats are also offering defined-contribution plans as a sop to Republicans who are desperate to dress up this turkey of a deal. These plans would only be available to 5% of workers hired before 2011. Why only 5%? Because if too many workers opt out of the traditional pension, there might not be enough new workers to fund the overpromises Democrats have made to current pensioners.

At private companies, such 401(k)-style plans are private property that workers keep if they move to a new job. But the Illinois version gives the state control over the new defined-contribution plans and lets the legislature raid the individual accounts at anytime. That's a scam, not a reform.

Even under the most optimistic forecasts, these nips and tucks would only slim the state's pension liability down to $80 billion—which is where it was after Governor Quinn signed de minimis fixes in spring 2010 to get him past that year's election.

Safely elected in January 2011, Democrats then raised the state's 3% flat income tax rate to 5% and its corporate rate from 7.3% to 9.5%, the fourth highest in the country. All $7 billion a year in new revenues have gone to pension payments, which will leave a huge new hole in the budget when the supposedly temporary tax hikes are phased out in 2015.

The truth is that Democrats will never let the tax increases expire, and state Senate President John Cullerton all but admitted as much in October. Mr. Quinn won't rule out another tax hike, which means round two is a certainty in 2015 if he wins re-election next year. The difference is that this time Democrats will kill the flat income tax and impose a progressive rate scheme that will make future tax hikes politically easier.

It's a sign of their desperation that the state's business lobbies are supporting the reform as the best they can hope for. Others want special tax breaks to offset the 2011 tax hike. Archer Daniels Midland ADM +1.49% (Decatur) and Office Max (Naperville) have threatened to move their corporate headquarters if the state doesn't guarantee $75 million in tax breaks. But Mr. Quinn has refused to approve more gifts for the legislature's corporate cronies until lawmakers pass something on pensions.

Democrats hold comfortable majorities in the legislature and don't need GOP votes. Yet they are demanding Republican support so they won't be the only targets of union wrath. Mr. Quinn watered down the reforms to reduce opposition from the teachers and other government unions, but the unions are still promising to go to court to block the changes if they pass.

GOP leaders who are rounding up votes must be feeling especially charitable this holiday season because they're making an in-kind contribution to Mr. Quinn, who will claim a bipartisan victory as he runs for re-election. While GOP gubernatorial candidate Bruce Rauner has denounced the pension legislation as window-dressing, his Republican primary challengers aren't as savvy. State Senator Bill Brady, who lost to Mr. Quinn in 2010, is supporting the bill while treasurer Dan Rutherford says it is too hard on unions. Such me-too thinking is why the Illinois GOP has become a useless minority.

Continued in article

Is it "Scoop and Toss" or "Poop and Scoop?"

Jensen Comment
It's a little like spending on new higher-interest credit cards to pay off the debt on current credit cards that are maxed out. Sounds like a good idea except for the fact that it does little to encourage fiscal responsibility in reducing total debt.

But some observers warn that scoop-and-toss refinancings add to interest costs while allowing civic managers to overlook structural economic difficulties. Investors purchasing the debt take on the risk that the securities will lose value, as they did in Detroit's $18 billion Chapter 9 bankruptcy case.

U.S. prosecutors have charged 49 current and former Russian diplomats and their family members with participating in a scheme to get health benefits intended for the poor by lying about their income . . . Meanwhile, according to the charges, the family members had their housing costs paid for by the Russian government and spent "tens of thousands of dollars" on vacations, jewelry and luxury goods from stores like Swarovski and Jimmy Choo.
http://www.reuters.com/article/2013/12/05/usa-russia-healthfraud-idUSL2N0JK1AV20131205

The Scam Succeeded
All Russian Diplomats Charged in US Medicaid Fraud Case Have Returned Home ---
http://en.ria.ru/crime/20131225/185920522/All-Russian-Diplomats-Charged-in-US-Fraud-Case-Have-Returned.html
Neither the Russian government nor any of the fraudsters will repay a penny of the fraud.

"Borrowing Maneuver Catches Flak 'Scoop and Toss' Involves Selling New Debt to Pay Off Existing Bonds," by Mike Cherney, The Wall Street Journal, December 2, 2013 ---
http://online.wsj.com/news/articles/SB10001424052702304579404579234441072889918?mod=djemCFO_h

A budget-stretching tactic employed by strapped local governments from California to Puerto Rico is coming under market scrutiny, amid fears that Detroit's record bankruptcy filing could presage further pain for municipal-bond investors.

The maneuver, called "scoop and toss," involves selling new long-term debt to raise funds to pay off maturing bonds, effectively extending the timetable for retiring municipal borrowings. Refinancings that aim to reduce interest rates typically keep the same maturity schedule.

The practice, which has been around for decades, helps cities, states and other local entities to stay current on their obligations as they try to claw out of one of the deepest economic downturns since the Great Depression.

The debt sales often offer above-market interest rates that appeal to many bond buyers at a time of slow economic growth, easy Federal Reserve policy and low rates on relatively safe investments such as U.S. Treasury securities and bank accounts.

But some observers warn that scoop-and-toss refinancings add to interest costs while allowing civic managers to overlook structural economic difficulties. Investors purchasing the debt take on the risk that the securities will lose value, as they did in Detroit's $18 billion Chapter 9 bankruptcy case.

"It's never a good sign to see this," said John Loffredo, portfolio manager of the MainStay Tax Free Bond Fund. Mr. Loffredo said his firm recently started buying Puerto Rico bonds that carried third-party insurance guaranteeing repayment, citing the high yields.

Among the chief practitioners of scoop and toss is Puerto Rico, which since 2006 has relied on new bond sales and loans to help balance its budget and pay off old bonds coming due. The island commonwealth has restructured about $4 billion in debt from its main operating budget since then. About $70 billion of Puerto Rico debt is outstanding.

Yields on Puerto Rico's bonds have risen sharply this year, making it much more expensive to sell debt to investors, following rating-company downgrades. Puerto Rico bond prices are down about 16% in 2013.

In 2011, Puerto Rico sold $356 million of bonds that begin maturing in 2024. Some of the proceeds were used to pay off a bond from 1989 that was maturing in 2011—in effect turning a 22-year bond into a 35-year one.

Lyle Fitterer, head of tax-exempt investments at Wells Capital Management, which oversees about $33 billion in municipal-debt investments, said he would like to see cheaper bond prices or a sustainable economic recovery plan before he boosts his firm's small Puerto Rico holdings.

"The scoop-and-toss strategy might be a good strategy for a short-term solution, if you have a temporary economic recession," he said. "But obviously, the longer it goes on, the more difficult it is to argue that it's a good long-term solution."

Officials in the U.S. territory are seeking to put the island on stronger fiscal footing through tax increases and entitlement reform, and seek to end scoop and toss by 2015. "In the past, it had been restructuring after restructuring," Puerto Rico Treasury Secretary Melba Acosta said recently in an interview. "We are moving away from that."

Puerto Rico officials have said they can make it through this fiscal year without borrowing, and have been drawing down a line of credit from the Government Development Bank, according to Fitch Ratings.

U.S. companies frequently issue new bonds to pay off old debt. But investors typically worry less about corporate-debt issuers because the money can be used to expand the business, which can benefit bond buyers.

"If a corporation started going into decline, you aren't going to see the debt rolling over and being refinanced," said Stan Garstka, accounting professor at the Yale School of Management.

To be sure, there are signs of progress for municipalities. Over the summer, Moody's Investors Service raised its outlook for U.S. states to stable from negative, saying "the slowly improving U.S. economy continues supporting state revenues and reserves."

Other municipal entities have employed scoop-and-toss strategies recently. Suffolk County, N.Y., which recently declared a fiscal emergency, last year sold through an authority about $38 million in bonds backed by tobacco revenues to help cover other debt payments that were due in 2012 and 2013.

In California, the Foothill/Eastern Transportation Corridor Agency, which operates toll roads in Orange County, is looking into a scoop and toss that would pay off bonds from 1999 and extend the maturity of the debt by 13 years to 2053. The bonds are backed primarily by revenues from tolls, but traffic on the roads has grown slower than expected.

Continued in article

From the CFO Journal's Morning Ledger on October 4, 2013

Ex-Tyco CFO granted parole
Former Tyco International CFO Mark Swartz was granted parole and should be released in January, Bloomberg reports. Mr. Swartz, who served as Tyco’s finance chief from February 1995 to September 2002, and former CEO Dennis Kozlowski were convicted in 2005 of defrauding shareholders of more than $400 million. They are both serving sentences of 8 1/3 years to 25 years for stealing from the company and deceiving shareholders.