FraudBaron.com

#522 - December 17, 2007

#522 Updated: 12/17/07 8:39 a.m.

A great year for the top 10 scams
latimes.com | 12/16/07 | David Colker
It's time for the top 10 scams of 2007. From cruel foreclosure frauds to Nigerian puppies -- in
other words, from the tragic to near comical -- this was a banner year for consumer scams.
The Internet continued to provide a worldwide platform for fraudsters. New scams popped up
and some old-fashioned schemes came back.

10. The hands-down, scummiest scam of the year was fake Red Cross phone calls to spouses
of soldiers in Iraq. The caller, saying he was from the agency, delivered the news that the
soldier had been injured and airlifted to a hospital. Before treatment could begin, the caller
needed the soldier's Social Security number, date of birth and other personal information.
Luckily, the soldier actually was fine. The call was an attempt to get information needed for
identity theft. The American Red Cross put out a warning, saying it would never call a spouse
to say a service person was injured.

9. "Natural" Viagra turned out to be not so natural in some cases. Some over-the-counter
supplements, with names as unsubtle as 4Everon, claimed to remedy erectile dysfunction as
effectively as the prescription drug. The Food and Drug Administration found that they indeed
did their job well. But that was because the active ingredient in the concoctions was the same
as in real Viagra. The scam could have serious consequences because the "supplements"
posed health problems if mixed with drugs taken for diabetes and other conditions.
The FDA forced 4Everon off the market.

8. It looked like good news from the Internal Revenue Service: People across the country got
e-mails saying they were owed an unexpected tax refund. The bad news was that the e-
mails, which asked for information such as bank account numbers, were frauds. They were yet
another attempt to get the personal data needed for identity theft. The IRS said it would
never send e-mails requesting financial information.

7. As if people who fell behind on mortgage payments didn't have enough troubles, an
increasing number became victims of foreclosure rescue frauds. According to real estate
experts, the scams take different forms: Owners unknowingly sign over properties; loan
restructure "experts" collect fees and do nothing; fake refinance brokers inflate property
values for personal gain. In some cases, the scams resulted in homeowners losing whatever
equity they did have. Or they lost a home that might have been saved with a legitimate
refinancing.

6. Counterfeiters produced electronic gadgets that were incredibly sophisticated -- but in
looks only. High-end earphones, remote controls and other digital products were copied down
to company logos and multilingual instructions. Not only did these products -- sold at deep
discounts online -- cheat legitimate manufacturers, but they also tended to underperform for
buyers. To update an old saying, if an Internet bargain looks too good to be true, it probably
is.

5. Check washing -- a scam popular among fraudsters several decades ago -- made a
comeback. Stolen, uncashed checks could be placed in chemical solutions to wash away the
ink writing on the payee and amount lines. Then the scammer could write in his or her own
name and a new amount, and it was off to the bank.

4. Modern fake check schemes are a growth industry on the Internet. They take numerous
forms, but basically involve you (if you're the target) being sent a "certified" check -- usually
from outside the country -- that is an overpayment of some kind. Maybe it's for something you
sold online, a deposit on a rental apartment or even the winnings for a sweepstakes you
never entered. A recent variation offers you a portion of the money as a commission just for
processing the check. In each case, the fraudster directs you to deposit the check and then
return the excess by wire as soon as your bank makes the funds available. The key to this
fraud is that many people don't realize that just because funds are available, it doesn't mean
a check has cleared. Several days later, when the bank determines the check is fraudulent, it
will come after you for the entire amount. The U.S. Postal Inspection Service has seized more
than $2 billion worth of fake checks this year, but it's likely that many others got through.

3. "Lose weight without diet or exercise!"
Every year, products arrive that promise to take off the excess lard. All you have to do is take
a pill, sip a drink or apply a patch. But these products are all frauds, according to the Federal
Trade Commission. This year the FTC collected $25 million in settlements from several
companies that the agency charged with making false weight-loss claims.

2. Natural disasters have long brought out fraudsters impersonating contractors or insurance
settlers. But a new scam cropped up in the wake of wildfires in October. Con artists claiming
to be Southern California Edison workers visited homes in fire areas offering to restore power
or prevent the power from being shut off -- for pay. The utility warned customers to verify the
employment status of anyone who said he was with the company and needed to collect a fee.

1. What would a modern, top-10 scam list be without something from Nigeria, the West
African country that has developed a reputation (backed by evidence from law enforcement
agencies) as a center for online fraud? Indeed, many of the aforementioned fake-check scams
originated there. But perhaps the most original scheme from Nigeria this year involved
puppies. In e-mails and classified ads, pictures of incredibly cute English bulldogs appeared
accompanied by sob stories. The puppy could no longer be cared for or was simply being
offered to a good home, usually for free. The messages tugged at the heartstrings -- and the
purse strings. That's because these bulldog puppies could be worth more than $3,000 apiece.
There was always just a small hitch: The buyer needed to pay for shipping the animal from
Africa, which could run several hundred dollars. Then, if that was paid, there would be
additional money needed for customs. And shots. And airport kennels. And whatever else the
fraudsters could collect before the buyers -- some of whom paid $1,500 or more -- realized
they had been had. The only good thing about this fraud is that no puppies were harmed in
the making of it. That's because there were no puppies to begin with; the pictures were lifted
from Internet sites.

Jury orders U.S. Bancorp to pay $17.6 million in Ponzi scheme
sfgate.com | 12/14/07 | Staff Writer
A jury has ordered U.S. Bancorp to pay $17.6 million in a civil lawsuit brought by the trustee
overseeing the bankruptcy of a company that defrauded investors out of $45 million. The
Orange Country Superior Court jury concluded last week that the bank should have known
about fraudulent accounts that it opened for operators of Newport Beach-based DFJ Italia Ltd.
Seven people have pleaded guilty to federal charges stemming from the financial scam which
ran from 1996 to 2000. The company promised annual returns of 24 percent, but investors'
money was instead directed to the people who ran the scam and to pay other investors.
Among those who lost money in the scheme was former pro football star running back Eric
Dickerson. DJF Italia sought Chapter 7 bankruptcy protection in 2000. Bankruptcy trustee
Thomas H. Casey sued U.S. Bancorp, Wells Fargo Bank and City National Bank two years later,
claiming the financial institutions aided and abetted DFJ Italia's operatives by failing to
discover their bogus bank accounts. Wells Fargo Bank and City National Bank earlier reached
settlements in the suit. During last week's trial, two of the men behind the scheme testified
they had bribed employees of Minneapolis-based U.S. Bancorp and opened accounts at the
company's retail bank branches without proper documents. U.S. Bancorp attorneys argued it
shouldn't be held responsible for the actions of criminals and urged jurors not to believe the
scammers' testimony. The bank plans to appeal the jury's verdict.

High court overrules precedent, makes embezzlement charges easier
boston.com | 12/14/07 | Wilson Ring
MONTPELIER, Vt. --A Vermont Supreme Court decision is going to make it easier for people
who steal from their employers to be charged with more serious crimes, prosecutors say.
The Supreme Court ruling, originally issued last summer but modified Friday, overturns a 1989
precedent that made it harder to charge someone with embezzlement, a felony, because of a
technicality. At issue: When money actually becomes the property of a business. The court
said Friday the earlier decision was "simply wrong." The now-overturned precedent meant
that many defendants had to be charged with misdemeanor larceny, which requires a
minimum theft of $900 in cash or goods to be charged as a felony. No minimum amount is
needed for a felony embezzlement charge. "I really think what the Supreme Court did was
correct something that was the wrong decision," said Chittenden County Deputy State's
Attorney Edward Sutton. "We've been waiting for this a long time." Sutton said he'd been
frustrated many times trying to prosecute people accused of stealing small amounts
from their employers. "The whole point of this embezzlement statute, is you look at people
differently when they violate a position of trust," Sutton said. "It's worse (than a theft). It's
just much worse. There shouldn't be a monetary distinction." In the 1989 case, the Supreme
Court overturned an embezzlement conviction where an employee removed money from a
cash drawer. The effect was that if an employee took money intended for their employer
before it was put into the cash register, it was embezzlement. Once the money was put into
the till, "constructive possession" had passed to the business owner. If the employee then
took the money, it was considered larceny. The Supreme Court said the Ward decision wasn't
in line with the intent of the Legislature when it passed the embezzlement law. High court
overrules precedent, makes embezzlement charges easier. (Excerpt)

City's former auditors settle with SEC
signonsandiego.com | 12/11/07 | Jennifer Vigil
Federal investigators have settled a claim with San Diego's former private auditors, who were
accused of drafting misleading statements in crucial city financial documents. This is the first
sign of life this year in the Securities and Exchange Commission's investigation into San
Diego's financial affairs. Regulators filed a cease-and-desist order barring the city from
engaging in future acts of securities fraud in November 2006, following a lengthy probe.
Critics, including City Attorney Michael Aguirre, have long pressed for charges against elected
officials and city staffers who voted for or helped craft financial statements offered to
investors in connection with lucrative municipal bond sales. The SEC's case, announced
Tuesday, falls far short of that, targeting an accounting professional responsible for confirming
the accuracy of the city's numbers. The former auditors, Calderón, Jaham & Osborn, and a firm
accountant, Thomas Saiz, settled the case, agreeing to pay a $15,000 fine while accepting an
order not to engage in future violations. The SEC noted, however, that its “investigation is
ongoing as to other individuals and entities that may have violated federal securities laws.”
The probe was first publicly acknowledged in February 2004. Fred Sainz, a spokesman for
Mayor Jerry Sanders, said Sanders was pleased about the new development in the case, and
said the mayor had taken steps to ensure “that kind of conduct is never repeated in the
future.” The Calderón firm was absorbed by Caporicci & Larson, a Costa Mesa firm that took
over the city auditing contract in 2003. Caporicci was later replaced as major flaws in the city's
2002 audit came to light. Last year, both firms agreed to settle a malpractice suit filed by the
city. The city's long slide into financial turmoil began five years ago, when a former pension
board member raised concerns about a deal to increase benefits while underfunding the
system's obligations. It was later determined that the city had included false statements
about its skyrocketing pension costs in market filings that were meant to present investors
with an accurate picture of the city's financial condition. The city, as part of the SEC's 2006
order, agreed to three years of monitoring by an outside consultant to prevent future
breaches of securities regulations.

Worthington ex-worker gets more than 4 years for embezzlement
sacbee.com | 12/12/07 | Denny Walsh
Cal Worthington's former bookkeeper was sentenced Tuesday in federal court to four years
and three months in prison for embezzling more than $750,000 from the colorful car dealer.
Susan Michelle Pruett was also ordered by U.S. District Judge Lawrence K. Karlton to repay
Worthington $756,139. In 2006 she hit a $1 million jackpot at a South Lake Tahoe casino and
took a lump sum of $497,954 rather than yearly payments that would equal the full amount.
But the Internal Revenue Service, which had her under investigation, promptly confiscated the
money. The U.S. attorney's office has agreed to ask officials at the Department of Justice in
Washington, D.C., for authorization to turn seized funds over to Worthington as partial
restitution. Karlton sentenced Pruett's husband, Kenneth R. Pruett, to a year and nine
months for preparing federal income tax returns for each of them that did not report the
embezzled funds. The judge ordered the Folsom couple to jointly make restitution to the IRS
of $133,807 in unpaid taxes for the years 2002, 2003 and 2004. The couple were ordered to
surrender to begin serving their sentences Jan. 29. Both have prior convictions for similar
financial crimes. Susan Pruett, 39, who worked for Worthington for a little more than four
years, pleaded guilty in July to mail fraud and tax evasion and admitted stealing the money
between 2002 and 2006 by forging 54 checks drawn on the account of Big W Ranch, a nut
ranch in Calaveras County owned by Worthington. At the same time, Kenneth Pruett, 45,
pleaded guilty to tax evasion and admitted helping his wife gamble away her ill-gotten gains
at Nevada and California casinos and preparing fraudulent tax returns to hide the income.
In a sentencing memorandum filed last week, Assistant U.S. Attorney Samantha Spangler
recommended to Karlton that he impose a prison term of three years and five months on
Susan Pruett. But Karlton described her crime as "a very serious breach of trust," and
decided on the four years and three months, the maximum spelled out in advisory sentencing
guidelines. "I'm surprised it's only 51 months," the judge said. "It's a huge crime."
Television dealership advertisements featuring Worthington in his trademark Stetson, an
array of animals as props and his invitation to "Go see Cal" have made him a familiar figure
in California. In a letter to the U.S. attorney's office written a week ago on behalf of
Worthington, lawyer Lawrence Miles Jr. said his client "has never experienced this level
violation." "To have someone so intimately involved with his business and personal finances
violate his trust and that of his closest business advisors, and (to) do so over a sustained five-
or-sixyear period, was not only incredibly damaging and humiliating, but seriously
compromised his innate trust in people," Miles wrote. "In short, the damage done has been
as much to the human spirit of an 87-year-old man as to his savings account. "Gambling the
proceeds of her misdeeds was just the icing on the cake. She thought herself smarter than
anyone in the room, invincible, and pernicious in her abuse." In Kenneth Pruett's case, Karlton
adopted Spangler's recommended sentence of one year and nine months. The judge said he
is more understanding of Kenneth Pruett's position. "It's not easy for a man to give up his
wife," Karlton said. However, the judge said, Kenneth Pruett should have made an
aggressive effort to stop his wife once he learned of her thievery. "His crime demonstrates a
profound misunderstanding of his responsibility to people around him," Karlton said.
The Pruetts were tripped up in February 2006 after Kenneth Pruett's former lover called a
Worthington dealership to report the embezzlement. Pruett had confided to the woman that
his wife was stealing from Worthington. The illicit relationship cooled in the fall of 2005, the
woman told federal agents. Then, on Feb. 9, 2006, the woman discovered the password for
her e-mail account had been changed and e-mails from Kenneth Pruett describing the
embezzlement scheme had been deleted. She suspected him of making the deletions.
That same day, the woman telephoned Worthington's Long Beach dealership and blew the
whistle on Susan Pruett.
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