Jerry Holmes and R. Scott Pace face the Consequences of their Unethical and Illegal Actions. Prison, Probation and Restitution…

July 12, 2011

Every choice has a consequence.  What started out as a legitimate business turned into an opportunity to meet a need that coupled with individual rationalization became the fertilizer for fraud.  As a business ethics and fraud prevention speaker, I see this frequently…intelligent and well meaning businessmen (or women) meeting a perceived need illegally and likely rationalizing that “they’ll pay it back” thus justifying their soon to be discovered illegal actions and then being forced to face the very real consequences of them.

Here’s the US Attorney’s news release…

DEPARTMENT OF JUSTICE

United States Attorney’s Office
Western District of North Carolina

FOR IMMEDIATE RELEASE
WEDNESDAY, JUNE 8, 2011

CONTACT: Lia Bantavani
704.338.3140
FAX NUMBER: 704.227.0264

OWNERS OF SETTLEMENT COMPANY SENTENCED TO 33 MONTHS IN PRISON FOR EMBEZZLEMENT AND TAX EVASION CHARLOTTE, N.C. – The United States Attorney’s Office for the Western District of North Carolina announced that the owners of the Settlement Source, LLC, were each sentenced to prison terms for their role in embezzling money from the escrow account at the Settlement Source and for tax evasion.

U.S. District Judge Max O. Cogburn, Jr. sentenced Settlement Source owner and former chief executive, Jerry Holmes, 64, of Matthews, N.C., to serve 33 months in federal prison, to be followed by two years of supervised release. The defendant was also ordered to pay restitution in the amount of $1.9 million. Judge Cogburn also sentenced Settlement Source owner R. Scott Pace, 38, of Charlotte, to 33 months in federal prison, two years of supervised release, and ordered to pay restitution in the amount of $1.9 million.

The United States Attorney’s Office is joined in making today’s announcement by Chris Briese, Special Agent in Charge of the Federal Bureau of Investigation (FBI), Charlotte Division, and Jeannine A. Hammett, Special Agent in Charge of the Internal Revenue Service (IRS) – Criminal Investigation Division (CID). Holmes and Pace pled guilty to the charges in a criminal bill of information filed on May 19, 2010. According to the bill of information, in or about November 2005 Holmes and Pace discovered that they could embezzle client funds from the escrow account – at least initially – without any customer discovering the embezzlement and without any noticeable effect on operations. Over time, Holmes and Pace, assisted by another defendant not yet sentenced, embezzled substantial amounts of money for, among other things, real estate investments, a box suite for Carolina Panthers football games, personal loans, and a loan for Holmes’ daughter and son-in-law to purchase a house. When the scheme collapsed in or about July 2008, it caused losses to clients and insurers of approximately $2.4 million.

In pronouncing the sentences, Judge Cogburn stressed that the sentences were only as low as they were because the defendants self-reported the fraud, believing it was unknown to the government. Holmes and Pace will be allowed to self report to begin service of their prison terms once the Federal Bureau of Prisons has designated the facilities at which they will serve their respective sentences. All federal prison sentences are served without the possibility of parole.

The investigation was led by the FBI and IRS-CID. The prosecution for the government was handled by Assistant U.S. Attorney Kurt W. Meyers of the U.S. Attorney’s Office in Charlotte.

If you have information that might be helpful in this case in identifying the motives behind the actions taken by Holmes or Pace…please share.

YOUR COMMENTS ARE WELCOME!


BizRadio – Dan Frishberg: The Great RIA Hoax… yet, another nail in the coffin…

April 19, 2010

BizRadio was a “loss leader” – so said Dan Frishberg according to many sources who heard the comments.  Look at the model and there was no way it could ever make money.  Unless…?  Unless the RIA that Frishberg was responsible for was an asset of BizRadio and, therefore, the money it created on a quarterly basis become a resource for paying the overhead.

Makes sense, except that Frishberg, from everything that I have seen, transferred the RIA to another investment firm to protect it and none of the monies it kicked off have been directed back to investors who are stinging from losses.  IF THAT IS NOT TRUE, PLEASE FEEL FREE TO CORRECT ME WITH YOUR COMMENTS BELOW.  I think, however, it is true.

So, what was Dan’s intent?  Next that follows is material prepared by BizRadio for investors.  Read it and let’s look at the content.

Let’s continue to Page 2

Yes…there’s more…Page three

More importantly, we start pulling in assets in the RIA and that’s the most profitable part!  Dan Frishberg told the truth here.  The question is – if that is the most profitable part then why is that conspicuously missing from the apparent assets of BizRadio today?

This document was written in December 09 and was part of a promotion presentation for bringing on line Seattle, Salt Lake City, Charlotte, Indianapolis and St. Louis.  Notice two very obvious things:  (1) the date is confirmed as it mentions Ron Crider and that is the time he was there (ostensibly as CEO) and (2) it touts Al Kaleta (even though by that time he was busted by the SEC and shouldn’t have had any activity with BizRadio).

I may not be the sharpest knife in the drawer, but I can cut butter…and this seems to be a clear statement of Frishberg’s intent to include his prize RIA as part of the BizRadio assets.  Further, this material seems to show his intent to defraud as many of the statements made are just not true, but rather stated in order to increase investments in BizRadio which was headed down the slippery slope of decline in December of 2009.  It’s one thing to make a mistake on an investment – sometimes things just don’t turn out as planned – and quite another to keep up an illusory front in order to gain more money when any other reasonable person could see that most of this is just a sham.

What’s the outcome…?  Who knows today?  But, one thing is for sure.  The cards are falling and the outcome is looking less and less promising.

YOUR COMMENTS WELCOME.


Banking Embezzlement! What Motivated Rebecca Dawn Long to Commit Fraud?

November 4, 2008

As I prepare to write this entry, I must start out by saying that I know exactly what Rebecca Dawn Long is going through here in 2008. I went through the same thing in 1990 and I know how painful the process can be. I, too, (not proud of this) embezzled money and had to expose myself – to my family, friends and the community I lived in – as a liar and a thief. The experience was humbling, terribly painful, and a turning point in my life. So, for those who read – my motivation is not in any way to tear down Ms. Long, but rather to explore – for the benefit of those who read – what motivates someone to commit a fraud and subsequently destroy a life (at least for a time).

First, let’s define fraud: “A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.”

According to the US Attorney’s office, Ms. Long, between December 2004 and September 2008, devised andistock_000002775172small executed a scheme to obtain money from The Peoples Bank of Ewing by establishing a line of credit under a fictitious name. After establishing the false credit line, Long allegedly withdrew $487,685.23.

The indictment also charges that Long created and faxed a fraudulent loan document to an office of The Peoples Bank for the purposes of disguising the fact that she had embezzled over $487,000 from that financial institution.

Assuming the indictment is true – that meets the definition of fraud. The broader question is motivation!

THE FRAUD TRIANGLE: Fraud arises when three elements exist simultaneously: (1) need or unsharable financial pressures; (2) Opportunity or perceived opportunity; and (3) Rationalization or the ability to convince yourself that what is wrong is right.

NEED: Need generally comes from an (a) excessive lifestyle; (b) gambling or drugs (in the case of men -perhaps women); (c) debt, poor credit, financial losses; or (d) pressure to succeed from family – job – peers or company. In my case, the need arose from (a) and (c) – too great a lifestyle and too much debt. For those who may know – in Rebecca’s case which was the motivating factor?

OPPORTUNITY: Here’s a fact – “Potential fraudsters who think they will get caught rarely commit crimes. Therefore, for those of us who have been catagorized as “fraudsters” – the opportunity most likely was poor or insufficient internal controls. Now I doubt that the bank will admit to their role in the fraud scheme, but insufficient internal controls creates “opportunity.” More important was what loophole did Rebecca choose to effect the crime she is charged with?

RATIONALIZATION: In order to break past the ethical boundaries of right and wrong, most fraudsters justify their questionable conduct as something other than fraud. Here are some examples of what might be used as rationalization: (1) I was only borrowing the money, I intended to pay it back; (2) I work hard and they don’t pay me enough here, so this is just what I deserve; (3) It’s no big deal, everybody does it; and (4) I have no choice, it either I do this or I lose my house, etc.

QUESTION: While the above data is general, the question is what motivated Ms. Long to take the actions she took. She is innocent until proven guilty, however, in my experience, the US Attorney’s office does not indict someone unless they feel they will secure a conviction. What was Ms. Long’s need? What loophole in bank procedures did she take advantage of in order to access that sum of money? What was Ms. Long’s rationalization?

COMMENTS ARE WELCOME…might I suggest however, that we focus on the issue and allow Ms. Long and her family the opportunity to heal. No personal attacks will be approved.


Virginia Banker – Rebecca Dawn Long – Charged with Embezzlement. Hard Economic Times Means More Fraud on the Way!

November 1, 2008

I suppose it will become a sign of the times – the economic times that is, but fraud will rise over the course of the next several years as we begin to see the “perfect storm” unleash its fury.  As the need to survive increases – or at least maintain as some see it – the inclination to find means to “have” will tempt otherwise honest people to make choices that will have far reaching consequences.  Fraud is being uncovered at increasing rates and, in my opinion, will only get worse.  Ethical choices are thrown out of the window when faced with severe need.

Facing a federal indictment, a southwest Virginia woman – 35-year-old Rebecca Dawn Long of Jonesville – has been indicted on federal charges that she embezzled nearly $488,000 from the bank where she worked.

HOW:  In Ms. Long’s case, she used “opportunity” as her method to create the fraud.  She is accused of falsifying loan documents.  According to the indictment she established a line of credit under a fictitious name.

According to the indictment, between December 2004 and September 2008 Long devised and executed a scheme to obtain money from The Peoples Bank of Ewing by establishing a line of credit under a fictitious name. After establishing the false credit line, Long allegedly withdrew $487,685.23.

The indictment also charges that Long created and faxed a fraudulent loan document to an office of The Peoples Bank for the purposes of disguising the fact that she had embezzled over $487,000 from that financial institution.

POINT OF INTEREST:  In many of the current mortgage fraud cases, falsification of loan documents is common and, has in the past, almost been encouraged in order to meet the qualification standards from the loan underwriters.  Underwriting standards have tightened significantly, but that does not stop the practice.

U.S. Attorney Julia Dudley said Tuesday that a grand jury in Abingdon indicted  on charges that included bank fraud, bank embezzlement, money laundering and making a false statement on a loan document. She faces a maximum penalty of 120 years in prison and a $3 million fine if convicted.

QUESTION:  Does anyone know Ms. Long and what might have motivated her to make such a foolish choice?  If so, please feel free to comment.

Every choice has a consequence.  In this case, Ms. Long is at the beginning of the phase of facing her consequences.  I know what she is facing.  I have faced it myself.  While I am not proud of my past, I have to be honest as an ethics speaker and writer – I, too, spent time in federal prison for embezzlement.  The experience was less than pleasant and the consquences linger to this day…and I have been out for 12 years.

While Ms. Long has made a grave mistake, as a wise man once said to me – You are not a mistake.  Neither is Ms. Long.  To all who seek justice…Ms. Long will stare justice in the face and likely face time of reflection in federal prison.  However, to her family and friends, let me say, my thoughts are with you and I know that with the right approach there is recovery after an event like this.


Business Ethics Choices: A Taxing Issue Leads to Prison for NC Tax Preparer

October 16, 2008

MARCELLUS THOMAS, 44, of High Point, North Carolina, was sentenced to 56 months imprisonment on federal income tax charges on September 23, 2008.  There is no doubt when THOMAS reports he will find that his crime was not worth the short term benefit he received.

Crime does not pay.  I know and speak from experience.  Every choice has a consequence.  As a business ethics speaker, I, like Thomas, paid the price for my unethical dealings by spending time in prison.  I am not proud of that fact, but I do know that there is nothing worth the cost of your freedom and other issues that come from being a convicted felon.

According to the US Attorney’s Office:

THOMAS, a commercial income tax preparer operating a company called Refund Recovery Group in High Point, was charged with causing fraudulent federal income tax returns to be prepared for clients and filing them with the Internal Revenue Service for the tax years 2002-2004. Despite the fact that most of his clients lived in publicly-assisted housing and were unemployed during those years, THOMAS claimed income from fictitious businesses such as hair salons and day-care centers on their tax returns without their knowledge in order to obtain income tax refunds under the Earned Income Tax Credit to which they were not entitled. THOMAS did not identify himself on the tax returns as the preparer. After having the Internal Revenue Service wire the refunds, which ranged from $1,377 to $2,726, to his own bank account, THOMAS kept a significant portion of the refunds for himself and gave the remainder to his clients.

From an ethics perspective, THOMAS went knowingly and clearly outside of the bounds of the law and what anyone would have known to be correct.  I cannot say that I would blame his clients as they would, for the most part, be ignorant of the tax law and what, if anything, they would be entitled to.  On the other hand, THOMAS, had to have known exactly what he was doing when he made up fictious companies in order to claim the refunds.

According to the IRS, THOMAS was convicted by a jury on June 6, 2008, of eleven counts of filing false income tax returns.

From $1,300 to $2,800 in refunds to 56 months in federal prison, somehow, based on experience, I think that THOMAS will learn that crime does not pay.  Perhaps, when released he will be able to take what he learned in prison and use it to some good in NC.  For now, his consequence is significant.  You do reap what you sow.


Dallas Chiropractors Indicted in Staged Accident Health Care Fraud – Fraud Speaker Chuck Gallagher Comments

September 20, 2008

Every honorable profesison has it’s “bad apples.”  I can speak those words as truth – as I too have brought shame to my former profession.  But, as I say often in my speaking presentations – EVERY CHOICE HAS A CONSEQUENCE!

According to the US Attorney in the Northern District of Texas, two chiropractors, who operated clinics in Arlington and Haltom City, Texas, were indicted this week on charges related to their participation in a staged accident scheme.  Minh Huynh, also known as Michael Huynh, 37, was charged with three counts of health care fraud, one count of conspiracy to commit mail fraud and one count of mail fraud. Thien Tuan Vo, also known as T.T. Vo, also 37, is charged with one count of health care fraud.

According to the indictment, participants in staged accidents, or “accident clients,” would enter into an agreement with a law firm for that law firm to process and submit claims to insurance companies arising from the staged accidents. The law firm would refer the accident clients to chiropractors, including Huynh and Vo, who would create false and fraudulent treatment and billing records for the accident clients that would falsify and inflate the number of treatments the accident clients received. Huynh and Vo would submit the bogus treatment and billing records to the firm for submission to insurance companies. When a settlement check was received, the firm would issue checks to itself, the chiropractors and the accident clients.

In most frauds the guilty party gets involved slowly.  There are three components to most any fraud: (1) need; (2) opportunity and (3) rationalization.  While I don’t know these men, my guess (from years of experience) is that they started small and found out that others would collude to make the fraud work.  Staged accidents frauds are common and most are discovered.

The indictment further alleges that Huynh paid kickbacks to a legal assistant at a law firm for each client referred to him. It was agreed that the amount of the kickback would be a portion, ranging from 30% – 50%, of the settlement funds paid to the chiropractor from the law firm. Huynh would routinely inflate billings to compensate for the kickbacks he agreed to pay for the referrals. The Settlement Disbursement form the firm provided to its clients, along with their settlement check, concealed and failed to disclose the kickback arrangement and deprived the clients of their full recovery from the settlement.

While an indictment is an accusation and a defendant is presumed innocent until proven guilty, rarely does a grand jury issue an indictment without a guilty verdict.

Every choice has a consequence.  It’s sad that these two taint the profession, but it is important to not that they (if guilty) are not the norm.  Unfortunately health care fraud is rampant.  Choices and consequences – you do reap what you sow.

For information on business ethics or fraud awareness presentations visit my web site – www.chuckgallagher.com