Hedge Fund Manager Indicted in $88 Million Fraud Scheme

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Federal charges were filed against former hedge fund manager John Wittier of Hailey, Idaho, for a securities fraud scheme that created losses of $88 million. He has been charged with one count of securities fraud, one count of failing to make an SEC filing disclosing the beneficial interest of 5% or more in a publicly traded security, and two counts of failing to make anSEC filing disclosing the beneficial interest of 10% or more in a publicly traded security.

Whittier was the founder, operator, and manager of Wood River Partners, L.P. and Wood River Partners Offshore, Ltd. He also owned and controlled Wood River Capital Management, LLC, the investment advisor for the hedge funds.

It is alleged that he falsely represented to investors that he would pursue a broad investment strategy with no investment constituting more than 10% of the hedge funds’ holdings. Whittier then failed to make required public filings that would have disclosed his concentrated holdings in Endwave Corporation. Wood River Partners and Wood River Partners Offshore held about 80% of the common stock of Endwave. Disclosure is required when ownership exceeds 10%.

Whittier invested about 85% of his investors’ $127 million portfolio in Endwave stock. Clearly, this was not the diversification he promised to investors. A significant drop in Endwave’s stock price caused the value of Wood River’s hedge fund portfolio to drop, triggering margin calls which Whittier was unable to fulfill. Brokers liquidated the hedge funds’ positions, and by October 2005, Whittier and the hedge funds were out of business. Total losses to investors equal about $88 million.

Coca-Cola ex-secretary found guilty in trade secrets case

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Joya Williams, the Coca-Cola secretary who was accused of steading trade secrets from Coca-Cola and plotting to sell them to Pepsi, has been found guilty of conspiracy. The jury deliberated for 11 1/2 hours before reaching a verdict.

Williams was the secretary to Coca-Cola’s global brand director until the allegations of trade secret theft. It was alleged that she stole samples of not-yet-released products, and gave them to Ibrahim Dimson and Edmund Duhaney to sell to Pepsi. They were hoping to get $1.5 million for the samples.

Duhaney testified that Williams came up with the scheme. The prosecutors said Williams’s motivation was deep debt, unhappiness in her job, and a desire for a big payday.

The defense said that Dimson and Duhaney actually stole the samples and related documents from Williams’s home without her knowledge, and came up with the scheme to sell the items to Pepsi on their own. Williams testified that she left a key under her doormat for one of the defendants, and that is probably how they got in the house.

She says that she had the samples and documents at home to protect herself in case her boss questioned whether or not she was doing her job. Williams also claimed that $4,000 cash she deposited into her bank account days after Dimson received $30,000 cash from an undercover FBI agent, was actaully a loan from a friend. The friend testified that the most he ever loaned her was $400, and that was after she was arressted in this case.
Williams faces up to 10 years in prison. Dimson and Duhaney have both pleaded guilty and are awaiting sentencing.

More on resume fraud

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Yesterday I mentioned that the research staff at the Association of Certified Fraud Examiners (ACFE) published some interesting facts about r?sum? fraud. The staff points out some ways to detect and prevent this type of fraud:

Records of education rather than degrees:

  • Applicant emphasizes everything about her or his education, except the actual degree that was awarded. Typically, the actual degree is omitted from the r?sum?, like this: Boston University, School of Communication, 2002-2005
  • Ask the applicant about the education, specifically the degree. Consider having the applicant sign a release of transcript form so the employer can get the transcripts directly from the college.

Gaps in employment:

  • Look for gaps in employment, especially when an applicant prints only years or seasons (rather than actual dates), which may be an attempt to cover up that gap.
  • Inquire about the gaps to determine if they are due to a legitimate reason like the birth of a child, or some other problem like incarceration.

Frequent job change:

  • Look closely at “job-jumpers,” who might be problem employees.

Vague description or exaggeration of job duties:

  • Applicants often exaggerate their prior job duties in an attempt to look like a highly qualified candidate
  • A vague description of job experience might indicate she or he actually has little experience in that area
  • Ask the applicant to talk about work situations and experiences related to that area, to help determine if she or he has legitimate experience.

Weak references:

  • The most reliable references are former employers
  • References should be researched a little to verify that they are legitimate

In closing, the ACFE research staff recommends background checks as permissible by law.

Resume fraud?

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The Association of Certified Fraud Examiners (ACFE) recently published an interesting piece on r?sum? [tag]fraud[/tag]. I have always been amazed how often in my [tag]fraud examination[/tag] practice I’ve found that perpetrators of fraud also lied on their r?sum?s. I’m not so amazed that they lied, rather that the employer didn’t verify the r?sum? before hiring the person.

Believe it or not, it is quite easy to purchase a fake degree and a fake set of transcripts. The ACFE research staff cites a price of $295 to purchase a Juris Doctorate from Yale!

Research suggests that 40% of r?sum?s contain lies, and only a small number of these will be detected prior to hiring. With the increase in degree mills, this number could easily grow.

ACFE cites a few newsworthy incidents of r?sum? fraud:

  • In 2001, Notre Dame.s head football coach, George O.Leary, was fired following evidence that he lied on his r?sum? about having a master.s degree from New York University, and having played football for the University of New Hampshire.
  • In 2001, the Boston Globe revealed that Pulitzer Prize-winning historian, Joseph Ellis, had exaggerated his involvement in the Vietnam War. He was suspended from his teaching position at Mount Holyoke for the following year.
  • In 2002, Veritas Software announced that its executive vice president and CFO, Kenneth Lonchar, left the company following evidence that he did not have an MBA from Stanford University, contrary to what his r?sum? stated.
  • In 2002, Charles Harris, the athletic director at Dartmouth University, suddenly resigned after it was found that he did not have a master.s degree from the University of Michigan, contrary to what his r?sum? stated.
  • In 2002, the president of the U.S. Olympic Committee, Sandra Baldwin, admitted to lying about having a PhD in American literature from Arizona State University.

Tomorrow I’ll discuss some tips ACFE gives for detecting and preventing r?sum? fraud.

Dell Accused of Kickbacks and Improper Accounting

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An investor group has filed a lawsuit in U.S. District Court in Austin, Texas against Dell Inc., accusing the company of improper accounting practices as well as taking kickbacks.

The lawsuit alleges that Dell has been inflating its profits by hundreds of millions of dollars due to this scheme. It is alleged that Intel was giving Dell up to $1 billion per year in “secret” and “likely illegal” kickbacks to ensure that Dell continued to use only Intel chips in its computers. It is also alleged that Dell was misleading investors about significant problems with accounting, quality and customer service. Continue reading

Lying through his teeth? (Pun intended. Read on.)

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In true consumer fight-back style, Ellen Fein has started a website to criticize Dr. Larry Rosenthal. Ellen is one of the authors of the book “The Rules”, while Rosenthal calls himself the “Dentist to the Stars.”

Ellen claims that Rosenthal botched her dental work on her website lyingdentist.com. She says on the site that she had veneers put on her top teeth and was happy with those. When she returned to Rosenthal to get her bottom teeth done, she says he gave her “gigantic” teeth and he altered her bit. Both, she claims, have caused her pain and countless medical problems.

Rosenthal has filde a $5 million lawsuit against her, alleging that Ellen has been harassing him and trying to get $100,000 from him because she’s unhappy with the dental work.

State Officials Encouraging Illegal Immigrants to Skirt the Laws

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According to an article in the Janesville Gazette, Wisconsin officials conducted a class to help illegal immigrants understand how to get a drivers license before April 1, 2007. On April 1, those applying for licenses or renewing licenses must have proof of legal residency. Up until then, such proof is not necessary, therefore illegal aliens can easily get drivers licenses in Wisconsin. Continue reading

Quixtar (Amway) Sued For Being an Illegal Pyramid Scheme

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From Robert FitzPatrick of Pyramid Scheme Alert:

In a crucial development that could rock the entire multi-level marketing business, a class action lawsuit has been filed this month against Quixtar (Amway) charging that the company is running an illegal pyramid scheme. (filed in US District court in the northern district of California on January 10, 2007, case number 3:07-cv-00201-EMC.)

The charges against Amway/Quixtar go to the very heart of the company’s business practices and most other multi-level marketing (MLM) schemes’, that there is no retail “direct selling” opportunity, only an endless chain recruitment program.

The charges are being brought by one of America’s most prestigious law firms, Boies, Schiller and Flexner. David Boies of this firm represented Vice-President Al Gore in front of the US Supreme Court in the world famous case, Gore vs. Bush that contested the vote counting in Florida after the 2000 election. The other firm partnering with Boies, Schiller & Flexner in the suit is Gary, Williams, Parenti, Finney, Lewis, McManus, Watson, & Sperando, P.L.. in Stuart, Florida. This firm has a powerful track record of successful class action suits against large companies.

The suit is based on the very same charges that the Federal Trade Commission has brought against Equinox, SkyBiz and other MLMs that regulators shut down. The suit charges that the Quixtar program . based upon selling products to recruits “for personal use”, then authorizing them to recruit others to do the same while requiring or incentivizing them to maintain quota levels of monthly purchases, and then rewarding them in a multi-level compensation system . is a fraud. The suit also attacks Quixtar’s infamous “tools” business as a second pyramid scheme perpetrated on new recruits. The “tools” scheme was exposed in a 2004 special report on NBC Dateline.

Using Quixtar’s own payout data a report published by Pyramid Scheme Alert has shown that 99% of all Quixtar recruits never earn any profit. In the report, “The Myth of MLM Income Opportunity,” the 99% loss rate was shown to be caused by the pyramid recruitment model and the lack of retail sales, not the “failure” of the recruits.