Attestation Update – A&A for CPAs

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Journalist falling for teen claiming $72M in stock market profits is object lesson for auditors

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How many failures in the smell test can you identify in this story, which was published by New York Magazine?

In a few years of trading*, a 17-year old* High School junior has cleared $72 million* in profits from a diverse strategy* of penny stocks*, oil futures, and mid-cap stocks. He owns a BMW and has already rented an apartment in Manhattan that his parents won’t let him live in*. He lives with his parents in the same place they’ve lived for a while*. To validate his story, a fact-checker looked at a* Chase bank statement* that shows a $72M balance*. The stock whiz now says he met with the fact-checker “for about 10 seconds” to view the one statement*.

Update, forgot this part:  After one of the interviews, he was going to an appointment with some guy who wanted to give him* a $150M investment* to start a hedge fund* the day he turns 18*.

The whole thing was a hoax.

My perception is it was a small fib told by high school kids, believed by buddies, repeated, turned into a small-scale rumor, then grew to wide-spread rumor, with numbers growing at each retelling, that got passed to one reporter, then got passed to a reporter at New York Magazine.

If you’ve ever told a fish story that grew out of control (think back to those painful, awkward memories of when you were in high school!), you can have sympathy for the hoaxer and his buddy. Sympathy for the gullible reporter, under-skilled fact checker, and naïve editors is a bit harder to gather. But don’t laugh too hard…

There is an object lesson for auditors in getting scammed by fabricated documents that we would be well advised to learn.

Francine McKenna connects this hoax to the audit world in her article at Medium:  Teen Trader Dupes Journalist: It Happens To Auditors All The Time.

She provides a great summary of the story and how it fell apart. Article then takes a journey through a long list of visible cases where auditors were duped by fabricated documents.

She links to two of my articles in her discussion, talking about Perigrine Financial Group and a couple of other fabrication scams.

It is frighteningly easy to alter documents with software that is readily available today. I won’t go into details.

Auditors, if you haven’t already thought about how easy it is to fabricate documents, might be worth a few minutes of war-gaming to see how someone could alter each of the items you view during an audit.

In case you weren’t already scared, check out the link Ms. McKenna provided to Bank Novelties, a company that will create fake bank statements for you. They have a fairly impressive list of bank, credit union, and credit card statements they can provide. Summary pages or full statements, which would you like? As many months back as you wish.

They can also create paystubs for even smaller fees. That ought to give lenders heartburn. Just think – the paystubs and bank statements a loan officer looks at to support a loan could be complete fabrications.

For a survey of the story and examples of auditors falling for a scam, check out the article at Medium. For a lot more depth, check out the huge number of included linked articles.

Oh, can you smell the rot at each “*” above? I hope each of those points would raise concern for an auditor that something was severely wrong. I do hope an auditor would catch the scam missed by the reporter and fact-checker. After pondering the PFGBest and Parmalat fiascos, I’m not so sure.

Update:  Rumbi Bwerinofa discusses my post:  How Are You Confirming Your “Facts”?

She points to an article she wrote a year ago reminding us of the basics of confirmations:  Back in the day…. Today. Reminds us of the basics: verify the address, keep control every step of the way. Also, beware fake web sites. Check out the article to brush up on the basics.

Two years ago I wrote about a baseball player who bought a website in order to create fake pages that offered a cream for sale. He claimed buying a bottle at the site and offered that as the excuse he failed a steroid drug test. Check out: Fake website used to support claim of unintended steroid use by baseball player.

Written by Jim Ulvog

December 23, 2014, 8:01 am at 8:01 am

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