Tag Archives: fraud

Analysis, Canada

Government of Canada Launches Federal Contracting Fraud “Tip Line”

On April 20, 2017, the Government of Canada introduced a new tool in the fight against federal fraud.[1] The federal contracting fraud tip line is a joint initiative between the Competition Bureau, Public Services and Procurement Canada (PSPC) and the Royal Canadian Mounted Police (RCMP).  It allows anyone who suspects unethical business practices in federal contracting, such as bid-rigging, price-fixing, bribery, undisclosed conflict of interest and fraudulent contract schemes, to report it anonymously. Individuals may report either by calling in to a toll-free number or by completing an online form.[2] The information provided through the tip line will be shared with three federal organizations and will be used to help conduct investigations and to introduce due diligence measures, where warranted. Any suspected criminal activity that is uncovered as a result will be turned over to the Competition Bureau and/or the RCMP.

The tip line complements measures already in place at the Competition Bureau to detect fraud in the realm of federal contracting. The immunity and leniency programs are currently the most relied upon by the Competition Bureau to detect and investigate criminal offences under the Competition Act. Under these programs, individuals with evidence of criminal offenses under the Competition Act are given immunity or lenient treatment if they cooperate with the Competition Bureau and Crown in investigating and prosecuting others implicated in the illegal activity.  However, the Competition Bureau has still encountered challenges over the years in securing convictions with the evidence obtained through these programs. The primary reason being insufficient resources and the lack of experience and training of Competition Bureau investigators.

This was evident in the 2014-2015 trial of several information technology companies and individuals charged with conspiracy and working together to obtain contracts with the federal government. The trial arose from charges laid following an investigation at the Competition Bureau and ultimately led to a defeat for the Competition Bureau, due to the weaknesses in the Crown’s case. At trial, it was shown that the Competition Bureau had relied almost exclusively on the testimony of self-interested people who were competing against the accused when making its referral of the case to the Director of Public Prosecutions. The Competition Bureau investigators had essentially taken the immunity and leniency reports of these individuals without independent investigation. The evidence at trial disclosed that the Bureau investigators in charge of the case, while seizing hundreds of thousands of documents from the suspect companies, failed to seek any significant material from the government agencies involved. The resulting, 8-month jury trial resulted in 60 not-guilty verdicts.

It will be interesting to see if the Competition Bureau, with its new Tip Line has learned from such cases and how it investigates future potential criminal offences under the Competition Act. By collaborating with RCMP officials, this hopefully marks the beginning of additional measures being implemented by the Competition Bureau to ensure that allegations of illegal conduct are investigated thoroughly and that only appropriate action is taken. It is not clear whether the Competition Bureau, PSPC or the RCMP will take the lead in investigations arising from tip line complaints. The addition of a combined task force, signals that the Competition Bureau is getting serious in its efforts to  detect and investigate Anti-corruption crimes.

[1]       “Government of Canada launches tip line to help Canadians report federal contracting fraud”

[2]       “Report wrongdoing in government contracts and real property agreements”

Analysis, Capital Markets Fraud & Insider Trading, United States

Inside Baseball: Former Baseball Star Convicted of Insider Trading

The phrase “inside baseball” took on new meaning for a former baseball star, Doug DeCines, who was recently convicted on insider trading and securities fraud charges.  Inside baseball is a term that usually refers to a detail-oriented approach to any subject, which requires a specific knowledge about what is being discussed, with nuances that are not easily understood by outsiders.  This term became reality for DeCinces when he was convicted on Friday, May 12, 2017 of illegal insider trading for a stock buy that earned him more than $1 million.

DeCines was no stranger to white collar crime allegations. On August 4, 2011, DeCinces, along with three others, was charged with securities fraud by the Securities and Exchange Commission (SEC).  The SEC alleged that DeCinces and his associates made more than $1.7 million in illegal profits when Abbott Park, Illinois-based Abbott Laboratories Inc. announced its plan to purchase Advanced Medical Optics Inc. through a tender offer. Without admitting or denying the allegations, DeCinces agreed to pay $2.5 million to settle the SEC’s charges.

Then in November 2012, DeCinces received a criminal indictment on insider trading in a related matter and was charged with securities fraud and money laundering.  Evidence at trial was that DeCinces was tipped off in 2009 that a Santa Ana-based medical device firm, Advanced Medical Optics, was going to be sold. The information came from the company CEO, James Mazzo, who was DeCinces’ neighbor in Laguna Beach, California, prosecutors argued. DeCinces bought more than 90,000 shares in the company days before Abbott Laboratories bought the firm, and he sold the shares for a profit of about $1.3 million, prosecutors said.[1]  On May 12, 2017, after a nearly two-month trial, a federal court jury in Santa Ana, California found him guilty on 13 charges.[2]

DeCinces, who is now 66 years old, will remain free on bail until sentenced. A hearing date was not immediately set for sentencing.  At the time of the merger, Advanced Medical Optics had seen its stock price plunge from more than $30 to under $10 in the wake of the 2008 Wall Street crash. It more than doubled after the merger was announced.

Canadian insider trading laws have not been as aggressively enforced as those in the U.S. The epic failure of the Ontario Securities Commission to secure a conviction in the prosecution of John Felderhof arising from the Bre-X Minerals scandals has now gained notoriety in the Hollywood movie Gold.[3]  There has only been one prosecution for insider trading under the Criminal Code, resulting in a guilty plea and a 39 month jail term for Stanko Grmovsek.[4]  Canada’s team, the Toronto Blue Jays major league baseball franchise, have been largely scandal free and is celebrating their 40th season in Toronto.

[1] http://www.nydailynews.com/newswires/sports/ex-baseball-star-doug-decinces-guilty-insider-trading-article-1.3160385

[2] Hannah Fry, Former Angels player Doug DeCinces found guilty of insider trading, Los Angeles Times (May 12, 2017). Retrieved on May 13, 2017.

[3] https://en.wikipedia.org/wiki/Gold_(2016_film)

[4] See, Insider Trading in Canada, 2nd Edition, 2017, Lexis Nexis, N. Keith, pp. 88-94

Analysis, Tax Fraud & Evasion, United States

U.S. Appeals Court Upholds 180 Month Prison Term for Tax Fraud

In a case that demonstrates the remarkable contrast between the American and Canadian enforcement of tax rules, the United States Court of Appeals, for the Second Circuit, recently upheld a conviction in a sentence of 180 months imprisonment for seven counts of tax fraud and evasion. The severity of the penalty assessed against Paul M. Daugerdas (“Daugerdas”), can only be matched by the huebris of the defendant himself. The case is a cautionary tale for Canadian tax planners in an age of growing tax evasion and fraud enforcement.

Daugerdas was a certified public accountant and tax attorney, first at Arthur Anderson, then at two law firms. Throughout his career, Daugerdas developed, sold, and implemented a variety of tax reduction strategies for wealthy clients. His specialty was the so-called “short sale shelter, short option shelter, swaps shelter, and the HOMER shelter”.[1] Deugerdas’ tax planning and shelters covered a period from 1994 through to 2004.  In August of 2000, the Internal Revenue Service announced that transactions like those being offered by Dougerdas no longer provide the favourable tax treatment that he offered to his clients.  In response, Deugerdas and his colleagues developed similar transactions with different elements and strategies.

Deugerdas’ huebris was exposed in the appeal decisions when the evidence reveled that part of his tax planning strategy involved intentional back-dating documents to attempt to gain tax advantages for his clients.  Also, had his law firms issue “more-likely-than-not” opinion letters falsely stating that the tax shelters had a reasonable possibility of producing a profit, but it was clear that they would not. The letters were held to be entirely dishonest.

Continue reading »

Analysis

Weinberg fraud convictions and sentences highlight consequences of corporate wrongdoing

While complex financial crimes can be difficult to investigate and prove, the Cinar and Livent cases serve to highlight the substantial risks of engaging in financial wrongdoing, not just for corporate executives who may be directly implicated, but also for those who assist in the wrongful activities.

The recent conviction and sentence imposed following the two year long criminal jury trial of Ronald Weinberg (“Weinberg”), co-founder of Cinar Corp. (“Cinar”), highlights the severe consequences facing those who carry out or assist in financial fraud and other white collar crimes.  The Globe & Mail called Weinberg’s guilty verdict a “vindication for a Canadian justice system that has often been criticized for weak enforcement and a poor record for criminal convictions in the area of white collar crime”.

Continue reading »