According to the SEC’s complaint, Pacheco told investors that he had developed a lucrative investment strategy involving the purchase and sale of covered call options, and that the hedge funds exclusively relied upon this strategy to generate trading profits ranging from 30 percent to 48 percent per year. In reality, Pacheco did not generate the returns he claimed to have made, and instead used investor principal to pay purported returns until the scheme collapsed.

“Pacheco disseminated monthly statements reflecting purported profits and trading activity, but providing little detail about how those returns were generated,” said Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office. “These investors were principally solicited through word-of-mouth, which serves as a reminder to beware of opaque investment opportunities that promise unusually high payoffs even if it’s a referral coming from family or friends.”

According to the SEC’s complaint, filed in U.S. District Court for the Southern District of California, the hedge funds generated trading profits of only about $367,000, but paid investors purported returns of more than $9.7 million. The SEC alleges that the defendants thus operated a Ponzi-like scheme and further misused investor principal by transferring their money to Pacheco, entities under his control, or numerous third parties for reasons having nothing to do with the purported trading.

The SEC alleges that Pacheco claimed that the hedge funds had generated returns ranging from 2.5 to 4 percent per month during their existence, and continued to claim that they generated returns in that range until January 2008, when he reduced the returns to 1.25 percent per month. Pacheco told fund investors that the reduction was due to deteriorating economic conditions. Most fund investors live in the Chula Vista area, and know either Pacheco, one of his friends or family members, or another investor. The SEC alleges that Pacheco made no effort to determine whether the hedge fund investors were accredited or sophisticated, and did not provide investors with financial statements. Neither Pacheco nor his entities were registered with the SEC.

The SEC’s complaint alleges that Pacheco, AMM, and BD&C violated the securities registration and antifraud provisions of the federal securities laws and seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest and financial penalties. Additionally, the complaint names the hedge funds and various third parties receiving investor money as relief defendants, and seeks from them the disgorgement of all such amounts. The complaint also seeks the court’s appointment of a receiver over AMM and BD&C.

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Post from: EveryJoe

Ponzi Scheme of the Week

Writing on Corporate Finance here on Bizzia (and Accounting Solver before that) for the past several months has been a great experience. I’ve especially enjoyed sharing the financial fraud schemes, which sadly, are far more numerous than I realized. If you’re interested in keeping up with the latest cases, you can check in periodically with the SEC news page.  

Miranda Marquit, who also writes Yielding Wealthhere on Bizzia, has graciously agreed to take over the Corporate Finance topic. Marquit knows money, and I know you’ll be in good hands.

You can continue to find my business opinions on Business Pundit, and my suburban humor on After the Bubbly. And who knows, maybe someday I’ll be back!

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Post from: EveryJoe

Thanks and Farewell… For Now

“The majority of CPAs in small- and mid-size firms counsel businesses on financial matters, so it is encouraging that they believe recent signs of economic improvement will continue,” said James Metzler, AICPA vice president for small firm interests.

The CPA firms surveyed reported that the biggest issues confronting them as a result of the economic crisis are strains on accounts receivable and revenue reductions because of client attrition and fee pressure. CPA employment is expected to remain steady.

The AICPA expects to announce the complete results of its 2009 CPA Firm Top Issues survey early next week. Key issues will include client retention, succession planning and marketing to new clients.

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Post from: EveryJoe

Accountants Optimistic About Economy

“As the Court clearly recognized, this is a time when more — not less — enforcement of fair lending laws is essential,” said John Payton, LDF President and Director-Counsel. “Nothing justifies the federal government’s complete failure to enforce both state and federal antidiscrimination laws against financial institutions. Civil rights always benefit when both states and the federal government work aggressively to curb discrimination.”

The Cuomo case began in 2005, when the New York Attorney General launched an investigation into potential discrimination by national banks. Mortgage lending data indicated that national banks had issued a significantly higher percentage of high-interest predatory loans to African-American and Hispanic borrowers than to white borrowers. The Office of the Comptroller of the Currency (OCC), a small agency within the U.S. Treasury Department, went to court to stop the New York Attorney General’s investigation. OCC’s suit was joined by an association of national banks.

Justice Scalia, writing for the Court, correctly rejected the federal agency’s attempt “to do what Congress declined to do: exempt national banks from all state banking laws, or at least state enforcement of those laws.” The Supreme Court’s ruling restores the collaborative federal-state regulatory scheme that Congress designed to address the persistence of lending discrimination, which has contributed to the recent surge in foreclosures nationwide.

“As today’s ruling confirms, effective financial reform legislation must ensure that both state and federal regulators can take decisive action against lending discrimination wherever and whenever it occurs,” Mr. Payton stated.

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Post from: EveryJoe

Supreme Court Rules on Predatory Lending

“This is a cornerstone win for us in the public health market. We are honored to continue to serve the CDC in support of its critical missions. It is a testament to our strong delivery team and capability to provide high value IT solutions tailored for the federal healthcare market,” said Lee Carrick, President of Perot Systems’ Government Services Business Unit.

Does this mean I’m not the only one following swine flu stats like sports?

‘Federal healthcare market’: remind me – which side of the debate was Ross Perot on?

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Post from: EveryJoe

Swine Flu is Good For IT Business

“Combating offshore tax evasion by wealthy taxpayers continues to be one of the IRS’ top priorities,” said IRS Commissioner Doug Shulman. “The IRS is committed to vigorously pursuing those who illegally hide their money offshore as well as the financial institutions which help them.”

According to court documents and statements made during the court hearing, Rubinstein maintained a UBS bank account in the name of Hybridge International Ltd., a nominee British Virgin Island corporation. From 2001 through 2008, Rubinstein communicated with bankers at UBS via email, telephone and in person about the purchase and sale of securities worth more than 4.5 million Swiss Francs, the conversion of investments from U.S. dollars to British Pounds, the deposit and transfer of funds into and out of the UBS Swiss accounts, and the repatriation of approximately $7 million into the United States to purchase property and build his personal residence in Boca Raton. Additionally, Rubinstein deposited and sold more than $2 million in South African Krugerrands through his UBS accounts.

Tax free.

According to court records, on or about April 15, 2005, Rubinstein, who works for an international company that assists clients to build, buy and sell yachts, filed a tax return for 2004 that failed to report that he had an interest in, or signature authority over, a financial account at UBS in Switzerland. Additionally, Rubinstein failed to report the income he earned on any UBS Swiss bank accounts.

Additionally, Rubinstein acknowledged that he was required to file Reports of Foreign Bank and Financial Accounts (FBARs) disclosing his UBS bank account for years 2001 through 2007. FBARs must be filed with the U.S. Treasury on or before June 30 of the succeeding year. However, he admitted that he intentionally failed to file FBARs each year. As part of his plea agreement, Rubinstein agreed to pay a fifty percent penalty for the year with the highest balance in the account as of June 30 in order to resolve his civil liability for failing to file FBARs for tax years 2001 through 2007.

“As the FBAR filing deadline of June 30 rapidly approaches, taxpayers should be aware of the serious consequences of failing to report offshore income and foreign bank accounts,” said Acting Assistant Attorney General John A. DiCicco. “Taxpayers who hide income offshore and fail to comply with the FBAR filing deadline face criminal prosecution, jail time, and steep fines.”

Got offshore accounts? They will find you!

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Post from: EveryJoe

Accountant Forgets to Report Swiss Accounts

“Disney Institute and Learning Tree are great complements to one another, and these new programs will deliver innovative Disney content into these exceptional education centers,” said Jeff James, vice president for Disney Institute. “Both organizations share a commitment to providing outstanding service, which ensures that the learning experience will be as powerful as the program content.”

Disney Institute curricula cover business practices that have transformed Disney into a global benchmark and one of the world’s most admired brands. Programs offered at Learning Tree Education Centers will include in-depth studies of the Disney approach to:

• Leadership Excellence
• People Management
• Quality Service
• Brand Loyalty
• Inspiring Creativity

Nick Schacht, CEO and President of Learning Tree International, said,

“Disney Institute brings an entirely new kind of professional development experience to Learning Tree customers. Participants in Disney Institute courses will learn business practices that have been proven through decades of successful application at Disney. Furthermore, they can begin using these same practices immediately in their own organizations. This real-life approach is a wonderful addition to our portfolio of hands-on training courses and another example of the innovative content that Learning Tree provides worldwide.

Disney Institute was created to showcase “the business behind the magic” – proven Disney business practices that easily adapt to other organizations. One of the most recognized names in professional development, Disney Institute travels the world offering engaging seminars, workshops and presentations and fully customized programming. Immersive learning experiences are also offered at Disney Destinations in the Americas, Europe and Asia, enabling participants to go behind the scenes and see firsthand how business theory drives operational excellence.

The Disney Institute client roster includes more than half of the Fortune 500 companies and a wide range of small businesses, non-profits and government agencies. To learn more about Disney Institute, visit www.disneyinstitute.com or call (321) 939-4600.

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Post from: EveryJoe

Learn To Do Business Like Mickey Mouse

Bill Garber, Director, Government and External Relations responded:

“We take offense with the notion that an appraisal is only good if it happens to come in at the sales price. That mentality helped cause the mortgage meltdown to begin with. The fact that the value reflected in the appraisal does not match the sales price is not the fault of the appraisal but a result of the market today.

“It should be pointed out that neither the buyer, the seller, the Realtor nor the builder is the client of an appraiser in a typical real estate transaction. In transactions where buyers are seeking loans, our clients are the lenders. Appraisers provide lenders with objective information and value opinions that help protect them from making questionable loans and investments and help them minimize risk. However, that should not suggest a bias toward lower valuation. Appraisers reflect the market, and sometimes, the markets don’t act like we want them to or hope they will. Nonetheless, competent and professional appraisers understand this and develop credible estimates of value that ultimately help ensure that lenders loan the proper amount, buyers don’t pay too much and sellers get a fair price.

“In these complex markets, it is particularly important that lenders use only the highest caliber of appraisers. Members of the Appraisal Institute holding the MAI, SPRA or SRA designation have met extensive experience and education requirements and must comply with a strict Code of Professional Ethics and Standards of Professional Appraisal Practice.”

The Appraisal Institute is a global membership association of professional real estate appraisers, with over 25,000 members and 91 chapters throughout the world.

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Post from: EveryJoe

Appraisers vs Realtors – Smackdown

The initiative is being coordinated locally with HandsOn New Orleans and will provide assistance at four locations in the city, each relating to one of the four core pillars of PwC’s Corporate Responsibility commitment: Marketplace, People, Communities and Environment.

Students participating in the program were randomly selected through a nationwide campaign that PwC conducted using Facebook and on-campus events at colleges and universities across the country.

“PwC recognizes that college students today are actively looking for an employer whose brand and reputation is synonymous with being a responsible corporate citizen,” said Shannon Schuyler, Managing Director for Corporate Responsibility at PricewaterhouseCoopers. “Being a leader is about taking deliberate actions that help to build a sustainable future for our communities, which is why we are committed to a long-term investment in community service efforts in New Orleans that started immediately after Katrina.”

PwC also tripled the time dedicated to firm-sponsored community service programs for all 31,000 partners and staff by creating a “Summer of Community Service.” This community service program spans the months of May through July. Previously, the program occurred during June and was called the Month of Community Service. Additionally, the firm will continue to provide 10 hours of paid time off for staff to donate their time and skills toward personal causes in the community.

“Today, students are looking at a company’s investments in community outreach and sustainability,” added Schuyler. “Our CR efforts allow us to give the full picture of the PwC experience — there are high expectations to deliver superior quality work products, but also to demonstrate responsible leadership by excelling in an inclusive work environment, giving back to our communities, and respecting the environment.”

As a former Big Six (I’m old) recruitee and proud alum, I am impressed that the accountants and consultants are embracing true leadership. They have to if they want to attract the top talent.

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Post from: EveryJoe

Big Four Firm Promotes True Leadership

Ten signs that the the real market has hit bottom:

1. A spike in local sales activity – a spike refers to a significant rise in the number of home sales (or values) in a local market area, which generally is measured month to month. A spike does not necessarily mean continued growth, i.e. it could be a one month phenomenon.
2. Higher asking and selling prices vs. appraisal value opinions for residential properties - appraisers study the markets; they do not make the markets. When the data shows higher sale prices in comparable properties market value opinions will increase proportionally. Appraisers seek evidence of value but do not create the value. In time periods with low activity, evidence of any kind is difficult to find.
3. More activity at open houses - 5 to 8 people is considered average, so a dozen or more people attending an open house means buyer interest is picking up. Also, the mood of the attendees is important. Are they optimist and upbeat? Buyers interest alone does not always translate to effective purchasing power. If the number of buyers in the market increases but they do not have requisite down payments, the sales may still not occur.
4. Shorter marketing times - in some markets, houses have been up for sale for more than a year. In most balanced residential markets, properties that are priced competitively will typically sell in less than six months. If the Days On Market (DOM) is shortening, many practitioners will read an improvement in the market.
5. Reduced number of foreclosures and short sales - a reduction in these transactions commonly signals a more balanced market. If lenders are reluctant to foreclose because of an oversupply of inventory, they may choose to wait to repossess the properties, which could allow a spike in the number of foreclosures later despite a better market condition.
6. Stabilized employment - stable or increasing employment rates provide the necessary confidence for potential buyers to invest in a home. Since most buyers rely on borrowed funds to make real estate purchases and borrowing money usually requires a source of repayment and that usually means jobs, an increase in this basic need, will enable more real estate sales.
7. Fewer buyer incentives and seller concessions - seller paid incentives or concessions are a sign of seller motivation. If there are fewer builders offering “free” upgrades and fewer sellers sweetening the deal with big screen TVs, it may be a sign of lessening supply and therefore a better market.
8. New construction starts - most builders are quite attune to their markets and will not build new homes without a corresponding contract for sale or a perceived increase in demand. An increase in the number of building permits usually indicates higher demand and higher prices. If residential properties are selling for 25% less than they cost to build, only a few new homes will be built. It would be prudent to buy an existing home rather than build a new one for a much higher price.
9. “Move-up” buyers entering the market - more buyers willing to move to a larger or superior quality home indicates a healthy market. The lack of buyers at the lower end of the price range will have a chain reaction throughout the market. If a buyer for a high priced home has a lower priced home to sell first, the sale of the higher priced home may have to occur before the higher priced one can sell.
10. Apartments advertising renter specials - fewer renters in the market may indicate more people are moving into owner occupied homes or it could indicate a reduction in population. Lower population will cause an oversupply of housing which will oftentimes permeate throughout several markets.

For more information regarding the Appraisal Institute, check out their website here: www.appraisalinstitute.org.

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Post from: EveryJoe

Top 10 Signs Real Estate Has Hit Bottom