Saturday, August 22, 2009

FBI Protects Fortune 500

"Just before dawn last October, around 50 federal law enforcement officials mustered in front of a six-story Beaux Arts townhouse on Manhattan's Upper West Side. ... For at least 15 years [Dina] Wein Reis [DWR] had made a fortune by allegedly gulling dozens of consumer product giants, including Proctor & Gamble, Unilever, and Hershey, in exquisitely orchestrated scams. ... [DWR] was arrested on charges of conspiracy and wire fraud. After fainting, she was escorted by FBI agents to a hospital for evaluation. There she was arraigned, fingerprinted, photographed, and sent to federal lockup. Five associates of [DWR] were also arrested for their alleged involvement in the fraud ring. ... The feds needed two huge moving vans to haul away the trove. The job wasn't finished until three the next morning. The federal agents were utterly overwhelmed by the quantities of loot. Recalled Dennis Halliden, the FBI special agent supervising the case: 'It was like King Tut's tomb.' ... For sheer dollar damages, her alleged thievery cannot come close to matching that of a Bernard Madoff or R. Allen Stanford. She didn't steal outright, fudge the books, run a Ponzi scheme, or leave investors destitute. She didn't rob charities. ... Here's how it worked: [DWR] persuaded executives to sell her merchandise at huge discounts, promising to include the products in knapsacks or boxes of free samples to be handed out at schools, senior centers, Native American reservations, or military bases. ... But there was no National Distribution Program, according to the deposition of a senior [DWR] lieutenant. It was a fantasy. Instead, [DWR] and her team sold nearly all of the goods to middlemen, who sold them to big retail chains, grocery stores, and wholesalers. ... Diversion is not necessarily illegal ... . But the way [DWR] did it was fraud, prosecutors say. ... [DWR]. it appears, is a person who thrives on complexity and illusion. ... The government seeks to recover $20 million in losses, but exactly how much money [DWR] garnered from trickery is unclear. ... [DWR] struck out on her own around 1991, when she launched her own company, Collegiate Marketing. ... Collegiate promised to distribute the samples in knapsacks and tote bags for students in college bookstores. ... The first lesson: Litigation could be tiresome and costly, but in the end it was just a nuisance. Two sources familar with the civil and criminal investigations said [DWR] was recorded later by an employee telling her staff that litigation was only a cost of doing business. ... Dennis Halliden, an FBI special agent in Indianapolis, read a small article about the [Walgreen] suit in a local paper. ... A month earlier, [Irvin] Nathan had gone to the [DOJ] fraud section, which had also begun to pursue the matter. Halliden became the lead investigator in the case. ... In one corner stands a lineup of aggrieved multinational companies; in the other corner, a self-made woman, a prayerful philanthropist, a mother of three. To which there is a likely government rejoinder: Free markets wither when trust is broken", my emphasis, James Bandler at Fortune, 17 August 2009.

It's hard to sympathize with DWR or her victims. If the facts are as stated, DWR is a crook. So? It used to amaze me how readily the DOJ prosecutes when a Fortune 500 company is the victim as opposed to the perpetrator. That's how it is. DWR's actions are not new. They harken back to a 1960's scam, National Student Marketing. DWR even chose a similar name for one of her operations. As for litigation as a cost of doing business, that's how it is for all enterprises. Would say Goldman Sachs do business the way it does, if Goldman's senior executives thought they would go to prison? This also reminds me of the way Clyde William Engle, subject of a 1984 Fortune article, does business. 50 feds. Wow. Were they busting the Cali drug cartel? If 50 feds busted the DWR mob, how many feds would Goldman take? At least a brigade.


Anonymous said...

Amazingly silly pursuit of "justice"... 50 agents... yikes.

Combine this with Goldman siccing the authorities on the developer who "downloaded" their trading software prior to leaving and it makes you wonder who set priorities for "law enforcement".

Anonymous said...

As a white-collar crime prosecutor, this is not surprising. The number of agents is probably related to the serving of a search warrant. Multiple investigators are needed to seize and examine computers, examine and remove certain (but not necessarily all) documents, interview employees, etc.

This does not mean 50 agents were working the case; only that a bunch of agencies sent personnel to assist on that particular day. Is 50 a bit on the high side? Yes, but that probably means only that multiple agencies were involved, and each had to send some people to "represent" their agency at the scene. A bit of overkill, perhaps, but nothing sinister.

As for the choice of defendants, we do not ignore a case of fraud just because other actors may be committing larger crimes against the public. This was fraud, correct? If we are to have a level playing field, we must reduce the number of illegal actors.

Finally, as to why the government does not pursue Goldman, Sachs, I do not know. I only write to suggest that the two issues are not really related.

Independent Accountant said...

The DOJ has total discretion to or not to prosecute. For my money DOJ prosecutors are "the most corrupt of the most corrupt". That is a quote from my brother, now deceased, who was a NYC attorney. I've followed the SDNY's "antics" for decades. If I were a SDNY US attorney I would choose different cases. Maybe you see nothing sinister. I say 45 of these agents could have been doing something else. What is the Feds' message: "mess with the Fortune 500 and we'll get yah. The FBI, Secret Service, US Marshall's Office, IRS CID, DEA, Postal Inspection Service and anyone else available". As for prosecuting, DWR, I say fine, she meets my "Blankfein test" i.e., over $6.8 million was involved. What, the Feds should ignore all frauds under $6.8 million. Yes, in my opinion. With "limited resources" the Feds should go where the dollars are. "Level playing field"? Who are you kidding?

Steve said...

As a preface: I have professionally interacted with with state (DA,St.AG) and federal prosecutors (AUSAs), and find them to be the opposite of "the most corrupt of the most corrupt."

Having said that, there is great discretion in what cases they pursue. Crimes that are easily explained, easily (or already) proved, and have sympathetic victims are those that get prosecuted.

Complex, sophisticated and difficult-to-prove are not good words when it comes to deciding what to present to a grand jury, and what to spend months investigaing. As a citizen, that is disappointing, but it is true.

"we do not ignore a case of fraud just because other actors may be committing larger crimes against the public"

Not consciously, perhaps. But one cannot deny that there are limitations of prosecutorial resources, and that by spending 500 man-hours of time on one case, you have 500 fewer man-hours of time available to spend on the complex, difficult, systemic fraud investigations. Easier to go after 20 small insider-trading instances than investigate systemic market manipulation on the part of prime brokers - right?

The link between this DWR case and the lack of Wall Street investigations is as simple as the case management sheets of the SDNY securities fraud and economic-crimes units - this case, like the Mark Cuban insider-trading matter, distract from the cases that actually matter. (I accept that every case has some deterrence effect)

Perhaps prosecutors could focus more on the actual systemic impact of what they are doing. I'd rather them spend 10,000 hours on a single case investigating the front-running antics of prop desks of prime brokers, which might have market impacts of, say, $100 million per quarter, than to spend those hours investigating a number of allegations of $100,000 inside trading by 2nd year financial associates at IBs.

Which has greater impact on market efficiencies? Which erodes retail confidence the most? Spend available resources there.

Independent Accountant said...

I have "interacted" with county and DOJ prosecutors too. I stand on my remark. I'll say this for county DAs I've encountered, at least if one declines prosecution he will tell you why. The Feds say, "You don't know what you're talking about". Let me clarify something, "The most corrupt of the most corrupt" refers to DOJ prosecutors.

Robyn said...

DOJ: another reason lawyers have such a bad rep.

honest, competent atttorneys will point fingers at dishonest, or at least incompetent attorneys. who else will know the weaknesses of their pack?

only problems is the rarity of an attorney being honest and competent... and not afraid to open his/her mouth because of sure retribution.

i remember daddy sitting with judge welcome and a few other attorneys when another judge's name was mentioned. welcome and daddy looked at each other, then judge welcome turned to the speaker: he and i have differing opinions on almost everything. let's return to the matter we were previosuly discussing.

Anonymous said...

can anyone tell me how many company she scammed? let me answer it myself no one will ever know since some of them are involved in this fraud...another con artist lives in vegas and l'oreal has filed a fraud charges againt him..the name is desage