Anatomy Of A Scam Investigation: Chapter Eight
Investigating a large-scale fraudulent enterprise can be tedious, time-consuming, and expensive. Pretty soon you run out of low-hanging free fruit (as I've covered in prior chapters) and you have to start spending real time and money — paying to pull public documents not available online, contacting live witnesses and meeting with them, re-checking your work for missed opportunities, waiting for developments in cases, etc. We're in that stage now. But rest assured the series will continue.
For now, an update, and a new variation on the theme.
One of the fun parts of investigating fraud is that once your investigation becomes known, prior victims of the fraud start approaching you to provide information. That's certainly been the case with my investigation of UST Development, Inc., UST Dry Utilities, Inc., and David Bell.
At first, the people who approached me were just others who had received the fraudulent invoices. But now I've been approached by a number of victims — including former insiders at the UST companies. I'm in the process of arranging interviews, and will corroborate the stories they provide to me through multiple sources or through documentary evidence.
I've been able to corroborate one tip from a former insider. That insider told me the following: during the time UST Dry Utilities, Inc. was operating, it would take on contractor and subcontractor jobs. These jobs often required UST Dry to enter contracts with other subcontractors and suppliers. Sophisticated consumers of contracting work usually exercise some control over payments — for instance, when they pay a contractor for supplies, they either cut a check in the name of the supplier or a joint check in the name of the supplier and the contractor. The contractor then forwards the check to the supplier. This is designed to make sure that money going to contractors for supplies actually goes to buy supplies.
But my tipster indicates that the UST enterprise found a way to defraud the customers and suppliers. UST and its principals filed Fictitious Business Name Statements in the name of some common electrical suppliers and opened bank accounts in those names. Then, when customers provided UST Dry with checks made out to suppliers, UST "accidentally" deposited those checks into the accounts they controlled rather than forwarding them to the corresponding suppliers. My tipster pointed me towards "Wholesale Electric" and towards some Fictitious Business Name records.
I discovered evidence corroborating this story.
First, a search of Orange County Superior Court records show that "Wholesale Electric Supply" sued a property owner and lead contractor in connection with a construction job in Brea, California. Wholesale Electrical Supply asserted that UST Development, Inc. was a subcontractor on the job and ordered supplies but did not pay for them. The contractor on the same job sued UST Development and Branden Bell, alleging that UST Development signed on to be a subcontractor, accepted money, but failed to pay its employees or suppliers (among them Wholesale Electrical Supply), abandoned the job, and then had the gall to put a mechanics' lien on the job for work they didn't do. The contractor alleges, for instance:
UST submitted periodic prevailing wage certifications representing to [Contractor] it had accurately paid its employees all wages and fringe benefits due under the prevailing wage requirements. Defendant Woolman signed these certifications under penalty of perjury. Defendant Bell also made several representations to [Contractor] that UST had fully paid its employees all required wages and fringe benefits. Defendants also concealed the true facts that UST had not fully paid its employees all the wages and fringe benefits to which they were entitled. Defendants made these representations and concealed the true facts with the intent that [Contractor] rely upon them in order to release payments to UST under the Subcontracts. [Contractor] is informed and believes and on that basis alleges that Defendants knew, when they made these representations, that UST had not paid its employees the wages and fringe benefits to which they were entitled or that Defendants made these representations recklessly and without regard for the truth. Defendants also intentionally or recklessly misrepresented the classifications of UST's operators and laborers on UST's prevailing wage certifications for the Project so it could pay lower wages to its employees than was required by the prevailing wage requirements. Contrary to Defendants' repeated representations that UST had paid its employees, Defendants intentionally withheld payment from its employees and stopped payment on paychecks to employees and checks to UST's fringe benefits plan administrator.
Bear in mind that allegations in lawsuits are just that — allegations. But…
Second, I followed my tipster's lead to Fictitious Business Name records. Those records — searchable online in many locations — yielded some surprising results. See, in Los Angeles County, every FBN application gets a control number. And every application lets you apply for multiple fictitious business names at the same time. A prudent scammer would apply for fictitious business names on separate forms on separate dates, to hide his trail. But not everyone is prudent. A single application ending in -5366 was submitted on May 1, 2009 using the names "Wholesale Electrical Supply" and UST Dry Utilities Inc. In other words, the same applicant was applying to use both names. This, together with the Orange County suits, sufficiently corroborates the tipster's claim.
But that's not all. An application ending in -2191 was submitted on April 20, 2009. That number was used to apply to use the names UST Dry Utilities Inc., Main Electric Supply, and United Electric Supply. Why are the names Main Electrical Supply or United Electrical Supply important? Because both have submitted claims in the UST Dry Utilities bankruptcy indicating that they provided supplies but were not paid. In other words, public documents prove that UST has repeatedly filed Fictitious Business Name Statements in the names of its suppliers — allowing it to open bank accounts in those names — and those suppliers claim they have not been paid. That (together with the overwhelming evidence of pervasive fraud demonstrated by this series) further corroborates the tipster's claim.
I'm pulling copies of all of the FBN applications from the County Recorder's Office; they will be sent to the appropriate authorities and to the applicable claimants.
There's much more to come in the following weeks. In the meantime, a few points:
1. A request: I'm looking for someone familiar with the building permitting process in Los Angeles, Riverside, and San Bernardino Counties who can walk me through using public records to determine if particular subcontractors and suppliers provided work and/or supplies on the build-outs of a chain of locations.
2. Though I'm far from done with this one, sometime before the end of the year I'm going to start up a brand-new fraud investigation. I'm looking for candidates. I'm particularly interested in frauds that are mail based and local to the greater Los Angeles area. I'd especially like to go after a fraud scheme aimed at the elderly. Feel free to submit candidates, and we'll go through all of this again.
3. Finally, let me repeat why I am doing this. I want to encourage people to think critically and not be scammed. I want to encourage and empower people to investigate attempted (and successful) scams. I want to encourage people to follow my lead as a deterrent to scammers: scammers rely on huge volume, and if one recipient in fifty thousand could do this, scamming would be a more dangerous business. I want to do my small part to reduce the chances that there will be more victims of UST Development Inc, UST Dry Utilities Inc., and David Bell.
And finally, I'm doing it because it's the good fight. I have prosecuted, and defended, and sued or represented civilly, drug dealers and bank robbers and child molesters and child porn possessors and extremists and members of a designated terrorist organization. In my experience, nobody is as chilling as a career con man. The level of sociopathy — the extent to which everyone is merely an object to be manipulated — is difficult to grasp. So is the sheer relentlessness and remorselessness of the conduct. Imagine if the terminator was programmed to defraud you rather than kill you. There's no stopping or curing or rehabilitating such people — there's only notifying law enforcement, helping past victims, and trying to warn future victims.
See you next time. Don't forget my warning.
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