Anatomy of a Scam Investigation, Chapter 14: The Indictment

This series is about my investigation of a mail fraud ring that attempted to scam my firm, the history of its bad actors, and the methodology that I used to look into it. You can see the whole chapter index here.

The wheels grind slowly, but they grind.

About four and a half years ago I was irritated when my firm received a fake invoice, and was moved to write a series about how people like you or me could investigate and expose scammers. David Bell — a career con man — was the ringleader of the scam and a central figure of the series. Bell sustained a relatively minor state conviction for a related scam in 2014. But one of the most constant themes of the series — and one of the most constant observations of readers — has been that the system allowed Bell to get away with such overt fraud for so many years without apparent consequence. Patience, I said.

That patience has now been rewarded. In August 2015, the United States Attorney's Office for the Central District of California (the region covering Los Angeles and its surrounding counties) indicted David Bell for mail fraud.

The Indictment: Two Familiar Schemes

The indictment is here. Bear in mind what an indictment is: it's just an accusation drafted by federal prosecutors and presented to a grand jury for what usually amounts to little more than a rubber stamp. It's not proof of anything. This indictment, though, has some very familiar themes for anyone who has been reading the series.

The indictment charges Bell — and only Bell — with four counts of wire fraud and attempted wire fraud, nine counts of mail fraud, and a forfeiture allegation seeking to take everything Bell earned through his enterprise. The federal mail fraud and wire fraud statutes are extremely broad and flexible. They require that the government prove that Mr. Bell devised or participated in a scheme to defraud others and that that scheme somehow involved the use of the U.S. mail or interstate wire communications.

The indictment is broken down into two schemes: the wire fraud scheme and the mail fraud scheme. The wire fraud scheme, corresponding to counts one through four, alleges that Bell defrauded payroll companies from 2008 through 2010.1 Specifically, it claims that Bell would sign up his company for payroll services, write bad checks to cover the payroll, and then reap the paychecks before the payroll company realized his check was no good.

If that sounds vaguely familiar, it's because I wrote about similar allegations way back in Chapter Five. In Chapter Five I dug up lawsuits against Bell and his company UST Development filed by two payroll companies — Blue Ocean and Epay — alleging the same scam. Notably, the indictment lists four different payroll companies, which means at least six companies have accused Bell of this. That's going to make it pretty easy for the government to prove fraudulent intent. You might bounce a check once or twice trying to get your company set up, but once you've bounced checks to six different payroll companies in the same few months, it starts to look like enemy action.

The mail fraud scheme is even more familiar to readers of the series. It alleges that Bell sent out mailers deceptively styled as "invoices" for "Telecom Maintenance/Service Call" for $175 or $350 to many companies that had never done business with him. Sometimes the mailers even said that the amounts were past due. Some recipients paid. This is the same scheme that prompted me to write this series and continued for years. This one's all about the fraudulent intent. Bell will claim that he didn't intend the mailers to be misleading. That's a tough sell when he tweaked them and ignored complaints for so long.

What happens from here?

Bell and the government recently stipulated to move the trial date from May to September, a delay that's routine in this sort of case. It could easily get continued again, even multiple times. Bell is represented by experienced and competent counsel.

The government is represented by two formidable and experienced Assistant United States Attorneys. [Fair disclosure: one of them beat me in a trial a few years ago. He knows what he's doing.] The government has likely amassed a vast number of witnesses and a huge array of documentary evidence, as the Postal Inspectors have been investigating this for years. Remember that federal prosecutors' competitive advantage is taking their time and building a grand jury case over years. Taking off my observer hat and putting on my federal criminal defense attorney hat, this looks very grim for Bell.

So what kind of time does Bell face if he's convicted? I'm not going to calculate it because it's so flexible. Though the federal judge has the ultimate discretion about the sentence to impose, that judge will consider the sentence recommended by application of the Federal Sentencing Guidelines. Because this is a fraud case, the driving force behind the length of the sentence will be the "amount of loss" attributable to Bell's actions. When it comes to the wire fraud scheme, that's fairly straightforward — it's likely the amount of money actually paid by the payroll companies. That's not necessarily limited to the transactions charged in the indictment. Under the principle of "relevant conduct," it could include uncharged transactions in the same scheme — for instance, the uncharged money described in the lawsuits detailed in Chapter Five.

But the potentially huge number is the amount of loss attributable to the mail fraud scheme, which targeted thousands of victims. The amount of loss isn't limited to the nine particular mailings listed in the indictment — the potential universe is all of the mailings over the course of the scheme. Just counting the companies that were successfully defrauded, that's likely hundreds of thousands of dollars. But that's not all. If the government wanted to be aggressive — and if the court were receptive (plausible in the case of a career con-man) — Bell could be sentenced based on a theory of intended loss. Under that theory the amount of loss for guideline purposes would be the amount he would have reaped if every single fraudulent mailer yielded money. That's a vast amount.

That provides insight into why federal prosecutors have so much power. In a case like this, they can say "plead guilty and we'll stipulate that the amount of loss is $100,000 — only the actual loss. Go to trial and we'll argue that the amount of loss is the intended loss — $1,000,000." Suddenly the delta between pleading guilty and going to trial is the difference between five months in custody and four years in custody.

So how much time will Bell do if he's convicted? Dunno. Too early to say, and not enough information. But the man has a criminal record, including a recent conviction and jail term, which is going to drive his sentence up significantly. He's not walking off with probation.

This isn't the end. I'll update the series as Bell's case continues. For now, remember: you have to wait for the feds, sometimes years.

  1. The end date is significant for the statute of limitations, which is five years for most federal offenses. To simplify: under federal law, if any part of an ongoing scheme is within the statute of limitations, the entire scheme is. Here the indictment was filed in August 2015 and alleges that the wire scheme ended in September 2010.  

Last 5 posts by Ken White

Comments

  1. Matthew Cline says

    Bell will claim that he didn't intend the mailers to be misleading

    I seem to recall one scammer defending themselves thusly:

    While we did intend for the mailers to be misleading, we never thought that it would cause anyone to just cut us a check. We thought that people would call us up to ask why they owed money for services they never received, and once they were on the phone we could try to sell them our service. That is, the intent was to trick them into getting them on the phone, not tricking them into giving us money.

    Assuming my memory is accurate, could that actually be used as a defense?

  2. Dan Weber says

    Probably not if there is a record of them actually cashing checks they've received.

  3. Castaigne says

    From your Twitter: "Note: that fourteen-chapter five-year series began because someone mildly irritated me. Just saying."

    I identify with this so much.

  4. echo says

    A five year statute of limitations, really? Off the top of my head I'd have guessed ten or fifteen.
    I wonder if that will start being extended now that records are kept pretty much forever.

  5. En Passant says

    Just offhand, what strikes me is that the two schemes rely on two different flaws in organizations, systems and human perception. Both flaws are exacerbated if the mark is a larger organization, with less than instant and clear communication between employees or their departments.

    The first scheme (the wire frauds) relied on float time delays in processing checks. The scammer fools the mark just long enough to cash the mark's checks and run, while the mark is still waiting for the scammer's check to clear. The scammer only has to convince one person in the organization that his checks will be good. That person then convinces someone else in the organization to cut a check to the scammer.

    The second (the mail frauds) relied on victims not paying close attention to the invoices they were paying. That inattention is exacerbated in a larger organization where one person receives an invoice, assumes it is legitimate without much reflection, then orders another person in the organization to pay it.

    Two separate flaws, exploiting two different organizational pathways. This Bell guy obviously has some good insight into organizational behavior and its weaknesses. Maybe he'll try to become a security consultant after he's out of jail.

  6. MickardEMT says

    This reminds me so much of the fake office supplies scam that happened when I managed an office back in the early 90's. We would get ridiculously overpriced copier supplies (they actually shipped them), and then we would get an invoice that was many times exponentially more than what the supplies were worth. They would send the invoice and demand payment because we signed for them.

    This was linked many times to the copier scam via the telephone. Somebody would call and say they were calling to get the "copier count" and they would convince the office person who answered the phone that they were with the support team for the office copier, which allowed them to obtain the manufacturer of the copier, so the supplies shipped matched the copier. It allowed them to submit and invoice and pretend we asked for them.

    I always treated them the same. I would call back on a recorded line (I worked at a 911 dispatch center) to inform them not only did we not request the supplies, but that the invoice would NOT be paid under any circumstances. They were also told if they wanted them back that they could issue a pickup order for FedEx or UPS. They always argued, but I told them that the invoice would never be paid, and if they wanted to overpriced copier supplies that it was up to them.

    I followed up with a letter to the company on the invoice (a stamp was cheap) with the same comment. It was their choice, but as a vendor we did not do business with, that they had a choice.

    I did end up with quite a collection of copier toners over the years….

  7. KronWeld says

    Wow, only 10 comments. I guess SJWs, "safe spaces", and feelz are more interesting than a con artist caught.

    I don't get it. Well, isn't the first time.

  8. Alan Bleiweiss says

    Oh wow – how had I not seen this series previously?

    I just saw this entry, so I've gone back and am reading through the whole thing.

    Much of what you linked to early in the series is now nonexistent – sites no longer live, pages no longer available. Which reaffirms the importance of retaining documentation as it's discovered. Screeen-shots are a must.

    And to be really careful, when I do this stuff, I retain entire web pages in some cases. In Chrome and Firefox you can simply click "file"/ "save page as". Note though that saves the HTML and all the images attached – so it can rapidly take up a lot of space.

    I don't do this same level of investigative work often, however I've nailed one case of outright fraud, a web design company that tried to rip off a small business owner, and a number of fake "review" schemes. Love that you did this – and I'm bookmarking it so I can point others to it when they ask about the anatomy of a scam investigation! Classic stuff here.

  9. Murder Hobo says

    Honestly, we're just accustomed to a higher quality of con-artist-based entertainment here in the peanut gallery. This guy is pretty boring in comparison.

  10. Encinal says

    Alan Bleiweiss says

    And to be really careful, when I do this stuff, I retain entire web pages in some cases. In Chrome and Firefox you can simply click "file"/ "save page as". Note though that saves the HTML and all the images attached – so it can rapidly take up a lot of space.

    Does it preserve inlink content and videos?

  11. Adam says

    Hooray! Awesome work, Ken!

    This make you more aware of the inexorable passage of time than you'd prefer, but I started reading this series in law school and it was a big influence in my decision to go into anti-fraud work. I absolutely loved the way you laid out the investigation and the a-ha! of finding some damning connection to a previous scam. I now work for my home state agency on securities fraud cases and I could not possibly love the job any more, and I have you and and a couple of white-collar crime professors from my school to thank for it. Hope it brightens your day a little to know what this series has meant to at least one of your readers.

  12. John smith says

    Ah, so you do moderate comments, like any sick fuck has to.

    Your hacker and low-level operative buddies have threatened and harassed me one too many times. You do know that disparaging people with terms like "squalor" to describe their living arrangements violate the model rules. Death threats by proxy violate federal law, and I've gotten one too many from your little lawyer mafia, Mr. Pope.

    You think you're powerful because you slaved away your whole life to get through Havard Law and then slave more years as a federal prosecutor? That's not power. Power is when your best friend is Pierre Salinger, like my Dad's was. He taught me at an early age about smirking little twerps like you.

    You've already bought yourself more alphabet soup in your life than you could eat in fifty meals. Keep it up and it'll just get worse for you. Think those who grind your axe will remain loyal under the kind of legqal pressure they deserve for miscalculating who's weak and who's not?

    Being a lawyer doesn't make you above the law. If anything, the opposite is true.

    You really like starting shit with people you don't think can defend themselves. Let's see how you do here.

    Next post goes to Yelp or Ripoff Report. Keep fucking with people who never did shit to you and keep breaking the law while you do it, then see where it gets you, you sick fuck. The nice thing about the way I live is my money's not tied to a RICO the way yours is. I can do fine with the truth. You can't.

    Got some more paperwork to prepare, but I'll be in touch soon. Have a nice day.

  13. Bob says

    How does one join these "hacker and low-level operative buddies"? And is there a logo? If we have logos, we can make patches so we all know we're in the Secret Buddies of Popehat Club