Posted by Kosta Arvanitis.

In an article written by Sophia Pearson and Elizabeth Amon, they update us on the on-going recovery of funds for Bernie Madoff’s Ponzi Scheme victims. Being the biggest one to date, it has been a grueling process in recovering the billions of dollars lost tied to the scheme. In this specific case, FutureSelect Portfolio Management sued EY in 2010 over faulty audits tied to a Madoff-linked feeder fund, Tremont Group Holdings Inc., and ultimately won a portion of its $112 million loss back. This is just the one of many victims of the scheme; and since Madoff’s incarceration, only 34% of the billions of dollars of losses have been recovered by his thousands of victims. The Washington state court for FutureSelect’s case found that the accounting giant was negligent by signing off on audits of billions in assets that didn’t exist.

It is rare that a negligence case arise against a Big Four accounting firm. This case was brought because under a Washington state securities law, it is more protective of investors than other federal and state statutes (Amon Pearson 4). The main accusation of FutureSelect’s was that EY relied on audit reports done by Madoff’s notorious accounting firm, Friehling & Horowitz. They claim that EY failed to question the firm’s professional reputation; and in doing so, took an enormous risk and lost $112 million in its investment fund. The audit reports were of Rye Funds, managed by Tremont Group Holdings Inc., who was also sued by the company. It appeared as though EY failed to perform adequate procedures in testing the existence of Rye’s assets on their financial statements, which FutureSelect claimed in court documents.

Here are the facts. EY audited Rye Funds, who were managed by Tremont Group. Tremont was the second largest feeder into Madoff’s multibillion dollar fraud. EY also audited Tremont through 2008, and supposedly did not suspect a thing even though Madoff’s assurances showed that Rye outsourced investment decisions, and even record keeping (which should have waved red flags). EY’s spokesperson Amy Call Well, stated that EY technically did not audit a Madoff entity, that they were among many auditors who also chose to use Madoff as their investment adviser. They mistakenly trusted the work done by Madoff’s accountant, saying also that they couldn’t have seen the Ponzi scheme coming. Another important factor is that in 2013, FutureSelect opted to pursue its own case when Tremont and Madoff’s brokerage agreed to a $1 billion settlement that would free up money to repay other victims of the scheme. FutureSelect tried to see if they could be more successful in conducting their own case. The question on all of this is whether EY did everything they could in their power, through adequate audit procedures, to uncover any potential fraud. In which case, there were billions in assets that did not exist that EY failed to detect, which showed EY’s negligent misrepresentation. In the end, FutureSelect’s awards netted $10.15 million, of which EY was found half liable, and FutureSelect half liable of the total $20.3 million in damages.

Kosta is a graduate accounting student with a certification in forensic accounting at the Feliciano School of Business, Montclair State University.

Posted by David Cadorett.

The forensic accounting field is rapidly growing and is a well-desired skill set for many different companies and firms. One set of firms is law firms that could benefit greatly from having a forensic accountant on staff. Litigation requires a skill set that a forensic accountant possesses such as complex accounting and legal issues that goes hand in hand to provide a valuable insight into financial issues.

By having a forensic accountant within the firm, one is able to access their financial skills in a timely manner versus interviewing and clearing conflicts with hiring a forensic accountant each time. Scheduling meetings is much easier than scheduling with outside experts, meaning clearing schedules and times. By having one on staff, there is a cost savings that leads to lower rates for clients making the firm more attractable when a client is looking to hire.

As an agent of the law firm, internal FAs are not required to testify or to issue expert reports to the opposing side about their findings. They may communicate freely with attorneys as these communications are not discoverable by the opponents. When outside financial experts are needed for testimony, internal FAs assist in finding experts with the requisite skills and experience. The FA may also assist in preparing experts for trial. In investigating the financial facts of a case, much of the information needed by the outside expert will already have been obtained, organized and summarized by the internal FA.

This is valuable to the client this way the information is not discoverable by the opponent the internal forensic accountant has their clients best interest in mind and is able to help find the best expert witnesses to help testify where lawyers may not be able to ask the proper questions when looking for an expert.

David is a graduate student in accounting at the Feliciano School of Business, Montclair State University.

Posted by Robert Santos.

Usually when people go on vacation, they come home with a souvenir of some sort such as a hat or refrigerator magnet. Lauren Guerra will be going home with a little more than a silly souvenir–in fact she will be going home with 3.5 million dollars. This will be a trip to remember for Guerra but not in the way one would want. Although Guerra will be going home a very rich woman, the damage that has been done is something that all the money in the world couldn’t fix.

On October 27, 2013, Lauren Guerra was one of the many passengers on the Star Line Tours of Hollywood bus giving a tour to passengers of Hollywood. These buses are popular and very well known for they give tours of the famous locations in California, and are known for the unique design of not having a roof but a open deck level for tourists to have a better view of sites and take better pictures. Unfortunately this would be Guerra’s biggest regret, for while aboard one of these buses, a tree branch flew into her face leaving her permanently disfigured. She immediately sued the company after hearing of another death on the same type of bus under the same company. In July 2014, and has been in a back and forth battle since then.

The court battle was vigorous and both sides seemed to have fair arguments. Mark Cunningham who is the attorney for the Starline Bus Company argued that Guerra was at fault because she was standing while the bus was in motion and also was drinking prior to being on the bus. Brian Kabateck, who is Guerra’s attorney, responded by admitting his client did indeed have a drink or two before entering the bus. But there was no way anyone could of avoided this injury, sober or not. Guerra’s attorney argued Star Line could have done more to prevent the situation such as having a worker on the second level of the bus, and also having individuals scout to see what type of environment the bus routes consisted of before actually allowing the buses on them. After a day-long discussion among jurors, the court finally awarded Guerra a settlement of 3.5 million dollars.

Something says that whether you weigh the negatives or the positives, Guerra will never forget this vacation.

Robert is a philosophy major at Seton Hall University, Class of 2016.

Posted by Yasmine Miller.

Around the time of July, 2015 Whole Foods was being sued for misleading sugar claims. Shoppers of Whole Foods were angry when discovering that the evaporated cane juice is actually sugar. The company has built their popular reputation on only selling foods that are supposed to be healthier than the foods that you would get in local grocery store. Whole Foods has been fighting against their allegations in the misleading and false advertisements on their cookies.

According to the article “The plaintiffs allege that Whole Foods called sugar “evaporated cane juice” on the label of its Gluten Free All Natural Nutmeal Raisin Cookies in an attempt to make consumers believe that the cookies do not contain as much sugar as they in fact contain.” Further, still today Whole Foods denies the claims in the Missouri lawsuit. “In their filing in support of this motion, they argue that no reasonable customer could have been led, by the label on its cookies, to believe that the product didn’t contain sugar.”

Whole Foods mislead their customers by conceiving them that their healthy snack (cookies) weren’t as healthy as everyone thought. The company mislead and falsely advertised their cookies and violated laws that are in place to protect clients from being misled about products and or services. From my understanding, businesses are not allowed to make statements that lead to incorrect impressions.

Whole Foods violated the Code of Conduct in Business for their deception and dishonesty towards their customers. A code of conduct (also known as the code ethics) provides employees with guidance for handling difficult ethnical situations related to the business. Whole Foods definitely violated this conduct.

Yasmine is a psychology major at Seton Hall University, Class of 2017.

Posted by Daphine Llosa.

The current legal issue relates to conspiracy and breach. A conspiracy is an agreement by two or more parties to commit a crime to do something unlawful or harmful. A breach is an act of breaking or failing to observe a law or agreement. On Tuesday, November 17, 2015, Crystal Banuelos pleaded guilty of a conspiracy to attain personal information and commit cards theft from Michaels Companies Incorporated’s customers. Michaels is an arts and crafts, custom framing, home décor and seasonal products store. Prior to this case, there was another prosecution where Eduard Arakelyan (age of 24) and Arman Vardanyan (age of 26) were charged for being involved in a breach. This breach was discovered in 2011 where devices were installed on point-of-sale terminals so they may obtain Michaels’ customers’ personal information as well as bank account numbers. Both individuals pleaded guilty three years ago for stealing from 952 debit cards; they were sentenced for five years of prison.

Crystal Banuelos, the 28 year old California woman, had participated in a conspiracy to acquire 94,000 credit and debit card numbers. It took Banuelos around four months to admit to her charges and plead guilty in the federal court in Camden, New Jersey. CNBC mentioned that the prosecutors found that the individuals involved in the conspiracy had replaced close to 90 of the point-of-sale terminals in 80 different Michaels stores in “19 states with counterfeit devices that were equipped with wireless technology.” They used these counterfeit devices to acquire customers’ personal identification number information as well as any additional information that they may have found useful for their theft. Crystal Banuelos, along with others, had managed to create an exact imitation of these debit cards using the stolen information they gathered when they applied the counterfeit devices. They were able to obtain and collect more than $420,000 by withdrawing from automated teller machines. Two of the defendants, Angel Angulo and Crystal Banuelos, had 179 of these imitated cards in New Jersey. Some of the banks that were affected include: Bank of America Corp, JPMorgan Chase & Co, Wells Fargo & Co, etc. It has been announced that Crystal Banuelo’s sentence is scheduled to be on February 23, 2016.

Daphne is a graduate accounting with a certification in forensic accounting at the Feliciano School of Business, Montclair State University, Class of 2016.

Posted by Daniella Bucci.

Abby Lee Miller, owner of Abby Lee Dance Company and known for her loud mouth on the Lifetime reality show, Dance Moms, has been indicted on bankruptcy fraud charges. Miller hid more than $755,000 of earned income from Dance-Moms-related shows, dance sessions and merchandise sales between 2012 and 2013 in secret bank accounts created solely for the purpose of hiding the income. Her charges consist of bankruptcy fraud, false bankruptcy declarations and concealment of bankruptcy assets. Miller claimed bankruptcy to “save her studio,” and perhaps creating a “’fresh start,’” instructing her accountant and partner via email, “’LET’S MAKE MONEY AND KEEP ME OUT OF JAIL’” and allegedly wrote “’DON’T PUT CASH IN THE BANK!!’”  Miller could face up to five years in prison, which is the statute of limitations for federal crimes, and a $250,000 fine for each of her 20 indictment counts.

Miller’s crime, bankruptcy fraud, is a crime under the Bankruptcy Act of 1867. Miller attempted to defraud the bankruptcy court by trying to discharge her debt, as she was fraudulently conveying her asserts in secret bank accounts which she would then claim after declaring bankruptcy. Forensic accountants, who are skilled and experienced professionals in detecting fraud, may have assisted in unraveling this case by tracing the fraud scheme, which for Miller consisted of detecting the concealment of assets totaling over $755,000. The forensic accountants may have questioned why she does not have a larger amount of cash in the bank, being knowledgeable of her successful business ventures, and dug deeper from there. Miller’s arraignment took place on November 5 in US District Court in Pittsburgh.

Daniella is a graduate student in accounting at the Feliciano School of Business, Montclair State University. 

Posted by Daniella Bucci.

The Real Housewives of NJ stars and Montville residents Joe and Teresa Giudice were each sentenced in Newark federal court to 41 months and 15 months in prison, respectively. The couple pleaded guilty in March to conspiracy to commit mail and wire fraud and three types of bankruptcy fraud. The conspiracy consisted of both Joe and Teresa agreeing to commit the fraud. This white collar offense is inchoate, that is, was complete when the agreement was made. The bankruptcy fraud consisted of the couple failing to disclose assets and used bankruptcy as a screen to get out of the debt they were buried in. It is not surprising that the couple, who each grew up in modest homes,  landed in debt, as we were all exposed to their lavish lifestyle on Bravo TV where they tried to keep up with the Joneses.

The Giudice’s also admitted that they hid assets from bankruptcy creditors and submitted phony loan applications to get some $5 million in mortgages and construction loans. The couple had applied for these loans for over 7 or 8 years, resulting in the banks suffering major losses, one of which faced a $414,000 loss. On top of that, Joe Guidice also pleaded guilty to failing to file a tax return for 2004, and admitted that he didn’t file taxes on income of approximately $1 million between 2004 and 2008. Last but not least, the couple that once believed they were invincible failed to reveal $75,000 worth of assets on a probation form. Teresa, currently serving her time in Danbury Federal Prison in Connecticut, is set to be released on December 23rd of this year. Joe will be sentenced to his 41-month sentence in March.

Daniella is a graduate student in accounting at the Feliciano School of Business, Montclair State University.

Posted by Robert Santos.

It seems that multiple companies are beginning to merge in an attempt for one company to make a larger profit and the other company to remain alive. Some companies tend to merge in order to both strengthen their profits and publicity. In this specific case, these companies merged in order to create a better and more powerful drug that could be beneficial and a game changer for individuals who suffer from multiple sclerosis. Or so it seemed. Unfortunately for these French companies, there well planned venture did not go as planned.

In 2011, a giant French pharmaceutical company known as Sanofi acquired Genzyme, a small biotech company based in Cambridge, Massachusetts. Sanofi paid 20 billion dollars for the company, and although that seems a bit much for a small-time company, Genzyme was making strides to create a powerful and promising treatment to multiple sclerosis called Lemtrada. It seemed like a good deal that would not only benefit the two companies but the world as well.

Unfortunately things did not turn out for the best with this venture between the two companies. It turned out that Sanofi was developing their own treatment to multiple sclerosis. The drug is called Aubagio and would have been a competitor against Lemtrada. Sanofli was faced with a dilemma: they could have followed F.D.A regulations and worked to seek approval for Lemtrada, or finish working on Aubagio. The only catch would be that by focusing on Lemtrada, Sonafli would have to give additional payments to the Genzyme rights holders in the estimate of 3.8 billion dollars. Of course Sonafli choose the latter option and focused on their drug without the right holders of Genzyme knowing, and now a lawsuit has been issued.

A lawsuit was filed against Sonafli by Genzyme rights holders under the claim that Sonafli failed to fulfil its obligations under their deal. Because of this, the individuals who invested in Genzyme have not received the money owed to them in a sum of 708 million dollars. The lawsuit claims Sonafli may have taken it upon themselves to slow the approval of Lemtrada through the F.D.A in order to avoid having to pay the right holders of Genzyme, while the approval of Sonafli’s drug Aubagio was an easier process and did not have as much difficulty of being approved as Lemtrada did. It has already been noted by F.D.A officials that the time process for Lemtrada to be approved took longer than it should have, therefore, it already seems that Sofali is in the wrong.

Unfortunately, this is a case where the wellbeing of individuals is outweighed by the possibility of profit. If what Genzyme is claiming is true, we would have been witness to another company thinking about their pockets before the health of many. Considering the impact these drugs could have had on the lives of the somewhat 2.3 million people in the world who suffer from multiple sclerosis, it is a sad thing to see money interrupting the process of progress. Hopefully, we see some agreement and it happens as fast as possible so these companies can go back to focusing on what’s important, and that’s saving a life.

Robert is a philosophy major at Seton Hall University, Class of 2016.

Posted by Deane Franco.

In a recent article posted in the Wall Street Journal, I read about General Motors being charged with punitive damages due to a defective part causing multiple deaths. General motors had been in the process of recalling millions of vehicles, when a defective ignition switch caused 100 or so deaths.

The punitive damages will be limited to the extent of a lawsuit based on claims and knowledge that GM had of a new company auto maker’s 2009 restructuring. GM attempted to prevent plaintiffs for bringing punitive damages based on personal injury or wrongful death. Unfortunately for GM, Robert Hilliard who is representing all those injured by GM feels that punitive damages “are the only way to properly compensate victims who have been harmed by defect.” This is because punitive damages are meant to be a large enough punishment to the corporation to send a notable message with the intent of assuring the corporation understands its wrong doing.

Although GM tried to fight the punitive damages, the plaintiffs won outright. What this means for GM is that punitive damages could reach millions or even billions of dollars awarded to those affected, depending on the ruling, previous defective GM part cases may also be included.

GM has already paid $935 million in damages and has also agreed to $625 million in compensation for the victims. But we will see if the court will stop there. Moreover, GM is being considered for additional charges because they had acknowledged that they mislead regulators about the defective car parts and still put them into production. The hairy part, however, comes in when GM addresses their bankruptcy filing, because technically, “Old GM” filed for bankruptcy and would be responsible for all these defective parts liabilities and, “New GM,” the product of the bankruptcy reorganization, is a new company separate from the actions of the old.

This article relates to the discussion post this week in class where we discussed the hot coffee spill in Liebeck vs. McDonalds. In that situation, punitive damages were used not necessarily as a fair compensation to the victim, but to ensure McDonald’s knew of its intentional wrong doing and would be more likely to halt such procedures.

The pricing of the punitive damages was said to be very important for Mr. Hillard because he knows that those damages tend to run very high and would lead to fair compensation for the victim’s losses. This is a little different from the Liebeck case, because in that case, there appeared to be dual responsibility as to   both the temperature and the spilling of coffee; in this GM case, all responsibility falls on the manufacturer for selling a defective car which caused death to numerous victims. It does not matter that GM has rebranded itself after going through bankruptcy filings.  At this point in time, there may be products on the market that have not been recalled, which caused injury and or death to numerous victims. For these reasons, the punitive damages should be high to balance out the victim’s loss and GM’s punishment.

Deane is a member of the The Gerald P. Buccino ’63 Center for Leadership Development at the Stillman School of Business, Seton Hall University, and a finance and information technology management major, Class of 2018.

Posted by Abigail Anaemeje. 

Yet, another automobile scandal! In September, the Environmental Protection Agency found that Volkswagen sold 482,000 cars in the U.S. that contained a “defeat device.” This type of software was used in diesel engines, “that could detect when they were being tested, changing the performance accordingly to improve results.” The result of this led to the “engines emitting nitrogen oxide pollutants 40 times above what is allowed in the US.” In addition, in November of this year, Volkswagen also found irregularities of carbon dioxide emissions levels in about 800,000 cars in Europe. In response to the emission-cheating scandal, Volkswagen has acknowledge their failure. As a result, they will have to pay a fine to the EPA of $37,500 for every vehicle that goes against the allowed standards.

This issue has not only effected the U.S. and Europe, but also France, South Korea, the UK, Italy, Canada, and Germany. In total, 500,000 cars in the U.S., 2.4 million in Germany, and 1.2 million cars in the U.K. have been recalled as a result of the emissions scandal. So far, no employees have been directly fired over the incident. However, the management board member and the head of sales and marketing, Christina Klingler is leaving the company on an unrelated issue.

Abigail is a finance major at the Stillman School of Business, Seton Hall University, Class of 2018.