Twin Cities Business Litigation Blog : Minneapolis Business Litigation Lawyer & Attorney : Gavin P. Craig Law Firm : St. Paul, Twin Cities, Minnesota MN

The other day I received an email supposedly from a Dr. Jia Boa, in Canada, asking me to to take a case to recover $370,000 paid for equipment purchased, but never delivered.

I asked a few questions and received very vague answers. Then I received the exact same email request from someone identifying himself with a different name, except that the second request wanted me because I practiced in a different state (which I don't.) Both of the requesters were supposedly in Canada, which I doubt, but who knows.

I earlier reported on some attorneys who had been victimized by scams, but I wasn't sure this was a scam until the facts got funny and the second identical request came in from another email address. They even provided me with a web address of the company that had their money, and the company is in Oregon. I don't practice in Oregon.

One of the bad things is that even if one out of ten thousand emails gets an attorney to go along, it is a problem. This is another reason to be diligent. Attorneys beware. Know your client.

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The Chicago Business Litigation Lawyer has published a couple articles about avoiding Internet Fraud. The tips come from the FBI, and are very telling. The advise is good, and should make us all more cautious. This list is worth a few minutes to read. It is almost impossible to recover funds stolen through internet fraud. The perpetrators are many times overseas, and you will not even be able to determine which country.

The old saying: If it sounds to good to be true, it isn't! Fraud takes on many forms and the victims range from the sophisticated to the not so sophisticated.

In these days of economic hardship for many people, I think there is a tendency of some people to believe what they perceive as a good deal or a way to make money. The people that invested with Bernard Madoff were very happy that their investments continued to do well while the rest of the market was not doing so well. Here is an interesting article about the lawyers and the litigation started as the investors pick at the bones of the carcass that was Madoff's financial castle. If everything is going well, why look too hard.

Tom Petters' investors believed what was put in front of them. It all sounded good. But it wasn't and in the end the investments were fictions. remember just because it is written down does not make the representations true.

The smartest people can be victims. But we don't have to be.

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I’ve written about the Petters matter a couple times before, here and here.The latest report raises an interesting question. An investor group is challenging the appointment of a trustee that they say will favor victims instead of creditors. That's an interesting conflict. Who should have priority? If both parties are innocent, who has a priority. 

So, in the abstract the question is interesting. However, in this case the complaining creditor, The Richie Group, reportedly loaned the Petter’s Group money at interest rates of 80% on one loan and 362.1% on another. We should all have such a deal.

At those rates it would not take long to recover the amount of the principal, even though they probably didn't account for the payments as reducing the principal.

The only rational reason that a company would borrow money at rates that high is because they can’t get access to the normal capital markets. That normally means that the borrower is in financial trouble. That also means the lender knew these were high risk loans. So why would they get a priority? The Richie group had a choice whether or not to loan money to a company with a weak balance sheet.

The victims on the other hand were misled. I think the victims have a much better argument for a priority than the Richie Group, or any similarly situated lender.

Who knows how a Trustee will see it, or allocate what assets can be found.  I would guess that the facts of the Richie Group loan will influence the outcome; or I at least hope so.  Greed should not be rewarded. 

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Lawyers continue to be targets of scams. Lawyers beware!  But what is the lawyer suppose to do when Citibank confirms that the check was paid? But what is the lawyer suppose to do when Citibank confirms that the check was paid? Based on the reported facts, I can only guess that Citibank has a serious liability problem in this one.

The question is why would Citibank confirm that they paid the check when the check was counterfeit? Can't a lawyer reasonably rely on the representation of the bank? Does the lawyer need to hold onto the money for a month or more to see if it clears. What is the answer?

In this electronic age I have trouble believing that there is not a better way to confirm funds. The banks - or many of them - allow electronic depositing. Why can't the checks be electronically transmitted to the Federal Reserve and on the the banks for payment. Why does it take so long? 

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First the scam. I just ran into this post from Reid My Blog about the false use of a lawyer's name and web site to defraud people. I think all lawyers need to be aware of the scams out there that could impact their clients. While I don't have any great ideas about how to answer this threat, other than communicate with existing clients, the threat seems real.

Most of us occasionally receive an email from someone claiming to be looking for a lawyers with our unspecified qualifications. The e-mail is always from a foreign country, although which one is hard to know. As lawyers we can laugh at the weak attempt to steal money from us or our clients. This new scam seems to rely upon the victim checking to see that the attorney is in good standing, and relying upon that information to fall for the scam, without the knowledge of the attorney.

As always, we need to be aware and watch for any unusual activity.

Predictions for 2009

Keeping with the theme of crime and fraud, I am predicting that 2009 will bring new revelations about additional criminal complaints for major fraud schemes. I can't feel comfortable believing the Madoff and Petter are the only major financial criminals. The era of deregulation has had a fairly long run, and when no-one is looking, there are always people ready to take advantage. I predict, without any actual knowledge of any investigation, that there will be several more arrests for major frauds. Hopefully I am wrong, and the worst is over.

I am interested in what others think.

Finally: Happy New Year to All!

Gavin Craig

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For those of us that like to give advice - here is a great question from Emeritus Professor David Slawson of USC's Gould School of Law. This one is worth pondering. I will watch for your answers.
 

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You must wonder if the lack of investigative resources at the FBI has exacerbated the economic crises the country is in. Several newspapers reported that the FBI had requested more funding for agents to deal with economic crimes, but little additional funding was approved by the administration.  Apparently, even with the reduced number of investigators there are still important ongoing criminal investigations. The New York Times reports that out of 13,000 agents, only 15 are investigating mortgage fraud full time. If we accept the premise that the mortgage meltdown was a significant factor in the current economic problems, the FBI's allocation of resources appears to be short sighted.

The number of frauds and victims seem to be increasing, and this can only make things worse. I happened upon a report about two weeks ago that the number of people charged with fraud had made a dramatic jump. Unfortunately I don't have the source of the story, but today's reporting supports the unfortunate fact that we are all suffering from the frauds. The Tom Petter fraud makes the headlines because it is so large and effects so many people. Many crimes do not make the news, but are just as troubling because of the impact on the businesses that drive our economy.

I wonder why people think they are going to get away with defrauding people. Small frauds maybe, but large frauds are eventually going to get discovered. For another interesting take on the problem, see the following thoughts. 

Without an effective criminal justice system to catch and convict white collar criminals, our economy becomes corrupted. As we look around the world at the worst economies we usually see rampant corruption. The new president will need to address many things, and law enforcement needs to be a high priority.
 

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It didn't take long for the lawsuits to get filed after allegations of fraud were leveled against Petters and some of his companies. At least two so far: in the Federal District Court, Southern District of New York, and in the District of Minnesota. While we have not seen the results of the investigations or what the agents found while searching the various properties, the affidavit describing the allegations and the basis for the requested search warrants are stunning in their magnitude.

The Affidavit in support of the search warrant is here. There are going to be a significant number of Defendants if there is evidence supporting the allegations in the affidavits. Don't be surprised to see charges of tax fraud added on to the list.

If the allegations are correct, you need to wonder if there is any real money is to satisfy the claims of the plaintiffs.

More to come.

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Petters and his company, Petters Co. Inc. (PCI) was the apparent target of federal law enforcement this past week, and all reports indicate that the authorities were looking for evidence of a massive fraud. Reports indicate that the alleged fraud could exceed $2-Billion. The Minneapolis Star Tribune has an extensive story on the raid by law enforcement authorities and the allegations.

Allegedly, the fraud scheme lured investors by claiming that their money was secured by merchandise purchased from certain wholesale vendors and sold to Wal-Mart, Sam’s club and other retailers. According to the FBI, these were all sham transactions; the purchase and sales orders were fictitious, and the wholesale vendors were shell companies allegedly used to launder funds to PCI.

The affidavit used for the search warrant was unsealed on Friday and states that that an unnamed cooperating witness wore a wire in meetings with Petters and his associates. The wire informant will apparently plead guilty to conspiracy. Petters allegedly, “talks about fleeing the country and creating fabricated defenses if the fraud scheme is discovered.” One of his associates is allegedly on tape as saying that the amount of the fraud could exceed $2 billion.

Recent reports indicate that the number of fraud indictments are up considerably across the country. What is going on?

I was also sorry to read about Tom Petters because in my opinion, the airline he owes (Sun Country) is the best ride to and from Minneapolis. I fear that these events will cut off needed funding to the airline.

I am always amazed that the people committing business fraud (and I am not prejudging Petters) always assume that they will not get caught. This seems to be an irrational belief that sophisticated victims are never going to notice.

We will watch the developments with interest.

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