The Army and Tacoma police are investigating a fraud ring that last year allegedly bilked Army and Air Force Exchange Service stores out of about $500,000 in merchandise, Tacoma Public Utilities out of $134,000 worth of payments and also hit other businesses that extend credit.
Promoters of the scheme promised to reduce debt, persuading some 1,800 people, including dozens of soldiers, to participate, investigators said. Those people allowed the promoters electronic access to their credit accounts to pay down bills.
More than $3 million used to pay the debts was illegally diverted from a bank in Ohio, according to investigative documents and interviews with law-enforcement and bank officials.
“The company would pay two dollars (of debt) for every dollar” paid to them, said a staff sergeant who learned of the scheme from a fellow soldier at a barbecue. “I asked ... how that could possibly work, but he said it worked. That should have thrown up a red flag, but it didn’t.”
Now some soldiers who accepted the deal risk being charged as co-conspirators in crimes of wire fraud and larceny, according to investigative documents.
At Joint Base Lewis-McChord, 78 soldiers have come under scrutiny, according to the Army. At least 46 of them face disciplinary actions, including more than a dozen who were charged through the military judicial system.
“To date, it appears that this scheme began in the civilian communities around Joint Base Lewis-McChord, and eventually grew to include a small number of ... soldiers, in much the same way it expanded to include hundreds of civilian residents of our surrounding cities and towns,” said Maj. Kathleen Turner, a base spokeswoman.
Meanwhile, a Tacoma police detective is working with a list of 1,800 people who used the Ohio bank account to pay off personal bills.
“We are trying to find the common denominator,” police spokesman Mark Fulghum said Monday. “How did this get started, how did the account get comprised.”
No arrests have been made and Pierce County prosecutors haven’t filed any charges.
Army investigative documents indicate the scheme unfolded during a nearly five-month period that ended last August. The focal point was in Washington state. The money to reduce the debt allegedly was siphoned out of a bank account of Credit First National Association in Ohio.
“This was real money. It belonged to us,” said Jeremy Smith, a spokesman for Credit First National, which issues auto-related credit cards. “We have recovered some funds, but not all. We’re still working on that.”
The scheme came to light in August after the Tacoma treasurer’s office noticed that about 325 Tacoma Public Utilities customers all paid their bills from the same bank account, according to police and Public Utilities.
The customers had made about $134,000 in bill payments from the account, utility spokeswoman Chris Gleason said.
“We started getting payments returned” once the back account was shut off, Gleason said. “For us, the trigger was payments coming back.”
Investigators eventually found the scheme had been promoted on Craigslist.
At Joint Base Lewis-McChord, the Army Criminal Investigation Command began interviewing soldiers to track fraudulent payments to Military Star Cards, which allow purchases at the Army and Air Force Exchange Service. Those includes PX stores.
From March to August 2010, some 300 transfers from the account paid some $500,000 debt on about 90 of these accounts. Money from the account also went to pay car loans, utility charges and other expenses, according to Army investigative documents.
Soldiers told investigators the debt-consolidation scheme was touted through a network of military personnel and off-base associates, who talked it up at bars, parties and baby showers, even at an Army training exercise.
In interviews with investigators, more than a dozen soldiers said an Army specialist with the 14th Engineer Battalion was one of the most vigorous promoters.
The specialist, the soliders said, repeatedly offered to pay down debt in exchange for a lesser value of cash or electronic gear that could be bought at the PX, such as iPads, Xboxes or cameras.
One soldier said he had served with the specialist in Iraq and viewed him as a trusted colleague. Others said the specialist’s services were recommended by fellow soldiers, so they decided to give it a try.
“I thought it was strange, but when the payments kept going through, I just thought he was really trying to help us,” one soldier said. She got her washing machine and dryer paid off in exchange for an iPad her roommate delivered to the specialist.
Some soldiers who gave promoters permission to electronically pay down their debts initially were pleased with the results. But later, they found their credit accounts at the Army and Air Force Exchange Service were put on hold due to fraudulent activity.
“I feel really dumb about it. I feel like I was just trying to make a better situation for myself and my daughter,” the soldier told Army investigators. “I feel like a victim here.”
News Tribune staff writers Kris Sherman and Stacey Mulick contributed to this report.