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Sight drafts: Financial freedom the easy, fraudulent way

Anti-government extremists have long tried to avoid paying taxes, but in recent years some of them have focused on paying off everything from mortgages to credit cards to utility bills the quick and easy way -- with bogus sight drafts; essentially, bad checks.

The scheme doesn't hold up for long. Eventually, the person or company that was paid with the phony sight draft realizes it's worthless and takes action, says assistant prosecutor Dan Kasaris of the Cuyahoga, Ohio, county prosecutor's office.

"The problem is these things look so legitimate. We've had people take them to the county treasury office and use them to pay their taxes. The treasurer takes them, stamps them, and sends them off for processing. You get an initial credit that you paid the tax, and then the credit is reversed."

Historian Mark Pitcavage, who specializes in militia movements, says even banks have accepted them.

"The IRS will let one through, and very often private individuals or companies will accept them because they look extremely realistic."

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A sight draft looks like a check. It's payable on demand (on sight) and, sometimes, no signature is needed. Legitimate sight drafts are often used in international trade.

Twisted vision of history
The anti-government types apparently latched onto sight drafts to accommodate their belief that the U.S. government owes every American citizen a substantial amount of money.

The theory, called redemption or acceptance for value, says that legitimate constitutional government ended when the U.S. went off the gold standard in 1933.

The extremists believe the government had to find some other way to pay off its debts. It did this by using the energy, or work output, of its current and future citizens as collateral. The government pledges each birth certificate for an amount that's been quoted anywhere from $600,000 to $1 million.

Pitcavage says redemptionists believe that everyone in the U.S. is collateral for bonds issued by the U.S. government. The bondholder doesn't own you, but he or she owns everything you do. Each person has a mirror entity, a straw man that represents the amount of work they do.

Redemptionists say there's a way to redeem your straw man and stake your claim to that money. Simply file a particular document along with your birth certificate and hand it in to your secretary of state office.

Now, you control your straw man and all the money that goes with it. You now can print up a sight draft and pay off your mortgage, according to redemptionists.

Proponents of this fraud hold seminars around the country explaining the straw man theory and charging cash to redeem the straw man for participants.

"Initially, the person is a victim," says Kasaris. "They pay the teacher to have their straw man redeemed. Then once they get their straw man redeemed, they float these bogus drafts and the victim becomes the defendant.

"The teacher got a $128,000 sight draft to pay off his mortgage with Chase. He gets the mortgage statement the next month and it says it's paid off. He goes to a seminar and shows them the mortgage statement and says, 'Look what using sight drafts did for us.'

"What they don't show them is a month or two later, the bank says we have revoked your credit because your check bounced."

Meanwhile, the folks attending the seminar are forking over 10 percent of their mortgage to get their straw man redeemed. After they try to pay the mortgage with a bogus sight draft they're out the 10 percent, they're facing foreclosure and, worst of all, facing criminal charges for writing a phony sight draft.

Pitcavage says this particular scheme took root around 1999 and has caught on as a way to pay off everything from taxes to cars, boats, homes and weapons.

"One of the nastiest versions is they'll sell a sight draft to someone who's vulnerable and gullible -- someone who's about to lose their home or farm," says Pitcavage. "They'll say, 'You give me $5,000 and I'll give you this debt instrument to pay off your debt; then you can make lower payments to me.'"

Of course, the fraudster takes off with the $5,000, and the homeowner loses his money and the house.

American Bankers Association spokesman Jon Hall says check fraud costs the banking industry alone $700 million annually.

"Ever since the advent of color copiers, desktop publishing and computer scanning equipment, being able to detect counterfeit checks is very difficult."

Copy of a bogus sight draft

Spotting a sight draft
Bogus sight drafts used by redemptionists have similar identifiers. They may refer to House Joint resolution 192 (the resolution Congress passed in 1933 taking the government off the gold standard), the Uniform Commercial Code (a statute that deals with commerce, the sale of goods, and negotiable instruments in commerce), and they usually list United States Treasury, 15 & Pennsylvania Avenue.

Sometimes, the folks who print sight drafts like to give themselves plenty of options.

"When they create their documents they put three or four boxes on the left side that say money order, sight draft, check -- they check a box and call it whatever they want. Whatever it is, it's forgery because it's not drawn on a valid account," according to Kasaris.

Perpetrators of this fraud have been arrested and convicted in Ohio, Michigan, Oregon and Idaho. Kasaris says most of the people involved are over 50 and have had some sort of tax problem.

"It really works on people who are down on the government, taxes and their luck. But we've had police officers involved -- one was sentenced to two years in prison. It's getting bigger and bigger. We're finding more people involved and more people getting duped."

When people believe they have hundreds of thousands of dollars to draw on they can get greedy and stupid.

Kasaris says one couple walked into a Cleveland Cadillac dealership in 1999 and tried to buy eight cars with a bogus sight draft. They were arrested and convicted. Two years later, three men were nabbed when they tried to use a bogus sight draft to buy three Caddies at the same dealership.

The moral of this story -- if someone tries to pay a debt to you with a sight draft, have it thoroughly checked before accepting it for payment. If it has any of the previously mentioned identifiers, it's probably phony.

And if someone talks to you about redeeming your straw man ...

-- Posted: April 3, 2002

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See Also
Taxpayer alert! Dirty dozen tax scams
The Top 10 investing scams
More personal loan stories


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