Discredited : Secret Service Targets Producers of Counterfeit Credit Cards in California
When the NBC show “The Crusaders” needed an expert on the latest “high-tech holdup”--counterfeit credit cards--it turned naturally to Southern California, the capital of white-collar scams.
So it was that Dalton Backus, whose North Hollywood firm makes plastic ID cards for medical plans, went before the TV cameras last year to show how simple it was for the crooks. “It’s relatively easy to press out the old numbers on a credit card,” Backus said, demonstrating at a computer-like apparatus, “and then re-emboss it.”
Bingo. Out came a credit card with a number copied off a receipt foraged from someone’s trash.
In recent months, however, a different sort of camera caught the 62-year-old Backus giving very different advice: The camera this time was the surveillance variety, manned by U.S. Secret Service agents hidden nearby as Backus met with a man he thought was a credit card crook. And this time the advice was on how to maximize profits in the counterfeit game.
At a series of secretive meetings from June 10 to Aug. 2, Backus allegedly boasted about how his Valley-based firm could produce “superior quality” fakes: Visa cards, MasterCards, Discover cards; many complete with the holograms used by legitimate credit card firms for security.
According to an affidavit filed in federal court in Los Angeles, Backus agreed to manufacture hundreds of such cards for his contact, presumably for use overseas, where they could purchase a fortune in goods and cash advances. A final batch, costing $25,000, were handed over Aug. 4 at a park adjacent to the Hollywood Freeway.
The problem for Backus was that his contact was a “confidential informant” and the “joggers” around the park were Secret Service agents. He was arrested while sitting at a picnic table under a grove of trees--becoming the final trophy of the 13-month-long “Operation Royal Road,” spearheaded by the federal agency best known for protecting U.S. presidents, but actually formed in 1865 to combat counterfeiting.
In the last decade, that mission has increasingly turned the Secret Service’s attention toward credit cards--especially in California, which experts say accounted for 25% of the world’s credit card fraud losses in 1994--calculated at more than $1.1 billion for Visa and MasterCard alone.
Earlier this week, federal officials in Los Angeles displayed long tables covered with counterfeit cards and tools of the crime--from encoding machines to tippers, which put a gold tinge on newly embossed numbers--as they announced the final tally of the undercover operation. Carried out with the help of investigators from the credit card companies, it resulted in the confiscation of 19,119 cards, 124 counterfeiting devices and the arrest of 97 individuals--including one who had gone on TV as a fraud fighter.
“I’m not a bad guy,” Backus said later, released on $100,000 bond. “I know they’re probably gonna convince most of the world I am, but I’m not.”
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The Secret Service was created by Congress at the end of the Civil War when, as the agency puts it, “between one-third and one-half of all U.S. paper currency in circulation was counterfeit.” It only took on the task of protecting presidents in 1901 after the assassination of William McKinley.
These days, the 2,050 Secret Service agents nationwide flip-flop between the diverse missions in the course of their careers. For Carl J. Truscott, that meant an initial placement in the New York field office, a stint from 1988 to 1993 with the presidential protection unit in Washington--from the final months of Ronald Reagan to the first of Bill Clinton--then assignment to Los Angeles as assistant to the special agent in charge.
Here, he was asked to head the unit established after 1984 federal legislation empowered the agency to go after credit card fraud.
Los Angeles agents have been kept busy with a variety of fraud rings, from sophisticated Hong Kong-based “triads,” whose members churned out fake cards in San Gabriel Valley warehouses, to former pimps who decided that it was less risky, and more profitable, to recruit “runners” to go from state to state, from shopping mall to shopping mall, to maximize the take from hot credit cards.
In spring, 1994, however, Truscott and the head of the office, James E. Bauer, called a brainstorming meeting with officials of the credit card companies.
“We realized we can’t focus on everything,” Truscott said. “There’s fraudulent applications, lost or stolen cards . . . unauthorized use of account numbers. . . . Then there’s the true counterfeit card--made from scratch.
“We decided to go after those.”
To come up with a name for the effort, Truscott pulled out the “Memoirs of the United States Secret Service,” published in 1872. It had a glossary of terms “used in familiar converse among counterfeiters, middlemen, thieves.’ Included in the criminal lingo of that era was “royal road,” which was defined as “the supposed easiest direct highway to success.”
Operation Royal Road it became, launched July 1, 1994.
As in many such law enforcement campaigns, the task force effort consisted of a hodgepodge of investigations. One targeted a group of Nigerians operating out of hotel rooms, where investigators found 97 pages of credit card numbers obtained from a car rental agency. Another nabbed Israeli brothers with 2,400 cards and a hologram punch device. Yet another focused on a boyfriend-girlfriend team who used an optical scanner and laser printer to copy designs of real credit cards onto sheets of plastic, a technique more sophisticated than the silk screening most counterfeiters use.
From the start, however, investigators also “kept hearing the names of two legitimate plastic card companies,” Truscott said in an interview. So amid an exotic United Nations of suspects, the focus of Operation Royal Road turned, before long, to a pair of plain old Valley boys.
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Court papers list the first concrete lead as a tip from police in Toronto in January: that 3,000 blank plastic cards had been delivered to an individual there “involved in the manufacture of counterfeit credit cards.” The cards reportedly came from a California firm, Plas-Tech, located on Foothill Boulevard in Sylmar which, according to the Secret Service, “specialized in the sales and servicing of commercial equipment for manufacturing plastic cards and blank card stock.”
The owner, Brian Alan Dunmore, a 33-year-old from Chatsworth, became a suspect after a confidential informant--dubbed “CI2” in court papers--told agents that Dunmore “obtains his equipment and cards through legitimate means, then sells them . . . out of his car,” according to a Secret Service affidavit used to obtain a search warrant.
The informant agreed to work undercover for the Secret Service. On April 20, the documents show, he called Plas-Tech and reminded Dunmore that they had a mutual friend who “a few years ago bought a few things” from him--an embossing machine for $3,500.
A series of meeting resulted, at Dunmore’s North Hills postal box and restaurants. At an April 27 meeting, the informant asked if a MasterCard logo was difficult to duplicate. Dunmore allegedly replied, “No, not really.”
When Dunmore later produced two sample counterfeits, CI2 found them only so-so, telling him “the quality . . . was not sufficient for use in Los Angeles.”
In fact, according to law enforcement officials, many counterfeits are shipped overseas, where salesclerks may give them less scrutiny. And before they are used, the cards require a final feature--the number of active credit card accounts. Those usually are punched in well after they leave the manufacturer, when the cards are married up with contraband lists of such numbers.
At this stage, according to Secret Service records, Dunmore only wanted $3,200 for 1,000 cards, far less than they would be worth down the line--and far less than most manufacturers.
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The documents portray him as an easy catch. In contacts continuing through June, the informant told him fake Visa cards “were being so successfully used overseas for purchases of electronics that CI2 wanted to purchase two suits for Dunmore using the credit cards as a show of gratitude.”
Dunmore gave him his size and later “asked where his suit was,” the Secret Service said.
By then, the agents were trying to fit another Valley manufacturer, who was not as easy.
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Dalton Backus’ company was TriTel Custom Cards. Located in a converted motel in North Hollywood, it sold and serviced plastic card-making equipment and produced cards “for various businesses, such as medical identification cards and health club membership cards,” court papers state.
In early June, a Secret Service informant who had met Backus in the past (the documents don’t say if it’s the same informant) visited TriTel and showed him a counterfeit card--one allegedly purchased from Dunmore.
“The CI asked Backus if he could produce a better card,” a search warrant affidavit stated.
With that, the sparring began.
“Backus expressed surprise that Dunmore would produce counterfeit cards,” the document said, “as it was illegal. He repeated more than once that the Secret Service came down hard on people.”
Then he searched the informant, a process that would be repeated often, according to the records. Backus used an electronic wand to test for recorders or wires, agents said, sometimes asking the man to pull up his shirt--or pull down his trousers. He also kept an eye on monitors linked to security cameras around his business.
Court papers indicate that the meetings were recorded nonetheless. “We got around it,” one agent said of Backus’ precautions. He wouldn’t say how.
And soon Backus “began speaking freely,” the documents state, “about having produced counterfeit cards in the past which were of a superior quality to that which the CI brought in.”
He at first wanted $40 each for them, then $50.
As the summer progressed, so did their relationship. Backus allegedly told of knowing a buyer who would pay $125 for cards if they had MasterCard or Visa holograms.
On July 28, Backus said “he was going to start putting the CI into the big time,” and allegedly advised him to start putting away cash.
Their final meeting was Aug. 4, when the informant was to buy 500 cards, bearing the name of a major Southland bank, for $25,000. According to an undercover agent at the scene, they met at 9 a.m. outside TriTel, where Backus instructed the informant to follow his car. They wound up at North Hollywood Park.
“We had a feeling that Backus would go to that park, and agents were there,” the field agent recalled, “dressed as joggers.”
They moved in moments after Backus produced the counterfeits as the two men sat at the shaded picnic table. Authorities said a loaded revolver was found in Backus’ jacket pocket, and a loaded semiautomatic pistol was in his car.
Dunmore was arrested simultaneously across the Valley. Both the plastics businesses were searched the same day.
Both men are charged with conspiring to counterfeit credit cards, which carries a five-year prison term and $250,000 fine. A federal grand jury is reviewing the case and is expected to hand down an indictment this month. Both men were released on bail, pending an arraignment hearing on Aug. 28.
Dunmore declined to comment on the charges except to say that the “whole investigation is a big mess, a mistake.”
In an interview Monday, Backus asserted that he had been entrapped by agents who “took advantage of a bad personal situation.”
Sobbing and stroking a cat that jumped in his lap, he said his wife is suffering from Alzheimer’s disease. “I was trying to find some way to have enough money to take care of my wife,” he said.
“I feel like an idiot for getting involved in this,” he added. “I was trying to make things better and it just came out worse. . . . Inside, I still feel that I’m a good person. . . . I love my wife, my puppy and my kitties.”
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The Feds held their news conference the next day to announce the end of Operation Royal Road.
U.S. Atty. Nora M. Manella called credit card fraud “the 1990s equivalent of counterfeiting.” Secret Service bureau chief Bauer said the suspects arrested in the 13 months had netted $2.5 million through their fraud, but estimated that $169 million more was saved with the confiscation of 19,000 counterfeit cards and 100,000 credit card account numbers.
One Secret Service agent noted that it was also common for people arrested in such cases “to claim they were making cards for use only as movie props.”
“But we arrested him,” the agent added, “in a park with a gun, selling hundreds of counterfeit Visa and MasterCards for $25,000, to someone who I can definitely say was not Steven Spielberg.”
