$1-Million Check Isn’t in the Mail

The amount the thief made off with was breathtaking: more than $1 million in public funds for the Santa Monica bus system. But the scheme wasn’t exactly the stuff of a Hollywood heist flick.

All it took was a few forged signatures--and possibly a letter opener.

For the last year, the U.S. Postal Inspection Service has been trying to figure out who stole a check for $1,075,408.08, which Los Angeles County issued to the Big Blue Bus in April 2001. Like many big-money checks issued by the county, it was to be sent across town in the mail.

The unknown thief was able to intercept the check, deposit it in a Colorado brokerage account without an endorsement, then withdraw most of the money from the account, according to officials and allegations in court documents.

Postal Inspector Gene Griffin said he is investigating the incident as part of a larger series of check-fraud scams in the Los Angeles area. But he would not give any other details--including when or where he believes the check was snatched.

Meanwhile, attorneys for Santa Monica and the county are trying to recoup the $1 million, plus interest. They have joined a multi-party civil suit in Colorado’s Boulder County District Court, where a judge will determine who should be responsible--at least for now--for the loss.

The brokerage firm, Robert W. Baird & Co., has put replacement funds into an account under the control of the court, but it has argued that it shouldn’t have to give the money up, said Thomas M. Tyrrell, senior deputy counsel for the county. Tyrrell is confident the money will be returned to L.A. “We’re in an extremely strong position,” he said.

For some, like Santa Monica Councilman Bob Holbrook, the county’s reliance on the mail to move large amounts of money is surprising in the age of electronic banking and increasingly sophisticated mail theft rings.

“I can’t believe that someone would just put a million-dollar check in an envelope,” said Holbrook, who noted that the city has moved other money around to cover the loss for the time being.

However, public auditors across the country maintain that the U.S. Postal Service still provides a safe and effective way to move large amounts of money. Most county auditors in California still regularly drop large checks in the mail, said Gere Sibbach, president of the state Assn. of County Auditors. The same goes for controller’s offices for the state of California and New York City.

The lost money was part of Santa Monica’s yearly allotment of regional transportation funding generated by local sales taxes, and administered by the Metropolitan Transportation Authority.

The check, which was supposed to have been mailed from the county auditor-controller’s office, is the largest potential single loss from check fraud the county has faced in recent memory, said Maria Oms, the county’s assistant auditor-controller.

Since the check disappeared, the county has given up on mailing funds to the Big Blue Bus and switched to electronic bank transfers, Oms said. But she said the county continues to send out many of its six- and seven-figure checks in the mail.

Moving money through the mail comes with other dangers besides theft. John Gill, general counsel for the Assn. of Certified Fraud Examiners, said a $1-million check was erroneously mailed to his office two years ago by New York transit officials.

But public agencies take comfort in anti-fraud measures built into the banking system, as well as an assumption that few people would be so audacious as to try to illegally cash or deposit a $1-million government check. All say the successful theft of large government checks through the mail is rare.

William Haslinger, a professor of economic crime at Hilbert College in New York, was surprised that Baird would have accepted such a large check without an endorsement.

“Accepting something like that without an endorsement is like accepting a blank piece of paper,” he said. “It leads one to wonder just how much [information] these fraudsters had to give them to open that account.”

Baird spokesman John Rumpf would not comment on the case or the company’s protocols for establishing an account, citing the pending litigation.

According to court documents, the account was opened at Baird’s Boulder branch office on May 8, 2001, under the name “Santa Monica Big Blue Bus Tour.” It was signed with the forged signature “J.B. Catoe.” John B. Catoe was the name of the real director of Big Blue Bus at the time.

After receiving the unendorsed check, Baird deposited it May 11, 2001, at its own financial institution, First National Bank of Colorado, stamping its own endorsement on the back.

FNBC has filed a lawsuit asking a Colorado judge to decide who should get the replacement money--Baird or Los Angeles County’s bank, Bank of America. In the suit, FNBC says it is “in great doubt as to which of the defendants is entitled to the funds,” and is concerned about exposure to “double or multiple liability.”

Jeanette Schachtner, a Santa Monica assistant city attorney, said Santa Monica did not realize the money was missing until an audit at the end of the fiscal year, in July 2001. More recently, the city and county have grown impatient with the speed of the FNBC lawsuit. Last month, they intervened in the action, accusing both Baird and FNBC of accepting the check without an adequate endorsement.

Los Angeles County auditors are used to a certain amount of fraud and forgery, given the large amounts of money they deal with. In the 2001-2002 fiscal year, the office issued $9.2 billion in checks and payments to various vendors, residents and agencies. During that time, in addition to the $1-million check, county investigators looked into $375,000 in forgeries and fraud, Oms said. Most of that money was repaid by the banks that accepted the bad checks, she said.

The last time the auditor’s office had serious mail theft problems was the mid-1990s, when thieves were mugging both postal carriers and welfare recipients on the first of the month--the date the county mailed out CalWORKS checks.

In 1997, the office stopped mailing welfare payments, instead making them available for pickup at neighborhood check-cashing stores. Postal Inspector Pamela Prince said the problem vanished nearly overnight.

The $1-million check is not the only one that has disappeared on its way to the Big Blue Bus.

According to Schachtner, two other checks that were supposed to be sent from the MTA’s offices in July 2001 also are missing and considered stolen. They totaled about $67,000, she said. Those thefts are under investigation by the MTA’s inspector general, a spokesman said.