Arson and fraud mix in a deadly combo

Fraud is a non-violent offense, right? Most times. But this is the story of how fraudulent economic arson in a small suburban neighborhood in Indianapolis, Indiana, turned deadly. Community members are reassembling their lives. Here are lessons from the investigation for discovering evidence on arson-for-profit cases.

One witness described the events of Saturday, Nov. 10, 2012, at 11:10 p.m. as “chaos” when a huge explosion rocked the neighborhood of Richmond Hill on the south side of Indianapolis, Indiana. Another witness thought it was an earthquake. She ran out of her partially destroyed home and saw her community on fire. A third witness wondered if it was the end of the world. (See Resident feared ‘mass shooter in neighborhood’ on night of Richmond Hill blast, by Matt Adams, Fox 59, June 11, 2015.)

An earthquake monitoring system approximately 50 miles away from ground zero of the blast likely detected sound wave data in the form of an “airwave boom.” (See the IndyStar’s Richmond Hill timeline.)

In the moments after the blast, first responders arrived to a scene of annihilation. Debris littered the streets and neighborhood yards, homes were destroyed, fires raged and families were displaced. Many were shell-shocked at what could’ve caused such destruction. Firefighters and emergency medical personnel quickly secured the scene. The No. 1 priority was attending to the injured victims and getting them the medical attention needed.

Police confirmed that John “Dion” Longworth and his wife, Jennifer, a second-grade elementary school teacher, had died from the blast.

Engineering crews spent the next several days surveying the structural integrity of homes and buildings within a two-block radius of the explosion. At least 32 homes were deemed unsafe; 10 of which sustained major damage. Total property damage estimates were more than $4 million. (See Damage estimate from house explosion climbs to $4.4 million, by Amanda Rakes, Fox 59, Nov. 16, 2012.)

The events of that evening would play out like a made-for-TV crime drama in the next several years.

Searching for answers

Investigators began to ask, “How did this happen?” For many, the predominate theory followed “Occam’s razor” problem-solving principle: The simplest answer is usually correct. It was logical to conclude that a natural gas explosion caused the destruction.

Investigators from the Indianapolis Metropolitan Police Department; the Indianapolis Fire Department; and the Bureau of Alcohol, Tobacco, Firearms, and Explosives began the tedious process of combing through the debris and gathering information.

The epicenter of the blast was a house located at 8349 Fieldfare Way, which was owned by Monserrate Shirley. According to the probable cause affidavit, investigators determined that a natural gas explosion probably was the cause of the home’s destruction. The igniting gas created a rapid expansion of pressure against the interior walls. The explosion led to intense fires that spread to surrounding homes, which killed Shirley’s next-door neighbors.

The probable cause affidavit further details that Shirley and her young daughter weren’t home at the time of the explosion. Investigators determined that Shirley went to an Indiana casino for the weekend with her boyfriend Mark Leonard and left her daughter in the care of a family friend. Shirley’s cat, Snowball, also wasn’t home at the time of the explosion — a telltale red flag.

Arson: priming the hydrant

The FBI’s Uniform Crime Reporting Program defines arson as “any willful or malicious burning or attempting to burn, with or without intent to defraud, a dwelling house, public building, motor vehicle or aircraft, personal property of another, etc.”

According to the National Fire Protection Association, arsonists intentionally set approximately 20,000 fires in 2016, which resulted in 310 deaths. Arson is a highly dangerous crime that causes high-dollar property losses and often death.

CFEs might be best positioned to assist arson investigators in proving the motivation aspect of an economic arson.

According to the U.S. Fire Administration, arson investigators must be able to identify, assess and analyze the necessary evidence to prove intent. Arsonists have many motives: thrill/excitement, act of intimidation/hate, vandalism and economic gain, among others. (See National Arson Awareness Week.)

Arson investigators develop a theory of motivation early in a case. Their theories will lay the framework and road map of the investigation. If they determine economic factors might have been a motivating factor, the investigation could benefit from the specialized knowledge of a CFE. (See the sidebar Cue Certified Fraud Examiners.)

Fanning the flames of economic arson

Economic arson is synonymously referred to as arson-for-profit. According to the U.S. Department of Justice’s (DOJ) 1980 “Enforcement Manual: Approaches for Combating Arson-for-Profit Schemes,” during a case in which investigators have determined that an arsonist perpetrated a crime with an economic motive, the investigators must determine if the perpetrator had the opportunity to set the fire and rationalization for doing so. (See DOJ manual, by Clifford L. Karchmer, Marilyn E. Walsh and James Greenfield.)

Like fraud examiners applying the Fraud Triangle (motivation, opportunity, rationalization), fire investigators use a similar approach when investigating economic arson probably because arsonists are white-collar criminals at the core. CFEs might be best positioned to assist arson investigators in proving the motivation aspect of an economic arson.

The DOJ manual outlines three motives for arson-for-profit: financial stress as the primary cause, a purely fraudulent scheme as the primary motivator and arson generated by third parties. Let’s look at each of these individually.

Financial stress as the primary cause

Those who commit arson-for-profit might feel the same perceived pressure as embezzlers to commit occupational fraud because of drug addiction, gambling, financial difficulties or simply to “keep up with the Joneses.” These arsonists might use this perceived pressure as a way to rectify their circumstances.

For example, consider a small business owner who operates a seasonal snow removal company that plows streets, driveways and sidewalks. The previous winter was mild, so the owner is financially stressed because of decreased sales, profitability and cash flow. The owner can’t pay basic operating expenses so he considers torching his warehouse to collect insurance proceeds.

Or ponder the case of a waterbed store owner who’s losing money because of changing market forces and thinking of setting his business on fire — not to make a huge profit but to exit a failing business model. (Of course, it might be difficult to burn a showroom full of waterbeds.)

Purely fraudulent scheme as the primary motivator

Pure profit can motivate some arsonists. They concoct schemes to defraud insurance companies, financial institutions and other creditors. These types of arson-for-profit schemers are truly intent on making money from the start.

The Insurance Fraud Casebook: Paying a Premium for Crime, edited by Laura Hymes, CFE, and ACFE founder and Chairman, Dr. Joseph T. Wells, CFE, CPA, provides numerous case studies and lessons about insurance fraud schemes. One case study, Extinguishing an Arson Fraud by Barry Zalma, CFE, (excerpted and adapted in the November/December 2013 issue of Fraud Magazine) provides a tale of arson-for-profit committed for purely nefarious reasons.

In another example of pure arson-for-profit motivation, a fraudster creates a shell company disguised as a retail store that sells merchandise. As part of the scheme, the fraudster purchases inventory, overstates its value by creating doctored business records (such as purchase orders, bills of sale and invoices) takes out an insurance policy, torches the storage room containing the overinflated inventory and collects the insurance money.

In yet another example, from the 1980 DOJ manual, a slumlord rents out dilapidated houses in the urban core of a city. Most of these rented houses are probably already in disrepair, but he doesn’t seem to care. It’s a quick and easy payoff for him. He’s already recouped his initial investments by price gouging and fully recognizing depreciation on the business assets, so he doesn’t need the properties anymore. Of course, his insurance policy on the houses well exceeds any liabilities. The slumlord ignites the houses. He doesn’t intend to rebuild.

Arson generated by third parties

Third-party outsiders, who at first might not appear to have vested interests, can initiate arson-for-profit.

For example, a business owner facing stiff competition might decide to set fire to his competitor’s assets and/or property, which could quickly steer business to him.

A third party could commit economic arson to hide or conceal another crime. An example would be the last part of the 1999 cult classic movie “Office Space.” Milton, the disgruntled employee, walks into the boss’s office to reclaim his “red Swingline stapler” but instead finds a series of anonymous checks left by the protagonist, Peter, another office employee, who has embezzled money from the company but intends to confess his crimes. Milton steals the checks and torches the office building, which destroys all evidence. The final scene shows Milton on a tropical beach enjoying the fruits of his crime.

Snowball begins to extinguish the flames of deceit

Now back to our opening case. Investigators began digging deeper into the circumstances surrounding the boarding of Shirley’s cat, Snowball. According to the probable cause affidavit, they learned that for three weekends in a row leading up to the explosion Shirley had taken the cat to three different boarding kennels to stay and be groomed. Investigators concluded this seemed to be highly unusual, so they pressed Shirley. She said “she never leaves her cat alone because he gets nervous and vomits on the carpet so she always boards him,” according to the affidavit.

She told investigators that she normally used the same pet boarding kennel for Snowball. Business records at that kennel dating back to 2004 didn’t show any stays by Snowball until the weekend of the explosion. Records at the other two boarding kennels didn’t show any other Snowball stays before the weekends leading up to the explosion.

Investigators then turned their attention to determining where Shirley’s young daughter was staying at the time of the explosion. Shirley’s babysitter said that she’d kept Shirley’s daughter many times in the previous six months, but up until the three weekends before the explosion, she usually babysat at Shirley’s residence. After that, Shirley’s daughter would stay at the babysitter’s house.

Investigators asked neighbors if they noticed any suspicious activity the day of the explosion. One neighbor observed closed window blinds at Shirley’s house. They said that this was unusual because the blinds were always open.

All this information confirmed to investigators that they were on the right track.

Strapped for cash

Investigators learned during interviews that Shirley and her boyfriend, Mark Leonard, had been experiencing financial difficulties. To corroborate these statements, investigators needed to identify, analyze and conclude if documentary financial evidence could support this testimony.

Per the probable cause affidavit, the financial investigation revealed that in 2012 Shirley filed Chapter 13 bankruptcy. Chapter 13 applies to individuals who have too much income to qualify for complete liquidation under Chapter 7, so the courts devise payment plans to creditors. Subsequently, Shirley had missed payments on her payback plan and then tried to convert the Chapter 13 to a Chapter 7. Unfortunately, she failed to file the paperwork in time and missed the hearing date in July 2012 — approximately four months before the explosion.

Arson-for-profit fraud can cost insurance companies millions, but — more seriously — lives can be altered and lost.

I checked Zillow (an online real estate database company) to gauge what the market value of the home was in November 2011 about the time of the explosion. Zillow placed the market estimate at $165,000 as a ballpark figure. This shows that Shirley was $61,000 upside down on the property — total debt $226,000 minus the Zillow market value of $165,000. In other words, she owed $61,000 more than the property was worth. The investigators also discovered that she had $63,000 in unsecured credit card debt. These facts gave more credibility that Shirley’s financial stress was at least one motivator for arson-for-profit.

Piecing it all together

Investigators discovered that Mark Leonard had been engaged in numerous frauds and scams dating back to the mid-1990s. He’d conspired with others, including his brother, Bob Leonard, to commit various types of insurance fraud. One scheme was to purposely deploy airbags in vehicles, file claims with insurance companies, collect the proceeds and not replace the airbags.

In another fraud instance, the Leonard brothers swindled someone out of their truck, placed it in another co-conspirator’s name and bought an insurance policy on the truck. They then staged the theft of the truck, which was found a few days later burned to a crisp. They collected the insurance money.

A neighbor of Shirley’s told detectives they observed Mark Leonard’s white Ford cargo van pulling into Shirley’s driveway around 2 p.m. on the day of the explosion. They said they saw two men exit the van, walk up to the front door, knock loudly and then enter the house. A few minutes later, the neighbor saw the two men exit the house, quickly enter the van and speed away. The witness was certain Mark Leonard wasn’t one of the two men, but one of them fit the description of Bob Leonard, Mark Leonard’s brother.

The grip was tightening.

Sense of closure

Approximately one month after the explosion, numerous criminal counts of arson, insurance fraud, conspiracy and murder were filed against Monserrate Shirley, Mark Leonard and Bob Leonard, according to the Marion County Indiana prosecutor.

Two others, Gary Thompson and Glenn Hults, eventually would be charged in connection with the explosion. Thompson was identified as the other individual who entered the residence and sped away in the white van hours before the explosion. He pleaded guilty to conspiracy to commit arson resulting in serious bodily injury. (See Plea deal for 1 of 5 charged in Indiana house blast, WISH TV, Associated Press, Aug. 9, 2016.)

Hults was an acquaintance of the others charged and pleaded guilty to assisting a criminal. (See Last of 5 convicted in fatal house explosion sentenced to 3 years, WISH TV, Staff Reports, Dec. 28, 2016.)

Ultimately, all of them would be convicted either by plea agreement or guilty verdict at trial. Here are the sentences:

• Monserrate Shirley: pleaded guilty and received a maximum sentence of 50 years.
• Mark Leonard: convicted on all counts and sentenced to life without parole.
• Bob Leonard: convicted on all counts and sentenced to life without parole.
• Gary Thompson: pleaded guilty and sentenced to 30 years.
• Glenn Hults: pleaded guilty and sentenced to three years.

The Richmond Hill neighbors continue to piece their lives back together. The school district at which Jennifer Longworth worked as a second-grade teacher established a scholarship fund in remembrance of her and her husband, Dion.

Arson-for-profit and fraud examination techniques coincide

The Richmond Hill case shows that it’s possible and advantageous for investigators to search for fraud evidence to be used in arson-for-profit prosecutions.

Arson-for-profit fraud can cost insurance companies millions, but — more seriously — lives can be altered and lost.

If you find yourself working on an arson case, many of the fraud examination principles you’ve used on fraud cases can apply and yield valuable evidence discovery.

L. Christopher Knight, CFE, CPA, is a forensic accountant in Indianapolis, Indiana, and an adjunct faculty member at Indiana University’s Kelley School of Business in Bloomington and Indiana University-East in Richmond. The views expressed in this article are his own. His email address is: lchristopherknight@yahoo.com.

Cue Certified Fraud Examiners

If an arson investigator determines that preliminary evidence on a case points to arson-for-profit as a motivator it could be beneficial to engage a CFE as part of the investigative team.

A CFE has specialized knowledge and skills to take ownership and lead the examination of financial documents. The Coalition Against Insurance Fraud provides a list of questions that CFEs could be best equipped to answer. (See the U.S. Fire Administration’s Arson for Profit.)

These questions include:

• Is the property overinsured?
• Is the insured under economic duress or will they gain some economic advantage from the fire?
• Do the insured have large, outstanding utility or property tax bills?
• Is the face value of the policy greater than the market value of the property?

CFEs could perform net worth analyses of potential subjects of arson-for-profit to possibly establish motives for those that might be facing economic duress. CFEs could quickly identify necessary evidentiary documents (account records, paystubs, credit reports, etc.) to perform analyses.