Southern District of New York
Press releases recorded for this federal judicial district.
Officers of Fishing and Seafood Corporations Ordered to Pay Nearly $22.5 Million to South Africa for Illegally Harvesting Rock Lobster and Smuggling It into the United StatesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States obtained a restitution order against ARNOLD MAURICE BENGIS, DAVID BENGIS, and JEFFREY NOLL in the amount of nearly $29.5 million and in favor of the Republic of South Africa. This is the largest known restitution order in a Lacey Act case in history. The restitution order follows the Government’s successful appeal to the U.S. Court of Appeals for the Second Circuit of the District Court’s 2007 orders that restitution was not available for crimes prosecuted under the Lacey Act. The Lacey Act is a federal statute that makes it a crime to, among other things, import into the U.S. any fish, wildlife, or plants taken in violation of state or foreign law. After a credit of more than $7 million already paid to South Africa as part of a separate criminal case there, the total restitution to be paid by the defendants is approximately $22.5 million. The restitution was ordered by U.S. District Judge Lewis A. Kaplan. In addition, Judge Kaplan also restrained the defendants from depleting accounts in the Channel Islands to amounts below the approximately $22.5 million restitution to be paid.
Manhattan U.S. Attorney Preet Bharara said: “As today’s order demonstrates, those who violate the environmental laws of another country by illegally taking fish, wildlife, or plants and then import these items into the U.S. will be required to pay back the victims of their offenses. This Office remains committed to ensuring, no matter how long it takes, that those who would damage another country’s environment and seek to profit in the U.S. market will have to remedy their violations of law and repay those foreign governments.”
According to documents filed in Manhattan federal court and in the U.S. Court of Appeals for the Second Circuit:
ARNOLD MAURICE BENGIS was the Managing Director and Chairman of Hout Bay Fishing Industries (PTY) Ltd. (“HBFI”) in Cape Town, South Africa, and he also exercised control over Icebrand Seafoods, Inc. (“Icebrand”) and Associated Sea Fisheries Inc. (“Associated”) in Manhattan. NOLL was the Chairman and President of both Associated and Icebrand in New York. DAVID BENGIS was the President of Icebrand Seafoods Maine Inc. in Portland, Maine.
From 1987 to August 1, 2001, ARNOLD MAURICE BENGIS, his son DAVID BENGIS, NOLL, and their co-conspirators, engaged in an elaborate scheme to, among other things, harvest illegally large quantities of South and West Coast rock lobster, far in excess of applicable quotas, and then to export the illegally harvested lobster from South Africa to the U.S.
The defendants underreported the fish harvested to South African authorities and bribed South African fisheries inspectors to help them carry out their illegal harvesting scheme. They also submitted false export documents to South African authorities to conceal their overharvesting.
As part of the scheme, the defendants arranged for previously-disadvantaged South African citizens who did not have valid U.S. working permits to work for low wages at their fish processing facility in Portland, Maine, where the employees were required to process, among other things, illegally harvested South African rock lobster.
In 2003, all three defendants were charged with importing, among other things, illegally-harvested South African South Coast and West Coast rock lobster into the U.S. The Indictment alleged, among other things, that the lobster had been harvested in violation of both South African law and international convention, by being caught in amounts well in excess of the quota established by South African law or without required permits.
In April 2004, ARNOLD MAURICE BENGIS and NOLL each pled guilty to one count of conspiracy to violate the Lacey Act and to commit smuggling, and three separate counts of violating the Lacey Act. In April 2004, DAVID BENGIS pled guilty to one misdemeanor count of conspiracy to violate the Lacey Act.
In July 2004, Judge Kaplan sentenced each of the defendants to a term of imprisonment, specifically: ARNOLD MAURICE BENGIS – 46 months; JEFFREY NOLL – 30 months; and DAVID BENGIS – 1 year. As part of their sentences, ARNOLD MAURICE BENGIS and NOLL forfeited $5.9 million to the Government. DAVID BENGIS forfeited the proceeds of the sale of his fish-processing factory in Portland, a sum of $1.5 million. Each of the defendants was also sentenced to a term of supervised release. The defendants have all completed their prison terms and supervised release.
In 2007, Judge Kaplan rejected the Government’s application for restitution and held, among other things, that South Africa did not have a property interest in the illegally harvested rock lobster and that South Africa was not a victim within the meaning of the applicable restitution statutes.
In January 2011, the U.S. Court of Appeals for the Second Circuit overturned Judge Kaplan’s 2007 ruling and held instead that: (1) South Africa had a property interest in illegally harvested rock lobsters and, therefore, that the defendants had committed an “offense against property,” thereby entitling South Africa to restitution; and (2) South Africa was a victim within the meaning of the applicable restitution statutes. The Court of Appeals left the determination of the precise amount of restitution to the District Court on remand.
In August 2012, U.S. Magistrate Judge Andrew J. Peck recommended to Judge Kaplan that he order more than $54.8 in restitution to South Africa. Today’s order by Judge Kaplan adopts Judge Peck’s report and recommendation in substantial part by ordering the defendants to pay restitution in the amount of $29,495,800 for illegally harvested West Coast lobster that was imported into the United States. As part of separate criminal prosecution in South Africa, HBFI paid South Africa $7,049,080 for its illegal conduct. Judge Kaplan credited that amount against the restitution of $29,495,800, to arrive at a total amount to be paid by the defendants to South Africa of $22,446,720.
ARNOLD MAURICE BENGIS, 77, and his son DAVID BENGIS, 43, reside in London, England. JEFFREY NOLL, 62, resides in Boca Raton, Florida.
Mr. Bharara praised the outstanding efforts of the Department of Homeland Security, Bureau of Immigration and Customs Enforcement, and the National Oceanic and Atmospheric Administration, Office of Law Enforcement.
Mr. Bharara also thanked the Office of the Attorney General of Jersey, the States of Jersey Police, and the South African Department of Justice and Constitutional Development for their outstanding assistance in the restitution proceedings.
This criminal case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Daniel W. Levy is in charge of the prosecution.
U.S. v. Arnold Bengis et al. Opinion
U.S. v. Arnold Bengis et al. OrderDisability Doctor’s Office Manager Sentenced in Manhattan Federal Court for Obstructing the Investigation of the Lirr Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MARIA RUSIN, the office manager for disability doctor Peter J. Ajemian, was sentenced today in Manhattan federal court to three years of probation, including six months of home detention, for obstructing the investigation of the alleged massive fraud scheme in which Long Island Railroad (“LIRR”) workers claimed to be disabled upon early retirement so that they could receive disability benefits to which they were not entitled. RUSIN pled guilty in January 2013 to one count of obstructing a health care fraud investigation before U.S. Magistrate Judge Henry Pitman. She was sentenced by U.S. District Judge Victor Marrero.
Manhattan U.S. Attorney Preet Bharara stated: “As Dr. Peter J. Ajemian’s office manager, Maria Rusin understood the office process through which the LIRR disability fraud scheme was carried out, but when questioned by criminal investigators about her knowledge of the scheme, she denied any and told one lie after another. Obstructing the Government’s search for the truth is a serious crime, and as Rusin now knows, it is one that carries consequences.”
According to the Complaint, the Superseding Indictments, the Superseding Informations, and statements made in other public filings and in court:
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.
RUSIN was the office manager for Peter J. Ajemian, a Board-certified orthopedist who was instrumental in helping LIRR retirees receive disability benefits to which they were not entitled. Between the late 1990s and 2008, Ajemian declared as disabled over 94% of the LIRR employees he saw as patients. As part of the massive fraud scheme, Ajemian prepared false documentation purporting to show the LIRR employees’ steady decline toward disability exactly at the time they pre-planned their retirement. He then provided to those LIRR employees a narrative for submission to the RRB that claimed they should receive a disability annuity. These medical narratives were completely fabricated or grossly exaggerated so that Ajemian could recommend a set of restrictions that, if legitimate, would render it impossible for the LIRR employees to continue performing their jobs. Many of the purportedly “objective” findings from the tests he conducted showed nothing more than normal degenerative changes one would expect to see in patients within the relevant age bracket. In his plea agreement, Ajemian stipulated that the total intended losses from his fraud were between $100 and $200 million, and that the actual losses suffered by victims to date total $116.5 million.
On August 30, 2010, in an interview with criminal investigators participating in the Southern District of New York’s investigation of this disability fraud scheme, RUSIN falsely denied knowing that Ajemian’s LIRR patients were retiring at the same time that they were claiming occupational disability from the RRB; falsely claimed that she was never told that an LIRR patient was planning to retire except when the patient was directed to see her to pay for a narrative; falsely claimed that this notice of an LIRR’s patient’s planned retirement usually occurred at the end of the process of seeing Ajemian; and falsely claimed that she had no understanding about how an occupational disability would affect the payout for a worker who was retiring. In fact, RUSIN had day-to-day exposure to Ajemian’s disability practice, and she fully understood how the process worked and what the financial incentives were for the LIRR employees.
In addition to her term of probation, RUSIN, 57, of Farmingdale, New York was also ordered to pay a $3,000 fine and a $100 special assessment.
Thirty-two people have been charged in connection with the LIRR disability fraud scheme, 23 of whom have now pled guilty. Two defendants have been sentenced. Peter J. Ajemian was sentenced in May 2013 to 96 months in prison and ordered to forfeit $116,500,000. Gary Satin was sentenced in March 2013 to 20 months in prison and ordered to forfeit $247,000. The charges against the remaining defendants are merely allegations and they are all presumed innocent unless and until proven guilty.
Mr. Bharara praised the Railroad Retirement Board Office of 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 Office’s Complex Frauds Unit is handling the case. Assistant U.S. Attorneys Justin Weddle, Daniel Tehrani, and Nicole Friedlander are in charge of the prosecution.
Delaware Resident Sentenced in Manhattan Federal Court to Six Years in Prison for Trafficking in Stolen Identification Information for over 100,000 Online AccountsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JUSTIN MILLS was sentenced today in Manhattan federal court to six years in prison for trafficking in tens of thousands of access devices, including stolen credit card numbers and stolen login information for online accounts at Paypal and other financial websites. MILLS pled guilty on January 3, 2013, and was sentenced today by U.S. District Judge P. Kevin Castel.
Manhattan U.S. Attorney Preet Bharara said: “With his sentence today, Justin Mills joins the growing ranks of cybercriminals to be punished for abusing the Internet to access and exploit people’s personal financial information. Together with our law enforcement partners, including the extraordinary efforts of the FBI, this Office continues its work to disrupt the networks that incubate the expanding cyber threat.”
According to the Information, the Complaint previously filed in the case, and statements made during today’s sentencing proceeding:
MILLS was arrested in June 2012 as part of “Operation Card Shop,” an international law enforcement operation in which 30 defendants were ultimately arrested in 13 countries for their involvement in various “carding” crimes – offenses in which the Internet is used to traffic in and exploit stolen credit card, bank account, and other personal identification information. As part of the investigation, from June 2010 to May 2012, the Federal Bureau of Investigation (“FBI”) operated an undercover carding forum (the “UC Site”), which, like other underground forums commonly used by carders, enabled its users to discuss various topics related to carding, and to buy, sell, and exchange goods and services related to carding, including stolen credit card data. The FBI established the UC Site in an effort to identify cybercriminals engaged in carding and to detect and investigate their crimes. The UC Site was configured to allow the FBI to monitor and to record the discussion threads posted to the site, as well as private messages sent through the site between registered users.
MILLS was a user of the UC Site who used malicious software to steal usernames and passwords from Internet users that could be used to access various types of online accounts, including financial accounts at banks and online payment services such as Paypal. MILLS trafficked in this stolen login information, advertising to others on the UC Site that he had login information for well over 100,000 online accounts for sale, including accounts at Amazon, Facebook, Ebay, and other popular websites. A search of MILLS’ computer following his arrest recovered login information for 15,000 Paypal accounts alone, along with login information for tens of thousands of online accounts associated with other online services. MILLS also trafficked in stolen credit card data. In addition to trafficking in stolen login information and credit card accounts, MILLS himself used the access devices he stole to effect fraudulent purchases of gift cards and goods on the Internet, which he sold to others.
In addition to the prison term, Judge Castel sentenced MILLS, 20, of Smyrna, Delaware, to three years of supervised release. MILLS was also ordered to pay restitution and forfeiture of $50,000.
In sentencing Mills, Judge Castel said, “This man was running a business, and a business that was spreading misery and had the potential of further spreading misery to people throughout the country. Think of the disruption to the individuals, think of the losses to those who have to make good on credit card transactions, or online transactions, or frauds. There was a ripple effect that flowed from it.”
Judge Castel added, “There is also a need to deter others from crimes of this nature. This is an offense which is very difficult to detect, very difficult to find people who perpetrate it, and when they are unmasked, it is important that the word go forth that the punishments are severe.”
Mr. Bharara praised the investigative work of the FBI’s Cyber Crime Task Force.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Serrin Turner is in charge of the prosecution.
Manhattan U.S. Attorney Files and Settles Civil Fraud Lawsuit Against Subcontractor for Violating the Federal Disadvantaged Business Enterprise RegulationsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Barry Kluger, the Inspector General of the Metropolitan Transportation Authority (“MTA”), and Douglas Shoemaker, Regional Special Agent-in-Charge of the U.S. Department of Transportation, Office of the Inspector General (“USDOT-OIG”), announced today that the United States has filed and simultaneously settled a civil fraud lawsuit against a subcontractor, KLEINBERG ELECTRIC INC. (“KLEINBERG”), for engaging in fraudulent conduct designed to take advantage of the Disadvantaged Business Enterprise Program in order to secure a subcontract on a federally-funded project for the design and construction of the Fulton Street Transit Center Dey Street Concourse (the “Dey Street Project”). KLEINBERG caused the prime contractor of the Dey Street Project to falsely represent to the MTA that KLEINBERG paid hundreds of thousands of dollars to a disadvantaged business enterprise (“DBE”) to perform legitimate work on the contract when, in reality, the DBE did not perform a “commercially useful function,” as required by the program’s regulations, and instead received a commission for the fraudulent use of its DBE status. As part of the settlement, KLEINBERG admitted and accepted responsibility for violating the DBE regulations governing the Dey Street Project and agreed to pay $936,000. The settlement was approved yesterday in Manhattan federal court by U.S. District Judge P. Kevin Castel.
Manhattan U.S. Attorney Preet Bharara said: “Kleinberg Electric painted a veneer of legitimacy on a subcontract that did not comply with the Disadvantaged Business Enterprise Program, and in doing so, subverted the aim of helping qualified minority and women-owned businesses succeed. Today’s settlement will help to ensure that all contractors who receive federal funds, whether they are prime contractors or subcontractors, follow the law.”
MTA Inspector General Barry Kluger said: “The civil settlement announced today is the result of the joint efforts of the Office of the United States Attorney, my Office, and the USDOT-OIG to combat construction fraud and protect the integrity of the federal Disadvantaged Business Enterprise Program. Today’s announcement demonstrates our continued commitment to create and maintain a level playing field in which all qualified disadvantaged business enterprises have a fair and equal opportunity to bid for, receive, and participate in MTA projects. I wish to thank the United States Attorney for the Southern District of New York and his staff for their strong and sustained efforts and our continuing partnership.”
USDOT-OIG Regional Special Agent-in-Charge Douglas Shoemaker said: “The Disadvantaged Business Enterprise Program is a business assistance program of the USDOT which helps economically and socially disadvantaged small businesses compete in the marketplace. Disadvantaged Business Enterprise fraud harms the integrity of the program and adversely impacts law-abiding small business contractors trying to compete on a level playing field. Working with our federal, state, and local law enforcement and prosecutorial colleagues, we will vigorously pursue those who violate the law, and expose and shut down fraud schemes that adversely affect public trust and USDOT-assisted transit programs.”
Background on DBEs
In 1980, the USDOT issued regulations in connection with a program to increase the participation of minority and disadvantaged business enterprises in federally-funded public construction contracts. To become certified as a DBE, a company must be owned and controlled by socially and economically disadvantaged individuals; be an independent business whose viability does not depend on its relationship with other firms; employ its own work force and own equipment necessary to perform its work; and be able to meet its financial obligations.
Recipients of USDOT construction grants, such as the MTA, are required to establish a DBE program that sets goals for the percentage of a project’s work that should be awarded to DBEs (“DBE goals”). General contractors on construction projects must make good faith efforts to meet the relevant DBE goals. The MTA has established a DBE program and requires companies that are awarded public works contracts to meet certain DBE goals.
Under the USDOT regulations, general contractors can count funds paid to DBEs toward the attainment of the DBE goals only if the DBEs performed a “commercially useful function.” A DBE subcontractor performs a “commercially useful function” only when it is responsible for the execution of the work of the contract; it actually performs, manages, and supervises the work involved; and it furnishes the supervision, labor, and equipment necessary to perform its work.
A DBE does not perform a “commercially useful function” if “its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation.”
Kleinberg’s Fraud
According to the allegations in the complaint:
The MTA set the DBE participation goal for the Dey Street Project at 10 percent of the project (or approximately $12.7 million). KLEINBERG was hired as a subcontractor for the Dey Street Project by the prime contractor, Slattery Skanska (“Skanska”). KLEINBERG expressly represented to Skanska that it would contract with J&R Rey as a second-tier DBE subcontractor for $600,000 in order to help Skanska reach its DBE goal for the contract. Between September 2005 and April 2007, at least 34 monthly requisitions were submitted to the MTA for the Dey Street Project including certifications of progress towards meeting the contract’s DBE participation goal. Relying on representations from KLEINBERG, Skanska reported to the MTA that J&R Rey was performing legitimate work on the contract. In reality, KLEINBERG never intended for J&R Rey to perform any legitimate tasks on the contract and J&R Rey never in fact performed any work on the contract. Indeed, the President of J&R Rey confirmed to the MTA’s Office of Inspector General that J&R Rey never performed a commercially useful function on the Dey Street Project. Instead, KLEINBERG paid J&R Rey “commissions” for the sole purpose of fraudulently using J&R Rey’s DBE status to earn DBE credit for the prime contractor.
Under the settlement agreement, KLEINBERG admitted, acknowledged, and accepted responsibility for causing false certifications to be submitted to the MTA representing that J&R Rey performed certain work and received certain payments, when in fact, J&R Rey never performed any work and received a commission from KLEINBERG for the fraudulent use of its DBE status. KLEINBERG also agreed to pay the United States $936,000 in damages.
Mr. Bharara praised the work of the MTA Office of Inspector General and the USDOT office of Inspector General for their invaluable work on this case.
The case is being handled by the Office’s Civil Frauds Unit.
Assistant U.S. Attorneys Lara Eshkenazi, Mara Trager, and Ellen London are in charge of the case.
U.S. v. Kleinberg Electric Complaint
U.S. v. Kleinberg Electric Stipulation and Order of DismissalManaging Partner of U.S. Broker-Dealer Charged in Manhattan Federal Court with Participating in Massive International Bribery SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Mythili Raman, the Acting Assistant Attorney General for the Criminal Division of the United States Department of Justice, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), today announced the arrest of ERNESTO LUJAN (“LUJAN”), a managing partner of a U.S. broker-dealer (the “Broker-Dealer”), on felony charges arising from a conspiracy to pay bribes to Maria De Los Angeles Gonzalez De Hernandez (“Gonzalez”), a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (“BANDES”). LUJAN, among others, allegedly arranged the bribe payments to Gonzalez in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. LUJAN, 50, was arrested this morning in Wellington, Florida, where he resides and was presented in federal court in West Palm Beach, Florida.
On May 3, 2013, Gonzalez, along with two employees of the Broker-Dealer, Tomas Alberto Clarke Bethancourt (“Clarke”) and Jose Alejandro Hurtado (“Hurtado”) were arrested on separate charges relating to this bribery scheme. On May 6, 2013, the Government filed a civil forfeiture action in Manhattan federal court seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland, and the forfeiture of several properties in the Miami, Florida, area related to Hurtado that were purchased with his proceeds from the scheme. That same day, the Court also issued seizure warrants for multiple bank accounts and a restraining order relating to those Miami properties.
Manhattan U.S. Attorney Preet Bharara stated: “From his perch as managing partner Ernesto Lujan allegedly engaged in a bribery scheme designed to drum up foreign trading business for his firm. Along with his alleged cohorts, three of whom were arrested last month, he pocketed millions from the alleged scheme which was executed through kickbacks to a Venezuelan government official and through money laundering.”
Acting Assistant Attorney General Mythili Raman said: “The huge bribes Mr. Lujan and others allegedly paid funneled millions to his firm and into his own pockets. Bribery corrupts markets, and this arrest – just the latest in the Department’s recent series of anti-corruption charges in various districts – is yet another demonstration that, at the end of the day, the real dividends bribe payors reap are criminal charges.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Lujan led a conspiracy to bribe a foreign government bank official to steer business to his firm. As previously alleged, much of this trading activity was conducted solely to generate fees for the firm. Lujan personally reaped millions in profits, and used Swiss bank accounts to conceal both the bribes and his own proceeds of the scheme.”
In a separate action, the U.S. Securities and Exchange Commission (“SEC”) announced civil charges against LUJAN.
According to the allegations in the Criminal Complaint unsealed today, and other documents filed in Manhattan federal court:
Background on the Broker-Dealer and BANDES
LUJAN, a managing partner of the Broker Dealer, which was headquartered in New York City, was the branch manager of its Miami offices. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included LUJAN, Clarke and Hurtado, and which offered fixed income trading services to institutional clients. One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance. The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding. Gonzalez, a BANDES official, oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.
The Bribery Scheme
From December 2008 through October 2010, LUJAN, along with Clarke, Hurtado, and Gonzalez, participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer, including LUJAN, split the revenue the Broker-Dealer generated from this trading business with Gonzalez. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including LUJAN, Clarke and Hurtado, devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.
To further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For example, at least $9.5 million was transferred from the Broker-Dealer to a Swiss bank account controlled by Clarke, who in turn transferred at least $6.5 million to a Swiss bank account controlled by LUJAN. LUJAN then transferred at least $1.5 million of these proceeds to a Swiss bank account controlled by Gonzalez.
A chart containing the charges and maximum penalties LUJAN faces is attached below.
Mr. Bharara praised DOJ’s Criminal Division and the FBI for their work in the investigation. He also thanked the SEC for its assistance in this case and noted that the investigation is continuing.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Harry A. Chernoff and Jason H. Cowley, and Fraud Section Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea are in charge of the prosecution. Assistant United States Attorney Carolina Fornos is also responsible for the forfeiture aspects of the case.
Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Ernesto Lujan Complaint
Click here to view chart(s)
Manhattan U.S. Attorney Settles Civil Rights Lawsuit That Ensures Accessibility at Manhattan Rental ComplexRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has settled a civil rights lawsuit in Manhattan federal court against the developer, architect, and current owner of RiverEast, a residential apartment complex in Manhattan, alleging that the apartment complex is inaccessible to persons with disabilities. Specifically, the lawsuit alleges that THE JOHN BUCK COMPANY, LLC; BUCK DEVELOPMENT LLC; BUCK 92ND/1ST LLC; BUCK INVESTORS I, LLC; 92ND & FIRST RESIDENTIAL TOWER LLC; and THE JBC ACQUISTION & DEVELOPMENT FUND 1, LP (collectively, the “JOHN BUCK ENTITIES”), the developers of RiverEast, and SLCE ARCHITECTS LLP (“SLCE”), the architectural firm that designed the building, violated the design and construction provisions of the federal Fair Housing Act, which require that new multi-family housing complexes include certain features to make them accessible to persons with disabilities. The United States also sued RIVER EAST APARTMENTS INVESTORS, LLC, the current owner of RiverEast, to ensure that retrofits making the apartment complex accessible to persons with disabilities could be implemented. The consent decree was approved yesterday by U.S. District Judge Lorna G. Schofield.
Manhattan U.S. Attorney Preet Bharara said: “Developers and architects working in New York City have no excuse for failing to comply with the Fair Housing Act, and this Office will find and pursue offenders aggressively, particularly repeat offenders as we had here. Today’s settlement ensures that RiverEast will be made accessible to people with disabilities, and that people who were unlawfully denied full use of the complex will be compensated appropriately.”
According to the allegations contained in the Complaint:
RiverEast, a 196-unit apartment building located at 408 East 92nd Street in Manhattan, was designed and constructed with many inaccessible features. These include insufficient clear floor space in trash rooms and within bathrooms for maneuvering at lavatories and toilets; impediments to the installation of bathroom grab bars; kitchen and bathroom electrical outlets not fully usable to persons with mobility impairments; mailboxes that are too high for people who use wheelchairs; and inaccessible common area bathrooms. Inaccessible features at RiverEast were first brought to the attention of the United States by testing performed by the Fair Housing Justice Center. The U.S. Attorney’s Office frequently relies on testers to determine whether property owners are engaging in discrimination on the basis of race, disability, or other protected characteristics, and frequently files lawsuits based on the results of such testing. This is the ninth case filed by the Office in recent years based on testing.
The consent decree approved today requires the JOHN BUCK ENTITIES and SLCE to retrofit inaccessible features throughout the property and train employees on the requirements of the Fair Housing Act.
In addition, because one of the JOHN BUCK ENTITIES previously entered into a consent decree with the United States in the Northern District of Illinois to resolve allegations of Fair Housing Act violations, the United States sought increased penalties for this repeat violation of the Fair Housing Act. The JOHN BUCK ENTITIES and SLCE agreed to pay an increased civil penalty of $72,000, and to dedicate $125,000 to compensate people who have been harmed by inadequate accessibility at RiverEast.
Under the settlement, a person may be entitled to receive monetary compensation if he or she was:
- Discouraged from living at RiverEast because of a lack of accessible features;
- Limited in the full use or enjoyment of an apartment or amenity at RiverEast due to a lack of accessible features;
- Financially affected by having to make an apartment at RiverEast more accessible to persons with disabilities;
- Prevented from having visitors because of a lack of accessible features at RiverEast; or
- Otherwise injured by the lack of accessible features or discriminated against on the basis of disability at RiverEast.
People who may be entitled to compensation should file a claim by contacting the Civil Rights Complaint Line at (212) 637-0840 (a TDD line is available at (212) 637-0039), using the Civil Rights Complaint Form available on the U.S. Attorney’s Office’s website, http://www.justice.gov/usao/nys/civilrights.html, or sending a written claim to:
U.S. Attorney’s Office, Southern District of New York
86 Chambers Street, 3rd Floor
New York, New York, 10007
Attention: Chief, Civil Rights Unit
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Emily E. Daughtry, Li Yu, and Carina H. Schoenberger are in charge of the case.
U.S. v. RiverEast et al. Consent Order
New York Attorney Pleads Guilty to Participating in Multi-Million Dollar Real Estate Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that EDWARD ADAMS, a New York-based attorney, pled guilty today in Manhattan federal court to conspiracy to commit wire fraud in connection with his participation in a fraudulent real estate scheme. As part of that scheme, ADAMS and a co-conspirator misappropriated millions of dollars in escrow funds that should have been safeguarded for investors in a real estate development project. The real estate project was never developed and investors lost all of their money. ADAMS pled guilty before U.S. District Judge John G. Koeltl.
According to the Information, statements made during today’s guilty plea proceeding, and a Complaint previously unsealed in Manhattan federal court:
Beginning in early 2008, ADAMS and James Monahan, a former sergeant in the New York City Police Department and the owner of a real estate investment company called Panam Management Group, Inc., negotiated with another real estate investment company to solicit investors for a project Monahan claimed to be constructing in the Dominican Republic. In connection with the project, ADAMS and Monahan executed agreements that required investor funds to be deposited into escrow accounts that were to be managed by ADAMS. From October 2008 through February 2009, approximately $4.7 million in investor funds were deposited into the escrow accounts. Shortly after the deposits were made, the funds were improperly withdrawn by ADAMS and Monahan without disclosure to investors.
In an effort to hide the fact that the funds had been removed from the escrow account, Monahan mailed a forged letter on the stationery of a major bank to investors in May 2009 claiming that their money was safely deposited with that bank. However, by June 2009, all of the investor funds had been taken from the escrow accounts. At that point, almost no work had been performed on the purported project in the Dominican Republic. None of the money was returned to investors.
ADAMS, 69, of New York, New York, pled guilty to one count of conspiracy to commit wire fraud, which carries a maximum potential penalty of five years in prison and a fine of $250,000, or twice the gross gain or loss from the offense. He is scheduled to be sentenced by Judge Koeltl on October 18, 2013 at 10:00 a.m.
Monahan pled guilty on May 29, 2013 and is scheduled to be sentenced by Judge Koeltl on October 4, 2013 at 10 a.m.
Mr. Bharara praised the work of the Federal Bureau of Investigation.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
This case is being handled by the Office's Securities and Commodities Fraud Task Force. Assistant U.S. Attorney John T. Zach is in charge of the prosecution.
U.S. v. Edward Adams S1 Information
Former Testquest Manager Pleads Guilty to Defrauding Federal Government by Falsely Claiming to Have Provided Tutoring Services That Were Paid for with Federal FundsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MICHAEL LOGAN, a former manager of TESTQUEST, INC. (“TESTQUEST”), an educational services company that provided tutoring services to public school children as part of a federally funded program, pled guilty in Manhattan federal court for his role in a scheme to defraud the federal government by falsely submitting claims for payment for tutoring services that were never actually provided. LOGAN pled guilty before U.S. District Judge John F. Keenan.
Manhattan U.S. Attorney Preet Bharara said: “The federal government devotes important resources to a program intended to benefit students in need, and not intended to be manipulated by people like Michael Logan for their own benefit. To make matters worse, rather than focusing on the instruction of children, Logan focused on instructing witnesses to lie. With his guilty plea today, he will now face the consequences of his shameful exploitation of this vitally important program.”
According to the Criminal Complaint and Criminal Information filed against LOGAN, and a Civil Complaint that was filed against TESTQUEST and LOGAN earlier this year:
Each year during the time period at issue, 2005 through 2012, the New York City Department of Education (“NYCDOE”) received funds from the federal government to pay for New York City’s Supplemental Educational Services program (“SES”), which included after-school tutoring and other remedial and supplemental academic enrichment services for students attending underperforming public schools. NYCDOE entered into contracts with private entities and organizations to provide SES tutoring to public school students. Students were eligible to receive SES tutoring if they met certain criteria, such as attending a school that had been identified as needing improvement or restructuring for at least two years. Private entities contracted by NYCDOE to provide SES tutoring were required to have each student who attended a class sign a standard attendance form. The tutor was also required to sign the form, attesting to the fact that he or she provided SES tutoring to those students. Further, as a condition of getting paid for providing tutoring, the private entities were required to certify to the NYCDOE that their attendance records were “true and accurate.”
From 2005 through 2012, TESTQUEST contracted with the NYCDOE to provide SES tutoring. It provided individual tutoring to students at their homes and group tutoring at various New York City public schools, including the Monroe Academy of Business and Law/High School of World Cultures (“Monroe”) and the Global Enterprise Academy/Christopher Columbus High School (“Columbus”). TESTQUEST received tens of millions of dollars in federal funding for tutoring during this time period, including more than $2.3 million for purported tutoring at Monroe and Columbus alone.
MICHAEL LOGAN was an employee of TESTQUEST responsible for managing its SES tutoring program at Monroe and later at Columbus. LOGAN also worked as a long-term substitute teacher and computer technician at Monroe and sometimes coached its baseball team. LOGAN instructed TESTQUEST employees to forge student signatures on attendance forms and to have students sign attendance forms for tutoring classes they had not attended. On some occasions, LOGAN caused TESTQUEST employees to fraudulently obtain students’ signatures by collecting them from students assembled in the school cafeteria or participating in afterschool activities such as baseball or basketball practice. For example, LOGAN would direct employees to participate in this fraud by saying, “if you can’t find the students, sign them in,” and “make them sign or you won’t get paid.” Further, when LOGAN learned of the criminal investigation, he coached others to lie. In one recorded conversation, LOGAN encouraged another witness to lie about teaching classes that occurred when he and the witness were actually coaching after-school sports. As a result of LOGAN’s conduct, TESTQUEST employees repeatedly submitted bills to NYCDOE for tutoring that never occurred and for which TESTQUEST was paid substantial sums of money.
LOGAN, 48, of White Plains, New York, pled guilty to one count of conspiracy to defraud the United States and the U.S. Department of Education. He faces a maximum sentence of five years in prison, and is scheduled to be sentenced by Judge Keenan on October 9, 2013. The charges in the Civil Complaint against LOGAN and TESTQUEST remain pending.
Mr. Bharara thanked the U.S. Department of Education’s Office of Inspector General for its extraordinary assistance in this case.
The case is being handled by the Complex Frauds Unit. Assistant U.S. Attorneys Joseph P. Facciponti and Christopher B. Harwood are in charge of the prosecution.
U.S. v. Michael Logan Information
Owner of Gourmet Food Markets Pleads Guilty in White Plains Federal Court to Participating in Massive Tax Fraud Scheme That Concealed over $50 Million in Income from the IRSRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ADEM ARICI pled guilty today in White Plains federal court to participating in a tax fraud conspiracy in which more than $50 million in gross receipts from the fine foods supermarkets in which he had an ownership interest was hidden from federal and state tax authorities. ARICI also pled guilty to four counts of subscribing to false and fraudulent federal personal income tax returns, nine counts of aiding and assisting in the preparation of false and fraudulent federal corporate, partnership, and payroll tax returns, and one count of witness tampering. ARICI pled guilty before U.S. Magistrate Judge Paul E. Davison. He is the seventh member of the conspiracy to plead guilty, and cases are pending against two additional co-conspirators who remain at large.
Manhattan U.S. Attorney Bharara stated: “Adem Arici and his co-conspirators appeared to be running a legitimate and very successful business, but in reality he was little more than a serial and flagrant tax cheat – failing to pay either personal or business-related taxes on millions of dollars in income. This Office has absolutely no tolerance for those who violate the tax laws and fail to pay their fair share.”
According to the Superseding Indictment and other documents filed in this case:
ARICI had an ownership interest and played an active management role in the following gourmet food markets (the “Markets”) in New York, New Jersey, and Connecticut:
- Zeytuna, located in New York, New York.
- The Amish Market, located in New York, New York.
- Zeytinia Gourmet, located in Croton-on-Hudson, New York.
- Zeytinia Fine Food Store, located in Oakland, New Jersey.
- Zeytinia Fine Food Store, located in Atlantic City, New Jersey.
- Zeytinia Gourmet Market in Wilton, Connecticut.
The Markets’ customers typically paid for their purchases with either cash or credit cards. Credit card payments, and a small portion of the cash receipts, were deposited into bank accounts maintained by each Market. The remaining cash was diverted from the books and records of the Markets and used to pay business expenses, including the Markets’ employee payrolls. The owners of the Markets paid numerous employees, including undocumented foreign workers, in cash. They then took the remaining cash and divided it up amongst themselves.
The owners of the Markets failed to withhold payroll taxes and to pay those taxes to the IRS and caused the preparation and filing with the IRS of forms that falsely and fraudulently understated the true salaries paid to employees. In many cases, the owners failed to report the salaries of employees entirely. The owners also maintained a second set of books and other records which recorded the true income and expenses of the Markets and reflected the cash that was skimmed. The second set of books showed that the owners of the Markets failed to report in excess of $50 million in gross receipts during the years 2004 through 2009.
With respect to the witness tampering count, on November 18, 2011, ADEM ARICI counseled an individual with whom he had unlawfully traveled to Cuba to tell law enforcement agents with the Department of Homeland Security, among other things, that the individual did not travel to Cuba, did not know ARICI, and had not met with ARICI in Cuba, all of which was untrue.
ARICI, 51, of Easton, Connecticut, is scheduled to be sentenced by Chief United States District Judge Loretta A. Preska on September 17, 2013. He faces a sentence of up to 54 years in prison and also faces restitution and forfeiture orders each in the amount of up to $15 million.
Mr. Bharara praised the outstanding efforts of the Internal Revenue Service, Criminal Investigation, and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations. He also thanked U.S. Department of Justice’s Tax Division for its significant assistance in the investigation.
This case is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Jeffrey Alberts, Lee Renzin, and Perry A. Carbone are in charge of the prosecution.
The charges and allegations contained in the Indictment against the remaining defendants, Omer Ipek and Atilla Yayla, and Marc Verzani, are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Members of International Narcotics Trafficking Conspiracy Charged in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Derek Maltz, the Special Operations Division Special Agent-in-Charge of the United States Drug Enforcement Administration (“DEA”), today announced the unsealing of charges against SAMUEL ANTONIO PINEDO-RUEDA, SOLOMON ADELAQUAYE, FRANK MUODUM, and CELESTINE OFOR ORJINWEKE on charges that they conspired to import heroin into the United States. PINEDO-RUEDA, 72, a citizen of Colombia, was apprehended in Colombia on May 16, 2013 pursuant to a Red Notice issued at the request of the United States, and is awaiting extradition. ADELAQUAYE, 48, a citizen of Ghana, and MUODUM, 44, and ORJINWEKE, 53, citizens of Nigeria, were arrested in New York on May 9, 2013, and were presented and arraigned before U.S. Magistrate Judge Gabriel W. Gorenstein. The case is assigned to U.S. District Judge Ronnie Abrams.
Manhattan U.S. Attorney Preet Bharara said: “These alleged narco-traffickers assumed they had secured safe passage for their heroin from West Africa to the United States by paying off an airport insider, but unbeknownst to them, the people on the other side of their transaction were law enforcement insiders working for the DEA. Together with our partners, we remain committed to thwarting these plots before they are executed and to apprehending and prosecuting those responsible.”
DEA Special Operations Division Special Agent-in-Charge Derek Maltz said: “Drug trafficking in West Africa has become a plague. These criminal groups and their facilitators pose a direct threat to the safety and security of innocent Americans. Together with our law enforcement partners, DEA is dismantling illicit drug networks in western Africa and around the world, and putting the criminals who operate them behind bars where they belong.”
According to the Indictment unsealed today in Manhattan federal court:
In February 2012, in Accra, Ghana, PINEDO-RUEDA, MUODUM, and ORJI NWEKE sold one kilogram of heroin to two confidential sources (“the CSs”) working for the DEA. In meetings in connection with the heroin sale, one of the CSs purported to be a Colombian narcotics trafficker in search of heroin to sell to customers in New York City; the other CS purported to be a courier for that trafficker, who would transport the heroin to New York for distribution. ADELAQUAYE, who was responsible for security at the international airport in Ghana, agreed to facilitate the movement of the heroin through the airport without detection, in exchange for a $10,000 payment.
In May 2013, ADELAQUAYE, MUODUM, and ORJINWEKE further agreed that one of the CSs would supply them with 3,000 kilograms of cocaine and that in exchange, they would supply the CS with a quantity of heroin of equivalent value, to be delivered to the United States in 25-kilogram increments.
The Indictment charges each of the defendants with one count of conspiring to import heroin and to distribute heroin, knowing and intending that it would be imported into the United States. The charge carries a maximum sentence of life in prison.
The charges and arrests of the defendants are the result of the close cooperative efforts of the United States Attorney’s Office for the Southern District of New York and the DEA’s Special Operations Division, the DEA Ghana Country Office, and the DEA Bogota Country Office. Mr. Bharara praised the outstanding investigative work of the DEA and thanked the U.S. Department of Justice Office of International Affairs for its assistance. Mr. Bharara also thanked the Government of Ghana for its cooperation.
The prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorney Michael Ferrara is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Pinedo-Rueda et al. S5 Indictment
Statement of Manhattan U.S. Attorney Preet Bharara on the Sentencing of Manssor Arbabsiar for Conspiring with Iranian Military Officials to Assassinate the Saudi Arabian Ambassador to the United StatesRead the Press Release
“Manssor Arbabsiar was an enemy among us – the key conduit for, and facilitator of, a nefarious international plot concocted by members of the Iranian military to assassinate the Saudi Ambassador to the United States and as many innocent bystanders as necessary to get the job done. And but for the vigilance of our FBI and DEA partners, his plot, and the unspeakable harm it would have caused, may well have come to fruition, which is exactly why our commitment to using every resource we have to root out, prosecute and punish people like Arbabsiar, who act as emissaries for our enemies, remains unflagging.”
Manssor Arbabsiar Sentenced in Manhattan Federal Court to 25 Years in Prison for Conspiring with Iranian Military Officials to Assassinate the Saudi Arabian Ambassador to the United StatesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and John Carlin, the Acting Assistant Attorney General for National Security at the U.S. Department of Justice (“DOJ”), announced that MANSSOR ARBABSIAR, a/k/a “Mansour Arbabsiar,” was sentenced today in Manhattan federal court to 25 years in prison for participating in a plot to murder the Saudi Arabian Ambassador to the U.S., while the Ambassador was in the U.S. ARBABSIAR, a 58 - year-old naturalized U.S. citizen holding both Iranian and U.S. passports, was arrested on September 29, 2011 at John F. Kennedy International Airport. He pled guilty on October 17, 2012 to one count of murder-for-hire, one count of conspiracy to commit murder-for-hire, and one count of conspiracy to commit an act of terrorism transcending national boundaries before U.S. District Judge John F. Keenan, who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara stated: “Manssor Arbabsiar was an enemy among us – the key conduit for, and facilitator of, a nefarious international plot concocted by members of the Iranian military to assassinate the Saudi Ambassador to the United States and as many innocent bystanders as necessary to get the job done. And but for the vigilance of our FBI and DEA partners, his plot, and the unspeakable harm it would have caused, may well have come to fruition, which is exactly why our commitment to using every resource we have to root out, prosecute and punish people like Arbabsiar, who act as emissaries for our enemies, remains unflagging.”
Acting Assistant Attorney General for National Security John Carlin stated: “Thanks to the collaborative efforts of many U.S. law enforcement and intelligence professionals, Manssor Arbabsiar is today being held accountable for his role in this assassination plot. I applaud all those responsible for ensuring that Arbabsiar and his co-conspirators in Iran’s Qods Force failed in their efforts. Today’s sentencing serves as a reminder of the evolving threat environment we face.”
According to the Complaint and Indictment filed in Manhattan federal court:
From the spring of 2011 to October 2011, ARBABSIAR and his Iran-based co-conspirators, including members of Iran’s Qods Force, plotted the murder of the Saudi Arabian Ambassador to the U.S. In furtherance of this conspiracy, ARBABSIAR met on a number of occasions in Mexico with a DEA confidential source (“CS-1”) who posed as an associate of a violent international drug trafficking cartel. ARBABSIAR arranged to hire CS-1 and CS-1’s purported accomplices to murder the Ambassador with the awareness and approval of his Iran-based co-conspirators. ARBABSIAR wired approximately $100,000 to a bank account in the U.S. as a down payment to CS-1 for the anticipated killing of the Ambassador, which was to take place in the U.S, also with the approval of his co-conspirators.
The Qods Force is a branch of the Iranian Islamic Revolutionary Guard Corps (the “IRGC”), which conducts sensitive covert operations abroad, including terrorist attacks, assassinations, and kidnappings, and is believed to have sponsored attacks against Coalition Forces in Iraq. In October 2007, the U.S. Treasury Department designated the Qods Force as a terrorist supporter for providing material support to the Taliban and other terrorist organizations.
ARBABSIAR met with CS-1 in Mexico on several occasions between May 2011 and July 2011. During the course of these meetings, he inquired as to CS-1’s knowledge with respect to explosives and explained that he was interested in, among other things, attacking an embassy of Saudi Arabia and the murder of the Saudi Ambassador to the U.S. In a July 14, 2011 meeting in Mexico, CS-1 told ARBABSIAR that he would need to use at least four men to carry out the Ambassador’s murder and that his price for doing so was $1.5 million. ARBABSIAR agreed and stated that the murder of the Ambassador should be handled first, before the execution of other attacks that he had discussed with CS-1. ARBABSIAR also indicated that he and his associates had $100,000 in Iran to give CS-1 as a first payment toward the assassination.
During the same meeting, ARBABSIAR also described to CS-1 his cousin in Iran, who he said had requested that ARBABSIAR find someone to carry out the Ambassador’s assassination. ARBABSIAR indicated that his cousin was a “big general” in the Iranian military; that he focuses on matters outside of Iran, and that he had taken certain unspecified actions related to a bombing in Iraq.
In a July 17, 2011 meeting in Mexico, CS-1 noted to ARBABSIAR that one of his workers had already traveled to Washington, D.C., to surveil the Ambassador. CS-1 also raised the possibility of innocent bystander casualties. ARBABSIAR made it clear that the assassination needed to go forward, despite mass casualties, telling CS-1, “They want that guy [the Ambassador] done [killed], if the hundred go with him f**k ‘em.” CS-1 and ARBABSIAR discussed bombing a restaurant in the U.S. that the Ambassador frequented. When CS-1 noted that others could be killed in the attack, including U.S. senators who dine at the restaurant, ARBABSIAR dismissed these concerns as “no big deal.”
On August 1 and August 9, 2011, ARBABSIAR caused two overseas wire transfers totaling approximately $100,000 to be sent to an FBI undercover account as a down payment for CS-1 to carry out the assassination. Later, ARBABSIAR explained to CS-1 that he would provide the remainder of the $1.5 million after the assassination. On September 20, 2011, CS-1 told ARBABSIAR that the operation was ready and requested that he either pay one half the agreed upon price ($1.5 million) for the murder or that ARBABSIAR personally travel to Mexico as collateral for the final payment of the fee. ARBABSIAR agreed to travel to Mexico to guarantee final payment for the murder.
On September 28, 2011, ARBABSIAR flew to Mexico, and he was refused entry into the country and placed on a return flight destined for his last point of departure. The following day, ARBABSIAR was arrested by federal agents during a flight layover at JFK International Airport in New York. Several hours after his arrest, ARBABSIAR was advised of his Miranda rights and he agreed to waive those rights and speak with law enforcement agents. During a series of Mirandized interviews, ARBABSIAR confessed to his participation in the murder plot.
In addition, ARBABSIAR admitted to agents that, in connection with this plot, he was recruited, funded, and directed by men he understood to be senior officials in Iran’s Qods Force. He said these Iranian officials were aware of, and approved of, the use of CS-1 in connection with the plot, as well as payments to CS-1, the means by which the Ambassador would be killed in the U.S., and the casualties that would likely result.
ARBABSIAR also told agents that his cousin, whom he had long understood to be a senior member of the Qods Force, had approached him in the early spring of 2011 about recruiting narco-traffickers to kidnap the Ambassador. He told agents that he then met with CS-1 in Mexico and discussed assassinating the Ambassador. ARBABSIAR said that afterwards, he met several times in Iran with Gholam Shakuri, a/k/a “Ali Gholam Shakuri,” a co-conspirator and Iran-based member of the Qods Force, and another senior Qods Force official, where ARBABSIAR explained that the plan was to blow up a restaurant in the U.S. frequented by the Ambassador and that numerous bystanders would be killed. According to Arbabsiar, the plan was approved by these officials.
In October 2011, after his arrest, ARBABSIAR made phone calls at the direction of law enforcement to Shakuri in Iran that were monitored. During these calls, Shakuri confirmed that ARBABSIAR should move forward with the plot to murder the Ambassador and that he should accomplish the task as quickly as possible, stating on October 5, 2011, “[j]ust do it quickly, it’s late…” Shakuri also told ARBABSIAR that he would consult with his superiors about whether they would be willing to pay CS-1 additional money. Shakuri, who was also charged in the plot, remains at large.
In addition to the prison term, Judge Keenan sentenced ARBABSIAR to three years of supervised release. ARBABSIAR was also ordered to pay forfeiture in the amount of $125,000 and a $300 special assessment fee.
Mr. Bharara thanked the FBI Houston Division, the DEA Houston Division, and the FBI New York Joint Terrorism Task Force for their outstanding investigative work on this case and thanked the Department of Justice’s Office of International Affairs, its National Security Division, and the Department of State for their assistance. Mr. Bharara also thanked the Government of Mexico for its cooperation.
This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Glen Kopp, Edward Kim, and Stephen Ritchin are in charge of the prosecution with assistance from the Counterterrorism Section of the National Security Division.
Former NYPD Sergeant Pleads Guilty in Manhattan Federal Court to $4.7 Million Real Estate Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JAMES MONAHAN, the owner of a real estate investment company called Panam Management Group, Inc., and a former sergeant in the New York City Police Department (“NYPD”), pled guilty today in Manhattan federal court to wire fraud, mail fraud, and conspiracy to commit wire and mail fraud in connection with his participation in a fraudulent real estate scheme. As part of that scheme, MONAHAN misappropriated approximately $4.7 million he obtained from investors for a real estate development project he claimed to be constructing in the Dominican Republic. The real estate project was never developed and investors lost all of their money. MONAHAN pled guilty before U.S. District Judge John G. Koeltl.
Manhattan U.S. Attorney Preet Bharara said: “Like the real estate development project he promoted, James Monahan was a phony who exploited his past association with the NYPD to woo investors, only to trade that badge of pride for a badge of fraud. There is a price to be paid for defrauding investors, and this Office will continue its work to prosecute and punish bogus professionals.”
According to the Indictment, statements made during today’s guilty plea proceeding, and a Complaint previously unsealed in Manhattan federal court:
Beginning in early 2008, MONAHAN negotiated with another real estate investment company to solicit investors for a project he claimed to be constructing in the Dominican Republic. During the negotiations, MONAHAN repeatedly touted his prior service with the NYPD as proof of his trustworthiness and as a reason to invest in the project.
In connection with the project, MONAHAN and a co-conspirator, Edward Adams, who was a New York-based attorney, executed agreements that required investor funds to be deposited into escrow accounts that were to be managed by Adams. The agreements required that the majority of the funds be deposited in an account to which the defendants would not have access. From October 2008 through February 2009, approximately $4.7 million in investor funds were deposited into the escrow accounts. Shortly after the deposits were made, the funds were improperly withdrawn from the account by Adams without disclosure to investors.
In an effort to hide the fact that the funds had been removed from the escrow account, Monahan mailed a forged letter in May 2009 on the stationery of a major bank to investors claiming that their money was safely deposited with that bank. However, by June 2009, all of the investor funds had been taken from the escrow accounts. At that point, almost no work had been performed on the purported project in the Dominican Republic and no money was returned to investors.
MONAHAN, 43, of New York, New York, pled guilty to one count each of wire fraud, mail fraud, and conspiracy to commit wire and mail fraud, each of which carries a maximum potential penalty of 20 years in prison and a fine of $250,000, or twice the gross gain or loss from the offense.
MONAHAN is scheduled to be sentenced by Judge Koeltl on October 4, 2013 at 10 a.m. Adams is scheduled to go to trial starting July 8, 2013.
Mr. Bharara praised the work of the Federal Bureau of Investigation.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
This case is being handled by the Office's Securities and Commodities Fraud Task Force. Assistant U.S. Attorney John T. Zach is in charge of the prosecution.
Monahan, James and Adams, Edward Indictment
Nanuet Man Pleads Guilty in White Plains Federal Court to Threatening to Kill Federal and State OfficialsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LAWRENCE MULQUEEN pled guilty to an Indictment charging him with making threats against federal officials in messages that he posted on the online social networking site “Facebook.” MULQUEEN threatened to kill members of the U.S. Congress, state and local elected officials, and others. He was charged in February 2013 and pled guilty today before U.S. District Judge Kenneth M. Karas.
U.S. Attorney Preet Bharara said: “As we have stated time and time again, social media, and the internet generally, are powerful tools for communication, but the fact that you face a screen and not a person does not give Lawrence Mulqueen, or anyone else, a license to make threats and incite others to commit acts of violence. The fact that a threat is made remotely does not mean that the chance of prosecution is remote. With his plea today, Mulqueen has learned that.”
According to the Complaint, Indictment, and statements made at today’s guilty plea proceeding in White Plains federal court:
In February 2013, MULQUEEN posted numerous messages on his Facebook page in which he threatened to kill members of the U.S. Congress, state and local elected officials, and others. For example, on February 20, 2013 he posted a message stating that he “[could] not wait to start killing” multiple U.S. Senators and members of the U.S. House of Representatives, as well as a Governor and Mayor. MULQUEEN instructed people commenting on his posts to secure a “high powered rifle,” and recommended a particular Italian-manufactured shotgun as “very light and . . . semi-automatic, [with] no need to pump or reload.” He added that readers should “[u]se blades when you can to conserve bullets.” In other posts, MULQUEEN commanded readers to seek out and kill Latinos and at least one political activist.
MULQUEEN, 50, of Nanuet, NY, pled guilty to one count of threatening federal officials and one count of transmitting threatening communications. He faces a sentence of up to 15 years in prison and a fine of up to $500,000 and will be sentenced by Judge Karas on October 16, 2013. Separate state charges against MULQUEEN for criminal possession of a weapon remain pending in Rockland County Court.
Mr. Bharara praised the work of the Federal Bureau of Investigation, the United States Secret Service, and the Clarkstown Police Department in this investigation.
The case is being handled by the Office’s White Plains Division. Assistant U.S. Attorney Ilan Graff is in charge of the prosecution.
Manhattan U.S. Attorney Announces Guilty Plea of Jeremy Hammond for Hacking into the Stratfor WebsiteRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JEREMY HAMMOND, a/k/a “Anarchaos,” pled guilty in Manhattan federal court to conspiracy to engage in computer hacking for his role in the December 2011 hack of Strategic Forecasting, Inc. (“Stratfor”), a global intelligence firm in Austin, Texas, that affected approximately 860,000 victims, including employees and subscribers. During his guilty plea, HAMMOND also admitted his involvement in multiple additional hacks, including computer intrusions into the Federal Bureau of Investigation’s Virtual Academy, the Arizona Department of Public Safety, the Boston Police Patrolmen’s Association, and the Jefferson County, Alabama Sheriff’s Office. HAMMOND pled guilty today before Chief U.S. District Judge Loretta A. Preska.
Manhattan U.S. Attorney Preet Bharara stated: “While he billed himself as fighting for an anarchist cause, in reality, Jeremy Hammond caused personal and financial chaos for individuals whose identities and money he took and for companies whose businesses he decided he didn’t like. He was nothing more than a repeat offender cybercriminal who thought that because of his computer savvy he was above the law that binds and protects all of us – the same law that assured his rights in a court of law and allowed him to decide whether to admit his guilt or assert his innocence. Computer hacking is a very serious crime that violates the privacy and economic security of its victims and disrupts legitimate commerce. We will continue to make the prosecution and punishment of cybercriminals like Jeremy Hammond a top priority.”
According to the Complaint, the Superseding Indictment, the Superseding Information, and statements made in other public filings and in court:
In December 2011, HAMMOND and other members of “AntiSec” – an off-shoot of “Anonymous,” a loose confederation of computer hackers and others – hacked into computer systems used by Strategic Forecasting, Inc. (“Stratfor”), a global intelligence firm in Austin, Texas. HAMMOND and his co-conspirators stole confidential information from those computer systems, including Stratfor employees’ emails as well as account information for approximately 860,000 Stratfor subscribers or clients. HAMMOND and his co-conspirators also stole credit card information for approximately 60,000 credit card users and used some of the stolen data to make more than $700,000 in unauthorized charges. HAMMOND and his co-conspirators also publicly disclosed some of the confidential information they had stolen.
In addition, at his guilty plea today, HAMMOND admitted his involvement in multiple additional hacks, including: the June 2011 hack of computer systems used by the Federal Bureau of Investigation’s Virtual Academy; the June 2011 hack of computer systems used by the Arizona Department of Public Safety, a state law enforcement agency in Arizona; the July 2011 hack of computer systems owned by Brooks-Jeffrey Marketing, Inc., a company based in Mountain Home, Arkansas, and various law enforcement-related websites; the August 2011 hack of computer systems used by Special Forces Gear, a company based in California; the August 2011 hack of computer systems used by Vanguard Defense Industries, a company based in Texas; the October 2011 hack of computer systems used by the Jefferson County, Alabama Sheriff’s Office; the October 2011 hack of computer systems used by the Boston Police Patrolmen’s Association; and the February 2012 hack of computer systems used by the Combined Systems, Inc., a company based in Pennsylvania.
HAMMOND, 28, of Chicago, Illinois, pled guilty to one count of conspiracy to engage in computer hacking and faces a maximum of 10 years in prison. He has also agreed to pay up to $2.5 million in restitution. He will be sentenced by Judge Preska on September 6, 2013 at 10 a.m.
Charges against four other hackers who were originally charged with HAMMOND, RYAN ACKROYD, JAKE DAVIS, DARREN MARTYN, and DONNCHA O’CEARRBHAIL – all of whom identified themselves as members of Anonymous or its offshoots, including “Internet Feds,” “LulzSec,” and “AntiSec” – remain pending. The charges are merely accusations, and the defendants are presumed innocent unless and until proven guilty. ACKROYD and DAVIS were convicted for cybercrimes by a British court in May 2013 and are serving their sentences there.
The Office’s Complex Frauds Unit is handling the case.
U.S. v. Jeremy Hammond S2 Information
Manhattan U.S. Attorney Announces Extradition of Former President of Guatemala, Alfonso Portillo, on Money Laundering ChargeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Michele M. Leonhart, Administrator of the Drug Enforcement Administration, and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), today announced the extradition of ALFONSO PORTILLO, the former President of Guatemala, who is charged with conspiring to launder millions of dollars he embezzled from the Government of Guatemala through bank accounts located in the United States. Portillo arrived in the Southern District of New York last Friday and will be presented today before U.S. District Judge Robert P. Patterson.
United States Attorney Preet Bharara said: “After three years of fighting his extradition, Alfonso Portillo has finally arrived in the United States to answer for his alleged misappropriation of millions of dollars intended for the benefit of the people of Guatemala and which he laundered through United States banks. Our ability to hold him to account for his alleged criminality and corruption is the result of the unrelenting commitment and dedication of our prosecutors and our law enforcement partners in both the United States and Guatemala.”
DEA Administrator Michele M. Leonhart said: “Former President Portillo has been extradited to the United States for violations of money laundering. In his role as President, Mr. Portillo used our banking system to launder illegal proceeds, which is a violation of law that DEA will always aggressively investigate. Thanks to the work of many in law enforcement and DEA’s strong and cooperative relationships with the Guatemalan government, Mr. Portillo will now face justice in a U.S. courtroom.”
IRS-CI Special Agent-in-Charge Toni Weirauch said: “IRS-Criminal Investigation is dedicated to working with our law enforcement partners and sharing our financial investigative expertise to combat and disrupt criminal organizations and individuals that commit crimes against our society and the world economy, including international money laundering. To that end, we are a proud participant in the DEA’s New York Organized Crime Drug Enforcement Strike Force. These money laundering allegations are truly international in nature, as the American financial system was misused and harmed in the concealment of money embezzled from the government of Guatemala and ultimately, its people.”
According to the Indictment previously unsealed in Manhattan federal court:
PORTILLO served as the President of Guatemala from January 14, 2000, to January 14, 2004. In that capacity, he embezzled tens of millions of dollars in public funds, a substantial portion of which he laundered through American and European bank accounts.
PORTILLO misappropriated public money in at least three different ways:
First, in 2000 and 2002, PORTILLO embezzled approximately $2.5 million dollars provided by the Government of Taiwan's Embassy in Guatemala. In 2000, the Taiwanese Embassy issued three checks totaling $1.5 million, drawn upon a New York bank account created for the purpose of funding a Guatemalan program designed to purchase books for school libraries, Bibliotecas Para La Paz ("Libraries for Peace"). PORTILLO endorsed these checks and caused them to be deposited in a bank account in Miami, Florida. None of the money from the Government of Taiwan was applied towards the Libraries for Peace program; almost $1 million of the donation was ultimately diverted, through a series of transactions and transfers intended to conceal the source and origin of the funds, to bank accounts in the name of PORTILLO's former wife and daughter at Banco Bilbao Vizcaya Argentaria ("BBVA") in Paris, France. The money transferred into the BBVA Accounts was further laundered through financial institutions in Luxembourg and Switzerland, among other places.
Second, in 2001, PORTILLO embezzled approximately 30 million Quetzales (equivalent at that time to approximately $3.9 million) from the Guatemalan Ministry of Defense. PORTILLO arranged for this money to be delivered to one of Guatemala's national banks, Credito Hipocaterio Nacional ("CHN"), to which PORTILLO had previously appointed a co-conspirator ("CC-1") as the bank’s president. With the assistance of CC-1, PORTILLO directed the disbursement of the military funds to, among other things, finance a private land deal, disguise a loan to an associate, and issue checks to a company controlled by another co-conspirator. That co-conspirator then transferred a portion of that money to the BBVA accounts controlled by PORTILLO's former wife and daughter through a Miami bank account.
Finally, from approximately 2000 through 2003, PORTILLO misappropriated funds from the publicly financed reserves of CHN. PORTILLO and his co-conspirators created overdrafts in CHN accounts belonging to companies established by CC-1 and other co-conspirators. Through the use of these overdrafts, PORTILLO and his co-conspirators withdrew and transferred money from CHN accounts in excess of the accounts' otherwise existing balances. PORTILLO used these overdraft withdrawals and transfers to purchase, among other things, various personal items –- including expensive watches and cars –- for himself and his associates. On other occasions, PORTILLO and his co-conspirators used the overdrafts on CHN accounts to transfer and launder funds into business and personal accounts, maintained in the United States and elsewhere, belonging to co-conspirators. Relying on the CHN overdrafts, PORTILLO also transferred money to help prop up two failing banks that were principally owned by a close associate and political supporter of PORTILLO's, Banco Promotor and Banco Metropolitano.
If convicted of the money laundering conspiracy count with which he is charged, PORTILLO, 61, faces a maximum term of 20 years in prison and a maximum fine of the greater of $500,000, or twice the value of the monetary instruments or funds involved in the money laundering transactions.
Mr. Bharara specifically thanked the DEA’s New York Organized Crime Drug Enforcement Strike Force – which is comprised of agents and officers of the DEA, the New York City Police Department, Immigration and Customs Enforcement’s Homeland Security Investigations, the New York State Police, IRS-CI, the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Secret Service and the U.S. Marshals Service – the Department of State, and the U.S. Department of Justice's Office of International Affairs for their work in this investigation. Mr. Bharara also recognized and thanked the United Nations Commission Against Impunity in Guatemala ("CICIG"), the Guatemalan Special Prosecutor's Office for the CICIG, and the Ministerio Público in Guatemala for their assistance in this investigation.
This prosecution is being handled by the Office's Terrorism and International Narcotics Unit. Assistant United States Attorneys Rachel Kovner and Adam Fee are in charge of the prosecution.
The charge contained in the Indictment is merely an accusation and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Alfonso Portillo Indictment
Manhattan U.S. Attorney Announces Charges Against Liberty Reserve, One of World’s Largest Digital Currency Companies, and Seven of Its Principals and Employees for Allegedly Running A $6 Billion Money Laundering SchemeRead the Press Release
Investigation and Takedown Believed to Be the Largest International Money Laundering Prosecution in History, Involving Law Enforcement Actions in 17 Countries
Preet Bharara, the United States Attorney for the Southern District of New York, Mythili Raman, the Acting Assistant Attorney General for the Criminal Division of the U.S. Department of Justice (“DOJ”), Steven G. Hughes, the Special Agent-in-Charge of the New York Office of the U.S. Secret Service, Richard Weber, the Chief of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), announced today the unsealing of an indictment charging LIBERTY RESERVE, a company that operated one of the world’s most widely used digital currency services, and seven of its principals and employees with money laundering and operating an unlicensed money transmitting business. LIBERTY RESERVE is alleged to have had more than one million users worldwide, including more than 200,000 users in the U.S, who conducted approximately 55 million transactions – virtually all of which were illegal – and laundered more than $6 billion in suspected proceeds of crimes including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking.
Five defendants were arrested on May 24, 2013, including ARTHUR BUDOVSKY, the principal founder of LIBERTY RESERVE, who was arrested in Spain; VLADIMIR KATS, the co-founder of LIBERTY RESERVE, who was arrested in Brooklyn, New York; AZZEDDINE EL AMINE, a manager of LIBERTY RESERVE’s financial accounts, who was arrested in Spain; and MARK MARMILEV and MAXIM CHUKHAREV, who helped design and maintain LIBERTY RESERVE’s technological infrastructure, who were arrested in Brooklyn, New York, and Costa Rica, respectively. Two other defendants, AHMED YASSINE ABDELGHANI (“YASSINE”) and ALLAN ESTEBAN HIDALGO JIMENEZ (“HIDALGO”), are at large in Costa Rica.
In addition to the criminal charges brought in the Indictment, five domain names were seized, namely, the domain name of LIBERTY RESERVE and the domain names of four exchanger websites that were controlled by one or more of the defendants; 45 bank accounts were restrained or seized; and a civil action was filed against 35 exchanger websites (see attached list) seeking the forfeiture of the exchangers’ domain names because the websites were used to facilitate the LIBERTY RESERVE money laundering conspiracy and constitute property involved in money laundering. The four exchangers whose domain names were seized, as well as the 35 exchangers whose domain names are the subjects of the civil forfeiture action, were all exchangers that transacted business with LIBERTY RESERVE and were listed on LIBERTY RESERVE’s website as “pre-approved exchangers.” The investigation and takedown involved law enforcement action in 17 countries, including Costa Rica, the Netherlands, Spain, Morocco, Sweden, Switzerland, Cyprus, Australia, China, Norway, Latvia, Luxembourg, the United Kingdom, Russia, Canada, and the U.S.
In a coordinated action, the U.S. Department of the Treasury and its Financial Crimes Enforcement Network today announced that LIBERTY RESERVE has been named as a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act. This action includes a notice to the Federal Register proposing to prohibit covered U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign banks that are being used to process transactions involving LIBERTY RESERVE.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes – the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers, and traffickers. The global enforcement action we announce today is an important step towards reining in the ‘Wild West’ of illicit Internet banking. As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”
Acting Assistant Attorney General Mythili Raman said: “As charged, Liberty Reserve operated, on an enormous scale, a digital currency system designed to provide cyber and other criminals with a way to launder their profits without leaving a trace. The company’s very purpose was to launder its users’ criminal proceeds through the U.S. and global financial system. By indicting Liberty Reserve and its principals, restraining over $25 million in criminal proceeds, forfeiting domain names, and seizing servers in countries around the globe, our message is clear: money launderers can run, but they can’t hide from the U.S. justice system. Combating the threat of global illicit finance requires using every tool we have at our disposal, and today we demonstrate our resolve to ensure that criminals who exploit the U.S. and global financial system will be held to account.”
Secret Service Special Agent-in-Charge Steven G. Hughes said: “These arrests are an example of the Secret Service’s commitment to investigate and apprehend criminals engaged in the misuse of virtual currencies to conduct global monetary fraud. Cyber criminals should be reminded today that they are unable to hide behind the anonymity of the Internet to avoid regulated financial systems. We are grateful to our many law enforcement partners throughout the world for assistance in this investigation, especially in Costa Rica, Spain and the Netherlands.”
IRS-CI Chief Richard Weber said: “We are now entering the cyber age of money laundering. Technology advancements over the past several years have dramatically increased opportunities for criminals to move, conceal and enjoy their ill-gotten gains. Liberty Reserve and its principals have been charged with operating a sophisticated and complex system for structuring financial transactions which catered to those engaged in such criminal activity. What they did not anticipate was our robust partnerships with domestic and foreign law enforcement that allowed us collectively to follow the cyber money trail in the United States and around the world.”
ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “The actions of the U.S. Secret Service, IRS, and HSI in dismantling the Liberty Reserve operation are critical because transnational criminal organizations can succeed only so long as they can funnel their illicit proceeds freely and without detection. HSI is proud of its partnership through the Global Illicit Financial Team and will continue to aggressively target financial institutions that deliberately enable businesses and individuals to evade global financial systems in furtherance of criminal schemes.”
According to the allegations in the Indictment, the Civil Forfeiture Complaint, and other documents filed in Manhattan federal court:
Background
LIBERTY RESERVE was incorporated in Costa Rica in 2006 and operated the digital currency commonly referred to as “LR.” While the company billed itself as the Internet’s “largest payment processor and money transfer system,” serving “millions” of people around the world, including the U.S., at no time did the company register with the U.S. Department of the Treasury as a money transmitting business, as required by law.
BUDOVSKY, the principal founder of LIBERTY RESERVE, directed and supervised its operations, finances, and corporate strategy. KATS, a co-founder, helped operate the company until 2009. The day-to-day operations of LIBERTY RESERVE were managed, at different times, by HIDALGO and YASSINE. EL AMINE managed various financial accounts controlled by LIBERTY RESERVE, while MARMILEV and CHUKHAREV were primarily responsible for designing and maintaining the company’s technological infrastructure.
Overview of Liberty Reserve’s Money Laundering Operation
The defendants created, structured, and operated LIBERTY RESERVE as a criminal bank-payment processor designed to help users conduct illegal transactions anonymously and launder the proceeds of their crimes. It emerged as one of the principal money transfer agents used by cyber criminals around the world to distribute, store, and launder the proceeds of their illegal activity. The company grew into a financial hub of the cybercrime world, facilitating a broad range of online criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking. LIBERTY RESERVE was used extensively for illegal purposes, functioning as the bank of choice for the criminal underworld because it provided an infrastructure that enabled cyber criminals around the world to conduct anonymous and untraceable financial transactions.
The defendants also protected the criminal infrastructure of LIBERTY RESERVE by, among other things, lying to anti-money laundering authorities in Costa Rica and pretending to shut down LIBERTY RESERVE after learning the company was being investigated by U.S. law enforcement. They then continued operating the business through a set of shell companies, and moved tens of millions of dollars through shell company accounts maintained in Cyprus, Russia, China, Hong Kong, Morocco, Spain, Australia, and elsewhere.
The Criminal Design of Liberty Reserve
In order to use LR currency, a user first had to open an account through the LIBERTY RESERVE website and provide basic identifying information. Unlike traditional banks or legitimate online processors, LIBERTY RESERVE did not require users to validate their identities. Users routinely established accounts under false names, including such blatantly criminal names as “Russia Hackers” and “Hacker Account.” As part of the investigation, a law enforcement agent opened and executed transactions through an undercover account at LIBERTY RESERVE in the name of “Joe Bogus” and the address “123 Fake Main Street” in “Completely Made Up City, New York.”
Once an account was established, the user could conduct transactions with other LIBERTY RESERVE users. In these transactions, the user could receive transfers of LR from other users’ accounts, and transfer LR from his or her own account to other users, including any “merchants” that accepted LR as payment. LIBERTY RESERVE charged a one-percent fee up to a maximum of $2.99, every time a user transferred LR to another user through the LIBERTY RESERVE system. For an additional “privacy fee” of 75 cents per transaction, a user could hide his or her own LIBERTY RESERVE account number when transferring funds, effectively making the transfer completely untraceable, even within LIBERTY RESERVE’s already opaque system.
To add an additional layer of anonymity, LIBERTY RESERVE did not permit users to fund their accounts by transferring money to the company directly through a credit card transfer or other means. Users also could not withdraw funds from their accounts directly. Instead, LIBERTY RESERVE users were required to make any deposits or withdrawals through the use of third-party “exchangers,” which enabled the company to avoid collecting any information about its users through banking transactions or other activity that would leave a centralized financial paper trail. BUDOVSKY, KATS, and EL AMINE owned and operated certain LIBERTY RESERVE exchanger services.
The LIBERTY RESERVE website recommended a number of “pre-approved” exchangers, which tended to be unlicensed money transmitting businesses operating in countries without significant governmental money laundering oversight or regulation, such as in Malaysia, Russia, Nigeria, and Vietnam. The exchangers charged transaction fees for their services that were much higher than the fees charged by mainstream banks or payment processors for comparable money transfers.
The Criminal Use of Liberty Reserve
To further enable the use of LIBERTY RESERVE for criminal activity, its website offered a “shopping cart interface” that “merchant” websites could use to accept LR currency as a form of payment. The “merchants” who accepted LR currency were overwhelmingly criminal in nature. They included traffickers of stolen credit card data and personal identity information, peddlers of various types of online Ponzi and get-rich-quick schemes, computer hackers for hire, unregulated gambling enterprises, and underground drug-dealing websites.
In addition to being used to process payments for illegal goods and services online, LIBERTY RESERVE was also used by cyber criminals to launder criminal proceeds and transfer funds among criminal associates. For example, LIBERTY RESERVE was used by credit-card theft and computer-hacking rings operating in countries around the world, including Vietnam, Nigeria, Hong Kong, China, and the U.S., to distribute proceeds of these conspiracies among the members involved.
The defendants were well aware that LIBERTY RESERVE functioned as an unlawful money-laundering enterprise. In an online chat between KATS and YASSINE that was captured by law enforcement, KATS explicitly described LIBERTY RESERVE’s activities as “illegal” and noted that “everyone in USA” such as “DOJ” knows “LR is [a] money laundering operation that hackers use.”
LIBERTY RESERVE, BUDOVSKY, 39, a citizen of Costa Rica who resides in the Netherlands, KATS, 41, of Brooklyn, New York, YASSINE, 42, of Costa Rica, HIDALGO, 28, of Costa Rica, EL AMINE, 46, of Costa Rica, MARMILEV, 33, of Brooklyn, New York, and CHUKHAREV, 27, of Costa Rica, are each charged with one count of conspiracy to commit money laundering, which carries a maximum term of 20 years in prison, one count of conspiracy to operate an unlicensed money transmitting business, which carries a maximum term of five years in prison, and operation of an unlicensed money transmitting business, which carries a maximum term of five years in prison. The terms of incarceration apply to the individual defendants.
Mr. Bharara praised the outstanding investigative work of the Secret Service, the IRS-CI, and ICE HSI, which worked together in this case as part of the Global Illicit Financial Team. He also thanked the Secret Service’s New York Electronic Crimes Task Force for their extraordinary assistance with the investigation. Additionally, Mr. Bharara specially thanked all the international law enforcement agencies that assisted this investigation, in particular, the Judicial Investigation Organization in Costa Rica, the National High Tech Crime Unit in the Netherlands, the Spanish National Police, Financial and Economic Crime Unit, the Cyber Crime Unit at the Swedish National Bureau of Investigation, and the Swiss Federal Prosecutor’s Office. Mr. Bharara also thanked the Shadowserver Foundation for acting as the hosting provider for the domain names that were seized pursuant to the Court-authorized seizure warrants.
This case is being prosecuted jointly with the Department of Justice’s Asset Forfeiture and Money Laundering Section (“AFMLS”), which is overseen by Acting Assistant Attorney General Mythili Raman. Mr. Bharara thanked AFMLS for its partnership and also thanked the Department of Justice’s Office of International Affairs and Computer Crime and Intellectual Property Section for their support.
If you believe you were a victim of a crime and were defrauded of funds through the use of Liberty Reserve, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact (888) 238-0696 or (212) 637-1583.
The prosecution of this case is being handled by the Office’s Complex Frauds Unit and Asset Forfeiture Unit.
The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.
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U.S. v. Liberty Reserve, et al. Indictment - Redacted
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U.S. v. Liberty Reserve, et al. Redacted Injunction OrderINDICTMENT & SUPPORTING DOCUMENTS: U.S. V. Liberty Reserve, Et Al.Read the Press Release
U.S. v. Liberty Reserve, et al. Redacted AUSA Appln with Exhibits
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U.S. v. Liberty Reserve, et al. Redacted Injunction Order
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Liberty Reserve, et al. Related Exchanger Website Domain Names Redacted Filed Complaint 13CV3565
U.S. v. Liberty Reserve, et al. Indictment - RedactedBronx Woman Sentenced in Manhattan Federal Court to 13 Years in Prison for the Sexual Exploitation of A Child and Making False StatementsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that INOCENCIA ORTEGA was sentenced today in Manhattan federal court to 13 years in prison for conspiring to sexually exploit a child and making false statements related to sex offenses. ORTEGA pled guilty in June 2012. She was sentenced today by U.S. District Judge Paul A. Engelmayer.
Manhattan U.S. Attorney Preet Bharara stated: “Inocencia Ortega facilitated the exploitation of a child, and then compounded her crime by lying to investigators. With her sentence today, this Office continues its work to prosecute and punish child predators and those who enable their heinous crimes.”
According to documents filed in this case and statements made in court:
In July 2011, ORTEGA and her co-defendant, Luciano Mendez-Rojas, engaged in sexually explicit conduct together in their home in the Bronx, New York, while their minor child filmed videos of their conduct at the direction of Mendez-Rojas.
On October 19, 2011, ORTEGA falsely stated to two federal agents that her children never told her that they had seen child pornography downloaded by Mendez-Rojas. However, her minor child had already told ORTEGA that he had seen a video containing child pornography.
In addition to the prison term, Judge Engelmayer sentenced ORTEGA, 36, a citizen of Mexico, to three years of supervised release. She must also register as a sex offender, and was ordered to pay a $200 special assessment.
Mr. Bharara praised the investigative work of Immigration and Customs Enforcement’s
(ICE) Homeland Security Investigations (HSI) and the New York City Police Department.
The case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys Kristy J. Greenberg and Daniel C. Richenthal are in charge of the prosecution.
ICE HSI encourages the public to report suspected child predators and any suspicious
activity through its toll-free hotline at 1-866-347-2423. This hotline is staffed around the clock
by investigators.
Suspected child sexual exploitation or missing children may be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com.
Manhattan U.S. Attorney Announces Extradition of Richard Ammar Chichakli on Money Laundering, Wire Fraud, and Conspiracy ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, today announced that RICHARD AMMAR CHICHAKLI, an associate of the convicted international arms dealer Viktor Bout, was extradited from Australia on charges that he allegedly conspired with Bout and others to violate the International Emergency Economic Powers Act (“IEEPA”) by attempting to purchase two aircraft from companies located in the United States, in violation of economic sanctions that prohibited such financial transactions. CHICHAKLI is also charged with money laundering conspiracy, wire fraud conspiracy, and six separate counts of wire fraud in connection with the attempted aircraft purchases. CHICHAKLI, a citizen of Syria and the United States, was arrested by Australian authorities on January 9, 2013, at the request of the United States. He will appear before U.S. Magistrate Judge Sarah Netburn for presentment and arraignment on May 25, 2013.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Richard Chichakli and Viktor Bout had common cause – the purchase of aircraft in violation of international sanctions against them for their involvement in facilitating arms delivery to some of the world’s most lethal combat zones. With his extradition today to face charges for his flagrant violation of international sanctions and other crimes, he will now face the same American justice Viktor Bout did.”
According to the Superseding Indictment previously filed in Manhattan federal court and other court documents:
CHICHAKLI was a close associate of Viktor Bout since the mid-1990s. Bout is currently serving a 25-year prison term as a result of his November 2011 conviction in the Southern District for conspiring to sell millions of dollars of weapons to the Fuerzas Armadas Revolucionarias de Colombia (the “FARC”), a designated foreign terrorist organization based in Colombia. Prior to his arrest on those charges in March 2008, in Thailand, and since the 1990s, Bout was an international weapons trafficker. He carried out his massive weapons-trafficking business by assembling a fleet of cargo airplanes capable of transporting weapons and military equipment to various parts of the world, including Africa, South America, and the Middle East. CHICHAKLI assisted Bout in the operations and financial management of his network of aircraft companies.
The arms Bout sold or brokered have fueled conflicts and supported regimes in Afghanistan, Angola, the Democratic Republic of the Congo, Liberia, Rwanda, Sierra Leone and Sudan. As a result of Bout’s role in pouring arms into these international conflicts, his relationship with CHICHAKLI, and Bout and CHICHAKLI’s close relationship with former Liberian President Charles Taylor, both Bout and CHICHAKLI have been the subject of United Nations Security Council (“UNSC”) sanctions restricting their travel and their ability to conduct business around the world. In addition, more than 25 companies affiliated with Bout and CHICHAKLI have been listed by the UNSC as subject to similar restrictions concerning their assets and financial transactions.
In 2004, consistent with the sanctions previously adopted by the UNSC concerning Liberia, the President of the United States issued an executive order prohibiting any transactions or dealings within the United States by individuals affiliated with former President Taylor. Accordingly, the U.S. Department of Treasury, pursuant to its authority under IEEPA, prohibited Bout from conducting any business in the U.S. In 2005, that prohibition was extended to CHICHAKLI.
The United Nations and IEEPA sanctions encumbered CHICHAKLI’s and Bout’s efforts to conduct business within their existing corporate structures. Accordingly, CHICHAKLI and Bout took steps to form new companies, and to register these companies in the names of other individuals in order to create the false appearance that they had no affiliation with them.
One such company – Samar Airlines – was created in 2004, right after the majority of United Nations and IEEPA sanctions became effective. CHICHAKLI and Bout were personally involved in the operational and business affairs and decisions of Samar Airlines, though they held out other individuals as being the officers of the company. In 2007, in violation of the IEEPA sanctions to which they were subject at the time, CHICHAKLI and Bout, acting through Samar Airlines, contracted to purchase two Boeing aircraft from companies located in the United States.
In connection with the purchase of these aircraft and related services, CHICHAKLI and Bout electronically transferred more than $1.7 million through banks in New York and into bank accounts located in the United States. They did so through a number of front companies, the assets of which were also owned and controlled by Bout, in order to evade the UNSC’s sanctions regime and IEEPA prohibitions. Upon the discovery that CHICHAKLI was connected to Samar Airlines, the U.S. Treasury Department blocked the funds that had been transferred into the bank accounts of the U.S. aviation companies.
The Superseding Indictment charges CHICHAKLI with nine separate offenses:
- Count One: Conspiracy to violate the International Emergency Economic Powers Act;
- Count Two: Money laundering conspiracy;
- Count Three: Wire fraud conspiracy; and
- Counts Four through Nine: Wire fraud.
If convicted, CHICHAKLI faces a maximum sentence of 20 years in prison on each of the nine counts. The case is assigned to U.S. District Judge William H. Pauley, III.
Mr. Bharara praised the outstanding investigative efforts of the DEA and thanked the Australian Federal Police, the Victoria State Police, the Australian Attorney General’s Department, the U.S. Department of Justice Office of International Affairs, the U.S. Department of State, and Interpol for their assistance in this matter.
The case is being handled by the Terrorism and International Narcotics Unit. Assistant United States Attorneys Jenna M. Dabbs and Christian R. Everdell are in charge of the prosecution.
The charges contained in the Indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Richard Ammar Chichakli S2 Indictment
Disability Doctor Peter J. Ajemian Sentenced in Manhattan Federal Court to Eight Years in Prison for His Role in LIRR Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that PETER J. AJEMIAN, a Board-certified orthopedist, was sentenced today in Manhattan federal court to eight years in prison for his role in the alleged massive fraud scheme in which Long Island Railroad (“LIRR”) workers claimed to be disabled upon early retirement so that they could receive disability benefits to which they were not entitled. Between the late 1990s and 2008, AJEMIAN recommended that at least 734 retiring LIRR employees receive disability benefits, and was responsible for treating nearly half of all LIRR employees who retired and received disability benefits in one four-year period. AJEMIAN pled guilty in January 2013 to one count of conspiracy to commit mail fraud, wire fraud, and health care fraud, and one count of health care fraud before U.S. District Judge Victor Marrero, who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara stated: “Today Dr. Ajemian begins to pay the price for being a key facilitator of a massive disability fraud on the LIRR, that he admitted resulted in losses of millions of dollars. This Office will continue to pursue those who participated in this scheme to abuse LIRR’s disability system and gain benefits to which they were not entitled.”
According to the Complaint, the Superseding Indictments, the Superseding Informations, and statements made in other public filings and in court:
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.
AJEMIAN is a Board-certified orthopedist who was instrumental in helping LIRR retirees receive disability benefits to which they were not entitled. Between the late 1990s and 2008, he declared over 94% of the LIRR employees he saw as patients disabled. As part of the massive fraud scheme, AJEMIAN prepared false documentation purporting to show the LIRR employees’ steady decline toward disability exactly at the time they pre-planned their retirement. He then provided to those LIRR employees a narrative for submission to the RRB that claimed they should receive a disability annuity. These medical narratives were completely fabricated or grossly exaggerated so that AJEMIAN could recommend a set of restrictions that, if legitimate, would render it impossible for the LIRR employees to continue performing their jobs. Many of the purportedly “objective” findings from the tests he conducted showed nothing more than normal degenerative changes one would expect to see in patients within the relevant age bracket.
AJEMIAN received approximately $800 to $1,200, often in cash, for these fraudulent assessments and narratives, as well as millions of dollars in health insurance payments for unnecessary medical treatments and fees for preparing fraudulent medical support for the claimed disabilities. Of approximately 453 LIRR annuitants studied, AJEMIAN received approximately $2.5 million in related payments from patients and insurance companies. In turn, those patients have received over $90 million in RRB disability benefit payments. In his plea agreement, Ajemian stipulated that the total intended losses from his fraud were between $100 and $200 million, and that the actual losses suffered by victims to date total $116.5 million.
In addition to his prison term, AJEMIAN, 63, of Oyster Bay Cove, New York was also sentenced to three years of supervised release. He has also agreed to forfeit $116.5 million and pay $116.5 million in restitution, and was ordered to pay a $200 special assessment.
In sentencing AJEMIAN, Judge Marrero said, “Putting all of these circumstances together conveys the gravity of Dr. Ajemian's criminal conduct in its grittiest perspective. Dr. Ajemian corrupted the license publicly granted to him to practice medicine, and betrayed the public trust embodied in that privilege. By his fraudulent actions, he not only distorted his professional duties, but flipped the physician's medical function on its head and made health care a mockery. In the cases encompassed by the charged conspiracy, Dr. Ajemian generally treated not ill employees, but fit ones. He provided physician's services not to restore these patients to good health, or prevent sickness, but to turn able-bodied employees into fully-pensioned annuitants falsely afflicted by certified lifetime disabilities.”
Thirty-two people have been charged in connection with the LIRR disability fraud scheme, 23 of whom have now pled guilty. The charges against the remaining defendants are merely allegations and they are all presumed innocent unless and until proven guilty.
Mr. Bharara praised the RRB-OIG, the FBI, and the MTA-OIG for their outstanding work in the investigation, which he noted is ongoing. He also acknowledged the previous investigation conducted by the New York State Attorney General’s Office into these pension fraud issues.
The Office’s Complex Frauds Unit is handling the case. Assistant U.S. Attorneys Justin Weddle, Daniel Tehrani, and Nicole Friedlander are in charge of the prosecution.
Sales Manager of Buy-A-Home Real Estate Brokerage Sentenced in Manhattan Federal Court to 24 Months in Prison for Participating in Multi-Million Dollar Mortgage Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ERIN DAVIS, former sales manager for the now defunct Buy-A-Home real estate brokerage business, was sentenced today in Manhattan federal court to 24 months in prison for participating in a multi-million dollar mortgage fraud scheme. DAVIS and Buy-A-Home’s owner, Mitchell Cohen, were indicted in July 2012. DAVIS pled guilty in January 2013 to one count of conspiracy to commit mail, wire and bank fraud, and was sentenced today before U.S. District Judge Denise L. Cote.
Manhattan U.S. Attorney Preet Bharara stated: “At the ground level of the mortgage crisis were people like Erin Davis, a top manager at Buy-A-Home, who orchestrated falsehoods and moved money around to generate millions of dollars of fraudulently obtained mortgages. This Office remains committed to using every legal means available to hold to account those who helped contribute to the home mortgage crisis and to FHA’s dire financial straits.”
According to the Indictment and statements made during court proceedings:
From 2007 through 2010, the U.S. Department of Housing and Urban Development’s Federal Housing Administration (“HUD-FHA”) provided mortgage insurance to borrowers seeking residential mortgages. Unlike conventional loans, FHA-insured loans required little cash investment from borrowers and were more flexible in income and payment ratio requirements. To qualify for FHA mortgage insurance, a potential borrower had to meet HUD requirements regarding his or her creditworthiness and ability to make mortgage payments. No undisclosed payments could be made or promised in connection with a residential mortgage transaction. Additionally, certain private lenders were authorized to make commitments for the provision of FHA mortgage insurance on behalf of HUD. They did so through the execution and ultimate submission to HUD of various mortgage documents, forms, and supporting documentation. Because FHA-backed mortgages were valuable commodities, lenders typically sold them to banks that pooled them and then resold them to institutional investors.
From April 2007 through October 2010, DAVIS was a sales manager for a real estate brokerage business in Queens, New York known, at various times, as Buy-a-Home, LLC and First Home Brokerage, LLC (“Buy-a-Home”). During that time period, DAVIS and Cohen engaged in a widespread conspiracy to defraud HUD into issuing FHA mortgage insurance and to defraud banks into purchasing the FHA-backed mortgages issued to Buy-a-Home’s clients in order to earn substantial profits. DAVIS, Cohen and others at Buy-a-Home recruited unsophisticated buyers of modest means and induced them into purchasing the same homes at inflated prices. To insure that the deals for these properties would go through, DAVIS, Cohen and others schemed to make the Buy-a-Home clients – who did not and could not qualify to receive FHA mortgage insurance – seem more creditworthy.
In furtherance of this scheme, DAVIS directed Buy-a-Home employees to pay off borrowers’ debts, often with cash funneled through bank accounts of borrowers’ relatives, in order to make the borrowers appear more creditworthy and to make it seem that their debts had been paid by an appropriate source; directed Buy-a-Home employees to provide cash to borrowers so that they could obtain certified checks falsely showing that they had sufficient funds to close; prepared false gift affidavits to make it seem that the borrowers’ debts had lawfully been paid off, or that the borrowers’ funds for closing had been appropriately provided by relatives, when in fact they had unlawfully paid off the debts themselves or through Buy-a-Home; and advised borrowers to make other false statements on loan applications submitted to HUD. In so doing, DAVIS concealed the borrowers’ true financial condition from HUD and the banks that subsequently bought the FHA-backed mortgages, all in an effort to insure that they and Buy-a-Home could profit from the deals.
Through this scheme, DAVIS, Cohen and others defrauded HUD into issuing, and banks into purchasing, over $7.5 million dollars in fraudulent loans. Furthermore, because the FHA insurance was based on false statements made to HUD, and the borrowers could not really afford their mortgages, many of the homes went into foreclosure proceedings, forcing HUD to pay out over $1.5 million in insurance payments.
In addition to the prison term, Judge Cote sentenced DAVIS, 44, of Yonkers, New York, to three years of supervised release. DAVIS was also ordered to forfeit $2,416,597, and to pay $117,992.19 in restitution to HUD-FHA. She will surrender on July 5, 2013, at 2 p.m.
On April 26, 2013, Judge Cote sentenced DAVIS’s co-defendant, Mitchell Cohen, to 70 months in prison. Cohen was also ordered to forfeit $7,515,966, and to pay $1,574,259.43 in restitution to HUD-FHA. He will surrender on June 28, 2013, at 2:00 p.m. COHEN also settled a related civil case. The civil judgment against Cohen consists of $2.2 million in damages and $500,000 in penalties, and is the fifth and final settlement in the civil action. In four prior settlements entered in 2011 and 2012, the Government recovered $1.55 million in damages and penalties from the lender and the appraisers. The lender, the lender’s principals and key employees, and the appraisers all agreed to be barred from all HUD programs either permanently or for a term of up to 10 years.
Mr. Bharara praised HUD-OIG and FHFA-OIG for their outstanding work 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. 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 matter is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Janis Echenberg and Nicole Friedlander are in charge of the case.
President of Investment Fund Sentenced in Manhattan Federal Court to 30 Months in Prison for $2 Million Ponzi SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ANAND SEKARAN, the President and Director of Wasson Capital Ltd. (“Wasson”), an investment fund, was sentenced today in Manhattan federal court to 30 months for engaging in a $2.3 million scheme to defraud Wasson’s investors. SEKARAN misled Wasson investors concerning the fund’s value, distributed funds to investors that were contributed from other investors, and issued fraudulent account and fund performance statements. He pled guilty in November 2012, and was sentenced today by U.S. District Judge Robert P. Patterson.
Manhattan U.S. Attorney Preet Bharara said: “Anand Sekaran spun a web of lies and engineered a Peter-to-pay-Paul scheme all designed to deceive existing investors, lure new investors and cover-up his market losses while he benefited financially. Sekaran left many of his investors to suffer dire financial consequences, and now it is Sekaran who will suffer the consequences of his actions.”
According to the Information and statements made during the guilty plea and other court proceedings:
In 1997, SEKARAN formed Wasson as an asset management firm in New York, New York, that would invest client money primarily in the U.S. options market, and he solicited investors from 1999 through 2010. As a result of both the substantial losses Wasson incurred and several redemption requests, SEKARAN defrauded investors, by diverting their funds, and perpetrating a “Ponzi” scheme using two different methods, from 2009 through June 2011.
First, SEKARAN misrepresented Wasson’s investment value and past performance, the ways investor funds were being used to existing and potential investors, and the source of funds distributed to investors who had requested redemptions. Specifically, he misrepresented that Wasson was stable and doing well so that he could secure additional contributions. Further, in response to certain investor redemption requests, SEKARAN used money from other investors to pay off the redeeming investors.
Second, SEKARAN distributed fraudulent statements to investors in order to forestall redemption requests, induce new investors to contribute to Wasson, and induce existing investors to provide additional contributions. For example, he caused misleading and fabricated account statements to be sent to several Wasson investors that falsely inflated the value of their investments. SEKARAN also created and distributed fraudulent performance statements purporting to show that the Wasson fund was performing well, when in fact, it was suffering losses.
In the course of his scheme, SEKARAN misappropriated approximately $500,000 of investor funds. Further, more than 10 investors lost a total of approximately $2 million.
In addition to the prison term, Judge Patterson sentenced SEKARAN, 44, of Miami, Florida, to three years of supervised release. SEKARAN was also ordered to pay $2.3 million in forfeiture, to make restitution in the amount of $2,264,998.12, and to pay a $200 special assessment fee.
Mr. Bharara praised the investigative work of the Criminal Investigators of the United States Attorney’s Office and the U.S. Postal Inspection Service, which jointly investigated this case. He also thanked the Securities and Exchange Commission for its assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney David I. Miller is in charge of the prosecution.
Leader of $66 Million Long Island Mortgage Fraud Scheme Sentenced in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that GERARD CANINO, the president and owner of First Class Equities (“FCE”), was sentenced today in Manhattan federal court to 97 months in prison for his participation in a $66 million mortgage fraud scheme. CANINO pled guilty in April 2012 to conspiracy to commit wire fraud and bank fraud in connection with the scheme, and was sentenced by U.S. District Judge Robert P. Patterson.
Manhattan U.S. Attorney Preet Bharara said: “With his sentence today, Gerard Canino, the architect of an elaborate house of cards that worked a fraud on lenders and homeowners, begins to pay the price for his scheme. Mortgage finance professionals have a duty to safeguard the integrity of their industry, not orchestrate phony schemes that leave a trail of foreclosed properties and other losses when the sham structure collapses.”
According to the Indictment previously filed in Manhattan federal court, as well as
statements made in public proceedings:
FCE was a mortgage brokerage firm with offices located in Oceanside and Old Westbury New York. CANINO was the president and owner of FCE.
From 2004 to 2009, CANINO and FCE engaged in a massive mortgage fraud scheme. As part of the scheme, CANINO and his co-conspirators arranged home sales between “straw buyers” – persons who posed as home buyers, but who had no intention of living in, or paying for, the mortgaged properties – and homeowners, often people in financial distress, who were willing to sell their homes. CANINO and others recruited straw buyers, many of whom were paid by CANINO and his co-conspirators. At his direction, the FCE loan officers obtained mortgage loans for the sham deals by submitting fraudulent applications to banks and lenders, using fraudulent representations about the straw buyers’ net worth, employment, income, and plans to live in the properties. After approving the loans, the lenders sent the mortgage proceeds to their attorneys, and the attorneys submitted false statements to the lenders about how they were distributing the loan proceeds. They then distributed the loan proceeds – typically tens of thousands of dollars per transaction – among themselves and other members of the conspiracy.
In addition to his prison term, CANINO, 51, of Merrick, New York, was sentenced to three years of supervised release. He was also ordered to forfeit the proceeds of the offense to the government and make full restitution to the victims of his crime.
CANINO’s co-conspirators in the scheme included, among others, the FCE loan officers Ian Katz, Omar Guzman, James Vignola, Henry Richards, and Robert Thornton; the real estate attorneys Neal Sultzer, Michael Raphan, Michael Schlussel, Jacquelyn Todaro, Kevin Hymowitz, and Dennis Berkowsky; the real estate title agent Michael Charles; and other individuals, including Ralph Delgiorno, Deborah Lazarou and Pandora Bacon. Each of these defendants pleaded guilty, with the exception of Raphan, who was convicted after trial.
Schlussel was sentenced to 46 months in prison. Raphan was sentenced to 36 months in prison. Hymes and Sultzer were sentenced to 24 months in prison. Vignola was sentenced to 13 months in prison. Delgiorno was sentenced to a year and a day in prison. Guzman was sentenced to 360 days in prison. Richards and Todaro were sentenced to time served. All the sentences were imposed by Judge Patterson in Manhattan federal court. The other defendants are awaiting sentencing.
Mr. Bharara praised the Federal Bureau of Investigation for its outstanding work 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. 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 matter is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Nicole Friedlander, Niketh Velamoor and Andrew Goldstein are in charge of the case.
Drug-Related Murder Charges Against Previously Charged Defendant Announced in Federal IndictmentRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation ("FBI"), Charles Gardner, the Commissioner of the City of Yonkers Police Department, and George N. Longworth, the Commissioner of the Westchester County Department of Public Safety, today announced the unsealing of a six-count superseding Indictment charging MARQUIS JACOBS with the drug-related murder of Carlos Patricio on July 28, 2011, as well as robbery, narcotics, and firearms offenses. JACOBS has been in custody since his arrest by the FBI on December 2, 2011. His case is assigned to United States District Judge Edgardo Ramos, and he is expected to be presented on May 30, 2013 in White Plains Federal Court before Judge Ramos.
U.S. Attorney Preet Bharara stated: “With the additional charges filed against Marquis Jacobs today, we continue the painstaking process of developing evidence against these marauding groups of alleged gang members and holding them to account. This defendant’s alleged catalogue of crimes typifies the gang warfare that is all too familiar and that we are bound and determined to extinguish.”
FBI Assistant Director-in-Charge George Venizelos stated: “Today’s charges, combined with the earlier narcotics and firearms charges against Jacobs, demonstrate yet again how drugs and gun violence go hand-in-hand. The FBI is committed to working with our partners to rid our neighborhoods of the twin plagues of guns and drugs.”
City of Yonkers Police Commissioner Charles Gardner stated: “This indictment is another example of how federal and local partnerships can reduce violence in our neighborhoods. These ongoing investigations have significantly reduced crime and illegal gang activity in our City and they send a message that there is a heavy price to pay for such illegal actions. On behalf of the Mayor and the people of the City of Yonkers, we would like to thank the U.S. Attorney’s Office for the Southern District of N.Y., the F.B.I. New York Office, and the Westchester County Department of Public Safety for their support, cooperation and collaboration in this case.”
Westchester County Department of Public Safety Commissioner George N. Longworth stated: “The partnership among federal, county and local law enforcement is an effective tool in combating illegal narcotics trafficking and the violent crime often associated with it. I commend all the law enforcement officers involved in this drug-related murder investigation for bringing the case to a successful conclusion.”
The following allegations are based on the Indictment returned today in White Plains federal court:
On July 28, 2011, JACOBS shot and killed Patricio, a rival gang member, in Yonkers, New York. On November 28, 2011, JACOBS robbed a narcotics dealer ("Victim-1") in the vicinity of Cliff Street in Yonkers, New York. During that robbery, JACOBS brandished and discharged a firearm, shooting Victim-1 in the stomach. JACOBS also distributed crack cocaine, conspired with others to commit robberies of narcotics dealers, and carried firearms during his narcotics distribution activities.
JACOBS was initially arrested by the FBI and the Yonkers Police Department on December 2, 2011, and charged by Complaint with distributing crack cocaine. On March 27, 2012, JACOBS was charged in a seven-count superseding indictment, along with Donald McIntosh, Maurice Anderson, and Manny Dossantos, with conspiring to distribute crack cocaine, firearms offenses, and conspiring and agreeing to commit robberies of known narcotics dealers, as well as attempted robbery. McIntosh, Anderson and Dossantos have all pled guilty.
A chart containing the charges in the Superseding Indictment and the maximum penalties upon conviction is attached. The charges against JACOBS are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
The Indictment is the result of a long-term investigation conducted by the FBI, the City of Yonkers Police Department and the Westchester County Department of Public Safety, working with the United States Attorney's Office for the Southern District of New York, to combat gang violence in the City of Yonkers. As part of that investigation, in June 2012, 22 Yonkers gang members – 20 members of the Strip Boyz and two other individuals – were charged with narcotics trafficking and firearms offenses. Ten of these defendants have pled guilty. In August 2011, 66 Yonkers gang members – 47 members and associates of the Elm Street Wolves, 12 members and associates of the Cliff Street Gangsters and 7 other individuals – were charged with narcotics trafficking and firearms offenses. Four of the Elm Street Wolves were also charged with the murder of Christopher Cokley, a leading member of the Strip Boyz. Sixty-three of these defendants have pled guilty. The charges against the outstanding defendants are merely accusations, and they are presumed innocent unless and until proven guilty.
Mr. Bharara praised the outstanding investigative work of the FBI's Westchester County Violent Crime Task Force, the City of Yonkers Police Department and the Westchester County Department of Public Safety. Mr. Bharara added that the investigation is continuing.
The case is being handled by the Office's Violent Crimes Unit and the White Plains Division. Assistant United States Attorneys Andrew Bauer and Jessica Ortiz are in charge of the prosecution.
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Yonkers Man Pleads Guilty in White Plains Federal Court to Impersonating an FBI AgentRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that AYMAN RABADI, of Yonkers, New York, pleaded guilty to an Information charging him with wire fraud in connection with charges that he impersonated a Special Agent of the Federal Bureau of Investigation (“FBI”). RABADI was charged in April 2013, and pled guilty today before U.S. District Judge Kenneth M. Karas.
U.S. Attorney Preet Bharara said: “Ayman Rabadi is a serial offender who has a track record of impersonating law enforcement officials for the purpose of preying on susceptible victims and stealing their money in exchange for empty promises. He will now be held to account for his crimes.”
According to the Complaint and Information, and statements made at today’s plea proceeding in White Plains federal court:
From November 2010 until his arrest on April 18, 2013, RABADI impersonated an FBI agent, and in doing so, obtained at least $180,000 and other things of value from individuals he promised that he could provide various forms of federal assistance. RABADI was arrested shortly after he accepted $10,000 in cash from an undercover agent of the FBI who was posing as the niece of one of his victims. The money was purportedly a down payment toward the $300,000 RABADI requested in exchange for obtaining the release of the victim’s relatives from jail. He was arrested immediately after leaving the Yonkers restaurant where the payment was made, and was in possession of the $10,000.
RABADI has an extensive criminal history that includes a 2008 conviction in the state of New Jersey for the felony of theft by deception. In that case, he created the false impression that there were criminal charges pending against a victim, that RABADI was connected to law enforcement, and he could thwart the charges for $75,000.
RABADI, 52, of Yonkers, NY, pled guilty to one count of wire fraud. He will face a sentence of up to 20 years in prison and a fine of up to $380,000 when he is sentenced by Judge Karas on September 10, 2013.
Mr. Bharara praised the work of the FBI in this investigation.
The case is being handled by the Office’s White Plains Division. Assistant United States Attorney Elliott B. Jacobson is in charge of the prosecution.
Manhattan U.S. Attorney Charges Art Dealer with Hiding Millions of Dollars in Income from Fraudulent Sales of ArtworkRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of GLAFIRA ROSALES, an art dealer, for filing false tax returns and for failing to disclose a foreign bank account to the IRS. ROSALES allegedly failed to report the receipt of at least $12.5 million in income from the sale of works purported to be by celebrated abstract expressionist artists. Most of the income was received in a bank account in Spain that ROSALES hid from, and failed to disclose to, the IRS. She was arrested in Sands Point, New York this morning and will be presented in Manhattan federal court this afternoon before U.S. Magistrate Judge Sarah Netburn.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Glafira Rosales gave new meaning to the phrase ‘artful dodger’ by avoiding taxes on millions of dollars in income from dealing in fake artworks for fake clients. Her arrest shows that no matter how clever the scheme, attempts to hide income from the government to avoid paying taxes on that income will be discovered and prosecuted.”
IRS Special Agent-in-Charge Toni Weirauch said: “The sale of a piece of art for profit is a taxable event and the seller is responsible for paying his or her fair share of tax, even if the art is counterfeit. The allegations in this investigation illustrate a ‘double-barreled’ tax evasion scheme: disguising who was actually selling the art and profiting from the sales, through the creation of a fictitious seller and the use of the name of a collector not associated with the transactions, and further concealing the proceeds by depositing them in an unreported foreign bank account.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Glafira Rosales committed tax fraud in falsely reporting that she was selling art on behalf of clients. In truth, those clients were just part of the picture she painted to perpetrate her multi-million dollar scheme. There is consistency in the scheme, however: The artwork Rosales sold appears to be as fake as her story about the clients she claimed to represent.”
According to the allegations in the Complaint unsealed today in Manhattan federal court:
In the 1990’s, ROSALES, an art dealer, began selling previously unknown paintings that had never been exhibited before, and that she claimed were painted by some of the most famous artists of the 20th century, including Jackson Pollock, Mark Rothko, and Willem de Kooning. From 2006 through 2008, ROSALES sold approximately one dozen of these paintings to two prominent Manhattan galleries for over $14 million. In selling most of the paintings to the two galleries, she purported to represent a client with ties to Switzerland who had inherited the paintings and wanted to sell them, but who also wished to remain anonymous (the “Purported Swiss Client”). For the remainder of the paintings, she purported to represent a Spanish collector (the “Purported Spanish Collector”). ROSALES also claimed that a portion of the price paid by the Manhattan galleries would be her commission for selling the paintings, and that the remainder would be passed along to her clients.
In contrast to the claims made by ROSALES, the investigation has revealed that:
- experts in the fields of art, art history, and materials science have concluded that at least several of the paintings sold by her are counterfeit;
- the Purported Swiss Client on whose behalf she claimed to sell most of the paintings to the Manhattan galleries never existed;
- the Purported Spanish collector on whose behalf she claimed to sell the remainder of the paintings to the Manhattan galleries never owned the paintings; and
- instead of passing along a substantial portion of the proceeds of the sale of the various paintings, she kept all or almost all of the proceeds, and transferred substantial portions to an account maintained by her then-boyfriend.
ROSALES filed tax returns that falsely claimed she had not kept all, or almost all of the proceeds from the sale of the purported clients’ paintings, when, in fact, she had. Further, there was no Swiss client and no Spanish collector. In total, she failed to report the receipt of at least $12.5 million of income for the years 2006 through 2008.
In addition, ROSALES received most of the proceeds from the sale of the paintings in a foreign bank account that she hid from, and failed to report to, the IRS. U.S. taxpayers are required to report the existence of any foreign bank account that holds more than $10,000 at any time during a given year by the filing of a Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1 (“FBAR”). ROSALES failed to file FBARs for the years 2007 through 2011.
ROSALES, 56, of Sands Point, New York, is charged with filing false tax returns for the years 2006 through 2008, and with willful failure to disclose an offshore bank account for the years 2007 through 2011. On each of the three false tax return charges, she faces a maximum sentence of three years in prison, a maximum term of three years of supervised release, and a maximum fine of $100,000. On each of the five willful failure to file FBAR charges, she faces a maximum sentence of five years in prison, a maximum term of five years of supervised release, and a maximum fine of $250,000.
Mr. Bharara praised the outstanding efforts of IRS-CI and FBI in the investigation, which he noted is ongoing. 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 P. Hernandez and Daniel W. Levy are in charge of the prosecution.
The charge and allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Glafira Rosales Complaint
Manhattan U.S. Attorney and FBI Assistant Director-In-Charge Announce Arrest of NYPD Detective for Computer HackingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of EDWIN VARGAS, a detective with the New York City Police Department (“NYPD”), for computer hacking crimes. VARGAS was arrested this morning outside his residence in Bronxville, New York, and will be presented in Manhattan federal court later today before U.S. Magistrate Judge Sarah Netburn.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Detective Edwin Vargas paid thousands of dollars for the ability to illegally invade the privacy of his fellow officers and others. He is also alleged to have illegally obtained information about two officers from a federal database to which he had access based on his status as an NYPD detective. When law enforcement officers break the laws they are sworn to uphold, they do a disservice to their fellow officers, to the Department, and to the public they serve, and it will not be tolerated.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, the defendant illegally acquired log-in information for the e-mail accounts of dozens of people, including police department co-workers. Of all places, the police department is not a workplace where one should have to be concerned about an unscrupulous fellow employee. Unlike the e-mail accounts, the defendant didn’t need to pay anyone to gain access to the NCIC database. But access is not authorization, and he had no authorization.”
According to the Complaint unsealed today in Manhattan federal court:
E-mail hacking services have the ability to gain unauthorized access to any e-mail account in exchange for a fee. Between March 2011 and October 2012, VARGAS, an NYPD detective assigned to a precinct in the Bronx, hired an e-mail hacking service to obtain log-in credentials, such as the password and username, for certain e-mail accounts. In total, VARGAS purchased at least 43 personal e-mail accounts and one cellular phone belonging to at least 30 different individuals, including 21 who are affiliated with the NYPD; of those 21, 19 are current NYPD officers, one is a retired NYPD officer, and one is on the NYPD’s administrative staff. After receiving the log-in credentials he had purchased from the e-mail hacking services, VARGAS accessed at least one personal e-mail account belonging to a current NYPD officer. He also accessed an on-line cellular telephone account belonging to another victim. VARGAS paid a total of more than $4,000 to entities associated with the e-mail hacking services.
An examination of the contents of the hard drive from VARGAS’s NYPD computer revealed, among other things, that the Contacts section of his g-mail account included a list of at least 20 e-mail addresses, along with what appear to be telephone numbers, home addresses, and vehicle information corresponding to those e-mail addresses, as well as what appear to be the passwords for those e-mail addresses.
VARGAS also accessed the National Crime Information Center (NCIC) database, a federal database, to obtain information about at least two NYPD officers without authorization. The e-mail accounts of those two officers were among the e-mail accounts VARGAS paid the e-mail hacking services to hack into so he could obtain log-in credentials.
VARGAS, 42, of Bronxville, New York, is charged with one count of conspiracy to commit computer hacking and one count of computer hacking. Each count carries a maximum sentence of 1 year in prison.
Mr. Bharara praised the investigative work of the FBI. He also thanked the NYPD and its Internal Affairs Bureau for their cooperation and assistance in the investigation.
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.
The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Edwin Vargas Complaint
Three Former Child Day Care Center Owners Sentenced in Manhattan Federal Court for Participating in Bribery SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that LIUDMILA UMAROV, ELLA SCHVARZMAN, and RIMMA VOLOVNICK, former child day care center owners, were sentenced in Manhattan federal court for their roles in a bribery scheme. UMAROV, SCHVARZMAN, and VOLOVNICK each pled guilty pursuant to cooperation agreements to paying bribes to New York City officials in exchange for those officials taking official action to benefit day care centers in Brooklyn, New York. UMAROV was sentenced today by U.S. District Judge John F. Keenan to three years of probation. SCHVARZMAN was sentenced on May 14, 2013, by U.S. District Judge Thomas P. Griesa to three years of probation, and VOLOVNICK was sentenced on April 9, 2013, by U.S. District Judge Shira A. Scheindlin to two years of probation.
According to the Complaint that charged UMAROV and VOLOVNICK, the Informations to which UMAROV, SCHVARZMAN, and VOLOVNICK pled guilty, and statements made in Manhattan federal court during the guilty plea proceedings:
New York City has a day care subsidy program (“Day Care Subsidy Program”) whereby low-income families are eligible to receive day care subsidies. The City administers these child care subsidies in various ways, including through contracts with regulated day care centers and through “vouchers” paid to day care centers in which children of low-income parents are enrolled.
UMAROV, SCHVARZMAN, and VOLOVNICK are each former child day care center owners in Brooklyn, New York, who collectively paid more than $100,000 in bribes to City officials to help the three defendants steal from the Day Care Subsidy Program. Each of the defendants admitted to paying bribes to officials in exchange for, among other things, providing identification information of children that were eligible for the Day Care Subsidy Program but did not attend day care. This identification information was used by the defendants to seek reimbursement from the City for providing day care services to those children, even though those children did not in fact attend day care. Each of the defendants also admitted to paying bribes to officials in return for those officials overlooking health code violations at their day care centers.
In addition to probation, Judge Keenan also ordered UMAROV, 66, of Brooklyn, New York, to pay forfeiture in the amount of $100,000 and a $600 special assessment fee. Judge Griesa ordered SCHVARZMAN 46, of Brooklyn, New York, to forfeit $25,000 and imposed a $400 special assessment fee. Judge Scheindlin ordered VOLOVNICK, 57, of Brooklyn, New York, to forfeit $25,000 and imposed a $500 special assessment fee.
Mr. Bharara praised the investigative work of the New York City Department of Investigation (“DOI”).
UMAROV’s, SCHVARZMAN’s, and VOLOVNICK’s convictions are part of “Operation Pay Care,” a joint investigation led by the U.S. Attorney’s Office for the Southern District of New York and DOI. To date, 14 defendants – six City employees and eight day care owners – have been convicted as part of Operation Pay Care. Of the convicted defendants, six City officials have been sentenced: Leonid Gutnik, a former Job Opportunity Specialist/Child Care Specialist for the New York City Human Resources Administration (“HRA”), received 40 months in prison; Aurora Villareal, the former Borough Manager for Brooklyn and Staten Island Group Child Care Programs at the New York City Department of Health and Mental Hygeine (“DOHMH”) received four years in prison; New York City Fire Department (“FDNY”) Supervising Inspector Carlos Montoya received 30 months in prison; and Emile Nekhala, a former employee at DOHMH, received two years in prison. Mariya Rapoport, a former employee at HRA, and Carolyn Eason, a former employee at DOHMH, both pled guilty pursuant to cooperation agreements and were sentenced to terms of probation. Including Umarov, Schvartzman, and Volovnick, a total of seven day care operators have been sentenced – Lyudmila Grushko received nine months in prison, Inna Malinskaya received seven months in prison, Yana Krugly received six months in prison, and Grigoriy Sankin received three years of probation.
This case is being handled by the Office's Public Corruption Unit. Assistant U.S. Attorneys Harris Fischman, Michael Bosworth, and Brent Wible are in charge of the prosecution.
U.S. v. Liudmila Umarov Information
U.S. v. Ella Schvarzman Information
U.S. v. Rima Volovnic InformationManhattan U.S. Attorney and FBI Assistant Director-In-Charge Announce Criminal Complaint Against Three New York-Based University Researchers for Conspiring to Receive Bribes from A Chinese Company and A Chinese Government-Supported Research InstituteRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the filing of charges against YUDONG ZHU, XING YANG, and YE LI, three researchers who worked on improving MRI technology at a university in New York, New York, but who also had undisclosed affiliations with a Chinese company performing the same type of research. The research at the university was funded by a multi-million dollar federal grant from the National Institutes of Health. The defendants are each charged with one count of commercial bribery in connection with a conspiracy to receive payments from the Chinese company and a Chinese government-supported research institution in exchange for providing non-public information about research they conducted at the university. ZHU is also charged with lying about conflicts of interest in connection with the federal research grant. ZHU and YANG were arrested at their residences in New York yesterday, and LI is believed to have flown to China before charges were brought. ZHU and YANG will be presented later today in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, this is a case of inviting and paying for foxes in the henhouse. These defendants allegedly colluded with representatives from a Chinese governmental entity and a direct competitor of the university for which they worked to illegally acquire NIH-funded research for the benefit of those entities, as described in the complaint. The defendants also allegedly deceived the university and others about their professional allegiances to competing Chinese interests. The acquisition of federally funded research for the benefit of these Chinese entities is a serious crime and will not be tolerated by this Office.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, while in the United States, these defendants conducted important research partially funded by the federal government to advance important MRI technology. Instead of working exclusively for a New York research institution, the defendants took bribes to acquire research for the benefit of both a Chinese competitor and a Chinese government institution. Protecting our nation’s technology and intellectual property against these types of thefts remains one of the FBI’s top priorities.”
According to the allegations in the Complaint unsealed today in Manhattan federal court:
In 2008, a university research medical center located in New York, New York (the “University”) hired ZHU, an accomplished researcher and innovator in the field of magnetic resonance imaging (“MRI”) technology, to teach and conduct research related to innovations in MRI technology. ZHU came to the University, in large part, to use a specific University laboratory that possessed highly specialized equipment to test MRI innovations.
In 2010, ZHU caused the University to apply for and receive a grant from the National Institutes of Health (“NIH”) that provided millions of dollars in funding over a five-year period for ZHU’s research relating to improving the imaging capability of MRI equipment (the “NIH Grant”). After ZHU started his research pursuant to the NIH Grant, he arranged for YANG and LI to move to New York from China to work with him in 2011 and 2012, respectively.
While working for the University, ZHU, YANG, and LI each had undisclosed affiliations with United Imaging Healthcare (“United Imaging”), a Chinese medical imaging company, and the Shenzen Institute of Advanced Technology (“SIAT”), a Chinese government-sponsored research institute. When ZHU arranged for YANG and LI to work with him at the University, ZHU also arranged for them to receive certain financial benefits from a co-conspirator (“CC-1”) who was an executive with United Imaging and who was also affiliated with SIAT. For example, ZHU arranged for CC-1 to pay for YANG’s tuition at a graduate school in New York, New York that was affiliated with the University, and LI’s rental apartment. CC-1 also paid for YANG and LI’s travel between China and New York while they worked at the University.
In addition, the University recently discovered that during their employment at the University, ZHU, YANG, and LI each maintained an e-mail address that included the domain “united-imaging.com”. The University also obtained a United Imaging employee registration for LI, which included his signature dated September 27, 2012. ZHU, YANG, and LI concealed from, and failed to disclose, these payments from and relationships with competing research entities in China.
YANG has stated that while working on the NIH Grant at the University, he also shared with individuals at United Imaging the research results from his and ZHU’s work at the University that was conducted pursuant to the NIH Grant. Through an examination of University e-mail accounts, the University learned that from August 2011 through January 2013, individuals with e-mail addresses that included the “united-imaging.com” domain corresponded with ZHU and YANG regarding issues related to MRI equipment prototypes, experiments, and project updates. These e-mails were sent to and/or from accounts including ZHU’s personal Gmail account, his United Imaging email address, and YANG’s Hotmail account.
ZHU also had other material conflicts of interest that he concealed from the University. ZHU owned a patent related to MRI technology, the value of which would be directly impacted by his NIH Grant research. In addition, at the same time that he was leading the research for the NIH Grant, ZHU, along with CC-1, was leading a similar research project in China related to MRI technology that was funded by a grant from the Chinese government. ZHU and CC-1 were also part of the same research team at SIAT. The 2011-2012 annual report for a certain division of SIAT included photographs of ZHU and CC-1 as members of its MRI Research Team. In financial interest disclosure forms that the University required ZHU to complete in connection with the NIH Grant, ZHU failed to disclose, and falsely answered, questions regarding these outside affiliations and financial conflicts of interest.
ZHU, 44, of Scarsdale, New York, YANG, 31, of Hartsdale, New York, and LI, 31, of Hartsdale, New York, are each charged with one count of commercial bribery conspiracy, which carries a maximum sentence of five years in prison.
ZHU is also charged with one count of falsification of records in connection with the NIH grant, which carries a maximum sentence of 20 years in prison.
Mr. Bharara praised the outstanding investigative work of the FBI.
The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Christian Everdell and Zachary Feingold are in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
U.S. v. Zhu, Yudong et al. Complaint
Three Defendants Plead Guilty to Participating in Massive Immigration Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York announced that XIA PING WEN, SONG LUO, and XIAO FENG XU, have each pled guilty in connection with a massive immigration fraud scheme involving thousands of asylum applications submitted to immigration authorities by at least 10 law firms. WEN pled guilty on May 7, 2013, before Magistrate Judge Gabriel Gorenstein, and LUO pled guilty on May 10, 2013, before U.S. District Court Judge John G. Koeltl. XU pled guilty today before Magistrate Judge Frank Maas.
Manhattan U.S. Attorney Preet Bharara said: “The United States opens its arms to victims of persecution across the globe, and our asylum laws are the vehicle through which we are able to provide that critical safety net. Those who orchestrate fraud under the asylum laws, like the defendants in this case, make it more difficult for genuine victims, and we will come down hard on them.”
According to the Indictments against WEN, LUO, and XU, and other documents filed in this case:
XU worked as an office manager at a law office in New York, New York, and LUO worked as a paralegal at a law firm also located New York City (collectively the “Law Firms”). The Law Firms fabricated stories of persecution in connection with the asylum applications of clients that often followed one of three fact patterns: (a) forced abortions performed on women pursuant to China’s family planning policy; (b) persecution based on the client’s belief in Christianity; or (c) political or ideological persecution, typically for membership in China’s Democratic Party or Falun Gong. Since 2006, the Law Firms have submitted more than 1,000 asylum applications. XU, LUO, and other employees at the Law Firms, profited by creating and submitting these asylum applications on behalf of Chinese alien applicants. WEN provided various services to the Law Firms, and other law firms, including selling fake documents in aid of the fraudulent asylum applications.
LUO, XU, and WEN each pled guilty to one count of conspiring to commit immigration fraud, and each face a maximum of five years in prison. LUO, 34, of Queens, New York, is scheduled to be sentenced by U.S. District Court Judge John G. Koeltl on September 20, 2013. XU, 57, of Queens, New York, and WEN, 49, of New York, New York, are scheduled to be sentenced by U.S. District Court Judge Sidney H. Stein on September 19, 2013.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation (“FBI”) and the United States Citizenship and Immigration Services (“USCIS”).
The prosecution is part of “Fiction Writers,” a joint investigation led by the United States Attorney’s Office for the Southern District, the FBI, and the USCIS. To date, 29 defendants have been charged with participating in nine separate but overlapping immigration fraud schemes in New York City, including eight lawyers. Seven defendants have now been convicted. The charges against the remaining defendants are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
The prosecution is being handled by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Harris Fischman, Robert Boone and Brian Blais are in charge of the prosecution.
U.S. v. Xia Ping Wen Indictment
U.S. v. Xiao Feng Xu Indictment
U.S. v. Xiao Feng Xu IndictmentQueens-Based Operator of 18 Chinese-Language Child Pornography Websites Pleads Guilty in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that YONG WANG, who operated 18 Chinese-language websites containing child pornography, pled guilty to advertising in connection with the sexual exploitation of children. WANG pled guilty Friday in Manhattan federal court before U.S. District Judge Paul G. Gardephe.
Manhattan U.S. Attorney Preet Bharara said: “Yong Wong made hundreds of thousands of dollars from a vast network of websites that he operated from the comfort and safety of his home while capitalizing on the sexual exploitation of children. But in fact he was not safe after all because the FBI infiltrated his network and caught up with him. This Office, along with our investigative partners, remains steadfast in our commitment to prosecute and punish those like Wang, who earn a living online at the expense of children’s well-being and innocence.”
According to the Indictment, other documents filed in Manhattan federal court, and statements made during WANG’s guilty plea proceeding:
WANG maintained 18 Chinese-language websites out of his apartment in Flushing, New York. Members could access numerous links to an extensive child pornography collection that included images and videos of children exposing their genitals, engaging in sexually explicit conduct with adults, and in sadistic and/or masochistic depictions. To access the websites, individuals had to purchase a “VIP membership” or accumulate a certain number of points. WANG charged customers $25 for a quarterly membership or $100 for a lifetime membership. Undercover FBI agents registered for a VIP membership with WANG and gained access to one of the websites which was titled - in Chinese - “Empire of the Young and Innocent Fragrances.” On the website, users were directed to different forums with links that were titled with descriptive names, such as “Young Young Empire,” “Young Girl Beauty Photos Military Region,” “Young Boy Movie Zone,” and “Exclusive Quality Young Girl Photos Set.” WANG made in excess of $700,000 in connection with his operation of these websites, which he forfeited as part of his plea agreement.
WANG, 28, of Flushing, New York, faces a maximum sentence of 30 years in prison and a mandatory minimum sentence of 15 years in prison. He is scheduled to be sentenced by Judge Gardephe on August 23, 2013 at 2:30 p.m.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the Chinese Ministry of Public Security for their cooperation and assistance.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Rosemary Nidiry and Zachary Feingold are in charge of the prosecution.
Wang, Yong Indictment
Former Hedge Fund Co-Founder, Anthony Chiasson, Sentenced in Manhattan Federal Court to 78 Months in Prison for Insider TradingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ANTHONY CHIASSON, a former portfolio manager and co-founder of the hedge fund Level Global Investors (“Level Global”), was sentenced in Manhattan federal court to 78 months in prison for crimes stemming from his involvement in insider trading schemes that netted nearly $70 million in illegal profits for Level Global. CHIASSON and co-defendant Todd Newman, a former portfolio manager of Diamondback Capital Management (“Diamondback”), were convicted of securities fraud charges on December 17, 2012, following a six-week jury trial. At trial, CHIASSON was convicted of one count of conspiracy to commit securities fraud, and five counts of securities fraud. He was sentenced today by U.S. District Judge Richard J. Sullivan.
Manhattan U.S. Attorney Preet Bharara said: “With his sentence today, Anthony Chiasson chose to be part of a corrupt circle of friends that cheated the market to gain an unfair trading advantage, and for that, he lost his career, his reputation and now he has lost his liberty. Such catastrophic losses should deter those who would be tempted to break the law, but for those who are undeterred, we are not going away.”
According to the Superseding Indictment, other court documents, statements made in court, and the evidence presented at trial:
CHIASSON was part of a criminal club of portfolio managers and analysts who obtained material nonpublic information (“Inside Information”), directly and indirectly, from employees who worked at public companies. Specifically, CHIASSON’s research analyst, Sam Adondakis, together with research analysts at other investment firms – including Jesse Tortora, Jon Horvath and Danny Kuo – shared Inside Information with each other which they then provided to their portfolio managers.
For example, in 2008 and 2009, CHIASSON received Inside Information from Adondakis related to Dell’s quarterly earnings, which Adondakis had received from Newman’s analyst, Tortora, and Sandy Goyal, an analyst who worked at another firm. Goyal had a source inside Dell’s investor relations department who provided numerous updates on Dell’s earnings in advance of Dell’s earnings announcements for multiple quarters. CHIASSON traded on the Dell Inside Information in advance of its May 2008 and August 2008 quarterly earnings announcements, netting $58.5 million in illegal profits for his firm. Additionally, after CHIASSON received the Dell Inside Information from Adondakis in advance of the August 2008 Dell trade, he directed Adondakis to create a trading “template” which omitted the fact that the trade was based on inside information.
In 2009, CHIASSON also obtained inside information concerning NVIDIA Corporation’s earnings from Adondakis, who had obtained the information from analyst Danny Kuo, who worked at an investment firm in California. Adondakis passed specific numbers for NVIDIA’s gross margins to CHIASSON in the days leading up to the company’s earnings announcement of those numbers on May 7, 2009. CHIASSON’s trading in NVIDIA resulted in approximately $10 million in illegal trading profits for Level Global.
In addition to the prison term, Judge Sullivan sentenced CHIASSON, 39, of New York, New York, to one year of supervised release. CHIASSON was also ordered to pay a $5 million fine.
At trial, Newman, 48, of Needham, Massachusetts, was convicted of one count of conspiracy to commit securities fraud, and four counts of securities fraud. He was sentenced on May 2, 2013 to 54 months’ imprisonment.
Horvath, 43, and Kuo, 37, each pled guilty to one count of conspiracy to commit securities fraud and two counts of securities fraud in September 2012 and April 2012, respectively. Tortora, 35, Adondakis, 41, and Goyal, 40, each pled guilty to one count of conspiracy to commit securities fraud and one count of securities fraud in May 2011, April 2011, and June 2011, respectively. All five of these defendants await sentencing.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
Assistant U.S. Attorneys Antonia M. Apps, Richard C. Tarlowe, and John T. Zach are in charge of the prosecution.
Manhattan U.S. Attorney Announces Recovery of Additional Dinosaur Fossils for Repatriation to MongoliaRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), announced today the recovery of additional dinosaur fossils for return to the Government of Mongolia. In addition to a Tyrannosaurus bataar skeleton previously forfeited to the United States and successfully repatriated to the Mongolian government on May 6, 2013, U.S. District Judge P. Kevin Castel signed a judgment yesterday forfeiting another Tyrannosaurus bataar skeleton (the “Second Bataar”), one Saurolophus Angustirostris skeleton (the “Hadrosaur”), one Oviraptor matrix containing at least five Oviraptor skeletons (the “Raptor Matrix”), and an additional Oviraptor skeleton (the “Raptor”). Also, on May 1, 2013, U.S. District Judge Harold Baer signed a stipulation arranging for the return of fossils including an additional Tyrannosaurus bataar skeleton (the “Third Bataar”); a rock slab containing two Gallimimus skeletons (the “Gallimimus slab”), two additional Gallimimus skeletons, an Ankylosaurus skeleton and skull, a Protoceratops skeleton, and one restored composite egg nest display piece made of composite dinosaur egg fossils provided to the United States Attorney’s Office by Christopher Moore, a British citizen (together, the “Moore dinosaurs”).
Manhattan U.S. Attorney Preet Bharara said: “The recovery of this treasure trove of dinosaur fossils is the latest significant step in returning missing pieces of the Mongolian people’s history that were literally dug out from under them. One cannot put a price tag on cultural artifacts or overstate the importance of their role in a country’s history, and we are delighted to be moving the process of returning these fossils to Mongolia forward.”
ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “Through this investigation, HSI special agents around the country have seized numerous dinosaur skeletons that are pending repatriation to the government of Mongolia. We simply cannot allow the greed of a few looters and schemers to trump the cultural interests of an entire nation. HSI remains a committed partner in the effort to ensure that we investigate individuals involved in stolen foreign art, antiquities, relics and the illicit fossil trade. We look forward to returning these fossils to their rightful owner – the government of Mongolia.”
According to the civil forfeiture and criminal Complaints, the Information, plea agreement, stipulations, and other court documents filed in Manhattan federal court:
The Tyrannosaurus bataar, indigenous to what is now Mongolia, was a dinosaur that lived during the late Cretaceous period, approximately 70 million years ago. It was first discovered in 1946 during a joint Soviet-Mongolian expedition to the Gobi Desert in the Mongolian Ömnögovi Province. Since 1924, Mongolia has enacted laws declaring dinosaur fossils to be the property of the Government of Mongolia, and criminalizing their export from the country.
Between 2010 and 2012, the Bataar skeleton and several other dinosaur fossils from Mongolia were imported into the United States. The customs importation documents contained several false statements. First, the country of origin of the fossils was erroneously listed. In addition, the value of the fossils was substantially understated on the importation documents. Finally, the fossils were incorrectly described.
Texas-based Heritage Auctions, Inc., offered the Bataar for sale at an auction conducted in New York City. Prior to the sale, the Government of Mongolia sought, and a Texas judge granted, a Temporary Restraining Order prohibiting the auctioning, sale, release, or transfer of the Bataar. Notwithstanding the order, Heritage Auctions completed the auction and the Bataar skeleton sold for over $1 million. The United States Attorney’s Office seized the Bataar and initiated a forfeiture action. On February 14, 2013, Judge Castel entered a judgment forfeiting the Bataar skeleton to the United States for its return to Mongolia.
A concurrent criminal investigation revealed that several additional Mongolian dinosaur fossils had been illegally taken from Mongolia, including the Second Bataar and the Raptor. During the investigation, Christopher Moore, a British fossil dealer, contacted the United States Attorney’s Office and informed the Office of his possession of the Moore dinosaurs. Upon being advised that the Moore dinosaurs had been stolen from Mongolia, he agreed to send them to the United States Attorney’s Office for their return to Mongolia.
Meanwhile, two additional dinosaur fossils, the Hadrosaur and the Raptor Matrix, were at one point in the possession of an auction house in California. The auction house agreed to assist in facilitating their return to Mongolia, consenting to the forfeiture of both items.
All of these fossils will now be returned to Mongolia as part of the Office’s efforts to facilitate the repatriation of fossils involved in this case.
Mr. Bharara praised the investigative work of ICE HSI.
The forfeiture action was handled by the Asset Forfeiture Unit of the U.S. Attorney's Office. Assistant U.S. Attorneys Sharon Cohen Levin and Martin S. Bell were in charge of the litigation. The criminal case was handled by the Complex Frauds Unit. Martin S. Bell was in charge of the prosecution.
Hadrosaur Forfeiture Complaint
Executive Director of Bronx Not-For-Profit Sentenced to Five Months in Prison for Fraud and Obstruction of JusticeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID GRIFFITHS, the Executive Director of the Neighborhood Enhancement for Training Services, Inc. (“NETS”), was sentenced today to five months in prison for mail fraud and for making false statements to the government and obstruction of justice. GRIFFITHS was convicted on May 30, 2012, following a month-long jury trial. U.S. District Judge Alvin K. Hellerstein presided over the trial, and also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “David Griffiths told lie upon lie to cover up his misuse of government grants intended to benefit an important neighborhood enhancement program. And for those crimes, he will now be punished.”
According to the evidence introduced at trial and statements made in court:
Since November 2003, GRIFFITHS served as the Executive Director of NETS, which is a not-for-profit corporation located in the Bronx that received almost all of its funding from government grants. In 2008, the Federal Bureau of Investigation (“FBI”) began investigating the not-for-profit and its use of the government funds it received.
In June 2009, GRIFFITHS knowingly provided the FBI with documents that contained materially false statements and representations in response to a subpoena issued by a grand jury sitting in the Southern District of New York. The materially false statements and representations were made by GRIFFITHS in purported minutes of meetings of the NETS Board of Directors, and related to alleged authorizations he had obtained from the NETS Board to take certain payments as purported salary from NETS. GRIFFITHS provided those purported minutes to the FBI in an attempt to mislead the FBI and to obstruct its investigation. Specifically, he attempted to cover-up tens of thousands of dollars he had taken from NETS with no authorization and his scheme to take almost $200,000 more.
In September 2010, GRIFFITHS attempted to obtain additional grant money from the Dormitory Authority of the State of New York on behalf of NETS under false and fraudulent pretenses. Specifically, in an application he mailed to the Authority’s office in Albany, GRIFFITHS falsely stated that neither he nor NETS and its officers and directors had been the subject of a criminal investigation, a civil investigation, or unsatisfied tax liens and judgments for the past five years. In fact, when GRIFFITHS made these misrepresentations, he knew that he and NETS were under investigation by the FBI as well as by the New York State Attorney General’s Office, and that NETS had unsatisfied tax liens and judgments against it.
In addition to the prison term, GRIFFITHS, 67, of White Plains, New York, was sentenced to two years of supervised release, and ordered to pay a $10,000 fine and a mandatory special assessment of $300.
Mr. Bharara thanked the FBI for its assistance on this case.
This case is being handled by the Office's Public Corruption Unit. Assistant United States Attorneys Carrie H. Cohen and Justin Anderson are in charge of the prosecution.
Tunisian Man Charged with Visa Fraud Related to Terrorism, Intended to Remain in U.S. to Facilitate an Act of International TerrorismRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Raymond W. Kelly, the Police Commissioner of the City of New York (“NYPD”), today announced the unsealing of charges against AHMED ABASSI, a Tunisian citizen, for fraudulently applying for a work visa in order to remain in the United States to facilitate an act of international terrorism. ABASSI was arrested on April 22, 2013, and was presented and arraigned on May 2 before U.S. District Judge Miriam Goldman Cedarbaum. Judge Cedarbaum has scheduled a conference in the case for 3:00 p.m. today.
Manhattan U.S. Attorney Preet Bharara said: "As alleged, Ahmed Abassi had an evil purpose for seeking to remain in the United States – to commit acts of terror and develop a network of terrorists here, and to use this country as a base to support the efforts of terrorists internationally. Thanks to the extraordinary vigilance of our prosecutors and law enforcement partners, Abassi has been thwarted and is being prosecuted for his alleged crimes. Protecting the residents of the Southern District, and all Americans, from terrorists is the number one priority of this Office."
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Mr. Abassi came to the United States to pursue terrorist activity and support others in the same shameful pursuit. What Mr. Abassi didn’t know was that one of his associates, privy to the details of his plan, was an undercover FBI agent. The FBI and its Joint Terrorism Task Force partners will continue working tirelessly to protect the country from those who seek to do us harm. “
NYPD Commissioner Raymond W. Kelly said: “The allegations in this case serve as still another reminder that terrorism has not abated, that we must remain vigilant, and that when we do, terrorist plots against us can be thwarted.”
As alleged in the Indictment unsealed today in Manhattan federal court and other documents filed in the case:
ABASSI, who previously resided in Canada, traveled to the United States in mid-March 2013, where he remained until his arrest. While in the United States, ABASSI, who was under surveillance by law enforcement agents at all times, maintained regular contact with an FBI undercover officer (the “UC”), and also met with Chiheb Esseghaier in New York City. Esseghaier, who was recently arrested in Canada and is currently incarcerated there on terrorism charges, was previously radicalized by ABASSI. During ABASSI’s discussions with Esseghaier and with the UC, which were recorded by the UC, ABASSI discussed his desire to engage in terrorist acts against targets in the United States and other countries, and his intention to provide support and funding to organizations engaged in terrorist activity – including the al Nusrah Front, which is recognized by the U.S. Department of State as an alias for al Qaeda in Iraq – and to recruit other individuals for terrorist plots. In particular, ABASSI discussed with the UC a number of individuals known to ABASSI and/or to his associates, whom he described as like-minded and who, in his view, would be willing to engage in terrorist activity.
On April 12, 2013, ABASSI and the UC discussed ABASSI’s efforts to recruit others for terrorist plots, and that he might be able to obtain immigration documents to remain in the United States, purportedly in order to work for the UC’s U.S.-based company. In reality, ABASSI made clear that he wanted to obtain immigration documents and to remain in the United States so that he could engage in “projects” relating to future terrorist activities, including recruitment. Thereafter, ABASSI made false statements on two immigration forms, under penalty of perjury, and subsequently mailed those forms to U.S. Citizenship and Immigration Services for processing.
The Indictment charges ABASSI with two counts of knowingly making false statements in an application to the immigration authorities for a green card and work visa, in order to facilitate an act of international terrorism. Each count carries a maximum term of 25 years in prison.
The charges and arrest of ABASSI are the result of the close cooperative efforts of the United States Attorney’s Office for the Southern District of New York, the FBI’s Joint Terrorism Task Force – which principally consists of agents and detectives of the FBI and the NYPD – and U.S. Immigration and Customs Enforcement. Mr. Bharara also thanked the National Security Division and the Royal Canadian Mounted Police for their ongoing assistance.
The prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys John P. Cronan, Michael Ferrara, and Benjamin A. Naftalis are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
U.S. v. Ahmed Abassi Indictment
Statement of Manhattan U.S. Attorney Preet Bharara on the Convictions of Semen Domnitser, Oksana Romalis, and Luba Kramrish in Connection with Holocaust Claims Conference FraudRead the Press Release
“After half-a-day of deliberations, a jury convicted Semyon Domnitser – the highest ranking insider to participate in this unconscionable fraud against the Holocaust Claims Conference – and two co-conspirators who recruited applicants who received benefits to which they were not entitled. And with the verdicts against these three defendants, all 31 people who played roles in the theft of $57million dollars intended to benefit victims of the Nazi genocide – one of the darkest chapters in all human history – have been convicted. We said we would not stop until we brought to justice those who committed these unthinkable crimes and today our objective was accomplished.”
Former Stockbroker Pleads Guilty in Manhattan Federal Court to Bribery SchemeRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, announced that former stock broker CHRISTOPHER KLINE pled guilty today to participating in a scheme to provide secret bribes to a stock broker in order to induce the broker to purchase G&S Minerals, Inc. (“G&S”) common stock on behalf of his clients. KLINE, 49, a resident of York, Pennsylvania, pled guilty in Manhattan federal court before U.S. Magistrate Judge Gabriel W. Gorenstein.
Manhattan U.S. Attorney Preet Bharara said: “Christopher Kline violated his duty as a stockbroker, and in the process, broke the law. And for his role in the middle of a conspiracy to manipulate the market for the stock of a publicly traded company, he now stands convicted. This kind of corruption undermines confidence in the markets and cheats legitimate investors.”
According to the Indictment filed in Manhattan federal court, public court filings, and statements made during KLINE’s guilty plea proceeding:
From July 2007 through February 2008, KLINE participated in a scheme in which one of his clients, William Curtis, agreed to pay secret cash bribes to a confidential informant (“CI”) working with the Federal Bureau of Investigation (“FBI”). The CI posed as a financial adviser who, in exchange for receiving the bribes from Curtis, purportedly convinced “investors” to purchase the common stock of G&S that Curtis controlled. G&S was a Nevada Corporation whose common stock was publicly traded on the Pink Sheets, an inter-dealer quotation service that provides financial information for certain over-the-counter securities and issuers. One purpose of the bribes was for Curtis to sell his G&S stock, which he did through accounts managed by KLINE.
KLINE acted as the middleman between Curtis and the CI. Curtis agreed to pay the CI a kickback of 30 percent of any orders placed by the CI, and the CI in turn agreed to pay 10 percent of the kickback to KLINE for his role in the scheme. In conversations recorded by the FBI, KLINE (1) discussed with the CI specific price and volume targets for the purchases and orders placed by the CI on behalf of his “investors,” (2) facilitated the bribe payment from Curtis to the CI, and (3) was overheard collecting his 10 percent kickback.
KLINE pled guilty to one count of participating in a conspiracy to commit securities fraud and commercial bribery, and one count of securities fraud. The charges carry a maximum combined penalty of 25 years in prison and a maximum fine of $5,000,000. In addition, KLINE has agreed to forfeiture of the $2,000 in proceeds he obtained for his commission of the offenses. KLINE is scheduled to be sentenced by U.S. District Judge Shira A. Scheindlin on September 10, 2013, at 4:30 p.m.
Curtis, 50, a resident of Naperville, Illinois, pled guilty in October 2009, before U.S. District Judge Samuel Conti to one count of participating in a conspiracy to commit securities fraud and commercial bribery, and one count of securities fraud. In June 2010, Chief U.S. District Judge Loretta A. Preska sentenced Curtis to three years of probation and ordered him to pay a $200 special assessment.
The charges against KLINE are the result of a wide-ranging FBI undercover investigation of related stockbroker bribery schemes involving US-based, Canadian-based and Costa Rican-based stock promoters and stockholders. Mr. Bharara praised the work of the FBI, the Vancouver Integrated Market Enforcement Team of the Royal Canadian Mounted Police, the Vancouver Police Department, the Criminal Prosecution Assistance Group of FINRA, and the U.S. Securities and Exchange Commission for their assistance in this investigation.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it 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 prosecuted by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney John J. O’Donnell is in charge of the prosecution.
Kline, Christopher Indictment
Former Holocaust Claims Conference Director and Two Recruiters Convicted in $57.3 Million Fraud on Organization That Makes Reparations to Victims of Nazi PersecutionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that SEMEN DOMNITSER, LUBA KRAMRISH, and OKSANA ROMALIS were convicted today in Manhattan federal court of fraud charges for their participation in a scheme to defraud programs administered by the Conference on Jewish Material Claims Against Germany, Inc. (the “Claims Conference”), which were established to aid the survivors of Nazi persecution, out of more than $57 million. DOMNITSER, a former employee of the Claims Conference, served as the Director of the relevant programs from 1999 to 2010. KRAMRISH and ROMALIS recruited applicants into the fraud. The defendants were convicted following a four-week trial before U.S. District Judge Thomas P. Griesa.
A total of 31 defendants, 10 of whom were former Claims Conference employees, have been charged in connection with the scheme. Twenty-eight of those defendants previously pled guilty. With today’s verdict, all 31 defendants now stand convicted for their roles in the fraud.
Manhattan U.S. Attorney Preet Bharara said: “After half-a-day of deliberations, a jury convicted Semyon Domnitser – the highest ranking insider to participate in this unconscionable fraud against the Holocaust Claims Conference – and two co-conspirators who recruited applicants who received benefits to which they were not entitled. And with the verdicts against these three defendants, all 31 people who played roles in the theft of $57 million dollars intended to benefit victims of the Nazi genocide – one of the darkest chapters in all human history – have been convicted. We said we would not stop until we brought to justice those who committed these unthinkable crimes, and today our objective was accomplished.”
According to the Superseding Indictment, other documents filed in Manhattan federal court, and the evidence presented at trial:
The Claims Conference, a not-for-profit organization which provides assistance to victims of Nazi persecution, supervises and administers several funds that make reparation payments to victims of the Nazis, including “the Hardship Fund” and “the Article 2 Fund,” both of which are funded by the German government. Applications for disbursements through these funds are processed by employees of the Claims Conference’s office in Manhattan, and the employees are supposed to confirm that the applicants meet the specific criteria for payments under the funds.
As part of the charged scheme, a network of individuals systematically defrauded the Article 2 Fund and Hardship Fund programs for over a decade. The Claims Conference first suspected the fraud in November 2009, and immediately reported their suspicions to law enforcement, which conducted a wide-reaching investigation.
The Hardship Fund pays a one-time payment of approximately $3,500 to victims of Nazi persecution who evacuated the cities in which they lived and were forced to become refugees. Members of the conspiracy submitted fraudulent applications for people who were not eligible. Many of the recipients of fraudulent funds were born after World War II, and at least one person was not even Jewish. Some members of the conspiracy recruited other individuals to provide identification documents, such as passports and birth certificates, which were then fraudulently altered and submitted to corrupt insiders at the Claims Conference, who then processed those applications. When the applicants received their compensation checks, they kept a portion of the money and passed the rest back up the chain.
From the investigation to date, the Claims Conference has determined that at least 3,839 Hardship Fund applications appear to be fraudulent. These applications resulted in a loss to the Hardship Fund of approximately $12.3 million.
The Article 2 Fund makes monthly payments of approximately $400 to survivors of Nazi persecution who make less than $16,000 per year, and either lived in hiding or under a false identity for at least 18 months; lived in a Jewish ghetto for 18 months; or were incarcerated for six months in a concentration camp or a forced labor camp. The fraud involved doctored identification documents in which the applicant’s date and place of birth had been changed. The fraud also involved more sophisticated deception, including altering documents that the Claims Conference obtained from outside sources to verify a person’s persecution by the Nazis. Some of the detailed descriptions of persecution in the fraudulent Article 2 Fund applications were completely fabricated.
From the investigation to date, the Claims Conference has determined that at least 1,112 Article 2 Fund cases it processed have been determined to be fraudulent. Those cases have resulted in a loss to the Claims Conference of approximately $45 million.
DOMNITSER was an Article 2 Fund caseworker from 1994 until 1999, and as a caseworker, helped process fraudulent applications. In 1999, DOMNITSER became the Director of both the Article 2 Fund and the Hardship Fund, and continued to serve in that role until his termination in February 2010. As Director, DOMNITSER approved fraudulent applications and received thousands of dollars in payments – typically in the form of money orders – from applicants who had received money from the Funds to which they were not entitled.
KRAMRISH and ROMALIS recruited applicants and then passed materials, including identification documents, to co-conspirators employed at the Claims Conference to support fraudulent applications on their behalves. KRAMRISH and ROMALIS each received payments – in the form of cash and checks – from applicants who had received money from the Funds to which they were not entitled.
DOMNITSER, 55, of Brooklyn, New York, KRAMRISH, 58, of Toronto, Canada, and ROMALIS, 43, of Brooklyn, New York, were each convicted of one count of conspiracy to commit mail fraud and one count of mail fraud. They each face a maximum sentence of 20 years in prison on each count, and a maximum fine of $250,000 or twice the gross gain or loss on each count.
DOMNITSER, KRAMRISH, and ROMALIS are scheduled to be sentenced by Judge Griesa on September 10, 2013 at 4:00 p.m.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation (“FBI”). He also thanked the Claims Conference for bringing this matter to the FBI’s attention and for its extraordinary continued cooperation in this investigation.
This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Christopher D. Frey and Special Assistant U.S. Attorney Rebecca Rohr are in charge of the prosecution.
U.S. v. Domnitser, et al S1 Indictment
U.S. V. Mission Settlement Agency, Et Al.: Charging Documents and Forfeiture ComplaintRead the Press Release
U.S. v. Mission Settlement Agency et al. Indictment
U.S. v. Felix Lemberskiy Information
U.S. v. Zakhir Shirinov Information
U.S. v. Mission Settlement Agency, et al. Forfeiture ComplaintTwo U.S. Broker-Dealer Employees and Venezuelan Government Official Charged in Manhattan Federal Court for Massive International Bribery SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Mythili Raman, the Acting Assistant Attorney General for the Criminal Division of the United States Department of Justice (“DOJ”), and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), today announced the unsealing of a Criminal Complaint against TOMAS ALBERTO CLARKE BETHANCOURT (“CLARKE”) and JOSE ALEJANDRO HURTADO, who were both employees of a U.S. broker-dealer (the “Broker-Dealer”), and MARIA DE LOS ANGELES GONZALEZ DE HERNANDEZ (“GONZALEZ”), who is a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (“BANDES”), arising from a conspiracy to pay bribes to GONZALEZ in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. GONZALEZ, a resident of Caracas, Venezuela, was arrested in Miami, Florida, on Friday, May 3, 2013. CLARKE and HURTADO were also arrested Friday in Miami, where they reside. All three defendants were presented yesterday in federal court in Miami and remain in custody.
Manhattan U.S. Attorney Preet Bharara said: “The defendants’ arrests lay bare a web of bribery and corruption in which employees of a U.S. broker-dealer allegedly generated tens of millions of dollars through transactions in order to fund kickbacks to a Venezuelan government official in exchange for her directing the Venezuelan economic development bank’s financial trading business to their employer. As alleged, the defendants also engaged in international money laundering to carry out their corrupt scheme. This Office, along with all of our federal partners, is committed to holding individuals who violate the Foreign Corrupt Practices Act to account.”
Acting Assistant Attorney General Mythili Raman said: “Today’s announcement is a wake-up call to anyone in the financial services industry who thinks bribery is the way to get ahead. The defendants in this case allegedly paid huge bribes so that foreign business would flow to their firm. Their return on investment now comes in the form of criminal charges carrying the prospect of prison time. We will not stand by while brokers or others try rig the system to line their pockets, and will continue to vigorously enforce the FCPA and money laundering statutes across all industries.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged, the defendants conspired to use Venezuela’s economic development bank as their personal piggy bank. Clarke and Hurtado reaped huge commissions from their trading of the bank’s assets, and kicked back significant sums to Gonzalez. The brazenness of the alleged scheme was exemplified in their buying bank bonds and selling them back on the same day.”
In a separate action, the U.S. Securities and Exchange Commission (“SEC”) announced
civil charges against CLARKE, HURTADO, and two others.
According to the allegations in the Criminal Complaint unsealed today, the Forfeiture Complaint, and other documents filed in Manhattan federal court:
Background on the Broker-Dealer and BANDES
At all times relevant to the charges, CLARKE and HURTADO worked or were associated with the Broker-Dealer, based in New York City, principally through its Miami offices. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included CLARKE and later HURTADO, and which offered fixed income trading services to institutional clients. One of the Broker-Dealer’s clients was BANDES. The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding. GONZALEZ is an official at BANDES and oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.
The Bribery Scheme
From April 2009 through June 2010, CLARKE, HURTADO, and GONZALEZ participated in a bribery scheme in which GONZALEZ directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer split the revenue the Broker-Dealer generated from this trading business with GONZALEZ. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including CLARKE and HURTADO, devised a split with GONZALEZ of the commissions paid by BANDES to the Broker-Dealer. Emails, account records, and other documents collected from the Broker-Dealer and other sources reveal that GONZALEZ received a substantial share of the revenue generated by the Broker-Dealer for BANDES-related trades. Specifically, GONZALEZ received monthly kickbacks from Broker-Dealer agents and employees that were frequently in six-figure amounts.
Some of the trades the Broker-Dealer executed for BANDES had no discernible business purpose. For instance, in January 2010, the Broker-Dealer executed at least two round-trip trades between itself and BANDES for the same bonds on the same day. In other words, the Broker-Dealer bought certain bonds from BANDES and then immediately sold those same bonds back to the bank. The result of the trades was that BANDES was left with the same bond holdings as before the trades, except that it had paid the Broker-Dealer approximately $10.5 million in mark-ups in the course of the two round-trip transactions.
Certain payments to GONZALEZ directly from HURTADO and an entity controlled by CLARKE totaled at least $3.6 million. When added together with other payments referenced in the Complaint, Gonzalez received a total of at least $5 million.
To further conceal the scheme, the kickbacks to GONZALEZ were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For instance, CLARKE used an account he controlled in Switzerland to transfer funds to an account GONZALEZ controlled in Switzerland. GONZALEZ then transferred some of this money to an account she held in the United States. Additionally, HURTADO and his spouse received substantial compensation from the Broker-Dealer, portions of which HURTADO transferred to an account held by GONZALEZ in Miami and to an account held by an associate of GONZALEZ in Switzerland. HURTADO also sought and received reimbursement from GONZALEZ for the payment of U.S. income taxes related to the money that he used to make kickback payments to GONZALEZ.
In addition to the Criminal Complaint, on May 6, 2013, the Government filed a civil forfeiture action (the “Forfeiture Complaint”) in Manhattan federal court, seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland. The Forfeiture Complaint also seeks the forfeiture of several properties in the Miami area related to HURTADO that were purchased with his proceeds from the scheme (the “Miami Properties”). As set forth in the Forfeiture Complaint, in addition to GONZALEZ, another BANDES official, identified as CC-1 in the Forfeiture Complaint, also received kickback payments as part of the scheme. Also on May 6, 2013, the Court issued seizure warrants for multiple bank accounts and a restraining order relating to the Miami Properties.
A chart containing the charges and maximum penalties for CLARKE, 43, HURTADO, 38, and GONZALEZ, 55, is attached.
Mr. Bharara praised DOJ’s Criminal Division and the FBI for their work in the investigation. He also thanked the SEC for its assistance in this case and noted that the investigation is continuing.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Harry A. Chernoff and Jason H. Cowley, and Fraud Section Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea are in charge of the prosecution. Assistant United States Attorney Carolina Fornos is also responsible for the forfeiture aspects of the case.
Additional information about the Justice Department’s FCPA enforcement efforts can be
found at www.justice.gov/criminal/fraud/fcpa.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Click here to view chart(s)
U.S. v. Tomas Alberto Clarke et al Complaint
U.S. v. Cartagena International, et al. Civil Forfeiture Complaint 13 Civ 3028Manhattan U.S. Attorney Charges Debt Settlement Company and Six Individuals for Multi-Million Dollar Scheme That Targeted Debt-Ridden ConsumersRead the Press Release
First-Ever Criminal Charges Based on Consumer Financial Protection Bureau Referral
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”), announced today the unsealing of an Indictment charging MISSION SETTLEMENT AGENCY (“MISSION”), its owner MICHAEL LEVITIS, and three of its employees – DENIS KURLYAND, BORIS SHULMAN, and MANUEL CRUZ – with mail and wire fraud charges in connection with a multi-million dollar scheme that victimized more than 1,200 debt-ridden individuals across the country. As alleged, the defendants fraudulently tricked people into paying MISSION for debt settlement services by lying to prospective customers about its fees, and its purported affiliation with the federal government and one of the three leading credit bureaus in the U.S., as well as the results it supposedly achieved for its customers. In connection with the scheme, MISSION received over $6.6 million in fees. For over 1200 of its customers, MISSION took fees totaling nearly $2.2 million and has never paid a penny to the customers’ creditors. Each of the individual defendants was arrested this morning. They are expected to be arraigned in Manhattan federal court later today before U.S. District Judge Paul G. Gardephe.
Also unsealed today were the guilty pleas of two former MISSION employees, FELIX LEMBERSKIY and ZAKHIR SHIRINOV, for their participation in the fraudulent scheme. SHIRINOV pled guilty pursuant to an Information before U.S. District Judge Denise Cote on April 26, 2013, and LEMBERSKIY pled guilty pursuant to an Information before U.S. District Judge Ronnie Abrams on April 29, 2013.
In a separate action, the Consumer Financial Protection Bureau (“CFPB”) announced civil charges against MISSION and LEVITIS, among others.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Mission preyed upon the financial desperation of people around the country who – like so many ordinary Americans – were simply struggling to pay down their debts after the financial downturn. But the true mission of Mission turned out to be fraud and deceit, and for more than 1,200 consumers, the dream of debt relief turned into a nightmare of deeper debt trouble. Today’s case is a harbinger of an especially potent partnership between this Office and the CFPB that will benefit hardworking Americans everywhere.”
USPIS Inspector-in-Charge Philip Bartlett said: “Postal Inspectors are ever vigilant in bringing to justice individuals who use the U.S. Mail to defraud and otherwise take advantage of the financial circumstances of innocent consumers.”
According to the allegations in the Indictment unsealed today and the Forfeiture Complaint filed today in Manhattan federal court:
Background
Since its inception in 2009, MISSION has 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. LEVITIS operated and controlled MISSION which, at varying times, had offices in Brooklyn and/or Manhattan.
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. Where an individual ultimately expressed an interest in engaging MISSION, MISSION then had the individual enter into a contract.
Overview of the Fraud
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. The individual defendants falsely and fraudulently tricked them into becoming MISSION’s customers by making materially false and misleading statements about MISSION’s ability to help settle their debts and about the fees MISSION would charge in exchange for that help.
Specifically, the defendants commonly lied about and/or concealed MISSION’s fees, falsely stating both verbally and in their written solicitations, that MISSION would charge a mere $49 per month and/or that there would be no up-front fees. In fact, MISSION took thousands of dollars in up-front fees from funds that its customers had set aside because they had been told the funds would be held in escrow and used to pay creditors. The defendants also deceived prospective customers by fraudulently promising that MISSION could help slash their debts – typically by 45% – when, for the majority of customers, MISSION actually did little or no work, and failed to achieve any reduction in debt whatsoever. And the defendants deceptively created an air of legitimacy for MISSION’s business by falsely suggesting that it had affiliations with the federal government and with one of the three leading credit bureaus in the U.S.
Overall, MISSION had approximately 2,200 customers who paid a total of nearly $14 million in connection with its purported debt settlement services. Of these funds, MISSION took over $6.6 million in fees, while paying only approximately $4.4 million to customers’ creditors. For over 1,200 of its customers, MISSION took fees totaling nearly $2.2 million, but never paid a single penny to the customers’ creditors as payment for any negotiated debt. LEVITIS used the money that MISSION took from its customers to pay for things including the operating expenses of a restaurant/nightclub he controlled, lease payments for two different luxury Mercedes cars, and credit card bills for his mother.
Lies About Mission’s Fees
In conversations with prospective customers, the defendants represented that customers would be asked to make affordable monthly payments for a set period of time, that these payments would be held in escrow by a third-party payment processor until MISSION had negotiated down the customers’ debt obligations, and that the money held in escrow would then be used to pay the creditors. The defendants further promised that MISSION would only charge a nominal monthly fee of $49 in exchange for its efforts, and they often explained that MISSION would charge an additional fee only if it succeeded at obtaining a greater reduction in debt than what had been promised. They also claimed in both their written solicitations and in scripted phone calls that there were no up-front fees.
In reality, in addition to the $49 monthly fee, MISSION also charged an up-front fee equal to as much as 18% of the debt the customer owed. MISSION deducted these fees from the monies that customers paid to the third party payment processor, in accordance with a monthly payment plan it established, and that customers understood would be held in their escrow accounts and used to pay their creditors. Instead, MISSION regularly took as fees for itself all of the funds that its customers paid to the payment processor during the first three months of their contracts with MISSION. This was done in order to insure that the company would receive up-front fees before any of the customers’ debt was even paid down.
Lies About Mission’s Results
The defendants typically promised prospective customers that MISSION would negotiate a substantial reduction in their debt, promising prospective customers that they would have to pay only 55% of the amount owed to creditors. When potential customers questioned that assertion because it sounded too good to be true, a written script directed sales representatives to tell them: “The creditors today are content to get the settled amount in light of all the bankruptcies, charge offs, and bad debt out there today.”
This assertion and the underlying promise were false. In reality, MISSION did little or no meaningful work to negotiate reductions in debt for many of its customers, and the sort of result MISSION was promising prospective customers was substantially more favorable than the results MISSION typically achieved for prior customers.
The written script also instructed sales representatives to promise potential customers that if they worked with MISSION, their credit scores would ultimately go up. The script said, “Your credit score will go down in the short term while the accounts are put into position for settlement. Then your score will go up as the payments are made and ultimately your score will be significantly higher.” This was also untrue.
Lies About Mission’s Affiliations
The defendants also made material misrepresentations to prospective customers about MISSION’s relationships and affiliations in a deceptive effort to make MISSION seem more credible and trustworthy. For example, in an effort to attract business, MISSION sent a solicitation letter to prospective customers that falsely suggested that it 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.” However, the only phone number and address provided in the letter belonged to MISSION, and MISSION did not have any relationship with any federal agency, nor was it operating in connection with any federal program.
Mr. Bharara also announced today the filing of a civil forfeiture complaint seeking to forfeit the proceeds of the alleged fraud and the assets involved in money laundering related to the scheme. Those assets and proceeds include: the Rasputin nightclub, the title for which is in the name of LEVITIS’ mother, whom the government alleges is the real owner of the club; two pieces of real property; and 40 bank accounts.
LEVITIS, 36, of Brooklyn, New York, KURLYAND, 30, of Brooklyn, New York, SHULMAN, 27, of Brooklyn, New York, and CRUZ, 30, of Brooklyn, New York, are each charged with one count of conspiracy to commit mail and wire fraud, one count of wire fraud, and one count of mail fraud. Each defendant faces a maximum sentence of 20 years in prison on each count.
LEMBERSKIY, 29, of Staten Island, New York, and SHIRINOV, 29, of Brooklyn, New York, each pled guilty to one count of conspiracy to commit mail and wire fraud, one count of mail fraud, and one count of wire fraud. They each face a statutory maximum sentence of 60 years in prison.
Mr. Bharara praised the outstanding investigative work of the USPIS. He also thanked the CFPB for referring this case to this Office and acknowledged with appreciation, this extraordinary partnership.
If you believe you were a victim of this crime, including a victim entitled to restitution, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact Wendy Olsen-Clancy, the Victim Witness Coordinator at the United States Attorney's Office for the Southern District of New York, at (866) 874-8900, or [email protected]. For additional information, go to: http://www.usdoj.gov/usao/nys/victimwitness.html.
For guidance on coping with debt or credit issues, and information about dealing with debt settlement companies in particular, consider the following link to publications issued by the Federal Trade Commissionhttp://www.consumer.ftc.gov/articles/0150-coping-debt;
The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Nicole Friedlander and Edward Imperatore are in charge of the prosecution. Assistant United States Attorney Carolina Fornos of the Office’s Asset Forfeiture Unit 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.
U.S. v. Mission Settlement Agency, et al. Indictment
U.S. v. Felix Lemberskiy Information
U.S. v. Zakhir Shirinov InformationManhattan U.S. Attorney and U.S. Immigration and Customs Director Announce Return to Mongolia of Tyrannosaurus Bataar SkeletonRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, and John Morton, Director of the U.S. Immigration and Customs Enforcement (“ICE”), announced today the return to the Mongolian government of a nearly complete Tyrannosaurus bataar skeleton (the “Bataar”) that was unlawfully taken from Mongolia.
Manhattan U.S. Attorney Preet Bharara stated: “Almost one year ago this Tyrannosaurus bataar was offered for sale at a New York City auction for over $1,000,000, but as we now know, that attempted sale was part of a criminal scheme. And now, one year later, we are very pleased to have played a pivotal role in returning Mongolia’s million dollar baby. Of course, that million dollar price tag – as high as it is – doesn’t begin to describe the true value of an ancient artifact that is part of the fabric of a country’s natural history and cultural heritage –
priceless. And we are prouder still to be playing a key role in returning almost a score more fossils to the people of Mongolia in the near future.”
ICE Director John Morton stated: “This is one of the most important repatriations of fossils in recent years. We cannot allow the greed of a few looters and schemers to trump the cultural interests of an entire nation. Through this case, HSI special agents have once again proven themselves to be the leading federal law enforcement experts in the investigation and forfeiture of stolen foreign art, antiquities and relics. Because of the collaborative effort between ICE-HSI and the U.S. Attorney’s Office, we undo a great wrong by returning this priceless dinosaur skeleton to the people of Mongolia.”
According to the civil forfeiture and criminal Complaints, the Information, plea agreement, and other court documents filed in Manhattan federal court:
The Tyrannosaurus bataar, indigenous to what is now Mongolia, was a dinosaur from the late Cretaceous period, approximately 70 million years ago. It was first discovered in 1946 during a joint Soviet-Mongolian expedition to the Gobi Desert in the Mongolian Ömnögovi Province. Mongolian law enacted in 1924 declares dinosaur fossils to be the property of the Government of Mongolia, and criminalizes their export from the country.
On March 27, 2010, the Bataar skeleton was imported into the United States from Great Britain. The customs importation documents contained several false statements. First, the country of origin of the Bataar skeleton was erroneously listed as Great Britain when, according to several paleontologists, Tyrannosaurus bataars have only been recovered in Mongolia. In addition, the Bataar skeleton was substantially undervalued on the importation documents. The customs importation forms listed its value as $15,000, in contrast to the $950,000 - $1,500,000 price listed in a 2012 auction catalog, and the actual auction sale price of $1,052,500. Finally, the Bataar skeleton was incorrectly described on the customs importation documents as two large rough fossil reptile heads, six boxes of broken fossil bones, three rough fossil reptiles, one fossil lizard, three rough fossil reptiles, and one fossil reptile skull.
Texas-based Heritage Auctions, Inc., offered for sale the Bataar skeleton at an auction conducted in New York City. Prior to the sale, the Government of Mongolia sought, and was granted, a Temporary Restraining Order prohibiting the auctioning, sale, release or transfer of the Tyrannosaurus Bataar Skeleton by a Texas State District Judge. Notwithstanding the state court order, Heritage Auctions completed the auction and the Tyrannosaurus Bataar Skeleton sold for over $1 million. However, the sale was contingent upon the outcome of any court proceedings instituted on behalf of the Mongolian Government.
On May 22, 2012, the President of Mongolia, Tsakhia Elbegdorj sent a letter to the United States Attorney’s Office for the Southern District of New York formally requesting the Office’s “assistance in preserving Mongolia’s cultural heritage in this rare national treasure by . . . seeking forfeiture of . . . the Tyrannosaurus bataar skeleton.”
On June 5, 2012, at the request of the President of Mongolia, several paleontologists specializing in Tyrannosaurus bataars examined the Bataar skeleton and concluded that it is in fact a Tyrannosaurus bataar skeleton that was unearthed from the western Gobi Desert in Mongolia between 1995 and 2005. Shortly thereafter, on June 18, 2012, the United States Attorney’s Office filed a civil action seeking the forfeiture of the Bataar skeleton and the District Court issued a warrant authorizing ICE’s Homeland Security Investigations (HSI) to seize the Bataar skeleton.
On September 24, 2012, the United States Attorney’s Office filed an amended civil forfeiture Complaint which included the original paleontological reports as well as additional reports from those same paleontologists and other paleontologists. The additional reports definitively state that given the particularized coloring of the bones of the Bataar skeleton there is no doubt that the Bataar skeleton came from Mongolia.
On October 17, 2012, Eric Prokopi, the importer of the Bataar skeleton was arrested on one count of conspiracy to smuggle illegal goods, possess stolen property, and make false statements, one count of smuggling goods into the United States, and one count of interstate sale and receipt of stolen goods. The charges stemmed from Prokopi’s illegal importation of the Bataar and other dinosaur fossils into the United States. Shortly after his arrest, on December 27, 2012, Prokopi pled guilty to engaging in a scheme to illegally import the fossilized remains of numerous dinosaurs that had been taken out of their native countries illegally and smuggled into the United States. As part of his plea agreement, Prokopi consented to the forfeiture of the Bataar skeleton. Prokopi also agreed to forfeit a second nearly complete Tyrannosaurus bataar skeleton, a Saurolophus skeleton, and an Oviraptor skeleton, all of which had been in his possession but have since been recovered by the U.S. Attorney’s Office. He further agreed to forfeit his interest in a third Tyrannosaurus bataar skeleton which was located in Great Britain.
On February 14, 2013, U.S. District Judge P. Kevin Castel entered a judgment forfeiting the Bataar skeleton to the United States of America for its return to Mongolia.
Mr. Bharara praised the investigative work of ICE-HSI. He also thanked Mongolian authorities for their assistance in the case.
The President of Mongolia, Tsakhia Elbegdorj, stated: “I join the people of Mongolia in thanking the special agents of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations units in New York, Florida, California, Ohio and Wyoming for their exceptional work and expertise and for their cooperation with the Mongolian State Investigation and Criminal Investigation Authorities. I am deeply grateful to the office of the U.S. Attorney for the Southern District of New York for their wise leadership and legal expertise in this overall effort. I also commend the Society of Vertebrate Paleontology, lawyers, judges and volunteers for their role in this case. Our two countries are separated by many miles, but share a passion for justice and a commitment to putting an end to illegal smuggling.”
The forfeiture action was handled by the Asset Forfeiture Unit of the U.S. Attorney’s Office. Assistant U.S. Attorneys Sharon Cohen Levin and Martin S. Bell were in charge of the litigation. The criminal case was handled by the Complex Frauds Unit. Martin S. Bell was in charge of the prosecution.
Statement of Manhattan U.S. Attorney Preet Bharara on the Convictions of Xing Wu Pan and Jia HouRead the Press Release
“As the jury found, Jia Hou and Oliver Pan stuck a knife into the heart of New York City’s campaign finance law by violating the prohibition against illegal campaign contributions, all to corruptly advantage the campaign of a candidate for city-wide office. Cases like this give the people of New York yet another reason to be troubled by the electoral process, and they have a right to demand fair, open, and honest elections untainted by cynical subversion of campaign finance laws. With these convictions, it is our hope that some measure of the public’s confidence can be restored. We will continue our efforts to stamp out public corruption wherever we find it. We thank the jury for their time and service, and the outstanding prosecutors who so ably tried this case.”
Xing Wu Pan and Jia Hou Verdict Statment - U.S. Attorney Bharara Audio 5.2.2013
Member of International Narcotics Trafficking Conspiracy Pleads Guilty in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that FRANCOIS SOUROU AHISSOU, a citizen of Togo, pled guilty today in Manhattan federal court to 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 to the custody of the United States. He pled guilty before U.S. District Judge Naomi Reice Buchwald.
Manhattan U.S. Attorney Preet Bharara stated: “Francois Ahissou willingly sold cocaine to people who represented themselves to be associates of the Taliban, knowing that at least some of that cocaine was bound for the United States. But in reality, his ‘clients’ were working with the DEA and his deal was not consummated. West Africa has increasingly become a haven for narco-traffickers, and with the combined strength of our national and international law enforcement partners, we are dismantling these drug rings.”
According to the Indictment and Complaint previously unsealed in this case:
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 in various countries including Ghana, Ukraine, and Romania.
During meetings with the CSs beginning in June 2010, AHISSOU and his co-defendants agreed to sell multi-kilogram quantities of cocaine to the Taliban with the 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.
AHISSOU, 47, pled guilty to one count of conspiring to distribute cocaine, knowing and intending it would be imported into the United States. He faces a maximum sentence of life in prison. AHISSOU is scheduled to be sentenced by Judge Buchwald on August 7, 2013 at 3:45 p.m.
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.
U.S. v. Maroun Saade, et al. S1 Indictment
Investor Sentenced in Manhattan Federal Court to Four Years in Prison for Engaging in Market Manipulation Schemes Involving Two Different StocksRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that DAVID BLECH was sentenced today in Manhattan federal court to four years in prison for securities fraud arising from schemes to manipulate the market for securities of Pluristem Therapeutics, Inc. (“Pluristem”) and Intellect Neurosciences, Inc. (“Intellect”) in 2007 and 2008. BLECH manipulated the markets for these securities by selling a portion of his holdings in those companies through deceptive and illegal means calculated to hide his selling activity from the market and minimize the downward pressure that his sales would otherwise have had on the value of the Pluristem and Intellect stock that he continued to hold. BLECH pled guilty to two counts of securities fraud in May 2012 before U.S. Magistrate Judge Frank Maas. He was sentenced today by U.S. District Judge Colleen McMahon.
According to the Information and statements made during BLECH’s guilty plea proceeding:
Between January 2007 and May 2007, BLECH acquired significant holdings of Pluristem stock, which was traded on the OTC Bulletin Board, in connection with a private placement offering by Pluristem. BLECH acquired this stock in numerous brokerage accounts that were nominally held in the names of other individuals and entities, but which he, in fact, controlled (the “Nominee Accounts”).
In May 2007, BLECH began to sell a portion of his Pluristem holdings. In order to conceal his sales – and thereby mitigate the damage that public awareness of his selling activity would have had on the value of his remaining shares – BLECH caused the various Nominee Accounts under his control to engage in conflicting activity, with some of the accounts selling Pluristem stock, and other accounts buying Pluristem stock, often on the same day. In total, between approximately May 15, 2007 and September 14, 2007, BLECH used the Nominee Accounts to sell approximately 150 million shares of Pluristem, while also using the Nominee Accounts to buy approximately 100 million shares of Pluristem. In so doing, BLECH was able to shed approximately 50 million shares of Pluristem through manipulative and fraudulent trading activity calculated to hide the true nature of his selling activity while indicating false levels of liquidity and demand in the market for Pluristem stock.
In February and March 2008, BLECH engaged in a similar scheme involving the market for shares of Intellect, which was traded on the OTC Bulletin Board. Between 2005 and February 2008, BLECH acquired significant holdings of Intellect stock. As with Pluristem, BLECH acquired this stock in the Nominee Accounts that were listed in the names of other individuals and entities, but which he, in fact, controlled.
In February and March 2008, BLECH sold a portion of his Intellect holdings. Again, in order to conceal his sales – and thereby mitigate the damage that public awareness of his selling activity would have had on the value of his remaining shares – BLECH caused the various Nominee Accounts under his control to engage in conflicting activity, with some of the accounts selling Intellect stock, and other accounts buying Intellect stock, often on the same day. In total, BLECH used the Nominee Accounts to sell approximately 2 million shares of Intellect, while also using the Nominee Accounts to buy approximately 1.6 million shares of Intellect. In so doing, BLECH was able to shed approximately 400,000 shares of Intellect through manipulative and fraudulent trading activity calculated to hide the true nature of his selling activity while indicating false levels of liquidity and demand in the market for that stock.
In addition to the prison term, Judge McMahon sentenced BLECH, 57, of New York, New York, to three years of supervised release. BLECH was also ordered to pay forfeiture in the amount of $1,338,000 and a $200 special assessment fee.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission for its assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Michael A. Levy is in charge of the prosecution.
Former Hedge Fund Manager, Todd Newman, Sentenced in Manhattan Federal Court to 54 Months in PrisonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that TODD NEWMAN, a former portfolio manager at Diamondback Capital Management, LLC (“Diamondback”), was sentenced in Manhattan federal court to 54 months in prison for crimes stemming from his involvement in a multi-million dollar insider trading scheme. NEWMAN and co-defendant Anthony Chiasson, who was a former portfolio manager and co-founder of Level Global Investors, LP (“Level Global”), were convicted of various securities fraud charges on December 17, 2012, following a six-week jury trial. At trial, NEWMAN was convicted of one count of conspiracy to commit securities fraud, and four counts of securities fraud. He was sentenced today by U.S. District Judge Richard J. Sullivan.
Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence, Todd Newman becomes the first member of this corrupt circle of friends to be punished for his conduct. Efforts to cheat the market by gaining an illegal edge ultimately lead to a loss of one’s liberty, as it did for Todd Newman today.”
According to the Superseding Indictment, other court documents, statements made in court, and the evidence presented at trial:
NEWMAN was part of a criminal club of portfolio managers and analysts who obtained material nonpublic information (“Inside Information”), directly and indirectly, from employees who worked at public companies. Specifically, NEWMAN’s research analyst, Jesse Tortora, together with research analysts at other investment firms – including Sam Adondakis, Jon Horvath and Danny Kuo – shared Inside Information with each other which the analysts then provided to their portfolio managers.
For example, in 2008 and 2009, NEWMAN received Inside Information from Tortora related to Dell’s quarterly earnings, which Tortora had received from Sandy Goyal, an analyst who worked at another firm. Goyal had a source inside Dell’s investor relations department who provided numerous updates on Dell’s earnings numbers in advance of Dell’s earnings announcements for multiple quarters in a row. NEWMAN authorized payments to Goyal through a sham research consulting arrangement between Goyal’s wife and NEWMAN’s firm, Diamondback Capital. In fact, Goyal’s wife never provided any research consulting services, but Diamondback nonetheless paid her $175,000 in 2008 and 2009. NEWMAN traded on the Dell Inside Information in advance of the May 2008 and August 2008 quarterly earnings announcements, and earned nearly $4 million in illegal profits for his firm. Tortora also shared the Dell Inside Information with the other analysts, whose portfolio managers executed trades on that same Dell Inside information. Additionally, after Chiasson received the Dell Inside Information from his analyst Sam Adondakis, he executed or caused to be executed trades based on the Inside Information which resulted in more than $57 million in illegal profits for Level Global.
Similarly, in multiple fiscal quarters, NEWMAN obtained inside information concerning NVIDIA Corporation’s earnings from analyst Danny Kuo, who worked at an investment firm in California. Among other things, email communications from Kuo that were forwarded to NEWMAN via Tortora in advance of the quarterly earnings announcements stated that the NVIDIA earnings numbers were obtained from “an accounting manager” at the company. NEWMAN’s trading in NVIDIA resulted in approximately $73,000 in illegal trading profits for the benefit of Diamondback Capital. The NVIDIA Inside Information was similarly received by co-defendant Chiasson, who executed and caused to be executed trades based on the Inside Information, resulting in approximately $10 million in illegal profits for Level Global.
In addition to the prison term, Judge Sullivan sentenced NEWMAN, 48, of Needham, Massachusetts, to one year of supervised release. NEWMAN was also ordered to forfeit $737,724 and to pay a $1 million fine.
At trial, Chiasson, 39, of New York, New York, was convicted of one count of conspiracy to commit securities fraud, and five counts of securities fraud. He will be sentenced by Judge Sullivan on May 13, 2013 at 10:00 a.m.
Horvath, 43, and Kuo, 37, each pled guilty to one count of conspiracy to commit securities fraud and two counts of securities fraud in September 2012 and April 2012, respectively. Tortora, 35, Adondakis, 41, and Goyal, 40, each pled guilty to one count of conspiracy to commit securities fraud and one count of securities fraud in May 2011, April 2011, and June 2011, respectively. These defendants await sentencing.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. 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 Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
Assistant U.S. Attorneys Antonia M. Apps, Richard C. Tarlowe, and John T. Zach are in charge of the prosecution.
Former Campaign Treasurer and Fundraiser Found Guilty in Manhattan Federal Court of Campaign Finance FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JIA HOU, a/k/a “Jenny Hou,” and XING WU PAN, a/k/a “Oliver Pan,” were found guilty today in Manhattan federal court of fraud in connection with a fraudulent scheme that involved the use of “straw donors” to funnel large, illegal campaign contributions to the campaign of a candidate (the “Candidate”) for Citywide elective office in 2013 (the “Campaign”). The straw donor scheme was fraudulent in two primary ways. First, it allowed for more money to be directly given to the Candidate’s campaign by evading the maximum individual contribution limit. Second, by fraudulently inflating the amount of money directly given by donors to the campaign, it correspondingly entitled the campaign to claim greater matching funds from the City of New York through the City’s matching campaign funds program. The jury found that HOU, the former Campaign treasurer, attempted to commit fraud, obstructed justice, and made false statements in connection with the straw donor scheme. The jury found that PAN, a fundraiser and contribution bundler for the Campaign, conspired and attempted to commit fraud in connection with the straw donor scheme. They were convicted after a three-week trial before U.S. District Judge Richard J. Sullivan.
Manhattan U.S. Attorney Preet Bharara said: “As the jury found, Jia Hou and Oliver Pan stuck a knife into the heart of New York City’s campaign finance law by violating the prohibition against illegal campaign contributions, all to corruptly advantage the campaign of a candidate for city-wide office. Cases like this give the people of New York yet another reason to be troubled by the electoral process, and they have a right to demand fair, open, and honest elections untainted by cynical subversion of campaign finance laws. With these convictions, it is our hope that some measure of the public’s confidence can be restored. We will continue our efforts to stamp out public corruption wherever we find it. We thank the jury for their time and service, and the outstanding prosecutors who so ably tried this case.”
According to the Complaint and the Indictment filed in Manhattan federal court and the evidence presented at trial:
HOU and PAN participated in a scheme to defraud New York City by using straw donors to funnel multiple illegal campaign contributions to the Candidate’s 2013 campaign for Citywide elective office. One object of the scheme was to increase the amount of matching campaign funds the Campaign would receive from the City. New York City law mandates an individual contribution limit of $4,950. On various occasions, certain individuals – including an individual who was actually an undercover FBI agent (the “U/C”) – who wanted to make donations in excess of that limit arranged for multiple Straw Donors to make a series of contributions to the Campaign that were under the $4,950 limit. The Straw Donors were then reimbursed for their contributions. On behalf of each Straw Donor, a campaign contribution form was filled out containing, among other things, the straw donor’s name, address, employment information, the amount donated to the Candidate, and the Straw Donor’s purported signature acknowledging that the Straw Donor was not being reimbursed in any manner for making the campaign contribution. The City would rely upon the information contained in these fraudulent contribution forms, among other things, in order to determine whether to release matching campaign funds to the Candidate’s 2013 campaign on the basis of these contributions.
HOU served as the Candidate’s treasurer for the 2013 election cycle and was responsible for all financial disclosures related to the 2013 Campaign. She was also responsible for accounting for every donation made to the Campaign and for ensuring that all donations by individuals to the Campaign were within the maximum allowed by New York City. HOU and the Candidate were the only individuals authorized to submit disclosure statements on behalf of the Campaign. In addition, HOU was responsible for disclosing to the New York City Campaign Finance Board (“NYCCFB”) the identities of “intermediaries” or “bundlers” involved in soliciting and receiving donations for the Campaign. NYCCFB records show that the Campaign did not disclose any “bundlers” or “intermediaries” for the 2013 New York City election cycle until January 17, 2012, despite the fact that the Campaign had been raising funds for the 2013 New York City election cycle since at least in or about December 2009. On January 17, 2012, the Campaign disclosed a list of approximately 59 intermediaries to the NYCCFB, but that disclosure did not include multiple individuals who were intermediaries. Further, the disclosure was not made until a grand jury subpoena seeking information about intermediaries was served on the Campaign in December 2011.
In addition, the U/C and PAN had multiple conversations concerning the U/C making a large campaign contribution to the Candidate’s 2013 Campaign that would exceed the maximum allowable contribution of $4,950 for a Citywide elective office during the 2013 election cycle. During these conversations with the U/C, which occurred over the telephone and in person, PAN discussed facilitating this contribution through the use of Straw Donors who would make contributions to the Candidate’s 2013 campaign in their own names and then be reimbursed with cash that PAN received from the U/C. Subsequently, the U/C provided PAN with $16,000 in cash.
The Straw Donors filled out campaign contribution forms that contained, among other things, their names, home addresses, employment information, the amount they each donated to the Candidate, and whether it was by check or credit card. The Straw Donors then signed the contribution forms acknowledging, among other things, that the campaign contributions were in their names, from their own funds, and that they were not being reimbursed in any manner for making the campaign contributions. PAN, using the money received from the U/C, then reimbursed the Straw Donors for their campaign contributions. PAN also provided to the U/C copies of the completed contribution forms for 18 Straw Donors, including one for PAN himself, that were submitted to the Candidate’s 2013 campaign.
In furtherance of the scheme, HOU instructed a campaign volunteer how to imitate the handwriting of campaign donors on donor contribution forms required by the NYCCFB. She also discussed with that campaign volunteer ways to conceal information about intermediaries from the NYCCFB. HOU also offered to reimburse an individual for a donation to the Campaign. HOU worked closely with individuals who served as intermediaries in connection with multiple events where straw donors were reimbursed for their contributions, and nevertheless failed to disclose to the NYCCFB the involvement of these intermediaries in the Campaign.
Finally, in response to the Government’s subpoena for documents relevant to the straw donor scheme, HOU obstructed the Government’s investigation by withholding e-mails and electronic chats showing her knowledge of, and participation in, the scheme. In one of those electronic chats, Hou explicitly offered to reimburse a friend for making a contribution to the campaign. In addition, when questioned by Government officials about her involvement in the scheme and her compliance with the Government’s subpoena, Hou made multiple false statements regarding the disclosure of intermediaries who reimbursed straw donors and her production of documents showing her participation in the scheme.
HOU, 26, of Queens, New York, was convicted of one count of attempted wire fraud, which carries a maximum sentence of 20 years in prison, and a maximum fine of $250,000 or twice the gross gain or loss from the offense. She was also convicted of one count of obstruction of justice and making false statements to the FBI. These counts carry a maximum sentence of five and 20 years, respectively. HOU was acquitted of one count of conspiracy to commit wire fraud.
PAN, 47, of Hudson County, New Jersey, was convicted of one count of conspiracy to commit wire fraud, and one count of attempted wire fraud, both of which carry a maximum sentence of 20 years in prison, and a maximum fine of $250,000, or twice the gross gain or loss from the offense. HOU is scheduled to be sentenced by Judge Sullivan on September 20, 2013 at 3:30 p.m. PAN is scheduled to be sentenced by Judge Sullivan on September 20, 2013 at 2:00 p.m.
Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation and expressed appreciation to the New York City Department of Investigation for its contribution to this ongoing investigation.
This case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Brian A. Jacobs and Justin Anderson are in charge of the prosecution.
U.S. v. Xing Wu Pan and Jia Hou S1 Indictment
Two Queens Men Charged with Ardsley Bank Robbery That Was Followed by High-Speed Car ChaseRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the indictment yesterday of JOSEPH MCCRIMON and JAMES SHERROD in connection with their alleged robbery of the Wells Fargo Bank in Ardsley on March 29, 2013. The defendants were arrested on March 29 and presented originally before U.S. Magistrate Judge Paul E. Davison in White Plains federal court on March 30, who ordered them remanded. They were arraigned on the Indictment today, and the case was assigned to U.S. District Judge Vincent L. Briccetti.
According to allegations in the Indictment unsealed today in White Plains federal court:
MCCRIMON entered the Wells Fargo Bank in Ardsley during the afternoon of March 29 and handed the teller a note in which he threatened to detonate an explosive device unless the teller gave him $20,000. The teller then gave MCCRIMON approximately $10,000 in cash, and he ran outside to where SHERROD was waiting for him in a car. When an Ardsley detective attempted to stop the defendants’ car a short time later, SHERROD drove away at speeds that at times exceeded 100 miles per hour. He struck one car but continued driving, and also at times drove in the opposite lane of traffic. After SHERROD crashed the defendants’ getaway car in the Village of Hastings, he and MCCRIMON continued to flee on foot. MCCRIMON was caught in Hastings, while SHERROD was later caught in Yonkers.
MCCRIMON, 38, of Queens, New York, and SHERROD, 39, of Queens, New York, are each charged with one count of bank robbery, which carries a maximum sentence of 20 years in prison, and one count of conspiracy to commit bank robbery, which carries a maximum sentence of five years in prison.
Mr. Bharara praised the efforts of the FBI, the Ardsley Police Department, the Hastings Police Department, the Yonkers Police Department and Westchester County Department of Public Safety in connection with this investigation.
The charges in the Indictment are merely accusations, and the defendant is presumed innocent until and unless proven guilty.
The prosecution is being handled by the Office’s White Plains Division. Assistant United States Attorney James McMahon is in charge of the prosecution.
McCrimon&Sherrod.Complaint
McCrimon, Sherrod.IndictmentSpiro Baltatzidis, Former Founder and Chief Executive Officer of Starwich, Inc., Sentenced in Manhattan Federal Court to Six Months in Prison for Wire FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that SPIRO BALTATZIDIS, the former Founder and Chief Executive Officer of Starwich, Inc. (“Starwich”), was sentenced today to six months in prison for wire fraud. BALTATZIDIS pled guilty in January 2013 before United States District Judge Ronnie Abrams, who also imposed today’s sentence.
According to the Information and statements made at the plea proceeding:
Starwich was a privately held corporation headquartered in New York that engaged in the food services business, and more specifically, the upscale specialty sandwich business. Starwich operated a micro-chain of restaurants located around Manhattan and maintained multiple corporate bank accounts (collectively, the “Starwich Bank Accounts”) at Citibank, N.A. (“Citibank”) into which investor funds were deposited.
From the summer of 2007 through May 2008, BALTATZIDIS solicited a $25 million investment from a financial institution (the “Victim Financial Institution”). BALTATZIDIS represented that the purpose of the investment was to expand the business operations of Starwich. In connection with the investment solicitation, the Victim Financial Institution conducted due diligence to determine whether Starwich was a prudent investment opportunity. This due diligence included, among other things, a review of Starwich’s financials. Accordingly, at the Victim Financial Institution’s request, on September 16, 2007, it received a fax from Starwich containing Citibank statements for one of the Starwich Bank Accounts. The first statement purported to cover the period December 1, 2006 through December 31, 2006, and reflected an ending balance of approximately $450,000. Another statement for the same account purported to cover the period June 1, 2007 through June 30, 2007, reflected an ending balance of approximately $1.2 million – an increase in the ending balance of well over 100% in the six-month period between December 2006 and June 2007.
Based in part on the June 2007 statement, the Victim Financial Institution entered into a Memorandum of Terms (“the Memorandum”) with Starwich in November 2007. The Memorandum detailed the principal terms of a proposed $25 million investment in shares of Starwich to be divided into three stages of disbursements. However, the bank statements provided to the Victim Financial Institution were fraudulent. The actual bank account records from Citibank showed a balance of approximately $400 as of December 31, 2006, and approximately $200 as of June 30, 2007.
In furtherance of its due diligence, the Victim Financial Institution requested a further update of Starwich’s financials and in response to this request, BALTATZIDIS forwarded an email chain between BALTATZIDIS and an employee of Citibank (the “Bank Employee”) on November 15, 2007. The content of the email chain forwarded to the Victim Financial Institution (the “Victim Financial Institution Email”) reflected that BALTATZIDIS asked the Bank Employee for the balance of one of the Starwich accounts for the period ending September 30, 2007, and the Bank Employee purportedly responded that the account’s current balance was approximately $1.3 million.
In fact, the email chain forwarded by BALTATZIDIS to the Victim Financial Institution on November 15, 2007, was materially altered from its original version (the “Authentic Citibank Email”). Specifically, in the Authentic Citibank Email, the Bank Employee wrote that the account’s current balance was “-$3,963.93,” whereas the Victim Financial Institution Email reflected a balance of “$1,317,963.93.” In addition, the Authentic Citibank Email included a copy of the account statement for the period ending September 30, 2007, whereas the Victim Financial Institution Email omitted the account statement.
From November 15, 2007 through May 2008, BALTATZIDIS and the Victim Financial Institution continued their discussions regarding the solicited financial investment in Starwich. By May 2008, however, the Victim Financial Institution decided against investing with Starwich and ended its discussions with BALTATZIDIS. In August 2008, Starwich filed for bankruptcy.
In addition to his prison term, BALTATZIDIS, 38, was also sentenced to 30 months of supervised release, six months of which are to be served on home confinement.
Mr. Bharara praised the investigative work of the United States Postal Inspection Service.
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 United States Attorney Julian J. Moore is in charge of the prosecution.