Thursday, December 31, 2015

Cheating the elderly

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

About 20% of Seniors are victims of financial fraud, and yet only 5% of the victims report the abuse.  The reasons for the low reporting include humiliation, feeling ashamed and being afraid. 

According to Federal Trade Commission, the number of complaints by people age 60 and over more than doubled between 2010 and 2014.  In the face of these alarming statistics, regulators have suggested rules to help stem the epidemic. 

In 2008, new rules prohibited the use a senior-specific professional designation that indicates or implies that the insurance or stockbroker had special certification or training in advising or servicing seniors.  Excluded from the regulations were Certified Financial Planners and six other designations[i], in part, because of their training and professional organization oversight.

Unfortunately, this rule has not seen enforcement, and I am unaware that anyone in violation of the rule has seen his license suspended, revoked, or has been issued a “cease & desist” order.   I’ve asked both the Indiana insurance and securities regulators.

Along comes the latest attempt this past September.  This latest proposed Model Rule has been designed to help protect vulnerable adults by requiring supervisors of stockbrokers and investment advisors to report when they have a “reasonable belief that financial exploitation of an eligible adult (age 60 or older) has been attempted or has occurred.” 

Good luck.  Caveat emptor


[i] Certified Investment Management Analyst - CIMA
Accredited Retirement Plan Consultant - ARPC
Certified Medicaid Planner - CMP
Certified Retirement Counselor - CRC
Certified Retirement Financial Advisor - CRFA
Certified Senior Advisor – CSA



Sunday, December 20, 2015

Amish on Amish fraud.

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

Amish turned securities promoter bilks Amish investors. 

Earl Miller

On Nov. 5, 2015, a Federal Complaint accused, Earl D. Miller, a northern Indiana man, of securities fraud accusing him of cheating 70 mostly Amish investors of $3.9 million.  Miller promised to invest their money in rehabilitating residential property, “green” technology and gave them a promissory note with a fixed-rate annual return of between 8 to 12 percent. 

Many of the investors – largely novice investors -- belonged to a local Amish community where Miller and his wife were former members. He advertised his investment services in Amish newspapers and at community meetings with Amish families, according to the Federal complaint.

The Federal lawsuit accuses Miller, age 36, of committing a fraudulent scheme through two investment vehicles — 5 Star Commercial LLC and 5 Star Capital LLC. In the suit, the government said, “Miller repeatedly lied to prospective investors” about how their money was being used.”

Miller, who has been in the real estate business since 2006 with real estate agent and “life-long friend,” Matt Gingerich, started rehabilitating depressed real estate properties.  Together they formed 5 Star Commercial LLC and, in April 2014 they filed an SEC Form D notice of the intent of selling “exempt’ securities.  Then, according to court documents, Miller bought out his business partner in exchange for $651,265 cash.

A former business partner, life-long friend and apparently former Amish community member, Matt Gingerich, was not named in either the Nov. 5, 2015, SEC Complaint or the April 2015 Indiana Securities Division Order of Consent.  Mr. Gingerich has not returned my telephone calls attempting to hear his part of the story.  Was he a whistleblower?  Will the regulators attempt to “claw back” the $651,265 cash taken from 5 Star to buy out his interests? 

In exchange for their investments, investors were given a promissory note with a fixed-rate of return of between 8 percent to 12 percent per year, which is much higher than prevailing rates for bank deposits and other fixed-return investments, according to the complaint.

Miller and his wife, according to local business client sources, left the Amish community on good terms and maintained ties with them.  Since the Amish do not enter profession employment, they use outside accountants, attorneys and real estate agents to conduct business.  


Miller touted his Amish upbringing, advertised in Amish newspapers and held seminars at Amish meeting houses. In 2012, Miller started raising money from 5 Star Commercial, gaining sole control of the entity two years later. In 2015, he created 5 Star Capital, which was supposed to invest in “green energy saving product (sic) that save the average American consumer hundreds of dollars each year,” according to the complaint.
Miller's Goshen, IN Home

Miller was highly successful in encouraging his investors, but, in doing so, the complaint states that he lied to them, saying he would not get paid anything for managing the fund.  

He apparently had also told 5 Star Commercial investors that their money would be invested exclusively in real estate when, in reality, he transferred more than $390,000 of 5 Star Commercial’s funds into “highly speculative, fledgling companies” that allegedly made green products.

The company did invest in several companies controlled by two men who were supposedly developing products such as a pedal-operated wheelchair and energy-efficient washing machines. In reality, 5 Star Capital owned no “green product” patents and Miller performed virtually no due diligence into the purported “green” companies before handing them the bulk of 5 Star Capital’s assets, and – contrary to his oral representations to certain investors – the overwhelming majority of 5 Star Capital’s assets were not invested in real estate.

According to local sources, Miller was born and raised in an Amish community and, following the traditional Amish “rumspringa” period, he chose not to be baptized and join the church.  Amish that later abandon the community after they have joined the church are banished or shunned.  Since neither Miller nor his wife was banished, he was given broad access to the normally closed and suspicious community.  It is believed that Miller’s business partner, Matt Gingeritch, had a similar background. 

Affinity frauds are common; but, it is uncommon to find one in the Amish community.  They are generally successful farmers and business owners.  While about half of all business fail within five years, only about five percent of Amish business fail within the same period.  



UPDATE


The People's Exchange newspaper is published every two weeks targeting the Amish community in northern Indiana.  It is published by LaGwana Printing, Inc. and has a circulation of 16,500.  The following email was received Dec 21, 2015:

 Mr. Wright,

   We published no articles regarding either 5 Star Commercial or 5 Star Capital Fund. I do not know either of these two gentlemen personally.

   They did run advertisements in our publication from October of 2009 through July of this year. They were always very prompt in paying for their advertising and are completely paid up.

Dan Byler
President/General Manager

LaGwana Printing
PO Box 70, Shipshewana, IN 46565
(260) 463-4901

MAY 24, 2016 UPDATE
AMISH READERS:

Is Earl Miller, Mrs. Miller, Matt Gingerich, Mrs, Gingerich, Scott LaFazer, Karen LaFazre all pastors of Z Ministries?  Can you name any other Z Ministries pastors?


According to sources, except for Gingerich, they all now live in Buena Vista, Colorado.  Is this correct?  Does the Gingerich family still live in Indiana?

Tuesday, December 1, 2015

Veros Partners Redux

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

It was reported here last week that Veros Partners’ accounting business was quietly sold behind closed doors to insiders by the Court Receiver, William E. Wendling, Jr.  The business was not offered for sale to other potential purchasers and a written valuation report was not provided to the Federal Judge assigned to this SEC Ponzi fraud case. 

The attorney representing the accused has denied that it was a “Ponzi scheme.”  The case is complicated and will probably not be heard in court for another year.  Veros had hundreds of dental practice clients in Indiana and Ohio.  Perhaps Veros Partners had a market value of over $3 million before SEC case was filed. 

It is difficult to familiarize yourself with this case and not see hints of parallels with another Midwestern accounting firm that was crippled by its association with fraud – Arthur Andersen.  

You may recall that in 2002, Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron. Since the Securities and Exchange Commission cannot accept audits from convicted felons, the firm surrender its CPA licenses that year — effectively putting it out of business.   Even though the conviction was later reversed by the Supreme Court, it was too late.  The impact of the scandal combined with findings of criminal conduct ultimately destroyed the firm. 

A detailed account was published in 2002 by Andersen’s home-town newspaper, the Chicago Tribune.

Several key employees at Veros Partners were previously employed by Arthur Anderson.  It does not appear that any of these individuals were involved in the Enron scandal or have any prior blemishes on their professional record.  SED lawsuit defendant Matthew Haas is an Arthur Andersen alumni, 

Other Arthur Anderson alumni include some of the founders of the Veros Partners successor firms -- Trueblaze, LLC and MW Banks Consulting.  According to their LinkedIn pages and Veros Partners biographies, Adam Decker and Mylene Egenolf were employed at Andersen. 

Trueblaze was created on May 27, 2015, by Adam Decker and includes former Veros employees Sarah Robinson and David Osowski.  

MW Banks Consulting, LLC was formed on June 5, 2015 and appears to be operated by former Veros employees Amber Banks, Mylene Egenolf, and Wendy Day York.  Both organizations appear to have offices on the South side of Indianapolis near Greenwood. 

According to court records, before its purchase of assets from Veros Partners, MW Banks had already started providing services to former Veros clients and had received payments for those client services.  Further, court records indicate that Banks, Egenolf, and York has signed non-compete agreements while Veros employees. 

The bookkeeping, tax and audit business may not be as lucrative as you might first think.
 
According to the Chicago Tribune, Arthur Andersen embarked on a path that valued hefty consulting fees ahead of “bluntly honest bookkeeping,” and promoted a “slicker breed” of accountants who could turn modestly profitable auditing assignments into consulting gold.  Thus, the article concludes, eroding Andersen's prior good name.

Veros Partners’ defendants have not been convicted of wrongdoing.  I am certain that we will hear more from the defendants as the court date rolls around.

Veros Partners, not unlike other CPA firms, had moved beyond providing clients with “incidental” advice on investments and become Registered Investment Advisors.  Some CPAs offer personal financial planning and earn commissions by selling stocks, mutual funds, annuities and private placement investments. 

In 1988, after more than 80 years, the American Institute of Certified Public Accountants reversed a longstanding position by allowing accountants to sell stock, mutual funds, annuities, insurance products, limited partnerships and loan brokerage services in competition with other financial services professionals. 

For many of us, CPA firms are supposed to be guardians of the public trust, functioning like the police of the financial world. They know the rules, define the right and wrong way to keep the books. If a CPA firm puts its name on a financial statement, it certifies to the public that the company is playing by the rules and that the numbers conform to a high standard.

When a CPA – any CPA -- following a review of your taxes, suggests that you invest in his “homemade” private placement or a mutual fund, you might pause and ask yourself.  Is he making a higher commission on the investment than he makes for doing my taxes?  Do I need to find a CPA to review the investment suggested by my CPA?

By the way, court-appointed Receiver, William E. Wendling, Jr. has received fees of $390,375.26.  More than the court was paid for the Veros Partners accounting business.  You may read his justification for its sale at the end of last weeks article.  

Please comment.  

Wednesday, November 25, 2015

Veros sold to insiders - UPDATE

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

William Wendling, Jr.
The Veros Partners accounting business was quietly sold to Veros insiders by Receiver William E. Wendling, Jr. 

Was it sold at a fair price?  Did the price represent an open market value?  Were the terms in the best interest of its shareholders, investors and clients? 

According to court papers, the terms of the sale were based on a Valuation Report[i]  Mr. Wendling has provided the public with over a hundred documents and exhibits – except for a written valuation report

Why won’t he respond to requests for a copy of the written valuation report?

Maybe it is because Mr. Wendling never ordered a written appraisal.  According to emails from Judge Poindexter’s staff, a written appraisal was never sent to the court.  

You may recall that, in April 2015, the SEC announced charges against Veros Partners, its president and two associates for making “Ponzi scheme payments to investors.”[ii]  The courts issued an asset freeze order and appointed Wendling as the Receiver.  Fraud Stupid has previously written about Veros.

In July 2015, Veros asked the court to allow it to “enter into two asset sale transactions – one with Trueblaze, LLC and one with MW Banks Consulting.”[iii]

According to the Indiana Secretary of State’s office, Trueblaze was established by Adam Decker on May 27, 2015, and MW Banks was formed on June 5, 2015. Both organizations appears to be owned by Veros insiders.  Mr. Decker appears to remain employed by Veros; Amber Banks left Veros on August 15, 2015.

Here are the terms of the sale taken from court papers dated October 5, 2015:[iv]

Trueblaze Offer: $215,000 for: (a) rights to provide business planning and strategy consulting, accounting and finance, individual tax services, business tax planning and compliance, bookkeeping and bill pay services, and start-up planning services to certain Veros consulting clients, including all files and records of those clients; (b) the goodwill of Veros’ business consulting and accounting business, and Veros Dental’s proprietary systems, tools, and trademarks, URL, telephone number, and internal operational manuals, administrative tools, forms, processes and systems and the perpetual right to use each of them; (c) certain office equipment, furniture and fixtures, and computer hardware and software; (d) all rights of Veros under the restrictive covenant agreements entered into between Veros and Veros employees listed on a schedule; and (e) office supplies of Veros used in the business.

MW Banks Offer: $90,000 for: (a) Veros’ client relationships with certain consulting clients and prospective clients, and all documents and information related to those clients; (b) certain office equipment and office supplies; (c) a prepaid Indianapolis District Central Society golf outing sponsorship; and (d) Veros’ relationship and position in the dental South Side Study Club.

Perhaps potentially troubling to Veros clients may be a stipulation that the purchaser has the right to enforce the non-compete agreements between Veros and its former employees.  We are approaching year-end tax season and its complexity.  The enforcement of non-compete agreements could force hundreds of dentists to find new accountants unfamiliar with their business, dig out old tax files for their new CPAs, and change those sensitive professional relationships. 

However, you may recall that after the fall of Anderson in the aftermath of the Enron scandal, many of its accountants went on to continue working with the same clients but at different firms.  A former Andersen CPA, Robert Lowe Jr., was later quoted in the New York Times, “I have the same relationships I’ve had for 20-plus years.” Apparently Andersen’s accountants were not curtailed by non-compete agreements.

Shortly after the offers from Trueblaze and MW Banks were published on Wendling’s website and Pacer, on October 26, 2015, the sale was approved. 

Was Veros’ accounting business offered to other accounting firms?  There is no evidence in Receiver Wendling’s papers that Veros asset selling price represented an open market value.  Why not? 

Below is a screenshot clipping from Mr. Wendling’s interim report dated Oct. 30, 2015.

(screenshot)

Based on a “Google” search of the subject, accounting firms appear to have a ready market. “Great buyer demand….difficult industry to grow organically.”[vi] The Journal of Accountancy article, “How to value a CPA firm for sale.” [vii] may be an appropriate place to start.  Another might be the AICPA article on the valuation of Accounting Firms by Eddy Parker, ABV.[viii] 

Using rules of thumb in these and other published sources, and based on public knowledge of Veros, one might easily arrive at a much higher amount than was paid by Trueblaze and MW Banks. 

I’m not faulting the former Veros employees at Trueblaze and MW Banks for negotiating a good deal for themselves. I am asking Mr. Wendling to explain why a detailed valuation report apparently was never ordered and why Veros’ assets were not apparently offered for sale to others. 




[i] U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 23246 / April 24, 2015

[i] Veros Motion Doc 135, p. 3
[i] Veros Motion Doc 135, p. 3-4
[i] http://www.aicpa.org/InterestAreas/ForensicAndValuation/Membership/DownloadableDocuments/accounting-firmscpas.pdf

UPDATE:
4:00 PM 11/25/2015 comments from William Wendling:
“I am happy to point out a few issues that may help you understand the transaction that you somehow believe is nefarious.  First, I am not the Receiver over the entire Veros operations. Specifically, I have some supervisory authority, but I do not have control over there ordinary bookkeeping and tax preparation business, which was the asset being sold.  However, when Veros wanted to modify the agreed order relating to a freeze of its assets the SEC object for the reasons stated on it filing with the court.  There was a hearing about the modification request before the Judge and after the parties argued their position as to who should get the money resulting from the sale of these assets the court wanted to know about the value.  There was a discussion about the value and the court turned to the Receiver and asked me to report back to her if the value offered was fair.  So I requested  Blue & Company to help me determine whether the price offered was reasonable.  Blue & Company reviewed numerous Veros financial documents and interviewed the prospective purchasers etc.  I participated in most of those discussions.  Keep in mind that at this time Veros was losing clients right and left.  They were loosing employees.  Yes some had non compete and confidentiality contracts, but under the circumstances there are good legal arguments that could negate those contracts.  

So when Blue came up with its analysis it showed that the sales price was most likely much higher than what those assets were worth.  So, as requested by the court I filed my response that the price was acceptable. Not because it was close to the low side, but because it was considerably more than the high side.  After I filed my response about the value I participated in two conference calls with the court and the parties wherein my findings were discussed.  The court and parties were satisfied my statement that the value was acceptable.

One other safe guard that the price was right stems from the fact that the bank perceives these assets as being covered by its lien on Veros assets.  So the bank is not interested seeing those assets sold on the cheap since it intends to get the money.  My guess is that the bank arrived at the same conclusion that I did.  The assets were being sold for more they were worth.


I am not sure why you perceive any of this as being nefarious or devious, but your entitled to your opinion.”

UPDATE:
7:16 PM 11/25/2015 clarification comments from William Wendling:
I would change my statement to the extent that the assets were being sold at the high side of their value. I did not mean to say that the were sold higher than the value, although some could argue that they were. Again, the amount paid was considerable as it relates to the condition of the assets at the time of sale.  Neither the party buying the asset nor the party receiving the value of the sale, the bank or the SEC, not Veros, took exception to my report to the court that the sale price was in the range of acceptability.

UPDATE:
8:27 PM 11/25/2015 -- COMMENTS FROM GREG WRIGHT
Based on the most recent information from Mr. Wendling, my suspicion has been confirmed that a written Valuation Report was never constructed and the Veros Partners asset sale price did not represent an "open market value." 

Monday, November 16, 2015

Governor Pence Suspends Resettlement of Syrian Refugees in Indiana

This morning I asked Gov. Pence if he was going to follow the lead of the governors of Michigan and Alabama and suspend the resettlement of Syrian Refugees.

In addition to the public safety risks, it costs Hoosier taxpayers two to three times more to educate  a refugee than an American-born child.  The Federal government does little to offset the costs of resettlement.

An email was just received from his re-election campaign that he was indeed going to suspend that program.


Sunday, November 15, 2015

End of Western Civilization?

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

Will the combination of Mideast political instability and the inability to control immigration doom us?  Will the decisions of Secretary Hillary Clinton, President Barack Obama, and President George Bush, lead to the destruction of Western culture? 

We have been there before.

The Roman Empire lost the strengths that had allowed it to exercise effective control of its borders and Illegal immigration led to its fall.  Yes, illegal immigration caused the fall of the Roman Empire. 

Germanic immigrants drove the Roman government into extinction and its citizens into the “Dark Ages.” Is it possible Muslim, Mexican, and other immigrants are likely to send the U.S. and Europe to a similar fate?  

Ask the citizens of Paris. 

Just before the fall of the Roman Empire, its most successful institution was the army, a disciplined, well trained, and formidable fighting force. However, the Roman Government was corrupt.

Sound familiar?

Over a fifty years period, all of the Roman Empire was gone. Why? It was destroyed by illegal immigrants, equal to only about 10% of the native population. The Germanic tribes were not that rare and unusual. They started crossing the Rhine by the tens of thousands and kept coming. They were fleeing political disruptions and starvation.  Rome could not absorb that flood of refugees that refused to be absorbed into its society.

Following that illegal immigration, came the “Dark Ages,” of roughly the period from the 6th to the 13th century.  This was a period of intellectual darkness.  Are we to repeat that history?

This pattern of lax border control is not unknown in history and was the cause or an earlier destruction of civilization and entrance into centuries of dark ages.

In about 1177 B.C., groups known by the name  "Sea Peoples" invaded the Eastern Mediterranean. 

As explained in the recent award-winning book by Eric Cline “1177 BC: The Year Civilization Collapsed,”  the civilized world of the Bronze Age came to an abrupt end. Counties fell “like dominoes over the course of just a few decades.”  “No more Minoans or Mycenaeans. No more Trojans, Hittites, or Babylonians.” Egypt managed to defeat the Sea Peoples but emerged from that war so weakened that it slid into decline. 

These thriving cultures, in the Eastern Mediterranean Sea, suddenly ceased to exist.  Gone were their writing systems, technology, and architecture.  Eric Cline tells the story of the end of civilization and the beginning of a dark age that lasted centuries.  Uncontrolled immigration also ended this civilization. 


Will Europe and the U.S. suffer a similar fate?  Will the proponents of “open borders” and massive immigration prevail?  We know where the Moslem world stands on this issue.  Where do you stand?  Do you support Western civilization?  

Wednesday, November 4, 2015

Death Rates Rise Among Whites in Middle Age

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

According to a Wall Street Journal Nov. 5, 2015, article, White Americans aged 45 to 54 have a 50% higher probability of death than White Europeans the same age.  The dramatic mortality increase from 2000 to 2013, according to the article, is due to the increased use of drugs, alcohol, and suicides. 


However, the author of the article, Betsy McKay, does not recognize what I believe are the underlying causes of these changes -- the negative impact government has had on middle-aged White Americans.  Because of harsh government regulations and policy, the American middle class has suffered tremendously.  It is being taxed and regulated out of existence to redistribute wealth to the very wealthy and the poor.  

Tuesday, October 27, 2015

Signatures & Forgery

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

Most criminals convicted of financial fraud are also convicted of forgery.  Sometimes a fraudster’s only conviction is for “forgery.”  When I see a document forgery conviction by itself without another charge, it tends to raise a number of questions. 

Financial crimes are often complex to audit and prove.  Many detectives tend to avoid them.  Prosecutors may secure a forgery conviction to avoid the cost and effort required to understand, and prove a complex case.  You may recall that the famed “Al Capone” was not convicted for bootlegging or racketeering.  Instead, he was convicted of tax evasion.   

By placing our signature on a document, we are implying our agreement with circumstances and information provided by that document.  A signature may be nothing more than an extension of your cursive handwriting, which may have changed over time to such an extent that today it has few, if any, recognizable letters.

Years ago, after joined a financial services organization, I was turned over to an “old timer” for training.  After passing the regulator’s exams, this elderly gentleman was to “show me the ropes” – training that was not part of the examinations I had just completed. 

He explained that there were many papers requiring customer signatures, and it was easy to overlook a form.  When you get back to the office, he explained, and turn in the customer check and paperwork to the backroom officer – a very stern older female would review it for completeness.  If you forgot to have him sign or initial a form in the right place, even if it seemed insignificant, you would be sent back to the customer to have it signed and dated.  Embarrassing for a newbie. 

He said not to worry and that it was easy to forge most signatures.  He proceeded to show me how to trace a signature by placing a document with an original signature on a plate glass window and the document to be forged on top.  The original was placed upside down, and the signature lines of the two documents were aligned.  He suggested the use of a pen with the same color ink.  He had a coffee cup filled with different color: both felt-tipped and ball-point pens for that purpose. 

The type of forging suggested by this old timer is categorized by document examiners as “transmitted light tracing.”

Traced forgeries are generally created by one of three methods: “transmitted light,” “carbon intermediate,” or “pressure indented image.”  Traced signatures are the most frequent type of signature forgery. “Tracing” often employes a broad-tipped instrument such as a felt-tip or even a fountain pen.  This wider ink line serves to hide inconsistencies better than a ballpoint pen.

Here are a few areas document examiners look for:

·        Since no two signatures from the same person are ever totally duplicated, total agreement between two or more questioned signatures is adequate proof of tracing.  Magnification and the use of a black light can help identify signature forgeries.
·        Pen lifts and hesitation marks happen when the pen stops at an unusual point in the writing.  This may take on the appearance of a small gap in the written line where it should not  be expected.
·        Because the creation of forged signatures are simply drawings, tremor lines may be evident when the pen is moving oh so slowly.  This can cause slight changes in direction take place in what should be a fluid-looking line.  The resultant line reflects the “shaking” pen.
·        Normally, when you sign your name, the speed and pressure of signature writing will vary.  However, because the fraudster’s pen is moving slowly rather than the dynamic movement of most genuine writings, the ink line remains constant in thickness.
·        Blunt starts and stops occur when the forger places the pen point in contact with the paper, and then starts writing.  When he is finished with the, he stops the pen and lifts the pen from the surface.  This may cause an blunt start or ending where the pen was placed.  At times this contact is held so long that if the pen ink will wet the paper and migrate slightly
·        Infrequently, most of us have made an error in our signature and we will let it stand, while others will simply “fix” the signature by correcting it.  These “fixes” are usually done without an attempt made on the part of the writer to mask or otherwise hide the correction.  These signature corrections are quite different than the patching that is frequently found in non-genuine signatures.  

Recently, a very successful local stockbroker was accused and fired because of forgery accuations.  He was not prosecuted.  Some industry insiders believe that he was fired because of other non specified reasons.  The employer could make the forgery stick and it caused him to lose his license.  However, he had been in the process of moving his block of business to a competing firm. 


If you suspect that a signature has been forged, seek out a qualified document examiner.  However, a black light (longwave ultraviolet light) can help identify differences in ink and some of the irregularities described above.  

Thursday, October 8, 2015

Fire Chief Guilty of Fraud

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

Mark Watson Mug Shot
Almost from the start
Only eight months and one day after his appointment as Speedway Fire Chief, Mark Watson started depositing checks payable to the Speedway Fire Department into his personal bank account.  The account, “Mark Watson dba Speedway F.D.”, was established on Feb. 7, 2011, without the knowledge of the Town of Speedway.

Checks made payable to the Town were mailed in envelopes addressed to the town of Speedway Fire Department. According to town officials, Watson opened all mail addressed to the fire department. 

Over the next four years, until its discovery, Watson deposited $42,982.39 in checks intended for the Town of Speedway including payments for fire protection by the Indianapolis Motor Speedway. 

Funds from this account were not used to benefit the Town or its fire department.  Instead, Watson used the funds for personal purposes including the purchase of a Toyota pick-up truck, credit card payments, and cash withdrawals. 

Just a year after establishing the bank account
In 2012, Watson started using the Town of Speedway credit cards and to issue fraudulent invoices for items of personal use.  These unauthorized purchases included a firearm and holster, a television, two sets of tires, a snow blower, clothing, and lawn and garden items.  The value of these items were relatively minor compared to the diversion of checks payable to the town; but, eventually led to his downfall.  Sometimes it is the little things that lead to a fraudster’s downfall.

Fictitious vendor
Just last year, on August 13, 2014, Watson established a bogus company, “FireProf,” and opened a U.S. post office box in the name of “Mark Watson, FireProf.”    A few weeks later, he presented a purchase order to be paid to FireProf in the amount of $4,491.67 for SCBA repairs.  The voucher was submitted for payment, approved by the Speedway Town Council and a check was mailed to Watson’s post office box.  After Watson’s schemes had unraveled, the uncashed check was recovered. 

Cash Skimming
Firefighter testing fees totaling $3,160 were collected in 2013 by three Town Pension Board members and given to Watson for deposit.  Bank records indicated that these funds found their way into Watson’s personal account. 

In 2013 and 2014, firefighter clothing costing $2,872 was purchased with town funds by Watson.   He sold the clothing to firefighters and kept the cash.  Court records indicated that proceeds from the sale were not remitted to the Town of Speedway and ended up in Watson’s personal bank account.

Mark D. Watson 
Fire Chief Watson
Mr. Watson joined the Speedway Fire Department in 1991 and served in several ranking positions including interim fire chief.  On June 6, 2010, he was appointed Fire Chief. 

New Clerk-Treasurer
On Nov. 1st, 2013, Monty W. Combs, a Certified Fraud Examiner, became the Speedway Clerk-Treasurer.  He was new to Speedway government.  Combs told me that, while he had not socially interacted with Watson, he found him to be a likable individual.    However, it was the little inconsistencies that appeared to have unmasked Watson’s frauds.

Combs was reviewing a Sam’s Club invoice submitted by Watson for truck tires for Fire vehicle 204.  Combs was new to the job; but, he did not believe that there was a fire dept vehicle with the identification of “204.”  The vehicle described on the Sam’s Club invoice was a Silver 2011 GMC Yukon.  Mark Watson’s personal vehicle was a Silver 2011 GMC Yukon.  This caused Combs to dig further.

Monty Combs, CFE
Combs then questioned Watson about some purchase orders. One of those was a $4,491.67 P. O. dated Sept. 22, 2014, issued to FireProf for scuba gear repair. Combs noted that its address was a Post Office box – a red flag to many auditors. 

Combs told me that he spoke with a vendor requesting several years of purchase records attributed to a credit card issued to Watson.  He found several questionable purchases and called in the Indiana State Board of Accounts (SBOA) requesting an audit review.  Mark D. Watson resigned as Chief on Oct. 27, 2014. 

The SBOA audit began on Nov. 3, 2014.  A “Special Investigation Report of the Fire Department of the Town of Speedway” was filed on July 10, 2015.  The audit period was January 1, 2011, to December 31, 2014. 

Following a further investigation by the Indiana State Police, a Probable Cause Affidavit was filed in Marion County on Sept. 3, 2015, charging Mark Watson with Theft and Official Misconduct. 

Watson pleaded guilty and, as part of the plea agreement, he paid full restitution to the Town of Speedway and repaid the cost of the audit conducted by the State Board of Accounts.  Watson received a sentence of two years on probation. 

Almost one-third of the Speedway firefighters attended former Chief Watson’s sentencing hearing.  He had not been a popular fire chief, and they complained about his management style.  According to Speedway employees, they felt betrayed by Watson.  A copy of his mug shot was posted in the Speedway fire house located at 1410 N Lynhurst Dr. with the word “Thief” written below.

Watson apologized; but, did not offer an explanation for the theft.  Monty Combs, Speedway Clerk-Treasurer, who liked Watson personally, posted a sign in his office – “Trust is not an internal control.”  Combs is up for re-election this November.  The Certified Fraud Examiner is running unopposed. 


According to my research, half of the embezzlers that have gone undetected for long terms are governmental employees.  Too often small governmental units rely on trust and have inadequate internal controls including separation of duties.  Absent the talent and fraud examination training of someone like Mr. Combs, this fraud might have continued undiscovered for many years.  

Monday, September 21, 2015

Pedophiles & “Elder Financial Fraud”

By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™

Financial fraud is the fastest growing form of elder abuse. Over 20% of Seniors will be victims and it is tough to combat, in part, because it usually goes unreported.  Fraudsters that prey on Seniors often use the same “grooming” techniques used by child pedophiles.

Many people have heard the term "grooming", but most will think of the name only in the context of child sexual abuse.  elder grooming is the adult equivalent to child grooming and applies to any behavior where an older adult is manipulated, so they unwittingly allow exploitation to occur. The fraudster typically belongs to the same affinity group as the victim, and befriends or builds a relationship with the victim to establish a relationship of trust.

An "affinity group" is a group formed around a shared interest or common goal.  These groups may include families, churches, social organizations, ethnic groups, political groups and neighborhood groups.

Not unlike child victims of a pedophile, elderly financial fraud victims are often fearful, or embarrassed by the crime and do not report it. It has been estimated that there are at least five million cases of this financial abuse in the United States each year, but law enforcement learn about only 1 in 25 cases. 

Who are the elder victims of financial fraud?  The victims are those whose defenses are down, including the lonely and the emotionally and physically compromised. Predators are practiced, and superb at what they do. Few get caught. However, those who do get caught, tend to learn from their mistakes, and refine their techniques. 

Elder financial predators bear a striking similar profile to child sexual predators:  89% of child sexual assault cases involve persons known to the child, such as a caretaker or family acquaintance, 29% of child sexual abuse offenders are relatives, 60% are acquaintances from an affinity group, and only 11% are strangers.

Almost all elder fraud pedophiles have come to the attention of insurance or securities regulators and had a history of misdeeds.  They frequently have had their licenses suspended, revoked, had multiple consumer complaints filed against them, have been charged by a regulator, and lack appropriate professional designations. 

In my seminars, I teach Seniors how to use public sources to identify these past “sins” and how to avoid financial exploitation.  The first thing I usually tell my audience is to write down the names of the three most “charming” people they know.  Contact me if you need a speaker for your group.

Grooming Steps:
A predator will identify and engage a victim and work to gain the target’s trust, break down defenses, and manipulate the victim until they get whatever it is they are after. Here are the hallmark steps of grooming.
  • The predator may seek out an affinity group to join a group that contains a sufficient number of potential elderly victims.  Churches are frequent targets.
  • Next they will identify possible victims by looking for individuals that seem to be vulnerable.
  • Then the fraudster collects as much information on the targeted victim as possible. This is often accomplished through casual conversations with friends of the target victim, pastors and leaders of the affinity group.
  • Abusers who groom their victims usually claim to have a special connection with the victim. This so-called connection might be emotional, intellectual, sexual, or spiritual. This is often backed up by the predator feeding back part of the target's own background or story, altered to fit the preditor’s back-story, in order to confirm the connection. 
  • To exploit without fear of discovery, a financial predator will often condition their victim with shared secrets.  When building this bond of trust, the fraudster will share seemingly personal or private information. The victim is made to believe that they are being trusted with something of value.
  • In the end, the bond of secrecy is reinforced with threats, shaming and guilt to keep the victim quiet.
  • These are the same techniques used by pedophiles that prey on children.

What Grooming  feels like:
At first, it can feel exhilarating. The predator is accepting of the total you, attentive, sensitive, shows empathy and provides positive reinforcement. Victims can be so overwhelmed by the attention and acceptance; they will often ignore red flags that might alert them that the person who is showering them with the attention is somehow artificial.  The abuser breaks through a victim’s defenses, gains trust, and manipulates them. The victim finds themselves willingly handing over money or assets. In the end, the victim often feels confusion, shame, guilt, and remorse. These emotions are often powerful, and a panic comes with the potential of being exposed for having been a victim. A fool. The victim often becomes depressed or despondent.

What TO Do:

  • Be suspicious of charming people.
  • Use caution around someone you may have only just met, who pays you too many compliments.
  • Learn how to check our your financial advisor.
  • Is your financial advisor a crook?