You Can't Cheat an Honest Man - James Walsh [28]
Because Martin was careful about covering the overdrafts, the bank rarely returned his checks. Of course, it was making good money from the LPM Enterprises account. For each check that overdrew the account in the morning, LPM Enterprises paid a service fee. By one estimate, the bank was collecting $3,000 to $3,500 a month in services charges during 1987.
Martin kept his scheme alive by obtaining funds from new investors to honor the interest checks given to earlier ones. Through early 1988, all went well and most of the bogus profits generated by LPM Enterprises were returned by investors to be reinvested. Then trouble hit.
April 1988 was the cruelest month for Martin. A number of big investors had begun scaling back their involvement in LPM Enterprises. Some were cashing out large portions of their investments to help pay income tax; others had become uncomfortable with their level of exposure.
Whatever the reasons, Martin was having trouble covering his daily overdrafts for the first time in five years. The bank returned quite a few checks. Just about every day, Martin was having to explain to some angry investor that there’d been a foul-up at the bank. On Friday, April 22, Martin phoned Lee Leonard—an attorney he had used occasionally in the past. “I thought it might be a tax problem or a speeding ticket,” Leonard said. “I had no idea what he was going to talk about.” Martin was visibly shaken when he arrived at Leonard’s office. Some LPM investors had made threats; others had sworn out arrest warrants. Leonard convinced Martin that he would have to turn himself in to the authorities. But Martin said he needed the weekend to think things through. Sometime that night, he flew to Las Vegas...where he spent the next two days gambling heavily.
On Monday morning, April 25, Martin walked into the federal building in downtown New Orleans and surrendered to federal authorities. By the time LPM Enterprises finally collapsed, about 500 people had been swindled out of an estimated $50 million.
Compared to what might have happened to him outside, Martin felt relatively safe in custody. An Assistant U.S. Attorney said, “Without going into specifics [about death threats allegedly made against Martin], let me just say that we recognize the possibility in a confidence game like this where you have so many victims, so many people were defrauded, the possibility exists that someone may try to take matters into their own hands.”
In the late summer of 1988, Martin pleaded guilty to one racketeering count, two counts of interstate transportation of money stolen by fraud and two counts of filing false income tax returns for the years 1986 and 1987. U.S. Attorney John Volz asked the court to give Martin the maximum sentence of 25 years in prison. Volz called LPM Enterprises “one of the biggest scams ever perpetrated in this state.” In September 1988, Martin was sentenced to 15 years in federal prison and fined $1 million.
The criminal charges were resolved so quickly that most of Martin’s burned investors weren’t sure how to proceed. Many were frightened of being identified as participants in the deal. “This damn thing could destroy me,” said one prominent insurance executive. “What I sell is knowledge, ability, integrity and judgment. Who’s going to trust me if this thing gets out?”
One group of angry investors sued Bank of LaPlace for negligence, arguing that it should have known that Martin’s activities were improper. In the course of covering his daily overdrafts, Martin had gotten to know several bank officers. He explained LPM Enterprises’ supposed business to them—but never deposited checks from or wrote checks to Las Vegas hotels or airlines. The investors argued that the bank effectively aided and abetted Martin’s perpetration of the fraud.
On the negligence charges against Bank of LaPlace, the trial court said:
The Court is of the opinion that the banks violated no duty to plaintiffs. The banks owe no duty to the plaintiffs to protect them against