Blogs & Comment

Fraud: justice system needs a push

March is Fraud Prevention Monthin Canada. I hesitate to do a post on the topic of fraud after learning of Financial Postcolumnists Jon Cheveaus recent experience. He blogged on debit-card fraud and shortly afterward his own debit card was compromised. Maybe, as Preet Banerjee suggests, Jon (and other bloggers like myself) should blog about winning lotteries!
Well, Im not the superstitious type. And there is a bit of a public service to perform here, so lets do the fraud post. Anything that can be said to keep at least one person from being victimized is worth writing about.
As for fraud, I am somewhat pessimistic everyone will ever become savvy enough to avoid succumbing to the wiles of the fraud artists. It seems to me there will always be victims no matter how much financial literacy is spread around.
At least within the current legal and judical framework that exists in Canada ….
Right now, it could be said white-collar criminals get off pretty easy in Canada. It takes years for court cases to conclude. And the law seems to be framed to make it hard to establish guiltand uphold it on appeal.
Moreover, sentences are rather light. Even Ponzi-schemer Earl Jones could be out of jail in less than 14 months– assuming he meets the good-behaviour conditions for early parole.
What is perhaps controllable is the response to fraud. The legal and enforcement environments need to become more of deterrent in Canada to discourage the sharpies. Until then, what do we do?
Take things more into our own hands.No, Im not recommending vigilante, round-up-the-posse justice. What I have more in mind is what Graham McMillan did. When he heard that his father had signed up with what looked like a scam, he approached the operators and got his fathers money back.
Most people would have left it at that. Not McMillan. He launched a campaign to keep others from becoming victims until the wheels of justice grinded down their road of molasses toward arrests and the laying of charges.
And in doing so, his campaign in online discussion forums brought forward victimsand others with their stories,eventually giving enforcement officers the evidence to proceed with charges. Here is his story (based on a past column of mine):
The story of fraud-fighter Graham McMillan:
When Graham McMillan learned in 2005 that his father, a resident of Manitoba, had been persuaded to invest $50,000 with the Institute for Financial Learning (IFFL), he smelled what he thought was a Ponzi scheme.
Returns as high as 40 per cent from lending money to a gold mine in Honduras. no paper trail. admonishments not to tell your financial adviser. no audited financial statements. regulatory actions against the founders. finders fees for signing up new members???
Nothing added up, thought McMillan, a native of Canada who works as a financial controller in San Diego. So, he raised a stink and got his fathers money back with interest. Most people would have left it at that — but not McMillan.
He reported the IFFL to about a half-dozen U.S. and Canadian authorities, dug up vital information (including working with a leading geologist to determine the gold mine was a hole in the ground) and launched as part of a campaign to warn the public while police and regulators carried out their investigations.
The RCMP laid charges against IFFL backers, Milowe Brost and Garry Sorensen, in September of 2009, following an investigation of about three-and-a-half years. They told reporters that McMillans Internet campaign was instrument to their investigation because it shone a spotlight on the investment scheme, encouraging other people to come forward with information.
If everybody did what Graham McMillan did, there would be a lot less fraud in this world,” Fraud Discovery Institute co-founder Barry Minkow told the media. McMillan kept a lot of other people from being parted from their money, he added.
But wasnt McMillan afraid of being threatened with legal action by IFFI for his campaign to discredit them? Was it not one of his concerns and what would he advise others who may be thinking of similarly blowing the whistle? That was one of the questions I put to him. He replied:
Yes the threat of libel was a concern for me since they apparently scammed over $100 million, which represents a potentially unlimited legal fund to launch SLAPP lawsuits against the likes of me. Consequently for years I kept my involvement incognito.
The website had no direct connection to me (it was an Australian site hosted by a friend), and my name was not mentioned on it. The alleged scammers could, and did, absolutely know I was involved, but proving it was made difficult by this anonymity. Beyond that, I did my best to keep info on it factual — documents they themselves had written (with commentary added), as well as police and securities commission documents.
So my advice to anyone else in a similar situation would be similar — to the extent possible, keep it factual, and keep it anonymous.
I also asked McMillan how he publicized his website and made sure there would be traffic to read it. He answered:
I started publicizing things at Where it breaks down is that being an open forum, the scammers often attempt to counter sensible warnings by having shills post rebuttals or claims that they are “perfectly happy investors” and “no one has been victimized” etc. No matter how senseless and easily disproved the responses, it dilutes the message and might give the reader the impression there are two sides to the story (reminds me of climate change!!), and the investment just might be legit.
After I discovered this, I decided a one-stop shop website was necessary to get the true story out there; thus was born webmechanic, my website. However continued to play a big role by publicizing webmechanic. That is, whenever new material was posted on webmechanic, almost immediately someone would be sure to post a link to the new info on scam, resulting in a jump in readership.
In today’s Google era, the above strategy ensured the site was quickly picked up by the big search engines.