Posted by Caroline Weeks.

On November 5, 2015 a dam in the Brazilian city of Mariana collapsed, resulting in multiple causalities and irreparable damage to the surrounding cities and ecosystems. In total, nineteen people lost their lives. The collapse also “released a torrent of sludge that washed away villages, displaced hundreds of people, and traveled more than four hundred miles through southeast Brazil’s Rio Doce basin before reaching the Atlantic Ocean.” It is said that this is “believed to be the biggest disaster of its kind anywhere.” The yearlong criminal investigation into the collapse recently ended and has resulted in homicide charges being filed against twenty one people in connection with the disaster. Some of the people charged are “current and former top executives of mining giants Vale SA and BHP Billiton Ltd., and Samarco Mineração SA.” In addition, employees of a consulting firm that performed checkups on the dam were charged with “presenting false stability reports.” This disaster is an example of companies being concerned solely with short run profit maximization and an inherent lack of corporate social responsibility.

The federal prosecutor in Brazil has stated that “the motivation of the homicides was the excessive greed of the companies.” It has been detailed that the victims were killed by the “violent passage of the tailings mud” and that they “had their bodies mutilated and…dispersed across an area of 110 kilometers.” These innocent employees died a cruel and painful death at the hands of corporate greed. Samarco focused on short run profit maximization and did not take into account the effects of their actions. The prosecutor says that there is evidence that Samarco, and its shareholders, were “aware of chronic structural problems” as early as April 2009. If this is true, the company knew about critical problems with the structure for more than 6 years and chose to continually ignore the warnings. The board not only failed to make the facility structurally sound, but responded to these structural issues by “pressuring the company to extract more iron ore.” If the company had simply taken head to these warnings they would’ve prevented the loss of innocent lives, the damage of surrounding communities, and incredibly expensive lawsuits along with a permanently tarnished reputation. These findings show the goal of the company was to maximize profits as quickly as possible. They did not take into account the repercussions of a dam collapse and innocent people paid the price for their greed.

This fatal event also details Samarco’s lack of corporate social responsibility. The company chose to focus on profits and purposely chose to ignore the issues with their facility. The company did not act ethically and they certainly did not take into account the surrounding communities. As a result of the dam collapse, families have lost their homes, and even entire communities have been washed away. Not only have these villages been destroyed, but so has the surrounding ecosystem. The river “is still tainted a rusty red form the sediment” that washed through the river basin after the dam collapsed. If the company had acted ethically, they could’ve saved lives and communities. This disaster is a prime example of executives acting carelessly in the hopes of inflating their bank accounts.

Caroline is a mathematical finance major at the Stillman School of Business, Seton Hall University, Class of 2019.

Posted by Lindsey Pena.

In business, ethics are strong guiding principles that aid managers, employees, and investors to correctly conduct business transactions. When ethical matters are disregarded, the end result is fraud, embezzlement, among many other illegal actions. One of these illegal actions is called a Ponzi scheme. Perhaps the most famous Ponzi scheme was devised by Bernie Madoff, a well-respected financier, who conned investors out of an estimated $65 billion. Madoff was caught in December of 2008 and charged with 11 counts of fraud, perjury, theft, and money laundering. He ultimately faced 150 years in prison as a result of his decades long Ponzi scheme.

Because of the magnitude of this Ponzi scheme, eight years later, the consequences are still being addressed. Recently, the estate of Stanley Chais, one of Bernie Madoff’s friends, agreed to pay the victims of Madoff’s Ponzi scheme $277 million to settle claims that insisted Chais profited from the scheme. Irving Picard, a trustee liquidating Madoff’s firm, has recovered more than $11.2 billion for the investors who were conned. They achieved this my suing the banks and offshore accounts that hid the money in addition to investors who profited from the fraud. In the 2009 lawsuit against Chais and his wife, Picard claimed that they “reaped about $1 billion in profit from fake securities transactions at Madoff’s firm.” Chais also reaped rewards through fees that he would earn when he gave his customer’s money to Madoff’s firm. In addition to this, Chais was also sued by the SEC in 2009 because he “steered assets from three investment funds to Madoff, “despite having clear indications Madoff was engaged in fraud.”

Chais, along with five of Madoff’s employees, were not the only ones who received consequences. Thousands of innocent investors trusted Bernie’s reputable, veteran background hoping to make profit from their investments. While reading this article, I could not help but to think about the Kantian ethics which states that a person should evaluate their actions by the consequences if everyone in society acted the same way. Bernie Madoff made the exception for himself when he decided to execute the treacherous plan and the consequences of his actions will cost him the rest of his life.

Lindsey is an accounting major at the Feliciano School of Business, Montclair State University, Class of 2019.

Posted by Kelly Shaw.

Morris Zukerman, age 72, plead guilty in June 2016 to obstructing the IRS as well as tax evasion. He was sentenced to 70 months in prison for his criminal offenses in March 2017. Morris sold a co-owned petroleum products company, which was owned by a subsidiary of his investment firm M.E. Zukerman & Co., and then proceeded to mask the income he received from the sale. By doing so, Morris was able to evade taxes on his $130 million in income in 2008.

One may wonder how Morris was able to hide such a large profit from his accountants and receive clean audits over the years. The cover story that was given stated that in 2007, Morris transferred ownership of the subsidiary to a trust account. He even went as far as creating false documents to support his story such as a promissory note. By not reporting the $130 million sale, M.E. Zukerman & Co was able to avoid paying $33 million in corporate income taxes.

To add to Morris’s list of crimes, he also claimed a $1 million charitable contribution deduction in 2009  and 2011, which he was not entitled. Morris was registered to purchase a property on Black Island that the Maine Coast Heritage trust (MCHT) was preparing to purchase and use for business purposes. After contemplating about whether he would make a charitable contribution or not, he ultimately purchased the land for himself through his new LLC for $1 million. On his personal tax return, he convinced his accountant that the purchase should be stated as a charitable contribution to MCHT which was incorrect.

A quote from the US Attorney John H. Kim, “While amassing a personal fortune through, among other things, the $130 million sale of his company, Morris Zuckerman cheated on his taxes for years, illegally scheming to evade almost every one of his tax liabilities. Through his criminal schemes, Zukerman deprived the public of over $45 million in taxes he rightfully owed.” It is evident that Morris Zukerman’s actions were motivated by pure greed with little regard for the consequences of his actions.

Kelly is an MBA student with a concentration in accounting at the Feliciano School of Business, Montclair State University.

Reference:

https://www.justice.gov/usao-sdny/pr/manhattan-energy-investor-sentenced-70-months-prison-evading-over-45-million-income-and

Posted by Abdullah Almohammadi.

51-year-old Steven Croman is a landlord with more than 141 apartment buildings in Manhattan. In 2016, was arrested for the allegations of obtaining loans fraudulently and committing tax fraud. Croman pleaded guilty for giving false business records, grand larceny, and criminal tax fraud. He was sentenced to one year jail and a five million fine.

The case came from the investigation of the allegations that Mr. Croman was harassing his tenants. He was alleged that he pushed rent-regulated out of their apartments. He also withheld the state payroll taxes to earn a bonus for forcing the rent-regulated tenants.

He was taken to court on Tuesday but declined to address the court. Justice Jill made a judgment stating that he was given time in jail to think about the people he has harmed. As he left the court in handcuffs heading to prison, an elderly tenant, Carol, stated that his apartment was in bad condition since Mr. Croman had refused to clean the apartment. Another elderly tenant by the name Cynthia suggested that the public ought to be protected from such a person as Croman forever. This indicated that Mr. Croman should have life jail term. On the other hand, Mr. Croman lawyer believes that Mr. Croman will behave appropriately in jail which will make him be released after eight months instead of one year.

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

Source:

http://www.foxbusiness.com/features/2017/10/03/nyc-landlord-sentenced-to-year-in-fraud-case.html

Posted by Chenglu Xia.

In his article, “Bitcoin Will Be Taxed as an Asset: Israel Tax Authority,” Samburaj Das states that Israel government will have a new regulation on cryptocurrency. The official tax authority is making a change, transferring bitcoin’s role from the cryptocurrency to an asset. However, Israel’s official authority is not the only one that regards bitcoin as an asset. The IRS also did the same thing; it admits the importance of bitcoins, but the precondition is that bitcoins should play a role of asset rather than cryptocurrency and should be taxed proportionately. I believe this change can make bitcoins market legal, which will also benefit the worldwide economy. If any transaction of bitcoins will be taxed, it will lead to stronger and more sustainable economic growth without some illegal transactions.

Nowadays, bitcoin is the most popular cryptocurrency around the world. It has two main characteristics. Primarily, it’s a kind of digital currency rather than fiat currency, such as USD. Moreover, it’s decentralized which use a process called mining. This process use advanced technology with some complex mathematic formulas to produce specific codes. At the beginning, most investors prefer to use this kind cryptocurrency to avoid taxation.  Meanwhile, they can exchange bitcoins with fiat currency, also goods and services; and, it is difficult to track those transactions, which encourages the black market to use this cryptocurrency to carry on illegal transactions.

However, I’m considering about bitcoins’ credibility. There is no guaranteed operating organization. Bitcoin is just a virtual currency and there is no regulation when it first appeared on the Internet. I am wondering why there is an increasing number of people using this currency. In China, I heard that most people just buy bitcoins for investment. It is the similar situation with the investment in stocks, which means that most people do not regard bitcoins as a currency. They only invest in it because of high profits, although it comes with high risk. Personally, I believe that there are some organizations which use bitcoins to do illegal transactions, making high profit. Thus, bitcoin becomes a tool used for illegal purposes, which attracts the attention of national legislature. Thus, it’s profound, meaningful and effective to make the decision of taxing transactions of bitcoins.

Chenglu is an accounting major at the Stillman School of Business, Seton Hall University, Class of 2019.

Sources:

https://www.ccn.com/bitcoin-will-see-taxation-asset-not-currency-israel-authority/

https://www.investopedia.com/articles/investing/040515/are-there-taxes-bitcoins.asp

Posted by Shellian A. Murray.

The basis for this blog will be an Enron story” The Smartest Guys in the Room (2005)” which was retrieved from the documentary listings on Netflix. A 2929 Entertainment, a Wagner/Cuban Company, Magnolia Pictures, HDNet Films. The documentary takes a behind the scenes look at the reliable energy company whose downfall will forever change the scope of business prospects around the globe. The “Jesus saves” notion was embedded with everyone asking the same sets of questions, which include, whether or not one main person was to be blamed, or it is a shared effort, and what mechanisms were put in places to make sure such events will never occur again. The fall of Enron was considered to be the largest bankruptcy in the United States of America history.

Enron, a company that took approximately 16 years to build and with a net worth of over a 100 million in assets took 24 days to go bankrupt.  What everyone thought was a significant investment and a company that was poised to take over the energy section with major gas prices, turns out to be the biggest Ponzi scheme. But in an instructive tale of corporate greed, negligent and diffusion of responsibility, there was no evidence of directors’ fiduciary duty, integrity, and stewardship displayed from those who were the leading players in the Enron scandal.

Jeffery Skilling, the former president and CEO and Kenneth Lay chairman/CEO were both Harvard graduates, the leaders of Enron, and were known as “the smartest guys in the room.”  Skilling and Lay were the captains of the ship; one that they thought was too powerful to go down. The employees that were involved were consumed by pride, greed, arrogance, and intolerance that they fail to realize they were just sinking themselves into a hole: a hole that will be unable to climb back out. The chaos caused by Enron traders in the 2000 California energy crisis left many disgruntled. California was seen as the money pit for Enron. The game was to create blackouts that would then drive-up gas prices significantly.  Many called on the federal government to fix a deregulatory system that Enron officials took for self-interest, but were told that the state was on its own and had to correct the problem by themselves.

On the other hand, Enron’s CFO, Andrew Fastow was still able to continue leaving massive debts off the balance sheets and booking future earnings, producing an illusion of market-to-market profit.  The Security Exchange Commission (SEC) did not have a problem with this accounting method and failed to enforce against companies like Enron. But reported profits were actually losses, even though amounts were not collected or collected, but were supposedly prepayments from clients, where such momentum was created to keep the stock price up.  But after winning the award for the best innovative company six years in a row, many persons started to question, how Enron made its money. A reporter by the name of Bethany Mclean wrote an article, “Enron stock overpriced?”  realizing that the cash flows were not coming together.

Jeffery Skilling the CEO had resigned suddenly, which lead the SEC to launch an investigation.  Enron declared bankruptcy on December 4, 2001, giving employees thirty (30mins) to leave the building. But before such bankruptcy declaration, on October 23, 2001, Author Andersen, the prestigious accounting firm had destroyed thousands of documents which were related to Enron finances.

Opinions and Reactions

The operation of Enron defrauded employees and investors out of millions of dollars, which at the same time the “big guys” who were involved in the game were quietly bailing themselves out, putting millions in personal and offshore accounts including the banks, such as, Chase and Citi Bank. Ken Lay had a high level political figure as a good friend, one that could help Enron to maintain its operation’s practices. Consequently, and if one were to believe it or not, politics is the driving factor for all regulatory and policies within any countries operations.

ArthurAndersen, the prestigious accounting firm, was paid a million dollar per week, denied their awareness of such practices of Enron. Auditors that supposedly gave reasonable assurance that the financials were, in fact, true and fair and free of material misstatements. As a result, many persons questioned the integrity and independence of the accounting and auditing profession. Such questions left a bitter taste in my mouth, within a career that has my interest and aspiration. A profession I held a role as an external auditor, internationally, and now as an accountant, I am in an “aww” moment, as to how people’s greed could allow them to continue embezzling cash or equivalents by any means necessary, no matter what harm may have caused by such actions. The disappointment I have with these people that are involved, by allowing their integrity to be compromised because of the greed of money is very heart rendering, wherein the end, mostly the poor suffer from such harsh deals.

Shellian is a master of science in accounting student at the Feliciano School of Business, Montclair State University, Class of 2018.

Posted by Ahmed Alzahrani.

In this article, the rapper DMX is accused of evading tax. The rapper pleaded not guilty to any of the charges against him.  He was later released in prison after spending one day in jail; this was after he paid $500,000 bond. The persecutor asserts that Earl Simmons also known as DMX evaded an estimated $1.7 million in tax in the peak of his profession between 2002 and 2005.

He purportedly avoided paying taxes, including establishing accounts on other names and paying most of his expenditure in cash. This was a violation of the law whether you are a celebrity rapper or not; paying taxes is necessary to all Americans. The prosecutor also indicated that DMX failed to file his returns in the period between 2010 and 2015; the prosecutor added that the accuser filed a fake affidavit in the US Bankruptcy Court (LIBBEY, 2017).

The bail postulated that DMX to be restrained in New York City. However, his lawyer reported that he would ask for permission for the accuser to travel for a show performance in summer. After the hearing, Mr. Simmons (aka DMX) told the journalist that his faith played a significant role in coping with a legal issue. It gave him the courage to face the situation.

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

Reference:

LIBBEY, P. (2017, July 16). DMX Pleads Not Guilty to Tax Fraud. Retrieved from The New York Times: https://www.nytimes.com/2017/07/16/arts/music/dmx-pleads-not-guilty-to-tax-fraud.html?rref=collection%2Ftimestopic%2FTax%20Evasion&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=1&pgtype=collect.

Bank of America reached a settlement with federal prosecutors over the sale of mortgage-backed securities in the run-up to the 2008 financial crisis.  BofA will pay 10 billion cash and about 7 billion in consumer aid.  Most of BofA’s trouble is inherited from its purchase of Countrywide Financial.  BofA was charged with misrepresenting the quality of loans it sold to investors.

BofA sold residential mortgages from borrowers who were unlikely able to repay their loans; yet, these securities were promoted as safe investments.  Subsequently, the housing market collapsed and investors suffered billions of dollars in losses.

The consumer aid component should come in the form of reducing the principal on loans BofA knows it cannot recover in full.  This is one of the “consumer-friendly” activities BofA can engage in order to achieve “credits.” Credits consist of a multiple for each dollar spent on each form of consumer relief.  Critics claim that because of credits, tax write-offs, and “other tricks” the fines paid by banks who break the law are worth only a fraction of the amount.

Posted by Abdullah Almohammadi.

51-year-old Steven Croman is a landlord with more than 141 apartment buildings in Manhattan. In 2016, was arrested for the allegations of obtaining loans fraudulently and committing tax fraud. Croman pleaded guilty for giving false business records, grand larceny, and criminal tax fraud. He was sentenced to one year jail and a five million fine.

The case came from the investigation of the allegations that Mr. Croman was harassing his tenants. He was alleged that he pushed rent-regulated out of their apartments. He also withheld the state payroll taxes to earn a bonus for forcing the rent-regulated tenants.

He was taken to court on Tuesday but declined to address the court. Justice Jill made a judgment stating that he was given time in jail to think about the people he has harmed. As he left the court in handcuffs heading to prison, an elderly tenant, Carol, stated that his apartment was in bad condition since Mr. Croman had refused to clean the apartment. Another elderly tenant by the name Cynthia suggested that the public ought to be protected from such a person as Croman forever. This indicated that Mr. Croman should have life jail term. On the other hand, Mr. Croman lawyer believes that Mr. Croman will behave appropriately in jail which will make him be released after eight months instead of one year.

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

Source:

http://www.foxbusiness.com/features/2017/10/03/nyc-landlord-sentenced-to-year-in-fraud-case.html

Posted by Gurpreet Kaur.

CNN Money released an article on Well Fargo’s employees secretly withdrawing money from customers’ bank account and transferring to new accounts since 2011. The article was published on September 8th of this year and Wells Fargo bank was forced to fire 5,300 employees in Los Angles for setting up accounts for customers. This fraud was taking place without any of the customers’ knowledge. After this fraud, many customers were fumed because their bank accounts were unsafe. The employees’ fraud was unethical and illegal because they were creating credit card accounts without letting their customers know.

Brian Kennedy, a Maryland retiree, was one of the victims and he told CNN Money “he detected an unauthorized Wells Fargo account had been created in his name about a year ago. He asked Wells Fargo about it and the bank closed it.” Wells Fargo’s customers had trust in the bank. The victims of this fraud could have filed for refunds, but it wasn’t necessary because Wells Fargo agreed to refund 5 million dollars to them. The settlement in Los Angles required Wells Fargo to warn their California customers to shut down their unrecognized accounts. The fraud caused the bank to unemployed 5,300 workers over these five years.

Richard Cordray is the director of the Consumer Financial Protection Bureau and he said, “Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses.”  Those employees transferred funds from customers’ accounts without their knowledge to new accounts they created. Customers were upset because they were facing overdraft fees and insufficient fees. Wells Fargo stated, “We regret and take responsibility for any instances where customers may have received a product that they did not request.” Wells Fargo’s market valuation was the highest in America, but the fraud led to lawsuits against Wells Fargo. In May 2015, “Feuer’s office sued Wells Fargo for authorizing accounts” and “after filing the suit, his office received more than 1,000 calls and emails from customers as well as current and former Wells Fargo employees about the allegations.”

Gurpreet is an accounting major at the Feliciano School of Business, Montclair State University, Class of 2019.