Put Me First In Line

Former Denver Broncos quarterback John Elway and his business partner gave $15 million to a hedge-fund manager now accused of running a Ponzi scheme.  In court papers filed by Elway and Mitch Pierce the two claim that their investment was supposed to be kept in a separate account from Mueller’s Over Under Fund. Therefore, the Denver Broncos legend is seeking a declaratory judgment for the return of their money, ahead of other investors. Mueller Capital Management has just $9.5 million left to cover liabilities of $140 million.

Questions:

1.  What is a hedge fund?

2.  What accounting guidance for hedge accounting is available under International Financial Reporting Standards (IFRS)?

3.   What accounting guidance for hedge accounting is available from the Financial Accounting Standards Board (FASB)?

4.  As one accountant said of this story: “It’s hard to feel sorry for rich people who play in games without rules (hedge funds).” Do you agree or disagree? Explain.

 

Source:

Staff. (2010) Hall of Famer Elway Seeks Mueller Money Now. FINAlternatives, October 19 (Retrievable online at http://www.finalternatives.com/node/14212).

Tell Me It’s Not the Good Cop Who is A Crook!

Federal regulators on Thursday, October 7,  brought securities fraud charges against more than a dozen penny-stock promoters — including Larry Wilcox, who played California Highway Patrol officer Jonathan “Jon” Baker on the hit TV show “CHiPs” in the late 1970s and early ’80s. The Securities and Exchange Commission said it caught the promoters in “various illicit kickback schemes to manipulate the volume and price of microcap stocks and illegally generate stock sales.”

Questions:

1.  What is another name for the type of scam that Larry is accused of perpetrating?

2. Briefly summarize the kickback scheme and tell why it is illegal.

3. What type of charges does Larry potentially face?

 

Source: SEC Staff. (2010) SEC Charges Penny Stock Promoters in Series of Kickback Schemes, SEC Press Release, October 7 (Retrievable online at http://sec.gov/news/press/2010/2010-187.htm)

The Fabulous Fab is Back in the News

Fabrice Tourre, a controversial personality in the Goldman Sachs Group Inc transaction of 2007, asked a judge to throw out a U.S. regulator’s fraud lawsuit against him.  About two and a half months ago, the bank settled its part of the case for $550 million.

In his filing, Tourre asked that the U.S. Securities and Exchange Commission case be dismissed because the 2007 “Abacus” transaction, which involved collateralized debt obligations (CDOs) tied to subprime mortgages, took place outside the United States.

Questions:

1. What are collateralized debt obligations?

2. Where would CDOs appear in the financial statements of the bank that bought them?

3. Do you think he will prevail in his dismissal of the charges?

4.  How do you think the Goldman Sachs Group reported the $550 million settlement in its financial records?  

Source:

Stempel, J. (2010). Goldman’s Tourre says SEC suit should be dismissed, Reuters, September 30 (Retrieved online at http://www.reuters.com/article/idUSTRE68T3L120100930?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29)

No MBA for Insider Trading

In a recent ruling, U.S. District Judge Lewis Kaplan held that a certified public accountant who hid his conviction for insider trading from his teachers at NYUs Stern School of Business wasn’t entitled to the MBA degree that he thought he earned. The former PricewaterhouseCoopers employee, Ayal Rosenthal, pleaded guilty in February 2007 to one count of conspiracy to commit securities fraud after he was accused of disclosing confidential information to his brother about a 2005 transaction between two public companies. This conviction came three months after he finished taking the necessary classes to earn his masters degree in business administration and he was sentenced to 60 days in prison. Once the faculty found out about his conviction, a committee voted to withhold the MBA from him and to alter his grade to F in his professional responsibility course, where he had been a teaching assistant. Subsequently, Rosenthal sued the Stern faculty in 2008.

Questions:

1. What constitutes insider trading? (Hint:  Look at the SEC news release http://www.sec.gov/news/press/2007/2007-17.htm)

2.  Do you think there was anything Rosenthal could have done differently to receive his MBA?

3. Do you agree with the judge’s ruling?

4.  Is Rosenthal still a CPA?

Sources:

SEC. (2007). SEC Charges Family-Run Hedge Fund With a $3.7 Million Insider Trading Scheme, February 8 (Retrievable online at http://www.sec.gov/news/press/2007/2007-17.htm)

Glovin, David (2010). Convicted Accountant Loses Legal Bid for MBA Degree, Bloomberg.com, September 13 (Retrievable online at http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=a.8EbO2qqNcQ)  

Stempel, J. (2010). No MBA for NYU student in insider trading scheme, Reuters, September 13 (Retrievable online at http://www.reuters.com/article/idUSN1319494020100913)

What a Tale!

During the boom, Wachovia banker Robert Verrone made money by slicing and dicing billions of dollars in commercial real estate loans. After the crash, he made money by restructuring those loans before they blew up. As Wachovia’s No. 1 underwriter of securitized commercial real estate debt between 2002 and 2007, Verrone resigned just months before Wachovia nearly collapsed and was acquired by Wells Fargo at the fire sale price of $15.1 billion.

 Questions:

 1.  Why is/was he called “Large Loan” Verrone?

2.  What does his company called Iron Hound Management do? What is your opinion of his ethics as portrayed in the article?

3.  In the article, he says “”We sold every penny of cash flow to anybody in the world who wanted to buy it.”  What is he referring to?

 Source:

 Leonard, D. (2010). The Ballad of “Large Loan” Verrone, BusinessWeek, September 9 (Retrievable online at http://www.businessweek.com/magazine/content/10_38/b4195070500566.htm)

Star Power Fraud

Kenneth Starr, a celebrity financial adviser to stars including actors Wesley Snipes and Sly Stallone, was charged with carrying out a massive $30 million fraud on his clients and then spending the money on a luxury apartment and jewelry, federal prosecutors said. Starr, head of the Manhattan-based Starr and Co., was charged with wire fraud, fraud by an investment advisor, money laundering, making false statements to the IRS and lying to federal agents. On September 13, he pleaded guilty to three counts of wire fraud, money laundering, and adviser fraud as part of a $50 million fraud and faces 20 additional counts and charges by the SEC.

Questions:

1. In general, how did Starr perpetrate this fraud? 

2. What “red flags” should have been recognized by alert investors?

3. Read the criminal complaint at http://www.nypost.com/r/nypost/2010/05/27/news/media/Starr,%20Kenneth%20and%20Stein,%20Andrew%20Complaint.pdf. Based on the complaint and the articles, can you figure out who any of the personalities are in terms of their specific-numbers as Associates or Clients? What purpose did the Wind River LLC account serve and how much money went through this account? Why are the amounts in the complaint and the pleading different?

4. Based on the criminal complain, how long did this fraud last and how does that compare with the average length of time for most similar types of schemes? (Hint: Go to the Association for Certified Fraud Examiners website to obtain the average length.) What types of charges (20 additional charges) do you think he faces with the SEC?

Sources:

Barney, L. (2010). ‘Mini Madoff’ Starr Pleads Guilty to $50 Million Fraud, OnWallStreet.com, September 13 (Retrievable at http://www.onwallstreet.com/news/starr-madoff-2668709-1.html)  

Southern District of New York, (2010). The U.S. versus Kenneth Starr and Andrew Stein (18 U.S.C. 1001, 1343 & 1956; 15 U.S.C. 80b-6 & 80b-17; 26 U.S.C. 7206 (1), May 26 (Retrievable at http://www.nypost.com/r/nypost/2010/05/27/news/media/Starr,%20Kenneth%20and%20Stein,%20Andrew%20Complaint.pdf)

Weiss, M.,  L. Cartwright, and B. Golding. (2010) Manhattan Financial Adviser to Celebs is Charged with Scamming Clients, New York Post, May 28 (Retrievable at http://www.nypost.com/p/news/local/nyc_financial_adviser_to_celebrities_DXslLxEwDlkAkxcooYs4pN#ixzz0zET4uSO5)

Super Sleuthing at Apple

Court papers filed by the federal government and Apple against a former manager detail a scheme that allegedly saw confidential Apple data supplied to Asian electronics companies over more than three years in return for kickbacks of more than $1 million. 

Apple says that over the course of more than three years, two individuals colluded by passing sales forecasts for unreleased iPod and iPhone models, as well as product roadmaps, sales reports and details of problems being encountered by competitors.

Questions:

1. How did Apple find out about the kickbacks?

2. Explain how data like sales forecasts, pricing information and specifications for unreleased products could contribute to this fraud.

3. Why do you think the two fraudsters intentionally kept the wired amounts at less than $10,000?  At there any laws or regulations that are tied to this amount and if so, what are they?

Source:

Williams, M. (2010). Laptop e-mail tipped Apple to kickbacks plot, Computer World, August 17 (Retrievable online at http://www.computerworld.com/s/article/9180820/Laptop_e_mails_tipped_Apple_to_kickbacks_plot?taxonomyId=152&pageNumber=1)

Power to the Shareholders

According to a new report from the Wall Street Journal, shareholders have won a victory in obtaining greater clout to place directors on corporate boards.  This is part of the the ”shareholder rights” movement that has been chipping away the power from top executives in U.S. run corporations. However, the Journal also predicts skirmishes ahead by public companies that hope to strike down the SEC rule, which they say will be used to distract management and advance special-interest agendas.

Questions:

1. What was the SEC vote in favor of the “proxy access” rule?

2. What does the “proxy access” rule require?

3. What are the costs and benefits of this new rule?

4.  How could this new rule impact you as an accountant?

Source:

Holzer, Jessica and D. Berman. (2010). Investors Gain New Clout, The Wall Street Journal, August 26. (Retrievable online at http://online.wsj.com/article/SB10001424052748703632304575451572616571774.html?mod=ITP_pageone_0)

HP CEO Resigns

Hewlett-Packard Co.’s Mark Hurd resigned as chief executive officer after an investigation found he had a personal relationship with a contractor who received numerous inappropriate payments from the company. Hurd submitted receipts for expenses ranging from $1,000 to $20,000 over two years, including meals and travel, that should have been labeled as personal and not related to business, said a person familiar with the situation.

While an investigation didn’t find a violation of the company’s sexual-harassment policy, Hurd “demonstrated a profound lack of judgment that seriously undermined his credibility and damaged his effectiveness in leading HP,” General Counsel Michael Holston said. The shares plunged 9.3 percent in late trading after the announcement.

Hurd will get a severance payment of $12.2 million, plus other benefits that include a prorated vesting settlement of 330,177 restricted HP shares. He received $30.3 million in compensation in 2009 and $42.4 million the year before.

Questions:

1.  Who was the CEO of Hewlett Packard before Hurd?  Why did she leave the company and what is she doing now?

2. What has been one of HP’s recent acquisitions and who are their competitors?

3. The company’s stock-market value increased $44.6 billion, rising to $108.1 billion, since Hurd took the helm on April 1, 2005.  What percentage increase is this since April 1, 2005?

Source:

Guglielmo, Connie, Ian King and Aaron Ricadela. (2010). HP Chief Executive Hurd Resigns After Sexual-Harassment Probe, Bloomberg Business Week , August 7 (Retrievable online at http://www.businessweek.com/news/2010-08-07/hp-chief-executive-hurd-resigns-after-sexual-harassment-probe.html)

Multi-Million Dollar Swindle of Four Universities

In one of the most recently uncovered Ponzi cases, a former hedge-fund manager has pleaded guilty to criminal charges in an investment scam in which he bilked as much as $900-million from investors, including four university endowments. According to investigators, the Paul R. Greenwood and his partner Stephen Walsh spent at least $160-million on mansions, horses, rare books, and an $80,000 collectible teddy bear. Mr. Walsh has pleaded not guilty, and Mr. Greenwood will testify against him at trial.

Questions:

1. What did the investors find out about their assets?  Explain why this was a bad sign.

2.  What do the articles say could have prevented the university investments in this scheme?

3.  What potential penalties does Mr. Greenwood face?

Sources:

Fain, Paul. (2010). Hedge-Fund Manager Pleads Guilty to Multimillion-Dollar Swindle of Four Universities. The Chronicle of Higher Education, July 29 (Retrievable online at http://chronicle.com/article/Hedge-Fund-Manager-Pleads/123713/?sid=at&utm_source=at&utm_medium=en)

Fain, Paul. (2009). Two Universities Seek Answers After $114-Million Vanishes in an Alleged Swindle. The Chronicle of Higher Education, March 5 (Retrievable online at http://onnidan1.com/forum/index.php?topic=24965.0)

« Previous Page — Next Page »