forensic accounting

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pages: 350 words: 107,834

Halting State by Charles Stross

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augmented reality, call centre, forensic accounting, game design, Google Earth, hiring and firing, illegal immigration, impulse control, indoor plumbing, invention of the steam engine, Necker cube, Potemkin village, RFID, Schrödinger's Cat, Vernor Vinge, zero day

“Everyone else is focussing on HA’s business-level organization, they dumped the gaming stuff on me, and I’m not really an expert.” She gives a little self-deprecating laugh that raises the temperature back above zero. “So I asked for a native guide.” Ah. That explains it. Well, no it doesn’t, you realize, but it goes at least a third of the way towards it. “What do you do?” you ask her. “I’m a forensic accountant.” She pulls that prim, mousy, librarian face again as she taps a bunch of papers in her folio into line. “Oh. Well, ever done any gaming?” There’s always a chance. Some of the deadliest GMs you ever ran into back in your table-top days were accountancy clerks by day. “Not that kind. Why, do you think…?” You glance at the blank white walls of the conference room. Perfect. “Now’s your chance.

VISITOR 2 continues to make with the long stare, but VISITOR 1 caves. “Um, yeah, we are. She’s the organ grinder, I’m just the performing monkey.” He mimes shaking a hat. VISITOR 2 elbows him in the ribs, sharply. “No, you’re a dancing bear. Do try to get the right species!” She faces you: “I’m sorry we seem to have gotten off on the wrong foot. I’m Elaine Barnaby, and yes, I’m from Dietrich-Brunner—I’m a forensic accountant. Jack here is a game-development consultant, and he’s acting as my guide. Now, what can we do for you, Sergeant?” “You can help yourselves to a coffee, then maybe tell me why Marcus Hackman might not want people such as yourselves, um, crawling around on his turf?” She raises an eyebrow. “Ah, that is an interesting turn of phrase. His?” Good, that’s got her attention. “Depends. What are you doing here?

“Sure, but nobody would—” “Tell them it’s to register an insurance claim,” she interrupts, raising her voice. Someone’s been taking assertiveness classes, you realize. “That Hayek Associates are trying to get the items back, but will be unable to return unclaimed items.” “But they’ll claim all sorts of shit that they never had!” “Really?” She gives Couper a withering look: “I’d never have guessed. Poor innocent me, nobody told me that people lie while I was studying for my master’s in forensic accountancy…” “But what use is it?” Couper looks upset, more than anything: “It doesn’t make sense!” “It’s simple enough. Most people will tell the truth, especially when we tell them we just want to know their five top items, so we can verify them against our database.” “But there isn’t a database—” Couper stops dead. Elaine nods, smiling a little smile. “But they don’t know that, do they?” “Oh.

 

pages: 459 words: 118,959

Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff by Christine S. Richard

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Asian financial crisis, asset-backed security, banking crisis, Bernie Madoff, cognitive dissonance, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, family office, financial innovation, fixed income, forensic accounting, glass ceiling, Long Term Capital Management, market bubble, moral hazard, Ponzi scheme, profit motive, short selling, statistical model, white flight

To bolster his case, he set out to find a well-regarded accountant to support his arguments and lessen the skepticism he had encountered as a short seller. His first choice was Lynn Turner, the former SEC chief accountant who had recently joined the forensic accounting firm Kroll, Zolfo, Cooper as a senior adviser. Turner, who couldn’t take on the assignment because it involved appearing before the SEC too soon after leaving the agency, recommended Roger Siefert, another accountant with the firm. Ackman decided Siefert was the right choice after he read a report Siefert worked on as part of a team of court-appointed examiners in the bankruptcy of Spiegel, a Chicago-based mail-order company. Ackman found it to be a brilliant piece of forensic accounting and research that described how a 100-year-old company collapsed under the weight of subprime lending. Under the heading of “accounting irregularities,” the examiner’s report described how Spiegel covered up its surging delinquency rates on its credit cards.

Marty Peretz, the New Republic editor-in-chief and Ackman’s longtime friend and investor, offered to write to SEC Chairman William Donaldson, with whom he was friendly. “Dear Bill, I am writing to bring to your attention a company that is deserving of substantial SEC scrutiny that to date has appeared to escape the SEC’s normally careful review process,” Peretz wrote in a July 2004 letter to Donaldson. Peretz described Ackman’s two-year effort to publicize problems at MBIA, including the initial report, the hiring of forensic accounting experts, Ackman and Siefert’s 33-page letter to the SEC, and the five-hour presentation to a group of SEC officials in February 2004. “It is Mr. Ackman’s counsel’s view that the SEC has not pursued Mr. Ackman’s and [accounting firm] Kroll’s allegations seriously, and may have dropped the matter entirely,” Peretz wrote. He continued: Ackman’s research on Farmer Mac led to a GAO report recommending various changes to improve the company’s liquidity, reduce its off-balance-sheet risk, and protect U.S. taxpayers from loss.

The day after their return appearance at the SEC, Siefert got a call from the SEC. They wanted to meet with the two accountants again, this time without Ackman. “They might have thought we were suffering from Patty Hearst syndrome,” Siefert jokes, referring to the kidnapped newspaper heiress’s apparent loyalty to her captors and willingness to break the law for them. Essentially, the SEC wanted to know whether the forensic accountants would tell the same story without Ackman present. They did. ON NOVEMBER 18, 2004, MBIA announced that it had received subpoenas from the SEC and the New York attorney general’s office. Within a few days, MBIA clarified that regulators wanted to know more about the AHERF reinsurance deal. In all the hours of testimony Ackman gave at the attorney general’s office and at the SEC, he was asked almost nothing about his statement in the Gotham report that the AHERF transaction “was a loss-deferral, earnings-smoothing device.”

 

pages: 279 words: 91,148

Queens Reigns Supreme: Fat Cat, 50 Cent, and the Rise of the Hip Hop Hustler by Ethan Brown

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barriers to entry, crack epidemic, Donald Trump, forensic accounting

[laughs] If I was never doing any crime why the fuck am I gonna make millions upon millions of dollars and then say, ‘OK, let’s move some coke!’ It don’t make no sense. The government will figure that out.” But the feds weren’t looking at cocaine dealing—at least on Irv’s part—they were focusing on money laundering. Soon after the forensic accounting in late 2003 that found nothing inappropriate in The Inc.’s books, the feds allegedly found evidence that the Lorenzos were laundering ’Preme’s cash through two side companies they’d created, IG (“Irv Gotti”) Records, Inc., and MI (“Murder Inc.”) Records, Inc. “After the forensic accountant looked at Murder Inc., LLC, which is his partner company with Def Jam, we were confident that Irv was not engaged in money laundering,” says a source at the Universal Music Group, “but then we were told by the feds about the side companies. Irv was doing something on the side and not telling anybody.”

Indeed, instead of making The Inc. seem less threatening, the move placed the company in the tradition of Death Row, which changed its name to Tha Row after its profile became too notorious. If the Lorenzos thought The Inc.’s cosmetic changes could turn the labels fortunes around or stave off a federal indictment, they were dreadfully naïve. The Lorenzos’ misguided optimism was enhanced after receiving a clean bill of health from a forensic accountant they’d hired to scrutinize their finances for improprieties. The accountant’s report supported many of the Lorenzos’ primary contentions—namely, that the Universal Music Group, not ’Preme, gave Murder Inc. its seed money—and, as a result, they became convinced that the feds would never indict them. Chris Lorenzo even became combative during his interviews with the FBI that fall. “Why is that you have to become so personal?”

The fall of 2003: Ethan Brown, “Hip-Hop Beef: Is It Going Too Far,” New York magazine, December 1, 2003. 16i. The pressure on the Lorenzo brothers: Lola Ogunnaike, “Record Label Drops Murder, Keeps Inc.,” The New York Times, December 4, 2003. 16j. The Lorenzos’ misguided optimism: Interview with Chris Lorenzo. 17. Supreme paid his debt: Nolan Strong, “Lyor Cohen Speaks on Gotti, Feds, JMJ,” allhiphop.com, March 22, 2003. 18. I can see: Interview with Irv “Gotti” Lorenzo. 19. After the forensic accountant: Interview with Universal Music Group executive, February 2005. 19a. With the evidence: United States of America v. Cynthia Brent, also known as “Cynthia Carr.” 19b. Against a backdrop: United States of America v. Kenneth McGriff, also known as “Supreme.” 19c. As a handcuffed Irv: Jeff Leeds, “Hip-Hop Producer Surrenders in Money Laundering Case,” The New York Times, January 27, 2005. 19d.

 

pages: 431 words: 132,416

No One Would Listen: A True Financial Thriller by Harry Markopolos

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backtesting, barriers to entry, Bernie Madoff, call centre, centralized clearinghouse, correlation coefficient, diversified portfolio, Emanuel Derman, Eugene Fama: efficient market hypothesis, family office, fixed income, forensic accounting, high net worth, index card, Long Term Capital Management, Louis Bachelier, offshore financial centre, Ponzi scheme, price mechanism, quantitative trading / quantitative finance, regulatory arbitrage, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, statistical arbitrage, too big to fail, transaction costs

It meant there was almost no relationship between those stocks and the entire index. I was so startled that the legendary Bernie Madoff was running a hedge fund that supposedly produced these crazy numbers that I didn’t trust my math. Maybe I’m wrong, I figured. Maybe I’m missing something. I asked Neil to check my numbers. If I’d made an obvious mistake, I was confident he would find it. Neil went through my math with the precision of a forensic accountant. If I’d made any mistakes, he decided, he couldn’t find them. By this time I had been working in the financial industry for 13 years and had built up a reasonably large network of people I knew and respected. In this situation I turned to a man named Dan DiBartolomeo, who had been my advanced quant teacher. Dan is the founder of Northfield Information Services, a collection of math whizzes who provide sophisticated analytical and statistical risk management tools to portfolio managers.

That figures, I thought as I trudged through the storm carrying all my papers. I loved the Venus. My family and I spent so much time there that it was almost like our second kitchen. It’s owned and run by the Drosos family, and they knew me well enough to consider me the local eccentric. I was the guy who had been coming in for years telling bad Greek jokes and sitting at a table reading forensic accounting books. I rushed into the restaurant disheveled, dripping wet, and admittedly very agitated. There was a television set hanging above the bar, and a photo of Bernie Madoff was on the screen. “Elaine,” I said, “Elaine, that’s my case. That’s what I’ve been working on. I’m the whistleblower. Do you have a fax machine? I have to get this to the Wall Street Journal and I don’t want the wrong people to find out about it.”

Kotz’s people didn’t challenge my answers; they were probing to find out why the SEC had failed, who was responsible, and what should be done to make certain that nothing like this ever happened again. I began to feel like we shared common objectives. I went through my red flags with them. They had a whiteboard in the room, and several times I got up and showed them the math. The inspector general brought in a camera and took pictures of each of my formulas, explaining that they intended to hire a forensic accounting firm to review my math for accuracy. That seemed like the best way to handle it. At one point late in the morning, Phil Michael took the unusual step of asking Kotz if he could step in and take over the questioning. He said, “I want to run by some points that we’re not hitting.” Phil had spent decades involved in criminal investigations and he knew the entire story, so he made sure we got out the pertinent information.

 

pages: 263 words: 75,455

Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors by Wesley R. Gray, Tobias E. Carlisle

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Albert Einstein, Andrei Shleifer, asset allocation, Atul Gawande, backtesting, Black Swan, capital asset pricing model, Checklist Manifesto, cognitive bias, compound rate of return, corporate governance, correlation coefficient, credit crunch, Daniel Kahneman / Amos Tversky, discounted cash flows, Eugene Fama: efficient market hypothesis, forensic accounting, hindsight bias, Louis Bachelier, p-value, passive investing, performance metric, quantitative hedge fund, random walk, Richard Thaler, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, statistical model, systematic trading, The Myth of the Rational Market, time value of money, transaction costs

PREDICTING PROBMs Accruals are not the only way to manipulate financial statements. For a more holistic view on manipulation, we need to dig deeper into the academic literature. Dr. Messod Beneish, an accounting professor at Indiana University's Kelley School of Business, outlined a quantitative approach to detecting financial statement manipulation in his 1999 paper “The Detection of Earnings Manipulation.”11 He based his model on forensic accounting principles, calling it the “probability of manipulation,” or “PROBM” model. Despite the sophisticated statistical procedures used by Beneish, his research is easy to understand. First, he collated a sample of known earnings manipulators. Then he identified their distinguishing characteristics and used those characteristics to create a model for detecting manipulation. Simple. The result was the PROBM model.

Thomakos, and Tao Wang, “Information in Balance Sheets for Future Stock Returns: Evidence from Net Operating Assets (June 20, 2011).” International Review of Financial Analysis 20 (2011): 269–282. Available at http://ssrn.com/abstract=937361. 11. M. D. Beneish, “The Detection of Earnings Manipulation.” Financial Analysts Journal (September/October 1999): 24–36. 12. Messod Daniel Beneish, Craig Nichols, and Charles M. C. Lee, “To Catch a Thief: Can Forensic Accounting Help Predict Stock Returns? (July 27, 2011).” Available at http://ssrn.com/abstract=1903593 or http://dx.doi.org/10.2139/ssrn.1903593. 13. The NORMDIST function in Excel can be used to perform the transformation of a PROBM score into a more interpretable PMAN, or probability of manipulation score. 14. Bethany McLean and Peter Elkind, Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (Mountain View, CA: Portfolio Hardcover, 2003). 15.

 

pages: 93 words: 24,584

Walk Away by Douglas E. French

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Elliott wave, forensic accounting, full employment, Home mortgage interest deduction, loss aversion, McMansion, mental accounting, mortgage debt, mortgage tax deduction, New Journalism, Own Your Own Home, Richard Thaler, Robert Shiller, Robert Shiller, the market place, transaction costs, unbiased observer

Two dark hair and brown eyes men come forward and state: Judge, we both slept with this woman during the time she claimed to be pregnant. Now, 3 different men have potential paternity. NOW, THE ONLY WAY you can determine who the father (holder in due course) is to take blood samples (accounting, servicing, custody, investor reports and data) from EACH MAN (servicer/transferee, etc.) to see whose DNA it was and all the others to determine the dad and who owes child support. Unless you do the DNA (forensic accounting analysis of all docs and records), it doesn’t matter what the bank lawyers or servicers say really transpired here! Without seeing where that NOTE (not mortgage) came on and off anyone’s books; how it was endorsed and when; who has possession and custody and who negotiated the note and PAID for it, you’ll never be able to answer the age old question, “WHO’S YOUR DADDY?” The New York Times’s Gretchen Morgenson reported in October 2010 that in Florida it was standard practice to destroy original notes when the loan file was converted to an electronic one, “to avoid confusion.”

 

pages: 553 words: 151,139

The Teeth of the Tiger by Tom Clancy

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airport security, book scanning, centralized clearinghouse, complexity theory, forensic accounting, illegal immigration, Occam's razor, sensible shoes

Jack nearly snarled, but there was only one way to accomplish this task, and it was his job, wasn't it? First, he tried to see if his program could shortcut the process. Nope. Fourth-grade arithmetic with a nose attached. What fun. At least by the time he finished, he'd probably be better at entering numbers into the numeric keypad on the right side of the keyboard. There was something to look forward to! Why didn't The Campus employ some forensic accountants? They turned off Route 2 onto a dirt road that wound its way north. The road had seen a good deal of use, some of it recent, judging by the tracks. The general area was somewhat mountainous. The real peaks of the Rocky Mountain chain were off to the west, far enough away that he couldn't see them, but the air was thinner here than he was accustomed to, and it would be warm walking. He wondered how far that would be, and how close they were to the U.S. border.

"I put him on a young Saudi living in London, name of Uda bin Sali-money changer for his family's interests. The Brits have a loose tail on him because he called somebody they found interesting once." "And?" "And Junior has found a couple of hundred thousand pounds that can't be accounted for." "How solid is that?" Bell asked. "We'll have to put a regular on it, but, you know this kid's got the right sort of nose." "Dave Cunningham, maybe?" A forensic accountant, he'd joined The Campus out of the Department of Justice, Organized Crime Division. Pushing sixty, Dave had a legendary nose for numbers. The trading department at The Campus mainly used him for "conventional" duties. He could have done very well on Wall Street, but he'd just loved bagging bad guys for a living. At The Campus, he could pursue that avocation well past government retirement rules.

"I haven't checked yet, but if there is, then he was ordered to do it by his friend, and then they met so that he could confirm it over a pint of John Smith's Bitter." "You're making a leap of imagination. We try to avoid that here," Wills cautioned. "I know," Junior growled. It was time to check out the previous day's money-moving. "Oh, you're to be meeting somebody new today." "Who's that?" "Dave Cunningham. Forensic accountant, used to work for Justice-organized-crime stuff. He's pretty good at spotting financial irregularities." "Does he think I found something interesting?" Jack asked with hope in his voice. "We'll see when he gets here-after lunch. He's probably looking over your stuff right now." "Okay," Jack responded. Maybe he'd caught the scent of something. Maybe this job really did have an element of excitement to it.

 

pages: 455 words: 138,716

The Divide: American Injustice in the Age of the Wealth Gap by Matt Taibbi

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banking crisis, Bernie Madoff, butterfly effect, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, Edward Snowden, ending welfare as we know it, forensic accounting, Gordon Gekko, greed is good, illegal immigration, information retrieval, London Interbank Offered Rate, London Whale, naked short selling, offshore financial centre, Ponzi scheme, profit motive, regulatory arbitrage, short selling, telemarketer, too big to fail, War on Poverty

It would later come out that Rekuc forgot to file his own federal tax returns for four consecutive years, and he would be convicted of that offense in 2010, but nobody knew about it at the time. Instead, for much of the mid-2000s Rekuc played the part of high-powered international forensic accountant, and it was he, in conjunction with Contogouris, who helped craft the specifics of Contogouris’s central theory, that Fairfax was the next Enron. In fact, Contogouris in the summer of 2005 managed to get an audience with the FBI and dragged Rekuc along with him, presenting him as an expert forensic accountant who had done a detailed analysis of Fairfax and discovered a sizable fraud. Years later Rekuc in a deposition would cheerfully admit that he wasn’t a forensic accountant, hadn’t done a forensic examination of Fairfax, and in fact had discovered no evidence of fraud at Fairfax or at Crum & Forster when he met with the FBI.

 

pages: 452 words: 110,488

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead by David Callahan

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1960s counterculture, affirmative action, corporate governance, David Brooks, deindustrialization, East Village, forensic accounting, full employment, game design, greed is good, high batting average, housing crisis, illegal immigration, income inequality, job satisfaction, market fundamentalism, McMansion, microcredit, moral hazard, new economy, New Urbanism, offshore financial centre, oil shock, Plutocrats, plutocrats, postindustrial economy, profit maximization, profit motive, RAND corporation, Ray Oldenburg, rolodex, Ronald Reagan, shareholder value, Silicon Valley, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, Thorstein Veblen, War on Poverty, winner-take-all economy, World Values Survey, young professional

A growing epidemic of white-collar crime attracted little notice, and no real response, until the collapse of Enron in late 2001. The Association of Certified Fraud Examiners (ACFE) is located in Austin, Texas. The group's 28,000 members are spread throughout the country and many are skilled in the arcane specialty of forensic accounting. The subfield has grown rapidly in recent years. Conferences are held to exchange tips on how to unravel complex financial frauds and, in 1999, a group of academics founded the Journal of Forensic Accounting. Their timing couldn't have been better. Fraud examiners are constantly struggling to keep up with sophisticated scams for embezzlement, padding expenses, hiding money overseas, and so on. These are the experts that get called when something doesn't seem right with a company's books or when an employee absconds with company cash.

 

pages: 190 words: 53,970

Eastern standard tribe by Cory Doctorow

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airport security, call centre, forensic accounting, high net worth, offshore financial centre, pirate software, Silicon Valley, the payments system

Bought CO2 credits for an entire year to go with it. Trepan: /private Colonelonic Huh. Who's he working for? ## Colonelonic (private): Himself. He Federally incorporated last week, something called "TunePay, Inc." He's the Chairman, but he's only a minority shareholder. The rest of the common shares are held by a dummy corporation in London. Couldn't get any details on that without using a forensic accounting package, and that'd get me fired right quick. Trepan: /private Colonelonic It's OK. I get the picture. I owe you one, all right? ## Colonelonic (private): sweat.value==0 Are you going to tell me what this is all about someday? Not some bullshit about your girlfriend? Trepan: /private Colonelonic Heh. That part was true, actually. I'll tell you the rest, maybe, someday. Not today, though.

 

pages: 204 words: 58,565

Keeping Up With the Quants: Your Guide to Understanding and Using Analytics by Thomas H. Davenport, Jinho Kim

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Black-Scholes formula, business intelligence, business process, call centre, computer age, correlation coefficient, correlation does not imply causation, Credit Default Swap, en.wikipedia.org, feminist movement, Florence Nightingale: pie chart, forensic accounting, global supply chain, Hans Rosling, hypertext link, invention of the telescope, inventory management, Jeff Bezos, margin call, Moneyball by Michael Lewis explains big data, Netflix Prize, p-value, performance metric, publish or perish, quantitative hedge fund, random walk, Renaissance Technologies, Robert Shiller, Robert Shiller, self-driving car, sentiment analysis, six sigma, Skype, statistical model, supply-chain management, text mining, the scientific method

By just looking at the first digit of each data entry and comparing the actual frequency of occurrence with the predicted frequency, one can easily finger concocted data. In general, faked or fraudulent data appear to have far fewer numbers starting with 1, and many more starting with 6, than do true data. In 1972, the Berkeley economist Hal Varian showed that the law could be used to detect possible fraud in lists of socioeconomic data submitted in support of public planning decisions. Forensic accountant Mark Nigrini gained recognition by applying a system he devised based on Benford’s Law to some fraud cases in Brooklyn. Today many income tax agencies are using detection software based on Benford’s Law, as are a score of large companies and accounting firms. In America, evidence based on Benford’s law is legally admissible in criminal cases at the federal, state, and local levels. a. “Benford’s Law,” Wikipedia, http://en.wikipedia.org/wiki/Benford%27s_law; Malcolm W.

 

pages: 249 words: 77,027

Glock: The Rise of America's Gun by Paul M. Barrett

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airport security, forensic accounting, hiring and firing, interchangeable parts, offshore financial centre, Ralph Nader, Ronald Reagan, union organizing

Other shells established in Ireland, Liberia, and Curaçao were fabricated to issue bills for various “services” to Glock headquarters in Austria and to operating units in Latin America and Hong Kong, the documents show. But these service firms “had no economic substance and were motivated by tax reasons,” according to a confidential ninety-two-page analysis of the Glock companies conducted by Pricewaterhouse-Coopers. The Luxembourg court had appointed a provisional administrator to sort out who owned Unipatent, and that administrator hired the giant auditing firm to do the arduous forensic accounting. Pricewaterhouse found that the Glock service companies’ role appeared to be the shielding of company profits from potential taxation in Austria, Latin America, and Hong Kong. The Latin American and Asian operating units, in turn, appeared to be used to extract profits from the US subsidiary, Pricewaterhouse alleged. The point of the paper shuffle, as noted, was to reduce Glock’s tax liabilities.

 

pages: 244 words: 79,044

Money Mavericks: Confessions of a Hedge Fund Manager by Lars Kroijer

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Bernie Madoff, capital asset pricing model, diversification, diversified portfolio, family office, fixed income, forensic accounting, Gordon Gekko, hiring and firing, implied volatility, index fund, Jeff Bezos, Just-in-time delivery, Long Term Capital Management, merger arbitrage, new economy, Ponzi scheme, risk-adjusted returns, risk/return, shareholder value, Silicon Valley, six sigma, statistical arbitrage, Vanguard fund, zero-coupon bond

Thankfully, our ‘merchant of death’ trade was never put into place. 15 * * * Edge The elusive ‘edge’ Once potential investors have satisfied themselves that you are not a crook, the single question they most often ask is, ‘What is your edge?’ They want to know how you think you can beat the competition. And we all have an answer. You have to. You can’t justify charging investors to manage their money if you cannot explain why investing with you is any better than a monkey throwing darts. Answers you hear often from managers are things like ‘forensic accounting’, ‘primary research’, ‘a proven proprietary trading system’, ‘a better process’ and so on. It is no wonder that investors are sometimes unable to decipher the jargon and fall back on investing with companies that have the best performance history. ‘Nobody ever got fired for buying IBM,’ as they used to say. Many investors asked about our competition. We would try to deflect the questions by discussing our approach instead and saying that although many others analysed similar situations, our rigorous use of hedging made us unique.

 

pages: 265 words: 83,677

The Lonely City: Adventures in the Art of Being Alone by Olivia Laing

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East Village, forensic accounting, global village, late capitalism, Saturday Night Live, Skype, Snapchat

It seems he knew all this not just instinctively, but because his own early experiences had shaped him into an exceptionally ideal tenant of unreal spaces. There are at present two documentaries about Harris’s strange and turbulent life: We Live in Public, which was directed by Harris’s long-term collaborator Ondi Timoner, and Harvesting Me, an episode of Errol Morris’s First Person series. There is also a book, Totally Wired by Andrew Smith, which charts the rise and fall of the dotcom bubble by way of a wonderfully forensic account of Harris’s exploits over the years. All of these works contain scenes in which Harris describes his childhood, in characteristically aphoristic (also confusing, paranoid and unfinished) sentences, as notably unpeopled and friendless, his emotional support provided more by television sets than human beings. He grew up in California, though there was also a stint in Ethiopia: the youngest child in a family of seven, his brothers already well into high school while he toiled through elementary.

 

pages: 266 words: 86,324

The Drunkard's Walk: How Randomness Rules Our Lives by Leonard Mlodinow

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Albert Einstein, Alfred Russel Wallace, Antoine Gombaud: Chevalier de Méré, Atul Gawande, Brownian motion, butterfly effect, correlation coefficient, Daniel Kahneman / Amos Tversky, Donald Trump, feminist movement, forensic accounting, Gerolamo Cardano, Henri Poincaré, index fund, Isaac Newton, law of one price, pattern recognition, Paul Erdős, probability theory / Blaise Pascal / Pierre de Fermat, RAND corporation, random walk, Richard Feynman, Richard Feynman, Ronald Reagan, Stephen Hawking, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, V2 rocket, Watson beat the top human players on Jeopardy!

And since several homes, twenty personal watercraft, forty-seven cars (including five Hummers, four Ferraris, three Dodge Vipers, two DeTomaso Panteras, and a Lamborghini Diablo), two Rolex watches, a twenty-one-carat diamond bracelet, a $200,000 samurai sword, and a commercial-grade cotton candy machine would have been difficult to explain as necessary business expenditures, Lawrence and his pals tried to cover their tracks by moving investors’ money through a complex web of bank accounts and shell companies to give the appearance of a bustling and growing business. Unfortunately for them, a suspicious forensic accountant named Darrell Dorrell compiled a list of over 70,000 numbers representing their various checks and wire transfers and compared the distribution of digits with Benford’s law. The numbers failed the test.3 That, of course, was only the beginning of the investigation, but from there the saga unfolded predictably, ending the day before Thanksgiving 2003, when, flanked by his attorneys and clad in light blue prison garb, Kevin Lawrence was sentenced to twenty years without possibility of parole.

 

pages: 368 words: 32,950

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile by Alexander Davidson

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accounting loophole / creative accounting, algorithmic trading, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, capital asset pricing model, central bank independence, corporate governance, Credit Default Swap, dematerialisation, discounted cash flows, diversified portfolio, double entry bookkeeping, Edward Lloyd's coffeehouse, Elliott wave, Exxon Valdez, forensic accounting, global reserve currency, high net worth, index fund, inflation targeting, interest rate derivative, interest rate swap, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Nick Leeson, North Sea oil, Northern Rock, pension reform, Piper Alpha, price stability, purchasing power parity, Real Time Gross Settlement, reserve currency, shareholder value, short selling, The Wealth of Nations by Adam Smith, transaction costs, value at risk, yield curve, zero-coupon bond

The ARA is a small organisation, with a £15.5 million budget for 2007, which covers both investigation and training. It has 50–60 investigators, 30–40 lawyers and paralegal staff, and some tax experts and accountants, all part of an integrated team. A third of its capacity operates from a Belfast office, where costs are 20 per cent lower than in the mainland UK, and the rest from London. Staff are often seconded from other agencies, including the entire tax and forensic accountancy teams, and some investigators, according to McQuillan. Under the Serious Crime Bill, introduced in January 2007, the ARA’s investigative functions will merge with the SOCA (see above), and its training and accreditation functions into the National Policing Improvement Agency. This is part of a government strategy to distribute the ARA’s powers to other agencies and prosecutors. ‘In the long term, mainstreaming powers will increase the volume of assets recovered and hurt criminals.

 

pages: 438 words: 109,306

Tower of Basel: The Shadowy History of the Secret Bank That Runs the World by Adam Lebor

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banking crisis, Basel III, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, central bank independence, corporate governance, corporate social responsibility, deindustrialization, eurozone crisis, fiat currency, financial independence, financial innovation, forensic accounting, Goldman Sachs: Vampire Squid, haute cuisine, IBM and the Holocaust, Occupy movement, offshore financial centre, Ponzi scheme, price stability, quantitative easing, reserve currency, special drawing rights, V2 rocket

., the American economic intelligence arm of IG Farbenindustrie. Chemnyco is an excellent example of the uses to which a country with a war economy may put an ordinary commercial enterprise.”18 Donald MacLaren, a BSC operative based in New York, had been working for months on an operation against GAF. MacLaren’s plan combined dirty tricks with very public exposure of the firm’s links to Nazi Germany. MacLaren, an ebullient Scot and bon viveur, was a forensic accountant by training and an expert in economic warfare. He had untangled the web of connections linking Standard Oil and Sterling Products, an American pharmaceuticals firm, with GAF and IG Farben. GAF, he wrote, was a “supply depot” for the Latin American subsidiaries of IG Farben and sought to “camouflage its German ownership.”19 MacLaren knew that there were two factions in GAF’s board of directors.

 

pages: 296 words: 86,610

The Bitcoin Guidebook: How to Obtain, Invest, and Spend the World's First Decentralized Cryptocurrency by Ian Demartino

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3D printing, AltaVista, altcoin, bitcoin, blockchain, buy low sell high, capital controls, cloud computing, corporate governance, crowdsourcing, cryptocurrency, distributed ledger, Edward Snowden, Elon Musk, ethereum blockchain, fiat currency, Firefox, forensic accounting, global village, GnuPG, Google Earth, Haight Ashbury, Jacob Appelbaum, Kevin Kelly, Kickstarter, litecoin, M-Pesa, Marshall McLuhan, Oculus Rift, peer-to-peer lending, Ponzi scheme, prediction markets, ransomware, Satoshi Nakamoto, self-driving car, Skype, smart contracts, Steven Levy, the medium is the message, underbanked, WikiLeaks, Zimmermann PGP

As Nathan Wosnack, the cofounder of Blockchain Factory (a B2B service that is primarily focused on extending the useful data found in the blockchain), has pointed out: I feel as though the statements about anonymity on an open and immutable public ledger that can be audited by anyone [like the blockchain] to be a completely ridiculous assertion and [a] modern myth. […] Using mixers helps, but I’m still not convinced even those can save one from sophisticated forensic accounting tools likely being used and in development by law enforcement to analyze targeted [individuals] or even big data and figure out roughly who the parties are, where, and what they’re buying or selling. It is impossible to predict the future with 100 percent accuracy. We don’t know what kind of tools will be combing through the blockchain in the future. For that reason, any serious crimes are probably better off being conducted in the fiat world with untraceable cash.

 

pages: 265 words: 93,231

The Big Short: Inside the Doomsday Machine by Michael Lewis

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Asperger Syndrome, asset-backed security, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, facts on the ground, financial innovation, fixed income, forensic accounting, Gordon Gekko, high net worth, housing crisis, illegal immigration, income inequality, index fund, interest rate swap, London Interbank Offered Rate, Long Term Capital Management, medical residency, moral hazard, mortgage debt, pets.com, Ponzi scheme, Potemkin village, quantitative trading / quantitative finance, short selling, Silicon Valley, too big to fail, value at risk, Vanguard fund

According to a former Goldman derivatives trader, Goldman would buy the triple-A tranche of some CDO, pair it off with the credit default swaps AIG sold Goldman that insured the tranche (at a cost well below the yield on the tranche), declare the entire package risk-free, and hold it off its balance sheet. Of course, the whole thing wasn't risk-free: If AIG went bust, the insurance was worthless, and Goldman could lose everything. Today Goldman Sachs is, to put it mildly, unhelpful when asked to explain exactly what it did, and this lack of transparency extends to its own shareholders. "If a team of forensic accountants went over Goldman's books, they'd be shocked at just how good Goldman is at hiding things," says one former AIG FP employee, who helped to unravel the mess, and who was intimate with his Goldman counterparts. * Zelman alienated her Wall Street employer with her pessimism, and finally quit and set up her own consulting firm. "It wasn't that hard in hindsight to see it," she says. "It was very hard to know when it would stop."

 

pages: 487 words: 147,891

McMafia: A Journey Through the Global Criminal Underworld by Misha Glenny

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anti-communist, Anton Chekhov, Berlin Wall, blood diamonds, BRICs, colonial rule, crony capitalism, Deng Xiaoping, Doha Development Round, failed state, Fall of the Berlin Wall, financial deregulation, Firefox, forensic accounting, friendly fire, glass ceiling, illegal immigration, joint-stock company, market bubble, Mikhail Gorbachev, Nick Leeson, offshore financial centre, place-making, rising living standards, Ronald Reagan, Skype, special economic zone, Stephen Hawking, trade liberalization, trade route, Transnistria, unemployed young men, upwardly mobile

“The problem is that nobody was looking for it who knew how to look for the money,” explained Bill Richey, a former Florida State DA who was asked by the Simonsens and Cochranes to search for the money across the globe. And so Richey made a smart move—he called a buddy who used to work for the Internal Revenue Service as a criminal investigator. “You know, the IRS are tax people, the American gestapo!” he said. “My guy is a very nice man, but he’s a very efficient and effective forensic accountant investigator.” Tracing the money to Switzerland, England, and the United States, Richey assembled the A-team of asset recovery lawyers in London, Kentucky, Los Angeles, New York, Geneva, Hong Kong, Singapore, and Lagos. Slowly but surely, the A-team started to claw back the assets located outside Nigeria. But to get the job done properly, they would need convictions of the criminal group in Nigeria.

 

pages: 385 words: 25,673

Word Freak: Heartbreak, Triumph, Genius, and Obsession in the World of Competitive ScrabblePlayers by Stefan Fatsis

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deliberate practice, Donner party, East Village, forensic accounting, Golden Gate Park, Gödel, Escher, Bach, index card, Saturday Night Live

It’s a function of national characteristics,” asserts Philip Nelkon, Mattel’s Scrabble man, himself a four-time British national champion. “I think the U.K. players are just as intense as the U.S. players, but they just don’t show it. I’d say we have more regular guys than you do.” He says that “Sherman-Edley types” — eccentrics unafraid, even eager, to flaunt their eccentricities — would be unusual in the U.K. Or, as the English player David Webb, a forensic accountant, sums up the Americans: “I can’t imagine being any of them.” “All the Yanks seem to live at the center of their own universe with only a dim recognition of, and no interest in, life outside it,” Webb tells me. “Conversational gambits are treated as genuine inquiries into their universe, but there is no recognition of any need for reciprocity. There is a camaraderie about the Brits abroad which simply doesn’t exist with the Yanks.

 

pages: 437 words: 132,041

Alex's Adventures in Numberland by Alex Bellos

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Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Black Swan, Black-Scholes formula, Claude Shannon: information theory, computer age, Daniel Kahneman / Amos Tversky, family office, forensic accounting, game design, Georg Cantor, Henri Poincaré, Isaac Newton, pattern recognition, Paul Erdős, probability theory / Blaise Pascal / Pierre de Fermat, random walk, Richard Feynman, Richard Feynman, SETI@home, Steve Jobs, The Bell Curve by Richard Herrnstein and Charles Murray, traveling salesman

The average value of a bell curve is called the mean. The width is called the deviation. If we know the mean and the deviation, then we know the shape of the curve. It is incredibly convenient that the normal curve can be described using only two parameters. Perhaps, though, it is too convenient. Often statisticians are overly eager to find the bell curve in their data. Bill Robinson, an economist who heads KPMG’s forensic-accounting division, admits this is the case. ‘We love to work with normal distributions because [the normal distribution] has mathematical properties that have been very well explored. Once we know it’s a normal distribution, we can start to make all sorts of interesting statements.’ Robinson’s job, in basic terms, is to deduce, by looking for patterns in huge data sets, whether someone has been cooking the books.

 

pages: 454 words: 122,612

In-N-Out Burger by Stacy Perman

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anti-communist, British Empire, El Camino Real, estate planning, forensic accounting, Haight Ashbury, Maui Hawaii, McJob, McMansion, new economy, Ronald Reagan, Silicon Valley, Upton Sinclair

The pair had talked frequently; however, when he attempted to call her private home line, he found that the number had been changed and was un-listed. “I was upset,” he recalled. “They changed her telephone number and didn’t tell anybody.” Kahles called In-N-Out’s headquarters only to be rebuffed. “I asked for her number and they said no. Then I left her a message with them and told her to call me. They never gave her any of my messages.” On November 5, 2005, In-N-Out Burger retained Grant Thornton, a large tax firm, to perform a forensic accounting analysis on Boyd; specifically, the firm was tasked with looking into allegations of inappropriate transactions. The firm was given access to Boyd’s department offices and files. They interviewed Boyd’s staffers and a number of the contractors and subcontractors, including Michael Madrid, owner of Michael Anthony Companies. The contents of Boyd’s desk and those of the associates from his department were examined and copied.

 

pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

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Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, working-age population

Many even joined the protests against evictions, even though those evictions were ostensibly being carried out to recoup some money for the savers. Bankia had sparked a humiliating national bailout and the largest loss, at the time of writing, in Spanish corporate history. And what happened to the executives responsible for creating this beast that was too big to fail? While others lost their homes, they kept their high salaries. At FROB, forensic accountants were searching through the balance sheets of all the cajas for evidence of wrongdoing. A week later they sent five cases to court. Most of these related to massive managerial pay packets, sometimes not even revealed to the board of the bank in question. What a way to go. Cajas had been founded by churches on the Benthamite principle of achieving the greatest happiness for the greatest number, and set out to help farmers and ordinary Spaniards in the tough years following the Peninsular War with Napoleonic France.

 

pages: 598 words: 169,194

Bernie Madoff, the Wizard of Lies: Inside the Infamous $65 Billion Swindle by Diana B. Henriques

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accounting loophole / creative accounting, airport security, Albert Einstein, banking crisis, Bernie Madoff, British Empire, centralized clearinghouse, collapse of Lehman Brothers, diversified portfolio, Donald Trump, dumpster diving, financial deregulation, forensic accounting, Gordon Gekko, index fund, locking in a profit, mail merge, merger arbitrage, Plutocrats, plutocrats, Ponzi scheme, Potemkin village, random walk, Renaissance Technologies, riskless arbitrage, Ronald Reagan, short selling, Small Order Execution System, sovereign wealth fund, too big to fail, transaction costs, traveling salesman

They included little ones against Madoff cousins and in-laws, midsize ones against elite hedge funds and former Madoff employees, and giant ones against Madoff’s earliest backers and some of the world’s biggest financial institutions. Nearly four dozen lawyers in Baker & Hostetler’s offices in Rockefeller Center were working almost around the clock. The lawsuits against smaller investors had been farmed out to dozens of lawyers scattered among the firm’s offices in Orlando, Houston, Denver, and Los Angeles. Forensic accountants and private investigators were working alongside the legal teams—as were paralegals, courthouse computer specialists, and multitasking secretaries. In addition, a small battalion of foreign lawyers had been hired to monitor and respond to more than 275 lawsuits in courts spread from Luxembourg to the Cayman Islands. Sheehan, who relished complexity, had divided the work among several specialized teams.

 

pages: 554 words: 168,114

Oil: Money, Politics, and Power in the 21st Century by Tom Bower

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Ayatollah Khomeini, banking crisis, bonus culture, corporate governance, credit crunch, energy security, Exxon Valdez, falling living standards, fear of failure, forensic accounting, index fund, interest rate swap, kremlinology, LNG terminal, Long Term Capital Management, margin call, Mikhail Gorbachev, millennium bug, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, passive investing, peak oil, Piper Alpha, price mechanism, price stability, Ronald Reagan, shareholder value, short selling, Silicon Valley, sovereign wealth fund, transaction costs, transfer pricing, éminence grise

Without concrete evidence of dishonesty, they were unprepared to formally voice any misgivings, or to anticipate the consequences for Shell of the fragmented relationship between Watts and van de Vijver. Compiling “Rockford’s” conclusions about the overbooking of the reserves ruined Watts’s Christmas holiday. Ostensibly celebrating with the Sultan of Oman, he commuted back to Holland to implement Cravath’s advice that Shell needed to debook 2.3 billion barrels of reserves in accordance with the SEC’s requirement of “absolute certainty.” Uncurious about Cravath’s lack of forensic accounting, and oblivious to the doubts about himself among his fellow directors, Watts obeyed his lawyers and auditors to hastily complete a self-destructive operation. Disturbingly, the Wall Street Journal had hinted at Shell’s predicament. The leaks of the critical reports by Anton Bylondrecht describing the unsatisfactory reserves in Oman and Nigeria were clearly intended to destroy Watts and other managers.

 

pages: 992 words: 292,389

Conspiracy of Fools: A True Story by Kurt Eichenwald

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Asian financial crisis, Burning Man, estate planning, forensic accounting, Long Term Capital Management, margin call, Negawatt, new economy, oil shock, price stability, pushing on a string, Ronald Reagan, transaction costs, value at risk, young professional

McLucas was in Houston at Enron’s request, Lay said, to help on the current crisis. McLucas stood. He summarized the events of the past few weeks, describing the challenges Enron faced. “It is critical that Enron both establish credibility with the SEC and create confidence in the marketplace,” he said. The way to accomplish that, McLucas said, was to form a special committee of independent directors. That group, he said, should engage lawyers—who in turn would hire forensic accountants—to review the related-party deals. Lay picked up the theme. “If a special committee will help instill confidence, I would urge we proceed down that path,” he said. The directors warmed to the idea, then took things a step further, discussing whether to add a new director to the board, someone uninvolved in the decisions of the past who could lead the special committee in its investigation.

 

pages: 1,590 words: 353,834

God's Bankers: A History of Money and Power at the Vatican by Gerald Posner

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Albert Einstein, anti-communist, Ayatollah Khomeini, bank run, banking crisis, Bretton Woods, central bank independence, centralized clearinghouse, credit crunch, dividend-yielding stocks, European colonialism, forensic accounting, Index librorum prohibitorum, medical malpractice, Murano, Venice glass, offshore financial centre, oil shock, operation paperclip, rent control, Ronald Reagan, Silicon Valley, WikiLeaks, Yom Kippur War

In March, the IOR responded to the joint commission’s many requests for records and financial ledgers by releasing eleven thin files of internal documents that addressed in the vaguest terms its relationship to the ghost companies in the letters of patronage. It was the first time the Vatican Bank ever produced private files for the investigators of another sovereign. And that was the result of a hard-fought compromise to an Italian demand that forensic accountants be allowed direct access to the IOR archives.21 The Vatican’s limited cooperation did not prove helpful to the joint commission, whose work was already hobbled by resistance from some major banks entangled with the Ambrosiano, including the Gottardo, Cisalpine, and Kredietbank. The commission was also stymied in accessing 1,500 pages of Calvi’s working papers as a Bahamian court had frozen a safe deposit box in Nassau’s Roywest Bank.