Deception in Financial Statements

In a recent case investigated by the Royal Canadian Mounted Police (RCMP), the senior executives of a publicly traded company were charged with fraud related to the financial statements of the company. The RCMP stated that the accused created an elaborate scheme of paper trails that exaggerated the financial position and the performance of the company in order to mislead investors, creditors and auditors. Revenues were overstated in successive quarters, false sales were recorded in the accounting records and high interest loans were not recorded.  The company eventually went into bankruptcy, at which point the deception was uncovered. Creditors and investors lost millions and employees suffered through unpaid wages.

Financial statement fraud is the deliberate misrepresentation of the financial condition of an enterprise. Its intent is to deceive financial statements users (e.g., shareholders, creditors, regulators). It has many forms and guises, but is perpetrated through intentional misstatements or omissions of amounts in financial statements. It occurs in large publicly traded companies. It occurs in small family-owned firms. CGAs should be aware of the red flags that may indicate the presence of financial statement fraud and then make the appropriate examination to determine if their concerns are warranted. It is often the small extra inquiry by an accounting professional that exposes the presence of financial statement fraud.

The extent of financial statement fraud varies but the techniques used to perpetrate it generally fall into the following categories:

  • fictitious revenues
  • fraudulent asset valuations
  • fraudulent timing differences
  • concealed liabilities and expenses
  • improper or fraudulent disclosures or omissions

Fictitious Revenues

Fictitious revenues are probably the most common form of financial statement fraud. In this scenario, false sales are recorded in the books and records of the company. Often, the offsetting entry will be to accounts receivable. However, there are also other methods of manipulating the revenue side of financial statements. Other techniques include the recording of consignment sales and sales with conditions, failing to record the return of goods sold, improper write-off of receivables, and non-recognition of sales discounts. All these techniques can have the effect of making revenues appear greater than they actually are.

Fraudulent Asset Valuations

Improper asset valuations can be used to manipulate financial statements to the point that they are misleading and fraudulent. This can be done in several ways. Often, an intentional violation in the application of the “Lower of Market or Cost Rule” has been done in order to manipulate the financial statements of an enterprise. Estimates of an asset’s residual value or useful life can also be manipulated. Other schemes to inflate current assets at the expense of long term assets can be undertaken in order to manipulate financial ratios.

Fraudulent Timing Differences

The misapplication of timing difference protocols in accounting can result in financial statements being manipulated. Essentially, timing differences can shift revenues from one reporting cycle to another. The same technique can be used to shift expenses. The result can be that expenses are either overstated or understated in a particular period. In the context of fraud, this technique allows the management of a company to manipulate earnings in order to hit predefined targets.

Concealed Liabilities and Expenses

Concealed liabilities and expenses can have significant impact on financial statements, because concealed amounts have a direct impact on the bottom line of a corporation. The pre-tax income is increased to the full amount by the expense that is not recorded. Concealing liabilities is often easier to do than inventing fictitious revenues, as the latter often requires the creation of false documentation such as false invoices or sales receipts. Concealing liabilities can be as simple as capitalizing an expenditure, rather than correctly placing the cost in the appropriate expense account. Another method is the understating of warranty costs for an enterprise. Failing to adequately disclose the true warranty expense for a business can be of benefit to corporate criminals who wish to manipulate financial statements.

Improper or Fraudulent Disclosures or Omissions

As a general rule, financial statements must contain all information to prevent a user of those financial statements from being misled. Notes to financial statements should contain narrative disclosures, supporting schedules, and any other information required to avoid misleading financial statement users. Improper or inadequate disclosure in financial statements can be any of the following:

  • accounting changes
  • liability omissions
  • management fraud
  • related party transaction
  • subsequent events

The degree of the lack of disclosure in any of these examples can amount to the fraudulent omission of a material fact that, in turn, makes the issuance of financial statements fraudulent.

The Defence Against Financial Statement Fraud

Financial statement fraud can be insidious and shrouded. It may have perpetrated for years in any particular business or organization without exposure. Often, when it is finally detected, it is too late; creditors, investors and shareholders have been victimized with no hope of recovery. How then, can we immunize ourselves from financial statement fraud?

The answer lies in a close examination of financial statements for any red flags that may emerge. Each of the types of financial statement fraud outlined in this article has its own red flag, but there are many common warning signs of financial statement fraud. (I recommend the Canadian edition of the Fraud Examiners’ Manual, published by the Association of Certified Fraud Examiners, for extensive reference.)

While I’ve grouped the examples into categories for the sake of simplicity, any one of these warning signs—sometimes alone, sometimes in combination with other signs—can be the key to the discovery of fraud.

Accounting and Statement Warning Signs

  • Negative cash flows while reporting positive earnings.
  • Rapid growth or unusual profitability.
  • Unusual and highly complex transactions, often close to year end.
  • Unusual changes in key financial ratios.
  • Unusual increases in gross margin.

Economic and Sector Warning Signs

  • Assets, liabilities and expenses based on significant estimates.
  • Declines in customer demand.
  • Increasing business failures in the sector.
  • Significant bank accounts or operations in tax haven jurisdictions.
  • Significant related-party transactions.
  • Rapid growth or unusual profitability.
  • Repeated use of materiality to justify inappropriate accounting entries.

Corporate Culture and Structural Warning Signs

  • Domination of management by a single person or small group.
  • Excessive participation by non-financial managers in accounting issues.
  • Formal or informal restrictions on the auditor that limit access to key persons.
  • Ineffective communication and implementation of company’s values and ethical standards.
  • Ineffective or weak board of directors and audit committee.
  • Known history of violations of securities laws by the company, related entities and its executives or board members.
  • Overly complex organizational structure involving unusual entities.

CGAs should be aware of the basic types of financial statement fraud and the red flags that mandate closer examination. This basic knowledge will help CGAs and their clients from falling victim to fraudsters who seek to deceive investors, creditors and others with materially false financial statements.

If You Don’t Hit the Numbers You’re Fired!!!

The Chief Financial Officer (CFO) of any corporation has a challenging job.  Although the job functions of a CFO are varied, they can usually be grouped into the following main categories.

  • Implementation, monitoring and overall supervision of required financial controls. This includes the establishment of various policies and procedures that would include such key elements as revenue recognition and write-off policies.
  • Be the lead on key financial projects that require financial modeling and analysis as well as other key financial related initiatives.
  • Establish relationships with sources of capital and financing and keeping such sources informed as to corporate progress as appropriate.
  • Advise company senior management about the impact of operational decisions on company financial status.

There are many other roles and responsibilities for a CFO.  But what happens when in doing his or her job, the CFO’s duties and professional responsibilities come into conflict with other senior executives?  This can be even more of a challenge (and more troubling) if the CEO of the company has a very strong personality and is driven to get results, sometimes at all costs.

There have been a number of recent cases where this scenario has played out, sometimes in either the civil or the criminal courts.  One of the most recent Canadian cases involves the criminal trial of key figures at Livent Inc, the live entertainment company that was run by Myron Gottleib and Garth Drabinsky.  This case provides excellent insight into the relationships between the CEO and other senior executives and the financial accounting staff, including the CFO.

In her testimony during this criminal trial, Maria Messina, the former Chief Financial Office of Livent made several statements that alluded to the difficulty she faced when dealing with her senior management.  At one point during her tenure at Livent, Messina learned that company managers were planning to implement more than $20 million in accounting manipulations.  Messina met with company managers about this situation and urged them to reconsider the move.  Management responded by telling her that this was just income smoothing and that this was not really her concern.

Messina further testified that the CEO’s management style was dictatorial and bullying and the CEO would often fly into a rage.  “No one wanted to make a mistake that would trigger his anger….there was no way I was going up against him….I was afraid of what they would do to me.”

Messina’s experiences as CFO at Livent are instructive on how a strong CEO within a company can influence a CFO and other accounting staff to help manipulate the accounting records; manipulations that may amount to fraud.  Livent was a classic case of corporate fraud within the executive suite.

An academic paper titled “ Why Do CFO’s Become Involved in Material Accounting Manipulations” (Feng, Ge, Luo & Shelvin) provides some excellent insights to this corporate problem.   The authors examined CFO participation in accounting fraud from two perspectives:

  • CFO’s initiate accounting manipulations for immediate personal gain (i.e. manipulate corporate earning to take advantage of stock market gains)
  • CFO’s participate in accounting manipulations because of pressure from their CEO. Pressure may include compensation, career opportunities etc.

There is another perspective, however,  that should be added.  There are cases of accounting manipulations being done by senior executives in order to “save” a company.  The accounting manipulations can make a company look more profitable. This can affect debt covenants, loan arrangements and the stock price of a company.  Sometimes, executives are looking to buy some time in the hope that a company’s prospects will improve.

The academic paper also made some interesting conclusions.

  • CFO’s seem to bear substantial legal costs for committing accounting fraud but to not reap substantial rewards for doing so.
  • CFO’s tend to depart companies prior to the accounting fraud period. This may indicate that many CFO’s have either been fired for not acquiescing to the fraud or have voluntarily left the company.
  • CEO’s are more likely that CFO’s to be described as the ones who orchestrated the accounting manipulations and who benefited most from them.

The paper goes on to conclude that “taken together, our findings are consistent with the explanation that CFO’s become involved in accounting manipulations under pressure from CEO’s rather than instigating such manipulations for immediate personal gain. “

As an institution, what can a company do to prevent a strong CEO from pushing through unethical or illegal accounting manipulations?

  • The role CFO should be made more powerful within the organization. The CFO must have the ability to work independently so that the influence of the CEO is somewhat limited.
  • The audit committee of the organization should be the one who hires, fires and assesses the work of the CFO.
  • The CFO should have strong reporting lines to the audit committee, especially in cases where there are divergent opinions between the senior executives of the company.

What to Do?

For an honest CFO that is trying to be true to his or her obligations to their profession, the scenarios described are a nightmare.  If a CFO is put in a position of being part of unethical application of accounting standards or out-and-out accounting fraud, what steps can be taken to protect him or herself.  It’s a very difficult situation but here are some tips.

  • The CFO must document the situation and the reasons why the accounting transaction is unethical or illegal. In the first instance, the CFO should  present this memo to the CEO.
  • If the CEO refuses to act, the memo should be discussed with the audit committee.
  • When the audit committee reviews the situation and does not agree with the CFO’s viewpoint, the CFO has fulfilled his or her responsibility to the company. However, if  the CFO is concerned from an ethical or legal perspective, further steps should be taken.
  • The CFO should consult with his or her professional association and receive guidance concerning a course of actions and professional responsibility.
  • The CFO should consult with his or her own legal counsel.
  • Ultimately, the CFO may have to consider resigning if the CFO feels he or she is doing something against their ethics or is acquiescing to an act contrary to any law.

Livent Epilogue:

And what happened to the Livent CFO who testified at the Livent criminal trial.  Although Messina was not charged with criminal fraud, she did receive sanction from her professional association, the Chartered Accountants of Ontario. The summary of the outcome of her disciplinary hearing is below:

Maria Bernedette Messina, of Toronto, was found guilty of two charges under Rule 201.1 of failing to maintain the good reputation of the profession and its ability to serve the public interest, and one charge under Rule 205 of signing a statement which she knew to be false and misleading, arising out of her involvement in fraudulent activities at Livent Inc. While chief financial officer of Livent, Ms. Messina failed to disassociate herself from ongoing and material accounting irregularities, including the fraudulent manipulation of the books and records of the company. She failed to disclose her knowledge of the fraud to the company’s board of directors, audit committee or auditors, and took insufficient steps to prevent the release of the misstated audited financial statements. She signed a United States Securities and Exchange Commission registration statement knowing that the financial statements attached to it were false and misleading.  Ms. Messina was fined $7,500 and suspended for two years…

Accountants of all stripes should look at the Livent case as a warning that these difficult situations can happen to any professional accountant. Awareness about how to approach such situations can prove invaluable.  You may lose your job, but not your career!

 

What Private Investigation Services Can Do for Business Owners and Businesses

There are a lot of private investigation services that business owners and businesses can make use of for protection and for the prevention of fraud and crime. Though the typical notion is that private investigators are only called in to investigate unsavoury activities, the fact is that this is an outdated concept of what private investigation services can do for businesses and business owners. Below are some of the other ways hiring a private investigator can help business owners promote a thriving business.

Help with Collections

It can be very difficult to locate people who do not want to pay debt or those who are hiding assets in order to get around having to pay debt. Private investigators can work with creditors to locate people in debt as well as identify possible hidden assets a person of interest may be covering up. Professional private investigators can get this done legally by using FCRA and GLBA compliant practices.

Perform Detailed Background Checks

Pre-employment detailed background checks is a necessity for some professions and positions, especially for those seeking work in a big company where a small mistake can equal huge losses. Although there are free websites that employers can use, they do not provide detailed and updated reports that professional private investigators can. This can also be done before a company merger or prior to a business deal to better safeguard company assets and reputation.

Employment Monitoring

It can be a problem if some employees work for two companies with conflicting interests. Employment monitoring can nip poaching in the bud as well as prevent company secrets from falling into the wrong hands.

Locate People

There are times when a person has to be located to serve as a witness, as a resource person, or to answer questions. A private investigator can locate missing persons using advanced searching techniques.

Perform Security Sweeps

It is very important for businesses to be able to identify security threats be they be in the form of digital threats or people with questionable motives. Private investigators can identify areas of weaknesses and devise plans to counter security problems before they arise.

Provide Surveillance Services

There are instances where some employees may try to work with rival companies, pretend to be sick or injured, or do things that can harm the business. Private investigators can provide surveillance services to uncover double dealings or scams before they happen or as they happen.

Assist with Termination

Terminating people can get ugly even when they did some wrongdoing. A private investigator can make this process easier as an unbiased third party particularly if the private eye can provide proof of an employee’s wrongdoing such as proof of stealing from the company or sharing information with competitors.

A Lot More!

There are so many ways that private investigation services can help business owners promote a thriving business. If you have any questions, feel free to contact us or browse our list of private investigation services to find out which one you might need.

 

What You Need to Know About Corporate Investigations

Corporate-Private-Investigations

New corporate clients often ask us a lot of questions. We’ve compiled the most commons ones along with answers straight from our team of seasoned private investigators. Sit back and get to find out why your company might be in need of a corporate investigation.

What is corporate investigation?

Corporate investigation is a deep assessment conducted by a private investigator to help organizations be protected from compromised customer information, misuse or abuse of your company network, possible damaged reputation, or any liability if your company network has been used to launch an attack on other systems.

In a nutshell, corporate investigations perform a thorough investigation of your operations and that is why it can also be referred to as business investigations.

What services are provided by private eyes for corporate investigations?

If you want to find out if embezzlement or fraud is going on, if a potential business partner is clean, or if a possible business merger will benefit you, then a corporate investigation is a service that private investigators can provide to help with that.

Private investigators can provide business investigation services for a wide range of topics such as criminal inquiries, background checks, financial searches, and intellectual property breach.

Why would a company need business investigation?

Business these days is all about being informed so you can make the best decisions. Business investigations arm you with that information and other tools for your organization’s success. Examples of this are as follows:

  • Businesses remain prosperous through brand monitoring, media monitoring, compliance audits, and internet monitoring.
  • You can be protected from your competition and those who wish to take advantage of your company with the help of intellectual property investigations.
  • Internal operations can be protected from fraud by checking up on your new partners (or third parties that you hire) and performing background checks for potential hires, more so for a crucial position.
  • Investigations on due diligence can prevent your company from heading to a lawsuit.
  • Your company can get the compensation or damages it is entitled to in the event of a deal gone sour or a partnership that has gone rogue.

What happens during a corporate investigation?

Business investigations can be performed a variety of ways and tailored to your specific needs. The private investigator you hire will guide you on what specific services you need based on your case. This is why it is crucial that you be as direct about the information you are seeking or the needs you want to be addressed so the private investigator can help resolve your situation.

What services are conducted during a business investigation?

Some of the services provided by private investigators include due diligence, integrity testing, counter measure sweeps, computer forensics, financial investigation, surveillance, and security penetration checks.

Why you need to hire a private investigator for a corporate investigation?

Let’s face it, the more you know about your competitors, your internal operations, your business partners, and your market, the more likely that you’ll succeed. It is not uncommon for companies these days to have internal corporate investigators or have some private investigators on retainer so that they can get the information they need as soon as they need them.

Being on top of what is going on means having an edge over everyone else. Businesses are complex entities, and the larger your business, the less likely that the ‘real score’ gets delivered on top. With corporate investigations, you’ll be able to see through departments that may be hiding data, partners that may also be partners with your competitors, or moles posing as job applicants.

Don’t forget, hiring experienced private investigators that knows the ins and outs of corporate law means getting data that matters, that is admissible in court, and free from corporate politics.

Contact us or use the navigation tabs above to know more about Haywood Hunt corporate investigation services and how hiring us can help your business grow. Your initial consultation is on us!

 

Hiring a Private Investigator to Run In-Depth Background Checks

If you’re thinking about conducting background checks, you might be wondering if hiring a private investigator will make a difference. That is a good question to have because private investigation services don’t usually come cheap. Is it truly worth it to hire a private investigator for running background checks?

What Background Checks Are For

Background checks are done as a preventive measure to minimize risks. Before welcoming someone as part of your organization, you’ll want to at least know that he or she is who he or she presents to be. The last thing you want is to hire someone who has a history of business fraud or is connected to a competitor. Know that once someone is part of your company, he or she will have access to a lot of information that can hurt you, your business, and your clients or customers. With this in mind, running background checks is a good investment that can save you from trouble and losses in the future.

Cost of Hiring a PI Agency for Background Checks

How much a private investigator may charge varies because of many factors. Some background checks may require more effort and resources and hence, will cost more. Some may take just a few days of work and some may need a few weeks to sort through things depending on the depth and purpose of the background check being done.

Why Use a PI Agency for Background Checks?

It is possible that you’re quite internet-savvy and can look up some data that are not readily available. However, a licensed private investigator often has access to more secure databases because they oftentimes possess a background in security, know the right people, and can legally do so. Because of this, professional private investigators can provide deeper checks and better analysis that in turn produce better results for their clients. Perhaps you or someone you know can also extract data; however, it takes years of experience and practice to know how to do proper and legal data extraction. More so, should there be data that is vague, a private investigator is capable of following up via the right avenue until clear answers are extracted.

Do it the Right Way

Perhaps one of the most commonly overlooked reasons why you need to hire a private investigator to conduct background checks is to make sure that everything remains legal. There is a fine line between stalking, invasion of privacy, and plain background check. Unless you truly know the ins and outs of everything, you might end up committing a chargeable offence by doing a DIY background check. By hiring a licensed private investigator, you can be sure of professional procedures that do not violate any law and can keep you out of trouble too.

Are you looking for reliable private investigation service providers in Toronto and Ontario? Contact us at Haywood Hunt & Associates. We’ll be happy to answer questions you may have and will be glad to assist you should you decide to hire a private investigator from our team.

Why Your Business May Need a Private Investigator

Most people think that a business only needs a private investigator when something goes wrong. Some think that a private investigator is only hired for investigating personal matters such as infidelity or finding missing children. Private investigation services have evolved by quite a lot in the past decade. These days, more private investigators are working with businesses than investigating personal matters.

Nowadays, there is an increasing number of small businesses and entrepreneurs who hire private investigators for a variety of private investigation services such as tracking business partners, doing background checks, and more. Below are the ways that a business may benefit from hiring a private investigator.

Referrals to Attorneys

Private investigators work with lawyers from a lot of fields. They know who overcharges clients, who has a less than desirable track record, and who’s the best. If you want to know which lawyer you should hire for your business, you should consult your private investigator.

Due Diligence Report for People in Key Positions

It isn’t easy to pick someone who will take care of your business the way you would. You certainly can’t afford to hire the wrong CFO. An unprofessional Chief Financial Officer with a history of money problems can leave your business vulnerable to theft from within. A few hundred dollars spent on a private eye’s services can save you thousands or millions down the road.

Smoother Business Acquisitions

It would be a disaster to acquire a business that you know nothing about; hence, a background check is a necessary first step to make sure that you’re not wasting your investment. The information gathered from a background check can also be used as a trump card in negotiations.

A private investigator can provide you with the following data:

  • Property information
  • Corporate assets
  • Parent companies
  • Current and past employees
  • Risk assessments
  • Officers and directors

Look Up Investment Opportunities

Investing in other companies or businesses can be risky. A private investigator check a company and find out if a potential partnership with them will be truly beneficial for you. You can’t beat accurate information to support business decisions especially when dealing with possible issues, bad employees, existing issues in the company, and pending lawsuits, if any exists.

Background Checks

Not only is it smart to background check potential partners, investments, and acquisitions, it is even smarter to make sure that new hires for your business have undergone a background check. One rotten tomato in your staff can spoil the rest. A private investigator can look up risks, uncover patterns of illegal or irresponsible actions, verify educational backgrounds, and check job history to make sure that you have honest and qualified employees. In the event that you suspect a member of your team has been up to no good, a private investigator can put that person in surveillance to verify your suspicions. Imagine the peace of mind you’ll get when you can get clear answers whether an employee has been disloyal or not.

Are you thinking of availing of private investigation services for your business? Contact us at Haywood Hunt for your obligation-free initial assessment. Talk to us about how you want us to help your business grow stronger.

 

HACTIVISM Taking Aim at the Manufacturing Sector

toronto-private-investigators

When hacktivism enters in to discussions, the “Anonymous” group and “Occupy Movement” is often what comes to mind. While there are many groups and individuals who align themselves with this ideology and practice, the consistency amongst them is their intention and their purpose. On the Anonymous side, the global hacking community has been associated with taking down websites from mainstream media, stealing data from servers of financial institutions and compromising personal information from A-list celebrities.
Much like any activist group, mass inception and global identity and recognition doesn’t happen over night. Individuals aligning themselves to these causes and finding like-minded groups take time. Through their tenacity and perseverance, their popular following is expanding at a rapid pace.

To illustrate this point, look no further than the Twitter account of Anonymous. Their current following is upwards of 1.67 million people. While it should not be suggested that all of these individuals are fellow hackers or share in the same beliefs, one can safely assume that there are individuals who wish to stay so “dark” that they have no social media presence at all.

Any profile on any website starts with but a mere one follower. From there, the audience grows and with it, the amplification of their cause.

In the final days of 2016, Anonymous and an allied group named HackBack, set their sights on the Bildeberg Group. During this attack, the hackers gained access to their website. They placed an ominous warning to the members of what they called “the political elite”. They gave the membership 365 days to act for the common people or further hacking incidents would occur.

This is at least the second time this group has become prayed upon; The first coming in June of 2016, during their annual meeting. A DDoS attack rendered their website inaccessible to the delegation and the general public during that time.

Roughly 150 members of the Bildeberg Group attend this annual conference to discuss matters relating to politics, economy and of course, industry.
Not only have the number of devout followers increased rapidly over a short period of time for these groups, but they also have become more elaborate in their methodology and delivery. The advancement of technology and the ease of its access can be given partial credit to this.

Recent Hactivism Incidents

January 11th, 2017, an affiliate group of Anonymous announced publicly that they would commence occupying Guildhall Square in Ireland. The group provided the exact date, location and time of this movement…to bring attention to austerity through continuous and growing protests.
April of 2016, Gold Corp servers were illegally accessed and digital files were stolen. The information stolen from Gold Corp included employee personnel records, internal correspondence and external emails, budget reports and contact information of international associates.
In March of 2016, the website belonging to BCGold Corp was manipulated by hackers. The mainpage was replaced with a YouTube video of Rick Astley’s hit “Never Gonna Give You Up”. An Anonymous group calling themselves #OpCanary took responsibility for the attack.

This account has roughly 1700 followers and has posted as recently as September of 2016. The description in their bio speaks volumes of their previous actions and should give some insight in to what future plans they may have.
“Surveillance and military corporations are symptoms. Resource Corporations are the disease.”
Contrary to what their name may suggest, these groups have been quite open about their intentions.

The hackers took another step with the information. They compared portions of the data they had obtained through countless publicly accessible social media platforms, such as LinkedIn. The information from payroll, email correspondence and budget reports all became much more relevant when compared to social media posts. Again, this is the very same information that the individual employees chose to make public through social media.

There is a delicate balance between the utilizing social media for corporate branding and increasing the reach potential of an organization against the necessity to effectively safeguard physical and cyber security of the company and its employees.

The frequency of hacktivism activities will continue. Being mindful of these groups and their intentions will serve to anticipate actions taken against corporations and agencies. Continuously measuring and evaluating the security of companies, their partners and their employees will work effectively to limiting the risk of additional disruptions, liabilities and financial losses.

Guilty Plea by Former Concrete Equities Exec in $20M Fraud Case

fraud-investigations

1,200 investors were defrauded for a total sum of more than $20 million in an investment scam, and one of the involved pleaded guilty for his role in the scheme. Sounds like justice? It might seem like that until you hear that he’s not likely to spend a minute of time in jail.

The Guilty Plea

Varun Aurora, a former concrete equities executive pleaded guilty to fraud regarding his role in tricking around 1200 investors out of $20 million. The Securities Commission asked the court to distribute $1.8 million of Aurora’s frozen funds to his victims.

Aurora, 33, pleaded guilty to a single fraud charge of $5,000 in a courtroom packed with many of his victims. Some of the victims could even be heard crying amidst all these. A few of the victims shared that they felt suicidal while some shared that they felt traumatized. Many of Aurora’s victims are retirees or nearly retired who are now facing having to work for a few more years to recuperate from the losses brought on by the fraud. The other charges against him were dropped.

Prosecutor Stephen Johnson read aloud some of the statements from Aurora’s 98 victims who shared victim impact statements with the court. One Gordon Shaw shared that he lost his home as a result of investing in the fraudulent company. His victim impact statement shows that he called those who were involved in the scam as ‘greedy men’. Shaw also wrote that he is upset, disappointed, and unable to relax about the matter as he is having feelings of betrayal.

The Scam

The scam involved promising investors a return of more than 5x (500%) if they buy a stake in an undeveloped beach property which was supposedly in Mexico. No such development exists according to Johnston.

Donna Anderson and Denise Hamilton both lost money when they invested with Concrete Equities. The ladies expressed that they want to see Aurora get some jail time for what he did.

Both women shared that the money they lost through the fraudulent company has had a huge impact on their lives. They thought they’ll be doing well in retirement only to find out that it was all a lie. Anderson described the financial impact as ‘horrendous’.

Aurora was a former executive at Concrete Equities who was also an officer of the real estate project which deceived investors. The project, called El Golfo, presented investors with exaggerated and untrue statements. Even Aurora’s education was misrepresented.

El Golfo raised $25 million in 2009 and the project collapsed afterward.

Aurora’s Involvement

Johnston said that Aurora’s involvement in the fraud is minimal but he also knew what was going on and simply turned a blind eye. Because of this, prosecutors Brian Kiers and Stephen Johnston together with defense lawyer Brian Beresh recommended a 2-year conditional sentence for Aurora.

As part of his sentence, Aurora has paid $1 million in restitution. 9 of his family members were also in court. He came back voluntarily to face his charges after he was arrested in India.

Do you suspect that you’re being targeted by an investment scam? Contact us and we’ll see what we can find out with our private investigation services. Inquiries are obligation-free!

 

Employees as First Line of Defense Against CEO Fraud

fraud

Alarming as this may sound, CEO fraud emails are becoming more common in recent times. Scams like these are often well-crafted and may sound legitimate; thus targeting employees that may not be too savvy with how the organization works. For this reason, employee education is of utmost importance to combat this type of fraud and when possible, mitigate risks and losses.

CEO fraud email campaigns are also known as business email compromise attacks. Fake emails from CEOs are designed to con accounting staff into thinking that a legitimate email has been sent ordering them to schedule and approve deceitful wire transfers.

Oftentimes, otherwise diligent employees are tricked into thinking that an emergency fund transfer has to be done, thus they are more apt to bypass basic security measures. If an employee receives the fraudulent email and thinks that by approving the transfer he or she will be helping the company, then large sums of money can be transferred to the fake CEO account.

Ballooning Losses to CEO Fraud

Let’s take a look at an FBI report. According to our neighbouring country’s investigative agency, business email attacks were responsible for a worldwide loss of more than $1.2 billion between October 2013 to August 2015. This figure was disputed by Bank of the West deputy chief security officer David Pollino who estimated that last year’s losses alone could have easily been more than $1 billion.

According to recent surveys, about half of businesses today are exposed to email and wire fraud. JP Morgan Chase managing director and treasury executive Nancy McDonnell was noted as saying that payments and cyber fraud schemes are growing in sophistication each year. She added that recognizing and managing these threats is crucial to protecting one’s organization. Furthermore, she shared that investing in employee education, infrastructure controls, and appropriate data-protection tools is fundamental to every business.

CEO Email Scam – Big Money for Little Effort

The reason this scam is so prevalent is that the chances of success and big payout for perpetrators is huge compared to any effort they put in. the fraudster (or fraudsters) simply makes an email address that mimics the email address of the CEO and uses that email to demand funds from the organization via email in the guise of an urgent wire transfer for company expense. These emails will typically be embellished with company details to seem legitimate.

There may be times that an email would be followed by a few more to pressure the recipient to take immediate action. This is why the importance of employee education can’t be discounted for matters like this. An employee who has been briefed on company policies and protocols will not bypass basic security measures to give in to a seemingly legitimate demand because of the knowledge that the protocols are known to their superiors as well.

Employee Education Matters!

Of course email authentication can help with minimizing the risks and losses but employee education is still your best line of defense. In the event that a mistake has been made or if the funds transfer has already been done before the scam was discovered, a trained employee will also know what actions to do next such as contacting law enforcement or the bank’s fraud department.

Interested in devising an employee fraud prevention training program or manual to combat CEO email fraud? Contact us for an obligation-free initial consultation today!

Lawyer in Ontario Allegedly Stole Millions from His Clients

ottawa-fraud

Your lawyer is probably the last person you can expect to do something shady but sometimes people are simply not who they present themselves to be. Earlier this month in Rockland, Ontario, a lawyer had his license suspended after it was discovered that around $4 million in funds held trust for the lawyer’s clients was missing.

Tale of the Missing $4 Million

The lawyer, Joseph Stephane Langlois, have close to 20 years work experience. His colleague, a senior partner at Charron Langlois LLP shared that he is in shock after finding out about the discrepancies in the bank accounts for Langlois’ clients.

Pierre Charron, Langlois’s partner at the firm says that he finds it personally deeply distasteful to deal with Langlois but he has no choice. He shared that he’s at a loss for words and that he is still in a state of utter and unbelievable shock over the issue.

A notice of motion was filed with the Law Society Tribunal wherein allegations state that only $220,000 was left of the about $4 million in funds that Langlois was holding for his clients in trust. A recent review of accounts was the instrument for the discovery of the discrepancy.

In the motion, it was also claimed that Langlois made an admission to a Law Society investigator about where the money went. He said that he spent close to $1 million of the money in trust for his law firm and personal use.

Langlois and his lawyer attended a hearing in Toronto earlier this month. In the hearing, a panel ordered Langlois not to practice law as his license is temporarily suspended for the duration of the investigation. It is to be noted that Langlois practiced family and commercial law.

Dealing with the Backlash

In the meantime, Pierre Charron created a new law firm with a new name in an effort to distance himself from his former partner. His firm’s name is Charron Pilon Sauve and all 3 partners in the new firm were able to retain 95% of their clients after the discovery of the issue with the missing funds, shared Charron.

As for now, the Law Society is continuing its investigation. Charron shared that he cannot comment on who and how many clients are affected by the missing funds.

Pierre Charron has been in practicing law for 31 years. He shared that from his first day as a lawyer, it is understood that a lawyer simply should treat dealing with another person’s money as a sacred duty. Messing with it is certainly out of the question.

DRS Construction’s owner Gerry Dube said Langlois has been his lawyer for the ongoing Ottawa Hospital fraud lawsuit the past year and got more than $100,000 in legal fees from him. He retained new lawyers since this situation has surfaced and said that it certainly surprised everyone in Rockland.

Langlois is represented by Matthew Gourlay from the Henein Hutchinson LLP firm in Toronto. He declined to leave comments about the case and said that the investigation is still on-going, saying that they need time to understand the issue.

Looking for private investigators in Toronto to help you with cases like this? Contact us at Haywood Hunt for private investigation services and more!