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ANOTHER CPA PONZI SCHEME BLOWS UP

January 06, 2006

Nobody ever accused accountants as a group of originality. Not even thief accountants. Today comes word of another CPA who has followed the well-trod dismal road of stealing from clients through a Ponzi scheme. Barry Korcan, a Pennsylvania accountant, confessed when notified of an impending IRS exam:

"I've never in my career had someone come to me and say they want to admit to a crime that hasn't even been investigated," defense attorney Charles Porter Jr. said. Korcan, who did business as Korcan & Associates in Beaver, came to him after being informed by the Internal Revenue Service in January 2005 that he was being audited.

"It was eating him up," Porter said.

U.S. Attorney Mary Beth Buchanan, however, said the IRS audit prompted Korcan to admit to his crimes. "He knew his scheme was going to be discovered," she said. Prosecutors said they will recommend a term of eight to 12 years when Korcan is sentenced April 14.

Mr. Korcan pretended to "invest" his clients money. Unfortunately for those who trusted him, he invested the money in, among other things, a vacation home and "boats." He mailed fraudulant investment statements to the clients to cover up his theft. Now he can look forward to an extended stay in a "vacation home" with constraints as he serves federal mail fraud and tax evasion sentences.

Prosecutors said Korcan took $11.3 million from clients and told them he was investing in Guardian Investments, which was only a bank account controlled by Korcan.

"This is the largest fraud scheme we have investigated and prosecuted in western Pennsylvania," Buchanan said. "He used his personal relationships and trust of his clients to defraud them."

Prosecutors said Korcan paid about $4 million back to his clients through interest and other payments and liquidation of accounts, but stole more than $7.2 million, using the money for his business and personal lifestyle.

An accountant in my hometown got into similar trouble in 2004. An Adel, Iowa CPA was disgraced by similar crimes in the late 1980s, but I can't find a link to any article about him.

The Moral: CPAs are allowed to be investment advisors. If you decide to let your CPA wear both hats, it's wise to get your investment statements directly from a third party investmenet house. If the only available statements come directly from the CPA/investment advisor, your money may disappear before you know it.

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