Case Study
May 13, 1988, a Friday incidentally, will be remembered by a major Chicago bank. Embezzlers nearly escaped with $69 million! Arnand Moore, who was released after serving four years of his 11-year sentence for a $180,000 fraud, decided it was time to put his fingers in something a little bigger and better. He instigated a $68.7 million fraud plan. Naming himself as "Chairman," he assembled Herschel Bailey, Otis Wilson, Neal Jackson, Leonard Strickland, and Ronald Carson to complete the formation of his "Board." Most importantly, the "Board" was able to convince an employee of the Chicago bank to provide their "in." The caper required one month of planning in a small hotel in Chicago and took all of 64 minutes to complete.
The bank employee had worked for the Chicago bank for eight years, and he was employed in the bank's wire- transfer section, which dispatches multimillion-dollar sums around the world via computers and phone lines. Some of the bank's largest customers send funds from their accounts directly to creditors and suppliers. For electronic transfers, most banks require that a bank em- ployee call back another executive at the customer's of- fices to reconfirm the order, using various code numbers. All such calls are automatically taped. The crooked employee participated in these deposits and confirmations, and he had access to all the code num- bers and names of appropriate executives with whom to communicate.
The "Board's" targets were Merrill Lynch, United Air- lines, and Brown-Forman Distillers. A few members of the gang set up phony bank accounts in Vienna under the false names of "Lord Investments," "Walter New- man," and "GTL Industries." At 8:30 a.m., a gang mem- ber posing as a Merrill Lynch executive called the bank to arrange a transfer of $24 million to the account of "Lord Investments," and was assisted by one of the crooked employee's unsuspecting coworkers. In accordance with the bank's practice of confirming the transfers with a second executive of the company, the employee stepped in and called another supposed "Merrill Lynch" executive who was actually Bailey, his partner in crime. Bailey's unfaltering, convincing voice was recorded automatically on the tape machine, and the crooked employee wired the funds to Vienna via the New York City bank. The same procedure followed at 9:02 and 9:34 a.m. with phony calls on behalf of United Airlines and Brown- Forman. The funds were initially sent to Citibank and Chase Manhattan Bank, respectively.
On Monday, May 16, the plot was uncovered. The "Chairman" and his "Board" were discovered due to no effort on the part of the Chicago bank nor any investi- gative authority. Although bank leaders do not like to admit just how close the culprits came to "getting away with it," investigators were amazed at how far the scheme proceeded before being exposed. Had the men been a little less greedy, say possibly $40 million, or if they had chosen accounts that were a little less active, they may have been touring the world to this day! The plot was discovered because the transfers overdrew the balances in two of the accounts, and when the compa- nies were contacted to explain the NSF transactions, they knew nothing about the transfers.
1. How could this fraud have been prevented? Why is this a difficult fraud to prevent?