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CEO from Westchester County convicted in hedge-fund scheme

The co-founder of a Manhattan investment firm and a former trader at the firm were convicted this week of inflating the value of the firm’s investments. Photo by Bill Oxford on Unsplash

The co-founder and CEO of a Manhattan investment firm and a former trader at the firm were convicted Thursday of securities fraud.

Anilesh Ahuja, 51, the co-founder, CEO and chief investment officer of Premium Point Investments LP, which managed a portfolio of hedge funds, and Jeremy Shor, 44, a former trader at PPI, were convicted of scheming to artificially inflate the value of the firm’s holdings by more than $100 million in order to attract new investors and retain existing ones.

Ahuja, of New Rochelle, NY, and Shor, of New York City, were found guilty of all four counts against them: conspiracy to commit securities fraud, which carries a maximum potential sentence of five years in prison, and securities fraud, conspiracy to commit wire fraud, and wire fraud, each carrying a maximum potential sentence of 20 years. The men will be sentenced by U.S. District Judge Katherine Polk Failla at a future date.

Before founding PPI a decade ago, Ahuja was the head of the residential mortgage-backed securities group at a global investment bank. At its peak, PPI managed more than $5 billion in assets.

According to prosecutors, from approximately 2014 to 2016, Ahuja and Shor participated in a conspiracy to defraud PPI’s investors and potential investors by mismarking the value of certain securities held by its funds each month, thereby inflating the net asset value of those funds as reported to existing and potential investors.

Two former PPI employees, Amin Majidi of Armonk and Ashish Dole of White Plains, had already pleaded guilty to their roles in the scheme, as had Frank Dinucci Jr., a former salesman at a broker-dealer.

“Investors in our markets must be able to count on the truth and accuracy of the information they receive from those they entrust with their money,” said Deputy U.S. Attorney Audrey Strauss.

To read the U.S. Attorney’s Office’s press release on the conviction: https://www.justice.gov/usao-sdny/pr/hedge-fund-founder-ceo-and-cio-anilesh-ahuja-and-former-trader-jeremy-shor-convicted

To read the U.S. Attorney’s Office’s press release on the indictment of Ahuja, Majidi and Shor: https://www.justice.gov/usao-sdny/pr/hedge-fund-founder-portfolio-manager-and-trader-charged-manhattan-federal-court

To read the indictment: https://www.justice.gov/usao-sdny/press-release/file/1061281/download

New Standards Released for Forensic Engagements

New standards released Wednesday by the American Institute of Certified Public Accountants provide guidance for member engagements involving investigation or litigation.

The American Institute of Certified Public Accountants on Wednesday issued its first authoritative standards for members who provide forensic accounting services.

Forensic accounting services are described in the document as those involving “the application of specialized knowledge and investigative skills by a member to collect, analyze, and evaluate certain evidential matter and to interpret and communicate findings.” The Statement on Standards for Forensic Services No. 1 focuses on certain types of engagements – litigation and investigation – rather than the specific skill sets used or activities involved in those engagements.

Litigation is described in the statement as “an actual or potential legal or regulatory proceeding before a trier of fact or a regulatory body as an expert witness, consultant, neutral, mediator, or arbitrator in connection with the resolution of disputes between parties.” The category includes disputes and alternative dispute resolution.

Investigation is described as “a matter conducted in response to specific concerns of wrongdoing in which the member is engaged to perform procedures to collect, analyze, evaluate, or interpret certain evidential matter to assist the stakeholders in reaching a conclusion on the merits of the concerns.”

The standards generally do not apply to forensic services performed as part of an attest engagement such as an audit, review or compilation, or to internal assignments made by an employer to an employee not in public practice.

Under the standards, an AICPA member who serves as an expert witness in a litigation engagement is generally barred from providing opinions subject to contingent fee arrangements. A member performing forensic services is also prohibited from issuing an opinion regarding whether a fraud has been committed. A member may provide an expert opinion regarding “whether evidence is consistent with certain elements of fraud or other laws.”

The standards were developed and issued by the AICPA’s Forensic and Valuation Services Executive Committee. They are effective for engagements accepted on or after January 1, 2020, but may be voluntarily implemented earlier. Member forensic services are also subject to the AICPA’s broader “General Standards Rule,” which establishes guidelines such as professional competence, professional care and planning and supervision.

If you have any questions regarding this article or other matters related to forensic accounting, please contact Advent Valuation Advisors at info@adventvalue.com.

NY developer charged with running Ponzi-type scheme

A developer and landlord in western New York is charged with running a fraud scheme that prosecutors say cost investors millions.

One of the largest landlords in the country has been charged with operating a Ponzi-like scheme that used millions in investor funds to make interest and principal payments to prior investors, and to cover up other fraudulent conduct.

Robert Morgan, Frank Giacobbe, Todd Morgan and Michael Tremiti were indicted May 21 on 114 counts, charged with conspiracy to commit wire fraud and bank fraud for their roles in what prosecutors describe as a half-billion dollar mortgage fraud scheme. The defendants each face various additional charges such as wire and bank fraud and money laundering. Robert Morgan and Todd Morgan are also charged with wire fraud conspiracy to defraud insurance companies.

The charges carry a maximum penalty of 30 years in prison and a fine of twice the loss caused by the crimes, which is currently estimated to exceed $25 million.

In a related civil case, the Securities and Exchange Commission alleges that Robert Morgan, Morgan Mezzanine Fund Manager LLC and Morgan Acquisition LLC, all of Pittsford, NY, made a series of fraudulent private securities offerings that operated in a “Ponzi scheme-like manner” by using new investor funds to repay prior investors.

Robert Morgan was the managing member and CEO of Morgan Management and controlled a large portfolio of properties, according to prosecutors. Morgan and his companies developed residential and commercial real estate projects, with most of its properties located in western New York and Pennsylvania. According to the SEC complaint, between 2013 and September 2018, Morgan and the related entities raised more than $110 million by selling securities directly to investors.

The money was supposed to be used to acquire multifamily residential properties and engage in other real estate development projects. Investors were promised 11 percent returns. More than 200 investors in at least 17 states poured money into Morgan’s notes funds.

According to the criminal complaint, Morgan Management provided property management, accounting and financial reporting services for properties owned by limited liability companies controlled by Robert Morgan. The defendants are accused of conspiring to manipulate income and expenses for properties to meet financial ratios required by lenders.

“The manipulation included, among other things, removing expenses from information reported to lenders and keeping two sets of books for at least 70 properties, with one set of books containing true and accurate figures and a second set of books containing manipulated figures to be provided to lenders in connection with servicing and refinancing loans,” according to the U.S. Attorney’s Office for the Western District of New York.

Prosecutors say that, between 2007 and June 2017, the defendants conspired with others to fraudulently obtain money, securities and other property from financial institutions and government-sponsored entities like Freddie Mac and Fannie Mae. The defendants are accused of providing false information overstating the incomes of properties owned by Morgan Management or certain principals of Morgan Management.

Many of the projects did not generate sufficient cash flow to repay both their secured lenders and the notes funds, according to the SEC. As a result, the defendants used the notes funds as “a single, fraudulent slush fund, repeatedly using the funds for purposes inconsistent with the representations and disclosures made to investors,” according to the complaint. “To conceal their fraudulent conduct, and to mislead their auditors, defendants papered these transfers using sham loan documents designed to make the transfers appear legitimate.”

Investors are owed more than $63 million, according to the complaint, and the notes funds have few if any assets aside from the receivables for the loans they have made to affiliated borrowers.

Both the criminal case and the SEC’s civil case are being heard in U.S. District Court for the Western District of New York.

For more information:

https://www.justice.gov/usao-wdny/pr/robert-morgan-three-others-indicted-multi-million-dollar-mortgage-fraud-scheme

https://www.sec.gov/litigation/complaints/2019/comp24477.pdf

Protect Your Business from Employee Fraud

Installing a safe and securing cash and other valuables are among the many steps employers can take to fight workplace fraud. Photo by Nicole De Khors from Burst

The bookkeeper for a small Sullivan County business is charged with making $3,000 in personal purchases on the company credit card.

An employee of an Ulster County restaurant is charged with stealing $12,000.

The longtime office manager of an Orange County propane dealer pleads guilty to embezzling more than $1.3 million – the equivalent of four years of profits – by disguising thefts as payments to vendors.

Experts estimate that organizations lose 5 percent of their annual revenues to fraud. Organizations with fewer than 100 employees are more likely to be victimized by occupational fraud – acts committed against an organization by its own officers, directors or employees – than are larger ones. And the losses for small organizations, which are more likely to lack internal controls, are typically twice as large, according to the Association of Certified Fraud Examiners’ Report to the Nations 2018 Global Study on Occupational Fraud and Abuse.

The path to a more secure workplace

Organizations need strong internal controls to prevent theft and fraud. What can a small organization with limited resources do to protect itself? Consider these steps to help reduce risk:

  • Have a written code of conduct, documentation of policies/processes, and anti-fraud policies in place. Have staff review these documents each year.
  • Segregate duties when possible, bearing in mind the potential for collusion.
  • Conduct background checks on all potential hires. If red flags are detected, do not hire the applicant without a confirmed (hopefully, in writing), sound explanation.
  • Rotate job responsibilities when possible.
  • Require employees to use vacation days, and have their job duties covered by another employee who can discover any questionable activity. Follow up with the covering employee. Ask about job-efficiency suggestions, and if they identified any concerns.
  • Provide separate user names and passwords for all authorized IT users, with information-access rights limited to required users.
  • Use a safe and security cameras. Safeguard cash, checks, credit cards and inventory.
  • Take a physical inventory at least once a year.
  • Require authorizations, receipts and recording of all petty cash transactions.
  • Have copies of bank and credit card statements sent to the home of a key manager or board member who can review them.
  • Require detailed receipts for all credit/debit card charges shortly after they are incurred.
  • Require two signatures or written authorization for expenditures over a material dollar amount.
  • Require detailed invoices from vendors that clearly outline goods and/or services provided, related locations/job names, etc.


Give your organization a checkup

Conducting regular reviews of key checkpoints in your organization can help you detect fraud early. If maintaining a schedule is difficult, try random, unpredictable reviews as frequently as possible.

Here are a few ways to get started:

  • Review monthly bank statements. Ensure checks paid were properly authorized and signed. Test large checks to the related underlying documentation. If checks are out of chronological order, determine why, and locate any missing ones. Confirm total deposits match accounting records and investigate any discrepancies. Compare the bank statement to the bank reconciliation and note if any payee name differences exist. If payroll checks are issued, examine any payroll checks with two endorsements.
  • Investigate unexplained differences in monthly cash flows from prior periods.
  • Review monthly or quarterly payroll reports. Investigate unexplained compensation increases, overtime and/or unusual reimbursements. Verify that new employees exist and former employees are no longer being compensated. Investigate any employees with no withholdings.
  • For point-of-sale transactions, reconcile closeouts to bank deposits. Note if discrepancies regularly occur with a specific employee.
  • Investigate unexplained changes in sales from prior periods. Identify missing invoice numbers, unusual credits and potential over- or under-billings.
  • Review software audit trails and access logs to identify any questionable activity or patterns.
  • Compare financial statements to the former period and clarify any unexplained discrepancies.

Here’s a final piece of advice. To limit workplace fraud, build a fair organization. Avoid situations that promote fraud, such as unrealistic goals, poorly designed incentive compensation plans or unfair workloads. Encourage an atmosphere of open communication where problems can be identified and resolved.

If you think your organization may have been victimized by occupational fraud, contact Advent Valuation Advisors at info@adventvalue.com.

Meet Our New Partner, Lorraine Barton

Lorraine Barton

Advent Valuation Advisors, LLC, takes great pleasure in announcing that Lorraine Barton, CPA/ABV/CFF, CIRA, CVA, MAFF, MBA, has been admitted to the partnership. 

Lorraine joined Advent, an affiliate of accounting and advisory firm RBT CPAs, LLP, in 2015. She has an extensive and varied accounting, valuation and litigation-support background in private industry and public accounting.

Lorraine has provided bankruptcy-support services since 2002 and business valuation services since 2004. She previously served as interim chief financial officer of a $125 million credit card processing company operating in Chapter 11 bankruptcy, helping to facilitate the sale of the business and saving more than 100 jobs.

At Advent, she and her team provide valuation and litigation-support services to closely held businesses and their advisors for purposes including mergers and acquisitions, buy-sell agreements, divorce, estate and gift-tax planning and corporate reorganizations.

Lorraine has completed a 40-hour divorce mediation training program that meets the requirements of the New York Association of Collaborative Professionals. She and the firm have wide-ranging experience in matrimonial finance, including asset tracing, lifestyle analysis and forensic examination.

Lorraine lives in Fishkill and has two sons. She is a graduate of Leadership Orange and serves on the NYSSCPA Business Valuation Committee.

She is also a member of the American Institute of Certified Public Accountants (AICPA), the National Association of Certified Valuators and Analysts (NACVA), the Association of Insolvency and Restructuring Advisors (AIRA) and the Hudson Valley Collaborative Divorce & Dispute Resolution Association (HVCDDRA).

“We are so pleased to welcome Lorraine as the newest partner in Advent Valuation Advisors,” said Michael Turturro, managing partner of RBT CPAs. “Lorraine is a crucial part of our continued growth. I wish her congratulations and many years of continued success!”