Archive for April, 2008
Filed under: Ripoffs and Scams, Transportation
 Back in 2004 a lawyer in Arkansas found out that his odometer wasn’t calculating mileage correctly on his Honda minivan. His tests found out that the odometer was off by 5%, so for each 100 miles his minivan would rack up 105 miles. This may seem like small change, but as Bankrate.com points out, even a 5% error can end your new car’s warranty up 1000 miles early! The problem only gets worse when you’ve a automobile with a 100,000 mile warranty.
The last time you want to be without a warranty is when your automobile rolls over 100,000, especially not when you really have 5,000 miles left on your warranty. At this point in your car’s life it is much more likely to need pricey repairs which would have normally been covered under warranty. You’ll appreciate having checked out the calibration of your odometer when your engine or transmission goes out at 100,007 miles.
Finding out if your odometer is quietly eating away at your warranty is really simple, just grab a friend and head to your closest federal highway. All you need to do is measure your odometer against the mile markers, use some of your mathematical skills and viola, you know how far off your odometer is. Bankrate has several steps to take in the event your odometer is skimming cash from your wallet. Thankfully most odometers are personal controlled, and can be fixed at your local dealer.
When we bought our most recent vehicle we made sure that the car didn’t have any odometer fraud, but we didn’t even think to check that it was recording correctly. It looks like we have a project for our next road trip, especially since we bought a power-train warranty with the automobile.
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Posted by: in Money News
Filed under: Economic data, Headline news, Housing, Federal Reserve, Recession
Not at all surprising, the Federal Reserve has announced it cut its benchmark federal funds rate by a quarter percentage point, to 2%. Further, it also signaled it would pause the recent policy of rate cuts as it removed some language that was previously present in the statements regarding downside risks to economic growth.
Despite the move being fully expected, especially after today’s GDP report showed the economy hasn’t contracted and that inflationary pressures weren’t as high as presumed, the stock market reacted positively and Dow Jones Industrial Average topped 13,000 for the first time since January. Superior than expected results from General Motors (NYSE: GM) and Procter & Gamble (NYSE: PG) also added to the positive sentiment.
While the Fed slowing the pace of its rate cuts, if not pausing them altogether, might usually be considered as negative for stocks, it seems investors took the positive news that the economy may need less bolstering more into consideration this time. Sure, the housing sector, the credit crunch, consumer spending and the labor market were noted by the Fed as weak, under stress or requiring help, but the statement also mentioned that the easing policy to date “should help to promote moderate growth over time.” And that is what the market might be reacting to mostly.
As we’ve seen the last few weeks, the market has been on a steady upward trend. Being forward looking, if investors believe the measure taken by the Fed so far and in the future will succeed, we may yet see this trend continue.
Update 3:25 PM: The initial reaction to the news has reversed its course by now and the Dow, which has topped 13,000 briefly earlier is now up only 27 points. The Nasdaq composite and the S&P 500, which have originally joined the initial rally are now in the red. Perhaps the pause isn’t being accepted as well after all, especially with more and more economists warning the economy is still in a bad shape, inflationary pressures still high and that all that could definitely affect corporate profits. Share This
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Filed under: College, Ripoffs and Scams, Fraud
 A few years ago, at my 10th high school reunion, I was surprised and delighted to discover that my former Sex and Marriage instructor, a man that I particularly disliked, had been scammed by a 27-year old George Mason student and sometime porn star. Apparently the young man, Anoushirvan D. Fakhran, aka “Jonathan Taylor Spielberg,” posed as Stephen Spielberg’s nephew, claiming that he was doing research for a forthcoming movie. My former teacher, now the principal of the school, granted the young man to attend classes, showed him around, and gave him numerous privileges that ordinary (read: paying) students were denied. Ultimately, “Jonathan” was discovered and my alma mater was massively humiliated. I think my former teacher was farmed out to another school.
Recently, I was reminded of this as Yale University suffered a similar scam. Akash Maharaj, formerly of Trinidad and Tobago, got into Yale with the help of a forged letter of recommendation from one of Yale’s professors. This letter, combined with a forged Columbia transcript, made him look very impressive, and Yale welcomed him to the school, giving him $31,750 in financial aid. He also received $7400 in federal scholarships, $6739 in loans, and $900 from a federal work-study program. During his time at the school, he received a literary prize, found a boyfriend, and generally seemed to fit right in. Unfortunately, things soured with his boyfriend, who ended up ratting him out to the University. Not long after, his forgeries were discovered and it all came crashing down.
A massive number of people seem to be surprised that Akash was able to deceive Yale. Personally, having spent the last ten years working in academia, I’m impressed that he was caught. At my university, most of the administrators had worked their way up from the ranks of the professoriate, with very questionable results. After all, while a Ph.D in chemistry may be very useful in the lab, it doesn’t really prepare one for the rigors of funding battles, tenure fights, or even something as easy as ordering office supplies. Moreover, I’ve met very few Ph.Ds who were overburdened with an excess of common sense. Frankly, I’m amazed that things like this don’t happen more often.
I think the real lesson here’s aimed at the next generation of college students. Rather than worry about grades and extracurriculars, smart students will begin developing forgery skills, the capability to lie outrageously, and the art of exaggerating their curricula vitae. Hopefully, they’ll also learn the most important lesson of all: if their hard work and deception pay off, they get into the schools of their dreams, and they somehow manage to convince someone else to pay for it, the key is to then play it smart. Keep your boyfriend happy!
Bruce Watson is a freelance writer, blogger, and all-around cheapskate. He has never lied on a job application. In fact, as he told the folks at Walletpop, he is a former cosmonaut, winner of the 1998 All-Namibian Speed-Skating Championship, and a part-time international assassin.
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Filed under: Deals, KKR, Private equity industry, Public or private?
First Data Corp. has entered into an agreement to acquire InComm this day, only about 7 months after it was acquired by affiliates of Kohlberg Kravis Roberts & Co. The value and terms of the transaction has not been disclosed, however, the deal is estimated to be accretive for First Data and is expected to close next quarter.
InComm is an industry leader in marketing, distribution, and technology innovation of gift cards, prepaid wireless products, reloadable debit cards, digital music downloads, content, games, software and bill payment solutions. InComm generated $300 million in net revenues in 2007 on $8 billion in retail sales transactions. The combination will allow First Data and InComm to provide a full prepaid product suite.
This should be an interesting deal as First Data Corp. is a electronic commerce and payment processing services. At the time that KKR shut its merger, First data said it had over 5 million merchant locations, 1,900 card issuers and their customers, in its network. This may really allow the combined InComm & First Data channel to expand rapidly. Brooks Smith, the CEO of InComm will head First Data’s Global Prepaid Services unit once the transaction closes.
Jon Ogg produces and edits the Special Situation Investing Newsletter for 247WallSt.com.
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Filed under: Real Estate, Ripoffs and Scams, Investing, Mortgage Confidential
 Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.
Q: David — I’ve been asked by Freepoint to refinance with them. This company claims that I would build up wealth by investing the difference in my equity with them, getting an interest only loan. They say that having equity in your home is not good because someone can sue you and have a claim on your equity. After several years, one would have enough money to pay off their mortgage if they desired. I would like to get advice on this. They said the higher interest would be a tax write off and I would be investing the equity and getting a higher return. Please advise. Thank you. - Helen
A: Helen — Don’t return their phone calls. I don’t know who that company is, and while I’m sure they’re a fine organization, I’m not comfortable. I see three massive problems with this “pitch” which used to be very popular among mortgage loan officers yet seems to be falling by the wayside.
- Build wealth by investing the different in equity with them
- Having equity in your home isn’t good because someone can sue you
- The higher interest would be a tax write off
Sheesh. And I thought loan officers like that were out of business or selling vehicles or something.
Build wealth: Sure. The math always works with their calculators that show how much money you’d be making if you invested XX amount over XX number of years. Okay, fine. Which stocks? Which mutual funds? For how long? And how do they know any of this? The fact is that they don’t, and you can bet your bottom dollar (if you have one by the time these folks get through with you) you’ll be signing a horde of disclaimers saying that there are no guarantees. And you can still invest money each month any way you want without such a plan.
Equity isn’t good. Since when? Since when all those people over the past few years tried to sell their house but couldn’t because they didn’t have any equity? Personally I think equity is darned good, especially when you have it and no house payment. Yeah, yeah, I know. If push came to shove then you use the proceeds from your investments to bail you out. Right. That apparently went down really well in places like Miami, San Diego and Detroit. And people can sue you all they want but that doesn’t mean they can take your house
The higher interest is a better tax write-off. This is the hilarious one. If that were true, then why not take a mortgage with a 99% interest rate so you can take advantage of the higher mortgage interest deduction? These guys are some real Einsteins.
The fact is that people like these folks really don’t care about you or your situation, they want to do two things: Strip the equity out of your home via a refinance so they have the ability to make money on your mortgage (with a higher loan amount, by the way, so they can make even more money off of you) and make commissions on investments they make on your behalf. I know this is only my opinion, but such pitches — and they’re pitches — (and I’ll just bet their “loan officers” are trained to read a script), make me sick to my stomach. — David
Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won’t Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.
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Filed under: Ripoffs and Scams
 Wachovia Bank has entered into a settlement agreement with the Office of the Comptroller of the Currency (OCC) to pay restitution to consumers who were defrauded by certain telemarketers and third party payment processors. The companies that defrauded consumers included Payment Processing Center, LLC, FTN Promotions, Inc. dba Suntasia, Inc., Netchex Corp., and Your Money Access LLC, and related companies.
After an 18-month investigation, the OCC determined that the companies were getting bank account information over the phone and withdrawing funds from the accounts without authorization. The telemarketers had very a very high number of their transactions returned by the consumers as unauthorized. This high rate should have alerted the bank that these account holders were engaging in fraudulent transactions. Wachovia is believed to have participated in these fraudulent schemes because it profited from the fees collected on the telemarketers’ accounts and transactions.
Wachovia will pay out a maximum of $125 million, but is hoping for less if fewer consumers file claims. Consumers who have already been reimbursed for their losses can’t collect any additional money through this process. The bank also has to give $8.9 million to consumer education programs for the elderly, and must pay a $10 million civil penalty to the U.S. Treasury.
So all told, Wachovia will be on the hook for about $144 million at the most. That’s about 2% of the company’s profits of $6.3 billion in 2007. Is that a fair price to pay for looking the other way when consumers were being defrauded?
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Bookkeeping, and is the author of Essentials of Corporate Fraud.
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Filed under: Ripoffs and Scams, Transportation
 Gas station owners state that record high gas prices mean that a higher number of customers are driving off without paying for their gas. They state it’s not unusual to see the number of drive-offs rise when the price of gas rises, and the steady jumps in fuel prices have made this a grim reality for many gas station owners.
It’s predicted that gas will easily be at $4 per gallon in many areas of the country soon, so concerns about drive-offs are growing. It’s especially troublesome because gas station owners make very tiny money off gas to begin with. They can’t afford to lose gas to dishonest customers.
I just don’t understand the mentality of those who steal anything. I can’t imagine feeling justified in stealing gas from a gas station. That business is owned by someone who is trying to make a living just like everyone else. The price of gas is mostly out of their control, and the gas station owners don’t deserve to get punished just because they happen to be in an industry that’s currently squeezing consumers due to market conditions.
If this trend of driving off without paying for gas continues, the solution will be easy, although inconvenient for customers. Gas stations will simply require everyone to pay before they’re granted to pump their gas. How sad that they may have to resort to this, but it seems to be the most logical way to curb the losses from fuel thieves.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Bookkeeping, and is the author of Essentials of Corporate Fraud.
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Filed under: Raising money, Warburg Pincus, Private equity industry, Investments
Warburg Pincus has recently announced the closing of a $15 billion global private equity fund, Warburg Pincus Private Equity X. Many existing investors increased funds to WP X and includes various investors such as public and private pension funds, endowments, and global financial institutions such as Washington Say Investment Board and GE Asset Management.
Warburg Pincus currently manages over $35 billion in assets globally. The global fund will focus on businesses in any growth stage in core industries in North America, Europe, and Asia. The company invests across geographies, industries, and business growth stages from a single global fund, always with a focus on growing businesses and growing regions.
They have significant experience in consumer and retail, energy, financial services, healthcare, life sciences, industrial, technology, media and telecommunications. Typically, Warburg provides funding for the creation of business or to expand them where long run growth and sustainability is a central factor.
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Filed under: The Blackstone Group, Financials and analyticals, The Carlyle Group, Permira, Private equity industry, Value and lack thereof, Public or private?
Freescale is the old chip giant that was acquired by a private equity group led by The Blackstone Group (NYSE: BX), The Carlyle Group, and Permira Advisers. Prior to being public, this was a unit of Motorola Inc. (NYSE: MOT).
The company still has to report earnings as though it was a public company because of its ratings and because of its public debt. The company has shown that over the last twelve months, the company’s adjusted EBITDA was $1.55 billion.
Net sales for Q1-2008 were $1.405 billion, up from $1.361 Billion in Q1-2007 and down from $1,539 billion in Q4-2007. Unfortunately, the company is still posting an operating loss of $152 million for the quarter, compared to $654 million in operating losses in Q1-2007 and $595 million in Q4-2007. The net loss after items for this last quarter was $245 million, also down from a loss of $539 million in Q1-2007 and down from a loss of $525 million in Q4-2007.
Its cash and total short term investments were $1.25 billion on March 28, 2008, compared to $751 million at the fourth quarter ending December 31, 2007; and its accounts receivable were $680 million and inventory was $732 million. But here’s where things get tricky. Its long-term debt is $over $9.3 billion alone. Of the company’s total asset base of $15.197 billion, more than $5.3 billion is goodwill and more than $3.6 billion was listed as intangible assets.
If you go back to the BloggingBuyouts article, “Why private equity firms avoid technology companies,” you’ll see that being a highly leveraged technology company that requires high capital expenditures isn’t always the greatest place to be be. Unfortunately for all the private equity partnersm the company can’t live on EBITDA alone and many believe that Freescale will need more capital and thus more leverage.
The original private equity deal was put at $17.6 billion for an enterprise value. So far that isn’t turning out too great. Who knows, maybe a re-IPO of Freescale isn’t too far off.
Jon Ogg is a producer and editor of the Special Situation newsletter for 247WallSt.com.
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Filed under: The Blackstone Group, Taxes and regulations, Private equity industry, Shareholders
The Blackstone Group, LP (NYSE: BX) has another Alliance Data Systems Corp. (NYSE: ADS) law-suit on its hands. According to the Wall Street Journal, this time the credit-card processor has accused Blackstone of breaking their agreement to purchase the company for $6.4 billion and demands $170 million as a breakup fee.
This is the second time Alliance has sued Blackstone over the proposed merger. In January, they withdrew a law suit that attempted to force the completion of the merger after Blackstone assured them the deal would go through. Apparently and no one can blame them, they backed out again, prompting the latest law suit.
Blackstone said the pull out is due to a $400 million backstop requirement imposed by the Office of the Comptroller of the Currency to support OCC regulated Alliance. Alliance alleges Blackstone failed to use “its ideal efforts” to earn OCC approval and that Alliance took many steps to solve the problem.
Blackstone maintains they didn’t breach any conditions outlined in the merger agreement and the accusations will be strongly contested. Alliance shares are down over 2% today to $51.55 on a 52-week range of $39.54 to $80.79. The deal valued Alliance shares at $81.75. Blackstone shares are also down by 2% to $18.50 on a 52-week range of $13.40 to $38.00.
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