When Julia Marie Jolly was indicted last Wednesday on charges of bankruptcy fraud, the private investigator in the case was already on the trail of new suspects.
William Atherton was working with the Federal Bureau of Investigation in Virginia and the Secret Service in Alabama on fraud cases.
His client in all these cases, Visa U.S.A., has a huge stake in catching debtors who defraud them by abusing bankruptcy laws. Bankruptcy fraud and abuse are estimated to cost the credit card industry about $1.3 billion a year.
Visa hired Mr. Atherton in 1989 as part of its bankruptcy recovery program, headed by Kenneth Crone. Since then, the investigator has collected evidence that led to four convictions, Ms. Jolly's indictment, and pending indictment proceedings against 16 others.
Ms. Jolly is said to have racked up an exceptional sum in her alleged scam. The 44-year-old Californian is accused of using false names to sting several major credit card issuers for nearly $300,000.
Multiple Counts
A federal grand jury in Los Angeles indicted her on three counts of bankruptcy fraud, seven counts of submitting false statements to a federally insured lending institution, and four counts of misusing a Social Security number.
Mr. Atherton began investigating her in May 1991, when Seafirst Bankcard Services in Spokane, Wash., alerted him. A Seafirst employee noticed credit applications with a number of aliases and another person's Social Security number.
As he investigated Ms. Jolly, Mr. Atherton said, he found that she had used at least 45 other names and 11 Social Security numbers to obtain credit cards. She made two bankruptcy filings -- one in August 1987 with unsecured claims of $79,982, and one in April 1991 with $211,156 of such claims, mostly credit card charges.
"For this type of fraud, it's a large case," said the prosecutor, Steven J. Katzman, special assistant U.S. attorney for the Central District of California. "You have to really devise an elaborate plan to defraud that many credit cards."
Mr. Atherton, 54, is a retired FBI agent who has shed dark suits for casual slacks and shirts. He operates from his home in Yorba Linda, Calif., where he has two offices, two computers, and hundreds of files.
He said 500 criminal and civil cases have come across his desk, each with up to 300 documents.
White-Collar Sleuth
Mr. Atherton is no stranger to following the paper trail. For eight of his 24 years at the FBI, he worked in the white-collar crimes division, tracking bank and bankruptcy fraud, embezzlement, and wire and mail fraud.
Visa gets tips on criminal cases from Visa and MasterCard member banks, Visa attorneys, and federal investigative agencies, including the Justice Department's Executive Office for United States Trustees. Tips also come in from ex-spouses and "concerned citizens," Visa says.
Mr. Atherton puts together a summary of the suspected fraud with collection notes and copies of the credit card application, bankruptcy documents, and account statements.
When he has documentable criminal violations, Mr. Atherton contacts the FBI and sends a summary letter and suggested indictments.
"He's a good starting point," said Mr. Katzman, the prosecutor. "He will identify someone who has abused the system." The prosecutor's office takes over from that point to prove fraudulent intent, Mr. Katzman said.
Mr. Atherton reviews case after case of people like Kenneth Louis Ayoub, who was convicted in October for filing four bankruptcies and using six Social Security numbers and 14 aliases. He claimed some $90,000 in credit card debt.
Mr. Ayoub was sentenced to five years' probation and ordered to pay $27,000 in restitution to the banks. "We will probably never see dime one of that," Mr. Crone said.
In the meantime, Mr. Ayoub is completing a three-year sentence for conspiracy to commit grand theft.
Visa's campaign against bankruptcy fraud and abuse has turned up the heat on criminals who used to slip through the system, Mr. Crone said. Major enforcement agencies -- the FBI, the U.S. Trustees Office, and U.S. attorneys -- lack the resources and personnel to investigate most cases under $100,000.
"We can fill a gap," Mr. Atherton said, but "most of our cases do involve more than $100,000 anyway."
Another difficulty in criminal cases is that proof must be beyond a reasonable doubt, which becomes even more complex in a case with multiple counts.
"This is a real challenging part of the program," Mr. Crone said. "We have pending indictments on cases we completed one or two years ago. The problem is that wheels turn slowly in criminal pursuit within the bankruptcy system."
Visa's bankruptcy recovery program began with 15 participating member banks. Today there are 420 participants, plus many members who take advantage of education programs.
The program involves both civil and criminal cases.
It "goes after a dishonest debtor in a system designed for honest people," Mr. Crone said.
Visa has had success in recovering some of the money lost. Mr. Crone estimates that recovery this year will add up to $125 million.
Handsome Return
For every dollar spent on pursuit today, $10 is recovered. When the program began, the ratio was $3 for every $1 spent.
The average case pursued amounts to $3,000.
"What we get is a tremendous lift," Mr. Crone said. "The whole system recognizes there is fraud, both civil and criminal. The problem has become highly visible. The message is getting out."
"It's the first time I've seen an industry group try to do something to combat bankruptcy fraud," said Max Rush, a private panel trustee appointed by the U.S. bankruptcy trustee.
Some crime experts say the credit card industry has been a big part of the problem by making it too easy for people to obtain credit cards. And some say bankruptcy laws make it too easy for people to file multiple times.
Progress is coming "a piece at a time, but you can't solve problems of this magnitude a piece at a time," said John Ellingson, president of Milwaukee-based National Bankruptcy Information Bureau Inc., which sells help to bankers in tracking fraudulent bankruptcy filings.
Mr. Ellingson suggests throwing a net over those who commit bankruptcy fraud by establishing a national data base.
Within a month, he said, his company will launch just that -- a data base called Frequent Filer Finder that will include information from 88% of the bankruptcy courts at first. and ultimately from all courts.
"Our program allows the industry for the first time to take a proactive stance," Mr. Ellingson said.
Atlanta-based Equifax Financial Information Services began a bankruptcy notification service for Visa and MasterCard International in September. The process ferrets out applicants who have filed for bankruptcy and notifies card issuers within 72 hours.
It used to take at least a week to notify credit issuers, and errors in court documents often prevented lenders from ever learning of a filing.
Mr. Ellingson claims his data base will be superior to the Equifax service in speed and accuracy.
Meanwhile, investigators from the criminal justice system and Mr. Atherton rely on paper documents and word of mouth.
The people he investigates are often educated -- lawyers, judges. teachers. "The main thing is that when a person lies and cheats in one area, they usually do it in several areas." he said. "It's fascinating some of the things people do."
