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.