Anatomy of a Fraud

What happens when opportunity, motivation and rationalization converge

Artwork from the original article

This is not like most fraud stories^[1], and yet it starts like most fraud stories do: With former colleagues describing the alleged grifter, Rahiem Jackson, as "well-dressed" and "good looking" and "charming." They also never fail to mention Jackson's contagious smile and his intelligence.

Almost by the force of his personality alone, Jackson allegedly used a simple yet clever scheme to steal hundreds of thousands of dollars from several companies that employed him, using the proceeds to pay for everything from medical bills to a luxury SUV. More impressive still, Jackson avoided prosecution for more than a year after the state of Maryland issued two indictments on charges of continuing theft. And while he was avoiding prosecution, he was defrauding two other marks a couple of ZIP codes away.

The particular methods Jackson used are basic, Grifting 101, and worth studying. But even when its methods are rudimentary, fraud remains a deeply complex and violative crime; it takes a psychological toll on victims. For this reason, most victims decline to talk about what happened. Many won't prosecute. Instead, they absorb the blow and move on. Though it costs American businesses an estimated $660 billion a year, fraud remains an eerily silent iniquity.

In this case, however, fraud stirred in one of its victims, a small-business owner named Wendy Rosen, a kind of entrepreneurial rage. Rosen chose to speak out, a rare decision fraud experts would normally hail as necessary and noble. After all, the best way to fight this crime is to raise awareness of how common fraud is. But the fact that Rosen went public was partially eclipsed by how she went public—with an aggressiveness that some argue created a quixotic rather than noble crusade. And indeed, Rosen's choices have turned this story about ordinary fraud into an extraordinary, unfinished cautionary tale. While the accused avoided prosecution after allegedly stealing $127,384, his victims started fighting each other, largely over $8,850. Now, Wendy Rosen stands accused of racketeering, defamation and extortion.

This is what fraud does. It infiltrates the victim's world.

Placement

Rahiem Jackson had just turned 30 when he interviewed for temporary accounting work at the Baltimore offices of Spherion, a professional placement firm, in February 2003. His application listed the Salvation Army as his most recent employer. He claimed he had worked there as an accounting coordinator for six months until the job ended because it was seasonal work.

Two weeks later, Wendy Rosen's company, The Rosen Group (TRG), requested a temporary bookkeeper from Spherion. The Rosen Group provides magazines, trade shows and and other guildlike services for the $14 billion arts and crafts industry. The company is profitable and employs about 30 people. Wendy Rosen also writes books, produces documentaries, and lectures the small businesses that she serves on how to start, grow and thrive.

Rosen chose Jackson from a pool of candidates and paid Spherion an $8,850 placement fee. In early March, Jackson arrived at The Rosen Group's offices in the Mill Centre, a four-story 19th-century mill dominated by brick walls and grand windows. Jackson's assignment lasted three weeks, but he impressed Rosen. So she followed her instincts and hired him full-time.

"It was not his work so much as it was his persona, his attitude," Rosen says. "He was a really bright guy. Well-spoken. Well-cast. You'd have trusted him with your firstborn."

Jackson immediately seemed to prove Rosen's instincts right. He did his job. He befriended other employees. He missed only one week of work in late April, and one other day. Once, according to Rosen, Jackson said he had a family emergency and the other time he got food poisoning, an illness confirmed by a doctor's letter on hospital stationery. He was the kind of colleague who brought doughnuts in for everyone, recalls Kristi Halford, former public relations director for TRG. "He was so willing to help," says Halford. "He had a charm about him. He was like the perfect employee."

A Fraud

In July, 2003, Wendy Rosen's outside accountant, Chuck Geser, was in the office reviewing some vexing bank statements. A large sum from checks that Geser couldn't find had cleared. "I'm drilling down on where this money went," recalls Geser, "when, literally right then, the phone rings."

In a coincidence of timing worthy of a bad movie, the phone call was from USAA Insurance, wondering why The Rosen Group had overpaid its account and submitted a $1,500 check for car insurance. USAA faxed over the check. Geser and Lisa Brice, TRG's controller at the time, immediately noticed that the check came from the 900 number series, well out of sequence. Brice had been paying bills with 300-series checks. Brice must have felt dread as she connected dots: Months before, Wendy Rosen says, Brice's door had been tampered with. Now, checks supposedly locked in Brice's office were showing up, used. The checks must have been stolen.

Geser immediately suspected Jackson, who had access to the books. Geser also said that as he was hunting down the discrepancy, Jackson was allegedly trying to "plug the cash", an accounting term for adding journal entries to the books so that they match the bank statements.

With some evidence in hand, Geser asked one of Jackson's friends in the office, Rebecca Cason, to join him and confront Jackson. They cornered him just outside the building. Sternly, Geser demanded answers to two questions: Why did you do this? And how much did you take?

"He was pretty cool," Geser later recounted. "He went into an empathy-sympathy mode. He said his grandmother or someone was sick and he needed the money. He said it was a few thousand dollars."

Geser told Jackson to go home, but that he was not fired. Experts say that was the right thing to do. When you have both evidence and a suspect, you want to keep him close, not have him flee. Having kept his job for the moment, fraud experts say, Jackson probably felt that maybe Wendy Rosen, whom he knew liked him, would show compassion and offer some amicable solution.

Jackson may have been at ease; Rosen recalls being "terrified." A whole series of checks were missing.

The Three Pieces of Fraud

A con artist requires three elements to commit fraud: opportunity, motivation and rationalization. First, he must have the chance to steal money and, second, a reason to steal it (usually involving profit or revenge). The third element is the unique part of fraud: He needs an explanation for himself as to why it's OK that he's doing it—an unappreciative boss, for example, or sometimes merely a big company that "won't miss the money."

Rahiem Jackson had ample opportunity to commit fraud: He was a bookkeeper. His motivation may have been profit, albeit tinged with altruism—a sick relative who needed money for hospital care. That also may have served as the rationalization: As long as you use some of the money to help someone who's sick, it's OK.

Because those who commit fraud usually do it by abusing a position of trust, it might seem impossible to stop fraud without becoming paranoid. But Joseph Koletar, fraud expert and author of Fraud Exposed: What You Don't Know Could Cost Your Company Millions, says that's not the case.

"The good news is that most antifraud controls are, at base level, just simple, good business practices," he claims. For example, clear segregation of duties (so that the only person handling bank statements is the one who's supposed to) not only reduces the risk of fraud but also increases efficiency in the company by not having tasks repeated or, worse, ignored. Accounting controls, such as having duplicates of financial statements mailed to your home or to a separate location, also double as part of a good disaster recovery plan, should one's office suffer catastrophic damages. "Antifraud controls are not like barbed wire, which has no use except keeping people out," says Koletar. "Good antifraud makes you a better business in general."

Discovery

The wretched process of amassing records to find out the amount pilfered by this person that Rosen had trusted-had liked-began the same day Jackson was sent home. Rosen brought a passel of documents and a phalanx of her employees to her bank to start the paper chase.

Rosen, still unsure if her business would even survive, says that after three hours of waiting she started yelling at the branch manager. Rosen says of the bank personnel, "They weren't doing anything. They didn't have any forms or processes. They were just kind of stunned" by the fraud allegations.

While Rosen was at the bank, back at the Mill Centre, a distraught Rebecca Cason went up one floor to Butch Hodgson's office. Hodgson was a private investigator who had done background checks for Rosen in the past. Cason was too upset to make sense, so Hodgson called Rosen at the bank. Then he understood, and made a plan.

Hodgson had Cason, whom he described as a "mommy figure" to Jackson, call the alleged perp. "He didn't know how much we knew, but he knew he was in trouble. She put me on the phone with him. He said, 'Am I going to jail?' I said, 'I can't answer that. I can tell you that if you cooperate it can't do anything but help you. I know you're nervous and upset. Why don't you come in and we'll talk?'"

Jackson said, "OK."

At the bank, Rosen accessed copies of her statements, and almost immediately, she discovered more than a dozen fraudulent checks from the 900 series. One purchased a $54,000 Lexus sport utility vehicle. Another check, Hodgson says, was made out to a hospital, possibly lending credence to Jackson's story of a sick relative. Still, many more checks were unaccounted for, so Rosen told the bank to put a stop on all of the missing Rosen Group checks.

She says that the most helpful institution was Jackson's bank, which called her because Jackson allegedly tried to deposit a $28,000 Rosen Group check at an ATM, and a person reviewing the ATM records thought that that was strange.

Meanwhile, Hodgson escorted Jackson up past The Rosen Group's floor to his office. He kept Cason with him as a witness, but also to put Jackson somewhat at ease. Hodgson says that Jackson mentioned a sick relative, copped to two or three thefts amounting to $47,000, and promised restitution. According to Hodgson, Jackson denied purchasing anything for himself. "Anyway, he admitted to 47K, which is fine. Forty-seven, a hundred and thirty, that won't change his time. At this point, I knew he was lying to me."

As a private investigator confronting a suspect, Hodgson has an advantage over the police. "I don't have to advise him of his rights. I tell him up front that I represent the company and we want to know how much damage there is."

Hodgson drew up a confession, read it to Jackson and then said to him, "I want you to read it, change it if you have changes and initial them and then sign it."

Jackson said, "OK."

The primary question for Rosen was how 900-series checks had cleared in her company's name when her own statements showed no record of 900-series checks at all. Eventually Hodgson and Rosen cracked the scheme. Jackson had allegedly intercepted Rosen Group bank statements and used liquid paper to delete the records of the 900-series checks. He then made copies of the statements. The bastardized copies were passed off as originals and the stolen checks were then ghosts.

Hodgson and other fraud experts appreciate the cunning, albeit typical, details of this scheme: The stolen checks came from the middle of a block of check stock to buy time before anyone realized they were missing. A single missing series also might look like a printer's error to the unsuspicious. When processed, 900-series checks wouldn't be so far out of sequence that they'd immediately raise red flags. Also, the higher number series ensured that illegitimate transactions would appear together at the bottom of a bank statement, making it easy to delete them without affecting the legitimate transactions on the statement.

Jackson signed Hodgson's confession. It sounds astonishing and unlikely, but this is actually a common and effective tactic for PIs, especially when the perp is presented with evidence against himself. Hodgson plays a good cop to the specter of an unknown bad cop. It might seem bad to cooperate with me, he's suggesting without saying it, but I can't know how bad it might be if you don't.

Hodgson stayed in contact with Jackson, primarily because he hoped Jackson would disclose the whereabouts of the Lexus. That never happened. However, Hodgson says, "He put me in touch with a couple of attorneys who had walked away when he didn't pay them. He tried to use a Rosen Group check to pay one attorney."

In the end, Jackson would be accused of taking $127,383.75 from The Rosen Group. He was indicted on charges of continuing theft against The Rosen Group on Aug. 11, 2003. He was arrested on Aug. 27. It turns out that it wasn't the first time.

References

In fact, Jackson had been indicted and arrested on charges of continuing theft in April 2003. He was accused of defrauding the Salvation Army of $38,800 using eight checks. (The Salvation Army's chief accountant in Baltimore, William Smith, declined to comment.) Jackson missed that week of work at The Rosen Group in late April apparently because he was in jail. According to court documents in another case, Jackson posted bail with a Rosen Group check.

Meanwhile, Hodgson was discovering that Jackson had allegedly committed fraud in the Army. The letters of recommendation he had provided to Spherion and The Rosen Group used the names of real military personnel but contained uncharacteristic language and misspellings; the letters were possibly forged. Con artists know that the value of reference letters is not their content but rather their mere existence. What's more, military references are "really hard, sometimes impossible to check up on," says the executive at another Baltimore area temp firm. Also, a source familiar with his case says that Jackson, in interviews, would smile and mention that he just got back from Iraq-a statement that caused interviewers to trust him more.

The Rosen Group itself hadn't picked up on the inconsistencies in the reference letters. But then again, as far as Wendy Rosen could tell, neither had Spherion. Something was building inside Rosen. The alleged fraud at the Salvation Army aggravated her. So did the fact that Spherion hadn't refunded her placement fee. Adding to that, her bank wasn't helping recoup costs on the Lexus. She was dealing with insurance companies. Her staff was still shaken by the ordeal. She was still trying to run a business.

As stressors piled up, Wendy Rosen fixed on restitution. In October, she would seek it with a vengeance.

Trust

Koletar, the author, says that there are three ways to steal money: by force, by stealth or by trust. Fraud is theft by trust, and in many ways it is the most profane kind of theft. Our instincts train us to believe that people are inherently good; fraud uses that belief against us. What's more, in a small office like Rosen's, everyone tends to share a passion for the cause for which they work. A grifter will happily espouse the business's ideology in order to gain still more trust. Jackson likely exploited two more facts that apparently resonated with Wendy Rosen: He was in the military, and he is black. Explaining the case earlier this year, Rosen said, "When you find someone who is African-American, who is professional and well-spoken and on your side, you are so ecstatic...and the fact that he has a military background. You just didn't want to believe anything else."

Eventually, every victim of fraud says that. Indeed, it is this very fact of refusing to believe anything else that enables the crime. In fraud, the prey is an unwitting and complicit partner to the predator, letting its guard down, allowing the predator to inflict deep wounds. The most obvious ones are material damages. The less obvious-but perhaps more lasting-wounds are psychological. The psychologist Leon Festinger called it "cognitive dissonance"—when we have one notion in our head ("I am a successful entrepreneur") warring with an incongruent notion ("I allowed an employee to steal from me").

Fraud forces victims to confront their own bad decisions.

This creates deep psychological tension. Festinger's theory continues: Once we're in that unbalanced place, we enter a "drive state"-similar to hunger or thirst—under which we will act with survivalist instincts to eliminate the dissonance.

Many people, ashamed by their poor judgment and feeling violated, simply suppress the event that created the dissonance. But a few people react the way Wendy Rosen did-by venting. At first, Rosen directed her outrage at "the system," by which she means the banking and checking infrastructure, which is focused on efficiency and cost-cutting rather than customer protection. Automation has mostly robbed the system of human intuition. Rosen also questions why bank statements come on "cheap white paper" instead of watermarked heavy-bond paper, which, while more expensive for banks, is more secure for the client. And most of all, Rosen was ired by her bank's reaction to having to deal with a small business's problems at all. Rosen's bank, she said in February, "wasn't interested in recovering the costs."

But blaming the system wasn't getting Wendy Rosen the restitution-financial or moral-that she felt she deserved.

Restitution

In October, 2003, Rosen truly entered her drive state, approaching restitution with a remarkable combination of planning and ferocity.

According to Spherion, in October, after Chuck Geser had called and "belligerently yelled" at a Spherion recruiter, Rosen threatened to sue Spherion-first for $160,000, then for $175,000-and also informed the company of her negotiations with her bank, and suggested that Spherion join her in suing the bank.

Spherion's lawyers phoned and e-mailed Rosen's lawyers and said, essentially, to knock it off: "We will not be intimidated into paying your client the substantial sum of money she seeks prior to having had the opportunity to investigate and evaluate the claims."

The next day, Spherion claims that Rosen sent an e-mail to her own lawyer, Laurie Bortz, and copied Spherion as well. The e-mail read in part: "One week and we'll let the dogs out."

Rosen copied Spherion and her bank on all of her correspondence relating to the fraud. She let them see e-mails about planned nightly news-inducing picketing campaigns and copies of a drafted letter to a local TV reporter offering up her story.

Within three weeks, the bank settled. (As part of the settlement, Rosen can't name the bank). Spherion did not. Spherion says that Rosen then requested a $60,000 settlement from the agency in lieu of her filing a lawsuit. Spherion again refused to accede.

Rosen kept pressing. Harder even. She targeted specific publications, including CSO, with an e-mail that offered up her story. David Callahan, an editor at Baltimore SmartCEO, says although he did not receive the e-mail, he had heard about the story elsewhere. He claims he approached Rosen (Spherion contends that Rosen approached Callahan), and in June 2004 published "Attack of the Serial Embezzler." The SmartCEO piece didn't mention Spherion's name. Spherion nevertheless took umbrage at the article. (On Page 52 of the issue, Spherion had taken out a quarter-page ad. Callahan says the company has since pulled its advertising.)

At the beginning of July, Rosen's campaign reached its zenith. According to Spherion, over the course of two days Rosen sent a series of demanding messages to the company and also e-mailed her claims about the case to other area businesses. Spherion claims that Rosen e-mailed the following to the CEO of a Baltimore-area Spherion competitor: "I bet [the SmartCEO article] can really help you obtain new clients that were once with the competition. Please spread the word!" A week after that, Spherion claims that Rosen called Spherion and "verbally berated" an administrative assistant. She also called and pretended to be a client phoning in a job order; when she got someone on the phone, she demanded money, without which she would continue her e-mail campaign.

Finally, Spherion had had enough. On July 9, Spherion sued Wendy Rosen.

Spherion v. The Rosen Group^[2]

Spherion's sweeping lawsuit, from which all of the company's aforementioned claims were taken, lists five counts against Rosen and her company, including two counts of racketeering and one count of defamation. The racketeering counts seek treble damages plus attorneys' fees.

Spherion's assistant general counsel, Steven Lewengrub, and Spherion's outside firm, Seyfarth Shaw, declined to comment for this article. Lewengrub directed CSO to the complaint, which contends, for example, that the Salvation Army didn't even learn of the fraud until Feb. 12, 2003, the day after Spherion interviewed Jackson. Spherion also claims that there's no evidence that Jackson committed fraud while employed by Spherion, and that he was indicted and jailed when employed by The Rosen Group.

Spherion's complaint twice mentions that Jackson told police that he simply walked into The Rosen Group's office and took the checks. Toby Bishop, president and CEO of the Association of Certified Fraud Examiners, says that under recent changes to the Uniform Commercial Code, if a company hasn't sufficiently secured its blank check stock, the company will bear some responsibility for its losses.

Spherion also claims that there are at least four false or misleading statements in the SmartCEO article.

Wendy Rosen counters: She claims that not only did the Salvation Army discover the fraud before Jackson's Spherion interview on Feb. 11, but also that the Salvation Army told her that he was fired for poor performance on Jan. 29. Even a simple phone call would have alerted Spherion to the fact that Jackson was, as Rosen says the Salvation Army told her, "not eligible for rehire."

Rosen also claims that the alleged fraud began while Jackson was a Spherion temp.

Rosen says that her check stock was locked in the controller's office. When that door was tampered with, Rosen says she hired a locksmith to fix the door, and also asked an employee to call the police and fill out a report, but the last step was never done.

Rosen says the SmartCEO article can't contain misleading statements about Spherion because it never mentions the company by name.

Laurie Bortz, Rosen's attorney, declined to comment except to say that she will likely file a motion to dismiss the suit.

Game Over

Facing multiple charges of continuing theft, Rahiem Jackson avoided prosecution for more than a year, playing the judicial system as if he built it. Knowing that even a little confusion always causes white-collar cases to be delayed in the overrun Baltimore city courts, Jackson would show up late for hearings, unprepared, without a lawyer. He got his trial rescheduled three times. Facing a judge's final trial date, Jackson failed to show up at all. He was in jail in another jurisdiction, facing accusations of more fraud that occurred after he left The Rosen Group, and while he was dodging prosecution in Baltimore.

He used the same MO-getting placed at small companies using temp firms-but one recruiting agency, which asked not to be named, did turn him away last February, offering a glimpse into how this saga could have been avoided. The agency verified with a phone call that at least one degree listed on Jackson's résumé was false. His résumé said Jackson last worked at American Craft—the name of one of Rosen's websites—before he shipped off to Iraq, and that American Craft was out of business when he returned from duty. An executive did a Google search and found that American Craft was still in business. So the executive called and got an astonished Wendy Rosen on the other end.

On Sept. 21, Jackson was scheduled to appear in court on The Rosen Group and Salvation Army frauds. Regardless, his game is already over. Jackson appeared in court Aug. 17 on the charges stemming from the incidents after he left The Rosen Group. He waived his right to a trial by entering a nonguilty statement of facts. The judge was in no mood. Guilty. Concurrent sentences: Theft, 18 months. Uttering false documents, five years. According to one person in court that day, Jackson was not smiling.

It should have been a righteous moment for Wendy Rosen. But instead, all Rosen felt was anger. The charges stemming from The Rosen Group fraud were still pending. Plus, Rosen was hemorrhaging tens of thousands of dollars in billable hours fending off the Spherion lawsuit.^[3] "It's not about money," Rosen says, seemingly still in her drive state. "It's about a system that makes people want to just cut their losses and walk away. Until everyone is doing their job, until everyone is accountable, fraud will continue to harm businesses. My intent is to spend money to make sure this doesn't happen to others.

"It's not over yet," Rosen says. "That's all I can really tell you."