Anatomy Of A Fraud

Most fraud victims clam up. In this check-tampering case, the victim-a small-business owner-decided to speak out. The resulting cautionary tale offers a rare, detailed look into the mechanics and psychology of fraud. And its aftermath.

This is not like most fraud stories, and yet it starts like most fraud stories do: With former colleagues describing the alleged grifter, Rahiem Jackson, as "well-dressed" and "good looking" and "charming." They also never fail to mention Jackson's contagious smile and his intelligence.

Almost by the force of his personality alone, Jackson allegedly used a simple yet clever scheme to steal hundreds of thousands of dollars from several companies that employed him, using the proceeds to pay for everything from medical bills to a luxury SUV. More impressive still, Jackson avoided prosecution for more than a year after the state of Maryland issued two indictments on charges of continuing theft. And while he was avoiding prosecution, he was defrauding two other marks a couple of ZIP codes away.

The particular methods Jackson used are basic, Grifting 101, and worth studying. But even when its methods are rudimentary, fraud remains a deeply complex and violative crime; it takes a psychological toll on victims. For this reason, most victims decline to talk about what happened. Many won't prosecute. Instead, they absorb the blow and move on. Though it costs American businesses an estimated $660 billion a year, fraud remains an eerily silent iniquity.

In this case, however, fraud stirred in one of its victims, a small-business owner named Wendy Rosen, a kind of entrepreneurial rage. Rosen chose to speak out, a rare decision fraud experts would normally hail as necessary and noble. After all, the best way to fight this crime is to raise awareness of how common fraud is. But the fact that Rosen went public was partially eclipsed by how she went public—with an aggressiveness that some argue created a quixotic rather than noble crusade. And indeed, Rosen's choices have turned this story about ordinary fraud into an extraordinary, unfinished cautionary tale. While the accused avoided prosecution after allegedly stealing $127,384, his victims started fighting each other, largely over $8,850. Now, Wendy Rosen stands accused of racketeering, defamation and extortion.

This is what fraud does. It infiltrates the victim's world.

Placement

Rahiem Jackson had just turned 30 when he interviewed for temporary accounting work at the Baltimore offices of Spherion, a professional placement firm, in February 2003. His application listed the Salvation Army as his most recent employer. He claimed he had worked there as an accounting coordinator for six months until the job ended because it was seasonal work.

Two weeks later, Wendy Rosen's company, The Rosen Group (TRG), requested a temporary bookkeeper from Spherion. The Rosen Group provides magazines, trade shows and and other guildlike services for the $14 billion arts and crafts industry. The company is profitable and employs about 30 people. Wendy Rosen also writes books, produces documentaries, and lectures the small businesses that she serves on how to start, grow and thrive.

Rosen chose Jackson from a pool of candidates and paid Spherion an $8,850 placement fee. In early March, Jackson arrived at The Rosen Group's offices in the Mill Centre, a four-story 19th-century mill dominated by brick walls and grand windows. Jackson's assignment lasted three weeks, but he impressed Rosen. So she followed her instincts and hired him full-time.

"It was not his work so much as it was his persona, his attitude," Rosen says. "He was a really bright guy. Well-spoken. Well-cast. You'd have trusted him with your firstborn."

Jackson immediately seemed to prove Rosen's instincts right. He did his job. He befriended other employees. He missed only one week of work in late April, and one other day. Once, according to Rosen, Jackson said he had a family emergency and the other time he got food poisoning, an illness confirmed by a doctor's letter on hospital stationery. He was the kind of colleague who brought doughnuts in for everyone, recalls Kristi Halford, former public relations director for TRG. "He was so willing to help," says Halford. "He had a charm about him. He was like the perfect employee."A FraudIn july 2003, Wendy Rosen's outside accountant, Chuck Geser, was in the office reviewing some vexing bank statements. A large sum from checks that Geser couldn't find had cleared. "I'm drilling down on where this money went," recalls Geser, "when, literally right then, the phone rings."

In a coincidence of timing worthy of a bad movie, the phone call was from USAA Insurance, wondering why The Rosen Group had overpaid its account and submitted a $1,500 check for car insurance. USAA faxed over the check. Geser and Lisa Brice, TRG's controller at the time, immediately noticed that the check came from the 900 number series, well out of sequence. Brice had been paying bills with 300-series checks. Brice must have felt dread as she connected dots: Months before, Wendy Rosen says, Brice's door had been tampered with. Now, checks supposedly locked in Brice's office were showing up, used. The checks must have been stolen.

Geser immediately suspected Jackson, who had access to the books. Geser also said that as he was hunting down the discrepancy, Jackson was allegedly trying to "plug the cash"an accounting term for adding journal entries to the books so that they match the bank statements.

With some evidence in hand, Geser asked one of Jackson's friends in the office, Rebecca Cason, to join him and confront Jackson. They cornered him just outside the building. Sternly, Geser demanded answers to two questions: Why did you do this? And how much did you take?

"He was pretty cool," Geser later recounted. "He went into an empathy-sympathy mode. He said his grandmother or someone was sick and he needed the money. He said it was a few thousand dollars."

Geser told Jackson to go home, but that he was not fired. Experts say that was the right thing to do. When you have both evidence and a suspect, you want to keep him close, not have him flee. Having kept his job for the moment, fraud experts say, Jackson probably felt that maybe Wendy Rosen, whom he knew liked him, would show compassion and offer some amicable solution.

Jackson may have been at ease; Rosen recalls being "terrified." A whole series of checks were missing.

The Three Pieces of Fraud

A con artist requires three elements to commit fraud: opportunity, motivation and rationalization. First, he must have the chance to steal money and, second, a reason to steal it (usually involving profit or revenge). The third element is the unique part of fraud: He needs an explanation for himself as to why it's OK that he's doing it—an unappreciative boss, for example, or sometimes merely a big company that "won't miss the money."

Rahiem Jackson had ample opportunity to commit fraud: He was a bookkeeper. His motivation may have been profit, albeit tinged with altruism—a sick relative who needed money for hospital care. That also may have served as the rationalization: As long as you use some of the money to help someone who's sick, it's OK.

Because those who commit fraud usually do it by abusing a position of trust, it might seem impossible to stop fraud without becoming paranoid. But Joseph Koletar, fraud expert and author of Fraud Exposed: What You Don't Know Could Cost Your Company Millions, says that's not the case.

"The good news is that most antifraud controls are, at base level, just simple, good business practices," he claims. For example, clear segregation of duties (so that the only person handling bank statements is the one who's supposed to) not only reduces the risk of fraud but also increases efficiency in the company by not having tasks repeated or, worse, ignored. Accounting controls, such as having duplicates of financial statements mailed to your home or to a separate location, also double as part of a good disaster recovery plan, should one's office suffer catastrophic damages. "Antifraud controls are not like barbed wire, which has no use except keeping people out," says Koletar. "Good antifraud makes you a better business in general."

Discovery

The wretched process of amassing records to find out the amount pilfered by this person that Rosen had trustedhad likedbegan the same day Jackson was sent home. Rosen brought a passel of documents and a phalanx of her employees to her bank to start the paper chase.

Rosen, still unsure if her business would even survive, says that after three hours of waiting she started yelling at the branch manager. Rosen says of the bank personnel, "They weren't doing anything. They didn't have any forms or processes. They were just kind of stunned" by the fraud allegations.

While Rosen was at the bank, back at the Mill Centre, a distraught Rebecca Cason went up one floor to Butch Hodgson's office. Hodgson was a private investigator who had done background checks for Rosen in the past. Cason was too upset to make sense, so Hodgson called Rosen at the bank. Then he understood, and made a plan.

Hodgson had Cason, whom he described as a "mommy figure" to Jackson, call the alleged perp. "He didn't know how much we knew, but he knew he was in trouble. She put me on the phone with him. He said, 'Am I going to jail?' I said, 'I can't answer that. I can tell you that if you cooperate it can't do anything but help you. I know you're nervous and upset. Why don't you come in and we'll talk?'"

Jackson said, "OK."

At the bank, rosen accessed copies of her statements, and almost immediately, she discovered more than a dozen fraudulent checks from the 900 series. One purchased a $54,000 Lexus sport utility vehicle. Another check, Hodgson says, was made out to a hospital, possibly lending credence to Jackson's story of a sick relative. Still, many more checks were unaccounted for, so Rosen told the bank to put a stop on all of the missing Rosen Group checks.

She says that the most helpful institution was Jackson's bank, which called her because Jackson allegedly tried to deposit a $28,000 Rosen Group check at an ATM, and a person reviewing the ATM records thought that that was strange.

Meanwhile, hodgson escorted jackson up past The Rosen Group's floor to his office. He kept Cason with him as a witness, but also to put Jackson somewhat at ease. Hodgson says that Jackson mentioned a sick relative, copped to two or three thefts amounting to $47,000, and promised restitution. According to Hodgson, Jackson denied purchasing anything for himself. "Anyway, he admitted to 47K, which is fine. Forty-seven, a hundred and thirty, that won't change his time. At this point, I knew he was lying to me."

As a private investigator confronting a suspect, Hodgson has an advantage over the police. "I don't have to advise him of his rights. I tell him up front that I represent the company and we want to know how much damage there is."

Hodgson drew up a confession, read it to Jackson and then said to him, "I want you to read it, change it if you have changes and initial them and then sign it."

Jackson said, "OK."

The primary question for rosen was how 900-series checks had cleared in her company's name when her own statements showed no record of 900-series checks at all. Eventually Hodgson and Rosen cracked the scheme. Jackson had allegedly intercepted Rosen Group bank statements and used liquid paper to delete the records of the 900-series checks. He then made copies of the statements. The bastardized copies were passed off as originals and the stolen checks were then ghosts.

Hodgson and other fraud experts appreciate the cunning, albeit typical, details of this scheme: The stolen checks came from the middle of a block of check stock to buy time before anyone realized they were missing. A single missing series also might look like a printer's error to the unsuspicious. When processed, 900-series checks wouldn't be so far out of sequence that they'd immediately raise red flags. Also, the higher number series ensured that illegitimate transactions would appear together at the bottom of a bank statement, making it easy to delete them without affecting the legitimate transactions on the statement.

Jackson signed hodgson's confession. It sounds astonishing and unlikely, but this is actually a common and effective tactic for PIs, especially when the perp is presented with evidence against himself. Hodgson plays a good cop to the specter of an unknown bad cop. It might seem bad to cooperate with me, he's suggesting without saying it, but I can't know how bad it might be if you don't.

Hodgson stayed in contact with Jackson, primarily because he hoped Jackson would disclose the whereabouts of the Lexus. That never happened. However, Hodgson says, "He put me in touch with a couple of attorneys who had walked away when he didn't pay them. He tried to use a Rosen Group check to pay one attorney."

In the end, jackson would be accused of taking $127,383.75 from The Rosen Group. He was indicted on charges of continuing theft against The Rosen Group on Aug. 11, 2003. He was arrested on Aug. 27. It turns out that it wasn't the first time.

References

In fact, jackson had been indicted and arrested on charges of continuing theft in April 2003. He was accused of defrauding the Salvation Army of $38,800 using eight checks. (The Salvation Army's chief accountant in Baltimore, William Smith, declined to comment.) Jackson missed that week of work at The Rosen Group in late April apparently because he was in jail. According to court documents in another case, Jackson posted bail with a Rosen Group check.

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