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Fraud poses new police challenge

Source: the Missoulian
By Michael Jamison
Date: May 27, 2003

Fraud KALISPELL - Forget the smoking gun.

Don't even bother looking for blood stains in the carpet.

"The guy who's most likely to get you is armed with a keyboard," said Brian Fulford. "He has a computer and a business card, and he doesn't look anything like that guy your mother warned you about."

Fulford, a detective with the Kalispell Police Department, spent most of the last year and a half not with smoking guns, but with smoldering file cabinets.

"We went through box after box after box of paperwork," he said. "Sometimes it seemed like an insurmountable paperwork task."

That task has increasingly become the task of the modern cop. In an age of electronic banking and Internet shopping, of dot-com startups and high-tech investment opportunities, of Enron and CEO bonuses, white-collar crime is emerging as a serious slice of the policeman's pie.

It is a whole new breed of crime, Fulford said, requiring whole new ways of thinking^; because whether investigating, prosecuting or sentencing, the system treats white-collar crime very differently than traditional crime.

"White-collar crime is the best bargain on the block," said Dave Schettine. "So you get 15 months for stealing $30 million. Is that a good deal or what? Especially if there's another $10 million out there still unaccounted for, waiting for you when you get out. Generally, the white collar criminal doesn't go to Folsom^; he goes to Club Fed. It's low risk, high return."

Schettine is an agent with the Montana Division of Criminal Investigation and helped Fulford sift that endless stack of papers.

This month, they finally arrested a Bigfork couple, charging the pair had duped customers by failing to deliver as promised. The case has yet to go to court.

But it was a classic racket, Fulford said, and as is often the case, it was tangled in the civil courts, not the criminal.

"We used the number of civil complaints to launch the criminal investigation," Fulford said. "You see a repeated pattern of behavior that shows an intent to defraud people. That's what the criminal case is based on - the sheer number of victims."

And the sheer number of white-collar crimes has put Fulford in a rather unique position - he's a small-town cop with a brand-new mandate to spend his time unraveling the intricacies of complicated financial crimes.

"This is all pretty new to us," he said. "But it's important that our society begin taking these things seriously."

Our society, Fulford and others argue, has not taken white-collar crime seriously because, in his words, "our culture is a culture of greed. It's the land of opportunity. Who can blame a guy for trying to get his share? By hook or by crook, is what they say."

The investigation

When Fulford began his detective work into white-collar crime, he didn't know much about accounting. He didn't know much about a forensic financial audit. He didn't know much about keeping huge volumes of documents organized in such a way that they told a narrative story of theft, embezzlement and fraud.

He also didn't know much about victims who blamed themselves and were embarrassed by their own role in the crimes against them.

That's one of the big upfront problems with launching investigations into suspected white-collar wrongdoing - victims don't want to admit to being tricked.

"This is a highly underreported crime," said Marty Lambert, Gallatin County attorney. "The victims are embarrassed. They've been tricked by people they trusted, and they don't want to report it. I've seen the hole left behind, the depression and the regret in the lives of victims of white-collar crime."

Schettine has seen it as well, and still remembers the retired schoolteacher who was taken for his entire savings and was so humiliated he committed suicide.

"It's just devastating," he said.

But as Fulford well knows, even if the victim steps up, local cops don't always have the time, staff and expertise to dig into the particulars.

"These are sophisticated crimes," Schettine said. "They require sophisticated investigation."

Lambert, who has nothing but praise for work done by the state Crime Lab in Missoula, nevertheless says "the state of Montana is falling down on this."

The crime lab has experts in DNA analysis, he said, but doesn't have a much-needed forensic accountant or financial crime expert. The result is counties hire accountants and experts to help with investigations, but budgets are tight and so many of these under-reported cases are also under-investigated.

In Missoula County, prosecutors once had a federal grant to hire a special attorney and an investigator to handle white-collar crime, just like they have grants to help with drug crimes.

"But that was quite a long time ago," said Karen Townsend, deputy county attorney. "Now, if we hire special accountants or auditors, it comes out of the law enforcement budget."

That's why locals like Fulford turn to folks like Schettine and federal agents to help handle the investigations. The cases can drag on for months, with dozens of subpoenas and warrants exploring off-shore accounts and money laundering and corporate subsidiaries, and costs can mount quickly.

According to Schettine, just taking the first step to collect initial documents can run a quick thousand dollars.

"Sometimes, these things are so complicated, you're forced to ask the feds to help investigate," Townsend said.

The prosecution

Now that Fulford has wrapped up his investigation, with help from state and federal agents, he needs to find a way to present a bunch of financial business deals in a manner that will be understood by a jury of folks who may or may not be able to balance their checkbooks.

"When a jury learns the charge is rape," Lambert said, "the room falls silent. That doesn't happen when it's fraud or embezzlement. You need to find ways to engage the jury even though the evidence isn't as spicy."

And so Lambert lands on a theme - something like "the love of money is the root of all evil" - and then he builds up to the particulars from there. It's important to be methodical, he said, to show trends and patterns, to use big poster-boards and exhibits.

Along the way he tries to anticipate the arguments of the crook, who is probably savvy and well-educated, and who, in Fulford's words, "will try to con you and con the judge and try to confuse the case with layers and layers of paperwork that only blur the picture. After all, he's here because he's a good liar. You have to show he's a criminal, and not just a bad businessman."

That distinction is central to another case brewing in Fulford's back yard, in which businessman David Tacke has been accused of defrauding people in three states. Tacke came to the Flathead Valley promising high-tech jobs, but has since been ordered by the state to stop selling unregistered securities.

He allegedly has sold $6 million in unregistered securities, as well as another million in promissory notes, despite an earlier 1985 order demanding he not sell unregistered securities.

Tacke is accused of bilking investors, bouncing checks, using investors' money to plug holes in his personal finances, failing to tell investors about the 21 lawsuits and 18 liens filed against him, and withholding money from paychecks ostensibly for company health insurance, but then pocketing the cash.

Employees and regulators have painted him as a con artist.

But his shareholder advisory committee insists he is the victim of out-of-control regulators, and that the accusations are minor technicalities blown out of proportion.

"That's not uncommon," Fulford said of the investors' loyalty. "It's a matter of trust. They invested with him, believed him. They almost have to back him. If they don't, they have to admit they were had, and that's hard to do."

Fulford says Tacke is a "new breed of white-collar criminal" in the Flathead, one "who actually builds an entire business to set the stage so that concerned investors who check things out will be led to believe everything's OK. It's very complex and sophisticated, and it's hard to tell where the business ends and the scam begins."

The sentence

And if Fulford can make his case in the courtroom, if he can convince the jury it was a crime and not a bungled business deal, then he says he still has little hope of sending the white-collar criminals to jail.

"We as a society consider, and have historically considered, a burglar to be more reprehensible than a person who embezzles or commits stock fraud," said Chuck Watson.

Watson heads the Criminal Law Section of the State Bar Association, and practices law in Bozeman.

"This country is built on a real legacy of taking what you want if you can get it," he said. "In sentencing, it boils down to the fact that legislators, prosecutors and judges don't like going after their own kind. The bottom line is people who talk nice and dress nice and have nice jobs and nice families and nice friends, well, they're nice people, right? And you just don't want to do anything bad to nice people, right? Bull. It's a shame, that's what it is."

What it is, he says, is a class issue.

According to the U.S. Sentencing Commission, federal courts convicted more than 58,000 people in 2000. Nearly 95 percent of those convicted of drug trafficking were sentenced to prison. About 97 percent of those convicted of robbery were imprisoned, as were 93 percent of those convicted of arson.

But only about 53 percent of those convicted of fraud went to prison, and just 48 percent of those convicted of embezzlement did jail time.

(State numbers are hard to come by. Most serious white-collar crime in Montana is handled by federal courts. Also, the state does not have a separate crime category for white-collar crime, instead listing all such offenses under the general heading of theft.)

Drug crimes, among others, come with mandatory minimums, but society, by way of lawmakers and judges, has not made mandatory minimums for white-collar criminals a priority. Quite often, white-collar criminals get away with millions and little or no time served.

In Whitefish, a scheme to drain $10 million from a local bank dragged on for six years before the first arrests. The first convictions came in 1998, and the most recent just last year.

Today, no one remains in jail.

And nationally, most are familiar with Michael Milken, who was convicted of illegal securities trading in 1990. He served less than two years in a camp near Berkeley, Calif., and was allowed to keep $500 million.

"It's seen as a gentleman's crime," said Lambert, who while recognizing widespread sentencing inequities applauds his local Gallatin County judges for an uncommonly firm stand on white-collar crime. "There's this idea that if you don't put a gun to someone's head, then it's not really theft or it's somehow more excusable."

That's not to say it's not serious, however.

Last year, the Senate Subcommittee on Crime and Drugs held hearings titled "Penalties for White Collar Offenses: Are We Really Getting Tough On Crime?"

Findings included the fact that in 1999, for example, mail fraud cost the economy $36 billion in phony sweepstakes and pyramid schemes. The Association of Certified Fraud Examiners estimated more than $20 billion lost annually to fraudulent property and casualty claims, and a whopping $200 billion lost to occupational fraud (misappropriation, corruption and bribery in the workplace).

Then came Enron, WorldCom and other corporate scandals^; yet few hold out any hope of seeing the perpetrators serve long sentences, despite the statement by then Treasury Secretary Paul O'Neill that "I think people who abuse our trust, we ought to hang them from the very highest branch."

Early this year, the U.S. Sentencing Commission did pass new guidelines doubling some white-collar sentences to 10 years and others to 20, and federal corrections officials transferred 125 nonviolent offenders from halfway houses to regular prisons as part of a Justice Department crackdown on white-collar criminals.

But Fulford said the sentencing disparity between white-collar and more traditional crime remains.

Some argue that embezzlers need to remain free so they can pay back the money, but Schettine, Lambert and others say it is seldom that any restitution is paid.

"If anybody learns from incarceration, it's the white-collar criminal," Schettine said. "Put the bank president or the CEO in jail and he's just blown away. Put the bank robber in jail and it's like a five-year timeout. We as a country need to decide whether these guys are serious criminals or not. I for one believe it's very serious to steal grandpa's retirement."

Which is exactly why the relatively small Kalispell Police Department has given Detective Fulford the job of focusing on white-collar crime. He carries a calculator these days, as well as a service revolver.

Communities like his, Fulford said, are especially vulnerable to white-collar crime, what with an expanding economy and booming business growth occurring in a rather unsophisticated backwater still ruled in many ways through the "good-old-boy" network.

In Montana, more than one-third of all crimes now are white-collar crimes, and according to a press release issued by the Kalispell Police Department on Thursday, the numbers are growing.

The department, according to the statement, "is seeing an increase in the number of complaints involving telephone, Internet and e-mail scams." Those scams, officers say, "are proving to be very difficult to investigate," and "recovering one's losses is nearly impossible."

"It's just going to get worse and worse," Watson said, "until we as a society recognize that these people are criminals, that their greed is criminal. They need to be treated as such."

"But it's not that easy," Fulford warns. "We don't seem to have any problem filling our prisons, and there's just not that much bed space in Deer Lodge. Sure, the white-collar criminal needs to be put away every bit as much as that meth-head, but we have to make some choices. Sometimes, they're not very good choices."

Original article: http://www.missoulian.com/articles/2003/05/27/news/mtregional/news06.txt

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