What I have learned today [2015/7/9]

1. More humane or natural funeral services are being offered. Personally, I think we should respect the dead but not spend a fortune.

2. Russians miss cheese after economic sanctions. Free trade is the way to go. Hope Putin stops the empire building.

3. Caffeine simulates muscle contractions in the large intestines that can increase the urge to go to the bathroom. Not going to drink so much coffee, when I have important business :p

4. A Detroit doctor faces health care fraud where he even treated healthy patients with Chemo. This is just sad. Stealing is already bad but causing more harm by putting patients into Chemo? Wow...better pray for this doctor and his victims. Also, always go to at least three doctors before deciding to get critical treatment.

5. Russians cannot have enough Teslas. Well...I guess they have to showoff wealth someway...Wish the rich Russians spent their money on investments and helping the poor.

 

From Snapshot Serengeti

What I have learned today [2015/5/25-2015/5/27]

1. In asset bubbles, hold cash, gold, and real assets.

2. With the increase of chipped cards, other types of credit card frauds have increased.  Balloon effect at work :D

3. Productivity may be limited by cost of energy. This makes sense unless there are breakthroughs in making inputs more efficient, the output should be limited as the costs become uneconomic.

4. Finny Kuruvilla invests according to biblical principals. I have not done a due diligence on him but it is good to see that we can invest well following the bible.

5. India is ranked 142 out of 188 countries in the World Banks' "Ease of doing Business" list.

6. Japan's advance in robotics is likely to raise productivity in small-medium firms.

7. Fuld, ex CEO of Lehman, did not care much about risk before the end by not listening to the head of fixed income and risk manager. He cannot blame others. He did mess up by focusing too much on profit rather than risk management.



*From Snapshot Serengeti

What I have learned today [2015/5/14]

1. Sugar price has crashed due to overproduction but expect a price rebound with lower production and increased consumption.

2. Annual cost of card fraud in the US alone is about $8.6 bn. Chip and Pin do not prevent other ID thefts.

3. There is an increase in food art, and a piece by Lernert and Sander looks awesome. I love the display by 2.5cm cubes of all types of unprocessed foods.


*From Lerner & Sander


4. Research finds that children that grow up in a multilingual environment are better communicators.

5. Facebook is going to provide $15 dollars with $15 vacation days and $4000 bonus for having a child for contractors and vendors. I agree with Facebook's policy of treating contractors and vendors better but I am not sure whether $15 is the magic number. Maybe some contractors deserve more and others deserve less. Also, Facebook has to maintain its costs as well. All departments have budgets to meet so I would not be surprised if we see other type of outsourcing instead of using contractors and vendors.



*From Floating Forest

Granny Theft [Fraud Series 2]

A 62 year old granny accountant stole $3.5 million for quite some time from a trucking and warehouse company.

Wow...talk about lack of internal controls. Always remember to trust but verify. Indeed, she worked for  over thirty years but remember that most fraudsters are those who seem the most trust worthy. Also, the fraud could have been detected earlier if there was a separation in control and accounting functions. It is likely that she was in charge of all of the money coming in and coming out, which enabled her to steal the money.

For a good reference about fraud, I suggest reading the book, "Forensic Accounting and Fraud Examination." The book is a bit dry but it is quite comprehensive and provides the framework to understand and deter fraud.

Fighting against Pyramid Schemes

According to Peter Vander Nat, a former FTC economist, it takes too long to shut down pyramid schemes due to a lack of federal rules. Hence, putting clear federal rules may help fight off pyramid schemes by swift prosecution and deterring future fraud.

I agree with Peter Vander Nat's point but it may not be a panacea for two reasons.

First, creating rules may create a bright line rule effect, where the rules are only complied in the letter only. For instance, in accounting, firms often structure the transactions so it avoids certain disclosures and accounting treatments. A good example would be leases, where firms try their best to structure the lease as an operating lease to avoid putting it on the balance sheet. Given the human ingenuity, bright line rules are limited in their effects.

Second, pyramid scheme victims share a large responsibility for the caused damage. Many knowingly engage in pyramid schemes because of the potential high payoffs. Hence, as long as human greed exists, pyramid schemes are not likely to go away. A better solution would be to educate the public more about the pyramid schemes. Specifically, focused education on the demographics that are prone the pyramid schemes would be more effective.

The billion dollar question is...is Herbal Life  (HLF) a pyramid scheme?

Personally, I think Herbal Life is a pyramid scheme. Just the way it operates through distribution and how the company keeps claiming that distributors are actually the main consumers is bizarre. First, why would you consume so much Herbal Life products and also if it's for their consumption why doesn't the firm change the business model? Why does it need distributors if they are the main consumers? What is more troubling is that there are really lot of red flags going up, please read the following article.

Sea Food Fraud [Fraud Series 1]

Think you know your fish? Think you know your sushi?

Guess again, a lot of fish are mislabeled. According to Oceana, a quarter of grouper in the US are mislabeled. Considering that the US seafood industry is over billions of dollars the fraud is not immaterial.

Fortunately, researchers at University of Southern Florida invented a device that analyzes the fish's RNA in about 90 minutes to deter fraud.

This is a vast improvement but 90 minutes still seems long. Hopefully, the time will be cut down and a smart phone app may be developed in the future for further efficiency.

So what do we do about fish fraud in the mean time?

1.Demand your local retailer to strengthen the identification of fishes (Whole Foods is a good example).

2. Eat fish that are more easily identifiable and less subject to fraud ^^


*Picture taken in Nicaragua

Next time we will talk about financial fraud. Be skeptical and remain safe.

Fat and Delicious Fish?! Nope! [Fraud Series 0]

I was always interested in fraud and fraud detection ever since when I was young. I became even more interested after my research training and taking a great forensics class. So today, I just ran
into this news where fish sellers literally blow air into the fish the straw to make it look more fatty
and fresh. It is in Korean but you can just see the video and you will see a guy pumping air into the
fish. This is absolutely fraudulent but it is quite funny and ingenious. Also, it is probably not hygienic
due to his saliva probably being inserted into the fish.




*From KBS News.

I intend to launch a fraud series soon, which will not make us better skeptics but also give us some laughs ^^

Supplement Fraud

Apparently, GNC, Target, Walgreens, and Walmart have been selling supplements without the labeled or advertised ingredients.

See article here: http://well.blogs.nytimes.com/2015/02/03/new-york-attorney-general-targets-supplements-at-major-retailers/?smid=fb-share

Wow. That's a breach of trust right there. Ripping off people who want to be healthy and those that are probably older than the general population.

So is this a market failure? Both yes and no.

Yes, because, obviously, the reputation mechanism failed for now. Firms were supposed to be honest because failure to do so would decrease their profits through the market mechanism. Also, there may be a internal control issue, where the management did not monitor the lower managers well. In addition, it is a failure of oversight by the regulators. Hence, there seems to have been a market failure.

However, despite this incidence, we cannot say that the markets failed. I have not read the details but it does not appear to have been widely systematic or conducted over a long time. And regulators came to correct the issue. So I believe that it is a market hiccup rather than a market failure. A market failure may be rigged bids in a developing nations where nobody wants to participate due to absolute corruption.

So now what? I believe that the regulators will fine the perpetrators and the firms will probably settle for some amount and those supplements will be taken off the shelves.

What should we do? Several things.

1. Don't buy supplements. They don't really work anyway.

2. Buy fresh fruits and vegetable. Yes, good food actually works better.

3. Complain to GNC, Target, Walgreens, and Walmart. Tell them how upset you are and that you will not shop there until trust is restored. One complaint is unlikely to make a difference but it is a start and always voice your concerns for a better and just world.

4. Dispose any of the supplements that are suspected of being mislabeled or falsely advertised in a trash can instead of flushing down the toilet. Flushing down the toilet will cause water pollution (http://www.epa.gov/aging/docs/disposal-meds-flyer.pdf).