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Fraud

Real estate, cannabis, fraud and broken dreams

Debra Casey  Executive Editor / Thomson Reuters

Debra Casey  Executive Editor / Thomson Reuters

Not everyone is Bernie Madoff, but he was not alone in using lies to lure people into investing their retirement savings and futures with a fraudster investing in real estate. Recently, a former Oregon CPA, Nathan Wheeler, was convicted of wire fraud and attempted tax evasion.

Follow the cash

Many times, we wonder how people could be duped into investing their money, and lots of times it is a convoluted and complicated scheme, but that wasn’t the case here. Wheeler told people he was investing their money in real estate development, when really he was diverting the funds for his own use or to support his marijuana growing business. While his case was the result of the Oregon Liquor Control Commission looking into the amount of cash deposits coming across state lines tied to his marijuana operation, certain other aspects should have perhaps tipped his investors off to problems.

Pressure and clues

When we talk about the fraud triangle—opportunity, pressure, and rationalization—there are situations to look for. One of those scenarios is a lifestyle that isn’t consistent with the income levels of those individuals, or other financial pressures. Some financial pressures aren’t as obvious to the casual observer—the single mom with the sick child, for example.

In the case of Wheeler, he was trying to fund a business that cannot legally deduct expenses, which makes it very difficult to earn a profit, and needs a constant supply of cash. Additionally, he was known to have spent money to fund a lifestyle of nightlife, alcohol, drugs, and extravagance. His opportunity came when, in some cases, clients wired him money, while in others he was a signer on checking accounts. He stole money from children’s trust funds, and some from a former Olympic silver medalist trying to build a business of his own.

Rationalization can occur on the part of those duped as well as the fraudster. Investors want to believe making huge returns is possible, and while there are times where it is, that shouldn’t stop people from remembering there is no such thing as a free lunch, and skepticism isn’t just for auditors. If a situation seems too good to be true, maybe investigate it a little further. Ask questions.

Protecting the Public

Absentee ownership doesn’t guarantee that there is fraud involved, but it increases the possibility. It’s the reason, among others, we have the Securities and Exchange Commission, the PCAOB, and other disclosures, laws, etc., to protect the investing public.

 

For more on means of detecting financial statement and other types of fraud, visit cl.tr.com for courses on auditing, fraud and forensic accounting.

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