Dropping By to Keep His Hand In

By Christopher Byron

How the Wells Fargo bandit beat the system

One thing for sure: L. Ben Lewis was conscientious. Even on vacation, the operations officer of one of four Beverly Hills branches of the Wells Fargo Bank would never let a week pass without dropping by the office for a few minutes to take care of odds and ends. It became clear last week why Lewis, 47, was so diligent. He was, according to Wells Fargo's chairman, Richard Cooley, nursing along one of the biggest bank frauds in history--a $21 million electronic rip-off that first came to light in January when embarrassed bank officials discovered their books to be far out of balance.

Initially, the bank had zeroed in on the records of a black boxing promoter named Harold Smith, 37, chairman of an organization called Muhammad Ali Professional Sports, or MAPS, which seemed to be at the center of the scam. But as the investigation went on it became clear that the real mastermind was Lewis, a black who, like Smith, was a board member of MAPS. When told during a Jan. 23 interrogation that auditors from the head office in San Francisco would see him after lunch, Lewis walked out and never returned.

Before he disappeared, Lewis told Wells Fargo investigators enough of what he had done to allow them to unravel the scheme. Meanwhile, separate investigations unearthed at least two other examples of banking abuse by Wells Fargo officials, raising questions about just how effective the bank's oversight practices are. So Cooley decided last week to assert that the nation's eleventh largest bank had not become an embezzler's playpen. He sent a letter to the bank's 15,000 employees, detailing what has been learned of the scam, and started talking to newsmen. Said he: "It appears that some of our policies were laxly controlled. But I guarantee you that there will be greater emphasis on operational controls and policies than there was."

Lewis had managed to circumvent the intent of a loosely enforced bank rule that requires employees to take at least two consecutive weeks of vacation per year so as to keep them out of the office and thereby discourage rip-offs of precisely the sort that Lewis had engineered. As explained by Cooley, Lewis' simple scheme was made possible by taking advantage of the amount of time--usually three to five days in California--that it takes for a check that is cashed in one branch of a bank to "clear" or be debited against the funds on deposit in another branch. No actual cash is shuffled between branches in the balancing process. Instead, accounts are made to tally by a method of computerized ledger balancing known as a "branch settlement account," a technique used by banks everywhere.

At Wells Fargo, five working days were allowed between the time that a withdrawal was made from one branch and the funds to cover it were debited in another. If within those five days the corresponding transactions did not balance, computers would sound an alarm.

At the heart of the settlement process is a funds transfer form that looks like an airline ticket and consists of a top page titled "credit," a carbon page and a bottom page titled "debit." According to Cooley, Lewis defeated the bank's fraud defenses by using the tickets to hoodwink Wells Fargo's computers.

A branch that accepts a deposit into one of its accounts from another branch fills out a transfer ticket. The credit page is deposited in the local branch, creating an electronic balance that can be withdrawn by the account's owner, while the debit page is sent to the other branch to signal it to draw down its own balance correspondingly.

Lewis had his own way of processing tickets. He would fill out a ticket for, say, $100,000. The credit portion of the form would be deposited in a MAPS account in Beverly Hills, with the notation that the money was coming from a MAPS account at another branch, for example, the Wells Fargo Santa Monica office. But Lewis would hang on to the debit page of the ticket and not forward it to the Santa Monica branch at all. In this way, the funny money in the MAPS Beverly Hills account could go undetected for five days.

On the fifth day, Lew is would repeat the process, this time by writing up a new ticket for a larger amount of money. He would then cover his heist of five days earlier by forwarding the credit slip from the new ticket, along with the debit slip from the old ticket, to the Santa Monica branch, causing the MAPS account in that branch to appear to be not just in balance, but flush with new funds. These too could then be drawn down and go unnoticed for five days.

The scheme ran smoothly from late 1978 until early this year. But as the size of the theft grew, Lewis found it tougher to avoid detection. Wells Fargo's computers are programmed to sound a warning on transactions above $1 million. To prevent that, Lewis wound up having to make weekly entries involving as many as 25 different tickets for amounts up to $900,000 or so.

In the end, the Lewis juggling act was exposed by a slipup. Lewis inadvertently shipped off the wrong page of a transfer form, and rather than create a credit, which he had intended to do, set up a branch office debit instead. The computer alarms sounded, and the dimensions of the fraud began to surface.

The caper makes plain that bank electronic funds-transfer systems are only as trustworthy as the people who use them. Lewis knew the procedural ropes, having earlier in his eleven years with Wells Fargo worked in the bank's computer center. Though federal officials regard Wells Fargo as a well-managed bank, some critics have wondered whether Lewis' scam went on so long in part because the bank has been adding so many branches--nine a year--that finding competent supervisors has been difficult. Cooley concedes that Lewis found "a flaw in our system." But the bank has changed its $1 million "trigger point" and the five-day timing safeguard. Also, Cooley asserts, "we have done a couple of other things no one will ever know about ."

--By Christopher Byron. Reported by Paul A. Witteman/Los Angeles

With reporting by Paul A. Witteman

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