A white-collar scam involving another local man is alleged by securities regulators and federal prosecutors, and while much smaller than Frederick Darren Berg’s huge Ponzi scheme, it has some similar elements — and a crucial difference.
The $100 million-plus Ponzi scheme perpetrated on local investors by Frederick Darren Berg was back in the news this week after the convicted con artist slipped out of a minimum-security prison.
By coincidence, in recent days a much smaller white-collar scam involving another local man was alleged by securities regulators and federal prosecutors.
Unlike in the Berg case, however, this time an auditing firm got fired for trying to closely examine documents behind the alleged flimflam — something that may have helped prevent the scheme from going further.
A criminal indictment in San Francisco and a parallel civil suit filed in Seattle accuse Donald MacCord, a sometime resident of Fall City and Vashon Island, of raising $4.5 million from more than 60 investors in Seattle, Spokane and elsewhere — and then using most of it for himself.
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MacCord, the founder and CEO of a Snoqualmie-based company called Digi Outdoor Media, worked with chief financial officer Shannon Doyle to pitch it as an outdoor advertising company with numerous contracts to put up billboards around Washington, D.C. In fact it had no revenue and few if any genuine contracts.
The Securities and Exchange Commission suit, filed Dec. 4, says while raising the funds from 2013 to 2015, MacCord and Doyle “almost immediately began using investor money for their personal benefit.” The first step was transferring $3.6 million to a fake company they created, Signworks, using “false invoices … that purported to bill Digi for sign construction and installation work at properties in Washington, D.C.”
In reality, the SEC alleges, at least $2.3 million laundered through Signworks was spent like this: “$20,000 per month in rent for a Southern California mansion for MacCord’s family, to employ nanny and housekeeping services for MacCord’s family, private school tuition for MacCord’s children, and to buy or lease multiple luxury vehicles for MacCord and his family.”
Separately from the Signworks diversion, says the SEC suit, “MacCord used money from Digi accounts to pay for a London vacation, apparel from Italian clothiers, and a deposit on a BMW vehicle for his stepson.” He also had the company “make payments on a $177,000 Land Rover that he gave to his wife as a birthday gift.”
A response from MacCord has not been filed in either court case yet, and two phone numbers for him are disconnected. Doyle, a Maryland resident, has not responded either. Reached by phone, he said, “I don’t have anything to say” and ended the call.
According to prosecutors, the siphoning of Digi money continued from late 2013 through this spring.
To conceal the fact that the second company was their own creation, says the SEC suit, Doyle registered it using “the North Bend, Washington, address of a woman with whom Doyle was romantically involved as Signworks’ business address. The woman forwarded Signworks’ mail to Doyle when she received it.”
The indictment filed Nov. 28 in San Francisco sheds further light on the alleged deceptions. To conclude a strategic partnership and to attract investors, they claimed at least 125 signed lease agreements for advertising locations.
Here’s one similarity to Berg’s Meridian Mortgage scheme: According to prosecutors, of the digital contracts Digi executives presented, “almost all were false and contained forged signatures.” Apparently those documents, viewable only via the document website Dropbox, were enough to persuade the strategic partner and the firm that agreed to raise money for Digi from private investors.
However, when Digi began working up papers for an initial public offering so it could let existing investors cash out, it needed a CPA firm to audit its financials.
The small California firm it engaged, Hartley Moore, is not necessarily the ultimate in hard-nosed auditing — in 2016 it was dinged by federal accounting overseers for a past audit where regulators found “a failure to perform sufficient procedures” to identify and evaluate transactions between a company’s management and related parties.
In the Digi case, though, the firm demanded more than a digital image of contracts. Maybe the auditor grew suspicious when MacCord printed some out but wouldn’t allow those copies to leave the company office.
“When Hartley Moore requested permission to contact landlords and verify the leases” in 2015, MacCord fired the firm, according to the SEC and prosecutors.
The court papers don’t make clear whether the CPA firm’s dismissal prompted increased government scrutiny.
But by February 2016, the SEC had hauled MacCord and Doyle in for a hearing at which, according to the criminal charges, they testified “falsely, evasively and non-responsively” and submitted lease documents that were forged.
As a civil suit, the SEC case seeks only financial penalties and a prohibition against further violations of securities laws.
But the criminal indictment carries maximum prison terms of 20 years for some of the charges, which include conspiracy to commit wire fraud, submitting false documents to a government agency, obstruction of official proceedings, and destruction of records.
Back to Berg, who escaped while serving an 18-year sentence for Washington state’s biggest Ponzi scheme ever: He was able to divert tens of millions of dollars from his Meridian Mortgage operation in Seattle by creating fake loan documents for scores of properties.
Among the dozen mortgage funds he raised, three of the earlier ones were audited, a process that might have uncovered the forgeries.
But as the prosecutors’ sentencing report described, he successfully misled his auditors by concocting fake paperwork. In his words: “I would work all night for probably two months leading up to the audit, two months, every weekend, 18 hours a day, creating files that literally contained everything that the real files contained, credit reports, title reports, appraisals.”
To verify those documents, the auditing firm was directed to send its confirmation to various post-office boxes — boxes that were secretly set up by Berg. He then responded, the auditors were satisfied, and the diversion scheme went on.
Moral of the story: Auditors typically work in a quiet corner of the professional- services world, outside the spotlight usually directed toward investment bankers or lawyers. But sometimes their work can be crucial to safeguarding investors’ money.
— Rami Grunbaum: rgrunbaum@seattletimes.com