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Corporate Scandals Produce Hot Bargains

It was a chilly Thursday morning in an industrial neighborhood a half-hour's drive south of Los Angeles. But that didn't stop 1,500 people from turning out to bid at a government auction sponsored by the Treasury Dept. As a propeller-tongued auctioneer and four assistants known as "ring-men" worked the crowd, more than 300 confiscated items were auctioned. Among the treasures: gold ingots and coins seized from an illegal "digital gold" money-transfer business and a 2002 BMW 530i taken from a nurse who committed Medicare fraud.

The surge in white-collar crime in recent years has resulted in booming sales of forfeited goods. Since 2001, the total value of confiscated goods sold by the Justice Dept. and the Treasury, the two main branches of the government that handle such property, has climbed to $926 million, from $627 million.

Among the high-profile booty: a Galveston (Texas) beach house belonging to former Enron CFO Andrew S. Fastow, which the government sold for $595,000 last year, and a 1999 Shelby Series 1 sports car belonging to his former colleague, Kenneth Rice, who headed Enron's broadband unit. The car, sold a few months after the beach house, fetched $56,000. Both men pleaded guilty to securities fraud.

KING'S RANSOM. In recent years, the government has sold luxury cars and diamonds belonging to Martin Frankel, who pleaded guilty to stealing $200 million in the largest insurance fraud in the U.S., as well as wine, watches, and jewelry owned by John D. Garitta, the former CFO of mortgage lender PinnFund U.S.A. He pleaded guilty to filing false financial statements in 2002. Still to come: the Mar. 23 auction of Asian rugs and antiques from former Congressman Randy "Duke" Cunningham, who pleaded guilty to bribery charges last November.

For consumers looking for bargains, hunting down the soon-to-be-sold goods isn't always easy. The Treasury Dept., which also handles sales for the Customs and Border Protection, the Secret Service, and the Internal Revenue Service's criminal division, lists all of the items up for auction at its Web site, It runs about 48 auctions a year in various cities around the country, but handles less than 5% of the overall goods. The U.S. Marshals Service manages the rest.

The Marshals Service, which sells property confiscated by the Justice Dept., is not as well organized. The service does not maintain a central list of forfeited property for sale. Instead, it fans the goods out to dozens of local contractors. The best aggregation of their inventory is available at, which has a contract to sell some confiscated government property via the Internet.

STATUS SYMBOLS. In most asset-forfeiture cases, the Justice Dept. and Treasury split the proceeds between the various law-enforcement agencies involved in the cases, both locally and nationally. Much of the proceeds from property forfeited in white-collar cases, however, are returned to investors and other injured parties, says Leonard Briskman, deputy chief of business management at the U.S. Marshal's asset forfeiture division.

For a few buyers, there may even be some cachet to purchasing confiscated goods. Los Angeles resident Betty Thomas camped out at 8:30 a.m. at the recent Treasury auction in Los Angeles. Her target: a 2001 Jaguar XK8 convertible that once belonged to James Graf, a resident of Canyon Lake, Calif., who was convicted last November of running a $20 million health insurance fraud. Thomas won the car for $38,000 -- and she didn't have to pay taxes on it.

The California Department of Motor Vehicles did initially want her to pay past-due registration fees on the car. They ultimately relented, making her even happier about the purchase. Says Thomas of her new Jaguar's infamous heritage: "I wonder if anyone will recognize it."

Palmeri is a correspondent with BusinessWeek in Los Angeles

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