How did Petters conduct a $3.65 billion Ponzi scheme?
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1, Discuss how Petters Group Worldwide / Petters Company Inc. were able to conduct a $3.65 billion Ponzi scheme. Using the concepts and framework of Enterprise Risk Management, COSO, and/or the Basel Accords, make recommendations as to how a situation such as this can be prevented.
2, Give at least one specific example of a company actively dealing with the operational risk issue(s) of wire fraud, identity theft, and/or cyber-attacks. How can Enterprise Risk Management be part of the solution?
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Solution Summary
1, Discuss how Petters Group Worldwide / Petters Company Inc. were able to conduct a $3.65 billion Ponzi scheme. Using the concepts and framework of Enterprise Risk Management, COSO, and/or the Basel Accords, make recommendations as to how a situation such as this can be prevented.
2, Give at least one specific example of a company actively dealing with the operational risk issue(s) of wire fraud, identity theft, and/or cyber-attacks. How can Enterprise Risk Management be part of the solution?
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Basically, when we look at any major fraud, we see commonalities. This one is no exception, and this one was a bit different due to the main people that were involved. When we analyze how this continued with no stopping in sight which led the company to run the scheme up to $3.65 billion, we see a lot of conflicts of interest right from the start. At Petters, Paul Traub was one of the major people involved on Petters side, and Traub is a big name attorney that is affiliated with the Department of Defense. One of the other individuals was Martin Lackner, and his brother is the assistant U.S. attorney in the state where Petters operated (MN). To complicate the matter further, this also involved Petters partner, Larry Reynolds, who was part of the federal witness protection program. Keep in mind that when you're in the WPP, you're given a new name, new identity, and told never to return home (they relocate you to a different state), and you're never to talk to the media or associate with anyone who you formerly knew. This is for the protection of the witness and their family. This was actually Tom Petters partner and was later convicted with the Ponzi scheme also.
When we consider how they were able to conduct this scheme, we have to consider the main people -- the government likely wouldn't have been heavily monitoring activity in the private sector as they should have, especially because of the people involved. We've got major political names in this scheme, and we would expect that someone in a federal WPP wouldn't be out committing a crime.
We also need to consider that Petters was a public company, which means they had to be undergoing audits during this time. This shows a complete lack of auditor understanding of internal control -- a scheme to this magnitude cannot go on and be undetected by auditors. The auditing firms also were charged civilly in the Petters scheme because they didn't uncover such a massive fraud, and they were also investigated by the FBI (I don't recall the results of it, but I believe no criminal ...
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