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

February 22, 2009

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?  robert-allen-stanford

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!


Crime Stoppers – The Giovanni Teran Conviction and Dumb Criminal Moves!

September 27, 2008

More times than not as a white collar crime and fraud speaker I focus on the choices that people make and the consequences that follow.  However, from time to time, I run across those stories that capture my attention for other reasons.  This is one!

Seems that a federal jury has convicted Giovanni Teran, 19, on charges related to his involvement in a conspiracy to distribute methamphetamine from a drug house in Fort Worth, Texas.   Teran faces a maximum statutory sentence of life in prison and an $8 million fine.

Now, one might ask, how did this 19 year old criminal get caught.  Well, that’s where the story takes an unexpected twist.   After receiving an anonymous Crime Stoppers tip, officers went to the residence of Teran and his co-defendant Luis Alonzo Pena and conducted a “knock and talk.” They were greeted at the door by Pena, who gave officers consent to search the residence.

When the officers entered the house they immediately noticed a strong odor, which they knew, based on their training, was consistent with the manufacture of methamphetamine. Pena led officers to a marijuana pipe on the kitchen counter.

The officers then conducted an organized search of the house with the aid of other officers from the Fort Worth Police Department and special agents from the Drug Enforcement Administration. During the search, officers found over seven kilograms of crystalized methamphetamine that was nearly 100% pure and two pots of liquid methamphetamine that would have produced 8.8 kilograms of pure crystalized methamphetamine. Officers also found some methamphetamine that had been “cut.” Officers also located scales, a heat sealer, bags used for packaging, a cutting agent, and chemicals to be used in combining the methamphetamine with the cutting agent. The total value of the drugs in the house was just under $2 million. The officers involved in the case testified that this was one of the largest stashes of pure methamphetamine that they had ever seen in Tarrant County.

Teran was found hiding in the backyard of the house. Once he was brought inside the house, Teran admitted that a set of keys and a cell phone inside the house belonged to him. One of the keys on that key ring opened the front door of the house. The jury also heard evidence that Teran had been at the house a number of times in the months leading up to the search.

Most of the time when a crime has been committed the criminal is not so willing to be discovered.  So either one of two things must be fact: (1) Teran and Pena were really dumb and assumed that the police would be oblivious to the fact that they were cooking methamphetamine; or (2) Teran subconsciously wanted to be caught.  Either way, the outcome will be a substantial prison sentence.

Every choice has a consequence.  Fortunately due to Crime Stoppers a substantial amount of deadly methamphetamine has been removed from distribution and those involved are behind bars.


Prison Chaplain Sentenced to Prison – Vincent Inametti Sentenced to 48 Months for Sexual Abuse!

May 13, 2008

It’s not uncommon to hear of sexual abuse in prison. What is uncommon is to find that the abuse was at the hand of a Catholic priest – a prison chaplain no less!

Vincent Inametti, a Roman Catholic priest, who worked as a chaplain at Federal Medical Center (FMC) Carswell in Fort Worth, was sentenced to 48 months in prison. Inametti, 48, who pled guilty in November to two counts of sexual abuse of a ward, was also ordered to pay a $3000 fine.

Inametti is a naturalized U.S. citizen who was ordained in his native country, Nigeria. He was immediately remanded into custody to begin serving his sentence.

The Department of Justice, Office of Inspector General, (DOJ-OIG) received a complaint in March 2007 that Inametti was sexually involved with a particular inmate, “D.D.” Subsequent investigation by DOJ-OIG agents revealed that Inametti was also sexually involved with another inmate, “E.R.” Both inmates were serving federal prison sentences for drug distribution conspiracy convictions.

“D.D.” became acquainted with Inametti in August 2004 when she began attending Catholic services, joining the choir and participating in Bible study classes at FMC Carswell. “E.R.” became acquainted with Inametti a few months later, in November 2004, as a result of her assignment as a clerk for the Religious Services Department at FMC Carswell.

Inametti admitted that in February 2006, he directed “D.D.” to the chapel library, where he engaged in a sexual act with her. He further admitted that in June or July 2006, he summoned “E.R.” to a classroom in the chapel where he engaged in a sexual act with her.

According to an article in the Dallas Morning News,

His Fort Worth attorney, Michael Heiskell, said the sexual liaisons between Mr. Inametti and the two women were consensual, and he expressed hope for mercy from the court.

“Unfortunately, it was the wrong place and the wrong time,” Mr. Heiskell said. “We hope the court will judge him on the entire good work in his life as opposed to a lapse in judgment.”

But Tahira Khan Merritt, a Dallas attorney who represented one of the plaintiffs in the case, disputed the contention that the relationships were consensual. Mr. Inametti once threatened to kill her client if she told anyone about the abuse, she said, and the other plaintiff has filed a complaint with the federal prison system over the abuse.

“He was in a supervisory role over them,” Ms. Merritt said. “That implies they cannot consent to sexual acts when they’re wards of the state.”

Mr. Inametti, who was ordained in 1986 in his native Nigeria, served as a parish priest at Our Mother of Mercy Church in Fort Worth from 1991 to 1996, said Pat Svacina, a spokesman for the Diocese of Fort Worth.

After a sabbatical, Mr. Inametti returned to the diocese in 1999 and served in mission churches in the Ranger, Texas, area for about a year before he went to work for the prison system.

Every choice has a consequence. In this case Inametti is facing the consequences of his actions. The sad part is, like most crimes, his choices and the consequences that follow overshadow the good that he might have done as a priest up to that time.

Perhaps his time in prison will give him the chance to do some good in ways that he could not have done as an outsider – even as a chaplain.

Business Ethics Speaker – Chuck Gallagher – signing off…


Prison for Kenneth Elliott Former President of Metro Housing Partnership – Fort Worth, Texas

March 26, 2008

Kenneth Elliott admitted that he stole nearly $43,000 from Fort Worth, Texas Metro Housing Partnership funds some of which were used to purchase a Bayliner boat. For that he was sentenced to prison and restitution.

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Now – you know and he must have known that – every choice has a consequence. You do reap what you sow and Elliott’s sentence to federal prison plus restitution is that reaping taking place.

According to the US Attorney’s news release:

As president of Metro Housing Partnership, Elliott ran its day-to-day operations and was responsible for the disbursement of Department of Housing and Urban Development (HUD) funds that it received. Between April 1, 2002, and March 31, 2003, Metro Housing Partnership received more than $10,000 in federal grants from HUD.

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While Elliott avoided the consequences for a time – he did not avoid the consequences all together. Prison is no fun and will prove to be a dramatic change from his prior activities. You do reap what you sow.

If anyone reading has any background on Elliot feel free to comment as I study the behaviors and backgrounds of those convicted of white collar crime.

White Collar Crime Speaker – Chuck Gallagher – signing off…


$34 Million Dollar Payroll Tax Fraud By Texas Nursing Home Executive!

February 27, 2008

U.S. Attorney Richard Roper said in a recently issued news release, “This case is the one of the largest payroll tax fraud cases ever prosecuted in the U.S. Mr. Trebert admitted evading more than $34 million in payroll taxes – this is nothing short of egregious. Nursing homes should be safe havens for the elderly and vulnerable, not vehicles for criminals to commit fraud.”

Gary R. Trebert, age 57, pled guilty to two counts of an indictment that charged him with various offenses related to his operation of nursing homes in Texas and elsewhere. Co-defendant Larry Gordon May pled guilty to his role in the conspiracy in October 2007 and co-defendant Stephen Michael Ewing, a/k/a “Stephen Michaels,” is scheduled to go on trial March 3, 2008.

Trebert admitted that beginning in August 1999 and continuing though mid-May 2004, he, Stephen Michael Ewing and Larry May conspired together, and with others, to defraud the U.S. by impeding, impairing, obstructing, and defeating the lawful government functions of the IRS in the ascertainment, computation, assessment, and collection of the revenue, that is, nursing facility employees’ withheld income taxes, social security taxes and medicare taxes, and HHS in the administration of the Social Security Act and the Medicare and Medicaid programs.

As part of the conspiracy, Trebert and his coconspirators, using the names of sham corporate entities, obtained control of 70 licensed nursing facilities with thousands of patient beds and thousands of employees. In order to acquire control of these facilities, Trebert, Ewing and May used false statements and false and fraudulent documents including Applications for Nursing Facility License and Medicaid Contracts, Medicare Federal Provider Enrollment applications, ownership documents, IRS Employer Identification Number applications, Health Insurance Benefit Agreements, and Electronic Fund Transfer forms. Their falsifications included falsely identifying relatives as owners, operators, and managers of the nursing homes on the applications; failing to disclose staffing/payroll companies on nursing home applications; failing to disclose Ewing and May as the true owner/operators of nursing homes; and forging names of individuals on filed documents to divert responsibility away from the three defendants. Trebert and his co-conspirators used the false statements and documents to hide from HHS, state licensing and Medicaid agencies, and the IRS, the true control and management of the nursing facilities, their responsibility for more than $200 million in money derived from the nursing homes, and their responsibility for the nursing facilities’ residents.

More than 150 sham staffing/payroll entities, many with foreign business addresses at drop boxes in England and Austria, were created to file Form 941 employer withholding tax returns with the IRS, preventing the IRS from assessing and attempting to collect more than $34 million of unpaid payroll tax liabilities from Trebert, Ewing and May, and creating the appearance that these sham staffing/payroll entities employed more than 4500 nursing facility employees, when they did not. From time to time Trebert caused his coconspirator to fly to London in order to mail to the IRS the sham payroll/staffing companies’ false withholding tax returns.

Trebert admitted that he and his coconspirators diverted to themselves and their personal activities substantial sums of money derived from their nursing home operations and from the non-payment of employees’ withheld payroll taxes. Trebert also admitted that in April 2004, he attempted to evade and defeat the assessment and payment of more than $4,113,000 in withholding taxes taken out of employees’ pay at 42 nursing homes he and his coconspirators controlled.

“Evading employment taxes can have serious consequences for employers and their employees. Today’s guilty plea demonstrates that those who willfully attempt to undermine our tax system by playing fast and loose with the rules will be held accountable, regardless of how complicated a scheme they devise,” said Erick Martinez, IRS Special Agent in Charge for the Dallas Field Office.

In the plea agreement, Trebert will spend 8 years in federal prison. Needless to say, when sentenced, Trebert will also be facing substantial restitution – which he may not be able to repay.

Every choice has a consequence! Regardless of how well thought out, no one will escape the consequences of their choices. As a business ethics and white collar crime speaker, I know from personal experience that you reap what you sow. While Trebert and others got by with their scheme for 5 years, the reality is the consequences of their actions will be far greater than any benefit they received.

Your comments are welcome – as you might have been a victim of this massive scam. But let me leave you with this – before you make a choice consider what is the worst thing that could happen – feel what that would feel like – then make your choice. Trust me, the consequences to negative choices are far worse than any gain you can imagine!


Illegal Aliens + Texas National Guardsmen = Federal Prison Sentence!

February 20, 2008

The sentencing phase of the conviction of three Texas National Guardsmen convicted of conspiracy to transport illegal aliens has begun with Clarence Hodge, Jr., age 36, of Fort Worth, Texas being sentenced to 36 months in federal prison. Also sentenced was Jerry Zuniga, age 29, of Laredo, Texas.

It seems that Hodge, a sergeant in the Texas National Guard, was assigned to the Texas National Guard Operation Jumpstart, a presidential initiative designed to support the U. S. Border Patrol along the southern border. Their role – detection and apprehension of undocumented aliens entering the country.

NOTICE: The role of the convicted was detection and apprehension – not Transportation! Perhaps Hodge and his buddies were confused about the mission or they saw an opportunity and made the wrong choices.

According to a news release from the US Attorney’s office: Hodge and Zuniga, along with co-defendant guardsmen, Jose Rodrigo Torres and Julio Cesar Pacheco, pleaded guilty in August 2007 to conspiracy to transport illegal aliens on various dates between May 2007 through June 7, 2007. Hodge admitted to his involvement with Torres and Pacheco in what Judge Kazen termed a “sophisticated” smuggling operation uncovered June 7, 2007, when Torres was arrested having just driven through the IH-35 Border Patrol checkpoint north of Laredo in a passenger van leased to the Texas Army National Guard carrying 24 undocumented aliens.

Subsequent investigation revealed the smuggling operation began with the recruitment of Hodge and Torres by Pacheco in the movement of aliens through the IH-35 checkpoint, where all three guardsmen were assigned to assist Border Patrol agents. After Pacheco instructed Torres when the aliens were ready to be picked up for transport from a residence in Laredo, Torres would follow instructions received via cellular telephone messaging and deliver the aliens to specified areas north of Laredo and the checkpoint. Torres picked up the aliens from Zuniga’s residence.

During each of the smuggling events, Hodge would pretend to conduct National Guardsmen business with Torres whenever Torres approached the service lane of the checkpoint driving a van with undocumented aliens, thus facilitating the van’s passage through the checkpoint without an immigration inspection. Hodge also assisted in acquiring the National Guard leased-van for Torres to transport undocumented aliens June 7, 2007. In addition to using his residence to harbor aliens prior to transport, Zuniga drove a counter-surveillance vehicle along IH-35 and directed guardsman Torres to the drop off location north of the checkpoint.

Every choice has a consequence. It is clear in this case that the choices made were well thought out. There is little doubt that the crime was a mistake. As part of the sentencing, Judge Kazen took into account Hodge’s abuse of his position of trust in effecting the successful undetected passage of more than one hundred aliens through the checkpoint.

As an ethics speaker, (www.chuckgallagher.com), it is clear that ethical choices were not made. The question that lingers is why? According to the Star-Telegram in Fort Worth, the payoff was an expected $3,000 per trip. That’s all – $3,000 per trip? Speaking from experience there is nothing worth three years in federal prison. Perhaps when Hodge is released he will use this “learning opportunity” for something good.


Tax Protesters / Resisters “Read Here” – Wesley Snipes and T. Milton Street are NOT EXAMPLES!

February 18, 2008

While I fully expect to get comments about how dumb I am and what I don’t know (feel free to post comments if you feel they are relevant), the fact is – you don’t file or pay because you don’t think you have to – dumb move. You will pay and you will file or you will go to prison. Oh, an if you go to prison, as part of the requirement to get that “get out of jail (it ain’t free) card” you’ll file and pay!

Just in case you think I do not know what I am talking about read below:

CHEEK v. UNITED STATES, 498 U.S. 192 (1991)

498 U.S. 192

CHEEK v. UNITED STATES
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH
CIRCUIT
No. 89-658

Argued October 3, 1990
Decided January 8, 1991

Petitioner Cheek was charged with six counts of willfully failing to file a federal income tax return in violation of 7203 of the Internal Revenue Code (Code) and three counts of willfully attempting to evade his income taxes in violation of 7201. Although admitting that he had not filed his returns, he testified that he had not acted willfully because he sincerely believed, based on his indoctrination by a group believing that the federal tax system is unconstitutional and his own study, that the tax laws were being unconstitutionally enforced and that his actions were lawful. In instructing the jury, the court stated that an honest but unreasonable belief is not a defense, and does not negate willfulness, and that Cheek’s beliefs that wages are not income and that he was not a taxpayer within the meaning of the Code were not objectively reasonable. It also instructed the jury that a person’s opinion that the tax laws violate his constitutional rights does not constitute a good-faith misunderstanding of the law. Cheek was convicted, and the Court of Appeals affirmed.

Held:

    1. A good-faith misunderstanding of the law or a good-faith belief that one is not violating the law negates willfulness, whether or not the claimed belief or misunderstanding is objectively reasonable. Statutory willfulness, which protects the average citizen from prosecution for innocent mistakes made due to the complexity of the tax laws, United States v. Murdock, 290 U.S. 389 , is the voluntary, intentional violation of a known legal duty. United States v. Pomponio, 429 U.S. 10 . Thus, if the jury credited Cheek’s assertion that he truly believed that the Code did not treat wages as income, the Government would not have carried its burden to prove willfulness, however unreasonable a court might deem such a belief. Characterizing a belief as objectively unreasonable transforms what is normally a factual inquiry into a legal one, thus preventing a jury from considering it. And forbidding a jury to consider evidence that might negate willfulness would raise a serious question under the Sixth Amendment’s jury trial provision, which this interpretation of the statute avoids. Of course, in deciding whether to credit Cheek’s claim, the jury is free to consider any admissible evidence showing that he had knowledge of his legal duties. Pp. 199-204. [498 U.S. 192, 193]
    2. It was proper for the trial court to instruct the jury not to consider Cheek’s claim that the tax laws are unconstitutional, since a defendant’s views about the tax statutes’ validity are irrelevant to the issue of willfulness, and should not be heard by a jury. Unlike the claims in the Murdock-Pomponio line of cases, claims that Code provisions are unconstitutional do not arise from innocent mistakes caused by the Code’s complexity. Rather, they reveal full knowledge of the provisions at issue and a studied conclusion that those provisions are invalid and unenforceable. Congress could not have contemplated that a taxpayer, without risking criminal prosecution, could ignore his duties under the Code and refuse to utilize the mechanisms Congress provided to present his invalidity claims to the courts and to abide by their decisions. Cheek was free to pay the tax, file for a refund, and, if denied, present his claims to the courts. Also, without paying the tax, he could have challenged claims of tax deficiencies in the Tax Court. Pp. 204-207.

JUSTICE WHITE delivered the opinion of the Court.

Title 26, 7201 of the United States Code provides that any person “who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof” shall be guilty of a felony. Under 26 U.S.C. 7203, “[a]ny person required under this title . . . or by regulations made under authority thereof to make a return . . . who willfully fails to . . . make such return” shall be guilty of a misdemeanor. [498 U.S. 192, 194] This case turns on the meaning of the word “willfully” as used in 7201 and 7203.

Comments: As a white collar crime and business ethics speaker (www.chuckgallagher.com) I have to wonder just how many people are going to get caught up in the illusion that somehow paying taxes will disappear – that somehow their feeble attempt at this worn out old argument will be decided differently. Give it up and file and pay your taxes. Trust me on one thing – time in federal prison isn’t fun and not worth it for the statement you’re making.

Business ethics speaker – Chuck Gallagher – off for now.