The intent to deceive investors, auditors, and analysts about the true financial condition of a business through the use of fraudulent accounting schemes is at the core of most white collar crime and corporate fraud cases. Earnings per share, sales, expense levels, and other performance or profitability measures are misrepresented by white collar criminals in an effort to inflate profit, hide losses, or evade regulatory compliance.
“White-collar crime” was first used by Edwin Sutherland during a 1939 speech to the American Sociological Society. He described the term as “crime committed by a person of respectability and high social status in the course of his occupation.”
White collar crime accounting expert Dr. Barry Jay Epstein, CPA, CFF, leads a team of skilled forensic accountants from the Chicago office of Epstein + Nach LLC, a full-service financial consulting and litigation support firm.
As white collar crime accounting experts, we are highly skilled in detecting and documenting many forms of corporate fraud. A few examples of financial reporting fraud and white collar crimes that we can evaluate in litigation disputes are outlined below.
Financial Reporting Fraud
The AICPA defines financial reporting fraud as “a material misrepresentation resulting from an intentional failure to report financial information in accordance with generally accepted accounting principles.” Participants in the prevention, detection, or correction of financial reporting fraud may include a company’s senior management, members of the Board of Directors (particularly the Audit Committee), outside auditors, and regulators.
Business Acquisition Fraud
Business acquisitions have long provided opportunities for companies to perpetrate various schemes for smoothing earnings or concealing losses. The Olympus machinations were a more unusual wrinkle than those more commonly observed.
Historically, the most common abuse of accounting for business combinations was to use them as opportunities to create so-called “cookie jar reserves.” The Olympus Corp. matter, if proven consistent with allegations and admissions, did not use business combination accounting to create such reserves, but rather as an excuse to write off previously concealed losses.
Embezzlement
Russell R. Wasendorf Sr., until recently the chief executive officer of futures brokerage firm Peregrine Financial Group, acknowledged in a letter that he stole more than $100 million from his customers. The shortfall of funds in PFGBest customer accounts actually totals over $200 million. Unfortunately, this is only the latest and most egregious instance of corporate embezzlement.
Off-Balance Sheet Accounting
Enron used off-balance sheet entities to conceal losses over a decade ago. More recently, revelations about MF Global’s accounting for its repo-to-maturity financing arrangements in connection with Chairman and CEO Jon Corzine’s $6.3 billion bet on European sovereign debt securities sounded very familiar to those who studied the Lehman Repo 105 and Repo 108 accounting deceptions.
Window Dressing
There has always been some element of “window dressing” (the term derives from the art of decorating department store windows) in the use of repurchase agreements, for example. Banks and even non-financial institutions with excess cash positions had long experienced spikes in lending activities at month-ends, as broker-dealers and others took steps to clean up their balance sheets for monthly and quarterly regulatory reporting. The Lehman Brothers collapse revealed the use of so-called “Repo 105” (and “Repo 108”) repurchase arrangements improperly accounted for as sales transactions.
Contact a White Collar Crime Forensic Accountant
Forensic accounting expert Dr. Barry Epstein is available at 312-464-3520 or via email for a confidential discussion of your case.