ItsBadBusiness

Bankers Have Worse Than Average Ethics

Tue, 05 Feb 2008 11:27:13 -0700

A British study has found that financial services employees possess less honesty, less loyalty, and less self-discipline than the average British worker. That is not exactly great news for people with money in banks or with brokers, and than is most of us. This reports shows quite clearly that the reputations of bankers have fallen on hard times as their compensation packages have grown.

From the article: “Roger Steare, Professor of Organisational Ethics at Cass Business School, has completed some intriguing research into the banking industry’s morals. He put more than 700 executives working in financial services firms through integrity tests. These financiers were as a group less honest, less loyal and had less self-discipline than the average British worker. Professor Steare believes that the lack of self-discipline in the profession indicates a culture of greed and short-termism.”

Much of this study revolves around the sizes of bonuses being paid in the British banking industry despite the hard times upon which the industry has fallen, and how out of step those bonuses appear in a time of lagging profits. The study may show that the average worker is not too happy to see people that are losing them money profiting from the experience. They may simply see it as Bad Business.

U of Phoenix In Securities Fraud Hot Water

Mon, 04 Feb 2008 15:45:54 -0700

The Apollo Group, which owns the online University of Phoenix, has been found guilty of securities fraud and ordered to pay $270 million to a group of investors. The problems stem from the cover-up of a report that was highly critical of its recruiting practices. Apollo felt that the report was biased and that it would put off investors in the company. A federal court has now disagreed. Apollo will appeal

Stephen Basser, attorney for the Policeman's Annuity and Benefit Fund of Chicago, the lead plaintiff in the class-action lawsuit, said the amount is among the largest-ever verdicts in securities litigation. He said such cases usually are settled before trial or dismissed. When they do go to trial, defendants often prevail, as did former technology highflier JDS Uniphase in a monster case that ended a couple of months ago.

Although the verdict will be costly if upheld, the news of the resolution of the suit has had a positive impact on Apollo stock. "The Street always seems to like things when they're resolved, even if the resolution is negative," said Trace Urdan, who follows Apollo for brokerage firm Signal Hill. "The uncertainty is gone." Put another way, resolving Bad Business issues is good for business.

Countrywide Financial Fraud Suit Grows

Sun, 03 Feb 2008 13:25:39 -0700

The New York state agencies expanded their suit against Countrywide Financial Corp. to include an additional 26 financial service companies that were involved in underwriting the firm’s stock and bond offerings. At issue are a series of filings by the company that fraudulently represented the company’s business and finances.

The agencies involved are the New York City Comptroller, New York State Comptroller and New York City Pension Funds. "As borrowers lost their homes and investors held onto artificially inflated securities, Countrywide executives cashed out to the tune of almost $700 million," said state comptroller Thomas P. DiNapoli. "We will pursue every avenue to ensure that those who defrauded investors are held accountable for their actions."

The class action suit alleges that Countrywide both misstated information and omitted information from financial statements used to raise money for company operations. These resulted in an artificial increase in the company’s stock price. This is yet more Bad Business in the country’s mortgage and foreclosure crisis.

Stock Fraud Defendants Convicted

Sat, 02 Feb 2008 11:35:59 -0700

Daniel W. Heath was convicted today on almost 250 counts of theft and securities fraud. Today’s action was part of an ongoing trial in a fraud case totaling $190 million, a California case which has attracted significant nationwide attention. The trial is being held in the Superior Court in Riverside County. The verdicts on an additional 150 counts will be returned in a few days.

The trial has lasted three months, with an additional one month consumed by jury deliberations. Daniel Heath is just on of the defendants. The others include his father John Heath and business associate Denis O’Brien. The other defendants face only about sixty of the over 400 counts.

The defendants are being slowly convicted of defrauding approximately 1,600 people out of pearly $190 million. The illegal activity was a Ponzi scheme, in which new investor money is used to pay off earlier investors. It is expected that the defendants will receive significant jail time, between 30 and 100 years. Perhaps this will help convince others that Bad Business does not really pay.

All Businesses Should Worry About Computer Crimes

Fri, 01 Feb 2008 13:30:32 -0700

An article by computerweekly.com states that computer crimes, including fraud and theft, represent very real threats to almost all businesses. The danger is there regardless of business size, business location, or type of business. Although some businesses are more susceptible than others, no business is immune to computer-based crimes.

Although the sophistication of criminals is increasing, many crimes could be stopped with fairly simple security precautions. One avenue of defense is to look to where most fraud comes from, and that is inside the company. Consider the recent example set by the French bank Societe Generale, wherein a trader employed by the bank was responsible for $8 billion dollars in fraudulent transactions.

Many such problems can be avoided by carefully designing access restrictions and improving physical security inside businesses. Insuring that only the right employees have access to sensitive and valuable information is half the battle. The article cited has more tips to prevent fraud in your business. A little thought to security can go a long way to keep you from being a victim of Bad Business.

Real Estate Appraisers Allege Lender Fraud

Fri, 01 Feb 2008 10:54:23 -0700

The charges are really nothing new; real estate appraisers complaining about demands by loan officers that appraisals be changed to meet the expectations of the lender. The charges have been taken a little further in a suit filed by a California appraiser against Washington Mutual Bank, the country’s largest thrift institution. The suit alleges that the appraiser was blacklisted by the bank because show would not change her appraisals to conform to the desires of loan officers.

Interestingly, this suit comes just two months after New York State sued an appraisal form for doing the opposite. First American eAppraiseIT is alleged to have acquiesced to demands by its customer lenders to inflate the values they reported on property appraised. The State properly charges that this practice contributes to mortgage and foreclosure losses.

The California appraiser says that Washington Mutual blacklisted her after she properly cited declining market conditions as a reason for reporting lower values. She was apparently told, point-blank by a manager at WaMU that she would be given no further appraisal assignments if she refused to raise the values being submitted. When she refused, the ban was enforced.

Apparently, there is no such thing as too much Bad Business for mortgage loan operations.

Ethics Questions in Excess Iraq Profits

Thu, 31 Jan 2008 13:41:25 -0700

Unstable situations like those which exist in Iraq and Africa in wartime are rife with opportunities for bad ethics leading to excessive profits. In economics, scarcity always leads to exorbitant pricing, via the mechanism of skewed supply and demand. Companies like Halliburton, Kellog, Brown & Root, and Blackwater have proven their lack of ethics by profiting unfairly from these situations.

The larger companies are not the only ones taking advantage of suffering. Smaller companies all over the world have profited from the plight of others over the last few years, reaping high profits via price-gouging. This is as true of local retailers, freighters, and service providers as it is of multinational profiteers like Halliburton.

The motivation in all of these cases, large and small, is simple greed. Some companies and some individuals have no scruples that would lead them to operate fairly when it is possible to operate unfairly. These people, and these companies, are the epitome of Bad Business. They should be harshly punished by whatever means are available. Too often, we react instead by avaerting our gazes from the travesties of simple justice.

More Mortgage Fraud, This Time By Ex-cop

Thu, 31 Jan 2008 10:25:21 -0700

More and more cases of mortgage fraud are coming to light now that the mortgage and foreclosure crises has put the industry under the spotlight. This time, it is a former Florida Sherriff’s Deputy and his wife who have been charged with stealing millions of dollars from their own title company before closing the doors.

The couple, Jarrell and Katherine Britts of Clearwater Beach, have been charged with grand theft, scheming to defraud, title fraud, and money laundering by the Florida Department of Financial Services. The Britts are in custody in Pinellas County, according to the St. Petersburg Times.

The couple had owned Eagle Title and Abstract, then sold the firm to the Talon Group in 2004. The investigation revealed that the Britts had embezzled approximately $2 million when they owned the company and another $3 million working for the new owners after the sale. It would seem that Bad Business is no better when kept in the family.

Intellectual Property Fraud Costs Skyrocket

Wed, 30 Jan 2008 13:58:44 -0700

A report released by Kroll on intellectual property fraud includes the news that this type of fraud, which includes counterfeit goods, has increased 1,000 percent in the last six years in the European Union. Those numbers may be small when compared to those in some parts of Asia. Figures from the World Customs Organization indicate that the total losses from crimes of this type worldwide may total $650 billion per year.

Some examples from the report: ten percent of prescription drugs worldwide are counterfeit, as are twenty percent of all apparel purchased in Italy. Further, the reports states that many electronic products, such as cell phones, and copied so quickly in China that the counterfeit item actually often appears on store shelves before the original does.

The report goes on to suggest ways to avoid these losses and is well worth reading. Some of the safeguards are neither difficult or expensive. Instead, they are just too often ignored. Look at this report, and similar materials, to see how you can protect yourself from the Bad Business of product counterfeiting.

FBI Investigates Mortgage Fraud

Wed, 30 Jan 2008 10:07:16 -0700

Although they won’t name the firms involved, the FBI has begun investigations into fourteen sub-prime mortgage lenders. The number of fraud complaints fielded by the FBI have grown from 3,000 in 2003 to 48,000 on 2007. Neil Power, chief of the FBI economic crimes unit, said that the increase is due "to good old-fashioned greed."

They are zeroing in on cases involving insider trading with changes in property values and on accounting fraud, where they are looking at “housing developers who may have reported cash reserve accounts to reflect falsely inflated values." The number of cases are impressive when you realize that the FBI only investigates cases over $500,000 and most of the investigations involve cases over $1 million.

Kenneth Kaiser, FBI assistant director for the Criminal Investigative Division, said the FBI has developed an initiative focused on subprime mortgage loan fraud and is working with investigators from other federal agencies. Officials identified the states that are the "top 10 mortgage fraud hot spots" as California, New York, Texas, Florida, Georgia, Utah, Illinois, Indiana, Ohio and Michigan. Doing the math, this bunch of Bad Business may involve $37,500,000,000.

Should Senators See Free Movies?

Tue, 29 Jan 2008 13:26:47 -0700

I will admit that I had never heard of this practice before reading this article. The members of Congress have been getting to see previews of major films for free, ever since Jack Valenti caused a posh 70-seat theatre to be built just two block from the White House thirty-five years ago. Apparently, invitations to these screenings are some of the most prized perks in Washington since the stars of the movies often attend the screenings.

Apparently, after thirty-five years of this, House and Senate ethics panels have finally noticed that this practice is highly questionable, from an ethics standpoint, since it confers very special lobbying opportunities to the entertainment industry. Perhaps it took so long because those invited include not only Congressment and administration officials, but staffers as well.

Public Citizen, a nonprofit watchdog group that helped implement sweeping new congressional ethics reforms last year, says the screenings violate the ban on gifts from lobbyists. As usual, nor that the practice is out in the open, previous invitees are scurrying out of the light. Those that are not running away as fast as they can are using the lamest line in government corruption: “Something like that would never influence my vote!” Try again. If it would not influence your votes, they would not be spending money on it. This appears to be just Bad Business as usual in our nation’s capital.

Baltimore Sues Wells Fargo Over Mortgage Practices

Tue, 29 Jan 2008 10:10:14 -0700

A new type of lawsuit has emerged as the mortgage and foreclosure crisis continues to gain steam. The City of Baltimore has sued Wells Fargo, a major player in the mortgage market, alleging that the lender engaged in predatory and discriminatory loan practices. Should the City win the lawsuit, they estimate that they could recover tens of millions of dollars for homeowners facing foreclosure.

Individual homeowners could get as much as $5,000 to help them avoid foreclosure. At issue are loans made between 2004 and 2007 in the city, and in which blacks were discriminated against. Discrimination took the form of higher rates, higher fees, higher volumes of foreclosures, including interest rates three percent higher for blacks than for whites.

The Baltimore lawsuit is the first attempt by a municipality to recoup losses resulting from foreclosures, according to city officials. Mayor Sheila Dixon estimates the city could win “tens of millions” of dollars that could be funneled into counseling, refinance programs and other outreach efforts.

Societe Generale Fraudster Hacked Bank Computers

Mon, 28 Jan 2008 14:52:04 -0700

In a follow-up to a previous column, the Societe Generale employee that made fraudulent transactions totaling at least $7 billion did so at least partially by hacking into the banks computer system. The bank says that the trader used "several techniques of fraud" including computer hacking as part of the operation.

The bank denied that it has destabilized markets when it sold off the involved issues at a loss over several days last week, saying that it has absorbed the losses itself and that it had made all of the sales in a controlled manner. The bank also said that the trader appeared to have been working alone and had not profited from the fraudulent transactions, although that ignores the matter of motive.

The French Finance Minister and other European Union officials have been looking into the case and will continue to do so. There is, of course, risk from this type of operation within other banks. Merrill Lunch CEO John Thain said, “We will certainly go back and try to understand how this happened to make sure it can't happen, but again, no systems can prevent fraud, you just want to catch it as quickly as you can.”

This particular bit of Bad Business may be out of the barn, but that does not mean that some other banks may not need to secure some doors of their own.

Iowa AG Works to Stop Mortgage Fraud

Mon, 28 Jan 2008 10:04:47 -0700

Iowa Attorney General Tom Miller has proposed bills that he says would protect Iowa consumers from many of the problems associated with the housing, mortgage, and foreclosure crisis. Miller has called for legislation on four separate issues which he says are costing Iowa citizens time and money.

One bill would require that mortgage brokers act in the best interests of buyers when they are arranging loans, something not required by current law. Another would protect homeowners from fraud by private foreclosure counselors. The third would add a five dollar fee to all mortgages, the proceeds of which would be used to educate homeowners on how to avoid becoming a fraud victim. The fourth would raise the limits affecting the Consumer Credit Code, so that some mortgage transactions would become liable to that law.

The Iowa Association of Mortgage Brokers on Friday gave a preliminary green light to Miller's legislation. "We are committed to working closely with various stakeholders to advocate for legislation that will advance the best interests of consumers, while allowing a fair environment in which Iowa small-business owners can continue to operate in the mortgage industry," Joel Rogers, president of the trade group, said in a statement.

Auto Fraud Scheme Foiled By Sting

Sun, 27 Jan 2008 10:41:07 -0700

New York detectives in the Borough of Queens have been operating non-descript garage for about eighteen months, receiving cars which the owners thought would be dismantled for parts so that they could file claims for the vehicles as having been stolen. Instead, they became caught up in a sting which recovered $1.7 million worth of cars, and landed over sixty people in jail.

As part of the operation, which started in July 2006, some suspects turned over vehicles to middlemen who would deliver them for a fee to the undercover “chop shop” in Queens, officials said. The middlemen then returned the keys to the owners, who could use them to make stolen-vehicle claims to the police and insurance companies.

As a part of the operation, the undercover detectives paid the middlemen about $1,000 per vehicle, the district attorney’s office said. Of those arrested, 15 are charged with acting as middlemen in the transactions, and 5 are charged with possessing stolen cars or possessing or removing vehicle identification numbers for vehicles, according to the district attorney’s office.

That is one way to make people pay for Bad Business.