Ponzinomics: MLM Fraud and the FTC

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Robert FitzPatrick, president of Pyramid Scheme Alert has written a new book about multi-level marketing and how the FTC allows these pyramid schemes to exist. In PONZINOMICS, the FTC’s Protection of Multi-Level Marketing, he discusses the political interests involved in MLM and the lack of action by FTC officials.

What is “Ponzinomics”? FitzPatrick uses the term to describe the scourge of multi-level marketing, which is nothing more than a pyramid scheme, but has been presented as a viable business opportunity. The government in the United States has gone so far as to protect these criminal enterprises which prey on millions of people each year, using cult-like tactics in furtherance of their pyramid schemes.

The book talks about the lure of the (false) income opportunity and the use of testimonials and the flaunting of wealth to draw people in.  FitzPatrick also discusses the tactics used to draw in new victims, as well as “blaming the victims” when the venture inevitably fails.

I’ll update you here when the book is available.

Identifying and Preventing Corporate Fraud

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Internal fraud is a huge risk to companies. Experts estimate that on average it costs companies 3% to 5% of revenue each year. When profit margins are thin, internal fraud can literally put some companies out of business. Executives are prone to underestimating the amount of fraud that exists within their companies. They want to believe that their internal controls are better, their employees are more honest, and their ability to stop fraud is more effective than that of executives at other companies.

The truth is, they are often unaware of all the frauds committed within their company’s walls. Indeed, fraud is often hard to find and may be hidden among the seemingly more trustworthy employees, those who are necessary for keeping the business running. They are the ones putting companies at risk; they have access to assets and information and the opportunity to steal and cover up fraud. Continue reading

Divorce Red Flags of Fraud

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The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of “red flags” of fraud. A red flag is simply a warning sign or an unusual item or circumstance.

Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something does not feel right, it probably should be investigated.  A client is often suspicious of the spouse even before they are separated. The spouse may even be known to manipulate the money.

Beyond using intuition to determine if something is wrong, there are plenty of warning signs that indicate the finances should be evaluated carefully. These red flags by themselves do not mean that money has disappeared or the finances are being manipulated. But they are signs that an investigation is warranted. Because divorce is so adversarial, it is likely that one or both of the spouses will conceal or manipulate financial facts. Continue reading

MLM is Not Like Corporate America

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One of the common statements made by people in favor of multi-level marketing is that it is just like corporate America. We call MLM a pyramid scheme, and corporate America is a pyramid too! That’s simply not true.

While the SHAPE of the hierarchy of people looks like a pyramid in MLM and in corporate Amercia (one person at the head of the company, a few below, managing several below them, and so on)… that is where the similarities end. Continue reading

Book: Lifestyle Analysis in Divorce Cases

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Tracy Coenen talks about her book, “Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets.” The book was published by the American Bar Association

shares her insight on uncovering financial details to ensure that divorce settlements are fair and equitable. A forensic accountant and fraud investigator, Coenen wrote the book to arm lawyers with a powerful tool when valuing and dividing property in complex divorce cases.

No Such Things as a Good MLM

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pyramid-selling-scamDefenders of multi-level marketing (MLM) will tell you that some companies “do it” right, while some companies “do it” wrong. One such example is John Hempton, a clown who thinks that Herbalife is the greatest thing since sliced bread. He says the following in an article about Nu-Skin:

Disclosure: I am predisposed to believe that multi-level-marketing schemes like Avon, Herbalife or Nu Skin are likely to be good cash generative businesses. I have done much looking at Herbalife and got very long. I do not think a negative interpretation of Herbalife is sustainable. Herbalife’s business is legal, sustainable and will generate vastly more cash in five years. Nu Skin does not lend itself to such definitive opinions. History is littered with MLMs that no longer exist – and a few like Avon, Nu Skin, Herbalife, Amway and Mary Kay which have lasted decades.

The fact that a multi-level marketing company like Mary Kay Cosmetics has been around for more than 50 years does not define whether it is a fraud or scam. Remember Enron (in business more than 15 years prior to the fraud being discovered) and Bernie Madoff (whose investment firm was in business for more than 40 years before his Ponzi scheme was revealed)? Length of time in operation has nothing to do with whether something is a scam or a fraud. Being traded on the New York Stock Exchange is not an indicator of legitimacy either. Continue reading

Finding the Best Expert Witness

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More than ever, competent and dynamic expert witnesses are critical to winning legal cases. Even if a case doesn’t go to trial, a credible expert can be the key to settling the case for your client. I believe that an expert witness has the opportunity to make or break a case. We all know that there are few chances to fix a bad opinion when you go to court. There is one chance to express the correct opinion and support it fully. A faulty opinion, or one with little reliable support, can doom a case.

Some attorneys have their preferred experts, while others get referrals from colleagues. Each attorney works with an expert witness in the way that she or he is comfortable. However, it never hurts to hear about it from the other side. This is my perspective on best utilizing your expert witness to her or his full value.

Finding the Right Expert
The most critical part of working with an expert witness is finding the right one. Naturally, the selection of an expert involves the evaluation of education and credentials. The examination of an expert’s credentials is a particularly critical process.

There are credentials that are earned through a bona fide process, such as the CPA (Certified Public Accountant), CFF (Certified in Financial Forensics), CFE (Certified Fraud Examiner), and CVA (Certified Valuation Analyst). Then there are credentials that are meaningless because they are simply purchased, none of which are even worth mentioning. It is important to research which credentials truly enhance the credibility of the expert. Continue reading

Manipulating Finances in Divorce

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When a divorce is pending, it is not uncommon for one of the parties to manipulate the finances. Tracy discusses some common items that can be manipulated such as salary, selling assets to related parties, and more.