One knows perhaps a child who, hand caught in the cookie jar and mouth full of cookies, will swallow quickly and insist with the "sincerest" of expressions, "Oh, you shouldn't have startled me. I just caught a mouse that had run into the jar; if you hadn't come in just now, he wouldn't have gotten away."
—LYNDON H. LAROUCHE, JR.
While dreaming in the early 1960s about becoming America's Trotsky, LaRouche had another dream—to become a capitalist. In a report on the shoe industry, he gave a hint of this ambition. The business world "has got to get back to management by tycoons"—that is, by strong leaders who will "manage the business as a whole" instead of viewing it "as a collection of semi-autonomous parts." In the true tycoon's conglomerate, divisions should dovetail into one centralized system. LaRouche thus conceived of a business empire much as his NCLC would become—in which money would be shuttled around from entity to entity, with no regard for ordinary accounting procedures, to meet the needs of the moment as determined by LaRouche himself.
In the following years LaRouche frequently railed against speculative capital. He contrasted Wall Street's "Levantine gnomes" with the upright patriotic "productive capitalists," the industrialists who make wheels turn. One therefore might infer that when he set out to make the NCLC into a money machine, he would have steered his followers into some kind of productive activity—machine tools, aerospace, or even hamburgers. Instead, he steered them into the least productive activity imaginable—a grotesque distillation of the speculative capital he so harshly denounced. He became a financial pyramid-scheme promoter, only with a political twist: He built a web of political fund-raising fronts that fraudulently borrowed as much money as possible—by some estimates close to $200 million—from as many people as possible and then, according to law enforcement officials, simply refused to pay it back. None of this loaned money was invested in anything even indirectly productive such as stocks, bonds, or money market accounts. Instead it was mostly pumped into NCLC political propaganda to build up LaRouche's name recognition and create the conditions for yet more borrowing.
These loan scams were an extension of the systematic deceptiveness found in LaRouche's ideology, propaganda, electoral activity, and intelligence gathering. Operating as a combination NICPAC and junk-bond entity, his money machine targeted senior citizens and gullible professionals possessing liquid assets. Telephone solicitors appealed to their patriotism and conservative beliefs, also promising 20 percent annual interest. Some lenders mortgaged or sold their homes and whatever other assets they possessed. But when the NCLC fund-raising entities inevitably defaulted on the loans, the lenders found themselves in an almost helpless situation, facing an impenetrable network of corporate shells, dead-end paper trails, and endless legal delaying tactics.
Ironically, the NCLC began in the late 1960s as a quasi-ascetic organization. The idea of making money seemed a diversion from the real world of ideas and revolutionary organizing. Yet step-by-step LaRouche urged upon his followers the role of cash in building a movement, and the necessity of raising as much money as possible by any means necessary. He steered them first into small deceptions, more unethical than illegal, then into individual acts of flagrant deception, and finally into actions that would lead to their indictment for large-scale white-collar crime.
LaRouche alluded to this transformation of his followers in a 1978 article dealing ostensibly with political cults other than his own. Such organizations, he said, "condition" their members to commit criminal acts, while also being on the lookout for recruits with preexisting criminal tendencies. Members are taught to view the outside world as "not real" and to treat its inhabitants as mere projections of the cult member's childhood emotions. Thus, the cult member becomes in some respects like a "disturbed but functionally effective" small child. In another article, LaRouche explained that this syndrome includes a "pathological lie pattern" as in the case of the child caught with his hand in a cookie jar.
This was not armchair theorizing. The conditioning of the NCLC membership for predatory acts had begun as early as 1974, with the leadership practicing rip-off skills on the rank-and-file members. The latter were pressured to turn over their savings and other assets. Several trust funds were netted from wealthy members, who overnight became poor members after turning over every penny in defiance of their parents' wishes. They were told this was for the socialist revolution, just as senior citizens would later be told their contributions or loans were for the Reagan revolution. Once all immediately available assets of the members had been looted, the leadership set out to exploit their credit—to get each member to borrow to the maximum of his or her credit line. Hundreds of members borrowed all they could from banks, finance companies, and via their credit cards or any other available source of credit, and turned the proceeds over to the organization. Some took out federal loans for college studies they never intended to pursue, knowing they would be able to evade repayment for many years, perhaps forever. Many borrowed heavily from relatives and friends. A favorite tactic was to tell their parents that they needed money for dental work.
According to a former highest-level LaRouche aide, at least 30 percent of NCLC operating revenues in the mid-1970s came from members' loans. The leadership was "like a pack of hyenas," he recalled. "Members would be induced to get one loan, then a second, then a third." The organization would promise to pay them back, but rarely returned more than token amounts. Although these practices netted millions of dollars, the real payoff was psychological: The membership was compromised ethically, and became inured to further sharp dealings. This made it easier to persuade them to bilk elderly widows during the 1980s. It also bound them tightly to the organization, for those who owed thousands of dollars to credit card companies knew that if they ever quit the NCLC, it would never help them pay off these debts.
In the short run, most NCLC members didn't have to worry about credit collection agencies very much, because of their rootless lifestyles as political activists. They were moved from city to city, often housed in semi-communal apartments where the phone, mailbox, and lease were in someone else's name. Even when a creditor did manage to track them down, they had no assets to be seized, for they had already given everything to the NCLC.
But the cannibalizing of the members' credit soon reached a point of diminishing returns. They became known as deadbeats and were unable to obtain any further loans. Their parents and relatives became furious at them, and former friends avoided them. (This bound them all the more closely to their NCLC surrogate family and political friends, and to their surrogate father, LaRouche.)
If LaRouche couldn't get any more loans from them, he could get something even more valuable—their full-time labor. Many members were pressured to quit their jobs or drop out of college to work for the NCLC twelve to sixteen hours a day, seven days a week. Members assigned to the national office in New York moved into low-rent neighborhoods such as Washington Heights, where they survived on tiny stipends. Members not regarded as important enough to have stipends found part-time jobs as typesetters or proofreaders, but spent the majority of their time working free for the NCLC.
This type of labor exploitation was typical of cults in the 1970s. Newly recruited members of the Unification Church sold flowers on the street or worked on the Rev. Moon's fishing boats, while living in church dormitories and wearing used clothing provided by the church. LaRouche's version was the sale of NCLC literature at airports and other public places. New recruits were expected to undergo a testing period of up to two years in which they spent most of their time in this "field organizing." They were trained in adversary techniques to bind them more closely to the NCLC. When greeted with a less than friendly response from a passerby, they would insult him, often calling him a tool of Great Britain or Rockefeller. Occasionally the targeted person was intrigued or amused, and a sale would result. But more often he reacted angrily and walked away. Sometimes matters escalated. As a defector told The New York Times: "They get two inches from a person's face and [verbally] cut them to pieces. They can get anybody to hit them in a second."
After a long day of such confrontations and rejection, an NCLC field worker would internalize more deeply than ever LaRouche's vision of a Promethean elite besieged in a hostile world. Their anger would also increase—an important part of the conditioning. If one spends one's day insulting perfect strangers, it is not a large step to begin ripping them off.
LaRouche found it was not cost-efficient to keep a majority of his followers at the airports. Unlike the average flower-selling Moonie, many NCLC members had advanced degrees and highly marketable skills. LaRouche was able to utilize this extraordinary labor pool for a variety of ends. The staff of his intelligence news service and EIR mostly was composed of individuals with backgrounds in the humanities and social sciences. He founded the FEF and his computer software company, Computron, with those who had training in engineering, science, and business, Such members had sacrificed conventional careers and salaries but were nevertheless intensely ambitious and competed savagely with each other to rise within the NCLC's internal Chain of Being so as to get as close as possible to the Godhead (LaRouche).
LaRouche explained the economics of his business empire in a 1981 report: The NCLC membership's "voluntary and semi-voluntary labor" reduced the labor costs of the NCLC business fronts way below the equivalent costs in the outside business world. "If a person whose skill and activities are competitively worth $35,000 performs those services for $10,000," he wrote, "the activity has the implicit value of the same work done at $35,000." LaRouche cited members whose competitive worth would be $70,000 a year, "To sacrifice part of such income levels for a purpose related to a world-historical purpose,” he said, "is morally acceptable, and worthwhile."
For Linda Ray, who joined the NCLC after dropping out of college in 1974, being "world-historical" meant working as a typesetter sixteen hours a day. "They'd pay me $100 a week, but if there was a cash-flow problem I'd get nothing," she recalled. One couple that worked full-time on the NCLC editorial staff had a combined 1982 income of under $5,500. They lived from hand to mouth, months in arrears on their semi-slum apartment rent and incessantly threatened by utility turnoffs while leaving a trail of bounced checks with neighborhood merchants.
Meanwhile, the NCLC's internal discipline became totalistic. Members were told what kind of music to listen to. Spouses informed on one another to the leadership. Wives who became pregnant were marched to the abortionist by the "coat-hanger brigade" (politically reliable women from the national office). Anyone who performed poorly at assigned tasks was denounced in psychological sessions. The cement holding this together was the frequent "crisis mobilizations" during which members were stimulated to work extra hours and raise giant sums of money to rescue the world from impending nuclear war or save LaRouche from the latest Zionist hit squad. The personal satisfactions were few and far between. To be allowed an evening off to sing in the NCLC choral group or listen to a lecture on Dante was the LaRouchian equivalent of a Caribbean cruise.
In the few moments available for reverie, many members felt desperately trapped. But their years of total dependence on the organization for their social life and livelihood had eroded their self-confidence to the point where they couldn't imagine living on their own or succeeding in the outside world. Breaking away meant losing their closest (and usually their only) friends. It meant having to learn all over again how to make decisions for oneself. Thus, the majority remained, year after dreary year, developing to a fine pitch the specialized skills necessary to LaRouche's goals.
Under these conditions the NCLC intelligence staff, editorial department, printing and typesetting businesses, telephone boiler rooms, and field operations became a smoothly functioning profit machine. The national office "sectors" worked together to produce a wide range of books, magazines, and intelligence reports, LaRouche field workers sold them at major airports to affluent Americans waiting for a flight. Their tables were festooned with signs like "Feed Jane Fonda to the Whales"—a magnet for conservatives, but a filter device to keep away all liberals except for those spoiling for an argument. The books and magazines, such as Fusion and Executive Intelligence Review, had colorful, well-designed covers.
The field organizers accepted Visa and MasterCard, and hundreds of names were collected each day. Telephone solicitors at national headquarters and the regional offices followed up with calls urging the purchase of an EIR subscription ($396 a year) or a special EIR report ($250 and up). Purchasers also were asked to donate to LaRouche's campaigns or the Fusion Energy Foundation. In addition, the telephone fundraisers called people cold from lists purchased from conservative organizations.
By 1977 airport sales and telephone fundraising were bringing in over $40,000 a week. Defectors who left during that period recall having raised $300 a day on the phone. By 1980, according to a former top LaRouche aide, fundraising was producing $190,000 a week (about $10 million for the year). In mid-1981 LaRouche announced in a memo that he was upping the quota to "$225,000 weekly in organizing-income of gross sales." Anything less, he warned, would be a "disaster."
The airport tables were sponsored by the FEF, conveniently making the purchases tax-deductible for the customer and tax-free for the LaRouchians. Actually, the LaRouchians sent all the money to NCLC headquarters, not the FEF, and the NCLC finance officers stashed it in the accounts of any front group they pleased. Some businessmen bought EIR or Fusion subscriptions to humor the solicitor or as a gesture of support for nuclear power, writing off the purchase as a corporate expense. These purchasers included officers of major corporations such as ITT and TRW. By 1984 EIR claimed 11,500 paid subscribers—if true, this would have yielded $4.5 million. EIR also offered customized reports and "retainer-contract" intelligence services.
The publications were produced with state-of-the-art printing and typesetting equipment at the NCLC-controlled PMR Printing Company and World Composition Services in New York City and at Renaissance Printing Company in Detroit. Thanks to their low-cost labor, these firms were able to bid successfully for outside clients. In the late 1970s and early 1980s, World Comp's clients included the United Nations and the Ford Foundation, while PMR handled jobs for Harper & Row, New York University, and the YWCA. Many clients were unaware of the LaRouche connection. Renaissance Printing worked for the Teamsters union, which was aware of the link, and soon expanded into financial printing, obtaining several Wall Street investment houses as clients. This gave it access to the type of confidential data that is sometimes used in insider trading, although there is no evidence that such information was misused.
Some LaRouchians began to dream of long-term business collaborations on a high level. Ian Levit of the NCLC Security staff went to Houston in 1980 to meet with oilmen who had been contacted through EIR and Fusion, and who supposedly had access to a "tremendous amount of venture capital." After drawing up profiles of some of the most promising contacts, Levit concluded that the trip was "proof that we can successfully mix our political and business activities directly" and thus "strengthen both dramatically." EIR and the FEF, he said, "can and must become the center of trade deals." The same attitude was seen in a 1979 letter from Chicago NCLC leader Mitchell Hirsch to Robert Malott, chairman of the FMC Corporation, It was carefully worded to suggest that the LaRouche organization was an integral part of the business community: "We [businessmen] face competition for key markets worldwide....Unless the decline of the dollar...is quickly reversed, we shall face a most dangerous international situation." The writer enclosed a copy of EIR and invited Malott to meet with LaRouche.
The most successful LaRouchian commercial business, Computron Technologies Corporation, grew out of a collaborative relationship with Wang Laboratories. Computron was a software house founded by NCLC members in 1973. At its inception it received equipment, encouragement, and software development contracts from Wang, and later became a Wang turnkey vendor. Wang steered many of its own hardware customers to Computron for specialized software.
The chief founders of Computron were NCLC chief of staff Gus Kalimtgis and his close friend Andy Typaldos. Kalimtgis was the silent partner, although his wife was the office manager and signed the checks. In the computer world Computron seemed to be just another business, and Typaldos just another hustling salesman. But Typaldos was a member of the NCLC national committee, where he used the pseudonym ''Andreas Reniotis." His wife, Rene, was one of the LaRouchians arrested for allegedly kidnapping Alice Weitzman in 1974. His sister-in-law, Janice Hart, later became briefly famous as the LaRouchian candidate who won the Illinois secretary of state primary in 1986.
Computron established an excellent reputation. Many of its bright LaRouchian programmers received top-flight training from Wang but continued to work for Computron at salaries well below industry standards, Computron thus became one of the largest software houses in the New York area. By 1979, its revenues topped $5 million a year, and its clients included AT&T, Citibank, Mobil Oil, Colgate-Palmolive, Bristol-Myers, Weight Watchers International, and Benton & Bowles Advertising. Its NCLC connection was a carefully guarded secret from most clients and non-LaRouchian employees. Use of its computer facilities for political purposes took place at night, after the regular employees had left.
The secret was exposed in the Manhattan weekly Our Town in September 1979. When Computron denied it, Our Town published a second article showing that most top Computron executives were NCLC members and had made contributions to LaRouche's presidential campaign, and that LaRouche had lived in a company apartment and used a company car. Computron's LaRouche connection also was noted in a New York Times article. Wang, although well aware of these facts, continued its profitable association with Computron.
According to former Computron employees, the software firm covered upwards of 20 percent of the NCLC's operating expenses in the late 1970s, when at least $750,000 was skimmed from company revenues at a rate of $5,000 to $10,000 per week. This skimming sharply increased to pay for LaRouche’s 1980 presidential campaign. In addition, Computron extended heavy credit to LaRouche's campaign committee for computer services. This was done although LaRouche had not yet paid back Computron's loans-in-kind to his 1976 campaign. (The treasurer of the 1980 campaign, Felice Merritt Gelman, was married to a top Computron programmer.)
Late in 1980, Typaldos and Kalimtgis protested that LaRouche was destroying the company with his incessant demands for cash. LaRouche called them KGB agents, forced them out of the organization, and ordered all loyal NCLC members at Computron to quit their jobs. Several executives and employees rebelled and sided with Typaldos and Kalimtgis, but most followed LaRouche's orders. LaRouche also circulated memos accusing the Computron chiefs of using NCLC funds to subsidize their firm. Kalimtgis argued that the opposite was the case, and that Computron's management had "repeatedly tried to sell off future business assets and business ventures" to meet the NCLC's needs. Kalimtgis warned LaRouche of possible "legal jeopardy" if he didn't shut up. "Unlike you, Lyn, I do not say to myself that 'even if I were put before ten grand juries I would tell them that I knew nothing….'"
In March 1981, Computron filed for reorganization under the Chapter 11 provision of the Bankruptcy Act, listing obligations of $3 million, including almost $400,000 owed to Wang, When the creditors' committee took the depositions of company officers, it learned that financial records for the period of LaRouche's campaign had disappeared. Subsequently the bankruptcy judge, upon receiving copies of the NCLC internal correspondence in which Kalimtgis and LaRouche accused each other of fraud, ordered the creditors' committee's attorneys to launch an investigation of LaRouche's alleged looting of the company. Several subpoenas were issued and depositions taken, but the investigation was terminated rather abruptly. An affidavit in the court record, signed by the accountant for the creditors' committee, states that Wang's Allen Vogel, chairman of the committee, "informed counsel that the investigation should be discontinued and that the committee wanted to get on with the plan [for reorganization]." Earlier Vogel had written that he strongly resented Computron trying to cover up problems with a "legal or political smoke screen." But now, Wang apparently feared the possible negative publicity from any airing of Computron's past, which would inevitably have called public attention to Wang's own dealings with the LaRouchian firm.
LaRouche had learned from the Computron split that his Neoplatonic humanism didn't mix too well with traditional capitalism. The problem, he decided, was that treacherous NCLC members had put business before politics, and private fiefdoms before the interests of the NCLC as a whole. He cracked down fast on PMR and World Comp executives who had displayed similar signs of "liberalism," but he was too late with Renaissance Printing in Detroit. In the fall of 1981 the entire staff and management quit the NCLC in one giant walkout.
LaRouche had to face the real problem—not treachery, but burnout. As he explained it to his loyalists: "Frightened people past thirty realize, 'I'm not a kid any longer.’ Sexual anxieties become more insistent. The lure of ‘inner psychological needs' and lusts of 'earthly paradise' become stronger in every person of middle years who has lost his or her moorings in the larger reality. Frightened people become 'little people,' and 'little people' are like rats, like the Jew in the concentration camps...."
Much of the burnout and associated discontent at Renaissance and Computron resulted from the 1980 campaign—the largest effort in the NCLC's history. In the desperate scramble to meet campaign needs, LaRouche and his closest aides turned to questionable financial practices on a bolder scale than ever before. They began to discuss the targeting of senior citizens for large loans, a practice that would flower during the subsequent 1984 campaign.
They also played fast and loose with federal matching funds in 1980, building on a scheme worked out during LaRouche's 1976 campaign. The law requires that a matching-funds applicant raise a minimum of $5,000 in each of twenty different states in contributions of no more than $250 each. The NCLC tactic in 1976 was to get a member to make a donation in, say, Oregon, often with money provided from one of the NCLC's many corporate shells. The donation would then be recycled by "expensing" it to one of the NCLC's in-house vendors, who would re-donate it in Connecticut in the name of another NCLC member. The donor sometimes was not even an actual resident of the state, but an itinerant volunteer sent in for a few weeks. In the face of such abuses and bogus donations, the Federal Election Commission turned down LaRouche's 1976 application after conducting a thorough field audit. LaRouche's response was to sue the FEC in federal court, charging a conspiracy to violate his civil rights.
In 1980 LaRouche managed to obtain over $500,000 in matching funds. This was partly because he had moved to the right and thus could attract a greater number of legitimate donations than was possible in 1976. It was also because of false reporting of literature sales and FEF donations. According to Anne-Marie Vidal, who worked in the national office during the 1980 campaign: "A contributor would give money to the FEF to promote nuclear power. Unbeknownst to the contributor, the money would be listed as a contribution to LaRouche." The Federal Election Commission audited LaRouche's campaign finances and ruled that he must pay back $112,000. LaRouche claimed political persecution by the commission, and again filed suit in federal court. He eventually paid a reduced assessment of $56,000, plus a $15,000 penalty, and the FEC refrained from recommending criminal prosecution. In 1984 and 1988, the FEC again awarded LaRouche matching funds, making a total of over $1.7 million for all three elections.
What LaRouche had discovered was a virtually prosecution-proof scam. The FEC often sues for the return of money, but it almost never refers cases to the Justice Department for criminal prosecution because of the potentially chilling effect on the electoral process.
Also during the 1980 campaign the LaRouchians carried out several swindles targeting private citizens. The biggest was the alleged looting of Computron, which filed for Chapter 11 and thus forced Wang and other creditors to indirectly help pay for LaRouche's campaign. The LaRouchians also presumably benefited from an imaginative scheme involving an alleged Italian Renaissance painting. A LaRouche financial adviser, Stephen Pepper, who ran an art dealership on the side, persuaded several investors to put up $50,000 to purchase what Pepper claimed was a major work of art, Carlo Maratta's Marriage of the Virgin. Pepper promptly turned the money over to the campaign, leaving the investors to discover that their newly acquired asset was a fake having negligible value. They spent years in litigation chasing their money.
Pepper and several others, including LaRouche himself, cultivated a Wall Street economist, Dr. Michael Hudson, author of several works in economic history. They told him that their New Benjamin Franklin Publishing House would like to republish several important nineteenth-century economists that he had cited in his scholarship. They also asked him for money, offering 20 percent on a three-month loan secured by the publishing house and two top LaRouche aides. Hudson had his lawyer draw up the notes and with some trepidation turned over $75,000. But the only books that were published were by or about LaRouche. The latter met with Hudson two months later and asked him to convert his loan into stock in the publishing company, promising him an administrative post. When Hudson turned the offer down, his NCLC contacts dropped all pretenses of friendliness. They explained that LaRouche had told them he was politically unreliable. Franklin House defaulted on the notes, then sought to stretch out the payment period. Its checks bounced, and when Hudson demanded return of his principal, he was told that the money was needed to pay for LaRouche's bodyguards. If he persisted in asking for his money back, they would have to conclude he was part of the world plot to kill LaRouche. Hudson filed a federal racketeering suit and was promptly attacked by the LaRouchians in an article calling him a KGB agent. It took him four years in court to obtain a judgment against them, only to find there was no practical way to collect. Franklin House had been stripped to a bare shell.
When Hudson's legal efforts were discussed inside the NCLC, LaRouche Security aide Michelle Steinberg said (according to FBI testimony at her 1986 bail hearing): "Piss on him. Fuck him. That's what he gets for lending us money." The victimizing of Hudson was the first well-documented case of fraud in what prosecutors allege was the defrauding of thousands of other lenders. And Hudson, for his part, cured of any illusions about the LaRouchians, became a prosecution witness in criminal proceedings against them.
In addition to overt loan fraud, NCLC corporate shells ran up huge bills with vendors. When the latter came to collect, they were usually offered stretched-out payments. But even these checks bounced. Plaintiffs found that the fronts had few fixed assets. For instance, they typically leased rather than purchased typesetting equipment and other machinery. New York County judgment dockets show that in the late 1970s and early 1980s LaRouchian business and political entities were hit with over a million dollars in judgments and tax liens, most of which have still not been satisfied.
NCLC bookkeeper Richard Welch described the practice of stiffing vendors as the " 'jettison' principle." He recommended it as a way to handle financial shortfalls. The trick was first to build up credit and then jettison the vendor for a new one. Welch suggested this be done with copying machine rental companies, telephone companies, landlords, and suppliers of office equipment, as well as with members' credit cards.
Defectors recall a variation on the jettison principle practiced at NCLC headquarters in New York in the early 1980s. Dozens of members began using a check-cashing business near the West Fifty-eighth Street office. Things went smoothly for a while, but suddenly one week all the checks (which were drawn on a NCLC payroll shell with no assets) bounced, leaving the check-cashing company holding the proverbial empty bag. Shortly thereafter, LaRouche's headquarters moved to Leesburg, Virginia.
Of course, not all vendors can be jettisoned or skipped out on. Sooner or later an organization heavily dependent on telephone fundraising has to pay the phone company. But there are still ways to delay payment and thus in effect get an interest-free "loan." When New York Telephone threatened to turn off the NCLC phones during the 1976 presidential campaign because of nonpayment, the NCLC filed suit, charging political harassment. It claimed the phone company was in cahoots with the FBI and the Rockefellers.
Not many people who receive a turnoff notice think of depicting it as a political plot. But LaRouche seemed to be learning from Third World countries, which use political rhetoric and demonstrations as a tactic to delay paying the interest on their bloated loans from "imperialist" banks. The NCLC suit against New York Telephone probably cost the company more in legal fees than the LaRouchians owed. Again, the principle is well known in the Third World: If American bankers know that IMF austerity will cause guerrilla warfare in country X and result in the United States having to underwrite an expensive counterinsurgency campaign, then they will ease off temporarily while trying to persuade Washington to help country X with its debt payments.
The LaRouchians supplemented their vendor stiffing with check kiting, a tactic that essentially works like this: You write a check to someone in New York drawn on an out-of-state account that has insufficient funds to cover it. Depending on whether or not the recipient of the check deposits it immediately, you have a shorter or longer period before sufficient funds must be present in the account to avoid the check's bouncing. This period corresponds to what the banks term "float." It can be extended several days by letting the check bounce, then asking your creditor to wait before re-depositing while you check your records and/or straighten out a temporary unforeseen cash-flow problem.
Average citizens take advantage of check kiting whenever they write a check prior to depositing the money to cover it. But it does not become really profitable unless a business kites large numbers of checks on out-of-state banks. Companies that have specialized in this—say, by keeping an amount equal to their average kited amount in money market accounts they could not otherwise maintain—have made millions of dollars in profits before being prosecuted and having to pay heavy fines and make restitution.
An attorney who once worked for the LaRouchians says he brought up the question of float and check kiting with the NCLC finance sector in 1974 after having read a banking report on it. This was at a time when, to all appearances, the NCLC was still relatively unsophisticated about money. To his amazement, they not only knew all about float but also described to him how they were kiting checks all over the United States using dozens of accounts. That this was continued and expanded is suggested by records of a 1984 suit by LaRouche's Campaigner Publications against Chemical Bank. In answering pretrial interrogatories, Campaigner furnished lists of hundreds of its checks that bounced over a three-month period that year. Most of the checks were written to individuals and companies in Virginia on a Chemical account in Manhattan. Of course, the LaRouchians blamed their problem on the bank's alleged negligence.
Today's NCLC has grown into a vast cash-in/cash-out business with tens of millions of dollars a year in revenue, most of which is kept in constant circulation. With hundreds of accounts all over the world, disguised under dozens of corporate names or held in the names of individual NCLC members, it has the ability to write checks against insufficient funds. This has the effect of a constantly self-renewed interest-free loan of huge proportions. The LaRouchians are getting interest-free use of the money of everyone around them—money which, with good luck and clever legal maneuvering, they may never have to repay.
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