Southern District of New York
Press releases recorded for this federal judicial district.
Li Fangwei Charged in Manhattan Federal Court with Using A Web of Front Companies to Evade U.S. SanctionsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, John P. Carlin, Assistant Attorney General for National Security, and George C. Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that LI FANGWEI, who is more commonly known by his alias “Karl Lee,” is charged with violating the International Emergency Economic Powers Act (“IEEPA”) by using United States-based financial institutions to engage in millions of dollars of U.S. dollar transactions in violation of economic sanctions that prohibited such financial transactions. In addition, LI FANGWEI is also charged with conspiring to commit wire fraud and bank fraud, a money laundering conspiracy, two separate violations of IEEPA, and two separate substantive counts of wire fraud, in connection with such illicit transactions. LI FANGWEI, a national of the People’s Republic of China, is a fugitive.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Li Fangwei has used subterfuge and deceit to continue to evade U.S. sanctions that had been imposed because of his illicit trade in prohibited materials with Iran. Previously having been exposed as a violator of those sanctions, Li spun a web of front companies to carry out prohibited transactions essentially in disguise. He now stands charged with serious crimes, and millions of his dollars have been seized. It is the hope of this Office not only that Li’s banned commerce cease once and for all, but that he be apprehended and brought before the bar of American justice.”
Assistant Attorney General for National Security John P. Carlin said: “These charges are an important part of the all tools approach our government is taking against Li Fangwei to shut down and deny him the profit from his proliferation activities. This case is an outstanding example of multiple agencies working together to focus various enforcement efforts on the significant threat to our national security posed by such proliferation networks.”
FBI Assistant Director in Charge George C. Venizelos said: “Whether motivated by greed or otherwise, Li Fangwei allegedly ignored sanctions imposed by the United States Government and hid behind front companies he developed to engage in a series of illegal transactions, including attempts to acquire ‘dual use’ items on behalf of Iran-based entities. IEEPA makes it a crime to willfully violate U.S. sanctions on designated countries such as Iran. Individuals and companies who evade U.S. sanctions and misuse our banking system to further their illegal activity not only undermine the integrity of our financial markets but also threaten U.S. National Security interests. The FBI is committed to ensuring that strategically important goods and technology, particularly those that could be used in the production or delivery of weapons of mass destruction, do not end up in the wrong hands.”
According to the Superseding Indictment previously filed in Manhattan federal court and other court documents:
LI FANGWEI controls a large network of industrial companies based in eastern China, one of which is LIMMT Economic and Trade Company, Ltd. (“LIMMT”). Over the years, LI FANGWEI’s companies have done millions of dollars of business with Iran. This business has included selling to Iranian entities various metallurgical goods and related components that are banned for transfer to Iran by, among others, the United Nations, because the items are controlled by the Nuclear Supplier’s Group (a multinational group that maintains “control lists,” which identify nuclear-related dual-use equipment, material, and technology). LI FANGWEI has been, among other things, a long-time supplier to Iran’s Defense Industries Organization and Iran’s Aerospace Industries Organization. In addition, LI FANGWEI has been a principal contributor to Iran’s ballistic missile program through China-based entities that have been sanctioned by the United States.
In light of his supply of restricted items to Iran, the United States has imposed targeted sanctions on both LI FANGWEI and LIMMT. Specifically, the United States Department of the Treasury’s Office of Foreign Asset Controls (“OFAC”) publicly added LIMMT (in 2006) and LI FANGWEI (in 2009) to its List of Specially Designated Nationals and Blocked Persons (the “SDN List”). By virtue of their inclusion on the SDN List, LI FANGWEI and LIMMT were effectively precluded from conducting any business within the United States without first obtaining a license or authorization from OFAC. Neither LI FANGWEI nor LIMMT has sought such a license or authorization.
The above-referenced restrictions have forced LI FANGWEI to operate much of his business covertly. In response to United States sanctions, LI FANGWEI has built an outsized network of China-based front companies – to conceal his continuing participation, and LIMMT’s continuing participation, in sanctioned activities. The front companies are listed in Exhibit A to the Superseding Indictment. As shown in Exhibit A, many of those front companies have used the same address as LIMMT, or a close variant thereof.
During the period from 2006 through the present, LI FANGWEI has used front companies to engage in more than 165 separate U.S. dollar transactions, with a total value in excess of approximately $8.5 million. Included in those illicit transactions have been transactions involving sales to U.S. companies, sales of merchandise by LI FANGWEI to Iran-based companies utilizing the U.S. financial system, as well as attempts to acquire on behalf of Iran-based entities so-called “dual use” items from the United States, China, and other countries that could be used in the production of weapons of mass destruction and/or devices used to deliver weapons of mass destruction.
The U.S. Attorney’s Office and the FBI announced the seizure of over $6,895,000 in funds attributable to the LI FANGWEI front companies, and the filing of a civil complaint seeking the forfeiture of those funds to the United States. The seized funds are substitutes for money held by LI FANGWEI’s front companies at banks in China, and were seized from accounts at U.S. banks held in the name of foreign banks used by these front companies to conduct U.S. currency transactions (the “correspondent accounts”). The funds were seized pursuant to seizure warrants issued on December 18, 2013, and April 25, 2014. The $6,895,000 represents funds used by the LI FANGWEI front companies to engage in transactions that violate the U.S. sanctions laws and thus are subject to forfeiture. There are no allegations of wrongdoing by the U.S. or foreign banks that maintain these accounts. Because the funds used in those transactions are held in banks overseas, the United States is unable to seize the funds directly. However, pursuant to U.S. law, the United States can seize funds located in a bank’s correspondent accounts in the United States if there is probable cause to believe that funds subject to forfeiture are on deposit with that bank overseas. Based on this provision and others, the seizure warrants were executed. These funds were transferred to a seized asset account maintained by the United States Marshals Service pending resolution of the forfeiture action.
Based on information developed in the course of the FBI’s investigation into LI FANGWEI that forms the basis of the Superseding Indictment, OFAC today is adding eight additional front companies used by LI FANGWEI to its List of Specially Designated Nationals and Blocked Persons.
Finally, the United States Department of Commerce announced today the addition of nine China-based suppliers of LI FANGWEI to its Entity List.
The Superseding Indictment charges LI FANGWEI with seven separate offenses:
- Count One: Conspiracy to violate the International Emergency Economic Powers Act;
- Counts Two and Three: Substantive violations of the International Emergency Economic Powers Act;
- Count Four: Money laundering conspiracy;
- Count Five: Conspiracy to commit wire fraud and bank fraud; and
- Counts Six and Seven: Wire fraud.
If convicted, LI FANGWEI faces a maximum sentence of 20 years in prison on each of Counts One through Four and Counts Six and Seven, and 30 years in prison on Count Five. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.
The U.S. Department of State’s Transnational Organized Crime Rewards Program is offering a reward of up to $5 million for information leading to the arrest and/or conviction of LI FANGWEI.
Mr. Bharara praised the outstanding investigative efforts of the FBI and thanked the New York County District Attorney’s Office, which had charged LI FANGWEI and LIMMT in April 2009 for their use of front companies to commit books and records violations and to evade U.S. sanctions. Evidence developed by the New York County District Attorney’s Office greatly assisted the FBI's investigation of LI FANGWEI's more recent criminal conduct.
In addition, Mr. Bharara thanked the U.S. Department of Justice’s National Security Division Counterespionage Section, the U.S. Department of State, the U.S. Department of Treasury, and the U.S. Department of Commerce for their assistance in this matter.
The case is being handled by the Terrorism and International Narcotics Unit. Assistant United States Attorney Sean S. Buckley is in charge of the prosecution. Assistant United States Attorneys Micah W. J. Smith and Paul M. Monteleoni are in charge of the forfeiture aspects of the case.
The charges contained in the Superseding Indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Li Fangwei in Rem Complaint and S1 Indictment
Three Leaders of Citytime Fraud Scheme Each Sentenced in Manhattan Federal Court to 20 Years in PrisonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the leaders of the fraud, kickback, and money laundering scheme targeting the City of New York’s (the “City’s”) CityTime information technology project, were sentenced today in Manhattan federal court and ordered to forfeit millions of dollars in cash and property. MARK MAZER, who managed the CityTime project for the City and who was convicted of defrauding the City, receiving kickbacks while managing the project for the City, and laundering the proceeds of his crimes, was sentenced to 20 years in prison. GERARD DENAULT, who managed the project on behalf of the prime contractor on the project, Science Applications International Corporation (“SAIC”), and who was convicted of defrauding the City, defrauding SAIC of its right to DENAULT’s honest services, and laundering the proceeds of his crimes, was sentenced to 20 years in prison. DIMITRY ARONSHTEIN, who managed a subcontractor on the project and who was convicted of paying kickbacks to MAZER and working with MAZER to launder crime proceeds, was sentenced to 20 years in prison. MAZER, DENAULT, and ARONSHTEIN were sentenced today by U.S. District Judge George B. Daniels, who also presided over the defendants’ six-week jury trial in the fall of 2013. Judge Daniels also ordered that the defendants forfeit over $40 million in cash and property tied to their crimes.
Manhattan U.S. Attorney Preet Bharara said: “Today’s sentences punctuate an epic scheme by Mark Mazer, Gerard Denault, Dimitry Aronshtein, and others to steal millions of dollars through kickbacks and fraud from the City of New York, and then squirrel away the proceeds. These defendants are being justly punished – through lengthy sentences and forfeiture of over $40 million in cash and property – for orchestrating one of the largest and most brazen frauds ever committed against the City. This Office’s CityTime prosecutions have held accountable culpable individuals, as well as SAIC, the contractor at the center of the scheme, and through penalties and restitution of over $550 million, has made the City economically whole.”
According to the evidence introduced at trial, public filings, and statements made in court:
The CityTime project was a City initiative to modernize its timekeeping and payroll systems across City agencies. In 2000, SAIC became the lead contractor on CityTime, which at the time had a contract value of approximately $73 million. In 2003, SAIC appointed DENAULT as Program Manager on CityTime. DENAULT later became a Vice President of SAIC and head of SAIC’s New York office. SAIC, at the behest of DENAULT, hired Technodyne LLC (“Technodyne”) as a “single source” subcontractor to provide staffing services on the CityTime project, and repeatedly renewed Technodyne’s “single source” arrangement on the project.
Technodyne’s principals, Reddy Allen and Padma Allen, agreed to pay kickbacks to DENAULT and others in connection with the CityTime project, in exchange for obtaining what ultimately became over $325 million in work on CityTime as an SAIC subcontractor. In 2004, MAZER began managing the CityTime project for the City. Soon thereafter, he arranged with DENAULT for a company controlled by ARONSHTEIN, who is MAZER’s uncle, to become a subcontractor to Technodyne. MAZER used his power on the project to steer over $65 million in business to ARONSHTEIN’s company, and another $23 million in business to a company controlled by Victor Natanzon. In exchange for the business, ARONSHTEIN and Natanzon paid MAZER over $30 million in kickbacks, representing 80% of their net profits on the project. DENAULT received a $5 kickback from Reddy Allen and Padma Allen for every hour Technodyne billed to the City for labor. He also received an additional $2 per hour billed by ARONSHTEIN and Natanzon, resulting in total kickbacks to DENAULT of over $9 million.
Further, in order to maximize the amount of kickbacks they received, DENAULT and MAZER worked together to defraud the City into overpaying for the CityTime project by, among other things, inflating the rates charged for CityTime labor sourced through Technodyne, and overstaffing the project. MAZER also submitted fraudulent timesheets for consultants who had been fired or were on vacation. In part as a result of the fraud and kickback schemes, the costs of the CityTime project ballooned to over $620 million by the time the defendants were arrested in December 2010.
MAZER, DENAULT, and ARONSHTEIN also devised and carried out elaborate schemes to launder the proceeds of their crimes. DENAULT arranged for the kickbacks to be laundered through companies controlled by Padma Allen’s mother in India before being deposited into a shell entity account in the United States that he controlled. MAZER devised a scheme whereby ARONSHTEIN and Natanzon would launder money through shell company bank accounts controlled by Larisa Medzon, Anna Makovetskaya, and Svetlana Mazer. ARONSHTEIN also laundered millions of dollars through wire transfers to shell entity bank accounts located abroad and through other entities that he himself controlled.
In addition to the prison terms, MAZER, 50, of Manhasset, New York, ARONSHTEIN, 53, of Oceanside, New York, and DENAULT, 52, of Danbury, Connecticut, were each sentenced to three years of supervised release. The defendants were also ordered to forfeit $40 million.
These sentences follow a number of earlier developments in the case, including the guilty pleas of co-defendants Medzon, Makovetskaya, Svetlana Mazer, Carl Bell, and Natanzon; SAIC’s entry into a deferred prosecution agreement (“DPA”) in which it agreed to forfeit over $500 million to the United States; forfeiture of over $10 million in cash and property belonging to fugitive defendants Reddy Allen and Padma Allen; and payment of record restitution to the City of over $466 million, which, along with cancellation of $40 million in debt owed to SAIC, brings the total amount recovered for the City’s taxpayers as a result of the investigation and prosecution to over $500 million. The charges contained in the Indictment against Reddy and Padma Allen are merely accusations and they are presumed innocent unless and until proven guilty.
The sentencings of Medzon, Makovetskaya, and Svetlana Mazer are scheduled to take place before Judge Daniels on June 24, 2014 at 10:00 a.m. The sentencings of Natanzon and Bell have not yet been scheduled.
Mr. Bharara thanked and praised the New York City Department of Investigation (“DOI”) for its outstanding work on the case.
The case is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Howard S. Master and Andrew D. Goldstein are in charge of the investigation.
Investment Manager Principal of WG Trading Company, LP and WG Trading Investors Pleads Guilty in Manhattan Federal Court to Several-Hundred-Million-Dollar Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEPHEN WALSH, an investment manager and principal of WG Trading Company, LP (“WG Trading Company”) and WG Trading Investors, pled guilty today in Manhattan federal court to securities fraud. WALSH and his partner Paul Greenwood ran a fraudulent commodities trading and investment advisory scheme that raised billions of dollars, misappropriated hundreds of millions of those dollars for their own personal benefit, and then created false promissory notes and account statements to conceal their theft. WALSH was originally charged in February 2009, and he pled guilty today before United States Magistrate Judge Kevin Nathaniel Fox.
Manhattan U.S. Attorney Preet Bharara said: “Stephen Walsh and his partner Paul Greenwood ran an investment operation that was a veritable money-making machine – for them. Their purported investing strategy wasn’t nearly as effective as their fraudulent sales pitch to investors. Walsh personally pocketed tens of millions in stolen investor dollars. He will soon surrender his money and himself to answer for this fraud.”
According to the Indictment, other documents filed in Manhattan federal court, and statements made during court proceedings:
From at least 1996 through February 2009, WALSH and Greenwood solicited $7.6 billion in investor funds on the understanding that they would invest the funds in a program called “equity index arbitrage,” which they represented was a conservative trading strategy that had outperformed the results of the S&P 500 Index for more than 10 years. As a result, several institutional investors – including charitable and university foundations, and retirement and pension plans – invested billions of dollars. Investors either became limited partners in WG Trading Company or received promissory notes issued by WG Trading Investors that WALSH and Greenwood represented would pay interest at a rate equal to the investment returns earned by a limited partner of WG Trading Company.
Contrary to their representations to investors, WALSH and Greenwood misappropriated hundreds of millions of dollars in investor funds for their own personal use, and to satisfy obligations on investments that were unrelated to the “equity index arbitrage” trading business. Among other things, WALSH used the funds to finance his lifestyle, to make payments to his ex-wife totaling millions of dollars pursuant to their divorce settlement, and to finance business ventures of his children.
WALSH and Greenwood executed promissory notes in favor of WG Trading Investors, partly to conceal trading losses and their misappropriation of investor funds. These promissory notes totaled approximately $554 million, of which approximately $261 million were payable by WALSH to WG Trading Investors. These notes materially misstated the financial condition of WG Trading Company and misled investors. WALSH and Greenwood also created and caused others to create false account statements that were sent to clients to reflect fictitious returns consistent with the returns that had been promised to those clients.
WALSH, 69, of Sands Point, New York, pled guilty to Count Two of the Indictment, which charges him with securities fraud. This charge carries a maximum penalty of 20 years in prison. Pursuant to a plea agreement, WALSH agreed to entry of a forfeiture order in the amount of $50,743,779, which represents the amount of funds that WALSH misappropriated and by which he personally profited from the fraud. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
On July 21, 2009, Deborah Duffy, the former Chief Compliance Office of WG Trading Company, pled guilty to conspiracy, securities fraud, and money laundering for her role in the fraud scheme. On July 28, 2010, Greenwood, a managing general partner of WG Trading Company, pled guilty to conspiracy, securities fraud, commodities fraud, wire fraud, and money laundering for his role in the fraud scheme. Sentencing dates for Duffy and Greenwood have not yet been set.
Mr. Bharara praised the work of the Federal Bureau of Investigation, and thanked the United States Securities and Exchange Commission, the United States Commodity Futures Trading Commission, and the National Futures Association, for their assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John J. O’Donnell, Jessica A. Masella, and Benjamin A. Naftalis are in charge of the prosecution.
U.S. v. Stephen Walsh & Paul Greenwood Indictment
Tax Preparer Sentenced in Manhattan Federal Court to 102 Months in Prison for Filing False Tax Returns and Aggravated Identity TheftRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MAHAMADOU DAFFE, a tax preparer in Queens, New York, was sentenced today in Manhattan federal court to 102 months in prison for his participation in a conspiracy to steal government funds, theft of government funds, conspiracy to file false claims, wire fraud, and aggravated identity theft in connection with the preparation and filing of nearly 1,000 false income tax returns submitted online using stolen identities. DAFFE was also sentenced today in connection with his participation in a conspiracy to steal government funds, theft of government funds, and conspiracy to file false claims in connection with his use of stolen children’s identities to claim false dependents on his clients’ income tax returns. DAFFE was found guilty in January 2014 after a one-week trial before U.S. District Judge Naomi Reice Buchwald.
Manhattan U.S. Attorney Preet Bharara stated: “Tax preparer Mahamadou Daffe orchestrated schemes to file false returns on behalf of his clients and used stolen identities to deceive the IRS, all for his own unjust enrichment. His unscrupulous practices and flagrant violation of the law have now been justly punished.”
According to the Indictment, as well as evidence presented at DAFFE’s trial:
From 2008 through January 2013, DAFFE engaged in two separate schemes to defraud the Internal Revenue Service (“IRS”). DAFFE filed false tax returns for his tax preparation clients, in which he caused those clients to claim as dependents children who were in fact total strangers to them, and whose identities DAFFE stole. In exchange, DAFFE collected $1,000 per return.
In another scheme, during the same time frame, DAFFE used stolen identities to file hundreds of false tax returns, supported by bogus Forms W-2, through an online tax preparation service intended for use by individual taxpayers. He then funneled the resulting refunds into numerous bank accounts he controlled—accounts in his own name, the names of co-conspirators, and the names of aliases DAFFE and his co-conspirators used. DAFFE’s crimes resulted in a loss to the IRS of more than $1.5 million, during which he attempted to steal more than $4.5 million from the Government.
In addition to the prison term DAFFE, 31, of Queens, New York, was also sentenced to three years of supervised release.
Mr. Bharara praised the investigative work of the Internal Revenue Service, Criminal Investigation, and thanked the IRS for its assistance.
This case is being handled by the Office’s General Crimes Section. Assistant U.S. Attorneys Carolina A. Fornos and Sarah E. McCallum are in charge of the prosecution.
Operator of 18 Chinese-Language Child Pornography Websites Sentenced to 210 Months in PrisonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that YONG WANG was sentenced today in Manhattan federal court to 210 months in prison for advertising in connection with the sexual exploitation of children through 18 Chinese-language child pornography websites he owned and operated. WANG pled guilty in May 2013 and was sentenced today by U.S. District Judge Paul G. Gardephe.
Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence, Yong Wang will be punished – with a loss of his liberty – for earning a living at the expense of innocent children by operating a vast network of illicit child pornography websites from the comfort of his home. Those who conduct businesses that capitalize on the sexual exploitation of children should understand that this Office and its law enforcement partners have no tolerance for such operations and are actively working to shut them down.”
According to documents filed in Manhattan federal court and statements made in related court proceedings:
WANG maintained 18 Chinese-language websites out of his apartment in Flushing, New York. Members of the websites could access numerous links to an extensive child pornography collection that included images and videos of children exposing their genitals, engaging in sexually explicit conduct with adults, and in sadistic and/or masochistic depictions. To access the websites, individuals had to purchase a “VIP membership” or accumulate a certain number of points. WANG charged customers $25 for a quarterly membership and $100 for a lifetime membership. Undercover FBI agents registered for a VIP membership with WANG and gained access to one of the websites entitled - in Chinese - “Empire of the Young and Innocent Fragrances.” On the website, users were directed to different forums with links that were titled with descriptive names, such as “Young Young Empire,” “Young Girl Beauty Photos Military Region,” “Young Boy Movie Zone,” and “Exclusive Quality Young Girl Photos Set.” WANG made in excess of $700,000 in connection with his operation of these websites.
In addition to the prison term, WANG, 28, a citizen of China who resided in Flushing, New York, was ordered to pay $750,000 in forfeiture, representing the proceeds he obtained from operating the child pornography websites, and a $250,000 fine.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the Chinese Ministry of Public Security for their cooperation and assistance.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Rosemary Nidiry is in charge of the prosecution and Assistant U.S. Attorney Alexander Wilson is in charge of the forfeiture aspects of the case.
New York City Employee Charged in Manhattan Federal Court with Medicaid FraudRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Mark G. Peters, the Commissioner of the New York City Department of Investigation (“DOI”), announced today the arrest of AKIM MURRAY, an employee of the Medicaid Reimbursement Unit of the New York City Human Resources Administration (“HRA”), for Medicaid fraud. The Complaint alleges that MURRAY, an HRA Eligibility Specialist whose job involved issuing reimbursements for Medicaid-eligible expenses, manipulated the system in order to have hundreds of thousands of dollars’ worth of checks issued to his friends and criminal associates, who in turn gave him a substantial cut of the proceeds. MURRAY was taken into custody this morning, and is expected to be presented this afternoon in Manhattan federal court before Chief U.S. Magistrate Judge Kevin Nathaniel Fox.
Manhattan U.S. Attorney Bharara said: “Akim Murray was supposed to make sure that Medicaid benefits went to people eligible for the program. Instead, as alleged, Murray abused his position as a New York City employee and diverted hundreds of thousands of dollars earmarked for people in need to line his own pockets and those of his friends. Such abuses cannot and will not be tolerated by this Office and our law enforcement partners.”
FBI Assistant Director-in-Charge Venizelos said: “As alleged in the complaint, Murray used his position as an HRA Eligibility Specialist to profit off of a system designed to help those in financial distress obtain medical assistance. Health care fraud increases costs for everyone, wastes tax dollars, and destroys the integrity of our health care system. The FBI, along with our federal, state and local law enforcement partners, is committed to investigating this type of fraud and hold accountable those who take advantage of our government health care programs.”
DOI Commissioner Peters said: “This public servant used Medicaid benefits as a treasure trove to enrich himself and his cohorts, creating an intricate criminal network of kickbacks, according to the charges. This investigation shows that gaming the system to siphon public funds away from eligible individuals will only lead to arrest.”
According to the allegations in the Complaint unsealed today in Manhattan federal court:
Medicaid is a federally-funded program designed to provide low-income families with affordable health care. The New York City Human Resources Administration oversees the program and processes applications from New York City residents. Under Medicaid, individuals who successfully apply for Medicaid coverage can be reimbursed for eligible expenses submitted in the approximately three-month period prior to the application (“Pre-Enrollment Services”). In order to be reimbursed for Pre-Enrollment Services, the successful Medicaid applicant requesting reimbursement must provide proof that he or she made eligible health care payments out of pocket before applying for Medicaid. City employees known as Eligibility Specialists, working for HRA’s Medicaid Reimbursement Unit, receive and process requests for reimbursement using a computer system, and make recommendations for HRA supervisors as to whether a request should be approved.
From at least July 2009 until September 2010, MURRAY, an HRA Eligibility Specialist, exploited loopholes in HRA’s computer systems to both recommend and then separately approve the issuance of Medicaid reimbursement checks without meaningful oversight. MURRAY used the personal identifying information of his co-conspirators to create and unilaterally approve requests for reimbursement checks in their names. When the checks were sent to his friends and other associates, MURRAY demanded that they cash the checks and give him between 50-70% of the proceeds. MURRAY approved hundreds of thousands of dollars in Medicaid reimbursement requests without proper oversight.
MURRAY, 52, of New York, New York, is charged with one count of conspiracy to commit mail fraud and health care fraud, one count of mail fraud, and one count of health care fraud, which carry maximum sentences of 20 years, 20 years, and 10 years in prison, respectively. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
Mr. Bharara thanked and praised the DOI and the FBI’s Health Care Fraud Task Force for their work in this investigation, which he noted is ongoing. The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force comprises agents, officers, and investigators from the FBI, NYPD, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, New York State Attorney General’s Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.
This case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorney Martin S. Bell is in charge of the prosecution.
The charges contained in the Complaint are merely accusations and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Akim Murray Complaint
Four More Individuals Charged in Manhattan Federal Court with Participating in A Multi-State Robbery Crew That Used Violence, Including Firearms, to Steal More Than $1 Million in Luxury WatchesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, the Police Commissioner of the City of New York (“NYPD”), announced the unsealing of a seven-count Superseding Indictment yesterday charging eight members of a robbery crew operating across New York, New Jersey, Virginia, and Connecticut with robbery conspiracy and robberies of high-end jewelry and watch stores using violence, including firearms, and resulting in the theft of more than one million dollars in watches and other goods.
The Superseding Indictment charges SEAN ROBINSON, 42, ALLEN WILLIAMS, 35, ROBERTO GRANT, 33, TERRELL RATLIFF, 22, TYRONE DEHOYOS, 35, RALIK HANSEN, 28, RONALD MCINTYRE, 36 and KENDAL THOMPSON, 30, with robbery conspiracy, substantive robbery, and firearms offenses. Five of the defendants – WILLIAMS, GRANT, RATLIFF, DEHOYOS, and THOMPSON – were previously arrested and detained pending trial. Yesterday, ROBINSON was arrested in Brooklyn, New York, and McINTYRE was transferred into federal custody, and both were arraigned before Judge Robert P. Patterson and detained pending trial. HANSEN remains wanted by the FBI and is considered to be armed and dangerous.
According to the allegations contained in the Superseding Indictment, other court documents previously filed in federal court, and statements made in Court yesterday:
Between approximately July 1, 2013, and January 30, 2014, a highly organized crew engaged in a series of violent robberies of high-end jewelry and watch stores located in four states, smashed display cases with hammers, while customers and employees were in the stores, and stole more than one million dollars in luxury watches. The crew used violence as necessary to carry out the scheme. For example, during one robbery in September 2013 in Brooklyn, New York, two of the robbers displayed handguns, and a store owner was shot when he attempted to prevent members of the crew from fleeing with their stolen watches. In another robbery in August 2013 in Richmond, Virginia, the robbers used a handheld stun gun to subdue a female store employee before fleeing with more than a $100,000 in watches.
Among the stores robbed by the crew are: Cartier in Manhattan, New York; the Borgata Hotel and Casino in Atlantic City, New Jersey; Schwarzschild’s Jewelers in Richmond, Virginia; Martin Jewelers in Cranford, New Jersey; Henry Reid and Sons Jewelers in New Canaan, Connecticut, and Litan Jewelers in Brooklyn, New York.
Mr. Bharara praised the investigative work of the FBI and the NYPD. He also thanked the police departments of Cranford, New Jersey; Atlantic City, New Jersey; Richmond, Virginia; and New Canaan, Connecticut, and the Manhattan and Brooklyn District Attorneys’ Offices, and the Union County, New Jersey, Prosecutor’s Office, for their assistance in the investigation, which he noted is ongoing.
The case is being prosecuted by the Office’s General Crimes Unit. Assistant United States Attorneys Andrea Griswold and Richard Cooper are in charge of the prosecution.
The charges contained in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty. The maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.
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U.S. v. Allen Williams et al. S3 Indictment
Bronx Contractor Pleads Guilty in Manhattan Federal Court to Defrauding New York State’S Low-Income Cancer Screening ProgramRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSEPH L. JUNKOVIC, a contractor who administered cancer screening services for low-income New Yorkers, pled guilty today to defrauding the New York State Department of Health (“NYSDOH”). JUNKOVIC pled guilty before U.S. District Judge Katherine B. Forrest.
Manhattan U.S. Attorney Preet Bharara said: “Joseph Junkovic used his contract position with the New York State Department of Health to enrich himself and cheat the public out of hundreds of thousands of dollars intended for low-income New Yorkers in need of potentially lifesaving services. With today’s guilty plea, Junkovic will be made to pay for short-term financial gain by a likely term in federal prison.”
According to the allegations made in previously filed Court papers and statements made at today’s plea proceeding:
From April 2008 through September 2011, JUNKOVIC used a not-for-profit corporation that he controlled, Cancer Service Network, Inc. (“CSN”), to obtain more than 18 separate contracts with NYSDOH to provide cancer screening services for indigent New Yorkers. CSN, however, was merely a pass-through organization run out of JUNKOVIC’s home in the Bronx, and JUNKOVIC directed the monies CSN received from NYSDOH to administer the cancer screening programs to his personal consulting company, JLJ Consulting Group, Ltd. (“JLJ”). In billing NYSDOH for his services, JUNKOVIC submitted separate invoices for each contract listing the total number of hours he claimed to have worked each month. When added together, JUNKOVIC frequently billed NYSDOH for well more than 600 hours per month – more than 140 hours per week (20 hours a day, including Saturdays and Sundays) – for his purported services, even while he was frequently on vacation or spending thousands of dollars at various casinos.
For some months, JUNKOVIC claimed he had worked so many hours on multiple contracts simultaneously that he billed a total of more than 24 hours a day for his services. On other occasions, he claimed he worked hundreds of hours while he was overseas. For example, for the month of August 2010, CSN billed NYSDOH for more than 590 hours of JUNKOVIC’s time, even though travel and bank records show that JUNKOVIC traveled to Vienna, Austria, on August 6, 2010 and did not return until August 30, 2010.
As part of his plea agreement, JUNKOVIC admitted to causing more than $360,000 in losses to NYSDOH.
JUNKOVIC, 49, of the Bronx, New York, pled guilty to one count of making false statements in connection with a health care program and faces a maximum sentence of five years in prison. As part of the plea agreement, JUNKOVIC has agreed to forfeit $360,556, and to pay restitution to the State of New York an amount up to $360,556. JUNKOVIC is scheduled to be sentenced by Judge Forrest on July 30, 2014, at 1:00 p.m. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of the Office of the New York State Comptroller.
This case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Andrew D. Goldstein is in charge of the prosecution.
U.S. v. Nick A. Jodha Information
Pearl River Man Sentenced to Ten Years in PrisonFor the Illegal Distribution of Oxymorphone Causing the Overdose Death of Two Young MenRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and James J. Hunt, the Acting Special Agent-in-Charge of the New York Field Division of the U.S. Drug Enforcement Administration (“DEA”), announced that CRAIG OLEKSOWICZ was sentenced today by U.S. District Judge Edgardo Ramos in Manhattan federal court to 120 months’ imprisonment. OLEKSOWICZ’s criminal conduct, for which he was sentenced, included illegally distributing oxymorphone, a Schedule II controlled substance, the use of which caused the July 2011 and October 2011 deaths of another individual, two young men in Pearl River, New York.
U.S. Attorney Bharara stated: “The illegal distribution of highly-addictive and dangerous prescription pills is the fastest-growing drug problem in the country. Painkillers that Craig Oleksowicz illegally dealt led to the overdose death of two young men. Today’s sentence of ten years in prison for Oleksowicz’s crimes shows how seriously this Office takes this public health epidemic.”
According to the Information, to which OLEKSOWICZ pled guilty, statements made during the plea and sentencing proceedings or associated court filings:
OLEKSOWICZ, 38, of Pearl River, New York, used worker’s compensation benefits to pay for prescriptions of oxymorphone, codeine, methadone, and other medications. Between at least February 2011 and October 2011, OLEKSOWICZ and others regularly distributed OLEKSOWICZ’s prescription oxymorphone pills for profit. Oyxmorphone is a powerful painkiller with a high potential for addiction and abuse, and its improper use may lead to fatality. Indeed, in July 2011 and in October 2011, the use of oxymorphone pills supplied by OLEKSOWICZ caused the overdose death of two young men, aged 20 and 21, respectively, both residents of Pearl River. In the months following those deaths, OLEKSOWICZ continued his illegal distribution of pills, selling codeine, methadone, and Valium pills for profit on at least four separate occasions in February 2012.
Mr. Bharara praised the investigative efforts of the DEA, the Westchester County Department of Public Safety, the Rockland County Drug Task Force, and the Orangetown Police Department.
The case is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Christopher J. DiMase and Abigail Kurland are in charge of the prosecution.
Three Defendants Charged in Manhattan Federal Court in Connection with $33 Million Art Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Shantelle P. Kitchen, the Acting Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the unsealing of a twelve-count Indictment charging JOSE CARLOS BERGANTINOS DIAZ, JESUS ANGEL BERGANTINOS DIAZ, and PEI SHEN QIAN with orchestrating a $33 million scheme to create and sell paintings that they pretended were painted by world-famous artists but were, in fact, created by QIAN. The Indictment further charges JOSE CARLOS BERGANTINOS DIAZ and JESUS ANGEL BERGANTINOS DIAZ with laundering the proceeds of the fraud, and charges JOSE CARLOS BERGANTINOS DIAZ with hiding international bank accounts and millions of dollars in illicit income from the IRS. QIAN is also charged with lying to FBI agents investigating the scheme. JESUS ANGEL BERGANTINOS DIAZ and JOSE CARLOS BERGANTINOS DIAZ were arrested on April 14, 2014, and April 18, 2014, respectively, in Spain, and QIAN is believed to be located in China. The case has been assigned to U.S. District Court Judge Sidney H. Stein.
Manhattan U.S. Attorney Preet Bharara said: “Today’s charges paint a picture of perpetual lies and greed. As alleged, the defendants tricked victims into paying more than $33 million for worthless paintings which they fabricated in the names of world-famous artists. The Bergantinos Diaz brothers then laundered and hid their illegal proceeds overseas. With today’s Indictment, the defendants must now answer for their alleged roles as modern masters of forgery and deceit.”
FBI Assistant Director-in-Charge Venizelos said: “As alleged, a meeting on a New York street corner would lead to a worldwide art fraud scheme that netted the defendants more than $33 million over two decades. The charges announced today show the many facets the conspirators went through to peddle fraudulent creations as famous artwork to be sold for a large profit. These charges also show the FBI’s commitment to investigate and bring to justice those who use fraud as a means to make money.”
IRS Special Agent-in-Charge Shantelle Kitchen said: “This indictment represents a significant accomplishment in the unravelling of a major international art fraud conspiracy with underlying complex financial criminal activity. The Internal Revenue Service has made international tax administration a top priority and this investigation illustrates the government's resolve in uncovering, investigating and prosecuting tax evasion and money laundering schemes with international implications. Furthermore, it reminds the public that the proceeds from illegal sales, in this case, the sale of counterfeit paintings, can be taxable.”
According to the allegations contained in the Indictment unsealed today in Manhattan federal court:
From the early 1990’s through at least June 2009, JOSE CARLOS BERGANTINOS DIAZ, JESUS ANGEL BERGANTINOS DIAZ, PEI SHEN QIAN, and Glafira Rosales engaged in a scheme to create and sell paintings that they pretended were painted by world-famous abstract expressionist artists, including Mark Rothko, Jackson Pollock, Willem de Kooning, Richard Diebenkorn, Robert Motherwell, Barnett Newman, Sam Francis, and Franz Kline, among others (the “Fake Works”). By knowingly and falsely claiming that the Fake Works were painted by these famous artists, JOSE CARLOS BERGANTINOS DIAZ, JESUS ANGEL BERGANTINOS DIAZ, QIAN, and Rosales were able to trick purchasers into paying tens of millions of dollars in total for many of the Fake Works which, as the defendants and Rosales well knew, were essentially worthless. In fact, the Fake Works were created by QIAN, with guidance from Rosales and the other defendants.
JOSE CARLOS BERGANTINOS DIAZ first met QIAN on a street corner in Manhattan, where QIAN was selling paintings. Thereafter, QIAN created the Fake Works at the request of, and in exchange for payments from, JOSE CARLOS BERGANTINOS DIAZ, JESUS ANGEL BERGANTINOS DIAZ, and Rosales.
JOSE CARLOS BERGANTINOS DIAZ purchased canvases of old paintings at flea markets, and stained newer canvases with tea bags, which he gave to QIAN to create the Fake Works, and thereby create the false appearance that the Fake Works had been created decades earlier. In addition, JOSE CARLOS BERGANTINOS DIAZ, JESUS ANGEL BERGANTINOS DIAZ, and Rosales created false provenances (i.e., historical ownership records) for particular Fake Works in order to dupe purchasers into believing that those Fake Works were painted by particular famous artists, instead of by QIAN. All told, the defendants earned more than $33 million from the scheme to create and sell the Fake Works.
Further, to conceal the illegal nature and origin of the proceeds from the scheme, JOSE CARLOS BERGANTINOS DIAZ, JESUS ANGEL BERGANTINOS DIAZ, and Rosales laundered the fraud proceeds by transferring them through foreign and domestic bank accounts that they controlled. JOSE CARLOS BERGANTINOS DIAZ also hid over $7 million of his illicit income from the IRS and knowingly failed to report the existence of his foreign bank accounts, as required by law.
Finally, during an interview with FBI agents investigating the scheme, QIAN falsely claimed, among other things, that he did not recognize Rosales’s name, that QIAN was unfamiliar with the names of certain artists (including artists whose names QIAN had repeatedly signed on paintings he created in order to trick purchasers into believing those artists had created the paintings), and that QIAN had never attempted to create paintings mimicking the style of certain abstract expressionist artists.
JOSE CARLOS BERGANTINOS DIAZ, 58, of Sands Point, New York, is charged with one count of conspiracy to commit wire fraud, one count of wire fraud, one count of conspiracy to commit money laundering, and one count of money laundering, each of which carries a maximum sentence of 20 years in prison. He is also charged with one count of conspiracy to defraud the IRS, which carries a maximum sentence of five years in prison, three counts of filing false tax returns, each of which carries a maximum sentence of three years in prison, and four counts of willful failure to file a Report of Foreign Bank and Financial Accounts, each of which carries a maximum sentence of five years in prison.
JESUS ANGEL BERGANTINOS DIAZ, 65, of Lugo, Spain, is charged with one count of conspiracy to commit wire fraud, one count of wire fraud, one count of conspiracy to commit money laundering, and one count of money laundering.
PEI SHEN QIAN, 75, of Queens, New York, is charged with one count of conspiracy to commit wire fraud and one count of wire fraud. He is also charged with one count of making false statements to agents of the FBI, which carries a maximum of five years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Rosales was previously charged in Indictment 13 Cr. 518. On September 16, 2013, Rosales pled guilty to all nine counts of the Indictment. Rosales awaits sentencing before the U.S. District Judge Katherine P. Failla.
Mr. Bharara praised the outstanding efforts of the FBI and IRS-CI in the investigation, which he noted is ongoing.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Jason P. Hernandez and Stanley J. Okula, Jr., are in charge of the prosecution.
The charges and allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Bergantinos Diaz, et al. Indictment
New York-Based Marijuana Trafficker Convicted in Manhattan Federal Court of Racketeering and Narcotics Conspiracy ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that OSCAR RODRIGUEZ, 36, was convicted yesterday in Manhattan federal court of racketeering conspiracy and marijuana trafficking charges. As a result of his conviction, RODRIGUEZ faces a mandatory minimum sentence of twenty years in prison and a maximum sentence of life in prison.
Manhattan U.S. Attorney Preet Bharara said: “A jury has convicted Oscar Rodriguez of the crimes he committed as a key member of a murderous, narcotics-trafficking organization. The neighborhoods in Washington Heights that Rodriguez and his organization terrorized for over a decade are safer as a result of his conviction, and the conviction of over 50 other Rodriguez Enterprise members and associates in related cases brought by our Office. These prosecutions exemplify the positive difference that federal and local law enforcement, working together, can make in the everyday lives of the citizens in our communities.”
RODRIGUEZ’s charges arose out of a multi-year investigation titled “Operation Green Venom,” a coordinated multi-agency investigation that was led by ICE HSI and first announced in October 2010. With his conviction, a total of more than 50 defendants have been convicted in United States v. Manuel Geovanny Rodriguez-Perez, et al., 10 Cr. 905 (LTS), and related cases. Those defendants include former Rock-a-fella music founder Kareem Burke, a/k/a “Biggs,” who received a sentence of five years in prison, and High Times Magazine editor Matthew Woodstock Stang, a/k/a “Magazine Guy.”
According to the Indictment and the evidence at trial, OSCAR RODRIGUEZ was a member of the “Rodriguez Enterprise,” a massive racketeering organization whose members sold large quantities of marijuana, engaged in murders and other violent acts, transported and laundered millions of dollars, obstructed justice and committed perjury, and engaged in firearms offenses. The leader of the Rodriguez Enterprise was Manuel Geovanny Rodriguez-Perez, OSCR RODRIGUEZ’s cousin. OSCAR RODRIGUEZ worked closely with Rodriguez-Perez for over a decade, trafficking truckloads of marijuana, managing a lucrative block in Washington Heights, Manhattan, perpetrating violent assaults – including the near-fatal assault of his own employee – and participating in a plot to uncover and remove the body of another employee murdered by members of the Rodriguez Enterprise. OSCAR RODRIGUEZ participated in these acts on behalf of the Rodriguez Enterprise from at least 1996 through his arrest on October 14, 2010.
RODRIGUEZ, 36, was convicted of one count of narcotics conspiracy, which carries a mandatory minimum sentence of 20 years in prison and a maximum sentence of life in prison, and one count of racketeering conspiracy, which carries a maximum sentence of life in prison. The maximum potential sentences in this case are prescribed by Congress and are provided for informational purposes only, as any sentencing of the defendant will be determined by the Court.
Mr. Bharara praised the outstanding investigative work of ICE HSI and the NYPD. He also thanked the U.S. Drug Enforcement Administration; the U.S. Marshals Service; the Bergen County, New Jersey, Prosecutor’s Office; the Englewood, New Jersey, Police Department; the U.S. Department of Housing and Urban Development; the City of New York Department of Investigation; and the New York County District Attorney’s Office for their assistance. Mr. Bharara added that the investigation is continuing.
The prosecution of the cases arising from “Operation Green Venom” is being overseen by the Office’s Violent Crimes Unit. Assistant U.S. Attorneys Amie N. Ely and Andrew C. Adams are in charge of the prosecution. Assistant U.S. Attorney Adams is also responsible for forfeiture proceedings in connection with this case.
U.S. v. Oscar Rodriguez Indictment
Manhattan U.S. Attorney Announces Settlement Relating to Iranian-Owned Manhattan Office Tower That Will Provide Recovery to Terrorism VictimsRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, announced today that the United States entered into a settlement agreement with the holders of terrorism-related judgments against the Government of Iran (the “Judgment Creditors”) concerning properties (the “Defendant Properties”) found to have been forfeited by the entities that served as fronts for the Government of Iran, in violation of federal law. The Defendant Properties include a 36-story office building located at 650 Fifth Avenue (the “Building”), several other properties in California, Virginia, Texas, Maryland, and Queens, New York, and the contents of several bank accounts formerly in the name of entities that served as fronts for the Government of Iran. Under the settlement, which was approved by U.S. District Judge Katherine B. Forrest today, the real estate Defendant Properties will be sold by the United States Marshals Service, with the net sale proceeds, along with the contents of the bank accounts, distributed to the signatory Judgment Creditors according to an agreed-upon distribution. Of the 20 judgment creditors who were parties to the litigation, this settlement resolves the case as to all but one of them. The settling Judgment Creditors include the families and estates of victims of the 1983 terrorist bombings of U.S. Marine Barracks in Beirut, the 1996 terrorist bombing of the Khobar Towers in Saudi Arabia, and terrorist attacks in Israel and elsewhere.
This settlement follows Judge Forrest’s September 11, 2013, order, in which she found that the Building is forfeitable to the United States, and Judge Forrest’s order of March 28, 2014, in which she found that the remaining Defendant Properties are forfeitable to the United States and that the Judgment Creditors should also prevail in their claims against the entities that served as fronts for Iran.
Manhattan U.S. Attorney Bharara said: “From the very beginning of this case, this Office sought to dismantle Iran’s slice of Manhattan – an office tower on Fifth Avenue – both to end Iran's illegal sanctions-violation and money-laundering schemes and to provide a means of compensating victims of Iranian-sponsored terrorism. With this settlement, we have taken an important step toward completing what will be the largest ever terrorism-related forfeiture and providing a substantial recovery for victims of terrorism.”
According to the settlement papers, the amended civil forfeiture Complaint, and the opinions issued by Judge Forrest in this case:
The Alavi Foundation has been providing numerous services to the Iranian Government, including managing the Building for the Iranian Government, running a charitable organization for the Iranian Government, and transferring funds from 650 Fifth Avenue Company to Bank Melli Iran (“Bank Melli”), a bank wholly owned and controlled by the Government of Iran. Likewise, Assa Corporation and Assa Company Limited (“Assa Co. Ltd.”) have been providing numerous services to Bank Melli in contravention of the International Emergency Economic Powers Act (“IEEPA”) and the Iranian Transactions Regulations, including transferring rental income generated from 650 Fifth Avenue Company to Bank Melli, following Bank Melli’s instructions with regard to Assa Corporation’s affairs, reporting back to Bank Melli on Assa Corporation’s financial situation and business dealings, and managing the affairs of Assa Corporation for the benefit of Bank Melli.
The Building was constructed in the 1970s by the Pahlavi Foundation, a non-profit organization operated by the Shah of Iran to pursue Iran’s charitable interests in the United States, and was financed by a substantial loan from Bank Melli.
After the 1979 Iranian revolution, the Islamic Republic of Iran established the Bonyad Mostazafan, also known as the Bonyad Mostazafan va Janbazan (“Bonyad Mostazafan”), to centralize, take possession of, and manage property expropriated by the revolutionary government. The Bonyad Mostazafan is controlled by the Government of Iran, and reports directly to the Ayatollah. The Bonyad Mostazafan sought to take control of the Shah’s property, including the assets of the Pahlavi Foundation. Between approximately October 1978 and approximately October 1979, all five previous directors of the Pahlavi Foundation resigned, and four new directors took their places. On February 25, 1980, an amended Certificate of Incorporation for the Pahlavi Foundation was filed renaming the Foundation “The Mostazafan Foundation of New York.” The Mostazafan Foundation of New York later renamed itself the Alavi Foundation.
The Government of Iran’s Involvement in the Management of the Building
In 1989, the Alavi Foundation and Bank Melli formed a partnership, 650 Fifth Avenue Company, in order to avoid paying federal taxes on rental income from the Building. Bank Melli’s ownership interest in 650 Fifth Avenue Company, however, was disguised through the creation of two shell companies. The Alavi Foundation transferred 35 percent of 650 Fifth Avenue Company to Assa Corporation, an entity wholly owned by Assa Co. Ltd. Assa Co. Ltd. is a Jersey, Channel Islands, United Kingdom, entity owned by Iranian citizens who represent the interests of Bank Melli. In conjunction with the transfer of the 35 percent interest in 650 Fifth Avenue Company to Assa Corp., Bank Melli cancelled its loan on the Building. Today, the Alavi Foundation owns 60 percent of 650 Fifth Avenue Company, and Bank Melli owns 40 percent of 650 Fifth Avenue Company, through Assa Corp. and Assa Co. Ltd.
The decision to convert Bank Melli’s mortgage on the Building into a partnership interest in 650 Fifth Avenue Company was discussed and approved by high-level Iranian Government officials. Among others, the head of the Bonyad Mostazafan (also the Deputy Prime Minister of Iran), the Office of the Prime Minister of Iran, the director of the Central Bank of Iran, and the general director of Bank Melli, as well as other Bonyad Mostazafan and Bank Melli officials, discussed and approved the partnership between the Alavi Foundation and Bank Melli. After the Alavi Foundation and Assa Corporation entered into the 650 Fifth Avenue Company partnership agreement, a Bonyad Mostazafan official forwarded the agreement to a Bank Melli official, noting that “the partnership is based on prior agreements between the Ministry of Finance, Bank Melli, and the Bonyad Mostazafan, with the only change being the building will be valued at two million dollars less than as previously agreed . . . .”
The Iranian Government’s control of the Alavi Foundation has continued. In 1989, Kamal Kharrazi was named as the new Iranian Ambassador to the United Nations. As a result of tension between the new Ambassador and the Alavi Foundation president, the Ambassador eventually demanded the president’s resignation. In July 1991, the president resigned his position, and he was replaced that August by an individual who served as president until the summer of 2007. In 1992, the Alavi Foundation’s new president met in New York and in Tehran with Bank Melli officials concerning $1.7 million in real estate taxes owed by 650 Fifth Avenue Company and $2.2 million in unpaid distributions owed by the partnership to Assa Corp. The Tehran meeting was attended by a Bank Melli board member, the head of Bank Melli’s Overseas Network Supervisory Department, the head of Bank Melli’s New York branch, and the head of Bank Melli’s Foreign Affairs. The head of the board of directors and managing director of Bank Melli forwarded the minutes of the Tehran meeting to the head of the Bonyad Mostazafan along with a cover letter stating that “it is hoped that your firm instructions and the extra attention of the brothers from that esteemed Foundation, who are responsible for the Alavi Foundation of New York, will resolve the partnership’s mutual problems quickly. . . .”
Iranian Ambassadors to the U.N. continued to direct the affairs of the Alavi Foundation and to attend meetings of the Alavi Foundation board. In the late 1990s, two Bank Melli employees sought Ambassador Kharrazi’s permission for Assa Corp. to sell its interest in 650 Fifth Avenue Company. The Ambassador informed Bank Melli that the Building would be sold when the real estate market improved. Ambassador Seyed Mohammad Hadi Nejad Hosseinian, Kharrazi’s successor, originated the Alavi Foundation’s project funding formula. In 2004, Hosseinian’s successor told the Alavi Foundation to settle a lawsuit with a company controlled by a former Alavi Foundation president for $4 million.
In October 2007, Alavi Foundation board members met with the Ambassador and another former Iranian Government official to address issues relating to the Building’s management and Alavi’s charitable services. At that meeting, the Ambassador stated that it was necessary to increase the Building’s profit, that the Ambassador was worried about Assa Corporation’s 40 percent share, that the Foundation should only allocate to Shiites, and that the Ambassador would determine the composition of the board. The Ambassador ordered a study about the possibility of increasing the Foundation’s revenue and profit, stating that a business plan and comparative analysis had to be done. The Ambassador instructed: “I have to definitely see the proposed allocations before a final decision is reached. I have to be kept informed and I have to be able to state my opinion in order for you to make a decision.” The Ambassador told the board members that “[i]f there is an issue that needs to be conveyed to Tehran, let me know, I will convey it.”
The Forfeiture Complaints, the Summary Judgment Decisions, and the Settlement
On December 17, 2008, this Office filed a civil Complaint seeking forfeiture of the 40 percent interest held by Assa Corporation in 650 Fifth Avenue Company. In an Amended Complaint filed in 2009, the United States sought to forfeit all right, title, and interest in 650 Fifth Avenue Company, including the Alavi Foundation’s 60 percent interest in the company. The United States also sought to forfeit the contents of bank accounts held by 650 Fifth Avenue Company, the Alavi Foundation, and Assa Corporation, as well as other real properties owned by the Alavi Foundation in Virginia, California, Maryland, Texas, and Queens. The Judgment Creditors filed claims against the Defendant Properties pursuant to the Terrorism Risk Reinsurance Act (“TRIA”), under which they asserted valid terrorism-related judgments against the Government of Iran.
On September 11, 2013, days before the commencement of what would have been the largest forfeiture trial in history, Judge Forrest granted summary judgment in favor of the United States’ claims for forfeiture of the Building as the result of violations of the Iranian Transactions Regulations promulgated under the IEEPA, and the federal money laundering statutes. The Court found that the Alavi Foundation and Assa Corp. committed the IEEPA violations and money laundering offenses. Subsequently, on March 28, 2014, the Court granted summary judgment in favor of the United States’ claims for forfeiture of the remaining Defendant Properties, and in favor of the Judgment Creditors’ claims under TRIA. As part of this decision, Judge Forrest ruled that the Alavi Foundation and Assa Corporation effectively “are” Iran for purposes of the Foreign Sovereign Immunities Act and TRIA, and thus subject to the jurisdiction of the court. The combined effect of these decisions was to ensure that the Building would no longer be in the control of the Alavi Foundation and Assa Corporation.
Under the terms of the settlement entered today, the Building and other forfeited assets will be sold by the United States Marshals Service. The Government will recover its litigation expenses and any sales costs from the sales proceeds, and the remaining net proceeds of the sales will be distributed to the Judgment Creditors that are party to the settlement according to an agreed-upon distribution. The full amount of the claim made by the lone judgment creditor that filed a claim but did not join the settlement will be retained by the settling Judgment Creditors pending the resolution of the non-settling creditor’s claims.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation, the Internal Revenue Service, Criminal Investigation Division, the Joint Terrorism Task Force, and the Police Department of the City of New York. He also thanked the Counterterrorism Section of the Department of Justice National Security Division, the Office of Foreign Assets Control and the Manhattan District Attorney’s Office for their initiation and assistance in this case.
Assistant United States Attorneys Sharon Cohen Levin, Michael D. Lockard, Martin S. Bell, and Carolina A. Fornos are in charge of the civil forfeiture action.
In re 650 Fifth Avenue and Related Properties (Alavi-Assa) Settlement Stipulation
In re 650 Fifth Avenue and Related Properties (Alavi - Assa) Stipulation ExhibitsManhattan U.S. Attorney Announces Extradition of Former Member of Polish Armed Forces Charged with Narcotics ConspiraciesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Michele M. Leonhart, the Administrator of the United States Drug Enforcement Administration (“DEA”), today announced that SLAWOMIR SOBORSKI was extradited from Estonia where he had been arrested for conspiracy to import cocaine into the United States and conspiracy to distribute cocaine on board an aircraft. SOBORSKI, a Polish citizen, will make his first appearance today in Manhattan federal court before U.S. Magistrate Judge Henry B. Pitman. SOBORSKI’s co-defendants, Joseph Manuel Hunter, Timothy Vamvakias, and Dennis Gogel, were previously arrested in Thailand (Hunter) and Liberia (Vamvakias and Gogel) and brought to the United States in September 2013. Co-defendant Michael Filter was previously arrested in Estonia in September 2013 and is pending extradition to the United States.
Manhattan U.S. Attorney Preet Bharara said: “With the arrival of Slawomir Soborski in the United States, one more of the alleged international band of narcotics traffickers and mercenary hitmen, allegedly eager and prepared to kill for cash, will be forced to face these bone-chilling charges in a U.S. court.”
DEA Administrator Michele M. Leonhart said: “It is especially despicable when someone like Soborski, who was trained by his nation to protect his countrymen from harm, uses that very training as a mercenary for hire by criminals whose alleged drug trafficking activities harm individuals, families and communities, both in the United States and around the world. Soborski’s alleged drug trafficking crimes deserve to face the close scrutiny of trial and judgment in the United States’ criminal justice system. The DEA takes pride in having helped thwart his deadly business, secure his arrest and expedite his prosecution.”
According to the Superseding Indictment:
All five defendants have previously served in the armed forces of their respective nations. SOBORSKI served in the Polish armed forces until 2011, and was trained as a sniper. Hunter served as a sniper instructor and a senior drill sergeant, training other soldiers in marksmanship and tactics. Since leaving the U.S. Army in 2004, Hunter has acted as a “contract killer” and successfully arranged for the murder of a number of people.
During meetings in Asia, Africa, and the Caribbean, beginning in January 2013 and continuing through late September 2013, Hunter communicated with three confidential sources (the “CSs”) working with the DEA, who purported to be Colombian narcotics traffickers. Hunter agreed to serve as the head of security for the CSs’ purported narcotics trafficking organization, and assembled a “security team” consisting of Vamvakias, Gogel, Filter, and SOBORSKI. Hunter also told the CSs that he had previously been involved in contract killings – referred to as “bonus jobs” – and that some team members wanted to do as much “bonus work” as possible.
Hunter and his co-defendants, including SOBORSKI, thereafter agreed, in meetings and communications with the CSs, to provide security and surveillance services to the narcotics trafficking organization. Communications between the defendants and the CSs occurred by telephone, over e-mail, and in a series of surreptitiously audio-recorded and videotaped meetings over an approximately nine-month period.
Hunter and his four co-defendants provided a variety of services to the CSs’ purported narcotics organization. In late March 2013, in Thailand, at Hunter’s direction, SOBORSKI, Gogel, and Filter surveilled a vessel on behalf of the CSs’ purported narcotics trafficking organization. In April 2013, in Mauritius, at the direction of the CSs, SOBORSKI, Gogel, and Filter provided security for a meeting at which the participants discussed the distribution of illegal narcotics to the United States and in late June 2013, in the Bahamas, SOBORSKI, Vamvakias, Gogel, and Filter conducted surveillance of a purported U.S.-registered aircraft at the direction of the third CS (“CS-3”), who posed as a member of the CSs’ narcotics trafficking organization. CS-3 informed the defendants that the aircraft was to be loaded with 300 kilograms of cocaine to be shipped to New York.
With respect to the murder-for-hire scheme, in mid-May 2013, at a meeting with the CSs in Thailand, Hunter, SOBORSKI, Vamvakias, and Gogel were told that a “bonus job” – that is, a contract killing – was in the offing, due to a leak within the CSs’ narcotics trafficking organization. In late May 2013, in e-mail communications, Hunter confirmed that his team would be willing to murder both a U.S. law enforcement agent and a source (a boat captain) who was providing information to U.S. law enforcement authorities. Hunter confirmed by e-mail that his team would kill both the DEA agent and the informant who was providing information to law enforcement about the CSs’ narcotics trafficking organization. At a meeting in late June 2013, in the Bahamas, CS-3 explained to Vamvakias and Gogel that “the job is to kill a U.S. DEA agent and a source with the DEA,” who would be located in Liberia. Vamvakias and Gogel discussed the weapons that could be used and masks to be worn for the murders, and Vamvakias stated that it would be better to “hit the agent first” and then “the snitch.” In early July 2013, Hunter sent via e-mail a list of the items needed for the murders, including “[t]wo Submachine Guns with silencers . . .[t]wo .22 pistols with Silencers.”
In late September 2013, Gogel and Vamvakias arrived in Liberia to commit the planned murders-for-hire, where they were ultimately arrested. On the same day, SOBORSKI was arrested in Estonia, with Filter, in coordination with Estonian authorities, and remained in the custody of Estonian authorities until his extradition today to the United States.
SOBORSKI, 42, is charged with one count of conspiracy to import cocaine into the United States, and one count of conspiracy to distribute cocaine on board an aircraft. Each count carries a maximum penalty of life in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge. The case is assigned to U.S. District Judge Laura Taylor Swain. Trial has been set for October 6, 2014.
The charges, arrests, and transfers of the defendants were the result of the close cooperative efforts of the United States Attorney’s Office for the Southern District of New York; DEA’s Special Operations Division; DEA’s Bangkok, Ghana, Pretoria, Bucharest, Manila, Nassau and Copenhagen Offices; the Royal Thai Police Narcotics Suppression Bureau and Crime Suppression Division; Royal Thai Immigration; the Royal Thai Attorney General's Office; Republic of Liberia’s National Security Agency; the Republic of Liberia’s Attorney General's Office; the Estonian Police and Border Guard Board; the Estonian National Criminal Police, Investigative Bureau; the Estonian State Prosecutor’s Office; the Royal Bahamas Police Force and Drug Enforcement Unit; the Romanian National Police; Interpol; and the U.S. Department of Justice Office of International Affairs.
This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Michael Lockard, Aimee Hector, and Anna Skotko are in charge of the prosecution.
The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Joseph Hunter, et al S7 Indictment
Manhattan U.S. Attorney Files Civil Rights Lawsuit Against Major Real Estate Developer and Architects to Remedy Pattern and Practice of Inaccessible Design and Construction of New York City Apartment BuildingsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States filed a federal civil rights lawsuit in Manhattan federal court alleging that THE DURST ORGANIZATION, INC. (“DURST”), a major real estate developer based in New York City, has engaged in a pattern and practice of developing rental apartment buildings that are inaccessible to persons with disabilities. The suit alleges that DURST, along with its affiliate THE HELENA ASSOCIATES, LLC, and the architecture firm, FXFOWLE ARCHITECTS, P.C., designed and constructed the Helena, a Manhattan building with 595 rental apartment units, in violation of the design and construction provisions of the federal Fair Housing Act. The relevant provisions of the Fair Housing Act have been in effect since March 1991, and the Helena was built in 2005. The suit additionally alleges that, as evidenced by the inaccessible conditions at the Helena, DURST engaged in a pattern and practice of discriminatory conduct, which may result in inaccessible conditions at DURST’s other rental properties in New York City, and that unless DURST’s discriminatory practices are enjoined, the inaccessible conditions at the Helena will likely be repeated in current projects, including rental complexes at 855 Avenue of the Americas and on West 57th Street between 11th and 12th Avenues.
Manhattan U.S. Attorney Preet Bharara said: “This is now the eighth lawsuit we have filed in recent years to address the failure of real estate developers in New York City to comply with the law. Today’s lawsuit demonstrates our continued commitment to ensuring that the long-established federal laws that protect the rights of people with disabilities to accessible housing are enforced. Developers and architects who show an unwillingness to design and construct housing that complies with the law can no longer seek to evade the consequences of their actions.”
According to the allegations contained in the Complaint and other information in the public record:
DURST has been involved in real estate development in New York City for decades. In addition to The Helena, DURST has developed several other multi-family dwellings in Manhattan, including The Epic in the Chelsea neighborhood of Manhattan, 1214 Fifth Avenue on the Upper East Side, and several buildings along Front Street in Lower Manhattan.
DURST has engaged in a pattern and practice of developing its rental properties without regard to their accessibility to people with disabilities. For example, at The Helena, which is located on Manhattan’s Upper West Side, DURST designed and constructed a complex, which contains 595 rental apartment units and public and common use areas, with scores of inaccessible conditions. These conditions include excessively high thresholds that interfere with accessible routes in the common areas and within individual units, kitchens that lack sufficient width for maneuvering by people in wheelchairs, electrical outlets and mailboxes that are not fully usable by people in wheelchairs, and bathrooms that lack sufficient clear floor space for people in wheelchairs to maneuver.
To ensure that DURST’s current and future residential housing developments are accessible to people with disabilities and to redress its history of non-compliance with the Fair Housing Act, the United States seeks a court order enjoining DURST from designing and constructing multi-family housing, such as 855 Avenue of the Americas, without the accessibility features required by federal law and requiring DURST to retrofit the inaccessible conditions at all the rental properties it has developed to make them accessible. The United States also seeks damages for persons harmed by DURST’s unlawful practices, and a civil penalty to vindicate the public interest.
In addition, the United States asserts claims against FXFOWLE ARCHITECTS, P.C., based on their inaccessible designs for The Helena. Specifically, the United States seeks to enjoin FXFOWLE ARCHITECTS, P.C., from designing multi-family housing without the accessibility features required by federal law, as well as damages for persons harmed by their inaccessible designs and civil penalties.
This case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Li Yu, Carina H. Schoenberger, Emily E. Daughtry, and Jessica Jean Hu are in charge of the case.
U.S. v. Durst Organization, Inc. et al Complaint
International Narcotics Trafficker Sentenced in Manhattan Federal Court to 17 Years in Prison for Conspiring to Distribute One Ton of Cocaine Using A U.S.-Registered AircraftRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that RAWSON EDWARD WATSON, a citizen of the United Kingdom, was sentenced today in Manhattan federal court to 17 years in prison for conspiring to distribute approximately 1,000 kilograms of cocaine using an aircraft registered in the United States. WATSON arrived in the Southern District of New York on November 9, 2012, from the Dominican Republic, where he was apprehended on December 15, 2011. WATSON pled guilty in September 2013 before U.S. District Judge Richard J. Sullivan, who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara stated: “Rawson Edward Watson admitted to conspiring to use a U.S.-registered plane to distribute more than a ton of cocaine, worth over $30 million. As a result of today’s sentence, the defendant will spend 17 years in prison for his crime.”
According to the Indictment to which WATSON pled guilty, statements in open court, and other court documents:
In late 2011, WATSON traveled to the Dominican Republic and worked with others to arrange a private aircraft registered in the United States to be flown with cocaine from the Dominican Republic to Belgium. For almost two months, WATSON coordinated with various co-conspirators in the Dominican Republic and elsewhere to ensure that the cocaine was safely loaded onto the aircraft and transported out of the country without detection from law enforcement. On December 15, 2011, the day on which the flight ultimately was scheduled to depart, Watson was arrested at an airport in the Dominican Republic after he had boarded the U.S.-registered aircraft dressed as a flight attendant. The aircraft was loaded with suitcases containing approximately 1,000 kilograms of cocaine. The DEA has estimated that the quantity of cocaine on board the aircraft where WATSON was arrested has a wholesale market value of at least $30,000,000.
WATSON, 48, was sentenced to 17 years in prison with no supervised release to follow. WATSON faced a mandatory minimum sentence of 10 years in prison.
Mr. Bharara praised the investigative work of the New Jersey Division of the DEA, the Caribbean Division of the DEA, and the DEA Dominican Republic Country Office. Mr. Bharara also thanked the Government of the Dominican Republic for its assistance, and the U.S. Department of Justice, Office of International Affairs.
This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Shane T. Stansbury, Michael D. Lockard, and Anna M. Skotko are in charge of the prosecution.
Two Lawyers and Office Worker Convicted of Immigration Fraud Offenses Following Jury Trial in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that FENG LING LIU, VANESSA BANDRICH, and RUI YANG, were found guilty yesterday in Manhattan federal court of one count of conspiracy to commit immigration fraud. LIU, BANDRICH, and YANG, who were initially charged in December 2012, were convicted following a nineteen-day jury trial presided over by U.S. District Judge Ronnie Abrams.
Manhattan U.S. Attorney Preet Bharara said: “As the jury found, Feng Ling Liu, Vanessa Bandrich, and Rui Yang assisted immigrants in obtaining asylum status under false pretenses, including by using concocted tales of persecution. These defendants will now join the twenty-seven others who have been convicted in connection with this sprawling immigration fraud scheme.”
According to the Indictment filed in Manhattan federal court, public court filings, and the evidence admitted at trial:
LIU, a lawyer, operated two law firms – the Law Offices of Feng Ling Liu and Moslemi and Associates, Inc. – both of which assisted aliens from China in obtaining asylum status through fraud. LIU and her employees profited by creating and submitting asylum applications containing false stories of persecution purportedly suffered by alien applicants. BANDRICH worked as a lawyer at one of LIU’s firms, Moslemi and Associates, Inc. In that capacity, she prepared certain clients to tell false stories of persecution in immigration court proceedings related to their asylum application. BANDRICH also opened a separate law firm, Bandrich and Associates, Inc., (“Bandrich Firm”) that assisted clients in obtaining asylum status through fraud. YANG was an office worker at the Bandrich Firm and helped the firm’s clients prepare their false asylum applications.
The defendants each face a maximum sentence of five years in prison on the count of conspiracy to commit immigration fraud. LIU, 48, of Manhattan, New York, is scheduled to be sentenced by Judge Abrams on July 25, 2014. BANDRICH, 34, of Manhattan, New York, is scheduled to be sentenced by Judge Abrams on July 31, 2014. YANG, 30, of Flushing, New York, is scheduled to be sentenced by Judge Abrams on August 1, 2014. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as the defendants’ sentences will be determined by the judge.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.
The case is being handled by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Rebecca Mermelstein, Robert Boone and Patrick Egan are in charge of the prosecution.
Feng Ling Liu et al Indictment
Manhattan U.S. Attorney Announces Lawsuit And$2 Million Civil Settlement with Academic Advantage, and Civil and Criminal Charges Against Former Academic Advantage Employees, in Scheme to Defraud Federal Government into Paying for Tutoring Services ThatRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Brian M. Hickey, the Special Agent-in-Charge of the Northeastern Region of the United States Department of Education’s Office of Inspector General (“ED-OIG”), today announced a number of civil and criminal actions relating to a fraudulent scheme to submit false claims for reimbursement on behalf of THE ACADEMIC ADVANTAGE (“ACADEMIC ADVANTAGE”), an educational services provider, in connection with a federally-funded program that provided after-school tutoring services to public school children. The civil actions announced today include: (1) the filing of a civil fraud lawsuit against ACADEMIC ADVANTAGE and nine of its former employees — ARLETTE HERNANDEZ, EDWIN GUZMAN, LUZ MERCEDES, NILSA DALMASI, KRISTIN JOYNER, RAYVON JONES, ALICIA MCKAY, TERESA OSORIO and AYESHA YOUNG (collectively, “INDIVIDUAL DEFENDANTS”) — in connection with the company’s submission of fraudulent claims for reimbursement between 2010 and 2012; (2) the settlement of the civil claims against ACADEMIC ADVANTAGE for $2 million and admissions of wrongdoing; and (3) the settlement of the civil claims against EDWIN GUZMAN and LUZ MERCEDES for $61,819 and $101,758, respectively, and admissions of wrongdoing. The criminal actions include: (1) the filing of a Criminal Complaint charging ARLETTE HERNANDEZ with fraud; and (2) the guilty pleas of EDWIN GUZMAN and LUZ MERCEDES to criminal fraud charges.
U.S. District Judge Lewis A. Kaplan approved the civil settlements with ACADEMIC ADVANTAGE, GUZMAN and MERCEDES yesterday. HERNANDEZ was arrested on March 5, 2014, and presented that day before U.S. Magistrate Judge James L. Cott. GUZMAN pled guilty to a Criminal Information before U.S. District Judge Andrew L. Carter on January 9, 2014, and MERCEDES pled guilty to a Criminal Information before U.S. Magistrate Judge Kevin N. Fox on February 6, 2014.
Manhattan U.S. Attorney Preet Bharara said: “With the actions announced today, we continue our push to clean up corruption in the tutoring of our school kids. Having previously exposed schemes by Princeton Review and TestQuest to fraudulently bill the government for tutoring services that they never provided, we now hold a third company, Academic Advantage, accountable for engaging in identical misconduct. And we also hold nine former employees of Academic Advantage to account – criminally, civilly or both – for their roles in the fraudulent billing scheme. This should serve as a reminder both to educational services providers and their employees that if they seek to cheat the system, we will hold them accountable.”
ED-OIG Special Agent-in-Charge Brian M. Hickey said: “The Supplemental Education Services (SES) program provides critical resources for deserving students who seek to improve their academic performance. The actions announced today against Academic Advantage and nine of its employees allege that Academic Advantage billed and retained SES payments for students it did not tutor. That is unacceptable. Tracking down those who would cheat this important program is a priority of our office.”
According to the Civil Complaint against ACADEMIC ADVANTAGE and the INDIVIDUAL DEFENDANTS, the allegations in the Criminal Complaint against HERNANDEZ, the Criminal Informations against GUZMAN and MERCEDES, and the Civil Settlements with ACADEMIC ADVANTAGE, GUZMAN, and MERCEDES, all of which were filed in Manhattan federal court:
From 2010 through 2012 (“Covered Period”), the New York City Department of Education (“NYCDOE”) received funds from the federal government to pay for Supplemental Educational Services (“SES”), which included after-school tutoring for students attending underperforming public schools. The NYCDOE entered into contracts with private entities to provide SES tutoring to students in New York City public schools. Students were eligible to receive SES tutoring if they met certain criteria, such as attending a school that had been identified as needing improvement or restructuring for at least two years. Private entities contracted by the NYCDOE to provide SES tutoring were required to have each student who attended a tutoring class sign a daily attendance sheet. A representative from the entity was also required to sign the attendance sheet, certifying that SES tutoring had been provided to all of the students whose signatures appeared on the attendance sheet.
ACADEMIC ADVANTAGE
During the Covered Period, ACADEMIC ADVANTAGE contracted with the NYCDOE to provide SES tutoring to students in New York City. ACADEMIC ADVANTAGE employed individuals whom it referred to as “Site Managers” to supervise its SES program at particular New York City public schools. The Site Managers supervised other employees, known as “Program Aides,” who were also assigned to those schools. Employees with the title “Director” supervised the Site Managers and Program Aides. Of the INDIVIDUAL DEFENDANTS, AYESHA YOUNG was a Director and the rest were Site Managers.
The Billing Scheme
During the Covered Period, ACADEMIC ADVANTAGE obtained federal funds by falsely reporting that it had provided SES tutoring to certain students when no SES tutoring had, in fact, been provided to those students. As part of the scheme, ACADEMIC ADVANTAGE repeatedly submitted to the NYCDOE bills for students who had not actually received any tutoring.
As part of the civil settlements, ACADEMIC ADVANTAGE admitted that:
- Site Managers routinely forged student signatures on daily attendance sheets to make it appear that more students had attended Academic Advantage’s SES tutoring classes than had, in fact, attended;
- Site Managers instructed Program Aides to forge student signatures on daily attendance sheets;
- Program Aides followed the instructions they received from those Site Managers and forged student signatures on daily attendance sheets;
- Site Managers and Program Aides instructed students to sign daily attendance sheets for SES tutoring classes that those Site Managers and Program Aides knew the students either had not attended or would not be attending; and
- Site Managers routinely signed false certifications on daily attendance sheets, falsely certifying that after-school tutoring had been provided to all of the students whose purported signatures appeared on the sheets, even though the Site Managers knew that tutoring had not been provided to many of those students.
ACADEMIC ADVANTAGE further admitted that some Directors knew – while others deliberately ignored or recklessly disregarded – that Site Managers and Program Aides were forging student signatures on daily attendance sheets or otherwise falsifying student attendance records. ACADEMIC ADVANTAGE also admitted that it used the falsified daily attendance sheets to prepare invoices that it then submitted in connection with its SES tutoring program, and that the invoices ultimately resulted in ACADEMIC ADVANTAGE being paid federal funds for SES tutoring that it never provided.
HERNANDEZ has been charged civilly and criminally with forging student signatures on daily attendance sheets, with instructing Program Aides to forge student signatures on daily attendance sheets, and with signing false certifications on daily attendance sheets. During the Covered Period, HERNANDEZ was observed by others forging student signatures on daily attendance sheets. She was also observed possessing a completed daily attendance sheet for a tutoring session that had not yet taken place. Moreover, during the Covered Period, there were more than 200 instances where HERNANDEZ reported students as being present for after-school tutoring on days when the students were absent from school.
In connection with his guilty plea and civil settlement, GUZMAN has admitted to forging student signatures on daily attendance sheets, to instructing Program Aides to forge student signatures on daily attendance sheets, and to signing false certifications on daily attendance sheets. GUZMAN has agreed to the entry of a judgment against him in the amount of $61,819.
Similarly, in connection with her guilty plea and civil settlement, MERCEDES has admitted to forging student signatures on daily attendance sheets and to signing false certifications on daily attendance sheets. MERCEDES has agreed to the entry of a judgment against her in the amount of $101,758.
The remaining INDIVIDUAL DEFENDANTS have been charged civilly with, among other things, forging student signatures on daily attendance sheets, prompting Site Managers or Program Aides to forge student signatures on daily attendance sheets, and/or signing false certifications on daily attendance sheets. The charges against them remain pending.
HERNANDEZ, 32, of New York, New York, was charged with one count of conspiring to make false statements and one count of making false statements, and faces a maximum sentence of 10 years in prison.
GUZMAN, 39, of New York, New York, pled guilty to one count of conspiring to make false statements, and LUZ MERCEDES, 48, of New York, New York, pled guilty to two counts of conspiring to make false statements and one count of making false statements. GUZMAN faces a maximum sentence of five years in prison, while MERCEDES faces a maximum sentence of 15 years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
This is the third coordinated proceeding this Office has brought against New York City SES providers and their employees for falsifying attendance records and billing for tutoring they did not provide. In 2012 and 2013, this Office filed civil charges against The Princeton Review, Inc. (“Princeton Review”), and civil and criminal charges against several of its former employees. In 2013, this Office filed civil charges against TestQuest, Inc. (“TestQuest”), and civil and criminal charges against several of its former employees. Princeton Review settled the civil charges against it by admitting misconduct and committing to pay the Government up to $10 million. TestQuest settled with the Government for $1.75 million and admissions of wrongdoing. The following former employees of Princeton Review and TestQuest have pled guilty to criminal fraud charges, settled civil fraud charges, or both: Robert Stephen Green, Ana Azocar, Zorayma Azocar, Michael Logan, and Sandra Allen.
Mr. Bharara thanked the Office of the ED-OIG for its extraordinary assistance in this case.
The criminal cases are being handled by the Complex Frauds Unit, and Assistant U.S. Attorneys Joseph P. Facciponti and Christopher B. Harwood are in charge of the prosecution.
The civil cases are being handled by the Civil Frauds Unit, and Assistant U.S. Attorney Christopher B. Harwood is in charge of each of the matters.
The charges contained in the Criminal Complaint against HERNANDEZ are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Academic Advantage, et al. Complaint
U.S. v. Academic Advantage, et al. Settlement
U.S. v. Mercedes Court-Endorsed (Academic Advantage) Settlement Agreement
U.S. v. Arlette Hernandez Complaint
U.S. v. Luz Mercedes Information
U.S. v. Edwin Guzman InformationU.S. Broker-Dealer Ceo and Managing DirectorCharged in Manhattan Federal CourtFor Massive International Bribery SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, David O’Neil, the Acting Assistant Attorney General for the Criminal Division of the United States Department of Justice, and George Venizelos, Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the arrests and indictment of BENITO CHINEA and JOSEPH DEMENESES, the former Chief Executive Officer and former Managing Director, respectively, of a United States broker-dealer (the “Broker-Dealer”), on felony charges arising from a conspiracy to pay bribes to Maria De Los Angeles Gonzalez De Hernandez (“Gonzalez”), who was a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (“BANDES”). CHINEA and DEMENESES, working with others, arranged the bribe payments to Gonzalez in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. DEMENESES was also charged with participating in a conspiracy to obstruct justice by concealing facts about the scheme from the U.S. Securities and Exchange Commission (“SEC”) during a periodic examination of the Broker-Dealer.
CHINEA, 47, was arrested today in Manalapan, New Jersey, where he resides, and DEMENESES, 44, was arrested today in Fairfield, Connecticut, where he resides. Both defendants were presented today in Manhattan federal court before Judge Denise L. Cote.
Manhattan U.S. Attorney Preet Bharara said: “These two defendants, senior executives at a U.S. brokerage firm, are the fifth and sixth people to be charged in an alleged conspiracy to corrupt the trading business of a state-run economic development bank of Venezuela. They are alleged to have bribed a willing officer at the bank to steer its overseas trading business to the defendants’ brokerage firm, reaping millions for these defendants and their partners in crime. This Office will not tolerate the kind of outright bribery and concealment that characterized this scheme.”
Acting Assistant Attorney General O’Neil said: “These senior Wall Street executives are accused of paying six-figure bribes to an official in Venezuela to secure foreign business for their firm. Today’s charges show once again that we will aggressively pursue individual executives, all the way up the corporate ladder, when they try to bribe their way ahead of the competition.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged in the indictment, Chinea and Demeneses bribed Gonzalez to secure bank Bandes's financial trading business. Demeneses compounded the Broker-Dealer's illegal activities by conspiring to obstruct an investigation by regulators. The arrests today of Chinea and Demeneses should be a reminder to all those in the business community that engaging in bribery schemes to secure business and make a profit is illegal. Together with our law enforcement partners, the FBI will continue to investigate bribery and fraud at all levels.”
According to the allegations in the Indictment unsealed today, and other documents previously filed in Manhattan federal court:
Background on the Broker-Dealer and BANDES
At all times relevant to the charges, CHINEA was the chief executive officer and DEMENESES was a managing director in the Broker Dealer, which was headquartered in New York, with offices in Miami, Florida. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included DEMENESES, Ernesto Lujan (“Lujan”), and Tomas Alberto Clarke Bethancourt (“Clarke”), and which offered fixed income trading services to institutional clients. One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance. The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding. Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged BANDES a mark-up on purchases and a mark-down on sales.
The Bribery Scheme
From 2008 through 2012, CHINEA and DEMENESES, along with Lujan, Clarke, Jose Alejandro Hurtado (“Hurtado”), and Gonzalez, participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer, including CHINEA and DEMENESES, split the revenue the Broker-Dealer generated from this trading business with Gonzalez. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including CHINEA, DEMENESES, Lujan, Clarke and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.
To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For example, DEMENESES, Lujan and Clarke used an account in Switzerland to transfer at least $1.5 million to an account Gonzalez controlled in Switzerland. In addition to Gonzalez receiving the bribe payments, CHINEA and DEMENESES, as well as other coconspirators, received millions in proceeds from the scheme.
The Conspirators’ Efforts to Obstruct the SEC Examination
Finally, beginning in or about November 2010, the SEC commenced a periodic examination of the Broker-Dealer, and from November 2010 through March 2011, the SEC’s exam staff made several visits to the Broker-Dealer’s offices in New York, New York. In or about early 2011, DEMENESES discussed with others that the SEC was examining the Broker-Dealer’s relationship with BANDES and that the SEC was asking questions regarding certain emails and other information that its exam staff had discovered. DEMENESES, Lujan, Clarke, and Hurtado agreed that they would take steps to obstruct justice by concealing the true facts of the Broker-Dealer’s relationship with BANDES, including by deleting emails.
Previously, on May 3, 2013, Gonzalez, along with two employees of the Broker-Dealer, Clarke and Hurtado, were arrested on charges relating to this bribery scheme. On June 12, 2013, a managing director of the Broker-Dealer, Lujan, was arrested on related charges as well. Each of these four defendants has since entered guilty pleas pursuant to cooperation agreements.
A chart containing the charges and maximum penalties for CHINEA and DEMENESES is attached below. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised DOJ’s Criminal Division and the FBI for their work in the investigation. He also thanked the SEC for its assistance in this case and noted that the investigation is continuing. In a separate action, the SEC announced civil charges against CHINEA and DEMENESES.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established 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 nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Harry A. Chernoff and Jason H. Cowley, and Fraud Section Deputy Chief James Koukios and Trial Attorney Maria Gonzalez Calvet are in charge of the prosecution. Assistant United States Attorney Carolina Fornos is responsible for the forfeiture aspects of the case.
Additional information about the Justice Department’s FCPA enforcement efforts can be
found at www.justice.gov/criminal/fraud/fcpa.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Click here to view chart(s)
U.S. v. Chinea & Demeneses Indictment
Manhattan U.S. Attorney Announces Seizure of Radio Equipment from Pirate Radio StationsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Travis LeBlanc, Acting Enforcement Bureau Chief of the Federal Communications Commission (“FCC”), announced the unsealing of two complaints seeking the forfeiture of radio transmission and production equipment allegedly used in the illegal broadcast of pirate radio stations on a total of four different FM frequencies, and further announced that on April 2, 2014, FCC agents and Deputy U.S. Marshals, pursuant to warrants, seized the radio transmission and production equipment identified in the two complaints.
The Communications Act of 1934 makes it unlawful to operate radio broadcasting equipment above certain low-intensity thresholds without having a license issued by the FCC, and authorizes the seizure and forfeiture of any equipment used with willful and knowing intent to broadcast without an FCC license.
FCC Acting Enforcement Bureau Chief Travis LeBlanc said: “As alleged, these pirate radio stations were for-profit businesses that broke the law to line their own pockets while disrupting legitimate broadcasters. They should be out of business and off the air.”
According to the two Complaints unsealed in Manhattan federal court, and various unsealed documents associated with the two warrants executed on April 2:
FCC agents identified a commercial space at 80-84 West 181st Street in the Bronx as the production studio for “Rika FM,” which illegally broadcasts its programming on 94.5 and 94.9 MHZ. FCC agents also identified a residence at 1370 St. Nicholas Avenue in Manhattan as the location of the radio transmission equipment by means of which “Rika FM” was illegally broadcast.
FCC agents also identified radio transmission equipment at a second residence at 1370 St. Nicholas Avenue in Manhattan that was being used to illegally broadcast on 95.3 MHZ and 100.1 MHZ.
Mr. Bharara praised the investigative work of the Federal Communications Commission and also thanked the United States Marshals Service for its assistance.
Assistant United States Attorney Arastu K. Chaudhury is in charge of these cases.
FCC Seizure Complaint 1
FCC Seizure Complaint 2Manager of Hud Section 8 Housing Found Guilty in Manhattan Federal Court on All Counts Relating to Bribery and False StatementsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Christina Scaringi, the Special Agent-in-Charge of the Northeastern Region of the U.S. Department of Housing and Urban Development (“HUD”), Office of Inspector General (“OIG”), and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), announced that NOVELETTE “PAT” CAMPBELL, a manager of the federally subsidized Tricham Houses in Manhattan, was found guilty on Friday, April 11, 2014, of accepting bribes in connection with federal program funds, conspiracy to accept bribes in connection with federal program funds, and four counts of false statements relating to HUD certifications. The investigation that led to CAMPBELL’s arrest and her conviction last week was undertaken by HUD-OIG. CAMPBELL was convicted after a one-week jury trial before U.S. District Judge George B. Daniels.
Manhattan U.S. Attorney Preet Bharara said: “As a unanimous jury found, for over a decade, Novelette “Pat” Campbell exploited her position as a manager of the Tricham Houses in Manhattan by illegally trading prime spots on the waiting list for federally subsidized apartments in exchange for cash. Her bribery scheme was uncovered by the dedicated investigators at HUD OIG and ICE HSI, and she now stands convicted after trial for her crimes.”
HUD OIG Special Agent-in-Charge Christina Scaringi said: “Friday’s verdict should send a strong message to those individuals who fail to exercise integrity in connection with HUD, we will vigorously pursue investigation and prosecution of all involved in order to maintain the integrity of our programs. Ms. Campbell’s case is especially egregious in that not only did she intentionally violate the Department's trust, she violated the trust of dozens of eligible families who followed the rules and waited years for a decent place to call home. Working in partnership with the U.S. Department of Homeland Security, Office of Homeland Security Investigations, the U.S. Attorney’s Office, and HUD OIG, we will continue to aggressively pursue allegations of corrupt management agent behavior.”
ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “Instead of helping applicants who sought affordable housing, Ms. Campbell and her associates helped themselves to thousands of dollars in bribes and gifts from individuals who knew they were ineligible to receive government assistance. HSI and its law enforcement partners will continue to preserve the integrity of federally funded programs.”
According to the Indictment, as well as evidence presented at CAMPBELL’s trial:
From April 2000 through October 2011, CAMPBELL accepted bribes and engaged in a conspiracy to accept bribes from individuals who were not on a waiting list for subsidized housing at Tricham Housing. Rather than maintain the integrity of the waiting list and process applications in a first-come, first-serve basis as required by HUD, CAMPBELL sold spots on the waiting list for bribes. The people who paid bribes took apartments away from people who were on the waiting list for years, but never received apartments because CAMPBELL sold their spots for bribes. CAMPBELL accepted bribes ranging from $2,000 through $9,000, depending on the size of the apartment.
In addition, CAMPBELL falsified HUD certifications by falsely representing that all administrative procedures had been followed, when they had not, and, on two occasions, forged the signature of a tenant. CAMPBELL also altered original tenant applications for Section 8 housing to falsely add bribe payers as relatives of original applicants.
CAMPBELL, 55, of Bronx, New York, was convicted of six counts relating to accepting bribes in connection with federal program funds, conspiracy to accept bribes in connection with federal program funds, and four counts of false statements to HUD. The charges relating to accepting bribes in connection with federal program funds carry a maximum penalty of 10 years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. The count charging conspiracy to accept bribes in connection with federal program funds carries a maximum penalty of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. Each of the counts charging false statements funds carries a maximum penalty of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. CAMPBELL is scheduled to be sentenced by Judge Daniels on August 12, 2014, at 10:00 a.m. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of HUD OIG and ICE HSI. He noted that the investigation is continuing.
This case is being handled by the Office’s General Crimes Section. Assistant U.S. Attorneys Carolina A. Fornos and Rahul Mukhi are in charge of the prosecution.
U.S. v. Novelette Campbell Indictment
Bronx Man Pleads Guilty in White Plains Federal Court to Five Counts of Impersonating A Federal AgentRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Terence S. Opiola, the Special Agent in Charge, U.S. Immigration and Customs Enforcement (ICE) Office of Professional Responsibility (OPR) Northeast, announced today that CARL OSBORNE pled guilty to five counts of impersonating a federal officer in order to detain others. OSBORNE pled guilty in White Plains Federal Court before United States District Judge Cathy Seibel.
Manhattan U.S. Attorney Preet Bharara stated: “The public needs to know that the men and women of law enforcement who are authorized can be trusted to do the vital jobs they carry out for us every day. Carl Osborne’s criminal actions of impersonating federal agents to stop motorists put himself and others in harm’s way and cannot be tolerated.”
Special Agent in Charge Terence S. Opiola of the U.S. Immigration and Customs Enforcement (ICE) Office of Professional Responsibility (OPR) Northeast, stated: “The men and women who have legitimately earned the badges they wear have sworn an oath to protect and defend this nation. Imposters who purport themselves to be special agents and officers of the law undermine the public trust and prey on the vulnerable. This conduct will never be tolerated and all individuals engaged in these acts will be brought to justice.”
According to the criminal Information and related court proceedings:
Between August 2012 and May 2013, on five separate occasions, OSBORNE, who was not an officer of the United States, represented himself to be a federal agent of the United States Department of Homeland Security. In the guise of a federal officer, complete with fake uniform, credentials and phony gun, and driving a vehicle equipped with lights and sirens, OSBORNE pulled over several vehicles in the Bronx and Westchester County.
OSBORNE, 37, of the Bronx, New York, pled guilty to five counts of impersonating a federal agent or officer and detaining individuals. All five counts carry a maximum term of 3 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. The sentencing before Judge Seibel is scheduled for July 18, 2014.
Mr. Bharara praised the outstanding investigative work of the Department of Homeland Security, Immigration and Customs Enforcement Office of Professional Responsibility.
The prosecution is being handled by the Office’s White Plains Division. Assistant United States Attorney Daniel P. Filor is in charge of the prosecution.
U.S. v. Carl Osborne Information
Statement of Manhattan U.S. Attorney Preet Bharara on the Sentencing of SAC Capital Management Companies for Insider TradingRead the Press Release
“After due consideration, the Court has accepted the guilty plea and imposed sentence on SAC, including the payment of $1.184 billion in financial penalties. Today marks the day of reckoning for a fund that was riddled with criminal conduct. SAC fostered pervasive insider trading and failed, as a company, to question or prevent it. So far, this Office has successfully convicted eight SAC employees of insider trading, and when so much criminal conduct takes place within one institution, it is appropriate to impose criminal liability on the institution itself. Today’s sentence affirms that when institutions flout the law in such a colossal way, they will pay a heavy price.”
SAC Capital Management Companies Sentenced in Manhattan Federal Court for Insider TradingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that S.A.C. CAPITAL ADVISORS, L.P. (“SAC Capital LP”), S.A.C. CAPITAL ADVISORS, LLC (“SAC Capital LLC”), CR INTRINSIC INVESTORS, LLC (“CR Intrinsic”), and SIGMA CAPITAL MANAGEMENT, LLC (“Sigma Capital”) (collectively, the “SAC Companies”), which are responsible for the management of a group of affiliated hedge funds, (collectively the “SAC Hedge Fund” or “SAC”), were sentenced today by U.S. District Judge Laura T. Swain. The District Court accepted the guilty plea entered by the defendants on November 8, 2013, and approved the parties’ Plea Agreement. The Court imposed a sentence that included a criminal fine of $900 million (which is not tax-deductible), a statutory maximum five-year term of probation for each of the SAC Companies, the condition that the SAC Hedge Fund terminate its investment advisory business, effectively closing the hedge fund to outside investors, and a requirement that the defendants, and any successor entities, employ the compliance procedures necessary to identify and prevent insider trading, and that the defendants retain an independent compliance consultant, who will review, revise, and report to the Government on those compliance procedures. Together with the settlement of the civil forfeiture action, which was approved by U.S. District Judge Richard J. Sullivan on November 6, 2013, the SAC Hedge Fund is required to pay an additional $1.184 billion financial penalty on top of the $616 million the SAC Companies have already agreed to pay to the U.S. Securities & Exchange Commission (“SEC”).
Manhattan U.S. Attorney Preet Bharara said: “After due consideration, the Court has accepted the guilty plea and imposed sentence on SAC, including the payment of $1.184 billion in financial penalties. Today marks the day of reckoning for a fund that was riddled with criminal conduct. SAC fostered pervasive insider trading and failed, as a company, to question or prevent it. So far, this Office has successfully convicted eight SAC employees of insider trading, and when so much criminal conduct takes place within one institution, it is appropriate to impose criminal liability on the institution itself. Today’s sentence affirms that when institutions flout the law in such a colossal way, they will pay a heavy price.”
As alleged in the Indictment, the forfeiture Complaint filed against the funds, other court documents filed in the case, and statements made during the guilty plea and sentencing proceedings:
From 1999 through at least 2010, numerous employees of the SAC Companies obtained and traded on material, non-public information that they were not permitted to have (“Inside Information”), or recommended trades based on such information to SAC Portfolio Managers (“SAC PMs”) or the SAC Owner. Specifically, the Indictment charges the SAC Companies with insider trading offenses committed by numerous employees, occurring over the span of more than a decade, and involving the securities of more than 20 publicly-traded companies across multiple sectors of the economy. As charged in the Indictment, the systematic insider trading engaged in by SAC PMs and Research Analysts was the predictable and foreseeable result of multiple institutional failures. The failures alleged included hiring practices heavily focused on recruiting employees with networks of public company insiders, the failure of SAC management to question employees about trades that appeared to be based on Inside Information, and ineffective compliance measures that failed to prevent or detect such trading, particularly prior to late 2009.
At the guilty plea hearing on November 8, 2013, the SAC Companies pled guilty to all five Counts in the Indictment, and admitted that the six employees who had previously pled guilty to insider trading engaged in that criminal conduct while acting within the scope of their employment of the SAC Companies and for the benefit of the firm. The Plea Agreement does not provide immunity from prosecution for any individual and does not restrict the Government from charging any individual for any criminal offense and seeking the maximum term of imprisonment applicable to any such violation of criminal law. In fact, since the time of the guilty plea and prior to today’s sentencing, two additional SAC portfolio managers, Michael Steinberg and Matthew Martoma, were convicted of insider trading after separate jury trials.
Indeed, the total criminal fine imposed by the Court exceeded a Sentencing Guidelines range that was, in turn, based on all of the illicit profits gained and losses avoided resulting from all of the insider trading alleged in the Indictment. Neither the criminal fine nor the forfeiture amount to be paid in the civil forfeiture case can be claimed as a tax deduction or credit by the SAC Companies or their owner.
The Court further imposed a series of non-financial penalties on the SAC Companies that include the following:
- The SAC Companies will no longer accept third party investor funds and will terminate operations as an investment adviser.
- The SAC Companies were each sentenced to a five-year term of probation – the maximum allowed by law – with a provision to end probation earlier if the SAC Companies cease operating entirely. The terms of probation require, among other conditions, that the SAC Companies employ appropriate compliance measures to identify and prevent insider trading. Additionally, the insider trading compliance measures of the SAC Companies and any related entities trading securities will be reviewed by an independent compliance expert who will direct the SAC Companies to correct identified deficiencies, and who will report to the United States Attorney’s Office as to the progress of the corrective measures undertaken.
Mr. Bharara praised the efforts of the Federal Bureau of Investigation and also thanked the SEC for its assistance in the investigation.
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. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Antonia M. Apps, Arlo Devlin-Brown, and John T. Zach are in charge of the prosecution, and Assistant U.S. Attorneys Sharon Cohen Levin, Chief of the Asset Forfeiture Unit, Micah Smith, and Christine Magdo are responsible for the forfeiture aspects of the case.
U.S. v. SAC Capital Advisors, LP et al. Stipulation and Order of Settlement
U.S. v. SAC Capital Advisors LLP, et al. Cover Ltr, Plea Agt, and StipNYC Contractor Pleads Guilty in Manhattan Federal Court to Tax Evasion SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Kathryn Keneally, the Assistant Attorney General for the Tax Division of the Department of Justice, and Richard Weber, Chief, Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that NICK A. JODHA, a/k/a “Nick Persaud,” the owner of a contracting business that provided heating, ventilation, and air conditioning (“HVAC”) services throughout the New York City metropolitan area, pled guilty today for his role in a tax evasion scheme. JODHA pled guilty before U.S. District Court Judge Richard J. Sullivan.
Manhattan U.S. Attorney Preet Bharara said: “Nick Jodha has admitted to hiding income and to filing false corporate and personal tax returns, not once but for four consecutive years. His dishonesty cost the government more than $200,000 in tax revenue, and it now will likely cost him his liberty.”
Assistant Attorney General Kathy Keneally said: “Taxpayers who own businesses and seek to evade paying their fair share of taxes, whether through failing to report all of their business’s proceeds or falsely treating personal expenses as business deductions, will be held accountable. The Department of Justice remains committed to investigating and prosecuting those who choose to violate the tax laws.”
IRS-CI Chief Richard Weber said: "Jodha's attempt to evade tax by hiding income and filing false returns was a theft from the American public. It is a felony offense that carries severe consequences. The overarching principle of IRS's enforcement strategy is simply this: We protect the integrity of the tax system by ensuring everyone pays the right amount of tax."
According to the allegations contained in the Information and statements made at the plea proceeding:
JODHA operated and was a 50% owner of United HVAC Services, Inc. (“United HVAC”), an HVAC contracting firm based in South Ozone Park, New York, with operations throughout New York City. From 2007 through 2010, JODHA cashed more than $2.3 million in checks made payable to United HVAC at a check cashing service in Manhattan, rather than depositing the business checks into the business’s corporate bank account. JODHA used the proceeds from the cashed checks for business and personal purposes.
During the same time period, in order to prepare both personal and corporate income tax returns, JODHA provided his accountant with the statements from the business bank account of United HVAC. However, JODHA failed to inform his accountant of the checks he cashed at the check cashing service, which were not reflected in the statements of United HVAC’s business bank account. Moreover, JODHA failed to advise his accountant that he used a portion of the cashed checks for business and personal expenses.
JODHA admitted to filing false S-Corporation income tax returns on behalf United HVAC for the tax years 2007 through 2010, which omitted any business activity and flow-through income concerning the cashed business checks, and to filing false individual income tax returns for the tax years 2007 through 2010, which understated his true taxable income and the taxes due on that income. As a result of his conduct, JODHA admitted to causing the government a tax loss of approximately $214,529.
JODHA, 43, of South Ozone Park, New York, and Kissimmee, Florida, pled guilty to one count of tax evasion and faces a maximum sentence of 5 years in prison. As part of the plea agreement, JODHA has agreed to pay the IRS restitution in the amount of $214,529. JODHA is scheduled to be sentenced by Judge Richard J. Sullivan on July 24, 2014, at 10:00 a.m. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the efforts of IRS-CI in the investigation. He also thanked the U.S. Department of Justice’s Tax Division for their significant assistance in the investigation.
This case is being handled by the Office’s Complex Frauds Unit. Special Assistant U.S. Attorney Jorge Almonte of the Department of Justice’s Tax Division is in charge of the prosecution.
U.S. v. Nick A. Jodha Information
Manhattan U.S. Attorney Settles Civil Fraud Lawsuit Against Clothing Importers Engaged in A Scheme to Avoid Payment of Customs DutiesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), and Robert E. Perez, Director of New York Field Operations for U. S. Customs and Border Protection (CBP), announced today that the United States has settled a civil customs fraud lawsuit against DANA KAY, INC. and SIOUNI & ZAR CORPORATION (d/b/a DANNY & NICOLE), two importers of women’s apparel, for cheating the United States out of millions of dollars in customs duties over the course of a decade through the use of false invoices. In the settlement, approved today in Manhattan federal court by U.S. District Judge Colleen McMahon, the defendants accepted responsibility for under-reporting the value of their imported merchandise and agreed to pay $10 million to the United States as damages and penalties under the False Claims Act.
Manhattan U.S. Attorney Preet Bharara said: “Our Office is committed to pursuing those who defraud the public for private gain. Here, as our complaint alleges, a whistleblower exposed a decade-long scheme to defraud the Government out of millions of dollars in customs duties. Through the settlement announced today, the companies responsible for this fraud will be held to account, by having to admit to their misconduct and pay $10 million in damages and penalties.”
ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “Companies that circumvent our nation’s customs laws through the use of elaborate frauds cheat the American taxpayers and their law-abiding competitors simultaneously. These two importers should serve as an example that HSI is committed to ensuring a level playing field for all who work in the international trade industry.”
CBP Director of New York Field Operations Robert E. Perez said: “Working in partnership with HSI, our CBP officers, auditors, and import specialists demonstrated the highest level of professionalism, dedication to duty and vigilance in detecting the undervaluation of these imported goods into the United States.”
According to the Government=s Complaint filed in Manhattan federal court:
From approximately 2003 through 2012, DANA KAY, INC. and SIOUNI & ZAR CORPORATION engaged in a fraudulent scheme to avoid the payment of customs duties by presenting the Government with invoices that significantly understated the value of the imported apparel. The defendants paid their overseas manufacturers the full value of the apparel, but deducted a flat fee per garment set before calculating the duty on the apparel. The defendants then recorded only the lower value on the entry forms presented to the Government. Through this fraud, the defendants avoided paying millions of dollars in customs duties.
As part of the settlement, DANA KAY, INC. and SIOUNI & ZAR CORPORATION have admitted, acknowledged, and accepted responsibility for:
- presenting to the Government commercial invoices for women’s apparel being imported into the United States that reported less than the total value of the goods imported;
- paying apparel manufacturers an amount in excess of that recorded on the commercial invoice;
- paying the excess amount pursuant to a second invoice referred to as a “debit note”; and
- failing to disclose to the Government the amounts paid pursuant to the second invoices, instead reporting only the lesser amounts listed in the commercial invoices, which the Government then used to assess customs duties.
The allegations of fraud stated in the Complaint and admitted in the settlement agreement were first brought to the attention of the Government by a whistleblower, who filed a
lawsuit under the qui tam provisions of the False Claims Act. Those provisions allow private parties who have knowledge of fraud committed against the Government to file suit on behalf of the Government and share in any recovery. The United States may then intervene and file a complaint, as it did here.
Mr. Bharara thanked ICE HSI for its work on the case. He also thanked U.S. Customs and Border Protection for its assistance.
The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorney Jaimie L. Nawaday is in charge of the case.
Demolition Company Operators Sentenced in Manhattan Federal Court for Scheme to Underpay Employees in Violation of Federal Prevailing Wage LawRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOVER NARANJO, the owner and president of Enviro & Demo Masters, Inc. (“Enviro”), and LUPERIO NARANJO, SR., a foreman for Enviro, were sentenced today in Manhattan federal court to six and four years in prison, respectively, for perpetrating a scheme to underpay employees in violation of the federal prevailing wage law and for tampering with witnesses and using other people’s identities to further this scheme. Both defendants were convicted in November 2013 after a two-week trial before U.S. District Judge Jed S. Rakoff, who imposed today’s sentences.
Manhattan U.S. Attorney Preet Bharara said: “Today’s sentences ensure Jover Naranjo and Luperio Naranjo, Sr., will pay a steep price for underpaying their staff, abusing federal funds, and then lying to cover it all up – loss of their liberty.”
According to the Complaint and the Superseding Indictment filed in Manhattan federal court and the evidence presented at trial:
In August 2009, Enviro was awarded a sub-contract by the general contractor on a New York City project (the “Project”) to demolish five buildings in Upper Manhattan (the “Contract”) that was funded in part with federal stimulus money. From August 2009 through February 2010, JOVER NARANJO and LUPERIO NARANJO, SR., participated in a scheme to submit fraudulent certified payrolls to the New York City Department of Housing Preservation and Development (“HPD”) and the U.S. Department of Labor in connection with the Contract. These certified payrolls were fraudulent in at least three respects. First, they listed relatives as the demolition workers on the Project, when in fact, these relatives did no work. Second, the certified payrolls did not list the actual individuals who worked on the Project. Third, the certified payrolls misrepresented the wages being paid to Enviro’s workers.
In this regard, the fraudulent certified payrolls indicated that Enviro was paying its employees the federal prevailing wage, as required by federal law, but in reality, they were being paid far less. Although the applicable federal prevailing wages for Enviro employees working on the Contract were approximately $49 and $33 per hour for demolition laborers, depending on their specific job responsibilities JOVER NARANJO and LUPERIO NARANJO, SR., paid their demolition workers as little as $13 per hour. The total amount of salary underpaid by the defendants to Enviro employees working on the Contract was in excess of approximately $650,000.
JOVER NARANJO and NARANJO, SR., also employed a number of measures to conceal their fraud. For example, they submitted supporting documentation with the certified payrolls that included time sheets on which they forged workers’ signatures and canceled checks that they had doctored to make it appear that workers were earning the prevailing wage. In addition, they hid their workers from investigators and told some to lie about their identities, work schedules, and/or pay rates if they were questioned by investigators. When an employee truthfully told investigators that the employee was paid below the prevailing wage, JOVER NARANJO and LUPERIO NARANJO, SR., fired the employee and the employee’s relative.
JOVER NARANJO, 37, of Queens, New York, was also sentenced to three years of supervised release, and ordered to pay a $600 special assessment fee. LUPERIO NARANJO, SR., 65, of Queens, New York, was also sentenced to three years of supervised release, and ordered to pay a $500 special assessment fee. Forfeiture and restitution for both defendants will be determined at a later date
Mr. Bharara praised the outstanding investigative work of the New York Field Office of the U.S. Department of Labor’s Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, New York City Department of Investigation, and the United States Environmental Protection Agency Criminal Investigation Division.
This case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Brian A. Jacobs and Brent S. Wible are in charge of the prosecution.
Debt Relief Company and Its Owner Plead Guilty in Manhattan Federal Court to Multimillion-Dollar Scheme That Victimized over 1,200 Financially Struggling ConsumersRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MISSION SETTLEMENT AGENCY (“MISSION”) and its owner, MICHAEL LEVITIS, pled guilty in Manhattan federal court to fraud charges in connection with a multimillion-dollar scheme that victimized more than 1,200 financially struggling people across the country. LEVITIS and MISSION were charged in May 2013, and both pled guilty today before U.S. District Judge Paul G. Gardephe. Four other defendants previously pled guilty for their roles in the scheme.
Manhattan U.S. Attorney Preet Bharara said: “Michael Levitis and his company, Mission Settlement Agency, preyed on the desperation of financially struggling people across the country. Today’s guilty pleas ensure that the defendants who falsely offer debt relief, telling their victims a pack of lies in order to line their own pockets, will be held to account.”
According to the allegations contained in the Indictment and Superseding Information, other documents filed in Manhattan federal court, and statements made at today’s plea proceeding:
Beginning in 2009, MISSION offered “debt settlement” services to financially disadvantaged people who were struggling or unable to pay their credit card debts. Like other purported debt settlement providers, MISSION held itself out as a company that could successfully negotiate to lower the overall debt its customers owed to credit card companies and banks. MISSION solicited prospective customers through telemarketing and mail solicitations. Thereafter, MISSION’s sales representatives typically spoke to the prospective customers on the phone, describing MISSION’s work and its supposed ability to renegotiate debt.
LEVITIS was MISSION’s beneficial owner, and was responsible for managing MISSION’s day-to-day operations, its finances, its hiring and termination of employees, and its advertising and solicitation of customers.
From 2009 through May 2013, at LEVITIS’s direction, the defendants systematically exploited and defrauded over 1,200 customers, who were financially disadvantaged people across the country struggling to pay their credit card debts. They tricked people into paying MISSION for purported debt settlement services by lying to prospective customers about MISSION’s ability to help settle their debts, the fees that MISSION charged, and MISSION’s purported affiliation with the federal government. Among other things, the defendants: (1) lied about and/or concealed MISSION’s fees, falsely assuring customers that MISSION would charge a mere $49 per month when, in truth, MISSION took thousands of dollars in fees from funds that its customers believed would be used to pay creditors, (2) deceived customers by fraudulently and falsely promising that MISSION could slash their debts – typically, by 45% -- when, in fact, for the majority of its customers, MISSION did little or no work and failed to achieve any reduction in debt, and (3) sent prospective customers solicitation letters that falsely suggested that the agency was acting on behalf of or in connection with a federal governmental program, which letters included an image of the Great Seal of the United States and indicated that they were coming from the “Reduction Plan Administrator” of the purported “Office of Disbursement.” As a result of the defendants’ scheme, in addition to losing money, most of MISSION’s customers failed to achieve the reduction in debt that the defendants had promised them, and some of them suffered further declines in their credit ratings, were sued by their creditors, and/or fell into bankruptcy.
In connection with the scheme, MISSION received over $6.6 million in fees. For more than 1,200 of its customers, MISSION took fees totaling nearly $2.2 million but never paid a penny to the customers’ creditors. LEVITIS used the money that MISSION took from its customers to pay for, among other things, the operating expenses of a restaurant/nightclub he controlled, lease payments for two different luxury Mercedes cars, and credit card bills for his mother.
LEVITIS, 37, of Brooklyn, New York, pled guilty to one count of conspiracy to commit mail and wire fraud, and one count of conspiracy to commit wire fraud, and faces a maximum sentence of 10 years in prison. MISSION pled guilty to one count of conspiracy to commit mail and wire fraud, and faces a fine of up to twice the gross pecuniary gain derived from the offense, and up to five years' probation. The defendants are scheduled to be sentenced by Judge Gardephe on August 21, 2014. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
In addition to entering their guilty pleas, LEVITIS and MISSION entered into a stipulation of settlement of the civil forfeiture action filed by the United States Attorney’s Office for the Southern District of New York entitled United States v. All Right, Title, and Interest in Rasputin Restaurant, 13 Civ. 3069 (GHW). As part of that stipulation of settlement, LEVITIS and MISSION consented to the entry of a permanent injunction barring them from providing, directly or indirectly, any debt relief or mortgage relief services in the future.
Four other defendants, Denis Kurlyand, Boris Shulman, Felix Lemberskiy, and Zakhir Shirinov, previously pled guilty for their roles in the fraudulent scheme. The charges against Manuel Cruz remain pending and he is presumed innocent unless and until he is proven guilty.
Mr. Bharara praised the investigative work of the United State Postal Inspection Service. He also thanked the Consumer Financial Protection Bureau for referring this case to this Office and for their assistance in this matter.
The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Nicole W. Friedlander and Edward A. Imperatore are in charge of the prosecution. Assistant United States Attorney Carolina A. Fornos of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.
U.S. v. Michael Levitis Superseding Information
Yonkers Gang Defendant Sentenced in Manhattan Federal Court to 188 Months in Prison After Perjuring Himself at the Trial of A Rival Gang MemberRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSE CRUZ, a/k/a “Chili,” a member of the violent Yonkers street gang known as the “Strip Boyz,” was sentenced yesterday in Manhattan federal court to 188 months of imprisonment by United States District Judge Edgardo Ramos.
In May 2013, CRUZ pled guilty to participating in the Strip Boyz narcotics conspiracy. One month later, in June 2013, CRUZ testified at the trial of Steven Knowles, the leader of a rival gang known as the “Elm Street Wolves.” At that trial, which was held before United States District Judge Kenneth M. Karas, CRUZ denied conducting crack sales with the Strip Boyz. He also retracted prior statements he had made to Yonkers Police Department officers after he was shot multiple times in April 2010 – statements that supported the Government’s evidence that Knowles was his shooter.
Although the jury convicted Knowles of the majority of counts against him, including the murder of another Strip Boyz member, Knowles was found not guilty of the attempted murder of CRUZ. At yesterday’s sentencing, Judge Ramos found that CRUZ’s testimony about his crack sales at Knowles’s trial was false and an obstruction of justice. In summary, Judge Ramos stated: “Make no mistake, Mr. Cruz. You substantially increased the amount of time you will spend in prison by your decision to testify falsely” at Knowles’s trial.
Manhattan U.S. Attorney Preet Bharara stated: “If there was ever any doubt that lying under oath was a foolish and costly decision, then Jose Cruz joins the long list of incarcerated defendants who should dispel that doubt. It may be a peculiar badge of honor among gangs to perjure yourself, but in the end you will lie your way into being locked up.”
According to the statements made at sentencing and documents filed in the case:
The case arises out of an investigation, which began in 2010 by the United States Attorney’s Office, the Federal Bureau of Investigation, and the Yonkers Police Department, of narcotics trafficking and gang violence in a part of southwest Yonkers known as Nodine Hill. The Strip Boyz, in particular, was a street gang operating in and around Yonkers between 2000 and June 2012. The Strip Boyz and their affiliates sold crack cocaine and marijuana in and around the Schlobohm Housing Project on Schroeder Street—a major hub of Yonkers crack distribution.
They would, among other things, prohibit outsiders from selling drugs in their territory, share crack sales so that multiple members of the Organization could profit from a particular sale, package and store drugs together in common spaces, use shared suppliers as the source for their narcotics, and alert each other to the presence of nearby law enforcement. During that same time period, members and associates of the Strip Boyz – including JOSE CRUZ – sold thousands of grams of crack cocaine and marijuana. Certain members of the Strip Boyz – again, including CRUZ – also maintained firearms for use by members and associates of the Strip Boyz. Members of the Strip Boyz would often pool their money to purchase firearms, which would then be stored in hidden but easily accessible locations known only to members. When a firearm was needed to protect the Strip Boyz’s territory from encroachment by a rival gang, such as the Elm Street Wolves, one member of the Strip Boyz could utilize the firearms maintained by other members of the gang.
In August 2011, 66 Yonkers gang members – including 47 members and associates of the Elm Street Wolves – were arrested and charged with narcotics, firearm, robbery and murder offenses. The Elm Street Wolves were a violent street gang that operated on and around Elm Street and Oak Street, just minutes from the Scholobohm Housing Project, and a chief rival to the Strip Boyz. To date, all defendants in that case have been convicted, and the majority has been sentenced to between 10 and 17 years of imprisonment. This includes Knowles, the leader of the Elm Street Wolves, who was convicted in July 2013 of various racketeering charges, murder, conspiracy to murder, attempted murder, narcotics conspiracy, and firearms offenses following a four-week jury trial before Judge Karas in White Plains. Knowles, who faces a mandatory sentence of life in prison plus 35 years, is set to be sentenced on May 29, 2014.
In June 2012, 23 Yonkers gang members – including 20 members and associates of the Strip Boyz – were arrested and charged with narcotics trafficking and firearm offenses. To date, all defendants in that case have also been convicted, most of whom await sentencing. This includes CRUZ, who pled guilty on May 7, 2013, before Judge Ramos to conspiring to sell crack cocaine in violation of Title 21, United States Code, Section 846. During his plea, CRUZ admitted, among other things, to conspiring to distribute crack cocaine with others in the Schlobohm Housing Project. Based on his original plea agreement with the Government, which included both an enhancement for CRUZ’s usage of firearms in furtherance of his crack sales and a reduction for his timely acceptance of responsibility, CRUZ faced an advisory United States Sentencing Guidelines (the “Guidelines”) range of 108 to 135 months of imprisonment. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
At yesterday’s sentencing, Judge Ramos found that CRUZ willfully and knowingly committed perjury by lying, under oath, at Knowles’s trial by denying that he sold crack cocaine with the Strip Boyz. As such, Judge Ramos applied a Guidelines enhancement for CRUZ’s obstruction of justice. Judge Ramos also found that CRUZ was not entitled to a Guidelines reduction for acceptance of responsibility, holding that his testimony demonstrated that he did not satisfactorily accept responsibility for the crime – conspiracy to distribute crack cocaine with others – which he was convicted of. Judge Ramos calculated CRUZ’s advisory Guidelines range, as modified after his false testimony, as 188 to 235 months of imprisonment. Judge Ramos then imposed a sentence of 188 months of imprisonment, at the low-end of the Guidelines range. In so doing, Judge Ramos made clear that CRUZ’s sentenced was significantly increased because of his decision to lie on the witness stand on behalf of Knowles.
This case is being prosecuted by the White Plains Office and the Violent Crimes Unit. Assistant United States Attorneys Ilan Graff and Andrew Bauer are in charge of the prosecution.
Investment Manager Sentenced in Manhattan Federal Court to 87 Months in Prison for Perpetrating Multimillion-Dollar Fraud SchemesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEPHEN COLANGELO, Jr., was sentenced yesterday to 87 months in prison in connection with two separate schemes that defrauded investors out of more than $3.5 million. COLANGELO’s first scheme involved a hedge fund he controlled called the Brickell Fund, LLC (the “Brickell Fund”), and his second scheme involved three companies he created and controlled called “Hedge Community,” “Start A Hedge Fund,” and “Under the Radar SEO” (collectively, the “Business Ventures”). COLANGELO misled investors in the course of both of these schemes by making numerous misrepresentations, which included issuing fraudulent performance statements, private placement memoranda, and other business documents. In addition to his prison sentence, COLANGELO was ordered to pay restitution to the victims of his schemes, which totals approximately $3.5 million. COLANGELO pled guilty on December 19, 2013, to two counts of securities fraud and two counts of wire fraud, and was sentenced today by U.S. District Judge Robert W. Sweet in Manhattan federal court.
Manhattan U.S. Attorney Preet Bharara said: “Stephen Colangelo solicited investor money under false pretenses, and issued fraudulent materials to prop up his phony investment vehicles. Despite lofty promises to investors about their expected returns, the only one guaranteed to make money under his schemes was Colangelo. Now he has learned the true cost of doing business that way.”
According to the Indictment and related court documents and proceedings:
From March 2009 to February 2011, COLANGELO represented that he was an investment manager and solicited funds from private investors for the Brickell Fund, a purported hedge fund he operated. In the course of soliciting funds from investors, COLANGELO made numerous misrepresentations. Specifically, he told potential investors that his compensation for managing their investments in the Brickell Fund would be a nominal management fee and a certain percentage of trading profits, thus ensuring his compensation would be dependent on his trading success. In reality, COLANGELO regularly misappropriated large amounts of investor money for his own personal benefit and to support unrelated business ventures. He also regularly made false claims to investors about investment strategy and alleged profits.
From August 2009 to October 2011, COLANGELO also solicited investments in the Business Ventures. In doing so, COLANGELO represented that investment money would be used for legitimate business expenses, when in reality, he misappropriated a large amount of the investments for his own personal benefit.
Both schemes combined led to net losses to investors of approximately $3.5 million.
COLANGELO, 46, of Congers, New York, was also sentenced to 3 years of supervised release and was ordered to pay a mandatory $400 special assessment.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and also thanked the Securities and Exchange Commission for its assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established 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. For
more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney John J. O’Donnell is in charge of the prosecution.
Former U.S. Railroad Retirement Board Representative Sentenced in Manhattan Federal Court to Five Years in Prison for Her Role in LIRR Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MARIE BARAN, a former employee of the United States Railroad Retirement Board (“RRB”), was sentenced today in Manhattan federal court to five years in prison for her role in the massive fraud scheme in which Long Island Railroad (“LIRR”) workers claimed to be disabled upon early retirement so that they could receive disability benefits to which they were not entitled. Between approximately 2007 and 2011, BARAN completed fraudulent disability applications on behalf of at least 188 LIRR clients in exchange for cash payments. Following a three-week jury trial in August 2013, BARAN was convicted of two counts of conspiracy to commit mail fraud, wire fraud, and health care fraud, two counts of conspiracy to defraud the RRB, two counts of health care fraud, two counts of mail fraud, and two counts of wire fraud. She was sentenced today before U.S. District Judge Victor Marrero.
Manhattan U.S. Attorney Preet Bharara stated: “Marie Baran manipulated a safety net for the disabled and took advantage of the federal agency that employed her for decades. In exchange for cash, she helped nearly 200 LIRR employees obtain more than $75 million based on lies. Today’s sentence ensures that she will now pay for her crimes.”
According to the Complaint, the Superseding Indictments, the evidence at trial, and statements made in court:
The RRB is an independent U.S. agency that administers benefit programs, including disability benefits, for the nation’s railroad workers and their families. A unique LIRR contract allowed employees to retire at the relatively young age of 50 – the age of eligibility has since changed to 55 – if they had been employed by the LIRR for at least 20 years. Eligible employees are entitled to receive an LIRR pension, which is a portion of the full retirement payment for which they are eligible at 65. In addition, at full retirement age (between age 60 and age 65 depending on years of service) they are eligible to receive an RRB retirement pension. For LIRR workers who retired at 50 with only an LIRR pension, they would receive less than their prior salary and substantially lower pension payments than those to which they would be entitled at full retirement age. However, LIRR employees who retired and claimed disability could receive a disability payment from the RRB on top of their LIRR pension, regardless of age. A retiree’s LIRR pension, in combination with RRB disability payments, can be roughly equivalent to the base salary earned during his or her career.
Hundreds of LIRR employees have allegedly exploited the overlap between the LIRR pension and the RRB disability program by pre-planning the date on which they would falsely declare themselves disabled so that it would coincide with their projected retirement date. These false statements, made under penalty of prosecution in disability applications, allowed LIRR employees to retire as early as age 50 with an LIRR pension, supplemented by the fraudulently obtained RRB disability annuity. From 1995 through 2011, more than 75% of LIRR employees stopped working and began receiving RRB disability benefits, whereas during this same period, only 25% of retiring Metro-North employees stopped working and began receiving RRB disability benefits.
BARAN is a former employee of the RRB who, following her retirement from the agency in 2006, began accepting cash payments from LIRR workers to complete fraudulent disability applications on their behalf. Between approximately 2007 and 2011, BARAN helped at least 188 LIRR employees obtain disability benefits to which they were not entitled. In exchange for payments of over $1000 per employee, BARAN completed fraudulent disability applications on the employees’ behalf, fabricating claims of serious physical suffering and decline, and grossly exaggerating the physical demands of the employees’ jobs. As a result of this fraud, BARAN’s LIRR customers have received approximately $30 million in RRB disability benefit payments, and the intended losses from her fraud amount to over $77 million.
In addition to her prison term, BARAN, 66, of East Meadow, New York, was also sentenced to three years of supervised release. She was also ordered to pay approximately $31 million in restitution, to forfeit approximately $31 million, and to pay a $1000 special assessment.
Thirty-three people have been charged in connection with the LIRR disability fraud scheme, 28 of whom have pled guilty and five of whom were convicted after trial.
Mr. Bharara praised the RRB Office of Inspector General, the Federal Bureau of Investigation, and the Metropolitan Transit Authority - Office of Inspector General for their outstanding work in the investigation, which he noted is ongoing. He also acknowledged the previous investigation conducted by the New York State Attorney General’s Office into these pension fraud issues.
The Office’s Complex Frauds Unit is handling the case. Assistant U.S. Attorneys Justin Weddle, Daniel Tehrani, and Nicole Friedlander are in charge of the prosecution.
United States Announces $5.15 Billion Settlement with Anadarko to Pay for Environmental and Toxic Tort LiabilitiesRead the Press Release
Largest Payment for the Clean-Up of Environmental Contamination in History
James Cole, Deputy Attorney General of the United States, Preet Bharara, the United States Attorney for the Southern District of New York (“SDNY”), Robert G. Dreher, the Acting Assistant Attorney General for the Justice Department’s Environment and Natural Resource Division (“ENRD”), and Cynthia Giles, Assistant Administrator of the U.S. Environmental Protection Agency, announced today that the United States has entered into a settlement agreement with the Kerr-McGee Corporation and certain of its affiliates (“New Kerr-McGee”), and their parent Andarko Petroleum Corporation, in a fraudulent conveyance case brought by the United States and co-plaintiff Anadarko Litigation Trust (the “Trust”) in the bankruptcy of Tronox Inc. and its subsidiaries (“Tronox”). The bankruptcy court had previously found, in December 2013, that the historic Kerr-McGee Corporation (“Old Kerr-McGee”) fraudulently conveyed assets to New Kerr-McGee to evade its debts, including its liability for environmental clean-up at contaminated sites around the country. Pursuant to the settlement agreement, the defendants agree to pay $5.15 billion to settle the case, of which approximately $4.4 billion will be paid to fund environmental clean-up and for environmental claims. This is the largest payment ever for the clean-up of environmental contamination.
Deputy Attorney General James Cole said: “Kerr-McGee’s businesses all over this country left significant, lasting environmental damage in their wake. It tried to shed its responsibility for this environmental damage and stick the United States taxpayers with the huge cleanup bill. Through a lot of hard work, we uncovered this fraud and recovered over $5 billion dollars for the American people. This settlement demonstrates the Justice Department’s firm commitment to preventing and combating all forms of fraud and to securing environmental justice.”
Manhattan U.S. Attorney Preet Bharara said: “If you are responsible for 85 years of poisoning the earth, then you are responsible for cleaning it up. That’s why this case was brought. And that’s why the defendants are paying a record $5.15 billion -- to fund that colossal cleanup and to make things right. The company tried to keep its rewards and shed its responsibilities by playing a corporate shell game, putting its profitable oil-and-gas business in a new entity and leaving behind a bankrupt shell holding the environmental liabilities of the defunct, polluting lines of business. The company tried to cleanse its valuable business from its toxic legacy liabilities. Now the defendants will pay to cleanse the land and water.”
Acting Assistant Attorney General Robert G. Dreher said: “Today’s settlement is a just resolution of an historic injustice to the American people and our environment. The money recovered will result in clean-ups of a toxic history the Old Kerr-McGee unsuccessfully tried to walk away from.”
EPA Assistant Administrator Cynthia Giles said: “EPA’s vigorous pursuit of this case will have a big return for communities across the country. Companies that pollute can’t escape their responsibility to pay for the cleanup. EPA will continue to fight for those affected by pollution.”
The Fraudulent Conveyance
According to the complaints of the Government and the Trust and the December 12, 2013, written opinion of U.S. Bankruptcy Judge Allan L. Gropper:
Old Kerr-McGee operated numerous businesses, which included uranium mining, the processing of radioactive thorium, creosote wood treating, and manufacture of perchlorate, a component of rocket fuel. These operations left contamination across the nation, including radioactive uranium waste across the Navajo Nation; radioactive thorium in Chicago and West Chicago, Illinois; creosote waste in the Northeast, the Midwest, and the South; and perchlorate waste in Nevada.
In the years prior to 2005, Old Kerr-McGee concluded that the liabilities associated with this environmental contamination were a drag on its “crown jewel” business, the exploration and production of oil and gas. With the intent of evading these and other liabilities, Old Kerr-McGee created a new corporate entity – defendant New Kerr-McGee – and, through a scheme executed in 2002 and 2005, transferred its valuable oil and gas exploration assets to the new company. The legacy environmental liabilities were left behind in the old company, which was re-named Tronox, and spun off as a separate company in 2006. As a result of these transactions, Tronox was rendered insolvent and unable to address its environmental and other liabilities. In 2009, Tronox went into bankruptcy.
The United States and the bankruptcy estate (now represented by the Trust) brought this lawsuit to hold the defendants accountable and require them to repay the value of the assets fraudulently conveyed from Old Kerr-McGee.
In its decision, the Court found that Old Kerr-McGee transferred assets with the intent to hinder or delay creditors, including particularly environmental creditors, and also transferred those assets for less than their fair value, which left Tronox insolvent, unable to pay its debts when they came due, and undercapitalized. Among other things, the Court concluded that:
- “[T]here can be no dispute that Kerr-McGee acted to free substantially all its assets – certainly its most valuable assets – from 85 years of environmental and tort liabilities.”
- “[O]verhelming” evidence demonstrated that “Defendants devised, carried out and had complete knowledge that [the transfer of Old Kerr-McGee’s oil and gas exploration and production assets was] part of ‘a single integrated scheme’ to create a ‘pure play’ E&P business [referring to the ‘crown jewel’ oil and gas exploration and production business] free and clear of the legacy liabilities.”
- “[T]here is no credibility to the uniform testimony of the inner circle [of Old Kerr-McGee management] that isolation of the oil and gas assets from the chemical business had nothing to do with an effort to cleanse the E&P assets from the legacy liabilities.”
- “The record is replete with evidence that Kerr-McGee misapplied [the] standard [for setting reserves for environmental claims under Generally Accepted Accounting Principles] and thereby understated its liabilities for GAAP purposes.”
- Statements by former Old Kerr-McGee employees that the cost of this environmental pollution would decline after the spin-off were “not rooted in reality.”
- Kerr-McGee had failed to conduct any “contemporaneous analysis of the effect of [its] transactions on the legacy liability creditors,” including the effect it would have on the United States’ environmental claims.
The Settlement
Under today’s settlement agreement, the defendants will pay $5.15 billion to the Trust to settle the fraudulent conveyance case. Pursuant to a 2011 settlement between the United States, certain state, local, and tribal governments, and the bankruptcy estate, approximately 88% of the net proceeds of this litigation will be distributed by the trust to the United States, certain state governments, the Navajo Nation, and environmental trusts created to clean up Tronox’s contaminated sites. The 2011 settlement agreement provides specific percentages of this funding that will be made available to each site.
As a result of these agreements, some of the key recoveries for environmental claims and for clean-up of environmental sites are estimated to be the following:
- $1.1 billion will be paid to a trust charged with cleaning up two dozen other contaminated sites around the country, including the Kerr-McGee Superfund Site in Columbus, Mississippi.
- $1.1 billion will be paid to a trust responsible for cleaning up a former chemical manufacturing site in Nevada that has led to contamination in Lake Mead. Lake Mead feeds into the Colorado River, a major source of drinking water in the Southwest.
- Approximately $985 million will be paid to U.S. EPA to fund the clean-up of abandoned uranium mines on land of the Navajo Nation, where radioactive waste remains from Kerr-McGee mining operations.
- Approximately $224 million will be paid to U.S. EPA for clean-up of thorium contamination at the Welsbach Superfund Site in Gloucester, New Jersey.
- Approximately $217 million will be paid to the federal Superfund in repayment of costs previously incurred by EPA cleaning up the Federal Creosote Superfund Site in Manville, New Jersey.
Additional amounts will be paid to the United States, states, the Navajo Nation, and environmental trusts for other environmental claims and contaminated sites at issue in this case.
The settlement agreement will be lodged with the United States Bankruptcy Court for the Southern District of New York for a period of at least 30 days before it is submitted for the Court’s approval, in order to provide public notice and to afford members of the public the opportunity to comment on the settlement agreement.
Mr. Bharara thanked the Trust, its trustee John C. Hueston, and its counsel, Kirkland & Ellis LLP, for their critical work on this case. Mr. Bharara also thanked the many federal, state, and tribal officials who worked tirelessly on this matter. The litigation of this case was assisted by EPA personnel from around the country; the U.S. Fish & Wildlife Service and Bureau of Land Management of the U.S. Department of the Interior; the National Oceanic and Atmospheric Administration of the U.S. Department of Commerce; the U.S. Nuclear Regulatory Commission; the U.S. Forest Service of the U.S. Department of Agriculture; and the U.S. Department of Defense, as well as numerous state governments and the Navajo Nation.
This case was handled by the Environmental Protection Unit and the Tax and Bankruptcy Unit of the SDNY’s Civil Division. Assistant U.S. Attorneys Robert William Yalen and Joseph Pantoja, along with Alan S. Tenenbaum, Katherine Kane, Frederick S. Phillips, Marcello Mollo, and Erica Pencak of ENRD, are in charge of this case.
Major Drug Trafficker Found Guilty in Manhattan Federal Court of Two Murder-For-Hire Conspiracies, Attempted Murder, Narcotics and Firearms OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROGER KEY, a/k/a “Luchie,” a violent and large-scale drug trafficker who operated in Manhattan and the Bronx, New York, was found guilty yesterday in Manhattan federal court of two murder-for-hire conspiracies, attempted murder, and narcotics and firearms offenses. KEY was convicted following a three-week jury trial before U.S. District Judge Sidney H. Stein.
Manhattan U.S. Attorney Preet Bharara said: “With this verdict, the jury has done a great service to the citizens of New York City, convicting Roger Key of numerous violent offenses, including murder-for-hire, and orchestrating a sprawling drug trafficking network. I want to again thank New York County District Attorney, Cyrus Vance and his office, who began the investigation into this alleged narcotics crew and shared the fruits of their investigation with our Office, enabling us to build this case and bring this defendant to justice.”
According to court documents and the evidence presented at trial:
From 2009 through September 2012, KEY was one of the most significant narcotics distributors operating in New York City. KEY supplied powder cocaine and crack cocaine to various drug organizations operating in Manhattan and the Bronx. KEY also used, carried, and possessed firearms during the narcotics conspiracy.
In September 2010, KEY conspired to commit the murder-for-hire of Terry Harrison, who was shot and killed on September 10, 2010, at 681 Courtlandt Avenue in the Bronx. KEY paid another co-conspirator for committing the murder of Harrison, who was the leader of a rival drug-trafficking crew with whom KEY and his co-conspirators were engaged in a violent conflict over drug-trafficking territory in the Bronx.
From October 2011 through December 2011, KEY conspired to commit the murder-for-hire, and aided and abetted the attempted murder-for-hire of Matthew Allen on November 16, 2011, which resulted in the non-fatal shooting of another victim, at 302 Brooklyn Avenue, Brooklyn, New York.
KEY was convicted of narcotics conspiracy, conspiracy to commit the murder-for-hire of Matthew Allen, the attempted murder-for-hire of Matthew Allen, conspiracy to commit the murder-for-hire of Terry Harrison, and firearms possession and use in connection with both the narcotics conspiracy and the Matthew Allen murder plot. KEY was acquitted of the murder-for-hire of Terry Harrison, murder in connection with a drug crime, and a firearms possession charge in connection with that murder.
KEY faces two mandatory sentences of life in prison without the possibility of parole, plus a mandatory consecutive term of 30 years in prison, and he will be sentenced by Judge Stein on August 19, 2014. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
KEY is the last of 18 defendants originally charged in this case to be convicted in proceedings before Judge Stein. KEY is also the last of a total of four individuals who have been convicted of offenses relating to the conspiracy to commit the murder-for-hire and the attempted murder-for-hire of Matthew Allen.
Mr. Bharara praised the outstanding work of the Federal Bureau of the Investigation, Westchester County Violent Crimes Task Force, and the New York City Police Department, including the 40th Precinct Detective Squad and the Manhattan North Narcotics Major Case Unit, who conducted the investigation of the case. Mr. Bharara also thanked the New York County District Attorney’s Office, who provided critical assistance in the investigation and prosecution of the case.
This case is being overseen by the Office’s Violent Crimes Unit. Assistant United States Attorneys Santosh Aravind, Abigail S. Kurland, and Adam Fee are in charge of the prosecution.
Former Senior Managing Director of Investment Bank Pleads Guilty in Manhattan Federal Court to Insider Trading and False Statements ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that FRANK PERKINS HIXON, JR., a former Senior Managing Director of Evercore Group, LLC, a subsidiary of Evercore Partners Inc. (“Evercore”), pled guilty yesterday in Manhattan federal court to insider trading and false statement offenses. Specifically, HIXON admitted to using inside information to trade and cause others to trade in the securities of Evercore, Westway Group Inc. (“Westway”), and Titanium Metals Corporation (“Titanium”). HIXON also admitted making false statements to agents of the Federal Bureau of Investigation (“FBI”) during the course of the investigation into his insider trading. The defendant was arrested on these charges in February 2014, and pled guilty yesterday afternoon to a six-count Information before U.S. District Court Judge Ronnie Abrams.
Manhattan U.S. Attorney Preet Bharara said: “With his guilty plea, Frank Perkins Hixon becomes the 80th defendant we have charged since August 2009 who has been convicted of insider trading offenses. This Office will continue to investigate and prosecute the widespread insider trading that has been shown to infect our markets, especially when those individuals try to evade detection by lying about their conduct.”
According to the allegations contained in the Information filed today in Manhattan federal court, the underlying criminal Complaint filed on February 20, 2014, and statements made during court proceedings:
Between April 2010 and January 2014, HIXON was a Senior Managing Director with the Mining and Metals Group of Evercore. HIXON used material non-public information that he acquired as part of his employment with Evercore to trade and cause trades in brokerage accounts belonging to the mother of his young child (“Individual A”), who lived in Austin, Texas, and to HIXON’s close relative (“Individual B”), who lived in Johns Creek, Georgia.
In 2011, HIXON led an Evercore team in advising Westway about a non-public offer from another company (“Company A”) to purchase some of its business components and, more generally, in connection with potential transactions concerning Westway’s other business components. Company A’s offer was made in early September 2011, and a Special Committee was formed around that time to consider the offer and other strategic alternatives. Those developments were not announced publicly until December 15, 2011. Meanwhile, between October 21 and December 15, 2011, HIXON purchased, and caused to be purchased, 229,000 shares of Westway for Individual A’s brokerage account by logging into Individual A’s account from various locations, including Evercore’s Manhattan office. As the negotiations for the contemplated Westway transactions became protracted, HIXON sold and caused to be sold about 140,000 of the Westway shares that had accumulated in Individual A’s account, for a profit of approximately $260,000. Later, in 2012, HIXON made additional purchases of Westway shares for Individual A’s account, in advance of a tender offer for Westway’s outstanding equity securities that was announced on December 20, 2012. Profits reaped from sales of those shares amounted to approximately $104,000.
In October 2012, HIXON was invited, along with other Evercore personnel, to meet with a Special Committee of Titanium’s board of directors to discuss a potential engagement in connection with an unspecified $3 billion transaction. At the October 23, 2012, pitch meeting, which HIXON attended by teleconference from London, England, HIXON and the rest of the Evercore team learned that the transaction being considered was an acquisition of Titanium by Precision Castparts Corp. (“PCP”), a manufacturer of complex metal components and products. HIXON also learned the approximate offer price, and that the transaction was likely to close before year’s end.
Within approximately one hour of the meeting with the Special Committee, HIXON began buying 20,000 Titanium shares for Individual A’s account from a mobile device traced back to London, England. Eight days later, after HIXON had returned from England, 20,000 more shares of Titanium were purchased for Individual A’s account, mostly through logins from Evercore’s Manhattan office. That same day, HIXON caused Individual B to buy 15,000 shares of Titanium. After market close on November 9, 2012, Titanium announced PCP’s tender offer for its shares. The next trading day, November 12, 2012, all 40,000 of Individual A’s shares of Titanium were sold for a profit of approximately $180,000. Later that month, Individual B’s Titanium shares were sold for a profit of approximately $70,000.
On January 14, 2013, HIXON attended an Evercore partnership meeting at which he learned that Evercore would be announcing record financial results for the fourth quarter of 2012. During the two days preceding the bank’s announcement on January 30, 2013, HIXON, logging into Individual A’s account from Evercore’s Manhattan offices and from his home in Manhattan, bought 27,000 shares of Evercore for the account. At the same time, HIXON caused Individual B to purchase 10,000 shares of Evercore for Individual B’s account. After Evercore’s earnings release, Individual A and Individual B sold all of their Evercore shares, and reaped a combined profit of approximately $96,000.
In February 2013, Evercore asked HIXON to respond to a request from the Financial Industry Regulatory Authority (“FINRA”) and to identify any known names from a list of people and entities that had traded in Titanium stock prior to PCP’s tender offer. Although Individual A and B were both on the FINRA list, HIXON responded by email: “No known relationships.”
When Evercore confronted HIXON about his failure to identify Individual A – who, as noted above, is the mother of his young child – HIXON claimed not to know Individual A by her legal name, which was what appeared on the FINRA list, and to know her only by a different name she uses. Documents produced by Evercore, including text messages and emails between HIXON and Individual A, make clear that HIXON had, in fact, long been aware of Individual A’s legal name. And bank records show that he wrote numerous large checks to Individual A, in her legal name, from 2009 to 2010. On January 28, 2014, HIXON met with two FBI agents and told them, among other things, that he did not have access to and had never traded in Individual A’s brokerage account.
When Evercore confronted HIXON about his failure to identify Individual B, his close relative, HIXON responded that the associated location given for Individual B on the FINRA list – Duluth, Georgia – was inaccurate, because Individual B lives in Johns Creek, Georgia. Johns Creek shares a zip code with portions of Duluth, and was only incorporated as its own city in December 2006. The city reflected on the brokerage account statements for Individual B’s account is Duluth.
HIXON, 55, of New York, New York, pled guilty to three counts of securities fraud, two counts of securities fraud in connection with a tender offer, and one count of making a false statement. Each of the securities fraud charges carries a maximum term of 20 years in prison, and the false statement charge carries a maximum term of five years in prison. HIXON is scheduled to be sentenced by Judge Abrams on August 1, 2014, at 11:00 a.m. As part of his guilty plea, HIXON also agreed to forfeit $710,000 to the United States. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of the FBI and thanked the Securities and Exchange Commission, which has filed civil charges in a separate action. Mr. Bharara also thanked Evercore for its cooperation in this matter.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established 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. For more information on the task force, please visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Sarah E. McCallum is in charge of the prosecution.
Manhattan U.S. Attorney Charges 24 Members of Bronx Street Gang with Racketeering Conspiracy, Narcotics Trafficking, and Firearm OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), James J. Hunt, the Acting Special Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), William J. Bratton, the Commissioner of the Police Department for the City of New York (“NYPD”), and Thomas J. Cannon, the Special Agent-in-Charge of the New York Field Division of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), announced charges against 24 members of a criminal organization, known as “Murda Moore Gangstas” (“MMG”), who controlled the area in and around the Moore Housing Projects, near East 149th Street and Jackson Avenue, in the Bronx, New York. The MMG gang members are charged with racketeering, narcotics, and firearm offenses.
Twenty-one of the defendants, including those taken into custody today and five of the defendants who were in state or federal custody on other charges, will be presented in Manhattan federal court this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “Keeping our neighborhoods safe and secure from gang violence remains one of this Office’s highest priorities. Cases like this one, where we worked closely with our local and federal law enforcement partners to charge 24 leaders and members of a violent gang that allegedly terrorized the Moore Housing Projects in the Bronx, can make a big difference. All New Yorkers have the right to the peaceful enjoyment of their neighborhoods, whether they live in Mott Haven or Riverdale. That requires the combined efforts of law enforcement to make and prosecute cases like this one.”
ICE HSI Special Agent-in-Charge James T. Hayes said: “This organization’s alleged illicit activities of narcotics and weapons trafficking created a nightmare of crime and violence in the neighborhoods where they operated,” said James T. Hayes Jr., special agent in charge of HSI New York. “Only through continuous law enforcement cooperation can these criminals be taken off the streets and allow law-abiding citizens to reclaim their communities.”
DEA Acting Special Agent in Charge James J. Hunt stated, “Law enforcement’s collaboration and resources over the past two years led to the indictments of 24 members of the Murda Moore Gangsta crew on charges ranging from racketeering, narcotics and firearms felonies. Law abiding residents in surrounding areas of the Moore Housing Projects had been caught in the crossfire of violence associated with drug trafficking. Today’s arrests are the second wave of an investigation focused on reclaiming the Mott Haven community from the carnage, crime and fear that are linked to the MMG drug operations.”
NYPD Commissioner William J. Bratton said: “The NYPD will continue to work with our law enforcement partners to track down street crews that commit violent crimes amongst law abiding citizens. The Mott Haven community and residents in the Moore and Saint Mary Park Houses will hopefully feel safer knowing that their children can now play in the area that these crew members once used as their own personal battle ground, and that these crews have been removed from their midst. I want to thank the members of the NYPD's Bronx Gang Squad, 40th Precinct, the Drug Enforcement Administration, and the United States Attorney’s Office, Southern District of New York, for their efforts in bringing these criminals to justice.”
ATF Special Agent-in-Charge Thomas J. Cannon said: “Today’s arrests are convincing indicators that this investigation is far from over. We are pleased to be working with our fellow agencies to ensure that all of our respective resources are being utilized as efficiently as possible. In this way, this organization will be swiftly eradicated. The people of New York deserve nothing less.”
According to the Indictment unsealed today in Manhattan federal court:
From 2006 through 2014, MMG has been a criminal enterprise consisting of over 20 gang members who were involved in street robberies, assaults, and sales of crack cocaine, marijuana, and other drugs. MMG was started by five individuals – including TEVIN MIZELL, a/k/a “Tev Gunz,” KEVIN MIZELL, a/k/a “Kev Gunz,” EDWIN SMITH, a/k/a “Ed Black,” and JOSHUA FLADGER, a/k/a “Millz,” the defendants – who are known, within MMG, as the “Top Five.” Later, other individuals, including RICHARD SHACKLEFORD, a/k/a “Sha,” and AMAR TAYLOR, a/k/a “Capo MMG,” the defendants, also grew into leadership roles within the enterprise. MMG members protected and controlled its territory in and around the Moore Housing Projects through violence, and committed various crimes within and around that territory, like shootings, robberies, assaults, and narcotics trafficking.
In particular, MMG members have been embroiled in a continuing violent feud with several rival crews and gangs located nearby in the Bronx, such as gangs from the following areas: (1) the Betances Houses (the “Lookin’ Real Good,” or “LRG,” gang); (2) the Riverpark Towers Houses (the “RPT” gang); (3) Millbrook Housing Project (the “Killbrook Up” and “Killbrook Down” gangs); and (4) Highbridge Gardens Houses (the “Young Flybridge” gang).
In addition, as stated, certain MMG members also sold narcotics in the Moore Houses, and prohibited and prevented outsiders and rival gang members from doing so in their territory. Similarly, many members of MMG committed street-level robberies, either of drug dealers or law-abiding citizens, in and around the Moore Houses. In furtherance of the gang’s activities – namely, the violence, the narcotics distribution and the robberies – members and associates of MMG obtained, possessed, and used firearms.
TEVIN MIZELL, a/k/a “Tev Gunz,” KEVIN MIZELL, a/k/a “Kev Gunz,” EDWIN SMITH, a/k/a “Ed Black,” JOSHUA FLADGER, a/k/a “Millz,” RICHARD SHACKLEFORD, a/k/a “Sha,” AMAR TAYLOR, a/k/a “Capo MMG,” RONATHAN FLADGER, a/k/a “Jeezy,” NOEL BIDO, a/k/a “Bigga,” HENNISON CURRY, a/k/a “Henny,” JOSEPH OTERO, a/k/a “Triple-H,” SHAWN ARNOLD MCFADDEN, a/k/a “Weezy,” DEQUAN BROWN, a/k/a “Dada,” TYRE DAVIS, a/k/a “Tye,” KAYMAR FRANCIS, a/k/a “Kayo,” JOSEPH HUNTLEY, a/k/a “Goonie,” ODANIS OZUNA, a/k/a “Jose Ozoria,” a/k/a “O,” JAMES ANDERSON, MARK GRAYSON, a/k/a “Biscuit,” MICHAEL JAMES, MALIK MCCOLLUM, a/k/a “Dot,” ROBERT WANNAMAKER, EDWARD BINYARD, a/k/a “E,” a/k/a “E-Wreck,” TAYVON KILPATRICK, a/k/a “Trayvon Wilson,” NICHOLAS ROSARIO, a/k/a “Nico Gunz,” the defendants, are all charged with conspiring to participate in a racketeering enterprise, the Murda Moora Gangstas street gang. In addition, 11 of these defendants are charged with one count of conspiring to distribute crack cocaine, marijuana, and MDMA, and 19 of these defendants are charged with using, carrying, possessing, and discharging firearms during the racketeering and narcotics conspiracies.
A chart containing the names, ages, residences, charges, and maximum penalties for the defendants is attached to this release. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
The case is assigned to U.S. District Judge Richard J. Sullivan.
Mr. Bharara praised the outstanding investigative work of the HSI New York El Dorado Task Force DEA group, the NYPD Bronx Gang Squad, the ATF, and DOCCS. He added that the investigation is continuing.
The Office’s Violent Crimes Unit is overseeing the case. Assistant U.S. Attorneys Ryan P. Poscablo, Santosh Aravind, and Andrew Bauer are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Click here to view chart(s)
Registered Sex Offender Sentenced to 35 Years in Prison for Possessing, Receiving, and Distributing Child Pornography and for Transferring Obscene Material to A MinorRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JONATHAN DELAURA, 39, was sentenced to 35 years in prison by United States District Judge Kenneth M. Karas for receiving and distributing child pornography over the Internet, possessing child pornography, and sending obscene material to a 15-year-old boy.
U.S. Attorney Preet Bharara stated: “This case underscores the need for law enforcement to remain vigilant in protecting children from those who might prey on them over the Internet. As today’s sentencing demonstrates, we will use every tool available to law enforcement to find, prosecute and punish those who possess and distribute child pornography.”
According to documents filed in this case and statements made in related court proceedings:
On October 7, 2009, DELAURA, of Jefferson Valley, Westchester County, New York, pled guilty in Bronx County Court to sexual misconduct. His victim was a 12-year-old boy. He was sentenced on December 16, 2009, to six years of probation and registered with the New York State Sex Offender Registry.
On December 14, 2010, after Westchester Probation Department discovered that DELAURA was teaching tennis to children in Putnam County, New York, under an alias “Jon Dulak,” his probation was revoked and he was sentenced to a one-year term of imprisonment.
DELAURA was released from prison in April 2011. From May 5, 2011, through May 10, 2011, DELAURA distributed files containing images and videos of child pornography over the Internet via a Peer-to-Peer networking program.
In November 2011, DELAURA contacted a 15-year-old boy (the “Victim”) in an Internet chat room using the screen name “sillyrabbit” and claimed to be a 17-year-old girl. After an exchange of messages, DELAURA sent obscene photographs to the Victim. Thereafter, DELAURA sexually abused the Victim. On February 2, 2012, DELAURA was arrested by officers from the Putnam County Sheriff’s Department (“PCSD”). After DELAURA was arrested, PCSD officers executed a search warrant at his residence and recovered an iPod, which contained approximately 162 videos containing images of child pornography and approximately 5 still photos of images containing child pornography. The iPod also contained the obscene photographs that were sent to the Victim.
On December 12, 2012, DELAURA pled guilty in Putnam County Superior Court to two counts of Criminal Sexual Act in the 3rd Degree. Those charges related to DELAURA’s abuse of the Victim. On April 2, 2013, DELAURA entered a guilty plea in Federal Court to (1) receiving and distributing child pornography in May 2011, (2) possessing child pornography in February 2012, (3) transferring obscene material to the Victim in November 2011 and (4) doing so while registered as a sex offender.
Following DELAURA’s arrest in February 2012, an additional victim disclosed repeated sexual abuse by DELAURA in 2010 that began when the victim was 14 years old and DELAURA was the victim’s tennis instructor.
In sentencing DELAURA, Judge Karas stated that the defendant caused “indescribable pain” to the victims and their parents.
DELAURA has not yet been sentenced in Putnam County. Pursuant to his agreement with the Putnam County District Attorney’s Office, Putnam County will recommend consecutive sentences of one-and-a-third to four years on each of the counts to run concurrent with the federal sentence.
Mr. Bharara praised the efforts of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations in New York, the Putnam County Sheriff’s Department, the Yorktown Police Department, the Putnam County District Attorney’s Office, and the Westchester County District Attorney’s Office in connection with this investigation.
The case is being handled by the White Plains Division. Assistant United States Attorney Marcia S. Cohen is in charge of the prosecution.
Manhattan U.S. Attorney Files and Simultaneously Settles Civil Fraud Lawsuit Against Broker and Distributor of Dairy Products for $1.26 MillionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed and simultaneously settled a civil fraud lawsuit against a broker and a distributor of dairy products, alleging that defendants used false statements to buy federally subsidized dairy products. Specifically, the lawsuit alleges that HUGH HENLEY (“HENLEY”); two companies that Henley owns and operates, PRESTIGE PROTEINS and PRESTIGE MILK PROTEINS, LLC (collectively, “PRESTIGE”); and AGRI-DAIRY PRODUCTS, INC. (“AGRI-DAIRY”), defrauded the United States by conspiring to submit, and submitting, two false bids to the United States Department of Agriculture (the “USDA”) for the purchase of federally subsidized goods in 2009. As alleged in the Complaint, through those false bids, defendants fraudulently bought more than two million pounds of dairy products at federally-subsidized discount prices and unlawfully resold those products at market prices for substantial profits. The settlement requires defendants to admit to the false bidding, and collectively pay damages of $1,265,055. The settlement was approved Friday, March 28, 2014, by U.S. District Judge William H. Pauley.
Manhattan U.S. Attorney Preet Bharara said: “The federal government set up a program to help domestic manufacturing in the dairy industry by selling dairy products at federally subsidized low prices. The defendants engaged in lies and other deceptive conduct to skim product from this program so they could illegally sell it, rather than manufacture the intended product. Those who want to abuse federal programs should understand that such conduct will not be tolerated by this Office.”
According to the allegations contained in the Complaint filed Monday, March 24, 2014, in Manhattan federal court:
PRESTIGE, which is owned and operated by HENLEY, brokers the importation and distribution of dairy products in the United States. AGRI-DAIRY distributes dairy products in the United States. In 2009, the USDA invited qualified dairy product companies to submit bids for the purchase of discounted nonfat dry milk (“NDM”) through a federal program, the Dairy Product Price Support Program. The bidders were required to certify that they could and would domestically manufacture the product into casein, a common protein product. In particular, each bidder was required to certify that it had the facilities to manufacture casein domestically and that the bidder would use the NDM solely for domestic conversion into casein within 90 days. The purpose of the certification was to ensure that the federally subsidized NDM would be used to benefit the domestic manufacturing industry.
The defendants conspired to exploit this federal program by obtaining the federally discounted NDM and re-selling it on the open market, contrary to the program requirements and certifications. Specifically, defendants agreed that HENLEY, in the name of PRESTIGE, would submit two bids to the USDA falsely certifying that he had the facilities to manufacture the NDM into casein and would do so within 90 days. They did so knowing that PRESTIGE lacked the ability to manufacture the NDM into casein domestically. HENLEY and AGRI-DAIRY further agreed that AGRI-DAIRY would advance PRESTIGE the funds to pay the USDA for the dairy products, that AGRI-DAIRY would then sell the NDM at market prices, and that PRESTIGE and AGRI-DAIRY would split the net profits from the resale.
HENLEY, in the name of PRESTIGE, then submitted two false bids to the USDA and won the contracts each time. AGRI-DAIRY wired HENLEY the funds to allow PRESTIGE to pay the USDA, as an advance against profits from the resale of the NDM. Then, instead of converting the NDM into casein, defendants resold the NDM to AGRI-DAIRY’S customers at market prices after each purchase. Further, because the USDA required a certification of conversion to casein within 15 days of conversion as a condition of the sales, HENLEY twice falsely certified that PRESTIGE had, in fact, converted the NDM to casein, when it had not.
As a result of their conspiracy to submit false bids to the USDA, defendants collectively made a total of more than $630,000 from their resale of the discounted NDM they unlawfully acquired from the USDA.
In connection with the settlement, HENLEY and PRESTIGE will pay the United States $632,527 in damages, and AGRI-DAIRY also will pay $632,527 in damages, for a total settlement amount of $1,265,055.
As part of the settlement, HENLEY, PRESTIGE, and AGRI-DAIRY admitted, acknowledged, and accepted responsibility for the following facts:
- On or about June 1, 2009, and November 25, 2009, Henley presented two bids to the USDA to purchase discounted NDM;
- In those bids to purchase NDM, Henley falsely certified that the NDM would be used solely for domestic conversion into casein or caseinate, one of USDA’s requirements for purchasing the NDM;
- The two false bids were made pursuant to an agreement between Agri-Dairy and Henley, by which the NDM would not be used for the purpose of domestic conversion into casein or caseinate, but instead would be sold by Agri-Dairy to third parties, with the net profits from the sales split between Henley and the Prestige entities, on the one hand, and Agri-Dairy, on the other;
- Pursuant to that agreement, the NDM that Henley acquired from the USDA in connection with the June and November 2009 bids was not converted to casein, but was resold by Agri-Dairy; the net profits from those sales were split between Henley and the Prestige entities, on the one hand, and Agri-Dairy, on the other; and
- On or about October 5, 2009, and March 9, 2010, Henley falsely certified that the NDM purchased from the USDA in connection with the June and November 2009 bids had been converted to casein or caseinate, when in fact that had not occurred.
Mr. Bharara thanked the USDA, Office of the Inspector General, for its assistance in this case.
The case is being handled by the Office’s Civil Frauds Unit.
U.S. v. Henley Prestige AgriDairy Complaint
U.S. v. Henley Stipulation and Order of Settlement
U.S. v. Agridairy Stipulation and Order of SettlementFormer President and Chief Executive Officer of Software Company Sentenced in Manhattan Federal Court to 63 Months in Prison for $6.3 Million Offering Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that SCOT ZARKIEWICZ, the co-founder and former President, Chief Executive Officer, Treasurer, and principal owner of SingleClick Systems Corp. (“SingleClick”), a Delaware-incorporated, New Jersey-based software company, was sentenced today in Manhattan federal court to 63 months in prison for perpetrating a scheme to defraud SingleClick investors. From mid-2009 through June 2013, ZARKIEWICZ solicited several investors to purchase millions of dollars of privately-held SingleClick stock based on fraudulent misrepresentations about the company’s operations and financial performance. As a result of his fraudulent scheme, ZARKIEWICZ collected, and maintained in SingleClick, approximately $6.3 million from 35 victims. ZARKIEWICZ pled guilty in November 2013 before U.S. District Judge Denise L. Cote., who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence, Scot Zarkiewicz is being held to account for misleading investors and betraying their trust with his multimillion-dollar fraud scheme.”
According to the Information to which ZARKIEWICZ pled guilty, statements made in open court, and other court documents:
SingleClick is a privately-held software company that was engaged in the business of providing individuals and businesses with network software products that facilitate content access and network and systems management from any internet-connected device. From mid-2009 through June 2013, ZARKIEWICZ solicited investor contributions to, and caused investors to maintain their investments in, SingleClick based on fraudulent misrepresentations.
Specifically, during the relevant period, ZARKIEWICZ told SingleClick investors, in both oral and written communications, that SingleClick had several large corporate clients, millions of dollars in annual revenue, and millions of dollars in cash in bank and brokerage accounts, when, in truth and in fact, and as ZARKIEWICZ well knew, SingleClick conducted minimal business operations, collected significantly less than a million dollars in annual revenue, and did not have more than approximately $513,000 in cash on hand. ZARKIEWICZ made these misrepresentations to induce potential investors to purchase SingleClick shares, and to induce existing investors to purchase additional shares and/or refrain from requesting redemptions of their investments. ZARKIEWICZ made these misrepresentations by, among other means, distributing fabricated bank, brokerage, financial, and tax statements to investors.
In May and June 2013, investors learned that SingleClick had very little cash available and confronted ZARKIEWICZ. ZARKIEWICZ admitted to investors that he lied about SingleClick’s business performance, fabricated records, and misled investors about the number of investors in, and operation of, SingleClick. Notwithstanding representations made in preceding years by ZARKIEWICZ that SingleClick had millions of dollars in revenue – including representations that SingleClick had generated $48 million in revenue in 2012 – since mid-2009, SingleClick has actually been generating thousands of dollars in revenue, not millions, and SingleClick’s total aggregate bank account balances have not exceeded approximately $513,000. In August 2013, after admitting his fraudulent conduct, ZARKIEWICZ resigned as CEO of SingleClick.
ZARKIEWICZ, 41, of Toms River, New Jersey, was also sentenced to three years of supervised release, ordered to forfeit $5.5 million as well as any remaining proceeds in SingleClick bank accounts, and pay over $6.3 million in restitution.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established 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 nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney David I. Miller is in charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni is in charge of the asset forfeiture related to the prosecution.
Statement of Manhattan U.S. Attorney Preet BhararaOn the Conviction of Usama Bin Laden Son-In-Law Sulaiman Abu Ghayth on All ChargesRead the Press Release
“A jury unanimously found that Sulaiman Abu Ghayth not only conspired to provide, and actually provided, material support to al Qaeda, but also conspired to kill Americans. He was more than just Usama bin Laden's propaganda minister. Within hours after the devastating 9/11 attacks, Abu Ghayth was using his position in al Qaeda's homicidal hierarchy to persuade others to pledge themselves to al Qaeda in the cause of murdering more Americans. Like the others who have faced terrorism charges in Manhattan's federal courthouse before him, Abu Ghayth received a fair trial, after which a unanimous jury rendered its verdict, justly holding him accountable for his crimes. We hope this verdict brings some small measure of comfort to the families of the victims of al Qaeda’s murderous designs.”
Distributor of Dietary Supplements Pleads Guilty in Manhattan Federal Court to Misbranding Weight-Loss PillsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Mark Dragonetti, Special Agent in Charge of the New York Field Office of the United States Food and Drug Administration (“FDA”) Office of Criminal Investigations (“OCI”), announced that BALANCED HEALTH PRODUCTS (“BHP”), the United States distributor of “StarCaps” weight-loss pills, and its sole owner, NIKKI HASKELL, pled guilty today to distributing misbranded pills which failed to list Bumetanide, a prescription drug, as an ingredient. BHP and HASKELL pled guilty before United States Magistrate Court Judge Sarah Netburn.
Manhattan U.S. Attorney Preet Bharara said: “For years, Nikki Haskell and Balanced Health Products distributed weight-loss pills throughout the United States that they sold as ‘all-natural’ when in fact the pills contained a prescription drug banned by the National Football League and other major sports organizations. Consumers are entitled to know, when they buy a product, what they are putting in their bodies. With today’s pleas, the defendants begin to face the consequences of their unlawful conduct.”
FDA-OCI Special Agent in Charge Mark Dragonetti said: “The FDA Office of Criminal Investigations is fully committed to investigating and supporting the prosecution of those who may endanger the public’s health and safety by manufacturing and selling unsafe products. We will continue to aggressively pursue manufacturers, distributors and other responsible persons who fail to protect consumers from harmful products and we commend the United States Attorney’s Office for their prosecution of this matter.”
According to the Information filed today, and statements made in Court:
The FDA is a federal agency responsible for enforcing the provisions of the Federal Food, Drug, and Cosmetic Act, Title 21, United States Code, Section 301, et seq. The FDA’s responsibilities include, among other things, ensuring the safety, efficacy, and accurate labeling of prescription and non-prescription drugs shipped, delivered, and received in interstate commerce.
From at least in or about November 2006 through December 2008, BHP was a Delaware corporation headquartered in New York, New York. BHP’s primary business was the distribution across the United States of a purportedly all-natural weight-loss pill known as Nikki Haskell’s StarCaps (“StarCaps”). At all times, HASKELL was the President and Chief Executive Officer of BHP and resided in New York, New York.
As alleged, according to its product label, StarCaps contained only all-natural ingredients including, for example, papaya extract. In truth and fact, however, while not reflected on its label, from at least approximately November 2006 through approximately December 2008, StarCaps also contained a prescription drug, Bumetanide, a diuretic drug used clinically to treat heart failure, acute renal failure, high blood pressure, and edema, and available in the United States only by prescription issued by a licensed physician.
In addition to being available only by prescription, Bumetanide was banned by certain professional sports organizations including the National Football League (“NFL”). Among other things, Bumetanide was banned by the NFL because it can be used to mask the presence in the human body of steroids and other banned doping agents.
HASKELL, 72, of New York, New York, pled guilty to one count of misbranding, a misdemeanor which carries a maximum term of one year in prison, a maximum term of supervised release of one year, and a maximum fine of $100,000. BHP pled guilty to one count of misbranding, a misdemeanor which carries a maximum fine of $200,000 or twice the gross pecuniary gain derived from the offense. Both defendants are scheduled to be sentenced before U.S. Magistrate Court Judge Netburn on June 30, 2014. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the FDA.
The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Robin W. Morey is in charge of the prosecution.
U.S. v. Nikki Haskell and Balanced Health Products Information
Al Qaeda Spokesman Sulaiman Abu Ghayth Convicted in Manhattan Federal Court of Conspiring to Kill Americans, Providing Material Support to TerroristsRead the Press Release
Eric Holder, the Attorney General of the United States, Preet Bharara, the United States Attorney for the Southern District of New York, John P. Carlin, the Acting Assistant Attorney General for National Security, George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, the Police Commissioner of the City of New York (“NYPD”), announced today that SULAIMAN ABU GHAYTH, a/k/a “Salman Abu Gayth,” Usama Bin Laden’s son-in-law and spokesman for al Qaeda, was found guilty today in Manhattan federal court of conspiracy to kill U.S. nationals, conspiracy to provide material support to terrorists, and providing material support to terrorists. GHAYTH is scheduled to be sentenced on September 8, 2014, at 2:30 p.m., before U.S. District Judge Lewis A. Kaplan, who presided over the three-week trial.
Attorney General Eric Holder said: “This verdict is a major milestone in the government’s unrelenting efforts to pursue justice against those involved with the September 11 attacks. I can imagine no more fitting outcome, and no stronger message to those who would harm our nation and its people: that no amount of distance or time can weaken America’s resolve to pursue, capture, and hold them accountable to the fullest extent of the law. I want to especially note that this verdict has proven that proceedings such as these can safely occur in the city I am proud to call home, as in other locations across our great nation. It was appropriate that this defendant, who publicly rejoiced over the attacks on the World Trade Center, faced trial in the shadow of where those buildings once stood. We never doubted the ability of our Article III court system to administer justice swiftly in this case, as it has in hundreds of other cases involving terrorism defendants. It would be a good thing for the country if this case has the result of putting that political debate to rest. This outcome vindicates the government’s approach to securing convictions against not only this particular defendant, but also other senior leaders of al Qaeda. I want to personally congratulate U.S. Attorney Bharara, his team in the Southern District of New York, and those who assisted in our National Security Division, for successfully prosecuting this case with the utmost integrity and professionalism. I also wish to thank the Federal Bureau of Investigation, the New York City Police Department, the U.S. Marshals Service, and Mayor de Blasio and the City of New York. This was truly a team effort.”
Manhattan U.S. Attorney Preet Bharara said: “Sulaiman Abu Ghayth arrived in the United States to face American justice on March 1, 2013, and in barely over a year he has been tried and convicted, and faces a possible life sentence. A jury unanimously found that Abu Ghayth not only conspired to provide, and actually provided, material support to al Qaeda, but also conspired to kill Americans. He was more than just Usama bin Laden’s propaganda minister. Within hours after the devastating 9/11 attacks, Abu Ghayth was using his position in al Qaeda's homicidal hierarchy to persuade others to pledge themselves to al Qaeda in the cause of murdering more Americans. Like the others who have faced terrorism charges in Manhattan’s federal courthouse before him, Abu Ghayth received a fair trial, after which a unanimous jury rendered its verdict, justly holding him accountable for his crimes. We hope this verdict brings some small measure of comfort to the families of the victims of al Qaeda’s murderous designs.”
Acting Assistant Attorney General John Carlin said: “This case highlights our resolve to find and bring to justice those who plot to attack our citizens and our interests around the world. As the face and voice of al Qaeda in the days and weeks after the 9/11 attacks, Abu Ghayth conspired with Usama Bin Laden and al Qaeda and announced to the world al Qaeda’s deadly intentions to continue to attack America. Today, he stands convicted and he will face justice for his role in al Qaeda’s lethal plot to kill Americans. I want to thank all of the agents, analysts, and prosecutors who are responsible for this result.”
FBI Assistant Director-in-Charge George Venizelos said: “A Manhattan jury found Abu Ghayth guilty for not only supporting a terrorist organization, but conspiring to kill Americans. Like a consigliere for the mob or the chief of staff to a corrupt foreign leader, Abu Ghayth was the spokesman, confidant, and senior adviser to Bin Laden's organization. Abu Ghayth looked to better al Qaeda's reputation at every turn –even just minutes after the 9/11 attacks - offering advice and counsel to the organization’s senior leadership. He encouraged others to abandon the true tenets of their faith, swearing bayat to the twisted ideology. The FBI's Joint Terrorism Task Force will relentlessly pursue anyone who supports this radical, violent terrorist agenda.”
NYPD Commissioner William Bratton said: “I applaud the members of the jury who wasted no time when coming to a decision to convict this preacher of hate for his involvement in attacks to kill Americans. I hope this verdict will bring some comfort to the families of the victims of September 11th, 2001.”
According to the evidence presented at trial, and other public proceedings in Manhattan federal court:
Since around 1989, al Qaeda has been an international terrorist organization, dedicated to opposing non-Islamic governments with force and violence. Usama Bin Laden served as the leader or “emir” of al Qaeda until his death on or about May 2, 2011. Members of al Qaeda typically have pledged an oath of allegiance, called bayat, to Bin Laden and to al Qaeda.
The core purpose of al Qaeda, as stated by Bin Laden and other leaders, is to support violent attacks against property and nationals, both military and civilian, of the United States and other countries. Between 1989 and 2001, al Qaeda established training camps, guest houses, and business operations in Afghanistan, Pakistan, and other countries for the purpose of training and supporting its agenda of violence and murder. Members and associates of al Qaeda have executed a number of terrorist attacks, all in furtherance of the organization’s stated conspiracy to kill Americans, including the attacks on the United States on September 11, 2001 in New York, Virginia, and Pennsylvania, which killed approximately 2,976 people.
From at least May 2001 up to around 2002, GHAYTH served alongside Usama Bin Laden, appearing with Bin Laden and his then-deputy Ayman al-Zawahiri, speaking on behalf of the terrorist organization and in support of its mission, and warning that attacks similar to those of September 11, 2001 would continue.
In particular, around May 2001, GHAYTH urged individuals at a guest house in Kandahar, Afghanistan, to swear bayat to Bin Laden. On the evening of September 11, 2001, immediately after the terrorist attacks on the United States, Bin Laden summoned GHAYTH and asked for his assistance, which he agreed to provide. On the morning of September 12, 2001, GHAYTH, appeared with Bin Laden and Zawahiri, and spoke on behalf of al Qaeda, warning the United States and its allies that “[a] great army is gathering against you” and called upon “the nation of Islam” to do battle against “the Jews, the Christians and the Americans.” Also, after the September 11, 2001, terrorist attacks, GHAYTH delivered a speech in which he addressed the then-U.S. Secretary of State and warned that “the storms shall not stop, especially the Airplanes Storm,” and advised Muslims, children, and opponents of the United States “not to board any aircraft and not to live in high rises.” At this time, in Afghanistan, Bin Laden and others within al Qaeda were plotting to detonate shoe bombs aboard flights within or en route to the United States.
Thereafter, GHAYTH arranged to be, and was, successfully smuggled from Afghanistan into Iran in 2002.
GHAYTH, 48, was convicted of one count of conspiring to kill United States nationals, in violation of Title 18, United States Code, Section 2332(b); one count of conspiring to provide material support to terrorists, in violation of Title 18, United States Code, Section 2339A; and one count of providing material support to terrorists, in violation of Title 18, United States Code, Section 2339A. The offenses carry a maximum term of life in prison. The maximum potential sentence is prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
The convictions of Abu Ghayth are the result of the close cooperative efforts of the U.S. Attorney’s Office for the Southern District of New York, the FBI’s Joint Terrorism Task Force – which principally consists of agents and detectives of the FBI and the NYPD – the United States Marshals Service and the National Security Division of the U.S. Department of Justice. The Justice Department’s Office of International Affairs and the U.S. Department of State also provided assistance.
The prosecution is being handled by Assistant United States Attorneys John P. Cronan, Nicholas J. Lewin, and Michael Ferrara of the Terrorism and International Narcotics Unit of the U.S. Attorney’s Office for the Southern District of New York, with assistance from Trial Attorney Jolie Zimmerman of the National Security Division’s Counterterrorism Section, Tara M. LaMorte of the Civil Division of the U.S. Attorney’s Office for the Southern District of New York, and Diane Gujarati, Deputy Chief of the Criminal Division of the U.S. Attorney’s Office for the Southern District of New York.
U.S. v. Sulaiman Abu Ghayth S14 Indictment
Manhattan U.S. Attorney Charges Leader of Racketeering Organization in A 48-Count Indictment with 10 Murders and 10 Attempted Murders, Marijuana Trafficking, Money Laundering, and Other ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), and William J. Bratton, the Police Commissioner of the City of New York (“NYPD”), today announced the return of a 48-count superseding Indictment charging MANUEL GEOVANNY RODRIGUEZ-PEREZ, a/k/a “Shorty,” with controlling a massive racketeering organization (the “Rodriguez Enterprise”) whose members sold large quantities of marijuana, murdered and attempted to murder 20 people, transported and laundered millions of dollars, obstructed justice and committed perjury, and engaged in firearms offenses. This Indictment was filed yesterday in connection with “Operation Green Venom,” a coordinated multi-agency investigation that was led by ICE HSI and first announced in October 2010. RODRIGUEZ-PEREZ will be arraigned before U.S. District Judge Laura T. Swain on Thursday at 4:30 p.m.
Manhattan U.S. Attorney Preet Bharara said: “Today we announce the addition of no fewer than 10 murders and attempted murders to the already numerous alleged egregious acts of violence, drug trafficking, and other criminal conduct with which Manuel Rodriguez-Perez is charged. This Office will continue to work with our law enforcement partners until everyone involved in this enterprise is brought to justice.”
ICE HSI Special Agent-in-Charge James T. Hayes, Jr., said: “As alleged, the Rodriguez Drug Trafficking Organization sought to maintain its vise grip on the drug trade throughout New York City by using murder and assaults on its competitors and workers alike. HSI and its law enforcement are committed to taking down drug organizations that wreak havoc on our neighborhoods.”
NYPD Commissioner William J. Bratton said: “Individuals who traffic illegal drugs and give orders to take someone’s life have no place in our city. Thanks to the efforts of the investigators and prosecutors involved in this extensive case, these criminals will be prosecuted to the fullest extent of the law.”
According to the allegations contained in the superseding Indictment unsealed yesterday in Manhattan federal court:
RODRIGUEZ-PEREZ, the leader of the Rodriguez Enterprise, is charged with ten murders and ten attempted murders, including the murders of the following victims:
- Francisco Perez, a/k/a “Francie,” on October 26, 1997;
- Antonio Kasse, a/k/a “Toasty,” on December 13, 1998;
- FNU LNU, a/k/a “Carlos Valentin,” a/k/a “Campi,” in or about 2000;
- Noel Herrera, on December 29, 2001;
- Kelly Perez, a/k/a “Red” on September 16, 2002;
- Marino Molina, on January 11, 2003;
- Wilfredo Molina, a/k/a “Willie,” on May 3, 2004;
- Manuel Rivas, a/k/a “Tony el Mono,” on October 29, 2005;
- Richard Cabrera, a/k/a “Bori,” on January 16, 2006; and
- Saturnino Delgado-Garcia, on May 1, 2011
Noel Herrera, Marino Molina, Manuel Rivas, and Saturnino Delgado-Garcia were each murdered in the Dominican Republic. Wilfredo Molina was murdered in New Jersey, and the remaining victims were murdered in New York City. RODRIGUEZ-PEREZ solicited the murder of Delgado-Garcia from prison.
A chart containing the charges in the Superseding Indictment, and the corresponding maximum potential sentences for each count, is attached. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. The charges contained in the Indictment against RODRIGUEZ-PEREZ are merely accusations, and he is presumed innocent unless and until proven guilty.
The Indictment seeks forfeiture of $25 million, which is the approximate amount of gross proceeds received by RODRIGUEZ-PEREZ derived from racketeering activities, properties in New York, Florida, and the Dominican Republic, and cash and jewelry seized by law enforcement officers.
RODRIGUEZ-PEREZ, 41, has been in federal custody since October 15, 2010, when he was arrested during a takedown of more than 50 members of a massive marijuana trafficking ring that transported ton-quantities of marijuana from Florida and California for distribution in the greater New York area from the early 1990’s to 2010.
RODRIGUEZ-PEREZ and eight other defendants were charged in July 2012, in S31 10 Cr. 905 (LTS) with, among other things, five murders and five attempted murders. Since that time, five of the defendants charged in that indictment have pled guilty to, among other things, multiple murders, marijuana trafficking, money laundering, and firearms offenses. The charges against the remaining defendants, Oscar Rodriguez, Theodore Jones, and Jose Espinal, are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Mr. Bharara praised the outstanding investigative work of ICE HSI, the NYPD, and the U.S. Drug Enforcement Administration. He also thanked the Federal Bureau of Investigation, U.S. Marshals Service, the Bergen County, New Jersey, Prosecutor’s Office, the Englewood, New Jersey, Police Department, the U.S. Department of Housing and Urban Development, and the New York City Department of Investigation for their assistance, and added that the investigation is continuing.
The prosecution of the cases arising from “Operation Green Venom” is being overseen by the Office’s Violent Crimes Unit. Assistant U.S. Attorney Amie N. Ely is in charge of the prosecution. Assistant U.S. Attorney Andrew Adams is responsible for the forfeiture proceedings.
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U.S. v. Manuel Geovanny Rodriguez-Perez Indictment S38 10 Cr 905
Statement of Manhattan U.S. Attorney Preet BhararaOn the Convictions of Former Employees of Bernard L. Madoff Investment Securities LLCRead the Press Release
“As the jury unanimously found, these five defendants played crucial roles in constructing and maintaining the house of cards that was the Madoff investment fraud. These convictions, along with the prior guilty pleas of nine other defendants, demonstrate what we have believed from the earliest stages of the investigation: this largest-ever Ponzi scheme could not have been the work of one person. The trial established that the Madoff fraud began at least as far back as the early 1970s, decades before it came to light. These defendants each played an important role in carrying out the charade, propping it up, and concealing it from regulators, auditors, taxing authorities, lenders, and investors. The scheme these defendants helped perpetrate cost innumerable investors their life savings. Now it likely will cost the defendants their freedom.”
Manhattan U.S. Attorney and FBI Announce Charge Against Rikers Island Correction Officer for Deliberately Ignoring Urgent Medical Needs of Inmate Who Later DiedRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of TERRENCE PENDERGRASS, a correction officer and former captain, for deliberately ignoring the urgent medical needs of a Rikers Island inmate who had ingested a corrosive disinfectant and later died, in violation of the inmate’s rights under the United States Constitution. PENDERGRASS was taken into custody this morning, and is expected to be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn.
Manhattan U.S. Attorney Preet Bharara said: “Jason Echevarria should not have died. As alleged, Terrence Pendergrass abused his power as a Rikers Island captain in charge of a vulnerable population of inmates with mental health issues by denying Echevarria access to medical care despite his obvious and urgent medical need for it. The Constitution protects the civil rights of everyone, including prison inmates at Rikers. The kind of conduct alleged today cannot be tolerated in our criminal justice system.”
FBI Assistant Director-in-Charge George Venizelos said: “The public’s trust in law enforcement officers to enforce the law and ensure justice should never be abused. Sadly, as alleged, Mr. Pendergrass took his authority as a supervisory correction officer to the extreme and violated the rights of an inmate in his charge to the point that it resulted in death. The FBI is the lead federal agency to investigate such abuses of power and it remains one of our top priorities.”
According to the allegations contained in the Complaint unsealed today in Manhattan federal court:
Rikers Island is a jail complex, located in the Bronx, New York, maintained by the New York City Department of Correction. At the time of his death, Jason Echevarria was an inmate incarcerated on Rikers Island in the Mental Health Assessment Unit for Infracted Inmates, a unit housing inmates who have committed infractions while incarcerated and who have been identified as needing mental health treatment.
On the afternoon of August 18, 2012, Echevarria swallowed a powerful disinfectant/detergent combination in powder form, commonly referred to as a “soap ball,” sometimes provided to inmates to assist in the cleaning and disinfecting of cells. Echevarria had been given the soap ball by a new correction officer for the purpose of cleaning Echevarria’s cell following a sewage backup. The soap ball contained, among other things, ammonium chloride, a corrosive chemical that is life threatening if ingested.
After Echevarria swallowed the soap ball, other inmates heard Echevarria banging on his cell door and asking for medical help. Echevarria also told a correction officer that he had swallowed a soap ball and needed medical attention. That correction officer in turn informed PENDERGRASS, the captain—a supervisory correction officer—on duty at that time. PENDERGRASS responded that the correction officer should only call on PENDERGRASS if he needed help with the extraction of an inmate from a cell or if there was a dead body. A short time later, the same correction officer told PENDERGRASS that he saw vomit in Echevarria’s cell, and PENDERGRASS responded that Echevarria should “hold it.”
Later the same day, a pharmacy technician assigned to distribute inmate medication saw that there was vomit in Echevarria’s cell, and that Echevarria’s skin appeared discolored. The pharmacy technician learned from a second correction officer, who was serving as an escort, that Echevarria had swallowed a soap ball, and Echevarria told both the pharmacy technician and the second correction officer that he needed medical help. The pharmacy technician informed the second correction officer that Echevarria could die if he did not receive medical attention. The second correction officer then informed PENDERGRASS that Echevarria had swallowed a soap ball and needed medical help. Notwithstanding this report, PENDERGRASS failed to contact any medical personnel about Echevarria’s condition. In fact, PENDEGRASS told the second correction officer that perhaps the officer had simply misheard Echevarria’s request for medical help, which the second correction officer responded was not the case.
The next morning, Echevarria was found dead in his cell. An autopsy revealed that Echevarria died as a result of injuries caused by the ingestion of a caustic substance, consistent with the ingestion of a soap ball. Echevarria had internal burns and scarring along his esophagus and into his trachea, indicating that he suffered aspiration of vomit into his lungs. At no point prior to his death was Echevarria provided with any medical assistance to treat his ingestion of the substances contained in the soap ball.
PENDERGRASS, 49, of Howard Beach, New York, is charged with one count of deprivation of rights under color of law. He faces a maximum sentence of ten years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of the FBI. Mr. Bharara also thanked the New York City Department of Correction, Investigation Division, and the Bronx County District Attorney’s Office for their assistance in the ongoing investigation.
The case is being handled jointly by the Office’s Civil Rights Unit and Public Corruption Unit. Assistant U.S. Attorneys Lara K. Eshkenazi and Daniel C. Richenthal are in charge of the prosecution.
The charge contained in the Complaint is merely an accusation and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Terrence Pendergrass Complaint
Leader of Scheme to Defraud IRS Using Stolen Puerto Rican Identities Sentenced in Manhattan Federal Court to Nine Years in PrisonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CARLOS JOSE LUIS (“JOSE LUIS”), also known as Jose Quilestorres, was sentenced on Friday, March 24, 2014, in Manhattan federal court to nine years in prison for his role as the leader of a scheme to fraudulently generate and then steal more than $10 million in federal tax refund checks. JOSE LUIS pleaded guilty before U.S. District Judge Richard J. Sullivan in May 2013 to one count of each of: conspiracy to steal government funds, stealing government funds, aggravated identity theft, conspiracy to submit false claims to the United States, and submitting false claims to the United States. JOSE LUIS also pleaded guilty to similar charges in the District of New Jersey in November 2013, and that case was transferred to the Southern District of New York for sentencing. Judge Sullivan imposed the nine-year sentence based on JOSE LUIS’s guilty plea in both cases.
Manhattan U.S. Attorney Preet Bharara said: “Jose Luis stole people’s identities and used a corrupted Postal employee to perpetrate a multimillion-dollar tax fraud scheme. As the judge in this case correctly noted, stealing from the government may seem impersonal but everyone who is deprived of the good the government can do by that money being taken is a victim. This Office will not tolerate the wholesale thievery from the Treasury that this scheme was.”
According to the Indictment filed in Manhattan federal court, other court documents, and statements made during court proceedings:
JOSE LUIS operated a tax refund fraud mill from an apartment in the Bronx. Between January 2011 and September 2012, JOSE LUIS fraudulently claimed more than $10 million in IRS tax refund checks.
To fraudulently obtain the refund checks, JOSE LUIS would unlawfully obtain identifying information, including names, dates of birth, and social security numbers, of Puerto Rican citizens. Their stolen identities would then be used to claim large refunds from the federal government. Many of the checks in this particular scheme were sent to addresses in Shirley, New York, where a Postal Service employee was stealing United States mail containing tax refund checks. The checks generated by the fraudulent returns filed by JOSE LUIS were then cashed by other individuals, including four individuals charged in the Indictment filed in Manhattan federal court: Miguel Caceres, Felipe Duran Martinez, Ana Pimentel, and Emil Mejia.
In sentencing JOSE LUIS, Judge Sullivan remarked that “this is a crime that went on for a long time, the entire purpose of which was to steal from the government of the United States. On the one hand, that's . . . a very impersonal victim. . . . But it is a government that is designed to serve people and serve communities. And so the staggering amount of loss here . . . more than $10 million, if you think about what the government could do with that money . . . $10 million can do . . . an awful lot of good. . . . So there are victims to this crime. . . .”
Caceres pleaded guilty in April 2013 to conspiracy to steal government funds and to stealing government funds and was sentenced in November 2013 to 14 months in prison. Martinez pleaded guilty in April 2013 to similar charges and is awaiting sentence. Another individual linked to this organization and charged in the Indictment, Jairo Polanco, also pleaded guilty, in March 2013, and was sentenced in July 2013 to one year and one day in prison. Pimentel and Mejia remain at large. The charges against Pimentel and Mejia are merely accusations, and they are presumed innocent unless and until proven guilty.
Mr. Bharara praised the Internal Revenue Service and the United States Postal Inspection Service for their work on this case.
This case is being prosecuted by the Office’s General Crimes Unit. Assistant U.S. Attorneys Rahul Mukhi and Micah Smith are in charge of this prosecution.
Five Former Employees of Bernard L. Madoff Investment Securities Found Guilty in Manhattan Federal Court on All CountsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that a Manhattan jury today found DANIEL BONVENTRE, ANNETTE BONGIORNO, JOANN CRUPI, a/k/a “Jodi,” JEROME O’HARA, and GEORGE PEREZ guilty of all 31 counts in connection with their long-time employment at Bernard L. Madoff Investment Securities LLC (“Madoff Securities”). The verdict was announced this afternoon after a more than five-month trial before Judge Laura Taylor Swain in Manhattan federal court.
Manhattan U.S. Attorney Preet Bharara said: “As the jury unanimously found, these five defendants played crucial roles in constructing and maintaining the house of cards that was the Madoff investment fraud. These convictions, along with the prior guilty pleas of nine other defendants, demonstrate what we have believed from the earliest stages of the investigation: this largest-ever Ponzi scheme could not have been the work of one person. The trial established that the Madoff fraud began at least as far back as the early 1970s, decades before it came to light. These defendants each played an important role in carrying out the charade, propping it up, and concealing it from regulators, auditors, taxing authorities, lenders, and investors. The scheme these defendants helped perpetrate cost innumerable investors their life savings. Now it likely will cost the defendants their freedom.”
According to the evidence presented during the trial:
BONGIORNO, an employee in the investment advisory business for 40 years, managed hundreds of investment advisory accounts purportedly having a cumulative balance of approximately $8.5 billion dollars as of November 30, 2008. BONGIORNO also supervised employees who worked for the investment advisory business.
CRUPI, an employee in the investment advisory business for 25 years, managed several Madoff Securities investment advisory accounts purportedly having a cumulative balance of approximately $900 million as of November 30, 2008. She also tracked the daily activity of the bank account into which billions of dollars of investment advisory client money was deposited, and from which investment advisory client redemptions were paid.
During the course of managing investment advisory accounts, BONGIORNO and CRUPI “executed” trades in the investment advisory clients’ accounts only on paper, based on historically reported prices of securities that they researched in the Wall Street Journal and Bloomberg. Those trades achieved annual rates of return that had been pre-determined by Madoff. BONGIORNO and CRUPI also backdated the purchase dates of purported trades so that they could control the amount of gains reflected in the investment advisory accounts. Further, BONGIORNO processed exceptional gains in the investment advisory accounts that purportedly occurred months before the investment advisory accounts had been established. BONGIORNO also asked certain investment advisory clients to return previously issued Madoff Securities account statements so that she could alter them, and often include additional backdated trades.
CRUPI handled the receipt of funds sent to Madoff Securities by its clients for investment; transferred clients’ funds between and among various Madoff Securities bank accounts; handled client requests for redemptions sent to Madoff Securities by clients; monitored, on a daily basis, funds transferred into and out of the Madoff Securities bank account that was principally used to perpetrate the fraud; and prepared and assisted in the preparation of fabricated documents designed to deceive regulators and outside auditors. Further, CRUPI provided banks with false information in connection with mortgage loans for other Madoff Securities employees.
BONVENTRE was employed at Madoff Securities for 40 years and served as its Director of Operations. BONVENTRE was responsible for maintaining and supervising the production of the principal internal accounting documents for Madoff Securities, including its general ledger, financial statements, and stock record. BONVENTRE directed that false entries be made in the general ledger that concealed the scope of the investment advisory operations and understated Madoff Securities’s liabilities by billions of dollars. For example, from 1997 to 2008, more than $750 million of investment advisory investor funds were used to support Madoff Securities’s Market Making and Proprietary Trading operations, but were not accounted for on Madoff Securities’s books and records, including the general ledger, so as to conceal the true source of the funds. Moreover, as BONVENTRE knew, the general ledger did not accurately reflect the assets contained in the bank and brokerage accounts into which investment advisory investor funds were deposited, and likewise did not reflect the liability of Madoff Securities to its investment advisory clients that arose from the custody of investment advisory client funds in those accounts. The assets and associated liabilities of Madoff Securities’s investment advisory operations, which were omitted from the general ledger, ranged from millions to billions of dollars.
Madoff Securities was required to file Financial and Operational Combined Uniform Single Reports (“FOCUS Reports”) with the United States Securities and Exchange Commission (“SEC”). Those FOCUS Reports require the production of basic information that amounts to a condensed version of a broker-dealer’s general ledger. Because the general ledger was inaccurate, as BONVENTRE well knew, the FOCUS Reports were likewise false because they failed to accurately reflect Madoff Securities’s assets and liabilities. For example, one such report, for the month of April 2006, in the midst of a liquidity crisis, failed to reflect at least $299 million in Madoff Securities liabilities related to $154 million of an investment advisory client’s bonds and the $145 million that Madoff Securities had borrowed using those bonds as collateral. BONVENTRE also provided false FOCUS Reports and other financial documents to banks in connection with Madoff Securities’s bank loans.
In addition, between 2004 and 2007, in connection with audits of Bernard L. Madoff’s U.S. Individual Income Tax Returns, Forms 1040s, BONVENTRE created false, backdated Madoff Securities records to show the tax auditors. Because Madoff had under-reported his income by tens of millions of dollars each year, BONVENTRE created false documents that appeared consistent with Madoff’s tax returns for the purposes of maintaining the falsity of Madoff’s tax returns and deceiving the auditors.
Further, between 2004 and 2008, Madoff Securities was subject to at least five reviews by the SEC and a European accounting firm which was conducting a review of Madoff Securities’s operations on behalf of investment advisory clients. As part of a concerted effort overseen by Madoff to deceive both the SEC and the European accounting firm, BONVENTRE, CRUPI, O’HARA and PEREZ participated in creating numerous false and fraudulent books and records.
O’HARA and PEREZ were employed as computer programmers at Madoff Securities beginning in 1990 and 1991, respectively. They were responsible for developing and maintaining computer programs that supported the operation of the Madoff Securities investment advisory business. For example, O’HARA and PEREZ created special programs that, among other things: created books and records for a small subset of Madoff Securities investment advisory clients to help hide the scope and nature of the investment advisory business; changed the names of account holders to help explain why the SEC would not find investment advisory client securities at the Depository Trust Company (“DTC”); altered details about the number of shares, execution times, and transaction numbers for trades reported on Madoff Securities trade blotters, by employing algorithms that produced false and random results; created false and fraudulent order entry and execution reports that included fictitious times at which orders for equities transactions purportedly were placed; generated fraudulent commission reports; and created fraudulent investment advisory client account statements in a format different from those sent to clients. O’HARA and PEREZ knew that the special programs they developed contained fraudulent information and that they were used in connection with the SEC and European accounting firm reviews.
In addition to convicting the defendants of their participation in securities fraud and related conduct in connection with the Madoff Securities Ponzi scheme, the defendants were convicted on a total of 31 counts – every count that was submitted to the jury – some of which relate to allegations of separate misconduct, including bank fraud and tax fraud offenses. BONVENTRE, for example, was convicted for his participation in an accounting fraud conspiracy that, among other things, included using falsified financial statements and other documents to obtain hundreds of millions of dollars in loans and lines of credit from federally-insured financial institutions. BONVENTRE was separately convicted in connection with creating fraudulent financial records to tax auditors, in an attempt to deceive the Internal Revenue Service and maintain the falsity of Bernard L. Madoff’s own (fraudulent) personal income tax returns.
CRUPI was convicted of a separate bank fraud conspiracy to assist David Kugel – a former supervisory trader in Madoff Securities’s market-making and proprietary trading operation, who pled guilty and agreed to cooperate with the Government in November 2011 – by creating and submitting to federally insured financial institutions falsified documents in support of personal bank loans for Kugel and members of his family.
Finally, BONVENTRE, BONGIORNO, and CRUPI were each convicted in connection with filing false income tax returns on their own behalf, in which each of the three defendants failed to report cash and other benefits they received from Madoff Securities. BONVENTRE was convicted of failing to report millions of dollars in cash and other benefits, including payments on his behalf for his membership in a country club and his son’s private high school tuition. BONGIORNO was convicted of failing to report more than a million dollars in cash payments she received from two “Bernard L. Madoff Special” accounts. And CRUPI was convicted for failing to report tens of thousands of dollars in personal expenses she charged on a corporate credit card.
In total, the jury convicted BONVENTRE, 67, of 20 counts; BONGIORNO, 66, of 10 counts; CRUPI, 53, of 13 counts; and O’HARA, 51, and PEREZ, 48, of eight counts each. A chart containing a description of the counts of conviction and their maximum penalties is attached. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
The defendants will be sentenced in July by U.S. District Court Judge Laura Taylor Swain in Manhattan federal court. BONVENTRE and BONGIORNO will be sentenced on July 28, 2014. CRUPI and O’HARA will be sentenced on July 29, 2014. And PEREZ will be sentenced on July 30, 2014. Judge Swain ordered each of the defendants subject to electronic monitoring pending sentencing and limited home confinement.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission, the Internal Revenue Service – Criminal Investigations, the New York Regional Office of the U.S. Department of Labor’s Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, and the New York Regional Office of the U.S. Department of Labor, Employee Benefits Security Administration for their assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established 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 nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
Assistant United States Attorneys Matthew L. Schwartz, John T. Zach, and Randall W. Jackson are in charge of the prosecution.
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U.S. v. Daniel Bonventre, et al. S10 Indictment
Owner of Mortgage Modification Company Sentenced in Manhattan Federal Court to Nine Years in Prison for Defrauding Hundreds of Distressed HomeownersRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ISAAK KHAFIZOV, a former owner of American Home Recovery (“AHR”), a mortgage loan modification business, was sentenced yesterday in Manhattan federal court to nine years in prison in connection with a scheme to defraud distressed homeowners and lenders. KHAFIZOV was convicted in May 2012 of one count of conspiracy to commit mail and wire fraud, one count of mail fraud, and two counts of wire fraud, after a ten-day jury trial presided over by U.S. District Judge George B. Daniels, who also imposed the sentence.
Manhattan U.S. Attorney Preet Bharara said: “Isaak Khafizov victimized desperate homeowners who were struggling to make their mortgage payments. He preyed on their fears of losing their homes by lying about miracle cures for their financial problems. Khafizov pretended it was all made possible by government programs that did not exist, by special, powerful relationships with banks that he did not have, and by expertise and experience that he never possessed.”
According to the Superseding Indictment filed in Manhattan federal court, other court documents, and statements made during court proceedings:
In the spring of 2008, ISAAK KHAFIZOV, Jaime Cassuto, and David Cassuto founded American Home Recovery (“AHR”), a mortgage modification business that operated in Manhattan. From the spring of 2008 through the summer of 2009, KHAFIZOV used AHR to commit a systematic fraud that preyed on distressed homeowners. KHAFIZOV and AHR’s salespeople fraudulently induced distressed homeowners all over the United States to pay AHR thousands of dollars in up-front fees, by falsely promising the homeowners that: (1) AHR could get them better interest rates and lower monthly fees, all within a short timeframe; (2) AHR would return the up-front fees if it did not succeed in getting the homeowners the mortgage modifications they desired; (3) the homeowners had been “pre-approved” for mortgage modifications by their lenders; (4) AHR was affiliated with government agencies and programs established by the Economic Stimulus Act of 2008; (5) AHR possessed special expertise in mortgage modifications, and (6) AHR had special relationships with lenders. After receiving up-front fees from the distressed homeowners, KHAFIZOV and AHR did little or no work to try to renegotiate the homeowners’ mortgages. And on those rare occasions when KHAFIZOV succeeded in getting a homeowner a mortgage modification, he typically did so by coaching the homeowner to lie about his or her income and assets on forms submitted to the mortgage lender.
All told, KHAFIZOV and AHR defrauded financially struggling customers across the country out of over half a million dollars in fees. Furthermore, because KHAFIZOV and AHR did not do the work they had promised, and because KHAFIZOV specifically directed the distressed homeowners to stop paying their mortgages and to pay AHR its fees instead, many of AHR’s customers wound up in foreclosure as a result of the scheme.
In addition to his prison term, KHAFIZOV, 27, of Queens, New York, was sentenced to three years of supervised release.
In sentencing KHAFIZOV, Judge Daniels remarked that victims who feared “being thrown out of their homes” were “desperately seeking help” from Khafizov because he “promised to solve what, for most of these people, was the most serious problem that they had ever encountered in their lives.” But Khafizov “took advantage of every one” of them, and “… showed a callous disregard for the consequences of his criminal conduct on the victims he swindled.”
Jaime Cassuto and David Cassuto each pled guilty to multiple counts of fraud in April 2012. They await sentencing.
Mr. Bharara praised the Federal Bureau of Investigation and the Special Inspector General of the Troubled Asset Relief Program for their work on this case.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established 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. For more information on the task force, please visit www.StopFraud.gov.
This case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Niketh Velamoor and Nicole Friedlander are in charge of this prosecution.
Leader of Newburgh Bloods Sentenced in Manhattan Federal Court to Life Plus 32 Years in Prison for Murder and Other OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ANTHONY BOYKIN and JUSTIN SIMMONS were sentenced Tuesday in Manhattan federal court for various racketeering, murder, attempted murder, narcotics conspiracy, and firearms offenses. BOYKIN was sentenced to life plus 32 years in prison, and SIMMONS was sentenced to 50 years in prison. In June 2013, after a four-week jury trial before United States District Judge Colleen McMahon, the jury convicted BOYKIN and SIMMONS of charges arising out of their involvement, from 2006 through 2013, in the criminal activities of the Bloods gang (the “Newburgh Bloods”) – a violent street gang that was involved in drug trafficking and multiple acts of violence, including murders and attempted murders, in Newburgh, New York. In particular, BOYKIN was found guilty of participating in a racketeering enterprise, participating in a racketeering conspiracy, participating in various racketeering offenses, including murder, participating in a crack-cocaine distribution conspiracy, and possessing, using, and carrying firearms, and SIMMONS was found guilty of participating in a racketeering conspiracy, participating in a crack-cocaine distribution conspiracy, and possessing, using, and carrying firearms. They were both sentenced in Manhattan federal court by Judge McMahon.
Manhattan U.S. Attorney Preet Bharara said: “The Newburgh Bloods have made victims not only of those they shot, stabbed, and killed, but also of every Newburgh resident who has had to live with the terror wrought by the gang’s legacy of drugs and violence. Anthony Boykin and Justin Simmons perpetuated the plague of violence. The sentences handed down show that if you choose to engage in drug-dealing and gang violence, you will be held accountable for your actions and deprived of your liberty.”
According to the Superseding Indictment and evidence admitted at trial:
From 2006 through 2013, BOYKIN was a member, and then leader, of a racketeering enterprise – the Newburgh Bloods. As part of his participation in that enterprise, BOYKIN conspired to murder Lamont Young, a local marijuana dealer, which culminated in Young’s murder on March 4, 2009. He participated in two additional conspiracies to commit murder, which culminated in the vicious attacks of Ishmael Gillian and David Freeman on August 24, 2008 and September 20, 2008, respectively. BOYKIN also robbed a suspected narcotics dealer in August 2009.
From 2007 through 2011, BOYKIN and SIMMONS, a soldier in the Newburgh Bloods, participated in a conspiracy to distribute crack cocaine on Landers Street in Newburgh, New York, and throughout the city. They also possessed firearms in connection with their drug trafficking and racketeering activities with the Newburgh Bloods gang.
In addition to the prison terms, Judge McMahon sentenced BOYKIN to five years of supervised release and a $25,000 fine and ordered him to pay a special assessment of $1,100, and SIMMONS to ten years of supervised release and a $10,000 fine and ordered him to pay a special assessment of $400.
Mr. Bharara praised the outstanding efforts of the Hudson Valley Safe Streets Task Force, including the FBI, the City of Newburgh Police Department, the Orange County Sheriff’s Office, and the New York State Police, in connection with this investigation.
Assistant United States Attorneys Michael D. Maimin, Amie N. Ely, and Emil J. Bove III are in charge of the prosecution.
Two Individuals Charged in Manhattan Federal Court with Murder During Home Invasion Robbery of Pizza Shop OwnerRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of charges against ANTOINE BURROUGHS and LEON WHITFIELD. WHITFIELD was arrested and presented yesterday in Manhattan federal court before U.S. Magistrate Judge Frank Maas, and ordered detained. BURROUGHS is still at large.
Manhattan U.S. Attorney Preet Bharara said: “Antoine Burroughs and Leon Whitfield allegedly targeted and robbed a Queens pizza owner, and then brutally murdered his son as he tried to protect his father. This Office and our law enforcement partners stand fully committed to eradicating this type of violence from our neighborhoods.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Burroughs and Whitfield had no regard for life, especially the life of Gerardo Antoniello. They illegally entered Antoniello’s father’s home with the intention of robbing him of any cash on hand from Antoniello’s pizza shop. The FBI stands with our law enforcement partners to announce these charges and to reiterate that this case will not be done until all those involved face justice.”
According to the allegations in the Superseding Indictment unsealed yesterday in Manhattan federal court and on other documents in the public record:
On September 9, 2009, BURROUGHS and WHITFIELD attempted to rob an individual named Bartolomeo Antoniello at his home in Queens, New York. BURROUGHS and WHITFIELD were targeting the cash proceeds of Antoniello’s pizza shop. Antoniello’s son, Gerardo Antoniello, was home at the time, and attempted to protect his father. During the struggle, Gerardo Antoniello was shot in the head and died later of his injuries. He was 29 years old.
BURROUGHS, 25, and WHITFIELD, 23, both of New York, New York, are each charged with one count of robbery conspiracy and one count of attempted robbery, which each carry a maximum sentence of 20 years in prison; one count of discharging a firearm, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 10 years in prison; and one count of murder, which carries a maximum sentence of life in prison or death. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge. This case has been assigned to U.S. District Judge Gregory H. Woods.
Mr. Bharara praised the investigative work of the FBI, the New York City Police Department, and the Queens District Attorney’s Office, and stated that the investigation is ongoing.
The case is being prosecuted by the Organized Crime Unit. Assistant United States Attorneys Peter Skinner and Rachel Maimin are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Antione Burroughs and Leon Whitfield S1 Indictment
Manhattan U.S. Attorney Announces Criminal Charge Against Toyota Motor Corporation and Deferred Prosecution Agreement with $1.2 Billion Financial PenaltyRead the Press Release
Independent Monitor to Be Appointed to Oversee Toyota’s Public Statements and Reporting of Safety Issues
Eric Holder, the Attorney General of the United States, Anthony Foxx, the United States Secretary of Transportation, Preet Bharara, the United States Attorney for the Southern District of New York, Calvin L. Scovel, III, Inspector General of the United States Department of Transportation (“DOT”), and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced a criminal wire fraud charge against Toyota Motor Corporation (“TOYOTA” or the “Company”), an automotive company headquartered in Toyota City, Japan, that designs, manufactures, assembles, and sells Toyota and Lexus brand vehicles. The charge is that TOYOTA defrauded consumers in the fall of 2009 and early 2010 by issuing misleading statements about safety issues in Toyota and Lexus vehicles.
Also today, Mr. Bharara announced a deferred prosecution agreement with TOYOTA (the “Agreement”) under which the Company admits that it misled U.S. consumers by concealing and making deceptive statements about two safety issues affecting its vehicles, each of which caused a type of unintended acceleration. The admissions are contained in a detailed Statement of Facts attached to the Agreement. The Agreement, which is subject to judicial review, requires TOYOTA to pay a $1.2 billion financial penalty – the largest penalty of its kind ever imposed on an automotive company, and imposes on TOYOTA an independent monitor to review and assess policies, practices and procedures relating to TOYOTA’s safety-related public statements and reporting obligations. TOYOTA agrees to pay the penalty under a Final Order of Forfeiture in a parallel civil action also filed today in the Southern District of New York.
The criminal charge is contained in an Information (the “Information”) alleging one
count of wire fraud. If TOYOTA abides by all of the terms of the Agreement, the Government will defer prosecution on the Information for three years and then seek to dismiss the charge.
Attorney General Eric Holder said: “Rather than promptly disclosing and correcting safety issues about which they were aware, Toyota made misleading public statements to consumers and gave inaccurate facts to Members of Congress. When car owners get behind the wheel, they have a right to expect that their vehicle is safe. If any part of the automobile turns out to have safety issues, the car company has a duty to be upfront about them, to fix them quickly, and to immediately tell the truth about the problem and its scope. Toyota violated that basic compact. Other car companies should not repeat Toyota’s mistake: a recall may damage a company’s reputation, but deceiving your customers makes that damage far more lasting.”
Transportation Secretary Anthony Foxx said: “Safety is our top priority. Throughout this recall process, NHTSA investigators worked tirelessly to make sure that Toyota recalled vehicles with defects causing unintended acceleration, and to determine when they learned of it, and as we learned today, they succeeded in this effort in spite of extraordinary challenges. Today’s penalties follow NHTSA’s own record civil penalties of more than $66 million – together, they send a powerful message to all manufacturers to follow our recall requirements or they will face serious consequences.”
Manhattan U.S. Attorney Preet Bharara said: “Toyota stands charged with a criminal offense because it cared more about savings than safety and more about its own brand and bottom line than the truth. In its zeal to stanch bad publicity in 2009 and 2010, Toyota misled regulators, misled customers, and even misstated the facts to Congress. The tens of millions of drivers in America have an absolute right to expect that the companies manufacturing their cars are not lying about serious safety issues; are not slow-walking safety fixes; and are not playing games with their lives. Companies that make inherently dangerous products must be maximally transparent, not two-faced. That is why we have undertaken this landmark enforcement action. And the entire auto industry should take notice.”
DOT Inspector General Calvin L. Scovel, III, said: “To the families and friends of those who died or were injured as a result of these incidents, I offer my deepest sympathies for your loss and my highest admiration for the strength you demonstrate every day. As is true for Secretary Foxx and DOT, safety is and will remain the highest priority of my office. The OIG is committed to working with our law enforcement and prosecutorial partners in pursuing those who commit criminal violations of the Department of Transportation’s or related laws. The efforts of this dedicated multi-agency team and the agreement reached with Toyota must serve as a clarion call to all auto manufacturers of the need to always be as vigilant and forthcoming as possible to keep the public safe.”
FBI Assistant Director-in-Charge George Venizelos said: “Toyota put sales over safety and profit over principle. The disregard Toyota had for the safety of the public was outrageous. Not only did Toyota fail to recall cars with problem parts, they continued to manufacture new cars with the same parts they knew were deadly. When media reports arose of Toyota hiding defects, they emphatically denied what they knew was true, assuring consumers that their cars were safe and reliable. Today's announcement could have been prevented if Toyota had done the right thing, told the truth, and disclosed the rampant safety problems. Instead, they denied and doubled-down. More than speeding cars or a major fine, the ultimate tragedy has been the unwitting consumers who died behind the wheel of Toyota vehicles.”
According to the allegations in the Information, as well as other documents filed today in Manhattan federal court, including the Statement of Facts:
In the fall of 2009, TOYOTA deceived consumers and its U.S. regulator, the National Highway Traffic Safety Administration (“NHTSA”), by claiming that it had “addressed” the “root cause” of unintended acceleration in its vehicles through a limited safety recall of eight models for floor-mat entrapment, a dangerous condition in which an improperly secured or incompatible all-weather floor mat can “trap” a depressed gas pedal causing the car to accelerate to a high speed. Such public assurances deceived customers and NHTSA in two ways: First, at the time the statements were made, TOYOTA knew that it had not recalled some cars with design features that made them just as susceptible to floor-mat entrapment as some of the recalled cars. Second, only weeks before these statements were made, TOYOTA had taken steps to hide from NHTSA another type of unintended acceleration in its vehicles, separate and apart from floor-mat entrapment: a problem with accelerators getting stuck at partially depressed levels, known as “sticky pedal.”
Floor-Mat Entrapment: A Fatal Problem
TOYOTA issued its misleading statements, and undertook its acts of concealment, against the backdrop of intense public concern and scrutiny over the safety of its vehicles following a widely publicized August 28, 2009 accident in San Diego, California that killed a family of four. A Lexus dealer had improperly installed an incompatible all-weather floor mat into the Lexus ES350 in which the family was traveling, and that mat entrapped the accelerator at full throttle. A 911 emergency call made from the out-of-control vehicle, which was speeding at over 100 miles per hour, reported, “We’re in a Lexus . . . and we’re going north on 125 and our accelerator is stuck . . . there’s no brakes . . . we’re approaching the intersection . . . Hold on . . . hold on and pray . . . pray.” The call ended with the sound of the crash that killed everyone in the vehicle.
The San Diego accident was not the first time that TOYOTA had faced a problem with floor-mat entrapment. In 2007, following a series of reports alleging unintended acceleration in Toyota and Lexus vehicles, NHTSA opened a defect investigation into the Lexus ES350 model (the vehicle involved in the 2009 San Diego accident), and identified several other Toyota and Lexus models it believed might likewise be defective. TOYOTA, while denying to NHTSA the need to recall any of its vehicles, conducted an internal investigation in 2007 which revealed that certain Toyota and Lexus models, including most of the ones that NHTSA had identified as potentially problematic, had design features rendering entrapment of the gas pedal by an all-weather floor mat more likely. TOYOTA did not share these results with NHTSA. In the end, the Company negotiated a limited recall of 55,000 mats (no vehicles) – a result that TOYOTA employees touted internally as a major victory: “had the agency . . . pushed for recall of the throttle pedal assembly (for instance), we would be looking at upwards of $100 million + in unnecessary costs.”
Shortly after TOYOTA announced its 2007 mat recall, Company engineers revised internal design guidelines to provide for, among other things, a minimum clearance of 10 millimeters between a fully depressed gas pedal and the floor. But TOYOTA decided those revised guidelines would only apply where a model was receiving a “full model redesign” – something each Toyota and Lexus model underwent only about once every three to five years. As a result, even after the revised guidelines had been adopted internally, many new vehicles produced and sold by TOYOTA – including the Lexus ES350 involved in the 2009 San Diego accident – did not comply with TOYOTA’s 2007 guidelines.
After the fatal and highly publicized San Diego accident, TOYOTA agreed to recall eight of its models, including the ES350, for floor-mat entrapment susceptibility. Thereafter, as part of an effort to defend its brand image, TOYOTA began issuing public statements assuring customers that this limited recall had “addressed the root cause of unintended acceleration” in its U.S.-sold vehicles.
As TOYOTA knew from internal testing it had completed by the time these statements were made, the eight-model recall had not in fact “addressed the root cause” of even the floor-mat entrapment problem. Models not recalled – and therefore still on the road – bore design features rendering them just as susceptible to floor-mat entrapment as those within the recall population. One engineer working at a TOYOTA facility in California had concluded that the Corolla, a top-selling car that had not been recalled, was among the three “worse” vehicles for floor-mat entrapment. In October 2009, TOYOTA engineers in Japan circulated a chart showing that the Corolla had the lowest rating for floor-mat entrapment under their analysis. None of these findings or this data were shared with NHTSA at the time.
The Sticky Pedal Problem
What is more, at the same time it was assuring the public that the “root cause” of unintended acceleration had been “addressed” by the 2009 eight-model floor-mat entrapment recall, TOYOTA was hiding from NHTSA a second cause of unintended acceleration in its vehicles: the sticky pedal. Sticky pedal, a phenomenon affecting pedals manufactured by a U.S. company (“A-Pedal Company”) and installed in many Toyota brand vehicles in North America as well as Europe, resulted from the use of a plastic material inside the pedals that could cause the accelerator pedal to become mechanically stuck in a partially depressed position. The pedals incorporating this plastic were installed in, among other models, the Camry, the Matrix, the Corolla, and the Avalon sold in the United States.
The sticky pedal problem surfaced in Europe in 2008. There, reports reflected instances of “uncontrolled acceleration” and unintended acceleration to “maximum RPM,” and customer concern that the condition was “extremely dangerous.”
In early 2009, TOYOTA circulated to European Toyota distributors information about the sticky pedal problem and instructions for addressing the problem if it presented itself in a customer’s vehicle. These instructions identified the issue as “Sudden RPM increase/vehicle acceleration due to accelerator pedal sticking,” and stated that should a customer complain of pedal sticking, the pedal should be replaced with pedals manufactured by a company other than A-Pedal Company. Contemporaneous internal TOYOTA documents described the sticky pedal problem as a “defect” that was “[i]mportant in terms of safety because of the possibility of accidents.”
TOYOTA did not then inform its U.S. regulators of the sticky pedal problem or conduct a recall. Instead, beginning in the spring of 2009, TOYOTA quietly directed A-Pedal Company to change the pedals in new productions of affected models in Europe, and to plan for the same design changes to be rolled out in the United States (where the same problematic pedals were being used) beginning in the fall of 2009. The design change was to substitute the plastic used in the affected pedal models with another material and to change the length of the friction lever in the pedal.
Meanwhile, the sticky pedal problem was manifesting itself in U.S. vehicles. On or about the same day the San Diego floor-mat entrapment accident occurred, staff at a U.S. TOYOTA subsidiary in California sent a memorandum to staff at TOYOTA in Japan identifying as “critical” an “unintended acceleration” issue separate and apart from floor-mat entrapment that had been identified in an accelerator pedal of a Toyota Matrix vehicle in Arizona. The problem identified, and then reproduced during testing of the pedal on September 17, 2009, was the sticky pedal problem. Also in August, the sticky pedal problem cropped up in a U.S. Camry.
On September 9, 2009, an employee of a U.S. TOYOTA subsidiary who was concerned about the sticky pedal problem in the United States and believed that TOYOTA should address the problem prepared a “Market Impact Summary” listing (in addition to the August 2009 Matrix and Camry) 39 warranty cases that he believed involved potential manifestations of the sticky pedal problem. This document, which was circulated to TOYOTA engineers and, later, to staff in charge of recall decisions in Japan, designated the sticky pedal problem as priority level “A,” the highest level.
By no later than September 2009, TOYOTA recognized internally that the sticky pedal problem posed a risk of a type of unintended acceleration – or “overrun,” as Toyota sometimes called it – in many of its U.S. vehicles. A September 2009 presentation made by a manager at a U.S. TOYOTA subsidiary to TOYOTA executives gave a “current summary of O/R [overrun] types in NA [North American] market” that listed the three confirmed types as: “mat interference” (i.e., floor-mat entrapment), “material issue” (described as “pedal stuck and . . . pedal slow return/deformed”), and “simultaneous pedal press” by the consumer. The presentation further listed the models affected by the “material issue” as including “Camry, Corolla, Matrix, Avalon.”
Hiding Sticky Pedal from NHTSA and the Public
As noted, TOYOTA had by this time developed internal plans to implement design changes for all A-Pedal-Company-manufactured pedals in U.S. Toyota models to address, on a going-forward basis, the still-undisclosed sticky pedal problem that had already been resolved for new vehicles in Europe. On October 5, 2009, TOYOTA engineers issued to A-Pedal Company the first of the design change instructions intended to prevent sticky pedal in the U.S. market. This was described internally as an “urgent” measure to be implemented on an “express” basis, as a “major” change – meaning that the part number of the subject pedal was to change, and that all inventory units with the old pedal number should be scrapped.
On October 21, 2009, however, in the wake of the San Diego floor-mat entrapment accident, and in the midst of TOYOTA’s discussions with NHTSA about its eight-model entrapment recall, engineers at TOYOTA and the leadership of TOYOTA’s recall decision group decided to cancel the design change instruction that had already been issued and to suspend all remaining design changes planned for A-Pedal Company pedals in U.S. models. U.S. TOYOTA subsidiary employees who had been preparing for implementation of the changes were instructed, orally, to alert the manufacturing plants of the cancellation. They were also instructed not to put anything about the cancellation in writing. A-Pedal Company itself would receive no written cancellation at this time; instead, contrary to TOYOTA’s own standard procedures, the cancellation was to be effected without a paper trail.
TOYOTA decided to suspend the pedal design changes in the United States, and to avoid memorializing that suspension, in order to prevent NHTSA from learning about the sticky pedal problem.
In early November 2009, TOYOTA and the leadership of a U.S. TOYOTA subsidiary became aware of three instances of sticky pedal in U.S. Corollas. Shortly thereafter, the leadership of the recall decision group within TOYOTA discussed a plan to finally disclose the sticky pedal problem to NHTSA. The recall decision group was aware at this time not only of the problems in the three Corollas in the United States but also of the problems that had surfaced in a Matrix and a Camry in August 2009 and been reproduced through testing in September 2009. The group was also familiar with the sticky pedal problem in Europe, the design changes that had been implemented there, and the cancellation and suspension of similar planned design changes in the United States. Knowing all of this, the group’s leadership decided that (a) it would not disclose the September 2009 Market Impact Summary to NHTSA; (b) if any disclosure were to be made to NHTSA, it would be limited to a disclosure that there were some reports of unintended acceleration apparently unrelated to floor-mat entrapment; and (c) NHTSA should be told that TOYOTA had made no findings with respect to the sticky pedal problem reflected in the reports concerning the three U.S. Corollas, and that the investigation of the problem had just begun.
On November 17, 2009, before TOYOTA had negotiated with NHTSA a final set of remedies for the eight models encompassed by the floor-mat entrapment recall, TOYOTA informed NHTSA of the three Corolla reports and several other reports of unintended acceleration in Toyota model vehicles equipped with pedals manufactured by A Pedal Company. In TOYOTA’s disclosure to NHTSA, TOYOTA did not reveal its understanding of the sticky pedal problem as a type of unintended acceleration, nor did it reveal the problem’s manifestation and the subsequent design changes in Europe, the planned, cancelled, and suspended design changes in the United States, the August 2009 Camry and Matrix vehicles that had suffered sticky pedal, or the September 2009 Market Impact Summary.
TOYOTA’s Misleading Statements
After the August 2009 fatal floor-mat entrapment accident in San Diego, several articles critical of TOYOTA appeared in U.S. newspapers. The articles reported instances of TOYOTA customers allegedly experiencing unintended acceleration and the authors accused TOYOTA of, among other things, hiding defects related to unintended acceleration.
On November 25, 2009, TOYOTA, through a U.S. subsidiary, announced its floor-mat entrapment resolution with NHTSA. In a press release that had been approved by TOYOTA, the U.S. subsidiary assured customers: “The safety of our owners and the public is our utmost concern and Toyota has and will continue to thoroughly investigate and take appropriate measures to address any defect trends that are identified.” A spokesperson for the subsidiary stated during a press conference the same day, “We’re very, very confident that we have addressed this issue.”
In truth, the issue of unintended acceleration had not been “addressed” by the remedies announced. A-Pedal Company pedals which could experience stickiness were still on the road and still, in fact, being installed in newly-produced vehicles. And the best-selling Corolla, the Highlander, and the Venza – which had design features similar to models that had been included in the earlier floor-mat entrapment recall – were not being “addressed” at all.
Again, on December 23, 2009, TOYOTA responded to media accusations that it was continuing to hide defects in its vehicles by authorizing a U.S. TOYOTA subsidiary to publish the following misleading statements on the subsidiary’s website: “Toyota has absolutely not minimized public awareness of any defect or issue with respect to its vehicles. Any suggestion to the contrary is wrong and borders on irresponsibility. We are confident that the measures we are taking address the root cause and will reduce the risk of pedal entrapment.” In fact, TOYOTA had “minimized public awareness of” both sticky pedal and floor-mat entrapment. Further, the measures TOYOTA had taken did not “address the root cause” of unintended acceleration, because TOYOTA had not yet issued a sticky pedal recall and had not yet recalled the Corolla, the Venza, or the Highlander for floor-mat entrapment.
TOYOTA’s False Timeline
When, in early 2010, TOYOTA finally conducted safety recalls to address the unintended acceleration issues it had concealed throughout the fall of 2009, TOYOTA provided to the American public, NHTSA, and the United States Congress an inaccurate timeline of events that made it appear as if TOYOTA had learned of the sticky pedal in the United States in “October 2009,” and then acted promptly to remedy the problem within 90 days of discovering it. In fact, TOYOTA had begun its investigation of sticky pedal in the United States no later than August 2009, had already reproduced the problem in a U.S. pedal by no later than September 2009, and had taken active steps in the months following that testing to hide the problem from NHTSA and the public.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Bonnie Jonas, Deputy Chief of the Criminal Division, and Assistant U.S. Attorney Sarah E. McCallum are in charge of the prosecution, and Assistant U.S. Attorney Sharon Cohen Levin, Chief of the Money Laundering and Asset Forfeiture Unit, is responsible for the forfeiture aspects of the case.
U.S. v. Toyota Corportation DPA, Statement of Facts, and Information
U.S. v. $1200000000 Civil CompliantManhattan U.S. Attorney Sues Town of Ramapo, New York over Violations of Federal Clean Water ActRead the Press Release
Agrees to Redress Violations and Pay $125,000 Penalty
Preet Bharara, the United States Attorney for the Southern District of New York, and Colonel Paul E. Owen, Commander of the New York District of the United States Army Corps of Engineers (“Corps of Engineers”), announced today that the United States has filed and simultaneously entered into a consent decree settling a civil lawsuit against the TOWN OF RAMAPO, NEW YORK (“RAMAPO”), for violations of the Clean Water Act (“CWA”).
U.S. Attorney Preet Bharara stated: “The Town of Ramapo repeatedly violated the laws protecting our Nation’s wetlands. Municipalities will be held accountable if they violate our environmental laws. Today’s consent decree will require Ramapo to pay a penalty for its repeated violations and create new wetlands to offset the damage it caused.”
Corps of Engineers Commander Colonel Paul Owen stated: “As one of the key regulatory agencies with regard to the Clean Water Act, the U.S. Army Corps of Engineers is committed to protecting the environment and the communities it benefits. This will continue to be of the utmost importance.”
According to the Complaint filed in White Plains federal court, in 2010 RAMAPO illegally discharged fill material into wetlands that are waters of the United States, as part of its construction of a minor league baseball stadium. Only after filling these wetlands did RAMAPO apply for and receive a permit from the Corps of Engineers relating to these wetlands. The permit required RAMAPO to mitigate the effects of its prior illegal discharge by creating additional wetlands and securing a conservation easement to preserve those wetlands indefinitely. To the present, RAMAPO has failed to comply with these permit requirements. In fact, after applying for the permit, RAMAPO illegally discharged even more unpermitted fill material in violation of the CWA.
In the consent decree filed today, RAMAPO admits and accepts responsibility for the violations, including the following:
- “[T]he Town’s unpermitted discharge of fill material” in 2010 led to a “loss of wetlands that are waters of the United States.”
- “The Town has failed to comply with” the permit issued to it by the Corps of Engineers after its initial violation.
- After applying for the permit, RAMAPO again “illegally discharged fill material” into “wetlands that are waters of the United States.”
- “As a result, the Town is, and since at least June 14, 2011, has been, in violation of the Permit and the CWA.”
Pursuant to the consent decree filed today in the United States District Court in White Plains, RAMAPO will pay a civil penalty of $125,000 and will establish approximately 2.2 acres of new wetlands to compensate for the wetlands that were improperly filled during the construction of the stadium. In addition, RAMAPO will ensure that a conservation easement is placed on the property to preserve the newly-established wetlands in perpetuity as a purely natural area. RAMAPO will be subject to substantial additional penalties if it fails to adhere to any of the deadlines in the consent decree.
The consent decree will be lodged with the District Court for a period of at least 30 days before it is submitted for the Court’s approval, to provide public notice and to afford members of the public the opportunity to comment on the consent decree.
This case is being handled by the Office’s Environmental Protection Unit. Assistant United States Attorney Andrew E. Krause is in charge of the case.
U.S. v. Town of Ramapo, NY Complaint
U.S. v. Town of Ramapo, NY Notice of Lodging of Consent Decree