"FDA Warns About Fake Internet Drugs FDA Says 24 Web Sites May Be Involved in Distributing Counterfeit Prescription Drugs," by Miranda Hitti, WebMD, May 1, 2007 ---
http://www.webmd.com/news/20070501/fda-warns-about-fake-internet-drugs

The FDA today strongly cautioned consumers about purchasing drugs from 24 web sites that may be involved in the distribution of counterfeit drugs.

The FDA links two of the 24 web sites to counterfeit versions of the weight loss drug Xenical.

The FDA says that Xenical's maker, the drug company Roche, tested three phony Xenical pills obtained from brandpills.com and pillspharm.com.

One phony Xenical pill contained the active ingredient in another weight loss drug. The two other fake Xenical pills contained only talc and starch, according to the FDA.

The FDA has previously linked four of the 24 web sites to counterfeit versions of the flu drug Tamiflu and counterfeit versions of the erectile dysfunction drug Cialis.

Overseas Web Sites

The web sites, which the FDA says appear to be operated outside the U.S., are:

• AllPills.net
• Pharmacy-4U.net
• DirectMedsMall.com
• Brandpills.com
• Emediline.com
• RX-ed.com
• RXePharm.com
• Pharmacea.org
• PillsPharm.com
• MensHealthDrugs.net
• BigXplus.net
• MediClub.md
• InterTab.de
• Pillenpharm.com
• Bigger-X.com
• PillsLand.com
• EZMEDZ.com
• UnitedMedicals.com
• Best-Medz.com
• USAPillsrx.net
• USAMedz.com
• BluePills-Rx.com
• Genericpharmacy.us
• I-Kusuri.jp

The 24 web sites appear on pharmacycall365.com under the "Our Websites" heading, the FDA notes.

FDA's Advice to Consumers

The FDA says consumers using online pharmacies should be wary if there is no way to contact a web site pharmacy by phone, if prices are dramatically lower than the competition, or if no prescription from your doctor is required.

The FDA's web site includes these safety tips for people buying prescription drugs online:

• Make sure the web site requires a prescription.
• Make sure the web site has a pharmacist available for questions.
• Buy only from licensed pharmacies located in the U.S.
• Don't provide personal information such as credit card numbers unless you're sure the web site will protect that information.

The FDA urges consumers to visit www.fda.gov/buyonline for more information before buying prescription drugs over the Internet.

Bob Jensen's threads on Ernst & Young scandals are at http://www.trinity.edu/rjensen/Fraud001.htm#Ernst

"Government Sues Accenture, Sun & HP for Kickbacks and Fraud," Wired News, April 20, 2007 --- http://blog.wired.com/27bstroke6/2007/04/gov_sues_accent.html

Dell's Internal Accounting Probe Uncovers Evidence of Misconduct
Annual Report Is Delayed, Restatements May Follow; Problems Aren't Specified. The computer maker said the investigation also found a number of accounting errors and deficiencies in the financial-control "environment." Dell stressed that its investigation isn't complete, however, and said it will delay filing its annual 10-K report with the Securities and Exchange Commission, originally due April 3, past an extension date of April 18.
Christopher Lawton, The Wall Street Journal, March 30, 2007; Page A3 --- Click Here

Bob Jensen's fraud updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm

Ex-Chief at Qwest Found Guilty of Insider Trading
Joseph P. Nacchio, the former chief executive who transformed Qwest Communications International into a major telecommunications rival, was convicted Thursday of insider trading.
Dan Frosch, The New York Times, April 20, 2007 --- Click Here

Question
Is the market for credit default swaps rife with insider trading?

That depends on what you mean by insider trading.
See "Credit Default Swaps: The Land of Efficient Insider Trading?" DealBroker --- http://www.dealbreaker.com/2007/04/credit_default_swaps_the_land.php

Use the term in a loose sense—say defining “insider trading” as trades where one party has material nonpublic information unavailable to their trading counterparts—and the answer is clearly yes. There is a lot of that sort of insider trading in the credit default market, and there is likely to be even more as the market grows and more players gather around the table.

But since federal securities regulations against insider trading apply only to insider trading in securities, the question of whether this counts as "insider trading" in a strictly legal sense is murkier. Credit default swaps do not fit the traditional definition of securities. Prior to the enactment of the Commodity Futures Modernization Act of 2000, there was a lot of debate over the legal answer to the question of whether they should be categorized with the most common types of securities-stocks and bonds. The CFMA split the difference by declaring that swaps were not securities but that insider trading and other federal anti-fraud measures still applied to swaps where the underlying credit was a security, such as those based on publicly traded bonds.

But this has been controversial from the start. Few of those trading in the credit default swap market were calling out for protection from insider trading. Many hedge funds and other debt-holders active in the credit default market lack the kind of internal controls and so-called “Chinese Walls” that investment banks and brokerages have had to build to prevent insider trading in securities. And most of the other market participants are aware that this is the situation. In short, there is plenty of asymmetrical information in the credit default swap market but that fact is widely--even symmetrically--known. Moreover, the legal status of more complex financial products not directly tied to individual securities remains murky.

Regardless, it seems the regulators are exactly crying out to enforce insider-trading laws against the traders in the credit default market either. Right now no US regulatory agency claims oversight jurisdiction for credit-default swaps. Not the SEC. Not the Commodity Futures Trading Commission. Not the Treasury Department. Not the Federal Reserve.

Since no one enforces insider trading laws in the credit default swap market, and apparently no one has the jurisdiction to enforce insider trading laws, it seems the laws only apply to the market in some metaphysical, theoretical sense. There's something of a tree falling in an empty forest thing going on with the application of insider trading laws to credit default swaps. If a statute applies insider trading regs to credit default swaps but no one enforces it, does the tree make any sound?

Over on his new blog at Portfolio, Felix Salmon points us toward the remarks of Erik Sirri, the director of the SEC's division of market regulation.

Salmon writes:

Sirri came out and said what everybody in the markets knows but nobody wants to admit: "In a world of important pricing efficiency, you want insiders trading because the price will be more efficient. That is as it should be."

Sirri then went on to explain that insider-trading laws should still exist, for the purpose of investor protection. But he added that he thought it "very important" that credit default swaps be traded – something which won't happen if the tradable contracts fall under insider-trading regulations while the present bilateral contracts don't.

Sirri’s rationale here seems relatively simple. Insider trading laws have efficiency costs but the government has made the decision that in the case of markets for securities those costs are outweighed by the gains in investor protection and investor confidence. Part of the reason for deciding things in this way is because the government, corporate America and the large brokerages want ordinary investors to feel confident they are playing on something of a level playing field with those with potentially better access to information. But in trades involving more sophisticated players trading more sophisticated financial products, it’s far from clear that this rationale applies. Do we really need to protect hedge funds from other hedge funds and investment banks in credit default swap trading? The enforcement and compliance costs with insider trading rules may outweigh the benefits.

Nonetheless, it is entertaining watching the easily scandalized become so easily scandalized when a regulator mentions the benefits of insider trading. One question: why are so many of the easily scandalized also British?

Continued in article

Bob Jensen's threads on Credit Derivatives are under the C-Terms at http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#C-Terms

Bob Jensen's "Rotten to the Core" threads are at http://www.trinity.edu/rjensen/FraudRotten.htm

Accounting Controls in the State of Colorado Have Some Leaks
The amount Department of Revenue supervisor Michelle Cawthra allegedly stole from state coffers is now up to $10 million, double the initial estimate, lawmakers learned Friday. Cawthra's supervisor, Janet Swaney, was placed on administrative leave Friday as the investigation continued into how such a large amount could have been diverted without anyone noticing.
"Missing state money now put at $10 million:  Revenue chief testifies; boss of suspect on leave," Rocky Mountain News, May 5, 2007 --- Click Here

Inside U.S. companies' audacious drive to extract more profits from the nation's working poor

"The Poverty Business," by Brian Grow and Keith Epstein, Business Week Cover Story, May 21, 2007 --- http://www.businessweek.com/magazine/content/07_21/b4035001.htm

In recent years, a range of businesses have made financing more readily available to even the riskiest of borrowers. Greater access to credit has put cars, computers, credit cards, and even homes within reach for many more of the working poor. But this remaking of the marketplace for low-income consumers has a dark side: Innovative and zealous firms have lured unsophisticated shoppers by the hundreds of thousands into a thicket of debt from which many never emerge.

Federal Reserve data show that in relative terms, that debt is getting more expensive. In 1989 households earning $30,000 or less a year paid an average annual interest rate on auto loans that was 16.8% higher than what households earning more than $90,000 a year paid. By 2004 the discrepancy had soared to 56.1%. Roughly the same thing happened with mortgage loans: a leap from a 6.4% gap to one of 25.5%. "It's not only that the poor are paying more; the poor are paying a lot more," says Sheila C. Bair, chairman of the Federal Deposit Insurance Corp.

Once, substantial businesses had little interest in chasing customers of the sort who frequent the storefronts surrounding the Byrider dealership in Albuquerque. Why bother grabbing for the few dollars in a broke man's pocket? Now there's a reason.

Armed with the latest technology for assessing credit risks—some of it so fine-tuned it picks up spending on cigarettes—ambitious corporations like Byrider see profits in those thin wallets. The liquidity lapping over all parts of the financial world also has enabled the dramatic expansion of lending to the working poor. Byrider, with financing from Bank of America Corp. (BAC ) and others, boasts 130 dealerships in 30 states. At company headquarters in Carmel, Ind., a profusion of colored pins decorates wall maps, marking the 372 additional franchises it aims to open from California to Florida. CompuCredit Corp., based in Atlanta, aggressively promotes credit cards to low-wage earners with a history of not paying their bills on time. And BlueHippo Funding, a self-described "direct response merchandise lender," has retooled the rent-to-own model to sell PCs and plasma TVs.

The recent furor over subprime mortgage loans fits into this broader story about the proliferation of subprime credit. In some instances, marketers essentially use products as the bait to hook less-well-off shoppers on expensive loans. "It's the finance business," explains Russ Darrow Jr., a Byrider franchisee in Milwaukee. "Cars happen to be the commodity that we sell." In another variation, tax-preparation services offer instant refunds, skimming off hefty fees. Attorneys general in several states say these techniques at times have violated consumer-protection laws.

Some economists applaud how the spread of credit to the tougher parts of town has raised home- and auto-ownership rates. But others warn that in the long run the development could slow upward mobility. Wages for the working poor have been stagnant for three decades. Meanwhile, their spending has consistently and significantly exceeded their income since the mid-1980s. They are making up the difference by borrowing more. From 1989 through 2004, the total amount owed by households earning $30,000 or less a year has grown 247%, to $691 billion, according to the most recent Federal Reserve data available.

"Having access to credit should be helping low-income individuals," says Nouriel Roubini, an economics professor at New York University's Stern School of Business. "But instead of becoming an opportunity for upward social and economic mobility, it becomes a debt trap for many trying to move up."

HAPPY AS SHE WAS with the Saturn (GM ) she bought in December, 2005, Roxanne Tsosie soon ran into trouble paying off the loan on it. The car had 103,000 miles on the odometer. She agreed to a purchase price of $7,922, borrowing the full amount at a sky-high 24.9%. Based on her conversation with the Byrider salesman, she thought she had signed up for $150 monthly installments. The paperwork indicated she owed that amount every other week. She soon realized she couldn't manage the payments. Dejected, she agreed to give the car back, having already paid $900. "It kind of knocked me down," Tsosie says. "I felt I'd never get anywhere."

The abortive purchase meant Byrider could dust off and resell the Saturn. Nearly half of Byrider sales in Albuquerque do not result in a final payoff, and many vehicles are repossessed, says David Brotherton, managing partner of the dealership. A former factory worker, he says he sympathizes with customers who barely get by. "Many of these people are locked in a perpetual cycle" of debt, he says. "It's all motivated by self-interest, of course, but we do want to help credit-challenged people get to the finish line."

Byrider dealers say they can generally figure out which customers will pay back their loans. Salesmen, many of whom come from positions at banks and other lending companies, use proprietary software called Automated Risk Evaluator (ARE) to assess customers' financial vital signs, ranging from credit scores from major credit agencies to amounts spent on alimony and cigarettes.

Unlike traditional dealers, Byrider doesn't post prices—which average $10,200 at company-owned showrooms—directly on its cars. Salesmen, after consulting ARE, calculate the maximum that a person can afford to pay, and only then set the total price, down payment, and interest rate. Byrider calls this process fair and accurate; critics call it "opportunity pricing."

So how did Byrider figure that Tsosie had $300 a month left over from her small salary for car payments? Barely a step up from destitution, she now lives in her own cramped apartment in a dingy two-story adobe-style building. Decorated with an old bow and arrow and sepia-tinted photographs of Navajo chiefs, the apartment is also home to her new husband, Joey A. Garcia, a grocery-store stocker earning $25,000 a year, his two children from a previous marriage, and two of Tsosie's kids. She and Garcia are paying off several other high-interest loans, including one for his used car and another for the $880 wedding ring he bought her this year.

Asked by BusinessWeek to review Tsosie's file, Byrider's Brotherton raises his eyebrows, taps his keyboard, and studies the screen for a few minutes. "We probably should have spent more time explaining the terms to her," he says. Pausing, he adds that given Tsosie's finances, she should never have received a 24.9% loan for nearly $8,000.

That still leaves her $900 in Byrider's till. "No excuses; I apologize," Brotherton says. He promises to return the money (and later does). In most transactions, of course, there's no reporter on the scene asking questions.

A QUARTER-CENTURY ago, Byrider's founder, the late James F. Devoe, saw before most people the untapped profits in selling expensive, highly financed products to marginal customers. "The light went on that there was a huge market of people with subprime and unconventional credit being turned down," says Devoe's 38-year-old son, James Jr., who is now chief executive.

The formula produces profits. Last year, net income on used cars sold by outlets Byrider owns averaged $828 apiece. That compared with only $223 for used cars sold as a sideline by new-car dealers, and a $31 loss for the typical new car, according to the National Automobile Dealers Assn. Nationwide, Byrider dealerships reported sales last year of $700 million, up 7% from 2005.

"Good Cars for People Who Need Credit," the company declares in its sunny advertising, but some law enforcers say Byrider's inventive sales techniques are unfair. Joel Cruz-Esparza, director of consumer protection in the New Mexico Attorney General's Office from 2002 to 2006, says he received numerous complaints from buyers about Byrider. His office contacted the dealer, but he never went to court. "They're taking advantage of people, but it's not illegal," he says.

Officials elsewhere disagree. Attorneys general in Kentucky and Ohio have alleged in recent civil suits that opportunity pricing misleads customers. Without admitting liability, Byrider and several franchises settled the suits in 2005 and 2006, agreeing to inform buyers of "maximum retail prices." Dealers now post prices somewhere on their premises, though still not on cars. Doing so would put them "at a competitive disadvantage," says CEO Devoe. Sales reps flip through charts telling customers they have the right to know prices. Even so, Devoe says, buyers "talk to us about the price of the car less than 10% of the time."

Tsosie recently purchased a 2001 Pontiac from another dealer. She's straining to make the $277 monthly payment on a 14.9% loan.

Nobody, poor or rich, is compelled to pay a high price for a used car, a credit card, or anything else. Some see the debate ending there. "The only feasible way to run a capitalist society is to allow companies to maximize their profits," says Tyler Cowen, an economist at George Mason University in Fairfax, Va. "That will sometimes include allowing them to sell things to people that will sometimes make them worse off."

Others worry, however, that the widening income gap between the wealthy and the less fortunate is being exacerbated by the spread of high-interest, high-fee financing. "People are being encouraged to live beyond their means by companies that are preying on low-income consumers," says Jacob S. Hacker, a political scientist at Yale.

Higher rates aren't deterring low-income borrowers. Payday lenders, which provide expensive cash advances due on the customer's next payday, have multiplied from 300 in the early 1990s to more than 25,000. Savvy financiers are rolling up payday businesses and pawn shops to form large chains. The stocks of five of these companies now trade publicly on the New York Stock Exchange (NYX ) and NASDAQ (NDAQ ). The investment bank Stephens Inc. estimates that the volume of "alternative financial services" provided by these sorts of businesses totals more than $250 billion a year.

Mainstream financial institutions are helping to fuel this explosion in subprime lending to the working poor. Wells Fargo & Co. (WFC ) and U.S. Bancorp (USB ) now offer their own versions of payday loans, charging $2 for every $20 borrowed. Based on a 30-day repayment period, that's an annual interest rate of 120%. (Wells Fargo says the loans are designed for emergencies, not long-term financial needs.) Bank of America's revolving credit line to Byrider provides up to $110 million. Merrill Lynch & Co. (MER ) works with CompuCredit to package credit-card receivables as securities, which are bought by hedge funds and other big investors.

Once, major banks and companies avoided the poor side of town. "The mentality was: Low income means low revenue, so let's not locate there," says Matt Fellowes, a researcher at the Brookings Institution in Washington, D.C. Now, he says, a growing number of sizable corporations are realizing that viewed in the aggregate, the working poor are a choice target. Income for the 40 million U.S. households earning $30,000 or less totaled $650 billion in 2004, according to Federal Reserve data.

John T. Hewitt, a pioneer in the tax-software industry, recognized the opportunity. The founder of Jackson Hewitt Tax Service Inc. (JTX ) says that as his company grew in the 1980s, "we focused on the low-hanging fruit: the less affluent people who wanted their money quick."

In the 1990s, Jackson Hewitt franchises blanketed lower-income neighborhoods around the country. They soaked up fees not just by preparing returns but also by loaning money to taxpayers too impatient or too desperate to wait for the government to send them their checks. During this period, Congress expanded the Earned-Income Tax Credit, a program that guarantees refunds to the working poor. Jackson Hewitt and rival tax-prep firms inserted themselves into this wealth-transfer system and became "the new welfare office," observes Kathryn Edin, a visiting professor at Harvard University's John F. Kennedy School of Government. Today, recipients of the tax credit are Jackson Hewitt's prime customers.

"Money Now," as Jackson Hewitt markets its refund-anticipation loans, comes at a steep price. Lakissisha M. Thomas learned that the hard way. For years, Thomas, 29, has bounced between government assistance and low-paying jobs catering to the wealthy of Hilton Head Island, S.C. She worked most recently as a cashier at a jewelry store, earning $8.50 an hour, until she was laid off in April. The single mother lives with her five children in a dimly lit four-bedroom apartment in a public project a few hundred yards from the manicured entrance of Indigo Run, a resort where homes sell for more than $1 million.

Thomas finances much of what she buys, but admits she usually doesn't understand the terms. "What do you call it—interest?" she asks, sounding confused. Two years ago she borrowed $400 for rent and food from Advance America Cash Advance Centers Inc. (AEA ), a payday chain. She renewed the loan every two weeks until last November, paying more than $2,500 in fees.

This January, eager for a $4,351 earned-income credit, she took out a refund-anticipation loan from Jackson Hewitt. She used the money to pay overdue rent and utility bills, she says. "I thought it would help me get back on my feet."

A public housing administrator who reviews tenants' tax returns pointed out to Thomas that Jackson Hewitt had pared $453, or 10.4%, in tax-prep fees and interest from Thomas' anticipated refund. Only then did she discover that various services for low-income consumers prepare taxes for free and promise returns in as little as a week. "Why should I pay somebody else, some big company, when I could go to the free service?" she asks.

The lack of sophistication of borrowers like Thomas helps ensure that the Money Now loan and similar offerings remain big sellers. "I don't know whether I was more bothered by the ignorance of the customers or by the company taking advantage of the ignorance of the customers," says Kehinde Powell, who worked during 2005 as a preparer at a Jackson Hewitt office in Columbus, Ohio. She changed jobs voluntarily.

State and federal law enforcers lately have objected to some of Jackson Hewitt's practices. In a settlement in January of a suit brought by the California Attorney General's Office, the company, which is based in Parsippany, N.J., agreed to pay $5 million, including $4 million in consumer restitution. The state alleged Jackson Hewitt had pressured customers to take out expensive loans rather than encourage them to wait a week or two to get refunds for free. The company denied liability. In a separate series of suits filed in April, the U.S. Justice Dept. alleged that more than 125 Jackson Hewitt outlets in Chicago, Atlanta, Detroit, and the Raleigh-Durham (N.C.) area had defrauded the Treasury by seeking undeserved refunds.

Jackson Hewitt stressed that the federal suits targeted a single franchisee. The company announced an internal investigation and stopped selling one type of refund-anticipation loan, known as a preseason loan. The bulk of refund loans are unaffected. More broadly, the company said in a written statement prepared for BusinessWeek that customers are "made aware of all options available," including direct electronic filing with the IRS. Refund loan applicants, the company said, receive "a variety of both verbal and written disclosures" that include cost comparisons. Jackson Hewitt added that it provides a valuable service for people who "have a need for quick access to funds to meet a timely expense." The two franchises that served Thomas declined to comment or didn't return calls.

VINCENT HUMPHRIES, 61, has watched the evolution of low-end lending with a rueful eye. Raised in Detroit and now living in Atlanta, he never got past high school. He started work in the early 1960s at Ford Motor Co.'s hulking Rouge plant outside Detroit for a little over $2 an hour. Later he did construction, rarely earning more than $25,000 a year while supporting five children from two marriages. A masonry business he financed on credit cards collapsed. None of his children have attended college, and all hold what he calls "dead-end jobs."

Over the years he has "paid through the nose" for used cars, furniture, and appliances, he says. He has borrowed from short-term, high-interest lenders and once worked as a deliveryman for a rent-to-own store in Atlanta that allowed buyers to pay for televisions over time but ended up charging much more than a conventional retailer. "You would have paid for it three times," he says. As for himself, he adds: "I've had plenty of accounts that have gone into collection. I hope I can pay them before I die." His biggest debts now are medical bills related to a heart condition. He lives on $875 a month from Social Security.

Continued in article

Bob Jensen's "Rotten to the Core" threads are at http://www.trinity.edu/rjensen/FraudRotten.htm

Bob Jensen's consumer fraud threads are at http://www.trinity.edu/rjensen/FraudReporting.htm

Question
Does this pass the smell test in the California state university system?

Bob Jensen's fraud updates are at http://www.trinity.edu/rjensen/FraudUpdates.htm

IBM Misleads Investors
The Securities and Exchange Commission has announced a settled enforcement action against International Business Machines Corporation for making materially misleading statements in a chart concerning the impact that the company's decision to expense employee stock options would have on its first quarter 2005 (1Q05) and fiscal year 2005 (FY05) financial results. The misleading chart caused analysts to lower their earnings per share (EPS) estimates for the company. Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "Information regarding a company's earnings is one of the most important factors that many investors consider in making an investment decision, and it is essential that the information companies provide be clear and accurate."
Andrew Priest, AccountingEducation.com, June 15, 2007 ---
http://accountingeducation.com/index.cfm?page=newsdetails&id=145059 

The external independent auditor for IBM is PricewaterhouseCoopers (PwC) --- http://www.trinity.edu/rjensen/fraud001.htm#PwC

Bob Jensen's threads on FAS 123(R) are at http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm

"Apple's Former CFO Settles Options Case:  Finance Official Ties CEO Jobs To Stock Backdating Plan," by Carrie Johnson, The Washington Post, April 25, 2007; Page D01 --- Click Here

A former chief financial officer of Apple reached a settlement with the Securities and Exchange Commission yesterday over the backdating of stock options and said company founder Steve Jobs had reassured him that the questionable options had been approved by the company board.

Fred D. Anderson, who left Apple last year after a board investigation implicated him in improper backdating, agreed yesterday to pay $3.5 million to settle civil charges.

Chief executive Steve Jobs has not been charged in the probe. (Alastair Grant - AP)