John McNamara (fraudster)
Encyclopedia
John McNamara is a former United States
businessman, who was convicted of a Ponzi scheme
fraud
through gaining loans to a value of $6Bn from General Motors
financing arm GMAC, to develop a $400M car sales and property development business.
immigrant, raised in Port Jefferson
, Long Island
in the State of New York, McNamara was a devout Roman Catholic who was college educated. Twice-divorced, he had been declared bankrupt from a failed business venture in Florida
.
Returning to the single family-owned Pontiac
-Buick
auto dealership in Port Jefferson which his father started, as President of Sales, McNamara had ambitions in property development and politics. He made large contributions to his church, and single-handedly bankrolled a haven for wayward teenagers. Refused credit by some others, he hired bodyguards to intimidate those probing his business dealings.
.
McNamara established a company called Kay Industries Inc in Indiana
, who were supposedly responsible for customization. Kay Industries gave McNamara Pontiac-Buick invoices stamped "paid," which they then submitted to GMAC. GMAC in return gave McNamara Pontiac-Buick a 30-day loan on each customized vehicle, to allow for its export and sale. McNamara Pontiac-Buick would then supposedly sell the vans to another McNamara-owned corporation, which in turn claimed to be shipping them to a McNamara owned buyer in Cyprus, Cydonia Trading CTD. After shipping the vans overseas, McNamara Pontiac-Buick would then repay the loans (within 30 days) while, at the same time, borrowing additional funds from GMAC for the next shipment of vehicles.
Part of the money McNamara skimmed was used to bribe local and state level officials in Brookhaven
over his property development business, by offering higher trade-ins, lower purchase prices or lease payments on cars, and in limited cases direct cash.
In the 11 years the operation ran, as is typical of a Ponzi scheme, McNamara had to take out larger and larger loans each year to pay off the payments due on previous loans. In 1985 he took out loans totalling $250M, $715 million in 1989, $1.88 billion in 1990 and $1.93 billion in 1991. Loans over the 11-year period totalled $6Bn for 17,000 vans. Since all loan payments were made on time, GMAC viewed McNamara as a valued and even profitable customer, extending him special terms, such as increasing the time required for his first payment from the standard 30 days to 60 days. Over the last four years of the scheme, the total amount of the loans made to McNamara exceeded the gross domestic product of the country of Panama
.
GMAC conducted an in-depth analysis of the events that had enabled the fraud to take place, resulting in a significant re-structuring of the commercial credit operations of GMAC. A report concluded that the fraud was made possible by organizational and relationship symptoms, as well as anomalies in the lending practices of GMAC, including:
over various charges of fraud, McNamara faced a maximum sentence of $800M in fines and 20 years in jail. However, a plea bargaining deal with state and federal prosecutors reduced this considerably, on the condition that he provide evidence against the officials he had bribed with regards to his property development projects. In concluding the case, the judge agreed that McNamara's sentence could be reviewed further, should the value of his evidence prove great and should McNamara choose to enter the Federal Witness Protection Program.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
businessman, who was convicted of a Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
through gaining loans to a value of $6Bn from General Motors
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
financing arm GMAC, to develop a $400M car sales and property development business.
Background
The son of an IrishIrish people
The Irish people are an ethnic group who originate in Ireland, an island in northwestern Europe. Ireland has been populated for around 9,000 years , with the Irish people's earliest ancestors recorded having legends of being descended from groups such as the Nemedians, Fomorians, Fir Bolg, Tuatha...
immigrant, raised in Port Jefferson
Port Jefferson, New York
The Incorporated Village of Port Jefferson is located in the town of Brookhaven in Suffolk County, New York on the North Shore of Long Island. As of the 2000 United States Census, the village population was 7,837...
, Long Island
Long Island
Long Island is an island located in the southeast part of the U.S. state of New York, just east of Manhattan. Stretching northeast into the Atlantic Ocean, Long Island contains four counties, two of which are boroughs of New York City , and two of which are mainly suburban...
in the State of New York, McNamara was a devout Roman Catholic who was college educated. Twice-divorced, he had been declared bankrupt from a failed business venture in Florida
Florida
Florida is a state in the southeastern United States, located on the nation's Atlantic and Gulf coasts. It is bordered to the west by the Gulf of Mexico, to the north by Alabama and Georgia and to the east by the Atlantic Ocean. With a population of 18,801,310 as measured by the 2010 census, it...
.
Returning to the single family-owned Pontiac
Pontiac
Pontiac was an automobile brand that was established in 1926 as a companion make for General Motors' Oakland. Quickly overtaking its parent in popularity, it supplanted the Oakland brand entirely by 1933 and, for most of its life, became a companion make for Chevrolet. Pontiac was sold in the...
-Buick
Buick
Buick is a premium brand of General Motors . Buick models are sold in the United States, Canada, Mexico, China, Taiwan, and Israel, with China being its largest market. Buick holds the distinction as the oldest active American make...
auto dealership in Port Jefferson which his father started, as President of Sales, McNamara had ambitions in property development and politics. He made large contributions to his church, and single-handedly bankrolled a haven for wayward teenagers. Refused credit by some others, he hired bodyguards to intimidate those probing his business dealings.
Business scheme
With access to financing via GMAC, from 1980 McNamara applied for a series of loans to buy non-GM vans, valued at US$25,000 each, which he said would be customized, before being pre-sold and shipped to the Mediterranean island country of CyprusCyprus
Cyprus , officially the Republic of Cyprus , is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.The earliest known human activity on the...
.
McNamara established a company called Kay Industries Inc in Indiana
Indiana
Indiana is a US state, admitted to the United States as the 19th on December 11, 1816. It is located in the Midwestern United States and Great Lakes Region. With 6,483,802 residents, the state is ranked 15th in population and 16th in population density. Indiana is ranked 38th in land area and is...
, who were supposedly responsible for customization. Kay Industries gave McNamara Pontiac-Buick invoices stamped "paid," which they then submitted to GMAC. GMAC in return gave McNamara Pontiac-Buick a 30-day loan on each customized vehicle, to allow for its export and sale. McNamara Pontiac-Buick would then supposedly sell the vans to another McNamara-owned corporation, which in turn claimed to be shipping them to a McNamara owned buyer in Cyprus, Cydonia Trading CTD. After shipping the vans overseas, McNamara Pontiac-Buick would then repay the loans (within 30 days) while, at the same time, borrowing additional funds from GMAC for the next shipment of vehicles.
Ponzi scheme
However, no vans were ever purchased, customised or sold. McNamara used the $400M of money skimmed from the loans to finance the purchase and operations of 70 different corporations and partnerships, including:- two additional auto dealerships
- a car loan company
- Real estate companies that owned more than 100 properties in New York, Maryland, Georgia, Florida and the Middle East, including a Days InnDays InnDays Inn is a motel chain headquartered in the United States. Founded in 1970, it is now a part of the Wyndham Hotel Group, based in Parsippany, New Jersey, which was formerly a part of Cendant...
motel - a mortgage financing company
- two gold mines in Nevada
- an oil business
- two seats on the New York Mercantile ExchangeNew York Mercantile ExchangeThe New York Mercantile Exchange is the world's largest physical commodity futures exchange. It is located at One North End Avenue in the World Financial Center in the Battery Park City section of Manhattan, New York City...
- a newspaper company
- a pharmaceutical company
- considerable amounts of stocks, bonds and notes
- a $500,000 personal home
- a $350,000 home for his ex-wife
- a $500,000 trust fund for his daughter
- a private jet and a limousine
Part of the money McNamara skimmed was used to bribe local and state level officials in Brookhaven
Brookhaven
Brookhaven may refer to:Places in the United States:*Brookhaven, Georgia, a community just north of Atlanta**Brookhaven/Oglethorpe , a passenger rail station in Brookhaven, Georgia*Brookhaven, Mississippi...
over his property development business, by offering higher trade-ins, lower purchase prices or lease payments on cars, and in limited cases direct cash.
In the 11 years the operation ran, as is typical of a Ponzi scheme, McNamara had to take out larger and larger loans each year to pay off the payments due on previous loans. In 1985 he took out loans totalling $250M, $715 million in 1989, $1.88 billion in 1990 and $1.93 billion in 1991. Loans over the 11-year period totalled $6Bn for 17,000 vans. Since all loan payments were made on time, GMAC viewed McNamara as a valued and even profitable customer, extending him special terms, such as increasing the time required for his first payment from the standard 30 days to 60 days. Over the last four years of the scheme, the total amount of the loans made to McNamara exceeded the gross domestic product of the country of Panama
Panama
Panama , officially the Republic of Panama , is the southernmost country of Central America. Situated on the isthmus connecting North and South America, it is bordered by Costa Rica to the northwest, Colombia to the southeast, the Caribbean Sea to the north and the Pacific Ocean to the south. The...
.
Collapse and analysis
In 1991, GM internal auditors discovered the size and scale of McNamara's loans, but did not see the corresponding vans being purchased from GM. They refused further loans, which directly led to the collapse of McNamara's entire business. With the fraud eventually discovered, after loans totalling over US$6 billion repaid, it resulted in approximately $436 million in unpaid inventory financing.GMAC conducted an in-depth analysis of the events that had enabled the fraud to take place, resulting in a significant re-structuring of the commercial credit operations of GMAC. A report concluded that the fraud was made possible by organizational and relationship symptoms, as well as anomalies in the lending practices of GMAC, including:
- Deviation from GMAC's standard operating procedures, granting privileges to McNamara that were unavailable to others. The extent of lending exceeded credit limits for any other customer
- GMAC never physically inspected any of the vehicles, none of which were GM products. The number of vans bought represented more converted vans than the entire US industry produced, requiring Kay Industries to have a factory capable of producing 200-400 vans per day
- The sales to Cydonia Trading violated GM's franchise agreements, because domestic dealers are not supposed to sell cars to overseas buyers
- The local GMAC office occasionally closed its doors to other customers so it could process McNamara's pile of paperwork, referred to as "Mac Attacks."
- GMAC's computer software was modified to handle the unique demands of McNamara's volume business
Trial and conviction
Brought to trial in 1992 at the Federal District Court in BrooklynBrooklyn
Brooklyn is the most populous of New York City's five boroughs, with nearly 2.6 million residents, and the second-largest in area. Since 1896, Brooklyn has had the same boundaries as Kings County, which is now the most populous county in New York State and the second-most densely populated...
over various charges of fraud, McNamara faced a maximum sentence of $800M in fines and 20 years in jail. However, a plea bargaining deal with state and federal prosecutors reduced this considerably, on the condition that he provide evidence against the officials he had bribed with regards to his property development projects. In concluding the case, the judge agreed that McNamara's sentence could be reviewed further, should the value of his evidence prove great and should McNamara choose to enter the Federal Witness Protection Program.