Articles Posted in Financial Fraud

trade warAccording to a report released earlier this month, U.S. companies are increasingly shifting imports from China to countries like Vietnam, South Korea, Mexico, and Taiwan, in an effort to avoid the high tariffs imposed on Chinese purchases during the current trade war.

With the current trade war waged on China, President Donald Trump has imposed tariffs of up to 25% on the purchase of Chinese products. This dramatically increases the overall costs that U.S. companies are looking to spend, causing them to search for new alternatives. According to S&P Global Market Intelligence, the number of containerized freight imported from China fell 6.4% in the first corner. In order to avoid paying the high tariffs, U.S. companies have rerouted the majority of their purchases to less expensive countries. However, many companies also chose to order mass purchases from China ahead of the tariff increases in an effort to stockpile their products.

Many of the companies choosing to reroute their imports are associated with the furniture industry, but these are not the only markets struggling to avoid tariffs. While large furniture retailers, like Home Depot and Target, decreased Chinese imports by up to 13.5%, appliance retailers like Samsung and LG were also part of a major shift in Chinese imports.

deforestation-300x200The destructed land left from the acts of deforestation is an eerie sight. A distant treeline, fallen logs, and disrupted vegetation seem both natural and unnatural, and perhaps rightly so. In a recent investigation performed by Victor Galaz and members of the Stockholm Resilience Center, many acts of Amazonian deforestation can be directly linked to foreign tax havens. Why? Because there’s lots of money to be made in the destruction of these forests, which are eventually used by massive beef and soy companies to turn a profit. However, the fish industry, worth over $23 billion annually, is yet another market at the root of environmental destruction by use of oversea tax havens.

The Link Between Overfishing and Tax Havens

There is a reason why fishing boats are given a daily fish quota, as well as restrictions on the species of fish that they can keep; The environment. The practice of overfishing is capable of wiping out entire species. However, this can be viewed as limited profits for the companies involved in these restrictions; less fish equals less profits. For companies like this, it’s tempting to find a way around these regulations, and foreign tax havens offer the perfect opportunity.

tax evasionAccording to a list by Oxfam, a charitable organization that works to alleviate global poverty, Bermuda is the worst corporate tax haven in the world. Joining Bermuda on this list are fourteen other tax havens, which include the Cayman Islands and British Virgin Islands. But, what makes Bermuda stand out among the others noted on this list?

Creating The List

Oxfam did not take the creation of this list lightly. In order to determine the tax havens that belonged on the list, Oxfam carefully researched numerous factors, including the presence of exceptionally low or nonexistent corporate tax rates and unfair tax incentives. Oxfam also took into consideration the cooperation, or lack of cooperation, of these tax havens in regards to international regulations designed to combat tax evasion. During its extensive research, Oxfam found that Bermuda and other British territories were among the worst tax havens in the world. This is especially true when considering the United State’s use of these tax havens.

insider-trading-300x168Charlie Jinan Chen, a Boston restaurant owner, is accused of insider trading of Vistaprint stock after illegally receiving confidential information from a former Vistaprint employee. His wife, Shui Foon Mak, is also being charged for her part in reaping the illegal profits, which are believed to be in excess of $850,000. But, how did this all work?

Insider Information Leaked from 2012-2014

Vistaprint is an eCommerce platform that specializes in selling customizable business materials and other products. From 2012-2014, Chen received insider information from an employee of Vistaprint, identified only as “Jenny” in court documents. Jenny was an accounting manager that reportedly handled Vistaprint’s quarterly financial statements, which included confidential information that would remain unavailable to the public prior to a set date for release. It was this information that Chen allegedly used to generate fraudulent profits.

money laundering and terrorism financing The Cayman Islands, three islands located in the western Caribbean, lack the capacity to spot money laundering and terrorism financing. This is a major fault considering the Cayman’s role as an international financial center.

The Caribbean Financial Action Task Force (CFATF) took control over the evaluation of this region in 2017, when they visited the Cayman Islands to compile a report on the deficiencies. This report specifically analyzed how the Cayman Islands complied with 40 Financial Action Task Force standards in relation to combating money laundering and terrorism financing. The Cayman evaluation was discussed by the CFATF and Plenary was held in November of 2018 in Barbados and published by March of 2019. The CFATF found much during their evaluation of Cayman.

They discovered that while the Inter Agency Coordination Committee and the Anti-Money Laundering Steering Group are a strong combination, they could use more cooperation with law enforcement organizations and the Financial Reporting Authority.

One of the informants will get $37 million, the third-biggest payout in the history of the SEC’s whistleblower program, the agency said in a statement Tuesday. The SEC didn’t name the company involved or the people getting the awards but said the two provided high-quality assistance.

“Whistleblowers like those being awarded today may be the source of ‘smoking gun’ evidence and indispensable assistance that strengthens the agency’s ability to protect investors and the capital markets,” Jane Norberg, chief of the SEC’s whistleblower office, said in the statement.

Tipsters are eligible for payouts if they voluntarily provide the SEC with unique information that leads to a successful enforcement action. Compensation can range from 10% to 30% of the money collected in a case where sanctions exceed $1 million. The SEC has paid out about $376 million since issuing its first award in 2012.

dominos pizza fraudWhile everyone enjoys a nice slice of the pie, Domino’s Pizza has had a corporate insider file a detailed whistleblower report with the SEC against top-level officers and various staff members. This case involves general misconduct and an alleged scheme involving misleading franchisors and fraudulent investments.

On February 19, 2019, the franchise community website Blue MauMau reported that “[a] corporate insider has filed a well-documented whistleblower report with the [SEC] against Domino’s Pizza, its top-level officers, and various staff members.” Domino’s allegedly forced an unapproved advertising increase to franchisees in order to pay a $1.85 billion Securitization Transaction to gain higher stock prices and dividends.

Details of this case came directly from a concerned insider at Domino’s Pizza who noticed the presence of possible misconduct and decided to blow the whistle on this major pizza chain.

tax havenReports from London have shown that nearly a third of the billionaires located in Britain plan to or have already moved to areas considered tax havens. In addition to this sudden shift, there is also talk of an investigation into political party bankrolling from those that have chosen to relocate, as well as the delay in a vote involving the end of secret company ownership in offshore territories.

According to the Times news, 28 out of the 93 recorded British billionaires have been found through public record to have moved or been in the process of moving to a tax haven within the last decade.

Tax havens are locations in the world in which taxation is extremely light or sometimes even non-existent. Examples of these are the Channel Islands or countries like Switzerland and the United Arab Emirates that pay little to no tax.

Lumber Liquidators lied to investors after a“60 Minutes” Episode and has agreed to pay a total penalty of $33 million. The payment is for filing a materially false and misleading statement to investors regarding the sale of its laminate flooring from China to its customers in the United States about the chemicals used in its wood products including formaldehyde. In 2013 and 2014, CARB informed Lumber Liquidators that flooring samples collected from its California stores failed deconstructive testing for formaldehyde emissions.  Lumber Liquidators’ own deconstructive tests of the same products yielded similar results.

A U.S. laminate supplier informed Lumber Liquidators that it tested a Chinese laminate sample purchased from one of Lumber Liquidators’ stores in the United States and that the sample emitted high levels of formaldehyde.  Lumber Liquidators took only limited steps to determine the validity of the suppliers’ concerns, and instead sought to generate support for its position that deconstructive testing was not a valid test method, the company admitted.

Lumber Liquidators, a public corporation headquartered in Toano, Virginia, and one of the largest retailers of flooring products in the United States, entered into a deferred prosecution agreement (DPA) in connection with a criminal information filed today in the Eastern District of Virginia charging the company with securities fraud.  The case was primarily focused on the fact that Lumber Liquidators knowingly filed a false and misleading statement to investors broadly denying the allegations featured in a March 2015 episode of 60 Minutes, and affirming that the company complied with California Air Resources Board (CARB) regulations.

town financial fraudThe New York town of Oyster Bay has been granted a settlement by the Securities and Exchange Commission (SEC) that will allow for no fines relating to a 2017 SEC lawsuit involving alleged financial fraud. This agreement is contingent on the assurance that the town hire a municipal finance consultant to review bond disclosures for three years.

The town of Oyster Bay as well as their former town supervisor John Venditto, who was not involved in the settlement, have been accused of defrauding investors by keeping vital information from them, including side deals with local restaurants to indirectly guarantee private loans. Those investigating the case have stated that during the time of the 2017 suit Oyster Bay was not disclosing loan guarantees that totaled $20 million during 26 securities offerings in the years 2010 to 2015

Allegations such as these could have resulted in much harsher punishments for the town, as they have in the past with other fraud cases. However, Oyster Bay received a light settlement that allowed them to avoid fines and seek professional financial assistance for up to three years. Initially, though the SEC sought to impose a court-appointed consultant for a five-year period with the power to prevent borrowing, but this was changed throughout the settlement.