Security & Fraud

When Billionaires Break Bad: Living Large Through Outsized Accounting Scams

Even the very rich are sometimes tempted to steal. And often when they steal, they steal … big.

And when alleged theft is carried out on a grand scale, the machinations of that theft, generally through accounting scams, can be intricate.

Consider the news this week that Aegean Marine Petroleum has filed for bankruptcy in the wake of a $300 million theft. That $300 million, reported the Wall Street Journal, was found by an investigation by the shipping firm’s board to have been stolen by founder Dimitris Melissanidis, as related by unnamed sources.

The board itself had been refashioned six months ago, when an activist-investor group gained seats and pointed to mismanagement of resources.

The investigation set in place by that activist group, tied to three hedge fund managers, found an elaborate system of shell companies and fake receipts that helped mask the multi-hundred million dollar siphon. The money, said sources, went to Melissanidis, and to various family businesses that include a professional soccer team, gas stations and a yacht rental outfit.

Waves of Investigation

Now the subpoenas are flying fast as furious, served upon the company by the U.S. Department of Justice. The bankruptcy filing has decimated shares in the firm, listed here in the United States. No charges are in the offing as of this writing.

But it’s worth looking at some of the details that have been illuminated to date, to get a sense of how accounting fraud, rendered through fake documents including invoices and other means, can mean ill-gotten gains that span a significant number of decimal places. The Journal noted fake documents had been created to create the illusion that Aegean Marine had legitimate contracts and business activity in place.

“The company’s downfall offers a quick-moving example of the kinds of risks activists take on when trying to transform what, from the outside, might look like a struggling business” where there is often a lack of “perfect information” — and where indeed a paper trail may have been created to prop up what is ultimately revealed to be a house of cards.

“It is exactly one of the things that has always worried me the most: You’ve got to rely on their SEC filings and auditors,” J. Daniel Plants, an activist investor, told the Journal. “There but for the grace of God … it could happen to any of us.”

In one example of the findings of the audit investigation, Melissanidis, whom the Journal had said had been relatively less involved with Aegean for a period of years, brokered a deal with the company several months ago, where Aegean would have bought a firm from him for $367 million.  Melissanidis would have received a 33 percent stake in Aegean Marine, cash to the tune of $40 million, and $200 due in receivables. A suit to block that deal ultimately led to the activist activity from the hedge fund managers. Banks balked at the $200 million in receivables, and pulled back from lending any more money to Aegean, hurting operations.

In the meantime, OilTank Engineering & Consulting, which had been hired by Aegean for an oil terminal project in the United Arab Emirates, bilked as much as $285 million over a timeframe stretching back to 2010, through fake receipts and bank transfers, and $31 million was sent to a firm controlled by Melissanidis’ family. The WSJ reported that “the amount of oil products specified in the allegedly fake contracts exceeded the capacity of the oil terminal in the U.A.E.,” according to the unnamed sources.

It’s Nothing New

Think of all this as just among the latest headlines in accounting fraud, albeit on a grand scale. But then again, stealing is nothing new, even when there are a lot of zeroes involved. Remember Enron? The energy company went bankrupt at the beginning of the Millennium, wiping out hundreds of billions of dollars in shareholder value and pension fund holdings. The failure was tied in part to shortfalls in the auditing process, and where special-purpose entities had been used to hide debt and overstate Enron’s results and financial health.

Want another example? Bernie Madoff stands out, a personification of greed and of Ponzi schemes. The fraud spans more than $10 billion, and fake trades based on predetermined returns for Madoff’s clients. The money? Well, that went, in part, to fund a lifestyle that included yachts and homes across the U.S. and in France. Here, too, is a case of fraud right under the investigators’ noses: whistleblowers had gone to the SEC and were ignored as they claimed that the Madoff returns being touted to investors were just too fantastic to be true. Foreign banks had not looked closely enough at the data they were being given by Madoff’s firm — if they had done so they might have caught the Ponzi scheme.

These are but a few examples of fraud to the tune of billions of dollars. But taken singly or together they show that simply trusting the auditors and documents provided amid shell games, shell companies and fake paper trails can lead to rude awakenings and empty bank accounts somewhere — even years — down the line.


New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.