Bernie's IT guys and "House 17"

Excerpt:

Two former employees for Bernard Madoff programmed an old IBM computer to generate false records that concealed the money manager's massive Ponzi scheme and were given hush money when they threatened to stop lying, federal prosecutors said Friday.

Madoff gave orders to pay the pair "whatever they wanted to keep them happy," a criminal complaint said.

The computer programmers, Jerome O'Hara, of Malverne, N.Y., and George Perez, of East Brunswick, N.J., were arrested Friday at their homes. They were to appear in a Manhattan court to face conspiracy, falsifying records and other charges.

"Without the help of O'Hara and Perez, the Madoff fraud would not have been possible," George S. Canellos, director of the Securities and Exchange Commission's New York Regional Office, said in a statement.

Their attorneys did not immediately return calls for comment.

Prosecutors alleged that O'Hara and Perez were hired by Madoff's firm in the early 1990s to develop and maintain programs using a computer known as "House 17." The programs allowed Madoff to generate account statements for thousands of clients "that purported to confirm the purchases of securities that, in fact, had not been purchased," the complaint said.

Madoff and his chief financial officer, Frank DiPascali, directed the defendants to use their computer skills to produce other false documents designed to deceive the SEC. The agency brought similar charges against the men on Friday in a parallel civil complaint.

In what the SEC called "a crisis of conscience" in 2006, O'Hara and Perez deleted 218 of the 225 special programs from the House 17 computer, and withdrew thousands of dollars from their own accounts with the firm, authorities said.

Comment: You know that IT guys had to be behind perpetuating the fraud. Jail time needed for those guys. By the way ... where was the audit department? Risk management? Etc.

Archway, phony sales & Wachovia

Oh, No! What Happened to Archway?

Excerpts:

SITTING in his office late one evening in April last year, Keith Roberts, the director of finance for the Archway & Mother’s Cookie Company, stared in shocked silence at the numbers on his desk.

He knew things had been bad — daily reports he had been monitoring for six months showed that cookie sales at the company had been dismal. But the financial data he was looking at showed much more robust sales.

“Where on earth had all of these sales come from?” Mr. Roberts recalls thinking to himself.

Tired, but intrigued, he began digging through orders and shipping and inventory records until, well after midnight, he reached the conclusion that Archway, based in Battle Creek, Mich., was booking nonexistent sales.

He reasoned that sham transactions allowed Archway, which was owned by a private-equity firm, Catterton Partners, to maintain access to badly needed money from its lender, Wachovia. Mr. Roberts’s investigation eventually caused Wachovia to pull its financing lines, helping to push Archway into bankruptcy last fall.

...

Wachovia, for instance, provided tens of millions of dollars in loans and lines of credit backed by assets to Archway despite the fact the company had not had a formal independent audit of its financial statements in three years.

Comment: What was missing? An independent audit!

Petters: red flags unheeded

Petters Co.: Many watchers, but no one watching

Excerpts:

Among the red flags that went unseen or unheeded: fake inventory statements, dummied invoices, millions of dollars wired to an office next to an Excelsior car wash, suspicious bank account activity and Petters himself, a flamboyant executive trailing decades of lawsuits over bad debts.

But apparently authorities suspected nothing until a Petters executive, Deanna Coleman, approached federal investigators in September to accuse her longtime boss of fraud and to cut herself a deal.

...

Petters Company Inc., the investment arm central to the alleged fraud, was run by a small group operating separately from the Petters Group Worldwide holding company. But they shared the same building in Minnetonka, and Tom Petters was their sole director. Both companies were placed into a receivership last month after a federal judge found probable cause to believe that more than $3 billion had been bilked from investors.


...

What is known is that key Petters companies appear to have been operating without the most basic of business documents -- the certified financial statement, or annual outside audit. A certified financial statement is prepared by an outside public accounting firm. It's considered a basic stamp of credibility. Privately owned businesses aren't required to have them, but financial professionals insist that no prudent investor or lender would do business with a company lacking them.

...

The professional rules of conduct governing both in-house accountants and lawyers don't require them to go outside the company to report illegal activity if they see it. The rules simply require them to report wrongdoing up the internal chain of command. Nonetheless, Neil Hamilton, who teaches legal ethics at the University of St. Thomas law school, said accountants and lawyers have a fiduciary duty to the public.

Comment: Board members of private organizations (churches, non-profits, and private businesses) should demand full auditing of all financial records. For churches: full audited financial statements (income and expense and balance sheet) should be provided members; For non-profits: full audited financial statements (income and expense and balance sheet) should be provided to supporters / donors; etc.

The crooked way to raise one's credit score

What’s Behind Those Offers to Raise Credit Scores

Excerpt:

For a $1,399 fee, TradeLine adds the borrower’s name to a stranger’s recently paid-off loan just before the account is closed. The account, with its perfect payment history, is then added to the borrower’s credit record in 30 to 45 days.

Ted Stearns, chief executive of TradeLine Solutions, said he came up with what the company calls its “seasoned primary accounts” program using a “loophole” in the law. Adding a single account can raise a credit score by 35 to 40 points, he said. But most clients purchase three accounts, at $1,399 for the first one and slight discounts for subsequent ones, to increase a score from say 560 to 700, he said.

The program’s concept, he said, is similar to someone’s buying a car and taking over somebody else’s car loan or lease account at the time of purchase — except, in this case, there is no balance on the account. The original borrower is unaware that a new name is being attached to the account, he said. Mr. Stearns defended his program. “I am a legal entity that conducts business throughout the state of California and the entire continental U.S.”

But Craig Watts, consumer affairs manager at the credit analysis firm Fair Isaac Corporation, said the program raised red flags.

“They’re falsifying the person’s credit history, and that’s one definition of loan fraud,” Mr. Watts said. Even if TradeLine has found a legal loophole to offer the program, the people using the program are knowingly raising their credit scores artificially when applying for a loan or refinancing, he said, adding, “If the borrower is deliberately misrepresenting himself and his credentials to the lender, that’s loan fraud.”

Comment: This legal “loophole” is fraud!

Florida Fish Fraud

Something's fishy in Florida restaurants

Excerpts:

Gonzmart, whose family has owned the Columbia restaurant in Tampa's Cuban-American Ybor City section for four generations, won't serve grouper, because he can't be sure he is getting the real thing from his suppliers.

Many restaurants in Florida have been caught passing off Asian catfish, tilapia or other cheaper species as grouper. Fake grouper is by far the biggest food-misrepresentation problem Florida inspectors handle.
...
In the Miami area, inspectors walked into a food processing plant and found workers taking 6,000 pounds of Vietnamese catfish that sells wholesale for about $2.50 a pound and repackaging it as grouper, which goes for about $6 wholesale.

And that hurts fishermen like Michael Athorn. He and his three-man crew spend up to 12 days 60 to 70 miles from shore in the Gulf of Mexico, trying to reach the 6,000-pound catch limit for grouper, which has to be caught on individual hooks.

Back on shore he has often found restaurants advertising grouper and putting something else on a plate.


Comments: Kathee and I have eaten at Columbia in Ybor City. Minnesota has had our own fish fraud: Walleye or Zander? What Are You Really Eating?

The old fake $1M bill trick!

Man Tries to Deposit Fake $1M Bill

Excerpt: The federal government has never printed a million-dollar bill!

Comment: And if it ever did ... it would catch a lot of attention!