March 2006 Fraud Terminology Topics
Wet Ink Policies, Baksheesh, Bicheiro,
Big Bath Charges, MI5, Plaintiff, Take-out,
Channel Stuffing, Share Market Fraud, and Top Hatting
 

Viatical investments are very risky because 40% to 50% of the life insurance policies might be procured by fraud.
 

Fraud In Other Words™
Professional Jargon and Uncensored Street Slang
by Larry C. Adams, CFE, CPA, CIA, CISA

 

Wet Ink Policies
New life insurance policies that are sold to viatical investment companies immediately after being issued, before the ink is dry. Wet ink is common when multiple insurance agents solicit a healthy senior. The person applies for one or more policies from different insurance companies, and intends to sell them immediately after they are issued. On a wet ink policy, the applicant doesn’t pay any premiums, or is reimbursed for the first premium. The American Council of Life Insurers (ACLI) contends that wet ink policies stimulate insurance fraud. The applicant commits fraud on the application by claiming he or she needs life insurance for estate planning purposes, and that a relative will be the beneficiary. The word viatical originates from the Latin “viaticum,” which means provisions for a journey. Viatical, or a life settlement, is the sale of a life insurance policy by the policy owner before the policy matures. The sale provides the seller with an immediate lump sum cash settlement, ranging from 50 percent to 80 percent of the face amount of the policy. In the mostly unregulated viatical industry, 40 percent to 50 percent of the life insurance policies may have been procured by fraud, according to a Florida Statewide Grand Jury Report in 2000. Wet ink policies are a billion dollar risk for the insurance companies, as well as the people who invest in viatical companies.
Les Henderson, “Crimes of Persuasion,” www.crimes-of-persuasion.com/Crimes/Telemarketing/Outbound/Major/Investments/
viatical.htm, December 21, 2005.

 

Baksheesh
A term that describes a charitable gift, or a tip, or certain forms of political corruption and bribery in the Middle East and Southwest Asia. Baksheesh is a variation of bakshish, a Persian word that means gift. Beggars solicit alms by crying, “Baksheesh, Baba!” Baba is a term of endearment or respect. Beggars ask for a handout loudly, but police and officials ask for a bribe quietly. A bribe that is given to an official is usually something foreign to that country, such as cigarettes, liquor, or new electronic devices. In Middle Eastern countries, it is often impossible to do business without paying a baksheesh. The “baksheesh mentality” is growing in Germany too. Reports from Transparency International (TI), headquartered in Berlin, indicate that bribery and corruption are increasing in Germany. The TI Web site is www.transparency.org.
Ralph De Sola, “Crime Dictionary,” Facts On File, Inc., New York, 1982, page 174.
Photo: Susan H. Smith-Hunter, www.greenmtn.edu/faculty/Smith-Hunter_show_03/pages/Baksheesh_Hand04.htm

 

MI5
Officially called the Security Service, Military Intelligence Section Five (MI5 or MIV) is responsible for protecting the UK (United Kingdom) against threats to national security. The Security Service was set up in 1909 to counter espionage against British organizations by foreign powers. Today, MI5 protects the country against covert organized threats, including terrorism, espionage, and the proliferation of weapons of mass destruction. MI5 supports the police and other law enforcement agencies in preventing and detecting serious crime. Four percent of its resources are allocated to fighting excise fraud, organized benefit fraud, organized housing fraud, assisting in the seizure of criminal assets, and combating hackers who try to compromise government records. MI5 is headquartered in London. The official Web site solicits hotline tips, and also provides security advice for businesses. On the MIV triangular or pyramid badge, EIIR (elizabeth secunda regina) refers to Her Majesty Queen Elizabeth II. An eye symbol is located under the I (for intelligence) at the top of the badge. An eye symbol was part of the logo for Pinkerton's National Detective Agency in the United States in 1850. Pyramid and eye symbols also were used by secretive Freemasonry fraternal organizations and the Knights Templar.
www.mi5.gov.uk, December 22, 2005.

 

Big Bath Charges
Large amounts of expenses that are written off in quarterly financial statements, when a company would record a loss in any case. Taking a big bath, or a financial soaking, in a quarter has the effect of boosting income in future quarters. When company earnings take a major hit, management hopes that Wall Street and investors will look beyond a one-time loss and have an expectation for better earnings ahead. Gateway, Inc., a personal computer seller, took a US$113.8 million big bath charge in 1997. The stock price dropped 20 percent when the charge was publicly disclosed, and then the price appreciated 83 percent within a year. Cisco Systems, Inc., which develops computer network hardware and software, took a big bath of almost US$4 billion in 2001, which included an inventory write-down of US$2.5 billion. Big bath charges are explained as costs for corporate restructuring, mergers, management changes, or system conversions. Big bath charges can be used to manipulate earnings, bury fraud costs, clean up the balance sheet, or provide a fresh start. Sometimes these charges are overestimated, and are miraculously reborn as income when future earnings fall short.
Richard M. Rockwood, “Accounting: Focus on Red Flags,” May 2002, www.focusinvestor.com/AccountingRedFlags.pdf.

 

Plaintiff
A person, business, or party who initiates a lawsuit before a court. In some jurisdictions, a plaintiff is called a claimant, a petitioner, or an applicant. The word plaintiff is derived from the Latin verb “plangere,” that means to beat one’s head or breast as a sign of grief. In French, it became “plainte,” that means an audible moan, groan, lamentation, or complaint. French law used “plaintif” to describe a person who lodged a complaint. The English language adopted plaintiff about 1400 A.D.
“The Merriam-Webster New Book of Word Histories,” Merriam-Webster, Springfield, Massachusetts, 1991, page 257.

 

Top Hatting
Increasing an existing bet, moving it, or placing a new bet in roulette or another casino game after the outcome has been decided. Top hatting involves placing more casino chips on top of existing chips. “Column pushing” refers to pushing a stack of chips onto the winning number. Top hatting relies on distracting the dealer, casino inspector, security staff, and other players at the vital point. Just as the roulette ball drops, the distracter leans forward with a cash note to divert the dealer’s attention, while hiding gaming chips belonging to his colleague in his hand. The distracter spots the winning number on the wheel and places the chips on the winning number on the betting table in a split second. The colleague claims the winnings. The sleight of hand trick requires months of practice to master. Scotland Yard’s gaming unit arrested a sophisticated gang that swindled casinos in the West End of London out of tens of thousands of British pounds in 2005. The gang used aliases and disguises for years to get access into casinos where they had been banned. The gang worked as a team to divert attention. New security systems use digital cameras above the roulette wheel and betting area for synchronized frame capture, and motion sensors to detect movement after the end of each game. Gaming tables are wired for recording sounds and dialogue too.
Justin Davenport, “Gang Guilty of Swindling Casinos with Top Hatting Deception,” The Scotsman, August 9, 2005, http://news.scotsman.com/uk.cfm?id=1749362005.

 

Share Market Fraud
Struggling listed companies, or those owned by families, strip out the assets of their firms or illegally allocate shares of stock without informing minority shareholders, company boards, or regulatory authorities. Share market fraud involves the misappropriation of funds in connection with share trading, according to the Australian Institute of Criminology’s 2003 research study on “Serious Fraud in Australia and New Zealand.”
Steve Vickers, “Forms of Fraud,” March 2003,
http://intl-risk.com/pdf/news/hktatler-mar2003.pdf.

 

Take-out
A convenient phone message that arrives for a conman when it appears that his marks or potential victims are becoming suspicious of his scam. The advance notice is usually provided by a friendly bartender for a price. The take-out allows the fraudster to vanish before more problems crop up.
Jonathon Green, “The Dictionary of Contemporary Slang,” Pan Books, London, 1984, page 280.

 

Channel Stuffing
A common, deceptive business practice that ships unwanted inventory to retailers far ahead of schedule, filling the distribution channels with more product than is needed. Financial statements are manipulated by inflating sales and accounts receivable, and reducing inventory when the merchandise is shipped. Business managers and sales managers panic and use channel stuffing to meet market growth expectations for the period, or boost the value of the stock, or exceed their goals to earn bonuses. The short-term sales boom can deceive investors and regulators. In the next period, the business might have to offer substantial discounts or extended credit terms to retailers, to keep them from returning the overstock or unsold merchandise. Frequent channel stuffing can snowball to cover up longer trends of decreasing sales volume. In 1986, the U.S. Securities and Exchange Commission issued stringent accounting rules, known as the Stewart Parness Criteria, to limit bill-and-hold transaction schemes.
Sarah Maranjian, “Stuffing the Channel,” The Motley Fool, March 28, 2002.

 

Larry C. Adams, CFE, CPA, CIA, CISA, teaches fraud examination at the Keller Graduate School of Management of DeVry University in Arizona. He publishes the book and online editions of “Fraud In Other Words.” His Web site is www.larry-adams.com. His e-mail address is fraudwritr@aol.com.

 

ã Copyright 2006 Larry C. Adams. All rights reserved.
“Fraud In Other Words” is a trademark of Larry C. Adams.
 

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