Healthy Holly: Fraud is Fun

Balitmore Mayors, Naming Rights, and The Mets

Politics!

Political corruption has been around since politics have been around. It’s so ubiquitous, so expected that practically no one in America trusts the government to do the right thing. I could write a blog about political corruption and have enough material to last a lifetime. People are sick of politics, so I write about scams instead. Sometimes, the two subjects overlap.

There are legal ways to do political corruption. It is still OK in our country to reward your political donors with valuable contracts or jobs, as long as you don’t explicitly say that is what you are doing. You might give a guy an ambassadorship in exchange for a million dollars in contributions, and let him help run your foreign policy. Buying political appointments with campaign cash has been an American tradition for decades.

It is also legal for donors to reward a politician. Donors can give money to your campaign, in exchange for you doing some good politician-ing on their behalf. If you please your donors, they can help you get elected again, or they can line up plum jobs for you when you leave office. There are many perks to being a politician, including all the information you are privy to. It’s not a coincidence that Congresspeople make money in the stock market, because it is mostly legal for them to trade on all the information they find out in the course of their jobs.

Political corruption is essentially baked into the American system. Lawmakers listen to their rich donors, not average citizens. For many years, the system has worked as intended - allowing wealthy donors to influence politicians to write the laws benefiting the wealthy donors. It’s a great system! Sometimes politicians get too greedy, and they get indicted.

There’s run-of-the-mill illegal political corruption like insider trading or using campaign money to buy video games, and there’s political scam corruption.

You can line up all sorts of lucrative deals for yourself as a politician, during your term and after you leave office. You’d be stupid not to! What you probably should not do, however, is create a fake non-profit and use it to print children’s books, which you then sell - or pretend to sell - to state agencies, and pocket most of the cash.

The former mayor of Baltimore was indicted recently for all of this:

[Pugh] is accused of ripping off nonprofit organizations and taxpayers by accepting payments for tens of thousands of books she never intended to deliver. Pugh used the money, according to court papers, to fund her mayoral bid and to buy and renovate a house in Baltimore.

Pugh churned book sales and replenished her inventory by selling the same volumes multiple times, prosecutors said, including taking back books intended as donations to Baltimore school students. Most of the books, stashed at locations throughout the city, were marketed and sold directly to companies and foundations that did business or tried to get business with the state and city of Baltimore, prosecutors allege.

Politicians have come up with lots of inventive ways to abuse their office for personal gain over the years, but surely this is the first time someone has created an elaborate children’s-book-based money laundering scheme? It was also a book laundering scheme, since she was printing only around half of the number of books she was selling.

Also, if you’re going to use your authority to create political appointments for your friends, make sure they aren’t your criminal accomplices:

When Pugh was elected mayor the next year, Brown was designated to fill a vacancy in the House of Delegates. The morning Brown was scheduled to be sworn in, state prosecutors charged him with campaign finance violations tied to Pugh which — Brown admitted in his plea unsealed Wednesday — were funneled through Healthy Holly sales.

Brown’s swearing-in was canceled, and he pleaded guilty.

Awkward!

TurboTax

As a full time advertising person and a part time sports fan, I occasionally go to sports games and am struck by how much signage stadiums have. Everywhere you go in a sports concourse you see ads, every piece of every stadium is sponsored by one company or another. Sports is big business for #brands.

One person, a former executive for the Sacramento Kings named Jeff David, decided he wanted to get some of these sports dollars for himself. It started small:

His first opportunity came that year when Van Wagner, a New York-based sports marketing firm, placed a routine call to David. It was looking to broker courtside signage for Peak Sport, a sportswear company. When it came time to bill the buyer, David used the Kings' standard invoice template but had Van Wagner make three payments, totaling about $30,000, to SSP.

The Kings had given David a lot of autonomy as the Chief Revenue Officer, and he regularly handled deals worth millions of dollars for the franchise. It was relatively simple for him to convince his sponsors to make payments to an LLC he’d created that sounded as if it was owned by the Kings. He knew both sides of each transaction well enough to craft plausible excuses for the payments:

Claiming that expenses were piling up as the Kings tried to complete construction of the new arena, David asked Kaiser if it would add a $4.4 million upfront payment in lieu of an escalator. Kaiser agreed, and on Aug. 19, 2015, David invoiced the company on Sacramento Kings letterhead, payable not to the Kings but to his SSP account.

It worked! In all, he was able to steal $13.4 million dollars from the team and its sponsors. They ended up laying him off, and he got a job with the Miami Heat. He allllmost got away with it.

These stories are only as good as the ways the fraudsters get caught. David had neglected to leave a copy of the corporate sales commission structure for HR on his way out the door, and a VP named Stacy Wegzyn goes looking for it in his files:

As Wegzyn navigated a morass of files in David's old directory, she hadn't been able to discern an organized system, so she'd had to open things one by one. Eventually, she'd stumbled onto a folder titled "TurboTax," whose first item was a depreciation schedule for a home. As someone who owned rental properties, the table of depreciating items looked familiar in its contents -- furniture, a golf cart -- but the name of the entity in question was odd: Sacramento Sports Partners LLC.

Ahh! I am not a tax professional, but if you’re a sports executive making mid six-figures you should probably get an accountant! David! I am unfamiliar with data policy at organizations like the Kings, but leaving the trail of incriminating evidence in your shared drive is probably also not Crime Best Practices.

Stacy continues digging, and uncovers that not only did David skim payments, he also forged executive signatures. She hands the investigation over to the FBI, and then in a final act of what I have to imagine is the ultimate HR fantasy, she participates in the sting herself:

Wegzyn presses on. She asks Jeff whether the documents contain anything that anyone with the Kings needs to see. Jeff assures her they can trash them because the entity isn't around anymore. A few minutes after he hangs up, his mother-in-law, Nancy, is standing at the front door when an FBI investigator appears, asking to speak to Jeff.

David had invested much of the money in two properties in Los Angeles, which the government was able to sell at a profit, which seems like a pretty good deal for most of the parties involved. David - bizarrely - seemed to think that if he made the Kings whole he’d get off with little or no jail time, but it didn’t work out so great for him and he’s doing seven years in federal prison.

The lesson here, as always, is delete the evidence. Or, if you can’t for some reason, hide it in a less obvious folder.

A New Mr Met?

I am not a big baseball fan. I am definitely not a New York baseball fan. This story, however, is extremely my shit.

Steve Cohen is a billionaire hedge fund owner. The hedge fund he used to run pled guilty to a massive insider trading fraud, and paid billions of dollars in penalties. Cohen was banned from accepting outside investor money for years. He did not plead personally guilty, despite some of his former traders going to jail, and they were unable to pin a case on him. He’s back to running a hedge fund now, because, sure, I guess? If you’d like to read a great book about him, check out Black Edge.

Cohen has wanted to buy a sports team for a long time, no longer content with buying up very expensive, very tacky art:

He tried to buy the Dodgers awhile ago, and was rebuffed for being too sleazy, which is really saying something considering who else was allowed to own Los Angeles sports teams.

Anyhow, Cohen is trying to buy the Mets. The current owners of the Mets are two real estate investors who got caught up in the Bernie Madoff case. They initially claimed they lost a lot of money with Madoff, and then it turned out they actually made around $300 million in the scheme, and now they have to pay back around half of it to the trust, because rich people get discounts on everything. Then the MLB made Wilpon the head of their finance committee, because anyone who’s smart enough to make $300 million in a Ponzi scheme is clearly smart enough to help run a sports league!

To summarize - the country’s most notorious securities fraudster is buying a stake in a baseball team from two guys who helped enable the previously-most-notorious securities fraudster, and one of them helps oversee the league’s finances. It’s like a fraud Bûche de Noël. I can’t get enough.

Short Cons

NYT Magazine - This piece about working for Alex Jones at InfoWars is, simply put, bonkers.

CNN - “In earlier submissions, the court heard that Theriault used a photo of supermodel Kate Upton as her LinkedIn profile photo, according to CNN affiliate 7 News.”

Reuters - “One of the sources said Griffith said it would be “really cool” if ether were mined in North Korea.”

For those of you who missed last week’s newsletter (I can tell when it goes to spam based on readership numbers) it’s here. Tips to scammerdarkly@gmail.com