(2000 words)
By Lary Crews
Every gambler dreams of a fool-proof system to beat the house at its own game or a legal way to con Uncle Sam out of those pesky income taxes. But nearly all such systems are designed to beat the greedy and the needy and not the billion-dollar casinos.
In 2004, 76-year old self-described Las Vegas tax protester Irwin Schiff, who hasn't paid personal income taxes since 1974, was indicted on a variety of tax fraud charges. And he took down thousands of victims with him.
Schiff allegedly victimized some of America's most vulnerable citizens, beleaguered taxpayers who are in debt to the Internal Revenue Service, by playing on their fear, ignorance, and anger. He promised that anyone who wanted to could stop paying income taxes. Some victims heard him on the radio and bought his books and videotapes like “The Great Income Tax Hoax" and "How Anyone Can Stop Paying Income Taxes." Other customers spent thousands for personal consultations with Schiff in an effort to avoid paying the IRS.
When IRS Criminal Investigation agents filled a U-Haul truck with evidence from Schiff's Freedom Books' Sahara Avenue storefront in February of 2003, the anti-tax man assured his followers that the government would never indict him. But what those agents found exposed Irwin Schiff's con game, one which the feds say cost taxpayers approximately $55 million and netted Schiff at least $3.7 million over six years. That's just the checks and traceable income; it account for the suspected large sums of cash the business received. It is alleged he caused at least 4,950 people to file "zero returns" and violate federal law.
As late as a March 2003 court appearance, Schiff still claimed that paying income taxes was voluntary and the 16th Amendment wasn't properly ratified. An appeals court judges called Schiff, "…precisely the sort of taxpayer upon whom a fraud penalty for failure to pay income taxes should be imposed."
A few years ago, Canadian Paul Charbonneau cheated 866 people out of $10 million by convincing them to invest in pay-per-use telephone lines which turned out to be fake. Although he was sentenced to nearly 9 years in prison, his victims were left holding the bag because they failed to have him checked out in advance. In the seven months he ran Mid West Marketing Group Ltd., the Canadian man convinced people to pay $3,100 apiece for one-year leases on what were primarily 1-900 telephone sex lines. None of the lines existed, but like any Ponzi scheme, early investors received huge checks that convinced other people to join. The payouts came from other investors rather than the profits he claimed to be generating.
More recently, the $650 million Las Vegas Monorail was shut down again after another piece of equipment fell off, the latest in a series of mishaps which has plagued the system since its six-month late introduction this summer. It is undergoing more repairs and testing, and there is no word when it will be reopened. Clark County Transportation officials alluded it may be sometime before they are satisfied and will allow it to carry passengers again.
What’s puzzling is why local officials did not check out the monorail manufacturer (Bombardier) more closely before approving the system. If they had, they’d have discovered
retired Xerox technician Alan Shaw of Las Vegas. He alleges that design flaws in another Bombardier-designed train ruined his family and turned his wife into an invalid. Shaw's wife, an environmental lawyer, was aboard a Bombardier train in Burbank, CA, when it crashed in January 2003. Mrs. Shaw's spinal cord was smashed, her internal organs were crushed and her bones were broken because of what Shaw and others allege were egregious design flaws in the train's interior. Shaw warns that there was a previous crash of a Bombardier train, with similarly tragic results, and he wonders if the Las Vegas train, also designed by Bombardier, is a disaster waiting to happen.
Meanwhile, the meter is still running for the stalled monorail project, at the cost of $100,000 per day in lost revenue. That brings the total to around $3.5 million so far.
Although totally unrelated, with vastly different effects on those scammed, all three of these incidents underline the importance of checking out business partners before the fact, not after a crisis has occurred.
Our experience in over twenty-thousand cases is that people are more likely to check out the reputation and abilities of a car repair shop or an electronics store when they’re spending a few hundred dollars than they are to investigate a $25,000 business venture they’re entering or a multi-million dollar transportation system. In fact, it seems the larger the investment and the bigger the potential to lose everything, the less likely most people and businesses are to check out the financials, business histories or representations from someone with a great idea.
Traditionally, private investigators tend to work as clean-up crews; probing the rustlers after the horses have already been let out of the barn. Usually, investigators enter the picture after some catastrophic event occurs and the contract or deal that looked too good to be true turns out to be exactly that.
The fact is that virtually no one checks out personal statements and representations before they get into a business deal. As PI’s, we know that people most often come to us when the “Big Deal’ has hit the crapper, the con artist has already left, or the business deal is so irretrievable broken that it will be tied up in the courts for years and years.
We have examples of successful businessmen who have always in the past made good business decisions suddenly being seduced by some slick guy with a good pitch. When the smoke clears, the victim almost always claims that have always been a great judge of character who could sense a scam a mile away.
The reason “better safe than sorry” is a well-known cliché is because it is absolutely true. The solution is to hire us BEFORE you enter a venture, so we can check out business deals, representations, and financials before you enter a deal. The money you spend will save you the loss and heartache of a deal gone bad when all the signs were there for everyone but you to see.
These days, working closely with an experienced private investigator is as important as hiring a competent attorney and a good financial adviser. Although some people assume their attorney or financial adviser is doing the due diligence, the fact is that their focus is elsewhere and they are usually not experienced in the sort of investigation which needs to be done.
One reason the rich and powerful REMAIN rich and powerful is that, traditionally, they check things out before getting involved; they have potential business partners investigated
before there is any chance of criminal activity which can taint their reputations. When you read newspapers across the country, whether they be financial papers or local dailies, two types of stories predominate; ones capturing the successes of a new business venture and the stories which detail how someone lost their dream.
The fact is there is seldom any “sudden” catastrophic loss in one of these business stories. The losses usually come over months or years because everyone believes the checks and balances system will catch the errors.
The crooks who can ruin your reputation are experts in their field who make their living by talking people out of their money. This is their chosen career and they take pleasure in swindling anyone who will be swindled. The telephone and internet makes it very easy for them to operate. A well-honed telephone message can wear down some of the most difficult marks. A well-built web page can make the most dishonest business appear legitimate.
Bottom line: you need to do your due diligence; check out those with whom you will be doing business deals. Most companies generally have limited assets and are usually reluctant to spend money on anything that doesn't generate revenue, and so they fail to do the proper due diligence before they make deals. Unfortunately, these companies get burned quite often in scams.
That is where we can be of the most immediate value to you and your business associates. For example, we can check for a civil litigation history. A civil litigation history should tell you about who the subject has sued, who has sued the subject, and any restraining orders on the subject.
One phone call from us to a securities regulator about Martin R. Frankel, a missing Connecticut money manager who bilked many in the state of Nevada, might have saved investors their money.
Nevada Secretary of State, Dean Heller, says, "Had investors checked the Central Registration Depository, they would have discovered Frankel had been barred from the securities industry by the Securities & Exchange Commission in late 1992 for defrauding investors of more than $1 million through limited partnership interests in his Frankel Fund."
Heller urged investors to ask potential brokers for their CRD numbers as well as their full name and the name of their firm. The database, known as the CRD, accessible to us by means of a phone call, contains the employment and disciplinary histories on the securities industry's nearly 600,000 stockbrokers and 5,600 brokerage firms.
"There's a bull market in securities fraud and investors need to be very careful out there" says Heller. He cited pyramid and Ponzi schemes, Internet fraud, affinity fraud, stock manipulation schemes, bogus prime bank and promissory notes. "The crooks are clever and too many investors are gullible," said Heller. "Don't trust somebody just because they look like you, talk like you, go to your church or have a big house and some fancy cars," he added.
In addition to outright financial and material theft, companies must protect intellectual property like customer lists, marketing plans, blueprints, formulas, graphic designs, and other components of their business processes.
Many companies are particularly at risk for fraud and embezzlement because they don't have in-house departments set up to prevent it, and they don't think that they have the funds to get outside help. In fact, hiring our firm to check someone out is not expensive. This is all the more true in light of the potential loss if you don't conduct good due diligence.
Companies and their executive tend to be too trusting, often not exercising good judgment about finding out who they are really dealing with. Most of the time scammers are good talkers. In business deals, you really need someone like us to go see the operation. Make sure that we get full access to any books. We’ll check to see if things really add up.
Remember that once a fraud has occurred, the money or property is usually gone for good. Realize that the smaller your company, the closer a fraudulent event can come to completely wiping out your firm.
While business opportunity scams are nothing new, recent economic conditions appear to be the impetus for an increase in consumers falling victim to aggressive marketing of over-promoted or relatively worthless business deals.
There are risks inherent in any new business venture. However, hiring our investigative team can save you heartache when entering into any business opportunity:
The cost of not checking out a business deal ranges from very expensive in considering the financial losses, to catastrophic, often resulting in bankruptcy and the loss of public confidence.
The best method of avoiding great loss and potential bankruptcy is to check things out in advance. For true piece of mind, we suggest hiring our experienced investigative team to do a simple, cost-effective investigation before you enter into any business deal; be it a multi-million dollar transportation system or investing in a drive-thru wedding chapel.
