District Not Recorded

WASHINGTON – HSBC Holdings plc (HSBC Group) – a United Kingdom corporation headquartered in London – and HSBC Bank USA N.A. (HSBC Bank USA) (together, HSBC) – a federally chartered banking corporation headquartered in McLean, Va. – have agreed to forfeit $1.256 billion and enter into a deferred prosecution agreement with the Justice Department for HSBC’s violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA).  According to court documents, HSBC Bank USA violated the BSA by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders.  The HSBC Group violated IEEPA and TWEA by illegally conducting transactions on behalf of customers in Cuba, Iran, Libya, Sudan and Burma – all countries that were subject to sanctions enforced by the Office of Foreign Assets Control (OFAC) at the time of the transactions.

The announcement was made by Lanny A. Breuer, Assistant Attorney General of the Justice Department’s Criminal Division; Loretta Lynch, U.S. Attorney for the Eastern District of New York; and John Morton, Director of U.S. Immigration and Customs Enforcement (ICE); along with numerous law enforcement and regulatory partners.  The New York County District Attorney’s Office worked with the Justice Department on the sanctions portion of the investigation.  Treasury Under Secretary David S. Cohen and Comptroller of the Currency Thomas J. Curry also joined in today’s announcement.

A four-count felony criminal information was filed today in federal court in the Eastern District of New York charging HSBC with willfully failing to maintain an effective anti-money laundering (AML) program, willfully failing to conduct due diligence on its foreign correspondent affiliates, violating IEEPA and violating TWEA.  HSBC has waived federal indictment, agreed to the filing of the information, and has accepted responsibility for its criminal conduct and that of its employees.  
           
“HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries,” said Assistant Attorney General Breuer.  “The record of dysfunction that prevailed at HSBC for many years was astonishing.  Today, HSBC is paying a heavy price for its conduct, and, under the terms of today’s agreement, if the bank fails to comply with the agreement in any way, we reserve the right to fully prosecute it.”

“Today we announce the filing of criminal charges against HSBC, one of the largest financial institutions in the world,” said U.S. Attorney Lynch.  “HSBC’s blatant failure to implement proper anti-money laundering controls facilitated the laundering of at least $881 million in drug proceeds through the U.S. financial system.  HSBC’s willful flouting of U.S. sanctions laws and regulations resulted in the processing of hundreds of millions of dollars in OFAC-prohibited transactions.  Today’s historic agreement, which imposes the largest penalty in any BSA prosecution to date, makes it clear that all corporate citizens, no matter how large, must be held accountable for their actions.” 

“Cartels and criminal organization are fueled by money and profits,” said ICE Director Morton.  “Without their illicit proceeds used to fund criminal activities, the lifeblood of their operations is disrupted.  Thanks to the work of Homeland Security Investigations and our El Dorado Task Force, this financial institution is being held accountable for turning a blind eye to money laundering that was occurring right before their very eyes.  HSI will continue to aggressively target financial institutions whose inactions are contributing in no small way to the devastation wrought by the international drug trade.  There will be also a high price to pay for enabling dangerous criminal enterprises.”

In addition to forfeiting $1.256 billion as part of its deferred prosecution agreement (DPA) with the Department of Justice, HSBC has also agreed to pay $665 million in civil penalties – $500 million to the Office of the Comptroller of the Currency (OCC) and $165 million to the Federal Reserve – for its AML program violations.  The OCC penalty also satisfies a $500 million civil penalty of the Financial Crimes Enforcement Network (FinCEN).  The bank’s $375 million settlement agreement with OFAC is satisfied by the forfeiture to the Department of Justice.  The United Kingdom’s Financial Services Authority (FSA) is pursuing a separate action. 

As required by the DPA, HSBC also has committed to undertake enhanced AML and other compliance obligations and structural changes within its entire global operations to prevent a repeat of the conduct that led to this prosecution.  HSBC has replaced almost all of its senior management, “clawed back” deferred compensation bonuses given to its most senior AML and compliance officers, and has agreed to partially defer bonus compensation for its most senior executives – its group general managers and group managing directors – during the period of the five-year DPA.  In addition to these measures, HSBC has made significant changes in its management structure and AML compliance functions that increase the accountability of its most senior executives for AML compliance failures. 

The AML Investigation

According to court documents, from 2006 to 2010, HSBC Bank USA severely understaffed its AML compliance function and failed to implement an anti-money laundering program capable of adequately monitoring suspicious transactions and activities from HSBC Group Affilliates, particularly HSBC Mexico, one of HSBC Bank USA’s largest Mexican customers.  This included a failure to monitor billions of dollars in purchases of physical U.S. dollars, or “banknotes,” from these affiliates.  Despite evidence of serious money laundering risks associated with doing business in Mexico, from at least 2006 to 2009, HSBC Bank USA rated Mexico as “standard” risk, its lowest AML risk category.  As a result, HSBC Bank USA failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico during this period, when HSBC Mexico’s own lax AML controls caused it to be the preferred financial institution for drug cartels and money launderers.   

A significant portion of the laundered drug trafficking proceeds were involved in the Black Market Peso Exchange (BMPE), a complex money laundering system that is designed to move the proceeds from the sale of illegal drugs in the United States to drug cartels outside of the United States, often in Colombia.  According to court documents, beginning in 2008, an investigation conducted by ICE Homeland Security Investigation’s (HSI’s) El Dorado Task Force, in conjunction with the U.S. Attorney’s Office for the Eastern District of New York, identified multiple HSBC Mexico accounts associated with BMPE activity and revealed that drug traffickers were depositing hundreds of thousands of dollars in bulk U.S. currency each day into HSBC Mexico accounts.  Since 2009, the investigation has resulted in the arrest, extradition, and conviction of numerous individuals illegally using HSBC Mexico accounts in furtherance of BMPE activity. 
           
As a result of HSBC Bank USA’s AML failures, at least $881 million in drug trafficking proceeds – including proceeds of drug trafficking by the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia – were laundered through HSBC Bank USA.  HSBC Group admitted it did not inform HSBC Bank USA of significant AML deficiencies at HSBC Mexico, despite knowing of these problems and their effect on the potential flow of illicit funds through HSBC Bank USA.  

The Sanctions Investigation

According to court documents, from the mid-1990s through September 2006, HSBC Group allowed approximately $660 million in OFAC-prohibited transactions to be processed through U.S. financial institutions, including HSBC Bank USA.  HSBC Group followed instructions from sanctioned entities such as Iran, Cuba, Sudan, Libya and Burma, to omit their names from U.S. dollar payment messages sent to HSBC Bank USA and other financial institutions located in the United States.  The bank also removed information identifying the countries from U.S. dollar payment messages; deliberately used less-transparent payment messages, known as cover payments; and worked with at least one sanctioned entity to format payment messages, which prevented the bank’s filters from blocking prohibited payments. 

Specifically, beginning in the 1990s, HSBC Group affiliates worked with sanctioned entities to insert cautionary notes in payment messages including “care sanctioned country,” “do not mention our name in NY,” or “do not mention Iran.”  HSBC Group became aware of this improper practice in 2000.  In 2003, HSBC Group’s head of compliance acknowledged that amending payment messages “could provide the basis for an action against [HSBC] Group for breach of sanctions.”  Notwithstanding instructions from HSBC Group Compliance to terminate this practice, HSBC Group affiliates were permitted to engage in the practice for an additional three years through the granting of dispensations to HSBC Group policy.

Court documents show that as early as July 2001, HSBC Bank USA’s chief compliance officer confronted HSBC Group’s Head of Compliance on the issue of amending payments and was assured that “Group Compliance would not support blatant attempts to avoid sanctions, or actions which would place [HSBC Bank USA] in a potentially compromising position.”  As early as July 2001, HSBC Bank USA told HSBC Group’s head of compliance that it was concerned that the use of cover payments prevented HSBC Bank USA from confirming whether the underlying transactions met OFAC requirements.  From 2001 through 2006, HSBC Bank USA repeatedly told senior compliance officers at HSBC Group that it would not be able to properly screen sanctioned entity payments if payments were being sent using the cover method.  These protests were ignored.         

“Today HSBC is being held accountable for illegal transactions made through the U.S. financial system on behalf of entities subject to U.S. economic sanctions,” said Debra Smith, Acting Assistant Director in Charge of the FBI’s Washington Field Office.  “The FBI works closely with partner law enforcement agencies and federal regulators to ensure compliance with federal banking laws to promote integrity across financial institutions worldwide.”

“Banks are the first layer of defense against money launderers and other criminal enterprises who choose to utilize our nation’s financial institutions to further their criminal activity,” said Richard Weber, Chief, Internal Revenue Service-Criminal Investigation (IRS-CI).  “When a bank disregards the Bank Secrecy Act’s reporting requirements, it compromises that layer of defense, making it more difficult to identify, detect and deter criminal activity.  In this case, HSBC became a conduit to money laundering.  The IRS is proud to partner with the other law enforcement agencies and share its world-renowned financial investigative expertise in this and other complex financial investigations.”

Manhattan District Attorney Cyrus R. Vance Jr., said, “New York is a center of international finance, and those who use our banks as a vehicle for international crime will not be tolerated.  My office has entered into Deferred Prosecution Agreements with two different banks in just the past two days, and with six banks over the past four years.  Sanctions enforcement is of vital importance to our national security and the integrity of our financial system. The fight against money laundering and terror financing requires global cooperation, and our joint investigations in this and other related cases highlight the importance of coordination in the enforcement of U.S. sanctions. I thank our federal counterparts for their ongoing partnership.”

Queens County District Attorney Richard A. Brown said, “No corporate entity should ever think itself too large to escape the consequences of assisting international drug cartels.  In particular, banks have a special responsibility to use appropriate due diligence in monitoring the cash transactions flowing through their financial system and identifying the sources of that money in order not to assist in criminal activity.  By allowing such illicit transactions to occur, HSBC failed in its global responsibility to us all.  Hopefully, as a result of this historical settlement, we have gained the attention of not only HSBC but that of every other major financial institution so that they cannot turn a blind eye to the crime of money laundering.” 

                                                                                    *  *  *
           
This case was prosecuted by Money Laundering and Bank Integrity Unit Trial Attorneys Joseph Markel and Craig Timm of the Criminal Division’s Asset Forfeiture and Money Laundering Section, and Assistant U.S. Attorneys Alex Solomon and Daniel Silver of the U.S. Attorney’s Office for the Eastern District of New York.  

The AML investigation was conducted by HSI’s El Dorado Task Force, a joint task force composed of members from more than 55 law enforcement agencies in New York and New Jersey, including special agents and investigators from IRS-CI and the Queens County District Attorney’s Office, other federal agents, state and local police investigators and intelligence analysts, with the assistance of DEA’s New York Division.  The sanctions investigation was conducted by the FBI’s Washington Field Office.

The Money Laundering and Bank Integrity Unit is a corps of prosecutors with a boutique practice aimed at hardening the financial system against criminal money laundering vulnerabilities by investigating and prosecuting financial institutions and professional money launderers for violations of the anti-money laundering statutes, the Bank Secrecy Act and other related statutes. 

The Department of Justice expressed gratitude to William Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia; Assistant District Attorney Garrett Lynch of the New York County District Attorney’s Office, Major Economic Crimes Bureau; the Treasury Department’s Office of Foreign Assets Control; the Board of Governors of the Federal Reserve System; and the Office of the Comptroller of the Currency for their significant and valuable assistance.

A federal court has permanently barred Larry Carnell Dixon Sr., a Louisiana tax return preparer, and his business, Dixon’s Tax Service, LLC from preparing federal tax returns for others, the Justice Department announced today. The civil injunction order, to which Dixon and Dixon’s Tax Service LLC, consented without admitting the allegations against them, was signed by Judge James Brady of the U.S. District Court for the Middle District of Louisiana.

The government amended complaint alleged that Dixon and the preparers at Dixon’s Tax Service, which has offices in Baton Rouge and Gonzales, La., prepared returns for customers that reported false deductions which generated higher refunds and/or the Earned Income Tax Credit (EITC), a refundable credit that can generate a refund exceeding the amount of income tax paid by an individual taxpayer.

The amended complaint alleged that Dixon and the preparers at Dixon’s Tax Service fabricated and inflated business expense deductions reported on many of their taxpayers’ Schedule Cs (Forms 1040) for existing and fictional businesses. By allegedly fabricating and inflating these deductions, Dixon and Dixon’s Tax Service reduced a client’s taxable income, which resulted in a reduced tax liability and possibly a higher refund. In addition, Dixon and his preparers have allegedly repeatedly prepared returns that claim the EITC for customers who did not qualify for it. The complaint alleges that Dixon’s alleged misconduct may have cost the United States as much as $39 million.

The IRS lists tax-preparer fraud as one of the “Dirty Dozen” tax scams. The Justice Department has obtained injunctions against hundreds of tax-return preparers and tax-fraud promoters in the past decade. Information about these cases is available on the Justice Department website.

Related Documents:  United States v. Larry Carnell Dixon Sr., et al.

Amended Complaint for Permanent Injunction (PDF)

Order Entering Permanent Injunction (PDF)

WASHINGTON—A Detroit-area registered physical therapy assistant was sentenced today to serve 30 months in prison for her role in a nearly $13.8 million Medicare fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Eastern District of Michigan Barbara L. McQuade; Special Agent in Charge Robert D. Foley III of the FBI’s Detroit Field Office; and Special Agent in Charge Lamont Pugh III of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) Chicago Regional Office.

Hetal Barot, 30, of Westland, Mich., was sentenced by U.S. District Judge Gerald E. Rosen in the Eastern District of Michigan. In addition to her prison term, Barot was sentenced to serve two years of supervised release and ordered to pay $1,336,739 in restitution, jointly and severally with her co-defendants.

Barot pleaded guilty on June 26, 2012, to one count of conspiracy to commit health care fraud.

According to Barot’s plea agreement, beginning in approximately May 2009, Barot, a physical therapy assistant, was paid to falsify medical documentation for Physicians Choice Home Health Care LLC, a home health agency owned by her co-conspirators.  Barot created evaluations, therapy revisit notes and other medical documentation memorializing purported physical therapy for patients she did not see or treat.  According to court documents, she was instructed on how to falsify the medical documentation by a co-conspirator.

Barot also pleaded guilty to signing therapy revisit notes as a physical therapy assistant for patients she did not see or treat, knowing that the documents she falsified and the documents that she signed would be used to support false claims to Medicare for home health services.

Barot was subsequently paid to sign falsified medical documentation and files for First Care Home Health Care LLC, Quantum Home Care Inc. and Moonlite Home Care Inc., which were Detroit-area home health care companies also owned by Barot’s co-conspirators that billed Medicare. 

From approximately May 2009 through September 2011, Medicare paid approximately $1,336,739 to the four home health care companies for fraudulent physical therapy claims based on falsified files and notes signed by Barot.  The four home health companies for which Barot worked were paid in total approximately $13.8 million by Medicare.

Nine of Barot’s co-defendants have pleaded guilty, and one has been sentenced.  Three co-defendants are fugitives, and six co-defendants await trial.

This case is being prosecuted by Trial Attorney Catherine K. Dick of the Criminal Division’s Fraud Section.  The case was investigated by the FBI and HHS-OIG and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of Michigan.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion.  In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

To learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to: www.stopmedicarefraud.gov.

WASHINGTON – The Department of Justice has forfeited cash and properties worth more than $11 million related to fraud proceeds located in the United States in connection with the conviction by Australian prosecutors of Rachel Cowen, Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division announced today. 

Cowen was convicted in Melbourne, Australia, for fraudulently acquiring and liquidating securities held by Computershare Limited, an Australian investment broker.  This enforcement of the Australian forfeiture judgment marks the first time that the Department of Justice has sought and obtained a forfeiture judgment in a U.S. court under Section 2467 of Title 28 of the U.S. Code, which was amended in December 2010.  This provision permits the enforcement of foreign restraining orders and forfeiture judgments against criminal proceeds by U.S. courts.

In granting the department’s request to enforce the Australian forfeiture judgment, the U.S. District Court for the District of Columbia authorized the forfeiture to the United States of a residence located in Miami-Dade County, Fla., appraised at $715,000, more than $4.9 million held in various bank accounts, precious metals accounts valued at approximately $5.5 million and two vehicles.  U.S. Chief District Judge Lamberth granted the application and issued a final order enforcing the Australian judgment on Nov. 27, 2012.  The U.S. Marshals executed the judgment against the bank and precious metals accounts today.

“This case demonstrates the Justice Department's resolve to prevent the United States from becoming a haven for criminal proceeds,” said Assistant Attorney General Breuer.  “The department is committed to partnering with foreign law enforcement authorities to return the proceeds of crime to their rightful owners.”

According to court documents, in June 2008, Cowen defrauded a client of Computershare of more than 15 million Australian dollars by presenting false documents and fraudulently representing to Computershare that she had authority to obtain and liquidate securities.  Accounts held by U.S. resident Raul Mari in Florida received wire transfers totaling 10.5 million Australian dollars from Australian accounts holding the fraud proceeds.  Cowen was convicted in Australia of obtaining property by deception and sentenced to four years in prison, with three years suspended.  The Supreme Court of Victoria at Melbourne subsequently issued a judgment forfeiting 15 assets controlled by Mari and located in the United States in connection with Cowen’s conviction.  

The case was prosecuted by Deputy Chief Linda Samuel, Assistant Deputy Chief Jack de Kluiver and Trial Attorney Katharine Wagner of the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS).  Valuable assistance was provided by the Criminal Division’s Office of International Affairs.  The FBI and U.S. Marshals Service worked closely with AFMLS in this action.  The United States worked with the Victoria Police and the Office of Public Prosecutions for the State of Victoria to execute the Australian forfeiture judgment.

WASHINGTON – Standard Chartered Bank, a financial institution headquartered in London, has agreed to forfeit $227 million to the Justice Department for conspiring to violate the International Emergency Economic Powers Act (IEEPA).  The bank has agreed to the forfeiture as part of a deferred prosecution agreement with the Justice Department and a deferred prosecution agreement with the New York County District Attorney’s Office for violating New York state laws by illegally moving millions of dollars through the U.S. financial system on behalf of sanctioned Iranian, Sudanese, Libyan and Burmese entities.  The bank has also entered into settlement agreements with the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Board of Governors of the Federal Reserve System.

The announcement was made by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; Ronald C. Machen Jr., U.S. Attorney for the District of Columbia; New York County District Attorney Cyrus R. Vance Jr.; George Venizelos, Assistant Director in Charge of the FBI New York Field Office; and IRS Criminal Investigation (IRS-CI) Chief Richard Weber.

A criminal information was filed today in federal court in the District of Columbia charging Standard Chartered Bank with one count of knowingly and willfully conspiring to violate IEEPA.  Standard Chartered Bank has waived the federal indictment, agreed to the filing of the information and has accepted responsibility for its criminal conduct and that of its employees. 

“For years, Standard Chartered Bank deliberately violated U.S. laws governing transactions involving Sudan, Iran, and other countries subject to U.S. sanctions,” said Assistant Attorney General Breuer.  “The United States expects a minimum standard of behavior from all financial institutions that enjoy the benefits of the U.S. financial system.  Standard Chartered’s conduct was flagrant and unacceptable.  Together with the Treasury Department and our state and local partners, we will continue our unrelenting efforts to hold accountable financial institutions that intentionally mislead regulators to do business with sanctioned countries.”

“When banks dodge U.S. sanctions laws, they imperil our financial system and our national security,” said U.S. Attorney Machen.  “Today’s agreement holds Standard Chartered Bank accountable for intentionally manipulating transactions to remove references to Iran, Sudan, and other sanctioned entities, and then further concealing these transactions through misrepresentations to U.S. regulators.  This $227 million forfeiture should make clear that trying to skirt U.S. sanctions is bad for business.”

“Investigations of financial institutions, businesses, and individuals who violate U.S. sanctions by misusing banks in New York are vitally important to national security and the integrity of our banking system.  Banks occupy positions of trust.  It is a bedrock principle that they must deal honestly with their regulators.  I will accept nothing less; too much is at stake for the people of New York and this country,” said District Attorney Vance.  “These cases give teeth to sanctions enforcement, send a strong message about the need for transparency in international banking, and ultimately contribute to the fight against money laundering and terror financing.  I thank our federal partners for their cooperation and assistance in pursuing this investigation.”

“Standard Chartered Bank regularly engaged in prohibited banking practices, took steps to conceal the illegal conduct, and misled regulators about the pattern of illegality,” said Assistant Director in Charge Venizelos.  “New York is a world financial capital and an international banking hub, and you have to play by the rules to conduct business here.”

“To protect and uphold the integrity of the American financial system, it is essential that we ensure global banking institutions obey U.S. laws, including sanctions against other countries,” said IRS-CI Chief Weber.  “Criminal Investigation, the world’s preeminent financial investigative agency, was proud to be part of this law enforcement team working collaboratively with our federal and local partners to hold Standard Chartered Bank accountable for their criminal actions. When we work together, it’s a force multiplier and it is government working smart.  It’s what taxpayers expect of us.”

Standard Chartered Bank (SCB) operates a branch in New York (“SCB New York”) that provides wholesale banking services, primarily U.S.-dollar clearing for international wire payments.  SCB New York also provides U.S.-dollar correspondent banking services for SCB’s branches in London and Dubai.  According to court documents, from 2001 through 2007, SCB violated U.S. and New York state laws by moving millions of dollars illegally through the U.S. financial system on behalf of Iranian, Sudanese, Libyan and Burmese entities subject to U.S. economic sanctions.  SCB knowingly and willfully engaged in this criminal conduct, which caused SCB’s branch in New York and unaffiliated U.S. financial institutions to process over $200 million in transactions that otherwise should have been rejected, blocked or stopped for investigation under Office of Foreign Assets Control regulations relating to transactions involving sanctioned countries and parties.

According to court documents, SCB engaged in this criminal conduct by, among other things, instructing a customer in a sanctioned country to represent itself using SCB London’s unique banking code in payment messages, replacing references to sanctioned entities in payment messages with special characters and deleting payment data that would have revealed the involvement of sanctioned entities and countries using wire payment methods that masked their involvement.  This conduct occurred in various business units within SCB in locations around the world, primarily SCB London and SCB Dubai, with the knowledge and approval of senior corporate managers and the legal and compliance departments of SCB. 

In addition to evading U.S. economic sanctions, SCB made misleading statements to regulators to further conceal its business with sanctioned countries.  In August 2003, SCB wrote in a letter to OFAC that the use of cover payments for transactions related to sanctioned countries was contrary to SCB’s global instructions.  In fact, SCB used the cover payment method to effect billions of dollars in payments, lawful and unlawful, through SCB New York originating from or for the benefit of customers in Iran, Libya, Burma and Sudan – all U.S. sanctioned countries – and continued to do so after the letter was sent. 

During an extensive examination of all transactions at, by, or through SCB New York to detect suspicious activity, SCB failed to disclose to the Federal Reserve Bank of New York and New York Department of Financial Services that it was processing billions of dollars of non-transparent payments for customers in sanctioned countries.  As a result of SCB’s failure to disclose these transactions, the regulators were misled about the nature and extent of SCB’s business with sanctioned countries.

SCB’s agreement to forfeit $227 million will settle forfeiture claims by the Department of Justice and New York State.  In light of the bank’s remedial actions to date and its willingness to acknowledge responsibility for its actions, the Justice Department will recommend the dismissal of the information in 24 months, provided the bank fully cooperates with, and abides by, the terms of the deferred prosecution agreement. 

Under the terms of its settlement agreement with SCB, OFAC’s penalty of $132 million will be satisfied by $227 million forfeited in connection with the bank’s resolution with the Justice Department.  OFAC’s settlement agreement further requires the bank to conduct a review of its policies and procedures and their implementation, taking a risk-based sampling of U.S. dollar payments to ensure that its OFAC compliance program is functioning effectively to detect, correct and report apparent sanctions violations to OFAC.

The case was prosecuted by Money Laundering and Bank Integrity Unit Trial Attorney Clay Porter of the Criminal Division’s Asset Forfeiture and Money Laundering Section, and Assistant U.S. Attorney George P. Varghese of the National Security Section of the U.S. Attorney’s Office for the District of Columbia.  The case was investigated by the FBI’s New York Field Office and IRS-Criminal Investigation’s Washington Field Division, with assistance from OFAC.
           
The Money Laundering and Bank Integrity Unit is a corps of prosecutors with a boutique practice aimed at hardening the financial system against criminal money laundering vulnerabilities by investigating and prosecuting financial institutions and professional money launderers for violations of the money laundering statutes, the Bank Secrecy Act and other related statutes.

The Department of Justice expressed its gratitude to OFAC, under the leadership of Director Adam J. Szubin, and the Federal Reserve Bank of New York.

WASHINGTON – A former securities broker pleaded guilty today for his role in a scheme to defraud thousands of investors through the manipulation of publicly traded stocks, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Danny C. Williams Sr. of the Northern District of Oklahoma. 

Joshua Wayne Lankford, 39, of Dallas, pleaded guilty before U.S. Magistrate Judge Paul Cleary in the Northern District of Oklahoma to one count of money laundering.

“Joshua Wayne Lankford fled the country in an attempt to escape punishment for his role in a pump and dump investment scheme that allowed him to cash in at the expense of innocent investors,” said Assistant Attorney General Breuer. “We tracked him down, and today he stands as a convicted felon.  We have no tolerance for individuals who take advantage of investors, and we will continue to devote significant resources to prosecuting those who threaten the integrity of our markets.”  

“Mr. Lankford used his position as a stockbroker and owner of a brokerage to exploit unsuspecting investors of millions of dollars,” said U.S. Attorney Williams.  “The investing public must depend upon the integrity of the financial markets.  Those who commit such blatant stock fraud will be brought to justice.”

Lankford was originally charged along with four other defendants in a 24-count indictment unsealed on Feb. 10, 2009.  Prior to trial, Lankford fled to Costa Rica, where he remained until he was extradited to the United States in May 2012.  Two defendants, George David Gordon and Richard Clark, were convicted by a federal jury in May 2010 for their roles in the scheme.  James Reskin pleaded guilty on March 26, 2010, to one count of conspiracy to commit securities fraud, wire fraud and money laundering and to one count of obstruction of a proceeding before the Internal Revenue Service (IRS) for his role in the scheme.  Dean Sheptycki remains a fugitive.

According to court documents and evidence presented at the 2010 trial, the defendants manipulated the stocks of three companies: Deep Rock Oil & Gas Inc. and Global Beverage Solutions Inc., formerly known as Pacific Peak Investments, both of Tulsa, Okla., and National Storm Management Group Inc. of Glen Ellyn, Ill.  According to court documents and evidence presented at the 2010 trial, the defendants devised and engaged in a scheme to defraud investors known as a “pump and dump,” in which they manipulated publicly traded penny stocks.  A penny stock is a common stock that trades for less than $5 per share in the over the counter market, rather than on national exchanges. The defendants executed the scheme by obtaining a majority of the free-trading shares of stock of the company they intended to manipulate, using fraudulent and deceptive means to acquire the stock and/or remove the trading restrictions on the shares they obtained.

According to court documents and evidence presented at the 2010 trial, the defendants hid and “parked” their shares with various nominees, such as friends, relatives or other entities that they owned and controlled.  Subsequently, they engaged in coordinated trading in order to create the appearance of an emerging market for these stocks, after which they conducted massive promotional campaigns in which unsolicited fax and email “blasts” were sent to millions of recipients.  According to evidence presented at the 2010 trial, these blasts touted the respective stocks without accurately disclosing who was paying for the promotions, omitted that the defendants intended to sell their shares, and induced unsuspecting legitimate investors to purchase stock in the companies.  The defendants and their nominees obtained significant profits by selling large amounts of shares after they had artificially inflated the stock price.  For each of the three manipulated stocks, the co-conspirators’ sell-off caused declines of the stock price and left legitimate investors holding stock of significantly reduced value. 

Evidence presented in the 2010 trial showed that the overall scheme resulted in illegal proceeds of more than $44 million. 

According to Lankford’s guilty plea, he laundered $250,000 in proceeds derived from the stock manipulation scheme.

At sentencing, which is scheduled for March 26, 2013, Lankford faces a maximum sentence of 10 years in prison and a $250,000 fine.
                       
The case is being prosecuted by Trial Attorneys Kevin Muhlendorf and Andrew Warren of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Catherine Depew for the Northern District of Oklahoma. The case is being investigated by IRS-Criminal Investigation and the FBI.  The department wishes to thank the Securities and Exchange Commission for its assistance with the investigation.  The department also wishes to thank the Criminal Division’s Office of International Affairs, the U.S. Department of State and the U.S. Marshals Service for their work in securing Lankford’s extradition.
           
This case is part of efforts underway by President Obama’s 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 made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the 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 www.stopfraud.gov.

Bryan Benson, a former Anderson, Calif., police officer, was arrested today on charges of deprivation of civil rights for sexually assaulting a woman while transporting her to jail and of trying to conceal his criminal conduct, announced the Justice Department.

Benson, 28, was charged in a three-count indictment returned by a federal grand jury in the Eastern District of California and unsealed today. He is charged with one count of deprivation of rights under color of law, one count of obstruction of justice and one count of causing a false entry to be made in a document or record with the intent to impede investigation into his conduct.

The indictment alleges that on May 29, 2010, Benson sexually assaulted the arrested woman, resulting in bodily injury and involving aggravated sexual assault and kidnapping. The indictment further alleges that Benson obstructed justice by warning the woman not to report the crime, and that he caused a police dispatcher to falsely record his location in the dispatch logs in an effort to conceal his offense.

If convicted, Benson could face a maximum sentence of life in prison and a fine of $250,000 on the deprivation of civil rights charge, and 20 years in prison and a fine of $250,000 on both the obstruction and false-entry charges.

This case is being investigated by the FBI. The case is being prosecuted by Assistant U.S. Attorneys R. Steven Lapham and Michelle Prince for the Eastern District of California and Trial Attorney Chiraag Bains from the Justice Department’s Civil Rights Division.

An indictment is merely an accusation and the defendant is presumed innocent unless proven guilty.

WASHINGTON – A medical doctor and the president of two Brooklyn, N.Y., medical clinics pleaded guilty today for his role in a scheme resulting in more than $11.7 million in fraudulent Medicare claims, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.

According to court documents, Ho Yon Kim, 86, of Flushing, N.Y., was the president of URI Medical Service PC and Sarang Medical PC, both doing business in Flushing, and purportedly providing physical therapy and electric stimulation treatment.  He was also a rendering physician at both clinics.  Kim pleaded guilty in Brooklyn federal court before U.S. Magistrate Judge Marilyn D. Go to a superseding information charging him with conspiracy to commit health care fraud.

During today’s plea hearing, Kim admitted that, from approximately March 2007 to October 2011, he conspired with others to induce Medicare beneficiaries to allow their Medicare numbers to be billed for medical services that were never provided or were not medically necessary.  In exchange, the conspirators provided the beneficiaries with a variety of spa services such as massages, facials, lunches and dancing classes.

At sentencing, Kim faces a maximum penalty of 10 years in prison.  A sentencing date has not yet been set.

Also charged by indictment in the scheme were medical doctors Hoi Yat Kam and Peter Lu, who await trial.  The charges and allegations against them are merely accusations and they are considered innocent unless and until proven guilty.

The case is being prosecuted by Trial Attorneys Nicholas S. Acker and Bryan D. Fields of the Criminal Division’s Fraud section.  The case was investigated by the FBI and the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), and brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion.  In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

WASHINGTON – A Brooklyn, N.Y., board-certified colorectal surgeon, who owned and operated a New York medical clinic, was sentenced today to serve 30 months in prison for his role in a fraud scheme that billed Medicare and more than 10 private insurance companies for surgeries and other complex medical procedures that were never performed, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, Acting Assistant Director in Charge George Venizelos of the FBI’s New York Field Office and Special Agent in Charge Thomas O’Donnell of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) New York Regional Office.

Dr. Boris Sachakov, 43, of Brooklyn, was sentenced by U.S. District Judge Jack Weinstein in the Eastern District of New York.  In addition to his prison term, Sachakov was sentenced to serve three years of supervised release, pay forfeiture of $1,103,069 and pay restitution of $1,103,069 to the victims of his crimes, Medicare and numerous private insurance plans.

Sachakov was found guilty by a jury on June 13, 2012, after a two-week trial in federal court in Brooklyn.  Sachakov was found guilty of one count of health care fraud and five counts of health care false statements.   The trial evidence showed that from January 2008 to January 2010, Sachakov, who owned and operated a clinic called Colon and Rectal Care of New York P.C., defrauded Medicare and private insurance companies by billing for surgeries and medical services that he never provided.   According to trial testimony, several private insurance companies began investigating Sachakov after receiving complaints from patients that Sachakov had submitted claims for surgeries, including hemorrhoidectomies, that he never performed.  

At trial, 11 of Sachakov’s patients testified that they had not received the surgeries and other medical services for which Sachakov had billed their insurance companies.  The evidence presented at trial showed that the medical records Sachakov created and maintained on these patients, including letters to the patient’s referring doctors, did not support the extensive billings he submitted.  After Sachakov was confronted by two insurance companies about complaints of billings for surgeries that did not happen, the evidence at trial showed that Sachakov sent letters to his patients, asking them to falsely certify in writing that they had received the phony surgeries. The indictment alleged that Sachakov submitted and caused the submission of more than $22.6 million in false and fraudulent claims to Medicare and private insurance companies, and received more than $9 million on those claims.

The case was prosecuted by Trial Attorney Sarah M. Hall and Assistant Chief William Pericak of the Criminal Division’s Fraud Section, with assistance from Fraud Section Trial Attorneys Arun Bhoumik and Bryan Fields.  The case was investigated by the FBI, HHS-OIG, the New York State Office of Medicaid Inspector General and the New York State Department of Financial Services, Criminal Investigative Division.

The case was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section.  The Medicare Fraud Strike Force operations 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.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion.  In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

To learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to: www.stopmedicarefraud.gov.

WASHINGTON – British contractor APTx Vehicle Systems Limited agreed today to plead guilty to conspiracy to defraud the United States, the Coalition Provisional Authority that governed Iraq from April 2003 to June 2004, the government of Iraq and JP Morgan Chase Bank.  A civil settlement agreement resolving a related action filed under the False Claims Act was also announced today.

APTx was charged with one count of wire fraud conspiracy in a criminal information filed today in U.S. District Court in Massachusetts.  As part of the plea agreement filed with the information, APTx agreed to pay a criminal fine of $1 million.

The charges and resolutions were announced today by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, Principal Deputy Assistant Attorney General Stuart F. Delery of the Justice Department’s Civil Division and U.S. Attorney for the District of Massachusetts Carmen M. Ortiz. 

According to the criminal information, APTx engaged in a fraudulent scheme involving an August 2004 contract valued at over $8.4 million for the procurement of 51 vehicles for the Iraqi Police Authority.  The contract was initially awarded to a different, “prime” contractor, which in turn subcontracted the procurement to APTx for over $5.7 million.  Payment under the contract was by letters of credit issued by JP Morgan Bank.

The criminal information further charges that in May and June 2005, APTx submitted shipping documents to JP Morgan to draw down on the letters of credit, which falsely and fraudulently asserted that all 51 vehicles were produced and ready to ship to Iraq.   In fact, as APTx knew, none of the vehicles had been built, none of the vehicles were legally owned or held by APTx and none of the vehicles were in the process of transport to Iraq.  The fraudulent shipping documents also listed a company as the freight carrier that APTx knew was not a shipping company and named a fictitious company as the freight forwarder. 
           
In a related civil settlement agreement, APTx, along with Alchemie Grp Ltd., a United Kingdom corporation, and Haslen Back, the director and shareholder of Alchemie, agreed to pay $2 million to the United States to resolve claims originated by Ian Rycroft, an individual retained by the prime contractor to oversee transportation of the vehicles, under the qui tam, or whistleblower, provisions of the False Claims Act in the District of Massachusetts.  The False Claims Act authorizes private whistleblowers to bring suit for false claims submitted to the United States and to share in any recovery.  Rycroft’s estate will receive $540,000 as its share of the settlement amount.

Benjamin Kafka, a representative for APTx in the United States, was charged on April 13, 2009, with one count of misprision of a felony in connection with his role in the wire fraud conspiracy.  According to court documents, Kafka allegedly allowed APTx to use his corporate name and identity as the freight carrier and freight forwarder on the fraudulent shipping documents presented to JP Morgan.

The criminal case is being prosecuted by Director of Procurement Fraud Catherine Votaw and Trial Attorney William H. Bowne III of the Criminal Division’s Fraud Section, and by Assistant U.S. Attorneys Eugenia M. Carris and Jeffrey Cohen of the District of Massachusetts.  The civil case is being handled by Trial Attorney Diana Younts of the Civil Division, and by Assistant U.S. Attorney Christine Wichers of the District of Massachusetts.  The investigation was conducted by the Special Inspector General for Iraq Reconstruction, the Defense Criminal Investigative Service Boston Resident Agency and U.S. Immigration and Customs Enforcement Homeland Security Investigations in Washington, D.C.  

WASHINGTON – A Las Vegas man pleaded guilty today in federal court to conspiring to conduct a racketeering enterprise as a member of the Playboy Bloods criminal street gang, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Daniel G. Bogden of the District of Nevada.

Reginald Dunlap,  30, aka “Bowlie,” pleaded guilty today before U.S. District Judge Phillip Pro in the District of Nevada to one count of conspiracy to engage in a racketeering enterprise.   

According to court documents, the Bloods is a criminal street organization whose members engage in drug trafficking and acts of violence.  The Playboy Bloods is a local affiliate of the Bloods, with control and operation within the Las Vegas metropolitan area. A subset of the Playboy Bloods is Full Throttle Clique, a group made up of Playboy Bloods members who engage in acts of violence, including murder.

According to court documents, Dunlap is a member of the Playboy Bloods and the Full Throttle Clique.  Dunlap pleaded guilty to conspiring to conduct and participate in the conduct of the affairs of the Playboy Bloods through a pattern of racketeering activity.

 Dunlap pleaded guilty today to aiding and abetting the murder of Billy Thomas. On Oct. 31, 2004, Playboy Bloods and Full Throttle member Quazi Burns was murdered, and Playboy Bloods members believed that a rival Crips gang member was responsible for the crime. That night, according to court documents, several Playboy Bloods members, including the defendant, met at the Jets housing complex located in Playboy Blood controlled territory, and discussed retaliating against the Crips.  Dunlap and the other Playboy Bloods members got into two cars and spotted Billy Ray Thomas, who was working on his car, at Pecos Terrace Apartments in Las Vegas.  According to court documents, several Playboy Bloods’ members got out of the cars carrying firearms, approached Thomas and shot and killed him, believing that he was a Crips gang member.

As part of his guilty plea, Dunlap also admitted to being in possession of 34 grams of crack cocaine and over $2,000 in cash on June 25, 2008, during a traffic stop by the North Las Vegas Police Department.

 At sentencing, scheduled for April 5, 2013, Dunlap faces a maximum penalty of 20 years in prison.

Dunlap is one of 10 defendants charged in October 2008 with conducting racketeering activity through the Playboy Bloods criminal enterprise.  To date, eight defendants have pleaded guilty to this indictment and six have been sentenced.   

This case is being prosecuted by Assistant U.S. Attorneys Nicholas D. Dickinson and Phillip N. Smith Jr. of the District of Nevada an

Trial Attorney Kevin L. Rosenberg of the Criminal Division’s Organized Crime and Gang Section.  The case was investigated by the FBI and the Las Vegas Metropolitan Police Department. 

AGUA CALIENTE, Calif. – U.S. Department of Justice Acting Associate Attorney General Tony West today addressed tribal leaders, law enforcement officers, lawyers and judges, policy experts and health and social services providers, and representatives from federal, state, local and tribal governments following  a week of public safety events at the 13th National Indian Nations Conference in Agua Caliente, Calif.  The conference is focused on bringing together Native American victims, victim advocates, as well as federal and state agency representatives, to share their knowledge, experiences and ideas for developing programs that serve the unique needs of crime victims in Indian Country. 

Acting Associate Attorney General West told the audience about Justice Department efforts to strengthen tribal sovereignty and public safety in Indian Nations, such as increasing the number of federal personnel to investigate and prosecute cases on Indian lands, including a dozen FBI Indian country victim specialists, the launch of the National Indian Country Training Initiative, which has trained more than 2,000 criminal-justice professionals, and the institution of a streamlined and coordinated Justice Department grant program for tribes.  The department has also established the Office of Tribal Justice as a permanent component within the Justice Department and created the Tribal Nations Leadership Council to facilitate consultation and advise the attorney general on issues critical to tribal governments.

  “I am proud that over the last four years we have developed strong and vital partnerships with tribal nations.   We've made some excellent progress, but our work in Indian country is far from over,” said Associate Attorney General West.  “Tribal communities still face uniquely difficult challenges, from crime rates that remain far above the national average to the alarming levels of violence against native women.  We won't rest until we've met those challenges.”
 
   Organized by the Justice Department’s Office for Victims of Crimes (OVC) the conference began Thursday and continues through Saturday, Dec. 8.  Office of Justice Programs (OJP) Acting Assistant Attorney General Mary Lou Leary addressed participants at Thursday’s opening plenary session.

  “OJP, through OVC, has been proud to support tribes and tribal victim services for almost 25 years,” said Assistant Attorney General Leary.  “We have come a long way, but many challenges remain.  Even while we are still confronted with familiar crimes like child abuse and sexual assault, new crimes – some of them enabled by technology – present new obstacles. We are committed to addressing these enduring and emerging challenges.”

  Events began earlier this week with the first meeting of the National Coordination Committee on the American Indian/Alaska Native Sexual Assault Nurse Examiner-Sexual Assault Response Team (AI/AN SANE-SART) Initiative on Tuesday and Wednesday. The AI/AN SANE-SART initiative is an OVC, FBI and Indian Health Service partnership focusing on enhancing and improving the federal, state, local and tribal responses to adult and child victims of sexual violence in Indian Country. 

Activities at the Agua Caliente reservation also included training and technical assistance workshops for grant recipients through the Justice Department’s 2012 Coordinated Tribal Assistance Solicitation (CTAS), the primary funding source for department funded public safety programs and initiatives in Indian Country.  The CTAS orientation workshops provided instruction and guidance necessary for recipients to successfully implement and operate programs funded through CTAS. The training workshops were focused on topics such as reporting and grant management; grant compliance; and training and technical assistance resources. 

The 13th National Indian Nations Conference is part of the Justice Department’s ongoing efforts to create better communication and coordination to fight crime and promote justice in tribal communities. The roots of the conference stretch back more than two decades, with OVC organizing the very first in 1988.  It was held on the reservation of the Agua Caliente Band of Cahuilla Indians, with the theme, “Strength from Within: Rekindling Tribal Traditions to assist Victims of Crime” and coordinated by the Tribal Law and Policy Institute through a grant from OVC.
 
For more information on the 13th National Indian Nations Conference, please visit: www.ovcinc.org/agenda

For more information on the AI/AN SANE-SART initiative, please visit: www.ovc.gov/AIANSane-Sart/index.html

For more information on the CTAS, please visit: www.justice.gov/tribal/ctas2012/ctas-factsheet.pdf

Barrington Coombs, 58, of Weston, Fla., was sentenced today to serve a year and a day in prison for his role in a foreclosure rescue scheme that victimized desperate homeowners on the brink of losing their homes, the Justice Department announced. Coombs was sentenced by U.S. District Judge Kenneth A. Marra in the Southern District of Florida.

Coombs was convicted of one count of conspiracy to commit mail and wire fraud and one count of wire fraud, following a two week jury trial in July 2012.

According to the indictment and evidence presented at trial, two of Coombs’ accomplices, Lisa Wright and Cathy Saffer, operated Foreclosure Solution Specialists (FSS) from 2006 to 2009. FSS targeted homeowners facing foreclosure, advertising that it could assist those homeowners in remaining in their homes. When contacted by distressed homeowners seeking assistance, FSS misrepresented to those homeowners that their homes would be sold to investors. According to the indictment and evidence presented at trial , FSS also claimed that customers could remain in their homes after the sales and promised them an opportunity to repurchase the homes at a later date. Rather than selling the homes to legitimate investors, FSS designed sham sales to straw purchasers whom they paid to participate in the scheme.

According to the indictment and evidence presented at trial, FSS paid Certified Public Accountant Barrington Coombs to write a fraudulent letter that vouched for the false information on various loan applications. Lenders relied on Coombs’ fraudulent letter in deciding to fund the loans.

“The individual sentenced today lent his credibility as a professional accountant to a foreclosure scheme and, in doing so, caused lenders and consumers to suffer substantial losses,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Civil Division. “We will continue to work with the FBI and our other law enforcement partners to investigate and prosecute mortgage fraud and foreclosure rescue schemes such as this one.”

Coombs is the last member of the scheme to be sentenced. In November 2012, the two individuals who operated FSS were sentenced. Lisa Wright was sentenced to a 66 month term of imprisonment, while Cathy Saffer received a sentence of 60 months.

Mortgage transactions completed by FSS drew equity out of the homes, which FSS’ principals pocketed for their own purposes. After doing so, FSS allowed the loans to go into foreclosure. Homeowners ultimately lost all of the equity in their homes, and most of the victims were forced to move out of their homes.

The case was investigated by the FBI, and is being prosecuted by Christopher E. Parisi and John Claud, Trial Attorneys at the Civil Division’s Consumer Protection Branch.

Today’s announcement is part of efforts underway by President Obama’s 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 made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the 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 www.stopfraud.gov .

WASHINGTON – The Department of Justice and the Federal Trade Commission (FTC) will hold a joint public workshop on Dec. 10, 2012, to explore the impact of patent assertion entity (PAE) activities on innovation and competition and the implications for antitrust enforcement and policy.

This workshop will examine the economic and legal implications of PAE activity, as distinct from prototypical “non-practicing entity” (NPE) activity, such as developing and transferring technology.  By contrast, PAE activities often include purchasing patents from existing owners and seeking to maximize revenues by licensing the intellectual property to (or litigating against) manufacturers who are already using the patented technology. 

Supporters of the PAE business model say that it facilitates the transfer of patent rights, rewards inventors and funds ongoing research and development efforts. Critics describe adverse effects on competition and innovation, including increased costs and a lack of technology transfer, ultimately taxing consumers and industry.

The workshop will provide a forum for industry participants, academics, economists, lawyers and other interested parties to discuss the economic and legal analyses of PAE activity. It will consist of a series of panels examining, among other topics, the legal treatment of PAE activity, economic theories concerning PAE activity and industry experiences. Panelists for the workshop will include academics, private attorneys, economists and industry representatives.

T he Department of Justice and the FTC are interested in receiving comments on PAE activities and will accept written submissions from the public before the workshop and until March 10, 2013.  Interested parties may submit public comments to: [email protected] .  Submitted comments will be made publicly available on the Department of Justice and FTC websites.

Due to an overwhelming response and limited space, interested parties are encouraged to view the webcast of the event, available here

The workshop will take place at the FTC’s satellite conference center at 601 New Jersey Ave., N.W., Washington, D.C. from 9:00 a.m. to 5:30 p.m. EST on Dec. 10, 2012. Additional participants will be added to the agenda as they are confirmed. Updates to the agenda will be posted on the Department of Justice and FTC websites. The workshop will include the following panels, presentations and confirmed participants: 

9:00 a.m. – Opening Remarks : FTC Chairman Jon Leibowitz

SESSION A: FRAMEWORK

9:15 a.m. – Lecture 1: Introduction to PAE Activity

Colleen Chien, Assistant Professor of Law, Santa Clara University School of Law

9:35 a.m. – Lecture 2: Introduction to PAE Licensing

Carl Shapiro, Transamerica Professor of Business Strategy, University of California at Berkeley, Walter A. Hass School of Business

10:05 a.m. – Q & A with Professors Chien and Shapiro

BREAK (10:20 - 10:30 a.m.)

10:30 a.m. – Panel 1: Realities of Licensing and Litigation Practices

• Cynthia Bright, Associate General Counsel, IP Litigation and Public Policy, Hewlett-Packard
• Scott Burt, Vice President & Chief Intellectual Property Counsel, Mosaid Technologies Inc.
• John Desmarais, Partner, Desmarais LLP; Founder, Round Rock Research LLC
• Peter Detkin, Founder and Vice-Chairman, Intellectual Ventures
• Sarah Guichard, Vice President of Patent & Standards Strategy, Research In Motion (RIM)
• Paul Melin, Chief Intellectual Property Officer, Nokia
• Neal Rubin, Vice President Litigation, Cisco Systems Inc.
• Mary Stich, Vice President and Associate General Counsel, Rackspace Hosting
• Mallun Yen, Executive Vice President, RPX Corporation

LUNCH (12:00 - 1:15 p.m.)

1:15 p.m. – Remarks

Stuart Graham, Chief Economist, U.S. Patent & Trademark Office

Session B: Potential Efficiencies and Harms from PAE ACTIVITY: Effects on competition and innovation

1:45 p.m. – Academic Introduction to Potential Efficiencies from PAE Activity

Timothy Simcoe, Assistant Professor of Strategy and Innovation, School of Management, Boston University

Panel 1: Potential Efficiencies from PAE Activity

• Ron Epstein, CEO, Epicenter IP Group LLC
• Anne Layne-Farrar, Vice President, Antitrust & Competition Economics Practice, Charles River Associates
• C. Graham Gerst, Partner, Global IP Law Group
• Adam Mossoff, Professor of Law, George Mason University

Academic Introduction to Potential Harms from PAE Activity

Iain Cockburn, Professor of Finance and Economics and Everett W. Lord Distinguished Faculty Scholar, School of Management, Boston University

Panel 2: Potential Harms from PAE Activity

• Brad Burnham, Managing Partner, Union Square Ventures
• Thomas Ewing, Principal Consultant, Avancept LLC
• Robin Feldman, Professor of Law, University of California Hastings College of the Law
• Michael Meurer, Professor of Law and Abraham and Lillian Benton Scholar, Boston University School of Law
• David Schwartz, Associate Professor of Law, Illinois Institute of Technology Chicago-Kent College of Law

Panel 3: Industry Reaction

BREAK (3:45 - 4:00 p.m.)

SESSION C: HOW DOES ANTITRUST APPLY TO THE POTENTIAL EFFICIENCIES AND HARMS GENERATED BY PAE ACTIVITY

4:00 p.m. – Academic Introduction

Phillip Malone, Clinical Professor of Law, Harvard Law School; Clinical Co-Director and Senior Fellow, Berkman Center for Internet & Society, Harvard Law School

4:20 p.m. – Panel Discussion

• Logan Breed, Partner, Hogan Lovells
• Susan Creighton, Partner, Wilson, Sonsini, Goodrich & Rosati PC
• Hanno Kaiser, Partner, Latham & Watkins LLP
• Carl Shapiro, Transamerica Professor of Business Strategy, University of California at Berkeley, Walter A. Hass School of Business
• Hill Wellford III, Partner, Bingham McCutchen LLP

5:00 p.m. – Q & A

5:20 p.m. – Closing Remarks: Acting Assistant Attorney General for the Antitrust Division Renata B. Hesse

Directions to the FTC’s Conference Center are available at http://www.ftc.gov/bcp/workshops/transportationguide.shtml.

Reasonable accommodations for people with disabilities are available upon request. Requests should be submitted via email to [email protected] or by calling Samantha Konstandt at 202-326-3348. Requests should be made in advance. Please include a detailed description of the accommodation needed and provide contact information.

Attorney General Eric Holder issued the following statement today on the resignation of U.S. Attorney for the Eastern District of Louisiana Jim Letten:

“As the longest-serving U.S. Attorney in the country today, U.S. Attorney Jim Letten has demonstrated an unwavering commitment to the people of his district and the nation by working tirelessly to make their communities safer through reducing violent crime, fighting public corruption and protecting their civil rights.

“More recently, he and his office were instrumental in the department's efforts in ensuring that those who exploited the tragedy of Hurricane Katrina were held accountable. He has been a valued partner, dedicated public servant and a good friend, and I am grateful for his service to the department over these many years.”

WASHINGTON – A co-owner and operator of three Miami discount pharmacies pleaded guilty today in connection with a $23 million health care fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; Michael B. Steinbach, Acting Special Agent in Charge of the FBI’s Miami Field Office; and Special Agent in Charge Christopher B. Dennis of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), Office of Investigations Miami office.

Jose Carlos Morales, 55, of Miami, pleaded guilty today before U.S. District Judge Joan A. Lenard in the Southern District of Florida to one count of conspiracy to commit health care fraud and one count of conspiracy to pay illegal health care kickbacks. 

 According to court documents, Morales was the co-owner of Pharmovisa Inc., which operated two pharmacies in Miami, and PharmovisaMD Inc., which operated one pharmacy in Miami.  Morales pleaded guilty to agreeing to pay illegal health care kickbacks to co-conspirators in return for a stream of beneficiary information to be used to submit claims to Medicare and Medicaid.  The beneficiaries who were referred to Pharmovisa and PharmovisaMD (Morales pharmacies) in exchange for kickbacks payments resided at assisted living facilities (ALFs) located in Miami.  Morales and his alleged co-conspirators also paid illegal health care kickbacks to physicians in exchange for prescription referrals, which the Morales pharmacies ultimately billed to Medicare. 

Court documents also reveal that beginning in approximately 2007, at Morales’ direction, drivers working for Morales pharmacies delivered “bingo cards” containing pop out medications to ALFs located throughout the Southern District of Florida, and Morales instructed these drivers to pick up any unused “bingo cards” so that Morales pharmacy personnel could place these medications back into pill bottles.  Unused and partially used medications were eventually re-billed to Medicare and Medicaid, and a majority of the previously submitted claims to Medicare and Medicaid were never reversed.  Morales also instructed Morales pharmacy personnel to place unused and partially used medications into bottles to be sold directly to the general public from the “community” pharmacy shelves.

In furtherance of the conspiracies, according to court documents, Morales and his alleged co-conspirators also engaged in sham financial transactions to facilitate and conceal the fraud schemes and the flow of fraud proceeds.  In most instances, the sham transactions involved shell entities owned and/or controlled by Morales or his alleged co-conspirators. 

On Oct. 16, 2012, Esperanza Navailles, a former “marketer” for the Morales pharmacies, pleaded guilty to conspiracy to defraud the United States and pay illegal health care kickbacks.  From February 2011 to January 2012, Navailles, on behalf of the Morales pharmacies, paid ALF owners and operators $30 per patient per month for each Medicare beneficiary they referred to the pharmacies.  The Morales pharmacies then submitted claims to Medicare for items and services on behalf of the referred Medicare beneficiaries.  Navailles admitted that she knew the kickback payments were illegal. 

According to court documents, Morales and his co-conspirators submitted and caused to be submitted approximately $23,367,755 in false and fraudulent claims to the Medicare and Florida Medicaid programs.

The cases are being prosecuted by Trial Attorney Allan J. Medina and Special Trial Attorney William Parente of the Criminal Division’s Fraud Section.  This case was investigated by the FBI and HHS-OIG and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Florida.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion.  In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

To learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to: www.stopmedicarefraud.gov. 

WASHINGTON ? A co-owner and operator of three Miami discount pharmacies pleaded guilty today in connection with a $23 million health care fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Justice Department?s Criminal Division; U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida; Michael B. Steinbach, Acting Special Agent in Charge of the FBI?s Miami Field Office; and Special Agent in Charge Christopher B. Dennis of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), Office of Investigations Miami office.

Jose Carlos Morales, 55, of Miami, pleaded guilty today before U.S. District Judge Joan A. Lenard in the Southern District of Florida to one count of conspiracy to commit health care fraud and one count of conspiracy to pay illegal health care kickbacks. 

 According to court documents, Morales was the co-owner of Pharmovisa Inc., which operated two pharmacies in Miami, and PharmovisaMD Inc., which operated one pharmacy in Miami.  Morales pleaded guilty to agreeing to pay illegal health care kickbacks to co-conspirators in return for a stream of beneficiary information to be used to submit claims to Medicare and Medicaid.  The beneficiaries who were referred to Pharmovisa and PharmovisaMD (Morales pharmacies) in exchange for kickbacks payments resided at assisted living facilities (ALFs) located in Miami.  Morales and his alleged co-conspirators also paid illegal health care kickbacks to physicians in exchange for prescription referrals, which the Morales pharmacies ultimately billed to Medicare. 

Court documents also reveal that beginning in approximately 2007, at Morales? direction, drivers working for Morales pharmacies delivered ?bingo cards? containing pop out medications to ALFs located throughout the Southern District of Florida, and Morales instructed these drivers to pick up any unused ?bingo cards? so that Morales pharmacy personnel could place these medications back into pill bottles.  Unused and partially used medications were eventually re-billed to Medicare and Medicaid, and a majority of the previously submitted claims to Medicare and Medicaid were never reversed.  Morales also instructed Morales pharmacy personnel to place unused and partially used medications into bottles to be sold directly to the general public from the ?community? pharmacy shelves.

In furtherance of the conspiracies, according to court documents, Morales and his alleged co-conspirators also engaged in sham financial transactions to facilitate and conceal the fraud schemes and the flow of fraud proceeds.  In most instances, the sham transactions involved shell entities owned and/or controlled by Morales or his alleged co-conspirators. 

On Oct. 16, 2012, Esperanza Navailles, a former ?marketer? for the Morales pharmacies, pleaded guilty to conspiracy to defraud the United States and pay illegal health care kickbacks.  From February 2011 to January 2012, Navailles, on behalf of the Morales pharmacies, paid ALF owners and operators $30 per patient per month for each Medicare beneficiary they referred to the pharmacies.  The Morales pharmacies then submitted claims to Medicare for items and services on behalf of the referred Medicare beneficiaries.  Navailles admitted that she knew the kickback payments were illegal. 

According to court documents, Morales and his co-conspirators submitted and caused to be submitted approximately $23,367,755 in false and fraudulent claims to the Medicare and Florida Medicaid programs.

The cases are being prosecuted by Trial Attorney Allan J. Medina and Special Trial Attorney William Parente of the Criminal Division?s Fraud Section.  This case was investigated by the FBI and HHS-OIG and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division?s Fraud Section and the U.S. Attorney?s Office for the Southern District of Florida.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion.  In addition, HHS?s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

To learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to: www.stopmedicarefraud.gov. 

WASHINGTON – A Las Vegas man pleaded guilty today in federal court to conspiring to conduct a racketeering enterprise as a member of the Playboy Bloods criminal street gang, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Daniel G. Bogden of the District of Nevada.
        
Steven Booth, 27, aka “Stevie-P,” pleaded guilty today before U.S. District Judge Phillip Pro in the District of Nevada to one count of conspiracy to engage in a racketeering enterprise.   

According to court documents, the Bloods is a criminal street organization whose members engage in drug trafficking and acts of violence.  The Playboy Bloods is a local affiliate of the Bloods, with control and operation within the Las Vegas metropolitan area. A subset of the Playboy Bloods is Full Throttle Clique, a group made up of Playboy Bloods members who engage in acts of violence, including murder.

According to Booth’s plea agreement, he is a member of the Playboy Bloods and the Full Throttle Clique. Booth pleaded guilty to conspiring to conduct and participate in the conduct of the affairs of the Playboy Bloods through a pattern of racketeering activity.

According to court documents, Booth aided and abetted the murder of security guard Brian Wilcox in the Jets housing complex located in Playboy Blood controlled territory in Las Vegas.  On approximately Jan. 20, 2004, Wilcox and another security guard approached Booth and several other Playboy Bloods and told them they had to leave the property.  An argument ensued, and the security guards rode away on their bicycles to call for backup.  According to court documents, a Playboy Blood fired a gun at Wilcox, hitting him three times, and Booth and the others fled the scene.  On Jan. 21, 2004, Wilcox was pronounced dead.

Booth also pleaded guilty to aiding and abetting the murder of Billy Thomas. On Oct. 31, 2004, Playboy Bloods and Full Throttle member Quazi Burns was murdered, and Playboy Bloods members believed that a rival Crips gang member was responsible for the crime. That night, according to court documents, several Playboy Bloods members, including the defendant, met at the Jets complex and discussed retaliating against the Crips.  Booth and the other Playboy Bloods members got into two cars and spotted Billy Ray Thomas, who was working on his car, at Pecos Terrace Apartments in Las Vegas.  According to court documents, several Playboy Bloods’ members got out of the cars carrying firearms, approached Thomas and shot and killed him, believing that he was a Crips gang member.
 
 At sentencing, scheduled for April 5, 2013, Booth faces a maximum penalty of 20 years in prison.

Booth is one of 10 defendants charged in October 2008 with conducting racketeering activity through the Playboy Bloods criminal enterprise.  To date, six defendants have pleaded guilty and been sentenced to prison on this indictment.
        
This case is being prosecuted by Assistant U.S. Attorneys Nicholas D. Dickinson and Phillip N. Smith Jr. of the District of Nevada and Trial Attorney Kevin L. Rosenberg of the Criminal Division’s Organized Crime and Gang Section.  The case was investigated by the FBI and the Las Vegas Metropolitan Police Department. 

The Department of Justice and the Consumer Financial Protection Bureau (CFPB) signed an agreement today to strengthen coordination on fair lending enforcement and avoid duplication of their respective federal law enforcement efforts.

“The Department of Justice welcomes the new tools and resources the CFPB can bring to the fight against lending discrimination,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “Cooperation between our two agencies promotes strong and effective civil rights enforcement, and today’s agreement will further our ongoing collaborative efforts.”

“Discrimination undermines equal access to credit,” said Richard Cordray, Director of the CFPB. “Today’s agreement is a critical step to better protecting consumers from illegal and discriminatory lending practices. We look forward to continuing our partnership with the Justice Department under this new framework.”

The memorandum of understanding (MOU) can be found at: http://files.consumerfinance.gov/f/201212_cfpb_doj-fair-lending-mou.pdf.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB works with the department and other regulators to promote consistent, efficient and effective enforcement of federal fair lending laws. The Dodd-Frank Act also expressly authorizes the CFPB to conduct joint investigations with the department in matters relating to fair lending.

Both the CFPB and the Justice Department have authority to protect against discriminatory lending under the Equal Credit Opportunity Act (ECOA). The ECOA makes it illegal for creditors to discriminate against applicants in credit transactions because of race, color, religion, national origin, sex, marital status, age, income coming from a public assistance program or an applicant’s exercise of certain consumer protection rights.

The department has the authority to bring federal lawsuits to enforce the ECOA against any creditor that engages in a pattern or practice in violation of the ECOA or based on referrals of ECOA violations from federal bank regulators including the CFPB. The CFPB is authorized to bring public enforcement actions against any person subject to the CFPB’s supervisory or enforcement authority for violations of the ECOA. The CFPB is also required to refer certain violations of the ECOA to the department for possible enforcement actions.

The agencies are committed to cooperation and avoiding duplicative efforts. Today’s MOU outlines the general framework for:

• Sharing information and preserving its confidentiality : The agencies will be sharing information in matters that the CFPB refers to the Justice Department, in joint investigations under the ECOA, and in order to coordinate fair lending enforcement. The MOU establishes strict confidentiality protections for this shared information.

• Joint investigations and coordination : The MOU provides for collaboration in investigations as well as coordination in joint investigations. The agencies will also meet regularly to discuss pending fair lending investigations and opportunities for coordination.

• Referrals and notifications between the agencies: Like other federal bank regulators, the CFPB will refer matters to the Justice Department when it has reason to believe that a creditor has engaged in a pattern or practice of lending discrimination. Because a referral to the Justice Department does not affect the CFPB’s authority to pursue its own supervisory or enforcement action, the CFPB and the Justice Department will coordinate their efforts to avoid unnecessarily duplicative actions. The agencies have also agreed to notify each other at key stages of their enforcement work, such as the opening of an investigation or filing of a lawsuit.

The agencies will periodically assess the implementation of this agreement and are committed to finding ways to further strengthen their coordination efforts.

The CFPB’s Office of Fair Lending and Equal Opportunity, together with the bureau’s Office of Enforcement, leads the bureau’s enforcement of fair lending laws, including the ECOA and the Home Mortgage Disclosure Act (HMDA). Today, the CFPB published its first annual Fair Lending Report, which highlights the Bureau’s recent accomplishments in fair lending. The report discusses the bureau’s efforts to fulfill its mandate to ensure fair, equitable, and nondiscriminatory access to credit for American consumers. Additionally, the report fulfills the Bureau’s congressional reporting requirements under the Dodd-Frank Act, the ECOA and HMDA.

A copy of this report is available at: http://files.consumerfinance.gov/f/201212_cfpb_fair-lending-report.pdf

The Justice Department’s enforcement of fair lending laws is conducted by the Fair Lending Unit of the Housing and Civil Enforcement Section in the Civil Right Division.  Since the Fair Lending Unit was established in February 2010, it has filed or resolved 22 lending matters under the Fair Housing Act, the ECOA and the Servicemembers Civil Relief Act.  The settlements in these matters provide for a minimum of $500 million in monetary relief for more than 300,000 individual borrowers. The attorney general’s annual reports to Congress subject to the ECOA highlight the department’s accomplishments in fair lending and are available at www.justice.gov/crt/publications/

The fair lending enforcement work of the CFPB and the Justice Department is part of efforts underway by the Financial Fraud Enforcement Task Force (FFETF) which was created to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The CFPB and the department’s Civil Rights Division are among the co-chairs of the FFETF’s Non-Discrimination Working Group. 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. The task force has established financial fraud coordinators in every U.S. attorney’s office around the country to help make these broad mandates a reality on the ground. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.

Healthpoint Ltd. and DFB Pharmaceuticals will pay up to $48 million to resolve allegations that Healthpoint caused false claims to be submitted to Medicare and Medicaid for an unapproved drug, Xenaderm, which was ineligible for reimbursement by those programs, the Justice Department announced today. Under the terms of the agreement, Healthpoint and DFB will pay $28 million, plus another $20 million if there is a change in ownership of Healthpoint or DFB over the next three years. 

Under the Federal Food Drug and Cosmetic Act, manufacturers must obtain Food and Drug Administration (FDA) approval before introducing any new drug into the market. In January 2011, the United States intervened in, and later filed, a civil False Claims Act case against Healthpoint, alleging that it launched Xenaderm, a prescription skin ointment for the treatment of nursing home patients’ bed sores, without any FDA approval. The complaint alleged that Healthpoint’s business strategy was to market new prescription drug products modeled after drug products that were on the market before October 1962, in order to avoid the time, effort, and expense of obtaining FDA approval. The complaint further alleged that at no time prior to its introduction of Xenaderm into the market did Healthpoint complete any double-blind placebo-controlled clinical studies that established the safety and effectiveness of Xenaderm. In fact, one of Healthpoint’s own clinical researchers expressly conceded in an internal e-mail that the safety and efficacy data for Xenaderm was “cruelly insufficient” to meet FDA standards. Notwithstanding the lack of FDA approval, the government alleges, Healthpoint actively promoted Xenaderm as a prescription drug that, unlike non-prescription skin ointments such as Vaseline, was “Medicaid reimbursed” and thus cost nursing homes nothing to administer to Medicaid patients.

While products containing Xenaderm’s principal active ingredient, trypsin, were on the market prior to 1962, the FDA had determined in the 1970s that trypsin was less-than-effective for its intended use. The government contends that those determinations rendered Xenaderm ineligible for Medicaid and Medicare reimbursement. Nonetheless, the government alleges, Healthpoint misrepresented the regulatory status of Xenaderm when it submitted quarterly reports to the government. As a result, the government contends, Healthpoint knowingly caused false claims to be submitted for Xenaderm. 

“Today’s settlement once again demonstrates our commitment to making sure that taxpayer dollars are not spent on unapproved and less-than-effective drugs ,” said Stuart Delery, Principal Deputy Assistant Attorney General of the Department of Justice’s Civil Division.

“This resolution is yet another example of the government’s enduring efforts to ensure that drug manufacturers comply with the critical FDA requirements for the efficacy of their drugs and the integrity of their data,” said US Attorney Carmen M. Ortiz. “This office will continue to vigorously police these key requirements that ensure that the public has access to, and the government pays only for effective medications.”

“The plain fact is that unapproved drugs place consumers at risk. FDA does not know what is in these products, nor whether they are effective or safe, or how they are made,” said FDA Commissioner Margaret M. Hamburg, M.D. ”This case demonstrates why we must be vigilant in taking action against companies that circumvent the regulatory process.”

The settlement resolves allegations against Healthpoint in a multi-defendant whistleblower action captioned United States ex rel. Constance Conrad v. Healthpoint, Ltd., et al., No. 02-11738-RWZ (D. Mass.). The lawsuit was brought under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private parties with knowledge of fraud to sue on behalf of the United States and share in any recovery. This settlement is part of a series of recoveries totaling over $100 million from manufacturers of unapproved drugs. The United States and the relator, Ms. Constance Conrad, have not reached agreement on a share of the proceeds of this settlement. 

The case was litigated by the Justice Department’s Civil Division, and the U.S. Attorney’s Office for the District of Massachusetts, with the active cooperation of the Office of Inspector General of the Department of Health and Human Services, the Centers for Medicare & Medicaid Services, the Food and Drug Administration, and the National Association of Medicaid Fraud Control Units. 

This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. 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 that effort is the False Claims Act, which the Justice Department has used to recover $10.1 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $13.9 billion.

The claims settled by this agreement are allegations only; there has been no determination of liability.

The Department of Justice announced today the interim appointment of Dana J. Boente as U.S. Attorney for the Eastern District of Louisiana.

Mr. Boente currently serves as First Assistant U.S. Attorney for the Eastern District of Virginia, a position he has held since 2007.  He also served as the Acting U.S. Attorney for the Eastern District of Virginia from 2008 to 2009. He previously served as the Principal Deputy Assistant Attorney General for the Justice Department’s Tax Division from 2005 to 2007 and from 2000 to 2005, he handled numerous complex fraud prosecutions for the Eastern District of Virginia. Previously, Mr. Boente served for 16 years as a trial attorney in the Justice Department’s Tax Division where he began his career with the department in 1984.

“Dana Boente is a veteran federal prosecutor with a record over the past 28 years of distinguished service to the Department of Justice,” said Attorney General Eric Holder.  “I am confident that he will lead the U.S. Attorney’s Office through this time of transition and ensure the office’s continued commitment to justice for the people of the Eastern District of Louisiana.”

The Attorney General also announced that Assistant U.S. Attorney John A. Horn, a career prosecutor and currently the First Assistant U.S. Attorney in the U.S. Attorney’s Office for the Northern District of Georgia, has been assigned by the department to ensure compliance with the court’s recent order in U.S. v. Kenneth Bowen, et al. Mr. Horn will be recommencing the investigation and review previously handled by the U.S. Attorney’s Office for the Eastern District of Louisiana. Mr. Horn will report directly to the Office of the Deputy Attorney General in connection with this matter. Mr. Horn has been a federal prosecutor for over 10 years.

Dr. George Anderson, 57, of Farmville, Va., was sentenced today to 33 months in prison, followed by one year of supervised release, for criminal tax fraud, the Justice Department and Internal Revenue Service (IRS) announced. U.S. District Judge Henry Hudson, sitting in Richmond, Va., also ordered Anderson to pay $471,919 of restitution to the IRS.

Anderson had earlier pleaded guilty to two counts of willfully filing false tax returns. According to the statement of facts filed with the court, Anderson was the sole owner of Farmville Anesthesia Associates Inc. Beginning in 2001, Anderson attempted to reduce his business’s tax liability to zero by diverting income to sham and nominee entities. Specifically, Anderson paid hundreds of thousands of dollars worth of bogus expenses out of Farmville Anesthesia’s bank accounts to other accounts held in the names of nominee trusts and limited liability companies Anderson himself controlled. He then falsely reported these payments on Farmville Anesthesia’s corporate income tax returns as legitimate business expenses. Later, Anderson spent substantial funds out of the nominee bank accounts for his personal benefit, including for the construction of his personal residence, and did not report the expenditures as income on his personal tax returns.

In his guilty plea, Anderson admitted that he filed a false 2007 corporate income tax return on behalf of Farmville Anesthesia Associates. That return was false because it reported the bogus expenses paid to Anderson-controlled sham entities. Anderson also admitted to filing a false 2005 personal income tax return. That return was false because it did not report the income Anderson spent for his benefit out of the bank accounts held in the names of the nominee trusts and LLCs.

This case was investigated by IRS Criminal Investigation and was prosecuted by Trial Attorney Jonathan Marx of the Justice Department’s Tax Division and Assistant U.S. Attorney David Maguire of the U.S. Attorney’s Office for the Eastern District of Virginia.

WASHINGTON – The United States has entered into two settlements worth more than $50 million to clean up contamination from the B.F. Goodrich Superfund Site in San Bernardino County, Calif.  There are a dozen settling parties including Emhart Industries and Pyro Spectaculars, Inc. (PSI), as well as the cities of Rialto and Colton and County of San Bernardino.
 
The Superfund site has been used to store, test and manufacture fireworks, munitions, rocket motors and pyrotechnics and was added to the EPA’s National Priorities List in September 2009.  The area’s groundwater is contaminated with trichloroethylene (TCE) and perchlorate, which have resulted in the closure of public drinking water supply wells in the communities of Rialto and Colton.
 
“After decades of harmful groundwater contamination and following protracted and costly litigation, the parties responsible for releases of TCE and perchlorate at the BF Goodrich Superfund Site have agreed to a comprehensive long-term plan to clean up the contaminated groundwater at the site,” said Ignacia S. Moreno, Assistant Attorney General for the Environment and Natural Resources Division. “The commitment made under the consent decrees announced today will provide immeasurable benefits to the environment and the communities who live in Rialto and Colton, California.”
  
“For decades, the defendants have been polluting this critical source of drinking water with both perchlorate and industrial solvents,” said Jared Blumenfeld, EPA’s Regional Administrator for the Pacific Southwest. “Today's historic settlement ensures that the impacted communities in Southern California will finally have their drinking water sources restored.” 
 
Under one agreement, Emhart will perform the first portion of the cleanup, which is estimated to cost $43 million over the next 30 years to design, build and operate groundwater wells, treatment systems and other equipment needed to clean up the contaminated groundwater at the site. A significant portion of these funds will come from other settling parties, including the Department of Defense. The cities of Rialto and Colton will receive $8 million. 
 
The Emhart settlement includes the following entities:   Emhart Industries Inc., Black & Decker Inc, American Promotional Events Inc., the Department of Defense, the Ensign-Bickford Company, Raytheon, Whittaker Corporation, Broco Inc., and J. S. Brower & Associates Inc. and related companies, as well as the cities of Rialto and Colton and the County of San Bernardino.
  
As part of the second agreement, six entities, including PSI and its former subsidiary, will pay a combined $4.3 million to the EPA toward cleanup at the site and $1.3 million to the cities of Rialto and Colton and San Bernardino County. The entities involved in this settlement are PSI; Astro Pyrotechnics (a defunct subsidiary of PSI); Trojan Fireworks; Thomas O. Peters and related trusts; and Stonehurst Site, LLC.
   
EPA used government funds to pay for investigation and clean up work at the site while investigating potentially responsible parties for their role in the contamination.  The United States, on behalf of EPA, sued Emhart and PSI, as well as the Goodrich Corporation, the estate of Harry Hescox and its representative, Wong Chung Ming, Ken Thompson Inc. and Rialto Concrete Products, in 2010 and 2011 to require cleanup and recover federal money spent at the site.  Prior to EPA’s lawsuit, the cities of Rialto and Colton initiated litigation against many of the settling parties, including the Department of Defense, in 2004.
 
A company acquired by Emhart manufactured flares and other pyrotechnics at the site for the military in the 1950s.  PSI has operated at the site since 1979, designing fireworks shows produced throughout the United States.  
 
TCE is an industrial cleaning solvent. Drinking or breathing high levels may cause damage to the nervous system, liver and lungs. Perchlorate is an ingredient in many flares and fireworks, and in rocket propellant, and may disrupt the thyroid’s ability to produce hormones needed for normal growth and development.
 
The consent decree for the Emhart settlement (City of Colton v. American Promotional Events Inc., et al.) will be lodged with the federal district court by the U.S. Department of Justice and is subject to a comment period and final court approval. Copies of the proposed decrees are available on the Justice Department website at: www.justice.gov/enrd/Consent_Decrees.html. The PSI settlement is also subject to court approval.
 
For more information on the B.F. Goodrich Site, please visit: www.epa.gov/region09/bfgoodrich

WASHINGTON – John Tuma, 55, of Centerville, Texas,  was sentenced today following his March 21, 2012, trial conviction by a federal jury for discharging untreated wastewater directly into the Red River without a permit, discharging untreated wastewater into the city of Shreveport sewer system in violation of its permit and obstructing an EPA inspection, announced Ignacia S. Moreno, Assistant Attorney General of the Justice Department’s Environment and Natural Resources Division and U.S. Attorney Stephanie A. Finley of the Western District of Louisiana. U.S. District Judge Tom Stagg sentenced John Tuma to a 60-month prison sentence, three years of supervised release and a $100,000 fine.  

John Tuma, who was both general manager and the former owner of Arkla Disposal Services Inc., was charged in a five-count indictment with violations of the Clean Water Act, conspiracy and obstruction of justice related to illegal discharges coming from the Arkla Disposal Services Inc., a facility in Shreveport. The Arkla facility, located at 10845 Highway 1 South in Shreveport, was a centralized wastewater treatment facility that received wastewater from industrial processes and oilfield exploration and production facilities. Arkla contracted to treat the wastewater through a multi-step treatment process and then discharge the treated wastewater to either the City of Shreveport publicly owned treatment works or the Red River.  
  
The case was investigated by EPA’s Criminal Investigation Division and is being prosecuted by Assistant U.S. Attorney C. Mignonne Griffing and Trial Attorney Leslie E. Lehnert of the Environmental Crimes Section of the Department of Justice.    

Terrence Yarbrough, a/k/a, “T-Rex,” 37, of Memphis, Tenn., was convicted today in federal court on 10 counts of sex trafficking and one count of conspiracy to commit food stamp fraud, the Justice Department announced today.

”This verdict sends a clear message that human trafficking will not be tolerated in the United States,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “The defendant brutally exploited vulnerable young women and girls and deprived them of their rights and dignity so he could profit by selling their bodies. Securing justice on behalf of the victims of modern-day slavery is one of the highest priorities of the Civil Rights Division.”

“The brutal and depraved acts that this individual inflicted upon these women are almost impossible to fathom,” said Edward L. Stanton III, U.S. Attorney for the Western District of Tennessee. “The conviction of Yarbrough reiterates this office’s firm commitment to bring sex traffickers to justice. Our office’s dedicated civil rights unit will continue to prosecute these cases in order to protect the vulnerable and innocent victims of such crimes.”

At the trial, victims recounted a series of violent acts perpetrated by Yarbrough to coerce them into prostituting for him, including beatings with belts, wooden coat hangers, crowbars, padlocks and dog chains. They also testified to being thrown down stairs, having their heads smashed in car doors, having their legs burned with irons and being scalded with boiling water.

Yarbrough faces a minimum of 15 years in prison with no parole, and could be sentenced to up to life in prison. U.S. District Court Judge S. Thomas Anderson will sentence Yarbrough on April 18, 2013.

“Sex traffickers can be violent abusers or simply subtle manipulators who prey upon those whose circumstances of life make them vulnerable, and cruelly exploit their victims for profit,” said Aaron T. Ford, Special Agent in Charge of the Memphis Division of the Federal Bureau of Investigation. “The FBI is committed to working closely with our law enforcement partners to hold accountable human traffickers for their crimes and get help for the victims in these heartbreaking cases.”

Evidence presented at trial included the testimony of 10 victims identified in the indictment, as well as several eyewitnesses and others. Numerous witnesses testified that Yarbrough repeatedly enticed vulnerable women as young as 15 years old into prostitution with false promises of love, family and prosperity. Any time a victim refused to engage in prostitution, he resorted to threats, intimidation and violence.  The jury heard testimony that Yarbrough’s pattern of recruitment, exploitation, and violent coercion continued for years before his 2009 arrest in St. Louis.

“The Office of Inspector General (OIG) at USDA is committed to the investigation and prosecution of individuals and retailers who defraud the Supplemental Nutrition Assistance Program (SNAP), more commonly referred to as the food stamp program. Protecting the integrity of the SNAP is a major investigative priority for OIG. OIG agents helped determine that Terrence Yarborough committed Electronic Benefit Transfer (EBT) fraud by submitting false information to apply for SNAP benefits, and using the benefits to fund his prostitution operation. The Tennessee Department of Human Service – Investigations Division, the FBI, and the U.S. Attorney's Office did an excellent job in this joint investigation. We look forward to working with them on future endeavors,” stated Karen Citizen-Wilcox, Special Agent-in-Charge of the Southeast Region.

One of the victims testified that Yarbrough forced her to engage in prostitution the entire time she was pregnant with his child. He frequently beat her on the stomach when she did not want to comply with his demands. He had her working as a prostitute in Tunica in her eighth month of pregnancy when he induced her labor through a severe beating. Yarbrough drove her back to Memphis and dropped her off at a hospital. The day after she left the hospital following childbirth, Yarbrough forced her to resume prostituting. Sometime later, Yarbrough smashed her on the head with a lamp and kicked out her front teeth when she tried to stop prostituting for him.

Another victim testified that Yarbrough lured her into prostitution by promising to reunite her with their children, and then beat her severely when she insisted on seeing them and refused to continue working. Yarbrough punched her in the face so hard he broke three of her teeth. On another occasion, he beat her knees with a metal pipe and caused injuries which continue to affect her. She also testified that Yarbrough threatened to prostitute their nine-year-old daughter.

The jury heard testimony that one exhausted victim slept through a phone call from a client after serving prostitution clients for days on end with almost no sleep. When Yarbrough found out she missed the call, he smashed her head into a car door, dragged her by the hair to his hotel room, and beat her with his belt. Jurors also saw a letter addressed to that victim and signed by Terrence Yarbrough stating that he was proud of how she did not scream while he beat her with the belt.

Witnesses further testified that Yarbrough bragged about his beatings of some victims to other victims to let them know what would happen to them if they disobeyed him. Jurors also saw the “T-Rex” logos Yarbrough tattooed on four separate victims, and heard that he claimed that they had been “branded” as his property. Testimony and jail recordings showed that Yarbrough confiscated his victims’ identification documents as well as all their money to make it difficult for them to escape. 

Jurors also heard testimony that Yarbrough conspired with his mother, Norma Yarbrough Webb, 65, and Michelle Johnson, 40, to fraudulently obtain food stamp benefits while Yarbrough was incarcerated. Johnson and Webb previously pled guilty to related charges.

The case was investigated by the FBI and the U.S. Department of Agriculture Office of Inspector General, with assistance from the St. Louis Police Department. Assistant U.S. Attorney Jonathan Skrmetti and Trial Attorney Benjamin J. Hawk of the United States Department of Justice Civil Rights Division’s Human Trafficking Prosecution Unit prosecuted the case.

Kentucky-based Lusk Mechanical Contractors and Commonwealth Technologies, and their owners, Harry Lusk and Wendell Goodman, have agreed to pay $6.25 million to resolve allegations that they submitted false statements to the Small Business Administration and false claims to the Army, the Justice Department announced today.

Congress established the Historically Underutilized Business Zone (HUBZone) program in 1997 to help inner cities and rural counties that have low household income and high unemployment, and whose communities have suffered from a lack of investment. Under the HUBZone program, small businesses that maintain their principal office in a designated HUBZone, and meet certain other requirements, can apply to the Small Business Administration (SBA) for certification as a HUBZone company. HUBZone companies can then use this certification to their advantage when bidding on government contracts.

Today’s settlement resolves allegations that Lusk Mechanical, Commonwealth Technology and their owners made, or caused to be made, false statements to the SBA to obtain certification as a HUBZone company, and then used this certification to wrongfully obtain Army contracts to build a courthouse in Fort Knox, Ky., and to complete maintenance and other repairs to Army facilities in Fort Knox. Specifically, the United States alleged that in February 2005, Commonwealth submitted an application to the SBA representing that it was a small business with its principal place of business in a designated HUBZone. In fact, Commonwealth allegedly operated out of Lusk Mechanical’s headquarters, which was not located in a HUBZone area. Commonwealth’s business office was identified on the application as 212 East Caroline Street, Irvington, Ky. The United States alleged that this location was nothing more than a vacant office space with no employees, and that Commonwealth’s application did not disclose that Wendell Goodman and Harry Lusk were, in fact, affiliated with Lusk Mechanical. At the time, Harry Lusk and his wife were the sole owners of Lusk Mechanical and Wendell Goodman was the chief executive officer of Lusk Mechanical. According to the United States’ allegations, neither Lusk nor Goodman disclosed in the application to the SBA that Commonwealth did not operate as an independent company, but instead shared facilities, equipment, personnel, insurance and bonding with Lusk Mechanical, nor did they inform the SBA about the financial relationship between Commonwealth and Lusk Mechanical. The United States alleged that, using the falsely obtained HUBZone certification, the companies obtained contracts from the Army that had been restricted to qualified HUBZone companies, in violation of the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).

Under the terms of the settlement, Commonwealth, Lusk Mechanical, Goodman, and Lusk have agreed to pay $3,741,739.96, and to forfeit $2,506,260.24 seized by federal agents from their bank accounts under a civil forfeiture action.

“As our economy continues to improve, the HUBZone program provides a critical lifeline to small businesses that voluntarily choose to locate in areas that often have difficulty attracting business,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Justice Department’s Civil Division. “Companies that set up sham offices not only break the law, but deprive the HUBZone communities and legitimate HUBZone businesses of the benefits of the HUBZone program.”

“They abused a program meant to assist small businesses located in financially disadvantaged communities,” stated David J. Hale, U.S. Attorney for the Western District of Kentucky. “Today’s multimillion dollar settlement is the result of a successfully coordinated effort among law enforcement agencies and the Department of Justice, working together to hold these business owners accountable.”  

“The HUBZone Program offers significant benefits to eligible small businesses and is an important tool for unlocking the potential of historically underutilized business zones,” said Inspector General Peggy E. Gustafson of the Small Business Administration. “Preferences for federal contract awards must not be given to persons who lie in order to claim eligibility. I applaud the dedication and perseverance of our law enforcement partners as justice is served here today on behalf of the American taxpayer”

“SBA’s contracting programs, including the HUBZone program, provide small businesses with the opportunity to grow and create jobs,” stated SBA’s General Counsel Sara Lipscomb.  “But, SBA has no tolerance for waste, fraud or abuse in any government contracting program and is committed to ensuring the benefits of these programs flow to the intended recipients.  SBA works closely with our federal partners to prevent bad actors from participating in contracting programs and taking action and holding those accountable when they lie to or mislead the government.” 

“This investigation is the result of a highly successful joint effort by the Defense Criminal Investigative Service (DCIS) and one of our key law enforcement partners — the SBA’s Office of Inspector General, in collaboration with the Department of Justice. Fraud in military contracting undermines the confidence of the American public who demand a military procurement system that spends their tax dollars wisely and responsibly. This investigation should serve as a warning for those who submit false claims for U.S. military and public funds that DCIS will aggressively investigate these matters,” said Bret Flinn, Resident Agent in Charge of the DCIS Dayton Resident Agency.

Principal Deputy Assistant Attorney General Delery thanked the U.S. Attorney’s Office for the Western District of Kentucky, the Office of General Counsel and the Office of the Inspector General for the Small Business Administration, the Defense Criminal Investigative Service, and the Justice Department’s Commercial Litigation Branch for the collaboration that resulted in today’s settlement. The claims settled by this agreement are allegations only, and there has been no determination of liability.

The United States has asked a federal court to shut down a Mo’ Money Taxes tax preparation office in Nashville, the Justice Department announced today. The civil injunction suit, filed against Mo’ Money licensee Toney Fields and co-defendant Trumekia Shaw in U.S. District Court in Nashville, alleges that the two defendants intentionally prepare and file fraudulent federal income tax returns to obtain improper tax refunds for customers.

According to the complaint, Fields and Shaw get an improper jump on their competition by opening Mo’ Money Taxes in Nashville in late December and before the tax year ends. The defendants allegedly use customers’ end-of-year pay stubs to prepare tax returns, before employers have issued Internal Revenue Service (IRS) W-2 wage-statement forms to employees. Preparing tax returns based on pay stubs rather than proper W-2 Forms violates IRS rules. Fields and Shaw allegedly use the pay stubs to create fake W-2 Forms to include with the returns. End-of-the-year pay stubs frequently omit income and distributions that are shown on employer-issued W-2 Forms. This inevitably results in errors on federal tax returns.

The lawsuit further alleges that Fields and Shaw inflate or claim false tax credits on customers’ tax returns. According to the complaint, Fields and Shaw frequently claim improper dependent exemptions in order to claim inflated earned-income credits or child tax credits for their customers. The suit also alleges that the defendants include false filing statuses and bogus claims for charitable contributions on customers’ returns. The complaint says the government estimates that the defendants’ misconduct may have caused revenue losses of more than $5 million from the more than 1,100 tax returns they prepared in 2011.

The IRS lists return preparer fraud as one of its “Dirty Dozen” tax scams .

In the past decade the Justice Department’s Tax Division has obtained injunctions against hundreds of tax-return preparers and tax-fraud promoters. Information about these cases is available on the Justice Department website.

Related Documents:

United States v. Toney Fields, et al.

Complaint for Permanent Injunction and Other Relief (PDF)

WASHINGTON – In a coordinated international takedown, law enforcement officials in Romania, the Czech Republic, the United Kingdom and Canada, acting on provisional arrest requests made by the United States, arrested six Romanian nationals today for their alleged involvement in a sophisticated multimillion dollar cyber fraud scheme that targeted consumers on U.S.-based Internet marketplace websites, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney  Loretta E. Lynch of the Eastern District of New York and FBI Assistant Director in Charge George Venizelos of the New York Field Office.

“As a result of extensive cooperation between U.S. and European law enforcement officials, the defendants have been charged with a scheme to defraud unsuspecting Americans of millions of dollars,” said Assistant Attorney General Breuer.  “The Department of Justice is committed to finding and prosecuting Internet fraud aggressively, wherever it happens and however hard the perpetrators work to conceal their crimes.”
           
“Thanks to our international law enforcement partnerships, even the most sophisticated criminal organizations are not beyond our reach, and we will continue our efforts to protect American consumers from these fraud schemes on Internet marketplace websites,” said U.S. Attorney Lynch. 
            
“The FBI is committed to protecting the American public from predatory conduct whether it originates here or abroad,” said FBI Assistant Director in Charge Venizelos.  “The international nature of many organized crime groups makes it essential for us to work with our partners here and overseas – as we did in this investigation – to rein in the alleged criminals.”

A criminal complaint unsealed today in U.S. District Court in the Eastern District of New York charges Romanian nationals Emil Butoi, 34, Aurel Cojorcaru, 43, Nicolae Ghebosila, 43, Cristea Mircea, 30, Ion Pieptea, 36, and Nicolae Simion, 37, and Albanian national Fabian Meme, 42, each with one count of wire fraud conspiracy and one count of money laundering conspiracy.   Butoi, Cojocaru, Meme, Mircea, Pieptea and Simion are also each charged with one count of passport fraud conspiracy.

Butoi, Cojorcaru, Ghebosila, Mircea, Pieptea and Simion were arrested today.  Meme is already incarcerated in the Czech Republic. 

The government will seek the defendants’ extradition to the United States pursuant to the relevant international treaties.
 
As alleged in the complaint, the defendants were responsible for saturating Internet marketplace websites including eBay, Cars.com, AutoTrader.com and CycleTrader.com with detailed advertisements for cars, motorcycles, boats and other high-value items generally priced in the $10,000 to $45,000 range.  Unbeknownst to the buyers, however, the merchandise did not exist.  The defendants allegedly employed co-conspirators who corresponded with victim buyers by email, sending fraudulent certificates of title and other information designed to lure the victims into parting with their money.  Sometimes, the defendants allegedly pretended to sell cars from nonexistent auto dealerships in the United States and even created phony websites for these fictitious dealerships.  In at least one transaction involving Ghebosila, the “seller” allegedly pretended to be the widow of an Iraq war veteran who was selling her family’s mobile home so that she could care for her children.  In other transactions, the defendants allegedly duped victims into sending tens of thousands of dollars for non-existent vehicles, including Lexus, Audi, Ford, Chevrolet, Dodge, Toyota, Mercedes, Porsche and BMW cars; Big Dog Mastiff and Ninja motorcycles; a Fleetwood Storm motor home; and boats.

As part of the scheme, Cojocaru, Meme, Butoi and others produced high-quality fake passports so that foreign national co-conspirators in the United States, known as “arrows,” could use the passports as identification to open American bank accounts.  The complaint alleges that Cojocaru was recorded on video during the investigation displaying new holograms that he was using to create more authentic-looking passports.

According to the complaint, after the “sellers” reached an agreement with the victim buyers, they would often email them invoices purporting to be from Amazon Payments, PayPal or other online payment services, with wire transfer instructions.  However, the defendants and their co-conspirators allegedly used counterfeit service marks in designing the invoices so that they would appear identical to communications from legitimate payment services.  The fraudulent invoices directed the buyers to send money to the American bank accounts that had been opened by the “arrows.”  Finally, the arrows would allegedly collect the illicit proceeds and send them to the defendants in Europe by wire transfer and other methods.  For example, the arrows allegedly forwarded Pieptea $18,000 cash in fraud proceeds hidden inside hollowed-out audio speakers.  Other arrows allegedly used the proceeds to purchase expensive Audemars Piguet watches, and then sent the watches to the defendants abroad.

According to the complaint, it is estimated that the defendants earned over $3 million from the fraudulent scheme.

If convicted, the defendants each face a maximum sentence of 20 years in prison on the wire fraud conspiracy and money laundering conspiracy counts, and 10 years in prison on the passport fraud conspiracy count.

The charges in the complaint are merely allegations, and the defendants are presumed innocent unless and until proven guilty.
           
The government’s case is being prosecuted by Assistant U.S. Attorneys Cristina Posa, Vamshi Reddy and Claire Kedeshian of the U.S. Attorney’s Office for the Eastern District of New York, and Trial Attorney Carol Sipperly of the Criminal Division’s Computer Crime and Intellectual Property Section.

The offices of the FBI Legal Attachés in Romania, the Czech Republic, the United Kingdom, Canada and Hungary were instrumental in coordinating efforts with the United States’ international partners, and the Justice Department Criminal Division’s Office of International Affairs worked with its counterparts in these countries to effect the provisional arrests and requests for mutual legal assistance, including the forfeiture of illegal proceeds of these crimes.  The Department of Justice’s Asset Forfeiture and Money Laundering Section also provided assistance in the forfeitures.

The U.S. government thanks the Romanian government, in particular the Ministry of Justice, the Directorate for Combating Organized Crime and the Romanian Intelligence Service, for their collaborative efforts throughout this long-term investigation, as well as the Czech National Police, Hungarian National Bureau of Investigation, Metropolitan Police Service in England, Montreal Police Service, Royal Canadian Mounted Police, International Organized Crime Intelligence and Operations Center, Internet Crime Complaint Center, Costa Mesa, Calif., Police Department, Orange County, Calif., District Attorney’s Office and the New York City Police Department for their assistance.

WASHINGTON – The founder and president of the National Association of Special Police and Security Officers (NASPSO) – which represents private security guards assigned to protect federal buildings in the metropolitan Washington area – was convicted yesterday in Washington federal court, following a jury trial, of 18 counts related to his theft of union treasury and pension funds, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.

Caleb Gray-Burriss, 62, of Washington, was convicted on six counts of mail fraud, seven counts of theft from a labor organization, one count each of obstruction of justice and criminal contempt, and three counts of union recordkeeping offenses.  Joining in the announcement of the verdict were Marc I. Machiz, Director of the Philadelphia Regional Office of the Employee Benefits Security Administration of the Department of Labor; Michael S. Barcus, Special Agent in Charge of the Washington Regional Office of the Department of Labor, Office of the Inspector General, Office of Labor Racketeering and Fraud Investigations; and District Director Mark Wheeler, of the Department of Labor’s Washington District Office of the Office of Labor-Management Standards.

In June 2010, Mr. Gray-Burriss was charged with four counts of mail fraud in connection with his operation of a pension plan for members of NASPSO.  A grand jury returned two superseding indictments in April 2011 and August 2012, which also charged offenses committed by Gray-Burriss while he was released on bail.

According to the evidence at trial, from approximately June 2004 through February 2011, Gray-Burriss wrote numerous checks to himself or to other third parties from the NASPSO pension plan checking account.  The evidence also showed that Gray-Burriss spent more than $100,000 of the pension plan funds in this way, while falsely maintaining it was an operational fund that he was properly administering and that was providing benefits to the beneficiaries.  The evidence further showed that Gray-Burriss committed criminal contempt of a court order addressing his prior misappropriation of pension and health plan funds after Gray-Burriss resumed his scheme in 2009 to defraud employers and NASPSO members of pension funds.

In addition, the evidence presented at trial showed that Gray-Burriss, while an officer and employee of NASPSO, stole over $150,000 in NASPSO funds consisting of cash withdrawals to himself, unauthorized salary increases and bonuses to himself and another person, fraudulently drawn checks to himself – purportedly for employment taxes on behalf of NASPSO – and unlawfully used NASPSO funds to pay his personal fines in a civil lawsuit.

The jury also found that Gray-Burriss committed obstruction of justice by destroying or concealing NASPSO financial records during a grand jury investigation; failing to file required annual reports on behalf of NASPSO, falsifying those reports, and failing to maintain properly the records of NASPSO.

At sentencing, which is currently scheduled for Feb. 28, 2013, Gray-Burris faces a maximum potential penalty of 20 years in prison and a $250,000 fine on each of the mail fraud counts, five years in prison and a $10,000 fine on each of the theft from a labor organization and conspiracy counts; five years in prison and a $250,000 fine on the criminal contempt count; 20 years in prison and a $250,000 fine on the obstruction count, and a year in prison and a $10,000 fine for the recordkeeping offenses.

The investigation was conducted by agents and investigators of the U.S. Department of Labor.  Trial Attorney Vincent J. Falvo of the Criminal Division’s Organized Crime and Gang Section and Trial Attorney Tracee Plowell, of the Criminal Division’s Public Integrity Section prosecuted the case.

Gillette Barton, a resident of Taylorsville, Utah, pleaded guilty Monday to presenting a false claim to the United States, the Justice Department and Internal Revenue Service (IRS) announced. Barton appeared before U.S. Magistrate Judge Evelyn J. Furse in Salt Lake City.

According to the plea agreement, in October of 2009, Barton filed a false 2008 U.S. Individual Income Tax Return claiming an income tax refund of $58,299. Barton’s false claim was based on the use of false Forms 1099-OID, Original Issue Discount.

Barton faces a potential maximum sentence of five years in prison and a fine of up to $250,000.

This case was investigated by IRS-Criminal Investigation. Trial Attorneys Michael Romano and Stuart Wexler of the Justice Department’s Tax Division handled the prosecution.

Sentencing is tentatively scheduled for Feb. 19, 2013, before U.S. District Court Chief Judge Ted Stewart in Salt Lake City.

William Kirk Montgomery, 23, from Puckett, Miss., and Jonathan K. Gaskamp, 20, from Brandon, Miss., pleaded guilty today in U.S. District Court in Jackson, Miss., to conspiracy and federal hate crime charges in connection with their roles in the assault of African-Americans in Jackson, the Justice Department announced today. Defendants Deryl Paul Dedmon, 20; John Aaron Rice, 19; and Dylan Wade Butler, 21, all from Brandon, Miss., have previously entered guilty pleas in connection with their roles in these offenses. The conspiracy culminated in the death of James Craig Anderson, who was assaulted and killed on June 26, 2011.

Montgomery and Gaskamp were both charged with one count of conspiracy and one count of violating the Matthew Sheppard James Byrd, Jr. Hate Crimes Prevention Act.

Beginning in the spring of 2011, Montgomery, Gaskamp and others conspired with one another to harass and assault African-Americans in and around Jackson. On numerous occasions, the co-conspirators used dangerous weapons, including beer bottles, sling shots and motor vehicles, to cause, and attempt to cause, bodily injury to African-Americans, specifically targeting those they believed to be homeless or under the influence of alcohol because they believed that such individuals would be less likely to report an assault. Additionally, the co-conspirators would often boast about these racially motivated assaults.

“We hope that today’s guilty pleas provide further closure to James Craig Anderson’s family and to the community that has mourned his senseless death and been further disheartened by the scope of the conspiracy to commit racially motivated assaults in Jackson by these and other co-conspirators,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division.  “The Justice Department’s focus in this matter is ongoing and broad; we will vigorously pursue those who commit racially motivated assaults and will use every tool at our disposal to ensure that those who commit such acts are brought to justice.” 

According to plea documents presented in court today, the defendants engaged in a series of racially-motivated assaults in and around Jackson. On one occasion, Montgomery, Gaskamp, Deryl Paul Dedmon, John Aaron Rice and two other co-conspirators chased down and stopped an African-American man’s vehicle and then beat the man to the point that he begged for his life. Gaskamp kicked the victim in the head and body at least two times.

On another occasion, Montgomery, Gaskamp and others attended a birthday party/bonfire in Puckett, Miss., during which they discussed going to Jackson to harass and assault African-Americans. Montgomery, Dedmon, Rice, Butler and three other co-conspirators agreed to carry out the plan. At around 4:15 a.m. on June 26, 2011, Montgomery, Rice, Butler and another co-conspirator drove to Jackson in Montgomery’s white Jeep with the understanding that Dedmon and two other co-conspirators would join them a short time later. Gaskamp did not go to Jackson on this occasion. Upon arriving in Jackson, Montgomery and the other three occupants of the Jeep drove around and threw beer bottles at African-American pedestrians.

At approximately 5:00 a.m., Montgomery and the other three occupants of the Jeep spotted Anderson in a motel parking lot off Ellis Avenue. Rice and another co-conspirator decided to get out of the Jeep to distract Anderson while they waited for Dedmon and the other co-conspirators to arrive. After Dedmon and the other two co-conspirators arrived, Dedmon and Rice physically assaulted Anderson. After the assault, one of the co-conspirators yelled, “White Power!”, with Dedmon responding by also yelling “White Power!” Dedmon then deliberately used his vehicle to run over Anderson, causing injuries that resulted in his death.

Thereafter, a number of the co-conspirators, including Montgomery, agreed to, and did, give false statements to law enforcement officials about the nature of their interactions with Anderson.

“The defendants today took responsibility for committing federal hate crimes by assaulting vulnerable Americans solely because of their race,” said U.S. Attorney Gregory K. Davis. “Working with the Civil Rights Division of the Department of Justice, our office will continue to make the prosecution of hate crimes and other civil rights violations a top priority in the Southern District of Mississippi.”

“As the agency responsible for investigating criminal violations of federal civil rights statutes, the FBI takes very seriously its responsibility to uphold the civil rights of all citizens,” said Daniel McMullen, the Special Agent in Charge of the FBI’s Jackson Division. “The FBI will continue its efforts to identify and bring to justice all those individuals who participated in depriving Anderson and other citizens of their civil rights because of the color of their skin.”

These guilty pleas were the result of a cooperative effort between the U.S. Attorney’s Office for the Southern District of Mississippi, the Civil Rights Division of the Department of Justice, and the Hinds County District Attorney’s Office. This case was investigated by the Jackson Division of the FBI and the Jackson Police Department. It is being prosecuted by Trial Attorney Sheldon L. Beer and Deputy Chief Paige M. Fitzgerald of the Civil Rights Division and Assistant U.S. Attorney Glenda R. Haynes of the U.S. Attorney’s Office for the Southern District of Mississippi.

WASHINGTON – Two Wisconsin men and a Missouri man were sentenced to prison for their role in a conspiracy to advertise, distribute and possess child pornography, Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney for the Western District of North Carolina Anne M. Tompkins announced today.

Daniel Slott, 44, of Merrill, Wis., was sentenced today by U.S. District Judge Richard L. Voorhees in the Western District of North Carolina to serve 228 months in prison and lifetime supervised release.

Brian Slott, 42, of Merrill, was sentenced today Judge Voorhees to serve 180 months in prison and lifetime supervised release.
 
Henry Wright, 50, of Jefferson County, Mo., was sentenced yesterday by Judge Voorhees to serve 70 months in prison and 10 years of supervised release.

Following their release, all three co-conspirators must register as sex offenders.
 
In November 2010, a grand jury charged six individuals, including Brian Slott, Daniel Slott and Wright, with conspiracy to advertise, distribute and possess child pornography.  All three pleaded guilty to the charges in July 2011. 

According to filed court documents and court proceedings, Brian Slott, Daniel Slott and Wright engaged in a conspiracy with others to share child pornography on Facebook.  Court records indicate that all three were members of several Facebook groups dedicated to sharing child pornography and child erotica, including groups called “girls girls girls :)” and “little girls love to play to :).”  These groups contained over 10,000 images of child pornography and child erotica.  According to filed documents and statements made in court, Wright engaged in chats with the group leader and commented on images of prepubescent children posted to the Facebook groups.  Daniel Slott, a registered sex offender, traveled to his brother’s house to participate in the groups and download images of children engaged in sexually explicit conduct.  Brian Slott also downloaded images from the groups’ sites.  In August 2010, agents with the FBI executed a search warrant at Daniel Slott, Brian Slott and Henry Wright’s residences and seized multiple computers and storage media devices.  Hundreds of images of child pornography were located on these items.

Three co-conspirators were sentenced earlier this fall: James Byrd was sentenced in August 2012 to serve 87 months in prison; David Large was sentenced in October 2012 to 70 months in prison; and Michael Engelking was sentenced in October 2012 to serve 210 months in prison.

This case was brought as part of Project Safe Childhood, a nationwide initiative to combat the growing epidemic of child sexual exploitation and abuse, launched in May 2006 by the Department of Justice. Led by U.S. Attorneys’ Offices and the Criminal Division’s Child Exploitation and Obscenity Section (CEOS), Project Safe Childhood marshals federal, state and local resources to better locate, apprehend and prosecute individuals who exploit children via the Internet, as well as to identify and rescue victims. For more information about Project Safe Childhood, please visit www.projectsafechildhood.gov.

The investigation was conducted by the FBI’s Violent Crimes Against Children Unit headquartered in Maryland.  The case was prosecuted by Assistant U.S. Attorney Cortney S. Escaravage of the Western District of North Carolina and Trial Attorney LisaMarie Freitas of CEOS.

WASHINGTON – A Texas man was sentenced today to serve 330 months in prison for his participation in an international child pornography distribution ring, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney Joseph H. Hogsett of the Southern District of Indiana. 

Jeremy Daniel Labrec, 22, of Lubbock, Texas, was sentenced by U.S. District Judge Jane Magnus-Stinson in the Southern District of Indiana.  In addition to his prison term, Labrec was sentenced to serve lifetime supervised release.

Labrec’s prosecution is the result of “Operation Bulldog,” a multi-jurisdictional effort to dismantle and prosecute the members of an international child pornography distribution ring.  The ring was discovered in the course of investigating the production and distribution of child pornography by David Bostic, a Bloomington, Ind., man, who pleaded guilty to multiple charges in June 2011 and was sentenced in November 2011 to serve 315 years in prison.  A total of nine defendants have been prosecuted in the Southern District of Indiana for their participation in the group, and all nine defendants have been sentenced to prison.

On June 6, 2012, Labrec pleaded guilty to 22 counts charging he sexually exploited children, distributed and received child pornography and conspired to commit these offenses.
 
Labrec was charged by indictment in February 2011, and he was arrested in March 2011.  According to court documents, during the course of the investigation, law enforcement discovered that, in addition to his child pornography trafficking activities, Labrec had sexual contact with six young boys, all of whom were five years of age or younger.
 
 A total of more than two dozen children have now been rescued as a result of Operation Bulldog.  Efforts to identify additional defendants and victims in the United States and abroad are active and ongoing. 

This case was brought as part of Project Safe Childhood, a nationwide initiative to combat the growing epidemic of child sexual exploitation and abuse launched in May 2006 by the Department of Justice.  Led by U.S. Attorneys’ Offices and the Criminal Division’s Child Exploitation and Obscenity Section (CEOS), Project Safe Childhood marshals federal, state and local resources to better locate, apprehend and prosecute individuals who exploit children via the Internet, as well as to identify and rescue victims.  For more information about Project Safe Childhood, please visit www.projectsafechildhood.gov.

This case was investigated by the FBI, with local assistance from the Indiana State Police, the Kokomo, Ind., Police Department and the Brownsburg, Ind., Police Department.

The case is being prosecuted by Assistant U.S. Attorney A. Brant Cook of the Southern District of Indiana and Trial Attorney Michael Grant of CEOS.

Gordon Chavez, 35, a probation officer with the New Mexico Corrections Department of Probation and Parole, was arrested today in Albuquerque, N.M., on charges related to the sexual assault of a probationer whom he supervised.

According to court documents, Chavez was arrested for violating the civil rights of the victim by depriving her of her right to bodily integrity. The complaint affidavit describes Chavez’s escalating behavior, including Chavez commenting on the victim’s appearance, the clothes she was wearing and her sexual activity. During office visits that the victim was required to attend, Chavez stared at the victim’s breasts while rubbing his own genital area through his pants. He also asked the victim to bring naked pictures of herself. Ultimately, Chavez groped and fondled the victim’s breast under her clothes against her will. Anyone with additional information is encouraged to call the Albuquerque Division of the FBI at (505) 889-1300.

Chavez will appear in federal court tomorrow for an initial appearance. A complaint merely establishes probable cause. Chavez is presumed innocent unless proven guilty.

This case is being investigated by the Albuquerque Division of the FBI and is being prosecuted by Assistant U.S. Attorney Mark Baker for the District of New Mexico and Fara Gold of the Civil Rights Division of the U.S. Department of Justice.

The Justice Department secured $4.9 billion in settlements and judgments in civil cases involving fraud against the government in the fiscal year ending Sept. 30, 2012, Tony West, Acting Associate Attorney General, and Stuart F. Delery, Principal Deputy Assistant Attorney General for the Civil Division, announced today. This figure constitutes a record recovery for a single year, eclipsing the previous record by more than $1.7 billion, and brings total recoveries under the False Claims Act since January 2009 to $13.3 billion – which is the largest four-year total in the Justice Department’s history and more than a third of total recoveries since the act was amended 26 years ago in 1986.

The False Claims Act is the government’s primary civil remedy to redress false claims for federal money or property, such as Medicare benefits, federal subsidies and loans and payments under contracts for goods and services, including military contracts. The 1986 amendments strengthened the act and increased incentives for whistleblowers to file lawsuits on behalf of the government, leading to more investigations and greater recoveries.

Most false claims actions are filed under the act’s whistleblower, or qui tam, provisions, which allow private citizens to file suits alleging false claims on behalf of the government. If the United States prevails in the action, the whistleblower, known as a relator, receives up to 30 perc ent of the recovery. The department saw a record 647 qui tam suits filed last fiscal year and recovered a record $3.3 billion in suits filed by whistleblowers during the same period.

The Justice Department’s 2012 efforts also included record recoveries for health care fraud, where recoveries topped $3 billion for the first time in a single fiscal year, thereby besting the previous record which had been set in fiscal year 2011. Housing and mortgage fraud accounted for an unprecedented $1.4 billion.

“Today’s announcement underscores the Obama Administration’s ongoing commitment to recover losses, to prevent fraud, to bring abuses to light, and to hold accountable those who violate the law and exploit some of the government’s most critical programs,” said Attorney General Eric Holder.  “Thanks to the dedicated work of attorneys, investigators, analysts, and support staff at every level of the Justice Department – along with our state and local partners across the country – we have secured the largest annual recovery in the Department's history. By aggressively investigating allegations of waste and pursuing those who would take advantage of the most vulnerable members of society, I'm confident that we will continue to build on this historic progress in the months and years ahead.”

“The Justice Department, using the False Claims Act, recovered nearly $5 billion in taxpayer for false claims on the treasury, by far a record for any one year,” said Acting Associate Attorney General West.  “This Administration’s commitment to fighting fraud in its many forms has led to the most successful four-year period in the department’s history.  Vigorous enforcement of the False Claims Act not only protects taxpayer dollars; it also protects the integrity of important government programs on which so many of us rely.”   

“Redressing fraud and abuse in government programs has been a top priority of the Department of Justice,” Principal Deputy Assistant Attorney General Delery said. “This success is also largely attributable to the brave individuals who initiate many of the investigations through whistleblower suits and to the Obama Administration’s efforts to coordinate enforcement efforts across government. While today we focus on federal recoveries, the cases successfully pursued by the Civil Division and the United States Attorneys throughout the country also returned billions of dollars to state Medicaid funds and homeowners threatened with foreclosure. In some cases, the individuals and corporations involved were also subject to criminal sanctions and were required to enter into corporate integrity agreements to prevent future misconduct.”

Health Care Fraud

As noted, this year represents the second straight year in which the department has set a new record for recoveries under the False Claims Act for health care fraud. This steady, significant and continuing success can be attributed in part to the high priority placed by the administration on fighting health care fraud. In 2009, Attorney General Holder and Health and Human Services (HHS) Secretary Kathleen Sebelius announced the creation of an interagency task force, the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to increase coordination and optimize criminal and civil enforcement. This coordination has yielded historic results: From January 2009 through the end of the 2012 fiscal year, the department used the False Claims Act to recover more than $9.5 billion in federal health care dollars – also a record for any four-year period. Most of these recoveries relate to frauds against Medicare and Medicaid. For more information, go to StopMedicareFraud.gov , a web page jointly established by the Department of Justice and HHS that provides additional information on the government’s efforts in this area.

Enforcement actions involving the pharmaceutical and medical device industry were the source of some of the largest recoveries this year. The department recovered nearly $2 billion in cases alleging false claims for drugs and medical devices under federally insured health programs and, in addition, returned $745 million to state Medicaid programs. These cases include recoveries from GlaxoSmithKline LLC (GSK) and Merck, Sharp & Dohme (Merck) – two of the three top settlements this year. These recoveries do not include a $561 million False Claims Act settlement with Abbott Laboratories Inc., part of a $1.5 billion global resolution (which will be reflected in FY 2013 numbers) (details at Abbott Labs ).

GSK paid $1.5 billion to resolve False Claims Act allegations that the company (1) promoted the drugs Paxil, Wellbutrin, Advair, Lamictal and Zofran for uses not approved by the Food and Drug Administration, known as off-label use, and paid kickbacks to physicians to prescribe those drugs as well as the drugs Imitrex, Lotronex, Flovent and Valtrex; (2) made false and misleading statements concerning the safety of the drug Avandia; and (3) reported false best prices and underpaid rebates owed under the Medicaid Drug Rebate Program. The $1.5 billion in federal civil recoveries was part of a $3 billion global settlement including criminal fines and forfeitures as well as state Medicaid recoveries, making GSK the largest health care fraud settlement in U.S. history. For details, go to GSK settlement .

The department also recovered $441 million, including interest, from Merck to resolve allegations that the company promoted the drug Vioxx for off-label use for relief of rheumatoid arthritis and that company representatives made inaccurate, unsupported or misleading statements about Vioxx’s cardiovascular safety to increase sales, resulting in payments by federal health care programs. In addition, Merck paid nearly $322 million in criminal fines and returned more than $200 million to state Medicaid programs. For details, go to Merck settlement .

Adding to its successes under the False Claims Act, the Civil Division, through its Consumer Protection Branch, and together with U.S. Attorneys across the country, obtained 14 criminal convictions and $1.5 billion in criminal fines and forfeitures under the Food, Drug and Cosmetic Act (FDCA).

Mortgage and Housing Fraud

In addition to health care fraud, the department continued its aggressive pursuit of financial fraud, including fraud in the housing and mortgage industries that came to light in the wake of the financial crisis. In November 2009, President Obama established the Financial Fraud Enforcement Task Force to hold accountable the individuals and corporations who contributed to the crisis as well as those who would claim illegal advantage through false claims for funds intended to stimulate economic recovery. The task force is the broadest coalition of law enforcement, investigative, and regulatory agencies ever assembled to combat fraud. For more information on the efforts and results of the Financial Fraud Enforcement Task Force in mortgage and other financial fraud, go to StopFraud.gov .

In fiscal year 2012, the Task Force’s efforts resulted in a landmark $25 billion agreement between the federal government, the attorneys general of 49 states and the District of Columbia, on the one hand, and the nation’s five largest mortgage servicers, on the other, to address mortgage loan servicing and foreclosure abuses. The five settling companies are the Bank of America Corporation, JP Morgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. (formerly GMAC). Among its other provisions – which included significant relief for struggling homeowners – the settlement included resolutions under the False Claims Act that returned more than $900 million to federal mortgage insurance programs, including programs designed to promote home ownership by families and veterans. In addition, the agreement provides substantial financial relief to homeowners and establishes significant new homeowner protections for the future. For details, go to $25 billion agreement .

Other significant settlements to redress false claims in connection with federally insured mortgages include a $202.3 million settlement with Deutsche Bank AG and its subsidiary MortgageIT Inc., a $158.3 million settlement with Citibank subsidiary CitiMortgage Inc. and a $132.8 million settlement with Flagstar Bank. For details, go to Deutsche Bank/MortgageIT , CitiMortgage , and Flagstar Bank .

Procurement Fraud

The department, with the assistance of other members of the Financial Fraud Enforcement Task Force, also achieved great success in the pursuit of procurement fraud, including fraud connected to the procurement of equipment and services for the military.  In fiscal year 2012, the department recovered $427 million in false claims for goods and services purchased by the government, bringing total recoveries for procurement fraud since January 2009 to $1.7 billion. 

The department recovered $73 million in cases related to the wars in Iraq and Afghanistan. These cases include a $37 million settlement with ATK Launch Systems Inc. to resolve allegations that ATK sold dangerous and defective illumination flares used by the Army and the Air Force for nighttime combat and for covert and search and rescue operations. In another wartime contracting case, Maersk Line Limited paid the United States $31.9 million to resolve allegations that the company knowingly overcharged the Department of Defense to transport cargo to U.S. troops in Afghanistan and Iraq. For details on these settlements, go to ATK and Maersk .

The department also recovered $200 million from software manufacturer Oracle Corp. and Oracle USA in the largest False Claims Act settlement ever obtained under a General Services Administration contract. GSA negotiates contracts with private sector companies for the purchase of commonly used commercial goods and services by agencies throughout the government. As part of their contract to gain access to the vast federal marketplace, these companies agree to disclose the discounts given to their commercial customers and to pass along those discounts to the government. The $200 million settlement with Oracle resolved allegations that the company overcharged the government by failing to disclose substantially lower prices offered to its commercial customers. For more details, go to Oracle settlement .

Recoveries in Whistleblower Suits

As part of a commemoration of the 25th anniversary of the False Claims Act amendments, the department noted earlier this year the importance of the legislation providing the tools needed to combat fraud against the government, especially by strengthening the False Claims Act’s qui tam provisions. In 1986, Senator Charles Grassley and Representative Howard Berman led successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud. In 2009, Senator Patrick J. Leahy, chairman of the Senate Judiciary Committee, along with Senator Grassley and Representative Berman, championed the Fraud Enforcement and Recovery Act of 2009, which made additional improvements to the False Claims Act and other fraud statutes. And in 2010, the passage of the Affordable Care Act provided additional inducements and protections for whistleblowers and strengthened the provisions of the federal health care Anti-Kickback Statute.

The increased incentives for whistleblowers have led to an unprecedented number of investigations and greater recoveries. Of the $4.9 billion in fiscal year 2012 recoveries, a record $3.3 billion was recovered in whistleblower suits. In fiscal year 2012 alone, relators filed 647 qui tam suits. Of the nearly 8,500 qui tam suits filed since the 1986 amendments, nearly 2,200 were filed since January 2009. Looking at qui tam recoveries for the same periods, the department tallied $24.2 billion since 1986, with nearly $10.5 billion of that amount recovered from January 2009 through fiscal year 2012. Since 1986, whistleblowers have been awarded nearly $4 billion, with $439 million in awards in fiscal year 2012.

“The whistleblowers who bring wrongdoing to the government’s attention are instrumental in preserving the integrity of government programs and protecting taxpayers from the costs of fraud,” said Principal Deputy Assistant Attorney General Delery. “We are extremely grateful for the sacrifices they make to do the right thing.”

Acting Associate Attorney General West and Principal Deputy Assistant Attorney General Delery also expressed their deep appreciation for the dedicated public servants who contributed to the investigation and prosecution of these cases. These individuals include attorneys, investigators, auditors and other agency personnel throughout the Civil Division, the U.S. Attorneys’ Offices, HHS, Department of Defense and the many other federal and state agencies that contributed to the department’s record recoveries this past year.

“The department’s record recoveries this past year are a product of the tremendous skill and dedication of the people who worked on these cases and investigations,” Mr. Delery said.

Related Materials:

Principal Deputy Assistant Attorney General Stuart Delery Speaks at Pen and Pad Briefing Announcing Record Civil FY 2012 Recoveries
Acting Associate Attorney General Tony West Speaks at Pen and Pad Briefing Announcing Record Civil FY 2012 Recoveries

A federal grand jury in Fort Lauderdale, Fla., returned an indictment charging Paul F. Wrubleski with corruptly impeding the due administration of the internal revenue laws and four counts of filing false claims for tax refunds, the Justice Department and the Internal Revenue Service (IRS) announced today.

According to the indictment, Wrubleski impeded the IRS by filing False W-4s that claimed he was exempt from income tax withholding, and filing false tax returns, including four tax returns that requested over $1.5 million in federal refunds. Wrubleski also sent obstructive letters, tax returns and other false documents to the IRS between 1999 and 2010. In addition, the indictment alleges that Wrubleski filed for bankruptcy in 2006 to impede IRS collection actions. 

An indictment merely alleges that crimes have been committed and the defendant is presumed innocent until proven guilty beyond a reasonable doubt. If convicted on all counts, Wrubleski faces a maximum potential sentence of 23 years in prison and faces a fine of up to $1.2 million.

This case was investigated by special agents of IRS - Criminal Investigation. Trial Attorneys Charles Edgar, Jr. and Jed Silversmith of the Justice Department’s Tax Division and Assistant U.S. Attorney Bertha Mitrani are prosecuting the case.

Additional information about the Tax Division and its enforcement efforts may be found at www.justice.gov/tax .

WASHINGTON — A federal jury in Albany, Ga., convicted Sumter County, Ga., County Commissioner Al J. Hurley late yesterday on corruption charges stemming from his acceptance of illicit payments in exchange for his official efforts to secure government contracts for a private contractor, Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and Middle District of Georgia U.S. Attorney Michael J. Moore announced.

Hurley, 54, of Americus, Ga., was found guilty of one count each of attempted extortion and federal program bribery.

Hurley was first elected to the five-member board of commissioners in 1999.  As the primary governing body for the county, the board presided over a variety of official matters, including the bidding process for and award of various county contracts.

Evidence at trial showed that from September to December 2011, Hurley, in his capacity as a county commissioner, solicited and agreed to accept cash payments – including $5,000 on Oct. 23, 2011, and $15,000 on Dec. 19, 2011 – from a private contractor, in exchange for Hurley’s repeated promises to use official action and influence to help facilitate the award of county contracting work to the contractor. 

In particular, Hurley told the contractor that he would help him win a $100,000 depot renovation contract in a city within Hurley’s district.  Trial testimony also established that, in order to drive up the bribe amount, Hurley invented two inside contacts that he claimed to have at a new racetrack project in his district, and claimed the contacts could influence the award of related contracting work in favor of the contractor.  Hurley, who testified, admitted the contacts did not exist.

Hurley faces a maximum potential penalty of 20 years in prison for the attempted extortion charge and 10 years in prison on the bribery charge.  Each count also carries a maximum $250,000 fine.  A sentencing date has not yet been set.

This case was prosecuted by Trial Attorney Eric G. Olshan of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney K. Alan Dasher of the Middle District of Georgia.  This case was investigated by the FBI.

Attorney General Eric Holder and European Union (EU) Commissioner for Home Affairs Cecilia Malmström will launch the Global Alliance Against Child Sexual Abuse Online at a ministerial conference tomorrow, Dec. 5, 2012, in Brussels. The initiative aims to unite decision-makers all around the world to better identify and assist victims and to prosecute the perpetrators.

Participants at the launch include ministers and high-level officials from 27 EU member states, who are also joined by 22 countries outside the EU, including Albania, Australia, Cambodia, Canada Croatia, Georgia, Ghana, Japan, Moldova, Montenegro, New Zealand, Nigeria, Norway, the Philippines, Serbia, Republic of Korea, Switzerland, Thailand, Turkey, Ukraine, United States and Vietnam.

“This international initiative will strengthen our mutual resources to bring more perpetrators to justice, identify more victims of child sexual abuse, and ensure that they receive our help and support,” said Attorney General Holder. “Through this global alliance we can build on the success of previous cross-border police operations that have dismantled international pedophile networks and safeguard more of the world’s children.”

“Behind every child abuse image is an abused child, an exploited and helpless victim. When these images are circulated online, they can live on forever. Our responsibility is to protect children wherever they live and to bring criminals to justice wherever they operate. The only way to achieve this is to team up for more intensive and better coordinated action worldwide,” said Commissioner for Home Affairs Cecilia Malmström.

The countries of the alliance are committing themselves to a number of policy targets and goals aimed at combating the pervasive problem of child sexual abuse online - including the manufacturing and sharing of child pornography, online enticement of minors and online child prostitution. Thanks to increased international cooperation, the fight against child sexual abuse online will therefore be more effective.

End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes International studies indicate that more than one million images of children subjected to sexual abuse and exploitation are currently online. According to the U.N. Office on Drugs and Crime, 50,000 new child abuse images are added online each year.

No country can fight this horrible phenomenon alone, as the criminal networks behind it know no boundaries and exploit the lack of information exchange and the legal loopholes that exist within and between countries. This is why international cooperation is crucial to effectively investigate cases of child sexual abuse online and to better identify and prosecute offenders.

Global Alliance: Greater Commitments for Better Results

Tomorrow at the launching conference, the participating countries will make political commitments to pursue a number of goals, notably:  

• Enhancing efforts to identify victims and ensuring that they receive the necessary assistance, support and protection;
• Enhancing efforts to investigate cases of child sexual abuse online and to identify and prosecute offenders;
• Increasing children's awareness of online risks, including the self-production of images and 'grooming' methods used by paedophiles
• Reducing the availability of child abuse material online and the re-victimization of children.

Countries would then choose the appropriate action to take at national level to achieve them, and would report regularly.

Background

The United States, through the Department of Justice, the Department of Homeland Security, Secret Service, Postal Inspection Service and other government agencies, in collaboration with non-governmental organizations (NGOs), industry and international partners, has made progress in combating all forms of child sexual exploitation.

The largest U.S. prosecution of an international criminal network organized to sexually exploit children, called Operation Delego, was a U.S.-led operation announced just last year by Attorney General Holder and Department of Homeland Security Secretary Janet Napolitano. Operation Delego resulted in 72 defendants being charged in the U.S. and more than 500 individuals being targeted for investigation by foreign authorities for their participation in Dreamboard – a private, members-only, online bulletin board that was created and operated to promote pedophilia and encourage the sexual abuse of very young children, in an environment designed to avoid law enforcement detection.

The identification and arrest of the defendants spanned years and involved extensive international cooperation between the United States; Eurojust, the European Union’s Judicial Cooperation Unit; Europol, the European law enforcement agency; and dozens of law enforcement agencies throughout the world. Dreamboard members across five continents were arrested in countries like Canada, Denmark, Ecuador, France, Germany, Hungary, Kenya, the Netherlands, the Philippines, Qatar, Serbia, Sweden and Switzerland.  The location and arrest of Dreamboard members abroad have led to the capture and investigation of other global targets, as well as the identification of numerous children suffering ongoing abuse at their hands. Operation Delego is a good example of the success we can achieve when we work together with our international partners. 

To better prosecute these crimes, the Justice Department has created a dedicated team of prosecutors in its Criminal Division called the Child Exploitation and Obscenity Section (CEOS) and appointed one specialist in each of the 93 U.S. Attorneys’ Offices around the country.  CEOS regularly trains and advises the specialists in those offices and has created a network that joins them together, known as Project Safe Childhood.  The Justice Department also created a dedicated team of computer forensic specialists and co-located them with our CEOS prosecutors, to ensure that they have the technical support they need to build these important investigations and operations.

In addition, the U.S. Congress has funded the creation of state-level task forces, known as the Internet Crimes Against Children (ICAC) Task Forces which help state and local agencies to develop successful, long-term responses to online child exploitation. These task forces are supported by the Department of Justice, not just with funding, but with training.

Despite vigorously fighting all aspects of child exploitation, the Justice Department recognizes that more work remains to be done and that work is vital to our collective success in combating this global problem.

For more information regarding the Justice Department’s efforts to combat child exploitation, please visit: www.justice.gov/criminal/ceos

The Global Alliance Against Child Sexual Abuse Online ministerial conference will take place in Brussels on Dec. 5, 2012. Experts and practitioners from participating governments, as well as representatives from international organizations and academics will examine the state of the problem and discuss the different policy targets of the Global Alliance. Attending ministers from the participating countries will endorse the alliance, in the form of a declaration.

Related Materials:

Child Exploitation and Obscenity Section
Attorney General Eric Holder Speaks at the Global Alliance Against Child Sexual Abuse Online Ministerial

WASHINGTON – Ohio-based Owens-Brockway Glass Container Inc., the nation’s largest glass container manufacturer, has agreed to install pollution control equipment to reduce harmful emissions of nitrogen oxides (NOx), sulfur dioxide (SO2) and particulate matter (PM) by nearly 2,500 tons per year and pay a $1.45 million penalty to resolve alleged Clean Air Act violations at five of the company’s manufacturing plants, the Department of Justice and the U.S. Environmental Protection Agency (EPA) announced today.

“This agreement will significantly reduce the amount of air pollution, known to cause a variety of environmental and health problems, from the nation’s largest manufacturer of glass containers,” said Ignacia S. Moreno, Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice.  “The settlement, the latest in a series of agreements with the glass manufacturing sector, addresses major sources of pollution at facilities located in four states and will mean cleaner air for the people living in those communities.”

“The pollution controls required by today’s settlement will significantly reduce emissions that can impact residents’ health and local environment in communities located near glass manufacturing plants,” said Cynthia Giles, Assistant Administrator for the EPA’s Office of Enforcement and Compliance Assurance. “These new pollution controls will improve air quality and protect communities from Georgia to Texas from emissions that can lead to respiratory illnesses, smog and acid rain.”

The pollution controls required as part of the settlement to reduce NOx, SO2, and PM will cost an estimated $37.5 million. Owens-Brockway will also spend an additional $200,000 to mitigate excess emissions at its plant in Atlanta by working with the Georgia Retrofit Program to retrofit diesel school buses and fleet vehicles with controls to reduce emissions, or it will assist with the purchase of new natural gas, propane or hybrid vehicles.

Reducing air pollution from the largest sources of emissions, including glass manufacturing plants, is one of the EPA’s National Enforcement Initiatives for 2011-2013. NOx, SO2, and PM, three key pollutants emitted from glass plants, have numerous adverse effects on human health and the environment. NOx and SO2 contribute to ground-level ozone, or smog, acid rain and the destruction of terrestrial and aquatic ecosystems. NOx and SO2 can also irritate the lungs and aggravate pre-existing heart or lung conditions. PM contains microscopic particles that can travel deep into the lungs and cause difficulty breathing, coughing, decreased lung function, and even death.

This is the fourth settlement in EPA’s National Glass Manufacturing Plant Initiative.

The facilities covered by the settlement are located in Atlanta, Ga.; Clarion, Pa.; Crenshaw, Pa.; Muskogee, Okla.; and Waco, Texas.

The Oklahoma Department of Environmental Quality is also a signatory to this consent decree.

The proposed consent decree will be lodged with the U.S. District Court for the Northern District of Ohio, and will be subject to a 30-day public comment period. Information on submitting comments is available at the Department of Justice website: www.justice.gov/enrd/Consent_Decrees.html .

More information on the settlement: www.epa.gov/enforcement/air/cases/owensbrockway.html

Learn more about EPA’s National Enforcement Initiatives: www.epa.gov/oecaftp/compliance/data/planning/initiatives/index.html

The Justice Department announced today that it reached an agreement with ComForcare In-Home Care & Senior Services, a home care provider for sick and elderly patients in Tigard, Ore. The agreement resolved claims that the provider violated the anti-discrimination provision of the Immigration and Nationality Act (INA), when it demanded unnecessary documentation from a newly naturalized citizen in response to an initial mismatch in E-Verify and then refused to hire her when she did not produce it. 

The investigation stemmed from a charge filed by a naturalized U.S. citizen, who was not allowed to work for ComForcare after the company received an initial mismatch in her data in E-Verify, called a tentative non-confirmation. E-Verify is an Internet-based system run by U.S. Citizenship and Immigration Services (USCIS) that confirms employment eligibility by comparing information from an employee’s Form I-9, the form that all new employees must complete upon hire, to data in the Department of Homeland Security’s and Social Security Administration’s records.

If an employee receives a tentative non-confirmation, E-Verify requires the employer to provide the employee with a tentative non-confirmation notice offering the employee the choice to contest the mismatch. If the employee decides to contest the mismatch, the employee must be allowed to work while resolving a tentative non-confirmation, and the rules do not permit an employer to request additional documentation based on a tentative non-confirmation. ComForcare failed to provide the charging party with written notice of her tentative non-confirmation, as required by E-Verify, demanded that she produce an “alien card” and did not allow her to start working. When the charging party informed ComForcare that, as a naturalized citizen, she did not possess an alien card, ComForcare demanded her naturalization papers even though she had already produced proper work authorization documents during the Form I-9 process. The investigation also established that ComForcare requested that non-U.S. citizens and persons perceived to be non-U.S. citizens produce specific employment eligibility documents to establish their employment eligibility rather than allowing these individuals to show their choice of valid documentation.

Under the settlement agreement, ComForcare will pay approximately $525 in back pay to the charging party and $1,210 in civil penalties to the United States. ComForcare will also train its human resources staff about employers’ responsibilities to avoid discrimination in the employment eligibility verification process and be subject to reporting and compliance monitoring by the department for eighteen months.

“This case illustrates the importance of following E-Verify rules consistently regardless of citizenship status or perceived status, or risk running afoul of the anti-discrimination provision,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “Subjecting naturalized citizens to heightened documentary standards that result in the loss of employment constitutes discrimination, and the Division is fully committed to enforcing the law that prohibits it.”

The Office of Special Counsel (OSC) for Immigration-Related Unfair Employment Practices is responsible for enforcing the anti-discrimination provision of the INA, which protects work-authorized individuals from employment discrimination on the basis of citizenship status or national origin discrimination, including discrimination in hiring and the employment eligibility verification (Form I-9) process. 

For more information about protections against employment discrimination under federal immigration law, call OSC’s worker hotline at 1-800-255-7688 (1-800-237-2515, TDD for hearing impaired), OSC’s employer hotline at 1-800-255-8155 (1-800-237-2515, TDD for hearing impaired), or 202-616-5594; e-mail [email protected] or visit OSC’s website at www.justice.gov/crt/about/osc.

WASHINGTON – A foreign national pleaded guilty today for his role in a scheme to smuggle undocumented immigrants from India into the United States, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Kenneth Magidson for the Southern District of Texas; and Special Agent in Charge Brian M. Moskowitz of U.S. Immigration and Customs Enforcement Homeland Security Investigations (ICE-HSI) in Houston

Kaushik Jayantibhai Thakkar, 33, an Indian national, pleaded guilty today at a hearing before U.S. District Judge Ewing Werlein Jr., in Houston, to one count of conspiracy to bring undocumented immigrants into the United States for profit and to one count of unlawfully bringing two undocumented immigrants into the United States for profit. 

Thakkar was arrested in New York on April 8, 2012, on a complaint filed in the Southern District of Texas charging him with one count of conspiracy to unlawfully smuggle undocumented immigrants into the United States.  On June 6, 2012, Thakkar was charged by superseding indictment, along with four other individuals, with one count of conspiracy to smuggle undocumented immigrants into the United States and six human smuggling counts related to three incidents in which Thakkar helped smuggle undocumented immigrants into the United States.  Based on Thakkar’s guilty plea, the government will dismiss the remaining human smuggling counts against him at sentencing.

At the plea hearing and in related court documents, Thakkar admitted that between January 2011 and April 2012, he conspired with his codefendants to bring undocumented immigrants to the United States, and to encourage and induce undocumented immigrants to come to the United States unlawfully.  According to court documents, Thakkar and his co-conspirators devised the scheme to profit financially.

In support of the conspiracy, Thakkar and other conspirators recruited individuals in India who were willing to pay to be smuggled into the United States.  For their smuggling operations, Thakkar and his conspirators used a network of conspirators in South America, Central America, the Caribbean and the United States, including the state of Texas.  Using this network, Thakkar and his conspirators transported groups of undocumented immigrants from locations within India through South America, Central America and the Caribbean and then into the United States by various means, including by air travel, automobiles, water craft and foot.  Many of these smuggling events, including five of the incidents described in the indictment, involved illegal entry into the United States via the border between the United States and Mexico near McAllen and Laredo, Texas.

At sentencing, which is scheduled for Feb. 22, 2013, Thakkar faces a maximum sentence of 15 years in prison and a fine of up to $500,000. 

Thakkar’s co-conspirator Maria Adela De Luna pleaded guilty on Nov. 9, 2012, to one count of conspiracy to harbor undocumented immigrants in the United States.  Co-conspirator Fabiano Augusto Amorim has been charged with one count of conspiracy to smuggle undocumented immigrants into the United States and 10 human smuggling counts related to five incidents in which Amorim allegedly helped smuggle undocumented immigrants into the United States.

The investigation was conducted by agents with ICE-HSI in McAllen and Houston.  This case is being prosecuted jointly by Trial Attorney Stephen Curran of the Criminal Division’s Human Rights and Special Prosecutions Section and Assistant U.S. Attorneys Leo J. Leo III and Casey MacDonald of the Southern District of Texas.

The investigation was conducted under the Extraterritorial Criminal Travel Strike Force (ECT) program, a joint partnership between the Justice Department’s Criminal Division and HSI.  The ECT program focuses on human smuggling networks that may present particular national security or public safety risks, or present grave humanitarian concerns.  ECT has dedicated investigative, intelligence and prosecutorial resources.  ECT coordinates and receives assistance from other U.S. government agencies and foreign law enforcement authorities.

WASHINGTON – A Brooklyn, N.Y., resident pleaded guilty today for his role in a $71 million Medicare fraud scheme, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney for the Eastern District of New York Loretta E. Lynch, Acting Assistant Director in Charge George Venizelos of the FBI’s New York Field Office and Special Agent in Charge Thomas O’Donnell of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).

Yuri Khandrius, 50, pleaded guilty today before U.S. District Judge Nina Gershon in the Eastern District of New York to one count of conspiracy to commit health care fraud, one count of health care fraud and one count of conspiracy to pay kickbacks. 

Khandrius was an employee of a clinic in Brooklyn that operated under three corporate names: Bay Medical Care PC, SVS Wellcare Medical PLLC and SZS Medical Care PLLC (Bay Medical clinic).  According to court documents, owners, operators and employees of the Bay Medical clinic paid cash kickbacks to Medicare beneficiaries and used the beneficiaries’ names to bill Medicare for more than $71 million in services that were medically unnecessary or never provided.  The defendants billed Medicare for a wide variety of fraudulent medical services and procedures, including physician office visits, physical therapy and diagnostic tests.

According to the criminal complaint, the co-conspirators allegedly paid kickbacks to corrupt Medicare beneficiaries in a room at the clinic known as the “kickback room,” in which the conspirators paid approximately 1,000 kickbacks totaling more than $500,000 during a period of approximately six weeks from April to June 2010.

Khandrius admitted in court that he conspired with co-workers at Bay Medical to commit health care fraud and to pay cash kickbacks to Medicare beneficiaries as part of the scheme.

At sentencing, Khandrius faces a maximum penalty of 25 years in prison.  Sentencing is scheduled for March 11, 2013.

In total, 16 individuals have been charged in the Bay Medical scheme, including two doctors, nine clinic owners/operators/employees and five external money launderers.  To date, 11 defendants have pleaded guilty for their roles in the conspiracy.  Five individuals await trial before Judge Gershon on Jan. 22, 2013.

The case is being prosecuted by Assistant U.S. Attorney Shannon Jones of the Eastern District of New York and Trial Attorney Sarah M. Hall of the Criminal Division’s Fraud Section.  The case was investigated by the FBI and HHS-OIG.

The case was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York.  The Medicare Fraud Strike Force operations 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.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,480 defendants who have collectively billed the Medicare program for more than $4.8 billion.  In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.

To learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to: www.stopmedicarefraud.gov.

WASHINGTON – DPL Enterprises Inc. (dba Air Care Indoor Quality Specialists), Richard Papaleo, the company’s president and owner, and Michael Stanovich, a company manager pleaded guilty today in U.S. District Court in Las Vegas to making and selling a misbranded pesticide.

According to charges filed in U.S. District Court in Las Vegas, the defendants knowingly manufactured and sold fake Sporicidin, an EPA approved a pesticide, intended for use in disinfecting air ducts.  The unapproved product was sold with a label that was false because it was not actually Sporicidin, because neither the diluted pesticide nor the label were EPA approved, because the label represented that the pesticide contained the concentration of the active ingredient found in the real product, and because the label contained a trademarked brand-name when it was really a 10:1 dilution. The fake Sporicidin label made by the defendants was copied from a real label and claimed that it could kill various organisms, including the HIV, Avian Flu, Salmonella, Staph and MRSA.  However, Papaleo and his company sold diluted Sporicidin containing approximately 10 parts water for every 1 part of Sporicidin.   

In court today, the defendants admitted to deliberately selling a misbranded pesticide knowing that the EPA had not approved the diluted product for sale or the label that failed to disclose that the product being was actually a 10:1 dilution.

Papaleo and his company also pleaded guilty to intentionally making false statements to federal agents from the EPA Criminal Investigations Division at the time of a federally authorized search warrant at Air Care.  When interviewed, Papaleo told the agents that his company was not diluting Sporicidin and that the pesticide purchased from the maker was being re-packaged and re-labeled by Air Care solely for branding purposes, knowing   that these statements were untrue and that diluted Sporicidin pesticide was being sold without approved labels in violation of law.

According to documents filed in court, Papaleo had been warned by the maker of Sporicidin that his company must obtain EPA approval for its label and that misbranding was “illegal.”  Air Care admitted to selling approximately 6,312 gallons of the misbranded and diluted pesticide between 2005 and 2010. 

The government’s investigation was initiated after EPA received complaints from the maker of Sporicidin.  EPA made an undercover purchase of the fake Sporicidin sold by Air Care.  EPA’s National Enforcement Investigations Center (NEIC) laboratory in Colorado found it was diluted with water even though the fake label made by Air Care claimed it contained the original strength of the active ingredient. 

 EPA regulates pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), which makes it a crime manufacture a pesticide in the United States without first being registered with the EPA and obtaining from the EPA a manufacturer establishment number.  Approved labels must be affixed to any container of the pesticide that is distributed or sold.  A pesticide is deemed “misbranded” if among other things the labeling is false or misleading.  Misbranding pesticides is a misdemeanor offense.

The maximum penalty for violating FIFRA is one year in prison, and/or a fine of not more than $100,000, or up to twice the gross gain or loss from the crime.  The corporation can face up to a $200,000 fine.  Papaleo faces up to five years in prison and up to $200,000 in fines or up to twice the gross gain or loss from the crime for making false statements.  Air Care could be fined up to $500,000 for making false statements or up to twice the gross gain or loss from the crime.

EPA Criminal Investigation Division conducted the investigation with assistance from the FBI.  The case was prosecuted by Senior Trial Attorney Richard A. Udell of the Department of Justice Environmental Crimes Section and Assistant U.S. Attorney Kathryn Newman, of the U.S. Attorney’s Office for the District of Nevada.  

Attorney General Eric Holder issued the following statement today on the release of the recommendations by the National Advisory Committee on Violence Against Women:

“For the past two years, the National Advisory Committee on Violence Against Women has displayed remarkable leadership and dedication to the cause of ending violence against women. I appreciate the thoughtful recommendations they have submitted in their final report.

“My intention when I re-chartered the advisory committee in March 2010 was to convene leaders in the field to solicit recommendations about how to improve the nation’s response to violence against women, with a specific focus on successful interventions with children and teens who witness or are victimized by domestic violence, dating violence and sexual assault.

“Prevention and successful interventions with children and teens will help break the cycle of violence that afflicts our nation. There is an unmistakable relationship between young people who witness or are victims of violence and the overall public safety of communities across the country.

“Together, I hope we can end this destructive violence and offer safety, security and hope to our children.”

Information on the National Advisory Committee can be found at: www.ovw.usdoj.gov/nac.html.

Related Materials:

National Advisory Committee on Violence Against Women

A certified public accountant (CPA) and purported outside auditor for Provident Capital Indemnity Ltd. (PCI) was sentenced today in Richmond, Va., to 54 months in prison for his role in an approximately half-billion-dollar fraud scheme that affected more than 3,500 victims throughout the United States and abroad, announced U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.

Jorge Luis Castillo, 57, a resident of New Jersey, was sentenced today by U.S. District Judge John A. Gibney in the Eastern District of Virginia. In addition to his prison term, Castillo was sentenced to three years of supervised release and ordered to pay $43,582,699 in forfeiture.

Castillo pleaded guilty on Nov. 21, 2011, to one count of conspiring to commit mail and wire fraud.  Castillo was a PCI employee prior to becoming PCI’s “outside auditor.”  

“As a licensed accountant, Mr. Castillo used his expertise to create fraudulent financial statements out of whole cloth,” said U.S. Attorney MacBride. “Many elderly investors relied on Mr. Castillo’s credibility as an outside auditor before entrusting their life savings in this fraud scheme.  Accountants and auditors are the gatekeepers of our financial system and are entrusted with the critical role of protecting the public from fraud.  Today’s sentence will hopefully send a strong message to those in the accounting profession that they will be held responsible when they break that trust by facilitating or participating in fraud.”

“Jorge Luis Castillo will spend 54 months in prison for trading on his qualifications as a CPA to facilitate a massive fraud scheme that harmed investors throughout the United States and abroad,” said Assistant Attorney General Breuer. “Mr. Castillo’s prison sentence demonstrates the Justice Department’s commitment to holding accountable any fraudster who preys on innocent, unsuspecting investors.”

According to court records, PCI was an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica. PCI sold financial guarantee bonds to companies selling life settlements, or securities backed by life settlements, to investors. PCI marketed these bonds to its clients as a way to alleviate the risk of insured beneficiaries living beyond their life expectancy. PCI’s clients, in turn, typically explained to their investors that the financial guarantee bonds ensured that the investors would receive their expected return on investment irrespective of whether the insured on the underlying life settlement lived beyond his or her life expectancy.

Castillo admitted that he conspired with Minor Vargas Calvo, 61, the president and majority owner of PCI, to prepare audited financial statements that falsely claimed that PCI had entered into reinsurance contracts with major reinsurance companies. These claims, which were supported by a letter from Castillo stating that he conducted an audit of PCI’s financial records, were used to assure PCI’s clients that the reinsurance companies were backstopping the majority of the risk that PCI had insured through its financial guarantee bonds.

Castillo further admitted that he never performed an audit of PCI’s financial statements and that, in fact, he personally created the statements he claimed to be independently auditing. He also admitted that he and others at PCI knew that the company never actually entered into reinsurance contracts with any major companies. Castillo also admitted that he and other conspirators provided the false financial statements and fraudulent independent auditors’ report to Dun & Bradstreet (D&B), which D&B relied on in compiling its commercial reports on PCI and issuing its 5A rating of PCI’s financial strength.

From 2004 through 2010, PCI sold at least $485 million of bonds to life settlement investment companies located in various countries, including the United States, the Netherlands, Germany, Canada and elsewhere. PCI’s clients, in turn, sold investment offerings backed by PCI’s bonds to thousands of investors around the world. Purchasers of PCI’s bonds were allegedly required to make up-front payments of six to 11 percent of the underlying settlement as “premium” payments to PCI before the company would issue the bonds. Court records state that Castillo received approximately $84,000 from his work as the purported outside auditor of PCI from 2004 through 2010.

Vargas, a citizen and resident of Costa Rica, was convicted on April 30, 2012, of one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, three counts of wire fraud and three counts of money laundering.  On Oct. 23, 2012, he was sentenced to 60 years in prison.  PCI pleaded guilty on April 18, 2012, to conspiring to commit mail and wire fraud, and was sentenced on Sept. 6, 2012, to one year of probation.

This investigation is being conducted by the U.S. Postal Inspection Service, Internal Revenue Service – Criminal Investigation, and FBI, with assistance from the Virginia State Corporation Commission, the Texas State Securities Board and the New Jersey Bureau of Securities. This case is being prosecuted by Assistant U.S. Attorneys Michael S. Dry and Jessica Aber Brumberg of the Eastern District of Virginia and Assistant Chief Albert B. Stieglitz Jr. of the Justice Department Criminal Division’s Fraud Section.

The U.S. Securities and Exchange Commission (SEC) conducted a parallel investigation and in January 2011 filed a parallel civil enforcement action against PCI, Vargas and Castillo. The department thanks the SEC for its assistance in this matter.

The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia specifically. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.

President Obama established the Financial Fraud Enforcement Task Force (FFETF) 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 made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the 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.

James and Theresa DeMuro of Bridgewater, N.J., were each sentenced by U.S. District Judge Anne E. Thompson to 44 months in prison, followed by three years supervised release, the Justice Department and the Internal Revenue Service (IRS) announced today.  Judge Thompson also ordered the DeMuros to pay restitution to the IRS in the amount of $1,337,952.12.  A jury had convicted the DeMuros of one count of conspiracy to defraud the United States and 21 counts of willfully failing to pay over employment taxes. Today’s sentencing follows an April 23, 2012, order by the U.S. Court of Appeals for the Third Circuit, which affirmed the convictions but remanded the case for resentencing.   

According to the indictment and evidence introduced during trial, the DeMuros co-owned and operated an engineering and surveying firm called TAD Associates LLC dba DeMuro Associates. From 2002 through 2008, they withheld employment taxes from their employees’ paychecks but failed to pay more than $546,000 in taxes to the IRS. In addition, they operated under a prior entity name DA Resources Inc., which they ceased operating in an effort to thwart the ability of the IRS to collect unpaid employment taxes related to that entity.

At trial, the government introduced evidence that, beginning with the first quarter of 2007 through the last quarter in 2008, the defendants paid employees’ wages and withheld employment taxes from paychecks but did not pay any of the employee withholdings to the U.S. Treasury. In addition, the DeMuros withheld funds from their employees’ pay checks for health insurance, child support and retirement savings accounts, and failed to pay these funds over to the appropriate entities. 

Evidence was also introduced that the DeMuros converted withheld funds for their business and personal use, including more than $280,000 in purchases from QVC, Home Shopping Network and Jewelry Television.   

Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division, commended the IRS Criminal Investigation special agents who investigated the case as well as Tax Division Trial Attorneys Tino M. Lisella and Jessica Moran, who prosecuted the case. Assistant Attorney General Keneally also thanked U.S. Attorney for the District of New Jersey Paul J. Fishman and his entire office for their assistance.

The Justice Department announced today that it reached an agreement with Gamewell Mechanical Inc., a subsidiary of Woodfin Heating, Inc. based in Salisbury, N.C., resolving claims that the company violated the anti-discrimination provision of the Immigration and Nationality Act (INA), when it terminated three employees based on the incorrect assumption that they were undocumented foreign nationals when they were in fact U.S. citizens.  The company is in the mechanical construction business and fabricates and installs heating and cooling systems.

The investigation stemmed from a charge filed by one of the three U.S. citizens. The investigation revealed that Gamewell officials had terminated the three individuals when it received information that six of their co-workers were undocumented foreign nationals and incorrectly assumed that the three U.S. citizens were similarly not authorized to work in the United States.

Under the settlement agreement, Gamewell Mechanical will pay a total of $10,560 in back pay to the three discharged U.S. citizens, and $9,600 in civil penalties to the United States. Gamewell Mechanical will also train its human resources staff about employers’ responsibilities to avoid discrimination in the employment eligibility verification process and be subject to reporting and compliance monitoring by the department for 18 months.

“The anti-discrimination provision protects work-authorized individuals from being treated differently in employment based on discriminatory assumptions about their status,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “The Civil Rights Division is fully committed to vigorously enforcing the law.”

The Office of Special Counsel (OSC) for Immigration-Related Unfair Employment Practices is responsible for enforcing the INA’s anti-discrimination provision of the INA, which, among other things, protects work-authorized individuals from employment discrimination on the basis of citizenship status or national origin discrimination in connection with hiring, firing, and the employment eligibility verification process. 

For more information about protections against employment discrimination under the immigration laws, call the OSC’s worker hotline at 1-800-255-7688 or the OSC’s employer hotline at 1-800-255-8155.  TDD for hearing impaired is 800-237-2515.  You may also sign up for a no-cost webinar at www.justice.gov/crt/osc/webinars.php , email [email protected] or visit the website at www.justice.gov/crt/about/osc .

WASHINGTON – The former chief executive officer of Fair Financial Company, an Ohio financial services business, was sentenced today to serve 50 years in prison for his role in a scheme to defraud approximately 5,000 investors of more than $200 million, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division and U.S. Attorney for the Southern District of Indiana Joseph H. Hogsett.

            Timothy S. Durham, 50, of Fortville, Ind., was sentenced today by U.S. District Judge Jane Magnus-Stinson.  In addition to his prison term, Durham was sentenced to serve two years supervised release.

            James F. Cochran, the former chairman of the board of Fair, was sentenced today by Judge Magnus-Stinson to serve 25 years in prison and three years of supervised release.

Rick D. Snow, the former chief financial officer of Fair, was sentenced today by Judge Magnus-Stinson to ten years in prison and two years of supervised release.

            Judge Snow also ordered Durham, Cochran and Snow to pay restitution in the amount of $208 million.

            “The lengthy prison sentences handed down today are just punishment for a group of executives who built a business on smoke and mirrors,” said Assistant Attorney General Breuer.  “By deliberately misleading their investors and state regulators, Mr. Durham and his co-conspirators were able defraud thousands of innocent investors.  The Justice Department will continue to devote considerable time and resources to ensure that fraudsters like Mr. Durham, Mr. Cochran and Mr . Snow are brought to justice for their crimes.”

“This ordeal is truly a tragedy for all families involved,” said U.S. Attorney Hogsett.  “All we can do is ask that today's decision send a warning to others in Indiana that if you sacrifice truth in the name of greed, if you steal from another's American dream to enhance your own, you will be caught and you will pay a significant price.”

            “The FBI will continue to aggressively pursue financial crimes investigations,” said Special Agent in Charge Robert A. Jones of the FBI Indianapolis Division.  “Today’s sentencing represents a significant step toward justice.  We must remain mindful that the victims of this crime still suffer.”

On June 20, 2012, following an eight-day trial, a federal jury in the Southern District of Indiana convicted Durham and two co-conspirators for their roles in this scheme. Durham was convicted of one count of conspiracy to commit wire and securities fraud, 10 counts of wire fraud and one count of securities fraud.  James F. Cochran, 57, of McCordsville, Ind., was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and six counts of wire fraud.  Rick D. Snow, 49, Fishers, Ind., was convicted of one count of conspiracy to commit wire and securities fraud, one count of securities fraud and three counts of wire fraud.

            Durham and Cochran purchased Fair, whose headquarters was in Akron, Ohio, in 2002.  According to evidence presented at trial, between approximately February 2005 through November 2009, Durham, Cochran and Snow executed a scheme to defraud Fair’s investors by making and causing others to make false and misleading statements about Fair’s financial condition and about the manner in which they were using Fair investor money. The evidence also established that Durham, Cochran and Snow executed the scheme to enrich themselves, to obtain millions of dollars of investors’ funds through false representations and promises and to conceal from the investing public Fair’s true financial condition and the manner in which Fair was using investor money. 

When Durham and Cochran purchased Fair in 2002, Fair reported debts to investors from the sale of investment certificates of approximately $37 million and income producing assets in the form of finance receivables of approximately $48 million. By November 2009, after Durham and Cochran had owned the company for seven years, Fair’s debts to investors from the sale of investment certificates had grown to more than $200 million, while Fair’s income producing assets consisted only of the loans to Durham and Cochran, their associates and the businesses they owned or controlled.

Durham, Cochran and Snow terminated Fair’s independent accountants who, at various points during 2005 and 2006, told the defendants that many of Fair’s loans were impaired or did not have sufficient collateral.  After firing the accountants, the defendants never released audited financial statements for 2005, and never obtained or released audited financial statements for 2006 through September 2009.  With independent accountants no longer auditing Fair’s financial statements, the defendants were able to conceal from investors Fair’s true financial condition.

            Evidence introduced at trial showed that the defendants engaged in a variety of other fraudulent activities to conceal from the State of Ohio Division of Securities and from investors Fair’s true financial health and cash flow problems.  Evidence showed that the defendants made false and misleading statements to concerned investors who either had not received principal or interest payments on their certificates from Fair or who were worried about Fair’s financial health.  The defendants also directed employees of Fair not to pay investors who were owed interest or principal payments on their certificates.

Even though Fair’s financial condition had deteriorated and Fair was experiencing severe cash flow problems, Durham and Cochran continued to funnel Fair investor money to themselves for their personal expenses, to their family, friends and acquaintances, and to the struggling businesses that they owned or controlled.

            This case is being prosecuted by Trial Attorney Henry P. Van Dyck and Senior Deputy Chief for Litigation Kathleen McGovern of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Winfield D. Ong and Nicholas E. Surmacz of the Southern District of Indiana. The investigation was led by the FBI in Indianapolis.

This case is part of efforts underway by President Obama’s 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 made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the 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 www.stopfraud.gov .

The former director of accounting and the former outside auditor of Arizona-based residential mortgage loan originator American Mortgage Specialists Inc. (AMS) pleaded guilty in Arizona to conspiracy to defraud BNC National Bank and obstruction of justice, respectively, Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney Timothy Q. Purdon of the District of North Dakota; Christy Romero, Special Inspector General for the Troubled Asset Relief Program (SIGTARP); and Steve A. Linick, Inspector General of the Federal Housing Finance Agency Office of Inspector General (FHFA-OIG) announced today.

Lauretta Horton, 45, and David Kaufman, 69, both residents of Arizona, pleaded guilty yesterday before U.S. District Judge Daniel L. Hovland of the District of North Dakota, who took the pleas in Arizona federal court. Horton and Kaufman were charged in separate criminal informations unsealed on Oct. 2, 2012, for their roles in the fraud scheme against BNC. 

“ While the nation was reeling from a financial downturn, Lauetta Horton conspired with AMS executives to deceive BNC Bank about AMS’s true financial stability, and AMS auditor David Kaufman lied to federal investigators to impede their investigation,” said Assistant Attorney General Breuer.  “Horton and Kaufman’s guilty pleas reflect our continued vigilance in investigating and punishing criminal conduct relating to the financial crisis.”

“Banks in North Dakota were not immune from illegal conduct related to the mortgage crisis that impacted banks all across the country,” said U.S. Attorney Purdon. “These guilty pleas are the result of close collaboration with our federal investigative partners and the Justice Department’s Criminal Division and should send the message that the Department of Justice is committed to prosecuting cases such as these wherever they might arise.”

“As the controller and director of accounting of mortgage originator AMS, Horton sent to TARP-recipient BNC National Bank false financial statements she had prepared so that BNC would continue to fund AMS,” said Special Inspector General Romero. “In a cover-up and an attempt to impede the federal grand jury investigation, AMS’s external auditor Kaufman lied to SIGTARP agents about his telling an AMS executive that he had changed the financial statements so that BNC would not discover the truth. Kaufman is the third person convicted of lying to SIGTARP agents, which shows that SIGTARP will aggressively pursue those who fail to tell the truth and impede our investigations.”

“This is a significant case because it holds accountable an individual who participated in a scheme to defraud a member bank of the Federal Home Loan Bank System, and another individual who lied to federal investigators,” said Inspector General Linick. “This case is a reminder that there are consequences for giving investigators false information and manipulating numbers.”

AMS was in the business of originating residential real estate mortgage loans to borrowers and then selling the loans to institutional investors. In 2006, AMS entered into a loan participation agreement with BNC whereby BNC provided funding for the loans issued by AMS.  According to court documents, Horton, the director of accounting at AMS, conspired from February 2009 to April 2010 to defraud BNC by making false representations regarding the financial well-being of AMS in order for AMS to continue to obtain funding from BNC.  Specifically, Horton admitted to inflating asset items and altering financial information in the AMS balance sheet provided to BNC to falsely reflect that AMS had substantial liquid assets when, in fact, it did not.

According to court documents, Kaufman, a certified public accountant and the outside auditor of AMS’ annual financial statements, lied to federal agents during the criminal investigation and obstructed the grand jury investigation. Specifically, Kaufman admitted denying to agents that he had a conversation with an AMS executive in which Kaufman explained to the AMS executive that Kaufman had combined two expenses on AMS’s financial statements in order to conceal the true nature and extent of AMS’s financial condition from BNC.    

Although BNC’s holding company had received approximately $20 million under the TARP and had injected approximately $17 million of the TARP funds into BNC, BNC incurred losses exceeding the millions received from TARP.  BNC then did not make its required TARP dividends to the Department of Treasury for nearly two years.                    

At sentencing, scheduled for May 6, 2013, Kaufman and Horton face a maximum penalty of 10 years and five years in prison, respectively.

The investigation was conducted by agents assigned to the Offices of the Inspector General of SIGTARP and of FHFA.  The case is being prosecuted by Trial Attorney Robert A. Zink and Senior Litigation Counsel Jack B. Patrick of the Criminal Division’s Fraud Section and by Assistant U.S. Attorney Clare Hochhalter of the District of North Dakota, with the assistance of Trial Attorney Jeannette Gunderson of the Criminal Division’s Asset Forfeiture and Money Laundering Section.

This case is part of efforts underway by President Obama’s 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 made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the 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 www.stopfraud.gov .

WASHINGTON – A third member of the Internet piracy group “IMAGiNE” was sentenced today to 40 months in prison, and a fifth member of IMAGiNE pleaded guilty today for his role in the conspiracy, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division, U.S. Attorney Neil H. MacBride for the Eastern District of Virginia and Special Agent in Charge John P. Torres of U.S. Immigration and Customs Enforcement Homeland Security Investigations (ICE-HSI) in Washington, D.C.

Gregory A. Cherwonik, 53, of Canandaigua, N.Y., was sentenced today by Senior U.S. District Judge Arenda L. Wright Allen in the Eastern District of Virginia. In addition to his prison term, Cherwonik was sentenced to serve three years of supervised release and ordered to pay $15,000 in restitution.  Cherwonik pleaded guilty to one count of conspiracy to commit criminal copyright infringement on July 11, 2012.

Javier E. Ferrer, 41, of New Port Richey, Fla., pleaded guilty today to one count of conspiracy to commit criminal copyright infringement before U.S. District Judge Henry C. Morgan Jr. in the Eastern District of Virginia.  At sentencing, scheduled for March 14, 2013, Ferrer faces a maximum sentence of five years in prison.

Cherwonik was indicted along with three other defendants on April 18, 2012, for their roles in the IMAGiNE Group, an organized online piracy ring that sought to become the premier group to first release Internet copies of movies only showing in theaters.  Ferrer was charged in an information on Sept. 13, 2012, for his role in the IMAGiNE Group.

According to court documents, Cherwonik, Ferrer and their co-conspirators sought to illegally obtain and disseminate digital copies of copyrighted motion pictures showing in theaters.  Cherwonik admitted to ordering a receiver to be used to capture the audio sound tracks of copyrighted movies (referred to as “capping”).   Cherwonik wrote the computer code for the IMAGiNE Group’s website. He also worked with another IMAGiNE Group leader to establish a PayPal account for donations made to support the site and to create the new website, which was hosted on a computer server in France. Ferrer admitted he secretly used a video camera to film copyrighted motion pictures in movie theatres. He then used software to synchronize an audio file with his illegally obtained video of the movie to create a completed movie file suitable for sharing over the Internet. According to testimony by a representative of the Motion Picture Association of America, the IMAGiNE Group constituted the most prolific motion picture piracy release group operating on the Internet from September 2009 through September 2011.

Co-defendants Sean M. Lovelady, Willie O. Lambert and Jeramiah B. Perkins each pleaded guilty to one count of conspiracy to commit criminal copyright infringement on May 9, June 22 and Aug. 29, 2012, respectively.  Lambert and Lovelady were sentenced on Nov. 2, 2012, to 30 months and 23 months in prison, respectively.  Perkins is scheduled to be sentenced on Jan. 3, 2013.

The investigation of the case and the arrests were conducted by agents with HSI.  Assistant U.S. Attorney Robert J. Krask of the Eastern District of Virginia and Senior Counsel John H. Zacharia of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) are prosecuting the case.  Significant assistance was provided by the CCIPS Cyber Crime Lab and the Criminal Division’s Office of International Affairs.

This case is part of efforts being undertaken by the Department of Justice Task Force on Intellectual Property (IP Task Force) to stop the theft of intellectual property. Attorney General Eric Holder created the IP Task Force to combat the growing number of domestic and international intellectual property crimes, protect the health and safety of American consumers, and safeguard the nation’s economic security against those who seek to profit illegally from American creativity, innovation and hard work.  The IP Task Force seeks to strengthen intellectual property rights protection through heightened criminal and civil enforcement, greater coordination among federal, state and local law enforcement partners, and increased focus on international enforcement efforts, including reinforcing relationships with key foreign partners and U.S. industry leaders. To learn more about the IP Task Force, go to www.justice.gov/dag/iptaskforce .

This investigation was supported by the HSI-led National Intellectual Property Rights Coordination Center (IPR Center) in Washington. The IPR Center is one of the U.S. government’s key weapons in the fight against criminal counterfeiting and piracy. As a task force, the IPR Center uses the expertise of its 21 member agencies to share information, develop initiatives, coordinate enforcement actions and conduct investigations related to IP theft. Through this strategic interagency partnership, the IPR Center protects the public’s health and safety, the U.S. economy and our war fighters.