Category: Fraud

Sports Nutritionist Bulked Up at Texas Tech’s Expense

March 14th, 2005

A sports nutritionist hired by Texas Tech University to obtain nutritional supplements for the football team — and then for athletes in other sports at the school — received a 33-month term of imprisonment on March 11 for defrauding the University out of almost $500,000. Aaron Shelley was hired to work at Texas Tech in 2000 as the Director of Sports Nutrition — and you didn’t think big time college sports programs cared about their athletes — and promptly began a scheme to line his pockets. According to a press release (here) issued by the U.S. Attorney’s Office for the Northern District of Texas (Lubbock):

During his employment at Texas Tech University, Shelley conspired to and carried out two schemes to defraud Texas Tech University by over-billing the athletic department for nutritional supplements provided to athletes. The first scheme involved Shelley receiving kickback payments from Muscle Tech of Lubbock, a nutritional supplement store located in Lubbock, Texas. The later scheme involved Shelley over-billing through a "shell" corporation, Performance Edge, Inc. The fraudulent, over-billed amounts from both schemes totaled $497,145.19.

That is an awful lot of nutritional supplements, but then this is for a school in the Big 12.(ph)
If You Can’t Trust a Poll

March 11th, 2005

Everyone reads reports about surveys and political polls as if they were gospel, but what if the pollster is taking liberties with the data? An indictment returned in the District of Connecticut presents that very scenario involving DataUSA Inc . (now called ViewPointUSA Inc.), which has been charged along with its owner (Tracy Costin) and a manger (Darryl Hylton) with conspiracy and wire fraud for providing political and business clients with falsified data. The indictment alleges that employees were told to speak with cats and dogs for information. The company’s website (www.datausainc.com) has the following statement: "DataUSA upheld the highest standards in data collection as demonstrated in the excellence of our data. DataUSA’s predictions of voting behavior and consumer behavior routinely reflected to be within 1% to 2% of actual behavior. We are proud of the quality data collected and want to thank you for teaming with DataUSA and for your support over the years."

A press release by the U.S. Attorney described the allegations:

According to the Indictment, DATAUSA INC. (“DataUSA”) conducts surveys and political polls for numerous clients throughout the United States. The surveys or polls are conducted through the use of computers and telephones. COSTIN, the owner and director of operations for DataUSA, was charged with conspiracy to engage and engaging in a wire fraud scheme to defraud clients of DataUSA by falsifying and fabricating survey results. According to the Indictment, both COSTIN and HYLTON, a DataUSA manager, and others not named in the indictment, engaged in a scheme to defraud by unilaterally instructing DataUSA employees to alter survey data and to fabricate surveys and otherwise falsify their contents in order to meet job quotas and deadlines. The Indictment charges the defendants with falsifying survey data by instructing employees to alter the gender and political affiliation of the interviewees. In addition, the Indictment also charges the defendants with falsifying survey results by altering data on survey responses originally taken by DataUSA employees after the surveys were completed.

Maybe some of the pollsters who predicted a Kerry victory finally have someone else to blame — dogs are notoriously liberal. (ph)
After-the-Fact Mailings for Mail Fraud Prosecution

March 8th, 2005

An area fraught with contradictory opinions in mail fraud prosecutions concerns whether mailings that occur after the defendant gains the benefits of the fraudulent scheme are sufficiently "in furtherance" to bring the case within Section 1341. A recent Fourth Circuit decision, United States v. Pierce (here), involves a 2-1 decision in which the majority found mailings reporting sales of bingo lottery tickets after they had been taken and cashed be sufficiently part of the scheme to meet the mailing element (I’m loath to call it the jurisdictional element because it is really more than that) for the federal prosecution. The dissent argued that the sales reports were unrelated to the fraud. A footnote in the majority opinion explained the different approaches:

The dissent argues that the mailings at issue here — the daily reports of bingo sales — did not further Pierce’s fraudulent scheme because "[t]he fraud was effectively concealed when Pierce and Hoss II made their oral reports to Linda Pierce each night but omitted their sales from the off-the-books games. The fact that Linda Pierce wrote the sales down and later mailed a report is unrelated to furthering the fraud because all that was necessary to further the fraud had already occurred." In fact, Linda Pierce’s reporting to Wright — an agent of the victim of the fraud — was necessary to conceal the fraud because it kept Wright from suspecting any misconduct in the bingo operation. These mailings "help[ed] cloak the scheme with an aura of legitimacy, thereby preventing its detection and allowing it to continue." Indeed, it was the use of the mails in this case — reasonably foreseen by Pierce — that allowed the fraudulent scheme to continue undetected for more than two years and allowed Pierce to retain the fruits of his fraud during that period.

Cases on the mailing element are so fact-specific, and test from Schmuck so vague ("incident to an essential part of the scheme"), that it is difficult to draw much guidance from them, with each side arguing that its facts are sufficiently similar to a previously decided case in its favor that should control the decision.(ph)
What Charles Ponzi Did

March 7th, 2005

For the historical-minded readers, here is a link to a short article on what Charles Ponzi, whose name is routinely invoked to describe a wide variety of scheme’s to fleece investors out of money, actually did to gain such lasting fame. His fraud involved promises of a 40% return in 90 days for investors, a common thread in investment scams in which what looks too good to be true usually is. (ph)
Scam Targets Libraries

February 22nd, 2005

The volume of information any decent-sized university library must maintain, and the number of providers selling that information on a daily basis, has led to a developing scam involving fake claims that targets university libraries, according to an article in the Chronicle of Higher Education (here). Telemarketers are calling libraries demanding payment for items they claim were ordered, and threatening lawsuits if not paid immediately, even though the library never ordered the information. They even submit false invoices, hoping that they will get lost in the shuffle and be paid without the library checking the bills carefully. Libraries are like any organization that does a large volume of business with multiple vendors, but with university budget cutbacks, the costs of any fraud are felt by a large number of students and faculty. (ph)
Ebbers Trial Coming to a Close

February 21st, 2005

The importance of Scott Sullivan to the government’s case is clear as the prosecutors told the court that they expect to end their case-in-chief on either Tuesday or Wednesday and will not be calling any more witnesses from the company. Sullivan was the principal witness used to establish Bernie Ebbers’ involvement in the fraud, and the cross-examination included repeated references to Sullivan’s lies and misstatements, including a discussion about whether what he said in a conference call constituted "B.S." It did not, however, include any discussion of marital infidelity — an issue that was probably used by the defense more as a red herring than anything else. U.S. District Judge Barbara Jones refused the government’s request to call a former WorldCom employee who lost almost their entire retirement savings when the company collapsed, calling the testimony repetitive — an attempt to end the case on an emotional note that had little to do with the charges against Ebbers except in the most general sense. An AP story here discusses the conclusion of the cross-examination of Sullivan.

The interesting question will be whether the defense even puts on any witnesses, and if it does, whether they will only be character witnesses to discuss Ebbers’ general niceness and disinterestedness in things related to accounting. I still think it will be a surprise if Ebbers testifies because the case hinges more on Sullivan’s credibility, and Ebbers could do more harm than good if he testifies. We’ll know by the end of the week. (ph)
U.S. Attorney White Paper on Procurement Fraud

February 21st, 2005

The U.S. Attorney’s Office for the Eastern District of Virginia issued a white paper on Feb. 18, "Combating Procurement Fraud: An Initiative to Increase Prevention and Prosecution of Fraud in the Federal Procurement Process." The district is home to the Pentagon and, more importantly, thousands of government defense consulting firms in Crystal City, Rosslyn, and Alexandria; the revolving door spins rather quickly in D.C. The recent scandal involving Boeing (see previous post here) that led to the sentencing of the company’s former CFO and a senior Air Force procurement officer has led to a large-scale initiative by the U.S. Attorney’s Office, which is already well-known for the Ill-Wind investigation of the 1980s. The white paper discusses the reasons for the formation of a new Procurement Fraud Working Group:

In addition to increasing DoD contracts, these contractors are expanding operations to acquire and service contracts from the State Department, DHS, and other federal agencies. For example, the President and Chief Operating Officer of one of DHS’s top ten contractors recently announced the company’s intent to grow 15 per cent each year. With increased procurement, including a rise in the outsourcing of particular services, there is also the potential for an increase in procurement fraud, which includes product substitution, defective pricing or other irregularities in the pricing and formation of contracts, misuse of classified or other sensitive information, labor mischarging, accounting fraud, fraud involving foreign military sales and ethical and conflict of interest violations. This puts the United States Attorney’s Office, as chief law enforcement agency for this district, in a unique position to act.

(ph)
Conviction in Mortgage Fraud Case

February 17th, 2005

Bill Rankin of the Atlanta Journal Constitution reports on a conviction of a former lawyer in "a $20 million mortgage fraud operation called the largest of its kind in metro Atlanta." When the indictment was handed down, the U.S. Attorneys Office for the Northern District of Georgia stated that this defendant:

"owned and operated The McFarland Law Firm located first at 4820 Redan Road, Stone Mountain, Georgia, and later at 900 North Hairston Road, Stone Mountain, Georgia. She acted as agent for title insurance companies, and was the closing attorney for various lenders. MCFARLAND caused HUD-1 Settlement Statements (HUD-1s) to be signed certifying that she received and disbursed loan proceeds as reflected on the HUD-1s when she closed mortgage loans for various lenders on the properties for which she wrote title insurance, with the actual McFarland receipts and disbursements not as reflected on the Settlement Statements. The indictment alleges that McFarland paid the identity thief $10,000 per identity, the primary appraiser who inflated property values over $400,000, and other coconspirators from her escrow account without reflecting such payments on the settlement statements."

(esp)
“You ought to go down fighting.”

February 11th, 2005

These is just something irresistible about the quotes that emerge from the parallel accounting fraud trials of Bernie Ebbers in New York and Richard Scrushy in Birmingham, Alabama. In the HealthSouth case, former CFO Bill Owens completed his eighth day on the witness stand (time sure flies by when you’re having fun) and the government finished its direct examination by playing the last of the six audio tapes Owens made over a two-day period in March 2003. A short time later, the FBI executed a search warrant at HealthSouth’s headquarters, after which the board relieved Scrushy of his CEO position. Among other things, the tape recording has Scrushy telling Owens, "You’ve got accountants signing off on all this. You’ve got everything set up. You’re smart, Bill, but you’ve got to lead your troops. I’ll do whatever you want me to. I think you ought to go down fighting, Bill. You ought to go down fighting." While this statements is potentially nefarious, Scrushy’s comments are not the proverbial smoking gun, and he is likely to testify to explain what he meant — no doubt with lots of martial and sports references thrown in to complete the picture. The cross-examination of Owens has begun, and expect him to testify well into next week. An AP story here discusses the testimony and tapes. (ph)
“The most impeachable witness ever to hit a witness stand.”

February 11th, 2005

Scott Sullivan, former CFO of WorldCom, continued his testimony tying Bernie Ebbers to the accounting fraud at the company. Sullivan recounted how WorldCom entered negotiations with Verizon Communications Inc. in 2001 about a possible merger, but Ebbers ended the talks because due diligence by Verizon likely would have revealed the fraud. Sullivan said that Ebbers used WorldCom’s low stock price as the reason for calling off further negotiations. While Sullivan asserts that Ebbers knew about the accounting fraud at the company, the lack of documentation for that claim remains an issue in the government’s case. The cross-examination of Sullivan by Reid Weingarten, Ebbers’ lead counsel, will likely begin next week, and the effort to fulfill Weingarten’s prophecy about the impeachability of Sullivan will be tested. An AP story (here) discusses Sullivan’s continuing testimony. (ph)