Southern District of New York
Press releases recorded for this federal judicial district.
Art Dealer Pleads Guilty in ManhattanFederal Court to $80 Million Fake Art Scam,Money Laundering, and Tax ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that art dealer GLAFIRA ROSALES pled guilty today in Manhattan federal court to participating in a scheme to sell more than 60 fake works of modern art to two New York art galleries. Her victims paid more than $80 million for the fake works. ROSALES also pled guilty to conspiracy to sell the fake works, conspiracy to commit money laundering, money laundering, and several tax crimes related to the fake art scheme. ROSALES pled guilty before U.S. District Court Judge Katherine P. Failla.
Manhattan U.S. Attorney Preet Bharara said: “With her guilty plea today, Glafira Rosales acknowledges her role in a sprawling fraud that involved the commission of phony artworks she represented as real, and her efforts to hide the proceeds of this massive scam in foreign bank accounts. Rosales’s plea shows that no matter how wide-ranging the deception, this Office will continue to bring the perpetrators of fraud to justice.”
According to the allegations contained in the Complaint, Indictment, superseding Indictment, and statements made in court:
ROSALES was an art dealer who, starting in 1994 and continuing through 2009, sold more than 60 never-before-exhibited and previously unknown works of art (the “Works”) that she claimed were by the hand of some of the most famous artists of the twentieth century, such as Jackson Pollock, Mark Rothko, and Robert Motherwell. She sold the Works to two prominent Manhattan art galleries for approximately $33.2 million. The galleries, in turn, sold the Works to victims of ROSALES’s crime for more than $80 million.
The Works were fakes created by a painter (the “Painter”) who resided in Queens, New York. ROSALES conspired with her long-time companion, identified as a co-conspirator (“CC-1”) in the superseding Indictment, to procure and sell the Works and to launder the proceeds of the fraud. CC-1 first met and befriended the Painter in Manhattan in the 1980s while the Painter was painting on the street. The Painter, who received formal art training at an art school in New York, created the Works for ROSALES and CC-1 at the Painter’s home in Queens. In some instances, the Painter signed the purported artist’s name to the Works, such as Jackson Pollock, but in other cases, CC-1 applied the false signatures. After ROSALES and CC-1 retrieved the Works from the Painter, CC-1 gave the Works the false patina of age by subjecting the Works to a number of different treatments.
The provenance that ROSALES supplied for the Works was also false. In selling some of the Works, she purported to represent a particular client who was associated with Switzerland, had inherited the paintings and wanted to sell them, but also wished to remain anonymous (the “Purported Swiss Client”). For the remainder of the paintings, ROSALES purported to represent a Spanish collector (the “Purported Spanish Collector”). She further claimed that a portion of the price paid by the Manhattan galleries would be a commission to her for selling the paintings and that the remainder would be passed along to her clients. In truth and fact, the Purported Swiss Client never existed and the Purported Spanish Collector never actually owned any of the Works.
ROSALES also filed tax returns that falsely and fraudulently tended to show that she had not kept all or substantially all of the proceeds from the sale of the Works, when, in fact, ROSALES kept several million dollars of the proceeds.
ROSALES received most of the proceeds from the sale of the Works in a foreign bank account that she hid from, and failed to report to, the IRS. United States taxpayers are required to report to the IRS the existence of any foreign bank account that holds more than $10,000 at any time during a given year by the filing of a Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1.
ROSALES, 57, of Sands Point, New York, pled guilty to nine counts, including: one count of conspiracy to commit wire fraud, one count of wire fraud, one count of conspiracy to commit money laundering, and one count of money laundering, each of which carries a maximum sentence of 20 years in prison; three counts of filing false federal income tax returns, each of which carries a maximum sentence of three years in prison; and two counts of willful failure to file Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1, each of which carries a maximum sentence of five years in prison. ROSALES’s total maximum term of imprisonment is 99 years. She also agreed to forfeit $33,200,000, including her home in Sands Point, New York, and to pay restitution in an amount not to exceed $81 million. Rosales will be sentenced by Judge Failla on March 18, 2014 at 2:30 p.m.
Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation in the investigation, which he noted is ongoing.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Jason P. Hernandez is in charge of the prosecution.
Rosales, Glafira S1 Indictment
Former Marketing Agency Executives and Phoenix-Based Businessman Charged in Manhattan Federal Court for Kickback SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Kathryn Keneally, the Assistant Attorney General for the Tax Division of the Department of Justice, and Richard Weber, the Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the filing of federal criminal charges against MICHAEL J. MITROW and MATTHEW J. MITROW, former executives of a New Jersey-based marketing agency, and ROBERT T. MADISON, a Phoenix-based businessman, for their roles in a kickback scheme in which MICHAEL and MATTHEW MITROW received more than $1 million in kickbacks for steering the marketing agency’s business to a company owned by MADISON. MADISON, who was originally charged by complaint in November 2012, is also charged with defrauding the marketing agency by submitting false invoices. MICHAEL MITROW is also charged with a separate scheme to submit false invoices to the marketing agency, as well as tax evasion and obstructing the IRS. MICHAEL and MATTHEW MITROW surrendered to the IRS-CI today. The case is assigned to U.S. District Judge Paul A. Engelmayer.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, in exchange for steering business to his company, Robert Madison footed the bill for more than $1 million in personal expenses of Michael and Matthew Mitrow, including private jet travel, home renovation, and even a $19,000 tab at a New York City club. The indictment further charges that to fund the kickbacks, Madison fraudulently billed the marketing agency for more than $7 million in services he never, or barely, provided, and defrauded another company that had legitimately purchased the services. Michael Mitrow also allegedly conducted overlapping, separate schemes in which he defrauded his own marketing agency and failed to report income to the IRS. These defendants allegedly perpetrated fraud at every turn, and with today’s superseding indictment, this Office and our law enforcement partners begin to hold them to account.”
IRS-CI Chief Richard Weber said: “This indictment underscores the importance of holding accountable those who allegedly participate in kickback schemes that subvert the competitive process and hide their illicit proceeds from the IRS. The defendants are high-level executives who allegedly abused their positions of trust to fraudulently obtain more than $1 million in undisclosed kickbacks from a vendor. Together with our partners at the U.S. Attorney’s Office and the Department of Justice Tax Division, we will continue to pursue business executives who abuse and corrupt their positions to steal corporate funds and conceal their corrupt income from the IRS.”
According to the allegations in the Superseding Indictment filed in Manhattan federal court:
In approximately 1998, MICHAEL MITROW started a marketing agency that provided marketing services to pharmaceutical companies by targeting labor unions and their members with direct mail services that touted the benefits of the pharmaceutical companies’ products. In 2007, MICHAEL MITROW and his partners, including MATTHEW MITROW, sold a controlling interest in the marketing agency to a private equity firm. As part of the sale, MICHAEL MITROW and his brother, MATTHEW MITROW, stayed on at the agency as CEO and Executive Vice President, respectively.
The marketing agency used a Phoenix-based printing and direct-mailing company owned by MADISON for printing and mailing services related to various pharmaceutical marketing campaigns. From February 2007 through January 2009, MICHAEL MITROW, MATTHEW MITROW, and MADISON engaged in a scheme in which MADISON paid more than $1 million in undisclosed kickbacks to MICHAEL and MATTHEW MITROW in exchange for MICHAEL and MATTHEW MITROW steering business from the marketing agency to MADISON’s company. As part of the kickback scheme, MADISON paid more than $1 million in personal expenses of MICHAEL MITROW, including more than $750,000 for private jet travel. MADISON also paid MATTHEW MITROW’s personal expenses, including home renovation expenses, credit card bills, and a $19,000 bill at a New York City club. The defendants also took various steps to conceal the kickbacks from the marketing agency.
MADISON obtained the money used to pay the kickbacks by fraudulently billing the marketing agency for more than $7 million in services that he either failed to perform or substantially underperformed. In doing so, MADISON defrauded a large New York City-based pharmaceutical company out of tens of millions of dollars for services it had purchased from the marketing agency.
MICHAEL MITROW also engaged in another scheme to defraud the marketing agency. Specifically, from approximately June 2008 through May 2009, in order to generate funds to pay for private jet travel for himself and others, MICHAEL MITROW conspired with the owner of a private jet charter business to fraudulently bill the marketing agency for bogus consulting services that were never rendered. On eight separate occasions, he directed the owner of the private jet charter business to submit bogus invoices to the marketing agency, ranging from $66,000 to $85,000, in the name of fake pharmaceutical consultants for purported consulting services. After MICHAEL MITROW personally approved these invoices, the money was funneled through a Florida-based collection agency and then diverted to pay outstanding and ongoing debts arising from his and others’ personal use of private jets.
Finally, in addition to concealing from the IRS the income he derived from the above schemes, MICHAEL MITROW misused his corporate credit card to pay for personal expenses, including airfare, lodging, dining and retail purchases. He concealed the personal nature of these expenses by falsely labeling them as business expenses and billing the expenses to his employer. As a result, MICHAEL MITROW concealed his true income from the IRS, and failed to pay a substantial amount of income taxes in 2008.
MICHAEL MITROW, 46, of Whitehouse Station, New Jersey, is charged with two counts of conspiracy to commit wire fraud, which each carry a maximum sentence of 20 years in prison, one count of tax evasion, which carries a maximum sentence of five years in prison, and one count of obstructing and impeding the IRS, which carries a maximum sentence of three years in prison.
MATTHEW MITROW, 40, of Westfield, New Jersey, is charged with one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison.
MADISON, 42, of Henderson, Nevada, is charged with two counts of conspiracy to commit wire fraud, which each carry a maximum sentence of 20 years in prison.
Mr. Bharara praised the work of IRS-CI for its outstanding work in the investigation. He also thanked the U.S. Department of Justice’s Tax Division for their significant assistance in the investigation, and the U.S. Postal Inspection Service.
This case is being handled by the Office’s Complex Frauds Unit. Nanette Davis and Andrew Young, Trial Attorneys with the Tax Division and Special Assistant U.S. Attorneys in the Southern District of New York, are in charge of the prosecution.
The charges contained in the superseding indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Mitrow, et al Indictment
Australian Research Analyst 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 TRENT MARTIN, a former research analyst at an international financial services firm, pled guilty today in Manhattan federal court to charges arising from his involvement in an insider trading scheme. The scheme involved the misappropriation of material, non-public information (“Inside Information”) concerning IBM’s acquisition of a software company, SPSS, Inc., in 2009. MARTIN was arrested on these charges in Hong Kong in December 2012 and extradited to the United States in March 2013. He pled guilty today before U.S. District Judge Andrew L. Carter, Jr., pursuant to a cooperation agreement.
According to the Indictment to which MARTIN 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 SPSS’s market price, with his close friend, MARTIN. The information was shared in confidence. Based on their longstanding history of sharing confidences, Attorney-1 expected that MARTIN would not share the information or use it to trade.
However, thereafter, MARTIN bought SPSS common stock 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 a securities trading firm (“Securities Trading Firm-1”). Conradt bought SPSS common stock and tipped David J. Weishaus, his co-worker at Securities Trading Firm-1. Weishaus allegedly bought call option contracts in SPSS based on the Inside Information. In addition, it is alleged that Conradt and Weishaus tipped their co-workers at Securities Trading Firm-1 (“CC-1 and CC-2”), who also bought SPSS call option contracts based on the Inside Information.
On July 23, 2009, MARTIN told Attorney-1 that he had purchased SPSS common stock and call options on the basis of the Inside Information that Attorney-1 had disclosed to him.
When IBM announced its acquisition of SPSS on July 28, 2009, the share price of SPSS common stock rose by 41% in one day, from the prior day’s closing price of $35.09 per share to a closing price of $49.45 per share. Thereafter, MARTIN, Conradt, Weishaus, CC-1, and CC-2 sold their SPSS positions, yielding profits of $7,900, $2,538, $129,290, $629,954, and $254,360, respectively, for a total profit in excess of $1 million.
In the fall of 2010, after the U.S. Securities and Exchange Commission (“SEC”) had begun investigating insider trading in SPSS, MARTIN told Attorney-1 that he had profited approximately $8,000 from the Inside Information concerning IBM’s acquisition of SPSS and had disclosed it to his roommate, Conradt, before the transaction was publicly announced. MARTIN also told Attorney-1 that MARTIN believed Conradt had taken a large position in SPSS before the announcement and had, in turn, shared the Inside Information with others.
MARTIN, 34, of Sydney, Australia, pled guilty to one count of conspiracy to commit 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. As part of his plea agreement, MARTIN agreed to forfeit his share of the proceeds obtained from the offense. He is scheduled to be sentenced by Judge Carter on March 14, 2014 at 2:00 p.m.
Conradt pled guilty to one count of conspiracy to commit securities fraud and two counts of securities fraud on April 3, 2013. He is scheduled to be sentenced on October 3, 2013 at 10:00 a.m.
The charges against Weishaus remain pending and he is presumed innocent unless and until proven guilty. Weishaus is next scheduled to appear before Judge Carter on October 3, 2013 at 10:00 a.m.
Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission and 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 David B. Massey are in charge of the prosecution.
U.S. v. Trent Martin Indictment
Alejandro Garcia Sentenced in White Plains Federal Court to 17 Years and Six Months in Prison for the Beating Deaths of Ben and Bernice NovackRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Janet DiFiore, the Westchester County District Attorney, announced that ALEJANDRO GARCIA was sentenced today in White Plains federal court to 17 years and six month in prison by U.S. District Judge Kenneth M. Karas in connection with his conviction on charges related to the 2009 beating deaths of Ben Novack and his mother, Bernice Novack.
In June 2010, GARCIA pled guilty to an Information charging him with Interstate Domestic Violence resulting in the death of Ben Novack. In accordance with his plea agreement, GARCIA was sentenced in connection with that crime and also in connection with his admitted participation in the assault upon Bernice Novack that resulted in her death. GARCIA was a cooperating witness who testified for the Government in the June 2012 trial of Narcisa Veliz Novack and Cristobal Veliz. Novack and Veliz, siblings, were convicted following the trial for their roles in engineering and executing the schemes resulting in the beating deaths of Ben Novack (Novack’s husband) and Bernice Novack (her mother-in-law). GARCIA was hired by Veliz as a hit man in both homicides. Both Novack and Veliz were sentenced to life in prison without parole.
According to the trial evidence and other information in the public record:
Ben and Bernice Novack were members of the family that built the Fontainebleau Hotel in Miami Beach, Florida. Ben Novack, who was 52 at the time of his death, owned Novack Enterprises, Inc., which did business as Convention Concepts Unlimited, a company that organized and oversaw conventions held by various businesses. Bernice Novack, who was 86 at the time of her death, was the secretary of Novack Enterprises, Inc.
On April 4, 2009, after being recruited by Veliz for the job, GARCIA surprised Bernice Novack as she started to get out of her car in the garage of her home in Fort Lauderdale, Florida, and hit her in the head and mouth with a monkey wrench. She died of her wounds shortly thereafter.
In July 2009, Veliz arranged for GARCIA and another man, Joel Gonzalez, to travel from Florida to the Rye Town Hilton in Rye Brook, New York, where Ben Novack was staying with his wife while his company oversaw a convention at the hotel. Early on the morning of July 12, 2009, Narcisa Veliz Novack let the two men into the Novacks’ room, where Garcia and Gonzalez then attacked her husband in his bed and on the floor, striking him with dumbbells and using a box-cutter to cut his eyes. The hit men silenced his screams with a pillow given to them by his wife, tied him up, and used duct tape to cover his mouth. Ben Novack died of asphyxiation and blunt force trauma.
Gonzalez, also a cooperating witness who testified at the June 2012 trial of Novack and Veliz, was previously sentenced to 10 years in prison. Two getaway drivers in the Ben Novack homicide, Denis Ramirez (Veliz’s son-in-law) and Francisco Picado (Ramirez’s cousin), also pled guilty and testified as cooperating witnesses at the trial. Ramirez and Picado were both sentenced to time served.
In addition to the prison term, Judge Karas ordered GARCIA, 36, originally of Nicaragua, to forfeit $25,500, the amount of money he was paid for his role in both homicides.
Mr. Bharara thanked Westchester County District Attorney Janet DiFiore and the prosecutors and investigators from her office for their cooperative work in this investigation and prosecution. He also praised the Federal Bureau of Investigation, the Rye Brook Police Department, the Westchester County Department of Public Safety, and the Florida Department of Law Enforcement.
Assistant U.S. Attorneys Elliott B. Jacobson, Andrew S. Dember, Jeffrey Alberts, and Special Assistant U.S. Attorney Perry Perrone of the Westchester County District Attorney’s Office, cross-designated for this case, are in charge of the prosecution.
Manhattan U.S. Attorney Announces Civil Forfeiture Complaint Against Real Estate Corporations Allegedly Involved in Laundering Proceeds of Russian Tax Refund Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), and Cyrus R. Vance, Jr., the District Attorney for New York County (“DANY”), announced today the filing of a civil forfeiture complaint against the assets of nine corporations controlling real estate in Manhattan, including four luxury residential units and two high-end commercial spaces, as well as against the assets of two related companies, and seeking the imposition of civil money laundering penalties. The Complaint filed today in Manhattan federal court alleges that these corporations laundered a portion of the proceeds of a $230 million Russian tax refund fraud scheme involving corrupt Russian officials that was uncovered by Sergei Magnitsky, a Russian lawyer who died in pretrial detention in Moscow under suspicious circumstances.
Manhattan U.S. Attorney Preet Bharara said: “Today's forfeiture action is a significant step towards uncovering and unwinding a complex money laundering scheme arising from a notorious foreign fraud. As alleged, a Russian criminal enterprise sought to launder some of its billions in ill-gotten rubles through the purchase of pricey Manhattan real estate. While New York is a world financial capital, it is not a safe haven for criminals seeking to hide their loot, no matter how and where their fraud took place.”
ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “The complaint announced today further displays the U.S. Government's resolve in combating alleged corruption globally. ICE HSI will continue to aggressively pursue civil and criminal actions targeting those attempting to launder illicit profits.”
District Attorney Cyrus R. Vance, Jr. said: “Manhattan may have some of the most desirable real estate in the world, but it is not the place to purchase it if you are allegedly doing so with dirty money. We are very grateful to the United States Attorney’s Office for its close partnership on this matter, and pleased to have developed and referred this asset forfeiture and civil money laundering case to the federal government.”
As alleged in the Complaint and other court documents:
In 2007, a Russian criminal organization engaged in an elaborate tax refund fraud scheme resulting in a fraudulently-obtained tax refund of approximately $230 million from the Russian treasury. As part of the fraud scheme, members of the organization stole the corporate identities of portfolio companies of the Hermitage Fund, a foreign investment fund operating in Russia. The organization’s members then used these stolen identities to make fraudulent claims for tax refunds.
In order to procure the refunds, the criminal organization fraudulently re-registered the Hermitage companies in the names of members of the organization, and then orchestrated sham lawsuits against these companies. These sham lawsuits involved members of the organization as both the plaintiffs (representing sham commercial counterparties suing the Hermitage companies) and the defendants (purporting to represent the Hermitage companies). In each case, the members of the organization purporting to represent the Hermitage companies confessed full liability in court, leading the courts to award large money judgments to the plaintiffs.
The purpose of the sham lawsuits was to fraudulently generate money judgments against the Hermitage companies. Members of the organization purporting to represent the Hermitage companies then used those money judgments to seek tax refunds. The basis of these refund requests was that the money judgments constituted losses eliminating the profits the Hermitage companies had earned, and thus the Hermitage companies were entitled to a refund of the taxes that had been paid on these profits. The requested refunds totaled 5.4 billion rubles, or approximately $230 million.
Members of the organization who were officials at two Russian tax offices corruptly approved the requests within one business day, and approximately $230 million was disbursed to members of the organization, purportedly on behalf of the Hermitage companies, two days later.
After perpetrating this fraud, members of the organization undertook illegal actions in order to conceal this fraud and retaliate against individuals who attempted to expose it. After learning of the lawsuits against its portfolio companies, Hermitage retained attorneys, including Russian lawyer Sergei Magnitsky, to investigate. Magnitsky and other attorneys for Hermitage uncovered the refund fraud scheme, and the complicity of Russian governmental officials in it, and were subject to retaliatory criminal proceedings. Magnitsky was arrested and died approximately a year later in pretrial detention.
Members of the criminal organization, and associates of those members, have also engaged in a broad pattern of money laundering in order to conceal the proceeds of the fraud scheme. In a complex series of transfers through shell corporations, the $230 million from the Russian treasury was laundered into numerous accounts in Russia and other countries. A portion of the funds stolen from the Russian treasury passed through several shell companies into PREVEZON HOLDINGS, LTD., a Cyprus-based real estate corporation that is a defendant in the forfeiture action. PREVEZON HOLDINGS laundered these fraud proceeds into its real estate holdings, including investment in multiple units of high-end commercial space and luxury apartments in Manhattan, and created multiple other corporations, also subject to the forfeiture action, to hold these properties.
A chart containing the names of the companies subject to the forfeiture action and their known Manhattan real estate holdings is attached.
Mr. Bharara praised the outstanding investigative work of ICE HSI. He also thanked DANY for its assistance in the case.
This case is being handled by the Office’s Asset Forfeiture Unit. Assistant United States Attorneys Paul Monteleoni and Christine Magdo are in charge of the case.
Click here to view chart(s)
U.S. v. Prevezon et al. Exhibit B
U.S. v Prevezon et al. ComplaintTwo More Defendants Plead Guilty in Manhattan Federal Court to Participating in Gambling Rings Connected to Organized CrimeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that EDWIN TING and JUSTIN SMITH pled guilty today in Manhattan federal court for their respective roles in high-stakes illegal gambling businesses connected to organized crime enterprises. TING pled guilty before U.S. District Court Judge Jesse M. Furman to conducting an illegal gambling business, an illegal poker game. SMITH pled guilty before Judge Furman to accepting a financial instrument in connection with unlawful Internet gambling, an illegal sportsbook.
TING and SMITH were charged in April 2013 in a 34-defendant indictment charging members and associates of two Russian-American organized crime enterprises with various crimes including racketeering, money laundering, extortion, and various gambling offenses.
Manhattan U.S. Attorney Preet Bharara said: “Edwin Ting and Justin Smith ran high-stakes poker and sportsbook operations, respectively, that handled many millions of dollars in illegal gambling. They were part of an underground enterprise trying to be invisible to law enforcement. Their guilty pleas are an important step toward the resolution of this case.”
According to the Indictment, other documents filed in this case, and statements made at various conferences in this case:
TING ran a high-stakes illegal poker game in New York City from 2010 through 2013. At these games, the pots frequently reached tens of thousands of dollars or more. The operators of these games, including TING, collected percentages of the pots known as “rakes.” 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.
SMITH assisted Hillel Nahmad, Illya Trincher, and others in operating their own high-stakes sportsbook in New York that catered to millionaires and billionaires. Those clients typically placed bets online through various accounts maintained on gambling websites that were operating illegally in the United States. Tens of millions of dollars in bets were placed through those online accounts each year.
TING and SMITH each face a maximum sentence of five years in prison and three years of supervised release. As part of his plea agreement, TING agreed to forfeit $2,000,000 to the United States. As part of his plea agreement, SMITH agreed to forfeit $500,000 to the United States. TING and SMITH are both scheduled to be sentenced by Judge Furman on January 7, 2014 at 2:30 p.m. and 3:30 p.m., respectively.
TING and SMITH are the fourth and fifth defendants to plead guilty in the case. The following defendants have previously pled guilty and will also be sentenced by Judge Furman:
- Bryan Zuriff pled guilty on July 26, 2013 and is scheduled to be sentenced on November 25, 2013 at 3:00 p.m.;
- William Barbalat pled guilty on August 14, 2013 and is scheduled to be sentenced on December 16, 2013 at 3:30 p.m.; and
- Kirill Rapoport pled guilty on August 16, 2013 and is scheduled to be sentenced on December 18, 2013 at 3:00 p.m.
The charges against the remaining 29 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, Criminal Investigation.
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. Attorneys Alexander Wilson and Christine Magdo of the Office’s Asset Forfeiture Unit are responsible for the forfeiture aspects of the case.
U.S. v. Alimzhan Tokhtakhounov, et al. Indictment
Manhattan U.S. Attorney Announces the Appointment of Chief Public Information OfficerRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, today announced the appointment of James M. Margolin as the Office’s Chief Public Information Officer.
Mr. Margolin comes to the Office from the Federal Bureau of Investigation (“FBI”), where he has been a Public Information Officer for the New York field office since 1996. During his tenure with the FBI Public Information Office, Mr. Margolin handled a broad range of media matters related to FBI cases, including the investigations and prosecutions related to the 1998 al Qaeda bombings of American embassies in Nairobi, Kenya, and Dar es Salaam, Tanzania; the 2001 al Qaeda attacks on the World Trade Center towers; the Martha Stewart-Imclone securities fraud investigation; the investigation and prosecution of former NYPD commissioner Bernard Kerik; the investigation and prosecution of Bernard L. Madoff and others; and the “Operation Perfect Hedge” investigations and prosecutions of insider trading, including the prosecutions of Raj Rajaratnam, Rajat Gupta and others. He further oversaw FBI media operations related to the investigations and prosecutions of attempted Times Square bomber Faisal Shahzad, former New York State Senator Carl Kruger, and three individuals charged with critical roles in creating and distributing the Gozi Virus, among many other cases. From 1988 to 1996, Mr. Margolin also served as a Special Agent in the Organized Crime Branch of the New York FBI office, where he investigated Asian gangs and La Cosa Nostra for extortion, racketeering, and murder.
Prior to joining the FBI, Mr. Margolin worked as an Assistant Vice President and Counsel at First Fidelity Bank, in Newark, NJ, from 1987 to 1988, and an Associate at Hawkins, Delafield & Wood, in New York, New York, from 1981 to 1987. He is a 1978 cum laude graduate of Dartmouth College, and a 1981 graduate of the Columbia University School of Law.
In making the appointment, Manhattan U.S. Attorney Preet Bharara said: “Jim has been a great representative of the FBI and a great partner to this Office for many years. He is admired and respected by law enforcement and by journalists with whom he deals on a daily basis, for his professionalism, integrity and candor. We are thrilled that he is joining us and will be leading our Public Information Office and the terrific people in it.”
Additionally, Manhattan U.S. Attorney Preet Bharara announced the appointment of Jerika Richardson, a Public Affairs Specialist, as the Office’s Senior Public Affairs Officer & Director of New Media. Ms. Richardson has served in the Public Information Office as a Public Affairs Specialist since 2011. Prior to coming to the Office, Ms. Richardson worked at ABC News, in New York, NY, from 2007 to 2011, where she covered law and justice, financial, and breaking news as a Field Producer and Off-Air Reporter. Some of her more notable stories include the 2011 Tucson Shooting, the Bernard Madoff Case, and the Gulf Oil Spill. Ms. Richardson also served as a producer for the network during the 2010 midterm and 2008 general elections. She is a 2003 cum laude graduate of Spelman College, and a 2007 graduate of the University of Michigan Law School.
In making the appointment, Manhattan U.S. Attorney Preet Bharara said: “Jerika has been a tremendous resource in the Public Information Office, and in addition to enjoying a great reputation among journalists, she has been a driving force in the Office’s efforts to enhance its outreach to the public through new media.”
Three Former Broker-Dealer Employees Plead Guilty in Manhattan Federal Court to Bribery of Foreign Officials, Money Laundering, and Conspiracy to Obstruct JusticeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Mythili Raman, the Acting Assistant Attorney General for the Criminal Division of the United States Department of Justice (“DOJ”), and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today that ERNESTO LUJAN, JOSE ALEJANDRO HURTADO, and TOMAS ALBERTO CLARKE BETHANCOURT pled guilty in Manhattan federal court to conspiring to violate the Foreign Corrupt Practices Act (the “FCPA”), to violate the Travel Act, and to commit money laundering, as well as substantive counts of these offenses. These charges relate to a scheme to bribe a foreign official named Maria de los Angeles Gonzalez de Hernandez (“Gonzalez”) at Banco de Desarrollo Económico y Social de Venezuela (“BANDES”), a state economic development bank in Venezuela, in exchange for receiving trading business from BANDES. LUJAN, HURTADO, and CLARKE each also pled guilty to an additional charge of conspiring to violate the FCPA in connection with a similar scheme to bribe a foreign official employed by Banfoandes (the “Banfoandes Foreign Official”), another state economic development bank in Venezuela, and to conspiring to obstruct an examination by the U.S. Securities and Exchange Commission (“SEC”) of the New York-based broker-dealer (the “Broker-Dealer”) where all three defendants had worked, to conceal the true facts of the Broker-Dealer’s relationship with BANDES. LUJAN and CLARKE entered their guilty pleas yesterday before U.S. Magistrate Judge James C. Francis, IV, and HURTADO pled guilty today, also before Judge Francis.
According to the Informations against LUJAN, HURTADO, and CLARKE filed this week, the allegations in the previously filed criminal Complaints, statements made during the plea proceedings, and other documents filed in Manhattan federal court:
At all times relevant to the charges, LUJAN, CLARKE, and HURTADO worked or were associated with the Broker-Dealer, principally through its Miami offices. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included LUJAN, CLARKE, and HURTADO, and which offered fixed income trading services to institutional clients.
One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance. The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding. Gonzalez was an official at BANDES and oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.
The Broker-Dealer also conducted business with Banfoandes, another state development bank in Venezuela that, along with its 2009 successor, Banco Bicentenario, operated under the direction of the Venezuelan Ministry of Finance. Banfoandes acted as a financial agent of the Venezuelan government in order to promote economic and social development by, among other things, offering credit to low-income Venezuelans. The Banfoandes Foreign Official was responsible for some of Banfoandes’s foreign investments.
The Defendants’ Bribery Schemes
From early 2009 through 2012, LUJAN, CLARKE, and HURTADO, participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer split the revenue the Broker-Dealer generated from this trading business with Gonzalez. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including LUJAN, CLARKE and HURTADO, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer. Emails, account records, and other documents collected from the Broker-Dealer and other sources reveal that Gonzalez received a substantial share of the revenue generated by the Broker-Dealer for BANDES-related trades. Specifically, Gonzalez received millions in kickback payments from Broker-Dealer agents and employees.
To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For instance, LUJAN, CLARKE, and HURTADO used accounts they controlled in Switzerland to transfer funds to an account Gonzalez controlled in Switzerland. Additionally, HURTADO and his spouse received substantial compensation from the Broker-Dealer, portions of which HURTADO transferred to an account held by Gonzalez in Miami and to an account held by an associate of Gonzalez in Switzerland. HURTADO also sought and received reimbursement from Gonzalez for the U.S. income taxes he had paid on money that he used to make kickback payments to Gonzalez. LUJAN and CLARKE also derived substantial profit from their roles in the bribery scheme.
The Defendants’ Efforts to Obstruct the SEC Examination
Finally, beginning in or about November 2010, the SEC commenced a periodic examination of the Broker-Dealer, and from November 2010 through March 2011 the SEC’s examination staff made several visits to the Broker-Dealer’s offices in Manhattan. In early 2011, LUJAN, CLARKE, and HURTADO discussed their concern that the SEC was examining the Broker-Dealer’s relationship with BANDES and asking questions regarding certain emails and other information that the SEC examination staff had discovered. LUJAN, CLARKE, and HURTADO agreed that they would take steps to conceal the true facts of the Broker-Dealer’s relationship with BANDES, including deleting emails. LUJAN, CLARKE, and HURTADO then, in fact, deleted emails. Additionally as part of this effort to obstruct the SEC examination, CLARKE lied to SEC examination staff in response to an interview question about his relationship to an individual who had received purported foreign associate payments relating to BANDES.
In a related scheme, from 2008 through mid-2009, LUJAN, CLARKE, and HURTADO paid bribes to the Banfoandes Foreign Official, who, in exchange, directed Banfoandes trading business to the Broker-Dealer.
LUJAN, 50, CLARKE, 43, and HURTADO, 38, each pled guilty to the same six offenses. A chart containing the charges and the maximum penalties they carry is attached. Sentencing for Lujan and Clarke is scheduled for February 11, 2014, before U.S. District Judge Paul G. Gardephe. Hurtado is scheduled for sentencing before U.S. District Judge Harold Baer, Jr. on March 6, 2014.
Gonzalez was charged in a criminal Complaint and arrested on May 3, 2013, in connection with the BANDES bribery scheme. The charges against Gonzalez are merely accusations and she is presumed innocent unless and until proven guilty.
Mr. Bharara praised DOJ's Criminal Division’s Fraud Section and Office of International Affairs and the FBI for their work in the investigation. He also thanked the SEC for its assistance in this case and noted that the investigation is continuing.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and the Fraud Section of the DOJ Criminal Division. Assistant United States Attorneys Harry A. Chernoff and Jason H. Cowley, and Fraud Section Assistant Chief James Koukios and Trial Attorney Maria Gonzalez Calvet are in charge of the prosecution. Assistant United States Attorney Carolina Fornos is responsible for the forfeiture aspects of the case.
Additional information about the Justice Department’s FCPA enforcement efforts can be
found at www.justice.gov/criminal/fraud/fcpa.
Click here to view chart(s)
U.S. v. Ernesto Lujan Information
U.S. v. Tomas Alberto Bethancourt Clarke Information
U.S. v. Jose Alejandro Hurtado InformationManhattan U.S. Attorney Announces Arrest of Alleged International Narcotics TraffickerRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Derek Maltz, Special-Agent-in-Charge of the Special Operations Division of the United States Drug Enforcement Administration (“DEA”), announced today that on August 29, 2013, Panamanian authorities arrested DINO BOUTERSE in the Republic of Panama and turned him over to U.S. authorities to face charges that he conspired to import cocaine into the United States. BOUTERSE will be presented and arraigned in Manhattan federal court before U.S. Magistrate Judge James C. Francis IV later today.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Dino Bouterse conspired to send cocaine to the United States in a suitcase, and brandished a destructive weapon during the act. With his arrest, this Office continues to make sure that those who attempt to transport drugs into our country are apprehended and brought to justice, no matter where they live.”
DEA Special-Agent-in-Charge Derek Maltz said: “Bouterse is a significant drug trafficker who allegedly possessed dangerous weapons. Bouterse has a history of drug and weapons trafficking, having been convicted of similar charges in his home country of Suriname in 2005. Thanks to our vast network of law enforcement and informants around the world, DEA and our partners disrupted this drug trafficking conspiracy and he and Muntslag will now face justice here in the United States.”
According to the allegations in the Indictment, BOUTERSE conspired to import cocaine into the United States. As part of this conspiracy, BOUTERSE caused a suitcase containing 10 kilograms of cocaine to be transported out of Suriname aboard a commercial flight, and in the course of engaging in the drug transaction possessed an antitank weapon.
EDMUND QUINCY MUNTSLAG, who is also charged in the Indictment, was separately arrested yesterday in Trinidad and Tobago.
The indictment charges BOUTERSE, 40, of Paramaribo, Suriname, in two counts. Count One charges BOUTERSE with conspiring to import cocaine into the United States. Count Two charges BOUTERSE with carrying a firearm or destructive device during and in relation to a drug-trafficking crime. Counts One and Two each carry a maximum penalty of life in prison.
MUNTLSAG, 29, of Suriname, is charged with conspiring to import cocaine into the United States. The charge carries a maximum sentence of life in prison.
Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division. Mr. Bharara also thanked the DEA’s Panama City Country Office, the DEA’s Port of Spain Country Office, the Government of the Republic of Panama, and the U.S. Department of Justice’s Office of International Affairs.
This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Edward Y. Kim, Michael D. Lockard, and Adam Fee are in charge of the prosecution.
The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.
Manhattan U.S. Attorney Announces Arrest of Alleged International Narcotics TraffickerRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Derek Maltz, Special-Agent-in-Charge of the Special Operations Division of the United States Drug Enforcement Administration (“DEA”), announced today that on August 29, 2013, Panamanian authorities arrested DINO BOUTERSE in the Republic of Panama and turned him over to U.S. authorities to face charges that he conspired to import cocaine into the United States. BOUTERSE will be presented and arraigned in Manhattan federal court before U.S. Magistrate Judge James C. Francis IV later today.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Dino Bouterse conspired to send cocaine to the United States in a suitcase, and brandished a destructive weapon during the act. With his arrest, this Office continues to make sure that those who attempt to transport drugs into our country are apprehended and brought to justice, no matter where they live.”
DEA Special-Agent-in-Charge Derek Maltz said: “Bouterse is a significant drug trafficker who allegedly possessed dangerous weapons. Bouterse has a history of drug and weapons trafficking, having been convicted of similar charges in his home country of Suriname in 2005. Thanks to our vast network of law enforcement and informants around the world, DEA and our partners disrupted this drug trafficking conspiracy and he and Muntslag will now face justice here in the United States.”
According to the allegations in the Indictment, BOUTERSE conspired to import cocaine into the United States. As part of this conspiracy, BOUTERSE caused a suitcase containing 10 kilograms of cocaine to be transported out of Suriname aboard a commercial flight, and in the course of engaging in the drug transaction possessed an antitank weapon.
EDMUND QUINCY MUNTSLAG, who is also charged in the Indictment, was separately arrested yesterday in Trinidad and Tobago.
The indictment charges BOUTERSE, 40, of Paramaribo, Suriname, in two counts. Count One charges BOUTERSE with conspiring to import cocaine into the United States. Count Two charges BOUTERSE with carrying a firearm or destructive device during and in relation to a drug-trafficking crime. Counts One and Two each carry a maximum penalty of life in prison.
MUNTLSAG, 29, of Suriname, is charged with conspiring to import cocaine into the United States. The charge carries a maximum sentence of life in prison.
Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division. Mr. Bharara also thanked the DEA’s Panama City Country Office, the DEA’s Port of Spain Country Office, the Government of the Republic of Panama, and the U.S. Department of Justice’s Office of International Affairs.
This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Edward Y. Kim, Michael D. Lockard, and Adam Fee are in charge of the prosecution.
The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Dino Bouterse and Edmund Quincy Muntslag Indictment
New York Man Charged in Manhattan Federal Court for Illegal Possession of WeaponsRead 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”), Joseph Anarumo, Jr., Special-Agent-in-Charge of the New York Division of the United States Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and Eric Timberman, the Acting United States Marshal for the Southern District of New York (“USMS”), announced today the filing of federal criminal charges against ANTONIO OLMEDA. OLMEDA, who was arrested by the New York City Police Department in December of 2011 in connection with his alleged attempt to shoot two police officers, faces federal charges for being a convicted felon in possession of various firearms, and for possessing unregistered machine guns and an unregistered short-barreled shotgun. OLMEDA, who remains in state custody, was charged in a six-count indictment on August 14, 2013, and was presented yesterday in Manhattan federal court before U.S. Magistrate Judge James C. Francis IV.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Antonio Olmeda, a convicted felon, possessed a veritable arsenal including multiple machine guns and a sawed-off shotgun. Olmeda, who has been separately charged in the state for shooting at police officers, was prohibited from having any firearms much less the kind of firepower alleged in the indictment at his disposal. This Office will continue to work with our partners to remove firearms from the hands of convicted criminals as the law and public safety demand.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Antonio Olmeda illegally amassed an arsenal of weapons, to include semi-automatic handguns, machine guns and a shotgun. Gone undetected, these weapons, in the hands of a convicted felon, posed a danger not only to law enforcement, but to the unsuspecting public, who may have come in contact with Olmeda. His arrest demonstrates the ongoing commitment by the FBI and our law enforcement partners to keep the public safe by removing firearms from individuals who are not authorized to use or possess them.”
ATF Special Agent-in-Charge Joseph Anarumo, Jr. said: “The unlawful possession of firearms by a convicted felon is a federal violation that ATF takes very seriously as it threatens the safety of our city. ATF has had a long and productive relationship with our local, state and federal law enforcement partners in combating violent crime. Consequently, and as a united front, the arrest of these types of alleged violent offenders is now much more commonplace, making the collective goal of a safer community an attainable reality.”
Acting United States Marshal Eric Timberman said: “The Olmeda case is a shining example of the U.S. Marshals Service working closely with all agencies, federal, state, and local, to ensure the safety of our community and the administration of justice. These law enforcement partners will continue to work closely together in an effort to continue to take criminals and illegal weapons off our streets.”
According to the allegations in the Indictment filed in Manhattan federal court, OLMEDA, a convicted felon, possessed the following firearms, all of which have been seized by the Government:
- Springfield Armory Ultra Compact .45-caliber semi-automatic handgun
- Taurus 85 Ultralite .38-caliber revolver
- Olympic Arms PCR03 .223-caliber fully-automatic rifle
- Smith & Wesson .40-caliber semi-automatic pistol
- Beretta 92SB Compact 9-mm Luger semi-automatic pistol
- Cobray Industries M-11 9-mm Luger fully-automatic pistol
- Remington model Mohawk 600 .308-caliber rifle
- Roggio Arsenal model RA-15 rifle receiver/frame
- Interarms rifle
- Springfield Armory model 1911A1 .45-caliber pistol
- Springfield Armory model 1911A1 .45-caliber pistol
- Springfield Armory model 1911A1 .45-caliber pistol
- Sig Sauer model SP 2022 9mm-caliber pistol
- Taurus model PT140 Millenium .40-caliber pistol
- Smith & Wesson model 4006 .40-caliber pistol
- Star Bonifacio Echeverria model Firestar 9mm-caliber pistol
- Charter Arms model Police Undercover .32-caliber revolver
- Walther model PPK/S .380-caliber pistol
- Vulcan Arms model V15 7.62x39mm-caliber machinegun
- Norinco AK-type 7.62x39mm-caliber machinegun
- Mossberg model 500A 12-gauge shotgun
OLMEDA, 55, of New York, New York, is charged with three counts of possession of firearms by a convicted felon, two counts of possession of unregistered machine guns, and one count of possession of an unregistered short-barreled shotgun. Each count carries a maximum sentence of 10 years in prison. OLMEDA faces a maximum sentence of 60 years in prison.
In addition, OLMEDA is separately charged by the state with two counts of attempted murder in the first degree, two counts of attempted assault on a police officer with a deadly weapon, one count of criminal possession of a weapon in the second degree, and two counts of attempted assault in the first degree, all arising from his alleged attempt to shoot two police officers in Queens, New York on December 2, 2011.
The charges and arrest of OLMEDA are the result of the close cooperative efforts of the United States Attorney’s Office for the Southern District of New York, the Joint Terrorism Task Force – which principally consists of agents and detectives of the FBI and the New York City Police Department (“NYPD”) – the ATF, and the USMS. Mr. Bharara also thanked the NYPD and the Yonkers Police Department for their ongoing assistance.
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
The case is being handled jointly by the Office’s Violent Crimes Unit and Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Michael D. Maimin and John P. Cronan are in charge of the prosecution.
U.S. v. Antonio Olmeda Indictment
New York Man Pleads Guilty to Conspiring with Family Members to Commit Tax Fraud by Hiding over $12 Million in Secret Swiss Bank AccountsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that HENRY SEGGERMAN pled guilty today in Manhattan federal court to charges related to his participation in a scheme with family members to hide in secret Swiss bank accounts, and not reveal to the Internal Revenue Service (“IRS”), over $12 million that had been left to SEGGERMAN and his family members by SEGGERMAN’s father. SEGGERMAN pled guilty before U.S. Magistrate Judge James C. Francis IV.
Manhattan U.S. Attorney Preet Bharara said: “Henry Seggerman and three of his siblings inherited and continued a family tax fraud scheme. Now, four members of this family stand convicted of tax crimes. We will continue to aggressively investigate and prosecute U.S. taxpayers, and those that assist them, in evading their obligations by hiding money in secret offshore accounts.”
According to the Information, statements made during the plea proceedings, and other documents filed in Manhattan federal court:
SEGGERMAN was the son of a prominent New York businessman (“the Businessman”) who, upon passing away in May 2001, left an estate valued in excess of $24 million, more than half of which was maintained in secret and undeclared foreign bank accounts. Working with a Swiss lawyer and others, the Businessman arranged for over $12 million in the undeclared accounts to be left to his surviving spouse and five of his children, including SEGGERMAN. As a result of the successful implementation of that plan, and to hide the undeclared funds from the IRS, SEGGERMAN, who, together with three of his siblings, was an executor of his father’s estate, signed a tax return for his father’s estate that falsely under-reported the gross assets of the Businessman’s estate. In particular, the estate tax return fraudulently failed to report over $5 million left to the Businessman’s wife and over $7.5 million to be split among five of his children.
In addition, the Swiss lawyer thereafter assisted SEGGERMAN’s siblings, including Suzanne Seggerman, Yvonne Seggerman, and Edmund Seggerman, in setting up undeclared Swiss bank accounts to hold the money left to them by their father. SEGGERMAN assisted his brother in surreptitiously transferring funds from the brother’s Swiss account to a bank account for a foundation controlled by SEGGERMAN, who thereafter filtered the funds to the brother in the United States, labeling the transfer as “loans.”
SEGGERMAN, 60, of New York, New York, and Los Angeles, California, pled guilty to one count of conspiracy to defraud the United States, one count of subscribing to a false and fraudulent estate tax return, and one count of aiding and assisting in the preparation of false tax returns for his brother. He faces a total maximum sentence of 11 years in prison. The case is assigned to U.S. District Judge Alvin K. Hellerstein, and no sentencing date has been set. In addition, SEGGERMAN agreed as part of his guilty plea to make a payment of approximately $600,000 at the time of his sentencing, in partial satisfaction of the ultimate restitution obligation he faces at sentencing.
Suzanne Seggerman, Yvonne Seggerman, and Edmund Seggerman each previously pled guilty to one count of conspiracy to defraud the United States, and two counts of subscribing to false and fraudulent tax returns. Each faces a maximum sentence of 11 years in prison. Suzanne Seggerman, 51, of New York, New York, pled guilty before U.S. District Judge Kevin Thomas Duffy on October 14, 2010 and awaits sentencing. Yvonne Seggerman, 58, of Cumberland, Rhode Island, pled guilty before U.S. District Judge Paul A. Engelmayer on March 14, 2013 and awaits sentencing. Edmund Seggerman, 50, of Washington, D.C., pled guilty before U.S. District Judge Thomas P. Griesa on March 21, 2013 and awaits sentencing.
Mr. Bharara praised the investigative efforts of the Internal Revenue Service, Criminal Investigation.
The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant United States Attorney Stanley J. Okula, Jr. is in charge of the prosecution.
U.S. v. Henry Seggerman Information
Leader of Robbery Crew Convicted of Robbery and Firearms Offenses, Including Armed Robberies in Yonkers, Poughkeepsie, and LynbrookRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that LOUIS MCINTOSH, 32, was convicted today of 11 robbery and firearms counts after a nine-day trial before United States District Judge Sidney H. Stein in Manhattan federal court.
Manhattan U.S. Attorney Preet Bharara stated: “Today’s verdict marks the close of Louis McIntosh’s lengthy and violent crime spree of armed robberies, shootings, pistol-whipping and stun gun abuses in Westchester County and elsewhere. The close cooperation between federal and local law enforcement, as happened here, is one of our best weapons against violent crime.”
According to the indictment and the evidence at trial:
On or about April 30, 2010, MCINTOSH and other co-conspirators robbed narcotics dealers in the vicinity of Cliff Street in Yonkers, New York, during which robbery MCINTOSH fired a shotgun and a co-conspirator fired a handgun. A victim was shot multiple times in the lower body. On or about September 26, 2010, MCINTOSH and other co-conspirators robbed an individual business owner in his home in Lynbrook, New York, during which robbery MCINTOSH held the victim at gunpoint and assaulted him with a stun gun. On or about October 28, 2010, MCINTOSH and other co-conspirators robbed a card game at a men’s club in Poughkeepsie, New York, during which MCINTOSH pistol-whipped two victims and discharged a firearm.
MCINTOSH, 32, of the Bronx, New York, was convicted of the following 11 counts: (1) participating in a conspiracy to commit robberies from in or about 2009 through in or about 2012: (2) using, carrying, or possessing firearms in connection with the robbery conspiracy; (3) committing a robbery on or about April 30, 2010, in Yonkers; (4) using, carrying, possessing, and discharging firearms in connection with the April 30, 2010 robbery; (5) committing a robbery on or about September 26, 2010, in Lynbrook; (6) using, carrying, possessing, and brandishing firearms in connection with the September 26, 2010 robbery; (7) committing a robbery on or about October 28, 2010, in Poughkeepsie; (8) using, carrying, possessing, and discharging firearms in connection with the October 28, 2010 robbery; (9) possessing a Cugir .223 caliber auto-loading rifle after having been previously convicted of a felony; (10) possessing a Ruger 9 millimeter handgun after having been previously convicted of a felony; and (11) possessing a Bushmaster .223 caliber rifle after having been previously convicted of a felony.
Mr. Bharara praised the outstanding investigative work of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and the Westchester County Department of Public Safety, and thanked the Westchester County District Attorney’s Office for its assistance in the investigation.
MCINTOSH faces a maximum penalty of life in prison, and a mandatory minimum sentence of 85 years in prison. MCINTOSH’s sentencing is scheduled for November 21, 2013, at 4:30 p.m. before Judge Stein.
A number of co-conspirators were also prosecuted in connection with this case. Among other individuals, Turhan Jessamy previously pleaded guilty to using, carrying, possessing, and discharging firearms, and was sentenced by United States District Judge Kenneth M. Karas to 10 years in prison. Tyrell Rock previously pleaded guilty to using, carrying, possessing, and discharging firearms, and was sentenced by Judge Karas to 10 years in prison. Neil Morgan previously pleaded guilty to using, carrying, possessing, and discharging firearms, and was sentenced by Judge Karas to 10 years in prison. Quincy Williams previously pleaded guilty to using, carrying, possessing, and brandishing firearms, and was sentenced by Judge Karas to 7 years in prison.
The prosecution is being handled by the Office’s Violent Crimes Unit. Assistant U.S. Attorneys Sarah Krissoff and Jessica Masella are in charge of the prosecution.
McIntosh et al. S3
Three Defendants Plead Guilty in Manhattan Federal Court to Participating in Organized Crime Scheme to Control the Commercial Waste Disposal IndustryRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that DOMINCK PIETRANICO and JOSEPH SARCINELLA pled guilty to loansharking in connection with their roles in a scheme to exert control over the commercial waste-hauling industry in the greater New York City metropolitan area and in parts of New Jersey. Additionally, WILLIAM CALI pled guilty to participating in a conspiracy to commit extortion as part of the same scheme. PIETRANICO, SARCINELLA, and CALI, who were among 32 defendants charged in the case in January 2013, pled guilty today in Manhattan federal court before U.S. District Judge P. Kevin Castel. PIETRANICO, SARCINELLA, and CALI are the third, fourth, and fifth defendants to plead guilty in this case.
Manhattan U.S. Attorney Preet Bharara said: “Three more defendants now stand convicted of federal crimes for their willingness to aid the mob in maintaining control over the waste disposal industry, but they will not be the last. We will continue to be vigilant in our efforts to sweep the remnants of organized crime from our streets, and today’s guilty pleas underscore that commitment.”
According to the Indictment against PIETRANICO, SARCINELLA, and CALI, other documents filed in Manhattan federal court, and statements made at related court proceedings:
PIETRANICO, SARCINELLA, and CALI were participants 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.
PIETRANICO and SARCINELLA, who are made members of the Genovese Crime Family, provided protection and “backing” to a witness cooperating with the Government (the “CW”) who operated a waste disposal company, and made an extortionate loan at a rate of interest exceeding one hundred percent annually. CALI, a Genovese Crime Family associate, provided protection and “backing” to the CW in exchange for regular payments made under the threat of harm.
PIETRANICO, 82, of Mahopac, New York, and SARCINELLA, 79, of Scarsdale, New York, each pled guilty to one count of making an extortionate extension of credit. CALI, 60, of Queens, New York, pled guilty to one count of participating in a conspiracy to commit extortion. PIETRANICO, SARCINELLA, and CALI each face a maximum sentence of 20 years in prison. PIETRANICO, SARCINELLA and CALI are scheduled to be sentenced by Judge Castel on January 9, 2014 at 11:00 a.m.
Two other defendants, Kenneth Lopez and Joseph Antico, have already pled guilty in connection with this case are. Lopez pled guilty on May 1, 2013, before U.S. District Judge Laura Taylor Swain to being a felon in possession of a firearm. He faces a maximum sentence of 10 years in prison and is scheduled to be sentenced on September 19, 2013, at 2:00 p.m. Antico pled guilty on June 24, 2013, before U.S. Magistrate Judge Andrew J. Peck to participating in a conspiracy to traffic contraband cigarettes. He faces a maximum sentence of five years in prison. Antico’s sentencing date has not yet been scheduled.
The charges against the remaining 27 defendants are merely accusations, and the 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, Rebecca G. Mermelstein, and Natalie Lamarque 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. Carmine Franco et al. Indictment
Former Accounting Firm Partner Pleads Guilty in Manhattan Federal Court to Stealing Nearly $4 Million in Client PaymentsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CRAIG B. HABER, a former partner of a global accounting firm, pled guilty today in Manhattan federal court to stealing nearly $4 million in client payments intended for the firm. HABER pled guilty before U.S. District Judge P. Kevin Castel.
Manhattan U.S. Attorney Preet Bharara said: “Craig Haber committed a flagrant fraud against his accounting firm and its clients by directing millions of dollars in payments intended for the firm to his personal bank accounts. With his plea today, he joins the ranks of disgraced financial professionals who put their own interests before the organizations and clients they were supposed to serve.”
According to the Complaint, the Information, and statements made in court:
From 1993 through July 2012, HABER was a partner at a global accounting firm headquartered in Chicago, Illinois, that provided a variety of auditing, accounting, and tax preparation services to businesses and individuals in the United States and abroad (the “Accounting Firm”). HABER worked at the Accounting Firm’s office in New York, New York, and provided tax preparation and advisory services.
The Accounting Firm’s bills to clients ordinarily included payment instructions directing clients to pay the firm by wire transfer or by sending checks to its headquarters in Chicago. However, on multiple occasions from 2004 through July 2012, HABER instead provided instructions to his clients directing them to send checks to him at the Accounting Firm’s New York, New York office.
Upon receiving those checks, HABER deposited a number of them into a bank account that he had opened in the name of a sham business whose name was very similar to the name of the Accounting Firm. After depositing the clients’ checks into that account, HABER then transferred the money from that account to two personal bank accounts which he used to pay various personal expenses, including mortgage payments for his residence in New York, New York.
HABER stole a total of nearly $4 million in client payments.
HABER, 59, of New York, New York, pled guilty to one count of mail fraud, which carries a maximum sentence of 20 years in prison. He is scheduled to be sentenced by Judge Castel on December 13, 2013 at 2:00 p.m.
Mr. Bharara praised the outstanding investigative work of the U.S. Postal Inspection Service.
The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Joseph Facciponti is in charge of the prosecution.
Haber, Craig Information
Former Sales Broker Pleads Guilty in Manhattan Federal Court in Connection with Securities Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MAREK LESZCZYNSKI, a former sales broker, pled guilty today in Manhattan federal court to conspiring with others to commit securities fraud and wire fraud. Along with other individuals, LESZCZYNSKI defrauded clients out of millions of dollars by misrepresenting the prices at which securities were bought and sold, thereby enabling his former employer to earn undisclosed trading profits and himself and his co-conspirators to be awarded lucrative bonuses. LESZCZYNSKI pled guilty before U.S. District Judge John F. Keenan this afternoon.
Manhattan U.S. Attorney Preet Bharara stated: “Along with his cohorts, Marek Leszczynski sold his firm’s clients a bill of goods by repeatedly misrepresenting the prices of trade executions, all so he could increase firm profits and secure a hefty bonus. Ultimately, Leszczynski’s lies were exposed, and today’s conviction ensures he’ll be punished for his fraud.”
According to the Complaint, the Indictment, statements made during the plea proceeding, and other documents filed in Manhattan federal court:
From 2005 through December 2008, LESZCZYNSKI worked at a broker-dealer that was headquartered in London, England, with offices in Europe, Asia, and New York, New York (“Broker-Dealer 1”). Among other services offered, Broker-Dealer 1 bought and sold securities on behalf of institutional clients, such as commercial banks and investment firms, located throughout the United States and in various major European cities. LESZCZYNSKI worked as a sales broker for Broker-Dealer 1’s Cash Equity Desk in New York. In that capacity, he was responsible for, among other things, receiving orders to buy or sell securities from Broker-Dealer 1’s clients, relaying those orders to traders who executed the trades, communicating with clients as their orders were being filled, and sending out trading confirmations back to the clients that showed the prices at which securities were bought or sold, including the commissions, if any, that Broker-Dealer 1 charged.
Instead of accurately recording and reporting the actual execution prices of the securities, LESZCZYNSKI and his co-conspirators, Chouchane and Condron, who worked alongside LESZCZYNSKI at Broker-Dealer 1, misrepresented the prices of trade executions. Where Broker-Dealer 1 received a buy order from a client, LESZCZYNSKI and his co-conspirators caused the purchase price of the security that would be reported back to the client to be “marked up” from its actual purchase price. Additionally, where Broker-Dealer 1 received a sell order from a client, LESZCZYNSKI and his co-conspirators caused the sale price of the security that would be reported back to the client to be “marked down” from its actual sale price. These markups and markdowns were not disclosed to Broker-Dealer 1’s clients and were separate and apart from the agreed-upon commissions that were disclosed on trading confirmations sent to Broker-Dealer 1’s clients.
As a result of this fraudulent scheme, Broker-Dealer 1 earned millions in undisclosed trading profits to which it was not entitled. LESZCZYNSKI and his co-conspirators were paid inflated bonuses.
LESZCZYNSKI, 44, of Miami, Florida, pled guilty to one count of conspiracy to commit securities fraud and wire fraud. He faces a maximum sentence of five years in prison, as well as a maximum fine of $250,000 or twice the gross gain or loss from the offense. In addition, LESZCZYNSKI has agreed to forfeit $1.5 million as part of his guilty plea. LESZCZYNSKI is scheduled to be sentenced before Judge Keenan on December 19, 2013 at 11:30 a.m.
Chouchane, 39, of New York, New York, pled guilty before Judge Keenan on June 12, 2013, to one count of conspiracy to commit securities and wire fraud. He is scheduled to be sentenced before Judge Keenan on October 24, 2013.
Condron, 34, of Yorktown Heights, New York, pled guilty before U.S. District Judge Naomi Reice Buchwald on October 5, 2012, to two counts of conspiracy to commit securities fraud and one count of securities fraud. Condron’s sentencing date is pending.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission for their assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Chi T. Steve Kwok is in charge of the prosecution.
U.S. v. Marek Leszcynski and Benjamin Chouchane Indictment
Former LIRR Employee Pleads Guilty in Manhattan Federal Court in Connection with Disability Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that DONALD ALEVAS, a former director of shop equipment planning for the Long Island Railroad (“LIRR”), pled guilty today in Manhattan federal court to charges related to the allegedly massive fraud scheme in which LIRR workers claimed to be disabled upon early retirement so that they could receive disability benefits to which they were not entitled. ALEVAS pled guilty before U.S. Magistrate Judge Michael H. Dolinger. He is the 26th defendant to plead guilty in the case. Three other defendants were convicted after a jury trial in August 2013.
According to the Complaint, the Superseding Indictments, the Superseding Informations, and statements made in other public filings and court proceedings:
The Railroad Retirement Board (“RRB”) is an independent U.S. agency that administers benefit programs, including disability benefits, for the nation’s railroad workers and their families. A unique LIRR contract allowed employees to retire at the relatively young age of 50 – the age of eligibility has since changed to 55 – if they had been employed by the LIRR for at least 20 years. Eligible employees are entitled to receive an LIRR pension, which is a portion of the full retirement payment for which they are eligible at 65. In addition, at full retirement age (between age 60 and age 65 depending on years of service), they are eligible to receive an RRB retirement pension. For LIRR workers who retired at 50 with only an LIRR pension, they would receive less than their prior salary and substantially lower pension payments than those to which they would be entitled at full retirement age. However, LIRR employees who retired and claimed disability could receive a disability payment from the RRB on top of their LIRR pension, regardless of age. A retiree’s LIRR pension, in combination with RRB disability payments, can be roughly equivalent to the base salary earned during his or her career.
Hundreds of LIRR employees have allegedly exploited the overlap between the LIRR pension and the RRB disability program by pre-planning the date on which they would falsely declare themselves disabled so that it would coincide with their projected retirement date. These false statements, made under penalty of prosecution in disability applications, allowed LIRR employees to retire as early as age 50 with an LIRR pension, supplemented by the fraudulently obtained RRB disability annuity. From 1995 through 2011, more than 75% of LIRR employees stopped working and began receiving RRB disability benefits, whereas during this same period, only 25% of retiring Metro-North employees stopped working and began receiving RRB disability benefits. During the period 2004 through 2008, only three doctors were responsible for approximately 86% of the disability claims submitted by LIRR retirees. Of these three doctors, one is deceased; one, Dr. Peter J. Ajemian, pled guilty and was sentenced in May 2013 to eight years in prison; and the other, Dr. Peter Lesniewski, was convicted after a jury trial in August 2013 and awaits sentencing.
ALEVAS, a LIRR retiree who received disability benefits, made materially false statements about his ability to perform certain daily activities in his disability application submitted to the RRB.
ALEVAS, 54, of Patchogue, New York, pled guilty to one count of making false statements. He faces a maximum sentence of five years in prison and is scheduled to be sentenced by U.S. District Judge Kimba M. Wood on January 7, 2014, at 11:00 a.m.
Thirty-three people have been charged in connection with the LIRR disability fraud scheme; 26 have pled guilty and three have been convicted following trial. Of the 26 defendants who have pled guilty, four have been sentenced: Dr. Peter J. Ajemian received a sentence of eight years in prison; William McAleavey, a former conductor for the LIRR, received a sentence of 30 months in prison; Gary Satin, a former electrician for the LIRR, received a sentence of 20 months in prison; and Maria Rusin, who was Dr. Ajemian’s office manager, received a sentence of probation. The charges against the remaining defendants, Kevin Neville, Frederick Catalano, Jr., Thomas Coscetta, and Michael Costanza, are merely allegations, and they are all presumed innocent unless and until proven guilty.
Mr. Bharara praised the work of the RRB Office of the Inspector General, the Federal Bureau of Investigation, and the Office of the Inspector General of the Metropolitan Transportation Authority 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 case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Nicole Friedlander, Tatiana Martins, Edward Imperatore, Justin Weddle, and Daniel Tehrani are in charge of the prosecution.
U.S. v. Donald Alevas S6 Information
Two Defendants Plead Guilty in Manhattan Federal Court to Participating in GamblingRings Connected to Organized CrimeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that WILLIAM BARBALAT and KIRILL RAPOPORT pled guilty for their roles in the operation of high-stakes illegal poker games in New York City. BARBALAT pled guilty on August 14, 2013 before U.S. District Court Judge Jesse M. Furman to traveling in interstate commerce in aid of an unlawful activity, the operation of an illegal poker game. RAPOPORT pled guilty today before Judge Furman to conducting an illegal gambling business, an illegal poker game.
Manhattan U.S. Attorney Preet Bharara said: “For three years, William Barbalat and Kirill Rapoport oversaw illegal gambling enterprises in the Southern District of New York. With their pleas, we move closer to holding to account all those who participated in this wide-ranging network of criminal conduct linked to organized crime.”
BARBALAT and RAPOPORT were charged in April 2013 in a 34-defendant indictment charging members and associates of two Russian-American organized crime enterprises with various crimes including racketeering, money laundering, extortion, and various gambling offenses.
According to the Indictment, a superseding information filed against RAPOPORT, other documents filed in this case, and statements made at various conferences in this case:
BARBALAT and RAPOPORT each ran a high-stakes illegal poker game in New York City from 2010 through 2012, and 2012 through 2013, respectively. At these games, the pots frequently reached tens of thousands of dollars or more. The operators of these games, including BARBALAT and RAPOPORT, collected percentages of the pots known as “rakes.” Each of the poker games employed at least five or more people to assist with the operation of the games, payments of debts, and collection of debts.
BARBALAT and RAPOPORT each face a maximum sentence of five years in prison and three years of supervised release. As part of his plea agreement, BARBALAT agreed to forfeit $150,000 to the United States. RAPOPORT agreed to forfeit $250,000 to the United States. BARBALAT and RAPOPORT are scheduled to be sentenced by Judge Furman on December 16, 2013 at 3:30 p.m. and December 18, 2013 at 3:00 p.m., respectively.
BARBALAT and RAPOPORT are the second and third defendants to plead guilty in the case. Bryan Zuriff pled guilty on July 26, 2013 and is scheduled to be sentenced by Judge Furman on November 25, 2013 at 3:00 p.m.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation, the New York City Police Department, and Internal Revenue Service, Criminal Investigation.
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. Attorneys Alexander Wilson and Christine Magdo of the Office’s Asset Forfeiture Unit are responsible for the forfeiture aspects of the case.
U.S. v. Kirill Rapoport S1 Information
U.S. v. Alimzhan Tokhtakhounov et al. IndictmentSwiss Lawyer Pleads Guilty in Manhattan Federal Court to Conspiring with U.S. Taxpayers to Evade Federal Income Taxes and File False Tax ReturnsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York,
announced that EDGAR PALTZER, a former partner at a Swiss law firm (the “Swiss Law Firm”), pled guilty today in Manhattan federal court to conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide millions of dollars in offshore accounts from the IRS, and to evade U.S. taxes on the income earned in those accounts. PALTZER, who was originally charged in April 2013 along with his co-defendant Stefan Buck, was arrested at John F. Kennedy Airport in August 2013. He pled guilty before U.S. Magistrate Judge Ronald L. Ellis.
According to the Superseding Information, the Indictment, statements made during the plea proceeding, and other documents filed in Manhattan federal court:
PALTZER is a U.S.-trained lawyer who began to practice at the Swiss Law Firm in 1998, in the fields of international private client work, wealth transfer planning, successions, trusts and foundations, and eventually became a partner. PALTZER is also licensed to practice in New York State.
United States taxpayers are required to report on their individual tax returns the existence of any foreign bank account that holds more than $10,000 at any time during a given year, as well as any income earned in such accounts.
PALTZER conspired with various U.S. taxpayers and others to ensure that their clients could hide their Swiss bank accounts and the income generated in them from the IRS. PALTZER, acting as a financial intermediary, helped U.S. taxpayers maintain undeclared assets in Swiss banks by, among other things, working with these U.S. taxpayers to create and maintain sham foundations and other entities to nominally hold the U.S. taxpayers’ accounts in Swiss banks. When certain Swiss banks required that these U.S. taxpayers close their accounts, PALTZER worked with these U.S. taxpayers and others to move their accounts to other Swiss banks that were still willing to maintain accounts for U.S. taxpayers with undeclared assets.
PALTZER also helped to repatriate funds to the U.S. taxpayers from their undeclared accounts in Switzerland in ways that were designed to ensure that U.S. authorities would not discover these undeclared accounts. For example, PALTZER helped a U.S. taxpayer repatriate assets in the form of jewelry in order to avoid detection of an account in Switzerland.
PALTZER, 56, a dual U.S.-Swiss citizen, pled guilty pursuant to a plea agreement to one count of conspiracy charging him with conspiring with U.S. taxpayers and others to evade federal income taxes and file false tax returns. He faces a maximum sentence of five years in prison, and is scheduled to be sentenced before U.S. District Judge Victor Marrero on February 21, 2014.
Buck, PALTZER’s co-defendant, has not been arrested and remains at large. The charges against Buck are merely accusations and he is presumed innocent unless and until proven guilty.
Mr. Bharara praised the outstanding investigative work of the Internal Revenue Service, Criminal Investigation. He also thanked the Department of Justice’s Tax Division for their significant assistance in the investigation.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Jason H. Cowley, Daniel W. Levy, David Massey, Sarah Paul, and Sarah McCallum are in charge of the prosecution.
U.S. v. Edgar Paltzer S1 Information
Manhattan U.S. Attorney Announces Forfeiture of Chinatown Building That Housed Illegal Gambling OperationsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today the settlement of a civil forfeiture action against a six-story Chinatown building, appraised at approximately $17 million, located at 35-37 East Broadway (the “Building”) in New York City. The settlement between the United States and the owner of the Building, Won & Har Realty Corporation (“Won & Har”) followed a ruling, by U.S. District Judge Harold Baer, Jr., that the Building was subject to forfeiture because it had been used in furtherance of illegal gambling and Won & Har was not an innocent owner. Judge Baer also approved today’s settlement.
According to public documents filed in Manhattan federal court:
For at least the two years prior to the filing of a civil forfeiture complaint in May 2012, the Building consistently hosted a group of illegal gambling operators offering various gambling options, including pai gow poker and computer-based slot machine games. For nearly a year after a search conducted by law enforcement in 2011, which resulted in the seizure of hundreds of thousands of dollars in gambling proceeds, illegal gambling continued to be conducted openly in the Building, within full view of any passersby in the Building’s public hallways. In addition, a large sign advertising gambling was displayed on the front of the Building.
In its ruling, the Court rejected Won & Har’s “innocent owner” defense, finding that despite Won & Har’s knowledge of the ongoing gambling in the Building, the company failed to take all reasonable steps to terminate the illegal conduct. The Court cited Won & Har’s failure to investigate whether gambling was continuing in the Building in drawing the conclusion that Won & Har was willfully blind to the illegal use of its Building.
Pursuant to the terms of the agreement, Won & Har will forfeit the Building to the United States. The United States will sell the Building, retain 65% of the proceeds of the sale after accounting for the costs of selling the Building, and return the remainder of the proceeds to Won & Har.
Mr. Bharara praised the efforts of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) New York Asset Identification and Removal Group, HSI New York’s Gang Unit, the New York City Police Department’s (NYPD) Manhattan Vice Unit, NYPD’s Asset Forfeiture Unit, and U.S. Customs and Border Protection’s Air Unit. He also thanked the New York County District Attorney’s Office for their assistance.
Assistant United States Attorneys Alexander J. Wilson and Christine I. Magdo are in charge of the civil forfeiture action.
U.S. v. 35-37 Settlement PR Stipulation and Order of Settlement
High-Ranking Member of Enterprise Involved in Massive Medicare Fraud Sentenced in Manhattan Federal Court to 125 Months in PrisonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ROBERT TERDJANIAN was sentenced yesterday to 125 months in prison for his role in a multi-million dollar Medicare fraud scheme, among other offenses including extortion and immigration fraud. TERDJANIAN pled guilty to racketeering in December 2011 before U.S. District Judge Paul G. Gardephe, who also imposed yesterday’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Robert Terdjanian and his many convicted co-conspirators were a cancer of fraud inside the Medicare system at a time of increasing scarcity in public resources. With his sentence, we continue our work to ensure that all those responsible for this reprehensible scheme are punished.”
According to the Indictment and other documents filed in this case:
From 2008 through 2010, TERDJANIAN participated in a nationwide Medicare scam that fraudulently billed Medicare for over $100 million. As part of the conspiracy, the defendant and others created “phantom clinic” health care providers that existed only on paper, had no doctors, and treated no patients. The total scheme involved at least 118 fraudulent Medicare providers that were located in approximately 25 states, and that submitted fraudulent bills for at least approximately $100 million, and received over $30 million in reimbursements from Medicare. TERDJANIAN directed the New York-based members of the enterprise in this scheme and other criminal conduct, including no-fault insurance fraud and access device fraud.
In addition to the prison term, Judge Gardephe sentenced TERDJANIAN, 40, of Brooklyn, New York, to three years of supervised release, and imposed a $100 special assessment. Judge Gardephe also ordered TERDJANIAN to forfeit $1,169.680.55.
Of the 28 defendants charged in U.S. v. Armen Kazarian, et al., 20 have now been sentenced. Four others have pled guilty and are awaiting sentencing. Charges have been dismissed against two defendants, and remain pending against two defendants. The charges pending against the two outstanding defendants are merely allegations, and the defendants are presumed innocent unless and until proven guilty.
Mr. Bharara thanked the Federal Bureau of Investigation, the U.S. Department of Health and Human Services, Office of Inspector General, the New York City Police Department, and U.S. Immigration and Customs Enforcement’s Homeland Security Investigations for their work in the investigation.
The prosecution is being handled by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Jennifer Burns, Arlo Devlin-Brown and Harris Fischman are in charge of the prosecution.
Iranian National Sentenced in Manhattan Federal Court to 30 Months in Prison for Conspiring to Export Satellite Technology from the United States to IranRead 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”), James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), Kenneth Siegler, the Resident Agent-in-Charge of the New York Office of the Defense Criminal Investigative Service (“DCIS”), Sidney Simon, the Special Agent-in-Charge of the U.S. Commerce Department, Bureau of Industry and Security’s Office of Export Enforcement New York Field Office (“OEE”), and Robert E. Perez, Director of New York Field Operations for U. S. Customs and Border Protection (CBP), announced that SEYED AMIN GHORASHI SARVESTANI, an Iranian national, was sentenced yesterday in Manhattan federal court to 30 months in prison for conspiring to export goods, including satellite technology and hardware, from the United States to Iran, in violation the International Emergency Economic Powers Act. GHORASHI was arrested on October 3, 2012, and pled guilty on May 8, 2013 before U.S. District Judge Paul G. Gardephe, who also imposed yesterday’s sentence.
According to the Complaint, the Information to which GHORASHI pled guilty, and statements made during the plea proceeding:
GHORASHI, an Iranian national, was an owner of, and served as a managing director and director of, two related companies based in the United Arab Emirates. In that capacity, he worked with others to export electronic equipment used for satellite communications and data transfer, as well as other goods, from the United States to Iran, without the requisite approval from the U.S. Department of Treasury, Office of Foreign Assets Control.
GHORASHI and others conspired to acquire satellite technology and hardware from a supplier based in the United States, for shipment to Iran. To conceal the true destination of the goods from the U.S. supplier, GHORASHI and his co-conspirators arranged for the items to be shipped first to the United Arab Emirates and subsequently shipped to Iran.
Mr. Bharara praised the investigative work of the New York Offices of the FBI, ICE-HSI, DCIS, and OEE. Mr. Bharara also thanked CBP for their assistance.
In addition to the prison term, GHORASHI, 46, was ordered to pay a $100,000 fine and to forfeit $54,000. Judge Gardephe also ordered him to pay a $100 special assessment.
This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorney Rachel P. Kovner is in charge of the prosecution.
Former Top Officers of Vitesse Semiconductor Corporation Plead Guilty in Manhattan Federal Court to Conspiring to Obstruct an Impending Federal InvestigationRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LOUIS TOMASETTA, the founder and former CEO of Vitesse Semiconductor Corporation (“Vitesse”), a publicly-traded company, and EUGENE HOVANEC, the former Chief Financial Officer and Vice President of Vitesse, pled guilty in Manhattan federal court to conspiring to destroy, alter, or falsify records relating to Vitesse’s April and October 2001 stock option grants with the intent to obstruct a contemplated investigation by the U.S. Securities and Exchange Commission (“SEC”). TOMASETTA and HOVANEC pled guilty before U.S. District Judge Jed S. Rakoff to a one-count Superseding Information, which was filed today.
Manhattan U.S. Attorney Preet Bharara said: “With today’s guilty pleas, Louis Tomasetta and Eugene Hovanec answer as felons for their attempts to use their positions of power to obstruct an investigation they expected the SEC to conduct into their company’s accounting practices. As this case demonstrates, we will not hesitate to reach into corporate board rooms and executives suites to shine a light on corrupt practices.”
According to the Superseding Information, evidence in prior court proceedings, and statements made during today’s guilty plea proceeding:
During 2001 to 2006, Vitesse’s Board of Directors, specifically the Compensation Committee of the Board (the “Compensation Committee”), administered shareholder approved stock options plans (the “Plans”) and had the authority under the Plans to grant stock option awards. Vitesse’s public filings for the 2001 to 2005 year-end period indicated that the exercise price of all stock options was at least equal to the fair market value of Vitesse’s stock price on the date of the grant. During this time period, TOMASETTA, HOVANEC, and others, generally initiated and oversaw the option grant process.
Controversy Concerning the April and October 2001 Option Grants
In November 2005, Yatin Mody (“Mody”), then Vitesse’s Chief Financial Officer, contacted Vitesse’s then-outside law firm (“Law Firm-1”) concerning a press inquiry about Vitesse’s stock option practices. After reviewing documents related to stock option grants in April 2001 and October 2001, Law Firm-1 advised Mody and TOMASETTA that it had concerns about those option grants, and specifically concern about whether Vitesse had properly accounted for these option grants. For example, Vitesse’s April 12, 2001 Compensation Committee meeting minutes memorialized option grants with an exercise price at the April 6, 2001 closing price of Vitesse’s stock, which was lower than the April 12 closing price. These minutes raised a question about whether the options were in fact granted on the day of the meeting (April 12) or on the earlier date (April 6), and potentially affected the accounting treatment of the options in a way that would require adjustments to Vitesse’s financial reports. Similarly, the Compensation Committee meeting minutes from October 25, 2001 memorialized option grants with an exercise price at the October 2, 2001 closing price, which was lower than the October 25 closing price.
In late November 2005, after discussions with TOMASETTA and HOVANEC, Mody created minutes of the Compensation Committee meetings allegedly held on April 6, 2001 and October 2, 2001. Mody then provided copies of these minutes to Law Firm-1, and specifically advised Law Firm-1 that they were prepared in November 2005 to reflect what had actually occurred at those meetings.
Tomasetta and Hovanec Alter and Fabricate Records Regarding the 2001 Option Grants
On March 18, 2006, the Wall Street Journal published an article that raised questions about stock option practices at various companies, including Vitesse. Following the article, Law Firm-1 raised concerns to Vitesse’s directors and management, including TOMASETTA and HOVANEC, about Vitesse’s option grants and specifically, about the fact that Compensation Committee minutes had been created years after the fact. Law Firm-1 informed TOMASETTA and HOVANEC that because of the Wall Street Journal article, there was a significant possibility of an SEC investigation into Vitesse’s option practices and disclosures.
At a meeting on April 11, 2006, Law Firm-1 also advised Vitesse’s directors and management, including TOMASETTA and HOVANEC, that Mody’s after-the-fact creation of Compensation Committee meeting minutes raised questions about whether the meetings had actually occurred. That same day, Vitesse’s Audit Committee retained a law firm (“Law Firm-2”) to conduct an independent investigation into Vitesse’s stock option grants. Law Firm-2 requested that Vitesse provide it with access to the computer used by the Vitesse employee who was responsible for actually typing the minutes of the Compensation Committee meetings when they occurred (the “Assistant’s Computer”).
With an understanding that Law Firm-2 would access the Assistant’s Computer, on April 12, 2006, TOMASETTA, HOVANEC, and Mody created documents that purported to be minutes of meetings of Vitesse’s Compensation Committee on April 6, 2001 and October 2, 2001, authorizing option grants at those meetings. After creating these documents, they transferred electronic copies of the documents containing the two recently created sets of minutes to the Assistant’s Computer and, in an effort to make it appear that the minutes were created at an earlier time, TOMASETTA, HOVANEC, and Mody reset the computer’s internal clock to backdate the creation date of these purported minutes. TOMASETTA and HOVANEC engaged in this action to obstruct Law Firm-2’s internal investigation, knowing that there was likely to be an SEC investigation of Vitesse’s option grant practices and disclosures.
TOMASETTA, 64, Ojai, California, and HOVANEC, 61, Westlake Village, California, each pled guilty to one count of conspiracy to destroy, alter, or falsify records in contemplation of a federal investigation, which carries a maximum term of five years in prison.
Yatin Mody, 50, of Westlake Village, California, pled guilty in December 2010, before U.S. District Judge John G. Koeltl, to an Information charging him with securities fraud, making false entries in the financial records of a corporation, and conspiracy pursuant to a cooperation agreement with the Government. He awaits sentencing.
Mr. Bharara praised the investigative work of the U.S. Postal Inspection Service and the Criminal Investigators of the U.S. Attorney’s Office, which jointly investigated this case. He also thanked the SEC for its assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney 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 is 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, Katherine R. Goldstein and David I. Miller are in charge of the prosecution.
U.S. v. Eugene Hovanec & Louis Tomasetta S2 Superseding Information
Former Studio Assistant to Jasper Johns Charged in Manhattan Federal Court with $6.5 Million Scheme to Sell Stolen Johns WorksRead 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”), today announced the unsealing of an Indictment charging JAMES MEYER, a former assistant to artist Jasper Johns, with selling 22 works that he stole from Johns’ studio in Sharon, Connecticut. MEYER was arrested yesterday morning at his home in Salisbury, Connecticut, and appeared in federal court in Hartford that afternoon.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, James Meyer is the latest in a long line of thieves who sought to make millions through a fraud on the art world. Meyer, a former assistant to artist Jasper Johns, allegedly stole and resold a number of pieces he was charged with maintaining. His arrest underscores our commitment to exposing deception in this lucrative industry and holding fraudsters to account.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, James Meyer exploited his position of trust to steal repeatedly from his long-time employer. That his employer is a renowned American artist only made the crime more lucrative. To convert the artworks to cash, Meyer allegedly engaged in a serial scheme to deceive the buyers of the art and the gallery through which they bought it.”
According to the allegations in the Indictment unsealed yesterday in Manhattan federal court:
JAMES MEYER was a studio assistant for Johns for over 25 years, and was responsible for, among other things, maintaining a studio file drawer containing pieces of art that were not yet completed by Johns and not authorized by Johns to be placed in the art market.
Between September 2006 and February 2012, MEYER removed 22 individual pieces of art from the studio file drawer he was responsible for maintaining, and from elsewhere in Johns’ studio, and transported those pieces from the studio in Sharon to an art gallery located in Manhattan for the purpose of selling those works without the knowledge or permission of Johns. MEYER represented both to the owner of the gallery (the “Gallery Owner”) and to potential purchasers that these pieces had been given to him as gifts by Johns when, in fact, that was not true.
As part of his scheme to defraud, MEYER provided sworn, notarized certifications both to the Gallery Owner and to buyers stating that each piece was an authentic Johns work, that the art had been given to him directly by Johns, that he was the rightful owner of the piece, and that he had the right to sell that particular work. In addition, MEYER conditioned the sale of each of these works on the signed agreement by the purchaser that the art would be kept private for at least eight years, during which time the piece would not be loaned, exhibited, or re-sold.
MEYER also created fictitious inventory numbers for these pieces to give the impression that they were finished works that were authorized by Johns to be sold in the art market. Additionally, and to facilitate certain sales, MEYER created fake pages that he thereafter inserted into a ledger book of registered pieces of art maintained at Johns’ studio, and which he subsequently photographed, to give additional assurances to prospective buyers about the provenance, or history of ownership, of a particular piece.
During the course of his almost six-year scheme, the Gallery Owner sold 22 works of art on MEYER’s behalf for a total of approximately $6.5 million, of which $3.4 million was remitted directly to MEYER in sales proceeds.
MEYER, 51, of Salisbury, Connecticut, is charged with one count of interstate transportation of stolen property, which carries a maximum sentence of 10 years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison. U.S. District Judge Alvin K. Hellerstein is assigned to the case.
Mr. Bharara praised the FBI for its outstanding work in the investigation.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Christopher D. Frey 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. James Meyer Indictment
Former Sales Manager Pleads Guilty in Manhattan Federal Court to Multi-Million Dollar Scheme That Targeted Debt-Ridden ConsumersRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that DENIS KURLYAND, the former Vice President of Sales for Mission Settlement Agency (“Mission”), pled guilty to fraud charges for his role in a multi-million dollar scheme that victimized more than 1,200 debt-ridden individuals across the country. KURLYAND, who was charged in May 2013, pled guilty today in Manhattan federal court before U.S. District Judge Paul G. Gardephe. He is the third defendant to plead guilty in the case.
According to the allegations contained in the Indictment against Mission, KURLYAND, and two other Mission employees and its owner, other documents filed in Manhattan federal court, and statements made at related court proceedings:
Mission offered “debt settlement” services to financially disadvantaged individuals who were struggling or unable to pay their credit card debts. Like other purported debt settlement providers, Mission held itself out as a company that could successfully negotiate to lower the overall debt its customers owed to credit card companies and banks.
The defendants targeted financially disadvantaged individuals known to be struggling to pay credit card debt and reached out to them through telemarketing and mail solicitations. Thereafter, Mission’s sales representatives typically spoke to the prospective customers on the phone, describing Mission’s work and its ability to renegotiate debt.
From 2009 through May 2013, the defendants systematically exploited and defrauded over 1,200 financially disadvantaged individuals across the country who were struggling to pay their credit card debts. They tricked people into paying Mission for purported debt settlement services by lying to prospective customers about the agency’s ability to help settle their debts, the fees that Mission charged, and its purported affiliation with the federal government. In connection with the scheme, Mission received over $6.6 million in fees. For more than 1,200 of its customers, Mission took fees totaling nearly $2.2 million and has never paid a penny to the customers’ creditors.
KURLYAND served as Mission’s Vice President of Sales from 2009 through 2012. In that capacity, he provided instructions to Mission’s sales representatives, who in turn lied to prospective customers about the agency’s fees to induce them to become customers of Mission. KURLYAND also helped arrange for solicitation letters to be sent on Mission’s behalf to prospective customers that falsely suggested that the agency was acting on behalf of or in connection with a federal governmental program. The letter included an image of the Great Seal of the United States and indicated that it was coming from the “Reduction Plan Administrator” of the purported “Office of Disbursement.”
KURLYAND, 30, of Brooklyn, New York, pled guilty to one count of conspiracy to commit mail and wire fraud, one count of mail fraud, and one count of wire fraud. He faces a maximum sentence of 60 years in prison. KURLYAND is scheduled to be sentenced by Judge Gardephe on December 20, 2013 at 2:30 p.m. As part of his guilty plea, KURLYAND agreed to forfeit $2,196,522 to the United States.
Mission and six individuals – including KURLYAND and Mission’s owner, Michael Levitis – were charged in connection with the scheme. Defendants Felix Lemberskiy and Zakhir Shirinov pled guilty to Informations in April 2013 in connection with this case. The charges against the remaining defendants are merely allegations, and they are all presumed innocent unless and until proven guilty.
Mr. Bharara praised the investigative work of the United State Postal Inspection Service. He also thanked the Consumer Financial Protection Bureau for referring this case to this Office and for their assistance in this matter.
The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Nicole W. Friedlander and Edward A. Imperatore are in charge of the prosecution. Assistant United States Attorney Carolina A. Fornos of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.
U.S. v. Mission Settlement Agency, et al. Indictment
State Contractor Charged in Manhattan Federal Court for Defrauding the New York State Department of Health Out of over $700,000 in Funding for Low-Income Cancer ScreeningRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Thomas P. DiNapoli, the New York State Comptroller, today announced charges against JOSEPH L. JUNKOVIC for allegedly engaging in a scheme to defraud the New York State Department of Health (“NYSDOH”) out of more than $700,000 dedicated to providing cancer screening services to low-income New Yorkers. JUNKOVIC allegedly used a not-for-profit corporation that he controlled, Cancer Service Network, Inc. (“CSN”), to obtain more than $25 million in federal and state funding to administer cancer screening services, and then billed the NYSDOH for thousands of hours that he did not in fact work. He was arrested at his residence this morning and will be presented in Manhattan federal court before U.S. Magistrate Judge Ronald L. Ellis this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “By diverting over $700,000 intended for low-income New Yorkers to his own pocket, Joseph Junkovic allegedly cheated the Department of Health and cynically exploited individuals in need of potentially lifesaving services. We intend to continue our work with Comptroller DiNapoli’s office – whose audit was instrumental to uncovering this alleged fraud. We will not tolerate abuse of government funding and are committed to rooting out and prosecuting the perpetrators of such fraud.”
New York State Comptroller Thomas P. DiNapoli: “As alleged, Mr. Junkovic willfully exploited impoverished clients to finance his globe-trotting, gambling and lavish shopping sprees. Working with U.S. Attorney Preet Bharara, we were able to expose this scam and plan to restore more than $700,000 to state coffers. We will continue to work together to fight public corruption and hold wrongdoers accountable.”
According to the allegations in the Complaint unsealed today in Manhattan federal court:
From April 2008 through September 2011, JUNKOVIC used CSN to obtain more than 18 separate contracts with NYSDOH, totaling more than $25 million, to provide cancer screening services for indigent New Yorkers. The $25 million was funded in part by the United States Department of Health and Human Services. CSN, however, was merely a pass-through organization run out of JUNKOVIC’s home in the Bronx, and JUNKOVIC directed the monies CSN received from NYSDOH to administer the cancer screening programs to his personal consulting company, JLJ Consulting Group, Ltd. (“JLJ”). In billing NYSDOH for his services, JUNKOVIC submitted separate invoices for each contract listing the total number of hours he claimed to have worked each month. When added together, JUNKOVIC frequently billed NYSDOH for well over 600 hours per month – more than 140 hours per week – for his purported services, even while he was frequently on vacation, spending thousands of dollars at various casinos, or making purchases at high-end clothing stores.
For some months, JUNKOVIC claimed he had worked so many hours on multiple contracts simultaneously that he was billing a total of more than 24 hours a day for his services. On other occasions, JUNKOVIC claimed he worked hundreds of hours while he was overseas. For example, for the month of August 2010, CSN billed NYSDOH for more than 590 hours of JUNKOVIC’s time, even though travel and bank records show that JUNKOVIC traveled to Vienna, Austria, on August 6, 2010 and did not return until August 30, 2010. Overall, the Comptroller’s Office, which performed an audit of JUNKOVIC’s invoices to NYSDOH, conservatively estimates that from April 2008 through May 2011, JUNKOVIC defrauded NYSDOH’s cancer services program out of more than $700,000.
JUNKOVIC, 48, of the Bronx, New York, is charged with one count of mail fraud, which carries a maximum sentence of 20 years in prison, and one count of theft of U.S. government property, which carries a maximum sentence of 10 years in prison.
Mr. Bharara praised the investigative and audit work of the Office of the New York State Comptroller.
This case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Andrew D. Goldstein is in charge of the prosecution.
The charges contained in the Complaint are merely accusations and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Joseph Junkovic Complaint
CHARGING DOCUMENTS: U.S. V. Javier Martin-Artajo and U.S. V. Julien GroutRead the Press Release
U.S. v. Javier Martin-Artajo Complaint
U.S. v. Julien Grout ComplaintAttorney General, Manhattan U.S. Attorney, and FBI Assistant Director-In-Charge Announce Charges Against Two Derivatives Traders in Connection with Multi-Billion Dollar Trading Loss at JPMorgan Chase & CompanyRead the Press Release
Eric Holder, the Attorney General, 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 the unsealing of criminal Complaints against JAVIER MARTIN-ARTAJO and JULIEN GROUT for their alleged participation in a conspiracy to hide the true extent of losses in a credit derivatives trading portfolio maintained by the Chief Investment Office (“CIO”) of JPMorgan Chase & Company (“JPMorgan”). MARTIN-ARTAJO served as a Managing Director and Head of Credit and Equity Trading for the CIO, and GROUT was a Vice President and derivatives trader in the CIO.
Attorney General Eric Holder said: “Our financial system has been hurt in recent years not just by risky bets gone bad, but also, in some cases, by criminal wrongdoing. We will not stop pursuing those who violate the public trust and compromise the integrity of our markets. I applaud U.S. Attorney Bharara, his colleagues in the Southern District of New York, and all of our partners on the President’s Financial Fraud Enforcement Task Force for their longstanding commitment to combating all forms of financial fraud. And I pledge that we will continue to move both fairly and aggressively to bring the perpetrators of financial crimes to justice.”
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants, Javier Martin-Artajo and Julien Grout, deliberately and repeatedly lied about the fair value of billions of dollars in assets on JPMorgan's books in order to cover up massive losses that mounted month after month at the beginning of 2012, which ultimately led JPMorgan to restate its losses by $660 million. The defendants’ alleged lies misled investors, regulators, and the public, and they constituted federal crimes. As has already been conceded, this was not a tempest in a teapot, but rather a perfect storm of individual misconduct and inadequate internal controls. The difficulty inherent in precisely valuing certain kinds of financial positions does not give people a license to lie or mislead to cover up losses; it does not confer a license to create false books and records or to make false public filings. And that goes double for handsomely-paid executives at a public company whose actions can roil markets and upend the economy.”
FBI Assistant Director-in-Charge George Venizelos said: “The complaints tell a story of a group of traders who got in over their heads, and to get out, doubled down on a series of risky positions. In the first quarter of 2012, boom turned to bust, as the defendants, concerned about losing control to other traders at the bank, fudged the numbers on their daily book, and in some cases completely made them up. It brought a whole new meaning to cooking the books.”
In a separate action, the U.S. Securities and Exchange Commission (“SEC”) announced civil charges against MARTIN-ARTAJO and GROUT.
According to the allegations in the criminal Complaints unsealed today in Manhattan federal court:
JPMorgan’s CIO, is a component of the bank’s Corporate/Private Equity line of business, which, according to the bank, exists to manage the bank’s excess deposits – approximately $350 billion in 2012. Since approximately 2007, the CIO’s investments have included a so-called Synthetic Credit Portfolio (“SCP”), which consists of indices and tranches of indices of credit default swaps (“CDS”). A credit default swap is essentially an insurance contract on an underlying credit risk, such as corporate bonds. CDS indices are collections of CDSs that are traded as one unit, while CDS tranches are portions of those indices, usually sliced up by riskiness.
Under U.S. Generally Accepted Accounting Principles (“GAAP”) and according to JPMorgan policy, CDS traders were required to value the securities in their portfolios on a daily basis. Those values, or “marks,” became part of the bank’s daily books and records. Because CDS indices and tranches are not traded over an exchange, traders are required to look to various data points in order to value their securities, such as actual transaction prices, price quotations from market makers, and values provided by independent services (such as Totem and MarkIT). JPMorgan’s accounting policy, which used the same methodology employed by the independent services, provided that the “starting point for the valuation of a derivatives portfolio is mid-market,” meaning the mid-point between the price at which market-makers were willing to buy or sell a security. Through about January 2012, CIO traders generally marked the securities in the SCP approximately to this mid-point, which they sometimes referred to as the “crude mid.”
The SCP was extremely profitable for JPMorgan – it produced approximately $2 billion in gross revenues since its inception – but in the first quarter of 2012, the SCP began to sustain consistent and considerable losses. From at least March 2012, MARTIN-ARTAJO and GROUT conspired to artificially manipulate the SCP marks to disguise those losses. They did so, among other reasons, to avoid losing control of the SCP to other traders at JPMorgan.
Although MARTIN-ARTAJO pressured his traders, including GROUT, to “defend the positions” in early 2012 by executing trades at favorable prices, the SCP lost approximately $130 million in January and approximately $88 million in February. In March 2012, when the market moved even more aggressively against the CIO’s positions, MARTIN-ARTAJO specifically instructed GROUT and the head SCP trader, Bruno Iksil (who has entered a non-prosecution agreement), not to report losses in the SCP unless they were tied to some identifiable market event, such as a bankruptcy filing by a company whose bonds were in the CDS index. MARTIN-ARTAJO explained that “New York” – meaning, among others, JPMorgan’s Chief Investment Officer – did not want to see losses attributable to market volatility.
By mid-March 2012, GROUT was explicitly and admittedly “not marking at mids.” He maintained a spreadsheet that kept track of the difference between the price that GROUT recorded in JPMorgan’s books and records, on the one hand, and the “crude mids,” on the other. By March 15, 2012, according to GROUT’s spreadsheet, the difference had grown to approximately $292 million. In a recorded on-line chat the same day, GROUT explained that he was trying to keep the marks for most of the SCP’s positions “relatively realistic,” with the marks for one particular security “put aside.” That is, GROUT mis-priced that one particular security, of which the SCP held billions of dollars’ worth, by the full $292 million. The following day, Iksil told MARTIN-ARTAJO that the difference had grown to $300 million, and “I reckon we get to 400 [million] difference very soon.” In a separate conversation, Iksil remarked to GROUT that “I don’t know where he [MARTIN-ARTAJO] wants to stop, but it’s getting idiotic.”
In the days that followed, GROUT at times ignored Iksil’s instructions on how to mark the positions, and instead, followed MARTIN-ARTAJO’s mandate to continue to hide the losses. By March 20, 2012, Iksil insisted that GROUT show a significant loss: $40 million for the day. In a recorded call, MARTIN-ARTAJO excoriated Iksil, finally emphasizing, “I didn’t want to show the P&L [the profit and loss].” Throughout the remainder of March 2012, while Iksil continued to try to insist that MARTIN-ARTAJO acknowledge the reality of the losses, GROUT, at MARTIN-ARTAJO’s instructions, continued to hide them. As of March 30, 2012 – the last day of the first quarter of 2012 – GROUT continued to fraudulently understate the SCP’s losses. These incorrect figures in the SCP were not only integrated into JPMorgan’s books and records, but also – as MARTIN-ARTAJO and GROUT were well aware – into the bank’s quarterly financial filing for the first quarter of 2012 with the SEC.
During the course of the mis-marking scheme carried out by MARTIN-ARTAJO and GROUT, the CIO’s Valuation Control Group (“VCG”) was supposed to serve as an independent check on the valuations assigned by traders to the securities that the traders were marking at month-end. The VCG, however, was effectively only staffed by one person and did not perform any independent review of the valuations. Instead, the VCG tolerated valuations outside of the bid-offer spread as presented by MARTIN-ARTAJO and other CIO traders.
In August 2012, after MARTIN-ARTAJO and GROUT were stripped of their responsibilities over the SCP and their scheme was discovered, JPMorgan restated its first quarter 2012 earnings, and recognized an additional loss of $660 million in net revenue attributable to the mis-marking of the SCP. JPMorgan announced that it was restating its earnings because it had lost confidence in the “integrity” of the marks submitted by GROUT, at MARTIN-ARTAJO’s direction.
MARTIN-ARTAJO, 49, a Spanish citizen, and GROUT, 35, a French citizen, are charged in one count of conspiracy; one count of falsifying the books and records of JPMorgan; one count of wire fraud; and one count of causing false statements to be made in JPMorgan’s filings with the SEC. They each face a maximum sentence of five years in prison on the conspiracy count, and 20 years in prison on each of the three remaining counts in the Complaints, and a fine of the greater of $5,000,000 or twice the gross gain or gross loss as to certain of the offenses.
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.
Mr. Bharara praised the work of the FBI. He also thanked the SEC and the Department of Justice’s Office of International Affairs.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Eugene Ingoglia and Matthew L. Schwartz are in charge of the prosecutions.
The charges contained in the Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Javier Martin-Artajo Complaint
U.S. v. Julien Grout ComplaintTax Preparer Pleads Guilty in Manhattan Federal Court to Tax Fraud Scheme Involving over $7 Million in Bogus DeductionsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MARK GOLDBERG, a Bronx-based tax preparer, pled guilty today in Manhattan federal court to charges related to his participation in a scheme to file fraudulent tax returns on behalf of numerous clients, falsely claiming more than $7 million in bogus deductions, including school tuition credits and expenses. GOLDBERG pled guilty before Chief U.S. District Judge Loretta A. Preska.
Manhattan U.S. Attorney Preet Bharara said: “Mark Goldberg’s fraudulent tax return preparation business spanned neighborhoods and family lines, as he manufactured bogus deductions – including false school tuition credits and expenses – for hundreds of clients throughout the Bronx, including for his relatives and himself. Tax fraud, particularly when it exploits credit and refund programs that are supposed to provide important benefits to those truly entitled to them, threatens the integrity of our tax system and victimizes all law-abiding taxpayers. We will continue to be aggressive in rooting out such fraud.”
According to the Indictment, statements made during the plea proceedings, and other documents filed in Manhattan federal court:
GOLDBERG ran a tax preparation and multi-service business named E&M Multi-Services, Inc. (“E&M”) out of a storefront building in the Bronx. Through that business, he prepared, and oversaw the preparation of, hundreds of federal and New York State tax returns that claimed false deductions, expenses, and credits, including tuition credits and expenses, unreimbursed employee business expenses, medical and dental expenses, charitable gifts, and earned income tax credits.
Between 2005 and 2012, GOLDBERG caused the preparation and filing of tax returns for his clients that included over $7,000,000 of fabricated and fraudulently-inflated deductions, resulting in the payment of refunds to which his clients were not lawfully entitled.
GOLDBERG, 40, of Bronx, New York, pled guilty to one count of subscribing to a false and fraudulent tax return for himself, one count of aiding and assisting in the preparation of a false tax return for a relative, and one count of wire fraud. He faces a maximum sentence of 26 years in prison, and is scheduled to be sentenced by Chief Judge Preska on December 17, 2013 at 10 a.m. In addition, GOLDBERG agreed as part of his guilty plea not to contest the forfeiture by the Internal Revenue Service of over $500,000 in an account maintained by GOLDBERG in the name of E&M, representing the fees generated by GOLBERG as part of his tax fraud scheme.
Mr. Bharara praised the investigative efforts of the Internal Revenue Service, Criminal Investigation and the New York State Department of Taxation and Finance. Mr. Bharara also thanked the U.S. Department of Justice’s Tax Division and the Bronx District Attorney’s Office for their assistance.
The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant United States Attorneys Stanley J. Okula, Jr. and Paul Monteleone, and Special Assistant United States Attorneys Jorge Almonte (of the Tax Division) and Graham Van Epps (of the Bronx D.A.’s Office) are in charge of the prosecution.
Goldberg, Mark Indictment
Two Members of International Narcotics Trafficking Conspiracy Sentenced in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MARTIN RAOUF BOURAIMA and CORNEILLE DATO were sentenced today in Manhattan federal court for participating in a conspiracy to import narcotics into the United States. Both BOURAIMA and DATO were sentenced to 50 months in prison. BOURAIMA and DATO were arrested in Monrovia, Liberia, in coordination with Liberian authorities in February 2011, and thereafter transferred to the custody of the United States. BOURAIMA pled guilty in November 2012, and DATO pled guilty in January 2013, both before U.S. District Judge Naomi Reice Buchwald, who also imposed today’s sentences.
Manhattan U.S. Attorney Preet Bharara stated: “Martin Raouf Bouraima and Corneille Dato readily agreed to transport heroin and sell cocaine which they understood would be for the benefit of the Taliban, and which they understood would reach the streets of the United States. With their sentences today, Bouraima and Dato become the latest defendants to be punished for their roles in this narco-trafficking conspiracy.”
According to the Indictment and Complaint previously unsealed in this case:
Beginning in the summer of 2010, BOURAIMA, DATO, and some of their co-defendants (the “co-defendants”) communicated with confidential sources (“CSs”) working with the U.S. Drug Enforcement Administration (“DEA”), who purported to represent the Taliban. The communications occurred by telephone, via e-mail, and in a series of audio-recorded and videotaped meetings over several months.
During meetings with the CSs beginning in June 2010, in West Africa, BOURAIMA, DATO, and their co-defendants agreed to receive and store multi-ton shipments of Taliban-owned heroin. Thereafter, BOURAIMA, DATO, and their co-defendants agreed to transport the heroin within West Africa, from where they understood portions of it would be sent on a commercial airplane to the United States to be sold for the financial benefit of the Taliban. During these meetings, BOURAIMA, DATO, and their co-defendants also agreed to sell multi-kilogram quantities of cocaine to the Taliban that they could then sell at a profit. As with the heroin, BOURAIMA, DATO, and their co-defendants understood that portions of the cocaine sold to the CSs would be transported to the United States by commercial airline and then sold in this country.
In addition to the prison terms, BOURAIMA, 42, and DATO, 56, both citizens of Benin, were each ordered to pay a $200 special assessment.
Last week, DATO and BOURAIMA’s co-defendant, Francis Sourou Ahissou, was sentenced by Judge Buchwald to 66 months in prison for his role in the conspiracy. Co-defendants Oded Orbach and Alwar Pouryan, who were convicted after trial in April 2013 of conspiring to provide material support to the Taliban and conspiring to acquire anti-aircraft missiles, are scheduled to be sentenced by Judge Buchwald on September 4, 2013 at 10:30 a.m.
The charges against BOURAIMA and DATO were the result of the coordinated efforts of the U.S. Attorney’s Office for the Southern District of New York and the DEA’s Special Operations Division, as well as the DEA Lagos Country Office, 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 praised the outstanding investigative work of the DEA and thanked the U.S. Department of Justice Office of International Affairs and National Security Division, the U.S. Department of State, and the U.S. Immigration and Customs Enforcement for their assistance. Mr. Bharara also thanked the Government of Liberia for its cooperation.
This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Christian Everdell, Aimee Hector, and Glen Kopp are in charge of the prosecution.
Manhattan U.S. Attorney Announces Transfer of 18 Valuable Works of Art to Marc Dreier VictimRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States Marshals Service transferred 18 seized works of art by such well-known artists as Andy Warhol, Mark Rothko, Roy Lichtenstein, and Damien Hirst (the “Artwork”) to a victim of the fraud committed by MARC DREIER (“Victim-1”). Prior to his arrest, DREIER displayed the Artwork in his residence. DREIER gave Victim-1 a security interest in the Artwork, then valued at over $30 million, purportedly to secure the payment to Victim-1 on promissory notes that DREIER secretly forged, and that had a face value of over $110 million. Victim-1 previously transferred $1.65 million in forfeited funds to the Government, which the U.S. Attorney’s Office will seek to make available to victims of DREIER’s fraud.
Manhattan U.S. Attorney Bharara said: “Marc Dreier lived in a world of luxury and opulence built on a foundation of fraud he committed against his many victims. With this transfer of valuable artwork, one of his victims receives some payment on what Dreier owed, and another $1.65 million is forfeited to the Government, which will benefit victims of this massive fraud.”
According to public documents filed in this case in Manhattan federal court:
DREIER was the founder and managing partner of Dreier LLP, a law firm which, along with its affiliates, employed more than 270 attorneys. From approximately 2002 through December 2008, he conspired to engage in securities and wire fraud involving the sale of fake promissory notes and the embezzlement of Dreier LLP client funds. During the course of the scheme, DREIER collected more than $700 million through the sale of the fake promissory notes, only a portion of the principal and interest of which he actually paid. He also misappropriated more than $46 million in client funds. The total out-of-pocket losses to purchasers of the various fake notes, and to law firm clients whose funds were embezzled, was approximately $400 million.
DREIER, 63, of New York, New York, pled guilty in May 2009 to one count of conspiracy to commit securities and wire fraud, one count of securities fraud, five counts of wire fraud, and one count of money laundering. In July 2009, U.S. District Court Judge Jed S. Rakoff sentenced him to 20 years in prison and ordered him to pay roughly $388 million in restitution. Judge Rakoff also issued a preliminary order of forfeiture covering various assets, including the Artwork, which was seized from DREIER. The Government and Victim-1 subsequently requested that the Court enter a settlement agreement, pursuant to which Victim-1 would receive the Artwork and would pay $1.65 million to the Government. The $1.65 million payment reflected a term of Victim-1’s security agreement with DREIER, which required Victim-1 to pay $1.65 million to DREIER for the security interest in the Artwork. Following an evidentiary hearing in July 2013, Judge Rakoff so-ordered the settlement agreement between the Government and Victim-1.
The Artwork transferred to Victim-1 consists of the following works of art:
- Household gloss on canvas by Damien Hirst, “Elaidic Anhydride (hot pinks spot painting)” (2007)
- Silkscreen ink and synthetic polymer paints on canvas by Andy Warhol, “Rudolph Nureyev” (1975)
- Silkscreen ink and synthetic polymer paints on canvas by Andy Warhol, “John Lennon” (1985-86)
- Oil on canvas by Alex Katz, “Red Tulips” (1967)
- Household gloss on canvas by Damien Hirst, “2-(P-CHLOROPHENOXY)-2-METHYLPRIOPIONIC ACID (multicolored spots)” (1998)
- Polychrome aluminum by Robert Indiana, “Love” (1966/1999)
- Enamel on steel by Keith Haring, “Untitled” (1982)
- Acrylic and graphite on canvas by Agnes Martin, “Loving Love” (2000)
- Silkscreen ink and acrylic on canvas by Andy Warhol, “Jackie (Blue Jackie, 3 quarter view)” (1964)
- Silkscreen ink and acrylic on canvas by Andy Warhol, “Jackie (White Jackie)” (1964)
- Silkscreen ink and acrylic on canvas by Andy Warhol, “Jackie (Profile looking down)” (1964)
- Silkscreen ink and acrylic on canvas by Andy Warhol, “Jackie (smiling Jackie w/JFK)” (1964)
- Oil on canvas by Mark Rothko, “Untitled” (1957-63)
- Oil and magna on canvas by Roy Lichtenstein, “First Painting with Bottle” (1975)
- Screenprint by Roy Lichtenstein, “Reverie (C. 38)” (1965)
- Three dimensional archival print by John Baldessari, “Arms and Legs” (2008)
- Color photographs by Richard Prince, “Untitled (Four Women)” (1980)
- Offset lithograph by Roy Lichtenstein, “Crying Girl” (1963)
Mr. Bharara praised the outstanding efforts of the Criminal Investigators of the U.S. Attorney’s Office and thanked the U.S. Securities and Exchange Commission and the U.S. Marshals Service for its assistance in this case.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and Asset Forfeiture Unit. Assistant U.S. Attorneys Jeffrey Alberts and Sharon Cohen Levin are in charge of this prosecution.
U.S. v. Marc Dreier Opinion & Order
Manhattan U.S. Attorney Announces $1.7 Million Settlement with Testquest, $2.3 Million Judgment Against Former Testquest Manager, and Filing of Criminal and Civil Charges Against Public School Teacher in Connection with Scheme to Defraud FederalRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Brian M. Hickey, the Special Agent-in-Charge of the Northeastern Region of the United States Department of Education’s Office of Inspector General (“ED-OIG”), today announced various civil and criminal actions relating to a scheme to submit false claims for reimbursement by TESTQUEST, INC. (“TESTQUEST”), an educational services company, in connection with a federally-funded program to provide tutoring services to public school children. Those actions include: (1) the settlement of civil fraud claims previously filed against TESTQUEST for $1,725,000, and admissions of wrongdoing by TESTQUEST; (2) the settlement of civil fraud claims previously filed against MICHAEL LOGAN, a former manager of TESTQUEST, admissions of wrongdoing by LOGAN, and the entry of a $2.3 million civil judgment against him; (3) the filing of a criminal Information against SANDRA ALLEN, a public school teacher, charging her with defrauding the Department of Education in connection with her participation in the billing scheme; and (4) the filing of an amended civil complaint asserting fraud claims against ALLEN and two additional public school teachers, SYLVIA BRATHWAITE and QUENTON GITTENS, for their alleged participation in the billing scheme. U.S. District Judge Louis L. Stanton approved the civil settlements with TESTQUEST and LOGAN yesterday. The criminal Information against ALLEN was filed on August 5, 2013.
LOGAN previously pled guilty to a felony fraud charge in connection with his role in the fraudulent billing scheme before U.S. District Judge John F. Keenan on June 5, 2013.
Manhattan U.S. Attorney Preet Bharara said: “TestQuest was an educational testing services company schooled in fraud and filled with employees who willingly exploited a federally funded program designed to aid students in need. As we’ve stated before, we will make companies and individuals answer for their fraudulent schemes. We are pleased that, with these settlements and the prior guilty plea, TestQuest and Michael Logan have accepted responsibility for their conduct and agreed to pay millions of dollars in damages and penalties.”
ED-OIG Special Agent-in-Charge Brian M. Hickey said: “The Office of Inspector General has a unique and special law enforcement mission – to protect public education funds for America’s eligible students. These settlements and related criminal charges are an example of our continued commitment to this mission. We will pursue all available criminal and civil remedies to safeguard these vital educational development funds.”
According to documents filed in Manhattan federal court and statements made in related court proceedings:
The Supplemental Educational Services Program
Between 2005 and 2012, the New York City Department of Education (“NYCDOE”) received funds from the federal government to pay for Supplemental Educational Services (“SES”), which included after-school tutoring for students attending underperforming public schools. NYCDOE entered into contracts with private entities to provide SES tutoring to students in New York City public schools. Students were eligible to receive SES tutoring if they met certain criteria, such as attending a school that had been identified as needing improvement or restructuring for at least two years. Private entities contracted by NYCDOE to provide SES tutoring were required to have each student who attended a tutoring class sign a daily attendance sheet. The tutor of each class was also required to sign the attendance sheet, certifying that he or she had provided SES tutoring to the students whose signatures appeared on the attendance sheet.
TESTQUEST and the Individual Defendants
From 2005 through 2012 (the “Covered Period”), TESTQUEST contracted with NYCDOE to provide SES tutoring to students in New York City. 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 (“GEA”). TESTQUEST received approximately $2.3 million for purportedly providing tutoring at Monroe and GEA during the Covered Period.
Throughout that time, TESTQUEST employed LOGAN to manage its SES program at Monroe and GEA. LOGAN, in turn, recruited teachers from Monroe and GEA to serve as tutors for TESTQUEST’s SES program at those schools, and recent graduates of Monroe and GEA to serve as “aides” and help him run the program. ALLEN, BRATHWAITE and GITTENS were public school teachers employed by TESTQUEST as tutors.
The Billing Scheme
During the Covered Period, TESTQUEST obtained Title I funds by falsely reporting that it had provided SES tutoring to students when, in fact, no SES tutoring had been provided. As part of the scheme, TESTQUEST repeatedly submitted to NYCDOE bills for students who had not actually received any tutoring.
As part of its civil settlements, TESTQUEST admitted that:
- tutors prompted students to sign the daily attendance sheets for SES classes that the students had not attended, including by going to the Monroe cafeteria and instructing students who were in the cafeteria, but who had not received any SES tutoring, to sign the daily attendance sheets;
- tutors signed the instructor certifications on the daily attendance sheets — and thereby certified that they had provided SES tutoring to all of the students whose signatures appeared on the sheets — even though they had not provided SES tutoring to some or all of those students;
- aides also prompted students to sign the daily attendance sheets for tutoring classes that the students had not attended, including by bringing the daily attendance sheets to other after-school activities, such as baseball and basketball practice, and instructing students attending those activities to sign the sheets; and
- aides forged student signatures on the daily attendance sheets.
TESTQUEST further admitted that its daily attendance sheets from the Covered Period falsely reported that many more students had attended its SES tutoring classes than had actually attended. TESTQUEST also admitted that it used the falsified daily student attendance sheets to prepare invoices that it then submitted in connection with its SES tutoring program, and that the invoices ultimately resulted in TESTQUEST being paid federal funds for SES tutoring that it never provided.
LOGAN, who previously pled guilty to criminal charges, admitted as part of his civil settlement that he instructed tutors and aides to falsify entries on the daily attendance sheets. LOGAN further admitted that on multiple occasions throughout the Covered Period, he observed (1) tutors signing the instructor certifications on daily attendance sheets for tutoring that LOGAN knew had not been provided; (2) students signing daily attendance sheets for tutoring classes that LOGAN knew the students had not attended; and (3) aides forging student signatures on daily attendance sheets.
ALLEN, while working as an SES tutor for TESTQUEST, allegedly falsified daily attendance sheets to make it appear that more students had attended TESTQUEST’s SES classes than had actually attended and regularly signed the instructor certifications on daily attendance sheets for tutoring that she had not provided. In addition, in the 2008/2009 academic year, ALLEN allegedly enlisted four students at Monroe to participate in the billing scheme. Specifically, she allegedly directed the four students to find other students at Monroe to sign daily attendance sheets for SES classes that they had not attended. ALLEN is also alleged to have purchased food for the four student “helpers” to reward them for their assistance in the scheme.
BRATHWAITE and GITTENS, who similarly served as SES tutors for TESTQUEST, also allegedly signed the instructor certifications on daily attendance sheets for tutoring that they had not provided.
TESTQUEST agreed to pay the Government $1,725,000 in damages and penalties under the False Claims Act in connection with the fraudulent billing scheme. TESTQUEST also agreed not to participate in any federal procurement or non-procurement transactions for a period of three years.
LOGAN, 48 of White Plains, New York, settled civil claims filed against him, made admissions concerning his conduct, and agreed to the entry of a civil judgment against him in the amount of $2.3 million. In connection with his prior guilty plea, LOGAN faces a maximum sentence of five years, and is scheduled to be sentenced by Judge Keenan on October 9, 2013.
By filing its civil claims against TESTQUEST and LOGAN, the Government joined a private whistleblower lawsuit that had previously been filed against them under the False Claims Act.
ALLEN, 53, of New York, New York, is charged with one count of conspiracy to defraud the federal Government. She faces a maximum sentence of five years.
The civil charges against ALLEN, BRATHWAITE, and GITTENS remain pending.
Mr. Bharara thanked the Office of the ED-OIG for its extraordinary assistance in this case.
The criminal cases are being handled by the Complex Frauds Unit, and Assistant U.S. Attorneys Joseph P. Facciponti and Christopher B. Harwood are in charge of the prosecution. The civil cases are being handled by Christopher B. Harwood of the Office’s Civil Frauds Unit.
The charges contained in the Criminal Information against ALLEN are merely accusations, and she is presumed innocent unless and until proven guilty.
U.S. v. TestQuest Stipulation
U.S. v. Michael Logan Stipulation
U.S. v. Testquest, et al Amended ComplaintStatement on the February 2, 2012, Shooting of 18-Year-Old Ramarley GrahamRead the Press Release
“Consistent with our Office’s practice in cases of this kind, we will review all of the available evidence with respect to the shooting of 18-year-old Ramarley Graham on February 2, 2012, in the Bronx, New York, including the evidence collected during the state’s investigation, to determine whether there were any violations of the federal criminal civil rights laws,” said Jerika Richardson, a spokeswoman for the U.S. Attorney's Office for the Southern District of New York.
NYPD Officer Pleads Guilty in Manhattan Federal Court to 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”), pled guilty today in Manhattan federal to tax fraud and identity theft offenses related to his preparation and filing of false and fraudulent U.S. individual income tax returns (“tax returns”) on behalf of himself and others. WALLY pled guilty before U.S. Magistrate Judge Sarah Netburn.
Manhattan U.S. Attorney Preet Bharara said: “Jonathan Wally spent his off-duty time breaking the law he enforced as a police officer. With his guilty plea today, he will now pay the price for his crimes of identity theft and tax fraud, including the return of all the money he swindled from the IRS.”
According to the court filings and statements made today in court:
WALLY has been employed by the NYPD as a Police Officer assigned to the 34th precinct located in the Washington Heights/Inwood section of New York, New York since 2003. Since at least 2008, he also served as a registered tax preparer 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 prepared and filed by WALLY 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, causing him to receive tax refunds to which he was not entitled.
In connection with the fraudulent tax return scheme, WALLY obtained the personal identifying information and Social Security cards of children, which he used to declare the children as dependents on 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 prepared and filed by WALLY on behalf of other individual taxpayers, the IRS paid them at least $146,818 in fraudulent tax refunds. As a result of 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, the IRS paid WALLY at least $48,990 in fraudulent tax refunds. In total, WALLY’s tax scheme defrauded the IRS in the amount of $195,808.
WALLY, 34, of Bronx, New York, pled guilty to four counts. Counts One and Two charged WALLY with the tax offenses of aiding and abetting the filing of a false and fraudulent tax return and subscribing to a false and fraudulent tax return, respectively. Each of Counts One and Two carries a maximum sentence of three years in prison. Counts Three and Four charged WALLY with identify theft. Count Three carries a maximum sentence of 15 years in prison, and Count Four carries a maximum sentence of five years in prison.
In addition, WALLY has agreed to forfeit and make restitution to the IRS of $195,808. He further has agreed to file accurate amended returns for himself for calendar years 2009 through 2013, and not to contest any interest or penalties assessed against him by the IRS in connection with such amended returns. He also has agreed not to engage in any tax preparation work on behalf of others in the future. WALLY is scheduled to be sentenced before U.S. District Judge Lorna G. Schofield on December 9, 2013 at 2:30 p.m.
Mr. Bharara praised the investigative work of the Internal Revenue Service-Criminal Investigation, 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.
U.S. v. Jonathan Wally Information
U.S. v. Jonathan Wally Consent Order of ForfeitureManhattan U.S. Attorney Charges 23 Members of Bronx Drug Trafficking Crew with Distributing Crack Cocaine, Cocaine, Marijuana, Mdma and OxycodoneRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Brian R. Crowell, the Special Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), Raymond W. Kelly, the Commissioner of the Police Department for the City of New York (“NYPD”), Joseph Anarumo Jr., the Special Agent-in-Charge of the New York Field Division of the U.S. Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”), James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), and Anthony J. Annucci, the Acting Commissioner of the New York State Department of Corrections and Community Supervision (“DOCCS”), announced charges today against 23 members of a criminal organization known as the Burnside Money Getters (“BMG”) for conspiracy to distribute crack cocaine, cocaine, marijuana, MDMA (commonly known as ecstasy), and Oxycodone. The defendants allegedly controlled the areas from West Burnside Avenue to West Tremont Avenue, and from Sedgwick Avenue to Jerome Avenue, in the University Heights neighborhood of the Bronx, New York.
Of the 23 defendants named in the Indictment, 22 were taken into custody as part of a coordinated operation involving federal, state, and local law enforcement officers, two were in state custody on other charges, and one defendant, JONATHAN CRUZ, remains at large. The defendants who were taken into custody today were presented in Manhattan federal court this afternoon. The case is assigned to U.S. District Judge Sidney H. Stein.
Manhattan U.S. Attorney Preet Bharara said: “Today’s takedown is the fourth our Office has announced of a Bronx drug trafficking crew this year alone. Alleged drug trafficking gangs like the Burnside Money Getters not only pollute the neighborhoods they infiltrate with poisonous drugs and guns, but they also strike fear into the residents living in those neighborhoods. I want to thank our law enforcement partners for continuing to work with this Office in our efforts to pursue and prosecute those who think they can carry out illegal drug activity and inject violence into our communities in the process.”
DEA Special Agent-in-Charge Brian R. Crowell said: “Known throughout the West Bronx as the ‘light side’, ‘dark side’ and ‘D block’, the Burnside Money Getters bullied community members and residents living in the vicinity of the gangs’ daily criminal activity. As evidenced in this one year investigation, drug trafficking was the main source of profit for this gang which employed violence, threats and the use of guns in the course of their lives of crime. The residents within the 46th precinct will benefit from this joint federal, local and state law enforcement initiative bringing 23 alleged gang members to justice and giving families and residents a quality of life without fear or exposure to drugs and the violence associated with the drug trafficking of this gang.”
NYPD Commissioner Raymond W. Kelly said: “Drugs kill those it addicts, destroy families, and ruin entire neighborhoods. It’s always a good day when its traffickers are brought to justice. I want to commend the agents, prosecutors, and, of course, our detectives particularly, for the dangerous but crucial job they performed in going undercover to penetrate these narcotics crews.”
ATF Special Agent-in-Charge Joseph Anarumo Jr. said: “This investigation demonstrates the outstanding achievements that can be reached when local, state and federal law enforcement agencies work together for a common goal, which is to protect the public.”
ICE HSI Special Agent-in-Charge James T. Hayes said: “The BMG gang members arrested today allegedly peddled a wide variety of illegal drugs throughout the Bronx and violently and relentlessly defended their “turf.” HSI continues to work to rescue communities affected by transnational gang crime and violence.”
NYS DOCCS Acting Commissioner Anthony J. Annucci said: “The critical commission of helping keep our communities safe and secure is our highest priority. I acknowledge and greatly appreciate the work carried out today by the various law enforcement agencies, including our own Community Supervision officers. This cooperation will always be key in the effectiveness of these joint efforts.”
According to the Indictment unsealed today in Manhattan federal court:
From 2007 through August 2013, BMG had over 20 members who were engaged in the sale of crack cocaine, cocaine, marijuana, MDMA, and Oxycodone. During the course of the investigation, undercover officers with the NYPD made several purchases of crack cocaine and other narcotics from drug dealers in the area controlled by BMG. During the buys, officers were able to purchase significant street level quantities of cocaine and crack cocaine. In addition, BMG members possessed and discharged firearms during the course of the conspiracy to secure and enforce their drug territory. Several defendants were also intercepted on Title III court-authorized wiretaps discussing the sale of various narcotics and the use and purchase of firearms.
During the arrests and searches, agents and officers seized what is believed to be crack cocaine, MDMA and marijuana, as well as $14,000 in cash, ammunition, and counterfeit money.
KEYEWANIE BLACKLEDGE, ABDUL RAHM ABDULLAH, KWAME ANDERSON, CLEMENT BOATENG, FRANK BOATENG, TROY CARTER, MALIK CROCKER, SHONDELL CROCKER, JONATHAN CRUZ, JOVAN FIELDS, MARK FRIERSON, GLEN GILLIARD, DAIVON HENRY, LARRINGTON HENRY, MARKEEN JORDAN, MARIO MARTINEZ, MAURICE MARTINEZ, NATHANIEL MEDINA, ROBERT PIZARRO, RAYMOND RODRIGUEZ, JOSHUA TORRES, BENJAMIN TOWNES, and SHAQUAN WILSON, are each charged with one count of conspiring to distribute and possessing with intent to distribute crack cocaine, cocaine, marijuana, MDMA and Oxycodone. Each defendant faces a mandatory minimum penalty of 10 years in prison and a maximum penalty of life in prison.
A chart identifying the defendants’ ages, and residencies is attached.
Mr. Bharara praised the outstanding investigative work of the DEA, the NYPD, the ATF, ICE HSI, and DOCCS. He added that the investigation is continuing.
The Office’s Violent Crimes Unit is overseeing the case. Assistant U.S. Attorneys Andrew Bauer and Jessica Ortiz are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Click here to view chart(s)
Member of International Narcotics Trafficking Conspiracy Sentenced in Manhattan Federal Court to 66 Months in PrisonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that FRANCIS SOUROU AHISSOU, 48, a citizen of Togo, was sentenced today in Manhattan federal court to 66 months in prison for participating in a conspiracy to import narcotics into the United States. AHISSOU was arrested in Monrovia, Liberia, in coordination with Liberian authorities in February 2011 and transferred thereafter to the custody of the United States. He pled guilty in May 2013 before U.S. District Judge Naomi Reice Buchwald, who imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara stated: “Francis Ahissou was all too eager to sell cocaine to purported associates of the Taliban who planned to distribute it in the United States. Today's sentence is the latest result of this Office’s campaign to hold narco-traffickers to account and destroy these dangerous drug rings.”
According to the Indictment and Complaint previously unsealed in this case, as well as statements made during court proceedings:
Beginning in the summer of 2010, AHISSOU and some of his co-defendants (the “co-defendants”) communicated with confidential sources (“CSs”) working with the DEA, who purported to represent the Taliban. The communications occurred by telephone, via e-mail, and in a series of audio-recorded and videotaped meetings over several months.
During meetings with the CSs beginning in June 2010 in West Africa, AHISSOU and his co-defendants agreed to sell multi-kilogram quantities of cocaine to the Taliban understanding that portions of the cocaine would be transported to the United States by commercial airline and then sold in this country for a profit. AHISSOU also helped arrange the sale of an approximately 800-gram sample of cocaine to the CSs in October 2010.
In addition to the prison term, AHISSOU was ordered to pay a $100 special assessment.
The charges against AHISSOU were the result of the coordinated efforts of the U.S. Attorney’s Office for the Southern District of New York and the DEA’s Special Operations Division, as well as the DEA Lagos Country Office, 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 praised the outstanding investigative work of the DEA and thanked the U.S. Department of Justice Office of International Affairs and National Security Division, the U.S. Department of State, and the U.S. Immigration and Customs Enforcement for their assistance. Mr. Bharara also thanked the Government of Liberia for its cooperation.
This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Christian Everdell, Aimee Hector, and Glen Kopp are in charge of the prosecution.
Florida Man Charged for Operating Fraudulent Investment SchemesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, the Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), today announced securities and wire fraud charges against STEVEN STALTARE for his alleged involvement in two separate fraudulent investment schemes. As alleged, in both schemes, STALTARE misled victim investors through numerous misrepresentations about how their money would be invested, and also failed to disclose that he previously had been convicted of securities fraud. In the course of operating both schemes, STALTARE allegedly misappropriated for his personal benefit more than $600,000 of investor funds. STALTARE was arrested this morning in Land O’ Lakes, Florida, and was presented today in federal district court in the Middle District of Florida.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Steven Staltare veered from one fraudulent scheme to another, leaving a trail of investors as the victims of his false promises and outright lies. Today, the series of self-serving frauds he allegedly perpetrated ends with his arrest.”
New York USPIS Inspector-in-Charge Philip R. Bartlett said: “Mr. Staltare's alleged offense is a classic example of greed overcoming honest business practices. He preyed upon the trust of his investors, only to use their funds for his own personal benefit. His undoing came, however, when he underestimated the resolve and tenacity of Postal Inspectors along with their law enforcement counterparts to bring to justice anyone who commits a crime.”
According to the Complaint filed in Manhattan federal court:
From at least 2011 through 2012, STALTARE defrauded two investors (“Victim-1” and “Victim-2”) in connection with the transfer of shares of stock in Dematco, Inc. (“Dematco”). In late 2011, STALTARE facilitated Victim-1’s sale of hundreds of thousands of shares of Dematco stock for $70,000. Around the same time, STALTARE asked Victim-2 to lend him approximately $150,000 so that STALTARE could purchase shares of Dematco stock. In consideration of this loan, STALTARE promised Victim-2 repayment of the loan within three weeks; a third of the profits from the eventual sale of the Dematco shares; and Dematco stock certificates (obtained from Victim-1) as collateral for the loan. Ultimately, STALTARE did not pay Victim-1 the $70,000, and he did not repay Victim-2 for the $150,000 loan, or provide any profits from the sale of Dematco stock. Instead, STALTARE transferred Victim-1’s shares in Dematco to Victim-2 (as collateral for the loan), and misappropriated the funds provided by Victim-2 for his own personal benefit.
From at least 2012 through 2013, STALTARE defrauded two other investors (“Victim-3” and “Victim-4”) by misappropriating funds intended for investment in the stock of various companies, including Dematco, Preventia, Inc. (“Preventia”), First Choice Healthcare Solutions, Inc. (“First Choice”), and Savtira Corporation (“Savtira”). STALTARE agreed to invest approximately $25,000 for Victim-3 in Preventia stock, promising significant investment returns. STALTARE also agreed to invest approximately $357,000 for Victim-4 in various securities, including stock in Dematco, Preventia, First Choice, and Savtira, again promising significant investment returns. But contrary to his representations to Victim-3 and Victim-4, STALTARE misappropriated their investments for his own personal benefit.
In the course of effectuating these fraudulent schemes, STALTARE defrauded victims in excess of $600,000 from 2011 through 2013.
STALTARE, 48, of Land O’ Lakes, Florida, has been charged with 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.
Mr. Bharara praised the investigative work of the USPIS. Mr. Bharara 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 U.S. Attorney 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 is 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.
The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
Antiques Dealer Pleads Guilty in Manhattan Federal Court to Wildlife Smuggling ConspiracyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Robert G. Dreher, the Acting Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice, announced that QIANG WANG, a/k/a Jeffrey Wang, a New York antiques dealer, pled guilty today in Manhattan federal court to conspiracy to smuggle Asian artifacts made from rhinoceros horns and ivory and violate wildlife trafficking laws. WANG was arrested in February 2013 as part of “Operation Crash,” a nation-wide crackdown in the illegal trafficking in rhinoceros horns, for his role in smuggling libation cups carved from rhinoceros horns from New York to Hong Kong and China. He pled guilty today before U.S. District Judge Katherine B. Forrest.
Manhattan U.S. Attorney Preet Bharara said: “Today’s guilty plea ensures that Qiang Wang, who flouted domestic and international regulations by smuggling artifacts made from an endangered species out of the United States, will be held to account for his crimes. This Office will continue to work with its law enforcement partners to hold to account anyone engaged in this illegal trade.”
Acting Assistant Attorney General Robert G. Dreher said: “Wang and others conspired in an illegal trade that is threatening the future of these species. This prosecution and continuing investigation should send a clear message to buyers and sellers that we will vigorously investigate and prosecute those who are involved in this devastating trade.”
According to the information, plea agreement, and statements made during court proceedings:
In China, there is a tradition dating back centuries of intricately carving rhinoceros horn cups. Drinking from such a cup was believed by some to bring good health, and antique carvings are highly prized by collectors. Libation cups and other ornamental carvings are particularly sought after in China and in other Asian countries, as well as in the United States. The escalating value of such items has resulted in an increased demand for rhinoceros horn that has helped fuel a thriving black market, including fake antiques made from recently hunted rhinoceros.
Between approximately January 2011 and February 2013, WANG conspired with at least two others to smuggle objects containing rhinoceros horn and elephant ivory out of the United States knowing that it was illegal to export such items without required permits. Due to their dwindling populations, all rhinoceros and elephant species are protected under international trade agreements. WANG made and used false U.S. Customs Declarations for the packages containing rhinoceros horn and ivory objects in order to conceal the true contents of the packages, and did not declare them to the U.S. Fish & Wildlife Service or U.S. Customs and Border Protection as required under U.S. law and international trade agreements.
WANG, 34, of Flushing, New York, pled guilty to one count of conspiracy, which carries a maximum penalty of five years in prison. Under the terms of the plea agreement, items recovered from WANG’s apartment, including an ivory statute found hidden behind his bed, will be forfeited. He is scheduled to be sentenced by Judge Forrest on October 25, 2013 at 3 p.m.
Rhinoceros are an herbivore species of prehistoric origin and one of the largest remaining mega-fauna on earth. They have no known predators other than humans. All species of rhinoceros are protected under United States and international law. Since 1976, trade in rhinoceros horn has been regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”), a treaty signed by over 170 countries around the world to protect fish, wildlife, and plants that are or may become imperiled due to the demands of international markets.
Operation Crash is a continuing investigation being conducted by the Department of the Interior’s Fish and Wildlife Service, in coordination with other federal and local law enforcement agencies including U.S. Immigration and Customs Enforcement’s Homeland Security Investigations. A “crash” is the term for a herd of Rhinoceros. Operation Crash is an ongoing effort to detect, deter and prosecute those engaged in the illegal killing of rhinoceros and the unlawful trafficking of rhinoceros horns.
Mr. Bharara and Mr. Dreher commended the U.S. Fish and Wildlife Service for its outstanding work in this investigation. They also thanked the New York State Department of Environmental Conservation Division of Law Enforcement and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations for their assistance.
The case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Janis M. Echenberg and Senior Trial Attorney with the Environmental Crimes Section of the United States Department of Justice Richard A. Udell are in charge of the prosecution.
Wang, Qiang Information
Statement of Manhattan U.S. Attorney Preet BhararaOn the Convictions in U.S. V. Lesniewski, Et Al.Read the Press Release
“Today, Peter Lesniewski, Marie Baran and Joseph Rutigliano stand convicted of participating in the massive LIRR disability fraud that turned a safety net for the truly disabled into a gravy train for the corrupt. Dr. Lesniewski enabled hundreds of LIRR employees to dupe the government through medical paper trails filled with bogus diagnoses, while Baran and Rutigliano, in exchange for payments of thousands of dollars, helped lard the employees’ disability benefit applications with lies. Lesniewski, Baran and Rutigliano served as engines of this fraud that led to a staggering 79% of LIRR retirees from 1998 to 2011 receiving federal disability benefits, costing the government hundreds of millions of dollars. Like the 25 people who previously pled guilty, these defendants now have been brought to justice and will pay for their central roles in this brazen scheme.”
Manhattan U.S. Attorney and FBI Assistant Director-In-Charge Announce Charges Against New York City Comptroller Candidate Kristin Davis for Illegally Distributing Prescription PillsRead 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 arrest of KRISTIN DAVIS, a candidate for New York City Comptroller, on charges of selling prescription pills containing controlled substances, including oxycodone, for cash. DAVIS was arrested yesterday in Manhattan, and is expected to be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Kristin Davis sold dangerous and highly-addictive prescription pills to a known drug dealer on repeated occasions in exchange for cash. Prescription drug abuse is the fastest-growing drug problem in this country, resulting in more overdose deaths than heroin and cocaine combined, and this Office has a zero tolerance policy towards anyone who helps to spread this plague at any level.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Kristin Davis sold prescription pills not once, but rather four different times in four months to an FBI cooperating witness. This type of criminal activity is illegal for citizens, and is especially unbecoming for a person seeking public office in the City of New York. The FBI and our partners in law enforcement remain committed to investigate and bring to justice those individuals who illegally distribute prescription medicines for their own financial gain.”
According to the Complaint unsealed today in Manhattan federal court and other information in the public record:
On three separate occasions from January 2013 to March 2013, DAVIS sold hundreds of prescription pills containing amphetamine, alprazolam, zolpidem, and carisoprodol to a person she knew from prior purchases and sales to be a drug dealer. Unbeknownst to DAVIS, the person was a cooperating witness (the “CW”) with the FBI and equipped with a recording device. During these sales, DAVIS was recorded saying that the pills she was selling were “Ambien,” “Soma,” and “Xanax.” On a fourth occasion, in April 2013, DAVIS arranged for another individual to sell approximately 180 oxycodone pills to the CW.
Oxycodone, a Schedule II controlled substance, is a powerful painkiller with a high potential for addiction and abuse, and the active ingredient in OxyContin and Percocet. There is an illegal market for oxycodone, which is often used as a substitute for, or adjunct to, other illegal drugs, such as heroin.
Amphetamine, a Schedule II controlled substance, is a psycho-stimulant, and the active ingredient in Adderall. There is an illegal market for amphetamine, often referred to as “speed,” as a substitute for, or adjunct to, other illegal drugs, such as methamphetamine and cocaine.
Alprazolam, a Schedule IV controlled substance, is a psychoactive drug, and the active ingredient in Xanax. There is an illegal market for alprazolam, which is often used as a substitute for, or adjunct to, other illegal drugs, such as LSD, heroin or opiates.
Zolpidem, a Schedule IV controlled substance, is a sedative/hypnotic drug, and the active ingredient in Ambien. There is an illegal market for zolpidem, which is often used as a substitute for, or adjunct to, other illegal drugs, such as amphetamine, methamphetamine, cocaine, and MDMA (commonly known as ecstasy).
Carisoprodol, a Schedule IV controlled substance, is a skeletal muscle relaxant, and the active ingredient in Soma. There is an illegal market for carisoprodol, which is often used in conjunction with painkillers and so-called “date rape” drugs.
DAVIS, 38, of New York, New York, is charged with four counts of distributing and possessing with intent to distribute a controlled substance. Each count carries a maximum sentence of 20 years in prison.
DAVIS is the sixth person arrested as part of an ongoing investigation conducted by the FBI, the United States Department of Health and Human Services, Office of Inspector General (HHS-OIG), the New York City Police Department (NYPD), and the U.S. Attorney’s Office into the unlawful distribution of prescription drugs containing controlled substances in and around New York City. Thomas Rock was arrested on July 10, 2013, and charged with distributing and conspiring to distribute oxycodone and alprazolam. Eugene Kurochkin was arrested on July 11, 2013 for distribution of oxycodone, alprazolam, amphetamine, and zolpidem. Raoul Goldberger and Rebecca Temen were arrested on July 29, 2013, and charged with distributing and conspiring to distribute amphetamine, oxycodone, and vicodin. Erik Pichardo, who is referred to as “Individual-1” in the Complaint against DAVIS, has been charged with distributing oxycodone and is at large.
In addition, the investigation also led to the arrest of Mark Decker on July 1, 2013, on charges of distributing cocaine and ecstasy.
Mr. Bharara praised the investigative work of the FBI. Mr. Bharara also thanked HHS-OIG and NYPD for their assistance in the ongoing investigation.
The case is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Kristy J. Greenberg, Daniel C. Richenthal, and Edward A. Imperatore are in charge of the prosecution.
The charges contained in the Complaint, and the other charges brought in connection with the ongoing investigation, are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Kristin Davis Complaint
Manhattan U.S. Attorney and EPA Announce Lawsuit Against Westchester County for Failing to Comply with the Federal Safe Drinking Water ActRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Judith Enck, Regional Administrator of the U.S. Environmental Protection Agency (“EPA”), announced today that the United States has filed a civil lawsuit against the County of Westchester, New York (“Westchester”) alleging violations of the federal Safe Drinking Water Act (“SDWA”).
Manhattan U.S. Attorney Preet Bharara said: “The federal Safe Drinking Water Act is designed to protect public health by requiring suppliers of water to take steps to prevent water-borne diseases from being transmitted to the public. Westchester’s prolonged failure to comply with treatment rules designed to prevent cryptosporidiosis is unacceptable.”
EPA Regional Administrator Judith Enck stated: “Westchester County has an obligation to protect the public and come into compliance with the Safe Drinking Water Act. In 2013, it is hard to believe there is resistance to taking action to prevent water-borne diseases.”
The lawsuit alleges that since April 2012 Westchester, through its Water District No. 1, has failed to comply with an SDWA rule that requires municipal drinking water suppliers to treat all unfiltered surface water for Cryptosporidium, a microscopic parasite. Cryptosporidium can cause cryptosporidiosis, a potentially fatal gastrointestinal illness in humans with symptoms that include diarrhea, nausea and abdominal cramps. There is no known treatment for cryptosporidiosis, and symptoms may persist for two weeks or longer in otherwise healthy adults and can be life-threatening for more vulnerable individuals.
Westchester’s Water District No. 1 supplies water to residents of municipalities including Scarsdale, White Plains, and Yonkers. According to the lawsuit, Westchester has failed to treat a significant portion of the water supplied to customers by Water District No. 1 for Cryptosporidium, especially in the northern part of this water district.
The Complaint filed by the United States seeks an order compelling Westchester to comply with the mandatory treatment requirements and ensure the delivery of properly treated drinking water to all households served by District No. 1. The complaint also seeks civil penalties for Defendant’s violations.
This case is being handled by the Office’s Environmental Protection Unit. Assistant U.S. Attorney Natalie N. Kuehler is in charge of the case.
WestchesterWater.Complaint
Doctor and Two Consultants Found Guilty in Manhattan Federal Court in LIRR Disability Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that PETER LESNIEWSKI, MARIE BARAN, and JOSEPH RUTIGLIANO were convicted today in Manhattan federal court for their participation in a massive fraud scheme in which Long Island Rail Road (“LIRR”) employees claimed to be disabled upon early retirement so that they could receive federal disability benefits to which they were not entitled. The three defendants were convicted on all counts charged following a three-week trial before U.S. District Judge Victor Marrero. Twenty-eight defendants have now been convicted in this case.
Manhattan U.S. Attorney Preet Bharara said: “Today, Peter Lesniewski, Marie Baran and Joseph Rutigliano stand convicted of participating in the massive LIRR disability fraud that turned a safety net for the truly disabled into a gravy train for the corrupt. Dr. Lesniewski enabled hundreds of LIRR employees to dupe the government through medical paper trails filled with bogus diagnoses, while Baran and Rutigliano, in exchange for payments of thousands of dollars, helped lard the employees’ disability benefit applications with lies. Lesniewski, Baran and Rutigliano served as engines of this fraud that led to a staggering 79% of LIRR retirees from 1998 to 2011 receiving federal disability benefits, costing the government hundreds of millions of dollars. Like the 25 people who previously pled guilty, these defendants now have been brought to justice and will pay for their central roles in this brazen scheme.”
According to the charging documents in this case and evidence presented at trial:
The LIRR Disability Fraud Scheme
The U.S. Railroad Retirement Board (“RRB”) is an independent U.S. agency that administers benefit programs, including disability benefits, for the nation’s railroad workers and their families. A unique LIRR contract allowed employees to retire at the relatively young age of 50 – the age of eligibility has since changed to 55 – if they had been employed by the LIRR for at least 20 years. Eligible employees are entitled to receive an LIRR pension, which is a portion of the full retirement payment for which they are eligible at 65. In addition, at full retirement age (between age 60 and age 65 depending on years of service), they are eligible to receive an RRB retirement pension. For LIRR workers who retired at 50 with only an LIRR pension, they would receive less than their prior salary and substantially lower pension payments than those to which they would be entitled at full retirement age. However, LIRR employees who retired and claimed disability could receive a disability payment from the RRB on top of their LIRR pension, regardless of age. A retiree’s LIRR pension, in combination with RRB disability payments, can be roughly equivalent to the base salary earned during his or her career.
Hundreds of LIRR employees 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 1998 through 2011, approximately 79% of LIRR retirees obtained federal disability when they retired. By contrast, during this same period, only approximately 21% of retiring Metro-North employees stopped working and began receiving RRB disability benefits.
During the period 2004 through 2008, just three doctors – including LESNIEWSKI – were responsible for approximately 86% of all the disability claims submitted by LIRR retirees. Another of these doctors, Dr. Peter J. Ajemian, pled guilty for his participation in the fraud and was sentenced in May 2013 to eight years in prison.
The Disability Doctor
LESNIEWSKI, a Board-certified orthopedist, recommended more than 130 LIRR workers for disability benefits. He used his medical practice as a disability mill, preparing fraudulent medical narratives for LIRR retirees well before the employees’ planned retirement dates so that the narratives could be submitted to the RRB upon retirement. These medical narratives were fabricated or grossly exaggerated in order to substantiate the LIRR employees’ bogus claims of disability. Many of the purportedly “objective” findings from the medical tests LESNIEWSKI conducted showed nothing more than normal – and non-disabling – degenerative changes one would expect to see in patients within the relevant age bracket. And in many cases, LESNIEWSKI failed to provide any meaningful treatment for the LIRR employees’ purported ailments. He received approximately $850 to $1,000, often in cash, for these fraudulent assessments and narratives, as well as hundreds of thousands of dollars in health insurance payments for unnecessary medical tests and fees for preparing fraudulent medical support for the claimed disabilities.
In one instance, a LIRR employee expressed concern to LESNIEWSKI about losing his disability benefits, and told him in writing, “Once I get shoulder fixed, Railroad Retirement may withdraw disability benefits.” In response, LESNIEWSKI performed tests on the employee’s back and knees, and within weeks, had created a paper trail falsely documenting supposedly disabling conditions in the employee’s back, hands, and knee.
The Disability Consultants
LIRR employees also utilized the services of so-called “disability consultants,” including BARAN and RUTIGLIANO, to further increase their chances of fraudulently obtaining disability benefits from the RRB. For approximately $1,000, typically paid in cash, BARAN and RUTIGLIANO falsely filled out disability applications on behalf of their LIRR clients to maximize the likelihood that they would receive disability benefits. Among other things, the defendants filled their clients’ disability applications with false, cookie-cutter descriptions of their physical condition and ability to work. The defendants also hid the income they were receiving from their respective disability consulting businesses.
Before working as a disability consultant, BARAN served as an RRB district office manager in Westbury, New York, until her retirement in December 2006. BARAN’s husband, an LIRR retiree, receives RRB disability benefits based on a medical assessment done by LESNIEWSKI. The disability application submitted by BARAN’s husband claimed that he was too disabled to work and that he had difficulty performing such basic daily activities as sitting, standing, walking, writing, and even tying his shoes. However, during his retirement, BARAN’S husband regularly played golf and traveled around the world with her. BARAN also referred her LIRR employee clients to LESNIEWSKI and the other disability doctors.
RUTIGLIANO is a former LIRR conductor and union president who applied for and received an RRB occupational disability after his retirement in 1999. In the year prior to retiring, he worked substantial hours of overtime, took no sick leave whatsoever, and then applied for a disability with a narrative LESNIEWSKI prepared. Moreover, while receiving disability benefits from the RRB, RUTIGLIANO regularly played golf year-round.
LESNIEWSKI, 62, of Rockville Centre, New York, was convicted of one count of conspiracy to commit mail fraud, wire fraud and health care fraud, which carries a maximum sentence of 20 years in prison, one count of conspiracy to defraud the RRB, which carries a maximum sentence of five years in prison, two counts of health care fraud, two counts of mail fraud, and four counts of wire fraud. Each of the health care fraud counts carries a maximum sentence of 10 years in prison, and each count of mail fraud and wire fraud carries a maximum sentence of 20 years in prison.
BARAN, 65, of East Meadow, New York, was convicted of two counts of conspiracy to commit mail fraud, wire fraud and health care fraud, two counts of conspiracy to defraud the RRB, two counts of health care fraud, two counts of mail fraud, and two counts of wire fraud.
RUTIGLIANO, 66, of Holtsville, New York, was convicted of two counts of conspiracy to commit mail fraud, wire fraud and health care fraud, two counts of conspiracy to defraud the RRB, three counts of mail fraud, three counts of wire fraud, and one count of making a false statement. The count of making false statements carries a maximum sentence of five years in prison.
LESNIEWSKI, BARAN and RUTIGLIANO will be sentenced by U.S. District Judge Victor Marrero on December 13, 2013 at 3pm.
Thirty-three people have been charged in connection with the LIRR disability fraud scheme, 25 of whom have pled guilty and three of whom have now been convicted after trial. The charges against the remaining defendants, Kevin Neville, Donald Alevas, Frederick Catalano, Jr, Thomas Coscetta, and Michael Costanza, are merely allegations, and they are all presumed innocent unless and until proven guilty.
Mr. Bharara praised the work of the RRB-OIG, the FBI, and the MTA-OIG for their outstanding work in the investigation, which he noted is continuing. He also acknowledged the previous investigation conducted by the New York State Attorney General’s Office into these pension fraud issues.
The case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Justin Weddle, Nicole Friedlander, and Daniel Tehrani are in charge of the prosecution.
Former Hedge Fund Principal Sentenced in Manhattan Federal Court to Two Years in Prison for Stealing over $2 Million in Investor FundsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that BERTON HOCHFELD, the former Manager of Hochfeld Capital Management, L.L.C. (“Hochfeld Capital”), was sentenced today in Manhattan federal court to two years in prison in connection with an investment scheme in which he stole more than $2 million from investors. HOCHFELD pled guilty in January 2013 to one count of securities fraud and one count of wire fraud before U.S. District Judge Paul A. Crotty, who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Berton Hochfeld scammed investors who trusted him out of more than $2 million and spent it in part on luxury items for himself. This Office will not tolerate those who seek to bilk their investors.”
According to the charging instruments in this case and statements made in open court and at the plea proceeding:
HOCHFELD was the Manager and organizer of Hochfeld Capital, a limited liability company incorporated in Delaware that, at various times, maintained an office in New York, New York. Hochfeld Capital, in turn, served as the General Partner of the Heppelwhite Fund, L.P. (the “Heppelwhite Fund”), a hedge fund that was formed to invest in publicly traded securities, mainly in the technology sector. In connection with the management of the Heppelwhite Fund, HOCHFELD made false representations to investors regarding their investments, and misappropriated their money.
For example, by December 2010, HOCHFELD was aware that Hochfeld Capital’s internal accounting for the Heppelwhite Fund reflected an inflated net asset value (“NAV”), as compared to the value reflected in the books of the prime broker where the fund’s assets were actually located. Despite his knowledge of the disparity, HOCHFELD caused monthly statements to be sent to Heppelwhite Fund investors that reflected the inflated NAV calculated by internal accounting records.
From April 2011 through October 2012, HOCHFELD also withdrew money from the Heppelwhite Fund for his own personal use, ultimately misappropriating more than $2 million. During this period, at HOCHFELD’s direction, monthly account statements were provided to Heppelwhite Fund investors that falsely represented the fund’s value by failing to account for the money that he had withdrawn. At a meeting in October 2012, HOCHFELD admitted to certain investors that he had taken more than $1 million from the Heppelwhite Fund, and that he spent portions of that money on antiques and vacations.
In addition to his prison term, HOCHFELD, 66, of Stamford, Connecticut, was sentenced to three years of supervised release. He was also ordered to forfeit $2,110,535.84.
Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission for their assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Jillian Berman is in charge of the prosecution.
Robert Lustyik, Former FBI Special Agent, and TwoCo-Conspirators Charged in White Plains Federal Court with Bribery SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Mythili Raman, the Acting Assistant U.S. Attorney General of the Criminal Division, and Michael E. Horowitz, the U.S. Department of Justice Inspector General, announced today the unsealing of a criminal Complaint (the “Complaint”) charging ROBERT LUSTYIK, a former FBI Special Agent in White Plains, JOHANNES THALER, and RIZVE AHMED, a/k/a “Caesar,” with a bribery scheme. The charges arise out of the solicitation by LUSTYIK, along with his alleged accomplice, THALER, of cash payments from AHMED in exchange for LUSTYIK and THALER’s providing confidential, internal law enforcement documents and information to AHMED which LUSTYIK had access to by virtue of his position as an FBI Special Agent. AHMED and THALER were arrested today on the charges in the Complaint and were presented before U.S. Magistrate Judge George A. Yanthis in the White Plains federal court. THALER was released on a personal recognizance bond and AHMED was detained without bail. LUSTYIK is currently detained in connection with a separate pending indictment in United States District Court for the District of Utah, where he will be initially presented on the charges in the Complaint.
U.S. Attorney Preet Bharara stated: “It is egregious when, as charged, a law enforcement officer, trained and sworn to uphold the law, transgresses into any kind of criminal behavior. It is particularly egregious when the accused was an FBI Special Agent who was willing to compromise the operations of the Bureau. But he and his co-defendants will now be treated no differently from any other person so accused. We will prosecute to the full extent of the law.”
According to allegations in the Complaint unsealed today in the White Plains federal courthouse:
LUSTYIK was an FBI Special Agent who worked in the White Plains Resident Agency. THALER was LUSTYIK’s friend, and AHMED was an acquaintance of THALER’s. From about September 2011 through March 2012, LUSTYIK, THALER, and AHMED engaged in a bribery scheme. As part of the scheme, LUSTYIK and THALER solicited payments of money from AHMED, in exchange for LUSTYIK’s agreement to provide internal, confidential documents and other confidential information to which LUSTYIK had access by virtue of his position as an FBI Special Agent. The Complaint alleges that AHMED was a native of Bangladesh who sought confidential law enforcement information, including a Suspicious Activity Report, pertaining to a prominent citizen of Bangladesh who was affiliated with an opposing political party (“Individual 1”). AHMED sought, among other things, to obtain information about Individual 1, to locate Individual 1, and to harm Individual 1 and others associated with Individual 1.
As part of the scheme, LUSTYIK and THALER exchanged text messages, including messages about how to pressure AHMED to pay them additional money in exchange for confidential information. For example, in text messages, LUSTYIK told THALER, “we need to push [AHMED] for this meeting and get that 40 gs quick . . . . I will talk us into getting the cash . . . . I will work my magic . . . . We r sooooooo close.” THALER responded, “I know. It’s all right there in front of us. Pretty soon we’ll be having lunch in our oceanfront restaurant . . . .” For another example, in or about late January 2012, LUSTYIK, upon learning that AHMED was considering using a different source to obtain confidential information about Individual 1, texted THALER, “I want to kill [AHMED] . . . . I hung my ass out the window n we got nothing? . . . . Tell [AHMED], I’ve got [Individual 1’s] number and I’m pissed. . . . I will put a wire on n get [AHMED and his associates] to admit they want [a Bangladeshi political figure] offed n we sell it to Individual 1].”
According to the Complaint, LUSTYIK and THALER accepted at least $1,000 from AHMED in exchange for the provision of confidential FBI information, including a Suspicious Activity Report. The Complaint also alleges that LUSTYIK and THALER schemed to obtain monthly cash bribes from AHMED, in increments of tens of thousands of dollars, in exchange for the provision of additional confidential law enforcement information about Individual 1 and for assistance in having criminal charges against a Bangladeshi political figure dismissed.
LUSTYIK, THALER, and AHMED are each charged in a four-count Complaint.
Count One charges LUSTYIK, THALER, and AHMED with conspiracy to bribe a public official, in violation of Title 18, United States Code, Section 371. Count Two charges LUSTYIK and THALER with soliciting and receiving bribes, in violation of Title 18, United States Code, Section 201(b)(2). Count Three charges AHMED with bribing a public official and offering to bribe a public official, in violation of Title 18, United States Code, Section 201(b)(1). Count Four charges LUSTYIK with unlawfully disclosing a Suspicious Activity Report (“SAR”), in violation of Title 31, United States Code, Section 5322(a).
LUSTYIK, 50, of Westchester County, faces, upon conviction, a maximum sentence of 25 years in prison.
THALER, 49, of Fairfield County, Connecticut, faces, upon conviction, a maximum sentence of 20 years in prison.
AHMED, 34, of Fairfield County, Connecticut, faces, upon conviction, a maximum sentence of 20 years in prison.
Acting Assistant Attorney General Raman and Mr. Bharara praised the efforts of the Department of Justice’s Office of Inspector General in connection with this investigation.
The prosecution is being handled by the U.S. Attorney’s Office for the Southern District of New York, White Plains Division, and by the Criminal Division’s Public Integrity Section of the U.S. Department of Justice. Assistant United States Attorney Benjamin Allee and Trial Attorney Emily Rae Woods are in charge of the prosecution.
The charges in the Complaint are merely accusations, and the defendants are presumed innocent until and unless proven guilty.
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LustyikEtAlComplaint signed (2)Pennsylvania Man Sentenced in Manhattan Federal Court to 57 Months in Prison for Bribing A New York City Department of Education Employee in Furtherance of $2.7 Million FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that NELSON RUIZ was sentenced in Manhattan federal court to 57 months in prison and restitution for defrauding the New York City Department of Education (“DOE”) out of approximately $2.7 million and to bribing a DOE employee in furtherance of the fraud scheme. RUIZ pled guilty in December 2012 to one count of mail fraud and one count of bribery concerning programs receiving federal funds before U.S. District Judge John G. Koeltl, who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Nelson Ruiz lined his pockets with $2.7 million of scarce New York City resources meant for special-needs children and bribed a public employee in the process. Today, he was made to pay for his crimes with 57 months in prison and restitution of the $2.7 million. We will continue to do everything in our power to pursue and prosecute those who defraud the government, particularly those who shamelessly funnel money away from some of the city’s neediest programs.”
According to the Complaint, the Information, the plea agreement, and statements made in court:
From 2008 through June 2012, RUIZ used six companies that he controlled (the “RUIZ Companies”) to bill the DOE approximately $2.7 million for sign language interpretation services. According to the DOE billing forms that RUIZ submitted, the sign language interpretation services were provided during that time to 11 New York City public schoolchildren – all of whom had varying special needs, including cognitive, developmental, academic, and language delays (the “11 Students”) – at their schools.
None of the sign language interpretation services for which the DOE paid the RUIZ Companies were ever provided to any of the students. In fact, none of the students actually needed the services that the RUIZ Companies claimed to have provided and for which he received approximately $2.7 million. For example, during the 2010-2011 and 2011-2012 academic years, at least three of the 11 Students were not even enrolled in a DOE school. In addition, from July 2010 through May 2012, RUIZ falsely certified on 75 DOE billing forms that he had provided approximately $200,000 worth of sign language interpreting services to one of the 11 Students, even though that student never received any such services during that period and had not been a New York City public school student since 2009. Ruiz also used students’ personal information, submitted fraudulent DOE applications and billing forms, forged the signatures of at least two students’ parents and seven DOE officials – one of whom had died prior to the date of her forged signature, and another who had retired six years prior to the date of her forged signature.
As part of this scheme, RUIZ paid hundreds of dollars each month to a DOE employee, Thomasina Chappell, to whom he submitted the fraudulent billing forms for the 11 Students. RUIZ paid these bribes in exchange for her assistance in, among other things, expediting the processing of and payment to RUIZ for the fraudulent sign language interpretation bills.
In addition to his prison term, RUIZ, 36, of Shohola, Pennsylvania, was ordered to forfeit $2,720,860, representing the proceeds of the crime, including approximately $275,000 that the Government seized from the RUIZ Companies’ bank accounts at the time of RUIZ’s arrest. He was also ordered to pay $2,720,860 in restitution to the New York City Department of Education and a $200 special assessment fee.
Chappell pled guilty in June 2013 to one count of conspiring to commit federal programs bribery in connection with her receipt of cash from RUIZ in exchange for her assistance in processing invoices for sign language interpretation services purportedly being provided by the RUIZ Companies. She faces a maximum sentence of five years in prison, and is scheduled to be sentenced by Judge Koeltl on December 13, 2013.
Mr. Bharara praised the investigative work of the New York City Department of Investigation and the Special Commissioner of Investigation for the New York City School District.
This case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Paul Krieger is in charge of the prosecution. Assistant United States Attorney Andrew Goldstein is in charge of the forfeiture aspects of the case.
Member of Violent Robbery Crew Sentenced to 65 Years in Prison After Being Found Guilty in Manhattan Federal Court of Murder, Nine Robberies, and Firearms ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JERMAINE DORE, a member of a violent robbery crew operating in the Bronx and Westchester County, New York, was sentenced today in Manhattan federal court to 65 years in prison. DORE and his co-defendant Dwayne Barrett were convicted in March 2013 of murder, robberies, and firearms charges after a two-week jury trial before U.S. District Judge Richard J. Sullivan, who imposed today’s sentence.
DORE was sentenced based on his convictions on the following seven counts: (1) participating in a conspiracy to commit robberies from 2010 through January 2012; (2) using, carrying, or possessing firearms in connection with the robbery conspiracy; (3) committing a robbery on October 29, 2011, at an apartment on Radcliff Avenue in the Bronx, New York; (4) using, carrying, or possessing firearms in connection with the October 29 robbery; (5) committing a robbery on December 12, 2011, in the vicinity of 267 South Fourth Avenue, Mount Vernon, New York; (6) using, carrying, or possessing firearms in connection with the December 12 robbery; and (7) causing the death of Gamar Dafalla, one of the victims of the December 12 robbery.
Manhattan U.S. Attorney Preet Bharara said: “Jermaine Dore marauded across Pennsylvania, the Bronx and Westchester County in a series of violent robberies against local merchants, including one cold-blooded attack that left a victim dead. A jury found him and his co-defendant Dwayne Barrett guilty, and now Dore has paid for his crimes with a steep sentence.”
According to the Superseding Indictment and the evidence presented at trial:
Between August 2011 and January 2012, DORE and Barrett participated in nine separate robberies. They carried out those robberies, using weapons – including firearms and knives – to injure, terrorize, and in one case murder, one of their victims. The nine robberies were:
- A robbery that took place on August 22, 2011, in Matamoras, Pennsylvania, during which an individual who owns a gas station and store was assaulted and robbed of approximately $45,000 in business proceeds;
- A robbery that took place on October 5, 2011, in the Bronx, New York, during which two individuals who sell telephone calling cards to bodegas, grocery stores, and other commercial locations, were robbed of approximately $700;
- A robbery at knifepoint that took place on October 10, 2011, in the Bronx, New York, during which the employee of a bodega was robbed of a cellphone and laptop computer;
- A robbery at knifepoint that took place on October 11, 2011, in New Rochelle, New York, during which an individual who sold telephone calling cards was beaten and robbed of more than $6,000 and telephone calling cards valued at approximately $6,000;
- A robbery at gunpoint that took place on October 29, 2011, of an individual who owns a poultry market in the Bronx, New York, during which approximately $15,000 in business proceeds were taken;
- A robbery at gunpoint on December 12, 2011, in Mount Vernon, New York, during which the defendants attempted to rob three victims engaged in the business of selling cigarettes to other individuals and commercial establishments, and shot and killed one of the victims;
- A robbery that took place on December 12, 2011, in the Bronx, New York, during which an individual employed by a company that sells tobacco products to commercial establishments was threatened with a gun and a knife and robbed of more than $15,000;
- A robbery that took place on December 31, 2011, in the Bronx, New York, during which an individual who sold telephone calling cards was beaten and robbed of approximately $3,000 and 100 telephone calling cards; and
- A robbery at knifepoint that took place on January 7, 2012, in the Bronx, New York, during which an individual who owns a business that supplies merchandise to bodegas was assaulted and robbed of approximately $1000.
In addition to DORE, 26, of the Bronx, New York, Judge Sullivan is scheduled to sentence Barrett on September 25, 2013. Barrett faces a maximum sentence of life in prison.
Three other defendants pled guilty to related charges prior to trial: Fahd Hussain, Taijay Todd, and Tameshwar Singh. Hussain was the operator of One M Stationery Store, located on White Plains Road in the Bronx, New York, who exploited his relationships with other business owners, including individuals who supplied Hussain’s store with telephone calling cards and other merchandise, personal friends, and family members in targeting the robbery victims. Many of the victims were business owners and members of the Yemeni community in New York City, as was Hussain. Todd participated in several of the robberies with DORE and Barrett. Singh was a business associate of Hussain who engaged in the transportation of untaxed cigarettes. Hussain, Todd, and Singh are scheduled to be sentenced by Judge Sullivan on September 11, August 8, and August 9, 2013, respectively.
Mr. Bharara praised the New York Division of the United States Bureau of Alcohol, Tobacco, Firearms and Explosives and the Police Department for the City of New York for their work in this investigation.
The prosecution of this case is being overseen by the Office’s Violent Crimes Unit. Assistant United States Attorneys Amy Lester and Jessica Masella are in charge of the prosecution.
Violent Robber Sentenced in White Plains Federal Court to Life in Prison for Murder in NewburghOf Tomas AlmodovarRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that GEORGE SQUIRE was sentenced today in White Plains federal court to life in prison for his murder of Tomas Almodovar on March 24, 2012. SQUIRE shot and killed Almodovar while SQUIRE was robbing Almodovar in the lobby of 5 City Terrace, Newburgh, New York. On September 5, 2012, SQUIRE was indicted in this district for (1) committing a Hobbs Act Robbery, in violation of Title 18, United States Code, Section 1951; and (2) causing the death of Almodovar by discharging a firearm during a robbery, in violation of Title 18, United States Code, Section 924(j). On February 27, 2013, SQUIRE pled guilty to both counts in the Indictment. United States District Judge Kenneth M. Karas presided over this case.
Manhattan U.S. Attorney Preet Bharara said: “This senseless murder is yet another sad example of what happens when men who use and carry guns commit crimes. Now, a wife is without a husband, and three young children have lost their father. This Office’s ongoing commitment to rooting out the scourge of gang members who commit violent crimes in areas like Newburgh will not stop.”
According to the statements made at sentencing and documents filed in the case:
SQUIRE robbed Almodovar at gunpoint and during the robbery, SQUIRE shot and killed Almodovar. Following the murder, SQUIRE bragged to a friend that SQUIRE had been waiting inside 5 City Terrace to rob customers of a marijuana business operating on the second floor of the building, and that SQUIRE approached Almodovar with a .25 caliber firearm as Almodovar was coming downstairs from the second floor apartment. SQUIRE decided to kill Almodovar because Almodovar brushed away SQUIRE’s gun, and SQUIRE described watching Almodovar stumble out of the building onto Broadway before falling down from the gunshot wound. SQUIRE was 19 years old at the time he killed 26-year old Almodovar. SQUIRE and Almodovar had never met before that night. The victim was not involved in drug trafficking activity, but was an occasional user of marijuana who made purchases for personal use.
Tomas Almodovar was married, employed and the father of three young children. On the night he was killed, Almodovar had been on a date with his wife and they had just returned from dinner and a movie. A courtroom full of Almodovar’s family members and friends attended the sentencing, including his parents and widow. Several family members submitted letters to the Court or spoke at the sentencing about Almodovar’s life-long dedication to his family.
This case is being prosecuted by the White Plains Office and the Violent Crimes Unit. Assistant United States Attorneys Parvin Moyne and Andrew Bauer are in charge of the prosecution.
SquireGeorge.Indictment
Manhattan U.S. Attorney Announces Agreement with Liechtenstein Bank to Pay $23.8 Million to Resolve Criminal Tax InvestigationRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Kathryn Keneally, the Assistant Attorney General for the Tax Division of the Department of Justice, and Richard Weber, the Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein (“LLB-Vaduz”), has agreed to pay more than $23.8 million to the United States and entered into a non-prosecution agreement (“NPA”) with the U.S. Attorney’s Office for the Southern District of New York. The NPA provides that LLB-Vaduz will not be criminally prosecuted for opening and maintaining undeclared bank accounts for U.S. taxpayers from 2001 through 2011, when LLB-Vaduz assisted a significant number of U.S. taxpayers in evading their U.S. tax obligations, filing false federal tax returns with the IRS, and otherwise hiding accounts held at LLB-Vaduz from the IRS. The NPA requires LLB-Vaduz to forfeit $16,316,000, representing the total gross revenues that it earned in maintaining these undeclared accounts, and to pay $7,525,542 in restitution to the IRS, representing the approximate unpaid taxes arising from the tax evasion by LLB-Vaduz’s clients. The NPA applies only to LLB-Vaduz and not to any of its subsidiaries or any individuals. LLB-Vaduz has decided to close its wholly-owned Swiss subsidiary, Liechtensteinische Landesbank (Switzerland) Ltd. and has also decided to sell another wholly-owned subsidiary, Jura Trust AG.
Manhattan U.S. Attorney Preet Bharara said: “With this agreement, one of Liechtenstein’s most important banks has put an era behind it. Today’s agreement with Liechtensteinische Landesbank AG reflects the unprecedented nature of the bank’s cooperation, and serves as another reminder for U.S. tax cheats who mistakenly believe that their offshore bank will never turn over their account files to U.S. authorities. To them we say, you can hide, but not forever.”
Assistant Attorney General Kathryn Keneally said: “This non-prosecution agreement addresses the past wrongful conduct of LLB-Vaduz in allowing U.S. taxpayers to evade their legal obligations through the use of undisclosed Liechtenstein bank accounts, while also acknowledging the extraordinary efforts of the bank in bringing about significant changes in Liechtenstein law. As a result of new Liechtenstein legislation, U.S. taxpayers who thought that they had obtained the benefit of Liechtenstein’s tax secrecy laws have learned that their bank files were turned over on the request of the Department of Justice.”
IRS-CI Chief Richard Weber said: “In 2008, Liechtensteinische Landesbank AG began requiring all U.S. taxpayers with accounts at LLB-Vaduz to declare their income. In addition, Liechtenstein’s Parliament amended their national law on tax matters to make easier the identification to the United States of non-compliant taxpayers. Today’s action sends a strong message to those Americans who hide their true income from the IRS. It's time to come clean and pay your fair share of taxes like law-abiding citizens do every day.”
The NPA recognizes that, in 2008, before the IRS and the U.S. Attorney’s Office began the investigation, LLB-Vaduz voluntarily implemented a series of remedial measures to stop assisting undeclared U.S. taxpayers in evading federal income taxes. The NPA further recognizes LLB-Vaduz’s extraordinary cooperation in the form of its support and assistance in 2012 to obtain a change in law by the Liechtenstein Parliament that permitted the Department of Justice to request and obtain the bank files of non-compliant U.S. taxpayers from Liechtenstein without having to identify the taxpayers by name (the “2012 Law”).
Pursuant to such a request by the Department of Justice, Liechtenstein transferred to the Department of Justice more than 200 files of U.S. taxpayers who held undeclared accounts at LLB-Vaduz, directly or through sham corporations, foundations, or trusts (“structures”). In addition, pursuant to the 2012 Law, the Department of Justice has submitted a second request to the Liechtenstein government for records relating to various Liechtenstein firms that provided trust administration and other fiduciary services that enabled U.S. taxpayers to hold undeclared accounts through structures at banks in Liechtenstein, Switzerland, and elsewhere.
As part of the NPA, LLB-Vaduz admitted various facts concerning its wrongful conduct and the remedial measures that it took to cease that conduct. Specifically, LLB-Vaduz admitted that it knew certain U.S. taxpayers were maintaining undeclared accounts at LLB-Vaduz in order to evade their U.S. tax obligations, in violation of U.S. law. In addition, LLB-Vaduz admitted that it knew of the high probability that other U.S. taxpayers who held undeclared accounts did so for the same unlawful purpose because significant numbers of U.S. taxpayers employed structures to hold their accounts, instructed LLB-Vaduz to use code names or numbers to refer to them on account statements and other bank documents, instructed LLB-Vaduz not to mail such documents to them in the United States, and instructed LLB-Vaduz not to disclose their identity to the IRS, among other things. At the end of 2006, LLB-Vaduz held more than $340 million of undeclared assets on behalf of U.S. taxpayers in more than 900 accounts.
As part of the NPA, LLB-Vaduz has agreed to forfeit $16,316,000 to the United States, representing LLB-Vaduz’s total gross revenues from services that it provided to undeclared U.S. taxpayers from 2001 through 2011. In connection with this forfeiture, LLB-Vaduz has agreed not to contest a civil forfeiture action filed by the United States. That action was filed on July 30, 2013 in U.S. District Court for the Southern District of New York and assigned to U.S. District Judge Katherine P. Failla.
The U.S. Attorney’s Office entered into the NPA based on factors including:
- LLB-Vaduz’s voluntary implementation of various remedial measures beginning in June 2008, before the investigation of its conduct began;
- LLB-Vaduz’s voluntary cooperation with this Office and the government of Liechtenstein after becoming aware of this Office’s investigation;
- LLB-Vaduz’s willingness to continue to cooperate with this Office and the IRS to the extent permitted by applicable law;
- LLB-Vaduz’s substantial support for the 2012 Law, which has already permitted the production to the Department of Justice of more than 200 account files of U.S. taxpayers who held undeclared accounts at LLB-Vaduz;
- LLB-Vaduz’s representation, based on an investigation by external counsel, that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts;
The NPA requires LLB-Vaduz to continue to cooperate with the United States for at least three years from the date of the agreement. The NPA applies only to LLB-Vaduz and does not apply to any of its subsidiaries, including its Swiss subsidiary, or to any individuals. In the event that LLB-Vaduz violates the NPA, the U.S. Attorney’s Office may prosecute LLB-Vaduz.
Mr. Bharara thanked the IRS for its outstanding work in the investigation of this matter and the Tax Division of the Department of Justice for its assistance in the investigation. Mr. Bharara also thanked the Liechtenstein Tax Authority and the Liechtenstein Public Prosecutor’s Office for their assistance in this matter.
This investigation is being overseen by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys David B. Massey, Daniel W. Levy, and Jason H. Cowley are in charge of the matter.
LLB NPA
LLB Forfeiture ComplaintManhattan U.S. Attorney and FBI Assistant Director-In-Charge Announce Insider Trading Charges Against Former Equity Research AnalystRead 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”), today announced conspiracy charges against SANDEEP AGGARWAL, a former equity research analyst for a financial services firm located in San Francisco, California (“the Firm”), for his alleged involvement in an insider trading scheme. As alleged, AGGARWAL provided material, nonpublic information (“Inside Information”) concerning a strategic partnership in internet search and advertising between Microsoft Corporation (“Microsoft”) and Yahoo! Inc. (“Yahoo”) (the “Partnership”) to at least two different hedge funds. AGGARWAL was arrested yesterday in San Jose, California, and will be presented today in federal district court in the Northern District of California.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Sandeep Aggarwal leveraged his contacts in the technology industry to obtain an illegal edge in the form of inside information about a highly anticipated development, and then lied about his criminal conduct. With his arrest today, we continue our work to investigate and prosecute privileged professionals who think the laws requiring honesty and fair play do not apply to them.”
FBI Assistant Director-in-Charge George Venizelos said: “Like many others before him, Sandeep Aggarwal allegedly broke the law and provided material non-public information on a Microsoft-Yahoo deal. When questioned by his employer about the source of the information, he lied. Yesterday’s arrest is the latest step in the FBI’s long-running investigation into insider trading in the hedge fund industry.”
In a separate action, the U.S. Securities and Exchange Commission (“SEC”) announced civil charges against AGGARWAL.
According to the Complaint unsealed today in Manhattan federal court:
On the evening of July 9, 2009, AGGARWAL learned from a friend who was an employee of Microsoft that discussions about the Partnership had recommenced and that a transaction was likely within the next few weeks. The next day, AGGARWAL provided information about the Partnership to at least two different hedge funds, including to Richard Lee, then a portfolio manager at SAC Capital Advisors LP. On July 10, 2009, AGGARWAL told Lee, in substance, that he had heard from a source – whom AGGARWAL described as “a senior guy at Microsoft” – that (a) senior Yahoo executives had been meeting with senior Microsoft executives at Microsoft’s offices; (b) senior Microsoft executives were making requests for information that suggested to the sources that a deal was likely to be completed soon; (c) the success of Microsoft’s Bing search engine had caused Yahoo to move closer to Microsoft’s offer; and (d) it was likely that the deal could be announced within the next two weeks. Thereafter, Lee’s hedge fund purchased several hundred thousand shares of Yahoo stock, and Lee purchased 25,000 shares of Yahoo stock in his personal account.
The complaint further alleges that, when the Firm’s management questioned AGGARWAL on July 10, 2009 about the information he was providing to hedge funds concerning the Partnership, AGGARWAL falsely denied having any Inside Information and claimed that his source was a person who had been retired from Microsoft for two years.
AGGARWAL, 40, of Gurgon, India, is charged with one count of conspiracy to commit securities fraud, and one count of conspiracy to commit wire fraud. The conspiracy to commit securities fraud 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. The conspiracy to commit wire fraud count carries a maximum sentence of 20 years in prison and a fine of the greater of $250,000, or twice the gross gain or loss from the offense.
Richard Lee pled guilty on July 23, 2013 to a criminal Information charging him with one count of conspiracy and one count of securities fraud in connection with insider trading between April 2009 through 2010, while he was employed by SAC Capital Advisors LP.
Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission. He also noted that the investigation is continuing.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney 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 is 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.
The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys John J. O’Donnell and Arlo Devlin-Brown 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. Sandeep Aggarwal Complaint
Former Businessman Pleads Guilty in Manhattan Federal Court to Fraud in Connection with the Financing of “Rebecca – The Musical”Read the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that one-time Long Island businessman, MARK HOTTON, pled guilty today in Manhattan federal court to defrauding the producers of the Broadway show “Rebecca – The Musical” (“Rebecca”) through an elaborate scheme involving fictitious overseas “investors” and the possibility of a last-minute $1.1 million loan. HOTTON also pled guilty to participating in a separate scheme to defraud a Connecticut-based real estate company through using many of the same deceptions he employed in the “Rebecca” fraud. HOTTON pled guilty today before U.S. District Judge John G. Koeltl.
Manhattan U.S. Attorney Preet Bharara said: “With his guilty plea today, the curtain is finally closing on Mark Hotton’s elaborately staged fraud. Though his lies and deceits were the stuff of fiction, they caused real harm to his victims, and he now faces real consequences as a result – the prospect of jail.”
According to the Complaint, the Indictment, and statements made in Manhattan federal court:
HOTTON once worked for a prominent investment bank and financial services firm, and is a former stockbroker with ties to numerous corporate entities. From September 2011 to October 2012, he engaged in two separate schemes involving fictitious individuals and entities that he created in order to defraud his victims – the producers of “Rebecca,” a musical based on the novel by Daphne du Maurier, and a Connecticut-based real estate company.
The Rebecca Fraud
As of late January 2012, the producers of “Rebecca” (the “Producers”) were trying to raise an additional $4 million in order to mount the musical on Broadway. The budget for Rebecca was between $12 million and $14 million, and in late January 2012, the producers realized they were at least $4 million short of their minimum capitalization goal. To raise additional funds, on or about February 7, 2012, the Producers’ company entered into an agreement with TM Consulting, Inc., a company HOTTON controlled. Under the agreement, HOTTON undertook to raise money for “Rebecca” in return for a fee of $7,500, plus 8% of any funds raised in excess of $250,000, plus tiered percentages of “Rebecca’s net profits.”
Over the course of the next few months, HOTTON led the Producers into believing that he had secured $4.5 million from four overseas investors – “Paul Abrams,” of Hawthorne, East Victoria; “Roger Thomas,” of St. Peter Port, Guernsey; “Julian Spencer,” of Crocker Hill, Chichester, Sussex, and “Walter Timmons,” of London, United Kingdom (the “HOTTON Investors”). HOTTON provided the Producers with purported email contact information for these individuals and also furnished the Producers with investment agreements purportedly signed by them. These individuals also purportedly wrote emails to the Producers. For example, in April 2012, “Paul Abrams,” using the email account [email protected], wrote one of the Producers an email saying, “Mr. Hotton has spoken so highly about you… I look forward to meeting you and if any further participation in the musical is attainable outside of what I’m doing personally, please let Mr. Hotton know so he can organize it thru my kids Trust.”
Between February and June 2012, the Producers made a number of payments to HOTTON. Not only did they pay the $7,500 fee in February 2012, they also paid HOTTON more than $17,000 between February and June 2012. Furthermore, in April 2012, HOTTON demanded and was paid an “advance” against his 8% commission, claiming that he needed the money to cover the costs of a purported safari he had taken with “Paul Abrams” and Abrams’ eldest son.
The investigation revealed, however, that the HOTTON Investors did not even exist. For example, some of the IP addresses used to access the email accounts of the HOTTON Investors trace back to a Manhattan location where HOTTON did business, and the businesses associated with some of the email address for the HOTTON Investors have websites whose domain names were registered to HOTTON and that he apparently created shortly before and during the fraud. HOTTON used the decoy email addresses to fabricate email correspondence between himself and the HOTTON Investors, which he then forwarded to the Producers. In some instances, he used the email addresses to communicate directly with the Producers.
In July 2012, as the Producers pressed for the HOTTON Investors to wire the money they had promised to send by July 31, 2012, HOTTON orchestrated the false illness, hospitalization, and subsequent untimely “death” of one of the main HOTTON Investors, “Paul Abrams.” HOTTON thereupon fabricated correspondence with a man named “Wexler,” who had purportedly been named the executor of the estate of “Paul Abrams.” HOTTON claimed to be meeting with “Wexler” in England in August 2012 in an effort to make sure the contribution to Rebecca was still made. However, travel records indicate that HOTTON had not left the United States since April 2012. Further, the email address used by “Wexler” was associated with a domain that was set up and registered to HOTTON.
As it became increasingly apparent that the commitments of the HOTTON Investors would fall through, HOTTON purported to try to broker a $1.1 million loan for the Producers, even offering up his own real estate and brokerage account as collateral for the loan. But there was no real loan or lender. Rather, HOTTON had simply created a second set of apparently fictional characters and entities to generate payments for himself. Among other things, HOTTON created the domain name of the title company he said could assist the Producers in obtaining the loan; invented the business, SPS Equity, purportedly making the loan; used decoy emails to fabricate correspondence with individuals, including “Gus” and “Robert Phillips” who purportedly worked for the lender; and invented a company that he said was a “commercial lending affiliate” of the bank that would facilitate his hollow offer to put up collateral for the loan. Through this part of the “Rebecca” scheme, HOTTON was able to defraud the Producers into paying in excess of $35,000 to him and companies he controlled, including $10,000 paid to him personally, as half of a fee for helping to broker the loan, and $23,000 paid to a bank account for the “lender” but which was really controlled by HOTTON’s sister and administrative assistant.
The Connecticut Real Estate Fraud
HOTTON employed a similar set of deceptive devices – including some of the same email addresses and fictitious companies used to defraud Rebecca’s Producers – in order to defraud a Connecticut-based real estate company (the “Real Estate Company”) into paying hundreds of thousands of dollars to him and companies he controlled.
Beginning in September 2011, HOTTON agreed to help the president of the Real Estate Company (the “President”) obtain financing for various business ventures. HOTTON promised that a California-based group called “Pacific Ventures” and its affiliate “Mezzanine Capital” would assist in providing a $20 million loan. HOTTON provided as an email address for a contact at “Pacific Ventures” the same email address he told the Producers was used by “Paul Abrams” and which was then purportedly used by “Walter Timmons” as well as the assistants of “Paul Abrams” in the “Rebecca” scheme. Meanwhile, HOTTON provided as an email address for a contact at “Mezzanine Capital” the same email address he told the Producers was used by “Roger Thomas,” one of the HOTTON Investors.
In March 2012, HOTTON told the President that a third company, “CPS Equity,” would be able to process the loan, but required a $200,000 upfront fee, which the President paid. CPS Equity was the company associated with, among other things, the email address used by “Paul Abrams” when communicating with Rebecca’s Producers. Following the initial $200,000 payment, HOTTON further instructed the President to make additional payments in order to secure the loan.
HOTTON, 46, of West Islip, New York, pled guilty to two counts of wire fraud, each of which carries a maximum term of 20 years in prison. In connection with his guilty plea, HOTTON also agreed to forfeit $500,000 and to make restitution payments to the victims of his schemes in the amount of $500,000. HOTTON is scheduled to be sentenced by Judge Koeltl on November 1, 2013.
Mr. Bharara praised the outstanding investigative work of the FBI.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Sarah McCallum, Edward B. Diskant, and Zachary Feingold are in charge of the prosecution.
U.S. v. Mark Hotton Indictment