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$323.5 million bank fraud's unraveling cuts a wide swath Story unfolds: Despite the millions involved, the loan scheme was relatively simple and its victims went along easily.

April 22, 1996|By Bill Atkinson and Gary Cohn | Bill Atkinson and Gary Cohn,SUN STAFF

"As far as I know, there were no computers shipped in this case," said John J. Shay Jr., general counsel for IBM Credit Corp. "As far as I know, IBM would not make computers without serial numbers."

Given the amount of money involved, the bankers should have verified that Mr. Reiners was employed by Philip Morris. Indeed, Signet should have insisted on a face-to-face meeting with the company.

"If I'm going to loan them $81 million I want to check their DNA before I lend that kind of money out the door," said Financial Security Consulting's Mr. Gearin. "It is not Star Wars technology, it is common sense. Obviously, none of these banks did any due diligence on this individual. One telephone call to Philip Morris would have revealed that this person was no longer an employee."

Charles A. Intriago, publisher of Money Laundering Alert, a Miami-based newsletter, said the bankers failed to follow the industry's mantra: "Know your customer."

"A mom and pop walking into a bank for a house loan come up with a financial statement and almost take a blood sample to get a mortgage loan," he said. "So it's just amazing to me how the 'know your customer' high-risk safeguards of a bank can just disappear when a smooth-talking scam artist walks into the bank and these guys fall for it."

In banking, millions of dollars can flow from one account to another in an instant. And that's exactly what happened with Project Star.

Where did the money go?

Authorities, of course, now know that Project Star never existed, nor did Philip Morris have any other top-secret program involving Mr. Reiners.

And to date there's no evidence that any computer equipment was ever purchased.

So where did the $323.5 million go?

About $200 million has been traced and frozen by the FBI. Of that, about $180 million was invested in stocks controlled by Mr. Reiners and John Ruffo, president of CCS Inc., according to court documents, sources and Judd Burstein, Mr. Ruffo's attorney.

Included in those investments were: $66.5 million in Texas Instruments Inc.; $27.1 million Philip Morris; $17.4 million in IBM; and $14.4 in Netscape, according to documents obtained by The Sun.

Authorities also have taken control of Penthouse "D" in Trump Palace Condominium in New York City that was purchased for $9.4 million in Mr. Reiners' name.

OC To date, authorities have found no trace of about $123 million.

'This is a phony certificate'

As carefully constructed as the scheme was, it unraveled quickly.

The beginning of the end came Friday, March 15, when Masanori Shoji, deputy general manager at the Long-Term Credit Bank of Japan's New York office, began to get nervous.

He called NationsBank Executive Vice President Robert R. Wetteroff in Richmond, asking questions about loan documentation Mr. Reiners had used.

Specifically, Mr. Shoji had questions about an "incumbency certificate," which purported to give Mr. Reiners the authority to enter into contracts and conduct business on Philip Morris' behalf until Dec. 31, 2003. The certificate was signed Oct. 26, 1995, by Mr. Reiners, giving his title as "chief operations officer," and by Diane M. McAdams, an assistant corporate secretary.

Mr. Wetteroff provided a copy of the certificate to Mr. Shoji, who in turn faxed it to Ms. McAdams at her Philip Morris office in Manhattan.

Ms. McAdams' response was quick and blunt: "This is a phony certificate."

"Mr. Edward J. Reiners is not an elected officer of Philip Morris Companies Inc.," she continued. "I do not know a Mr. Edward J. Reiners, and the signature that appears on the certificate is not mine."

Mr. Shoji immediately notified NationsBank, which in turn called officials at Signet.

The FBI was called.

On the weekend of March 16-17, FBI agents interviewed bankers at NationsBank and Signet.

Mr. Nelson, of Nelco, first learned about a possible problem when a banker called him at home about 5 p.m. Saturday, March 16.

Later that evening while he was being interviewed by an FBI agent, Mr. Reiners called from New York, an FBI affidavit states.

Mr. Nelson put the call on the speakerphone, allowing the agent to listen in.

Mr. Reiners explained that a fax would be sent to NationsBank from Diane McAdams, explaining why she had previously denied the authenticity of the incumbency certificate.

The two-page fax arrived at the bank at 11: 35 p.m. Saturday.

"On March 15, I was contacted by Long-Term Credit Bank of Japan regarding the validity of the incumbency certificate referencing Mr. Edward J. Reiners," stated the letter, written on Philip Morris stationery. "I was not in possession of a confidentiality agreement executed with Long-Term Credit Bank and therefore I responded in order to protect the confidentiality and high level of security surrounding Project Star. For your records the incumbency certificate authorizing Mr. Edward J. Reiners as Chief Operations Officer for Project Star is valid and was signed by me "

The letter was signed, "Sincerely, Diane McAdams."

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