The Face and Feel of a Con Game:  A Firsthand Look

 Interviewing for a Job

By Bernard Levy

 

    In the fall of 2004, I sought employment.  My trips to headhunters proved fruitless until I met an employment counselor, whom we’ll call Sam.  He set up an interview with a real estate investment company, PAC Equities.  PAC’s office was in Bend, Oregon, a growing city 160 miles from my residence.

 

    In preparing for the meeting, I visited the company’s website and analyzed its contents. I then called Sam and expressed my uneasiness about the company. 

 

    “Sam, some things just don’t add up.  I smell a possible con game here.” 

 

    “Oh, I’m pretty sure the company’s on the up-and-up.  I placed two other executives there, and I haven’t heard any negative information.  Why don’t you interview and see for yourself?”

 

    “Okay.  I’ll take a shot and call you when I get back.”

 

    The drive over the Cascades took more than three hours and gave me time to prepare.  I hadn’t been a CFO or a controller for many years, opting to practice law for 31 years, but I still knew my financial and accounting “potatoes.”

 

    I arrived early and located the office building, a pleasant-looking low-rise, which also housed an IRS office.

 

    Upon entering PAC’s offices, I smelled the tell-tale aroma of fraud.  I am a student of “the con,” and my background in law, accounting, finance and journalism has given me much material and experience. 

 

    How do you “smell” a questionable company?  It begins when you walk through the front door.  I was greeted by a receptionist, invited to sit on a leather sofa and told that one of the two owners, Michael Rich, would be with me shortly.  The trappings looked successful enough, but the receptionist had little or no work to perform.  Michael Rich greeted me after a short wait.  It has now come to light he has used several names and two social security numbers, including that of a person who died in 1967.

 

    FBI and Social Security Administration officials now believe that his real name is Richard Forbes Williams.  Mr. Rich (Williams, if you prefer) made a weak attempt to show me the office, only introducing me to the break room which quadrupled as a mail/copy/fax room.  He didn’t acknowledge the existence of an employee stuffing envelopes, which I found very strange.  He walked briskly past his and several offices and asked me to revisit the leather sofa until his wife, Phyllis, finished her meeting.

 

    An outsider can tell much about an organization from its culture. Cold, dispassionate and agitated would be reasonable descriptive words for PAC Equities.  Several people walked by, and only one offered a weak “hi.”  An agitated employee, perhaps the in-house counsel, queried the receptionist on a missing original document which she couldn’t find.  He picked up the file from her desk and was clearly agitated, unfriendly discourse passing between them.

 

    The interview with the Richs was a classic case study of how not to interview an applicant.  The Richs were totally unprepared and, in hindsight, it’s possible and plausible they had decided not to consider me before the meeting.

 

    They had my professional summary and asked me to add any information I wished.  I briefly outlined my financial and accounting background and accomplishments, but they cut me short to describe their organization and immediate need for a person who could prepare full financial statements.  Michael said they had no such financial statements.  This was, of course, a red flag to any reasonably knowledgeable businessperson since the company had been in business for at least two or three years and should have had competently-prepared financial statements much before this.

 

    I then asked some questions about the “guts” of their operation, namely their sale of promissory notes secured by deeds of trust (mortgages) and lending the funds received  to builders and developers.  He told me that that was no longer true; they’d changed direction.  I then directed him to the obvious conflict between their website information and the July 2004 newsletter regarding the sale of limited liability partnerships/limited liability company interests.  Mrs. Rich told me the website was currently being updated.

 

    They abruptly changed the subject to whether I could do job-cost accounting.  I answered with a resounding “Yes.”  I then tried to redirect the conversation to whether they were selling securities which, unless exemptions were available, had to be registered with state and/or federal agencies.  They stated they were aware of those issues and were getting advice from lawyers and others.  I again brought up information contained in both the July 2004 newsletter and website that should have been corrected.  I tried to be kind and candid, noting that I knew what they’d probably meant, but the language was materially incorrect.

 

    Mrs. Rich said they still had additional candidates to interview, and they would notify me.  I shook hands and left, pausing outside their office to count all the fingers on my right hand.

 

    I called Sam and told him that there was a serious problem with the company, and I smelled a rat, or perhaps two of them.  He thanked me for my input with a dismissive tone.  For whatever reason, I was never sent on any future interviews with Sam’s company, and the Richs never contacted me further.

 

On May 26, 2006,     The Oregonian ran a front page major story entitled, “PAC Equities Owners Back in Jail, Court.”  The Richs had been arraigned in December, 2005 for fraud and placed under various court constraints including the use of funds in their possession.  The Oregonian noted they had violated those requirements, and the FBI apprehended the Bend couple on May 2, 2006, which has resulted in incarceration, probably until their trial scheduled for July 26.  The Feds have accused the Richs of running a Ponzi scheme that scammed hundreds of investors for a total of $18 million, or more.  Separately, the Richs face a civil suit by 22 investors for $3.3 million. 

 

    The PAC Equities website that I visited contained some pretty impressive stuff about Michael and Phyllis and their company. (If you had visited the Enron website back in its heyday, it, too, had some pretty impressive stuff.  Incredible, but impressive.)  PAC Equities’ website was very attractive — multi-color copy with professional photographs of the Richs and their personnel, beautiful scenery and impressive thirty-year career histories.  It showed projects currently open for investment partners,  renderings of future projects and a photo of construction in progress.  The June, 2004 PAC Equities News entitled, “Legal Papers You Should Not Live Without,” and the May, 2004 letter from the President contained articles on revocable living trusts and other interesting subjects.  The PAC Equities News dated July, 2004, headed, “Great News for Investor Partners,” “Returns on investments are being increased,” also contained some timely information on LLCs (Limited Liability Companies) and some news on projects, namely Pinnacle Tower Homes with a picture of the Pinnacle Point Meadows, and a picture of “Paul’s Dairy, a modern new dairy in Culver, Oregon,” noted as built with PAC Equities investor-partners’ help.

 

    It all looked and even “smelled” good to a reader until you did your due diligence.  The Oregonian’s article noted that, in part, “…most of the housing and commercial projects never got off the ground and didn’t produce any income according to court papers.” 

 

    How did the Richs (what better owner name for a company attempting to grow wealth for their clients) pull it off?  How could two “30-year experienced real estate professionals” pull it off in Bend, Oregon?   Their website information included: “Searching for a permanent home, we found a combination of small-town friendliness, including a healthy climate and growth pattern in Bend, Oregon in 2001.”   Their prior homes had been Phoenix; Hawaii; Vancouver, British Columbia; Seattle and Olympia, Washington.  Why would self-acclaimed, financially-successful real estate professionals perform a con game—a Ponzi Scheme, one of the oldest in the book and always eventually doomed to failure—when they could have done business the right way? 

 

    Why do people do these things with the probable prospect they will get caught?  How many places could the 69-year-old Richs start up again?

 

    The answers are simple; need, greed and corruption:  Need—the need of the ever-present prospective investors seeking suitable investments; greed—principals who lack ethics and moral values; corruption—the wonderful ego attribute that cries out for attention and tells the world that the corruptors are smarter and more gifted than others.  “Others may get caught, but not us.”

 

    Most investors want to “run with the rich kids.”  In this case, the rich kids were Michael and Phyllis Rich.

 

    Look around your hometown or nearby metropolis today.  There are probably many similar con games in progress.  Why?  You got it  -  Need, greed and corruption. 

 

Thou shalt not steal.

Exodus 20:15

 

 

    (Editor’s note:  We’ll be covering similar stories and offering analysis on both the increasing “cons” in our society and the ever-present Need, Greed and Corruption in not only business, but government and society.)