Deck 8: Fiduciary Fraud

Question 1

Actions by the government that contributed to the collapse of the savings and loan industry included all of the following except:

A)increasing down payment requirements.
B)commercial real estate loans.
C)permitting money market mutual funds.
D)deregulation.

Answer 1

A

Question 2

Though thrift failures occurred nationwide, what two states accounted for the preponderance of the worst thrift frauds?

A)Oklahoma and Texas
B)Florida and California
C)New York and California
D)California and Texas

Answer 2

D

Question 3

First Pension went so far as to ______________ to fool an employee who questioned company investments.

A)hire an actress to impersonate an auditor
B)recruit investors to lie to regulators
C)present false trust deeds to auditors
D)produce fake company records showing the profitability of the investments

Answer 3

A

Question 4

Steve Wymer's Institutional Treasury Management lost $174 million. Investors were mainly:

A)teachers with retirement funds.
B)individuals with private mutual funds.
C)municipalities and government agencies.
D)individual investors with IRAs.

Question 5

The traditional crime of embezzlement by low-level employees has been replaced by:

A)thefts masterminded by outsiders.
B)low-level employees engaging in stock fraud.
C)company owners building up companies and selling them to the highest bidder with consequent job loss.
D)mismanagement and looting by upper-level management.

Question 6

The primary investment vehicle for First Pension was:

A)penny stock.
B)nonexistent mortgages.
C)deal stocks.
D)junk bonds.

Question 7

Outsider thrift frauds primarily involved all of the following except:

A)appraisers.
B)accountants.
C)lawyers.
D)bank examiners.

Question 8

Federal authorities have agreed that which of the following was a major contributing factor to the savings and loan implosion?

A)Careless investment practices
B)The downturn in the economy
C)Fraud and insider abuse
D)Regulation practices

Question 9

______________ involve(s) loans between insiders at different thrifts to evade regulations pertaining to restrictions on insider loans.

A)Land flips
B)Linked financing
C)Reciprocal lending
D)Nominee loans

Question 10

______________ is the process of progressively increasing the sales price of real estate and the size of the loan and defaulting on the final loan.

A)Nominee loans
B)Land flips
C)Linked financing
D)Reciprocal lending

Question 11

______________ refers to loans conditioned on receipts of deposits. The loan then goes into default and deposits can be withdrawn.

A)Land flips
B)Reciprocal lending
C)Linked financing
D)Nominee loans

Question 12

Alan Bond was convicted and sentenced to prison for cheating retirees and workers by "cherry-picking." This term involves:

A)keeping profitable investments and investing others money in unprofitable ones.
B)favoring some clients' accounts over others when making investments.
C)directing investment funds to brokerage houses with the highest fees and getting kickbacks.
D)deliberately mixing unprofitable investments in with profitable ones to increase fees.

Question 13

Which of the following is not true about the crimes identifies in the whirlwind tour of financial crimes?

A)Most involved million-dollar losses.
B)In all the cases individuals received prison sentences.
C)Most of those convicted were mid-level managers.
D)None involved insurance companies.

Question 14

Insider thrift fraud took all of the following forms except:

A)desperation dealing.
B)borrowing up.
C)covering up.
D)collective embezzlement.

Question 15

Financial institutions, because they handle other people's money, all have one thing in common: the public needs to be able to ______________ them.

A)trust
B)invest in
C)investigate
D)find

Question 16

Financial institutions can include all of the following except:

A)pensions.
B)check-cashing companies.
C)financial service companies.
D)banks.

Question 17

Estimates of the cost of the savings and loan disaster range from a mere ______________ to ______________.

A)$500 million; $20 billion
B)$500 billion; $750 billion
C)$200 billion; $1.4 trillion
D)$20 billion; $500 billion

Question 18

Like other criminogenic cultures, the savings and loan industry placed a heavy emphasis on:

A)presence of organized crime interests.
B)intricate government regulations.
C)reduced competition.
D)profit.

Question 19

Wymer and others tried to justify their schemes by saying that there was an economic downturn and it was necessary to pursue risky investments and hide information from regulator to try to recover. This might have been more believable had it not been for:

A)amassing of personal fortunes.
B)lack of fraud in investments.
C)insolvency in a time of great economic prosperity.
D)other firms' ability to weather the tough financial times.

Question 20

The Keating Five were:

A)the five institutions controlled by Keating.
B)Keating and his four relatives who looted Lincoln Savings and Loan.
C)five regulators bribed by Keating.
D)United States Senators.

Question 21

The biggest losers in the Institutional Treasury Management case were:

A)stockbrokers.
B)taxpayers.
C)banks.
D)the public.

Question 22

The traditional crime of embezzlement by lower-level employees has become overshadowed by concerns with upper-level management mismanaging and looting their own companies.

Question 23

Federal authorities have agreed that careless investment practices were a major contributing factor to the savings and loan implosion.

Question 24

An example of premium diversion would be using premiums collected to pay claims.

Question 25

The Multiple Employer Welfare Agreement enables employers to meet welfare payment requirements for healthcare.

Question 26

The First Pension Corporation investments was an insider trading scam.

Question 27

Regulator reaction to insurance scams can be very slow. In the case of Martin Bramson and his fake malpractice insurance policies for doctors, an insider had tipped regulators for ______________ before action was taken.

A)15 years
B)10 months
C)10 years
D)5 years

Question 28

Unscrupulous insurance companies can also cheat the public by claiming to have assets they do not have, or assets that are worth more than they really are. The reason companies do this is:

A)to obscure money received from illegal activities.
B)to conceal diversion of premiums.
C)to meet capitalization requirements.
D)to lure investors.

Question 29

Reinsurance is a legitimate business practice in the insurance industry. It becomes a problem when:

A)insurance companies fail to adequately diversify their investments.
B)insurance companies do not spread possible losses adequately.
C)reinsurers are undercapitalized.
D)insurance companies use reinsurers that are located outside the United States.

Question 30

Alan Teale and his far-flung group of companies took advantage of the public in all of the following ways except:

A)avoiding the reinsurance scam.
B)disability plans for professional athletes.
C)liability policies for high school athletes.
D)securing claims with treasury notes secured by the Sovereign Cherokee Nation Tejas.

Question 31

The Multiple Employer Welfare Arrangement was created by Congress to:

A)enable small business owners to avoid the requirement to provide insurance.
B)enable employers to provide life insurance.
C)enable employers to meet welfare payments requirements for health care.
D)enable employers to provide group medical insurance.

Question 32

White-collar crime was not a key instrument in the savings and loan debacle.

Question 33

Deviance in the savings and loan industry is an example of the organization being both victim and perpetrator.

Question 34

The insurance industry is largely regulated by individual states.

Question 35

When it comes to the insurance industry, the public is in most danger from:

A)customers who make false claims.
B)the state's failure to pay claims out of its guaranty fund.
C)unscrupulous insurance companies.
D)states who let insurers raise premiums.

Question 36

The term "offshore" means:

A)a company based outside the continental United States.
B)a company located in a fictitious country.
C)a location in a place other than the United States.
D)a company located in a United States territory but not in one of the 50 states.

Question 37

One of the most callous forms of white-collar predication entails the looting of money from retirees and workers who have deposited their savings in pension funds.

Question 38

An example of premium diversion would be:

A)using premiums to pay excessive salaries to executives.
B)using premiums to pay operating costs.
C)using premiums collected to pay claims.
D)failure to pay legitimate claims.

Question 39

Reciprocal lending involves loans between insiders at different thrifts to evade regulations pertaining to restrictions on insider loans.

Question 40

Nominee loans involve loans on real estate to borrowers that do not exist or are not in fact real borrowers.

Question 41

Alan Teale, in his varied insurance schemes, sold disability policies to professional athletes and liability policies to high-school athletic programs.

Question 42

How are offshore entities used in committing financial fraud? Provide examples.

Question 43

Why were criminal networks a necessary part of many of the savings and loan frauds? What activities occurred in the criminal network? What were the common methods used to cheat the public?

Question 44

Steven Wymer testified before ________________ that broker-dealers had aided and abetted him in his schemes.

Question 45

Financial institutions are entrusted to properly invest and oversee large amounts of funds which are ________________ in them.

Question 46

The insurance industry is largely regulated by individual ________________.

Question 47

Discuss what pension fund fraud is. Why do you think this crime is especially heinous? Who are the victims of pension fund fraud?

Question 48

The biggest losers in the Institutional Treasury Management case was ________________.

Question 49

Distinguish insider thrift fraud from outsider thrift fraud. Who is involved? What are the techniques? What are the motivations?

Question 50

First Pension Corporation investments turned out to be a ________________ scheme.

Question 51

A number of recognized Caribbean nations such as Belize, Dominica, and Grenada have offered economic citizenships, which have a lot in common with the offerings of nonexistent countries.

Question 52

The term ________________ refers to a location in a place other than the United States.

Question 53

Reinsurance companies function outside of the formal regulatory system because they do not directly affect consumers.

Question 54

Investigate the reinsurance industry.Is it still a common practice in the United States? Have there been any recent insurance scandals that involved the practice of reinsurance?

Question 55

Merrill Lynch was a key player in the subprime mortgage collapse. It had been securitizing subprime loans and then selling them to investors who had borrowed the money to purchase them from Merrill Lynch itself.

Question 56

How does investment and financial services fraud work? Who are the actors typically involved in this sort of fraud?

Question 57

________________ loans involve loans on real estate to borrowers that do not exist or are not in fact the real borrowers.

Question 58

Subprime ________________ fraud is one of the main reasons for the current national surge in foreclosures.

Question 59

What are economic citizenships? Why do individuals obtain these items? Why do countries issue them? What is the negative side of economic citizenships?