Class,
This case involves the concepts from chapter 4 and demonstrates that an organization's security is only as strong as its weakest employee:
Friday, May 13, 1988, will be remembered by a major Chicago bank. Embezzlers nearly escaped with $69 million! Armand Moore, who was released after serving four years of his eleven-year sentence for an $180,000 fraud, decided itwas 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 employee call back another executive at the customer's offices 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 numbers and names of appropriate executives with whom to communicate.
The Board's targets were Merrill Lynch, United Airlines, 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 Newman, and GTL Industries. At 8:30 a.m., a gang member 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 investigative 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 today! The plot was discovered because the transfers overdrew the balances in two of the accounts, and when the companies were contacted to explain the NSF transactions, they knew nothing about the transfers.
So while the saying may be "dream big", Armand Moore probably now realizes that his dream was too big. Even just a fourth of the amount he was aiming for would have given him a comfortable life and potentially increased his chance of success.
How do you think this fraud could have been prevented? Why is the fraud that occurred here difficult to prevent?