by Patrick on April 5, 2007
MSN Money reports the federal government is attempting to shut down over 125 Jackson Hewitt tax outlets in four states for performing systematic “tax-fraud schemes.” Jackson Hewitt is the nation’s 2nd largest tax preparer, behind H&R Block. The franchises in question were wholly or partially owned by Farrukh Sohail.
The Justice Department stated these specific franchises have defrauded the government of more than $70 million. Some of the allegations of fraud include false W-2 forms, fraudulant deductions and fuel-tax credits, and false claims for for the earned-income tax credit.
The allegations state that Sohail and the other defendants purposefully and defrauded the government on a massive scale. The Justice Department also alleges the business environment at these franchises encouraged fraud and the filing of questionable forms and documents. Some employees also allegedly received kickbacks for perpetrating this fraud.
The article did not specify the four states by name, but it mentioned that suits had been filed in the federal courts in Chicago, Atlanta, Detroit, and Raleigh, NC. So I assume the states are Illinois, Georiga, Michigan and North Carolina.
So what does this all mean? Well, it seems as though this is localized to only 125 franchises and does not mean that Jackson Hewitt as a company is committing this fraud. It appears as though these particular franchises were facilitating fraud commited by individual tax payers, and padding returns to increase refunds. I would assume that it also means that if you did business at any of these franchises, that your tax return may have a higher chance of being audited.
What should you do if you believe your tax return was completed at one of these franchises? I would highly recommend thoroughly going back over your taxes or paying a professional accountant to do so for you. It would be money well spent. If you find anything suspicious, I would recommend contacting a tax professional or lawyer for specific advice.
What should you do if you committed the fraud? Shame on you. Turn yourself in and hope the government is in a lenient mood.
by Patrick on April 4, 2007
Last week, I attended a financial seminar put on by the Commissioner of the SEC, Mr. Paul Atkins. This is a recap of the seminar, and is based on the notes I took.
In Part I, I covered the sections ‘What is the SEC,’ ‘Why Invest?’ ‘Where to Begin,’ ‘Investment Choices,’ and ‘What Investments are Right for Me?’
In Part II of the series I cover the sections ‘What to Watch For,’ What to do Before Investing,’ ‘What to do After Investing,’ and ‘Types of Scams.’
What to Watch For
- Brokers are salespeople (this does not mean though that they are bad)
- Beware of the benevolent stranger (unsolicited advice)
- If it sounds too good, it is!
- Be skeptical of
- Advice from the media
- Penny stocks (shares priced less than $5 each)
- Insider tips (they are illegal!)
- Promises of spectacular profits or guaranteed returns
- Testimonials (such as on TV, in print or on the Internet)
- Unsolicited Phone calls
- Forecasted Future Earnings
- General tips for financial security:
- Don’t give personal info to a person/company you do not know
- Avoid unregistered securities
- Avoid Phishing scams
- Keep all your transaction documents
- Red Flags:
- Membership fees to invest (this does not include minimums to open accounts)
- Suspiciously high price or fees
- Too good to be true
- Bonuses to recruit others
- Request to send money to the individual broker/agent, not the company
- Bait and switch (an offer to invest in one opportunity, then changing the opportunity/offer at the last minute. e.g. ‘oh we just ran out of this, but I have something just as good or better!’ If it were better, wouldn’t they offer you that opportunity first?)
Before Investing
- Get everything in writing and READ it!
- Understand the investment. Warren Buffett always maintains that he does not invest in technology stocks because he only invests in things he understands. If this principle is good enough for the world’s greatest investor, it should be good enough for anyone!
- No question is too simple. (It’s your money!)
- Don’t make emotional investment decisions
- Don’t be pressured into buying
- Read all forms before signing them!
- Never sign incomplete forms!
After Investing
- Watch for unauthorized trading and churning within you investments/accounts
- Be aware of unsuitable investments
- Watch for delayed account transfers
- Do not accept account statements directly from your broker (they should come directly from the institution; if your broker insists only he has this information, it is a possible red flag that the information is false)
- Report problems directly to the SEC
Types of Scams
- Ponzi Schemes
- Pyramid Schemes
- Affinity Fraud
- Telephone/Internet solicitations
- Here they showed clip from Boiler Room when Giovanni Ribisi’s character cold calls a guy at work and talks him into buying stocks.
- Another telephone scam: voice message left for the wrong person, and they leave ‘insider trading’ information. This is fraud aimed at pumping a stock price and then dumping it. The fraud is pulled off by using internet phone services where they can change the area code to represent any local area they want (to offset people’s reliance on caller ID).
- Commissioner Atkins himself said he has been cold called about investments at his desk while working as the commissioner of the SEC!
- Bottome line – Never buy from someone you do not know and never buy anything without seeing the investment plan in writing first.
Remember, there are risks associated with all types of investing, from losing your money through loss of value in the stock market to not keeping up with inflation. It is your job to determine the associated risks and determine the amount of risk you should take.
*Disclaimer: This post is based upon handwritten notes and my memory from the seminar. This should not be interpreted to represent the official stance of the SEC. Please see their website for their official views.
by Patrick on April 3, 2007
Last week, I attended a financial seminar put on by the Commissioner of the SEC, Mr. Paul Atkins. This is a recap of the seminar, and is based on the notes I took.
In Part I, I will cover the sections ‘What is the SEC,’ ‘Why Invest?’ ‘Where to Begin,’ ‘Investment Choices,’ and ‘What Investments are Right for Me?’
In Part II, I will cover the sections ‘What to Watch For,’ ‘What to do Before Investing,’ ‘What to do After Investing,’ and ‘Types of Scams.’
What is the SEC and what does the SEC do?
- The SEC is a government agency that was formed after the stock market crash in 1929. They are basically the policemen of the stock market. They have prosecutorial powers and the civil authority to sue persons and institutions (but not to inflict punishment). They also monitor company info for truth and accuracy and promote financial education. For more information visit the SEC website.
Why Invest?
- Money Grows
- For a comfortable retirement: Commissioner Atkins mentioned the bleak future for Social Security and that it will not be much, if anything, by the time most of the audience are eligible to receive it (most were between ages 25-45), and our children may not even have it.
- Education costs
- Family costs
- For a rainy day
- Make your money work for you
- It makes the economy work by creating jobs and helping companies grow (Here he showed a movie clip featuring Gordon Gecko’s ‘Greed is Good‘ speech from the movie Wall Street
).
Where to Begin?
- Start today: Never too late, too little
- Determine your Goals
- Make a Savings Plan: set up an automatic savings plan (such as an auto investment in your company’s 401K Plan or the TSP, which he personally uses)
- Invest in appreciable assets (A car is not usually appreciable unless it is a collectible; he mentioned looking into stocks, bonds, funds, real estate, gold, savings accounts, etc.)
- Gather Information
- Be skeptical (don’t believe every talking head on TV, or every article in print)
- Diversify: Don’t have all your eggs in one basket. He specifically mentioned that thousands of people lost their nest eggs when companies such as Enron and WorldCom went under.
- Understand Risks associated with the type of investment you choose
Where to Begin? (Where Do I Purchase Investments)
- Through retirement Plan at Work
- Directly from fund company
- Broker: Ask your broker these important questions:
- How much are you paying them?
- Who else pays them?
- Are they acting as agent/principal
- Report any problems in writing
- Research your broker through the National Association of Securities Dealers.
Investment Choices
- Stocks: Ownership in the company; Risks, there is usually no recourse against bankruptcies
- Bonds: A promise to receive payment for debt; more security, sometimes insured, possibility of prepayment
- Funds: a grouping of stocks, bonds, or other securities in one investment; usually a safer form of investment compared to individual stocks, as they are typically diversified
What Investments are Right for Me?
- Determine your Objectives:
- Income: Short Term Needs
- Growth: Long Term Needs
- Objectives: Determine the amount of risks to take.
- Stock market: Derivatives or Funds
- Mutual Funds – questions to ask:
- Load vs. no load
- Management fees
- Redemption Fees
- Expenses
- Fund Objectives
- Can still lose Money
- Treasury Bonds: Guaranteed, but do not make large amounts if interest
- CDs: Guaranteed, but do not make large amounts if interest
- Savings Account: Guaranteed, but do not make large amounts if interest
- Gold
- Mattress: no gains
Remember, there are risks associated with all types of investing, from losing your money through loss of value in the stock market to not keeping up with inflation. It is your job to determine the associated risks and determine the amount of risk you should take.
*Disclaimer: This post is based upon handwritten notes and my memory from the seminar. This should not be interpreted to represent the official stance of the SEC. Please see their website for their official views.
by Patrick on April 2, 2007
The NY Times, CNN and several other media outlets have reported that The Tribune Co. has agreed to be bought out by Sam Zell, a Chicago Real Estate tycoon. The Tribune Co. owns the Chicago Tribune, The Los Angeles Times, over 20 television stations and the Chicago Cubs baseball club. The deal is valued at $13 Billion.
According to the NY Times and Sports Illustrated, the Cubs will be sold following the 2007 baseball season.
What I think is interesting about this deal, is that this offeseason alone, the Cubs tied up over $300 million dollars in future contracts and are currently in negotiations to sign their star pitcher, Carlos Zambrano to a multi-year, multi-million dollar deal (expected to be in the neighborhood of $80-90 million). By the time you add the other players on the roster, that is well over a $400 million commitment in the coming years. (Mark Cuban and Donald Trump have been rumored to be interested in purchasing the Cubs. Both have denied being in direct negotiations.)
Sports Illustrated on-line estimates that the Cubs could fetch around $600 million when they are sold. It was rumored during the offseason that the Cubs were signing a lot of lucrative contracts to improve team performance and thus enhance the team value when it would be placed for sale.
If I only had $600 million dollars. I’d have guaranteed luxery box seats for life at Wrigley Field… 
by Patrick on April 2, 2007
CNN Money has an article today about predicting the next big hedge fund to do an IPO. This is a timely topic because recently Fortress Investment Group became the first hedge fund to be traded on the NYSE.
I recently attended a seminar with the Commissioner of the SEC where he commented on the growing trend of private equity and IPOs. Basically, he said with the markets near all-time highs, and there being a lot of money available for investment, there is going to be a lot of large scale action in the marketplace.
Who will be the next hedge fund to go public? Well, Blackstone Group, a private equity firm has already announced its intentions. There is a lot of curiosity about what will happen on the first day as well as the coming months. Basically, Blackstone Group plans on raising $4 billion in its IPO, but it plans on offering non-voting shares.
No one knows how Blackstone Group will perform on its IPO, but here is what happened with Fortress – Quoted from CNN Money:
“So how has Fortress (Charts) stock done post-IPO? Its shares have recently retreated from $37 to the mid-$20s – fueling criticism that the founders cashed out at the top of the market. Fortress partisans counter that the principals still own almost 80 percent of the company, and similar arguments were heard when Goldman Sachs (Charts) went public in 1999; today the investment bank’s stock has more than tripled, to almost $200 per share.”
So what can we expect when Blackstone and other hedge fund and private equity groups go public? Well, no one knows for sure, but many well publicized IPOs go up very quickly, then retreat within the next few days or weeks. (Too many peope don’t understand making limit orders when buying stocks, they don’t set a price they just click ‘buy’ and the price goes up, up, up)…
I won’t give any advice, but here is a method endorsed by Jim Cramer in Mad Money. if you buy some stock and see it rise dramatically, why not take some off the table and realize gains immediately? If it draws back, you then have the option of buying some back at a lower price, or being happy with your realized gains.
* Disclaimer: I do not own nor do I plan to buy any shares of the aforementioned companies; this is because I like to invest in low cost mutual and index funds. You should only invest based on your understanding of the risks involved and your personal needs.
