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Corporate Fraud Case Studies

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Corporate Fraud Case Studies Corporate Fraud Case Studies Publication Date: June 2013 Corporate Fraud Case Studies Copyright 2013 All rights reserved. No part of this course may be reproduced in any form or by any means, without permission in writing from the publisher. 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. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert advice is required, the services of a competent professional person should be sought. —-From a Declaration of Principles jointly adopted by a committee of the American Bar Association and a Committee of Publishers and Associations. 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. 1 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. 2 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
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