Alden Shoe Financial Fraud Report PDF

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Alden Shoe Financial Fraud Report...

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SCH-MGMT 620 Alden Shoe Company Financial Fraud Report

Alden Shoe Company Financial Fraud Report

Executive Summary There has been a number of financial frauds or scandals throughout the years. These crimes range from Enron hiding their trading losses by inflating their revenues in 2001, the WorldCom scandal in 2002, and most recently this year with the Alden Shoe Company financial fraud. These crimes may not be identical to each other but each case provides a unique prospective into the accounting and financial worlds. Due to the complexity and sophistication of many of these financial crimes that were committed, it takes diligent investigators in order to discover and prevent these types of crimes from occurring in society. It is highly unlikely that all financial crimes and scandals will be detected but it is encouraging that such large schemes are continuing to be exposed, such as the Alden Shoe financial fraud which was discovered earlier this year. Although fraudulent financial acts can be crippling for businesses, economies, and the individuals who fall victim to these acts, there is much to learn from these crimes. By discussing the specifics of these crimes, it can hopefully prevent similar crimes from occurring. Reporting on such crimes brings the possibility of raising awareness and protecting potential future victims. This report, focusing on the Alden Shoe Company financial fraud, will highlight not only the background of the company but it will also include a detailed understanding of the financial

crimes that were committed and the impact that these crimes had on the company and those directly involved in the fraud.

Background Information The Alden Shoe Company is a family-owned footwear maker based out of Middleborough, Massachusetts. Alden Shoe Company is a long-standing local company which was founded in 1884 and specializes in the making of high-end dress shoes. In 2019, the company’s chief financial officer, Richard Hajjar, was fired for embezzling over $30 million between at least 2011 until his eventual firing in October of 2019. The former Alden Shoe Company CFO began working for the company in 1987. Between the years of 2011 through 2019, it is believed that Richard Hajjar embezzled the large sum of approximately $30 million through writing checks to himself from company bank accounts and transferring funds from company accounts to his personal accounts (justice.gov). The former CFO of Alden Shoe Company used the embezzled money for personal gain. Throughout the eight years that Hajjar embezzled money, the previously mentioned personal gains for Hajjar included the enrichment of himself, to buy gifts, including a reported $158,000 diamond ring, and for luxury travel, including private flights to the Caribbean. Not only did Hajjar embezzle approximately $30 million from the Alden Shoe Company, but he also failed to report the proceeds of his embezzlement as income on his tax returns. The failure to report the embezzled income resulted in Hajjar evading the approximate payment of $5,112,822 in taxes to the Internal Revenue Service. Hajjar attempted to cover up his embezzlement scheme by taking money from a line of credit to replace the money he had stolen. This was done before the annual

financial statement reviews for the Alden Shoe Company. Once the annual reviews had been completed, Hajjar returned the money he had borrowed via the line of credit. It is also reported that Hajjar carried out his embezzlement scheme through providing false information to the company’s accounting firm. The Alden Shoe Company filed a lawsuit against Richard Hajjar in May of 2020 when the company discovered that millions of dollars was missing from the company’s cash accounts. Once the Alden Shoe Company’s owner, Arthur Tarlow Sr., became suspicious of Hajjar, Hajjar stopped showing up for work, citing a sudden sickness. In June of 2020, the company also filed a lawsuit for $15 million against Hajjar’s girlfriend, Bianca De La Garza, and her personal company Lucky Gal, for their role in the embezzlement scheme. Hajjar had transferred $15 million of the embezzled money to De La Garza and her company. Purchases for De La Garza included an apartment in New York City, a Mercedes-Benz car, and pieces of jewelry. On April 14, 2021, Richard Hajjar was officially charged with the crimes he committed in connection with the embezzlement of approximately $30 million from the Alden Shoe Company. The former chief financial officer of the company has also plead guilty to wire fraud, unlawful monetary transactions and filing a false tax return related to the multiple year scheme. The specific crimes charged to Hajjar carry both prison sentencing and large fines. The extent of the prison time and fines that Richard Hajjar could face is described below.

Financial Crimes Committed As mentioned previously, Richard Hajjar has been charged with wire fraud, unlawful monetary transactions and filing a false tax return. Since being charged, Hajjar has also plead

guilty to the charges against him. Provided below is information relating to the legal aspects of the crimes charged against Hajjar including potential prison time and fines that the former Alden Shoe Company chief financial officer could face for his role in the embezzlement of $30 million from the company. Wire Fraud Within the United States, wire fraud is a federal crime. Wire fraud is the act of, “obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce” (Cornell Law School). Violations of wire fraud will be brought in front of the federal Department of Justice rather than state prosecutors. According to the news release produced by The United States Attorney’s Office (District of Massachusetts), “the charge of wire fraud provides for a sentence of up to 20 years in prison, three years of supervised release and a $250,000 fine or twice the gross gain/loss, whichever is greater” (justice.gov). In order to be charged with wire fraud, the defendant must have either voluntarily or intentionally defrauded another out of money. It is not a forensic accountant’s duty to speak on the legal proceedings but the financials would suggest that Hajjar knowingly participated in an embezzlement scheme for many years. In the case of Alden Shoe Company v Richard Hajjar, the monetary fine associated with the former chief financial officer’s crime will most likely be the latter option due to the millions of dollars that Hajjar is accused of stealing from the company. Unlawful Monetary Transactions

According to the news release produced by The United States Attorney’s Office (District of Massachusetts), “the charge of unlawful monetary transaction provides for a sentence of up to 10 years in prison, three years of supervised release and a fine of $250,000, or twice the value of the criminally derived property” (justice.gov). In the case of Alden Shoe Company v Richard Hajjar and similar to the charge of wire fraud against Hajjar, the monetary fine associated with the former chief financial officer’s crime will most likely be the latter option due to the millions of dollars that Hajjar is accused of stealing from the company. According to U.S. Code Section 1957, a monetary transaction means, “the deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of funds or a monetary instrument” (Cornell Law School). Filing a False Tax Return Filing a false tax return is a felony offense in the United States. Richard Hajjar is being charged with filing a false tax return due to not including the money he obtained through the embezzlement scheme. Hajjar was required to report the money that he stole from the Alden Shoe Company to the Internal Revenue Service. Filing a false tax return does not carry as serious of a penalty as tax evasion. According to the news release produced by The United States Attorney’s Office (District of Massachusetts), “the charge of filing a false tax return provides for a sentence of up to three years in prison, one year of supervised release and a fine of $250,000” (justice.gov). If the plea agreement that Richard Hajjar has submitted is accepted by the judge, Hajjar will serve 4 to 6 years in prison with 3 years of supervised release following.

Current State of the Alden Shoe Company The Alden Shoe Company is currently involved in pending lawsuits against their former chief financial officer, Richard Hajjar and Hajjar’s girlfriend, Bianca De La Garza. The lawsuit against Hajjar was filed in May of 2020 to recover $27 million for the embezzled money by Hajjar. Hajjar has returned $3 million to the Alden Shoe Company, as of May of 2020. The $3 million that Hajjar has returned to the Alden Shoe Company includes, “$214,000 in cash, approximately $20,000 worth of jewelry, proceeds from the sale of gold coins totaling $195,000, and proceeds from the sales of vehicles totaling $175,000…Hajjar has also transferred a piece of real estate with approximately $2 million in equity…Hajjar has represented, through counsel, that he does not have additional significant assets to return to Alden” (Alden Shoe Company v Richard Hajjar, pg. 7). Alden’s pending lawsuit is going after the remaining $27 million that they believe Hajjar has stolen, but the company’s former chief financial officer maintains that he has not stolen millions of dollars from Alden Shoe Company. Also, according to the lawsuit, Hajjar has never completely denied stealing millions of dollars from Alden Shoe Company but has not been forthcoming about the extent of his embezzlement scheme. Hajjar has originally told Alden Shoe Company that he had not stolen from the company before 2014, which has been proven wrong since then. The Alden Shoe Company continues to operate during their legal battles and pending lawsuits.

Conclusion Unfortunately, financial fraud and complicated illegal schemes are not new to businesses located in the United States and throughout the world. As the Alden Shoe Company is going through their long legal battle against their former chief financial officer, Richard Hajjar, the question is posed; how does the company prevent a similar event from occurring again? Due to the Alden Shoe Company currently being involved in the legal battle, their executives have not been transparent about their next steps. While being a forensic accountant student, there are a few controls and regulations that the Alden Shoe Company could consider implementing as they enter the next chapter following the extensive fraud committed against the company. Family run businesses tend to run into the trap of over trusting long standing employees, as they did with Richard Hajjar who had been with the company since 1987, with other family members preceding him. Regardless of the amount of trust that a company believes they have in an employee, there should be controls in place in order to protect areas of high importance within the business. In this case, Richard Hajjar was trusted with overseeing the Alden Shoe Company’s cash reserves, bank records and other family trust funds. Due to Hajjar being the only individual in charge of overseeing these accounts, he was able to embezzle money from the company for over 8 years without anyone discovering his actions. Moving forward, the company would find it beneficial segregating duties and tasking multiple employees to oversee accounts of high value. By segregating duties at the company, there will not be a single employee in charge of multiple aspects of the business allowing for an individual to get away with embezzling large sums of money without question. Hajjar found large success in his fraud scheme due to being able to write checks and withdraw money from the company’s bank account without oversight from another individual. If the

Alden Shoe Company had segregated duties properly, Hajjar might have been unable to carry through with his embezzlement scheme as there would be others working alongside him. These other employees working with Hajjar could have deterred him of his actions out of fear of being caught. As controls were set up during his employment, Hajjar had little reason to fear any consequences as he was aware that there was little likelihood that another individual would be overseeing his work. With the Alden Shoe Company’s case against Richard Hajjar scheduled to be completed in the coming fall, I am interested to see if there will be any further details released about the fraudulent scheme that Hajjar performed throughout the years. Due to Hajjar claiming that he does not possess any more of the $30 million that he is accused of stealing from the company, it will be interesting to see what type of compensation (if any) that the Alden Shoe Company will get back, outside of the $3 million they have already received.

Sources “18 U.S. Code § 1343 - Fraud by Wire, Radio, or Television.” Legal Information Institute, Legal Information Institute, www.law.cornell.edu/uscode/text/18/1343.

“18 U.S. Code § 1957 - Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity.” Legal Information Institute, Legal Information Institute, www.law.cornell.edu/uscode/text/18/1957. Difazio, Joe. “Duxbury Man to Plead Guilty to $30 Million Embezzlement Scheme.” The Patriot Ledger, The Patriot Ledger, 5 May 2021,

www.patriotledger.com/story/news/2021/04/15/duxbury-man-former-alden-shoe-cfocharged-30-million-embezzlement-richard-hajjar-bianca-de-la-garza/7234490002/.

“Former Corporate Executive Charged in Connection with $30 Million Embezzlement Scheme.” The United States Department of Justice, 5 May 2021, www.justice.gov/usaoma/pr/former-corporate-executive-charged-connection-30-million-embezzlement-scheme.

NBC10 Boston. “Alden Shoe Company Exec. to Plead Guilty to Embezzling $30M Over 8 Years.” NBC Boston, NBC10 Boston, 14 Apr. 2021, www.nbcboston.com/news/local/alden-shoe-company-exec-to-plead-guilty-to-embezzling30m-over-8-years/2355141/.

PDF of Alden Shoe Company v Richard Hajjar:

https://www.documentcloud.org/documents/20616207-alden-shoe-company-v-richardhajjar#document/p4/a2028695...