Suite Scams

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It's difficult to quantify the collective damage from virtual office scams, but the losses from any single hoax can be substantial. Last September executives at CyberNet Group, a Grand Rapids (Mich.) information technology company, pleaded guilty in federal court for their part in a far-flung deception that swindled $120 million out of 47 lenders, including U.S. Bancorp (USB) Equipment Finance, General Electric (GE) Capital, and Bank of America (BAC) Leasing & Capital.

To pull it off, the group created fake vendors, using a series of shell companies. Some of the bogus firms were headquartered in a virtual office managed by Manhattan Business Center at 410 Park Avenue, an address that oozed credibility. The scammers then told lenders they were buying office furniture and other supplies from those fake outfits. But CyberNet pocketed the cash without making any actual purchases. "As much as our services help hundreds of small businesses brand themselves, there will always be crooks who try to misuse the polished facade for their dirty business," says Troels Christensen, president of Manhattan Business Center. The lawyers for all three lenders declined to comment.

Malaysian authorities recently busted an elaborate Internet investment scheme called SwissCash that may have raked in as much as $83 million from investors across Asia and the Caribbean. The promoters of the alleged fraud, who ran 10 different Web sites, promised returns of 25% to 30% a month and purported to manage the world's largest mutual fund. Their official mailing address: a virtual office on the ninth floor of 280 Madison Avenue in Midtown Manhattan. The facility's London-based operator, City Office, which periodically got "irate calls" about the investment operation, terminated the lease last summer after officials at the Securities & Exchange Commission started asking questions about SwissCash. "I said, 'Tell me if you think they are scamming, and I will shut them down,'" says Simeon Howard, an account manager of City Office. U.S. regulators never responded, but City Office closed the SwissCash account anyway.

Over the years, few virtual offices have earned the notoriety of SRI's space on the 22nd floor of 67 Wall, a high-rise that's sometimes called the financial district's Flatiron Building for its unusual triangular shape. In 2004, New York State authorities filed civil fraud charges against ITF Investments, a firm that used the spot as one of its virtual locations for a pyramid scheme that allegedly cheated 130 immigrants out of $3.3 million. Four people at the unregistered investment firm later pleaded guilty to grand larceny in criminal court. SRI's Luber says he terminated ITF's lease in 2002.

Two years ago, British regulators issued an advisory letter warning investors about Gatemoor Securities. The company, which also listed 67 Wall Street as its headquarters, pushed shares in an obscure mining company. British lawmakers cautioned that Gatemoor was an "unauthorized" and unregulated firm. Gatemoor appears to have ceased operations.

More recently, a mysterious investment firm called Maybach American Group, which has an English and German version of its Web site, appeared on the roster of SRI's tenants at 67 Wall Street. Maybach claims to own shares in Acorda Therapeutics (ACOR), a biotech company in Hawthorne, N.Y. Yet a spokeswoman for Acorda says Maybach does not have a stake in the company. In fact, Acorda had never heard of Maybach. Maybach didn't return calls and e-mails for comment.