Austerity Brings about Desperate Times and Desperate Acts

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Two penniless Spanish men chopped off their own hands and tried to claim the insurance payout as accidents. Unfortunately for them, both have been exposed as fraudsters because they performed the amputations too well to be accidents. Both cases come amid a steep rise in the number of false insurance claims that have been revealed since Spain plunged into recession in 2008.

Questions:
1. What per cent increase in the past five years has Spain seen in false insurance claims?
2. The article claims that even criminal gangs are getting in the act. How are they adding to the false insurance claims?
3. What is the jobless rate in Spain and why is it such a factor regarding these claims? Discuss by incorporating the construction industry into your answer.

Source:
Blake, Matt. (2013) “Two Spanish men chopped off their own HANDS in £2million insurance scams – but get found out because they did it too well,” Daily Mail, April 26 (Retrievable online at http://www.dailymail.co.uk/news/article-2315346/Two-Spanish-men-chopped-HANDS-2million-insurance-scams–did-well.html)

Complete News video. Spain’s unemployment rate reaches Record High (Retrievable online at http://www.youtube.com/watch?v=5kqbuvz-PoM)

Academic Fraud

Posted by & filed under Accounting Principles, All Articles, Fraud Accounting, Uncategorized.

Mind of a Con ManIn the summer of 2011, Diederik Stapel was accused of research fraud. It became the lead story in the Netherlands and would dominate headlines for months. Overnight, Stapel went from being a respected professor to perhaps the biggest con man in academic science.

Questions:
1. How did Stapel commit the fraud?
2. Why did Stapel do this? Discuss this question in terms of the Fraud Triangle.
3. Was this a victimless fraud? Discuss.
4. How long did the fraud last and what was the extent of the fraud in terms of academic works?

Source:
Bhattacharjee, Y. (2013). The Mind of a Con Man. The New York Times, April 26 (Retrievable online at http://www.nytimes.com/2013/04/28/magazine/diederik-stapels-audacious-academic-fraud.html?hp&pagewanted=all)

Pension Advances to be Scrutinized by Congress and the Consumer Financial Protection Bureau

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money_ballThis New York Times article discusses the allure of borrowing against pensions, which underscores an abrupt reversal in the financial fortunes of many retirees in recent years. The offers, known as pension advances, are having devastating financial consequences for a growing number of older Americans, both threatening their retirement savings and exacerbating mounting debt within this demographic.

Questions:
1. Why are pension advances being scrutinized by Congress and the Consumer Financial Protection Bureau?
2. According to the New York Times survey of pension advances, what was the range of interest rates found?
3. In the article, Mr. Govan agreed to sign over $353 a month of his $1,033 monthly disability pension for five years in exchange for $10,000 in cash up front. Based on your calculations, how much is he paying in total interest and fees for the $10,000 loan?
4. What amount of average debt do people over 50 years of age carry on their credit cards?

Source:
Silver-Greenberg, J. (2013). Loans Borrowed Against Pensions Squeeze Retirees. The New York Times, April 27 (Retrievable online at http://www.nytimes.com/2013/04/28/business/economy/pension-loans-drive-retirees-into-more-debt.html?hp&_r=1&)

Did you know that cash absorbs the smell of marijuana?

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John Davis, CEO of Northwest Patient Resource Center, runs two medical marijuana dispensaries in Seattle. In Washington state, Davis runs a legal enterprise that generates thousands of dollars each quarter in state tax revenues. However, since selling pot is still a federal crime and banks are regulated by the Federal Deposit Insurance Corporation, banks are hesitant to grant Mr. Davis an account, because they may be subject to violating anti-money laundering laws. Currently, everyone involved is waiting for some type of decision from Attorney General Eric Holder, regarding the cavern that exists between state and federal laws.

Questions:
1. How do you think the issues presented in the Lamm article should be resolved?
2. Without resolution about the banking issues, what are the risks for businessmen like Mr. Davis?
3. Explain Mr. Davis’ statement about the current situation “encouraging the black market.”

Sources:

CNN Video. (2013) Problem in Seattle: Cash smells like pot. CNN, April 7 (Retrievable online http://www.cnn.com/video/#/video/us/2013/04/07/komo-skunky-money.komo?iref=videosearch)

Lamm, G. (2013). You pay taxes, but can’t get a bank account because your business is selling marijuana. Pudget Sound Business Journal, April 5 (Retrievable online at http://www.bizjournals.com/seattle/blog/2013/04/when-you-run-a-business-selling.html?page=all)

Shareholders – 1; Corporations – 0; SEC – Tie Breaker

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Proxy fightThis year’s proxy season is showing signs of greater activism by shareholders. The proxy advisory service Institutional Shareholder Services is projecting that there could be as many as 17 contests for the election of directors, which is slightly up from last year. The difference is that the contests are much bigger and include six at companies with a market value of more than $1 billion. Last year, only one billion-dollar company had a contested election.

Questions:
1. Which billion-dollar company in 2012 had a contested election and what was the outcome?
2. Why is Elliott Management taking aim at Hess Corporation with a proxy fight this year?
3. How are companies getting ready to battle these challenges by shareholders?
4. Why do you think that the SEC is on the side of the corporations in these challenges? Discuss.

Source:

Davidoff, S.M. (2013) As Shareholder Fights Heat Up, Activists Aim at Bigger Targets. The New York Times, April 16 (Retrievable online at http://dealbook.nytimes.com/2013/04/16/as-shareholder-fights-heat-up-activists-aim-at-bigger-targets/)

Another Slap in the Face!

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Bounced Check from Mortgage settlementThe first round of payments covered under the foreclosure settlement against the nation’s largest banks, who were accused of wrongful evictions and other abuses, bounced due to insufficient funds this week.

Questions:
1. How long did it take to resolve the federal investigation into the foreclosure abuses?
2. Approximately how many people either delayed cashing the check or have had problems doing so according to the article?
3. Why did this glitch occur?

Source:

Silver-Greenberg, J. and B. Protess. (2013). Mortgage Relief Checks Go Out, Only to Bounce. The New York Times, April 17 (Retrievable online at http://dealbook.nytimes.com/2013/04/17/victims-of-foreclosure-abuses-face-another-woe-bounced-checks/?hp)

Just helping a friend

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On Thursday, April 4, federal prosecutors and the Securities and Exchange Commission filed criminal and civil charges against fired KPMG accounting partner Scott London for conspiracy to commit securities fraud through insider trading. The accountant provided confidential information about KPMG audit clients Herbalife Ltd., Skechers USA Inc., Uggs maker Deckers Outdoor Corp., RSC Holdings and Pacific Capital to Bryan Shaw, a close friend, from late 2010 until last month.

Questions:
1. How much did the accountant’s friend make on trades associated with these tips?
2. How long had the accountant worked for KPMG?
3. When Shaw expressed concerns to his accountant friend, what rationalization did the accountant give him about not worrying?
4. What was the final puzzle piece in this insider trading fraud?

Source:
Associated Press. (2013).Feds, SEC file criminal, civil insider trading charges against former KPMG partner. Washington Post, April 9 (Retrievable online at http://www.washingtonpost.com/business/friend-who-benefited-from-kpmg-partners-inside-information-says-he-was-incredibly-stupid/2013/04/11/69934ff2-a2bc-11e2-bd52-614156372695_story.html?hpid=z3)

Trolling for Patent Infringement Cases

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One of the most striking results of a new academic study is that in 2012, litigation by patent monetization entities now represents a majority of the patent litigation filed in the United States. Specifically, patent monetization entities filed 58% of the patent lawsuits in 2012. This is a sharp rise from 2007, when patent monetization entities filed only 24% of patent infringement litigations.

Questions:

1. How should costs of a patent be recognized in the financial statement?
2. Assume that XYZ company successfully defended its technology patent for airbags. The legal costs were $500,000. What journal entry should be made for these legal costs?
3. Assume the same information in #2. The patent was originally recorded at $2,000,000 in 2013 and is amortized over 10 years. The suit to defend the patent was successfully defended in 2015, two years after the patent was initially recorded in XYZ’s books, but prior to year end. Based on this information, how much amortization should XYZ record in 2013 and 2018?

Source:

The Institute for Innovation Law. (2013). Patent Trolls Now File Majority of Patent Litigation, Academic Study Shows. University of California – Hastings College of Law, April 9 (Retrievable online at http://www.uchastings.edu/news/articles/2013/04/aia-500-expanded.php)

Do Stockholders Really Have Rights?

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In a recent article by James Stewart, it was noted that 41 directors of public companies lost their elections last year, but remained at their posts. How can this be, if this is a right of the stockholders? Stewart even found that directors who resign after losing votes don’t necessarily leave the board.

Questions:
1. According to the article, which company has directors who resigned but remain on the board?
2. What is the name for these directors who are rejected by shareholders, yet remain on the board?
3. Discuss the efficacy of corporate governance at Cablevision according to this article. Based on what you found out, would you want to be a shareholder of this company? Why or why not?

Source:
Stewart, J.B. (2013). When Shareholder Democracy is Sham Democracy. The New York Times, April 12 (Retrievable online at http://www.nytimes.com/2013/04/13/business/sham-shareholder-democracy.html?hp&_r=0)

The Saga of Derek Jeter and Taxes

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When I saw that Derek Jeter was in the news this week for changing residences from New York to Florida to lower his taxes, it made me wonder about what ever happened to Christian Lopez. Christian, a 23-year-old cellphone salesman from Highland Mills, N.Y, was the fan that caught Derek Jeter’s 3,000th hit and returned the ball to Jeter, essentially asking for nothing in return. What did he get for being a nice guy? As many sources have reported, Lopez received an additional “thank you bill” from the IRS.

Questions:
1. According to experts, the ball would have been worth between $250,000 – $500,000. Is that what the IRS is taxing him for? Could they do this? Discuss.
2. In gratitude for giving back the ball, the Yankees gave Lopez four luxury seats for every remaining home game of the 2011 season and an assortment of Jeter-signed memorabilia. Do you think this should be classified as income or a gift and is there any difference between the way these two classifications are taxed?
3. If you assume that the value of these items in (#2) was $70,000 and Christian was in the 28% tax bracket, what amount of tax would he owe if these were considered income?
4. Several companies were reported to have given Lopez gifts for returning the ball. Research what these were and if they should be counted as income.
5. Mr. Lopez was also reported to have over $100,000 in college loans at the time he caught the ball. Do you think you would have done the same thing as he did and given the ball back?

Sources:

Leland, J. (2011). Returning Jeter’s Big Hit: No Good Deed Goes Untaxed (Perhaps). The New York Times, July 11 (Retrievable online at http://www.nytimes.com/2011/07/12/nyregion/fan-may-owe-taxes-for-claiming-jeters-3000th-hit.html)
Nitti, T. (2013). Derek Jeter Flees New York, Tax Savings Soon To Follow. Forbes, March 27 (Retrievable online at http://www.forbes.com/sites/anthonynitti/2013/03/27/derek-jeter-calls-florida-home-tax-savings-soon-to-follow/)
YouTube.com (2011). Lucky fan gives ball to Jeter, asks for nothing, July 9. (Retrievable online at http://www.youtube.com/watch?v=Dbttg2yp8N4&feature=player_detailpage).