Scheme

In the 1990’s, Waste Management was the largest garbage company in the world.  What had begun as the dream of a Dutch immigrant had grown into a billion-dollar company over the course of a hundred years. But Waste Management had a dirty secret.  Its accounting was nastier than its landfills.  Behind the scenes, auditors repeatedly tried to get Waste Management to clean up its act, even giving the company a to-do list for fixing its sketchy accounting. But according to the SEC, the fraud only got worse.  When Waste Management brought in a new CEO, he saw that the financials were a dumpster fire and ran for the hills.  Things were about to get filthy. VIEW TRANSCRIPT

Jamie Petrone-Codrington was living the high life.  She owned 4 homes, 6 luxury cars, and traveled the world. How did she fund such an extravagant lifestyle?  Well, Petrone wasn’t a famous actress, physician, or CEO.  She was the director of finance and administration for Yale’s School of Medicine, where she was in charge of purchasing computer equipment. That doesn’t seem like it would be a path to riches.  But indeed it was. Petrone was making a fortune, until someone noticed something.  She was buying a lot more electronics than the school needed.  What was she doing with all those iPads?  The feds decided to follow her and find out. VIEW TRANSCRIPT

The largest pest control company in the world is Rollins, Inc.  Rollins has been very profitable, and its executives say the company is recession-proof.  After all, cockroaches and rats aren’t going away. At the start of 2017, Rollins seemed poised for more success.  Its earnings had increased for 45 quarters in a row.  That’s more than eleven years, which is how long it takes to get a PhD, read War and Peace, or renew your driver’s license. But not everything was as it seemed… Rollins was under investigation by the SEC.  Its CFO was accused of manipulating reserves to boost profits.  So, when Rollins achieved its earnings target by just one penny not once but twice, the SEC smelled a rat. VIEW TRANSCRIPT

Finding a good controller isn’t easy. The controller is responsible for the company’s accounting, so you want someone who is an accounting expert. You also want that person to be reliable, and to possess impeccable integrity. You probably don’t want someone who embezzled money from their last employer. And you definitely don’t want someone who embezzled money from their last TWO employers. “What?!?” you’re probably thinking.  “No one would hire someone as controller if they stole millions of dollars from their previous employers.” That’s what I used to think, until I heard the story of Peter Suk Lee. VIEW TRANSCRIPT

In 2009 Puda Coal was a successful company, with a little over $5 million in profit.  But the company was about to expand in a major way.  The Chinese government had chosen Puda’s subsidiary, Shanxi Coal, to act as a consolidator of small coal mines throughout the Shanxi province of China.  To finance the expansion, Puda raised over $100 million from U.S. investors. But suddenly there was a problem: did Puda actually own Shanxi Coal?  Someone claimed Puda’s board chair had secretly transferred the subsidiary to himself.  Had Puda’s subsidiary literally been stolen?  There was a forged letter and a bogus offer to repurchase shares, but in the end investors learned the ugly truth; they had given millions to a worthless shell company.  Where was Puda’s auditor? And how could the investment banks who handled the securities offerings have missed this?  Or did they miss it… VIEW TRANSCRIPT

One of the most difficult things about starting a business is getting clients. Customers don’t just walk in off the street and throw money at you, unless you’re a bank, a grocery store, or a gentleman’s club. Even if you’ve got a great product or service, you need to work hard to get customers to say “yes”. But what if you didn’t have to get customers to say “yes”? What if you just sent them a bill? “Don’t be ridiculous,” you’re probably thinking, “companies aren’t going to pay you just because you send them a bill.” But hold that thought, as I’ve got a story to tell. VIEW TRANSCRIPT

David Brooks had it all.  He’d taken a small company on the verge of bankruptcy and turned it into one of the world’s largest manufacturers of bulletproof vests.  Those vests were used by U.S. soldiers in the War on Terror, so Brooks was hailed as an American hero, and he made a fortune in the process.  There were luxury cars, shopping sprees, vacations on a private jet…Brooks even threw a $10 million party for his daughter, with live performances by Aerosmith and Fifty Cent. But while Brooks’ daughter was singing a duet with Steven Tyler, the SEC was conducting an investigation.  There were problems with the company’s accounting for inventory, and when the auditors pointed out these issues, Brooks threatened to kill them.  Oh yeah, we’ll get to that. But inventory was just the tip of the iceberg.  The SEC said Brooks used investors’ money to pay for millions in personal expenses, including prostitutes for employees and pornographic videos for his son.  Yes, for my younger listeners, there was a time where you had to pay to watch porn.  The government brought criminal charges, but Brooks maintained his innocence.  This case was going to trial. VIEW TRANSCRIPT

Grand Theft Auto is one of the best-selling video games of all time.  If you’ve never played it, it’s a unique experience.  You can do almost anything – change the radio station while you’re driving, go scuba diving, or enjoy a night at the movies.  But you can also kill prostitutes and police officers.  This has made Grand Theft Auto the poster child for violence in video games.  The company that makes the game, Take-Two Interactive, has been criticized for inspiring school shooters and mass killings. But this episode isn’t about violence in video games.  It’s about the violence that Take-Two did to its financial statements. Take-Two was forced to restate its financials 3 times in a span of just 5 years.  Each time you thought it was over, Take-Two ended up in the news again.  And the company’s founder was right in the middle of it.  Would the guy behind Grand Theft Auto get sent to prison? VIEW TRANSCRIPT

It’s 2006, and you just received a phone call about an exciting opportunity in real estate development.  A company called Cobalt has been acquiring, developing, and marketing residential properties for decades, and it’s looking for new investors.  Under the leadership of CEO William Foster, the company has acquired several well-known hotels in Miami.  Some of the properties have earned returns as high as 204%! It’s a great story. Too bad none of it is true. William Foster isn’t running the firm, and the company doesn’t own those hotels.  In fact, the company hasn’t made a single dime. The real story of Cobalt is much darker. It involves a boiler room run by a former associate of the Wolf of Wall Street, and a Ponzi scheme run by a convicted fraudster.  It’s a crazy story, I know.  But then Donald Trump got involved. Hang tight, this episode is going to get ugly. VIEW TRANSCRIPT

In the early 2000’s, Interpublic Group was a successful advertising firm with over $6 billion in annual revenue. Interpublic had dominated the ad industry for decades and had a stellar reputation. But the company’s public image was about to change. In 2002, Interpublic was forced to restate its financials going all the way back to 1997. In 2002 alone, the company had overstated its profit by 496%. Executives blamed the problem on poor internal controls, & said it was an honest mistake. But the SEC began an investigation, and the results were shocking. Had the company committed another fraud, right after the first one? VIEW TRANSCRIPT

Nevin Shapiro had what many would consider a great life. He drove nice cars, had a beautiful home in Miami Beach, and spent his nights partying with famous athletes like Shaquille O’Neal. Shapiro was living the high life, and people assumed his high-roller lifestyle was funded by his business, Capitol Investments. But, Shapiro’s business hadn’t conducted operations in years. The money was actually coming from investors who didn’t realize that their money was being used to pay old investors. That’s right, it was a Ponzi scheme. A $900 million dollar Ponzi scheme. VIEW TRANSCRIPT

In 2008, Satish Gabhawala ran a motel off the interstate in Harvey, Illinois. The motel had a 24-hour diner and was used primarily by truckers. But Gabhawala had a vision: he was going to transform the motel into a Holiday Inn and conference center. There was just one problem: Gabhawala didn’t have the money. So he contacted an advisor, who convinced the city of Harvey to raise $14 million from bond issuances to back the project. Harvey had been in decline for years, so this was an opportunity to turn things around and generate some tax revenue. But 5 years later, the hotel still wasn’t finished. All the city had to show for its money was a gutted building, full of exposed wires. People began asking questions. Where had the $14 million gone? The SEC then launched a bombshell, charging the city of Harvey with fraud. They found out what happened to that money, and it wasn’t good. Millions of dollars had been misappropriated, and the city’s comptroller got rich in the process. It was a complete mess. And before it was all over, someone would end up dead. VIEW TRANSCRIPT

When you think of high-growth companies, you probably don’t think of life insurance. But Equity Funding Corporation of America was the exception. The company reported strong growth for nearly a decade, culminating in a record profit in 1973. But just a few weeks later the firm imploded. It seems the company wrote insurance policies for people who didn’t exist, and it wrote so many fake policies that the fraud wouldn’t have been possible but for a relatively new invention: the computer. VIEW TRANSCRIPT

In 1998, American Bank Note spun off part of its business in an IPO.  Investors were excited. American Bank Note had been making products to prevent counterfeiting since the 18th century. This was a chance to invest in a company with a long tradition, and that made products which prevented fraud. But just 6 months after the IPO, the company said it needed to restate its financials. A company that had been created to prevent fraud had lied about its revenue. The stock price dropped 80% in just two days, and investors lost millions. The company’s executives were put on trial and convicted, but then nothing happened for an entire decade. Would these con artists ever face justice? VIEW TRANSCRIPT

Electronic Game Card had created an innovative new product. After spending hundreds of thousands of dollars on R&D, it had patented a small digital device, about the size of a credit card. The CEO said this device was in high demand; particularly from the lottery industry, where companies saw it as an alternative to the scratch card. Sales were growing and the company was profitable; the future looked bright. But there was something not quite right about the company. Its customers had no online presence, and the company’s bank account and accounts receivable were linked to offshore P.O. boxes. The audit partner said everything was fine, and signed off on the audits. But when a new CFO flew to London to track down a bookkeeper, he uncovered the company’s dark secret. VIEW TRANSCRIPT

In March of 2002, Adelphia was the 6th largest cable TV provider in the U.S. But then the company made one tiny financial disclosure and within 3 months it was bankrupt.  Shareholders filed lawsuits, the SEC alleged there was fraud, and executives went on trial.  What the heck happened? VIEW TRANSCRIPT

In 2013, Homex was the largest real estate development company in Mexico.  The Mexican government had pushed to increase the amount of affordable housing, and Homex had responded.  It rapidly built homes in cities across Mexico, while investors made millions.  But just one year later Homex was bankrupt, and under investigation by the SEC.  It turns out that much of the company’s revenue was completely bogus.  And the SEC had satellite images to prove it. VIEW TRANSCRIPT