Showing posts with label fraud. Show all posts
Showing posts with label fraud. Show all posts

14 January 2016

The Chinese Are Coming!


A while back I wrote a column called "A Little Light Corruption"  about how South Dakota looks like Mayberry and acts like Goodfellas.  The body count is still only at seven (thank God), but the money is getting weirder by the minute.
For one thing, 35 Chinese investors are suing the State of South Dakota for $18,550,000, claiming they got ripped off in the EB-5 (green cards for a $500,000 investment) program.

And Joop Bollen (a Dutch foreign national), who somehow was allowed by our own then-Governor Mike Rounds (currently our US Senator) and our current Attorney General Marty Jackley, to privatize EB-5 and turn it over to himself via his own corporation (SDRC, Inc.) is now suing the State for defamation of character.

And our AG, instead of issuing warrants, is asking the court to freeze Joop's assets which are, in one bank account, around a million dollars.
NOTE:  Remember, originally, AG Jackley determined that the only "misappropriated" funds from EB-5 was the $500,000 that Richard Benda supposedly stole before supposedly killing himself in a field.  Apparently things have changed.  Although Marty Jackley is keeping as quiet as a tomb.
Joop Bollen and then-Governor,
current SD Senator, Mike Rounds
SECOND NOTE:  Mr. Bollen has, throughout, been treated with kid gloves.  He's never even been subpoenaed.  But the State of South Dakota has finally sued his corporation, SDRC, Inc... for documents.  Like, before they're shredded. 
THIRD NOTE:  Despite the Chinese investor losses, and Mr. Bollen's interesting bank account, South Dakota is still officially missing $120 million dollars in EB-5 fees and investments.  Where did it go?  Well, the state deficit in the last year of Mike Rounds' governorship was $120 million, so it didn't go there...  
Repeat after me:  "Life is always going to be stranger than fiction, because fiction has to be convincing, and life doesn't." Author Neil Gaiman.

Okay, on to GEAR UP!  Because we can't have just one major scandal about disappearing federal grant dollars in our tiny state.



A whole lot of  money (almost $3.5 million in 2011) went to a whole lot of people, except that almost none of it went to what the purpose of the grant was:  to give scholarships and education to Native Americans.  In fact, while 50-75% of all GEAR UP funds were supposed to be spent on scholarships according to the federal grant requirements, South Dakota requested (and apparently got) a waiver to spend NO money on scholarships, but to spend 100 percent of the grant on college preparedness and college readiness. And of course the best way to prepare Native American students for college was to hire endless consultants and directors of various sub-corporations.  (Angela Kennecke investigation)  The result is, $14 million dollars spent (somewhere), and 20 people went to college.   As my blogger friend Cory says, wouldn't it have been cheaper just to give the kids scholarships?  (dakotafreepress.com/2015/12/31/)


Some of you may remember from my last post on this that the Westerhuis' cell phones were cancelled the day after the arson / murder / suicides, and all the records were wiped, including who made a call and left a voice mail about 20 minutes before the fire.  As it turns out, the Westerhuis cell phones were through the Mid-Central Educational Cooperative (MCEC, the hub corporation for GEAR UP money, and for which the deceased Westerhuises worked). And it was MCEC that cancelled the phones and had the records wiped.  No explanation why they would do this before the ashes had even cooled on the ground...

And you may also remember that there was a missing safe, which apparently had legs like a dog and got up and trotted off because it hasn't been found yet.

From the "It can't get any weirder than this" files:

Governor Dugaard and Secretary of Education Melody Schopp
at the Interview
The US Department of Education tells KELOLAND News that in 2014, the South Dakota GEAR UP State grant file was destroyed and none of the documents are available.  (More Angela Kennecke investigation)

When KELO-TV investigative reporter Angela Kennecke asked for an interview with Secretary of Education Melody Schopp about GEAR UP and MCEC, she was told by the governor's office that she could only talk to Schopp with Governor Dugaard present. (see photo to the right)  Still trying to figure out whose hand needed holding...

And the Mid-Central Educational Cooperative had a forensic audit of their books, and presented it to a public meeting of the MCEC board. Said the auditors:  “We did not have access to financial records or other information from any other business or individuals.”  (For example, any of the multiple organizations that the deceased Mr. Westerhuis set up.)  And neither MCEC board members, nor the public, nor the media were allowed to ask any questions or even speak at the public meeting.  (http://dakotafreepress.com/?s=audit)

Just another day in South Dakota, where federal grant money can disappear like magic.

Did I mention that 4 in every 10 dollars in South Dakota revenue come from the federal government? (10 States most dependent on Federal Government)

Repeat after me:  "Life is always going to be stranger than fiction, because fiction has to be convincing, and life doesn't." Author Neil Gaiman.

22 October 2015

A Little Light Corruption


By gum, we folks in South Dakota really know how to keep things quiet.  Until someone dies, and then the whole thing comes boiling out.  Mayberry it isn't.
2013-2014

October 20, 2013 - Richard Benda was found dead from a shotgun wound to the stomach in a field in October.  The SD Attorney General, Marty Jackley, instantly ruled it a suicide.  Came out shortly thereafter that Benda had, apparently, embezzled pots of money from the EB-5 program, an immigration program set up by George H.W. Bush in 1990 that grants Visas to foreign investors for a minimum $500,000.00 investment. Quick money for the state, quick green card, and everything's hunky-dory.

Now Richard Benda was the former commissioner of then Governor Mike Rounds' Office of Economic Development. (Rounds is currently one of our two State Senators, the other being John Thune.)  He was also the one-time financial monitor of the Northern Beef Packers of Aberdeen, a $100 million slaughterhouse, funded largely by Asian EB-5 investors, which later was auctioned off in December, 2013 for $4.8 million in cash and $39.5 million in the cancellation of what's been called a “somewhat murky debt." Benda was soon accused of stealing $500,000 and "amending" grant proposals to give Northern Beef Packers more money. AG Jackley has refused to release the autopsy of Mr. Benda ("out of respect for the family"); and in July of 2014, after 9 months of increasing stink, Jackley waved a document in front of news cameras that he claimed were the indictments for Aggravated Theft and Aggravated Grand Theft by Deception that were about to be served on Benda right before he killed himself/was murdered. (Take your pick; we all have.)

Like any good crime fiction writer, I looked at the documents and recognized the simple fact that, without a signature or notarization, these documents could have been typed up at any time, say the weekend before the Monday July news conference, when the crap was piling too deep to ignore any more.  And, as more and more people demanded answers, the SD legislative committee declared in December of 2014 that Richard Benda was solely responsible for the $500,000 embezzlement and probably the loss of millions of dollars (last report, $140 million, but who's counting), but no one knows where that money went, and they were not going to investigate further.  They were especially not going to investigate a man named Joop Bollen, a Dutch foreign national who ran the EB-5 program for Governor Rounds and later set up his own private corporation, SDRC, which took over administration of the EB-5 program.  Mr. Bollen was asked some questions by the SD legislative committee, but was allowed to answer them in writing, and never had to appear.  He has never been charged with anything.  Anything at all...

But wait, there's more!  I've been on vacation, and while I was gone, the Feds, yes, the Feds! have decided that South Dakota is too corrupt to use EB-5 funds, and we are barred, yes, BARRED, from every getting EB-5 money again.  Plus, they're suing South Dakota:
http://dakotafreepress.com/2015/10/18/feds-say-south-dakota-too-corrupt-to-use-eb-5/
http://www.mitchellrepublic.com/news/state/3863619-feds-aim-kick-sd-out-eb-5-program-state-sues-bollens-records
And, at last, the State of South Dakota is going to sue Mr. Bollen.  Like there's any money left...

Meanwhile, there's a whole new bit of nasty coming out from under the rocks:

2015

Late at night on September 17, 2015, a fire destroyed the home of Scott and Nicole Westerhuis and their four children in Platte, South Dakota.  It wasn't until a few days later that it turned out that all six had been shot to death.  SD Attorney General Marty Jackley declared it a murder/suicide/arson, perpetrated by Scott Westerhuis.  The only question was why.  Now, I'm writing this in early October, and this is only going to get messier.

Scott Westerhuis was the business manager of MCEC, the Mid Central Educational Cooperative, which is, among other things, a hub for distributing federal grand monies to other non-profit organizations.  One of these was South Dakota Gear Up, whose website was taken down after all the employees were fired...  Well, here's the deal, Gear Up received a $4.3 million dollar contract to help get Native American kids into college. On September 16, 2015, Department of Education terminated the contract after an audit declared bad reporting, bad accounting, and general bad books. On September 17, the Westerhuis family tragedy occurred.  On September 25, State Education Secretary Melody Schopp fired every surviving employee of Gear Up, and shut down the Gear Up website.
36705 279th Street, Platte, SD. screen cap from Google Maps, 2015.09.22.
36705 279th Street, Platte, SD.
screen cap from Google Maps,
2015.09.22.

But wait, there's more! The Westerhuis family lived on a $1.3 million rural Platte property that included a 7,600 square foot house, a $900,000 gym complete with basketball court, weight-lifting area, and computers, and a loft with a meeting room, rooms for guests, and a kitchen.  This was on an official combined MCEC salary of $130,549.82.

But wait, there's more! Scott Westerhuis set up as many as 7 non-profit corporations related to Indian education:




Some are inactive, but Rock Ranch Consulting, which has no easily identifiable online presence, may refer to the Westerhuises’ rock-decorated rural home, torched on September 17. Rock Ranch Consulting was the source of incorporation funds for “American Indian Institute For Innovation and Excellance,” [sic], whose 2014 Form 990 shows $2.7 million in revenue and $3.0 million in expenses, including $1.58 million in salaries and wages, $311K in pension and benefits, and $270K in travel, conferences, and meetings. Apparently very little education of Native Americans actually happened. And there's Oceti Sakowin Education Consortium (OSEC), formed in 2011 and still in good standing, whose 2013 Form 990, completed by Nicole Westerhuis on November 6, 2014, shows $965K in revenue and $935K in expenses. Scott Westerhuis was incorporator of all of these, and his wife Nicole was business manager of at least some of them.
(Thanks to Corey Allen Heidelberger for his incomparable fact-finding on Dakota Free Press: http://dakotafreepress.com/tag/mid-central-educational-cooperative/ )

But wait, there's more! We are just now cracking (again, thanks, Corey!) the list of high-level education professionals who received significant monthly and annual payments ($150,000+ in some cases) for consulting and administration from Gear Up and/or MCEC, and are scrambling to cover their assets, er, what they did and when and why.  My two favorites:

  1. Dr. Joseph Graves, Mitchell, SD School Superintendent, received his money from the MCEC for the Teaching American History federal grant; what makes this especially sweet is that the South Dakota Board of Education has made teaching early American history optional in South Dakota.  
  2. Dr. Rick Melmer, the Dean of Education of the University of South Dakota, who simply couldn't remember nine $1,000 in payments live on South Dakota television:  http://www.keloland.com/newsdetail.cfm/melmer-answers-questions-about-gear-up-work/?id=185508   You really can't make this stuff up.  (I don't know about you but I've never forgotten a single thousand dollar check I've ever gotten in my life, much less nine of them...)
South Dakota Governor Dennis Daugaard
Governor Dugaard
Now I could go on into a tirade about South Dakota mismanagement of federal grant monies, i.e., the political cronies slurping on the federal gravy train.  (Meanwhile our distinguished Governor Dugaard refuses to expand Medicaid coverage because the feds might not have the money:  note to Gov - if so, it's because your pals have siphoned it all off to build large gyms.) Or I could discuss the shameful use of Native Americans to get grant monies.  I have, I will, and I will again.

I will go off, for a moment, again, on the fact that South Dakota has been ranked #2 for government corruption.  (New Jersey, eat your heart out!)  How can this be? Simple:  South Dakota is a one-party state:  the Governor is Republican, the GOP has a super-majority in the legislature, the districts are gerrymandered so that Republicans consistently keep their super-majority (this is especially farcical when you see the little corridor linking the entire Rosebud Reservation, votes 90% Democratic, to staunch Republican Pennington County, a/k/a Rapid City).  It helps that Pierre, our capital, is one of the few US state capitals which is not on a major interstate - it's literally out in the middle of nowhere - and there is no major news media located there.  This helps ensure that whatever happens in Pierre, stays in Pierre.

Until someone dies.  And the death toll is starting to rise.

Meanwhile, why does hell always break loose in autumn?  

I'll keep you posted.  

22 June 2014

There was a Crooked Village


Little Stomping

Picture a village whose reason for being is a criminal enterprise. Imagine its entire raison d’ĂȘtre, its very existence hinges upon fleecing the public. Typical of such towns, as many as one in fifteen to twenty of residents– men, women, children and chickens– are part of its politico-judicial machinery: crooked cops, municipal machinators, and corrupt clerks.

And not ordinary crooked cops, but heavily armed with the latest in high-power assault weaponry and shiny pursuit vehicles. Police– poorly trained but still police– yet some may not have been certified officers at all. One fancied himself Rambo and stopped tourists with an AR-15 slung across his chest like that inbred couple in Open Carry Texas.

Village authorities arbitrarily moved town limit signs beyond the actual town’s boundaries in a bid to increase exposure to radar patrol… and revenues. When cops sat in lawn chairs aiming their radar guns and sipping from their open containers, they turned a blind eye to the citizens who dried their marijuana in the convenience store’s microwave. Oh, and those shiny police cars? The town often didn’t bother to insure them, this in a village where the police department wrote more tickets than Fort Lauderdale but still outspent its budget.

speed trap
First of three speed traps in
a 20 mile stretch of US 301.
AAA believed to sponsor sign.
Speed Trap

Set this supposition aside for the moment.

When I was a kid who couldn't yet drive, a short story left an impression on me. The plot centered around a man traveling to Florida who was caught in a small town speed trap. The police tossed him in jail.

Andy Griffith they weren't: they kept him imprisoned as the authorities systematically drained his assets like a spider sucks juices from a fly. Who do you turn to when the law is corrupt?

Florida sunshine has always attracted northerners during the icy winter months. In the first half of the 20th century, snowbirds filtered south through the highways and byways of America. Before the 1950s, towns and villages in the arteries of early tourism discovered they could make money fleecing tourists  passing through their area.
Lawtey, Hampton, Waldo
Lawtey, Hampton, Waldo speed traps
 
US 301
US 301: Jacksonville ↔ Gainesville
Atlantic at right, Georgia border at top


Some places in the Deep South considered northern travelers carpetbaggers and therefore fair game. Even so, town fathers and others found it easy to offset moral compunctions when considering the sheer profit involved. Could they help it if a Yankee ran a stop sign obscured by tree branches or failed to notice the speed limit abruptly changed from 55 to 25?

Where’s Waldo?

In the tiny towns of Lawtey, Hampton, and Waldo, that’s exactly what happens as the speed limits bounce every block or so from 55 to 30 to 45 to 25 and back again. If you have the time and patience, you might try locking your cruise control in at 25mph, hoping to beat the system. But they have an answer for that too– tickets for failing to maintain a safe speed.

In the early 1990s, it dawned on Hampton that nearby US 301 was an untapped piggy bank with the emphasis on piggy. The highway had been a source of resentment when it passed within a few hundred metres of the town limits, but devious minds found a way to make the road pay. The village annexed a strip of land 420 yards (384 metres) along the federal highway and began hiring candidates for police officers. Hampton’s speed trap was born.
(See maps below.)

In a state with a governor who committed the largest Medicare/Medicaid fraud in history, it takes a lot to outrage the Florida Legislature, but over time, Hampton succeeded. Their downfall started when they had the audacity to ticket State Representative Charles van Zant. Thanks to him, Florida lawmakers drew up plans to revoke the city's charter and revert the village to an unincorporated plat of county land.

Hampton with annex
Hampton with annex
Hampton with annex
Hampton
The events that set Hampton above (or below?) its speed trap neighbors, Lawtey and Waldo, is the corruption that took place off the highway. The village can’t account for monies in the high six-figures while at the same time failing to provide basic maintenance and repairs. Under one free-spending family that ‘managed’ the little city, it ran up large debts at local stores and on the municipal credit card.

While the town failed to properly bill residents for the water utility, the clerk collected cash– Sorry, no receipts. The water department can’t reconcile nearly half of the water actually distributed, telling auditors the records were “lost in a swamp.” And if residents complained about inefficiency and corruption, their water supply was cut off altogether, prompting Bradford County Sheriff Gordon Smith to refer to the situation as “Gestapo in Hampton.

As CNN suggested, the town became too corrupt even for Florida to stomach. State and federal auditors agreed and wheels started turning to unincorporate the town and strip it of its charter. The road to perdition seemed inevitable.

Road to Recovery

But not everyone saw it that way. Once corrupt authorities slunk back into the shadows, good citizens of Hampton stepped forward. A former clerk took over the reins. A new resident made plans to run for mayor, replacing the current mayor who resigned from his jail cell. Volunteers put together a plan to bring the town into compliance and moreover, they acted upon it. Among other things, the town plans to de-annex the strip of land encompassing US 301 although the ‘handle’ part of the town’s griddle shape will remain.

At present, efforts to revoke the town’s charter remain in abeyance and it looks like the town may have saved itself. We can only wish legislators had the political gumption to rid the state of speed traps altogether in places like Waldo, Lawtey, and Windemere.

Short Story Bonus

And, in case you were wondering, Jacksonville is probably not named after Shirley Jackson, despite her [in]famous short story about a small town. Read it on-line | download eBook PDF | download audiobook.

22 May 2014

The Darwin Awards


I just got back from another weekend at the pen, and you know, sometimes you just don't know what the boys are thinking.   There's always some guy who's saying, "I always know I'm the smartest guy in the room."  And it's not always the same guy.  And none of them recognize the irony of saying that in prison...   There are the guys who persist in expressing their dissatisfaction with prison life by insulting, yelling, cursing, or spitting on guards.  "I showed them!"  Yeah, you showed them that you need a few days in the hole to think it over.  And the ones who are furious at the system for locking them up just because they walked away from a work release program ("I just went to pick up my meds!"  "My girlfriend was having a breakdown!"  "I needed some time to think..."), or because (I kid you not) they posted photos of themselves doing various illegal activities on social media...

There are times I think I'm in a room full of Darwin Award winners.  Speaking of Darwin Awards, in case you didn't catch them, here are the 2013 winner and his runner-ups:


1. When his .38 caliber revolver failed to fire at his intended victim during a hold-up in Long Beach, California would-be robber James Elliot peered down the barrel and tried the trigger again. This time it worked.

2. The chef at a hotel in Switzerland lost a finger in a meat cutting machine and after a little shopping around, submitted a claim to his insurance company. The company, expecting negligence if not outright fraud, sent out one of its men to have a look for himself. He tried the machine and he also lost a finger. The chef’s claim was approved.

3. A man who shoveled snow for an hour to clear a space for his car during a blizzard in Chicago returned with his vehicle to find a woman had taken the space. He shot her.

4. After stopping for drinks at an illegal bar, a Zimbabwean bus driver found that the 20 mental patients he was supposed to be transporting from Harare to Bulawayo had escaped. Not wanting to admit his incompetence, the driver went to a nearby bus stop and offered everyone waiting there a free ride. He then delivered the passengers to the mental hospital, telling the staff that the patients were very excitable and prone to bizarre fantasies. The deception wasn’t discovered for 3 days.  

5. An American teenager was in the hospital recovering from serious head wounds received from an oncoming train. When asked how he received the injuries, the lad told police that he was simply trying to see how close he could get his head to a moving train before he was hit.

6.. A man walked into a Louisiana Circle-K, put a $20 bill on the counter, and asked for change. When the clerk opened the cash drawer, the man pulled a gun and asked for all the cash in the register, which the clerk promptly provided. The man took the cash from the clerk and fled, leaving the $20 bill on the counter. The total amount of cash he got from the drawer… $15.

7. Seems an Arkansas guy wanted some beer pretty badly. He decided that he’d just throw a cinder block through a liquor store window, grab some booze, and run. So he lifted the cinder block and heaved it over his head at the window. The cinder block bounced back and hit the would-be thief on the head, knocking him unconscious. The liquor store window was made of Plexiglas. The whole event was caught on videotape.

8. As a female shopper exited a New York convenience store, a man grabbed her purse and ran. The clerk called 911 immediately, and the woman was able to give them a detailed description of the snatcher. Within minutes, the police apprehended the snatcher. They put him in the car and drove back to the store. The thief was then taken out of the car and told to stand there for a positive ID. To which he replied, “Yes, officer, that’s her. That’s the lady I stole the purse from.”

9. The Ann Arbor News crime column reported that a man walked into a Burger King in Ypsilanti, Michigan at 5 A.M., flashed a gun, and demanded cash. The clerk turned him down because he said he couldn’t open the cash register without a food order. When the man ordered onion rings, the clerk said they weren’t available for breakfast… The frustrated gunman walked away. 

10. When a man attempted to siphon gasoline from a motor home parked on a Seattle street by sucking on a hose, he got much more than he bargained for. Police arrived at the scene to find a very sick man curled up next to a motor home near spilled sewage. A police spokesman said that the man admitted to trying to steal gasoline, but he plugged his siphon hose into the motor home’s sewage tank by mistake. The owner of the vehicle declined to press charges saying that it was the best laugh he’d ever had and the perp had been punished enough!

Those are the official ones.  I'd like to add one from an idiot I knew, 40 years ago in L.A., who'd always wanted to steal a cop car.  Well, one day he saw one with (for some unaccountable reason) an open back door:  so he got in and pointed a gun at the cop sitting in the front.  The cop's partner showed up...  The guy's probably still in jail.


19 January 2014

Fertility Fraud


by Leigh Lundin

The Switch, Part I

Manser+Sehr
Bill Manser and Elizabeth Sehr © MGM

Today’s article was suggested by a friend and neighbor. (Thanks, B!) The story involves Florida (where else!), DNA, and a man who spent half a decade in prison. And it’s about hubris.

In 1995, DNA lab worker Elizabeth Sehr submitted evidence for a paternity test involving William Manser. According to The Libertarian Republic and The Orlando Sentinel, Manser missed a court date and, when he failed to pay court-ordered child support for young Dylan Sehr, was sentenced to prison and served five years.

Bill Manser did not recall taking a DNA test and he expressed doubt the child was his. After prison, he built a relationship with Dylan and had at least one son with someone else. Then, two decades after Dylan’s birth, along comes a television program that combines those two favorites of daytime television, courtroom drama and paternity testing. (And people wonder why I don’t own a television.)

The program is called Paternity Court. It’s presided over by entertainer, lawyer, and dazzling drama queen Lauren Lake. I’ll be the first to admit it feels tawdry, even unseemly, but the show solved a riddle no one else seemed interested in resolving.
  • The result was that Bill Manser was sent to prison on a lie. He was not the father.
  • The broader implication is that lab technician Elizabeth Sehr either substituted the real father’s DNA or faked the test paperwork.
Less than a minute after the revelation, Lake asked Elizabeth if she knew who the real father was and Sehr readily admitted she remains in touch with him– then twenty seconds later complained Manser had called her a liar. In the build-up, the viewer experienced a sound dose of Sehr stridently insisting Manser’s the liar, that he’s a father avoiding responsibility. And we can’t forget she complained he wasn’t there for her son in his young years… completely overlooking she’d sent him to prison.

The mother blames LabCorp for ‘a mix-up’ and her son has said LabCorp should be held responsible. You don’t need a background in science to see what’s wrong with this rationale. If a lab failed to match, that might (or not) be considered a mix-up. But since the lab was able to identify the father’s DNA (if not his actual name), we know the real father’s DNA was in that lab, and there’s only one way it could have been placed there. Either that, or she faked the entire test.

What a plot for a murder mystery. But in case you think DNA might hold no more surprise, read on.

The Switch, Part II

Tom Lippert
Tom Lippert © KUTV 2014

Following a DNA test, the Branum family was surprised to learn Mr. Branum was not the father of daughter Annie. Before jumping to conclusions about Mrs. Branum, know that Annie was conceived in a fertility clinic. She was an in vitro test tube baby where a clinic affiliated with the University of Utah collected spermatozoa and eggs from Mr. and Mrs. Branum.

So the mother, Pam Branum, started detective work with the help of genetic genealogist, CeCe Moore, who tells the tale in her blog (with altered names). The story centers around Tom Lippert, a brilliant but troubled student who decades earlier had kidnapped and electroshocked a girl in the hope she might fall in love with him. After a term in prison, he returned to school and worked for nine years at the lab associated with the University of Utah.
  • UU has proved less than cooperative, but it appears Lippert substituted his semen sample for that belonging to Mr. John Branum. 
  • It’s suspected Lippert may have supplanted dozens or even hundreds of semen collections over the years at the university clinic.
Lippert is long dead, but his legacy lives on.

DNA can resolve many mysteries, but it’s also possible for DNA tests to uncover entirely new puzzles.

23 June 2013

The Digital Detective, Wall Street part 2


continued from last week
The Best of Times…

Systems programmers held a unique niche in the multiple mainframe corporate structure. We didn’t practice ordinary commercial programming but were responsible for keeping the software side running– the operating systems, telecommunications, and utilities. The best of us knew assembly language– the cryptic machine instructions that underpin more or less human-readable languages like C, Cobol, Fortran, and Java. We dealt in bits and bytes, binary and buzzwords, not credits, debits, and balance sheets.
77 Water roof

77 Water plane
Plane atop 77 Water St

Walston was flush. Shortly after I joined, they moved into their fancy new skyscraper at 77 Water Street, a few steps south of Wall. It featured an artificial stream, a padded soda dispenser shaped like a floppy-eared dog, elevators illuminated like the night sky, and a full-size sculpture of a biplane on the roof. You can see it in the opening fly-over sequence of the disappointing movie The Forgotten; there you can spot the airplane still atop 77 Water.

Walston’s cast of characters included my boss Alex, his boss and vice president Paul, and an assistant vice president, Jim. Brokerage firms contain nearly as many vice presidents as they do brokers. The wrinkle in the relationship was Jim had originally hired Paul who passed him on the corporate ladder. Nearing his 25th year with the firm, Jim became marginalized, holding down a desk but no responsibility. Upon retirement, he planned to buy a Land Rover, move to South Africa, cultivate a mustache, and live a life of alternating adventure and leisure. As the weeks ticked away, that’s all he talked about.

Lower Manhatan Financial District
Wall Street and Financial District
Walston’s third floor contained two sections: the computer room and offices occupied by Arthur Anderson overseen by a Walston executive with the musical name Glenn Miller. As systems programmer, I was the rare programmer allowed in the computer room. That drew the attention of Arthur Anderson.

It wasn’t unusual for large corporations to provide offices for their accounting firm, but it wasn’t kosher for one’s auditors to use provided offices to perform work for other companies. The rules for AA were different. As one of the accounting wonks said, saving office space didn't hurt anyone. It may have been true, but violating rules exemplified the looseness of managerial oversight.

Toad in the Hole

Walston brought in two consultants, guys who would tell a company the same common sense advice at five times the price of listening to their employees. That’s one reason I later became a consultant– companies pay to listen to you.

As far as I was concerned, this was more background noise, but one day my boss Alex called me into his office. There sat the consultants and two Arthur Anderson guys amid palpable tension. They wanted me to perform a task: write a program to scan files and ‘correct’ fields, i.e, numbers within the file.

I pointed out I didn’t do that kind of commercial programming and this was far more suitable a task for one of the Cobol programmers. No matter, they assured me, they wanted me. I should be flattered.

Who’s the analyst who designed this? I asked, not feeling the least flattered. I’ll talk with him. No, said the consultant, only you. The Anderson guys nodded while my boss frowned.

Reasonably, I protested that the Cobol programmers possessed the pension suite’s data structure templates. Without them, I had no idea what the data was. It would be like blindly machining a part while they withheld the blueprints, which could damage the data.

The Arthur Anderson guys exchanged glances. My boss started to fidget. The background noise sounded like a clanging alarm. Practiced deceivers they weren't. Something felt wonky but I didn’t know what. They didn’t quite say I had no need to know, only I needn’t be concerned.

Where did a shift of responsibility end and liability begin? Were they buying blind loyalty or blindness? A light bulb went on. I raised my last objection. What about the lack of an audit trail, I asked. Assembler language would bypass all the record and financial controls.

Of course they knew that. They went into a huddle. Moments later, my boss said coldly, “We’re done here. You’re dismissed.”

I slogged back to my desk feeling dark and dysphoric. With good reason: shortly the VP called me in. He informed me the firm would cut my salary and no longer pay my tuition. Alan, the office political toady, would replace me.

Fire and Ice

Suddenly I didn't feel so brilliant. A thunderstorm had squalled up out of the blue. A kid like me didn’t make or have a lot of money and I desperately needed my classes. It didn’t dawn on me to ask why they didn’t dismiss me. Maybe they feared what they thought I knew or wanted to keep tabs on me, but my ego suggested they kept me because Alan the toady was incompetent and incapable of doing my job. He didn’t know machine language but he knew Cobol… and probably knew where to find the questionable data templates. Meanwhile, they were slamming me for questioning orders.

My boss and his boss cold-shouldered me. They almost fired me when the payroll department screwed up and continued paying my tuition, but as was pointed out, that was their error, not mine. We were at loggerheads, but they needed me as much as I needed the job.

The VP’s secretaries treated me with surprising sympathy and kindness. I don’t know how much they knew, but one took me out to lunch and the other gave me a small gift. In the cold light of Walston, they radiated warmth.

In the outside world, Ross Perot had been tacking his way through Wall Street, taking over data processing services, a forerunner of out-sourcing. When the F.I. DuPont scandal hit, Perot stepped in and bought the firm.

I received a cagey call from EDS, the company Perot founded, asking if I’d come to work for them. EDS had a rigid stiff-necked (most said 'tight ass') reputation with a dated, regimented dress code– white shirts, narrow dark ties, grey suits, pants with cuffs, shoes with laces. They subjected potential employees and their spouses to a battery of interviews. Creative thinking was not encouraged. EDS employees liked the money but not one I knew liked the company. I politely declined.

We picked up a programmer from DuPont. Perot had arrived in NYC and put his DuPont troops through sort of a surprise dress parade. As he marched down the line of employees, he came across a girl who wore the fashion of the day– a miniskirt– and fired her on the spot. At Walston, we didn’t mind miniskirts and hired her.

Word on the Street

One day, employees awoke to a lead article by the Wall Street Journal announcing Ross Perot would take over the computing facility of Walston. Vice President Paul turned shockingly white– he hadn't heard even a whisper– but brokerage houses mint vice presidents like they print stock certificates. The company denied the story and things sort of returned to normal.

Except an odd and unsettling thing happened. One month from his 25th year and retirement, Jim, the marginalized AVP found himself called into the VP’s office. Paul, the vice president, fired him. Full retirement gone, no Land Rover, no African adventure, no life of well-earned leisure.

Another discreet call came in for me. The woman on the other end asked me to identify myself, asked if I could talk privately, then said, “Please hold for Mr. Perot.”

Despite what I've heard before and since, Ross was polite, even gracious, and I was flattered he asked me to work for him. But, as I pointed out, I attended university full-time, I wasn’t as regimented as his usual workers, I enjoyed a bachelor life, and– thinking of Perot’s cozy relationship with Richard Nixon– our politics didn’t mesh. He’d famously said he didn’t like gunslingers and lone wolves– and I was the epitome.

He said, “Son, thank you for being honest,” and wished me well. I wondered why he wanted me.

Take Two

Once again, employees learned the news not from their own company but from the WSJ: For the second time within weeks, employees woke to a Journal article confirming Perot would be taking over Walston’s computing center. Again, our shocked vice president had been left out of the loop.

When Perot dropped in to inspect the troops, he spotted the same girl in her minidress we’d hired from F.I. DuPont and again fired her on the spot. Can’t say Perot wasn't consistent.

Days later, Walston fired Vice President Paul two weeks from his 25th year– and full retirement. The firm dismissed the consultants and Arthur Anderson's office underwent a shake-up. Programmers found themselves not only locked out of the computer room, but locked out of the computers.

Except for me. A good systems programmer could run the shop without operators, without analysts, without programmers. Perot didn't trust Walston's people, which explained the recruitment calls to me.

A panicked EDS crew asked where certain files could be found. They asked if I could find backups of older versions. They asked if I knew anything about original programs and data alterations. Unsurprisingly, those hotly desired files were the same my bosses asked me to ‘correct.’ The unasked question finally arose: were they corrections or were they coverups?

I dug into the files only to learn what Arthur Anderson already knew. It appeared Walston’s proprietors had embezzled the company’s retirement fund. Now it made sense why they fired the AVP days from his 25th year. That’s why they fired the VP days from his 25th year. The money was gone, reflected in the records my bosses and Arthur Anderson (or certain employees within Anderson) desperately wanted 'corrected'. The scheme was so compartmentalized, I doubted how much any one party in my department knew, remembering my boss, Alex, claimed the instructions came from on high. "Just follow orders," he said.

I'd been lucky: What might have happened to the joker who tampered with the data? Alan had been lucky: Unable to find his assets with both hands, he'd botched the changes although he left an audit trail.

Trinity Church from Wall Street
Trinity Church framed
by Wall Street

How The Mighty Had Fallen

Perot took over Walston, folding it in with DuPont and again saving Wall Street considerable embarrassment. Two and a half years later, he lost his financial shirt and dismantled a hemorrhaging DuPont Walston. Perot arranged for Congress to give him a special late night $15-million tax break, causing an outcry of socialism for the wealthy when the bill became public knowledge.

Dark forces on Wall Street gleefully watched Perot depart, some accusing him of trickery, some suing him on the way. Whatever the truth of that matter, Walston had been rotting internally before Perot arrived.

Arthur Anderson survived with their reputation barely sullied. Indeed, Anderson and Walston’s Glenn Miller caught more flack for the Four Seasons Nursing Centers scandal than the internal decay within their own firms. It would take the Enron affair to bring down Arthur Anderson.

My services remained in demand and I moved on, still on Wall Street, starting my masters degree before joining forces with two of the earliest software entrepreneurs.

Imagination Noir

In imaginative moments, it’s easy to envision the kernel of a mystery intrigue plot. I picture a John Grisham novel, a storyteller's movie in my mind like The Firm. Had Walston’s board reacted viciously and violently, I might have found myself in a dire plot, on the run for my life with a miniskirted damsel as VPs, AVPs, and Anderson drones dropped dead around me. Excited movie audiences would gasp between mouthfuls of popcorn, women would cry, and children would whisper, “He’s so bwave.”

Maybe a dastardly plot isn't so far-fetched considering the mysterious suicide (or assassination?) of Enron executive Clifford Baxter, about to testify before Congress. But in the world of finance, what’s crooked isn’t always an actionable crime. Commit a fraud of sufficient size and business will hush it up rather than prosecute– not unless something can be gained in the guise of ‘investor confidence’.

Footnote

The case ended with a gentler tone: I commuted to Wall Street on the Staten Island Ferry. One surprisingly sunny afternoon, I spotted Paul, the ex-vice president. He said hello and sat down across from me. Once again open and pleasant, he appeared the man I’d once liked– and could come to like again.

We didn’t talk about Walston. He explained he moved with his aging mother to Keene Valley in upstate New York. Turning his back on Wall Street, this former executive now worked as a carpenter. He spoke of small town pleasures where old men sat in front of the local hardware store whittling and discoursing upon merits of lawnmowers. For the first time in decades, he felt relaxed and at peace.

That pleased me. Paul wasn’t a bad man, merely a figure caught up in the machinating machinery of Wall Street. He offered his hand and we shook warmly.

Looking back, I think his chat was sort of penance, kind of an apology without the words. That was decent, more than many people would have done. And it was enough.

Besides, I’d eventually consult for banks, institutions where further fruits of fraud lay concealed beneath a public veneer.

16 June 2013

The Digital Detective, Wall Street part 1


High Finance and Low Crimes
I learned a couple of curious things when I worked at IBM’s Wall Street Data Center. One was that my friend, Curtis Gadsen liked mayo sandwiches and fleecy-legged girls. The other was my friend Ray Parchen could be fooled because he was too good at his job as a mainframe computer operator.

IBM 360 mainframe
IBM 360 computer room
Like an old-time stoker fed the fires of furnaces and steam engines, an IBM operator stuffed the huge machines with programs and data. Very good operators could act and react instantly without thought, confident in their experience and skills, mounting discs and responding to messages as they'd done ten thousand times before, giving them no more thought than donning their underwear in the morning. The keyword was efficiency.

Unintimidated by hulking computers the public suspected were semi-sentient, Ray worked quickly and accurately, and for that reason, he held down the first shift position. For him, I wrote a silly little psychological program that worked only with the best.

Amidst weighty programs queued for the giants of Wall Street, I slipped in the prank while a dozen employees gathered outside the computer room’s glass wall, waiting for the small program to do its thing: It made discs chatter, tapes whirr, lights blink, and the data center rumble as if Colossus was taking over the world.

We watched Ray bend over the console, reading the first mundane message:
05483A Press ENTER.
Ray pressed the ENTER key. The machine responded with another message:
05483A Press ENTER hard.
A few of us watched from outside the computer room as Ray hit ENTER again. The machine came back with:
05483A Press ENTER harder.
Ray punched the ENTER key, and a couple of the girls giggled. The computer responded with:
05483A Press ENTER even harder.
Ray smacked the key hard, very hard. The machine responded with one last message;
05483I Did it occur to you I can’t tell how hard you press ENTER?
Ray looked up with a red-faced grin and spotted us chuckling. Afterwards, he joined us for a drink where we argued why the program fooled some and not others.

Of course he knew pressure couldn't be detected, but he hadn't engaged his knowledge hidden behind the wall of his expertise. I would discover this common quirk could be exploited, as Simon Templar might say, “by the ungodly.” As noted in the article about kiting, confidence men take advantage of confidence.

Over the next few days, we tried our little joke on other operators and observed this interesting fact: Only the best fell for the stupid little prank. Novice operators stopped, studied the messages, and tried to look them up.

Ray and the other top operators reacted immediately and without thinking. Self-assured of their abilities, they acted instinctively by rote.

Less experienced operators questioned everything, including themselves. We caught more than one systems engineer trying to look up the bogus message number in the reference manuals and they sometimes called for help. That spoiled the little program.

Lesson: Sometimes it’s easiest to fool the most experienced.

There’s a reason I tell this story. It leads to how I became sort of a detective, a digital Dashiel of a Continental Op.

Over the next few weeks, I'll talk about an accidental career as a investigator in a field yet to be invented, that of computer forensics. I reveled in the chase, but my career often hung in the balance under threat of firing, even blackballing. Often the only reward was termination but hey, that happens to all the best private eyes.

Background Noise

An early case exploded with little of my own involvement, or, perhaps because of my lack of involvement. The players: Walston & Co, the nations third largest brokerage house, and Arthur Anderson, the biggest of the Big Eight accounting firms until participation in the Enron scandal brought about its demise. Anderson had dirtied its manicured fingers long before Enron arrived on the scene.
Lower Manhatan Financial District
Wall Street and Financial District

Search the internet for Walston & Co and its Wikipedia entry merely reads "(Walston) was acquired by Ross Perot following pension account fraud and then merged it with Dupont, which had found itself in financial difficulties." Here's the story behind the story.

Despite the Wikipedia gloss-over, the wheels of merger with F.I. DuPont began turning before revelation of Walston’s fraud. Fifteen million in securities had vanished from DuPont’s accounts. The White House grew nervous. Wall Street threw up its collective hands, Oh woe, what to do, what to do?

A Texan rode into town, Ross Perot. He’d bulldozed through the insurance industry (an intriguing inside tale of its own) and encouraged by Felix G. Rohatyn, he made his move on Wall Street. For an initial $30 million, the impossibly old, impossibly young forty-year-old Napoleonic Perot acquired control of one of the Street’s most prestigious houses. (N.B: Regrettably, Time Magazine articles referenced herein require a subscription.)

At the time, that seemed background noise for me, a full-time employee and a full-time student, living paycheck to paycheck and barely sleeping. I couldn't guess how it would alter my career.

Trinity Church from Wall Street
Trinity Church framed
by Wall Street

Crime on the Street

In the Financial District, denizens simply call Wall Street 'the Street'. Philosophical sorts read a moral into its long, narrow confines, noting it begins at a church and ends at a river: When times get tough, in depression or desperation, one may choose salvation or suicide.

The Street fosters its own culture. On the one hand, a man’s word is his bond– multimillion dollar transactions hinge on verbal promises. On the other hand, huge regulatory holes allow brokerage houses to commit the sleight-of-hand that brought the economy to its knees ten years ago. We can’t say we weren’t forewarned, but in the heady days of deregulation, greed and giddiness carried the day. We never seem to learn industries cannot police themselves.

One of the first observations of the Street is that the market's moody– it reacts, even overreacts to political news of the day. But I stumbled upon other emotions, which included surprisingly little hanky-panky. A few notes from the era:
Francine Gottfried
Miss Francine Gottfried

  • Wall Street can be a mad marketplace when the economy's in a lull. Late one summer, a sweet keypuncher named Francine Gottfried caused a sensation with the mostly male lunch crowd as her 43-23-37 figure bounced down the steps of Chemical Bank & Trust. For a few days, a sort of silly mating season reigned and then, as so often happens, her 15(0) minutes of fame were up.

  • Once, as I strolled with my boss down the street, we encountered a beggerman squatting on his flattened cardboard. My boss stopped and chatted with this derelict before moving on. I didn't say anything but he confessed: The homeless man once worked as a broker, what Wall Street called an account executive or AE. When my boss and the man’s wife carried on an affair (and subsequently married), this man– the husband– collapsed in despair. He now lived– literally– on the Street.

  • During the 'Hard Hat Riots' (then called the Wall Street Riots), I picked my way through roving construction workers from the rising World Trade Center left by police to run wild, bashing kids protesting the war in Vietnam. On my way to school as police idled, I helped a girl and her boyfriend bloodied by a musclebound thug. It was no contest: the canyon-like Street corralled the teens, leaving them easy pickings by hardhats with pipes and wrenches. That wasn’t one of Wall Street’s prouder moments. Hard-hats went on to attack the city's mayor's office, smashing the face of one of his aides.
The Young and Restless

A precocious if unaware teen, I worked as an IBM shift supervisor in their Wall Street Data Center, Number 11 Broadway. I had the greatest boss, a pretty blonde named Judy Kane. We boys loved her; the girls– not so much.

And I loved software, the machine-level bits and bytes and Boolean stuff. A teenage mad scientist, I found computers a giant puzzle, one I learned to solve and control. It was a battle of wills, me versus machine, immersive therapy for a broken heart (but that's another story). I'd come to know these Daedalus creatures like a mother knows her own children; better even, I'd learned their DNA.

A sales rep, Herb Whiteman, discovered I spent weekends camped in the computer room, teaching myself to program the huge monsters, then catnapping on the couch as the computers blinked and toiled, compiling my routines. Herb asked if I’d be interested in joining a three-man team that would change Wall Street and put video terminals on broker’s desks. Argus Research, the parent company, would double my IBM salary.

The company gave us secretaries and an entire floor of offices, no expense spared. Unfortunately Argus, in the business of prognostication, shortly deduced the economy teetered on the brink of recession and pulled the plug. Not long after Walston & Company hired me as their fancy-pants systems programmer offering tuition reimbursement as part of my hiring package. Me! I was just a kid from nowhere.

Thus began my introduction to low crimes and high finance.

Stay tuned for more next week, Wall Street's big boys and big crimes.

09 June 2013

The Digital Detective, Banking part 2


Continued from last week, where we explained the basics of kiting and how banks work

The Crumpled Kite

As mentioned earlier, kiting isn’t as common as it used to be, partly because of stiff penalties, but also because the time it takes to clear a check with another bank has shrunk from many days– sometimes a couple of weeks– to just a day or two. But when I consulted, I witnessed a kiting scheme that could have fooled financial institutions and their computers almost indefinitely.

A bank in Virginia’s Shenandoah Valley decided to invest its excess computer resources in software development and I contracted as their consultant. It was an odd relationship because they feared me as if they’d hired a gunslinger to guard the vault.

One evening I idled, waiting for computer time; in fact, I was waiting for a new guy to finish the night’s reconciliation run. As I sat tapping my fingers, he called the lead operator over and pointed out a worn, battered check. The lead glanced and dismissed it, saying “Just stick it in an envelope, imprint it, and run it through again.”

“But…” said the new guy hesitantly, aware the lead seemed annoyed he didn’t jump to it. “But, we can’t. I mean, it arrived in a carrier envelope and look, it’s not our routing number. And it's really old.”

cheque
Curious, I wandered over and the operations supervisor stepped in, obviously impatient at the delay. He read the check, stared at it, lips moving as he re-read the numbers. He ran his thumb under the date, several months old. Puzzled, he picked up the phone and beeped the operations manager.

It was still early evening when the manager strolled in. He looked at the check and made a phone call. When he hung up, he shrugged and turned to the supervisor, “No matter, we’ll find out in the morning what’s going on.”

But by now, the worn check had captured my curiosity and that of my colleagues. Three of us sat down to figure it out. We discovered a scam, and this is how it worked.

The Endless Kite

cheque numbers

From a common check supply company, our schemer bought checks printed with Frugal Savings & Loan’s name, address, and logo, but with Penury Bank’s routing number. He waltzed into a bank other than Frugal Savings & Loan, cashed his check, and departed without a care in the world.

That evening during the check run, the machine sorted his check into a tray to be delivered to the clearing house. From there on out, the following cycle endlessly repeated:
  1. The check arrives at the clearing house. Its routing number routes the check to Penury Bank & Trust.
  2. During the check run at Penury, the computer accepts the routing number but doesn’t recognize the check’s bogus account number and kicks it into the rejects pocket.
  3. A Penury operator plucks it out of the rejects pocket, notices it bears a Frugal Savings & Loan logo and address on it, and either manually packages it to send directly to Frugal S&L or bundles it to send back to the central clearing house for forwarding to Frugal. Either way, the check winds up at Frugal Savings & Loan.
  4. At Frugal, the MICR reader sees another bank’s routing number, knows that’s wrong, and kicks the check into the rejects pocket. It goes back to the clearing house to repeat the cycle again.
Meanwhile, the bank that cashed the check hasn’t received their money, but neither has the check been denied.

The Kite that Crashed

The cycle eventually broke because constant transit nearly wore out the check and an inexperienced operator questioned why a draft on his bank contained an unfamiliar routing number.

We don’t know how many experienced operators routinely handled the check, seeing the bank name and logo and not the routing number, just as their computers saw the routing number and not the bank name.

Banks (at least at that time) did not have a standardized way of handling a check that forever floated but never cleared. In many cases, the bank software simply left the deposit unresolved with neither the funds transferred nor reserved– it simply stayed on the books, so to speak. In banks that impose holds, their programs might be written to release the hold after a number of days if the check isn’t returned, even if the funds aren’t actually received.

I speculate the scheme might have been harder to detect if non-magnetic digits had been printed over ‘invisible’ MICR ink. In other words, the pigment in MICR ink is for the convenience of people. The computer itself doesn’t use optical recognition (OCR) but senses the microscopic particles in the numbers.

No one’s immune to bunco, not even banks.