Today’s Gumshoes : Private Eyes Keeping Busy in White-Collar Fraud Capital: Orange County

The angry executive, certain that someone was leaking proprietary information to competitors of his Orange County company, called Pete Norregard, a private investigator and 35-year veteran of the FBI, to search his office.

The businessman was right--someone was bugging his office.

“We found a voice-activated tape recorder plugged in behind the couch,” said Norregard, manager of investigations for Business Risks International in Irvine.

Messy Family Situation

Further digging revealed that it was not a disloyal employee who had bugged the office. “The tape recorder was part of a very messy family situation,” said Norregard, who would not reveal the client’s identity.

Another Southern California private investigator recalls being hired to run a background check on a man recruited by a company’s chairman for a top executive position.

“We found out the guy was being sued in federal court for stealing trade secrets from another company,” Norregard said. “Unbelievably, the chairman still wanted him, but the rest of the board finally said no.”

From searching offices for bugs and running background checks on prospective employees to ferreting out fraud and embezzlement, businesses are increasingly turning to private investigators to solve their problems.

Police agencies, often understaffed and overworked with overt criminal cases, rarely place generally civil matters such as industrial espionage at the top of their priority lists.

And even some business-related criminal activities, including fraud, are low priorities with police because the dollar amounts involved are relatively small and because such crimes are often difficult and expensive to investigate.

But to many businesses, such things can be matters of economic life or death.

So, many executives say they are willing to pay a private investigator fees that can hit $150 an hour, plus expenses, for the assistance that overburdened local law enforcement agencies have neither the time, manpower nor money to provide.

And in Orange County, which law enforcement officials characterize as the white-collar fraud capital of the United States, even the FBI must scramble to keep up.

The agency’s Santa Ana bureau is adding a second white-collar crime squad to keep pace with the caseload, according to officials. But FBI agents and other government fraud fighters admit they can handle only the biggest cases with the largest number of victims or dollar losses.

Because a motivated client is willing to spend money for quick results, private investigators can usually unravel a complex fraud case much quicker than the months or years it takes a government agency to do it.

“We wind up doing what you pay taxes for,” said Dan Sullivan, a vice president of Paul Chamberlain International in Beverly Hills.

Sullivan, a former deputy chief for the Los Angeles Police Department, said: “Most of our clients went to federal authorities for help, and they were told to go away.”

No Case Too Small

In contrast, no case is too small for a private investigator to handle--if the client is willing to pay.

And so expert have some private detectives become in tracing complex business crime that at least one government agency uses them for help in untangling major savings and loan fraud cases.

The Federal Home Loan Bank Board in San Francisco has hired Diligence Incorporated of Beverly Hills to conduct several S&L; probes, according to a spokeswoman for the board.

In recent interviews, executives from a variety of industries were unanimous in their praise for the services they have received from experienced private investigators, who rely on a combination of old-fashioned detective work and information gleaned from computer data bases and informants across the country.

“Public agencies don’t exist to provide these kinds of services,” said David L.R. Stein, a general partner in Julian, Cole & Stein, a Los Angeles venture-capital firm.

Stein’s firm has raised $20 million in seed money for seven high-technology companies, including two in Orange County. It regularly hires private investigators to check the entrepreneurs being financed, as well as the managers and board of directors candidates that are recruited to operate and set policies for start-up companies.

“There are a number of imposters about,” Stein said. “A large company may be able to handle junkies, thieves and imposters, but when you are starting a small company from scratch, you really can’t afford these kinds of problems.”

Before his partnership invests money in a company, Stein also has private investigators make sure that “the entrepreneurs didn’t steal their technology from the last company they worked for.”

Large companies, too, rely on private detectives when they are plagued with fraud.

A national title insurance company in Southern California frequently calls on George Johnson, an Orange County private investigator, to solve complex title insurance policy frauds.

Hit by Claims

“In recent years, the title companies have been hit very hard by fraud and forgery claims,” a claims attorney said for the insurance company. “And our fraud cases are almost exclusively limited to Southern California.”

A title insurance firm issues a policy that guarantees to make up any financial loss incurred if the title to a property turns out to be questionable. The typical fraud involves an unscrupulous seller, escrow firm or real estate agent doctoring records to hide the existence of liens or other claims against the property.

The claims attorney, who agreed to discuss the use of private investigators only if his name and the name of his company were not used, said that even if no money is recovered, the company still pursues the culprits.

“We view hiring private investigators as a long-range investment in getting these people off the street,” he said. “Whether or not they get convicted, the word gets out that we are not an easy mark.”

And, if the company does decide to prosecute, “It’s a lot easier to get someone (in a public law enforcement agency) moving on a case if we condense a truck load of paper work into a 10-page report (from an investigator),” the attorney said.

But Johnson, a former fraud investigator for the Orange Police Department, said most companies are reluctant to prosecute because they prefer to keep their problems quiet for fear of losing customer confidence or of incurring the wrath of shareholders or directors.

“Every once in a while, however, a client wants a case submitted for prosecution,” he said.

Mixed Reception

When that happens, the reception can be mixed.

In Orange County, the few cases that are prepared by private investigators and turned over to the district attorney’s office often wind up on Deputy Dist. Atty. Guy Ormes’ desk.

“Our office has accepted cases with the assistance of private investigators,” Ormes said. He said he welcomes solid information from private investigators because “local police departments are so overburdened they can’t do all the fraud cases.”

And, Ormes said, a good private fraud investigator also “knows what it is we are looking for” to build a case for prosecution.

But Assistant U.S. Atty. Terree Bowers, chief of the fraud unit at the U.S. attorney’s office in Los Angeles, expressed skepticism about cases prepared by private investigators.

“I can’t remember ever receiving a gift-wrapped case,” he said.

Bowers also disputed contentions that law enforcement agencies are reluctant to handle some fraud cases--but admitted that cases involving small amounts or money and relatively few victims are placed toward the bottom of his office’s priority list.

Because of the government’s need to set priorities, private investigators specializing in business cases, such as former Orange Police Department detective Johnson, have seen their case loads grow rapidly in the past few years.

“The problem is that most law enforcement types don’t understand business,” said Johnson, who works on eight to 10 fraud cases at once.

Most business-related cases involve complex paper trails, doctored records, confusing accounting practices and often incomprehensible trade jargon that can leave a seasoned criminal investigator shaking his head.

Most of Southern California’s better-known private investigators are former FBI agents. Some of them were trained as accountants or attorneys and spent a lot of their FBI careers tracking business fraud.

They said Orange County’s reputation as a focal point for white-collar crime generates more than enough work for the dozen or so major Southland private investigative companies that specialize in business cases.

And, they said, the amount of business-related work, particularly fraud investigations, is expected to continue growing along with the population of Southern California.

One of the largest local companies is John Murphy & Associates Inc. in Santa Ana. Founded in 1981 by former FBI agent Murphy, the company employs 52, up from about 25 two years ago.

“I feel Orange County is a capital of white-collar fraud,” said Murphy, who has 10 employees working solely on mortgage fraud cases--uncovering the lies borrowers sometimes tell in their loan applications.