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Accounting Fraud - Creative Accounting Gone Criminal

Mehta Amit — Thu, 01 Nov 2007 05:28:58 +0000

Accounting fraud is often characterized by the:

1. Misuse/misdirection of funds
2. Understating/overstating of revenues
3. Understating/overstating of expenses
4. Overstating of corporate asset values
5. Underreporting of liabilities

Prosecuting accounting fraud is often aided by a whistleblower disclosing unethical practices or unlawful tactics. At times, the whistleblower is someone who also participated in the accounting fraud.

Law enforcers may offer a plea bargain with a diminished sentence or penalties to the whistleblower for exposing his "guiltier" associates. Protection from retaliation may also be provided. In extreme cases, the whistleblower (along with his family) may also go into the government’s witness protection program.

In publicly listed companies, creative accounting tactics, not necessarily among those listed above, may be regarded as fraud. When such tactics are detected, a government oversight agency, like the Securities and Exchange Commission, may launch an investigation.

Sarbox Response

The Public Company Accounting Reform and Investor Protection Act, also called the Sarbanes-Oxley Act (or Sarbox), was speedily passed in 2002 in response to the wave of accounting scandals that occurred in corporate America that year.

It was in 2002 that the countries biggest accounting firms, like Arthur Andersen, Ernst & Young, Pricewaterhouse Coopers, etc., were charged in court or admitted negligence in their duties.

The government held that these accounting firms were tasked with identifying and preventing the publication of bogus financial reports. As a result of their neglect or collusion, their clients were able to publish reports that gave a misleading impression of the client company’s financial status. Accounting fraud reached billions of dollars in some cases.

Sarbox contains provisions, such as the following:

1. Public companies must assess and divulge the effectiveness of their internal financial reporting controls.
2. Independent auditors must vet these assessments and disclosures.
3. Financial reports must be certified by CEOs and CFOs.
4. Personal loans to any director or executive officer are banned in most cases.
5. A stock-exchange-listed company must have a 100% independent audit committee whose sole task is to oversee the relations between the company and auditor
6. More severe civil and criminal penalties for violating SEC rules and longer jail sentences plus bigger fines for execs who intentionally misstate their company’s financial status
7. Protection for whistleblowers to win
a. Reinstatement
b. Back pay
c. Benefits
d. Compensatory damages
e. Abatement orders
f. Attorney’s fees and legal expenses within reason

Fallout from Fraud

In the three-year period before Sarbox became a law, the SEC reported that accounting fraud showed a 41% increase: from only 79 cases in 1998 to 112 in 2001.

Many believe that the stock market downturn of 2002 was caused by a widespread perception that many publicly listed companies (such as Enron and WorldCom) may be cooking the books.

More recently, an accounting fraud scandal arose to rival Enron and WorldCom. AIG is still being investigated for accounting fraud as a result of the mutual funds and insurance fiasco of 2004. But recent investigations uncovered more than a billion dollars in accounting transaction errors.

Oftentimes, the worse punishment is loss of support for the offending company. So far, AIG has already lost around 50 billion dollars in market capital as a result of the investigations.

Bid Rigging - Conspiring to Fix a Bid Price

Mehta Amit — Tue, 30 Oct 2007 15:58:58 +0000

Bid rigging refers to the felony crime of conspiring with other competitors to raise purchase prices set for local, state, or federal government bids

The US government often accepts bids for the procurement of goods and services. When competitors commit the crime of bid rigging, they agree among themselves in advance which competitor will put forward the winning bid on the government contract.

By conspiring, bid riggers keep prices up and ensure that each competitor gets his crack at a government contract. It isn’t necessary that all competitors are involved in the conspiracy. But if enough are, it can influence a government decision maker who will be likely to ignore or be skeptical about lower-priced bids if the majority submits higher price points.

Consequences for Riggers

Bid rigging violates federal law (i.e., the Sherman Act) and may carry fines for corporations up to $10 million. For individuals the penalty is up to $350,000, a 3-year prison term, or both, if the violation was committed before 22 June 2004.

If the violation was committed before this date, the maximum fine for corporations is $100 million. For individuals, it’s $1 million and a maximum 10-year sentence.

In some cases, maximum fines are raised above Sherman Act limits to TWO TIMES the loss/gain involved. Penalty enhancers, include mail/wire law violations, false statements offenses, etc., which make the perpetrator subject to fines and sentencing for these other crimes.

Aside from criminal penalties, a bid rigger also faces potential civil recovery by victims who may get up to THRICE the amount of original damages suffered.

On top of it all is the damage to a firm’s reputation, as in the case insurance giant Marsh & McLennan.

Beleaguered by bid rigging allegations, the firm had to change its leadership and sell off assets (like its $25-million Falcon jet) to cover losses. And, as if to distance itself from the excesses of the past, it even turned its ousted CEO’s posh executive suite into a conference room.

Four Types of Bid Rigging

Virtually all types of bid rigging tactics involve an arrangement among several or all bidders to predetermine the winning bid and eliminate competition. Four of the most common types of bid rigging plans are

1. Cover Bidding. Also called complementary bidding, this is the most common form of bid rigging. Riggers agree to make bids priced too highly (hence the word "cover") to be chosen or that contain unacceptable terms to the purchaser. These cover bids make it seem that real competitive bidding is going on when, in fact, they conceal secretly puffed up pricing.

2. Bid Suppression involves refraining from bidding or withdrawing one’s bid to cause a predetermined competing bid to be accepted.

3. Bid Rotation. Bidders conspire to take turns in submitting the lowest bid.

4. Subcontracting. Competitors who submit intentionally losing bids or suppress their bids receive, in exchange for their collusion, subcontracts from the winning bidder.

These tactics are usually difficult to uncover since collusion is done in secret. Out of the four tactics, however, subcontracting is the easiest to detect.

ERISA Violations - Protecting Employees From Corporate Corruption

Mehta Amit — Thu, 25 Oct 2007 05:19:53 +0000

For the past five years, lawsuits against ERISA violators have been given wide coverage by the press. Some of these alleged big violators are…

- AIG
- AON
- Enron
- Marsh & McLennan Companies
- Merck & Co. Inc.

ERISA allows beneficiaries or participants to recover benefits if the company that employs a participant is plagued by corporate fraud.

When corporate execs commit fraud, company stock values take a nosedive. An employee counting on receiving benefits and/or pension may be left with nothing. And if the employee owns company-issued securities, he may be left holding stocks that are next to worthless.

ERISA also applies to cases where company officers mismanage the retirement and benefits plans of employees.

What ERISA Covers

ERISA applies to pension plans, which pays out money to participants after they retire or provides income beyond employment. It also applies to welfare or benefit plans that provide things like:

- Day care
- Death benefits
- Disability benefits
- Education scholarships
- Health benefits
- Legal services
- Training benefits
- Vacation benefits

Even if a company is in jeopardy due to fraud, embezzlement, or other unscrupulous business practices, it can’t escape its responsibilities to its employers.

If it reneges on its employee obligations, the ERISA law provides victims with a legal remedy to see that they aren’t only paid, but that violators are punished as well.

After the ERISA Act was passed in 1974, many amendments to it have been made and related laws enacted to extend coverage.

In 1996, the Health Insurance Portability and Accountability Act became a law. It gives employees extended health insurance coverage in the face of changing employment status. It also protects those who may be discriminated against in terms of coverage based on preexisting medical conditions.

Krispy Kreme Case

In 2005, Krispy Kreme employees filed an ERISA class action suit against the donut giant. The lawsuit alleged that Krispy Kreme mismanaged its employees’ 401k and profit sharing/stock-ownership program.

Victims claimed that Krispy Kreme didn’t only withhold stocks but also gave them incorrect information as to the risks of the stocks they used in their profit-sharing plan.

At first, Krispy Kreme denied all allegations. But in 2007, the donut maker agreed to pay victims $4.75 million in a cash settlement approved by a judge.

When a Business Goes Bankrupt

If the financial state of a company has become hopeless, filing bankruptcy is one common legal remedy. While the goal of bankruptcy laws is to protect creditors by ensuring that debts are somehow paid, it was only after ERISA was enacted that innocent employees were given protection under the law.

Nearly two decades after ERISA was passed, the US Supreme Court ruled in a landmark case that employees could be protected by ERISA if their company declares bankruptcy.

The high court stated that employee benefit/welfare plan assets must be protected from creditors. Although many legal experts hold that this judgment is the final word regarding ERISA’s application in bankruptcy cases, subsequent rulings in other courts have made some exceptions.

Cloning - Genetic Carbon Copy Controversies

Mehta Amit — Wed, 24 Oct 2007 00:01:44 +0000

Dolly the Sheep became an instant celebrity in 1996 when UK scientists (quite literally) created the world’s first clone of a mammal using an adult cell. As controversial as Dolly’s creation was her early death in 2003.

The international press was abuzz: Does cloning violate scientific ethics? Is it right to produce a genetic copy that is evidently inferior till you hit the right one?

Dolly’s stuffed remains may have been relegated to the Royal Museum at Edinburgh, but the debates she started brought the issue of cloning a little too close to home: making genetic carbon copies of human beings.

Cloning Outlawed?

In 2005, the UN General Assembly (in a vote of 84 to 34) appealed to its member nations to ban any type of human cloning. Cloning is defined as the process of creating an exact replica of an organism, cell, or gene. The UN stated that human cloning is ’incompatible with human dignity’ and goes against protecting human life.

Dozens of nations the world over have enacted laws that ban any type of human cloning. France, Germany, Switzerland, Norway, and Canada all have cloning embargoes in place.

But a couple of months after the UN General Assembly released its stand, South Korean scientists reportedly cloned 11 sick people and then killed their cloned embryos.

What about the US? Well, the Human Cloning Prohibition Act, which Congress passed again in 2003 (it was first passed in 2001), is still sitting in the Senate. The Act bans, among other things, cloning human embryos.

After years of debate, a rival bill, which allows human embryo cloning but bans cloned embryos from being used to initiate pregnancy, was overwhelmingly voted down, 231 to 174. It seems that the Act is once more destined for endless debates in the Senate (which has its own version of the bill) just as it suffered in the House.

The only distinct similarity between the Senate and House versions of the Anti-cloning Act is the penalty: A maximum prison term of 10 years and a maximum fine of $1 million.

So, pending a law, is human cloning outlawed in the US because the UN says so?

Human cloning experiments are going through rough sailing not because of the UN directive (the US doesn’t exactly bow to the UN on its internal policies), but because the sitting President is dead set against it.

Cloning - What Americans Think…

It is President Bush’s firm stand that human life should never be extinguished or exploited to profit another. The American public agrees with him.

In a recent Gallup poll, over 60% were against human embryo cloning as opposed to around 30% that approved. What’s more, the anti-cloning percentage dramatically went up when it was explained that the embryos would be destroyed during research.

So cloning as a crime is a likely reality if a bill gets through within this President’s term. If it continues to sit in the Senate into the next administration, who knows what may happen.

3 Little Known Facts About Cloning

If cloning as a crime is ever submitted for voting in your state, here are a few facts you must consider.

1. Biotechnology Industry Organization has been aggressively pushing for state laws that allow cloned humans to grow past the fetal stage even until birth. The purpose: To harvest tissues for transplanting - so long as they aren’t kept alive after the newborn phase.

2. A number of biotechnologists are currently developing animal clones way past embryo stage. They then harvest animal parts and develop artificial-womb technologies.

3. Anti Cloning doesn’t always mean Anti Stem Cell research. Taking stem cells from adult tissues or umbilical cords isn’t ethically controversial since it doesn’t entail killing human embryos. This kind of stem cell research has repeatedly produced promising results in fighting diseases. Furthermore, many anti-cloning advocates (including legislators) are either afflicted with degenerative diseases or have family members that are.

Animal Abuse - What Constitutes Cruelty?

Mehta Amit — Thu, 18 Oct 2007 05:41:35 +0000

Animal abuse or animal cruelty refers to ill treatment or substandard care that result in needless harm, distress, or suffering. Standards of animal abuse laws, implementation, and tolerance vary across the US. So conditions that constitute abuse are decided on a case-to-case basis.

For example, at least five issues have caused divided opinions among the American public.

1. Fur Farming
2. Factory Farming
3. Animal testing of cosmetic products
4. Medical research using animal subjects
5. Using animals (especially wild animals) in a rodeo or circus

Practices that are considered cruel in other countries, which are tolerated in the US, include tail docking, ear cropping, and the Geier Hitch (using a rope through a nose ring to herd livestock).

Welfare Vs. Rights

Perhaps one reason for the divided opinion of the American public over issues of what constitutes cruelty is the fact that two active animal advocacy movements have responded differently to the question.

Animal welfare advocates say that using animals for human gain may sometimes be justified. But they aim to work at both improving treatment and ending unwarranted suffering.

On the other hand, animal rights advocates believe that an animal has rights just like a human being. That is, each animal has a right NOT to be used for human gain. They work at stopping humans from handling animals like commodities.

Psychological Implications

As mentioned, animal abuse has far-reaching implications on the state of mind of the abuser. The FBI, for one, states that a history of animal abuse is a recurring trait in profiles of murderers and serial rapists.

Furthermore, studies have shown that children who are animal abusers are often victims of abuse themselves or have, at least, seen abuse committed against a member of their family.

The US Humane Society released findings from two studies to this effect: Around a third of families experiencing domestic violence had one child at least who’d hurt/killed a pet.

How Cruelty Is Dealt With in the US

Anyone involved in animal care and training in the US should check out the cornerstone legislation, Cruelty to Animals Act. The law focuses on minimum (rather than optimum) care requirements, such as:

1. Food, water, and shelter
2. Medical care
3. Outlawing torture or inhumane killing

Animal advocacy groups and pet lovers decry the law’s ineffectiveness or silence on practices at circuses and rodeos and the treatment of animals considered pests. Moreover, that enforcement across the US is lamentably inconsistent.

But some states take animal abuse more seriously than others. In New York, for instance, humane society representatives are appointed by the state to enforce laws against animal cruelty. Another state with a similar policy is Massachusetts.

The US is also home to two of the most active animal advocacy groups in the world:
- The Humane Society of the United States
- Society for the Prevention of Cruelty to Animals

As penalties for animal abuse are minor, the best thing animal lovers can hope for is that once cases of cruelty are exposed the abuse will end.

Court Records - A Matter of Public Trust

Mehta Amit — Sun, 29 Apr 2007 07:32:44 +0000

Court records pertain to all the files and documentation kept by a court before, during and after legal proceedings. It is usually the task of the court reporter to keep a faithful record of what transpires during a session in court and it is from this transcript that court records come about. Along with the transcript, other documentation is also included in court documents such as legal forms, evidence, and other related files.

Different groups of people require access to court records for a variety of reasons. For instance, reporters and journalists usually request for court proceedings to get more information about a story that they are working on or to get the ‘first scoop’ on a recent occurrence.

The legal community is another group of people actively involved in acquiring court documents, whether it’s to conduct research or build a case. For the latter, previous court records may be used against someone involved in a current court case.

Collectors and creditors are often eager to determine the outcome of a case and will need court documents to justify that their debtors need to pay them immediately according to what the law has ruled. Court proceedings become proof that they can now pursue their non-payers, especially if their settlements have been granted or if it has been recognized that the latter is financially capable of making payments.

Electronic court records, available on the Internet by request, has been met with opposition because of the threats to the personal privacy of those involved in the cases. However, most county and state courts believe that since these are matters of public record, making them available whether through actual offices or virtual offices in cyberspace do not make much of a qualitative difference. Actually, it remains of utmost importance that these court records are accessible to the general public to prove the integrity and transparency of the judicial system.

While recognizing the right of the public to information, the safety of those mentioned in court records must also be upheld. Since court documents need to be filled with accurate details, releasing them to the public should never be at the expense of the proper enforcement of the law. The danger is not only a forever tarnished reputation; it is also very likely that someone may want to seek revenge and as such ‘track down’ people involved in a particular case.

It is thus up to the court to decide, particularly in cases where a lot of sensitive information is involved, when access to court records should be given. It is usually limited to members of the court and parties to the litigation but if just cause is provided by a member of the public, then they may be given to them as well.

Divorce Records - Learning from Separation

Mehta Amit — Sun, 29 Apr 2007 07:32:43 +0000

Divorce records are documentation following divorce proceedings, which normally include the name of the husband and wife, date of the marriage and the date of the divorce. Other information that may also be included in divorce documents are the date of birth of both the spouses, the addresses of the spouses and the names and ages of their children. The reason for the divorce and the property they both own can also be seen in divorce documents.

People obtain divorce records primarily for genealogical purposes, such as tracing family history and determining how property was divided between spouses and later on transferred to the children. Another reason why people access divorce documents is to determine if someone is legally divorced.

Divorce Records - Are You Ready to Know What You May Find Out?

Many say that divorce records can serve as a good measure of the character of an individual especially since these records indicate the final divorce decree and the circumstances surrounding the situation. If there are any issues of domestic violence or child abuse, these will be clearly stated in the divorce documents. Likewise, if there were any disputes regarding properties between the spouses, restraining orders and any other settlement issues, these will also be seen in the divorce records.

Where to Get Divorce Records

Since divorces are settled in court, divorce documents are obtained through the county court in which the proceedings took place. At the same time, divorce documents are also kept on the state level, which serves as a central repository for all the divorce records from each county.

At this time, not all counties and states have digitized their divorce documents and due to limited manpower and resources, it often takes about two to nine business days or as long as three weeks before requests are processed. With this process, requests have to be placed either in person or by mail before the divorce records are released.

Once divorce documents are online, the processing time will become more efficient, allowing anyone to view these public records as long as they have Internet access. Another advantage of conducting a search for divorce records online is that even with minimal information you will be able to obtain a lead for the full data on the divorce. For instance, you can use a current and ex spouse search beforehand to identify the names and addresses of the spouses which will in turn, bring you to the correct county in which you can request for the divorce documents.

There are two kinds of divorce records that you can request for - certified and uncertified copies. Uncertified copies are primarily used for research purposes only and cannot be submitted as legal document, such as for remarriage. A certified copy, on the other hand, will bear the seal and signature of the registrar and will only be issued to parties involved in the divorce or someone who was authorized by one of the involved parties to request for a copy. In special cases, divorce documents can be granted to an individual who can show that he or she needs a copy of these records to protect a personal right.

Adoption Records - Reuniting Families

Mehta Amit — Sun, 29 Apr 2007 07:32:41 +0000

Adoption records are records of all the adoptions that take place within a given state. The identity of the birth parents is often the most important information that you can find in adoption documents. However, the information about birth parents is frequently insufficient to identify them fully since addresses and contact information are not included in the adoption documents. The educational attainment, age, ethnicity and sometimes, some medical information of the parents is the kind of vague and non-identifying data that you will find in these records.

Why People Want to Find Their Adoption Records

The primary reason why you will want to access your adoption records is to find a long lost parent or child whom you were separated from due to the process of adoption. Sometimes, if you were given up for foster care or are a child of divorce, adoption documents can also help reveal who your parents are. In some cases wherein parents have passed away, these records can also help you you’re your long lost siblings.

You must keep in mind, however, that the information that can be found in adoption records was provided at the time the adoption took place, making it somewhat obsolete. Sometimes, the information provided is also incomplete because the birth parents or the private facilitators that assisted them during the adoption did not feel the need to fill out the forms completely. But knowing about the ethnic background of your birth parents can help in uncovering the past and identifying the locations where they can now possibly be.

Adoption Records - The Convenience of Online Searches

Accessing adoption records online makes it easier to conduct confidential and anonymous searches whenever necessary. There are some instances wherein parents who have given their child up for adoption may not want to be found anymore. As for parents wanting to find their children, anonymous searches are also recommended when the adoptive child is still young and quite unprepared to accept that they are adopted.

Although there are variations in adoption laws from one state to another, most of them require that complete information be provided at the time of adoption. For the most part, adoption records will remain sealed and identifying information can only be obtained through court orders.

Still, there are other means of accessing adoption documents online such as mutual consent registries wherein both parties agree to allow the records to be released. Just make sure that you have the right information for the adoption records to be found, such as the date of the adoption, the name of the adoptee and if possible, the court in which the adoption took place.

Online resources are already exhaustive but if you still feel like you are looking for a needle in a haystack, you can petition the court to release your adoption records. You just need to prove that you have a convincing reason why the adoption documents should be given to you, such as for medical or health purposes or that it would best serve the interests of all parties involved.

Civil Court Filings - Recordings of Non-Criminal Activities

Mehta Amit — Sun, 29 Apr 2007 07:32:38 +0000

Civil court filings pertain to documentation for all civil court cases, which are roughly defined as all cases that are non-criminal in nature. These records are also those that govern private citizens and are to be distinguished from international law and military law as well.

Civil court filings are those with less than ten thousand dollars involved, while cases that deal with more than this amount are usually tried at the Supreme Court. For those cases with less than five thousand dollars at stake, the magistrate will be the one responsible for deciding if this can be tried at a small claims court. Civil documents are divided into several groups depending on the different laws that they fall under.

Civil Court Document Categories

Cases dealing with contracts, damage to property and personal injury all fall under general civil court filings. Family civil records cover those about divorce, child support, child custody and alimony. Juvenile filings are those about juvenile delinquency or individuals committing crimes under the age of 18 as well as juvenile dependency or those cases involving child abuse.

If you are renting or leasing a place, then this will fall under landlord or tenant civil filings. Probate civil court records refer to those cases that deal with personal affairs including adoption, name changes, guardianship, transferring an estate and determining inheritance through a will.

One reason for obtaining civil filings is for determining whether an individual or a company is involved in any kind of litigation. The civil court filing papers include all the forms that you fill out before you are allowed to file a formal case. This also includes all other documentation that is required for the pre-trial and post-trial as well as the actual trial proceedings. Acquiring civil court filing documents is especially relevant if you want to contest a court decision and need information regarding similar cases that have been decided on in the past.

If you visit the websites of various civil courts, you will be able to request for records online. This is especially convenient if you want to compare how compliant a certain case has been to actual civil court rules and procedures. You can easily search online databases either by name or by the numbers of the civil filings that you are looking for.

Filings available online are also excellent resources for law students, paralegals and other legal assistants who may not have the time or the means to retrieve the actual public documents. Some websites even offer concise summaries of the cases, which also aid in saving time and effort in getting the needed information.

Getting these records online also gives you the chance to read through the opinions and analyses of lawyers and judges which can be generalized for most cases. Although civil court laws will differ from state to state, there are still some basic tenets and procedures that can be applied for all filings.

What Are Death Records?

Mehta Amit — Sun, 29 Apr 2007 07:32:35 +0000

Death records are the last and final public records available about an individual. It includes the death certificate, obituaries, and other important documentation surrounding the circumstances of his death. If birth or marriage records do not exist, the chances are highly likely that the person will still have a death record.

Some of the information that you can learn from death records include the names of the family members, the date and place of the person’s birth, marriage and death of the individual, the occupation of the deceased, including any military service rendered and the cause of death. Death documents will also lead you to funeral records, which could include more information that could substantiate what you find in the former.

Just make sure that you have the minimum amount of information needed to find death records such as the full name of the deceased and an approximation of the year and the place of birth. Knowing this information can help you narrow down the search and get to the information that you are looking for fast no matter how old and outdated.

Keep in mind, however that there are limitations to the information found in death files so the best recourse would be to make sure that what you learn is supported by other public records.

People primarily access death records to determine if a family member, an ancestor or just someone they know is dead or still living. It may sometimes be extremely frustrating to look for death documents, especially if these date back a long time since most records can be relocated, lost, stolen or even destroyed.

Death Documents in Electronic Form

Offering death records in electronic form or through the Internet ensures that there is a central repository which people can visit and that the records are protected from the usual wear and tear associated with physical records. Most of the staff members in a county courthouse are often burdened by a heavy workload and electronic death files could streamline the work responsibilities they have since the requests will not have to go through them anymore.

Since death records contain inadequate information, the only advantage they could possibly offer is access or leads to other records that may have the data that you need. For instance, death documents can help you determine if marriage or military records exist for the individual, which, when accessed, can get you in touch with living relatives of the deceased.

Online death record registration is actually promoted by the government. Since recording and registering deaths has become a costly and labor intensive process for the government, electronic death registration is the best way to do away with discrepancies and mistakes in death documents. And for you, this is a good way to be able to find and access the documents that you need fast.