PHONIES FLOCKING TO L.A. CITY IS NO. 1 IN NATION FOR COUNTERFEIT CURRENCY.

Byline: JOSH KLEINBAUM Staff Writer

In her first 25 minutes at a Studio City nightclub, the customer ordered two glasses of wine, making each purchase with a $100 bill.

The club owner noticed right away that something wasn't quite right with the bill his employee brought him. It had the magnetic strip, and Ben Franklin's face looked good at first glance, but it lacked the normal grainy feel of real money.

``When I looked closer, the face wasn't as clear as it should be,'' he recalled. ``The harder I looked at it, the magnetic strip didn't look embedded but printed. I had to stare at the thing a good 30 seconds before I knew it was fake.''

Although most people don't know it, Los Angeles is the counterfeit capital of the U.S. In 2005, more than $6 million in counterfeit money was successfully passed in the Los Angeles area, and the Secret Service seized an additional $2 million before it was ever used.

Nationwide, $56.2 million in counterfeit bills were passed in 2005, with $14.6 million more seized before it entered circulation.

``Nationwide, the levels of counterfeiting don't constitute an eminent threat to our economy,'' said Anthony Chapa, special agent in charge of the Secret Service's Los Angeles field office. ``But we want to keep it that way.''

The owner of the Studio City club, who asked that neither he nor his club be identified for fear of reprisal, was savvy enough to pick up on the scam.

He spoke to the hostess to figure out who used the bill, then talked to his bartender and waitresses to find out if the customer had passed any others. Sure enough, she paid a bartender with a $100 bill for a glass of wine and paid a waitress with another C-note for a second glass.

The owner called 911, and police arrived just as the customer was getting ready to leave. In her car, police found $14,000 in fake hundreds, seven stolen Colombian passports and an unloaded gun.

The customer, Solange Candelo, was arrested on suspicion of misdemeanor counterfeiting and firearms charges.

The U.S. Secret Service, which investigates all counterfeiting cases, believes Candelo is part of a counterfeiting ring responsible for bringing millions of dollars of funny money into Los Angeles from Colombia.

Tracing it from Candelo to the printer could take years, but Secret Service agents in Los Angeles say the results are worth the effort. Just six months ago, a counterfeiting investigation that began in Los Angeles resulted in the dismantling of an operating in Guadalajara, Mexico, that produced millions of dollars of high-quality counterfeit money on an offset press.

``We were on pins and needles when (Mexican authorities) were heading there, waiting to see if it was a success,'' said Agent William Iseri, who heads the counterfeiting division of the Los Angeles field office. ``Taking the head off the snake, we knew everything would fall apart.''

Fake bills from the Mexican factory first surfaced in April 2002, Chapa said.

Like the Candelo case, the big break came when a savvy business person -- a stripper who received $400 for a lap dance -- recognized the bills as forgeries and alerted the police.

Although counterfeiting has no significant impact on the economy, experts say it is a nuisance for businesses, who get burned when they accept counterfeit money. Sometimes businesses will pass the expense on to the cashier who accepted the bills.

``I was in Staples two days ago and saw them doing a pen test on all of their $50 and $100 bills, but they were doing it too late -- they had these bills already in the drawers,'' said Lones Smith, an economics professor at University of Michigan who has studied counterfeiting. ``The businesses are pretty simple. Some have verification machines right there. Others, they'll just say, `No $100 notes, period.'

``It's completely too small to have any macroeconomic impact. You could pick a thousand things going on in the United States in a given year that have more of an effect on the economy.''

Counterfeiting wasn't always so insignificant. It was once a crime punishable by death, and the last woman ever executed by fire in Great Britain, in 1789, was convicted of counterfeiting coins.

During the American Revolution, Continental dollars were easily counterfeited, undermining the economy of a young America. During the Civil War, counterfeit Confederate bills were often better quality than the real thing.

A good counterfeiter is as much an artist as a criminal, and they are rarely violent. When Chapa sits down to interview printers, the villains are usually excited to talk about their craft with someone who appreciates their work.

Smith was drawn to counterfeiting, despite its small economic impact, because it seemed like a game. A friend, another professor, received fake bills from an ATM machine in Mexico. Rather than report it, she decided to see how difficult it would be to pass the fake bills. Soon, she and Smith were co-authoring research papers about counterfeiting.

``It's an interesting exercise in finance,'' Smith said. ``It's not just the criminals against the good guys. It induces mostly a game of good guys against good guys. Passed counterfeit means one good guy is getting stuck with money that he thought was good.''

While the Secret Service investigates counterfeit rings, the U.S. Bureau of Engraving and Printing tries to ensure the bills are difficult to duplicate by adding security measures like watermarks, color-shifting ink and security threads in the currency.

The government plans to introduce new $20s, $50s and $100s every seven to 10 years. A team of chemists and scientists is always looking for new ways to thwart counterfeiters.

``Let me tell you, it's a whole lot of fun,'' said Judith Diaz Myers, associate director of technology at the Bureau of Engraving and Printing. ``We wash notes, we crumple notes, we do all sorts of tests.

``Before we roll out a new design, there's a lot of research and development and production testing that goes on. We need to make sure that we're creating something that's not only aesthetically pleasing, but safe and secure and smarter.''

In Los Angeles, the effect is a dollar bill that's easier to test, so a club owner can sit in his office and figure out within 30 seconds whether a bill is real.

``People don't realize that to a small business, these counterfeiters do damage,'' said the owner of the Studio City club. ``That's $300 in change that we're out on, and she got free product. We get burned. Technically, we're still burned now. It's all evidence. The change, that's evidence.''

josh.kleinbaum(at)dailynews.com

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CAPTION(S):

photo, box

Photo:

(color) This counterfeit $100 bill was confiscated by the U.S. Secret Service. For a graphic look at fake bills, see Page 8.

John McCoy/Staff Photographer

Box:

The New Color of Money

SOURCE: The Federal Reserve and Department of the Treasury

Gregg Miller/Staff Artist