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Delivering evidence: not just the mail; The FBI and state attorneys general usually get the credit for ferreting out financial fraud. But there's an elite unit that doesn't get much notice--and they work for the U.S. Postal Service.

Editor's note: Forensic investigations have been elevated in importance by recent corporate scandals. Writer Paul Sweeney recently visited the U.S. Postal Inspection Service to find out more about how it successfully rooted out financial fraud like that at Adelphia Corp.

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Say what you will about Jay Leno, but he usually gets the story straight. When law enforcement officers of the U.S. Postal Inspection Service apprehended John J. Rigas--the 80-year-old head of Adelphia Communications Corp., who was sentenced last year to do 15 years hard time for bank fraud, securities fraud and conspiracy--the "Tonight Show" host was one of the few people who could properly identify the federal investigators.

"The cable guy," Leno joked, got arrested by the "mailman."

It's a joke that agents at the Postal Inspection Service probably chuckled over, even though they were the butt of the joke. The truth is, that's about as much recognition as the Postal Inspection Service might ever receive. Despite the fact that the national news media took a keen

interest in the Adelphia story, few recognized that the service comprised the only investigators involved in the case, which also resulted in lengthy prison sentences for Rigas's 49-year-old son, Timothy, Adelphia's CFO, and other top executives.

Most of the press misidentified the arresting agency. Time magazine credited the FBI with the arrests. And Hockey Digest, which took an interest in the case because the Rigas family owned the Buffalo Sabres, told readers that U.S. Marshals had nabbed the Adelphians. According to agency sources, however, The National Enquirer was one of the few publications to get it right.

"It's just not a flashy organization," says former postal inspector Timothy Feeney, 35, trying to explain why the service seems so poorly recognized. Now an investigator with a New York law firm, Feeney was a member of the team that not only arrested the five top Adelphia executives who were indicted, but gathered a voluminous amount of evidence for the prosecution.

That entailed conducting interviews with members of a 53-person witness list, reviewing some 10,000 exhibits (including millions of dollars worth of antiques purchased by Rigas's wife using company funds), and scanning roughly six million pages of documents.

"They work hard and get the job done," Feeney adds of his former colleagues, "but they're generally unsung in the press. Yet they do have very strong relationships with prosecutors across the country and the kind of mutual trust needed to put the bad guys behind bars."

Almost any crime that involves the mail is fair game for the service. So it is probably no surprise that the Postal Inspection Service has jurisdiction over such areas as obscenity and child pornography, Internet scams, credit card fraud and illegal drugs and trafficking--all of which usually rely on the U.S. mail to accomplish illegal activity. In 2005, for instance, the inspection service reports that its investigations resulted in the seizure of about four tons of illegal narcotics and 214,489 units of steroids, which were found in the mail, as well as more than $4.5 million in cash and checks.

But under the mail fraud statutes, the Postal Inspection Service also has the green light to investigate all manner of corporate skullduggery, including embezzlement and securities fraud.

Kurtis Roinestad, 28, a postal inspector who also worked on the investigative team that helped bring the Adelphia convictions, thinks the agency's relatively diminutive size contributes to its playing second fiddle in the public's mind. "We've only got 1,600 agents in the world," he notes, "which is about the same number as the FBI has stationed in New York."

In law enforcement circles, however, the U.S. Postal Service is known for fielding a law enforcement unit known for its professionalism and being competent, fiercely proud and hard-nosed. All of its inspectors are trained at a police academy and are authorized to carry a weapon (and in interviews with this writer, most were wearing a holstered sidearm). Their pre-dawn arrests at 6 a.m. are legendary and, says Inspector John Feiter, the agency boasts a 94 percent conviction rate.

In addition, the service has broad latitude to pursue crimes that range far afield from stolen mail or forged money orders. Improbable as it may seem, it was the Postal Inspection Service that did much of the investigative work, in conjunction with the Internal Revenue Service, that nailed Leona Helmsley for income tax evasion. It was also the postal agency that spearheaded the investigations in the late 1980s leading to the high-profile convictions of arbitrageur Ivan Boesky and junk-bond king Mike Milken for insider trading and securities fraud.

And, today, it is the postal inspectors who are lead investigators in the case against former Refco CEO Phillip Bennett and CFO Robert C. Trosten. The two men, who turned Refco into the largest independent futures brokerage in the country, are charged with defrauding investors in a scheme that hid more than $1 billion in trading losses before the firm went public last year. Now in bankruptcy, Refco's stock plunged to 65 cents from $29 in October 2005, wiping out almost $3 billion of shareholder value.

Bennett and Trosten, who have asserted their innocence, face charges of conspiracy, securities fraud and two counts of wire fraud. Trial is scheduled for March 12, 2007.

The "Posties'" (as they are known in law enforcement circles) work bringing high-rollers to justice can evoke scenes right out of Tom Wolfe's Bonfire of the Vanities. Inspector Roinestad, for example, described the arrest of former Refco CEO Bennett one evening last autumn.

"We drove through these giant iron gates that open up, like you see in the movies, and then we went up a long driveway and knocked on the door," he said in an interview over coffee and donuts at the agency's plain, unadorned offices in lower Manhattan. "It was a huge Victorian mansion out in New Jersey," he added. "I'll never forget the way the house looked--it was a truly beautiful house."

David Esseks, the chief of the securities and commodities fraud task force at the U.S. Attorney's office for the Southern District of New York, pronounces himself a huge fan of the postal inspectors. "They're fantastic," he said. "We rely on them to do first-rate work and have been doing so for years. They do a phenomenal job."

He said that about two-thirds of the securities fraud investigations are handled by the FBI and the remaining one-third are carried out by the postal inspectors. Asked why the FBI seems to get so much more credit for its work, Esseks said: "I think that's because the FBI is strictly a crime-fighting agency, while the post office also delivers the mail."

"Historically, they started doing mail fraud prosecutions and they turned out to be very good fraud investigators," says Esseks. "Over the years, they have built relationships with federal prosecutors and assembled great deal of talent.

"So if we have a securities fraud case today," he went on, "we just say, 'Who makes sense?'" to handle the case. "And at least one third of the time," Esseks adds, "it's the postal inspectors."

One advantage that the "Posties" may have over the FBI is that the organization is far less bureaucratic. Inspector Feiter, who is an attorney, says that if an investigation starts out in New York but leads to Miami, an FBI agent working the case would be required to coordinate the case with investigators in Florida. "I'm allowed to do just about anything I need to do," says the 53-year-old Feiter. "I just get on the plane and go."

The investigators tend to work in eight-person teams that typically comprise a couple of CPAs, attorneys and investigators. Years of poring through bank records, corporate income statements and balance sheets, credit card reports, phone records and myriad other documents, as well as conducting interviews of witnesses, suspects and victims, has given inspectors a high level of skill in ferreting out white-collar fraud.

Inspector Ann Williamson, 50, talked about her investigation of financier C. Gregory Earls, who turned his prison-labor company, U.S. Technologies, into an Internet company and eventually into a vehicle to swindle Washington, D.C., society. Despite insisting on his innocence, Earls was sentenced in February 2005 to 10 years in prison and ordered to pay $21.9 million in restitution for defrauding investors.

His victims included syndicated columnist George Will and former White House counsel C. Boyden Gray, whom he knew from Christ Church in Georgetown. (And it was former FBI Chief William Webster's role on the audit committee of the company that kept him from serving on the accounting oversight board created by Sarbanes-Oxley legislation).

"In that case, I analyzed a lot of SEC [Securities and Exchange Commission] documents and bank records," Inspector Williamson says. "Earls had a lot of bank accounts in a lot of different company names. I also did a lot of interviews with victims. The bottom line was that he was siphoning off money. All the checks were in circular transactions, and, ultimately, he transferred the money back to himself."

One of her concerns as an investigator is not just that people like Earls can act out of sheer greed, but that employees who witnessed the fraud turned a blind eye, practicing "conscious avoidance."

As government workers, the postal service investigators aren't highly paid. Yet, many say that they take major satisfaction at seeing the bad guys brought to justice and, when possible, winning restitution for victims. If the money has disappeared, the inspectors say that fraud victims at least have the satisfaction of seeing the bad guys getting their just desserts.

Sara Levinson, 50, a postal inspector assigned to a Brooklyn office, admits that there is excitement in uncovering deceit and lies, as well as "following the money." She says: "The best part of my job is proving that people are spending more money than they earn. I'll get credit card reports and see where people shop. I had one woman who earned $50,000 a year but was spending $250,000, so I knew she had to be embezzling."

For Levinson, it would seem that being a postal inspector provides the added element of being on a bus-woman's holiday. "I like to shop," she says, "and for an investigator, it's important to be astute about shoes, bags and designer labels. That's for women. For men, it's expensive cars, luxury apartments and jewelry, maybe Italian shoes. "Believe me," she adds, "if they're stealing money, they're not going to Wal-Mart. They're going to Chanel, Bergdorf Goodman, Gucci, Prada."

The next time the postal agency cracks a high-profile case involving a white-collar criminal, Al Weissmann, a veteran postal inspector and public information officer, wishes he could see the headline, "Postal Inspection Service Gets Its Man." But he seems resigned to the lack of recognition that, at least for now, seems to be the agency's fate.

Still, sometimes, being unsung has its merits. Inspector Roinestad tells of working on a case with an FBI agent who, going door-to-door in a Brooklyn neighborhood, excited fear as he flashed his badge and announced that he was a federal agent.

With so many Brooklynites refusing to open their doors, Roinestad had an idea. "Tell you what," he told the FBI agent. "Let me try."

Knocking on the door at very next house, he introduced himself as a postal inspector. And even when he showed his badge, as required, the door swung open and the pair of investigators were greeted warmly. "People wanted to talk about the mail and about how much they liked their letter carrier," Roinestad said. "It broke the ice and made things much easier."

Paul Sweeney (easysween@aol.com) is a freelance writer in Austin, Texas, and a frequent contributor to Financial Executive.

RELATED ARTICLE: takeaways

* Law enforcement officers of the U.S. Postal Inspection Service apprehended John J. Rigas and his sons for the financial fraud at Adelphia Communications Corp.

* While the postal inspectors have jurisdiction over areas involving the mail, such as obscenity and child pornography, Internet scams, credit card fraud and drug trafficking, they also investigate embezzlement and securities fraud.

* The FBI gets much of the credit for its work on white-collar crime, but the low profile of the Postal Inspection Service can be helpful in gaining access to witnesses. And the unit's teams have long experience in sifting through corporate records and sniffing out crime.
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Title Annotation:fraud
Author:Sweeney, Paul
Publication:Financial Executive
Date:Dec 1, 2006
Words:2074
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