He was instructed to pay back an equivalent of roughly $10,000 or $15,000 as interest over a relatively short period of time, less than a year, which would have put the interest into a usury category, in excess of 50 percent. [He] satisfied the loan [but] at that point the lender was murdered. A short time after this, [the borrower] was approached by other people connected with organized crime and he was instructed that another party had assumed the loan and that he should continue to make payments. He explained he thought it was completely satisfied. He was told to make roughly another $20,000 in payments. He was instructed to take checks from his [place] of employment, make them out to any payee, take those checks to a check cashing business and it would be applied against his debt, which he did.
Check Kiting Via Check Cashers
Boney also described check kiting incidents, involving the generation of cash based on a series of checks negotiated at banks, permitting the check casher to utilize funds which actually don't exist in his accounts during the three-day or fourday "float" period before the checks clear. The witness said he encountered a check cashing business that handled about a million dollars worth of transactions a month. Counsel Gaal:
Q. Did they run into a problem with the bank?
A. They did run into a problem with the bank. The problem was the bank was of the opinion they were building up a float. In other words, they were receiving the benefit of checks that were cashed with no hard cash backing it up ...
Because of this float building up on uncollected funds, the bank wanted that account closed.
Q. Did the check casher have collateral at the bank to cover the uncollected –
A. What happened was the account was closed, the bank was not victimized from a legal standpoint and the account did transfer to another bank ... the account [was] transferred to a second bank and the activity repeated itself.
Q. Based upon your investigation have you noted that at times there appears to be a relationship between the check casher and a bank officer at a bank?
A. Yes.
Q. What have you noted?
A. I noted not only the increase in volume as the relationship continues but also a personas relationship developing between-in this one situation the principal of the check cashing company and the bank officer.
Q. Now, with respect to that check cashing business we've been speaking about did you learn that other law enforcement entities were looking at that check casher in addition to yourself?
A. That's correct.
Q. That included the Federal Government?
A. Yes, the Federal Strike Force out of Newark.
Q. How about I.R.S.?
A. The I.R.S. also.
Q. Did you engage in a joint investigation?
A. Yes, we did.
Q. And what did you find?
A. What we saw is demonstrated by this one particular business. When the funds were closed out of the Trust Company of New Jersey, they opened another account at the Fidelity Bank with a $105 deposit. In turn, within a 30-day period, with just $105 available, roughly
$120,000 of funds were issued against their account.
Q. And did they get the funds basically by drawing against the uncollected checks?
A. Well, at this point in time there was no source of deposit. It was simply $105 ...
Post-Dated Checks Facilitate Check Casher Loans
Boney said his inquiries involved a number of unlicensed check cashers as well as licensees. He told how one financially strapped customer of an unlicensed check casher was able to borrow money by cashing post-dated checks that were discounted at the rate of 1 percent per day. The testimony continued:
Q. Initially what was the pattern of that person's borrowing, and by borrowing I mean with respect to the check casher?
A. He had an arrangement with his check casher that he would take a check. It would be postdated for a short period of time, say, in the area of three to five days and they would give him a discount. As an example, if it was a $1,000 check at 1 percent commission per day, he would receive $990 and so on. If it was three days, $30 would be taken out. The distinction here between a normal transaction and his transaction is that right up front it was described that this would be the interest on the checks.
Q. You used the figure 1 percent per day. Is that a figure that you learned was the rule of thumb during –
A. That was the figure he stated to me as the interest charge.
Q. He told you he paid 1 percent per day?
A. 1 percent-he called it "vig" interest.
Q. Did his level of activity at the check casher increase? In other words, did the checks become larger?
A. Yes, they did become larger. It stepped up to where his loan grew from $1,000 up to 10 or $15,000 over a period of time and this continued for a period of years.
Q. Did that activity for this victim continue at other locations?
A. As far as I can determine it did.
Q. Did he initially offer to cooperate?
A. Oh, yes, he did.
Q. And what happened?
A. This check cashing company employed off duty police officers of Jersey City and he, in fact, didn't know who they were and when he would go into the business he would see a display of weapons inside in holsters. He actually felt that these people may not be law enforcement officers; that, in fact, this business ... could hire hired guns and they might be out to visit him if he fell behind in his payments.
Q. The term "vig" or "vigorish" has come up. What is that?
A. As I mentioned, this was described as [mob jargon for] the interest charged.
Boney described the case of a con artist with organized crime connections named J.J. Frankel of New York, who utilized the services of a Jersey City check casher in perpetrating security frauds:
I became involved in analysing different records where I saw a large volume of activity through Merrill Lynch accounts in New York City. These were cash management accounts in the name of Frankel. There were significant overdrawn balances, closewards to a million dollars of total overdrawn balances. I researched the pattern of activity. Geographically it came back to areas of Arizona, Texas and New Mexico. I contacted a banker in those areas who was apparently victimized by the activities of Mr. Frankel in a series of securities offerings of which he received funds and they found their way to New York City and then, in turn, to Cash Services of Jersey City.
Q. And do you know what the investigation involved?
A. There again it would have been securities offerings, violations of the S.E.C. Act.
Q. I was wondering if there's any particular individual target that comes to mind?
A. At that point in time it, of course, was Frankel who was the target.
Q. What happened to Mr. Frankel?
A. In November of '82 it's reported that he leaped from a building in New York and killed himself ... In Mr. Frankel's case he goes back-it is documented by different admissions in public courts in New York City, Federal and State-as having a long-standing history dating back to the mid-70s with, for instance, Anthony Salerno of the Genovese organized crime family, a fellow who's been described publicly as a loanshark's loanshark, a fellow named Ruby Stein out of New York City. He had a – for lack of a better description – a very checkered past with a former partner of his in a lottery situation in New York State who turned up murdered. This is the exact same Mr. Frankel that we investigated.
Frauds Crossed State Lines
Counsel Gaal asked Boney for other recollections of investigations involving check cashers:
Q. Have you found the use of fictitious payees, either fictitious individuals or the use of fictitious business names, being utilized by customers of check cashers?
A. Yes. We found patterns of that where they were instructed to enter the payees in a variety of names, both individually, corporate, trade names, this type of thing, so that there's no clear trace as to the cash transaction.
Q. Could a business, in fact, by using a fictitious payroll or fictitious business names on checks, end up with business deductions for these checks?
A. Yes, they could.
Q. Are you familiar with the term "swag"?
A. That's a term that I've come to know as representing stolen property.
Q. Do you recall an instance involving stolen property tying in with check cashing?
A. I was advised by an informant – down in South Jersey – that ... if you're into this area of stolen property, it's C.O.D. and when they buy it, they need currency to take property, and I was told that these types of [check cashing] businesses do furnish that type of available cash.
Q. Now, in the area of tax evasion did you find out-of-state customers, in particular New York customers, but it could be others, utilizing New Jersey check cashers?
A. Yes we did.
Q. Any particular types of industries in New York come to mind?
A. Yes. We found a pattern as to furriers from the fur district in Manhattan and also jewelers that we saw a continued volume of checks from these types of parties. Again, there was another investigation we had where the matter was completed resulting in a guilty plea, basically a series of governmental false billing frauds where the proceeds were negotiated through check cashers to hide or conceal the trail.
Q. New Jersey check cashers?
A. Yes.
Q. Was it a licensed check casher?
A. In this case it was a licensed check casher. Regarding the New York activities with these different parties, furriers and jewelers, we traced this into a pattern where almost every two or three days representatives of the check casher would go to New York City with currency, that we would follow them to the banks and they would take out currency-in excess of $100,000 for their trip-and meet with the check casher and they would trade checks for
the currency and so forth. I interviewed the check casher in New York City
Q. What did he tell you?
A. Basically admitted to it. Basically ... to avoid the statute as far as [in] New York dealing with corporate checks and checks over certain amounts of money.
Q. In other words, he said he couldn't cash checks over a certain amount of money and he couldn't cash corporate checks in New York so he would feed them through a New Jersey check casher?
A. That's right, and instead of making a full 1 percent, he can make a 1 /2 percent on his money. In this case, he's making $500 just for swapping a bag.
Commissioner W. Hunt Dumont asked Boney whether the statutory requirement for filing Currency Transaction Reports, or CTRs, whenever a transaction involves more than $10,000, was being obeyed by check cashers:
COMMISSIONER DUMONT: During your investigation did you uncover evidence that these forms were not being filed?
WITNESS: That's correct.
COMMISSIONER DUMONT: And what is the purpose of this form?
WITNESS: It's basically a disclosure form that is submitted to the U.S. Department of the Treasury. In turn, it's filed with the Internal Revenue Service and if a taxpayer accumulates enough of these forms he's ultimately called in for an income tax audit.
COMMISSIONER DUMONT: Am I correct with respect to the various criminal elements that you have pointed out who are check cashers, it would be attractive to them not to have this form filed with the I.R.S.? Is that correct?
WITNESS: That's true.
COMMISSIONER DUMONT: Did you find that there is a higher incidence of the failure to file these forms with check cashers than there is with banks?
WITNESS: My experience shows that banks are, of course, more conscientious, especially within the last five years, in filing these forms than are check cashing companies.
Chairman Patterson asked about the impact of the CTR filing requirement on unlicensed check cashers:
CHAIRMAN PATTERSON: Did the unlicensed check cashers avoid [filing] the CTR forms to hide the fact that they're check cashers?
WITNESS: Yes, they did. They did in the period that I examined it.
