Southern District of New York
Press releases recorded for this federal judicial district.
Dark Web Narcotics Dealer “Fentmaster,” Responsible for Overdose Death, Sentenced to 15 Years in PrisonRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that CHUKWUEMEKA OKPARAEKE, a/k/a “Emeka,” was sentenced today to 180 months in prison for importing and trafficking fentanyl analogues and other synthetic opioids through the dark web. OKPARAEKE previously pled guilty to distributing U-47700, a controlled substance analogue of AH-7921; importing 100 grams and more of acryl fentanyl, a controlled substance analogue of fentanyl, from Hong Kong; and making false statements to the Government regarding the proceeds of his offenses. Through his guilty plea, OKPARAEKE admitted that in November 2016, he sold U-47700 to an 18-year-old individual (the “Victim”), who died from an overdose after using the drug. OKPARAEKE further admitted that his narcotics offenses involved over 9 kilograms of acryl fentanyl, nearly 6 kilograms of U-47700, over a kilogram of furanyl fentanyl, as well as 12 grams of 4-ANPP. OKPARAEKE was sentenced in White Plains federal court by U.S. District Judge Nelson S. Román, who previously accepted OKPARAEKE’s guilty plea.
U.S. Attorney Audrey Strauss said: “Chukwuemeka Okparaeke previously admitted that he peddled highly addictive opioids over the darknet, including to an 18-year-old who died from them. Okparaeke also lied to agents and prosecutors about the whereabouts of Bitcoins representing millions of dollars in poison-peddling proceeds. Now Okparaeke will forfeit those proceeds and go to prison for his crimes.”
According to the allegations in the Superseding Information, Complaint, other court filings, and statements made during public court proceedings:
From at least July 2016 through March 2017, OKPARAEKE imported kilogram quantities of fentanyl analogues, including acryl fentanyl and furanyl fentanyl, and other synthetic opioids, including U-47700, from Hong Kong and China into the United States. To transact with customers and coordinate his narcotics sales, OKPARAEKE used a darknet website known as AlphaBay Market (“AlphaBay”), accessible only through a special software program that allows users to mask their identities and anonymize their internet traffic. Under the AlphaBay vendor name “Fentmaster,” OKPARAEKE engaged in more than 7,000 sales of synthetic opioids, which he shipped to customers throughout the United States using the U.S. Postal Service. OKPARAEKE’s narcotics trafficking generated criminal proceeds of at least 680.60963624 Bitcoins, worth millions of dollars.
In November 2016, OKPARAEKE sold three grams of U-47700 to the Victim, an 18-year-old living in Vancouver, Washington, in an AlphaBay transaction. The Victim used the drugs purchased from OKPARAEKE and died in a U-47700 overdose on November 10, 2016.
OKPARAEKE – who attended medical school before he began selling synthetic opioids on AlphaBay – used extensive measures to conceal his identity, including software to encrypt his internet traffic and communications sent from his cellphone. Using alter egos, he boasted online about his exploits as a darknet drug trafficker, offered advice to other drug dealers, and published a short story describing his criminal activities and his strategies for evading law enforcement. In January 2017, Customs and Border Protection (“CBP”), in conjunction with Homeland Security Investigations (“HSI”) and United States Postal Inspection Service (“USPIS”), intercepted several packages containing kilogram quantities of fentanyl analogues that OKPARAEKE had imported from Hong Kong. Subsequently, in March 2017, law enforcement searched a drug premises OKPARAEKE maintained in Kearny, New Jersey. During the search, law enforcement seized more than 10 kilograms of U-47700, acryl fentanyl, and furanyl fentanyl, as well as a quantity of 4-ANPP and approximately 82 mailing envelopes containing smaller amounts of those substances that OKPARAEKE had packaged for distribution to his customers.
On September 15, 2020, OKPARAEKE met with representatives of the U.S. Attorney’s Office for the Southern District of New York. During that meeting, OKPARAEKE falsely represented that the approximately 680 Bitcoins – worth millions of dollars – generated by his narcotics sales on AlphaBay were no longer in his possession and control, and that a third party had stolen the Bitcoins from him through hacking and other unauthorized access to OKPARAEKE’s electronic accounts. OKPARAEKE subsequently surrendered the 680 Bitcoins to USPIS and agreed to forfeit those proceeds as part of his plea agreement.
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In addition to the prison term, OKPARAEKE, 32, of Middletown, New York, was sentenced to five years of supervised release and ordered to forfeit $105,177.30 in United States currency and 680.60963624 Bitcoins, presenting proceeds of his narcotics trafficking.
Ms. Strauss praised the outstanding efforts of the USPIS, HSI, CBP, the Federal Bureau of Investigation, the Fairfax County, Virginia, Police Department, the Virginia Office of the Attorney General, the Middletown Police Department, and the Vancouver, Washington, Police Department for their investigative work and ongoing support and assistance with the case.
The case is being prosecuted by the Office’s White Plains Division. Assistant United States Attorneys Gillian Grossman, Olga I. Zverovich, and Sagar Ravi are in charge of the prosecution.
IRS Obtains Court Order Authorizing Summonses for Records Relating to U.S. Taxpayers Who Used Panamanian Offshore Service Providers to Hide Assets and Evade TaxesRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, David A. Hubbert, Acting Assistant Attorney General for the Justice Department’s Tax Division, and Charles P. Rettig, Commissioner of the Internal Revenue Service (“IRS”), announced that U.S. District Judge Gregory H. Woods entered an order yesterday authorizing the IRS to issue summonses requiring multiple couriers and financial institutions to produce information about U.S. taxpayers who may have used the services of Panama Offshore Legal Services (“POLS”) and its associates (together, the “POLS Group”) to evade federal income taxes. Specifically, the IRS summonses seek to trace courier deliveries and electronic fund transfers between the POLS Group and its clients, in order to identify the POLS Group’s U.S. taxpayer clients who have used the POLS Group’s services to create or control foreign assets and entities to avoid compliance with their U.S. tax obligations.
Manhattan U.S. Attorney Audrey Strauss said: “This action underscores our Office’s commitment to hold accountable those who use offshore service providers to avoid U.S. taxes. In issuing these John Doe summonses, we continue our joint efforts with the IRS to investigate tax evaders who use foreign financial accounts and sham foreign entities to hide their assets.”
Acting Assistant Attorney General David A. Hubbert said: “The Department of Justice, working alongside the IRS, is dedicated to unearthing the use of foreign bank accounts to evade U.S. taxes. We will use the many tools available to us, including John Doe summonses like the ones authorized today, to ensure that taxpayers are fully meeting their responsibilities.”
IRS Commissioner Charles P. Rettig said: “These court-ordered summonses should put on notice every individual and business seeking to avoid paying their fair share of taxes by hiding assets in offshore accounts and companies. These records will empower the IRS and the Department of Justice to find those attempting to skirt their tax obligations and ensure their compliance with the U.S. tax laws.”
Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also disclose certain foreign financial accounts and assets. According to the allegations set forth in the documents filed in support of the petition to authorize the John Doe summonses, and other information in the public record:
POLS is a Panamanian law firm that advertises services, including to U.S.-based clients, to assist in concealing ownership of offshore entities and accounts. Among other services, POLS and its associates offer assistance with forming corporations and foundations and creating offshore financial accounts, for purposes of asset protection. POLS highlights secrecy as a key advantage of its entity formation services, promising its clients “100% anonymity, privacy and confidentiality.” Other members of the POLS Group similarly advertise that they can assist clients with concealing assets and avoiding taxes. For example, one POLS Group member assures clients that “a carefully designed corporate strategy allows you to care for your loved ones free from probate, inheritance taxes, and other legal and tax problems.” The IRS has learned of at least one identified U.S. taxpayer who used POLS’s services to create an unreported offshore entity and account in Panama, through the IRS’s Offshore Voluntary Disclosure Program (“OVDP”). The OVDP allows U.S. taxpayers to voluntarily disclose foreign accounts or entities used to evade tax in exchange for fixed penalties.
In this action, the Court granted the IRS permission to serve what are known as “John Doe” summonses on 10 entities: Federal Express Corporation; FedEx Ground Package System, Inc.; DHL Express; United Parcel Service, Inc.; the Federal Reserve Bank of New York; The Clearing House Payments Company LLC; HSBC Bank USA, N.A.; Citibank, N.A.; Wells Fargo Bank, N.A.; and Bank of America, N.A. There is no allegation in this action that the summons recipients have engaged in any wrongdoing. Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown. The John Doe summonses direct these couriers and financial entities to produce records that will enable the IRS to identify U.S. taxpayers who have used the POLS Group’s services, along with other documents relating to the POLS Group’s business.
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This case is being handled by the Office’s Tax and Bankruptcy Unit. Assistant U.S. Attorney Talia Kraemer is in charge of the case.
Former Nikola Corporation CEO Trevor Milton Charged in Securities Fraud SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and Phillip R. Bartlett, Inspector-in-Charge of the New York Division of the United States Postal Inspection Service (“USPIS”), announced today the unsealing of a criminal indictment charging TREVOR MILTON with securities and wire fraud in connection with his scheme to defraud and mislead investors about the development of products and technology by the company he founded, Nikola Corporation (“Nikola”).
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Trevor Milton brazenly and repeatedly used social media, and appearances and interviews on television, podcasts, and in print, to make false and misleading claims about the status of Nikola’s trucks and technology. But today’s criminal charges against Milton are where the rubber meets the road, and he now will be held accountable for his allegedly false and misleading statements to investors.”
Inspector-in-Charge Phillip R. Bartlett said: “This defendant allegedly concealed the progress and success of Nikola’s technology, when he lied to investors and lured them into believing that they had invested at the ground floor of a company that had already developed viable Nikola One and Badger prototypes that were ready to be produced. The one thing fraudsters have in common – they’re liars, cheaters and thieves.”
MILTON surrendered this morning and will be presented later today before United States Magistrate Judge Sarah Netburn. The case is assigned to U.S. District Judge Edgardo Ramos.
According to the allegations in the Indictment unsealed today in Manhattan federal court:[1]
Overview
From at least in or about November 2019 up through and including at least in or about September 2020, TREVOR MILTON engaged in a scheme to defraud investors by inducing them to purchase shares of Nikola Corporation (“Nikola”), the electric- and hydrogen-powered vehicle and energy company that MILTON founded, through false and misleading statements regarding Nikola’s product and technology development. MILTON’s scheme targeted individual, non-professional investors – so-called “retail investors” – by making false and misleading statements directly to the investing public through social media and television, print, and podcast interviews.
MILTON made these false and misleading statements regarding Nikola’s products and capabilities to induce retail investors to purchase Nikola stock. Among the retail investors who ultimately invested in Nikola were investors who had no prior experience in the stock market and had begun trading during the COVID-19 pandemic to replace or supplement lost income or to occupy their time while in lockdown, and some of the retail investors that MILTON’s fraudulent scheme targeted suffered tens and even hundreds of thousands of dollars in losses, including, in certain cases, the loss of their retirement savings or funds that they had borrowed to invest in Nikola. Moreover, MILTON took advantage of the fact that Nikola went public by merging with a Special Purpose Acquisition Company or “SPAC,” rather than through a traditional IPO, by making many of his false and misleading claims during a period where he would have not been allowed to make public statements under rules that govern IPOs.
MILTON made false claims regarding nearly all aspects of Nikola’s business, including: (a) false and misleading statements that the company had early success in creating a “fully functioning” semi-truck prototype known as the “Nikola One,” when MILTON knew the prototype was inoperable; (b) false and misleading statements that Nikola had engineered and built an electric- and hydrogen-powered pickup truck known as “the Badger” from the “ground up” using Nikola’s parts and technology, when MILTON knew that was not true; (c) false and misleading statements that Nikola was producing hydrogen and was doing so at a reduced cost, when MILTON knew that in fact no hydrogen was being produced at all by Nikola, at any cost; (d) false and misleading statements that Nikola had developed batteries and other important components in-house, when MILTON knew that Nikola was acquiring those parts from third parties; and (e) false and misleading claims that reservations made for the future delivery of Nikola’s semi-trucks were binding orders representing billions in revenue, when the vast majority of those orders could be cancelled at any time or were for a truck Nikola had no intent to produce in the near-term.
Nikola One
Throughout in or about 2020, MILTON promoted a false and exaggerated narrative that Nikola was a first mover in the zero-emissions-trucking business. Specifically, MILTON emphasized that Nikola had defied expectations as a young, disruptive company when it managed to build its prototype Nikola One, which Nikola unveiled on or about December 1, 2016, at a large event that was filmed and broadcast on the internet. During that event and later, MILTON claimed that the prototype Nikola One was a fully functioning truck, and emphasized that early purported success as a defining event for Nikola. For example, at the unveiling event for the Nikola One, MILTON claimed the Nikola One “fully functions and works, which is really incredible.”
In fact, the Nikola One prototype was not completed, let alone tested and validated, by the time of the unveiling event. Rather, the prototype was wholly missing significant parts, including gears and motors, and the control system (i.e., the system that communicates the driver’s directions to the vehicle) was incomplete. The infotainment system in the cab was also incomplete. Instead, for the purpose of the unveiling event, tablet computers or other computer screens were mounted into the areas where the screens for the infotainment would be, and the screens were set to display images created to have the appearance of infotainment screens, with speedometers, maps, and other information displayed.
Later, in or about January 2018, and despite the fact that the Nikola One prototype was never completed or operational, MILTON had Nikola publish on Twitter and also published on his own Twitter account a video in which the Nikola One appeared to be driving on its own power down a road with no incline. In fact, to film these clips, the Nikola One was towed to the top of hill, at which point the “driver” released the brakes, and the truck rolled down the hill until being brought to a stop in front of the stop sign.
The Badger
From in or about February 2020 up through and including at least in or about September 2020, MILTON promoted a new electric pickup truck called the Badger through false and misleading claims about the Badger’s engineering and development. In particular, MILTON repeatedly and falsely stated that Nikola engineered and built the Badger from the “ground up” as a “clean sheet” vehicle using Nikola’s in-house components and intellectual property, that the company had been working on the program for years and had tapped into billions of dollars in Nikola engineering, that the building of prototype vehicles was complete and they were “real” trucks and “fully functioning vehicle inside and outside,” and that an original equipment manufacturer partner (the “OEM Partner”) would mass-produce the vehicle using Nikola’s prototype design and engineering.
In fact, the production of Badger prototypes was outsourced, at MILTON’s direction, to third parties, and the components were not being built from the ground up. Rather, Nikola purchased several Ford F-150 pickup trucks – a highly popular model to which MILTON had claimed his Badger would compare favorably – to use as “donor” or “surrogate” vehicles, and used the vehicles’ chasses and bodies as the base for constructing the Badger prototypes. At MILTON’s direction and with his approval, engineers working on the Badger prototypes took steps to hide from the public that Ford donor vehicles were used to produce the prototypes. And the two prototype Badgers that ultimately were built were little more than show cars and not real consumer vehicles. For example, the Badger prototypes could not be driven on roads because some of the parts of the body were carbon fiber composite and because they had not undergone safety testing. The Badger prototypes also lacked certain parts, such as airbags and an operable HVAC. Similarly, many of the lights in the interior of the Badger prototypes were not operable and were merely backlit.
Moreover, despite MILTON’s claims that Nikola’s OEM Partner would manufacture the Badgers that Nikola had designed and engineered, and that the vehicles would be “70 percent Nikola 30 percent [the OEM Partner],” the OEM Partner planned to build the Badger based on one of its own electric vehicle platforms. In fact, the OEM Partner planned to use no Nikola technology or engineering, except for the general aesthetic and potentially the infotainment system. No one at the OEM Partner ever saw the Badger prototypes that Nikola had been working on and they were not part of the OEM Partner’s engineering or development plans.
Hydrogen Production
MILTON also made numerous false and misleading claims regarding Nikola’s hydrogen business. Specifically, and among other things, MILTON made false and misleading claims regarding the status of Nikola’s production of hydrogen, the current cost of producing hydrogen, the cost of electricity to produce hydrogen, Nikola’s ability to produce hydrogen using clean energy, and the status of permits related to hydrogen production.
For example, in or about March 12, 2020, MILTON stated, “Up until Nikola came in the market, hydrogen was around $16 a kilogram, U.S. dollars. Now Nikola is producing it well below $4 a kilogram.” In fact, Nikola has never produced any hydrogen at any price, nor at the time could it have produced hydrogen for below $4 per kilogram. To the contrary, Nikola has never obtained a permit to produce hydrogen or installed the equipment necessary to produce hydrogen. At the time that MILTON was claiming that Nikola was producing hydrogen for less than $4 per kilogram, it was in fact purchasing hydrogen from a supplier for $16 per kilogram.
As another example, in a July 17, 2020, podcast, MILTON stated, among other things, that when Nikola first started, hydrogen production stations “were going to be 50 to 60 million,” but now Nikola is “down to, you know, 14, 14 million bucks” due to the “standardization of a hydrogen station.” In truth and in fact, Nikola had not built a single hydrogen production station, much less “standardized” hydrogen production stations. At the time, due to the high cost of electricity in California, Nikola was seriously considering moving away from its plan to produce hydrogen on-site at all of its fueling stations, and instead was considering producing hydrogen at a central location through liquefaction. Milton was well aware of the issues with Nikola’s hydrogen station plan, but directed that Nikola employees “[k]eep the liquefaction discussions quiet from the market.”
In House Technology
MILTON has repeatedly claimed that Nikola has intellectual property rights over important components of its semi-truck line. While MILTON has stated that Nikola outsources many parts of the trucks, like its tires or windshield, MILTON has also repeatedly stated that Nikola makes the most important parts, including batteries and the powertrain, of the semi-trucks “in house.” For example, in or about June 2020, MILTON tweeted, “We do our own batteries at Nikola and have since day 1,” and “All the technology, software, controls, E axle, inverters etc. we do internally.”
In fact, although Nikola has partnered with various companies to try to develop proprietary battery technology, these efforts were not successful, and Nikola has not successfully developed technology internally, and the batteries it has planned to use in its semi-trucks were developed and manufactured by third parties. Similarly, Nikola has not produced an inverter in house and the inverters it planned to use in its semi-trucks were developed and manufactured by third parties.
Reservations
MILTON has also repeatedly misstated the nature of Nikola’s reservations to suggest that reservations made for its semi-trucks are firm and binding. For example, in or about July 2020, MILTON claimed that Nikola had “billions and billions of dollars with the contracts” and that these reservations were not “just like, a non-committal thing,” but instead were “like, sign on the dotted line, billions and billions and billions and billions of dollars in orders.”
In fact, although Nikola did have 14,000 reservations for its sleeper semi-truck, with the exception of a reservation for approximately 800 semi-trucks, which is binding provided that Nikola meets certain conditions, these reservations were non-binding and cancellable at any time for any reason.
Milton’s False and Misleading Statements Induced Retail Investors to Purchase Nikola Stock
After MILTON made the false and misleading statements regarding Nikola’s products and capabilities described above, tens of thousands of retail investors purchased Nikola’s stock between in or around March and September 2020. During this same period, certain institutional investors who had access to more complete information regarding Nikola’s products and technology, including some who received Nikola shares as part of the SPAC transaction, were able to sell their stock for a significant profit.
The value of Nikola’s stock plummeted after the fact that certain of MILTON’s statements had been false and misleading was disclosed to the market in or around September 2020. As a result, many Nikola stockholders, including the retail investors who were the target of MILTON’s scheme, suffered significant financial losses, in some cases totaling in the tens or hundreds of thousands of dollars and compromising their financial security or retirement savings.
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MILTON, 39, of Oakley, Utah, is charged with two counts of securities fraud and one count of wire fraud. The securities fraud counts carry maximum penalties of 20 and 25 years in prison, respectively. The wire fraud count carries a maximum penalty of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Ms. Strauss praised the outstanding work of the USPIS, which jointly conducted this investigation with special agents from the U.S. Attorney’s Office. Ms. Strauss further thanked the U.S. Securities and Exchange Commission, which today filed a parallel civil action.
The prosecution of this case is being overseen by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jordan Estes, Matthew Podolsky, Nicolas Roos are in charge of the case.
If you believe you are a victim of Trevor Milton or have relevant information, please email: [email protected].
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Former New York City Council Member Sentenced to Prison for Tax FraudRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, announced that CHAIM DEUTSCH, a former New York City Council Member, was sentenced today in Manhattan federal court to three months in prison for filing a false tax return in connection with outside income he received from his real estate management corporation. DEUTSCH previously pled guilty before United States Magistrate Judge James L. Cott, who imposed today’s sentence.
U.S. Attorney Audrey Strauss said: “Chaim Deutsch, a former New York City Council Member, violated his oath of office and the law when he defrauded the IRS in connection with income from his real estate business. At the same time he was serving as an elected official and community leader, Deutsch concealed his true business income to avoid paying his fair share of taxes. Appropriately, Deutsch has been sentenced to prison for his criminal conduct.”
According to the allegations contained in the Information to which DEUTSCH pled guilty, other court filings, statements made during public court proceedings, and publicly available information:
From in or about January 2014 through April 2021, DEUTSCH served as the New York City Council Member for the 48th District, which includes portions of Brooklyn. DEUTSCH was also the sole owner of Chasa Management, Inc., a real estate management business, and he received more than $120,000 annually in outside income from that business, until the end of 2017 when a change in the law prohibited council members from maintaining outside employment. On or about April 27, 2021, subsequent to his plea in the instant case, DEUTSCH was determined to have vacated his elected office as a result of violating his oath of office by defrauding the federal government in connection with the instant tax offense.
During the tax years 2013 through 2015, DEUTSCH filed false individual and corporate tax returns that decreased his tax liability by claiming false and fictitious business deductions. In particular, DEUTSCH falsely deducted personal expenses as business expenses, including rental payments for an apartment that he maintained in the 48th District in order to obtain residency for his council position; utility, water, repair, maintenance, automobile, and phone expenses; as well as routine living expenses such as groceries and clothing. In addition, DEUTSCH further decreased his tax liability by filing fraudulent schedules to his personal income tax forms that declared fictitious business expenses, including for additional purported rent, vehicles, phones, and utility expenses.
As a result of the false deduction schemes, DEUTSCH received federal tax refunds in each of the relevant tax years. Specifically, in tax year 2013, DEUTSCH’s false filings generated a federal tax refund of $1,937; in tax year 2014, DEUTSCH’s false filings generated a federal tax refund of $262; and in tax year 2015, DEUTSCH’s false filings generated a federal tax refund of $7,511.
In preparing his personal tax returns and the books and tax returns of Chasa Management, DEUTSCH employed a tax preparer and accounting firm based in Brooklyn, and DEUTSCH would direct the firm to classify or reclassify expenses as business-related to decrease his tax liability. Only after DEUTSCH was satisfied that the purported business expenses had sufficiently decreased his tax liability were the tax returns finalized and filed. After DEUTSCH learned of the investigation, he used a different tax preparer to assist in the preparation of his subsequent years’ tax returns.
In total, for tax years 2013 through 2015, DEUTSCH claimed approximately $157,000 in false business expenses on Chasa Management’s returns and an additional approximately $111,000 in false business expenses on his individual income tax returns. DEUTSCH’s failure to properly pay taxes on his business income evaded approximately $82,076 in taxes due to the Internal Revenue Service (“IRS”), not including interest and penalties.
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In addition to the prison term, Judge Cott ordered DEUTSCH, 52, of Brooklyn, New York, to serve one year of supervised release, to pay a fine in the amount of $5,500, and to pay restitution to the IRS in the amount of $107,007.05.
Ms. Strauss praised the outstanding work of IRS Criminal Investigation and the Special Agents of the U.S. Attorney’s Office. Ms. Strauss also thanked the New York City Department of Investigation for its assistance in the investigation.
The case is being prosecuted by the Office’s Public Corruption Unit. Assistant U.S. Attorney Eli J. Mark is in charge of the prosecution.
California Man Pleads Guilty to Defrauding Thousands of Donors to Scam Political Action Committees by Impersonating U.S. Senate Candidates and CampaignsRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, announced the guilty plea today of JOHN PIERRE DUPONT, a/k/a “John Gary Rinaldo,” in connection with a years-long scheme to defraud thousands of donors to scam political action committees that impersonated numerous U.S. Senate campaigns and candidates. DUPONT pled guilty to wire fraud and aggravated identity theft before U.S. District Judge Richard M. Berman.
U.S. Attorney Audrey Strauss said: “In impersonating campaigns and candidates to raise money for fake political action committees, John Pierre Dupont took advantage of thousands of vulnerable individual donors who believed they were contributing to causes they believed in. Instead, hundreds of thousands of dollars that were intended to be legitimate donations were instead stolen by the defendant for his own personal enrichment. With today’s guilty plea, Dupont has admitted to his scheme and now faces a significant term of incarceration.”
According to the allegations in the Indictment, court filings, and statements made during court proceedings:
From 2015 through 2019, DUPONT defrauded thousands of donors who believed they were donating to three political action committees established by DUPONT (the “Scam PACs”), or to campaigns the Scam PACs falsely claimed to support. DUPONT’s scheme resulted in hundreds of thousands of dollars being donated through websites he controlled and operated, none of which was donated to campaigns or causes.
The websites purported to be raising money in support of senate campaigns and candidates, a candidate for governor, and a candidate for president. Another website operated by DUPONT purported to be raising money “to unite immigrant families,” falsely claiming that donations to the Foundation for Sanity in Politics PAC would “go to help pay our volunteer attorneys’, doctors’, nurses’ and social workers’ costs and pay for transportation to unite immigrant families.” In fact, that PAC had no volunteers or staff, and dedicated no funds to paying for any action or advocacy.
DUPONT’s scheme targeted victims throughout the country, raising funds based on fraudulent representations that the donations would support the relevant causes, candidates, and campaigns. In reality, all of the money raised was kept and used by DUPONT, including to continue perpetrating the fraud through additional fundraising and overhead expenditures. None of the money donated to the Scam PACs was spent on political contributions, and DUPONT failed to report the donations, as required, in filings with the Federal Election Commission.
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DUPONT, 82, of Blythe, Ca, pled guilty to one count of wire fraud, which carried a maximum sentence of 20 years in prison, and one count of aggravated identity theft, which carries a mandatory two years in prison consecutive to any other sentence imposed. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as the defendant’s sentence will be determined by the judge. Sentencing before Judge Berman is scheduled for October 21, 2021, at 10:00 a.m.
Ms. Strauss praised the outstanding investigative work of the Special Agents of the United States Attorney’s Office for the Southern District of New York.
If you think you are a victim of the scheme alleged in this press release, please contact Wendy Olsen, Victim & Witness Services for the U.S. Attorney’s Office for the Southern District of New York, at 866-874-8900.
This case is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorney Alex Rossmiller is in charge of the prosecution.
Manhattan U.S. Attorney Settles Civil Fraud Lawsuit Against Clothing Companies and Their Former CEO for Misrepresenting the Value of Goods to Avoid Paying Customs DutiesRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Peter C. Fitzhugh, the Special Agent in Charge of the New York Office of Homeland Security Investigations (“HSI”), and Marty Raybon, Acting Director, Field Operations, New York, U.S. Customs and Border Protection (“CBP”), announced today that the United States has settled civil fraud claims brought under the False Claims Act against STARGATE APPAREL, INC. (now named EXCEL APPAREL CORP.) (“STARGATE”), RIVSTAR APPAREL, INC. (“RIVSTAR”), and JOSEPH BAILEY. Stargate and Rivstar are apparel companies headquartered in New York, New York, and BAILEY is the companies’ former CEO and owner. As alleged in the Government’s lawsuit, filed in 2019, BAILEY, STARGATE, and RIVSTAR employed a variety of schemes to defraud the United States by submitting invoices to CBP that falsely understated the true value of the clothing that they imported into the United States in order to avoid paying millions of dollars in customs duties. RIVSTAR is no longer operating.
Under the civil settlement approved today by U.S. District Judge J. Paul Oetken, BAILEY will pay $3.2 million to the United States, and STARGATE, RIVSTAR, and the employee stock ownership plan that currently owns the companies will together pay a total of $2.8 million to the United States. BAILEY, STARGATE, and RIVSTAR admitted and accepted responsibility for their conduct as further described below. As part of the settlement, STARGATE and RIVSTAR (to the extent that it resumes operations) will also implement a written compliance policy that will include measures designed to ensure that they pay duties on the full, actual value of all future imports and otherwise comply with applicable customs laws and regulations. Last year, BAILEY pled guilty and was sentenced to six months in prison for engaging in certain of the conduct related to STARGATE imports that is at issue in the Government’s civil complaint. This civil settlement is in addition to the $1,661,617 forfeiture amount that BAILEY was ordered to pay in the criminal proceedings.
U.S. Attorney Audrey Strauss said: “Stargate, Rivstar, and their former president engaged in a variety of fraudulent schemes to short-change the Government of customs duties owed for imported clothing by falsely under-reporting its value. This settlement, along with the separate criminal action against Bailey, demonstrate that our Office will hold companies, as well as their executives, accountable when they try to evade paying the legally required custom duties on imported goods.”
HSI Special Agent in Charge Peter C. Fitzhugh said: “For over a decade these clothing companies used ‘double-invoice’ schemes to underpay customs duties that were owed to the U.S. for garments being imported into the country, resulting in millions of dollars in customs duties lost. HSI worked closely with U.S. Customs and Border Protection and the U.S. Attorney’s Office for the Southern District of New York to achieve this settlement, requiring the defendants not just to accept responsibility, but also to pay the Government $6 million and enhance their compliance policies.”
CBP Acting Director of New York Field Operations Marty Raybon said: “The settlement reached today is a testament to the dedication of our partners in the United States Attorney's Office, Homeland Security Investigations, and the men and women of CBP in enforcing our nation’s trade laws and punishing those perpetrating this type of fraud.”
The Government’s complaint alleges that in order to avoid customs duties, from 2004 through 2015 (the “Covered Period”), STARGATE, RIVSTAR, and BAILEY engaged in two types of “double invoicing” schemes to fraudulently underpay customs duties owed to the United States in connection with the garments that they brought into the country. Under the first scheme, the exporter would provide one invoice that reflected the amount Defendants actually paid the exporter for the goods, and a second invoice that fraudulently reflected a fabricated lower amount that was submitted to CBP. These two invoices were virtually identical (e.g., same invoice number, description of goods, quantity of goods), except that they included different prices for the same shipments of goods. Under the second scheme, the exporter also would provide two invoices, which together reflected the actual price paid for the shipment. However, Defendants would only submit one of the invoices to CBP. The other invoice, which purported to be for “samples,” “accessories,” “commissions,” or “testing costs,” reflected an additional payment made by Defendants for the same goods described in the first invoice and was not submitted to CBP. The purpose of each of these two schemes was the same – to fraudulently under-report the value of the goods in order to pay less duties.
As part of the settlement, BAILEY, STARGATE, and RIVSTAR admit, acknowledge, and accept responsibility for the following conduct:
STARGATE Conduct:
- During the Covered Period, Stargate’s primary supplier was Taizhou Jiali Garments Co. Ltd. and its affiliated manufacturers (collectively, “Taizhou”), which are all located in China. At the direction of BAILEY, STARGATE engaged in two different fraudulent schemes that involved the preparation and use of false and inaccurate invoices to underreport the actual value of goods imported from Taizhou in order to avoid paying the customs duties due. BAILEY knew that this conduct was wrong and in violation of customs laws.
- As part of the first scheme, from 2007 through 2010, at BAILEY’S direction, Taizhou provided STARGATE with two sets of invoices for each shipment of goods. One invoice, referred to in email communications as the “pay by” invoice, reflected the actual price paid by STARGATE for the goods. The second invoice reflected a fake, lower price for the goods and was the invoice that STARGATE presented to CBP through its customs broker. Stargate, at the direction of Bailey, routinely declared this false, lower value on CBP entry forms in order to pay lower customs duties on goods imported from Taizhou.
- Beginning around 2010 and continuing through at least 2015, BAILEY and STARGATE engaged in a second scheme. At BAILEY’S direction, Taizhou provided two separate sets of invoices for a given shipment that together reflected the true price Stargate actually paid for the goods. The first invoice, typically entitled the “commercial invoice,” described the goods purchased, and was submitted to CBP by STARGATE’s customs broker. The second invoice purported to reflect amounts paid by Stargate for “sample” goods and was not submitted to CBP. The “sample” invoice was not, in fact, for samples actually purchased by STARGATE. Rather, STARGATE used the “sample” invoice to make an additional payment to Taizhou for the goods purchased by STARGATE that were described in the “commercial invoice,” while hiding the full value of those goods from CBP. STARGATE, at the direction of BAILEY, routinely declared only the values recorded on the “commercial invoices,” which were less than the full price paid for the goods, on CBP entry forms in order to pay lower customs duties on goods imported from Taizhou.
- During the Covered Period, STARGATE also imported goods that it purchased from Tex-Prime International, Ltd., and its affiliated manufacturers (collectively “Tex-Prime”), which are located in China. Beginning in at least 2004 and continuing through 2014, STARGATE, at the direction of BAILEY, also engaged in two different fraudulent schemes that involved the preparation and use of false and inaccurate invoices to underreport the actual value of goods imported from Tex-Prime in order to avoid paying the customs duties due.
- The first scheme involved Tex-Prime providing two nearly identical invoices for each shipment that differed only in the stated price. The first invoice reflected the amount that STARGATE actually paid for the imported goods. The second invoice (frequently identified by a “C” suffix following the invoice number, or the term “Custom” following the invoice number in the file name), reflected a false and inaccurate lower price and was the invoice that STARGATE submitted to CBP through STARGATE’s customs broker. STARGATE, at the direction of BAILEY, routinely declared the values recorded on this second, false invoice on CBP entry forms in order to pay lower customs duties on goods imported from Tex-Prime.
- The second scheme also involved Tex-Prime providing two invoices. In this scheme, the two invoices together reflected the actual price paid by STARGATE for the shipment. The first invoice, entitled a “commercial invoice,” described the goods purchased and was submitted to CBP by STARGATE’s customs broker. The second invoice, entitled a “statement,” purported to be an invoice for accessories charges, commissions, testing charges, or samples. This second invoice was not submitted to CBP and in reality reflected an additional payment made by STARGATE to Tex-Prime for the same shipment. STARGATE, at the direction of BAILEY, routinely declared only the values recorded on the “commercial invoices,” which were less than the full price paid for the goods, on CBP entry forms in order to pay lower customs duties on goods imported from Tex-Prime.
- Through the practices described above, STARGATE misrepresented the value of the goods it purchased and imported into the United States. STARGATE and BAILEY were aware at all times that the reported information was incorrect and grossly understated the actual value of the imported goods, but continued to make the incorrect entries in order to reduce the amount of duties owed. As a result of their conduct, STARGATE and BAILEY underpaid customs duties that were due and owing to the United States.
RIVSTAR Conduct:
- During the Covered Period, RIVSTAR imported goods purchased from Pacific Potential Trading Co., Ltd., and its affiliated entities (together, “Pacific Potential”), as well as from Dongguan Bestsign and Trading Co., Ltd., and its affiliated entities (together, “Bestsign”), all of which are located in China.
- During the Covered Period, at RIVSTAR’s request and BAILEY’s direction, Pacific Potential and Bestsign provided two sets of invoices for each shipment imported into the United States by RIVSTAR. The first invoice described the goods imported and was submitted to CBP by RIVSTAR’s customs broker. The price reflected on the invoices declared to Customs did not reflect the full price RIVSTAR paid for the merchandise. The second invoice purported to be for “testing costs” relating to the imported goods and was not submitted to CBP. Together, the two invoices reflected the true total price that RIVSTAR paid for the goods; RIVSTAR, however, did not declare the amount reflected on the invoice for “testing costs” to CBP. For the most part, the amounts reflected on the invoice for “testing costs” were not for actual testing, but instead reflected an additional payment made by RIVSTAR to Pacific Potential and Bestsign for the same shipment that was not declared to CBP. To the extent that any such payments actually related to testing costs, such charges were still dutiable and should have been declared to CBP.
- Through these practices, RIVSTAR at BAILEY’s direction misrepresented the value of the goods it purchased and imported into the United States. RIVSTAR and BAILEY were aware at all times that the reported information was incorrect and grossly understated the actual value of the imported goods, but continued to make the incorrect entries in order to reduce the amount of duties owed. As a result of their conduct, RIVSTAR and BAILEY underpaid customs duties that were due and owing to the United States.
The conduct in this matter was first brought to the attention of federal law enforcement by a whistleblower who filed a lawsuit under the False Claims Act.
Ms. Strauss thanked U.S. Customs and Border Protection and Homeland Security Investigations for their assistance with the case.
The civil case is being handled by the Office’s Civil Frauds Unit, and Assistant U.S. Attorney Dominika Tarczynska is in charge of the matter.
Leader of New Rochelle Drug Trafficking Organization Sentenced to More Than 7 Years in Prison for Distributing CocaineRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that ULYSSES LOPEZ was sentenced today by U.S. District Judge Nelson S. Román to 87 months in prison for leading a drug trafficking conspiracy that distributed kilograms of cocaine out of a grocery store located in New Rochelle, New York. LOPEZ pled guilty before U.S. Magistrate Judge Judith C. McCarthy on August 27, 2020.
Manhattan U.S. Attorney Audrey Strauss said: “Today’s sentence sends a message that destructive drug trafficking in our communities will not be tolerated. We will continue to work with our law enforcement partners to keep our neighborhoods free of addictive and dangerous narcotics.”
According to the allegations in the Indictment, and statements made in court filings and during court proceedings:
From April 2018 up to October 2018, ULYSSES LOPEZ, together with six charged co-defendants, conspired to distribute five kilograms and more of powder cocaine. LOPEZ was the leader and organizer of the drug trafficking conspiracy, which operated out of several buildings in the vicinity of, and including, the SuperMercado Mexico located in New Rochelle, New York, which was owned and operated by LOPEZ and his father and co-defendant, Valentino Lopez (“Valentino”).
After being arrested, and while detained at the Westchester County Jail, LOPEZ attempted to obstruct justice by encouraging one of his charged codefendants, Felipe Barajas, to provide false statements to the Government regarding their relationships and Barajas’s use of his residence to store cocaine on LOPEZ’s behalf.
Six of the charged defendants, including LOPEZ, Valentino, and Barajas, have pled guilty and been sentenced. Valentino was sentenced on June 25, 2021, to 60 months in prison for his role in the drug trafficking conspiracy. The seventh defendant remains a fugitive.
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In addition to his prison sentence, LOPEZ, 41, of New Rochelle, New York, was sentenced to four years of supervised release, and forfeiture of $150,000 and a Mercedes Benz ML350.
Ms. Strauss praised the excellent work of the Federal Bureau of Investigation and the Drug Enforcement Administration.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Emily Deininger, David Felton, and Celia Cohen are in charge of the prosecution.
Trinitarios Gang Member Sentenced to 3 Years in Prison for Witness RetaliationRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that CHRISTIAN NIEVES, a/k/a “Eric Rosario,” a/k/a “White Boy,” was sentenced today to three years in prison in connection with his retaliation against a witness who had testified at a previous federal murder trial by slashing the witness across the neck with a blade. NIEVES was convicted on April 23, 2021, following an approximately eight-day jury trial presided over by U.S. District Judge Jed S. Rakoff, who also imposed today’s sentence.
U.S. Attorney Audrey Strauss said: “Christian Nieves’s violent assault of a witness to federal crimes was a naked attempt to subvert the administration of justice, sow fear through the community, and prevent future witnesses from coming forward. Today’s sentence proves that justice will prevail, and sends a clear signal to other gang members that witness retaliation will not be tolerated.”
According to court documents, the evidence at trial, and statements made in court proceedings:
NIEVES was a member of the Trinitarios street and prison gang, a criminal enterprise with written rules, oath, and constitution. The gang has a strict prohibition on cooperation with law enforcement (“snitching”), and violations of the gang’s rules are punished by acts of violence. Among other governing principles, the Trinitarios mandate a “code of silence,” meaning that members are prohibited from cooperating with law enforcement and speaking about the gang in general.
The Trinitarios had an ongoing rivalry with another Dominican gang, Dominicans Don’t Play (“DDPs”). In 2018, a member of the DDPs, Stiven Siri-Reynoso, was convicted following a jury trial before U.S. District Judge Colleen McMahon of charges including the murder of Jessica White, a Bronx mother who was inadvertently hit during a shooting on a playground as part of the rivalry between the DDPs and the Trinitarios. Significant evidence at that July 2018 trial focused on the DDP-Trinitario rivalry. The victim of NIEVES’s retaliation was among the witnesses who testified about the inner workings of the Trinitarios gang (the “Victim”). In the course of his testimony, the Victim testified about crimes that he had committed with NIEVES, including an incident in 2009 when the Victim took a gun from NIEVES after a Trinitarios-related shooting that had resulted in the death of Issi Dominguez. The Victim’s testimony violated the Trinitarios’ longtime prohibition against testifying against members of the gang.
Following his testimony, around 7:00 p.m. on the evening of February 5, 2019, the Victim was walking on Grand Concourse in the Bronx when he saw NIEVES and other Trinitarios gang members on the steps of a building near the sidewalk. As the Victim walked past, one of the group called out to him, and NIEVES and at least one other person began following the Victim. NIEVES caught up to the Victim, took out a razor blade, and slashed at the Victim’s face, cutting him down the jawline. During the attack, NIEVES told the Victim “this is happening to you because you are a snitch.” The Victim received prompt medical attention, including stitches to close the wound.
Ms. Strauss praised the investigative work of the Federal Bureau of Investigation and the New York City Police Department.
The prosecution is being handled by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Allison Nichols and Jun Xiang are in charge of the prosecution.
Two Men Charged in Connection with 11 Robberies and Attempted Robberies of Luxury Watches in New York City, New Jersey, and Long IslandRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and Dermot Shea, Police Commissioner for the City of New York (“NYPD”), announced the unsealing of a Superseding Indictment charging VICTOR RIVERA, 30, and JOHAN ARAUJO, 40, with conspiracy to commit robbery, robbery, attempted robbery, attempted extortion, interstate transportation of stolen property, money laundering, and firearms offenses. ARAUJO was arrested on July 23 and presented and arraigned before United States Magistrate Judge Katharine H. Parker. RIVERA was previously charged in an Indictment in November 2020 and is currently in custody. This case is assigned to United States District Judge Alvin K. Hellerstein.
U.S. Attorney Audrey Strauss said: “As alleged in the Indictment, the defendants committed a series of armed robberies and attempted robberies of jewelers and other owners of luxury watches in and around New York City. In one of these robberies, a victim was shot. Thanks to the outstanding work of the NYPD and Special Agents of our Office, time ran out on the defendants, who now face federal charges for their alleged crimes.”
NYPD Commissioner Dermot Shea said: “The charges show that while criminals often believe they can operate in plain sight with apparent impunity, the NYPD and our law enforcement partners exist to shatter that notion and bring those responsible to justice. I thank our colleagues at the United States Attorney’s Office in the Southern District of New York for their dedication and hard work building this case and ensuring these two alleged dangerous criminals will be held to account.”
As alleged in the Indictment unsealed last Friday in Manhattan federal court and based on statements made in court proceedings and filings[1]:
From at least in or about October 2019 up to and including November 2020, RIVERA, ARAUJO, and others known and unknown agreed to rob victims of luxury watches worth up to hundreds of thousands of dollars each. The watches owned by victims targeted in the robberies included Richard Mille, Rolex, Audemars Piguet, and Patek Philippe as part of the jewelers’ businesses based in Manhattan’s Diamond District. RIVERA used guns to commit several of the robberies, and in one robbery, shot a victim, who survived.
The 11 robberies and attempted robberies included the following:
- On October 3, 2019, RIVERA and a co-conspirator robbed a jeweler in Long Island City, New York, of, among other things, a Richard Mille watch worth over $250,000.
- On October 25, 2019, RIVERA and a co-conspirator robbed a jeweler in Jamaica, New York, of, among other things, a Rolex watch worth over $150,000.
- On December 10, 2019, RIVERA, ARAUJO, and a co-conspirator robbed a jeweler in Brooklyn, New York, of, among other things, a Patek Philippe watch worth over $160,000 and a diamond necklace worth over $77,000. During the robbery, a firearm was shown to the victim.
- On January 14, 2020, RIVERA and a co-conspirator robbed of a jeweler in Rego Park, New York, of, among other things, a Richard Mille watch worth over $500,000.
- On February 16, 2020, RIVERA and ARAUJO robbed a jeweler in Jamaica Estates, New York, of, among other things, an Audemars Piguet watch worth over $28,000.
- On February 20, 2020, RIVERA and a co-conspirator robbed an individual in Long Island City, New York, of, among other things, an Audemars Piguet watch worth over $125,000.
- On June 11, 2020, RIVERA and ARAUJO robbed a jeweler in Brooklyn, New York, of, among other things, a Richard Mille watch worth over $148,000. During the robbery, a firearm was shown to the victim and a victim was shot.
- On July 6, 2020, RIVERA and a co-conspirator robbed a jeweler in Hoboken, New Jersey, of, among other things, a Richard Mille watch worth over $81,000. Following the robbery, RIVERA and others transported the stolen watch from New Jersey to New York.
- On July 20, 2020, RIVERA and a co-conspirator participated in an attempted robbery of a jeweler in Queens, New York, attempting to steal a Richard Mille watch worth over $180,000.
- On August 2, 2020, RIVERA and a co-conspirator robbed an individual in the vicinity of Englewood Cliffs, New Jersey, of, among other things, a Richard Mille watch worth over $250,000. During the robbery, a firearm was shown to a victim. Following the robbery, RIVERA and others transported the stolen watch from New Jersey to New York.
- On October 27, 2020, RIVERA and a co-conspirator robbed a jeweler in the vicinity of Woodbury, New York, of, among other things, an Audemars Piguet watch worth over $26,000 and assorted jewels and gold links worth over $60,000. During the robbery, a firearm was shown to a victim.
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A chart containing the names, charges, and maximum and minimum penalties for the defendants is set forth below. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Ms. Strauss praised the outstanding investigative work of the New York City Police Department and the Special Agents of the U.S. Attorney’s Office for the Southern District of New York. Ms. Strauss also thanked the Bergen County Prosecutor’s Office, the Englewood Cliffs Police Department, the Weehawken Police Department, and the Nassau County Police Department for their assistance.
This case is being handled by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Mathew Andrews, Andrew K. Chan, and Celia Cohen are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
COUNT
CHARGE
DEFENDANTS
MAX. PENALTY
Count One
Hobbs Act Robbery Conspiracy
18 U.S.C. § 1951
VICTOR RIVERA
JOHAN ARAUJO
20 years in prison
Count Two
Money Laundering Conspiracy
18 U.S.C. § 1956(h)
VICTOR RIVERA
20 years
Count Three
Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
20 years
Count Four
Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
20 years
Count Five
Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
JOHAN ARAUJO
20 years
Count Six
Firearms offense
18 U.S.C. §§ 924(c) and 2
VICTOR RIVERA
Life in prison
Mandatory minimum of seven years in prison
Count Seven
Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
20 years
Count Eight
Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
JOHAN ARAUJO
20 years
Count Nine
Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
JOHAN ARAUJO
20 years
Count Ten
Firearms offense
18 U.S.C. §§ 924(c) and 2
VICTOR RIVERA
Life in prison
Mandatory minimum of 10 years in prison
Count Eleven
Attempted Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
20 years
Count Twelve
Interstate Transportation of Stolen Property
18 U.S.C. §§ 2314 and 2
VICTOR RIVERA
10 years
Count Thirteen
Attempted Hobbs Act Robbery and Extortion
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
20 years
Count Fourteen
Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
20 years
Count Fifteen
Firearms offense
18 U.S.C. §§ 924(c) and 2
VICTOR RIVERA
Life in prison
Mandatory minimum of seven years in prison
Count Sixteen
Interstate Transportation of Stolen Property
18 U.S.C. §§ 2314 and 2
VICTOR RIVERA
10 years
Count Seventeen
Hobbs Act Robbery
18 U.S.C. §§ 1951 and 2
VICTOR RIVERA
20 years
Count Eighteen
Firearms offense
18 U.S.C. §§ 924(c) and 2
VICTOR RIVERA
Life in prison
Mandatory minimum of seven years in prison
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, the description of the Indictment, and the statements made in related court filings and proceedings set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Horse Doping Drug Company’s Sales Director Pleads Guilty in Manhattan Federal CourtRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that defendant MICHAEL KEGLEY JR. pled guilty today to his role in the distribution of adulterated and misbranded drugs with the intent to defraud and mislead, in connection with the charges filed in United States v. Navarro et al., 20 Cr. 160 (MKV). KEGLEY pled guilty before U.S. District Judge Mary Kay Vyskocil, and will be sentenced by Judge Vyskocil on November 22, 2021.
Manhattan U.S. Attorney Audrey Strauss said: “Michael Kegley promoted and sold unregulated performance enhancing substances intended for use by those engaged in fraud and unconscionable animal abuse in the world of professional horseracing. This conviction underscores that our Office and our partners at the FBI are committed to the prosecution and investigation of corruption, fraud, and endangerment at every level of the horse racing industry.”
According to the allegations contained in the Superseding Information, the prior Indictments[1], other filings in this case, and statements during court proceedings:
The charges in the Navarro case arise from an investigation of widespread schemes by racehorse trainers, veterinarians, performance-enhancing drug (“PED”) distributors, and others to manufacture, distribute, and receive adulterated and misbranded PEDs and to secretly administer those PEDs to racehorses competing at all levels of professional horseracing. By evading PED prohibitions and deceiving regulators and horse racing officials, participants in these schemes sought to improve race performance and obtain prize money from racetracks throughout the United States and other countries, including in New York, New Jersey, Florida, Ohio, Kentucky, and the United Arab Emirates (“UAE”), all to the detriment and risk of the health and well-being of the racehorses. Trainers who participated in the schemes stood to profit from the success of racehorses under their control by earning a share of their horses’ winnings, and by improving their horses’ racing records, thereby yielding higher trainer fees and increasing the number of racehorses under their control. Veterinarians and drug distributors, such as KEGLEY, who worked as the director of sales for an unregistered distributor of equine drugs, profited from the sale and administration of these medically unnecessary, misbranded, and adulterated substances.
Among the misbranded and adulterated PEDs marketed and sold by KEGLEY was the drug “SGF-1000,” which was compounded and manufactured in unregistered facilities. SGF-1000 was an intravenous drug promoted as, among other things, a vasodilator capable of promoting stamina, endurance, and lower heart rates in horses through the purported action of “growth factors” supposedly derived from sheep placenta. Despite marketing, selling, and administering SGF-1000, KEGLEY acknowledged in intercepted calls that he, along with a co-defendant involved in the sale of SGF-1000, did not know the actual contents of SGF-1000. Nevertheless, KEGLEY’s sales of that drug persisted, aided by the claim that SGF-1000 would be untestable in horses by law enforcement.
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U.S. Attorney Strauss praised the outstanding investigative work of the FBI New York Office’s Eurasian Organized Crime Task Force and its support of the FBI’s Integrity in Sports and Gaming Initiative.
This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant United States Attorneys Sarah Mortazavi, Andrew C. Adams, Anden Chow, and Benet Kearney are in charge of the prosecution.
[1] As to Kegley’s co-defendants, the entirety of the texts of the Indictments and the descriptions of the Indictments set forth herein constitute only allegations and every fact described should be treated as an allegation.
Leader of the Blood Hound Brims Sentenced to 25 Years in Prison for Racketeering, Narcotics, and Firearms OffensesRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that BRANDON GREEN, a/k/a “Light,” was sentenced today to approximately 24.5 years in prison by U.S. District Judge Paul G. Gardephe in connection with his leadership of the Blood Hound Brims, a violent street and prison gang that operated in New York City and elsewhere, and his participation in narcotics trafficking and firearms offenses. GREEN was convicted on March 27, 2019, following an approximately five-week jury trial before Judge Gardephe, who also imposed today’s sentence.
U.S. Attorney Audrey Strauss said: “Brandon Green, one of the leaders of a ruthlessly violent gang, was responsible for extensive narcotics trafficking throughout the city and state of New York. Today’s lengthy sentence sends an important message to the Blood Hound Brims and other gang members that they will be arrested, prosecuted and face justice for their crimes.”
According to court documents, the evidence at trial, and statements made in court proceedings:
The Blood Hound Brims was a criminal enterprise that operated principally in the greater New York area, from at least 2005 up to and including 2016. The BHB was a faction of the Bloods street gang, which operates nationwide, and is under the New York Blood Brim Army (“NYBBA”). The BHB operated within and around various locations in New York, including New York City, Westchester County, Elmira, and in Pennsylvania, as well as within and outside federal and state penal systems.
The BHB used a hierarchical structure that was organized, in part, by New York City borough, and that was maintained, in part, through the payment of dues. The founder and leader of the gang was Latique Johnson, and other members and associates of the BHB referred to Johnson as the “Godfather.” The gang was divided into several “pedigrees,” each of which had its own leadership structure which was approved by Johnson. Leadership positions within the pedigrees included, among others, treasurers who collected dues from members of a particular pedigree, and individuals who performed security and disciplinary functions for the pedigree.
Members of the BHB had regular meetings, sometimes called “pow wows” or “9-11s,” at which members were required to pay dues. Some of the meetings were among members of a particular pedigree, and other meetings were for all members of the Enterprise. Word of the meetings was disseminated via text message, word-of-mouth, and flyers. The BHB’s business, including rivalries with other gangs, shootings, the arrest of gang members, guns, and drugs, was regularly discussed at these meetings. “Kitty dues” – money that paid for commissary funds, lawyers, guns, and drugs, and that served as tribute to Johnson – were collected at these meetings. The BHB maintained its own rules and constitution that new members were required to learn. Members of the BHB also used code words and secret phrases to communicate with each other both while in prison and on the street in order to avoid detection by law enforcement.
One of the BHB’s principal objectives was to sell cocaine base, commonly known as “crack cocaine,” powder cocaine, and heroin, which members and associates of the BHB sold throughout the greater New York area and in Pennsylvania.
Members and associates of the BHB engaged in multiple acts of violence against rival gangs. These acts of violence included assaults and attempted murders, which were committed to protect the Gang’s drug territory, to retaliate against members of rival gangs who had encroached on the territory controlled by the BHB, and to otherwise promote the standing and reputation of the Gang vis-à-vis rival gangs. These acts of violence also included assaults and attempted murders against members and associates of the BHB itself, as part of internal power struggles within the Gang.
GREEN, 38, of the Bronx, New York, was one of BHB’s primary suppliers of cocaine and heroin, providing other Gang members with redistribution quantities of narcotics for resale in New York City and Elmira, New York. GREEN also maintained a supply of firearms, which he sometimes made available to other members of the Gang. At the time of GREEN’s arrest in May 2017, U.S. Marshals recovered six loaded firearms from the residence where he was living.
* * *
Latique Johnson, a/k/a “La Brim,” 41, of the Bronx, New York, the Gang’s founder, was convicted following a jury trial of of racketeering conspiracy, assault in aid of racketeering, attempted murder in aid of racketeering, narcotics conspiracy, and firearms. Johnson was sentenced in 2019 to 30 years in prison.
Donnell Murray, 41, of the Bronx, New York, a BHB leader was convicted following a jury trial of racketeering conspiracy, assault in aid of racketeering, narcotics conspiracy, and a firearms offense. Murray was sentenced in 2019 to 20 years in prison.
David Cherry, 40, of the Bronx, New York, a BHB leader, was convicted following a guilty plea to a firearms offense. Cherry was sentenced in June to 10 years in prison.
Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation, the New York City Police Department, and the Special Agents of the United States Attorney’s Office for the Southern District of New York.
The prosecution is being handled by the Violent and Organized Crime Unit of the U.S. Attorney’s Office for the Southern District of New York. Assistant U.S. Attorneys Jessica Feinstein, Allison Nichols, and Andrew Chan are in charge of the prosecution.
Leader of Manhattan Drug Trafficking Organization Convicted of Narcotics OffensesRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that EDDIE COTTO, a/k/a “Eddie Diamond,” was found guilty yesterday in Manhattan federal court following a week-long jury trial before U.S. District Judge Jed S. Rakoff. COTTO is scheduled to appear for sentencing before Judge Rakoff on November 3, 2021.
U.S. Attorney Audrey Strauss said: “As a unanimous jury swiftly determined, Eddie Cotto peddled poison in a public housing building for over a year, disrupting the lives of New Yorkers. Cotto’s distribution of heroin, cocaine, and fentanyl and his callous disregard for its consequences have resulted in today’s conviction.”
As reflected in the Indictment, public filings, and other evidence presented at trial:
EDDIE COTTO was the leader of a drug trafficking organization (the “DTO”) that operated in New York, New York, and controlled drug sales of heroin, cocaine, and fentanyl in and around a New York City Housing Authority building at 1760 Lexington Avenue (the “Building”). COTTO supervised and coordinated the supply of narcotics to his co-defendants, and stored the DTO’s narcotics in the locked janitorial closets of the Building. COTTO acted as the gatekeeper of the Building generally from the safety of a Winnebago that COTTO parked in the vicinity of the Building. From the early morning hours, COTTO would direct his co-defendants, generally via walkie-talkie, to serve customers whom COTTO was sending to the Building to complete narcotics transactions.
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COTTO, 61, of New York, New York, was convicted of one count of narcotics conspiracy in violation of 21 U.S.C § 846 and four counts of narcotics distribution in violation of 21 U.S.C. §§ 841(a)(1) and 841(b)(1)(C). COTTO faces a mandatory minimum term of five years’ imprisonment and a total maximum sentence for all counts of conviction of 120 years in prison.
Other members of the conspiracy in this case who have been sentenced include SAMMY MCCOY, 64, of New York, New York, who was sentenced to 98 months in prison on May 19, 2019, ERVIN ORTIZ, 62, of New York, New York, who was sentenced to 66 months in prison on May 20, 2021, and JJIMMY RIVAS, 28, of New York, New York, who was sentenced to 24 months in prison on October 11, 2019. MCCOY and RIVAS were sentenced by U.S. District Judge Victor Marrero and ORTIZ was sentenced by Judge Rakoff.
Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation and the New York City Police Department.
The prosecution is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Timothy V. Capozzi, Rebecca T. Dell, Aline R. Flodr, and Emily A. Johnson are in charge of the prosecution.
Department of Justice Announces Launch of Firearms Trafficking Strike Forces to Crack Down on Sources of Crime GunsRead the Press Release
The U.S. Department of Justice today launched five cross-jurisdictional strike forces to help reduce gun violence by disrupting illegal firearms trafficking in key regions across the country. Leveraging existing resources, the regional strike forces will better ensure sustained and focused coordination across jurisdictions and help stem the supply of illegally trafficked firearms from source cities, through other communities, and into five key market regions: New York, Chicago, Los Angeles, the San Francisco Bay Area/Sacramento Region and Washington, D.C.
Each strike force region will be led by designated United States Attorneys, who will collaborate with the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) and with state and local law enforcement partners within their own jurisdiction (where firearms are used in crimes) as well as law enforcement partners in areas where illegally trafficked guns originate. These officials will use the latest data, evidence, and intelligence from crime scenes to identify patterns, leads, and potential suspects in violent gun crimes.
“All too often, guns found at crime scenes come from hundreds or even thousands of miles away. We are redoubling our efforts as ATF works with law enforcement to track the movement of illegal firearms used in violent crimes. These strike forces enable sustained coordination across multiple jurisdictions to help disrupt the worst gun trafficking corridors,” said Attorney General Merrick B. Garland. “The Department of Justice will use all of its tools – enforcement, prevention, intervention, and investment – to help ensure the safety of our communities – the department’s highest priority.”
According to gun trace data, the vast majority of firearms recovered in New York City originate outside the state and are illegally trafficked into New York. The new strike force, led by Audrey Strauss, the U.S. Attorney for the Southern District of New York, and Jacquelyn M. Kasulis, the Acting U.S. Attorney for the Eastern District of New York, will help ensure sustained and focused coordination between law enforcement and prosecutors in New York City with their counterparts in locations where many of the firearms originate.
U.S. Attorney Audrey Strauss said: “Disrupting the flow of guns into New York City is an important part of our anti-violence efforts. We look forward to working with our federal and state partners to investigate and prosecute gun trafficking cases. Because many of the firearm source locations for New York City overlap with the source locations for firearms recovered in the District of Columbia, we will coordinate our efforts with our D.C. counterparts.”
U.S. Attorney Jacquelyn M. Kasulis said: “Gun violence has taken a terrible, unacceptable toll on our communities, and it must be stopped. Stemming the flow of illegal guns into New York City is critical to eradicating gun violence in our city. We are committed to working with our federal and state partners to investigate and prosecute gun trafficking to the fullest extent of the law.”
The strike forces represent one important, concrete step in implementing the Department’s Comprehensive Violent Crime Reduction Strategy, which was announced on May 26, 2021. The comprehensive strategy supports local communities in preventing, investigating, and prosecuting gun violence and other violent crime – and requires U.S. Attorneys’ offices to work with federal, state, local and tribal law enforcement, as well as the communities they serve, to address the most significant drivers of violence in their districts. In guidance to federal agents and prosecutors as part of that comprehensive strategy, the Deputy Attorney General made clear that firearms traffickers providing weapons to violent offenders are an enforcement priority across the country.
4 Men Charged with Trafficking Nearly 5 Tons of Cocaine Hidden in FurnitureRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Ray Donovan, Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), John B. DeVito, Special Agent in Charge of the New York Field Office of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”), Philip R. Bartlett, Inspector-in-Charge of the New York Office of the United States Postal Inspection Service (“USPIS”), Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), and Kevin P. Bruen, Superintendent of the New York State Police (“NYSP”), announced today the unsealing of a superseding indictment in Manhattan federal court charging PEDRO GUZMAN MARTINEZ, a/k/a “Peter,” ABEL MONTILLA, a/k/a “Coche Bomba,” JORGE MIRANDA-SANG, a/k/a “Chinito,” and LUIS GOMEZ ORTIZ, a/k/a “Kiké,” with participating in a drug trafficking organization that shipped approximately 4,500 kilograms of cocaine from Puerto Rico to the continental United States, including to New York, Massachusetts, Florida, and Connecticut, for sale and distribution over a period of approximately 10 months. GUZMAN MARTINEZ and MIRANDA-SANG were arrested this morning in Puerto Rico and are expected to be presented before a magistrate judge in the District of Puerto Rico later today. GOMEZ ORTIZ was arrested this morning in Florida and is expected to be presented before a magistrate judge in the Middle District of Florida later today. MONTILLA was arrested this morning in Springfield, Massachusetts, and is expected to be presented before U.S. Magistrate Judge Katharine H. Parker in the Southern District of New York later today. The case is assigned to U.S. District Judge P. Kevin Castel.
U.S. Attorney Audrey Strauss said: “These defendants allegedly hid nearly five tons of cocaine in furniture so they could ship it from Puerto Rico to New York City and elsewhere. As alleged, for a time, the defendants were able to hide their cocaine, but they were unable to hide the scheme from our law enforcement partners. We will continue to focus on prosecuting large-scale traffickers of illegal drugs.”
DEA Special Agent in Charge Ray Donovan said: “Traffickers have always found new and innovative methods of smuggling drugs into the United States. In this case, they allegedly concealed cocaine into hollowed out furniture. This nearly three-year investigation has dismantled an international drug trafficking organization that allegedly has been shipping thousands of kilograms of cocaine, ultimately destined for our communities. I applaud our law enforcement partners from the US Attorney’s Office in the Southern District of New York, the ATF and the USPIS for their efforts in bringing this organization to justice.”
ATF Special Agent in Charge John B. DeVito said: “The defendants are alleged to run a drug trafficking organization which conspired to flood our streets with unprecedented levels of illegal narcotics. Thankfully, through the diligent efforts of our law enforcement partners, their alleged operation has been disrupted and dismantled successfully. ATF is committed to the fight against the illegal drug trade and will stand shoulder to shoulder with all of our local, state and federal partners to see that these organizations are eradicated from our communities. I would like to thank the United States Attorney’s Office for their leadership during this investigation.”
USPIS Inspector-in-Charge Philip R. Bartlett: said: “Winning the battle against illicit drugs is a top priority for the Postal Inspection Service and our law enforcement partners. Our objectives are to rid society of illicit drug trafficking and the associated violence, and most importantly, provide a safe environment for the American public.”
Police Commissioner Dermot Shea said: “Today’s charges demonstrate that the investigative efforts of New York City law enforcement are far-reaching, precisely-focused, and patient. As long as individuals – wherever they are based – are involved in illegal narcotics trafficking, the NYPD and our partners will relentlessly work to stop the spread of illegal narcotics on our streets. I commend our colleagues at the United States Attorney’s Office in the Southern District of New York, and our law enforcement partners at the DEA, ATF and USPIS for their dedication and hard work to bring these individuals to justice.”
State Police Superintendent Kevin P. Bruen said: “These arrests are the result of a sustained investigation into a narcotics trafficking organization that was allegedly shipping large quantities of cocaine into the United States, including New York. I want to thank our members and our law enforcement partners for their work on this case and their commitment to stopping the flow of illegal drugs into our country.”
According to the allegations contained in a Superseding Indictment unsealed today in Manhattan federal court and other filings in the case[1]:
Between at least September 2018 and June 2019, GUZMAN MARTINEZ, MONTILLA, MIRANDA-SANG, and GOMEZ ORTIZ were members of a drug trafficking organization (“DTO”) who conspired to distribute and possess with intent to distribute five kilograms and more of cocaine.
The defendants operated the drug trafficking scheme by arranging for the shipment of approximately 70 large parcels from Puerto Rico to the continental United States. The cocaine was concealed in custom tables and other furniture, and the packages containing the cocaine were represented to be furniture on shipping documentation, but the hollowed-out furniture in fact concealed hundred-kilogram quantities of cocaine. In total, the trafficking organization shipped approximately 4,500 kilograms of cocaine, worth approximately $144 million on the street.
GUZMAN MARTINEZ was responsible for delivering the packaged cargo (containing hollowed-out furniture filled with cocaine) to co-conspirators whom GUZMAN MARTINEZ hired to facilitate the shipping logistics using a false company name.
MIRANDA-SANG and GOMEZ ORTIZ identified and hired individuals in the continental United States to receive and sign for DTO shipments, to unpack and distribute the cocaine to other DTO members as directed, and to dispose of the packaging materials to evade detection by law enforcement.
MONTILLA was a Massachusetts-based coordinator of cocaine deliveries who traveled to many delivery locations and coordinated the delivery of cocaine shipments with package recipients. At least a dozen packages were sent to addresses affiliated with MONTILLA.
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MONTILLA, 48, of Springfield, Massachusetts, and GUZMAN MARTINEZ, 47, MIRANDA-SANG, 42, and GOMEZ ORTIZ, 29, all of Puerto Rico, are each charged with one count of conspiracy to distribute and possess with the intent to distribute narcotics, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 10 years in prison. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.
Ms. Strauss praised the outstanding investigative work of the DEA, ATF, USPIS, NYPD, and NYSP in this investigation.
The prosecution is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Juliana N. Murray, Ryan B. Finkel, and Peter J. Davis are in charge of the prosecution.
The charges contained in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Superseding Indictment and the description of the Superseding Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Manhattan Businessman Charged in Manhattan Federal Court for Fraudulently Obtaining Government Procurement ContractRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and William W. Richards, Special Agent in Charge of the United States Air Force Office of Procurement Fraud Investigations, Joint Base Andrews, announced today that RAYMOND WHITE, a/k/a “John Raymond Anthony White,” a/k/a “Raymond Alexander White,” was arrested by agents from the Air Force Office of Special Investigations and the Army Major Procurement Fraud Unit this morning at his residence in New York, New York. WHITE is charged by complaint with submitting false information regarding WHITE’s general contractor business’s finances and prior performance of contracts in order to obtain a contract to build a munitions load crew training facility at Joint Base Andrews, Maryland, and submitting false information to the United States Small Business Administration (SBA) in order to induce the SBA to guarantee 80% of the performance and payment bonds issued in connection with the contract. The contract was worth in excess of $4.8 million.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Raymond White lied and provided false documentation and credentials to the military and the Small Business Administration in procuring a multimillion-dollar contract he was not qualified to fulfill. Among other fabrications, White allegedly provided a report from an independent accounting firm that appears not to exist. White also allegedly provided as a reference the owner of a prior $9 million contracting project, but both the owner and the prior project appear to have been made up out of whole cloth. As alleged, Raymond White’s actual specialty appears to be the construction of fantastical falsehoods.”
Office of Procurement Fraud Investigations Special Agent in Charge William W. Richards said: “The Office Procurement Fraud Investigations, along with our law enforcement and prosecutorial partners, will work tirelessly to combat fraud threatening the Department of the Air Force.”
According to the allegations in the Complaint unsealed today in Manhattan federal court[1]:
Beginning on or about May 12, 2019, through at least in or about September 2020, WHITE, president and chief executive officer of a construction management and general contractor company (the “Contractor), submitted a bid to the District of Columbia Army National Guard (“DCARNG”) on a contract (the “Contract”) to build a munitions load crew training facility at Joint Base Andrews, Maryland. Between September 21, 2019, and September 30, 2019, in response to a pre-award questionnaire sent by the contract specialist, WHITE emailed several documents, including an “Independent Accountants’ Report,” a “Construction Contractor Experience Data,” and a “Firm Dossier” to the contract specialist for the DCARNG. The contract was awarded to September 30, 2019, to the Contractor for $4,801,000. These documents contained false financial reports regarding the Contractor’s finances, false information regarding past performance of contracts by the Contractor, and false information regarding members of the management team for the Contractor. The contract was terminated on or about September 16, 2020, for providing false information to the DCARNG, and no construction work had been performed yet on the site.
As required by federal law, WHITE was required to obtain performance and payment bonds provided by an insurer (generally referred to in the business as a surety) for the Contract. On or about October 23, 2019, the Contractor received a performance and payment bond from a bond insurance company (the “Surety”), and the Surety required that the Contractor obtain a guarantee of the bond from the United States Small Business Administration (“SBA”), so that in the event of default on the bond, the Surety would be reimbursed 80%-90% of any loss incurred by the SBA. In or around October 2019, WHITE emailed the SBA bond guarantee application materials to a surety bond broker to submit to the SBA. The application materials included, among other documents, financial statements and a statement of personal history for WHITE. These documents contained fictitious financial reports regarding the Contractor’s finances and false information regarding past contracts performed by the Contractor. WHITE also falsely represented in the Statement of Personal History that he never had been convicted of any criminal offense, when WHITE was previously convicted on April 21, 2011, in the Southern District of New York of mail fraud (18 USC § 1341), major fraud against the United States (18 USC § 1031), false statements (18 USC § 1001(a)), and tampering with a witness (18 USC § 1512(b)(3)). WHITE also listed his name as “Raymond Alexander White” and provided a social security number and date of birth different from those listed in his Bureau of Prisons records. On or about October 31, 2019, the Contractor obtained a guarantee from the SBA of 80% of the payment and performance bond. As a result of Contract termination, the SBA has fulfilled three claims that the Surety has submitted to the SBA pursuant to the guarantee provided by the SBA to the bonds issued by the Surety, totaling $242,827.53 as of January 26, 2021.
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WHITE, 56, of New York, New York, is charged with one count of major fraud against the United States, which carries a maximum sentence of 10 years in the prison, and two counts of wire fraud, each of which carries a maximum sentence of 20 years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
Ms. Strauss praised the work of the Air Force Office of Procurement Fraud Investigations and the Army Major Procurement Fraud Unit in this investigation.
The case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Edward C. Robinson Jr. 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.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described herein should be treated as an allegation as to the defendants charged in the Complaint.
7 Defendants in Nationwide Money Laundering Organization Charged for Laundering over $28 Million for Drug Trafficking OrganizationsRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and Ray Donovan, Special Agent in Charge of the New York Division of the U.S. Drug Enforcement Administration (“DEA”), announced charges today against seven individuals involved in laundering tens of millions of dollars for drug trafficking organizations selling illegal narcotics throughout the United States. YING SUN, JIAN WANG, FRANK LIU, DIELONG WU, LARRY LAI, and JIE LIN, are charged with conspiracy to commit money laundering and conspiracy to operate an unlicensed money transmission business; STEVEN WOO was also charged as part of the conspiracy to operate an unlicensed money transmission business. SUN, LIU, and WOO were arrested in California and will be presented in the Central District of California this afternoon before Magistrate Judge John D. Early. WU and LAI were arrested today in New York and will be presented in the Southern District of New York before Magistrate Judge Katharine H. Parker. WANG and LIN remain at large. During the investigation, law enforcement agents seized over $6.5 million from the defendants’ money laundering organization, and, in coordination with unsealing the charges today, seized an additional $8 million in assets traceable to the illicit proceeds laundered by the organization. The case is assigned to U.S. District Judge Sidney H. Stein.
U.S. Attorney Audrey Strauss said: “Like drug dealers, those who launder the proceeds of drug trafficking profit from the sale of dangerous narcotics that wreak havoc in communities throughout the United States. As alleged, the individuals arrested today facilitated drug traffickers by concealing millions of dollars of their ill-gotten profits. Our Office will continue to work closely with the DEA and our law enforcement partners to go after the money networks that are necessary to the operations of the international drug trade.”
DEA Special Agent in Charge Ray Donovan said: “One of the most powerful criminal elements of transnational drug trafficking organizations is money laundering. Like any business, the ultimate goal of drug trafficking is to profit. These money laundering networks provide an invaluable service to traffickers, transferring their ill-gotten gains across the globe. The men and women of the DEA are focused on bringing to justice not only drug traffickers, but anyone who facilitates the drug trade.”
According to the allegations in the Indictment unsealed today[1]:
From at least November 2019 through May 2021, SUN coordinated the activities of a money laundering organization (“MLO”), communicating with drug trafficking organizations (“DTOs”) throughout the United States and in Mexico to receive large quantities of cash to be laundered. From April 2020 through April 2021, SUN organized more than 130 money pickups in 23 states involving over $20 million in drug trafficking proceeds. WANG, LIU, WU, LAI, LIN, and WOO facilitated the MLO’s operations by conducting these money pickups, transporting the cash, depositing the money into the retail banking system, and/or transferring the money to different individuals or entities.
During the course of the investigation, law enforcement agents conducted numerous seizures of bulk currency in connection with the money pickups conducted by the MLO, and seized over $6.5 million.
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SUN, 65, of Arcadia, California, WANG, 52, of Rosemead, California, LIU, 65, of Yorba Linda, California, WU, 58, of Staten Island, New York, LAI, 69, of Queens, New York, and LIN, 58, of Upland, California, are each charged with one count of conspiracy to commit money laundering, which carries a maximum penalty of 20 years in prison, and, along with WOO, 69, of Montebello, California, one count of conspiracy to operate an unlicensed money transmission business, which carries a maximum penalty of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Ms. Strauss praised the outstanding work of the DEA. She also thanked the Internal Revenue Service and the U.S. Attorney’s Office for the Central District of California for their assistance.
This case is being handled by the Office’s Narcotics Unit. Assistant United States Attorney Brett M. Kalikow is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Manhattan Investment Fund Manager Sentenced to 5 Years in Prison for Securities Fraud and Misappropriation SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that DONALD LAGUARDIA was sentenced today to 60 months in prison for his securities fraud and misappropriation scheme. LAGUARDIA was the chief executive and co-founder of a New York-based investment firm, L-R Managers, LLC, which managed the LR Global Frontier Master Fund and two related feeder funds (collectively, the “Frontier Funds”). LAGUARDIA was found guilty of securities fraud, investment adviser fraud, and wire fraud following a trial last November before United States District Judge Lewis A. Kaplan, who imposed today’s sentence.
U.S. Attorney Audrey Strauss said: “Donald LaGuardia pitched his clients on frontier market investments, but the Frontier Funds turned out to be a front for fraud. LaGuardia betrayed his clients’ trust by diverting millions to other uses, including his own personal and business expenses. Now LaGuardia has been sentenced to prison for his crimes.”
According to statements in the Indictment, evidence presented during the trial, and other filings and statements at public court proceedings in the case:
From in or about 2013 through in or about 2017, LAGUARDIA solicited approximately $6.4 million from investors for Frontier Funds, which had a stated focus on investments in “frontier” markets in Latin America, Central and Eastern Europe, the Middle East, Africa, and Asia. Contrary to LAGUARDIA’s representations, and in breach of his duties to investors in the Frontier Funds, LAGUARDIA misappropriated investors’ money to finance L-R Managers’ payroll, pay rent for its office space on Park Avenue in Manhattan, and pay hundreds of thousands of dollars in charges on the firm’s credit card, among other unauthorized expenses. Hundreds of thousands of dollars went to the benefit of LAGUARDIA personally.
In one example, in 2013, LAGUARDIA solicited an $800,000 investment in the Frontier Funds from an investor (“Investor-1”). Upon receipt of Investor-1’s money, an L-R Managers employee sent an email to LAGUARDIA and another person asking for approval to forward the $800,000 to the Frontier Funds. LAGUARDIA responded, “Dont [sic] wire anything yet!” LAGUARDIA then caused approximately $390,000 of Investor-1’s investment never to be transmitted to the Frontier Funds, but instead to be used to pay himself approximately $52,000 and for various other personal and business expenses.
By September 2015, L-R Managers faced substantial financial difficulties. On September 1, 2015, an L-R Managers principal sent an email to LAGUARDIA and others at the firm stating that it would be “ethically troubling to accept money into the [Frontier Funds] when [L-R Managers] can no longer support . . . payroll and mission critical services.” Nevertheless, just a few days later, a new investor solicited by LAGUARDIA (“Investor-2”) made a $2 million investment into the Frontier Funds. Prior to this investment, LAGUARDIA concealed his firm’s near insolvency from Investor-2 and did not disclose that the Frontier Funds had been paying substantial expenses for L-R Managers, contrary to the representations in the funds’ offering documents. LAGUARDIA then proceeded, over the course of several months, to use a substantial portion of Investor-2’s investment in the Frontier Funds to continue paying himself and subsidizing his firm’s business expenses.
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LAGUARDIA, 54, of Lavallette, New Jersey, was also sentenced to three years of supervised release. He was further ordered to forfeit $2,571,500 and pay restitution to victims in the amount of $4,039,872.46.
Ms. Strauss praised the investigative work of the U.S. Postal Inspection Service and thanked the U.S. Securities and Exchange Commission for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Margaret Graham and Daniel Loss are in charge of the prosecution.
Treasurer of Law Enforcement Union Pleads Guilty to Tax Evasion and Lying to Federal OfficersRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, announced that STEVEN WHITTICK, the former treasurer of the Law Enforcement Employees Benevolent Association (“LEEBA”) and an officer with the New York City (the “City”) Department of Environmental Protection (“DEP”), pled guilty today before United States District Judge P. Kevin Castel, to charges of conspiring to evade more than $250,000 in federal taxes, including payroll taxes owed by LEEBA and its employees, and his own personal income taxes. WHITTICK also pled guilty to lying to federal officers during the course of the investigation in this case. LEEBA is a labor union that represents certain law enforcement officers employed by the City, including officers from DEP, the City Department of Sanitation, and the City Department of Transportation.
U.S. Attorney Audrey Strauss said: “Steven Whittick today pled guilty to charges that reflect a betrayal of his duties as a law enforcement officer, his legal obligations as a union official, and his responsibilities as a taxpayer. As a police officer, Whittick swore to uphold the law, not to obstruct it. As a union official, he betrayed the rank-and-file membership by paying himself off the books. As a taxpayer, Whittick evaded his legal obligation to pay what was owed. Now, Steven Whittick awaits sentencing for his crimes.”
According to the Indictment and the underlying complaints filed in this case, as well as other publicly available information and prior court filings, and recent court proceedings:
Law Enforcement Employees Benevolent Association
LEEBA is a labor union that has acted as the collective bargaining representative principally for law enforcement personnel at various City agencies, and has entered into agreements on behalf of those law enforcement employees, including agreements for insurance and retirement benefits. The City agencies whose employees LEEBA represented included, at various times, DEP, the Department of Sanitation, and the Department of Transportation.
WHITTICK
WHITTICK is a DEP police officer, the former treasurer of LEEBA, and a member of the board of directors of LEEBA and the boards of trustees of the LEEBA Annuity Fund and the LEEBA Welfare Fund. As LEEBA’s treasurer, WHITTICK had responsibility for LEEBA’s financial matters and accounts, including arranging for LEEBA to pay its payroll through an outside payroll processing firm (the “Payroll Processor”) starting in 2016. WHITTICK also held signatory authority over LEEBA’s main operating bank account.
The Tax Evasion Conspiracy
As charged in Count Two of the Indictment, to which WHITTICK pled guilty today, from at least in or about 2015 through 2019, WHITTICK participated in a conspiracy with Kenneth Wynder Jr.,[1] the president of LEEBA, to cause LEEBA to make payments to WHITTICK and Wynder, by check and in cash, and to conceal such payments from the Internal Revenue Service (“IRS”). WHITTICK further conspired to ensure that such payments were made outside of LEEBA’s Payroll Processor. He then concealed these payments from the IRS – including off-the-books payments to himself of more than $100,000 and off-the-books payments to Wynder of more than $400,000 – in order to evade his own personal income taxes and the personal income taxes of Wynder, and to evade the payroll taxes that were owed by LEEBA and certain LEEBA employees.
WHITTICK’s False Statements to Federal Agents
In or about October 2019, while serving as LEEBA’s Treasurer and after learning of a federal investigation into LEEBA’s finances – including the investigation of an alleged embezzlement scheme that ultimately resulted in wire fraud charges against Wynder – WHITTICK repeatedly lied to federal agents in an effort to obstruct that investigation. WHITTICK did so despite personal involvement in some of the financial improprieties with which Wynder is charged. For example, as alleged, on at least two occasions, on or about February 1, 2018, and March 30, 2018, WHITTICK withdrew $16,000 in cash from a LEEBA bank account, and on each occasion deposited $15,000 cash into Wynder’s personal bank account and $1,000 cash into WHITTICK’s own personal bank account.
After the FBI executed a search warrant of LEEBA’s offices in September 2019, WHITTICK attempted to obstruct and to influence the ongoing federal investigation by making, in two different interviews with law enforcement agents, false statements about, among other subjects, cash withdrawals he made from LEEBA’s bank accounts, unauthorized withdrawals from LEEBA’s Annuity Fund and from the individual retirement accounts of Fund participants, and LEEBA’s payment for certain travel and entertainment expenses for union officers, including WHITTICK and Wynder.
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WHITTICK, 51, of Kingston, New York, pled guilty today to: (1) one count of conspiracy to evade personal and payroll taxes for the tax years 2015 through 2018 and the first three quarters of 2019; and (2) one count of lying to federal investigators. Each of those charges carries a maximum sentence of five years in prison, a maximum fine of $250,000 or twice the gross gain or loss from the offense, and an order of restitution. WHITTICK is scheduled to be sentenced by Judge Castel on November 17, 2021, at 11:00 a.m.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
Ms. Strauss praised the outstanding work of the FBI, IRS-Criminal Investigation, and the Department of Labor Office of Labor Managements Standards. Ms. Strauss also thanked the New York City Comptroller’s Office and the New York City Department of Investigation for their assistance.
The case is being prosecuted by the Office’s Public Corruption Unit. Assistant U.S. Attorneys David Raymond Lewis and Eli J. Mark are in charge of the prosecution.
[1] Wynder is charged in six counts of the same Indictment in which WHITTICK was charged. The charges against Wynder contained in the Indictment are accusations only. Wynder remains presumed innocent unless and until proven guilty.
Movie Producer Indicted for Operating A Prostitution Business and Money Laundering SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and George M. Crouch Jr., Special Agent-in-Charge of the Newark Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging DILLON JORDAN, a/k/a “Daniel Jordan,” a/k/a “Daniel Maurice Hatton, a/k/a “Daniel Bohler, with conspiracy to violate the Mann Act, substantive Mann Act and Travel Act violations, and money laundering in connection with operating a prostitution business and laundering the proceeds of that prostitution business through two front companies – a purported party and event planning company and an actual movie production company. JORDAN was arrested today in San Bernardino County, California, and will be presented today in the Central District of California.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, for years, Dillon Jordan operated an extensive and far-reaching prostitution business, using a purported event planning company and a movie production company to conceal the proceeds he made from exploiting women. Now the party is over and the film is a wrap.”
FBI Special Agent-in-Charge George M. Crouch Jr. said: “This defendant apparently thought he could hide his alleged criminal dealings behind a supposedly legitimate business. But the FBI, in its mission to protect our citizens, uses every tool at its disposal to unmask those who violate federal law and assist the impacted victims. We encourage anyone who was victimized by this defendant, and anyone with additional information, to contact our Newark field office.”
As alleged in the Indictment unsealed today in Manhattan federal court:[1]
From in or about 2010 through at least in or about May 2017, JORDAN operated a prostitution business throughout the United States and abroad. JORDAN maintained a roster of women who resided around the United States and who, in exchange for payment, performed sexual acts for JORDAN’s clients at locations throughout the United States, including the Southern District of New York, and abroad. JORDAN communicated with the clients of his prostitution business by email to coordinate the prostitution services, which included sending to clients photos of women who were available for hire for prostitution services, discussing the price of prostitution services, and overseeing travel logistics for women to travel to engage in prostitution. At times, JORDAN himself arranged the interstate travel from the women to engage in prostitution, and at other times, clients, at JORDAN’s direction, arranged the interstate travel for the women whom JORDAN directed to those clients. To facilitate his prostitution business, JORDAN also coordinated with a United Kingdom-based madam by sharing and referring customers and prostitutes.
JORDAN primarily managed the finances of the prostitution business through two front companies – a purported party and event planning company and a movie production company – incorporated in California. JORDAN opened multiple bank accounts for these companies, which he used to accept cash, wire, and check payments for prostitution services from clients and to pay for the expenses of the prostitution business, including paying the women for their prostitution services by cash and check. By using the two front companies to receive deposits from the prostitution business, JORDAN ensured that transactions involving those proceeds from the prostitution business would disguise the nature, source, and origin of those proceeds.
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JORDAN, 49, of Lake Arrowhead, California, is charged with: one count of conspiracy to violate the Mann Act, which carries a maximum sentence of five years in prison; one count of enticement, which carries a maximum sentence of 20 years in prison; one count of use of interstate commerce to promote unlawful activity, which carries a maximum sentence of five years in prison; and one count of money laundering, which carries a maximum sentence of 20 years in prison. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
We urge anyone who feels she may be a victim of, or have information related to, the conduct in this case to please contact the FBI at [email protected] or (973) 792-3000.
Ms. Strauss praised the investigative work of the FBI. This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant United States Attorney Cecilia E. Vogel is in charge of the prosecution.
The allegations in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Former CEO and CFO of Public Telecommunications Company Charged in Manhattan Federal Court with Scheme to Defraud InvestorsRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment in Manhattan federal court charging MICHAEL PALLESCHI, the former Chief Executive Officer of FTE Networks, Inc. (“FTE”), and DAVID LETHEM, the former Chief Financial Officer of FTE, with conspiracy, securities fraud, and wire fraud, improperly influencing the conduct of an audit and aggravated identity theft. These charges stem from the defendants’ years-long scheme to inflate FTE’s revenue, to conceal liabilities and expenses, and to embezzle company funds. PALLESCHI was arrested this morning in the Northern District of New York and will be presented today in that district. LETHEM was arrested this morning in the Middle District of Florida and will be presented today in that district.
U.S. Attorney Audrey Strauss said: “When corporate executives sell their company’s stock to the public, they assume the responsibility under federal law of making full and accurate disclosures about their company’s financial condition to investors. Palleschi and Lethem instead chose to lie about FTE’s finances to make the company appear more financially healthy than it was, thus defrauding FTE’s stockholders and lenders. Instead of forthrightness with their investors, Palleschi and Lethem chose the easy way to cash in by obfuscating FTE’s true financial health through fake documents and forged signatures. This Office is committed to ensuring the integrity of our capital markets through vigorous enforcement of federal securities laws.”
FBI Assistant Director William F. Sweeney Jr. said: “Concealing a company’s true financials from investors is not only an unscrupulous business practice, but in the case of Palleschi and Lethem, as we allege today, it amounted to a federal crime. Financial fraud schemes are all too common, and in order to maintain investor confidence, we need to hold accountable those who perpetrate them.”
According to the Indictment unsealed today in Manhattan federal court:[1]
FTE was a telecommunications company based in Naples, Florida and Manhattan. As of December 2017, its stock traded on the NYSE American market. From 2014 to 2019, PALLESCHI was the chairman of FTE’s Board of Directors and its Chief Executive Officer. LETHEM served as FTE’s Chief Financial Officer from 2014 through 2019.
Fraud with Respect to Convertible Notes
From 2016 to early 2019, PALLESCHI and LETHEM caused FTE to issue approximately 70 notes with a total principal balance of more than $22 million to private lenders that the lenders could convert to FTE’s common stock, either upon demand or upon default. Issuers of such convertible notes must recognize on their financial statements liabilities and expenses that arise from the notes’ conversion features. PALLESCHI and LETHEM caused FTE to recognize only the principal amounts and resulting interest expense on the company’s books but not the substantial liabilities and expenses arising from the notes’ conversion features.
In furtherance of the scheme, PALLESCHI and LETHEM took several steps to conceal the notes’ conversion features:
Rather than provide FTE’s accountants and auditors with copies of the actual convertible notes, the defendants created fake notes with the same lenders, principal amounts and other terms as the convertible notes and gave the fake notes to the auditors and accountants. PALLESCHI and LETHEM created more than 35 such fake notes with a total principal balance of more than $14 million.
PALLESCHI and LETHEM also created fake resolutions of FTE’s Board of Directors that purportedly authorized the company to issue the convertible notes on which they forged the Directors’ signatures. The defendants then provided these forged Board resolutions to FTE’s lenders.
On four occasions in June 2017, LETHEM forged the signature of a representative of FTE’s transfer agent on letters that he provided to lenders. The transfer agent kept records of who owned FTE’s stock and held stock shares that the company had not yet issued. The forged letters purported to confirm that the transfer agent would hold a sufficient number of shares of FTE’s stock in reserve to pay a convertible lender in case the lender decided to convert a convertible note into FTE stock. These letters protected convertible lenders by ensuring that enough shares of FTE’s stock would be available to pay off the convertible notes. Convertible lenders generally required their borrowers to provide them with such letters before funding a convertible note.
PALLESCHI and LETHEM lied repeatedly to FTE’s auditors by falsely denying that the company had issued convertible debt. In April 2018, LETHEM falsely denied to the auditors that FTE had issued two specific convertible notes. Three days later, both PALLESCHI and LETHEM repeated this false denial to the auditors in a management representation letter related to the audit of FTE’s 2017 year end financial statements. PALLESCHI and LETHEM also falsely denied to the auditors in April 2018 and again in November 2018 that a $1.4 million note FTE had entered into in April 2018 was convertible. When the auditors asked to see a copy of the $1.4 million note, LETHEM falsely claimed that his sole electronic copy of the note was lost because the electronic file had become corrupted. When the auditors continued to ask for the note, LETHEM concealed that he had the note all along by sending the note to a company attorney and arranged for the attorney to send it back to him. LETHEM then forwarded the attorney’s email to a company Director, who forwarded it to the auditors with the notation that “[the attorney] found the note!” When the auditors then asked that the attorney review her files for other notes, LETHEM and the attorney falsely responded that the attorney did not know of, or possess, additional convertible notes.
As a result of this fraud with respect to convertible notes, the defendants caused FTE to understate its debt derivative liabilities and warrant derivative liabilities and to fail to recognize losses on conversion derivative liabilities and losses on issuance of notes in 2017 and 2018. For example, FTE’s year end 2017 financial statements understated FTE’s debt derivative liabilities by $48 million and warrant derivative liabilities by $16 million. FTE also failed to recognize a $35 million loss on conversion derivative liabilities and a $42 million loss on issuance of notes for the year ending 2017.
Fraudulent Revenue Recognition
PALLESCHI and LETHEM also caused FTE to recognize more than $13 million in fraudulent revenue:
This fraudulent revenue included more than $10 million in “unbilled” revenue that the defendants represented FTE had earned from services it had supposedly provided to a large customer that would not yet accept bills for those services. FTE never provided any such services.
In addition, the defendants caused FTE to recognize approximately $2.6 million as an account receivable for which there was no support. When FTE’s auditors said that the account receivable should be written off, PALLESCHI and LETHEM created a fake email from a representative of the customer saying that the customer would “expedite payments” for more than $1.5 million for projects completed by FTE in 2016 and 2017. The defendants caused this fake email to be sent to FTE’s auditors so that FTE could continue to recognize the receivable.
PALLESCHI and LETHEM caused FTE to recognize another $600,000 in accounts receivable for work the defendants falsely claimed FTE performed. When FTE’s auditor sought confirmation of this account receivable from the customer, LETHEM gave the auditor the name and email address of an FTE director who also was an employee of the customer. PALLESCHI and LETHEM then attempted to persuade the FTE director to sign the confirmation but the director refused to do so. LETHEM then emailed PALLESCHI in part “should I just send plan b?” Later that day, LETHEM emailed PALLESCHI an audit confirmation containing the director’s forged signature. A few days later, LETHEM emailed the auditor a confirmation containing the director’s forged signature.
As a result of the defendants’ fraudulent recognition of revenue, FTE’s financial statements overstated the company’s accounts receivable by between 18% and 120% for each of the quarters in 2017 and 2018 and by approximately 477% for 2016.
Embezzlement of Corporate Funds
PALLESCHI and LETHEM also embezzled corporate funds. This embezzlement included payments for private jet use, luxury automobiles, personal credit cards, unauthorized wire transfers and stock issuances. PALLESCHI and LETHEM used a bank account in the name of another entity to hide their diversion of corporate funds.
PALLESCHI, 46, of Naples, Florida; and LETHEM, 62, of Ft. Myers, Florida, are charged with 1) conspiring to commit securities fraud, wire fraud, making false statements in SEC filings and improperly influencing the conduct of audits, which carries a maximum sentence of 5 years in prison; 2) securities fraud, which carries a maximum sentence of 20 years in prison; 3) wire fraud, which carries a maximum sentence of 20 years in prison; 4) improperly influencing the conduct of audits, which carries a maximum sentence of 20 years in prison; and 5) aggravated identity theft, which carries a mandatory minimum term of 2 years in prison. The maximum potential sentences in this case are prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
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Ms. Strauss praised the investigative work of the FBI. Ms. Strauss further thanked the U.S. Securities and Exchange Commission, which today filed a parallel civil action.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Elisha Kobre, James McMahon and Negar Tekeei are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Enforcer of Violent Narcotics Trafficking Organization Sentenced to 35 Years in Prison for His Role in 7 MurdersRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that JASON DONES-GONZALEZ, an enforcer for La Organización de Narcotraficantes Unidos (“La ONU”), was sentenced by U.S. District Judge Jesse M. Furman to 35 years in prison. DONES-GONZALEZ previously pled guilty to participating in a racketeering conspiracy, participating in a conspiracy to commit murder, and unlawfully possessing a machine gun.
U.S. Attorney Audrey Strauss said: “Jason Dones-Gonzalez was a ruthless murderer who carried out numerous acts of wanton and depraved violence as an enforcer for La ONU. As just one example, Dones-Gonzalez and an accomplice beat a man until he appeared to be dead, but just to be sure, he and the accomplice stuffed the victim’s body into a suitcase, transported it elsewhere, shot it, and lit it on fire. This degree of cold-blooded indifference to – indeed, apparent pleasure at – taking another human life merits a firm reckoning. Today Jason Dones-Gonzalez was rightly sentenced to 35 years in prison for his horrific crimes.”
According to the Indictment, other filings in this case, and statements during court proceedings:
From at least in or about 2004 until 2016, DONES-GONZALEZ was a member and enforcer of La ONU, a criminal enterprise involved in shipping thousands of kilograms of cocaine from Puerto Rico to New York. Cocaine supplied by La ONU was then distributed in New York City, including out of a daycare center in the Bronx, New York. Members and associates of La ONU also engaged in acts of violence, including murder, to protect and expand the enterprise’s criminal operations and in connection with rivalries with other criminal organizations. In particular, members of the enterprise were ordered to shoot and kill suspected rival drug trafficking members.
As an enforcer for La ONU, DONES-GONZALEZ participated in the murder of at least seven people between approximately 2006 and 2010. Those murders involved heinous and brazen acts of violence, including, for example, kidnapping and killing individuals, strangling two individuals believed to be spies, interrogating them for information, and then shooting them, choking and shooting an individual believed to be cooperating with law enforcement, and assaulting an individual, placing that individual’s body in a suitcase, and shooting and lighting the suitcase on fire. Specifically:
In approximately 2006 or 2007, members of La ONU kidnapped and killed Freddy Mendez-Rivera after learning from corrupt law enforcement officers working for La ONU that Mendez-Rivera had complained to law enforcement about drug dealing occurring in his neighborhood. DONES-GONZALEZ and two other individuals put Mendez-Rivera into a van and killed him.
In 2007, DONES-GONZALEZ and three other individuals strangled two men alleged to be spies with twisted-up t-shirts while interrogating them for information. DONES-GONZALEZ and the others then shot the men, one of whom died.
In approximately 2008 or 2009, DONES-GONZALEZ and four other individuals dressed up as police officers and kidnapped an individual known as “Gabi,” a leader of a rival drug trafficking organization, from his home and killed him.
In 2009, DONES-GONZALEZ and another individual killed an individual known as “Sacca Grippe,” because they thought that he was cooperating with law enforcement. They choked and shot him.
On March 20, 2009, DONES-GONZALEZ and other members of La ONU murdered Carlos Barbosa on the orders of a leader of La ONU because Barbosa was threatening to take control of certain drug territory from that leader. DONES-GONZALEZ used a FN pistol, which is designed to fire multiple rounds upon a single pull of the trigger, and which fires ammunition that can penetrate body armor.
On November 27, 2009, DONES-GONZALEZ and other La ONU members assaulted Emanuel Correa Romero until he appeared dead. The leadership of a local housing project gang, after consulting with other leaders of La ONU, had decided that Correa Romero should be killed because he had murdered the friend of a leader of a component of La ONU. After the assault, DONES-GONZALEZ and another individual placed Correa Romero’s body into a suitcase, removed it from the housing project, and later reported back that they shot the suitcase and then lit it on fire.
On July 1, 2010, a leader of La ONU ordered the murder of Victor Alexis Rivera Santiago, a reggaeton singer who participated in narcotics trafficking, for stealing a kilogram of cocaine from the son of the leader’s friend and killing the son in the process. DONES-GONZALEZ and others tied Rivera Santiago up in the leader’s presence, transported him to an apartment, questioned him, and killed him.
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In addition to the prison term, Judge Furman sentenced DONES-GONZALEZ, 41, of Puerto Rico, to three years of supervised release.
Ms. Strauss praised the investigative work of the U.S. Postal Inspection Service, the Drug Enforcement Administration, the Bureau of Alcohol, Tobacco, Firearms and Explosives, and the New York City Police Department. Ms. Strauss also thanked the United States Attorney’s Office in the District of Puerto Rico and the Puerto Rico Police Department for their support in this ongoing investigation.
The prosecution is being handled by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Lara Pomerantz, Justin Rodriguez, and Andrew Thomas are in charge of the prosecution.
10th Century Statue Looted from Cambodian Temple Is Subject of Forfeiture Action Filed in Manhattan Federal CourtRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today the filing of a civil complaint seeking forfeiture of a 10th Century Khmer sandstone statue – Skanda on a Peacock – for the purpose of returning it to the Kingdom of Cambodia. The statue was stolen from the Prasat Krachap temple at Koh Ker in Cambodia, and sold by antiquities dealer Douglas Latchford into the international art market. Skanda on a Peacock is considered to be a masterpiece of artistic achievement and a valuable part of the Cambodian cultural heritage. The owner of Skanda on a Peacock has voluntarily relinquished possession of the statue to the custody of HSI.
Manhattan U.S. Attorney Audrey Strauss said: “Skanda on a Peacock is a work of great historical, religious, and artistic significance to the people of Cambodia. With this action, we reaffirm our commitment to ending the sale of illegally trafficked antiquities in the United States, and begin the process of returning Skanda on a Peacock to its rightful home.”
According to the Complaint filed in Manhattan Federal Court on July 15, 2021:
From 928 to 944 A.D., Koh Ker was the capital of the ancient Khmer empire in Cambodia. The Cambodian state under King Jayavarman IV constructed a vast complex of sacred monuments at Koh Ker, including the Prasat Krachap temple and its statuary. Koh Ker statuary was revolutionary for its time. Many of the statues, including Skanda on a Peacock, were huge, often shown in movement, and were free-standing or in high-relief. Skanda on a Peacock depicts the Hindu god of war, Skanda, riding on the back of a peacock. The body and tail of the peacock are decorated with intricate engraved patterns. Khmer cultural experts believe that the face of the Skanda on the statue may in fact be a portrait of a royal family member, such as Harshavarman II, the son of King Jayavarman IV.
During the civil conflicts of late 20th century, statues and other artifacts were stolen from Koh Ker and entered the international art market through an organized looting network. Local teams of looters would first remove the statues from the original location at Koh Ker. The statues would then be transported to the Cambodia-Thailand border, and transferred to brokers, who would in turn transport them to dealers in Khmer artifacts located in Thailand, particularly Bangkok. These dealers would sell the artifacts to local or international customers, who would either retain the pieces or sell them on the international art market.
Skanda on a Peacock, along with several other significant statues, was stolen from Prasat Krachap in or about 1997 by a former member of the Khmer Rouge leading a team of looters (“Looter-1”). Looter-1 transported Skanda on a Peacock by oxcart to the house of a broker near the Thai border. Looter-1 was aware that the broker sold antiquities to a foreign national called “Sia” (which means “lord” in Thai) “Ford” – the British/Thai antiquities dealer Douglas Latchford, a/k/a “Pakpong Kriangsak.” In 2019, Latchford was charged by the Office with wire fraud conspiracy and other crimes related to a many-year scheme to sell looted Cambodian antiquities on the international art market, primarily by creating false provenance documents and falsifying invoices and shipping documents. The indictment was ultimately dismissed due to the death of Latchford.
On or about April 10, 2000, Latchford sold Skanda on a Peacock and, thereafter, it was imported into the United States. After the most recent owner was contacted by the United States regarding Skanda on a Peacock, the owner agreed to relinquish possession of the statue and to waive all claims of right, title, and interest in it. Skanda on a Peacock is currently in the possession of the United States Department of Homeland Security.
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Ms. Strauss thanked HSI for its outstanding work on this investigation, which she noted is ongoing, and praised its ongoing efforts to find and repatriate stolen and looted cultural property. Ms. Strauss also thanked the Kingdom of Cambodia’s Ministry of Culture and Fine Arts for its assistance with this investigation.
This announcement supports the Memorandum of Understanding first signed between the U.S. and Cambodia in 2003, and last renewed in 2018.
This matter is being handled by the Office’s Money Laundering and International Criminal Enterprises Unit. Assistant U. S. Attorney Jessica Feinstein is in charge of the case.
The allegations contained in the Complaint are merely accusations.
Three Defendants Charged in Organized Crime Money Laundering SchemeRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, and Aaron C. Rouse, Special Agent in Charge of the Las Vegas Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an indictment charging YOSEF COHEN, a/k/a “Joe,” VAGUE SHAGENOVICH TERGALSTANYAN, a/k/a “Vahe,” a/k/a “Vic,” and IGAL BEN HANAN with conspiracy to commit money laundering.
TERGALSTANYAN and COHEN were arrested and presented in California on July 9, 2021, and July 12, 2021, respectively, and will be arraigned in Manhattan federal court at a later date. BEN HANAN was arrested on July 12, 2021, and will be presented later today in Nevada. The case is assigned to U.S. District Judge Laura Taylor Swain.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, the defendants conspired to launder millions of dollars of illicit proceeds. Thanks to the hard work of the FBI, the defendants face serious federal charges.”
FBI Special Agent-in-Charge Aaron C. Rouse said: “This case is an outstanding example that demonstrates the strength of the FBI’s partnerships with national and international law enforcement. The FBI takes pride in combating the most dangerous crime organizations in the world. This should be a wake-up call to criminals that regardless of where they think they can hide, the FBI and our partners will find them and bring them to justice.”
According to the allegations in the Indictment:[1]
COHEN, TERGALSTANYAN, and BEN HANAN worked on behalf of organized criminal enterprises operating in several countries around the world. In recorded conversations with undercover law enforcement officers (the “UCs”) who represented themselves to be members of an international organized criminal enterprise that distributed narcotics and laundered money, the defendants planned money laundering transactions of narcotics proceeds and discussed moving tens of millions of dollars of illicit money on behalf of international criminal organizations. The defendants conspired to execute, and did execute, money laundering transactions with the UCs and others known and unknown.
On several occasions, the defendants arranged for the UCs to pick up narcotics proceeds, in cash, from locations in the United States and then deliver the cash to the defendants, minus a percentage-based fee paid to the UCs for laundering the proceeds. For example, as arranged by the defendants, the UCs picked up approximately $208,000 in cash in Medford, New York, and delivered the cash, minus an arranged fee, to TERGALSTANYAN in California. In addition to discussing money laundering transactions with a UC who was in New York, New York, TERGALSTANYAN later proposed that the UCs pick up and launder one to two million dollars of marijuana proceeds in cash every week in Manhattan.
In another scheme, for example, the defendants conspired to fraudulently obtain a business visa for BEN HANAN so that BEN HANAN could move to the United States. In order for BEN HANAN to obtain a business visa, BEN HANAN’s purported business needed funds on deposit that appeared to be legitimate investments. COHEN proposed that the UCs provide COHEN with $150,000 in cash, and COHEN would use COHEN’s purported businesses to provide funds to BEN HANAN’s purported business. The UCs provided the cash to COHEN, which was represented to be narcotics proceeds that had not yet been laundered. Subsequent wire transfers sent by the defendants to the UCs as repayment were falsely described by the defendants as accounting for a particular month or time period, so as to appear like legitimate business transactions.
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YOSEF COHEN, 58, of Calabasas, California, VAGUE SHAGENOVICH TERGALSTANYAN, 38, of Glendale, California, and IGAL BEN HANAN, 43, of Las Vegas, Nevada, were each charged with one count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h), which carries a maximum sentence of 20 years in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants would be determined by a judge.
Ms. Strauss praised the outstanding investigative work of the FBI. This prosecution is part of an Organized Crime Drug Enforcement Task Forces (OCDETF) operation. OCDETF identifies, disrupts, and dismantles the highest-level criminal organizations that threaten the United States using a prosecutor-led, intelligence-driven, multi-agency approach. Additional information about the OCDETF Program can be found at https://www.justice.gov/OCDETF.
This case is being handled by the Office’s Narcotics Unit. Assistant United States Attorney Micah F. Fergenson is in charge of the prosecution.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth in this release constitute only allegations, and every fact described should be treated as an allegation.
Aquilino Torres Convicted of Kidnapping and StalkingRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, announced today that AQUILINO TORRES was convicted of kidnapping, kidnapping of a minor, and stalking for the October 2020 kidnapping and stalking of an adult female victim (“Victim-1”) and the kidnapping of Victim-1’s 7-year-old son (“Minor Victim-1”). TORRES was convicted following a one-week jury trial before U.S. District Judge Denise L. Cote.
Manhattan U.S. Attorney Audrey Strauss said: “Aquilino Torres threatened to kill a 7-year-old child in carrying out a brutal kidnapping of the child and his mother. Torres then held his victims captive and physically abused both mother and child. Thanks to the FBI and NYPD, Torres was apprehended, prosecuted, and now stands convicted of these horrific crimes.”
As reflected in the Indictment, documents previously filed in the case, and evidence introduced at trial:
On or about October 5, 2020, TORRES texted and called Victim-1 hundreds of times, including a text threatening to “kick [Minor Victim-1’s] teeth out.” Later that night, TORRES took Victim-1 and Minor Victim-1 to a motel in the Bronx, where he hit Minor Victim-1 in the face and assaulted Victim-1, breaking her jaw. While TORRES assaulted Victim-1, he told Victim-1, in sum and substance, that he would hang Victim-1 and that Minor Victim-1 would be found dead in the river. For the next five days, TORRES held Victim-1 and Minor Victim-1 against their will at an apartment in Washington Heights, without medical treatment for Victim-1’s broken jaw. On or about October 10, 2020, Victim-1 and Minor Victim-1 escaped from the apartment and were admitted to a hospital shortly thereafter. In response to their escape, between on or about October 10, 2020, and on or about October 13, 2020, TORRES once again sent Victim-1 hundreds of threatening text messages and called Victim-1 hundreds of times. For example, TORRES texted Victim-1, in sum and substance, that, if he made the decision to go looking for her, “there won’t be turning back.” TORRES followed through on those threats and attempted to track down Victim-1 and Minor Victim-1 after they escaped.
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TORRES, 27, was found guilty of (i) one count of kidnapping, in violation of 18 U.S.C. §§ 1201(a)(1) and (b), which carries a maximum sentence of life in prison, (ii) one count of kidnapping of a minor, in violation of 18 U.S.C. §§ 1201(a)(1), (b), and (g), which carries a maximum sentence of life and a mandatory minimum sentence of 20 years, and (iii) one count of stalking, in violation of 18 U.S.C. §§ 2261A(2)(A) and (B), 2261(b)(3), and 2265A, which carries a maximum sentence of 20 years.
Ms. Strauss praised the outstanding investigative work of the FBI-NYPD Violent Crimes Task Force.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys David J. Robles, Sarah L. Kushner, and Andrew S. Dember, and paralegal specialist Ariella Fetman, are in charge of the prosecution.
U.S. Attorney Files and Simultaneously Settles Lawsuit Against Jujamcyn Theaters LLC to Improve Accessibility at Five of Broadway’s Most Historic TheatersRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today the filing and settlement of a lawsuit in Manhattan federal court against JUJAMCYN THEATERS LLC, the owners and operators of five of Broadway’s most historic theaters, the AL HIRSCHFELD, the AUGUST WILSON, the EUGENE O’NEILL, the ST. JAMES, and the WALTER KERR, involving violations of the Americans With Disabilities Act (the “ADA”). The settlement, in the form of a consent decree, was entered yesterday by U.S. District Judge Analisa Torres.
U.S. Attorney Strauss said: “As New York City begins to reopen and welcome the world once again, we are pleased that Jujamcyn Theaters has worked collaboratively with the Office to improve accessibility at its historic venues, so that all patrons are able to enjoy Broadway. As a result of this suit and settlement, coupled with similar lawsuits filed by the Office against the Shubert Theaters in 2003, and the Nederlander Theaters in 2014, all three of the major Broadway theater organizations have committed to making their venues significantly more accessible to people with disabilities.”
According to the Complaint and Consent Decree filed in Manhattan federal court:
In the course of an investigation and negotiation over several years, the U.S. Attorney’s Office identified numerous ADA violations at each of the five theaters operated by JUJAMCYN THEATERS LLC, all of which were opened in the 1920s. The ADA generally requires that, for facilities constructed prior to the effective date of the ADA in 1993, barriers to accessibility be removed where it is readily achievable to do so. Throughout the Government’s investigation and the negotiation of the Consent Decree, JUJAMCYN THEATERS LLC agreed to remove hundreds of barriers to accessibility.
Under the Consent Decree, JUJAMCYN THEATERS LLC agrees to continue its efforts to improve accessibility at its theaters, as the schedules of shows at the theaters permit. Specifically, JUJAMCYN THEATERS LLC has agreed to do the following:
- provide a total of 44 wheelchair accessible seating locations, and direct its ticket vendors to accord priority to persons with disabilities in selling those seating locations;
- provide a total of 54 aisle transfer seating locations for persons who are able to transfer from a wheelchair into a seat, and direct its ticket vendors to accord priority to persons with disabilities in selling those seating locations; and
- eliminate approximately 200 individual barriers to accessibility in theater restrooms, concession counters, waiting areas, and box offices.
In addition, JUJAMCYN THEATERS LLC will pay a $40,000 civil penalty to the United States.
Since President George H.W. Bush signed the ADA into law, the U.S. Attorney’s Office for the Southern District of New York has played a significant role in bringing numerous New York City institutions into compliance with the ADA and its regulations. The Office’s enforcement efforts include, among many others, Yankee Stadium, Madison Square Garden, Radio City Music Hall, the Shubert Theaters, the Nederlander Theaters, Avery Fisher Hall at Lincoln Center, the Metropolitan Opera, the Apollo Theater, the Puck Building, the Rainbow Room, and The Vessel at Hudson Yards.
To file a complaint alleging that any place of public accommodation within the Southern District of New York is not accessible to persons with disabilities, use the Civil Rights Complaint Form available on the United States Attorney’s Office’s website, www.usdoj.gov/usao/nys. Complaints should be sent to:
U.S. Attorney’s Office, Southern District of New York
86 Chambers Street, 3rd Floor
New York, New York, 10007
Attention: Chief, Civil Rights Unit
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorney David J. Kennedy is charge of the case.
- provide a total of 44 wheelchair accessible seating locations, and direct its ticket vendors to accord priority to persons with disabilities in selling those seating locations;
Manhattan U.S. Attorney Settles Fraud Suit Against Spectrum Painting for False Statements About Disadvantaged Business Participation on Federal Construction ProjectsRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Brian Gallagher, Acting Special Agent-in-Charge, Northeastern Region, United States Department of Transportation Office of Inspector General (“USDOT-OIG”), Margaret Garnett, the Commissioner of the New York City Department of Investigation (“DOI”), and Carolyn Pokorny, Inspector General of the Metropolitan Transportation Authority (“MTA-OIG”), announced today that the United States has settled civil fraud claims against New York-area painting contractor SPECTRUM PAINTING CORP. (“SPECTRUM”). The settlement resolves the United States’ allegations that SPECTRUM fraudulently obtained payments on two federally funded construction projects by causing misrepresentations of compliance with Disadvantaged Business Enterprise (“DBE”) rules, which require participation of businesses owned by women and minorities. Specifically, the United States alleged that SPECTRUM caused the prime contractors on the projects to misrepresent that codefendant Tower Maintenance Corp. (“Tower”), a certified DBE, was solely performing work on the two projects, when in fact much of that work was performed by SPECTRUM, a non-DBE. As part of the settlement approved yesterday by U.S. District Judge Analisa Torres, SPECTRUM admits and accepts responsibility for conduct alleged in the Government’s amended complaint and agrees to pay $400,000 to the United States.
Manhattan U.S. Attorney Audrey Strauss said: “The Disadvantaged Business Enterprise program is intended to increase participation of minority- and women-owned businesses that historically have been disadvantaged in federal contracting. This settlement reflects this Office’s commitment to root out DBE fraud in federally funded contracts so that legitimate DBEs can compete fairly for public construction projects.”
USDOT-OIG Acting Special Agent-in-Charge Brian Gallagher said: “The Disadvantaged Business Enterprise (DBE) Program of the U.S. Department of Transportation is designed to create a level playing field for small, disadvantaged businesses to participate in federally-funded construction projects. We will hold accountable those who conspire to misrepresent their compliance with program requirements to obtain taxpayer supported contracts, thereby undermining the DBE program’s goal of expanding opportunities for small businesses.”
DOI Commissioner Margaret Garnett said: “This settlement rightly holds accountable a subcontractor that intentionally deceived the government and blatantly disregarded the regulations in place to ensure equal access by disadvantaged-owned businesses. Developing a fair and equal environment is how we do business in New York City and that is why contractors must follow the laws advancing participation by minority- and women-owned businesses. DOI thanks the U.S. Attorney’s Office for the Southern District of New York and the rest of our law enforcement partners on this matter for this successful result.”
MTA Inspector General Carolyn Pokorny said: “It is outrageous and against the law to use a minority- or women-owned business as a front to swindle precious taxpayer dollars from the Disadvantaged Business Enterprise program, which is meant to ensure an equal playing field for DBEs. This scheme was an affront to taxpayers, MTA riders, and the many honest DBEs that legitimately qualify for the federal program that these companies defrauded. I am proud to stand with our law enforcement partners to protect the integrity of this vital program.”
As alleged in the amended complaint filed in Manhattan federal court in August 2019, SPECTRUM performed steel painting work on two federally funded projects to renovate the Brooklyn Bridge and Queens Plaza. Contracts for both projects required codefendant Ahern Painting Contractors Co. (“Ahern”) to hire DBEs to perform a percentage of the work and to adhere to the DBE regulations. SPECTRUM was not a certified DBE, so SPECTRUM and Tower used Tower’s status as a DBE to take credit for work that was performed, managed, and supervised by SPECTRUM. Further, to conceal this scheme, SPECTRUM employees represented themselves as Tower employees in project documents. The case against Ahern was resolved in a settlement approved by Judge Torres in October 2019, and the case against Tower is ongoing.
As part of the settlement, SPECTRUM admits, acknowledges, and accepts responsibility for the following conduct alleged in the amended complaint:
- In or about March 2010, a manager at Spectrum (the “Spectrum Manager”) and a principal at Tower agreed that the two firms would work together on the Brooklyn Bridge Project. Pursuant to that agreement, the Spectrum Manager conducted a walk-through of the Brooklyn Bridge worksite with the Tower principal and an Ahern superintendent for the Brooklyn Bridge Project. The Spectrum Manager understood the he participated in the walk-through to assist Tower in preparing the bid Tower later submitted to Ahern for its anticipated work as a DBE subcontractor for the Brooklyn Bridge project.
- In May and June 2011, SPECTRUM and Tower memorialized two “consulting agreements” for work on the Brooklyn Bridge and the Queens Plaza Projects. Pursuant to those agreements, SPECTRUM and Tower agreed that SPECTRUM would “perform certain consulting services,” including “providing project management support,” and would furnish equipment to Tower for the two projects. The agreements further provided that SPECTRUM would receive 50% of all profits from the Tower DBE work on the projects.
- The key terms of the consulting agreements between Tower and SPECTRUM – including Tower’s agreement to pay SPECTRUM 50 percent of all of its profits from the two projects, or SPECTRUM’s agreement to furnish equipment to Tower for the projects – were not disclosed to Ahern, NYC-DOT, or MTA.
- Throughout the Brooklyn Bridge and Queens Plaza Projects, the SPECTRUM Manager managed and supervised the DBE work that Tower was retained to perform on each project, such as setting the work schedule, ordering materials for the work, hiring the foreman, inspecting the work performed, and coordinating payment for the work.
- The SPECTRUM Manager also hired other supervisors on the Brooklyn Bridge and Queens Plaza Projects. For example, the SPECTRUM Manager hired the superintendent for the DBE work assigned to Tower for the Brooklyn Bridge Project and the Queens Plaza Project (the “SPECTRUM Superintendent”). The SPECTRUM Manager also hired an individual to oversee health and safety issues related to the DBE work on the two projects (the “SPECTRUM Safety Supervisor”). Both the SPECTRUM Superintendent and the SPECTRUM Safety Supervisor were paid by SPECTRUM and not by Tower.
- The SPECTRUM Manager, SPECTRUM Superintendent, and SPECTRUM Safety Supervisor were all SPECTRUM employees. On the Brooklyn Bridge and Queens Plaza Projects, they identified themselves to others working on the projects as Tower employees, including by wearing Tower vests and security identification. In documents submitted to Ahern to obtain security clearances, the SPECTRUM Manager identified himself as a “Tower VP” or as a Tower employee.
Ms. Strauss praised the outstanding investigative work of the USDOT-OIG, DOI, and MTA-OIG.
This case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Mónica P. Folch, Li Yu, and David J. Kennedy are in charge of this case.
- In or about March 2010, a manager at Spectrum (the “Spectrum Manager”) and a principal at Tower agreed that the two firms would work together on the Brooklyn Bridge Project. Pursuant to that agreement, the Spectrum Manager conducted a walk-through of the Brooklyn Bridge worksite with the Tower principal and an Ahern superintendent for the Brooklyn Bridge Project. The Spectrum Manager understood the he participated in the walk-through to assist Tower in preparing the bid Tower later submitted to Ahern for its anticipated work as a DBE subcontractor for the Brooklyn Bridge project.
Manhattan U.S. Attorney Announces Kidnapping Conspiracy Charges Against an Iranian Intelligence Officer and Members of an Iranian Intelligence NetworkRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Mark J. Lesko, the Acting Assistant Attorney General for National Security, and William F. Sweeney Jr., Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of kidnapping conspiracy, sanctions violations conspiracy, bank and wire fraud conspiracy, and money laundering conspiracy charges against ALIREZA SHAVAROGHI FARAHANI, a/k/a “Vezarat Salimi,” a/k/a “Haj Ali,” MAHMOUD KHAZEIN, KIYA SADEGHI, and OMID NOORI, and sanctions violations conspiracy, bank and wire fraud conspiracy, money laundering conspiracy, and structuring charges against NILOUFAR BAHADORIFAR, a/k/a “Nellie Bahadorifar.” The charges are contained in a Superseding Indictment unsealed today in Manhattan federal court. The case is pending before U.S. District Judge Ronnie Abrams. BAHADORIFAR was arrested on July 1, 2021 in California on charges contained in an underlying indictment. BAHADORIFAR will be arraigned on the charges in the Superseding Indictment by Judge Abrams at a date and time to be set by the Court. FARAHANI, KHAZEIN, SADEGHI, and NOORI, all of whom are based in Iran, remain at large.
U.S. Attorney Audrey Strauss said: “As alleged, four of the defendants monitored and planned to kidnap a U.S. citizen of Iranian origin who has been critical of the regime’s autocracy, and to forcibly take their intended victim to Iran, where the victim’s fate would have been uncertain at best. Among this country’s most cherished freedoms is the right to speak one’s mind without fear of government reprisal. A U.S. citizen living in the United States must be able to advocate for human rights without being targeted by foreign intelligence operatives. Thanks to the FBI’s exposure of their alleged scheme, these defendants have failed to silence criticism by forcible abduction.”
Acting Assistant Attorney General Mark J. Lesko said: “Every person in the United States must be free from harassment, threats and physical harm by foreign powers. Through this indictment, we bring to light one such pernicious plot to harm an American citizen who was exercising their First Amendment rights, and we commit ourselves to bring the defendants to justice.”
FBI Assistant Director William F. Sweeney Jr. said: “This is not some far-fetched movie plot. We allege a group, backed by the Iranian government, conspired to kidnap a U.S. based journalist here on our soil and forcibly return her to Iran. Not on our watch. FBI special agents and analysts will continue to aggressively hunt for foreign operatives who attempt illegal action inside our borders or against our citizens. Working side-by-side with our international partners, the FBI’s reach is global. When we find you, you will be brought here and held accountable under U.S. law.”
According to the allegations contained in the Superseding Indictment, other court filings, and statements made during court proceedings:[1]
FARAHANI is an Iranian intelligence official who resides in Iran. KHAZEIN, SADEGHI, and NOORI are Iranian intelligence assets who also reside in Iran. Since at least June 2020, FARAHANI, and the intelligence network he manages – including KHAZEIN, SADEGHI, and NOORI – have plotted to kidnap a U.S. citizen of Iranian origin (“Victim-1”) from within the United States in furtherance of the Government of Iran’s efforts to silence Victim-1’s criticisms of the regime. Victim-1 is a journalist, author, and human rights activist, residing in Brooklyn, New York, who has publicized the Government of Iran’s human rights abuses.
Prior to the plot to kidnap Victim-1 on U.S. soil, the Government of Iran attempted to lure Victim-1 to a third country in order to capture Victim-1 for rendition to Iran. In approximately 2018, Iranian government officials attempted to induce relatives of Victim-1, who reside in Iran, to invite Victim-1 to travel to a third country for the apparent purpose of having Victim-1 arrested or detained and transported to Iran for imprisonment. Victim-1’s relatives did not accept the offer. Iranian intelligence services have previously lured other Iranian dissidents from France and from the United States for the purposes of capturing and imprisoning regime critics and have publicly claimed responsibility for these capture operations. An electronic device used by FARAHANI contains, among other things, a photo of Victim-1 alongside photos of two other individuals, both of whom were captured by Iranian intelligence, with one later executed and the other imprisoned in Iran, and a caption in Farsi stating, “Gradually the gathering gets bigger... Are you coming, or should we come for you?”
On multiple occasions in 2020 and 2021, as part of the plot to kidnap Victim-1, FARAHANI and his network procured the services of private investigators to surveil, photograph, and video record Victim-1 and Victim-1’s household members in Brooklyn. The extensive surveillance that FARAHANI’s network procured included requests for days’ worth of surveillance at Victim-1’s home and the surrounding area, videos and photographs of Victim-1’s family and associates, surveillance of Victim-1 outside Victim-1’s residence, and the installation of and access to a live high-definition video feed depicting Victim-1’s home. The network repeatedly insisted on high-quality photographs and video recordings of Victim-1 and Victim-1’s household members; a large volume of content; pictures of visitors and objects around the house; and depictions of Victim-1’s body language. The network procured the surveillance by misrepresenting their identities and the purpose of the surveillance to the investigators, and laundered money into the United States from Iran in order to pay for the surveillance, photos, and video recordings of Victim-1. SADEGHI acted as the network’s primary point of contact with the private investigators in the United States, and NOORI facilitated payment to the investigators in furtherance of the plot targeting Victim-1.
As part of the kidnapping plot, the FARAHANI-led intelligence network also researched methods of transporting Victim-1 out of the United States for rendition to Iran. SADEGHI, for example, researched a service offering military-style speedboats for self-operated maritime evacuation out of New York City, and maritime travel from New York to Venezuela, a country whose de facto government has friendly relations with Iran. KHAZEIN researched travel routes from Victim-1’s residence to a waterfront neighborhood in Brooklyn, the location of Victim-1’s residence relative to Venezuela, and the location of Victim-1’s residence relative to Tehran.
The network that FARAHANI directs has also targeted victims in other countries, including victims in Canada, the United Kingdom, and the United Arab Emirates, and has worked to procure similar surveillance of those victims.
BAHADORIFAR is originally from Iran and is currently a California resident. BAHADORIFAR has provided financial and other services from the United States to Iranian residents and entities, including to KHAZEIN, since at least in or about 2015, including access to the U.S. financial system and U.S. financial institutions through the use of card accounts, and has offered to manage business interests in the United States on KHAZEIN’s behalf. Among other things, BAHADORIFAR caused a payment to be made to a private investigator for surveillance of Victim-1 on KHAZEIN’s behalf. BAHADORIFAR is not charged with participating in the kidnapping conspiracy, but is alleged to have provided financial services that supported the plot and is charged with conspiring to violate sanctions against Iran, to commit bank and wire fraud, and to commit money laundering. BAHADORIFAR is also charged with structuring cash deposits totaling more than approximately $445,000.
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ALIREZA SHAVAROGHI FARAHANI, 50, MAHMOUD KHAZEIN, 42, KIYA SADEGHI, 35, and OMID NOORI, 45, all of Iran, have each been charged with: (1) conspiring to kidnap, which carries a maximum sentence of life in prison (Count One), (2) conspiring to violate the International Emergency Economic Powers Act and sanctions against the Government of Iran, which carries a maximum sentence of 20 years in prison (Count Two), (3) conspiring to commit bank and wire fraud, which carries a maximum sentence of 30 years in prison (Count Three), and (4) conspiring to launder money, which carries a maximum sentence of 20 years in prison (Count Four). NILOUFAR BAHADORIFAR, 46, of California, is charged in Counts Two, Three, and Four, and is further charged with structuring (Count Five), which carries a maximum sentence of 10 years in prison. The potential maximum sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by Judge Abrams.
BAHADORIFAR was arrested on charges contained in an underlying indictment on July 1, 2021, and was arraigned by Judge Abrams on that indictment on July 8, 2021. FARAHANI, KHAZEIN, SADEGHI, and NOORI remain at large.
Ms. Strauss praised the outstanding investigative work of the FBI’s New York Field Office Counterintelligence-Cyber Division and the New York FBI Iran Threat Task Force. Ms. Strauss also thanked the New York City Police Department (“NYPD”) and the NYPD Intelligence Bureau, the FBI’s Los Angeles Field Office Orange County Resident Agency, and the Department of Justice’s National Security Division, Counterintelligence and Export Control Section, for their assistance.
This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Michael D. Lockard, Jacob H. Gutwillig, and Matthew J.C. Hellman are in charge of the prosecution, with assistance from Trial Attorney Nathan Swinton of the Counterintelligence and Export Control Section.
The charges in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the Superseding Indictment, and the description of the Superseding Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Leader of Manhattan Drug Trafficking Organization Sentenced to 15 Years in PrisonRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that PEDRO VICIOSO DE LIMA, a/k/a “Pep,” a/k/a “Pepo,” was sentenced today in Manhattan federal court to 180 months in prison for leading a drug trafficking organization (the “DTO”) that was responsible for dealing fentanyl-laced heroin that has been tied to multiple suspected fatal and nonfatal overdoses. VICIOSO DE LIMA previously pled guilty to participating in a conspiracy to distribute heroin, and was sentenced today before U.S. District Judge Colleen McMahon.
U.S. Attorney Audrey Strauss said: “As he previously admitted, Pedro Vicioso De Lima led a Washington Heights drug distribution network that sold fentanyl-laced heroin even after he was aware that customers were overdosing on it. Vicioso De Lima’s drug peddling and his callous disregard for its consequences have resulted in today’s prison sentence.”
According to the allegations in the Indictment and other filings and statements made in Court:
VICIOSO DE LIMA was the leader of a drug trafficking organization (the “DTO”) that operated in New York, New York, and controlled heroin sales from a building at 501 West 167th Street (the “DTO’s Building”) and the immediately surrounding vicinity (the “DTO’s Drug Territory”). From July 2016 to October 2018, the DTO is estimated to have distributed more than 85 kilograms of heroin, much of it laced with fentanyl. VICIOSO DE LIMA controlled and oversaw the operations of the DTO, and together with his trusted second-in-command, Victor Hidalgo, managed stash houses in the DTO’s Drug Territory where the DTO stored its wares. The defendant directed other members of the DTO on matters ranging from how to handle drugs being sold by the DTO, to managing lookouts who worked for the DTO and surveilled for law enforcement, to handling complaints by customers about the quality of drugs being sold by the DTO.
No later than May 2018, VICIOSO DE LIMA was told by Hidalgo that the mixture of heroin being sold by the DTO was causing people to “drop[]” – or overdose – outside the DTO’s Building. Nevertheless, VICIOSO DE LIMA persisted in leading the DTO and selling its potentially fatal narcotics through his arrest in this case in November 2018.
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VICIOSO DE LIMA, 52, of Bergenfield, New Jersey, pled guilty to one count of conspiracy to distribute and possess with intent to distribute one kilogram and more of heroin from July 2016 to October 2018. In addition to the prison term, VICIOSO DE LIMA was sentenced to 10 years of supervised release.
Hidalgo was previously sentenced to 120 months in prison.
Ms. Strauss praised the outstanding investigative work of Homeland Security Investigations, the Drug Enforcement Administration, and the New York City Police Department.
The prosecution is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Jessica Greenwood, Aline R. Flodr, and Dominic Gentile are in charge of the prosecution.
Bank CEO Stephen M. Calk Convicted of Corruptly Soliciting A Presidential Administration Position in Exchange for Approving $16 Million in LoansRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that STEPHEN M. CALK was convicted of financial institution bribery and conspiracy to commit financial institution bribery, for corruptly using his position as the head of a federally-insured bank to issue millions of dollars in high-risk loans to Paul Manafort in exchange for a personal benefit: CALK’s placement on a 2016 presidential campaign and assistance from Manafort in trying to obtain a senior position with the incoming presidential administration. CALK was convicted following a three-week trial before U.S. District Judge Lorna G. Schofield.
Manhattan U.S. Attorney Audrey Strauss said: “A unanimous jury convicted Stephen M. Calk of approving millions of dollars in high-risk loans to Paul Manafort in an effort to secure a personal benefit, namely a high-profile spot on the presidential campaign and appointment as Secretary of the Army or another similarly high-level position in the incoming presidential administration. Calk used the federally-insured bank he ran as his personal piggybank to try and buy himself prestige and power. Today’s verdict sends the message that corruption at the highest levels of federally regulated financial institutions will be prosecuted by this Office.”
As reflected in the Indictment, documents previously filed in the case, and evidence introduced at trial:
CALK, The Federal Savings Bank, and Paul Manafort
STEPHEN M. CALK was the chairman and chief executive officer of The Federal Savings Bank, a federal savings association headquartered in Chicago, Illinois, with an office in New York, New York (the “Bank”). The Bank was owned in its entirety by National Bancorp Holdings, a Chicago-based bank holding company (the “Holding Company”), and CALK was the chairman, chief executive officer, and owner of approximately 67% of the Holding Company.
Paul Manafort was a lobbyist and political consultant. Beginning in or about March 2016, Manafort held a senior role with a 2016 presidential campaign (the “Presidential Campaign”), and from June 2016 through August 2016, he served as chairman of the Presidential Campaign. After Manafort’s formal role with the Presidential Campaign concluded in or about August 2016, Manafort continued to be informally involved in the campaign. Beginning in or about November 2016, when the candidate was elected President of the United States, Manafort provided informal input to the presidential transition team (the “Presidential Transition Team”).
The Corrupt Scheme
Between in or about July 2016 and January 2017, CALK engaged in a corrupt scheme to exploit his position as the head of the Bank and the Holding Company in an effort to secure a valuable personal benefit for himself, namely, Manafort’s assistance in obtaining for CALK a senior position in the presidential administration. During this time period, Manafort sought millions of dollars in loans from the Bank. CALK understood that Manafort urgently needed these loans in order to terminate or avoid foreclosure proceedings on multiple properties owned by Manafort and Manafort’s family. Further, CALK believed that Manafort could use his influence with the Presidential Transition Team to assist CALK in obtaining a senior administration position.
CALK thus sought to leverage his control over the Bank and the loans sought by Manafort to his personal advantage. Specifically, CALK offered to, and did, cause the Bank and Holding Company to extend $16 million in loans to Manafort in exchange for Manafort’s requested assistance in obtaining a high-level position in the presidential administration. For example, and while Manafort’s loans were pending approval, CALK provided Manafort with a ranked list of the governmental positions he desired, which started with Secretary of the Treasury, and was followed by Deputy Secretary of the Treasury, Secretary of Commerce, and Secretary of Defense, as well as 19 ambassadorships similarly ranked and starting with the United Kingdom, France, Germany, and Italy.
In approving these loans to Manafort, CALK was aware of significant red flags regarding Manafort’s ability to repay the loans, such as his history of defaulting on prior loans. Moreover, given the size of the loans, Manafort’s debt became the single largest lending relationship at the Bank. In order to enable the Bank to issue these loans without violating the Bank’s legal limit on loans to a single borrower, CALK authorized a maneuver never before performed by the Bank, in which the Holding Company—which CALK also controlled—acquired a portion of the loans from the Bank.
During the same time period, Manafort provided CALK with valuable personal benefits. First, in or about the summer of 2016, during the Presidential Campaign—and just days after CALK and the rest of the Bank’s credit committee conditionally approved a proposed $9.5 million loan to Manafort — Manafort appointed CALK to a prestigious economic advisory committee affiliated with the campaign. And second, in or about late November and early December 2016—after the candidate had been elected President, after Manafort’s first loan from the Bank had been issued, and while a second set of loans worth $6.5 million sought by Manafort was pending approval by the Bank— Manafort used his influence with the Presidential Transition Team to assist Calk, recommending CALK for an administration position. Due to Manafort’s efforts, CALK was formally interviewed for the position of Under Secretary of the Army on January 10, 2017 at the Presidential Transition Team’s principal offices in New York, New York. CALK was not ultimately hired.
To conceal the unlawful nature of his scheme, CALK made false and misleading statements to the OCC regarding the loans to Manafort. For example, CALK falsely stated to the OCC regulators that he had not known that the Manafort’s properties had been in foreclosure prior to issuing the loans. CALK also stated that he had never desired a position in the presidential administration.
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CALK, 56, was found guilty of one count of financial institution bribery, which carries a maximum sentence of 30 years in prison, and one count of conspiracy to commit financial institution bribery, which carries a maximum sentence of 5 years in prison. CALK is scheduled to be sentenced on January 10, 2022.
Ms. Strauss praised the outstanding investigative work of the FBI and FDIC OIG.
This case is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Paul M. Monteleoni, Hagan Scotten, and Alexandra N. Rothman are in charge of the prosecution.
Vice President of Investment Firm Pleads Guilty to Running Multimillion-Dollar Ponzi SchemeRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, announced the guilty plea today of NAIM ISMAIL relating to his participation in various investment schemes that defrauded victims of over $15 million. ISMAIL pled guilty before U.S. District Judge Analisa Torres.
Manhattan U.S. Attorney Audrey Strauss said: “In spinning a web of lies, Naim Ismail and his co-conspirators gained, and took advantage of, the confidence of vulnerable individual investors as well as a Manhattan-based business, bilking them of millions of dollars in the process. With today’s guilty plea, Ismail has admitted to his scheme and now faces a prison term for his conduct.”
According to the allegations in the Indictment, court filings, and statements made during court proceedings:
From February 2007 through July 2016, ISMAIL fraudulently induced individual and corporate victims – including the New York-based subsidiary of an Afghanistan-based bank – to loan large sums of money to entities operated by ISMAIL and others. ISMAIL did so by claiming that these funds would be used in a particular investment strategy as well as several real estate development projects. ISMAIL promised investors a generous fixed annual rate of return and promised to return the investors’ principal on a specified timeline. In fact, ISMAIL and his companies did not invest these funds as promised, nor did ISMAIL repay many of his victims. Instead, ISMAIL used investor funds to pay the so-called interest payments due to earlier investors in the scheme, as well as for his own personal expenses and investments.
During the course of the fraudulent scheme, ISMAIL deprived the scheme’s victims of over $15 million.
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ISMAIL, 60, formerly of Irvine, California, pled guilty to one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. Sentencing before Judge Torres is scheduled for November 17, 2021, at 11:00 a.m.
Ms. Strauss praised the outstanding work of the Special Inspector General for Afghan Reconstruction and Homeland Security Investigations on this investigation.
This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant U.S. Attorneys Kiersten A. Fletcher and Jonathan E. Rebold are in charge of the prosecution.
Seller of Forged Basquiats and Harings Arrested on Fraud ChargesRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of ANGEL PEREDA for his role in a scheme to sell forged artworks purportedly created by renowned artists, including Jean-Michel Basquiat and Keith Haring. PEREDA was arrested in New York on July 9, 2021.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Angel Pereda attempted to sell forgeries of artworks by Jean-Michel Basquiat and Keith Haring, among others, as genuine. If real, such works would be worth millions. The alleged fakes have little or no value, except potentially as evidence of the alleged crime. Angel Pereda now faces the prospect of a jury’s appraisal of his alleged conduct.”
FBI Assistant Director William F. Sweeney Jr. said: "As we allege, Mr. Pereda conned art buyers, hoping his victims wouldn’t see the difference between real art and a forgery. He used their trust to his advantage by passing off worthless pieces as priceless works of art. Hopefully, this case provides a lesson to any others hoping to engage in similar behavior – the FBI's Art Crime Team has the resources to distinguish the real from the fake, and its members will ensure you face the consequences of your actions."
According to the allegations contained in the complaint unsealed today in Manhattan federal court[1]:
In or about 2020 and 2021, ANGEL PEREDA engaged in a scheme to sell paintings and other artwork that he marketed for sale as having been painted or created by world-famous artists, including Jean-Michel Basquiat and Keith Haring, among others. By knowingly and falsely claiming that these fake works were painted by these famous artists, PEREDA tried to trick purchasers into paying millions of dollars for the fake works, which, as the defendant well knew, were essentially worthless.
To deceive his victims, PEREDA falsified the provenance – that is, the ownership history – of the forged artworks. On one occasion, PEREDA attempted to facilitate the sale of a painting purportedly by Basquiat, which PEREDA referred to as “Glory Boys Kingdom.” When told by another individual that a particular false provenance had been detected as fraudulent, PEREDA created and sent to an individual in New York new fraudulent provenances, so that the painting could be sold for millions of dollars. A photograph of “Glory Boys Kingdom” is below:
PEREDA is also connected to at least three other works of art purportedly by Basquiat and Haring, which have been determined to be fraudulent. Photographs of the pieces are below:
If you believe you have additional information regarding ANGEL PEREDA, also known as “Angel Luis Pereda Eguiluz,” please contact the FBI at 1-800-CALL FBI or [email protected], and reference this case.
PEREDA, 49, of Mexico, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison.
The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Ms. Strauss praised the outstanding efforts of the FBI Art Crime Team in the investigation, which she noted is ongoing.
This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant U.S. Attorney Samuel L. Raymond is 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.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described herein should be treated as an allegation as to the defendants charged in the Complaint.
Defendant Pleads Guilty to 2011 MurderRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that MICHAEL CASTILLO, a/k/a “Squirrel,” pled guilty today in Manhattan federal court in connection with the March 10, 2011, murder of Hector Arias in the Bronx, New York. U.S. District Judge John G. Koeltl accepted the defendant’s guilty plea.
U.S. Attorney Audrey Strauss said: “Today, Michael Castillo admitted that he shot and killed Hector Arias in 2011. This guilty plea shows that law enforcement will relentlessly seek justice for murder victims and their loved ones, regardless of the passage of time.”
According to the allegations in the Indictment and other filings and statements made in court:
CASTILLO was a member of a conspiracy to distribute marijuana centered near 193rd Street and Broadway in New York, New York. CASTILLO was hired by the leader of the conspiracy, David Espinal, a/k/a “D-Block,” to kill Hector Arias, the leader of a rival marijuana business operating in the same area. On March 10, 2011, CASTILLO shot and killed Arias outside Arias’s home at 712 East Gun Hill Road in the Bronx, New York. The murder plot arose out of the rivalry between the two marijuana businesses.
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CASTILLO, 38, pled guilty to one count of murder through the use of a firearm, in violation of 18 U.S.C. § 924(j), which carries a maximum penalty of life in prison and a mandatory minimum penalty of five years in prison. The statutory maximum and minimum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.
CASTILLO is scheduled to be sentenced before Judge Koeltl on October 15, 2021, at 10:00 a.m.
On or about December 8, 2020, CASTILLO’s codefendant, Espinal, pled guilty to conspiring to kill Arias, among other offenses. During his guilty plea, Espinal admitted to hiring a hitman to kill Arias.
Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation and its Westchester County Safe Streets Task Force in this case.
This case is being handled by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Jamie Bagliebter, Maurene Comey, Peter Davis, Scott Hartman, Lindsey Keenan, and Jacqueline Kelly are in charge of the prosecution.
Dark Web User Known as “the Bull” Charged in Insider Trading SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal indictment and a criminal complaint charging APOSTOLOS TROVIAS, a/k/a “The Bull,” with securities fraud and money laundering in connection with his scheme to solicit and sell stock trading tips and pre-release earnings and deal information regarding public companies.
Manhattan U.S. Attorney Audrey Strauss said: “Today’s charges demonstrate our Office’s continuing commitment to stopping those who pursue and use inside information to gain an illegal edge in the stock market. As alleged, Apostolos Trovias attempted to hide his insider trading scheme behind anonymizing software, screennames, and bitcoin payments. The Indictment and Complaint unsealed today show that committing insider trading using new technologies still produces a decidedly traditional outcome: a criminal indictment.”
FBI Assistant Director William F. Sweeney Jr. said: “Behind the veil of the Dark Web, using encrypted messaging applications and emails, Trovias created a business model in which he sold—for profit—proprietary information from other companies, stock trading tips, pre-release earnings, and other inside information, as we allege. The FBI operates within the Dark Web too, and as Trovias learned today, we don't stop enforcing the law just because you commit federal crimes from behind a router with your keyboard.”
According to the allegations in the Indictment and Complaint unsealed today in Manhattan federal court:[1]
Since at least in or about December 2016, APOSTOLOS TROVIAS, who identifies himself by the pseudonym “The Bull,” has used websites on the Dark Web and encrypted messaging services to solicit and sell confidential, non-public information about publicly traded companies (“Inside Information”) to enrich himself. TROVIAS’s scheme consisted of multiple related efforts to obtain and monetize confidential nonpublic business information, including (1) the sale of misappropriated stock tips based on confidential customer trading information; (2) the sale of pre-release earnings reports and deal information misappropriated from publicly-traded companies; and (3) the attempted creation of an online marketplace to connect, for a commission, individuals misappropriating Inside Information to individuals willing to pay for and trade on Inside Information.
For example, between in or about December 2016, when he registered for a Dark Web site known as AlphaBay Market, and in or about July 2017, when AlphaBay ceased operations, TROVIAS offered for sale and sold stock tips that were based on non-public inside information about certain securities issuers and which could be purchased individually, or as weekly or monthly subscriptions.
At various times between in or about June 2017 and February 2020, TROVIAS sold Inside Information directly to purchasers, using encrypted messaging and email services to communicate about the sale, rather than exclusively through the marketplace features of the Dark Web forums. For instance, TROVIAS offered for sale and did sell, among other confidential information belonging to various securities issuers, for approximately $5,000 in Bitcoin, at least one pre-release earnings report misappropriated from a publicly-traded company.
In or about 2020, TROVIAS also took steps to design and build a website to facilitate the purchase and sale of material, non-public information for use in stock trading (the “Inside Information Auction Site”). TROVIAS planned to use the Inside Information Auction Site to enrich himself by charging membership fees and commissions from individuals using the Inside Information Auction Site to engage in the unlawful trade of Inside Information.
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TROVIAS, 30, of Athens, Greece, is charged with one count of securities fraud and one count of money laundering. The securities fraud count carries a maximum penalty of 25 years in prison. The money laundering count carries a maximum penalty of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Ms. Strauss praised the outstanding work of the FBI. Ms. Strauss further thanked the U.S. Securities and Exchange Commission, which today filed a parallel civil action, and the Internal Revenue Service for their cooperation and assistance in this investigation.
The prosecution of this case is being overseen by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Matthew Podolsky and Andrew Thomas are in charge of the case.
The charges contained in the Indictment and Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and Complaint, and the description of the Indictment and Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Army Reservist Sentenced to 40 Months in Prison for Participating in Money Laundering SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that EMEKA NNAWUBA, a/k/a “Benjamin Alabie,” who is a member of the United States Army Reserves, was sentenced yesterday to 40 months in prison for participating in a scheme to launder over $1 million in proceeds of romance fraud and business email compromise schemes perpetrated against dozens of victims. NNAWUBA previously pled guilty before United States District Judge Katherine Polk Failla, who also imposed yesterday’s sentence.
U.S. Attorney Audrey Strauss said: “Emeka Nnawuba laundered money for a scheme that trolled dating websites in order to steal money from the accounts of unsuspecting women. He will now spend time in prison and be compelled to make restitution to the victims of the scheme.”
According to the allegations in the Superseding Indictment, court documents, and statements made in court:
From at least 2016 until 2018, NNAWUBA participated in a scheme to launder the proceeds of frauds perpetrated against dozens of victims. Among other things, NNAWUBA used false identities and false passports to open bank accounts, received or attempted to receive more than $2 million in fraud proceeds, withdrew tens of thousands of dollars of fraud proceeds in cash, and transferred more than $1 million of fraud proceeds to bank accounts controlled by co-conspirators in an effort to conceal the source of funds.
The funds laundered by NNAWUBA were procured principally by (a) romance scams, in which members of the scheme trolled dating websites to find unsuspecting women and stole their money on false pretenses, and (b) business compromise scams, in which members of the scheme impersonated individuals, professionals, or businesses in the course of otherwise ordinary financial transactions, and then fraudulently induced the counterparties to those transactions to transfer funds to bank accounts controlled and operated by NNAWUBA or other members of the scheme.
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NNAWUBA, 31, of Fayetteville, Arkansas, pled guilty to and was sentenced on one count of participating in a conspiracy to commit money laundering. In addition to the prison term, NNAWUBA was sentenced to three years of supervised release and was ordered to forfeit $2,096,248.39 and pay $1,362,528.46 in restitution.
Ms. Strauss praised the outstanding investigative work of the U.S. Secret Service, and thanked Homeland Security Investigations for its assistance.
The prosecution is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys Juliana N. Murray and Robert B. Sobelman are in charge of the prosecution.
Michael Avenatti Sentenced to over Two Years in Prison for Attempting to Extort Nike and for Defrauding His ClientRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that MICHAEL AVENATTI was sentenced today in Manhattan federal court by United States District Judge Paul G. Gardephe to 30 months in prison for attempting to extort NIKE, Inc., and for defrauding a client. AVENATTI was previously found guilty on February 14, 2020, following a three-week jury trial.
Manhattan U.S. Attorney Audrey Strauss said: “Michael Avenatti used illegal and extortionate threats and betrayed one of his clients for the purpose of seeking to obtain millions of dollars for himself. Not only did Avenatti attempt to weaponize his law license and celebrity to seek to extort payments for himself, he also defrauded his own client. Avenatti will now serve substantial time in prison for his criminal conduct.”
According to the Complaint, Superseding Indictment, court documents, and evidence presented at trial:
In a scheme that unfolded in less than a week, AVENATTI used threats of economic and reputational harm to seek to extort NIKE, Inc. (“Nike”), while defrauding his client (“Client-1”), by promising to settle potential claims by Client-1 against Nike if Nike agreed to make extortionate payments to AVENATTI. AVENATTI threatened to hold a press conference on the eve of Nike’s quarterly earnings call and the start of the annual National Collegiate Athletic Association (“NCAA”) basketball tournament at which he would announce allegations of misconduct by employees of Nike. However, AVENATTI stated that he would refrain from holding the press conference and harming Nike only if Nike made a payment of $1.5 million to Client-1, who was in possession of information potentially damaging to Nike, and further agreed to “retain” AVENATTI and another individual to conduct a supposed “internal investigation” – an investigation that neither Nike nor Client-1 requested – for which AVENATTI demanded to be paid, at a minimum, between $15 million and $25 million. Alternatively, in lieu of such a retainer, AVENATTI demanded a total payment of $22.5 million from Nike to resolve any claims Client-1 might have and to buy AVENATTI’s silence.
AVENATTI never told Client-1, among other things, that AVENATTI planned to and did threaten Nike that, unless Nike paid AVENATTI, he would hold the press conference, or that AVENATTI planned to and did seek money for himself separate from, and to the financial detriment of, Client-1.
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In addition to the prison sentence, AVENATTI, 50, of Venice Beach, California, was sentenced to three years of supervised release. The Court deferred a determination as to restitution for a later date.
Ms. Strauss praised the work of the FBI and the Special Agents of the United States Attorney’s Office for the Southern District of New York.
The case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Matthew Podolsky, Daniel C. Richenthal, and Robert B. Sobelman are in charge of the prosecution.
Manhattan Doctor Sentenced to More Than 17 Years in Prison for Bribery and Kickback Scheme, and for Distributing Oxycodone and Fentanyl for No Legitimate Medical PurposeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that GORDON FREEDMAN, a doctor who practiced in New York, New York, was sentenced today in Manhattan federal court to 121 months in prison for participating in a scheme to receive bribes and kickbacks in the form of fees for sham educational programs (“Speaker Programs”) from pharmaceutical company Insys Therapeutics in exchange for prescribing millions of dollars’ worth of Subsys, a potent fentanyl-based spray manufactured by Insys, among other offenses (the “Insys Bribery Offenses”). FREEDMAN was convicted of the Insys Bribery Offenses following a jury trial. FREEDMAN was also sentenced to 210 months in prison, to run concurrently to the other sentence, for distributing oxycodone and fentanyl to a patient for no legitimate medical purpose (the “Diversion Offense”). That patient ultimately died of a fentanyl overdose from drugs FREEDMAN illegally prescribed him. FREEDMAN pled guilty to the Diversion Offense in December 2019.
FREEDMAN was sentenced by United States District Judge Kimba M. Wood.
U.S. Attorney Audrey Strauss said: “Dr. Gordon Freedman, a prominent Manhattan physician, allowed his medical judgment to be corrupted by hundreds of thousands of dollars in bribes that he accepted from Insys in return for prescribing Subsys, a potent fentanyl painkiller. These payments were made to appear like legitimate speaker program fees, but as the evidence at Freedman’s trial revealed, the speaker programs were a sham and were simply a way for Insys to line Freedman’s pockets. In addition, Freedman prescribed excessive quantities of oxycodone and fentanyl to one of his patients for no legitimate medical purpose. The patient overdosed and died from fentanyl prescribed by Freedman. Freedman will now be serving a long prison sentence for accepting bribes and prescribing medically unnecessary opioids.”
According to the allegations contained in the Indictments against FREEDMAN, the evidence presented in Court during the trial related to the Insys Bribery Offenses, and filings in related proceedings:
Insys manufactured Subsys, a powerful painkiller approximately 50 to 100 times more potent than morphine. The U.S. Food and Drug Administration (“FDA”) approved Subsys only for the management of breakthrough pain in cancer patients. Prescriptions of Subsys typically cost thousands of dollars each month, and Medicare and Medicaid, as well as commercial insurers, reimbursed prescriptions written by the defendants. In or about August 2012, Insys launched a “Speakers Bureau,” purportedly aimed at educating practitioners about Subsys. In reality, however, Insys used its Speakers Bureau to induce doctors to prescribe large volumes of Subsys by paying them Speaker Program fees. At each Speaker Program, speakers were supposed to conduct a slide presentation for other health care practitioners regarding Subsys. However, many of the Speaker Programs led by the speakers paid by Insys were predominantly social affairs where no educational presentation occurred. Attendance sign-in sheets for the Speaker Programs were frequently forged by adding the names and signatures of health care practitioners who had not actually been present.
FREEDMAN, a doctor certified in pain management and anesthesiology, owned a private pain management office on Manhattan’s Upper East Side and was an associate clinical professor at a large hospital in Manhattan (“Hospital-1”). FREEDMAN received approximately $308,600 in Speaker Program fees from Insys in exchange for prescribing large volumes of Subsys.
In March 2013, a Regional Sales Manager for Insys sent an email to FREEDMAN informing him that he would receive more Speaker Programs in the coming months because Insys wanted prescriptions of Subsys to increase, and urging FREEDMAN to put more patients on Subsys. FREEDMAN responded, in part, “Got it,” and significantly increased his Subsys prescriptions in the following months, during which he received approximately $33,600 in Speaker Program fees.
In 2014, FREEDMAN’s prescriptions of Subsys rose even further, and he was the fourth-highest prescriber of Subsys nationally in the final quarter of 2014, accounting for approximately $1,132,287 in overall net sales of Subsys in that quarter. During 2014, FREEDMAN was the highest-paid Insys Speaker in the nation, receiving approximately $143,000.
During the period in which FREEDMAN was receiving kickbacks from Insys, he was also distributing powerfully addictive prescription drugs to a particular patient (“Patient-1”) with no legitimate medical purpose. From in or about 2013 through in or about May 2017, FREEDMAN prescribed enormous quantities of oxycodone and fentanyl to Patient-1. For example, in 2013 alone, FREEDMAN prescribed Patient-1 approximately 85,427 oxycodone pills – an average of approximately 234 oxycodone pills per day – containing a total of approximately 2,422,435 mg of oxycodone. On or about April 13, 2017, FREEDMAN gave Patient-1 prescriptions for approximately 150 doses of a drug containing fentanyl, and for approximately 950 oxycodone pills containing approximately 30 mg of oxycodone per pill. On or about May 4, 2017, Patient-1 died of a fentanyl overdose after ingesting a quantity of the drug prescribed by FREEDMAN on or about April 13, 2017.
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In addition to the prison sentence, FREEDMAN, 61, of New York, New York, was sentenced to three years of supervised release, ordered to forfeit $308,600 and ordered to pay a total fine across the two cases of $75,000.
FREEDMAN was one of five Manhattan doctors convicted for participating in the Subsys bribery conspiracy. Todd Schlifstein was convicted upon a guilty plea and sentenced by Judge Wood on October 28, 2019, principally to a term of two years in prison. Alexandru Burducea was convicted upon a guilty plea and sentenced by Judge Wood on January 27, 2020, principally to a term of 57 months in prison. Dialecti Voudouris was convicted upon a guilty plea and sentenced by Judge Wood on March 5, 2020, principally to time served. Jeffrey Goldstein was convicted upon a guilty plea and sentenced by Judge Wood on June 16, 2021, principally to a term of 57 months in prison.
Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation and thanked the U.S. Department of Health and Human Services - Office of the Inspector General for its participation in the investigation.
The cases are being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Noah Solowiejczyk, David Abramowicz, and Katherine Reilly are in charge of the prosecutions.
Head of Telemarketing Operation Charged in $19 Million Credit Card Laundering SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the arrest today of STEVEN SHORT, the former head of E.M. Systems & Services, LLC, and affiliated companies (“E.M. Systems”), on charges of fraudulently obtaining credit card processing services for his deceptive Florida-based telemarketing operation. As alleged in a superseding indictment unsealed today, which also contains charges previously announced against Brandon Becker, the former CEO of CardReady, LLC (“CardReady”), SHORT and Becker fraudulently carried out a credit card laundering scheme that provided access to the credit card system for SHORT’s underlying telemarketing scheme. From about 2012 through 2015, according to the Indictment, SHORT and E.M. Systems generated over $19 million from thousands of customers who received cold calls promising to reduce their overall debt burdens in exchange for fees of up to $1,495. The telemarketing operation resulted in hundreds of complaints of fraud and deceptive tactics, and requests for millions of dollars in refunds and chargebacks. The charges include that, from approximately 2012 through 2015, SHORT, Becker and their co-conspirators carried out a fraudulent credit card processing scheme, processing credit card charges for SHORT’s telemarketing operation, even though applicable contracts prohibited the processing of credit card charges for purported “debt consolidation” and “interest rate reduction” services. SHORT and Becker are charged with accomplishing this processing fraud by creating dozens of sham merchant accounts and false merchant applications, concealing the true nature of SHORT’s telemarketing operation, and defrauding an associated credit card processing company and a federally insured bank into processing more than $19 million in payments for the scheme.
SHORT was arrested this morning in Tampa, Florida, and is scheduled to be presented in Tampa before U.S. Magistrate Judge Sean Flynn. Becker was originally arrested at Los Angeles International Airport on September 22, 2019. The case is assigned to Judge Preska, and is scheduled to go to trial on January 31, 2022.
U.S. Attorney Strauss said: “Steven Short and his codefendant allegedly preyed on people already in debt in order to enrich themselves, using a web of sham companies to perpetuate and conceal their conduct. As credit cards and electronic payments become an ever more central part of our society and our economy, both consumers and corporations have every right to expect truthfulness and fair dealing in the marketplace – not fraud and deception.”
FBI Assistant Director William F. Sweeney Jr. said: "As alleged, Becker and Short created more than $19 million in illegitimate profits, derived from victims who were deliberately targeted due to their debt-laden status. They entered into this scheme together and will exit in much the same way—facing a federal indictment that carries significant charges of its own."
According to the Indictment unsealed today:[1]
SHORT controlled E.M. Systems and its affiliates, based in Florida. Beginning in 2012, SHORT sought to use E.M. Systems to carry out a telemarketing scheme targeting people with outstanding debt, and to offer them purported financial services. In order to charge for such purported services via credit cards, SHORT sought access to the credit card processing market, through Becker and CardReady.
Becker was the CEO of CardReady, a Los-Angeles based company acting as a sales agent in the credit card processing industry. As part of its business as a sales agent, CardReady found merchants who wanted credit card processing services, such as SHORT, and submitted merchant applications on behalf of those merchants to an Independent Sales Organization (“ISO”), referred to in the Indictment as the “New York ISO.” The New York ISO then evaluated the merchant applications, and referred acceptable merchant accounts up the chain to Payment Processor-1 and to Bank-1. Bank-1 and Payment Processor-1, in turn, processed payments to merchants for purchases by customers who had used credit cards.
In or about 2012, SHORT negotiated a deal with Becker, to obtain credit card processing for SHORT and E.M. Systems. Under this deal, CardReady would keep approximately one-third of the credit card sale transactions of SHORT and E.M. Systems, in exchange for providing them access to the credit card processing network. For roughly the next two years, SHORT and E.M. Systems carried out a telemarketing scheme in which they used telemarketers to cold-call consumers, targeting consumers with outstanding credit card debt. The cold-callers offered the customers services, including debt consolidation and interest rate reduction on their debts, which were prohibited by the applicable guidelines from Bank-1 and associated processing entities (the “Guidelines”), and which – as SHORT and Becker knew – would produce chargebacks from dissatisfied customers far in excess of the number and rate of chargebacks permitted under the Guidelines.
In securing payment card processing for E.M. Systems, SHORT and Becker concealed that E.M. Systems was the true underlying merchant. Instead, SHORT, Becker and their co-conspirators, over a period of more than 20 months, created approximately 26 sham merchant companies, each headed by a “signer” (the “Sham Merchants” and the “Sham Merchant Accounts”). The 26 signers for the 26 Sham Merchants typically had no businesses of their own, and knew little or nothing about E.M. Systems’ business. In return for signing paperwork, the signers were paid a nominal fee from CardReady. SHORT, Becker, and their co-conspirators prepared and coordinated fraudulent merchant applications for each of the Sham Merchants, through merchant applications that falsely described the Sham Merchants to make them look like legitimate independent businesses and to make it more likely that the associated Sham Merchant Account would be approved for processing by the New York ISO, Payment Processor-1, and Bank-1. These false merchant applications also concealed the Sham Merchants’ true association with E.M. Systems.
By steering E.M. Systems’ payment processing through these Sham Merchant Accounts, SHORT and Becker accomplished a number of fraudulent purposes. First, the use of these Sham Merchant Accounts made it possible for E.M. Systems to conceal its identity from Payment Processor-1 and Bank-1 and to maintain payment card processing. This was particularly relevant as Payment Processor-1 repeatedly required CardReady to close individual Sham Merchant Accounts because of excessive chargebacks and reports of sales of prohibited services. SHORT and Becker then caused CardReady to quickly replace the closed Sham Merchant Accounts with new Sham Merchant Accounts, precluding Payment Processor-1 from shutting down its processing of Telemarketer-1 and other high-risk merchants. Second, the fraudulent processing scheme enabled E.M. Systems to spread out its charges, refunds, and chargebacks across multiple Sham Merchant Accounts. SHORT and Becker thus enabled E.M. Systems to evade chargeback monitoring programs operated by Bank-1, Payment Processor-1, and the New York ISO.
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SHORT, 44, of Tampa, Florida, is charged in Counts One and Four of the Indictment, with conspiracy to commit wire fraud and bank fraud, and bank fraud. Count One and Count Four each carries a maximum sentence of 30 years in prison, and a maximum fine of $1 million or twice the gross gain or loss from the offense.
Becker, 50, of Los Angeles, California, is charged in four counts, conspiracy to commit wire fraud and bank fraud, conspiracy to make false statements to a bank, wire fraud, and bank fraud. Count One and Count Four each carries a maximum sentence of 30 years in prison, and a maximum fine of $1 million or twice the gross gain or loss from the offense. Count Two and Count Three each 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.
The maximum potential sentences for each defendant are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Ms. Strauss praised the extraordinary work of the FBI and thanked the Federal Trade Commission for its assistance.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys David Raymond Lewis and Vladislav Vainberg are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Disbarred Attorney Pleads Guilty to Securities Fraud in Connection with Fraudulent Opinion Letter SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that RICHARD RUBIN, a disbarred attorney, pled guilty in Manhattan federal court to securities fraud. RUBIN’s guilty plea results from his involvement in a fraudulent scheme in which he falsely represented that he was a licensed attorney in signing certain attorney opinion letters, which enabled the relevant securities to be sold to the investing public. In addition, RUBIN engaged in the fraudulent scheme with Thomas Craft, a licensed attorney, who falsely represented that he had undertaken certain legal work in connection with other attorney opinion letters, when in truth and in fact, RUBIN, despite his disbarment, had undertaken all of the legal work attested to in the letters.
RUBIN was arrested on December 2, 2020, and pled guilty today before U.S. District Judge Paul A. Engelmayer.
Manhattan U.S. Attorney Audrey Strauss said: “As he admitted today, Richard Rubin falsely represented in attorney opinion letters that he was a licensed attorney, giving false comfort to the investing public that an attorney, acting as a gatekeeper, had performed certain work in connection with securities. Now he stands guilty of securities fraud and awaits sentencing for his crime.”
As alleged in the Indictment filed against RUBIN, as well as his co-conspirator Craft,[1] and other statements made in open court:
Securities Registration Requirements and SEC Rule 144
Under the Securities Act of 1933 (the “Securities Act”), anyone seeking to sell a security must first register that security unless an exemption applies. See 15 U.S.C. § 77e. This registration requirement protects investors by promoting disclosure of information pertinent to informed investment decisions.
A company registering new securities must complete a registration statement known as U.S. Securities and Exchange Commission (“SEC”) Form S-1 before the securities can be listed on a national exchange and publicly traded. SEC Form S-1 contains information pertinent to informed investment decisions, including, among other things, information on the company’s business operations, the company’s financial condition, and a description of the company’s management. In connection with SEC Form S-1, the company is required to file an opinion letter (the “Form S-1 Opinion Letter”) from a licensed attorney attesting that the statements in the SEC Form S-1 are true and correct. A company’s SEC Form S-1 and the Form S-1 Opinion Letter are available to the public on the SEC’s Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”).
“Restricted securities” refers to securities acquired in unregistered, private sales from the issuing company or from an affiliate of the issuer, with “affiliate” meaning a person who directly or indirectly controls, or is controlled by, or is under common control with, an issuer. Affiliates can also include an executive officer or a director or large shareholder who is in a relationship of control with respect to the issuing company. Restricted securities bear a legend indicating that the securities may not be resold in the marketplace unless they are registered with the SEC or are exempt from such registration requirements.
Securities Act Rule 144 (“Rule 144”), codified at 17 C.F.R. § 230.144, provides a registration exemption for restricted securities. Specifically, it permits the public resale of restricted securities if a number of conditions are met, including conditions relating to how long the securities are held, the way in which they are sold, the public information available to investors about the securities, and the amount that can be sold at any one time. Pursuant to Rule 144, however, even if these conditions are met, the sale of restricted securities to the public is still not permitted until a transfer agent removes the “restricted” legend from the security.
The term “transfer agent” refers to a company that keeps track of individuals and entities that own the stocks and bonds of a given company that has publicly traded securities. Among other things, transfer agents issue and cancel certificates to reflect changes in ownership, serve as the company’s intermediary for payouts, exchanges, or mailings, and handle lost, destroyed, or stolen certificates. Transfer agents also, when appropriate, remove the “restricted” legend from securities.
A Rule 144 Seller’s Representation Letter, or “Seller’s Representation Letter,” is a letter from an affiliate seller (that is, a seller in a relationship of control with the issuer, such as an executive officer, a director, or a large shareholder) of restricted securities to a transfer agent to establish certain facts underlying a legal opinion that the securities at issue can be sold publicly pursuant to Rule 144. The issuer’s consent to the removal of a legend typically comes in the form of an opinion letter from the issuing company’s attorney, the Seller’s Representation Letter, indicating that the securities at issue satisfy the conditions of Rule 144. Seller’s Representation Letters contain multiple attestations that are required by law prior to the restricted legend being removed. The transfer agent relies on the Seller’s Representation Letter in determining whether to remove the restricted legend from a security.
Over-the-Counter Securities and OTC Markets Group
Over-the-counter (“OTC”) securities are securities that are traded between two counterparties outside of a formal securities exchange. OTC Markets Group (“OTC Markets”) is a securities market headquartered in New York, New York, that provides price and liquidity information for OTC securities.
OTC Markets requires issuers seeking to be listed on OTC Markets to hire a licensed attorney to review company records and submit a letter to OTC Markets (an “OTC Markets Attorney Letter”) regarding whether information publicly disclosed by the issuer is in compliance with the condition in SEC Rule 144 governing the public information available to investors about the issuer. OTC Markets relies on the OTC Markets Attorney Letter to determine whether an issuer’s security may be listed on OTC Markets. OTC Markets Attorney Letters are available to the public on the OTC Markets website.
The Scheme to Defraud
From at least in or about 2011 through at least in or about September 2018, RUBIN and Craft participated in a fraudulent scheme in which Craft falsely represented that he had undertaken certain legal work in connection with Seller’s Representation Letters, OTC Markets Attorney Letters, and S-1 Opinion Letters, all of which enabled the relevant securities to be sold to the investing public. In addition, in connection with the securities of certain issuers, Rubin, the defendant, falsely represented that he was an attorney in Seller’s Representation Letters and OTC Markets Attorney Letters, all of which enabled the relevant securities to be sold to the investing public. The false representations were in letters pertaining to over a dozen companies.
RUBIN, 79, of Brooklyn, New York, pled guilty to one count of securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2, which carries a maximum sentence of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
RUBIN will be sentenced on November 2, 2021.
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Ms. Strauss praised the investigative work of the Office of Inspector General of the SEC and also thanked the SEC Division of Enforcement for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Jordan Estes is in charge of the prosecution.
The charges against Craft are pending, and he is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Defendant Arrested for Selling Xanax, Heroin, and Fentanyl Causing the Death of A 20-Year-Old WomanRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and Dermot Shea, the Commissioner of the New York City Police Department (“NYPD”), announced that LUIS LEE was charged in a criminal complaint unsealed today in Manhattan federal court with narcotics distribution resulting in the death of Pathjrie Roman, who died two days before her 21st birthday. LEE was arrested today and will be presented this afternoon before United States Magistrate Judge James L. Cott.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Luis Lee peddled a lethal combination of drugs that caused the death of Pathjrie Roman. Working with the NYPD, we will continue to combat the epidemic of lethal opioids.”
NYPD Commissioner Dermot Shea said: “The NYPD continues to work to end the trafficking of illegal opioids and bring to justice those who profit from their distribution. We commend and thank the detectives and the attorneys of the U.S. Attorney’s Office for the Southern District whose hard work resulted in this arrest.”
As alleged in the Complaint[1]:
On or about September 18, 2020, Pathjrie Roman contacted LEE on Instagram and asked for Xanax and a depressant, or a “downer,” of which heroin is a type. That evening, LEE met Roman outside her apartment in the Bronx and delivered the Xanax and heroin. The heroin, however, was mixed with fentanyl. LEE’s meeting with Roman was corroborated by their contemporaneous Instagram messages, by LEE’s cellphone location, by building surveillance, and by witness information.
The next day, September 19, 2020, NYPD and emergency medical personnel found Roman deceased at her apartment. Following an autopsy, the New York City Medical Examiner determined that Roman died of acute intoxication from the combined effects of fentanyl, acetyl fentanyl, heroin, and alprazolam (generic Xanax). Hidden inside Roman’s phone case were four glassines containing residue of fentanyl, acetyl fentanyl, and heroin.
On or about September 20, 2020, another Instagram user told LEE that Roman had died. Within 24 hours, LEE deleted the Instagram account that he had used to communicate with Roman.
On or about November 11, 2020, NYPD personnel executed a search of LEE’s bedroom and recovered 12 glassines matching the appearance of the glassines inside Roman’s phone case. The glassines in LEE’s bedroom contained fentanyl.
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LUIS LEE, 26, of New York, New York, is charged with narcotics distribution resulting in death, which carries a mandatory minimum sentence of 20 years in prison and a maximum sentence of life in prison.
The minimum and maximum potential sentences described above are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the assigned judge.
Ms. Strauss praised the outstanding investigative work of the NYPD.
The case is being handled by the Office’s Narcotics Unit. Assistant United States Attorney Alexander Li is in charge of the prosecution.
The charge against the defendant is merely an accusation, and he is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described herein should be treated as an allegation as to the defendants charged in the Complaint.
Leader of “Mike’s Candyshop” Drug Delivery Service Pleads Guilty to Narcotics Distribution That Resulted in the 2018 Death of Colin KrollRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that ARIEL TAVAREZ, a/k/a “A,” a/k/a “Mike,” pled guilty today in Manhattan federal court to conspiring to distribute heroin, cocaine, fentanyl, and a fentanyl analogue, and to distributing narcotics that caused the 2018 death of Colin Kroll, the co-founder of the video hosting service Vine and the trivia game application HQ Trivia. TAVAREZ pled guilty before United States District Judge Katherine Polk Failla.
U.S. Attorney Audrey Strauss said: “For years, Ariel Tavarez operated a covert on-demand delivery service for the distribution of highly addictive and dangerous drugs. Tavarez and his underlings peddled their poison, which Tavarez sometimes secretly laced with deadly synthetic opioids, throughout New York City. Thanks to the tireless efforts of law enforcement, Mike’s Candyshop is permanently closed.”
According to the allegations in the Indictment, and statements made in Court:
TAVAREZ was the leader of a drug trafficking organization (the “DTO”) that engaged in a drug delivery service, which identified itself as “Mike’s Candyshop.” The DTO delivered heroin and cocaine (sometimes laced with fentanyl and a fentanyl analogue) on demand to customers in New York City, and distributed numerous kilograms of heroin and cocaine throughout the course of the conspiracy. Mike’s Candyshop generally operated seven days per week, from approximately 6:00 p.m. to 12:00 a.m., with the exception of major holidays such as Thanksgiving, New Year’s Eve, and Labor Day.
Customers of the DTO placed delivery orders via text message to a centralized phone number (the “Candyshop Number”). The operator of the Candyshop Number was usually TAVAREZ. Using the Candyshop Number, TAVAREZ accepted customer orders and subsequently arranged for a courier working for the DTO to deliver the narcotics to the customer, usually within hours of the customer texting his or her order to the Candyshop Number. Certain of the DTO members, including Christian Baez, Luis Meson, a/k/a “Sito,” Gregoris Martinez, a/k/a “Greg,” Kevin Grullon, a/k/a “Kev,” a/k/a “JB,” and Jeffrey Urena, a/k/a “Jeff,” a/k/a “Jay,” served as couriers for the DTO, and regularly delivered and sold narcotics to the DTO’s customers in hand-to-hand drug transactions coordinated through the Candyshop Number.
The DTO stored heroin, cocaine, a fentanyl analogue, and cash from drug sales in various stash locations maintained by the DTO, including in Brooklyn, New York. In an effort to avoid law enforcement detection, the DTO sold only to customers who had been referred by existing customers, periodically changed the Candyshop Number, used coded language to discuss narcotics, and delivered narcotics directly to customers at locations specified by the customer. As a means of marketing its cocaine, and to ensure that the DTO’s customers knew the cocaine provided by the couriers belonged to the DTO, the DTO sold its cocaine in vials sealed with different colored tops.
On or about December 16, 2018, Colin Kroll, a customer of the DTO, died of a drug overdose in New York, New York. The narcotics that caused Kroll’s death – cocaine, heroin, fentanyl, and a fentanyl analogue – were purchased from Mike’s Candyshop on the evening of December 14, 2018.
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TAVAREZ pled guilty to one count of conspiring to distribute heroin, cocaine, fentanyl, and a fentanyl analogue, the use of which resulted in the death of Colin Kroll on or about December 16, 2018. This count carries a statutory mandatory minimum term of 20 years in prison and maximum penalty of life in prison. The maximum and mandatory minimum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.
TAVAREZ is scheduled to be sentenced by Judge Failla on November 23, 2021.
Baez, Meson, Martinez, Grullon, and Urena each previously entered a plea of guilty to participating in the Mike’s Candyshop narcotics trafficking conspiracy. Martinez was sentenced on June 29, 2021, to 72 months in prison by Judge Failla. Baez, Meson, Grullon, and Urena will be sentenced later this year by Judge Failla.
Ms. Strauss praised the outstanding investigative work of Homeland Security Investigations, the Drug Enforcement Administration, the New York City Police Department, and the Organized Crime Drug Enforcement Task Force. This prosecution is part of an Organized Crime Drug Enforcement Task Forces (OCDETF) operation. OCDETF identifies, disrupts, and dismantles the highest-level criminal organizations that threaten the United States using a prosecutor-led, intelligence-driven, multi-agency approach. Additional information about the OCDETF Program can be found at https://www.justice.gov/OCDETF.
The prosecution is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Mollie Bracewell, Nicholas W. Chiuchiolo, and Aline R. Flodr are in charge of the prosecution.
Trader at Large Canadian Asset Management Firm Charged with Insider Trading for Engaging in Multimillion-Dollar Front Running SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that SEAN WYGOVSKY, a trader at a large Canadian asset management firm (the “Employer Firm”), was charged in a Complaint in Manhattan federal court with securities fraud and wire fraud in connection with his scheme to steal confidential information about the trade orders of the Employer Firm in order to conduct hundreds of timely, profitable personal securities trades in the same stocks as the Employer Firm. WYGOVSKY attempted to hide his conduct by trading or causing trading in brokerage accounts held in the names of his close relatives. WYGOVSKY was arrested this morning in Austin, Texas, and is expected to be presented in federal court this afternoon before a U.S. Magistrate Judge for the Western District of Texas.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Sean Wygovsky illegally exploited his access to his employer firm’s yet-to-be-executed trade orders to make numerous trades in anticipation of the bump or dip the firm’s buying or selling would cause. To conceal the scheme, Wygovsky allegedly made his front running trades through brokerage accounts of certain of his relatives. As alleged, Wygovsky made or directed over 700 timely transactions that netted him more than $3.6 million in illegal profits. Now Sean Wygovsky is in custody and facing serious criminal charges.”
FBI Assistant Director William F. Sweeney Jr. said: “Over the course of several years, as alleged, Wygovsky made hundreds of short-term trades based on inside information that ultimately reaped more than $3 million in profits. Schemes like the one alleged here grossly affect the integrity of our financial markets and remain a top priority for our financial fraud investigative teams.”
As alleged in the Complaint unsealed today in Manhattan federal court:[1]
SEAN WYGOVSKY has been employed at the Employer Firm since approximately 2013. The Employer Firm is an asset management firm based in Toronto, Canada, with at least approximately $19 billion in assets under management. WYGOVSKY has a number of close relatives who live in the United States, including a relative in North Carolina (“Relative-1”) and two relatives in Virginia (“Relative-2” and Relative-3”) who are married to each other.
The Front Running Scheme
Based on his position as a trader at the Employer Firm, WYGOVSKY had access to the trade information and trade orders of the Employer Firm. Like most large asset managers, the Employer Firm had rules and regulations concerning employees’ personal trading, including requirements about the confidentiality of client information and prohibitions against insider trading and personal trading in the same securities as the Employer Firm. The size of the Employer Firm’s trade orders often caused slight, temporary movements in the price of the securities traded. For example, if the Employer Firm engaged in a large purchase of stock, the increased demand could cause a slight rise in the stock price, and if the Employer Firm engaged in a large sale of stock, the increased supply could cause a slight drop in the stock price. Because WYGOVSKY had access to the Employer Firm’s trade orders, he knew in advance when a particular stock price would move slightly up or down based on that trading.
WYGOVSKY’s relatives maintained brokerage accounts for the personal purchase and sale of securities. In particular, Relative-1 maintained at least one brokerage account and Relative-2 and Relative-3 maintained at least four brokerage accounts (the “Subject Accounts”). From at least 2015 through April 2021, after obtaining information about the Employer Firm’s upcoming trading activity but before those trades were executed, WYGOVSKY caused the Subject Accounts to buy or sell the same securities the Employer Firm would be buying or selling, in order to profit through the subsequent movement of the stock that would often result from the Employer Firm’s trading. WYGOVSKY would then cause the Subject Accounts to exit those positions once the Employer Firm’s trading was underway, often within hours of when the Subject Accounts had first entered the positions. For example, if WYGOVSKY knew that the Employer Firm would be buying a particular stock, WYGOVSKY would cause one or more of the Subject Accounts to purchase that stock beforehand in relatively small amounts. Then, as the Employer Firm made relatively large purchases, the stock price would increase and WYGOVSKY would cause the Subject Accounts to sell their holdings at a profit.
At times, WYGOVSKY personally conducted the trading on behalf of both the Employer Firm and the Subject Accounts. For example, on occasion, IP log-ins from the Subject Accounts show the Subject Accounts were being accessed from locations where WYGOVSKY was travelling. On other occasions, WYGOVSKY would cause others to execute the timely, profitable trading in the Subject Accounts. Over an approximately five-year period, WYGOVSKY caused the Subject Accounts to engage in more than 700 such short-term timely, profitable trades, resulting in at least over $3.6 million of profits in the Subject Accounts.
Financial Transfers Back to Wygovsky
During the course of the front running scheme, Relative-2 and Relative-3 caused at least approximately hundreds of thousands of dollars to be sent back to WYGOVSKY from the Subject Accounts. For example, between 2015 and 2020, Relative-2 and Relative-3 moved millions of dollars from the Subject Accounts to bank accounts that they controlled, and wrote checks to WYGOVSKY and his immediate family members for hundreds of thousands of dollars. Furthermore, in or about late 2017 and early 2018, Relative-2 and Relative-3 transferred hundreds of thousands of dollars to a Slovenian bank for the benefit of certain relatives of WYGOVSKY’s wife.
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WYGOVSKY, 40, of Ontario, Canada, is charged with one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Ms. Strauss praised the work of the FBI. Ms. Strauss further thanked the U.S. Securities and Exchange Commission, which today filed a parallel civil action, for their cooperation and assistance in this investigation.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Daniel Tracer is in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Three Arrested for Orchestrating Multimillion-Dollar “Silver Lease” Investment FraudRead the Press Release
AUDREY STRAUSS, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment charging ROBERT JEFFREY JOHNSON, a/k/a “Jeff Johnson,” ROSS BALDWIN, and KATHLEEN HOOK with conspiring to commit wire fraud and wire fraud for defrauding at least approximately 60 investors of at least approximately $8 million in connection with a precious metals leasing program known as the “Silver Lease Program.” JOHNSON and BALDWIN were further charged with conspiring to commit wire fraud and wire fraud for defrauding insurance companies by making misrepresentations to these insurance companies in connection with obtaining insurance for the purported silver. BALDWIN was also charged with making false statements to federal officials in connection with lying to officials of the Commodity Futures Trading Commission (“CFTC”) during a sworn deposition. JOHNSON and HOOK were arrested this morning in Palm Beach, Florida, and were presented today in the United States District Court for the Southern District of Florida. BALDWIN was arrested this morning in Albany, New York, and was presented today in the United States District Court for the Northern District of New York.
Manhattan U.S. Attorney Audrey Strauss said: “Robert Jeffrey Johnson, Ross Baldwin, and Kathleen Hook allegedly lied to investors in order to get them to invest millions of dollars in the ‘Silver Lease Program.’ As alleged, these investors were told that they were purchasing silver, that their silver was being securely stored for them at a high-tech storage facility in Florida, and that they would earn a guaranteed monthly dividend payment. In reality, the defendants’ promises were not worth their weight in silver – or anything else for that matter. Instead of using investors’ money to purchase silver on their behalf, the defendants allegedly misappropriated that money to pay for their own lavish personal expenses and to fund unrelated business ventures.”
As alleged in the Indictment[1] unsealed today in Manhattan federal court:
The “Silver Lease Program”
From in or about 2014 through in or about January 2021, JOHNSON, BALDWIN, and HOOK conspired to defraud investors in the “Silver Lease Program.” Investors could participate in the Silver Lease Program by either (1) paying funds to purchase silver that the investor then leased back to the operators of the program in return for a fixed monthly dividend payment or (2) providing silver the investor already owned in order to lease that silver to the operators of the program in return for a fixed monthly dividend payment.
While investors were told that they owned a particular quantity of silver that was being stored for them at a specific secure, locked storage facility in Florida (the “Florida Storage Facility”), in reality the purported silver was not being stored at the Florida Storage Facility. The entity that was supposed to be storing the investors’ silver, Precious Commodities Inc. (“PCI”), which was functionally controlled by JOHNSON, did not even have any storage units at the Florida Storage Facility. In order to induce investors to invest in the Silver Lease Program, BALDWIN, through his company National Coin Broker (“NCB”) told the investors various other lies, both orally and through websites and brochures that he prepared in order to solicit investors to participate in the program.
Investors in the Silver Lease Program provided millions of dollars in order to purchase silver through the Silver Lease Program. Unbeknownst to these investors, a substantial portion of their funds were misappropriated to pay for, among other things, personal expenses of JOHNSON, JOHNSON’s wife, and HOOK, as well as to fund other, unrelated business ventures that JOHNSON, JOHNSON’s wife, and other associates of JOHNSON were engaged in.
Misrepresentations to Insurers
In order to induce investors to invest in the Silver Lease Program and so that they would feel secure in their investment, the operators of the Silver Lease Program touted the fact that the investors’ silver would be fully insured. Investors were ultimately provided with a certificate of insurance showing that PCI held an insurance policy with respect to the investor’s silver. JOHNSON and BALDWIN caused material misrepresentations to be made to insurance brokers in connection with procuring these insurance policies. These misrepresentations included lying about BALDWIN’s role with respect to PCI and lying by claiming that the silver the insurers were insuring would be stored at the Florida Storage Facility.
Dividend Payments Cease and Investors Do Not Receive the Return of their Silver or Funds
Beginning in approximately the Spring of 2019, investors largely ceased receiving their monthly dividend payments. Many investors eventually demanded the return of their silver and/or the funds they had invested in the Silver Lease Program. Investors primarily contacted BALDWIN in their efforts to receive the return of their silver and/or their funds, and BALDWIN frequently forwarded these communications from disgruntled investors to JOHNSON.
Despite the repeated attempts by numerous Silver Lease Program investors to obtain the return of their silver and/or their money, these investors never received the return of either.
BALDWIN’s False Statements to the CFTC
In October 2018, BALDWIN participated in a sworn deposition with the CFTC that occurred in Manhattan, New York. During that deposition, BALDWIN made numerous material false statements, including by lying about the role he played in obtaining insurance for PCI and by lying about visiting a storage vault at the Florida Storage Facility with an associate of JOHNSON and observing silver, when in reality this associate of JOHNSON’s never had any storage units at the Florida Storage Facility and did not otherwise have access to any storage units at the Florida Storage Facility.
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JOHNSON, 55, of West Palm Beach, Florida, is charged with two counts of conspiracy to commit wire fraud and two counts of wire fraud, which each carry, respectively, a maximum sentence of 20 years in prison. HOOK, 59, of West Palm Beach, Florida, is charged with one count of conspiracy to commit wire fraud and one count of wire fraud, which each carry, respectively, a maximum sentence of 20 years in prison. BALDWIN, 60, of Miami, Florida, is charged with two counts of conspiracy to commit wire fraud and two counts of wire fraud, which each carry, respectively, a maximum of 20 years in prison, and is also charged with one count of making false statements to federal officials, which carries a maximum sentence of 5 years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.
Ms. Strauss praised the investigative work of the FBI. Ms. Strauss also thanked the CFTC, which has filed a civil enforcement action against the defendants.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Noah Solowiejczyk is in charge of the prosecution.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Former Construction Executive Sentenced to More Than 4 Years in Prison for Tax Evasion and Bribery SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that VITO NIGRO, a former construction project manager at Turner Construction Company (“Turner”), was sentenced today in Manhattan federal court to 51 months in prison for evading taxes on more than $1.8 million in bribes he received from building sub-contractors, in connection with a number of building projects undertaken for Bloomberg LP (“Bloomberg”). NIGRO previously pled guilty to those charges, and was sentenced today before U.S. District Judge Analisa Torres.
In related proceedings, co-conspirator Ronald Olson, a former vice president and deputy operations manager at Turner, was sentenced on June 15, 2021, by the Honorable P. Kevin Castel, to 46 months in prison, for evading taxes on more than $1.5 million in the same scheme; Anthony Guzzone, a former director of global construction at Bloomberg, was sentenced on January 19, 2021, by the Honorable Lewis J. Liman to 38 months in prison, for evading taxes on more than $1.45 million; Michael Campana, a subordinate construction manager at Bloomberg, was sentenced on July 24, 2020, by the Honorable Denise L. Cote to 24 months in prison, for evading taxes on more than $420,000.[1]
U.S. Attorney Audrey Strauss said: “Bribery and tax evasion in the construction industry impose hidden, unfair costs on law-abiding builders, contractors, and fellow taxpayers. Appropriately, Vito Nigro has been sentenced to prison for his crimes.”
According to the four criminal Informations filed in these federal cases, as well as other public documents and recent court proceedings:
Between 2011 and 2017, NIGRO was a construction project manager at Turner, a construction firm that performed various building projects in New York City and elsewhere for Bloomberg, a global financial firm. Throughout those years, Guzzone oversaw such building projects at Bloomberg, while NIGRO and Olson worked at Turner. Beginning in 2013, Campana was also a construction manager at Bloomberg, and a subordinate to Guzzone. Each of the defendants participated in a scheme to obtain bribes from construction sub-contractors, who paid kickbacks to the defendants in exchange for being awarded various construction contracts and sub-contracts performed for Bloomberg. Olson and NIGRO also separately schemed to receive kickbacks in connection with construction projects Turner was performing for clients other than Bloomberg.
In all, the defendants have pled guilty to failing to pay taxes, between 2010 and 2017, on bribes exceeding $5.1 million. The defendants received such bribes in various forms, including millions of dollars in cash, as well as construction projects on their individual homes and properties, and the direct payment of personal expenses. Such personal expenses included hundreds of thousands of dollars’ worth of repeated renovations and improvement projects at NIGRO’s home in New Jersey and OLSON’s homes on Long Island and Long Beach Island, as well as a sham lease of that beach house, through which OLSON received $20,000 per month in payments that he falsely characterized as rent; Guzzone’s receipts of several sets of Super Bowl tickets, worth approximately $8000 per ticket; and Campana’s receipt of charges related to his 2017 wedding, such as approximately $40,000 paid by sub-contractors to a catering hall in New Jersey, over $13,000 to a photography studio, and over $23,000 to a travel agent for airline tickets purchased in connection with Campana’s honeymoon. Each of the defendants evaded federal income tax on this bribery income, by failing to declare it on income tax returns for various years between 2010 and 2017.
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NIGRO, 60, of Middletown, New Jersey, pled guilty on October 28, 2020, to a single count of tax evasion for the tax years 2011 through 2017. In addition to the prison term, NIGRO was sentenced to three years of supervised release. He was also ordered to make full restitution, in an amount to be set by Judge Torres within 30 days. The Government is seeking $812,108.93 in restitution for unpaid taxes and interest.
Olson, 54, of Massapequa, New York, pled guilty on July 29, 2020, to a single count of tax evasion for the tax years 2011 through 2017. He was sentenced on June 15, 2021, to 46 months in prison, three years of supervised release, and ordered to pay restitution of $661,519.57 in unpaid taxes and interest.
Guzzone, 52, of Middletown, New Jersey, pled guilty on September 29, 2020, to a single count of tax evasion for the tax years 2010 through 2017. He was sentenced on January 19, 2021, to 38 months in prison, three years of supervised release, and restitution of $574,005.33 in unpaid taxes and interest.
Campana, 35, of Tuckahoe, New York, pled guilty to a tax evasion charge on November 26, 2019, for the tax years 2014 thought 2017, and was sentenced last week, on July 24, 2020, to 24 months in prison, three years of supervised release, restitution of $155,000 in unpaid taxes, and a fine of $10,000.
Ms. Strauss praised the excellent work of the Internal Revenue Service.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney David Raymond Lewis, and Stanley J. Okula, Senior Litigation Counsel of the Tax Division of the Department of Justice, are in charge of the prosecution.
[1] In addition, all four defendants have pled guilty in New York State Supreme Court, Indictment No. 04038-2018, to participating in the underlying bribery scheme, and are awaiting sentencing.
Extradited Ghanaian National Sentenced to Nearly 6 Years in Prison for Multimillion-Dollar Money Laundering ConspiracyRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that DEBORAH MENSAH was sentenced to 70 months in prison for her participation in a conspiracy to launder millions of dollars of fraud proceeds from business email compromises and romance scams that targeted the elderly from at least in or about 2014 through in or about 2018. MENSAH was extradited from the Republic of Ghana (“Ghana”) to the United States on August 21, 2020. She pled guilty to conspiring to commit money laundering on April 2, 2021, before U.S. District Judge Denise L. Cote, who imposed today’s sentence.
Manhattan U.S. Attorney Audrey Strauss said: “Deborah Mensah was a member of an international criminal enterprise that stole millions of dollars from businesses and vulnerable individuals across the United States, and laundered that money through a network of bank accounts in the Bronx. Having previously been extradited from Ghana, Deborah Mensah has now been sentenced to a term in a U.S. prison for her crime.”
According to the Indictment and other public filings in the case:
From at least in or about 2014 through in or about 2018, MENSAH was a member of a criminal enterprise (the “Enterprise”) based in Ghana that committed a series of business email compromises and romance scams against individuals and businesses located across the United States, including in the Southern District of New York.
The objective of the Enterprise’s business email compromise fraud scheme was to trick and deceive businesses into wiring funds into accounts controlled by the Enterprise. First, members of the Enterprise created email accounts with slight variations of email accounts used by employees of a victim company or third parties engaged in business with a company to “spoof” or impersonate those employees or third parties. These fake email accounts were specifically designed to trick other employees of the company with access to the company’s finances into thinking the fake email accounts were authentic. The fake email accounts were used to send instructions to wire money to certain bank accounts and also included fake authorization letters for the wire transfers that contained forged signatures of company employees. By using this method of deception, the Enterprise sought to trick the victims into transferring hundreds of thousands of dollars to bank accounts the victims believed were under the control of legitimate recipients of the funds as part of normal business operations, when in fact the bank accounts were under the control of members of the Enterprise, including MENSAH.
The Enterprise conducted the romance scams by using electronic messages sent via email, text messaging, or online dating websites that deluded the victims, many of whom were vulnerable older men and women who lived alone, into believing the victim was in a romantic relationship with a fake identity assumed by members of the Enterprise. Once members of the Enterprise had gained the trust of the victims using the fake identity, they used false pretenses to cause the victims to wire money to bank accounts the victims believed were controlled by their romantic interests, when in fact the bank accounts were controlled by members of the Enterprise, including MENSAH. At times, the members of the Enterprise also used false pretenses to cause the victims to receive funds into the victims’ bank accounts, which, unbeknownst to the victims, were fraud proceeds, and to transfer those funds to accounts under the control of members of the Enterprise. The members of the Enterprise, posing as the romantic interest of the victims, also introduced the victims to other individuals purporting to be, for example, consultants or lawyers, who then used false pretenses to cause the victims to wire money to bank accounts controlled by members of the Enterprise.
MENSAH and her co-conspirators received or otherwise directed the receipt of over $10 million in fraud proceeds from victims of the Enterprise into bank accounts that she and other members of the Enterprise controlled in the Bronx, New York. MENSAH opened and maintained multiple business bank accounts in the name of an auto sales company to receive funds stolen from victims and launder them to co-conspirators based primarily in Ghana. She also recruited and directed one co-conspirator to receive and launder fraud proceeds and instructed that co-conspirator on how to set up a business bank account for this purpose to avoid detection.
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MENSAH, 34, a citizen of Ghana, was also sentenced to three years of supervised release. In addition, MENSAH was ordered to forfeit $202,964 and pay restitution of $1,505,519 to victims.
Other defendants in this case who have been sentenced include Muftau Adamu, a/k/a “Muftau Adams,” a/k/a “Muftau Iddrissu,” 32, of the Bronx, New York, who was sentenced to 51 months in prison on June 7, 2019; Tourey Ahmed Rufai, a/k/a “Joe Thompson,” a/k/a “Joe Terry,” a/k/a “Rufai A Tourey,” a/k/a “Ahmed Rufai Tourey,” 34, of the Bronx, New York, who was sentenced to 48 months in prison on April 12, 2019; Prince Nana Aggrey, 45, of the Bronx, New York, who was sentenced to 30 months in prison on May 10, 2019; and Assana Traore, 41, of the Bronx, New York, who was sentenced to 15 months in prison on October 8, 2019. Adamu, Rufai, and Aggrey each pled guilty to one count of conspiracy to commit wire fraud, and Troare pled guilty to one count of conspiracy to receive stolen money. Each of the defendants was sentenced by Judge Cote.
Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation. Ms. Strauss also thanked the United States Marshals Service, the FBI Legal Attaché in Accra, Ghana, U.S. Customs and Border Protection, the Ministry of Justice & Attorney General’s Office of Ghana, and Ghana’s Economic and Organised Crime Office, for their assistance in this case. The U.S. Department of Justice’s Office of International Affairs of the Department’s Criminal Division provided significant assistance in securing the defendant’s extradition from Ghana.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Sagar K. Ravi and Mitzi Steiner are in charge of the prosecution.
United States Obtains Consent Decree Against Chinatown Retail Seller for Repeated Violations of Federal Meat Inspection ActRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and Paul Kiecker, Administrator of the U.S. Department of Agriculture’s (“USDA”) Food Safety and Inspection Service (“FSIS”), announced today the entry of a consent decree against defendants YIN GONG CORP. and YONG XING WANG (“Defendants”) for violations of the Federal Meat Inspection Act at Defendants’ places of business in New York, New York’s Chinatown.
U.S. Attorney Audrey Strauss said: “Consumers should be able to have confidence in the safety of the food they buy. Here, Defendants repeatedly sold uninspected pork products to retailers in violation of the Federal Meat Inspection Act, designed to ensure that the food supply is wholesome and unadulterated. Today’s consent decree protects the public health by requiring Defendants to adopt practices that comply with the law – and imposing significant sanctions if they fail to do so in the future.”
USDA FSIS Administrator Paul Kiecker said: “Our inspection personnel are on the job daily, verifying that establishments are providing consumers with safe, wholesome, and properly labeled meat products. We will not tolerate a disregard for consumer health and this consent decree ensures Yin Gong Corp. follows food safety laws.”
The Federal Meat Inspection Act protects the public health by imposing strict requirements on food suppliers regarding the inspection, preparation, transportation, and sale of meat products. These requirements enable American consumers to have confidence that the meat they purchase and consume is wholesome and unadulterated.
According to the complaint filed earlier this week in Manhattan federal court, for years, Defendants repeatedly violated federal law by selling hundreds of pounds of non-federally inspected pork products to retailers located in New York and other states. For example, in November 2019, Defendants sold approximately 274 pounds of non-federally inspected pork dumplings and pork buns to a grocery store located in Rochester, New York. That grocery store then sold approximately 167 pounds of those pork products to its customers. In all, USDA has uncovered over 650 pounds of meat products sold by Defendants in violation of the Federal Meat Inspection Act. Although USDA compliance investigators repeatedly warned Defendants, they did not conform their conduct to the law.
In the consent decree entered today, Defendants admit, acknowledge, and accept responsibility for the following:
- Defendants have repeatedly sold non-federally inspected meat and meat food products to retailers for resale, in violation of the Federal Meat Inspection Act. For example, on or about August 6, 2015, March 3, 2016, July 12, 2018, September 22, 2018, November 24, 2019, and November 19, 2020, Defendants prepared, offered for sale, and sold non-federally inspected pork dumplings to other retailers for resale.
- Defendants have also repeatedly sold misbranded meat and meat food products, in violation of the Federal Meat Inspection Act and an accompanying federal regulation.
- Defendants have also repeatedly failed to maintain records that fully and correctly disclosed their business transactions, in violation of applicable federal regulations.
Pursuant to the consent decree, Defendants are enjoined from selling or transporting any uninspected or misbranded meat products required to be inspected and passed by USDA, or engaging in any other conduct that would violate the Federal Meat Inspection Act. Defendants are subject to additional actions, including civil monetary penalties, termination of exempt status, contempt sanctions, and other relief, if they violate the provisions of the consent decree.
Ms. Strauss thanked the USDA for its investigative efforts in connection with this matter.
This case is being handled by this Office’s Environmental Protection Unit of the Civil Division. Assistant United States Attorney Charles S. Jacob is in charge of the case.
Yin Gong Corp. and Yong Xing Wang complaint.pdf Yin Gong Corp. and Yong Xing Wang consent decree.pdf- Defendants have repeatedly sold non-federally inspected meat and meat food products to retailers for resale, in violation of the Federal Meat Inspection Act. For example, on or about August 6, 2015, March 3, 2016, July 12, 2018, September 22, 2018, November 24, 2019, and November 19, 2020, Defendants prepared, offered for sale, and sold non-federally inspected pork dumplings to other retailers for resale.
Manhattan Man Sentenced to More Than 27 Years in Prison for Sex TraffickingRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that WILLIAM BAZEMORE, a/k/a “Yaya,” a/k/a “Nudie,” a/k/a “Jack,” was sentenced to 327 months in prison for sex trafficking by force, fraud, and coercion. BAZEMORE previously pled guilty to that offense, and was sentenced today before U.S. District Judge Analisa Torres.
U.S. Attorney Audrey Strauss said: “William Bazemore used violence and coercion to prey on female victims suffering from drug addiction, and he forced a woman to engage in commercial sex for his own financial gain. His predatory conduct had an irreparable impact on the lives of his victims. Today, William Bazemore was justly sentenced to more than 27 years in prison for his crimes.”
According to the Indictment, as well as statements made during BAZEMORE’s plea and sentencing proceedings:
In or about 2017, BAZEMORE was the leader of a criminal enterprise (the “Organization”) involved in various criminal acts, including drug distribution and sex trafficking, in and around New York City, Maine, and Connecticut. Members and associates of the Organization, including BAZEMORE and codefendant Warren Bryant, transported heroin and crack cocaine between New York, Connecticut, and Maine, at times using women suffering from drug addiction as drug couriers to secrete drugs on their persons and transport drugs and drug proceeds in vehicles controlled by the Organization, and to trade sex for access to drugs. In addition, BAZEMORE and other members and associates of the Organization used force, threats of force, and coercion to cause a female drug customer (“Victim-1”) to engage in commercial sex for their financial gain, and took actions to prevent Victim-1 and others from cooperating with law enforcement against the Organization.
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In addition to today’s prison sentence, BAZEMORE, 41, of New York, New York, was sentenced to five years of supervised release.
Codefendant Warren Bryant was sentenced by Judge Torres on September 22, 2020, to 125 months in prison for participating in a racketeering conspiracy and a narcotics conspiracy related to the same scheme.
Ms. Strauss praised the outstanding investigative work of the FBI-NYPD New York Child Exploitation and Human Trafficking Task Force, and the Special Agents of the U.S. Attorney’s Office for the Southern District of New York.
This case is being prosecuted by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Jacqueline Kelly and Danielle Sassoon are in charge of the prosecution.
Man Convicted in Manhattan Federal Court for Scheme to Steal over $1.5 Million from New York City’s Human Resources AdministrationRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that SALIFOU CONDE was found guilty of bank fraud, wire fraud, and conspiracy to commit bank and wire fraud on June 29, 2021, in connection with his involvement in a years-long scheme to steal over $1.5 million from New York City’s Human Resources Administration (“HRA”), following a four-day jury trial before U.S. District Court Judge Valerie E. Caproni.
Manhattan U.S. Attorney Audrey Strauss said: “Salifou Conde was a key participant in a scheme to steal more than 2,400 rent supplement checks worth over $ 1.6 million to the HRA, an agency that provides critical assistance to New Yorkers in need of rental assistance. A Manhattan jury of his peers has found Conde guilty, and he now awaits sentencing for callously targeting a much-needed support system for low income New Yorkers.”
As reflected in the Indictment, public filings, and the evidence presented at trial:
HRA is an agency of the City of New York responsible for administering certain of the City’s public assistance programs. Among other things, HRA provides rental assistance to low income New Yorkers. For individuals who qualify, HRA provides rental assistance by sending monthly rent supplement checks to landlords or social services organizations that provide housing or residential treatment to cover a portion of the cost of documented expenses such as rent or storage costs.
During the period charged in the Indictment, HRA rent supplement checks that were undeliverable were sent back to the same P.O. Box at a United States post office in New York, New York. From there, couriers took the undeliverable checks from the post office and delivered the checks back to HRA. CONDE worked as one of the couriers and stole checks out of the mail.
Between approximately 2016 and 2019, CONDE and his co-conspirators were responsible for stealing a total of over 2,400 HRA rent supplement checks worth more than $1.6 million, and fraudulently depositing them into more than 40 bank accounts. CONDE was a key member of the scheme. He helped to steal undeliverable HRA rent supplement checks, deposit the checks into a network of bank accounts, and then quickly withdraw the stolen cash.
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CONDE, 31, of New Jersey, was convicted of one count of wire fraud, which carries a maximum punishment of 20 years in prison; one count of bank fraud, which carries a maximum punishment of 30 years in prison; and one count of conspiracy to commit wire fraud and bank fraud, which carries a maximum punishment of 30 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Ms. Strauss praised the outstanding investigative work of the New York City Department of Investigation, the Federal Bureau of Investigation, and the New York State Commissioner of Taxation and Finance.
The prosecution of this case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys Danielle Kudla, Elizabeth Espinosa, Nicholas Folly, and Kedar Bhatia are in charge of the prosecution.
Owner and Principal of Investment Firm Found Guilty of Insider Trading and Investment Fraud SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that, following a two-week trial presided over by U.S. District Judge Edgardo Ramos, and approximately one hour of deliberations, DONALD BLAKSTAD, the owner and principal of a California-based investment firm, was found guilty on all counts for committing insider trading and a securities offering fraud scheme. BLAKSTAD’s offenses yielded more than $7 million in criminal profits.
U.S. Attorney Audrey Strauss said: “As a unanimous jury found, Donald Blakstad used his connections to a company insider to gather inside information that he and his associates then traded on, raking in more than $6 million in illegal profits. In addition, Blakstad defrauded investor clients out of more $1 million, funds he purported would be invested but he instead misappropriated, in some cases for personal expenses. Now Donald Blakstad awaits sentencing for his crimes.”
According to the allegations contained in the Indictment and the evidence presented at trial:
BLAKSTAD was a stock trader and the owner and principal of an investment fund known as Midcontinental Petroleum Inc. (“Midcontinental Petroleum”), which purported to be in the business of soliciting investments in the energy industry. Martha Bustos was a former certified public accountant who worked in the finance department at Illumina, Inc. (“Illumina”), a San Diego-based biotechnology company whose securities trade on NASDAQ. By virtue of her employment at Illumina, Bustos had access to material nonpublic information about Illumina’s financial condition, including its earnings.
On several occasions, from 2016 through 2018, BLAKSTAD obtained inside information about Illumina’s financial condition from Bustos before Illumina publicly announced its earnings and financial results. As BLAKSTAD knew, Bustos owed a duty to keep inside information about Illumina confidential.
BLAKSTAD, aware of Bustos’s breach of duty to Illumina, used this inside information to make profitable trades in Illumina securities shortly before Illumina’s earnings announcements. At times, BLAKSTAD tipped his associates so that they could trade Illumina stock and options based on the inside information. At other times, in order to avoid detection, BLAKSTAD arranged for his associates to purchase Illumina securities for BLAKSTAD’s benefit in accounts controlled by his associates.
Following the public announcement of Illumina’s earnings, BLAKSTAD and his associates sold the Illumina securities at a significant profit, sometimes exceeding more than 2,000 percent. In total, BLAKSTAD and his associates made more than $6 million in profits from purchasing and selling Illumina securities.
In addition, from at least in or about 2015 through at least in or about 2019, BLAKSTAD devised and operated a securities offering fraud to fraudulently obtain more than a $1 million from a number of investors. BLAKSTAD fraudulently induced victim investors to make up-front, lump-sum investments for securities issued by Midcontinental Petroleum, which funds BLAKSTAD then misappropriated, in substantial part.
To facilitate the scheme, BLAKSTAD made false and misleading representations to investor victims regarding how their investment funds would be utilized. During the scheme, at BLAKSTAD’s direction, victims transmitted their funds, including by wire transfer, into bank accounts that were controlled by BLAKSTAD. Once he obtained these investor funds, BLAKSTAD did not use them for the purposes he had represented to investors. Instead, BLAKSTAD diverted a substantial portion of victims’ funds to himself and to co-conspirators. For example, BLAKSTAD used the funds to pay for a variety of personal expenses and for purposes that were unrelated to the business of Midcontinental Petroleum.
BLAKSTAD also made a series of false and misleading statements to victims designed to avoid detection, perpetuate the scheme, and keep the victim funds he received as a result of the fraud.
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BLAKSTAD, 62, of San Diego, California, was convicted on all counts of the Indictment. He was convicted of one count of conspiracy to commit securities fraud, two counts of securities fraud, one count of conspiracy to commit wire fraud, and one count of wire fraud for his participation in the insider trading scheme. He was also convicted of one count of conspiracy to commit securities fraud and wire fraud and one count of wire fraud for his participation in the securities offering fraud scheme. The securities fraud counts and the conspiracy to commit wire fraud count each carry a maximum sentence of 20 years in prison. The conspiracy to commit securities fraud and the conspiracy to commit securities fraud and wire fraud counts each carry a maximum term of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the Court.
BLAKSTAD is scheduled to be sentenced before Judge Ramos, who presided over the trial, on October 28, 2021, at 11:00 a.m.
Bustos pled guilty in June 2019 for her participation in the insider trading scheme. Bustos, who is cooperating with the Government, has yet to be sentenced.
Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation. Ms. Strauss also thanked the Securities and Exchange Commission, which brought a separate civil action.
This case is being handled by the Office’s Securities and Commodities Fraud Unit. Assistant U.S. Attorneys Edward A. Imperatore and Jared Lenow are in charge of the prosecution.
Bank Employee Pleads Guilty to Defrauding Her Employer of Nearly $1.7 MillionRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that GANGADAI RAMPERSAUD AZIM, a/k/a “Julie Azim,” pled guilty today to a more than decade-long conspiracy to commit bank fraud, defrauding her employer, a Manhattan-based bank, by misappropriating approximately $1.7 million. AZIM pled guilty before U.S. District Judge Katherine Polk Failla.
Manhattan U.S. Attorney Audrey Strauss said: “As she admitted today, Gangadai Azim betrayed her position as a trusted bank employee to defraud the bank and misappropriate nearly $1.7 million in client funds over the course of more than a dozen years. Now Azim awaits sentencing for her crime.”
According to the allegations in the Complaint, court filings, and statements made during plea proceedings:
Between August 2008 and January 2021, AZIM, a long-time employee of a New York, New York-based bank (“Bank-1”), stole approximately $1.7 million from her employer. Over the course of approximately 12 years, AZIM executed hundreds of wire transfers of Bank-1 funds to co-conspirators and related companies, who then sent portions of the ill-gotten funds to AZIM’s personal bank account.
In furtherance of her scheme to defraud Bank-1, AZIM repeatedly made false entries in Bank-1’s systems, misappropriating funds paid to Bank-1 by its clients to satisfy outstanding loan obligations and then extending the maturity dates of those loan obligations, making it appear as though the loan obligations had not yet been paid. When even the fraudulently extended maturity dates came due, AZIM originated new, fraudulent loans to help conceal the scheme. AZIM utilized the proceeds of those fraudulent loans to satisfy the loans for which she had previously stolen the client payments. Over the course of the approximately 12 years, AZIM caused approximately 200 improper wire transfers of Bank-1’s funds, each for an amount under $10,000, to be sent to third party accounts, including those of co-conspirators and related companies, which then returned portions of those funds to AZIM. In doing so, AZIM abused her position at Bank-1 and enriched herself at the expense of her employer.
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AZIM, 58, of Richmond Hill, New York, pled guilty to one count of conspiring to commit bank fraud, in violation of 18 U.S.C. §1349, which carries a maximum sentence of 30 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
AZIM is scheduled to be sentenced by Judge Failla on October 19, 2021, at 3:30 p.m.
Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation in this case.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Katherine Reilly is in charge of the prosecution.
U.S. Attorney Announces Extradition and Guilty Plea of Israeli Securities Trader for Participating in A Global Insider Trading RingRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing today of a 15-count superseding indictment charging DOV MALNIK and TOMER FEINGOLD with offenses relating to their roles as securities traders in a wide-ranging international insider trading ring who made millions of dollars in illicit profits by trading based on misappropriated inside information. MALNIK, a citizen of Israel and Lithuania, was arrested in Switzerland on October 7, 2020, was extradited on June 10, 2021, from Switzerland, and pled guilty today before U.S. Magistrate Judge Stewart D. Aaron. FEINGOLD remains at large. The case is assigned to U.S. District Judge Victor Marrero.
Manhattan U.S. Attorney Audrey Strauss said: “Today’s charges represent another step in our Office’s pursuit of transnational insider trading. Our Office, along with the FBI and our other law enforcement partners, will vigorously protect the integrity of our nation’s capital markets, regardless of where in the world the inside information is stolen and where tips are illegally passed.”
FBI Assistant Director William F. Sweeney Jr. said: “Whether it happens inside or outside our borders, trading securities based on misappropriated insider information that affects our financial markets in any way will ultimately lead to federal criminal charges here in the U.S. Protecting the integrity of our markets from threats both at home and abroad remains a top priority of our white collar crime division.”
As alleged in the Indictment unsealed today in Manhattan federal court:[1]
DOV MALNIK, a citizen of Israel and Lithuania, and TOMER FEINGOLD, a citizen of Israel, were business partners and securities traders who traded in their own names and managed various companies and investment funds. From at least 2013 through 2017, MALNIK and FEINGOLD participated in a large-scale, international insider trading ring. Through the scheme, MALNIK and FEINGOLD received material, nonpublic information (“MNPI”) concerning acquisitions and potential acquisitions of publicly traded companies from a securities trader who resided in Switzerland (“CC-1”). MALNIK and FEINGOLD both knew that this MNPI was obtained by CC-1 directly and indirectly from individuals who were insiders at publicly traded companies and investment banks. These insiders breached their fiduciary duties and shared MNPI with others, including CC-1, in exchange for compensation, who in turn shared that information with MALNIK and FEINGOLD. MALNIK and FEINGOLD used that information to place timely, profitable securities trades resulting in millions of dollars of profits.
MALNIK and FEINGOLD began obtaining MNPI from CC-1 in approximately 2013. During that summer, CC-1 met MALNIK and FEINGOLD and explained to them that CC-1 had numerous sources of MNPI and CC-1 could share that MNPI with MALNIK and FEINGOLD. In return, MALNIK and FEINGOLD agreed to compensate CC-1 by buying additional securities on CC-1’s behalf and transmitting the profits from those trades to CC-1. Soon after meeting MALNIK and FEINGOLD, CC-1 explained to them the importance of CC-1 being paid CC-1’s share of the profits in cash because CC-1 needed cash to pay his sources of MNPI. MALNIK and FEINGOLD agreed to this arrangement and obtained MNPI about numerous companies from CC-1. Specifically, CC-1 obtained MNPI which was subsequently shared with MALNIK and FEINGOLD from numerous sources, including MNPI that was stolen by investment bank insiders from two different global investment banks.
Throughout the conspiracy, MALNIK and FEINGOLD, as well as the investment bank insiders, CC-1, and others involved in this scheme, took numerous steps to conceal their unlawful enterprise, including through the use of encrypted messaging applications and multiple unregistered “burner” cellphones to communicate with each other. MALNIK and FEINGOLD also attempted to avoid detection by engaging in securities trading through numerous offshore corporate entities. For example, in 2011, MALNIK incorporated a British Virgin Islands entity based in Geneva, Switzerland, and subsequently opened trading and/or bank accounts in that shell company’s name. During the insider trading scheme, MALNIK and FEINGOLD’s offshore companies traded in the stocks of companies about which MALNIK and FEINGOLD had received MNPI – often with multiple of those companies trading in the same stock and on the same days.
MALNIK and FEINGOLD also used these entities to transfer a portion of the profits of their illegal insider trading to CC-1 as per MALNIK and FEINGOLD’s agreement with CC-1. At first, MALNIK and FEINGOLD instructed their banks to send the funds to an account at a financial institution in Switzerland that agreed to hold the funds for the benefit of CC-1. After a short time, however, MALNIK and FEINGOLD’s banks questioned the purpose of the transactions and requested justification for the transfer of funds. Accordingly, in order to deceive the banks, MALNIK, FEINGOLD, and CC-1 agreed that CC-1 would issue fake invoices for consulting services to MALNIK and FEINGOLD’s various offshore entities. The offshore entities would then send the funds to CC-1’s account pursuant to the fake invoices.
To date, the investigation has also resulted in the conviction of other individuals who were involved in this global insider trading scheme, including investment banker Bryan Cohen, who pled guilty on January 7, 2020, to illegally passing MNPI related to his bank’s corporate clients, and entrepreneur and pharmaceutical company executive Telemaque Lavdias, who was convicted on January 15, 2020, of illegally passing MNPI related to Ariad Pharmaceuticals, Inc.
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MALNIK, 43, an Israeli and Lithuanian citizen and resident of Switzerland, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison. Sentencing before Judge Marrero will take place on a date to be determined.
FEINGOLD, 42, an Israeli citizen, is charged with conspiracy to commit securities fraud, which carries a maximum sentence of five years in prison; conspiracy to commit securities fraud and wire fraud, which carries a maximum sentence of 25 years in prison; securities fraud under Title 15, which carries a maximum sentence of 20 years in prison; tender offer fraud, which carries a maximum sentence of 20 years in prison; wire fraud, which carries a maximum sentence of 20 years in prison; securities fraud under Title 18, which carries a maximum sentence of 25 years in prison; and money laundering, which carries a maximum sentence of 20 years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Ms. Strauss praised the investigative work of the FBI and also thanked the Securities and Exchange Commission for its assistance. Ms. Strauss also thanked the Office of International Affairs of the Department of Justice’s Criminal Division and the Swiss Federal Office of Justice for their assistance in the arrest and extradition of MALNIK.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Richard Cooper and Daniel Tracer are in charge of the prosecution.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.