Fraud and Theft

When You Don't Want to Hire an Expert

2012-02-10T15:02:00.003-06:00

In addition to investigating fraud cases and working as a Court Appointed Receiver, I have provided vulnerability risk assessments in the areas of internal controls and premises security for many large corporations since 2001. I formerly held the professional designation of Certified Protection Profession and conducted security assessments for large manufacturers across the US.

These assessments were in depth examinations of the security (i.e. access controls, barriers, video, guard force, personnel policies, and security policies and procedures) for each client. The assessments required extensive interviews, testing, and examinations to identify the vulnerabilites of the security system in place, and to provide recommendation to reduce or eliminate the vulnerabilites.

Recently the news media reported a tragic incident at the work place of one my former clients. The information in the article leads me to believe this client failed to implement the recommendations in my report. And that failure likely resulted in the incident being much more tragic than if the company had followed up and put the protections in place.

In this case, if the attorney for the injured parties ever learns of the companies' failure to heed its experts advice, the liability is staggering. Companies are better off to plead ignorance or negligence than hire an expert and then ignore his advice.

Schemes by Financial Advisors

2010-10-22T15:45:00.002-05:00

A recent comment from a reader in the United Kingdom to my last post on recovering funds from fraud asked if dealing with an Independent Financial Advisor would be of any help in recovering funds.

My response is that dealing with someone who is licensed certainly increases the chances that this person is reputable, but is not a guarantee. I have investigated hundreds of cases in the USA involving a registered securities professional defrauding his or her clients. And I have copied below a previous post from this blog describing a few of these schemes.

If you believe you have been defrauded by a registered financial professional, your first consideration should be a complaint to the agency that licenses this individual. In the US it would be the Financial Industry Regulation Authority or the state securities licensing authority. In the UK it would be the Financial Services Authority or the Financial Ombudsman Service.

Schemes by Licensed Professionals.
Unsuitable Recommendations- a broker/advisor recommends the client enter into a transaction that is not suitable for the client based on the client’s financial profile, age, income, tolerance for risk, and investment objectives. An example of this would be a broker convincing your elderly aunt to cash in her certificates of deposit to open an account for options trading.

Unauthorized Trades- a broker executes trades in a client’s account without the client’s authorization. There are a number of reasons a broker would do an unauthorized trade. He could be trying to make a sales quota to win a sales contest or save his job. And I’ve seen brokers execute unauthorized transactions in a large number of client accounts with the attitude that several clients, who either don’t read their monthly statements or don’t understand the statements, will never catch the trade. Or, if the client does bring the trade to the broker’s attention, he can convince them it was a mistake, “but look, you’ve made money because the stock went up” and talk them into either keeping the security or selling at a profit (and creating more commissions).

Churning- a broker will execute a large number of trades in a client’s account without any financial benefit to the client, usually resulting in large trading losses and commission costs to the client. I have seen clients lose hundreds of thousands of dollars in churning cases. The client is almost always an unsophisticated investor who relies solely upon the advice of the broker. There is often a “discretionary trading” agreement signed by the client giving the broker full power to execute trades in the account at the broker’s discretion, and without notice to the client.

Mutual Fund Switching- switching a client from one fund to another without a financial benefit to the client and generating large commission costs to the client. Load funds generally pay generous commissions to brokers, so it is an incentive to them to move clients into the funds that pay the highest commissions. And some funds will sponsor contests offering free trips and other luxury prizes for the highest sales volume.

Conversion- this is converting client funds to the personal use of the broker, i.e. stealing money from the account. The conversion cases commonly happen in two ways. The first way is for the broker to change the address on the client account to an address where he will receive the mail. The broker then liquidates securities out of the client account, checks are sent to the bogus address and the broker forges the client name on the check and cashes it. The second way is for the broker to sell securities or withdraw cash out of the client account without the client’s knowledge, and then instruct the cashier to give the check to him for personal delivery to the client. The broker will then forge the check and cash it.

Market Manipulation- a firm’s insiders will use the firm salespeople to aggressively promote a thinly traded stock to public customers using misrepresentations and omissions. The price of the stock will increase as the sales volume increases. The insiders sell shares they own at the inflated prices. Once the insider shares are sold, the firm will stop promoting the stock and the price will fall to its previous level. This has been a favorite scheme of broker/dealers with alleged organized crime connections. These firms are nothing more than boiler rooms with securities licenses.

Selling Away- a broker will sell an investment to a client that is not approved by the broker’s firm. These schemes are almost always fraudulent ponzi-type schemes where there is never a legitimate investment product.

With the proper internal controls and compliance oversight, these schemes should be detected by the firms that employ these brokers right away. But investment firms are sales driven organizations. Internal controls and compliance take a back seat when it comes to staffing, funding, and technology.

So the public needs to be aware of the bad things that can happen in the broker-client relationship and protect themselves. Sadly, in my experience, a majority of the victims of these types of schemes are elderly people who lack investment knowledge and sophistication. And many of the schemes are not even detected until after the account is depleted of all funds, or the client has passed away and the executor discovers the scheme. If you have an elderly friend or relative with assets, encourage them to review the monthly statements from their broker and to seek advice if there is anything they do not understand.

Recovering Funds for Victims of Fraud

2010-09-15T11:06:00.002-05:00

Bill Branscum, a colleague who publishes a web site at http://www.FraudsAndScams.com, recently mailed me a copy of an article he had published in a professional journal. The article highlights the problems encountered by fraud victims who hire "recovery firms" to recover the money they have lost in fraud schemes.

There are many "recovery firms" advertising on the internet and touting their abilities to locate stolen funds, even in foreign jurisdictions, and then make a rapid recovery of the funds for the victims. Of course, they always insist on hefty fees up front to pay their sources, etc. Many of these "recovery firms" claim a background in military special forces, civilian intelligence agencies, and other spooky endeavors to convince the victims that they have secret sources and access worldwide. Beware of firms who make these representations.

Bill Branscum and I have been in this business for over thirty years. We have both successfully recovered funds from domestic and foreign jurisdictions. We can both attest to the facts that: 1. Both foreign and domestic financial privacy laws severly restrict the access to banking and other financial information, usually requiring a court or regulatory subpoena. 2. Recovering funds will require an order from a court with jurisdiction. 3. The location and recovery of funds requires a lengthy investigation, navigating government bureaucracies, and then dealing with the delays put in place by the financial institutions involved. These actions take a long time and can be very expensive.

There is an alternative that can greatly reduce the time and expense. A negotiated settlement with the fraudster will allow the recovery of all, or a portion of the lost funds. This alternative requires an experienced fraud investigator who can assemble convincing evidence of the fraud scheme, locate the fraudster, develop a plan to confront the fraudster with the evidence and the consequences of not settling with his client, and then complete the recovery process. This method of recovery is not always successful. But when it is, the victim will recover a much greater amount of the funds lost in the scheme.

Latest Information on Ray Coia

2010-02-16T09:47:00.002-06:00

I continue to receive emails and comments from people interested in Ray Coia's status. There are also daily visits to this blog from people who are directed here by search engines when searching for information on Coia. These visitors are from several different countries. So, I have always assumed that Coia was still operating some type of investment business from his prison cell.

This article: http://www.newsoftheworld.co.uk/scottish/scottish_news/454728/Slippery-Raymond-Coia-has-been-caught-running-money-market-business-from-jail.html confirms that Coia was doing just that while on a work detail.

I've also received several emails indicating that Coia was up for parole from his four year sentence in mid February. I recently learned that Coia's parole was denied. Primarily due to the activities cited in the aforementioned article.

My efforts to recover funds, last known to be in the possession of Ray Coia, are still ongoing.

Affiliate Strategies Inc

2009-11-30T11:36:00.002-06:00

It has been some time since my last post. I have been extremely busy with my appointment to two new receiverships.

The first appointment in July was in the case of the US Federal Trade Commission v Affiliate Strategies Inc, Grant Writers Institute LLC, Landmark Publishing Group LLC, and Answer Customers LLC, et al. The FTC complaint has alleged these entities were involved in defrauding consumers by offering guaranteed $25,000 government grants via postcards mailed out to millions of households. If a consumer responded to the postcard, they were solicited to purchase a $69.00 book on how to apply for grants. If the consumer purchased a book, they were next solicited to purchase a list of grant resources for $995.00, and if they fell for this offer they were then solicted to purchase "grant writing" services. The bottom line is these companies raised over $20 million in 2008 and they can not produce one customer who successfully received a grant!! More information is available at www.asireceiver.com

The second appointment this August in the US District Court in the Central District of California involves the US Securities & Exchange Commission v Innova Energy LLC, a company that sold investments in oil drilling rigs and oil leases. The SEC alleges in its complaint that most of the investor funds were diverted to pay the telephone salesmen and for the personal use of the company owner Clement Ejedawe. If anyone is interested, I now have a Ingersoll Rand T4 drilling rig for sale in Odessa, Texas. Send me an email at info@cookreceiver.com

Good News for SEC

2009-06-11T09:14:00.004-05:00

The news that Congress will leave the U.S. Securities and Exchange Commission intact as a part of its revamp of financial regulation is good news. Combining the Commodity Futures Trading Commission with the SEC would have just created a larger bureaucracy with more opportunity for inefficiencies. Now I hope Congress will dedicate additional resources to the SEC, a small agency with a huge mandate.

I know the SEC has come under serious criticisms lately. And some of it has been deserved. But my experience working with the SEC enforcement staff has been very positive over the last thirty years. My only criticism of the SEC over the years is the lack of resources in every state. The grouping of SEC enforcement and examination personnel in regional offices is more cost efficient, but assigning SEC personnel to staff an office in each state would substantially increase the SEC's coordination with state regulators and other law enforcement agencies. Under the regional office system, the vast majority of the enforcement and examination actions are located in the immediate areas of the regional offices.

I anticipate good things will happen under the leadership of Mary Schapiro. I met Ms. Schapiro at a NASAA function in the early 90's and she impressed me as being down to earth and a savvy government executive. Her recent appointment of former federal prosecutors to senior executive positions will create more of a law enforcement culture at the SEC and shake up the status quo.

Let's hope the political grandstanding by members of Congress, intent on punishing the SEC for past oversights, will not impede its ability to protect investors.

Update on Seaforth Meridian Receivership

2009-04-21T14:52:00.002-05:00

My efforts to recover the funds transferred by Raymond Coia to John MacIntyre has been on hold for the past eighteen months due to MacIntyre's death. The lawsuit I filed in Scotland to recover the farm that MacIntyre purchased with these funds had to be put on hold until an executor was appointed for MacInytre's estate.

MacIntyre's only heir, John MacIntyre Jr., has made attempts to be appointed executor. But as I understand it, the Court will not approve the appointment unless MacIntyre Jr. obtains a performance bond in an amount equal to the value of the assets in the estate. Apparently there are only two insurance companies that will write this type of bond and the first company approached declined and the second company has not made a decision.

Just last week I instructed my attorneys in Scotland to apply for the appointment of a judical factor. The judicial factor will be authorized to act as the executor for the estate under the Court's supervision. When our judicial factor application was filed we were notified by Jr.'s lawyers that the second insurance company was close to approving the required bond.

So, either Jr. is going to obtain the bond, or the Court will act on our application for a judicial factor to control the estate. In either event, this should allow our lawsuit to recover the farm, or the funds, to move forward.

Capital Enhancement Club Funds Recovered

2009-03-30T11:52:00.002-05:00

Claimants in the Capital Enhancement Club receivership will be happy to learn that after almost four years of litigation I have successfully repatriated $1.2 million from the IPTS Inc. bank account at VEF Banka in Riga, Latvia.

I anticipate a distribution payment in the near future that will amount to 10% of each approved claim. This will bring the total distribution amount to 36% of each claim approved in this receivership.

Ponzi Schemes and the SEC

2009-02-18T13:29:00.002-06:00

I've received some comments since my posting on December 16 regarding the SEC's handling of the Madoff case. I stated in that posting we should wait and see what information was given to the SEC before condemning its response.

Since the disclosures and testimony by Harry Markopolus citing his efforts over nine years to get the SEC to investigate Madoff, it is apparent that certain SEC staff members dropped the ball. It is unfortunate that Markopolus met with two senior SEC staff attorneys who either dismissed his allegations due to arrogance or incompetence. But I don't think these facts should reflect negatively on the entire agency.

I have worked with the SEC on and off over the last thirty years, and I have always been impressed with the quality and dedication of the SEC enforcement staff. While Markopolus deserves credit for recognizing the scheme and taking his suspicions to the SEC, I don't agree with the entirety of his testimony:

1. Markopolus insinuates that the SEC is overstaffed with attorneys who are not sophisticated enough about financial products to recognize a securities fraud. This statement indicates Markopolus' lack of understanding about the role of SEC enforcement staff attorneys.

2.Markopolus recommends the agency reduce the number of attorneys and add Chartered Financial Analysts to conduct these investigations. Really? What is it that prepares the CFA to conduct investigations, take statements, and prepare a case for an administrative hearing or civil court procedure? And it doesn't take a CFA to recognize a ponzi scheme. By its very nature, a ponzi scheme can be anything, i.e. options, swaps, equities, bonds, etc. because the investment product is fictitious and limited to the crook's imagination.

The question for Markoplous is what prevented him from going to the FBI, if the SEC did not respond to his allegations? Or, why didn't he take his information to a state securities regulation agency? Why just sit on this information for nine years?

I watched the Financial Services subcommittee hearings where Markopolus and the SEC division directors testified. And no one really brought up the fact that ponzi schemes are criminal offenses, and a vast majority are committed by crooks with previous criminal records, not registered securities professionals. And the SEC is not a criminal enforcement agency. Nor does the SEC have the tools, or procedures, to deal with criminals. The only time this fact was brought out was when Rep. Ackerman from NY was throwing a tantrum and berating the SEC officials. He asked the SEC Director of Enforcement why the SEC didn't send in someone "undercover" to investigate the Markopolos allegations, and she tried to restore some civility to the exchange by calmly explaining that the SEC is a civil enforcement agency and the SEC did not do "undercover" work.

What is abundantly clear is that ponzi schemes are a huge, but under reported problem not only is the US, but in all developed nations. As I've reported before, just google the term HYIP and you can find directories of HYIPs that are all ponzi schemes.

Questions on Raymond Coia Release From Prison

2008-12-17T10:48:00.002-06:00

I've had many emails from readers who are asking if Ray Coia has been released from prison. The best information I have gathered is that Coia was "given a weekend leave in preparation for his release."

That is all the information I have and no date was available for his pending release from prison.

THE MADOFF SCHEME AND THE DEMISE OF THE “SOPHISTICATED INVESTOR” EXEMPTION

2008-12-16T10:48:00.001-06:00

Well, this one will go down in history as the case that doomed the “sophisticated investor” or “accredited investor” exemption from securities registration. Historically, the federal and state securities laws have provided an exemption to securities issuers for the review and registration of investments offered and sold to institutions and individuals who qualified as “sophisticated investors” by means of net worth and income.

The theory being that “sophisticated investors” have the experience and education, or the means to employ those with the experience and education, to perform proper due diligence and avoid investing in questionable or high risk investments. Not only hedge funds, but other high risk/high reward investments have relied on this exemption for years.

I predict the SEC, and the States, are going to be implementing rule changes that will seriously reduce or eliminate these exemptions after the Madoff fiasco.

I have investigated ponzi schemes for over thirty years, both as a securities regulator and as a court appointed receiver. And I can tell you that the Madoff scheme exhibits many of the earmarks of a ponzi scheme….. in hindsight. But I hope the public, the news media, and the politicians will reserve judgment on the performance of the SEC until we learn exactly what was reported to the SEC and what the SEC did to follow up on these reports.

Of the hundreds of ponzi schemes I’ve investigated, the perpetrator is almost always someone with a lack of accomplishments in their background. Previously they were working a low level sales job and then suddenly they show up as an investment guru who can make people rich. Madoff certainly does not fit that pattern. Also, most ponzi schemes are obvious for the outlandish profits they promise to investors. Madoff’s scheme provided returns of an average of one percent per month, not outlandish compared to the track records of many popular mutual funds.

This case will certainly be a wake up call to the fact that any transaction involving the management of funds requires strict regulation and oversight, even at the expense of capital formation.

High Yield Investment Schemes- Redux

2008-10-14T11:45:00.002-05:00

Since my last post, I have received several requests to perform due diligence by potential investors. While I am encouraged that these investors were wise enough to investigate before they invested, I am surprised that a majority of these investments were in High Yield Investment Programs (HYIP).

The HYIPs are not new, and in fact have grown in numbers that are simply mind boggling over the last eight years (see my June 2006 post). And HYIPs all fall within the definition of "Ponzi" schemes. For those who are not familiar with the term, a ponzi scheme is where the promoters will promise large returns to investors, and will pay the early investors the promised returns, but the returns are paid with the investor's own funds or the funds of later investors, and not from any legitimate investment profits. The promoters will encourage investors to leave their money in the HYIP instead of taking investment payouts in order to build up the hoard of cash and then eventually disappear with the money. Some ponzi schemes operate for years without detection.

The flashing red light warning of a ponzi scheme is always the unrealistic rate of return promised. I recently viewed one of the many HYIP directories on the web and all of the HYIPs listed were promising rates of 1% to 10% DAILY!!! 300 to 3000% per annum!!!

Now, come on folks! Don't these rates of return seem a little unrealistic to you? And the central question you have to ask yourself is, "Why would anyone, or any company, capable of generating 300+% profits want to deal with the headaches of working with individual investors when they could raise all of the investment capital they needed from investment banks or funds?

The last three receivership cases I've handled involved ponzi schemes. And I've asked some of the victims of these schemes this very question. And their response is a real knee slapper! They said they asked the promoters, or the recruiters working for the promoters, this question and the answer was "they were doing this to help out the little guy". What a crock!

I've seen another phenomemon in these cases, the "gamers". The gamers are people who are fully aware that the HYIPs are fraud schemes, but they are willing to take the risk intending to make a quick profit and pull out before the scheme collapses. It''s a game to them. And if you troll the various HYIP discussion groups, these people are not hesitant to admit their intentions.

Look folks, as we've seen over the last few weeks, the investment world is a slippery slope even when we operate within the regulated investment environment. Don't throw your money away in HYIPs.

Due Diligence Service Offered to Investors

2008-09-03T16:34:00.002-05:00

Over the years that I've been publishing this blog, I've received numerous requests from readers seeking information on potential investments. While I have answered some of those requests because I recognized the investment program and/or the promoters as obvious frauds, most of the requests had to be ignored due to time constraints.

I have decided to begin accepting these requests and making this a part of my business. This decision has been prompted by the following:

The gobal increase of investment fraud-

I have been investigating investment fraud schemes for over twenty-eight years and I've never seen the volume of fraud that is in the market today. From ponzi scheme operators on the internet to executives of investment banks and hedge funds. Fraud literally lurks around every corner. Average investors are being bilked out of their life savings, senior citizens are losing their retirement funds, and the crooks are laughing all the way to the bank with almost no chance of being prosecuted by the authorities.

The internet has provided investment crooks, as well as other crooks, the ability to reach thousands of potential victims around the world for little cost. The internet also has spawned electronic currencies, facilitated off shore money havens, and created international networks for shady operators to set up fronts for businesses allowing the investment crooks to launder their stolen funds, stash it in nominee accounts out of the reach of authorities, and hide their true identities.

The lack of prosecution and restitution-

Federal and state law enforcement agencies responsible for the investigation and prosecution of white collar crime are overwhelmed. Only a very small fraction of the investment fraud cases reported to authorities are ever investigated, and then an even smaller number are eventually prosecuted. The reasons are obvious, investment fraud cases are labor intensive and costly. The schemes usually involve multiple defendants, thousands of victims, and the "scene of the crime" can cover several states and maybe even several countries.

The value of education and prevention-

The most effective fraud prevention tool is knowledge. If investors would take the time to educate themselves about investments and investment fraud, these schemes could be avoided. And there are many fine resources in the media and the internet for this information. The SEC has volumes of information available for investor education at www.sec.gov. And every state securities regulator has similar information available at www.nasaa.org. So the information is out there and freely available, but the reality is that most people do not have the time, discipline, or interest to study and retain this information.

What is investment due diligence?

Due diligence is a term used to describe the process of investigating and verifying the claims made by investment promoters. The process can include a thorough examination of financial statements and projections, verification of compliance with the securities laws and regulations, background of the promoters and verification of business history, interviews of insiders and principals, verification of claims made in the offering memorandums, and other research as required. Some investment offerings will require a more extensive review than others. But every investment should be subjected to a due diligence review to protect the investor.

Due diligence is not investment advice in terms of the likelihood of returns, portfolio allocations, trade executions, etc.

Investment due diligence will be the wisest dollars invested.

The relatively small expense of due diligence will be the wisest dollars invested as it prevents losses due to fraud, misrepresentations, omissions, and mismanagement. Every investment offering is different and each will require a different level of due diligence. If you have an offering or promoter that you want me to review, send the information to me at info@cookreceiver.com and I will contact you to discuss how I may be able to help you and the projected expense.

What's going on with Ray Coia and Mats Allvik Von Sperling??

2008-07-29T09:22:00.002-05:00

Raymond Coia

I am amazed at the number of visitors I still receive to this blog by referrals from various search engines of people who are searching for information on Raymond Coia. As far as I know, Coia is still in prison in Scotland and serving a sentence for defrauding investors. Yet, this blog still has multiple visits each day concerning Coia.

This leads me to believe that Coia, or those who worked for him before he entered prison, are still promoting some type of investment scam. Be careful!!!!

Mats Allvik Von Sperling, a/k/a Mats Anders Christer Allvik

The visitors looking for information on Mats have increased substantially over the last few months. And the location of the visitors includes countries in Western Europe, Eastern Europe, Middle East, South America, and the US.

A couple of months ago I received a call from a businessman in the US who was put in touch with Mats through a broker. Mats had reportedy agreed to secure financing for the business after, of course, the payment of a large up front fee. Be careful!!!!

If anyone wants to send me information on Coia or Mats, just email info@cookreceiver.com

Las Vegas Review Journal article on Gold Quest

2008-07-04T09:23:00.004-05:00

A man accused of impersonating a notary public for members of an "imaginary" Indian tribe avoided jail time Tuesday, but a federal judge warned him that he would receive time if he continued to notarize documents. U.S. District Judge Kent Dawson found Robert Neilson Baker in contempt of court but said he would not impose a 30-day jail sentence unless Baker
continued to act as notary for alleged members of the Little Shell Indian tribe who are accused of violating securities laws.

The hearing stems from a Securities and Exchange Commission lawsuit that
accuses Gold-Quest International, which claims to be affiliated with Little Shell Nation, of operating a Ponzi scheme that cheated 2,100 U.S. and Canadian citizens out of $27.9 million. In a Ponzi scheme, early investors are paid with money from new investors until the scheme collapses.

The defendants said they were running a highly profitable foreign exchange trading program, but the SEC said it was a fraudulent enterprise operated out of Las Vegas. Defendants in the case have contended that they are immune from federal court orders because of their membership in the tribe, which is said to be located in North Dakota.

John Jenkins, a defendant in the SEC lawsuit, has been confined in a local jail since June 13 for failing to provide documents and information. The judge has fined Jenkins $500 a day for civil contempt until he complies with court orders and discloses information to a court-appointed
receiver.

In the hearing Tuesday, Dawson stopped short of ordering Baker arrested and jailed. "You are in an imaginary world where you belong to an unrecognized Indian group," Dawson told Baker. The tribe appears to be created as a way of claiming Gold-Quest and individual defendants who belong to Little Shell Nation aren't subject to U.S. laws, Dawson said. "You're going to get yourself in a lot of trouble," the judge said.

"I have the utmost respect for you and your
courts," Baker said. "To the best of my
knowledge, I wasn't doing anything fraudulent."
Baker conceded that he wasn't an Indian by birth,
but added: "They have adopted me into their family."
Dawson told Baker that he could not hold people
responsible for statements they made to Baker
because Baker is not a notary public.
Baker said he had filed information as a notary
public with the secretary general of the United
Nations, but the judge said that because the UN
didn't challenge the filing doesn't make Baker a
notary public.

Dawson told Baker to read the state law on
notaries public. In related developments, Gold-Quest defendant
"Lord" David Greene was served in Las Vegas with notice of the lawsuit Monday. Michael McGee, another defendant, filed papers denying the SEC
allegations. McGee asked the judge to release the freeze on his bank account, which he used to pay Gold-Quest workers, although McGee said he himself was "just an employee."

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.

Gold Quest International Receivership

2008-06-13T09:23:00.002-05:00

On May 6, 2008 I was appointed the Receiver on another civil enforcement action filed by the Los Angeles Regional Office of the Securities and Exchange Commission. The case against Gold Quest International was filed in the US District Court in Las Vegas, Nevada.

Gold Quest International (GQI) is a ponzi scheme operated by the defendants, David Greene, John Jenkins, and Michael McGee out of Las Vegas. GQI has raised approximately $27 million from 2900 investors. A majority of the investors are in Canada, and Greene is a Canadian citizen.

For more information on this scheme, you can find the complaint filed by the SEC posted on the receivership web site at www.gqireceiver.com

Coia and Capital Enhancement Club

2008-03-03T13:15:00.000-06:00

Several of the readers have questioned my previous statement that Coia was not connected to the Captial Enhancement Club scheme.

At least half of the money invested by Seaforth Meridian with Coia came from bank accounts holding CEC investor funds. And the man, David Tanner a/k/a Scott Klion, who ran the CEC scheme was initially listed as a founding partner of the Seaforth fund. But the only connection is that Klion ended up losing the money he stole from CEC investors and deposited in Seaforth under the name of a nominee investor.

Klion was even more inept at investing than the Seaforth directors. He actually thought the Seaforth directors Assemi, Friedrich, and Clyman knew what they were doing.

Mercure Bank--Coia's Defense

2008-03-03T12:59:00.000-06:00

During my lengthy interview with Coia, I confronted him with the fact that he did not use the $9 million sent to him by Seaforth Meridian Ltd. to conduct trading in investments. Instead, my analysis of the Quantum Analytics bank accounts revealed that he used these funds to send payments to his old investors who lost money in his previous scheme (which would be witness tampering and illegal in the US, since these same people were listed as witnesses in his upcoming criminal trial), to purchase luxury automobiles, transfers to his wife and other relatives, etc.

Coia's explanation to me is the same as the defense he used during his criminal trial. He stated that he had developed an algorithm that allowed him to generate big profits from currency trading. He said in the late 1990's he was contacted by officials with Mercure Bank in Germany who were interested in his algorithm. Mercure Bank offered to finance his trading using the algorithm and they would split the profits 50/50. He said by the time Seaforth invested with him in 2004 he had over $65 million dollars in his trading account at Mercure Bank, and he felt free to use the Seaforth funds for other purposes since he had assigned them $9 million of his holdings at Mercure Bank.

And lo and behold, when Seaforth made a redemption demand in July 2005 he tried to extract the funds from Mercure Bank and couldn't get the money out. Incredibly, this was the first time he had attempted to tap his stash at Mercure!! Of course, he receieved all types of promises and excuses from the Mercure people but just couldn't get them to send him the $25 million he requested.

My inquiries from German authorities have revealed that Mercure Bank was nothing more than another scam set up with an internet site.

Coia Sentenced to Four Years in Prison

2008-02-15T07:17:00.000-06:00

My solicitors in Scotland have informed me that Raymond Coia was sentenced to four years in prison yesterday. The sentence was imposed after Coia, in a plea agreement with the Crown Office, pleaded guilty to two of the three counts he was charged with. The news account is available at:

http://www.dailyrecord.co.uk/news/scottish-news/2008/02/15/financial-guru-ray-coia-jailed-86908-20319981/

Sunday Mail article and My Response

2008-01-20T10:17:00.000-06:00

An article in the Sunday Mail appeared today that reported on my involvement with Raymond Coia. The reporter, Toby McDonald, has spoken to me briefly by telephone and email in the past. But the quotes in the article have come from previous newspaper articles published here in the US, as well as this blog.

There are some errors in the article that I feel compelled to bring to Toby's attention, and I have posted my message to him below. The article can be found at
http://www.sundaymail.co.uk/news/scottish-news/2008/01/20/coia-chased-by-u-s-moneymen-in-hunt-for-missing-millions-78057-20291501/

My message to Toby:

Toby,

I read your article in the Sunday Mail concerning my work in recovering assets from Raymond Coia. And there are errors in the article that I need to bring to your attention.

The first sentence indicates that Coia is “wanted” in the US. This terminology implies that there are criminal charges pending in the US and that is not accurate. As a court appointed receiver I work for the Court under the authority of a civil order, not criminal, and I am not aware of any criminal charges pending against Coia in the US.

You write that Coia is being questioned over his involvement with an American firm Capital Enhancement Club. As far as I have been able to determine, Coia was never involved in the CEC in any manner. My interest in Coia is solely related to the investment of funds with Coia by the American company Seaforth Meridian Ltd. and its UK affiliate. The CEC is a separate receivership, but there is a connection with CEC in that the man behind the CEC scam invested $9 million of the CEC funds with Seaforth Meridian, who in turn sent that $9 million and other investor’s money to a company operated by Raymond Coia and a separate company in Switzerland. The other connection between CEC and Seaforth is that the man behind CEC was also a founding director of Seaforth Meridian, but he was operating in his role at Seaforth Meridian under an alias and the other SM directors were not aware of his role behind CEC. Also, CEC was not an American firm, but operated from the island of St. Maarten in the Netherland Antilles.

Your article also states that I made a visit to Coia’s farm while I was in Glasgow and I am attempting to recover this farm. In fact, I have filed a lawsuit in the Court of Sessions to recover a farm owned by John MacIntyre. This farm was purchased with funds sent to Coia’s company Quantum Analytics, by Seaforth Meridian. The funds were used by MacIntyre to purchase the West Knockbartnock Farm.

I hope this information will assist you in any future articles you write concerning my involvement with Raymond Coia.

Article with Coia Comments

2008-01-19T10:48:00.000-06:00

An article in the Daily Record, http://www.dailyrecord.co.uk/news/scottish-news/2008/01/19/conman-vows-to-repay-8m-86908-20290070/ allows Ray Coia to state his defense that the investors in his companies lost their funds because he was unable to retrieve the funds from Mercure Bank in Germany.

Article in Daily Record on Coia Guilty Plea

2008-01-18T09:10:00.001-06:00

An article was published today in the Daily Record that confirms Coia's guilty plea. The article can be accessed at http://www.dailyrecord.co.uk/news/scottish-news/2008/01/18/conman-who-ripped-off-celtic-star-facing-jail-86908-20288948/

Ray Coia Reportedly Pleads Guilty

2008-01-16T14:15:00.001-06:00

I have heard from two independent sources today that Raymond Coia has pleaded guilty to one count of statutory fraud and one count of conducting business under the FSA regulation without being registered. I was also told that his sentencing is scheduled for February 14th and he is expected to serve three years under the plea agreement with the Crown Office.

I am posting this today as this blog receives multiple visits every day from users throughout Europe and the Middle East who read the Coia related postings. For some reason, he remains a person of interest to a lot of people.

Article in Kansas City Star

2007-11-06T08:59:00.000-06:00

Posted on Mon, Nov. 05, 2007
Principals of hedge fund ordered to pay back money obtained by fraud
By DAN MARGOLIES

Two principals of a hedge fund linked to a Ponzi scheme that swindled individuals worldwide, including Kansas investors, have been ordered to cough up the funds they fraudulently obtained.

Kansas federal Judge Richard D. Rogers last week ordered Alain A. Assemi to disgorge $577,598 and John D. Friedrich to disgorge $277,340. He also ordered them to pay prejudgment interest of $39,440 and $18,938, respectively.

The two were owners and managers of Seaforth Meridian of New York., a hedge fund that purported to invest in A-rated fixed-income bonds and corporate securities. Between May 2004 and October 2005, Seaforth attracted investments totaling nearly $22 million from 75 limited partner investors, according to the Securities and Exchange Commission.

Some $9 million of that money was transferred to Quantum Analytics, an entity supposedly located in Scotland and operated by Raymond Coia. In 2003, British regulators found that Coia had systematically misled investors and tried to dissipate funds despite a court-ordered freeze.

The case against Seaforth was filed in Kansas because the scheme began to unravel here after the Office of the Kansas Securities Commissioner started investigating the activities of an outfit called the Capital Enhancement Club, or CEC. The CEC, which turned out to be a Ponzi scheme and was placed in receivership, parked millions of dollars in Seaforth, which also was placed in receivership.

Former Kansas Bureau of Investigation agent Larry E. Cook, who later went to work for the Kansas securities office as an investigator, was appointed receiver of both CEC and Seaforth and has spent the last few years tracing a winding electronic money trail that has taken him to Scotland, Latvia and points in between.

So far, Cook and the attorneys who represent him, Ken Weltz and Brian Holland of Lathrop & Gage, have managed to recover about $5.2 million, or roughly 26 cents on the dollar, on behalf of CEC investors. The amount includes about $3.1 million that was turned over recently by a bank in Latvia after protracted proceedings there.

“Basically, we think around $50 million was stolen from investors, but only $19 million worth of claims were made against the CEC receivership,” Weltz said.

An additional $1 million-plus has been frozen in Latvia, which Cook and company are working to recover through the SEC’s international affairs office and Latvian prosecutors.

More money went into building lots on a golf course just east of Carson City, Nev., which Cook said he is now trying to sell. The lots were purchased with investor money by one of CEC’s principals, Mark Zarubi.

Seaforth agreed to return all the money it received from CEC, but so far it has only repatriated about half the funds. After Cook and company took legal action, Seaforth told them that most of the money it had raised had been transferred to Switzerland and Scotland.

The connection between CEC and Seaforth grew out of a financial relationship that Friedrich, of Seaforth, and the founder of CEC, Scott F. Klion, had established in 1999. Klion, who also went by the names David Tanner and James S. Tucker, is believed to be living somewhere in the Caribbean.

“The bottom line was that all the CEC investors were the victims of pure theft,” Weltz said. “As soon as that money got exchanged into electronic currency, it was gone.”

To reach Dan Margolies, call 816-234-4481 or send e-mail to dmargolies@kcstar.com.

Newspaper Article on Raymond Coia Trial

2007-10-08T09:39:00.001-05:00

Artilce located at http://icrenfrewshire.icnetwork.co.uk/pde/news/tm_headline=i-lost-20-000-boyd-tells-court&method=full&objectid=19820055&siteid=63858-name_page.html#story_continue

I LOST £20,000, BOYD TELLS COURT 11:52, Sep 20 2007

FORMER Scotland and Celtic captain Tom Boyd told a court yesterday how he lost £20,000 in an alleged £16 million foreign investment scam.

Boyd, right, is one of 370 alleged victims who are said to have bought shares in companies run by 42-year-old Raymond Coia, the man at the centre of the fraud allegations.

Coia, of Houston, Renfrewshire, denies forming a fraudulent scheme between January, 1996, and May 16, 2001 in which he is said to have falsely claimed to his alleged victims that he had invented an algorithm capable of predicting movements in foreign exchange markets.

The charge alleges that he induced them to hand over cash to buy shares in his companies and produced monthly newsletters falsely detailing profits which didn’t exist.

The prosecution at the High Court in Glasgow claims that out of the £13.2 million and $5.7 million handed over to him by clients he only invested £861,209 and $2.2 million and made losses of £96,000 and $439,000.

Hoops legend Boyd told Heather Carmichael, prosecuting, that in 2000, on the advice of his financial advisor, he and his wife, Rhona, bought £30,000 of shares as long term investments in two of the companies based in Hong Kong and the Seychelles said to be run by Coia.

He said he received receipts for his cash, but didn’t see any prospectus or any documentation, and admitted that he left all his financial dealings to his advisor who himself had invested money in Coia’s scheme.

The cash was to be invested in foreign exchange markets and Boyd told the court that initially he thought his investment, was “doing ok”.

He said he left it to his wife to read monthly newsletters, and when handed one in court admitted it was the first time he had read one.

Boyd added: “As mere mortals not used to the stock market it looked ok and on the advice of our financial advisor we put more money into it.”

He revealed, however, that after the Financial Services Authority began an investigation he received a letter from Coia saying that the companies would redeem all the shares, and in return shareholders would receive a promissory note for 100 per cent of the last reported share profit plus interest.

Boyd said he never received the promissory note and eventually the FSA froze the accounts of all Coia's companies.

Asked if he got his cash back, Boyd revealed that he got just £10,000 back from the FSA.

In cross examination Boyd drew a laugh when Jock Thomson QC, defending Coia said: “You described yourself as a retired footballer. For sometime you were with Celtic. You were an accomplished footballer.”

Replied Boyd: “That in the opinion of some, but not of others.”

He admitted that no one such as Coia or any of his companies had given him the “hard sell” to buy shares and he agreed with Mr Thomson that “as in football, shares can go up and down”.

Commented the QC: "It is described as the Gretna feeling."

The trial before Lord Brailsford, which is expected to last until the New Year, continues.

Too Late...

2007-10-04T18:50:00.000-05:00

In May 2005, I was appointed a Receiver for an SEC enforcement action to shut down an internet ponzi scheme named Capital Enhancement Club. For the next year I received tons of letters, emails, and telephone calls that included name calling and accusations that my actions were only designed to steal the investors money AND to prevent the honest investment efforts of David Tanner, the man behind CEC.

Even though I revealed in numerous court filings and communications to investors that David Tanner was actually one of several aliases for a scammer named Scott Klion, I continued to receive the hate mail. In October 2005 I opened a claim registration system for victims of this fraud to register their claim and qualify to recieve a pro rata distribution of any funds I recovered. I gave the investors until April 28th to file their claims.

Of course, at the same time Mr. Klion told the investors that if they did not cooperate with the Receiver or file a claim, he would eventually return their money to them. Well, several people chose to believe Klion and follow his advice.

Since April 28th I have recovered and returned over $5.2 million to the investors who filed claims and Klion has disappeared and no longer communicates with his "clients". Now I receive calls, letters, and emails daily from investors who failed to file a claim by the deadline and demanding to be included in the distribution.

For those who chose to believe a man operating under an alias, with no business address or telephone number, you are...too late.

My Trip to the UK

2007-09-09T10:16:00.000-05:00

I have recently returned from a two week trip to London and Glasgow. I'm happy to report the trip was very productive in that I had an opportunity to meet and interview Raymond Coia in Glasgow and Mats Anders Christer Allvik, a/k/a Sir Mats Allvik Von Sperling, in London. I also made a visit to the farm I am attempting to recover in Scotland, currently occupied by John MacIntyre, and gathered additional information for the pending lawsuit. I am still compiling the information obtained from my interviews with Coia, Von Sperling, and others as I prepare a report for the Court.

I truly appreciate the hospitality and assistance of my solicitors in Glasgow, and the Strathclyde Police. I'm happy to say it was not all work. Over my weekend in Scotland I attended the Edinburgh Fringe Festival and during the week my solicitors invited me to join them at the very exciting professional soccer match between the Celtics and the Moscow Sparktans.

The criminal trial of Coia commenced this week in Scotland and I have been receiving updates. I am still amazed at the number of visitors from Europe and the US to this blog who are referred by search engines queried for "Ray Coia".

Investor Money Recovered From Latvia

2007-08-08T09:22:00.000-05:00

That giant sucking sound we all heard yesterday was the sound of $3+ million dollars finally leaving Latvia and ending up in the CEC Receivership account. With the help of the SEC and DOJ, I was able to convince the Latvian General Prosecutor to place a freeze order on the Cedax Ltd (later known as Diversified Partners Ltd) account at VEF Banka in Riga, Latvia when I was appointed the receiver in May 2005. This account is where a lot of investors sent their investment funds to CEC.

Shortly thereafter, the US Treasury Dept placed VEF Banka on its black list for engaging in money laundering and being controlled by the Russian mob. And now, after over two years of bureaucratic and legal battles, we have repatriated the funds in this account to return to the investors who have filed claims.

But the battles are not over, we have two more accounts to repatriate in Latvia at VEF Banka and Krajabanka

Comments Hidden For Now

2007-08-01T09:32:00.000-05:00

I received an anonymous comment on July 31st from someone in the UK that revealed some very valuable information. Hopefully I was successful in hiding this comment before Coia and others in Scotland were able to read it and take action.

I want to strongly encourage the anonymous commentor to send me an email at info@cookreceiver.com so I can ask you additional questions. I will keep your identity confidential, as I have for others.

Commentors can still enter their comments to send to me at the end of each article, but they will not be available to the readers until I review and approve them. If the comment does not contain sensitive information it will be posted immediately.

Raymond Coia and Quantum Worldwide

2007-07-10T09:02:00.000-05:00

I have received a lot of information on Raymond Coia in the last couple of months. Some of it I've dug up myself, but I am pleased to report that a majority of the information has come from people who have been victimized by Coia.

I often wonder if anyone reads this blog. And I question whether it is worth the time to post my articles. But the response I've received from the readers in Europe who have found the blog by Googling "Ray Coia" is surprising. There are a lot of people who have been in contact with Coia and they are eager to share their stories.

I guess this all points out the power of the internet as a communications tool. I received information on Coia's real estate deals, as well as all kinds of "trading" investments that are pure fiction. The one account I've examined that was traded by Coia consistently lost money.

Of course, that is also true of the other characters in this fiasco. Anytime that Roger Kipfer at Meriton, or John Friedrich, Alain Assemi, and Timothy Clyman at Seaforth Meridian attempted to trade legitimate securities on legitimate exchanges they consistently lost money.

Thanks to the Annonymous Commentor

2007-06-16T09:34:00.001-05:00

My sincere thanks to the annonymous person who sent me the information on MacIntyre. This will be very helpful in our court case. I would really like to communicate with you in more depth. Please consider emailing me, I guarantee your identity will remain confidential.

Message to my Annonymous Commentor from UK

2007-05-18T09:24:00.001-05:00

Dear Annonymous,

I see that you were visiting this blog again this morning. You apparently have a real interest in the circumstances involving Ray Coia and John MacIntyre. So please take the time to email me and I will be glad to answer your questions and ask a few of my own with your permission.

Update for All,

Here is an update I can post now. My attorneys in Scotland have filed a summons in the Court of Sessions seeking the return of the farm property currently titled in MacIntyre's name. MacIntyre's attorneys have responded that MacIntyre is physically and mentally disabled and can not assit them in defending the action. And his attorneys have requested more time to have a guardian appointed for him. So this is going to be an issue we will have to deal with, which will likely delay my effort to recover the property.

The limited amount of information I've been able to gather indicates that MacIntyre and Coia were associates involved in the horse business. I've also been told that MacIntyre may have suffered a stroke within the past year.

Reply to Annonymous Comment from UK

2007-05-11T13:57:00.000-05:00

I received an annonymous comment on my last posting concerning the farm and John MacIntyre in Scotland.

I am very interested in corresponding with this annonymous commentor in more detail about the relationship between Ray Coia and John MacIntyre. Please send me a message at info@ceclubreceiver.com or info@cookreceiver.com. I guarantee your identity will be kept confidential.

Update on Seaforth Meridian Receivership

2007-05-09T10:09:00.000-05:00

The three managing partners of this hedge fund reported they sent $13.75 million to two companies in Europe, Quantum Analytics in Scotland and Meriton AG in Switzerland. I have finally received and examined the bank account records for both entities and, as I suspected, neither company was engaged in investing these proceeds for the benefit of the Seaforth investors.

During my depositions of the managing partners I was led to believe that Quantum and Meriton were two unrelated companies. My investigation has revealed that funds were being transferred between these two companies, and .......removing any doubt that these are scams, I have found that all of the "profits" received by the Seaforth hedge funds were actually returns of its own principal investment.

My investigation is continuing, but my first action has been to file a lawsuit in the Court of Sessions in Scotland to seize a farm purchased with investor funds from the Quantum Analaytics bank account. The farm was purchased for approximately $1.5 million dollars for the benefit of John MacIntyre. I hope to learn what connection MacIntyre has to Quantum and why investor funds were used to purchase the farm.

If anyone is interested in reading more detail about this receivership, I can direct you to a website, www.alabamaagainstfraud.com. Almost all of the court filings have been posted at this site. Plus this site is an excellent resource for any one tracking scams.

Update on CEC Receivership

2007-01-28T11:12:00.000-06:00

A quick update on the progress of the CEC Receivership. Positive news from the Latvian court, it has approved my application to recognize the US court order directing the repatriation of the $3+ million currently frozen in VEF Bank in Riga, Latvia. Now we are running into the bureaucratic delays found in the Baltic states govenment machinery. I am hopeful we will see a return of the funds within the next few months.

Also, I have received a $600K settlement check in the mail from Server to Go Inc. in New York. STG received $5 million of investor funds to develop a banking software for the guy who operated the CEC scheme, Scott Klion.

Hopefully, more good news to follow in the coming weeks.

I recently submitted a motion to the court to transfer $1.5 million of CEC funds to the Seaforth Meridian receivership. Several Seaforth investors filed motions with the court for the return of the $4.1 million turned over by Seaforth last fall. At the time the funds were transferred, I believed the statements of the Seaforth managing partners that the fund had sufficient assets to continue its operation for the benefit of the remaining investors. Only later, when the partners defaulted on their agreement to return the balance of the $9 million they promised to pay, did I learn that the fund had invested all of its remaining assets in two obvious scams in Europe and the money was lost. Based on this revalation, the SEC closed down Seaforth and the Court appointed me as the Receiver for Seaforth also. I believe the Court will accept this tansfer as a reasonable settlement of the claims filed by the Seaforth investors.

Update on IFVAT

2006-10-29T17:50:00.000-06:00

For those of you who were loyal IFVAT (Internal Fraud Vulnerability Assessment Tool) users, or who visited the web site for educational content, I hope you all saw the press release issued in September by the Association of Certified Fraud Examiners.

The ACFE purchased my IFVAT database and plan to convert it to a software product that will be available on CD-ROM. I developed the IFVAT in 2004 and started selling it via the web application in January 2005. The web site was very popular and always turned a nice profit, but the support headaches were more frustrating than I could have ever imagined.

I don't know what it is with software developers and support people, but the ones I had to rely on always seemed to be unreliable, and down right flaky!!! But, long story short...I was glad to find a buyer for the business and ready to get rid of the support headaches. The other positive is I am confident the ACFE will improve the IFVAT and use their marketing resources to raise its profile in the corporate community.

Valuable lesson learned: I thoroughly enjoyed writing the content and formulas, but I am bored to tears with the business aspects of running a business. When the advisors start talking about marketing, price points, etc. .... my eyes glaze over.

I'm much happier investigating fraud and tracing money. BTW- if anyone is interested in following the progress of the Capital Enhancement Club receivership, go to www.ceclubreceiver.com.

More Fraud News

2006-10-27T17:29:00.000-05:00

It's been awhile since I've had time to post a new article. My time has been consumed by two receiverships I'm handling for cases filed by the U.S. Securities and Exchange Commission.

Capital Enhancement Club is an internet ponzi scheme that was operated by a fraud recidivist hiding in St. Maarten, Netherlands Antilles. Scott Klion was previously charged by the SEC with operating a ponzi scheme from the Dallas area in 1999. He fled the area with his girlfriend, Elizabeth Alaniz, and first operated in Nevis for a while before ending up in a villa in St. Maarten (no doubt purchased with fraud proceeds) and living under the identity of James Tucker. Klion operated the CEC scheme under the alias of David Tanner.

CEC operated for over five years and ripped off investors from all over the world. So far I've locked up several million dollars in banks in Latvia, seized real estate in Nevada, and seized funds in several banks in the U.S.

I've investigated fraud schemes for over 25 years and this is the first scheme where I've dealt with the electronic currencies, i.e. Egold, Evocash, etc. Klion used the electronic currencies to his advantage by pooling the investor funds in the currency exchangers accounts and not opening bank accounts in the name of CEC. He directed the payments out of the exchangers accounts and into accounts he controlled, or to make ponzi payments to investors and aggregators.

This receivership has been a long, hard slog that began in May 2005 and will continue indefinitely, or until I can't find more accounts to recover.

Seaforth Meridian Ltd is a receivership I just started in September. SM is a hedge fund out of New York and is related in many ways to CEC. In fact, one of the Founding Members of SM was James Tucker a/k/a Scott Klion. I first learned of SM when I traced $9 million from a bank in Latvia to the fund. I approached the SM management and they agreed to return the money to the Receiver. They actually returned $4 million and then failed to live up to its agreement to return the rest. The SM directors now claim they invested $1 million of the fund in a private placement in Canada where the attorney ran off with the money; they invested $6 million with a company called Quantum Analytics in Scotland (I learned the president of QA is Raymond Coia, who was barred from the investment industry by the FSA in the UK in 2003 for fraud); and they say they invested $7.75 million in a company in Switzerland called Merition AG. And guess what?? They can't seem to get any of their money back!

There are enough twists and turns involved in these two receiverships to keep me writing for days, weeks, and months.

Just a note to let you know why I haven't been posting to this blog. I promise to post more timely in the future.

Pros and Cons Seminars Stink!

2005-06-22T11:33:00.000-05:00

There is something unsavory and repugnant about ex-cons profiting from their past crimes under the guise of "Fraud Education". I am speaking about the speakers bureau operated by Gary Zeune, a CPA in Ohio. (Read Kansas City Star article below)

I am all for forgiveness, rehabilitation, and letting those who make mistakes settle their debts to society and their victims and then move on with their lives. But the thought of these crooks being promoted as the "insider experts" on fraud and profiting from regaling auditors with stories about their schemes has me shaking my head and wondering what Mr. Zeune is thinking.

I am all for education and I see real merit in having the auditors, investigators, etc. who investigated these schemes make presentations on the methods used by the crooks and how to successfully detect, deter, and investigate these schemes. And I do not have a problem with bringing in a crook to talk to a group as a public, non-paid, service or with the speaker's fee going to charity. In fact, the Association of Certified Fraud Examiners have used these speakers under these conditions in the past very successfully. But I draw the line at paying these people to preen and crow about their schemes and how they fooled the auditors in the past.

Executives who crossed the line help firms prevent fraud
Heed the buzz, avoid the stingThe Pros and The Cons entertains and educates

COLUMBUS, Ohio — Put a man convicted of stock fraud, wire fraud and tax evasion in front of a room full of auditors and they’d probably like to teach him a thing or two.
With Mark Morze, it’s the opposite.
From the psychology of fraud to the logistics of achieving an inflated bottom line, Morze offers his insider insight to executives, accountants and business students. He explains how he got mixed up in one of the most celebrated corporate scams of the 1980s and how it can happen to any executive.
Morze delivers the lectures through The Pros and The Cons, a speakers bureau based in a suburb of Columbus that employs experts and ex-cons to help companies avoid and detect fraud, which the Association of Certified Fraud Examiners said cost the United States an estimated $660 billion last year.
It’s a business that founder Gary Zeune says has grown about 50 percent since Enron’s December 2001 collapse.
Morze said that with the right amount of pressure, a window of opportunity and a persuasive rationalization, even the most honest executives can be led astray. Morze knows, having served four years in prison for his role in the ZZZZ Best Carpet Cleaning scam, which bilked investors out of about $100 million.
“We were lying on credit applications — which is a huge oversimplification — to buy very legitimate companies and run them better,” he said in a recent interview. He was the chief financial officer when investigators discovered the firm had forged more than 10,000 documents to cover up renovation projects that didn’t exist and returns that weren’t as impressive as Wall Street thought.
As bad as fraud has been — and remains — it means increasing demand for Zeune’s seminar business.
Zeune started the bureau in 1994 with one white-collar criminal, Barry Minkow, founder and former chief executive of the Los Angeles-based ZZZZ Best. Now he employs eight to 15 cons — “depending on who’s out on parole” — and about five pros — former auditors, fraud experts and Internal Revenue Service agents.
Zeune travels 100,000 miles and delivers about 100 lectures a year, making up half of the bureau’s business. The cons hold about 65 seminars annually, and the pros handle the rest. Only for large conferences do the pros and cons go toe to toe.
The bureau’s typical two-hour seminars cost $4,500, and the all-day workshops generally run $6,500. Morze earns about $60,000 from the approximately 30 seminars he runs a year.
About 75 percent of the bureau’s customers are annual repeats, Zeune said.
The seminars are worth the cost, said Kristin Moretti of the Rhode Island Society of CPAs. The group has used Zeune and Morze for professional courses since 1998, and Moretti called Morze’s experiences eye-opening for people who attend his seminars.
“He shed a lot of light on things they might not necessarily have thought to look at, like how easily some things were to get by the auditors,” she said.
Morze’s seminars blend his story and his fraud-detecting tips. He recalls discovering the tangled web of forged invoices and willfully joining Minkow’s efforts to keep rates of return and publicity high for the company. The scheme unraveled when the FBI started investigating Minkow’s connections to the mob.
Morze told himself the company eventually would land a big enough deal to repay investors.
“White-collar criminals, we have to rationalize what we’re doing,” he said. “We think we’re better than everyone else. I thought I was helping a lot of people, and the fact that I ended up rich and hedonistic is inconsequential.”
Morze’s advice, in a nutshell, is to stop looking for accuracy and instead find the truth. Forged documents appear to add up, he said. They cross-reference, and they look legit. He knows — he’s designed them.
“People who commit fraud count on making everything look normal when it should be different,” Zeune said. But making extra checks to verify estimates can be the key to catching corporate fraud, Morze said.

High Yield Investment Schemes

2005-06-16T17:15:00.000-05:00

I have been absolutely amazed at the prevalence of the High Yield Investment and Prime Bank
schemes on the Internet. I left the investment fraud investigation field over five years ago and while these schemes were always popular, they were not openly soliciting investors on the Internet.

Now if you Google HYIP, you will receive thousands of hits. There are so many schemes being offered there are even HYIP directories available on the net telling people which programs are paying and which ones have either disappeared with investor money or been put out of business by the authorities. And even more unbelieveable, I found software companies offering "HYIP in a box" programs where for a few hundred dollars you can purchase the software to set up and operate a HYIP program on the Internet!

The authorities are overwhelmed with the number of scams offered. There is no way they can police these offerings. And to add to the problem, most of the scammers have set up operation in foreign jurisdictions thwarting US enforcement efforts.

I was recently appointed as a Receiver in US District Court for an enforcement action filed by the US Securities & Exchange Commission on a HYIP operated over the Internet by a yet to be identified group of scammers. The SEC complaint indicates between November 2004 to April 2005 the scam took in $15 million from over 500 investors. My preliminary investigation has found that the scheme has been operating since 2004 and may involve up to 40,000 investors and hundreds of millions of dollars.

Most of the money was sent to a bank in Riga, Latvia a former Russian republic with a reputation for money laundering. It looks like I have my work cut out for me to determine what happened to the money and attempt to recover investor funds wherever I can find them.

The most obvious question though is "What were these people thinking?" No contracts, no identification beyond email names, and I've found records where investors sent in from $500 to $300,000 each! Amazing, absolutely amazing!

The Internal Fraud Vulnerability Assessment Tool

2005-06-03T08:34:00.000-05:00

In addition to my work as a fraud investigator, court receiver, and consultant, I offer a tool for companies to complete assessments of the risks from internal fraud. The tool is a web based application located at http://www.ifvat.com. The IFVAT was designed for fraud professionals to use in their fraud assessment engagements for clients. But during the development process, I had the good fortune to receive the input from some very respected accounting professors who encouraged me to put the IFVAT on the web and make it accessible to all organizations interested in conducting self-assessments.

Fraud risk assessments provide an organization with the information they need to make informed decisions on how to protect the organization from internal fraud. The results of the assessment can be used to implement effective mitigation and prevention programs, and eliminates money being wasted on programs that are ineffective or misdirected.

My academic advisors maintain that most small and medium size businesses can not afford, or will not dedicate the funding to have an accounting professional or fraud examiner conduct a fraud risk assessment. Therefore, most organizations are at serious risk of failure due to losses from internal fraud.

The statistics are clear, internal fraud is one of the biggest threats to new businesses. Employee theft is responsible for almost one-third of business failures according to the US Chamber of Commerce. And the Association of Certified Fraud Examiners 2004 survey on Occupational Fraud and Abuse estimates that six percent of an organization's revenues are lost to internal fraud and theft.

So, please alert your friends and co-workers to this very valuable fraud detection and prevention tool and have them visit www.ifvat.com

The Tale of the Red Breast-Scambaiters

2005-05-26T10:20:00.000-05:00

Most of you have probably heard about the Nigerian 419 scams. A former law enforcement friend of mine sent me the address of an entertaining internet site devoted to baiting the Nigerians who are running these schemes. The site is located at http://419eater.com/index/.htm

I especially enjoyed reading the communication between one of the scambaiters and a Nigerian, when the scambaiter convinced the Nigerian to SEND HIM $80.00 !! Follow this link to its letter archives and read about The Church of the Red Breast.

For those who are not familiar with the Nigerian 411 scam, here is information from the Secret Service web site:

4-1-9 Schemes frequently use the following tactics:

An individual or company receives a letter or fax from an alleged "official" representing a foreign government or agency.

An offer is made to transfer millions of dollars in "over invoiced contract" funds into your personal bank account.

You are encouraged to travel overseas to complete the transaction.

You are requested to provide blank company letterhead forms, banking account information, telephone/fax numbers.

You receive numerous documents with official looking stamps, seals and logo testifying to the authenticity of the proposal.

Eventually you must provide up-front or advance fees for various taxes, attorney fees, transaction fees or bribes.

Other forms of 4-1-9 schemes include: c.o.d. of goods or services, real estate ventures, purchases of crude oil at reduced prices, beneficiary of a will, recipient of an award and paper currency conversion.

Nigerian Advance Fee Fraud Overview

The perpetrators of Advance Fee Fraud (AFF), known internationally as "4-1-9" fraud after the section of the Nigerian penal code which addresses fraud schemes, are often very creative and innovative.

Unfortunately, there is a perception that no one is prone to enter into such an obviously suspicious relationship. However, a large number of victims are enticed into believing they have been singled out from the masses to share in multi-million dollar windfall profits for doing absolutely nothing. It is also a misconception that the victim's bank account is requested so the culprit can plunder it -- this is not the primary reason for the account request -- merely a signal they have hooked another victim.

In almost every case there is a sense of urgency.
The victim is enticed to travel to Nigeria or a border country.
There are many forged official looking documents.
Most of the correspondence is handled by fax or through the mail.
Blank letterheads and invoices are requested from the victim along with the banking particulars.
Any number of Nigerian fees are requested for processing the transaction with each fee purported to be the last required.
The confidential nature of the transaction is emphasized.
There are usually claims of strong ties to Nigerian officials.
A Nigerian residing in the U.S., London or other foreign venue may claim to be a clearing house bank for the Central Bank of Nigeria.
Offices in legitimate government buildings appear to have been used by impostors posing as the real occupants or officials.

The most common forms of these fraudulent business proposals fall into the following main categories:

Disbursement of money from wills
Contract fraud (C.O.D. of goods or services)
Purchase of real estate
Conversion of hard currency
Transfer of funds from over invoiced contracts
Sale of crude oil at below market prices

The most prevalent and successful cases of Advance Fee Fraud is the fund transfer scam. In this scheme, a company or individual will typically receive an unsolicited letter by mail from a Nigerian claiming to be a senior civil servant. In the letter, the Nigerian will inform the recipient that he is seeking a reputable foreign company or individual into whose account he can deposit funds ranging from $10-$60 million that the Nigerian government overpaid on some procurement contract.

The criminals obtain the names of potential victims from a variety of sources including trade journals, professional directories, newspapers, and commercial libraries. They do not target a single company, but rather send out mailings en masse. The sender declares that he is a senior civil servant in one of the Nigerian Ministries, usually the Nigerian National Petroleum Corporation (NNPC).

The letters refer to investigations of previous contracts awarded by prior regimes alleging that many contracts were over invoiced. Rather than return the money to the government, they desire to transfer the money to a foreign account. The sums to be transferred average between $10,000,000 to $60,000,000 and the recipient is usually offered a commission up to 30 percent for assisting in the transfer.

Initially, the intended victim is instructed to provide company letterheads and pro forma invoicing that will be used to show completion of the contract. One of the reasons is to use the victim's letterhead to forge letters of recommendation to other victim companies and to seek out a travel visa from the American Embassy in Lagos. The victim is told that the completed contracts will be submitted for approval to the Central Bank of Nigeria. Upon approval, the funds will be remitted to an account supplied by the intended victim.

The goal of the criminal is to delude the target into thinking that he is being drawn into a very lucrative, albeit questionable, arrangement. The intended victim must be reassured and confident of the potential success of the deal. He will become the primary supporter of the scheme and willingly contribute a large amount of money when the deal is threatened. The term "when" is used because the con-within-the-con is the scheme will be threatened in order to persuade the victim to provide a large sum of money to save the venture.

The letter, while appearing transparent and even ridiculous to most, unfortunately is growing in its effectiveness. It sets the stage and is the opening round of a two-layered scheme or scheme within a scheme. The fraudster will eventually reach someone who, while sceptical, desperately wants the deal to be genuine.

Victims are almost always requested to travel to Nigeria or a border country to complete a transaction. Individuals are often told that a visa will not be necessary to enter the country. The Nigerian con artists may then bribe airport officials to pass the victims through Immigration and Customs. Because it is a serious offence in Nigeria to enter without a valid visa, the victim's illegal entry may be used by the fraudsters as leverage to coerce the victims into releasing funds. Violence and threats of physical harm may be employed to further pressure victims. In June of 1995, an American was murdered in Lagos, Nigeria, while pursuing a 4-1-9 scam, and numerous other foreign nationals have been reported as missing.

Victims are often convinced of the authenticity of Advance Fee Fraud schemes by the forged or false documents bearing apparently official Nigerian government letterhead, seals, as well as false letters of credit, payment schedules and bank drafts. The fraudster may establish the credibility of his contacts, and thereby his influence, by arranging a meeting between the victim and "government officials" in real or fake government offices.

In the next stage some alleged problem concerning the "inside man" will suddenly arise. An official will demand an up-front bribe or an unforeseen tax or fee to the Nigerian government will have to be paid before the money can be transferred. These can include licensing fees, registration fees, and various forms of taxes and attorney fees. Normally each fee paid is described as the very last fee required. Invariably, oversights and errors in the deal are discovered by the Nigerians, necessitating additional payments and allowing the scheme to be stretched out over many months.

Several reasons have been submitted why Nigerian Advance Fee Fraud has undergone a dramatic increase in recent years. The explanations are as diverse as the types of schemes. The Nigerian Government blames the growing problem on mass unemployment, extended family systems, a get rich quick syndrome, and, especially, the greed of foreigners. Indications are that Advance Fee Fraud grosses hundreds of millions of dollars annually and the losses are continuing to escalate. In all likelihood, there are victims who do not report their losses to authorities due to either fear or embarrassment.

Investment Fraud, Part 2

2005-05-13T20:51:00.000-05:00

Schemes by Unlicensed Promoters

This group includes those who may be legally exempt from the licensing requirements, misguided entrepreneurs, and crooks. Without getting into the merits and details of securities licensing laws, just let it be said that there are some exemptions to licensing regulations that permit unlicensed people to offer investments to the public under certain circumstances. The misguided entrepreneurs are generally unsophisticated people who are trying to raise money for a business without the knowledge that they are violating securities laws. The crooks present themselves in two ways. The first is the crook who plans and sells the offering as an illegal scheme. The second type of crook is one who starts out with legitimate intentions and then resorts to misrepresentations and omissions due to his theft of investment proceeds or to hide negative information from investors.

Ponzi- Investors are promised large returns on their investments. Any returns/profits paid to investors are paid from the investor’s own investment, or from money invested by later investors, and not from the investment touted by promoters. A favorite scheme of ponzi operators is the High Yield Investment Program or Prime Bank Scheme. I will write more about these schemes in a later post.

Pyramid- Investors are promised large returns on their investments if they will pay a fee to join a pyramid shaped organization, and agree to recruit others to pay a fee and join. “Pure cash pyramids” require only the payment of cash and recruiting others to pay cash. “Product pyramids” offer the participants a product of nominal value in return for the fee, i.e. cosmetics, jewelry, coins, etc.

Advanced Fee- Promoters promise to raise money for a client, either from a loan or sale of stock, after the payment of a fee up front. The fee is paid, but the loan or funding is never obtained nor does the promoter make legitimate efforts to obtain the funding. There are generally two levels of these schemes based on the amount of the fee charged up front. One level is the low fee charged by advance fee operators who solicit people with bad credit for bogus loans to refinance debt or new credit. The other level is a larger fee for bogus loans offered to people seeking capital for small businesses, business startups, etc.

Misrepresentation/Omissions- Investors are solicited to invest in a legitimate investment product, but for one reason or another, the promoter misrepresents material facts or omits to disclose material facts concerning the investment.

Misappropriation- Investment funds are not used as intended, but misappropriated by the insiders and promoters.

Investment Fraud, Part 1

2005-05-04T06:30:00.000-05:00

There are two groups of people who commit investment fraud. The first group includes licensed investment professionals, such as stockbrokers, investment advisors, investment bankers, etc. The second group includes the con artists that are not licensed investment professionals and they are offering investments to unsuspecting investors. And, arguably, there is a third group that includes the lawyers and accountants who provide advice and assistance to the first two groups, but do so with a “see no evil” mentality cloaked in client confidentiality.

There are specific types of schemes operated by each group. This is not an exhaustive list, but a good overview of the most common schemes I have previously investigated.

Schemes by Licensed Professionals
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Unsuitable Recommendations- a broker/advisor recommends the client enter into a transaction that is not suitable for the client based on the client’s financial profile, age, income, tolerance for risk, and investment objectives. An example of this would be a broker convincing your elderly aunt to cash in her certificates of deposit to open an account for options trading.

Unauthorized Trades- a broker executes trades in a client’s account without the client’s authorization. There are a number of reasons a broker would do an unauthorized trade. He could be trying to make a sales quota to win a sales contest or save his job. And I’ve seen brokers execute unauthorized transactions in a large number of client accounts with the attitude that several clients, who either don’t read their monthly statements or don’t understand the statements, will never catch the trade. Or, if the client does bring the trade to the broker’s attention, he can convince them it was a mistake, “but look, you’ve made money because the stock went up” and talk them into either keeping the security or selling at a profit (and creating more commissions).

Churning- a broker will execute a large number of trades in a client’s account without any financial benefit to the client, usually resulting in large trading losses and commission costs to the client. I have seen clients lose hundreds of thousands of dollars in churning cases. The client is almost always an unsophisticated investor who relies solely upon the advice of the broker. There is often a “discretionary trading” agreement signed by the client giving the broker full power to execute trades in the account at the broker’s discretion, and without notice to the client.

Mutual Fund Switching- switching a client from one fund to another without a financial benefit to the client and generating large commission costs to the client. Load funds generally pay generous commissions to brokers, so it is an incentive to them to move clients into the funds that pay the highest commissions. And some funds will sponsor contests offering free trips and other luxury prizes for the highest sales volume.

Conversion- this is converting client funds to the personal use of the broker, i.e. stealing money from the account. The conversion cases commonly happen in two ways. The first way is for the broker to change the address on the client account to an address where he will receive the mail. The broker then liquidates securities out of the client account, checks are sent to the bogus address and the broker forges the client name on the check and cashes it. The second way is for the broker to sell securities or withdraw cash out of the client account without the client’s knowledge, and then instruct the cashier to give the check to him for personal delivery to the client. The broker will then forge the check and cash it.

Market Manipulation- a firm’s insiders will use the firm salespeople to aggressively promote a thinly traded stock to public customers using misrepresentations and omissions. The price of the stock will increase as the sales volume increases. The insiders sell shares they own at the inflated prices. Once the insider shares are sold, the firm will stop promoting the stock and the price will fall to its previous level. This has been a favorite scheme of broker/dealers with alleged organized crime connections. These firms are nothing more than boiler rooms with securities licenses.

Selling Away- a broker will sell an investment to a client that is not approved by the broker’s firm. These schemes are almost always fraudulent ponzi-type schemes where there is never a legitimate investment product.

With the proper internal controls and compliance oversight, these schemes should be detected by the firms that employ these brokers right away. But investment firms are sales driven organizations. Internal controls and compliance take a back seat when it comes to staffing, funding, and technology.

So the public needs to be aware of the bad things that can happen in the broker-client relationship and protect themselves. Sadly, in my experience, a majority of the victims of these types of schemes are elderly people who lack investment knowledge and sophistication. And many of the schemes are not even detected until after the account is depleted of all funds, or the client has passed away and the executor discovers the scheme. If you have an elderly friend or relative with assets, encourage them to review the monthly statements from their broker and to seek advice if there is anything they do not understand.

Schemes by those without a license will follow in Part II

An effective strategy to combat accounting corruption

2005-05-02T14:23:00.000-05:00

The questions I posed in my previous post leaves one searching for answers. How do we effectively deal with accounting firms who will abandon their ethical duties to garner consulting or tax fee income from clients? Is there a regulatory scheme capable of policing the accounting industry? And I am referring to the entire public accounting profession, not just the firms that audit public companies. And what will be the cost to investors and businesses to implement this regulation?

The answer may be relatively simple, Financial Statement Insurance. This solution has been offered by Joshua Ronen, an accounting professor at NYU’s Stern School of Business.

Mr. Ronen proposes that organizations purchase financial statement insurance from carriers, in much the same way they now buy directors and officers insurance. The auditors who perform the financial statement audit would be selected by, and work for, the insurance companies. Insurance companies, armed with their own auditors’ assessment of the risk that a company was not forthcoming due to misrepresentations or omissions, would then determine how much coverage to offer and at what premium. Risky companies would pay a higher premium than less risky ones. Or they may not be able to buy insurance at all, effectively putting them on a watch list or out of business.

This is a brilliant idea! Think about it. Insurance companies, who would bear the risk arising from bad audits, would have an incentive to reduce that risk by hiring competent auditors that will scrutinize the organization’s books to minimize any risk of an audit “failure”. If the accounting firm does a lousy job, they will not only lose the insurance carrier’s business on that organization but probably on other audits for the same carrier. So the incentive is now to perform competent audits to please the insurance carrier, not to please the audited organization.

Mr. Ronen also proposes that the amount of coverage and the size of the premiums be publicly disclosed so investors would be alerted to companies that are rated as higher risk for financial statement fraud.

Insurance for financial statements would also provide a better level of protection for shareholders in the case of fraud. Under the current system of directors-and-officers insurance, investors have to join a class-action suit (which generates a tremendous amount of litigation and costly discovery). Under Mr. Ronen's scheme, however, investors could just file a claim with the insurance company.

And all of this is accomplished without expensive layers of government regulation!

A less effective, but equally inventive approach is offered by Shyam Sunder, a professor of accounting at Yale. Mr. Sunder proposed using corporate tax returns as the publicly reported income statement to reduce both earnings management and aggressive tax reporting.

Mr. Sunder points out that management and auditors legally game the tax and accounting systems by underreporting taxable income to lower taxes while at the same time increasing financial statement income they report to the shareholders. According to Mr. Sunder, using the same statement for both purposes would discourage manipulation by imposing real-dollar costs on the manipulation in either direction.

So, effective strategies are available to address the problem of accounting corruption. But with the power of the accounting profession lobby in Washington, D.C., I am not optimistic we will ever see them implemented.

Accounting Corruption

2005-04-29T18:58:00.000-05:00

Is anyone as sick of hearing about the “settlements” reached by our so-called “gatekeepers”, those accounting professionals who were supposed to be our first line of defense against fraud?

The announcements just keep coming, Deloitte and Touche pays $50 million to settle charges by the SEC that it failed to prevent massive fraud at Adelphia. The firm stopped auditing Adelphia in 2002, replaced by PricewaterhouseCooper. Of course, PWC recently reached a $48 million settlement with institutional investors for Safety-Kleen over PWC’s certification of financial statements for Safety-Kleen bond offerings. Last week, KMPG reached a $22.4 million settlement with Xerox related to its audit work, or should we say the lack of competent audit work. These recent settlements are even smaller tha the $84 million Ernst and Young agreed to pay in January for its “audit” work at the now defunct Bank of New England.

The Big Four used to be the Big Five until the demise of corporate criminal Arthur Andersen, convicted of federal obstruction of justice charges in 2002. What can be said about Andersen, the poster child of corrupt accounting at Enron, Worldcom, Qwest, Global Crossing, and Dynergy?

Not that the accounting firms were the only bad actors in these deals. The lawyers, investment bankers, and company executives greedily participated in every phase of the schemes to rip off shareholders.

What I find ironic is how the news media and the accounting profession refer to their overt actions as “failures”, not audit fraud or audit corruption or corrupt accountants, but merely “failures”.

The real question is, “where does a large publicly traded corporation turn to for its audit work?” Would you feel comfortable hiring one of the Big Four?

There is a long list of reasons for these “failures”, and none of them can be addressed with a change of policy. They are systemic and ingrained in the public accounting culture. Accounting has been allowed to avoid any serious oversight and regulation until Sarbanes Oxley created the PCAOB. But the PCAOB only regulates the accounting firms who audit publicly traded companies. Where is the oversight to protect the stakeholders in privately owned companies, government, and nonprofit organizations from audit “failures”?

Preventing Employee Theft and Fraud

2005-04-28T11:32:00.000-05:00

One of the most serious threats to the survivability of any organization is employee theft. Misplaced trust, lax hiring and supervision, and a failure to implement basic financial controls will lead to an environment that is ripe for employee theft and fraud.

The Association of Certified Fraud Examiners estimates the typical business will lose up an average of six percent of revenues from employee theft. The ACFE Report to the Nation on Occupational Fraud and Abuse indicates that small business suffer disproportionate losses because of the limited resources they have available to detect fraud. And a U.S. Chamber of Commerce survey reported one-third of business bankruptcies are due to employee theft.

Organizations can be proactive in detecting and preventing employee theft and fraud by following the nine recommendations listed below:

POSITIVE WORK ENVIRONMENT- Create a positive work environment that will encourage employees to follow established policies and procedures and act in the best interests of the organization. Fair employment practices, written position descriptions, clear organizational structure, comprehensive policies and procedures, open lines of communication between management and employees, and positive employee recognition will all work to reduce the likelihood internal fraud and theft.

INTERNAL CONTROLS- Internal controls are designed to ensure the effectiveness and efficiencies of operations, compliance with laws and regulations, safeguarding of assets, and accurate financial reporting. The controls for safeguarding assets and financial reporting require policies and procedures addressing:
Separation of Duties- No employee should be responsible for both the recording and processing a transaction.
Access Controls- Access to physical and financial assets and information and accounting systems should be restricted to authorized employees.
Authorization Controls- Policies and procedures addressing the controls to initiate, authorize, record, and review financial transactions.
Internal controls will reduce the opportunity for fraud.

EMPLOYEE SELECTION- Honest employees will be an asset to any organization, even one with poor internal controls. However, a dishonest employee will ignore management’s attempts to provide a positive work environment and search for ways to defeat even the most comprehensive internal controls to commit fraud. Therefore it is very important to keep dishonest applicants from becoming an employee. A thorough pre-employment background check should include:
Criminal history for crimes involving violence, theft, fraud, etc
Civil history for lawsuits involving collections, restraining orders, fraud, etc
Driver license for numerous or serious violations
Education verification to verify degrees from accredited institutions
Employment verification to verify positions, length of employment, reason for leaving

EMPLOYEE EDUCATION- Employees should receive information on the policies and procedures related to fraud, the internal controls in place to prevent fraud, the organization’s code of conduct and ethics policies, and how violations of these policies will be disciplined. Every employee should sign a form to verify the receipt of this material. Employees should receive annual training on these topics and sign an acknowledgement each time.

REPORTING SYSTEM-The ACFE report reveals that most frauds are discovered by a tip. Every organization should provide a confidential reporting system for employees, vendors, and customers to anonymously report any violations of policies and procedures. Employers should promote and encourage the use of the reporting system.

AUDITS/ASSESSMENTS- Random, unannounced financial audits and fraud assessments are important to identify new vulnerabilities and measure the effectiveness of the controls in place. In addition to the information gathering benefit of the audits and assessments, this practice will deliver a strong message to employees that fraud prevention is a high priority for the organization. Organizations can use the Internal Fraud Vulnerability Assessment tool at http://www.ifvat.com/ to conduct this assessment.

INCIDENT INVESTIGATION- A thorough and prompt investigation of policy and procedure violations, allegations of fraud, or the warning signs of fraud will provide management with the facts necessary to make informed decisions and reduce losses.

PROSECUTE OFFENDERS- Employees who are identified as committing fraud and theft should be prosecuted, either civil, criminal, or both. A failure to prosecute will give other employees the impression that the only risk for this conduct is termination.

LEAD BY EXAMPLE- Senior management and business owners set the example for the organization’s employees. A cavalier attitude toward rules and regulations by management will soon be reflected in the attitude of employees. Every employee, regardless of their position, should be held accountable for their actions.

I've been had! And I'm mad as hell !!

2005-04-26T15:28:00.000-05:00

Well, it has happened to me. A guy who should know better. It's humiliating and embarassing. And it really, really, makes me MAD !

I got SPOOFED by a sneaky, fraudulent email that was set up to look like it came from Paypal. Last Friday morning I opened my email and found the usual long list of urgent messages demanding my attention. By conincidence, I had recently set up a Paypal account to accept payments on my www.ifvat.com web site, and had just processed some payments. The email looked like it was sent from service@paypal and it informed me that my account registration was suspended due to suspicious activity in the account.

I was in a hurry to leave my office for an appointment, but wanted to clear this problem up to prevent any problems receiving future payments from clients. So I clicked on the link to what I thought was the Paypal site and was required to read Paypals privacy agreement, etc. and then continue to the next page where it requested I provide information to re-register my account. I quickly, and STUPIDLY supplied my social security, business checking account, and business credit card and other information as requested.

It wasn't until early the next morning as I was tossing and turning in bed that I started having second thoughts about the email. I logged on to the Paypal security site at 3am and read that any emails addressed to "Dear Paypal Member" were fraudulent as Paypal will always send their email directed to your first and last name. I then opened the email I received the previous day and guess what, it began "Dear Paypal Member".

So now I have wasted countless hours in damage control. I've canceled the credit card, closed my business account, changed my DL number, and placed a fraud alerts on my credit reports. It appears I have prevented any thefts so far, but I now have to be extra vigilant for the next few years. All for a momentary lapse of judgment.

As I was lying in bed this morning before dawn and thinking about the day ahead, I couldn't help but fantasize about tracking down the people behind this scheme and (pardon my lack of civility) kicking their asses! My knuckles ached to smash into their nose cartilage. And my fingers curled in the sweet anticipation of choking them out as they handed me the piece of paper with my identity information. MY IDENTITY!!!

Introduction to Fraud and Theft blog

2005-04-24T14:42:00.000-05:00

A blog for those of us who devote our working lives dealing with the victims and perpetrators of fraud and theft schemes. Fraud is a huge area to cover and is present in every industry and may be found in almost any transaction between two parties.

My personal experience over the last 25 years has been primarily in investment fraud, land sales fraud, loan broker fraud, real estate fraud, and employee internal fraud and theft. And I've also worked on a variety of other fraud investigations including insurance fraud, business opportunity fraud, and consumer frauds.

I started my investigation career in traditional law enforcement. After ten years of working street crimes, drugs, and homicide I was assigned my first fraud case. The case involved oil and gas investment fraud. This was in the early 1980's and the price of oil was high enough that several wildcatters were setting up investment partnerships to raise money and explore for oil. Of course this opportunity attracted the crooks, along with the operators with good intentions who couldn't stay away from the money and soon became crooks. But nevertheless, the real wakeup call for me was the crooks could look like me, work in fancy office buildings, drive better cars, live in nicer houses, and have every appearance of being successful businessmen and it didn't matter, THEY WERE STILL CROOKS!!! Nothing in my previous police experience, or in my blue collar upbringing prepared me for this revelation.

I found that I enjoyed investigating fraud cases, matching wits with these polished con men and their attorneys and accountants, and ultimately putting them in jail where they belonged. Thus began my career for the next twenty years of investigating investment frauds by promoters, con men, stock brokers, and investment advisers. Proving the false representations delivered to unsuspecting investors in slick looking brochures, or over the telephone by high pressure bolierroom salespeople, and then tracing the flow of funds to prove how the crooks stole the money instead of using it for the investment purpose represented, became a mission that I thoroughly enjoyed. I directed a staff of experienced investigators and auditors who I will always feel a kinship with.

Over five years ago I retired from government service and started working as a fraud consultant and investigator. Since that time I have worked fraud cases all over the U.S. for a variety of clients. The area I now spend most of my time is with Employee Theft and Fraud.
Employee fraud is a tremendous problem for all organizations. If there is more than one employee in an organization, then there is a potential for employee theft and fraud. The most effective way to prevent employee theft and fraud is to have the proper controls in place to detect and deter this type of activity.

After working hundreds of cases of employee theft, I started developing the IFVAT, or Internal Fraud Vulnerability Assessment Tool. The IFVAT is a web application located at http://www.ifvat.com The IFVAT was developed for use by accountants, auditors, and fraud professionals to conduct assessments for their clients. But during the development process my academic advisors encouraged me to put the tool on the internet and make the tool available to small and medium size organizations to do self assessments.

The www.ifvat.com site opened in January 2005 and I'm happy to report there has been very positive reviews and increasing traffic to the site.

I intend to post my thoughts and opinions on this blog. And I hope the blog will attract others with similar interests in fraud and theft. Posters do not have to be investigators or fraud professionals. Anyone who has an item of interest is encouraged to post.

Best Regards,

Larry