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Fraud
Investigations: Important Mistake to Avoid
If or when your organization finds
itself having to deal with a fraud case, one thing NOT to do is to
immediately involve your chief executive. Key reasons:
• Senior managers aren’t objective in most fraud cases, since, if
they’re not involved directly in the crime,
they at least have a vested interest in minimizing damage to the
company’s reputation and therefore are prone to gloss over key evidence.
• Heads of companies are often too emotional because they feel
“violated.”
• Most senior executives have never been involved in a fraud
investigation. When they involve themselves in management of a fraud
investigation, they risk putting the organization in an even worse
financial position by wasting time on the investigation that they should
spend on managing.
White-Collar Crime Fighter source:
Tracy Coenen, CPA, CFE, Sequence Inc., Chicago-based fraud
investigation and forensic accounting consultants, www.sequence-inc.com.
Tracy is author of the new book, Essentials of Corporate Fraud (Wiley).
She can be reached at
tracy@sequence-inc.com.
Case Study: Company Owner’s Tangled Web of Bogus Personal Guarantees
Cons Bank into $6.1 Million Loan
Albany, NY.
U.S. Secret Service Special Agent Leonard Johnson described to a federal
grand jury a scheme orchestrated by Steven Shaw, former owner of Tougher
Industries, to obtain a loan for the company on the strength of a thick
file of phony personal financial statements.
Details: According to Agent Johnson, Tougher Industries, a
heating, ventilation and air conditioning firm,
was in difficult financial condition. To obtain much-needed cash, Shaw
applied for a $6.1 million loan with
Berkshire Bank in Albany, NY. To meet the bank’s requirement for Shaw’s
personal guarantee, Shaw allegedly…
• Submitted a “Confidential Personal Financial Statement,” with the
notation, “Prepared by Hartford Financial Services LLC, NY, NY, James J.
Cusick, Senior VP.”
Investigators learned that Mr. Cusick had left Hartford Financial more
than three years prior to the alleged preparation of the Shaw financial
statement.
• Submitted to Berkshire Bank a “Bermuda Commercial Bank Limited
statement…for account number 7976161AU81-914…” Bermuda Commercial Bank’s
Compliance Officer told Berkshire Bank that the account referred to in
the statement never existed.
• Provided to Berkshire Bank a document entitled “Smith Barney Citigroup
statement for account number 653-39219.”
A Smith Barney Vice President later stated that Shaw did not own the
account and that the financial statement submitted to Berkshire Bank
“could not be authenticated.”
• Submitted a document to Berkshire Bank entitled “American Funds
Statement for account number 65083364…”
A broker for American Funds later stated that Shaw did not own the
account and the financial statement was a fake.
According to Agent Johnson, Shaw also threw in copies of completely
fictitious federal income tax returns for the years 2003 and 2004.
Surprising: On the strength of this collection of phony
documentation, Berkshire Bank approved the loan in June 2006 and
disbursed the funds shortly thereafter to Tougher Industries.
Bigger problem: Once he had control of the ill-gotten
funds, Shaw promptly used them to pay off an existing loan owed to
another bank and to pay off personal and business expenses. He then
filed for Chapter 11 bankruptcy protection for Tougher Industries.
Shaw was arrested and pleaded not guilty to fraud and embezzlement
charges in connection with the case.
According to the U.S.Attorney’s office, he faces up to 53 years in
prison and $1.53 million in fines.
“Smishing”: Safeguard Your PDA Data
“Smishing” is similar to key logging
cyber-attacks that plant malicious software on PCs that then record and
transmits the victim’s on-line typing—including entries of usernames,
passwords and personal identifying information. With smishing, though,
the target devices are PDAs, not PCs.
Important: Smishing—a term derived from the more familiar “phishing” but
describing attacks using SMS text messages often sent via Instant
Messaging to trick users into downloading the malicious software—is
relatively new. But it is likely to grow as more and more people acquire
PDAs and store sensitive personal and company data on them.
Self-defense:
• Avoid clicking on links within text messages, E-mails or attachments
from anyone you don’t know.
• Avoid downloading free games, screensavers and music files onto your
PDA.
• Avoid clicking within the body of suspected Spam.
White-Collar Crime Fighter sources:
• Jon McDowall, CFE, PCI, CIFI, CEO of Fraud Resource Group,
consultants providing fraud prevention and training services,
www.fraudresourcegroup.com.
• McAfee Inc., computer security product and service providers,
www.mcafee.com.
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--
Peter Goldmann
Editor & Publisher
White-Collar Crime Fighter
213 Ramapoo Rd.
Ridgefield, CT 06877
203-431-7657
203-431-6054 (fax)
