Southland Raids Hit Credit Card Fraud; 16 Held

In one of the nation’s largest crackdowns on credit card fraud, federal authorities arrested 16 people early Thursday in Southland raids and shut down two rings accused of playing a major role in bilking $100 million from financial institutions nationwide.

A task force of 135 Secret Service and FBI agents, along with local police in Orange, Los Angeles and Riverside counties, carted away hundreds of thousands of dollars worth of gold bullion, jewelry, Las Vegas gambling chips and cash. A moving van stopped at the sites to collect big-screen TVs, electronic equipment and other expensive goods.

In addition, federal authorities expect to arrest 26 more Southern Californians in coming weeks on federal indictments and criminal complaints that have been issued but remain sealed.

Among those alleged to have taken part in the scheme is an employee of Orange County who ran up a credit card bill of $615,000 while taking home only $1,000 a month from her job, according to bankruptcy records and Secret Service affidavits.

“This bust is unprecedented anywhere in the world,” said Stan Belitz, director of security for MasterCard’s Southern California region. “This is the first time we’ve been able to convince prosecutors that this is a major problem.”

In August, Secret Service agents, charged with investigating certain financial crimes, arrested 98 people in a series of Southland raids involving the use of fake credit cards. Banks lost only $2.5 million, but the raids collected bogus cards with a potential credit limit totaling $170 million.

James E. Bauer, special agent in charge of the Secret Service’s Los Angeles district, said that Thursday’s raids shut down two separate rings operating out of Orange County’s Little Saigon that accounted for $40 million of the money that banks nationwide have lost in a different credit card scheme.

“When all is said and done, probably 90% of the people involved in the total loss nationwide will be related to this core group,” Bauer said.

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The scheme, operated largely out of a storefront in Westminster, took advantage of a federal law that gives cardholders credit before their payment checks clear the banks, authorities said.

Cardholders would overpay their accounts with bad checks to boost their credit by thousands of dollars. After the checks were credited to their accounts but before the banks returned them, they would charge expensive items and take cash advances.

The scheme also relied on federal bankruptcy laws, the idea being that those who ran up credit card debts could get them erased in U.S. Bankruptcy Court.

“This is a very pervasive scheme largely within Orange County, particularly in the Vietnamese community,” said Assistant U.S. Atty. Marc R. Greenberg. “It is such common knowledge in the community that some are doing this on their own without the assistance of anyone.”

About 120 banks across the country have been hit with this particular scheme, he said.

Federal law--along with misguided notions of federal bankruptcy laws--has created such a huge opportunity for fraud that the nine-month investigation, called Operation Repayment, targeted only those who had more than $100,000 in credit card debt, Greenberg said.

“This corrupts the community because people were told they could go bankrupt and wouldn’t go to jail because we have no debtor prisons,” Greenberg said. “But theft and fraud is still theft and fraud.”

Much of the money was used to pay gambling debts, investigators said.

Among those arrested Thursday were Minh C. (Big Ming) To, 30, and his wife, Nina Nguyen To, 28, both of Huntington Beach, and Hai Phuoc Nguyen of Garden Grove. The Secret Service identified them as ringleaders.

The To couple operated VNK Professional Services in a storefront on Bolsa Avenue near Brookhurst Street on the eastern edge of Little Saigon. VNK billed itself as a company that could help people with financial problems, but the Secret Service affidavits said it was a front for the “Expert Group,” which ran the scheme.

Hai Nguyen operated out of his car, a Secret Service affidavit stated, and advertised a pager number in the Nguoi Viet newspaper, one of the largest and most established Vietnamese-language daily newspapers in the nation.

Also arrested were Kim P. Nguyen, 45, of Anaheim; Julie Truong, 19, of Garden Grove; Kelvin Quang Vu, 38, John Van Nguyen, 46, Hugh Van Nguyen, 38, and Tam Vu, 41, all of Westminster; Cuong Duc Truong and Tai Duc Huynh, 34, both of Monterey Park; Lan Diep, 35, of Lakewood; Nam Dinh Duong, 35, of Midway City; Madeline LeConte, 23, of Arleta; Michael Hung Phu Le, 36, of Ontario; and Peter Van Quach, 43, of Riverside.

Kim Nguyen is the Orange County employee. A technician for the Social Services Agency, she ran up a bill of $615,000, investigators said. Bankruptcy records show that she shopped frequently at many department stores, including the pricey Neiman-Marcus, I. Magnin, Bullocks, Macy’s, Nordstrom and Saks Fifth Avenue stores.

According to Secret Service affidavits filed in U.S. District Court in Los Angeles, cardholders joined in the collusion to make the scheme work in the following way:

* A person with a checking account and one or more credit cards would sign a number of checks and turn them over to a ringleader, along with credit card account numbers. Checks for $2,000 to $20,000--called booster checks--would be sent to the credit card company to pay bills that might be only $200.

* Using the credit card company’s automated telephone information line to find out precisely when the excess amount was credited, the cardholder and the ringleader would quickly buy expensive goods and pick up large cash advances.

* Once the credit limit was exhausted, the cardholder would split the proceeds evenly with the ringleader. After checks were returned for insufficient funds and payment was demanded, the cardholder would file for bankruptcy protection.

Some individuals have opened six or more accounts with debts totaling $100,000 to $685,000 each, the Secret Service said.

Though VNK is in one of the oldest shopping centers in Little Saigon, where many entrepreneurs have sold their wares for years and know each other by trade, the company--named by authorities as the major operator--remained elusive to its neighbors.

Nearby business owners and employees said three men and two women--all in their 20s and 30s--would go to work and keep to themselves behind darkly tinted windows and vertical blinds that were usually closed.

The VNK workers appeared poor when they first opened for business a year or two ago, said one man, but “just like that, they were driving Lexuses.”

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Bauer said the investigation was sparked by several groups converging at the same time.

Banks and credit card companies began pushing law enforcement agencies to look into the matter. Belitz at MasterCard said that banks typically had turned debts owed by bankrupt customers over to their collection departments instead of their security officers, who investigate fraud.

In addition, Arthur N. Marquis, an assistant U.S. trustee overseeing cases in Bankruptcy Court in Santa Ana, noticed a trend last year in which Vietnamese immigrants charged tens of thousands of dollars on their credit cards for cash advances, diamond rings, expensive watches, electronic equipment and furniture.

When the credit card bills came, they declared bankruptcy, he said Thursday. In one case, a debtor charged five television sets from Montgomery Ward in a single week.

In nine of the first 11 bankruptcy petitions monitored by Marquis, the debtors gave identical accounts of what happened to the merchandise: They had sold them at fire sale prices to finance their gambling addiction.

The trustee’s office tried to handle a flood of similar cases by asking Bankruptcy Court to throw the petitions out. But the cases eventually went to federal prosecutors when the trustee’s office was overwhelmed by their number.

Meantime, some cardholders became queasy and wrote to the trustee and others about the vast amounts of merchandise and cash they had acquired with the help of VNK.

“If you find out what we speak is the truth, then you help us take action with those people,” said one letter from a group of 18 cardholders too scared for their safety to sign their names. “In future they will not have chance to cheat on anybody.”

A big portion of the merchandise was sold in parking lots at Southland card casinos. “It’s a whole subculture there at these parking lots,” said Robert Hale, a Westminster lawyer for one debtor.

Hale said that his client and her husband are compulsive gamblers who regularly play cards at the Bicycle Club, the Commerce Club and a Hollywood Park club. He said she has “obtained” merchandise that she has sold to pay off gambling debts.

Bankers have worried since the federal Expedited Funds Availability Act was enacted in 1988 that someone would take advantage of a loophole. While banks must credit accounts immediately, it takes three to four days to clear a check.

“The regulation creates a window for fraudulent [check] kiting,” said Dominick Albano, a spokesman for the California Bankers Assn. in San Francisco. “In a rush to credit checks, some banks credit money that’s not available. I’m not surprised at what happened in Orange County.”

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The Scheme

According to the U.S.Secret Service, this is how credit card fraud works:

1. So-called booster checks for $2,000 to $20,000--drawn on insufficient funds--are sent to the credit card company to pay bills that might be only $200.

2. Credit card companies are required by law to post the check to the account as soon as it is received, before it clears the issuing bank, regardless of the person’s credit limits.

3. Once the booster check is posted, the cardholder and the operator of the scheme go on a shopping spree and pick up large cash advances.

4. The cardholder splits the proceeds 50-50 with the operator of the scheme. After the checks are returned for insufficient funds and payment is demanded, the cardholder files for bankruptcy protection to thwart collection efforts.

Source: U.S. Secret Service affidavits.