Audit Malpractice Defense: Four Key Issues
When a major fraud is discovered in a company, one of the key targets of litigation is usually the independent auditors. Two well-publicized cases in which management or shareholders suing the auditors after fraud was uncovered involve Koss Corp. (auditors Grant Thornton) and Navistar International Corp. (Deloitte & Touche).
Plaintiffs look to the auditors for potential recovery since the auditors typically have deep pockets and large insurance policies. Auditors (and their attorneys) need to know how to defend themselves in these suits. Naturally, the auditors recognize that audits are supposed to provide reasonable assurance that the financial statements are fairly stated.
Auditor Malpractice: How to Sue an Audit Firm and Win
Last week, Reuters printed an interesting and enlightening interview with Steven Thomas, the managing partner of Thomas, Alexander & Forrester … an attorney known for suing large auditing firms for malpractice… and winning!
Recent big wins include $520 million and $130 million judgments against BDP Seidman, on behalf of Espirito Santo and Batchelor Foundation, respectively. Auditors Ernst & Young (E&Y) and KPMG have been on the losing sides of large cases, and Deloitte, E&Y, KPMG, and McGladrey & Pullen are all current defendants.
So how does Thomas (or any plaintiff’s attorney) win a case against an auditing firm when there is a sizeable fraud (such as the Koss Corp. embezzlement) or the collapse of a Ponzi scheme (such as the Bernie Madoff case)?
Unraveling a Ponzi Scheme: Forensic Accountant Needed
It has become commonplace to hear news stories of Ponzi schemes being uncovered. Investment scams and Ponzi schemes are all too common. Investors are lured in with promises of high returns. People in or nearing retirement find these investments enticing, especially as their retirement funds in the stock market have taken many hits in the last few years.
As I wrote in my book Expert Fraud Investigation: A Step-by-Step Guide, investors are becoming victims of these scams despite the proliferation of information available about phony investment schemes and the dire warnings given regularly by news reporters. Perpetrators of investment schemes dream up stories explaining their unusually high rates of return on money, and get high net worth people to invest with them. Often these people are investing their entire savings with scammers.
Groupon: Problems With Customer Loyalty and Marketing Costs
Prior to Groupon’s IPO last year, I wrote a few articles that were critical of the company. In one of my articles, I noted problems with loyalty of customers and merchants:
- It’s expensive to get new customers. Sure, a large email list is nice. But how much does it cost to get people on it, and more importantly, how much does it cost to get buying customers on it?
- Only about 21% of subscribers have purchased a Groupon since January of 2009. The company has nearly 143 million subscribers, but less than 30 million of those have actually made a purchase. Worse yet, only 16 million (or 11%) are repeat customers, buying more than one Groupon since January of 2009.
Female Forensic Accountant: Does Gender Matter to Your Lawsuit?
Are you seeking a female forensic accountant or fraud investigator to be an expert witness in your case? Do you think a woman on the team might be helpful if your case goes to a jury trial? Are you looking for diversity that may appeal to a wide range of jurors? Does it really matter?
I don’t care much about the gender of my clients, and most of my clients don’t seem to care much about my gender. Almost all of my work comes from attorneys (on behalf of their individual or corporate clients), and most often I am dealing with someone at the partner level. Because of this, my clients are overwhelmingly male.
Ponzi Scheme and Investment Fraud Red Flags
Charles Ponzi
How do you know if you’re considering investing in a Ponzi scheme? The promoters will never come out and tell you they are running a pyramid scheme, so the investors have to be smart enough to recognize them on their own. The good news is it is easy to spot a Ponzi scheme.
Now I don’t mean that it’s easy to prove in a court of law that something is a Ponzi scheme. In a civil or criminal case, there are certain standards of proof that need to be met. But you’re not a court. You’re simply an investor. Whether you have $10,000 to invest or $10 million to invest, your money is probably pretty important to you.
Divorce Financials: Lifestyle Analysis in Family Law Cases
This article was originally printed in the ABA Section of Family Law eNewsletter, November 2011.
One of the chief concerns in a divorce or child custody case is identifying the true income of one or both of the parties. It is not unusual for such a case to include allegations of hidden income or assets. It is common for a closely held business to suspiciously encounter declining sales and profits following the filing of a family law case.
In each of these instances, properly determining the income of the party is critical to getting a fair and equitable settlement, maintenance award, or child support award. Until you have the correct numbers, the attorney may find it very difficult to decide what is fair or in the best interest of the client.
Article at CFO.com: Investigating a Compliance Failure
How to determine the right mix of expertise for a fraud investigation.
By Tracy Coenen, Contributor to CFO.com
It’s every CFO’s worst nightmare: despite your best efforts, your company’s compliance program has failed. There are credible reports of fraud and corruption inside the company, and an initial analysis of the situation confirms a problem. An internal investigation is necessary to determine the magnitude of the fraud, the parties involved, and the company’s financial and reputational exposure under government regulations.
How should you proceed? These investigations are often high stakes, so it is important to do things the right way from the start. In-house counsel should be involved in any situation involving allegations or evidence of fraud. Once executives have sufficient reason to believe the allegations are credible, they should involve outside counsel as well.
Inline Marketing Scam: Same MLM Scam, Different MLM Name
Through the years, multi-level marketing companies and MLM distributors have played a clever game of changing the wording to hide the truth. MLM activities have been referred to as direct sales, dual marketing, network marketing, multilevel marketing, consumer direct marketing, affiliate marketing, seller assisted marketing scams, home-based business franchising, and referral marketing. (Skeptics refer to this “business model” as pyramid selling, pyramid schemes, pyramid scams, endless chain recruiting, and Ponzi schemes.)
Why all the names? To confuse potential customers and recruits. These companies know negative impressions are associated with multi-level recruiting and sales. So if they can change the name, maybe they will get to people who would otherwise be turned off by the name MLM.
Don’t Believe Tax Reduction Commercials
You hear the commercials on television and radio almost daily: We can reduce your tax debt to pennies on the dollar. The charlatans claim they can help get rid of your IRS debt and state income tax debt. Who they’re really helping is themselves…. to your wallet.
Probably the most well-known tax debt reduction professional was Roni Deutch, known as “The Tax Lady.” Her firm purported to provide help to clients with Offer in Compromise needs, IRS installment agreements and Currently Not Collectible tax accounts. Unfortunately, it appears Roni took a lot of money from people and provided them little or no help in return.
