Who’s Cheating America: Let’s Go Fly A Kite!

Image Credit: Charles Schulz via John Harris

Check kiting! Maybe the most colorfully named of all the great frauds. And something you could almost see someone falling into inadvertently. Let’s say you don’t have enough to pay a certain bill in one checking account, but hey, you have more than one account. And a few credit cards. All their due dates are different! So you have some money coming in here, flowing out there, this one can cover that one, and then that one can cover this one, this bill’s not due until the tenth, the paycheck’s the fifteenth, when does the bank cash this thing anyway? Wait, what? This is illegal? I thought it was called running a household.

Well, yes, it is illegal. Paying with money you don’t have (yet) is illegal. And it’s often the sign of a gambler, or a small-business owner, or Homer Simpson.

It’s certainly not the handiwork of an audited Nasdaq-traded company. Except when it is! Continue reading

Who’s Cheating America: Sharing Time (or Doing It?)

Vacation timeshares! What a great business, helping people to explore their dreams. I love vacations! I love staying in nice places!

Sure, there’s a possibility of some abuse. The clientele skews older, and salespeople can be pushy. But what might seem like aggressive sales tactics could also, in a different light, be viewed as encouraging people to pull the trigger on their dreams. Sales can be an honest profession! There’s no sense smearing everyone with the same brush!

Pappalardo, also known as “Patsy Ubatz” and “Posh,” started a branch office of Timeshare Market Pro, a time-share resale business, in February 2009 with Joseph Crapella, according to evidence presented at the trial…Witnesses testified that Pappalardo had met Crapella, who has used the nickname “Joey Cigars,” while both were serving time in federal prison.

Oh dear. Joey Cigars? Why do I think this is not going to end well…?

Or am I being too hard on them? I might be jumping to unfair conclusions! Maybe Posh and Joey Cigars have turned a new leaf! So what if they met in prison? They paid their debt to society, and then they wanted to help seniors honestly realize their vacation dreams, and…well…uh…

Timeshare Mega Media hired salespeople who worked for a fraudulent time-share resale companies, including Lovinsky, who used the work alias Edwin Lovins, the DOJ said.

Lovins? As in McLovin?

Oh, wait, this was a timeshare resale company. I missed that the first time around. That’s promising! If people have been saddled with something they don’t want – maybe because of shady salespeople – you step in with a plan to resell it for them. In other words, to help them get out from a burden they can no longer afford.

But why would Mr. Cigars hire a salesperson who worked for a fraudulent time-share resale company? Well, maybe McLovin wanted to turn a new leaf too! Or maybe…

[The men were recently convicted] for their roles in a time-share resale telemarketing scheme that fraudulently obtained about $5 million from its victims.

Fraudulently obtained! What did they do?

The salespeople called time-share owners, told them they had completed sales of their units and then asked for fees ranging from $1,996 to $10,000, according to the DOJ.

So what? $10,000 seems reasonable, and $1,996 seems like an outright bargain. You’re helping people alleviate their burden! Matching up sellers with buyers!

In reality, there never were any buyers, prosecutors said.

D’oh!

Over 10 months of operation, Timeshare Mega Media collected about $5 million from some 3,000 customers, of which Pappalardo received at least $300,000 in checks and hundreds of thousands of dollars more in cash, the DOJ said.

Ugh. People got ripped off going in (one assumes), then got ripped off getting out (one does not need to assume). There’s a special place in hell for people like this. Or at least in federal prison:

Pasquale Pappalardo was sentenced to 20 years in prison and was ordered to pay $1,061,401 in restitution and a forfeiture of $3.5 million. Audwin Lovinsky was sentenced to 33 months in prison and ordered to pay $34,635 in restitution. Both men were sentenced to three years of supervised release following their prison time.

And Joey Cigars pled guilty in a separate proceeding. This time, boys, use your time in jail wisely. Figure out an honest way to make a living when you get out. And stop cheating America!

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

Who’s Cheating America: Lonesome Highway Edition

Ah, the joys of interstate travel! Europe may have trains, but we Americans have the I-system. The open road! Freedom! Purple mountains! Amber waves!

And for those of us who love the wide-open feeling of hitting the road, there are all the little wayside restaurants and truck stops and lonely old gas stations. Selling Cokes and coffee and all that good road food.

Okay, some are disgusting. Some have bathrooms that feel almost sub-human. But the clean, well-run places – like the Flying J Travel Centers – are welcome oases.

I love the Flying J! Second only to Sheetz on my list of welcome sights at the bottom of Interstate offramps.

It turns out that the Flying J Travel Centers are run by Cleveland Browns owner Jimmy Haslam. We’ve had some issues with NFL owners in the past, as well as the NFL itself… but here’s a good story. The Flying J! Clean, well-lighted joints where Americans need them most! Thank you, Jimmy Haslam!

Except for one problem… America is being cheated. And the Flying J is at the heart of itContinue reading

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!

Except…

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!

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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.

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