- The art of the Con
Thoroughly Modern Monas
Today, counterfeiting of securities or the unabashed
printing of them is less of a problem, at least in the United States. There
are two good reasons for this. The first is the fact that almost all companies
that are publicly traded have a transfer agent. The agent has a stack of pre-signed
stock certificates endorsed by the authorized officer of the company that had
been duly designated to sign them. When a certificate is sent to the transfer
agent, it usually has already been sold. It comes with instructions about what
to do next, usually the simple transferring the certificate from the old owner
to the new one that had purchased the shares. The transfer agent has the corporate
records available and is totally aware of exactly how many certificates there
are in the float and as a general statement, who owns them. The transfer agent
cannot issue addition certificates unless authorization comes down from corporate
officials and it is done in accordance with all of the securities laws then
on the books.
The creation of the Depository Trust Company (DTC) was an important
event, as it allowed for an electronic book entry system to be developed where
in essence the master copy and all the shares resided at DTC and would be electronically
journaled from one account to another based upon legitimately received instructions
to do so.
It works somewhat the way that gold, held for other nations
when stored in the New York Federal Reserve Bank operates. In essence, a substantial
part of the gold reserves of the worldâ€™s countries resides in a large vault
under the Fed. Each country has its own vault (really a stall) in which their
gold is kept. When inter-country transactions are made, the called for amount
of gold is physically transferred from letâ€™s say Mexicoâ€™s stall to the stall
belonging to Argentina. DTC is an electronic transferring device and it today
holds almost all of the stocks owned by most broker-dealers and their clients.
Counterfeiting of the actual certificates is quite
difficult because they will be examined closely by professionals who know what
they are looking for before being deposited, however, there are ways to get
around this as well. Ira A. Monas was the principal of two brokerage houses
when he suddenly disappeared. However, he continued to talk to his employees
by telephone and told them that he had become overstressed and sick from the
strain of running the firms and his doctor had ordered him to take a prolonged
respite. He informed the workers that he would be calling instructions in over
the phone from time to time, but he expected to be away for a while. They hardly
knew the half of it.
The fact is that Mr. Monas would be away for more than a while
as he had been incarcerated in an upstate New York Prison for grand larceny.
However, his employees would always wonder why there was always so much noise
on the other end of the phone when he would call. This is easily explained by
the fact that there is always a din in the common rooms of prisons where prisoners
are allocated only a certain number of calls that they can make. Everyone is
talking at the same time and trying to get their point across to whoever they
are talking too. This creates an enormous commotion, however, you wouldnâ€™t know
that because you have never communicated with anyone that was in jail.
What Monas had done was a superb bit of criminal thinking.
He knew that certain underwritings were going to be hot (go up) and the public
was clamoring to buy them on their initial underwriting. He further knew that
although many of his customers would want the stocks, he would not be able to
get any of them. However, that did not raise a serious problem for him. Monas
merely told his clients that he was going to large allocations of these hard
to get shares and would be happy to arrange for them to get some. These underwritings
included, United Parcel along with two extremely hot internet oriented deals.
Monas agreed to give the non-existent securities to 190 investors
and in turn collected $8.7 million. However, in return, the customers received
the normal confirmation of purchase along with regular monthly statements, which
reviewed their holdings. As we have explained earlier, most people leave their
securities with the brokerage firm as there is certain insurance coverage, which
protects them, should the firm go under. However, as naturally occurs over time,
some of the customers that owned these securities would want to sell, and in
many of the early cases, they were able unload their fictional securities at
high prices. The swindle did not start becoming unraveled until Monas could
no longer handle the clamor by his customers to unload their shares.
However, Monas created the fraud while in jail on another matter,
which he had hidden from his employees as well as the customers of the firm.
He was not idle during his incarceration and thought up the above swindle. The
government did not have to look very far to find him when the fraud ran out
of steam; he was their guest getting three-squares a day and board as a guest
of Uncle Sam. In the meantime, this sort of fraud is a tad scary. While the
treasury has learned to avoid counterfeiting by the use of exotic paper and
the securities industry has gone to DTC for a safeguard, there is little protection
on the horizon from the counterfeiting of brokerage statements on plain paper.
This is not the first time that a fraud has been conducted in this manner and
it will not be the last. It doesnâ€™t take a lot of money to start a brokerage
firm and in the case of non-members of the New York Stock Exchange you may never
be 100% sure of exactly who you are dealing with.