Wednesday, August 2, 2017

Notes section of Black Brothers, Inc. 2005 edition


Readers of the 2007 version of Black Brothers,Inc.: The Violent Rise and Fall of Philadelphia’s Black Mafia (Milo Books) see this commentary in the notes section (p. 301):
The first edition of Black Brothers, Inc. included 104 pages of endnotes.  This, as I suspected it might, became the source of considerable conversation – good and bad! Plenty of readers were enamored with the legwork behind, and the handiness of, the notes.  However, there were apparently more folks annoyed by their impact on the read, not to mention the added bulk.  As a result, I have included only those notes needed to appropriately credit sources explicitly quoted in the narrative.  This has only been done if the citation is an author or media outlet (i.e., not an interview, a court document, or a law enforcement document).  Other notes have been edited out entirely.  Thus, if readers are interested in the documents or other information left out of this edition’s notes, the 2005 version should be consulted.
I have long debated simply posting the notes section online for all to reference and download at their convenience.  Fearing this may invite considerable and often unreasonable requests for further information, I refrained.  However, for a host of reasons, I think the benefits of posting them now outweigh the potential costs.  Here, then, is the infamous Notes section (all 104 pages of them, in 8-pt single-spaced font, no less!):


[**The notes align with both versions (2005 and 2007) in that the chapter narratives are the same; of course the new, additional material offered in the 2007 edition has its own vast trove of source materials beyond what is offered here.**]

Assuming readers of this blog post have never read Black Brothers, Inc., here (2005, p. 340) is what I had to say about the challenge of writing a mainstream book which could appeal to a broad readership and yet maintain academic standards (and thus permit historians and sociologists to rely upon it when conducting research):
Much of the literature on organized crime in the United States falls into two all but mutually distinct camps.  One camp consists of very popular, especially readable, books whose credibility is all but impossible to assess because there is no effort made to provide the reader with the sources for the book’s claims.  Many of these books could aptly be labeled “based on a true story”, though they are not identified as such and the reader has no way of determining what is fact and what is fiction.  Often times, these tomes are based exclusively on the words of gangsters and/or law enforcement officials, who are each prone to self-aggrandizing and worse.  In the other camp of literature there resides a wealth of solid, if not sensational, academic books written in a far more technical style – bereft of the non-essentials such as quotes by actors, vivid depictions of historical events, etc.  For the investigative reporter, the historian, and other like-minded researchers, these books are invaluable because the reader can quite easily track down the sources of information used by the author.  Thus, these arbiters of accuracy can replicate the study by assessing the documents for themselves and so on.  Unfortunately, such books can make for dreadful reading, and audiences are therefore commonly left with a losing pair of options when picking an organized crime read: sensational but dubious vs. accurate but lumbering.  This brief discourse is presented to defend the endnoting throughout Black Brothers, Inc. (or Superbad to give this book its UK title).  While every effort has been made to strip the book of academic prose, I want the reader to have confidence in the veracity of this complex historical account.




Tuesday, January 3, 2017

New film "Gold" and the infamous Bre-X mining scandal

The first time I caught the trailer for the new Matthew McConaughey movie “Gold” it was wildly obvious to me it was based - however loosely - on one of the most compelling crimes or criminal conspiracies about which I have ever written.

I became very familiar with the Bre-X machinations when my friend and mentor Alan A. Block and I were vigorously researching the penny-stock fraud phenomenon which took off (again) in the 1980s and 1990s.  The scams were predominantly based in specific geographic regions within the U.S., and our focus was on Pennsylvania and especially on New Jersey, home to Robert E. Brennan’s First Jersey Securities.  In short, as to how Bre-X, a Canadian mining stock, factored considerably into our work, please consider:

In the United States the historical lineage of penny-stock dealers goes back to the nineteenth century gold and silver mines of the American west, in particular to the Colorado gold rush in the 1880s.1  Prospectors had little capital and turned to selling shares to finance their ventures.  Those unable to lure more substantial investments sold shares for as little as a penny.  Penny-stock mining frauds operated in other countries as well.  For instance, in 1888 a Welsh gold-mining firm swindled investors after a phony ore test in “the presence of certain notable personages.”2
                On the heels of the nineteenth century miners came the oil and gas promoters.  Oil, like precious metals, made people more than a little money crazy and by 1918 towns like Fort Worth, Texas, were home to motley armies of “lease sharks, grafters and grabbers, operators, speculators, and gamblers.”3  In the western mecca of Los Angeles, the Department of Justice figured that stock swindlers hawking oil securities of one kind or another, many for little more than $1, were making about $100,000 a week in 1923.4
                Up until the stock market crash in 1929 and the subsequent Depression, stock swindling in general was an American pastime, and there was nothing fundamentally different about penny-stock frauds than other security swindles.  
Sean Patrick Griffin and Alan A. Block, "PennyWise: Accounting for Fraud in the Penny-Stock Industry," in Henry N. Pontell and David Shichor (eds.) Contemporary Issues in Crime and Criminal Justice: Essays in Honor of Gilbert Geis (Upper Saddle River, NJ: Prentice-Hall, 2000), p. 99.          

Though Alan and I (together and independently) have written explicitly about Bre-X in various publications, none of that is particularly helpful here.  However, as a tidy primer to the unreal case study - which, like many “white-collar” crimes, did not begin as a criminal conspiracy, here is the formal entry written by Hongming Cheng for the complex scandal as it appears in the Encyclopedia of White-Collar and Corporate Crime (London: Sage, 2005, edited by Lawrence M. Salinger, pp. 109-110):

BRE-X MINERALS LTD. was a small Canadian gold exploration company that committed the world's biggest mineral stock fraud in history. Bre-X became the star of investors in the gold industry after it announced a major gold deposit discovery, perhaps the largest ever discovered, in properties it was mining in the Busang area on the island of Borneo in East Kalimantan, Indonesia. It was later dis- covered that little, if any, gold was actually found in these properties. Some people, including insiders, became quite wealthy from the stock-play. The Bre-X fraud has been the subject of at least six books published about the scandal.
The Bre-X tale began in 1993, when David Walsh, a veteran stock promoter, traveled to Indonesia and met John B. Felderhof, a well-known geologist, who convinced Walsh to bet his company on Busang. In August 1993, Bre-X began to explore in the Busang area, and was reporting favorable drill results.   By early 1997, it claimed to have proven the existence of 71 million ounces of gold, worth about $25 billion, and estimated that there was at least 200 million ounces present at Busang. As a result, the Bre-X stock rose so high that it qualified for inclusion in the TSE 300, which caused index funds and all portfolios tracking the index to purchase the stock. To produce such a huge deposit, the Indonesia government required that Bre-X share some of the fortunate excess with the people of Indonesia, and with Barrick, a firm tied to Indonesian leader Suharto's ambitious daughter Siti Rukmana.
NO DEAL
But Barrick could not negotiate a deal acceptable to all parties. With Suharto's close confidant Mohamad "Bob" Hasan stepping in with the deal, the American firm Freeport-McMoRan Copper & Gold was eventually selected as Bre-X's partner in the Busang project. Freeport first undertook its own due-diligence drilling and reported that its analyses of seven core samples "indicate insignificant amounts of gold." That news came one week after the announced death of Bre-X's chief geologist Michael de Guzman, who reportedly fell to his death from a helicopter while traveling to Busang to meet with Freeport's due diligence team to discuss Freeport's assay results. Forensic Investigative Associates conducted an independent investigation into the scam and concluded that the company had "improved" the samples from the time they were collected until they were turned over to a down-river lab for analysis. Forensic Associates believed Walsh (and the other Canadian employees) did not know about the samples. The next day, the $6 billion (Canadian) Bre-X stock lost almost all of its value.
                An independent company, Strathcona Mineral Consultants, was commissioned to conduct an independent study of the situation. After their study, Strathcona concluded that "an economic gold deposit has not been identified in the South East Zone of the Busang property, and is unlikely to be."
                Prior to the disclosure of the truth, Walsh and Felderhof sold large amounts of their personal stock in Bre-X, reaping millions of dollars for their own benefit and at the expense of Bre-X investors, who lost about $3 billion when the scam was revealed in the spring of 1997. This incident caused a massive shattering of investor confidence and tarnished the reputation of the securities industry.
Anyone wishing to research the scandal in earnest needs to start with the work of Diane Francis, author of Bre-X: The Inside Story [Note: I am aware of other efforts but they don’t measure up in my opinion].

Oh, one last (and trivial) thing – that research introduced me to one of my favorite lines, for which there are multiple variations:

“A gold mine is a hole in the ground with a liar at the top.”

Notes:
1. North American Securities Administrators Association, The NASAA Report on Fraud and Abuse in the Penny Stock Industry, submitted to the Subcommittee on Telecommunications and Finance, Committee on Energy and Commerce, U.S. House of Representatives, September 1989, p. 23.
2. Kenneth Gooding, “Lured to ruin by fool’s gold,” Financial Times, April 19/April 20 1997, p. 1.
3. Roger M. Olien and Diana Davids Olien, Easy Money: Oil Promoters and Investors in the Jazz Age (Chapel Hill: The University of North Carolina Press, 1990), p. 74.
4. Jules Tygiel, The Great Los Angeles Swindle: Oil, Stocks, and Scandal During the Roaring Twenties (New York: Oxford University Press, 1994), p. 36.