Joel and Todd Fisch taught G.W. McDonald an invaluable law-enforcement lesson.
A pair of fleet-footed father-and-son swindlers, the Fisches became McDonald's professors of procedure, instructors in the need for interstate cooperation among investigators on the trail of telemarketing fraud.
McDonald is chief of enforcement for the California Department of Corporations, and it took 4 years for him and a legion of law enforcement agents from two countries to bring the Fisches to justice. In that time, McDonald saw precious metals scams like the Fisch family's emerge as the fraud of choice among boiler-room operators.
By the end of the Fisch case in 1986, McDonald realized that California needed a new weapon to combat the growing threat to investors. This month, the state will unveil that latest addition to its boiler-room bashing arsenal: The Leviticus Project, a federal program named after the third book of the Bible, which states in part, "Thou shalt not defraud thy neighbor. . . ."
In 1982, Todd and Joel Fisch opened up First Trading Group, an El Toro precious metals boiler room. "When we served a subpoena on them," McDonald said, "they tossed all their books in the back of five limousines and headed for British Columbia."
Fisches Run Out of Vancouver
They were run out of Vancouver by the widening telemarketing investigation, and their next stop was Bellevue, Wash.--another city, another scam. The Fisches ended up in Miami, opening up their fourth precious metals boiler room in as many years, this one called Suisse Atlantique.
All told, they bilked 1,600 investors out of $8.5 million before they were arrested in Miami in late 1986. Last April, a U.S. District judge in Los Angeles sentenced Todd Fisch to 20 years in a federal prison. Last October, Joel Fisch was sentenced to 25 years.
"It (the Fisch case) indicates why you need multistate cooperation," McDonald said, "and it illustrates how long it takes to get these things done."
Just weeks before Joel Fisch was sentenced, California became the 20th state to join the Leviticus Project, which gives interstate cooperation and federal grants to boiler-room investigations to help wipe out an array of interstate fraud.
Leviticus officially began operating in 1980, with funding from the Department of Justice. But it was born in the Appalachian coal fields in 1977, when regulatory and law-enforcement agents from six coal-area states got together to battle criminal activity in the coal fields.
The state of New York joined the group, too, said Gerald McKelvey, a spokesman from the New York County district attorney's office, because "while we have no coal reserves, we had determined that a lot of the criminal activity ultimately led to Wall Street."
The Arab oil crises of the 1970s basically led to the formation of Leviticus, McKelvey said. During the crises, the federal government started emphasizing alternative forms of energy, and fraud in the coal fields ran rampant.
Targets Frauds in Several Areas
In addition to sales of fraudulent limited-partnership coal-mining ventures, Leviticus investigation targets included the theft of heavy equipment used in strip mining, frauds affecting financial institutions and boiler-room sales of fraudulent commodity futures in coal.
In the beginning, the group was merely an effort to coordinate investigations and share information among states to battle the coal problems. But in 1980, the group applied to an arm of the Department of Justice and received its first funding--$1.5 million, McKelvey said.
In 1985, when an oil glut replaced the fuel crises of the 1970s, coal fraud largely abated. But what Leviticus officials saw led them to branch out instead of fold.
"In 1984, we were starting to see the same principals from the coal cases move over to oil and gas fraud," said Jerry Conners, the Leviticus field service coordinator. "After a year, we were allowed to expand into the oil and gas industry. Last year, because of problems in the Western states, we were allowed to look into precious metals. On some occasions we saw the same people all over again."
This is how Leviticus works: A member organization targets an investigation that affects several states. Law enforcement agents from those states work together on the investigation and take the case as far as possible.
Then the member agency in charge presents the case to the Leviticus board of directors, along with a pitch for money. If the case is accepted, the board will reimburse the chief agency for expenses such as flying in witnesses, investigators and experts from around the country.
The money is sorely needed, members say, because travel expenses and complex investigative accounting make interstate boiler-room cases some of the most costly to prosecute. Grants have run from as little as $150 for a single witness's plane ticket all the way up to about $100,000, Conners said.
Agencies Strapped for Resources