Leave no stone unturned . . .

Following even the smallest leads can pay big dividends in identifying fraud

By Eric Lee, CFE




Over my years investigating fraud and money laundering as a special agent for the U.S. government, I thought I had seen it all. This case was different. In just more than one year the suspects had received almost $10 million in investor funds and then vanished without leaving a trace. Except for one little piece of evidence . . .   


It started out like other fraud schemes. The suspects placed advertisements in local newspapers around the country promising huge returns on their investments. All people had to do was call the telephone number listed in the ad, and a representative would give them the information that they would need to get in on an investment of a lifetime. 

The scheme was simple. For just $1,500, the investor could purchase an ATM machine that would be placed in a casino, fast food restaurant or other retail establishment and would earn the investor about $1 to $2 per ATM transaction. Even better, the company would do all of the work maintaining the ATMs.

The scheme worked so well that in just more than a year the suspects had received almost $10 million from more than 300 investors. Many victims purchased multiple machines; most were hard-working individuals who invested their life savings and retirement accounts. 

In the beginning, everything looked fine. Investors received monthly earning statements and could even view their accounts on a website. According to their statements they were making great returns. But all of that came crashing down more than a year after the scheme began. As investors tried to track their investments, they quit receiving investment statements, the company stopped answering phone calls, and no one could find a single ATM machine that the suspects supposedly had used their investments to purchase. Investors eventually called the authorities to help search for their money. 

By the time authorities began investigating, the suspects had vanished. All that remained were empty apartments and bank accounts. We discovered that the business address was a mailbox in a strip mall, and the telephone number listed in the newspaper advertisements was for an answering service that forwarded calls to temporary cell phones that were switched out every couple of weeks. The suspects even used fictitious or stolen identities when they talked to investors. 

As the investigation continued, the leads went cold. The individuals involved in the scheme had vanished without a trace, and the paper trail went dead. As we struggled to find any new leads, we discovered in a stack of documents that one of the suspects listed a personal reference in an application to purchase a vehicle. Using this last bit of evidence, we tracked down the personal reference, conducted interviews and convinced them to have the suspect contact us.

A couple days later, one of the suspects called us from a pay phone in central Mexico. He said that he was hiding in Mexico because the guys running the fraud scheme had threatened his and his family’s lives and told him to leave the country. Through his cooperation, we were able to identify the mastermind of the organization, a man we will refer to as “Chris.” According to the cooperating suspect, Chris had approached him and his wife about setting up the business and bank accounts, and in return they would get paid a small amount each month for running the local operations. As part of the operations, the cooperating suspect was instructed to take out thousands of dollars in cash from the business bank account (i.e. fraudulent proceeds) and send it to Chris via FedEx. 

Chris’ use of temporary services (like cell phones, answering services and mailboxes), his use of fictitious names and unwitting suspects, and the bulk cash shipments by FedEx made it extremely difficult to trace any direct evidence linking Chris to the fraud scheme. 

However, using the investigative techniques I outline below, we identified Chris and his associates, his bank accounts, his sources of income and his personal assets (houses, boats, cars, etc.). We conducted an extensive financial analysis of the records, which showed that the cash in Chris’ bank accounts and his purchases of cars, homes and other toys were tied — through either direct or circumstantial evidence — to the illegal activity and the bulk cash shipped to him through FedEx. Ultimately, the financial analysis and money trail lead to the successful prosecution of Chris and three other associates, with Chris sentenced to 20 years in prison and ordered to pay more than $6 million in restitution.






The key to this investigation, as in all investigations, was our use of all of the available resources and techniques to discover and analyze evidence. A small piece of information buried in a pile of evidence eventually lead to the apprehension and the subsequent prosecution of the suspects. You never know what will give you a solid lead. Sometimes it’s the combination of several pieces of evidence that ultimately helps you piece together a scenario. 
Some of the basic, but often overlooked, investigative techniques in fraud examinations may include:

  1. Public records. 
  2. Interviews.
  3. Sources and Informants.
  4. Analysis of physical and electronic evidence.
  5. Surveillance.
  6. Following the money (financial analytics and forensics). 

1. Public records 
At the beginning of a fraud examination it’s important to gather as much information as possible about the suspects, the businesses, its owners and employees, related parties, etc. Public records searches can identify historical, current and other relevant information from court records (civil and criminal), business records, real and personal property records and even news articles.  

Reviewing public records also can help identify such things as possible rationalizations or motives for committing fraud (for example, debts and liens) or identify lifestyles that aren’t consistent with the suspect’s employment.
A good amount of public records can be retrieved on government and public websites that provide online access to electronically stored records. Many courts also maintain at least some information on their websites that are useful for the fraud examination. 

Also, several commercial providers charge fees to access large databases of public records or even conduct public records’ searches for you. 

Public records searches were key in our fake ATM case to help identify the suspects and their businesses. In addition, once we were able to identify the suspects, the public records searches helped us find assets such as houses, cars and boats that were tied to the illegally obtained money.

2. Interviews
Interviews should be focused on gathering evidence through facts and other information supplied by the witnesses. Interviewers should be objective, fair and impartial.

According to the ACFE’s 2013 Fraud Examiners Manual (3.202), “All good interviewers share certain characteristics. Above all, they are ‘people persons,’ and are talented at human interaction. Successful interviewers are the type of people with whom others are willing to share information. In most interviews, much pertinent information results from volunteered information, as opposed to responses to a specific question. The good interviewer displays interest in his subject in what is being said.” 

You should conduct interviews throughout all phases of the fraud examination. As you obtain evidence from investigative techniques, you may identify additional leads and persons of interest, find new evidence or records and may identify additional witnesses. The purpose of interviews is to obtain background information about the witnesses and their knowledge of the subject matter and targets of the investigation. In general, like the peeling of an onion, the fraud examiner will first interview peripheral witnesses, progress to those with specific knowledge and then interview the targets last.

(Rarely, the fraud examiner might decide to interview potential targets in the beginning of the investigation. Although not discussed in detail in this article, the fraud examiner should become familiar with interviewing rules, skills and strategies and when it’s appropriate to interview targets. Also, the fraud examiner needs to be aware of potential legal issues when he or she is considering interviewing any possible targets. See sidebar, “Legal considerations when conducting an interview,” at bottom of article.) 

In our fake ATM case, gaining the cooperation of the people we interviewed was integral in the prosecution of the suspects. The interview with the personal reference of the suspect hiding in Mexico had very little face value but ultimately led us to a key suspect. And through an interview with the fugitive calling from a payphone in Mexico we were able to convince him to return to the U.S. and fully cooperate in the investigation. 



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