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Showing posts from December, 2006

Apple Computer's Stock Options Back Dating Scandal: An Ex-felon's View

The pursuit of criminal conduct in America should not be affected by the ideology and prejudices of those seeking justice and the persons being pursued. The pursuit of Justice must be blind.
Steve Jobs and individuals at Apple Computer must face the same amount of scrutiny as those involved in Enron and other major corporate frauds.
The disclosures in Apple's report are very troubling and require an appropriate investigation by the SEC and US Attorney for possible criminal conduct.
Steve Jobs should welcome such an inquiry if he is in fact not guilty of any misconduct. Mr. Jobs himself must also provide the public with a forthright, reasonable, and transparent explanation without any spin if he is to have any integrity.
I above is a response I wrote to Professor Larry E. Ribstein regarding a commentary he posted on his Ideoblog entitled “The Backdating Zealots’ Apple Problem.” In his commentary he wrote in part: Just to summarize the emerging blackletter law: It's ok to commit “fr…

The Art of Spinning: How to Identify Possible White Collar Criminals or at Least Unethical and Deceitful People Who You Should Avoid

White collar-crime is a crime of persuasion and deceit. Since the white-collar criminal uses persuasion and deceit to commit their crimes, it follows that such felons are artful liars.

People often ask me what characteristics I look for in other people that alert me to possible criminal activity or at least unethical and deceitful people.

Not all questionable conduct is illegal. A person can be unethical or deceitful (however they are defined) without committing any illegal acts as defined under the law.

However, most criminals use tools like spinning (see below) in the conduct of their crimes.

The Art of Spinning

Sell people hope. My cousin ‘Crazy Eddie’ Antar taught me that “people live on hope” and their hopes and dreams must be fed through our spin and lies. In any situation, if possible, accentuate the positive.

Make excuses as long as you can. Try to have your excuses based on at least one truthful fact even if the fact is unrelated to your actions and argument.

When you cannot d…

Why I Do Not Fear Auditors

White collar crime is a crime of persuasion and deceit. Since the white collar criminal uses persuasion and deceit to commit their crimes it follows that such felons are artful liars.
Most accounting professionals are never taught about the nature of white collar crime in college or in their continuing professional education courses after becoming Certified Public Accountants.
The “Challenge of Audit” Blog written by someone called the Thoughtful Auditor recently posted a commentary entitled “Why Sam E. Antar Doesn’t Fear Auditors.”
He (she) wrote in part:

Mr. Antar clearly had no fear of either external or internal auditors while he was committing fraud. He includes some reasons on his site, such as new audit staffers being young and inexperienced, following out of the box and checklist programs, and not receiving adequate supervision from more experienced managers and partners. Although there has been much hype recently about strengthening audits, I tend to think that these conditions s…

Managing Earnings: Playing the Numbers Game

Did you ever wonder why some companies always consistently beat their earnings targets?Many accounting professionals have written extensively about how companies “manage earnings.” A company can arbitrarily reduce “excessive profits” in good quarters or fiscal years to “save” such earnings and apply them to future leaner accounting periods in order to avoid earnings disappointments.Jeff Matthews has an interesting commentary in his recent blog post entitled, “And Beware CEOs Trying to ‘Hit the Numbers.'"He wrote in part:Not only can the focus on hitting a meaningless, and often unsustainable, profit forecast result in stupid, short-term decision making; it can also, as in the case of Tyco, Fannie Mae, Enron, and a list of other companies large and small too lengthy to bother with, result in fraud.The problem is that management can become so focused and obsessed with hitting earnings targets that certain improper decisions will be made relating to the application of accounting…

Cooperation: Andrew Fastow vs. Sam E. Antar

Andrew Fastow the former Chief Financial Officer of Enron and now a convicted felon has signed a “cooperation” agreement with the class action plaintiff law firms involved in recovering losses on behalf of many victims of the Enron fraud.
According a D & O Diary blog article entitled "Enron, Halliburton, and the Milberg Weiss Criminal Investigation" written by Kevin M. LaCroix:
“In return, Fastow received “the formal support of the Enron investors in a plea for leniency (a factor the Judge explicitly noted).” Fastow was also dismissed as a defendant from the civil suit and “even got the plaintiffs’ lawyers to pay his legal fees for his deposition.” As a result of the plea for leniency, the 10-year sentence to which Fastow agreed when he first entered his guilty plea was reduced to 6 years.”
In the Crazy Eddie fraud investigation I also “cooperated” with the government, civil plaintiff’s attorneys, and victims of my crimes. As a result of such “cooperation” they wrote letter…

Hiding Your Dirty Laundry in the Footnotes: Anatomy of the Crazy Eddie Accounts Payable Fraud

I once listened to a presentation about white collar crime by reformed criminal now Pastor, author, and crime fighter Barry Minkow (ZZZZ Best fraud) at the Value Investing Congress in New York City. Barry Minkow explained to the audience of large investors something called the “iceberg” analysis. According to Barry, an iceberg is only 10% visible and the rest of it lies beneath the surface. It is often difficult to detect fraud and misrepresentation just by looking at financial statements.Financial statements are often accompanied by footnotes which are seldom read and more often not thoroughly analyzed by investors. A great blog footnoted.org written by Michelle Leader sorts through the footnotes of companies and provides excellent analysis.One of the many frauds committed by me at Crazy Eddie involved manipulating just two words in our footnotes.Prior to 1987, Crazy Eddie accounting policy for purchase discounts and allowances was: Purchase discounts and trade allowances are recogni…

In Class Action Securities Litigation Sometimes I Wonder Who are the Clients

Recently Floyd Norris in his blog Notions of High and Low Finance and Peter Lattman in the Wall Street Journal Law Blog posted articles about William S. Lerach (formerly a partner of the indicted Milberg Weiss law firm).
In his post entitled “Making Lerach Pay” Norris wrote:
“William S. Lerach, the class-action securities lawyer most hated in Silicon Valley, and his law firm have been ordered by a federal judge in Houston to pay some of the legal costs incurred by Alliance Capital after Mr. Lerach sued the company in the Enron case. The judge says that Mr. Lerach pursed the case after it became clear it had no merit.”
Mr. Norris asked the following question:
“Would the deterrent have been greater if the penalty had been assessed against the lead plaintiff in this class action, the regents of the University of California, rather than against Mr. Lerach’s law firm? Might such a ruling make institutional investors less willing to serve as lead plaintiffs in class action suits?”
In his post en…

D & O Insurers Can Help in Corporate Governance

The D & O Diary features a commentary Kevin LaCroix entitled “Why Aren’t D & O Insurers Better Corporate Governance Monitors?”

Insurance carriers can play a major role (and they have an economic incentive to do it) in pushing companies to have better corporate governance and financial transparency.

I strongly suggest you read Mr. Lacroix’s blog about his other ideas.

When Regulatory Relief Really Means Relaxing Standards of Transparency and Integrity

The Committee on Capital Markets Regulation released its interim report this week. According an article in USA Today entitled Group: Sarbanes-Oxley needs to loosen up” written by Greg Farrell and published on November 29, 2006:
“…the study was funded by the Starr Foundation, a group headed by former AIG chairman Maurice "Hank" Greenberg, and a philanthropist who didn't want to be named.”
Floyd Norris commenting in his New York Times blog “Notions on High and Low Finance” wrote in a post entitled “Who Paid for the Anti-Regulation Report?”

“The report of the Committee on Capital Markets Regulation…has a distinct anti-regulation tinge, arguing that excessive regulation is hurting the United States competitively.”
I wrote the following comment in Mr. Norris’s blog:

Perhaps a more appropriate name for the “Committee on Capital Markets Regulation” would be the “Political Action Committee on Reduction of Standards for the Integrity of our Capital Markets.”

Members of this Committee …