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The Litigation Side of Forensic Accounting Copyrighted 2001 D. Larry Crumbley, CPA, Cr.FA, CFD KPMG ... - page 50 / 275





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© D.L. Crumbley

The Judge Controls

A 2000 dispute involved an alleged Ponzi scheme where a defendant sold airline tickets procured by debtors using frequent flier miles purchased by brokers. The defendant relied on an expert who was a CPA, a bankruptcy trustee, an insolvency accountant, and a fraud investigator with substantial experience and impressive qualifications and credentials. The judge, Herbert A. Ross, was not impressed with this expert, F. Wayne Elggren, employed by Arthur Andersen.

At trial Mr. E questioned  the experts of the trustee and the expert of the plaintiff (who had no CPA or certification). Mr. E found numerous faults with the methodology and analysis of the trustee and the plaintiff’s expert, E. Jayne MacPhee. Mr. E concluded his argument by stating there was too much unaccounted for cash and profits from the ticket business to claim it was a sham or Ponzi scheme. He relied on a “smoking gun” of $9 million in ticket revenues. Ms. MacPhee found only $6 million and the trustee only $4.8 million.

The judge said that Mr. E had misunderstood or had been misadvised about the context of the $9 million of ticket sales “He [Elggren] is hoisted on his own petard when he uses it to analyze the debtors’ business history.” The rest of his criticisms are of “such small size or consequence, or so speculative or inclusive, that they are akin to straining at gnats.”

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