Check it out here.
(esp)
Category: Fraud
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Video Highlights of Aaron Beam, co-founder of HealthSouth, speaking at the Association of Certified Fraud Examiners here. As noted on the webpage written by Dick Carozza (editor of Fraud Magazine), "Beam pleaded guilty to bank fraud." He served "three months in federal prison in return for his testimony against former HealthSouth Chief Executive Officer Richard Scrushy."
(esp) (w/a hat tip to Gary Zeune)
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As noted here, the SEC's release of the executive summary of the Madoff Report (Investigation of Failure of the SEC to Uncover Bernard Madoff's Ponzi Scheme) demonstrated that there was no finding of corrupt conduct. But the bottom line was that the ball was dropped on more than one occasion. It is, of course, easy to look back and examine the mistakes made. The 477 page Report, now released, allows that to be done. But as people ponder the sad findings in this report, the more important report and findings that need to now be made – is what to do about all of this to make certain it won't happen again. Clearly the new SEC chair has put into place some measures to allow for better regulations and control. But is this enough? Some thoughts –
- If this had been a company that had missed the red flags, the DOJ would be making them pay a lot of money, institute a more effective corporate compliance program, and probably have monitors in place to make certain that wrongdoing would not occur again.
- Is Madoff no different from the rogue employee who operates improperly and hurts innocent victims (in this case the victims are those who invested, those who benefitted from entities that had invested, and the general public).
- Will there ever be sufficient controls in place without thorough outside monitoring? In the case of corporations, the DOJ typically wants more than a company compliance program and looks for outside monitors to make certain there are no future violations. Should the SEC be held to a lesser standard? No - I am not suggesting that we employ John Ashcroft for this one.
- An Inspector General Report after-the-fact is wonderful, but where was the oversight when this fraud was occurring.
- It is easy to put blame on individuals who may have missed items, but we need to also consider their workload and whether it was reasonable for them to discover this fraud and whether more resources and systems are needed to assure they can properly perform their jobs.
- Clearly it is easy to Monday morning quarterback, especially on a Sunday over Labor Day – but this amount of fraud needs more thought and consideration.
The 477 pages tells us what happened. Now we need to examine the controls in place to assure it will never happen again.
(esp)
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The investigation into what happened that allowed a Bernie Madoff fraud to exist is now complete and the bottom line is that there was no corruption on the part of SEC personnel. But the sad fact is that the ball was dropped on more than one occasion. The Executive Summary of the report states:
"The OIG investigation did not find evidence that any SEC personnel who worked on an SEC exmination or investigation of Bernard L. Madoff Investment Securities, LLC (BMIS) had any financial or other inappropriate connection with Bernard Madoff or the Madoff family that influenced the conduct of their examination or investigatory work." ….
"The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed."
Chair Mary L. Schapiro (to my chagrin, the SEC continues to list her as chairman) issued a press release that acknowledges "that the agency missed numerous opportunities to discover the fraud." It is impressive that the agency is recognizing the importance of transparency here, recognizing the importance of learning from past mistakes, and recognizing the importance of putting into place a set of controls that will keep this from happening again.
This is indeed a sad chapter, and one that hopefully will never be repeated. It probably serves little to assist those who were the victims of this fraud, but it does represent the importance of presenting to this country and the outside world that the US is going to crack down and regulate fraud with sufficient scrutiny.
(esp)
Addendum – Amir Efrati, WSJ Blog, A First Look at the Big Ol’ Madoff SEC Report
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Associate AG Perrelli states at the Pfizer Settlement Press Conference:
"today’s settlement reflects the Department of Justice working hard to protect American taxpayer dollars. This case is a great example of the Department’s commitment to fiscal accountability, combating fraud, and returning much-needed dollars back to the U.S. Treasury and state treasuries."
It is good to know that in these days of fiscal downturn, money is being obtained from a company that engaged in conduct disapproved by DOJ. (see here for background) But wouldn't it have been better if the wrongdoing had not occurred in the first place. I have to wonder what the government is doing pro-actively as opposed to re-actively to assure corporate compliance. Perhaps more dollars need to to be spent on "Educating Compliance" My forthcoming article, "Educating Compliance" to be published in Georgetown's American Criminal Law Review can be found here.
(esp)
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The Supreme Court accepted for certiorari the case of U.S. v. Weyhrauch (see here), a case involving honest services mail fraud. The court earlier had accepted for cert another mail fraud case with a different issue (Conrad Black's case here). The Ninth Circuit, in anticipation of the Weyhrauch case, stayed the issuance of a mandate in U.S. v Inzuna. The Ninth Circuit, however, did go ahead and affirm the district court's judgments against two former members of the San Diego City Council. The court adopts what it terms "the majority rule" – "that private gain is not an element of honest services fraud." In so doing it rejects strong precedent coming from the Seventh Circuit. The Ninth Circuit also rejected a requirement to "prove an independent violation of state law to sustain an honest services fraud conviction." There are other issues in the case, such as those related to the Hobbs Act and arguments premised on objections to closing arguments. The key in this case will be how the Supreme Court decides the Weyhrauch case.
U.S. v. Inzuna – Download Honest Services Fraud – US v Inzunza – 9th Cir 9-1-09
See also Kevin Cole, "Strippergate" Appeal, CrimProf Blog here
(esp) (w/ a hat tip to Evan Jenness)
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A press release of Ohio Attorney General Richard Cordray "announced details of an 18-month investigation that led to indictments against 41 people and four companies." The release states that "[t]he defendants are alleged to have engaged in real estate transactions to purchase 453 homes with fraudulent loans totaling $44 million." Although the FBI, US Attorney's Office and Postal Inspector were involved in this investigation, it is interesting to see that the mortgage fraud indictments are being brought at the state level. The press release notes that:
"With funding from the Ohio Attorney General's Office and the Ohio Organized Crime Investigations Commission, the Cuyahoga County Mortgage Fraud Task Force was formed in December 2007. To date, 289 defendants have been indicted for approximately $111 million in fraudulent loans for 812 houses. Of the 812 houses, 616 fell into foreclosure."
(esp)
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DOJ issued a press release concerning an indictment of an individual charged with "conspiring to hack into computer networks supporting major American retail and financial organizations, and [allegedly] stealing data relating to more than 130 million credit and debit cards." The indictment is for the crimes of conspiracy and wire fraud conspiracy. He is accused of using a "sophisticated hacking technique" "which seeks to exploit computer networks by finding a way around the network’s firewall to steal credit and debit card information." Several corporations are said to be the victims. The press release tells that this individual has pending charges from the US Attorney's Office in the Eastern District of NY and the District of Massachusetts. The present indictment is from the US Attorneys Office for the District of New Jersey. Three different U.S. Attorneys Office against one person - well maybe more since it is a conspiracy being charged. It is good to see action being taken in identity theft and computer related cases, but I am wondering why three US Attorneys Office are needed here. Even if there are victims in three different districts, won't one or two prosecutions be enough?
See also Tampa Tribune (AP), Prosecutors: Man tapped into 130 million credit accounts
(esp)
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Following a three week trial, a former Credit Suisse broker was convicted of conspiracy and securities fraud. The DOJ press release from the Eastern District of New York tells how "the scheme was discovered when the market for the mortgage-backed CDOs purchased by the companies collapsed and various auctions for CDO-ARS began to fail." Many frauds are coming to light as a result of the financial downturn.
(esp)
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Nola.com, William Jefferson verdict: Guilty on 11 of 16 counts
Commentary later…
(esp) (blogging from Palm Beach, Florida)
MattBray.net 