Increased operating costs but no sales

How friendly should you become with the target? The developer client knew the Houston market was slow, but the growing losses being incurred by his property manager seemed unreasonable. Retained by counsel, a visit was required and during the investigative process, I decided to accept the offer of courtside seats from the target to watch the Houston Rockets. Some might have declined, but as part of the ‘con vs. con’ approach, why can’t you have some fun and spend quality time with the target. At the end of the day, he was found to be in a conflict of interest situation, sufficient for contract termination. No apologies, and from my perspective, the game was business as usual.

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On a Caribbean Beach as Sue

This case involved the alleged use of insider information by a professional in a public company for personal gain in the form of real estate located in the Turks & Caicos.

External counsel and I took a commercial jet to Miami and then a private jet took us to the Providenciales Airport and then we were taken to the only available hotel on Grace Bay Beach: Club Med. In those days only couples were permitted to stay, and you guessed right, counsel registered as he and I as Sue, all in the name of client service. Thanks Johnny!

Island hopping via the private jet included a visit to Cockburn Town, the capital located on Grand Turk Island as we searched for evidence, primarily documents over the next few days. This was the Turks & Caicos before the tourism boom.

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Argosy and the Backward Horse

This $24 million fraud case was the largest ever mortgage fraud case in Canada, catching 1,600 investors who had placed their funds into syndicated mortgages with Argosy Financial Group of Canada Ltd. Argosy started in 1975 and in 1980 it was placed into receivership. Most of the investors were from the province of Ontario with the real estate projects located in Ontario, Alberta and Florida. John David Carnie, the President of the company eventually pled guilty and received a 6 ½ year sentence.

It was fun to piece this case together, while at the same time, your sixth sense agonizes over many questions, one being why did management buy a piece of property for an apartment that was located beside a chemical plant and next to the main train railyard in some faraway small town in the province of Alberta.

Big cases are big puzzle games with volumes of documents. The challenge is to make paper talk. This is the fun of being a forensic accountant. Figure it out!

The formula was simpler than it sounds: Argosy acquires the above property in Alberta, obtains a syndicated mortgage from investors in Ontario for more than the cost and applies the excess mortgage proceeds to pay the interest on outstanding mortgages in its portfolio.

But Carnie had two problems! No exit strategy and a lot of pride. Human nature is anxious to show success and stupidity. For example, Carnie proceeded to take some excess mortgage proceeds and buy a racehorse in the United Kingdom. But there was one problem: in the UK, the horses run clockwise unlike North American where it is counter-clockwise.

If you were really smart, would you not develop an exit strategy? This is another example of the ‘low class’ fraudster; they think their scam will go on forever and they spend everything.

Read Case in Teaching Format

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Pieckenhagaens and Police Power

The Crown charged the Pieckenhagens with stealing $3 million from his father-in-law who had, over time, liquidated his European assets and transferred the money to Ontario through a Liechtenstein company. The Pieckenhagens wired the money to Panama City, Florida, then flew down, picked up the money and went off to Brazil.

This looked bad! And this time their defense counsel, Clay Powell retained me.

I offer a couple of observations from the 1977 trial:

It was the first time I had seen an expert accounting witness cross-examined and destroyed – – yet in a way that had the expert leaving the witness box in the belief he had performed very well.

The defense side is actually a lot of fun, as counsel works to identify the other expert’s omissions or biased interpretations. I also experienced the negative effect of police power and to this day appreciate the need for the prosecution to be held always to the task of establishing evidence beyond a reasonable doubt in order to secure a conviction. It was also a learning experience to spend time with the accused who were acquitted – – as a useful reminder of the human element in any case.

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