A magical card worth thousands until you buy it

March 1, 2010 4:06 PM

Canopy Financial: A classic investor fraud story (civil suit by the SEC) combined with the most modern in misappropriation of health care savings. CFO Jeremy Blackburn, already on the hook for investment fraud, was charged today (*pdf) along with chief tech officer Anthony Banas with misappropriating millions from individual clients health care accounts. On ripoffreport, Vladimir Makarov says he found out about it when his HSA debit card stopped working.

When someone at Canopy contacted KPMG looking for recommendations for a new Chief Financial Officer they sent along some financial reports, ostensibly audited by KPMG.
...except KPMG had never looked at their books.
So the folks at KPMG thought about that for a bit. When they thought about it enough they sent Canopy a cease and desist letter so their forged reports didn't have "AUDITED BY KPMG" emblazoned all over them.
Blackburn was (allegedy) passing the fake statements to Spectrum Equity Investors who fronted Canopy a big chunk of change (if $75 million is not a big chunk of change to you - congratulations) and craftily sent e-mails around saying how arduous being audited was, by KPMG, and mentioned to Banas not to forget how they were scamming everyone by saying KPMG audited them.
So Blackburn (et.al) lied, goosed Canopy's position, and cashed in their stock and made over $1.6 million.
According to the new charges they also skimmed money off of a transfer of $19 million (from health care accounts the company held custodially to pay medical providers) to Canopy's operating accounts.
Blackburn's end was $2 million (for an interest in a private jet), $1 million to an auto dealership, $1 million to a ticket broker. Bana got about $300,000 for a nightclub investment.

posted by Smedleyman (10 comments total)

I know some people there. Sad, because it was a real company, ruined by a couple of fraudsters of the first order.
posted by blahblahblah at 4:43 PM on March 1, 2010

During the health care debate, Republicans consistently argued in favor of including their ideas into HCR legislation. Many Republican ideas have been included. Substituting HSAs for the whole plan, as Sen. John Barrasso suggests here, thankfully have not been seriously considered.
posted by Hypnotic Chick at 5:01 PM on March 1, 2010

Substituting HSAs for the whole plan, as Sen. John Barrasso suggests here, thankfully have not been seriously considered.

Interestingly, before the stock market crash, the Republican Party constantly argued for eliminating Social Security and having people invest everything in Wall Street.

I'm keeping my ears open for any other bright Republican ideas, so that I can turn the other direction and start running from their impending catastrophes.
posted by Blazecock Pileon at 5:11 PM on March 1, 2010 [6 favorites]

You know how much of this crap could be avoided by due diligence? Almost all of it.

I had a friend who was in charge of risk management at a large bank just before the Enron scandal. He went down there, met the principals, and passed. It did not make him popular at his bank, at least until the scandal hit.

Due diligence means that you call KPMG to make sure they did the audit, not using the phone # on the documents that were given you. It means you make sure the guy whose signature is allegedly on the document is actually the guy who signed the document. It means that if they show a hotel as an asset, you go and see the hotel and the deeds and the accounts and make sure they actually own it. Boring, boring stuff. But without it...
posted by unSane at 7:07 PM on March 1, 2010 [6 favorites]

you go and see the hotel and the deeds and the accounts and make sure they actually own it. Boring, boring stuff. But without it...

That doesn't sound boring. Is this a job I could get?
posted by spicynuts at 7:17 PM on March 1, 2010 [1 favorite]

Seriously, I had a friend who did this. He was an auditor for PWC with a big hotel account. His job was to go to a hotel, make sure it existed, and stay there. Then go to another hotel, and stay there. And then... well, you get it. I talked to him a couple of weeks ago on a ski lift. He told me he had quit the job because it was so easy and he was worried he would never do anything with his life.

Before he got that job he was a firefighting junior auditor which is surely one of the most hellish jobs you can imagine.
posted by unSane at 7:34 PM on March 1, 2010

When I hear this story I think, "wouldn't it be easier and almost as lucrative to just do the job and take home the money you're paid?" This kind of company has the potential to mean serious cash on a continual basis for a long period of time for a CFO. I have to figure that guys who go in for these schemes are daredevils and adrenaline junkies more than anything.
posted by cali at 7:45 PM on March 1, 2010

I think part of the problem at these levels is the definition of 'serious cash'. If you are in a social or work circle where everyone is dick measuring based on millions and millions, your perspective on what is 'enough' gets way skewed. To you and I, maybe this would be serious cash (I'm SURE it would be). To someone who looks across the bar at the country club and sees dudes pulling in 50 times this 'serious cash' and desperately wants to be invited to their poker game...
posted by spicynuts at 7:55 PM on March 1, 2010

unSane's exactly right. This was a travesty by way of a complete lack of due diligence from both the investors and the clients. A good summary of what could have been done is at StartupGeek: This lack of Due Diligence Amazes Me

HSAs are still a good idea, economically. Even Brad Delong supports them were he king. Singapore has essentially the what he proposes.

The people who had their HSA cards stop working should not be liable for this. These people had never heard of Canopy. It was the HSA administrators who fucked up. The article states that Conventry already re-funded their customer accounts. I had understood that is what happened with most victims, Coventry just being the largest customer. That Shawnee Administrative Services has not immediately funded their accounts, was the only one mentioned to tell their customers that they are now Canopy creditors, was mentioned twice, and have a shit website makes me feel they are scum as well. These people did not sign agreements with Canopy, they had agreements with the administrators.

The total lack of due diligence in this brings me the same anger I feel about the Madoff fraud. The investors, the clients, the people handing millions of dollars to the company never gave the banks or auditors a call. And at least one in this case, Shawnee Administrative Services, is screwing their customers because of it. Madoff was the same exact way, they left all accounting and auditing to the firm itself. And now, because of the idiots who invested that money, HSAs and hedge funds get tarnished in the media. It completely flummoxes me how they could have allowed that to happen.

I work for an investment fund; when investing in a company I spend a good percentage of my time checking up on the mediocre details, even for companies with good names. I've been screwed before (yea... China) because of fraud that occurred after the investment. Now I make sure to look for even more established procedures to protect against anything similar happening. Apparently compared to most people I'm a paranoid freak.

I can't understand how people allowed Madoff to happen. My firm's customers, the people who give us money to invest, are assured by outside parties what is happening with their money. They get information directly from administrators and auditors, who get their information directly from the custodian. That 'savvy' investors would put money into Madoff, trusting only his word on performance, is infuriating. My firm, and every firm I've worked for, spends money on the outside parties to ensure our customers don't even need to trust us.

Okay, a bit off topic. I don't know why I get more worked up about the incompetence and irresponsibility than the actual crime. The CFO should go to jail -- he was a startup guy, and thought he'd get away with a quick buck; a criminal. The folks who invested in him, who handed him their clients' millions of dollars without spending a few grand on DD? What the hell were they doing? What the hell do they think their job is? And Shawnee Administrative Services, abandoning your customers after losing their money for them? Screw you.
posted by FuManchu at 9:32 PM on March 1, 2010 [1 favorite]

blahblahblah, do they have any idea what's going to happen to operations? The technology and infrastructure was top-notch according to the chatter on PEHub. Be a shame if it all disappears with all the assets held up in bankruptcy court.
posted by FuManchu at 10:19 PM on March 1, 2010