CPAs Gone Bad (#359)

What happens when CPAs don’t follow the rules? Who have gone bad? I’ve summarized ten recent cases. They come from Google searches on CPAs who received felony convictions. And believe me, I didn’t have to try very hard – there are a lot of CPAs who’ve committed felonies.

CPAs Who Have Committed Felonies

First person. A CPA resident of Birmingham, Alabama pleaded guilty to securities fraud and was sentenced to 44 months in prison after admitting to illegally diverting investors’ funds under his management for his personal use. He diverted $870,000 from six investor accounts that somehow ended up in his own account.

Next person. A Charlotte, North Carolina CPA engaged in securities fraud. He fraudulently obtained more than $3.6 million from at least 19 investors by asking them to invest in debenture notes. He then promised that the funds would be used for high-interest consumer loans, from which they’d receive interest payments. And… he kept the money. He got a 20-year prison sentence, and a $5 million fine.

So then I figured, let’s try to find a CPA gone bad from a really small state, like Delaware. That took about one minute.

A CPA from Middletown, Delaware took $3 million from a client’s trust account, parked it in his personal account, and then spent it to buy a couple of tax preparation franchises. And on top of that, he got signature authority over the bank accounts of an elderly widow, and became her executor. After she died, he wrote checks from her account for his personal benefit. He also didn’t notify the public pension system that she had died, and continued to collect – and spend – those pension payments. For all of that activity, he pleaded guilty to two counts of wire fraud and one count of making false statements on tax returns, and is currently spending four years in jail.

Let’s keep going. A CPA and attorney from Scarsdale, New York stabbed his wife more than 20 times while she was in the shower, which killed her. Apparently, they were going to begin divorce proceedings in five days. He pleaded guilty to first-degree manslaughter and is spending 20 years in jail.

And the next one. An Atlanta audit manager shot and injured her boss, who was a managing director. She then kept going and murdered two other people at a property management office. She had filed a federal whistleblower lawsuit against her employer the previous summer, alleging retaliation, persecution, harassment, intimidation, threats, etc. No word on her sentencing.

And here’s another. A Parker, Colorado resident ran a tax preparation service that provided payroll processing services to clients. He transferred payroll taxes from client accounts and kept it, rather than forwarding it on to the IRS. And then he spent it on mortgage payments and home improvements. He got 12½ years in prison for wire fraud and assisting in the preparation of false tax returns. He also had to pay $9.7 million in restitution. And if I might interject on this one, how on earth do you not get caught doing this? Incredibly stupid.

We have more. A Torrance, California CPA was convicted of felony drug possession charges. She also pleaded no contest to a felony count of assault with a deadly weapon, and received a jail term of just under one year. And on top of that, she didn’t report any of this to the California board of accountancy, which suspended her license.

And here’s another. An Evansville, Illinois CPA mischaracterized client payments for accounting services as loans, and then didn’t report the income on his income tax returns. He was actually pretty devious. He had direct access to the clients’ accounting records, and actually altered the invoices he had sent them to look like loan requests. All of this added up to $435,000 of unreported personal income. And for all of that effort, he received two years in federal prison, and had to pay $208,000 in restitution.

And we keep going. A Hawaii CPA was convicted of aiding a racketeering kingpin, who in turn was indicted for a whole range of offenses, including murder for hire, drug trafficking and armed robbery. The CPA prepared false tax returns that covered up hidden income over at least an eight-year period. No word on penalties imposed for this one.

And for our tenth and final CPA gone bad, three Texas CPAs promoted a tax shelter scheme that allowed high-income clients to claim fraudulent tax deductions that reduced their income taxes. They directed the clients to transfer funds into shell companies, and then returned the money to the clients, untaxed, for their personal use. To conceal the circular flow of funds, the CPAs commissioned fictitious business valuation reports, created invoices for fake business expenses, and drafted sham contractual agreements. The scheme concealed $1 billion from the IRS. They are looking at what appears to be well over 20 years in prison. Each.

So, in short, and despite all the ethics courses that CPAs are required to take, it does not appear that we’re any better than the average person you’ll meet in the street. Maybe we need to keep taking those classes.