Don Hill who claimed his innocence – Found guilty faces 18 years in Federal Prison! Government Corruption doesn’t pay…

Restitution of $112,500 and 18 years in prison.  That’s $6,250 per year.  Was it worth it?  Clearly this is a message and with that length of time in federal prison Hill will clearly get the picture that life inside the hallowed halls of a prison make a lasting impression and are life changing.  Wonder, as he was “wheeling and dealing” if he ever thought that the outcome would be this dramatic?

Former Mayor Pro Tem Don Hill, 57, was sentenced to18 years in federal prison and ordered to pay $112,500 in restitution. He must surrender to the Bureau of Prisons on April 27, 2010, to begin serving his sentence. Hill, who was on the witness stand for nearly six days during the June – October 2009 trial, was convicted on seven of nine counts charged, including one count of conspiracy to commit bribery concerning a local government receiving federal benefits; two counts of bribery concerning a local government receiving federal benefits; one count of conspiracy to commit extortion; one count of extortion by a public official; and one count of conspiracy to commit money laundering.

“The sentences imposed today on Mr. Hill, his wife and his plan commission appointee hopefully will serve as a powerful reminder to all public officials and those who work with them, that seeking to personally profit by abusing the power given them by the voters can and will result in a long prison sentence,” said U.S. Attorney Jacks. “Public corruption is one of the most insidious crimes confronting our communities today. It contributes to the cynicism we are seeing today from the public who feel as though all politicians are corrupt and the government does not serve the needs of those citizens who can’t pay for access to their elected officials.”

Jacks continued, “The investigation into the actions of these defendants was lengthy and complicated. Many questioned why the investigation was taking so long. Hopefully, the verdict and the sentences handed down today and in the future, will serve as proof of the quality of the work done by the FBI, the IRS and the prosecutors assigned to this case. Throughout the investigation, amid all the questions and criticism, they remained focused on their mission, to thoroughly examine the evidence and to present their findings in a court of law before an impartial jury. The jury’s verdict demonstrates that the facts as revealed by their investigation conclusively showed the guilt of the defendants and was not a matter of interpretation or misunderstanding or selective prosecution. When corrupt politicians are exposed and punished, the entire community reaps the benefits.”

Hill’s wife, Sheila D. Farrington, 45, was sentenced to nine years in prison and ordered to surrender to the Bureau of Prisons on the same day as her husband, April 27, 2010. Farrington was convicted at trial on five of six counts charged, including one count of conspiracy to commit bribery concerning a local government receiving federal benefits; one count of aiding and abetting bribery concerning a local government receiving federal benefits; one count of aiding and abetting extortion by public officials; and one count of conspiracy to commit money laundering.

D’Angelo Lee, 43, Hill’s Plan Commission Appointee, was sentenced to 14 years in prison and ordered to pay $112,800 in restitution; he is currently in federal custody. Lee was convicted at trial on all seven of seven counts charged, including one count of conspiracy to commit bribery concerning a local government receiving federal benefits; two counts of bribery concerning a local government receiving federal benefits; one count of conspiracy to commit extortion; one count of extortion by public officials; and one count of conspiracy to commit money laundering.

Robert E. Casey, Jr., Special in Charge, Dallas FBI, said, “Communities have a right to expect that their elected leaders are ethical, trustworthy, and responsible, only representing the best interests of their constituents. Two of today’s defendants betrayed the trust bestowed on them as public officials. The sentences imposed reflect the gravity of their crimes. The FBI, its law enforcement partners, and the U.S. Attorney’s Office will continue to root out such graft in order to ensure that the citizens of Dallas receive honest representation by their elected officials.”

Two other defendants were convicted at trial, Darren L. Reagan, 50, and Rickey Robertson, 43. Both are scheduled to be sentenced by Judge Lynn on March 1, 2010. Reagan, described as a community activist, and the chairman and CEO of the Black State Employees Association, was convicted on two of four counts charged, including one count of conspiracy to commit extortion and one count of aiding and abetting in extortion by public officials.  Robertson, a local businessman/car dealer was convicted on two of three counts charged, including conspiracy to commit extortion. Robertson was also a principal of RA-MILL.

At that trial, the government presented evidence that beginning in 2004, Hill and his co-defendants entered into an association in which thousands of dollars in bribes were paid by co-defendants Brian L. Potashnik and his wife, Cheryl L. Potashnik, owners of Southwest Housing Development Company, Inc., through sham business contracts to the defendants. The government also presented evidence that Hill and Lee were involved in corrupt solicitation from developers in an effort to gain financial benefit. Brian and Cheryl Potashnik pleaded guilty prior to trial; Brian Potashnik pleaded guilty to one count of conspiracy to commit bribery concerning a local government receiving federal benefits and Cheryl Potashnik pleaded guilty to one count of bribery concerning a state government receiving federal benefits. Both are scheduled to be sentenced by Judge Lynn on May 7, 2010.

Other sentencing dates are as follows:

On March 19, 2010, Allen McGill, who pleaded guilty in April 2008 to one count of conspiracy to commit extortion; Andrea Spencer who also pleaded guilty in April 2008 to the same offense; Kevin J. Dean, who pleaded guilty in June 2009 to the same offense; and John J. Lewis, who pleaded guilty in March 2009 to the same offense, are scheduled to be sentenced.

On April 2, 2010, Terri Hodge, who pleaded guilty on February 3, 2010, to fraud and false statements on an income tax return, is scheduled to be sentenced.

On May 7, 2010, Jibreel A. Rashad, a.k.a. Vernon Cooks, Jr., who was convicted on February 10, 2010, following a one-week trial, of conspiracy to commit extortion, is scheduled to be sentenced.

A trial date has not been set for the charges pending against Ronald W. Slovacek. Last week the government filed a motion requesting that some of the counts be dismissed and indicating its intention to proceed to trial on only three counts: one count of conspiracy to commit bribery concerning a local government receiving federal benefits; one count of bribery concerning a local government receiving federal benefits; and one count of conspiracy to commit money laundering.

What’s Dan been drinking? BizRadio founder Dan Frishberg’s now an MLM promoter!

As a blogger…I’m just too humored by this.  BizRadio seems to be sinking about as quickly as the Titanic – apparently drowning in a sea of debt.  Yet, “From the bounty of the Amazon rainforest and the expertise of the worlds top scientists comes natures perfect blend.”  AS 10!  Is this the product that will revive BizRadio and help turn a profit so that investors have a snowballs chance in h..l in getting their money back?

To be clear…I have nothing against MLM (multi level marketing).  I think that it is a viable business enterprise.  I am connected with iLearningGlobal (a MLM training product) and Send out cards (an MLM service that works like a charm).  Likewise, I speak to MLM groups about sales, team building and other practical applications of how to create and grow a business.

That said, I just find it amazing that Dan promotes Jack Warkenthien to do a seminar – has on his web site that Lynn Sperry representative for AmeriScience will be there to talk about the product – removes it from the web site and now has his personal recommendation there for all who visit BizRadio to see.  Oh…and let’s be clear, the link to AmeriScience is the link to Jack Warkenthien’s AmeriScience site so that people who click through give Jack business or have the opportunity to become part of his downline.

As a business ethics speaker, I have the following questions:

• In the interest of your investors (who are concerned about the security of their investments) wouldn’t it be appropriate to be more transparent about your connection with Jack, Lynn and AmeriScience?
• Does promoting a MLM (health drink) actually fit the profile of what investors expect from a nationally recognized figure who is responsible for investing (reportedly) millions of dollars?
• When are you, Mr. Frishberg, going to let BizRadio listeners and your investors know what is going on with the financially troubled company?

Sometimes there are just too many questions…  for now here’s the content of the site.  To see it live visit here.

What’s Dan been drinking?

A Testimony from the MoneyMan, Daniel Frishberg:
I just tried the most delicious drink. I took out a soda, and my wife Elisea took it out of my hand. She said try this instead, and gave me another carbonated drink in a nice stem wineglass.

It didn’t have alchohol in it, and it tasted amazing. It was actually fancy sparkling mineral water mixed wth AS10 from Ameriscience.

It comes in a wine bottle, and looks terrific. Turns out that it’s full of the best fruits and vegetables in the world, it tastes a hundred times better than soda, you can drink it straight or with sparkling water, and it’s actually a health drink.

So I bought a case of it.

I love this AS10 – i guess I’d call it. a health drink, fruit juice.  It looks terrific, it comes in a wine bottle package. And it tastes terrific.

I really don’t care about the details. I can tell you Ameriscience has been hired by NASA to develop nutritional supplements for the space projects. All I know is I absolutely love it

Elisea brought home a case of it and now I just bought 3 more cases.  I served martinis made with AS10 fruit drink at my dinner party, My kids are drinking it all night just because they love it, in spite of the fact that it’s got hundreds of important fruits and vegetables in it and it’s great for them. And I’m happy to report, we’re using our left over cola to clean our battery terminals.

Get a case of AmeriSciences AS10 Yourself: go to www.Ameriscience.net

BizRadio Marketing MasterMind Clinic – A legitimate sales seminar or a sham to lure fresh unsuspecting investors?

As a former Sr. VP of Sales and Marketing in a public company I understand marketing.  I understand that BizRadio provided valuable information and likely was a feeder source for investors who felt that Daniel Frishberg could help them watch “their money grow.”  After all, Daniel is “the money man!”

But, let’s look at the facts (and for sure all the facts aren’t out on the table – they all aren’t known):

1. BizRadio is off the air in Dallas, TX.
2. BizRadio is off the air in San Antonio, TX cause they couldn’t pay the bill.
3. BizRadio was off the air in Houston – now back on (but for how long?).
4. BizRadio moved to 1180 AM in January but was kicked off because they couldn’t pay the $150,000 deposit or provide a letter of credit for $150,000
5. BizRadio leased (with an option to buy) 1110 AM to Ron Siddiqi and then kicked Siddiqi off the air cause they (BizRadio) couldn’t meet the terms of the 1180 AM agreement – even after they took $180,000 from Siddiqi.
6. BizRadio in Houston was off the air for a brief time for failure to pay the electric bill.
7. Salem – who sold Daniel Frishberg 1110 AM – has announced that they are taking the station back for approximately 50% of what Frishberg paid several years ago.  It is reported that Salem had no choice as Frishberg couldn’t pay his bill there either.
8. Albert Kaleta got in trouble with the SEC and lost his license and was banned from association with any investment adviser (which would include Frishberg).
9. The SEC also sued two other entities, Business Radio Network, L.P. d/b/a BizRadio (BizRadio) and Daniel Frishberg Financial Services, Inc. (d/b/a DFFS Capital Management, Inc.) (DFFS) as Relief Defendants solely for the purposes of equitable relief.  This relates to Kaleta and the funds owed to investors who were mislead.

Actually the list goes on…  But now, to my amazement the following is featured on the BizRadio web site:

BizRadio Marketing MasterMind Clinic

March 2, 2009
3050 Post Oak Blvd. | Houston, TX 77056
7:00 – 9:00 p.m.
Refreshments will be served,
Dinner will not be provided
Space is Limited

To RSVP Contact Jack Warkenthien 713-490-8796 or register below:

There are a couple of elements necessary for the success of any business, large or small. But do you know where most business owners fall short?

Marketing

Finding the most efficient ways to let people know you’re there. Advertising is a big part of it yes, but marketing goes way beyond that. How do you market your business?

Some time back, BizRadio created something called the MasterMind Group, a meeting of the minds headed by Daniel Frishberg, exposing the secrets of successful, efficient marketing.

This March we are honored to bring you two special guest speakers to address the one of the hottest new marketing opportunities: Network Marketing. Daniel Frishberg introduces Jack Warkenthien, BizRadio Host and network marketing genius.

Jack Warkenthien, author of “Life’s A Sales Call” and national radio personality on the BizRadio Network, will share his knowledge in sales, marketing and leadership, leaving you with tips, techniques and networking strategies that will grow your sales exponentially. He will cover topics including:

• Networking tips to know and use
• Increasing your sales by buillding your network
• Expanding your network using network marketing

Come to BizRadio’s Network Marketing MasterMind Session and let Jack and Dan help your business take advantage of the marketing oportunities that the internet makes possible.

We’ll get together in a casual atmosphere and give you some marketing tips you’ve probably never heard before. There is no charge, but you can’t come unless you reserve a spot.

Join us the evening of Tuesday, March 2, 2010 for a free marketing MasterMind Clinic with Daniel Frishberg and Jack Warkenthien hosted by BizRadio.

March 2, 2009
3050 Post Oak Blvd. | Houston, TX 77056
7:00 – 9:00 p.m.
Refreshments will be served,
Dinner will not be provided
Space is Limited

To RSVP Contact Jack Warkenthien 713-490-8796 or register below:

Jack will also introduce you to Lynn Sperry, the CEO of Sperry Enterprises, and Indendant Marketing Consultant for AmeriSciences.

The wellness industry has seen tremendous growth in recent years and this growth is expected to continue over the coming years.There’s a general awakening that good health is very important and staying hale and hearty requires spending money. AmeriSciences (www.Amerisciences.com), is a company that caters to this need of people by selling nutrient rich products that promote good health.This is an MLM company that offers customers an option to earn back their money and much more.

HUM…I was told yesterday by an undisclosed investor that Frishberg was now getting into MLM.  Now, there’s nothing wrong with Multi-Level Marketing, but for a reputed investment adviser like Dan Frishberg – The Money Man – really Dan – you’re going the route of attracting investors into MLM?

LET ME STATE – There is absolutely nothing wrong with holding a meeting where excellent information is shared.  Years ago when I was tax partner in a CPA firm (now some 25 years ago)… we did the same thing (hold educational meetings not promote MLM).  But, three things jump out at me… (1) twice in this promotion they have the dates wrong.  As insignificant as that seems, if you are running a well run operation it would seem that you would have folks who would catch simple things like that.  Most folks could guess that they mean March 2, 2010, but that’s not what they say – and as insignificant as it might seem, it illustrates an issue with how the business is run.  (2) If you can’t pay your bills and keep the station on the air, then how truly can you offer a program of quality when there is so much confusion related to Daniel Frishberg, BizRadio and investors who are, for the most part and for the moment, in the dark about the status of the money they trustingly put up… And, (3) does it promote confidence to have a man who “managed” millions using his imploding format to promote a MLM product?

Jack Warkenthien the featured speaker is, per his LinkedIn site – a Radio Personality and VP of Sales at The BizRadio Network and the Owner/Founder of NextStep Solutions.  For more info on Jack see here and here.

The AmeriSciences.net link in the BizRadio promotion is the Jack Warkenthien site so that those who enroll become part of his down line.  It appears that this seminar might be a veiled attempt to promote the MLM product and have those enroll under Jack to build his business.  Here’s the true AmeriSciences site.  http://www.amerisciences.com/

Perhaps investors who have questions might want to attend – at least Daniel Frishberg says he’ll be there so you could ask your questions directly.  Just a thought.

UPDATE:  IT APPEARS THAT THE MLM PROGRAM WITH LYNN SPERRY HAS BEEN REMOVED FROM THEIR SITE???

Elton Gutara, Douglas Zinyama and Tonderai Chari Indicted for Tax Fraud Scheme

It’s tax season and time to remind folks that every choice has a consequence.

According to the indictment, from November 2006 to January 2007, Gutura, Zinyama, and Chari, all employed by Tax Expedia, are alleged to have falsified tax return information in approximately 318 tax returns in order to receive tax refund payments or increased tax refund payments in the amount of $805,181.  Gutura and Zinyama appeared before U.S. Magistrate Judge Don D. Bush on Feb. 17, 2010, and have been detained pending their arraignments.

All three defendants are charged with conspiracy to defraud the United States.  If convicted, they each face up to 5 years in federal prison.

Additionally, Gutura is charged with nine counts of preparing a false tax return and Chari is charged with two counts of preparing a false tax return.  If convicted they face up to 3 years in federal prison for each conviction.

All defendants are presumed innocent until proven guilty.

However, reality is, the US Attorney’s office rarely indicts folks on crimes like these without the significant probability that a guilty verdict will be handed down.  The other question in this case is – if you were one of the 318 falsified tax return clients, is the IRS going after you for the potential tax due.

YOUR COMMENTS WELCOME!

Paul Pogue – Texan Guilty of Tax Evasion – it is that time of year!

Pleading guilty, Paul Pogue of McKinney, Texas, admitted that he under reported his income by nearly 1/2 million dollars.

Pogue, stated, in court, that he was employed as a consultant for a construction company, acknowledged in court that he stated on his 2003 tax return that he only had taxable income of $4,594,052 for that year, when he knew he had taxable income of $5,588,249.70.  Pogue admitted in court documents that he also knowingly understated his taxable income on his 2004 and 2005 individual tax returns.  Pogue admitted reporting only $3,111,715 in taxable income for 2004, when he knew his taxable income was $3,686,784.40, and reporting only $2,908,235 in taxable income for 2005, when he knew he actually had $3,030,684.70 in taxable income that year.  Pogue acknowledged that the total tax loss resulting from his additional, unreported income was $473,680.53.

As you can imagine, failing to report income causes ire in the hallowed halls of the IRS.  Pogue faces up to three years in prison and likely repayment of the tax on the income he admitted was under reported.

UPDATE ON SENTENCING:  http://chuckgallagher.wordpress.com/2010/08/27/paul-pogue-prison-sentencing-set-for-august-27th-outcome-probation-or-prison/

EXPANDED DISCUSSION:

Comments were made which have since been retracted.  I respect the poster’s decision to retract, however, I will offer some comments relative to the posters comments while removing them from this blog:

A comment was made that inferred that Mr. Pogue did not do business with the government:  Doing business with the US Government has no impact on whether Mr. Pogue is guilty of tax evasion (or under reporting of taxable income).  All US Citizens are expected to report all income from all sources unless specifically exempt from tax per the US tax code.

Mr. Pogue’s guilty plea has a direct impact on his family and if that plea puts him in federal prison, then one could conclude that his workers may be out of a job.  The REALITY CHECK is that if ALL income had been reported, then we would not be discussing Mr. Pogue.

Only as a point of reference.  While I am not proud of this, I spent time in federal prison for tax evasion.  I, too, was a man of faith, in fact, I held the position of Director of Music in my church, deacon and was a community leader – sitting on several boards.  It’s funny in life, but it seems that anyone can make mistakes and it would seem that if what Paul plead guilty to is true – then he made a mistake that will cost him.

As mentioned above the specific comments related to Mr. Pogue’s CPA have been removed.  However, for anyone who pleads guilty of under reporting income, there will be questions raised as to whether the accountant was complicit in the evasion.  Notice, several of my blog entries reflect tax preparers being prosecuted for willful failure to properly report a clients income.  In this case, if Mr. Pogue was providing inaccurate information to his CPA, that would exonerate the accounting firm.  If not, well???

Now…with what little I know about the federal system, if his CPA was guilty of a tax crime, then he would be a bigger target than Paul.  I am reasonably certain that if the government feels that Paul’s CPA is somehow complicit they are looking that way.  I wonder, however, why the finger is being pointed at the CPA?  What did the CPA advise Paul that would have caused him (Mr. Pogue) to plead guilty to nearly 1/2 million of under reported income?  This is the part that is confusing.

Two comments: (1) Paul is not being put on trial.  He avoided that by pleading guilty.  (2) Regardless of his character or kindness, Paul plead GUILTY.  And, unless he is not, one fact remains – HE PLEAD GUILTY.  Guilt happens to kind men, men with character, men who otherwise by their actions deserve better.

EVERY CHOICE HAS A CONSEQUENCE.  It would seem that Paul made a choice that violated federal law – admitted it – and now will face the consequence.  For his sake and that of his family I hope he has a great attorney who can call upon the compassion of the court to recognize all that Mr. Higgins has stated and seek a minimal sentence for Mr. Pogue.

REALITY CHECK – The federal government has one method that is quite effective to encourage folks to obey the tax laws … FEAR.  Mr. Pogue likely reduced his sentence by making it easy for the government to convict.  But, his guilty plea and sentencing to follow make it yet another example of how the system works.  If you don’t file, don’t pay or don’t work to accurately reflect your taxable income – expect a nasty outcome.

COMMENTS WELCOME!

BizRadio – unfortunately for the investors the implosion continues…

On February 19, 2010 I posted a blog that asked a number of questions related to BizRadio and Daniel Frishberg.  Not long after a reply appeared on radio-info.com that said:

You seem almost giddy at the thought of an implosion…I on the other hand would like to see this radio format survive.  I don’t really like Dan (and his wife’s) shows that much, but I like most of the rest of it…and of course there are too many show production glitches for my taste.

My response was as follows – “I am not “giddy” by any means and if I left that impression to you or any of the investors I apologize.  I am interested in people making choices that empower them and improve the lives of others.  I have made some bad choices in my life and the consequences sucked.  Likewise, I have made other choices that yielded some outstanding consequences.  It seems that Frishberg has been more concerned with ILLUSION than truly providing an outstanding return for investors.  Giddy…is not how I feel.  Pleased that in some form I can open the doors of transparency so the investors can see reality for what it is…yea…I’m O.K. with that.  I, too, see BizRadio as an organization with some potential, but many great businesses have been destroyed by mismanagement, greed and hubris.  The real question is – Is there anything to save?  And, do the investors have the clout to pull “saving” BizRadio off?  Or is it a sinking ship that needs no more investor funds?  Instead of focusing concern over how I feel, (and frankly in Greenville, SC I am truly disinterested – other than it being a great story) it would appear that folks in Houston, Dallas and San Antonio should be demanding that many of the questions I’ve asked be answered and answered now.”

Well, today there is more evidence of the implosion of BizRadio.  BizRadio is now off the air in San Antonio for failure to pay for their air time.

If I were the station owner, I would be less than happy with this outcome.  In this economy, especially with smaller stations, I would assume that you would do anything to keep an income stream flowing.  Yet, if you are not paid for your airtime, then you can’t continue to incur costs with no funds flowing your way.  It’s sad to see, but now BizRadio is off the air in Dallas (at least that’s the last I’ve been told) and now off the air in San Antonio.  What’s left is Houston and that is in question with the sale of 1110 back to Salem and convoluted with the retracted Siddiqi lease/sale.

Wikipedia says of BizRadio (which perhaps needs to be updated): “BizRadio lost $1.6 Million between January and August 2009, though performance has since improved considerably with injection of capital from several media partners. BizRadio programs are now increasingly airing through syndication on business stations around the country.”

The question following questions now exist (at least from my perspective):

1. Will the SEC expand their investigation from the Kaleta beginnings into Frishberg’s activity with BizRadio?
2. How long will BizRadio be a viable business enterprise when the broadcast facilities are dropping them for non-payment?
3. Are investors, based on what’s going on, willing to pony up more money to keep the ship afloat?
4. Did Frishberg use BizRadio to perpetuate his investment business?  And, if so, was that justifiable or a scam?

I am not passing judgement as I clearly don’t have all the facts.  The best I can do is ask the questions knowing that every choice has a consequence.

COMMENTS ARE WELCOME!

White Collar Crime hard to Deter? Perhaps we’re trying the wrong approach says Business Ethics Speaker Chuck Gallagher

How do companies deter White Collar Crime?

With media reports filled with stories of “white collar crime” such as the developing Koss embezzlement story and the on-going reports related to Allen Stanford and recently sentenced Bernie Madoff, it’s no wonder that organizations are seeking to find deterrents to this seemingly growing phenomenon.

As I prepare to address a group in just hours, I came across this article in the Charleston Regional Business Journal and it struck me – “We’re going about this all wrong!”  But, before I suggest what’s right let’s look at excerpts from the article featured below.  The whole article is here:

Law school panelists: White collar crime hard to deter

By Andy Owens
aowens@scbiznews.com
Published Feb. 22, 2010

Crime pays, at least if you’re a midlevel executive wearing a white collar.

Panelists at a symposium on crime and punishment said that fraudsters find the risk of being caught typically worth the potential reward for all but the most top-level executives.

Using Enron and WorldCom, along with more recent financial fraud, as examples, the panelists — a federal prosecutor, a CPA and a former Securities and Exchange Commission official — said deterring white collar crime is difficult, partly because criminals are typically caught after years of high living and typically only the top executives receive the harshest penalties.

COMMENT #1: The first problem I see is that none of the panelists have any background as a criminal.  Each represent a segment of society that intellectually is connected with and perhaps understands “white collar crime”, but none are “white collar criminals.”  Therefore, they see things from their perspective but have no practical experience in showing others how to deter crime.  See the list below and then ask yourself, how could any of these folks really identify with the commission of a crime and therefore how to prevent it?

The symposium, held by the Charleston Law Review and the Riley Institute at Furman University, took place Thursday and Friday in downtown Charleston. It included a keynote address by the founder and executive director of the Equal Justice Initiative based in Montgomery, Ala., as well as a series of panel discussions by scholars, judges, lawmakers, lawyers and public advocates.

‘Like the Whac-A-Mole game’

For example, in 2000, the FBI reported that the number of suspicious mortgage fraud cases was 3,515. By 2008, that number had risen to 63,713. Even eliminating false alarms, the numbers are growing at an enormous rate, said Daniel V. Dooley, CPA and a former senior partner with PricewaterhouseCoopers.

“This trend is staggering,” Dooley said. “This is like the Whac-A-Mole game.”

COMMENT #2: Why is this trend up?   To someone who has been involved in white collar crime the answer is obvious.  From 2000 to 2008 we experienced unprecedented economic growth.  Everything was financially rosy.  We acquired more debt.  We lived more extravagant lifestyles.  We created a larger life illusion.  Therefore, two things were present to fuel the white collar crime growth: (1) more money to steal; and (2) greater need (the first component that exists for the creation of a white collar crime).  The crimes have always been there, its the economic decline that has caused them to come to the surface.  Think of white collar criminal as fish (bottom feeders if you will).  When the water is high you don’t see them.  They are there all right, but out of sight.  But in a drought when the water level recedes they come to the surface.  In an economic recession, when the money recedes you see white collar crime come to the light.  The principle is easy.

In a recent paper, Dooley and Mark Radke, a former SEC official and partner with Dewey & LeBoeuf, wrote that this can be a big challenge to the argument that lengthy prison sentences deter fraud.

“Most financial criminals don’t think about it, and they don’t think they’ll get caught,” Dooley said.

The 150 years in jail that Ponzi schemer Bernie Madoff received will likely deter only him from committing similar fraud, Dooley said, and even those who consider they might get caught know that they might have a decade or more to live off ill-gotten gains before anyone notices.

COMMENT #3: Will the long prison sentence deter the crime.  Well with Madoff getting 150 years and a fellow from Maryland sentenced in Texas to 99 years for a $10 million crime – folks are taking notice.  But, Dooley is right.  Most white collar criminals don’t think they will get caught.  Why?  First, once you have satisfied your NEED…you begin to RATIONALIZE your behavior.  That’s the tricky part cause if you can convince yourself that you’re not committing a crime – you begin to believe your own ILLUSION (your own lie).  So…if you can help people understand the impact that PERSONAL RATIONALIZATION has in the commission of the crime, you likely can begin to prevent the behavior that leads to such an ILLUSION.

Radke thinks the SEC should act less like a prosecuting agency and more like a gatekeeper that could shut down rip-off artists even without a case that could go before a court. He said a lot of the damage that’s being done could be stemmed if the SEC would use its regulatory power to freeze assets and bar fraudulent activity from occurring.

“You don’t have to build a case beyond a reasonable doubt” to act, Radke said.

Assistant U.S. Attorney Rhett DeHart agreed that a more regulatory approach would be helpful in stopping financial criminals, but he said it’s impossible to know if large prison sentences deter the trend of financial fraud because you can’t measure the incidence of someone not committing a crime.

“Who knows whether they deter others or not?” he said. “You can’t measure a crime that’s not committed. I think deterrence may be the least important factor.”

COMMENT #4:  O.K. guys – this is a very nice academic exercise, but beneficial – I doubt it.   So as a start let me provide a list of things that might help to deter white collar crime:

1. Make it known that you, from time to time, will have random auditors reviewing departments, processes and procedures – and THEN DO IT.  For example, you might have a plant (yes, fake employee) come into a department and test the integrity of workers.
2. Post examples of folks who have committed a crime and the punishment that they received, and without violating some perceived right – make sure that those who internally violate are known and prosecuted.  If folks feel that their indiscretion will be swept under the table they are more likely to commit the crime.
3. Self serving statement – but hire someone other than an academic to come in and speak to your folks.  You have no idea the impact it has when employees are faced with someone who committed the crime and then did the time.  I, or folks like me, make it real and the more real you can make it the more someone will think before they take some “white collar crime” action.
4. Consistently keep the message of “choices and consequences” before them.  With companies I consult with, I often find that different mediums shared frequently has a positive impact.  It is said that a person might see an advertisement seven (7) times before they really consider buying.  If that is true in marketing, then aren’t we marketing good behavior.  Yes…of course so!  So, we need to approach behavior marketing the same as product marketing.  All we are looking for is a positive outcome.

FINAL QUESTION:  Do you think that “white collar crime” can be deterred and if so, how?  YOUR COMMENTS ARE WELCOME!

Koss fires back! American Express is sued over Sachdeva Embezzlement! The only winners here – THE LAWYERS!

What a tangled web we weave.  Sue Sachdeva first embezzles millions (I mean a bunch) of dollars to support her (now claimed) medical condition (which make here innocent of her actions?).  Koss executives must have had their (Koss) headphones on while playing Guitar Hero to have missed such a massive fraud.  Grant Thornton, the CPA firm, says they aren’t liable for the loss cause they weren’t hired to evaluate internal controls (really?).  And, there is no doubt that any insurance company involved will say that they don’t have to pay a claim since other folks didn’t do what they were supposed to do.

With all that said… Koss would be out more money and Sue would be buying her spring wardrobe if it weren’t for the diligence of American Express who caught this in the first place.

Ah, but the story goes like this (no good dead goes unpunished) -

Koss Sues AMEX over Embezzlement Case

By Jay Sorgi

MILWAUKEE – The local headphone company Koss is suing American Express, claiming the credit card company failed to set up an anti-money laundering program.

Koss is blaming American Express for a lack of oversight in allowing former finance V-P Sue Sachdeva to embezzle tens of millions of dollars in company cash.

The suit seeks damages and compensation for the loss.

WHAT’S THE BASIS FOR THE AMEX SUIT?

The suit, filed Thursday in Maricopa County, Ariz., says American Express failed to live up to the requirements of the Bank Secrecy Act when it discovered that Sachdeva was embezzling money from Koss to pay her bills, but made a decision not to tell Koss immediately.

The Bank Secrecy Act requires financial institutions to have programs to detect and report suspicious activity that might be indicative of financial crimes.

American Express continued to process the payments for Sachdeva’s bills from Koss accounts, at the rate of $1 million per month, because Sachdeva was one of AmEx’s best customers and AmEx was profiting from her business, the suit claims.

As a result, Koss lost $20 million, the suit says. Koss is seeking unspecified punitive damages and compensation for the loss.

LOCAL RISK ASSESSMENT SPECIALIST INTERVIEW:

Deborah Bidwell is an identity theft risk management and fraud prevention specialist who lives in the greater Milwaukee area and a go to person for me in situations like this.  I had the opportunity to talk with her this a.m. and here are some of her comments:

What impact is this story having on the business community up in Milwaukee?

It has really rocked them to their core, and many are really scrambling to figure out what to do to avoid this happening to them.  They have lots of questions and the biggest is “how did this happen”?

So who does get the blame?

Ultimately the CEO who is trying to shift the blame to anyone besides him.

What about Sue Sachdeva?

She is guilty I am sure, BUT if the company is working to actively avoid this from happening in the first place she would never have been in the position of doing this to the company, her family and herself.

One thing we can’t do is change the KOSS situation.  That appears to be up to attorneys.  But, the question for other firms is how can they prevent this from happening to them?

At the risk of sounding self serving, firms would be well advised to have someone familiar with risk management assess where they are and what area(s) might be vulnerable to fraud. This should be done by someone other than your CPA, cause just like KOSS the CPA was too involved to catch it.

But shouldn’t the CPA catch something like this?

The CPA for Koss was only doing the audits for the SEC under the SOX Act.  They didnt take care of the day to day bill paying, or watching monthly bills or for that matter evaulate KOSS’s internal controls.

So just curious, how often do you get called on to do risk assessments and do companies really do that before they find there is a fraud?

Well…let’s say business has definitely seen a dramatic increase since so much fraud has come to light.  I consult with businesses in the US as well as a few in Europe helping them avoid fraud before it happens.  And frankly that is the key.  For many medium to smaller concerns, this really has not been a big issue till, well, all the fraudsters hit the news.  Now I’m getting calls for folks who want preventive medicine rather than a hospital visit after a massive fraud.  I suppose you know what I mean by that…?

Last Question – Since you are in the Milwaukee area, how can people get in touch with you if they want to discuss risk assessment?

They can reach me through my website: www.dlbandassociates.com, or simply give me a call at 262-945-7844.

FINAL COMMENTS:

As a business ethics and fraud prevention expert, I agree with Deborah about the need for preventive medicine.  Kinda cute how she put that.  From a practical perspective the cost to prevent a crime, like the one that KOSS Corp. has experienced and the (what I know will be massive) legal fees that follow, is well worth the investment.  For now, the only winners in this mess are the attorneys.

AS ALWAYS YOUR COMMENTS ARE WELCOME!

BizRadio’s Daniel Frishberg – Perceptions from a potential investor

What’s happening with BizRadio and Daniel Frishberg – well…probably more than meets the eye.  For those who have been following this story, you know by now that investors are up in arms about the apparent collapse of their investments in BizRadio while others believe that it was mostly a scam scattered with some helpful information from time to time.  What is true is that investors and/or potential investors seem willing to share their experiences – hoping that bringing to light their story might help others to avoid what has turned into a mess.

As a business ethics and fraud prevention expert, I know that there are three things that come together to effect a fraud or turn an otherwise investor into a scam victim.  Those three components are: PROMISE – ILLUSION and TRUST.  As the story here unfolds all three seem to come to light, now almost daily.

First lets look up what we can find about Daniel Frishberg’s background.  The following is now found in Wikipedia (not that Wikipedia is a trusted source, but I have found that more times than not it is accurate):

Daniel Frishberg is an American businessman, author and talk-radio host. He is the founder and president of the Biz Radio Network, where he broadcasts his own show, “The MoneyMan Report”, under the nickname, “The MoneyMan”. He is also a partner of the private equity trust Laffer Frishberg Wallace Economic Opportunity Fund and the CEO and chief investment strategist for the management firm Frishberg and Kaleta Advisors.

Early life

Frishberg was born in Staten Island, New York, where his parents raised him and his two brothers. He graduated early from Fair Lawn High School in New Jersey at the age of sixteen and later attended New York University.

Frishberg worked at Prentice Hall. He later earned a living trading part-time on Wall Street.

BizRadio Network

Frishberg worked for the financial services division at Prudential in San Antonio and later did radio advertising for the company; he appeared frequently on air. Radio station KTSA hired him to do a financial program. After the show gained popularity, Frishberg formed the BizRadio Network in Houston.

Frishberg hosts The MoneyMan Report on the BizRadio Network. The network broadcasts in Houston, Dallas, Fort Worth, and San Antonio.

Frishberg and BizRadio recently opened the BizRadio Academy in Houston which was operated for approximately 4 months before closing it’s doors.

Other ventures

Frishberg also operates Daniel Frishberg Financial Services Inc. The majority of the firm’s clients come from the BizRadio audience. The firm has partnered with Wallace Bajjali Development Partners, L.P.

The Laffer Frishberg Wallace Economic Opportunity Fund has committed millions of dollars in capital over the past two years to real estate, media, and other holdings.

Based on what is show here, Frishberg is a self-made man and has some background that reflects his ability to provide investment advice and manage investments.  However, it is interesting that the following statement is made above:

The majority of the firm’s clients come from the BizRadio audience.

This is not a statement of fact or conclusion, but when you own your own station that airs your own show that feeds investors to you – well, that is the foundation of a prospective will oiled ILLUSION.  I think that most who read would agree – there is power in the media.  What people hear on air or in print (which I am aware of in these blogs) carries weight and credibility.  It is therefore important to state facts when we know them and expose opinions when we state them.  OPINION:  The statement that most of the firms clients came from the BizRadio audience doesn’t make it so or wrong.  Yet, that statement has come from many sources including investors themselves and seems suspect when there is a cloud of impropriety over their investment and the BizRadio – Frishberg motives.

NOW TO THE PROSPECTIVE INVESTORS COMMENTS:

I have had personal experience with their incompetence. I signed up for a bond course last spring or summer. When the night came, I went to the office and  they had postponed it but not contacted me. From then on I kept calling and calling trying asking when it would be rescheduled. Finally, after about 3 months, I had my money refunded (even that was like pulling teeth).

COMMENT: Reputable financial firms know that their reputation is their lifeblood.  After all, if you can’t trust the firm you won’t invest your money.  So having to wait that long for a simple refund is a sign that something is a miss… but the Prospective Investor Comments continue…

The next nail in the coffin was when I went to a free open house update.  Frishberg touted “his” market X-ray of buying power and selling pressure. He did it all on the time on the radio. He threw up a graph and it was someone else’s technical research. I know because I buy the same research. I spotted it right off. Frishberg is the one who first recommended it to me. It was in that moment I knew he was a fraud.

COMMENT: Well…nothing is new in this world.  Mostly what we hear is a repackaged thought that someone else surely has had.  But, in fairness, it enhances ones reputation if they acknowledge their sources rather than claiming them as their own.  Does this make Mr. Frishberg a fraud – no, but again, it does challenge his self proclaimed reputation.  But the Prospective Investor Comments continue…

I started to notice he stole ideas from other guests like John Rutledge and a University of Houston professor who specializes in natural gas. After a few weeks, those ideas became his originals. If I noticed a few, how many did I miss?

COMMENT: While this may seem unrelated, there is a story today in the Chronicle of Higher Education about a University President resigning because some suspect him of plagiarism in his work.  POINT: It is important to be honest.  If you idea is your idea – by all means CLAIM IT.  On the other hand, give credit where credit is due – if nothing else, it shows that you are well read and seeking knowledge outside of your own experience.  Just a thought.  And still the Prospective Investor Comments continue…

Another disturbing thing is Frishberg became like a cult figure. At that same open house market update, I observed it during a break. About 15 people hovered around him like he was a celebrity. It was creepy. Whenever I see hero worship like that, I know something is wrong.

I also recall that he said something about how it was difficult to attract rich people (doctors, lawyers, business people) because they already knew other rich people. What rich people want is to be around celebrities. So, that is why he started to get celebrities on his radio show and then try and become one himself by going on CNBC, Fox etc.

COMMENT:  Now here’s where I think there is something more than meets the eye.  There is nothing wrong with celebrity – Oprah has it, Glen Beck has it, President Obama has it.  Now, there are three folks that conjurer up strong opinion by many, but the one thing they have in common is that they earned the status (in some form or another).  On the other hand, if CELEBRITY is created to find investors to perpetuate some scam and thereby support the ILLUSION – then we have CELEBRITY that is ill gotten and soon to fail.

Is that the case with Mr. Frishberg?  Only time will tell.  But, one has to wonder if a guy who worked at Prentice Hall and later earned a living trading part-time on Wall Street, who then worked for the financial services division at Prudential in San Antonio and later did radio advertising for the company is really “The Money Man” or is that just a radio ILLUSION?

Gordon Grigg, now a felon serving time in federal prison, convicted of a Ponzi scheme was too a reputed investment adviser who gained credibility by his appearances on Fox Business, etc.  Gordon was (almost) the master of the ILLUSION till some of his investors wised up.  There are so many similarities in his case to the BizRadio Frishberg drama that it isn’t funny.

Perhaps not all is as it seems and BizRadio will emerge stronger and the investors will get the returns they seek.  Frankly that would be good for all concerned.  For now however, the drama continues to unfold.  It is true, YOU DO REAP WHAT YOU SOW.  I know I’ve been there and lived that.  I hope for the best, but know that more is to come.

YOUR COMMENTS ARE WELCOME…

99 Years in Prison for investor fraud Ponzi Scheme. Texas convicts Edward S. Digges Jr. Better watch out if you defraud folks in Texas is the message!

Well…I’ve been writing about a lot of, what seem to be, Texas investor shenanigans and then I see that a Texas District Court and jury find that they’ve had enough.  I suppose we could all agree that a 99 year prison sentence does seem to send that message.

Edward S. Digges Jr. was sentenced last week to 99 years in state prison for orchestrating a multistate, fraudulent investment scheme that involved the lease of credit card and debit card terminals.

The jury’s sentence came after a four-week trial that resulted in the Feb. 4 conviction of Digges for aggregated securities fraud. The Texas State Securities Board and the Collin County district attorney’s office prosecuted Digges, a former Maryland lawyer who was convicted of federal mail fraud in 1990.

I have to say that some folks do not learn.  That is unfortunate as EVERY CHOICE HAS A CONSEQUENCE.  It seems that as humans we might take the wrong path and pay the price, but if we take that same path again…the price GETS BIGGER.  Digges, now some 20 years later, is finding out just how significant the consequence is of his actions.  Just he picked on the wrong state.  They say things are bigger in Texas…and having lived there…it does seem to be true.  In this case I know it’s true!

Digges controlled an entity called the Millennium Terminal Investment Program. It offered securities that were purportedly based on the revenue generated by point-of-sale terminals that merchants use to process credit and debit transactions. Digges raised at least $10 million from about 130 Texas investors, the majority of whom were elderly.

“Edward Digges has a long history of defrauding some of our most vulnerable citizens, and this sentence ensures he will never again do so,” Texas Securities Commissioner Denise Voigt Crawford said. “The conviction will not return money to investors, however. This case highlights the importance of checking the background of any financial professional you choose to do business with, and the importance of obtaining full disclosure before investing.”

To attract Texas investors, Digges employed a sales force made up largely of insurance agents. Investors were told they would receive a monthly payment of $50 for each terminal they purchased – equivalent to a 12% annual return. Millennium also said investors could sell the terminals back to the company after five years, recouping their initial investment in the equipment and the 12% annual returns for five years. The company said it had established a reserve fund to ensure these payments to investors.

HOW TO CREATE AND SPOT A FRAUD…  When an investment adviser promises something that isn’t real and seems too good to be true – like a 12% annual return – then run for the hills cause there is likely a fraud taking place.  This reminds me of the series of articles that I’ve written about BizRadio and Daniel Frishberg.  While there is no accusation of fraud, there sure seem to be similarities.  Investors promised something that they now find, not only didn’t happen but can’t happen.   See articles here and here.  The PROMISE of something extraordinary is the first part of a scam in the works.

According to evidence presented in the case, no such reserve fund existed, and the Millennium program was in financial turmoil. The terminals were not producing enough revenue to pay investors, and the program operated at a loss from the start – a fact concealed from investors. The majority of lease payments made to investors came from other investors, not from money generated by placement of the terminals. Company principals also used investors’ money to pay their personal expenses.

Digges also concealed his background and the degree of control he exercised over Millennium. He failed to disclose he spent two years in federal prison following his mail fraud conviction in 1990; the conviction stemmed from a scheme to overbill clients at his law firm. Nor did Digges tell investors that he had a civil judgment against him for $3.6 million in a suit related to the overbilling scheme.

In addition, Digges has a long list of federal and state regulatory sanctions imposed against him for selling investments in the Millennium program. The Texas State Securities Board began investigating Digges in mid-2005 after newspaper advertisements for the Millennium program appeared in newspapers marketed to senior citizens.

Now don’t take this the wrong way, but 99 years for a $10 million scam – well, I wouldn’t want to be a white-collar criminal in Texas.

SPOTTING A FRAUD:  This Ponzi scheme, just like all the rest, have a foundation of three things:  PROMISE, ILLUSION and TRUST.  If a person (generally a TRUSTED person) PROMISES you something that most people wish they could get (a great INVESTMENT return) and support the whole idea by an ILLUSION (fake statements – flashy lifestyle – media hype, etc.) then you have all the makings for a FRAUD.  If you’ve invested in such a “thing” you’ve likely invested in a FRAUD.  You, as I put it, fell into the PIT.

The only hope for investor relief is found in IRC Section 165.  There’s an article that I wrote here about that for folks who seek to find some way to get some of their lost investment back.  Check out the article.

YOUR COMMENTS ARE WELCOME.