Exam 13: Organized Crime in Labor, Business, and Money Laundering

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A "bust out" scam is a bankruptcy fraud that victimizes wholesale providers of various goods and sometimes insurance companies. The business used as the basis for a scam may be set up with that scheme as its purpose, or it may be an established business that has fallen into organized crime control as a result of gambling or loan shark debt.
A business with good credit is purchased or falls into the hands of a loan shark, or a new corporation is formed and managed by a front man, or "pencil" who has no prior criminal or bankruptcy record. This person may owe money to a loan shark and may participate in the scam to help pay off the debt. A large bank deposit, known as the "nut," is made to establish credit. This money, plus other money subsequently deposited, is later withdrawn. A large store is rented, and orders for merchandise are placed with as many companies as possible. The size of these orders appears to indicate a successful operation to the suppliers. The owners then proceed with the three steps:
-Smaller orders are placed during the first month and are paid for in full. During the second month, larger orders are placed, and about a quarter of the balance due is paid.
-During the third month, using credit established as a result of the payments made for the previous orders, very large orders are placed. Thereafter, merchandise is converted into cash through a fence or a surplus-property operator.
-The company is then forced into bankruptcy by creditors because, according to plan, all cash has been appropriated by the scam operators.
A common time for the scam operator is just before a seasonal increase in the popularity of particular merchandise, when rush deliveries are commonplace and thorough credit checks are often overlooked. (In some scams, arson is the final step: The business is "torched" for the insurance instead of declaring bankruptcy.)