Corporate Fraud Case Studies

Publication Date: June 2013

The author is not engaged by this text or any accompanying lecture or electronic media in the rendering of legal, tax, accounting, or similar professional services. While the legal, tax, and accounting issues discussed in this material have been reviewed with sources believed to be reliable, concepts discussed can be affected by changes in the law or in the interpretation of such laws since this text was printed. For that reason the accuracy and completeness of this information and the author's opinions based thereon cannot be guaranteed. In addition, state or local tax laws and procedural rules may have a material impact on the general discussion. As a result, the strategies suggested may not be suitable for every individual. Before taking any action, all references and citations should be checked and updated accordingly.

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All numerical values in this course are examples subject to change. The current values may vary and may not be valid in the present economic environment.

Corporate Fraud Case Studies

CORPORATE FRAUD CASE STUDIES ...... 1 OBJECTIVES ...... 1 INTRODUCTION...... 1 THE FRAUD DETERRENCE INITIATIVE ...... 2 SIGNIFICANT CASES REPORTED BY THE FBI ...... 14 AN ENRON CASE ...... 16 SIGNIFICANT CASES REPORTED BY THE DEPARTMENT OF JUSTICE (DOJ) ...... 18 GLOSSARY/INDEX ...... 32 SUMMARY ...... 33 REVIEW QUESTIONS ...... 34 FINAL EXAM QUESTIONS ...... 35

Objectives

After completing this chapter, you should be able to

 Recognize the Fraud Deterrence Initiative and the story behind how it got started  Identify the various corporate fraud cases which the FBI and DOJ have prosecuted.

Introduction

Commonly referred to as “white collar” crime, corporate fraud is those illegal acts which are characterized by deceit, concealment, or violation of trust and which are not dependent upon the application or threat of physical force or violence. These acts are committed by individuals and organizations to obtain money or services; or to secure personal or business advantage. This course will recap several actual cases of corporate fraud as presented by the Federal Bureau of Investigations (FBI) and U.S. Department of Justice (DOJ).

In addition, you will be introduced to an organization known as the Fraud Deterrence Initiative and have the opportunity to read the story of an actual corporate fraud criminal.

The purpose of this course is to educate you through the presentation of the crimes of others in the hopes that their stories will provide you with additional insight in how you can prevent crime from occurring in your workplace or those of your clients.

The Fraud Deterrence Initiative

The following story is an actual story of what happened to one corporate executive who let greed interfere with his otherwise moralistic manner of doing business and is reprinted here with permission. The founder of the Fraud Deterrence Initiative, like most who commit corporate fraud, was a first time offender and has agreed to share these details with you in the hopes of making a difference in the war against corporate fraud.

“The online campaign [the Fraud Deterrence Initiative] was founded by a former professional who himself has been implicated in a fraud case, where he embezzled nearly one hundred thousand dollars from his employer. The founder launched this free service in an attempt to advise young professionals to avoid committing the same immoral and illegal mistakes that he has, as well as to raise awareness of the draining impact of occupational fraud on both employers and employees.

The founder hopes to achieve this goal through the following features:

Share an honest account of his own fraud offense, shedding light on the state of mind of most culprits, as well as on the bleak consequences of his crime

Provide detailed research on occupational fraud in America to demonstrate the nature, methods and size of this growing problem

Present a variety of prevention and detection methods recommended for employers by respected authorities in the field

Provide useful resources, such as links to organizations committed to the same goal of fighting fraud, and a selection of various articles discussing occupational fraud

Create a forum where victims of occupational fraud and even reformed offenders could share their constructive insight and stories

About Us

The Fraud Deterrence Initiative was founded in 2004 to offer advice to young professionals and raise awareness regarding occupational fraud. I, the founder, am a former research professional who have been charged of and pleaded guilty to embezzling funds from my former employer to the tune of $100,000.

As with most embezzlement culprits, I was not a career criminal. This offense was my first and only illegal violation ever. For this and many other reasons, the repercussions of my crime have had a profoundly damaging impact on my life. Shame, disgrace and jail time are among some of the many grim consequences I’m facing. But by far, my biggest loss of all was my credibility. Not being a professional criminal makes it difficult to explain why you committed such a heinous crime. Even more challenging is offering compelling reasons for why you’d never do it again. And I’m not just talking about convincing others, but equally so about reassuring myself.

So it was that in the months between my arrest and the official sentencing, while out on bail, I began what you could call a soul searching journey. With no history of mental instability or prior offenses, my goal was to better understand the deep roots of my wrong actions; fix whatever was wrong and ensure that I would never make such a mistake or anything remotely similar ever again. In my opinion, my efforts were more than successful; in fact, I believe that the dramatic revelations I made have had a far reaching impact on my entire view of the world, on my sense of self and on my priorities in life.

As part of this healing process, I spent a lot of time researching the topic of Criminology, especially white collar crimes. I tried to better understand my own perception failures, as well as my ethical shortcomings. Why would a successful professional from a good family and with a prosperous career commit such an act that lasted over a year and a half? Needless to say, and as any reasonable person would tell you, we humans are not just vulnerable subjects of environmental and genetic influences. We also have this thing called “freewill.” For all of us, myself included, we have the ability to control our thoughts and choose our actions, and with them, our fate. Thus, when I began conducting my research on criminology, I was not looking for some scientific explanation pertaining to environment or heredity on which to blame my wrong actions. But rather I was attempting to better grasp the other cognitive and psychological factors that shaped my wrong choices.

Of the many crucial findings I uncovered during my research, two of them resonated with me as being reminiscent of my own experience. Those two findings were the chief driving forces behind my decision to launch the Fraud Deterrence Initiative. The first, obvious but often underestimated, observation was that in the absence of a strong code of ethics coupled with the presence of enticing factors, humans are dramatically susceptible to committing illicit acts. The second finding, an expansion of the first, was that for such group, a possible effective deterrence is to provide them with an insider peer view of the bleak repercussions awaiting them if they commit those illicit acts; as well as to explain the psychological mechanics that allow such vile behavior to emerge and continue.

The premise for this conclusion was further validated by news of recent initiatives by reputable universities to expose their graduate students to firsthand accounts of fraud offenders. The students in one graduate program, usually managers in their mid-careers, would pay a visit to a prison where one former professional was serving time for an occupational fraud offense. During those visits, the offender would talk about his crime, why he did it and how it damaged his life. Interestingly enough, during such visits, researchers observed a peculiar phenomenon, which they labeled the “2% effect.” Basically, of the many graduate students involved in these programs, around two percent of them would show signs of extreme nervousness and

3 apprehension during the course of the visit. Not necessarily a sign of their culpability, but some of these students quit their jobs following such visits. Researchers were led to believe that indeed some of these students were possibly involved in some illegal act at their jobs and this exposure prompted them to stop it, or just run away from it.

So getting back to my conclusion about the merits of providing direct insider accounts to help deter fraud, I believe that by sharing my own story ,as well as other pertinent research and resources , I might compel those “two percent” of professionals ―and any others― who visit this campaign site to not make the same wrong choices that I have. Prior to my crime, I was not exposed to any such firsthand accounts, and I sure wish I had. It is with this notion that the Fraud Deterrence Initiative came to light, and it is with this notion that I’ll continue to launch more campaigns for as long as I’m available to do so.

I should still make it very clear that the best deterrence against fraud is a good moral foundation. Corporations today are increasingly offering their employees ethical training classes hoping to prevent a disaster before it happens. I fully support their efforts and do believe they’re worthwhile. My own contribution to the cause, however, will remain focused on providing an insider’s account of how fraudulent behavior comes about, what happens to those who cross the ethical line and why they shouldn’t.

Finally, and in all sincerity, my need to repent has been the biggest impetus for my decision to launch this campaign. Falling from grace into the abyss of shame because of your own wrongdoing is a tormenting experience. For most people, it will break you. For the determined few, it can certainly make you. I’m trying hard to turn this into an enlightening experience that will make a better person out of me. To that end, I have an unwavering desire to prove to myself and to my family that I can still contribute something decent and positive to society and to my peers. I hope that this campaign initiative and its favorable outcome will help me achieve those goals.

I wish all the professionals out there the best of wisdom and resolve in making the right choices.

My Story

Over the next few pages, I recite my story: The story of a young successful professional who embezzled from his employer and brought upon himself the most devastating of repercussions. I tell my story hoping to prevent others from making the same illegal mistakes and to try to alleviate the enormous shame and guilt I’m feeling.

You’ll notice that as I describe the events that transpired, I continuously reflect on my state of mind during the offense, which lasted for over a year. The reason being is that most embezzlers —myself included— are usually first time offenders; and thus, it’s important for readers to understand how such vile behavior emerges among respectful professionals with no criminal history.

To emphasize those important observations, I highlight the relevant text in red font throughout my story. As you read on, and if you by any chance are in the midst of committing similar illegal mistakes, I hope that my tale will make you come to your senses. For all others, I hope you can learn something nevertheless.

As I began writing my story and conducting research on other embezzlement cases, I came across a wide range of perpetrators and an ever wider array of victims. From the low-level accountant at the small dry cleaner store to the high-powered executive in the Fortune 500 Company, the list of culprits and victims was as diversified as it was long.

In spite of the disparities, one factor appeared consistently across the board, and that was the impetus for the offense. Of the hundreds of cases I read about, I found that at the heart of most embezzlement cases was the age-old trait that has plagued humans for thousands of years. The thing we’ve come to know as “Greed.”

Not surprisingly, a close second which often played an equally damaging role was “Need”, especially financial need. The difference, it seemed to me, was that “need” was usually the force that set the offense in motion. But it was greed that allowed fraud to continue.

Equally notable, things such as “moral standards” didn’t seem to always play a part in the fraud offense. Many of the fraud cases I came across were committed by devout religious and ethical people who reportedly did have solid moral foundations. Thus while morality is inarguably a force that guides our actions, I noticed that its absence was not always a commonality amongst fraud offenders. But the presence of greed was; and that’s what set it apart from all the other factors: it was always there. Don’t get me wrong though, I have no doubt in my mind that a solid moral foundation is the best deterrence against fraud. I’m just pointing out that of all the pervasive attributes amongst the embezzlers I’ve read about, greed was more common than immorality.

In that regard, my story is not very different from the many stories you’re likely to read about. Perhaps the only difference is that I’m willing to share it publicly with a true desire to repent for the mistakes that I made and to help both victims and perpetrators avoid facing a similar disaster. But like others, my act began with a need for money and the justification that this act was a one- time event that won’t hurt anybody. In time, it grew into an incontrollable act that continued to be justified by the same flawed rationale, but its magnitude ballooned into much greedier levels.

Now I tell you my story.

How It All Began

It had been six years into a very prosperous career in the financial services industry and one year into my tenure with a new company. Then it all began one winter night as I drove home from a long day at work. Back then, I was going through some minor financial hardship. I basically had an outstanding debt of approximately $6,000, which had been weighing heavily on my finances. The year before, my father passed away and I had to support my mother financially. In so doing,

I racked up some debt to pay for her living expenses until things came back to normal. I also racked up some sense of frustration over my inability to be financially capable and mange to support my family with more ease. Of note, my salary then was already in the range of $60K a year, a figure that could’ve been enough to get me through my debts in due time, but for various reasons, I just couldn’t manage on.

As part of my job, I was solely responsible for managing the relationship with several vendors and had discretion over handling invoices and payments to them. These expenses ran in the range of $50-$80K a year. Specifically there were two vendors, which as I will explain, both became components of my scheme, without their knowledge that is. Let’s call them vendor A and vendor B. Vendor A was responsible for providing research tools and analysis. Vendor B provided all the technology support for vendor A, but I paid them both directly.

Towards the end of the year, vendor B, the technology provider, withdrew from the contract because I had objected to their dramatic raising of fees. Following their departure, and under pressure from me (with no malicious intentions), vendor A hired a technology consultant on full time basis, who was tasked with providing the same services that the old vendor provided. This new arrangement translated into savings of tens of thousands of dollars, as the cost of hiring that consultant was much smaller than paying the old vendor for virtually the same services. Also worth mentioning, the departure of the old vendor and the delegation of their technology support services to the remaining vendor did not become known to my superiors. It just so happened that the new arrangement transpired very quickly.

So back to that one night when I was driving home from the office: In the weeks before I had received notices regarding my outstanding debts and I was stressing about it. So sitting in traffic, listening to the radio, I had the first glimpse of an idea: Since I saved a lot of money with this new vendor arrangement, what if I could utilize some of those savings; kind of give myself a bonus, to help me get out of debt.

I thought to myself that this would be just an isolated act that did not represent who I was as a person. I justified to myself that tapping into those supposed savings of a few thousand dollars would hardly impact the company financially, given its colossal annual revenues of over a hundred million dollars. I told myself that it would only amount to rewarding my self for my successful negotiations, which had led to the drastic reduction in the cost of vendor services. Most notably, I convinced myself that this would be an exceptional one-time transaction, not a continuous scheme, and was by no means an act of fraud

Lying To the Mirror

If there’s one phase of fraud’s psychological continuum you need to watch out for, this beginning phase is it! It’s that point before you actually cross the line, but when you begin rationalizing why crossing the line is justified. For me that very moment was on that winter night when I rationalized to myself that stealing money from my employer was not theft but rather a

6 business transaction. Sure enough, almost every embezzlement offense I’ve read about had traces of that same dynamic: the offender rationalizing that his action was justified, or that it didn’t represent who they are or that it was something less deplorable than what it really was- fraud!

As you’re reading this, and if you’re encountering a similar situation, I recommend that you take an honest look at any wrong actions you’ve taken or are about to take. Most likely that corrupt choice was justified by a giddy rationale, which conveniently made your self-serving behavior seem acceptable. Believe me, once you cross that line, turning back just gets harder and harder. You have to remember that in my case and prior to that date, I had never done anything remotely close to this.

So if you’re thinking to yourself, “the fraud I’m committing does not represent who I am. Really I’m not that kind of a person…,” well you better think again. You know the old adage, “stupid is as stupid does”? Well the moment you commit a crime, you ARE a criminal, regardless of whether it’s your first offense. Further, believing that you are a decent person ─and you may be indeed─ does not give you impunity from doing indecent things. Who we are is more a reflection of what we do than who we believe we are.

Sure enough, I considered myself a decent person. I truly did. I based this self-assessment on my dignified views of people and of the world, which lacked rancor or envy. I based it on my lifelong encounters with family, friends and teachers, to whom I always showed respect and tenderness. I based it on the various points of my history where I often opted to do the right thing at the expense of giving up something in return.

But the moment I committed fraud is the moment I ceased to be a decent person. What I did is what mattered; not who I thought I was. Ask yourself this simple question: Is what I’m doing illegal? The answer should be a simple yes or no. No explanation of how decent you [otherwise] are should matter.

Fraud Triangle

I did not linger at the question. I slipped right through it with my faulty reasoning, fueled by a need for money. I worked out my plan as follows: I would establish a new corporation that bore a similar name to vendor B, who no longer provided us services but their departure was unknown to my superiors. Using fictitious invoices that looked exactly like the ones vendor B used to send us, I would create invoices for work that was no longer done by that vendor but that was being provided by the other vendor, who I legitimately paid separately. I would submit those invoices to Accounting and would request to pick up the checks personally under the excuse that I needed to overnight them myself to ensure proper delivery. I would then deposit the checks into a bank account that I would establish for that new shell company.

Once I paid off the debt, I would stop. Further, I vowed to myself that as soon as my financial situation improved, I would pay back the money by making a direct payment to the remaining vendor out of my pocket in the same amount that I tapped into.

Once again I point to the conniving nature of “rationalization,” which is the cornerstone of all embezzlement offenses. Criminologists call it the Fraud Triangle: Existence of Pressure (financial need) and presence of Opportunity (money,) followed by Rationalization that the wrong behavior is justified by valid reasons. For the weak of will, these factors combined could give birth to fraud, especially in the absence of a strong moral code. And in my case, they did.

No Turning Back

So it was, I established a corporation that bore a similar name to vendor B. I then opened a bank account for that corporation. I turned in my first invoice for the amount of $8,500 using the template from the original vendor that was emailed to me. I requested it that accounting provides me the check personally. I picked up the check and deposited into the bank, where I had been a regular client, and the slight difference between the name of on my account and the name to whom the check was payable went unnoticed. The first transaction went smoothly. I transferred the money from my business account to my personal account and paid off the debt in its entirety. I planned to close the business account the next day and dissolve the shell company.

A day later, I had not done that. I was very busy with work and just decided to put it off for another week or so. A week later I still had not done that. A month later I still had not done that. A couple of months later I needed money again and I repeated the process, albeit for a much smaller amount. After that, I just couldn’t stop. Over the course of two years, I had generated over a dozen invoices and received an equal number of checks for what eventually amounted to nearly one hundred thousand dollars.

So how did I make the leap from a one-time transaction to an ongoing process? As pitiful as any explanation may sound, the merits of the additional income simply blinded me. The monetary reward made my initial flawed justification all the more believable: I wasn’t committing fraud; I was just tapping into the savings that I managed to yield! The depths of my action (betraying my employer) and the possible repercussions (legal and professional) all languished in the background, overshadowed by the handsome financial rewards and suppressed by the seemingly acceptable rationalization (I wasn’t hurting the company financially!)

Intentions Don’t Count

Criminologists also describe another dynamic in the mindset of the embezzler, something called “wages in kind.” This occurs when the embezzler believes he’s entitled to the assets he’s stealing. There’s the famous tale about the bookkeeper who was denied a $100 monthly raise. Over the next 10 years, he embezzled a total of $12,000 in the form of $100 a month of fraudulent payments to himself, the same raise amount he had asked for!

In my case, I did not have any such entitlement claims. On the contrary, during the couple of years following the beginning of the scheme, my prominence in the company was rising exponentially. I had built a name for myself in the industry as a research analyst and generated a lot of publicity for the company through my various research papers. I won employee recognition awards, I was allowed to hire more staff and I basically had a very rewarding job in more ways than one. In all honesty, I truly was passionate about the company and my work, and was known around the company for my uplifting demeanor and my positive attitude. I sincerely cared about the success and future of the company.

Paradoxically enough, having this genuine heartfelt admiration for the organization made me all the less guilt-ridden about what I did behind their back. It somehow alleviated the awfulness of my actions. The incongruity of my rationale reminds me now of an episode of Sex and The City, where a female character walks in on her boyfriend having sex with another woman. The man caught red handed looks at her and says “This is just sex, but I love YOU!”

Equally delusional, I convinced myself at the time that cheating on the company was not necessarily deplorable, since I truly cared for them! But now that I look back at those years, I realize that I did hold some of those unfounded “wage in kind” views. To the extent that I believed I was making a lot of money for the company and truly cared for their well-being, I rationalized that diverting some additional income to myself was not entirely unconscionable. Oh how we fool ourselves!

As you’re reading this, and if you’re encountering a similar situation, once again I ask you to honestly examine the nature of your action. If you believe you’re entitled to some additional privilege from your employer, that’s understandable. But know this: when in the midst of fraud, one often looks for and finds easy ways to justify his actions. With me, it started with the rationale that I was capitalizing on some savings I had earned for the company. Then I rationalized that the company’s financial state was so strong that my theft would not impact it. Then I believed that my genuine passion for the company neutralized the fact that I stole from them. The point is that you’ll never run out of frivolous reasons to justify your actions. What I advise you to do is to admit to yourself that no one reason justifies stealing from your employer (or anyone else for that matter.) If that’s not enough to stop you, then think of the hefty price you’ll pay in the end compared to the forgone privileges to which you believe you’re entitled. For me, I’m going to prison very soon; a hefty price indeed!

Above all, remember that your biggest enemy is yourself. Look at the outrageous excuses I used to justify my behavior (I made them money and so a little theft is okay!) I think I just wanted to believe any excuses, as senseless as they were, so that I can subside the guilt I was feeling. And this was my biggest lie: I believed that I believed my lies! The truth is, in all of this, the person I deceived the most was not my employer; it was me.

So stop lying to yourself and face the truth. There is a reason [individuals] with substance abuse problems begin their therapy by first admitting that they ARE substance abusers. Acknowledging your wrongdoing is the first and most critical step to end the fraud. Without it, your lies will just get bigger and your chances of stopping will get smaller.

Fear subsided

Now you have to wonder though: guilt aside, do embezzlers fear getting caught? Did I? Would you?

For me, the answer is yes, I did, well at least in the beginning. But with time, this act seeped into my life that it became simply an accepted fact of my existence. I was so blinded to reality by the hypnotizing effect of money that I completely discarded any attempts to confront the fearful repercussions of my actions. As idiotic as it may sound, I got to a point where I almost forgot about the scheme, I just did it! Do I sound fearless to you? Think again. It wasn’t the lack of fear that blinded me; it was the greed, the money, and most of all, the denial. I avoided facing reality by digging my head in the sand pretending that if I didn’t see the problem it would just cease to exist.

There’s a famous fraud story about this CFO who had sole control over the accounting systems at a mid-size bank. One day he tapped into some funds in one account and managed to conceal it through making fake reverse entries in another account. He did this for a few years completely undetected and amassed over $150,000 in illegal funds. Then one day, a customer made a double payment to the bank. The redundant check was forwarded to the CFO for processing. Get this, after sitting at his desk untouched for a week, the CFO finally took the check, endorsed it to himself and deposited it directly into his account! When the customer got the returned check and realized the foul play, he called the company and eventually an outside audit uncovered the entire scheme.

So why do you think the CFO went as far as to make such an incriminating move signing his own name on a client’s check? Was he fearless?

Absolutely not! Like me, his greed grew over time to the point that he became incapable of reasoning. Hardly an excuse for his illegal actions, or mine for that matter, but the point I’m driving home is that after a while, you’re bound to lose sight of reality. If you thought it was hard to control your actions in the initial stages, wait until you get farther along. Greed overpowers fear, especially when you grow accustomed to the financial rewards. So be wary, if you’re already in the midst of committing fraud, it’s NOT too late to stop. If you use the rationale of “I’m too far along in this mess to stop now,” you’re wrong. It will only get worse from here, both in legal terms and in the sense of your ability to stop. And if you think your lack of fear is a sign of your infallibility, you’re wrong again. The absence of anxiety is rather a sign that you’re so enmeshed in your foolish behavior that its severity doesn’t faze you anymore. Sooner or later, your foolish behavior will catch up to you, as it did to me.

Reality Hits

Nearly two years into my scheme, someone in accounting noticed a discrepancy in two of the fictitious invoices I had submitted. In less than two days, a simple audit managed to uncover the

10 entire scheme. One Monday morning in the office, I was confronted with the findings and I admitted my crime and provided full details about the nature of the scheme. I was fired on the spot and was told to expect legal action against me. Here’s the horrifying part, and I’m being truthful when I tell you this: When they confronted me about the scheme, and for a split second, I couldn’t tell if I had truly done this or if I had just once thought about doing it! I know it sounds silly, perhaps even pathetic. But this is another of greed’s many tricks: it gives birth to other traits. In my case, one of those traits was none other than “denial.” So it was that when I got into my car and drove home, I had only one thought in mind: Suicide. I couldn’t face what I had done. I couldn’t face what awaited me!

When denial is reversed, all you’re left with is a big shock. And in my shock, I could think of no other way to avoid the shame awaiting me except by not being there to face it. Worse yet, I just couldn’t stand myself; I resented every last breath of my existence. In a way, I really wanted to punish myself!

To spare you the morbid details, my suicide attempt was not successful. I slit my wrists multiple times and swallowed 90 pills of a sleeping aid, but ended up losing consciousness for 36 hours and losing little blood. When I woke up in a daze, not sure if I were dead or alive, I immediately called my fiancé and my brother, who came to my aid. I only lived because I missed the veins.

After recovering from that initial shock, I came to my senses and realized what had really happened. I retained the services of an attorney and attempted to reach a civil compromise where I’d pay back the money, which I had already spent over the course of two years.

The more I regained sight of reality, the more I realized how bleak that reality was. But I knew that despite whatever state of denial I was under in the past two years, my actions were real and I had to take responsibility for them. I waited, and two weeks later, I was arrested at my home.

The Aftermath

I’m now out on bail, awaiting my sentencing. I expect to begin my incarceration very soon. Due to the nature of my role, I have also been barred from the securities industry for life. Predictably, I’m liable for all the funds I embezzled and will be ordered to pay them in full (I already voluntarily began paying back some of the money with the help of my family.) In addition, the legal fees I’ve incurred in the process already amount to nearly what I stole. But this is nothing compared to the intangible damage I’ve caused. The news of the whole incident was made public and virtually everyone who had any association with my employer, my colleagues included, became fully aware of the whole ordeal. Shame and a tarnished reputation will haunt me forever. In committing my act, I have betrayed so many people who trusted me; a breach of trust of which I’m reminded every other day in my nightmares. I’ve disappointed those who believed in me, and gave them reasons not to ever believe again. Worse yet, I’ve disappointed my family, especially my mother, who despite the support she gave me during my crisis, her disappointed eyes can’t help but tell the truth.

You know, some mistakes are reversible and some damage is repairable. But with tales of betrayal, much like the cheating boyfriend story I mentioned earlier, there is little you can do to alleviate the harm you caused to others and to yourself, especially the legal consequences. All that’s left to do is to turn this saga into an experience that makes a better person out of you, not a worse one. But believe me, you’re much better off not having to go through it in the first place.

The Right Choice

So in my final words to you, I’ll say this: laws exist not just because someone imposed them upon us; they exist because they’re right! They validate human concepts, which even without the existence of [those laws], are still sensible. Stealing money that doesn’t belong to you is the wrong thing to do, even if law didn’t prohibit it.

But there IS a law that prohibits it, and when you break that law, there are dreadful repercussions waiting for you. Those repercussions, including going to jail, are life-altering and their damage will haunt you for the rest of your life. The ramifications of your actions will not only affect you but will also hurt your family and loved ones. Greed and denial will make you lose sight of those consequences or even ignore them. Don’t let them blind you. Instead, do the right thing: Stop the fraud now or just don’t start it. You have the choice. Believe me, I’d do anything to go back in time and make that right choice. But I can’t, so instead, I hope to help others do so.

I wish you the best of luck doing the right thing and staying out of trouble!

Someone who’s been there.”

Once I read the above story, I had some additional questions which the gentleman who wrote the above story kindly agreed to answer as follows:

Question: What, if anything, do you think could have been done by those around you which may have prevented you from embezzling the funds?

Answer: I think if someone were to bring to my attention a similar story like the one I'm now sharing with the public, it would have likely brought me to my senses and made me see what I was doing for what it REALLY was. One of the problems is that embezzlers often unconsciously alter their perception of reality in a way that effectively subsides their guilt and quells their fear. But a reality check in the form of hearing or reading about someone else's horrid tale is bound to bring them out of that self-induced hypnosis and make them stop. Further, I think it has an even higher chance of deterring then from embarking on the fraud in the first place.

Question: If you hadn't been caught, do you think you would have stopped by yourself?

Answer: Yes, I think I would have.

Question: Without implicating anyone else, did you tell anyone and if so, what was their reaction?

Answer: No, nor did I feel the urge to. I used to tell friends that I do some consulting on the side; and after a while I sort of believed I did!

Question: Did the idea of “getting away with it” excite you or was it all for the money?

Answer: I never thought about getting caught. My view of the whole situation conveniently ended at the part where money entered my bank account. But I can tell you for sure that I did not get any kicks out of doing it either. I loathed turning in the fake invoices and dreaded even more going to bank to deposit the checks. My research on the topic, however, tells me that some people do enjoy the "drill." I wasn't one of them.

Question: How much time in prison are you expecting to receive?

Answer: I can't answer that yet do to the pending case but will keep you posted when I am able.

Question: What are your plans for when you get out of prison?

Answer: Campaigning for fraud prevention is an effort that I want to grow and take to road beyond the web. I am a good writer and an ever better speaker, and think I can add a lot of value to other organizations with the same goal of fighting fraud. As far as a full time career, I want to move into the public relations field. One of the many reasons is that I think my fraud campaign efforts could dovetail nicely into this full time job and it can even be part of the services I offer. Either way, I'll have to start making money soon to pay back the restitution amount.

Question: If you were to start your own company, what would be the most important types of controls that you would put into place to prevent someone from embezzling from you?

Answer: Besides, the obviously recommended ones (separate duties, monitor aberrant behavior, check backgrounds, audit regularly), I would definitely raise awareness amongst my employees of the topic of embezzlement. I think directing them to services like my campaign, as well as others, will help serve as some form of deterrence, in the least because they’ll know that the owner is not oblivious to the issue.

Significant Cases reported by the FBI

Background

The FBI, which investigates 9 out of every ten corporate fraud cases in the U.S., has not observed any major changes in criminal trends relating to corporate fraud. The FBI is committed to this problem. It remains the #1 priority within the Financial Crimes Section. At the end of Fiscal Year 2004, and partially due to the collapse of Enron, 405 corporate fraud cases were being pursued by the FBI field offices throughout the United States. This represented a 100 percent increase over the number of corporate fraud cases pending at the end of Fiscal Year 2003. Eighteen of the cases pending at the end of Fiscal Year 2004 involved losses to public investors which individually exceeded $1 billion.

Through Fiscal Year 2005, cases pursued by the FBI resulted in 497 indictments and 317 convictions of corporate criminals. From July 1, 2002 through March 31, 2005, accomplishments regarding Corporate Fraud cases were as follows:

 $2.2 billion in Restitutions,

 $34.6 million in Recoveries,

 $79.1 million in Fines, and

 $27.9 million in Seizures.

Select corporate fraud investigations conducted by the FBI throughout Fiscal Year 2004 included:

 Enron,

 HealthSouth,

 Cendant Corporation,

 Credit Suisse First Boston,

 Computer Associates International,

 Worldcom,

 Imclone,

 Royal Ahold,

 Peregrine Systems, and

 America On-Line.

The above-highlighted ten investigations have resulted in 120 indictments/ informations and 79 convictions.

Significant Cases reported by the FBI include:

WORLDCOM (NEW YORK) - On March 15, 2005, a federal jury in the Southern District of New York (SDNY) found Bernard Ebbers, the former CEO of Worldcom, guilty on all counts, which included conspiracy, securities fraud, and false regulatory filings. These charges relate to Ebber's role in Worldcom's submission of fictitious financial statements to the SEC between October 2000 and June 2002, which resulted in a loss of $11 billion. In addition to the conviction of Ebbers, five additional Worldcom executives have been convicted: Scott Sullivan, Chief Financial Officer (CFO); David Myers, Controller; Buford Yates Jr., Director General Accounting; Troy Normand, Director Legal Entity Accounting; and Betty Lynn Vinson, Director Management Reporting. Worldcom is an international telecommunications company with corporate headquarters in Clinton, Mississippi.

ROYAL AHOLD (NEW YORK) - On July 23, 2004 and July 27, 2004, former CFO Michael Resnick and two former Executive Vice Presidents Mark Kaiser and Tim Lee of the U.S. Foodservice (USF), a subsidiary of Royal Ahold (Ahold), were indicted in the SDNY on charges of conspiracy, securities fraud, false filings with the SEC, and maintaining false books and records. These charges relate to their involvement in an accounting and vendor fraud scheme which caused Ahold to overstate its earnings in 2001 and 2002 by over $1 billion. The New York Office also has convicted nine executives who were vendors of USF for conspiracy to commit securities fraud.

PEREGRINE SYSTEMS (SAN DIEGO) - On October 5, 2004, a federal grand jury indicted 12 former executives of Peregrine Systems (Peregrine) on securities fraud charges in the Southern District of California, including Stephen P. Gardner, CEO, Gary L. Lenz, President and Chief Operations Officer, and outside parties such as Larry Rodda, Managing Director of KPMG and

Daniel F. Stulac, Senior Accountant of Arthur Andersen. These charges relate to the former executives involvement in issuing fictitious financial statements, which resulted in the improper recognition of $250 million in revenue for Fiscal Years 2000 and 2001. To date, 17 subjects have been charged in this case. Six former Peregrine executives have pled guilty and are cooperating. The investigation was a joint effort between the FBI and the SEC.

An Enron Case

For Immediate Release CRM July 14, 2005 (202) 514-2007 WWW.USDOJ.GOV TDD (202) 514-1888

FORMER ENRON VICE PRESIDENT CHRISTOPHER CALGER PLEADS GUILTY TO CONSPIRACY AND AGREES TO COOPERATE

WASHINGTON, D.C. - Christopher Calger, a former Enron vice president, has pleaded guilty to a charge of conspiracy to commit wire fraud, Acting Assistant Attorney General John Richter of the Criminal Division, Enron Task Force Director Andrew Weissmann, and Assistant Director Chris Swecker of the FBI announced today.

Calger, 39, of Westport, Connecticut, entered the guilty plea today before Judge Lynn Hughes at the U.S. District Court in Houston. As part of his plea, Calger has agreed to cooperate fully and truthfully with the Enron Task Force's ongoing criminal investigation into the collapse of Enron. Calger pleaded guilty to one count of conspiracy to commit wire fraud and faces a maximum sentence of five years in prison and a fine of $250,000 or twice the loss incurred.

The information and plea documents signed by Calger state that he was a vice president in charge of the West Power Origination group of Enron North America (ENA). In that capacity, he supervised employees who negotiated the sale of an ENA project known as Coyote Springs II (CS2) to a subsidiary of Avista Corp. The CS2 project consisted of an equity interest in a power plant, a construction contract to build the plant, and a turbine to be placed in the plant. Calger admitted that he and others engaged in a scheme to recognize earnings prematurely and improperly. Specifically, Enron’s auditors would not allow Enron to recognize immediate gain on the turbine sale unless that sale occurred at least two weeks before the equity sale in the plant (the "equity interest") and the signing of the construction contract. The reason for the two-week separation was to demonstrate that the turbine sale was independent from the equity sale and the construction contract.

However, Avista was concerned that it would buy the turbine and then would not be able to buy the equity interest two weeks later. Enron therefore arranged for LJM2, a company managed by Enron Chief Financial Officer Andrew Fastow, to provide a "put" option to Avista for the turbine. Under the put agreement, Avista would have the right to require LJM2 to buy the turbine

16 if Enron did not sell the equity interest to Avista two weeks after the turbine sale from Enron to Avista.

Calger admitted that Enron, and not Avista, paid for the put by reducing the purchase price of the turbine that Enron sold Avista by the amount of the purchase price of the put, meaning that Avista was not paying any more than it would have if the deal had been consummated without the put. Calger also admitted that LJM2 orally agreed to refund approximately $3.l million of the $3.54 million put payment to ENA if, as expected, the put agreement expired unexercised at the end of the 14-day put period. ENA also agreed that if Avista exercised the put, ENA would buy the turbine back from LJM2.

So as to avoid detection of the scheme, Calger admitted that ENA improperly hid LJM2's participation in this transaction, and the oral agreements referenced above, from Enron's outside auditor. Before the turbine sale closed, Calger admitted that he received a draft legal risk memorandum for the CS2 project, prepared by an internal Enron lawyer assigned to the deal. The legal risk memorandum spelled out LJM2's participation in the transaction, including the understanding that LJM2 would refund most of the put payment to ENA through other deals on a later date. The legal risk memorandum also stated in substance that this understanding between ENA and LJM2 could not be documented due to accounting concerns and was not reflected in the deal approval sheet for the turbine sale. Despite keeping this information from outside review, Calger admitted that Enron's internal lawyers and accountants agreed that the sale would go forward.

The put agreement between LJM2 and Avista expired unexercised and therefore, in accordance with the oral understanding, LJM2 owed $3.1 million to ENA for the put refund. Calger further admitted that Enron's Chief Accounting Officer agreed to "credit" ENA for this figure, since LJM2 had promised to make it up to Enron in future transactions.

Enron, at one time the seventh-ranked company in the United States with stock trading as high as $80 per share in August 1999, filed for bankruptcy protection on Dec. 2, 2001 and its stock became virtually worthless.

The investigation into Enron’s collapse is being conducted by the Enron Task Force, a team of federal prosecutors within the Justice Department's Criminal Division, and agents from the FBI and the Internal Revenue Service Criminal Investigations Division. The Enron Task Force also has coordinated with the Securities and Exchange Commission. The Enron Task Force is part of the President's Corporate Fraud Task Force, created in July 2002 to investigate allegations of fraud and corruption at U.S. corporations.

To date, 34 defendants have been charged in connection with the work of the Enron Task Force, including 25 former Enron executives. The Enron Task Force has obtained more than $163 million in forfeiture for restitution to victims.

Significant Cases reported by the Department of Justice (DOJ)

Department of Justice Office of Public Affairs FOR IMMEDIATE RELEASE Tuesday, June 25, 2013

Former Executive at Florida-Based Lender Processing Services Inc. Sentenced to Five Years in Prison for Role in Mortgage-Related Document Fraud Scheme Over 1 Million Documents Prepared and Filed with Forged and False Signatures, Fraudulent Notarizations

A former executive of Lender Processing Services Inc. (LPS) – a publicly traded company based in Jacksonville, Fla. – was sentenced today to serve five years in prison for her participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney for the Middle District of Florida Robert E. O’Neill, and Special Agent in Charge Michelle S. Klimt of the FBI Jacksonville Division.

Lorraine Brown, 56, of Alpharetta, Ga., was sentenced by Senior U.S. District Judge Henry Lee Adams Jr. in the Middle District of Florida. In addition to her prison term, Brown was sentenced to serve two years of supervised release and ordered to pay a fine of $15,000. On Nov. 20, 2012, Brown pleaded guilty to conspiracy to commit mail and wire fraud.

“Lorraine Brown will spend five years in prison for her central role in a scheme to fraudulently execute thousands of mortgage-related documents while our nation’s housing market was at its most vulnerable point in generations,” said Acting Assistant Attorney General Raman. “The documents that were fraudulently produced under Brown’s direction were relied upon in court proceedings, including a significant number of foreclosure and bankruptcy matters. Today’s sentencing represents appropriate punishment for someone who sought to capitalize on the nation’s housing crisis.”

“Floridians were hard hit by the downturn in the real estate market,” said U.S. Attorney O’Neill. “We will continue to pursue individuals like Brown who took advantage of consumers

18 for personal gain and contributed to the financial crisis. Prosecuting financial crimes remains a priority for our office.”

“The investigation of sophisticated mortgage and corporate fraud schemes continues to be a priority for the Federal Bureau of Investigation as such criminal activities have a significant economic impact on our community,” said Special Agent in Charge Klimt.

Brown was an executive at LPS and the chief executive of DocX LLC, which was a wholly- owned subsidiary of LPS, until it was closed down in early 2010. DocX’s main clients were residential mortgage servicers, which typically undertake certain actions for the owners of mortgage-backed promissory notes. Servicers hired DocX to, among other things, assist in creating and executing mortgage-related documents filed with recorders’ offices.

According to Brown’s plea agreement, employees of DocX, at the direction of Brown and others, began forging and falsifying signatures of authorized personnel on the mortgage-related documents that they had been hired to prepare and file with property recorders’ offices. Only specific personnel at DocX were authorized by clients to sign the documents, but the documents were fraudulently notarized as if actually executed by authorized DocX employees.

According to plea documents, Brown implemented these signing practices at DocX to enable DocX and Brown to generate greater profit. Specifically, DocX was able to create, execute and file larger volumes of documents using these signing and notarization practices. To further increase profits, DocX also hired temporary workers to act as authorized signers. These temporary employees worked for much lower costs and without the quality control represented by Brown to DocX’s clients. Some of these temporary workers were able to sign thousands of mortgage-related instruments a day. Between 2003 and 2009, DocX generated approximately $60 million in gross revenue.

After these documents were falsely signed and fraudulently notarized, Brown authorized DocX employees to file and record them with local county property records offices across the country. Many of these documents were later relied upon in court proceedings, including property foreclosures and federal bankruptcy actions. Brown admitted she understood that property recorders, courts, title insurers and homeowners relied upon the documents as genuine.

This case is being prosecuted by Trial Attorney Ryan Rohlfsen and Assistant Chief Glenn S. Leon of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark B. Devereaux of the U.S. Attorney’s Office for the Middle District of Florida. This case was investigated by the FBI, with assistance from the state of Florida’s Department of Financial Services.

This case is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov .

Department of Justice Office of Public Affairs FOR IMMEDIATE RELEASE Wednesday, January 30, 2013

North Carolina Tax Return Preparer Pleads Guilty to Preparing False Tax Returns

Delane F. Alston, a resident of Rocky Mount, N.C., pleaded guilty today before Judge Terrence W. Boyle to two counts of aiding and assisting in the preparation of false federal income tax returns, the Justice Department and the Internal Revenue Service (IRS) announced today. Alston’s sentencing hearing is scheduled for May 6, 2013.

According to the charging documents, Alston worked as a return preparer at P&A Tax Services, a tax return preparation business, between 2007 through 2011. Alston initially prepared returns at a P&A Tax Services office located in Rocky Mount, but she later transferred to the Spring Hope, N.C., office. Alston was the manager of the Spring Hope office in 2008, 2009 and 2011. At the hearing, Alston pleaded guilty to preparing false 2008-2010 tax returns for P&A Tax Services clients that contained false and fraudulent claims for tax refunds. Alston generated the refunds by reporting false information on client tax returns, including false dependent information and false deductions.

Alston is subject to a maximum potential sentence of three years in prison and a fine of up to $250,000 for each count of conviction.

This case was investigated by IRS-Criminal Investigation. Trial Attorney Adam Hulbig of the Justice Department’s Tax Division is prosecuting the case.

Department of Justice

Office of Public Affairs FOR IMMEDIATE RELEASE Wednesday, January 30, 2013

Georgia Tax Return Preparer Sentenced to Jail for Identity Theft

Willie C. Grant, a tax return preparer from Macon, Ga., was sentenced to 60 months in prison by for filing false claims for tax refunds, theft of government money and aggravated identity theft, the Justice Department and the Internal Revenue Service (IRS) announced today. U.S. District Court Chief Judge C. Ashley Royal also ordered Grant to pay over $200,000 in restitution to the IRS.

According to court documents, from 2003 through 2008, Grant owned and operated a tax return preparation business, Grant Income Tax Bookkeeping and Check Cash (GIT) out of his home in Macon. During this time period, Grant filed false federal income tax returns in the names of deceased individuals and used many of his former clients’ names and Social Security numbers to file wholly fraudulent returns without their knowledge or consent. Grant directed the IRS to either electronically deposit refunds into his personal or business bank accounts or issue paper refund Treasury checks which he cashed or deposited into bank accounts he controlled. Grant spent the proceeds of his false refund scheme on personal items including expensive cars and personal living expenses. Grant admitted that that he abused his position of private trust as a professional paid tax preparer in committing these crimes.

“Honest taxpayers are doubly harmed when they entrust return preparers with their information, who turn out to be thieves who steal that information to enrich themselves by making fraudulent refund claims,” said Assistant Attorney General Kathryn Keneally. “The Justice Department will investigate and prosecute stolen identity refund fraud in all of its various forms.”

“When Mr. Grant stole these identities and defrauded the IRS, he victimized not only the people whose names and social security numbers he used, but every tax paying citizen in the United States. My office, with the continued cooperation of our law enforcement partners, will make sure that people like Mr. Grant are held to account for their fraud,” said Michael Moore, U.S. Attorney for the Middle District of Georgia.

“Mr. Grant used a foundation of fraud and deceit in order to cheat the government and victimize innocent taxpayers and is now being held accountable for his egregious behavior,” said Richard Weber, Chief IRS Criminal Investigation. “As a paid tax preparer, Grant held a position of trust in the eyes of his clients. He violated that trust and caused immeasurable harm to innocent victims. IRS Criminal Investigation has made investigating refund fraud and identity theft a top priority and we will vigorously pursue those who undermine the integrity of those individuals whose identities were stolen, as well as the U.S. tax system.”

Assistant Attorney General Keneally commended the efforts of special agents of IRS – Criminal Investigation, who investigated the case, and Tax Division Trial Attorneys Charles M. Edgar, Jr. and Justin K. Gelfand, who prosecuted the case.

Department of Justice Office of Public Affairs FOR IMMEDIATE RELEASE Friday, June 14, 2013 Axius CEO Roland Kaufmann Sentenced for Conspiracy to Pay Bribes in Stock Sales

Roland Kaufmann, CEO of Axius Inc., was sentenced today to serve 16 months in prison for his role in a conspiracy to bribe purported stock brokers and manipulate the stock of a company he controlled, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney for the Eastern District of New York Loretta Lynch.

Kaufmann, 60, a Swiss citizen, was sentenced today by U.S. District Judge John Gleeson in the Eastern District of New York. In addition to his prison term, Kaufmann was sentenced to serve three years of supervised release and ordered to pay a fine of $450,000.

Kaufmann pleaded guilty in January 2013 to one count of conspiracy to violate the Travel Act in connection with a scheme to bribe stock brokers to purchase the common stock of a company he controlled and to manipulate its stock price. As part of his plea agreement, Kaufmann forfeited $298,740 gained through this crime.

According to court documents, Kaufmann controlled Axius, Inc., a purported holding company and business incubator located in Dubai. As part of the scheme, the defendant and his co- conspirator, Jean Pierre Neuhaus, enlisted the assistance of an individual who they believed had access to a group of corrupt stock brokers, but who was, in fact, an undercover law enforcement agent. Court documents reveal that they instructed the undercover agent to direct brokers to purchase Axius shares in return for a secret kickback of approximately 26 to 28 percent of the share price. Kaufman and Neuhaus also instructed the undercover agent as to the price the brokers should pay for the stock and that the brokers were to refrain from selling the Axius shares they purchased on behalf of their clients for a one-year period. By preventing sales of Axius stock, Kaufmann and Neuhaus intended to maintain the fraudulently inflated share price for Axius stock.

Jean Pierre Neuhaus has pleaded guilty and been sentenced for his role in the scheme.

The case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Ilene Jaroslaw, with assistance from Fraud Section Trial Attorney Nathan Dimock. The case was investigated by the FBI New York Field Office and the Internal Revenue Service New York Field Office. The Department also recognizes the substantial assistance of the U.S. Securities and Exchange Commission.

U.S. Department of Justice

United States Attorney Southern District of New York

WWW.JUSTICE.GOV/USAO/NYS

MONDAY, MAY 13, 2013

Former New York Hedge Fund Co-Founder Sentenced in Federal Court to 78 Months in Prison for Insider Trading

Anthony Chiasson, a former portfolio manager and co-founder of the hedge fund Level Global Investors, was sentenced in federal court to 78 months in prison for crimes stemming from his involvement in insider trading schemes that netted nearly $70 million in illegal profits for Level Global, announced U.S. Attorney for the Southern District of New York Preet Bharara. Chiasson and co-defendant Todd Newman, a former portfolio manager of Diamondback Capital Management, were convicted of securities fraud charges on Dec. 17, 2012, following a six-week jury trial. At trial, Chiasson was convicted of one count of conspiracy to commit securities fraud and five counts of securities fraud. He was sentenced today by U.S. District Judge Richard J. Sullivan.

U.S. Attorney Bharara said: “With his sentence today, Anthony Chiasson chose to be part of a corrupt circle of friends that cheated the market to gain an unfair trading advantage, and for that, he lost his career, his reputation and now he has lost his liberty. Such catastrophic losses should deter those who would be tempted to break the law, but for those who are undeterred, we are not going away.”

According to the superseding indictment, other court documents, statements made in court and the evidence presented at trial:

Chiasson was part of a criminal club of portfolio managers and analysts who obtained material nonpublic information, directly and indirectly, from employees who worked at public companies. Specifically, Chiasson’s research analyst, Sam Adondakis, together with research analysts at other investment firms – including Jesse Tortora, Jon Horvath and Danny Kuo – shared inside information with each other which they then provided to their portfolio managers.

For example, in 2008 and 2009, Chiasson received inside information from Adondakis related to Dell Inc.’s quarterly earnings, which Adondakis had received from Newman’s analyst, Tortora, and Sandy Goyal, an analyst who worked at another firm. Goyal had a source inside Dell’s investor relations department who provided numerous updates on Dell’s earnings in advance of Dell’s earnings announcements for multiple quarters. Chiasson traded on the Dell inside information in advance of its May 2008 and August 2008 quarterly earnings announcements, netting $58.5 million in illegal profits for his firm. Additionally, after Chiasson received the Dell inside information from Adondakis in advance of the August 2008 Dell trade, he directed Adondakis to create a trading “template” which omitted the fact that the trade was based on inside information.

In 2009, Chiasson also obtained inside information concerning NVIDIA Corporation’s earnings from Adondakis, who had obtained the information from analyst Danny Kuo, who worked at an investment firm in California. Adondakis passed specific numbers for NVIDIA’s gross margins to Chiasson in the days leading up to the company’s earnings announcement of those numbers on May 7, 2009. Chiasson’s

23 trading in NVIDIA resulted in approximately $10 million in illegal trading profits for Level Global.

In addition to the prison term, Judge Sullivan sentenced Chiasson, 39, of New York, N.Y., to one year of supervised release. Chiasson was also ordered to pay a $5 million fine.

At trial, Newman, 48, of Needham, Mass., was convicted of one count of conspiracy to commit securities fraud, and four counts of securities fraud. He was sentenced on May 2, 2013, to serve 54 months in prison.

Horvath, 43, and Kuo, 37, each pleaded guilty to one count of conspiracy to commit securities fraud and two counts of securities fraud in September 2012 and April 2012, respectively. Tortora, 35, Adondakis, 41, and Goyal, 40, each pleaded guilty to one count of conspiracy to commit securities fraud and one count of securities fraud in May 2011, April 2011, and June 2011, respectively. All five of these defendants await sentencing.

U.S. Attorney Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission.

U.S. Department of Justice United States Attorney Southern District of New York

WWW.JUSTICE.GOV/USAO/NYS

THURSDAY, APRIL 4, 2013

Former Goldman Sachs Vice President Pleads Guilty in New York to Fraudulently Amassing and Concealing Trading Position

Matthew Taylor pleaded guilty today in New York federal court to wire fraud in connection with a scheme to accumulate and conceal an unauthorized trading position in an account that Taylor managed at Goldman, Sachs & Co., announced Preet Bharara, the U.S. Attorney for the Southern District of New York and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of FBI. Taylor was formerly a vice president at Goldman Sachs and a trader on Goldman Sachs’s Capital Structure Franchise Trading (CSFT) desk. He pleaded guilty today before U.S. District Judge William H. Pauley III.

According to the information filed in New York federal court:

While employed at Goldman Sachs as a vice president, Taylor was a member of the CSFT desk and was responsible for a trading account called the CSFT Equity Volatility Portfolio (the Trading Account), which included trading in equity derivatives products. Among the products that Taylor traded on the CSFT desk were Standard & Poor’s E-mini futures contracts (S&P E-mini futures), which are futures contracts tied to the S&P 500 stock index. Taylor traded in S&P E-mini futures using an electronic trading platform called “Globex.”

In November 2007, Taylor had lost a significant portion of the profits that he had accumulated in the Trading Account earlier that year. As a result, he was instructed by his supervisors to reduce the overall risk in the Trading Account. These supervisors had also previously informed Taylor and other traders on the CSFT desk about risk limits for the CSFT desk and acceptable risk levels and trading limits.

Despite these instructions to reduce the risk in the Trading Account, on Dec. 13, 2007, Taylor significantly increased the notional value of his long position in S&P E-mini futures by entering a series of electronic trades through Globex. In so doing, he amassed a position that far exceeded all trading and risk limits set by Goldman Sachs, not only for individual traders, but for the entire CSFT desk. Taylor increased the profitability of the Trading Account in order to restore his professional reputation with Goldman Sachs and to increase his performance-based compensation.

At the same time that Taylor increased his S&P E-mini futures position, he actively concealed this position from others at Goldman Sachs. He recorded multiple false entries for S&P E-mini futures trades that he never made in a manual trade entry system (the Manual Trade Entry System), which was typically intended to be used by traders for recording trades that – unlike S&P E-mini futures – could not be executed through the Globex electronic trading platform. Taylor recorded multiple false trading entries in the Manual Trade Entry System that were in the opposite direction of the electronic trades he made in the Trading Account. Where Taylor purchased S&P E-mini futures in the Trading Account via Globex, he then manually entered fictitious S&P E-mini futures sales in the Manual Trade Entry System. The purpose of entering these fabricated trades was to conceal and understate the true size of the S&P E- mini futures position within the Trading Account, as the fictitious sales functioned to offset portions of Taylor’s actual purchases.

In addition, at the end of the trading day on December 13, 2007, Taylor prepared a false profit and loss report for the Trading Account (the December 13, 2007 P&L Report) that served to conceal his actual oversized position and market risk. He then forwarded the Dec. 13, 2007 P&L Report to his supervisors and others at Goldman Sachs. By the morning of Dec. 14, 2007, however, various employees at Goldman Sachs had detected a significant discrepancy between Taylor’s actual position in the Trading Account and what Taylor had falsely reported in the Dec. 13, 2007 P&L Report. In response to questioning from these employees, Taylor made various false statements about his position and risk in the Trading Account. His fraudulent scheme resulted in significant losses to Goldman Sachs.

Taylor, 34, of West Palm Beach, Fla., is charged with one count of wire fraud. This count carries a maximum sentence of 20 years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. He is scheduled to be sentenced before Judge Pauley on July 26, 2013 at 11:30 a.m.

U.S. Attorney Bharara praised the investigative work of the FBI. He also thanked the U.S. Commodity Futures Trading Commission.

U.S. Department of Justice United States Attorney Central District of California

WWW.JUSTICE.GOV/USAO/CAC

WEDNESDAY, MARCH 13, 2013

Orange County Couple Sentenced in California to Prison in Federal Fraud Case for Bilking Seven Banks out of Nearly $5 Million

A husband and wife from Newport Coast, Calif. have been sentenced to federal prison for defrauding a consortium of seven banks, including Bank of America, in connection with a $130 million line of credit, announced U.S. Attorney for the Central District of California André Birotte Jr.

Thomas Chia Fu, 64, was sentenced yesterday to 21 months in federal prison.

Fu’s wife, Cheri L. Shyu, also known as Cheri Fu, 61, was sentenced on March 4 to three years in federal prison.

In addition to the prison terms, U.S. District Judge Cormac J. Carney ordered the Fus to pay $4.7 million in restitution.

The Fus owned Anaheim-based Galleria USA Inc., which imported home decor items manufactured in China. The Fus obtained a $130 million revolving line of credit for Galleria from a consortium of seven banks. In connection with that revolving line of credit, the couple overstated by tens of millions of dollars the accounts receivables of the company – lies they told the banks in order to continue borrowing funds under the revolving line of credit, according to court documents. When they pleaded guilty last year, the Fus also admitted to falsifying in Galleria’s computer system the accounts receivable amounts by a factor of 10 or more times the actual amount purchased to support the exaggerated numbers and hide Galleria’s true financial status.

“Bank fraud is not a victimless crime as it has detrimental effects on both creditors and consumers,” said U.S. Attorney André Birotte Jr. “The Fus plundered a consortium of banks, which deprived legitimate customers from having access to the those funds and caused the financial institutions to suffer millions of dollars in losses. The prison sentences issued to this couple demonstrate our resolve to hold fraudsters accountable for their crimes.”

The banks suffered losses of $4.7 million on the revolving line of credit from October 2008 to July 2009.

This case was investigated by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), the FBI and the United States Secret Service.

“At a time when taxpayers were bailing out Bank of America and United Commercial Bank with TARP funds, Thomas and Cheri Fu defrauded those banks and others out of nearly $5 million,” said Christy Romero, Special Inspector General for TARP (SIGTARP). “The Fus fraudulently obtained funds from the TARP banks and other banks using a second set of books that overstated accounts receivable. They lived comfortably off the money, buying property and putting their daughter through college, when many taxpayers who funded the bailout were tightening their belts. Illegally profiting from the TARP bailout is reprehensible and will be met with swift justice by SIGTARP and our law enforcement partners.” SIGTARP investigates fraud, waste and abuse in connection with the Troubled Asset Relief Program (TARP). To report suspected illicit activity involving TARP, call the SIGTARP Hotline at 1-877-SIG-2009 (1-877-744-2009).

U.S. Department of Justice United States Attorney Eastern District of California

WWW.JUSTICE.GOV/USAO/CAE

FRIDAY, FEBRUARY 1, 2013

California Man Pleads Guilty to $80 Million Ponzi Scheme

Leader of Investment Scam Defrauded Over 300 Investors

Anthony Vassallo, 33, of Folsom, Calif., pleaded guilty today for his role in a massive investment fraud scheme that brought in more than $80 million from more than 300 investors, U.S. Attorney Benjamin B. Wagner, FBI Special Agent in Charge Herbert M. Brown and Internal Revenue Service (IRS) Criminal Investigation (CI) Special Agent in Charge Jose Martinez announced.

This case is the product of an investigation by the FBI and the IRS-CI. Assistant U.S. Attorneys Jean M. Hobler and Lee S. Bickley are prosecuting the case.

“Anthony Vassallo and his co-conspirators lied to hundreds of people and took in more than $80 million based on those lies. Vassallo’s victims came from every walk of life and included his friends and family. This conviction is small consolation to Vassallo’s victims, but a message to anyone who takes advantage of others’ trust — there are extreme consequences for your actions and this office, with its partner agencies, will pursue you until justice is done,” stated U.S. Attorney Wagner.

“The magnitude of Vassallo's actions against unsuspecting investors for personal gain is intolerable,” said FBI Special Agent-in-Charge Herbert M. Brown. “The FBI continues to thoroughly investigate greed- motivated financial crimes such as these and is committed to seeking justice for victims.”

“This was a classic Ponzi scheme. Mr. Vassallo preyed on investors with the promise of huge returns with little risk,” said IRS Special Agent-in-Charge Jose M. Martinez. “IRS CI is committed to identifying and investigating those who take advantage and impact the financial well-being of others for their own personal financial benefit.”

According to court documents, between April 2006 and March 2009, Vassallo and others operated Equity Investment, Management and Trading Inc. (EIMT) in Folsom, a hedge fund investment company purporting to use a computer program designed by Vassallo to time the stock market. Vassallo promised investors an annual rate of return of 36 percent with little risk of loss. In fact, Vassallo and others operated EIMT as a Ponzi scheme using new investor funds to make “dividend” payments to previous investors, to make risky investments without investor knowledge or consent and to fund his lifestyle. Although Vassallo lost the investors’ money and ceased trading in securities in about September 2007, he lulled investors into keeping their funds on deposit through December 2008 by fabricating investment information, forging trading and bank documents and reporting positive returns. Neither Vassallo nor EIMT was registered with the Securities Exchange Commission (SEC).

Co-conspirator Kenneth Kenitzer, 66, of Pleasanton, Calif., has previously pleaded guilty in a related case and is awaiting sentencing.

On March 11, 2009, the SEC charged Vassallo and Kenneth Kenitzer with the antifraud provisions of the federal securities laws for their roles in the fraudulent investment scheme. The SEC obtained an injunction and court order against Vassallo and Kenitzer freezing the assets of EIMT. In the SEC action, a

27 receiver has been appointed and has been working to recover assets to give back to Vassallo and Kenitzer’s victims.

Vassallo is scheduled to be sentenced by U.S. District Judge Garland E. Burrell Jr. on May 3, 2013. He faces up to 20 years in prison for wire fraud, with fines up to twice the value of the victims losses and mandatory restitution.

This law enforcement action is part of the work being done by President Barack Obama’s Financial Fraud Enforcement Task Force (FFETF). President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes. One component of the FFETF is the national Securities Fraud Working Group, which is tasked with combating investment fraud schemes. For more information on the task force, visit StopFraud.gov.

Working for the Federal Bureau of Investigation (FBI)

Have you ever considered working for the FBI? They are currently actively recruiting FBI Financial Analyst’s to assist them in uncovering corporate crime at all levels of business.

The FBI reports what it is like “Up Close and Personal” working for them through an interview with one of their Financial Analysts as follows:

07/15/05

For Leo Richardson, joining the FBI five years ago was the culmination of “a lifelong dream.” In his life before the Bureau, Richardson was an accountant for a state treasury office in Florida. Now he’s traveling the world on a task force that works with the highest levels of the intelligence community to track the flow of terrorist money. “I always wanted to work for the FBI because of the excitement and challenges it would bring—and I haven’t been disappointed,” says Leo, who leaves next month for a six-month tour of duty overseas. Here’s what else Leo had to say about his job as a financial analyst.

Q. Leo, what interesting cases have you worked on? Leo: Quite a few actually. Some of the most exciting have come during my work on the Joint Task Force on Terrorism Finance, which includes foreign officials and representatives of top U.S. intelligence agencies and the FBI. I have tracked financial leads all over the world, and my analysis has helped head off possible terrorist acts. It doesn’t get any better than that! Another case I worked helped put a Miami drug kingpin behind bars. My analysis of attorney fees in the

28 case showed that $23 million was being mishandled. The information was used by agents, which led to an indictment and conviction for money-laundering.

Q. Have you traveled a lot on cases? Leo: I’ve done a bit of traveling. I worked in Miami on the money-laundering case I mentioned. I helped research and analyze financial data in Washington for the 9/11 and anthrax investigations. And I recently traveled to Saudi Arabia as part of the joint task force.

Q. What’s a typical working day like? Leo: I would say that the typical day is “atypical.” I might be reviewing and analyzing company records and tax returns one day…then readying a case for trial by preparing reports and charts the next…then preparing my own testimony the day after that. Every day here means being prepared for the unexpected.

Q. What do you like most about the job? Leo: The excitement of working cases— terrorist financing, money laundering, healthcare fraud, racketeering, bank fraud. I love the satisfaction of finding the “red flag” that leads us to the terrorist or big-time criminal.

Q. Do you have any advice for prospective FBI recruits? Leo: Yes. Motivation and a willingness to learn will take you far here—and make your job more enjoyable!

Want to be part of the action? Then go straight to fbijobs.gov!

Below are two cases as reported by the FBI which illustrate the importance of CPA’s and the need for their involvement in uncovering corporate crime:

The Collapse of the Carpet Cleaner

Barry Minkow, an entrepreneur, fully understood the laws of supply and demand. Growing up in California, Minkow began working for a local carpet cleaning company at the age of 14. A year later, he set up his own carpet cleaning/restoration business in his parent’s garage. He incorporated the operation and called it ZZZZ Best, as in ze best.

Within 5 years, by the age of 21, Minkow had built his company into one of the largest independent carpet cleaning and restoration businesses in the country, with profits escalating at a rate of 400 percent per year. ZZZZ Best stock traded publicly, opening at $4 and climbing to nearly $19 per share within 4 months of its initial offering. During 1987, ZZZZ Best was worth over $300 million, and Minkow prepared to take over another carpet cleaning business a public company nearly twice the size of ZZZZ Best. Minkow arranged for $40 million in acquisition financing through a bevy of investment bankers in preparation for making ZZZZ Best the largest non-franchised carpet cleaning and restoration business in America.

Four days before the finalization of the acquisition, an article appeared in a major California newspaper that nixed the merger and abruptly ended the seemingly stellar fortunes of the brash and bold ZZZZ Best founder. How did this corporate leader collapse overnight? The answer is simple; ZZZZ Best never existed as advertised. The entire company was a fraud. Minkow’s high-wire act merely included a collage of check kiting, loan fraud, and fictitious record-keeping activities that duped everyone from shareholders to accountants to the country’s most savvy investment bankers. Although Minkow continued to operate a small time car-pet cleaning operation, ZZZZ Best represented a rising industrial conglomerate on paper. Minkow created reams of phony documents including loan files, check registers, general journals, and accounts receivable invoices. He routinely misled associates with bogus files and cunning deceit. For example, when one auditor demanded to personally view an ongoing carpet restoration job, Minkow simply picked one of the nicest office buildings in town, bribed the landlord to act as if Minkow belonged on the premises, and led the auditor through a series of offices in various stages of refurbishment. The auditor never suspected the scam.

Minkow knew he could not continue the charade forever, but he appeared surprised at how quickly others believed his often bizarre explanations for irrational corporate behavior. Additionally, Minkow also knew that he could easily entice or replace overly suspicious auditors as necessary. He hoped to sell his own shares of ZZZZ Best stock (valued at over $100 million) and find a way to compensate everyone.

Finally, a former employee exposed Minkow’s scheme to a reporter, and less than a year later, Minkow received a 25-year prison sentence. Released early from prison in 1993, Minkow has spent much of the past several years speaking to various groups about his scheme and analyzing ways it could have been prevented. Like the savings and loan crisis, much of the blame was placed on his auditors. Minkow alleges that auditors never used proper cash cut-off procedures or inquired why he constantly switched his accounts to different banks. If the auditors had inquired, they would have learned that Minkow submitted phony tax returns and those banks closed his accounts for check kiting, writing excessive non-sufficient fund checks, using fictitious checks, and conducting loan fraud. Additionally, Minkow failed to disclose millions of dollars in private loans and managed to divert accounts receivable confirmation reports. He asserts that if auditors had persisted and made a thorough examination, ZZZZ Best would have collapsed years before its eventual demise.

CPA Helps Chill Boiler Room

During the summer of 1991, an independent CPA in Florida was hired by a company to compile monthly financial statements and prepare annual consolidated income tax returns. Additionally, the company began preparing to initiate a public offering during the next few months. When provided with the monthly financial information, the CPA became suspicious about the company’s business activities. Specifically, the legitimacy of the company’s pursuits and its negative cash flow; despite reported operating profits, caused concern for the CPA.

During 1992, the CPA met with the company’s owner and requested to review all of the corporate facilities. The owner only agreed to a limited walk-through of the premises. What the accountant saw appalled him. Salespeople screaming into telephones while selling products and promising prizes. He correctly surmised that the operation was an illegal telemarketing prize room and promptly withdrew from the job. Especially concerned about thousands of people around the country falling for the scheme, the CPA contacted the FBI. Fortunately, the FBI, along with other agencies, already had begun an investigation of the subject company. By leading investigators through an array of different companies and financial transactions, the CPA’s contributions to the case proved invaluable. The FBI eventually raided this company, and the owner and 11 other individuals were convicted and subsequently sentenced to various prison terms.

The FBI has a hot line at (888) 622-0117 where you can report any suspicious activities which you feel may need to be investigated. You may remain anonymous if you prefer.

Glossary/index

 Corporate fraud – Commonly referred to as “white collar” crime, it is those illegal acts which are characterized by deceit, concealment, or violation of trust and which are not dependent upon the application or threat of physical force or violence. These acts are committed by individuals and organizations to obtain money or services; or to secure personal or business advantage. Pg. 1

 DOJ – Department of Justice Pg. 18

 FBI – Federal Bureau of Investigation Pg. 28

 Insider trading – Buying or selling personally owned stock prior to a major announcement that it is expected to affect the stock price (i.e., positive or negative earnings, new products, change in management, mergers and acquisitions, etc.) Pg. 23

Summary

“A few dishonest individuals have hurt the reputations of many good and honest companies, and their executives. They've hurt workers who committed their lives to building a company that hired them. They've hurt investors and retirees who placed their faith in the promise of growth and integrity. For the sake of our free market, corporate criminals must pay a price,” stated President Bush at the Corporate Fraud Conference in Washington, D.C.

This course has presented you with a number of actual cases as reported by the Fraud Deterrence Initiative, the FBI and the Department of Justice and information regarding what it is like to be an FBI Financial Analyst.

If you are interested in helping to win the war against corporate fraud, either by providing information or becoming a part of the FBI team, you may contact them directly for additional information either at your local branch or at:

FBI Headquarters in Washington, D.C.

Call (202) 324-3000

Twenty four hours a day, every day or write to the following address:

Federal Bureau of Investigation J. Edgar Hoover Building 935 Pennsylvania Avenue, NW Washington, D.C. 20535-0001

www.fbi.gov

Review Questions

1. Most embezzlement culprits are which of the following?

a. First time offenders b. Repeat offenders c. Male d. Female

2. According to the founder of the Fraud Deterrence Initiative, at the heart of most embezzlement cases was the age old trait of:

a. Need b. Greed c. Anger d. Feeling of entitlement

3. Referring to the Fraud Triangle, the founder of the Fraud Deterrence Initiative states that the cornerstone of all embezzlement offenses is which of the following?

a. Rationalization b. Existence of pressure c. Opportunity d. Strong moral code

4. Criminologists describe a dynamic in the mindset of embezzlers who believe they are entitled to the assets they are stealing as which of the following?

a. Presence of opportunity b. Money c. Wages in kind d. Pressure

Final Exam Questions

1. Humans are dramatically susceptible to committing illicit acts in which of the following?

a. Absence of a weak code of ethics b. The presence of enticing factors c. Absence of Supervision d. Absence of Pay increases

2. According to the founder of the Fraud Deterrence Initiative, the best deterrence against fraud is which of the following?

a. Good moral foundation b. Control procedures c. Anonymous tips d. Background checks

3. Which of the following is most likely to be at the heart of most embezzlement cases according to the founder of the Fraud Deterrence Initiative?

a. Need b. Greed c. Lack of moral standards d. Lack of religion

4. The Fraud Triangle does not consist of which of the following parts?

a. Absence of pressure b. Lack of opportunity c. Rationalization d. Religion

5. The Financial Fraud Enforcement Task Force (FFETF) was created by which of the following?

a. President Barack Obama b. The Securities and Exchange Commission c. The Federal Bureau of Investigation d. The Department of Justice