Tag: Ponzi Schemes

Luxembourg Court Ruling Nullifies Madoff Investors’ Claims Against Ernst & Young, UBS

Of course the investors are appealing but one win at at time, amiright?

The suits were filed in the fall by investors who lost millions in the LuxAlpha Sicav-American Selection fund which had 95% of its fund invested with Bernie Madoff. The fund claims that it had $1.4 billion in net assets a month prior to Madoff’s arrest.


UBS acted as the custodian while E&Y was the auditor and were sued for “seriously neglecting” their supervisory duties for the fund. Investors in the fund filed more than 100 lawsuits against the two companies.

Luxembourg’s commercial court said in a ruling today concerning 10 test cases that investors can’t bring individual lawsuits for damages. The court said it’s up to the liquidators of the funds that invested with Madoff to seek the “recovery of the capital assets.”

In other words, UBS and E&Y, you’re going to get sued by Irving Picard de Luxembourg rather than 100+ pissed off individuals whose life savings went *poof*. Setting legal precedent aside, taking emotion of the equation works wonders for making an argument.

UBS, Ernst & Young Win Bid to Block Madoff Lawsuits [Bloomberg BusinessWeek]

Earlier:
Ernst & Young Is Thankful for Lawyers, Possibly Toblerones

Bad News: Forensic Accountants Are Crooks Too

Allegedly of course! Despite our best wishes for a forensic accountants to be fraud-busting crusaders that pursue truth, justice and all that crap, this corner of the profession is not immune from shiesty characters.

Lewis Freeman, “Miami’s go-to forensic accountant”, has been charged with embezzling $2.6 million from his clients. The Miami Herald is reporting that Lew has pleaded not guilty but is planning to change his plea to guilty “within a few weeks” while his attorneys try to negotiate a lighter sentence. The Herald also reports that two other employees of his firm, including the CFO, will be charged as co-conspirators in the case.


When you think about it, this really exposes Freeman as not being a very smart guy, just smarter than the people he was ripping off. As criminal mastermind Sam Antar told us in an email, “Lewis Freeman may have been considered ‘Miami’s go-to forensic accountant’ but he was not a very bright guy. He simply took old money from his client’s trust accounts and replenished it with new money. As a forensic accountant, he should have known that ultimately such Ponzi schemes end up collapsing over time.”

Despite this, Freeman was able to carry on the scheme for approximately a decade, swindling up to 250 victims.

Wondering what this latest development meant in terms of fraud involving forensic accountants, Sam told us, “Forensic accountants turned white collar criminals present a real challenge for law enforcement, since they (excluding Lewis Freeman) are far more sophisticated in their knowledge of anti-fraud measures and are more innovative in exploiting weaknesses in internal controls than the common white collar criminal.”

And don’t worry, they’re out there, “Freeman is probably not the only forensic accountant turned Ponzi schemer out there. The smarter and more sophisticated one’s have not been caught yet,” Sam said. Got it. Suspect everyone.

We first mentioned Lewis Freeman last fall when his firm was under investigation by the FBI and that his firm briefly served as the Chief Restructuring Officer for the Palm Beach Funds that were part of the Tom Petters orgy of fraud.

The bright side is we can’t foresee any scenario where the image of accountants gets worse.

Miami’s ‘go-to’ forensic accountant pleads not guilty to fraud [Miami Herald]

Preliminary Analytics | 12.29.09

Thumbnail image for PettersSmile.jpg• AP: Ponzi collapses nearly quadrupled in ’09 – Thimble-dick Bernie, Allen Stanford, Tom “Cocker Spaniel” Petters, all did their part. [via HuffPo]
• The First Annual Jr Deputy Accountant Year in Review Awards (or some h*t) – Somehow we ended up on this list and somehow JDA managed to make it a backhanded compliment (we think). [JDA]
• Koss financial records will get more scrutiny in 2010 – With comments from Tracy Coenen at Fraud Files. [Milwaukee Journal Sentinel]
• The Man Who Wired Silicon Valley – How Raj got the world by the short and curlies. [WSJ]
• GM Plans Pontiac Fire Sale – “GM sent letters to dealers Dec. 23 saying it would pay them $7,000 for every new Saturn or Pontiac on their lot that is moved to rental-vehicle or service-vehicle fleets operated by the dealers.” So yes, they’ll seem extra pushy. [WSJ]
• The Big Zero – As in the decade we’re finishing up. Prof. Krugman also quotes Diet Coke fiend Larry Summers stating that GAAP was the most important innovation in history and that it allows investors to make good decisions. According to PK, also a big zero. [Paul Krugman/NYT]
• Spurious academic study of the day, Tiger Woods edition – Ball-parking investors’ losses due to TW’s cheating ways is not so easy, nay, ridiculous. [Felix Salmon/Reuters]

Allen Stanford Won’t Be Home for Christmas

stanford10.jpgDespite Allen Stanford all but flipping out Judge David Hittner isn’t feeling it, denying his request to be released from prison while awaiting trial.
Stan’s attorney was shocked — SHOCKED! — that the judge was in such a cavalier mood with his client’s well-being:

“The issues we raised were real, as well as legally and factually compelling,” attorney Kent Schaffer said in an e-mail today. “I am surprised that we were shot down so abruptly and without a response from the government or a hearing. I am not sure how Allen will be able to participate in assisting in his own defense and, the truth is, he probably won’t be.”

Stanford is scheduled to go on trial in January 2011 which will probably seems a helluva lot longer if you’re slowly…coming apart…at the seams.
Stanford won’t be released, judge rules [Houston Chronicle]

Tom Petters Sounds Pretty Guilty on Tape

Thumbnail image for petters_plane.jpgIt’s been just under two weeks since convicted Ponzi boy/swashbuckling industrialist Tom Petters was convicted in his trial and it’s all but off the RADAR of everyone. Unfortunately, we stumbled across the following audio this morning featuring Tom Petters, his part-time lover/executive and government witness Deanna Coleman, and their fellow conspirator Bob Coleman.
It sounds like some Fargo-esque plot gone terribly wrong without the visual of William H. Macy in that ridiculous hat.
It’s pretty clear from where we stand that a jury of cocker spaniels would have found Petters guilty just based on this recording, although we don’t get the ultimate money shot of “this is one big fucking fraud”.
Plenty of interesting moments including lots of talk about lies, money, more lies, Bob White’s “goddamn good imagination” and a flurry of “fucks” right at the end from TP. You do get the feeling that no matter how hopeless TP sounds, he somehow thinks it will all work out. Hindsight!
Around the 10 minute mark is when Petters first starts losing it and around 13:51 he remembers the good old days when “we laughed about it”. This should convince the last of you “Free Tom Petters” hold-outs. Enjoy.

Preliminary Analytics | 12.09.09

Tim_geithner.jpg• Geithner Said to Be Seeking TARP Extension Until Next October – Timmay is expected to scribe a letter to Congress letting them know about the little extension. [Bloomberg]
• Standard Chartered Sees No ‘Material’ Impairments in Dubai – Let’s remember this for future reference. [WSJ]
• Lessons Lost – Gary Weiss links to GC in his remembrance of Enron. Does anyone else remember Enron? [Portfolio]
• Obama’s Stimulus II – BO wants to help small business by letting them “eliminate capital gains taxes on the sale of small firms, allow them to continue to expense capital investment, and give them tax breaks for hiring new workers.” Sounds nice but Howard Gleckman says, “It’s a bit like throwing a drowning man a 64-inch flat panel TV. He might love to have one, but not right now.” [Tax Policy Center]
• U.S. SEC Sues to Freeze Assets Of ‘Ponzi Scheme’ – Rockford Funding Group LLC, come on down! [DealBook]

Tom Petters Is Not a Bentley Guy

Thumbnail image for petters_plane.jpgSwashbuckling cocker spaniel Tom Petters has managed to keep his focus the last few days, testifying in his trial for his alleged $3.5 billion Ponzi scheme.
His cross-examination by Assistant U.S. Attorney Joe Dixon included several interesting exchanges including Petters admitting that he was the ‘heart and soul’ of PCI despite his claim of being duped for fifteen years by his office manager/confidante/lover, Deanna Coleman and Robert White, his former CFO. Dixon also accused of Petters of getting drunk on the super-happy-fun times he was having as a captain of industry:

Dixon moved to a line of questioning meant to show Petters used investors’ money to support his other businesses and lifestyle.
Dixon asked about Petters’ ownership of a Bentley, his use of corporate aircraft and homes on Lake Minnetonka and in Florida.
“You wanted the life of a corporate tycoon,” Dixon said.
“No, others wanted me to have that life,” Petters said, his voice rising. “I did not want the life of a corporate tycoon. Absolutely, I didn’t want that.”
Petters said his friend Dean Vlahos, a founder of the Champps and Redstone American Grill restaurant chains, bought him a Bentley as a gift.
“I didn’t want a Bentley,” he said. “I’m not a Bentley guy.”

See? Tom Petters was thrust into this swashbuckling lifestyle by others. The man can’t finish a book if his life depended on it, he can’t possibly be this titan of capitalism. He would’ve been perfectly happy driving a late 70s Oldsmobile Cutlass around on fumes with the headliner completely torn out. In fact, he would’ve preferred that.
Prosecutor jabs, Petters takes to ropes [Minneapolis Star-Tribune]
More GC Coverage of Tom Petters:
Even as the Doors Were Being Busted Down, Tom Petters Was Sure Everything Would Be Fine
Tom Petters Was Pretty Sure He Was Going to End Up in a Dumpster Somewhere
Ernst & Young and McGladrey & Pullen Both Have a Petters Problem

‘Swashbuckling Industrialist’ Tom Petters Is Going to be Responsible for Putting Senior Citizens on the Street

petters_plane.jpgFor those of you that were maybe developing a soft spot for Tom Petters because, among other things, his own lawyer doesn’t think too much of him, the latest testimony in TP’s trial should help squash your sympathy.
Janet Leck, a 79 year old widow, was convinced by Frank Vennes, Jr. — an evangelist who “steered unwitting investors to [Petters]” — to invest her money with Tom Petters. At one point Vennes, apparently having reconnected with the Almighty, told Leck that he was ending his business relationship with TP because of ‘things he was seeing in Mr. Petters’ personal life’ and was returning her money.
Now, one could assume that Vennes was getting the creeps from Petters because either: 1) he realized that Petters was a complete man-child that couldn’t finish a copy of Go Dog Go! or 2) typical hooker/llelo chicanery.


Two years after dumping Petters for his sinful ways, Vennes decided redemption was in order (or, most likely, he just missed the hookers) because he went back to TP and got the Lecks to invest with him again:

She re-mortgaged her home and drew out $190,000 in equity to invest with Petters, she said. Leck said she relied on the $3,400 monthly payments from that loan for living expenses until September 2008, when authorities raided Petters’ home and business looking for evidence that he was running an alleged $3.5 billion Ponzi scheme.
Now, unless she can restructure her mortgage, Leck said, “I’m looking at foreclosure. …I will move from my home of 30 years.”

In other overwhelmingly convincing testimony, investment banker Michael Liss described Petters, “as a ‘swashbuckling industrialist’ who had an arsenal of ‘ridiculous’ excuses for not paying his debts on time.”
Ridiculous excuses like, “Do you treat your other swashbuckling industrialist clients this way?” or “I’m busy ripping off senior citizens. Do you mind?” OR “My ass is going to end up in dumpster any second, sorta busy.”
Petters trial: Retired widow fears losing her home [Minneapolis Star-Tribune]

Madoff Auditor Pleads Guilty, Solidifies ‘Worst Auditor Ever’ Status

That’s not an official title but if you’ve got suggestions for someone else, please, enlighten us.


Reuters:

He told the court that he did not conduct any independent auditing or verification of financial statements or tax returns provided by Madoff and “others” at Bernard L. Madoff Investment Securities LLC in New York.

Friehling did not state who the ‘others’ were but the U.S. Attorney hinted that we’ll get to know sometime. For now, Friehling is a free man, out on $2.5 million bond until his sentencing which is tentatively set for February.

He faces up to 114 years in prison but similar to Madoff’s chief bald-faced liar, Frank DiPascali, his cooperation should result in a lighter sentence. And by lighter we’re guessing that means he’ll still leave prison horizontally.

Madoff Accountant Pleads Guilty [WSJ]

LandAmerica: Victims of Bad Marketing or Ponzi Schemers?

RG-1031.jpgEditor’s note: Adrienne Gonzalez is founder and managing editor of Jr Deputy Accountant as well as regular contributor to leading financial/investment sites like Seeking Alpha and GoldmanSachs666. By day, she teaches unlicensed accountants to pass the CPA exam, though what she does in her copious amounts of freetime in the evening is really none of your business. Follow her adve and CPA-wrangling on Twitter @adrigonzo but please don’t show up unannounced at her San Francisco office as she’s got a mean streak. Her favorite FASB is 166.
There’s nothing we appreciate more than a really juicy tale of crappy auction rate securities, fire sales ignored by regulators, and bankruptcy when the scam runs out, especially when the perps happen to be audited by a Big 4 firm you may have heard of (there are only 4, just throw a dart).
Excuse our bad grammar and run-on sentences, we just don’t know where to start with this.
More, after the jump


Once upon a time not that long ago when a tarp was just something you brought camping, LandAmerica was at the top of the 1031 exchange game. That entire story is a tad too long for today’s 140 character attention span so let’s fast-forward to the part where there are even entire forums dedicated to discussing why regulators missed LandAmerica. In short: LandAmerica exchangers are pissed off.
To get a hint at just how pissed off, take a peek at what the forum has to say:

Then LandAm files Bankruptcy proceedings on their 1031 subsidiary, saying: “…you 1031 clients of ours are ‘…going under the wheels of the Bankruptcy bus” because “we” made bad decisions in $290 million ARSs. Wow! a $300 million “wash.” A “Back-Door” merger without the “toxic” ARS funds. LandAm1031 clients get hosed!

Burn! Those are some wild accusations, is it fair to spit such venom at LandAmerica?
Well… um… yeah, actually. And LandAmerica has due diligence to blame Fidelity has due diligence to thank.
On November 24th, 2008 LandAmerica went into free-fall after Fidelity announced that it would be pulling out of the tentative deal (subject to final due diligence). Given the BBB mark of the beast by Fitch shortly thereafter, LandAmerica slumped off to bankruptcy court. Meanwhile, those who found themselves at the short end of LandAm’s 1031 exchange stick started getting letters from the IRS while their money was off in SunTrust accounts getting killed by illiquid auction rate securities without their knowledge. You’d think more people would be discussing something that involves millions of misappropriated investor dollars but who are we to judge?
As with most (alleged) Ponzi schemes, the “scheme” escapes detection until the money runs out. And when Fidelity backed out of the LandAmerica deal, LandAmerica had what can only be called a Madoff Moment.
Making this saga even better is, that for some completely bizarre reason that escapes us, the Richmond Fed has decided to hire LandAmerica’s former legal counsel Michelle Gluck to serve on their team as Chief Legal Officer (perhaps they are taking a cue from the Fed Board of Governors who hired an ex-Enron PR girl awhile back?). We truly love hate to wildly speculate here but this goes against logic, which we are generally used to seeing from Richmond Fed President Jeffrey Lacker and his bank. “With her broad range of leadership experience and extensive legal expertise, I know she’ll make great contributions to the Bank and to the Federal Reserve System,” he said of his new hire.
So what exactly is Richmond trying to do here? With credentials like that, I’m only slightly concerned now.
We’ll let you know if we ever figure that out. The SEC couldn’t be bothered to comment about it and reminded me why I don’t like picking up the phone.
We did however speak with one angry LandAmerica creditor who has a lot of questions and no answers and we’d be happy to update you with his comments as the investigation unravels. Oh wait, who said there was an investigation? Could someone kindly forward this to the SEC? Some of us have a day job.

Stanford Goes to the Bullpen

r.jpgThe task of keeping Allen Stanford out of hell no longer falls on Dick DeGuerin. Clearly DeGuerin didn’t appreciate his client’s crusade to vindicate his name and reputation because he couldn’t even get the guy A/C.
Robert Luskin, a managing partner at Patton Boggs now gets the honor of leading Sir Al’s defense team. At the rate things are going, we’ll handicap the over/under on the number of attorney changes prior to 2010 at 4. Any takers?
Allen Stanford replaces criminal defence lawyer [Reuters]

Allen Stanford Can’t Get Anything Accomplished Under These Conditions

stanford10.jpgIt’s bad enough that Allen Stanford can’t get out of jail in order to properly prepare his defense but now he’s dealing with what may be a preview of what happens if he’s found guilty of running a Ponzi scheme.
It’s bad enough that there isn’t any cricket coverage in prison but the walking gun show has complained about day to day annoyances like the lack of air conditioning in his prison cell, which he shares with 8 to 10 of his closest friends and also a power outage which likely prevented him from reading How to Win Friends and Influence People (The Prison Edition).
Sir Allen discovers there’s no air conditioning in jail [FT Alphaville]