Fraud News Update 08.07.14

Fraud News

Fraud News

Fraud News Update 08.07.14: In reviewing our weekly fraud news feed, we’ve noticed quite a few stories that tie nicely together with posts we’ve written on a particular topic. This presents us with an excellent opportunity to update stories or themes we’re focusing on each week and enhance the content provided to readers of the Fraud Solutions blog.

Song Ends on Sour Note

Last year, I wrote a post on fraud in the music industry and the conviction of Lights Over Paris (LOP) front man, Rob Mawhinney. At the time, it was an interesting story and one that you don’t see too often. Here we are in 2014 and another story with similar chords, pops up on the charts.

Mawhinney was involved in a bank loan scheme to finance his failed Rock n Roll dream while Kasey Anderson bilked 30 investors out of their money through the promotion of non-existent albums and music projects featuring big name acts (Bruce Springsteen, Pearl Jam, and R.E.M.). Same industry – different front man – same result: conviction. Anderson’s 46 month wire fraud conviction ensures he’ll be singing the prison blues.

Rigged Race Track Results

Fraud’s fluidity is continually demonstrated through the different venues its committed at. This story about rigged race track training results caught my eye as horse racing is “big business” and there’s a lot of money changing hands around the globe. This proves that the “follow the money” adage is true.

Like most cases, one charge usually snares other people for possible wrongdoing and in this case there were also “horse doping” charges levied against several other trainers which are currently pending trial.

The DBE Fraud Beat Rolls On

In the Fraud News Update last week we covered the largest DBE government procurement fraud in U.S. history involving Schuylkill Products. This week the DBE procurement fraud convictions roll on featuring an $87,000,000 dollar fraud alleged to have been committed by Boggs Paving. Recently, the former CFO at Boggs Paving plead guilty for his role in the fraud. According to court documents,

“Boggs Paving and the defendants conspired and fraudulently obtained federally and state funded construction contracts by falsely certifying that a disadvantaged business enterprise (DBE) or a small business enterprise (SBE) would perform and be paid for portion of the work on those contracts. Boggs used a certified DBE and SBE (Styx Cuthbertson Trucking Company) as a ‘pass through’ entity to obtain the lucrative government-funded construction contracts.”

With several other former employees convictions already in the bag prior to this plea, other defendants are pending trial. Like the Schuykill case, the government alleges that Boggs Paving put magnetic decals bearing the Styx Cuthbertson Trucking name over the Boggs logo on their trucks to make it look like Boggs was actually doing the work.

Meanwhile, in an ironic twist of fate, while researching this story it turns out that Boggs Paving was apparently both “predator and prey.” In 2012, while conducting an AP audit into missing funds, Boggs discovered that almost $1,000,000 had been stolen by one of its former project managers using a phantom billing scheme. The employee was subsequently arrested.

So, in light of the massive DBE fraud charges, which are still working their way through the court system, this appears to be a classic case of stealing something previously stolen by someone else! Go figure!

Stealing from Religious Organizations

Speaking of fraud involving religious organizations, in one of our recent fraud news updates we featured a bank loan case involving a Minister and a separate case involving embezzlement from the church.

This week’s fraud news wire features an indictment of the former Information Systems Director for Presbyterian Manors of Mid-America (PMMA) and his wife for their alleged role in a $1,800,000 phantom billing scheme involving several fictitious companies.

“Presbyterian Manors of Mid-America is in the nation’s top 20 largest nonprofit senior living organizations, providing more than 60 years of service to Kansas and Missouri. PMMA is headquartered in Wichita, Kansas, and employs 2,200 compassionate people who work relentlessly to provide vibrant, quality living to more than 2,400 seniors at 18 communities.”

If the charges alleged in the indictment are proven to be true, PMMA might want to change their promotional language to read: “2199 compassionate employees…”

Disaster = Fraud

Make no mistake about it… Disaster = fraud, all day, every day. I don’t care what day of the week it is or what type of disaster it was. Name one… just one and there’s been fraud associated with the event. It’s like my teacher used to say in Geometry class, “it’s a given.” So, it should be no surprise to anyone that we continue to see BP, Deepwater Horizon, related fraud charges and convictions after the fact.

I wrote about this last week in my article on LinkedIn Publisher commenting on the fact that we started seeing Malaysian Airlines, Flight MH17 fraud so soon after the fact. The criminals playing on your emotions have to strike while the iron is hot.

Given that the Deepwater Horizon disaster occurred a little over four years ago…one might be pondering how much fraud occurs post disaster or why it takes corporate investigators, law enforcement and prosecutors so long to charge people with disaster related fraud and there are a number of reasons.

First, the fraud statistics. According to thestateofthegulf.com, the current Deepwater Horizon fraud tally for this disaster are:

Number of reported fraud cases leading to criminal charges: 190
Number of reported fraud cases leading to criminal convictions: 160
Dollar tally of reported cases of fraud (Convictions and Current Prosecutions): $12,746.060
Number of states in which fraud cases have been reports: 9

Now, to the second part of the question, why does it take so long to investigate, prosecute and get convictions?

1) The immediacy of the situation

Legitimate victims need the money in short order so claims are “fast tracked” (pay now – question later) so that agencies can facilitate getting people the financial support they desperately need. Undoubtedly, this is one of the core elements criminals count on in committing fraud so soon after a disaster occurs.

2) The sheer number of claims submitted for payment which can be overwhelming

Given the volume and time constraints, there really isn’t a lot of time to analyze potentially fraudulent claims.

3) No one wants to look like the insensitive, uncaring “bad guy” during someone’s time of need

These blow up in the media/court of public opinion and go south really quickly.

So, again, to avoid all that, when disaster strikes, we pay now and when the “dust settles” we investigate (ask questions) later…often 4 years later as was the case here.

PII vs. National Security

Lastly, I found this to be an interesting commentary on data, PII and personal privacy:

CIO New Zealand is reporting that “6 in 10 New Zealanders are much more concerned about data theft than terrorism, according to the 2014 Unisys Security Index. 62% of New Zealanders extremely or very concerned about unauthorised access to their personal information, as well as other people obtaining or using credit their card details…In comparison, only 33 per cent of Kiwis are seriously concerned about threats to national security, including terrorism and war.”

Fraud News – The Bottom Line

Fraud – empowering people to break the law. It’s a way of life for some and every fraud has a story. At Fraud Solutions, fraud is our world and we’re passionate about prevention. Being proactive is key, so, follow us each week as we cover the fraud beat with added insights, information and unique commentary on stories making the fraud news.