Tracy Coenen discusses the early stages of a financial investigation related to a divorce. When evaluating the finances of a business, Tracy explains what to look at first and how those items are analyzed.
How can income be calculated in a divorce case when a spouse refuses to produce documentation or is suspected of concealing sources of income? One way is through the Net Worth Method of Proof, which is used to analyze income and assets when detailed documentation is not available, either because the opposing spouse is obstructing efforts to get data and documents, or because data and documents are legitimately not available.
This method of determining income is used by the federal government in criminal income tax cases. Because it is accepted in federal criminal cases, family courts often will accept this as a reliable method for calculating income.
A detailed analysis of expenditures is performed using any documentation available. Each expenditure for the period under review is captured from bank, brokerage, and credit card statements, and each item is categorized so that totals can be accumulated for the period under analysis.
It has been almost four years since the massive fraud committed by Sujata Sachdeva against her employer, Koss Corp., was uncovered. A year after the discovery, Koss sued Park Bank for failing to find the fraud. The company says that Park Bank should have known that a fraud was occurring when Koss employees with proper authority withdrew funds from the Koss bank account and had Park Bank make out cashier’s checks with the funds. Koss says that Park Bank should have realized that the endorsements on the cashiers checks did not match the payees. (For example, a cashier’s check made out to N.M. was endorsed by Nieman Marcus.)
If you know anything about fraud, you know how absurd these claims are. It is the company’s responsibility to prevent and detect fraud. This is not the first time that the company made silly claims against parties it was suing in order avoid taking responsibility for Michael Koss’s own mismanagement of the company. Mind you, the company was sanctioned for its own part in the fraud, including lack of oversight, inadequate accounting controls, failure to reconcile accounts, and failure of Michael Koss to review figures before certifying the financial statements.
There are four widely recognized methods of calculating income in family law cases. These four methods have been developed for use by the Internal Revenue Service in calculating unreported income in tax cases, and are the primary ways a lifestyle analysis can be completed.
Specific Items Method
One of the most straightforward ways to complete a lifestyle analysis is through an analysis of specific items of income. This method is possible when there are substantial documents detailing cash inflows, and is considered a “direct method” of verifying income.
Income-related information is gathered from bank and brokerage statements, tax-related documents, and business records. Inflows are identified and summed, theoretically verifying the income disclosed in the family law case. This method is easy to understand and present, which makes it an attractive option for evaluating claimed income. The court will easily be able to understand how income was calculated.
There is an awesome provision in Obamacare (thoroughly inappropriately named the Affordable Care Act) that will allow anyone who receives a subsidy to scam the system.
Here’s how it works: Pay your subsidized premium for one month, then stop paying. Under the law, you must continue to be covered for three additional months, referred to as the grace period. That’s buy one, get three free!
I’m sure the intent behind this was good. If someone unexpectedly loses a job and can’t pay the health insurance premiums, the family is still covered. However, it’s obvious that this provision will be abused extensively. There is no way to differentiate between those who legitimately cannot pay, and those who choose not to pay.
Tracy Coenen talks about what it is like to testify at trial as an expert witness.
Today Citron Research released a report on the fraud being committed in China by Nu Skin Enterprises. NuSkin is a multi-level marketing company based in Utah, and it trades on the New York Stock Exchange under the symbol NUS. This report is a follow-up to an August 2012 report in which Citron revealed its basis for alleging that Nu Skin was perpetrating fraud in China.
Citron first points out how dependent on China Nu Skin is. In the second quarter of 2012, revenues from China were $57 million. In the second quarter of 2013, Nu Skin’s China revenue grew to $197 million. That’s a 245% increase. Without the China revenue, NuSkin’s year-over-year growth would be negative.
An expose was published in China on NuSkin. A translation of the page can be found here. The article accuses Nu Skin of running a pyramid scheme, using endless chain recruitment to bring new marks into the fraudulent business opportunity. Distributors are encouraged to buy inventory in quantities they will never sell, all to move up in the pyramid and qualify for commissions. (Incidentally, this is the same way that Mary Kay Cosmetics has been successful.)
Almost four years ago, I wrote an article for AOL’s Daily Finance site about the Securities and Exchange Commission witch hunt against Mark Cuban.
The SEC filed insider trading charges against him in 2008 after he sold 600,000 shares of stock in Mamma.com. They said that he was insider trading because he sold his shares after receiving information that there was going to be another offering of stock by the company.
Mark Cuban didn’t ask for the information on the stock offering. It was provided to him because the company wanted him to invest more money. He didn’t want the information, and he knew that it would devalue the stock he already held. So Cuban declined and sold his stock. The stock then dropped in value, and in ran the SEC.
Spousal support and child support can be calculated using a number of different factors. The relative importance of the factors may be laid out in local rules, but often the factors are simply listed and defined with little other guidance. Considerations may include:
- The actual earnings of each person, including wages, investment income, and other sources of income
- The earning capacities of each party, both independently and relatively
- Future earning capacities of the parties
- The value of the assets divided, and the ability of those assets to produce income
- The cash flow of each party
On September 18, 2013 a cease and desist order was filed pursuant to the Security and Exchange Commission’s investigation of Medifast Inc. (Medifast’s business includes Take Shape for Life, or TSFL, which is its multi-level marketing division.) Medifast materially overstated income and understated expenses from 2006 through 2009, according to the SEC. This has resulted in the cease and desist order, and has Medifast paying a $200,000 penalty to the government.
You may recall that Medifast sued several people (including me) in 2010 for criticizing their business model and business practices.
One of the issues in the lawsuit was the criticism of Medifast’s auditors, Bagell, Josephs, Levine, and Company.The criticism of the auditors was grounded in a 2008 PCAOB report on an inspection of six of BJL’s audits, which turned up audit deficiencies in three of them. In 2010 Medifast switched auditors.