Gangsters Expand to White-Collar Crime and Cyber Attacks

When is credit-card theft a good thing? When the culprits might otherwise be killing you.

The Federal Bureau of Investigation says national gangs like the Bloods and Crips are becoming more sophisticated, turning to white-collar financial crime and cyber attacks that threaten Corporate America and, well, everyone.

The evolving criminal schemes, which include mortgage fraud, counterfeiting, bank and credit card fraud and identity theft, are attractive because they are much less risky than traditional gang-related crimes such as murder, drug trafficking and robbery, and have the potential to yield much greater profits, according to a new national gang threat assessment from the FBI.

“In sort of a macro-sense, if they are hacking into people’s computers rather than killing them in cold blood, that’s a good thing, in some respects,” said Jonathan Armstrong, a partner at Duane Morris who practices Internet law. However, these gangs, which also include the Latin Kings, Aryan Brotherhood and Texas Syndicate, are growing in size, with membership up 30% to 1.4 million compared with 2009, and the FBI says they are becoming more dangerous.

“Gangs are more adaptable, organized, sophisticated, and opportunistic, exploiting new and advanced technology as a means to recruit, communicate discretely, target their rivals, and perpetuate their criminal activity,” the FBI said.

This heightened threat among U.S. gangs brings to light the increased volume of financial crimes and hacking seen across all industries over the last few years, which have already cost corporations, retailers and innocent people billions of dollars. “It’s an issue and I think it’s one that’s definitely accelerating,” Armstrong said. “I think we ought to be worried.”

Financial crime has picked up significantly over the last few years amid financial turmoil and technological advances. Ponzi and other high-yield investment fraud schemes surged when the Dow Jones Industrial Average plunged from a high of 14,164 in October 2007 to 6,547 in March 2009, the FBI said in its 2009 Financial Crimes Report.

While authorities have cracked down, the development of new schemes, such as securities market manipulation via cyber intrusion, has put fraud on the rise, the FBI said. From 2004 through 2009, fraud investigations increased by 33%, bringing losses associated with those schemes into the billions of dollars.

Of course, U.S. street gangs aren’t at the crux of financial crime in the U.S. just yet, which is typically led by professionals and swindlers within the banking system or high-tech cyber hackers. However, the gangs’ sophistication offers yet another impediment to authorities trying to suffocate white-collar crime and a sign these groups may continue to evolve into high-yielding complex schemes, forming much more lucrative enterprises.

Gangs such as the Bloods, Crips and La Nuestra Familia that are undertaking white-collar crime are recruiting members that possess the necessary high-tech skill sets, according to the FBI.

Some that run these criminal gangs could run corporations,” Armstrong said. “They push out less profitable businesses and build up the more profitable (ones), just as a corporation would.”

The FBI says gang members are exploiting vulnerabilities in the banking and mortgage industries for profit. They are turning to counterfeit and identity theft, using methods such as skimming to steal account numbers from ATMs or retail card readers.

Mortgage fraud is also on the rise, and gangs, such as the Gangster Disciples, are purchasing properties with the intent to receive seller assistance loans, only to retain proceeds from the loans or co mingle illicit funds through mortgage payments.

In April 2009, members of the Bloods in San Diego were charged with mortgage fraud, and in August 2010, members of the Black Guerilla Family in Maryland used pre-paid retail debit cards as virtual currency inside Maryland to buy drugs and further the gangs’ interests, according to the FBI.

“Wall Street has a brilliant system for pushing money around the world. So does organized crime,” Armstrong said, liking the underground profit-driving activities to an “underworld banking system.”

Earlier this month, authorities in New York arrested more than 100 service-sector employees in the city and dismantled five separate criminal enterprises operating out of Queens in a multi-million dollar counterfeiting scheme. New York Police Commissioner Raymond Kelly had said that while those crimes weren't holdups at gunpoint, the impact on victims was just as bad.

Robert Rebhan, a former Los Angeles Police Department officer who later directed a credit card fraud prevention program for American Express (AXP: 52.10, +0.29, +0.56%), notes that those are the kind of stunts, which are less risky and more profitable than traditional street crimes, that gangs are likely pursuing.

“If I have dirty money from a drug steal I need the underwater market to clean it up, so I might only get 20% return,” Armstrong said. “But if I can make it credit card fraud, then I can probably get better than a 20% return rate, particularly if I can use the compromised credit card to buy real goods and turn over those goods on an auction site.”

Cyber criminals typically steal a smaller amount of money from a large number of victims. Since, credit card companies and banks aren’t reporting minor counterfeiting cases to the Federal Trade Commission, it becomes the responsibility of victims.

Rebhan, who is a financial crimes expert, says 95% of those are never reported – making web-based fraud tougher to identity. “It’s not a critical step in recovering your identity - it’s a pain,” he said. “So when you hear crime is down – don’t believe that’s true of financial crimes.”

U.S street gangs are likely a ways off from operating botnets and siphoning massive funds from corporations, Rebhan said, noting the FBI is probably using “cyber crime” in a broader sense. However, criminal groups are becoming increasingly savvy and embracing advanced technology to enhance operations, according to the FBI.

Gangs are using social networking like Facebook, YouTube and Twitter to recruit new members and communicate globally and more discreetly without the proximity once needed for communication. “The proliferation of social networking websites has made gang activity more prevalent and lethal—moving gangs from the streets into cyber space,” the FBI said.

Many also use the Internet to carry out crimes such as computer hacking, cyber attacks and phishing schemes, which are used to illegally acquire personal information such as usernames, passwords and credit card information. But besides the attractive profits, gangs are also finding the web more enticing because of the less-stringent punishment faced by cyber criminals, at least compared with robbery and murder. Where a robbery can lead to a seven-year sentence, counterfeiting or identity fraud using the web could lead to just a few months of jail time, Rebhan said.

Of course, there are some exceptions, including Tien Truong Nguyen, who was sentenced last year to more than 12 years in prison for his role in a phishing scam that impacted more than 38,000 victims, and Albert Gonzalez, who was sentenced to 20 years for the Heartland Payment Systems (HPY: 21.62, +0.37, +1.74%) data breach. But for the most part, catching and punishing cyber criminals takes a certain skill set that many in law enforcement and judiciaries just don’t have yet, the experts say. Because of that, white-collar crime is slated to grow among street gangs.

“There’s no formal education given to the judiciary on cyber crimes – the jury is perplexed by these crimes and the judge is also – (they) don’t have a clue of bytes, bits or how malware is written,” Rebhan said.

Thanks to Jennifer Booton

Tweet

Jack Kennedy: Elusive Hero

A new portrait of John F. Kennedy based on interviews with those who knew him best, by Chris Matthews, bestselling Kennedy expert and host of Hardball.

By following the journey of Jack Kennedy’s life from his school days to the White House, through war and illness and his greatest triumphs, Chris Matthews brings us much closer to the man Jack Kennedy really was.

We know so much about President John F. Kennedy, yet even his wife Jacqueline described him as “that elusive man.” To MSNBC Hardball host Chris Matthews, Kennedy has long been both an avatar and a puzzle, a beacon and a conundrum. “Whenever I spot the name in print, I stop to read. Anytime I’ve ever met a person who knew him—someone who was there with JFK in real time—I crave hearing their first-person narrative.”

For years, Matthews has been collecting those stories. In Jack Kennedy: Elusive Hero, the bestselling author and Kennedy expert has woven those firsthand encounters with JFK into a great American Bildungsroman, telling the tale of how Kennedy grew from a child of privilege into a war hero and finally President of the United States, all the while coping with a life-threatening disease.

“In searching for Jack Kennedy my own way,” Matthews writes, “I found a fighting prince never free from pain, never far from trouble, never accepting the world he found, never wanting to be his father’s son. He was a far greater hero than he ever wished us to know.”

Tweet

Mark Polchan Sentenced to 60 Years in Prison

Mark Polchan — a high-ranking member of the Outlaws motorcycle club who was also the righthand man to a Chicago mob boss — was sentenced Friday to 60 years in prison for helping run a group of criminals who robbed jewelry stores and bombed a business in Berwyn.

Polchan, 43, looked at one of his attorneys, his eyes wide, after U.S. District Judge Ronald Guzman handed down the prison sentence. “Every dollar he made had a victim,” Guzman said of Polchan, who ran a pawn shop in Cicero that the judge said was “the epicenter” of the organized criminal enterprise.

Polchan was a career criminal who treated his family well but was in the business of “terrorizing the rest of us,” the judge said.

Polchan oversaw a group of men who robbed jewelry stores and also arranged for the bombing of a Berwyn storefront that was competing with a video-poker business run by reputed Cicero mob boss Michael Sarno, who is to be sentenced next month.

Polchan’s attorneys argued that he wasn’t a leader of the organization and that much of the testimony against him at trial was from unreliable informants — arguments the judge rejected.

Polchan declined to make a statement. “Your honor, I was gonna say some things, but I’m kind of overwhelmed by some of the things I heard,” Polchan said, after a description of his wrongdoing by federal prosecutor Amarjeet S. Bhachu. “I can’t do it.”

In handing down the sentence, Guzman said, “the public needs to be protected from Mr. Polchan and the idea that organized criminal activity might be worth something, might be worth doing.” The case was investigated by the ATF, the FBI and the IRS.

Polchan will likely spend more time in prison than his boss, Sarno, given the way the men were charged. When Sarno is sentenced Nov. 18, he can face a maximum prison sentence of 25 years, much less than Polchan.

Polchan was charged first in the case, and by the time the federal investigation was wrapped up against Sarno, the statute of limitations for the Berwyn bombing had expired, so Sarno couldn’t be charged with that crime. Polchan’s conviction on the bombing charge alone guaranteed him a minimum prison sentence of 30 years, a fate Sarno will not face.

Thanks to Steve Warmbir

Tweet

Rudy "The Chin" Fratto Pleads Guilty

“The Chin” has migraines.

It’s no wonder why Rudolph “Rudy The Chin” Fratto, 67, a reputed Chicago mobster, takes medicine for the crippling headaches.

Just a few months after he was released from prison for tax evasion, he pleaded guilty Thursday in federal court in Chicago to another crime — mail fraud for taking part in a scheme to rig bids for forklift contracts for trade shows at McCormick Place.

Fratto won one contract but couldn’t produce any forklifts, so the scheme made no money.

Still, Fratto is likely going to be sentenced to prison, from 18 to 24 months in February.

Despite all this stress, Fratto has been migraine-free recently, he told a federal judge Thursday afternoon. “But you haven’t had a migraine in the last few days?” U.S. District Judge Harry Leinenweber asked. “No, remarkably,” Fratto said.

In January 2005, Fratto met a consultant to a general contractor who set up trade shows at McCormick Place. The consultant was in debt to a Chicago attorney and mobsters in Cleveland after they invested in the consultant’s business, which failed.

Fratto offered to help the consultant with the debt but also wanted inside information on the forklift bids. Fratto was unaware that the consultant was already cooperating with the FBI and secretly recording conversations with him and others.

As it became clear to Fratto in 2008 that the feds were investigating him over bid rigging, he expressed confidence that he wouldn’t get caught, as long as everyone kept their mouths shut. Fratto worried out loud that the FBI could be bugging his phone but mentioned he was using payphones. He told the consultant to take the 5th Amendment if he was questioned before a federal grand jury.

“The only thing they could say is that we rigged the bid,” Fratto predicted. “How they gonna prove that?”

Outside court Thursday, the usually chatty Fratto, who once referred to himself as a “reputed good guy,” had no comment.

Thanks to Steve Warmbir

Tweet

ABC7 Chicago Investigative Report to Be Used by Feds in Michael Sarno Sentencing

Federal prosecutors are preparing to throw the book at Chicago mob boss Michael Sarno, using a page from an I-Team story.

In this Intelligence Report: Why the government's argument for a maximum sentence relies on something reported on ABC7.

Heading into Friday's sentencing, we have two very different portraits of Mike Sarno. He is either a good, family man and helpful member of the community, as his lawyers would have you believe, or he is a heavyweight mob boss with a ruthless management style as the government describes him.

Monday, U.S. prosecutors submitted to the court a 2003 I-Team report to support their argument that Sarno be sentenced to the longest possible term in prison.

ABC7's broadcast in June 2003 focused on a restructuring of the Chicago mob ordered by imprisoned outfit leader James Marcello. "Little Jimmy," as he is still known, was doing time for racketeering, gambling violations and extortion, and still running the outfit's business from the barbed-wire Hilton.

Included in the June 3, 2003, I-Team report was this information about who had been tapped to oversee the Chicago outfit: "This mob heavyweight, 350-pound Michael 'Fat Boy' Sarno, whom Marcello has just installed, according to U.S. law enforcement source."

Nine days later, 250 miles away, behind the walls of a penitentiary in Michigan, James Marcello and his brother Mickey discussed the I-Team's report.

JAMES MARCELLO: "How did they get a copy of the indictment? The motion?"

In recently released undercover FBI Marcello quizzes his brother on how the I-Team got its information.

MICHAEL MARCELLO: "Yea and ah, put together a new crew with the Trucker..."

A hand sign for a sizable waistline, according to prosecutors, is meant to indicate Michael Sarno, whose girth precedes him. Authorities say the gist of the jailhouse chatter: Sarno is connected to the top guy.

Based on his organized crime stature, this Friday, the government will ask that Sarno's sentence be enhanced to 25 years.

He was convicted last December with four other men of bombing a Berwyn video poker company that was competing with the mob. They were also found guilty in a string of outfit jewel heists.

In a separate filing Monday, defense attorneys dispute the contention that Sarno is a crime boss. They have submitted 100 letters from Sarno's friends, neighbors and relatives that portray him as a good family man and a fine American. They also cite his numerous health problems that they say could be compromised by a lengthy stay in prison.

Thanks to Chuck Goudie

Tweet