Valley Interview : Attorney White-Collar Crime Buster in U. S. Fraud Capital

The Northridge earthquake was a beacon for crooked contractors.

The region’s real estate skid, with its epidemic of foreclosures, has been exploited by hustlers with deceptive schemes to save people’s homes.

These are just two recent examples of why Southern California is known in enforcement and judicial circles as a favorite haunt for scam artists and a spawning ground for white-collar schemes.

The Los Angeles district attorney’s office has, as a result, created a special unit to prosecute real estate fraud.

But historically, the U. S. attorney’s office in Los Angeles has had fewer attorneys, per capita, than in major Eastern and Midwestern cities. The Justice Department has, in response, recently assigned to the office more attorneys.

Assistant U. S. Atty. Maureen A. Tighe has specialized in prosecuting white-collar criminals. She currently is deputy chief of the major frauds section of the U. S. attorney’s office in Los Angeles and coordinator of a bankruptcy fraud task force comprised of several federal agencies.

Tighe recently spoke about the problem of white-collar crime.

QUESTION: Southern California has sometimes been called the U. S. capital of white-collar crime. Is this reputation justified?

ANSWER: Unfortunately, the reputation is justified. The reputation is based on the number of white-collar crimes that are reported to law enforcement agencies in Southern California. It’s also based on the huge dollar losses that are reported from various crimes, and on the variety of crimes that we see here.

For example, there’s bank fraud, bankruptcy fraud, securities fraud, telemarketing fraud, investor frauds of all sorts, real estate frauds, health care fraud, insurance fraud--and that’s just the frauds on private individuals and institutions, and doesn’t cover all the types of government frauds that our office also prosecutes.

We don’t have just one or two types of fraud that are prevalent, like some areas do. We have just about every type of white-collar crime that you can name, and I think it comes from being a major business center . . . both nationally and internationally. Crime unfortunately comes along with so much commerce and business.

We also have a lot of fraud schemes that seem somewhat unique to Los Angeles. . . . We had a real estate boom in Southern California, and it made a lot of people think anything was possible, so they believed con artists when they offered them ridiculous rates of return and they became victims because the con artists’ pitch became plausible in such a great real estate market. . . .

It also caused people to gamble with other people’s money because they thought it would never be discovered, because the market would continue to go up. It was amazing how many people were willing to lie in order to obtain loans, and their basic philosophy was: ‘No harm, no foul.’ As long as they are able to repay the loans, it doesn’t matter that they got them through fraud. That was one aspect that led to a lot of the investor fraud and bank fraud cases that we’re seeing now.

The other thing that is somewhat unique to Los Angeles is . . . it’s a very loosely knit community and it’s very easy for an outsider to move in here and have a new investment scheme or open a new business. . . . You don’t have to be part of a long-established societal circle. . . . It’s a little easier for the con artist to work in that kind of loosely knit society. In contrast, the other problem we have in Los Angeles is what we call affinity group scams. It’s where people in an ethnic or religious group are ripped off by one of their own. And because we have so many different cultural enclaves in Los Angeles, and they only will trust someone or deal with someone in their circle, they’re really susceptible to fraud.

Also, it’s not surprising in Los Angeles to see someone throw a lot of money around because there are extremes of wealth here. That makes it easier for a person seeking to rip other people off to give the appearance of wealth and attract investments when it may not be true.

Q: Isn’t it true that Southern California also leads the nation in bankruptcy filings? Is this due to economic hardship, or is it another aspect of the white-collar crime problem?

A: Yes, we have 10% of all bankruptcy filings in the country. Fortunately, in the last two years the number of filings have leveled off. . . .

We also have a problem in the bankruptcy area. . . . It’s very easy to start a business here, obtain credit and then file bankruptcy, because there’s no accountability. Because the city is so large, you can start a new business after you’ve gone bankrupt . . . and no one will know you’re the same person who didn’t pay your debts the last time around. We have a lot of complaints where people move customer lists and inventory and other assets of the business right into a new business, and it’s not detected or can’t be proven, because businesses go bankrupt so quickly.

In smaller communities in the United States, your business name and your reputation is everything and you’ll do whatever it takes to make good on your debts, but not necessarily as much in Los Angeles.

The vast majority of the people filing bankruptcy are honest debtors who fell on hard times. It’s a very difficult place for people to live, given the cost of living. And there’s a lot of honest debtors, but there’s also a lot of fraud in the bankruptcy system. And because of the volume of filings, we’re not able to detect all the fraud.

Q: Is there perhaps a more relaxed attitude about business ethics, because wealth is displayed so conspicuously and ordinary people have so much trouble getting by with ordinary incomes that there’s more willingness to cheat in various ways?

A: I think that’s part of the picture. There’s definitely a mentality that you have to have a lot of money here, and some people are willing to commit crimes to have a lot of money.

We see a lot of cases where an individual had specialized training and a professional degree of some sort in accounting or law, and they could have earned a couple of hundred thousand a year but they felt they needed to make a couple of million a year in order to live the way they wanted to live in Los Angeles, and they could only do that through fraud.

That’s in comparison to the individual who doesn’t have sufficient credit to rent a decent apartment, so they use false Social Security numbers and other credit information in order to rent the apartment. They then are unable to pay the rent. They then file a fraudulent bankruptcy when they’re being evicted.

So we see both ends of the scale. We really have a lot of small crimes as well as big, sophisticated crimes, and there’s different motivators for each of them, but the lifestyle in L. A. is a piece of the picture.

Q: Do you subscribe to the “sun and surf” idea--that since scam artists can ply their trade wherever there are phones and fax machines, they might as well live in a more glamorous, sunshiny area?

A: I think that’s a piece of the picture. If you want to live free and easy on other people’s money, why not do it at the beach? Our great climate attracts both the good and the bad elements.

Q: What about deterrence? Naturally, law enforcement agencies put the most emphasis on violent crime. Do they pay too little attention to white-collar crime?

A: My response to that is we have a very serious violent-crime problem in Southern California, and the public needs us to address that problem as well as the white-collar crime problem--and you really can’t say that one crime is worse than another. I think the important thing to realize, though, is that financial crimes do significantly harm people’s lives. . . . I have seen victims of investor fraud lose their life savings, lose their dignity, become unable to send their children to college. I’ve seen people lose their homes. The public is paying for the bailout of financial institutions that have failed, sometimes due to fraud.

I think the fabric of our society is eroded by fraud. Most of our economic transactions and our financial system is built on trust, and without that trust the system fails. We can’t check and double check every single thing.

Q: What steps are being taken to combat white-collar crime? The Los Angeles district attorney’s office now has a special unit to fight real estate fraud. What efforts are you making in the U. S. attorney’s office?

A: Within the major frauds section, we have had a number of task forces. We have a securities fraud task force, bankruptcy fraud task force, health care fraud, insurance fraud, telemarketing group and a bank fraud working group, and each of those groups works very closely with the relevant regulatory agencies, local agencies and business groups to identify the most significant problems and to make criminal referrals.

So we have found that we are able to respond to crime schemes that are developing in significant numbers in the district. Approximately half of the criminal division is devoted to fraud. . . . We’ve taken on some of the most significant cases in the nation in the last number of years, many of them with hundreds of millions in losses. I think we have the distinction of having the largest pension fraud case ever prosecuted, the largest escrow fraud . . . some of the largest investor frauds, the largest bankruptcy fraud cases. . . .

The average citizen has to help fight fraud. That means they have to do their homework. So many people invest without checking out the investment adequately. They believe a friend or a relative’s word that someone is legitimate or the investment is good without investigating the basics.