The RICO suit against Wachovia

Yesterday this post discussed a notorious telemarketing scandal in which a crooked Pennsylvania company, Payment Processing Center, wrote fraudulent (unsigned) checks drawn upon the accounts of many elderly victims of con artists. P.P.C. cleaned out the victims' bank accounts by running the fraudulent checks through its accounts in a Philadelphia branch of Wachovia Bank. Wachovia had many clues that P.P.C. was engaged in a racket--including warnings from other banks--but failed to close down P.P.C.'s accounts. Though federal authorities have not charged Wachovia in the scam, the bank is now facing a civil suit.

I've discovered further information about that suit, and about the relationship between Wachovia and P.P.C., which suggests that the matter is even more scandalous than I'd indicated in the original post.

Here is a press release about the Langer & Grogan civil suit leveled against Wachovia. It gives more information about the nature of the allegations than the news story I quoted in yesterday's post.

Specifically, Langer & Grogan is bringing a class action RICO lawsuit that accuses Wachovia of more than simply "failing to clamp down" on P.P.C. (as the news report had it).

Langer & Grogan, P.C. announced today that it had filed a RICO class action alleging that Wachovia Bank, N.A. had conspired with a payment processor, Payment Processing Center ("PPC"), in a scheme that facilitated fraudulent telemarketing directed primarily at the elderly involving tens of millions of dollars.

Thus, an alleged conspiracy between P.P.C. and Wachovia is at the center of the lawsuit.

The press release also draws attention to some further details about the relationship between Wachovia and P.P.C., which would seem to demonstrate that Wachovia was indeed actively conspiring with activities it knew to be fraudulent (rather than merely behaving with indifference or sloppiness regarding its duties to forestall fraudulent activities it stumbled across).

The complaint alleges that Wachovia had a special agreement with PPC which granted Wachovia expanded refund and charge back rights. The complaint alleges that Wachovia knew that the banking services it provided were an essential element in PPC's scheme.

In fact, Wachovia itself exposed these special arrangements to scrutiny in federal court in 2006 as part of its filings related to the US Attorney's seizure of P.P.C.'s assets. Now, that was a tactical mistake, wasn't it? The mere fact that Wachovia had to make special arrangements to cope with P.P.C.'s particular problems is pretty good evidence that Wachovia actively conspired with P.P.C.

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Here are the details of this special arrangement. As I said in yesterday's post, the US Attorney in Philadelphia had frozen P.P.C.'s accounts at Wachovia, and Wachovia wanted federal judge Timothy Rice to hand the money back to Wachovia. The Bank claimed that it had deposited the money in P.P.C.'s accounts only on a provisional basis, until the checks in question could clear with the other banks they were drawn upon. Thus the money that was frozen in the P.P.C. accounts would have reverted to Wachovia, the Bank argued, once it became clear that the checks had been refused by the other banks.

All of this is spelled out in gruesome detail in a second judgment rendered in 2006 by Judge Rice (PDF), who rejected most of Wachovia's claims for the restoration of those frozen monies.

In court pleadings, Wachovia had argued that it should be given back all the frozen money, including those funds that Wachovia had failed to reclaim from the P.P.C. accounts even several weeks after the unsigned checks were deposited. Normally, as Judge Rice noted, a bank will rescind provisional payments for bad checks within a week.

To support its rather tenuous claim for recovering all of P.P.C.'s frozen assets, Wachovia told the court that it had a special arrangement with P.P.C. that permitted it to retrieve a provisional deposit for up to a month (if I read Rice's judgment correctly) after P.P.C. initially deposited a bad check. In other words, Wachovia got from P.P.C. permission to nullify provisional payments for a considerably longer period than the norm.

On the face of it, then, that special arrangement appears to show that Wachovia recognized that P.P.C. had a special problem--a high proportion of P.P.C.'s unsigned checks got refused, or got challenged a short time later. And, indeed, as I commented yesterday, in 2005 fully 59% of P.P.C.'s unsigned checks were refused and returned to Wachovia.

Thus, on the face of it, Wachovia appeared to be aware that far too many of P.P.C.'s checks were no damned good. (Wachovia certainly knew that P.P.C. was a clearinghouse for telemarketers requesting funds.)

Oh, and incidentally, Judge Rice wasn't much impressed with Wachovia's claim that this special arrangement ought to permit it to reclaim millions of dollars from P.P.C.'s frozen accounts. Rice granted reimbursement to Wachovia only for checks deposited in the 7 days before the Feds froze P.P.C.'s accounts.

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On the general subject of the greed of Wachovia, it's worth noting that Frontline produced a documentary in Feb. 2003, "Tax me if you can", which detailed how certain corporations avoid paying taxes entirely. Wachovia was a star exhibit; although it earned $3.6 billion in profits in 2002, it paid no taxes because of the foreign tax shelters it uses. The most notorious of these was a sewer system it financed in the German city of Bochum.

It will be interesting to see whether this RICO suit can dent Wachovia's colossal bottom line.

Is the Noose tightening around Wachovia Bank?

The NY Times reports on an epidemic of financial fraud that has gone almost unchecked for years. These scams are perpetrated mostly on the elderly with the active or passive assistance of several (poorly) regulated service industries—especially banks. Of those banks, Wachovia appears to be the most culpable and certainly the most flagrant in its disregard for basic rules that would inhibit such fraud.

Last year, my wife and I talked my elderly neighbor out of falling for one such scam. He had mailed in an entry to an international "sweepstakes", and soon began to get all sorts of calls and mailings that he realized came from scam artists. One appeal for personal information, however, appeared to him to be legitimate because it carried what purported to be an official seal from a European government. It took us about an hour to dissuade him from responding to the letter.

This is just one of millions of such tales. Too many of them end badly, with elderly and frequently poor victims losing their life savings.

The greater scandal is this: Fraud on a massive scale has grown in the US despite regulations that, if properly enforced by the federal government, would hinder or prevent it. Slowly, US Attorneys in several states have begun to investigate and prosecute institutions that play a role in these scams. Yet many of the institutions continue to wash their hands of any responsibility, and still fail to abide by the rules that are in place.

The scams are possible because of the personal-database industry. Companies that collect and sell personal information are required by law to ensure that their customers are not engaged in fraud. Yet some of these companies engage in fraud in order to obtain personal information in the first place (advertising fake "sweepstakes", for example); and then sell their databases to others whom they know, or have strong reason to suspect, are fraudsters. In fact, the database merchants will sometimes advertise specific lists as a database of 'marks', 'suckers', 'pigeons'...call them what you want. They know perfectly well that some of their best-paying customers are running frauds, and the database merchants tailor some of their lists accordingly.

One of the worst of these, according to the Times, is infoUSA:

InfoUSA advertised lists of “Elderly Opportunity Seekers,” 3.3 million older people “looking for ways to make money,” and “Suffering Seniors,” 4.7 million people with cancer or Alzheimer’s disease. “Oldies but Goodies” contained 500,000 gamblers over 55 years old, for 8.5 cents apiece. One list said: “These people are gullible. They want to believe that their luck can change.”...

The banks and companies that sell such services often confront evidence that they are used for fraud, according to thousands of banking documents, court filings and e-mail messages reviewed by The New York Times.

Although some companies, including Wachovia, have made refunds to victims who have complained, neither that bank nor infoUSA stopped working with criminals even after executives were warned that they were aiding continuing crimes, according to government investigators. Instead, those companies collected millions of dollars in fees from scam artists. (Neither company has been formally accused of wrongdoing by the authorities.)...

But infoUSA has also helped sell lists to companies that were under investigation or had been prosecuted for fraud, according to records collected by the Iowa attorney general...

The Federal Trade Commission’s rules prohibit list brokers from selling to companies engaged in obvious frauds...The Direct Marketing Association, which infoUSA belongs to, requires brokers to screen buyers for suspicious activity.
But internal infoUSA e-mail messages indicate that employees did not abide by those standards.

The emails cited by the Times show that infoUSA executives were aware that they were selling databases to a convicted fraudster, yet the company continued to do so.

Perhaps you expect such companies to participate in fraud, but how about supposedly legitimate banks like Wachovia? It has become notorious for assisting in telemarketing fraud mainly because of its extraordinary willingness to accept and pass along unsigned checks drawn upon the bank accounts of the "pigeons".

Perhaps you thought a bank would not cash an unsigned check drawn on your account, and with many institutions you'd be right. But when a huge national bank such as Wachovia is putting its imprimis upon unsigned checks, a surprising number of banks have been willing to honor them. Thus Wachovia became a funnel by which money is siphoned out of accounts by scam artists.

In all, Wachovia accepted $142 million of unsigned checks from companies that made unauthorized withdrawals from thousands of accounts, federal prosecutors say. Wachovia collected millions of dollars in fees from those companies, even as it failed to act on warnings, according to records.

In 2006...an executive [of Citizens Bank] wrote to Wachovia that “the purpose of this message is to put your bank on notice of this situation and to ask for your assistance in trying to shut down this scam.”

But Wachovia, which declined to comment on that communication, did not shut down the accounts.

Banking rules required Wachovia to periodically screen companies submitting unsigned checks. Yet there is little evidence Wachovia screened most of the firms that profited from the withdrawals.

In a lawsuit filed last year, the United States attorney in Philadelphia said Wachovia received thousands of warnings that it was processing fraudulent checks, but ignored them. That suit, against the company that printed those unsigned checks, Payment Processing Center, or P.P.C., did not name Wachovia as a defendant, though at least one victim has filed a pending lawsuit against the bank.

In Februrary, the US District Court in Philadelphia issued a permanent injunction against P.P.C.:

Fraudulent telemarketers use third-party payment processors like PPC to facilitate the banking procedures by which money is taken without authorization, often on a recurring basis, from victims’ bank accounts. In a civil action captioned United States of America v. Payment Processing Center, LLC, et al., Civil Action No. 06-00725 (JP), the U.S. Attorney’s Office for the Eastern District of Pennsylvania obtained a permanent injunction that terminates PPC’s operations, imposes a receivership over its assets, and establishes a multi-million dollar restitution fund for victims of PPC and fraudulent telemarketers...

U.S. Attorney Patrick L. Meehan described the permanent injunction as a warning to payment processors and others operating fraudulent schemes behind the facade of performing legitimate business...

The case began in February 2006, when the U.S. Attorney’s Office obtained a temporary restraining order against PPC and its owners, alleging that they were processing consumer payments for an international network of fraudulent telemarketers. In a civil action brought under the Anti-Fraud Injunction Statute, 18 U.S.C. §1345, the United States alleged that telemarketers duped tens of thousands of victims from across the United States, including many senior citizens, with false and misleading offers of goods and services, and manipulated consumers to disclose personal bank account information. Fraudulent telemarketers transmitted consumers’ bank account information to PPC. PPC then created unsigned bank drafts – checks without signatures – based upon the consumers’ fraudulently obtained bank account information. Using accounts at Wachovia Bank, PPC processed the unsigned bank drafts for payment. All the while, the United States alleged, the defendants knew that the telemarketers had obtained consumers’ bank account information through fraud, misrepresentations, and trickery, or that it remained indifferent the telemarketers’ illegal conduct.

You might get the sense that Wachovia knew that PPC was engaging in fraud. Certainly it should have known. In 2005, according to the Times, 59% of the unsigned checks from PPC that Wachovia sent on to other banks, were rejected and returned to Wachovia. Another bank would close an account when such obvious signs of fraud were presented.

But not Wachovia.

To get some sense of just how shamelessly Wachovia has behaved, consult this federal court ruling from June 2006. Wachovia was claiming that the government could not freeze more than $2 million in P.P.C.'s bank account with Wachovia because other banks had refused to honor the checks that it had passed along. Thus Wachovia tried to convince the court that the $2 million really belonged to Wachovia, not P.P.C.

Funny how scrupulously Wachovia was able to keep track of that money trail, once the open-secret of fraud was no longer secret from the Feds.

You won't be surprised to learn that, although the US Attorneys have so far steered clear of indicting Wachovia in such scams, the civil suits have begun.

A Philadelphia law firm said Thursday it filed a complaint in federal court accusing Wachovia Corp. (WB) unit Wachovia Bank NA of failing to clamp down a fraudulent telemarketing scheme even after another bank allegedly warned it of the scam.

Langer & Grogan PC said deceptive telemarketers obtained banking information from victims and then had now-defunct payment processor Payment Processing Center issue demand drafts for deposit in a series of Wachovia accounts.

The law firm said Wachovia continued to accept drafts from Payment Processing Center even after a second Philadelphia bank warned that it had been flooded with unauthorized drafts from the payment processor.

It couldn't happen to a nicer bank. I used to live near Charlotte, NC (where Wachovia is headquartered), and occasionally chatted with my neighbor, a long-time banking executive.

We made darned sure we kept our money out of the hands of Wachovia, and we'll continue to do so. It's been a good policy for us.

A stirring defense of Tony Blair

Michael "Axis of Evil" Gerson pens a stirring send-off to Tony Blair in tomorrow's Washington Post.

More than that of any other world leader, Blair's foreign policy approach is a rigorous, logical argument.

The late Robin Cook in his diary:

This was the parliamentary debate in which the prime minister presented the now notorious dossier on Iraq's weapons of mass destruction. I had been familiar with previous secret reporting on Iraq, and when I came to read the dossier I was surprised that there was so little new material in it. There was no new evidence that I could find of a dramatic increase in threat requiring urgent invasion.

Intelligence is supposed to be the evidence on which ministers reach decisions on foreign and defence policy. It is not meant to be the propaganda by which ministers sell a policy to a sceptical public. Nor are intelligence reports suited for the purpose. At the Foreign Office I regularly saw the assessments of the joint intelligence committee (JIC)...

The dossier did violence to their craft in two ways.

First, it painted only a one-sided picture, whereas every JIC assessment I saw would honestly present any contrary evidence that might be inconsistent with the final conclusion. Second, it definitely proclaimed a certitude for its claims that was at odds with the nuanced tone of every JIC assessment I read...

(snip)

The second troubling element to our conversation was that Tony did not try to argue me out of the view that Saddam did not have real weapons of mass destruction that were designed for strategic use against city populations and capable of being delivered with reliability over long distances. I had now expressed that view to both the chairman of the JIC and to the prime minister and both had assented in it.

Michael Gerson on Blair's views:

Irresponsible and failing states become bases of operation for terrorist, crime and drug syndicates.

Gareth Stansfield, Chatham House report: Accepting Realities in Iraq

"It can be argued that Iraq is on the verge of being a failed state which faces the distinct possibility of collapse and fragmentation."

Michael Gerson:

On Wednesday, sitting in shirtsleeves by the pool at the British Embassy in Washington, Blair recalled that day, along with Sept. 11, 2001, as evidence of a movement with "completely unnegotiable demands" that is "prepared to visit unlimited destruction."

Tony Blair, March 9, 2003:

Saddam Hussein is to be given a 'final and non-negotiable' list of weapons he must destroy or account for within six days to prevent a devastating onslaught from American and British forces.

In a stark outline of the endgame for Iraq, Britain and the US are to publish a set of disarmament 'trip-points' detailing specific weapons in his arsenal that the United Nations has listed in a private report to the Security Council circulated this weekend....

"We want to emphasise that this can still be resolved peacefully if Saddam Hussein decides to disarm," [Blair's spokesman said].

Michael Gerson:

"They are prepared to play a long game," he told me, "and they believe that we are not." Blair's impending departure from the game makes that terrorist belief more plausible.

Robin Cook:

Kofi Annan had just received a letter from the Iraqis accepting the return of UN weapons inspectors without any conditions. This is quite a climbdown by Saddam. We cannot credibly proceed with a military strike now he has met our key demand.

...the first thing I did was to ring Jonathan Powell to express my strong view that we could not simply bat away the latest offer from Saddam. I found Jonathan very receptive to my argument, but there was a catch: "We have to be careful of how our statements will play in Washington, and we therefore should not get too far in front of the Americans."

Later in the day, passing through No 10 on my way to the Cabinet Office, I bumped into Alastair Campbell and again expressed the view that we should not be too grudging in our response. Alastair, as always, was no-nonsense in his reply: "I cannot agree with you. We are playing a long game." Presumably the long game is to contrive an assault on Iraq whatever Saddam does...

I expressed my concern about the hard-line rightwingers around Bush and warned [Blair] that many of them would regard it as a bonus in the present crisis if we were driven from office and replaced by a Conservative government. He laughed and said, "Regime change is for Baghdad. It is not for here."

Michael Gerson:

The prime minister's staff, over drinks, will complain that he cares too much for the views of the press...

Tony Blair:

Prime Minister Tony Blair believes BBC coverage of Hurricane Katrina is "full of hate" for America, media tycoon Rupert Murdoch has claimed in a speech...

Mr Murdoch said Mr Blair told him in a private conversation BBC World Service coverage was "full of hate of America and gloating about our troubles".

Michael Gerson:

"Justice," he says, "is the thing that is most powerful in its appeal to people."

Tony Blair vision of modern Justice, days before the shooting of Jean Charles de Menezes:

Shortly after the July 7 bombings Tony Blair told his monthly Downing Street briefing "the rules have changed". He signalled an offensive designed to strengthen Britain's anti-terror laws.

Despite setbacks and legal criticism that his measures were taking Britain down the path towards authoritarianism, the Prime Minister is still convinced he is right...

Blair's definition of the "modern world" shapes his insistence that any hint of authoritarianism is way off the mark. ID cards are necessary for "reason of practicality"; the shooting of an innocent man in his home in Forest Gate last month was a regrettable but still praiseworthy act, a police force doing its job well; the shooting of Jean Charles de Menezes merited, in the modern world, a government "narrative" on the killing, not a public inquiry.

"Traditional processes", as Blair called them, are not the answer. So 7/7 marks the onset of the "modern world" and the end of the usefulness of "traditional processes".

Michael Gerson:

But Blair's liberalism not only purrs, it bites.

George W. Bush bids adieu to Tony Blair:

I do congratulate the Prime Minister for being a -- when he gets on a subject, it's dogged.

Some food for thought

It's one of those days when important and thoughtful commentary seems to greet you at every turn of the internet tubes. Perhaps on a day with so much high profile news, readers of Inconvenient News may appreciate some tips about excellent material that shouldn't be overlooked.

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First, diarist rerutled has done an analysis of the probability that the now-infamous firing of the US Attorneys was engineered for political purposes: NumberCruncher: DoJ Firings Were to Swing Elections. There are a few quibbles to make about the assumptions and parameters used by the author, but overall the results appear impressive: the Justice Department concentrated on hounding US Attorneys from swing states.

Background: In addition to the 8 US Attorneys actually fired, news has dribbled out regarding others who were pressured or who resigned under suspicious circumstances in the period before the 2006 election. There's also increasing evidence that Bush's political operative, Karl Rove, was involved from the start in the scheme to fire large numbers of USAs.. During the last week we also learned that Rove pressured the DoJ before the 2006 elections to take action on Republican allegations of "voter fraud" in many of the districts of the US Attorneys who were subsequently fired. (As I've commented in the past, accusations of "voter fraud" have long been a tool of the GOP to suppress the non-Republican vote.) Meanwhile, the White House continues to refuse to hand over to Congressional investigators large numbers of relevant emails from Rove.

A report today in the Washington Post adds the further information: the DoJ considered firing at least 26 US Attorneys (including the 8 who were fired ultimately). Many of those now identified in this new group of Attorneys, like several of the 8 who were indeed eventually fired, had successful and even impressive records on the job; therefore, the suspicion grows more intense that these firings were politically motivated. The Post provides this useful overview of the state of available information about the evolving list of USA's who had their heads on the chopping block.

The statistical analysis of the distribution of the firings by rerutled, thus, has a fairly broad basis—what with all the new names we have. What it shows pretty conclusively is that the vast majority of US Attorneys fired or threatened with firing worked in the most politically competitive states.

For the sake of argument, let's identify as "swing states" the 21 states in which the vote margin between Bush and Kerry was within 5%. Seven of the eight fired US Attorneys came from swing states (and the eighth, from Arizona, had a vote-margin of only 5.3%). Of the longer list of 26 Attorneys whom the WaPo reports were under threat, only 5 came from non-swing-states.

The mathematical probability that this pattern would occur merely by chance is highly remote, as rerutled points out.

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Secondly, the Washington Post runs a very striking op-ed today about torture by retired Generals Charles Krulak and Joseph Hoar, the retired Commandant of the Marine Corps and CiC of US Central Command.

It's one thing for the WH to deny what everybody knows, that it endorses torture, or for Gen. Petraeus to urge soldiers in Iraq not to practice torture, however weakly ("history shows that [acts of torture] also are frequently neither useful nor necessary.").

It's quite another for retired officers of this stature to take an unequivocally strong stance against torture in Washington's paper of record. Their column explicitly rejects the excuses and equivocations about torture offered by George Tenet, as well as condemning the disgusting show of affection for torture by nearly all the Republican politicians at the latest presidential candidates' debate. As Krulak and Hoar say:

We have served in combat; we understand the reality of fear and the havoc it can wreak if left unchecked or fostered. Fear breeds panic, and it can lead people and nations to act in ways inconsistent with their character.

The American people are understandably fearful about another attack like the one we sustained on Sept. 11, 2001. But it is the duty of the commander in chief to lead the country away from the grip of fear, not into its grasp. Regrettably, at Tuesday night's presidential debate in South Carolina, several Republican candidates revealed a stunning failure to understand this most basic obligation. Indeed, among the candidates, only John McCain demonstrated that he understands the close connection between our security and our values as a nation.

Tenet insists that the CIA program disrupted terrorist plots and saved lives. It is difficult to refute this claim -- not because it is self-evidently true, but because any evidence that might support it remains classified and unknown to all but those who defend the program.

These assertions that "torture works" may reassure a fearful public, but it is a false security. We don't know what's been gained through this fear-driven program. But we do know the consequences.

And incidentally, McCain's rejection of torture, always equivocal, grew wobbly as it became apparent that the Republican audience was eager for red-meat. The Krulak/Hoar column is today's must-read:

To understand the impact this has had on the ground, look at the military's mental health assessment report released earlier this month. The study shows a disturbing level of tolerance for abuse of prisoners in some situations. This underscores what we know as military professionals: Complex situational ethics cannot be applied during the stress of combat. The rules must be firm and absolute; if torture is broached as a possibility, it will become a reality.

This point is so obvious, whether applied to the military or to CIA operations, that it's horrifying to realize that it still needs to be said.

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More briefly, a Pentagon scandal about the body armor that it supplies to troops finally is about to get serious attention from the US corporate media. An excellent blogger, occam's hatchet, has been writing off and on about this scandal, taking his lead from the work of a group named Soldiers for the Truth. Today he announces that NBC has picked up the story and plans to broadcast a segment about it tonight on the Nightly News. See his post today, Body armor about to hit the fan.

Briefly, the current body armor ("Interceptor") is highly fragile and can take only a single shot before it crumbles. The main contractor manufacturing "Interceptor", Armor Holdings, is however run by a well-connected Republican donor. The Pentagon was pressured in 2005 and 2006 to test the effectiveness of "Interceptor" against some rival body armor types including "Dragon Skin", which on the face of it appears to be superior.

The mandated tests, run by Col. John Norwood, were called off before completion. "Interceptor" was not faring well in the tests that had been done. Since the tests never produced documented results, the Pentagon has taken no action to substitute a better body armor for the much-criticized "Interceptor". A few months after the tests were abruptly cut short, Col. Norwood retired and went to work for Armor Holdings as a Vice President.

Are you as scandalized as I am by the perennial revolving door in DC?

Senate: Give the Quagmire time to Succeed

By a vote of 67 to 29 today, the Senate professed itself happy to leave total control of the Iraq war in the hands of Bush & Co. It's a vote of confidence in the administration's upper level mismanagement.