The Latex Glove Ponzi schemer pleads Guilty – Looks like Miguel Salazar is headed for Prison!

February 4, 2010

Now for those of you who follow this blog…I often report on, what appears to be the crime of the decade – the ponzi scheme.  In fact if you want to know more about them…here’s a link to a recent blog – The Anatomy of a Ponzi Scheme.

But back to business.  The concept of a Ponzi scheme is that the fraudster convinces the victim that he/she has some investment that’s a sure bet and will provide a better return than most folks receive on their investments.  Of course, most of the time there is no investment.  Rather, new investors funds are used to pay old investors returns…at least enough to cause them to keep their money invested and the scheme alive.

This version however is frankly, cute.  The Justice Department reports that a West Covina man has pleaded guilty to federal mail fraud charges for running a Ponzi scheme that took nearly $700,000 from victims who thought they were investing in latex gloves, which were portrayed as being in high demand following the 9/11 terrorist attacks.

Miguel Salazar, 36, pleaded guilty late yesterday to one count of mail fraud.  Salazar’s former partner, Carlos Flores, 43, of Lakewood, pleaded guilty to mail fraud in December.

Salazar and Flores operated SF Capital, which had mail drops in Alhambra and Glendale, and was described to investors as being in the business of factoring accounts receivable for latex gloves. Investors in SF Capital were typically told that the terrorist attacks of 9/11, concerns about infectious diseases, and other global issues had resulted in an extraordinarily high demand for latex gloves and that this enormous demand provided a secure investment vehicle for individuals and institutions. SF Capital investors were typically promised quarterly returns of 5 percent.

NOTE: Step one of any Ponzi scheme is a promise of a return on investment that is far greater than most investors would expect to receive!  The Ponzi schemer relies on the greed of the investor which turn them (the investors) into Victims.

Between 2002 and 2006, more than 30 individuals invested more than $1.3 million with SF Capital. Many individuals renewed or increased their investments after receiving payments from SF Capital that appeared to be interest or dividend payments.  However, SF Capital was not in the business of financing accounts receivable and the purported investment returns paid to investors were Ponzi payments that came from other investors. Flores and Salazar also used proceeds from the scheme for their personal benefit. For example, Salazar used investor money to pay more than $140,000 for luxury dugout seats at Dodger Stadium.

As a result of the scheme, victims lost nearly $700,000.

Salazar is scheduled to be sentenced by Judge Real on May 3. Flores is scheduled to be sentenced on February 22. Both men face statutory maximum sentences of 20 years in federal prison.


Ethics? Not a Chance! Rosa Abreu Sentenced to 70 Months In Prison for 9/11 Opportunity Thefts

November 1, 2008

On September 11, 2001 our nation faced a terrible tragedy.  We were attacked from outside our borders.  Unfortunately anytime there is a disaster, some will find the opportunity too great and step outside the bounds of reason and commit fraud.  Such is the case for a former employee of the New York City Medical Examiner’s office who was recently sentenced to 70 months for theft.  Not only was a serious crime committed, but there was an intentional disregard for any semblance of ethical behavior.

According to the US Attorney’s news release:

The Office of the Chief Medical Examiner (OCME) developed an acute need for computer services following the September 11th attacks, when it was assigned the task of identifying victims through the forensic analysis of body parts and other evidence collected at Ground Zero. Many of the OCME’s September 11th-related expenses were reimbursed by FEMA, which provided more than $46 million to OCME in 2002 and 2003.

ABREU was the OCME’s Director of Records and worked as a primary assistant to NATARANJA R. VENKATARAM, the OCME’s Director of Management Information Systems (“MIS”) and ABREU’s co-defendant.

Between 1999 and 2005, VENKATARAM steered more than $13 million in OCME contracts and purchase orders to three companies run by co-conspirator MUHAMMAD NASEH by advising NASEH how much to bid on OCME contracts and arranging for NASEH’s three companies to submit purportedly independent “competing” bids. In the vast majority of cases, NASEH’s companies were paid in full under the OCME contracts but did less work than reported, or no work. Instead, NASEH’s companies would transfer funds to other companies, as directed by VENKATARAM, in exchange for a fee. In other cases, NASEH wrote checks according to VENKATARAM’s directions, or provided VENKATARAM with signed but otherwise blank checks from the NASEH companies for VENKATARAM to use as he saw fit. ABREU helped VENKATARAM launder the proceeds of this scheme through shell companies that ABREU established and maintained. At VENKATARAM’s direction, millions of dollars in funds paid by OCME to NASEH’s companies were used for VENKATARAM’s and ABREU’s personal benefit.

It is reported that ABREU was VENKATARAM’s girlfriend.

The question may be asked, what happened?  Fraud requires three components.  For lack of a better way to put it, fraud is a bit like baking – a cake for example.  A cake requires the right ingredients.  If any one is missing, then you can’t accomplish the bakers task.  If you leave out eggs, for example, the cake will be undesirable.  Well, in fraud, the three critical components are: (1) need (or perceived need); (2) opportunity and (3) rationalization.

Now, I can’t begin to speak to the issues of need or rationalization, but the obvious is that due to the events of 9/11 “opportunity” came knocking at their door.  A substantial inflow of cash – $46 million to be exact – is enough to tempt anyone.  Mind you just because there is a large sum of money, previously unavailable, does not mean that everyone will respond to the potential temptation.  But, I will say, after studying people and white collar crime, it is likely that any thing out of the ordinary – especially in mass quantity, will bring out the devil in many.

My guess…and let me be clear, it is only a guess…is that those involved felt that they were under pressure, under paid and could not resist the temptation for taking what they rationalized should be theirs.  Now…IF YOU KNOW ANY REPORTED ON HERE…your comments are welcome – as I may be wrong.

VENKATARAM pleaded guilty on October 30, 2007 to one count of conspiracy, one count of embezzlement and misapplication of funds from OCME, and fourteen counts of money laundering. He was sentenced on July 11, 2008 to 15 years in prison and ordered to pay restitution and forfeiture in the amount of $2,970,072.

One thing is a fact, EVERY CHOICE HAS A CONSEQUENCE!  That I know as I have been where these men are going and know that my poor choices got me a prison sentence as well.

I was once told, “You made a serious mistake, but YOU are not a mistake!”  I took those words to heart and after paying my debt to society, I turned my life around such that today I speak nationwide about Choices and Consequences.  Perhaps these men can learn and use their talents for productive use once free.


Business Ethics be Damned…A Receipe for Disaster Led To This Banking Bailout Bandaid!

October 16, 2008

We ain’t seen nothing yet!  As a business ethics speaker, as I write those words I feel tension building in my shoulders and neck.  Stress for sure.  But unfortunately the worst is yet to come and for many, especially younger adults, it will be the first time you will have witnessed a severe financial correction.  This will not be a mild recession but a full blown catagory 4 storm, if you will.

Recessions:

Let’s first explore a little of the history of recessions.  A great article that is simple to read an understand was written not long ago which outlines the recessions in our past and the depth of their pain in months.  A portion of that article is reprinted here for reference:

The National Bureau of Economic Research, or NBER, is considered the official arbiter of recessions, but it doesn’t define a recessions by the school book measure of two or more consecutive quarters of economic contraction as measured by GDP. It states that “a recession is a significant decline in economic activity spread across the economy, lasting more than a few months.

The last recession, so declares NBER, was from March 2001 through November 2001.   Now most of us remember that time but not because of a declared recession, but because of 9/11.  The tragedy of 9/11 was so focused that we forgot how the economy felt and where we were before then – assuming that all that happened economically was a direct result of the 9/11 incident.

Now, when a country is in a recession there is a cry from the population to get it over with an get back on the track to economic health.  That is, in essence, just what we attempted to do.  However, we got so caught up in HEALTH that we looked past practical sensible medicine and pushed too hard.

What We Did:

Just like a doctor has skill, training, and tools to help restore health, from an economic perspective so does the government along with the Federal Reserve.  So, Dr. Fed to the rescue.  Surely we could not and would not stay in this ’91 recession long.  Our pride was hurt along with our pocket books and we needed fast action.

#1 – in response to the 9/11 attacks our country went to war.  Now, within reason, up to that point there was a widespread concern about the national deficit.  However, that disappeared from the political scene, as we elected to go to war.  Do not assume I am against this action, I am looking at it, however, from an economic standpoint.  War changes perspectives and allows the government to increase spending and debt without much cry from the populous.   War increases productivity and we all witnessed many companies showing record profits.  Government spending changed dramatically – essentially an economic stimulus.

#2 – the Federal Reserve reached in its bag of goodies and began a systematic dramatic and unprecedented drop in interest rates.  Never in its history had the Fed dropped the interest rate to 1% – NEVER.  Over time it almost became “free” money.  Artificially low interest rates became a powerful economic stimulus.

#3 – not only does the Federal Reserve have the ability to set interest rates, but they also control the flow of money.  In other words, they control the printing press or just how much money is in circulation.  Another powerful tool to fight “recession” – access to money makes economic growth easier.  More money in circulation became an economic stimulus.

#4 – tax law change was also a factor that changed the face of our economic growth.  In the past when a person sold their home, they were taxed on the gain unless it was reinvested into something of equal or higher value.  In the mid nineties, that changed effectively eliminating tax on most home sale gains.  No taxes proved to be another economic stimulator.

How We Responded:

Now, while some would disagree – that is where the breech of ethics occurred. Let me us an example:  If you are a star baseball player and practice everyday – honing your skills and lifting weights, etc. in order to be your best, well that would be ethical.  Agree?  If, however, you do all of those things and take performance enhancing drugs, that would be unethical.  Agree?

How we responded was in a sense like doing all the right things, but too excess and assuming that there would be no consequence.  That assumption is unethical stupidity.

So we:

(1) took our eye off of living with a balanced budget, allowing the government to stimulate the economy through the war effort;

(2) we borrowed at a record pace (after all if there is free money wouldn’t you take it)?  We, as consumers, increased our credit card debt dramatically falling for most ever zero percent offer that was placed before us.  And, with that new found credit, we bought items that in the prior decade we might have postponed.  In fact, we believed that we didn’t have to pay the borrowed money back, all we had to do was “transfer balance” it.; and

(3) we used our homes as a credit card.  Up until then, there were reasonable rules in place for borrowing to buy a home.  But during that time, with lots of money in circulation and low rates, we were encouraged to borrow…borrow…borrow believing that our home was safe.

(4) now the straw that broke the camels back was unrealistic appreciation.  In many (not all) parts of the country we saw home prices skyrocket.  Heretofore, home prices increase at a steady 1% to 3% per year.  Our home was sacred.  Now, with double digit increases, homeowners and builders began to believe that with no taxes on the gain, there could not be a better investment.

Every choice has a consequence:

The example of the ball player up above ties into this perfectly.  If he/she had done the right things in moderation, they would have an outstanding career and perhaps make it in the baseball hall of fame.  But, once discovered for performance enhancing drugs, they would likely be banned from the sport or suffer some humiliating consequence that would cost them dearly.

That is just where we are today.  Ethically, the Fed knew better.  The economy needed to be stimulated only so much.  Those are sharp folks and I don’t believe for a minute that they could not have seen this coming.  Fairly enough, they did begin to raise rates several years ago, but by then the bubble was set to pop.  And pop it did!

Likewise, our financial institutions knew better.  You don’t make loans to people that you honestly know can’t repay them, just to turn a quick profit in order to meet analystists expectations on Wall Street.  That, to me, is unethical.  Nonetheless, it was done – DAILY!

Builders, gorged with profit, continued to build knowing that the supply was outstripping the demand based on any reasonable demographic study.  In one area in NC near Raleigh, on average 1.5 homes were sold per month, yet 6 new builders flocked to the area and began building multiple spec homes.  There were no buyers and today they sit on them – some having been on the market well over 600 days.  That is greed outstripping ethical sense.

What Now?

#1 – the government is scrambling to figure out what to do.  My prediction is the $700 Billion dollar bailout is more like $2 Trillion.  The US Government will use our money (wrong borrowed money) to buy up bad loans (doesn’t give me the warm and fuzzies inside) and they will buy equity interests into our banks.  To me that is historic – it appears almost like a nationalization of the banks -scarry…!

#2 – the Federal Reserve, will once again, lower interest rates in hopes that they will stimulate BORROWING so the economy will again move forward.  Sorry, but I don’t think we need more debt!

#3 – the housing market will see double digit declines in home prices.  What goes up must come down (at least to reasonable levels) and many home owners who bought at the top will find themselves foreclosed on and have ruined credit.

#4 – builders will go belly up and banks will be in the physical real estate business – something they no little about.

#5 – credit will freeze.  No longer will you see the “free money” ads from your credit card company.  In fact, when you pay your card off…they may reduce your credit limit – taking a more conservative approach.

#6 – Consumers faced with increased medical costs, gas costs and utility cost, will spend less and this Christmas buying season will be dismal.  Retailers will be forced out of business and the pain will be heard world wide.

#7 – many smaller banks will shut their doors with the FDIC taking them over; and

#8 – the market will go much lower than it is today.  There will be minor up turns, but the down will outweigh the up and we will see another loss of 20% before it is over.  As a result, we will be less wealthy as our retirement funds decrease.

Conclusion:

Every choice has a consequence.  We chose the route of performance enhancing programs to stimulate our economy (an unethical choice in my opinion) and today and for the near term we will face the consequences – painful as they may be.