Fun_People Archive
30 Mar
Hi Tech Confidence Game

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From: Peter Langston <psl>
Date: Thu, 30 Mar 100 14:28:54 -0800
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Subject: Hi Tech Confidence Game

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Wall Street Journal March 29, 2000 Pg. 1

A 'Colonel' Dangled Deals Worth Billions To Electronics Firms; Now He's AWOL

By Gary McWilliams and Christopher Cooper, Staff Reporters of The Wall
Street Journal

REKEM, Belgium -- The man identified himself as a U.S. Air Force officer
attached to the North Atlantic Treaty Organization, and he dangled a
mouthwatering prize: billions of dollars in contracts for a top-secret NATO
project that called for the most cutting-edge computers, software and
services.

There were some strings attached. Companies that participated couldn't
breathe a word about it to anyone. And in the initial stages of the
clandestine project, the gear that companies submitted would be, in the
officer's words, "tested to destruction," so prototypes wouldn't be
returned.

Over three years, as many as 90 companies sent tens of millions of dollars
worth of equipment to NATO "Materials Test Unit" labs in Belgium designated
by the officer. The companies included some of the most venerable names in
electronics -- firms such as Electronic Data Systems Corp., Sony Corp.,
3Com Corp., Adobe Systems Inc. and a unit of Pioneer Corp.

If only they had looked under the man's hat.

Colonel of Truth?

Calling himself Lt. Col. Lamar Reedor -- at other times Lt. Col. A. West
-- and occasionally tucking his ponytail under his military cap, the man
appears to have pulled off a breathtaking swindle. Based on bankruptcy-court
filings in Belgium and on estimates by law-enforcement officials and some
of the suppliers involved, losses may total $50 million or more, most of
it from gear that either isn't expected to be recovered or is now unusable
-- such as the stack of droppings-encrusted flat-panel displays authorities
recently found in a Belgian pigeon loft.

The man has dropped out of sight, and his true identity and even his
nationality are unclear. Investigators say there is no Air Force Lt. Col.
Lamar Reed, although they know who the alleged swindler has used for one
of his many identities. There is no Air Force Lt. Col. A. West either.

Like many alleged swindles, this one was, in hindsight, amazingly simple:
Claiming to head procurement for a project that would contract for as much
as $120 billion of equipment over five years, the man persuaded the
companies to send for testing tons of their most advanced handheld
transmitters, digital disk makers and video cameras. The companies even
had to pick up shipping charges.

Herb Rorke, chief executive of audiostorage equipment maker Rorke Data
Inc., says requiring companies to sign nondisclosure documents was the key
to the scheme. "It was the perfect scam," he says, with a trace of
admiration. "We weren't allowed to talk about it." Rorke Data also was
required to scrub all identifying labels from the $850,000 of storage
equipment it shipped to two purported NATO labs in case the equipment was
seized in battle.

Target-Rich Environment

The ersatz Mr. Reed may have known just what he was doing in going after
makers of ultra-high-end audio and video gear. That industry has been beset
by slumping sales as manufacturers bicker over various formatting standards.
Many of the companies embraced the NATO procurement as a godsend. For
instance, the project called for 75,000 copies of a special-effects software
package, though the software's developer estimates the total world-wide
demand for such programs at just 30,000 units.

It also called for 10,000 digital video-editing systems, the kind that cost
$150,000 each, an unheard-of bonanza for manufacturers such as Avid
Technology Inc. and Accom Inc., which have been buffeted by an industry
slowdown.

Now, however, many of the companies are so red-faced that they aren't going
after Mr. Reed. Computer-services giant Electronic Data Systems recruited
as many as 60 companies for the project. It hasn't filed any criminal
complaints and listed only a $10 loss in a preliminary claim in a Belgian
court, even though EDS faces lawsuits from two companies that allege they
sent equipment to Mr. Reed's "testing" centers after being brought into
the project by EDS.

In fact, two months after the swindle came to the companies' attention,
none has pressed so much as a theft charge against Mr. Reed, and some of
them haven't tried any recovery at all.

"They don't want to be made to look like fools," says Christopher Bailey,
managing director of Techex Ltd., a British firm that lost about $60,000
in video equipment. (Mr. Bailey is trying to get his company's products
back through the Belgian courts.) One company even sought legal advice on
whether it had to report the theft.

EDS, citing ongoing investigations, declined to comment for this article.
The Federal Bureau of Investigation and the U.S. Customs Service confirm
that they are looking into the matter. The U.S. attorney for the eastern
district of Virginia also is investigating. The U.S. attorney's office
declined to comment.

NATO is aware of the scam, but it isn't "in the slightest bit interested,"
says Karen Dehaes, a spokeswoman. Ms. Dehaes says suppliers are responsible
for knowing the rules of NATO's strict procurement procedures.

What Belgian authorities know about Mr. Reed is that he appeared in 1994
at a tiny bank branch in the rural town of Genk dressed in a U.S. military
uniform. He met Christel Peters, manager of the bank branch, and told her
he was a fighter pilot. They married, had a child and settled in a
two-bedroom apartment in Rekem, on the German border about 60 miles east
of Brussels.

Neighbors describe Mr. Reed as a well-spoken sharp dresser who sported a
gold earring and ponytail. He boasted that he was the son of two Hollywood
doctors. Belgian corporate records show in 1995, Mr. Reed, his wife and a
woman Mr. Reed introduced as his cousin, Patricia Reed, founded a company
that would become AMS Laboratories NV. Later, they started another firm,
Applied Technologies NV.

Investigators say that the alleged swindler, this time posing as U.S. Air
Force Lt. Col. A. West, first contacted EDS in 1996. Through faxes and
telephone conversations -- but never in person -- he enticed EDS to become
one of two "procurement agents" for a clandestine NATO project. In a
jargon-larded letter, he said a NATO special-operations program was looking
for a "secure interoperable communication origin identification and
verification system" for "the mutual defense and security of all member
nations and to save lives in theater."

Enter Envisage

About the same time, posing as Lt. Col. Reed, the man recruited Envisage
Distribution Ltd., a tiny British computer distributor, which began
contacting other vendors, mainly in Europe. Both EDS and Envisage were
promised fat management fees tied to the value of the equipment that
ultimately would be purchased. They were also informed of where equipment
for the project should be sent for testing: AMS Laboratories and Applied
Technologies -- Mr. Reed's companies.

Using little more than a crisp military uniform and a ream of crude
letterhead, Mr. Reed drew companies deeper in. Communiques were signed by
or carbon-copied to a number of official-sounding but, authorities now say,
fictitious NATO generals, colonels and one captain. EDS suppliers say they
were told that "black-hole money" from secret government budgets would fuel
the project. At Mr. Reed's insistence, EDS and Envisage required each
company to sign forms barring them from discussing the deal. Talking, the
companies were warned, would immediately disqualify them.

EDS, the Dallas computer-services company whose founder, Ross Perot, was
fond of hiring retired military officers, provided the credibility of a
big-time government contractor. As it passed along Mr. Reed's escalating
demands for products and information, EDS emphasized its own legacy as a
military supplier and boasted of NATO supply authorizations dating to 1992.
It didn't have to embellish: EDS's board includes Dick Cheney, a former
U.S.  defense secretary, and James A. Baker III, former U.S. secretary of
state.

Communications about the project were handled through EDS's Herndon, Va.,
NATO program office, whose staff apparently never met the mysterious colonel
in person. Vernon Galando, who is in charge of EDS's NATO dealings from
Herndon, and his colleagues in Virginia communicated by "telephone and fax
contact with individuals holding themselves out as NATO representatives,"
according to a Feb. 11 letter from EDS lawyers to suppliers. "All I ever
saw was phone and fax," confirms Forrest King, who worked as Mr. Galando's
assistant until last fall. (Mr. Galando declined to comment.)

To be sure, recruiting some big players wasn't hard. Many Japanese
electronics companies, restricted from bidding directly for U.S. military
work, longed for a piece of what promised to be a huge NATO military deal.
Some anted up largely on EDS's word. "We had never bid on a military
contract," says Paul V. Dempsey, executive vice president at Pioneer New
Media Technologies Inc., a U.S. subsidiary of Japan's Pioneer Corp. that
is now suing EDS for fraud in state court in Fort Worth, Texas. (EDS has
yet to respond to that suit, but in response to a suit against it by Akai
Musical Instrument Corp. in the same court, EDS denied any wrongdoing.)
Mr. Dempsey says EDS's status as a certified NATO supplier with long
experience with the agency helped persuade Pioneer to jump in.

While EDS was lining up equipment in the U.S., Envisage was doing the same
in Europe, bringing in Sony and more than 20 other companies. Separately,
the EDS and Envisage reassured their suppliers that the deal was moving
ahead, even though money never changed hands. What's more, they regularly
delivered requests to other suppliers that suggested that Mr. Reed had a
firm grasp of audio and video products. "We were seeing quite good technical
questions that indicated someone, whomever we were dealing with, knew what
they were talking about," says Miles Flint, president of Sony Broadcast &
Professional Europe, a Sony U.K. unit.

Uncommon Touch

Other little touches also added an air of authenticity. On occasion, Mr.
Reed, posing as the colonel, would alert companies, usually by fax, that
there would be a "blackout" on communications about the project for weeks
or months while he attended to pressing military duties in the Persian
Gulf, Bosnia and Kosovo.

Keith Oliver, London-based lawyer for Envisage, says Mr. Reed once returned
a shipment of electronic equipment with apparent "battle scars" to leave
the impression that the equipment was damaged during field-testing in the
Kosovo conflict.

Mr. Oliver says Envisage executives also met, at Mr. Reed's behest, with
other people "who were attired in proper military uniform" to discuss the
project. They all seemed legitimate. Mr. Oliver says "there was no question
we were dealing with the real thing."

Although many millions of dollars worth of high-tech equipment was allegedly
moving through his hands, Mr. Reed's lifestyle appeared to change little.
What his neighbors in Rekem most remember was the sheer volume of packages
he received daily. "I was often unable to park in my garage for all the
boxes in the driveway," one neighbor says.

Neighbors say Mr. Reed lived modestly in the apartment in Rekem and in one
in nearby Maasmechelen, and traveled frequently to Paris and the
Netherlands. His one visible indulgence, they say, was a Mercedes-Benz
minivan outfitted with multiple cellular phones, satellite-navigation
equipment and digital screens. "He always wanted me to come out and look
in his van," says a furniture saleswoman in Rekem.

Mr. Reed might still be collecting equipment if it weren't for Sony. Weary
of the repeated delays in formalizing paying contracts and worried about
industrial espionage, Sony early in 1999 paid a visit to Envisage's Reading,
England, offices. There, investigators and Sony officials say, they were
met at the gate by a black limousine flying NATO flags on its fenders.
Emerging from the limousine, they say, was a man now believed to be Mr.
Reed, his ponytail hidden by a military cap.

A House Call

The meeting temporarily placated Sony U.K. officials, but not some skeptics
at the home office in Japan. Last September, Sony dispatched a private
investigator to Rekem to visit AMS Laboratories, one of the places it and
other companies had been sending gear. The detective reported that the
company's address was a low-rent, two-bedroom apartment -- the very one
that Mr. Reed and his wife called home. Applied Technologies' address, it
was soon learned, was the home of Mr. Reed's in-laws in Maasmechelen.

Sony swiftly filed suit against Mr. Reed's two companies in Belgium and
against a French subsidiary called iKom. It also got permission to raid
the Rekem apartment.

On Dec. 13, even as baton-wielding police were battering the door of his
modest apartment, Mr. Reed again opted for a simple plan. Belgian
authorities now believe he climbed out his bedroom window to the terra-cotta
roof, where he waited in the chill air while police plowed through the
apartment. He hasn't been seen since.

In the apartment, police found a staggering collection of electronic gear,
much of it in original cartons. The Rekem raid and subsequent searches of
storage bins and houses around Rekem and in Clichy, France, turned up five
sea containers and eight truckloads of electronic equipment. Paperwork
retrieved in raids showed that the advanced equipment all had been sent to
the attention of Lt. Col. West, and that companies had even picked up all
shipping fees.

In mid-December, Sony authorized its investigator to send a fax to several
companies, providing the first inkling for many that they had been conned.

Belgian bankruptcy-court records show losses totaling $25 million so far,
but some estimates are twice as high. Several companies aren't even sure
what they sent to Mr. Reed over the years, and many firms say they are
still tallying up the costs in staff time, custom engineering work and
reputation.  In a document sent to Belgian court officials, for example,
Pioneer estimates it spent 2,000 hours developing support systems to satisfy
Mr.  Reed.

With Sony demanding its equipment back and both Mr. Reed and Patricia Reed
missing, Mr. Reed's Belgian wife, Ms. Peters, was the last corporate officer
still around. In December, she moved to put AMS Laboratories and Applied
Technologies into bankruptcy court in Tongeren, Belgium, where liquidation
proceedings are pending.

Family Portrait

In a statement to bankruptcy lawyers, Ms. Peters says a Sony private
detective approached her about two weeks before Christmas and showed her
a picture of the man investigators say is the real Lamar Reed. That Mr.
Reed, a staff sergeant, is a 29-year veteran of the U.S. Army. "It was not
my husband," Ms. Peters says in the statement.

The detective had another piece of unpleasant news: Authorities believe
Patricia Reed is the alleged swindler's other wife. She is also, they
believe, the sister of Army sergeant Reed. Investigators believe the phony
NATO officer used the sergeant's identity to forge various military
documents and identification papers. The real Lamar Reed says the FBI first
contacted him in 1997 about the misuse of his identity in Europe. "He's
messed up my career. If it wasn't for me being in the military," he would
be in jail.

Staff Sgt. Reed says the man using his identity had been involved in a
computer scam in California. "He used my Social Security number to get out
of the country." Investigators say the sergeant wasn't involved in the NATO
scam.

Shortly after the raid on the apartment in Rekem, Envisage filed a complaint
with Britain's Ministry of Defence, says Mr. Oliver, Envisage's lawyer.
About six weeks after the raid, on Jan. 26, company executives met with
NATO officials, but got little sympathy. In fact, Mr. Oliver says, "there's
been no response at all. We are deeply frustrated."

Meanwhile, EDS didn't tell suppliers about the scam until Jan. 10. In
mid-January, it contacted the FBI, the Customs Service and other agencies;
they soon began their investigations.

For the moment, the man who called himself Lt. Col. Reed and Lt. Col. West
faces only one theft charge in Belgium, that one pressed by the bankruptcy
trustee because the man allegedly emptied a warehouse after his companies
filed for bankruptcy. In addition to seeking the man and Patricia Reed,
authorities are searching for at least two other alleged accomplices.
Authorities don't believe Ms. Peters was involved in the operation. Ms.
Peters declined to comment for this article.

Even now, Mr. Reed's motivation remains a mystery. Bankruptcy lawyers say
that they haven't found any evidence that Mr. Reed sold a single piece of
equipment. Court-appointed bankruptcy trustee Ivo Bude says investigators
serving a warrant on a home owned by Mr. Reed's in-laws in Belgium were
surprised to find three high-tech flat-screen monitors and several digital
video cameras stacked in a backyard pigeon coop. "We're talking about
screens that cost maybe $25,000 each," Mr. Bude says, shaking his head.

In fact, keeping the equipment may be exactly why Mr. Reed was able to
carry on for so long. Executives from several companies say the very
appearance of such sophisticated and expensive equipment on the market
would have set tongues wagging.

And for Mr. Reed, keeping the scam going may have been precisely the point.
As one company executive notes, "Most of what he had couldn't be sold. It
was like he just enjoyed the sport of it."

--Edward Taylor contributed to this article.

© 2000 Peter Langston