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“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..
http://two.leasingnews.org/imanges_uael_wael/clester.jpg (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 series. 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.”
http://two.leasingnews.org/imanges_uael_wael/Deepings_view.jpg 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.
Part II The story of how the RW Professional portfolio went to Bank
of Boston and finally to Sierra Cites.
http://two.leasingnews.org/imanges_uael_wael/Toms_office.jpg Thomas J. Depping Office at Sierra Cities
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