Archive for the ‘Accounting Fraud’ Category

The Accountant

Monday, March 23rd, 2009

Last week, the U.S. Securities and Exchange Commission (SEC) charged Bernard Madoff’s accountant, David G. Friehling (Friehling) and his firm, Friehling & Horowitz, CPAs, P.C. (F&H), with securities fraud.  According to the SEC’s complaint: 

From 1991 through 2008, [Friehling and F&H] purported to audit financial statements and disclosures of Bernard L. Madoff Investment Securities LLC (BMIS). . . . In fact, according to the SEC, Friehling and F&H did not perform a meaningful audit of BMIS, and did not perform procedures to confirm that the securities BMIS purportedly held on behalf of its customers even existed.

Instead, the SEC alleges that Friehling merely pretended to conduct minimal audit procedures of certain accounts to make it seem like he was conducting an audit, and then failed to document his purported findings and conclusions as required under Generally Accepted Auditing Standards. If properly stated, those financial statements, along with BMIS related disclosures regarding reserve requirements, would have shown that BMIS owed tens of billions of dollars in additional liabilities to its customers and was therefore insolvent.

How many of Madoff’s victims took comfort in the supposedly audited financial statements from Madoff’s accountant?  How many victims of all kinds of financial frauds do likewise? 

It is not at all unusual for fraud operators to partner with accountants who are willing to certify the numbers involved.  If they can’t find an accountant willing to do so, the operator will just invent an auditor out of whole cloth.  He’ll incorporate the phony accounting firm, rent office space, and even install a cohort in the office to play the role of auditor. 

How will you know if the auditor is legitimate?  You won’t.  An investor protection company, though, has the resources to look behind the facade.  Hire professional help or risk seeing your nest egg lost to a well-disguised scam.

Charged for Defrauding Clients and Banks

Thursday, December 11th, 2008

The Securities and Exchange Commission (SEC) charged William J. “Boots” Del Biaggio III, a Silicon Valley capitalist, for allegedly engaging in two different schemes, and defrauding investors, banks, and private lenders out of $65 million.   According to the complaint, Del Biaggio used the money to fund his lavish lifestyle, buy an interest in a professional hockey team, satisfy gambling debts, and pay for his family’s luxury home.  (more…)

Accounting Chefs

Tuesday, September 9th, 2008

The U.S. Securities and Exchange Commission has nabbed more corporate book cookers.  The SEC has charged Retail Pro, Inc. (formerly known as Island Pacific) and former officers Barry M. Schechter, Ran H. Furman, and Harvey Braun.    (more…)

SEC Fries Book Cooker

Friday, February 8th, 2008

The SEC has charged Larry A. Rodda, a former KPMG Consulting principal, with aiding and abetting a “massive financial fraud orchestrated by senior officers at Peregrine Systems, Inc., a San Diego software company that has since been acquired by Hewlett-Packard Company.”The SEC alleged that Rodda signed four sham software license agreements that allowed Peregrine to improperly record approximately $22 million in revenue.  The SEC’s litigation release provides the details: (more…)

Book Cooks Still in the Kitchen

Thursday, December 13th, 2007

The Securities and Exchange Commission has charged Michael J. Nolan, a former Chief Financial Officer of United Rentals, Inc. (”URI”) with engaging in a series of fraudulent transactions to meet URI’s earnings forecasts and analyst expectations. The complaint alleges that Nolan and others used a series of interlocking three-party transactions, structured as “minor sale-leasebacks,” to allow URI to recognize revenue prematurely and inflate profits.   (more…)