Economic Crime Journal

Economic Crime Journal

Dr. David Murphy is a Certified Fraud Specialist and Certified Public Accountant and is a member of the Board of Regents of the Association of Certified Fraud Specialists. In addition, he has served as the Senior Anti-corruption Advisor to the Controller General of Peru and the government of Bulgaria. He was also the director of a two-year USAID anti-corruption graduate education project in Bolivia and consulted to the Central Bank of the Philippines in the wake of a major bank fraud in Manila.

Other Posts:

How to Catch Fraudulent Financial Reporting (11/16/2009)
ASIS Economic Crime Council Highlights LC's Program (11/06/2009)
Fraud on Steroids (10/19/2009)
U.S. Banking Fraud Interview (04/27/2009)
Financial Statement Fraud (04/17/2009)
Internet Fraud on the Rise (04/06/2009)
Can Economic Crime Be Eliminated? (03/20/2009)
Madoff and Ponzi (03/26/2009)
New Credit Card Scam (05/01/2008)

Terrence ("Terry") Lee Dowdell, a resident of Charlottesville, Virginia, raised millions of dollars by selling fictitious securities from 1998 through 2002 through his Vavasseur Corporation that was based in the Bahamas.  His company was involved in a variation of the old Ponzi scheme.  This scam, named a "prime bank securities fraud" offers investors a "special deal" by investing in a secret trading market of the world's top or prime banks.  Usually neither the securities nor the secret market exist.

Dowdell told investors that his Vavasseur Corporation was purchasing short-term $1 million notes issued at a discount by Barclays Bank in the United Kingdom.  He asserted that he could sell the notes at face value and realize as much as a 70 percent return on investment.

Remember when I wrote that "If a deal sounds too good to be true, then it probably is"?  This is another example of that rule.  The following table shows the average return on large and small company stocks from 1998 through 2002.

Remember that over this same time period Dowdell was offering up to a 70 percent return on investment.

The SEC became concerned about Vavasseur in 2001 and Dowdell told the SEC that Vavasseur had repaid its investors and he stopped using the U.S.-based bank in Florida that had been used since the inception of the fraud.  From March 2001 forward investors were told to make deposits to foreign-based banks.  In November of 2001 when the SEC became aware that the fraud had continued they filed civil action against Dowdell.  A U.S. District Court then froze Dowdell's U.S. bank accounts.  A criminal injunction was filed against Dowdell in December of 2002.  Dowdell eventually pled guilt to securities fraud and wire-fraud and was sentenced to a 15 year prison term in July of 2004.

About $38 million of investor assets were eventually recovered and the investors will receive a distribution of approximately 68 percent of the funds that they had invested. 

Once again, if a deal looks too good to be true, it probably is.