Southern District of New York
Press releases recorded for this federal judicial district.
Former Deputy Mayor of the Village of Spring Valley Pleads Guilty to Participating in Bribery SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSEPH DESMARET pled guilty today in White Plains federal court to participating in a scheme in which he accepted over $10,000 in cash bribes in exchange for his votes, as a member of the Spring Valley Board of Trustees, to sell Village land and steer a state-funded transportation contract to a real estate development company. DESMARET pled guilty before U.S. District Judge Kenneth M. Karas.
Manhattan U.S. Attorney Bharara stated: “Every politician needs to understand that they hold office to serve the public, not themselves, and that those who violate the trust placed in them by the people do so at the risk of ending their careers behind bars. Serving the public is a great privilege and it should be treated as such.”
According to the Indictment and other documents filed in this case:
DESMARET accepted approximately $10,500 worth of cash bribes from an undercover FBI agent (“UC”) and a cooperating witness in exchange for his vote in favor of a sale of land owned by Spring Valley to a company he believed was controlled by the UC. In addition, DESMARET agreed to steer to the UC’s company New York State funding for road work associated with the project that he believed the UC’s company was developing.
DESMARET, 56, of Monsey, New York, is scheduled to be sentenced by Judge Karas on May 22, 2014. He faces a sentence of up to 40 years in prison and also faces restitution and forfeiture orders each in the amount of up to $10,500.
Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation.
This case is being handled by the Office’s White Plains Division and Public Corruption Unit. Assistant U.S. Attorneys Douglas B. Bloom and Justin Anderson are in charge of the prosecution.
Queens Foundry Owner Pleads Guilty in Manhattan Federal Court for $11 Million Scheme to Sell Fake Jasper Johns SculptureRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that BRIAN RAMNARINE pled guilty yesterday to fraud charges arising from his attempt to sell a bronze sculpture that he falsely represented to be a genuine work of art by Jasper Johns, as well as his sales of bronze sculptures that he falsely represented to be the work of two other artists, Robert Indiana and Saint Clair Cemin. RAMNARINE pled guilty yesterday before U.S. District Court Judge John G. Koeltl, on the fifth day of a jury trial.
Manhattan U.S. Attorney Preet Bharara said: “Brian Ramnarine is a serial fraudster who attempted to peddle not one but multiple fake sculptures in three separate fraud schemes – the last two of which occurred after he had already been arrested and was facing charges for the first. Ramnarine now stands convicted and, with his admission of guilt, will pay for his fraud.”
According to the Indictment to which RAMNARINE pled guilty, evidence presented at trial, and statements made during the plea proceeding:
In 1960, Johns created a painting titled “Flag,” which he gave to fellow artist and friend Robert Rauschenberg. Years later, Johns made a mold (the “Flag Mold”) from that painting in order to make a sculpture. In 1990, Johns provided the Flag Mold to RAMNARINE, who owned a Queens, New York, foundry. Johns instructed RAMNARINE to use the Flag Mold to make a wax cast. RAMNARINE completed the wax cast and gave it to Johns, but he never returned to Johns the Flag Mold from which the wax cast was made.
In 2010, RAMNARINE began representing to various members of the art world that he owned a bronze sculpture, titled “Flag,” that was an authorized Jasper Johns work of art created in 1989 (the “Purported 1989 Bronze Sculpture”). In an effort to identify a purchaser for the Purported 1989 Sculpture, he showed it to a representative of an auction house who specialized in the sale of rare art, and to an art dealer. Around the same time, RAMNARINE also attempted to sell the Purported 1989 Bronze Flag directly to an art collector. At RAMNARINE’s direction, several art brokers were in frequent contact with the art collector, and with the art collector’s representative, regarding the possible sale of what was represented to be a genuine and authorized Jasper Johns work of art. Through an art broker to whom RANMARINE had shown the Purported 1989 Bronze Sculpture, RAMNARINE informed the art collector’s representative that he would sell it for approximately $11 million.
After the art collector expressed doubts about the authenticity of the Purported 1989 Bronze Sculpture, RAMNARINE provided false and fraudulent documents and information in an effort to deceive the art collector into believing that the artwork was genuine. For example, RAMNARINE stated that the Purported 1989 Bronze Sculpture was a gift from Johns. To support that assertion, RAMNARINE provided an art broker with a letter dated August 23, 1989, purportedly from Johns, along with other documents that falsely and fraudulently reflected that the Purported 1989 Bronze Sculpture was a genuine Johns work of art, and that it was owned by RAMNARINE.
In truth, the Purported 1989 Bronze Sculpture was a fake. Johns never authorized its production nor did he transfer ownership to RAMNARINE. Instead, against Johns’s earlier instructions and without authorization, RAMNARINE used the original Flag Mold provided by Johns to make the Purported 1989 Bronze Flag, dated it “1989,” and forged Johns’s signature on the back of the sculpture.
RAMNARINE was arrested in November 2012 on charges arising from his attempt to sell the Purported 1989 Bronze sculpture. Shortly after his arrest and while he was on bail, RAMNARINE engaged in two new schemes to defraud an online art gallery located in Queens (the “Gallery”). In particular, RAMNARINE sold to the Gallery two fake sculptures, titled “Two” and “Orb,” that he falsely claimed had been made and authorized by Robert Indiana, and numerous fake sculptures that he falsely claimed had been made and authorized by Saint Clair Cemin. The Gallery paid RAMNARINE tens of thousands of dollars for the phony sculptures.
RAMNARINE, 59, of Queens, New York, pled guilty to three counts of wire fraud. He faces a maximum sentence of 20 years on Count One, and a maximum sentence of 30 years on each of Counts Two and Three because those offenses were committed while RAMNARINE was on bail. RAMNARINE is scheduled to be sentenced by Judge Koeltl on May 30, 2014, at 10:00 a.m.
Mr. Bharara praised the FBI for its outstanding work in the investigation. He also thanked the Port Authority of New York/New Jersey Police Department and the New York State Police for their assistance.
The case is being handled by the Complex Frauds Unit of the United States Attorney’s Office. Assistant United States Attorneys Zachary Feingold and Daniel B. Tehrani are in charge of the prosecution.
U.S. v. Brian Ramnarine S1 Indictment
Former NYPD Officer Sentenced in Manhattan Federal Court for Tax Fraud and Identity TheftRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JONATHAN WALLY, a Police Officer with the New York City Police Department (“NYPD”) at the time of his offenses, was sentenced today in Manhattan federal court to five years of probation for tax fraud and identity theft offenses related to his preparation and filing of false and fraudulent U.S. individual income tax returns (“tax returns”). WALLY’s probation will include six months of intermediate confinement and one year of electronic monitoring to run concurrent to confinement. WALLY pled guilty in August 2013, and was sentenced today by U.S. District Judge Lorna G. Schofield.
According to court filings and statements made in court:
From 2003 until his arrest in this case in April 2013, WALLY was employed by the NYPD as a Police Officer assigned to the 34th precinct located in the Washington Heights/Inwood section of Manhattan. Since at least 2008, he also served as a tax preparer registered with the Internal Revenue Service (“IRS”). Although the NYPD requires its Police Officers to obtain written authorization to engage in off-duty employment, WALLY never sought or obtained such authorization to work as a tax preparer.
From 2010 through April 2012, WALLY defrauded the IRS by causing it to issue tax refunds to other individuals based on fraudulent and false tax returns he prepared and filed on behalf of those taxpayers. Among other things, the tax returns claimed deductions for false dependents. During that time period and continuing through January 2013, WALLY further defrauded the IRS by preparing and filing fraudulent and false tax returns on his own behalf that claimed false dependents and failed to declare certain income. In connection with this fraudulent tax return scheme, WALLY obtained personal identifying information and Social Security cards of children and declared those children as dependents on the false and fraudulent tax returns he prepared and filed on behalf of others and himself.
As a result of the false and fraudulent tax returns WALLY prepared and filed on behalf of other individual taxpayers, the IRS paid these taxpayers at least $146,818 in fraudulent tax refunds. The false and fraudulent tax returns prepared and filed by WALLY on his own behalf and his failure to declare the income he earned as a tax preparer caused the IRS to pay him at least $48,990 in fraudulent tax refunds. In total, WALLY’s tax scheme defrauded the IRS in the amount of $195,808.
In addition to probation and intermediate confinement, Judge Schofield ordered WALLY, 34, of Bronx, New York, to pay a $400 special assessment fee. WALLY was also ordered to pay restitution of, and agreed to forfeit to the IRS, the amount of $195,808.
Mr. Bharara praised the investigative work of the IRS, the New York State Department of Taxation and Finance, and the Internal Affairs Bureau of the NYPD.
This prosecution is being handled by the Office’s Public Corruption Unit. Assistant United States Attorney Carrie H. Cohen is in charge of the prosecution.
Manhattan U.S. Attorney Announces Charges Against Bitcoin Exchangers, Including Ceo of Bitcoin Exchange Company, for Scheme to Sell and Launder over $1 Million in Bitcoins Related to Silk Road Drug TraffickingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James J. Hunt, the Acting Special-Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced the unsealing of criminal charges in Manhattan federal court against ROBERT M. FAIELLA, a/k/a “BTCKing,” an underground Bitcoin exchanger, and CHARLIE SHREM, the Chief Executive Officer and Compliance Officer of a Bitcoin exchange company, for engaging in a scheme to sell over $1 million in Bitcoins to users of “Silk Road,” the underground website that enabled its users to buy and sell illegal drugs anonymously and beyond the reach of law enforcement. Each defendant is charged with conspiring to commit money laundering, and operating an unlicensed money transmitting business. SHREM is also charged with willfully failing to file any suspicious activity report regarding FAIELLA’s illegal transactions through the Company, in violation of the Bank Secrecy Act. SHREM was arrested yesterday at John F. Kennedy International Airport in New York, and is expected to be presented in Manhattan federal court later today before U.S. Magistrate Judge Henry Pitman. FAIELLA was arrested today at his residence in Cape Coral, Florida, and is expected to be presented in federal court in the Middle District of Florida.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road. Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act. We will aggressively pursue those who would coopt new forms of currency for illicit purposes.”
DEA Acting Special-Agent-in-Charge James J. Hunt said: “The charges announced today depict law enforcement's commitment to identifying those who promote the sale of illegal drugs throughout the world. Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way. Drug law enforcement’s job is to investigate and identify those who abet the illicit drug trade at all levels of production and distribution including those lining their own pockets by feigning ignorance of any wrong doing and turning a blind eye.”
IRS Special-Agent-in-Charge Toni Weirauch said: “The government has been successful in swiftly identifying those responsible for the design and operation of the ‘Silk Road’ website, as well as those who helped ‘Silk Road’ customers conduct their illegal transactions by facilitating the conversion of their dollars into Bitcoins. This is yet another example of the New York Organized Crime Drug Enforcement Strike Force’s proficiency in applying financial investigative resources to the fight against illegal drugs.”
According to the allegations contained in the Criminal Complaint unsealed today in Manhattan federal court:
From about December 2011 to October 2013, FAIELLA ran an underground Bitcoin exchange on the Silk Road website, a website that served as a sprawling and anonymous black market bazaar where illegal drugs of virtually every variety were bought and sold regularly by the site’s users. Operating under the username “BTCKing,” FAIELLA sold Bitcoins – the only form of payment accepted on Silk Road – to users seeking to buy illegal drugs on the site. Upon receiving orders for Bitcoins from Silk Road users, he filled the orders through a company based in New York, New York (the “Company”). The Company was designed to enable customers to exchange cash for Bitcoins anonymously, that is, without providing any personal identifying information, and it charged a fee for its service. FAIELLA obtained Bitcoins with the Company’s assistance, and then sold the Bitcoins to Silk Road users at a markup.
SHREM is the Chief Executive Officer of the Company, and from about August 2011 until about July 2013, when the Company ceased operating, he was also its Compliance Officer, in charge of ensuring the Company’s compliance with federal and other anti-money laundering (“AML”) laws. SHREM is also the Vice Chairman of a foundation dedicated to promoting the Bitcoin virtual currency system.
SHREM, who personally bought drugs on Silk Road, was fully aware that Silk Road was a drug-trafficking website, and through his communications with FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange service for Silk Road users. Nevertheless, SHREM knowingly facilitated FAIELLA’s business with the Company in order to maintain FAIELLA’s business as a lucrative source of Company revenue. SHREM knowingly allowed FAIELLA to use the Company’s services to buy Bitcoins for his Silk Road customers; personally processed FAIELLA’s orders; gave FAIELLA discounts on his high-volume transactions; failed to file a single suspicious activity report with the United States Treasury Department about FAIELLA’s illicit activity, as he was otherwise required to do in his role as the Company’s Compliance Officer; and deliberately helped FAIELLA circumvent the Company’s AML restrictions, even though it was SHREM’s job to enforce them and even though the Company had registered with the Treasury Department as a money services business.
Working together, SHREM and FAIELLA exchanged over $1 million in cash for Bitcoins for the benefit of Silk Road users, so that the users could, in turn, make illegal purchases on Silk Road.
In late 2012, when the Company stopped accepting cash payments, FAIELLA ceased doing business with the Company and temporarily shut down his illegal Bitcoin exchange service on Silk Road. FAIELLA resumed operating on Silk Road in April 2013 without the Company’s assistance, and continued to exchange tens of thousands of dollars a week in Bitcoins until the Silk Road website was shut down by law enforcement in October 2013.
FAIELLA, 52, of Cape Coral, Florida, and SHREM, 24, of New York, New York, are each charged with one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and one count of operating an unlicensed money transmitting business, which carries a maximum sentence of five years in prison. SHREM is also charged with one count of willful failure to file a suspicious activity report, which carries a maximum sentence of five years in prison.
Mr. Bharara praised the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which is comprised of agents and officers of the U. S. Drug Enforcement Administration, the New York City Police Department, Immigration and Customs Enforcement - Homeland Security Investigations, the New York State Police, the U. S. Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Secret Service, the U.S. Marshal Service, New York National Guard, Office of Foreign Assets Control and the New York Department of Taxation and Finance. Mr. Bharara also thanked the FBI’s New York Field Office.
Mr. Bharara also noted that the investigation remains ongoing.
The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of the prosecution, and Assistant United States Attorney Andrew Adams of the Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Robert M. Faiella & Charlie Shrem Complaint
Manhattan U.S. Attorney and FBI Announce Insider Trading Charges Against Former Financial Adviser and Director of Investment CompanyRead 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 Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal Complaint in Manhattan federal court charging WALDYR PRADO, a former financial adviser at a large U.S. brokerage firm, and IGOR CORNELSEN, a Director of a British Virgin Islands Investment Company that he owns and operates, with using inside information to trade on Burger King securities in advance of Burger King’s September 2010 acquisition by 3G Capital Partners (“3G”), a New York and Brazil based private equity firm. PRADO and CORNELSEN are nationals and residents of Brazil, and they have not yet been arrested on these charges.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, when Waldyr Prado and Igor Cornelsen traded around a ‘sandwich deal,’ the defendants knew they were committing insider trading. They were illegally profiting from material non-public information to which they were not entitled.”
Assistant Director-in-Charge George Venizelos said: “Assistant Director-in-Charge George Venizelos said: “Trading on inside information negatively impacts individual investors, puts companies at risk, and threatens the public's faith in our financial markets. As alleged, Mr. Prado and Mr. Cornelsen put their faith in a “sandwich deal” and bit off more than they could chew. The FBI will continue to investigate this type of illegal conduct and prosecute those who violate our laws.”
According to the Complaint unsealed today in Manhattan federal court:
In about February 2010, 3G initiated discussions with Burger King about a potential acquisition. As part of these discussions, Burger King and 3G executed a confidentiality agreement in April 2010, pursuant to which all aspects of their negotiations and due diligence were non-public.
In about early March 2010, a principal of 3G (“3G Principal-1”) contacted an investor of the firm (“Client-1”) and advised that 3G was in negotiations to acquire Burger King. Client-1, who was also a brokerage client of PRADO’s, signed a confidentiality agreement with 3G relating to the potential Burger King acquisition. This agreement permitted Client-1 to share information concerning the potential acquisition with Client-1’s financial adviser, i.e. PRADO, in order to facilitate Client-1’s decision to invest in the specific 3G fund that would acquire Burger King (the “3G Fund”).
From about March 2010 through the September 2, 2010 announcement that 3G would purchase Burger King for $4 billion in stock and the assumption of debt (the “September 2 Announcement”), Client-1 received periodic updates about the general progress of the deal from 3G’s principals. During this period, Client-1 evaluated whether to liquidate personal holdings for a $50 million commitment to the 3G Fund, or to obtain separate financing. Client-1 discussed this issue with PRADO, and in so doing, confided that the financing was for a commitment to a 3G fund seeking to acquire Burger King. Based on their professional relationship, Client-1 believed that PRADO would maintain the confidentiality of this information. Over the next several months, Client-1 and Client-1’s assistant spoke with PRADO about the progress of the Burger King transaction.
Notwithstanding the duties of trust and confidence owed to his brokerage firm employer and Client-1, PRADO misappropriated information learned from Client-1 for his own benefit and to purchase Burger King stock and options. For example, on May 17, 2010, after PRADO met with Client-1 in Brazil and learned of the potential 3G-Burger King acquisition, PRADO sent an e-mail to an acquaintance in the financial industry (“Witness-1”) stating that PRADO was “in Brazil with information that cannot be sent by email. You can’t miss it. . . .” After sending this e-mail, PRADO and Witness-1 spoke by telephone, and PRADO told Witness-1 that 3G was going to acquire Burger King. From May 17, 2010, through September 1, 2010, PRADO purchased Burger King stock and call options. On September 2, 2010, following the announcement of 3G’s acquisition, PRADO sold his Burger King holdings for a total profit of over approximately $175,000.
On May 17, 2010, and minutes after PRADO sent the e-mail to Witness-1 referenced above, PRADO sent a similar e-mail to CORNELSEN. The e-mail stated that PRADO had “some info that I cannot say over the phone . . .You have to hear this.” Within minutes, and after the market closed, CORNELSEN called PRADO. The next day, CORNELSEN began trading out-of-the-money Burger King call options. From May 18, 2010, through late August 2010, CORNELSEN purchased short-expiration call options and had frequent contact with PRADO. For example, on August 18, 2010, CORNELSEN sent PRADO an e-mail asking if “the sandwich deal going to happen,” to which PRADO replied, “it’s going to happen.” On the same day, CORNELSEN sent PRADO another e-mail asking again whether the “sandwich deal” was going to happen, and PRADO responded that it was a “sure thing.” After the September 2 Announcement, CORNELSEN sold his options for a total profit of approximately $1.68 million, and a net profit (including expired July 2010 options) of approximately $1.4 million.
In July 2012, in connection with an insider trading investigation, the Securities & Exchange Commission (“SEC”) deposed PRADO. In his deposition, PRADO denied any advance knowledge of the Burger King acquisition. Approximately one month after his deposition, PRADO fled to Brazil, from where he told his U.S.-based supervisor that he would not be returning to the United States because he believed that he was going to be charged with perjury and because Brazil did not have “an extradition policy.”
PRADO, 43, of Porto Seguro, Brazil, and CORNELSEN, 65, of São Paolo, Brazil, have been charged in the Complaint with conspiracy to commit securities fraud and fraud in connection with a tender offer (Count One), securities fraud (Count Two), and fraud in connection with a tender offer (Count Three). The securities fraud and fraud in connection with a tender offer charges each carry a maximum term of 20 years in prison, and the conspiracy charge carries a maximum term of five years in prison.
Mr. Bharara praised the investigative work of the FBI and also thanked the Securities and Exchange Commission, which has brought civil actions against the defendants.
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. Attorneys David I. Miller and Jason Cowley are in charge of the prosecution.
US v. Waldyr Prado & Igor Cornelsen Complaint
Two Adult Day Care Center Operators Sentenced in Manhattan Federal Court for Conspiring to Bribe New York State Assemblyman Eric StevensonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that IGOR TSIMERMAN and ROSTISLAV BELYANSKY (“SLAVA”) were sentenced today in Manhattan federal court to 24 and 18 months in prison, respectively, for conspiring to pay approximately $20,000 in bribes to New York State Assemblyman Eric Stevenson in exchange for Stevenson’s official acts, including drafting, proposing, and agreeing to enact legislation that favored the bribers’ business interests. TSIMERMAN was also sentenced for conspiring to bribe former New York State Assembly member Nelson Castro. TSIMERMAN and SLAVA pleaded guilty in September 2013 before U.S. District Judge William H. Pauley III, and were both sentenced today by Judge Pauley.
Manhattan U.S. Attorney Preet Bharara said: “Igor Tsimerman and Rostislav Belyansky thought they could buy legislation to suit their business needs, but as these sentences show, the bribes they paid to Eric Stevenson only bought them a trip to federal prison.”
According to the Complaint and the Indictment filed in Manhattan federal court, and statements made in public proceedings:
Stevenson has served as a member of the New York State Assembly since 2011 representing District 79, which includes various Bronx neighborhoods. The four businessmen –TSIMERMAN, SLAVA, Belyansky, and Binman – are individuals who, during 2012 and 2013, were seeking to open and manage adult day care centers in the Bronx, New York, including a center on Westchester Avenue (the “Westchester Avenue Center”), within Stevenson’s Assembly District, and a second center on Jerome Avenue (the “Jerome Avenue Center”), within then-Assemblyman Castro’s Assembly District. During that time period, they paid multiple bribes to Stevenson in connection with efforts to open and operate both centers.
For example, at a meeting on July 23, 2012, Stevenson, Belyansky, and TSIMERMAN discussed the opening of the Westchester Avenue Center. During this meeting, Stevenson said that on July 26, 2012, he was “having a night [event]” for “my reelection” and that he needed “support and help like everyone else.” Subsequently, on July 25, 2012, SLAVA provided a cooperating witness (the “CW”) with a check for $2,000 made out to Stevenson’s political action committee, which the CW provided to Stevenson. Stevenson did not disclose this check as a campaign contribution as required by New York State law.
At a September 7, 2012, meeting at a Bronx steakhouse, SLAVA and Belyansky offered to pay Stevenson $10,000 in exchange for calling Con Edison to expedite the installation of a gas line and assisting with obtaining a Certificate of Occupancy from the New York City Buildings Department at the Jerome Avenue Center, and for assistance recruiting senior citizens to attend the Westchester Avenue Center. Stevenson agreed, but when Belyansky attempted to hand him the $10,000 in an envelope, Stevenson indicated that he was concerned that there might be surveillance cameras in the restaurant, so he waited until he was outside of the restaurant to take the cash bribe. On September 18, 2012, Stevenson gave the CW a $1,500 cut of the $10,000 bribe in exchange for the CW’s assistance, and promised to pay the CW an additional $500.
On December 27, 2012, the CW met with Stevenson and showed Stevenson a copy of an email dated December 26, 2012, sent from the contractor for the Jerome Avenue Center to SLAVA and TSIMERMAN. In the email, the contractor stated that “[i]t is urgent . . . that we call the State Senator Eric Stevenson so that he can call the building department at once and ask them to have this application reviewed” in connection with getting “a permit to install the gas lines into the building.” After reviewing this email, Stevenson stated, “he’s not a smart guy . . . he’s not too bright, this guy” because “he put this in writing . . . why he got to put my name in it? . . . He shouldn’t have said that.” Stevenson said they needed to avoid creating a “paper trail.”
During that meeting, the CW and Stevenson also discussed the possibility of Stevenson introducing legislation that would establish a temporary moratorium on the construction and/or opening of new adult day care centers (the “Moratorium Legislation”), which would have the effect of eliminating competition with the Jerome Avenue Center and the Westchester Avenue Center, thereby substantially increasing the profits earned by those two centers. Stevenson told the CW: “All you gotta do is tell me what you want in the bill, and the bill drafter will put it together…I just need you to tell me what they [the co-defendants] want; we prepare the bill . . . . You can write down the language, basically what you want.” Stevenson then asked: “Are Igor [Belyansky] and them putting together a nice little package [of money] for me, huh?” He said: “I got my inauguration I gotta take care of, I got a lot of sh*t man.” Stevenson then said to the CW, in reference to the legislation, “I’m telling you, it’s done. It’s no problem.” Subsequently, the CW met with TSIMERMAN and Belyansky. TSIMERMAN said that as a result of the Moratorium Legislation, the value of their adult day care centers was “gonna skyrocket. . . . As long as [there’s a] moratorium, I can guarantee you at least a triple [in profits].”
On January 1, 2013, the CW and Stevenson spoke on the telephone and Stevenson referred to “Igor” [Belyansky] as “Santa,” in reference to the money he expected to receive. In a subsequent meeting on the same day in the CW’s car, Stevenson sought assurances that “Igor” [Belyansky] was going to “bless everything,” meaning pay Stevenson. He added that: “I got the inauguration, I want a blessing [payment] in place, man.” Two days later, the CW gave Belyansky and SLAVA a copy of a document titled “Proposed Adult Day Care Center Bill,” which contained a proposal for the Moratorium Legislation. On January 7, 2013, the CW provided the same proposal to Stevenson. Later that day, TSIMERMAN provided Stevenson with another copy of the proposal containing TSIMERMAN’s notes. On January 9, 2013, the CW told Belyansky that Stevenson wanted $10,000 for the Moratorium Legislation, with $5,000 paid up front. Two days later, on January 11, 2013, at the Westchester Avenue Center, SLAVA, TSIMERMAN, Belyansky, and Binman gave the CW $5,000 cash. The CW then left the Westchester Avenue Center with the envelope of money and got in his car where Stevenson joined him, at which time the CW gave the envelope of money to Stevenson, after taking out his $500 cut.
On January 27, 2013, Stevenson met with the CW and told the CW that he was concerned that TSIMERMAN might be cooperating with law enforcement officials and recording their conversations. Stevenson expressed a concern that if “they bring me down… somebody’s going to the cemetery.”
Stevenson had a draft of the Moratorium Legislation prepared by January 31, 2013, which he showed the CW at a meeting in his office and which was consistent with the bullet points prepared by the CW and SLAVA, TSIMERMAN, Belyansky, and Binman. On February 11, 2013, Stevenson told the CW: “We got the bill [the Moratorium Legislation] back today . . . [t]he bill is done now, it’s going out to the members . . . to the committee and . . . we’re gonna . . . try to push it to get it to the floor.” On February 16, in a hotel room in Albany, SLAVA gave $5,000 in cash to the CW, which the CW gave to Stevenson after taking a $500 cut. While the CW took out his $500 cut, Stevenson walked into the bathroom of the CW’s room and left the door open so that he could receive the $4,500 cash in the bathroom.
Stevenson introduced and sponsored Bill Number A05139, which places a temporary moratorium on the construction and/or opening of new adult day care centers within New York City on February 20, 2013, and it is currently pending before the New York State Assembly’s Committee on Aging.
Two days later, in a meeting between the CW and TSIMERMAN, Belyansky, and Binman, Belyansky said that the legislation would double the value of his share in the Jerome Avenue and Westchester Avenue Centers from approximately $350,000 to $700,000.
In addition to prison, TSIMERMAN, 47, of Staten Island, New York, was sentenced to three years of supervised release, and ordered to pay a $10,000 fine and a 200 special assessment fee. SLAVA, 42, of Bronx, New York, was also sentenced to three years of supervised release, and ordered to pay a $2,000 fine and a $100 special assessment fee.
Stevenson was convicted on January 13, 2014, of conspiring to commit honest services wire fraud, conspiring to commit federal programs bribery and to violate the Travel Act, committing federal programs bribery, and extortion under color of official right following a six-day jury trial before U.S. District Judge Loretta A. Preska. Stevenson is scheduled to be sentenced by Judge Preska on May 20, 2014.
Belyansky and Binman pled guilty in September 2013 to conspiring to commit honest services wire fraud in connection with their payment of bribes to Stevenson before Judge Pauley. They are scheduled to be sentenced by Judge Pauley on February 6, 2014.
Mr. Bharara praised the work of the investigators from the United States Attorney’s Office for the Southern District of New York and the District Attorney’s Office for Bronx County.
This prosecution is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Paul M. Krieger and Brian A. Jacobs and Special Assistant U.S. Attorney Pishoy Yacoub of the Bronx County District Attorney’s Office are in charge of the prosecution.
Leader of “Pump and Dump” Stock Fraud Scheme 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 DAVID LEVY was sentenced today to nine years in prison after having been found guilty by a federal jury for orchestrating “pump and dump” stock fraud schemes that employed the Internet and social networking sites, among other tools, to manipulate the price of penny stocks as well as participating in an international money laundering scheme. DAVID LEVY was sentenced in Manhattan federal court by U.S. District Judge Paul A. Crotty who also presided over the three-week jury trial. David Levy’s wife and co-defendant, Donna Levy, who also was found guilty by the federal jury for her role in this and other schemes, is scheduled to be sentenced by Judge Crotty on February 5, 2014.
Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence David Levy will now pay a heavy price for the massive ‘pump and dump’ schemes that he and his wife orchestrated, which defrauded multiple victims of millions of dollars – the loss of his liberty.”
According to the evidence introduced at trial, court filings, and statements made in court:
The Start-Up Company Stock Fraud Scheme
The scheme worked as follows: DAVID LEVY and Donna Levy offered to help start-up companies obtain financing, take the start-up companies public, and coordinate marketing and investor relations for the companies, in exchange for company shares. Once they had helped the companies go public, Donna Levy put out press releases on behalf of the target companies, and she worked with her husband to secretly fund and distribute misleading third-party "buy" recommendations concerning the targeted companies. This misleading promotional campaign, along with other manipulative conduct, generated demand for stock in the targeted companies, and caused the price of the stocks to rise. DAVID LEVY, Donna Levy, and their co-conspirators took advantage of the "pumped-up" stock trading volume and price to "dump" their shares into the market until the misleading promotional campaign had run out of steam. They would repeat the scheme multiple times until the target companies' shares were essentially valueless, thereby harming company founders and executives, as well as innocent investors who bought in reliance on the misleading promotional campaigns orchestrated by DAVID LEVY and Donna Levy. DAVID LEVY was convicted of engaging in this pump and dump scheme with three companies that he helped take public: Cardiac Network, Inc., which has traded under symbol ACNWI,@ Banneker, Inc., which has traded under symbol “BANI,” and Greenway Design Group, Inc., which has traded under symbol “GDGI.”
The International Money Laundering Scheme
DAVID LEVY also was convicted of a money laundering conspiracy in connection with his efforts to conceal more than $2.3 million in proceeds of the fraudulent schemes in Panamanian shell company bank accounts maintained by a co-conspirator at a bank in Panama. In connection with the scheme, DAVID LEVY wire transferred $150,000 in fraud proceeds to a Panamanian shell company bank account through a bank account in New York. DAVID LEVY carried more than $2 million in cashier’s checks, representing proceeds from stock fraud, to Panama and caused them to be deposited into the shell company bank accounts.
Nine additional defendants already have pled guilty to charges arising out of the conduct described in the Indictment, and five of the nine have been sentenced. The relevant plea dates and, where applicable, the sentences imposed are set forth in the attached chart.
In addition to the prison sentence, Judge Crotty sentenced DAVID LEVY, 61, of Fort Lauderdale, Florida, to three years of supervised release and ordered him to pay a $500 special assessment fee. In addition, DAVID LEVY was also preliminarily ordered to forfeit $12 million, his home in Florida, certain luxury vehicles, and certain bank accounts.
This case originated and the schemes were uncovered as part of the Government’s long-term investigation into criminal conduct at the Port of New York-New Jersey. Mr. Bharara thanked the Internal Revenue Service-Criminal Investigations’ New Jersey office, as well as the other participants in the High Intensity Drug Trafficking Area Task Force, which includes the Drug Enforcement Administration and Homeland Security Investigations’ New Jersey Offices, for their assistance with the investigation. Mr. Bharara also thanked the Securities and Exchange Commission and the Financial Industry Regulatory Authority for supporting the investigation, which is ongoing.
The prosecutions are being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Howard S. Master and Carrie H. Cohen are in charge of the prosecutions.
Former College President Indicted in Manhattan Federal Court for Campaign Finance FraudRead 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 Office of the Federal Bureau of Investigation (“FBI”), announced today an Indictment charging DINESH D’SOUZA with violating the federal campaign finance laws by making illegal contributions to a United States Senate campaign in the names of others and causing false statements to be made to the Federal Election Commission in connection with those contributions. D’SOUZA is expected to be presented and arraigned tomorrow in Manhattan federal court before U.S. District Judge Richard M. Berman.
Manhattan U.S. Attorney Preet Bharara stated: “As we have long said, this Office and the FBI take a zero tolerance approach to corruption of the electoral process. If, as alleged, the defendant directed others to make contributions to a Senate campaign and reimbursed them, that is a serious violation of federal campaign finance laws.”
FBI Assistant Director-in-Charge George Venizelos stated: “Trying to influence elections through bogus campaign contributions is a serious crime. Today, Mr. D’Souza finds himself on the wrong side of the law. The Federal Election Campaign Act was written to limit the influence of money in elections; the FBI is fiercely committed to enforcing those laws to maintain the integrity of our democratic process.”
According to the allegations in the Indictment and statements made in court:
The Federal Election Campaign Act (the “Election Act”) is designed to limit financial influence in the election of candidates for federal office, including the Office of United States Senator, and provides for the public disclosure of the financing of federal election campaigns. In particular, the Election Act limits the amount and source of money that may be contributed to a federal candidate or that candidate’s authorized campaign committee. The Election Act specifically prohibits any person from making any contribution in the name of another, including reimbursing a third person, before or after that third person’s contribution, as inducement to make that contribution. The Federal Election Commission (“FEC”) is an agency and department of the United States with jurisdiction to compile and publicly report accurate information about the sources and amounts of election contributions.
In 2012, the Election Act limited both primary and general election campaign contributions to $2,500 for a total of $5,000 from any individual to any one candidate. In August 2012, D’SOUZA directed other individuals with whom he was associated to make contributions to the campaign committee for a candidate for the United States Senate (the “Campaign Committee”) that totaled $20,000. D’SOUZA then reimbursed those individuals for the contributions. By directing the illegal contributions to be made, D’SOUZA also caused the Campaign Committee to falsely report to the FEC the sources and amounts of those contributions to the campaign.
D’SOUZA, 52, of San Diego, California, is charged with one count of causing $20,000 in illegal campaign contributions to be made to a candidate for the United States Senate in calendar year 2012, which carries a maximum sentence of two years in prison. He also is charged with one count of causing false statements to be made to the FEC in connection with the illegal campaign contributions, which carries a maximum sentence of five years in prison.
The Indictment is the result of a routine review by the FBI of campaign filings with the FEC by various candidates after the 2012 election for United States Senator in New York. Mr. Bharara praised the investigative work of the FBI.
This case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorneys Carrie H. Cohen and Rebecca Ricigliano are in charge of the prosecution.
The charges contained in the Indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Dinesh D'Souza Indictment
Chief of Mount Pleasant Police Department Arrested for Possession of Child PornographyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Office of the United States Department of Homeland Security (“DHS”), Homeland Security Investigations (“HSI”), announced today the arrest of BRIAN FANELLI for possession of child pornography. FANELLI, the Chief of the Mount Pleasant, New York, Police Department, was arrested by HSI agents today at his residence in Mahopac, New York and presented in White Plains federal court before United States Magistrate Judge Lisa Margaret Smith.
Manhattan U.S. Attorney Preet Bharara stated: “Given the allegations, this case is particularly disturbing and sad. A senior law enforcement officer, sworn to uphold the law, stands accused of breaking the law. And it is the law designed to protect the youngest and most vulnerable of our population from vile exploitation.”
HSI Special Agent-in-Charge James T. Hayes, Jr. stated: “Police officers – and especially police executives – are understandably held to a higher standard of conduct than ordinary citizens. The defendant’s alleged acquisition and viewing of sexually explicit images of children irrevocably breached the trust the public had in him. The widespread exploitation of children in the United States is nothing short of an epidemic that requires the coordinated focus of law enforcement agencies, prosecutors, and the general public alike. HSI is committed to devoting the necessary resources to protect the children in our communities from those intent on victimizing them.”
According to the allegations in the criminal Complaint filed today in White Plains federal court:
From at least as early as October 2013, through in or about January 2014, FANELLI used a Peer-to-Peer File Sharing Program (“the “P2P Network”) to download more than 120 files containing images and videos believed to be child pornography and made those files available to other P2P Network users through his computer’s shared folder on the P2P Network program. Additionally, on three occasions, DHS agents acting in an undercover capacity and using the P2P Network downloaded from FANELLI’s computer files containing images and videos believed to contain child pornography.
Acting pursuant to a search warrant, DHS agents searched FANELLI’s residence today and located three computers. During the execution of the search warrant, FANELLI was advised of his Miranda rights, after which he voluntarily told DHS agents, among other things, that he has taught sexual abuse awareness classes to elementary and middle school-age students for more than one year, and that approximately one year ago, he began viewing child pornography from his home using the P2P Network – at first as research for the classes he was teaching, but shortly thereafter for personal interest.
FANELLI, 54, of Mahopac, New York, is charged with one count of possessing child pornography, which carries a maximum sentence of 10 years in prison. The count also carries a maximum fine of $250,000 or twice the gross gain or loss from the offense.
Mr. Bharara praised the outstanding investigative work of the Department of Homeland Security. He added that the investigation is continuing.
HSI encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline at 1-866-DHS-2ICE. Investigators staff this hotline around the clock. Suspected child sexual exploitation or missing children may also be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com
The prosecution is being overseen by the Office’s White Plains Division and the Public Corruption Unit. Assistant United States Attorneys Andrew D. Goldstein and Lee Renzin are 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. Brian Fanelli Complaint
Settlement Agreement Approved in Manhattan Federal Court in Pension Class Action Lawsuit Brought Against the City of New York and NYPDRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, announced that after a fairness hearing on January 13, 2014, United States District Judge Richard J. Sullivan has approved the proposed Settlement Agreement entered into between the United States Attorney’s Office and the City of New York (the “City”), resolving the issues raised in the August 2012 class action lawsuit brought against the City in Manhattan federal court. The suit concerns the City’s illegal calculation of pensionable earnings, in violation of the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”), of retired New York City Police Department (“NYPD”) officers who were called up to active military service since September 11, 2001, and are collecting a pension from the City (“NYPD Class Members”).
Manhattan U.S. Attorney Preet Bharara said: “This Settlement Agreement will ensure that the brave men and women at all the City agencies who served both their city and their country get the pension that they have earned. Now we can turn to implementing the Settlement Agreement, which will require continued coordination between the City and this Office to put into effect these critically important changes.”
According to the Amended Complaint and other documents filed in Manhattan federal court:
On August 2, 2012, the United States Attorney’s Office filed a class action lawsuit against the City, the NYPD, and the New York City Police Pension Fund, on behalf of all current and retired NYPD officers who have performed active military service since September 11, 2001, or who will do so in the future. The class action suit alleges that the City unlawfully calculates the pensionable earnings of NYPD officers called to active military duty by relying exclusively on their base pay rate, instead of including the overtime or night shift differential compensation they would have earned had they not been on active military duty, as required by USERRA. As a result, service members are being deprived of pension benefits they would have been reasonably likely to receive but for their military service.
The class action lawsuit sought to require the City to lawfully calculate the pensionable earnings of all current and former NYPD officers who were called to perform active military service after September 11, 2001, or who will be called to service, to recalculate the pension benefits they are currently receiving, and to remit any additional pension benefits owed as a result of performing these recalculations.
On July 2, 2013, the Court preliminarily approved the Settlement Agreement, and ordered that notice be given to the approximately 630 potential members of the class. Following a four-month period in which potential class members had an opportunity to submit objections to the Settlement Agreement, the Court found on January 14, 2014, that there were no objections that warrant withholding approval of the Settlement Agreement, and, by orders dated January 14 and 21, 2014, the Court approved the Settlement and closed the case.
The Settlement Agreement provides the following relief:
- All NYPD Class Members will receive the past pension benefits that they are entitled to under USERRA as well as have their future pension benefit payments adjusted to reflect any increase that results from the recalculation of their pension benefits.
- All active NYPD officers who have been or will be called up to active military service will have their future pensionable earnings calculated in accordance with USERRA, and can request in writing to have their past pensionable earnings recalculated.
- The City will implement the terms of the Settlement Agreement in the other retirement systems so that all other municipal workers will have their pensions appropriately calculated.
More information can be obtained by calling the civil rights hotline number at (212) 637-0840, or e-mailing [email protected].
This case is being handled by the Office’s Civil Rights Unit. Assistant United States Attorneys Tara M. La Morte and Arastu K. Chaudhury are in charge of the case.
Goodman v. City of New York, et al. Final Order Approving Settlement
Goodman v. City of New York, et al. Approved Settlement AgreementDefendant Sentenced in Manhattan Federal Court to Five Months in Prison for Role in Gambling RingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that EDWIN TING was sentenced today in Manhattan federal court to five months in prison and ordered to forfeit $2 million for conducting an illegal gambling business. TING was charged in April 2013 along with 33 other alleged members and associates of two Russian-American organized crime enterprises in an indictment that included charges of racketeering, money laundering, extortion, and various gambling offenses. He was sentenced by U.S. District Judge Jesse M. Furman.
According to the Indictment, other documents filed in Manhattan federal court, and statements made at various proceedings in this case, including today’s sentencing:
From 2010 through 2013, TING ran what was likely the largest and highest-stakes illegal poker game in New York City. At these games, the pots frequently reached tens, or even hundreds, of thousands of dollars or more. TING collected percentages of the pots, known as “rakes.” He made millions of dollars in profits from operating his illegal poker games. These poker games employed at least five or more people to assist with the operation of the games, payments of debts, and collection of debts.
In addition to the prison term and forfeiture, TING, 42, of New York, New York, was sentenced to two years of supervised release.
Twenty-five defendants in this case have pled guilty. The defendants who have pled to date have agreed to forfeit, in total, more than $68,000,000.00. The following defendants have pled guilty, and have been sentenced or await sentencing:
- Bryan Zuriff pled guilty to gambling charges on July 26, 2013, and was sentenced on November 25, 2013;
- William Barbalat pled guilty to gambling charges on August 14, 2013, and was sentenced on December 16, 2013;
- Kirill Rapoport pled guilty to gambling charges on August 16, 2013, and was sentenced on December 19, 2014;
- Justin Smith pled guilty to gambling charges on September 4, 2013, and was sentenced on January 6, 2013;
- Dmitry Druzhinsky and David Aaron pled guilty to gambling charges on October 4, 2013;
- Alexander Zaverukha pled guilty to gambling charges on October 10, 2013;
- Nicholas Hirsch pled guilty to conspiring to commit wire fraud on October 16, 2013;
- Anatoly Shteyngrob pled guilty to conspiring to commit money laundering on October 17, 2013;
- Yugeshwar Rajkumar pled guilty to gambling charges on October 18, 2013;
- Stan Greenberg pled guilty to conspiring to commit racketeering on October 22, 2013;
- Arthur Azen pled guilty to conspiring to commit money laundering and conspiring to collect extensions of credit by extortionate means on November 5, 2013;
- Hillel Nahmad pled guilty to gambling charges on November 12, 2013;
- Vadim Trincher pled guilty to conspiring to commit racketeering on November 14, 2013;
- Eugene Trincher pled guilty to gambling charges on November 14, 2013;
- Anatoly Golubchik pled guilty to conspiring to commit racketeering on November 15, 2013;
- Illya Trincher pled guilty to gambling charges on November 15, 2013;
- Ronald Uy pled guilty to structuring financial transactions on November 25, 2013;
- Moshe Oratz pled guilty to gambling charges on December 3, 2013;
- Michael Sall pled guilty to interstate travel in aid of an unlawful activity (illegal gambling) and Jonathan Hirsch pled guilty to gambling charges on December 4, 2013;
- Noah Siegel pled guilty to gambling charges on December 5, 2013;
- Molly Bloom pled guilty to gambling charges on December 12, 2013; and
- Alexander Katchaloff pled guilty to gambling charges on January 16, 2014.
The charges against the remaining eight defendants are merely accusations, and these defendants are presumed innocent unless and until proven guilty.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation, the New York City Police Department, and the Internal Revenue Service.
The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Harris M. Fischman, Joshua A. Naftalis, Peter Skinner, and Kristy J. Greenberg of the Organized Crime Unit are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.
Manhattan U.S. Attorney and FBI Assistant Director-In-Charge Announce the Arrest of Australian Man for Extorting Minors into Creating Child PornographyRead 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 Field Office of the Federal Bureau of Investigation (“FBI”), announced criminal charges against MARK ANTHONY WARREN for engaging in a scheme to lure minor children over the Internet into engaging in sexually explicit conduct, which WARREN secretly recorded and threatened to disseminate unless the minor children produced and sent him additional sexually explicit videos. WARREN was charged with production and receipt of child pornography, and extortion. Based on information provided by the FBI, WARREN was arrested yesterday in Australia by the New South Wales Police Force, and charged with related offenses.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Mark Anthony Warren used social media and phony profiles to ensnare his minor victims and later force them into engaging in sexually explicit acts that he recorded. Warren allegedly believed he could hide behind the anonymity of the Internet and use special computer software to escape detection, but he was sorely mistaken. Protecting minors from individuals who prey on and attempt to exploit them is a high priority of this Office, and thanks to the outstanding efforts of FBI agents and our prosecutors, Warren will be made to answer for his alleged crimes.”
FBI Assistant Director-in-Charge Venizelos said: “Warren was arrested today for allegedly developing unsuspecting male minors into subjects of his self-directed production of child pornography. Posing as a teenager himself, he coerced them into engaging in sexually explicit conduct and later tormented them with the threat of releasing proof of this conduct to their families and friends. Once removed, the virtue of innocence can never be restored. The exploitation of minors is a cause of great concern, and the FBI will continue to go after networks of online pedophiles and other sexual predators who use the Internet to sexually exploit children.”
According to the allegations contained in the criminal Complaint unsealed today:
From at least November 2013 to December 2013, MARK ANTHONY WARREN used multiple false identities and posed as a teenage girl in order to trick, coerce, and extort minor male victims into producing child pornography at his direction. In particular, WARREN created bogus accounts on various social media websites using false identities and posing as various teenage girls and a teenage boy. Using these bogus accounts, WARREN contacted male minors, including a 14 year-old in New York, New York, and, posing as a teenage girl, engaged them in sexually explicit discussions via online chats. During these chats, WARREN showed the minor males a pornographic video of a young woman who WARREN claimed to be, and simultaneously secretly video recorded the minor males engaging in sexually explicit conduct.
After making these secret pornographic recordings of his minor victims, WARREN contacted them again online and threatened to publish the videos to the victims’ families and friends unless the victims created additional pornographic videos of themselves and uploaded them to a particular website accessible by WARREN. WARREN provided the victims with specific, detailed instructions about the sexually explicit videos they were to make at his direction. He further threatened that if the minor male victims went to law enforcement, the victims would be arrested and charged with child pornography crimes. WARREN also told his victims that he used particular computer software to obscure his identity, and that he was beyond the reach of law enforcement.
WARREN, 49, of New South Wales, Australia, is charged with one count of production of child pornography and one count of attempted production of child pornography, each of which carries a mandatory minimum sentence of 15 years in prison, and a maximum sentence of 30 years in prison. He is also charged with one count of receipt and distribution of child pornography, which carries a mandatory minimum sentence of five years in prison and a maximum sentence of 20 years in prison, as well as one count of extortion, which carries a maximum sentence of two years in prison.
Mr. Bharara praised the outstanding investigative work of the FBI. He also thanked the New South Wales, Australia, Police Force and the Australian Federal Police. Mr. Bharara added that the investigation is continuing.
The FBI encourages the public to report suspected child predators and any suspicious activity through their switchboard at (212) 384 -1000. It is staffed around the clock by investigators. Suspected child sexual exploitation or missing children may be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com.
The prosecution is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Eun Young Choi and James Pastore are in charge of the prosecution.
The charges contained in the Complaint are merely an accusation, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Mark Anthony Warren Complaint
Westchester Man Charged with Aiming High-Powered Laser Pointer at Police Helicopter; Deferred Prosecution Agreement ReachedRead 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”), George Longworth, the Commissioner of the Westchester County Department of Public Safety (“WCDPS”), and William J. Bratton, the Commissioner of the New York Police Department (“NYPD”), announced today the filing of a criminal Complaint against PHILIP AVERY PUTTER for aiming a high-powered laser pointer at a WCDPS helicopter that was conducting aerial surveillance at the July 2013 Kensico Dam Fireworks Independence Day celebration. The Government and the defendant have entered into a deferred prosecution agreement, which was today approved in White Plains federal court by United States Magistrate Judge Paul E. Davison.
U.S. Attorney Preet Bharara stated: “Aiming a high-powered laser pointer at an aircraft is serious business; it can cause a deadly crash. The public should know that those who engage in such conduct are committing a federal crime.”
FBI Assistant Director-in-Charge George Venizelos stated: “This is no laughing matter. Plain and simple: lasers pointed at pilots can down an aircraft. The FBI is committed to investigating these incidents that continue to occur with alarming frequency.”
Westchester County Department of Public Safety Commissioner George Longworth stated: “This incident not only caused a danger to the pilots and crew of our Aviation Unit helicopters, but it also jeopardized the safety of thousands of people who were enjoying the festivities that evening at Kensico Dam Park. Blinding the pilot of any aircraft is not a silly prank. It is a crime that has the potential to cause devastating consequences.”
New York Police Commissioner William J. Bratton said, “This prank underscores the type of reckless conduct that can potentially endanger law enforcement and the communities they serve. I want to thank the investigators for their swift action that led to the apprehension of this individual.”
According to allegations contained in the Complaint filed today in White Plains federal court:
On the evening of July 3, 2013, two WCDPS helicopter pilots were assigned to conduct aerial observation of the Fireworks Celebration at the Kensico Dam in Valhalla, New York. There were approximately 10,000 to 15,000 people on the ground below enjoying the festivities.
The helicopter pilots explained that very shortly after they arrived near the Kensico Dam just after 9 p.m., the helicopter was hit by a green laser beam. The laser contact lasted approximately 4-5 seconds. One pilot said that the laser hit prevented him from being able to see objects outside the aircraft, and that after the beam struck the helicopter, his night vision was severely impaired. The other pilot said that the laser beam impaired his ability to read the flight instruments for a period of time.
WCDPS officers on the ground looked up into the sky and saw a green laser beam pointing toward the WCPD helicopter. A police officer followed the steady beam down to the ground and saw a man holding a laser pointer. That man was subsequently identified as PUTTER.
PUTTER, 40, who lives in Hawthorne, New York, has been charged with one count of aiming a laser pointer at an aircraft, which is a relatively new criminal statute enacted by Congress in February 2012 in order to address the increasing nationwide problem of laser pointers targeting aircraft.
PUTTER faces a maximum penalty of 5 years’ imprisonment. Under the terms of the deferred prosecution agreement, however, if PUTTER abides by the conditions of the agreement for six months, the Government will agree to dismiss the Complaint.
Mr. Bharara praised the investigative work of the law enforcement partners involved in the investigation, including the FBI’s Joint Terrorism Task Force and the Westchester County Department of Public Safety..
The case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorney Jason P.W. Halperin is 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.
There are a number of incidents involving lasers pointed at aircraft in the metropolitan New York area that the FBI is now actively investigating. Anyone with information about such incidents is asked to call the FBI at 212-384-1000.
U.S. v. Philip Avery Putter Complaint
U.S. v. Philip Avery Putter Deferred Prosecution AgreementTwo More Defendants Plead Guilty in Manhattan Federal Court in Scheme to Exert Control over the Waste-Hauling IndustryRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that SCOTT FAPPIANO and ANTHONY BAZZINI pled guilty today in Manhattan federal court in connection with their roles in an illegal scheme to exert control over the commercial waste-hauling industry in the greater New York City metropolitan area and in parts of New Jersey. FAPPIANO and BAZZINI, who were among 32 defendants charged in January 2013, in connection with the scheme, pled guilty today before U.S. District Judge P. Kevin Castel. FAPPIANO and BAZZINI are the twentieth and twenty-first defendants to plead guilty in this matter.
Manhattan U.S. Attorney Preet Bharara said: “With today’s pleas we have convicted nearly two-thirds of the defendants originally charged in this case, and we will not rest until all responsible for this scheme to control the waste-hauling industry in New York City and beyond are made to answer for their numerous crimes.”
According to the Indictment against FAPPIANO and BAZZINI, other documents filed in Manhattan federal court, and statements made at related court proceedings:
FAPPIANO, who is an associate of the Gambino Crime Family, and BAZZINI, who is a made member of the Gambino Crime Family, participated in a scheme, along with other members and associates of three different Organized Crime Families of La Cosa Nostra (“LCN”) – the Genovese, Gambino, and Luchese Crime Families – to control various waste disposal businesses in the New York City metropolitan area and multiple counties in New Jersey. Members of the scheme engaged in various crimes including extortion, loansharking, mail and wire fraud, and stolen property offenses. As part of their involvement in the scheme, FAPPIANO and BAZZINI made threats of bodily harm to a cooperating Government witness (“CW-1”), who owned a waste hauling company, in an effort to obtain payments from CW-1.
FAPPIANO, 52, of Staten Island, New York, pled guilty to one count of communicating a threat of bodily harm in interstate commerce and faces a maximum sentence of five years in prison. FAPPIANO is scheduled to be sentenced by Judge Castel on May 8, 2014, at 10:30 a.m.
BAZZINI, 54, of Glen Head, New York, pled guilty to one count of communicating a threat of bodily harm in interstate commerce and faces a maximum sentence of five years in prison. Bazzini is scheduled to be sentenced by Judge Castel on May 8, 2014, at 11:30 a.m.
Two other defendants have also recently pled guilty in connection with this case. Anthony Cardinalle, 61, of Saddle River, New Jersey, pled guilty on December 20, 2013, before Judge Castel, to participation in a racketeering conspiracy and participation in an extortion conspiracy. He faces a maximum sentence of 40 years in prison and is scheduled to be sentenced on May 23, 2014, at 11:00 a.m. Charles Giustra, 52, of Staten Island, New York, pled guilty on December 23, 2013, before Magistrate Judge Gabriel W. Gorenstein, to using a facility of interstate commerce in furtherance of a narcotics transaction. He faces a maximum sentence of eight years in prison and is scheduled to be sentenced by U.S. District Judge Colleen McMahon on March 25, 2014, at 4:00 p.m.
The charges against the remaining defendants are merely accusations, and these defendants are presumed innocent unless and until proven guilty.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Westchester County Police Department.
The prosecution of this case is being handled by the Office’s Organized Crime Unit. Assistant United States Attorneys Brian R. Blais, Natalie Lamarque, and Patrick Egan are in charge of the prosecution. Assistant United States Attorney Micah Smith of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.
U.S. v. Bazzini & Fappiano Superseding Information
Manhattan U.S. Attorney Announces Forfeiture of $28 Million Worth of Bitcoins Belonging to Silk RoadRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, today announced the forfeiture of approximately 29,655 Bitcoins (which, at today’s Bitcoin exchange rate, are worth approximately $28 million) that were seized from the Silk Road server, as well as the forfeiture of the Silk Road hidden website. The Silk Road hidden website and the Bitcoins that were forfeited yesterday had been seized in connection with the civil forfeiture action previously filed in Manhattan federal court on September 30, 2013, seeking the forfeiture of all assets of Silk Road, including its website and all of its Bitcoins because those assets allegedly were used to facilitate money laundering and constitute property involved in money laundering. In addition to the civil action, a criminal Complaint against Ross William Ulbricht, a/k/a “Dread Pirate Roberts,” a/k/a “DPR,” a/k/a “Silk Road,” the alleged owner and operator of the Silk Road hidden website, was filed in September 2013 in Manhattan federal court charging him with one count of narcotics conspiracy, one of count of conspiracy to commit computer hacking, and one count of money laundering conspiracy. The forfeiture order was signed yesterday by United States District Judge J. Paul Oetken.
Manhattan U.S. Attorney Preet Bharara said: “With today’s forfeiture of $28 million worth of Bitcoins from the Silk Road website, a global cyber business designed to broker criminal transactions, we continue our efforts to take the profit out of crime and signal to those who would turn to the dark web for illicit activity that they have chosen the wrong path. These Bitcoins were forfeited not because they are Bitcoins, but because they were, as the court found, the proceeds of crimes.”
The Silk Road hidden website was designed to enable its users to buy and sell illegal drugs and other unlawful goods and services anonymously and beyond the reach of law enforcement. In connection with the civil forfeiture action, and in addition to the Bitcoins that were forfeited yesterday, the Government seized an additional 144,336 Bitcoins (which, at today’s Bitcoin exchange rate, are worth over $130 million) that were found on computer hardware belonging to Ulbricht. Ulbricht has filed a claim in the civil forfeiture action, asserting that he is the owner of the Bitcoins found on his computer hardware, and contesting the forfeiture of those Bitcoins.
The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of the prosecution, and Assistant United States Attorney Christine Magdo is in charge of the forfeiture aspects of the case.
The charges contained in the criminal Complaint against Ulbricht are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Silk Road Partial Default Judgment and Order of Forfeiture
Manhattan U.S. Attorney Announces Charges Against Former Warehouse Manager of A Prescription Drug Wholesale Distribution Company for False Prescription Drug Pedigree Scheme Involving More Than $49 Million Worth of Diverted Prescription DrugsRead 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 a criminal complaint (the “Complaint”) against STEPHEN COX, the former warehouse manager of a prescription drug wholesale distribution company (the “Wholesaler”), for his alleged participation in a scheme to falsify pedigrees for prescription drugs sold to pharmacies all over the country, including at least six pharmacies in New York City. The prescription drugs were diverted from illegal sources and made to appear, through pedigrees falsely documenting their transaction histories, as though they were obtained legitimately from authorized distributors through licensed wholesalers. The defendant allegedly, through the Wholesaler, based in St. George, Utah, conspired with others to sell to pharmacies more than $49 million worth of illegally obtained prescription drugs through several wholesale distribution companies controlled by co-conspirators, some of whom have pled guilty pursuant to cooperation agreements with the Government. COX surrendered to the FBI this morning in New York City in connection with the charges announced today and was presented in Manhattan federal court before U.S. Magistrate Judge Ronald L. Ellis this afternoon.
The Complaint is a result of the continuing investigation into a scheme that defrauded Medicaid out of more than $500 million through the diversion of prescription drugs. On July 17, 2012, 48 defendants were charged in connection with United States v. Viera, et al., 11 Cr. 1072 (DLC), all but five of whom have been arrested and have pled guilty.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, in his position as a warehouse manager for a prescription drug wholesaler, defendant Stephen Cox played an integral role in a multimillion-dollar prescription drug diversion scheme by helping his employer to falsify the pedigrees of second-hand prescription drugs and dispense them to pharmacies across the country. People in need of medicine walk into a pharmacy to untainted, safe prescription drugs; they should not walk out with black market pills, a risk the alleged conduct makes very real.”
FBI Assistant Director-in-Charge George Venizelos said: “Every operation has a conductor whose job it is to ensure all players work together and all parts are delivered on time. As alleged, Stephen Cox acted as a conductor in this massive Medicaid fraud, working with his co-conspirators to manage the shipment and delivery of illegally obtained prescription drugs to the tune of more than $49 million. By providing advice on how to falsify required FDA documents, he continued to defraud the Medicaid system, which is funded by tax dollars to provide healthcare to lower income individuals, and put at risk those unwitting customers who would eventually purchase these secondhand pills. The FBI remains committed to working with our law enforcement partners on our Health Care Fraud Task Force to ensure the public’s safety and investigate those who seek to defraud government program.”
The following allegations are based on the Complaint and other publicly filed documents in the Viera case:
For years, a large network of individuals operated a nation-wide scheme to illegally launder and resell second-hand prescription drugs (typically HIV/AIDs drugs) purchased from Medicaid beneficiaries on street corners and out of bodegas in and around New York City. The drugs had been dispensed in manufacturers’ bottles with pharmacy patient labels affixed to them. Once they purchased the second-hand drugs, the conspirators, who often held the drugs in uncontrolled and unsanitary conditions, used solvents to dissolve the adhesive on the patient labels to remove them and make the bottles look like new bottles, straight from the manufacturer. Once enough bottles were collected, the New York-based conspirators sold them, through Florida-based groups, to individuals in Texas, who operated several corrupt wholesale companies, such as those identified in the Complaint.
The Wholesaler, through COX and others, purchased more than $49 million worth of prescription drugs that they knew had been purchased illegally by the corrupt wholesale companies run from Texas. COX and others then sold them to unsuspecting pharmacies all over the United States, including to some pharmacies in New York City, which, in turn, sold and dispensed the second-hand drugs to unsuspecting patients who were unaware that their medications had previously been dispensed and may have had diminished efficacy or contained contaminants.
Federal law requires prescription drug wholesalers to create and maintain transaction histories, or “pedigrees,” that correctly document each transaction involving prescription drugs. COX and an uncharged co-conspirator who owned the Wholesaler (“CC-1”) instructed co-conspirators affiliated with the corrupt wholesale companies how to falsify these pedigrees to create paperwork that concealed from FDA inspectors and pharmacies purchasing the drugs that the drugs were illegally obtained and previously had been dispensed. Backed by these false pedigrees, the Wholesaler sold illegally obtained prescription drugs to pharmacies all over the country, including to the six in Manhattan and the Bronx referred to in the Complaint.
From at least 2009 through November 4, 2011, STEPHEN COX, the defendant, worked for CC-1 at the Wholesaler as its warehouse manager. At the Wholesaler, COX received by fax from co-conspirators lists of prescription drugs available from unlicensed sources. COX communicated with co-conspirators concerning orders and shipments of prescription drugs from unlicensed sources, and passed along instructions to co-conspirators concerning how to construct false pedigrees. At the Wholesaler and at two subsequent corrupt wholesale distribution companies, COX received and inspected shipments of prescription drugs from unlicensed sources and facilitated the sale of those drugs to pharmacies all around the country, ultimately to be dispensed to unsuspecting patients. COX is the first individual associated with a wholesale distribution company that sold directly to pharmacies to be charged as part of this ongoing investigation.
COX, 34, of Sugarland, Texas, is charged with one count of conspiracy to defraud the United States, falsify pedigrees, and commit misbranding offenses, which carries a maximum sentence of five years in prison. He is also charged with six counts of pedigree falsification relating to prescription drugs the Wholesaler sold to six pharmacies in Manhattan and the Bronx, each of which carries a maximum sentence of three years in prison.
Mr. Bharara praised the efforts of the FBI’s Health Care Fraud Task Force. 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 is comprised of agents, officers, and investigators from the FBI, New York City Police Department, 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.
The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Jason A. Masimore, Russell Capone, and Edward B. Diskant are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Asset Forfeiture Unit is responsible for the forfeiture of assets.
The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Stephen Cox Complaint
Former Veterans Affairs Police Chief Pleads Guilty in Manhattan Federal Court to Participating in Kidnapping ConspiraciesRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, announced that RICHARD MELTZ pled guilty today to charges arising from his involvement in two separate conspiracies to kidnap, rape, and murder specific women. MELTZ, at the time the Chief of Police, United States Department of Veterans Affairs, at the Bedford Veterans Affairs Medical Center, conspired to kidnap, rape, and murder the wife of a man he had met over the Internet, and a female Federal Bureau of Investigation (“FBI”) agent working in an undercover capacity. MELTZ was charged in April 2013 and pled guilty today before U.S. District Court Judge Paul G. Gardephe.
Manhattan U.S. Attorney Preet Bharara said: “Richard Meltz, a former law enforcement officer, now stands convicted of serious federal crimes for his involvement in two sadistic kidnapping, rape, and murder conspiracies. Prosecuting and bringing to justice perpetrators of such depraved and violent crimes is at the core of this Office’s mission. Meltz’s guilty plea today furthers that mission and brings us one step closer to resolving this case.”
According to the Information to which MELTZ pled guilty, statements made during the plea proceeding, and other court documents:
Between the spring of 2011 and January 2013, MELTZ, Robert Christopher Asch, and Michael Van Hise engaged in a series of electronic email and instant message communications during which they discussed and planned the kidnapping, torture, and murder of Van Hise’s wife and other members of Van Hise’s family. Van Hise sent to MELTZ and Asch photographs of these family members, and the approximate location of their residence. MELTZ engaged in detailed discussions about kidnapping and brutalizing the proposed victims, and ultimately assisted Van Hise and Asch in planning a kidnapping, rape, and murder. The co-conspirators ceased active planning of the kidnapping when the FBI arrested New York City Police Officer Gilberto Valle for a related kidnapping conspiracy, and began investigating Van Hise.
In addition, beginning in approximately January 2013, MELTZ, Asch, and an FBI agent working in an undercover capacity (“UC-1”) began discussions about kidnapping a woman, who unbeknownst to MELTZ and his co-conspirators, was also an FBI agent working in an undercover capacity. MELTZ participated in multiple conversations with both UC-1 and Asch about the conspiracy’s objective to kidnap and commit acts of violence against the intended victim and other women. He advised Asch to obtain a stun gun to subdue the intended target, and based on MELTZ’s direction, Asch purchased a high-voltage Taser gun at a gun show in Pennsylvania, which they intended to use in the commission of the kidnapping offense. Charges against the two alleged co-conspirators, Michael Van Hise and Robert Christopher Asch, remain pending, and they are scheduled to begin trial in early 2014.
MELTZ, 65, of Linden, New Jersey, pled guilty to two counts of engaging in a conspiracy to commit kidnapping. He faces a maximum sentence of 10 years in prison and is scheduled to be sentenced by Judge Gardephe on May 22, 2014, at 2:30 PM.
Mr. Bharara praised the investigative work of the FBI. He also thanked the Department of Veterans Affairs and the New Jersey State Police for their assistance in the investigation.
The case is being prosecuted by the Office’s Violent Crimes Unit. Assistant United States Attorneys Brooke E. Cucinella and Hadassa Waxman are in charge of the prosecution.
The charges against Van Hise and Asch are merely accusations, and those defendants are presumed innocent unless and until proven guilty.
U.S. v. Richard Meltz S5 Information
Former Indian Point Supervisor Sentenced in White Plains Federal Court for Falsifying Nuclear Facility RecordsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that DANIEL WILSON was sentenced today in White Plains federal court to 18 months’ probation for engaging in deliberate misconduct while serving as Chemistry Manager at Indian Point Energy Center (“Indian Point”), a nuclear power plant in Westchester County. WILSON was sentenced by United States District Judge Nelson Román, who also imposed a $500 fine.
U.S. Attorney Preet Bharara stated: “The safe operation of the Indian Point nuclear power facility is of critical importance to our communities in and around it. This Office will be vigilant about prosecuting criminal misconduct that takes place at the facility.”
According to the felony Information to which WILSON pleaded guilty, the Complaint, and information provided for purposes of sentencing:
Indian Point maintains a backup system of emergency generators for use in part to provide power in the event of a power outage and shutdown. WILSON, the Chemistry Manager at Indian Point from 2007 through 2012, was responsible for, among other things, ensuring that certain aspects of the operation at Indian Point were in compliance with technical specifications required by the Nuclear Regulatory Commission (“NRC”). One such requirement related to the amount of particulate matter in the diesel fuel used to power emergency generators at Indian Point, which could not exceed a set limit. In 2011, tests of the diesel fuel maintained for use in powering the emergency generators at Indian Point showed that the ratio of particulate matter in the diesel fuel exceeded the limit set by the NRC.
In February 2012, WILSON concealed material facts from his employer and the NRC by fabricating test data, falsely showing that resampling tests of diesel fuel tested below the applicable NRC limit. In fact, no such resamples were taken, and the purported test data were fabrications. Later in February 2012, WILSON, in response to questioning by other employees of Indian Point in advance of an inspection by the NRC, wrote a report – the kind on which the NRC ordinarily relies in inspecting nuclear facilities for safety – in which he gave a false explanation for the lack of supporting documentation for his fabricated test results. In a subsequent interview with NRC personnel, WILSON admitted that he had fabricated the test results so that Indian Point would not have to shut down.
In April 2012, Wilson resigned from Indian Point.
On October 16, 2013, WILSON pleaded guilty to a one-count Information charging him with deliberate misconduct in connection with a matter regulated by the NRC, in violation of Title 42, United States Code, Section 2273.
Mr. Bharara praised the efforts of the NRC Office of Investigations in connection with the investigation.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorney Benjamin Allee is in charge of the prosecution.
U.S. v. Daniel Wilson Information
U.S. v. Daniel Wilson ComplaintFive Charged with $1.2 Million Worth of Food Stamp Frauds at Three Stores in YonkersRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, William G. Squires Jr., Special Agent-in-Charge, U.S. Department of Agriculture Office of the Inspector General (“USDA-OIG”), and Charles Gardner, Commissioner of the City of Yonkers Police Department, announced the unsealing of three Complaints yesterday charging five individuals with participating in three separate conspiracies to exchange food stamps for cash at three stores in Yonkers, New York, in violation of the terms of the Supplemental Nutrition Assistance Program (“SNAP”).
U.S. Attorney Preet Bharara stated: “Defrauding the SNAP program is tantamount to taking food from needy children and adults, all of whom need help to get adequate nutrition. As alleged, food stamps were being redeemed for a portion of their cash value. The scheme is cynical and illegal and those who practice it will be prosecuted to the full extent of the law.”
USDA Office of Inspector General, Special Agent-in-Charge William G. Squires Jr. stated: “SNAP was created to provide food and nutrition to those who truly need this assistance. Those who are involved in fraud and abuse of SNAP and other USDA programs will be aggressively pursued by our office. Our joint investigation with the Yonkers Police Department has brought to justice several individuals who sought to profit from the SNAP program through illegal schemes. The USDA Office of Inspector General will continue to dedicate resources and work with our state and local law enforcement partners in order to protect the integrity of these programs and to prosecute those who commit fraud.”
Yonkers Police Department Commissioner Charles Gardner stated: “I would like to thank the members of our Street Crime Unit for their extraordinary investigative efforts in this case. It is yet another example of a successful collaboration between the Yonkers Police Department and our federal partners. This should be a warning to other business owners here in Yonkers that SNAP benefits should be processed as intended or you will be subjected to serious criminal charges.”
According to allegations in the Complaints unsealed in White Plains federal court:
AHMED ALSAMET, 35, the owner of SAM DELI GROCERY STORE in Yonkers, and SHOIAB AHMED, 22, an employee of SAM DELI GROCERY STORE, are charged with conspiring to exchange over $250,000.00 in food stamp benefits for cash. YOUSIF KASSIM, 30, the owner of 42 POST DELI GROCERY in Yonkers, and MUFID KASSEM, 36, an employee of 42 POST DELI GROCERY, are charged with conspiring to exchange over $200,000.00 in food stamp benefits for cash. GLORIA GARCIA, 51, is charged with conspiring to exchange over $800,000.00 in food stamp benefits for cash at a store in Yonkers.
Four of the defendants charged in the Complaints were arrested and presented in White Plains federal court before U.S. Magistrate Judge Paul E. Davison. MUFID KASSEM remains at large.
Each defendant, upon conviction, faces a maximum penalty of 5 years’ imprisonment.
Mr. Bharara praised the outstanding investigative work of the USDA-OIG and the City of Yonkers Police Department.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorney Michael Gerber is in charge of the prosecution.
The charges contained in the Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Ahmed Alsamet et al Complaint
U.S. v. Gloria Garcia Complaint
U.S. v. Yousif Kassem et al ComplaintTax Preparer Found Guilty in Manhattan Federal Court on All Counts Relating to False Tax Returns and Aggravated Identity TheftRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that MAHAMADOU DAFFE, a tax preparer, was found guilty Friday, January 10, 2014, by a jury in Manhattan federal court of 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 tax returns submitted online using stolen identities. DAFFE was also convicted of 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. The investigation that led to DAFFE’s arrest and his conviction last week was undertaken by the Criminal Investigation Unit of the Internal Revenue Service (“IRS”), which lost more than $1.5 million as a result of DAFFE’s crimes, during which he attempted to steal more than $4.5 million from the Government. DAFFE was convicted after a one-week trial before U.S. District Judge Naomi Reice Buchwald.
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 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 several bank accounts he controlled—accounts in his own name, the names of co-conspirators, and the names of aliases DAFFE used.
DAFFE, 31, of Queens, New York, was convicted of eight counts relating to theft of government funds, filing false returns, wire fraud, and aggravated identity theft. Each of the counts charging conspiracy to steal government 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 substantive theft of government funds carries a maximum penalty of 10 years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. Each of the false claims conspiracy counts carries 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 conspiracy to commit wire fraud count carries a maximum penalty of 20 years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. The aggravated identity theft count of which DAFFE was convicted carries a mandatory minimum term of imprisonment of two years, to be served consecutively to any other sentence imposed, as well as a maximum fine of $250,000, or twice the gross gain or loss from the offense. DAFFE is scheduled to be sentenced by Judge Buchwald on April 24, 2014, at 3:00 p.m.
DAFFE’s co-conspirator, Mohamed Sangare, previously pled guilty to similar counts and is awaiting sentencing.
Mr. Bharara praised the investigative work of the IRS-CI and thanked the IRS. 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 Sarah E. McCallum are in charge of the prosecution.
U.S. v. Mahamadou Daffee Indictment S1
Statement of Manhattan U.S. Attorney Preet BhararaOn the Conviction of State Assemblyman Eric StevensonRead the Press Release
“As a unanimous jury swiftly found, Assemblyman Stevenson brazenly betrayed the public that elected him. Graft and greed are intolerable in Albany, and we will go to trial as often as we have to until government in New York is cleaned up.”
Assemblyman Eric Stevenson Found Guilty in Manhattan Federal Court of Taking More Than $20,000 in Bribes in Exchange for Proposing Legislation and Performing Other Official ActsRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, and Robert T. Johnson, the District Attorney for Bronx County, announced that New York State Assemblyman ERIC STEVENSON was found guilty in Manhattan federal court of taking more than $20,000 in bribes from four businessmen in exchange for STEVENSON’s official acts, including drafting, proposing, and agreeing to enact legislation that favored the bribers’ business interests. Specifically, the four businessmen, who sought to operate and construct adult day care centers in the Bronx, paid STEVENSON to sponsor and introduce legislation that would declare a three-year moratorium on the construction of adult day care centers in New York City, but from which their current centers would be exempted, in effect giving the businessmen a monopoly in adult day care centers in the area. In connection with one of the defendants’ adult day care centers on Jerome Avenue in the Bronx (the “Jerome Avenue Center”), in exchange for bribes by the businessmen, STEVENSON, in his official capacity as an Assemblyman, contacted Con Edison and the New York City Department of Buildings at their request. In addition, in exchange for bribes, STEVENSON held public events paid for by the businessmen to recruit senior citizens to attend a second center on Westchester Avenue in the Bronx (the “Westchester Avenue Center”). STEVENSON was convicted after a six-day jury trial before U.S. District Judge Loretta A. Preska.
Manhattan U.S. Attorney Preet Bharara said: “As a unanimous jury swiftly found, Assemblyman Stevenson brazenly betrayed the public that elected him. Graft and greed are intolerable in Albany, and we will go to trial as often as we have to until government in New York is cleaned up. As Assemblyman Stevenson readies himself to serve a likely prison term, he serves more importantly as a reminder of what happens to politicians who court only cash and throw their oath to the curb.”
Bronx County District Attorney Robert T. Johnson said: "I am grateful that the U.S. Attorney and our office were successful in uncovering and bringing to justice an elected official who betrayed the public trust by offering his vote for sale. It is fortunate that we were able to root out this corruption before this politician could do serious damage to the legislative process."
STEVENSON has served as a member of the New York State Assembly since 2011 representing District 79, which includes various neighborhoods in the Bronx. The four businessmen – Igor Belyansky, Rostislav Belyansky, a/k/a “Slava,” Igor Tsimerman, and David Binman – are individuals who, during 2012 and 2013, were seeking to open and manage adult day care centers in the Bronx, New York, including the Westchester Avenue Center, within STEVENSON’s Assembly District, and the Jerome Avenue Center, within another Assemblyman’s District. During that time period, they paid multiple bribes to STEVENSON in connection with efforts to open and operate both centers.
For example, at a meeting on July 23, 2012, STEVENSON, Belyansky, and Tsimerman discussed the opening of the Westchester Avenue Center. During this meeting, STEVENSON said that on the following Thursday, July 26, 2012, he was “having a night [event]” for “my reelection” and that he needed “support and help like everyone else.” Subsequently, on July 25, 2012, Slava provided a cooperating witness (the “CW”) with a check for $2,000 made out to STEVENSON’s political action committee, which the CW provided to STEVENSON. STEVENSON did not disclose this check as a campaign contribution as required by New York State Law.
At a September 7, 2012 meeting at a steakhouse in the Bronx, Belyansky and Slava offered to pay STEVENSON $10,000 in exchange for calling Con Edison to expedite the installation of a gas line and assisting with obtaining a Certificate of Occupancy from the New York City Buildings Department at the Jerome Avenue Center, and for assistance recruiting senior citizens to attend the Westchester Avenue Center. STEVENSON agreed, but when Belyansky attempted to hand him the $10,000 in an envelope, STEVENSON indicated that he was concerned that there might be surveillance cameras in the restaurant, so waited until he was outside of the restaurant to take the cash bribe. On September 18, 2012, STEVENSON gave the CW a $1,500 cut of the $10,000 bribe in exchange for the CW’s assistance, and promised to pay the CW an additional $500.
On December 27, 2012, the CW met with STEVENSON and showed STEVENSON a copy of an email dated December 26, 2012, sent from the contractor for the Jerome Avenue Center to Slava and Tsimerman. In the email, the contractor stated that “[i]t is urgent . . . that we call the State Senator Eric Stevenson so that he can call the building department at once and ask them to have this application reviewed” in connection with getting “a permit to install the gas lines into the building.” After reviewing this email, STEVENSON stated, “he’s not a smart guy . . . he’s not too bright, this guy” because “he put this in writing . . . why he got to put my name in it? . . . He shouldn’t have said that.” STEVENSON said they needed to avoid creating a “paper trail.”
During that meeting, the CW and STEVENSON also discussed the possibility of STEVENSON introducing legislation that would establish a temporary moratorium on the construction and/or opening of new adult day care centers (the “Moratorium Legislation”), which would have the effect of eliminating competition with the Jerome Avenue Center and the Westchester Avenue Center, thereby substantially increasing the profits earned by those two centers. STEVENSON told the CW: “All you gotta do is tell me what you want in the bill, and the bill drafter will put it together…I just need you to tell me what they [the co-defendants] want; we prepare the bill . . . . You can write down the language, basically what you want.” STEVENSON then asked: “Are Igor [Belyansky] and them putting together a nice little package [of money] for me, huh?” He said: “I got my inauguration I gotta take care of, I got a lot of sh*t man.” STEVENSON then said to the CW, in reference to the legislation, “I’m telling you, it’s done. It’s no problem.” Subsequently, the CW met with Tsimerman and Belyansky. Tsimerman said that as a result of the Moratorium Legislation, the value of their adult day care centers was “gonna skyrocket. . . . As long as [there’s a] moratorium, I can guarantee you at least a triple [in profits].”
On January 1, 2013, the CW and STEVENSON spoke on the telephone and STEVENSON referred to “Igor” [Belyansky] as “Santa,” in reference to the money he expected to receive. In a subsequent meeting on the same day in the CW’s car, STEVENSON sought assurances that “Igor” [Belyansky] was going to “bless everything,” meaning pay STEVENSON. He added that: “I got the inauguration, I want a blessing [payment] in place, man.” Two days later, the CW gave Belyansky and Slava a copy of a document titled “Proposed Adult Day Care Center Bill,” which contained a proposal for the Moratorium Legislation. On January 7, 2013, the CW provided the same proposal to STEVENSON. Later that day, Tsimerman provided STEVENSON with another copy of the proposal containing Tsimerman’s notes. On January 9, 2013, the CW told Belyansky that STEVENSON wanted $10,000 for the Moratorium Legislation, with $5,000 paid up front. Two days later, on January 11, 2013, at the Westchester Avenue Center, Belyansky, Slava, Tsimerman, and Binman gave the CW $5,000 cash. The CW then left the Westchester Avenue Center with the envelope of money and got in his car where STEVENSON joined him, at which time the CW gave the envelope of money to STEVENSON, after taking out his $500 cut.
On January 27, 2013, STEVENSON met with the CW and told the CW that he was concerned that Tsimerman might be cooperating with law enforcement officials and recording their conversations. STEVENSON expressed a concern that if “they bring me down… somebody’s going to the cemetery.”
STEVENSON had a draft of the Moratorium Legislation prepared by January 31, 2013, which he showed the CW at a meeting in his office and which was consistent with the bullet points prepared by the CW and Belyansky, Slava, Tsimerman, and Binman. On February 11, 2013, STEVENSON told the CW: “We got the bill [the Moratorium Legislation] back today . . . [t]he bill is done now, it’s going out to the members . . . to the committee and . . . we’re gonna . . . try to push it to get it to the floor.” On February 16, in a hotel room in Albany, SLAVA gave $5,000 in cash to the CW, which the CW gave to STEVENSON after taking a $500 cut. While the CW took out his $500 cut, STEVENSON walked into the bathroom of the CW’s room and left the door open so that he could receive the $4,500 cash in the bathroom.
STEVENSON introduced and sponsored Bill Number A05139, which places a temporary moratorium on the construction and/or opening of new adult day care centers within New York City on February 20, 2013, and it is currently pending before the New York State Assembly’s Committee on Aging.
Two days later, in a meeting between the CW and Belyansky, Tsimerman, and Binman, Belyansky said that the legislation would double the value of his share in the Jerome Avenue and Westchester Avenue Centers from approximately $350,000 to $700,000.
In the course of recorded conversations between STEVENSON and the CW, STEVENSON repeatedly referenced the convictions and sentences of other New York officials for crimes of public corruption, even as STEVENSON himself requested bribes. For example, during one meeting between STEVENSON and the CW on December 27, 2012, STEVENSON observed, “if half of the people up here in Albany was ever caught for what they do . . . they . . . would probably be in [jail] . . . so who are they bullsh**ing?” During another meeting, on January 1, 2013, after discussing the convictions of former New York State Senator Carl Kruger, former New York State Senator Pedro Espada, Jr., and former New York State Comptroller Alan Hevesi, STEVENSON commented on being “careful” about “the recorders and all those things” that informants wear in order to be careful not to “put yourself in jail.”
STEVENSON, 47, of the Bronx, New York, was convicted of one count of conspiring to commit honest services wire fraud, which carries a maximum sentence of 20 years in prison, one count of conspiring to commit federal programs bribery and to violate the Travel Act, which carries a maximum sentence of 5 years in prison, one count of committing federal programs bribery, which carries a maximum sentence of 10 years in prison, and one count of extortion under color of official right, which carries a maximum sentence of 20 years in prison. Each of the counts of conviction also carries a maximum fine of $250,000, or twice the gross gain or loss from the offense. STEVENSON is scheduled to be sentenced by Judge Preska on May 20, 2014.
Belyansky, Slava, Tsimerman, and Binman all pled guilty to conspiring to commit honest services wire fraud in connection with their payment of bribes to STEVENSON before United States District Judge William H. Pauley III. They are scheduled to be sentenced by Judge Pauley on January 24, 2014.
Mr. Bharara praised the work of the investigators from the United States Attorney’s Office for the Southern District of New York and the District Attorney’s Office for Bronx County.
This prosecution is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Paul M. Krieger and Brian A. Jacobs and Special Assistant U.S. Attorney Pishoy Yacoub of the Bronx County District Attorney’s Office are in charge of the prosecution.
U.S. v. Eric Stevenson et al. S2 Indictment
Manhattan U.S. Attorney Charges Member of Bronx Narcotics Organization with MurderRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Thomas J. Cannon, the Special Agent-in-Charge of the New York Field Office of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and William J. Bratton, the Police Commissioner for the City of New York (“NYPD”), announced today the filing of a Superseding Indictment in Manhattan federal court charging CATHERINE MORALES, a member of a drug trafficking organization (the “Organization”) that operated in the Bronx, with narcotics trafficking, firearms use and possession, and murder. MORALES was arraigned yesterday before United States District Judge Richard J. Sullivan.
MORALES was previously charged in an Indictment with narcotics trafficking and firearms offenses, and was arrested by federal authorities in August 2013 in Philadelphia, Pennsylvania. She was subsequently brought to Manhattan federal court in September 2013, to face those charges in the Southern District of New York. Co-defendants Adony Nina and Candido Antomattei, leaders of the Organization, were convicted of narcotics trafficking and firearms charges following a trial in October 2013. Nine other members of the Organization have pleaded guilty to various federal narcotics and firearms charges.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Catherine Morales not only operated within a web of traffickers that spread dangerous drugs in our Bronx neighborhoods, she personally participated in the drug gang’s violence, including murdering a young woman by shooting her in the head. With this superseding indictment, she will be made to answer for her alleged conduct. This investigation and prosecution serves as a perfect example of how federal authorities, working with our local law enforcement partners, can make our streets and communities safer and free from violence.”
ATF Special Agent-in-Charge Thomas Cannon said: “The Morales indictment is a prime example of exemplary investigative work coupled with a balanced and focused prosecution. The investigation – initiated with a single arrest for weapons possession – has grown to approximately a dozen defendants and has uncovered a variety of criminal acts, including armed narcotics trafficking and homicide. I commend the ATF Agents and NYPD Detectives along with the prosecution team that have remained steadfast in their pursuit for justice. I know that the people of New York, especially those residing in the 41st precinct in the Bronx, echo my sentiments.”
NYPD Commissioner William J. Bratton said: “I would like to commend the investigators for their hard work and dedication in bringing this suspect to justice.”
According to the allegations in the Superseding Indictment filed in Manhattan federal court, other publicly filed documents, and statements made in court at MORALES’s arraignment and throughout the pendency of the case:
From 2008 through 2013, the Organization’s members sold crack cocaine and heroin, among other drugs, primarily in the vicinity of Longwood Avenue, and Beck, Kelly, and Simpson Streets in the Bronx. MORALES was involved primarily in the sale of heroin in the vicinity of Simpson and East 163rd Streets.
During and in relation to MORALES’s participation in the drug trafficking conspiracy, MORALES fatally shot victim Aisha Morales, who was 21 at the time of her death, in the head. The shooting took place in the vicinity of 1018 East 163rd Street, and was sparked by a drug-related dispute.
MORALES, 28, of Bronx, New York, is charged with one count of conspiring to distribute and possess with the intent to distribute crack cocaine and heroin, which carries a mandatory minimum sentence of 10 years in prison and a potential maximum sentence of life in prison; one count of possessing firearms that were brandished and discharged, which carries a mandatory minimum sentence of 10 years in prison and a maximum sentence of life in prison; one count of using firearms to cause the death of another person during and in relation to the narcotics conspiracy, which carries a potential maximum sentence of life in prison, and one count of intentionally killing an individual while engaged in the narcotics conspiracy, which carries a mandatory minimum sentence of 20 years in prison, and a potential maximum sentence of life in prison.
Mr. Bharara praised the outstanding investigative work of the ATF and the NYPD, and added that the investigation is continuing.
The prosecution is being handled by the Office’s Violent Crimes Unit. Assistant U.S. Attorneys Christopher DiMase and Sarah Krissoff are in charge of the prosecution.
The charges contained in the Superseding Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Catherine Morales S9 Indictment
Statement of Spokesman James M. Margolin for United States Attorney's Office for the Southern District of New York Re: United States V. Devyani KhobragadeRead the Press Release
"This Office had been advised by the State Department that, pursuant to their request, Devyani Khobragade was to have left the United States this afternoon. In a letter sent to the Court upon the filing of the Indictment of Ms. Khobragade, we stated our understanding that she had left the country. Subsequent to the filing of the letter, Ms. Khobragade’s lawyer advised that she has not, in fact, departed the U.S."
INDICTMENT, EXHIBITS & RELATED LETTER: U.S. V. Devyani KhobragadeRead the Press Release
U.S. v. Devyani Khobragade Indictment Exhibits
U.S. v. Devyani Khobragade Indictment
U.S. v. Devyani Khobragade Govts 1.9.2014 Letter to Judge ScheindlinManhattan U.S. Attorney Simultaneously Files Additional Healthcare Fraud Claims Against Novartis Pharmaceuticals Corp. and Settles Lawsuit Against Bioscrip, Inc., in Connection with A Multimillion-Dollar Kickback Scheme Involving A Prescription DrugRead the Press Release
BioScrip Agrees to Pay $15 Million and Makes Extensive Factual Admissions to Resolve Claims
Preet Bharara, the United States Attorney for the Southern District of New York, and Ronald T. Hosko, the Assistant Director of the Federal Bureau of Investigation, Criminal Investigative Division (“FBI”), announced today that the United States has filed additional civil healthcare fraud claims in Manhattan federal court against NOVARTIS PHARMACEUTICALS CORP. (“NOVARTIS”) and BIOSCRIP, INC. (“BIOSCRIP”). The Government’s Amended Complaint seeks treble damages and civil penalties under the False Claims Act against NOVARTIS and BIOSCRIP for NOVARTIS providing kickbacks, in the form of patient referrals and in the guise of rebates, to BIOSCRIP in exchange for BIOSCRIP recommending refills to Exjade patients. The lawsuit alleges that, as a result of this kickback scheme, Medicare and Medicaid have paid tens of millions of dollars in reimbursements based on false, kickback-tainted claims for Exjade shipped by BIOSCRIP.
Simultaneous with the filing of the Amended Complaint, U.S. District Judge Colleen McMahon approved a settlement to resolve the United States’ claims against BIOSCRIP. Under that settlement, which takes into account BIOSCRIP’s limited financial resources, BIOSCRIP (i) agrees to pay $11,685,705.43 to the United States; (ii) admits numerous facts concerning its relationship with NOVARTIS; and (iii) agrees to cooperate with the United States in the prosecution of the claims against NOVARTIS. BIOSCRIP has also agreed in principle to pay $3.31 million to a group of States to settle the States’ claims based on the same alleged conduct.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Novartis is caught having orchestrated yet another scheme whereby it used the lure of kickbacks to co-opt a healthcare providers’ independence and, in this case, turned pharmacy employees at BioScrip into salespeople for Exjade. By allegedly having BioScrip promote refills under the guise of purported ‘counseling’ and ‘education,’ Novartis caused patients to receive one-sided advice that did not discuss Exjade’s serious, potentially life-threatening, side effects. Further, by hiding this illegal quid pro quo from federal healthcare programs, Novartis caused the public to pay tens of millions of dollars for kickback-tainted drugs.”
FBI Assistant Director Ronald T. Hosko said: “Investigations such as these are a high priority for the FBI and we will aggressively pursue providers that boost their profits at the expense of Medicare and other government programs. Due to the potential impact to the nation’s health care system and to the public from these types of multifaceted schemes, we have created a centralized team to provide nationwide support to our field offices called the Major Provider Response Team. The FBI is committed to working with our partners in these types of investigations and appreciates the public’s involvement in the process.”
According to the allegations contained in the Amended Complaint filed today in Manhattan federal court:
NOVARTIS markets and manufactures Exjade, an iron chelation drug approved for use by patients who have iron overload resulting from blood transfusions. Between February 2007 and May 2012, NOVARTIS orchestrated a scheme whereby it offered kickbacks, in the form of patient referrals and under the guise of rebates, to BIOSCRIP, a specialty pharmacy, in exchange for BIOSCRIP increasing its Exjade refills through biased recommendations to patients.
BIOSCRIP was part of a Novartis-created exclusive distribution network for Exjade, and through this network, Novartis was able to refer Exjade patients to particular pharmacies within the network. In order to obtain greater numbers of patient referrals and rebates, BIOSCRIP, in coordination with NOVARTIS, implemented a program of calling patients to recommend Exjade refills or to get patients who stopped ordering Exjade refills to resume ordering them.
NOVARTIS and BIOSCRIP promoted these calls as part of an effort to offer clinical “counseling” or “education” to Exjade patients. In fact, however, the real purpose behind this call program was to obtain more refill orders so that Novartis could increase its Exjade sales and meet its national Exjade sales target and BIOSCRIP, in turn, could get more patient referrals and higher rebates. Thus, the BIOSCRIP employees making those calls to Exjade patients emphasized the importance of getting refills, but ignored Exjade’s serious, potentially life-threatening side effects, such as kidney failure and gastrointestinal hemorrhage. Indeed, according to a former BIOSCRIP supervisor, the incentives offered by NOVARTIS caused BIOSCRIP to focus exclusively on getting Exjade patients to order refills, rather than caring for these patients. This Exjade scheme violated the federal anti-kickback statute, which prohibits the offer or payment of remuneration to induce the purchase or recommendation of any drug or service covered by Medicare, Medicaid, or another federal healthcare program.
By orchestrating this scheme, NOVARTIS and BIOSCRIP further caused pharmacies to submit tens of thousands of claims to Medicare and Medicaid, resulting in those programs paying out tens of millions of dollars in reimbursements based on false claims tainted by kickbacks.
Further, as part of its settlement with the United States, BIOSCRIP made extensive factual admissions, including, among other things, that:
- BIOSCRIP was one of three specialty pharmacies permitted to dispense Exjade as part of “EPASS,” NOVARTIS’s distribution network for Exjade.
- NOVARTIS controlled how approximately half of the patient prescriptions received by EPASS were distributed among BIOSCRIP and the other two EPASS pharmacies.
- In 2007, NOVARTIS informed BIOSCRIP that the level of refill orders among BioScrip’s Exjade patients was below the refill levels achieved by the other two EPASS pharmacies. NOVARTIS demanded that BIOSCRIP implement a Performance Improvement Plan (“PIP”) due to its low refill levels relative to the other EPASS pharmacies. NOVARTIS informed BIOSCRIP that it had to increase its refill levels or NOVARTIS would cut off the flow of certain patient referrals to BIOSCRIP and, potentially, remove BIOSCRIP from EPASS.
- In response, and to avoid losing access to patient referrals, BIOSCRIP launched an intensive effort to (i) increase overall patient orders for Exjade refills, and (ii) “restart” many patients who had stopped ordering Exjade. To achieve that goal, BIOSCRIP hired a group of staff to work exclusively on Exjade (the “Exjade Team”). BIOSCRIP directed the Exjade Team to call many patients to encourage them to order refills and to encourage many patients who had stopped ordering refills to “restart” Exjade.
- The efforts of the Exjade Team resulted in significant increases in Exjade refill levels at BIOSCRIP – by September 2007, the refill levels at BIOSCRIP were higher than at the other two EPASS pharmacies. Recognizing the improvement in refill levels at BIOSCRIP, NOVARTIS continued to direct patient referrals to BIOSCRIP.
- BIOSCRIP developed a protocol, named ScripCare, for the Exjade Team to call patients to encourage many patients to order refills and to encourage many patients who had stopped ordering refills to restart Exjade. In developing ScripCare, BIOSCRIP shared key elements with NOVARTIS.
- The Exjade marketing team at NOVARTIS provided input on aspects of the ScripCare protocol, including how to discuss potential side effects with Exjade patients.
- In 2007, NOVARTIS began issuing monthly “Exjade Scorecards” to BIOSCRIP and the other two EPASS pharmacies that measured, among other things, “adherence” scores. Based on discussions with NOVARTIS, BIOSCRIP knew that the “adherence” scores in the Exjade Scorecards were designed to show how long Exjade patients continued to order refills. Later that year, NOVARTIS began discussions with BIOSCRIP about a plan to allocate more patient referrals to BIOSCRIP if, according to the adherence scores in the Exjade Scorecards, it remained the highest performer in terms of obtaining refill orders.
- In 2008, BIOSCRIP agreed to a new patient allocation plan proposed by NOVARTIS, which linked the percentage of patient referrals for BIOSCRIP to its refill rates as measured by the Exjade Scorecard.
- In 2011, BIOSCRIP was placed under a “corrective action” plan by NOVARTIS due to its low refill rates relative to the other EPASS pharmacies and other issues, and stopped receiving certain patient referrals. In response, BIOSCRIP launched an intensive effort to “restart” many patients and to encourage many patients to order refills. By late 2011, BIOSCRIP’s refill rates had increased significantly; and, starting in January 2012, NOVARTIS increased its allocation of patient referrals to BIOSCRIP based on its higher refill rates relative to the other EPASS pharmacies in late 2011.
The additional claims in the Amended Complaint seek treble damages and penalties under the False Claims Act for the tens of millions of dollars in reimbursements that Medicare and Medicaid paid for Exjade shipments that resulted from the kickback scheme involving NOVARTIS and BIOSCRIP. In addition, the Government seeks compensatory damages under the common law for the tens of millions of dollars for the profits that NOVARTIS and BIOSCRIP obtained as the result of Medicare and Medicaid reimbursements for Exjade.
The allegations of fraud stated in the Complaint were first brought to the attention of federal law enforcement by a whistle-blower who filed a lawsuit under the False Claims Act. The False Claims Act permits the Government to recover up to three times the amount of damages incurred by the United States, plus civil penalties ranging from $5,500 to $11,000 per violation. Private parties who have knowledge of fraud committed against the Government may file suit on behalf of the Government and share in any recovery. The United States may then intervene and file its own lawsuit for treble damages and penalties, as it did in this case.
Mr. Bharara praised the investigative work of the FBI’s Major Provider Response Team, HHS-OIG, and the Medicaid Fraud Control Units for New York, Washington, and Ohio. He also thanked the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington D.C., for its extraordinary assistance in this case.
The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating healthcare and other types of frauds. Assistant U.S. Attorneys Li Yu, Rebecca C. Martin, and Ellen M. London are in charge of the case.
U.S. v. Novartis & BioScrip Stipulation & Order of Settlement & Dismissal Re Bioscrip
U.S. v. Novartis Amended ComplaintFormer NYC Public School Teacher Pleads Guilty in Manhattan Federal Court to Falsely Claiming to Have Provided Federally-Funded Tutoring ServicesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that SANDRA ALLEN, a former New York City public school teacher and tutor for TestQuest, Inc (“TestQuest”), an educational services company that provided tutoring services to public school children as part of a federally-funded program, pled guilty yesterday in Manhattan federal court for her role in a scheme to make it appear as if students had received after-school tutoring when, in fact, they had not, thereby enabling TestQuest to obtain federal funds to which it was not entitled. ALLEN pled guilty before U.S. District Judge Alvin K. Hellerstein.
Manhattan U.S. Attorney Preet Bharara said: “Sandra Allen, a former public school teacher, exploited a federally-funded tutoring program meant to help underperforming schools and their students. She falsified records and induced students to lie so that TestQuest could steal substantial sums of federal funding. She will now pay the price for her criminal conduct.”
According to the Information and Superseding Information filed against ALLEN and statements made in related court proceedings:
From 2008 through 2011, the New York City Department of Education (“NYCDOE”) received funds from the federal government to pay for New York City’s Supplemental Educational Services program (“SES”), which included after-school tutoring for students attending underperforming public schools. NYCDOE entered into contracts with private entities and organizations to provide SES tutoring to public school students. 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 NYCDOE to provide SES tutoring were required to have each student who attended a class sign a standard attendance form. The tutor was also required to sign the form, attesting to the fact that he or she provided SES tutoring to those students. Further, as a condition of getting paid for providing tutoring, the private entities were required to certify to the NYCDOE that their attendance records were “true and accurate.”
From 2008 through 2011, TestQuest contracted with NYCDOE to provide SES tutoring. TestQuest provided tutoring at various New York City public schools, including the Monroe Academy of Business and Law/High School of World Cultures (“Monroe”) and the Global Enterprise Academy/Christopher Columbus High School (“Columbus”). TestQuest received millions of dollars in federal funding for tutoring during this time period, including hundreds of thousands of dollars for purported tutoring at Monroe and Columbus alone.
From the 2008/2009 academic year through the 2010/2011 academic year, while working as an SES tutor for TestQuest, ALLEN participated in a scheme to falsify daily attendance sheets to make it appear as if more students had attended TestQuest’s SES classes than had actually attended. ALLEN directed students who had not attended any after-school tutoring to sign daily attendance sheets falsely claiming that they had, in fact, received such tutoring. ALLEN also signed certifications on the attendance sheets, falsely certifying that she had provided after-school tutoring to the students whose names appeared on the attendance sheet when, in fact, she had not.
In addition, during the 2008/2009 academic year, ALLEN enlisted four students to participate in the scheme. Specifically, she directed the four students to find other students to sign daily attendance sheets for SES classes that they had not attended. ALLEN purchased food for the four student “helpers” to reward them for their assistance in the scheme.
ALLEN, 53, of New York, New York, pled guilty to one count of conspiracy to make false statements. She faces a maximum sentence of five years and is scheduled to be sentenced by U.S. District Judge Alvin K. Hellerstein on April 25, 2014 at 11:30 am. Civil charges that were previously filed against ALLEN for her role in the fraudulent billing scheme remain pending.
TestQuest previously agreed to pay the Government $1,725,000 in damages and penalties under the False Claims Act in connection with the billing scheme. TestQuest also agreed not to participate in any federal procurement or non-procurement transactions for a period of three years.
Mr. Bharara thanked the United States Department of Education’s Office of Inspector General for its extraordinary assistance in this case.
The criminal case is 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 case is being handled by Christopher B. Harwood of the Office’s Civil Frauds Unit.
U.S. v. TestQuest et al. Amended Complaint
Former Immigration Enforcement Agent Pleads Guilty in Manhattan Federal Court to Participating in Narcotics ConspiracyRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, announced that KORDELL NESBITT pled guilty today to charges arising from his involvement in a conspiracy to distribute cocaine and marijuana. NESBITT, at the time an Immigration Enforcement Agent (“IEA”) with the Department of Homeland Security, Immigration and Customs Enforcement, arranged for the shipment of marijuana into the New York City area for distribution in the Bronx. NESBITT was charged in July 2013 and pled guilty today before U.S. District Court Judge Jesse M. Furman.
Manhattan U.S. Attorney Preet Bharara said: “Federal agents are supposed to uphold our nation’s laws, not break them. Kordell Nesbitt broke laws that he swore to enforce when he played an integral role in a cocaine and marijuana conspiracy. His successful prosecution underscores our commitment to holding accountable law enforcement officers who engage in unlawful activity.”
According to the Indictment to which NESBITT pled guilty, statements made during the plea proceeding, and other court documents:
Throughout his involvement in the conspiracy, NESBITT was an IEA with U.S. Immigration and Customs Enforcement (“ICE”). Among other duties, he was responsible for escorting detained aliens both within the United States and internationally to foreign countries. In this capacity, NESBITT was authorized to carry a firearm at all times, and was able to avoid screening measures at airports to which civilian travelers are typically subjected.
From at least May 2013, NESBITT sought to arrange for the shipment of cocaine and marijuana into the New York City area. Ultimately, NESBITT succeeded in coordinating the shipment of pound quantities of marijuana to an apartment in the Bronx. Once the package reached its destination, NESBITT personally coordinated sales of the narcotics within the packages using his cellular phone, sending drug customers to the apartment where a co-conspirator executed the sales. Charges against two alleged co-conspirators, Christopher Sinceno and Sherisse Thompson, remain pending.
NESBITT, 26, of the Bronx, New York, pled guilty to one count of engaging in a conspiracy to violate the narcotics laws of the United States, namely, to distribute controlled substances containing marijuana and cocaine. He faces a maximum sentence of five years in prison.
Mr. Bharara praised the investigative work of the Department of Homeland Security, Office of the Inspector General and the Immigration and Customs Enforcement Office of Professional Responsibility. He also thanked ICE’s Homeland Security Investigations for its assistance in the investigation.
The case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Martin S. Bell is in charge of the prosecution.
The charges against Thompson and Sinceno are merely accusations, and those defendants are presumed innocent unless and until proven guilty.
U.S. v. Kordell Nesbitt and Christopher Sinceno Indictment
Supporting Documents for Deferred Prosecution Agreement: U.S. V. JPMorgan Chase Bank, N.A.Read the Press Release
U.S. v. JPMorgan Chase - Deferred Prosecution Agreement Packet
Manhattan U.S. Attorney and FBI Assistant Director-In-Charge Announce Filing of Criminal Charges Against and Deferred Prosecution Agreement with JPMorgan Chase Bank, N.A., in Connection with Bernard L. Madoff’s Multi-Billion Dollar Ponzi SchemeRead the Press Release
Charges to Be Deferred for Two Years Under an Agreement Requiring JPMorgan to Admit to Its Conduct; Pay $1.7 Billion to Victims of Madoff’s Fraud; and to Reform Its Anti-Money Laundering Policies
$1.7 Billion Payment by JPMorgan is the Largest Ever Bank Forfeiture and Department of Justice Penalty for a Bank Secrecy Act Violation
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 Office of the Federal Bureau of Investigation (“FBI”), announced criminal charges against JPMorgan Chase Bank, N.A. (“JPMorgan” or the “Bank”), consisting of two felony violations of the Bank Secrecy Act, in connection with the Bank’s relationship with Bernard L. Madoff Investment Securities (“Madoff Securities”). The case is assigned to United States District Judge Lewis A. Kaplan.
Also today, Mr. Bharara announced an agreement (the “Agreement”) with JPMorgan, under which the Bank agreed to accept responsibility for its conduct by stipulating to the accuracy of an extensive Statement of Facts; to pay a $1.7 billion penalty to the victims of the Madoff fraud through a parallel civil forfeiture complaint; to refrain from future criminal conduct and cooperate fully with the Government; and to continue reforms of its Bank Secrecy Act (“BSA”)/Anti-Money Laundering compliance program. The criminal charges are contained in a two-count felony Information (the “Information”). Assuming the Bank’s continued compliance with the Agreement, the Government has agreed to defer prosecution on the Information for a period of two years, after which time the Government will seek to dismiss the charges.
Manhattan U.S. Attorney Preet Bharara said: “Today, the largest financial institution in the country stands charged with two criminal offenses. Institutions, not just individuals, have an obligation to follow the law and to police themselves. They must exercise due care not only with their own money but with other people’s money also. In this case, JPMorgan connected the dots when it mattered to its own profit, but was not so diligent otherwise. Fortunately, with today’s resolution, the bank has accepted responsibility and agreed to continue reforming its anti-money laundering practices. Most importantly, the victims of Bernie Madoff’s epic fraud are $1.7 billion closer to being made whole.”
FBI Assistant Director-in-Charge George Venizelos said: “J.P. Morgan failed to carry out its legal obligations while Bernard Madoff built his massive house of cards. Today, J.P. Morgan finds itself criminally charged as a consequence. But it took until after the arrest of Madoff, one of the worst crooks this office has ever seen, for J.P. Morgan to alert authorities to what the world already knew. In order to avoid these types of disasters in the future – we all need to be invested in making our markets safer and more equitable. The FBI can’t do it alone. Traders, compliance officers, analysts, bankers, and executives are the gatekeepers of the financial industry. We need their help protecting our markets.”
In separate actions, the United States Department of the Treasury, Office of the Comptroller of the Currency (“OCC”), and the Financial Crimes Enforcement Network (“FinCEN”), announced that they had also reached agreements with JPMorgan.
According to the documents filed today in Manhattan federal court:
Since 1986, JPMorgan and its predecessor institutions served as the primary bank through which Madoff ran his Ponzi scheme. Madoff Securities maintained a series of linked checking and brokerage accounts at JPMorgan – collectively referred to as the “703 Account.” Madoff was a client of the Bank’s broker/dealer banking group, an investment bank group that comprised personnel from various business lines that serviced the needs of broker/dealer clients. JPMorgan designated a banker as Madoff’s “relationship manager,” who was principally responsible for Madoff’s business with the Bank, as well as for the Bank’s first-line BSA responsibilities, including certifying that the Madoff relationship “complies with relevant legal and regulatory-based policies,” and “that the necessary due diligence has been performed.”
Early on in its relationship with Madoff Securities, JPMorgan, because of its unique vantage point as the firm’s banker, had reason to be suspicious about Madoff. For example, in the early 1990s the Bank learned that Madoff and a prominent client of JPMorgan’s Private Bank (the “Private Bank Client”) were engaged in what looked like round-tripping, check-kiting transactions. Another bank involved in these transactions (“Madoff Bank 2”) recognized them as suspicious and without any legitimate business purpose. In or about 1996, unlike JPMorgan, Madoff Bank 2 not only filed a suspicious activity report (“SAR”) with law enforcement, but it actually closed down Madoff’s account. As a result, Madoff moved all of his accounts from Madoff Bank 2 to JPMorgan, where the size of these transactions became much larger. For example, in December 2001 alone, the Private Bank Client engaged in approximately $6.8 billion worth of transactions with Madoff through a series of circular $90 million transfers.
Over the years, other parts of the Bank developed their own suspicions about Madoff. In 2006, an entirely different part of the Bank – a derivatives trading desk located in the London branch of JPMorgan’s Investment Bank – became interested in Madoff. The trading desk began receiving requests to issue derivatives tied to the performance of various Madoff “feeder” funds – funds that sent investor money to Madoff Securities. In order to hedge and offset the risk created by these products, JPMorgan invested the Bank’s own capital directly in the feeder funds. The Bank initially issued about $100 million of Madoff-linked products in 2006 and early 2007. Then, because of continued demand for these products, in the summer of 2007, the traders on the London desk sought to write more than $1 billion in Madoff-linked derivatives – a large deviation from normal risk limits, which therefore had to be approved by the Investment Bank’s Chief Risk Officer. In June 2007, the Chief Risk Officer convened a committee to consider authorizing a request for more than $1.3 billion of the Bank’s proprietary capital to be invested directly into Madoff feeder funds to hedge the issuance of additional derivative products tied to the performance of Madoff feeder funds. Ultimately, the Chief Risk Officer – who at one point was told by a senior colleague that there is a “well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme” – rejected the proposal and set the Madoff risk limit at $250 million.
Over the next several months, JPMorgan began to have increasing concerns about its exposure to Madoff. In late 2007, the London trading desk hired its own due diligence staff; on the first day of his job, the newly-hired head of hedge fund due diligence was directed to review the Madoff feeder fund positions and offer any insight into how Madoff was able to generate his purported returns. Ultimately, in October 2008, the London desk’s due diligence team circulated a negative memorandum describing continuing concerns about Madoff. Among other things, the memorandum described the inability of JPMorgan to validate Madoff’s trading activity or custody of assets, questioned Madoff’s “odd choice” of a one-man accounting firm, and generally made the point that JPMorgan “seem[ed] to be relying on Madoff’s integrity” with little reason to do so.
About two weeks after the circulation of this memorandum, on October 29, 2008, JPMorgan filed a report with regulators in the United Kingdom, listing Madoff Securities as the “main subject – suspect” and repeating many of the concerns from that earlier memo. The report to the UK regulators concluded that Madoff’s returns were “probably” “too good to be true,” and “as a result,” JPMorgan was withdrawing about $300 million of its own money from the Madoff feeder funds. On November 19, 2008, the Bank filed a second report, notifying U.K. regulators about an additional planned transaction involving its position in the feeder funds, lest JPMorgan “be considered party to laundering the proceeds of crime.” As part of a broader directive to reduce generally the Bank’s exposure to hedge funds, between October 2008 and Madoff’s arrest on December 11, JPMorgan redeemed approximately $288 million of its approximately $370 million position in the Madoff feeder funds.
Although JPMorgan filed a report with UK regulators about its concerns relating to Madoff, it failed to do so in the United States. While the suspicions raised by the UK bankers led to JPMorgan’s own redemptions from Madoff feeder funds, during the same time, U.S.-based anti-money laundering compliance officers at JPMorgan never looked into Madoff, and nor was the relationship sponsor alerted about the London desk’s concerns. And while certain senior compliance officers in the United States were provided with all of the relevant facts – critically, the London traders’ suspicions about Madoff and the fact of the decades-long banking relationship with Madoff – the U.S. compliance officers did very little to investigate those suspicions, failed to raise these concerns with the bank’s anti-money laundering department, and failed to file a SAR.
Meanwhile, the balance in the 703 Account that held the billions Madoff stole from his customers was being drained. In August 2008, the account held approximately $5.6 billion. But by October 16, 2008 – the date of the negative memorandum described above – the balance had fallen to $3.7 billion. And on October 29, when the Bank filed its report in the U.K., the balance had fallen another $700 million, to about $3 billion. Over the next five weeks before Madoff’s arrest, a little over $2 billion exited the 703 Account. By the time Madoff was arrested on December 11, 2008, only about $234 million remained in the 703 Account. Of those lost billions, the vast majority went to the very funds in which JPMorgan had built a position, including about $288 million that went back to JPMorgan itself to pay for its redemptions from the feeder funds.
As a result of the foregoing conduct, this Office has entered into a Deferred Prosecution Agreement with JPMorgan, which has been submitted today to Judge Kaplan. Pursuant to the Agreement, the Bank has agreed to the following terms and conditions. First, JPMorgan has agreed to waive indictment and to the filing of the Information, charging the Bank with violations of the Bank Secrecy Act. Count One of the Information charges that JPMorgan failed to maintain an effective anti-money laundering program in 2008, as required under the BSA. Specifically, Count One alleges that JPMorgan failed to enact adequate policies, procedures, and controls to ensure that information about the Bank’s clients obtained through other lines of business – or outside the United States – was shared with compliance and AML personnel. Count Two of the Information alleges that JPMorgan violated the BSA by failing to file a Suspicious Activity Report on Madoff Securities in October 2008.
Second, pursuant to the Agreement, JPMorgan agrees to acknowledge responsibility for its conduct by, among other things, stipulating to the accuracy of a detailed Statement of Facts.
Third, JPMorgan agrees to pay a non-tax deductible penalty of $1.7 billion, in the form of a civil forfeiture, which the Government intends to distribute to the victims of the Madoff fraud, consistent with the applicable Department of Justice regulations, through the ongoing remission process. To effectuate that forfeiture, the Office has today filed a parallel civil forfeiture complaint, which has been assigned to United States District Judge Andrew L. Carter, Jr. The $1.7 billion penalty represents the largest ever financial penalty imposed by the Department of Justice for a violation of the Bank Secrecy Act, and the largest forfeiture from a bank. Information about the remission process, including instructions for filing a claim, can be found on its website at www.madoffvictimfund.com.
Fourth, JPMorgan agrees to various cooperation obligations, including (1) cooperation in connection with this Office’s ongoing investigation of the fraud at Madoff Securities; (2) an obligation to report any criminal conduct by any employee acting within the scope of his employment at JPMorgan; (3) reporting to this Office any BSA-related investigation or proceeding in which JPMorgan is involved; and (4) committing no subsequent federal crimes.
Fifth, JPMorgan agrees to continue reforming its Bank Secrecy Act/Anti-Money Laundering compliance programs and procedures, consistent with a pair of consent orders previously entered by the Bank’s principal regulators, and to provide quarterly reports and other information to this Office about its progress.
In consideration of these obligations, the Government has agreed to defer prosecution on the Information for a period of two years, after which time – assuming that the Bank does not violate the Agreement – the Government will seek to dismiss the charges.
Mr. Bharara praised the work of the FBI. He also thanked the OCC and FinCEN.
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. Attorneys Arlo Devlin-Brown and Matthew L. Schwartz are in charge of the prosecution.
U.S. v. JPMorgan Chase - Deferred Prosecution Agreement Packet
White Plains Federal Grand Jury Indicts Former Chief Financial Officer on Charges He Embezzled $5.7 Million from His EmployerRead 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 Office of the Federal Bureau of Investigation ("FBI"), announced today that a grand jury sitting in White Plains has returned a two-count Indictment charging GREGG PIERLEONI with mail fraud and wire fraud.
The Indictment alleges that PIERLEONI embezzled more than $5.7 million over a period of more than six years from a Westchester-based moving and storage company where he had served as the Chief Financial Officer from 1987 to April 2013.
Manhattan U.S. Attorney Preet Bharara stated: "As alleged, PIERLEONI abused the trust placed in him by his employer to steal a substantial amount of money so that he could enjoy a lavish lifestyle. He now faces having to pay the real price for that lifestyle."
Assistant FBI Director George Venizelos stated: “As alleged in the Indictment, motivated by personal greed, PIERLEONI stole millions of dollars from his long-time employer. He lived beyond his means while repeatedly betraying his company’s trust. The FBI will continue to investigate and hold accountable individuals who steal and line their pockets with their victim’s hard-earned money.”
According to allegations in the Indictment unsealed earlier today:
PIERLEONI moved funds from the moving company's operating account to other accounts held by the moving company and a related entity. He then wrote checks from those other accounts to pay his personal American Express bills. PIERLEONI used the funds he embezzled to pay for collectible items, sports memorabilia, airline tickets and other travel expenses, artwork, tickets to sporting events and meals in restaurants.
PIERLEONI, 59, of New Fairfield, CT, faces upon conviction maximum sentences of 20 years' imprisonment on the mail fraud count and 20 years' imprisonment on the wire fraud count.
Mr. Bharara praised the investigative work of the FBI.
This prosecution is being handled by the Office's White Plains Division. Assistant U.S. Attorney James McMahon is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Gregg Pierleoni Indictment
Manhattan U.S. Attorney Settles Lawsuit Against Westchester Funeral Home and Its President for Unfair Trade PracticesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today the settlement of a lawsuit against HARRISON FUNERAL HOME, INC. (“HARRISON”), a funeral home in Westchester County, New York, and its President JOHN BALSAMO (“BALSAMO”) for engaging in unfair and deceptive acts or practices in connection with the provision of funeral services. The settlement, in the form of a consent decree, was based on a Complaint filed in May 2012 in White Plains federal court and approved today by U.S. District Judge Nelson Stephen Román.
Manhattan U.S. Attorney Preet Bharara said: “As part of today’s settlement, Harrison Funeral Home admitted that it violated a federal rule designed to ensure that people receive fair pricing information from funeral providers. As this suit and settlement demonstrate, we will continue to use our statutory powers to act against unscrupulous businesses that take advantage of consumers in their most vulnerable moments.”
According to the Complaint filed in White Plains federal court:
The Federal Trade Commission (“FTC”) promulgated what is known as the Funeral Rule to ensure that people inquiring about funeral arrangements receive full and fair pricing information and are not taken advantage of by funeral providers through inflated prices, overcharges, double charges, or unnecessary services. The law requires that information about prices be disclosed to persons inquiring about funeral arrangements and that they be given written price lists and statements of the funeral goods they selected to purchase.
The Complaint alleges that HARRISON committed violations of the Funeral Rule by failing to provide the required price lists to persons inquiring about funeral services on four separate occasions. Although HARRISON and BALSAMO were advised of their violations of the Funeral Rule and given the option of enrolling in a voluntary program aimed at preventing future violations, HARRISON and BALSAMO failed to enroll their employees in the program’s required trainings and continued to violate the Funeral Rule.
In the consent decree, HARRISON and BALSAMO admit that they violated the Funeral Rule. The consent decree permanently enjoins HARRISON and BALSAMO from violating the Funeral Rule in the future, requires defendants to submit compliance notices to the FTC for the next twenty years, and requires defendants to maintain certain records and to submit to compliance reviews. In addition, HARRISON and BALSAMO will pay a $32,000 civil penalty to the United States.
The case is being handled by the Office’s Civil Division. Assistant U.S. Attorneys Natalie N. Kuehler and Ellen Blain are in charge of the case.
Former Jewelry Company Executive Sentenced in Manhattan Federal Court to One Year and One Day in Prison for Stealing over $2 Million in JewelryRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that INGRID LEDERHAAS-OKUN, a former Vice President of Product Development at a high-end jewelry company, was sentenced today in Manhattan federal court to one year and one day in prison for stealing over $2.1 million worth of jewelry from her former employer. LEDERHAAS-OKUN pled guilty on July 26, 2013 and was sentenced today by U.S. District Judge Paul G. Gardephe.
Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence, Ingrid Lederhaas-Okun has learned the price she must pay for stealing millions of dollars worth of fine jewelry from her employer – loss of her liberty and forfeiture of her ill-gotten gains.”
According to the charging instruments in this case, as well as statements made in other public filings and in related court proceedings:
From at least 2008 until February 2013, LEDERHAAS-OKUN worked as a Vice President of Product Development at the midtown Manhattan headquarters of one of the world’s premier high-end jewelers (the “Jewelry Company”). Her duties and responsibilities included ensuring that product designs could be manufactured and, to that end, she had authority to check out jewelry belonging to the Jewelry Company for work-related reasons, for example, to provide the jewelry to potential manufacturers to determine the cost of production.
Between November 2012 and February 2013, LEDERHAAS-OKUN abused her position and authority at the Jewelry Company to check out over 165 pieces of jewelry with a retail value of over $1.2 million, including numerous diamond bracelets, platinum or gold diamond drop and hoop earrings, platinum diamond rings, and platinum and diamond pendants. She then sold some if not all of this jewelry for $1.3 million to another company, a leading international buyer and reseller of jewelry with an office in midtown Manhattan (the “Jewelry Reseller”). The Jewelry Reseller paid for the merchandise that LEDERHAAS-OKUN had stolen either by paying her or her relative, in transactions arranged either by LEDERHAAS-OKUN or a friend working on her behalf. In total, LEDERHAAS-OKUN admitted to stealing over $2 million worth of jewelry in this manner.
To conceal her theft, LEDERHAAS-OKUN repeatedly made false statements to the Jewelry Company. For example, after her termination in February 2013, she told the Jewelry Company representatives that she had only recently checked out the missing jewelry in anticipation of creating a PowerPoint presentation for her supervisor, and that a draft of the presentation could be found on her office computer. However, the missing jewelry had been checked out months earlier, her supervisor was unaware of any such presentation being worked on by LEDERHAAS-OKUN, and there was no draft presentation on her computer. In addition, LEDERHAAS-OKUN claimed the jewelry in question could be found in a white envelope in her office, but a search of her office shortly after her departure did not yield any such envelope.
In addition to the prison term, LEDERHAAS-OKUN, 47, of Darien, Connecticut, was also sentenced to one year of supervised release. She was also ordered to forfeit $2,114,873 and to pay $2,239,873 in restitution.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.
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.
Manhattan U.S. Attorney Announces Charges Against Three Individuals in Virginia, Ireland, and Australia for Their Roles in Running the “Silk Road” WebsiteRead 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”), Brian R. Crowell, the Special-Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the unsealing of an indictment against ANDREW MICHAEL JONES, a/k/a “Inigo,” GARY DAVIS, a/k/a “Libertas,” and PETER PHILLIP NASH, a/k/a “Samesamebutdifferent,” a/k/a “Batman73,” a/k/a “Symmetry,” a/k/a “Anonymousasshit,” in connection with their alleged roles in operating “Silk Road,” a hidden website designed to enable its users to buy and sell illegal drugs and other unlawful goods and services anonymously and beyond the reach of law enforcement. JONES was arrested in Charles City, Virginia, on December 19, 2013, and was presented in Richmond, Virginia in the United States District Court for the Eastern District of Virginia today. DAVIS is believed to be in Ireland. NASH was arrested in Australia on December 20, 2013, by the Australian Federal Police in Brisbane, Australia. All three individuals are alleged to have conspired to run the Silk Road website with Ross William Ulbricht, a/k/a “Dread Pirate Roberts,” a/k/a “DPR,” a/k/a “Silk Road,” the alleged owner and operator of Silk Road, who was previously arrested in San Francisco, California, on October 1, 2013, pursuant to a Complaint filed in Manhattan federal court.
According to the allegations in the Indictment unsealed today in Manhattan federal court, and the Complaint previously filed against Ulbricht:
From about January 2011until October 2, 2013, the “Silk Road” website hosted a sprawling black-market bazaar on the internet, where illegal drugs and other illicit goods and services were regularly bought and sold by the site’s users. During its more than two-and-a-half years in operation, Silk Road was used by several thousand drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other illicit goods and services to well over a hundred thousand buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.
Ulbricht, the owner and operator of Silk Road, ran the website with the assistance of a small support staff, including both site administrators and forum moderators. The site administrators were responsible for, among other things, monitoring user activity on Silk Road for problems, responding to customer service inquiries, and resolving disputes between buyers and vendors. The forum moderators were responsible for, among other things, monitoring user activity on discussion forums associated with the site, providing guidance to forum users concerning how to conduct business on Silk Road, and reporting any significant problems discussed on the forums to the site administrators and to Ulbricht. Ulbricht paid the site administrators and forum moderators salaries ranging from approximately $50,000 to approximately $75,000 per year for their services.
JONES and DAVIS worked as site administrators on Silk Road. NASH worked as the primary moderator on the Silk Road discussion forums. JONES, DAVIS, and NASH were each paid salaries by Ulbricht for their roles in connection with Silk Road.
JONES, 24, of Charles City, Virginia, DAVIS, 25, of Wicklow, Ireland, and NASH, 40, of Brisbane, Australia, are each charged with one count of narcotics conspiracy, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 10 years in prison; one count of conspiracy to commit computer hacking, which carries a maximum sentence of five years in prison; and one count of money laundering conspiracy, which carries a maximum sentence of 20 years in prison.
Mr. Bharara praised the outstanding investigative work of the FBI and its New York Special Operations and Cyber Division, as well as the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which comprises agents and officers of the DEA, the IRS, the New York City Police Department, U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), the New York State Police, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the U.S. Secret Service, the U.S. Marshals Service, Office of Foreign Assets Control, and NY Department of Taxation. Mr. Bharara also thanked the ICE-HSI Chicago-O’Hare office for its assistance and support, as well as the Department of Justice’s Computer Crime and Intellectual Property Section and Office of International Affairs. Additionally, Mr. Bharara praised the foreign law enforcement partners whose contributions to the success of the investigation and prosecution have been invaluable, namely, the Australian Federal Police, the Irish Republic’s Computer Crime Investigation Unit of the An Garda Siochana, the Reykjavik Metropolitan Police of the Republic of Iceland, and the French Republic’s Central Office for the Fight Against Crime Linked to Information Technology and Communication.
Mr. Bharara also noted that the investigation remains ongoing.
The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Serrin Turner is in charge of the prosecution, and Assistant United States Attorney Christine Magdo is in charge of the forfeiture aspects of the case.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Andrew Jones, et al. (Silk Road) Indictment
Former Union Official Sentenced in Manhattan Federal Court to Eight Years in Prison for His Role in LIRR Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JOSEPH RUTIGLIANO, a former LIRR conductor and president of a union local, was sentenced today in Manhattan federal court to eight years in prison for his 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 1999 and 2011, RUTIGLIANO completed fraudulent disability applications on behalf of at least 268 LIRR clients and received over $400,000 in federal disability benefits based upon his own fraudulent disability application. Following a three-week jury trial, RUTIGLIANO was convicted on August 6, 2013, on all counts with which he was charged, including two counts of conspiracy to commit mail fraud, wire fraud and health care fraud; two counts of conspiracy to defraud the Railroad Retirement Board (“RRB”); three counts of mail fraud; three counts of wire fraud; and one count of making a false statement.
Manhattan U.S. Attorney Preet Bharara said: “Joseph Rutigliano not only defrauded the government out of more than $400,000 in unentitled benefits by fabricating his own disabilities, he helped hundreds of other LIRR employees bilk the disability benefit system out of more than $80 million. He will now pay for his crimes with a lengthy term in federal prison and by having to repay the money he defrauded.”
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 (which 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.
RUTIGLIANO is a former LIRR conductor and president of a union local who received fraudulent disability benefits in the scheme, and who was instrumental in helping other LIRR employees receive disability benefits to which they were not entitled. Between approximately 1999 and 2011, RUTIGLIANO received $409,498 in disability benefits based on a fraudulent disability application in which RUTIGLIANO claimed to suffer from disabilities that made it hard for him to sit, stand, walk, dress himself, bathe himself, or hold a pen for any length of time. At the same time, the evidence showed that in the years RUTIGLIANO collected those benefits, he played hundreds of hours of year-round golf in New York and Florida, and engaged in other physical activities. RUTIGLIANO obtained the fraudulent disability benefits with the help of his co-defendant, the disability doctor Peter J. Lesniewski, who was also convicted at trial, and who provided RUTIGLIANO with false documentation reflecting fabricated physical conditions that purportedly made it impossible for RUTIGLIANO to perform the duties of a train conductor, including walking on trains and collecting tickets from passengers.
In addition to obtaining fraudulent benefits, RUTIGLIANO helped at least 268 other LIRR employees obtain disability benefits to which they were not entitled. In exchange for receiving payments of up to $1,000 per employee, RUTIGLIANO completed fraudulent disability applications on the employees’ behalf, fabricating claims of serious physical suffering and declining health, and grossly exaggerating the physical demands of the employees’ jobs. As a result of this fraud, RUTIGLIANO’s LIRR customers have received over $80 million in RRB disability benefit payments, and the intended losses from his fraud amount to over $102 million.
In addition to his prison term, RUTIGLIANO, 66, of Holtsville, New York, was also sentenced to three years of supervised release. He was also ordered to pay $82,356,348 in restitution, to forfeit $82,883,348, and to pay an $1100 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-OIG, the FBI, and the MTA-OIG 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.
West Point Cadet Arrested for PossessionAnd Distribution of Child PornographyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Office of the United States Department of Homeland Security (“DHS”), Homeland Security Investigations (“HSI”), announced today the arrest of RICKY PATRICK HESTER for possession and distribution of child pornography. HESTER, a cadet at the United States Military Academy at West Point, was arrested by HSI agents today on the West Point campus and presented in White Plains federal court before United States Magistrate Judge Lisa Margaret Smith.
Manhattan U.S. Attorney Preet Bharara stated: “As alleged, Ricky Patrick Hester possessed and distributed illegal child pornography, a crime that victimizes the most vulnerable members of our society. Thanks to the efforts of Homeland Security Investigations, Hester’s alleged illicit conduct was brought to light, and he will now have to answer to these serious charges.”
HSI Special Agent-in-Charge James T. Hayes, Jr. stated: "Few crimes are more damaging and disturbing than the willful possession and distribution of explicit sexual images of children. This is not a victimless crime and HSI will work tirelessly to target and arrest those who enable exploitation by purchasing child pornography."
According to the allegations in the criminal Complaint filed today in White Plains federal court:
From at least as early as February 2013, and up to on or about September 29, 2013, on a number of occasions, HESTER possessed and distributed images and videos containing child pornography. According to the Complaint, during their investigation, DHS agents learned that HESTER used an email account to exchange numerous videos with other internet users that contained what appeared to be minor children engaging in sexually explicit conduct. When HESTER was questioned in his barracks yesterday, he admitted that he sent and received numerous images and videos containing child pornography using a private email account.
HESTER, 23, of Granger, Indiana, is charged with one count of receiving or distributing child pornography, which carries a mandatory minimum sentence of five years in prison and a maximum sentence of 20 years in prison, and one count of possessing child pornography, which carries a maximum sentence of 10 years in prison. Both counts also carry a maximum fine of $250,000 or twice the gross gain or loss from the offense.
Mr. Bharara praised the outstanding investigative work of the Department of Homeland Security. He also thanked the Army Criminal Investigation Command for their assistance in the investigation. He added that the investigation is continuing.
HSI encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline at 1-866-DHS-2ICE. Investigators staff this hotline around the clock. Suspected child sexual exploitation or missing children may also be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com
The prosecution is being overseen by the Office’s White Plains Unit. Assistant United States Attorney Daniel P. Filor 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.
Manhattan U.S. Attorney Announces Indictment of Political Consultant for Defrauding the New York Democratic Senate Campaign CommitteeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, today announced that STEPHEN COLANGELO, Jr., pled guilty to two counts of securities fraud and two counts of wire fraud in connection with two separate schemes that defrauded investors out of more than $2.7 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. COLANGELO pled guilty in Manhattan federal court before U.S. Magistrate Judge James Cott.
Manhattan U.S. Attorney Preet Bharara said: “Investors deserve fair and honest services from their money managers. Stephen Colangelo, Jr. and others like him who fraudulently pocket investor money undermine confidence in the markets.”
According to the Indictment and related court 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. Based on these and other fraudulent statements and misrepresentations, COLANGELO defrauded investors out of more than $1.6 million in connection with the Brickell Fund.
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. COLANGELO defrauded investors of well over $1.1 million in connection with the Business Ventures.
COLANGELO, 46, pled guilty to two counts of securities fraud and two counts of wire fraud. The securities fraud and wire fraud charges each carry a maximum term of 20 years in prison. The sentencing before U.S. District Judge Robert W. Sweet is scheduled for April 3, 2014 at 4:30 p.m.
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. 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 Steve Lee is in charge of the prosecution.
US v. Melvin Lowe Indictment
Former Stock Broker Pleads Guilty in Manhattan Federal Court to Insider Trading ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID J. WEISHAUS, a former stock broker at a securities trading firm (“Securities Trading Firm-1”), pled guilty today in Manhattan federal court to charges arising from his involvement in an insider trading scheme. The alleged scheme involved the misappropriation of material, non-public information (“Inside Information”) concerning IBM’s acquisition of a software company, SPSS, Inc., in 2009. WEISHAUS was charged in November 2012, and pled guilty today before U.S. District Judge Andrew L. Carter, Jr., pursuant to a cooperation agreement.
According to the Indictment to which WEISHAUS pled guilty, statements made during the plea proceeding, and other court documents:
The Inside Information concerning IBM’s acquisition of SPSS originated from a corporate lawyer who was part of the legal team that represented IBM in the transaction (“Attorney-1”) in 2009. On May 31, 2009, Attorney-1 shared Inside Information concerning the transaction, including the names of the parties and the fact that IBM was going to acquire SPSS for a significant premium over its market price, with his close friend, Trent Martin, a former research analyst at an international financial services firm. The information was shared in confidence and, based on their longstanding history of sharing confidences, Attorney-1 expected that Martin would not share the information or use it to trade.
However, in June and July 2009, Martin bought SPSS common stock and call option contracts based on the Inside Information he was given by Attorney-1 and, in turn, shared the tip with his roommate, Thomas Conradt, who worked as a stock broker at Securities Trading Firm-1. In June and July 2009, Conradt bought SPSS common stock and tipped WEISHAUS, his co-worker at Securities Trading Firm-1, who also bought SPSS common stock and call options. Conradt also tipped his co-workers at Securities Trading Firm-1 (“CC-1 and CC-2”), who then bought SPSS call option contracts. When IBM announced its acquisition of SPSS on July 28, 2009, the share price of SPSS common stock rose by 41% in one day. Thereafter, Martin, Conradt, WEISHAUS, CC-1, and CC-2 sold their SPSS positions, yielding total profits of approximately $1 million.
WEISHAUS, 33, of New York, New York, pled guilty to one count of conspiracy to commit securities fraud and one count of securities fraud. The conspiracy count carries a maximum sentence of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million. As part of his plea agreement, WEISHAUS agreed to forfeit his share of the proceeds obtained from the offense. He is scheduled to be sentenced by Judge Carter on April 25, 2014, at 3:15 p.m.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission. Mr. Bharara noted that the investigation is continuing.
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. Attorneys John T. Zach and Telemachus P. Kasulis are in charge of the prosecution.
U.S. v. Thomas C. Conradt and David J. Weishaus Indictment 12 Cr 887
Wine Dealer Rudy Kurniawan Convicted in Manhattan Federal Court for Creating and Selling Millions of Dollars of Counterfeit WineRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that wine dealer RUDY KURNIAWAN was found guilty today by a jury in Manhattan federal court for engaging in a scheme to manufacture and sell counterfeit bottles of purportedly rare and expensive wine for millions of dollars. KURNIAWAN was also convicted of a scheme to fraudulently obtain a $3 million loan from a financing company. He was convicted following a one-week jury trial before U.S. District Judge Richard Berman.
Manhattan U.S. Attorney Preet Bharara said: “Rudy Kurniawan perpetrated a vintage fraud scheme, not only peddling counterfeit wine, but concocting, bottling, and labeling what he foisted on his victims. As the jury found in its verdict today, Kurniawan was also the author of a fictional tale that enabled him to defraud a lender out of $3 million. He now stands to pay for his fraud with time behind bars in a federal prison.”
According to evidence at trial and documents previously filed in Manhattan federal court:
KURNIAWAN has been a collector of fine and rare wines, and rose to become one of the most prominent and prolific dealers in the United States of purportedly rare and expensive wine. From 2004 through 2012, he engaged in a systematic scheme to defraud wine collectors and others by selling and attempting to sell numerous counterfeit bottles of purportedly rare and expensive wine. KURNIAWAN manufactured counterfeit bottles of rare and vintage wine at his home in Aracadia, California, operating what was, in effect, a counterfeit wine laboratory. KURNIAWAN mixed and blended lower-priced wines so that they would mimic the taste and character of rare and far more expensive wines; poured his creations into empty bottles of rare and expensive wines that he procured from various sources; and created a finished product by sealing the bottles with corks and outfitting the bottles with counterfeit wine labels he created. KURNIAWAN then sold and attempted to sell these counterfeit bottles of wine at auctions and in direct sales to wealthy wine collectors. KURNIAWAN earned millions of dollars through the sale of these counterfeit bottles of wine.
The Scheme to Defraud a Lender
KURNIAWAN also devised and carried out a scheme to fraudulently obtain a $3 million loan from a financing company located in New York City that specialized in extending loans that are secured by valuable collectibles, such as art and wine. KURNIAWAN obtained the loan by providing false information to, and concealing material information from, the financing company, including falsely omitting approximately $7.4 million in outstanding loans, falsely representing his annual expenses, and falsely representing that he was a permanent resident of the United States when he had no legal immigration status in the United States and had, in fact, been ordered by an immigration court to leave the country years earlier.
KURNIAWAN, 37, of Arcadia, California, was convicted of one count of mail fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which also carries a maximum sentence of 20 years in prison.
Mr. Bharara praised the outstanding work of the FBI’s Art Crime Team and its New York and Los Angeles field offices.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Jason P. Hernandez and Joseph Facciponti are in charge of the prosecution.
U.S. Citizen Sentenced in Manhattan Federal Court to 25 Years in Prison for Conspiring to Aid the TalibanRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ODED ORBACH, a U.S. citizen, was sentenced today in Manhattan federal court to 25 years in prison for conspiring to provide material support to the Taliban and conspiring to acquire anti-aircraft missiles. The case arose out of a DEA undercover operation in which ORBACH and a co-defendant, Alwar Pouryan, also a U.S. citizen, agreed to provide various military-grade weapons, including heat-seeking surface-to-air missiles, to an individual they believed to represent the Taliban. ORBACH and Pouryan were convicted on April 19, 2013, after a two-week bench trial before U.S. District Judge Naomi Reice Buchwald. On September 25, 2013, Pouryan was sentenced to 25 years in prison by Judge Buchwald, who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara stated: “Today’s sentence ensures that Oded Orbach will be held to account for agreeing to provide over $25 million in military-grade weapons, including heat-seeking surface-to-air-missiles, to a source he believed represented the Taliban, and even though he knew the weapons would be used against the U.S. This Office stands ready to pursue and prosecute those who would provide support to terrorist organizations that target our country.”
According to evidence at trial and documents previously filed in Manhattan federal court:
Beginning in the fall of 2010, and continuing through their arrest in February 2011, the defendants communicated with a confidential source (the “CS”) working with the DEA who purported to represent the Taliban. The communications occurred during audio-recorded and videotaped meetings in Ghana, Ukraine, and Romania, as well as by telephone and email. During these communications, ORBACH and Pouryan agreed to arrange the sale of weapons to the CS for the Taliban’s use against U.S. military forces in Afghanistan. At the meetings, Pouryan and ORBACH, at different times, discussed weapons specifications, pricing, and the provision of training for the various weapons, including “Stinger” surface-to-air missiles, anti-tank missiles, grenade launchers, and M-16 assault rifles. ORBACH and Pouryan were informed that the surface-to-air missiles, in particular, were needed to protect Taliban heroin laboratories against attacks by U.S. helicopters. The defendants also offered to provide regular shipments of ammunition. In total, ORBACH and Pouryan agreed to provide over $25 million in weapons, ammunition, and training, and expected to make over $800,000 in commissions in connection with the transaction.
The defendants also discussed various weapons requested by the purported Taliban representative, drafted price lists and payment schedules for the weapons, and created internal budget documents that reflected the expenses and anticipated income from the weapons deal. ORBACH also emailed third-party weapons suppliers seeking to obtain certain of the requested weapons.
Following the final meeting in Bucharest, Romania, on February 10, 2011, ORBACH and Pouryan were arrested by Romanian authorities in coordination with the DEA. In April 2011, the Government of Romania extradited the defendants to the United States to face charges in the Southern District of New York.
In addition to the prison term, ORBACH, 55, Highland Park, Illinois, was ordered to pay $1,596.00 in forfeiture, and a $200 special assessment fee.
Mr. Bharara praised the extraordinary work of the Special Operations Division of the DEA, as well as the DEA Warsaw Country Office, the DEA Ghana Country Office, the DEA Athens Country Office, and the DEA SECI (South East European Cooperative Initiative Regional Center for Combating Transborder Crime). Mr. Bharara also thanked the Department of Justice’s Office of International Affairs and National Security Division, as well as the U.S. Attorney’s Office for the Northern District of Illinois, U.S. Immigration and Customs Enforcement, and the governments of Romania and Ukraine.
Mr. Bharara expressed his sincere gratitude for the work of the Romanian National Prosecutor’s Directorate for Investigating Organized Crime and Terrorism, the Romanian Prosecutor’s Office of the Court of Appeals, and the Romanian National Police Directorate for Investigating Organized Crime.
This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Christian R. Everdell and Aimee Hector are in charge of the prosecution.
Statement of Manhattan U.S. Attorney Preet Bharara on U.S. V. Devyani KhobragadeRead the Press Release
There has been much misinformation and factual inaccuracy in the reporting on the charges against Devyani Khobragade. It is important to correct these inaccuracies because they are misleading people and creating an inflammatory atmosphere on an unfounded basis. Although I am quite limited in my role as a prosecutor in what I can say, which in many ways constrains my ability here to explain the case to the extent I would like, I can nevertheless make sure the public record is clearer than it has been thus far.
First, Ms. Khobragade was charged based on conduct, as is alleged in the Complaint, that shows she clearly tried to evade U.S. law designed to protect from exploitation the domestic employees of diplomats and consular officers. Not only did she try to evade the law, but as further alleged, she caused the victim and her spouse to attest to false documents and be a part of her scheme to lie to U.S. government officials. So it is alleged not merely that she sought to evade the law, but that she affirmatively created false documents and went ahead with lying to the U.S. government about what she was doing. One wonders whether any government would not take action regarding false documents being submitted to it in order to bring immigrants into the country. One wonders even more pointedly whether any government would not take action regarding that alleged conduct where the purpose of the scheme was to unfairly treat a domestic worker in ways that violate the law. And one wonders why there is so much outrage about the alleged treatment of the Indian national accused of perpetrating these acts, but precious little outrage about the alleged treatment of the Indian victim and her spouse?
Second, as the alleged conduct of Ms. Khobragade makes clear, there can be no plausible claim that this case was somehow unexpected or an injustice. Indeed, the law is clearly set forth on the State Department website. Further, there have been other public cases in the United States involving other countries, and some involving India, where the mistreatment of domestic workers by diplomats or consular officers was charged criminally, and there have been civil suits as well. In fact, the Indian government itself has been aware of this legal issue, and that its diplomats and consular officers were at risk of violating the law. The question then may be asked: Is it for U.S. prosecutors to look the other way, ignore the law and the civil rights of victims (again, here an Indian national), or is it the responsibility of the diplomats and consular officers and their government to make sure the law is observed?
Third, Ms. Khobragade, the Deputy General Consul for Political, Economic, Commercial and Women’s Affairs, is alleged to have treated this victim illegally in numerous ways by paying her far below minimum wage, despite her child care responsibilities and many household duties, such that it was not a legal wage. The victim is also alleged to have worked far more than the 40 hours per week she was contracted to work, and which exceeded the maximum hour limit set forth in the visa application. Ms. Khobragade, as the Complaint charges, created a second contract that was not to be revealed to the U.S. government, that changed the amount to be paid to far below minimum wage, deleted the required language protecting the victim from other forms of exploitation and abuse, and also deleted language that stated that Ms. Khobragade agreed to “abide by all Federal, state, and local laws in the U.S.” As the Complaint states, these are only “in part” the facts, and there are other facts regarding the treatment of the victim – that were not consistent with the law or the representations made by Ms. Khobragade -- that caused this Office and the State Department, to take legal action.
Fourth, as to Ms. Khobragade’s arrest by State Department agents, this is a prosecutor’s office in charge of prosecution, not the arrest or custody, of the defendant, and therefore those questions may be better referred to other agencies. I will address these issues based on the facts as I understand them. Ms. Khobragade was accorded courtesies well beyond what other defendants, most of whom are American citizens, are accorded. She was not, as has been incorrectly reported, arrested in front of her children. The agents arrested her in the most discreet way possible, and unlike most defendants, she was not then handcuffed or restrained. In fact, the arresting officers did not even seize her phone as they normally would have. Instead, they offered her the opportunity to make numerous calls to arrange personal matters and contact whomever she needed, including allowing her to arrange for child care. This lasted approximately two hours. Because it was cold outside, the agents let her make those calls from their car and even brought her coffee and offered to get her food. It is true that she was fully searched by a female Deputy Marshal -- in a private setting -- when she was brought into the U.S. Marshals’ custody, but this is standard practice for every defendant, rich or poor, American or not, in order to make sure that no prisoner keeps anything on his person that could harm anyone, including himself. This is in the interests of everyone’s safety.
Fifth, as has been reported, the victim’s family has been brought to the United States. As also has been reported, legal process was started in India against the victim, attempting to silence her, and attempts were made to compel her to return to India. Further, the Victim’s family reportedly was confronted in numerous ways regarding this case. Speculation about why the family was brought here has been rampant and incorrect. Some focus should perhaps be put on why it was necessary to evacuate the family and what actions were taken in India vis-à-vis them. This Office and the Justice Department are compelled to make sure that victims, witnesses and their families are safe and secure while cases are pending.
Finally, this Office’s sole motivation in this case, as in all cases, is to uphold the rule of law, protect victims, and hold accountable anyone who breaks the law – no matter what their societal status and no matter how powerful, rich or connected they are.
Statement of Manhattan U.S. Attorney Preet Bharara on the Conviction of Michael SteinbergRead the Press Release
“The jury has found what the Government contended from the outset; in search of an edge, Michael Steinberg crossed the line into criminal insider trading. Like many other traders before him who, blinded by profits, lost their sense of right and wrong, Steinberg now stands convicted of federal crimes and faces the prospect of losing his liberty.”
SAC Capital Portfolio Manager Michael Steinberg Found Guilty in Manhattan Federal Court of Insider Trading ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL STEINBERG, a portfolio manager of Sigma Capital Management, LLC (“Sigma”), a division of the Connecticut-based hedge fund S.A.C. Capital, was found guilty today in Manhattan federal court based on his participation in an insider trading scheme. STEINBERG was convicted after a five-week jury trial presided over by U.S. District Judge Richard J. Sullivan.
Manhattan U.S. Attorney Preet Bharara said: “The jury has found what the government contended from the outset; in search of an edge, Michael Steinberg crossed the line into criminal insider trading. Like many other traders before him who, blinded by profits, lost their sense of right and wrong, Steinberg now stands convicted of federal crimes and faces the prospect of losing his liberty.”
According to the Superseding Indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:
STEINBERG traded in the securities of two publicly traded technology companies, Dell, Inc. (“Dell”) and NVIDIA Corporation (“NVIDIA”), based on inside information that his research analyst Jon Horvath obtained from a circle of analyst friends at different investment firms. Horvath previously pled guilty to insider trading, as did analysts Jesse Tortora, formerly of Diamondback Capital, Spyridon “Sam” Adondakis, formerly of Level Global, Danny Kuo, formerly of Whittier Trust, and Sandeep Goyal, formerly of Neuberger Berman. STEINBERG’s trading in Dell and NVIDIA resulted in approximately $1.9 million in illegal profits for his hedge fund.
In particular, Tortora provided Horvath and others with Inside Information related to Dell’s quarterly earnings (the “Dell Inside Information”), which Tortora obtained from Goyal who, in turn, had obtained the information from an employee at Dell (the “Dell Insider”). For Dell’s quarter which was announced by Dell on August 28, 2008 (the “Dell Announcement”), the Dell Inside Information indicated that Dell would report gross margins that were materially lower than market expectations. In advance of the Dell Announcement, Horvath reported this negative inside information to STEINBERG.
On August 18, 2008, after a series of calls from the Dell Insider to Goyal and from Goyal to Tortora and Horvath, Horvath then called STEINBERG. Within a minute of the telephone call between STEINBERG and Horvath, STEINBERG’s portfolio began shorting shares of Dell. One minute later, Horvath wrote an email to STEINBERG stating: “Pls keep the DELL stuff especially on the down low . . . just mentioning that because JT [Jesse Tortora] asked me specifically to be extra sensitive with the info.” By the end of the day on August 18, 2008, STEINBERG had accumulated a net short position of over 167,000 shares of Dell. On August 26, 2008, Horvath confirmed in an email to STEINBERG and another portfolio manager at Sigma that Horvath’s Dell information had been based on a “2nd hand read from someone at the company.” STEINBERG responded: “Yes normally we would never divulge data like this, so please be discreet.” And on August 27, 2008, STEINBERG sent an email to Horvath with the subject line, “Dell action,” in which he asked, “Have u double checked [with] JT this week?” Horvath responded, “Yes he [Tortora] checked in [a] couple days ago, same read no change.” The following day, STEINBERG executed additional short trades based on the Dell Inside Information.
On August 28, 2008, before Dell’s Announcement, STEINBERG executed or caused to be executed additional short trades. STEINBERG also executed or caused to be executed options trades in Dell in advance of the Dell Announcement.
After the close of the market on August 28, 2008, Dell publicly announced gross margins that were substantially below market expectations. At the end of the next trading day following Dell’s Announcement, its stock price dropped by nearly 14%. Shortly thereafter, STEINBERG covered his short position, and closed out his position in Dell option contracts, resulting in an illegal profit for Sigma of approximately $1 million.
In addition, in 2009, Kuo obtained inside information regarding NVIDIA’s financial results (the “NVIDIA Inside Information”) in advance of NVIDIA’s quarterly earnings announcements. The NVIDIA Inside Information indicated, among other things, that NVIDIA’s gross margins would be lower than market expectations. Kuo obtained the NVIDIA Inside Information from a friend, Hyung Lim, who received it from an employee at NVIDIA (the “NVIDIA Insider”). In advance of NVIDIA’s May 7, 2009, quarterly earnings announcement (the “NVIDIA Announcement”), Kuo provided the NVIDIA Inside Information, which he had obtained from Lim, to Tortora, Horvath, and others. Horvath, in turn, provided the NVIDIA Inside Information to STEINBERG, who executed or caused to be executed transactions in NVIDIA in advance of the NVIDIA Announcement.
On May 7, 2009, NVIDIA publicly announced gross margins that were substantially lower than the market expected. At the end of the trading day following the NVIDIA Announcement, NVIDIA’s stock price dropped by more than 13%. Shortly thereafter, STEINBERG caused Sigma to liquidate its position in NVIDIA, resulting in an illegal profit for Sigma of over $400,000.
STEINBERG, 41, of New York, New York, was found guilty of conspiracy to commit securities fraud and four counts of securities fraud. The conspiracy count carries a maximum sentence of five years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. Each of the securities fraud counts carries a maximum sentence of 20 years in prison and a fine of $5 million or twice the gross gain or loss from the offense.
STEINBERG is scheduled to be sentenced by Judge Sullivan on April 25, 2014.
Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission.
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. Attorneys Antonia M. Apps and Harry A. Chernoff are in charge of the prosecution.
U.S. v. Michael Steinberg S4 Indictment
Manhattan-Based Attorney Charged in Tax Fraud Scheme with Failing to Report over $3 Million in Fee IncomeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that STANLEY L. COHEN, a Manhattan-based attorney, was charged in a six-count Indictment filed today with failing to report to the Internal Revenue Service (“IRS”) over $3 million in income paid to COHEN in the form of legal fees between 2005 and 2010. COHEN was also charged with scheming to defraud the New York State Tax authorities of taxes due to New York State as a result of COHEN’s failure to report, and affirmatively taking steps to hide, his income. He is expected to be presented in Manhattan federal court before U.S. District Judge Paul A. Engelmayer next week.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Stanley Cohen instructed his clients to pay him in cash, and then stockpiled the money he received in legal fees in order to avoid paying his fair share in taxes. Today’s charges underscore our commitment to pursuing and prosecuting individuals who seek to circumvent this nation’s tax laws.”
IRS-CI Special Agent-in-Charge Weirauch said: “IRS-Criminal Investigation is committed to ensuring that everyone pays their fair share. We will thoroughly investigate those who are wilfully violating the income tax laws and we will work with our partners at the Department of Justice to see that they are prosecuted. However, while prosecuting violators is essential to making the tax system work, such prosecutions also reassure the confidence of honest taxpayers in their tax system.”
According to allegations contained in the Indictment filed in Manhattan federal court today:
Between October 2005 and 2011, STANLEY L. COHEN performed legal services for dozens of clients in proceedings in federal and state courts in New York State and elsewhere. The services COHEN provided – through an entity he set up in New York called “Stanley L. Cohen & Associates, LLC” – included the representation of clients at various stages of criminal proceedings, such as arraignments, bail and other pre-trial hearings, guilty pleas, and sentencings. In exchange for those services, COHEN was paid in excess of $500,000 in fee income for each of the years 2005 to 2010.
COHEN, however, failed to file tax returns with the IRS or the New York State Department of Taxation and Finance for each of the years 2005 to 2010, as he was required to do. In addition, COHEN took steps to evade his tax obligations, including: directing clients to pay legal fees in cash; storing portions of the cash legal fees in a safety deposit box rather than depositing the fees in a bank account; directing clients to pay legal fees by sending wire transmittals that were routed directly to pay COHEN’s American Express card bills; depositing legal fees in one or more personal bank accounts; and paying personal expenses, such as credit card bills, with client fees that had been deposited in personal and other bank accounts.
COHEN, 63, of New York, New York, is charged with five counts of failing to file U.S. Individual Income Tax Returns, each of which carries a maximum sentence of one year in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison.
Mr. Bharara praised the outstanding investigative work of the IRS.
The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Stanley J. Okula, Jr. is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Stanley Cohen Indictment
Hedge Fund Portfolio Manager Convicted in Manhattan Federal Court of Scheme to Inflate Value of Hedge FundRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL BALBOA, formerly a portfolio manager for Millennium Global Emerging Credit Fund (“MGEC” or the “Hedge Fund”), was found guilty today in Manhattan federal court of securities fraud, wire fraud, and investment adviser fraud charges, as well as conspiracy to commit securities fraud and wire fraud, in connection with BALBOA’s scheme to undermine the independent valuation process relating to the Hedge Fund, and to overvalue the assets of the Hedge Fund. BALBOA’s overvaluation of one particular security held in his portfolio, a sovereign contingent debt instrument issued by the Government of Nigeria (the “Nigerian Oil Warrant”), caused the Hedge Fund’s reported net asset value to be overstated by approximately $80 million dollars. BALBOA was convicted after a two-and-a-half-week trial presided over by U.S. District Judge Paul A. Crotty.
Manhattan U.S. Attorney Preet Bharara said: “Today’s verdict ensures that Michael Balboa will be punished for deceiving investors by manipulating the valuations at his former hedge fund to falsely inflate the fund’s performance, and enlisting others to help him. As Balboa now knows, those who mislead investors for their own personal gain, and then try to cover their tracks, will be pursued and prosecuted by this Office.”
According to the Superseding Indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:
From December 2006 to October 2008, BALBOA served as the portfolio manager for the Hedge Fund. The Hedge Fund’s strategy was to invest in a portfolio of corporate and sovereign debt instruments in emerging countries. The Hedge Fund utilized an independent valuation agent (the “IVA”) to determine the Hedge Fund’s “net asset value” (“NAV”), which is the value of the Hedge Fund’s assets, less liabilities and estimated costs of sale/liquidation. The Hedge Fund’s manager, the entity that employed Balboa, represented to investors that sources independent from Balboa would provide prices to the IVA for each security held in the Hedge Fund for purposes of determining the NAV on a monthly basis. For example, in one due diligence questionnaire sent on March 7, 2008, to a potential investor for the purpose of providing certain information about the Hedge Fund’s valuation process, the Hedge Fund’s manager noted that “[t]here are no assets valued in house” and that the IVA “calculates the NAV of [the Hedge Fund] independently of Millennium Global.”
Contrary to representations he made to investors about the independent valuation process, BALBOA himself provided inflated prices for the Nigerian Oil Warrant that were used for the Hedge Fund’s monthly valuation. BALBOA accomplished this by instructing Gilles DeCharsonville and Samuel Pratt, two co-conspirators with whom BALBOA worked, to provide the IVA with those values while falsely representing that the values were generated independently by DeCharsonville and Pratt. For example, in 2008, although the Nigerian Oil Warrant traded at a price no higher than $239, BALBOA directed DeCharsonville and Pratt to provide the IVA with marks ranging from approximately $525 to $3,500. The IVA then used these falsely inflated marks to compute the Hedge Fund’s monthly NAV, which, in turn, as of August 2008, caused the NAV to be overstated by approximately $80 million. These false values were then sent to investors by means of monthly newsletters, among other types of communications.
After Balboa’s employer, along with U.S. and foreign securities regulators, began to investigate the scheme, BALBOA took steps to cover his tracks. For example, BALBOA sent DeCharsonville false justifications for the inflated valuations for the purpose of further conveying to BALBOA’s employer, as well as the U.S. and foreign securities regulators.
BALBOA, 44, who currently resides in Melville, New York, and formerly resided in the United Kingdom, was convicted of all five counts in the Superseding Indictment, namely (1) securities fraud conspiracy; (2) wire fraud conspiracy; (3) securities fraud; (4) wire fraud; and (5) investment adviser fraud. He faces a maximum of five years in prison on each of the conspiracy counts, and 20 years in prison on each of the substantive fraud counts. The date for sentencing has not yet been scheduled.
Mr. Bharara praised the work of the United States Postal Inspection Service, which investigated this case. He also thanked the U.S. Securities and Exchange Commission.
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. Attorneys Jason H. Cowley and David I. Miller, and Special Assistant United States Attorney William T. Conway, are in charge of the prosecution.
Queens Man Sentenced to 15 Years in PrisonFor Attempting to Rob and Extort A Bedford FamilyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that BARTEK ZAJKOWSKI, a Polish national, who resided in Queens, New York, was sentenced today by U.S. District Judge Kenneth M. Karas in White Plains federal court to 15 years in prison, consecutive to any sentence imposed in his pending state case in Connecticut, where he is charged with participating in a home invasion. ZAJKOWSKI’s criminal conduct included the attempted extortion of a family by whom he was previously employed and attempted robbery of them in their home in Bedford, Westchester County, New York.
U.S. Attorney Preet Bharara stated: “Bartek Zajkowski became one family’s nightmare of terror and violence. Now, thankfully, the nightmare is over, and we hope his victims can breathe easier. Mr. Zajkowski will be locked up for a long time. The conclusion of this case is a tribute to the cooperative and devoted efforts of law enforcement at every level.”
According to public documents filed in White Plains federal court, and related court proceedings:
ZAJKOWSKI, 23, a Polish citizen living in the United States illegally, had previously worked for a contractor in 2010 at the victims’ residence in Bedford Hills, New York.
On the evening of May 5, 2012, ZAJKOWSKI, dressed in black and armed with a gun, approached the victims’ house. He encountered Victim-1(“the Husband”), bound him with duct tape and plastic ties, and demanded to know where money and valuables were located in the house. The Husband told ZAJKOWSKI that he had expensive paintings and gold and silver items in the residence. ZAJKOWSKI then entered the house, encountered and struggled with Victim-2 (“the Wife”), ultimately shooting her in the stomach with a BB gun. ZAJKOWSKI bound Victim-2 with duct tape and plastic ties, and asked her to direct him to the expensive paintings. After ZAJKOWSKI left the Wife to look for the paintings, she was able to free herself and trigger the house’s alarm. ZAJKOWSKI escaped with no property other than the Husband’s wallet.
Two days later, in the early morning hours of May 7, 2012, ZAJKOWSKI burned down a barn located on the victims’ property. One week later, on May 14, 2012 and May 17, 2012, the victims received two extortion letters from an individual later determined to be ZAJKOWSKI. The letters demanded that the victims pay ZAJKOWSKI $3 million ($1 million for each of their three children) to ensure their family’s safety. In the letters, ZAJKOWSKI also discussed his struggle with the Wife, claimed responsibility for the barn fire, detailed what he had learned about the family through his surveillance of their home, and threatened harm to the victims’ children. ZAJKOWSKI also demanded that the victims deposit the money into a bank account in the Netherlands – a bank account that law enforcement officials later determined to be held by ZAJKOWSKI’s mother’s partner.
On June 1, 2012, the FBI and other law enforcement agents arrested ZAJKOWSKI pursuant to an arrest warrant stemming from a September 2011 home invasion in Ridgefield, Connecticut. Those Connecticut charges are still pending.
Mr. Bharara praised the outstanding investigative work of the FBI’s Westchester County Violent Crimes Task Force, the Westchester County District Attorney’s Office, the Bedford Police Department, the New York State Police, the Westchester County Department of Public Safety and the United States Marshals Service, NY/NJ Regional Fugitive Task Force.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Andrew Bauer and Michael Gerber are in charge of the prosecution.
Manhattan U.S. Attorney Announces Filings and Discovery Requests Seeking Forfeiture of Pension Benefits of Four Former Officials Convicted of Corruption OffensesRead the Press Release
Discovery Requests Seek to Locate Benefits Paid to Convicted Former New York City Council Member Hiram Monserrate and Former Yonkers City Council Member Sandy Annabi
Preet Bharara, the United States Attorney for the Southern District of New York, announced today the filing of applications for orders forfeiting pension benefits, and the service of discovery requests seeking to locate benefits paid, regarding four former New York City Council and Yonkers City Council officials convicted of corruption offenses.
Manhattan U.S. Attorney Preet Bharara said: "With today's actions, we aim to prevent corrupt elected officials from continuing to benefit from pensions paid for by the very people they betrayed in office. As I announced this fall, we are committed to using every legal tool to take the profit out of crime, and that includes preventing public money from being used to fund the comfortable retirement of corrupt officials. This is what justice and common sense require."
As alleged in the applications and other court documents:
Former New York City Council members MIGUEL MARTINEZ, LARRY SEABROOK, and HIRAM MONSERRATE, and former Yonkers City Council member SANDY ANNABI, were convicted of corruption offenses between 2009 and 2012. On December 15, 2009, MARTINEZ was sentenced to 60 months’ imprisonment and ordered to forfeit $106,000. On January 8, 2013, SEABROOK was sentenced to 60 months’ imprisonment and ordered to forfeit $418,252.53. On December 11, 2012, MONSERRATE was sentenced to 24 months’ imprisonment and ordered to forfeit $79,434.49. On November 19, 2012, ANNABI was sentenced to 72 months’ imprisonment and ordered to forfeit $1,270,302.99. To date, none of these defendants has made a single payment toward their respective forfeiture obligations.
MARTINEZ and SEABROOK are currently vested members of the New York City Employee Retirement System. SEABROOK currently receives benefits, while MARTINEZ will be eligible to receive benefits when he reaches the age of 57. The Office has filed applications for orders forfeiting MARTINEZ and SEABROOK’s right to pension benefits until their forfeiture judgments are fully paid. MONSERRATE and ANNABI are believed to have terminated their pension memberships and received payments as a result. The Office has served discovery requests on MONSERRATE and ANNABI seeking to locate benefits that have been paid to them in order to satisfy the outstanding forfeiture judgments against them.
The prosecutions of these officials were handled by the Office’s Public Corruption Unit and its White Plains Division. The forfeiture of the defendants’ pensions is being handled by the Office’s Asset Forfeiture Unit. Assistant United States Attorney Paul Monteleoni is in charge of the forfeitures.
US v. Miguel Martinez Substitute Asset Application
US v. Larry Seabrook Substitute Asset Application
US v. Sandy Annabi Letter to Judge McMahon
US v. Hiram Monserrate Letter to Judge McMahonFlorida Investment Fund Manager Sentenced in Manhattan Federal Court to Six Years in Prison for $13 Million Securities Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CRAIG L. BERKMAN was sentenced today in Manhattan federal court to six years in prison for securities fraud and wire fraud in connection with a more than $13 million scheme to defraud investors through false ownership claims of stock in Facebook, Inc. (“Facebook”); Groupon, Inc. (“Groupon”); LinkedIn, Inc. (“LinkedIn”); and Zynga, Inc. (“Zynga”) before their respective initial public offerings, and in other private companies. In addition to the prison sentence, BERKMAN was ordered to forfeit to the United States $13,239,006, representing the proceeds of the fraud. BERKMAN pled guilty on June 25, 2013, and was sentenced today by U.S. District Judge Shira A. Scheindlin.
Manhattan U.S. Attorney Preet Bharara stated: “For several years Craig Berkman repeatedly lured investors with the false promise of benefiting from his companies’ ownership of pre-IPO stock all the while draining their money into his own pockets in a fraud that was part Ponzi scheme and part plain old theft. He is now paying a heavy price for his lies, forfeiting both his liberty and his money, and today’s sentence is a just and fitting conclusion to the multimillion-dollar fraud he perpetrated.”
According to the charging instruments in this case and statements made in open court today at the plea proceeding:
From 2010 until his arrest in March 2013, BERKMAN served as the managing member of a series of limited liability companies, which he effectively controlled, including Face-Off Acquisitions, LLC; Assensus Capital, LLC; and several LLCs with variations of the words “Ventures Trust” in their names (the “Ventures Trust LLCs”). Beginning in about October 2010, BERKMAN and others offered investors the opportunity to purchase units of each of these LLCs. In doing so, BERKMAN misrepresented to investors that the LLCs either owned or would soon acquire pre-initial public offering shares in various technology companies, including Facebook, Groupon, LinkedIn, and Zynga. BERKMAN also misappropriated millions of dollars of investor funds for his own use and benefit.
The ways in which BERKMAN carried out his scheme varied with each of the LLCs. In one instance, BERKMAN represented to investors that various Ventures Trust LLCs held large quantities of pre-IPO shares of Facebook, Groupon, LinkedIn, and Zynga. In fact, the Ventures Trust LLCs held no shares of Groupon, LinkedIn, or Zynga, and held only a small, indirect interest in pre-IPO Facebook shares. In another example, BERKMAN falsely told investors with Face-Off Acquisitions, LLC, that their money would be used to purchase an existing special purpose vehicle, which already held a significant stake in Facebook. BERKMAN also misrepresented to Assensus Capital Investors, LLC, investors that he would use their money to fund various start-ups, including technology, medical device, and energy companies, and that the investors’ funds would be partially secured by interests in pre-IPO Facebook stock. In fact, BERKMAN misappropriated most, if not all, of the investors’ money for his own use and benefit.
Ultimately, BERKMAN raised at least approximately $13.2 million in funds from more than 120 different investors, which he used for various unauthorized purposes. BERKMAN used approximately $6 million in stolen investor funds to pay off creditors in his personal bankruptcy, and in doing so, he misrepresented the source of those funds to the Bankruptcy Court. BERKMAN also used approximately $4.8 million of new investor money to pay off earlier investors, and spent approximately $1.6 million on legal fees, travel, other personal expenses, and in cash withdrawals, among other things.
BERKMAN, 71, of Odessa, Florida, was also sentenced to three years of supervised release and ordered to pay a mandatory $200 special assessment. Restitution will be determined at a later date.
Mr. Bharara praised the work of the Criminal Investigators of the U.S. Attorney’s Office and the United States Postal Inspection Service, which jointly investigated this case. He also thanked the U.S. Securities and Exchange Commission.
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. Attorneys John J. O’Donnell and Matthew L. Schwartz are in charge of the prosecution.
Manhhattan U.S. Attorney Announces Conviction of Richard Chichakli, Co-Conspirator of International Arms Dealer Viktor Bout, on Money Laundering, Wire Fraud, and Conspiracy ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that RICHARD AMMAR CHICHAKLI, an associate of international arms dealer Viktor Bout, was found guilty today, by a jury in Manhattan federal court, of conspiring with Bout and others to violate the International Emergency Economic Powers Act (“IEEPA”) by attempting to purchase commercial airplanes from American companies in violation of U.S. sanctions. CHICHAKLI was also found guilty of money laundering conspiracy, wire fraud conspiracy, and several counts of wire fraud, in connection with the attempted aircraft purchases. He was convicted following a four-week jury trial before U.S. District Judge William H. Pauley III.
Manhattan U.S. Attorney Preet Bharara said: “As the evidence at trial established, Richard Chichakli conspired to violate international sanctions by working to purchase aircraft for and with Viktor Bout, formerly one of the world's most notorious weapons traffickers. But for the intervention of our law enforcement partners, Chichakli would have played a vital role in furthering Bout's objectives.”
According to evidence at trial and documents previously filed in Manhattan federal court:
CHICHAKLI conspired with Viktor Bout and others to violate IEEPA by engaging in prohibited business transactions with companies based in the United States. The focus of these transactions was the purchase of commercial airplanes for a company that Bout and CHICHAKLI controlled, and the ferrying of those aircraft to Tajikistan. At the time of these unlawful transactions, both CHICHAKLI and Bout had been designated by the U.S. Treasury Department as Specially Designated Nationals (“SDNs”), which meant that individuals and businesses in the United States were prohibited from engaging in financial transactions with them. CHICHAKLI sought to evade these SDN sanctions by, among other things, concealing his identity and his SDN listing, and by concealing Viktor Bout’s involvement in the airplane transactions. In connection with this fraudulent scheme, CHICHAKLI helped to make a series of wire transfer payments, totaling more than $1.7 million; these payments were sent from overseas bank accounts into accounts in the United States.
CHICHAKLI was convicted of one count of conspiring to violate the IEEPA one count of money laundering conspiracy, one count of wire fraud conspiracy, and six counts of wire fraud. He faces a maximum sentence of five years in prison on the IEEPA conspiracy count, and a maximum of 20 years in prison on each of the other eight counts. CHICHAKLI is scheduled to be sentenced on March 14, 2014 at 2:00 p.m.
CHICHAKLI’s co-conspirator, Viktor Bout, is currently serving a 25-year prison term as a result of his November 2011 conviction in this District in connection with his conspiring to sell millions of dollars of weapons to a designated foreign terrorist organization.
Mr. Bharara praised the outstanding investigative efforts of the Special Operations Division of the DEA, and specially thanked the DEA Canberra Country Office, and the DEA Digital Evidence Laboratory. Mr. Bharara also thanked the Australian Federal Police, the Victoria State Police, and the Australian Attorney General’s Department, as well as the U.S. Department of Justice Office of International Affairs and National Security Division, and Interpol.
The case is being handled by the Terrorism and International Narcotics Unit. Assistant United States Attorneys Christian R. Everdell, Ian McGinley, and Jenna M. Dabbs are in charge of the prosecution.
Manhattan U.S. Attorney, FBI, and IRS Announce Charges Against Pharmacy Owner in Multimillion-Dollar Medicare/Medicaid 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 Field Office of the Federal Bureau of Investigation (“FBI”), and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that PURNA CHANDRA ARAMALLA was arrested yesterday for engaging in a scheme to defraud Medicaid and Medicare through the sale of illegally diverted prescription drugs. ARAMALLA was also charged with a related money laundering offense. ARAMALLA was arrested yesterday morning and was presented in Manhattan federal court before U.S. Magistrate Judge Debra Freeman yesterday afternoon. A preliminary hearing is scheduled for January 13, 2014.
Manhattan U.S. Attorney Preet Bharara said: “The illegal diversion of prescription medications threatens the health of those induced to sell their medication rather than take it. It threatens the health of those who unwittingly purchase the repackaged drugs believing them to be factory-fresh. And, as alleged here, Purna Aramalla’s diversion scheme defrauded millions of dollars from Medicare and Medicaid, taxpayer-funded programs established to provide health care assistance for the elderly and indigent. This Office is committed not only to punishing and preventing fraud, and safeguarding Medicare and Medicaid, but also to protecting the public.”
FBI Assistant Director-in-Charge Venizelos said: “As alleged in the complaint, Aramalla conspired to defraud our government health care programs and profit from the illness and misfortune of others. Aramalla treated our American health care system as a vehicle to fuel his greed and line his own pockets. The FBI, in conjunction with our law enforcement partners, will continue to investigate and bring to justice criminals who bilk the system and defraud the American taxpayer.”
IRS-CI Special Agent-in-Charge Weirauch said: “The illegal sale of prescription drugs by pharmaceutical professionals is an escalating problem. Not only does it put potentially dangerous medications in the wrong hands, but fraudulent Medicare and Medicaid reimbursements divert resources from the government. The money laundering statutes have always been effective tools in the fight against illegal drugs. We are now applying these same laws to the illegal prescription drug business, tracing the lucrative proceeds that the sales of these drugs generate.”
According to the allegations contained in the Criminal Complaint unsealed today:
ARAMALLA operates A Fair Deal Pharmacy Inc. in Queens, New York, and Quality Health Drug Inc. in Bronx, New York. Using these pharmacies, ARAMALLA allegedly carried out a multimillion-dollar scheme to defraud New York State Medicaid and Medicare programs through the sale of diverted pharmaceutical drugs, that is, drugs not obtained from legitimate sources.
As part of the scheme, ARAMALLA purchased pharmaceuticals, including high-cost medications used to treat HIV, that were obtained from patients who sold the pharmaceuticals rather than use them to treat their illnesses. ARAMALLA then repackaged and resold those pharmaceuticals to his customers, as if the pharmaceuticals were new drugs obtained from legitimate sources. ARAMALLA requested and received reimbursement from Medicaid and Medicare in connection with these sales, even though Medicaid and Medicare would not have been willing to reimburse the cost of second-hand drugs. In addition, in some cases, Medicaid or Medicare had already paid for the pharmaceuticals when they were initially dispensed. In order to make the diverted pharmaceuticals appear to be new pharmaceuticals from legitimate sources, ARAMALLA and his co-conspirators used lighter fluid and other means to dissolve the adhesive on the patient labels on prescription bottles so that they could be removed and replaced with new labels.
ARAMALLA also sought and obtained reimbursement for pharmaceuticals that were never actually dispensed to patients. Instead, customers with prescriptions for pharmaceuticals essentially “sold” their prescriptions to ARAMALLA, agreeing not to take delivery of the pharmaceuticals in exchange for a share of the reimbursed proceeds.
From October 2010 to August 2012, ARAMALLA purchased approximately $1.7 million of certain branded HIV medications from two legitimate, licensed wholesalers that were his primary sources of legitimate drugs. During that same period, he received approximately $4.3 million in reimbursements from Medicare and Medicaid for those same drugs, an amount far in excess of what he would have been entitled to had he only sought reimbursement for the legitimately obtained drugs.
ARAMALLA, 65, of Port Washington, New York, is charged with one count of conspiracy to commit health care fraud and wire fraud, which carries a maximum term of 20 years in prison, and one count of money laundering, which also carries a maximum term of 20 years in prison. He was ordered detained pending satisfaction of bail conditions, including a $2 million personal recognizance bond.
Mr. Bharara praised the outstanding investigative work of the FBI and the IRS. He also thanked the U.S. Department of Health and Human Services, Office of Inspector General, the New York State Office of Medicaid Inspector General, and the New York City Human Resources Administration.
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.
If you think you may have purchased second-hand prescription drugs or were otherwise victimized by this scheme, you can call the FBI Hotline at 212-384-3555.
The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Niketh Velamoor 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. Purna Chandra Aramalla Complaint