FBI agents raided seven Southern California firms while British authorities searched two companies in England this week as part of an investigation of an international network that allegedly collected millions of dollars to arrange loans that were never made.
Dozens of FBI agents and police gathered box loads of files and other documents Thursday from five Orange County firms, a Costa Mesa storage facility and two Los Angeles firms. No arrests were made, and the firms were able to resume operations Friday.
Beginning Stages of Probe
"We're at the beginning stages of our investigation here," said Assistant U.S. Atty. Harriet Beegun Leva, who declined to discuss the case further.
The companies are suspected of operating an illegal advance-fee scheme, according to an affidavit filed Friday in U.S. District Court in Santa Ana.
Under such a scheme, a firm tells a potential borrower that it can help him obtain a loan. Through a network of other companies, the borrower ends up paying assorted fees in advance--as much as $100,000--to get the loan processed. After paying the fees, however, the borrower learns of complications that kill the loan.
Typically, the borrowers seeking the loans are business owners looking for $500,000 to $25 million for their companies' operations--and they can't get the funds from banks or other traditional sources.
Primary Cogs in Network
According to the affidavit, two Orange County men control four of the firms that were raided and appear to be the primary cogs in the network. They are identified as Alan Copeland and Norman Knasel.
FBI agents already had the network under scrutiny in Boston and Las Vegas, and the affidavit by agent William G. Atherton states that at least 80 would-be borrowers throughout the country lost $2 million to $8 million.
The offices raided on Thursday were Copeland's Eurokredit N.A. in Newport Beach and a related firm, Generale Finanz in Costa Mesa; Knasel's Charter Federal Ltd., also known as Zuger Ltd., in Irvine and a related firm, Mercantile General Corp. in next-door offices; Financial Collateral Corp. in Newport Beach, and Hudson Bay Group and Surety First National, both in Los Angeles.
Copeland and several others, including Eurokredit associates Allen R. Staff and Robert E. Foreman Jr., are charged in a federal indictment in Las Vegas with conspiracy, wire fraud, mail fraud and other crimes in an advance-fee scheme. A trial date is set for June 20.
Executives at the companies either refused to comment or could not be reached for comment.
In Britain, police in Lincolnshire searched the offices of United Kingdom Loans & Insurance Services Ltd. and arrested its top officer, Lawrence W. Hill, who was convicted eight years ago of obtaining 3,000 by deception. Scotland Yard officers raided Westminster & London Investments Ltd. in London and arrested David Morgan.
The British firms are among 13 overseas companies that were identified in the FBI affidavit as part of the network. The companies are in Britain, Spain, Luxembourg, Gibraltar, Cyprus, Taiwan and the Philippines, according to the affidavit.
Atherton's extensive affidavit lays out an elaborate international scheme to charge fees in advance for loans that never materialized.
The affidavit set up four levels of operations in the scheme:
Lenders' representatives typically place advertisements in the Wall Street Journal offering to arrange hard-to-get loans. Any fees are to be paid only when loans are funded. They usually tell borrowers that letters of credit or bank guarantees on collateral will be needed before loans could be funded. Eurokredit and Generale Finanz were listed in the affidavit as lenders' representatives.
Collateral houses arrange to get the needed guarantees from overseas companies--for fees of $15,000 to $100,000 paid in advance. Collateral houses kick back up to 50% of the advance fees to the lenders' representative, the affidavit states. It listed Charter Federal/Zuger and the other four California companies searched Thursday as collateral houses.
Overseas guarantors issue guarantees under certain terms and conditions for a limited time of 30 to 45 days. Invariably extensions are needed, and they cost $750 to $1,000, the affidavit said. Borrowers are then sent to overseas lenders.
Overseas lenders charge $3,750 to $5,000 to process loan applications. After delays, they typically agree to fund loans, but under terms and conditions different from the guarantor's terms and conditions. At that point, the loans fall apart.
One company involved in the network, First Boston Charter Corp., went out of business in April after its operations were reported in stories in the Boston Globe newspaper. It is not related to the First Boston Corp. securities firm.
One of the hallmarks of advance-fee schemes, federal authorities have said, is a network system in which operators and employees of one company are sometimes involved in other companies that are part of the scheme. Such networks facilitate business, as well as quick changes in the names of both the companies and their operators, the authorities said.
First Boston Charter, for instance, was financed by Norman Knasel of Charter Federal, according to the FBI affidavit, and set up by Knasel's younger brother, who changed his name to Marc W. Anderson, according to the Globe stories.
The affidavit quoted former employees as saying that First Boston Charter turned a portion of its earnings over to Norman Knasel and that some of the company's bills were paid by Knasel's Mercantile General Corp., which had nearly vacated its offices by the time FBI agents arrived Thursday.
In addition, 14 First Boston Charter employees were also employees of Copeland's Eurokredit, according to the affidavit.
In another case, Generale Finanz is operated by two employees of Eurokredit and is registered with county officials at Eurokredit's Newport Beach address, though it operates in Costa Mesa, according to the affidavit.
SOME OF AFFIDAVIT'S CONTENTS
According to an FBI affidavit, the typical advance-fee scheme operates in the following manner:
1 A lender's representative initiates the loan process, telling the borrower he will need a guarantee of collateral to get the loan and sending him to a so-called collateral house.
2 The collateral house charges a fee of $15,000 to $100,000 in advance to arrange for the guarantee with a company in another country, kicking back up to 50% of the fee to the lender's rep.
3 The overseas guarantor provides the necessary guarantee, and the borrower is sent to another overseas firm to get the loan.
4 The overseas lender requires $3,750 to $5,000 to process the loan. After getting the money, the lender approves a loan under terms and conditions that do not meet the guarantor's terms and conditions, and the loan falls apart.
The following companies were identified in the FBI affidavit as part of an international network involved in an advance-fee scheme. All of the lenders' representatives and collateral houses listed were raided Thursday. No arrests were made.
Eurokredit, N.A., Newport Beach.
aka Eurocredit, Associated Legal Services, Associated Lending Services.
Generale Finanz S.A.H., Costa Mesa.
aka Luxor Finanzieren S.A.
Charter Federal Ltd., Irvine.
aka Zuger Ltd.
Mercantile General Corp., Irvine. (next office to Charter Fed-Zuger).
Financial Collateral Corp., Newport Beach.
Hudson Bay Group, Los Angeles.
Surety First National, Los Angeles.
Westminster & London Investments Ltd., London.
Beaufort Investment Corp. Ltd., London.
Thames Investment, London.
Euro-Shares Investment Ltd., Spain.
Embassy Securities Ltd., Spain.
Saudi, International Invest Corp. Ltd., Gibralter.
Seuvik Fund Management Ltd., Paphos, Cyrpus.
Westminster & London Investments Ltd., London.
I.I.S. Consultancy Ltd., London.
United Kingdom Loans and Insurance, Lincolnshire, England.
Seaworld Investments Ltd., Taipei.
Union Trust, Manila.
International Guarantee Bank and Trust (B.N.I.) Holding S.A., Luxembourg.