“Take the Money and Run”
by Christopher Menkin
Leasing News asked this question of its readers: "You are a funding source and you have a broker that has committed fraud (or at best serious misrepresentation) totaling several million dollars") "If the broker agrees to pay part of the debt
in return for a "hold harmless agreement" and an agreement that your
employees are bound by a non-disclosure agreement, would you take the
cash to reduce losses--- or pursue legal remedy?"
Readers overwhelming said they would “... take the money and run.”
Old Kent took the cash and agreed to silence. There were accusations
of selling the same lease to another funder, for taking payoff money
but continuing to make payments as if the lessee had not paid off the
lease, and allegedly there was little or no equipment to support even one lease.
Equipment was allegedly inflated, and reportedly in some instances, kick backs
were made knowingly by the vendor to the lessee in inflated invoices.
The alleged fraudulent practices seems to have continued in much larger dollar amounts with the victims being CIT, Sierra Cities, and perhaps two dozen or more
community banks. If it is proven true in court cases to be heard
hopefully in 2003, this could be one of the largest leasing "Ponzi"
scams in the recent history of equipment leasing in the United States.
What brought the alleged fraud to the surface was a declining
marketplace with fewer sales to generate the cash necessary to cover
late payments as defaults mounted due to a poor economy. This claimed "Ponzi"
type flow of checks to funding sources apparently finally caught up with RW
Professional Leasing when their brokers blew the whistle not only because
of the complaints they were receiving from customers they referred
to RW Professional, but because they were angry they didn’t get
paid their commissions. You don’t mess with a salesman’s commission.
February 22, 2002, Finance Team of America, Weston, Florida formally
severed its business relationship in a certified letter to RW Professional
Leasing. This "super broker" also filed a formal complaint with the
Consumer Department of the Massachusetts Attorney General's office about
RW Professional Leasing Services, 445 Washington Street, Wellesley,
Massachusetts. They claimed that RW Professional was making payments for
defaulted leases to American Express and others. They also questioned
how early payoffs and existing leases were being handled.
Finance Team of America’s Bob Castro, Eric Castro, and Scott Wheeler wrote in their letter, “... several of our clients have also contacted our office to say they have not received funds and have been waiting many weeks in some cases months. Many doctors are also being billed without receiving their funds and some are asking questions about the descriptions and structure of their transaction on their monthly statement. Vendors have not been paid upon delivery. In addition,
financial institutions have not been paid as required by contract when
early payoffs have been made by lessees.”
They added the complaint, “...our commissions are well past due for months now and we have tried to work with your company on a payment plan for the past due amounts that now add up to a six figure sum”.
Finance Team of America also contacted the Federal Bureau of
Investigation. They believed RW Professional Leasing was engaged
in fraudulent activities. They didn’t want to have anything to
do with them. ( Finance Team of America has since changed their name to Bankers Healthcare Group, Inc. )
During this time, the Leasing News stories were getting the attention of
the authorities, several community banks, plus physicians and dentists
who called and told us stories like asking for a payoff at the bank where
his records showed he had 11 payments left, while the bank claimed there
were 52 remaining.
In June 13, 2002, Crawford & Sons, Ltd Profit Sharing Plan along with
Plaintiffs East Prospect State Bank, Equitable Bank, First National
Bank, First Security State Bank, Northwest Bank, People's Bank, Sand
Ridge Bank, Bluestem National Bank, First Victoria National Bank, American Savings, FSB, Mutual Federal Savings, Dime Savings Bank, Third Federal Savings Bank, Fidelity Bank of Florida, Citizens National Bank file in the U.S.
District court with Judge Arthur D. Spatt, presiding, for $11,029,198 against
defendants Rochelle Besser, Wallace I. Besser, Barry Drayer, and RW
Professional Leasing Services, Inc. The lawsuit also charged the
defendants with bank fraud, mail fraud, wire transfer fraud and violation of the RICO Act.
June 21, 2002, "forty FBI agents raided the offices of RW Professional
Leasing in Island Park, NY, on Long Island” The New York Times
reported. Those arrested were RW's president and co-owner, Rochelle
Drayer Besser, also known as Rochelle Drayer, 66, of Long Beach,
California; her brother, RW's senior vice president, Barry Drayer, 62, who operated a branch in Wellesley, Mass. (reportedly the defacto CEO); another brother, Roger Drayer, 59, of Long Beach, who holds various titles, operating a small office in California; and Roger Drayer's daughter, Jennifer Tarantino,
also known as Jennifer Drayer, 31, of Oceanside, California.
Prosecutors said "RW Professional Leasing Corporation concocted
elaborate schemes using up to 100 rented mailboxes as far away as
California to send phony checks, sham invoices, bogus leases and other
false documents to banks in various states, “ the story said. “ Based on those documents, the banks lent RW millions of dollars to buy equipment and lease it out under recourse provisions. ‘
"The schemes included multiple loans from different banks for the same
medical equipment and loans for equipment that was never bought or
leased, prosecutors said. It is said it may go higher than $200 million,
including the American Express-Sierra Cities portfolio. Vendors,
brokers, attorneys, and others are owed money,” The New York Times story
concluded. “ There may also be 'brokers' and others to be named in the scheme."
On June 27, 2002 the case was filed in New York Eastern (Islip) criminal
docket, case #02-CR-767-ALL as "USA v RW Professional, et al" with the
honorable Judge Arthur D. Spatt to preside. The pending counts included
18:371.F Conspiracy to Defraud the United States; 18 USC 371 and 3551 et
seq. alleging that in or about 1997 and June, 2002, the defendants did knowingly and intentionally conspire to execute, attempt to execute a scheme, and
artifice to defraud financial institutions. Specific named banks include
Alliance Bank, Northwest Bank, along with Money Laundering-Interstate
Commerce (approximately four pages of pending counts.)
On August 19, 2002 American Express Business Financial Corporation filed a
suit in the Eastern District of New York (Central Islip) for
$20,000,000 against Professional Leasing Service Corporation. The
president was Rochelle Besser. The vice-president was Barry Drayer, who
evidently has always been vice-president., although all that we talked
to told us Barry Drayer allegedly made the decisions and all negotiations went
through him. Rochelle Besser is his sister.
The American Express Business Finance lawsuit came almost one year after Charlie Lester of LPI Financial, Marietta, Georgia, founder of Lease Pro,
which was acquired by First Sierra in 1997, had emailed a long time friend and executive at American Express a warning about RW Professional based on a July 16, 2001 meeting with Barry Drayer at Barry's office in Wellesley, Massachusetts..
(Charlie Lester, taken on Father's Day, with his oldest
daughter Sharon Hess on the left, and his youngest
daughter Melanie Milligan
Charlie Lester said he had known Barry Drayer since 1990 when they joined the Denrich recourse program together and he considered Barry Drayer a friendly competitor. He said the purpose of that visit was to see if there was a possible joint venture opportunity for LPI Financial and RW ,since they supposedly offered complimentary programs.
After Barry Drayer explained how he could place 35-38 points in a deal, according to Charlie Lester, he then explained that with multiple funding sources he could use the same credit package with only one CBR pull to offer the broker or lessee multiple approvals instead of just one. In the course of the conversation, Barry Drayer reportedly said he would go bankrupt and start up under another name if he could not solve his problems with American Express.
When he returned to Atlanta, he notified Leasing News as an
advisory board member about the meeting . He also said he had contacted his funding source executives to warn them. He also wanted to protect LPI's reputation, he said, since he felt fraud was being committed. He did not want to be associated with it. He had made a tape of what was said so he would not forget the details of the conversation after leaving Barry Drayer’s office that Monday morning.
His friend at American Express acknowledged that they were investigating RW, but they still continued to fund RW transactions for months. One broker who was a Leasing News reader and close to the situation said he believed that American Express continued to fund RW's deals since he was making payments, which may have come from early payoffs on leases actually owned by community banks.
The head man at Sierra Cities, Tom Depping, was aware of the "problems"
with the RW Professional portfolio, and issued a memo to his
subordinates who brought the situation to his attention. The company
was in the process of being sold to American Express Business Finance, which was conducting its "due diligence." This is the story as we have pieced together
from the participants.
We attempted to obtain a copy of the memo from the attorney in the law suit,
as well as the opposing counsel. The plaintiff and defendant’s attorneys both told us they would make no comment on “active litigation” nor would their clients
have any comment at this time. Rich Tambour, General Manager of American Express Business Finance, did not return any of our telephone calls.
At the Charlie Lester informed his friends at American Express about the
conversation with Barry Drayer, he did verify to Leasing News that the old First Sierra group at the time was investigating possible problems with the portfolios of RW Professional Leasing. He also was able to verify that American Express was conducting an investigation also on its own.
August 31,2001, Leasing News printed:
"A high ranking executive with Amex has verified that Amex is investigating possible problems with the portfolios of RW Professional Leasing and the Republic Group. There is no cover up attempt on the part of Amex, but in fairness to everyone, the issues have to be thoroughly investigated before any public comment can be made".
September 7,2001, Leasing News asked the question about what would
a funder do if offered some cash with the stipulation of non-disclosure
of the alleged offense. At this time, we started to run a three part series on "private label" and "discounting leases," including an interview with our senior leasing news advisory board member Charlie Lester .
After a 19 year sales and management career with IBM, Charlie settled in Atlanta and somehow got into the leasing business in 1984. In 1986, he founded Lease Pro, Inc. and operated it as a medical niche broker until 1997 when First Sierra Financial acquired most of its assets. The remaining assets were assigned to LPI Financial Services as a new corporate entity.
“-After his two-year contract was honored, he resigned and sat out his non-compete period before expanding LPI Financial into a niche broker offering working capital loans to medical professionals.”
To understand what went wrong, you need to understand how discounting a lease
and a private label program works, and that was the purpose of the three part
Discounting leasing is when you have a lease contract with your name on it and
discount the stream of payments to a buyer ( bank, funder, syndicator) ( you may
or may not keep the residual and may discount it too, meaning present value the
stream of payments and the residual, too ). You get paid up-front, instead of the
difference between the monthly interest earned and paid. It may be recourse
or non-recourse, but it certainly will have “representations and warrants.”
Sierra Cities bought many discounters local operations and combined them
into one, calling it a Private Label Program. They offered the ability to
continue to discount plus to accumulate leases and syndicate them to the
public for a better rate of return; a better margin and more liberal credit
policy. Westinghouse, CIT, Heller, Textron, and of course, GE also
have private label programs, but Sierra Cities carried the Colonial Pacific
Pegasus program one step further. In fact, this division was making
a $20 million annual profit from its inception. What made it so successful:
Oren Hall, Mark McQuitty, Jim Raeder, Charlie Lester, Fred Van Etten,
Mike Wing and others were in leadership capacity.
Around this time a person claiming to be the president of American Express
Business Finance called, who I believe said his name was Danny Lamb,
asking me not to print the financial statements. I said I would not. In reality,
I because I didn’t know what he was referring to.
He called a second time, saying this was, “Danny,” and thanking me again
for my “cooperation.” As I started to ask some questions, he ended the
conversation and never called again as the September 11 terrorist
attach on the Twin Towers brought an major disruption to the investigation,
as our way of life changed dramatically, plus the operation of American Express, who had to relocate its office, re-build, re-organize its New York operation.
It was not until after the first of the year that we went back to completing
the story, spending the next year and a half interviewing as many of
those involved as possible. Many interviews were done in person
at conferences, at social gatherings, and some over the telephone, several
by e-mail, as the people involved learned we were trying to put the
full story together with the main goal of being “accurate.”
Thomas J. Depping Looking Out Upon Houston, Texas
The people involved did not label Mr. Depping as "inept" or a "crook,"
but a man "trying to hold it together" and find a buyer for his company
that had basically grown beyond the securitization marketplace. The purported reason for the MidAm leases was the need to maintain high monthly funding even if the yield was minimal, as explained to Leasing News. The purported reason to keep doing business with RW Professional was the volume and yield to offset the MidAm business. This was a decision made at the Depping level where "the buck stopped here" even though some of his own staff had not only raised red flags, but were waving them frantically..
Not that Mr. Depping did not have his detractors, several of whom
sued First Sierra after Depping was long gone. American Express Business Finance allegedly brought legal action against several officers and employees.
It is reported most made settlements with the common thread being not to disclose the outcome or settlement.
Despite the financial turmoil and loss of money by many, Depping's
followers say the "Gazelle" (the name he likened himself to in his
departing memo) was a very hard worker, dedicated family man, but became
a loner-a position he did not enjoy----and in the business jungle, out
ran the leopards who changed their spots; the lions who ran in packs
because they had little courage, and he chose to be called the "Gazelle"
because there is no faster animal.
Or maybe Depping was more accurate in knowing the full description of
the animal: "They are the prey of many creatures, including cheetahs,
cape hunting dogs, lions, honey badgers, jackals, hyenas, leopards, and
crocodiles. Their young are preyed upon by lions, leopards, cheetahs,
all types of large cats, plus, baboons, pythons, and packs of
jackals...Their only defense is to flee, and they are excellent escape artists.
They can leap 10 feet into the air, jump 30 feet in a single bound, and
make turns much faster than a cheetah can.
The story of how the RW Professional portfolio went to Bank of Boston
and finally to Sierra Cites.
Thomas J. Depping Office at Sierra Cities