Facts: Ivanna Deduct and SpartanRock Corp formed a Florida limited liability company, Investco, LLC at 2013. Ivanna contributed $100,000 cash, and SpartanRock, the parent of Best Buy, contributed $99,900,000 Best Buy’s customer receivables. These customers’ receivables were more than 180 days old that had not been collected, with an average outstanding balance of $161.81 on each account. Ivanna sold ninety-nine interests to individual investors for $1,000,000 each in exchange for Investco’s interest. The $1,000,000 contained $100,000 in cash and a promissory note to Investco for $900,000. Later, SpartanRock received a cash distribution of $5,000,000 and withdrew from Investco. At the same time, Ivanna also received a cash distribution of $5,000,000 …show more content…
v. Commissioner of Internal Revenue relating to the similar situation as Investco, LLC, was brought into U.S. Court of Appeals. Mr. Rogers was the sole owner of an S corporation, Portfolio Properties, Inc. (PPI), which owned Jetstream. He also formed Sugarloaf through entities he owned and controlled. His business would profit through aggressive receivables collection efforts and translation gain from currency speculation. He used a tiered partnership structure to sell interests to individual investors. In 2003, Mr. Rogers used a limited liability company called Warwick Trading, LLC, to purchase receivables from Lojas Arapua, S.A., a Brazilian retailer of household appliances and consumer electronics. In 2004, Globex contributed receivables with an outstanding balance of R$219,087,756.03 in exchange for a 99% membership interest in Sugarloaf, LLC. Companhia Brasileira de Distribuição (CBD) contributed distressed accounts receivable to Sugarloaf, LLC in exchange for 1% interest in that company. Both Globex and CBD received cash distributions in redemption of their interests in Sugarloaf within two years period. Sugarloaf suffered a loss after the cash distribution, so Mr. Rogers claimed an ordinary loss for Sugarloaf, LLC. However, the IRS disallowed the loss. Firstly, under code §707 and §721, the receivables contribution for Sugarloaf was not valid to the purported partnership and would be treated as a disguised sale because cash distributions within two years of a contribution give rise to a presumption that the transaction is a disguised sale. Secondly, according to the general principle of Federal income taxation, a taxpayer has a right to conduct transactions in a manner that minimizes or outright avoids Federal income tax. However, the Sugarloaf-type entity in that case was a sham partnership to avoid paying tax, so it entitled to none of the benefits of the Federal income tax laws. Lastly, §6662
While the widely exposed and discussed trials of WorldCom's and Tyco's top executives were all over the media, one of the most interesting cases of securities fraud was happening without any public acknowledgement.
Shelly Zumaya (2220 East Hennepin Avenue, Minneapolis, MN 55413) is the president and sole shareholder of Kiwi Corporation (stock basis of $400,000). Incorporated in 2003, Kiwi Corporation’s sole business has consisted of the purchase and resale of used farming equipment. In December 2011, Kiwi transferred its entire inventory (basis of $1.2 million) to Shelly in a transaction described by the parties as a sale. According to Shelly and collaborated by the minutes of the board of directors, the inventory was sold to her for the sum of $2 million, the fair market value of the inventory. The terms of the sale provided that Shelly would pay Kiwi Corporation the $2 million at some future date. This debt obligation was not evidenced by a promissory note, and to date, Shelly has made no payments (principal or interest) on the obligation. The inventory transfer was not reported on Kiwi’s 2011 tax return, either as a sale or a distribution. After the transfer of the inventory to Shelly, Kiwi Corporation had no remaining assets and ceased to conduct any business. Kiwi did not formally liquidate under state law. Upon an audit of Kiwi Corporation’s 2011 tax return, the IRS asserted that the transfer of inventory constituted a liquidation of Kiwi and, as such, that the corporation recognized a gain on the liquidating distribution in the amount of $800,000 [$2 million (fair market value) - $1.2 million (inventory basis)]. Further, because Kiwi Corporation is devoid of assets, the IRS assessed a tax due from Shelly for her gain recognized in the purported liquidating distributi...
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
The long SEC complaint alleges the company engaged in numerous fraudulent activities, which included filing material incorrect financial statements for 11 straight quarters between April 1999 and December 2001. Th...
In June 1979 American Chemical Corporation, a large diversified chemical company, acquired Universal Paper Corporation. When working on the deal structure, both the federal government and Universal’s management team created various legal constraints, arguing that if the acquisition would take place, American Chemical Corporation would become the largest sodium chlorate producer, violating U.S. antitrust laws and the Clayton Act. With that being said, American Chemical Corporation agreed to reduce its capacity to produce sodium chlorate by selling one of its plants in Collinsville, Alabama. Later that year, Dixon Corporation, a large chemical producer decided to acquire the Collinsville plant for $12 million dollars.
One way of communicating with people and keeping them updated with information is through digital communication. Law firms consider this as a possible way to communicate with clients when handling their cases. However, mistakenly sent information can become an ethical issue. This is called “attorney-client privilege”, meaning the attorney has the duty to keep all confidential information of the client private. Although, attorneys deemed digital communication as a great method this information can be misdirected and shared with the opposing party.
Charles Schwab, a Stanford MBA, founded Charles Schwab & Company in 1971 in California. The company quickly established itself as an innovator. A defining moment came with the 1975 “May Day,” when Schwab took advantage of the new opportunities deregulation offered. Schwab would not provide advice on which securities to buy and when to sell as the full-service brokerage firms did. Instead, it gave self-directed investors low-cost access to securities transactions. From the late 80s to the early 90s, before the commercial use of the Internet, Schwab used technology to increase efficiency and quality and expand its services. Schwab’s innovations harnessed technology to the solution of business problem. As Schwab’s President and co-CEO David Pottruck put it, “we are a technology company in the brokerage business.”
The Phar-Mor case again involves a retail enterprise, inventory overstatements, and both fraudulent financial reporting and misappropriation of assets. The auditors completely failed to discover the fraud, missing the many warning signs and ignoring the high-risk elements of the engagement. Yet again, the scrupulous, yet dedicated, fraudsters showed that they were capable of fooling everyone for an extended period of time. Until recent years, remained one of the largest US corporate frauds of all time.
The Sarbanes-Oxley Act of 2002, also known as the SOX Act, is created in response to the series of deceptive and outright fraudulent activities of the big business in the 1990s. Sarbanes-Oxley, or SOX, is a federal law that is a complete reform of business practices. The Act points specifically at public accounting firms that take part in audits of corporations and it is passed in response to a number of corporate accounting scandals such as Enron, WorldCom, Global Crossing, Tyco and Arthur Andersen. It sets new standards for the corporate management, corporate boards of directors, and public accounting firms. Almost all the scandals involved accusations of presumed “creative accounting,” or complicated
Prior to watching the movie "The Smartest Guys in the Room" and learning in class in depth about the Enron scandal and the counterparts that had hands in it I didn 't know much about it nor the effects it had on the way companies are regulated today. Prior knowledge of the Enron case was learned in my auditing class but only briefly to provide an introduction to the Sarbanes-Oxley Act passed in 2002 by Congress to protect investors from the possibility of fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. Overall it was made to address systematic flaws in the way of corporations had been reporting their numbers.
The Hathaway Manufacturing Company was started in 1888 by Horatio Hathaway, a China trader, with profits from whaling in the Pacific (Livy, 2013).
Berkshire Hathaway is a holding company for many of businesses run by Chairman and CEO Warren Buffett. Berkshire Hathaway is headquartered in Omaha, Nebraska and began as just a group of textile milling plants, but when Buffett became in charge in the mid 1960s he began a progressive strategy of using cash flows from the central business investments. Insurance subsidiaries tend to represent a large portion of Berkshire Hathaway, but the company manages hundreds of different businesses all over the world. The company 's smart stock market investments paired with the overall success throughout the years, has made the company one of the most popular and largest in terms of market capitalization. Just to name a few, the company currently wholly
shares of stock in the biotech company. This company was said to be on the verge of marketing a new drug that would have a big break in cancer treatment. However it was found out that the Food and Drug Administration would not be approving this particular drug. With this new drug being the companies leading product to lure investors, the President of Imclone knew that the stocks would drop once the announcement was made public. Around the end of December 2001, Imclone’s CEO Sam Waksal, also a client of Merrill Lynch started illegally transferring his stock to his daughter. The intent was to have the daughter start selling off the stock before the FDA made its announcement about not supporting the d...
Starting a corporation with only $1,000 indicates that the start of the corporation was thinly capitalized. In addition to being thinly capitalized, Banco Panamericano Incorporation extended a large credit to Loop Cooperation after three years without any reason (Cross & Miller, 2015). On top of this, the Greenblatt’s family fully operates Banco Panamericano Incorporation and one of the cofounder of Loop Corporation, Leon Greenblatt, is from the Greenblatt’s family. This situation already suggests a potential conflict of interest, as the Greenblatts have a strong representation in both Loop Corporation and Banco Panamericano Incorporation.
Looking at the breakdown of the company’s financials from the 10k of 2005 below, I can surmise that there was no fraud, but a huge mismanagement of the business.