Trust Me: Frauds, Schemes, and Scams and How to Avoid Them

TRuST ME

TRuST ME

FRAuDS, SCHEMES,

AND SCAMS AND

HOW TO AVOID THEM

GORDON G. LEEK

DUNDURN PRESS

TORONTO

Copyright © 2010 Gordon G. Leek

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise (except for brief passages for purposes of review) without the prior permission of Dundurn Press. Permission to photocopy should be requested from Access Copyright.

Project Editor: Michael Carroll

Editor: Jennifer McKnight

Design: Courtney Horner

Printer: Webcom

Library and Archives Canada Cataloguing in Publication

Leek, Gordon G.

                Trust me : frauds, schemes, and scams and how to

avoid them / by Gordon G. Leek.

Includes bibliographical references.

ISBN 978-1-55488-705-7

1. Fraud--Prevention. 2. Swindlers and

swindling--Prevention. I. Title.

HV6691.L36 2010    364.16'3    C2009-907533-4

1 2 3 4 5      14 13 12 11 10

We acknowledge the support of the Canada Council for the Arts and the Ontario Arts Council for our publishing program. We also acknowledge the financial support of the Government of Canada through the Canada Book Fund and The Association for the Export of Canadian Books, and the Government of Ontario through the Ontario Book Publishers Tax Credit program, and the Ontario Media Development Corporation.

Care has been taken to trace the ownership of copyright material used in this book. The author and the publisher welcome any information enabling them to rectify any references or credits in subsequent editions.

J. Kirk Howard, President

Printed and bound in Canada.

www.dundurn.com

This book is dedicated to my wife Debbie and my sons Garrett and Jason,

for their support throughout my policing career

CONTENTS

PREFACE

Trevor was a successful small business man in the financial planning and insurance industries. Through hard work and developing his client base, Trevor established a large network of associates and clients. One of these associates was Michael Fischer. Michael approached Trevor with a business proposition that would also benefit Trevor’s clients.

Michael had developed contacts in the aircraft industry where he was able to purchase blocks of seats from different airlines at considerably lower than regular book prices. These tickets could then be resold at a profit to companies for business flights or as part of a vacation package. If Trevor would be able to get some investors together they could all take advantage of this opportunity.

Michael provided Trevor with the paperwork and the books that detailed how the block-buying worked and what the profit margins would be. Convinced, Trevor contacted ten of his clients and convinced them to invest $25,000 each. Unbeknownst to Trevor, he had unwittingly bought into a Ponzi scheme that Michael Fischer had set up. The result was Trevor and his fellow investors lost over $250,000 to this scheme.

When Trevor told me about how he lost his money he was understandably upset. However, he was not just upset about being scammed, but he was also upset on how he was treated by the police. No one appeared to understand that he was a victim. Trevor was told by the investigators he met that this was simply a bad business deal and it was therefore not a police matter.

Trevor then came to me to ask for my opinion. Although not part of the Commercial Crime Unit at the time, at Trevor’s request I completed an initial investigation and report that detailed the fraud committed. Armed with this, and evidence obtained through a private investigator that Trevor hired, Trevor went back to the police, who then pursued the case.

After twenty-five years as a police officer, and before I was assigned to the Commercial Crime Unit, I often wondered how people could get caught up in these various schemes. To me, at least, they appeared to be blatant lies with nothing to back them up. Why would someone fall for this? Are these people just greedy or simply that stupid? I knew Trevor wasn’t either of these things.

As a member of the Commercial Crime Unit and serving with the Alberta Partnership Against Cross-Border Fraud investigating international mass-marketing fraud cases, I had the opportunity to interview hundreds of victims of fraud. I began to realize that there is a reason why they were targeted. Most fraud victims are trusting people that would not be able to comprehend someone deliberately deceiving them. They just happened upon an opportunity presented to them that had the potential of making themselves some money. In other cases, it was a chance to help someone, whether an acquaintance, a charity, or a family member.

I also discovered that with more complex fraud schemes, nearly all of the victims had heard about the various schemes through the newspaper, television, or movies, but none of them really understood how the ruse actually worked, or how they could be or actually were drawn into the ploy.

Trust Me: Frauds, Schemes, and Scams and How to Avoid Them was written to help victims and potential victims recognize and understand how a fraud scheme works. It also explains how fraudsters select their victims and induce them to participate in their scheme and turn over thousands of dollars and life savings.

It is a sad fact of life that police departments do not have the manpower or resources to investigate most fraud cases in a timely manner, or even investigate at all if the dollar value is under a certain amount, regardless of the impact to the victim. By using case studies that illustrate these schemes, it is hoped that the reader will gain a better understanding of how a fraud scheme works, and in turn be prepared to avoid becoming a victim themselves.

As for the case involving Trevor and Michael Fischer, following a two-year investigation Fischer was sentenced to three years in jail. He has served his sentence and is currently avoiding a criminal organization that he also scammed. Trevor repaid his investors in an attempt to restore his business reputation. He was never able to recover any of the money that he and his clients gave to Fischer.

Note from the author: All references to the places and people featured in the case studies have been changed to protect the guilty and the innocent.

ACKNOWLEDGEMENTS

This is the first project of this kind that I have undertaken. It has been an interesting learning experience for me, and one that I could not have completed without the help of friends and family, for which I am truly thankful. To Johanna and Anne of Bates Literary Agency, thank you for your guidance and patience in bringing this project together. To members of the Alberta Partnership Against Cross-Border Fraud, the Calgary Police Service Commerical Crime Unit/Fraud Detail, and those fraud investigators who know that the pen can indeed be mightier than the sword. To my friends, Phil, Mark, Sharon, and Sandy, thanks for your support and comments while writing and developing this book. To my sister and brother-in-law, Jan and Bob, your insight and experience that you shared with the initial edits and drafts were great. And to my family, Debbie, Garrett, and Jason, thank you for just being there.

Gordon G. Leek

Airdrie, Alberta, 2010

[They] look upon fraud as a greater crime than theft … for they allege that care and vigilance, with a very common understanding, may preserve a man’s goods from thieves, but honesty hath no fence against superior cunning … [W]here fraud is permitted or connived at, or hath no law to punish it, the honest dealer is always undone, and the knave gets the advantage.

Jonathan Swift, Gulliver’s Travels

1

THE CONSTRUCTION

OF A FRAUD

In October 2003, Jamie Cardinal opened an account at a bank in Fort Macleod, Alberta. Two days later, Cardinal deposited a cheque into this account at the Calgary branch of the same bank. A second and a third cheque was deposited at two other branches of the bank into the same account. Two days after making his last deposit, Cardinal attempted to make a number of cash withdrawals from his account but was unable to do so. He tried again the next day but was again frustrated.

By the end of the week, Cardinal was calling the bank manager, asking why he could not access his funds and when they would be available. The manager explained that, because the cheques were from out of province, it would take a few days before the funds would be released. Cardinal told the manager that he would call him back in a few days. The manager never heard from Cardinal again. When the cheques were examined at the bank, it was discovered that they were all drawn on a company account that had its headquarters in Oshawa, Ontario. However, a closer examination of the cheques revealed more. The cheques that Cardinal deposited were bleached cheques and Cardinal’s name had been inserted in place of the original name. In addition to this, the amounts of the cheques had been altered.

Surveillance photographs of Cardinal making these deposits at the bank, and fingerprint examination of the cheques, all linked Cardinal to this offence. He was subsequently charged with fraud under $5,000, under Section 380(b) of the Criminal Code of Canada.

Paula was an employee of the Real Canadian Superstore in Calgary, Alberta. She would use the stand-alone bank machine, located in the foyer of the store, to withdraw cash after work. After Christmas, Paula noticed there were several cash withdrawals that she did not make. She contacted the police and claimed that someone had stolen her debit card and had taken money from her account. She did not know how this could have happened to her. In Paula’s opinion, if her bank card had been stolen and used, the bank should reimburse her for the stolen money.

In the course of their investigation, the police interviewed Paula and other employees at the Superstore. The police learned that Paula had a habit of using the bank machine without taking any precautions about hiding her Personal Identification Number (PIN) from other employees. Paula was also in the habit of leaving her card on a desk in the employee common room. This provided anyone who worked for the Superstore free access to Paula’s card without her knowledge.

Paula told the police that she was under the impression that the bank machine, and all bank machines, contained video surveillance cameras and the police could easily catch the culprit. The police explained to Paula that few ATMs have cameras. Without sufficient evidence to proceed with their investigation, the police informed Paula that there was nothing they could do for her. Paula resigned herself to the fact that her money was gone and that the bank would not compensate her for the loss.

WHAT IS FRAUD ANYWAY?

The crime of fraud is defined under the Criminal Code of Canada Section 380. The section reads: 380(1) Everyone who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money, or valuable security or any service,

(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding ten years, where the subject-matter of the offence is a testamentary instrument or the value of the subject matter of the offence exceeds five thousand dollars; or

(b) is guilty

(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or

(ii) of an offence punishable on summary conviction,

Where the value of the subject-matter of the offence does not exceed five thousand dollars.¹

But what does this mean to the average person? We have all had an experience that, to our minds, was definitely some sort of fraud. How does the above definition differ from what we know to be a fraud?

Fraud is an act of theft committed under special circumstances. Those circumstances are generally considered to be:

1. the person/victim was willing to part with the money, item, or service;

2. the fraudster used some form of deceit or trickery to obtain the money, item, or service; and

3. the person suffered some form of loss as a result of the trickery.

Fraud can be defined in more simple terms as deprivation through deception, where the deprivation is the loss of the money, item, or service, and the deception is the trickery.

The problem with investigating and determining claims of a fraudulent act is that they frequently tend to straddle the borderline between a civil matter and a criminal act. To complicate this further, victims are often confused about what they consider a moral obligation and a criminal act. Because of this confusion, it may be worthwhile taking a moment to differentiate between a criminal matter and a civil matter.

Civil matters involve some form of agreement between at least two parties, such as the writing of a cheque. A cheque can be described as a contract whereby one person is saying, I have sufficient money to purchase your item, and the other person states that he is willing to sell that item for that agreed amount.

If the cheque cannot be negotiated, or bounces for some reason, such as non-sufficient funds (NSF) in the account, the person who wrote the cheque has technically committed a crime. However, if it was a simple matter of poor bookkeeping that caused an overdraft to the person’s account, a fraud was not necessarily committed. In legal terms, there was no mens rea, meaning guilty mind, or intent to commit fraud upon the person who obtained the cheque. If, however, there was no money in the account, or there had never been sufficient money in the account, and the person writing the cheque knew there was no money or insufficient funds in the account, then that person has knowingly committed fraud. In this case, the person deliberately deceived the other party by implying that he had sufficient means to cover the amount of the cheque.

Moral obligations are more difficult to define because we each have our own views and beliefs on what we consider moral