Investigations via Collateral Requests
By: Bill E. Branscum
© Copyright 2000

Unlike the image portrayed on television, federal agents rarely travel hither, thither and yon in pursuit of the facts. In actuality, it makes no sense to have agents shuffling from place to place to pursue investigative information, when the agencies involved have assets "on the ground" in those areas. Instead, federal agents initiate collateral requests, which are forwarded to the appropriate field offices to be assigned to local agents who are best able to develop the necessary information.

The Internet makes it possible for the properly networked private investigative agency to operate in much the same way. Having worked under both systems, I appreciate the control and flexibility enjoyed by the private sector. This article is proffered as a case study to demonstrate the effectiveness of networking and collateral requests.

I was recently approached by a client with an interest in a local investment expert, who was reported to be soliciting investment capital for "hedge funds." My client reported that this individual represented to potential investors that he is one of the nations foremost authorities on hedge fund management. He reportedly claims to have developed a proprietary computer program that makes it possible for him to capitalize on market fluctuations, whether the market moves up or down.

Several sources have estimated that this individual has in excess of $100M under management; there are those who believe he may manage several times that much. His investors bear witness to his remarkable success, as evidenced by their account statements reflecting incredible, and consistent, rates of return. Curiously, I have heard that he does not provide the associated K1 tax statements.

Curious though it may be, it is an undeniable truth that our subject has a large, dedicated and vociferous local following. Active in church groups, and very involved in a number of local charities, he is generous, charismatic and conducts himself in a manner that defies reproach. Investors claim to have averaged an annual return on investment of 29-65% after his 30% fee is deducted and, insofar as I am aware, nobody has ever reported losing money in one of his programs.

Nevertheless, being possessed of an inveterate skepticism regarding such things as "secret" investment strategies and "mysterious proprietary software programs," I accepted the assignment. I contacted the Florida Division of Securities and requested information regarding licensure status, prior employers and disclosure history as would be reflected on any broker's CRD. They advised me that this individual had no licenses, no history of ever passing (or taking) a securities related exam and no history of employment with any broker dealer.

I contacted the National Futures Association to see if he was involved with futures and commodities. They reported that they had no record of him either.

It seemed curious that an individual who had never been registered in any capacity, and had never taken any of the NASD/NFA exams that would establish his qualifications, would appear in Naples, Florida with the investor's "Holy Grail."

I set out to discover where he had been, and what he had done in the past. Basic investigative inquiries revealed that he had previously lived in a relatively small town in the Midwest. Inquiries there, and in surrounding counties, revealed that he had a criminal history related to embezzlement, had filed bankruptcy, had been charged with writing bad checks and had been involved in civil litigation related to fraud. One law enforcement source I spoke to referred to him as a "two-bit con artist who hustled church groups."

I contacted the Complainant in the case that led to his arrest. He claimed to have been victimized in an investment scam that transpired in 1990. He reported that he had entrusted our subject with $20,000 that was to be held in an escrow account for the purpose of real estate development. Investigators subsequently determined that there had never been an escrow account and that the funds had been deposited into his personal bank account and misappropriated for his own personal use. An arrest warrant was issued March 19, 1992.

At this point, I contacted Gary T. Ericson, a former federal probation officer and contract investigator for the Drug Enforcement Administration, currently employed as a private investigator in the Midwest. I provided him with the information I had developed, and he assumed responsibility for the investigative inquiries to follow.

As those investigators who pursue cases of this nature are aware, "responsibility" is a significant issue. Woe be unto the investigative agency that accepts this sort of assignment and provides their client with an inaccurate report. Whether your client invests in a scam, or declines to invest in what turns out to have been a "once in a lifetime opportunity," there is a potential for liability. It is not advisable to send a collateral request to the first name listed in the yellow pages, or the agency with the biggest ad. Many of the world's most successful investigators do not advertise and many are not listed at all - that is the advantage of investigative networks.

While I pursued leads related to our subject's assets and more recent activities, Investigator Ericson rapidly developed information evincing a history of allegations of fraud and deceit. He provided this agency with investigative reports tendered by state and federal investigative agencies as well as information regarding complaints by a number of people claiming to have been victimized by our subject.

Of particular interest, is the transcript of a phone conversation recorded by one of the victims while talking to our subject's sister. In this transcript, she claimed that her brother had defrauded her, their mother and other members of his family as well. She described various investment undertakings he attempted related to property and referenced a number of cases where people lost funds entrusted to him to invest. At the end of this transcript, she said:

"Well, if he ends up going to prison and in big trouble, we all have to remember that he put himself there."

Investigator Ericson also located and interviewed our subject's former wife. According to his report, she stated that they were married out of high school. He worked for an automotive manufacturer for a couple of years until he quit one day, "out of the blue," with no other job to go to. He tried selling fireplace inserts for a while, attempted to established a business where he white walled tires, and then started to sell real estate.

She states that prior to their divorce, he convinced her parents to entrust him with $20,000 for investment purposes and then filed bankruptcy. She reports that when they divorced in 1984, she was awarded custody of their children, but he could not be counted upon to meet his child support obligations. She describes him as a "very callous crook that suffers from mental problems."

Investigator Ericson also interviewed the investigator who was assigned to the investigation that led to our subject's arrest, a veteran investigator of more than twenty years experience. He reported that he first became involved through his church, when the previously referenced victim, and member of his congregation, alleged that he had been swindled out of $20,000. He stated that he ultimately established that other members of his congregation had lost funds entrusted to our expert to invest, and he has reason to believe that members from other area churches were scammed as well.

He further reported that he developed evidence that our subject had defrauded a local bank by securing a $300,000 home loan using various properties as collateral which were represented as being unencumbered. When he defaulted on his second mortgage payment, the bank is reported to have discovered that a number of liens and tax assessments had been filed against the properties.

Finally, he provided Investigator Ericson with copies of investigative reports he had generated during the course of his investigation. In addition to documenting the allegations and information delineated above, his reports indicate that he interviewed a bookkeeper who kept our subject's financial records. He reported that these records:

"Clearly show a pattern of irresponsible debt and criminal intent with the money [he] secured from private individuals."

In a supplemental report, he indicated that on January 8, 1992, he contacted Collier County authorities and advised them as to our subject's propensity to perpetrate financial frauds.

As this information was developed by Investigator Ericson, local sources reported that our subject bought property in Colorado. I contacted Investigator Ryan Johnston, President of Night Moves of Denver, and initiated another collateral request. He agreed to accept responsibility for the Colorado related aspects of this investigation. He provided information that may prove relevant to future litigation so the details are not provided here.

With the concurrence of my client(s), some of the information developed during the course of this investigation was provided to the appropriate law enforcement and regulatory agencies. My report, as sent to the SEC in February 2000 is here.

Agency Report to Securities Exchange Commission

Other relevant documents are:

• Naples Daily News Article

• Toledo Blade News Article

• SEC Announcement

• IRS Announcement

• Naples Daily News Article

* * * * * * * *

The properly networked investigative agency can effectively operate nationally, and internationally, given the appropriate contacts and the necessary intel related resources. While many networking lists are restricted to former federal agents, former law enforcement officers, former insurance adjusters, etc., there are investigative networks available to anyone with a valid license.

In the last few months alone, I have investigated internet investment advisors, offshore financial programs, convoluted investment proposals and self-proclaimed international financiers. These investigations have necessitated the initiation of dozens of collateral requests, nationally and internationally. Information is the essence of any investigation; the key to success lies in a broad base of competent contacts and effective communication.

Bill Branscum is a licensed Private Investigator and owner of Oracle International, an investigative agency he established in Naples, Florida following his career as a federal agent. His experience includes investigations related to narcotics smuggling, money laundering, securities fraud, the unlawful exportation of critical technology, the sexual exploitation of children and contract murder.

Oracle International maintains a web site at http://www.OracleInternational.com.

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