The Trial Balance is CFO’s weekly preview of stories, stats, and events to help you prepare.
Part 1: Epoch Times CFO caught up in elaborate international $67 million fraud
In an alleged web of fraud involving fraudulently obtained unemployment benefits, "tens of thousands" of prepaid debit cards, stolen identifications, and false claims to banks, the CFO of The Epoch Times, Bill Guan, is facing charges of money laundering and two counts of bank fraud, each carrying maximum sentences of 20 and 30 years, respectively.
According to the indictment, beginning around 2020, Guan has allegedly been involved in a transnational money laundering operation. Prosecutors accuse him of laundering money through The Epoch Times' "Make Money Online" (MMO) team, a group he personally oversaw in what reports call a "foreign office."
The alleged scheme involved Guan directing the MMO team to purchase tens of millions of dollars in fraudulently obtained unemployment benefits for 70-80 cents on the dollar via cryptocurrency. Through multi-layered transactions involving illegally obtained debit cards, many of which had stolen identities associated with them, Guan then laundered the money as donations to his company; some of which then found its way into Guan’s personal accounts.
The operation caused The Epoch Times' annual revenue to jump 410% in 2020, from $15 million to $62 million. When asked about the origins of revenue jumps by the company’s banks, Guan insisted it was from an increase in donations, contradicting himself in a letter he wrote to Congress in 2022 about donations not being a significant part of revenue, prosecutors say.
The failure of financial controls here appears to be a blatant lack of oversight by fellow executives and the board of the company, weak internal controls that were unable to detect the laundering, little response to red flags within the organization, and likely a complete lack of transparency among the company’s leadership regarding its financial situation.
Part 2: Moody’s Mark Zandi on the U.S. economy
This morning on Bloomberg TV, Moody’s Analytics chief economist Mark Zandi commented on the health of the U.S. economy and what the Fed might be waiting for to cut interest rates.
“I think the [conditions are] right where they need to be … if you [consider] the equity market or the credit spreads, it feels like conditions are easy. But if you look at bank lending standards and the banking system in general, not so much, credit is much tougher to come by. The value of the dollar is strong – that's consistent with tight financial conditions. You can add it all up and mix it up in a pot, it feels like financial vision conditions are right where they need to be,” Zandi said.
When asked if the Fed is holding its interest rates position longer than it should in order to hit a 2% inflation target and potentially introduce higher levels of risk, Zandi replied:
“The most likely scenario is the Fed is going to pull this off, the economy is going to soft land, and they'll start cutting rates here pretty soon … but I do worry that they're holding on here too long, that that's too high for too long. The labor market has signs of weakness, the financial system is fragile, the yield curve is inverted – short-term rates are still above long-term rates, that's not consistent with a well-functioning financial system.
“I've got this image in my mind, the system of an engine, and it's shaking tremendously under the stress of these higher rates. And so far, it's held together with a little bit of duct tape and some help from the Federal Reserve and banking regulators, but for how long and why we are why would you do this? I think, “mission accomplished.” Full employment 4% unemployment rate, inflation is back at target properly measured, and has been for a long time. So why take the risk?
I understand the necessity to do that, because of the credibility and everything else. But really, at the end of the day, is 2% the right number? I think most people would say no, it's probably higher than that. So why sacrifice the economy to the altar of a 2% inflation target if you don't need to?”
Part 3: The week ahead — How to be a successful father and CFO
This week, reporter Adam Zaki will publish a story with Steve and Michael Tannenbaum, a father and son who both have extensive CFO experience. In recognition of Father's Day and men’s mental health awareness month, Steve and Michael will share how their father-son relationship developed, which included Steve insisting Michael learn the value of hard work during his upbringing.
Zaki and the Tannenbaum’s discuss how to be a successful CFO and a good father simultaneously, how to instill strong values in children regardless of the family’s financial situation, how the father-son relationship plays into success and more. (6/14)
Here’s a list of important market events slated for the week ahead.
Monday, June 10
- NY Fed one-year inflation expectations, May
Tuesday, June 11
- NFIB Small Business Optimism, May
Wednesday, June 12
- Consumer Price Index, May
- Core CPI, May
- CPI, YoY
- Core CPI, YoY
- FOMC rate decision
- Fed Chair Jerome Powell press conference
Thursday, June 13
- Initial jobless claims, week ending June 8
- Producer Price Index, May
- PPI, YoY
Friday, June 14
- University of Michigan consumer sentiment, June (prelim)
- Import prices, May
- Export prices, May