Posts Tagged ‘fraud’
“It’s morally wrong to allow a sucker to keep his money”*…
Rachel Browne with the telling story of how a Montreal copywriter swindled victims out of $200 million by pretending to be a legendary psychic…
Patrice Runner was sixteen years old, in Montreal in the 1980s, when he came across a series of advertisements in magazines and newspapers that enchanted him. It was the language of the ads, the spare use of words and the emotionality of simple phrases, that drew him in. Some ads offered new products and gadgets, like microscopes and wristwatches; some offered services or guides on weight loss, memory improvement, and speed reading. Others advertised something less tangible and more alluring—the promise of great riches or a future foretold.
“The wisest man I ever knew,” one particularly memorable ad read, “told me something I never forgot: ‘Most people are too busy earning a living to make any money.’” The ad, which began appearing in newspapers across North America in 1973, was written by self-help author Joe Karbo, who vowed to share his secret—no education, capital, luck, talent, youth, or experience required—to fabulous wealth. All he asked was for people to mail in $10 and they’d receive his book and his secret. “What does it require? Belief.” The ad was titled “The Lazy Man’s Way to Riches,” and it helped sell nearly 3 million copies of Karbo’s book.
This power of provocative copywriting enthralled Runner, who, in time, turned an adolescent fascination into a career and a multi-million-dollar business. Now fifty-seven, Runner spent most of his life at the helm of several prolific mail-order businesses primarily based out of Montreal. Through ads in print media and unsolicited direct mail, he sold self-help guides, weight-loss schemes, and, most infamously, the services of a world-famous psychic named Maria Duval. “If you’ve got a special bottle of bubbly that you’ve been saving for celebrating great news, then now’s the time to open it,” read one nine-page letter that his business mailed to thousands of people. Under a headshot of Duval, it noted she had “more than 40 years of accurate and verifiable predictions.” The letter promised “sweeping changes and improvements in your life” in “exactly 27 days.” The recipients were urged to reply and enclose a cheque or money order for $50 to receive a “mysterious talisman with the power to attract LUCK and MONEY” as well as a “Guide to My New Life” that included winning lottery numbers.
More than a million people in Canada and the United States were captivated enough to mail money in exchange for various psychic services. Some people, though, eventually began to question whether they were truly corresponding with a legendary psychic and felt they had been cheated. In 2020, after being pursued by law enforcement for years, Runner was arrested in Spain and extradited to the US on eighteen counts, including mail fraud, wire fraud, and conspiracy to commit money laundering, for orchestrating one of the biggest mail-order scams in North American history…
Read on: “The Greatest Scam Ever Written,” from @rp_browne in @thewalrus.
* W. C. Fields
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As we tread carefully, we might spare a thought for Meyer Harris “Mickey” Cohen; he died on this date in 1976. After a career as a boxer, Cohen joined the mob, moving around the country and rising through the ranks until he was a close associate of Benjamin “Bugsy” Siegel in Los Angeles. In 1950, Cohen was investigated along with many other underworld figures by a U.S. Senate committee known as the Kefauver Commission. As a result, Cohen was convicted of tax evasion in June 1951, and sentenced four years in prison.
On his release in 1955, Cohen became an international celebrity. He ran floral shops, paint stores, nightclubs, casinos, gas stations, a men’s haberdashery– he even drove an ice cream van on San Vicente Boulevard in the Brentwood section of Los Angeles. In 1957, TIME magazine wrote a brief article about Cohen’s meeting with Christian evangelist Billy Graham. Cohen said: “I am very high on the Christian way of life. Billy came up, and before we had food he said—What do you call it, that thing they say before food? Grace? Yeah, grace. Then we talked a lot about Christianity and stuff.” Allegedly when Cohen did not change his lifestyle, he was confronted by Christian acquaintances. His response: “Christian football players, Christian cowboys, Christian politicians; why not a Christian gangster?”
In 1961, Cohen was again convicted of tax evasion and sent to Alcatraz. He was the only prisoner ever bailed out of Alcatraz– his bond signed by U.S. Supreme Court Chief Justice Earl Warren. After his appeals failed, Cohen was sent to a federal prison in Atlanta, Georgia. In 1972, Cohen was released from the Atlanta Federal Penitentiary, where he had spoken out against prison abuse. He had been misdiagnosed with an ulcer, which turned out to be stomach cancer. After undergoing surgery, he continued touring the United States and made television appearances, once with Ramsey Clark.
“Things gained through fraud are never secure”*…
… Still, the damage done to the defrauded is too often too real. A unsettling report from the front lines of financial accounting…
The level of corporate earnings manipulation is similar to that of past pre-recessionary periods, according to research by professors at the University of Missouri and Indiana University.
Their finding is based on the M-Score, a screening model that catches fraud in corporate earnings reports. Messod Daniel Beneish, a professor at the Indiana University Kelley School of Business, created the M-Score in the 1990s. The “M” stands for manipulation, and the measure is also sometimes referred to as the Beneish M-Score.
Based on known examples of past financial misreporting, the M-Score combines eight ratios on a company’s balance sheet to assess its fraud risk. A higher M-Score means a company is more likely to be manipulating its earnings.
“It allows us to assess fraud risk in real time,” said Matt Glendening, an accounting professor at the University of Missouri. “The advantage of using a measure such as the M-Score is that if you use actual instances of accounting fraud, not all cases are caught, especially the less severe cases. And also, there is a delay between the misreporting period and the time at which the fraud is actually revealed.”
One notable M-Score success came in 1998, when a group of Cornell students used the M-Score to flag Enron as having an elevated fraud risk. This was three years before the public learned that the company was inflating its profits, resulting in what was then the largest corporate bankruptcy in history and several executives going to jail.
…
Corporate earnings are traditionally manipulated either by overstating revenues or understating expenses. How companies do this varies, but it could include recognizing sales revenues early or understating inventory.
“There are all sorts of capital market pressures on firms to maintain stock price, maintain earnings growth,” Glendening said. “There could also be some compensation incentives at play.”
In 2019, Beneish expanded the M-Score, creating a new measure that goes beyond individual companies to the economy as a whole. With the help of Glendening and two other co-authors, Beneish created the aggregate M-Score, which now compiles the M-Scores of 2,004 companies to measure the likelihood of earnings manipulation across the economy. Earlier in 2023, the aggregate M-Score was at its highest level in 40 years.
“Accounting manipulation matters for the economy at large,” Glendening said. Companies use other business’ earnings data to inform hiring, purchasing, and production decisions. “What we are finding is that the level of aggregate misreporting is very similar to what we’ve observed in pre-recessionary periods.”
Ask not for whom the bell tolls: “This little-known accounting measure is ringing an economic warning bell,” from Kai Ryssdal (@kairyssdal) and Andie Corban on @Marketplace.
See also: “Corporate Fraud” (source of the image above)
* Sophocles
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As we look more closely, we might recall that it was on this date in 1974 that the House Judiciary Committee voted to recommend that America’s 37th president, Richard M. Nixon, be impeached and removed from office for a variety of offenses that arose from the Watergate Affair. Several days later (August 5), as the full house discussed the trial, the “Smoking Gun” tape was released, demonstrating that Nixon was in fact involved in the cover-up. His political capital destroyed, Nixon resigned– in a nationwide television address– on August 8, effective the next day.
“Long life is welcome, agreeable, pleasant, and hard to obtain in the world”*…
… maybe, as recent research from Saul Justin Newman explains, even harder than we thought…
The observation of individuals attaining remarkable ages, and their concentration into geographic sub-regions or ‘blue zones’, has generated considerable scientific interest. Proposed drivers of remarkable longevity include high vegetable intake, strong social connections, and genetic markers. Here, we reveal new predictors of remarkable longevity and ‘supercentenarian’ status. In the United States supercentenarian status is predicted by the absence of vital registration. In the UK, Italy, Japan, and France remarkable longevity is instead predicted by regional poverty, old-age poverty, material deprivation, low incomes, high crime rates, a remote region of birth, worse health, and fewer 90+ year old people. In addition, supercentenarian birthdates are concentrated on the first of the month and days divisible by five: patterns indicative of widespread fraud and error. As such, relative poverty and missing vital documents constitute unexpected predictors of centenarian and supercentenarian status, and support a primary role of fraud and error in generating remarkable human age records…
The paper in full: “Supercentenarian and remarkable age records exhibit patterns indicative of clerical errors and pension fraud,” at @biorxivpreprint.
(Image above: source)
* Buddha
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As we long for longevity, we might send healthy birthday greetings to William H. Welch; he was born on this date in 1850. A physician, pathologist, bacteriologist, and medical educator, He was one of the “Big Four” founding professors at the Johns Hopkins Hospital, the first dean of the Johns Hopkins School of Medicine, and the founder of the Johns Hopkins School of Hygiene and Public Health, the first school of public health in the country.
Welch revolutionized American medicine by demanding of its students a rigorous study of physical sciences and an active involvement in clinical duties and laboratory work. His students included Walter Reed, James Carroll and Simon Flexner.
“For the sake of the science, it might be time for scientists to start trusting each other a little less”*…
We’ve looked at methodical problems in scientific and medical research before (see here, here, and here). Let us turn now to outright dishonesty. The rising number of retracted research papers suggests that either medical research fraud is on the rise or that efforts to spot it are getting better. Either way, it’s a problem …
… Partly or entirely fabricated papers are being found in ever-larger numbers, thanks to sleuths like Dr Mol. Retraction Watch, an online database, lists nearly 19,000 papers on biomedical-science topics that have been retracted (see chart 1). In 2022 there were about 2,600 retractions in this area—more than twice the number in 2018. Some were the results of honest mistakes, but misconduct of one sort or another is involved in the vast majority of them…
… Yet journals can take years to retract, if they ever do so. Going by these numbers, roughly one in 1,000 papers gets retracted. That does not sound too bad. However, Ivan Oransky, one of Retraction Watch’s founders, reckons, based on various studies of the matter and reports from sleuths, that something more like one in 50 papers has results which are unreliable because of fabrication, plagiarism or serious errors…
… It is often asserted that science is self-correcting. And it is true that, if a claimed result is important enough, an inability to replicate it or of subsequent work to conform to it will eventually be noticed. In the short term, though, it is easy to hide in the shadows. Even co-authors of a data-fabricating scientist—those, in other words, who are closest to him or her—may not notice what the culprit is up to. In complex studies of a particular disease, several types of researchers will be involved, who are, by definition, not experts in each other’s fields. As Dr Bishop observes, “You just tend to take on trust the bits of data that somebody else has given you.”…
In the end, however, keeping fakes out of the scientific record depends on the willingness of publishers to stump up more resources. Statistical checks of clinical-trial papers often involve laborious manual work, such as typing up specific data in spreadsheets. This would require journals to hire dedicated staff, cutting into profits.
Many academics who have spent years trying to get fabricated papers retracted are pessimistic that better ways to detect fraud will, alone, make a big difference. Dr Roberts and Dr Mol want journals to be regulated in the way that social media and the news business are in some countries, with standards on what they publish. Peter Wilmshurst, a British cardiologist who has raised the alarm about numerous cases of research misconduct in his field, thinks there should be criminal penalties for those who fabricate data. Dr Gunsalus wants universities to make public the reports from their research-fraud investigations. And everyone agrees that publish or perish is a recipe for disaster.
None of these solutions will be quick or straightforward. But it is now clear that choosing to look the other way is causing palpable harm to patients…
“There is a worrying amount of fraud in medical research- and a worrying unwillingness to do anything about it,” from @TheEconomist.
* Stuart Ritchie, Science Fictions
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As we look harder, we might spare a thought for Alfred Habdank Skarbek Korzybski; he died on this date in 1950. Trained as an engineer, he developed a field called general semantics, which he viewed as both distinct from, and more encompassing than, the field of semantics. He argued that human knowledge of the world is limited both by the human nervous system and the languages humans have developed, and thus no one can have direct access to reality, given that the most we can know is that which is filtered through the brain’s responses to reality. (Korzybski assumed that the quest for knowledge was an authentic, honest one; that said, if “human nervous system” an be understood to extend to “human nature”…)
Korzybski was influential in fields across the sciences and humanities through the 1940s and 50s (perhaps most notably, gestalt therapists), and inspired science fiction writers (like Robery Heinlein and A.E. van Vogt) and philosophers like Alan Watts.
His best known dictum is “The map is not the territory.”
“Hard times arouse an instinctive desire for authenticity”*…
… but that authenticity can be hard to find…
In 2016, US retailer Target severed ties with textile manufacturer Welspun India after discovering that 750,000 sheets and pillowcases labelled Egyptian cotton were not 100% Egyptian after all.
Egypt has long been known for producing long- and extra-long-staple cotton, a variety of the crop with especially long threads that results in softer and more durable fabric – so products labelled Egyptian typically command a higher price. But the year after the Welspun incident, the Cotton Egypt Association estimated that 90% of global supplies of Egyptian cotton in 2016 were fake.
Egyptian cotton is not the only fabric that has fallen foul of mislabelling in recent years. In 2020, the Global Organic Textile Standard (Gots) said that 20,000 tonnes of Indian cotton had been incorrectly certified as organic – around a sixth of the country’s total production. In 2017, a Vietnamese silk brand admitted that half of its silk actually came from China. And in 2018, several British retailers had to withdraw “faux” fur products that turned out to be the real thing.
From choosing an organic cotton T-shirt to buying trainers made out of recycled plastic bottles, many of us opt to pay more in the hope that our purchase will be better quality, or help people or the planet. However, as the Welspun incident and others have shown, when it comes to textiles, we’re not always getting what we think we’ve paid for…
How can we tell if the clothes in our wardrobes really are what they claim to be? “Why fabric fraud is so easy to hide,” from @BBC_Future.
* Coco Chanel
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As we root around for the real, we might recall that it was on this date in 1938 that Howard Hawks’ comedy Bringing Up Baby premiered at the Golden Gate Theater in San Francisco. Featuring Cary Grant, Katherine Hepburn, and a leopard, the film earned good reviews but suffered at the box office. Indeed, Hepburn’s career fell into a slump– she was one of a group of actors labeled as “box office poison” by the Independent Theatre Owners of America– that she broke with The Philadelphia Story (again with Grant) in 1940.
As for Bringing Up Baby, the film did well when re-released in the 1940s, and grew further in popularity when it began to be shown on television in the 1950s. Today it is recognized as the authentic screwball classic that it is; it sits at 94% on Rotten Tomatoes, and ranks among “Top 100” on lists from the American Film Institute and the National Society of Film Critics.
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