Special Investigations White Collar Crime

SPECIAL INVESTIGATIONS/ WHITE COLLAR CRIME

The Story:

Our firm was contacted by San Francisco counsel for a company that put together deals involving containerized vessels shipping cargo to Japan and Southeast Asia. The reason for the call was that the principals of the company were suspicious that they had been the victim of a possible fraud, perpetrated by someone inside the company.

Nic Smith met with the CEO of the firm who outlined the following facts: 1) The company's operating costs had gone sharply out of line over the last two and a half years, and 2) The company books had been audited by the controller of the company on an on-going basis, but there didn't seem to be any specific source of the problem. Still, the CEO felt that they were "missing" about $2.5 million. Nic questioned both the CEO and the CFO. The "questionnaire" that he utilized is one that we have developed over years of dealing with fraud. It includes a host of "red flags" that over time have proven themselves to be very reliable. He was hoping to discover any issues with employees that might give him a clue as to whether or not the problem stemmed from an internal theft. The CFO stated that their repair costs for the containers themselves had escalated, but that was attributed to the age of the older containers, improper handling by the crews at the embarkation and debarkation stations, as well as the industry wide increases in that area.

This first "red flag" took Nic's "fraud meter" from green to yellow. The CEO didn't know of any employee who was living a lifestyle that seemed inconsistent with their salary at the firm. We then asked him for a list of the employees, their home addresses and all "identifiers" (social security number, dates of birth, etc.). In reviewing the list, Nic discovered that one of the employees, whose job at the company was "assistant accounting facilitator" reported his home address as Tiburon, CA. Tiburon, just north of San Francisco, is a community where the median home price is over $1,000,000, with many homes well over two million.

Nic immediately called the CEO at the company and asked him about the employee. The CEO was aware that the employee lived in Tiburon and told Nic that approximately three years ago the employee had inherited a large sum of money from a grandmother who lived in Coral Gables, Florida. Nic asked the CEO how he knew that and he said that the employee had taken time off work to travel to Florida in order to handle the affairs of his grandmother's estate and the company had given him an advance to purchase airline tickets, hotel rooms, etc. He had submitted copies of all his receipts to the company. Nic asked the CEO why the employee had given the receipts to the company, and he replied that although the firm didn't care what he did with the money advanced to him, apparently the employee, ("Jack"), felt that it was important to let the company know that he really had gone to Florida.

This "red flag" took Nic's "fraud meter" from yellow to orange. Nic performed an in-depth public records search on "Jack", and discovered that there was a fictitious business statement on file in Alameda County, on which he was named as the owner of "Transit Repair Service." The fictitious business filing listed an address in Oakland, which turned out to be a postal forwarding service that also provided answering services. The owner of the postal forwarding service told Nic that the client, "Jack", received only a few envelopes a month, and all were postmarked from San Francisco.

Nic's "fraud meter" clicked over from orange to red. Nic met with the CEO and CFO of the firm and outlined the information gathered thus far. When the CFO heard the name "Transit Repair Service," Nic thought he was going to have to call the paramedics. The apoplectic CFO quickly informed us that "Transit Repair Service" was a cargo container repair facility that they had dealt with for almost three years, and that they paid that company an average of $70,000 a month.

So, now we had the answer to the question of how the $2.5 million had gone "missing", but an even more pressing question for the client was, where was the money? The FBI was notified and, as they began their documentation of the crime, Nic focused on trying to determine where the money had gone. Fortunately for the client, this crook had been very careless. A review of his telephone records revealed that he placed a number of calls to a bank in Nevada, where he had a bank account. Legal counsel worked in concert with the FBI and, after a while, was able to recover what was left of the money.