Yeah Right!
PLOS One: Quantity and/or Quality? The
Importance of Publishing Many Papers
---
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0166149
Jensen Comment
As "research and publication" took over as the leading criterion for promotion
and tenure the academic world experienced and exposion of so-called refereed
journals, many of them from profit-seeking publishers. The result was an
explosion in quantity and an a bifurcation of quality from extremes of highest
quality to garbage with sham refereeing. The good news was an increase in
specialty journals. The bad news was a shortage of dedicated referees.
One controversial factor was the impact of technology on publication and
distribution costs, especially in the rise of e-journals that did not even
entail hard copy printing of journals. This made it possible for libraries to be
almost the entire source of revenue for some journals. My point here is that
journals no longer had to rely on reader subscriptions to foot the bill in a
market of supply and demand. Interestingly, the market of supply and demand now
applies to blogs rather than "refereed" publications. For a blog to be
successful it has to satisfy the needs of readers rather than libraries that
fail to allocate resources based upon user demand. For example, one faculty
member may be responsible for a campus library's subscription to an obscure
journal.
What the above PLOS One Website fails to get across is that opposing the
benefits of publishing many papers are the frauds perpetrated by making it so
easy for faculty to get promotions and tenure based on the many P&T committees
and administrators who are willing to count publication records rather than read
the publications.
Commercial Scholarly and Academic Journals and
Oligopoly Textbook Publishers Are Ripping Off Libraries, Scholars, and Students
---
http://faculty.trinity.edu/rjensen/FraudReporting.htm#ScholarlyJournals
Gaming for Tenure as an Accounting Professor ---
http://faculty.trinity.edu/rjensen/TheoryTenure.htm
(with a reply about tenure publication point systems from Linda Kidwell)
New York Times: Homeland Security
Officials Took Millions in Bribes to 'Look the Other Way' ---
http://www.nytimes.com/2016/12/28/us/homeland-security-border-bribes.html?smid=tw-nytpolitics&smtyp=cur&_r=0
WASHINGTON — In 2012, Joohoon David
Lee, a federal Homeland Security agent in Los Angeles, was assigned to
investigate the case of a Korean businessman accused of sex trafficking.
Instead of carrying out a thorough
inquiry,
Mr. Lee solicited and received about
$13,000 in bribes and other gifts from the businessman and his relatives in
return for making the “immigration issue go away,” court records show. Mr.
Lee, an agent with Homeland Security Investigations at Immigration and
Customs Enforcement, filed a report saying: “Subject was suspected of human
trafficking. No evidence found and victim statement contradicts. Case
closed. No further action required.”
But after another agent alerted
internal investigators about Mr. Lee’s interference in another case, his
record was examined and he was charged with bribery. He pleaded guilty in
July and was sentenced to 10 months in prison.
It was not an isolated case. A review
by The New York Times of thousands of court records and internal agency
documents showed that over the last 10 years almost 200 employees and
contract workers of the Department of Homeland Security have taken nearly
$15 million in bribes while being paid to protect the nation’s borders and
enforce immigration laws.
These
employees have looked the other way as tons of drugs and thousands of
undocumented immigrants were smuggled into the United States, the records
show. They have illegally sold green cards and other immigration documents,
have entered law enforcement databases and given sensitive information to
drug cartels. In one case, the information was used to arrange the attempted
murder of an informant.
The Times’s
findings most likely undercount the amount of bribes because in many cases
court records do not give a tally. The findings also do not include gifts,
trips or money stolen by Homeland Security employees.
Throughout his
campaign, President-elect Donald J. Trump said border security would be one
of his highest priorities. As he prepares to take office, he will find that
many of the problems seem to come from within.
Continued in article
Fraud during the holiday shopping
season is costing retailers $2 billion
---
http://www.businessinsider.com/holiday-shopping-fraud-cost-2-billion-dollars-2016-11
. . .
Thieves use a variety of scams to
commit return fraud, but nine in 10 retailers told the NRF for its report
last year that they have experienced people returning stolen merchandise. In
addition, a little over 70% of stores told the trade organization that they
deal with "wardrobing," the practice of someone using/wearing an item then
returning it.
Other examples
of return fraud and the percentage of retailers that say they have
experienced them include:
The return of
merchandise purchased with counterfeit money (75.8%).
Return fraud
made by "known organized retail crime groups" (71%).
"Employee
return fraud or collusion with external forces" (77.4%).
"Retailers
have the difficult task of providing superior customer service by always
giving the benefit of the doubt to their shoppers when it comes to returns,
while simultaneously working to make sure they protect their business
assets," said Moraca.
What can
stores do?
Retailers must
make their return policy clear to consumers, including info on whether they
track returns or require an ID. Of course, that info is on receipts, signs
posted near registers, and in online disclaimer copy that few people read.
Return
tracking has been a controversial practice and ultimately it's effective,
but only to a point. Despite new efforts at enforcement by retailers,
holiday season return fraud has been cut from an estimated $3.4 billion in
2013 and $3.8 billion in 2014 to $2.2 billion in 2015. This year, the NRF
expects a number similar to last year if not slightly higher.
Retailers do not yet have the silver bullet that can end return fraud, which
ultimately costs all honest shoppers a little bit more every time they buy
something
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
The FTC’s complaint said those claims, used in
DeVry’s marketing material and advertisements, were exaggerated and deceptive
(mostly about post-graduate employment opportunities)
DeVry University and its parent company will pay $100 million to settle a
lawsuit with the Federal Trade Commission ---
http://www.chronicle.com/blogs/ticker/devry-settles-federal-lawsuit-for-100-million/116150?cid=db&elqTrackId=cd45f0235991466f88c71cec8d889066&elq=0ae47d9362e84978935c876244c1e3d8&elqaid=11867&elqat=1&elqCampaignId=4751
Professional Athlete Scammer
Feds arrest woman accused of stealing from Ricky Williams and Dennis Rodman (and
others) ---
http://www.msn.com/en-us/sports/nfl/feds-arrest-woman-accused-of-stealing-from-ricky-williams-and-dennis-rodman/ar-AAlGdQU?ocid=spartanntp
Jensen Comment
Sadly, rich athletes and their money are soon parted in too many instances.
How Big Banks Are Putting Rain Forests in Peril ---
http://www.nytimes.com/2016/12/03/business/energy-environment/how-big-banks-are-putting-rain-forests-in-peril.html?elqTrackId=1e783a001785455391c2ccd48a2f85ca&elq=0ae47d9362e84978935c876244c1e3d8&elqaid=11867&elqat=1&elqCampaignId=4751&_r=0
Environmental groups raced to the scene in West Kalimantan province, on the
island of Borneo, to find a charred wasteland: smoldering fires, orangutans
driven from their nests, and signs of an extensive release of carbon dioxide
into the atmosphere.
“There was pretty much no forest left,” said Karmele Llano Sánchez, director
of the nonprofit International Animal Rescue’s orangutan rescue group, which
set out to save the endangered primates. “All the forest had burned.”
Fingers pointed to the Rajawali Group, a sprawling
local conglomerate known for its
ties to
powerful politicians like Malaysia’s
scandal-plagued
prime minister. But lesser known is how some of the world’s largest banks
have helped Rajawali — and other global agricultural powerhouses — expand
their plantation empires.
The year before the clearing of trees in West
Kalimantan, Rajawali’s plantation arm secured $235 million in loans — funds
that the Indonesian company used to buy out a partner and bolster its
landholdings — from banks including
Credit Suisse
and
Bank of America,
according to an examination of lending data by The New York Times.
Continued in article
Four Strategies for Curtailing Insider Fraud ---
http://www.cgma.org/Magazine/News/Pages/prevent-insider-fraud-201615208.aspx?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Oct2016
Jensen Comment
To this I might add be overly generous in offers to inside and outside
whistleblowers.
An example of an outside whistleblower might be a supplier who reports that a
purchasing agent inside the organization requested a kickback.
Bob Jensen's Fraud Updates
---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
"SEC fines Lime Energy and four executives for accounting fraud," by
Francine McKenna, MarketWatch, October 17, 2016 ---
http://www.marketwatch.com/story/sec-fines-lime-energy-and-four-executives-for-accounting-fraud-2016-10-17
The Securities and Exchange Commission fined Lime
Energy LIME, -2.80% $1 million and four of its former executives agreed to
settle charges for an alleged accounting fraud that pushed revenue into
earlier periods to meet targets. The energy services company allegedly
recorded recognized $20 million in revenue improperly from at least 2010 to
2012. The alleged scheme centered on recording revenue for newly signed
contracts before year-end before the paperwork was received and then
eventually revenue on contracts that didn't exist. The SEC alleged the
company's then-corporate controller Julianne M. Chandler approved accounting
entries worth millions of dollars in additional 2011 revenue well after the
year-end close. In February 2012 before finalizing 2011 results, the
company's then-executive vice president James G. Smith allegedly sent
Chandler more fake accounting entries. The company and executives neither
admitted nor denied the allegations. The four executives will pay a total of
$150,000 in additional penalties. Chandler and Smith also agreed to five
year officer and director bar. The company's former utilities division vice
president of operations Joaquin Alberto Dos Santos Almeida agreed to a
permanent officer-and-director bar. The company's then-CEO John E. O'Rourke
and then-CFO Jeffrey R. Mistarz voluntarily reimbursed the company for cash
bonuses and certain stock awards they received during the period when the
company committed accounting violations eliminating the need for the SEC to
pursue a clawback action under the Sarbanes-Oxley Act of 2002.
Jensen
Comment
BDO appears to be the outside auditor.
The cynical
press calls the company Lemon Energy.
Bob Jensen's Fraud Updates
---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
As hard as it is to believe, some of these lawyers lied
Inside Higher Ed: Law Schools Flagged for Job Data ---
https://www.insidehighered.com/news/2016/11/01/initial-audit-finds-flaws-some-law-school-employment-reporting-practices?mc_cid=16d4a56a74&mc_eid=1e78f7c952
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Yardley accountant gets 3 to 6 years for stealing $378K from elderly women
---
http://www.buckscountycouriertimes.com/news/crime/yardley-accountant-gets-to-years-for-stealing-k-from-elderly/article_3d88472e-2b6e-54b1-97cf-6639306fc72c.html
. . .
Prosecutors say Swain between December 2008 and
September 2015 used her role as the women's accountant and power of attorney
to make a number of unauthorized payments to herself from their accounts
while in control of their finances.
Much of the money was used to pay health care costs
and many of her ex-husband's bills, among other purchases and payments,
according to court papers.
"I'm incredibly sorry, and I'm shamed on both a
professional and personal level," Swain said.
Swain said her victims, all longtime clients of her
accounting services, were people she "genuinely liked" and thought of as
friends as well as customers.
She offered a gambling addiction as an explanation
for her actions, but said that was not an excuse.
"I blame no one and nothing else for what I have
done," she said.
Continued in article
What Affects Our Trust in Government?
http://daily.jstor.org/what-affects-our-trust-in-government/
Jensen Comment
One thing that affects are trust in government is lenient prison sentences for
enormous white-collar fraudsters in both the public and private sectors
---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#CrimePays i
Crime pays as long as the
crime is massive in rewards.
Another thing that affects our trust in government is the coziness of the
private and public sector such as when government bureaucrats are given fabulous
incentives to bail out of government jobs into high paying jobs in the
industries they preciously regulated. Generals hope to become defense contractor
executives. FDA regulators hope to become executives in the pharmaceutical
industry. SEC, FBI, and Department of Justice employees hope to get plush jobs
and offices in big accounting and law firms. It did take long before industries
eventually owned the government agencies that regulated and investigated those
industries. What government agency is truly independent and highly respected?
Another thing that affects our trust in government is when current or former
bureaucrats and legislators are given $250,000 or more for a short speech. That
must be some inspirational/informative speech! Yeah right!
Our legislators are not trusted by the public for good reason. They are
trusted even less when they leave office to become high-paid lobbyists.
How many mayors and governors went to prison when the loot they stashed can't
be found? Three recent governors of Illinois, for example, went to prison.
Don't expect them to be clerking at convenience stores when they're released.
Can you become a mayor of most of the USA's major cities without doing
under-the-table business with corrupt municipal labor unions?
The bigger the government program the bigger the piñata for fraud! Exhibit A
is the Department of Defense. Exhibit B is Medicare. Exhibit C is Medicaid. And
on and on and on.
Private sector fraud goes hand-in-hand with public sector fraud.
Name some of our government servants who became multimillionaires even though
they were always on the public payroll? LBJ is not an exception. He's the rule.
The real world is not a Disney movie victory of of goodness over evil.
Bob Jensen's Rotten to the Core threads ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm
New report finds big-time college football players
at wealthiest programs graduate at rates lower than their nonathlete male peers.
For black players, the gap is even bigger ---
https://www.insidehighered.com/news/2016/10/19/study-finds-large-gap-between-graduation-rates-black-white-football-players?utm_source=Inside+Higher+Ed&utm_campaign=ef383d3357-DNU20161019&utm_medium=email&utm_term=0_1fcbc04421-ef383d3357-197565045&mc_cid=ef383d3357&mc_eid=1e78f7c952
Jensen Comment
Blame the Admissions Department, Curriculum Requirements, and the University of
North Carolina.
- The Admission Department admits top athletes on scholarship who have
lower academic credentials than other applicants.
- The curriculum requires something other than basket weaving and physical
education courses where athletes are assured of highest grades.
- The University of North Carolina made fake courses and fake grades out
of style for athletes. After 18 years of fake courses UNC administrators and
faculty got caught.
Bob Jensen's threads on academic cheating by and for athletes ---
http://faculty.trinity.edu/rjensen/HigherEdControversies2.htm#Athletics
Aaron Schock ---
https://en.wikipedia.org/wiki/Aaron_Schock
Former Republican
Congressman from Illinois Will Be Indicted ---
http://townhall.com/tipsheet/jasonhopkins/2016/11/10/aaron-schock-will-be-indicted-n2244048?utm_source=thdailypm&utm_medium=email&utm_campaign=nl_pm&newsletterad=
Internal Auditors Pressured to Violate Ethics and Professionalism
From the CFO Journal's Morning Ledger
on November 2, 2016
Be your best selves, bookkeepers
Internal auditors say management is often asking them
to leave out the bad news, Tatyana Shumsky reports. Nearly one in four
internal auditors surveyed globally by the Internal Audit Foundation said
they’ve been pressured to suppress or change their findings. The main
motivation is censorship.
Bob Jensen's threads on auditor professionalism and independence ---
http://faculty.trinity.edu/rjensen/Fraud001c.htm
I stumbled on this old tidbit that is suddenly timely after the 2016 Election
2002 Message from Ron Huefner
[rhuefner@ACSU.BUFFALO.EDU]
For those needing a
break from Enron, the SEC today issued its first enforcement action in the
area of pro-forma earnings. AAER 1499, regarding Trump Hotels and Casino
Resorts, Inc., may be found at
http://www.sec.gov/news/headlines/trumphotels.htm
Ron Huefner
"SEC Brings First Pro Forma
Financial Reporting Case Trump Hotels Charged With Issuing Misleading Earnings
Release," FOR IMMEDIATE RELEASE 2002-6 ---
http://www.sec.gov/news/headlines/trumphotels.htm
Washington, D.C.,
January 16, 2002
— In its first pro forma financial reporting case, the Securities and
Exchange Commission instituted cease-and-desist proceedings against Trump
Hotels & Casino Resorts Inc. for making misleading statements in the
company's third-quarter 1999 earnings release. The Commission found that the
release cited pro forma figures to tout the Company's purportedly positive
results of operations but failed to disclose that those results were primarily
attributable to an unusual one-time gain rather than to operations.
"This is the
first Commission enforcement action addressing the abuse of pro forma earnings
figures," said Stephen M. Cutler, Director of the Commission's Division
of Enforcement. "In this case, the method of presenting the pro forma
numbers and the positive spin the Company put on them were materially
misleading. The case starkly illustrates how pro forma numbers can be used
deceptively and the mischief that they can cause."
Trump Hotels
consented to the issuance of the Commission's order without admitting or
denying the Commission's findings. The Commission also found that Trump
Hotels, through the conduct of its chief executive officer, its chief
financial officer and its treasurer, violated the antifraud provisions of the
Securities Exchange Act by knowingly or recklessly issuing a materially
misleading press release.
"This case
demonstrates the risks involved in mishandling pro forma reporting," said
Wayne M. Carlin, Regional Director of the Commission's Northeast Regional
Office. "Enforcement action can result if a company fails to disclose
information necessary to assure that investors will not be misled by the pro
forma numbers."
Specifically,
as
set forth in the Order, which is available
on
the Commission's website, the Commission found that:
-
On Oct. 25, 1999,
Trump Hotels issued a press release announcing its quarterly results. The
release used net income and earnings-per-share (EPS) figures that differed
from net income and EPS calculated in conformity with generally accepted
accounting principles (GAAP), in that the figures expressly excluded a
one-time charge. The earnings release was fraudulent because it created
the false and misleading impression that the Company had exceeded earnings
expectations primarily through operational improvements, when in fact it
had not.
-
The release
expressly stated that net income and EPS figures excluded a $81.4 million
one-time charge. Although neither the earnings release nor the
accompanying financial data used the term pro forma, the net income and
EPS figures used in the release were pro forma numbers because they
differed from such figures calculated in conformity with GAAP by excluding
the one-time charge. By stating that this one-time charge was excluded
from its stated net income, the Company implied that no other significant
one-time items were included in that figure.
-
Contrary to the
implication in the release, however, the stated net income included an
undisclosed one-time gain of $17.2 million. The gain was the result of the
termination, in September 1999, of the All Star Café's lease of
restaurant space at the Trump Taj Mahal Casino Resort in Atlantic City.
Trump Hotels, through various subsidiaries, owns and operates the Taj
Mahal and other casino resorts. The Company's executive offices are in New
York City, and its business and financial operations are centered in
Atlantic City.
-
Not only was
there no mention of the one-time gain in the text of the release, but
the financial data included in the release gave no indication of it,
because all revenue items were reflected in a single line item.
-
The misleading
impression created by the reference to the exclusion of the one-time
charge and the undisclosed inclusion of the one-time gain was reinforced
by the comparison in the earnings release of the stated earnings-per-share
figure with analysts' earnings estimates and by statements in the release
that the Company been successful in improving its operating performance.
Using the non-GAAP, pro forma figures, the release announced that the
Company's quarterly earnings exceeded analysts' expectations, stating:
Net income
increased to $ 14.0 million, or $ 0.63 per share, before a one-time
Trump World's Fair charge, compared to $ 5.3 million or $ 0.24 per share
in 1998. [Trump Hotels'] earnings per share of $ 0.63 exceeded First
Call estimates of $ 0.54.
In addition, the
release quoted Trump Hotels' chief executive officer as attributing the
stated positive results and improvement from third-quarter 1998 to
improvements in the Company's operations.
-
In fact, had the
one-time gain been excluded from the quarterly pro forma results as well
as the one-time charge, those results would have reflected a decline in
revenues and net income and would have failed to meet analysts'
expectations. The undisclosed one-time gain was thus material, because it
represented the difference between positive trends in revenues and
earnings and negative trends in revenues and earnings, and the difference
between exceeding analysts' expectations and falling short of them.
-
On Oct. 25, the
day the earnings release was issued, the price of the Company's stock rose
7.8 percent; subsequently, analysts learned of the one-time gain. On Oct.
28, the day on which an analysts' report and a news article revealing the
impact of the one-time gain were published, the stock price fell
approximately 6 percent.
The Commission found
that Trump Hotels violated Section 10(b) of the Exchange Act and Rule 10b-5
thereunder. The Company was ordered to cease and desist from violating those
provisions.
For information about
the use and interpretation of pro forma financial information, see the
cautionary advice for companies and their advisors at
http://www.sec.gov/news/headlines/proforma-fin.htm
and the investor alert recently issued by the Commission at
http://www.sec.gov/investor/pubs/proforma12-4.htm.
Contact:
Wayne M. Carlin tel.: (646) 428-1510
Additional Materials
Bob Jensen's threads on non-GAAP and Pro Forma
Reporting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ProForma
University Of Rochester B-School
Professor Pays $100 Million FBAR Penalty
Over Swiss Accounts ---
https://www.justice.gov/opa/pr/emeritus-professor-pleads-guilty-conspiring-defraud-united-states-and-submitting-false
A Rochester,
New York emeritus professor of business
administration pleaded guilty today to
conspiring with others to defraud the
United States and to submitting a false
expatriation statement to the Internal
Revenue Service (IRS), announced
Principal Deputy Assistant Attorney
General Caroline D. Ciraolo, head of the
Justice Department’s Tax Division, and
U.S. Attorney Dana J. Boente of the
Eastern District of Virginia, after the
plea was accepted by U.S. District Judge
T.S. Ellis III.
According to
documents filed with the court and
statements made during the plea hearing,
Dan Horsky, 71, is a citizen of the
United States, the United Kingdom and
Israel and was employed for more than 30
years as a professor of business
administration at a university located
in New York. Beginning in
approximately 1995, Horsky began
investing in numerous start-up
businesses through financial accounts at
various offshore banks, including one
bank in Zurich, Switzerland.
Horsky created “Horsky Holdings,” a
nominee entity, to hold some of the
investments and he used the Horsky
Holdings account, and later, other
accounts at the Zurich-based bank, to
conceal his financial transactions and
financial accounts from the IRS and the
U.S. Treasury Department.
Horsky made
investments in Company A through the
Horsky Holdings account using his own
money, money provided by his father and
sister, and margin loans from the
Zurich-based bank. Eventually,
Horsky amassed a four percent interest
in Company A’s stock. In 2008,
Company A was purchased by Company B for
$1.8 billion in an all cash transaction.
Horsky received approximately $80
million in net proceeds from the sale of
Company A’s stock, but disclosed to the
IRS only approximately $7 million of his
gain from that sale and paid taxes on
just that fraction of his share of the
proceeds. In 2008, and in
subsequent years, Horsky invested in
Company B’s stock using funds from his
accounts at the Zurich-based bank and by
2013, his investments in Company B,
combined with other unreported offshore
assets, reached approximately $200
million.
“Despite his
extraordinary wealth, Mr. Horsky
concealed funds offshore, failed to
report substantial income, conspired to
submit false expatriation documents to
cover up his fraudulent scheme, and
evaded paying his fair share of tax,”
said Principal Deputy Assistant Attorney
General Ciraolo. “The Department
and its partners within the IRS are
receiving a tremendous amount of
information from a wide variety of
sources, and we are using that
information to pursue and prosecute
individuals like Mr. Horsky, who violate
our nation’s tax laws. Today’s
guilty plea proves, once again, that
taxpayers will pay a heavy price when
they choose to secrete funds in foreign
bank accounts and evade tax and
reporting obligations.”
“You can’t hide
from the IRS,” said U.S. Attorney Boente.
“Horsky went to great lengths to hide
assets in secret accounts overseas in
order to avoid paying his share of taxes
to the IRS. Today’s plea shows
that we will continue to prosecute those
who engage in this criminal activity. I
want to thank IRS-Criminal Investigation
and our prosecutors for their work on
this important case.”
Horsky directed
the activities in his Horsky Holdings
and other accounts maintained at the
Zurich-based bank, despite the fact that
it was readily apparent, in
communications with employees of the
bank, that Horsky was a resident of the
United States. Bank
representatives routinely sent emails to
Horsky recognizing that he was residing
in the United States. Beginning in
at least 2011, Horsky caused another
individual to have signature authority
over his Zurich-based bank accounts, and
this individual assumed the
responsibility of providing instructions
as to the management of the accounts at
Horsky’s direction. This
arrangement was intended to conceal
Horsky’s interest in and control over
these accounts from the IRS.
In 2013, the
individual who had nominal control over
Horsky’s accounts at the Zurich-based
bank conspired with Horsky to relinquish
the individual’s U.S. citizenship, in
part to ensure that Horsky’s control of
the offshore accounts would not be
reported to the IRS. In 2014, this
individual filed with the IRS a false
Form 8854 (Initial Annual Expatriation
Statement) that failed to disclose his
net worth on the date of expatriation,
failed to disclose his ownership of
foreign assets, and falsely certified
under penalties of perjury that he was
in compliance with his tax obligations
for the five preceding tax years.
Horsky also
willfully filed false 2008 through 2014
individual income tax returns which
failed to disclose his income from, and
beneficial interest in and control over,
his Zurich-based bank accounts.
Horsky agreed that for purposes of
sentencing, his criminal conduct
resulted in a tax loss of at least $10
million. In addition, Horsky
failed to file Reports of Foreign Bank
and Financial Accounts (FBARs) up and
through 2011, and also filed false FBARs
for 2012 and 2013.
“Federal income
tax compliance should be equally shared
among all Americans,” said Special
Agent-in-Charge Thomas Jankowski of IRS
Criminal Investigation (CI), Washington
D.C. Field Office. “Conspiring to
defraud the government with an elaborate
scheme to underreport taxable income is
unlawful. Mr. Horsky’s plea today
serves as an important reminder that
IRS-CI is committed to bringing to
justice those who shirk their federal
income tax responsibilities.”
Sentencing is
scheduled for Feb. 10, 2017.
Horsky faces a statutory maximum
sentence of five years in prison, as
well as a period of supervised release
and monetary penalties. As part of
his plea agreement, Horsky paid a
penalty of $100 million dollars to the
U.S. Treasury for failing to file and
filing false FBARs, which is separate
from any restitution that the court may
order.
Principal
Deputy Assistant Attorney General
Ciraolo and U.S. Attorney Boente
commended special agents of IRS-CI, who
conducted the investigation, and Senior
Litigation Counsel Mark F. Daly and
Trial Attorney Robert J. Boudreau of the
Tax Division and Assistant U.S. Attorney
Mark Lytle of the Eastern District of
Virginia, who are prosecuting this case.
Additional
information about the Tax Division and
its enforcement efforts may be found on
the division’s website.
Bob Jensen's Fraud Updates ---
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Contrary to what is implied by Harry Markopolos and
Francine McKenna, we will never know what would've happened if the Madoff Ponzi
fund was submitted to an audit by a Big Four firm
Francine: Auditor PwC said to be under investigation (by SEC) for
failure to detect fraud in biotech fund embezzlement case ---
http://www.marketwatch.com/story/auditor-pwc-said-to-be-under-investigation-in-biotech-fund-embezzlement-case-2016-07-18?mod=mw_share_twitter
Jensen Comment
It's somewhat common for auditors to fail to detect fraud. Often the defense is
that the client misled the auditor and well as the public.
This investigation made me recall the somewhat infamous
Koss Case.
Grant Thornton Coughs Up $8.5 Million for Not Detecting
Fraud
"Koss settles claims against former auditor Grant Thornton," by Gary
Spivak, Milwaukee Sentinel Journal, July 5, 2013 ---
http://www.jsonline.com/business/koss-settles-claims-against-former-auditor-grant-thornton-b9948373z1-214372071.html
Koss Corp. collected $8.5 million from
Grant Thornton, the accounting firm that audited Koss' books during a
portion of the time that Sujata "Sue" Sachdeva was stealing millions from
the company.
The payment made Wednesday settles a
lawsuit filed in Cook County, Ill., in which Koss charged Grant Thornton
with negligence for not discovering Sachdeva's thievery. Sachdeva's scheme
ran for about 12 years and cost Koss, a maker of headphones, about $34
million. Her embezzlement, which financed an extravagant lifestyle that
included trips and shopping sprees, intensified in the final years of the
scheme.
Sachdeva, who had been the company's
vice president of finance, is serving an 11-year federal prison sentence and
is expected to be released in August 2020, according to the Federal Bureau
of Prisons.
"I don't think it is possible to look
at the size of the settlement and conclude that Grant Thornton didn't see
some risk if this case came to trial," said Jeremy Levinson, a Milwaukee
attorney not involved in the case. "Every story that gets written on this
case, including this one, is bad for Grant Thornton."
Grant Thornton charged Koss nearly
$700,000 for work it performed from 2004 until it was fired shortly after
Sachdeva was arrested in December 2009, according to records filed with the
U.S. Securities and Exchange Commission. Baker Tilly, the auditing firm that
replaced Grant Thornton, collected $570,679 for its first year of work — a
time when the FBI, auditors and company officials scoured Koss' books to
determine the level of damages she caused.
Tracy Coenen, a Milwaukee forensic
accountant who criticized Koss management on her Fraud Files blog, said the
company should shoulder the blame for not detecting Sachdeva's crimes
earlier.
"Upper management was at least
negligent in not properly overseeing what she was doing and for not having
proper internal controls," Coenen said. Koss "management bears the bulk of
the responsibility, if not all of it."
Continued in article
Grant Thornton said in a
statement that it had met "all of our professional obligations and that our work
complied with professional standards."
See below
"Koss embezzlement ran in spurts, lawsuit says $478,735
spent over three days in summer 2006" by Cary Spivak, Milwaukee Journal
Sentinel, July 10, 2010 ---
http://www.jsonline.com/business/98152439.html
Big Accounting Firms Can't Detect Fraid: The whistleblower who
exposed Bernie Madoff thinks the insurance industry is riddled with fraud ---
http://www.businessinsider.com/bernie-madoff-whistleblower-harry-markopolos-insurance-industry-fraud-2016-11
The Big Four accounting firms are
so bad at catching fraud that they couldn’t even catch a cold, with
incentives in the industry totally screwed up. That’s the view of the of the
whistleblower who uncovered the $65 billion Madoff Ponzi scheme and he
thinks fraud is endemic in the insurance industry as well.
Harry Markopolos is the former
derivatives professional turned independent financial forensic investigator
who spent nine years trying to convince the SEC that Madoff needed to be
examined, but it was only the onset of the financial crisis and the massive
redemptions he faced that forced Madoff to turn himself in.
Since then he has been a vocal
critic of the SEC, writing the 2010 book ‘No One Would Listen: A True
Financial Thriller’. In a special interview with
Real Vision TV, Markopolos now has the
institutionalized shortcomings of the audit world in his sights and
identified the insurance industry as the next big sector for major financial
fraud to come to light.
In fact, he intends to blow the lid
on some major insurance frauds in 2017, which he hopes will lead to stronger
regulation in the sector.
Madoff Showed How Easy it
is to Fool the Big Four Auditors
The fact that Madoff feeder funds
were getting clean audit opinions from the Big Four accountants, when Bernie
was stealing every dime from day one, shows how easy it was for Madoff to
fool the accountants, Markopolos said, adding that in the history of
accounting it’s impossible to name even one multibillion fraud that the Big
Four uncovered.
“Now, if I asked you, to name all
the big, multibillion-dollar accounting frauds that the Big Four aided and
abetted, we could be here all afternoon,” he said.
“The incentives are totally screwed up in the
accounting industry. There is no way the company should be paying the audit
fees. It should be the shareholders. It should be a fee. Every time you buy
a share, a certain number of basis points should be allocated to audit fees.
Because the audit fees are currently way too low. Management brags about how
low they've gotten the audit fees
Click here to see a clip of the Harry Markopolos interview on Real Vision.
Jensen Comment
In fairness it should be pointed out that the Bernie Madoff fraudulent hedge
fund was not audited by a qualified audit firm. Had the auditor been one of the
large CPA firms that auditing firm may have had the deep pockets needed to pay
off the investors that lost to Madoff's criminal Ponzi scheme.
We'll never know if a large CPA audit firm would've let this Ponzi scheme
harm so many investors in such a big way and, if so, whether it would have had
to pay off those investors.
What the above article points out is that some of the big investors (a few
feeder funds) had Big Four auditors or advisors (e.g., PwC and Deloitte), some
of whom had to pay off a small subset of investors in the Madoff Ponzi scheme.
This is not the same thing as having the Ponzi scheme itself being audited by a
Big Four firm. That would have been an entirely different ball of wax.
In terms of gross negligence the most guilty third party in the Madoff's
Ponzi scheme was the SEC that possibly was criminally negligent is stopping the
fraud.
"S.E.C. Hid Its Lawyer’s Madoff Ties," by Louise Story and Gretchen
Morgenson, The New York Times, September 20, 2011 ---
http://www.nytimes.com/2011/09/21/business/sec-refers-ex-counsels-actions-on-madoff-to-justice-dept.html?_r=1&ref=business
After Bernard L. Madoff’s giant Ponzi scheme
was revealed, the Securities and Exchange Commission went to great lengths
to make sure that none of its employees working on the case posed a conflict
of interest, barring anyone who had accepted gifts or attended a Madoff
wedding.
But as a
new report made clear on Tuesday, one top
official received a pass: David M. Becker, the S.E.C.’s general counsel, who
went on to recommend how the scheme’s victims would be compensated, despite
his family’s $2 million inheritance from a Madoff account.
Mr. Becker’s actions were referred by H.
David Kotz, the inspector general of the S.E.C., to the Justice Department,
on the advice of the Office of Government Ethics, which oversees the ethics
of the executive branch of government.
The report by Mr. Kotz provides fresh details
about the weakness of the agency’s ethics office and reveals that none of
its commissioners, except for Mary L. Schapiro, its chairwoman, had been
advised of Mr. Becker’s conflict.
It says Ms. Schapiro agreed with a decision
to keep Mr. Becker from testifying before Congress, where he would have
disclosed his financial interest in the Madoff account.
Mr. Kotz’s inquiry also produced evidence
that at least one S.E.C. employee had been barred from working on Madoff-related
matters because of a conflict, suggesting there was a double standard at the
agency.
The findings are another black eye for an
agency that has tried to be more aggressive in recent years after failing to
uncover the Madoff fraud. More recently, the S.E.C. has been criticized for
routine destruction of some enforcement documents that might have been
useful in later investigations.
The agency has also been criticized for its
slow pace in writing new financial regulations mandated by the Dodd-Frank
law and for the dearth of cases brought against individuals at major
financial companies that were involved in the mortgage crisis.
Federal conflict of interest law requires
government employees to be disqualified from participating in a matter “if
it would have a direct and predictable effect on the employee’s own
financial interests.”
Nevertheless, Mr. Becker “participated
personally and substantially in particular matters in which he had a
personal financial interest,” Mr. Kotz wrote in his report.
Though the referral was made to the Justice
Department’s criminal division, it could be handled as a civil matter. A
Justice Department spokeswoman declined to comment, other than confirming
the referral.
Mr. Becker’s tie to the Madoff situation came
from a Madoff account held by his mother, who died in 2004. Her three sons
inherited the account and closed it shortly thereafter, with a $1.5 million
profit, based on Mr. Madoff’s fraud.
Mr. Madoff carried out an enormous Ponzi
scheme for more than a decade, costing investors more than $20 billion in
actual losses. He is now serving a 150-year sentence in a prison in North
Carolina.
Mr. Becker’s lawyer, William R. Baker III,
said in a statement that the report confirmed that Mr. Becker had notified
seven senior S.E.C. officials about his late mother’s Madoff account,
including Ms. Schapiro and the agency’s designated ethics officer.
“The inspector general concluded that ‘none
of these individuals recognized a conflict or took any action to suggest
that Becker consider recusing himself from the Madoff liquidation,’ “ wrote
Mr. Baker, a lawyer at Latham & Watkins who worked at the S.E.C. for 15
years, working alongside Mr. Becker at times. He said the report contained
“a number of critical factual and legal errors,” but declined to enumerate
them. Mr. Becker left the S.E.C. last February.
Continued in article
"The SEC's Ethics: Washington's double standard on conflicts of interest,"
The Wall Street Journal, September 23, 2011 ---
http://online.wsj.com/article/SB10001424053111903703604576584620319633188.html#mod=djemEditorialPage_t
Who says partisanship rules Washington? House
Republicans showed remarkable forbearance yesterday toward SEC Chairman Mary
Schapiro over an ethics flap involving the Bernie Madoff case and
conflict-of-interest laws.
"What is clear about this situation is that
you did make a mistake. You admitted such and you said had you known then
what you now know, you would have acted differently," Rep. Patrick McHenry
(R., N.C.) told Ms. Schapiro at a public hearing. We doubt Ms. Schapiro and
her SEC cops would have been so forgiving toward someone in private life who
made the same "mistake."
We're referring to this week's remarkable
report from SEC Inspector General David Kotz disclosing how the SEC's former
top lawyer, David Becker, directly handled matters relating to the Madoff
fraud case despite his mother's $2 million investment with the firm, to
which he and his brothers were heirs.
Mr. Becker's involvement potentially
influenced whether investors who got money out of the Madoff operation
before it was exposed could be shielded from so-called "clawback" lawsuits
brought by those liquidating the Madoff estate. Mr. Kotz says Mr. Becker
"participated personally and substantially in particular matters in which he
had a personal financial interest" through his inheritance of his mother's
estate.
The conflict here would seem to be obvious,
and Mr. Becker did at least disclose it—to Ms. Schapiro shortly after
arriving at the SEC in February 2009. "I did precisely what I was supposed
to do," he told Congress yesterday. "I identified a matter that required
legal advice from the SEC's Ethics Office. I sought that advice, received it
and followed it."
But that still leaves the role played by Ms.
Schapiro, who never told her fellow commissioners about the conflict, going
so far as to let them vote on how to divide up the Madoff assets, a change
from which Mr. Becker stood to benefit. Only in February, after Mr. Becker
was named in a clawback lawsuit by Madoff trustee Irving Picard, did the
commissioners learn of the conflicts by reading the press.
Ms. Schapiro declined our request for an
explanation this week, but she has said she would have had Mr. Becker
recused if she had "understood that he had any financial interest in how
this was resolved." But then why did she think he had informed her of his
family's Madoff connection? She also said she would have wanted to disclose
the Madoff connection if Mr. Becker had testified on the issue "so that we
were completely forthcoming with Congress."
Hmmm. The same IG report also highlights that
the SEC decided not to have Mr. Becker testify to Congress on Madoff issues
lest his conflict become public. Mr. Becker told the IG under oath that
after he mentioned the need to disclose the inheritance up front if he did
go before Congress, the SEC's Office of Intergovernmental and Legislative
Affairs Director Eric Spitler wrote that "now that I think about it, I think
it would be better if someone else testified. My concern is not that there's
anything wrong with it," but "when you're in a political environment . . .
it would be a distraction."
Mr. Spitler has said that Ms. Schapiro agreed
that Mr. Becker shouldn't appear before Congress, though she says she does
not recall how the matter was settled.
The only word for all of this is astonishing.
We don't think all conflicts-of-interest are disqualifying, and they can be
managed to avoid trouble. But this one isn't a close call. Imagine how the
SEC's enforcement cops would handle a private company that let a general
counsel play such a role. For such a conflict to be passed off as
inconsequential, and then covered up, by the agency that is supposed to
investigate bad financial actors is more than a mistake. It's faulty
judgment that suggests an ethical blind spot.
Continued in article
Contrary to what is implied by Harry Markopolos and
Francine McKenna, we will never know what would've happened if the Madoff Ponzi
fund was submitted to an audit by a Big Four firm
Bob Jensen's Fraud Updates are at
http://faculty.trinity.edu/rjensen/FraudUpdates.htm
Bob Jensen's threads on lawsuits against large auditing
firms are at
http://faculty.trinity.edu/rjensen/Fraud001.htm
Déjà Vu All Over Again
Yogi Berra
Questions
What do audit clients Facebook and Enron have in common?
Were Andersen and Ernst and Young auditors going to raise
a fuss over their firms' own consulting advice?
IRS Demands $5 Billion From Facebook For Tax Strategy Devised By EY,
Approved By Facebook's Auditor (EY) ---
http://taxprof.typepad.com/taxprof_blog/2016/10/irs-demands-5-billion-from-facebook-for-tax-plan-devised-by-ey-approved-by-facebooks-auditor-ey.html
Over the past four years, Facebook paid EY almost
$23 million for auditing, plus $21 million
for tax planning and other non-audit work.
It’s not an uncommon arrangement: More than 100 U.S. companies have hired
their auditors to also advise them on tax planning, including the tax
implications of mergers, moving intellectual property to offshore
subsidiaries, or corporate inversions (deals that move a company’s
headquarters overseas). According to a Bloomberg analysis of data from U.S.
Securities and Exchange Commission filings compiled by Audit Analytics,
these services for audit clients generated more than $613 million in
billings for the Big Four accounting firms from 2012 through 2015. About 10
percent of the fees that accounting firms make from audit clients are for
non-audit work.
Here's the Déjà Vu part
It seems like after the Andersen implosion firms and SOX were supposed to divest
themselves on earning so much consulting revenues on the side from audit
clients. Yeah right!
Enron's auditor firm, Arthur Andersen, was accused
of applying reckless standards in its audits because of a conflict of
interest over the significant consulting fees generated by Enron. During
2000, Arthur Andersen earned $25 million in
audit fees and $27 million in consulting fees
(this amount accounted for roughly 27% of the audit
fees of public clients for Arthur Andersen's Houston office). The auditor's
methods were questioned as either being completed solely to receive its
annual fees or for its lack of expertise in properly reviewing Enron's
revenue recognition, special entities, derivatives, and other accounting
practices.[
Bob Jensen's threads on audit firm professionalism are at
http://faculty.trinity.edu/rjensen/fraud001c.htm