Temptation and greed have made 2008 a banner year for white collar crime; the feds are determined to clamp down.
Tom Petters. Michael Parish. Neulan Midkiff. Robert Beale. Eldon Anderson.
With names like those dominating the headlines, 2008 turned out to be a very big year for white-collar crime.
Actually, it was a banner year for attacking greed. Federal officials pressed their assault on those accused of scamming Minnesotans, whether it was allegedly fleecing billions from investors or pocketing millions from unsuspecting homeowners.
At a time when the economy is reeling and more people than ever are down on their luck, the temptation for those who have money to find crooked ways of getting even more money seemed to become more irresistible. Yet nothing raises the ire of federal investigators more than people cheating customers -- particularly Uncle Sam.
"Greed -- that's always number one of the list of reasons why. Greed or selfishness or entitlement," said Hank Shea, who prosecuted white-collar crime in the U.S. Attorneys office for 20 years. "The moral fiber breaks down."
Shea, who is now a fellow at the Holleran Center for Ethical Leadership at the University of St. Thomas law school, said federal officials have made attacking white-collar crime a priority for good reason: It's a bigger problem than ever.
"There is more temptation today. We all want more than we really can afford," Shea said. "It's the instant gratification mindset: 'I have to have it now.'"
The 2008 rogue's gallery of greed includes:
• Tom Petters. He was indicted earlier this month on 20 counts of fraud, conspiracy and money-laundering in an investment scheme that prosecutors say bilked investors out of billions. Petters owns several companies, including Sun Country Airlines and Polaroid. He faces the possibility of life in prison, if convicted. The effects of his case are being felt across the country. Even charities and non-profits that relied on Petters investments have been hit with losses.
• Michael Parish. Parish is serving a 13-year prison sentence for what prosecutors called the largest mortgage fraud scheme in Minnesota history. The fraud involved recruiting straw buyers for about 200 homes in New Prague, New Market and Lonsdale and led to an estimated $20 million in losses. Officials say the Parish fraud may have depressed home prices in the south metro for years to come.
• Neulan Midkiff. The former Forest Lake minister was sentenced to 15 years in prison for his role in a multimillion-dollar pyramid, or Ponzi, scheme. Midkiff was blamed for nearly $18 million in losses.
• Robert Beale. The former North Oaks millionaire-turned-tax protester was sentenced to more than 11 years in prison for hiding more than $5 million in income and cheating the state and federal governments out of more than $4 million in unpaid taxes, interest and penalties.
• Eldon Anderson. Described by prosecutors as a repeat -- and unrepentant -- con man, Anderson was sentenced to eight years behind bars and ordered to pay $1.5 million in restitution to hundreds of investors in his bogus companies.
White-collar crime, said U.S. Attorney Frank Magill, "destroys citizens' trust in their government and it can have a tremendous financial impact on a community."
While the total for 2008 white collar prosecutions is not complete yet, McGill says he estimates that white-collar cases make up 25 to 30 percent of his office's caseload. While that's about the same rate as 2007 it's measurably more than even five years ago, reflecting the higher priority.
The IRS' Criminal Investigations Division made more recommendations for prosecution and helped turn out 200 more indictments or criminal charges than either of the past two years. And, of the 734 cases that resulted in sentences in 2008, 79 percent of the suspects were incarcerated -- the highest rate in years, IRS officials say.
Francine Evans, special agent in charge of the St. Paul office of IRS Criminal Investigation, said those numbers reflect an intensified focus on bigger cases. Her office works with the FBI and other agencies to pursue the larger fish.
Going after high-profile offenders helps spread a high-profile message, Evans said. Cheat on your taxes and you're going to get caught. Remember, it was unpaid taxes that derailed Al Capone. Well, this year, unpaid taxes also tripped up Beale, the former North Oaks millionaire and tax protester, and Larry Kladek, the Inver Grove Heights strip club owner.
"They don't think they'll get caught," Evans said of most offenders.
A day in court
On a day earlier this month, U.S. District Judge Paul Magnuson made clear that even seemingly small-time cases can have a major effect on employees, customers and investors.
At 9:30 a.m., Magnuson handed Michael Boike 21 months in prison for failing to pay employment taxes. Boike's attorney told the judge that his client is a "very, very good man" who made "some serious mistakes" in running his janitorial business.
Magnuson, however, said: "People have to know, everyone has to know, small businesses have to know that if you carry out that kind of offense, you will be punished."
He added: "In essence, you were stealing from your employees."
At 10 a.m., Magnuson handed down a 21-month sentence to Richard Lange, a longtime credit union president, for embezzlement and filing a false tax return. Again, Lange's attorney talked about the good Lange has done in his life.
Again, Magnuson talked about the harm caused by an estimated $200,000 obtained by Lange:
"You've done a lot of good things in the world. But you've done something bad. And when you do something bad, you have to be punished for it."
Then, at 2 p.m., it was time for Magnuson to sentence William Jones, a Park Rapids man who had pleaded guilty to tax evasion. Jones denied trying to evade paying taxes. He simply wanted to defer paying them, he said. "My ego ran amok. I cut corners."
Magnuson ordered that he serve a year and a day behind bars.
Shea, who moved into teaching in the hopes of helping bolster ethics among both future lawyers and business leaders, said very few white-collar criminals start out intending to commit crime.
"The way good people get caught up in this is that something goes awry," Shea said. "And then they make the 'just once' rationalization."
They'll skim from the business and not report it as income "just once." They'll pocket an investor's money to pay personal bills "just once." They'll forge mortgage documents and recruit straw buyers "just once." But, Shea said, "just once" for many becomes an ingrained pattern of criminal behavior as the bills get bigger and the desire for wealth becomes ever stronger.
"Once you open that door," he said. "All bets are off."
James Walsh • 612-673-7428