ORDER A REPORT
SECURE FILE UPLOAD

Scherzer Blog

Whistleblower activity for SEC violations on the rise

The U.S. Senate reports that more than half of all uncovered frauds have originated from whistleblower tips. Since the SEC’s Office of the Whistleblower was launched in August 2011, officials have been dealing with close to 100 tips per day. And this number is expected to double in the coming years with Dodd-Frank’s provisions for monetary incentives and protection from retaliation.

While coming to grips with the complexities of Dodd-Frank, many companies and financial institutions are heightening their efforts to mitigate the potential liability from whistleblowing. Developing and evaluating existing risk management and compliance programs is now a priority. The programs established under the 2002 Sarbanes-Oxley Act may not be effective in this new regulatory environment, and may need to be modified or strengthened, with an emphasis on internal communications and investigations of possible violations. When determining if and how much leniency to grant an entity, the SEC notes that “the promptness with which entities voluntarily self-report their misconduct…is an important factor.”

According to a recent study published by the Association of Certified Fraud Examiners and the Institute of Internal Auditors, fraudulent acts by employees and outsiders rise during periods of economic stress. Crime experts say that fraud and other misconduct are committed primarily because of three factors, referred to as the Fraud Triangle, and involve financial pressure, opportunity, and rationalization. In these still challenging times, businesses of all types and sizes need to tighten their internal controls and be proactive in preventing wrongful acts. Allocating budgets for compliance programs which include compelling due diligence with a focus on background investigations, will provide a high return on the investment and ultimately protect the bottom line.
March 2nd, 2012|Categories: Commercial Transactions Due Diligence|Tags: , , |

The White House casts “Consumer Privacy Bill of Rights”

Over two years in the making, and backed by online ad powerhouses such as AOL, Microsoft, Yahoo, and even Google, the Bill of Rights announcement on February 22, 2012 pulls together consumer privacy initiatives of both the Federal Trade Commission (FTC) and the Commerce department. Intended to lead to new legislation that fills the gaps of current U.S. privacy laws, the bill promotes a set of standards for the fair handling of private information based on a set of principles that date back to the early 1970s known as the Fair Information Practices.
The Consumer Privacy Bill of Rights applies to personal information, which means any data, including aggregations of data that is identifiable to a specific individual, and to a specific computer or other device. According to the Administration, this bill will establish codes of conduct and call for strong enforcement, ultimately increasing interoperability between the U.S. consumer data privacy framework and that of its international partners. Below are the bill’s highlights.
  • Individual control. Consumers have a right to exercise control over what personal data companies collect from them and how they use it.
  • Transparency. Consumers have a right to easily understandable and accessible information about privacy and security practices.
  • Respect for context. Consumers have a right to expect that companies will collect, use, and disclose personal data in ways that are consistent with the context in which consumers provide the data.
  • Security. Consumers have a right to a secure and responsible handling of personal data.
  • Access and accuracy. Consumers have a right to access and correct personal data in usable formats, in a manner that is appropriate to the sensitivity of the data and the risk of adverse consequences to consumers if the data is inaccurate.
  • Focused collection. Consumers have a right to reasonable limits on the personal data that companies collect and retain.
  • Accountability. Consumers have a right to have personal data handled by companies with appropriate measures in place to ensure that they adhere to the Consumer Privacy Bill of Rights.
March 2nd, 2012|Categories: Commercial Transactions Due Diligence|Tags: , |

Identity theft again tops FTC’s top complaints list for 2011

Identity theft again tops FTC’s top complaints list for 2011

The Federal Trade Commission (FTC) on February 27, 2012 released its list of top consumer complaints received by the agency in 2011. For the twelfth year in a row, identity theft topped the list at 279,156 complaints or 15%. The breakdown for the next nine complaint categories (from a list of 30) is as follows:

Category Number Percentage
Debt collection 180,928 10
Prizes, sweepstakes, and lotteries 100,208 6
Shop-at-home and catalog sales 98,306 5
Banks and lenders 89,341 5
Internet services 81,805 5
Automobile-related 77,435 4
Imposter scams 73,281 4
Telephone and mobile services 70,024 4
Advance-fee loans and credit protection/repair 47,414 3

 
The FTC records the complaints in its Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. Other federal and state law enforcement including the U.S. Postal Inspection Service, the Department of Justice’s Internet Crime Complaint Center, and the attorneys general offices of Idaho, Michigan, Mississippi, North Carolina, Ohio, Oregon, Tennessee, and Washington also contribute to the database content, along with private-sector organizations such as U.S. and Canadian members of the Better Business Bureau, Western Union and Moneygram, and the Lawyers Committee for Civil Rights Under Law.

February 29th, 2012|Categories: Commercial Transactions Due Diligence|Tags: , |

CFPB proposal would put larger debt collectors and credit reporting agencies under the same supervision process as banks

The Consumer Financial Protection Bureau (CFPB) on February 16, 2011 announced a
proposed rule to include debt collectors and consumer reporting agencies under its nonbank
supervision program.

Created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is
authorized to supervise nonbanks in the specific markets of residential mortgage, payday
lending, and private education lending. For other nonbank markets of consumer financial
products or services, the CFPB must define “larger participants” by rule, which is due on
July 21, 2012.

Three types of debt collection agencies dominate the market: firms that collect debt owned
by another company for a fee, firms that buy debt and collect the proceeds for themselves,
and attorneys and law firms that collect debt through litigation. A single company may be
collecting through any or all of these activities. Under the proposed rule, debt collectors
with more than $10 million in annual receipts from collection activities would be subject to
supervision. The CFPB estimates that the proposed rule would cover approximately 175 debt
collection firms (or 4% of debt collection firms) which account for 63% of annual receipts
from the debt collection market.

The CFPB’s proposal also takes aim at the largest credit bureaus selling comprehensive
consumer reports, consumer report resellers, and specialty consumer reporting agencies.
Defined as companies that make more than $7 million annually from their consumer
business, the rule would affect 30 companies, and firms like Experian, TransUnion and
Equifax, that account for 94% of the industry’s business.

This is the CFPB’s first in a series of rulemakings to define larger participants. The CFPB
chose annual receipts as the criterion for both debt collection and consumer reporting
because it approximates participation in these two markets.

The proposed rule is open for comment for 60 days after the rule is published in the Federal
Register.

February 18th, 2012|Categories: Commercial Transactions Due Diligence|Tags: , , |

Mobile apps may violate Fair Credit Reporting Act

On February 6, 2012, the Federal Trade Commission (FTC) issued warning letters to the marketers of six mobile applications that provide background screening apps that they may be violating the Fair Credit Reporting Act (FCRA.) The FTC said that if the background reports are being used for employment or other FCRA purposes, then the marketers and their clients must comply with the FCRA.

According to the warning letters, the FTC has not made a determination whether the companies indeed are violating the FCRA, but encourages them to review their apps, and their related policies and procedures. The FCRA is designed to protect the privacy of consumer report information and ensure that the information provided by consumer reporting agencies is accurate. Consumer reports are communications that include information about an individual’s character, reputation, or personal characteristics, and are used or expected to be used for purposes such as employment, housing or credit.

Under the FCRA, entities/operations that assemble or evaluate information to provide to third parties qualify as consumer reporting agencies (CRAs.) Mobile apps that supply such information also may qualify as CRAs under the Act. CRAs must take reasonable measures to ensure the user of each report has a ‘permissible purpose’ to use the report, take reasonable steps to ensure the maximum possible accuracy of the information conveyed in the report, and provide users of its reports with information about their obligations under the FCRA. In employment-purpose consumer reports, for example, CRAs must provide employers with information regarding their obligation to give notice to employees and applicants of any adverse action taken on the basis of a consumer report.

February 7th, 2012|Categories: Commercial Transactions Due Diligence|Tags: , |

SI case study: “A career in fraud”

A prospective client investigation was ordered on a company and its president, but the preliminary information was enough to reject this individual or any company under his control from the proposed business engagement. Initial court searches uncovered a 2003 criminal misdemeanor conviction for possession of a false identification to be used to defraud. The index did not provide much information and the file was destroyed by the court, so SI’s analyst turned to media sources to dig deeper. Sure enough, one article referenced guilty pleas entered by the subject and his business partner for hiring imposters to take the Series 7 securities brokers’ examination for them. Each was sentenced to a year of probation and fined $5,000. Articles from 2004 reported three civil cases for fraud in jurisdictions where the subject appeared to have no residential history. Follow-up research found that judgments in these lawsuits totaled more than $4.6 million. Several articles also linked the subject to a con artist who had admitted to defrauding ethnic organizations and individuals of $80 million during the late 1990s. And in 2007, the FDIC had executed a settlement agreement with the subject and (the same) business partner after they allegedly failed to seek FDIC approval before making an investment in an unregistered bank holding company. On the whole, this company president had been engaged in fraudulent activities for over a decade and no legal or regulatory action appeared to stop his mode of operation.

January 25th, 2012|Categories: Commercial Transactions Due Diligence|Tags: , |

Federal Sentencing Guidelines: a lure to organizational compliance

 

About 20 years ago, the United States Sentencing Commission (USSC) enacted the Federal Sentencing Guidelines (FSGs) for organizations with the intent to govern the sentencing of companies convicted of federal crimes. The FSGs, which have been amended several times, hold that organizations can act only through agents and, under federal criminal law, generally are vicariously liable for offenses committed by their agents.

A proactive approach to prevent, detect and report illegal and unethical activities can substantially reduce fines and punishment, in some cases up to 95% according to a commentary by the USSC. The USSC specifies that the two factors that mitigate an organization’s ultimate punishment are “the existence of an effective compliance and ethics program, and self-reporting, cooperation, or acceptance of responsibility.” In contrast, the absence of solid compliance mechanisms can increase fines and punishment, as verdict determination is based on “the organization’s involvement in or tolerance of criminal activity, its prior history, violation of an order, and obstruction of justice.”

The compliance incentives provided by the FSGs and the proliferation of new regulations mandate a cultural imperative for ethical and law-abiding conduct by all companies, large and small. High-level attention, leadership and sufficient resources must be dedicated to meet the strict requirements of a compliance program defined by the USSC as “effective.” In its manual, the USSC emphasizes the necessity of strong due diligence to prevent and detect criminal conduct. Among its guidelines, a provision in Chapter 8 notes that:

“The organization shall use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.”

Comprehensive background investigations, whether for employment purposes, evaluation of prospective clients, existing relationships and third-parties, or for other business transactions, are essential for compelling due diligence which actualizes a masterful compliance strategy. Although various committees and officials are calling for a complete review of the FSGs which the 2005 landmark case U.S. vs. Booker held as discretionary rather than mandatory, well-developed compliance programs are here to stay.

Scherzer International is on the forefront of the quick-changing regulations regime with a portfolio of background investigation products designed to facilitate purposeful risk management and compliance protocols. Visit us often at www.scherzer.com as we continuously analyze and test new elements and incorporate them into our products if they have proven value. And stay tuned for a Dodd-Frank regulations product which we will introduce within the next few months.

November 29th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: |

Epidemic of fake websites is real

 

Cyber crime experts report that fake websites are proliferating at the rate of 60,000+ per week or over 3,100,000 per year. And the fraudsters’ malicious exploitations are getting bold and more sophisticated, creating sites that are difficult to discern from those of legitimate businesses or organizations. From banks (which make up about 68% of fraudulent sites) to regulators and news reporting agencies, no entity is immune.

Recently, several local and national newspapers reported on a publicity campaign by a public relations company that purportedly set up a fake news site to promote one of its clients, a public entity, with positive articles and press releases “written in the image of real news” by “journalists” who allegedly do not exist. Although Web experts note that it is fairly common for celebrities and private-sector businesses to generate buzz or improve sales through news coverage, open government advocates called this stunt an egregious breach of trust and ethical standards.

The Federal Trade Commission (FTC) issued warnings a few months ago about scam artists exploiting well-known news organizations by setting up fake news sites to peddle their wares. The sites, which usually display logos of legitimate news organizations, promote everything from bogus weight loss products to work-at-home jobs, anti-aging products and debt reduction plans. The FTC cited several investigations that resulted in charges against the fraudsters, saying that many of the websites are owned by marketers and used to entice consumers to click on links to the sellers’ sites. In its case against acai berry supplement peddlers, the FTC disclosed that the sellers paid the marketers a commission based on the number of consumers they lured to their sites. There was no reporter, no studies, no dramatic weight loss, no satisfied consumers who left comments, and no affiliation with a reputable news source. As a rule, the FTC noted, legitimate news organizations do not endorse products.

The FTC itself, and other regulators have not escaped the fraudsters’ blitz. In April 2011, the FTC brought charges against an individual for multiple violations of the Federal Trade Commission Act for misrepresenting his affiliations with federal agencies, including the FTC, misrepresenting that the services advertised on his websites were government-approved, and making deceptive debt relief claims. The FTC alleged that the individual, a Texas-based “lead generator,” set up several websites through which he associated his business with a fictitious government agency – the “Department of Consumer Services Protection Commission” – that appeared to combine two real government entities, the Federal Trade Commission and the Consumer Financial Protection Bureau. Among other charges, the FTC stated that to further these scams, the websites depicted the FTC’s official seal, copied language about the fictitious agency’s consumer protection mission from the FTC’s site, and claimed that the fake agency “monitors and researches” member companies that provide financial assistance to American consumers.

The scammers and their fake websites are also busy abroad. Earlier this month, international news sources reported that Russian fraudsters set up a counterfeit site of a popular five-star hotel, complete with the real hotel’s photographs, room descriptions and services. According to published reports, they also paid a fee to Google to ensure that their bogus site was listed before the hotel’s genuine site. The fraudulent website purportedly came to an abrupt end after, among other disparities, it was discovered that the room rates were advertised in dollars.

Another story about a flagrant website invasion came in October 2011 from Belgrade, where Serbian media reported that a mock-up of the official Nobel Prize website was set up purportedly by political activists to promote their causes and views.

Fraudulent websites appear daily and no industry or organization is beyond these fraudsters’ reach. Scherzer International, a provider of specialized background investigations for business transactions and employment decisions, includes comprehensive website reviews in its reports. We know how to spot scams, exaggerated claims and other red flags.

November 29th, 2011|Categories: Commercial Transactions Due Diligence|Tags: , |

Bribing for business: Russia and China score lowest in fighting corruption

According to a survey released on November 3, 2011, by Transparency International, a non-profit, corruption watchdog, Russia and China got the lowest scores in its 2011 Bribe Payers Index, which ranked the top 28 largest economies according to the probability of companies headquartered in these countries practicing bribery. The scores were calculated from responses of 3,016 executives in 30 countries who had business dealings in those economies.

Companies based in China and Russia scored below 7 on a scale of 10, at 6.5 and 6.1, respectively. Mexico, with a 7.0 score, was third from the bottom. Companies in the Netherlands and Switzerland tied for first place with scores of 8.8, with Belgium, Germany, and Japan rounding out the top five.
The survey also ranked the business sectors in which bribery was perceived to be prevalent. Public works and construction were reported as the most pullulated along with oil and gas. Agriculture and light manufacturing were ranked as the cleanest.

The report noted that “there is no country among the 28 major economics whose companies are perceived to be wholly clean and do not engage in bribery.” And the scores, on average, have not improved significantly from the 2008 Bribe Payers Index. The average score of 22 countries increased only 0.1 points to 7.9 in the latest edition.

The survey also found that “international business leaders reported the widespread practice of companies paying bribes to public officials in order to, for example, win public tenders, avoid regulation, speed up government processes or influence policy.” However, companies are almost as likely to pay bribes to other businesses, according to the survey, which looked at business-to-business bribery for the first time. This suggests that corruption is not only a concern for the public sector, but for many businesses, and carries major reputational and financial risks.

November 3rd, 2011|Categories: Commercial Transactions Due Diligence|Tags: , , |

“Ban the box” legislation gains momentum

Across the country, municipalities and states are enacting legislation called “ban the box” which generally prohibits employers from asking job candidates about their criminal histories on applications. The legislation also makes it unlawful for a covered employer to take any adverse action against an individual on the basis of an arrest or criminal accusation that did not result in a conviction. The states of California, Connecticut, Hawaii, Massachusetts, Minnesota, and New Mexico have enacted some form of the legislation along with more than 26 cities and counties in Illinois, Maryland, Michigan, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Wisconsin and Washington. (A complete list of municipalities that have “banned the box” is posted at
http://www.nelp.org/page/-/SCLP/2010/BantheBoxcurrent.pdf?nocdn=1).

However, except for Hawaii and Massachusetts, the legislation has been limited to public employers, or public employers and vendors and contractors serving public entities. The city of Philadelphia, which is the most recent addition to this growing list, is the first municipality to pass a law that covers private employers with 10 or more employees. Below are some jurisdictional highlights of the enacted legislation:

  • Hawaii and Massachusetts private and public employers cannot consider felony convictions that are more than 10 years old. And in Massachusetts, employers are not permitted to consider misdemeanor convictions that are more than five years old.
  • Hawaii and the cities of Chicago, Hartford, and Cincinnati allow an employer to ask about an applicant’s criminal record only after a conditional offer of employment has been extended.
  • Chicago, San Francisco, and Boston require a public employer denying employment on the basis of a conviction to justify its decision based on EEOC’s guidelines which include the nature and gravity of the crime, the time that has passed since the conviction, and the relativity of the crime to the position.

Proponents of “ban the box” are confident that the legislation will be a significant factor in lowering recidivism rates, as it will allow applicants to demonstrate their skills and qualifications prior to disclosing criminal histories. And many experts say that such laws will expand beyond the borders of the United States in the very near future.

October 17th, 2011|Categories: Compliance Corner for Employment Decisions|Tags: , , , , |
© 2012- SCHERZER INTERNATIONAL | ALL RIGHTS RESERVED
Go to Top