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Bust-out king reveals secrets to a successful scam.

LAS VEGAS--Three years after his release from prison, Al Forman is a grateful man. Speaking at the recent NACM Loss Prevention Symposium in Las Vegas, he thanked credit managers, investigators, and even the FBI agent who ultimately arrested him.

These people brought down one of the most successful bust-out artists ever and Forman credits them with helping him straighten out his life and enabling him to "make strides in the art of living."

Standing at a podium facing a crowd of more than 100 credit managers and financial professionals from around the country, Forman began his foray into public speaking fumbling with index cards and telling his life story before finally getting down to what everyone was gathered to hear: how he did it.

What Al Forman did was to fool creditors and investigators for a decade while setting up and deliberately bankrupting numerous companies. He was involved in more than 20 different businesses during this time and, at his peak, had four separate bust-outs operating simultaneously.

Forman, 54, admits he has no idea where the term "bust-out" originated, but he certainly understands its meaning. A bust-out is a planned bankruptcy or insolvency, often of a phony company that sells merchandise from other companies. By first placing small orders with suppliers, the bust-out artist gradually gains the trust of creditors and eventually works up to larger orders. By selling the products at discounts of 25 percent or more, the bust-out artist can pay for smaller orders until the time is right for the bust-out. Because creditors do not expect payment for 30 to 90 days, the bust-out artist can order and receive bulk shipments without paying right away. And when creditors finally run out of patience, the bust-out artist files for bankruptcy or disappears.

From the early 1970s until his arrest in 1985, Forman mastered the bust-out. In all, his crimes cost creditors about $40 million, averaging $1 to $4 million per bust-out. At the time of his arrest, he was managing bust-outs in Pittsburgh, Rochester, Long Island, and Ft. Lauderdale. By Thanksgiving of 1985, all four operations were in high gear with products coming in by the trailer load.

"All things have a beginning and an end," Forman said. "I really do believe that if I wasn't caught, those four bust-outs were going to be my last."

With creditors, FBI investigators, and the U.S. Postal Service trailing him, Forman was finally arrested and convicted of mail fraud and interstate transportation of stolen property and sentenced to 17 years in prison. He served six of those years and was released in 1991.

How He Did It

According to Forman, there are six necessary components to a good bust-out:

1. capital, preferably $100,000 or more; 2. a capable front man; 3. good location from which to receive and ship merchandise; 4. equipment; 5. financial statement; 6. and a corporation.

Once these elements were in place, 99 percent of suppliers that Forman contacted shipped to his phony companies without a thought and were defrauded. In addition to the six elements above, Forman found that it is not wise to place too many orders at trade shows, because all orders are checked by a credit reporting agency. He made sure that a front man attending a trade show never placed more than six orders.

By adhering to a few basic rules and lining up the six elements, everything just fell into place--creditors approved orders, merchandise was shipped without payment, and the bust-out company in turn said at discount to retailers and suppliers. Creditors readily increased credit lines and Forman was surprised at how easy it was to go from a $3,000 limit to more than $10,000.

"A good bust-out is an illusion where you paint a picture that I'm going to buy your merchandise and sell your merchandise but I'm not going to pay the bills," he said. "There isn't a salesperson around who doesn't like large orders."

The Fall

After a long run of successful bust-outs investigators began asking questions. Forman was questioned by the FBI in Boston about a company that had filed for bankruptcy. That deal had started with Forman's father-in-law and Forman was one of the company's clients. After that, more questions arose and Forman was followed by FBI agents. The arrest came just a few days before Christmas in 1985. All of the warehouses were closed and Forman's father-in-law was arrested as well.

"All I could think about was that famous expression, 'I woulda, coulda, shoulda.'"

Although Forman expresses remorse for his crimes, and served a six-year sentence, some credit and financial professionals who attended Forman's speech at the Loss Prevention Symposium were not satisfied.

"I'm very surprised that his sentence was so light and that he's out right now and gainfully employed talking about it," said Jay Jones of Procter & Gamble, Cincinnati. "He should probably still be [in jail] or at least making some restitution and that didn't come through in his speech at all."

[Symposium organizers noted that Forman was paid only a $500 fee plus expenses.]

Kathy Albright, of Ralston Purina, St. Louis, agreed with Jones that Forman should have been punished more severely.

"After many years of seeing his name, it was interesting to see him face to face," Albright said. "But I agree that he probably shouldn't be out."

But symposium organizers Rob Lawson, director NACM Loss Prevention, and Todd Sheffer, senior investigator, NACM Loss Prevention, disagreed, noting that Forman actually served a relatively long sentence.

"Forman served six years in prison for his crimes. Many would say that isn't enough, but compared with many other white collar crime offenders, that is a substantial amount of time," said Lawson.

Sheffer agreed, noting that fellow white-collar offenders Michael Milken and Ivan Boeski served less time.

Most symposium attendees agreed, however, that practices like Forman's bust-outs are not uncommon today and that the problem of fraud in American business is growing.

"Fraud is very pervasive in American business," Sheffer said. "With law enforcement concentrating on problems like drugs and violent crime, fraud is increasing. Law enforcement's resources are limited in its fight against white collar crime and private industry must institute internal and external controls to protect itself from fraud."

Forman's Future

After all that Forman learned during his decade-long bust-out spree, perhaps no lesson proved more profound than that of getting caught and spending time in prison. He is now working in the health food business and lecturing on his experiences. But Forman insists that creditors will not have to worry about any future problems from him.

"I have done harm for what at the time seemed to be good motives," Forman said. "Sometimes my supposed love of others was in reality only a desire to dominate them. Looking back, I wish I had learned to master myself, to control my impulses, and curb my cravings for power, possessions, and pleasure. What has happened to my life's progress the last three years, I've made strides in the art of living so that what I admire in people, others can admire in me. Perhaps a little, but certainly not enough."

For more information about NACM's Loss Prevention Department, contact Rob Lawson or Todd Sheffer at 410-740-5560.

Kevin C. Naff is communications associate/editor for NACM.
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Title Annotation:Al Forman
Author:Naff, Kevin C.
Publication:Business Credit
Date:Jan 1, 1995
Previous Article:Symposium brings together criminals, law enforcement, and creditors.
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