Southern District of New York

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 Shortly after the deposits were made, the funds were improperly withdrawn from the account by Adams without disclosure to investors.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

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.

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

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

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
U.S. v. Liberty Reserve, et al. Redacted AUSA Appln
U.S. v. Liberty Reserve, et al. Redacted Domain SW
U.S. v. Liberty Reserve, et al. Redacted Injunction Order

U.S. v. Liberty Reserve, et al. Redacted AUSA Appln with Exhibits
U.S. v. Liberty Reserve, et al. Redacted Domain SW
U.S. v. Liberty Reserve, et al. Redacted Injunction Order
U.S. v. Liberty Reserve, et al. Redacted PIRO
Liberty Reserve, et al. Related Exchanger Website Domain Names Redacted Filed Complaint 13CV3565
U.S. v. Liberty Reserve, et al. Indictment - Redacted

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.

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

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.

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.

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.

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.

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.

Click here to view chart(s)

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.

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

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

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 Information

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the 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

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 Indictment

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

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.

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

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.

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

“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.”

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

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. Indictment
U.S. v. Felix Lemberskiy Information
U.S. v. Zakhir Shirinov Information
U.S. v. Mission Settlement Agency, et al. Forfeiture Complaint

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 3028

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 Information

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.

“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

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

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.

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.

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

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.Indictment

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.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JOSHUA CONDE, a former employee of a child care and after-school program in the Bronx, pled guilty to producing and causing the production of numerous pornographic images of a child victim. He pled guilty in Manhattan federal court this afternoon before U.S. District Judge Paul G. Gardephe.

Manhattan U.S. Attorney Preet Bharara said: “Joshua Conde, a man who was entrusted with the care of children, engaged in the worst possible kinds of child exploitation – sexual victimization and the creation and distribution of child pornography. He has now pled guilty and admitted these terrible crimes, and will no longer be in a position to harm other children.”

According to the Complaint, the Superseding Indictment, CONDE’s plea agreement, statements made in court proceedings, and other public documents:

CONDE was initially arrested in May 2012 after a joint U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”) and New York City Police Department (“NYPD”) investigation determined that he had possessed child pornography that had been downloaded from the Internet and saved onto his computer. The investigation also determined that he had distributed child pornography over the Internet using file-sharing software. During a search of his residence conducted at the time of his arrest, a computer and several additional electronic devices containing images and videos of minor children engaging in sexually explicit conduct were seized. CONDE was charged with three counts of transporting or distributing child pornography, and one count of possessing child pornography. He was released on bail over the Government’s objection.

In August 2012, the Government again sought to have CONDE detained on the basis of new information developed during the course of the investigation. Law enforcement officers recovered pornographic images of a young girl from the computer and related devices seized from CONDE at the time of his arrest that appeared to have been taken in his bedroom. Based on that newly-developed information, U.S. District Judge Kathleen Forrest ordered CONDE remanded, finding, after a review of some of the photographs in question, that the “defendant somehow managed to lure children into his bedroom” where he took the newly discovered pictures which were “without a doubt pornographic.”

CONDE was subsequently charged with one count of sexual exploitation of a minor for his role in using, persuading, inducing, and enticing a minor to engage in sexually explicit conduct for the purpose of producing a visual depiction of that conduct. In addition to his role in producing these images, CONDE has since admitted, as a condition of his plea agreement with the Government, to sexually abusing the victim in question.

CONDE, 27, of Bronx, New York, pled guilty to one count of sexual exploitation of a minor. He faces a mandatory minimum sentence of 15 years in prison and a maximum sentence of 30 years in prison, a maximum term of supervised release for life, and a fine of up to $250,000. He will also be subject to a restitution order to be imposed by the Court at sentencing. CONDE is scheduled to be sentenced by Judge Gardephe on August 13, 2013 at 2 p.m.

Mr. Bharara praised the outstanding investigative work of ICE HSI and the NYPD. He added that the investigation is continuing.

This prosecution is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Edward B. Diskant is 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 (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 (800) 843-5678 or http://www.cybertipline.com.

Conde, Joshua S1 Indictment

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 arrests of 13 individuals for their alleged roles in a sex trafficking and prostitution network, which exploited dozens of women, some of whom were trafficked from Mexico to New York and forced to engage in prostitution. Thirteen defendants were charged in a criminal Complaint that was unsealed today with: sex trafficking; interstate transportation for prostitution; use of interstate facilities to promote a prostitution enterprise; obstruction of justice; possession of child pornography; and illegal reentry.

Nine of the defendants charged were taken into custody today. Two defendants, ISAIAS FLORES-MENDEZ and DAVID VASQUEZ-MEDINA, were already in federal custody on charges of illegal reentry. Another defendant, CARLOS GARCIA-DE LA ROSA, was already in custody on state charges and will be transferred to federal custody. One defendant, JUANA LUCAS-SANCHEZ, was arrested this afternoon in Delaware, and will be presented in federal court in Delaware tomorrow. All other defendants arrested today will be presented in Manhattan federal court before U.S. Magistrate Judge James L. Cott tomorrow afternoon. One of the defendants charged in the Complaint, PANFILO FLORES-MENDEZ, remains at large.

In connection with today’s arrests, HSI executed search warrants on six locations, including four brothels in Yonkers, Poughkeepsie, Newburgh, and Queens.

Manhattan U.S. Attorney Preet Bharara said: “With promises of a better life, the members of this alleged sex trafficking and prostitution ring lured their unsuspecting victims to the United States and then consigned them to a living hell – forcing them to become sex slaves living in abhorrent conditions, and using threats, verbal abuse, and violence – sexual and otherwise – when they resisted and even sometimes when they didn’t. With their arrests today, the barbaric conduct in which these defendants allegedly engaged in order to make a profit has now been put to a stop, and they will be prosecuted for their alleged crimes and the women they enslaved will be able to put their lives back together.”

ICE HSI Special Agent-in-Charge James T. Hayes, Jr., stated: “The arrests today move the United States closer to blockading the repugnant sex trafficking corridor that organizations like the one allegedly operated by Isaias Flores-Mendez and his cohorts use to smuggle innocent victims between Tenancingo, Mexico and New York City. HSI will vigorously target and prosecute leaders and members of sex trafficking organizations who seek to prey on the innocence and trust of young women and children in order to enslave them for profit and devote all necessary resources to rescuing victims of sex trafficking and exploitation.”

According to the allegations in the Complaint, which was filed in Manhattan federal court:

Since at least 2008, nine of the defendants charged in the Complaint have been engaged in a criminal prostitution and sex trafficking enterprise. The enterprise is part of a larger network of sex traffickers who generally operate between Tenancingo, Mexico, and New York, among other places. The typical pattern and practice of this network is to lure women to the United States by, among other things, engaging them in romantic relationships and promising a better life in New York. After the women are smuggled from Mexico to New York, they are forced to begin working as prostitutes against their will under abhorrent conditions. The victims are often beaten, threatened with physical harm to themselves and their family members, sexually assaulted, and verbally abused. In a typical day, a Mexican sex trafficking victim in New York has sexual intercourse with 20 to 30 customers. Each customer usually pays $30-$35 for 15 minutes of sex. Of that $30-$35, $15 typically goes to either the driver who transported the woman to the client, or to the residential brothel where the woman worked. The other $15 goes to the victim, who is then typically forced to give all of it to the trafficker. Traffickers typically provide their victims with condoms and birth control pills. In some cases, if a victim is suspected of being pregnant, her trafficker makes her take a drug to induce a miscarriage.

In September 2006, a woman (“Victim-1”) living in Mexico with her young child was smuggled into the United States and brought to Queens, New York, by ISAIAS FLORES-MENDEZ and BONIFACIO FLORES-MENDEZ. Once in New York, Victim-1 was made to sleep on the floor with her child. Thereafter, ISAIAS FLORES-MENDEZ, BONIFACIO FLORES-MENDEZ, and JUANA LUCAS-SANCHEZ used threats, verbal abuse, and violence to force her to engage in prostitution against her will. For example, on one occasion, when Victim-1 refused to work as a prostitute, ISAIAS FLORES-MENDEZ pushed her and her young child outside on a cold winter night, locked the door, and refused to let her back in. On other occasions, he beat her. Victim-1 was forced to engage in prostitution against her will on a daily basis, often servicing more than 20 customers per day in brothels located in Manhattan, the Bronx, Brooklyn, and Yonkers, as well as in Maryland, Connecticut, New Jersey, and Pennsylvania. On one occasion, when ISAIAS FLORES-MENDEZ, BONIFACIO FLORES-MENDEZ, and JUANA LUCAS-SANCHEZ suspected that Victim-1 was pregnant, they forced her to take medication to induce a miscarriage. ISAIAS FLORES-MENDEZ took all of the money Victim-1 earned.

In late 2006 or early 2007, DAVID VASQUEZ-MEDINA told his then-girlfriend (“Victim-2”) that she should work as a prostitute and that the women he drove to brothels and to customers’ residences to engage in prostitution made 200 dollars or more a day. Victim-2 refused. VASQUEZ-MEDINA pressured Victim-2 to work as a prostitute, and when she did not immediately comply, he became angry and verbally abusive. As a result, Victim-2 relented to his demands. After approximately two weeks, Victim-2 pleaded with VASQUEZ-MEDINA to let her get other jobs to make money, and to stop making her work as a prostitute. VASQUEZ-MEDINA beat her, threatened to take her child, and told her she had no choice. For approximately two years, Victim-2 worked as a prostitute against her will, and VASQUEZ-MEDINA kept the proceeds. On some occasions, he drove Victim-2 to farms in New Jersey where she had sex with approximately 25 men per day. On other occasions, VASQUEZ-MEDINA made arrangements for her to work in other states. Over time, VASQUEZ-MEDINA had Victim-2 make her own work arrangements and he called the locations where she worked to track how much money she earned so he could ensure that she was turning all of the proceeds over to him.

The participants in this criminal business enterprise served different functions, operating brothels, manning the brothels, driving victims to brothels and to customers’ residences for the purpose of engaging in prostitution, dispatching drivers, passing out chica cards – small cards that are handed out on the street to solicit customers for the enterprise – and recruiting and overseeing the women who work, or are forced to work, as prostitutes. In connection with this prostitution-sex trafficking enterprise, in April 2013, BONIFACIO FLORES-MENDEZ enticed at least one woman to travel from New Jersey to New York for the purpose of prostitution.

In October and November 2012, BONIFACIO FLORES-MENDEZ and MIGUEL ANGEL CHE-VELIZ, working under the direction of ISAIAS FLORES-MENDEZ, found and destroyed GPS tracking devices, which law enforcement agents had placed on vehicles used by members of the prostitution-sex trafficking enterprise.

One member of the prostitution-sex trafficking enterprise, CARLOS GARCIA-DE LA ROSA, is also charged with possession of child pornography, which he caused to be produced by a 14-year-old girl with whom he was engaged in a sexual relationship.

Two members of the prostitution-sex trafficking enterprise are also charged with illegal reentry.

A chart containing the ages, residency information, and charges against the defendants, as well as the maximum penalties they face is attached.

Mr. Bharara praised the outstanding investigative work of ICE HSI. He also thanked the New York City Police Department for its assistance in the early stages of the investigation, and noted that the investigation is continuing.

This prosecution of this case is being overseen by the Office’s Organized Crime Unit. Assistant United States Attorneys Amanda Kramer and Rebecca Mermelstein 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.

Click here to view chart(s)

U.S. v. Isaias Flores-Mendez, et al. Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, and Brian R. Crowell, the Special Agent-in-Charge of the New York Division of the U.S. Drug Enforcement Administration (“DEA”), announced today that the United States has settled a civil lawsuit against MADISON AVENUE PHARMACY (“MADISON AVENUE”), a retail pharmacy on the Upper East Side of Manhattan, and RICHARD SCHIRRIPA, the pharmacy owner and a licensed pharmacist. Under the settlement, MADISON AVENUE and SCHIRRIPA admitted and accepted responsibility for numerous violations of the Controlled Substances Act, and agreed to pay $200,000 in penalties and to implement enhanced compliance procedures. The settlement agreement, in the form of a consent order, was approved yesterday in Manhattan federal court by U.S. Magistrate Judge Michael H. Dolinger.

Manhattan U.S. Attorney Preet Bharara said: “Prescription drug abuse is the fastest-growing drug problem in this country, and retail pharmacists who fail to fulfill their legal obligation to responsibly keep account of these dangerous drugs enable further abuse. As the settlement against Richard Schirripa and Madison Avenue Pharmacy shows, this Office will not tolerate professionals who disregard the drug laws.”

DEA Special Agent-in-Charge Brian R. Crowell said: "DEA Diversion Investigators are the nationwide auditors of our pharmacies, which are mandated to adhere to strict compliance procedures, especially the oversight of addictive pain medications. In New York City, the number of painkiller-related emergency room visits increased over the past decade by 143%, and as the number of overdose deaths and hospital visits has climbed throughout the last five years, it is imperative that pharmacies maintain accountability by keeping accurate records and report any loss immediately to prevent highly addictive medications from falling into the wrong hands."

According to the allegations contained in the Complaint:

Following an employee theft of OxyContin at MADISON AVENUE in June 2009, a DEA audit in July 2009 discovered that SCHIRRIPA had failed to report the theft in a timely manner. The DEA also found that MADISON AVENUE and SCHIRRIPA were not maintaining a complete and accurate inventory of OxyContin, and had failed to adhere to a number of other record-keeping provisions required under the CSA. Oxycontin is a brand name of time-released oral Oxycodone, which is classified as a Schedule II controlled substance under the CSA.

In the settlement agreement approved today, MADISON AVENUE and SCHIRRIPA “admit, acknowledge, and accept responsibility” for the following violations of the CSA: SCHIRRIPA allowed dispensing pharmacists at MADISON AVENUE to order Schedule II controlled substances using his private access key, rather than requiring them to obtain and use their own keys; he and the pharmacy did not utilize the relevant software to electronically reconcile orders of Schedule II controlled substances; MADISON AVENUE was not maintaining a complete and accurate record of the pharmacy’s supply of OxyContin at the time of the DEA audit; SCHIRRIPA and MADISON AVENUE failed to conduct a timely biennial inventory in 2009; and they did not timely report the loss of OxyContin to the DEA.

MADISON AVENUE and SCHIRRIPA agreed to pay $200,000 in civil penalties to the United States and agreed to implement enhanced compliance procedures, including the retention of a compliance officer approved by the DEA, the creation of a comprehensive compliance plan, and the furnishing of inventory reports and certifications to the DEA every six months for a period of five years.

Mr. Bharara praised the DEA for its work on this case.

This case is being handled by the Office’s Civil Division. Assistant U.S. Attorneys Cristine Irvin Phillips and Louis A. Pellegrino are in charge of the case.

U.S. v. Madison Avenue Pharmacy and Richard Schirripa Consent Order

Preet Bharara, the United States Attorney for the Southern District of New York, and Stuart F. Delery, the Acting Assistant Attorney General for the U.S. Department of Justice’s Civil Division, announced today that the United States has filed a civil false claims lawsuit against NOVARTIS PHARMACEUTICALS CORP. (“NOVARTIS”). The Government’s Complaint seeks damages and civil penalties under the False Claims Act and under the common law for paying kickbacks to doctors to induce them to prescribe NOVARTIS pharmaceutical products that were reimbursed by federal health care programs. The lawsuit alleges that the payments violated the Anti-Kickback Statute (“AKS”) and, as a result of Novartis’s unlawful conduct, the Government paid false claims for reimbursement for Novartis pharmaceutical products. The Government intervened in part in an action before Judge Paul G. Gardephe filed by a whistleblower on January 5, 2011, under the qui tam provisions of the False Claims Act. This is the second lawsuit to be filed in the Southern District this month against NOVARTIS alleging illegal kickbacks. The U.S. Attorney’s Office sued NOVARTIS on April 23, 2013 for allegedly paying kickbacks to pharmacies that were disguised as rebates and discounts in exchange for the pharmacies switching patients on CellCept or a generic drug to NOVARTIS’s immunosuppressant drug, Myfortic. That suit is before Judge Colleen McMahon.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Novartis corrupted the prescription drug dispensing process with multi-million dollar ‘incentive programs’ that targeted doctors who, in exchange for illegal kickbacks, steered patients toward its drugs. And for its investment, Novartis reaped dramatically increased profits on these drugs, and Medicare, Medicaid, and other federal healthcare programs were left holding the bag, doling out millions of dollars in kickback-tainted claims. Healthcare fraud imposes tremendous costs and causes great harm to an already burdened healthcare system, and the government will not tolerate it. The widespread kickback fraud alleged in our two lawsuits against Novartis – which only a few years ago settled a False Claims Act case involving violations of the Anti-Kickback Statute based on illegal payments to doctors – makes us question whether Novartis is getting the message.”

Acting Assistant Attorney General Stuart F. Delery said: “Kickback schemes like those alleged in this case not only call into question the integrity of individual medical decisions, they raise the cost of health care for all of us. Patients deserve care based on a doctor’s sound medical judgment, not the doctor’s personal financial interest. The Department of Justice will continue to pursue companies that use improper incentives, like those alleged here, to promote their products.”

The following allegations are based on the Complaint filed today in Manhattan federal court:

NOVARTIS, a pharmaceutical company headquartered in East Hanover, New Jersey, is a subsidiary of NOVARTIS A.G., an international pharmaceutical company headquartered in Basel, Switzerland. From January 2001 through at least November 2011, NOVARTIS systematically violated the AKS, which prohibits the payment of remuneration to induce referrals of items or services covered by Medicare, Medicaid, and other federally-funded programs. Indeed, NOVARTIS violated its own internal policies concerning speaker programs, which require that the programs have an educational purpose and that slides about the company’s drugs be presented. NOVARTIS violated the AKS by paying doctors to speak about certain drugs, including its hypertension drugs Lotrel and Valturna and its diabetes drug Starlix, at events that were often little or nothing more than social occasions for the doctors. The payments and lavish dinners given to the doctors were, in reality, kickbacks to the speakers and attendees to induce them to write prescriptions for NOVARTIS drugs. In many instances NOVARTIS made payments to doctors for purported speaker programs that either did not occur at all or that had few or no attendees, and thousands of programs were held all over the country at which few or no slides were shown and the doctors who participated spent little or no time discussing the drug at issue.

Many speaker programs were also held in circumstances in which it would have been virtually impossible for any presentation to be made, such as on fishing trips off the Florida coast. No slides were shown on the boat. Other NOVARTIS events were held at Hooters restaurants.

In connection with these programs, NOVARTIS also frequently treated the doctors to expensive dinners that they hosted at high-end restaurants. For example, a July 5 dinner for three, including the speaker, at a Washington, D.C. restaurant cost $2,016, or $672 per person. NOVARTIS also paid a $1,000 honorarium to the speaker for this program. One of the two attendees had attended the same program a short time earlier. At another program held on Valentine’s Day in 2006, NOVARTIS paid $3,127, for a meal for three people at a West Des Moines, Iowa restaurant, or $1,042 per person.

NOVARTIS’s internal analyses show that speaker programs had a high return on investment in terms of the additional prescriptions for its drugs written by the doctors who participated in the programs, both as speakers and attendees, with the highest return arising from payments to doctors as “honoraria” for speaking. In short, doctors increased the number of prescriptions they wrote when they were being paid by Novartis to speak about a drug. As a result, NOVARTIS spent millions on speaker programs yearly. According to NOVARTIS’s data, during the period from January 2002 through November 2011 it spent nearly $65 million and conducted more than 38,000 speaker programs for just three drugs: the hypertension drugs, Lotrel and Valturna, and the diabetes drug, Starlix. In the absence of a legitimate purpose for many of the programs, the payments were nothing more than kickbacks to the doctors that induced them to write prescriptions in violation of the AKS.

NOVARTIS was well aware that its speaker programs created opportunities to provide kickbacks to doctors. In September 2010, NOVARTIS entered into a settlement with the U.S. Department of Justice to settle False Claims Act lawsuits based in part on violations of the AKS due to illegal remuneration paid to doctors through such mechanisms as speaker programs, and signed a Corporate Integrity Agreement (“CIA”) with the U.S. Department of Health and Human Services Office of Inspector General agreeing to implement a rigorous compliance program.

Even after entering into the CIA, NOVARTIS’s compliance program was inadequate to prevent kickbacks from being paid in conjunction with NOVARTIS’s speaker programs. NOVARTIS did not adequately review its speaker program to determine whether the programs were being used for an illegitimate purpose. Furthermore, although many instances of speaker program abuse were reported to NOVARTIS, sanctions were generally mere slaps on the wrist. In some cases, sales representatives who violated NOVARTIS’s own speaker program policies were nevertheless promoted. Even after September 2010, NOVARTIS continued to conduct bogus speaker programs that were simply vehicles for paying kickbacks to doctors in the form of honoraria and expensive meals.

As a consequence of its violations of the AKS, NOVARTIS has caused the submission of numerous false claims for drugs to federal health care programs, including Medicare, Medicaid, TRICARE, and the Department of Veterans Affairs health care program, resulting in millions of dollars in reimbursements. Novartis’s unlawful conduct caused those false claims to be made to and paid by the federal health care programs.

The Complaint seeks treble damages and penalties under the False Claims Act for false claims for reimbursement for Lotrel, Valturna, and Stalix, as well as for other NOVARTIS cardiovascular drugs. In addition, the United States seeks damages under the common law.

Mr. Bharara thanked the Justice Department’s Civil Division and the Department of Health and Human Services, Office of Inspector General for their extraordinary assistance in this case.

The case is being handled by the United States Attorney’s Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating civil fraud.

Assistant U.S. Attorneys Heidi A. Wendel and Mara E. Trager are in charge of the case.

U.S. v. Novartis 2 Complaint
U.S. v. Novartis Relator 2nd Amended Complaint (11civ00071)

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MITCHELL COHEN, the owner of the now defunct Buy-A-Home real estate brokerage business, was sentenced today in Manhattan federal court to 70 months in prison for participating in a multi-million dollar mortgage fraud scheme and for committing perjury. COHEN was indicted in July 2012 and pled guilty in December 2012 to one count of conspiracy to commit mail, wire and bank fraud and one count of perjury in connection with statements he made in a civil lawsuit filed against him by this Office. COHEN was sentenced today before U.S. District Judge Denise L. Cote.

Mr. Bharara also announced that the Office reached a settlement of its lawsuit against COHEN in which he admitted to conspiring with others to secure federally-insured mortgage loans through fraud. Under that settlement, a $2.7 million judgment will be entered against COHEN, and he will be permanently barred from participating in real estate sales involving federally-insured mortgages and from any advertising, marketing, or solicitation of business involving such sales. The settlement was approved by U.S. District Judge Lorna G. Schofield.

Manhattan U.S. Attorney Preet Bharara stated: “The egregious conduct for which Mitchell Cohen was sentenced today helped contribute to the home mortgage crisis and to FHA’s dire financial straits, and it also caused many home buyers to lose homes they could ill afford in foreclosure proceedings. He will now answer for his crimes with jail time and multi-million dollar criminal and civil penalties. This case is a prime example of how our Office uses every legal tool in our toolbox – both criminal and civil – to punish those who engage in mortgage fraud.”

According to the Indictment and statements made during court proceedings:

COHEN’s Mortgage Fraud Scheme

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. At all relevant times, 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, COHEN operated 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”). Buy-a-Home employed several sales managers, as well as a number of sales agents who recruited clients to purchase homes who were usually first-time home buyers. COHEN and Buy-a-Home employees facilitated the sales of the homes by preparing documentation to secure FHA-insured loans to fund the borrowers’ purchases.

During that time period, 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. Through entities he controlled, COHEN bought, or promised sellers he would buy, homes at one price, and then he and others at Buy-a-Home recruited unsophisticated buyers of modest means and induced them into purchasing the same homes at inflated prices, which were typically $100,000 higher than the original sale price. To insure that the deals for these properties would go through, 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:

• COHEN 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;
• COHEN 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;
• COHEN directed borrowers’ relatives to sign false gift affidavits to make it seem that the borrowers’ debts had lawfully been paid off, or 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
• COHEN advised borrowers to make other false statements on loan applications submitted to HUD.

In so doing, COHEN 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. COHEN also made mortgage payments on behalf of certain borrowers to further conceal their financial condition and to prevent banks from enforcing their right to sell loans back to the lenders that first provided the borrowers with mortgages.

Through this scheme, COHEN defrauded HUD into issuing, and banks into purchasing, millions of 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 $1,574,259.43 million in insurance payments.

COHEN’S Perjury in the Civil Mortgage Fraud Action Against Him

In December 2010, the U.S. Attorney’s Office for the Southern District of New York filed a civil complaint against COHEN, the mortgage lender, and the appraisers who helped him orchestrate the fraud at Buy-a-Home. On December 29, 2010, the District Judge presiding over the civil action entered a preliminary injunction barring COHEN from participating in real estate sales involving HUD-insured mortgages and any advertising, marketing, or solicitation of business involving such mortgages.

Subsequently, in October 2011, the Government moved for a finding of civil contempt against COHEN, alleging that he willfully violated the preliminary injunction by re-establishing Buy-a-Home under a new name – Y-Rent New York, LLC (“Y Rent”) – which was nominally owned by COHEN’s wife and another individual, but was in fact operated by COHEN. In connection with his opposition to the contempt motion, COHEN filed a declaration in November 2011 in which he falsely stated, under penalty of perjury, that he was not involved with Y Rent, did not train Y Rent’s salespeople, did not take certain types of business calls, and did not speak to prospective borrowers. In December 2011, COHEN was held in contempt for having willfully violated the injunction against him in the civil action

In addition to the prison term, Judge Cote sentenced COHEN, 55, of Old Westbury, New York, to three years of supervised release. 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. The civil judgment against COHEN consists of $2.2 million in damages and $500,000 in penalties. COHEN’s civil settlement 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 and the Civil Frauds Unit. Assistant U.S. Attorneys Janis Echenberg and Nicole Friedlander are in charge of the criminal case, and Assistant U.S. Attorneys Li Yu and Cristine Phillips are in charge of the civil case.

U.S. v. Mitchell Cohen Consent Order

Preet Bharara, the United States Attorney for the Southern District of New York, and Brian R. Crowell, Special-Agent-in-Charge of the New York Field Office of the United States Drug Enforcement Administration (“DEA”), today announced that JOSE EVARISTO LINARES CASTILLO was extradited from Colombia on charges that he conspired to import ton-quantities of cocaine into the United States, to provide material support to the Fuerzas Armadas Revolucionarias de Colombia (the “Revolutionary Armed Forces of Colombia,” or “FARC”), and to engage in narco-terrorism. The FARC has been designated by the U.S. Department of State as a Foreign Terrorist Organization. LINARES CASTILLO, a Colombian citizen, has been designated a Consolidated Priority Organization Target (“CPOT”) by the Department of Justice, a designation given to the most significant narcotics traffickers in the world. In February 2013, The U.S. Department of the Treasury designated LINARES CASTILLO as a Specially Designated Narcotics Trafficker. LINARES CASTILLO, who was arrested in May 2012, arrived in the Southern District of New York yesterday. He was presented and arraigned before U.S. District Judge Richard J. Sullivan this morning.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Linares-Castillo was a drug kingpin of the first order who consorted with, and paid-off, known terrorists to ensure the safe passage of narcotics that were destined for the United States. His extradition to the Southern District where he will face American justice is the result of close international law enforcement cooperation and a significant victory in our unrelenting battle against alleged narco-terrorists.”

DEA Special-Agent-in-Charge Brian R. Crowell said: “As alleged, Linares-Castillo ran cocaine laden aircrafts from Colombia, through Venezuela, Honduras, and into Mexico for distribution onto American streets. He also allegedly collaborated with the FARC to secure safe passage of drugs through Colombia and Venezuela. I commend the members of the New York Strike Force, DEA Special Operations Division, DEA Bogota Country Office, the Government of the Republic of Colombia and the US Department of Justice’s Office of International Affairs who succeeded in extraditing one of the most significant drug kingpins in the world responsible for the shipment of thousands of kilos of cocaine into the United States.”

According to the allegations in the Indictment which was previously unsealed in Manhattan federal court:

LINARES CASTILLO led a drug trafficking organization that distributed ton-quantities of cocaine obtained in Colombia. The cocaine was transported through the Apure region of Venezuela, flown to Honduras, and thereafter sent to the U.S. via Mexico. To facilitate the movement of its cocaine into and out of the FARC-controlled Apure region, LINARES CASTILLO’s organization made regular payments to the FARC.

The Indictment charges LINARES CASTILLO, 47, in three counts. Count One charges him with conspiracy to possess and to distribute cocaine on board an aircraft owned by a U.S. citizen or registered in the U.S.; to import cocaine into the United States; and to distribute cocaine knowing and intending that it be imported into the U.S. Count Two charges LINARES CASTILLO with narco-terrorism conspiracy. Count Three charges him with material support conspiracy. Counts One and Two carry a maximum penalty of life in prison; Count Three carries a maximum penalty of 15 years in prison.

Mr. Bharara praised the outstanding investigative work of the DEA’s New York Division and Special Operations Division. He 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, the U. S. Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Secret Service and the U.S. Marshal Service – as well as the DEA’s Bogota Country Office, the Government of the Republic of Colombia, and the U.S. Department of Justice’s Office of International Affairs for their ongoing assistance.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Edward Y. Kim, Michael D. Lockard, and Adam J. Fee 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. Jose Evaristo Linares Castillo S2 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that XING LIN was convicted yesterday in Manhattan federal court of murdering two individuals in a Queens nightclub in 2004, engaging in racketeering from 1996 through 2010, and extortion. The jury found that LIN, the leader of the criminal enterprise, operated three illegal gambling parlors in Chinatown, extorted bus company owners and murdered two individuals. LIN was convicted after a two-week trial before U.S. District Judge Miriam Goldman Cedarbaum.

Manhattan U.S. Attorney Preet Bharara said: “Xing Lin now stands convicted for his role at the helm of a ruthless and deadly gang that went on a 13-year crime spree of extortion, racketeering, and violence, including a revenge killing and the murder of an innocent bystander. His life of crime is finally over and much of the rest of it will almost certainly be spent in a prison cell.”

According to the Superseding Indictment, other documents filed in Manhattan federal court, and the evidence presented at trial:

From 1996 until December 2009, LIN was the leader and “Dai Lo” - a Fuzhou term that translates as “Big Brother,” but commonly refers to the boss of a criminal gang - of a gang that operated in the Chinatown neighborhood of Manhattan and elsewhere. The members of LIN's gang were known as “followers.” LIN and his followers engaged in a number of criminal ventures, including the operation of high-stakes illegal gambling parlors in the Chinatown neighborhood of Manhattan; the extortion of business owners; and the beating, stabbing, and murder of rivals.

Beginning in 2002, LIN extorted the owners of a bus company that ran buses between Manhattan and Charlotte, North Carolina. In May 2004, Chang Qin Zhou, one of the bus company shareholders who was being extorted by LIN, refused to pay LIN additional money that LIN had demanded. During the early morning hours of July 30, 2004, Zhou was with a group of men and women in a private room in a karaoke bar in Flushing, Queens when LIN and one of his followers forced their way into the private room, and LIN ordered his follower to “shoot” Zhou. The follower shot Zhou six times, killing him. One of the bullets also struck and killed Mei Ying Li, a waitress who was working at the karaoke bar and was in the private room at the time of the shooting. A second waitress was shot in the leg and survived.

Following the shooting in the karaoke bar, LIN relocated his criminal gang to Toronto Canada, where he continued to run gambling parlors and use violence against his rivals.

LIN was arrested in Toronto, Canada, on April 14, 2011. Following extradition, LIN arrived in the United States on August 19, 2011.

LIN, 42, was convicted of one count of conspiracy to commit racketeering, which carries a maximum sentence of life in prison, and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of racketeering, which carries a maximum sentence of life in prison, and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of murder, which carries a maximum sentence of life in prison, and a maximum fine of $250,000 or twice the gross gain or loss from the offense; and extortion, which carries a maximum sentence of twenty years in prison, and a maximum fine of $250,000 or twice the gross gain or loss from the offense. He was acquitted on one count of extortion conspiracy. LIN is scheduled to be sentenced by Judge Cedarbaum on September 10, 2013, at 11:00 a.m.

Mr. Bharara praised the outstanding investigative work of the New York Field Office of the Immigration and Customs Enforcement's Homeland Security Investigations and the New York City Police Department.

This case is being prosecuted by the Office’s Organized Crime Unit. Assistant United States Attorneys Peter Skinner and Jennifer E. Burns are in charge of the prosecution.

U.S. v. Xing Lin S2 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, and James T. Hayes, Jr., Special Agent-in-Charge of U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations in New York (“HSI”), announced today the unsealing of an Indictment charging RICHARD DINIZO, a/k/a “Rick,” a/k/a “Riccardo,” with engaging in sexual activity with five different minors, all under the age of 11 when the alleged crimes occurred, and with videotaping the sexual abuse. DINIZO is also charged with transporting videos depicting him engaging in sexual activity with minors to recipients outside of New York. DINIZO was arrested this morning and will be presented at about 10:30 a.m. before U.S. Magistrate Judge Lisa Margaret Smith in White Plains federal court.

U.S. Attorney Preet Bharara stated: “As alleged, Richard Dinizo was a serial pedophile who not only recorded his deviant criminal acts, but shared those videos with others. Sexual exploitation of children is a heinous crime that can scar its victims forever and we will continue to prosecute those crimes aggressively.”

Special Agent in Charge James T. Hayes, Jr. stated: “People who allegedly put our children at risk should expect to be found, prosecuted, and removed from society. We will continue to dedicate our resources to aggressively target sexual predators who exploit our children.”

DINIZO faces a minimum sentence of 15 years in prison and a maximum sentence of 30 years in prison on each of five counts of sexual exploitation of a minor, and a minimum of five years in prison and a maximum sentence of 20 years in prison for transporting child pornography.

Mr. Bharara praised the efforts of ICE HSI, the Westchester County District Attorney’s Office, the Putnam County District Attorney’s Office, Putnam County Sherriff’s Office, the New York State Police, and the National Center for Missing and Exploited Children in connection with this investigation.

Mr. Bharara stated that the investigation is ongoing. He also noted that since DINIZO is alleged to have employed trickery and deceit, his victims may not have been aware that they were victims of sexual abuse. Mr. Bharara requests that individuals with relevant information and parents whose children may have had any interactions with DINIZO contact the Department of Homeland Security, in New York, New York, at (646) 313-4380.

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

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

U.S. v. Richard Dinizo Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States filed a federal civil rights lawsuit in Manhattan federal court alleging that 2 Gold Street, a residential apartment building in Manhattan, is inaccessible to persons with disabilities. The suit alleges that AVINASH K. MALHOTRA ARCHITECTS, AVINASH K. MALHOTRA, TF CORNERSTONE INC., TF CORNERSTONE PROPERTIES LLC, and 2 GOLD L.L.C. violated the design and construction provisions of the federal Fair Housing Act, which require that new multi-family housing complexes include certain features accessible to persons with disabilities. The United States simultaneously settled the case against the developer-defendants, TF CORNERSTONE INC., TF CORNERSTONE PROPERTIES LLC, and 2 GOLD L.L.C., pursuant to a consent decree approved yesterday by U.S. District Judge Robert P. Patterson. The suit against 2 Gold Street’s architects, AVINASH K. MALHOTRA ARCHITECTS and AVINASH K. MALHOTRA, is still pending.

Manhattan U.S. Attorney Preet Bharara said: “We will not allow architects and developers to cut corners at the expense of people with disabilities in order to increase their profits, or for any reason. This suit represents our Office’s continued commitment to holding accountable those who fail to design and construct accessible housing in accordance with federal law, and to seeking settlements that provide legally required accommodations for individuals with disabilities and compensation for those who have been deprived of fair housing.”

According to the allegations contained in the Complaint:

2 Gold Street, a 650-unit building located in Manhattan, was designed and constructed with multiple inaccessible features, including insufficient space in bathrooms and kitchens for people in wheelchairs; high thresholds interfering with accessible routes; sinks, ranges, outlets, and mailboxes not fully usable by people in wheelchairs; and protruding objects not detectable by canes used by people with visual impairments. Inaccessible features at 2 Gold Street 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 testing.

The consent decree approved yesterday requires TF CORNERSTONE INC., TF CORNERSTONE PROPERTIES LLC, and 2 GOLD L.L.C. to retrofit inaccessible features throughout the property; train employees on the requirements of the Fair Housing Act; pay a $35,000 civil penalty to the United States; and dedicate up to $300,000 to compensate people who have been harmed by Fair Housing Act violations at 2 Gold Street.

Under the consent decree, a person may be entitled to receive monetary compensation if he or she was:

• Discouraged from living at 2 Gold Street because of a lack of accessible features;
• Limited in the full use or enjoyment of an apartment or amenity at 2 Gold Street due to a lack of accessible features;
• Financially affected by having an apartment at 2 Gold Street made more accessible to persons with disabilities;
• Prevented from having visitors because of a lack of accessible features at 2 Gold Street; or
• Otherwise injured by the lack of accessible features or discriminated against on the basis of disability at 2 Gold Street.

People who may be entitled to compensation should file a claim by contacting the Civil Rights Complaint Line at (212) 637-2987 (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, www.usdoj.gov/usao/nys, or sending a written claim to:

U.S. Attorney’s Office, Southern District of New York

Attn: Chief, Civil Rights Unit

86 Chambers Street, 3rd Floor

New York, New York, 10007

The claims against the architect-defendants, AVINASH K. MALHOTRA ARCHITECTS and AVINASH K. MALHOTRA, were not resolved by the consent decree and will go forward. The United States seeks a court order enjoining these defendants from designing multi-family housing without the accessibility features required by federal law. The United States also seeks damages for persons harmed by their unlawful practices, and a civil penalty to vindicate the public interest.

This case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Carina H. Schoenberger, Emily E. Daughtry, and Li Yu are in charge of the case.

2 Gold Street Consent Decree

Preet Bharara, the United States Attorney for the Southern District of New York, Andriana Vamvakas, the New York District Director for the U.S. Department of Labor’s Office of Labor-Management Standards (“DOL-OLMS”), and Robert Panella, the Special Agent-in-Charge of the New York Field Office of the U.S. Department of Labor's Office of Inspector General, Office of Labor Racketeering and Fraud Investigations (“DOL-OIG”) announced today the unsealing of a three-count criminal Complaint charging JOSEPH LOMBARDO, the founder and managing director of Prim Capital Corporation (“Prim”), with attempting to defraud the National Basketball Players Association (“NBPA”) of $3 million through the use of a fraudulent retention contract. The Complaint also charges LOMBARDO and CAROLYN KAUFMAN, a principal at Prim, with obstructing a grand jury investigation in the Southern District of New York. LOMBARDO and KAUFMAN were arrested this morning at their residences in Ohio, and were presented in federal court in the Northern District of Ohio, Cleveland branch, before U.S. Magistrate Judge Greg White. LOMBARDO and KAUFMAN will make their first appearance in Manhattan federal court on May 2, 2013.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Joseph Lombardo faked the signature of a dead man as part of manufacturing a multi-million dollar contract out of whole cloth that, had it been enforced, would have caused significant losses for basketball players who entrusted him with their savings. And together with his partner in crime, Carolyn Kaufman, he allegedly lied about it to a federal grand jury. Now they will both have to answer to the justice system they allegedly tried to obstruct.”

DOL-OLMS New York District Director Andriana Vamvakas said: “The scheme allegedly attempted by the subjects of this investigation would have caused the union to lose funds that rightfully belonged to the membership of the NBPA. We will continue to investigate crimes against unions to protect the members’ assets.”

DOL-OIG Special Agent-in-Charge Robert Panella said: “By allegedly falsifying a contract with the NBPA, the defendant attempted to defraud the organization of $3 million in union assets. We will continue to work with our law enforcement partners to protect union assets and root out corruption involving the NBPA and other labor organizations.”

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

From 2001 until 2013, Prim was the primary outside investment advisory firm entrusted with the NBPA’s investments and finances. In that capacity, Prim performed various services for the NBPA, including assisting with the management of up to $250 million of the NBPA’s assets, reviewing the investments of individual NBA players, and conducting financial seminars for NBA players. Prim was founded and led by LOMBARDO. KAUFMAN served as President of Prim’s advisory services component.

In May of 2012, as part of a DOL investigation, Prim was served with a subpoena requesting copies of all agreements between Prim and the NBPA. In response, Prim produced a copy of a 2005 contract between the NBPA and Prim, under which Prim’s fee was $350,000 per year. The 2005 contract was signed by the Executive Director of the NBPA, the Treasurer of the NBPA, and LOMBARDO, and was renewable annually upon agreement of the parties. That was the only contract that Prim produced.

Several months later, in January of 2013, after Prim learned that a law firm’s review of the NBPA was going to be made public in the near future, Prim produced a previously undisclosed contract with the NBPA (the “Purported 2011 Contract”). Prim’s fee under this contract was $602,000 per year for a five-year term, for a total of $3,010,000. The Purported 2011 Contract also contained a provision indicating that it could not be cancelled for any reason by the NBPA. The Purported 2011 Contract was supposedly signed in March 2011 by LOMBARDO, Gary Hall, the former NBPA General Counsel, and one other NBPA employee.

An investigation revealed that the signature of Hall was not authentic, and that the Purported 2011 Contract was actually created at Prim months after the March 2011 death of Gary Hall. The investigation also revealed that LOMBARDO arranged for the creation of a signature stamp capable of stamping the signature “Gary A. Hall,” and used the stamp to falsify Hall’s signature months after his death. The investigation further revealed that the signature of the other NBPA employee was forged as well.

In addition, the investigation revealed that LOMBARDO and KAUFMAN had attempted to obstruct a grand jury investigation. During the course of the investigation, both LOMBARDO and KAUFMAN appeared before the grand jury and provided false testimony. KAUFMAN testified that she had not spoken with anyone regarding her testimony. However, in a recorded conversation prior to appearing before the grand jury, LOMBARDO gave her specific instructions on how to answer questions before the grand jury, and said that his “life is in [her] hands.” In another recorded conversation, LOMBARDO instructed another individual that if he provided certain false information to the grand jury about the creation of the contract “[w]e’re home free.” In a third recorded conversation, LOMBARDO instructed another individual to provide false information to the grand jury and said, “It’s important that we didn't doctor this document up, okay?”

LOMBARDO, 72, of Gates Mills, Ohio, is charged with one count of attempted wire fraud, one count of attempted mail fraud, and one count of obstruction of justice. KAUFMAN, 72, of Hudson, Ohio, is charged with one count of obstruction of justice. LOMBARDO faces a maximum sentence of 20 years in prison on each count of wire and mail fraud, as well as a maximum fine of $250,000, or twice the gross gain or gross loss from the offense. Both LOMBARDO and KAUFMAN face a maximum sentence of 20 years in prison on the count charging obstruction of justice, as well as a maximum fine of $250,000.

Mr. Bharara praised the outstanding investigative work of DOL and DOL-OIG. Mr. Bharara added that the investigation is continuing.

This case is being handled by the Public Corruption Unit of the U.S. Attorney’s Office. Assistant United States Attorneys Randall W. Jackson and Daniel C. Richenthal 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.

US v Joseph Lombardo and Carolyn Kaufman Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that WADIH EL HAGE, a United States citizen, was resentenced today in Manhattan federal court to life in prison for his participation in al Qaeda conspiracies to murder U.S. nationals and government employees that culminated in the 1998 bombings of the U.S. Embassies in Kenya and Tanzania, and for lying to the grand jury and to federal agents about his association with al Qaeda before and after the bombings took place. EL HAGE, 52, was convicted of conspiracies to kill U.S. nationals; to murder U.S. government employees and internationally protected persons; and to destroy buildings and property of the United States on May 29, 2001, following a six-month trial before U.S. District Judge Leonard B. Sand. The jury also convicted EL HAGE of multiple counts of perjury for lying to the grand jury about his knowledge of, and association with, al Qaeda and its leaders and members, and three counts of making false statements to FBI agents regarding the same. On October 18, 2001, Judge Sand, sentenced EL HAGE to life imprisonment.

On appeal, the Second Circuit upheld the conviction and remanded for resentencing in light of the Supreme Court’s decision in United States v. Booker, concerning the federal sentencing guidelines. EL HAGE was resentenced today by U.S. District Judge Lewis A. Kaplan.

Manhattan U.S. Attorney Preet Bharara stated: “Today’s resentencing confirms the outcome this Office worked to ensure: that Wadih El Hage will spend the rest of his life in prison for his involvement in an international conspiracy to murder Americans which spawned the 1998 bombings that killed 224 innocent people.”

According to evidence presented at trial and documents previously filed in Manhattan federal court:

EL HAGE was a high-ranking associate of Usama Bin Laden who performed key functions for al Qaeda to advance the organization's terrorist goals, including facilitating the bombing of the U.S. Embassies in Kenya and Tanzania, killing 224 people. Among other things, El HAGE disbursed the al Qaeda payroll, procured equipment for the organization, and operated al Qaeda businesses, which provided cover for operatives and generated cash for the organization. He also provided false identification documents to the group so that operatives could travel undetected and participated in secret meetings with al Qaeda leaders, after which he carried messages from Bin Laden to other members of the organization. In his capacity as one of the leaders of al Qaeda's East Africa cell, EL HAGE conveyed Bin Laden’s order that the cell – which played a key role in the 1998 Embassy Bombings – prepare for military action. Both before and after the bombings took place, EL HAGE obstructed the investigation into al Qaeda by repeatedly lying to a federal grand jury in the Southern District of New York concerning his knowledge of and involvement in al Qaeda.

Mr. Bharara praised the investigative efforts of the Federal Bureau of Investigation, the U.S. Department of Justice’s National Security Division, the Tanzanian National Police, and the Kenyan National Police.

This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Sean S. Buckley and Aimee Hector are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Ronald T. Hosko, the Assistant Director of the Federal Bureau of Investigation, Criminal Investigative Division (“FBI”), announced today that the United States has filed a civil healthcare fraud lawsuit against NOVARTIS PHARMACEUTICALS CORP. (“NOVARTIS”). The Government’s Complaint seeks treble damages and civil penalties under the False Claims Act against Novartis for giving kickbacks, in the form of rebates and discounts, to 20 or more pharmacies in exchange for their switching transplant patients from competitor drugs to NOVARTIS’s drug, Myfortic. The lawsuit alleges that, as a result of NOVARTIS’s kickback scheme, Medicare and Medicaid have issued tens of millions of dollars in reimbursements based on false, kickback-tainted claims.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, using the lure of kickbacks disguised as rebates, Novartis co-opted the independence of certain pharmacists and turned them into salespeople for one of its drugs. And by allegedly hiding this illegal quid pro quo from physicians, patients, and federal healthcare programs, Novartis caused the public to pay tens of millions of dollars for kickback-tainted drugs that were dispensed by pharmacists who were in cahoots with the company. Novartis, as we allege, is a repeat offender, having settled healthcare fraud charges based on kickbacks less than three years ago.”

FBI Assistant Director Ronald T. Hosko said: “The FBI takes these allegations very seriously because of the potential impact to the nation’s healthcare system and to the public. These cases are one of the highest priorities of the FBI’s health care fraud program. We have established a centralized unit called the Major Provider Response Team to provide nationwide investigative assistance given the complexity of such investigations.”

The following allegations are based on the Complaint filed today in Manhattan federal court:

NOVARTIS markets and manufactures Myfortic, an immunosuppressant drug approved for use by patients who have undergone kidney transplants. NOVARTIS markets Myfortic to hospital centers and pharmacies that serve these transplant patients. Since 2005, NOVARTIS has orchestrated a scheme whereby it offered kickbacks, disguised as “performance” rebates and discounts, to 20 or more pharmacies with influence over prescription decisions. In exchange, those pharmacies committed to use that influence to “convert” (i.e., switch) patients to Myfortic from competitor drugs and/or to oppose the use of a cheaper, generic immunosuppressant drug.

In one case, according to a NOVARTIS manager, NOVARTIS offered a pharmacist in Los Angeles a “bonus” rebate equal to 5% of that pharmacist’s annual Myfortic sales, amounting to several hundred thousand dollars, to induce the pharmacist to “shoulder the burden” of switching 700 to 1,000 transplant patients to Myfortic. NOVARTIS found that it was highly profitable to pay pharmacies even 10% or 20% in kickbacks in exchange for switching transplant patients to Myfortic because, in the words of a Novartis manager, the “short term cost” bought NOVARTIS “a long term annuity.”

In an effort to actively conceal the quid pro quo, NOVARTIS documented its relationships with the pharmacies in rebate and discount contracts that omitted the agreements between NOVARTIS and the pharmacies to switch patients to Myfortic or keep them from switching to competitor drugs. For example, in discussing a potential kickback relationship with a national pharmacy, NOVARTIS and the pharmacy recognized that, although a basic objective of that relationship was the “conversion” of patients to Myfortic, NOVARTIS “cannot put this in writing.” Further, the pharmacies hid the financial benefits they stood to gain from physicians, patients, and the federal healthcare programs, and instead, presented their efforts to switch patients to Myfortic as unbiased professional judgments.

NOVARTIS’s kickback scheme violated the federal anti-kickback statute, which prohibits the offer or payment of rebates and other types of remuneration to induce the purchase or recommendation of any drug or service covered by Medicare, Medicaid, or another federal healthcare program. By orchestrating this scheme, NOVARTIS further caused the pharmacies to submit tens of thousands of claims to Medicare and Medicaid, resulting in those programs paying out tens of millions of dollars in reimbursements based on false claims tainted by kickbacks.

The Complaint seeks treble damages and penalties under the False Claims Act, 31 U.S.C. §§ 3729 et seq., for the tens of millions of dollars in reimbursements that Medicare and Medicaid paid for Myfortic shipments that resulted from NOVARTIS’s kickback scheme. In addition, the United States seeks compensatory damages under the common law theory of unjust enrichment for the tens of millions of dollars in profits that NOVARTIS has obtained as result of Medicare and Medicaid reimbursements for Myfortic.

Mr. Bharara praised the investigative work of the FBI’s Major Provider Response Team. He also thanked the Office of Inspector General at the U.S. Department of Health and Human Services and the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington D.C., for their extraordinary assistance in this case.

The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating healthcare and other types of frauds. Assistant U.S. Attorneys Li Yu, Ellen M. London, and Rebecca C. Martin are in charge of the case.

U.S. v. Novartis Pharmaceuticals Corporation - Complaint in Intervention (11 Civ 8196)