Stanford Financial Group Chief Investment Officer – Laura Pendergest-Holt – Arrested! Stanford Won’t Go Down Alone…

The third ranking executive of the Stanford Financial Group – Chief Investment Officer Laura Pendergest-Holt was arrested by the FBI on charges that she obstructed a government proceeding.  Appearing before a federal magistrate in Houston on Friday, Pendergest-Holt is accused of making “several affirmative misrepresentations” to SEC investigators who were seeking to learn about a scheme to defraud investors and account-holders of billions of dollars in deposits.

The FBI and IRS are actively conducting a criminal investigation(s) of Stanford’s allegedly fraudulent dealings, which was confirmed in court documents.  A CNN article reports:

“Since June of 2008 I and others on behalf of the FBI, special agents with the Internal Revenue Service, and postal inspectors have been conducting an investigation into allegations that executives of Stanford Financial Group … have defrauded investors and account-holders of more than $8 billion in deposits,” said FBI agent Vanessa Walther in an affidavit filed with the charges against Pendergest-Holt.

“We have been conducting this investigation parallel to an investigation being conducted by the Securities and Exchange Commission,” the affidavit says.

Bloomberg reports:

The Securities and Exchange Commission sued Pendergest- Holt, Stanford Chairman R. Allen Stanford, and Stanford Chief Financial Officer James M. Davis on Feb. 17, accusing them of misleading investors about $8 billion in certificates of deposit in Antigua-based Stanford International Bank.

Keeping in mind an arrest is not a conviction, her attorney stated:

“She is extremely disappointed in the path the SEC and law enforcement are taking,” said Pendergest-Holt’s lawyer Dan Cogdell. “She has been cooperating for weeks, and now she is falsely charged for a crime she didn’t commit.”

The full Bloomberg report is here.

Thinking that at one time she might be the one to topple the house of cards and send Stanford to prison for a very long time, one might ask if her arrest is just a ploy to put pressure on her to provide exactly what the government wants.  Perhaps she did withhold data – which one can go to prison for – or perhaps it’s a power squeeze.  Either way, the choices made by Pendergest-Holt in the past are surely producing consequences today – and likely will for years to come.

As a business ethics and fraud prevention speaker, one this is sure – there will be more to come….

O.K. SO HERE IS SOME MORE…

The Wall Street Journal Law Blog reports on the Pendergest-Holt criminal charges.  Pulling from a story from the Northeast Mississippi Daily Journal, the WSJ Law Blog reports:

A bit strange, however, is the story’s several mentions of Pendergest-Holt’s looks. The story notes that while the Baldwyn, Miss., native, now 35, “had no financial services or securities industry experience” before joining SFG in 1997, “less than a decade later she was managing more than $15 billion in assets and running a worldwide team of equity, policy and sector anaylsts.”

According to the story, Pendergest-Holt had a “killer combination of beauty, brains and connections,” was was “an expert number-cruncher” and “has been described as strikingly beautiful and statuesque.”

Wow…I’ve heard that one should look the part, but $15 billion under management…well one would assume that there would be a string of credentials that would support such responsibility.  But then, reality check, it seems that it really was all part of a big illusion.  Maybe striking looks just makes the illusion easier to pull off.

YOUR COMMENTS WELCOME!

Facebook – Internet Scam! Free Grant Money – Yea Right! Scam Alert by Chuck Gallagher Fraud Prevention Speaker

Now…don’t get me wrong – I’m a big fan of Facebook and social media / networking.  I may be 51, but I am learning quickly the benefits of Facebook, LinkedIn and Twitter.  But with every great tool comes someone who will use it for – well lets say – not so noble uses. As a fraud prevention speaker, I am alert to things that – well, just don’t smell right.

In Facebook on the right side of your home page or profile are those pesky little ads that help make Facebook run and make it free to use.  Rarely – if ever do I click on them.  Mostly cause I’m not interested and secondly, I don’t want to get sucked into something I don’t want, don’t need or don’t understand.

But, I’ve got to be honest.  For weeks now I’ve been seeing this ad – over and over again – touting getting your stimulus check.  Now, I’m smart enough to know that there is NO Twelve Thousand Dollar stimulus check coming to ole Chuck!  Yet, I’ve been tempted to click on the ad and just see what it is all about.  Several times I dragged my cursor over the ad and stated to click.  I didn’t!

Today, however, I notice a great article written by Chadwick Matlin and posted on MSNBC.  The full article can be found here.

The article begins as follows:

Meet Kevin Hoeffer. Kevin is an altruistic man who just received $12,759.62 from the federal government. He wants all of the readers of his blog to be able to do the same. So he points the way to a free grant kit (plus $1.99 shipping and handling) to use to apply for a government handout. Once you do that, you’ll get your $12,000. It’s that simple. He even provides a copy of his official Treasury grant check to prove its legitimacy.

Now it is clear from the photo from the article that what is represented sure looks real.  But, that’s all part of the fraud.  When a person is scammed three things generally take place and the photo above shows the simplicity of creating the second part of the three part scam – ILLUSION.

I was contacted by an organization asking about legislation to protect people (especially Senior Citizens) against fraud – like what Bernie Madoff pulled off.  I responded in a way that I suspect they didn’t like.  You cannot legislate out fraud.  There has and will always be those who would take advantage of others.  That, unfortunately, is the nature of some people.  Likewise, there will always be some people who want to believe (in the tooth fairy) that something can be had for nothing – that they will fall for even the dumbest of scams.

HERE’S HOW THIS ONE WORKS:

Per Mr. Matlin in his article:

These people are the faces of a new, pervasive scam that’s piggybacking on Washington’s stimulus agenda. All of the blogs tell you to use the free software to get the $12,000 grants. To order that software, the blogs link off-site to a variety of Web sites filled with testimonials about how great their free grant-finding software is. What they don’t say is that if you fail to cancel your subscription — a subscription the sites don’t reveal exists outside — they’ll charge your credit card until you discover their scheme and tell them to stop. (The going rate seems to be $50-$70.) It’s a devious system whose ads are proliferating across the Internet and has embarrassed Facebook into pulling them down. A close read of the scams’ semiotics offers an insight not just to our weakness for get-rich-quick schemes, but also our current economic moment.

CREDIT WHERE CREDIT IS DUE:

Not everyone is subject to a big case of the dummies.  Many folks complained and Facebook figured that the revenue wasn’t worth ticking off the Facebook community so they pulled the ads.  By the way the Ads look like this.  I have taken the time to show them here so that if you see them you’ll know exactly what a scam looks like.

ANATOMY OF A FRAUD OR SCAM:

Being defrauded is easy.  The fraudster just sucks you into the PIT.  Now for those of you who follow my blog, I have reported on this before in entries related to Bernie Madoff.  But if you have not read those let me help you with understanding the PIT.

The first part of most any financial fraud starts with the PROMISE ( P ).  In the case of this scam the promise is a big fat $12,000 from the government.  Why?  Well, of course newly elected President Obama wants you to have it.  It is part of the big ole stimulus package – RIGHT!

So POINT OF ADVICE:  If you wish to avoid being scammed, understand – if it sounds to good to be true – it LIKELY ISN’T TRUE!

The second part of the fraud triangle is the ILLUSION ( I ).  That is obvious as well…you get to see a pretty picture of a (what must be real) check from the government!

A great ILLUSIONIST should be able to fool you.  But with electronics these days you can make any thing any way you want it.  Remember the movie – “CATCH ME IF YOU CAN” – what if he’d had photoshop?

That leads to the third and final component of fraud – TRUST ( T ).  In order to effectively pull a fraud off, someone has to trust the fraudster.  Now, having been a fraudster (not something I am proud of), I understand the mentality.  It is much easier to defraud someone who is close to you and trusts you than it is to defraud a stranger.  But if the need is great enough – like the failing economic situation we’re in now – and the population of folks to defraud is large enough – well even a blind squirrel can find an acorn.

SCAM AVOIDANCE:

Don’t believe everything you hear.  Don’t believe everything you see.  Don’t trust everyone who wishes to take or (invest) your money.  Use common sense and you’ll avoid the need for an attorney to help you get out of the scam mess that can ensnare folks.

COMMENTS ARE WELCOME!

Facebook, Photo’s and Firing! Nurses Fired for Posting Cell Phone Pictures to Facebook … Comments by Ethics Speaker Chuck Gallagher

An article on WISN.com caught my attention and the attention of CNN – as they reported on a nurse who was fired for her (ethical lapse) – choices regarding a photo and comments. 

So here’s part of the story as posted by WISN.com:

Nurses accused of photographing a patient and posting the pictures on the Internet have been fired.

The investigation started with an anonymous call from an employee at Mercy Walworth Medical Center in Lake Geneva, with the allegation that a nurse took pictures of a patient with her cell phone and posted them on her Facebook page.

Now before I continue with the story – lesson #1.  DON’T POST STUFF ON FACEBOOK that might be questionable.  A simple rule of thumb…if you think that your employer or your mama would not like your posting – DON’T PUT IT ON THE SITE (or anywhere else on the internet).  It can be found.  It will be found.  And, it will be used against you!

The story goes on to say:

Last week, the nurse told 12 News she never posted the pictures on the Internet. Investigators have since interviewed the nurse and said she offered more details.

“There were two nurses that independently took a picture each of an X-ray of a patient,” Walworth County Undersheriff Kurt Picknell said.

The patient was admitted to the emergency room with an object lodged in his rectum. Police said the nurse explained she and a co-worker snapped photos when they learned it was a sex device. Police said discussion about the incident was posted on her Facebook page, but they haven’t found anyone who actually saw the pictures.

The nurse removed her Facebook page from the Internet last week. Without more, Picknell said this conduct does not appear to violate any state laws. He has referred the case to the FBI.

“We’ve notified federal authorities of this allegation to see if there are federal violations, most notably HIPAA violations, patient rights,” he said.

OUCH!  FBI.  Those three letters are worse than the IRS.

A similar story was reported on December 29, 2008 – same story but posted to MySpace.  As a ethics speaker, I wonder (often) why people believe that their pages on MySpace – Facebook or any other free social networking site are somehow theirs and not public information?  And it’s not the adults that are the only folks with that attitude.  As I speak to University students around the country – they seem to have the same attitude.  They feel that their drunken party photos that have been posted and tagged should be off limits to employers who are considering them for a position.

That is not reality.  Reality is – what you post you are accountable for.

Every choice has a consequence.  This is not the first such example and it won’t be the last.  One thing is for sure, as social networks grow more and more people will be called to task for their postings.  Social networks are wonderful, but be cautious, be careful and avoid the FBI…!

Tim Masters – Victim or Victor? Every Choice Has A Consequence!

As I rose this a.m. – checking e-mail, CNN – just checking in with the world I was faced with another article on Tim Masters – the Fort Collins, Colorado man who was wrongly imprisoned for 9 years.  This must have been an eternity, especially for an innocent man.  Having spent time in federal prison (justly deserved – as I was guilty), I know that prison can change you.  But, as a business ethics and fraud prevention speaker, it wasn’t the wrongful imprisonment that caught my attention, it was the lead line of the article.

CNN’s writer states:  “Tim Masters squarely blames Fort Collins, Colorado, police and prosecutors for his inability to land gainful employment and for his not having a wife and kids at this stage in his life.”  The full CNN article can be found here. 

I know as I type these next words I am opening myself up to both positive and negative comments.  But, sometimes you have to go for it if you expect positive change to take place.  If the article is an accurate portrayal of how Tim Masters feels and thinks, then…

TIM MASTERS is playing the VICTIM role well!

In my experience, some thirteen years following my prison experience, VICTIMS remain such wallowing in self pity and anger.  Anger, self pity, blaming others for their plight, – you name it – just think of victims you know or have known – none of those feelings or emotions are empowering or bring about positive change.

Here are excerpts from the article:

CNN: Do you have trouble finding a job because of your time in jail?

Masters: Yeah, I think that has a lot to do with it. The first thing that comes up on a background check is “charges dismissed — first-degree murder.”

Better questions are Tim – what are you doing to look for employment opportunities?  Do you disclose your background well before the background check?  Do you capitalize on your notoriety garnering understanding for your unfortunate circumstance and give others a chance to reach out a hand to help?

In my experience, being a convicted felon is an obstacle.  But in Tim’s case he was acquitted.  He is innocent and most people can find compassion to give someone in Tim’s circumstance a chance.  I have found employment in both a publicly traded company and private enterprise since prison and I was guilty – unlike Tim.

The article continues:

CNN: If you could talk to the prosecutors or police who handled your case, what would you say to them?

Masters: I don’t want to talk to them at all.

CNN: Talk about your lawsuit against the prosecutors and police. Who does it target?

Masters: Mainly, [former prosecutors, now Judges] Jolene Blair and Terri Gilmore and [Fort Collins police Lt.] Jim Broderick, but there are a few other defendants involved and the city, but in my mind those are the big three.

I do not fault Tim for his lawsuit.  The law is there to protect, which includes protecting someone for their life being permanently altered by incorrect incarceration.  Given similar circumstances, I would likely do the same.  However, I can’t help but wonder if, while that is taking place, Tim could focus his energy toward something that is positive and empowering?

Like what – one might ask?

Every choice has a consequence.  There must have been reasons that Tim was considered a suspect in the first place.  Not that it was his fault, but evaluating those actions (way back then) might prove to be powerful lessons to youth today.    Tim has a powerful story.  He can have an impact.  He will be heard.  The power to reach out to others and help them discover what and/or who they are and how their choices can shape their life is powerful. 

I was sad today to read about Tim and where he is.   The tone of the story and answers to the  questions didn’t feel empowering.  They felt, at least to me, that those who falsely imprisoned Tim had won! Tim can have a wife, a family and a great life – it is truly a matter of CHOICE!

VICTIM or VICTOR – Tim the choice is yours!

Comments welcome!

William D. Poynter, Maryland CPA – Sentenced to 108 Months in Prison. Why? Money Laundering … Go Figure!

O.K. – I’ve been a CPA.  Been is the operative word.  I am no longer a CPA due to choices I made back in the ’80′s.  Today it is clear that every choice has a consequence.

Now one would assume that those of us who chose the CPA profession would clearly understand the rules of money and laws of economics.  Yet, it never fails that, from time to time, a failure of judgment will catch the headlines of the media.  Bad choice = negative consequence.  This is true for William D. Poynter.

Poynter, age 59, operated an accounting business, W.D. Poynter & Associates, in Lanham, Maryland.  According to the US Attorney’s news release:

From November of 2005 to December of 2006, the defendant and two employees of a mortgage company conspired to launder over $127,000 in cash that they believed were the proceeds of drug dealing.

Now that was a bad choice.  I understand how easy it can be to defraud someone and rationalize that it was only a loan, but to conspire to launder money that you thought was drug money …  come on!  But, no it gets worse.

In actuality, the money was provided to them as part of an undercover money laundering investigation conducted by special agents of ICE.  The defendant and his co-conspirators accepted the cash from an ICE informant and undercover agent who posed as drug cartel members.  In exchange for payments totaling $8,000, the defendant and his co-conspirators laundered $127,400 by depositing most of that currency into bank accounts they opened in the name of a fictitious church, and by converting the remainder of the cash into United States Postal Service money orders.

I don’t get it.  108 months in prison all for $8,000.  Now that is not a good exchange by anyone’s definition!

“By agreeing to launder what he believed were the proceeds of drug trafficking, this defendant’s conduct amounted to a criminal dereliction of the esponsibility and character expected from a CPA,” said U.S. Attorney Taylor. “His conduct is a prime example of why money laundering is such a serious and complex crime, and one against which we must remain vigilant.”

The question remains – what would motivate such bad behavior?  Was Poynter motivated by money?  Beyond this poor choice how did he operate the remainder of his CPA practice?  Some insight into those questions was reported by a former employee in May of 2007:

I worked for W. D. Poynter for approximately two months. He wrote me a check, I took the check to a check cashing place. ACE cashed the check two months laters. ACE contacted me regarding the bounced check. They said they had spoke with Mr. Poynter on numerous occasions. He mentioned that he would take care of the matter and never did.

Also, I had problems getting my W-2 from him. He liared saying his computers weren’t in the building and making excuses. It took him two months to send my W-2.

Regardless of motive – one this is sure, Mr. Poynter’s life will now change.  And while he faces federal prison well over 7 years, the repercussions of his actions will have a direct effect on others close to him.  His family will have to deal with the issue, his employees either have or will likely have a change in their employment and others with whom he was connected will feel the effect.

As a business ethics and fraud prevention speaker, I am conducting research into the motivation behind the actual crime.  If you know Mr. Poynter please contact me so we can discuss the motivation behind his actions.

COMMENTS ARE WELCOME!

Credit Crisis – Subprime Mortgage Collapse – New York Times Article Shows That Choices Made Ten Years Ago Haunt Us Today! Comments by Mortgage Fraud Speaker Chuck Gallagher

Every day there is more news about the sagging economy.  Banks being considered for nationalization.  Companies contracting and downsizing.  Workers being laid off.  It’s hard to find the bright spots as there seems to be no light at the end of the tunnel.

But – every choice has a consequence – and the consequences we are living in today had a beginning with choices that were once made in good faith.  The more I research the more I find that is isn’t the banks who are totally at fault or greedy wall street tycoons.  Rather, the problem started with government pressure or direction.  Encouragement by our own federal government, coupled with shareholder profit pressure, created the momentum that has now turned into disaster. 

The following is an article written by Steven A. Holmes for the New York Times on September 30, 1999. (copyright New York Times 1999)  A portion of the article is reprinted here:

In a move that could help home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is not generally not good enough to qualify for conventional loans.  Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nations biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stockholders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called supprime borrowers.  These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

“Fannie Mae has expanded home ownership for millions of families in the 1990′s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s Chairman and Chief Executive Officer.  “Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been regulated to paying significantly higher mortgage rates in the so-called subprime market.”

Demographic information on these borrowers is sketchy.  But at least one study indicates that at least 18 percent of the loans in the subprime market went to black borrowers, compared to 5 percent of loans in the conventional market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose difficulties during flush economic times.  But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

“From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute.  “If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

The whole article can be seen here.

Almost ten years ago, writer, Steven A. Holmes reported on what was the infancy of what would bring the US to its economic knees some ten years later.  The clarity of his comments are a haunting reminder simple reality checks and what many would now say is common sense business.

QUICK OVERVIEW:

• Politicians wanted the purse strings loosened so that more people could get what they wanted  – even though they couldn’t afford it.  Hum that seems to me to be bad economics but good politics.  Get more people what they want so they will vote for you.  After all, with term limits, most folks won’t be in power when the crisis hits.
• Shareholders – of Fannie Mae – push for higher and higher returns.  Gordon Gecko – “Greed is good” – yea right!  I have been a Sr. VP in a public company and know what that shareholder pressure is like.  But here’s a reality check:  the tide comes in and the tide goes out.  It is unrealistic to assume that there will always be growth.  If companies were run for the long haul, then some of the dumb decisions that are made would be avoided.  It is terribly frustrating to see what kind of decisions are made just to make the earnings work for the current quarter.
• Banks and investment firms wanted Fannie Mae’s expansion – why?  Obvious – another line of profitable business (at least for the short term).  I wonder today if those who were so quick to jump on the bandwagon would have done so – if they knew then what they know now.

Were the choices made then ethical?  As a business ethics speaker, I’m interested in your opinions.

WHAT DO YOU THINK?

John A. Yanchek Pleads GUILTY to $82.8 Million Mortgage Loan Fraud Scheme – Fraud Prevention Expert Chuck Gallagher Comments

Every choice has a consequence.  As a business ethics and fraud prevention speaker, I state that during every presentation.  Regardless of who you are or what station you may hold in life – you cannot avoid the consequences of your actions or choices.  Sure, you may avoid the consequences for a time, but in the end we must always face the consequences of our choices.

On February 4th, 2009 – John A. Yanchek – a licensed Florida attorney pled guilty to conspiracy, making false statements in connection with bank loans, and money laundering.  The consequence – Yanchek could face up to 45 years in federal prison (although his sentence will likely be much less). 

According to the US Attorney’s news release:

YANCHEK entered into a conspiracy to make false statements to federally-insured banks in connection with applications for commercial  loans to fund the purchase of vacant land in the Sarasota/Manatee area for development.  The object of the conspiracy was to obtain a loan from a bank in an amount that was sufficient to allow the conspirators to purchase the property without contributing any equity of their own and to receive excess loan proceeds for their personal use and benefit.  To influence the lending decision of the various banks, YANCHEK, acting in his legal capacity as the closing attorney, made false statements regarding the financial resources of the borrower, the amount and source of equity contributed by the borrower, compliance with the seller’s obligation to provide marketable title to the property, and distribution of the loan proceeds.

The question now is not one of guilt.  Yancheck has made it clear that he is guilty.  Rather the question is one of motivation.  Why would a licensed attorney risk his license, livelyhood and freedom?

An article written in the HearldTribune.com (linked here) states the following:

Between January 2005 and March 2006, Husani, whose business dealings are being scrutinized by the FBI, completed seven real estate transactions in Manatee and Sarasota counties, buying land for a total of $43 million, reselling it to partners for $117 million and helping them obtain $84 million in bank loans, according to records filed with county courts.

Yanchek, by contrast, bought seven houses for $3.45 million since 2001. He then resold them to companies or trusts he controls for $5.55 million and got $4.46 million in loans from three different banks.

In his most expensive transaction, Yanchek bought a house at 101 Seagull Lane on Bird Key from Christopher and Courtney Campbell for $1.16 million on Dec. 4, 2002.

He then sold the house the same day to 101 of Sarasota Inc., a company he controls, for $2.15 million and got a $1.25 million mortgage from First State Bank.

As a side note – Husani fled the country in 2006.

From external appearances, Yancheck figured out how to defraud banks by watching too many episodes of “Flip That House.”  Frankly, however, the three components of a fraud are (1) need; (2) opportunity and (3) rationalization.  While I can’t address the orginial “need” motivation, I suspect that over time “need” became money.  From the perspective of a fraudster – once one gets the taste for money it becomes nearly impossible to divorce oneself from that need.  In Yanchek’s case the “opportunity” component was found in the license and position of trust that he had.  There is a fundamental understanding that an attorney is a trusted advisor and ethically should abide by the law.  Somehow here that point seems to be missed.

Where from here?  Well, Yancheck will be sentenced and considering the financial magnitude, I suspect that he will receive 5 years or more as an active prison sentence.

IF YOU KNOW JOHN A. YANCHECK – and would have any insight into his motivation, feel free to contact me as I am interested in what would motivate such behavior.

YOUR COMMENTS ARE WELCOME!

Robert Allen Stanford – Stanford International Bank and Stanford Capital Management – Fraud In the News! What Motivates Fraud?

It seems that the flood gates are open with no hope of shutting – at least any time soon – with investigations and indictments of fraud!  Madoff, Dryer, Grigg and now Stanford.  Every where you turn there is another fraud or investment scam being reported.  I’ve seen a lot over the years as a business ethics and fraud prevention speaker, but this is a profound season for fraud discovery.  So the question – what motivates fraud? 

To address a question like that you need to look at the scope and magitude of the frauds being reported.  And, make no mistake in this economic climate this is the tip of the iceberg.  As I write this, no doubt, there are frauds taking place that will be discovered in years to come.  Not a great comfort.  And, in this environment, the time is ripe for people to be scammed or victimized.

Before, however, look at the motivation, let’s examine what Stanford is being accused of.  According to the Dallas Business Journal:

A Houston-based broker-dealer and investment advisory firm with an office in Dallas has been charged in an $8 billion investment scheme that centers around a CD program and involves false promises to investors.

The Securities and Exchange Commission out of its Fort Worth Regional office alleges in a lawsuit filed in Dallas that Robert Allen Stanford through three of his companies — Antiguan-based Stanford International Bank, Houston-based Stanford Group Co. and Stanford Capital Management — were involved in orchestrating a fraudulent investor scenario where the parties made false promises to investors and fabricated return data on investments, the SEC stated.

“As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement. “We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors.”

Rose Romero, regional director of the SEC’s Fort Worth office, called the scheme “a fraud of shocking magnitude that has spread its tentacles throughout the world.”

This was originally reported on February 17, 2009.  Since that time there has been a massive ripple effect related to Stanford’s SEC investigation. Investors have found that their assets have been frozen as Stanford’s assets were frozen to protect investors.  This fraud expands far beyond the boundaries of the US.

The Jamaica Observer states: His is a household name in the tiny Eastern Caribbean island of Antigua & Barbuda.

Likewise, the New York Times reports: Having seized control of Robert Allen Stanford’s two banks in recent days, Antiguan government officials are now pledging to work closely with American regulators to investigate their banking system, long suspected by federal officials of being a center for laundering money from around the region.

Now…as the Stanford saga unfolds so does the mystery.  Keep in mind, fraud – to be successful – has to be based on illusion.  And, as we have seen, the grander the illusion the more plausible the fraud – Bernie Madoff – master illusionist.  So in Stanford’s case the illusion is mystified by a story of an “undisclosed island.”

Again, the New York Times reported on February 20, 2009 – In an October 2008 article, Mr. Stanford told Forbes that he was planning to build an elite resort on what the magazine described as an “undisclosed island in the Caribbean.” At the time, Mr. Stanford said that he was working with 17 architectural and engineering firms to build 30 mansions for a development to be called the Islands Club.

Scheduled to open in 2011, it would have featured the largest private aviation complex in the world, Forbes said, with enough room to park 100 private jets as well as a jumbo marina with enough dock space for 30 massive yachts. The super-exclusive resort would require members to shell out a $50 million deposit, which would be refunded if they left the development. That was on top of the $15 million annual membership fee.

The foundation of a scam is based on three components:  Promises – something that people want and most can’t get; Illusion – the grand scheme that allows people to believe in something unseen as truth; and Trust – the belief that all is right, that somehow the government is overseeing the illusion and that if others do it – well then so should I.

BUT WHAT MOTIVATES A FRAUD IN THE FIRST PLACE?

That’s a good question and one that is not easy to answer.  However, one thing is true – a fraud usually has three distinct components: (1) Need; (2) Opportunity; and (3) Rationalization.  While I am not qualified to speak at this time as to each of these critical components, I can safely say that his NEED was driven by emotion (likely first) and (direct need perhaps second).

Note the following reported by chron.com:  With a net worth north of $2 billion, he owns glitzy homes in and around Miami, the Virgin Islands and Antigua, and in them he has entertained powerful American politicians from both sides of the aisle.

He has an estranged wife, a girlfriend, former girlfriends and at least six children by four women. The monthly tab to support them all runs upward of $200,000, according to court records.

He loves to flash cash and to flaunt the toys that immense wealth can bring, be it yachts, private jets and helicopters, his own professional cricket team or a string of top-shelf pro golfers whom he pays to wear his logo.

An outstanding article appeared in the Wall Street Journal – a link to that article is here.

The flamboyant life style required money to fund the illusion, but more than that the emotional need to be larger than life is likely the key trigger to what and why this whole fraud began.

STANFORD’S JOURNEY CONTINUES:

The story will no doubt unravel.  So consider the following:

1. If you were an investor who was defrauded, consider making contact with me as I am doing research into how the fraud was carried out.  Your comments might help others avoid your plight.
2. What do you think should be Stanford’s consequence for the massive fraud he’s accused of?
3. If you did invest – did it cross your mind that the returns (far better than what the market provided) might be – well – shady?

AS ALWAYS COMMENTS ARE WELCOME!

Fredric “Rick” Dryer – Ponzi Scheme Fraudster Sentenced to 132 Years in Prison. Ethics and Fraud Prevention Expert Chuck Gallagher Comments

Forty-four felon counts faced Fredric “Rick” Dryer as the judge prounced his sentence. 

“Thinking about this case last night, I wondered what makes you different than the people who put guns to victims’ heads?”  Judge Mansfield said prior to giving out the sentence. “Are the victims any less hurt?”

That question is being asked alot these days.  “Are victims any less hurt?”  In one sense yes and the other no.  Yes, there was not a physical violation, but the emotional toll that theft creates is significant.  I know.  I unfortunately created that pain in people I victimized many years ago.  And just like Dryer, I faced a judge and was sentenced…to prison.

Today, things are not that different than in 1986 when my crime was committed.  But for a moment let’s look at what Dryer did and why.

Ordered to pay $3.4 million in restitution, Dryer was sentenced to 132 years in state prison.  Now, practically speaking the restitution is moot.  Dryer, with a sentence like that, will more than likely die in prison.  There is little to no chance that any restitution will be made.

According to the Denver Business Journal:

Mile High Capital Group, a real estate investment group,  purported to sell duplex rental units to investors, who could then resell them for a profit. The company also had several sister companies that specialized in tax-deferred real estate transactions and rental property management.

Dryer and his associates promoted Mile High and its offshoots at heavily promoted events at high-end hotels throughout the United States.

But despite generating more than 1,000 contracts and $44 million in sales, the Greenwood Village-based company completed only about 32 duplex rental units, prosecutors said.

The scheme cost some investors their life savings. Investors ranged from blue-collar workers and Chinese immigrants to flight attendants and Harvard-educated attorneys.

While Dryer’s attorney said he will appeal his sentence, Dryer is a convicted felon, who was charged with a bank robbery in 1971 and two other securities fraud cases in the early 1980s, he’s not eligible for probation.  While it is not my intend to be judgemental, as I’ve been in his shoes, it does appear that Dryer didn’t learn from his past choices.

Every choice has a consequence.  As humans we all make choices daily and the choices that we make today will determine our future tomorrow.  Dryer had the opportunity on, what appears to be several occasions, to make better choices.  He elected no to and the price or consequence for his most recent set of choices – life and/or death in prison.  Not what most would call a pretty end.

SO HOW DOES ONE GET SCAMMED BY A PONZI SCHEME?

Reality check is – it is easy.  The fraudster just sucks you into the PIT.  Now for those of you who follow my blog, I have reported on this before in entries related to Bernie Madoff.  But if you have not read those let me help you with understanding the PIT.

The first part of most any financial fraud starts with the PROMISE ( P ).  Fortunately I was not a Dryer investor, but in all cases the PROMISE is a return better than what the average investor could gain if investing in the open market.

Now think of it, if someone told you that he/she could get you a return that practically no one else could get and get that return for you consistently year after year, wouldn’t you be interested?  Sure you would!  So POINT OF ADVICE:  If you wish to avoid being scammed, understand – if it sounds to good to be true – it LIKELY ISN’T TRUE!

The second part of the fraud triangle is the ILLUSION ( I ).  Promoted at high end hotels, investors though that they were investing in real estate ventures that for all practical purposes didn’t exist.  The illusion was created by the marketing and promotion.  For real estate the setting created – the perfect ILLUSION.

This second component of being defrauded is actually the hardest to crack.  Why?  Well, think of it, if you were that good at investing you wouldn’t need someone like Dryer and his team.  That said, a great ILLUSIONIST should be able to fool you.  Dryers clients were fooled and my of them were experienced investors.

That leads to the third and final component of fraud – TRUST ( T ).  In order to effectively pull a fraud off, someone has to trust the fraudster.  Now, having been a fraudster (not something I am proud of), I understand the mentality.  It is much easier to defraud someone who is close to you and trusts you than it is to defraud a stranger.  It isn’t that fraudsters want to hurt those closest to them, rather, it is just easier to convince someone who is close to you to trust you.  Trust here was established by the sheer number of investors.  Once there were contracts, there was the illusion that if one or a hundred made the leap then – “so should I.”

To illustrate this point – TRUST

Among the victims listed in the superseded indictment were Lori Fuller, Dietz’s sister, who invested $680,000 into Mile High and invested in two Mile High duplexes in Milliken, which were never built, according to the indictment.

According to the indictment, Fuller was promised returns of up to 12 percent on her investments. While Fuller received monthly payments for a “period of time,” the indictment states Dryer and Mile High didn’t return her principle.

Again, according to the Denver Business Journal:

While 35 investors are named in the indictment, records relating to Mile High’s Chapter 11 bankruptcy indicate that as many as 1,000 people nationwide could have lost as much as $35 million in the case.

AS A SIDE NOTE:

I have received many calls from investors who have been defrauded in other cases now being investigated or coming to light.  The investigators do not follow every lead and every person who has been defrauded.  They gain enough evidence to win the case.  Beyond that they understand that the likelyhood of loss recovery is slim and their role is to prosecute – not to make victims whole.

QUESTIONS:

1. If you were defrauded by Dryer and his partners, would you contact me please.  I am writing a book and would like to interview you about how you were scammed.
2. If you were scammed by Dryer, have you been advised that there is a provision of the Internal Revenue Code – Section 165(c)(2) which might help in your loss recovery?
3. If you were scammed, would you consider commenting on this blog regarding how you feel about Dryer’s sentence?

AS ALWAYS YOUR COMMENTS ARE WELCOME!

Update! Abdul S. Rao Requests Resignation Be Rescinded – Choices and Consequences

Reported yesterday in this ethics blog – Abdul S. Rao had resigned from his position from the University of South Florida.  Originally reported in the Chronical of Higher Education, I raised several questions and noted that every choice has a consequence.

As of today it appears that Dr. Rao, someone who’s work has contributed to the success of the University, has rescinded his resignation.  A copy publicaly available on the internet is printed below:

From: Abdul Rao
Date: Thu, 19 Feb 2009 23:50:38 -0500
To: “Klasko, Stephen”
Cc: “Ekarius, John”
Subject: RESCIND RESIGNATION

Dear Steve:

After much contemplation and discussion with my family and legal counsel, I would like to rescind my resignation from my administrative positions at USF Health. I am convinced that the conditions under which the resignations were obtained were extremely unfavourable not giving me ample time to think through this very important decision. I was given no option to consult a lawyer or a member of my family and was informed that I either resign or else.

I also believe that I have up to three days to withdraw my decision and I am exercising that option and withdrawing my resignation.

Lastly I am convinced that the outcome is not compatible with the level of the infraction and has placed my professional and personal life in serious conundrum. I suggest that the University complete its investigation and a judgement is made which is compatible with the committed infraction. I am certain that it would not amount to a call for resignation with a severance of six weeks and a professional life totally destroyed. I plan to defend my innocence and make every effort to preserve my professional life and my integrity.

Thank you.

Sincerely,

Abdul S. Rao

Every choice does have a consequence.  As such the consequences do not have to be nearly as dramatic as resignation – especially in light of the fact that Dr. Rao has made substantial contributions to the furtherance of his profession and that of the University.

As an ethics speaker, I have several questions:

• Who had the rights to the tape that was posted on YouTube?
• Were they legally and ethically allowed to use property that was not theirs to display publically?
• What motivated Dr. Rao to assist in taking something that he had no ownership in?
• Should the University have been so quick to take Dr. Rao’s resignation?
• Pages on Dr. Rao have been removed from the University’s web site – did they want Dr. Rao gone?
• When there is an ethics lapse in judgment, what should the appropriate outcome or consequence be?

Your comments are welcome…