The crooks are winning Orange County's war on investment fraud.
And their latest victories may push Orange County over the top in a three-way contest with New York City and the Miami-Fort Lauderdale area for the notorious distinction as America's fraud capital, according to a host of federal and state law enforcement officials.
"Fraud is overwhelming in Orange County," said Arthur Salzberg, Western regional counsel for the Commodity Futures Trading Commission, which regulates trading in precious metals and other commodities. For example, out of the 190 companies that the commission believes to be selling precious metals through various unlawful schemes, about 60 are in Southern California and more than half of those are in Orange County, predominantly Newport Beach, Salzberg said.
Records Not Kept
National statistics concerning investment fraud are not compiled, according to a statistician for the Department of Justice's national criminal justice reference service. Law enforcement agents say overall figures on the amount of money fleeced from the public and the number of fraudulent companies are not kept because of overlapping jurisdictions and difficulty in defining white-collar crime.
The FBI refuses to publicly rank U.S. cities by their investment fraud activity for fear of creating an inter-regional competition for crime-fighting funds and manpower.
But prosecutors and investigators with state and federal agencies said they believe Orange County has more fraudulent investment operations affecting more investors than any other area of the country.
Biggest Fraud Case
"Orange County probably has the biggest fraud case in the U.S. right now--the Bank of America case," said Steven Adler, assistant attorney general in charge of the California Department of Justice's major fraud unit. Twelve state and federal investigators and four attorneys are working full time in Santa Ana to prosecute the real estate fraud in which the bank suffered a $95-million loss to date and ultimately it and other banks may lose $500 million, investigators said.
A federal law enforcement source said that more than $1 billion in investments is involved in just three Orange County cases, including the Bank of America case.
Despite a recent enforcement push by a myriad of agencies, the dollars and numbers of investors involved in fraudulent investment schemes in the county have soared since 1980.
According to the FBI, Orange County "is one of the areas that is experiencing a rapid and accelerating growth in federal white-collar crime violations in which the losses have reached into the hundreds of millions and impacted thousands of people in the community," said James Annes, supervisory special agent in charge of the Orange County white-collar crime squad based in Santa Ana.
Among the more recent cases:
- On May 17, Internal Revenue Service and U.S. Postal Inspection Service agents raided the storefront office of Hawkey Income Tax and Investments in Anaheim to collect a truck full of records. Leslie (Bill) Hawkey allegedly set up tax shelters for gold mines in the California desert and Jerusalem and artichoke fields in Wyoming, among other investments. Federal investigators say several hundred investors have apparently lost millions of dollars and face perhaps millions of dollars more in back taxes and penalties. That investigation is continuing.
- Two Orange County widows lost their homes and about $120,000 in savings when William Campbell, president of Orange-based Vista Investment Properties Inc., spent $1.5 million of investors' funds for his personal use. Campbell, who sold limited real estate partnerships to hundreds of investors around the county, pleaded guilty last September to four grand theft charges and was sentenced May 29 to four years in state prison.
- John G. Rinaldo, who defrauded hundreds of investors, mostly retirees, out of $10 million through his two Costa Mesa investment companies, was sentenced May 22 to three years in federal prison. Rinaldo's companies took invested funds and lent them to his friends and others who defaulted on many of the loans. Court records show that Rinaldo appointed his teen-age stepdaughter as president of one of the firms.
But even with money and manpower putting some of these promoters behind bars, fighting Orange County's investment frauds is like "hitting a ball of mercury with a hammer," said the commodity commission's Salzberg. When government action shuts down one company, a dozen new ones seem to spring up around it, he said. In many instances, the principals change their names and go back into business while cases against their former companies are pending in court.