April 10, 2020

White-Collar Crime

Fraud Inc.

White-collar crime is big business in Florida, generating more money than manufacturing. Medicare fraud alone adds an estimated $12 billion to the state's economy.

David Villano | 7/1/2008

R. Alexander Acosta
“The analogy of (white-collar criminals) being like the old free-spending cocaine cowboys is pretty much on the mark,” says R. Alexander Acosta, U.S. Attorney for the Southern District of Florida. [Photo: Daniel Portnoy]
A more meaningful number may be an estimate of how much money fraud imports into the state. Consider: If a resident of Orlando defrauds a Boca Raton resident in a stock scam, the theft represents no real new net economic activity, rather just a transfer of money legitimately earned in Boca Raton that winds up in the pockets of the crook.
In the case of Medicare fraud, however, the money comes from outside the state — from the federal treasury. Assuming the stolen money isn’t immediately funneled into offshore accounts, the sums generated by the fraud flow in some degree through Florida’s legitimate economy, representing a net economic benefit to the state from crime.

And a look at several kinds of fraud that are particularly prevalent in Florida indicates that it pumps a significant amount of money into the state. Some federal officials estimate as much as 20% of the nation’s total Medicare fraud occurs in Florida, importing some $12 billion a year into our economy.

The ill-gotten gains don’t end up stuffed in mattresses. Many of today’s fraudsters deal in so-called “clean money” in plain view of bank officers and IRS investigators. Most Medicare fraud profits, for example, arrive via government check, are legally banked, invested and declared on income statements. And, of course, they’re spent in the broader economy, stimulating sales of luxury goods, real estate and other trappings of the well-heeled. Like Moreno, scam artists “are going out and living the good life,” says Acosta. “The analogy of (white-collar criminals) being like the old free-spending cocaine cowboys is pretty much on the mark.”

Another sector of fraud from which Florida arguably derives a net economic benefit is money laundering. Despite tightened bank secrecy laws, many experts agree that huge sums are flowing illegally in and out of Florida.

Charles Intriago, a former assistant U.S. prosecutor, founder of Money Laundering Alert newsletter and a leading authority on the economics of white-collar crime, estimates that $25 billion a year is laundered in Florida. The source of those billions is myriad: Drugs, fraud schemes, even terrorism finance. Much of the money, like the billions in bogus Medicare reimbursements, is pumped into our economy from outside the state and ends up fueling sales of condos, exotic cars, fancy restaurants and nightclubs and goods at high-end retail stores.

In addition, Intriago says $1.5 billion in laundered money arrives in Florida each year from corrupt Latin American and Caribbean officials and business operators. He points to two high-profile cases: A colonel working for former Peruvian intelligence chief Vladimiro Montesinos and Byron Jerez, former Nicaraguan tax commissioner, both of whom illegally transferred to Miami millions of dollars pilfered or extorted from government coffers.

“These guys are up here living high on the hog — apartments on Miami Beach, Key Biscayne — and their countrymen back home are starving,” Intriago says. “And there are plenty more just like them we’ll never know about.”

Florida International University finance professor John Zdanowicz says the latest laundering trick is to move money into or out of the U.S. by misstating the value of import or export items. A Miami exporter, for example, might ship $1,000 worth of pencils to Colombia, but the invoice will ask for $100,000 in return. Using a computer program he developed, Zdanowicz calculates that so-called trade-based money laundering in Florida topped $8.2 billion last year.

The cost of fraud to the state? In addition to the funds spent on law enforcement, economists and businesspeople cite other impacts. One national mortgage company pulled out of south Florida because the region was generating a hugely disproportionate share of the fraud cases the company experienced. Meanwhile, Stephen Morrell, a professor of economics and finance at Miami’s Barry University and a senior research fellow at Florida TaxWatch is concerned by how scams damage Florida’s reputation, which he says hurts legitimate business by discouraging relocations and new investment.

As a business proposition, fraud is likely to remain attractive, even luring criminals from other, riskier endeavors. Acosta explains it as “the rate of return versus the criminal exposure.” While a drug offense can lead to 20 years in prison (or perhaps a bullet in the head); a $1-million mortgage fraud conviction can lead to probation and community service.

Eduardo Moreno On the lam: Eduardo Moreno lived the good life — until he was arrested on suspicion of Medicare fraud. He skipped out on a $450,000 bond.

A correct assumption, says Shanna Van Slyke, a doctoral candidate at the Florida State University College of Criminology, who studies sentencing outcomes of white-collar crimes in Florida. She says judges often ignore sentencing guidelines, sparing non-violent criminals from jail time even when the monetary value of the offense is substantial. Judges are especially lenient, she notes, when the victim is the government (as with Medicare fraud) or a faceless corporation, rather than an individual.

“The public perception is that the risk of going to jail is low,” Van Slyke says, “which may be the contributing factor when someone crosses the line between a legal and a illegal business practice.”

Col. Vicki L. Cutcliffe, director of the Division of Insurance Fraud at the Florida Department of Financial Services, says schemes are growing in size and sophistication, with organized rings — some foreign-based — increasingly common. Recidivism is up. “As long as the rewards are high and deterrent is low,” she says, “these people will be out there, always looking to be one step ahead of us.”

And Florida’s wealth and entrepreneurial culture will likely keep it fertile ground for fraudsters. “People come here to strike it rich — legitimately or otherwise,” says former U.S. Attorney Marcos Jimenez, now a Miami attorney in private practice. “These scam artists realize that Florida is a much easier place to operate and to slip in and out of, than say, Omaha.”

Fraud’s Wide Reach
Florida’s fraud schemes are creative and wide ranging. Here are some:

Mortgage Fraud
A federal jury convicted Tampa’s Ramzy Moumneh and Kamal Moumneh, along with three co-defendants in a complex mortgage fraud scheme targeting homeowners facing foreclosure. Prosecutors say homeowners were tricked into selling their properties to straw buyers, with the promise that the title would be returned after 12 monthly lease payments. Instead, the defendants obtained new mortgage loans in excess of the balance owed on the existing mortgage, siphoning some $2 million in equity.

Insurance Fraud
A federal judge sentenced Jacksonville’s Thomas D. King to 14 years in prison for overseeing a massive insurance fraud operation that left thousands of employees in eight states without coverage. As owner of the now-defunct Miralink Group, King pocketed more than $5 million from small-business owners who believed they were paying for workers’ compensation and other services.

Bank Fraud
Hector Orlansky, former president of Miami-based E.S. Bankest, was sentenced to 20 years for bank fraud and other charges stemming from the loss of $164 million by Portugal-based Espirito Santo Financial Group. E.S. Bankest was in the business of factoring — buying other companies’ receivables at a discount — but prosecutors say Orlansky earned millions by falsifying records to receive collateralized bank loans needed to finance risky acquisitions.

Occupational Fraud
Frederick Bradley Nowell of Homestead was sentenced to seven years in prison after pleading guilty to a long-running occupational fraud scam at the engineering construction firm where he served as a high-ranking executive. Prosecutors say Nowell, while vice president of the Redland Co., embezzled more than $11 million by approving false vendor payments to companies he owned.

Investment Fraud
A federal jury convicted the last of 12 defendants on investment fraud charges in connection with a $60-million pyramid scheme. Prosecutors say Canadian Jerrold L. Gunn of Niceville promised returns in excess of 360% annually for the purchase of secret U.S. treasury obligations. The investment program was a sham, and new investors’ money was used to pay earlier investors.

Business Fraud
Russell G. MacArthur Jr. of Hollywood pleaded guilty to helping dupe investors out of more than $19 million in a business opportunity fraud scheme involving the sale of DVD vending machines. Federal prosecutors say MacArthur and other principals with Hollywood-based American Entertainment Distributors exaggerated potential profits, falsely promised to secure locations for the machines and used phony references to lure prospective purchasers.

Medicaid Fraud
A jury convicted a Miami dermatologist in an elaborate Medicare fraud scheme to falsely diagnose patients with conditions requiring expensive treatment programs. Prosecutors say Dr. Ana Caos wrote hundreds of thousands of dollars in unnecessary prescriptions, which were used by associates to bill Medicare for drug treatments never administered.

Securities Fraud
A federal grand jury indicted Rodrigo Molina of Miami and Marcos Macchione of Aventura for their alleged involvement in an international securities fraud operation based in Brazil. Prosecutors say the pair assisted a criminal ring that scammed $50 million from foreigners by promoting worthless stocks and shares in non-existent companies.

Consumer Fraud
Arthur Vanmoor of Boca Raton was sentenced to more than 17 years in prison for peddling fake cures for cancer, migraines and other ailments. Prosecutors say Vanmoor and his associates devised an elaborate consumer fraud scheme to sell and promote bogus medical products through an online marketing network.

Tags: Banking & Finance, Healthcare

Digital Access

Add digital to your current subscription, purchase a single digital issue, or start a new subscription to Florida Trend.

An overview of the features and articles in this month's issue of Florida Trend.


Florida Business News

Florida Trend Video Pick

First look at the new coronavirus hospital in Miami Beach
First look at the new coronavirus hospital in Miami Beach

The U.S. Army Corps of Engineers is building a 450-bed coronavirus field hospital at the Miami Beach Convention Center. It will be ready to receive patients on April 21, 2020.

Earlier Videos | Viewpoints@FloridaTrend

Ballot Box

Do you approve of Governor Ron DeSantis' management of the coronavirus crisis?

  • Yes
  • No
  • Undecided

See Results

Florida Trend Media Company
490 1st Ave S
St Petersburg, FL 33701

© Copyright 2020 Trend Magazines Inc. All rights reserved.