Fraud Notebook Paper Detailed Instructions The Fraud Notebook* is composed of 10 articles of fraud and the due date for the fraud notebook is included in the Course Schedule under the Syllabus and...

Fraud Notebook
AC 422: Audit and Fraud Examination
Professor Nelson
4th July 2022
Table of Contents
    China’s Luckin Coffee to Pay $180 Million to Settle Accounting-Fraud Claims
(Management Fraud)
    3
    Pelham man created fake Burger King employees to get paid
(Employee Embezzlement)
    5
    Former Credit Union Employee Faces Embezzlement Charge
(Employee Embezzlement)
    6
    Justice Department Charges Hundreds with Medical Fraud
(Vendor Fraud)
    7
    How Wirecard Went From Tech Star to Bankrupt
(Management Fraud)
     9
    Baltimore man indicted for multiple fake loan applications
(Investment Scam/Other Consumer Frauds)
    14
    The Original Ponzi Schemer; One hundred years ago, Charles Ponzi was indicted for a type of scam that continues to ensnare over-eager investors—and sometimes whole societies.
(Investment Scam)
    16
    N. Carolina woman accused of forging insurance claim forms
(Customer Fraud)
    19
    Luckin Coffee, Waylaid by Fraud, Tries to Perk Back Up
(Management Fraud)
    20
    911 dispatcher arrested, accused of pocketing $1.2 million accidentally deposited by bank
(Customer Fraud)
    25
                    
Article # 1: Management Fraud
China’s Luckin Coffee to Pay $180 Million to Settle Accounting-Fraud Claims; SEC findings tally with Wall Street Journal reporting of firm’s schemes to fake sales and expenses
Michaels, Dave. Wall Street Journal (Online); New York, N.Y. [New York, N.Y]16 Dec 2020.
Luckin Coffee Inc. has agreed to pay $180 million to settle regulatory claims that it cooked its books to make growth appear more robust and meet earnings targets.
The Securities and Exchange Commission announced the penalty on Wednesday, eight months after the Chinese company disclosed that some of its officers fabricated sales in 2019. Luckin neither admitted nor denied the SEC’s fraud claims, which were filed in Manhattan federal court. The settlement is subject to a federal judge’s approval.
Luckin intentionally faked more than $300 million in retail sales from April 2019 to January 2020 by using purported individual customer accounts and related parties and shell companies, the SEC said. The company also fabricated 1.3 billion yuan, or $196 million, of expenses by paying 13 purported suppliers of raw materials, human resources and delivery services, according to the SEC.
The SEC’s findings confirmed details of the schemes reported by The Wall Street Journal in May.
Luckin, once a highflying competitor to Starbucks Corp. in China, went public on the Nasdaq Stock Market in 2019. Its disclosure of financial-reporting failures earlier this year caused its shares to plummet 75%. The debacle put a spotlight on U.S. regulators’ inability to inspect the audits of American-listed Chinese companies, a compliance gap that gained attention in Congress this year.
Luckin’s executive officers and senior managers were involved in the fraud, the SEC alleged in its federal court complaint. The Journal reported that some of the companies involved in the sham schemes were linked to Luckin’s then-chairman and controlling shareholder, Charles Lu.
Mr. Lu stepped down from Luckin’s board in July, and the Nasdaq delisted Luckin’s shares on July 13. Luckin’s shares still trade over the counter.
The SEC didn’t announce any enforcement claims against individuals on Wednesday but said in a press release that its investigation is continuing. The fraud came to light during the course of Luckin’s annual audit, the SEC’s court complaint says.
In a statement, Luckin said the deal reflected its cooperation and efforts to improve. “The Company’s Board of Directors and management are committed to a system of strong internal financial controls, and adhering to best practices for compliance and corporate governance,” said Jinyi Guo, Luckin’s current chairman and chief executive.
Bank records were altered to hide the misconduct and the alleged cheating inflated Luckin’s revenue by 45% in one quarter in 2019, the SEC said.
The sham sales were part of disclosures that Luckin filed with the SEC in January 2020 as it raised another $418 million from U.S. equity investors and $446 million from bond investors, the SEC said.
In September, the Chinese government penalized Luckin Coffee and companies that participated in the fake-sales scheme.
Luckin reported at the time of its 2019 initial public offering that it operated 2,370 stores in China and had over 16.8 million customers. The company’s tremendous growth—it launched operations in October 2017—drove the story that hooked investors: China was primed for a boom in coffee consumption, and Luckin was positioned to benefit from serving it.
But officers of the company engaged in fraud as early as April 2019, the SEC said, when employees and two entities associated with Luckin’s officers and directors bought up coupons that were meant to be used for coffee. The coupons were never used, but Luckin “created fake customer orders to ‘redeem’ the coupons” and justify the recognition of revenue, the SEC’s complaint says.
In another scheme, which accounted for most of the $311 million in fake sales, certain employees arranged coupon sales to shell companies, which were described within Luckin as agents that would resell the vouchers to individual customers.
According to the SEC’s complaint, one worker involved in that scam emailed: “We will try to replace the contact persons [of the fictitious agents] with third parties, in order to reduce the number of our internal colleagues that are aware of such issue.”
Reaction:
According to the text, "Senior management's dishonest manipulation of financial figures" is what is meant by "management fraud." As a result of top Luckin employees filing fabricated financial results with the SEC, the aforementioned case will be used as an illustration of management fraud. Specifically, Luckin's created $196 million in expenses and over $300 million in retail sales. This exaggeration was done on purpose in the hopes that potential investors would be persuaded to invest in the business by the outstanding books.
Article #2 – Employee Embezzlement
Pelham man created fake Burger King employees to get paid, investigators say
Thornton, William. Al.com; Hoover, AL. 17 Nov 2020.
A Pelham man is facing charges of felony computer tampering after investigators say he stole money for more than a year from Burger King.
Daniel Henry Andrews, 35, was arrested Nov. 10 and released the same day on $50,000 bond, according to jail records. He has been charged with first degree theft, identity theft and felony computer tampering.
According to court records, investigators believe the scheme dates back to August of last year, when Andrews altered a computer program and began using real employee information at a Burger King restaurant to create fake employees and register fraudulent hours worked.
Reaction:
When an employee actively steals from their present employer, they are committing employee embezzlement. Although there are various ways to accomplish this, Mr. Andrews tampered with personnel files to obtain funds that were not his due. He accomplished this by adding employees to the system and creating payroll cards for them, which he then used to deduct his own income for personal use. The amount of money seized was still unknown at the time this article was written.
URL: https://www.al.com/news/2020/11/pelham-man-created-fake-burger-king-employees-to-get-paid-investigators-say.html
Article #3 – Employee Embezzlement
Former Credit Union Employee Faces Embezzlement Charge; Audrey Elkins allegedly steals nearly $600,000, more than half of the Kansas credit union’s assets before it was merged.
Strozniak, Peter. Credit Union Times, cutimes. 14 Sep. 2020.
Federal prosecutors alleged that a former employee for William Newton Memorial Hospital Credit Union stole more than $599,000, which accounted for more than half of the Kansas credit union’s assets when it was merged in 2018.
Audrey Elkins, 42, of Winfield, Kan., was charged last week with one felony count of embezzlement, according to an indictment filed by prosecutors in U.S. District Court in Wichita.
Reaction:
Employee embezzlement is when an employee uses their position in the company to intentionally take from their current employer. Audrey Elkins allegedly stole $599,000 from Kansas credit union’s assets. Elkins pleaded guilty of her charge and was sentenced to time served and two years of supervised release. Elkins was also ordered to undergo mental health counseling and pay $260,500 in restitution.
URL: https://www.cutimes.com/2020/09/14/former-credit-union-employee-faces-embezzlement-charge/
Article # 4: Vendor Fraud
Justice Department Charges Hundreds with Medical Fraud; Prosecutors allege more than $6 billion in fraudulent insurance charges for telemedicine and addiction treatment
Michaels, Dave. Wall Street Journal (Online); Washington, 30 Sep 2020.
WASHINGTON—More than 300 people were charged with bilking insurance providers of more than $6 billion in a federal sweep of alleged fraud involving the misuse of telemedicine, drug-treatment facilities and prescription opioids, authorities said Wednesday.
The Justice Department said it has filed 192 criminal cases across the country over the past several months against defendants such as physicians, telemedicine companies and operators of substance-abuse treatment facilities.
“Telemedicine has proven all the more critical during this national crisis, when so many Americans are isolating, quarantining or otherwise restricting their face-to-face interactions,” said Brian Rabbitt, acting assistant attorney general for the Justice Department’s criminal division. “Telemedicine, unfortunately, also can be exploited by criminals.”
Over $4.5 billion of the fraud alleged Wednesday involved the misuse of telemedicine, a service that increasingly plays a role in health-care scams, authorities said.
In one case filed this week in federal court in the Southern District of Georgia, authorities said several co-conspirators used telemedicine to justify over $1 billion in fraudulent Medicare billings over four years. One defendant in the case, Toni De Lanoy, agreed to plead guilty this week, according to court filings.
Ms. De Lanoy allegedly advised one company that used call centers to acquire patients’ information. She and others later sold that data to medical-equipment companies, according to the charges described in court documents. The company, which wasn’t named in the documents, operated a digital platform that allowed doctors to prescribe the equipment often “without any physician-patient encounter at all,” according to court filings.
Ms. De Lanoy couldn’t be reached for comment and her attorneys didn’t immediately respond to messages seeking comment.
Justice Department officials said many of the cases were discovered through database analysis that helps to identify red flags in Medicare and other insurance-provider billings. An interagency group of investigators and prosecutors, known as the Health Care Fraud Strike Force, led the effort.
More than $845 million in alleged fraud was related to tests and treatments for patients seeking treatment for drug or alcohol addiction, authorities said. Patients were sometimes prescribed controlled substances and other medications that enticed them to stay at a facility, they said. In other cases, facilities or clinics allegedly exchanged kickbacks to refer patients to new treatment centers.
Reaction:
Vendor fraud refers to when a vendor defrauds a client. They are overcharged for the product or charged for something they never obtain by the vendor. In this instance, the charges were exaggerated by $4.5 billion. The fraud involved about $845 million and involved tests and therapies for clients seeking help for drug and alcohol addiction. When referring patients to other institutions, a few of the facilities employed kickbacks. More people used telemedicine during the epidemic, which led insurance companies to believe that it was more expensive when it actually was not. In an effort to increase their profits, doctors were exaggerating their fees.
Article #5 Management Fraud
How Wirecard Went From Tech Star to Bankrupt; Prosecutors are probing whether the electronic-payments giant used fictitious revenue to inflate its sales and fool investors; a missing $2 billion
Davies, Paul J. Wall Street Journal (Online); 2 July 2020.
Markus Braun built Wirecard AG from an obscure firm based in a small town outside of Munich into a global electronic-payments giant.
From its perch at the crossroads of online commerce, Wirecard extracted fees for...