A stack of documents found in a wardrobe at a Rotorua house revealed how one of the master-minds behind the Ponzi scam that ripped off Mark Hotchin was himself the victim of internet scams.
The documents were discovered after Bill and Lee Papple were evicted from the house they had bought with the proceeds from the $15 million scam they operated with Tina West.
They revealed that Bill Papple invested more than $1.6 million in a variety of implausible get-rich-quick internet schemes.
Saturday, April 24, 2004 was another bad day for Bill and Margarite "Lee" Papple.
A photo taken that morning shows an emotional Mrs Papple dressed in pink pyjamas outside the Rotorua mansion they had spent $1.4 million of investors' money building. Furnishings and other belongings can be seen on the driveway.
It was a rude awakening. The house had been sold in a forced sale. They'd refused to move out and were awoken by 30-odd friends of the new owner, there to send them packing.
Back then they were the accused. Now they have fraud convictions for operating a Ponzi scam that sucked $15 million from punters including $680,000 combined from prominent businessmen Mark Hotchin and Kerry Finnigan. Lee Papple got five years jail, her husband got two. Partner in crime Tina West, was also sentenced to five years in jail.
After the Papples' forced departure from their home, an incriminating discovery was made at the back of one of the wardrobes.
In his first trial, Bill Papple had escaped conviction, claiming he was involved only in the legitimate mortgage finance side of the couple's business.
Documents in a briefcase tucked in a wardrobe, however, showed that he had been very much involved, at least behind the scenes. The documents were passed to the Serious Fraud Office. Bill Papple was convicted at a second trial.
The wardrobe documents revealed Bill Papple was at least as credulous as many of his victims.
He invested an estimated $1.6 million of the money he and his wife scammed into get-rich-quick internet schemes.
The wardrobe papers give details of hundreds of thousands of dollars the former shoe salesman sent to implausible international schemes. Those he chose were at least as far-fetched as the tales he and his wife and West told to extract millions of dollars from people who had come to trust them through their involvement in the Mormon church and their mortgage business.
The difference between the Papples' own frauds and many of the international scams on which they wasted their victims' money is that the Papples ran a Ponzi scheme, using some of the early funds they received to pay "dividends", convincing early investors that they were on to a good thing and should tell their friends about it.
Liquidators of the Papples' companies, Lakeland Wealth Creators Ltd and Wespap Ltd, worked out that of the $15.3 million of investments and commission receipts that went through the companies' accounts, about half was used to fund so-called dividends to investors. A quarter each was spent on themselves and international scams.
By the time the Papples latched on to Hanover finance group director and co-owner Hotchin and director and chief executive Finnigan in 2002 they were desperate and promising incredible returns.
Hotchin invested $560,000 on the lure of earnings of 160 per cent interest over two months - an annual rate of 960 per cent. Finnigan invested $120,000 on deals offering up to 50 per cent interest a month. Both received payments under the guise of interest, but Hotchin lost $225,000 when the scam collapsed. Finnigan made a small loss.
The international scams that ripped off the Papples didn't need to worry about returning some of the money. They used the internet to drag in greedy suckers from around the world.
The papers in the Papples' wardrobe added a new list of scams to which the fraudsters subscribed. Here are three.
The FOOFEDI scam
The most colourful of them used the initials FOOFEDI - the Foreign Office of Flat Electronic Data Interchange Inc. FEDI purported to be a plan for a worldwide electronic trading network based on the Koranic prohibition on charging interest for financial advances. The organisation behind FEDI was said to be an Islamic trust designed for the protection of widows and orphans, backed by wealthy families in the United Arab Emirates.
A key figure behind FEDI appeared to be Abdul Tawala Ibn Ali Alishtari, said to be a United States resident. He claimed that a Canadian, Brian Anderson, and his associates, had misappropriated the FEDI concept and were using it to attract investment to fraudulent trading desks, said to be similar to seats on stock or commodity exchanges.
Alishtari named Gordon Rothwell and a Mr Lavoie as being among associates of Brian Anderson. He claimed that an investigation by the Ontario Securities Commission (OSC) had led to the withdrawal of allegations against FEDI.
A check with the OSC's website shows that it alleged in June 2003 that Brian Anderson had sold securities - the FEDI trading desks - for $125,000 each without a legal prospectus.
It also alleged that Anderson's sale presentations promised potential investors "that their principal investment would be returned in October, 2003, and that they would receive income from their investment at the rate of 30 per cent per month for a 10-year period". That's $37,500 a month for 10 years - a total of $4.5 million for a $125,000 investment.
Both Rothwell and Lavoie feature in the Papple documents, which show that in September 2001, Bill Papple wired a total of $299,505.52 from the account of Lakeland Wealth Creators to an account held by Salem Management Co Ltd with The Belize Bank Turks and Caicos Ltd, of New York.
An email, signed Paul Lavoie, on September 2 welcomed Bill Papple and his wife to "our project", inquired about the source of the funds and spoke of FEDI confirming "the assignment of your desk".
Earlier, on August 27, Lavoie had listed a series of forms for Papple to fill in and documents required to complete a desk purchase. Item three on the list was an affidavit confirming that the sender was not a felon and the funds were legally obtained.
Soon after, Bill Papple sent a copy of the title pages of his British and New Zealand passports, plus an affidavit, declaring that he had no criminal record and a letter from the manager of his bank branch confirming that the account of William Papple, trading as Lakeland Wealth Creators Ltd, had a balance of $735,318 on that day. The bank manager also confirmed that the funds were "good, clean and cleared of non- criminal origin and are free from any liens and encumbrances".
Some forms sent to Bill Papple were little more than gibberish but this appears not to have deterred him.
Notably, one asks for the net value of the applicant's assets, referring to the applicant as the "Debt Planner" or "DP". It asks what the value of the DP's company would be if the total net value was multiplied by 10. At one point on a copy of the form someone, presumably Bill Papple, has hand-written "What does this mean?"
Neither this form nor ones claiming to exempt the promoters of the scheme from any liability appeared to concern Bill Papple.
He faxed copies of the completed forms to Lavoie and someone called Blake Rodger, described as the "Webb Sheriff". They instructed him to send the originals to Gordon Rothwell, listed as a "Treaty Ally".
Paul Lavoie passed on to Bill Papple a fax from a Mohamed H Abdi to say that discovery for desk #148 had been approved and funds should be wired as soon as possible.
The promoters of the scheme produced exhaustive documentation including more than 30 pages of names of Arab businessmen who supposedly backed FEDI with gold reserves totalling US$100 billion and documents indicating links between FEDI, Lavoie and an entity called Standard Reserve whose name featured in another hopeless scheme Bill Papple invested in.
The scope of the FEDI scam, involving companies and organisations in the US, Canada, British Virgin Islands, Turks and Caicos Islands, is impressive. But there is no external evidence of any links to anyone in the UAE or in the Islamic world.
It is clear that from a comparatively early stage, Bill Papple was wasting investors' money on internet scams that bore no resemblance to the story he, his wife and West used to raise money from investors. This ultimately cost them in court, as the prosecutor, Philip Morgan, QC, emphasised it was irrelevant that they were themselves duped - it was the lies they told their own clients that landed them in the dock.
The Lavoie connection
Through Blake Rodger, of FOOFEDI Webb Sheriff fame, Bill Papple also invested an unknown sum with other companies.
Neither the court documents available nor the papers from the wardrobe say what this particular scam was.
Court documents filed in August 2001 by the receiver appointed by the Alberta Court of Queens Bench show that a Blake Rodger, of Eugene, Oregon, USA, and other investors had been promised returns of 1000 per cent, at the rate of 100 per cent a month. The receiver's report suggests this scam raised more than C$7 million.
By the time the receiver reported less than $2.5 million was available to pay creditors.
The wardrobe papers give no hint of whether the Papples eventually received any of their investment back, but other reports suggest they did not.
Vault & Monarch
Companies Office and liquidators reports also found evidence of investment by the Papples in an organisation called the Monarch Investment Group and/or Vault Investment Group or Vault Consortium.
At her trial, Lee Papple told the Rotorua District Court that a contract with Vault Consortium in November 2001 was to save the Papples and West and turn around the finances of their enterprise.
Vault had promised to keep investors' money secure and under its control, while offering returns of 100 per cent a month, she said.
Monarch's website says the group offers investment services for portfolios of US$500,000 and upwards. Bill Papple opened a US bank account and deposited that amount but no returns were received, the court was told.
Updating of the website appears to have stopped in 2004. No physical address or phone numbers are given.
The wardrobe papers indicate how a naive and perhaps desperate Bill Papple was strung along and bamboozled, until too late.
He flew to New York and met one of the scammers before transferring the money. One letter to Bill Papple spoke of Papple's interest in moving forward with a "Secured Private Placement" one of many names used for fraudulent Prime Bank Instruments.
Papple must have moved forward as on June 15 2002, Vault Consortium Investments sent him a letter addressed to Club Members/Investors.
The letter promised each investor an insurance policy, underwritten by Lloyds of London, covering the amount they had invested, plus a monthly bank statement. Subsequent documents show that neither the projected guaranteed return nor the insurance policy materialised.
By July 23 Bill Papple was having doubts. He emailed a draft letter to Paul Lavoie, one of the men mentioned in the FOOFEDI scam, for comment. The letter was addressed to one of the principal names in the Monarch scheme, R J Abercrombie. Far too late, it asked a number of pertinent questions:
I am Bill Papple from New Zealand. We have not met and sometime in the future I would like to rectify this. Before I placed funds with Lydio [Rancharan] I took the time to fly to New York to meet with him, as I prefer to deal with real people I can visualize than a faceless entity.
I attempted today to contact you and then Antonia followed by Lydio by phone, but was unsuccessful.
I am desirous that this trade is successful for all involved and that everything moves smoothly with the least inconvenience. For this reason I have been slow to jump on the phone and have nervously awaited communications. This has been the most frustrating aspect communication has been negligible.
We have been walking through a dark room, not knowing where the light switch is. I like to act in an ethical manner and appreciate that being reciprocated.
I have supplied all the information that has been requested of me and to date have not received a contract, nor do I know where my money lies.
Let me bullet point the topics:
* No contract
* Who is Monarch?
* Where is the trading account situated, i.e. which bank in which jurisdiction? Are my funds in that account?
* Who is the signatory over this account?
* I now appear to be dealing with Lydio, Ron and Antonio. What are your respective roles in this trade?
* When did this trade commence?
* I sent to Lydio my personal information which was required by the insurance company. Has that been received and acted upon?
* What is a good time to contact you and on what number?"
The wardrobe papers don't indicate whether the letter was ever sent to Abercrombie or whether he replied.
With their companies under investigation in August 2002, the Papples maintained a positive front with clients while privately they must have had their fingers crossed that one of the scams would pay off.
Victims were worried about the irregularity of payments and the range of excuses the Papples were making. One excuse was the need for Bill Papple to go to Switzerland to collect the money personally.
Lloyd Johns (a business acquaintance who had introduced Hotchin and Finnigan to the Papples' schemes) went to Geneva as a chaperone with instructions not to let Bill Papple out of his sight.
On 7 September Lidio Rancharan emailed Bill Papple to say there had been a complication at the bank, but payment was now guaranteed no later than September 20. "Please bear with us and you will be happy within a few more days."
The Papples, and especially Lakeland Wealth Creators, were indeed "faced with difficulty". On July 31 the Securities Commission had authorised an investigation of Lakeland following a complaint by a US investor.
By September 11 the investigation had spread to Wespap Ltd (the company Hotchin's money went in to), and the Companies Office successfully applied to have interim liquidators appointed.
The Papples were told to stop acting on behalf of the companies or dealing with any of the companies' assets. Despite this, Bill Papple flew to Switzerland later in September on a fruitless trip to recover funds.
Some three years after liquidators took control of the Papples' companies, Lidio Rancharan and Mark Segovia (also named in the Vault/Monarch schemes) appeared in the records of a New York court.Default judgments had been registered against the pair in a case involving First Security Investment Inc.
A business card in the wardrobe papers is that of a Mildred Sciarrone, of First Security Investments, Inc, at the same Madison Avenue address as the Vault Investment group. The card appears with other documentation from mid-2001, when the Papples' scam was in its early stages. Clearly they fell in with a bad crowd from early on.
By the end of 2002, the FEDI promoters, the Standard Reserve group and the Papple-Tina West companies had all been swept away, while in a Rotorua wardrobe waiting to be discovered sat a suitcase of documents outlining the links between them all.
Dodgy deals and suspicious schemes
If it sounds too good to be true, the warning runs, then it usually is.
That doesn't stop thousands of New Zealanders throwing away hard-earned cash on dodgy deals. Ministry of Consumer Affairs research in 2009 found that 15 per cent of New Zealand adults have been scammed or tricked out of money. Based on similar studies overseas, the ministry estimates the amount lost each year to scams is a staggering $448 million.
Most scams (60 per cent) involved sums less than $1000, and 79 per cent involved amounts less than $5000. Older people were likely to fall for get-rich-quick schemes. The research found 27 per cent of those 65 and older who admitted they had been duped lost $20,000 or more.
Scams come in all shapes and sizes. The most common reported to Consumer Affairs' Scamwatch service is a lottery or prize con.
Cold calls claiming your home computer is infected with a virus are increasing. The Ministry reports that 17 per cent of New Zealanders had been targeted by fraudsters wanting credit card details to 'fix' non-existent problems.
Scamsters have been busy in the aftermath of the Christchurch earthquakes. Scamwatch reports people getting phone calls claiming to be from a bank and asking for money to "send children on holiday from Christchurch post-earthquake".
When one consumer replied they had already donated, the call ended.
The Securities Commission has identified typical financial cons. Here are some:
Advance fee fraud
Better known as a "Nigerian-type" scam, victims are caught out by paying money up front in return for goods and/or services which never eventuate. Money paid in advance is lost. Letters promising the earth are best deleted and ignored.
Prime bank instrument fraud
This ruse has echoes in the Papple's fantasy world. A form of advance fee fraud, investors are invited to take part in a market where only elite banks operate. Financial instruments such as "prime bank notes" or "prime bank debentures" are dangled in front of dazzled investors who are assured of very high returns. The market is fictional. The money lost is real.
Affinity fraudsters work on people's trust, and target investors who might belong to religious, social, or cultural groups. They use the trust that exists within these groups to help steal money.
Like an investment chain letter, these illegal schemes rely on using money from new investors to pay "interest" to earlier investors. On the face of it, the investment seems successful. Its illusory nature becomes clear when there are no more investors.
How to spot a scam
All these scams share common features. Red flags include high investment returns with little or no risk, overly consistent returns, secretive or complex strategies, interrupted payments, unregistered investments and irregular financial information.
How to stop being scammed
Investments offered in New Zealand are required to have a published investment statement. By their nature, con artists will be unwilling to put anything in writing. Merely by asking for an investment statements indicates you know your rights and are not an easy target.
Simple questions also will deter a fraudster. Here is a sample: What are my risks? How do I cash in my investment? Who will my money be paid to? What is the name and address of the entity you want me to invest in? Who do I contact if something goes wrong?