How to Detect Business Fraud • Hacker News Board

Re: How to Detect Business Fraud

#41

Post by supernova87a » Tue, May 05, 2020, 8:14 PM UTC

Aside from this article (paywalled), I liked learning from some story that certain financial / bank employees are required by the Fed or SEC to go on vacation and not have access to their email or phone for a certain number of contiguous days every year. Is this correct -- was it something to do with the Madoff scandal?

As I understood it, the idea was that to perpetuate a financial fraud, a criminal relies on being present and able to intercept / continue feeding fraudulent information to others and not be discovered. Or maintaining some fraudulent trading position.

The tactic I liked about this was the thinking about what's required to perpetrate a fraud, and make the conditions difficult or impossible for someone to go undetected.

Rather than retroactively finding the fraud and just trying to detect it better when it has already happened.

Re: How to Detect Business Fraud

#42

Post by Kalium » Tue, May 05, 2020, 8:26 PM UTC

mjcohen wrote: post #35

Kalium wrote: post #29

Earlier quoted context omitted.

If you can reliably determine what companies and securities are fraudulent more accurately than the rest of the market and faster than government entities, then you can use this to make rather a lot of money as a short-seller.

You may have problems when the fraudsters run the government.

You're absolutely right. This particular approach has limitations and potential shortcomings. Of course, the same might be said about any approach.

Do you have something else in mind? A discussion here could be very interesting!

Re: How to Detect Business Fraud

#43

Post by piker » Tue, May 05, 2020, 8:50 PM UTC

Kalium wrote: post #29

clairity wrote: post #15

it would be interesting to codify the known heuristics of forensic accounting into a software package (maybe even AI all the things!), then create a company out of it in partnership with prosecutors and regulators to root out fraud like this through both technological and legal means. i'm sure there have been some efforts to that end, though not commonly known. it would help rebalance the legal system toward the serv…

If you can reliably determine what companies and securities are fraudulent more accurately than the rest of the market and faster than government entities, then you can use this to make rather a lot of money as a short-seller.

Well, not really. As the saying goes, markets can remain irrational a lot longer than you can remain solvent.

Re: How to Detect Business Fraud

#44

Post by crishoj » Tue, May 05, 2020, 8:52 PM UTC

elliekelly wrote: post #25

The China Hustle[1] is a great documentary about the systemic securities fraud committed by Chinese companies selling into the American markets in a way that allows them to avoid much of the disclosure and due diligence typically required. It follows investors from the Muddy Waters firm mentioned in the this article and was made by the same group who did documentary version of The Smartest Guys in the Room. I believe…

Thank you for this. The extend of these scams is mind boggling.

Re: How to Detect Business Fraud

#45

Post by gxqoz » Tue, May 05, 2020, 9:22 PM UTC

ikeboy wrote: post #7

Highly recommend "lying for money" by Dan Davies, a very readable account of a wide range of business frauds.

Agreed, this is a great book that goes over many different types of fraud with amusing examples.

Re: How to Detect Business Fraud

#46

Post by jolmg » Tue, May 05, 2020, 9:23 PM UTC

gruez wrote: post #27

jolmg wrote: post #22

Earlier quoted context omitted.

> 403 Forbidden -- Cloudflare

I don't think they actually use cloudflare. Neither their nameservers nor their server IPs are cloudflare. They only copied their interstitials.

> nor their server IPs are cloudflare

They are for me, apparently because I'm using cloudflare's DNS service, and cloudflare is returning its own IP when I query for archive.vn's.

  $ dig +short @8.8.8.8 archive.vn 
  5.196.68.232
  $ dig +short @1.1.1.1 archive.vn       
  1.0.0.1
  1.1.1.1

They don't return themselves for all hosts,

  $ dig +short @1.1.1.1 google.com
  172.217.9.14

I wonder by what criteria they intercept, and if this by archive.vn's or cloudflare's initiative.

Re: How to Detect Business Fraud

#47

Post by thoughtstheseus » Tue, May 05, 2020, 9:34 PM UTC

nodesocket wrote: post #16

advisedwang wrote: post #14

Good investigative reporting into shady business practices good for this world. However short selling companies before dropping your investigation is a massive conflict of interest. Muddy waters is incentivized to produce a scandalous hit piece, rather than necessarily do fair or accurate reporting. They will make money regardless. The damage their reporting does may make a self-fulfilling prophecy, ensuring they don…

Absolutely. Just look at Pershing Square‘s Bill Ackman. He goes on CNBC essential calling for the end of the world, turns out he had credit protection on bonds and tuned a huge profit[1]. [1] https://markets.businessinsider.com/news/stocks/bill-ackman-...

Bill Ackman had already sold half his hedge and moved aggressively into stocks when he said that. He talks about it on Farnam Street if anyone is interested.

Re: How to Detect Business Fraud

#48

Post by function_seven » Tue, May 05, 2020, 10:27 PM UTC

jolmg wrote: post #46

gruez wrote: post #27

Earlier quoted context omitted.

I don't think they actually use cloudflare. Neither their nameservers nor their server IPs are cloudflare. They only copied their interstitials.

> nor their server IPs are cloudflare They are for me, apparently because I'm using cloudflare's DNS service, and cloudflare is returning its own IP when I query for archive.vn's. $ dig +short @8.8.8.8 archive.vn 5.196.68.232 $ dig +short @1.1.1.1 archive.vn 1.0.0.1 1.1.1.1 They don't return themselves for all hosts, $ dig +short @1.1.1.1 google.com 172.217.9.14 I wonder by what criteria they intercept, and if this b…

This link should answer your questions and give the backstory.

https://news.ycombinator.com/item?id=19828317

Re: How to Detect Business Fraud

#49

Post by formalsystem » Tue, May 05, 2020, 10:56 PM UTC

mierle wrote: post #32

For those who are interested in the accounting side, I highly recommend Financial Shenanigans by Howard Schilit [1]. If you don't have an accounting background, all you need to get value out of this book is a basic understanding of the double entry accounting method, and understand the four financial statements: balance sheets, income statements, cash flow statements, and statements of shareholders equity. After read…

Thank you for this, I just bought the book. Any books you'd recommend to go over the prerequisites you mentioned? I read this [1] ages ago but I honestly don't remember much at this point.

[1] https://www.amazon.com/How-Read-Financial-Report-Wringing/dp...

Re: How to Detect Business Fraud

#50

Post by mirimir » Tue, May 05, 2020, 10:56 PM UTC

Inflating sales is a classic move:

> In indictments involving the case, prosecutors said HBOC sold software or services to more than a dozen hospitals with conditional "side letters" that allowed the hospitals to back out of the deals. The side letters were then hidden from auditors and the transactions were reported as sales.[0]

McKesson (and perhaps other pharma wholesalers) also played games by timing invoice payments and chargebacks to increase quarterly growth.

0) https://www.nytimes.com/2005/01/13/business/mckesson-agrees-...

Edit: Another tactic is hiding rebate and chargeback transactions in numerous ~unauditable spreadsheets, stored on individual employee machines. Or even only as hard copy.