Too bad users aren’t actually using the software anymore, according to the below.

A little more info: There have been approximately 30,500 Money Merge Accounts sold. UFirst recorded the unique users who logged into their version 3 and version 4 MMA accounts from January through April of this year. Here are their findings:

v3:
Jan 953
Feb 896
Mar 891
Apr 787

v4:
Jan 7534
Feb 7328
Mar 7401
Apr 6968

Though sales are slowly increasing by approximately 200 per month, logins are declining by about 188 per month. Assuming new clients at least login during their first month, that means approximately 400 people are abandoning the MMA, every month.

In April, when UFirst had approximately 30,000 paid or paying MMA customers, there were only 7755 unique logins. That’s only 26% of their clients. There is one inescapable fact to extract from this:

Almost 75% of MMA users have abandoned the product.

Please don’t waste your $3,500 on this useless software.

Medifast General Counsel Michael Tanczyn, Esq. at the deposition of Sam Antar. (click to enlarge)

Earlier this year, Medifast (NYSE: MED) filed a $270 million lawsuit against Barry Minkow, me, and several other defendants for what it has alleged are false statements and a conspiracy to damage the stock price of the company. This lawsuit is nothing more than the typical big company suing a critic to shut her up. Medifast has far more resources than any of the defendants, and the company was hoping that by suing us, we’d shut up about the company’s multi-level marketing division Take Shape For Life (TSFL).

Because the lawsuit was filed in California, the defendants were immediately able to file anti-SLAPP motions.  (SLAPP = Strategic Lawsuit Against Public Participation) Under the California law which authorizes this, the burden immediately falls on Medifast to prove that it has a probability of winning its case against us.

This is where the Medifast case is supposed to get good. We say we’ve told the truth about the company and/or expressed our opinions as protected under the First Amendment. Medifast then has to prove that we lied about them and they can win their case against us.

The whole point of the anti-SLAPP process is to stop big companies from abusing the legal system to get people to shut up. Big companies like Medifast sue people because they know the people can’t afford ongoing legal fees and will likely just stop talking about the company, even if the critics are right. The anti-SLAPP legislation is supposed to force Medifast to prove its case early on, saving the defendants legal fees if Medifast is filing a frivolous suit to harass and bankrupt the defendants.

In this case, Medifast got a gift from the court. They are supposed to prove their case immediately. In this instance, they cannot prove their case, so they resorted to alternate tactics, and the judge is allowing it. Medifast has even been busy lying to the court, but hasn’t been held to account for this yet.

What can’t Medifast prove? The defendants basically proved three key things after an analysis of Medifast’s SEC filings and other publicly available information:

1. The growth of Medifast as a company is based almost solely on the multi-level marketing division TSFL (Take Shape For Life).
2. TSFL is an endless chain recruiting scheme which relies on the continuous recruitment of new health coaches  in order to stay alive
3. Health coaches with TSFL make almost no money (but of course, you wouldn’t know that unless you went through Medifast’s misleading and confusing disclosures and were aware of how they have manipulated the numbers)

All three of these things are absolutely true, and Medifast knows it. Therefore, they have no case against the defendants.

The first report by the defendants about Medifast and TSFL was publicly released more than a year prior to this lawsuit being filed. In that year, Medifast never once pointed to a specific statement made by the defendants and explained or proved what was false about it. The closest they ever came was an allegation that defendant William Lobdell lied about Medifast insiders selling $6 million worth of stock in November and December 2009, which the company says is refuted by their SEC filings. According to Lobdell, however, the SEC filings completely support his assertion about insider sales of stock.

But its no fun for Medifast to have to follow the law and argue the anti-SLAPP motions immediately. How can they punish and harass the defendants and cost them tens of thousands of dollars each in legal fees if they have no case?

Instead of proceeding with the case as the anti-SLAPP legislation requires, Medifast claimed it needed to do discovery. Look at the above three points. If any of them are false, who has in their possession the data to show exactly that? Medifast, of course. They have the information to prove or disprove the above statements, but they don’t want to move to that part of the litigation because they lose there.

Instead, Medifast asked the judge to allow them to do discovery. And the judge granted it. The judge granted “limited” discovery, but the process really isn’t limited at all. It’s as if the case is proceeding without the anti-SLAPP motions, because Medifast has been able to do every bit of discovery that it would do in the absence of anti-SLAPP motions.

What does this mean? Medifast is making this as difficult, time consuming, burdensome, and costly as possible for all the defendants. They are intentionally causing each of us to incur tens of thousands of dollars of legal fees, in the hopes that we will be unable to do our real jobs or to afford the cost of continued litigation and settle with them.

In my case, Medifast decided that producing the documents I had in my possession related to Medifast was not enough. They demanded a forensic analysis of my computer to try to recover deleted emails and documents that were deleted long before the lawsuit was filed. Nothing was deleted improperly, and Medifast knows this. Yet, they demanded this expensive and time-consuming process to be undertaken to place a great financial burden on me. They made silly demands that were aimed at increasing the cost and burden of this process, too.

We ultimately had my computer looked at and produced whatever could be recovered, because we don’t want to give Medifast a chance to go in front of the judge and distract the judge from the real issue.  The real issue is the three points above and whether they’re true or false. We don’t want Medifast to spend time arguing about discovery issues when we should get to the real issues that Medifast should have to argue.

Yet Medifast is still delaying the process and trying to punish the defendants for daring to criticize the company. Medifast was given 90 days to conduct discovery, and now they want 30  more days. This is simply another delay tactic, designed to cost the defendants more time and more money.

What has Medifast done in the last 90 days? They’ve done things like depose the ever-important Sam Antar. Yes, he is such a key to their case, that he’s not listed as a defendant. He’s merely a blogger who is friends with some of the defendants. He’s written about Medifast on his blog. And so Medifast has spent hours and hours harassing him.

Wait! What about the defendants? Shouldn’t Medifast be worried about deposing them? Wasn’t that the whole point of this discovery process? I have heard not one peep about deposing me. Yep. Deposing Sam Antar is far more important. So important that now Medifast wants to extend discovery so that they can do depositions of the actual defendants.

Again, let me remind you that the whole point of the anti-SLAPP motions is to stop the process. It is to protect the defendants so they aren’t incurring tens of thousands of dollars of legal fees and hours and hours of time related to a frivolous lawsuit. Yet nothing has stopped. Medifast is like Girls Gone Wild, demanding all sorts of documents and enlarging time frames and generally being a bully with the blessing of the judge.

It’s easy to see what Medifast is doing. They’re delaying arguing the real issues because they will lose on the facts. And as a result, they’re also delaying having to provide any discovery themselves. They know what happens if they’re forced to turn over data and documents: it will be proven that the defendants told the truth. And we know that the longer Medifast goes without having to produce information themselves, the greater the chance that they are destroying and altering documentation.

How willing do you think Medifast will be to take the every single computer of every single employee to a computer forensic firm and have them examined for deleted documentation? I doubt they’ll want to do that, but they expect the defendants to do it.

The games need to stop. This litigation needs to proceed under the anti-SLAPP legislation in California. Enough games. Enough burden on the defendants. Someone (the judge, maybe?) needs to make Medifast prove its case the way the law intended them to prove it.

CRG Network
PRESS RELEASE
July 12th, 2010
For Immediate Release

DA Investigates Taxpayer-Funded Political Blogger
Finds Evidence of “extensive political blogging”

MILWAUKEE – The Milwaukee County District Attorney’s office concluded its investigation into the misuse of county resources for political purposes finding that Milwaukee County employee Christopher Liebenthal engaged in “extensive political blogging” from his taxpayer-funded computer.

Liebenthal has been active in Milwaukee County First and AFSCME Local 48.  He has blogged or maintained web pages for those groups as well as his own.  Blogging under the name “Capper,” Liebenthal writes for two political blogs called Cognitive Dissidence and Whallah!

The District Attorney had earlier seized the Liebenthal computer from his county office based on a complaint issued by Orville Seymer of Citizens for Responsible Government.  Despite the findings of “extensive political blogging” by the County DA’s technical forensic expert, the DA’s office declined to issue criminal charges citing a narrow interpretation of state statutes that would require such online activity to solicit a direct campaign contribution or service.

CRG spokesperson Chris Kliesmet added, “It is now clear and unequivocal that, despite his earlier claims to the contrary, Mr. Liebenthal is a prolific political blogger who “extensively” used a county computer to engage in this political activity.”

“After discussing the situation with the District Attorney’s office, it is also clear that they would prefer to see this handled as a county personnel matter rather than a criminal matter,” said Kliesmet.  “The ethical standard and consequences of this manner of workplace misconduct has been established and Mr. Liebenthal’s actions constitute an extreme example.”

Liebenthal took taxpayer resources meant to care for those most in need and spent them on his own political crusades,” said Kliesmet.  “He should own up to his illicit use of taxpayer property and time and resign.”

CRG continues to follow this matter and will publish additional facts and data as they become available.

For further information contact Chris Kliesmet at 414-429-9501 or visit www.crgnetwork.com.

Witness this email from Rich Schaffer, a pyramid-topper who gives excellent details about just how awful U1st Financial is doing!

Sent: Thursday, July 01, 2010 10:59 PM
Subject: Proposal for a New Company!
From: Richard Schaffer
Everyone,

In lieu of all the challenges and difficulties that we have all been struggling with over the last 12-18/m,  I genuinely believe that it is time that we all accept a few very harsh realities. But before I get into that, the primary reason for this e-mail is that I have an idea, a proposal really, that I truly believe with everything in my soul can absolutely change the direction of our Company moving forward!

What I am about to say is not intended for anyone (nor has it been shared with anyone) not included in this e-mail. But I think it’s time that someone said what everyone is already thinking – but everyone is apparently afraid to actually say out loud. Let me begin by trying to set the stage with 10 main points regarding what is really happening, how everyone (actually) feels, and what is going to inevitably occur if we don’t take some very drastic measures fast!

• The ‘Network’ is dead, and it’s not coming back. This is not intended to be negative, it is simple being honest and realistic. I don’t think it even matters if we launch V5, complete ‘Step’ 3, change the Company/Product name or change our comp plan or the MLM commission platform. There has simply been too much damage done for too long. That is no one’s fault in particular. Sometimes business is like life and relationships; even with all the best of intentions and even between 2 people that are ‘right’ for each other, the timing or the circumstances are simply not right. Or a relationship ends because the couple simply shares too much ‘reality’ due to all that has happened and it dies – and it can never be the same.
• I believe Private Labeling and HR have tremendous potential!
• I believe as much as ever that our product is awesome – and needed more than ever in the marketplace!
• We are unfortunately (legally) stuck paying far too many people O.R. Commissions that don’t do anything or provide any value to the Company – which is sucking up commission dollars that could otherwise be paying the (few) active Leaders in the Field that matter.
• The Private Label and HR Initiatives will end up capturing most all of our truly ‘key’ people. This is both good – and bad. Good for the obvious reason. Bad, because in the process it will ultimately cannibalize the ‘Network’ and cause some very real friction (if not lawsuits – or both) in the Field when Leaders/Uplines begin to accuse the Company of ‘taking’ their key people that they recruited, trained etc and end up NOT getting pd for their future efforts/production.
• Compromising by paying a few levels will NOT solve the problem (as regardless of how many levels you do pay – it will always be one too few for someone!) Also, in so doing, we will effectively dilute the entire basis of what we are looking to accomplish with those Campaigns to begin with! So it will end up being counterintuitive.
• We cannot rush the release of V5 at the risk of it being anything but perfect! There is FAR too much riding on it with large Company’s on the line! We will have ONE shot to get that right! So, we need to (collectively) buy as much time as necessary to do so!
• The Company is no doubt literally hemorrhaging cash right now. And we have to do everything possible to keep it from getting any worse than can be helped by keeping as many people active as possible. Including keeping key potential PL and HR candidates into play (at least on the sidelines as spectators) until they are fully ready to go.
• Corporate is no longer ‘in love’ with the Network – and unfortunately, neither are the key Leaders. It is simply a fact. Therefore, none of us will probably ever really get behind it the way that would be necessary for it to work – at least not enough to really make it worth it.
• We cannot either justify financially or logistically having a National Convention at this time. Both due to finances and the negative perspective that having only 300-400 people attend would create. Instead we should set a date (say Oct) that the 10 of us along with 25-50 from each Organization come together to LAUNCH our NEW direction! This would allow us to bring together maybe 100, maybe even 250 of the very BEST Leaders and Agents that we have hand selected to be a part of our NEW COMPANY!!

I think if you are all being completely honest with yourselves, you cannot help but agree with most, if not all of what I just stated above. Therefore, I propose that instead of just sitting back and watching the Network die like a rabbit that you just ran over on the side of the road; that we collectively take ownership of it – and PROACTIVELY phase it out! Strategize it so that we can effectively ‘spin’ it in a positive direction of OUR choosing instead of the one that will inevitably be created by the Field.

We take the Top 5 most visible and identifiable Leaders in the Field; Steve, Dave, George, Mike and Myself, and we go thru our entire Company and collectively SELECT each of our TOP 20,25 even 50 people in our Organizations and we divide them among the Leaders just mentioned. NOT as ‘level’ agents in a ‘Network’ but rather specifically to market our Program thru the HR and PL platforms. They would report to us directly just like account executives. This may apply primarily to the PL Initiative as we may have to structure the HR component somewhat differently. But we would clearly play major roles in that Campaign as well. We would take possibly $1.00 from EVERY P.L. Deal and put it into a Pool for the 5 of us to encourage everyone to work together and to avoid any backbiting etc. We would also want a limited equity stake in at least the P.L. Initiative and some degree of nominal subsidy during the next 3-6/m while we are building this new platform and completing this process.

There are numerous details that we’d have to obvious sort out, but you hopefully get the idea. This would address nearly every issue that we have – and will inevitably face within the next 6/m. It would also keep the top Leaders in the game (very key) keep as many agents producing during this ‘transition’ as possible – and ‘buy’ us the time necessary to complete all of the tools and resources required to ensure that those Initiatives are successful. It also allows us to trim the fat and (legally) carve out anyone that, quite frankly, we simply don’t want anymore. But more importantly, allow us to cherry pick the very best! Those that we actually like, trust, respect and know are genuinely capable of helping us to be successful with our new direction.

I am also VERY confident that with the Leaders behind it, we CAN ‘sell’ this in a very positive way!! This IS the best overall solution to the numerous challenges that we are all struggling with – I believe it in the depths of my soul!!

I would like to suggest that we try to get EVERYONE (at the SAME time) on a call to discuss this ASAP!! Time unfortunately is NOT on our side right now. And I just don’t want to see us blow this chance when we still have some very key people on board that could ensure that this is a major success

Please consider this with a very open mind and take the time to fully digest the overall picture that I have tried to paint here. This could truly be the best way for us to salvage what we have – and maximize what we’re looking to do.

Rich

Everyone expected Koss to sue Grant Thornton. It’s just standard procedure to sue the auditors after a fraud is discovered. It never matters to the companies that audits are not designed to detect fraud and the auditors tell management this over and over.

It never matters to the companies that they are the ones responsible for establishing and maintaining internal controls over financial reporting, as well as putting procedures in place to prevent and detect fraud.

The standard management representation letter required to be given by the companies to the auditors has language something like this:

We confirm that we are responsible for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with US GAAP. We also acknowledge our responsibility for establishing and maintaining effective internal control over financial reporting, including designing and implementing programs and controls to prevent and detect fraud.”

But when things blow up, someone has to be held responsible, and Koss is pointing the finger at Grant Thornton.

Here’s what I find so funny about the lawsuit: It goes through the fraudulent payments Sachdeva initiated in great detail, listing dates, payees, and amounts. The accusation being made is that if Grant Thornton had examined those checks and looked at the endorsements on the back of the checks, they would have immediately known Sachdeva was defrauding the company.

Why is that so funny? Because Koss management could have (and should have) done exactly what they’re saying Grant Thornton should  have done.

Talk about making yourselves look like absolute morons.

Financial statement audits are very limited in scope. Companies may not like that fact, but it’s just the way it is. If companies want their auditors to find fraud, then they ought to hire the auditors to do more than the audit. As it stands, when you hire auditors to do audits, you have very little chance that they will find a fraud-in-progress. If  you want them to look for fraud, then you have to hire them for additional work.

Contrary to what many may believe, the auditors don’t sit and go through canceled checks as part of their audit procedures. Their job is not to sit and go through every payment that passes through the bank account. That’s a different project with a different scope. Get over it.

You should read my article at Daily Finance about this lawsuit. I point out some interesting contradictions in statements Koss made to the SEC and that they’re now making in their lawsuit. Maybe if the company had spent as much time and money on the management of their business as they will spend on this lawsuit, this all could have been avoided.

As of June 2010, UFF is all but out of business. They had their last round of lay offs at the home office just yesterday and are now down to about 8 people running both the client and agent support lines. Thats down from around 70 a year ago.

All of their last ditch efforts to boost sales have failed and the next round of lay offs in a couple of months from now will be when the company closes.

The MMA was a great product, but poor management, questionable business practices and just plain stupidity from the owners have got UFF to where it is today. As the company began to slide, and more and more of us were laid off, the owners continued to spend thousands of dollars on creature comforts for themselves around the office. It was sad to see.

I felt like I worked for some Wall Street, big bank executives who lived in some fantasy land and refused to change their life style while all of the “little people” around them were being laid off, or having their hours cut, etc. I wouldn’t be surprised to be standing next to one of them in the line at the unemployment office soon.

All organizations use some form and degree of monitoring in reaching strategic, operational, reporting and compliance objectives. Yet, many organizations do not fully leverage the power of monitoring in reaching objectives or in supporting their regulatory control assessments. This article explores monitoring in an effort to reap the benefits of cost-efficient and effective control systems.

The relevancy today is especially vivid considering the increase in modified or qualified external audit opinions pertaining to “going concerns”. While a company’s ability to continue functioning as a business entity relates primarily to operational objectives, it is achieved in large part through sound controls. Monitoring is a necessary component of the internal control process.

COSO’s Monitoring Guidance
The Committee of Sponsoring Organization of the Treadway Commission (COSO) released Guidance on Monitoring Internal Control Systems in January, 2009.  This is a resource worthy of any internal auditor’s, director’s, or manager’s library. It provides practical guidance and examples on how monitoring can be incorporated into an organization’s internal control process. The guidance does not change the original Internal Control – Integrated Framework issued by COSO in 1992. This original COSO Framework and subsequent guidance defines monitoring as two related principles:

1.    Ongoing Monitoring Activities:  These are geared towards monitoring the effectiveness of controls over the ordinary course of operations and includes:

• management activities
• supervisory activities
• comparisons
• reconciliations
• other routine actions including automated tools

2.    Separate Evaluations:  Periodic efforts to verify the effectiveness of controls through evaluation other than the ordinary course of operations. This often provides a “fresh look” and is also a means to consider the effectiveness of ongoing monitoring activities. Examples include special reviews triggered by the board of directors and evaluations performed by internal audit.

In addition to internally driven evaluations, organizations may be subject to external evaluation requirements performed by external auditors, regulators, and financial institutions. For these more highly regulated organizations, companies can often leverage their internal monitoring efforts when there is a healthy degree of internal independence. Separate evaluations typically lend themselves to greater independence by definition. Companies are also well advised to ensure that internal evaluators are competent and objective to heighten the probability that this work can be used by external evaluators.

Balance and Some Degree of Independence Counts
Without monitoring it is not possible to conclude if controls are operating effectively. Remember that a control is simply a policy, procedure, or activity within a process to accomplish an objective. A key message of COSO’s Guidance on Monitoring Internal Control Systems is to “build-in” controls versus relying too heavily on “add-on” controls. The concept of building-in controls directly relates to ongoing monitoring activities since they are ingrained into the daily activities of a company through management and supervision. These control activities are typically the first opportunity to identify and correct control deficiencies.

This front-line of defense against errors, fraud, and shortcomings in reaching objectives must be reinforced through clear accountabilities and consequences. A culture of strong management and supervisory controls is essential in the ultimate outcome of successfully reaching objectives. Even if an organization is highly reliant on automated controls, it is people who must interpret the results of the automated controls. Automated controls should be widely used as they can be very powerful in helping managers and supervisors monitor outcomes to best make timely decisions.

Organizations need to have a healthy balance of both ongoing controls and separate evaluations. Separate evaluations are mostly “add-on” activities since they occur outside the ordinary course of operations. They generally detect control breakdowns well after ongoing monitoring activities and can be resource intensive. However, they are also typically performed with a higher degree of objectivity when performed by persons who are outside the business unit. With supervisory controls there is a heightened risk of bias through the development of personal friendships and pressures to protect the business unit’s image. Business units are naturally concerned about how they are perceived outside their unit and this is why you want diversification with your monitoring activities. Separate evaluations can pay huge dividends by providing a fresh-independent look at the effectiveness of controls, including ongoing monitoring controls.

The Perception of Detection
The notion of consequences is very important. If people sense that their mistakes, performance shortcomings, or even worse – fraud, will not be detected; there is a heightened risk of control breakdown. They simply feel they will not get caught so they rationalize that becoming lazy, making errors, or committing fraud will go unnoticed. Without detection, there can be no consequences. This is one of the most fundamental desired characteristics of a healthy control environment. However, some cultures can go too far in creating an atmosphere of paranoia and going overboard on costs that have a diminishing level of returns in terms of control benefits.

To foster a good equilibrium of “perception of detection” in the culture, here are some suggestions:

• Implement a fraud hotline, including an anonymous reporting component.
• Provide periodic training of board members, management and supervisors on objectives and relating controls.
• Craft and implement a comprehensive corporate compliance program that spells out roles, accountabilities and consequences.
• Reinforce the corporate compliance program through a formal performance evaluation process to reward positive outcomes and correct negative results.
• Communicate a code of conduct that is simple to read and understand to all directors and employees.  Also consider a code of conduct for certain external stakeholders, such as vendors.
• Verify compliance to controls through a healthy balance of supervision and internal auditing.

And finally, let’s not forget the role of the board. Since the risk of management circumvention of controls is generally very high, there absolutely must be some form of executive monitoring at the board level.  This does not mean that directors need to actually be conducting the monitoring activities themselves, but rather that they direct activities through an internal audit function that does not report to management. It may also make sense to bring in a third-party evaluator, such as a second CPA firm, for high risk and sensitive areas when independence is either compromised or simply is elusive due to the organizational structure. After all, it is ultimately on the board’s shoulders to ensure that proper monitoring is indeed in place and working to protect shareholder interests.

Ronald Kral is the Managing Partner of Candela Solutions. Ron is also the Lead Partner of the Firm’s SEC Compliance Practice and is available to address inquiries.  He can be reached at rkral@CandelaSolutions.com.

© 2010 Candela Solutions LLC, One South Pinckney, Suite 310, Madison, WI 53703.

However, I also don’t like sweeping generalizations that put a group of people in the status of “victim” without any hard facts to back it up.

Such is the case with an article on AOL’s site DailyFinance.com, for which I am a writer.  The article Mortgage Foreclosure Crisis Hits Minorities Hard starts out with a factual basis: that the foreclosure rate for minorities is higher than for non-Hispanic whites. Foreclosure rates published by the Committee for Responsible Lending put Latinos at 17%, blacks at 11%, and whites at 7%.

The next logical question is “why,” but the author doesn’t bother to ask it. He simply makes the leap that discrimination is the reason, and uses the rest of the article to speculate about that discrimination. Rather than speculate, why didn’t he take the time to research the answers?

He says “Civil rights groups are outraged.”

Outraged at what? At the discrimination? Because that premise hasn’t been supported in any way. It might be the case that discrimination is tied into this issue, but it might not.

A discussion of the fact that minorities are being foreclosed on at higher rates than whites is meaningless unless we have other information, namely:

• What circumstances surrounded the home purchases?
• How much of the borrower’s income did the home purchase eat up? (i.e. Could the borrower really afford the home?)
• What prompted the foreclosures?
• What kind of credit histories do the buyers have?
• Did the homeowners attempt to avoid foreclosure? By doing what?

You see, simply saying it is an injustice that minorities have higher foreclosure rates is nonsense. We need to know why.

It’s easy to blame “predatory lending” as the reason minorities have higher foreclosure rates. But until we know whether “predatory lending” actually happened or not, it’s unfair to cast that blame. The article on DailyFinance says that subprime lenders aggressively marketed high interest loans to minorities, and it’s possible that some of those borrowers could have qualified for conventional mortgages. Then why doesn’t someone do the research to find out exactly whether or not that happened?

Subprime lenders aren’t inherently evil companies. They serve a purpose. They offer financing to people who are higher risk because of their credit histories or other factors related to money-management. And those loans with higher risk also come with a higher pricetag.

I don’t deny that subprime lenders can and do take advantage of people, just like many other industries and companies do, unfortunately. It’s easy to blame companies in an industry that has a bad image, and much harder to come up with the facts to support those accusations.

On a related note, the article says that mortgage companies are reducing loan balances on underwater mortgages, but not often enough. The premise here is that when a home’s value is less than the amount owed on the mortgage, the bank should just write off the difference. Really? Because it’s the bank’s fault that someone bought a house that later dropped in value? Well that’s just dumb.

CBC’s Marketplace did an episode on their investigation of Rich Dad Education. And it’s very interesting, as well as horrifying. Kiyosaki licenses the “Rich Dad” name to a company called Whitney International (also called Whitney Information Network, and most recently “Tigrent“). Whitney has lots of complaints against it related to their “get rich” seminars.

Here’s how it works: You go to a free “seminar” in your area, which is just a sales pitch for the Rich Dad series. At this initial “seminar,” the point is to get you to sign up for a $500 three-day class. According to what I’ve read online, however, that “class” isn’t much more than a sales pitch for even more classes. People attending this “class” report that the entire premise is that you can’t be successful in real estate without the Rich Dad classes.

Participants can end up spending $40,000 to $50,000 on a series of sessions through Rich Dad Education. On the one hand, the workshops do teach some good things to students. On the flip side, however, is the fact that the sessions are far too expensive and some of the advice is sketchy.

One of the big problems with the advice is that the teachers repeatedly instruct participants to increase the limits on their credit cards. This is an expensive way to finance renovations, and very dangerous because of high interest rates. It seems to some that participants are encouraged to increase credit card limits for the purpose of buying tens of thousands of dollars of Rich Dad training. Kiyosaki himself told the Marketplace interviewer that he didn’t think it was good to instruct students to increase credit card limits.

I’ve been to the Asset Protection class with one of my friends. A participant pays for the classes, and then can bring a guest to each class. (Obviously, the hook here is that Rich Dad Education is hoping the guest signs up for classes of their own.)

For the most part, the information and advice given during this class was sound. There were a few questionable points made during the session, but I felt that overall the information was good. I just don’t think the class was worth what my friend paid for it.

Where can you learn about investing in real estate? I’m not sure of the answer to that question. But there has to be a better option than spending $40,000 or $50,000 with Rich Dad. Buyer beware.

First let’s be very clear on what “risk intelligence” entails. There are both macro and micro elements to this definition as used in this article.  From a macro standpoint it involves the governance structure, and relating policies and procedures, to help ensure that decision making is undertaken in the best interest of shareholders. From a micro standpoint, the decision making process hinges on the timeliness, accuracy and comprehensiveness of information. This includes the supporting data elements and assumptions. Data transparency (i.e., knowing the origin and history of information, assumptions,  ownership, biases and accuracy) is essential in making sound decisions. Finally, while “risk” is the possibility of an adverse event, “opportunity” is the possibility of a favorable event. These two potential outcomes are inseparable as every decision to create or protect shareholder value (i.e., opportunities) involves risk.

Trust & Transparency between Management and Directors is Essential
Corporate governance is about accountability to shareholders through elected directors, as well as accountability over executive managers whom directors select and monitor. Accountability hinges on transparency of information and relating actions to respond to internal and external developments.  A sound governance structure ensures that a proper amount of information is harvested and acted upon by management under the watchful eye of the board. This is essential for fostering opportunities and managing risks through a timely risk identification process. While all of this is common sense and nothing new, we are entering an era of increased investor expectations of the board taking a more robust role with risk. This goes well beyond traditional fraud prevention, cash flow management, asset protection, regulatory disclosure, etc. While these topics will always remain important, this article gets to the very core of a company’s pulse; that is the risk to long-term strategies in the face of known and unknown external market and internal forces. This type of risk is often referred to as the risk of value destruction or equity loss.

We only need to look back a year or two to find dozens of high-profile companies that have been battered, or even worse – gone bankrupt, due to management decisions to take on too much risk, or even fraudulent endeavors with no one to challenge them. Sometimes, it is the fault of management deliberately hiding important information from the board, in which case this is fraudulent behavior since there is intent to deceive.  If there are deceptive forces at play between management and the board of directors, it is incumbent upon the board to take immediate action, up to and including removal of those committing fraud. However, in most cases it is not overt deception at play but rather a lack of information, erroneous information, or simply a board that does not ask the right questions or process information appropriately.

Open and Frank Discussions
Decision making improves when directors engage in open and frank discussions with management on presented information, and even more important – information that is not presented, especially regarding risks.  While open and frank dialogue between management and its board are often lauded as part of a company’s culture, implementation shortcomings often are a reality. Here are some suggestions to counter shortcomings from a boardroom perspective:

1.    Ensure that both the management team and the board are aware of their risk identification and management roles. These should be formally defined in charters, policies and procedures. Keep in mind that while it is typically management’s role to manage risk, it is the board’s role to understand risk and agree to a risk appetite.
2.    The topics of risk identification and risk management should be a part of every regular board meeting agenda. The board ideally leverages its committee structure to help ensure efficient use of board time. Some companies have a unique committee dedicated to risk.
3.    Understand and gain comfort in information supplied by management. Consider an information audit to verify the timeliness, accuracy and comprehensiveness of information, including the supporting data elements and assumptions.
4.    Develop board expertise among a diverse group of directors regarding the industry, market forces, and relevant informational needs. Directors should:
a.    Inquire as to the completeness of significant information to the decision making process
b.    Ask probing questions and follow-ups of each other and of management
c.    Challenge key assumptions
d.    Offer competing analyses
e.    Consider competing options to ensure that alternatives are appropriately addressed
5.    Utilize sufficient external resources including; industry experts, GRC (governance, risk & compliance) advisors, attorneys, accountants, auditors and others as necessary to augment the board’s capabilities to best serve shareholders.

Remember that a clash of conflicting views is healthy for the decision making process. Different points of view, judgments, and logic are preferred to a passive board culture. However, it is essential that the company has the right information to support the decision making process. Smart companies are taking this very seriously by investing internal audit resources, using either the in-house internal audit department or an outsourced firm, to assess the inputs, assumptions and outputs relative to important decisions. After all, conscientious directors and managers who believe they are making good decisions, only to find out subsequently that they used flawed information, must answers to their investors. Class action lawsuits, on behalf of investors or other stakeholders who believe they were harmed due to materially flawed disclosures or gross negligence in the decision making process, are a reality.

A Quick Test to Measure Maturity of Risk Intelligence in the Boardroom
As a board, ask and answer the following ten questions:
1.    Are roles between management and the board formally defined in committee charters, policies and procedures regarding risk?
2.    Is risk a separate topic of discussion at regular board meetings?
3.    Does the board approve the risk appetite for the company? Risk appetite is the amount of risk an entity is willing to accept in pursuit of value.
4.    Does the makeup of the board include directors who are not afraid to dissent and disagree with other directors and the CEO?
5.    Is the board comfortable with the timeliness, accuracy and comprehensiveness of information used to support key decisions?
6.    Does the board ask probing questions and challenge management’s risk assessment assumptions?
7.    Is risk management coordinated throughout the organization?
8.    Are business units empowered to implement risk management?
9.    Is risk management embedded into the organization’s culture?
10.    Does the board utilize sufficient external resources in carrying out its duties?

If you answered “yes” to all of these questions, you have a robust board of directors with the highest degree of maturity.  Otherwise, your company still has some work to do.

In conclusion, good corporate governance is not an option, but rather a fiduciary obligation to shareholders. It is impossible to isolate a company from all risks; however, you must get close to home regarding risks to help avoid poor decisions. Do not guess, but direct and manage based on the best information available. Without a solid grasp of the underlying information for decisions, corporate governance is compromised and the risk of disservice to shareholders is increased. Simply put, good governance relies on good information. Finally, avoid complacency in the boardroom as the director’s role is absolutely critical in protecting long-term company value.

Ronald Kral is the Managing Partner of Candela Solutions. Ron is also the Lead Partner of the Firm’s SEC Compliance Practice and is available to address inquiries.  He can be reached at rkral@CandelaSolutions.com.

Candela Solutions LLC is a new breed of CPA firm building value for clients through strong governance, risk management and compliance services. Visit our website at www.CandelaSolutions.com for more information.

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