Tracing the proceeds in the ‘Bank Caper of the Century’

“BANK CAPER OF THE CENTURY” is how Virginia Business magazine described the way former Signet Bank in Richmond, Va., was victimized by John Reiners, a former Philip Morris executive who obtained more than $300 million in bogus loans through Nelco, a local computer leasing company and a New York computer firm owned by Ruffo.

Briefly, the two men invented a fictitious secret project for which the tobacco company supposedly needed millions of dollars worth of computers. Two Richmond banks and six other international lending institutions relied on the appearance of the Philip Morris name on phony documents prepared by Reiners, their former executive. The “con” was that the $300 million would be lent to Nelco in order to buy computers from Ruffo’s company for leasing to the tobacco company’s secret project.

In reality, Ruffo and Reiners invested the money into the stock market but guessed the wrong way. If profitable, they had an exit strategy, a feature significantly absent in most corporate fraud schemes. Later when one of the lenders became suspicious and started to ask questions, the scheme, despite further deceit, collapsed. Counsel for one of the banks had a requirement to trace the loan proceeds through the various bank accounts for the purpose of recovery. This “caper” was well planned and although convicted, I still give them high marks for their creative efforts to succeed.

Read “Bank Official Saw Apparent Loan Fraud”

Read decision of “United States Court of Appeals, Fourth Circuit”

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Grain Commodity as Collateral

A bank was stung by the realization that the collateral placed by a commodity broker had little substance. After preliminary inquiries, it became evident that trading records in the possession of one of the brokers were essential to the matter. However, they were not forthcoming and thereafter an application was made for an Anton-Pillar order.

I had been retained by Counsel and the idea of being a part of the invitation to search (via the Anton-Pillar order) was attractive, particularly given the level of case knowledge that I had already accumulated. But what happens if, after I have identified the documents during the search, a Judge rules against the order? I lose. In one swing it is strike three, and I am out of the case! I am legally tainted and can no longer act for my client. The documents are returned to the owner and my client needs to find a forensic accountant replacement.

The solution? Your client must retain another forensic accountant solely for the Anton-Pillar order in order to preserve your role. In other words, learn to share this experience.

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An Acquittal of the Banker and the Bankee

In May 1976, this fraud trial was held in Toronto, a trial that involved the largest allegation of bank fraud in Canadian history: $3 million.

I spent 7 days in the witness box, in a jury trial using graphs and schedules to explain the circular flow of funds in a significant kiting scheme. Several interesting points arose from this case:

• The jury returned with an acquittal and a lesson was learned that there is no need to prove all the transactions in a case as it becomes too confusing for the jury. Be selective.
• Although it was my first negative experience with a jury, it nonetheless confirmed to me the need for any expert witness to first spend time in a court room so that one’s relationship to it is somewhat like that of a lawyer
• The significant experience I gained by working at the counsel table through a jury trial
• With several references to the earlier Regina vs. Parks ruling, Judge Graburn also ruled accounting schedules as admissible noting that “it would be impossible for the jury to do the same type of work that Mr. Lindquist has done here”
• More importantly, do not become personally (subjectively) involved with the client’s case

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$16 Million = $900 Thousand

This was an extensive check-kiting scheme whereby the accused defrauded two banks and one credit union for about $900,000. However, over a period of seven months, $16,000,000 of bank deposits were generated, mostly involving checks issued to or from the controlled accounts operating within the kite. Removal of these checks issued within the circle of controlled accounts reduced total deposits to less than $800,000 of money actually received from outside sources.

In preparation for trial in September 1980, a unique accounting schedule was designed to show the jury the chronology of those funds, which were disbursed from the circular flow of the kite to show personal benefit to the accused.

A lesson learned here? That preparation of the jury presentation is not a side issue to be postponed until the end. It’s the main event.

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