Deep in Los Angeles' underworld of con artists and stock swindlers, Rory Cypers rose to infamy as a telemarketer with a cold vacuum where his conscience should be. Authorities say he once threatened to sue a 78-year-old woman unless she invested $10,000 in his sham 900-number firm.
When the Federal Trade Commission declared war on Cypers, as well as others, at a news conference in Washington, one top official said the crackdown was "the only roadblock that can really make a difference" in the battle against such lawbreakers.
But it didn't make much of a difference for Cypers' investors. Federal officials put him out of business, but three years later the money he ripped off is nowhere to be found. The FTC collected just 6% of the $2.6 million in penalties imposed on American Fortune 900 and Cypers, who has since pleaded guilty to criminal fraud.
The FTC's performance in the Cypers case is symptomatic of a much larger problem: Regulators and criminal investigators are failing to collect the money they win in court against white-collar criminals. As a result, billions of dollars awarded to victims and taxpayers have, in essence, been written off.
Such weaknesses have undermined the federal battle against scam artists. Just last weekend, President Clinton said he would request expanded powers for the Justice Department to cut off the phone lines of suspected telemarketing swindlers.
Cypers and other con artists who have made Southern California the nation's fraud capital operate in a world where crime pays--so long as they make the cash disappear. And while the federal government can stop their bogus businesses, it usually fails to recover the money, a Times analysis shows.
The FTC collected just 24% of the $706 million in civil court judgments it won and penalties it levied over the last 10 years, records show.
Wall Street's watchdog, the Securities and Exchange Commission, recovered less than 50% of the $5.3 billion in judgments it won and penalties it imposed over the same period, according to the commission's data. Most of the money it did collect came from large Wall Street firms unlikely to risk their reputations by skipping out.
At the Justice Department, which oversees federal criminal cases, data show the U.S. collected just 26% of the $12.5 billion in penalties imposed from 1989 to 1997 for crimes from wire fraud to bank robbery.
"These agencies are good at identifying problems and ensuring that the perpetrator stops the [fraudulent] activities, but they don't view themselves as collection agencies," said Rep. Edward J. Markey (D-Mass.), who, as a member of the House Commerce Committee, has prodded the SEC to improve its performance. "The collection process falls through the cracks."
As a result, high-profile scam artists, such as investment swindler Paul Bilzerian, can sometimes live in luxury even after convictions and civil fraud judgments.
And when the process fails, the agencies never meet one key objective: providing restitution to victims. Defrauded investors are often forced to return to work long after retirement, sell their possessions or defer college for their children. All the while, lawbreakers are free to live in affluence, enjoying estates and exotic cars.
Federal agencies aren't exactly impotent. At their disposal is an array of weapons to collect restitution: property liens, wage garnishments and asset forfeiture, to name a few.
But the agencies have only recently started to centralize their efforts. And because their resources are limited, the low collection rates force them to make a difficult choice: Go after old debts or pursue new cases.
"To the extent that [the money] is there, we will chase it," said Judith Starr, assistant chief litigation counsel at the SEC. "Sometimes there's only so much you can do."
For their part, FTC officials say their collection rates could be higher if they simply settled cases based on the amounts defendants said they could pay. By seeking high judgments--usually for an amount close to consumers' estimated losses--the agencies are better positioned as creditors if the defendant files for bankruptcy or if hidden assets turn up later.
At the same time, however, white-collar criminals are refining the ways they cheat consumers and hide the spoils by exploiting bankruptcy laws, banks' privacy policies and other potential weak spots in the legal and banking systems.
Many lawbreakers are suspected of stashing their spoils in offshore financial havens such as the Isle of Man and the Cook Islands. Others plunge their cash into the lifestyle of the rich and lawless, then seek shelter under bankruptcy laws.
Some fritter away their take on casino trips, first-class air fares, cocaine and other purchases that can't be seized by authorities. Some are sent to prison. And some die before they can be forced to pay.
