Fraud News Update 08.21.14

Fraud News

Fraud News

Fraud News Update 08.21.14: 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.

Want some Cheese and Crackers With that Wine?

In a fraud news story on the vine, we recently commented on a large California case involving counterfeit wine being made in some dude’s (California speak) kitchen in L.A. More information continues to “pour in” about that problem as the wine industry reacts to the issue.

While one guy went down for the fakery, we were pondering the problem’s prevalence as very seldom are frauds ever limited to only one person committing it around the globe.

In an interesting read, Wine fraud: How easy is it to fake a 50-year-old bottle?

Beam Me Up, Scotty!

We’ve talked about religious frauds and Ponzi schemes in past fraud news updates. Here’s a celestial new twist making our update: a religious Ponzi scheme involving a not so fictional “James Kirk.”

Kirk was convicted for his participation in a Ponzi scheme where “church-goers were promised their principal was protected by collateral such as cars and car loans.” Apparently, the Starship Enterprise wasn’t part of the investment deal.

The already convicted ringleader, Thomas Kimmel, “went to churches to talk to parishioners about how to live debt free by employing biblical principles.”

Kirk got 60 months for his role in fleecing parishioners…he’ll now be battling the Klingons in federal prison.

No “404 Error” Here

Insider trading involves the trading of a publicly held companies stock or securities based on non public, or proprietary, information. One might think, given the myriad of trades made daily in the stock market, that this would be difficult to detect. Using old school investigative techniques (tips, analysis etc), it has been in the past.

However, using new age, high-tech analytical tools involving Complex Events Processing (CEP), regulators, and federal law enforcement agencies, can more quickly pinpoint transactional anomalies and questionable activity in the sea of trades.

According to Melanie Rodier, writing for Information Week, “many Wall Street firms have rapidly been adopting CEP technologies that allow them to analyze unrelated data and events, detect patterns and relationships, and trade in milliseconds.”

The increased public-private usage of CEP tools would appear to support an upswing in insider trading cases like this news involving the conviction of a former Microsoft treasury department employee and his co-conspirator. Absent CEP, transactional anomalies like this would have been difficult for investigators to discover.

Even Superheroes Couldn’t Prevent This

In 2009, Marvel Comics was acquired by Disney for 4 billion. An epic entertainment transaction which is now old news. Five years later however comes the news of yet another insider trading case conviction.

In this fraud news piece from the entertainment industry, we now know that at least one evil no gooder (Toby Scammell: great name for a villain) cashed in on the media magic using non public, inside information he pieced together through his girlfriend’s externship with the Disney Co.

According to the SEC’s civil case file (See the PDF: they sued him – it’s an interesting read) the girlfriend wasn’t involved in the financial shenanigans, nor did she outright come forth and tell Scammell who Disney’s acquisition target was.

Despite that, Scammell pieced the non public information together and used the information to profit from the transaction. That was enough for the SEC, F.B.I and U.S. Attorney to get a conviction.

The Phantom Strikes Again

What would a fraud news update be without a story about phantoms? This time, the phantom (vendor billing scheme) struck at Wilhelmsen Ships Service Inc., where a former employee has been arrested and accused of allegedly using a phantom fraud scheme to take the business for a cool 4 mil. That’ll sink your battleship!

Phantom billing schemes are a common method used by employee’s, in a position of fiduciary trust, to manipulate accounts payable (AP) systems and generate payments for fake invoices to non-existent (one version) vendors. The payments are ultimately redirected to the employee’s personal bank accounts and used for their individual benefit.

As with all frauds, there are different versions of the scheme. According to the feds, in an unrelated phantom billing case that took place in Texas and South Carolina, between 2006-2013, a Sprint-Nextel employee allegedly submitted fraudulent or overinflated work orders and invoices to her employer from two actual SC communications companies. When the invoices were paid, the two companies paid kickbacks to the Sprint-Nextel employee. Losses estimated at 6.4 million.

Disaster Fraud: 3 Years Later

We’ve previously highlighted the fraud associated with disasters and it happens every time there is one. Taking advantage of these kinds of circumstances is reprehensible so we’re keeping the heat on this fraud news topic.

As we recently discussed with the Deepwater Horizon disaster, the prosecution of these cases very seldom occurs immediately after the disaster. The fraud fallout from the 2011 Joplin tornado continues in 2014 with 5 indictments against individuals who the federal government alleges received (or applied for) disaster benefits following the tornado that killed hundreds and caused multi-billion dollar damages.

At least one of the cases, where the suspect has since accepted a plea deal, was a “zero loss” fraud. A “zero loss” fraud is one in which there is no actual payout as a result of the fraudulent information submitted.

Anyone who thinks that frauds cannot be prosecuted where there is no loss should take notice. In many jurisdictions, the mere submission of a false or fraudulent application for benefits constitutes fraud and is a prosecutable offense.

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.