Category Archives: Business

Brainstorming about local organized crime

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At the beginning of last week, Civil Beat’s Madeleine Valera had a good story looking at the state of organized crime following the racketeering conviction of former Honolulu business owner Michael J. Miske Jr. (“The Miske Criminal Enterprise May Be Gone But Other Powerful Crime Networks Remain“).

Valera’s story looked at the history of local organized crime, some well-known figure of the past, as well as taking a quick look at recent crimes associated with illegal gamerooms, as well as at least one well-known prison gang.

I have a feeling that organized crime has, by and large, grown past the stage of rival gangs of drug-dealing thugs, although those still obviously exist. Crime, like business, has gone global, has become entrenched in the corporate world, and utilizes technology and financial tools to both enrich and protect its profits.

Focusing local gangs like WestSide, North Shore Boyz, and La Familia, it seems to me, misses the “big picture.”

Remember the wise words attributed to the famous gangster of the 1930s to the 1950s, Willie Sutton. He was asked, “Why do you rob banks?”

“Because that’s where the money is,” Sutton replied.

So where is the money now?

So I sat down and quickly tried to list out areas in which organized crime groups could, and probably are, actively involved. I’ve often used this kind of brainstorming to loosen up my thinking and try to see beyond the things we already know.

Here’s my initial list for discussion purposes. Feel free to suggest additional categories, or local examples of any of these.

• Cybercrime
• Drug trafficking
• Gambling
– Cock fighting
– Game rooms and security/protection
– High stakes gambling
– Sports gambling
• Weapon sales and trafficking
• Fraud
-Health care fraud
-Bank and credit card fraud
-Tax and securities fraud
• Trash hauling
• Extortion/Protection
• Construction fraud
• Labor racketeering
• Human trafficking (Laborers, sex workers, foreign fishing crews, etc)
• Money laundering via real estate, cash businesses
• Bid Rigging
• Public corruption
• Campaign finance fraud
• Counterfeit products
• Prostitution
• Predatory lending
• Insurance fraud
• Identity theft
• Bankruptcy fraud and “bust outs”
• Organized retail theft
• Fencing of stolen property
• Aerial fireworks
• Environmental crime (hazardous waste dumping, etc)

Email scam cost a company in Hawaii over $8 million last year

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An unnamed company in Hawaii lost over $8.2 million to scammers just days before Christmas in 2023, according to a lawsuit seeking forfeiture of a portion of the funds recovered by federal agents from a Florida credit union.

The government’s civil forfeiture lawsuit filed in Honolulu’s Federal District Court did not name the company, which is referred to only as “Company #1”, but said it had fallen victim to a “business email compromise,” or “BEC” in which the as-yet-unknown scammers sent an email to the company’s representative that pretended to be from its outside legal counsel.

The phony email successfully spoofed the law firm’s email address, and the company’s representative then followed instructions and wired $8,328,651 from First Hawaiian Bank to Regions Bank, which is headquartered in Birmingham, Alabana, and operates in 15 states, from Florida to Iowa and Texas.

First Hawaiian Bank had issued a warning about business email fraud two years ago in July 2022 (“Business Email Compromise (BEC) is on the Rise“).

Business email fraud is a basic form of internet fraud, according to the FBI’s 2023 Internet Crime Report.

In 2023, the IC3 received 21,489 BEC complaints with adjusted losses over 2.9 billion. BEC is a sophisticated scam targeting both businesses and individuals performing transfers of funds. The scam is frequently carried out when a subject compromises legitimate business email accounts through social engineering or computer intrusion techniques to conduct unauthorized transfers of funds.

These BEC schemes historically involved compromised vendor emails, requests for W-2 information, targeting of the real estate sector, and fraudulent requests for large amounts of gift cards. More recently, the IC3 data suggests fraudsters are increasingly using custodial accounts held at financial institutions for cryptocurrency exchanges or third-party payment processors, or having targeted individuals send funds directly to these platforms where funds are quickly dispersed.

The complaint provides no information about the company targeted by the scammers, the nature of its business, or its interests and operations in Hawaii.

The account where the money was wired was associated with “Subsidiary Trading JR LLC,” a Florida company registered to do business by Jonathan Ryall Patton in October 2023. Prior to receipt of the money wired from First Hawaiian Bank, the account had a balance of just $59.23, the lawsuit reports.

“Numerous outgoing wires and checks were subsequently issued” from the account, including several checks made out to Patten that totaled over $4.4 million.

The account was totally drained and closed by January 24, 2024, just 33 days from the date of the original wire.

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Star-Advertiser and other Black Press papers going to auction

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A formal bidding process seeking bidders interesting in buying the cross-border publishing empire built over several decades by David Black of Victoria, Canada, is now underway. The company reported owns about 144 newspapers in the U.S. and Canada.

The financial woes of the company only became fully known after dual court filings in Vancouver and Delaware seeking to stave off creditors in the U.S. and Canada while Black Press sought a buyer.

Two articles published within the past several days have taken close looks at the current status the bankruptcy and auction of Black Press, the Canadian-based owner of the Honolulu Star-Advertiser, MidWeek, and daily newspapers on Kauai and Hawaii Island.

Jim Simon, who will be familiar to many for his stint as managing editor at Civil Beat, teamed up with retired reporter Chuck Taylor for a story on Friday featured at Post Alley, a news site by a Seattle writers’ collective (“Major shakeup in Washington State and Hawaii journalism”.

Then todayTyler Olsen, publisher of the tiny Fraser Valley Current in British Columbia, added another in-depth story (“Black Press auction stalking horse”).

As Taylor and Simon put it:

According to court documents, as of a few weeks ago, Black Press had only about $3 million (Canadian) cash on hand, with $61 million of principal and accrued interest outstanding. The court-approved creditor protection in Canada is not called a bankruptcy, but it definitely quacks like a bankruptcy.

They pointed to long-running rumors about attempts to sell the Star-Advertiser

The Star-Advertiser has struggled for years and suffered several rounds of layoffs. According to the Pacific Media Workers Guild, roughly 40 union members remain at the paper, compared to about 65 in 2020. Kevin Knodell, a Star-Advertiser reporter who is the guild’s unit chair, said the company laid off four newsroom workers just days before the announcement of creditor protection.

Olsen’s overview sets the stage, but you’ll go to his story for the nuts-and-bolts financial details, which are not pretty.

Having realized last summer that its debt load was too heavy to manage, Black Press hired a US company to try to offload some of its properties, according to a report by the monitor of the ongoing creditor protection process.

That company, Dirks, Van Essen & April (DVA), is considered “the leading merger and acquisition firm in the US newspaper industry,” the documents say. Over the last three decades, the company has been involved in the majority of newspaper transactions.

At first, Black Press told DVA to try to find a buyer for its Hawaii newspapers, including its one big US daily—the Honolulu Star-Advertiser.

“It was hoped that the sale of BP Hawaii’s business would generate sufficient cash to allow for a significant payment toward the Companies’ existing creditors,” the documents say.

But although the Hawaii operations were profitable, the potential purchase price was lower than Black Press had hoped. Four days after DVA started shopping the Hawaii papers, the firm was instructed to turn its attention to finding a buyer for the company’s Washington State community papers. And four days after that—having received no better news—Black Press finally told DVA to see what its Canadian papers might fetch.

During the process, 52 potential buyers were contacted. Five made offers “for various combinations” of Black Press’s three entities. None were good enough to forestall creditor protection.

[Revised 7 a.m. Hawaii Standard time]