KACY McCLELLAND : Stamping Out Mail Fraud : Unsung Postal Inspectors Work ‘Scam Capital of World’

Just about everybody is familiar with the heroics and occasional misadventures of FBI agents, CIA operatives and Internal Revenue Service examiners. But there are other federal agents who make raids and bust bad guys but rarely get much attention--those of the U.S. Postal Inspector.

Benjamin Franklin was the nation’s first postal inspector. There are 1,800 postal inspectors today, and they have turned up in some high-profile cases in recent years. They played an instrumental role in the criminal investigations of television evangelists Jim and Tammy Faye Bakker and of numerous defendants in Wall Street insider trading cases.

In Orange County, a team of five postal inspectors fights white-collar crime in a region that has been informally dubbed by some law enforcement officials as “the fraud capital of the world.” The team’s main duty is investigating mail fraud in which criminals use the nation’s postal system to carry out a variety of money-stealing schemes. The team’s most recent investigation was of a Santa Ana-based investment company that regulators now say was one of the biggest scams to ever focus on the Latino community.

Kacy McClelland, 40, is Orange County’s supervising inspector, working out of the Santa Ana Post Office. He has headed the fraud team there for the last five years.

McClelland jokingly blames the postal inspector’s lack of notoriety on the fact that “we don’t have a television show.” Postal inspectors were featured in a movie once, “Appointment With Danger,” a 1949 film starring the late Alan Ladd. But none of the inspectors were alive at the end of the movie.

In a recent interview with Times staff writer Gregory Crouch, McClelland discussed the low-profile business of being a postal inspector.

Q. What kind of training do postal inspectors receive?

A: All postal inspectors attend an academy somewhat like the FBI’s academy in Quantico, Va., only our academy is in Potomac, Md. It’s a 12-week course. Upon graduation from the academy, you spend basically three years in a student capacity. They initially walk you around holding your hand and, as you become more adept at what you are doing, you are given more freedom. After three years they consider you to be trained and you take on a special assignment. I’ve been a postal inspector for over 14 years. I’ve spent more than 11 years investigating mail fraud, which is the kind of crime I like to investigate.

Q. How does your job differ from, say, a narcotics investigator for the Postal Service?

A. Certainly in a complex fraud case, the amount of evidence we must analyze and present to a jury is a much more weighty kind of proposition than a drug-trafficking case. Because of the amount of labor a big fraud case requires, a lot of criminals are willing to take the risk of perpetrating fraud thinking they won’t get caught. And, if they do get caught, there is a good chance that if they stole $5 million in a fraud scheme they are going to get 15 or 20 years in prison. But if they get caught in a $5-million to $10-million drug case they are going to spend their life in prison. From the criminal’s perspective, drug trafficking is a fairly dangerous environment, whereas a white-collar criminal can probably exist fairly securely.

Q. Do the people you investigate have criminal records already?

A: It’s been our experience in other cities that many of the people we prosecute for fraud have no prior arrest record. But out here, it’s not uncommon for us to find that somebody we’re prosecuting has a fairly extensive prior arrest record. They have learned their business in one location of the country and then moved out here.

Q. How do you find out about these scams?

A. We learn of cases through several different angles. Sometimes we get a call from the prosecutor’s office after they receive a complaint. And we get complaints directly in the mail from victims. They were ripped off by somebody, and they write to the local postal inspector to complain about the company. If the company is in this area, we will handle it. If it’s not, we refer the complaint to our regional office. Finally, we often receive referrals from other agencies. The agency either has a file or they have documents for us to take a look at. The documents pretty much get you started in terms of leads to follow. For instance, an investor may have sent in copies of his checks, which you can use to analyze what banks processed them. Once you know that, you try to start developing a financial trail. And you try to establish if the company is still in existence and where. If possible, we try to develop enough evidence to execute a search warrant against the company. Search warrants probably help us gather the most evidence in the shortest period of time.

Q. Besides raiding a company, how else do you collect evidence?

A. We’ll execute either search warrants or issue grand jury subpoenas against bank accounts to establish the financial condition of the company. We try to analyze the records to show how the money was spent. How did they really spend it as compared to how they said they were going to spend it? We interview victims to try and establish that a crime was committed. We’re looking for people who can tell a story to the jury that people will understand. Once that is completed, we try to draft a criminal charge in concert with the U.S. attorney’s office and seek a grand jury indictment.

Q. What percentage of investigations make it to trial?

A. Most don’t. Quite often, the evidence is overwhelming and defense attorneys more often than not will “make a deal” with the government. Their clients are given the benefit of the doubt if they are willing to come in and admit their wrongdoing rather than go to trial. The courts historically have given them a break. We don’t end up in trial as often as you might think we do.

Q. Just how extensive is the white-collar crime problem in Orange County?

A. At the end of last year, I told our management that we were successful in prosecuting cases that had a public loss of over $90 million with something like 40,000 victims. And that was just last year. Pretty significant stuff. There may be a couple of offices in the country that have a “fraud problem” as extensive as Orange County, and that would include South Florida and New York City. But other parts of the country do not have a fraud problem of the same magnitude that we have.

Q. Do you need more investigators?

A. Would I personally like to have more people under my control? No. Would I like to have a couple more teams of postal inspectors? Yes. But I think if you asked any law enforcement player in Southern California, everyone would ask for more resources. Our agency has been pretty responsive in trying to address the problem. There are only 1,800 postal inspectors in the country and 126 of them are in the Los Angeles area. So we’re pretty responsive.

Q. What has been your favorite case since you arrived in Orange County?

A. One of the cases we’re still actively involved in. The defendant’s name is Jose Manuel de la Jara. Part of the case we can discuss because he’s already been convicted of money laundering. Basically, he was laundering money for a number of different people including, we believe, some serious drug traffickers. But he was also involved in an investment fraud scheme. I probably shouldn’t discuss that in a whole lot of detail right now cause we haven’t indicted the case yet. He had a company in Santa Ana called American Investment and Financial Group, and it would appear that that company’s operation has caused a financial loss of somewhere between $8 million and $10 million, with the losses directed only at the Hispanic community. So that’s been a real significant case for us to try to get involved in. (Editor’s note: The State Department of Corporations has alleged in a civil lawsuit filed in September, 1989, that De la Jara’s American Investment and Financial Group was a bogus real estate scam. De la Jara has said he is innocent of any wrongdoing in connection with AIF.)

Q. How did you find out about De la Jara?

A. I became involved in the case when the U.S. attorney’s office called us and said they would like to get the postal inspectors involved because it would appear there are some mail fraud violations. They became aware of it through the Santa Ana Police Department and the Orange County district attorney’s office. The next thing we did was to start collecting evidence so we could do search warrants against this guy. We knew he was living in the local area. We knew he had three business locations. We knew he had what appeared to be an offshore bank located in Irvine. So we started running around gathering evidence to support a search warrant for each of those locations.

Q. How did you gather evidence?

A. We interviewed former employees who could tell us what was going on. We started having some discussions with another agency called the California Department of Corporations. They had developed the case civilly quite a bit. We got a lot of information from them to try to analyze exactly what kind of investment contracts these people were dealing with. And it involved some surveillance. After a period of time, it became clear to us that we had enough probable cause to execute the search warrant. The manpower was extensive. There were five inspectors from Orange County and probably another 25 or 30 postal inspectors from Los Angeles. After just a couple of months of background investigations, we executed our search warrants and arrested the guy.

Q. What was your most challenging case?

A. I think one of the best learning experiences I had was a year and a half ago when we served a search warrant on a purported gold mine in Virginia City, Nev. It was Jan. 11, 1989, and it was colder than hell. This guy claimed to have a gold mine located in Virginia City, and he was selling people 80 ounces of gold for basically half-price, about $200 an ounce. We didn’t believe him. He was using the mails to promote the scheme.

How do you prove there is gold there? The only way that I knew was to get a search warrant and go up there and actually collect samplings of the gold mine. To do that, I had to hire a specialist in mining and I had to hire a backhoe. We rolled out to the gold mine and took 2,200 pounds of samples. The very same day we took them down to a chemical laboratory in Sparks, Nev., and had them analyzed. We found out that the guy had less gold in the mine than there is in seawater. We were real happy about that.

We did a lot of historical research about the mine. One night as I was reading one of the many volumes of material on the case, I found somebody had written a book called “The History of the Comstock Lode.” (The book was written by) a Ph.D who knew more about the Comstock Lode than just about anybody. I found evidence in his book that proved that, at the same site in 1876, a mine shaft was sunk to a depth of over 3,000 feet at a cost of over $2 million. And they found absolutely no gold. So I was just tickled to death. I could prove now that not only was there no gold now, but also that there was never any historical basis to believe there ever was gold there. He still hasn’t been prosecuted, but it will happen.

Q. Is he still selling “gold” from this mine?

A. No. We have civil authority to stop people from receiving mail if it has money taken by fraud in it. And so I got an injunction against him in both this district and in Reno. And we stopped his mail.

Q. How much did people lose?

A. Our best estimate is that about 500 people lost somewhere in the $2-million range.

Q. What type of people get involved in carrying out fraud schemes?

A. For the most part, I think the criminal mind that gets involved in fraud is probably one of the most complex personalities that you can deal with. The guys are clever enough to carry out the schemes for a long enough period of time, and they are successful because they make people believe in them. For instance, when we went up to this guy’s mine site, we found a bunch of mining equipment sitting around--conveyor belts, flotation devices, etc. Our expert looked at the equipment and the way they had it arranged, and said the different pieces of equipment were not compatible with each other. One piece of equipment could handle several tons an hour and one piece of equipment could handle a half-ton a day. But as a layman, I couldn’t have determined that.

Q. How do white-collar criminals violate mail fraud statutes?

A. The boiler rooms historically send out contracts through the mail--boiler rooms meaning investment scams that involve gold and silver and so forth. They always use the mail. They send out the contracts, they send out confirmation notices or receipts by mail. But the victims usually send money to the crooks by Federal Express or overnight delivery, so the crooks get their money more quickly.

Q. Do you have jurisdiction over Federal Express?

A. No. If they did all of their business by Federal Express they could avoid a mail fraud prosecution.

Q. What types of mailings are the most damaging to a defendant?

A. The best way to obtain a mail fraud charge is to focus on money and checks that were mailed. It smacks more of criminality to a jury when they look at it. And we have to be able to show that the mailing was a part of the scheme. We can’t show that the mailing just occurred incidental to the scheme or after the scheme occurred. Case in point--the crook took a lot of money and then 30 days after he deposited all of the money, the bank mailed him his bank statement. That’s not a good mailing. We can’t use that. It’s not a use of the mails in a scheme to defraud.

Q. How often do you get money back for investors?

A. Almost never. Because the mentality of these guys is that it’s basically a cash society. If they get the money, they spend it. It’s not uncommon for the people to lease things. They never buy things. And frankly, a lot of them have substance-abuse problems. If they stole $10,000 today, they could put most of it up their nose in the next couple of weeks.

Q. What types of investments should consumers be wary of?

A. Well, I don’t think you should ever buy anything sight unseen. And if there is a sense of urgency about getting involved in the investment--either buy today or it’s gone--pass on it. Historically, in these cases, the guys call up and offer you a lifetime chance on an investment, and it’s going to make you a millionaire. If you are inclined to invest in something of this nature, ask for financial statements. Ask for some kind of a reference like a certified public accountant. Don’t ask for the local Better Business Bureau phone number because they don’t know anything about a fraudulent company if they haven’t received complaints about the company.

Try to do your own due diligence. If you are going to invest in some kind of a gold mine, an oil and gas promotion, or something like that, learn something about the area. Many times the oil and gas promotions are from Kentucky or Oklahoma or Texas. Call state authorities and describe to them the area you are thinking of investing in and find out the historical background of that location. Many times they’ll tell you there has never been oil there in the first place. Or they’ll say, ‘Yeah, that field has been played out for 20 years.’ If people would do a little of their own due diligence before they send away their hard-earned money, they would probably be less sad and more wise.

Q. Some of the stories must seem tragic.

A. One of the saddest I can think of involves a case we’re getting ready to try in September involving a company called Capital Trust. One of the victims is an older man who lived in Pomona. He was living in some really rundown house in Pomona that had bullet holes in it. He lost about $23,000, which was everything he had. He wrote me a month ago saying that his house had burned down. Those are the kinds of things that really get to you after a while.

Q. What should people do if they are interested in becoming postal inspectors?

A. Get a college degree and try to get hired by the Postal Service as a clerk or mail carrier. Get a degree in a related field of study, whether it be accounting, computer science or pre-law.

Q. Does everyone start out at the bottom?

A. Not necessarily. They waive that requirement periodically, and I think as time goes by they may be doing that more often because we are running out of people to draw from.