25th Annual Accounting Show September 29 – October 1, 2010 Ft. Lauderdale

1:30-3:10pm Lessons from ...... 1 Lynn H. Clements, DBA, CPA, CMA, CFM, CFE, Cr.FA Professor / Florida Southern College- Department of Economics Lakeland

3:25-5:05pm Forensic - Case Studies...... 19 Odalys Z. Lara, CPA, CVA, CFFA, CFD Principal / Perzel & Lara Forensic CPAs, PA Clearwater

2009 - 2010 Accounting Shows Committee

Frank P. Ward - Chair Christine Moreno - Vice Chair Randee M. Abramson Paulette M. Holder Cecil Patterson, Jr. Alan D. Campbell Stanislav Jansta Martin M. Prague Lynn H. Clements Sharon S. Lassar Robert M. Rankin Lenice A. DeLuca James M. Luffman Diane J. Reich Wayne T. DeWitt William L. Maloney Poornima Srinivasan Richard M. Dotson Patricia M. McDougle Denise M. Stubbs Gary A. Fracassi Rhonda S. Mowry Cheryl L. Whitehead Lucinda L. Gallagher Mario R. Nowogrodzki Donna C. Zeitler

Lessons from Madoff

Lynn H. Clements, DBA, CPA, CMA, CFM, CFE, Cr.FA

1 Lynn H. Clements, DBA, CPA, CMA, CFM, CFE, CrFA Professor, Florida Southern College

Dr. Lynn H. Clements, Professor of Accounting at Florida Southern College, began as an adjunct instructor in 1984, and as a full-time instructor in 1990. After earning her Bachelor of Science degree at Florida Southern College, she practiced public accounting for 6 years, and then earned the Master of Business Administration degree at FSC. She has been certified as a Florida CPA since 1980, as a CMA (Certified Management Accountant) since 1992, as a CFM (Certified in Financial Management) since 1997, as a Cr.FA (Certified Forensic Accountant) since 2002, and as a CFE (Certified Examiner) since 2004. She is a member of the Florida Institute of Certified Public Accountants, American Institute of Certified Public Accountants, the Institute of Management Accountants (IMA), the American Accounting Association, and the Association of Certified Fraud Examiners. Lynn earned her Doctor of Business Administration degree from Nova Southeastern University in March 2002. Her interests include family activities, reading, travel, and music.

2 Lessons from Madoff FICPA September 29, 2010

Dr. Lynn H. Clements CPA CMA CFM Cr.FA CFE

10/16/2009

Objectives

• Ponzi schemes • Madoff • Lessons

3 PONZI Schemes • Was there a real Ponzi? • What was the original ? • What IS a Ponzi scheme?

The REAL Ponzi

Charles Ponzi, 1920 – Postal reply coupons – Currency fluctuations caused the coupons to be valuable – There weren’t enough coupons in existence to account for those promised to his 17,000 investors! – Arrested in August, convicted in November

4 Ponzi’s second scheme…

• Mid-1920s • Florida Swampland • In between jail terms… • Deported to Italy after his second prison release

“Ponzi”

• SEC calls these “pyramid schemes” • Def: Most of the money put up by new investors goes to pay old investors

5 Madoff – the longest-running Ponzi scheme

• 20 years? • 30 years? • 40 years? • Will the name change to “Madoff Scheme”?

5HG)ODJVRIWKH0DGRII&DVH



6 – Who is He? • Born in 1938 • Jewish parents, Ralph & Sylvia • Sylvia owned and ran a brokerage firm • Education

Bernie Madoff – Who is He? • Former NASDAQ chairman • Formerly on SEC industry panels • Wife Ruth • Sons Mark & Andrew • Brother Peter • Philanthropist

7 Bernie Madoff – Who is He? • Grandson of immigrants • A hard worker, even as a teenager • Did not excel in sports, academics – a “locker guard” • Began his securities business 2 days after his wedding • Bernie was a “wholesaler”

Bernie Madoff – Who is He? Capital account: – 1960, $200 – 1961, $16,140 – 1967, $127,517 – 1969, $555,157 – 1973, $1,100,000

8 Bernie Madoff – Who is He? • Could be charming and compassionate • Could be insensitive • Moody • OCD • Everything was symmetrical, with straight lines and in perfect alignment

Bernie Madoff – What Did He Do?

• Father-in-law helped secure investors • Early scheme: convertible arbitrage • Madoff defrauded in the 1960s! • Electronic trading

9 Bernie Madoff – What Did He Do? • Claimed he and four others started NASDAQ • Actually, they created software that made trading fast and cheap • Madoff paid firms like Schwab 1 penny per share – but his spread averaged 12.5 cents per share • By 1990 Madoff executed 9% of the daily trading volume of NYSE stocks

Bernie Madoff – What Did He Do? • Computer equipment was outdated • E-mails limited • 17th floor turnover • Wealthy individuals -> hedge funds -> feeder funds • Booming economy

10 Bernie Madoff – What Did He Do? • 1990: NASD pressured by the SEC to study the issue of payment for order flow • 1992: SEC investigated a feeder fund that appeared to be a Ponzi scheme • 1997: trading spreads lowered to 6.25 cents

Bernie Madoff – What Did He Do? • 2001: trading spreads only a penny • Investment business was all “word of mouth” – a “private club” • 2001: Two articles questioned Madoff’s existence and improbability of continued 10-12% annual returns • 2006: SEC investigation, a close call

11 Bernie Madoff – The beginning of the end • 2008: Market prices declined drastically • Madoff continued claiming 4.5% returns • November/December Bernie asked Ruth to transfer $15.5M from a brokerage account to her personal bank account

Bernie Madoff – The beginning of the end • December 2008: investors had demanded $7B of withdrawals… • Bernie solicited new infusions from wealthy investors • December 6, 2008 – Bernie threatened Fairfield Greenwich • December 8, 2008 – confession, then the company holiday party

12 Bernie Madoff – The Aftermath

• House arrest • No phone call from either son • $65B theft • 17th floor a “crime scene”

Bernie Madoff – The Aftermath

• Pleaded guilty to 11 charges of fraud, theft, money- laundering, and • Did it stop Ponzi schemes? – Richard Piccoli $17million – Arthur Nadel $300,000 – Joseph Forte $50million – Nicholas Cosmo $300million – Paul Greenwood & Stephen Walsh $554 million – $8billion

13 Did they know?

• (Dir of Oper) • David Friehling • Frank DiPascali • • Andy Madoff • • “Special customers”

/DUJHVW/RVHUV

„ FAIRFIELD GREENWICH ADVISORS $7,500,000,000 „ HOLDINGS $3,300,000,000 „ BANCO SANTANDER $2,870,000,000 „ BANK MEDICI $2,100,000,000 „ $1,800,000,000 „ ACCESS INTERNATIONAL ADVISORS $1,500,000,000 „ FORTIS $1,350,000,000 „ HSBC $1,000,000,000

Source: WSJ March 6, 2009



14 $WHOOLQJTXRWH«

“People who analyzed client statements said Mr. Madoff's firm couldn't have bought and sold the options he claimed because those totals would have outstripped total trading volume those days. ” Amir Efrati, WSJ, “Q&A on the Madoff Case”, 3/12/09



$QRWKHUWHOOLQJTXRWH«

“Why do people keep getting duped? It might be that in the euphoria they stop listening to reason. ”

“Ripped Off: Madoff and the Scamming of America”, CBS Eye Too Productions for History



15 $WKLUGWHOOLQJTXRWH«

“The scandal has destroyed America’s confidence in the masters of the universe. ”

“Ripped Off: Madoff and the Scamming of America”, CBS Eye Too Productions for History



5HG)ODJVRIWKH0DGRII&DVH



16 Bernie Madoff – Lessons Learned

• If something sounds too good to be true... – Unusual returns – Regular returns, no negative returns • Privacy • Where there’s smoke… • Who do you trust?

References for more information (continued) • “How Bernie Did It”, J. Bandler and N. Varchaver with D. Burke, Fortune, 5-11-09. • Madoff: Corruption, Deceit, and the Making of the World’s Most Notorious Ponzi Scheme, P. Sander, Lyons Press, 2009 • Catastrophe: The Story of BERNARD L. MADOFF, The Man Who Swindled the World, D. Strober and G. Strober, Phoenix Books, 2009 • Bernard Madoff: Masterminding a Billion Dollar Fraud, Filiquarian Publishing, LLC, 2009 • [DVD] “Madoff and the Scamming of America”, HISTORY, Produced by CBS Eye Too Productions for HISTORY, 2009 • SEC.gov for the 477-page internal audit of Madoff’s investing activities

17 Questions?

Dr. Lynn H. Clements CPA CMA CFM CFE Cr.FA Professor of Accounting Florida Southern College (863) 680-4288 [email protected] `

18 Forensic - Case Studies

Odalys Z. Lara, CPA, CVA, CFFA, CFD

19 Odalys Z. Lara, CPA, CVA, CFFA, CFF Principal Perzel & Lara Forensic CPA’s, P.A.

Odalys Z. Lara, CPA, CVA, CFFA, CFF is a principal of Perzel & Lara Forensic CPA’s, P.A. and co-chairs the firm’s litigation support department. Her extensive experience in providing a broad spectrum of professional services including forensic accounting, auditing, tax, pension and estate planning, provides the technical foundation required to excel as a certified business valuation analyst (CVA), Certified Forensic Financial Analyst (CFFA), and Certified in Financial Forensics (CFF).

Over twenty years as a certified public accountant, with a wide variety of experience in many different industries, with differing accounting practices and methods, as well as significant tax issues, has provided the technical background needed in a professional providing business valuations, forensic and fraud prevention services, expert witness, and litigation support services. Odalys Lara’s ability to communicate clearly as well as withstand cross-examination and other courtroom dynamics strengthen a case by adding an unparalleled level of credibility and expertise. Clients depend upon her business valuation recommendations in the areas of divorce, mergers and acquisitions, buy-sell agreements, partner and stockholder agreements, damage losses, and succession and estate planning.

Odalys has also earned the premier NACVA designation of Certified Forensic Financial Analyst in the areas of economic damages and fraud deterrence & detection (CFFA) and AICPA designation of Certified in Financial Forensics (CFF). She uses this additional training in forensic accounting to investigate and uncover financial fraud as well as construct fraud prevention programs.

Odalys’s experience includes: valuation services for medical and professional practices, service businesses, construction, manufacturing, etc. Her varied background in working in many industries as well as her thirst for up-to-date technical information keeps her on the forefront of business valuation issues.

Odalys also teaches nationally for NACVA fraud prevention and detection training.

20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 MEMBERS ADD UP Refer a FRIEND to the FICPA and earn a chance to WIN

Members Add Up is a fun and easy way for you to share the benefits of FICPA membership with your friends and colleagues. Just refer one new member and receive a chance to win a grand prize valued at $2,500!

Reach out to that new person in the office, or encourage a long-time colleague to finally join… just do it before June 30, 2009 for a chance to win! Each member you refer will put your name in the hat for chances for the grand prize, so start today! How Does It Work? HOW? It’s easy. Any FICPA member can participate in Members Add Up. Simply recruit a colleague to join the FICPA, and when he/she processes a new member application with your name as a referral, we’ll credit you with points toward the grand prize. The more points you have, the greater your chances for winning the grand prize. Go to www.ficpa.org for more details about the program or to download a member application. Why Should You Participate? WHY? It’s simple. The more members the FICPA has, the stronger our voice is in the Legislature, where we work hard to promote and protect the CPA designation that is so valuable to you. We need the support of every CPA in Florida to make our message known, and you can help!

It’s fun. The Chapter that has the highest percentage of participation will win funds towards a Chapter event, so joining in today could really pay off!

It’s easy. Just make sure that anyone you refer puts your name on their application and we will take care of the rest. START ADDING UP THOSE MEMBERS TODAY! (850) 224-CPAS • (800) 342-3197 • www.ficpa.org ( 2 7 2 7 ) (within Florida only)

Visit www.ficpa.org and take advantage of your membership benefits, or contact the Member Service Center (MSC) at (800) 342-3197 (within Florida only) or (850) 224-2727, or e-mail [email protected]. NOT SURE WHERE TO START? Remember these benefits when talking to a friend about the FICPA.

1. Networking with other CPA professionals FICPA provides many opportunities to meet peers and share ideas and best practices. 2. Leadership development Joining a committee is a great way to influence the future of the FICPA, as well as gain leadership skills that will boost your resume. The FICPA will help you become a better- rounded professional! 3. Continuing Professional Education We are absolutely committed to providing the highest-quality CPE available in Florida. Stay current with advances in technology, best practices, and timely updates on accounting issues—and save money as a member, too! 4. Join a Section See how others are handling the same challenges you face by just logging on to the Internet. Professional interest Sections provide members the opportunity to ask questions and get advice from colleagues around the state. Each Section has a private members-only Listserv where members share and communicate ideas with each other any time of the day. 5. Stay informed Information is power. As a member you will receive Florida CPA Today magazine and a bi-weekly “Newsflash” electronic newsletter to keep you up to date on industry trends and news. 6. Give back to your profession The FICPA helps to sustain the future of the profession through legislative advocacy and its Educational Foundation, which provides scholarships to accounting students. 7. Safeguard YOUR profession You worked hard to become a CPA, and we work hard to make sure that designation means something. The FICPA represents Florida’s accounting professionals before the state Legislature to protect the CPA license. When you support the FICPA, you support your professional future.

STARTADDING UPTHOSE MEMBERS TODAY! The company that learns together, earns together... Let Us Show You How!

Who We Are Business Learning Institute (BLI) is a one stop shop that helps you to develop a custom learning solution which blends traditional classroom settings with modern tools such as webcasts, webinars and on-line classes.

This combination of traditional and modern training venues will allow your employees – from the highest level to entry-level – the opportunity to participate in programs that cover everything from technical content to leadership, performance skills and technology. What We Do Let us guide you through the process of selecting the right curriculum for your specific needs –that’s our job! We constantly monitor the profession to identify topics that will be the next hot issue.

Have you heard about XBRL, Lean Accounting, International Financial Reporting Standards? You will – and when you do – we’ll be ready to design the right class for you.

Why Us? When you use BLI, you gain access to our personal service, industry knowledge and guaranteed reliance – we deliver on every promise. Besides gaining CPE and valuable learning tools, you’re supporting your profession. Why? Because we’re part of the Florida Institute of CPAs!

Who Uses Our Services? BLI has coordinated and tailored programs for the following international organizations: • Microsoft • Target Stores • Marriott • Sherwin-Williams • Black & Decker • Northrop Grumman Corporation

For more information

Contact Adam Hebenthal at (800) 342-3197 (within Florida only) or (850) 224-2727, ext. 305 or e-mail hebenthala@ficpa.org.

FLA (PLACE ON YOUR COMPANY’S LETTERHEAD)

Attention: Business Editor Contact: (CONTACT NAME) (CONTACT’S TITLE) (FIRM NAME) For Immediate Release Phone ______E-Mail ______(WEB ADDRESS, IF APPLICABLE)

(MEMBER’S NAME), CPA, Completes course on (SUBJECT AREA)

(MEMBER’S CITY), (DATE), 2008 -- ______(MEMBER’S FULL NAME)______, CPA, of _____(FIRM NAME)______in ______(CITY)______, completed a course, “______(COURSE TITLE)______,” on ____(DATE) ____. This continuing-education course covered the topic of______(SUBJECT AREA)______.

___(MEMBER’S LAST NAME)______is a ______(POSITION TITLE)______practicing in the area of (MEMBER’S AREA OF PRACTICE – TAS, AUDIT, ETC.) with the firm.

In addition to (MEMBER’S LAST NAME)’S professional responsibilities, HE/SHE is also active in (LIST ANY OTHER PROFESSIONAL/CIVIC/ VOLUNTEER/COMMUNITY ACTIVIES – OPTIONAL). HE/SHE is an active member of the Florida Institute of Certified Public Accountants, the professional association representing the interests of more then 18,400 CPAs with over 4,400 offices throughout Florida.

(MEMBER NAME) can be reached by telephone at _____(PHONE NUMBER)____, or via e-mail at ______(E-MAIL ADDRESS)______.

###