TITLE

Who’s to blame for bustouts? You are!

AUTHOR(S)

McDowell, Michael T.

PUB. DATE

February 1997

SOURCE

Business Credit;Feb97, Vol. 99 Issue 2, p10

SOURCE TYPE

Trade Publication

DOC. TYPE

Article

ABSTRACT

Focuses on the role of the National Association of Credit Management (NACM), in light of the continuing growth in business crime. Role of protecting employers’ assets from a multitude of business frauds; Functions of NACM’s Loss Prevention Department; Information on `bustouts’, or planned bankruptcies; Reasons for changes in business ownership.

ACCESSION #

9702240113

Source-  http://connection.ebscohost.com/c/articles/9702240113/whos-blame-bustouts-you-are

When reading news from NACM’s Asset Protection Group (APG), you may come across the term ‘bust-out scheme’. What is a bust-out scheme? In this type of fraud, new ownership of a company is established; the new owners abuse the identity and credit line of the company to receive as many loans and goods on terms as possible.

In a deceitful, well-planned scenario, the perpetrators of a bust-out continue normal and satisfying payment trends for months–maybe even years–before executing the initial intentions.

The payment trends showing satisfactory status allow these criminals to request and obtain even higher credit lines, as well as establish new relationships with different companies.What happens once these perpetrators are satisfied with the amount of goods received from your company, along with a dozen others? They disappear! 

If you extend business credit to a bustout fraudster, you will likely end up writing-off “bad debt” in the five-figure range. Did you ever suspect fraudulent activity before writing off a bad debt? A recent survey conducted by the Asset Protection Group revealed that approximately 40 percent of respondents working in the business credit field might not even know if any of their bad debts are attributable to fraud. How can you prevent business credit fraud if you don’t know how to protect yourself, have no resources for information regarding fraudulent activity, and just as importantly, don’t know how to evaluate if you’ve been hit by a fraud? NACM’s Asset Protection Group is your best bet–a dedicated membership network that helps you protect your company’s bottom line!

The Federal Bureau of Investigation of Los Angeles, California has worked diligently to convict several perpetrators of orchestrating a recent bust-out scheme. These individuals plotted to commit fraud against victim companies that unsuspectingly extended terms. Various aliases were used to open different bank accounts and veil the identity of the actual persons behind the scheme.

The Details of the case:

In 2002 and 2003, APG issued several releases informing members of reported undesirable business practices for several subject companies: Tsunami Enterprises Corporation of Denver, Colorado; DT&M Corporation of Beverly Hills, California; and Surfside Industries, Inc., dba Channel Island Circuits, of Goleta, California. Edmond Masjedi (35, of Beverly Hills), Touraj Benshian (38, of Los Angeles), and Mohammad Majidi (42, of Los Angeles) plead guilty to fraud and money laundering charges in related cases. Two other defendants, Masoud Sabet, 52 and Masoud Rahmani, 34, whom are suspected of fleeing to Iran, have been indicted on roles of participation in this bust-out scheme.

LAWFUEL – Law News Service – A Beverly Hills man who orchestrated a series of “bust-out” schemes in which several companies were taken over and their credit lines were abused was convicted today of a series of federal fraud and money laundering charges.

Reza Bahram Tabatabai, 51, was found guilty by a federal judge who presided over a four-week bench trial. The evidence phase of the trial concluded on July 11 and this afternoon United States District Judge Florence-Marie Cooper found Tabatabai guilty of conspiracy, seven counts of interstate transportation of fraudulently obtained property, six counts of mail fraud, eight counts of wire fraud, conspiracy to commit money laundering and 33 counts of money laundering.

A bust-out scheme is a fraud in which the identity and credit line of a business are used to obtain loans and goods with no intention of paying for the money or merchandise. In this case, Tabatabai and several co-defendants purchased established businesses so they could make large purchases of goods using the companies’ existing lines of credit. While some payments were made in order to secure larger lines of credit, lenders to the four companies lost more than $8 million. The goods sold to the companies were re-sold at discounted prices to quickly generate profits for the participants in the scheme.

The companies busted out in the schemes run by Tabatabai were located in Los Angeles and Beverly Hills, as well as the Santa Barbara, Denver and Atlanta metropolitan areas.

The investigation in this case started when the FBI received a complaint from a company that did business with Impaq Micro, a Norcross, Georgia company that had been a legitimate computer wholesaler until it was purchased by Tabatabai under an assumed name. As part of the sales agreement, the previous owners of Impaq Micro were prohibited from telling its vendors about the change in ownership. After purchasing the business, Tabatabai and his co-conspirators made efforts to increase the line of credit available to the business.

Then obtained a large amount of merchandise on the credit. The merchandise was shipped to a warehouse in California, and was sold in exchange for cash and cashiers checks. The banks never received payments on the line of credit. By the end of August 2004 – less than four months after Tabatabai and the others had taken over the company – Impaq Micro had been abandoned, leaving unpaid bills of approximately $3 million.

The evidence at trial showed that Tabatabai and his co-conspirators engaged in a series of complex monetary transactions, to both conceal and promote the fraudulent scheme. Tabatabai and Edmond Masjedi controlled numerous bank accounts, held in the names of numerous businesses, in which he concealed the proceeds of the fraudulent conduct.

In her written verdict today, Judge Cooper stated: “Defendant was actively involved as a conspirator in bust-out schemes with his co-conspirators, beginning in approximately 2002 with the operation of the Tsunami Corporation, continuing through DT&M, Channel Islands/Surfside, and ending with Impaq Micro.”

Judge Cooper later added: “Defendant took pains to hide his identity while participating in the bust-out schemes. They utilized numerous bank accounts in assorted names. They Utilized accounts to deposit his share of proceeds of the fraudulent transactions. The money trail was elaborate, complex, and clever, but ultimately it was unraveled by the IRS agents in charge of the investigation. It clearly revealed defendant’s participation in the creation, brief operation, and destruction of the companies, and his share of the ill-gotten gains.”

Judge Cooper is scheduled to sentence Tabatabai on October 23. At sentencing, Tabatabai faces a potential penalty of several hundred years in federal prison. Each count of money laundering carries a statutory maximum penalty of 20 years in prison.

Previously in this case, three defendants pleaded guilty to fraud and money laundering charges. They are:

Edmond Masjedi, 35, of Beverly Hills;
Touraj Benshian, 38, of Los Angeles; and
Mohammad Majidi, 42, of Los Angeles.
These defendants are scheduled to be sentenced in the fall.
Two other defendants have been indicted, but they have not been apprehended by federal authorities. Masoud Sabet, 52, and Masoud Rahmani, 34, both of Encino, are fugitives who are believed to be in Iran.

The investigation in this case was conducted by the Federal Bureau of Investigation, IRS-Criminal Investigation Division and the Beverly Hills Police Department.

CONTACT: Assistant United States Attorney Eileen M. Decker
(213) 894-0721

Release No. 06-100