Fraud examiners from more than 40 countries boarded planes and flew to Washington, D.C., to meet with their colleagues and learn from experts in more than 60 education sessions and panel discussions as they remained “United in the Fight.” No e-messages can replace that.
ACFE FUTURE IS BRIGHT
During the opening general session, ACFE President James D. Ratley, CFE, said the future of the ACFE is bright.
“We now have members in 140 nations, and within the next year we will surpass 60,000 members,” he said. “But there is much in store for you. More sophisticated and cutting-edge training. More and better research into the causational factors of fraud. More and better benefits that will help you in our sole mission: to detect and deter fraud, in all its forms.”
ACFE founder and Chairman Dr. Joseph T. Wells, CFE, CPA, said now that he no longer is in charge of daily ACFE operations, he has three pet projects: the Anti-Fraud Education Partnership, the Law Enforcement Partnership, and the Institute for Fraud Prevention.
“Seven years ago, there were exactly 19 colleges that offered anti-fraud classes for students,” Wells said. “Now there are nearly 400 and the number grows. That is because the ACFE has a policy of giving away educational resources – with no strings attached – to any institution of higher learning that will agree to offer fraud examination education. We’ve donated millions of dollars in resources toward this worthy goal and will continue to do so. Today’s students are tomorrow’s fraud examiners.”
Wells said federal, state, local, and international law enforcement agencies are critical to the ACFE’s mission and the members.
“Five years ago, we started the Law Enforcement Partnership for two reasons: to involve them as members of the ACFE but, as importantly, to recognize the CFE credential for hiring and promotional purposes,” he said. “This gives our members a leg up in a competitive job market. I am proud to announce that currently 24 are participating in the partnership and it will continue to grow, especially with non-U.S. agencies.
“The third project to which I have devoted my energies is the Institute for Fraud Prevention – the IFP,” he said. “It is a nonprofit think tank started by the American Institute of Certified Public Accountants and the ACFE.”
He said the IFP’s purpose is to raise money for research into a variety of causes for fraud. IFP partners are financial, academic and intellectual. Financial contributors include the ACFE, the AICPA, the accounting firms of Grant Thornton LLP and Deloitte LLP, and one of the world’s largest banks, BNP Paribas. Intellectual partners are the Council of Better Business Bureaus, the National White-collar Crime Center, and several federal agencies, among them the FBI and the Government Accountability Office. Academic partners include about 50 universities worldwide.
PRE- AND POST-CONFERENCES, SILENT AUCTION, AND SPONSORS
Attendees learned additional anti-fraud concepts at the two pre-conferences, “Digital Forensics: Obtaining, Managing and Searching Electronic Evidence,” taught by Jean-François Legault, CISA, CISSP, CISM, and “Understanding and Complying with the Foreign Corrupt Practices Act,” taught by George Farragher, CFE.
The three post-conferences included “Auditing/Investigating Fraud Seminar Seminar,” taught by Dennis Dycus, CFE, CPA, CGFM, ACFE Fellow (auditor track) and Regent Jonathan Turner, CFE, CII (investigator track); “Contract and Procurement Fraud,” taught by W. Michael Kramer, J.D., CFE; and “Financial Statement Fraud,” taught by Alton Sizemore Jr., CFE, CPA.
The third annual ACFE Foundation Silent Auction raised $10,210 for the support of the Ritchie-Jennings Memorial Scholarships. The mission of the ACFE Foundation is to increase the body of anti-fraud knowledge and to support future anti-fraud professionals worldwide through the funding of scholarships, endowments, research, and other educational projects. The nonprofit ACFE Foundation works to encourage students to pursue careers in fraud examination.
Conference sponsors included:
TARP’S SPECIAL INSPECTOR GENERAL SEIZES CRISIS TO FIND FRAUD
“We’re in a remarkable time,” said Neil Barofsky, special inspector general of the Troubled Asset Relief Program (SIGTARP), as he addressed attendees during Monday’s working-lunch general session. “Never before has so much government money gone out so quickly and – let’s be frank – with so little protection.”
TARP and SIGTARP were both created as part of the Emergency Economic Stabilization Act of 2008 in the wake of the economic recession. TARP allows the U.S. Department of Treasury to purchase or insure up to $700 billion of troubled assets.
During his speech, Barofsky brought attendees back to late 2008 and early 2009. “You remember just how bad things were,” he said.
Banks of all sizes were facing a huge liquidity crisis. During that time, TARP was rolling out a lot of money via 13 different programs with little thought about fraud and fraud protection, Barofsky said.
“But this gave us a tremendous opportunity to go in and clean up fraud in financial institutions,” he said.
Many banks who had been committing fraud before TARP was created were now applying for funds through the Capital Purchase Program, one of TARP’s programs, and Barofsky has been uncovering their past and present frauds through his investigations into their application processes.
“There’s a lot of fraud out there and a lot of opportunities for taking criminal advantage of this national crisis,” Barofsky said.
“Our goal [as SIGTARP] is to get those most responsible – the CEOs, the CFOs, the founders, the presidents, the owners of these companies – to catch them and put them in jail.”
Barofsky encouraged attendees to contact SIGTARP if they see any possible violations of the TARP. He commended attendees for being “on the frontline of this war against fraud.”
“We can have all the Internet models and computer forensics, but at the end of the day … it’s the people doing the fraud examinations. I thank you for the hard work you do. … I’m looking forward to working with you to bring these people to justice.”
Fraud Magazine interviewed Barofsky for the November/December 2009 issue.
MADOFF TRUSTEE PROVIDES SOME DETAILS OF INVESTIGATION
The computer Bernie Madoff used in his alleged record Ponzi scheme was an antiquated IBM AS/400. Apparently he liked it that way, said Irving Picard, partner at Baker Hostetler and the court-appointed trustee in the liquidation of Bernard L. Madoff Investment Securities LLC, as he addressed the Tuesday morning general session attendees.
This computer, housed in Madoff’s New York City business, “wasn’t connected to the outside world,” Picard said. “It was programmed to record fictitious securities transactions, trade confirmations, account statements, and IRS 1099 forms.”
“They operated it as if it was a legitimate business,” Picard said. “If you had a bunch of stocks in your account, they had to show dividends. And if you had bonds you had to show interest. So every year they issued [IRS] 1099s. So you’d go to your accountant or you’d use one of Bernie’s buddies to prepare your account information for your tax returns.”
Picard said he and his team found backdated pricing in the computer. “That is, the computer was programmed with historic prices, and they could pull them out whenever they wanted,” he said. “So most of the customers were very lucky; unlike you or I who do real trading, they bought at the low and sold at the high. Now, isn’t that interesting? And no one ever picked it up.
“We found that on particular days, prices that you allegedly bought securities at were out of the range of opening, closing, high, and low,” Picard said. “Nobody picked that up including the feeder funds. That didn’t need an electronic genius to figure out. If you looked at your trade confirmation and had any interest to check the price, you would have known [it was false]. Nobody apparently did. On a given day, Bernie traded more allegedly than the volume on the New York Stock Exchange. Can’t make this up!”
Picard spent almost an hour telling attendees some of the details of his ongoing investigation into the recovery of Madoff’s funds. So far, Picard has found about $1.5 billion and said he hopes to distribute that and more to worthy investors before the end of the year.
“This is one of the more difficult cases one can have,” he said. “In a typical bankruptcy case … [I’m] usually dealing with corporate entities. … Here we’re dealing with individuals. There were 4,900 accounts when [Madoff’s] doors closed on Dec. 11, 2008. All of a sudden, everybody was cut off from their money. A lot of people had IRA accounts or were just looking at their accounts as a way of moving on in life – especially people in their 70s, 80s, and, yes, even their 90s.”
Picard and his team have found that Madoff family members were in critical positions in the alleged illegal part of Madoff’s firm, and the business was a “self-clearing organization” meaning “there was no independent review of the alleged trading activity, at least on the customer side.”
Picard said the allegedly illegal part of Madoff’s business was housed on a separate floor with employees who didn’t mingle with the other workers and operated solely on paper. “That is, you had to wait to get trading confirmations and your monthly account statements through the mail – ‘snail mail.’ So the customers, including the feeder funds, didn’t get real-time reports.”
Picard said he has filed about 15 complaints against what he calls the “bigger players” seeking to recover funds.
“We are going to be filing additional avoidance actions that shouldn’t be any surprise to anybody because that’s been in the news since day one. We have sent out letters to many of these individuals, and we’ve told them this is what the books and records show. We’ve invited them to contact us because we are most interested in finding out what their hardships are.”
Picard said he wants to know if these former Madoff investors are living on Social Security, and if they took out second mortgages to give more money to Madoff because “they were getting these 12 percent returns.” Picard said some of the past investors have medical problems, and some don’t have medical insurance. “Some are responsible for disabled family members,” he said. “And many grandparents had set up accounts for their grandchildren’s college educations,” Picard said.
“We have set up a hardship program to deal with claims so that people who had those kinds of problems can give us the information on a short application and move their claims to the top,” he said. “We are cognizant of the problems people have, and we really don’t want to file lawsuits when we can see right up front there would be no collectability.”
At the close of his message, Picard told the attendees to “stay tuned. We’re following the money trail; my aim has always been to make everybody whole.”
Fraud Magazine recently interviewed Picard about his experiences as the trustee in the Madoff case in the July/August 2010 issue.
REESE REMINDS FRAUD EXAMINERS ABOUT LIFE PRIORITIES
“Nobody can change the truth; that’s one thing fraud examiners must understand,” said James T. Reese, Ph.D., award-winning author and lecturer at the Tuesday lunch general session at the 21st Annual ACFE Fraud Conference and Exhibition. “What are we doing about the fraud we’re creating in our own lives? When we start to put our jobs in front of our families we no longer have time to worship or to recreate when we’re so busy thinking that we’re the only person who can do this. I have to remind people that graveyards are full of people who can’t be replaced.”
Reese retired from the FBI after serving 25 years as a supervisory special agent. He was assistant unit chief of the FBI’s Behavioral Science Unit (think “Silence of the Lambs”), and he served as adjunct faculty in criminology and psychology with the University of Virginia for 18 years.
“I suggest you do your job and do it well, and at the end of the day, as my daughter told me back in her high school days: ‘Get a life!’ ” Reese said. “Find something you enjoy because the only time you have is between now and dead. And I don’t know how long that will take, do you?”
Reese was one of the founders of the National Center for the Analysis of Violent Crime and was an original FBI criminal personality profiler. He established the stress program in the FBI and the Employee Assistance Program and the Chaplains’ Program.
“The difference between reality and fiction is that fiction has to make sense or nobody would read it,” he said. “Reality rarely makes sense. We have to make sense out of it. We have to learn that we’re really good at balancing our abilities, but what we’re not good at is our ability to balance. We have to balance work and this thing called life. Alphabetically let’s put life in front of work. We can’t do it any other way.”
Reese has spoken before more than 350 Fortune 500 companies. His funny, insightful, and engaging presentations have made him a favorite at previous ACFE conferences and events.
“I never get tired of being in front of audiences like you,” Reese said. “People who are givers. People who think that if you’re not living on the edge you’re taking up too much room. The rest of the world is huddled in the middle while you’re out there trying to make sure this economy holds firm. That people stay honest. That we keep that whistle real close by in case we have to blow it regardless of the consequences it might cost us.”
Reese told the fraud examiners that moral compasses should always point toward what is right, and true, and what is just.
“No one can change the truth and always the truth will set you free,” he said. “Not too many people who like to do wrong like to see you coming.
“There are two irreconcilable enemies in the depths of each of your souls. One is called good and one is called evil. And life is a series of choices. Nothing is preordained. You can have twins. One grows up to be a lawyer and the other grows up and needs one. And I can’t tell you why that happens other than people make choices.
“At the end of the day, set your burden down in the morning. Pick it up refreshed and renewed with an attitude of gratitude that you’ve got a great job with responsibility and that’s what makes you who you are.
“What good is winning in the battlefields if we defeat the very essence of our souls while we do it? If we cause personal destruction, if we take our families down. They won’t love your job like you do,” Reese said. “This job makes you a living; it’s the wisdom that makes a life. I want you to be wise as well as intelligent. I want you to take yourself to the next level. You can do that.”
COURAGEOUS CFE RECEIVES SENTINEL AWARD
At least one CFE in the audience had taken her dedication to truth to the next level when she uncovered a land development fraud worth millions of dollars and reported it to her employer – a large regional bank in North Carolina.
“I never would have imagined I [would be] the focus of so much attention for doing what’s right and just being honest,” said Amy Stroupe, CFE, after accepting the 2010 Cliff Robertson Sentinel Award. Stroupe is the first Certified Fraud Examiner to receive the honor.
In her position as fraud investigator for the bank, Stroupe reported to her superiors that the bank had unwittingly participated in the lad development fraud by lending a questionable $20 million to duped investors whose paper work didn’t completely pass muster.
During her investigation, Stroupe contacted the FBI in 2007 to report her findings. Investigators and the judge in the case said the land development in question was a Ponzi scheme.
Ultimately, her investigation led to the dismissal of bank employees and guilty pleas from five non-bank participants in the fraud. The bank eventually terminated Stroupe and told her it was obvious she couldn’t conform to a corporate setting.
“I’ve had a lot of people who have told me I was courageous for being a whistle-blower,” Stroupe said. “It was scary and I was intimidated, but what other choice did I have? The only other choice would have been to be a coward and that’s not a choice.”
Stroupe said that society needs to have zero tolerance for fraud and corruption.
“Since our economy is near financial collapse because of so many bad actors, it’s clear that we have more to do,” she said. “It’s folks like you who are committed to uncovering the truth reporting the facts and not tolerating deceit that will make the difference.”
Stroupe sought protection under the whistle-blower provision of the Sarbanes-Oxley Act, and after close to three years, she finally prevailed. Her employer was ordered this past April to reinstate her; expunge her record; and pay back pay, interest, and attorney fees. The judge rejected the bank’s claims that Stroupe had released confidential information. He found that she hadn’t been insubordinate and that the bank’s other claims of grounds for the discharge were nonsensical.
Since that ruling, Stroupe and the bank have reached a further agreement. She is now back to work as a deputy sheriff at the Cleveland County Sheriff’s Office.
“Being recognized by the ACFE – an organization that is dedicated to exposing corruption – is incredibly humbling and gratifying,” Stroupe said.
The ACFE presented its first Sentinel Award, to Cliff Robertson, its namesake, in 2003. In the late ’70s, Robertson, the Academy-Award-winning actor, discovered that a Hollywood producer was creating phony royalty checks by forging the signatures of those for whom the checks were intended and pocketing the cash. This powerful mogul told Robertson that if he reported him, Robertson would never work in Hollywood again. Robertson blew the whistle and was black-listed in the film industry for years.
FRAUDSTER VEERS FROM ETHICS, PAYS THE PRICE
“On Jan. 11, 2005, two very kind security guards walked me down from my corner office overlooking Los Angeles Country Club in Studio City,” said convicted fraudster Justin Paperny, who spoke at the Wednesday general session. “They walked me down from my office to the lower-level parking to my luxury BMW sedan. They were so kind they even helped me carry three boxes to put in my car. That was the day I was fired for my role at UBS in facilitating a Ponzi scheme. A little more than three years later, on April 28, 2008, I self-surrendered to federal prison.”
Paperny served 18 months in federal prison after pleading guilty to one count of conspiracy to commit securities fraud. After graduating from the University of Southern California as a student-athlete in 1997, Paperny had built a thriving career as a stockbroker. However, as a UBS vice president, he colluded with a former colleague – the manager of a hedge fund – to ostensibly facilitate a Ponzi scheme.
“There was nothing in my past that could suggest that I could be a criminal,” Paperny said. He came from a privileged family in Encino, Calif. “And since I could never conceive of myself as a criminal, I certainly couldn’t consider the ancillary consequences that could follow bad behavior.”
UBS had given Paperny a $1 million bonus when they hired him. He said he felt pressure to find lucrative clients to warrant the amount.
When he received a call from a former colleague, Keith, a hedge fund manager who wanted to transfer $6 million to UBS. Paperny thought his problems were solved. They were just beginning.
Paperny said Keith called him one day to ask him to send him an e-mail that said Paperny was going to get 20,000 shares of Jet Blue IPO; the airline stock was due to be up several points the next day.
Paperny told Keith he might be able to get 500 shares but no more than that. But he said that because he wanted to please Keith, he sent the false e-mail and committed wire fraud. He now was beholden to this hedge fund manager. It wasn’t long before Paperny began committing securities fraud by allocating millions of Keith’s investors’ money – funds that Keith had already lost.
The Ponzi scheme deepened. In November of 2004, Keith issued a press release that said his hedge fund had achieved an annual average return of 27 percent. In December of that year, Paperny’s branch manager called him into his office. Ten of Keith’s investors had called UBS wanting their money back. Paperny said Keith had printed false statements with the UBS logo. The cards were collapsing. The next day, the UBS legal department interviewed Paperny. In January of 2005, he was fired.
On April 28, 2005 the FBI came knocking. They showed Paperny the infamous Jet Blue e-mail. However, on top of Paperny’s e-mail “was an e-mail that my client, Keith, had forwarded to 100 prospects,” Paperny said to conference attendees. “His e-mail said something like this: ‘Look at the e-mail below from my broker. If you give me your money today or tomorrow I’m going to allocate you 5,000 shares of Jet Blue IPO. How could you not want to do business with me?’ One hundred people received that e-mail; 15 claimed they invested because of the promise they were going to get shares in the Jet Blue IPO.”
Two years later when the court was sentencing him, Paperny said, “these investors are in front of the judge, yelling at me … telling me that I have ruined their lives. That they’re back to work because of me. I didn’t think of the repercussions of that e-mail. I was too caught up in my own mess. … I helped a guy rob millions.”
Paperny, who has written three books, speaks to groups about his crimes, prison experience, and ethics. His website is: www.etikallc.com.
Dick Carozza is editor-in-chief of Fraud Magazine.
Mark Your Calendar for the 2011 Conference!
The 2011 22nd Annual ACFE Fraud Conference and Exhibition will be held June 12-17 at the San Diego (Calif.) Convention Center.
During this year’s annual conference Wednesday night reception, Dick Weinberger, Ph.D., CFE, CPA, of Weinberger Consulting Services, PLLC, in Austin, Texas, won the all-expenses-paid trip to the 2011 conference.
We’ll see you in beautiful San Diego!
Ralph Q. Summerford Receives Coveted Cressey Award
During the opening general session of the 21st Annual ACFE Fraud Conference and Exhibition, Ralph Q. Summerford, CFE, CFF, ABV, CIRA, CPA, received the association’s highest honor – The Cressey Award – given for a lifetime of achievement in the detection and deterrence of fraud. The award is named after the late Dr. Donald R. Cressey, noted criminologist and one of the pillars of the ACFE.
“I have a dream,” Summerford said during his remarks after receiving the award. “And that dream is about me, but it’s also about you and me – together we can get the auditors and regulators to use the tools we have to detect when a fraud is occurring, and not years after the fact. By doing so, we can keep fraudsters from ruining people’s lives.”
Summerford is the president of Forensic/Strategic Solutions, PC, a firm of fraud and forensic investigators with headquarters in Birmingham, Ala. It is recognized as one of the top U.S. forensic firms. He and his team of professionals specialize in forensic and investigative accounting, computer forensics, expert witness services, fraud examination, business valuations, and litigation consulting.
Sumerford works closely with both plaintiff and defense attorneys; corporate boards and audit committees; insurance company special investigation units; government inspectors general; and governmental agencies such as the U.S. Attorney’s Office, Federal Bureau of Investigation, Internal Revenue Service, Federal Trade Commission, and the Pension Benefit and Guaranty Corporation.
Summerford testifies as an expert witness in federal and state courts on matters involving complicated financial transactions. He’s an ACFE national speaker and has served as the vice chairman of the ACFE Board of Regents, and chairman of both its Professional Standards and Practices Committee and Board of Review.
“Despite our technology, the world of fraud, waste, and abuse continues,” Summerford said. “And from a job security standpoint, that’s a good thing. But despite all our efforts at fraud detection and prevention, both individually, and through the ACFE, fraud continues to grow. I have tagged the first decade of the 21st century as the ‘Golden Decade of Fraud.’ ”
Summerford said fraud examiners must continue to teach people to recognize frauds.
“Auditors should be required to use data-mining software to look for fraud footprints,” he said.
ACFE AWARD RECIPIENTS
The ACFE presented service awards to members during the Annual Conference:
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