Who’s Cheating America: The Overzealous Recyclers

We take care of the elderly in America! These are our beloved grandparents and great-grandparents. We want them to be healthy. We make sure they’re getting their medications. And they often need it! Thanks to miracles of modern science, different medications keep those brains sharp and those hearts beating.

If you’ve ever been to a nursing home, you know what the cupboards look like. Prescription bottle after prescription bottle, all sitting there, waiting to be used.

And what if prescriptions change or the resident passes away? What happens to those unused pills? They can’t just be thrown out, can they? Don’t they seep into the water supply? Of course they do. They need to be disposed of properly!

You can probably guess where I’m headed with this. The recycling never happened! Or it did and someone got stuck with the bill who wasn’t supposed to. Grieving relatives? Underresourced nursing homes?

Oh no. That would be a story in and of itself. But that’s not this story.

This story is so much worseContinue reading

Who’s Cheating America: The Opera Lover

It’s a great American success story. A Cuban immigrant flees Castro, makes a friend in the U.S., and the two of them promptly invest in some little-known tech companies that make them indescribably rich. AOL? Yep. Ebay? Yep. Microsoft in 1979? Yep. Not a bad track record!

What do they do with the money?

Vilar donated $50 million to the Kennedy Center in Washington, $45 million to the Metropolitan Opera in New York, $25 million to Covent Garden in England, $20 million to Valery Gergiev’s Kirov Orchestra in Russia, $10 million to Placido Domingo’s Los Angeles Opera and millions in donations to smaller ventures.

Oh, boy!

So what’s the problem? Isn’t making money via stocks an honest way to make a living? And giving it to charity – nothing wrong with that, right?

Well, the problem comes when you start opening up your shop as an investment adviser. Investing other people’s money. And…if you’re not exactly honest about how you’re going to invest it:

[According to the SEC,] Vilar and Tanaka, as well as other Amerindo employees, solicited clients to invest funds in GFRDAs [Guaranteed Fixed Rate Deposit Accounts], a product in which Amerindo guaranteed that investors would earn a fixed rate of return per year on their investment, and would receive their principal at maturity. Amerindo represented to investors that it would invest the majority of their funds in short-term debt instruments and invest the remaining portion of their funds in equities. After individuals and entities invested funds in the GFRDAs, however, Vilar, Tanaka and Amerindo failed to invest the funds in accordance with the representations to investors.

Really? So what did they invest in?

Rather, Vilar and Tanaka largely invested in equity securities, such as emerging technology and biotechnology stocks.

Uh-oh. We know what happened. The tech stocks in the early 2000s did not perform as well as Microsoft in 1979…

But even so – can we really blame these guys? Are they worthy of our Cheating America series? After all, they just tried to help others succeed in the way they succeeded. They got rich off tech stocks, so they thought they could help others get rich the same way. The market è mobile!


Moreover, especially during the post-2000 bear market, these equity investments did not perform well and Amerindo was often unable to pay GFRDA investors their promised returns, or to return investors’ principal at maturity. Consequently, when investors sought to redeem their GFRDAs, Amerindo generally either refused to honor redemption requests, or redeemed the GFRDAs with other investors’ funds taken from unrelated brokerage accounts in, for example, the name of AMI, ATGF and/or ATGF II.

Starting to sound like a Ponzi scheme…

And then this:

Additionally, the amended complaint alleges that Vilar, Tanaka and Amerindo defrauded investors who invested in two offshore hedge funds, ATGF and ATGF II. According to offering circulars, ATGF and ATGF II planned to invest in emerging growth companies. Rather than using investor funds solely to invest in such companies’ securities, however, Tanaka directed ATGF and ATGF II to transfer investor funds from the funds’ brokerage accounts to other accounts for Vilar’s and Tanaka’s own business and personal benefit.

D’oh! That’s no good, Amerindo! That’s cheating America! You funneled Grandma’s retirement money to help keep the lights on at the opera house. And we weep the tears of a clown…

Previous entries in our Who’s Cheating America? series:

Who’s Cheating America: Unclean Hands Edition

Okay, so you run a company called Advanced Sterilization Products. Given that name, what’s the minimum you need to do? You need to have products, obviously, and they must relate to sterilization. Anything else? Well, they should be advanced. Now of course, that’s a somewhat subjective term, so there’s probably some room for disagreement between you and those bureaucrats at the FDA. What’s advanced? What’s not advanced? You don’t want to be misleading, and one might expect some dispute over the term.

The U.S. Food and Drug Administration has reached a $1.25 million settlement of a civil money penalty action against Advanced Sterilization Products (ASP) and two of ASP’s executives alleging that ASP manufactured and distributed…misbranded sterilization monitoring products.

A million bucks for arguing over the word “advanced”? But that’s a qualitative term! Who knows what’s “advanced”? Reasonable people can differ!

Argh, those bureaucrats, wasting everyone’s time with semantic games, dragging a good company through the mud… Wait, what?

We’re not arguing about “advanced”?

This is about sterilization???

Let’s fill in the blanks:

The U.S. Food and Drug Administration has reached a $1.25 million settlement of a civil money penalty action against Advanced Sterilization Products (ASP)… and two of ASP’s executives alleging that ASP manufactured and distributed adulterated and misbranded sterilization monitoring products.

Adulterated and misbranded? That’s a different story.

This action was taken after the FDA learned that the company knew that it did not have sufficient data to support the shelf life stated on the label of its Sterrad Cyclesure 24 Biological Indicators, but continued to ship the product to customers with inaccurate expiration dates. Sterrad Cyclesure 24 Biological Indicators are used to monitor and confirm the effectiveness of the sterilization process in ASP’s Sterrad sterilizers.

Sheesh. How can you run a company called Advanced Sterilization Products and put something on the shelf that cannot guarantee sterilization? Who’s running the place – this guy?

Martins: Have you ever seen any of your victims?

Harry Lime: You know, I never feel comfortable on these sort of things. Victims? Don’t be melodramatic. Look down there. Tell me. Would you really feel any pity if one of those dots stopped moving forever? If I offered you twenty thousand pounds for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare? Free of income tax, old man. Free of income tax – the only way you can save money nowadays.

Sometimes it’s hard to figure out your company’s mission. And sometimes it’s right there in your freaking name. Follow your name, Advanced Sterilization Products! And stop cheating America!

Previous in our Who’s Cheating America? series:

Who’s Cheating America? The Smoke-Filled Room

Cheaters – they’re everywhere! Politicians promise us up and down they’re going to put an end to cheating. Work Hard and Play By the Rules, Americans! Isn’t that the motto? Do that and you’ll be fine.

Except… when the politicians are themselves the cheaters. And the story of their cheating has a twist you could not make up. Ladies and Gentlemen, meet the McDonnells:

“I deeply regret accepting legal gifts and loans from Mr. Williams, all of which have been repaid with interest, and I have apologized for my poor judgment, for which I take full responsibility,” [former Virginia Governor Robert] McDonnell said in a statement in the Washington Post.

Wait, “legal gifts and loans”? What’s wrong with that?

“However, I repeat emphatically that I did nothing illegal for Mr. Williams in exchange for what I believed was his personal generosity and friendship. I never promised — and Mr. Williams and his company never received — any government benefit of any kind from me or my administration,” McDonnell said.

Personal generosity and friendship? Who was cheated here? Maybe this former governor was himself the cheatee! He supplied some friendship to his fellow man… a little warmth, a little bonhomie… and in return he gets hit with the wrong end of the scandal stick. What did he take in return?

According to the indictment, the McDonnells met Williams — identified in the document as JW — in 2009, when McDonnell allegedly began using Williams’ private jet during his gubernatorial campaign.

A private jet? Well, maybe he was just headed out to see constituents…

At the time, Robert owned a 50 percent stake in MoBo Real Estate Partners, owners of vacation rental homes in Virginia Beach, Va., which weren’t earning enough money to keep up with the mortgages, the indictment said.

Uh-oh. Sounds like someone had some incentive to cheat. But still! Traveling to visit constituents is justifiable!

After hearing about the McDonnells’ financial woes, Williams allegedly offered to buy Maureen an Oscar de la Renta dress for Robert’s inauguration, and gave the couple two loans — $50,000 to cover the Virginia Beach debts and another $15,000 for their daughter’s upcoming wedding, the indictment said.

Oh boy. A dress? A wedding? Personal loans? This is not sounding good.

Except… wait! This is all for family! That justifies it, right?

Virginia’s first couple and their family purportedly took vacations and luxury golf outings on Williams’ dime. … In 2012, Williams allegedly loaned the McDonnells another $50,000 to cover expenses at MoBo Properties, and in May that same year he loaned McDonnell another $20,000. Maureen also convinced Williams to purchase Robert a Rolex watch with the words ”71st Governor of Virginia” engraved on the back, which she gave him for Christmas in 2011, the indictment said.

Oh, geez. A watch? Luxury golf? Okay. But as far as quid pro quo goes, this isn’t the worst thing I’ve heard. No cash in the freezer. No strippers in Vegas. The quid isn’t so bad, really. Kind of cute. Almost harmless! Rolex makes nice watches! Golf is a healthy activity! Daughters have beautiful weddings?

What is the quo? [Grimaces and closes eyes.]

Former Virginia Governor Robert McDonnell and his wife, Maureen, were indicted Tuesday for illegally accepting more than $135,000 in donations, luxury gifts and vacation getaways in exchange for touting a donor’s tobacco-based health supplement.

A tobacco-based health supplement? What is this, The Onion?

At the same time, [Williams’s company] was allegedly seeking ways to legitimize two of its tobacco-based products — CigRx, a smoking cessation supplement, and Anatabloc, which claimed to reduce inflammation in the body.

Yes, that’s right. Health supplements. Made out of tobacco. Let’s get the research rolling on that! And then we’ll drink crude-oil milkshakes and wear workout gear made from bacon fat and smog.

The quid is run-of-the-mill. The quo gives the governor a spot in our Cheater Hall of Fame.

Previous in our Who’s Cheating America? series:

Who’s Cheating America? Gung Ho Edition!

Ah, remember the days when we Americans weren’t afraid of China? Back when our boogeyman was Japan? You know, the days when bumper stickers said “BE American, BUY American” and movies like this one ruled the screen?

Why were the Japanese so much better than us in the ’70s and ’80s? Because they cheated? Of course not! It was because they were exemplars of sound engineering and solid teamwork. It was because of the way their workers believed in their company and did everything they could to help it succeed. They didn’t have nasty unions and strikes. Their workers kept their heads down and did their work, except when they were politely pointing out possible improvements to the glorious process of making glorious cars. And they exercised in big groups every morning, and, um, they didn’t jack around sabotaging cars for kicks on Friday afternoons like American workers.

That’s what we were told. That’s what we believed. (Even if it wasn’t quite accurate.)

How times have changed:

Japanese auto parts maker Koito Manufacturing Co. Ltd. has agreed to pay $56.6 million and plead guilty to conspiring to fix the price of headlight fixtures and related products for more than a decade, the U.S. Department of Justice said Thursday.

Hmm. Headlight fixtures and related products? Come on. That’s just a tiny piece of the car. It’s not like this is some huge widespread problem, right?

The Tokyo-based company has also agreed to cooperate with the DOJ’s ongoing probe into the auto parts industry, which has already netted 23 other corporate guilty pleas and more than $1.8 billion in fines.

Okay, okay. That sounds pretty widespread. But… maybe this isn’t a Japanese problem. Maybe it’s the Americans who caused the trouble – and Koito was just dragged along. Right? They’re the only Japanese auto parts maker who make headlights, and all the Americans are cheating, so they were dragged into it…

Koito is not the first Japanese auto parts maker to admit to fixing lamp ballast prices either.

Really? More than one? Just fixing lamp ballast prices? Who were the others?

Stanley Electric Co. Ltd. admitted to taking part in the scheme for the same period of time and agreed to a $1.44 million fine in November.

Stanley Electric! Are they Japanese now? Maybe it’s the American heritage. No other Japanese companies, right? They exercise together in big groups! Why would they need to cheat?

Both companies are also facing a civil damages suit filed by a group of car dealerships in July.

The proposed class of auto dealers accused Stanley, Koito, Ichikoh Industries Ltd. and Mitsuba Corp. of scheming to drive up prices for automotive lamps by rigging bids for supply contracts with certain car manufacturers, including Toyota Motor Corp.

The dealerships said the four conspirators tinkered with the parts’ prices by pre-ordaining which of them would win and which would lose during what should have been competitive bidding wars for contracts with car makers.

Okay, okay. But that’s a private suit. Who says that’s accurate? Maybe this is just xenophobia rearing its ugly head again, as plaintiffs’ lawyers try to lump all Japanese companies together. It’s not fair to drag these companies into American courts, subject them to American regulations, and then expect them to face American justice, American-style. The cards are stacked, the dice are loaded, the… uh…

Two of the companies named in that suit, Koito and Ichikoh, had been hit four months earlier with fines totaling $49.1 million from Japan’s Fair Trade Commission for allegedly conspiring to rig the bids for automotive lights.

Okay. I give up. In trouble at home, in trouble abroad… take your medicine, Japanese fixers of lamp ballast prices! Pay your fines! And stop cheating America!

Previous in our Who’s Cheating America? series:

Who’s Cheating America? The Billionaire vs. The People

Okay, we had some fun with King NFL earlier this week. But what about its owners? Aren’t those the real fatcats? Well, I guess that all depends. If you’re talking about my beloved Green Bay Packers, then it’s time to sit down and be quiet. The town owns the team. You won’t find a better story in professional sports.

Let me repeat that. The town owns the team! Victory is ours!

But for everyone else: ugh. A billionaire. A few half-decent ones (the Rooneys in Pittsburgh come to mind) and an awful lot of unbelievable blowhards. And the worst of all just might be Washington’s very own Daniel Snyder.

Image Credit: Forbes.com

Here’s the thing about billionaires: they have a hard time living with rules. There’s a speed limit? Well, who cares about that? Give me a ticket? I can pay the fine. Give me another ticket? Have you seen my bank account? Take away my license? I can hire a driver! Impound my car? My helicopter works just fine! Or in the words of another American billionaire:

Lawyer: Your Honor, my client has instructed me to remind the court how rich and important he is, and that he is not like other men.
Mr. Burns: I should be able to run over as many kids as I want!

Daniel Snyder (Artist’s Rendering)

That’s the logic they follow. We might as well just let them drive fast. They will anyway! The rest of us citizens, for whom things like fines and insurance premiums and an inability to, you know, get to work matter… well, that’s who the speed limit’s for!

So in addition to running a great franchise like the Washington Professional Football Team into the ground (can’t argue with a complete lack of success), Snyder has made himself one of the Beltway’s worst citizens. But why stop there? Why not just break some federal rules as well:

It was a small concession in the grand scheme of things, the kind that the rich and powerful frequently wheedle out of government, especially back then, during the presidency of George W. Bush, when such favors were flowing like booze in a skybox. But its discovery set off a decade-long campaign of bureaucratic retribution over two administrations that nearly sent an innocent man to prison.

What was this small concession? To install a crony in high political office? Lobby for a tax cut? Nope.

The tale begins in 2000, when Snyder paid $10 million for a riverside estate in the Washington suburb of Potomac, a posh neighborhood in a posh community typified by the recently deceased gray-haired government worker whose property he had purchased—King Hussein of Jordan. … Among Washington’s ruling class, the bluffs flanking the Potomac River northwest of the city are the closest one gets to a penthouse on Central Park, but Snyder quickly encountered a problem: he couldn’t see any water from his waterfront property. The [national] park’s trees were in the way.

I get what I want I get what I want I get what I want I’m NOT GETTING SOMETHING I WANT.

Since the park was designated a national historic site in 1971, any alterations to the land, no matter how small, have had to first pass through an intensive period of paperwork, environmental impact statements, and waiting. For thirty years, no modifications were granted.

That’s right. No Superbowl Trophy for you, Mr. Billionaire. The park belongs to us! And we like trees more than we like your view! But don’t worry, your mansion will survive. And… wait, what?

Later that month, a complaint from one of Snyder’s neighbors about men with chain saws clear-cutting the scenic easement behind the team owner’s house made its way to the C&O Canal’s new chief ranger, Robert M. Danno.

Why? How?

Over the phone, [an official] told the investigators, [Snyder’s lackey] seemed agitated that nothing had been done yet, and suggested an exit strategy, which he later alleged had come from the Redskins’ attorney: most of the trees in question were nonnative; why not clear-cut them and call it an exotic-plant extermination program?

And then what? The feds just rolled over? One man didn’t!

Recently arrived in Washington, Danno was a distinguished NPS veteran, having spent a long career out west—fighting Rocky Mountain forest fires, pulling tourists from a mudslide, and rappelling down a sheer cliff in pitch darkness to rescue a group of scientists. When Yellowstone reintroduced wolves in 1995, Danno was there, literally carrying the first alpha female to the transport caravan. … With the earnestness of a Boy Scout (which he once was, of course), Danno immediately brought the clear-cutting complaint to the attention of his boss, Kevin Brandt, and as the park’s top law enforcement officer, he requested permission to investigate what had happened.

Okay. Whew! A boy scout is on the case! He ended the madness. Right?

It soon became apparent to Danno that his aggressiveness was not appreciated by his superiors. Fearful about losing his job, he kept quiet. Then, in March of 2005, Danno was told to hand over his gun and his badge and to empty out his desk. He was being reassigned to a desk job at the George Washington Memorial Parkway while the NPS pursued a number of disciplinary charges against him. Danno beat back the charges. … The independent review board recommended that Danno be restored to his old law enforcement post.

But Brandt brushed them off, and had Danno transferred once more—to a posting at Fort Hunt Park in suburban Virginia. A former chief ranger at Bryce Canyon National Park, a veteran of Grand Canyon and Yellowstone, Danno was relegated to a job processing picnic permits at a thirteen-acre municipal park in Virginia with four tables.

I should be able to run over as many kids as I want! And put as many decent Americans out of work as possible. They’re in my way! Chop them down like so many evil trees.

I weep for you, America. Two days in a row. Now let’s watch us some football, united in our hatred of cheaters everywhere!

Previously in Who’s Cheating America:

Who’s Cheating America? The Highly Profitable Nonprofit!

Ah yes, here we are, in the week of one of our great secular holidays. Maybe the great secular holiday in America. Except that the NFL is, perhaps, closer to a religion than we care to admit. Don’t we worship our teams? Aren’t these gods we scream for? Isn’t this sweaty, feverish feeling something akin to devotion? The agony and ecstasy?

Let’s set that aside and look at some cheaters. In particular, a nonprofit organization that is doing rather well for itself:

[The organization’s] most recent Form 990 filed with the IRS ended on March 31, 2012. They claimed revenue of $255 million, up from $240 million in 2011. So, if you were concerned, things are good. [The organization] has assets of over $822 million.

Does it pay taxes on that money? Well, of course not. As a charitable, nonprofit organization, there’s no need.

Which nonprofit would we like to see bring in all that revenue? UNICEF? American Cancer Society? The Red Cross?

How about… the NFL!!!

The NFL, if you didn’t realize it, exists as a 501 c 6 organization. It’s not for profit!

Aha, you say. This is a trick. The NFL is fairly run as a nonprofit organization. They’re basically a shell, a collection of thirty or so for-profit entities (the teams). All the NFL does is look out for their interests, conduct their joint marketing efforts, hire referees, put in place some rules… this is probably how all the professional sports leagues, do it. Right?

And if you’re wondering, neither Major League Baseball nor the National Basketball Association is registered as a charity, foundation or trade organization. They each gave up their tax-free status years ago.

Okay, okay. So they have a lot of money. They probably need to spend it on things – like healthcare and pensions for former players. Right?

[I]n 2012, NFL commissioner Roger Goodell was paid $29.5 million to run the organization.

Wait, what? How can Gooddell earn that much? Is that comparable to the heads of other nonprofit organizations? Well… not really.

So this guy, this fatcat, earns $29.5 million per year? And the organization who pays it to him doesn’t have to pay any taxes on its earnings? What can possibly justify this?

In order to have that status, the NFL must be run as a charitable foundation.

Maybe I spoke too soon! They’re probably giving it all away. Back to the kids, the kids in hospitals, the ones with leukemia, the many, many kids who idolize them. The selflessness of the NFL brings a tear to the eye…

Charitable Organization Head Roger Goodell (Image Credit: si.com)

In 2012, they gave away a meager $2.3 million.

That’s it? That would barely cover Gooddell’s parking space. What did they spend the two point three million on? (Please say the kids, please say the kids…)

Almost all of it–$2.1 million– went to the NFL Hall of Fame.

For running their own damn hall of fame? That’s it? No taxes because of one of their marketing tools… I do have a tear in my eye. I weep for America. The Greatest Cheated Country in the History of the World.

Previously in Who’s Cheating America:

Who’s Cheating America?: Murky Waters

image credit: tallahasseegrapevine.com

I try to avoid politics here on the blog as much as possible. (Except when I’m writing books about it.) But if there’s one viewpoint I expect all thoughtful Americans to share it’s the old 90s slogan: Work Hard And Play By The Rules.

We can all agree on this, surely! We want hardworking people who play by the rules to do well. We can disagree with what this means for governmental policy, but I don’t really think anyone can disagree with the idea that working hard and playing by the rules should be valued by our society. (If you prefer instead laziness and/or cheating, you’re in a different political universe.)

With that in mind, I’m introducing a new series. Who’s taking shortcuts? Who’s not playing by the rules? I’m not focusing on the big scandals, whether they be financial institutions or the well-covered trials and tribulations of the politicelebrity class.

Rather, I’m focusing on the little guys. The next-door neighbors who bend the rules, who cross the lines. The get-rich-quick schemers. The ones who aren’t working hard. The ones who aren’t playing by the rules.

America, who’s cheating?

Here’s a story about a man named Waters who lived in Massachusetts. He opened a rare coin business – oh, you know those kind of guys! Passionate about their hobbies. A little nerdy. You see them in the mall, standing behind their counter, and you think: well, god bless him, he’s probably been collecting coins since he was a kid. Now he ekes out a living at it.

And you also think:

That store will be closed in six months.

Right? Coin collecting? Why not just open a juice bar or a bookstore? Doomed, doomed, doomed. Well, this man also decided to open up a couple of other entities: a broker-dealership (i.e. seller of stocks) and an investment adviser (i.e. someone who handles other people’s money).

So far, so good. That shy little coin collector has a real job on the side. Nothing dishonest about that.

Except… maybe there was.

The U.S. Attorney for the District of Massachusetts charged Waters with an array of securities fraud and other violations on October 17, 2012. On November 29, 2012, Waters pleaded guilty to sixteen counts of securities fraud, mail fraud, money laundering, and obstruction of justice arising out of both the conduct that is the subject of the Commission’s civil action and a criminal scheme through which Waters defrauded clients of his rare coin business out of as much as $7.8 million.

Oh no! What was happening? Ripping off other collectors? Maybe he was just smarter than they were? Knew more about the coins? Maybe he was just very good at buying and selling?

Under this scheme, Waters defrauded coin customers out of as much as $7.8 million by selling coins at prices inflated, on average, by 600% and by inducing coin purchasers to return coins to him, on the false representation that he would sell those coins on the customers’ behalf, when, in fact, he sold most or all of the coins and kept the proceeds for himself.

Ouch. Anything else?

The criminal information further alleges that Waters engaged in money laundering through two transactions totaling $77,000.

Well, what’s a little money laundering among friends? And anyway, it’s not like he lied about it when he was caught. He fessed up right away, didn’t he?

Finally, the criminal information alleges that Waters made multiple misrepresentations to Commission staff, including that there were no investors in his investment-related partnerships, in order to conceal the fact that investor money was misappropriated in a fraudulent scheme. Waters is charged with obstruction of justice related to this conduct.

D’oh! But apart from the coin issues, what about the investment advisory business? Surely he helped people there, right? Made money for their pensions? Exercised prudence?

According to the criminal information, from at least 2007 through 2012, Waters used fictitious investment-related partnerships to draw in investors, misappropriate their investment money, and spend the vast majority of it on personal and business expenses and debts.

They were sophisticated investors, I trust? Pension funds? Investment banks?

Waters is alleged to have raised at least $839,000 from at least thirteen investors, including $500,000 from his church in March 2012.

His church??? So depressing.

So what happens to this cheater? Does crime pay in America? Not always!

As a result of his guilty plea to this criminal conduct, Waters was sentenced on April 26, 2013 to 17 years in federal prison and three years of supervised release, and was ordered to pay $9,025,691 in restitution and forfeiture.

And final judgment was entered by a Massachusetts federal court on December 4, 2013.

Remember, everyone! Beware the Comic Book Guy, the Coin Collector Guy, the Baseball Card Guy, and the Smiling Philatelist. Particularly when they’re also offering to invest your money in fictitious investment-related partnerships.