Northern District of Illinois

CHICAGO — The co-founder and president of a defunct mortgage escrow company was indicted on federal fraud charges for allegedly misappropriating more than $500,000 of customer funds for his own personal use, as well as to pay operating expenses of two other businesses. The defendant, DEREK LURIE, who controlled American Escrow LLC until it collapsed in March 2009, was charged with five counts of mail fraud in an indictment returned by a federal grand jury yesterday and announced today. Lurie also allegedly engaged in a Ponzi-type scheme in which American Escrow made the property tax and insurance payments for some customers ahead of other customers.

Separately, a former American Escrow employee, JACQUELINE CRUZ, was indicted earlier this month for allegedly fraudulently obtaining more than $400,000 from the company.

Lurie, 40, of Highland Park, was ordered to appear for arraignment on March 11 in U.S. District Court. Cruz, 38, formerly of Highland Park and currently residing in Okinawa, Japan, pleaded not guilty on Feb. 19 to three counts of mail fraud, following her indictment on Feb. 5.

According to the Lurie indictment, American Escrow ― which had offices on West Randolph and North May streets in Chicago ― fraudulently obtained and managed more than $5 million of customer escrow funds, and purported that it would hold the money in secured FDICinsured accounts to make timely tax and insurance payments for customers. Instead, between 2003 and March 2009, Lurie used approximately $554,000 for such personal expenses as parking tickets, car payments, and renovating a condominium in Miami, as well as to operate his other business interests, American Tax Reporting, Inc., and Woodland Technologies, Inc., the charges allege.

Lurie allegedly knew that all of the customers’ escrow funds were not FDIC-insured, that American Escrow was operating at a deficit, and that the funds were being used for unauthorized purposes. As a result of the deficit, Lurie made Ponzi-type payments to satisfy earlier customers’ tax and insurance debts with more recent customers’ escrow funds, and concealed the scheme from his customers, the indictment alleges.

Cruz, whose duties included accounting, issuing company checks, and overseeing the payment of customers’ property taxes and private mortgage insurance, allegedly misappropriated approximately $412,000 from American Escrow. Between May 2005 and March 2009, she wrote 122 company checks to herself, knowing that they were unauthorized and she was not entitled to the funds, according to her indictment. It alleges that she either forged Lurie’s signature or signed the check herself.

Both indictments seek forfeiture of the alleged fraud proceeds: $554,000 against Lurie and $412,000 against Cruz.

In both cases, each count of mail fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The indictments were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorney Jessica Romero.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Lurie Indictment

Cruz Indictment

CHICAGO — A Chicago pharmacist was sentenced to seven years in federal prison after being convicted at trial of collecting more than $1.7 million through false claims he submitted to insurance companies for a drug that he never dispensed and stealing the identities of unsuspecting pharmacy customers to make that money, which he used to finance a lavish lifestyle. The defendant, RONALD KIELAR, also created fake documents to make his false insurance claims appear legitimate.

Kielar, 76, of Mundelein, was a pharmacist at the former Cartagena Pharmacy, located in the 1500 block of West Devon Avenue, which was owned by his ex-wife. He was sentenced to five years in prison on six counts of health care fraud and one count of obstruction of justice, and received a mandatory consecutive sentence of two years on three counts of aggravated identity theft. Kielar, who was convicted on all 10 counts he was charged with at a trial last fall, was ordered to begin serving the 84-month sentence on June 10.

U.S. District Judge Robert M. Dow, Jr., who imposed the sentence on Friday, also ordered Kielar to pay more than $1.725 million in restitution and to forfeit nearly $78,000 in proceeds from the sale of property he owned in Florida.

According to court documents, Kielar used patients’ insurance information, including their names and dates of birth, to bill for the drug Procrit, which stimulates the production of red blood cells. These patients, however, were never prescribed Procrit, Kielar never provided them with the medication, and the patients never authorized the use of their insurance information to submit claims for payment. After he was indicted, Kielar forged prescriptions, patient receipts, and false invoices to make the insurance claims look legitimate. Between November 2004 and August 2010, Kielar submitted 603 false claims and received more than $1.7 million from Blue Cross and Blue Shield of Illinois and the United Food and Commercial Workers Unions and Employers Midwest Health Benefit Fund.

“Each time [Kielar] hit the submit button on the pharmacy’s computer for a Procrit claim, he made a calculated choice: to lie to the victim insurance company who received, processed, and paid on the claim,” Assistant U.S. Attorney Heather McShain wrote in a sentencing memo. Kielar also betrayed a physician who had been his friend for 40 years and whose name and DEA registration number Kielar used without permission, as well as unsuspecting patients whose personal information he used.

Evidence showed that Kielar used proceeds from the fraud scheme to pay salaries to himself and his ex-wife, and then used those funds to pay mortgages on his home in Illinois, as well as properties in Florida and Arizona.

The sentence was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; James Vanderberg, Special Agent-in-Charge of the U.S. Department of Labor Office of Inspector General in Chicago; and John Redmond, Special Agent-in-Charge of the Chicago Office of the U.S. Food and Drug Administration Office of Criminal Investigations.

The government was represented by Assistant U.S. Attorneys Heather McShain and Steven J. Dollear.

ROCKFORD — A former Sycamore, Ill. resident was indicted today by a federal grand jury in Rockford for allegedly transporting and possessing child pornography. MICHAEL PODOLSKY, 26, now of Elkader, Iowa, was charged with two counts of transporting child pornography via the internet, and one count of possessing child pornography that had crossed state lines.

Transporting child pornography carries a mandatory minimum sentence of five years and a maximum of 20 years in prison, while possessing child pornography carries a maximum of 10 years in prison. If convicted, the actual sentence will be determined by a United States District Court Judge, guided by the United States Sentencing Guidelines.

The indictment was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation; and Donald M. Thomas, Chief of the Sycamore Police Department. The government is represented by Assistant United States Attorney Michael D. Love.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

ROCKFORD — A former Rockford physician was indicted today by a federal grand jury in Rockford on two counts of making false statements in a bankruptcy case and three counts of mail fraud. The indictment alleges that LYNN Y. ZOIOPOULOS (also known as Lynn Shelton-Zoiopoulos, Lynn Y. Shelton, Lynn Yenko, Lynn Yenko Zoiopoulos, Lynn Yenko Shelton-Zoiopoulos, and Lynn Zoiopoulos), 58, now of Chicago, Ill., filed a Chapter 7 Bankruptcy Petition on August 11, 2009. As alleged in the indictment, Zoiopoulos failed to disclose that she had an interest in the estate of her deceased grandmother, and that she fraudulently concealed property from the bankruptcy trustee, creditors, and the United States Trustee. The indictment further alleges that Zoiopoulos made false statements on a bankruptcy schedule and a Statement of Financial Affairs, both of which were filed under penalty of perjury.

According to the indictment, Zoiopoulos was Executor of her deceased grandmother’s estate, in which she and her sister were beneficiaries. It is alleged Zoiopoulos devised a scheme to defraud the estate and her sister, by misappropriating hundreds of thousands of dollars of assets of the estate for her own personal use and benefit. It is further alleged that Zoiopoulos concealed her embezzlement of estate assets by not filing the required inventory, accounting, tax returns, and status reports for the estate, and falsely asserted to the Trustee of her bankruptcy case that the remainder of the estate’s assets were earmarked for her sister. It is also alleged that in carrying out the scheme, Zoiopoulos caused checks representing assets of the estate to be sent to her using the United States mail.

Each charge of mail fraud carries a maximum penalty of up to 20 years in prison, and each count of providing material false statements or documents under penalty of perjury in a bankruptcy case carries a maximum penalty of 5 years in prison. Each count also carries a fine of up to $250,000, or twice the gross gain or gross loss resulting from that offense, whichever is greater. The judge may also impose a sentence of probation of one to five years, and a term of supervised release of up to three years. If convicted, the Court must impose a reasonable sentence under the advisory United States Sentencing Guidelines.

Members of the public are reminded that a criminal indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt of the defendant beyond a reasonable doubt.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation.

The government is represented by Assistant U.S. Attorney Michael D. Love.

Indictment

CHICAGO — A Chicago woman was sentenced today to more than 13 years in federal prison for swindling at least 1,000 elderly victims of cash and credit cards, causing a loss of at least $800,000, over a period of five years. The defendant, TIFFANY HALL, was the mastermind of a scheme that targeted elderly victims, often widowed and living alone, and bilked some of them of their retirement and life savings.

Hall, 30, of Chicago, was sentenced to 159 months in prison and was ordered to pay $328,353 in restitution to more than 70 known, identified victims, by U.S. District Judge Amy J. St. Eve. Hall pleaded guilty to wire fraud and aggravated identity theft in January 2013, and has been in federal custody since she was arrested in early 2011.

Between 2006 and 2011, Hall, whose conduct was described as “ruthless” by Assistant U.S. Attorney Jennie Levin, spent nearly every day contacting victims and obtained cash and/or credit cards. Between 2009 and 2011 alone, Hall stole approximately $300,000 to $400,000 in cash from victims, and she used the stolen money to gamble and to purchase cars, designer bags and shoes, televisions, gift cards, clothes, consumer electronics, and other items. She also used the money to pay bills and expenses for herself and her husband, Lawrence Hall, 33, who was sentenced on Jan. 29 to 10 years in prison for his participation in the fraud scheme.

In pleading guilty, Hall admitted that, in 2006, she began calling victims and falsely telling them that she was a fraud investigator, either with the State of Illinois or a specific bank. She told the victims that their credit cards had been stolen or there was unusual activity on their accounts. After she gained the victims’ trust, she coaxed them to provide her with their credit or debit card numbers and personal identifying information, which she then used to purchase merchandise online and pay expenses for herself and her husband.

Beginning in 2007, Hall began meeting victims in person, asking them to provide her with their actual credit cards. In 2009, Lawrence Hall began recruiting runners to pick up victims’ cards and the Halls paid them in cash or allowed them to use the cards to purchase merchandise for themselves. About the same time, the Halls and their runners also started fleecing victims of their cash in addition to credit and debit cards.

Two other co-defendants were indicted with the Halls. Shana Banks, 30, of Chicago, pleaded guilty and is awaiting sentencing next month. Creassi Harris, 23, of Chicago, has pleaded not guilty and the charges are pending.

The sentence was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Chicago Police Superintendent Garry McCarthy.

ROCKFORD — Two former employees of Milledgeville Community Credit Union, have pleaded guilty in separate federal cases to embezzling money from Milledgeville Community Credit Union, in Milledgeville, Ill. KIMBERLY KENT, 53, who was also a former Treasurer of Wysox Township, pleaded guilty in federal court today, and KELSEY SELMAN, 37, pleaded guilty on Jan. 28, 2014.

According to Kent’s written plea agreement, from October 2005 through February 2012, Kent embezzled approximately $219,600 from Milledgeville Community Credit Union, where she was the manager and responsible for supervising other employees. Kent was also responsible for her own cash drawer and for handling various transactions on accounts, including the deposit and withdrawal of funds to and from customers’ accounts. As stated in the plea agreement, to conceal her embezzlement, Kent created fictitious loans using the names of family members and fictitious certificates of deposit. In 2009, Kent was elected treasurer of Wysox Township. Kent admitted that in August 2010, in her capacity as treasurer of Wysox Township, she used funds from Wysox Township’s account at Milledgeville Community Credit Union to cover her embezzlement. Kent used the money she embezzled for personal purposes. The deposits of the credit union were insured by the National Credit Union Administration Board.

In Selman’s written plea agreement, Selman admitted that from 2007 through February 2012, she embezzled approximately $100,975.74 from Milledgeville Community Credit Union. Selman worked as a teller for the credit union handling deposits and withdrawals on accounts, including her own credit union account. According to the plea agreement, Selman repeatedly took money over that period of time, using the credit union’s computer system to apply credits to her personal account that did not have a corresponding deposit. As a result, the credit union’s records falsely reflected that Selman’s cash drawer increased by an amount to offset the deposit into her account. After she credited the money into her account, Selman used the money she embezzled for personal purposes.

Kent and Selman each face a maximum sentence of 30 years’ imprisonment, a term of supervised release of up to 5 years following imprisonment, and a fine of up to $1 million. Each defendant has repaid Milledgeville Community Credit Union for the full amount of the loss. Sentencing for Kent is set for June 2, 2014, at 2:30 p.m. Sentencing for Selman is set for May 7, 2014, at 2:30 p.m.

The guilty pleas were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation.

The government is represented by Assistant U.S. Attorney Scott R. Paccagnini.

Kent Plea Agreement

Selman Plea Agreement

CHICAGO — A Tinley Park man who escaped from the Metropolitan Correctional Center in the city’s Loop in December 2012 while he was awaiting sentencing for bank robbery, today was sentenced to 41 months in prison for the escape, which he was ordered to serve consecutively to the 20-year sentence he received last year for the bank robbery. The defendant, KENNETH CONLEY, 39, remained at large for approximately two weeks after the escape before he was apprehended in south suburban Palos Hills.

Noting Conley’s extensive criminal history, U.S. District Judge Gary Feinerman called him “incorrigible,” and said Conley “needs to be incapacitated for a lengthy time to protect the public.” The judge ordered the 41-month term to be served consecutively to the maximum 20- years sentence Conley received from a different judge for the bank robbery. Conley faced a maximum sentence of five years in prison for the escape.

Conley was also ordered to pay $1,324 in restitution to the U.S. Bureau of Prisons for damage to the MCC. Conley and another convicted bank robber, Joseph Banks, escaped through the wall of their cell and repelled down the exterior of the high-rise federal detention facility. Banks was apprehended a few days later and is still awaiting sentencing for his earlier trial conviction on four counts of bank robbery.

The sentence was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and U.S. Marshal Darryl McPherson.

CHICAGO — A southwest suburban physician was arrested yesterday on federal charges for allegedly conspiring to illegally dispense a prescription medication and health care fraud, federal law enforcement officials announced today. The defendant, SATHISH NARAYANAPPA BABU, the owner of Anik Life Sciences Medical Corp., allegedly conspired to illegally dispense oxycodone and fraudulently billed Medicare for services he purportedly provided.

Federal agents with the Drug Enforcement Administration, the U.S. Department of Health and Human Services Office of Inspector General, and the FBI yesterday executed federal search and seizure warrants at Bubu’s residence in Bolingbrook and Anik’s offices in Darien in connection with the ongoing investigation of alleged prescription drug diversion and health care fraud. Agents seized more than $100,000 from Anik’s bank accounts. Anik Life Sciences was located in Arlington Heights before relocating to Darien last fall.

Babu, 47, was charged with one count each of conspiracy to illegally dispense a controlled substance and health care fraud in a criminal complaint. He was released on a $100,000 unsecured bond and prohibited from writing any prescriptions or submitting any claims to Medicare by U.S. Magistrate Judge Sheila Finnegan. Babu was ordered to return for a status hearing at 9:15 a.m. next Tuesday in U.S. District Court.

According to the complaint, between November 2012 and December 2013, Babu issued five prescriptions, each for 60 doses of 80mg strength OxyContin, to a patient who was actually an undercover agent, despite never having seen or examined the patient, and Babu permitted unlicensed personnel associated with Anik Life Sciences to issue prescriptions to the patient. During the same period, Babu allegedly submitted false claims to Medicare for services purportedly provided to the patient that were not rendered by Babu or another medical professional licensed in Illinois.

The undercover agent posed as a healthy individual purportedly covered by Medicare and seeking physician services to obtain prescription medication, including oxycodone. The agent further purported to have shoulder pain from a previous injury and to be on disability. On approximately 10 occasions, representatives from Anik Life Sciences, none of whom were licensed as physicians, nurses, or other medical professionals in Illinois, visited the undercover agent in his purported apartment.

Babu allegedly caused unlicensed personnel from Anik Life Sciences to provide purported medical care ― including prescriptions issued under Babu’s name and DEA registration number for controlled substances ― to the undercover agent and then billed Medicare for that purported care. Furthermore, the approximately 300 OxyContin pills that Babu allegedly prescribed to the undercover agent were paid for in large part by Medicare.

The arrest and charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Jack Riley, Special Agent-in-Charge of the Chicago Field Division of the Drug Enforcement Administration; Lamont Pugh III, Special Agent-in-Charge of the Chicago Regional Office of the HHS-OIG; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorney Sarah Streicker.

Conspiracy to illegally dispense oxycodone carries a maximum penalty of 20 years in prison and a $1 million fine, and health care fraud carries a maximum penalty of 10 years in prison and a $250,000 fine, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The public is reminded that a complaint is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Complaint

CHICAGO — An Ottawa, Ill., man was sentenced yesterday to 7½ years in federal prison for amassing a large collection of child pornography over more than four years. The defendant, JAY ARTHUR WIDEMANN, 57, of Ottawa, pleaded guilty last October to receiving child pornography, admitting that he had collected more than 10,500 illicit images and videos.

Widemann formerly owned an appliance store in Ottawa and there were no allegations or indications of any sexual contact with minors.

Widemann was also ordered to pay $70,000 in restitution ― $10,000 to each of seven identified victims ― and he was placed on supervised release for five years following his prison term by U.S. District Chief Judge Ruben Castillo. Widemann was ordered to surrender on April 2 and must serve at least 85 percent of his sentence before he is eligible for release. There is no parole in the federal prison system.

In imposing the sentence, Judge Castillo said it sends a message that such collections of child pornography must be stopped.

According to court documents, Widemann was charged after the Ottawa Police Department received information from the Dutch National Police in Holland that a computer in Ottawa had been used to download child pornography from a Dutch website with massive collections of child pornography. The internet protocol address of that computer was traced to Widemann’s store in Ottawa. After further investigation, Ottawa police learned that Widemann maintained a large collection of child pornography on his computers at his store and residence, which he had accumulated between 2004 and 2009.

Widemann’s “collection of child pornography contained approximately 10,532 images and videos of child pornography, including acts of penetration, extreme degradation, bestiality, and bondage,” Assistant U.S. Attorney Jennie Levin wrote in a sentencing memo.

The federal investigation was conducted by the FBI's Child Exploitation Task Force. The task force is part of a nationwide effort known as the Innocence Lost National Initiative targeting those involved in the commercial sexual exploitation of children in the United States. In Chicago, the CETF is comprised of FBI special agents and officers and investigators from the Chicago Police Department, the Cook County Sheriff's Office, and the Cook County State's Attorney's Office.

The sentence was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

CHICAGO — Former Cook County Commissioner JOSEPH MARIO MORENO was sentenced today to 11 years in federal prison for engaging in a series of public and personal corruption schemes over a span of three years. Moreno pleaded guilty on July 1, 2013, to conspiracy to commit extortion after he was initially charged in late June 2012, about 18 months after he left public office.

Moreno, 61, of Chicago, a lawyer who served more than 16 years as an elected county commissioner until December 2010, was sentenced to 132 months in prison, and he was ordered to forfeit $100,000 and pay a total of more than $138,000 in restitution by U.S. District Judge Gary Feinerman. Moreno was ordered to begin serving his sentence on April 21.

“Mr. Moreno was not a reluctant participant in these schemes; he was an eager participant,” Judge Feinerman said, adding that Moreno “embraced them with gusto and pursued them with vigor.”

Moreno “repeatedly pursued his own interests at the expense of those he was supposed to serve. . . . [H]e extorted a reputable business and corrupted the highest levels of Cook County government, the Town of Cicero, and a private hospital. He also evaded taxes and suborned perjury so he could reduce his child support obligations. And when he was confronted about his crimes, he obstructed justice by providing the government with false invoices in an effort to conceal his criminal conduct,” Assistant U.S. Attorneys Christopher J. Stetler and Megan C. Church wrote in a government sentencing memo.

Notably, they argued, Moreno conceived a motto of governing that captured his corrupt approach to public office: “I don’t want to be a hog. I just want to be a pig. Hogs get slaughtered. Pigs get fat.”

Moreno pleaded guilty to conspiracy to extort an un-named company that was awarded a contract to help improve Cook County Hospital’s revenue cycle into using his friend and codefendant, Ron Garcia, and his business, Chicago Medical Equipment & Supply, Inc., as a minority subcontractor in return for a $100,000 bribe. Garcia forgave a $100,000 mortgage loan to Moreno in exchange for Moreno’s efforts to steer the lucrative sub-contract to Garcia’s company, and Moreno tried to disguise the bribe by claiming that he had repaid the purported loan.

In pleading guilty, Moreno also agreed that he sought to obtain orders of Dermafill bandages from Cook County in return for kickbacks while he and his staffer, co-defendant and former Chicago Ald. Ambrosio Medrano, were Cook County officials; sought to obtain approval for a waste-transfer station in return for kickbacks while a Town of Cicero official; and evaded his federal income taxes between 2007 and 2010 by misreporting the income from his law office.

According to sentencing documents, between 2008 and 2010, Moreno engaged in those schemes, as well as five other schemes to:

• enrich himself through kickbacks in return for passing a “green” resolution while a Cook County Commissioner;
• obtain medical-transcription business from Cook County in return for kickbacks concealed as legal fees;
• obtain orders of Dermafill bandages from a private hospital by bribing a hospital official;
• enrich himself through kickbacks while a Town of Cicero official;
• reduce his child-support obligations by suborning perjury during a court hearing.

Medrano, 60, of Chicago, the former alderman who later worked on Moreno’s county staff, was sentenced last month to a total of 13 years in federal prison after pleading guilty in one case involving Moreno and being convicted at trial last year in a separate corruption case that stemmed from the same FBI undercover investigation.

Garcia, 54, of Homer Glen, and two other co-defendants, Gerald W. Lombardi, 61, of Darien, and his son, Jerry A. Lombardi, 34, of Downers Grove, who were agents of Chasing Lions, LLC, a disabled-veterans-owned business in Lisle that sold the Dermafill bandages, pleaded guilty to their roles in the scheme and are awaiting sentencing. A sixth co-defendant, Stanley Wozniak, 51, of Chicago, is awaiting the disposition of charges.

The Moreno sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division.

CHICAGO ― Two defendants who engaged in a fraudulent financing scheme involving the offer and sale of investments in four Las Vegas companies were sentenced to 3½ and four years in federal prison, respectively, for defrauding approximately 125 investors of about $6.6 million, including some victims who lost some or all of their retirement or college savings funds.

RODERICK RIEMAN, 69, of St. Charles, who owned and operated Innovative Financial Services, Inc., a former insurance and investment business in St. Charles, was sentenced to four years in prison and ordered to begin serving his sentence on May 27. MICHAEL CROOK, 55, of Los Angeles and formerly of Chicago and Las Vegas, the former president of the Las Vegas companies, which purportedly engaged in interactive kiosks, prepaid debit cards, and restaurant reservation software, was sentenced to 42 months in prison and ordered to begin serving his sentence on June 24.

U.S. District Judge Harry Leinenweber, who sentenced both men yesterday, also ordered each to pay $6.6 million in restitution.

Crook, was president of Z Touch Systems, Inc., Global Payment Solutions, Inc., Bluko Information, Inc., and Smart Restaurant Solutions, Inc., and Rieman, through his company and salesmen working for him, was primarily responsible for making the offers and sales of investments in Crook’s companies. Crook cooperated with the government’s investigation and both defendants pleaded guilty to mail fraud after they were indicted in 2011.

According to court documents, between 2004 and August 2007, Crook and Rieman misrepresented the expected return on investments, the risks associated with the investments, the existence and value of collateral, the use of proceeds, the source of funds used to make promised payments, the status of investments, and the financial condition and business transactions of the companies. They misappropriated a part of the funds raised to make Ponzi-type payments to investors and to benefit companies and individuals other than those directly relating to the particular investment.

For example, the defendants offered and sold investments in interactive kiosks called “ODIEs” (On Demand Interactive Environments), purportedly manufactured and sold by Z Touch. The investments offered an annual return of 18 percent in monthly payments, repayment of principal in 36 months and a security interest in a particular ODIE. Although the defendants offered and sold more than 250 of these investments, only a small number of ODIEs were ever built, none were successfully placed in businesses, and no revenues were generated.

One victim, a retired school teacher, made two separate investments totaling $500,000 of her retirement funds in what Rieman purported were 27 ODIEs and, ultimately, she lost more than $400,000 of her investment.

The government was represented by Assistant United States Attorneys Edward G. Kohler and Kruti Trivedi.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The Illinois Department of Securities assisted in the investigation.

ROCKFORD — A Rockford man and a California man were indicted today by a federal grand jury in Rockford on fraud charges. TODD C. SMITH, 46, of Rockford, was charged with seven counts of mail fraud and ten counts of wire fraud, and TRAVIS OLIVER, 36, of Tremecula, Cal., was charged with eight counts of mail fraud and fifteen counts of wire fraud, in connection with a scheme to defraud investors by falsely representing to investors that their investments in Electus Asset Holdings were guaranteed, fraudulently obtaining more than $983,000 from the investors.

According to the indictment, Oliver was sole managing member of Electus Asset Holdings, and both Oliver and Smith solicited individuals to invest in Electus Asset Holdings, engaging in a scheme from Feb. 13, 2009, to at least March 2012, to defaud investors. The indictment alleges the defendants falsely represented to the investors that their investments would be returned in one year, yielding a guaranteed rate of interest per month, and that the funds could be withdrawn at any time without penalty. However, it is alleged the defendants knew a large portion of the investors’ funds was used to pay personal and other expenses, such as commissions to the defendants, and to make interest and principal payments to other individuals who had invested money with Oliver prior to the formation of Electus Asset Holdings in January 2009, and that the remainder of the investors’ funds was placed in a non-guaranteed investment.

It is further alleged that in order to conceal their false promises and misrepresentations, and prevent the investors from demanding the return of their principal, defendants used funds from new investors to pay interest and principal owed to prior investors. The indictment also charges that defendants mailed monthly statements and IRS 1099-INT forms to investors that falsely stated that the investors had earned interest on their investments, when defendants knew no interest had been earned on the investments.

The indictment alleges that when investors requested the return of their interest and principal, Oliver and Smith made false statements and promises to conceal the fact the investors’ money had been spent or lost in high risk investments, including that the investors’ checks were going to be issued shortly, that their checks were lost in the mail, and that the investors’ money was invested in company that was under investigation by the Federal Trade Commission and its assets had been frozen.

Each count of mail fraud and wire fraud carries a maximum penalty of 20 years in prison, and a maximum fine of $250,000, or an alternate fine totaling twice the loss or twice the gain derived from the offense, whichever is greater. If convicted, the Court must impose a reasonable sentence under the advisory United States Sentencing Guidelines, as well as restitution. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation; and Antonio Gomez, Postal Inspector-In-Charge of the Chicago Division of the U.S. Postal Inspection Service. The Illinois Secretary of State Securities Department assisted in the investigation.

The government is represented by Assistant U.S. Attorney Joseph C. Pedersen.

The public is reminded that an indictment is only a charge and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving each defendant’s guilt beyond a reasonable doubt.

Indictment

ROCKFORD — A suspended Rockford physician was indicted today by a federal grand jury on charges of healthcare fraud. CHARLES S. DEHANN, 59, of Belvidere, Ill., was charged with nine counts of engaging in a scheme to defraud Medicare.

The indictment alleges that DeHaan, a physician licensed in Illinois, and president of Housecall Physicians Group of Rockford, S.C., treated numerous patients at Rockford-area assisted living facilities and, as a physician, had access to patients and patient records. The indictment alleges that, from January 2013 through Jan. 24, 2014, in order to enrich himself, DeHaan submitted false claims to Medicare for reimbursement for medical services that DeHaan provided to patients in their homes. As part of the scheme, DeHaan allegedly obtained patient information of Medicare beneficiaries through his affiliation with and privileges granted to him at various Rockford-area assisted living facilities, without the knowledge or consent of the patients. It is also alleged that DeHaan billed for medical services purportedly provided to patients whom DeHaan never actually treated, and billed routine visits with Medicare patients at the highest levels of in-home care when he knew that his visits with these patients typically did not qualify for such billing.

In addition, DeHaan allegedly billed for medical services provided to patients when he knew he did not provide any reimbursable medical service. For instance, on multiple occasions, DeHaan billed Medicare for medical services purportedly provided to patients, when DeHaan’s visit with the patient involved no medical care and instead involved DeHaan’s having sexual contact and attempting to have sexual contact with a patient and making sexual advances toward a patient, according to the indictment.

DeHaan was initially charged with federal healthcare fraud last month when he was arrested on a criminal complaint. He was released on bond and will appear for arraignment on February 12, 2014, at 10:00 a.m. in Federal Court in Rockford, before U.S. Magistrate Iain D. Johnston.

Each count of healthcare fraud carries a maximum potential penalty of up to 10 years in prison, a fine of up to $250,000, and full restitution. If convicted, the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation; and Lamont Pugh, III, Special Agent-in-Charge of the Chicago Regional Office of the U.S. Department of Health and Human Services Office of Inspector General.

The federal case was investigated by the FBI and HHS-OIG, with the assistance of the Illinois Department of Financial and Professional Regulation. The government is being represented by Assistant U.S. Attorney Scott R. Paccagnini.

The public is reminded that an indictment is only a charge and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving his guilt beyond a reasonable doubt.

Indictment

CHICAGO — Seven defendants were indicted on federal charges for their alleged roles in a series of at least six armed robberies of cellular telephone stores last year that extended from suburban Chicago to Indiana and downstate Illinois. Two defendants, ERIC ROGERS and ERIC CURTIS, who allegedly directed a robbery conspiracy, were arrested on federal charges in December following the robbery of a cellular telephone store in suburban Woodridge. The other five defendants, all of whom are in state custody, were charged federally for the first time in this district in a nine-count indictment returned by a federal grand jury yesterday and announced today.

Rogers, 39, of Hazel Crest, and Curtis, 29, of Park Forest, allegedly selected the stores that were robbed, recruited their co-defendants to participate in the robberies, provided them with firearms and other equipment, and paid them to commit armed robbery at their direction. They were each charged with one count of robbery conspiracy, three counts of robbery, and two counts of brandishing firearms, and Curtis alone was charged with being a felon-in-possession of a firearm. Both remain in federal custody without bond.

Also indicted were: MARCUS HARRIS, 20, of Chicago; DANIEL WRIGHT, 28, of Chicago; ANDRE WADLINGTON-ANTHONY, 27, of Harvey; TONY JOHNSON, 20, of Harvey; and LAVELL HUGHES, 41, of Gary, Ind. Four of the five were charged with one count each of robbery and brandishing a firearm, while Wadlington-Anthony was charged with two counts of each of those crimes.

All seven will be arraigned on dates yet to be determined in U.S. District Court.

According to the indictment, the defendants in various combinations, committed the following armed robberies in 2013:

• Jan. 31 – Sprint store, 1323 West Lake St., Addison;


• Feb. 4 – AT&T store, LaPorte, Ind.;


• March 19 – AT&T store, 4155½ North Harlem, Norridge. Court documents allege the loss of approximately 100 phones and tablet computers valued at approximately $54,000 in this robbery;


• April 4 – Sprint store, East Peoria, Ill.;


• April 8 – T-Mobile, 110 South Waukegan Rd., Deerfield; and


• Dec. 14 – T-Mobile, 1001 West 75th St., Woodridge.

The indictment alleges that Rogers and Curtis also conspired with Rogers’ deceased cousin, Ryan Rogers, who, following the March 19 Norridge robbery, drove toward a Chicago police officer attempting to stop his vehicle and was shot and killed.

Each count of robbery carries a maximum penalty of 20 years in prison and a $250,000 fine, and each count of brandishing a firearm carries a consecutive, mandatory minimum of seven years in prison and a maximum of life. Curtis also faces a maximum 10-years sentence on the felon-in-possession charge. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The case was investigated by the FBI’s Safe Streets Task Force, which is comprised of the FBI and the Chicago Police Department. The police departments in Addison, Deerfield, Homewood, Norridge, Woodridge, LaPorte, Ind., and East Peoria, Ill., also assisted in the investigation.

The government is being represented by Assistant U.S. Attorney Christopher Parente.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — Two brothers were sentenced today to life in federal prison for murder in aid of racketeering and related crimes they were convicted of after a seven-week trial in U.S. District Court last year. JULIO and MANUEL LEIJA-SANCHEZ, who operated a lucrative, black-market counterfeit identification document business in Chicago’s Little Village community for at least 15 years, each received the mandatory life sentence from U.S. District Judge Rebecca Pallmeyer. There is no federal parole.

The Leija-Sanchez brothers were convicted together with GERARDO SALAZARRODRIGUEZ, whom they directed to commit an execution-style murder in Mexico of a fledgling competitor. The murder plot was intended to prevent two former employees from starting a competing business and to maintain control over employees of their enterprise, which generated annual revenues of at least $3 million. Salazar-Rodriguez also faces life imprisonment and is scheduled to be sentenced on Feb. 14.

“Julio and Manuel Leija-Sanchez were the kingpins of a decades-long, multimilliondollar international criminal organization and they killed to protect their own pocketbook and the empire they built,” Assistant U.S. Attorney Michelle Nasser said at today’s sentencing hearing.

Evidence at trial showed that Salazar-Rodriguez, at the direction of Julio and Manuel Leija-Sanchez, fired more than a dozen shots in killing one of the victims in his taxi cab near Mexico City in April 2007, and the jury heard transcripts of intercepted telephone conversations in which he boasted to the brothers after the murder. He and Manuel Leija-Sanchez also hunted for a second victim whom they believed was in Mexico at the time but who was actually in federal custody in Chicago. That intended victim, who pleaded guilty to fraudulent identification document charges, cooperated and testified as a government witness at trial.

The case was part of Operation Paper Tiger, an investigation conducted by U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) agents, along with other federal, state, and local law enforcement agencies. In April 2007, the investigation resulted in charges against 24 defendants and the dismantling of the Leija-Sanchez fraudulent document organization that operated in and around the Little Village Discount Mall at West 26th and Albany in Chicago. All but three defendants who remain fugitives were convicted.

Manuel Leija-Sanchez, 46, and Salazar-Rodriguez, 41, were arrested later in Mexico and were extradited to the United States in 2010 and 2011 to stand trial, together with Julio Leija- Sanchez, 38, who was arrested in Chicago in 2007. A third Leija-Sanchez brother, Pedro, 41, was also arrested in Mexico and extradited to the U.S in 2011. He pleaded guilty in 2012 to racketeering conspiracy for operating the fraudulent ID ring with his brothers and was sentenced last March to 20 years in prison.

Evidence at trial showed that the three Leija-Sanchez brothers operated the bustling illegal business between 1993 and 2007. The organization was supervised by an overall leader living in Chicago, and the leadership position rotated among the Leija-Sanchez brothers. The organization sold as many as 100 sets of fraudulent identification documents each day, charging customers approximately $200 per “set,” consisting of a Social Security card and either an immigration “green card” or a state driver’s license.

Manuel and Julio Leija-Sanchez and Salazar-Rodriguez conspired to murder Guillermo Jimenez-Flores, also known as “Montes,” a former member of their organization who became a rival and was shot to death by Salazar-Rodriguez in Mexico. The three trial defendants were also convicted of conspiracy to kill a second victim, Bruno Freddy Ramirez-Camela, who they believed was in Mexico but was actually incarcerated in Chicago.

The sentences were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Gary Hartwig, Special Agent-in-Charge of HSI in Chicago. Also participating in the investigation were the Chicago Police Department and the Galveston, Tex., Police Department, and the Chicago offices of the U.S. Secret Service, the Federal Bureau of Investigation, the U.S. Postal Inspection Service, and the Bureau of Alcohol, Tobacco, Firearms and Explosives. The Government of Mexico and Mexican law enforcement partners also provided significant assistance.

The government is represented by Assistant U.S. Attorneys Michelle Nasser, Andrew Porter and William Ridgway.

CHICAGO ― A former Chicago commodities trader was sentenced to 6½ years in federal prison for fraudulently obtaining more than $10 million and misappropriating a substantial portion of the money for his personal commodities futures trading, to make Ponzitype payments to investors, and to benefit himself and his family, resulting in a loss of $5.3 million. The defendant, BRADLEY SCHILLER, used some of the funds to pay for personal and family expenses, including a Range Rover, jewelry, condominium fees, housing rental fees for his mother-in-law, and country club fees.

Schiller, 37, of Chicago, was ordered today to pay $5.33 million in restitution by U.S. District Judge Elaine Bucklo, completing his sentencing that began last month. Schiller was ordered to begin serving his 78-month sentence in mid-April. He pleaded guilty to wire fraud last October.

According to court documents, Schiller represented himself as a successful commodities futures trader and raised more than $10 million between 2007 and 2012 from various victims, including The PrivateBank and Trust Company. Schiller lied to sources and prospective providers of funds about the profitability of his futures trading, the use of money he raised, the risks involved in providing him with money, his financial condition, and the status of the funds. He concealed the fraud scheme by making Ponzi-type payments to victims and by creating and distributing fraudulent documents, including phony commodities brokerage and bank account statements, false financial statements, and false tax forms. During the scheme, Schiller had trading losses of more than $1.5 million and needed to continually raise new funds to repay earlier providers of funds.

In obtaining a $2 million line of credit from The PrivateBank, Schiller falsely represented that he had a net worth of about $2.6 million and an overall balance in his commodities accounts in 2009 of approximately $5.5 million. Schiller knew, however, that he had a negative net worth at the time and his overall balance in his commodities accounts was nearly zero.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The Commodity Futures Trading Commission provided assistance.

The government was represented by Assistant U.S. Attorney Edward Kohler.

CHICAGO — A father and son were indicted on federal charges for allegedly operating a nationwide mail order synthetic marijuana business in the south suburbs that netted them approximately $2 million over three years, federal law enforcement officials announced today. Following an undercover investigation, JAMES M. BOLIN and his son, JAMES P. BOLIN, were charged with multiple offenses relating to misbranding and trafficking drugs, and James M. Bolin was also charged with money laundering. Both defendants allegedly defrauded and misled the Food and Drug Administration and the Drug Enforcement Administration regarding the drug status of their purported “herbal” products to avoid regulation of the drugs they sold.

Federal agents seized hundreds of packages of allegedly illegal synthetic cannabinoids, or a version of the psychoactive component of marijuana, as well as $165,247, on June 4, 2013, when they executed a search warrant at James M. Bolin’s former residence in Manhattan, Ill., where he operated a business known as “Herbal City,” “H City,” “Shop HC,” and “Show Off City.” The defendants allegedly advertised the sale of misbranded drugs online and created videos to promote human consumption of their products.

James M. Bolin, also known as “James Matthew,” 49, and his son, James P. Bolin, aka “Jimmy,” 31, both of New Lenox, were each charged with one count of conspiracy to commit misbranding of drugs, four counts of placing misbranded drugs into commerce, five counts of receiving and delivering misbranded drugs, two counts of conspiracy to possess and distribute synthetic marijuana products, six counts of distributing controlled substances or analogues, and one count of attempting to do so. James M. Bolin alone was also charged with seven counts of money laundering.

The 26-count indictment, which also seeks the forfeiture of approximately $2 million in illegal proceeds, was returned by a federal grand jury yesterday. The Bolins will be arraigned on a date yet to be determined in U.S. District Court.

According to the indictment, between January 2010 and June 2013, the defendants conspired to introduce, receive and deliver misbranded drugs into interstate commerce. The Bolins bought and sold products that they and their suppliers ― located in California, Florida, and New York ― falsely referred to as “incense,” “herbal incense,” “herbal potpourri,” and other misleading names, but, in fact, the drugs were falsely labeled, indicating they were not intended for human consumption when they actually were. The packages also failed to bear labels identifying the name and quantity of active ingredients, as well as the name and location of the manufacturer, packer, or distributor, the indictment alleges.

The indictment identifies the following products that the Bolins allegedly bought, marketed, and sold as misbranded drugs: G-20 Herbal Potpourri, Joker Herbal Potpourri, Caution Blitzen Herbal Potpourri, Kronik Kryponite Herbal Potpourri, AK-47 24 Karat Gold Potpourri, ZenBio Sonic Zero Cherry, ZenBio Sonic Zero Blueberry, Hip Hop, Darkness Prince, Out World, Cherry Bomb, Caution Platinum Super Strong Incense, Caution Silver Super Strong Incense, Diablo Botanical Incense, Bizarro, Smoking Santa, Mr. Happy and OMG Next Generation.

The indictment alleges that the defendants used the U.S. Postal Service and commercial carriers to ship and receive their illegal products and leased mailboxes in commercial stores in Frankfort and New Lenox. They allegedly paid at least $1 million to out-of-state suppliers for the misbranded drugs they obtained, while collecting approximately $3 million in revenue from customers between 2010 and June 2013.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Gary Hartwig, Special Agent-in-Charge of U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) in Chicago; John Redmond, Special Agent-in-Charge of the Food and Drug Administration’s Office of Criminal Investigations in Chicago; Jack Riley, Special Agent-in-Charge of the Chicago office of the Drug Enforcement Administration; James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division; and Tony Gómez, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago. The Illinois State Police also assisted in the investigation, which was conducted under the umbrella of the Organized Crime Drug Enforcement Task Force (OCDETF).

The government is being represented by Assistant U.S. Attorney Matthew Schneider.

Each count in the indictment contain various maximum penalties, ranging from three years in prison on the misbranded drug counts to 20 years in prison on the controlled substance counts and some of the money laundering counts against James M. Bolin. Each count also carries a maximum fine ranging between $250,000 and $1 million. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — The former manager of a defunct Chicago-based real estate company that acquired and managed hotels, including the Blake Hotel in Chicago and others in South Florida, was sentenced today to more than six years in federal prison for evading more than $1.7 million in federal income taxes. The defendant, ROBERT D. FALOR, siphoned millions of dollars from the Blake’s operations at the expense of a lender, city and state taxing authorities, union employees, and other creditors and vendors to support a lavish lifestyle that included multimillion dollar homes, luxury cars, boats, and planes.

Falor, 48, of Chicago and formerly of River Woods and Glencoe was “a one-man financial crime wave,” U.S. District Judge Virginia Kendall said in sentencing him to 74 months in prison and ordering him to pay $1,752,948 in restitution to the Internal Revenue Service. Falor has remained in federal custody since he was arrested in 2011. He pleaded guilty in May 2013 to two counts of federal income tax evasion.

Falor was the chief operator and manager of The Falor Companies, Inc. (TFC), which involved his brother and their father and, before it ceased operating in 2006, acquired and managed hotel properties through a complex network of limited liability corporations. Through various ventures before and after 2006, Falor attempted to convert hotels to condo-hotels by selling individual guest rooms to investors as separately titled condominium units, and renting them through a related hotel management company to other guests when the owner was not in residence, with the owner receiving a percentage of the rental fee. The companies operated multiple condo-hotel ventures in the mid-2000s, including the Blake Hotel, located at 500 S. Dearborn St., in Chicago, and the Tides Hotel on Ocean Drive in Miami Beach.

From 2006 through June 2008, the Blake generated hundreds of thousands of dollars per month in revenues. But instead of paying debts to the Blake’s creditors, Falor plundered approximately $5.7 million from the hotel and diverted the cash to himself. Falor also failed to pay state income taxes, as well as city and state hotel occupancy taxes, bringing the total tax loss he caused to more than $4.1 million.

In July 2008, Accelerated Assets, LLC, a Birmingham, Mich., lender foreclosed on a mezzanine loan to renovate the Blake, ousted the Falors, took over management, and assumed its debts, which included occupancy taxes of more than $500,000 to the City of Chicago and more than $1.4 million to the State of Illinois.

Falor’s father, DAVID R. FALOR, 73, who was a principal in TFC, formerly of Chicago and Miami Beach, was extradited last year from Italy. He also pleaded guilty to tax evasion and was sentenced last month to two years in federal prison. David Falor converted $779,000 in payments that were recorded as loans from TFC, but which became taxable income when the companies went out of business and David Falor used the funds for personal expenses.

Robert Falor’s brother, CHRISTOPHER FALOR, a consultant to the condo-hotel projects, is scheduled to be sentenced on March 5 after pleading guilty to mail fraud and tax counts.

Today’s sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago; and Tony Gómez, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago.

The government is being represented by Assistant U.S. Attorneys Ryan S. Hedges and Barry Jonas.

Defendants convicted of tax offenses remain civilly liable to the Government for any and all back taxes, as well as a civil fraud penalty of up to 75 percent of the underpayment plus interest.

CHICAGO — A certified public accountant who was involved in the auditing process at a publicly-traded company based in Chicago was indicted on federal fraud charges for allegedly engaging in insider trading of the company’s securities that made him an illegal profit of more than $286,000 in 2012. The defendant, STEVEN M. DOMBROWSKI, who was the director of corporate audit for Allscripts Healthcare Solutions, Inc., was charged with 16 counts of securities fraud in an indictment that was returned by a federal grand jury yesterday and announced today.

At the same time, the U.S. Securities and Exchange Commission announced that it filed a civil enforcement action involving the insider trading allegations against Dombrowski yesterday in U.S. District Court in Chicago.

Dombrowski, 49, of Chicago, will be arraigned on the criminal charges on a date yet to be determined in Federal Court.

According to the indictment, Dombrowski misused material nonpublic information he knew about Allscripts’ performance for the first quarter of 2012 and purchased put options and engaged in short sales of stock through a trading account in his wife’s maiden name that he controlled, which resulted in illegal profits of approximately $286,211. The indictment seeks forfeiture of that amount from Dombrowski.

Dombrowski and the employees he supervised were responsible for auditing and testing the processes and procedures Allscripts used to compute and report its financial performance. Allscripts provides information technology solutions to the healthcare industry and its common stock is traded on the NASDAQ stock market under the symbol MDRX.

Between April 10 and April 28, 2012, a quarterly blackout period was in effect at Allscripts. The blackout prohibited certain employees, including Dombrowski, who were given written notice and who had access to material nonpublic information, from engaging in insider trading 15 days before the end of a quarter and ending after the second full business day following the company’s quarterly earnings announcement.

Dombrowski allegedly learned in April 2012 through his employment that Allscripts first quarter financial results were going to be less favorable than market expectations when they were publicly announced on April 26, 2012. Throughout April, Dombrowski conducted securities transactions that he designed to be profitable if the price of Allscripts stock declined, including purchasing put options and short selling stock, which he knew was prohibited, the indictment alleges. Allscripts stock, in fact, declined when its 2012 first quarter announcement revealed lower sales, less revenue, and lower earnings per share than the first quarter of 2011.

After Allscripts stock declined on and after April 26, 2012, Dombrowski allegedly offset his Allscripts securities positions and profited approximately $286,211 from insider trading, the charges allege.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The SEC cooperated in the investigation.

The government is being represented by Assistant U.S. Attorneys Clifford C. Histed and Paul H. Tzur.

Each count of securities fraud carries a maximum penalty of 20 years in prison and a $5 million fine, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The public is reminded that an indictment is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — An owner of an Illinois hospice company was charged with federal health care fraud for allegedly engaging in an extensive scheme to obtain higher Medicare and Medicaid payments by fraudulently elevating the level of hospice care for patients, many of whom resided at nursing homes he also controlled across the state. In many instances, the level of hospice care allegedly exceeded what was medically necessary or actually provided, including for some patients who did not have terminal illnesses or who were enrolled far longer ― sometimes for several years ― than the required life expectancy of six months or less.

The defendant, SETH GILLMAN, 46, of Lincolnwood, was charged with one count each of health care fraud and obstructing a federal audit in a criminal complaint that was filed late Friday in U.S. District Court. He is scheduled to appear at 3 p.m. today before Magistrate Judge Geraldine Soat Brown in Federal Court.

Gillman, an attorney, is the corporate agent, administrator, and one-fourth owner of Passages Hospice, LLC, based in west suburban Lisle, and is also the agent and secretary of Asta Healthcare Company, Inc., which operates Asta Care Center nursing homes in Bloomington, Colfax, Elgin, Ford County, Pontiac, Rockford, and Toluca, in Illinois. Passages did not have its own inpatient facility, but instead deployed nurses to visit hospice patients in nursing homes and private residences. As Passages grew, it divided its operations into geographic regions covering Chicago and the western suburbs, Rockford, Bloomington, and Belleville, with different nurses, nursing directors and medical directors for each region.

The charges allege that between August 2008 and January 2012, Gillman trained and caused to be trained Passages nurses to look for signs that allegedly would qualify a hospice patient for general inpatient care (GIP), resulting in higher payments per day, compared to routine care. Gillman allegedly knew that many of Passages’ patients were improperly being placed on GIP, in part as a result of a 2009 review of patient files, a 2009 report by an outside consultant, and a 2010 internal audit. Gillman also knew that some patients were placed on GIP without a medical director’s approval.

In fiscal year 2012, Medicare’s daily reimbursement for GIP was $671.84, while the daily payment for routine care was $151.23. According to claims data, from January 2006 to late 2011, Passages submitted claims for approximately 4,769 patients to Medicare and/or Medicaid and was paid approximately $95 million from Medicare and approximately $30 million from Medicaid. Between July 2008 and late 2011, Passages was paid approximately $23 million by Medicare for claimed GIP services, in addition to Medicaid payments for claimed GIP services submitted on behalf of more than 200 patients.

According to a 69-page affidavit in support of the charges, federal agents have interviewed patients, family members, and more than 30 former and current employees of Passages, including several who reported allegedly fraudulent billing and marketing practices to Medicare and/or law enforcement before they were contacted by agents. Investigators have also reviewed emails, documents, and patient files that were obtained in response to a 2011 civil investigative demand, a January 2012 search warrant, and subpoenas issued in 2013, as well as claims data from Medicare and Medicaid.

Medicare claims data revealed that approximately 22 percent of Passages’ patients between 2006 and late 2011 had more than six months of hospice care, with 28 patients receiving more than 1,000 days of hospice care in that period. By contrast, according to the National Hospice and Palliative Care Organization, only 11.8 percent of all hospice patients in 2009 were on hospice care for longer than six months.

For example, the complaint affidavit cites Patient JW, who was admitted to an Asta nursing home in 2003 following a major stroke, and Passages billed for more than 2,000 days of hospice services. In another example, Passages submitted bills for 1,443 days of hospice care for Patient LJ, who was admitted to an Asta nursing home in 2001. Patient LJ’s son told investigators that his mother appeared in no danger of dying until the last month of her life.

The charges also cite Medicare claims data showing that Passages’ billing for GIP services grew significantly. In 2010, Passages billed approximately 1,161 GIP patient days to Medicare monthly, and the figure rose to 1,430 GIP patient days a month through the first nine months of 2011. The average GIP payments that Passages received per month was $4,437 in the period from mid-2006 to mid-2008, and the monthly payments increased to $946,743 in 2011.

A hospice physician retained by the government reviewed files for 13 Passages patients, 10 of whose admissions exceed six months and extended to as many as 1,598 days over two admission periods. The government’s expert found that nine of the 13 patients were not eligible for Medicare hospice benefits for part or all of their admission and that all of the 503 days of GIP submitted for those patients were improper and excessive.

A woman, identified as Individual E in the affidavit, who helped Gillman and his father start Passages and served as its clinical director for several years until she was fired, told agents that Gillman said if a patient was under Passages’ care, they were sick enough to warrant GIP care. When Individual E confronted Gillman over the GIP eligibility of Patient DB, Gillman allegedly told her to mind her own business because he needed the money, the affidavit states.

The charges further allege that in the fall of 2008 Gillman began paying bonuses, sometimes well in excess of their salary, to Passages’ directors overseeing nurses and certified nursing assistants based on the amount of GIP under their supervision. Gillman also authorized large bonuses to himself and a co-administrator, Individual A, based on the number of patients per day at certain nursing homes in the Belleville region, including $833,375 to himself between March 2009 and April 2011. The bonuses increased as the number of patients on GIP increased and as the number of facilities counted for the bonuses increased, according to the affidavit.

Passages also allegedly had arrangements with approximately eight nursing homes in 2010 in which it paid the nursing homes $250 for every patient who was on GIP per day.

The obstructing a federal audit count alleges that in August and September 2009, Gillman, Individual A, and others oversaw and conducted an effort to alter patient files that had been requested by TrustSolutions, which contracted with the Centers for Medicare and Medicaid Services to audit providers for fraud and abuse. Several former Passages employees have admitted to agents their involvement in the altering of patient files in the summer of 2009 as well as in another session in 2010, the affidavit states.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Lamont Pugh III, Special Agent-in-Charge of the Chicago Regional Office of the HHS-OIG; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The Illinois Attorney General’s Office is also participating in the investigation.

The government is being represented by Assistant U.S. Attorney Stephen C. Lee.

Health care fraud carries a maximum penalty of 10 years in prison and a $250,000 fine, and obstructing a federal audit carries a maximum of five years in prison and a $250,000 fine, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The public is reminded that a complaint is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The Medicare Fraud Strike Force began operating in Chicago in February 2011, and consists of agents from the FBI and HHS-OIG, working together with prosecutors from the U.S. Attorney’s Office and the Justice Department’s Fraud Section. The strike force is are part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. Scores of defendants have been charged locally in health care fraud cases since the strike force began operating in Chicago.

To report health care fraud to learn more about the Health Care Fraud Prevention & Enforcement Action Team (HEAT), go to: www.stopmedicarefraud.gov.

Complaint

ROCKFORD-A local physician whose license was suspended this month was an ested last night on a federal complaint alleging healthcare fraud. Charles S. DeHaan, 59, of Belvidere, IlL, was charged with engaging in a scheme to defraud Medicare. The complaint alleges that as a pali of the scheme, DeHaan operated Housecall Physicians Group of Rockford, S.C., located in Rockford. The charge alleges that DeHaan submitted false claims to Medicare in December 2013.

In supp01t of the charge, the complaint alleges that between 2010 and 2013, DeHaan billed Medicare for medical services that he did not provide to at least five patients. Instead, DeHaan engaged in sexual misconduct with fom of these patients, all women, and offered or provided prescriptions for controlled medications, according to the complaint affidavit.

DeHaan appeared today before United States Magistrate Judge lain D. Johnston who ordered that he be held in custody lmtil a detention hearing is conducted at 2:30p.m. on Tuesday.

The charge of healthcare fraud canies a maximum potential penalty of up to 10 years in prison, a fine of up to $250,000, and full restitution.

The charges were announced by Zacha1y T. Fardon, United States Attomey for the Northem District of Illinois; Robe1t l Holley, Special Agent-in-Charge of the Chicago Office of Federal Bmeau of Investigation; and Lamont Pugh III, Special Agent-in-Charge of the Chicago Regional Office of the U.S. Depa1tment of Health and Human Services Office of Inspector General ("HHS-OIG")

The federal case was investigated by the FBI and HHS-OIG, with the assistance of the Illinois State Police Medicaid Fraud Control Unit. The government was represented in federal comt by Assistant U.S. Attomey John G. McKenzie.

The public is reminded that a complaint is only a charge and is not evidence of guilt. The defendant is presumed innocent and is entitled to indictment by a federal grand jury and, if indicted, to a fair trial at which the government has the burden of proving his guilt beyond a reasonable doubt.

Complaint

ROCKFORD — A Rockford, Ill. man was sentenced today in federal court before U.S. District Judge Frederick J. Kapala as the last of seven defendants to be sentenced on related drug trafficking charges. ANGELO TURNER, 30, was sentenced to 57 months in prison without parole, to be followed by 3 years of supervised release, for conspiracy to possess with intent to distribute and distribution of cocaine. Turner pleaded guilty to the charge on Oct. 25, 2013, admitting that as early as May 2012 through Dec. 20, 2012, he conspired with others to distribute cocaine in the Rockford area.

Also charged were Angelo Turner’s brother, JOHN TURNER, 32, and MARQUICE FIELDS, 28, both of Rockford. John Turner pleaded guilty to the conspiracy and was sentenced on Oct. 24, 2013, to 51 months’ imprisonment, to be followed by 3 years’ supervised release. Fields pleaded guilty to using a mobile telephone to facilitate the drug conspiracy and was sentenced on Jan. 13, 2014, to 3 years’ probation.

In a related case, NICHOLAS CLARK, 32, RICHARD CLARK, 40, STEVEN KEENAN, 26, and RICHARD RILL, 48, all of Rockford, were charged and pleaded guilty to conspiracy to possess with intent to distribute and distribution of cocaine from early 2012 through December 2012. Nicholas Clark was sentenced on Aug. 14, 2013, to 120 months’ imprisonment, to be followed by 8 years’ supervised release. Richard Clark was sentenced on Nov. 14, 2013, to 60 months’ imprisonment, to be followed by 4 years’ supervised release. Keenan was sentenced on Sept. 10, 2013, to 60 months’ imprisonment, to be followed by 4 years’ supervised release. Rill was sentenced on Aug. 14, 2013, to 60 months’ imprisonment, to be followed by 5 years’ supervised release. None of the defendants will be eligible for parole.

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation; Carl J. Vasilko, Special Agent-in-Charge of the Chicago Field Division of the Bureau of Alcohol, Tobacco, Firearms & Explosives; Richard Meyers, Winnebago County Sheriff; and Chet Epperson, Chief of the Rockford Police Department.

The government was represented by Assistant U.S. Attorney Scott R. Paccagnini.

CHICAGO — A man who victimized small businesses and churches nationwide, including three churches in Chicago, in a so-called “advance-fee” fraud scheme, was sentenced today to more than four years in federal prison after being convicted at trial last summer. Prosecutors said that the defendant, JAMAL E. LAWSON, Sr., “fleeced noble church pastors and hard-working businessmen” of more than $225,000 by repeatedly telling lies about his credentials, experience, and ability to obtain loans on their behalf. Over 18 months in 2009 and 2010, Lawson promised more than $650 million in loans to more than 30 victims and never funded a single loan.

Lawson, 44, of Duluth, Ga., and formerly of Dayton, Ohio, was sentenced to 52 months in prison and ordered to pay $227,252 in restitution by U.S. District Judge James Zagel. Lawson, who was convicted of three counts of mail fraud after a trial last August, was ordered to begin serving his sentence on March 31.

“The victim churches lost money obtained from parishioners, wasted their time and efforts dealing with [Lawson], and missed opportunities to pursue funding through other legitimate sources. In addition, the pastors and business owners suffered losses to their reputations and, in some case, suffered extreme hardships,” the government argued at sentencing.

In return for pledging to obtain loans, Lawson collected advance fees from his victims and used the money for personal expenses, such as travel, clothing, food, and cars, instead of securing the loans as he had promised. Additional churches and small businesses victimized by the scheme were located in Georgia, New Jersey, North Carolina, Ohio, Oregon, and Virginia.

As part of the scheme, Lawson offered to provide loans to pastors of churches and owners of small businesses through one of his companies: Evangel Capital Group LLC and Evangel Capital Partners Ltd., Ascendant Capital Partners LLC and Ascendant Commercial Mortgage, and Destiny Capital Group LLC and Destiny Capital Partners Ltd. Lawson advertised low-interest loans to churches and small businesses and, after receiving a loan application, advised the borrowers that his companies had approved loans in amounts ranging from approximately $300,000 to $206 million and that firm closing dates had been set. Lawson knew that he lacked the ability to fund the loans through his companies and he had not secured funding or closing dates from other outside lenders.

Lawson further told the borrowers that, before any loans would be disbursed, they were required to pay certain advance fees, in amounts ranging from approximately $1,250 to $35,000, that would be used to obtain appraisals, loan documents, title reports, and audited financial statements. Lawson directed the borrowers to pay the advance fees by mailing checks or transferring funds to accounts that he controlled.

Lawson told borrowers that he would refund their application fees if they did not receive the loans, knowing that he never intended to provide the actual loans. In Chicago, he defrauded a former west side branch of a Kankakee, Ill., church of $3,950 in fees for a purported $742,000 mortgage loan; a far south side church of $4,000 in fees to provide a mortgage loan of $1,546,000; and another far south side church of $3,950 in fees for a $3,045,000 mortgage loan.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Tony Gómez, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago.

The government was represented by Assistant U.S. Attorneys Christopher R. McFadden and Kathryn Malizia.

CHICAGO — A Lake County man who operated two real estate–related firms was indicted on federal mortgage fraud charges. The defendant, CONRAD ULZ, allegedly engaged in a scheme to fraudulently obtain 13 residential mortgage loans, totaling approximately $3.2 million, from lenders to purchase properties in Chicago’s Englewood neighborhood. The indictment alleges that Ulz paid buyers to purchase the properties and promised them no out-ofpockets costs, and then made false statements to lenders on their behalf. As a result, the lenders incurred losses totaling more than $3.1 million because the amount of the mortgage loans was not fully recovered through subsequent sale or foreclosure.

Ulz, 73, of Libertyville, who operated Citywide Financial Group and Metro Realty Services, was charged with five counts of wire fraud and three counts of making false statements to financial institutions in an indictment that was returned by a federal grand jury yesterday and announced today. The indictment also seeks forfeiture of at least $3.1 million. Ulz will be arraigned on a date to be determined in U.S. District Court.

According to the indictment, between August 2007 and May 2009, Ulz caused buyers to fraudulently obtain 13 mortgage loans from various lenders for properties on South Sangamon, South Carpenter, South Morgan, South May, and South Ada streets, among others, in Englewood on the city’s south side. The alleged fraud involved false representations in documents, including loan applications and HUD-1 settlement statements concerning sales prices and the buyers’ employment, assets, income, and intention to occupy the property.

Ulz allegedly recruited buyers with good credit, promising to pay them for purchasing the properties, and promising that they would not have to pay any of their own money toward the purchases, including down payments and mortgage payments.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorney Renai Rodney.

Each count of wire fraud affecting a financial institution and making false statements on loan applications carries a maximum penalty of 30 years in prison and a $1 million fine, and restitution is mandatory. The Court may impose an alternate fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — Four Chicago and area defendants were indicted on federal bank fraud charges for allegedly engaging in a scheme to fraudulently obtain 46 automobile loans totaling approximately $1.4 million without ever intending that the borrowers would purchase the highend luxury cars that they claimed to be buying. As a result, various credit union lenders, Including Great Lakes Credit Union, Pentagon Federal Credit Union, and Sherwin-Williams Credit Union, incurred losses totaling at least $914,000, the charges allege.

One defendant, PRECIOUS W. HOUSE, 47, of Chicago, the president of Rolling Auto, Inc., a Plymouth, Ind., wholesale auto dealership that purported to be selling many of the autos, was arrested today. He pleaded not guilty to five counts of bank fraud and one count making false statements on a loan application, and is scheduled to have a detention hearing at 9:15 a.m. next Tuesday before Magistrate Judge Sidney I. Schenkier in U.S. District Court.

Another defendant, BRIAN K. HUGHES, 41, of Homewood, was arrested Jan. 9 and was ordered detained in federal custody. He was charged with four counts of bank fraud and one count of making false statements on a loan application.

Co-defendants MICHAEL O. TURNER, 44, of Richton Park, who was charged with one count of bank fraud, and KEITH B. FOSTER, 46, of Harvey, who was charged with one count each of bank fraud and making false statements on a loan application, were not arrested and will be arraigned next Tuesday in U.S. District Court.

The six-count indictment was returned by a federal grand jury yesterday and announced today. The indictment also seeks forfeiture of approximately $914,511 from all four defendants.

According to the indictment, between February and November 2013, the defendants fraudulently obtained at least 28 automobile loans of the 46 they fraudulently applied for, and obtained approximately $914,000 of $1.4 million they sought in loan proceeds. They made, and caused others to make, false representations in documents submitted to lenders, including loan applications, vehicle purchase orders, and verifications of employment, concerning the individuals’ income, employment, credit history, intent to use the loan proceeds to purchase automobiles, and the existence of contracts obligating the borrowers to purchase vehicles from House and Rolling Auto.

House, Hughes, and Turner allegedly recruited individuals seeking auto and personal loans and agreed to find loans for them in exchange for a fee of 20 to 30 percent of the loan. Then, they submitted false information in the borrowers’ loan applications, their income, employment, and credit history, as well as their intent to use the loan proceeds to purchase autos from Rolling Auto and other dealerships, and the existence of contracts obligating them to purchase luxury automobiles made by BMW, Chevrolet, Jaguar, Lexus, Mercedes-Benz, Nissan, and Porsche, the indictment alleges.

If the individual borrowers refused to cash checks obtained as part of the scheme, Hughes allegedly threatened them with civil lawsuits and criminal prosecutions. House allegedly deposited the loan proceeds into bank accounts he controlled in Illinois, California, and Georgia.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorney Christopher R. McFadden.

Each count of bank fraud and making false statements on loan applications carries a maximum penalty of 30 years in prison and a $1 million fine, and restitution is mandatory. The Court may impose an alternate fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

ROCKFORD — A Freeport, Ill. man pleaded guilty today in federal court before U.S. District Judge Frederick J. Kapala to a federal charge relating to his preparation of fraudulent federal income tax returns. The defendant, JASON BOOTH, 32, admitted that he conspired with others to defraud the United States Department of the Treasury by obtaining payments through fraudulent claims for individual income tax refunds.

According to the written plea agreement, between March 2006 and January 2008, Booth created false returns, knowing that the taxpayers whose names he put on the false returns had not authorized him to use false information in the returns. Some of the taxpayers had authorized Booth to create income tax returns for them, but many did not know Booth. Due to the false information, the income tax returns claimed refunds that were not actually owed to the taxpayers. After creating the false returns, Booth filed them electronically with the IRS. When claimed refunds were approved and disbursed by the IRS, the refunds were wired to bank accounts that had been designated by Booth when he electronically filed the false returns. Some of those accounts were owned by Booth, but several were owned by others that conspired with Booth. The co-conspirators were allowed to keep a portion of each refund in exchange for the use of their accounts for the deposit of the refunds. They delivered the balance of the refunds to Booth. Booth used the co-conspirators accounts because he was not always able to open accounts in his name and because using varied accounts made discovery of his filing false returns less likely. Booth admitted that as a result of the filing of the false federal income tax returns, $159,926.98 was disbursed by the IRS into the accounts he designated.

Booth is scheduled to be sentenced on April 23, 2014, at 2:30 p.m. Booth faces up to 10 years’ imprisonment, up to 3 years of supervised release, and a maximum fine of $250,000. The Court may also impose a term of probation of between 1 and 5 years, and must order restitution to the victims of the offense in an amount determined by the Court.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and James C. Lee, Special Agent-In-Charge of the Chicago Field Office of Internal Revenue Service - Criminal Investigation Division.

The government is represented by Assistant U.S. Attorney Michael D. Love.

Plea Agreement

CHICAGO — Following a lengthy investigation by the FBI-led Chicago Joint Terrorism Task Force, a Chicago man admitted today in Federal Court that he mailed more than 90 threatening and/or harassing letters to Chicago police officers, other government and law enforcement officials, private individuals, schools, and religious institutions in the Chicago area between November 2003 and December 2012.

The defendant, RICHARD D. HYERCZYK, 54, of Chicago’s Garfield Ridge neighborhood, pleaded guilty to one count of mailing a threatening communication at his arraignment after being charged in a criminal information filed last week in U.S. District Court. Hyerczyk was released on his own recognizance after prosecutors said he had been cooperative in the investigation and was not believed to be a danger to the community or a risk of flight.

Hyerczyk faces a maximum sentence of five years in prison and a $250,000 fine, and his plea agreement anticipates an advisory federal sentencing guideline range of 33 to 41 months in prison. U.S. District Judge Gary Feinerman set sentencing for April 11.

Hyerczyk pleaded guilty to mailing a letter on April 21, 2008, that threatened to kill Chicago Police Department officers and members of their families. That letter followed local news media reports on April 15, 2008, that Chicago police officers had shot and killed a cougar that was located on the city’s north side. Hyerczyk admitted that he drafted letters containing threats to kill and commit violence against CPD officers and members of their families.

The plea agreement details one such letter, which began with the salutation, “Dear Cougar Killers (aka Chicago PIG Police),” and included the following threatening messages: “Prepare to DIE like the Cougar you killed. On May 4th at your St. Jude Memorial March several PIGS will be shot by snipers.”; “BURN down the Daley house in Michigan.”; and “Kill any Police Officer, where ever they are found, like they killed the Cougar.”

Hyerczyk admitted that he drafted a second letter, which contained a title that referenced a severely injured former Chicago police officer by name and referred to the officer as the “PARALIZED [sic] PIG,” and which title contained the phrase “St. Jude Memorial PIG March.” This second letter threatened that: “A police officer will be SHOT DEAD, like they shot the cougar, at the May 4th St. Jude Memorial PIG March.”; “A celebration of DEAD police officers. Ha ha ha ha you are all better off DEAD.”; and “When the PIGS are at the parade, we will be at their homes. You can=t guard every PIGS house...watch your young children.”

After drafting these letters, Hyerczyk printed multiple copies of each and placed them into envelopes bearing first class postage and addressed to, among others: a university in Orland Park; the same university’s office of graduate studies in Chicago; the same university’s English Department in Chicago; and a Chicago Police officer and executive officer of a Fraternal Order of Police lodge in Chicago.

In pleading guilty, Hyerczyk admitted that he mailed these letters knowing and intending that they would be interpreted as threatening by the intended victims, including Chicago Police officers and their families.

The Chicago Joint Terrorism Task Force began investigating the threatening letters in this case after they were first received in 2003. Diligent investigation by agents resulted in a federal search warrant being executed on Hyerczyk’s residence and automobile, as well as for his DNA, in January 2013. The JTTF is composed of special agents of the FBI, officers of the Chicago Police Department, and representatives from an additional 20 federal, state, and local law enforcement agencies.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorneys Christopher Veatch and Steven Dollear.

Plea Agreement

Information

CHICAGO — H. TY WARNER, the creator of Beanie Babies and other plush animal toys was sentenced today to two years’ probation for failing to report more than $24.4 million in income, and evading nearly $5.6 million in federal taxes, from millions of dollars he hid for more than a decade in secret foreign financial accounts at two banks based in Switzerland.

Warner, 69, of west suburban Oak Brook and the Santa Barbara, Calif., area, the sole owner of TY Inc., a Westmont-based company that designs and sells plush toy animals including Beanie Babies, as well as other business interests, was charged with, and pleaded guilty to, a single count of tax evasion last fall.

“Society will be best served to allow [Warner] to continue his good works,” U.S. District Judge Charles Kocoras said in imposing the sentence. Judge Kocoras also ordered Warner to perform at least 500 hours of community service for at least three Chicago high schools and to pay a $100,000 fine.

In addition, Warner has paid more than $53 million in a civil penalty, representing 50 percent of the highest balance of his unreported foreign bank accounts, which at its peak was more than $100 million, as well as approximately $27 million in back taxes and interest.

“It is imperative when an individual brazenly breaks the law and lies repeatedly on tax returns year after year and evades millions of dollars in taxes, that person has to be held accountable. That’s true if you are rich or poor and no one is above the law,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois.

“When people cheat on their taxes, honest taxpayers suffer the consequences and have to make up the difference. IRS Criminal Investigation is here to ensure that everyone pays their fair share of taxes regardless of their social status,” said James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago.

In pleading guilty, Warner admitted that between 1996 and 2008, he opened and maintained undeclared bank accounts in Switzerland at both UBS AG and Zuercher Kantonalbank (ZKB). Warner failed to report the income from those accounts, as well as their existence, on his individual income tax returns and amended returns for tax years 1996 through 2007. Between 1999 and 2007, Warner’s unreported gross income from those accounts totaled $24,448,912, while the there are no records of how much he earned for the tax years 1996-98.

Warner also admitted that he failed to report his interest in the foreign bank accounts each year from 1996 to 2008 to the Treasury Department, as required on the Report of Foreign Bank and Financial Accounts (FBAR) form. U.S. taxpayers must report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year, and a deliberate failure to file the FBAR form can result in a civil penalty of up to 50 percent of the high balance in the account each year.

According to court documents, Warner traveled to Zurich in January 1996 to open an undeclared account at UBS and executed a form instructing that any correspondence regarding the account be held at the bank in Switzerland rather than being mailed to him in the United States. Warner has never identified the source of the funds or the purpose behind the secret account, other than to suggest that opening the account was based on the success of Beanie Babies sales. It remains unknown if the initial deposits were diverted pre-tax funds, which, if so, would significantly increase the tax loss.

In 2001, UBS agreed to report certain tax information to the Internal Revenue Service. In 2002, Warner’s UBS banker, Hansreudi Schumacher, left UBS and later counseled his former clients to move their UBS accounts to ZKB because it had no similar agreement with the IRS. In December 2002, Warner traveled to Zurich and transferred approximately $93.63 million from UBS to ZKB, where his new account was managed by Schumacher, who was indicted in Florida in 2008 for conspiracy to defraud the United States and remains a fugitive.

Instead of opening the ZKB account in his own name, Warner opened the account in the name of a purported Liechtenstein entity, the “Molani Foundation,” which effectively concealed his identity as the account holder. From 2002 through tax year 2007, Warner, again, did not report the existence of, or income from, the ZKB account, and he also failed to report the accounts and income on amended tax returns he filed in December 2007 for tax years 2002-05.

In early 2009, UBS entered into a deferred prosecution agreement with the United States, admitting that it helped U.S. taxpayers hide accounts from the IRS. As part of the agreement, UBS provided the government with the identities of, and account statements for, certain U.S. clients. The IRS also announced a voluntary disclosure program for taxpayers to declare secret accounts, but taxpayers whose accounts were already known the government were ineligible for the program.

Despite publicity in 2009 of tax fraud indictments of former UBS employees, including Schumacher, and its U.S. clients, Warner did not attempt to disclose his account at ZKB until late 2009, after he learned that UBS was going to disclose client records and that Schumacher had been indicted. Warner requested eligibility for the voluntary disclosure program a week before the original deadline in September 2009, but the government had learned that he had an undisclosed UBS account in the summer of 2008, according to court documents.

Warner is the second taxpayer convicted and sentenced in Federal Court in Chicago in connection with the investigation of U.S. taxpayer clients of UBS and other overseas banks that hid foreign accounts from the IRS.

Tax evasion carries a maximum penalty of five years in prison and a $250,000 fine. In addition, a defendant convicted of tax offenses faces mandatory costs of prosecution and remains civilly liable to the government for any and all back taxes, as well as a potential civil fraud penalty of up to 75 percent of the underpayment plus interest. Federal tax law requires U.S. taxpayers pay taxes on all income earned worldwide and to report certain foreign financial accounts.

The government was represented at sentencing by Assistant U.S. Attorneys Michelle Petersen and Patrick King.

CHICAGO — A former Chicago tax preparer pleaded guilty to filing nearly 3,200 false federal income tax returns for clients, while in a separate case in Federal Court yesterday, a suburban tax preparer was sentenced to 63 months in prison for fraudulently claiming more than $8 million in tax refunds from the Internal Revenue Service. The unrelated federal prosecutions serve as a reminder to tax preparers and taxpayers alike to comply with the law as the 2013 tax season gets underway.

“With tax season upon us, I want to assure taxpayers that the IRS Criminal Investigation Division is focused on protecting revenue by identifying and investigating abusive tax return preparers. While most return preparers are honest and provide excellent service, a few unscrupulous tax preparers file false returns to defraud their clients and the United States government,” said James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago.

“Today, we remind dishonest tax preparers: we are watching your activities. These cases should send a loud message to any dishonest return preparers who might be thinking of engaging in criminal activity, and taxpayers should choose carefully when hiring a tax preparer,” Mr. Lee added.

The guilty plea and sentencing were announced by Mr. Lee, Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in- Charge of the Chicago Office of the Federal Bureau of Investigation.

In one case, VERLEAN HOLLINS, who owned Taxes, Etc., Inc., a tax preparation business located in the 2300 block of East 71st Street, between at least 2010 and 2012, pleaded guilty to two counts of aiding and assisting in the preparation of false federal income tax returns. Hollins, 43, of South Holland, who was charged on Dec. 19, faces a maximum sentence of six years in prison and a fine of nearly $800,000 when she is sentenced on April 22 by U.S. District Judge Samuel Der-Yeghiayan.

Hollins admitted that for calendar years 2009 through 2011, she filed a total of 3,193 individual income tax returns for clients, each of which falsely claimed higher education tax credits. As a result, she falsely claimed refunds totaling more than $3.372 million for her clients, the majority of whom paid her approximately $125 to prepare their returns, although her fee ranged between $25 and $400. The vast majority of Hollins’ clients never indicated that they or a dependent were eligible for a college tuition credit, and among the small number of her clients who were eligible for the tax credit, none provided any documents to support eligibility.

Hollins’ plea agreement anticipates an advisory federal sentencing guidelines range of 46 to 57 months in prison, and she agreed to a fine of $798,250. Each count of assisting in the preparation of a false federal income tax return carries a maximum sentence of three years in prison and a $250,000 fine, or an alternate fine of twice the gain or twice the loss, whichever is greater. In addition, defendants convicted of tax offenses must pay the costs of prosecution and remain liable for any taxes and interest, as well as a civil penalty up to 75 percent of the taxes owed. The Court must impose a reasonable sentence under federal statutes the advisory United States Sentencing Guidelines.

The government is being represented by Assistant U.S. Attorney Kaarina Salovaara.

In a separate case, SHARON ANZALDI, 67, of Elmwood Park, was sentenced to 63 months in federal prison and ordered to pay $851,142 in restitution to the IRS for filing 13 false federal income tax returns for herself, friends, and family that fraudulently claimed refunds totaling more than $8 million and caused the IRS to actually pay more than $1 million in bogus refunds.

Anzaldi, who represented herself and was convicted at trial last summer, is associated with the sovereign citizen movement. She was ordered to begin serving her sentence on Feb. 25 by U.S. District Judge Harry Leinenweber. Evidence at trial showed that in one instance, Anzaldi charged a couple $31,000 for her “services” for filing a fraudulent tax return that they simply went along with and did not really understand. The couple returned the bulk of their fraudulent refund but continue to accrue penalties and interest on the amount they spent before returning the money.

Convicted at trial with Anzaldi were her son, PHILLIP DeSALVO, 42, of Bartlett, who was sentenced to 30 months in prison, and STEVEN LATIN, 51, of Crystal Lake, who was sentenced to 18 months in prison.

The government was represented by Assistant U.S. Attorneys Rachel Cannon and Dylan Smith.

CHICAGO ― The U.S. Attorney's Office for the Northern District of Illinois collected $78.1 million in fiscal year (FY) 2013, Zachary T. Fardon, United States Attorney for the Northern District of Illinois, announced today. These collections included more than $31.8 million in criminal debts, more than $31.8 million in civil actions, and $14.5 million in forfeited assets, resulting in the office’s total collections exceeding well more than twice its budget of approximately $33.8 million in FY 2013. Over the last 10 fiscal years combined, the office has collected more than $915 million on behalf of the United States.

In addition, in FY 2013, a court-appointed special master distributed $50 million in restitution to more than 7,000 victims in a criminal investment fraud case against a defendant who owned properties in Mexico and Panama. This amount was not included in the U.S. Attorney’s Office’s direct collection figures because it was handled by the special master, but it resulted from the office’s prosecution of this defendant.

In addition to the $63.6 million collected through criminal and civil cases, the office collected $14.5 million through asset forfeiture proceedings. The largest amount in this category, approximately $9.2 million in net liquidated proceeds, came from the forfeited assets of Rita Crundwell, the former comptroller of Dixon, Ill., who is serving a sentence of 19 years and five months in prison for embezzling $53 million from the town over two decades. The $9.2 million in forfeiture proceeds was restored to the City of Dixon last month.

Attorney General Eric Holder announced today that the Justice Department collected approximately $8.1 billion in civil and criminal actions in the fiscal year ending Sept. 30, 2013. The more than $8 billion in collections in FY 2013 represents nearly three times the appropriated $2.76 billion budget for the 94 U.S. Attorney’s offices and the main litigating divisions in that same period.

“The department’s enforcement actions help to not only ensure justice is served, but also deliver a valuable return to the American people,” said Attorney General Holder. “It is critical that Congress provide the resources necessary to match the Department’s mounting caseload. As these figures show, supporting our federal prosecutors is a sound investment.”

“This news is more important now than ever,” Mr. Fardon said. “During fiscal year 2013, despite historically challenging circumstances, we collected more than double what we cost. The men and women of this office ― especially in our Civil Division, Financial Litigation Unit, and Asset Forfeiture Section ― have demonstrated once again our commitment to protecting the public and recovering funds for the federal treasury and for victims of federal crime. We seek to keep those we prosecute from profiting from their crimes. In pursuit of that goal, we have provided a substantial net financial benefit to the citizens of our district,” Mr. Fardon added.

During FY 2013, the U.S. Attorney’s Financial Litigation Unit in Chicago collected $31,812,252.86 in criminal actions, including more than $1.8 million in criminal fines; more than $16.7 million in restitution owed to the federal government; and more than $12.9 million in nonfederal restitution owed to victims, including the victims of various financial frauds and Ponzi schemes.

Among the criminal collections was $10.27 million in restitution to the Internal Revenue Service that was paid last August by two business owners who received prison terms for failing to report as income and pay personal and corporate taxes on more than $22 million they diverted from their business and divided equally. Already in In FY 2014, the U.S. Attorney’s Office has collected a $53 million civil penalty on behalf of the IRS from a different business owner who is awaiting sentencing after pleading guilty to failing to report income from a secret foreign bank account.

In civil actions, the office collected $31,817,946.56, including amounts of $12.9 million, $2.93 million, and $2.4 million to settle civil health care fraud cases under the False Claims Act.

Civil collections typically were from affirmative civil enforcement cases, in which the United States recovered government money lost to fraud or other misconduct or collected fines imposed on individuals and/or corporations for violations of federal health, safety, civil rights or environmental laws. In addition, civil debts were collected on behalf of several federal agencies, including the U.S. Department of Housing and Urban Development, Health and Human Services, Internal Revenue Service, Small Business Administration, and Department of Education.

The U.S. Attorney's Offices, along with the Justice Department’s litigating divisions, are responsible for enforcing and collecting civil and criminal debts owed to the United States and criminal debts owed to federal crime victims. When defendants are convicted and sentenced in criminal cases, judges must impose restitution to victims of certain federal crimes who have suffered a physical injury or financial loss. The U.S. Attorney's Offices are authorized to make efforts to collect criminal debts for 20 years after defendants are released from custody.

While restitution is paid by Courts directly to the victim, criminal fines and felony assessments are paid to the Justice Department's Crime Victims’ Fund, which distributes the funds to state victim compensation and victim assistance programs. Liquidated assets obtained through criminal and civil forfeiture proceedings are deposited into either the Department of Justice Asset Forfeiture Fund or the Department of Treasury Forfeiture Fund and are used to restore funds to crime victims and for a variety of law enforcement purposes.

ROCKFORD — A former McHenry County Sheriff=s Deputy pleaded guilty today in federal court before U.S. District Court Judge Frederick J. Kapala to crossing a state line with intent to engage in a sexual act with a person who had not attained the age of 12 years. The defendant, GREGORY M. PYLE, 38, of Crest Hills, Ill., formerly of Crystal Lake, Ill., admitted that on Dec. 13, 2008, he had custody of a child under 12 years of age, when he drove the child from Crystal Lake, Ill. to Milwaukee, Wisc., with the intention to engage in sexual acts with the child and to produce visual depictions of such acts. Pyle admitted that he stayed overnight in a Milwaukee hotel and engaged in sexual acts with the child that were sadistic, masochistic, and violent. The defendant produced images of the child engaged in these sexual acts and later distributed the images over the Internet.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation. The Illinois State Police, the McHenry County Sheriff’s Department, and the Illinois Internet Crimes Against Children Taskforce assisted in the investigation.

Pyle’s sentencing hearing is scheduled for April 14, 2014, at 2:30 p.m. Crossing a state line to engage in a sexual act with a minor under 12 carries a mandatory minimum sentence of 30 years and a maximum of life in prison, a period of supervised release following imprisonment of at least five years and up to life, and a maximum fine of $250,000.

The government is being represented by Assistant U.S. Attorney Michael D. Love.

Plea Agreement

ROCKFORD — A Rockford, Ill. man was sentenced today in federal court before U.S. District Judge Frederick J. Kapala to 113 months in prison without parole, to be followed by 3 years of supervised release, for robbing two Rockford area banks and a credit union. DELANIO BENFORD, 34, pled guilty on March 22, 2013, to the robbery of: Associated Bank, 3333 N. Rockton Ave., on June 22, 2010; PNC Bank, 6709 E. Riverside Blvd., on July 15, 2010; and Members Alliance Credit Union, 6951 Olde Creek Rd., on July 28, 2010 and Sept. 11, 2010. Benford was also ordered to pay restitution of $38,771 to the banks and credit union. Benford will not be eligible for parole.

Two other individuals have also pled guilty and been sentenced in related cases:

Prince Williams, 27, of Rockford, pled guilty on April, 19, 2012, to six counts of bank/credit union robbery and one count of armed bank robbery, all in Rockford, including: First Northern Credit Union, 2235 12th St., Rockford, on May 3, 2010; National City Bank (now PNC Bank), 1551 Sandy Hollow Rd., on June 10, 2010, while armed with a handgun; Associated Bank, 3333 N. Rockton Ave., on June 22, 2010; PNC Bank, 6709 E. Riverside Blvd., on July 15, 2010; Harris, N.A., 1275 Bennington Rd., on July 22, 2010; and Members Alliance Credit Union, 6951 Olde Creek Rd., on July 28, 2010, and on Sept. 11, 2010, while using and carrying a firearm during a crime of violence. Williams was sentenced by Judge Kapala on Dec. 4, 2013, to 128 months in federal prison without parole, 5 years of supervised release following imprisonment, and ordered to pay restitution of $56,644.35 to the banks and credit unions.

Michael Buck, 28, also of Rockford, pled guilty on Oct. 3, 2013, to the robbery of Members Alliance Credit Union on Sept. 11, 2013, and was sentenced by U.S. District Judge Philip G. Reinhard to 125 months in federal prison without parole, 3 years of supervised release following his release from prison, and ordered pay restitution of $12,180 to Members Alliance.

The sentencing today was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The Rockford Police Department and Rockton Police Department assisted in the investigation.

The government was represented by Assistant U.S. Attorney Joseph C. Pedersen.

CHICAGO ― Three defendants who operated Washington National Trust, which was not licensed in Illinois as either a trust or a mortgage company, are facing federal fraud charges for allegedly swindling approximately $220,000 from at least 54 homeowners after falsely promising to save their homes from foreclosure and lower their monthly mortgage payments. The alleged mortgage “rescue” fraud scheme primarily preyed upon Hispanic victims in and around Aurora since late 2011.

One defendant, CARLOS RAYAS, 39, of Aurora, whose loan originator license was revoked by state regulators, was arrested today. He pleaded not guilty before U.S. Magistrate Judge Sheila Finnegan and was released on his own recognizance. A status hearing was set for Jan. 10 in U.S. District Court.

Arrest warrants were issued for MELVIN T. BELL, 37, also known as “Alex Crown,” “Minister Bey,” “Sovereign King Bey,” “King Bey,” and “S.K. Bey,” and MONICA HERNANDEZ, 43, Rayas’ cousin and a former licensed real estate broker. Both Bell and Hernandez were last known to reside in Oswego.

Bell and Hernandez were each charged with four counts of mail fraud, and Rayas was charged with two counts of mail fraud, in an indictment that was returned last week by a federal grand jury and unsealed today. The indictment also seeks forfeiture of approximately $220,000.

According to the indictment, the defendants marketed the official-sounding Washington National Trust as a business providing a financial assistance program for homeowners that was operated and controlled by wealthy Native Americans and was exempt from state and federal laws. In exchange for fees ranging between $5,000 and $10,000 per property, the defendants claimed that Washington National Trust would lower the homeowners’ existing mortgage payments by half and defeat any foreclosure. All three defendants knew, however, that Washington National Trust was not licensed to conduct loan originations and modifications in Illinois and could not lower mortgage payments or defeat foreclosure.

Bell, Hernandez, and Rayas allegedly falsely promised that Washington National Trust would pay off and acquire homeowners’ mortgages, and once that happened, the homeowners would owe only half the original mortgage to Washington National Trust, due over five years and free of any interest and property taxes. To effect this so-called “mortgage rescue,” the defendants had homeowners sign documents and deeds purportedly appointing Washington National Trust as trustee and transferring title of their homes to the business, the indictment alleges. As part of the scheme, the defendants recorded fraudulent documents and deeds in Kane, Kendall and other counties to delay foreclosure and to make it appear that their business was the homeowners’ trustee, the charges add.

The indictment also alleges that the defendants falsely promised that the fees paid by homeowners would go toward reducing their principal balance after Washington National Trust acquired the loan from the lender. Instead, Bell and Hernandez used the fees to pay for marketing and operating the business, including making payments to Rayas and others who referred homeowners to them, as well as for various personal expenses, including meals, travel, and merchandise.

All three defendants allegedly concealed from homeowners that the Kane County Circuit Court had issued orders in September and October 2012 barring Washington National Trust from further filing and recording deeds. They also allegedly concealed that the Illinois Department of Financial and Professional Regulation had issued orders in December 2012 and February 2013, first, to Washington National Trust to stop using the word “trust” and, later, to all three defendants to stop engaging in unlawful residential mortgage activity.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Tony Gómez, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago. The Illinois State Police also participated in the investigation.

The government is being represented by Assistant U.S. Attorney Jessica Romero.

Each count of mail fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, or an alternative fine totaling twice the gross gain or twice the loss, whichever is greater, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

An indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

ROCKFORD — The former shipping manager for American Extrusion International (“AEI”), was indicted today on federal mail fraud charges. REVA K. VERA, 57, of Beloit, Wis. was charged with two counts of mail fraud.

According to the indictment, Vera, as the shipping manager, was responsible for authorizing payments to vendors who provided shipping services to AEI. The indictment alleges that from May 4, 2012 to Oct. 9, 2013, Vera defrauded AEI out of at least $352,743.23. The indictment alleges that Vera created fictitious invoices from Val Tech, Inc. and TQL for shipping services that those companies had purportedly performed for AEI when in fact, Val Tech, Inc. and TQL provided no such shipping services for AEI. According to the indictment, Vera submitted the fictitious invoices to AEI’s accounts payable department causing checks to be issued by AEI payable to Val Tech, Inc. or TQL in the amounts of the invoices. The indictment further alleges that after AEI’s accounts payable department generated the checks for the fictitious invoices submitted by Vera, AEI mailed the checks payable to Val Tech, Inc. to an address of Vera’s relative in Beloit, Wis., and the checks payable to TQL to a post office box in Loves Park, Ill. belonging to Vera. According to the indictment, as part of the scheme to defraud AEI, Vera obtained $85,993 in checks from AEI payable to Val Tech, Inc., and $266,810.23 in checks from AEI payable to TQL that she either cashed or deposited into her personal bank account.

Each count of mail fraud carries a maximum penalty of 20 years in prison, a maximum fine of $250,000 fine, or an alternate fine totaling twice the loss or twice the gain derived from the offense, whichever is greater, and restitution. If convicted, the Court must impose a reasonable sentence under the advisory United States Sentencing Guidelines.

Vera appeared today at the federal courthouse in Rockford for an arraignment and initial appearance conducted by U.S. Magistrate Judge P. Michael Mahoney. Vera was released on bond and is scheduled to appear for a status hearing before Magistrate Judge Mahoney on Jan. 27, 2014 at 11 a.m.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The South Beloit Police Department assisted in the investigation.

The government is represented by Assistant U.S. Attorney Joseph C. Pedersen.

An indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — Two executives of a prominent Chicago real estate development company were indicted today on federal fraud charges alleging that they lied about and concealed unpaid property taxes, the double-pledging of public financing notes issued by the City of Chicago, and the company’s default on those notes so they could secure credit extensions and payments from the city at a time when they knew their firm was having serious financial difficulties. The defendants, LAURANCE H. FREED, and CAROLINE WALTERS, are, respectively, the president and vice president/treasurer of Joseph Freed and Associates LLC (JFA), best known for its role in the development of Block 37 in Chicago’s Loop.

The charges involve, in part, two Tax Increment Financing (TIF) notes that the City of Chicago agreed to issue in November 2002 to finance redevelopment of the former Goldblatt’s department store in the 4700 block of North Broadway in the city’s Uptown neighborhood. Freed was manager of a limited liability company, formed by JFA, called Uptown Goldblatts Venture LLC, which received a $4.3 million TIF redevelopment area note and a $2.4 million TIF project note from the city to help finance the project.

Freed, 51, of Chicago, and Walters, 53, of Palatine, were each charged with seven counts of bank fraud, one count of mail fraud, and five counts of making false statements to banks in a 14-count indictment returned today by a federal grand jury. The indictment also seeks forfeiture of $2,995,295 in alleged fraud proceeds from both defendants, who will be arraigned at a later date in U.S. District Court.

The indictment alleges three victims: the City of Chicago, Cole Taylor Bank, and a consortium of banks consisting of Bank of America (as successor to the former LaSalle Bank National Association), Associated Bank, Northern Trust, and Wachovia Bank.

According to the indictment, between March 2008 and February 2011 ― when JFA was in the midst of a severe liquidity crisis that jeopardized its ability to pay operating expenses and Freed and Walters knew the possibility that JFA’s inability to make required payments threatened the company’s future ― both defendants made false statements to the city and the banks to obtain funds. Freed and Walters allegedly made false statements:

• to the bank consortium to prevent default on a $105 million line of credit and to obtain a loan modification that would have provided JFA with at least $10 million in additional funds;
• to Cole Taylor Bank regarding the defendants’ intent to persuade the bank consortium to release its claim on the TIF notes as collateral; and
• to the City of Chicago to obtain nearly $1.75 million in payments from the TIF notes, knowing that the bank consortium and Cole Taylor were entitled to those payments.

As background, the indictment details various financial agreements involving JFA and its related entities, including:

• Uptown Goldblatts’ November 2002 TIF agreement with the city contained several conditions guaranteeing that Uptown Goldblatts would not default on its obligations, and, if the conditions were violated, the city would not be obligated to make TIF payments. The city began paying annual principal and interest on the notes after receiving an annual sworn statement from JFA certifying that it was in compliance with the conditions;
• Also in November 2002, Freed, on behalf of Uptown Goldblatts, entered into an agreement with Cole Taylor Bank for a $15 million loan in exchange for Uptown Goldblatts’ assignment to the bank of its rights in the TIF project note. Uptown Goldblatts would receive the annual proceeds from the note so long as it was not in default to the bank, but if it was in default, the bank would be entitled to the proceeds. The loan agreement also forbid Uptown Goldblatts from pledging the TIF note as collateral for any other loan and specified that doing so would constitute default to Cole Taylor Bank. The loan amount was later reduced from $15 million to $9 million; and
• In May 2006, a JFA associated entity, DDL LLC and Freed Illinois Holdings LLC, entered into agreements with the bank consortium, now led by Bank of America, for a revolving line of credit up to $150 million. In exchange, Freed’s entities pledged properties known as Evanston Plaza and West Town Center as collateral, and Freed personally guaranteed the loan for up to $50 million. In November 2007, Uptown Goldblatts entered into a security agreement with the bank consortium, pledging both TIF notes and their proceeds as collateral for the line of credit. Uptown Goldblatts warranted that the notes were free of any other outside interests, despite knowing that the project note had been previously pledged to Cole Taylor. The security agreement, signed by Freed, further provided that Uptown Goldblatts would direct all payments from the TIF notes to a Bank of America lockbox.

Freed and Walters allegedly made false statements to the bank consortium and Cole Taylor Bank about the collateral, as well as to the city about default and misappropriation of the TIF funds. These included concealing from the bank consortium Uptown Goldblatts’ prior pledge of the project note to Cole Taylor Bank, and making false statements and omissions to the consortium while trying to obtain a loan modification of at least $10 million and to prevent default on a $105 million line of credit. Between December 2008 and July 2009, Freed and Walters made four presentations to the bank consortium, allegedly knowing they contained multiple false statements and that Cole Taylor Bank had a superior interest in the TIF project note. Both defendants also made false statements about the Evanston Plaza and West Town Center developments, including concealing that JFA owed unpaid property taxes in April 2009 of at least $1.325 million on Evanston Plaza and at least $590,000 on West Town Center, the indictment alleges.

In December 2008, 2009, and 2010, Freed signed allegedly false affidavits to obtain TIF payments from the city, knowing instead that the bank consortium and Cole Taylor Bank were entitled to the payments. The indictment alleges he also falsely swore that no default condition existed, despite knowing that the double pledge of the project note as collateral to Cole Taylor Bank and the bank consortium had triggered Uptown Goldblatts’ default to the city. Further, Freed and Walters allegedly took steps to ensure that the TIF payments would be delivered directly to JFA and bypass the lockbox to prevent Bank of America from keeping the payments.

Each count of the indictment carries a maximum penalty of 30 years in prison and a $1 million fine, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Joseph Ferguson, Inspector General for the City of Chicago.

The government is being represented by Assistant U.S. Attorney Renato Mariotti.

An indictment contains merely charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — A federal jury today convicted a Bolingbrook man of running a sex trafficking ring between at least late 2009 and November 2010 that forced into prostitution at least four victims, including a minor who was 17 at the time. The defendant, McKENZIE CARSON, was found guilty on one count of sex trafficking a minor by force, fraud, and coercion, and three counts of sex trafficking by force, fraud, and coercion. The jury deliberated less than two hours following a trial that began Dec. 2 in U.S. District Court.

All four victims testified in the trial, which showed that Carson, 41, also known as “Casino” and “Joe Taylor,” was a pimp who chose vulnerable, young victims, including the minor who he knew was only 17, and used violence and threats of violence to exploit them sexually.

“This was not a business relationship, but a relationship between predator and prey,” Assistant U.S. Attorney Bethany Biesenthal said in her closing argument. In her rebuttal argument, Assistant U.S. Attorney Jennie Levin told jurors “the victims bared their souls and told you they were frightened for their lives.”

Carson has remained in federal custody without bond since he was arrested on Jan. 3, 2012. He faces a mandatory minimum sentence of 15 years in prison and a maximum of life imprisonment on each count. No sentencing date was immediately set but U.S. District Judge Elaine Bucklo scheduled a status hearing for May 2, 2014.

The evidence showed that Carson recruited his victims and forced them to engage in commercial sex acts. He used fraud to recruit and groom his victims, sometimes concealing that he was a pimp, and used drugs to control them. He frequently provided them with heroin and exercised control over how much and when each victim was allowed to use drugs.

Carson also used threats and physical beatings to enforce rules that left him with a control over his victims. When they broke the rules or disobeyed him, he threatened them or beat them, or raped them. He required his victims to commit commercial sex acts and to give him the money they made. The evidence included numerous photographs of Carson’s victims that he used to solicit their services on the Internet, as well as the advertisements that he posted to promote his prostitution business.

The guilty verdict was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of investigation. FBI special agents led a multi-agency task force that included the Cook County Sheriff’s Office, the DuPage Metropolitan Enforcement Group, and the Alsip, Bolingbrook, Channahon, Downers Grove, Joliet, Lansing, Marseilles, Naperville, Oswego, Romeoville, Shorewood, and Westmont police departments. The government was represented by Assistant U.S. Attorneys Jennie Levin and Bethany Biesenthal.

ROCKFORD — A Rockford, Ill. man was sentenced today in federal court by U.S. District Judge Frederick J. Kapala to illegally possessing a firearm as a convicted felon. ROBERT J. GRAY, 34, was sentenced to 10 years in federal prison, to be followed by 3 years of supervised release. Gray pled guilty on May 3, 2013 admitting that on May 8, 2012, having previously been convicted of a felony, he possessed at his home an SKS Norinco semi-automatic assault rifle with an obliterated serial number and sixteen rounds of ammunition. Gray also possessed at his home $372,993 in U.S. currency, diamond jewelry, six cell phones, a digital scale, a pocket scale, a heat sealer and bags, and plastic grocery bags filled with rubber bands.

The defendant was originally charged in state court and was transferred to federal court where he was charged under tough federal firearms laws as part of the Project Safe Neighborhoods program. Project Safe Neighborhoods is an intensive, cooperative effort between local, state, and federal law enforcement to attack gun crimes. The cornerstone of the program is that every defendant committing an offense involving a gun will be reviewed for possible federal prosecution in order to obtain the harshest penalties for the worst offenders. Additional information about Project Safe Neighborhoods may be found at: www.psn.gov.

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Constance Hester, Acting Special Agent-in-Charge of the Chicago Field Division of the Bureau of Alcohol, Tobacco, Firearms & Explosives; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; Joseph Bruscato, Winnebago County State’s Attorney; and Richard Meyers, Winnebago County Sheriff.

The government was represented by Assistant U.S. Attorney Scott R. Paccagnini.

ROCKFORD — A Rockford, Ill. man was sentenced today in federal court by U.S. District Judge Frederick J. Kapala to possessing with the intent to distribute crack cocaine, to illegally possessing a firearm as a convicted felon, and to possessing a firearm in furtherance of a drug trafficking crime. ERIC LAMONT KELLY, 29, was sentenced to a total of 10 years and 3 months in federal prison, to be followed by 5 years of supervised release. Kelly pled guilty on September 5, 2013, admitting that on April 6, 2012, he had possessed 18.4 grams of crack cocaine, with the intent to distribute it, along with a 9 mm pistol after having previously been convicted of a felony. He also admitted that he possessed the pistol in furtherance of his drug trafficking crime.

In his plea agreement, Kelly admitted that on April 6, 2012, when police officers attempted to execute a search warrant at Kelly’s house in Rockford, he tried to hide the crack cocaine and firearm by throwing the items down a heating duct. Police officers recovered the crack cocaine and firearm, along with digital scales, drug packaging materials, and the proceeds from the sale of drugs.

The defendant was originally charged in state court and was transferred to federal court where he was charged under tough federal firearms laws as part of the Project Safe Neighborhoods program. Project Safe Neighborhoods is an intensive, cooperative effort between local, state, and federal law enforcement to attack gun crimes. The cornerstone of the program is that every defendant committing an offense involving a gun will be reviewed for possible federal prosecution in order to obtain the harshest penalties for the worst offenders. Additional information about Project Safe Neighborhoods may be found at: www.psn.gov.

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Constance Hester, Acting Special Agent-in-Charge of the Chicago Field Division of the Bureau of Alcohol, Tobacco, Firearms & Explosives; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; Joseph Bruscato, Winnebago County State’s Attorney; and Chet Epperson, Chief of the Rockford Police Department.

The government was represented by Assistant U.S. Attorney John G. McKenzie.

CHICAGO ― The United States has intervened in a civil lawsuit against Californiabased IPC The Hospitalist Company, Inc., and its subsidiaries (IPC), alleging that IPC submitted false claims to federal health care programs, the U.S. Attorney’s Office and the Justice Department announced today. The lawsuit, which was unsealed Friday in U.S. District Court in Chicago, alleges that IPC violated state and federal False Claims Acts by knowingly engaging in systematic overbilling for hospital evaluation and management services billed to Medicare, Medicaid, and other federal health benefit programs.

IPC, based in North Hollywood, Calif., is one of the largest providers of hospitalist services in the United States, employing physicians and other health care providers who work in more than 1,300 facilities in 28 states. Hospitalists are physicians who work only in hospitals and other long-term care facilities, overseeing and coordinating inpatient care for patients from admission to discharge.

The lawsuit alleges that IPC physicians sought payment for higher and more expensive levels of medical service than were actually performed ― a practice commonly referred to as “upcoding.” Specifically, the lawsuit alleges that IPC encouraged its physicians to bill at the highest levels regardless of the level of service provided, trained physicians to use higher level codes and encouraged physicians with lower billing levels to “catch up” to their peers.

“We continue to be vigilant in our enforcement efforts to ensure that health care programs funded by the taxpayers pay only for appropriate costs,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.

The lawsuit was filed under seal in 2009 by Dr. Bijan Oughatiyan, of Dallas, who worked as a hospitalist for IPC in San Antonio from 2003 to 2008, under the qui tam or whistleblower provisions of the False Claims Act. The federal law and similar state statutes permit private individuals to sue for false claims on behalf of the government and to share in any recovery. The Act also allows the government to intervene or take over the lawsuit, as it has done in this case, and to recover three times its damages plus civil penalties ranging from $5,500 to $11,000 for each false claim submitted.

The government investigated Dr. Oughatiyan’s allegations and filed a notice of intervention, asking at the same time that the complaint be unsealed. Chief U.S. District Judge Ruben Castillo last week ordered the case unsealed and granted the government’s request for 120 days to file its own complaint against IPC and related defendants, announced Zachary T. Fardon, United States Attorney for the Northern District of Illinois.

According to Dr. Oughatiyan’s 2009 complaint, more than half of IPC’s revenues ― more than $125 million in 2008 alone ― came from government medical insurers, including Medicare and Medicaid. “IPC’s upcoding scheme has caused those Government health insurers to overpay millions of dollars to IPC, and has adversely impacted patient care,” the suit states.

The lawsuit alleges that IPC directed and encouraged its physicians to engage in systematic overbilling of the codes submitted to Medicare, Medicaid, and other health benefit programs for evaluation and management procedures such as admission, subsequent hospital visits, and discharge of patients. Based on IPC=s regular and detailed monitoring of the codes billed by individual physicians, the lawsuit alleges that IPC was aware that its physicians were using the highest level billing codes (those which require the most work and are reimbursed at the highest amounts) at rates far in excess of what would normally be expected. It further alleges that IPC knew and/or should have known that its physicians could not have actually been performing the services at the levels for which claims were submitted.

This intervention illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in this effort is the False Claims Act. Since January 2009, the Justice Department has recovered a total of more than $17 billion through False Claims Act cases, with more than $12.2 billion of that amount recovered in cases involving fraud against federal health care programs.

The matter is being jointly handled by the U.S. Attorney’s Office for the Northern District of Illinois and the Civil Frauds Section of the Commercial Litigation Branch of the Justice Department’s Civil Division, with assistance from the U.S. Department of Health and Human Service’s Office of Inspection General, the Office of Personal Management’s Office of Inspector General, and the Railroad Retirement Board’s Office of Inspector General. The government is being represented by Assistant U.S. Attorney Eric Pruitt and DOJ Senior Trial Counsel Elizabeth Rinaldo.

The case is captioned United States ex rel. Oughatiyan v. IPC The Hospitalist Company, Inc., et al., No. 09 C 5418 (N.D. Ill.). The claims asserted against IPC are allegations only, and there has been no determination of liability. In a civil case, the government has the burden of proving the allegations by a preponderance of the evidence.

ROCKFORD — A Rockford, Ill. woman pleaded guilty today in federal court before U.S. District Judge Philip G. Reinhard to federal income tax fraud. ANNA MARTINEZ, 44, admitted that in 2007 she filed a false income tax return with the United States Internal Revenue Service.

According to the written plea agreement, during calendar years 2006 – 2008 Martinez was the owner and sole proprietor of Community Tax Service, a tax preparation business, in Rockford, Illinois, which was her only source of income. Martinez admitted in the plea agreement that she filed her U.S. Individual Income Tax Return Form 1040 with schedules and attachments for the calendar year 2007, which she verified by written declaration made under the penalties of perjury, and failed to disclose approximately $236,524 of receipts of Community Tax Service for 2007. Martinez also admitted that she failed to report receipts or sales received by Community Tax Services of $68,026 on her individual income tax return for 2006, and $79,594 for 2008, for a total of at least $384,144 for tax years 2006 – 2008, knowing that she failed to pay approximately $72,156 in taxes to the IRS.

Sentencing for Martinez is scheduled for Wednesday, May 7, 2014, at 11:00 a.m. Martinez faces a maximum sentence of up to 3 years in prison, up to one year of supervised release following imprisonment, and a maximum fine of up to $250,000. Martinez must also pay restitution to the Internal Revenue Service and the costs of prosecution. The actual sentence will be determined by the United States District Court, guided by the advisory United States Sentencing Guidelines.

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and James C. Lee, Special Agent-In-Charge of the Chicago Field Office of Internal Revenue Service - Criminal Investigation Division.

The government is represented by Assistant U.S. Attorney Scott R. Paccagnini.

Plea Agreement

CHICAGO ― A south suburban Midlothian police officer was indicted on federal civil rights charges alleging that he used excessive force against two different victims in separate beating incidents in 2010 and 2011. The defendant, STEVEN G. ZAMIAR, was indicted on two counts of violating the victims’ civil right to be free from the use of unreasonable force by a law enforcement officer. The two-count indictment was returned by a federal grand jury yesterday and was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

Zamiar, 46, of Midlothian, joined the Midlothian Police Department in 2000. He was a detective sergeant at the time of the alleged beating in 2010 and was deputy chief when the alleged beating occurred in 2011. He was later demoted to lieutenant, and was placed on paid administrative leave this past September. He will be arraigned on a date yet to be scheduled in U.S. District Court.

According to the indictment, on Sept. 6, 2010, when he was a detective sergeant, Zamiar used excessive force, resulting in bodily injury, against Victim A. On Nov. 24, 2011, when he was deputy chief of the Midlothian Police Department, Zamiar allegedly used excessive force, resulting in bodily injury, against Victim B. During the November 2011 incident, Zamiar allegedly used, attempted to use, and threatened to use a dangerous weapon.

Each count carries a maximum penalty of 10 years in prison and a $250,000 fine. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The government is being represented by Assistant U.S. Attorney Patrick Otlewski.

An indictment contains merely charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — A couple who owned a now-defunct suburban title company, a disbarred attorney, and an attorney are among nine defendants who have been indicted in two separate mortgage fraud cases, federal law enforcement officials announced today. Seven defendants were charged together in one case, and two in the second case, together alleging schemes to fraudulently obtain at least four residential mortgage loans totaling more than $1 million from lenders.

Both indictments allege that the mortgages were obtained to finance the purchase of properties on Chicago’s south side, using fraudulent means such as straw purchasers, short sales, inflated prices, and unqualified buyers, while the defendants allegedly profited. As a result, the lenders incurred losses because the mortgages were not fully recovered through subsequent sale or foreclosure.

Seven defendants were charged in an indictment that was unsealed on Monday following the arrest of HARVEY WRIGHT, 46, of Chicago, a disbarred South Holland attorney, and PRECIOUS HOUSE, 47, of Chicago. Also indicted, but not arrested, were DAVID GUEL, 60, and his wife, MARY GLEASON, 48, both of Blue Island; MUNTAZER ALI SAIYED, also known as “Monty Saiyed,” 37, of Bartlett; SAGED ANSARI, 32, of Hanover Park; and AZEEM SYED, 30, of Bolingbrook. All seven were charged with two counts of wire fraud and House, Syed, Saiyed, and Ansari were also charged with one count each of identity theft. The indictment seeks forfeiture of more than $800,000.

Guel and Gleason owned and operated the former U.S. Worldwide Title Services LLC, a title company located in Downers Grove.

All seven defendants pleaded not guilty yesterday or Monday in U.S. District Court and were released on bond. A status hearing was scheduled for Jan. 13.

According to the indictment, between September 2008 and March 2009, the defendants caused two fraudulent mortgage loans to be issued by lenders for properties at 4823 South Racine Ave., and 6738 South Marshfield Ave. The alleged fraud involved false representations in documents, including real estate contracts, loan applications, title commitments, and HUD-1 settlement statements concerning sales prices, the true disbursement of the loan proceeds at closing, the buyer’s assets, employment, and income.

The defendants allegedly used straw buyers who had no intention of residing in the property and making mortgage payments, as well as stolen identities of individuals who did not know that their identities were being used to purchase property. Guel, Gleason, Wright, and House allegedly conducted “double closings” at Worldwide Title in which a single property was sold twice through a short sale of the property from an owner to a buyer, who only temporarily took ownership before immediately re-selling to a second buyer at an inflated sales price using a fraudulently obtained mortgage to finance the purchase.

House allegedly facilitated the double closings by recruiting individuals to pose as the first and second buyers and arranging for them to use stolen identities provided by Syed, Saiyed, and Ansari, in connection with the transactions, the indictment alleges.

Guel, Gleason, and Wright allegedly prepared fraudulent documents stating that the properties had been transferred into a trust approximately a year before the double closing to conceal from the lender that the property was being sold twice, including on the same day. These three defendants and House allegedly obtained loan proceeds for their own personal benefit.

This case is part of Operation Mad House, an undercover investigation designed to combat mortgage and real estate fraud in the Chicago area with a focus on professionals in the real estate industry. Since 2009, more than 50 defendants have been convicted, including title company operators, mortgage brokers, licensed appraisers, and attorneys.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; Barry McLaughlin, Special Agent-in-Charge of the U.S. Department of Housing and Urban Development Office of Inspector General in Chicago; and James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago.

The government is being represented by Assistant U.S. Attorneys Sunil Harjani and Kathryn Malizia.

In an unrelated case, GEORGE KOUVELIS, 39, of Bloomingdale, who bought and sold residential properties, and KARIM DURE, 39, of Chicago, an Evanston attorney, were each charged with two counts of wire fraud in an indictment that was unsealed on Nov. 14 after Kouvelis was arrested. Kouvelis and Dure, who was not arrested, both pleaded not guilty and were released on bond. Their next court date is Jan. 6. The indictment seeks forfeiture of $521,250.

According to the indictment, between November 2008 and March 2009, Kouvelis and Dure caused a buyer to obtain two fraudulent mortgage loans to purchase Kouvelis’ properties at 5804 South Princeton Ave., and 5563 South Shields Ave. The defendants allegedly made false representations in documents, including real estate contracts, loan applications, and HUD-1 settlement statements concerning inflated sales prices, money paid to the buyer for purchasing the properties, the buyer’s assets, liabilities, and source of down payment.

The indictment alleges that Kouvelis fraudulently obtained mortgage loan proceeds through false closing documents, which concealed that the buyer was being paid to purchase the properties; concealed that the funds being used for down payments were provided by another individual; inflated purchase prices; and concealed that the buyer was contributing little or no equity to the transactions. Dure allegedly represented the buyer knowing that the loans were being funded based on false information about the buyer’s qualifications, including a will submitted by the buyer and a letter that Dure submitted to the lender verifying that the buyer had received $200,000 from his grandfather’s estate.

Mr. Fardon announced the Kouvelis / Dure charges with Mr. McLaughlin, Mr. Holley, and Tony Gómez, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago. The government is being represented by Assistant U.S. Attorney Jason Yonan.

Each count of wire fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, and restitution is mandatory. The identity theft count against defendants House, Syed, Saiyed, and Ansari carries a maximum of 15 years in prison and a $250,000 fine. If convicted, the Court may impose an alternate fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. The Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The public is reminded that indictments contain only charges and are not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Since 2008, several hundred defendants have been charged in Federal Court in Chicago and Rockford with engaging in various mortgage fraud schemes involving more than 1,000 properties and more than $300 million in potential losses, signifying the high priority that federal law enforcement officials give mortgage fraud in an effort to deter others from engaging in crimes relating to residential and commercial real estate.

Today’s announcement is part of efforts underway by the Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has facilitated increased investigation and prosecution of financial crimes; enhanced coordination and cooperation among federal, state and local authorities; addressed discrimination in the lending and financial markets, and conducted outreach to the 6 public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit stopfraud.gov.

Kouvelis Indictment

Guel Indictment

ROCKFORD — An Algonquin, Ill. man pleaded guilty today in federal court before U.S. District Court Judge Philip G. Reinhard to possessing child pornography that had crossed state lines. JOHN CARLSON, 38, admitted that in August 2011 he possessed images of children engaged in sexually explicit conduct. Carlson’s sentencing hearing is scheduled for May 9, 2014, at 11:00 a.m.

Carlson faces a maximum sentence of 10 years in federal prison, a term of supervised release following imprisonment of at least 5 years and up to life, and a fine of up to $250,000. The Court must impose a reasonable sentence guided by the advisory United States Sentencing Guidelines.

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The Algonquin Police Department assisted in the investigation.

The government is being represented by Assistant U.S. Attorney Michael D. Love.

Plea Agreement

CHICAGO — An owner of Chicago realty business who formerly was also the chief executive of a failed Chicago bank was arrested today on federal bank fraud charges involving an alleged scheme to illegally provide a $650,000 mortgage for the purchase of a south side apartment building. A Chicago police lieutenant who allegedly played a role in the scheme was charged in the same indictment with federal income tax fraud.

ROBERT MICHAEL, 62, of Chicago, an owner of Michael Realty and a former shareholder, chief executive officer, and senior lender at the failed Citizens Bank, was arrested today by agents with the Internal Revenue Service Criminal Investigation Division. He was charged with one count each of bank fraud, making false statements to a bank, and money laundering in an indictment that was returned by a federal grand jury on Nov. 14 and unsealed today following his arrest. The indictment also seeks forfeiture of at least $634,000 from Michael.

Michael pleaded not guilty before U.S. Magistrate Judge Daniel Martin and was released on a $10,000 personal recognizance bond.

Also indicted but not arrested was ERROLL DAVIS, 52, of Chicago, a Chicago police lieutenant who was charged with one count of filing a false federal income tax return. Davis will be arraigned at a later date in Federal Court. The tax charge is not directly related to Davis’ employment as a police officer.

The arrests and charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division.

According to the indictment, between March and November 2008, Michael schemed with Individual A, the owner and president of The Prime Time Group, Inc., and the Regal Theater LLC, to fraudulently obtain approximately $634,000 from Citizens Bank, knowing that the mortgage loan to fund Davis’ purchase of a 12-unit apartment building at 1665 East 79th St., in Chicago, was the result of false statements to the bank.

In March 2008, Individual A, through her companies, purchased the New Regal Theater property, which included the theater, two adjacent parking lots, and the apartment building. Michael allegedly caused Citizens Bank to loan $2.1 million to Individual A and the Prime Time Group to purchase the theater property, but as the loan officer on the transaction, he excluded the apartment building from the collateral securing the loan to evade the bank’s legal lending limits.

By November 2008, Individual A and the Prime Time Group owed approximately $40,000 to Citizens Bank on past due mortgage payments for the theater property, and more than $240,000 to Michael’s company, 300 West Sibley, LLC, on the lease for a nightclub in Dolton. Because of its legal lending limit, the bank was unable to loan additional funds to Individual A.

To allow Individual A to obtain subsequent financing that would be secured by the apartment building, Michael allegedly caused Citizens Bank to loan approximately $650,000 to Davis, whom Individual A referred to Michael for Davis’ purchase of the apartment building. Michael allegedly knew that the purpose of this transaction was to generate cash for Individual A to use to pay rent owed to Michael’s company on the nightclub property and to pay past due mortgage payments and other expenses related to the theater property.

Michael and Individual A allegedly prepared a fraudulent real estate contract for the purchase of the apartment building, purporting that the purchase price was $900,000 and that Davis had paid $90,000 in earnest money. Michael, Individual A, and Davis allegedly made other false statements, including creating false apartment leases, to induce Citizens Bank to issue a mortgage to Davis. Ultimately, Michael approved a wire transfer of $639,000 to fund the apartment transaction, and caused the title company to issue a check for $634,046, representing proceeds of the transaction, the indictment alleges. The money laundering count charges that $200,000 in proceeds from the fraudulent loan were paid to Michael Realty.

Bank fraud and making false statements to a bank each carry a maximum penalty of 30 years in prison and a $1 million fine, while money laundering carries a maximum penalty of 10 years in prison and a $250,000 fine. The tax count against Davis carries a maximum penalty of three years in prison and a $250,000 fine. In addition to criminal penalties, including mandatory costs of prosecution, defendants convicted of tax offenses remain responsible for any taxes and interest due, as well as civil penalties of up to 75 percent of the tax owed. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The government is being represented by Assistant U.S. Attorneys Megan Church and Joel Hammerman.

An indictment contains merely charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

ROCKFORD — The former Energy Director for the City of Rockford pleaded guilty today in federal court, before U.S. District Judge Frederick J. Kapala, to one count of mail fraud. MARK E. BIXBY, 58, of Rockton, Ill. admitted that between December 2006 and March 2010 he defrauded a heating contractor and window contractor, both of whom did work for the City’s Energy Division, out of at least $53,101.33 in funds and benefits.

According to the written plea agreement, Bixby, as the Energy Director, managed the City of Rockford’s Energy Division. The Energy Division operated the Illinois Home Weatherization Assistance Program in Winnebago and Boone counties. The purpose of the weatherization program was to help low-income residents save energy and money by providing services that included repairing and replacing heating systems, windows, and doors.

In court today, Bixby admitted that he defrauded a heating contractor and a window contractor, both of whom did work under the weatherization program, by causing them to provide funds and benefits to him through false representations and pretenses. According to the plea agreement, the funds and benefits Bixby obtained from the two contractors included the following: (1) use of a new, 2007, two-door, red, convertible Pontiac Solstice; (2) a total of $18,440 in donations to “charities,” which were deposited into bank accounts controlled by Bixby and a family member, and which were used to pay their personal expenses; (3) $2,980 for the “sale” of cemetery plots by Bixby to the heating contractor, for which Bixby never turned over the titles or deeds to the heating contractor; and (4) a $2,000 “loan” from the window contractor, which Bixby never repaid.

Bixby is scheduled to be sentenced on March 3, 2014, at 2:30 p.m. Mail fraud carries a maximum penalty of 20 years in prison, a maximum fine of $250,000, or an alternate fine totaling twice the loss or twice the gain derived from the offense, whichever is greater, and restitution. The actual sentence will be determined by the United States District Court, guided by the advisory United States Sentencing Guidelines.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The Winnebago County State’s Attorney’s Office and the Rockford Police Department assisted in the investigation.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The Winnebago County State’s Attorney’s Office and the Rockford Police Department assisted in the investigation.

Plea Agreement

CHICAGO — Two former water department officials for the southwest suburban Village of Crestwood were each sentenced today to two years’ probation for lying repeatedly to environmental regulators for more than 20 years about using a water well to supplement the village’s drinking water supply. The defendants, FRANK SCACCIA, a retired certified water operator, and THERESA NEUBAUER, former water department clerk and supervisor and, later, Crestwood’s police chief, effectively thwarted the government from implementing the federal Safe Drinking Water Act’s notice and testing requirements designed to ensure the safety of municipal water supplies.

In addition to probation, Scaccia, 61, of Crestwood, was ordered to serve the first six months in home confinement. He pleaded guilty on April 11 this year to making false statements. Neubauer, 56, of Crestwood, was fined $2,000 and ordered to perform 200 hours of community service. She was convicted by a jury on April 29 of 11 counts of making false statements after a week-long trial.

U.S. District Judge Joan Gottschall cited Scaccia’s serious health condition in imposing his sentence. She said the case involved a “breach of the public trust for years,” which had as its purpose “the perpetual re-election of the mayor.”

Both defendants concealed the village’s use of its well from the government and the citizens of Crestwood to save money. By doing so, the village didn’t properly monitor for contaminants that could have been introduced to Crestwood’s water supply, avoided having to fix its leaking water distribution system, or paying the neighboring Village of Alsip more money for water drawn from Lake Michigan.

“Providing safe drinking water is one of the most fundamental and important functions of local government. Those who operate municipal water systems are now on notice that defeating the Safe Drinking Water Act in exchange for selfish political and personal objectives is an extremely serious crime that will be dealt with through vigorous federal prosecution,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois.

“Public servants swear an oath to protect the citizens of their community,” said Randall Ashe, Special Agent-in-Charge of the U.S. Environmental Protection Agency’s Criminal Enforcement Program in Illinois. “Rather than protecting the citizens of Crestwood, Scaccia and Neubauer engaged in a very lengthy scheme to deny Crestwood citizens their basic right to know the source of their drinking water, and to deceive them into thinking that their drinking water was properly tested for dangerous contaminants. As a result, Crestwood residents will never fully know what contaminants from the well they ingested. This case demonstrates that anyone who violates the public trust to assure the distribution of safe, potable and properly tested drinking water will face the consequences in court.”

According to court records and the evidence at trial, since at least 1973, the substantial majority of Crestwood’s drinking water came from Lake Michigan and was purchased from neighboring Alsip, which, in turn, had purchased the water from the City of Chicago after it was treated and tested pursuant to state and federal environmental regulations. Since 1982, Crestwood regularly supplemented the Lake Michigan water with water drawn from an underground aquifer through a well located on Playfield Drive, known as Well #1. Crestwood found it necessary to supplement the Lake Michigan water with water pumped from Well #1, in part, because of substantial leakage in its water distribution system, which Crestwood officials failed to adequately repair.

Between 1987 and 2008, Scaccia, Neubauer were among of a small circle of trusted village employees ― directed by Crestwood’s longtime former mayor, Chester Stranczek, who was not charged ― who concealed that Crestwood was supplementing its Lake Michigan water with water drawn from Well #1. Scaccia was responsible for ensuring that water distributed by Crestwood met all federal and state regulations, including filing annual Consumer Confidence Reports (CCRs); obtaining the raw data that was used to complete the Monthly Operation and Chemical Analysis Reports (MORs); transmitting raw data for the MORs to Neubauer so that she could complete them and submit them to the IEPA; and serving as a point of contact for IEPA with respect to drinking water compliance issues. Neubauer prepared the CCRs for signature by Stranczek, arranged for the CCRs to be issued to Crestwood’s water customers, prepared MORs for distribution to the IEPA based upon information obtained from Scaccia, and distributed completed MORs to IEPA. All the while, Neubauer and Scaccia knew that water pumped from Well #1 was being distributed to the village’s water customers. Neubauer also helped prepare and submit various false reports stating that Well #1 was on standby status and that the sole source of Crestwood’s drinking water was Lake Michigan water purchased from Alsip.

Under the federal Safe Drinking Water Act of 1974, the U.S. EPA created regulations to ensure the safety of drinking water distributed by public water systems by requiring testing and establishing maximum contaminant levels for various contaminants. The EPA delegated the primary responsibility for enforcement to the Illinois EPA, which established its own state regulations that implemented the federal statute and regulations.

Because the City of Chicago tested and treated Lake Michigan water for contaminants, Crestwood, like other municipalities that purchased water directly or indirectly from Chicago, was excused from monitoring its Lake Michigan water for certain contaminants. Due to Crestwood’s use of Well #1, an unmonitored and unreported water source, the village should have periodically tested its drinking water for organic contaminants, inorganic contaminants, and radiological contaminants beginning in the 1970s.

Crestwood was also required to submit an Annual Water Use Audit form, known as an LMO-2 form, to the Illinois Department of Natural Resources and, previously, to the Illinois Department of Transportation. This form required Crestwood to report the amount of water it had drawn from Lake Michigan and from Well #1, and to account for the amount of water distributed and lost by its water system annually. From at least 1982 to 2008, Crestwood officials filed LMO-2 forms that neither reported the amount of water drawn from Well #1, nor accurately accounted for the amount of water distributed and lost by its water system.

The government was represented by Assistant U.S. Attorneys Erika Csicsila and Timothy Chapman, and Special Assistant U.S. Attorney Crissy Pellegrin, criminal enforcement counsel for the U.S. EPA Region V.

CHICAGO — A Texas honey broker was sentenced today to three years in federal prison for illegally brokering the sale of hundreds of container loads of Chinese-origin honey, which was misrepresented as originating from India or Malaysia, to avoid anti-dumping duties when it entered the United States. The defendant, JUN YANG, pleaded guilty in March to facilitating illegal honey imports by falsely declaring that the honey originated in countries other than China to avoid $37.9 million in anti-dumping duties.

Yang, 40, of Houston, operated National Honey, Inc., which did business as National Commodities Company in Houston, and brokered the sale of honey between overseas honey suppliers and domestic customers. He was ordered to begin serving his sentence on Jan. 15, 2014, by U.S. District Judge Charles Kocoras, who cited the “inescapable harm” to the U.S. honey industry in imposing the sentence.

Yang has already paid financial penalties totaling $2.89 million to the government, including a maximum fine of $250,000, mandatory restitution of $97,625, and agreed restitution of $2,542,659.

“This is a significant sentence against a perpetrator of one of the largest food fraud schemes uncovered in U.S. history,” said Gary Hartwig, Special Agent-in-Charge of HSI Chicago. “Unbeknownst to Yang, he was dealing with an undercover HSI agent who was one step ahead of his illegal activities. Together with our partners at Customs and Border Protection, we will continue to protect American industries from deceptive import practices, while facilitating the lawful flow of goods across our borders that is so critical to the U.S. economy.”

According to court documents, Yang caused transportation companies to deliver to U.S. honey processors and distributors 778 container loads of honey, which were falsely declared at the time of importation as being from Malaysia or India, knowing that all or some of the honey had actually originated in China. As a result, the honey, which had an aggregate declared value of nearly $23 million when it entered the country, avoided anti-dumping duties and honey assessments totaling more than $37.9 million.

In addition, Yang admitted that he sold purported Vietnamese honey that tested positive for the presence of Chloramphenicol, an antibiotic not allowed in honey or other food products. After learning of the unfavorable test results, Yang obtained new test results that purported to show that the honey was not adulterated, and he instructed the undercover agent to destroy the unfavorable test results. This adulterated honey was seized by the government.

The sentence was announced by Mr. Hartwig and Zachary T. Fardon, United States Attorney for the Northern District of Illinois.

Yang was among a group of individuals and companies who were charged in February of this year in the second phase of an investigation led by agents of U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI). See: Two Companies and Five Individuals Charged With Roles in Illegal Honey Imports; Avoided $180 Million in AntiDumping Duties

In December 2001, the Commerce Department determined that Chinese-origin honey was being sold in the United States at less than fair market value, and imposed anti-dumping duties. The duties were as high as 221 percent of the declared value, and later were assessed against the entered net weight, currently at $2.63 per net kilogram, in addition to a “honey assessment fee” of one cent per pound of all honey. In October 2002, the Food and Drug Administration issued an import alert for honey containing the antibiotic Chloramphenicol, a broad spectrum antibiotic that is used to treat serious infections in humans, but which is not approved for use in honey. Honey containing certain antibiotics is deemed “adulterated” within the meaning of federal food and drug safety laws.

In 2008, federal authorities began investigating allegations involving circumventing antidumping duties through illegal imports, including transshipment and mislabeling, on the “supply side” of the honey industry. The second phase of the investigation involved the illegal buying, processing, and trading of honey that illegally entered the U.S. on the “demand side” of the industry.

The government is being represented by Assistant U.S. Attorney Andrew S. Boutros.

CHICAGO – A former vice president of a company that was based in west suburban Downers Grove was sentenced today to four years in federal prison for a fraudulent invoicing scheme in which he obtained more than 100 company checks totaling more than $3.9 million and stole the money for himself. The defendant, STEVEN M. BRAZILE, used a portion of the stolen funds to operate a classic car business. He had pleaded guilty to interstate transportation of fraudulently obtained securities last July in U.S. District Court.

Brazile, 52, of St. Louis, was a vice president in the victim company’s St. Louis office where he managed the information technology functions in that office. Brazile was also ordered to pay $3,902,880 in restitution and forfeiture and to begin serving his 48-month sentence on Jan. 7, 2014, by U.S. District Judge Elaine Bucklo.

Brazile also agreed to forfeiture of approximately $375,000 in funds that were seized or will be turned over from various bank and brokerage accounts, as well as 24 automobiles including classic cars, approximately $180,000 in proceeds from the sale of several classic automobiles, and a commercial property he owned in St. Louis.

Brazile, who had authority to approve company payments to vendors up to $100,000, admitted that between December 2006 and December 2009 he approved false invoices purporting to be from vendors for goods and services that were never provided to the corporation. He caused the company to issue approximately 104 checks totaling slightly more than $3.9 million. Brazile took those checks and stole the proceeds by depositing them into a bank account he controlled in the name Steve’s Classic Cars, a business he owned to buy and restore classic automobiles.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Federal Bureau of Investigation. The government was represented by Assistant U.S. Attorney Sarah E. Streicker.

The case falls under the umbrella of the Financial Fraud Enforcement Task Force, which includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement, who working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit: StopFraud.gov.

CHICAGO — A suburban Cicero gear manufacturing company pleaded guilty today to illegally discharging industrial wastewater into the public sewer system and agreed to pay a $1.5 million fine. The defendant company, BRAD FOOTE GEAR WORKS, INC., began cooperating and taking remedial water treatment measures after federal environmental agents executed a search warrant in February 2011.

Brad Foote Gear Works pleaded guilty to one count of violating the federal Clean Water Act on at least 300 separate days between April 2007 and February 2011. The company, which manufactures precision gear parts for wind turbines, among other things, admitted illegally discharging spent acid wastewater and spent alkaline wastewater, industrial rinse waters, acidic solutions, oil, grease, and metal-bearing wastewater into the Metropolitan Water Reclamation District of Greater Chicago sewer system without a permit. The wastewater was received at the MWRDGC’s Stickney Water Reclamation Plant in southwest Chicago, where it was treated and discharged into the Chicago Sanitary and Ship Canal.

The company, located at 1309 South Cicero Ave., in Cicero, entered the guilty plea at its arraignment in U.S. District Court after being charged in September. U.S. District Judge Robert M. Dow, Jr., set sentencing for Feb. 19, 2014.

Under the terms of a plea agreement, which remains subject to court approval, Brad Foote will pay a $1.5 million fine in three $500,000 installments over three years. The fine is based on a mandatory minimum fine of $5,000 per day of violation, for a total of $1.5 million. The company faces a statutory maximum penalty of five years’ probation and a maximum fine of $500,000, twice the gross gain or loss, or $50,000 per violation, whichever is greater. The Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Randall Ashe, Special Agent-in-Charge of the Environmental Protection Agency’s Office of Criminal Enforcement in Chicago.

“To protect public health and our nation’s waterways, it is critical that industries treat their wastes safely and legally before sending them into the public sewers,” Mr. Ashe said. “For years, the defendant knowingly broke the law by allowing untreated industrial waste ― including corrosive liquids ― to be discharged into the public sewer system without a permit. Today’s guilty plea shows that those who engage in such conduct will be prosecuted.”

Following the search of its premises in February 2011, the company began cooperating and implementing protocols to ensure the proper discharge and disposal of industrial wastewater from its facility. As a result, the government did not seek a court-imposed corporate compliance agreement.

According to the plea agreement, Brad Foote’s manufacturing operations included a nital etch line, in which finished parts were dipped into a series of tanks containing caustic cleaners, rinse waters, and nitric acid and hydrochloric acid solutions. The etching acids and caustic cleaners of the nital etch line generally exhibited impermissibly low acidic solutions and impermissibly high alkaline solutions and, over time, those solutions and rinse waters became “spent,” meaning they lost their effectiveness and needed to be replaced.

Beginning in 2004, the company’s then chief executive officer and the manager of the nital etch line created a piping system that allowed untreated wastewater to be discharged into the public sewer system. The discharged wastewater from acid and alkaline tanks generally exhibited a pH of less than 2.0 or greater than 10.5. A second source of illegal discharge involved the company’s “Superfinish” process that used chemicals and abrasive sand-like material to smooth and polish gear parts. As a significant industrial user, Brad Foote was required to have a valid discharge authorization permit to discharge these wastewaters into the sewer system. Brad Foote knew that it did not have, and never applied for, a discharge authorization permit.

The government is being represented by Assistant U.S. Attorney Peter Flanagan. The case was investigated by the EPA’s Criminal Investigation Division.

Plea Agreement

CHICAGO ― Author and television pitch-man KEVIN TRUDEAU was convicted today of criminal contempt for violating a 2004 federal court order that prohibited him from making deceptive television infomercials that misrepresented the contents of his weight loss cure book. A federal jury deliberated approximately an hour after a week-long trial in U.S. District Court.

Trudeau, 50, of Oak Brook, had his bond revoked and he was ordered taken into custody by U.S. District Judge Ronald Guzman, who set a schedule for post-trial motions but no sentencing date.

Criminal contempt has no statutory maximum sentence. The Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The guilty verdict was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Tony Gómez, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

According to the evidence at trial, Trudeau appeared in three television infomercials between December 2006 and November 2007 in which he willfully misrepresented the contents of his book The Weight Loss Cure “They” Don’t Want You to Know About. In April 2010, U.S. District Judge Robert Gettleman issued an order to show cause why Trudeau should not be held in criminal contempt of a Sept. 2, 2004, settlement in which Trudeau agreed not to directly or indirectly produce and broadcast any deceptive infomercials that misrepresented the contents of any book, including the weight loss cure book. Federal Trade Commission v. Trudeau, No. 03 C 3904.

In closing arguments today, prosecutors listed a litany of blatant lies and misrepresentations made by Trudeau in his infomercials. These included his claims that his book was not a “diet,” when in fact it required at least three weeks of eating 500 calories or less a day, and that a hormone found only in pregnant women that was required to be injected daily could be obtained “anywhere,” when in fact it could be obtained in the United States only through a doctor’s prescription. He also claimed that after finishing the diet, consumers could eat anything they wanted without regaining weight, when in fact the diet required severe food deprivation that lasts for life.

The government was represented by Assistant U.S. Attorneys April Perry and Marc Krickbaum.