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Caleb Newquist

When 37,000 Japanese Investors Discovered Their Dividends Were Now “Divine”

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Picture opening your quarterly dividend envelope in February 2007, expecting yen, one of the world’s most stable currencies, but instead finding paper vouchers denominated in “Enten,” which literally means “divine money” in Japanese. These heavenly tokens were only good in one man’s bizarre marketplace where you could buy bedding, socks, and produce, but definitely couldn’t pay your rent.

This actually happened to 37,000 Japanese investors who discovered their life savings had been converted into monopoly money.

In the latest Oh My Fraud episode, “Divine Yen, Devilish Fraud,” host Caleb Newquist unpacks one of Japan’s most absurd financial frauds. The story of Kazutsugi Nami and his Ladies & Gentleman company—yes, that was the actual name—offers critical lessons for accounting professionals in a time of growing cryptocurrency schemes.

A Career Built on Fraud

You might think a fraud conviction would end someone’s career in finance. Kazutsugi proved otherwise, repeatedly.

His criminal timeline reads like a fraudster’s greatest hits. In the 1970s, as vice president of APO Japan, he helped market fake exhaust gas removers through a pyramid scheme. The devices didn’t work, but 250,000 people bought in before the company went bankrupt and authorities came knocking.

Most people would have learned their lesson. Not Kazutsugi.

By 1973, he’d already founded Nozakku Co., selling “magic stones” that supposedly purified tap water. The timing was perfect, as Japan faced severe water contamination from rapid industrialization, and desperate people wanted solutions. At its peak, Nozakku pulled in roughly ¥2 billion annually (about $6-8 million in late 1970s dollars). The stones weren’t magic. They didn’t purify anything. By 1978, Kazutsugi was in prison for fraud.

In a move that should make every accounting professional pause, in 1987, while his fraud record was still fresh, Kazutsugi founded Ladies & Gentleman (L&G). Eventually, 37,000 investors would hand over billions of yen to a convicted fraudster. One victim later justified their investment because L&G had been “in business for a long time.”

The bizarre culmination came on February 4, 2009, when police arrived to arrest him. Instead of hiding, Kazutsugi held court at a restaurant, charging reporters ¥10,000 each to attend his breakfast press conference while he sipped beer at 5:30 AM. He’d even packed spare underwear, expecting the arrest.

When asked about defrauding investors, his response was pure theater. “Do you think I could behave openly like this if there had been a fraud?” Later, he added, “Time will tell if I’m a con man or a swindler.”

The Divine Currency Revolution That Wasn’t

Kazutsugi didn’t just promise returns; he promised revolution. He called Enten the future of money, a currency that would break free from Japan’s economic system. He claimed governments would eventually adopt it and that he had a divine decree to eliminate poverty worldwide.

At investor events that resembled religious revivals, Kazutsugi styled himself as a modern-day Oda Nobunaga, one of Japan’s great historical figures, who unified Japan through military conquest in the 16th century.

The 36% annual returns Kazutsugi promised should have been an immediate red flag. In 2007, when Japanese government bonds yielded around 1.5%, 36% guaranteed returns defied financial gravity. Yet thousands of investors, many elderly and seeking retirement security, handed over their savings.

The scheme’s genius was its gradual escalation. Initially, L&G paid dividends in real yen, establishing trust. Then in early 2007, dividends became partially Enten. Finally, they were paid entirely in this imaginary currency that could only be spent in L&G’s internal marketplace, essentially a curated flea market offering comforters, vitamins, and produce.

As Caleb observes in the episode, these are exactly the products “multi-level marketing companies love because you can just claim it’s enhanced by whatever mystical bullshit you are selling that year.”

When Vision Meets Delusion

During the episode, Caleb and producer Zach Frank explore fascinating parallels between cult leaders and modern tech CEOs. Both sell transcendent visions that attract devoted followers.

“They see themselves as right. They’re cocky, they know the way, and they’re the only ones who know the way,” Zach observes.

This absolute certainty becomes magnetic. Caleb notes how Elon Musk, before his political involvement exposed his character. “He had this vision for the world. We’re going to Mars and we’re going to save the world. And people are like, yeah, I’ll follow you anywhere.”

Zach offers crucial insight about why these figures gain traction. “We’re in a time where gurus are becoming more popular than ever. It has to do with the lack of trust in institutions and science in general. People want to find someone to give them the answers to everything.”

When traditional systems seem to be failing, like during the 2007-2008 financial crisis when L&G was collapsing, the person who claims to have all the answers becomes irresistibly attractive.

The Spectacular Collapse

When L&G announced dividends would only be paid in Enten—no more real yen—investors understandably panicked. Some wanted to know whether they could exchange Enten for things like rent and food. They could not.

Like a classic bank run, investors crowded outside L&G locations demanding money and answers. The Japanese press pounced on the story. In November 2007, L&G filed for bankruptcy with estimated losses between ¥126 billion to ¥226 billion (roughly $1-2 billion USD). It was rumored to be Japan’s largest consumer investment fraud ever.

Even as police led him away, Kazutsugi insisted, “I am the poorest victim. Nobody lost more than I did.”

In March 2010, Kazutsugi was sentenced to 18 years in prison, a harsh sentence by Japanese standards. Even then, he insisted Enten was the future.

Lessons for the Profession

For accounting professionals, these patterns translate into specific warning signs:

  • Gradual shifts in payment methods that move from standard to non-standard practices
  • Closed ecosystems where value can only be realized within the company’s control
  • Recruitment-based growth models dressed up as community building
  • Attacks on regulators rather than substantive responses to concerns
  • Appeals to revolution that discourage traditional due diligence
  • Impossible guaranteed returns justified by proprietary methods

Distinguishing between legitimate innovation and sophisticated fraud requires more than technical knowledge; it requires understanding the psychology of persuasion.

Real innovations might disrupt industries, but they don’t violate mathematical laws. A 36% guaranteed return isn’t innovation; it’s impossibility. A currency that only works in one company’s marketplace is company scrip, a practice outlawed in most developed nations for good reason.

As Caleb warns, “If someone promises you a 36% annual return, but that return comes back to you in tokens that are only good for bedsheets, fruits, and the occasional pressure cooker, you are not diversifying your portfolio. You are subsidizing a cult with slightly better stationery.”

Listen to the full Oh My Fraud episode to hear the complete breakdown of this bizarre case, including more details about the victims and the reasons smart people fall for obvious frauds. The episode offers insights that connect historical frauds to modern schemes and the psychological vulnerabilities that transcend cultures and currencies.

Whether it’s cryptocurrency, NFTs, or the next financial revolution, the pattern persists: charismatic leaders promising transformation, impossible returns dressed as innovation, and schemes that create confusion where clarity is desperately needed. Our role as accounting professionals is to ensure that when someone claims to be building the future, they’re working with real materials, not divine intervention.

Ancient Fraudsters Wrote the Playbook Modern White-Collar Criminals Still Follow

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Picture a man frantically sawing through the bottom of his own ship in the middle of the Mediterranean Sea. Passengers rush below deck to find him red-handed, hole half-cut, wood shavings floating in the rising water. A chase ensues. The would-be fraudster, cornered and desperate, hurls himself into the ocean rather than face justice.

This isn’t a Netflix true crime series; it’s a 2,300-year-old insurance fraud that went spectacularly wrong.

In the latest episode of Oh My Fraud, host Caleb Newquist takes listeners on a journey through time to explore some of history’s earliest recorded financial frauds. Fresh from his European travels (with a particular fondness for Budapest’s goulash and Vienna’s coffeehouse culture), Caleb digs into ancient schemes that prove creative accounting isn’t a modern invention.

When Rome Literally Auctioned Off the Throne

The Year of Five Emperors in 193 reads like a corporate governance nightmare. It started with Emperor Commodus getting assassinated on New Year’s Eve 192 and creating what Caleb calls “quite an exciting start to the year 193.”

His successor, Pertinax, took the throne with big plans to reform Rome’s finances, which Commodus had left in ruins. Think of him as the turnaround CEO brought in after a spending spree. His first move was cutting the donativum, the cash gifts emperors traditionally paid to the Praetorian Guard when taking power.

Bad idea. The Praetorian Guard, Rome’s elite military unit responsible for protecting the emperor, didn’t appreciate their bonus getting slashed. When Pertinax’s follow-up offers still fell short, around 300 guards stormed the palace. After what Caleb imagines as “a very brief conversation,” they assassinated him. His entire reign: 87 days.

What happened next defies belief. The Praetorian Guard auctioned off the throne to the highest bidder. Marcus Didius Julianus won and became emperor, essentially purchasing the Roman Empire like buying a company at auction. But word quickly spread about how he got the throne. Three influential generals rebelled and claimed it for themselves. Within 66 days, Julianus was assassinated, ending one of the shortest reigns in Roman history.

The parallels to modern corporate fraud are hard to miss. We’ve seen executives obtain positions through financial manipulation and insider dealing. The donativum system itself mirrors modern bonus structures that create dangerous dependencies. When those bonuses get cut, whether in ancient Rome or on Wall Street, the backlash can destroy companies and careers.

The World’s First Insurance Fraud Goes Sideways

If the Roman story shows political corruption at its worst, ancient Greece produced the world’s first recorded insurance scam in 360 BCE. Meet Hegestratos, a sea merchant with a plan that was elegant in its simplicity and spectacular in its failure.

To understand the scheme, you need to understand bottomry loans. Back then, sea travel was genuinely terrifying. Ships sank all the time. Bottomry allowed merchants to borrow money using their ship and cargo as collateral. If the vessel reached its destination, the merchant sold the cargo, repaid the loan with interest, and kept the profit. If the ship sank, the lender ate the loss. It was proto-insurance built on trust that merchants wouldn’t deliberately sink their own vessels.

Hegestratos saw opportunity where others saw protection. He and his coconspirator Zenothemis took out a bottomry loan for a grain shipment from Syracuse to Athens. But instead of using the money properly, they immediately sent it to Massalia (modern-day Marseille). They planned to sail for a few days, scuttle the ship, claim tragic loss at sea, and keep both the loan money and the grain.

Two or three days into the voyage, Hegestratos decided it was showtime. He snuck below deck and began cutting a hole in the ship’s hull. Meanwhile, Zenothemis stayed topside, supposedly creating a diversion.

But as Caleb hilariously reimagines it, Zenothemis was terrible at his job. Picture him “fake coughing every time there’s a loud noise from down below” while other passengers, who already didn’t like him, grew suspicious. The cutting was loud. The diversion was pathetic. Soon, passengers rushed below to find Hegestratos literally caught red-handed.

What followed was pure slapstick. Caleb envisions it as “one of those Keystone Cops chase scenes with Yakety Sax playing behind it.” Hegestratos flees through the ship, passengers in hot pursuit, ending with the fraudster hurling himself into the Mediterranean. As the ancient orator Demosthenes recorded, “Thus miserable as he was, he met a miserable end as he deserved, suffering the fate which he proposed to bring about for others.”

You’d think watching your partner drown would inspire some soul-searching. Not Zenothemis. With remarkable audacity, he tried to continue the fraud. He actually asked the crew to sink the ship anyway, arguing that “all hope was lost.”

When that failed and they limped to shore at Cephallenia, there was a dispute. Protus, the “supercargo” responsible for the grain reaching Athens, wanted to continue there. Zenothemis insisted they go to Massalia, claiming connections to the deceased fraudster and the original lenders. The local magistrates sided with Protus. They ordered the ship to Athens, where Zenothemis filed lawsuits claiming ownership of the grain.

The Mystery Ending That Still Bugs Historians

The frustrating part of this story is we don’t know how it ended. The original documents were “mutilated,” leaving only 32 paragraphs that “yielded no satisfactory sense” about the final verdict.

This uncertainty has sparked debate for centuries. John M. Zane’s 1925 Michigan Law Review analysis offers a twist: maybe Zenothemis wasn’t a coconspirator but another victim. Zane points out that Zenothemis had no access to the redirected money, no legitimate claim to sell the cargo, and nothing to gain from the ship sinking. Maybe he desired to return to Massalia because he genuinely wanted to collect insurance to repay his lender friends.

Zane even suggests that if it went to trial, the rich lenders probably lost because Athenian juries were populist and unsympathetic to wealthy plaintiffs, a dynamic that sounds familiar to anyone following modern white-collar crime prosecutions.

Whether Zenothemis was a fraudster or a fool, the case establishes a principle fundamental to financial law: fraudulent contracts are void. This ancient precedent echoes through centuries of case law and continues protecting victims today.

Ancient Schemes, Modern Lessons

As Caleb notes, there are no new frauds, just new fraudsters. The schemes evolved from bottomry loans to blockchain, from cutting holes in ships to cutting corners in compliance, but the patterns remain:

  • Exploiting trust. Bottomry loans worked because people trusted merchants wouldn’t sink their own ships, just as modern systems assume executives won’t tank their own companies
  • The coconspirator problem. Hegestratos learned fatally that complex fraud needs help, yet every additional conspirator multiplies detection risk
  • Documentation dilemmas. Even in 360 BCE, fraudsters needed false paperwork and had to manage competing claims
  • Greed override. Both cases show how easy money overrides rational risk assessment

Caleb’s observation about creating diversions particularly resonates: “You cannot have any weak links in your conspiracy. Don’t think you can just let some hack create a half-assed diversion for you.” His reimagining of Zenothemis’s pathetic distraction attempts—fake coughing to cover ship-cutting sounds—reminds us that fraud often fails not in conception but in execution.

For CPAs and fraud examiners, these aren’t just historical curiosities; they’re training exercises in pattern recognition. The executive inflating revenues for bonuses follows Julianus’s playbook. The insurance fraudster staging accidents mirrors Hegestratos’s scheme. Understanding these patterns helps professionals spot red flags before they become scandals.

The Timeless Blueprint of Financial Deception

From emperors buying their positions to merchants attempting insurance fraud, these ancient cases reveal that financial deception is as old as commerce itself. The schemes involved ships instead of spreadsheets, cargo instead of cryptocurrency, but the underlying patterns of exploiting trust, creating false documentation, and letting greed override judgment haven’t changed.

For today’s accounting professionals, these historical frauds serve as cautionary tales and educational tools. That executive oddly eager to bypass controls? They’re following Julianus’s playbook. That unusual insurance claim with convenient timing? It echoes Hegestratos’s bottomry loan scheme. The vendor insisting on redirecting payments? They’re pulling a move as old as Massalia.

What makes these ancient frauds valuable is their stripped-down simplicity. Without modern financial instruments and digital smokescreens, we see the raw mechanics of deception. The Praetorian Guard’s throne auction isn’t fundamentally different from a board being bought off; it’s just more honest about the transaction.

Listen to the full episode of Oh My Fraud to hear Caleb bring these ancient frauds to life with his signature blend of historical detail and irreverent humor. Because sometimes the best way to understand today’s financial crimes is to study the fraudsters who wrote the original playbook over two millennia ago.

When Bots Listen to Robots and Real Money Disappears

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Picture this: a computer on stage playing songs to an audience of computers. No humans involved, just machines performing for machines in an endless digital loop. Yet somehow, millions of dollars change hands.

This isn’t science fiction. It’s happening right now on streaming platforms, and it’s just one of the mind-bending fraud schemes explored in this episode of Oh My Fraud. Host Caleb Newquist opens with a relatively new conspiracy theory called the Dead Internet, which suggests that most online activity, including posts, likes, followers, and streams, isn’t human anymore. It’s “bots talking to bots, talking to bots,” creating an information superhighway filled with self-driving cars that have destinations but no passengers.

But what happens when someone exploits this artificial ecosystem for real money? That’s exactly what we’re about to find out.

The $121 Million Email That Fooled Silicon Valley

Between 2013 and 2015, a Lithuanian man named Evaldas Rimašauskas pulled off something that shouldn’t have been possible. He convinced two of the world’s smartest companies, Google and Facebook, to wire him $121 million. His method wasn’t sophisticated hacking or complex algorithms. He simply pretended to be someone else.

Rimašauskas impersonated Quanta Computer, a real Taiwan-based hardware manufacturer that actually did business with both tech giants. He set up a company in Latvia under Quanta’s name and opened bank accounts in Latvia and Cyprus. Then his team got to work, calling Google and Facebook customer service lines to gather intelligence, including names of key employees, contact information, and other details that would make their lie believable.

Through phishing emails and what Caleb describes as “a maze of phony invoices, contracts, letters, and corporate stamps,” Rimašauskas created enough confusion to convince someone at Google to update the bank account they had on file for Quanta Computer. In 2013, Google sent $23 million to his account. Two years later, using the same playbook, Facebook wired him $98 million.

The money flowed through accounts across Latvia, Cyprus, Slovakia, Lithuania, Hungary, and Hong Kong. And here’s the kicker: these amounts were so insignificant to Google and Facebook that they “went virtually unnoticed.” As Caleb puts it, “$23 million and $98 million aren’t even rounding errors on the amount of revenue for Google and Facebook. It’s less than pocket change.”

Eventually, someone at Google caught on. Rimašauskas was arrested in March 2017, extradited to the U.S. that August, and pleaded guilty to wire fraud in March 2019. He got five years in prison, and both companies got their money back.

From IT Mogul to Music “Producer” to Alleged Fraudster

Our second story shifts from simple impersonation to something far stranger. Meet Michael Smith, a 52-year-old with a resume that reads like three different people’s lives smashed together.

According to the research, Smith made his first fortune in the 1990s with an IT business where he allegedly wrote “one of the main fixes for the Y2K millennium software bug.” He then ran chains of medical clinics, which landed him in trouble in 2020 when he and two associates paid $900,000 to settle Medicare and Medicaid fraud allegations.

But here’s where it gets weird. At age 39, Smith decided to become a music industry player. Despite having no apparent musical background, he somehow ended up judging a BET hip-hop competition called “One Shot” alongside DJ Khaled, T.I., and Twista. As Wired magazine described it, he was “a relatively unknown record producer with a checkbook” among actual stars.

When Caleb asked producer Zach Frank if he’d ever heard of anyone building a successful music career starting in middle age, Zach’s response was telling: “It’s extremely, extremely rare. Not without money, at least.”

The Streaming Revolution and Its Discontents

To understand Smith’s alleged fraud, you need to understand how dramatically the music industry has changed. Zach, who comes from a family of professional musicians, explained how streaming completely upended the business model.

In the old days, people bought physical albums for $12-15 at stores like Tower Records. Artists made real money from album sales. Then came Napster and peer-to-peer sharing, which Caleb admits using extensively in college. “People were listening to all this music completely in its entirety for free,” he recalls.

Today’s streaming platforms like Spotify and Apple Music operate on a subscription model. Users pay monthly fees for unlimited access, and artists get fractions of pennies per stream. Spotify made $17 billion in 2024 and claims 70% goes to the music industry, but individual artists see almost nothing.

The numbers are staggering. According to Spotify’s former chief economist, more music is released every single day in 2025 than in the entire year of 1989. And here’s what makes it worse: bigger artists negotiate better deals, while smaller artists, as Zach puts it, “get screwed.”

Building an Army of Fake Listeners

This is the landscape Smith allegedly decided to exploit. Starting in 2017, he orchestrated what the Department of Justice calls a scheme to steal millions in royalties by fraudulently inflating music streams.

The mechanics were brilliant in their simplicity. First, Smith created thousands of bot accounts using fake email addresses and names. He even told a coconspirator to “make up names and addresses” but to “make sure everyone is over 18.” He paid $1.3 million in subscription fees because, as Zach explains, paid subscribers generate higher royalty rates than free users.

By October 2017, Smith had 1,040 bot accounts spread across 52 cloud service accounts. Each bot could stream about 636 songs per day, generating approximately 661,440 total daily streams. At half a cent per stream, that meant $3,307 daily, $99,000 monthly, or $1.2 million annually.

But Smith had a problem: he needed content. Lots of it.

When AI Makes Music for Bots to Hear

Initially, Smith used music catalogs from coconspirators and even tried selling his streaming service to other musicians desperate for plays. But as he wrote in May 2019, “I can’t run the bots without content and I need enough content so I don’t overrun each song. If we get too many streams on one song, it comes down.”

His solution? Artificial intelligence. Smith partnered with Alex Mitchell, CEO of an AI music company called Boomy, who began providing thousands of AI-generated songs each week.

The song and artist names were gloriously terrible. Song titles included “Zygotic Washstands,” “Zygoptera,” and “Calvinistic Dust.” Band names ranged from “Calm Knuckles” to “Camel Edible.” As Caleb jokes, “I don’t know what camel edibles are. Perhaps they are THC gummies for camels.”

To demonstrate just how far AI music has come, Zach used Udio.com during the podcast to generate two complete songs about Oh My Fraud in just 10-15 seconds. The results were unnervingly good, professional-sounding tracks that could easily pass for human-created music. “There’s a lot of AI music on Spotify at the moment without people knowing it’s AI,” Zach notes.

Smith used VPNs to hide that all streams came from one location and spread activity across thousands of songs to avoid detection. When flagged for “streaming abuse” in 2018, he protested: “We have no intentions of committing streaming fraud.”

By February 2024, Smith’s scheme had generated 4 billion streams and $12 million in royalties.

Folk Hero or Fraudster?

The reaction to Smith’s indictment has been surprisingly divided. Some see him as a criminal who stole from real artists through the “stream share” system, where royalties are distributed based on each rightsholder’s proportion of total streams. Others view him as a folk hero exposing an exploitative system.

The case raises uncomfortable questions. When the band Vulfpeck released an album of complete silence and asked fans to stream it while sleeping—earning $20,000 before Spotify banned them—was that fraud or performance art? As Zach asks, “If someone’s playing blank music, who are they to say that’s not real?”

Smith has hired the prestigious law firm that defended Diddy and plans to fight the charges vigorously. This will be the first major streaming fraud case fully litigated, potentially setting precedents for how we define fraud in digital spaces.

What We Learned

As Caleb reflects at the episode’s end, these cases reveal something profound about our digital economy. Google and Facebook, companies worth trillions with founders worth hundreds of billions, got tricked by simple schemes. A middle-aged entrepreneur with a checkbook created a phantom musical empire that earned millions.

For accounting professionals, these are warnings about the future of fraud detection. When documentation can be perfectly faked, when bots are indistinguishable from humans, when AI creates content that only machines consume, traditional audit procedures become obsolete.

These cases force us to confront questions about power, technology, and authenticity in the digital age. When companies make billions while creators earn pennies, algorithms determine value instead of human appreciation, and the line between real and artificial completely disappears, that’s when people start rooting for the fraudsters. Not because they’re right, but because the system itself feels so wrong.

Listen to the full episode to hear Caleb and Zach grapple with these questions, including those AI-generated songs that sound disturbingly human. Because in an age where machines create for machines while extracting real value from real people, understanding these frauds helps preserve what makes us human in an increasingly artificial world.

Stock Options Weren’t Lucky Timing—They Were Backdated Fraud

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In 2005, a Norwegian professor at the University of Iowa discovered something that would shake corporate America: CEOs weren’t getting lucky with their stock option timing; they were cheating. By looking backward and cherry-picking dates when their company’s stock hit rock bottom, executives at more than 130 major corporations were guaranteeing themselves millions in profits.

That professor, Erik Lie, shared his story with Caleb Newquist in a recent episode of the Oh My Fraud podcast.

The Accidental Fraud Fighter

Erik never set out to expose corporate fraud. Growing up in Norway, spending time skiing in the mountains and playing by the water, he was just a kid who was good at math. His path to becoming one of TIME magazine’s 100 Most Influential People in 2007 started with simple curiosity.

Erik’s work at the University of Iowa’s Tippie College of Business didn’t involve trying to catch cheaters. He was studying how stock options affected executive behavior. But what he found in the data was too strange to ignore.

Stock options give executives the right to buy company stock at a fixed price in the future, usually set at the market price on the grant date. Thanks to a 1993 tax law, they’d become hugely popular as “performance-based” compensation that companies could still deduct from their taxes. By the early 2000s, tech companies were handing them out like candy.

When Lucky Timing Becomes Mathematically Impossible

Erik was looking at what happened to stock prices around option grant dates, following up on earlier work by NYU professor David Yermack. But where Yermack found a modest pattern in early 1990s data, Erik discovered something explosive in more recent numbers.

“You see the stock price during the month beforehand, on average, go down by about 4%. And then right on the grant date, it turns and it goes up 4% afterward,” Erik explained. “This is crazy to find something like this.”

The pattern wasn’t just in individual stocks; it showed up in the entire market. As Erik put it, “The whole market is moving in that same direction. And you ask yourself, how could these guys predict the market? And how come they’re not working for a hedge fund in that case, instead of for a company out there in the Midwest?”

Some companies hit stock price lows for their option grants five years in a row. The odds of this happening by chance were astronomical. While defense lawyers would later claim their clients just “got lucky,” the concentration of perfect timing across hundreds of companies told a different story.

Breaking Academic Boundaries

When Erik read a Wall Street Journal article about the SEC investigating companies for “spring loading”—granting options before releasing good news—he did something unusual for an academic: he reached out to regulators.

“I contacted SEC, and this is not normal for me either,” Erik recalled. “Usually I stay in my bubble. But something compelled me to contact SEC and say, ‘Hey, I think you’re on the wrong path here.'”

His theory was simple. Companies didn’t have to disclose option grants until months later in their proxy statements. This meant executives could look backward and pick the most favorable dates. “They can essentially stand in March of a year and say, ‘Hey, we’ve got some grants last year, didn’t we? Let’s just pick a date to make that official date. And look at that—June 7th had a very low price.'”

Unlike Harry Markopolos, who was desperately trying to get the SEC to investigate Bernie Madoff during the same period, Erik found a receptive audience. One SEC staff member called him, asked for data, and appeared to take his findings seriously.

The Story Goes Public

To strengthen his case, Erik teamed up with colleague Randall Heron to study what happened after Sarbanes-Oxley required option grants to be reported within two days. Their findings were damning: companies that complied with the new rule showed no suspicious timing patterns. The magical ability to pick perfect grant dates vanished the moment executives had to report in real-time.

But academic papers rarely make waves. “People will not read these academic journals for the most part,” Erik admitted. “No one cares about these things.”

Enter Mark Maremont, a senior Wall Street Journal reporter who immediately grasped the story’s explosive potential. His team spent months analyzing data and contacting companies. The resulting March 2006 article, “The Perfect Payday,” featured colorful graphics showing company after company somehow granting options at exact stock price bottoms.

“One executive fled the country very quickly,” Erik noted about the aftermath. “I think it’s pretty clear that something is going on.”

The Journal won a Pulitzer Prize for its coverage. More than 130 companies faced investigations. Seventy executives lost their jobs.

Why Proving Fraud Is Harder Than Finding It

Despite overwhelming statistical evidence, criminal prosecutions produced mixed results. The challenge was, while Erik’s data showed undeniable patterns across hundreds of companies, prosecutors had to prove criminal intent for specific individuals.

“With enough data, you can see these patterns, but if you narrow it down to one data point, you can’t see what’s happening in that context,” Erik explained.

Smart executives had even built in deniability. “Some of them would intentionally not pick the lowest because it would seem so obvious,” Erik revealed. By choosing the second or third-lowest price, they created enough ambiguity to defeat prosecution while still enriching themselves.

The harm was real. Shareholders were deceived about compensation costs. Companies illegally claimed tax deductions. And as Erik pointed out: “If this is all harmless, then why not just do it out in the open?”

Lessons for Today’s Fraud Fighters

Erik’s story demonstrates what Caleb calls the “privatization of enforcement,” where academics, journalists, and others help catch fraud that overwhelmed government agencies might miss. But unlike traditional whistleblowers who face retaliation, Erik experienced little pushback.

“I wasn’t scared at all. I just thought it was a whole lot of fun,” he said, attributing his lack of fear partly to Norwegian culture where “any celebrity can go around in the street or take the bus.”

His new book, “Catching Cheats: Everyday Forensics to Unmask Business Fraud,” shares these and other stories about using data to spot deception. For accounting professionals dealing with an era of sophisticated financial manipulation, his work offers an important lesson: patterns in aggregate data can reveal frauds invisible at the individual level.

The backdating scandal largely ended once transparency was required. When executives could no longer manipulate timing in secret, the practice stopped. As Caleb observes in the episode, “These are rich and powerful people, executives at public companies. And we should want those people to be accountable for their actions.”

Sometimes catching cheats doesn’t require being a traditional whistleblower risking everything. Sometimes it just takes curiosity, rigorous analysis, and the courage to tell regulators when they’re looking in the wrong direction. In a world drowning in data, the ability to spot patterns others miss might be our best tool for keeping the powerful honest.

Listen to the full episode to hear Erik’s complete story, from his Norwegian childhood to becoming one of TIME’s most influential people, and learn how academic curiosity exposed one of the most widespread corporate frauds of our time.

The Shadow Economy of Stolen Points That Nobody Talks About

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While you carefully track every penny in your bank account, there’s $100 billion sitting unprotected in forgotten loyalty accounts worldwide. That eye-opening number comes from Kim Sutherland, global head of fraud and identity at LexisNexis Risk Solutions, who recently joined host Caleb Newquist on the Oh My Fraud podcast to discuss the growing threat of rewards and loyalty fraud.

This episode is a perfect companion to the show’s previous exploration of reward program fraud cases, with insights from someone whose team analyzes 120 billion transactions annually. Sutherland pulls back the curtain on how loyalty programs—those everyday rewards we collect at coffee shops and airlines—are a prime target for sophisticated fraud operations.

The $13 Billion Digital Currency You’re Ignoring

The global loyalty management market now exceeds $13 billion, and it’s everywhere you look. As Sutherland explains, “Almost every type of company you interact with has some type of a program to reward their existing customers.” From airlines and credit cards to restaurants, hair salons, auto mechanics, and even schools, businesses use these programs to strengthen customer relationships.

The average person belongs to anywhere from 16 to 20 loyalty programs, but they actively monitor only a fraction of them. This gap creates a perfect opportunity for fraudsters. “They understand the value of each of those rewards points, and they pay more attention to the ones you’re not paying attention to,” Sutherland warns.

These aren’t just marketing gimmicks anymore. “Loyalty points are a form of digital currency,” Sutherland says. People treat them like savings accounts, letting balances grow and planning vacations around accumulated miles. However, your bank account has federal protection and robust security. Your coffee shop points? Not so much.

When Newquist mentions his Starbucks app, calling it “a mini bank within that company,” he highlights a crucial point. These companies handle customer funds and issue digital currency but operate without the strict oversight required of traditional financial institutions.

The dark web has turned these points into a tradable commodity. Sutherland says stolen points have specific dollar values attached and are bought and sold alongside other illegal goods. It’s not just individual criminals either. Fraud has become a business with specialized roles, training programs, and sophisticated operations.

How Criminals Harvest Your Digital Rewards

Account takeover leads the fraud playbook, and it’s devastatingly simple. While you legitimately earn points through purchases, criminals break into your dormant accounts. They either transfer your points to accounts they control or drain them for purchases before you notice.

Because loyalty accounts lack the security of traditional financial accounts, “there is more opportunity for someone to do an account takeover,” Sutherland explains.

The numbers are alarming. Sutherland reports nearly 100% year-over-year growth in loyalty-based fraud across different industries and regions. On the dark web, these stolen points trade like currency. And fraudsters operate like niche service lines—some steal data, others monetize it, and still others provide technical infrastructure.

Synthetic identity fraud takes things to another level. Criminals combine pieces of real information, such as your name, someone else’s address, another person’s phone number, to create fake identities. These synthetic identities can operate for years, building credit and accumulating points across dozens of programs.

“The real problem with synthetic identity fraud is, even if your name had been used, you may never know you were part of the creation,” Sutherland warns. There’s no real victim to report the crime, making detection extremely difficult. These fake identities might start with a jewelry store loyalty program, build credibility, then work up to valuable airline or credit card rewards.

Insider threats add another layer of risk. Travel agents booking trips might divert clients’ points to personal accounts. Employees with system access could redistribute points. Third-party agents in real estate or auto sales can siphon off points customers never knew existed.

The technical sophistication is striking. Fraudsters use device farms—racks of phones running automated scripts—to manage thousands of fake accounts. They employ burner phones, throwaway email addresses, and test security responses by making small account changes before executing major thefts.

The Impossible Balance Between Security and Convenience

“The best form of authentication is one a consumer uses,” Sutherland observes, highlighting the core challenge facing businesses. Companies must balance three competing priorities: privacy, security, and convenience. For consumers, convenience almost always wins.

Unlike employees who follow whatever security protocols their employers require, consumers simply abandon programs that make redemption difficult. As a result, even if businesses implement bank-level security, doing so could destroy the convenience that makes these programs attractive.

The solution Sutherland recommends is passive security measures that work in the background. Companies embed sophisticated tools in mobile apps that analyze device behavior without disrupting user experience. Is the device jailbroken? Has it been associated with previous fraud? Is it moving naturally, or is it part of a static device farm?

Despite technological advances including biometric authentication, AI fraud models, and emerging digital credentials, Sutherland says, “The biggest challenge is still identity verification.” After 20 years of trying, verifying that someone is who they claim to be remains unsolved.

Fighting Back Through Collaboration

Forward-thinking companies now treat loyalty fraud as a brand reputation issue rather than a compliance checkbox. “It is truly trying to ensure that consumers can trust what they’re doing,” Sutherland explains, noting that customers immediately take to social media when something goes wrong.

The response has become increasingly collaborative. Organizations create “fusion centers” where fraud, cybersecurity, and anti-money laundering teams work together. Through LexisNexis’s proprietary network, businesses share fraud intelligence across industries and borders. For example, banks in Singapore share patterns with UK retailers and major financial institutions collaborate on emerging threats.

This cooperation is essential because, as Sutherland notes, “Fraud does not stay within any country. We see the same fraudsters transacting in the US and in France and in South Africa.”

Companies focus on key vulnerability points, particularly when customers change account details. Something as simple as updating an email address or phone number can trigger an account takeover if proper verification isn’t in place. Yet each additional security step risks losing customers to competitors.

What This Means for Accounting Professionals

With $100 billion in unused points, nearly 100% annual growth in loyalty fraud, and criminals operating sophisticated international networks, this is an emerging category of financial crime that could impact your clients.

For businesses, a major loyalty breach can lead to financial loss and potential brand devastation in an era of instant social media backlash. For individuals, compromised loyalty accounts often serve as gateways to broader identity theft, especially through synthetic identity techniques.

Most concerning is that companies can’t simply apply traditional banking security models to loyalty programs. The convenience consumers demand conflicts with the security these digital assets require. As programs expand into every corner of commerce and younger generations treat points as legitimate currency, the attacks will continue.

Accounting professionals should recognize loyalty programs for what they’ve become: an unregulated digital currency that criminals actively exploit. While we’ve been protecting traditional accounts, fraudsters have built infrastructure to harvest value from the rewards programs we ignore.

Listen to the full Oh My Fraud episode with Kim Sutherland to learn specific red flags for loyalty fraud, discover emerging authentication technologies that could protect clients, and understand why those forgotten rewards programs might be your clients’ biggest vulnerability. Because in a world where your morning coffee purchase contributes to a $13 billion shadow economy, treating digital rewards with the same seriousness as traditional currency is just professional prudence.