11/14/2014. Case Study: People v. Rude. David Wall, JD, CPA, CFE. Riverside County District Attorney

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1 Case Study: People v. Rude A Description of Forensic Accounting Analysis in Criminal Prosecution 1 IIA ACFE Joint Fraud Conference Los Angeles Athletic Club November 12, 2014 David Wall, JD, CPA, CFE Certified Public Accountant Certified Fraud Examiner Licensed Private Investigator Licensed Attorney 2 SingerLewak LLP Los Angeles, California Phone: [email protected] Web: Riverside County District Attorney Special Prosecutions Section Real Estate Fraud Unit David Allen Deputy District Attorney David Hussey DA Investigator 3 Riverside County Superior Court Hon. Thomas E. Kelly (Dept. 65) 1

2 Ryan Edward Rude Born 1973 (34 at beginning of IAG) Previously sold mini-blinds Individual Bankruptcy filed prior to 2005 Became real estate salesperson in 2005 Worked out of Keller Williams in Ontario CA Attended Make Watson Institute (MWI) & Became a devotee of MWI In 2007 established Investor Alliance Group LLC Attended and was recognized at MWI meetings Organized IAG meetings at Keller Williams Office 4 Investor Alliance Group LLC 5 Objective: To acquire and develop real property Ryan Rude: Chief Executive Officer & Sole Member Crystal Rude: Office Manager & Bookkeeper Raised capital by issuing notes labeled Secured Promissory Note By means of real estate seminars and face-to-face meetings with investors No genuine pre-existing relationship Investor Alliance Group LLC Projects: Moss Road, Riverside (Multi-Family Residential) Cypress Avenue, Fontana (Low- Income Housing) Bay Avenue, Moreno Valley (The Retreat) Eureka Drive, Riverside (SFR/Flip) 6 2

3 7 Victim: Carlos Doe 8 Owned home in Yorba Linda for 22 years, with considerable equity. Attended MWI Seminars. Mike Watson introduced Rude as one of his star students, and presented Rude with several awards. Became acquainted w/rude. Rude invited Carlos to the Keller Williams. Carlos decided to invest in Investor Alliance. Took HELOC of $500,000 to fund investment. Rude entered the victim s house in Yorba Linda to pick up some of the investment funds. Victim: Claire Roe 9 Sold real estate for about 5 to 7 years. Previously worked as a hearing officer. Met Mike Watson in 2007, after receiving a direct-mail invitation to seminar near LAX. Attended a number of MWI seminars. Watson introduced Rude at the seminars. Rude would present his real estate projects, and talked about his net worth. Rude asked Claire if she had an IRA or credit cards. First investment was $72, , funded by her IRA. Invested addl $132,500 from credit cards. 3

4 SDIRA Equity Trust Polycomp Admin Services Entrust Administration Inc Sterling Viking Bank 10 Search Warrants 11 Signature Cards. Statements of account. Front and back duplicates of each and every check, cashier s check, draft, wire transfer, electronic funds transfer, ACH transfer, and/or any/all debit items of any description. Front and back duplicates of each and every check, cashier s check, draft, wire transfer, electronic funds transfer, ACH transfer, and/or any/all credit items of any description. Ponzi Scheme Investment fraud. Payment of purported returns to existing investors from funds contributed by new investors. No legitimate business or small in comparison to investment cash flow. Often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. 12 4

5 Approach Constructed new QuickBooks (QB) file. Separate accounts for each bank a/c. Make record of all deposits and disbursements from each bank account for the report period. Customized Chart of Accounts Procedure Funds received from investors were categorized separately, as were receipts from known business associates of the defendants. If deposits did not match any of the foregoing descriptions, they were presumed valid. 15 5

6 Procedure 16 All disbursements from IAG accounts were analyzed to determine if the transaction fell into one of the following categories: o Payments in favor of the defendant or his then-spouse; o Payments in favor of vendors for the personal benefit of the defendant or his then spouse; o Payments in favor of known business associates of the defendant; o Payments for carrying charges (e.g., mortgage, tax, and insurance payments) for properties owned personally by the defendant; o Payments in favor of title and escrow companies for property which IAG never received. o If disbursements did not match one of the foregoing descriptions, they were presumed valid. General Findings

7 Findings 19 Specific Findings

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9 25 PC 459 First Degree Burglary Entering a house, apartment, hotel room (or other structure where people are living) with the intent to commit a felony (or a petty theft) once inside. Always a felony in California. Penalty up to 6 years in state prison. 26 PC 532 Theft by False Pretense Act of convincing someone to voluntarily give you their property, by telling them something that isn't true or making a promise that won't be kept. If the property stolen is worth more than $950, the maximum penalty for grand theft is 3 years in state prison. 27 9

10 California Corporations Code Securities Fraud (a): willfully selling or offering to sell unregistered securities. Punishable by up to three years in county jail or state prison and a fine of up to $1 million (b), willfully making a false or misleading statement in a securities transaction. Punishable by two, three or five years in county jail or state prison and fine of up to $10 million. The Takeaways Forensic Accounts can assist in the analysis and interpretation of accounting, financial, and general business records in matters that are currently being investigated and/or prosecuted. Presentation of complex material is vital to jury s understanding of the matter. Do not rely on pro-forma material. 10