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 Business News | January 2005 
FBI Foils Kmart Cashier's Scam
 David Shepardson - The Detroit News
 A 20-year-old former Kmart cashier armed with an $8 rubber stamp, a laptop computer and an old payroll check nearly defrauded the Troy-based retailer out of tens of millions of dollars in a brazen stock swindle.
Eduardo A. Portero, who shared a ramshackle two-bedroom Miami apartment with his parents, admitted this month to attempting to steal $145 million in Kmart stock.
The FBI said Portero set up dozens of bank and trading accounts in Bermuda, Switzerland and other foreign countries using at least four aliases. He even opened an account in the name of Kmart treasurer James Gooch.
Federal authorities think Portero might have gotten away with at least $50 million had he remembered to include his apartment number with his account's return address.
Instead, his carefully woven fraud began unraveling when stock transfer company EquiServe sent him 699,000 Kmart shares worth $53.8 million via FedEx last Aug. 17. They were returned as undeliverable after three days, prompting EquiServe to alert the FBI, which began an intensive investigation.
Portero's deception began when he used a series of phony names and fake IDs to open bank accounts all over the world. In a journal seized by the FBI, he wrote about traveling to Europe with his newfound wealth.
But in that journal, he recorded fantasies about making people suffer, reflecting the darker impulses of an apparently clever but misguided young man who attended an alternative high school for kids at risk of dropping out.
University of Michigan finance professor H. Nejat Seyhun called Portero's ruse "ingenious," but questioned how he did it.
"The only checks and balances come from the board of directors, and he's basically gotten past that," said Seyhun, author of a book on insider trading. "He discovered a perfect loophole in the system."
The scheme was in some ways very simple: Create a Kmart board resolution to make it seem as if the company had agreed to give Portero, who worked as a Kmart customer service agent for 10 months in 2003, millions of dollars in stock.
FBI Special Agent Anne Eddy and the Justice Department laid out details of Portero's con in court filings.
Using a series of aliases, Portero forged unauthorized corporate resolutions requesting the transfer of Kmart stock from the company to him. He made the requests to EquiServe, Kmart's stock transfer agent.
EquiServe handles stock transactions for more than 1,300 firms -- including half of the companies represented in the Dow Jones Industrial Average. According to the FBI, EquiServe did not check with Kmart to ensure that the resolutions were real before issuing the stock certificates.
To create the phony resolutions, Portero went to a Web site, Socrates.com, and downloaded a sample certificate of corporate resolution, the FBI said. He had an $8 rubber stamp designed to mimic Kmart's official seal.
To authorize the stock transfer, Portero forged the signature of Kmart treasurer Gooch from one of his old payroll checks. Gooch is now Kmart's vice president and controller.
Finally, Portero went to Citibank and Wachovia and asked that bank officials affix company medallions "guaranteeing" his signatures. They agreed to do so -- the FBI has surveillance photos of Portero at the banks.
In total, Portero sought $145 million in stock in three separate transactions.
Despite the returned FedEx delivery less than two weeks earlier of shares worth more than $50 million, EquiServe on Aug. 26 sent 992,782 shares to Portero, using the alias Teonilo Alvaerz, at his Miami apartment. Portero deposited the stock certificate, worth nearly $76 million, into an E-Trade account the next day.
He subsequently filed a third phony resolution for shares worth about $15 million, but it was rejected by EquiServe amid mounting suspicion. Portero called the stock transfer company and ordered that all his shares be sold and the proceeds transferred to a Bank of New York account. By this time, however, the FBI was on Portero's trail and EquiServe didn't comply.
On Sept. 13, the FBI sent an undercover agent posing as a FedEx driver to Portero's house to deliver a package from EquiServe.
Eleven days later, an undercover FBI agent delivered another package. When Portero opened the door, FBI agents arrested him and searched his house. They found the phony Kmart corporate stamp and the journal, which described the fraud in detail.
A laptop in Portero's bedroom was open to the FedEx tracking information and Kmart's current stock price. He admitted to FBI agents that he wasn't entitled to Kmart stock.
On Jan. 21, Portero pleaded guilty to eight counts of securities and mail fraud. He faces about 12 years in prison, said his attorney, Daniel L. Ecarius, a public defender.
Ecarius said Portero learned about the fraud scheme surfing the Internet.
"(He) is from a generation that grew up around computers," Ecarius said. "He's very intelligent and a good kid."
Portero emigrated from Cuba around the age of 6 with his mother and went to the Little Havana Institute in Miami, a high school for troubled kids, but has no criminal record.
He has been in custody at the Federal Detention Center in Miami for four months because his family couldn't afford to pay $37,500 to post bond. He could be fined $2 million.
Kmart spokesman Stephen Pagnani declined to comment on Portero's case. He said the company cooperated with the FBI's investigation and still uses EquiServe as its stock transfer agent.
The Justice Department, which called the fraud "sophisticated," declined to discuss the case. |
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