In doing further research on the Manafort trial, it appears that the federal prosecutors did realize the invoices they put on the screen were fake. Apparently, this was designed to show evidence of laundering funds. Since Manafort was simultaneously being accused of spending huge funds at the two firms in question, and then paying fake invoices to look like he spent even more.  That doesn’t seem to make sense. This may actually work to his advantage. I think prosecutors knew the documents were fakes but I still think this may have been a world class mistake.

This reminds me of an incident several years ago. I was the Risk Manager for a major corporation and was invited to participate in a think tank held at Hilton Head Island by one of the nation’s largest insurance brokers. There were about 30 risk managers there and this was designed to pick our brains regarding significant trends in the insurance industry. The first evening there was a presentation by a Risk Manager for a nationally known firm. He was a recent Harvard MBA and he spent about two hours showcasing his revolutionary approach to risk management.  This took over two hours and there were all kinds of graphs and charts masterfully illustrated in a professionally prepared PowerPoint Presentation.  This was indeed brilliant. This guy literally felt that the entire world was in some kind of cosmic balance where he could offset workers’ compensation claims in Texas with profits from soybeans in Iowa. He scorned the traditional risk managers who worked on old school methods of managing risk, like controlling claim costs. He considered that to be so yesterday, one just had to be in tune with international counterbalancing predictable trends obvious only to the chosen few. The chosen few obviously did not include me, because this didn’t make any sense to me.

When He was done I went to dinner with a close friend who was also a Risk Manager for a major corporation. He asked me what I thought about this. I hesitated to tell the truth, but I finally said: “either everything I have learned over the last 25 years is wrong or this guy is nuts and he will do great financial harm to his company with this idiotic scheme.”. He laughed and said: “that’s exactly the way I feel, and trust me, you’re not the one who’s delusional here.

I felt much better after talking with my friend. He was a very good risk manager and I valued his opinion.  The point being that it was hard not to be impressed with all the charts and data and if I didn’t have 25 years’ experience, I might have believed it too.  By the way that meeting was in 2000 and that risk manager worked for Enron. By October 2001 it became obvious to the world that Enron, once one of the most respected companies in the world was a house of cards. In Mid 2000 Enron Stock was selling for $90.75 per share. By November 2001 it was worth less than $1.

By the way, this is how Wikipedia says the Risk Management strategy at Enron was a major factor in its downfall:


Before its scandal, Enron was lauded for its sophisticated financial risk management tools.[51] Risk management was crucial to Enron not only because of its regulatory environment, but also because of its business plan. Enron established long-term fixed commitments which needed to be hedged to prepare for the invariable fluctuation of future energy prices.[52] Enron’s bankruptcy downfall was attributed to its reckless use of derivatives and special purpose entities. By hedging its risks with special purpose entities which it owned, Enron retained the risks associated with the transactions. This arrangement had Enron implementing hedges with itself.[53]

Kenneth Lay, Chairman and CEO of Enron was indicted by a grand jury and found guilty of 10 counts of security fraud. He died three months before he was scheduled to be sentenced. I always thought that if I was on that jury I just might have voted for acquittal. If the presentation I saw in 2000 was anything like the reports being presented to Kenneth Lay it would be pretty easy to believe that he may not have realized what was really going on.

I have a similar reaction to the case against Paul Manafort. I suspect he hired people to handle things and probably didn’t even know a lot of regarding how specific things were being handled. He was probably too busy living the life of the rich and famous and making even more money.

Thus, the problem with the fake invoices. Who exactly made them and why. It seems unlikely that Manafort would do this. He had more than enough real purchases through both firms. This may end up being evidence that at least some of the time, it was Manafort who was being lied to. It may even turn out to be exculpatory evidence.

The question here is not really whether or not Manafort is guilty, it is rather whether or not the prosecutors can prove he was guilty. At best this is an extremely complex case with mountains of documents, some of which the prosecutors admit were fakes.

As I mentioned before, Arthur Anderson was prosecuted and found guilty of criminal charges with regard to the auditing of Enron. In 2005 that verdict was overturned by a unanimous verdict of the Supreme Court. That, of course was after Arthur Andersen surrendered its licenses to practice as Certified Public Accounts which ultimately led to bankruptcy.


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