They Cooked the Books

Honesty is for the most part less profitable than dishonesty.

— Plato

Hope is necessary in every condition.

— Samuel Johnson, 18th Century

Sometimes I lie awake at night, and ask,

Where have I gone wrong?

Then a voice says to me,

This is going to take more than one night.

— Charles M. Schulz, 20th Century

THEY COOKED THE BOOKS

A Humorous Look at the World of White-collar Crime

By Patrick M. Edwards

Smashwords Edition

Big Island Publishers

Hilo, Hawaii

2013

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THEY COOKED THE BOOKS

A Humorous Look at the World of White-collar Crime

© 2013 by Patrick M. Edwards

Back cover and portrait

© 2010 by R. W. Smith, Hilo, HI

No part of this book may be reproduced, copied, used, or transmitted in any form or by any electronic or mechanical means including information and retrieval systems, or otherwise, without the expressed written permission of the author and/or publisher. All existing copyrights worldwide are in effect with this work.

Library of Congress Control Number: 2011914170

Business & Economics / Business Ethics

ISBN: 9780982934715

Big Island Publishers, LLC

RR #2 Box 4755

Pahoa, HI 96778

www.bigislandpublishers.com

Cover & interior design by

David G. Barnett

Fat Cat Graphic Design

www.fatcatgraphicdesign.com

This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each person you share it with. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

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CONTENTS

Preface

PART 1

ACCOUNTING FRAUD

1. Cooking the Books

2. Creative Accounting

3. Economical with the Truth

4. Birds of a Feather Flock Together

5. If You Lie Down with Dogs, You’ll Get Up with Fleas

6. Above Suspicion

7. Above the Law

8. The Rotten Apple Spoils the Barrel

PART 2

EASY MONEY

9. Ponzi Schemes

10. Cock and Bull Story

11. They Could Sell You the Brooklyn Bridge

12. It’s a Snow Job

13. Fast and Loose

14. Hanky-Panky

15 Pull the Wool over Someone’s Eyes

16. A Wolf in Sheep’s Clothing

PART 3

A FOOL AND HIS MONEY ARE SOON PARTED

17. Believe Only Half of What You Hear

18. Better Safe than Sorry

19. It Sounds Too Good to be True

20. Fools Rush in Where Angels Fear to Tread

21. You Can Fool Some of the People All of the Time

PART 4

TAKEN TO THE CLEANERS

22. Never Give a Sucker an Even Break

23. There’s a Sucker Born Every Minute

24. Taken for an Arm and a Leg

25. Bleed Someone Dry

26. It’s Not Worth the Paper It’s Written On

27. Now You See It, Now You Don’t

28. Poor as a Church Mouse

PART 5

WHAT’S DONE IS DONE

29. That’s Water Under the Bridge

30. Don’t Cry over Spilt Milk

31. What’s Done Can’t Be Undone

32. It’s all Over but the Tears

33. It’s Not the End of the World

34. This Too Shall Pass

PART 6

LIVING THE HIGH LIFE

35. Living High on the Hog

36. Fast Buck-Artist

37. Money Is Power

38. Money Talks

39. Money Has no Smell

40. The Love of Money Is the Root of All Evil

41. The Rich Get Richer, the Poor Get Poorer

42. Power Corrupts, Absolute Power Corrupts Absolutely

PART 7

MUM’S THE WORD

43. On the Q.T.

44. My Lips Are Sealed

45. Keep It Under Your Hat

46. Ask Me no Questions and I Will Tell You no Lies

47. Turn a Blind Eye

48. A Skeleton in the Closet

49. There Is Honor Among Thieves

PART 8

EXPOSED TO THE LIGHT OF DAY

50. Caught Red-Handed

51. The Cat’s out of the Bag

52. Smoking Gun

53. Blow the Lid Off

54. Got You Dead to Rights

55. The Jig Is Up

56. The Handwriting Is on the Wall

PART 9

THIS IS A FINE MESS YOU’VE GOTTEN YOURSELF INTO

57. When Shit Hits the Fan

58. All Hell Broke Loose

59. Your Ass Is in a Sling

60. That’s a Fine Kettle of Fish

61. Going to Hell in a Hand-basket

62. The Straw that Broke the Camel’s Back

PART 10

THE TRUTH, THE WHOLE TRUTH, NOTHING BUT THE TRUTH

63. The Third Degree

64. Raked Over the Coals

65. Spill the Beans

66. Turn Up the Heat

67. The Truth Will Come to Light

68. A Guilty Conscience Needs No Accuser

69. Honesty Is the Best Policy

PART 11

A DOSE OF ONE’S OWN MEDICINE

70. What Goes Around, Comes Around

71. The Chickens Come Home to Roost

72. There Will Be Hell to Pay

73. Face the Music

74. Tarred and Feathered

75. Heads Are Going to Roll

76. Let Him Stew in His Own Juices

PART 12

FLEW THE COOP

77. Flight Risk

78. Vanished into Thin Air

79. Make Tracks

80. Give the Slip

81. On the Lam

82. You Can Run, but You Can’t Hide

PART 13

THROW ‘EM IN THE CLINK

83. Crime Doesn’t Pay (Or Does It?)

84. Throw the Book at ’Em

85. Lock ‘Em Up and Throw Away the Key

86. The Bigger They Are, the Harder They Fall

87. You’ve Made Your Bed, now Sleep in It

88. Revenge (Vengeance) Is Sweet

89. Good Riddance!

PART 14

BEAT THE RAP

90. I Am not a Crook

91. I Cannot Tell a Lie

92. I Got off Scot Free

93. I Got Off the Hook

94. It’s a Miscarriage of Justice

PART 15

BUSINESS AS USUAL

95. A Leopard Can’t Change His Spots

96. You Can’t Make a Silk Purse out of a Sow’s Ear

97. It’s a Sign of the Times

98. It’s Déjà Vu all over Again

99. Opening Pandora’s Box

100. It Takes a Thief to Catch a Thief

PART 16

THAT’S ALL, FOLKS

Conclusion

References

Acknowledgments

About the Author

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Preface

This book’s genesis was on one of those rare, warm San Francisco summer days. Instead of there being a bitter chill due to the wind and fog that often blow in from the Pacific, which once caused Mark Twain to say, The coldest winter I ever spent was a summer in San Francisco, it was delightfully pleasant.

As part of my daily routine as a pharmaceutical sales rep, I stopped in at a client’s pharmacy expecting the usually good-natured proprietor to brighten my already sunny day. Instead, I got a gloomy story about a particular stock the pharmacist had bought.

They cooked the books, he said. I lost all my money.

He was in no mood to chat, so I bade him farewell; and as I approached the front door, lightning struck: They Cooked the Books. What a misfortune for Tony, but what a wonderful title for a book on Wall Street fraud!

People use a multitude of expressions about fraud: Taken to the cleaners, The cat’s out of the bag and Living high off the hog, I wondered when these sayings came about and what their original meanings were.

Today, we use these expressions in everyday speech, and the examples above are just a fraction of those that can apply to the topic of Wall Street fraud. During my research for this book, I found more than 500 that could apply and chose the most relevant 100 to include here.

My goal in writing this book is to present the origins, meanings and examples of well-known expressions used by many, on a daily basis, to refer to white-collar crime, especially Wall Street fraud.

In studying a hundred of the most relevant, I was intrigued with how far back the phrases’ origins go, and how the meanings of most haven’t changed much over the years. Most that have changed are expressions dealing with the white-collar fraud so prevalent in the 19th and 20th centuries. The idiom cooking the books, for example. Originally it meant altering the ingredients of a recipe, but its contemporary meaning has to do with accounting fraud.

Hence, this book is about the origins of phrases, idioms and proverbs dealing with the topic of crime – in particular, the white-collar crime so rampant in society today. In fact, the idiom white-collar crime first appeared in 1939, when Professor Edwin Sutherland said, There is a vast difference between white-collar and blue-collar crime, and high social status has a lot to do with the distinction. White-collar crime is often committed by a person of respectability in the course of his or her occupation.

An idiom is defined as a group of words whose meaning is different from the meaning of the individual words; hence, cooking the books, in its modern usage, is an idiom dealing with accounting fraud. In contrast, a phrase can be defined as a group of words that carry a particular meaning when used together, such as creative accounting.

No discussion about white-collar crime would be complete without the proverb as a main character. Just the word proverb conjures up thoughts of right and wrong, so it should come as no surprise that one of the most well known proverbs – The love of money is the root of all evil- is a chapter in this book.

Some of my examples, not specifically relevant to fraud, are included because they are especially interesting, come from well-known people, or are commonly used. In most cases, the italics within the quotes referenced in this book are my own emphasis.

Having been a victim of white-collar crime myself on more than one occasion, I could not refrain from including some of my own views. An example is found in Chapter 1, Accounting Fraud, where I talk about the rather ineffective regulation of the securities market by the SEC. Another is the epigraph at the beginning of Chapter 27 (one of more than 100 in the book), which is a satirical quote by me: What is the Securities and Exchange Commission? It is a government agency that facilitates the exchange of your securities for worthless investments.

— Patrick M. Edwards, 2011

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There are lies, damn lies, and statistics.

— Benjamin Disraeli

PART 1

ACCOUNTING FRAUD

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1: Cooking The Books

The SEC roars like a mouse and bites like a flea.

— Harry Markopolos

They cooked the books. I lost all my money in the stock because the company used ‘creative accounting’ to make it look like the company was thriving.

Many of us have heard this, or similar, and some have experienced it. A company alters its books to present a glowing balance sheet to the market, resulting in an undeserved increase in its stock price. When this is exposed to the light of day, hundreds of investors lose their shirts, though the top executives will have bailed out before the stock tanked.

The idiom cooking the books seems to have first appeared in 1636, coined by the Earl of Strafford in his Letters and Dispatches, where he states, "The proof was once clear, however, they have cooked it ever since."

These words refer to changing the ingredients of a recipe, and not the alteration of a balance sheet. Modern usage began in the 18th century, when the Scottish author Tobias Smollett wrote in his book, The Adventures of Peregrine Pickle, "Some falsified printed accounts, artfully cooked up, on purpose to mislead and deceive."

Bill Condie used the idiom in a piece appearing in the [London] Evening Standard in April 2005: "‘Cooking the books is like a crack habit,’ says former Enron CEO Kenneth Rice, who admitted to cooking the books twice to hide weak results in one of the first cases involving the failed giant conglomerate to reach the courts. ‘I called it one more hit of crack cocaine,’ Rice said."

In a Beetle Bailey cartoon, written by Greg and Mort Walker and appearing in newspapers on May 15, 2009, a new recruit had this exchange with Sergeant Snorkel:

I was under investigation for corporate fraud, so I joined the army.

Do you have any military experience? Snorkel asked.

"No, but if you need someone to cook your books, I’m your man."

Can Wall Street ever be reformed?

Starting soon after the Great Depression, the Feds made many attempts to get that type of financial miscarriage – perpetrated by Wall Street firms and leading to investors losing a lot of money – under control. The Securities Act of 1933 and the Securities Exchange Act of 1934, which created the SEC, are only two of many bills signed into law since then in an effort to bring this type of financial industry injustices to a halt.

The piece of legislation with the most profound effect for keeping Wall Street in check was the Glass-Steagall Act, which was signed into law by Franklin Delano Roosevelt on June 15, 1933. Virginia Senator Carter Glass and Alabama Congressmen Henry Steagall argued that a single bank entity should not control financial products with such widely varying levels of risk that could cause damage to the American public. This post-Wall Street crash legislation prevented commercial banks from merging with investment banks, thus eliminating the opportunity for the high-rolling investment guys to get their hands on limitless supplies of depositors’ money. Glass-Steagall was nothing short of a barrier that stayed in place for more than sixty years, but major U.S. banks wanted it abolished.

Fast-forward to 1999, when after many attempts by the powerful banking lobby to repeal Glass-Steagall, President Clinton finally yielded and signed into law the Financial Services Modernization Act (also known as Gramm-Leach-Bililey). One key impact was the repeal of Glass-Steagall. In April of 1998, though, a merger occurred prematurely in direct defiance of Glass-Steagall (while federal regulators sat idle) when Citicorp and Travelers/Smith Barney merged into Citigroup, which was then able to sell securities, take deposits, make loans, underwrite stocks, and sell insurance.

A large number of corporate fraud cases throughout the 1990s prompted the SEC to institute yet another law to regulate the securities industry. In an article titled Bush Tells Wall Street to Stop Cooking the Books, by Toby Harnden on the website thetelegraph.co.uk. (July 2002), Harnden writes, Confronting his toughest domestic challenge since September 11, President George W. Bush told Wall Street yesterday that its ‘days of cooking the books, shading the truth and breaking our laws’ had to end. Bush referred to signing into law the Sarbanes-Oxley Act, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms, stating it included the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt. Due, possibly, to the agency’s incompetence, this new act had little effect on its ability to prosecute fraud on Wall Street.

Madoff whistleblower Harry Markopolos, in his 2010 book, No One Would Listen, A True Financial Thriller, has this to say about the SEC: "After [Bernie] Madoff’s collapse, we would succeed in exposing the SEC as one of