Almost No One Makes Money in MLM

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Nothing ever changes in multi-level marketing. Even when it looks like the government is taking action against a company like Herbalife, other MLMs continue with business as usual.

Almost everyone loses money in MLM. Which means almost no one makes money in MLM. This is a universal truth. More than 99% of distributors will lose money, and this is GUARANTEED by how these schemes are set-up. No matter how hard you work or how well you follow the guidelines, you still have almost no chance of success.

Six years ago the Salt Lake Tribune published an article about the reality of multi-level marketing. The numbers haven’t changed, and we see the same thing happening no matter the company. Continue reading

Financial Statement Fraud: The Damage Inflicted

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Financial statement fraud impacts any person or organization that has a financial interest in the success or failure of a company. A manipulation of the company’s reported earnings or assets can affect a bank that extends credit to the company, a shareholder who invests money in the company, and those organizations that enter into contracts or agreements with the company.

The manipulation of financial statements also affects employees. It has the power to put employees out of work once the fraud is exposed or collapses. It also has the power to enrich employees – mostly those involved in the fraud, but potentially those who are not. Good financial results (actual or fabricated) can be linked to promotions, raises, enhanced benefit packages, bonuses, and the value of stock option awards. Continue reading

Financial Statement Fraud: How It Is Done

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Financial statement fraud happens is one of the most costly types of fraud. It is a significant problem because people inside and outside the company rely on the information provided in the financial statements. They assess the financial results and make predictions and decisions about the future of the company based on those results.

Upper management or company owners are the ones who are usually responsible for financial statement fraud. Executives are entrusted with entire companies. They have access to nearly all data and employees, and they can exploit this access to commit and conceal fraud.

The power the executive has by virtue of her or his position in the company is closely linked with the high cost of financial statement fraud. Power and access within a company make it possible for larger frauds to be committed and covered up. Continue reading

Tax Fraud Defense and Forensic Accountants

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Government investigations of white collar crimes almost always have one thing in common: They rely heavily on the analysis of financial information. Often, this includes combing through bank statements and credit card statements, as well as scrutinizing accounting records.

Some people think that analyzing this kind of data is simple. It seems like it is only a math exercise in which we’re checking dollar amounts and verifying the addition and subtraction. But there is much more involved, and it gets exponentially more complicated (pun intended) when there are large volumes of data.

Expertise in financial and accounting crimes is necessary to fully understand the issues and the potential criminal or civil charges that the government brings against a company or individual. To properly defend such a case, it is necessary to have a forensic accountant involved to help evaluate the data and the issues the government will raise. Continue reading

Overstock.com Report on TheStreetSweeper

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TheStreetSweeper, a site investigates and reports on public companies, released a report last week on Overstock.com. The article, called “Under Surveillance,” said that the company’s stock is massively overvalued. The stock price shot up when Overstock jumped on the cryptocurrency bandwagon:

Overstock’s crypto-fueled stock surge began in August, after the online retailer began allowing shoppers to pay with bitcoin and other digital tokens.

In September, the company announced plans for an exchange to trade tokens.

In October, the CEO announced a subsidiary, tZero, intends to hold an ICO – initial coin offering – from Nov. 15 until Dec. 31. Rather than shares of stock, digital tokens would be issued in the private placement.

Continue reading

Searching for Assets in Divorce

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Potential clients in the process of divorce often contact me because they are concerned about hidden assets. Often the spouse had a history of financial dishonesty throughout the marriage, or his or her behavior became suspicious around the time divorce was filed. It is not uncommon for there to be a sudden lack of money once divorce is filed. Previously, it was easy to pay the bills and pay for vacations and other extras. Now it’s hard to find money for even the basic necessities.

When a spouse is suspected of hiding money and other assets, professional help is required. But what kind of help?

It depends. There are two types of help that you can get for this aspect of a divorce case. The first is a forensic accountant who will essentially trace money through accounts, follow the paper trail, and determine if there is any missing money. This work is heavily rooted in the documentation you obtain. I can’t trace the money without the documents. Continue reading

Finding Hidden Income in Divorce Cases

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Divorces and child support cases often focus heavily on financial issues. Whether the parties to a case are of modest means or great wealth, both sides want their own version of what is fair. Unfortunately, this can lead one or both parties to hide income and assets. With the help of a financial expert, counsel can identify income and assets that might otherwise go undiscovered, and hopefully reach an equitable end to a divorce or child support case.

Sources of income and assets owned can be identified with the right documentation. Attorneys need to be familiar with some of the most common financial documents so they know what to request. Attorneys with financial knowledge can also help identify issues that may need further analysis in a family law case. Continue reading

LuLaRoe Class Action Lawsuits

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In the past couple of weeks, multi-level marketing company LuLaRoe (the seller of weirdly patterned leggings) has been hit with two class action lawsuits and a whole bunch of negative publicity.  The first LuLaRoe class action lawsuit was filed on October 13 in federal court in California, and the lead plaintiffs are Stella Lemberg, Jeni Laurence, Amandra Bluder, and Carissa Stuckart. The complaint has all kinds of words I like: scheme, bait, lure, and cheating.

The focus of this lawsuit is a promise LuLaRoe made in April 2017. The company said that consultants (who spend upwards of $5,000 to sign up and purchase an initial inventory package) could cancel their agreements and receive a 100% refund of the wholesale value of the inventory they purchased with no exceptions or conditions. Distributors would also get free shipping for the inventory they returned. The policy had no expiration date, but the lawsuit alleges that on September 13, 2017 the company changed the policy to offer a 90% refund (at most) with lots of conditions and exceptions, and no free shipping. Continue reading

Financial Investigations With High Volumes of Data

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Cases with high volumes of bank data, such as money laundering, high net worth divorce, securities fraud, Ponzi schemes, tax fraud, and white collar crime, present special challenges for forensic accountants. High volumes of financial data can be overwhelming. How do you manage the data? How do you ensure the integrity of the data? How do you get usable intelligence from the data? An attorney’s results in such a case will be directly related to how well the expert can put that data to work and make it mean something to the case.

Getting the Data
The process of discovery can be long and agonizing for everyone.  There is often a push and pull between the parties in the discovery process, as opposing counsel rarely wants to voluntarily give up damaging financial data.  It often takes several rounds of requests to get the information we seek.

Counsel has to be careful to ask for the right data in the right format. Not properly identifying the information we are seeking can lead to denials that the information exists.  One of the goals in discovery is to be specific enough that we get targeted data, but general enough that we still get other important data we didn’t know existed. Continue reading

Preventing Fraud in Small Businesses

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Cost-saving measures are always attractive to businesses. If a company with annual revenue of $10 million could eliminate a $500,000 expense, would management be interested? Internal fraud prevention could be the key to saving money in precisely this way.

Experts estimate that companies lose about 5% of their revenue each year to fraud committed by employees. Of course, this is just an estimate, as we have no idea how much fraud goes undetected. But assuming the experts are right, 5% could be substantial. Some companies have such thin profit margins that 5% could be their profit for an entire year. (And the 5% loss figure doesn’t even include all of the secondary costs that go along with internal frauds, such as personnel costs, investigative costs, and legal fees!)

The key to preventing internal fraud is proactive fraud prevention techniques. Fraud prevention is not about putting out fires as they spring up. True prevention is about fire-proofing a company to eliminate the risk of fire. So measures must be taken in advance to prevent problems down the road. Continue reading