Unstructured Finance

Suite Scams revisited

March 12, 2012

Virtual offices can be a great cost-saver for a solo attorney, a lone accountant or any other professional who can’t afford the expense  of maintaining a separate support staff to run a business. But these outfits, in which a solo professional gets to essentially rent the services of a receptionist, a secretary and conference space, also can provide cover for bad guys bent on doing mischief.

A case in point is Robert Sucarato, a New Jersey man, who was sentenced Friday to 11 years in a federal prison for using a virtual office as a front for an alleged multi-billion hedge fund that bilked investors out of $1.6 million. A few years ago, when I was at BusinessWeek, I wrote about Sucarato long before federal prosecutors were on his trail. The BW story was called “Suite Scams” and it focused on much more than Sucarato and showed how virtual offices were proving to be a useful tool for Wall Street fraudsters with a slick website and a good marketing pitch.

Former federal prosecutors, back when I talked to them, said they were well aware of how  virtual offices were becoming the hallmarks of scams. But they said there was little  they could do to stop it since the due diligence requirements for virtual office operators are minimal.

Interestingly, a virtual office played a role in the case of Tyrone Gilliams, the Philadelphia commodities trader charged by federal prosecutors with defrauding investors out of about $5 million.

So what’s the lesson here? Well it’s really nothing more than the need for investors to be vigilant and do their homework. It never hurts to do a quick search on a Wall Street advisor’s address and if it’s listed to a virtual office, start asking questions.

Now the fact that a financial wizard is using a virtual office as a base of operation doesn’t necessarily mean something bad is afoot. But it’s reason to ask more questions. And if you don’t like the answers you get, then don’t invest.

 

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