Dynamic Securities Analytics, Inc.

Business Journal Features DSA Innovation

DSA's patent-pending Homestead Exemption Fraud Detection system was recently profiled in the Tampa Bay Business Journal. Download the article here. See the excerpt below:

TAMPA - Potential potholes and shuttered schools provided the impetus for technology designed to generate revenue for local governments.

The technology, which uses an algorithm and a data-mining system to identify properties that don't qualify for homestead exemptions, was developed by Alison Jimenez, president of Dynamic Securities Analytics Inc.

Unlike approaches that focus on the characteristics of owners to detect potential fraud, Jimenez' technology looks at property characteristics. For example, ZIP codes with high unemployment may have a substantial number of people who have fallen behind on their mortgages and moved out of their homes, losing their exemption. Wealthy ZIP codes, such as those in beach communities, could have a high number of second homes, which also would not qualify for exemptions.

By automating the process, Jimenez can offer data in a few hours, rather than the weeks it might take to gather otherwise.

Read the article online. Contact us today at (813) 994-3340 to learn the number of invalid exemptions in your community! 

 

 

Homestead Exemption Fraud Detection System Featured in Innovation News

DSA's patent-pending Homestead Exemption Fraud Detection system was recently profiled in www.83degreesmedia.com. See the excerpt below: "In Florida and some other states, if you own a home and you use that home as your primary residence, you can qualify for the homestead tax exemption," says Alison Jimenez, president of DSA. "The exemption usually saves people about $800 a year in property taxes, however, there are a lot of people who are getting the exemption when they don't use the property as their primary residence. "  Jimenez says that by identifying these properties that should not be receiving the homestead exemption and revoking such tax breaks, counties and municipalities can recoup funds.   Read the full article here. DSA has results for many Florida of county's. Contact us at (813) 994-3340 to learn the amount of taxes your county could recoup.

 

DSA President Files Application for U.S. Provisional Patent

Tampa, Fla. (September 19, 2011) - Tampa-based company Dynamic Securities Analytics, Inc. ("DSA") has discovered a new method to detect property tax revenue that has been missed due to fraud, error, or oversight. Developed by company President Alison Jimenez, the algorithm and data-mining system identifies non-compliant homestead exemptions.    The financial benefits of property tax homestead exemptions have long enticed some citizens to misuse them. Many property appraisers and assessors have attempted to uncover homestead exemption fraud through tips, legwork, and mass mailings. However, these methods are neither cost nor time efficient. DSA has simplified and automated the detection process through the application of an algorithm that determines which properties are most likely to be subject to fraud. The system can also focus on higher dollar exemptions, which allows for a greater return of tax dollars through a small amount of time invested.  The results are expected to empower local governments including cities and counties to collect more of the property taxes owed by identifying invalid exemptions.   "Local governments are increasingly pinched for resources and often face the hard choice of cutting services or raising taxes. However, there is a third option - increase the collection of taxes by searching out fraud." said Alison Jimenez. "Having a quick and efficient methodology that aids property appraisers and assessors to fairly apply property tax code will boost municipal revenue by identifying invalid homestead exemptions."   Jimenez filed for United States Patent protections (US Serial No: 61/533324) on September 12, 2011.   About DSA & Alison Jimenez DSA specializes in forensic economics and was founded in 2003 by Alison Jimenez. Ms. Jimenez holds a bachelor's and a master's degree in economics.  She is also a Certified Anti-Money Laundering Specialist and a member of the Association of Certified Fraud Examiners.

 

The Cost of Not Conducting an Independent AML Audit

If you are an AMLCO or CCO who must justify the cost of your firm’s annual independent AML audit, the PDF  Download FINRA 2010 AML Audit fines should help you.  The cost of not conducting an independent anti-money laundering audit is steep. The PDF contains excerpts compiled from 2010  FINRA Monthly Disciplinary Reports.  Fines were imposed for either not conducting AML audits or conducting audits that were not independent. Here are some quick quotes:

"The findings stated that the firm failed to conduct independent testing for its AML program for one year"

"failed to perform the required independent AML testing for two years and performed an inadequate test another year"

"did not use an independent third party to conduct the firm's AML tests"

Download FINRA 2010 AML Audit fines

 

 

Putting Madoff's Theft into Context

One of the most useful things an economist can do in litigation consulting is to put abstract numbers into context.  Bernie Madoff's theft of $65 billion dollars is almost mind-boggling.  To illustrate the significance of his crime, I compared his theft with other financial crimes most people are familiar with- burglary, theft, pick pocketing and purse snatching.  The table below contains statistics from the US Department of Justice's 2006 Crime Victimization Report including the total number of victimizations, average loss and gross loss by crime.

 

There were 18 million victims of these five crimes with average losses in the range of a few hundred dollars to just over a thousand dollars. By comparison, Madoff's victims number somewhere between the 8,800 who have filed claims with SIPC and estimates in the "tens of thousands".  The average loss for the 8,800 SIPC filers is $7.3 million dollars.  If we assume that there are many more investors yet to be named (say 30,000) then the average loss per investor drops to $2.1 million.

Madoff's theft of $65 billion was uncovered in 2008 although it was a multi-year or multi-decade endeavor so this is not an "apples to apples" comparison.  But what is clear is that the dollar value of this theft is five and half times greater than all stick-ups, burglaries, purse snatchers, and other thefts in 2006. 

tags: Madoff, ponzi scheme, SIPC claims
 

Kiplinger's New Calculator is a (bad) Sign of the Times

Kiplinger.com recently added a new calculator tool to its website.  In addition to traditional personal finance calculators such as “How Much Do I Need to Save to Retire” and “What Will it Take to Pay Off My Credit Card Balance”, Kiplinger now has a “Recoup your Savings” calculator.  The calculator will determine either the amount of time, the annualized rate of return or the amount of annual contributions needed to return to the account's starting value. Simply enter the value of the account before the crash and the current value and then complete two of the three following variables: annual contributions, annual rate of return or time to recoup.

For example, if the account’s starting value was $100,000 and is currently worth $70,000 and the goal is to return to $100,000 in one year without any new contributions, then the calculator computes that the account will need to earn 42.9% annually.  If the time period is stretched two years to be back to $100,000 then the annualized rate of return needed is 19.5%. 

This calculator is a handy tool for simple scenarios (it does not allow for withdrawals).  It also demonstrates two principals that people often overlook in calculating returns for brokerage accounts:

• First, the account dropped from $100,000 to $70,000, a 30% decline (let’s assume over one year).  However, to the recoup the losses in one year the remaining diminished account value must to earn 42.5% - quite a bit higher than the drop.   
• Secondly, the required annualized ROR drops to 19.5% (not 42.5/2=21.25%) when the time period is extended to two years. This is because of compounding.  When people attempt to “annualize” Rates of Return by simply dividing the total ROR by the number of years, the resulting ending value is too high.  In this case, the $70,000 would have grown to $102,910 in two years at 21.25% instead of $100,000 at 19.5%.   

tags: rate of return, compounding, recouping loss, kiplinger, securities arbitration, securities litigation

The Collision of Collapses

The media talks of the housing market collapse, the tightening credit market and the stock market collapse.  At DSA, we’ve found investors that simultaneously got caught by falling home & securities prices and a tightening credit market. Here are two examples:

 

1)      During the days of easy credit, a man took out a line of credit on his paid-off house to invest in the stock market.  His investment account’s value has plummeted and his line of credit has been cut by the bank. He cannot repay the line of credit and may lose his home.

 

2)      In 2006, a couple used a margin loan to pay for home improvements in order to sell their house for a higher price.  They are unable to sell the house and repaid the margin calls by selling securities for a loss.

tags: housing market collapse, tightening credit market, stock market collapse, margin loan

Complaints filed with Florida Securities Regulator Spikes

The number of complaints filed with the Florida Division of Securities has quadrupled over 2007 levels according to Securities chief Bill Reilly.  The Division has added four employees to deal with the increased levels of complaints.  

Are Nebraskans Really the Most Suspicious People in the Nation?

If you gauge suspicious activity by the Financial Crimes Enforcement Network's (FinCEN) “By the Numbers” report on the Securities & Futures Industries, then yes.  By FinCEN’s tally, Nebraska accounted for 7.31% of all SAR-SF filings from January 1, 2003 through June 30, 2008. Three states had higher counts (New York, Massachusetts & California) but Nebraska is the clear winner of SAR-SF filings on a per capita basis Download SAR-SF per capita .

Comparison with other States

• Nebraska filed 82% more SAR-SFs per capita compared to its next closest competitor, Massachusetts
• Nebraska filed 3.7 times as many SAR-SFs per capita as did New York   
• Nebraska recorded 185 SAR-SFs for every 100,000 residents whiled Florida filed just 6.4 per 100,000 in residents

How can this be so?

According to a FinCEN spokesman, Steve Hudak, the “By the Numbers” filings are recorded by the location of the branch where the suspicious activity occurred.  Hudak continued that if the branch information is left blank, the reporting institution’s headquarter location is used instead.  Reporting by institution headquarter location biases the state results especially in the cases of an on-line brokers, a mutual fund companies or a clearing firms.

In the case of Nebraska, Omaha is home to Legent, a top clearing firm and to TD Ameritrade, one of the nation’s largest on-line brokerages. The headquarters of a large clearing firm and large on-line broker/dealer in a low population state result in Nebraska documenting the highest per capita SAR-SF filing rate.

The inverse also holds true.

Florida is not home to a major mutual fund company, on-line brokerage or clearing firm.  Florida ranks 11^th in the nation in the number of SAR-SFs filed and 15^th on a per capita basis. Floridians are no angels as witnessed by the state’s #1 spot in mortgage fraud yet the Sunshine state trails in securities related SAR filings. This is because a large share of the suspicious activity undertaken by Floridians is being recorded in another state’s column.

Some securities transactions involve as many as three locations:

1) the location of the suspicious person initiating the activity (let's say Illinois)

2) the branch location of his broker/dealer (ex. an online brokerage based out of Ft. Lauderdale, Florida) 

3) the location of the clearing firm or home office (for instance, Nebraska).  

Why is the branch location the state chosen for the “By the Numbers” report? Why not the clearing firm/home office location or the location of the suspicious person? All three locations are important and FinCEN should produce the “By the Numbers” report reflecting all three. 

Why is this important?

The current methodology is not useful or even worse, provides misleading information.  The chief securities regulator for Florida could not use FinCEN’s report to justify a request for more examiners and a state legislator in Nebraska might think the state was awash with securities scammers. When FinCEN prepares and disseminates the report, it should be useful and reflect reality.  The public, regulators, government officials, law enforcement, and compliance professionals rely on this data to make important decisions and they should have confidence in its accuracy.

tags: Suspicious Activity Report, SAR, FinCEN, anti-money laundering, Financial Crimes Enforcement Network

Why don’t ponzi scheme operators ever have a get-away plan?

One of the positive outcomes of all the Ponzi schemes in the news is that most of the operators have been caught. Granted, they haven’t been convicted and are innocent until proven guilty but it’s interesting that after allegedly stealing millions or billions of dollars, these guys didn’t have a decent get-away plan.  Anyone who has watched at least one heist flick knows that every bank robber has a get-away driver. 

Here's a few thoughts as to why they didn't have a get-away plan:

1)  Many of operators had been running their scam for years and were probably lulled into a sense of safety. If they had gotten away with it for five years, why not run it one more, or five more, or ten more years?

2) Some Ponzi schemes don't originally start out as a scam.  Some operators start off with an intent to invest but either suffer a personal financial crisis or the fund starts losing money and the manager does not want to reveal this to investors.  Either way, the fund manager may not have much money left to fund his get-away.

2) Ponzi scheme operators were as surprised as anyone at the swiftness of the market decline which exposed the Ponzi schemes so that they didn’t have time to concoct a good escape. 

Tags: ponzi scheme