New organizations are reporting that the Justice Department has opened a file for possible criminal prosecution against Goldman Sachs. The SEC, as has been widely reported, filed a civil fraud case against the firm. The case relates to the Abacus 2007 portfolio of toxic junk that hedge fund manager John Paulson bet against.

It's going to be hard enough for the SEC to prove civil fraud in a case that involved consenting, sophisticated institutional investors on all sides. Hard to imagine that the Justice case will go anywhere. The news leak about opening a criminal file suggests it's all PR anyway.

Posted by Jay Hancock at 8:09 AM | Permalink | Comments (2)
Categories: White collar crime
        

Sam Antar was the chief financial officer of Crazy Eddie, the consumer electronics chain that turned out to be a massive fraud. He now writes a blog and works as a consultant to help companies detect fraud. The SEC's civil prosecution of Goldman Sachs brings back some interesting memories from Mr. Antar. The whole thing is worth reading. Here are excerpts:

In filing its lawsuit against Goldman Sachs (NYSE: GS) on a Friday, the Securities and Exchange Commission sent what I call the "kiss of death" message to the embattled company. In other words, the SEC wanted to stick it to Goldman Sachs and Fabrice Tourre, the Executive Director of Goldman Sachs International, who is also a defendant in the complaint.

When a company or individual receives a surprise subpoena on a Friday from the SEC, it is usually designed to ruin their weekend plans. Yes, the SEC can get personal in its own way.

Usually, corporate lawyers are unavailable on short notice to work weekends. When a company or individual receives a subpoena or lawsuit on a Friday, they are left to stew in anxiety over the weekend until Monday, before their lawyers can appropriately advice them on how to respond to the SEC.

Back in the day as the criminal CFO of Crazy Eddie, I received a surprise subpoena from the SEC late Friday afternoon. I had to wait until Monday before my attorneys had time to advise me on a course of action.

Posted by Jay Hancock at 9:09 AM | Permalink | Comments (2)
Categories: White collar crime
        

Never heard of Michael Parker or his Virginia-based firm, TransCapital. But here's a Justice Department press release saying he pleaded guilty to a conspiracy charge relating to a fraudulent tax shelter that saved Kroger $64 million in federal taxes.

WASHINGTON – Michael Parker of Baltimore, who was the chief operating officer of TransCapital Corporation, a tax-advantaged investments company based in Northen Virginia, pleaded guilty today to one count of conspiracy to defraud the United States, the Justice Department and Internal Revenue Service (IRS) announced.

According to the plea agreement and statements made during the hearing before United States District Judge Sandra S. Beckwith in Cincinnati, Parker admitted to conspiring with Daryl Haynor, an accountant who was a tax partner at KPMG LLC, in its Tysons Corner, Va., office, and

Continue reading "Baltimore man guilty in tax-shelter scam" »

Posted by Jay Hancock at 12:43 PM | Permalink | Comments (0)
Categories: White collar crime
        

From the Association of Certified Fraud Examiners:

AUSTIN, Texas--(BUSINESS WIRE)--Intense financial pressure during the economic crisis has led to an increase of fraud, according to a survey of fraud experts conducted by the Association of Certified Fraud Examiners (ACFE). Results of the survey, published in the new ACFE report "Occupational Fraud: A Study of the Impact of an Economic Recession," also found that layoffs are pervasive and are leaving holes in organizations' internal control systems.

The study also found that:

Employees pose the greatest fraud threat in the current economy. When asked which, if any, of several categories of fraud increased during the previous 12 months, the largest number of survey respondents (48 percent) indicated that embezzlement was on the rise.

Layoffs are affecting organizations’ internal control systems. Nearly 60 percent of CFEs who work as in-house fraud examiners reported that their companies had experienced layoffs during the past year. Among those who had experienced layoffs, almost 35 percent said their company had eliminated some controls, while 44.2 percent said the layoffs had no effect on controls and only 3.2 percent said their company had increased controls.

Fraud levels are expected to continue rising. Almost 90 percent of respondents said they expect fraud to continue to increase during the next 12 months. Additionally, the fraud most expected to increase is embezzlement.

Posted by Jay Hancock at 2:13 PM | Permalink | Comments (1)
Categories: White collar crime