Reference no: EM132479767

One-Minute Fraud Mystery

Big Fish Investment Inc.

Point 1: Big Fish Investment Inc., an investment advisory and brokerage firm, has a sales associate named John Sales who has brought in more money for the firm anyone else. His immediate supervisor is Charles Biggs. Biggs's oversight includes instructing Sales to push certain stocks and discourage trading in others. The firm has $110 million under management and is regulated by the Financial Industry Regulatory Authority (FINRA). FINRA is overseen by the Securities and Exchange Commission (SEC). Big Fish has specific stocks for sale that no one else has. These stocks are mostly trading under $10 a share. The firm does a terrific job marketing the initial public offerings for new companies and develops the expectation that these start-up companies could become the next Apple or Microsoft. Big Fish's thief executive officer (CEO), Gordon Walls, calls Biggs to let him know which stocks their clients and prospects should buy and which ones they should sell. Walls appears to be a market maker in these securities.

Point 2: A CPA firm has been providing Big Fish with accounting services (including a financial audit) since Big Fish's inception. One of the CPA firm partners, Tom Ticker, often plays golf with Gordon Walls. The CPA firm conducts its investment activity through Traders Inc., a major clearinghouse. The CFO of Traders Inc., Hector Moneymaker, is concerned that Big Fish is heavily lever- aged and could face a margin call.

Point 3: One of the stocks that Big Fish holds a major position in (and is focused on selling) is Too Good to Be True Inc., which is under heavy selling pressure. This drives the price down from nearly $20 to its current market price of $2 because Big Fish's clients have refused to buy. With knowledge of the heavy selling volume, Moneymaker called Walls to ask the investment firm about its outlook for Too Good to Be True Inc. in light of the decline and unusual volume in the shares being traded. He asked about its performance and financial position, and Walls told him that he would look into it.

Point 4: Immediately after this call, Walls and Biggs started shredding documents and told all sales associates to suspend trading activity in Too Good to Be True Inc. until further notice. Ticker, the CPA of Big Fish, watched Walls and Biggs shredding documents from an office at Big Fish's facility while he was performing work on the company's annual audit.

Point 5: While the shredding was going on, one of John Sales's biggest clients, Omar Carton, attempted to visit the headquarters of Too Good to Be True Inc., since he was concerned about the market action and his $100,000 life savings investment. He discovered that the "headquarters" was an abandoned warehouse with no furniture or people. It only had a phone with an answering machine stating that "someone will get back to you." Carton threatened to go to the FBI with his concerns over Big Fish and its people's actions.

Point 6: Carton has requested that a forensic accounting investigation of Big Fish Investment Inc. and all related parties be performed concerning the stocks It was pushing to its clients. You have been retained by Carton and other concerned investors to do the investigation. How do you go about it, and what do you look for as Carton's engaged professional?

Question 1: Develop an understanding of the organizational and individual ethical tones of the people involved.

Question 2: Identify the organization business process being examined and the value (cash or cash-convertible) involved

Question 3: Map out the organization, its people, and those who have access to its value.

Question 4: What are the people's jobs?

Question 5: How do the departments operate?

Question 6: What do you think about the problem the mystery is trying to exemplify?

Question 7: What is the process in the mystery?

Question 8: What accounts have the potential to be circumvented?

Question 9: What are the policies of the organization? Where are the distractions in the process?

Question 10: Where are the diversions in the process?

Question 11: Where is the division in the process?

Question 12: Who are the people of interest? The enablers? The detractors?

Question 13: Who are the responsible parties overseeing the business process controls?

Question 14: What are the potential overlapping responsibilities that require a segregation of duties with access to organizational value?