Southern District of New York

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

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

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

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

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

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. Indictment

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

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

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.

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.

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

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

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

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

U.S. v. Javier Martin-Artajo Complaint
U.S. v. Julien Grout Complaint

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 Complaint

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

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.

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

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 Complaint

“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.

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 Forfeiture

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)

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.

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.

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

“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.”

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

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

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.

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.

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.

LustyikEtAlComplaint signed (2)
LustyikEtAlComplaint signed (2)

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.

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.

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

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 Complaint

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

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LLOYD BARRIGER, former president and principal shareholder of the Gaffken & Barriger Fund LLC (the “Fund”), which was a hedge fund based in Monticello, New York, pled guilty today in White Plains federal court to a four-count Superseding Indictment charging him with securities fraud, conspiracy to commit securities fraud, mail fraud, and conspiracy to commit mail fraud in connection with a $12.6 million investment fraud scheme.

Manhattan U.S. Attorney Preet Bharara said: “Once again, belief in hedge funds by hopeful investors proved to be sadly misplaced. In this case, the perpetrator was not in a sleek Manhattan building but rather in Sullivan County. Mr. Barriger's guilty plea brings to an end his fraud. We hope that all our cases big and small exposing frauds in hedge funds will convince other fund operators to adhere to the duties of trust and honesty that they owe their investors.”

According to the Superseding Indictment filed in White Plains federal court:

From July 2006 through March 2008, when he froze the Fund, BARRIGER solicited approximately $12.6 million dollars from over 70 investors by deceiving them about the Fund’s performance. During this time period, the Fund invested primarily in real estate collateralized commercial mortgage loans. BARRIGER described the Fund to prospective investors as a safe and liquid investment that paid a minimum return of eight percent per year, which BARRIGER referred to as the “Preferred Return.” He then reported this Preferred Return to investors as income on periodic account statements produced by the Fund. The Preferred Return was supposed to be funded by the Fund’s net income and thus subject to the Fund’s actual performance. However, BARRIGER knew that the Fund’s actual performance did not justify these performance claims.

BARRIGER tricked investors into investing their money by concealing material information from them, including that (1) the Fund had incurred a loss of $600,000 in 2005; (2) the Fund lacked sufficient income to support the promised eight percent Preferred Return; (3) the Fund only continued to pay the Preferred Return – when it actually paid the return rather than simply credit it to investors’ accounts – by funding payments with investor capital, rather than income; (4) the Fund disguised the lack of income by creating a large and growing deficit in BARRIGER’s capital account with the Fund; (5) as a result of the failure of its borrowers to repay their loans, the Fund experienced a severe liquidity crunch and could not meet any substantial amount of withdrawal requests; (6) the Fund had defaulted on its $20 million line of credit with a third party lender in March 2007 and remained in default for much of the period thereafter, which entitled the lender to prohibit distributions to investors and to seize the Fund’s assets; and (7) delinquencies in the Fund’s loan portfolio spiked to over approximately 25% in July 2007 and increased to approximately 34% in November 2007.

In a letter dated May 30, 2008, BARRIGER told the investors that the Fund wrote down the value of the portfolio by approximately 40% and that there was a total reduction in investors’ capital accounts from $25,538,530 to $15,003,208.

BARRIGER, 57, of Damascus, Pennsylvania, faces a maximum sentence of 65 years in prison. The Government notified BARRIGER in the Superseding Indictment that it would seek to forfeit at least $12.6 million from him, representing the proceeds of his charged crimes. BARRIGER is scheduled to be sentenced by U.S. District Court Judge Cathy Seibel on November 15, 2013.

Mr. Bharara praised the work of the Federal Bureau of Investigation and thanked the U.S. Securities and Exchange Commission for its extraordinary assistance in the investigation.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being handled by the White Plains Division. Assistant United States Attorneys Jeffrey Alberts and John P. Collins, Jr. are in charge of the prosecution.

U.S. v. Barriger, Lloyd S1 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that INGRID LEDERHAAS-OKUN, a former Vice President of Product Development at a high-end jewelry company, pled guilty today in Manhattan federal court to stealing over $2.1 million worth of jewelry from her former employer. LEDERHAAS-OKUN was arrested earlier this month and pled guilty today before U.S. District Judge Paul G. Gardephe.

Manhattan U.S. Attorney Preet Bharara said: “Diamonds are forever but stolen diamonds are not. Over a period of years, Ingrid Lederhaas-Okun, an executive at a high-end jewelry company, looted her employer’s jewelry inventory and then resold millions of dollars’ worth of the merchandise in order to enrich herself. Today, she stands convicted for her thievery and faces the prospect of prison.”

According to the Information, statements made during today’s guilty plea proceeding, and a Complaint previously unsealed in Manhattan federal court:

From at least January 2011 until February 2013, LEDERHAAS-OKUN worked as a Vice President of Product Development at the midtown Manhattan headquarters of one of the world’s premier high-end jewelers (the “Jewelry Company”). Her duties and responsibilities included ensuring that product designs could be manufactured and, to that end, she had authority to check out jewelry belonging to the Jewelry Company for work-related reasons, such as to provide the jewelry to potential manufacturers to determine the cost of production.

Between November 2012 and February 2013, LEDERHAAS-OKUN abused her position and authority at the Jewelry Company to check out over 165 pieces of jewelry with a retail value of over $1.2 million, including numerous diamond bracelets, platinum or gold diamond drop and hoop earrings, platinum diamond rings, and platinum and diamond pendants. She then sold some if not all of this jewelry for $1.3 million to another company, a leading international buyer and reseller of jewelry with an office in midtown Manhattan (the “Jewelry Reseller”). The Jewelry Reseller paid for the merchandise that LEDERHAAS-OKUN had stolen either by paying her or her husband, in transactions arranged either by LEDERHAAS-OKUN or a friend working on her behalf.

In addition to this jewelry, in November 2012, following an announcement by the Jewelry Company that it was going to undertake a full physical inventory review, LEDERHAAS-OKUN also reported that approximately $1.5 million worth of jewelry which she had checked out would have to be written off. However, none of that jewelry was ever returned to the Jewelry Company, contrary to the usual practice of accounting for inventory, such as damaged jewelry, that would have to be written off because it had been rendered unusable in some way.

To conceal her theft, LEDERHAAS-OKUN made repeated false statements to the Jewelry Company. For example, after her termination in February 2013, she told the Jewelry Company that she had only recently checked out the missing jewelry in anticipation of creating a PowerPoint presentation for her supervisor, and that a draft of the presentation could be found on her office computer. However, the missing pieces of jewelry had been checked out months earlier, her supervisor was unaware of any such presentation being worked on by LEDERHAAS-OKUN, and there was no draft presentation on her computer. In addition, LEDERHAAS-OKUN claimed the jewelry in question could be found in a white envelope in her office, but a search of her office shortly after her departure did not yield any white envelope.

LEDERHAAS-OKUN, 46, of Darien, Connecticut, pled guilty to one count of interstate transportation of stolen property, which carries a maximum penalty of 10 years in prison. As part of her plea agreement, LEDERHAAS-OKUN also agreed to forfeit $2,114,873 and further agreed to make restitution in the amount of $2,239,873. She is scheduled to be sentenced by Judge Gardephe on December 10, 2013 at 2:30 p.m.

Mr. Bharara praised the investigative work of the FBI. The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Rosemary Nidiry is in charge of the prosecution.

U.S. v. Ingrid Lederhaas-Okun Information

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that BRYAN ZURIFF, a Hollywood producer, pled guilty in Manhattan federal court in connection with his role in the operation of a high-stakes illegal sports gambling business run by an organized crime enterprise. ZURIFF pled guilty yesterday before U.S. District Court Judge Jesse M. Furman to accepting a financial instrument in connection with unlawful Internet gambling.

Manhattan U.S. Attorney Preet Bharara said: “Bryan Zuriff spanned the coasts with his crimes, by operating his own illegal gambling enterprise in Los Angeles, and helping to operate a vast illegal gambling enterprise in New York. With his plea, he becomes the first defendant, but not the last, to be convicted in this sprawling script of criminal conduct.”

ZURIFF was 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. ZURIFF is the first defendant in the case to plead guilty.

According to the Indictment, other documents filed in this case, statements made at various conferences and at the guilty plea, and other information in the public record:

ZURIFF operated his own illegal gambling business that catered to gamblers seeking to bet on the outcome of various sporting events (commonly referred to as a “sportsbook”) in Los Angeles, California. He also 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.

ZURIFF, 44, of Brentwood, California, faces a maximum sentence of five years in prison and three years of supervised release. As part of his guilty plea, he agreed to forfeit $500,000 to the United States. ZURIFF is scheduled to be sentenced by Judge Furman on November 25, 2013 at 3 p.m.

The charges against Hillel Nahmad, Illya Trincher, and the other 31 defendants in this case 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, Internal Revenue Service, and the New York City Police Department.

The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Harris M. Fischman, Joshua A. Naftalis, Peter Skinner, and Kristy J. Greenberg of the Organized Crime Unit are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.

Tokhtakhounov, Alimzhan et al. Indictment

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”), Charles Gardner, the Commissioner of the Yonkers Police Department, and Joseph A. D’Amico, the Superintendent of the New York State Police, announced the arrest of two alleged members of a narcotics trafficking ring centered in and around Hoover Road in Yonkers, New York. Defendants THOMAS J. SUPPA and JOSEPH KOPPE were arrested yesterday and presented in White Plains federal court today before United States Magistrate Judge Paul E. Davison, who ordered that SUPPA be detained and KOPPE be released on bail upon meeting bail conditions.

Manhattan U.S. Attorney Preet Bharara stated: “These arrests underscore the commitment of this Office to eliminating the scourge of drug trafficking and its attendant harms from Yonkers and communities throughout the Southern District of New York. Together with our partners in state and local law enforcement, we will continue to work to improve the safety of our streets and the quality of life for our citizens.”

FBI Assistant Director-in-Charge George Venizelos stated: “As alleged, Suppa and Koppe were members of a narcotics ring that distributed large amounts of cocaine to Yonkers, damaging the fabric of a city. The FBI remains committed to working with our partners in law enforcement to eradicate this epidemic.”

Yonkers Police Commissioner Charles Gardner stated: "Individuals who choose to deal in the narcotics trade in our city will be targeted and vigorously prosecuted. These arrests are another example of our continued success working together with our federal partners to address criminal activity in our neighborhoods. I would like to thank U.S. Attorney Preet Bharara and his office along with the Federal Bureau of Investigation for their support and assistance in this investigation."

New York State Police Superintendent Joseph A. D'Amico stated: "With the arrests of these two drug traffickers, the streets of Yonkers are a safer place. Drugs and the crime and violence they cause will never be tolerated. I thank the U.S. Attorney's Office, Yonkers Police Department and the Federal Bureau of Investigation for their continued partnerships."

According to the allegations in two criminal Complaints unsealed today in White Plains federal court:

From at least January 2012 and up to and including July 17, 2013, SUPPA and KOPPE conspired together and with others to distribute crack and powder cocaine in and around Hoover Road in Yonkers. In furtherance of the conspiracy, SUPPA is alleged to have personally sold crack cocaine to an undercover law enforcement officer on or about May 6, 2013 and July 17, 2013. KOPPE is alleged to have sold crack cocaine and powder cocaine to the same undercover officer on or about June 27, 2013.

SUPPA, 30, has been charged with one count of distributing more than 280 grams of a mixture or substance containing crack cocaine, in violation of 21 U.S.C. §§ 812, 841(a), and 841(b)(1)(A), and one count of conspiracy to commit the same, in violation of 21 U.S.C. § 846. Both offenses, upon conviction, carry a maximum prison sentence of life and a mandatory minimum sentence of 10 years.

KOPPE, 32, has been charged with one count of distributing more than 28 grams of a mixture or substance containing crack cocaine, in violation of 21 U.S.C. §§ 812, 841(a), and 841(b)(1)(B), and one count of conspiracy to do the same, in violation of 21 U.S.C. § 846. Both offenses carry, upon conviction, a maximum prison sentence of 40 years and a mandatory minimum sentence of 5 years.

Mr. Bharara praised the FBI, the Yonkers Police Department, the New York State Police and the Westchester County District Attorney’s Office for their work in this investigation.

The prosecution is being overseen by the Office’s White Plains Unit. Assistant United States Attorneys Daniel Filor and Scott A. Hartman are in charge of the prosecution.

The charges contained in the Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

KOPPE COMPLAINT
SuppaThomas.Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of insider trading charges against four companies – S.A.C. CAPITAL ADVISORS, L.P. (“SAC Capital LP”), S.A.C. CAPITAL ADVISORS, LLC (“SAC Capital LLC”), CR INTRINSIC INVESTORS, LLC (“CR Intrinsic”), and SIGMA CAPITAL MANAGEMENT, LLC (“Sigma Capital”), collectively (the “SAC Companies”). The SAC Companies are responsible for the management of a group of affiliated hedge funds, collectively (the “SAC Hedge Fund” or “SAC”). Charges were also unsealed today against RICHARD LEE, a portfolio manager employed by SAC Capital LP, who focused on “special situations” like mergers and acquisitions, private equity buy-outs, and corporate restructurings in publicly-traded companies across various industry sectors. LEE pled guilty on July 23, 2013, before U.S. District Judge Paul G. Gardephe, to conspiracy and securities fraud charges in connection with his work at SAC Capital LP.

The SAC Companies are charged with criminal responsibility for insider trading offenses. These alleged offenses were committed by numerous employees, occurred over the span of more than a decade, and involved the securities of more than 20 publicly-traded companies across multiple sectors of the economy. It is charged that the acts of these employees were made possible by institutional practices that encouraged the widespread solicitation and use of material, non-public information (“Inside Information”). This activity allegedly resulted in hundreds of millions of dollars in illegal profits and avoided losses at the expense of members of the investing public. The SAC Companies are expected to be arraigned on the charges on tomorrow at 10:00 a.m. before U.S. District Judge Laura Taylor Swain.

Manhattan U.S. Attorney Preet Bharara said: “A company reaps what it sows, and as alleged, S.A.C. seeded itself with corrupt traders, empowered to engage in criminal acts by a culture that looked the other way despite red flags all around. S.A.C. deliberately encouraged the no-holds-barred pursuit of an ‘edge’ that literally carried it over the edge into corporate criminality. Companies, like individuals, need to be held to account and need to be deterred from becoming dens of corruption. To all those who run companies and value their enterprises, but pay attention only to the money their employees make and not how they make it, today’s indictment hopefully gets your attention.”

FBI Assistant Director-in-Charge George Venizelos said: “Our aim all along has been to root out the wrongdoers, and send a message to anyone else inclined to break the law. If your information ‘edge’ is inside information, you can’t trade on it.”

According to the allegations in the five-count Indictment and the criminal Information to which LEE pled guilty, both of which were unsealed today in Manhattan federal court:

The SAC Hedge Fund operated as a collection of dozens of individual trading portfolios that covered nearly every trading sector of the economy. Each portfolio was headed up by a portfolio manager (“PM”), and supported by one or more research analysts (“RA”). SAC PMs had substantial discretion in managing the investments in their own portfolios, and were required by the SAC Companies to share the investment recommendations in which they had the greatest confidence with the owner of the SAC Companies (the “SAC Owner”). The SAC Owner managed the largest trading portfolio at SAC.

From 1999 through at least 2010, numerous employees of the SAC Companies obtained and traded on Inside Information, or recommended trades based on such information to SAC PMs or the SAC Owner. To date, eight SAC Company PMs and RAs have been charged and/or convicted in insider trading cases involving the SAC Hedge Fund, including LEE, who was charged and pled guilty earlier this week.

The systematic insider trading engaged in by SAC PMs and RAs was the predictable and foreseeable result of an institutional failure. The SAC business culture encouraged and tolerated the relentless pursuit of an information “edge,” with no meaningful commitment to ensuring that such an “edge” came from legitimate research and not Inside Information.

As charged in the Indictment, these institutional failings fell into three main categories:

First, the SAC Companies focused on recruiting SAC PMs and SAC RAs who had proven networks of public company contacts. The SAC Companies, however, did not make any corresponding effort to ensure that prospective SAC PMs and SAC RAs did not use these contacts to obtain illegal Inside Information. For example, in a November 16, 2008, e-mail forwarded to the SAC Owner, an SAC PM candidate in the industrial sector was recommended in part because he had “a house in the Hamptons with the CFO” of a Fortune 100 industrial sector company. In another instance, the SAC Companies hired LEE despite a warning to the SAC Owner from LEE’s prior employer, that LEE had been a member of an insider trading group at that hedge fund. LEE ultimately traded on Inside Information in the $1.25 billion “special situations” SAC portfolio he jointly managed with a second SAC PM.

Second, employees of the SAC Companies were financially rewarded for recommending to the SAC Owner “high conviction” trading ideas, in which the SAC PM had an “edge” over other investors. In many cases, the employees were not questioned when making trading recommendations that appeared to be based on Inside Information. On numerous occasions, the SAC Owner failed to follow up with SAC employees who were promoting trading sourced to an “edge” from a contact at a public company or with similar language suggesting potential insider trading. On one occasion, the SAC Owner participated in a discussion with his employees on the topic of confidential information the SAC employees had said that they learned during a paid consultation session from a clinical investigator for a drug trial. During the discussion with his employees, the SAC Owner, a sophisticated trader with over three decades of experience, never questioned whether the drug trial data constituted Inside Information. In addition, the SAC Owner and SAC Companies cultivated an environment that emphasized not discussing Inside Information openly rather than not seeking or trading on it in the first place.

Third, the SAC Companies employed limited compliance measures designed to detect or prevent insider trading by SAC PMs or SAC RAs. They failed to routinely monitor employee e-mails for indications of insider trading until late 2009, even though SAC’s head of compliance had recommended such monitoring to SAC management four years earlier. Indeed, despite numerous documented cases of insider trading at SAC – established by, among other things, guilty pleas of six former SAC PMs and RAs, each predicated upon repeated insider trading over substantial periods of time – SAC’s compliance department contemporaneously identified only a single instance of suspected insider trading by its employees. In that one case, the SAC Companies permitted those involved to continue working at SAC and failed to report the conduct to regulators or law enforcement.

In addition to the Indictment, today the Government filed a civil forfeiture action (the “Forfeiture Complaint”) in Manhattan federal court, seeking the forfeiture of assets held by investment funds to which the SAC Companies served as investment advisors, assets held by affiliated investment funds, and assets held by the SAC Companies themselves. The Forfeiture Complaint alleges that the SAC Companies engaged in money laundering by commingling the illegal profits from insider trading with other assets, using the profits to promote additional insider trading, and transferring the profits with the assistance of financial institutions.

The SAC Companies are charged together in Count One of the Indictment with wire fraud, and each of the four SAC Companies is charged separately in Counts Two through Five with securities fraud. Each of the SAC Companies faces a maximum fine, for the securities fraud charges, of the greater of $25 million, or twice the gross gain or loss derived from the offense on each charge.

The criminal Information unsealed today, to which RICHARD LEE pled guilty earlier this week, charges LEE 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 LP. LEE faces a maximum penalty of 20 years in prison for the securities fraud charge and five years in prison for the conspiracy charge. He also faces a maximum fine of $5 million for the securities fraud charge and $250,000 or twice the gross gain or loss derived from the offense on the conspiracy charge.

Of the seven other SAC Company portfolio managers and research analysts previously charged in insider trading cases involving the SAC Hedge Fund, five have pled guilty and await sentencing. They include:

• Jon Horvath, who pled guilty on September 28, 2012;
• Wes Wang, who pled guilty on July 13, 2012;
• Donald Longueuil, who pled guilty on April 28, 2011;
• Noah Freeman, who pled guilty on February 7, 2011; and
• Richard Choo-Beng Lee, who pled guilty on October 13, 2009

Charges are still pending against the remaining two defendants previously charged in connection with SAC, Michael Steinberg and Mathew Martoma, who are presumed innocent unless and until proven guilty.

Mr. Bharara praised the efforts of the FBI and also thanked the U.S. Securities and Exchange Commission for its assistance in the investigation. He added 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 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 Arlo Devlin-Brown, Antonia M. Apps and John T. Zach are in charge of the prosecution, and Assistant U.S. Attorney Micah Smith is responsible for the forfeiture aspects of the case.

The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.

SAC Indictment (Stamped)
SAC Capital Complaint - 13 Civ 5182
Lee, Richard Information

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an indictment against a Russian hacker, ALEKSANDR KALININ, a/k/a “Grig,” a/k/a “g,” a/k/a “tempo,” for hacking certain computer servers used by the NASDAQ Stock Market (“NASDAQ”). In a separate indictment also unsealed today, KALININ and another Russian hacker, NIKOLAY NASENKOV, were charged with an international scheme to steal bank account information by hacking U.S.-based financial institutions and then using the stolen account information to withdraw millions of dollars from the victims’ bank accounts. KALININ has also been charged in a separate indictment unsealed in federal court in Newark, New Jersey. KALININ and NASENKOV remain at large.

Manhattan U.S. Attorney Preet Bharara said: “As today’s allegations make clear, cyber criminals are determined to prey not only on individual bank accounts, but on the financial system itself. But would-be cyber thieves should take note: Because of the close and growing collaboration between the U.S. government and the private sector on issues of cyber security, our ability to unmask and prosecute the anonymous perpetrators of cyber crimes – wherever they may be located – has never been stronger.”

FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Kalinin infiltrated NASDAQ’s servers, allowing for the manipulation and theft of sensitive data. In a series of separate schemes, Kalinin and Nasenkov stole hundreds of thousands of bank account numbers, PIN numbers, and other code to withdraw millions of dollars from victim accounts. Today, their password has expired.”

According to the allegations in the Indictments unsealed today in Manhattan federal court:

The NASDAQ Hack

From November 2008 through October 2010, KALININ hacked various computer servers used by the NASDAQ to conduct its business operations. During the course of the hack, KALININ installed on certain NASDAQ servers malicious software, or malware, which enabled him and others to surreptitiously access the infected NASDAQ servers and execute commands on those servers, including commands to delete, change or steal data. The infected servers did not include the trading platform that allows NASDAQ customers to buy and sell securities.

The Citibank and PNC Bank Hacks

From December 2005 through November 2008, KALININ and NASENKOV allegedly stole bank account information from financial institutions through computer hacking. KALININ, NASENKOV, and their co-conspirators then used that account data to access the bank accounts of thousands of individual victims without authorization and without those victims’ knowledge, resulting in the theft of millions of dollars from those accounts.

The defendants fraudulently obtained bank account numbers, customer identification numbers (a unique number embossed or printed on the front of an ATM card), card verification values (a security feature which helps authenticate an ATM card), and personal identification numbers (PINs) for victims’ accounts at financial institutions, including Citibank and PNC Bank, through computer hacking and other techniques. As part of the scheme, the defendants and their co-conspirators then encoded the stolen account data onto the magnetic strips of blank plastic ATM cards so that those ATM cards could be used to access individual victims’ bank accounts through ATMs. The ATM cards were then used, along with the stolen account PINs, to access individual victims’ accounts through ATMs located around the world, including in the United States, Estonia, Canada, Great Britain, Russia, and Turkey, and to withdraw from those accounts millions of dollars.

In January 2006, the PINs for hundreds of customer accounts were compromised as a result of a cyber attack launched against PNC Bank’s online banking website. NASENKOV allegedly supplied stolen account information, including PINs, from the compromised bank accounts to co-conspirators who, in turn, used the stolen account information to encode blank ATM cards and withdraw approximately $1.3 million from victims’ accounts.

In 2007, KALININ allegedly placed malware on a computer network that processed ATM transactions for Citibank and other financial institutions. The malware recorded data passing over the network and exported it to an outside computer. Using this malicious computer code, KALININ stole bank account information for approximately 500,000 bank accounts, including approximately 100,000 Citibank accounts. The stolen account information was used to create ATM cards that in turn were used to withdraw approximately $2.9 million from Citibank customers’ accounts.

In 2008, NASENKOV allegedly used a computer program to mount an attack against Citibank’s online banking website that resulted in the theft of account information for more than 300,000 accounts. The stolen account information was used to create ATM cards that in turn were used to withdraw approximately $3.6 million from the compromised accounts.

KALININ, 26, of St. Petersburg, Russia, is charged with one count of computer hacking in connection with the NASDAQ hack, which carries a maximum sentence of 10 years in prison. In connection with the scheme to steal bank account information, KALININ is charged with one count of conspiracy to commit bank fraud, which carries a maximum sentence of 30 years in prison; four counts of bank fraud, each of which carries a maximum sentence of 30 years in prison; one count of conspiracy to commit access device fraud, which carries a maximum sentence of 7 ½ years in prison; one count of aggravated identity theft, which carries a mandatory sentence of 2 years in prison; and one count of conspiracy to commit computer intrusion, which carries a maximum sentence of 5 years in prison.

NASENKOV, 31, of St. Petersburg, Russia, is charged with one count of conspiracy to commit bank fraud, which carries a maximum sentence of 30 years in prison; four counts of bank fraud, each of which carries a maximum sentence of 30 years in prison; one count of conspiracy to commit access device fraud, which carries a maximum sentence of 7 ½ years in prison; one count of computer intrusion to obtain information, which carries a maximum sentence of 5 years in prison; one count of computer intrusion to further fraud, which carries a maximum sentence of 5 years in prison; one count of aggravated identity theft, which carries a mandatory sentence of 2 years in prison; one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison; and one count of conspiracy to commit computer intrusion, which carries a maximum sentence of 5 years in prison.

Mr. Bharara praised the outstanding investigative work of the FBI. In addition, Mr. Bharara thanked NASDAQ, Citibank, and PNC Bank for their cooperation and assistance in the investigations. Mr. Bharara also thanked the Department of Justice’s Computer Crime and Intellectual Property Section for their support.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Thomas G.A. Brown, Sarah Lai, Joseph Facciponti, and James J. Pastore, Jr., are in charge of the prosecution.

The charges contained in the Indictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

U.S. v. Aleksandr Kalinin Indictment
U.S. v. Nikolay Nasenkov and Aleksandr Kalinin S1 Indictment

U.S. v. Richard Lee Information
U.S. v. SAC Capital Civil Forfeiture Complaint
U.S. v. SAC Indictment

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 return to the National Library of Sweden of two antique books that were stolen from the Library in the 1990s. The books, which were once part of the collections of Swedish royalty, contain early depictions of interior areas of the United States, including the Mississippi River, by explorers.

Manhattan U.S. Attorney Preet Bharara said: “These two books, which offered the world some of the first glimpses of the extraordinary American landscape and people, were wrongfully taken from the National Library of Sweden, only to end up in the land depicted in their pages more than 300 years ago. With their odyssey now complete, we are proud to be part of returning these priceless artifacts to their rightful owners, and we hope this recovery will prompt others to return antique books in their possession that were stolen from the Library.”

FBI Assistant Director-in-Charge George Venizelos said: “Treasured pieces of a country’s heritage have value far beyond their price on the open market. Some things are not for sale – or shouldn’t be. Anders Burius stole dozens of rare books from the National Library of Sweden, sold them, confessed to the thefts, and committed suicide. He cannot be prosecuted. But the FBI has a role in serving the interests of justice beyond arresting criminals. We are happy to have assisted in returning a part of Sweden’s cultural wealth.”

According to the Stipulation filed in Manhattan federal court and other documents in the public record:

The two books being returned are part of a group of at least 56 rare or one-of-a-kind books that were stolen from the National Library of Sweden’s collection by Anders Burius (“Burius”), a former employee of the Library, between 1995 and 2004. After stealing the books, Burius consigned or sold the books to Ketterer Kunst (“Ketterer”), an auction house in Germany. In 2004, Burius confessed to the book thefts and admitted to Swedish law enforcement officials that he had sold and/or consigned the books to Ketterer under the alias “Carl/Karl Fields.” Shortly after confessing to the thefts, Burius committed suicide. Swedish authorities subsequently received information that 13 of the stolen books had been sold by Ketterer to individuals and/or entities in the United States.

On November 16, 1998, Stephan Loewentheil, the owner of 19th Century Shop Rare Books in Baltimore, Maryland, purchased, without knowledge of the theft, two of the books that Burius had stolen from the National Library of Sweden. Those two books were a Louis Hennepin book entitled “Description de la Louisiane, nouvellement decouverte au sud-ouest de la Nouvelle-France, par ordre du roi; avec la carte du pays, les moeurs et la maniere de vivre des sauvages,” printed in Paris in 1683 by Sebastien Hure (the “Louis Hennepin book”), and a Henry Lewis book entitled “Das illustrirte Mississippithal, dargestellt in 80 nach der Natur aufgenommenen Ansichten vom Wasserfalle zu S:t Anthony an bis zum Golf von Mexico…,” printed in Dusseldorf between 1854-58 by Arntz & Comp (the “Henry Lewis book”).

The Louis Hennepin book, which documents the author’s exploration of the upper Mississippi River in 1680, is known for its map, which has the first-ever printed record of Louisiana, and for the first descriptions of Niagara Falls and the Falls of Saint Anthony. The book once belonged to King Gustav IV and was incorporated into the Library in 1796. The Henry Lewis book contains hand-colored lithographs and texts from the author’s exploration of the Mississippi River between the years 1846-1849. The book belongs to the collection of King Charles XV that was incorporated into the Library in 1873.

Loewentheil, after being contacted by the FBI about the theft of the Louis Hennepin book and the Henry Lewis book from the National Library of Sweden, voluntarily re-obtained both books and agreed to return them to the Library. On July 12, 2013, Loewentheil and the United States Attorney’s Office for the Southern District of New York entered into a stipulation, pursuant to which Loewentheil consented to tender the Louis Hennepin book and the Henry Lewis book to the FBI, to allow for the return of these books to the National Library of Sweden. The stipulation was so ordered by the United States District Court on July 17, 2013. The Louis Hennepin book and the Henry Lewis book were returned to representatives of the National Library of Sweden earlier today at a repatriation ceremony held at the United States Attorney’s Office in New York.

Mr. Bharara praised the investigative work of the FBI in this matter, and its ongoing efforts to find and repatriate stolen property.

Gunilla Herdenberg, the CEO of the National Library of Sweden, said: “On behalf of the Kingdom of Sweden as well as the international library community, I am very grateful to the U.S. Government and to Stephan Loewentheil for all their efforts. I am very happy to bring these books back to Sweden and to make them available for the public and for research again.”

This matter is being handled by the Office’s Asset Forfeiture Unit. Assistant U.S. Attorneys Christine Magdo and Sarah E. Paul are in charge of the case.

National Library of Sweden Stipulation and Order

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that DANIEL WILSON, a former supervisor at Indian Point Energy Center (“Indian Point”), a nuclear power plant in Westchester County, was charged in a criminal Complaint (the “Complaint”) with engaging in deliberate misconduct in violation of rules of the Nuclear Regulatory Commission (“NRC”), making false statements in connection with a matter within the jurisdiction of the NRC, and fabricating records to conceal a violation of NRC requirements at the facility. This Complaint was based on the results of an investigation by the NRC’s Office of Investigations, led by Director Cheryl McCrary. WILSON was arrested today on the charges in the Complaint and was presented before United States Magistrate Judge Paul E. Davison in the White Plains federal courthouse, who ordered him released on bail conditions.

U.S. Attorney Preet Bharara stated: "Any alleged deliberate misconduct at a facility like Indian Point is a matter of grave concern to this Office. One need look no further than recent natural disasters to know that at important facilities, backup generators and other systems must be maintained in working order because in an emergency they may be critical."

NRC Region I Administrator Bill Dean stated: “The NRC relies on nuclear power plant employees to behave in a responsible and trustworthy manner. When it comes to ensuring the operability of a plant's emergency diesel generators, or any other vital nuclear safety equipment, there can be no room for anything other than employees adhering to the highest standards of integrity. In coordination with the Department of Justice, the NRC will move forward with any civil enforcement action in this matter."

As charged in the Complaint, Indian Point must comply with technical specifications; otherwise Indian Point may be required to shut down until it complies. Indian Point maintains a backup system of emergency generators for use in part to provide power in the event of a power outage and shutdown. WILSON, the Chemistry Manager at Indian Point from 2007 through 2012, was responsible for, among other things, ensuring that certain aspects of the operation at Indian Point were in compliance with the required technical specifications. One such requirement regards the amount of particulate matter in the diesel fuel used to power emergency generators at Indian Point, which must not exceed a set limit. In 2011, tests of the diesel fuel maintained for use in powering the emergency generators at Indian Point showed that the ratio of particulate matter in the diesel fuel exceeded the limit set by the NRC.

In February 2012, WILSON concealed material facts from his employer and the NRC by fabricating test data for non-existent resamples of the diesel fuel, falsely showing that the resamples of diesel fuel tested below the applicable NRC limit. In fact, no such resamples were taken, and the purported test data were fabrications. Later in February 2012, WILSON, in response to questioning by other employees of Indian Point in advance of an inspection by the NRC, wrote a report – the kind on which the NRC ordinarily relies in inspecting nuclear facilities for safety – in which he gave a false explanation for the lack of supporting documentation for his fabricated test results. In a subsequent interview with NRC personnel, WILSON admitted that he had fabricated the test results so that Indian Point would not have to shut down.

WILSON, 57, of Walden, New York, is charged in a two-count Complaint with willfully violating rules of the NRC by engaging in deliberate misconduct, in violation of Title 42, United States Code, Section 2273, and with making false statements in a matter within the jurisdiction of the NRC, in violation of Title 18, United States Code, Section 1001. If convicted, WILSON faces a maximum sentence of seven years in prison.

Mr. Bharara praised the efforts of the NRC Office of Investigations in connection with this investigation.

The prosecution is being handled by the Office’s White Plains Division. Assistant United States Attorney Benjamin Allee is in charge of the prosecution.

The charges in the Complaint are merely accusations, and the defendant is presumed innocent until and unless proven guilty.

WilsonDaniel.Complaint
WilsonDaniel.Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, and Gregory K. Null, the Special Agent-in-Charge of the Department of Homeland Security, Office of the Inspector General, Northeast Region (“DHS-OIG”), and Terence S. Opiola, the Special Agent-in-Charge Northeast, Immigration and Customs Enforcement, Office of Professional Responsibility (“ICE-OPR”), announced today the arrest of Immigration Enforcement Agent KORDELL NESBITT for his participation in a conspiracy to distribute cocaine and marijuana. NESBITT was arrested last night and presented in Manhattan federal court before U.S. Magistrate Judge James L. Cott today. An alleged co-conspirator, SHERISSE THOMPSON, was arrested this morning in the Bronx, and was presented in Manhattan federal court before U.S. Magistrate Judge Gabriel W. Gorenstein. A second alleged co-conspirator, CHRISTOPHER SINCENO, was arrested today at his residence in Las Vegas, Nevada.

Manhattan U.S. Attorney Preet Bharara said: “Kordell Nesbitt had a duty to uphold the nation’s immigration laws. But as alleged, he also had a side job: coordinating the transport and sale of cocaine and marijuana with co-conspirators Christopher Sinceno and Sherisse Thompson. We will not tolerate abuses of trust by individuals who, tasked with preserving law and order, choose instead to engage in illicit activity.”

DHS-OIG Special Agent-in-Charge Gregory K. Null said: “The Office of Inspector General is committed to working with our law enforcement partners to identify and aggressively investigate all allegations of corruption to protect our borders and the integrity of DHS personnel, programs, and operations. Acts of corruption within DHS represent a threat to our nation and undermine the honest and hardworking employees who strive to maintain the integrity of the Department. Corruption will not be tolerated and those who choose to break the law will be pursued aggressively.”

ICE-OPR Special Agent-in-Charge Terence S. Opiola said: “The ICE Office of Professional Responsibility takes all allegations of employee misconduct seriously; and takes great pride in protecting the integrity of the ICE workforce and the agency mission through impartial and thorough investigations. The outcome of this investigation is the direct result of the successful, ongoing relationship between the ICE Office of Professional Responsibility and its law-enforcement partners.”

According to the two criminal Complaints unsealed today in Manhattan federal court:

NESBITT, an Immigration Enforcement Officer with Immigrations and Customs Enforcement (“ICE”), was responsible for, among other duties, escorting detained aliens both within the United States and internationally to foreign countries. In this capacity, he was authorized to carry a firearm at all times, and was able to avoid screening measures at airports to which civilian travelers are typically subjected.

Beginning in at least May 2013, NESBITT agreed to receive and distribute multiple packages containing cocaine, marijuana and other narcotics in the New York City area. He purchased the packages of narcotics from SINCENO and arranged for their delivery to THOMPSON’s residence in the Bronx. Once the packages reached THOMPSON’s residence, NESBITT sold the narcotics to his drug customers with her assistance.

Following his arrest last night, NESBITT, after being advised of, and waiving, his Miranda rights, stated: (1) he had purchased pound quantities of marijuana from SINCENO over the past two months; (2) THOMPSON had assisted him in distributing marijuana from her apartment; and (3) he had attempted to purchase $10,000 worth of cocaine from SINCENO, which he intended to sell. Following her arrest earlier today, THOMPSON, after being advised of, and waiving, her Miranda rights, admitted that she had assisted NESBITT in distributing marijuana from her apartment. Also earlier today, during a court-authorized search of THOMPSON’s residence, agents recovered a quantity of marijuana, a drug scale, and a set of ziplock bags.

NESBITT, 25, and THOMPSON, 33, both of the Bronx, New York, and SINCENO, 40, are each charged with one count of engaging in a conspiracy to violate the narcotics laws of the United States, namely, to distribute controlled substances containing marijuana and cocaine. They each face a maximum sentence of 20 years in prison.

Mr. Bharara praised the investigative work of the DHS-OIG and ICE-OPR. He also thanked ICE’s Homeland Security Investigations for its assistance in the investigation.

The case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Martin S. Bell is in charge of the prosecution.

The charges contained in the Complaints are merely accusations and the defendants are presumed innocent unless and until proven guilty.

U.S. v. Nesbitt, Sinceno Complaint
U.S. v. Sherisse Thompson Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, John Carlin, the Acting Assistant Attorney General for National Security, George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Raymond W. Kelly, the Police Commissioner of the City of New York (“NYPD”), today announced the filing of charges against MOKHTAR BELMOKHTAR for, among other things, his alleged participation in the January 2013 terrorist attack on a Western-owned gas processing facility near In Amenas, Algeria, that killed three Americans and scores of Algerian and foreign nationals. BELMOKHTAR is charged in an eight-count criminal Amended Complaint with various offenses including conspiracy to provide material support to al Qaeda and al Qaeda in the Islamic Maghreb (“AQIM”), hostage-taking conspiracy, kidnapping of internationally protected persons, and conspiring to use a weapon of mass destruction. BELMOKHTAR remains at large.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Mokhtar Belmokhtar unleashed a reign of terror years ago, in furtherance of his self-proclaimed goal of waging bloody jihad against the West. His efforts culminated in a four-day siege that left dozens dead, including three Americans, and hundreds of others fearing for their lives, as the Amended Complaint describes. For the victims, their families, and their friends, who hail from all over the world, five days must have seemed like an eternity. Belmokhtar brought terror and blood to these innocent people and now we intend to bring Belmokhtar to justice, as charged.”

Acting Assistant Attorney General for National Security John Carlin said: “The charges announced today underscore the Department’s commitment to bring to justice those responsible for attacks on Americans and American interests, no matter where they occur. I want to thank all of the agents, analysts, and prosecutors who helped bring about today’s result.”

FBI Assistant Director-in-Charge George Venizelos said: “The charges against Mokhtar Belmokhtar describe a fanatical jihadist leading an extremist vanguard of an extremist ideology. As alleged, he kidnapped diplomats, formed his own terrorist organization that pledged fealty to al Qaeda, and masterminded the murderous siege of a civilian plant in Algeria that resulted in the deaths of dozens of hostages, including three Americans. Belmokhtar, in furtherance of his ‘cause,’ has shown a commitment to kidnapping and murdering Western diplomats and other civilians. The cause of justice will be served by his apprehension and prosecution.”

NYPD Commissioner Raymond W. Kelly said: “The attack in Algeria underscores the fact that American lives remain at risk from al Qaeda and its affiliates. The NYPD remains committed to the interdiction of terrorists here and abroad and to the prevention of another terrorist attack in New York City.”

A Complaint against BELMOKHTAR initially was filed under seal in Manhattan federal court, on February 26, 2013, and is attached as an Exhibit to the Amended Complaint. As alleged in the Amended Complaint:

BELMOKHTAR was designated as a foreign terrorist by the U.S. Department of Treasury in 2003. As a key leader of al Qaeda’s efforts in North Africa, from 2008 through early 2013, BELMOKHTAR has orchestrated terror attacks involving the kidnapping and murder of numerous individuals. In support of al Qaeda, BELMOKHTAR has operated under the auspices of two groups: AQIM and the Al-Mulathamin Brigade and its recently formed battalion, “The Signers in Blood” (the “Battalion”).

In December 2008, BELMOKHTAR, and others acting at his direction, kidnapped two Western diplomats working in Niger as part of a United Nations mission. The victims were held for approximately four months and then released in Mali.

In early December 2012, BELMOKHTAR issued a video-taped statement in which he announced the formation of “The Signers in Blood” Battalion, identified the “emir” of the group as Ayman al- Zawahiri, the leader of al Qaeda, and called for fighting in Algeria and elsewhere to oppose Western influence. Several weeks later, BELMOKHTAR issued another video-taped statement in which he confirmed that the Battalion was “in [the] al Qaeda organization.”

On January 16, 2013, terrorists who were part of BELMOKHTAR’s Battalion attacked a Western-owned gas processing facility in Algeria, armed with AK-47s and rocket-propelled grenade launchers. The terrorists took numerous workers inside the facility hostage by force, including Algerian nationals and citizens of the United States, the United Kingdom, Japan, Norway, the Philippines, Colombia, Romania, and other nations, while other workers fled or hid inside the facility. The terrorists attached explosives to some of the hostages, wound detonation cord around their necks, and threatened to kill them. During the siege of the facility, numerous hostages, including three U.S. citizens, were killed.

On January 21, 2013, approximately one day after the siege ended, BELMOKHTAR appeared in an online video in which he claimed responsibility for the Battalion’s attack on the facility, on behalf of al Qaeda.

Three of the hostage-takers involved in the siege were arrested and detained by foreign authorities and later separately interviewed by U.S. law enforcement officers. The hostage-takers each acknowledged their membership in an al Qaeda group, of which BELMOKTAR was the “emir,” and further stated that they had received military training in another country prior to traveling to Algeria to conduct the attack in the name of al Qaeda.

The Amended Complaint charges BELMOKHTAR in eight Counts:

• Count One charges BELMOKHTAR with conspiring to provide material support to al Qaeda and AQIM, and carries a maximum penalty of life in prison;
• Count Two charges BELMOKHTAR with conspiring to take hostages, and carries a maximum penalty of life in prison or death;
• Count Three charges BELMOKHTAR with conspiring to discharge a firearm in furtherance of a crime of violence, and carries a maximum penalty of life in prison;
• Count Four charges BELMOKHTAR with discharging a firearm in furtherance of a crime of violence, and carries a maximum penalty of life in prison or death;
• Count Five charges BELMOKHTAR with conspiring to use and carry an explosive during the commission of a felony, and carries a maximum penalty of 20 years in prison;
• Count Six charges BELMOKHTAR with conspiring to kidnap internationally protected persons, and carries a maximum penalty of life in prison;
• Count Seven charges BELMOKHTAR with kidnapping of internationally protected persons, and carries a maximum penalty of life in prison; and
• Count Eight charges BELMOKHTAR with conspiring to use a weapon of mass destruction, and carries a maximum penalty of life in prison.

The investigation of BELMOHKTAR was the result of the close cooperative efforts of the United States Attorney’s Office for the Southern District of New York and the New York-based Joint Terrorism Task Force of the FBI, which is comprised of FBI agents and members of the NYPD. Mr. Bharara thanked the Justice Department’s National Security Division, the U.S. Department of Justice Office of International Affairs, the FBI’s International Operations Division, and the U.S. Department of State for their assistance, as well as the international law enforcement partners involved in this investigation.

The United States Department of State, through the Rewards for Justice Program, is offering a $5 million reward for information leading to the location of BELMOKHTAR. Please see the Rewards for Justice website for further details: http://www.rewardsforjustice.net.

This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Glen Kopp, Anna Skotko, and Shane Stansbury are in charge of the prosecutions, with assistance from Trial Attorney Stephen Ponticiello of the Counterterrorism Section of the Justice Department’s National Security Division.

The charges contained in the Amended Complaint are merely accusations and the defendant is presumed innocent unless and until proven guilty.

U.S. v. Mokhtar Belmokhtar Amended Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, and Thomas O’Donnell, Special Agent-in-Charge of the Department of Health and Human Services, Office of Inspector General (HHS-OIG), New York region, announced today that the United States has settled for $1 million a civil health care False Claims Act lawsuit it filed on March 5, 2013 in Manhattan federal court against PARK AVENUE MEDICAL ASSOCIATES, P.C., PARK AVENUE HEALTH CARE MANAGEMENT, LLC, and PARK AVENUE HEALTH CARE MANAGEMENT, INC. (collectively “PAMA”), affiliated companies in the business of providing multi-specialty medical services in New York. This settlement resolves a lawsuit alleging that PAMA billed Medicare for services purportedly provided to elderly, mentally ill patients that were not medically necessary, were not documented in the medical record, or failed otherwise to comply with Medicare rules and regulations. The settlement was approved today by U.S. District Court Judge Colleen McMahon.

Manhattan U.S. Attorney Preet Bharara said: “In these lean budget times, it’s especially important that federal dollars be reserved for Medicare’s prescribed purposes, and not lost to fraud or abuse by companies like Park Avenue Medical Associates. This Office will continue to work hard to protect the Medicare program and prevent taxpayers from paying for unnecessary services.”

HHS-OIG Special Agent-in-Charge Thomas O’Donnell said: “For over a dozen years, Park Avenue Medical Associates submitted fraudulent claims to pad their pockets at Medicare’s expense, a practice that will simply not be tolerated. Through this settlement, PAMA is owning up and paying the price for their misconduct.”

According to the allegations contained in the Complaint filed in March 2013 in Manhattan federal court:

PAMA directly employs physicians, nurses and other medical professionals who provide services to elderly patients at hospitals, including inpatient psychiatric facilities, nursing homes, and assisted living facilities, among other types of long-term care facilities. The patients and residents at these facilities suffer from various chronic health conditions, including Alzheimer’s disease, dementia, schizophrenia, psychosis, depression and anxiety. The doctors and nurses employed by PAMA receive a salary from PAMA, which contracts with the facilities. In addition to their regular salaries, psychiatrists and psychologists employed by PAMA receive bonuses based on how many services they provide and the level of reimbursement they generate for PAMA from government and other insurance providers, including Medicare.

Medicare prohibits payment for services that are not “reasonable and necessary” for the diagnosis or treatment of an illness or injury. Medicare also prohibits payment for any claim without adequate documentation substantiating the reasonableness and necessity of the services provided. In particular, Medicare does not cover psychotherapy services rendered to patients with Alzheimer’s disease or dementia unless the patient’s dementia is mild, the patient has the capacity to recall what occurred at the therapy from one session to the next, and that capacity is documented in the patient’s record. Psychotherapy services are not covered when dementia has produced a severe enough cognitive defect to prevent psychotherapy from being effective. In addition, Medicare provides that psychiatric diagnostic examinations are covered only once for each episode of illness or suspected illness in a patient.

In violation of Medicare policies, as well as its own policies, PAMA provided psychotherapy to patients who lacked the capacity to benefit from it due to severe dementia. In addition, PAMA billed for psychiatric evaluations that were duplicative, failed to comply with Medicare rules, and reflected a lack of coordination of care both among PAMA’s own psychiatrists, psychologists and nurses, and between PAMA’s employees and staff at the facilities at which PAMA performed services. In fact, PAMA billed Medicare for a far larger number of all of these services per psychiatrist and psychologist during the period 2001 through 2012 than any other provider with a similar patient population in the New York area.

In the settlement, PAMA admitted the following:

• In many instances, PAMA billed Medicare for psychiatric diagnostic examinations without demonstrating that they had adequately documented the patient’s medical and/or psychiatric history and/or mental status;
• In many instances, PAMA billed Medicare for multiple psychiatric diagnostic examinations after receiving multiple orders for such, but without demonstrating that the examinations complied with certain applicable Medicare rules, including those that allow for multiple examinations only when there is a demonstrated hiatus in the condition of the patient or the beginning of a new spell of illness; and
• In many instances, PAMA billed Medicare for psychotherapy services to patients who suffered from dementia or other cognitive disorders without demonstrating that the patients had the capacity to benefit from the psychotherapy.

As part of the settlement, PAMA also entered into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office of Inspector General.

Mr. Bharara thanked the Department of Health and Human Services, Office of the Inspector General, for its assistance in this case.

This case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Heidi A. Wendel and Mara E. Trager are in charge of the case.

U.S. v. Park Ave Medical Associates, et al. Stipulation and Settlement
U.S. v. Park Ave Medical Associates, et al. Complaint