This article was taken from the October issue of Wired UK magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online
The first sign of trouble was the 911 call from Susan Lok's Glendora home. It was March 2003, and the currency trader had just taken an overdose. The ambulance crew was greeted by a suburban Los Angeles house where Lok had been living with her Cambodian father - and secretly passing millions of dollars from a sophisticated Ponzi fraud through the family bank account.
A month later, on April 21, a dozen individuals gathered on the 28th floor of a downtown Montreal skyscraper. They were investors in Tradex, an investment scheme which gambled on minute fluctuations in the currency markets. The most recent newsletter from Tradex's island-hopping president, Art Ferdig, broke the devastating news. "Tradex has been defrauded of $129 million - all the money has gone missing," he told them. His lead trader Susan Lok - by now recovering in hospital - had betrayed all 600-plus investors. And he was as much a victim as they were.
James Lee, then 61, looked at his watch for perhaps the sixth or seventh time. He knew several of the others by name, if not sight.
That didn't make him any more comfortable. Lee had travelled all the way from California to discover what had happened to his life savings. A technology consultant with clients across the country, he was, until a few weeks ago, comfortably retired. For several years he'd been receiving his statements showing he'd made fantastic profits - on paper at least - averaging 2.5 per cent a month. Now his life was turned upside down.
At first glance he couldn't pick out Ferdig. Lee blinked in surprise. There was no towering presence, no swagger: the 63-year-old financial guru resembled nothing more threatening than a local pastor. Ferdig repeated to the assembled faces that his chief currency trader had indeed taken all their money. The well-trusted Lok, based at Tradex's sophisticated operations centre in Singapore - or so he claimed - had written him a note from which he now read, claiming she'd been "trying to make it work all along" but had ended up duping them. "Maybe me punished by God," Ferdig told them she'd scrawled in poor English.
He then introduced them to a tall, pale woman, whom he addressed as "Rita" - a Montreal-based private investigator "of great repute". "I've given her $300,000 of my own money to start an investigation right away," he said. "We'll get to the bottom of this. Don't you worry." Rita's rambling, evasive presentation left Lee unconvinced.
Most Tradex investors had met Ferdig, a self-proclaimed "man of God", through his extensive Christian networks - just as Jewish investors would meet Bernie Madoff. What most of his flock would not have known was that Ferdig had been involved for many years with a controversy-dogged Californian evangelical group, the Worldwide Church of God. Ferdig had worked as "personal assistant" to its founder during the 70s, a period when the church had been rocked by numerous sexual and financial scandals.
Nor were they aware of the former Navy SEAL bodyguards now shadowing Ferdig, as his paranoia over assassination by Chinese gangsters or disgruntled investors grew; nor that several of his leading investors were actually "bird dogs" - people financially rewarded by Ferdig for championing his scheme and recruiting new investors. It went without saying that the investors had no idea that numerous organised criminals had been washing their dirty money through Tradex, nor that Rita - standing in front of them right now - was in fact a "reloader", a fake investigator working in cahoots with the con man.
Road Town is a collection of low rises and shacks competing with palm trees and oddly-shaped office buildings. The capital of the British Virgin Islands (BVI) presses tightly to a bay clustered with the swaying masts and conning towers of billionaire yachts. It is also home to 800,000 offshore companies. "Secrecy has been the key to our success. Secrecy - and surprise!" There is a short, puffy laugh. Dressed in a customary Savile Row suit, Martin Kenney pats his Afghan hound, Jackpot, and permits himself a smile. "The road is now running out for Mr Fraudster."
It's spring 2009, and Kenney, a hot-shot Canadian lawyer who roams the world searching for economic crooks, has spent the past six years tracking the Tradex fraud. Now the strands are finally coming together.
From his base on the island of Tortola, he runs a team of 17 specialists, plus freelance agents, working on this case alongside other multimillion-dollar investigations, ranging from telemarketing scams to $10 billion Madoff feeder funds. His colleagues include multijurisdictional lawyers, covert investigators, forensic accountants and IT specialists.
By patiently following the money trail, they have gathered evidence exposing Tradex as a massive Ponzi fraud, with Art Ferdig at its helm. Tradex had been a classic example of an old-style confidence game, its operators right out of central casting. The "Ferdig gang", as Kenney calls them, had operated under various pseudonyms across the US and Caribbean tax havens, relying on flashy marketing material and its fabulous, entirely fabricated account statements. Spread before Kenney around the huge conference table today are affidavits about Ferdig's scheme, surveillance images and a screen lit with link-analysis diagrams detailing the numerous parties in the fraud next to times, dates and bank-account numbers. As regulation tightened, the Ferdig gang escaped by simply hopping from one West Indian island to another.
As with many Ponzi scams, they had simply stolen investors' money and returned a fraction as fake interest/profit, keeping victims hooked. As frauds go, it's one of the classics.
Ferdig himself had gone to ground - but by now Kenney's law firm, Martin Kenney & Co, Solicitors, had already frozen or liquidated nine properties and seized bank accounts controlled by Ferdig and his associates, with a total value exceeding $10 million. In addition, court judgments had awarded tens of millions more dollars against Ferdig and his close relatives.
The Ferdig gang included Art, Art's wife Elaine and the couple's three daughters and their husbands. According to judgments awarded in the high courts of Dominica and The Bahamas, they flew in private aircraft and bought homes and estates in California and the Caribbean. After the Tradex party ended, they bought homes in Florida, Louisiana and Texas, as well as cars, yachts and a marina slip. (One daughter, Deborah, and her husband, Michael Elliot, escaped judgment by settling with the liquidator. A second daughter, Rachel, and her husband, David Riotte, settled with the liquidator after a Dominican court granted judgment against them.)
In February 2003, a few weeks before the Montreal investors' meeting, financial investigators on the dirt-poor island of Dominica had stormed into a downtown Roseau building and ordered everyone to stand away from their desks, before changing all the locks. Banc Caribe, a money launderers' bank, was closed under pressure from the American authorities. It handled Tradex's Ponzi account, the monies constantly being recycled and sent back out to investors, to keep them on board while more funds were lured in and then stolen. With Ferdig's team having no access to the funds held in the Banc Caribe account, the fraud - which had been running since 1995 - was collapsing.
Kenney's investigators had discovered that Susan Lok was operating from her house in Glendora, California, not Singapore: she was passing money through her father's personal account. The hundreds of thousands of dollars handled every month was only a fraction of the entire sum going to Art Ferdig - the rest was being recycled out as "fake" interest payments to investors, or siphoned off via a tangled web of offshore companies to the Ferdig family and associates.
After pleading guilty to fraud, Lok - also known as Jessamyn Susan Chua-Lok and Susan Kheng-Lok - was jailed by a California court for ten years in 2006 and ordered to pay $27 million in restitution. Before going to prison, she testified under oath to James McGunn, Kenney's chief investigator, revealing that almost all of the monthly reports Tradex had sent to its investors had been false. Unable to handle the stress of Tradex's collapse, she'd attempted to take her own life.
However, Susan Lok's overdose had presented Ferdig with the perfect opportunity to pin the blame for the crime elsewhere. He could get away scot free.
Kenney's services were first requested in summer 2003. James Lee, the Tradex investor from California, called in Burke Files, a former securities broker turned investigator based in Phoenix, Arizona. The trouble was, there was only $5,000 on the table: the clients were broke, having lost huge sums of money. So he put a call in to his old friend James McGunn.
McGunn had worked with Kenney for many years. They were in demand globally as top fraud lawyers and asset chasers. In one case they had taken on Canada's most infamous telemarketing fraudster in a worldwide investigation, making legal history and winning a record $36 million. How? By suing a law firm purporting to be working for the victims but which had in fact double- crossed them to cut a secret deal with the con man.
From their original base in County Wicklow, Ireland, the two men were taking on some of the most ruthless criminals and con men in the world - and they were winning. A solicitor advocate, the precisely spoken Kenney had rights of audience similar to a barrister's and was licensed to practise in several countries.
Crucially, this meant he could follow the fraudsters - and therefore the money - wherever they led him, right across the globe. And, with traditional law enforcement increasingly ineffective against sophisticated money-launderers, Kenney's approach was to target felons where it hurt them most - their pockets.
In 1995, the former champion ice-hockey player had investigated Nick Leeson, who brought down Barings Bank. Later, his law firm had tackled dodgy Brazilian banks, corrupt insurers and Russian organised criminals and even crossed swords with the Chinese government on behalf of victims of economic crime.
Last year, international security firm Kroll claimed that, in the previous three years, four out of five firms had suffered some form of corporate fraud and about one in ten had lost more than $100 million a year. What's more, these costs are often passed along to us, the public. Money can be laundered through any number of offshore jurisdictions and shell companies in massively complex constructs. It's not unheard of to have armed guards escort bullion trucks from one side of a street to the other, as a fraudster physically moves his cash to break the paper trail and avoid detection.
As well as corporations, individuals are targets of scams like these. Few ever reclaim their money. Trillions travel through this highly secretive world every year, including the proceeds of organised crime and drug money which are then "washed" back into everyday use. Filing cabinets in Kenney's office contain stacks of letters from desperate pensioners, many of whom have lost their entire life savings to a fraudster. Kenney, who plainly loathes the confidence tricksters, often speaks as though he is on a crusade.
His approach is innovative. Making extensive use of "sealed and gagged" (secret) court-appointed powers, such as the curiously named Norwich Pharmacal-Bankers Trust Order (a "discovery order", which forces an organisation to turn over records) and Anton Pillar Orders (a "raid order", allowing his team to enter premises), Kenney uses well-established legal procedures to tackle complex money-laundering cases. His teams can act just like a law-enforcement agency to obtain bank or phone records, raid a corrupt lawyer helping create fake companies or seize a yacht.
Kenney's operations also involve undercover surveillance, stings and forensic-accountancy skills to trace document trails or build a model of how a crime was committed. He uses expert handwriting analysts, criminal psychologists and IT specialists, as well as legal teams who can "depose" (interview under oath) any witnesses.
His men have located and frozen criminal assets via civil courts right across the globe. Indeed, officers at law-enforcement agencies such as the FBI have referred some of the world's most complex fraud cases to the firm. These can still take years to achieve solid results, however - with the con men free in the meantime to spend victims' money to fight their corners in court.
As the hurricane season faded, the 2003 Offshore Alert conference met amid the old-world charm of the Biltmore Hotel in Coral Gables, Florida. It was a gathering of the world's top fraud lawyers and investigators. Burke Files was there - as was Kenney.
By now, Files was working with Kenney and McGunn on the Tradex case. It had already taken over $150,000 of the lawyer's time, so far unpaid. Phase One of the investigation plan had been launched, and the team had split into its investigative and legal components, starting on the long and tortuous process of identifying and following the convoluted audit and evidentiary trails left by the Ferdig gang. A small number of the Tradex victims had now come over to their side, too, under the skeptical Californian's lead, but they'd had to do so in secret, as most investors still believed Ferdig's promises that at Tradex it was business as usual.
That summer, Kenney's team had sat around the conference table back in Ireland, together with John Bagalini, their forensic accountant and chief negotiator. They pondered the likely twists and turns to come. McGunn would lead the initial investigative movements: seeking witnesses, surveilling locations, drawing up complex affidavits. Kenney and his lawyers would execute the intricate discovery and raid orders - always sealed and gagged, so the other side remained ignorant of their true intent. (Kenney sometimes found himself having to educate the judges he encountered in different jurisdictions: several were unaware of the razor-sharp forms of the law he could employ. One judge in Georgia even wanted to find him in contempt of court for using such methods.)
Bagalini, meanwhile, would be responsible for sifting through evidence, looking for the one clue or pattern in the money trail that could lead them to a stolen asset. He'd then draw up "link analysis" charts (see previous page) using specialist software the company had been developing. It was a method pioneered during the FBI's Mafia investigations in the 50s and 60s, allowing them to plot all money flows, entities and people in a case pictorially.
Kenney's team had already uncovered enough to suggest the crime had its roots not in Asia but the steamy ports of the Caribbean.
Over cocktails at the Biltmore Hotel, Burke Files introduced Kenney to another suited figure. Kenney knew the man by reputation;
Marcus Wide was a senior insolvency professional at PricewaterhouseCoopers (PWC) in Halifax, Nova Scotia. But more importantly, he was also the liquidator of Banc Caribe. "I'm sitting on $2 or $3 million of Tradex monies," said Wide. "Art Ferdig and that woman of his, Rita, are raising hell night and day trying to get it unlocked. The thing is, I can't stall them forever."
Kenney nodded. The FBI and Dominica's Financial Intelligence Unit (FIU) had raided Tradex's Roseau office only a few weeks ago, arriving at the one-storey residential building perched on the edge of the ramshackle Caribbean town just as Ferdig fled. He was now squirrelled away in a hotel in Montego Bay, Jamaica, where McGunn's agents - former Scotland Yard and FBI men - were keeping tabs on him.
They'd since learned that "Rita", Ferdig's fake investigator, had tried to blackmail the con man to get her hands on more of the cash. "She had him begging on his knees in the hotel room - unbelievable!" laughed the lawyer. Once they turned their sights on her, they would freeze the remaining $115,000 of the victims' unspent money that she had received from Ferdig, effectively neutralising any further threat.
Now if they could get their hands on the frozen Tradex monies being held in the Banc Caribe account, that would be enough to fund Phase Two of the chase: a full, comprehensive field investigation with a chance to locate targets for recovery. Kenney steepled his fingers and considered what their next move should be.
As they ordered further drinks, he proposed they help Marcus Wide become not only liquidator of Banc Caribe, but also of Tradex; to leave Ferdig in control risked destruction of the remaining evidence and the loss of the millions in the Tradex accounts.
Furthermore, most investors were still convinced of Ferdig's innocence and were kicking up a storm about Kenney's involvement and threatening legal action. They needed to wind up Tradex - and fast. If they failed, Ferdig would surely get to keep the loot.
Kenney unleashed a legal storm: over 130 sealed subpoenas were issued by the US Bankruptcy Court in Los Angeles; discovery and raid orders were served on banks, businesses and associates of Art Ferdig across the Caribbean, following on from that summer of 2004.
Sealed requests for judicial assistance abroad were sent to nine territories on Marcus Wide's behalf, allowing Kenney powers of asset discovery, arrest and recovery across The Bahamas, Jamaica, the US, Antigua, the Cayman Islands, Canada, Singapore and further afield.
Earlier, in spring that year, Tradex had been wound up. As agents of the liquidator, Kenney's team now had supreme power over the company and its related entities, and $2.2 million from the frozen Banc Caribe accounts. The team was employing both "forward" and "reverse" tracing techniques, following the movement of funds and also tracking back from where the Ferdig gang was now spending that cash. Thousands of pages of bank and investment account statements, emails, telephone records, mortgage files, airline frequent-flyer accounts and other data flowed into the Martin Kenney & Co offices to be pored over by the assembled team of specialists.
By now the FBI wanted to find Ferdig. James McGunn was keeping tabs on the crook and was in daily contact with the Bureau. He tracked Ferdig as he crisscrossed between south Florida, The Bahamas, a number of Caribbean islands, European countries and the Americas.
There are no typical days for McGunn, a barrel-chested 66-year-old who looks much younger. He'd been a San Jose beat cop in the 60s, then a Secret Service agent guarding two presidents, before being stationed on the Afghanistan-Pakistan borders when the US was supporting the mujahideen. An expert in complex financial investigations, his work today might involve him sweeping offices for bugs, shadowing a criminal in a Panamanian dive, or liaising with a worldwide network of investigators. "We fish," as he puts it, "in troubled waters." Behind his desk sits a radio-wave detector; above him motion detectors record his every move. He keeps a carved human legbone as a grisly memento from an undercover operation in Papua New Guinea.
In Los Angeles, McGunn met with Ron Lander, an investigator from the Dominican FIU. Records from their raid on the Tradex base revealed evidence that Ferdig, his three daughters and his daughters' husbands had each spent hundreds of thousands of dollars from investor deposits secretly to buy homes and boats, and to pay for country-club memberships, a private boat dock and travel by private jets. Additionally, they had no-name, number-only credit cards to use at US ATM machines to withdraw Tradex money diverted to offshore accounts.
In The Bahamas, McGunn's old friend and ex-FBI agent Ross Gaffney was soon photographing and making discreet enquiries about two residential properties in Freeport and Nassau worth more than $1 million, purchased with Tradex funds. Title to both properties was held in a corporate name, but McGunn discovered that Ferdig's daughter, Alisa Lockhart, had signed the purchase documents. The intelligence developed by the former FBI man helped McGunn establish that the first residence had been recently sold, with most of the proceeds going to personal accounts controlled by Ferdig and another daughter, Rachel Riotte. It was a classic example of what fraud investigators like Kenney called "layering".
All money-laundering operations involved three phases - the placement, layering and then integration of illicit money into "clean" assets.
McGunn also tracked down a West Indian woman in Santa Domingo in the Dominican Republic, whom Ferdig had married in late 2001 when she was 18 and he was 61. She was living in a condo that Ferdig held under a corporate name and had purchased with money stolen from Tradex. "God told me to sire a son, so I needed a young woman," Ferdig claimed after obtaining a Dominican divorce from Elaine Ferdig, his wife of 36 years.
In between, Ferdig arranged to "marry" a middle-aged Texan woman, who discovered after a year with him that their union was a sham - their Las Vegas wedding had been performed by a fake religious minister (and one of Ferdig's long-time associates). She later went on to train as a private detective and sent her own investigators to shadow the fraudster.
The Kenney investigation also learned that an investor in Bath, Maine, had taken her own life after losing everything to the fraud.
She had been one of the earliest followers of Ferdig and subsequently brought others into the programme. After her suicide, her friends said she was not only "wiped out" financially, but also burdened with guilt after watching so many others lose their savings.
By early March 2006, Bahamian contacts developed by McGunn picked up "chatter" between Ferdig, an estate agent and Ferdig's Nassau attorney. The talk was about Ferdig's condo in Nassau.
Although the intelligence failed to confirm that the condo was being sold, it was clear to Kenney and McGunn that they had to act fast. They moved against a local branch of Barclays bank, gaining access to records of Ferdig's accounts under a seal-and-gag order.
They then hit the private trust company administering the properties. His team appeared on its doorstep one morning, taking the operation by surprise. Kenney already knew they helped money-launderers, so not only did they seize scores of documents, they also flew in PwC's Forensic Technology Solutions team from Toronto, who cracked its server and recovered deleted emails.
McGunn then raced to gather evidence to support a specialist "Mareva injunction" fashioned, with the assistance of a Bahamian law firm, to freeze the condo. They acted in the nick of time. On March 16, Ferdig had signed an all-cash sales agreement and the proceeds of the sale had already been deposited into an attorney's account, ready to be dispersed to Ferdig. Instead, the buyer's money was paid to the liquidator. Ferdig got nothing.
Kenney understood he had to keep up the pressure - you went after the small things first, so you could take down the main prize later. McGunn joked in his trademark drawl that the legal force they were now unloading was tantamount to the bad guy living in the tropics and opening his door only to step into a snowstorm.
However, this meant Ferdig now knew they were on to him. "Can we do a Maz Khan?" asked a figure in shorts and a Hawaiian shirt with a goatee beard. This was John Bagalini in his element, referring to the sting operation that caught Khan, a Briton who ran a fake pyramid scheme and a Dubai property scam.
On top of his forensic-accountancy and IT skills, Bagalini checked signatures to spot the telltale signs that would link two different names to the same person. He was also an arch negotiator and, as he spoke now, he referred to previous cases in which he'd dealt directly with the fraudster, hammering out a deal to get back the majority of funds to the victims. They agreed to get McGunn to try and "run" Ferdig's phones: subpoenaing his call data (from phone companies) and using that to determine his main contacts.
Meanwhile, Bagalini had weeded out fake creditors (frequently fraudsters use dummy companies and claims to get back monies for themselves) and his careful analysis of the records that McGunn and Kenney had seized revealed that new money was coming from one of Art Ferdig's associates in Jamaica. The fraudster had bought nearly 500 acres of land on which to build a New Age retreat for the Californian crowds he was now working.
Dan Wise, a former British Army officer and solicitor advocate, joined the firm as partner from London. He was soon discussing with McGunn the legality of tapping the phone in a Jamaican hotel they knew Ferdig used, having secretly intercepted his emails. McGunn informed the assembled team how he and Bagalini had been tracing funds sent through another money-launderer, over $2.5 million of which they had so far followed from Tradex into various other accounts - and to the land in Jamaica. McGunn would detail one of his men to case the location as Wise drew up the legal documents.
Having worked in conflict zones and often personally tracked down witnesses, Wise was unusual in the legal profession for his hands-on, no-nonsense approach.
Wise would ensure they had the best local counsel, even former adversaries from past cases, as they went after the Tradex millions: after all, someone who understood the local courts, and most importantly the judges, could often tip the battle.
Later, back in his office, James McGunn picked up the phone. It was a neighbour of Ferdig's daughter who had invested and lost money in Tradex. She confided how the Elliots (Ferdig's son-in-law and daughter) had let slip that their family and relatives were planning to move to Florida. They hoped to use Florida's "homesteading" laws, which afford protection against seizure of property. (What they didn't know, but Kenney and Wise did, was that where criminal intent and money-laundering could be proven, those state laws become ineffective.) The caller became one of several "CIs", or confidential informants. Another was the Texan woman whom Ferdig had duped into believing they were married.
Thanks to his CIs, McGunn had traced Jeff Lockhart, one of Art Ferdig's main accomplices and his son-in-law, and frozen the house he owned in Louisiana. Ironically, he'd found Lockhart through his connections to a Bible college. Now McGunn was heading to Boca Raton, Florida - or "Fraudsterville", as many in his profession called it. It held a remarkable number of money-launderers, grifters and swindlers. A lucky break in tracing one of Ferdig's cheques had led McGunn to an automobile repair shop and a tortuous trail that eventually turned up the address where he now stood. He knew, too, that Wise had just been able to freeze $90,000 in an account Lockhart held in the Bahamas. His patience paid off.
McGunn was to spend many days in "Fraudsterville" while Wise prepared the necessary legal attack and Kenney executed it in the courts. One by one, the properties were frozen and seized.
Bagalini, meanwhile, was updating the link-analysis charts which plotted the Tradex con: he could pull up screens that proved this was money-laundering at its most brazen. The empire was collapsing.
Kenney's subpoenas always asked for account-opening documents, which often had a phone number attached. Now a New Age guru, Ferdig was giving seminars under his new banner, Spiritual Ekklesia.
McGunn traced an address via a discovery order served on PayPal, used to collect payments on Ferdig's new website.
A team of former intelligence and law-enforcement men was assembled in southern California, where Ferdig's calls, and tracking by ex-Internal Revenue Service (IRS) agent Al Ristuccia, now placed him. McGunn will not reveal how his team tracked Ferdig in California, but in certain other venues they used a customised GPS tracking system that transmitted information via an embedded satellite modem to a secure website. The team could then display the target's position on a digital map.
There was usually only a short time in which to place the device. The trick was to practise on a similar vehicle before finding a window of opportunity to gain access to the target's vehicle. Magnetic trackers were easy to install, but could work loose and the magnets could interfere with the signals. So when the GPS device was used, they decided on a clamp-based system that bolted the transmitter beneath the vehicle.
When the opportunity came, the men worked hard and fast, smearing grease on the device so that it didn't look brand new - just in case the target had a mechanic check over the vehicle. They disguised themselves in mechanics' jumpsuits, placing a similarly disguised truck next to the target's parked car. In one case, all went well, until the battery failed and they had to repeat the operation. When it stopped transmitting again, they had to repeat the clandestine manoeuvres once more. The last installation worked fine until the device fell off, but the six weeks of signals they did get was enough to pinpoint the target.
Meanwhile, McGunn had tracked Ferdig down to a seedy block in LA. As Ristuccia and another private investigator approached, they spotted the con man inside a second-floor apartment. When they knocked on the door, an accomplice bolted out of the back. "How did you find me here?" Ferdig snapped. Ristuccia thought that a funny thing to say, unless you were hiding something.
Using a cover that they were investigating another legal matter - in which they implied Ferdig was merely an innocent spectator - they tried to pump the fraudster for information on his current activities. They discovered he was giving lectures on "angels" at the Learning Light Foundation (part of his New Age reinvention), but the suspicious Ferdig was giving little away. They noted the address in case they needed to serve judgment papers (on behalf of the liquidator of Tradex) and reported back to McGunn.
Mc Gunn hadn't realised it at the time, but he'd already had his "gotcha" moment. Back in 2006, with Ferdig on the move, McGunn returned to the emails they'd intercepted by sealed subpoena, searching for any clue he might have missed. As he browsed, he spotted an alias Ferdig had used. There was little chance the address was still "live" but he sent him an email, just in case.
Three days later there was a note on his desk. "Call Art Ferdig." It listed a number in Panama City, Panama. McGunn dialled.
There followed a verbal sparring session between the two, in which Ferdig had made a serious mistake. "What are you, what are you really after?" asked the voice on the other end, as McGunn clicked on his tape recorder. "Bringing closure to the matter in such a way that the interest of the creditors are served," replied McGunn. "Certain ways out of this problem would actually be in your interest. Would benefit you somehow." Ferdig tried to sell McGunn a sob story: he was a simple man who'd been tricked by his trader. Ferdig knew Kenney had already frozen property in Jamaica and The Bahamas. But he slipped when McGunn asked him to affirm that "a percentage of [your] profits you could retain as earned income. As your share, as your fees for operating this." "Right," said Ferdig.
What tripped Ferdig up was claiming he was legally entitled to the $20 million or so that Kenney had proved he'd diverted to his own pockets. He said he'd "earned" that money as his cut of the profits made by Tradex. By claiming it was earned legitimately, he was incriminating himself in tax evasion - assuming he had not reported his "earnings" to the revenue authorities (which McGunn suspected he had not). In 2008 the IRS came to McGunn for copies of this conversation.
A tax-evasion charge may not be glamorous, but it's how they caught Al Capone. Ferdig's defence - that this money was a salary - would be blown apart by Kenney, who could clearly show Tradex had been a Ponzi.
To date, Martin Kenney & Co has frozen or liquidated nine Ferdig gang-controlled assets and seized accounts worth over $10 million. A $35 million default judgment has been awarded against Rachel Riotte and Jeff and Alisa Lockhart. A $500,000 judgment was obtained against Elaine Ferdig and her son-in-law David Riotte. And the con man himself is facing a $20 million judgment.
Members of the Ferdig gang are attempting to cut deals, but much of the money is gone, and some had never been there at all. The liquidator has found that 45 per cent of the $80 million (by Kenney's estimate) taken in by Ferdig was paid out in "scam interest". A third went to the Ferdig gang and "to parties of questionable relation to the stated business activities of Tradex".
Only 1.5 per cent went on Susan Lok's (loss-making) currency trades. The rest funded operating expenses or was paid to various "bird dogs".
Winding-up orders are still being placed on various Tradex-related entities, and McGunn is still keeping tabs on Ferdig: the latest venture is a mineral-selling business. Kenney himself continues to outwit the local attorneys hired by the other side. John Bagalini puts it another way: "Everyone is very driven, very tenacious. Once we're on the path, it really takes a death blow to get us off. You have to beat us on the head with a crowbar."
Kenney's firm is now working for a European bank which invested over $10 billion in Bernie Madoff's scam, via two Virgin Island feeder funds. Madoff's plea bargain involved agreeing to cooperate fully in exchange for immunity for his family - an investigator's dream. With a noncompliant fraudster, work to uncover a single link in a scheme can cost $30,000.
Kenney says that one day he wants to work on behalf of death-row inmates, but for now his urge to wipe out the offshore crooks who steal millions still fuels him. "They're as sophisticated and bright and as well organised and articulate as some of the best commercial business people in the world. But some of these fellows are really sick! They get their 'jollies' off of victimising and laughing at people. That might explain why some of the big boys who take $200 million at a roll do it again, and again, and again.
There's no reason; they can never consume all they steal."
Nick Ryan (nickryan.net) is author of Homeland: Into a World of Hate*. "James Lee" is a pseudonym*
Want more Wired UK magazine? Get your copy every month by subscribing online today
This article was originally published by WIRED UK
