Episode 5: Check Kiting and Ponzi Schemes

Thirteen years ago, Leah started her journey into the world of forensic accounting as an intern. On this episode, Leah is joined by her former supervisor and mentor, Janetta Maxwell, to discuss the inner workings and tell-tale signs of check kiting and Ponzi schemes. Do you understand these complicated schemes?

Listen and Follow:

Subscribe to Workman Forensics

Transcript:

Leah (00:00):

Hi, I'm Leah Whietolter owner of Workman forensics. And this is the investigation game podcast.

Leah (00:10):

Welcome back to the podcast. Last week was my 13th anniversary of my internship with the FBI. And part of that story happened in West Virginia for 10 weeks, so much fun. And then the remainder of my internship actually happened in Tulsa, working out of the Tulsa resident agency and working with my guests today. My guest is Janetta Maxwell. Jeanetta worked for the FBI for 34 years and just retired this last December, right? Yes. And she originally, um, worked for the FBI right after finishing her accounting degree. Bachelor's in accounting degree at the university of Tulsa. And then you started with the FBI and you were there ever since until December. Yes. Yes. And I think it's fascinating that as you were right out of college, what your first case was?

Janetta (01:02):

Well, when I started with the FBI, my first case was the failure of Penn square bank. And it was a very small bank in a parking lot of a shopping center, but it was heavily tied to the oil and gas industry. And when I started, I was probably probably there for about three months and I went home and I told my mom, I said, I'm not going to last a year in that place. However, 34 years later, I ended up retiring from that place that I thought that I would not last one year in.

Leah (01:40):

Yeah. So whenever you first started with the bureau, what was your title?

Janetta (01:45):

My title was accounting technician. I think that's just something they pulled out of the sky because it really didn't make any sense for what we did, but they start hiring, hiring what they called accounting technicians because of the failures of the banks. This was back in 1980 and several banks that were tied to the oil and gas industry were starting to fail. So therefore they had to hire people with accounting degrees to assist the agents.

Leah (02:17):

Yeah, well, that's, I feel like that was just really great time. Whatever even made you think to apply with the FBI.

Janetta (02:24):

Initially, I want it to be an agent, but at that time, my eyesight was not good enough and you can not have LASIK to, uh, have, you cannot have a correction of LASIK, however, fast forward. Now you can, they will allow you to have LASIK.

Leah (02:43):

So then whenever you retired, you retired as a forensic accountant, like your title changed.

Janetta (02:48):

So yes, my title changed from accounting technician to financial analyst to forensic accounting. My job description and responsibilities never changed just the tile and the money.

Leah (03:03):

Oh, well, I mean, that's a win. So, um, today I asked you to join me just yes, because it was this 13th anniversary of my internship, but think like seeing the pictures on Facebook last week and seeing, um, and just all the memories, it made me remember, uh, my very first case that I worked on with you and it was a complete disaster. And so I thought I would just let you tell everyone about my first case.

Janetta (03:37):

Well, I had never had an intern before. So first of all, when they told me I was getting an intern, I did say, what am I going to do with a snotty nose intern? That's right. I had no clue what I was going to do with the intern. I was used to going so low doing my own theme. And here, all of a sudden this kid from college was coming to help me. So I signed her, uh, it w I signed our check guide in case I gave her some instructions on what she needed to do. The result was pretty hideous. The schedule was extremely long, they're going, uh, horizontal. It was long born hard, and it went on and on and on and on. And there was no way that you could trace the funds. However, I fully recognize the fact that since I had not had an intern before that I had to take some responsibility for not giving her proper instructions.

Leah (04:47):

Yeah. So I've definitely kept this story in mind. The one thing I remember about the spreadsheet was that, I mean, I thought I was pretty Excel savvy. And so, I mean, I had no clue what I was doing. And I just remember that the Excel spreadsheet just had a billion tabs. Right. I think, I think it did go for a tons of columns, but then tons of tabs. I mean, you can analyze anything out of that anyway, but you were so funny, like you were just like, okay, and you took the case. I think you gave me something else with more specific instructions and maybe not as like high level. And, uh, so I mean, I really did think I understood and I mean, I thought I did. Um, but I have thought about that story a lot. Whenever we have had interns in the past and, or, um, new employees and anyway, so, uh, it was a complete failure and you didn't even have me clean it up.

Janetta (05:46):

No, no, I did not give it back to her. I cleaned it up. And as she said, I gave her something else to do.

Leah (05:54):

Yeah. Can you, um, can you talk about that though? Like what was I supposed to find? What was I supposed to be doing?

Janetta (06:00):

Well, it was a check height, which we're going to talk about later today. So it was, uh, it was a check guy, but the schedule was way too long in order to determine how the money was actually going between the accounts.

Leah (06:15):

Yeah. And just kind of a plug for some of Felix's videos. Um, we, now once, once I understood what a schedule should look like, eventually I got there. Um, once I understood what it was supposed to look like, then, you know, things started clicking. And so just to plug one of Felix's videos or maybe all of them, but your original account schedule, we've added some stuff to it and kind of changed some things, but that's the basis and the foundation for a lot of the tests that Felix showed in his videos, um, that are out on YouTube. So great. Anyway, great. Yeah. I do give Janetta credit with teaching me everything I know. And then she usually argues with me.

Janetta (06:55):

Well, one thing about, one thing about Leah, Leah came to me with credentials and it didn't take me long to be immediately impressed with the intern that I had. So I gave her the opportunity to do more than what a typical intern would do. Leah worked on cases. Leah went to grand jury, Leah went out on search warrants. She did it all. And so there, I just got it, just got to the point and someone would come to me and say, well, Janetta, can you do so such and such a thing? And I said, no, but my intern can. And as a result, she was able to do a lot of things that most interns don't get to do.

Leah (07:35):

Yeah. I do consider myself so fortunate to not only have had the internship, because that was a highly selective process, but then to be able to come back to Tulsa and then work under you and because not all offices even have a forensic accountant, you know, some of the resident agencies, especially. So I was very fortunate to have come back and been able to work on different skills and you know, and I was always like chomping at the bit to become an agent. Right. And then now you probably couldn't drag me back. No.

Leah (08:06):

So I don't want it to be right. I wanted to be an agent anyway. Well, I'm sorry. I did invite you here to, to talk about check kiting. Cause I've always said, if we ran across the check kite, you were probably going to have to come train my team on how to do it because I'm the one I worked. I don't even remember. And it was a complete disaster. So, so why is check hiding? Uh, well first what is a check kite? How does it work?

Janetta (08:31):

Generally a check kite is a systematic process where a person issues insufficient funds on accounts and checks. I'm sorry. They issue insufficient checks on accounts and they deposit those checks into banks under the control of the same person. And it's usually usually two or more accounts.

Leah (08:55):

Yeah. So, um, what what's, what's the case that it, or what are the largest number of accounts that you've had in the check on a case that you worked?

Janetta (09:07):

About 70.

Leah (09:10):

70? Oh my gosh. Like that sounds like a full-time job to me. Just, I mean, not only for you, but for the person running the check kite.

Janetta (09:17):

It is a full-time job. If you, if you do a check kite, you have to put checks in the account every day, you have to make multiple, multiple deposits every single day, the one day you miss making a deposit, that's probably when the kite is going to collapse.

Leah (09:35):

Right. Because you're and the whole idea behind the kite is that you're playing the float.

Janetta (09:39):

You play in the float. Yes.

Leah (09:41):

Um, so like if I take a check out of one bank account and let's say I take a million dollars out of my operating account and there's not a million dollars in there and I go put it in another bank account and then while that is being processed, then I'm going to take money out of that and use it somehow.

Janetta (10:01):

Well, you're going to, it, it works. You have to make deposits into two or more accounts. So while you might write a million dollar check to account B from account a, you're also going to write a check from account B to account a, they're not saying the same thing if I did let me correct that. You write a check from account a to account B, but you'll also write a check from account B to account a.

Leah (10:32):

Right. Okay.

Janetta (10:35):

On the same day. You got to keep the flow going between however many accounts you're going to do. You have to keep the float going every day.

Leah (10:42):

Like to even think about doing this as a scheme to get money, it just seems complicated. Like it seems like just working a regular job would be a lot less complicated than running a float.

Janetta (10:55):

Yeah. It is complicated. And sometimes it works both ways. Some people do a float in order to buy some time. They're not necessarily, even though they're breaking the law, they're not necessarily in it to steal money. They're just buying some time. Maybe they need to make payroll, or maybe there's a big piece of equipment that they need to buy. So they might do a float just for a period of time. And basically it becomes an interest free loan to the individual versus paying the bank interest for a loan, which is still illegal because it still falls under title 18, section 1344, which is obtaining, uh, the banks of money under false pretenses. Now for the person who does a kite and spins the money out of a kite with no intentions of replacing it, then that's when the loss comes in.

Leah (11:46):

Okay. Yeah. And that's, and, and that's going to happen whenever, uh, especially when, if they miss a day.

Janetta (11:54):

Yes.

Leah (11:56):

Yeah and can't keep that going. That's when it's caught. So, um, as a fraud examiner, what are indicators or red flags of check kite?

Janetta (12:06):

Okay. There are several indicators of check kite. Typically, if you look at a person's statement and they have a transaction on that statement every single day, except the weekends that is typically an indication, a high dollar amounts, typically rounded dollar amounts, but not always, um, if they're checking their, if they're checking their balance every day, if they're going to the ATM multiple times. So there there's several indicators that are checked, height is possibly happening.

Leah (12:40):

So I understand how you could work. The, um, so as this float is happening, then they're spending money that they don't actually have. It's just showing up that they've got this money in their account. Cause they've, you know, it hasn't had time to actually process, right. So essentially what you were saying earlier about money going a to B and then B to a, but they've got to get it out somehow. They're also spending the money too. And then they have to keep the deposits going to cover what they're spending.

Janetta (13:11):

Right. And the, the posits have to increase the more money they spend, the larger, the deposits have to be in order to cover the money that's being spent when no new money is coming in. Right.

Leah (13:22):

Because right. If they have new money coming in and can replace it, then the is not going to have a loss. The bank's going to have a loss when it's just completely fraudulent or when there's not enough money coming in to cover that,

Janetta (13:34):

Right. The bank will have a loss when you have less money coming in than going out. Where you are legitimate deposits are less than the actual money that you're spending in the kite.

Leah (13:46):

Right? Yes. I think that's a really simple way of saying that. Yeah. Perfect. It is kind of difficult to talk about a check kite with words and not pictures.

Janetta (13:55):

Sure. True. I would definitely agree with that. You definitely need a diagram.

Leah (14:00):

So with like, and I've had this question before, um, of me, but with electronic transactions is check cutting still a threat.

Janetta (14:08):

It's still a threat is not as big of a threat because the checks are clearing quicker, but you still have anywhere from a one to three day float, even with electronic checking these days.

Leah (14:21):

So the one with 70 checking or 70 accounts was that after, um, check 21 and things were getting faster, like, is that why it required more bank accounts?

Janetta (14:32):

That's not necessarily why it required more bank accounts. That was just the character of the person that was doing it. And so, no, it didn't, he didn't need to do 70 because of electronic banking. He just, he just did it, but it was a combination of bank accounts credit cards. Okay. Any and everything you could possibly think of. It was definitely a very difficult check kite. Yeah.

Leah (14:58):

And you didn't call me on that one. No, just kept to yourself. Um, so one of the things is, you know, in fraud is the idea that we have to prove, or that an attorney has to prove intent and benefit, right? So the benefit and a check kite, I think is pretty straightforward, buy a boat about a car spent money at the casino. I mean, those types of things are usually fall out and are pretty obvious. What about the intent piece? Have you helped prosecutors put together the part that would show the intent piece? You know, like maybe someone didn't intend to defraud the bank, but something just happened. Maybe a customer didn't pay or something. So how do we differentiate between that?

Janetta (15:43):

Well, the intent is there. When you see multiple deposits every single day, you can't say that that was just an accident. One of the arguments that kiters use is I wrote bad checks because it's only the checks that are being held at the end, that creates a loss. So they said, well, I only, you know, I only wrote four or five bad checks, but that's not necessarily true when you look at the pattern of the bank accounts and you see deposits being made, multiple deposits, being made every single day between all of the accounts and all the money is just doing is going back and forth between the accounts and the money is not coming from a third party. Then there is the intent to create the float.

Leah (16:31):

So if you created a, an Excel spreadsheet of all the bank accounts and you just, and you combined them all together, you're going to see a chunk of deposits just going back and forth between these things.

Janetta (16:41):

Right. You're going to see the deposits that are kite it, and then you're going to see the third party deposits. Right. Cause you separate those out.

Leah (16:49):

So that's what it helps you improve the intent piece.

Janetta (16:51):

Correct.

Leah (16:52):

Yeah. Okay. That makes sense. Um, so what I think you've kind of touched on this a little bit, but are there any other things that you'd say are key and just putting this together as a forensic accountant or a fraud examiner, how to put it together to explain it to a prosecutor or, um, even to the other side, to try to settle, you know, with a defense attorney and things like that.

Janetta (17:15):

Yes. Uh, when you're looking at a check height, you need to look at 100% of the deposits for the time that you're doing the analysis. So even though check kite might run for a year or more, you only really need to look at the last three months of the account information, but you'd have to look at 100% of the deposits to prove the kite, to prove the percentage of the kite checks versus the real checks. And then you also have to look at the withdrawals to show where the money went, show the, uh, intent. Cause like I said, you can run a kite and not have a loss. Right. But if you're spending the money, then you're going to have a loss.

Leah (17:58):

Right. Which if it's intentional, they're going to be spending that money.

Janetta (18:03):

Right. As intentional, they're going to spend the money and you'll see that in the end, but you don't need to analyze the entire kite maybe about three months if it ran for a year. And if it ran for less than three months, then you just analyze a whole period.

Leah (18:19):

Okay. Yeah. And um, by you saying like you look at a hundred percent of the deposits, that means like you don't cherry pick deposits or try and just look at bank statements. I mean, the way we handle it, because it's the way you taught me is that we data in that we enter that data for everything, for that period, for those deposits.

Leah (18:38):

And I mean, we do the expenditures to the checks as well, so we can see where the money went.

Janetta (18:43):

Yes. You have to look at 100%. You have to look at the date, the check was the deposited and you also have to look at the date that the check cleared the other bank, because that, that gives you your float period. And so yes, on the deposits, you have to look at 100%. So if you have five deposits on one deposit slip, one of them might be a legitimate deposit. So that would be set. That would be coded out as a legitimate deposit where the other ones would be coded out as kited deposits.

Leah (19:15):

Yeah. So in that case, and I just from training my team, I'm discovered like not a lot of people know about the items that are behind the deposit slip that you can actually get from the bank. And so that's what you're talking about, actually putting the detail, if I've got five, like, you know, five checks in the deposit asking the bank for the, the images, the fronts and backs of those five checks that were deposited and not just the deposit slip. Because we need to know what the source of those deposits were and those checks that were deposited, if we get the actual check copies, that'll show us who it was from. Right. Yeah. Um, so we always try to make sure that whenever we're doing a subpoena, uh, you know, in a civil lawsuit, because we don't have access to everything you had access to at the bureau. But, um, whenever we're looking at that, we ask either the client to go to their bank and request those positive items or through subpoena, we asked for the deposit items, um, because we need to know where did it actually come from, right.

Ad (20:19):

You just completed the investigation game case. What did you think? I thought it was a lot of fun. All the different options you can take and the different routes you can take and how the cards led you from one card to the next was a lot of fun. Actually. It was not what I expected. And it was very well put together. Um, everything from like the car decks to the envelopes, very professional. My favorite part of the game was how interactive it was. Kind of choose your own adventure type situation where you pick the path you went down and then it would tell you if you wasted time here, or if you had the right answer, I wouldn't recommend the investigation game to my coworkers because it was a good team activity. And I think it would be fun and like an accounting environment, um, just to kind of work together as a team and be collaborative. Great for recruiting or even just like company events, like team building exercises, or even taking like a client a good way to just kind of build this relationship.

Leah (21:26):

All right. Well, let's see what else we have here. Uh, oh, of course. Do you have some examples? We need some case examples. Because everybody loves a good story.

Janetta (21:39):

So, well, it's kind of funny. Um, of course starting the check kite. I think that one thing that technology has, has definitely done is, uh, there, there was a period of time where you had maybe a lot of people operating a scheme and very little money compared to what's going on now. Now you have fewer people getting more money. And the case that I had mentioned earlier where this guy had 70 accounts, he was, he was a career criminal. He had, he went to jail. In fact, he went to jail twice on my watch. So, and the last time he did his check kite, I just told the us attorney. I said, I have the indictment from the very first time he went to jail. So let's just pull that indictment, change the name, and just copy and paste and do whatever we need to do because he used the exact same scheme. The only thing he did was he just used different company names and he had gone to jail in the eighties, got out of jail when D went to jail several times in the nineties and the early two thousands where he went to jail like seven times. And then he finally got out again in 2011 and then in 2012, he was committing bank fraud again. And he kind of did the same thing. Whereas before he had opened up some corporate credit cards in a relative's name. So when he got out this time, he was doing the same thing only he was opening up bank accounts in a relative's name. So he did a little bit more than the check kite he had some security frauds, long cross false statements and all that other stuff going on. So he did end up going to jail and he got, he got six years and I think one, a little bit more than $1.5 million in restitution he had to pay, which was almost exactly what he had in the eighties when he was, uh, when he went to jail. But every time he get out, he commit another crime.

Leah (23:52):

I guess that was part of his life plan. Just steal all the money. You can go to prison, go back. Yeah, he has, yeah. He's, he's breaking like the, uh, what is it recidivism? Like he's messing up the statistics on all that. Cause that was just, maybe that was just his plan.

Janetta (24:10):

Right, right, right. My, uh, I always said that I gotta get outta here before he gets out of jail. Cause I don't want to send him to jail a third time. I don't want to see his face again. And so, uh, that, that was one. And then a, another guy that went to jail, he ended up pleading and he got 10 years in his plea. But then again, he was doing the same thing. He had been in jail before for bank fraud and he convinced a teller supervisor at Boatman's bank, which is now no longer Boatman's bank, but he convinced a teller supervisor to help him. And so she would issue him, checks in his company's name, Cassius checks on uncollected funds. He would give those checks to two guys that lived in no water. They would go to no water and you have to remember, this is happening every day they would go to no water deposit. Those accounts in their business accounts, write him, checks on their business accounts and bring them back to Tulsa. And then that whole process would start over every day. And that loss was about 3 million.

Leah (25:18):

So he, okay. Victor I'm processing this. So he convinced a teller supervisor to give him a cashier's check on an account that did not have funds for.

Janetta (25:34):

Yes, yes, yes. And $3 million in the end.

Leah (25:42):

But like how, how could you even convince somebody to do that? That's crazy great. I mean, was the supervisor, was it suspected that the supervisor was in on it like that he was paying him or her?

Janetta (25:56):

Oh yeah she went to jail too. Yeah they all went to jail.

Leah (26:02):

Okay. Are they having an affair? Like what was the benefit?

Janetta (26:06):

Yeah. And of course, while he was out on indictment, he was like up in Kansas someplace committing bank fraud. Sometimes people just it's just their lifestyle.

Leah (26:21):

Yeah. So, you know, a lot of the white collar crime though, we work at Workman is related to investment and a lot of those, um, individuals, subjects of those cases, they've never been to jail before. They don't have any criminal record. Most of the time they don't even have a traffic ticket. So I just find it interesting because I've often wondered like what the difference is, um, between those that. And so it sounds like check CA but I've always just kind of had this opinion rolling around in the back of my head that a lot of embezzlers, they might be the first time, you know, in a first-time criminal and they fit the Donald Cressey fraud, triangle, you know, up pressure, incentive opportunity and the rationalization.

Janetta (27:06):

But then it's like a different mindset of the, like a Ponzi or a con artist type thing. And so it sounds like on these check kites and similar that like, this is just their lifestyle. Yeah. It's their lifestyle, it's their lifestyle. And of course the checkout is different than a, than a Ponzi scheme. Right. Right. Cause a Ponzi is more like a pyramid Ponzi and Bram is a very similar, but it's, I think it's just a lifestyle because why else would you put in that much work? And sometimes what you, the amount of work you put in and what you get out don't equal. Right.

Leah (27:42):

But I guess to them it doesn't feel like work. So it feels like it's worth it. It's free money, free money. It's still free money free stuff. Oh, I have to pay this bank back 1.5 million. Well, let's go do it again. Um, so the, the reason I also had mentioned that we could talk about some Ponzi schemes too, is that, you know, Ponzi schemes work on a float to essentially just having to find, not necessarily a bank float, but if they're not actually making money, they have to keep finding new money. And so to me I've always connected, uh, maybe not theoretically or academically they're being the same, but the idea that nothing is actually earned income in these types of situations that a Ponzi scheme, there's no real, um, there's no, the ones I'm thinking of, there's no actual real business. It's just finding new money from different people to invest and then you go spend it. So then you've got to find more money. And once you stop finding more money than the jig is up. And so I feel like it's similar to a check kite in that way or fits the idea of account lapping. Anytime you're just having to cycle money. Cause it's, it's artificially inflating in all of these cases, it's an artificial inflation of what you actually have.

Janetta (29:03):

Well, I had, uh, I did have a, a Ponzi scheme and it was, I won't say it was, well, I can say it was tied to the oil and gas industry, but this guy was selling leases, but the leases were not generating the amount of money that he said that they were. So his Ponzi scheme was, and his target audience were the elderly. So he would collect money from on the Ponzi scheme. You basically have to continue to collect new money from victims and pay the old victims with the new victims money. And eventually, eventually you run out of victims. So the victims are totally clueless that there that their money is going to pay someone else. And that's kind of have a Ponzi scheme works very similar to a pyramid scheme. The only thing is people in a pyramid scheme, they know that they have to recruit new people in order to get paid. So you have a lot of people running a pyramid scheme where you can, you can easily just have one or two people running a Ponzi scheme scheme. And so that's the difference because, um, the pier, the Ponzi, you do have real money. It's just that you're not getting paid from the services are the leases you're getting paid with somebody else's money. So you do have to have real money. And then on the pyramid scheme, you don't have any little to no services or goods whatsoever. You're just building your downlines.

Leah (30:41):

Right. And just getting new money to pay the people that already existed. Yeah. It's just, they're not victims in that situation.

New Speaker (30:52):

Yeah. Well, they're not.

Leah (30:53):

They're, they're not, they're not, um, unknowing or unwilling participants. They're participants.

Janetta (30:58):

They're participants that participants in the know, they know that when they're recruiting people, they know that their income is coming from those people and not from many goods or services.

New Speaker (31:09):

Right. Yeah. So on a pyramid scheme who ends up being charged with that when there's so many participants to all the like, or is it usually like, did the participants get charged or is it just the individual that started it?

Janetta (31:24):

Well, I think eventually on a pyramid scheme, those things, I think they just collapsed. I don't think there's really no charging charge because everybody involved, they knew about it. They know. Yeah. They know that they're recruiting people in order to get paid. And it continues to go up, go up the line, you know, you create your downlines, but then it starts going up.

Leah (31:43):

And then, and of course the last people you recruit are essentially the people that have the loss.

Janetta (31:47):

They have a loss because they don't have any money to recruit after that.

Leah (31:50):

Right. Because there's only so much money if you're not generating something from a goods or service. Right. Yeah.

Janetta (31:55):

Right. And much like the Ponzi scheme that the people that typically end up losing or the people at the end when you can't find any new money.

Leah (32:03):

Right. Yep. Do you have an example of any?

Janetta (32:07):

Well, one I worked on and this guy, I don't know why I get these weird criminals because this guy, he ended up, like he got time in Texas and then he ended up breaking out of jail, minimum security facility, like nine years and he stole $7 million and got like nine years in, broke out in jails. He's going to get more time. And he's, like I said, his target audience was the elderly. He, uh, he did have some legitimate oil and gas leases, but they were not generating the amount of money that he said that they were. And that's what appear that, I'm sorry. That's what a Ponzi scheme does. A Ponzi scheme promise, promises you high returns. And that's not true as we say in the bureau and probably other places, it sounds too good to be true idiots.

Leah (33:02):

Right, right. Um, yeah. I also think too, like, uh, I've watched a good amount of American greed. Oh, have you watched American Greed?

Janetta (33:14):

No.

Leah (33:14):

Because you lived it all the time. Yeah. I didn't, I mean, I watched it after I left the bureau, but um, like I just always think it's so crazy and pond these games, how they have like boiler rooms set up, you know, for people just to be making phone calls. And anyway, I'm just kind of fascinated with the ability that the people running the scheme, that it's their idea that they have to just keep it going. I mean, goodness, I know how much energy that I have to exert to keep a business going. I can't imagine if it's for something that's not even real, you know, that you're promising people, things that you can't even, um, that you can't even back up or support. And I know I can back up and support our services here. So it's kind of mind blowing the abilities that they have to essentially manipulate people to work in those situations. I mean, yeah.

Janetta (34:09):

You know what your Ponzi scheme is, if you, if you're getting high returns on your investment, then you tell your friend about it. That's true. Yeah. And then your friend tells their friend and it just keeps going on and on and on until the point that there's no more money to get. So that's kind of how that works. You know, it's just, it's kinda like, you know, oh, Bernie, right. He had a certain, you know, he had a certain client tail and so one friend tells another friend tells another friend tells another friend and it just keeps going and going and going until the point where there's no more people to invest.

Leah (34:46):

Right. Yeah. So, um, I thought about this related to this topic, um, just this morning on the way in actually that, you know, the intent and benefit piece and how there could be situations where on a check kite, no one has a loss. I think a good example. And because he talks about it in public is mark Cuban. Mark Cuban talks about how he floated and kited his checks to pay rent when he was first starting his business. Um, so he was obtaining interest free loans from the bank, but there was no loss right. To a bank. So nothing happens. And he's now, you know, billionaire, however, when he comes over. So, you know, but I've also worked some bank frauds where, you know, I'm working with the CEO or president of bank. And they'll say, man, if only this person had told me that they were in a bind, we would have helped them out. You know, we could have helped them where they didn't have to tight checks or where they didn't have to do some account lapping type stuff or generate false. Uh, um, I'm thinking of the one where the guy, um, it was on a car floor plan in inventory and he, they were saying that they were buying cars at auction, but they really weren't. They were just printing off the auction sheet and then they'd send that to the bank and the bank would release the funds. And you know, so there it's an account lapping concept. And I just remember this bank president just saying, if only they had talked to me before they got $800,000 in the hole to the bank, you know? And so I wonder, I mean, we can't go back and like analyze their brains at any point and maybe the perpetual con men that go to prison, come back and do it again. Okay. Let's exclude that. But like I was reading some articles about, um, business owners that they, you know, started promising people, something that they couldn't live up to, or, uh, you know, a business owner that's saying, oh my goodness, I'm going to admit defeat. If I don't keep my business going. And just that fear of failure, and then they don't go talk to the bank. And then before, you know, it they're being charged criminally. So just that intentional, like at some point making that decision. And then instead of solving this problem with asking the bank for another loan or asking the bank for different terms or something like that, they ended up running these schemes and then they get caught up in it and then it doesn't get caught. And then it's free money and constant, all kinds of problems. Um, I also remember a case this one never, uh, was prosecuted that we worked, but, um, this guy set up a fake vendor, uh, with his company. This company was, uh, buying up a whole bunch of businesses and they didn't really have a whole lot of systems because they were just buying so many at one time. And so this created this opportunity for one of their salesmen to set up a bank company, but he put the fake company in his friend's name and then he would generate the POS and invoices and everything. And then he would even sell it to other businesses cause he was salesman. So not only was he getting part of the proceeds of these fake invoices going to this quote unquote friends company that was actually his, but he was also getting paid commission on the sales that he's selling to these customers. Anyway, we sat down and talked to him at the end and asked him like, why did you do this? And the day he was interviewed, he said he had like $7 in his bank account and it was all gone. And the loss was in excess of $600,000 to the company. And he said, I told my kids that I would put them through college. And so he sent all three of his kids, several kids, at least three through college, they all went to private schools. He bought them all cars. He did all this stuff through running this scheme. And you know, he's emotional, everybody in the room's kind of emotional as we're interviewing. And it's like, yeah, but you probably just should have taken out a loan. Right, right, right. Right. Like, like the intention was good. He wanted to take care of his kids, but oh man, there's loans for this. And then, you know, anyway, he actually wasn't prosecuted. But um, he anyway, they worked it out somehow.

Janetta (39:14):

Yeah. I think you find that in doing the criminal investigation that, and I, I, one thing that I always said is not everyone who commits a crime is a bad person. They just fall on hard times. I look at some of the teller cases that we had because when you're dealing with the federal system, if it's banking, there's no dollar amount that you don't prosecute. You prosecute every dollar amount. Because one of the things you want to do is you want to make sure that they don't go back into banking. Right. But every teller who takes money is not a criminal. If they fell on bad times or they thought that they could pay it back. And that's one thing, as you probably know, when it comes to taking money, they always take more money than they thought that they took. Every time you tell them that they took, they said, well, maybe I took a thousand dollars and you said, no, maybe you took about $5,000 and it just keeps going up and up. Most of the time when you're taking money, you take way more than you thought that you took.

Leah (40:20):

Yeah. I remember, uh, the, there was a lady that embezzled from a bank and, um, I think she, I think she told them, she thought she stole about $250,000. Uh, I remember something about that. And this was quite a while back. And the lawsuit calculated was, uh, like 3.1 or 3.5 thousand dollars. I'm like, you know, you had more than that in jewelry, you had more than $250,000 in jewelry, let alone. A $3,500. Exactly. Anyway, I did look up a couple of cases that just happened recently. And there was one guy related to a check. There was this one guy out of, um, then I pulled the indictment. Um, but there's this one guy, his name is since it's in the indictment and it was all over these newspapers whenever I searched for check kite, just recent check kites, uh, his name Tyler Gillum. And it's out of Kansas, I believe. Yeah. Uh, Kansas. And he sent more than $2 billion worth of transactions through banks facilitating a check. Wow. Yeah, that's a lot, 2 billion. Like the number of transactions that is just say, oh, actually it said a total of approximately 409 wire transfers and 77,584 checks. Wow. And I, and this was over almost a two year period, a little less than two year period. I mean, and he was running, he had a livestock, it was the Plainville livestock commission. And so he was running a business and, um, I, I'm not, I'm not sure what happened. So I'm kind of, I, it didn't really say like how the money was used or anything like that, but, um, he's running this livestock auction. And then there were people who had like gotten into livestock and started using them. And at the end, like they were given checks, you know, of cattle sales or whatever they were selling for like $30,000. And it didn't clear, it bounced. So all of these other livestock, um, people that were affected by that, by this. And so my guess is if you're running a legitimate business, then you're just not managing your cash. You've got a cash problem somewhere, which probably started this check height because you're wanting to keep your promises to all your people. And then anyway, uh, this particular bank, uh, that I guess the bank holding the loss at the end, it was 6.1 million. Wow. Wow. Yeah. Pretty crazy. Yeah. And then there was another guy, um, his name was hunter, Brian Hanson. I couldn't find his indictment. I'm not sure why, but, um, or actually he signed up, he didn't information, but, uh, he had an $11 million Ponzi scheme and he was a grain trader and he's only 22 years old. Wow. That's so sad. Yeah. 22 years old. Anyway, we should pay. Yeah.

Janetta (43:32):

He'll probably go to jail a few times.

Leah (43:37):

But that's pretty early to get started. Uh, but $11 million loss on a Ponzi scheme at 22 years old anyway. Uh, not sure. Um, what'll happen there. I couldn't find much before the sentencing, but $11 million. And he kind of had the same thing. You know, there were these, um, farmers who are, who are trusting this guy to do what, just to do his job and then he's issuing them checks. And anyway, it just turns out that.

Janetta (44:14):

I think that when you, when you're running a kite and you're doing a complete analysis, and if you see where the person is just basically trying to stay afloat, I mean, it's still illegal. But if you see kind of where the person is trying to stay afloat versus where the person is just spending the money on cars and houses, eating out, I think it makes a difference in the eyes of the juror, what type of person that is, because some people do just run them because they want to save face in their business. And they know that a lot of people depend on their business running in order for them to have that cash flow. So I think that when it goes before a jury are judged, they do take that into consideration. Did you just blow the money or were you actually trying just to keep your business afloat?

Leah (45:04):

Yeah. But if you're like buying boats and like houses in the Dominican, or I've had a case before, um, I'm trying to think, or $350,000 of jewelry, right. That's going to be a little difficult to sell to a judge or jury that oh, I didn't mean to. Um, awesome. Was there anything else you'd like to share with us about check hides, Ponzi schemes? You can tell a story on me if you want.

Janetta (45:32):

I won't, I won't tell you the stories only I made need her one day job.

Leah (45:46):

We've talked about that still hasn't needed a job though. I'm a little sad about it, actually, but anyway, but thanks for joining us.

Janetta (45:54):

You're welcome. Thanks for inviting me.

Outro (45:58):

Thanks for listening to today's episode, to get updates on future podcasts, events, and resources. Please subscribe to our podcast or YouTube channel and follow us on LinkedIn, Facebook, Twitter, and Instagram.