Category: Fraud

Facebook and Twitter Get Used in a Penny Stock Scam

Before we can get into this particular penny stock scam, it would be wise to define the penny stock scam for the uninitiated. It’s a pile-in, financial porn pump and dump. These particular crooks decided to take to Twitter and Facebook to get new fish to buy into their easy to fill 2×1 matrix. Since Twitter is inundated with all level of bizarre MLM bots and pyramid scheme tweet spam, it’s easy to see how an effective a tool it can be in perpetuating financial fraud.


The Manhattan DA’s office says 11 of the 22 participants used Twitter feeds and websites to lure “investors” (read the fine print, people) to buy a bunch of cheap stocks they’d artificially inflated. They made off with $3 million and “investors” lost $7 million.

I use the word “investor” loosely. If you’re getting your stock picks from some spammy Twitterfeed that isn’t even run by a human being (or solely from one who is, so far you aren’t required to register with the SEC to talk about stocks on Twitter) maybe you had it coming. So far we haven’t seen the offending tweets, if you know where to find them let me know.

Penny stock scams are not limited to Twitter and even former SEC lawyers have been convicted of using them to take advantage of gullible “investors.” Like this guy, who brought civil cases against white collar criminals for 15 years in Fort Worth and ended up getting 8 years in federal prison for his pump and dump activities. It’s unclear if he used social media in his crimes but if he came from the SEC, chances are he’s more into porn than Twitter.

Filed under: doing it wrong

Facebook & Twitter used in stock fraud: U.S. prosecutor [Reuters]

Koss Demands Sue Sachdeva’s Help Winning Their Civil Case Against Sue Sachdeva

The least convicted embezzler-cum-recovering shopaholic Sue Sachdeva could do is help out the company that she ripped off to the tune of $34 million.

Despite how Suz feels about it, her lawyers do not want her to be deposed in Koss’s civil case against her and Grant Thornton until after she is sentenced to prison for the rest of her worthwhile shopping days. Doing so would jeopardize putting her back at Nordstrom’s sooner than they would like:

Sachdeva anticipates receiving a two-level decrease in the federal court sentencing guidelines by accepting responsibility for her actions, her Madison attorney Jack Williams said in court documents filed last month. She reached a plea agreement on the charges in July.

“Submitting to a deposition could jeopardize Mrs. Sachdeva’s opportunity to receive that decrease,” Williams argued.

Koss Corp. vehemently opposes Sachdeva’s motion on the grounds that she needs to cooperate not only with prosecutors in her criminal case, but also with her former employer in its efforts to win a civil judgment against her and former Koss auditor Grant Thornton LLP.

Sachdeva tries to delay her deposition in Koss suit [The Business Journal of Milwaukee (partial subscription required)]

Sue Sachdeva Guarantees That She’ll Be Able to Watch It’s the Great Pumpkin, Charlie Brown a Free Woman

And the World Series too!

Maybe we’re unfairly assuming that Suze is a fan of the Peanuts gang or baseball but what else is going on in between October and November 18th? A few Badger football games?

Koss Corp. embezzler Sujata “Sue” Sachdeva will get a one-month reprieve on her sentencing after requesting, and receiving, an order from U.S. District Court Judge Lynn Adelman.

Adelman said in a brief order that federal prosecutors did not oppose Sachdeva’s request to adjourn the sentencing to Nov. 18 from the previously scheduled Oct. 18.

Koss’ Sachdeva gets sentencing reprieve [Business Journal of Milwaukee]

Release of Satyam Founder Ensures That No Progress Will Be Made in the Investigation for the Foreseeable Future

We’re getting used to this.

Chances of a speedy resolution to l’affaire Satyam receded on Wednesday with the Andhra Pradesh high court granting bail to the company’s founder and former chairman, B. Ramalinga Raju, freeing, albeit temporarily, the last of the accused in a corporate fraud that came to light in early 2009 with Raju’s confession and whose magnitude has since doubled to a claimed `14,000 crore.

Raju’s release is a setback for India’s federal investigating agency, the Central Bureau of Investigation (CBI), which is yet to produce him in court in person. Arrested on 9 January 2009, Raju has been undergoing treatment for Hepatitis C at Nizam’s Institute of Medical Sciences, Hyderabad.

On 16 August, he retracted his confession in the trial court by responding in the negative to questions posed by the court about the fraud. The burden of proof for Raju’s fraud now rests with CBI. And now, he is out on bail—for two sureties of `20 lakh each.

India’s minister for corporate affairs Salman Khursheed insisted that Raju’s release would not “hamper the ongoing investigation”.

Satyam case weakens with Raju’s release [Live Mint]

Bernie Madoff’s Former CPA Is No Longer a CPA

In a formality that serves as the proverbial cherry to achieving his “Worst Auditor Ever” status, David Friehling was officially stripped of his CPA by the New York Department of Education.

The Office of Professional Discipline voted on July 19th to take away the most coveted letters in the accounting profession from the convicted “auditor.” LoHud quotes part of the decision issued by the state, “When each opinion was issued (Friehling) knew that no audit or any examination had been conducted of said financial statements.”


Obviously the OPD made the right decision here but it begs the question: what the hell took so long? Call us impatient or simply devoid of tolerance for a slow moving bureaucracy but it’s not like this one was a toss-up. Do these Professional Discipline folks only meet semi-annually? Were the waiting out the possibility of SCOTUS overruling the conviction a la Andersen?

But never mind that. Friehling has to be devastated with this latest setback. All that studying for nothing! He took the written CPA exam, people. Some of you are familiar with that particular bit of torture but for you younger CPAs, believe us when we tell you that it’s no picnic.

Plus, that CPA jail-tattoo he was looking forward to getting on his neck simply won’t have the same meaning.

Bernard Madoff’s New City accountant loses CPA license [LoHud]

The Restatement That Never Ends: KPMG Hasn’t Received Necessary Docs for Satyam

Back in June we told you about Satyam requesting just a wee bit more time to nail down their restatement of their financial statements. It wasn’t because KPMG and Deloitte weren’t working their asses off, it was more of commitment to get things right. Putting good numbers out there, repairing broken trust, so on and so forth.

Well! The three month extension ends next month but as you might expect, there’s a bit of a problem. More specifically, KPMG is now saying that they haven’t received the documentation necessary to finish the job. Unless everyone is okay with some wild-ass guesses, in which case they can proceed.

[F]or all its documents, KPMG had to depend on the [Central Bureau of Investigation (“CBI”), which is investigating the scam.

NDTV has learnt that KPMG’s analysis of the documents don’t match with the CBI’s. There is a discrepancy between the two which amounts to over [$200 million].

CBI has based its calculations on estimates of Satyam’s assets and liabilities while KPMG says they need documentation to base their estimates.

KPMG says that they didn’t get all the documents needed to make a clear assessment which is why the accounts are likely to be re-stated full of riders.

But again, if you’re cool with some double-entry hocus-pocus, that can be arranged. There’s a merger at stake after all, “This confusion in the numbers could hold up Satyam’s merger with Tech Mahindra, which needs the go ahead from market regulators in India and the US, since Satyam is also listed in the US.”

Good luck getting that U.S. approval.

Satyam accounts restatement: KPMG’s analysis differs with CBI’s [NDTV]

If Your Accountant Marries a Stripper, Should You Assume There’s a Ponzi Scheme Behind It?

Not that it’s impossible for an accountant to score a trophy wife – a former Scores Dancer, no less – but observers of accountant/business manager-cum-Ponzi Schemer du jour (allegedly!), Kenneth I. Starr are pretty confident that it was a decent sign of things going in the wrong direction.

Vanity Fair’s article on “not that Ken Starr” gets a lot of perspective from people that knew Starr, including Blackstone co-founder, Pete Peterson, ” Did something in the way of a profound midlife crisis trigger this behavior?”

But of course, there are people that are more forthright:

Like a Greek chorus, his shocked clients pointed as one to the lavishly endowed Diane, for whom, the indictment notes, Starr purchased more than $400,000 of jewelry from bling jeweler to the rap world Jacob Arabo. “When your business manager marries a stripper,” says one rueful client, “that’s a tell.”

All The Best Victims [Vanity Fair]

Sue Sachdeva Pleads Guilty, Shopaholism Still a Possible Motive

Well gang, the Sue Sachdeva circus has come to an unspectacular end. S-squared pleaded guilty yesterday to the $30-odd million embezzlement at headphone factory Koss. No trial, no media circus (the type we envisioned anyway) and no spectacular cross-examination that could have resulted in a great Law & Order Brewtown spinoff.

Nope. Just a guilty plea, some regret from Suz and the distinct possibility that something might not be right upstairs. Although the MJS reports, “when asked whether she had any mental health issues. [Her attorney, Michael] Hart answered for her, saying there were no issues of mental health that prevented her from understanding the government’s case or the plea agreement,” her statement alludes to some “issues” that led to the thieving:


Sachdeva Release

So while the Sachdeva portion of this program is more or less over (sentencing is October 22), we still have the Koss v. Grant Thornton blamestorming to look forward to. Which will be a for more nerdy exchange but could result in some fun finger-pointing, nonetheless.

Sachdeva pleads guilty, says she regrets fraud [Milwaukee Journal Sentinel]

Convicted Forensic Accountant Lew Freeman Will Be Damned if You Think You’re Getting His Suits

Miami’s go-to forensic accountant-turned Ponzi Schemer Lewis Freeman was sentenced to eight years in prison earlier today. While that’s clearly an embarrassment for him and his family (he reportedly told his kids, “I know you’re smart enough not to follow … the horrible example I set for you.”) the man does have a shred of dignity left.

He still has plenty of friends who think that his charity work should have been enough to keep him out of the slammer altogether. Sam Antar – who did the exact opposite metamorphosis – isn’t impressed by this:

It’s hilarious how many people are supporting this guy. As the criminal CFO of Crazy Eddie, I used to do good deeds such as walking old ladies across the street, too. However, my so-called good deeds never made me any less of a cold-blooded criminal.

Good deeds are used by criminals to build walls of false integrity around themselves to increase the comfort level of their victims and to gain an outpouring of support, if they ever get caught.

But on a more superficial level, Lew Freeman was a dapper fellow. So don’t even begin to think that you’ll be getting your filthy mitts on the man’s fine threads.

[Freeman] spent his final moments of freedom Friday saying goodbye to family and stripping down to his jogging shorts before dozens of people in a Miami federal courtroom….“He didn’t want to give his suit to the authorities,” said Freeman’s attorney, Joseph DeMaria. “It was his idea.”

Freeman sentenced to eight years [South Florida Business Journal]

Koss Files Restated Financial Statements, Just in the Nick of Time

As you may recall, restated financial statements for headphonesmith company Koss were due yesterday and they used all the time they were allowed.

According to our friends aty filed its restated 10-K for June 30, 2009, and 10-Qs for September 30, 2009, December 31, 2009 and March 31, 2010 5 pm, 5:06, 5:11, 5:16 and 5:17 respectively.

Oh and they topped everything off with an 8-K at 5:27 that explains the barrage (not that we need it but, you know, securities law and stuff):

On June 30, 2010, Koss Corporation (“Koss”) released restated consolidated financial statements for the fiscal years ended June 30, 2009 and 2008, and the quarter ended September 30, 2009. Koss filed amendments to its Annual Report on Form 10-K for the fiscal year ended June 30, 2009 and its Quarterly Report for the three months ended September 30, 2009 containing the restated consolidated financial statements for the applicable periods. The restatements were required as a result of previously disclosed unauthorized transactions by Sujata Sachdeva, Koss’s former Vice President of Finance and Principal Accounting Officer.

Koss also amended its Quarterly Reports on Form 10-Q for the three months ended December 31, 2009 and March 31, 2010 to include financial statements, which were omitted from the Company’s reports when previously filed. The release of these financial statements was delayed due to the restatement of Koss’s financials statements required by the unauthorized transactions. With the filings of these amended Quarterly Reports on Form 10-Q, Koss understands that it will regain compliance with Nasdaq Listing Rule 5250(c)(1), which requires the timely filing of periodic financial statements.

That about covers it, doesn’t it? Oh right, the actual numbers. We checked in with forensic sleuth and GC friend Tracy Coenen on these and she gave us some perspective on the restated numbers:

So I’ve taken a run through the restated numbers for 6/30/09 and 6/30/08. Very interesting.

2009 – Revenue was understated by $3.5 million to conceal the fraud, while COGS was overstated by $1.7 million. Overall there is now a loss for 2009, thanks to $8.5 million of theft, but without that, the company would have had profits of $8.2 million, or 19.6% on net sales. Wow!

2008 – Revenue was understated by $2.1 million to conceal the fraud, while COGS was overstated by $1 million. Overall there is now a loss of 2008 of $1.3 million thanks to $5.1 million of theft, but without that, the company would have had profits of $10.7 million or 21.9% of sales.

Pretty impressive stuff. Maybe the company was right when they said everything would be hunky-dory once they got this little mishap out of the way. Chief headphone inheritor Michael Koss explains in the company’s press release, “Given that certain unauthorized transactions were concealed in the Company’s sales and cost of sales accounts, our sales were higher and our cost of sales was lower than previously reported in both 2009 and 2008. This correction has revealed an increase in gross margins for our Company. From this perspective, the Company’s performance was actually stronger than originally reported.”

Tracy continues:

What you see is that 65%-75% of the theft on an annual basis was concealed on the P&L, and the remainder was dumped into the balance sheet, via inflated A/R, Inventory, and fixed assets, and understated liabilities. The adjustments on the balance sheet are large by 2009 because those irregularities were cumulative.

So the bottom line is that the company is very profitable, if shareholders could actually count on them to watch over the money and see to it that the profits aren’t all being stolen. My original theory was that Sachdeva was expensing her theft, and that’s true to some extent, but failure to record sales was presented to me later as part of her her scheme, and she also involved the balance sheet which created a cumulative (and messy) problem.

Oh right! Watching the money. Should probably write that one down. Hopefully we’ve all learned a valuable lesson.

Toys R Us Accountant Will Probably Not Have Much Success Asking Hookers to Return Stolen Money

Back in fall we mentioned a run-of-the-mill whore-supporting accountant that pleaded guilty to ripping off Toys R Us to the tune £3.7 million. Paul Hopes is described as a ‘Walter Mitty character’ by the Telegraph who can now fantasize about what Oz character he is, now that he’s spending 7 years in prison.

Hopes got more bad news recently as he learned that he has to repay £3.36 million of the £3.68 million from Geoffrey.

If he fails to repay the money, he see his sentence more than doubled with an extra 10 years in prison.

The court heard that Hopes, an “accounts payable manager” at the retailer, diverted regular instalments of £300,000 to an account of a fictitious toy manufacturer which he controlled.

He named the fund Dunbar Associates after a prostitute with whom he had become besotted and to whom he eventually handed a total of more than £1.5 million pounds.

He spent at least £2.4 million of the money he stole on five female escorts in all.

That’s a bitch about the additional 10 years if doesn’t repay. But we’re sure that he placed the remaining £900k into a safe, no-load mutual fund so he’ll be able to at start paying at least part of it back ASAP. The sensible accountant in him had to have made one decision with stolen money.

As for the rest of it, we don’t know how successful Johns are at getting refunds in circumstances such as these but if those girls were 100% satisfaction guaranteed, he’ll have to explore other options.

Toys R Us accountant ordered to pay back £3.4m after escort girl fraud [Telegraph]