Synopsis

In May 1972, Fortune magazine identified Equity Funding Corporation of America (EFCA) as the fastest growing financial services conglomerate in the U.S. Less than two years later, regulators discovered that 64,000 of EFCA’s 99,000 alleged life insurance policies were phony and $62 million of the reported $117 million of loan receivables did not exist.

Discussion Questions

1. How did EFCA use phony life insurance policies to generate cash? What long-term problem did these phony policies create for EFCA?
2. How did EFCA convince the auditors that the phony life insurance policies were real? What audit procedures would have detected the fictitious policies?
3. According to the SEC, what “flagrant violations” of SEC rules and professional accounting standards did WWR&L commit?
4. Did Seidman & Seidman audit partner Bob Spencer err in giving copies of Ray Dirks’s notes to Stanley Goldblum? Why or why not?