Tag: fraud

Criminal LawEducationExpert Witness

Celebrity, Ivy League, College Cheating Scandal: Education Expert Witness Insights

When the news hands you a juicy story about wealthy celebrities, elite universities, college admissions, cheating, corruption, federal crimes, racketeering and conspiracy, it is really difficult to choose a title for the article.

If you are at all like me, when the news broke yesterday about wealthy celebrities bribing college officials to help get their children into elite schools, you were probably immediately angry with your parents for not doing the same! I kid. Sometimes, you just have to make light of these situations.

If you’re not up-to-date on “Operation Varsity Blues,” there is some good coverage here.

More likely, you were angry to read that one of the alleged criminals paid to have someone take an SAT for their daughter, scoring approximately 400 points higher than the child could score on their own merit.

Then you probably scrolled through the indictment to see another wealthy family is accused of bribing a crew coach (spending approximately $500,000 in bribes), to help their child be admitted as an athlete, when the child had no history of rowing competitively.

Those of us who have had to work hard to achieve our educational credentials, as a result of learning disabilities, were further angered by parents helping their children to fake disabilities to get more time on a test. This author struggled with school his whole life because of undiagnosed learning disabilities that were discovered only as an adult. I survived. I worked harder to excel. Needless to say, trying to cheat the system and fake a disability really bothered me because accommodations are meant to level the playing field, not give someone unnecessary an edge.

Most of us are aware students receive special benefits if parents or family members have previously gone to the university. We also know that the donating of a building or program often provides family members with special influence. We know this and we sort of accept it as part of society. Successful people work to help their families achieve success. Most of us have accepted this idea. However, when those efforts break the law, corrupt the education system, and displace truly qualified students, we cannot accept it and we should not accept it.

As a result of yesterday’s news, I reached out to one of our members’ to get some early insights on this matter. It is important to remember this story is still developing and what we learned yesterday, may change tomorrow or the next day.

Education Management Expert Witness Dr. Edward Dragan:

Dr. Edward Dragan, has over 40 years experience in education. He has been a special-education teacher, served as a public school principal and a superintendent, founded an alternative school with a group of disenchanted parents and students, and much more. After consulting with an attorney and testifying in court as an expert witness, Dr. Dragan decided he would best be able to help schools, children, and families by developing a practice where he could use his experience to review cases involving schools, education, and the supervision of children and provide expert opinions. Further, he has obtained a law degree with a specialty in education law and has consultation to plaintiff and defendant attorneys around the country and Canada more than 800 times on cases involving wrongful death, sexual harassment, negligent supervision, Title IX, and Section 1983 matters. Dr. Dragan has testified around the country over 125 times. You can learn more about his practice here: http://education-expert.com.

Below, you’ll find my questions and Dr. Dragan’s responses, related to the college cheating scandal.

Nick: It seems some of the allegations in the college racketeering conspiracy involve bribing entrance exam administrators. Are there procedures for qualifying entrance exam administrators?

Dr. Dragan: There are no procedures for qualifying entrance exam administrators that would guard against the bribery charges. Unfortunately, even if there were procedures or license for such administrators this type of scam can still occur. When parents, especially privileged parents, want something for their child they usually find a way – and it can involve paying a gatekeeper to a college. It takes two dishonest individuals to engage in this conspiracy and, unfortunately, the honest parents and kids lose out.

Nick: Many of us have long heard the stories of someone posing as a student for the entrance exams. I always took it as “lore.” What policies and procedures are in place to prevent test-taking fraud?

Dr. Dragan: Test-taking fraud is controlled on site by monitoring identification including pictures on license, school identification, passports, etc. Even this method can be circumvented. But careful screening can help deter fraud. Off-site or computer initiated test taking presents unique problems.

Nick: Admittedly, it is early in the publicly available information, but what policy and procedure changes would you suggest to limit test-taking fraud in the future?

Dr. Dragan: I am not an expert in electronic fraud but I imagine that for those off-site test-taking experiences software design might be helpful.

Nick: Do you expect universities to take action against coaches and other school officials who allegedly accepted bribes?

Dr. Dragan: Yes, I do expect universities to take action against coaches and other school officials who are convicted of taking bribes. They should immediately be placed on leave – no work at the university – pending investigation. If there are criminal charges made and they are convicted they should be fired. Of course, employment contracts and other elements will need to be taken into account.

Nick: Is there anything else you wish to add. Comments, concerns, or otherwise…

Dr. Dragan: The education system, and the honest pursuit of education, is a privilege enjoyed by those who are eligible to “get into” the club. When parents circumvent honest endeavors of their children they are teaching their children, by example, how to be cheaters and how to lie to get what they want. This is shameful – and especially for those who fit high-profile status.


 

It should be noted that USC has already taken action against at least one coach and one school administrator for their alleged wrongful conduct. They fired two employees yesterday, according to the LA Times, while Dr. Dragan and I were communicating about this article. As the story develops, Dr. Dragan and I may return with a Part 2 on this topic!

 

Business ValuationExpert WitnessLitigationSecurities

SEC Charges Theranos CEO with Massive Fraud – Securities Expert Witnesses

Once considered “The Next Steve Jobs” or the “female Steve Jobs,” Elizabeth Holmes has fallen from grace and landed directly in the cross-hairs of the Securities and Exchange Commission (SEC). Today, the SEC filed a civil complaint against Elizabeth Holmes and her company Theranos, Inc. There was a separate action filed against the Chief Operating Officer, Ramesh “Sunny” Balwani.

The complaint alleges, in part:

“Holmes, Balwani, and Theranos raised more than $700 million from late 2013 to 2015 while deceiving investors by making it appear as if Theranos had successfully developed a commercially-ready portable blood analyzer that could perform a full range of laboratory tests from a small sample of blood. They deceived investors by, among other things, making false and misleading statements to the media, hosting misleading technology demonstrations, and overstating the extent of Theranos’ relationships with commercial partners and government entities, to whom they had also made misrepresentations.”

Oh the good old torts of negligent and intentional fraud and misrepresentation. Takes me right back to the first year of law school, when Nickelback was a hot new band, rather than the sad punchline of Internet memes. I digress.

The complaint goes on to allege that based on representations, investors believed Theranos had developed a proprietary medical device able to conduct comprehensive diagnostic tests from a small amount of blood taken from the patients’ finger. They also made representations that they would collect and transport these samples in order to complete the tests on their proprietary analyzer. All of this would be done more efficiently and economically than traditional blood testing labs.

According to the complaint, Theranos was only able to perform about 12 of the 200 tests they claimed they were capable of performing.

Let’s stop here and give a simple warning: If you are soliciting money from investors, make it very clear what you are able to achieve. Differentiate this from what you hope to achieve in the future. Do not mix the two. Otherwise you get into a bad area called misrepresentation, or in this case, securities fraud.

A wide variety of expert witnesses:

In complex civil litigation such as this, there is room for a wide variety of different experts. I can only imagine the SEC and Theranos are both using consulting experts at this time in preparation for a long drawn out litigation. The complaint has only been filed today, so expert disclosures are a way off. Here are a few types of expert witnesses or consulting experts I expect to see in this matter.

Corporate Governance:

Expert witnesses on corporate governance are highly likely to play a role in this case. Officers of a corporation are fiduciaries of the corporation. Holmes owed a duty of care to the company and to her investors. She is accused of misrepresentation which, if proven, would certainly violate the standard of care owed to shareholders and the company. I expect there will be significant dispute by the parties to prove she either did or did not violate her fiduciary duties.

Securities & Finance:

Several different types of experts who practice in the area of securities fraud may come into play. We are likely to see experienced Wall Street experts with a history in equity trading, proprietary trading, investment research, securities valuation, financial forecasting, venture capital and investment banking.

Some experts will probably have backgrounds in IPO’s, private equity financing, securities financing, and stock options financing.

In this area, I feel as though I can go on ad infinitum. That’s not true and it is probable one or two candidates will have the requisite expertise, described in this section, to address the finance and fraud related matters.

Economics:

Although the SEC is primarily suing for injunctive relief, they do mention the potential for civil monetary penalties. I would expect there will be some need for an economist (by both parties) to establish the value of Theranos and shares owned by Holmes and Balwani.

As I do not practice securities litigation and this is not a law review article, it is possible the civil penalties are predetermined by the Securities Act and there is no need to value the penalties other than by the trier of fact.

UPDATE:

Within hours of writing this blog post, I discovered that Elizabeth Holmes has settled with the SEC. According to Reuters, she will be stripped of her majority control of the company and will have to return millions of shares to Theranos. She will also pay a $500,000 fine and be barred from being an officer or director of a public company for 10 years. As of this update, Mr. Balwani has not settled with the SEC.

 

 

ConsultantsCredit DamageExpert WitnessLitigationTestimony

CREDIT DAMAGE EXPERT WITNESSES – COMPENSABLE DAMAGES

It used to be that credit damage was not a compensable injury.  The victims of identity theft or fraud could not recover financially for any damage that was not a tangible good or service.  Thanks to the relatively new procedure of Credit Damage Measurement (CDM) and the expertise of many Credit Damage Experts, getting compensated for intangible losses is now possible.

In an article titled, “Credit Damage: Getting Compensated for Your Loss,” Credit Damage Expert, Georg Finder writes that, “ The impact of a bad credit rating is much more significant than most people think. Consider what poorly rated consumers face when they want to lease or buy vehicles, obtain credit cards, buy or lease or refinance their residence. In most cases, it’s an easy decision for the creditor: the credit application is simply turned down or the borrower is charged a much higher down payment – maybe thousands of dollars more with monthly payments that are typically several hundred dollars more.”

Tom Key, a civil litigator practicing in Tustin, CA is also mentioned in Finder’s article.  He explains that the CDM can help by measuring the actual out-of-pocket dollars reasonably expected from loss of creditworthiness, which includes higher down payments, higher points and costs on loans, higher interest rates, higher monthly payments, or outright denial of credit.  In addition, Keys says that the CDM method also calculates the rates, costs and other terms applicable to the resulting credit rating by lenders and projects the results over the relevant number of years for the types of loans the client is likely to seek.

For those who have suffered from identity theft or fraud that has left them with little or no credit, all is not lost.  With the help of a good Credit Damage Expert, civil litigator and the CDM procedure, recovery is not only possible, but likely.

Read Experts.com Member, Georg Finder’s, complete article.

AccountingBusiness ValuationExpert WitnessForensic AccountingFraud

FORENSIC ACCOUNTING EXPERT WITNESSES & CONSULTANTS

In the fall-out from the past few years’ financial debacle, there has been no shortage of work for Forensic Accountants.  From the Bernie Madoff scheme to Lehman Brothers and all the financial scams in between, Forensic Accountants have been called upon to apply the concept of accounting to help lawyers adjudicate and resolve the resulting legal problems.

Image Courtesy of Trade & Global Market

The Accountant’s Handbook of Fraud & Commercial Crime offers a definition which has been informally accepted by many Forensic Accounting Experts.  The definition is as follows:

“Forensic and investigative accounting is the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence. As a discipline, it encompasses financial expertise, fraud knowledge, and a strong knowledge and understanding of business reality and the working of the legal system. Its development has been primarily achieved through on-the-job training, as well as experience with investigating officers and legal counsel.”

Forensic Accountants apply their knowledge to many different financial transactions such as

  • Bank Fraud & Embezzlement
  • Bank Operations & Practices
  • Check Kiting
  • Electronic Transactions
  • Embezzlement
  • Money Laundering
  • Payment Processing & Fraud Detection/Prevention
  • Royalty Audits
  • Claims Analysis
  • Determination of Compliance

A Forensic Accountant’s area of expertise is not limited to financial crimes and fraud. They apply their knowledge to civil matters as well. Their services are useful for breach of contract, business valuations and marital / family law.

Considering the amount of financial litigation out there today, whether it be civil or criminal, the Forensic Accountant’s docket is most likely as full as the courts in which they testify.