By A.C. Thompson

NO QUARTER: District Attorney Kamala Harris and prosecuter David
Pfeifer didn't play nice with Stevens. Guardian Photo by Lori Spears.

He uttered the word "guilty" four times, and some 10 minutes later, after a minimum of lawyer-judge banter, was ushered out of the courtroom and into a county jail cell. It was a muted, low-key conclusion to a truly extraordinary crime spree, a vast swindle that conned roughly 150 investors, many of them senior citizens, out of a Mount Tam-size pile of cash: $7,367,753.

In a lot of ways the story of Stevens and the missing millions is emblematic of a new wave of financial sector scammery. Over the past four years con artists like Stevens have taken advantage of a lax federal regulatory environment to make off with more than $100 million.

Here's how they do it.

• • •

Before he was a county jail inmate, Stevens was an arbitrageur, a speculator who played the financial markets on a moment-to-moment basis, seeking to profit from microscopic fluctuations in prices. His market of choice was the spot foreign currency market. Put simply, Stevens snapped up huge amounts of currency – dollars, euros, yen, British pounds, etc. – hoping to buy low and sell high.

But Stevens didn't just gamble with his own money; he ran a company called DBS Capital that solicited individual investors, took their money, pooled it, and used it to play the foreign currency markets in a major way. From a pair of offices on Post Street near Japantown, DBS Capital pulled in investors from around the country.

The currency markets are the Wild West of the financial world. While all sales of stocks and bonds are regulated by the federal Securities and Exchange Commission, the federal government has been slow to police the currency markets, and at this point, the markets are governed by a hole-ridden patchwork of rules. In fact, a recent decision by the 7th U.S. Circuit Court of Appeals explicitly limits the jurisdiction of the feds, making it more difficult to go after fraudsters.

It's a scenario that practically invites schemers, hucksters, and con artists.

Since December 2000, the U.S. Commodity Futures Trading Commission (CFTC), which has authority over some types of currency transactions, has broken up dozens of rip-off rings, bringing fraud cases against 145 individuals, according to spokesperson Dennis Holden. The agency says those scammers are responsible for heisting more than $100 million from some 20,000 people.

For investors – few of whom are cognizant of this ongoing crime wave – the appeal of foreign currency is easy to understand. The profits can be massive, far larger than those of the stock market, particularly a few years back when the Dow and Nasdaq were tanking.

And DBS Capital was tremendously successful at convincing average folks to sink their savings into foreign currency. According to a 28-page case summary compiled by William Accornero, a detective with the San Francisco District Attorney's Office, investors handed Stevens and company $14.8 million between 1997 and March 2003.

Some people, the case summary indicates, made six-figure investments – one couple sunk $250,000; another, $228,000. Others we spoke to poured in tens of thousands of dollars.

Stevens did everything he could to keep his customers comfortable, including e-mailing them daily account statements detailing how he'd invested their money and how much they'd earned or lost. Most of the time, investors say, the daily updates showed a sweet profit.

There was just one little problem: the statements were bogus. Truth be told, Stevens, who did most of the trading for DBS, was a disaster as an arbitrageur, exhibiting a marked propensity for betting the wrong way and losing heaps of money. When Stevens or other DBS traders screwed up, Stevens concealed the losses.

As of March 2003, the DBS books showed the firm well in the black, with a hefty $11.3 million of cash on hand; in reality Stevens had burned through all of his investors' money and was broke. DBS shut its doors March 21, 2003.

When prosecutors started looking into the sudden demise of DBS, they seized the firm's files – about 25 boxes' worth – and computers and discovered DBS's true trading records, which showed a persistent pattern of losses. In an interview with Accornero, Stevens came clean about his book-broiling ways. Stevens "told me that from the time he started DBS in 1997 through January 2003, some of the trades that he booked, or caused to be booked, were false and never in fact occurred," the case summary notes. "Stevens told me that he falsified trading activity to satisfy some investors who were complaining about the lack of trading activity" and to inflate the bottom line.

Poring over bank statements, Accornero and his fellow investigators learned that Stevens had paid out approximately $8 million in "dividends" to investors over the years, even though the firm didn't make any money playing the currency markets.

The pseudo-dividends were great advertising, ensuring that investors would tell their friends, family members, and neighbors about the wonders of DBS. Essentially DBS was a modern mutation of the classic Ponzi, or pyramid, scheme.

Of the $14.8 million he took in, Stevens only actually invested a small sliver, $1.8 million. Meanwhile he siphoned off $3 million for himself and his cronies, an undetermined portion of which went to settle Stevens's gambling debts with the Peppermill Hotel and Casino in Reno, Nev. Two million dollars in investor funds couldn't be traced.

"This is the first time we've seen a foreign currency scam of this size and caliber," says David Pfeifer, the assistant district attorney handling the case with prosecutor Robert Ring. "It's a first for us."

For District Attorney Kamala Harris, the take-away here is simple: "Investors need to be vigilant."

• • •

As you read this, Stevens is living in B Pod, a fishbowl-like enclosure in County Jail No. 8, awaiting sentencing on four felony charges: grand theft, fraud, and two counts of false bookkeeping. He's agreed to do eight years in the state pen and pay $7.3 million in restitution to his victims. In all likelihood, though, the people he ripped off will never get a dime.

From court documents, it's clear the feds are pursuing their own probe, though CFTC spokesperson Holden says, "We don't confirm or deny any kind of investigation that might be underway."

When we visited Stevens last week, the 40-year-old looked nervous and half despondent and did not agree to be interviewed. He's never been busted for anything before, and the lockup is obviously not his natural environment.

His lawyer, Pam Davis, did not return our phone calls seeking comment for this story.

We did talk with several of his victims, people like Edelgard Schweitzer, 70, a travel agent in Riverside who has a personal connection to Stevens. "I saw Douglas grow up. Douglas's father was a very dear friend of ours," she says. "This was a family affair for us."

Nonetheless, Stevens took her for $2,000 and scammed several of her friends, including one elderly couple who poured their entire IRA account into DBS. "The sad thing is that it just underlines that you don't trust anyone anymore, not friends, not family."

In Scottsdale, Ariz., another victim, who did not want to be identified, lost $40,000. "He should just rot in jail forever," says the victim, who runs a small nursing home.

Then there's Paula Collopy and Don Collopy in Danville, a pair of working folks who flushed $25,000 in retirement money. Don is a retired union business agent; Paula still works a little, putting in 10 hours a week with the school district.

They found out about DBS from a friend. "We were put onto DBS Capital by a very reliable source. DBS came highly recommended," Paula explains. "Stevens was supposed to be this very intelligent man who knew foreign markets and foreign exchange. He looked great on paper and so did his company."

Then the illusion crumbled. As Paula puts it, "It was like we took $25,000 and put a match to it."

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