Informant Helps Unravel Mexican Bank Draft Scam

For months, FBI and IRS agents were frustrated in their efforts to shut down a financial scheme that seemed to be spreading with alarming speed across the country.

Hundreds of people, from Southern California to Ohio, were succumbing to the same pitch: Pay 15 cents on the dollar in cash for a certified draft drawn on a Mexican bank and use the full value of the draft to pay off your loans, from credit cards to home mortgages.

The buyers were told that their lenders had to accept the drafts and that the Mexican banks would use their cash as a reserve to generate something called “credit dollars” to back up the drafts.

But the U.S. banks that received the drafts as payments quickly discovered that the Mexican banks were phantoms and the drafts were worthless. So the banks refused to honor the payments, and those that had accepted them filed lawsuits to get their money back.

A manager at an Orange County electronics firm who thought he had paid off his mortgage with one of the drafts has been living in a motel since his bank foreclosed on his mortgage and took the house.

Yet as the losses to banks and borrowers moved into the millions of dollars, federal agents could not come up with even a name or location for the person or people behind the sophisticated operation.

The break came last August when a man telephoned the FBI in Los Angeles and offered to provide authorities with a full account of the organization’s inner workings and help nab its leader.

Several People Involved

Since then, federal investigators have arrested the suspected leader and begun to get a handle on how far the operation had spread--and how lucrative it had become.

Federal agents involved in the investigation said this week that they expect criminal charges to be filed eventually against at least 20 more people, including several from Southern California.

The only person arrested so far is Walter M. Radabaugh, 58, of Everett, Wash., the suspected ring leader. He was in his Cadillac under surveillance by FBI agents on Oct. 29, near Portland, Ore., when the agents feared he was planning to flee and grabbed him.

Radabaugh has been held without bail in Seattle since a prosecutor argued that his frequent use of aliases and other factors made him a flight risk.

Charges also have been filed against another Washington state man identified as James Michael Beall, but he has not been apprehended.

Jon T. Eyer, the second-ranking agent in the Seattle FBI office, confirmed in a telephone interview Thursday that the federal investigation is continuing, but he declined to identify any other targets.

The investigation is being run by the Seattle offices of the Internal Revenue Service and FBI, but agents in both agencies across the country are involved in the case.

Evidence obtained by the FBI indicates that the scheme started nearly two years ago and had expanded to at least 11 states--California, Arizona, Idaho, Washington, Oregon, Texas, Nebraska, Georgia, Florida, Illinois and Ohio.

Cash Sent to Washington

Information also hints at the lucrative nature of the scam. A sworn statement by Michael J. Sanders, an FBI agent, filed in connection with Radabaugh’s arrest, said $339,000 in cash was transferred through an account at a Texas bank in less than four months.

Sanders said one of the ring’s most successful salespersons was in San Diego, where she obtained more than $205,000 from 65 people in just two months. The cash was sent to Washington via Federal Express.

Sanders said one bank, which the government declined to identify, lost $300,000 when it accepted one of the phony drafts. So far, authorities have discovered nearly 1,000 drafts with a face value of $164 million, and they anticipate uncovering many more.

It has not been determined how much people paid for the drafts, but using the standard 15%, agents estimated the figure to be at least $24 million.

The list of individuals who bought the phony documents is also growing, and investigators are uncertain where the total will end up.

“It’s safe to say that the number of victims will be in the hundreds,” Jason Moulton, an FBI agent in Seattle, who is supervising the investigation, said in a telephone interview.

The FBI investigation was impeded because many victims refused to cooperate. Some are members of anti-banking groups that back a return to the gold standard and oppose the creation of paper money by the Federal Reserve system. Others who originally bought the certificates were recruited into the operation as salespeople, called “educators.”

Merely Mail Drops

Still other victims simply are too embarrassed at being taken in by the scheme to discuss their case with anyone. “It’s not something you are proud of,” said the Orange County electronics executive who lost his house and pleaded that his name not be published.

According to the Sanders statement, the phony certificates were issued in the names of several institutions that were nothing more than a post office box in Acapulco. Among them were International Credit Exchange, Global Credit Reserve, Panora Credit Trust and API.

The certificates were sold through individual contacts and “debtor parties” held in hotels. Buyers were assured that the certificates were as legitimate as the paper money issued by the Federal Reserve and that banks were legally obligated to accept them.

In some cases, the FBI said, people made large cash withdrawals from their credit card accounts and then tried to pay off the balance with a draft.

Investigators and others familiar with the inquiry said the FBI has been told there were at least 10 regional “administrators” in the operation, and each had a number of “educators” who worked for them.

Yet Radabaugh remained an elusive figure to those in the ring. Administrators and salespeople were paged through beepers and identified themselves with code numbers when they returned calls to the boss.

The FBI obtained the Seattle-area telephone number used by Radabaugh, along with a second number for an operation in San Jose, from the informant. The informant also allowed the government to record his telephone calls with Radabaugh and lured Radabaugh to a meeting in a Seattle hotel room that was videotaped by FBI agents hiding in an adjoining room.

In one meeting recorded by the FBI, Radabaugh outlined a new program to persuade people to conceal their income and savings from the IRS by depositing it in foreign bank accounts.

But two persons familiar with the investigation said there was some question about whether the depositors would ever have been able to obtain the money once they turned it over to the “educators.”