Tuesday, December 20, 2016

Veros Partners – the final shoe?

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

Sometimes the second shoe takes longer . . .

You may recall the SEC charges against our home-grown alleged Ponzi schemers Matthew E. Haab, Jeffrey Risinger and Tobin J. Senefeld. 

As reported here months ago, Veros Partners, an affiliate of Veros CPAs, was charged with fraudulently raising $15 million from local investors, many of whom were dentists.  Several of Veros’ tax and practice management clients purchased investments from an affiliate firm, Veros Partners.  How convenient.

When some of those investments lost money, the defendants allegedly took “new” money from clients to pay “old” clients – apparently straight from the classic Ponzi scheme playbook.  Madoff did the same thing. 

You may also recall that Mr. Haab, Veros Partners’ President, had touted his Certified Financial Planning credentials.  However, the Certified Financial Planning Board did not concur that Haab was, in fact, a CFP.  Further, some members of the community have told me that some of the Veros’ CPA partners may not have been, in fact, Certified Public Accountants because their names could not found on the State of Indiana Accountancy Board website.  Ooo shame! 

Veros CPAs assets (read, client list) have been sold to its former employees by the court-appointed receiver, William E. Wendling Jr.

Defendants Matthew Haab and Jeffrey Risinger, both settled the SEC civil suit with cash and agreed never to do it again; however, Senefeld and the SEC could not reach a settlement -- it appeared that they were headed to trial. 

Senefeld is no stranger to securities regulators. 

His securities career spans over two dozen years and eight securities firms, where he had been sanctioned a total of 17 times for alleged wrongdoing.  As was pointed out in FINRA Enforcement Dept. documents, in 1999, for example, Senefeld was censured, fined and suspended from the securities industry for 20 days.  Later in that year, because of other alleged conduct he was suspended for 12 months and fined.  Here is a link to his securities record thanks to the regulatory organization FINRA. 

According to a recently signed agreement, a Financial Industry Regulator Authority Letter of Acceptance, Waiver, and Consent ( a AWC in industry parlance), Tobin J. Senefeld, agreed to a lifetime sanction and is barred from the securities industry.  Here is a link  to AWC.  You may note on page four of the AWC that Senefeld agreed not to make any public statement about the AWC or “create the impression that the AWC is without factual basis.” 

Perhaps the “take-away” from these events is that some professionals do not have the credentials that appear on their website, and sometimes they have had run-ins with regulators that they hope you do not find.  Also, dig a little deeper when the CPA also sells investments or insurance products.

Friday, November 18, 2016

A “Credit Freeze” can be used against you

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

Identity theft continues to be more frequent and is particularly troublesome for seniors.  Two simple changes by regulators could diminish identity theft by 90% or more.

Denise had heard me last year when I spoke to a group of seniors. She called recently telling me that her father was a victim of identity theft and asked for my help.  Her father was in a nursing home, and she just learned that his credit had been used in an attempt to finance improvements to a house not connected to him.  She had heard me speak and wanted to know if I could help.

I suggested that she contacted the Indiana Attorney General’s Identity Theft Unit and gave her the contact information. 

However, she wanted a prompt answer and wanted to know who had stolen her father’s identity. I explained that, unfortunately, few victims of identity theft ever discover who actually stole their identities or where they got the information. 

I suggested that she first placed fraud alerts with credit bureaus and request credit reports to review suspicious transactions.  Also, her father’s credit should be frozen[i].  More about a credit freeze later. 

The next step is to obtain copies of the credit application, and paperwork that might identify the fraudster.  Since the construction work had not started and her father had not been (yet) harmed financially, the vendor would not cooperate.  He voided the transaction and did not want to become involved.

Denise was insistent on knowing more, and she wanted information about the owner of the property.  It turned out that the property owner had over 50 judgments pending, evictions, history of bankruptcy, etc.  Again, I suggested that she turn the matter over to the Attorney General.  We both suspected that the point of compromise was her father’s nursing home.  This is not an unusual place for data compromise, and quite often the source of medical identity theft.

Identity fraudsters often use a mail drop to shield their identity.  The former insurance agent that stole 3,000 identities in Fishers a few years ago used the mailboxes at homes that were vacant.  Other fraudsters use “virtual” mail drops that do not supervise their clients and enforce the requirements set forth by the U.S. Post Office[ii]

Some identity theft fraudsters will issue a credit freeze on an account they are trying to loot.  Imagine what might happen if someone – posing as you -- established a “Credit Freeze” (also known as a Security Freeze) on your credit.  All it takes to freeze your credit is the following information:
  • Your full name
  • Social Security Number
  • Date of birth
  • Current address
  • All addresses where you have lived during the past two years
  • Email address
  • A copy of a government-issued identification card, such as a driver’s license or state ID card, etc.
  • A copy of a utility bill, bank or insurance statement, etc.

You can easily obtain a counterfeit driver’s license and copy of a utility bill.  There are several organizations selling false documents over the internet for “amusement purposes only.”  Someone could grab your picture from Facebook or Google and do this in a few minutes. 

Imagine that your credit has been frozen by a fraudster, and you cannot prove that you are you.  The fraudster can change your mailing address, file for a tax return, borrow money, even sell your home.  A credit freeze can be used against you.

Where will this end?

Two simple changes would end the identity theft nightmare:
  1. Enforce the “know your customer” rules for all financial institutions involved in the extension of credit.  These rules currently apply to all financial institutions and are designed to prevent money laundering, and violators face stiff fines.  Both the institution and the individual employee approving these transactions face fines.  Use these existing laws to deter identity theft.
  2. Mandate the Social Security Administration to allow credit reporting agencies to determine if a Social Security number matches the name provided.  Currently, approximately one-third of the Social Security numbers are concurrently used by two or more persons.  We’ll save that tidbit for a future column.

According to the U.S. government statistics, over 17 million citizens have been victims of identity theft.  Seniors and children are more frequent victims of this crime.  Criminals have pivoted to using identity theft because they believe that they are less likely to be caught than any other type of financial crime.

[i] A credit freeze, also known as a security freeze, is a consumer right provided by Indiana law.  Placing a credit freeze on your credit reports can block an identity thief from opening a new account or obtaining credit in your name. A credit freeze keeps new creditors from accessing your credit report without your permission. If you activate a credit freeze, an identity thief cannot take out new credit in your name, even if the thief has your SSN or other personal information, because creditors cannot access your credit report.
[ii] USPS Application for Delivery of Mail Through Agent Form 1583.

Monday, October 10, 2016

Tulip Bulb Speculation

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

Rembrandt tulips with virus
It is difficult to believe that Holland Tulip bulbs once sold for thousands of dollars each.  True.  However, a few years later the same bulb could be purchased for the price of a common onion. 

Tulips were first seen in Europe in 1554 and quickly became the rage of nobility and the wealthy merchant class. They were seen as more attractive than another flower at that time and had an intense petal color, unlike any other plant. 

Holland’s recent independence at that time allowed its economic resources to be channeled into commerce, and the country began its “Golden Age.”  It was at the center of the lucrative East Indies trade, where one voyage could yield profits of 400%.  The newly rich merchants displayed their success by setting up grand estates surrounded by flower gardens, and the plant that became the center attraction was the sensational tulip.

As a result, tulips rapidly became a coveted luxury item; however, tulip’s lengthy propagation time caused a supply squeeze.  Compounding the supply shortage was a profusion of varieties followed by the discovery of a rare multicolor tulip.

The multicolor effects of intricate lines and flame-like streaks on the petals were vivid and spectacular and made the bulbs that produced these even more exotic-looking plants highly sought-after.  These bulbs caused the speculation.

The biology of the tulip contributed to the supply-squeeze that fueled the speculation, in that a tulip grown from a bulb that cannot be produced quickly. Normally it takes 7–10 years to grow a flowering bulb from seed. Bulbs can also produce two or three bud clones annually, but the "mother bulb" lasts only a few years. Properly cultivated, the bud clones  will become flowering bulbs after one to three years. Supply was way behind demand.

This exotic multi-color tulip was rare and in high demand.  The highly sought-after "breaking” or multi-color pattern could only be reproduced through bud clones, not seeds. Unfortunately, the sought-after effects also acted adversely on the bulb, weakening propagation of offsets, so cultivating the most appealing varieties now took even longer.

These rare bulbs became valuable.  Soon, by 1635, prices were rising so fast and became so high that people were selling anything they could liquidate to get more tulip bulbs. Some Dutch believed they would sell their bulbs to unenlightened foreigners, thereby reaping enormous profits. Somehow, the overpriced tulip bulbs enjoyed a twenty-fold increase in value - in one month!

When word got out that tulip bulbs were being sold for ever-increasing prices, more and more speculators piled into the market.

According to one account, by 1623, the sum of 12,000 guilders – considerably more than the value of a smart townhouse in Amsterdam – was offered to tempt one tulip owner into parting with only ten bulbs of the beautiful, and extremely rare, Semper Augustus – the most coveted tulip variety. It was not enough to secure a deal.

As people heard stories of acquaintances making unheard-of profits simply by buying and selling tulip bulbs, they decided to get in on the act – and prices skyrocketed. In 1633, a single bulb of Semper Augustus was already worth an astonishing 5,500 guilders. By the first month of 1637, this had almost doubled, to 10,000 guilders. One historian put this sum in context: “It was enough to feed, clothe and house a whole Dutch family for half a lifetime.”

Needless to say, the prices were not an accurate reflection of the value of a tulip bulb. As it happens in many speculative bubbles, some prudent people decided to sell and take their profits. A domino effect of progressively lower and lower prices took place as everyone tried to sell while few were buying. The price quickly fell, causing people to panic and sell regardless of losses. 

Dealers refused to honor contracts and people began to realize they traded their assets for a tulip bulb; panic set in throughout the land. The government attempted to step in and halt the crash, but then the market plunged even lower, making such restitution impossible. No one emerged unscathed from the crash. Even the people who had locked in their profit by getting out early suffered under the following country-wide depression.

It is now known that "breaking” or multi-color pattern effect is due to the bulbs being infected with a type of tulip-specific virus, known as the “Tulip Breaking Virus” so-called because it "breaks" the one petal color into two or more. 

Monday, September 19, 2016

I left the Colts because of the BMT

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

Big Monkey at the Top
We had a 30-year history as season ticket holders.  Except for one year, my wife Betty and I had season tickets since 1984 when Mayor Hudnut helped recruit the Indianapolis Colts.  Watching Payton Manning throw to Marvin Harrison was amazing.  We were seated in the 6th row, and I sat in at an end-of-row seat.  We watched some great football.  That was then.

Things changed when Tony Dungy, and Payton Manning left.  The drunks the row behind us bothered me even more.  Management was absolutely no help correcting that problem.  Maybe it was the NFL’s steady shift to political correctness.  Can you believe that some players will not honor our flag and the NFL calls that their right of “self-expression”?

However, for me, I think, it is what one national fraud consultant called his BMT theory.  Yeah.  Big Monkey at the Top theory. 

You may have heard about the tone at the top of an organization.  This is a term used to define management's leadership and commitment to openness, honesty, integrity, and ethical behavior.  BMT is the opposite.  When the corner office is occupied by a monkey absent most of those attributes, bad things happen to an organization.  Dungy’s values and influence have retired.

Probably the primary reason I voted to give up our Colts season tickets was the BMT.  Let me know if I’m missing very much.    

Thursday, August 18, 2016

Veros Partners Reach Agreement With SEC

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

Earlier this week, the SEC reached an agreement with Veros Partners' executives Matthew D. Haab and Jeffery B. Risinger.  Defendant Tobin Senefeld is scheduled for trial later this year. 

On April 22, 2015, the Securities and Exchange Commission filed charges[i] against Veros Partners, an Indianapolis investment adviser, its president, Matthew Haab, two associates, attorney Jeffery Risinger and former stock-broker Tobin J. Senefeld, and several affiliated companies for engaging in fraudulent farm loan offerings, in which they made Ponzi scheme payments to investors in other offerings and paid themselves hundreds of thousands of dollars in undisclosed fees.

According to the SEC's complaint, they fraudulently raised at least $15 million from at least 80 investors, most of whom were Veros Advisory clients. According to industry sources, many of these clients were Indiana dentists. 

The investors were informed – according to court documents -- that their funds would be used to make short-term operating loans to farmers, but instead, significant portions of the loans were to cover the farmers' unpaid debt on loans from prior offerings.  According to the SEC, “Haab, Risinger and Senefeld used money from the two offerings to pay millions of dollars to investors in prior farm loan offerings and to pay themselves over $800,000 in undisclosed "success" and "interest rate spread" fees.”  The SEC also charged Tobin Senefeld’s registered broker-dealer (Pincap LLC) Pin Financial LLC.

On August 16th, according to SEC filings, Matthew Haas agreed and signed a Final Judgment agreeing to pay $183,640.[ii]  Haab also agreed in a separate SEC proceeding, to be instituted shortly, “barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent or nationally-recognized statistical rating organization.”
Similarily, Jeffery Risinger agreed to pay $100,000.  Likewise, Risinger agreed to similar stipulations that he be barred from any future association with any broker, dealer, investment advisor, etc.

Tobin Senfeld currently does not hold a securities license (FINRA CRD #2120820).  Further, his broker-dealer, PIN Financial LLC (CRD #132876) was expelled from the securities industry in June 2016. 

I understand that the court-appointed receiver, William Wendling, has recovered 20% of investors’ funds.

 Veros Partners first came to my attention a year ago when I received a tip that Mr. Haab was not a Certified Financial Planner and at least one of Veros Partners' CPAs were not licensed CPAs.  The facts at the time were that -- indeed -- Mr. Haab was not a Certified Financial Planner.  

This, in part, led me to construct a short instruction course that I deliver to Senior groups: "Is your financial advisor a crook?"  I teach Seniors how to use public sources and verify the professional credentials and complaints that may have been filed against one or more of their financial advisors.  

Saturday, August 13, 2016

Universities Sued by Employees Over High Pension Plan Fees

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

This past week, MIT, Yale, and NYU were accused of charging employees excessive fees on their retirement savings.   The dirty little pension plan secret is that, in many pension plans, the employee pays almost all the plan’s expenses.  Employers experience little or no cost except for the contribution match that may cost them little out-of-pocket.  Especially when the match is paid in company stock.
The universities — the Massachusetts Institute of Technology, Yale University, and New York University  — each have retirement plans holding more than $3 billion in assets -- are each being sued by a number of their employees in cases seeking class-action status. 
Over the last decade, lawyers have filed numerous lawsuits against organizations including Anthem, Cigna, Caterpillar, British Petroleum, Boeing, Wal-mart, and New York Life on behalf of employees enrolled in 401(k) retirement plans.   Most have been settled in multi-million dollar awards. 
With the latest suits filed in federal courts this past Tuesday, the focus has turned from the corporate retirement savings market to non-profit organization 403(b) plans. These accounts are similar to 401(k) plans but are offered by public schools and nonprofit institutions like universities and hospitals.
The latest complaints allege that the universities failed to monitor excessive fees paid to administer the plans and did not replace more expensive, poor-performing investments with cheap ones.  Lawyers argue that participants could have collectively increased their retirement holdings by tens of millions of dollars.
The stated aim of the suits is to reduce conflicts of interest and the fees consumers pay.  In many cases, they argue, employers have not acted in the best interest of employees.  Pension administrators and investment managers have been chosen using arbitrary criteria and because of personal relationships with company executives and Board members.
Even modest reductions in costs can have a significant effect on retirees’ savings. According to the Labor Department, paying one percentage point more in fees over a 35-year career — say 1.5 percent instead of 0.5 percent — could leave a worker with 28 percent less at retirement. An account with $25,000 — and no further contributions for those 35 years — would rise to only $163,000 instead of $227,000, at an annual rate of 7 percent.
The complaint against N.Y.U. Charges that participants were offered too many investment choices  - there were more than 100 options for some employees, and many of them were too expensive.
The suit also argues that even the cheapest funds offered could have been provided for less, given the enormous size and bargaining power with $4.2 billion in assets for more than 24,000 participants.  The complaint also alleges that the university did not use its negotiating powers and overpaid for administrative services for many years. 
The issues concerning Yale’s 403(b) retirement plan — which held nearly $3.6 billion in assets follow a similar pattern.  According to the New York Times, “Yale eventually consolidated to one provider, TIAA, in April 2015, and swapped in some lower-cost investments, but the suit claims that the changes did not go far enough to fully protect the interests of its employees.”
The suit alleges that MIT, because of its longstanding relationship with Fidelity, did not conduct a thorough search for a plan provider, which might have provided better service for less. The complaint said that Fidelity had donated “hundreds of thousands of dollars” to M.I.T., while Fidelity’s chief executive, has served as a member of M.I.T.’s board of trustees, giving influence over the institution’s decision-making.
As I pointed out earlier this year, the courts may be interested; but, the regulators appear to be less interested – especially in the smaller plans.  Smaller employers have even higher fees.  Your boss’s relative or golfing buddy may receive a major part of his income from your pension plan. 

Here is a list of fees 401K and 403B participants may be paying:

·                Investment advisor fees for managing the fund’s portfolios
·                Marketing fees
·                Shareholder service fees
·                Custodial expenses
·                Legal expenses
·                Accounting expenses
·                Sub-accounting fees
·                Transfer agent expenses
·                Brokerage Commissions
·                Sales loads
·                Redemption fee
·                Exchange fee
·                Account fee
·                Purchase fee
·                Maintenance fee
·                Plan set-up
·                Portfolio management fees
·                Educational materials and services expenses
·                Recordkeeping services
·                Employee enrollment services
·                Customer service
·                Legal advice to employer
·                Compliance testing expenses & audits
·                Fees for investment seminars, investment advice, loan fee

Ask for a copy of your company’s retirement plan document.  Check out your employer’s obligations and your rights

Friday, August 12, 2016

Assoc. of Certified Fraud Examiners Elects New Officers and Board

Newly elected Assoc. of Certified Fraud Examiners Indy Chapter Officers and Board members at last night’s meeting (from left): David Grannan, Erik Buchenberger, Jack Armstrong, Jo Griffiths, Greg Wright, Markita West, David Fink, Bonnie Brunton. 

Here is a complete list of the Officers and Directors:
President          Greg Wright
Vice President:   Jack Armstrong
Secretary:            Teri Dervenis
Treasurer:           David Fink
At Large:              Dan Boylan
At Large:              Bonnie Brunton
At Large:              Erik Buchenberger
Membership:      David Grannan
Training:               Jo Griffiths
At Large:              Troy Janes

At Large:              Markita West

Greg Wright & Greg Garrison
Also (shown at left) is the speaker, Greg Garrison, and ACFE Chapter President, yours truly, Greg Wright. Garrison taught a two-hour ethics course and, at dinner, shared his predictions for the upcoming elections.

Tuesday, June 7, 2016

Amish Madoff

By Greg Wright
Certified Fraud Examiner
Certified Financial Planner™

Amish man on cell phone
Every day between 50 and 100 Amish readers visits a blog article I publishes last December.  “Amish on Amish Fraud” has had thousands of visits and 150 have added written comments.  The latest arrived today.  Most are written in the very early morning while most of the English (non-Amish) community is still in bed. 

Last November, Goshen Indiana resident, Earl Miller, was accused in a Federal lawsuit of securities fraud and cheating 70 mostly Amish Indiana investors out of $3.9 million.  He is alleged to have sold them promissory notes with a fixed-rate annual return of between 8 to 12 percent. 

Many of Miller’s investors belonged to a Northern Indiana Amish community where Miller and his wife were former members. He advertised his investment services in Amish newspapers, including The People’s Exchange, and at community meetings with Amish families, according to the Federal complaint.

The Federal lawsuit accuses Miller, 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 asserted his Fifth Amendment right against self-incrimination and refused to answer the SEC’s questions about his companies, according to court papers.  Also, according to comments made on my blog, Miller has filed for bankruptcy protection and moved to Colorado.  

How do they send email?  Amish are known to reject telephones in the home.  Yet, in recent years, the image of an Amish farmer speaking on a cellphone is increasingly common.  Amish churches regulate the use of technology through a set of guidelines known as the Ordnung.  My Amish friends guess that about 50% or more Amish have smartphones which also access the internet. Only a few pockets of their church districts do not allow this form of technology. 

Technology is not the only thing that apparently recently changed in Amish land. 

Monroe Beachy
In 2012, an Ohio Amish man, Monroe Beachy, was sentenced to prison for fraud.  Investors in Beachy’s investment fund lost $17 million, and the U.S. Attorney described it as “fraud on a massive scale.”

Beachy, age 78 at the time, pled guilty to defrauding hundreds of clients and requested to serve his sentence at home, but this was rejected, and the judge sent him to prison. Included among his victims were widows and retirees, children, a Mennonite church, a school fund, and the Amish Helping Fund. Beachy was the Helping Fund’s treasurer.

Beachy assured the investors their money was safe and sent them hand-written monthly statements that showed stable accounts and high interest earned, according to prosecutors. However, his investments actually were crashing in value, and by 1998 he had lost millions in risky stocks, mutual funds, and junk bonds.

The judge questioned Beachy during the hour-long hearing, asking why he had not simply informed his clients that he lost their investments, and avoided committing the crime of fraud.
Beachy told the judge he has confessed his sins to God and his church, and he sent letters to every investor seeking their forgiveness. Only two wrote back asking the judge to sentence Beachy to prison. The others said it was more important for them to forgive Beachy than to recover their lost money.

The Amish community wished to handle the matter themselves.They probably would have, had Beachy not first filed a bankruptcy claim.   An Amish committee made a special request to the court that they are allowed to deal with the matter themselves, but it was rejected.

Sometimes the Amish prefer handling transgressions internally.  However, the bankruptcy filing caused the matter to go ahead in a non-Amish court of law thus precluded an Amish sorting-out.  At the time, even though many people lost much money, many in that Ohio community considered it to be something that Amish could forgive.  

John Sensenig
Another Amish fraud case in 2010 involved a man named John Sensenig, a horse-and-buggy Mennonite living in Lancaster County, Pennsylvania.  Sensenig’s $90 million investment scheme involved investors drawn largely from the Amish & Mennonite community – this was nearly five times the size of Beachy’s scheme.

The SEC resolved the Sensenig case and settled for $131,500, which was, according to published reports, “about all he has left”, and he agreed to take no part in future financial offerings.

Interestingly, Sensenig was never the subject of a criminal case, and appeared to benefit from long-standing traits unique to that tight-knit, turn-the-other-cheek world of the Amish and Old Order Mennonites: Trust your brethren. Resist outside influences. Be forgiving.”

Earl Miller
Beachy’s big mistake was filing for bankruptcy or he probably would not have been sent to jail.  He will be released in a few months from Morgantown Minimum Security Prison in West Virginia. John Sensenig remains in the Mennonite community, working as a welder and attending church regularly. Earl Miller is hunkered down in Colorado not answering the phone.