BULL STREET - 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 world’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 let’s say Mexico’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 wouldn’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 doesn’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.

 

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