Saturday, November 27, 2010

Cash Conduit: Engineering clandestine pay-for-play schemes

UPDATE: This update corrects the name of the ousted Birmingham Mayor to Larry Langford.  Apologies to Jimmy Langfords everywhere.

In the ongoing investigations into the failure of Colonial BancGroup, check kiting and mortgage fraud and a vote-buying conspiracy in the Alabama legislature, a number of theories from knowledgeable observers have emerged on how funds from the failed Montgomery banking concern and a now-closed casino might have been funneled to athletes at Auburn University, a primary benefactor of of the largesse of Bobby Lowder, Colonial, Milton McGregor and VictoryLand.

Here are two schemes posited by individuals either close to the investigations or with direct knowledge of the techniques described.

image The ATM/Debit Card Scheme.  There is no need for a human bagman to carry around the sacks of cash used the last time Auburn was implicated in a pay-for-play scheme. You have a group of well-heeled, well-financed boosters take out ATM cards in either their own names or in the names of businesses they own, work for or represent. These are distributed to their recipients, along with a PIN to be used for withdrawals at cash machines. While it would complicate matters and create a more tangible paper trail, they could also be used for purchases at retail locations. The convenience is tempting. With no bagman, there are no large withdrawals of cash with bank tellers as potential witnesses.

If you had a bunch of players to "take care of," you'd quickly get over the $10,000 limit that requires a Currency Transaction Report, or CTA, on the part of the financial institution. CTA’s are required for any cash withdrawal or deposit of $10,000 or more, and were imposed in the 1980’s to combat money laundering operations of drug dealers and organized crime figures.  The accounts accessed by the cards could be replenished electronically, often with nothing more than a phone call. When you control a bank, who would ever know? At a glance, with no players' names appearing on withdrawals, it wouldn't even look suspicious - just Dr. Joe Blow making a series of $100 withdrawals. Of course, the fly in the ointment is that a picture is taken of each bank withdrawal and perhaps Dr. Joe Blow making the withdrawal doesn't look like your typical veterinary doc - might not even resemble the real Dr. Blow at all.

Any interested federal or state investigator coming along behind would have access to the electronic records plus the ATM photos. However, some ATM machines—like those found at convenience stores—may not store photographic records at all, and some smaller banks only keep those photographs for a short period of time. Once that time has elapsed, there is little record of the transaction.  If our scheme’s hypothetical architect had lost control of the bank through which funds had been laundered - OUCH! IF the architects and their co-conspirators had discussed the "how, who and where" over the phone and an agency with a wiretap warrant had picked up these discussions in the process of another investigation then OUCH! again.

Another way of accomplishing the same job is the prepaid debit card, obtainable at most financial institutions or large retailers.  They are essentially gift cards, but you can use them at any store. No ID or PIN numbers are required. Virtually untraceable. If this is  the method used, the chances of documenting it without witness cooperation go down sharply. Of course, this is all just a hypothetical on my part. Any resemblance to any real persons, living or dead, is totally accidental and unintentional. Just outlining how it might have worked.

image The Guaranteed Jackpot Scheme. This one isn’t a hypothetical at all. In fact, it’s been done before. An individual goes into a casino and walks out with several large jackpots, which depending on their size, are not reported to the IRS as taxable income. In February 2008, Birmingham Mayor Larry Langford went to a casino, sat down at a bingo machine (a dead ringer for a slot machine)  and hit a $96,000 payday. He returned on March 14 and hit another $93,000 in payouts. A week later, same joint, this time $63,000. But these exceed the taxable reporting limit and Langford’s greed was his downfall. Tax records and lawsuit filings show he padded his income by about $1.5 million on an eye-popping 555 jackpots. Langford was convicted of bribery and sent  to prison.

The owner of the casino Langford got so “lucky” in was owned by Milton McGregor, a central figure in the vote-buying scheme, a director of Colonial BancGroup and prominent Auburn booster.

The machines are programmed just like ordinary slot machines in any garden variety casino. They are set up by their operators to pay out between say 40% and 125% of what they take in during a predetermined time period. The payouts on that machine will start to increase or decrease until it reaches that programmed payout level. You can NOT control the exact amount of individual payouts though, so the operator must devise a comp scheme such that has the lucky player uses little of his own money, and he walks out with straps of $100 bills. Making rounds on the ‘net is a photo of an Auburn football player holding what appears to be just such straps, and the straps themselves are the types used by casinos.

It will likely be many months before investigations are concluded and we learn whether grand jury indictments will be handed down. Only then will we learn the full extent of schemes such as those described above.

It is also increasingly likely that, while we first learned of potential shady dealings when John Bond went public with a pay-for-play scheme allegedly offered by Cecil Newton, father of Auburn Quarterback sensation, Cam Newton, the web of corruption is much wider and much more complex than one father shopping one talented son to one institution.

From Langford’s conviction on bribery charges last year; to the check kiting schemes of Colonial BancGroup and the subsequent indictment of Lee Farkas; to the well organized campaign of bribing legislators to sway their votes on controversial gambling legislation; to the potential for tens, if not hundreds of thousands of dollars funneled to college athletes… the names of Bobby Lowder and Milton McGregor keep surfacing. And, much of that money would have been virtually undetectable until Colonial’s financial house of cards collapsed last year and its books thrown open to state and federal banking regulators and investigators.

This may one day read like a Shakespearean tragedy that would bring tears to the eyes of The Bard himself. The things Bobby Lowder and Milton McGregor loved most—Colonial, VictoryLand and Auburn University—could ultimately be destroyed by the very greed and hunger for power displayed by the two actors themselves.

h/t to TIDE-HSV and Bama Reb for details on the schemes.

2 comments :

Guy Average said...

The ATMs in any size bank don't keep the pictures after the transaction has cleared. There is no reason to do that because if the transaction clears the account without any problem then it is assumed that the transaction was legitimate, and hence no need to store a picture that corresponds to the transaction.

There's a lot of smoke around this issue. The fire hasn't been found yet, but where there is smoke...

Anonymous said...

Good article. But Birmingham's mayor was Larry Langford, not Jimmy.