Wednesday, May 23, 2007

Trusts & Estates ... and the FBI: Pt. II

Why would the Federal Bureau of Investigation become involved in a trust or estate matter, which is primarily litigated by parties in a state probate court? The general answer is: Where there is significant financial fraud alleged to constitute a crime, and where interstate activities are involved, the FBI could become involved.

Statements by the FBI on its website and its past activities might shed light on the reason for its involvement in the Estate of Peter J. Karoly, deceased, and its pending "will contest", which I described in my prior posting,
Trusts & Estates ... and the FBI: Pt. I. (May 22, 2007).
The FBI's website provides tremendous information regarding its mission, activities, & past cases. A search of its archived cases reveals very few investigations prior to this decade that related to "estate", "trust", "probate", or "fiduciary" matters. But that appears to be changing, with the FBI's greater emphasis on "white-collar crime":

Fraud — the art of deliberate deception for unlawful gain — is as old as history; the term "white-collar crime" was reportedly coined in 1939 by Professor Edwin Sutherland and has since become synonymous with the full range of frauds committed by business and government professionals. Today's con artists are more savvy and sophisticated than ever, engineering everything from slick online scams to complex stock and health care frauds.
"Welcome to the FBI's FOIA Website" indicates eight major areas of FBI jurisdiction, including "White-Collar Crime". In its planning, the FBI professes a strategic objective to "reduce the level of significant white collar crime"; and it makes a promise:
The FBI will continue its successful efforts in the white collar crime arena by using its expertise, broad criminal investigative resources, and strong relationships with regulatory agencies to maintain public confidence in the country’s financial institutions and markets, ensure the integrity of government expenditures of taxpayer funds, and protect individuals and businesses from catastrophic economic loss.
The FBI's "Strategic Plan on "White-Collar Crime" addresses some components of "white-collar crime" that could relate to fiduciary matters:
Where such financial fraud might occur in the setting of a fiduciary relationship, such as a trust or estate, and where there is interstate activity, the FBI can become involved. The interstate activity could be as innocuous as transmittal of information by U.S. mail, or by electronic communication across state lines using fax or email, which can invoke federal criminal charges of mail fraud or wire fraud.

These are some recent representative cases that I found on the FBI's website archive (somewhat edited from that source):

  • Mark J. Avery Pleads Guilty to $52 Million Dollar Wire Fraud and Money Laundering Scheme (Eastern District of Alaska, March 6, 2007) – Defendant pleaded guilty in federal court in Anchorage to five counts of wire fraud and ten counts of money laundering in defrauding the May Smith Trust of over $52 million dollars. The plea agreement requires Avery to serve a sentence of imprisonment that ranges from 14 to 17 and a half years and to pay restitution to the May Smith Trust in the amount of $52.125 million dollars. The prosecution was the result of a joint investigation conducted by the United States Attorney’s Office, Federal Bureau of Investigation (FBI) and Internal Revenue Service-Criminal Investigation (IRS-CI), and was based on evidence obtained from the simultaneous execution of search warrants for the businesses of Avery in February, 2006. As a result of those searches investigators of the FBI and IRS-CI came into possession of thousands of pages of documents detailing Avery’s breach of fiduciary duty as Trustee to the May Smith Trust and May Wong Smith.
  • Legal Secretary Sentenced for Embezzling $159,000 from Clients of KC Law Firm (Western District of Missouri, February 27, 2007) -- A legal secretary employed by the law firm of Armstrong Teasdale LLP was sentenced in federal court today for embezzling more than $159,000 from clients of the firm. Moyer pleaded guilty to bank fraud. Moyer admitted that she wrote 113 unauthorized checks on four accounts of estate-clients of Armstrong Teasdale at Bank of America and UMB Bank over a nearly three-year period, forging the signatures of her supervisor and the conservators, in the total amount of $159,120. Moyer had access to five accounts for four client-estates of Armstrong Teasdale but did not have signatory authority on any of the accounts. When directed to do so, Moyer would generate checks to pay necessary expenses associated with the estates, then give the checks to her supervisor or the conservators for signature. Either she or the conservators would mail the checks to the payee.
  • Former Accountant Sentenced to 63 Months Imprisonment for Multimillion Dollar Embezzlement Scheme (Eastern District of California, October 13, 2006) -- A defendant was sentenced to 63 months imprisonment for the embezzlement of over $4 million from various clients. The defendant previously pled guilty to wire fraud in connection with this crime on February 3, 2006.
  • Former lawyer found guilty of mail fraud involving scheme to defraud elderly clients (FBI's Washington Field Office, July 27, 2006) -- A former lawyer was found guilty of mail fraud on 13 counts of mail fraud relating to a scheme that began in 1998 to defraud elderly clients and an estate of their money. The jury also found that the defendant should forfeit $385,000 to the government. At sentencing, the defendant faces a maximum of 20 years in prison and a fine of $250,000 and restitution of all victim losses.
  • Theft from an Elderly Client (Minneapolis MN, May 25, 2006) -- A former investment executive for a central Minnesota financial services company was sentenced today in U.S. District Court in Minneapolis for stealing $410,000 from an elderly client. The Defendant pled guilty in January of 2006 to one count of wire fraud. At his guilty plea, Davis admitted that while employed as an investment executive by PrimeVest Financial Services, Inc., an investment company located in Little Falls, Minnesota, he fraudulently obtained a check from his elderly uncle in the amount of $85,000. Davis used the funds for his own purposes, including personal business opportunities, without his uncle’s knowledge or permission. In addition, Davis acknowledged unlawfully converting other funds, resulting in a $410,000 loss to his uncle.
  • Miami Attorney Indicted for Misappropriating at Least $13.5 Million in Client Settlement Money (Southern District of Florida, May 23, 2006) -- An Indictment was unsealed charging a defendant with forty-one (41) counts of mail fraud in connection with his misappropriation of $13.5 million of settlement monies from clients’ trust accounts. The Indictment also contains a criminal forfeiture provision seeking a money judgment for $13,500,000.
  • Woman Charged with Scheme to Defraud Investors (Southern District of Florida, June 22, 2005) -- Defendant was charged by Information in federal court in West Palm Beach, Florida with one count of wire fraud, in violation of Title 18, United States Code, Section 1343. As alleged in the Information, Williams defrauded certain investors by telling them that the money they invested with her would be used to purchase the contents of estate sales, which contents could be quickly resold for a substantial profit. In fact, however, Williams did not use the investors' money to purchase estate sales items. Instead, Williams used money that had been paid to her by the investors for her own personal use and to operate her own company, the "Betty Series," which was in the business of promoting women's surfing, skateboarding and snowboarding competitions.
  • The Case of the Living Dead: Missouri Funeral Home Director Pleads Guilty to Faking Death Claim (FBI Kansas City Field Office, January 10, 2005) -- "The elderly couple could hardly believe their ears. On the other end of the line, their insurance company kept insisting they were dead. The company's records showed they'd both died three months earlier, within weeks of each other. It had already paid out nearly $16,000 for their funerals. So began a bizarre case for the FBI and its partners..." -- They reported the incident to police. After a joint investigation by the Putnam County Sheriff’s office, the Missouri Attorney General’s office, and our office in Kansas City, Newman pled guilty to five counts of mail and wire fraud. He admitted filing fake death claims for 58 people.
A true & tested fiduciary need not be fearful, though, when considering the motto of the FBI: "Fidelity, Bravery, Integrity". Just stick to it.

* * *
"The FBI will continue to identify, investigate and work to prosecute those who would take advantage of the elderly and the seriously ill."

Dennis M. Lormel, Chief, Financial Crimes Section, FBI, testifying before the United States Senate Special Committee on Aging, on September 10, 2001, about "Fraud Against the Elderly".
Update: 05/23/07:

The New York Probate & Litigation Blog, authored by Philip M. Bernstein, Esq., noted my posting with his own, dated May 23, 2007, entitled "FBI Interested In Will Contests".Update: 09/26/08:

In the Karoly case, on September 25, 2008, the U.S. Attorney's Office for the Eastern District of Pennsylvania announced issuance of federal criminal indictments against three defendants. See: PA EE&F Law Blog posting "Attorney in PA Indicted for Will Fraud" (09/26/08).

Update: 04/07/13:

The Orphans' Court Division of the Court of Common Pleas of Northampton County issued a ruling that the contestants to the wills did not meet the required burden of proof to overturn the questioned wills. No federal charges were pursued by the Justice Department on such matters. See: PA EE&F Law Blog posting Karoly Estates Will Forgery Case Ruling (04/07/13).