Southern District of New York
Press releases recorded for this federal judicial district.
Village of Airmont Ordered to Cease Enforcement of Zoning Code That Discriminates Against Orthodox Jewish Residents and to Restore Right to Home WorshipRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced the entry today of a Consent Order of Preliminary Injunction (the “Injunction”) mandating that the Village of Airmont (“AIRMONT”) immediately cease enforcement of zoning code provisions enacted in 2018 that discriminate against Orthodox Jewish residents in violation of the Religious Land Use and Institutionalized Persons Act (“RLUIPA”), as alleged in a lawsuit brought by the United States (the “Government”). Among other things, the zoning code provisions at issue limit the amount of space in private homes that can be used as a Residential Place of Worship (“RPW”), restrict whom residents are allowed to invite into their own homes to pray, and expand the use of an arbitrary, drawn-out application process designed to delay and effectively deny permits for even minor alterations to private houses. After commencing its lawsuit in December 2020, the Government presented evidence that the provisions had been motivated by discriminatory animus and served no legitimate governmental purpose. Following the Government’s submission, AIRMONT agreed to entry of the Injunction.
U.S. Attorney Audrey Strauss said: “The right to Free Exercise of religion is central to the First Amendment, and our multicultural society is only as strong as our willingness to stand up for the rights of religious minorities. We appreciate Airmont’s willingness to agree to cease enforcement of its discriminatory zoning code restrictions pending final resolution of this matter.”
Under the terms of the Injunction entered today by U.S. District Judge Nelson S. Román, AIRMONT:
- Must restore RPWs as a recognized land use category permitted as of right in all residential districts and may not enforce contrary provisions of local law enacted in 2018 that removed RPWs as a recognized of-right use from AIRMONT’s zoning code;
- Must restore in full zoning provisions protecting the right to residential worship enacted by order of the District Court in 1996 after a jury found that AIRMONT had engaged in discrimination against Orthodox Jews, which AIRMONT removed from its zoning code in 2018 in violation of the Court-entered final judgment;
- Must ensure that all applications for RPWs that are 1,400 square feet or less in total size are reviewed and approved on an expedited basis without public hearing; and
- May not adjudicate applications for RPWs that are larger than 1,400 square feet under the terms of site development regulations enacted in 2018, which expanded and made mandatory a disproportionately burdensome review process, and may instead only apply regulations that were in effect under an earlier version of AIRMONT’s zoning code enacted in 1997.
RLUIPA authorizes the Department of Justice to commence an action against any local government that implements a land use regulation that places a substantial burden on religious exercise or discriminates on the basis of religion. By its terms, the Injunction will remain in effect until further order of the District Court.
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorney Stephen Cha-Kim is charge of the case.
Three Defendants Charged in Cocaine Importation and Distribution Network in New YorkRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and Raymond P. Donovan, Special Agent in Charge of the New York Division of the U.S. Drug Enforcement Administration (“DEA”), announced that ADRIANO RODRIGUEZ-DIAZ, IRONELLYS PAULINO-NOLASCO, and ROBERT NUNEZ were charged in a criminal complaint filed in Manhattan federal court with narcotics importation, narcotics trafficking, and firearms offenses. RODRIGUEZ-DIAZ and PAULINO-NOLASCO were apprehended on March 12, 2021 and will be presented this afternoon before United States Magistrate Judge Sarah L. Cave. NUNEZ remains at large.
Manhattan U.S. Attorney Audrey Strauss said: “This investigation has yielded the seizure of over 120 kilograms of cocaine and over $1 million in suspected proceeds from illegal narcotics trafficking, disrupting the operation of this alleged drug trafficking organization. Thanks to our partners at the DEA, this massive shipment of potentially deadly narcotics has been kept off the streets.”
DEA Special Agent in Charge Raymond P. Donovan said: “A stakeout turned into a three-day enforcement operation taking six million dollars’ worth of cocaine sales away from alleged drug traffickers while saving lives. Over one hundred kilograms of cocaine is significant in many ways since CDC warned of a 26.5% increase in overdose deaths involving cocaine in a 12- month period ending May 2020. Law enforcement will continue to rally our resources to seize illegal drugs responsible for record-breaking overdose rates.”
As alleged in the Complaint[1]:
Since in or about late 2020, the DEA has been investigating the importation and distribution of narcotics through a produce warehouse in New Jersey called “Sweet Produce” (the “Warehouse”). Cocaine was shipped from a company in the Dominican Republic to the Warehouse. Between March 9, 2021 and March 12, 2021, DEA agents observed members of the conspiracy receive and move shipments from the Warehouse to other locations, including an apartment in the Bronx.
On March 10, 2021, agents seized approximately one kilogram of cocaine from a car driven by NUNEZ. On March 11, 2021, agents seized approximately 20 kilograms of cocaine and $1.3 million in United States currency from the apartment in the Bronx. On March 12, 2021, agents seized approximately 100 kilograms of cocaine from a produce van as it left the Warehouse, and also seized a firearm from the Warehouse. The Produce Van was en route to a safe house in New Jersey that contained approximately one kilogram of cocaine, a cocaine press, and packaging materials.
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ADRIANO RODRIGUEZ-DIAZ, 41, IRONELLYS PAULINO-NOLASCO, 37, and ROBERT NUNEZ, 50, are charged with conspiring to import at least five kilograms of cocaine into the United States, which carries a mandatory minimum sentence of 10 years in prison and a maximum sentence of life in prison, and conspiring to distribute and possess with intent to distribute at least five kilograms of cocaine, which carries a mandatory minimum sentence of 10 years in prison and a maximum sentence of life in prison. RODRIGUEZ-DIAZ is also charged with possession of a firearm during and in relation to the narcotics importation and trafficking conspiracies, which carries a mandatory consecutive sentence of five years in prison.
The maximum potential sentences described above are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants would be determined by the assigned judge.
Ms. Strauss praised the outstanding investigative work of the New York Division the DEA. Ms. Strauss also thanked the El Dorado Task Force of the United States Department of Homeland Security, Homeland Security Investigations, the New York City Police Department and the Organized Crime Drug Enforcement Task Force New York Strike Force, Financial Investigation Team comprising agents and officers of the DEA, NYPD, Bergen County Prosecutors Office, Fort Lee Police Department, Teaneck Police Department, Hillsdale Police Department, Northvale Police Department, Palisades Interstate Parkway Police, and Closter Police Department for its assistance in the investigation.
The case is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Danielle M. Kudla and Alexander Li are in charge of the prosecution.
[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.
Bronx Gang Member Pleads Guilty to 2018 Shooting in the Nelson PlaygroundRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that MARVIN GAMONEDA, a/k/a “June,” pled guilty today in Manhattan federal court in connection with a shooting in the Nelson Playground on June 7, 2018, in furtherance of the Woodycrime criminal enterprise. U.S. District Judge John G. Koeltl accepted the defendant’s guilty plea.
U.S. Attorney Audrey Strauss said: “Today, Marvin Gamoneda admitted his responsibility for a brazen shooting in the middle of the afternoon in a playground in the Bronx. During the shooting, two individuals, including a child, were hit. We continue our daily work with our law enforcement partners to keep our communities safe and to vigorously investigate acts of gang violence.”
As alleged in the Indictment and statements made in open court:
Woodycrime was a criminal enterprise involved in committing numerous acts of violence, including attempted murders and assaults, as well as drug dealing in the Bronx. Members and associates of Woodycrime engaged in violence to retaliate against rival gangs, to preserve and expand the gang’s territory, and to protect the gang’s narcotics business. Members and associates of Woodycrime enriched themselves by selling drugs, such as crack cocaine, marijuana, oxycodone, and MDMA or “ecstasy.” On June 7, 2018, GAMONEDA and others shot at a rival gang member in the vicinity of the Nelson Playground in the Bronx, during which two victims, including a 13-year-old child, were injured.
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GAMONEDA, 34, of the Bronx, New York, pled guilty to attempted murder and assault with a dangerous weapon in aid of racketeering, which carries a maximum sentence of 20 years in prison, and using and carrying a firearm in furtherance of a crime of violence, which carries a maximum sentence of life and a mandatory minimum sentence of five years in prison. GAMONEDA will be sentenced before Judge Koeltl on July 30, 2021, at 10:00 a.m.
The statutory maximum penalties are prescribed by Congress and are provided here for information purposes only, as any sentencing of the defendant would be determined by Judge Koeltl.
Ms. Strauss praised the outstanding investigative work of the NYPD and the FBI.
This case is being handled by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Andrew K. Chan, Jacob R. Fiddelman, and James Ligtenberg are in charge of the prosecution.
Singapore Resident Charged in Manhattan Federal Court with Fraudulent Pre-IPO Stock SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Peter C. Fitzhugh, Special Agent-in-Charge of the New York Field Office of Homeland Security Investigations (“HSI”), Philip R. Bartlett, Inspector-in-Charge of the New York Field Division of the United States Postal Inspection Service (“USPIS”), Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), and Joseph Fucito, New York City Sheriff, announced today the unsealing of a criminal Complaint charging SHAMOON RAFIQ, a/k/a “Shamoon Omer Rafiq,” a/k/a “Omar Rafiq,” a/k/a “Omer Rafiq,” a resident of Singapore, with securities fraud, wire fraud, and aggravated identity theft for engaging in a scheme in which RAFIQ solicited millions of dollars through his use of false representations offering to sell purported investments in shares of stock in privately held companies that have not yet conducted an initial public offering (“pre-IPO stock”) that he did not actually own, his false impersonation of senior officials of a reputable family office investment firm, and other acts of deception.
U.S. Attorney Audrey Strauss said: “As alleged, Shamoon Rafiq exploited investors’ fear of missing out on the potential gains to be earned from investing in companies before they go public, and solicited millions of dollars from investors through brazen lies and deception. Rafiq allegedly elicited millions under the false pretense that he would sell shares of pre-IPO stocks which – unbeknownst to his investors – he did not even own and therefore could not sell. Furthermore, Rafiq allegedly sent faked emails impersonating senior officials of a reputable family office investment firm that supposedly backed his claims. I sincerely thank our law enforcement partners for their assistance in charging Rafiq for alleged predatory acts of deceit on his victims.”
HSI Special Agent-in-Charge Peter C. Fitzhugh said: “A fraudster with a felony conviction for wire fraud, Rafiq allegedly attempted to fleece investors out of their hard-earned cash by creating the illusion of a once-in-a-lifetime opportunity to invest victims’ funds into pre-IPO stocks such as Airbnb shares. In reality, no such opportunity existed and Rafiq' was simply trying to walk off with millions of dollars from Singapore. HSI’s El Dorado Task Force and our partners will continue to work tirelessly to identify, investigate, arrest and prosecute individuals, like Rafiq, who allegedly peddled too good to be true financial opportunities within the U.S. financial markets. Investors should be reminded that unbelievable investment prospects are sometimes just that.”
USPIS Inspector-in-Charge Phillip R, Bartlett said: “Mr. Rafiq’s alleged scheme is all based on the alleged perfect opportunity for ‘stock’ in a well-known company. The opportunity to own prominent holdings would be a boon to any investor, but in this case there was no stock, just a made up investment scheme to enrich an alleged serial fraudster. Through the collaboration of law enforcement, both domestically and globally, Mr. Rafiq will once again answer for his crimes to defraud investors. A reminder that no one eludes justice forever.”
NYPD Commissioner Dermot Shea said: “As alleged in this complaint, Shamoon Rafiq preyed on the hopes of innocent victims in elaborate financial swindles. But the joint work of our NYPD investigators and law enforcement partners put an end to these alleged crimes and I commend the United States Attorney’s Office in the Southern District of New York for bringing this important case.”
If you believe you are a victim of a fraudulent pre-IPO stock scheme perpetrated by SHAMOON RAFIQ or have information about the crimes charged in the Complaint, please call the United States Attorney’s Office at 866-874-8900.
According to the allegations in the Complaint unsealed today in Manhattan federal court:[1]
SHAMOON RAFIQ, a/k/a “Shamoon Omer Rafiq,” a/k/a “Omar Rafiq,” a/k/a “Omer Rafiq,” was born in the Netherlands in 1973 and presently resides in Singapore. RAFIQ was convicted in 2004 in the United States District Court for the Eastern District of New York for carrying out a wire fraud scheme in which he purported to sell pre-IPO stock in a privately held company that had not yet conducted its initial public offering when, in fact, RAFIQ did not own or have access to such stock. After serving a 41-month federal prison sentence for that crime, RAFIQ was deported from the United States and eventually relocated to Singapore.
Since at least July 2020, RAFIQ has been engaging in a new scheme from Singapore to defraud victims into paying him millions of dollars for alleged investment interests in various pre-IPO stocks that he does not actually own or control.
In connection with his new fraud scheme, RAFIQ has fraudulently impersonated two senior officials (“Victim-1” and “Victim-2”) of a prominent family office investment firm (“FamCap”) that manages and invests assets of members of a prominent billionaire family (the “Family”). In July 2020, RAFIQ caused the creation of a fake FamCap website (the “Fake FamCap Website”) that has automatically routed users to the official FamCap website, and the creation of fake FamCap email addresses for Victim-1 and Victim-2 that closely resemble, but are slightly different from, their official FamCap email addresses (the “Fake FamCap Email Addresses”). The Fake FamCap Website and Fake FamCap Email Addresses for Victim-1 and Victim-2 were created without their or FamCap’s consent. The Fake FamCap Email Addresses also included the names of Victim-1 and Victim-2 without their authorization.
In July 2020, RAFIQ began soliciting millions of dollars from investment firms in New York and elsewhere based on false claims that in exchange for their funds, he would sell them investment interests in a purported special purpose investment vehicle called “[Fam] Capital Technology Fund, LLC” that was supposedly managed by FamCap and allegedly owned pre-IPO stock in Airbnb, Inc., among other companies. For example, as part of this fraudulent scheme, RAFIQ deceived an investment firm based in New York, New York (the “New York Firm”), and one of the firm’s foreign institutional clients (the “Client”) into making agreements under which the Client wired about $9 million in mid-August 2020 into an escrow account in New York for anticipated release to a bank account in Singapore to pay RAFIQ for his purported sale of investment interests in the LLC.
In soliciting this $9 million investment, RAFIQ made a variety of false representations, including the following:
- RAFIQ falsely claimed that the LLC was managed by FamCap. In fact, the LLC never existed.
- RAFIQ falsely claimed that the LLC owned pre-IPO shares of Airbnb. In fact, the LLC did not own and could not have owned such stock because the LLC never existed.
- RAFIQ falsely claimed that Victim-1 and Victim-2 had approved of his sale of his alleged interests in the LLC. In fact, Victim-1 and Victim-2 do not know RAFIQ and have confirmed that FamCap was never involved in or approved of any such transaction.
During and to further the goals of this fraudulent scheme, RAFIQ also caused the creation and transmission of emails from the Fake FamCap Email Addresses and fake contracts and deal documents purporting to have been signed by Victim-1 or Victim-2 on behalf of FamCap that neither of them approved. For example, in August 2020, during the course of email communications with the New York Firm and Client concerning RAFIQ’s alleged sale to them of his purported interests in an alleged FamCap-managed LLC that supposedly held Airbnb shares, RAFIQ copied into the email chain the Fake FamCap Email Addresses to create the false impression that FamCap was involved in and approved of the alleged transaction.
In a separate parallel enforcement action, the United States Securities and Exchange Commission (the “SEC”) has filed civil charges against RAFIQ.
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RAFIQ, 47, is a resident of Singapore and a citizen of the Netherlands. RAFIQ has been charged in a three-count Complaint with one count of securities fraud, which carries a maximum potential sentence of 20 years in prison; one count of wire fraud, which carries a maximum potential sentence of 20 years in prison; and one count of aggravated identity theft, which carries a mandatory prison sentence of two years that must be imposed to run consecutively to any other terms of imprisonment. In addition to potential prison sentences, each of these charges also carries potential financial penalties. The maximum potential prison 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.
RAFIQ remains at large. The United States looks forward to working with our foreign partners to bring RAFIQ to justice.
Ms. Strauss praised the investigative work of HSI, USPIS, the NYPD and the New York City Sheriff’s Office, and she also thanked the SEC, which conducted a separate parallel investigation, for its assistance.
This case is being handled by this Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney Samson Enzer 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 that charging document set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Zurich’s Oldest Private Bank Admits to Helping U.S. Taxpayers Hide Offshore Accounts from IRSRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, Stuart M. Goldberg, Acting Deputy Assistant Attorney General for the Department of Justice’s Tax Division, and James C. Lee, Chief of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), announced the filing of a criminal Information against RAHN+BODMER CO. (“R+B”), a financial institution located in Zurich, Switzerland. The Information charges R+B with one count of conspiring to help U.S. accountholders evade their U.S. tax obligations, file false federal tax returns, and otherwise defraud the Internal Revenue Service (“IRS”) by hiding hundreds of millions of dollars in offshore bank accounts at R+B.
Ms. Strauss, Mr. Goldberg, and Mr. Lee also announced a deferred prosecution agreement with R+B (the “Agreement”), under which R+B admits to its unlawful conduct in assisting U.S. accountholders in violating their legal duties. R+B’s admissions are contained in a detailed Statement of Facts attached to the Agreement. The Agreement requires R+B to provide ongoing assistance to the Department of Justice and to pay a total of $22 million in restitution, forfeiture, and penalties. If R+B abides by all of the terms of the Agreement, the Government will defer prosecution on the Information for three years and then seek to dismiss the charge.
Manhattan U.S. Attorney Audrey Strauss said: “As Rahn+Bodmer now admits, it aided U.S. taxpayers in evading their tax responsibilities to the tune of more than $16 million. This venerated banking institution knowingly offered banking services that assisted its U.S. customers in evading their tax obligations, and affirmatively schemed to conceal from the IRS the assets and income of U.S. accountholders. Now Rahn+Bodmer will pay $22 million and commit to helping the Justice Department uncover tax evasion by U.S. customers.”
Acting Deputy Assistant Attorney General Stuart M. Goldberg said: “Under today’s resolution, Rahn+Bodmer is paying $22 million for helping U.S. accountholders evade their taxes, and has agreed to fully cooperate with investigations into those taxpayers. With the April 15 tax filing date fast approaching, there is a clear message for those intending not to pay their fair share – nothing remains hidden forever.”
IRS-CI Chief James C. Lee said: “Through a years-long scheme, the R+B bank hid the assets of U.S. accountholders to shield them from their tax obligations. Today’s admission and agreement provide a clear path to recovery of funds owed to the U.S. government, and sends a strong signal that offshore accounts are not beyond the reach of special agents with IRS CI.”
According to the Agreement, the accompanying Statement of Facts, and other documents filed today in Manhattan federal court:
From at least in or about 2004 and continuing until at least in or about 2012, R+B conspired with certain of its U.S. accountholders and others to defraud the United States with respect to taxes, file false federal tax returns, and commit tax evasion. R+B’s bankers assisted U.S. accountholders in concealing their ownership and control of assets and funds held in undeclared R+B accounts, which enabled those U.S. accountholders to evade their U.S. tax obligations. R+B admitted to holding undeclared accounts on behalf of approximately 340 U.S. taxpayers, who collectively evaded approximately $16.4 million in U.S. taxes between in or about 2004 and in or about 2012. The assets under management that R+B held for undeclared U.S. accountholders increased from approximately $391 million in 2004 to approximately $550 million in 2007, its peak year for undeclared assets under management.
In furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, R+B undertook the following actions, among others:
- R+B opened “numbered” or “pseudonym” accounts for U.S. accountholders in order to reduce the risk that U.S. tax authorities would learn their identities.
- R+B opened and maintained accounts for U.S. accountholders in the names of non-U.S. corporations, foundations, trusts, or other legal entities, thereby helping U.S. taxpayers conceal their beneficial ownership of the accounts.
- R+B agreed to hold bank statements and other account-related mail in Switzerland, rather than send them to the U.S. accountholders in the United States, which helped ensure that documents reflecting the existence of the accounts remained outside the United States and beyond the reach of U.S. tax authorities.
- After Liechtenstein and the United States signed a Tax Information Exchange Treaty in December 2008, R+B transferred the undeclared assets of certain U.S. taxpayers from accounts held in the names of sham foundations organized under the laws of Liechtenstein to new accounts held in the names of new sham foundations organized under the laws of Panama, in an effort to further conceal the accounts from U.S. tax authorities.
- R+B allowed U.S. accountholders and third-party asset managers to make withdrawals by check from undeclared accounts in amounts of less than $10,000, in an apparent attempt to conceal transactions from U.S. authorities.
- On occasion, R+B opened accounts for U.S. taxpayers who were exiting UBS AG and other Swiss banks, and allowed these U.S. taxpayers to continue to conceal their undeclared assets at R+B. R+B additionally opened “escrow” accounts on behalf of a Swiss attorney to facilitate the transfer of undeclared assets of U.S. accountholders that had been converted to gold and other precious metals held in a vault at UBS.
- R+B helped U.S. accountholders to repatriate funds to the United States in a manner designed to ensure that U.S. tax authorities did not discover the undeclared accounts, including by transferring the funds of one U.S. accountholder in increments of approximately $100,000 to another Swiss bank before the U.S. accountholder routed the funds to a diamond dealer in Manhattan, where the U.S. accountholder ultimately received them.
- R+B, through its bankers, made regular visits to the United States to solicit, open, and service undeclared accounts of U.S taxpayers.
Under today’s resolution, R+B is required to cooperate fully with the Department of Justice and affirmatively disclose new information it may later uncover regarding U.S.-related accounts. R+B is also required to disclose information consistent with the Department’s Swiss Bank Program relating to accounts closed between January 1, 2009, and December 31, 2019.
As part of the resolution, R+B will pay a total of $22 million, which has three parts. First, R+B has agreed to pay $4.9 million in restitution to the IRS, which represents the estimated unpaid taxes resulting from R+B’s participation in the conspiracy. Second, R+B has agreed to forfeit $9.7 million to the United States, which represents the approximate gross fees that R+B earned on its undeclared U.S.-related accounts between 2004 and 2012. Finally, R+B has agreed to pay a penalty of $7.4 million. The penalty takes into consideration that R+B conducted a thorough internal investigation and provided a substantial volume of documents to the Department, as well as implemented remedial measures to protect against the use of its services for tax evasion in the future.
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Ms. Strauss and Mr. Goldberg praised the outstanding work of IRS-CI. Ms. Strauss also thanked the Department of Justice’s Tax Division for their partnership on this case.
This case is being handled by the Complex Frauds and Cybercrime Unit of the United States Attorney’s Office for the Southern District of New York and the Department of Justice’s Tax Division. Assistant U.S. Attorney Olga I. Zverovich and Trial Attorney Ellen M. Quattrucci are in charge of the case.
- R+B opened “numbered” or “pseudonym” accounts for U.S. accountholders in order to reduce the risk that U.S. tax authorities would learn their identities.
U.S. Postal Worker and Four Others Arrested for Shipping Heroin and Fentanyl Through the MailRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Peter C. Fitzhugh, Special Agent in Charge of Homeland Security Investigations (“HSI”) in New York, Matthew Modafferi, Special Agent in Charge of the Northeast Area Field Office of the U.S. Postal Service, Officer of Inspector General (“USPS-OIG”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced the unsealing of an indictment today charging LUIS GAMEZ, HUGO RICHARD VILLANUEVA TORRES, DANIEL ORTIZ, JOSE LUIS MARTINEZ ROSARIO and JAYSON COLON with participating in a conspiracy to distribute heroin and fentanyl in connection with a scheme to transport those narcotics through the U.S. mail. GAMEZ was arrested on Sunday evening in California and was presented yesterday before a federal magistrate judge in the Central District of California. VILLANUEVA, ORTIZ, MARTINEZ, and COLON were arrested yesterday in New Jersey and were presented before U.S. Magistrate Judge Barbara C. Moses that same day. The case is assigned to United States District Judge Paul A. Engelmayer.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, the defendants are charged with trafficking large quantities of fentanyl and heroin. We thank our partners at HSI and USPS-OIG for their outstanding work in stopping the shipment of narcotics through the U.S. mail.”
HSI Special Agent in Charge Peter C. Fitzhugh said: “These defendants allegedly operated a cross-country drug distribution network which placed profits above all else, including the safety of our communities. During this week's operation, we arrested 5 members of this drug trafficking organization. More importantly, we seized over 6 kilograms of fentanyl and heroin, which contain numerous fatal doses of these dangerous drugs. Working with our law enforcement partners at the U.S. Postal Inspection Service, the U.S. Postal OIG and the United States Attorney’s Office, SDNY, HSI will continue to protect the public from those who would exploit our communities for their own financial and personal gain.”
USPS-OIG Special Agent in Charge Matthew Modafferi said: “The Special Agents of the U.S. Postal Service Office of Inspector General are dedicated to maintaining the integrity of the Postal Service and its personnel. When a Postal Service employee allegedly decides to break the public’s trust and participates in a scheme to transport illegal narcotics through the U.S. Mail, USPS OIG Special Agents will tirelessly work to bring those responsible to justice. The USPS OIG is thankful for the great relationships we have developed with our law enforcement partners and with the U.S. Attorney’s Office to combat the shipment of illegal narcotics through the U.S. Mail.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “Using the U.S. Mail to facilitate the transportation of deadly fentanyl was one of many mistakes allegedly made by these subjects. Postal Inspectors and their law enforcement partners will arrest and bring to justice anyone who breaks the sanctity of the trust placed in the U.S. Mail, no matter where they are found.”
As alleged in the Indictment unsealed yesterday in Manhattan federal court and in other court papers and proceedings[1]:
From at least in or about May 2020 up to and including in or about February 2021, LUIS GAMEZ, HUGO RICHARD VILLANUEVA TORRES, DANIEL ORTIZ, JOSE LUIS MARTINEZ ROSARIO, and JAYSON COLON participated in a conspiracy to distribute kilograms of fentanyl and heroin. The conspirators transported kilogram-quantities of fentanyl and heroin, as well as narcotics proceeds, in packages shipped through the United States mail with the assistance of ORTIZ, an employee of the U.S. Postal Service.
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GAMEZ, 30, of Riverside, California, VILLANUEVA, 29, of Belleville, New Jersey, ORTIZ, 41, of Harrison, New Jersey, MARTINEZ, 44, of Harrison, New Jersey, and COLON, 42, of Kearny, New Jersey, are each charged with one count of conspiracy to distribute 400 grams or more of fentanyl and one kilogram or more of heroin. That charge carries a mandatory minimum sentence of ten years in prison and a maximum sentence of life in prison.
Ms. Strauss praised the outstanding investigative work of HSI-New York, USPS-OIG, and the United States Postal Inspection Service, and thanked HSI-Newark and HSI-Riverside for their assistance.
This case is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Kedar Bhatia and Andrew A. Rohrbach are in charge of the prosecution.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Operator of Racehorse Doping Websites Sentenced to 18 Months in PrisonRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that SCOTT ROBINSON was sentenced today to 18 months in prison in connection with ROBINSON’s years-long sale and distribution of adulterated and misbranded drugs, including performance-enhancing drugs marketed to racehorse trainers and others in the racehorse industry. ROBINSON pled guilty to a one-count Information on September 16, 2020, before U.S. District Judge J. Paul Oetken, who also imposed today’s sentence.
U.S. Attorney Audrey Strauss said: “Scott Robinson created and profited from a system designed to exploit racehorses in the pursuit of speed and prize money, risking their safety and wellbeing. Robinson sold unsanitary, misbranded, and adulterated drugs, and misled and deceived regulators and law enforcement in the process.”
According to the Indictment, the Superseding Information to which ROBINSON pled guilty, and other court documents, as well as statements made in public court proceedings:
From at least in or about 2011 through at least in or about March 2020, ROBINSON conspired with others to manufacture, sell, and ship millions of dollars’ worth of adulterated and misbranded equine drugs, including performance-enhancing drugs (“PEDs”) intended to be administered to racehorses for the purpose of improving those horses’ race performances in order to win races and obtain prize money. ROBINSON sold these drugs through several direct-to-consumer websites designed to appeal to racehorse trainers and owners, including, among others, “horseprerace.com.”
ROBINSON contributed to the conspiracy by, among other things, sourcing chemicals used to create custom PEDs that were advertised and sold; falsely labeling, packaging, and shipping those PEDs to customers across the country, including in the Southern District of New York; and collecting, reporting, and responding to employee and customer complaints regarding the misbranded and adulterated products advertised and sold online. Among the drugs advertised and sold during the course of the conspiracy were “blood builders,” which are used by racehorse trainers and others to increase red blood cell counts and/or the oxygenation of muscle tissue of a racehorse in order to stimulate the horse’s endurance, which enhances that horse’s performance in, and recovery from, a race, as well as customized analgesics that are used by racehorse trainers and others to deaden a horse’s nerves and block pain in order to improve a horse’s race performance. The drugs distributed through the defendant’s websites were manufactured in non-FDA registered facilities and carried significant risks to the animals affected through the administration of those illicit PEDs. For example, in 2016, ROBINSON received a complaint regarding the effect of his unregulated drugs on a customer’s horse: “starting bout 8 hours after I give the injection and for about 36 hours afterwards both my horses act like they are heavily sedated, can barely walk. Could I have a bad bottle of medicine, I’m afraid to give it anymore since this has happened three times.” Commenting on this complaint, ROBINSON wrote simply, “here is another one.”
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In addition to his prison sentence, ROBINSON, 46, of Tampa, Florida, was sentenced to three years of supervised release and forfeiture of $3,832,318.90.
Ms. Strauss praised the outstanding investigative work of the New York FBI Office’s Eurasian Organized Crime Task Force and its support of the FBI’s Integrity in Sports and Gaming Initiative. Ms. Strauss also thanked the New Jersey Attorney General’s Office, the New York State Police, and the New York City Police Department for their support of this investigation, and the Food and Drug Administration and the Drug Enforcement Administration for their assistance and expertise.
This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant United States Attorneys Sarah Mortazavi, Benet J. Kearney, and Andrew C. Adams are in charge of the prosecution.
Rockland County Man and Woman Charged with Violent Beating and CarjackingRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Thomas E. Walsh II, Rockland County District Attorney, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Raymond McCullagh, Chief of the Clarkstown Police Department, announced that DWAYNE HICKS and TNAIYA WILLIAMS were arrested on March 6, 2021, based on a criminal Complaint filed in White Plains federal court. HICKS and WILLIAMS are charged with conspiracy to commit carjacking and carjacking, stemming from their participation in a brutal beating and robbery of a victim in New City, New York. HICKS and WILLIAMS will be presented before United States Magistrate Judge Andrew E. Krause in White Plains federal court later today.
U.S. Attorney Audrey Strauss said: “As alleged, Dwayne Hicks and Tnaiya Williams took part in a brazen and brutal carjacking, inflicting grievous bodily injuries to the victim and leaving him for dead. Thanks to the FBI and the Clarkstown Police, Hicks and Williams are in custody and facing justice in federal court.”
Rockland County District Attorney Thomas E. Walsh II said: “The arrests of these two individuals are another example of great cooperation by multiple law enforcement agencies working together to ensure that Rockland County remains a safe community. I commend the dedication and professionalism by all those involved. We will now push forward with an aggressive prosecution of the crimes alleged to bring closure to the victim of this violent attack.”
FBI Assistant Director William F. Sweeney Jr. said: “As we allege, the subjects in this case committed unfathomable acts of violence when they brutally beat and stabbed a man, left him naked and bloody in a snowbank, and stole his car. I want to commend the quick action of our law enforcement partners and the FBI Westchester County Safe Streets Task Force in getting these assailants off the street before they could do more harm.”
Clarkstown Police Chief Raymond McCullagh said: “This heinous crime was not perpetrated on just one victim alone, it affected our entire community. Though these types of crimes are thankfully uncommon in Clarkstown, the men and women of the Clarkstown Police Department were able to swiftly find justice for the victim and allay the concerns of the community. We would like to thank District Attorney Thomas Walsh of the RCDA, FBI, and the U.S. Attorney’s Office of the Southern District for their partnership in this investigation.”
As alleged in the Complaint unsealed in White Plains federal court[1]:
On February 28, 2021, HICKS lured a victim to a certain residence in New City, New York. Once the victim arrived there, HICKS and multiple other assailants, including WILLIAMS, viciously attacked the victim. HICKS, WILLIAMS, and others forced the victim to strip naked, stole his personal belongings, including the keys to his car, and then beat the victim with a baseball bat, belts, and their hands, and repeatedly slashed and stabbed the victim with a large knife. The victim ultimately fled, after being left, naked and covered in blood, in a pile of snow, and some of the assailants drove off in the victim’s car.
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HICKS, 27, of Spring Valley, New York and WILLIAMS, 26, of New City, New York are each charged with one count of conspiracy to commit carjacking, which carries a maximum sentence of five years in prison, and one count of carjacking, which carries a maximum sentence of 25 years in prison. The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants would be determined by the judge.
Ms. Strauss praised the investigative work of the FBI and its Westchester County Safe Streets Task Force, the Clarkstown Police Department, and the Rockland County District Attorney’s Office.
The case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Derek Wikstrom and T. Josiah Pertz are in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth in this release constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Sues Automobile Device Manufacturer EZ Lynk, Its Owners, and A Related Company for Manufacturing and Selling Emissions Control Defeat Device in Violation of the Clean Air ActRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, and Larry Starfield, Acting Assistant Administrator for the Office of Enforcement and Compliance Assurance of the U.S. Environmental Protection Agency (“EPA”), announced today that the United States has filed a civil lawsuit against Cayman Islands-based EZ LYNK, SEZC (“EZ LYNK”), a related company, PRESTIGE WORLDWIDE, SEZC (“PRESTIGE”), and their U.S.-based founders and owners, BRADLEY GINTZ and THOMAS WOOD (collectively, “Defendants”). The lawsuit alleges that Defendants manufacture and sell a defeat device designed to permit car and truck owners to remove computerized emissions controls in violation of the Clean Air Act. The complaint also alleges that EZ LYNK, GINTZ, and WOOD violated the Clean Air Act by refusing to provide EPA with information about the manufacture, sale, and use of EZ LYNK’s defeat device.
U.S. Attorney Audrey Strauss said: “Emissions controls on cars and trucks protect the public from harmful effects of air pollution. EZ Lynk has put the public’s health at risk by manufacturing and selling devices intended to disable those emissions controls. Through our lawsuit, we will prevent Defendants from continuing to sell this product and impose civil penalties to hold them to account.”
EPA Acting Assistant Administrator Larry Starfield stated: “EZ Lynk refused to cooperate with EPA’s investigation, and all the while continued to sell aftermarket defeat devices that resulted in harmful air pollution. This is not acceptable and EPA will work diligently with the Department of Justice to stop the illegal activities and ensure that EZ Lynk complies with the Clean Air Act.”
The complaint filed in Manhattan federal court today alleges that for more than four years, Defendants violated the Clean Air Act’s prohibition on defeat devices. Among other things, the complaint alleges the following:
The Clean Air Act requires motor vehicle manufacturers to design vehicles to meet detailed standards for limiting the emission of harmful air pollutants, which are linked to premature death and cause heart and lung disease, heart attacks, and aggravated asthma, among other serious illnesses. To achieve these limitations, vehicles contain both hardware components and software that work together to maintain vehicle emissions within legal limits. The Clean Air Act makes it illegal to manufacture, sell, offer to sell, or cause to be sold any part or component that has a principal effect of defeating emissions controls, if the defendant knew or had reason to know the product is put to this use.
EZ LYNK manufactures and sells a product permitting drivers to “delete” computerized emissions controls in their vehicles, in violation of the Clean Air Act. Referred to as the “EZ Lynk System,” this product consists of three components: the Auto Agent, which is a physical device that plugs into vehicle computer systems to install software designed to “delete” emissions controls; the EZ Lynk Cloud, which is a cloud computing platform that stores the deletion software; and the Auto Agent App, a smartphone application that connects the Auto Agent to the EZ Lynk Cloud, allowing customers to acquire and install deletion software through their smartphones. EZ LYNK has sold its product to thousands of drivers across the United States.
EZ LYNK also knows and has reason to know that the principal effect and use of this product is to defeat emission controls. Among other things, EZ LYNK maintains an online “EZ Lynk Forum” on social media to encourage and assist drivers looking to disable their vehicle emissions controls using the EZ Lynk System. Hundreds of drivers have visited the EZ Lynk Forum to post their experiences “deleting” emissions controls using the EZ Lynk System. EZ LYNK representatives have explicitly approved many of the posts, and in some instances have offered technical support to drivers disabling emissions controls. For example:
- A driver posted, in part, “Finally made the jump and deleted my 14 Ram 2500: Holy hell [] this thing is awesome! The EZ lynk worked flawlessly, albeit I was a nervous wreck during the tune flash,” adding that “the guys at EZ lynk are doing great work!” The driver tagged an EZ Lynk representative, who later “loved” the post.
- Another driver posted to the EZ Lynk Forum, “Had a few small issues with my ez lynk install. Got in touch with the tech support. All issues resolved. Couldn’t be happier with my ez lynk. Truck has shown huge improvement with the deletes and new tunes.” Again, an EZ Lynk representative “loved” the post.
- A driver posted to the EZ Lynk Forum, “Installed ez Lynk on my 14 ram 3500 fully deleted the other day [but] as soon as it loaded” experienced a malfunction. The driver asked if anyone else had experienced the same problem. An EZ LYNK representative responded, providing detailed instructions to fix the problem. The driver then wrote “[p]roblems fixed with the help of EZ Lynk’s Technical Support Representative.”
In fact, some drivers have used the same EZ Lynk Forum maintained by EZ LYNK to urge others to keep quiet about their use of the EZ Lynk System to defeat emissions controls. For instance, one driver wrote, “If everyone keeps their mouth shut about deleting sooner or later the EPA will calm down.” Since the EZ Lynk System launched in mid-2016, EZ LYNK has manufactured and/or sold at least tens of thousands of EZ Lynk Systems.
Defendants GINTZ and WOOD own EZ LYNK and control, direct, and manage the marketing and sale of the EZ Lynk System as well as the technical support for the EZ Lynk System. Defendant PRESTIGE, which is also owned by GINTZ and WOOD, facilitates EZ LYNK’s sale of the EZ Lynk System in the United States by purchasing the Auto Agent devices from EZ Lynk and selling them onward to distributors that sell the devices within the United States.
EZ LYNK’s illegal activity has been compounded by its refusal to provide EPA with basic information about the manufacture, sale, and use of the EZ Lynk System. The Clean Air Act requires manufacturers like EZ LYNK to provide information that EPA may reasonably require to determine whether the manufacturer’s product complies with the Clean Air Act. As alleged in the complaint, despite repeated requests, EZ LYNK has refused to provide EPA with much of the requested information about the manufacture, sale, and use of the EZ Lynk System. EZ LYNK’s efforts to stymie EPA’s investigation also violate the Clean Air Act.
In its complaint, the United States seeks an injunction barring the sale of the EZ Lynk System, the assessment of civil penalties against all Defendants, and other relief.
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Ms. Strauss thanked the attorneys in EPA’s Air Enforcement Division and program staff at EPA’s Office of Transportation and Air Quality for their critical work on this case. Ms. Strauss also thanked Nicole Veilleux, Senior Counsel in the Environment and Natural Resources Division of the U.S. Department of Justice, for her assistance.
This case is being handled by the Environmental Protection Unit of the Office’s Civil Division. Assistant U.S. Attorneys Mónica Folch and Jennifer Jude are in charge of the case.
- A driver posted, in part, “Finally made the jump and deleted my 14 Ram 2500: Holy hell [] this thing is awesome! The EZ lynk worked flawlessly, albeit I was a nervous wreck during the tune flash,” adding that “the guys at EZ lynk are doing great work!” The driver tagged an EZ Lynk representative, who later “loved” the post.
Manhattan U.S. Attorney Announces Resolution of Civil and Criminal Healthcare Fraud Charges Against Vascular Surgeon for Fraudulently Billing Medicare for Medically Unnecessary ProceduresRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and Scott Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, announced today that the civil and criminal healthcare fraud cases against FENG QIN, M.D. (“QIN”), a vascular surgeon, and his medical practice QIN MEDICAL P.C. (“QIN MEDICAL”) have been resolved. QIN, who practiced in Lower Manhattan and Far Rockaway, Queens, was criminally charged in December 2018 with fraudulently billing Medicare for vascular surgery procedures performed on end-stage renal disease (“ESRD”) patients that were not medically reasonable and necessary or covered under Medicare rules; the United States also filed a civil healthcare fraud complaint against QIN and QIN MEDICAL in December 2018.
Under the civil settlement approved today by U.S. District Judge Laura Taylor Swain, QIN and QIN MEDICAL agreed to a pay $783,200 to the United States. The State of New York is expected soon to enter into an additional settlement with defendants in the amount of $16,800, for a total recovery of $800,000. The amount is based on the Office’s assessment of the defendants’ ability to pay based on the financial information they provided. As part of the settlement, QIN and QIN MEDICAL admitted and accepted responsibility for conduct alleged by the Government in its civil complaint as further described below. QIN previously paid $150,000 to settle a prior civil fraud lawsuit filed against him and his previous employer for engaging in fraudulent billing practices during the time period 2010 through 2012.
QIN also entered into a Voluntary Exclusion Agreement with HHS-OIG, which prohibits him from participating in Medicare and other federal healthcare programs for four years. This is in addition to the more than two years he has been so excluded since his arrest, as a condition of his bail. The Government has agreed to defer QIN’s criminal prosecution for a period of one year, after which time it will seek to dismiss the charges if QIN abides by the terms of the deferred prosecution agreement.
Manhattan U.S. Attorney Audrey Strauss said: “For several years, Dr. Qin performed interventional vascular procedures on patients with end-stage renal disease without any documented clinical justification. As a repeat offender, Dr. Qin now faces a lengthy suspension from participating in federal healthcare programs and must make a hefty monetary payment. This Office will continue to hold unscrupulous medical providers accountable when they perform and bill the Government for medically unnecessary procedures.”
HHS-OIG Special Agent in Charge Scott Lampert said: “By billing Medicare for medically unnecessary procedures, Dr. Qin needlessly compromised patient care and victimized taxpayers. Our agency will continue to hold medical professionals accountable, while protecting the federal health care programs intended for those that depend on them for critical services.”
According to the indictment and the Government’s civil complaint:
Patients with ESRD who are receiving dialysis may require vascular access surgical procedures, such as fistulagrams, where dye is injected into the patient’s vein or artery to visualize blood flow, and percutaneous transluminal angioplasties, in which wires and balloons are inserted into blood vessels that have narrowed in order to restore blood flow. However, as Medicare billing guidelines made clear, it is not reasonable and necessary for physicians to bill the program for fistulagrams and angioplasties unless the patient has specific and documented clinical problems, such as significant difficulty receiving dialysis properly.
The patients at QIN’s medical practice primarily consisted of ESRD patients undergoing dialysis treatment. During the relevant period, from 2015 to 2016, QIN routinely scheduled patients for fistulagrams and angioplasties three months in advance, and performed fistulagrams and angioplasties on these patients as a matter of routine, regardless of whether there was a justifiable clinical reason to do so. Furthermore, on multiple occasions he misrepresented the medical conditions of patients in their medical records to make it seem as if they suffered from symptoms that would warrant the procedures when they did not. QIN MEDICAL then unlawfully billed and received payment from Medicare for these procedures, which were excluded from Medicare coverage, as QIN knew.
As part of the civil settlement, QIN and QIN MEDICAL admit, acknowledge, and accept responsibility for the following conduct:
- QIN often routinely scheduled, and actually saw, ESRD patients approximately every three months, regardless of their medical need.
- QIN treated many of his ESRD patients with fistulagrams and angioplasties. The symptoms documented in the medical records, including the records of the dialysis center and the treating nephrologist, were insufficient to justify these treatments for numerous ESRD patients.
- QIN knew that in the absence of a documented clinical justification, Medicare would not pay for fistulagrams or angioplasties. Nevertheless on numerous occasions, QIN MEDICAL sought and received reimbursement from Medicare for these treatments without the required documented clinical justification.
The allegations of fraud stated in the civil complaint were first brought to the attention of federal law enforcement by a whistleblower who filed a lawsuit under the False Claims Act.
The criminal case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys Jean-David Barnea, Michael Krouse, and Alexander Li are in charge of the criminal prosecution. The civil case is being handled by the Office’s Civil Frauds Unit, and Assistant United States Attorney Barnea is in charge of the matter.
- QIN often routinely scheduled, and actually saw, ESRD patients approximately every three months, regardless of their medical need.
Manhattan U.S. Attorney Files Civil Injunction Lawsuit to Shut Down Bronx Tax Preparer and His CompanyRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced the filing of a civil complaint against RAFAEL ALVAREZ and ATAX New York LLC (“ATAX New York”) to prohibit them from, among other things, preparing tax returns for others or engaging in activities that substantially interfere with the administration of federal tax laws. The complaint alleges that ALVAREZ and ATAX NEW YORK have prepared and filed fraudulent tax returns on behalf of their customers in order to reduce their customers’ tax liability and generate refunds to which those customers were not entitled.
U.S. Attorney Audrey Strauss said: “Tax return preparers who regularly cheat the tax system by preparing fraudulent federal income tax returns for their customers should not be permitted to continue in business. This Office will work with the IRS to shut down return preparers who fleece the Treasury by claiming improper deductions or credits for their customers.”
As alleged in the Government’s complaint filed in federal district court today:
ATAX NEW YORK is a limited liability company that prepares tax returns for customers in the Bronx. ALVAREZ is a tax preparer and ATAX NEW YORK’s sole member. Together, ATAX NEW YORK and ALVAREZ prepared and filed over 36,000 federal income tax returns from 2016 to 2019 for their customers. In preparing those returns, ATAX NEW YORK and ALVAREZ knowingly prepared and filed false federal income tax returns for their customers by fabricating, among other things, unreimbursed business expenses, charitable contributions, capital loss carryovers, and tuition expenses. Many tax returns prepared and filed by ATAX NEW YORK and ALVAREZ also falsely claimed “head of household” status for their customers as part of this scheme, even by using social security numbers belonging to deceased individuals in claiming dependents.
The Government is seeking an injunction against ATAX NEW YORK and ALVAREZ that would, among other things, permanently bar them from preparing or filing federal tax returns on behalf of others. The complaint also asks the court to order the defendants to turn over the ill-gotten net profits they earned because of their fraudulent conduct.
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Ms. Strauss thanked the Internal Revenue Service for its assistance with this case.
The case is being handled by the Tax and Bankruptcy Unit in the Office’s Civil Division. Assistant U.S. Attorneys Charles S. Jacob and Ilan Stein are in charge of the case.
John David McAfee and Executive Adviser of His Cryptocurrency Team Indicted in Manhattan Federal Court for Fraud and Money Laundering Conspiracy CrimesRead 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 JOHN DAVID MCAFEE, the founder of the McAfee antivirus software company, and JIMMY GALE WATSON JR., who served as an executive adviser of MCAFEE’s so-called cryptocurrency team (the “McAfee Team”), with conspiracy to commit commodities and securities fraud, conspiracy to commit securities and touting fraud, wire fraud conspiracy and substantive wire fraud, and money laundering conspiracy offenses stemming from two schemes relating to the fraudulent promotion to investors of cryptocurrencies qualifying under federal law as commodities or securities. WATSON, who was arrested last night in Texas, will be presented later today before a federal magistrate judge in the Northern District of Texas. MCAFEE is currently detained in Spain on separate criminal charges filed by the United States Department of Justice’s Tax Division.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, McAfee and Watson exploited a widely used social media platform and enthusiasm among investors in the emerging cryptocurrency market to make millions through lies and deception. The defendants allegedly used McAfee’s Twitter account to publish messages to hundreds of thousands of his Twitter followers touting various cryptocurrencies through false and misleading statements to conceal their true, self-interested motives. McAfee, Watson, and other members of McAfee’s cryptocurrency team allegedly raked in more than $13 million from investors they victimized with their fraudulent schemes. Investors should be wary of social media endorsements of investment opportunities.”
FBI Assistant Director William F. Sweeney Jr. said: “As alleged, McAfee and Watson used social media to perpetrate an age-old pump-and-dump scheme that earned them nearly two million dollars. Additionally, they allegedly used the same social media platform to promote the sale of digital tokens on behalf of ICO issuers without disclosing to investors the compensation they were receiving to tout these securities on behalf of the ICO. When engaging in illegal activity, simply finding new ways to carry out old tricks won’t produce different results. Investment fraud and money laundering schemes carry a strict penalty under federal law.”
According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Indictment against JOHN DAVID MCAFEE and JIMMY GALE WATSON JR. and an earlier-filed criminal Complaint against MCAFEE:[1]
During the period from in or about December 2017 through in or about October 2018, JOHN DAVID MCAFEE and JIMMY GALE WATSON JR., and other members of the McAfee Team, perpetrated two fraudulent schemes relating to the promotion to investors of cryptocurrencies qualifying under federal law as commodities or securities.
The first scheme involved a fraudulent practice called “scalping,” which is sometimes referred to as a “pump and dump” scheme. This scalping scheme generally consisted of the following. First, MCAFEE, WATSON, and other McAfee Team members bought large quantities of publicly traded cryptocurrency altcoins, which qualified as commodities or securities, at inexpensive market prices with advance knowledge that MCAFEE planned to publicly endorse them via his widely followed Twitter account (the “Official McAfee Twitter Account”). Second, after these purchases, MCAFEE published false and misleading endorsement tweets via his Official McAfee Twitter Account recommending those altcoins to members of the investing public for investment in order to artificially inflate (or “pump” up) their market prices without disclosing that MCAFEE owned large quantities of the promoted altcoins, even though MCAFEE had given false assurances that he would disclose such information in various tweets and public statements during the scalping scheme. Third, MCAFEE, WATSON, and other McAfee Team members then sold (or “dumped”) their respective investment positions in the promoted altcoins into the temporary but significant short-term market price increases that MCAFEE’s deceptive tweets typically generated, often for significant profits. From in or about December 2017 through in or about January 2018, MCAFEE, WATSON, and other McAfee Team members collectively earned more than $2 million in illicit profits from their altcoin scalping activities while the long-term value of the recommended altcoins purchased by investors declined substantially as of a year after the promotional tweets. From in or about December 2017 through in or about October 2018, MCAFEE, WATSON, and other McAfee Team members engaged in various efforts to liquidate the digital asset proceeds of their scalping activities into United States currency.
In the second scheme, MCAFEE, WATSON, and other McAfee Team members also used MCAFEE’s Official McAfee Twitter Account to publicly tout fundraising events called “initial coin offerings” (“ICOs”) in which startup businesses (“ICO issuers”) issued and sold digital tokens qualifying as securities to the investing public, without disclosing and, in fact, concealing that the ICO issuers were compensating MCAFEE and his team for his promotional tweets with a substantial portion of the funds raised from ICO investors. As the United States Securities and Exchange Commission had publicly warned, and as MCAFEE and WATSON well knew, the federal securities laws required them to disclose any compensation paid by ICO issuers for touting securities offerings styled as ICOs. From approximately on or about December 20, 2017 through on or about February 10, 2018, MCAFEE, WATSON, and other McAfee Team members collectively earned more than $11 million in undisclosed compensation that they took steps to affirmatively hide from ICO investors. In each instance, MCAFEE and WATSON failed to disclose to ICO investors that the ICO Issuers were paying the McAfee Team a substantial portion of the funds raised from ICO investors for their touting efforts, despite knowing that they were required to disclose such compensation under federal securities laws. Furthermore, in several instances during this ICO touting scheme, MCAFEE and WATSON took active steps to conceal their secret compensation arrangements with ICO issuers from ICO investors, and MCAFEE made false and misleading statements and omissions to hide such deals from ICO investors. From approximately in or about December 2017 through in or about October 2018, MCAFEE, WATSON, and other McAfee Team members engaged in various efforts to liquidate the digital asset proceeds of their ICO touting activities into United States dollars.
During the period from in or about December 2017 through in or about October 2018, MCAFEE and WATSON caused another McAfee Team member to engage in banking transactions to launder proceeds of the fraudulent ICO touting scheme.
In separate parallel enforcement actions, the United States Securities and Exchange Commission (the “SEC”) and Commodity Futures Trading Commission (“CFTC”) have filed civil charges against MCAFEE and WATSON.
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MCAFEE, 75, and WATSON, 40, are United States citizens. Both of them are charged in a seven-count Indictment with one count of conspiracy to commit commodities and securities fraud, which carries a maximum potential sentence of five years in prison; one count of conspiracy to commit securities and touting fraud, which carries a maximum potential sentence of five years in prison; two counts of conspiracy to commit wire fraud and two counts of substantive wire fraud, each of which carries a maximum potential sentence of 20 years in prison; and one count of conspiracy to commit money laundering, which carries a maximum potential sentence of ten years in prison. In addition to potential prison sentences, each of these charges also carries potential financial penalties. The maximum potential prison sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentences to be imposed on the defendants will be determined by the judge.
Ms. Strauss praised the work of the FBI on the investigation of this case and thanked the SEC and CFTC, both of which conducted separate parallel investigations, for their assistance.
This case is being handled by this Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Samson Enzer and Elizabeth Hanft are in charge of the prosecution.
The allegations contained in the charging documents in this case are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the texts of the Complaint and Indictment and the description of those charging documents set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Orange County Man Sentenced to 5 Years in Prison for Threatening to Attack SchoolRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), and Kevin P. Bruen, Acting Superintendent of the New York State Police (“NYSP”), announced that BRENDAN VAUGHAN was sentenced today to 60 months in prison, in connection with threats VAUGHAN made to classmates and law enforcement to carry out a school shooting in Washingtonville, New York. VAUGHAN pled guilty to a three-count Information on December 3, 2019, before U.S. Magistrate Judge Judith C. McCarthy, and was sentenced today by U.S. District Judge Kenneth M. Karas.
U.S. Attorney Audrey Strauss said: “In the wake of the many recent tragic school shootings committed in our country, parents, school administrators, and students are increasingly alert to the frightening possibility that their community could be next. The defendant callously preyed on those fears in one community with a series of terrifying threats spread out over months, and took steps to act on those threats. Today’s sentencing sends a clear message that making violent threats will merit a serious prison sentence.”
FBI Assistant Director William F. Sweeney Jr. said: “No child should have to live in a society where the simple act of going to school invokes a sense of fear. Unfortunately, for many school-aged children, this has become an all-too-familiar reality. Vaughan’s clear and direct threats to his fellow classmates and others were so egregious that he was ultimately charged and convicted of a federal crime. May this, along with the sentencing he received today, serve as a message to others like him – there are life-changing penalties for this type of behavior.”
State Police Acting Superintendent Kevin P. Bruen said: “I applaud the work done by the State Police and our law enforcement partners on this case, which no doubt saved lives. Threats to our schools and the communities we serve are always taken seriously, and investigated to the fullest. We are committed to working with our law enforcement partners to combat and prevent these types of crimes from occurring. Our priority is the safety of all New Yorkers.”
According to the Information, court filings, and statements made during court proceedings:
In May 2018, VAUGHAN, who was then a senior at a high school in Washingtonville, New York, communicated to a number of classmates via a social media chat group that he intended to carry out a school shooting on the final day of school. Even after being visited by law enforcement toward the end of May 2018, VAUGHAN continued his threatening behavior by sending additional threatening messages to a classmate about committing a school shooting and asking that classmate “not to go to the cops.” VAUGHAN also took some preliminary steps toward carrying out such an attack, including drafting a kill list, compiling lists of his “favorite” school shooters, researching “pipe bombs” on the Internet, accessing a website to purchase a firearm, and composing diary entries expressing his desire for imminent “revenge.” VAUGHAN also told a law enforcement officer that he intended to kill a specific classmate.
In August 2018, VAUGHAN sent a number of additional messages on social media in which he threatened an imminent attack in Washingtonville. Specifically, on successive days, VAUGHAN posted:
- a message that said: “I regret nothing,”
- a graphic that included the text “The 845” (that is, the designated area code for Hudson Valley) and a series of 15 gun and bomb emojis,
- a video depicting a red plastic gas container and pool chemicals with the text: “[smiley face emoji] Plans [smiley face emoji] bang.bang,” and,
- immediately following the posting of the pool chemical video, a video of himself in a car in which he was turning the ignition on and clutching the steering wheel.
After VAUGHAN was detained in March 2019, he continued his threatening behavior, compiling another kill list that included classmates, family members, medical personnel, and the FBI agent and Assistant U.S. Attorney assigned to his case.
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In addition to his prison sentence, VAUGHAN, 20, of Campbell Hall, New York, was sentenced to three years of supervised release.
Ms. Strauss praised the outstanding efforts of the FBI’s New York Joint Terrorism Task Force, which principally consists of agents from the FBI and detectives from the New York City Police Department, the Washingtonville Police Department, the New York State Police, and the Orange County District Attorney’s Office.
This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorney Sam Adelsberg is in charge of the prosecution.
Leading Co-Founder of Cryptocurrency Company Sentenced to 8 Years in Prison for ICO Fraud SchemeRead the Press Release
Ilan T. Graff, the Attorney for the United States, Acting Under Authority Conferred by 28 U.S.C. § 515, announced that SOHRAB SHARMA, a/k/a “Sam Sharma” was sentenced today to eight years in prison in connection with his leading role in a scheme to induce victims to invest more than $25 million worth of digital funds in Centra Tech, Inc. (“Centra Tech”), a Miami-based company he co-founded and that purported to offer cryptocurrency-related financial products. SHARMA previously pled guilty to conspiring to commit securities fraud, wire fraud, and mail fraud in connection with his and his co-conspirators’ use of material misrepresentations and omissions to solicit investors to purchase securities, in the form of digital tokens issued by Centra Tech, through fraudulent fundraising efforts that included an initial coin offering (“ICO”) beginning in approximately July 2017. U.S. District Judge Lorna G. Schofield imposed the sentence in Manhattan federal court.
Mr. Graff said: “Sohrab Sharma led a scheme to deceive investors by falsely claiming that the start-up he co-founded had developed fully functioning, cutting-edge cryptocurrency-related financial products. In reality, Sharma’s most notable inventions were the fake executives, fake business partnerships, and fake licenses that he and his co-conspirators touted to trick victims into handing over tens of millions of dollars. We will continue to aggressively pursue digital securities frauds like this one.”
According to statements in the Superseding Information, and other filings and statements at public court proceedings in the case:
In or about July 2017, SHARMA, along with codefendants Robert Farkas and Raymond Trapani, founded a company called Centra Tech that claimed to offer cryptocurrency-related financial products, including a purported debit card, the “Centra Card,” that supposedly allowed users to make purchases using cryptocurrency at establishments accepting Visa or Mastercard payment cards. From approximately July 30, 2017, through October 5, 2017, SHARMA and his codefendants solicited investors to purchase unregistered securities, in the form of digital tokens issued by Centra Tech (“Centra tokens” or “CTR tokens”), including through a so-called “initial coin offering” or “ICO.” As part of this effort, SHARMA and his codefendants represented, in oral and written offering materials that were disseminated via the internet: (a) that Centra Tech had an experienced executive team with impressive credentials, including a purported CEO named “Michael Edwards” with more than 20 years of banking industry experience and a master’s degree in business administration from Harvard University; (b) that Centra Tech had formed partnerships with Bancorp, Visa, and Mastercard to issue Centra Cards licensed by Visa or Mastercard; and (c) that Centra Tech had money transmitter and other licenses in 38 states, among other claims. Based in part on these claims, victims provided millions of dollars’ worth of digital funds in investments for the purchase of Centra Tech tokens. In or about October 2017, at the end of the defendants’ fundraising efforts, those digital funds raised from victims were worth more than $25 million. At certain times in 2018, as the defendants’ fraud scheme was ongoing, those funds were worth more than $60 million.
The claims that SHARMA and his co-conspirators made to help secure these investments, however, were false. In fact, the purported CEO “Michael Edwards” and another supposed member of Centra Tech’s executive team were fictional people who were fabricated to dupe investors, Centra Tech had no such partnerships with Bancorp, Visa, or Mastercard, and Centra Tech did not have such licenses in a number of those states.
In 2018, this Office and the Federal Bureau of Investigation (“FBI”) seized, pursuant to judicially authorized seizure warrants, 100,000 Ether units, consisting of digital funds raised from victims who purchased digital tokens issued by Centra Tech during its fundraising efforts based on fraudulent misrepresentations and omissions. The United States Marshals Service sold the seized Ether units for approximately $33.4 million earlier this year. Following entry of a final order of forfeiture, these funds and other forfeited fraud proceeds will be available for potential use in a remission program that the Department of Justice intends to create to compensate victims of the Centra Tech fraud.
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In addition to the prison term, SHARMA, 29, of Aventura, Florida, was also sentenced to three years of supervised release and ordered to pay a fine of $20,000. He was further ordered to forfeit $36,088,960.
Mr. Graff praised the investigative work of the FBI 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 Samson Enzer, Negar Tekeei, and Daniel Loss are in charge of the prosecution.
Licensed Pharmacist Pleads Guilty to Making False Statements to the DEA About Controlled SubstancesRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that RICHARD SCHIRRIPA pled guilty to making materially false statements to officers of the Drug Enforcement Administration (“DEA”). On two occasions in 2020, SCHIRRIPA falsely represented that, as part of the recent closure of his pharmacy in Manhattan, he had sold, transferred, or destroyed all controlled substances. In fact, he remained in possession of thousands of controlled substance pills/patches in his home, including fentanyl and oxycodone, which had been prescribed to others. SCHIRRIPA pled guilty today before U.S. District Judge George B. Daniels, to whom his case is assigned.
Manhattan U.S. Attorney Audrey Strauss said: “When a pharmacy closes, powerful controlled substances frequently change hands – a potentially fraught moment. As Richard Schirripa admitted today, he lied to the DEA twice about what he had done with large quantities of dangerous controlled substances, including potentially lethal fentanyl, when he closed his pharmacy. Schirripa now awaits sentencing for his crime.”
According to the allegations in the Information, court filings, and statements made in court:
In or around January 2020, Madison Avenue Pharmacy (“MAP”) – which SCHIRRIPA had owned for many years – closed. Under federal regulations, before a pharmacy discontinues business activities, it must notify the DEA at least 14 days in advance. SCHIRRIPA did not comply with this requirement. The DEA learned that MAP had closed when DEA officers attempted to conduct a routine audit of MAP and saw a piece of paper on the storefront that announced MAP’s closure and noted that MAP’s controlled substances had been transferred to a specified local pharmacy. The DEA officers then went, in person, to that specified local pharmacy. Shortly thereafter, SCHIRRIPA wrote the DEA (in January 2020) and met with the DEA (in February 2020).
On both occasions, SCHIRRIPA made material false statements to the DEA. On both occasions, SCHIRRIPA falsely represented that as part of the recent closure of MAP, he had transferred to others, sold, or destroyed all controlled substances. In fact, SCHIRRIPA remained in possession of thousands of controlled substance pills/patches, including fentanyl, oxycodone, and oxymorphone. These substances were all recovered from a safe in SCHIRRIPA’s home on Long Island. When agents executed a search warrant at SCHIRRIPA’s home in April 2020, SCHIRRIPA acknowledged that these controlled substances were from his pharmacy and that he needed to destroy them. There were nearly 4,000 pills/patches in total, many of which contained labels indicating that they had been prescribed to others.
Under the terms of his plea agreement, SCHIRRIPA also admitted to various regulatory violations, including regarding controlled substances. SCHIRRIPA also agreed to: Surrender of his pharmacy and pharmacist licenses; a three-year ban before he can reapply for such licenses; and a three-year ban on any employment that involves his possessing, controlling, or distributing controlled substances.
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SCHIRRIPA, 67, of Fort Salonga, New York, pled guilty to one count of making false statements, which carries a maximum sentence of five 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. SCHIRRIPA is scheduled to be sentenced by Judge Daniels on July 13, 2021, at 10:30 a.m.
Ms. Strauss praised the outstanding investigative work of the New York Office of Homeland Security Investigations (“HSI”), the U.S. Postal Inspection Service, the DEA, the New York City Police Department, U.S. Customs and Border Protection, the Internal Revenue Service, and the Port Authority Police Department. She also expressed gratitude to the U.S. Department of Health and Human Services, the New York State Department of Corrections and Community Supervision, and the Northvale, New Jersey, Police Department.
This matter is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Michael D. Neff is in charge of the prosecution.
Man Charged in Manhattan Federal Court for Fraudulently Posing as Medical ProfessionalRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, and Keith J. Byrne, Special Agent in Charge of the U.S. Department of State’s Diplomatic Security Service (“DSS”), New York Field Office, announced today the unsealing of a complaint charging RODNEY ROBINSON, a/k/a “Alim Shariff,” with forgery and false use of a passport, false statements, and aggravated identity theft in connection with his years-long effort to fraudulently pose as a medical professional and Naval Reserve Officer. ROBINSON was arrested this morning in New York, New York, and will be presented before U.S. Magistrate Judge Sarah Netburn later today.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Rodney Robinson abused the trust of his employers, colleagues, and clients by claiming to be someone he is not. He has finally been caught in his web of lies.”
DSS Special Agent-in-Charge Keith J. Byrne said: “The Diplomatic Security Service is firmly committed to working with the U.S. Attorney’s Office of the Southern District of New York to investigate allegations of crimes related to passport fraud and identity theft. We are very pleased to have apprehended Mr. Robinson to face the charges levied against him.”
According to the allegations in the Complaint:[1]
ROBINSON spent years posing as “Dr. Alim Shariff” – a “board certified behavior analyst,” “licensed psychological examiner,” and Naval Reserve Officer. Using the Shariff identity, ROBINSON gained employment at multiple New York City area social service and rehabilitation providers. In applying for these positions of trust, ROBINSON used fake identification documents, claimed stolen identification information, and made false statements to federal agencies.
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ROBINSON, 55, of New York, New York, is charged with two counts of forgery and false use of a passport, each of which carries a maximum sentence of 10 years in prison, one count of false statements, which carries a maximum penalty of five years in prison, and three counts of aggravated identity theft, each of which carries a mandatory consecutive term of two years in prison.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by a judge.
Ms. Strauss praised the outstanding investigative work of the Diplomatic Security Service.
If you believe you were a victim of this crime, including a victim entitled to restitution, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact Wendy Olsen-Clancy, the Victim Witness Coordinator at the United States Attorney’s Office for the Southern District of New York, at (866) 874-8900, or [email protected]. For additional information, go to: http://www.usdoj.gov/usao/nys/victimwitness.html.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Ashley C. Nicolas 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 should be treated as an allegation.
Former COO of Publicly Traded Biopharmaceutical Company Sentenced for Accounting FraudRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that WILLIAM TAYLOR, the former chief operating officer of MiMedx Group, Inc. (“MiMedx”), a publicly traded biopharmaceutical company, was sentenced today in Manhattan federal court to one year in prison for orchestrating a multimillion-dollar scheme to fraudulently inflate MiMedx’s revenue. TAYLOR and co-defendant Parker H. Petit were found guilty on November 19, 2020, following a four-week jury trial before U.S. District Court Judge Jed S. Rakoff, who imposed today’s sentence. Judge Rakoff sentenced Petit to one year in prison in a separate proceeding yesterday.
Manhattan U.S. Attorney Strauss said: “William Taylor and his co-defendant used secret agreements and corrupt financial inducements to materially misstate quarterly and annual sales revenue of MiMedx. They deceived the SEC, auditors, and the investing public. Now Taylor, like Parker Petit yesterday, has been sentenced to prison for his crimes.”
According to the allegations contained in the Indictment and the evidence presented at trial:
MiMedx was headquartered in Marietta, Georgia, and its securities traded under the symbol “MDXG” on the NASDAQ. MiMedx sold regenerative biologic products, such as skin grafts and amniotic fluid, both directly to end users, such as public and private hospitals, and to various stocking distributors, which, in turn, resold the product to end users.
One of the most critical financial metrics disclosed in MiMedx’s public filings with the Securities and Exchange Commission (“SEC”), and touted in MiMedx’s accompanying press releases, was MiMedx’s quarterly and annual sales revenue. Under Generally Accepted Accounting Principles (GAAP) and SEC guidance, a company like MiMedx that engages in the sale of products through a distributor may recognize revenue upon transfer of the product to a distributor if certain requirements are satisfied, including that delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability of payment is reasonably assured. TAYLOR and Petit, MiMedx’s former chief executive officer, repeatedly demonstrated and touted their understanding of these rules governing revenue recognition. They also publicly identified revenue as the principal metric reflecting MiMedx’s growth, and touted MiMedx’s consistent record of quarter-over-quarter revenue growth and meeting or exceeding revenue guidance in 17 consecutive quarters, from 2011 through year-end 2015. By 2015, however, it became increasingly difficult for MiMedx to reach its revenue guidance due to decreased demand from certain distributors and the increasingly aggressive revenue targets that MiMedx had publicly announced.
Confronted with the difficulties faced by MiMedx in meeting its quarterly and annual revenue guidance by legitimate means, TAYLOR and Petit orchestrated a fraudulent scheme to falsely recognize revenue upon the shipment of MiMedx product to four stocking distributors, CPM, SLR, Stability Biologics (“Stability”), and First Medical, in the second through fourth quarters of 2015. TAYLOR and Petit caused MiMedx to report fraudulently inflated revenue figures to the investing public in order to ensure that the reported figures fell within MiMedx’s publicly announced revenue guidance, and to fraudulently convey to the investing public that MiMedx was accomplishing consistent growth quarter after quarter, as TAYLOR and Petit had falsely touted to the investing public. The fraudulent scheme involved the following central features:
- As to CPM, in the second quarter of 2015, TAYLOR and Petit caused MiMedx fraudulently to recognize $1.4 million in revenue by (1) making a $200,000 sham “consulting” payment to CPM’s owner to bribe CPM to buy MiMedx product and (2) secretly agreeing to send CPM approximately $1.1 million of product it did not want and did not intend to sell, while promising that CPM could return the product to MiMedx and swap it for different product in a subsequent quarter. TAYLOR and Petit entered into the sham “consulting” agreement to conceal that the payment was a bribe to purchase product, and CPM’s owner performed no consulting work for the payment. Neither TAYLOR nor Petit disclosed to MiMedx’s outside auditors the “consulting” payment or product swap.
- As to SLR, in the third quarter of 2015, TAYLOR and Petit caused MiMedx fraudulently to recognize $4.6 million in revenue by booking the revenue despite understanding that SLR would not make a timely payment for the product, and certainly would not do so within contractual terms. To hide from MiMedx’s auditors that the collectability of payment from SLR was questionable, during the fourth quarter 2015, Petit arranged for his adult children to use a shell company to loan money to SLR (money that came from a trust fund established by Petit for their benefit), with the understanding that the loan proceeds would be used in substantial part to pay down SLR’s debt to MiMedx.
- As to Stability, in the third and fourth quarters of 2015, TAYLOR and Petit caused MiMedx improperly to recognize $2.6 million of revenue, where they (1) failed to agree with Stability on the essential terms of the deal, including when payment was due; (2) reached a secret understanding that Stability could swap or return unwanted product in subsequent quarters; and (3) understood that Stability could not pay for the product in a timely fashion. In fact, TAYLOR later signed a sham distribution agreement to hide the fact that the original sale had been made without agreement on the essential terms.
- As to First Medical, in the fourth quarter of 2015, TAYLOR caused MiMedx improperly to recognize $2.2 million in revenue by making an undisclosed promise to First Medical that it could return any product that it could not sell and that MiMedx would not leave First Medical with any losses. To carry out the scheme, TAYLOR sent two emails four seconds apart to First Medical. The first was a “cover story” that purported to require payment within a fixed period, as required by MiMedx’s accountants. TAYLOR forwarded the first email to MiMedx’s accounting department. The second email, sent only four seconds after the first, memorialized the true terms of the deal, which involved an agreement to defer payment and take back product if it could not be sold. TAYLOR hid the second email from MiMedx’s internal accountants and outside auditors. TAYLOR also arranged for a false audit “confirmation,” which falsely represented that First Medical was required to pay within a fixed period and omitted the true terms of the deal, to be provided to MiMedx’s outside auditors.
TAYLOR and Petit’s fraudulent manipulation of MiMedx’s revenue caused MiMedx to report materially inflated revenue in the second, third, and fourth quarters of 2015, and for the full year 2015. In its 2015 10-K, MiMedx reported annual revenue that was fraudulently inflated by approximately $8.2 million. Absent this fraudulent inflation of revenue, MiMedx would have missed both (1) its quarterly revenue guidance in the third and fourth quarters of 2015 and annual revenue guidance for 2015 and (2) analyst revenue consensus for the second through fourth quarters of 2015 and the full year 2015. As a result of the fraud, shareholders sustained losses of approximately $35 million.
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In addition to his prison term, TAYLOR, 52, of Marietta, Georgia, was ordered to pay a fine of $250,000.
Ms. Strauss praised the investigative work of the United States Postal Inspection Service and thanked the SEC, which brought a separate civil action.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Edward A. Imperatore, Scott A. Hartman, and Daniel M. Tracer are in charge of the prosecution.
Somers Man Charged with Receipt and Possession of Child PornographyRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that RICHARD LEAF, a resident of Somers, was arrested this morning and charged with receiving and possessing videos and images containing child pornography. LEAF was presented today before U.S. Magistrate Judge Andrew E. Krause in White Plains federal court.
U.S. Attorney Audrey Strauss said: “Richard Leaf is alleged to have engaged in deeply disturbing sexual communications with minors, and in being in possession of child pornography. Child pornography inflicts immeasurable damage upon innocent victims, and this Office and our FBI partners will continue to exhaustively detect, identify, and charge any individuals engaged in this sinister conduct. Below, the various usernames alleged to have been used by Leaf to engage with under-aged victims are listed, please call 1-800-CALL-FBI if you believe you have information helpful to this investigation.”
FBI Assistant Director William F. Sweeney Jr. said: “As our society continues to become more reliant on technology, more of our children are exposed to the most despicable predators - those searching out young children to sexually exploit them. As we allege in this case, Mr. Leaf used Skype to chat with his victims. I'd like to stress to parents that although these contacts may occur in a virtual world, they harm your children in the real world. These criminals inflict lasting damage to their victims, and both parents and guardians need to be aware of the dangers their children face. The list below provides known fake handles Mr. Leaf allegedly used to contact children. Please take a look and have a conversation with your child. If you believe they've been in contact with Mr. Leaf, please call us at 1-800-CALL-FBI or reach us online at tips.fbi.gov."
According to the allegations contained in the Complaint[1]:
Between March 2019 and April 2020, LEAF posed as a teenager named “Alex Bronson” to communicate via Skype with a minor (“Minor-1”), who LEAF believed was 15 years old. During the course of these communications, Minor-1 sent LEAF a video of himself masturbating in the shower and a fully nude photo of himself in a bedroom. In addition, law enforcement officers uncovered almost a dozen images and videos containing child pornography on LEAF’s home computer.
The Complaint further alleges that LEAF created fictitious accounts on Chat Avenue, an online chatroom website, and Skype to communicate with minors. The usernames of some of LEAF’s fictitious accounts include:
alex bronson
sportsboi.15
alex15
15brandon
zach.914
runnerboi.14
austinf19
sportsgirl.914
brandon.williams.23
dan.dan77771
beachsand.7
Austin A
If you have information to report or if you interacted or sent under-aged photos or videos of a sexual nature to any of the above accounts, please contact the Federal Bureau of Investigation at 1-800-CALL-FBI.
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LEAF, 72, of Somers, New York, is charged with one count of receiving child pornography, which carries a mandatory minimum sentence of 5 years in prison and a maximum sentence of 20 years in prison, and one count of possessing child pornography, which carries a maximum sentence of 10 years in prison. The statutory maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.
Ms. Strauss praised the efforts of the FBI and its Westchester County Safe Streets Task Force. She added that the investigation is ongoing.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorney Jennifer Ong is in charge of the prosecution.
The charge contained in the complaint is merely an accusation, 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 descriptions of the Complaint set forth below constitute only allegations, and every fact described should be treated as an allegation.
Former CEO of Publicly Traded Biopharmaceutical Company Sentenced for Accounting FraudRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that PARKER H. PETIT, the former chief executive officer of MiMedx Group, Inc. (“MiMedx”), a publicly traded biopharmaceutical company, was sentenced today in Manhattan federal court to one year in prison for orchestrating a multimillion-dollar scheme to fraudulently inflate MiMedx’s revenue. PETIT and co-defendant William Taylor were found guilty on November 19, 2020, following a four-week jury trial before U.S. District Court Judge Jed S. Rakoff, who imposed today’s sentence.
Manhattan U.S. Attorney Strauss said: “Parker Petit used secret agreements and corrupt financial inducements with four distributors to materially misstate the quarterly and annual sales revenue of MiMedx. He deceived the SEC, auditors, and the investing public. Now he has been sentenced to prison for his crimes.”
According to the allegations contained in the Indictment and the evidence presented at trial:
MiMedx was headquartered in Marietta, Georgia, and its securities traded under the symbol “MDXG” on the NASDAQ. MiMedx sold regenerative biologic products, such as skin grafts and amniotic fluid, both directly to end users, such as public and private hospitals, and to various stocking distributors, which, in turn, resold the product to end users.
One of the most critical financial metrics disclosed in MiMedx’s public filings with the Securities and Exchange Commission (“SEC”), and touted in MiMedx’s accompanying press releases, was MiMedx’s quarterly and annual sales revenue. Under Generally Accepted Accounting Principles (GAAP) and SEC guidance, a company like MiMedx that engages in the sale of products through a distributor may recognize revenue upon transfer of the product to a distributor if certain requirements are satisfied, including that delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability of payment is reasonably assured. PETIT and Taylor, MiMedx’s former chief operating officer, repeatedly demonstrated and touted their understanding of these rules governing revenue recognition. They also publicly identified revenue as the principal metric reflecting MiMedx’s growth, and touted MiMedx’s consistent record of quarter-over-quarter revenue growth and meeting or exceeding revenue guidance in 17 consecutive quarters, from 2011 through year-end 2015. By 2015, however, it became increasingly difficult for MiMedx to reach its revenue guidance due to decreased demand from certain distributors and the increasingly aggressive revenue targets that MiMedx had publicly announced.
Confronted with the difficulties faced by MiMedx in meeting its quarterly and annual revenue guidance by legitimate means, PETIT and Taylor orchestrated a fraudulent scheme to falsely recognize revenue upon the shipment of MiMedx product to four stocking distributors, CPM, SLR, Stability Biologics (“Stability”), and First Medical, in the second through fourth quarters of 2015. PETIT and Taylor caused MiMedx to report fraudulently inflated revenue figures to the investing public in order to ensure that the reported figures fell within MiMedx’s publicly announced revenue guidance, and to fraudulently convey to the investing public that MiMedx was accomplishing consistent growth quarter after quarter, as PETIT and Taylor had falsely touted to the investing public. The fraudulent scheme involved the following central features:
- As to CPM, in the second quarter of 2015, PETIT and Taylor caused MiMedx fraudulently to recognize $1.4 million in revenue by (1) making a $200,000 sham “consulting” payment to CPM’s owner to bribe CPM to buy MiMedx product and (2) secretly agreeing to send CPM approximately $1.1 million of product it did not want and did not intend to sell, while promising that CPM could return the product to MiMedx and swap it for different product in a subsequent quarter. PETIT and Taylor entered into the sham “consulting” agreement to conceal that the payment was a bribe to purchase product, and CPM’s owner performed no consulting work for the payment. Neither PETIT nor Taylor disclosed to MiMedx’s outside auditors the “consulting” payment or product swap.
- As to SLR, in the third quarter of 2015, PETIT and Taylor caused MiMedx fraudulently to recognize $4.6 million in revenue by booking the revenue despite understanding that SLR would not make a timely payment for the product, and certainly would not do so within contractual terms. To hide from MiMedx’s auditors that the collectability of payment from SLR was questionable, during the fourth quarter 2015, PETIT arranged for his adult children to use a shell company to loan money to SLR (money that came from a trust fund established by PETIT for their benefit), with the understanding that the loan proceeds would be used in substantial part to pay down SLR’s debt to MiMedx. PETIT did not disclose the loan to MiMedx’s outside auditors and made false and misleading statements to the auditors about SLR’s ability to pay MiMedx.
- As to Stability, in the third and fourth quarters of 2015, PETIT and Taylor caused MiMedx improperly to recognize $2.6 million of revenue, where they (1) failed to agree with Stability on the essential terms of the deal, including when payment was due; (2) reached a secret understanding that Stability could swap or return unwanted product in subsequent quarters; and (3) understood that Stability could not pay for the product in a timely fashion. In fact, PETIT granted the right of return to Stability in a back-dated letter he hid from MiMedx’s internal accountants and outside auditors.
- As to First Medical, in the fourth quarter of 2015, Taylor caused MiMedx improperly to recognize $2.2 million in revenue by making an undisclosed promise to First Medical that it could return any product that it could not sell and that MiMedx would not leave First Medical with any losses. To carry out the scheme, Taylor sent two emails four seconds apart to First Medical. The first was a “cover story” that purported to require payment within a fixed period, as required by MiMedx’s accountants. Taylor forwarded the first email to MiMedx’s accounting department. The second email, sent only four seconds after the first, memorialized the true terms of the deal, which involved an agreement to defer payment and take back product if it could not be sold. Taylor hid the second email from MiMedx’s internal accountants and outside auditors. Taylor also arranged for a false audit “confirmation,” which falsely represented that First Medical was required to pay within a fixed period and omitted the true terms of the deal, to be provided to MiMedx’s outside auditors.
PETIT’s and Taylor’s fraudulent manipulation of MiMedx’s revenue caused MiMedx to report materially inflated revenue in the second, third, and fourth quarters of 2015, and for the full year 2015. In its 2015 10-K, MiMedx reported annual revenue that was fraudulently inflated by approximately $8.2 million. Absent this fraudulent inflation of revenue, MiMedx would have missed both (1) its quarterly revenue guidance in the third and fourth quarters of 2015 and annual revenue guidance for 2015 and (2) analyst revenue consensus for the second through fourth quarters of 2015 and the full year 2015. PETIT’s offense caused approximately $35 million in losses to MiMedx shareholders.
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In addition to his prison term, PETIT, 81, of Marietta, Georgia, was ordered to pay a fine of $1 million.
Taylor was found guilty of conspiracy to commit securities fraud, to make false statements in filings with the SEC, and to mislead auditors. Taylor will be sentenced tomorrow at 4:00 p.m. before Judge Rakoff.
Ms. Strauss praised the investigative work of the United States Postal Inspection Service and thanked the SEC, which brought a separate civil action.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Edward A. Imperatore, Scott A. Hartman, and Daniel M. Tracer are in charge of the prosecution.
Brooklyn Man Charged with Armed Robbery of Soho Luxury Retail StoreRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), announced today that ERIC SPENCER has been arrested for his participation in an armed robbery of a luxury retail store in New York, New York, on February 2, 2021. SPENCER was apprehended on Saturday, February 20, in Ft. Lauderdale, Florida, and will be presented in federal court in Ft. Lauderdale, Florida, later today.
U.S. Attorney Audrey Strauss said: “As alleged, Eric Spencer put the public and store personnel in grave danger when he committed a brazen daylight armed robbery of a SoHo boutique earlier this month. Spencer allegedly threatened a store security guard by displaying the handle of his gun as he barked orders to his co-conspirators to ‘grab everything.’ Now the FBI and NYPD have grabbed Spencer, who is in federal custody and awaiting his day in court.”
NYPD Commissioner Dermot Shea said: “Spencer’s arrest highlights the importance of good investigative work and the continuing efforts of the FBI-NYPD Joint Major Theft Task Force. I commend our partners in the United States Attorney’s Office in the Southern District of New York for their commitment to bringing justice for the victims in this despicable crime.”
FBI Assistant Director William F. Sweeney Jr. said: “We allege Mr. Spencer was part of a robbery crew, and in this instance he carried a firearm, during a violent takeover of a retail store. Mr. Spencer’s alleged actions violated federal law, and he is now in our custody. For others who plan to behave in the same manner, listen up – the FBI is committed to using every tool at our disposal to hold violent criminals accountable for their decisions, and our partnership with the NYPD is airtight. When you break federal law, expect to spend some time in one of our courtrooms. As always, thank you to the NYPD detectives for their outstanding work in this investigation, their constant efforts are essential to keeping our citizens safe.”
According to the allegations in the Complaint[1]:
On the afternoon of February 2, 2021, SPENCER robbed a luxury retail store located in the SoHo neighborhood in Manhattan. SPENCER and three other co-conspirators entered the store and began grabbing handbags and other items off the walls. When a security guard confronted SPENCER, he said, “What are you going to do? Shoot me?” SPENCER then reached into his waistband, where the security guard could see the handle of a firearm. SPENCER yelled, “Nobody touch me! Get everything! Grab everything!” SPENCER and his co-conspirators made off with handbags and other merchandise valued at $189,500.
The next day, SPENCER bragged on social media about having so many items from the store that he could “OPEN A SMALL BOUTIQUE.”
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SPENCER, 29, of Brooklyn, New York, is charged with one count of robbery, 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 defendant would be determined by a judge.
Ms. Strauss praised the outstanding investigative work of the FBI-NYPD Joint Major Theft Task Force and the NYPD’s Manhattan North Grand Larceny Squad, and thanked the FBI’s Miami Field Office for its assistance. She added that the investigation is ongoing.
The prosecution of this case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Matthew R. Shahabian 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 should be treated as an allegation.
Serial Con Artist Charged with Embezzlement SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Kathy A. Michalko, Special Agent in Charge of the New York Field Office of the United States Secret Service (“USSS”), and New York Police Department (“NYPD”) Commissioner Dermot Shea, announced the arrest today of TRACII SHOW-HUTSONA on wire fraud and identity theft charges. Specifically, SHOW-HUTSONA is charged with embezzling more than one million dollars as part of a confidence scheme. SHOW-HUTSONA used her position as a personal assistant to funnel money from her victim’s financial accounts, including the victim’s children’s college savings accounts, into her own spending account in order to fund a lavish lifestyle. SHOW HUTSONA was arrested on February 17, 2021, and was presented in federal court in the District of Arizona before United States Magistrate Judge Michelle H. Burns.
U.S. Attorney Audrey Strauss stated: “Traccii Show-Hutsona, a personal assistant and founding partner of Elite Lux Life, branded her concierge service as the ‘VIP Concierge Company (SPECIALIZING IN THE GOOD LIFE) Jets-Yachts-Vacation Rentals-Exotic Vehicles.’ As alleged, Show-Hutsona afforded herself the same swanky accommodations she promised her clientele – only she did so with their money. Thanks to our partners at the NYPD and U.S. Secret Service, Tracii Show-Hutsona’s alleged high-flying confidence scheme has now been grounded, and she faces embezzlement charges in federal court.”
USSS Special Agent-in-Charge Kathy A. Michalko stated: “The U.S. Secret Service remains focused on bringing those who commit financial crimes to justice. The accused was employed by the victim and allegedly used her position to embezzle over one million dollars for her own personal gain. Due to the tireless investigative efforts of the Secret Service and the New York City Police Department, the accused will answer the charges against her in the Southern District of New York.”
NYPD Commissioner Dermot Shea stated: “As alleged in this federal complaint, Tracii Show-Hutsona turned her clients into victims, betraying their trust to carry out her own embezzlement scheme. I applaud the work done in this case by our NYPD investigators and our partners in the United States Secret Service and the United States Attorney’s Office in the Southern District of New York to make sure this individual would be brought to justice.”
According to the allegations in the Complaint unsealed today[1]:
TRACII SHOW HUTSONA, a/k/a “Tracii Show,” a/k/a “Tracii Show Vician,” was the “founding partner” of Elite Lux Life, a full-service concierge firm that “accommodates the most discerning traveler” and is the “go-to service for wanting to enjoy the very best life has to offer.” In its social media posts, Elite Lux Life markets itself as a “VIP Concierge Company (SPECIALIZING IN THE GOOD LIFE) Jets-Yachts-Vacation Rentals-Exotic Vehicles.”
From in or around 2015 until late 2019, SHOW HUTSONA engaged in a long-running confidence scheme to embezzle money. SHOW HUTSONA used the confidence she gained from her position as a personal assistant to gain access to financial accounts. In connection with one victim of the scheme (“Victim-1”), SHOW HUTSONA stole and spent over $1 million of Victim-1’s money in order to finance her own luxury lifestyle. When Victim-1 confronted her about the scheme, SHOW HUTSONA promised to make amends. In fact and in reality, SHOW HUTSONA continued to spend Victim-1’s money without permission or authorization, including transferring money from the college savings accounts of Victim-1’s children.
SHOW HUTSONA was previously convicted in federal court in 2008 for committing fraud and aggravated identity theft in connection with the submission of fraudulent invoices for a staffing agency in Japan, in another fraud scheme. See United States v. Show Vician, 08 Cr. 0058 (C.D. Cal. Oct. 16, 2008).
* * *
SHOW HUTSONA, 52, of Phoenix, Arizona, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison, and one count of aggravated identity theft, which carries a mandatory consecutive sentence of two 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 the judge.
Ms. Strauss praised USSS and the NYPD for their outstanding work on this case and noted that the investigation is ongoing.
This matter is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Timothy V. Capozzi and Michael C. McGinnis are in charge of the prosecution.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth below constitute only allegations, and every fact described should be treated as an allegation.
Bronx Tax Preparer Pleads Guilty to $3 Million Tax FraudRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, and Jonathan D. Larsen, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today that ROBERTO PEREZ RAMIREZ, the owner of a tax preparation business named RAP Tax Service in the Bronx, New York, pled guilty to 10 counts of aiding and assisting the preparation of false and fraudulent income tax returns for the tax years 2013 to 2016. As part of the plea agreement, RAMIREZ agreed to make restitution to the IRS in the amount of $2,974,547. RAMIREZ pled guilty this morning before U.S. District Judge Andrew L. Carter Jr.
Manhattan U.S. Attorney Audrey Strauss said: “As he admitted in court today, Roberto Ramirez submitted false and fraudulent tax returns on behalf of numerous taxpayers, often falsely claiming dependents, nonexistent charitable deductions, or bogus business expenses on behalf of clients who paid Ramirez to do so. Now he awaits sentencing for his admitted crimes.”
IRS-CI Special Agent in Charge Jonathan D. Larsen said: “The defendant’s admissions today, at the kickoff of the filing season, are a timely reminder of the vital need for the taxpayer to do their due diligence in choosing a preparer. A preparer who is claiming to offer an unusually large return or one who is charging exorbitant fees should automatically raise red flags with the taxpayer.”
According to the allegations contained in the Information to which RAMIREZ pled guilty, RAMIREZ’s plea agreement, and statements made in court:
Through his Bronx tax preparation business, RAP Tax Service, RARMIREZ prepared and filed nearly 3,000 individual income tax returns on behalf of taxpayers for the tax years 2013 to 2016.
On many of the returns that he prepared for the tax years 2013 to 2016, RAMIREZ falsely claimed dependents who were not in fact dependents of the named taxpayers. The false dependents included real persons located in Puerto Rico, among other places. By including false dependents, RAMIREZ fraudulently inflated the refunds that could be obtained on the named taxpayers’ returns. RAMIREZ sometimes charged clients a $1,000 fee to add a false dependent.
In addition to reporting false dependents, RARMIREZ also reported false Schedule A deductions, such as gifts to charity or unreimbursed employee business expenses, and false Schedule C business expenses. By including false Schedule A deductions and false Schedule C expenses, RAMIREZ fraudulently inflated the refunds that could be obtained on the named taxpayers’ returns.
For the tax years 2013 through 2016, RAMIREZ’s scheme caused an estimated tax loss to the IRS of approximately $3 million.
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RAMIREZ, 59, of Hackensack, New Jersey, pled guilty to 10 counts of aiding and assisting the preparation of false and fraudulent income tax returns for the tax years 2013 to 2016. Each count carries a maximum sentence of three years in prison. As part of the plea agreement, RAMIREZ has agreed to pay restitution to the IRS in the amount of $2,974,547. RAMIREZ is scheduled to be sentenced by Judge Carter on June 25, 2021, at 10:00 a.m.
The maximum potential sentences 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 IRS-CI in this case.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Alexander Li is in charge of the prosecution.
Four Alleged Smugglers Charged for Importing Banned Catfish into the United StatesRead 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 Field Office of Homeland Security Investigations (“HSI”), Timothy Donovan, Assistant Director of the Northeast Division, National Oceanic and Atmospheric Administration (“NOAA”), Office of Law Enforcement (“OLE”), and Bethanne M. Dinkins, the Special Agent-in-Charge of the New York Field Office of the Office of the Inspector General for the United States Department of Agriculture (“USDA-OIG”), announced the unsealing today of a Complaint charging MAHMUD CHOWDHURY, a/k/a “Masum Chowdhury,” a/k/a “Uncle Masum,” SHAKIL AHMED, BELAYET HUSSAIN, a/k/a “Belayet Sohel,” and FIROZ AHAMMAD with participating in a conspiracy to smuggle banned catfish into the United States through the Southern District of New York. All four defendants were taken into custody today and will be presented this afternoon before United States Magistrate Judge Katharine H. Parker.
U.S. Attorney Audrey Strauss said: “As alleged, food safety for U.S. consumers was seriously compromised by these defendants, who disguised their importation and distribution of dangerous fish and fish products. Thankfully, investigators with HSI, NOAA, and USDA-OIG detected something fishy and reeled in the defendants, who now face serious federal charges.”
HSI Special Agent-in-Charge Peter C. Fitzhugh said: “Something smelled fishy, and this investigation led to this transnational criminal organization as the center of an alleged smuggling operation moving multiple shipments of catfish from prohibited countries into our ports to further a very lucrative scheme. It is a major concern when food entering the U.S. does not meet our strict health and safety guidelines, and HSI New York, working with CBP and our law enforcement partners, will continue to protect the public from potentially contaminated, diseased or adulterated food products and bring to justice those who choose to line their pockets at the expense of our food supply chain.”
NOAA-OLE Northeast Division Assistant Director Timothy Donovan said: “This case demonstrates the importance of our cooperation with U.S. government partners to interdict illegal products before they enter the country. OLE continues to work to protect consumers and fishermen from seafood fraud and the illegal importation of seafood through initiatives like our Seafood Import Monitoring Program.”
USDA-OIG Special Agent-in-Charge Bethanne M. Dinkins said: “Protecting the safety of food is a top priority for USDA-OIG, and we will continue to dedicate investigative resources and work with our law enforcement and prosecutorial partners to protect the integrity of the food supply and bring to justice those who circumvent food safety protocols and put consumers at risk.”
As alleged in the Complaint unsealed today in Manhattan federal court[1]:
Since in or about 2017, the importation into the United States from most countries of fish of the order Siluriformes, which includes multiple species of fish commonly referred to as catfish, has been prohibited by federal law, in order to ensure the safety of food for human consumption in the United States. From at least in or about January 2018 up to and including at least in or about October 2019, notwithstanding this ban, MAHMUD CHOWDHURY, a/k/a “Masum Chowdhury,” a/k/a “Uncle Masum,” SHAKIL AHMED, BELAYET HUSSAIN, a/k/a “Belayet Sohel,” and FIROZ AHAMMAD, the principals of Asia Foods Distributor Inc. (“AFD”), a trading company based in New York City, conspired to smuggle large quantities of prohibited catfish into the United States through the Southern District of New York for distribution to their customers around the United States. The defendants implemented a scheme through which the banned catfish were listed as other species of fish in the shipping documents of foreign exporters presented at customs, and also in the commercial invoices that they provided to their customers, thereby disguising their importation and distribution. In or about 2019, a customs inspection of a shipping container bound for AFD led to the discovery of the prohibited catfish. Further quantities of illegally imported catfish were also found at AFD’s warehouse and at certain of AFD’s customers’ stores during site inspections. The ensuing investigation of HSI, NOAA, and USDA-OIG led to the seizure of multiple shipping containers bound for AFD, in which banned catfish were identified. Moreover, the execution of a search warrant at AFD’s warehouse resulted in the seizure of evidence documenting AFD’s orders to foreign exporters and communications between the defendants about how to avoid the detection of their scheme and the accompanying risk of potential arrest and imprisonment.
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A chart containing the names, charges, and maximum 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 HSI, NOAA, and USDA-OIG, as well as the assistance of United States Customs and Border Protection (“CBP”).
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Thomas John Wright is in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
COUNT
CHARGE
DEFENDANTS
MAX. PENALTIES
1
Catfish smuggling conspiracy
18 U.S.C. § 371
MAHMUD CHOWDHURY,
a/k/a “Masum Chowdhury,”
a/k/a “Uncle Masum,”
SHAKIL AHMED,
BELAYET HUSSAIN,
a/k/a “Belayet Sohel,” and FIROZ AHAMMAD
5 years in prison
2
Catfish smuggling
18 U.S.C. § 545
MAHMUD CHOWDHURY,
a/k/a “Masum Chowdhury,”
a/k/a “Uncle Masum,”
SHAKIL AHMED,
BELAYET HUSSAIN,
a/k/a “Belayet Sohel,” and FIROZ AHAMMAD
20 years in prison
[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the descriptions of the Complaint constitute only allegations, and every fact described should be treated as an allegation.
Former New Windsor Town Official and Contractor Plead Guilty to Negligent Release of AsbestosRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that JAMES PETRO, the former Planning and Zoning Coordinator and Property Development Manager for the Town of New Windsor, and RICHARD MCGOEY, the former Town Engineer by contract for the Town of New Windsor, each pled guilty today to one count of negligently causing the releasing of asbestos into the ambient air, thereby negligently placing other persons in imminent danger of death and serious bodily injury. PETRO and MCGOEY pled guilty before United States Magistrate Judge Judith C. McCarthy in White Plains federal court.
U.S. Attorney Audrey Strauss said: “As they admitted in court today, James Petro and Richard McGoey decided to cut corners and do things on the cheap, soliciting bids for demolition work without disclosing that the property contained asbestos. The contract was awarded to a contractor unqualified to do asbestos abatement work, and as a result Petro and McGoey jeopardized the health and safety of the people they had a responsibility to protect.”
According to the allegations in the Informations to which PETRO and MCGOEY pled guilty and other court documents:
In or about 1999, the Town of New Windsor (the “Town”) acquired 250 acres adjacent to Stewart Airport from the Department of the Army. The property contained dozens of military barracks and other buildings that the Army had constructed in or about the 1940’s, when the property was part of an Army Air Force base. These buildings included 10 buildings contained on the parcel of land bordered by International Boulevard to the south, Reed Street to the north, Aviation Avenue to the east and Raz Avenue to the west (the “10 Buildings”). The 10 Buildings contained asbestos.
After it acquired the 250 acres, the Town entered into an agreement with a real estate developer (the “Developer”) pursuant to which the Developer would lease the land and develop it. From in or about 2006 through in or about 2009, the Town applied for various government grants to abate the asbestos in some of the buildings on the 250 acres and to demolish those buildings. PETRO and MCGOEY participated with others in preparing and submitting the grant applications.
In or about May 2008, the Developer obtained a report from an asbestos inspector that indicated the 10 Buildings had asbestos-containing material. The report stated that any disturbance or abatement of the asbestos was required to be performed by a licensed contractor in accordance with federal and state regulations. PETRO and MCGOEY knew of the existence of this report prior to August 2015.
In or about June 2012, PETRO, MCGOEY, and others discussed the need to prepare a written request for bids to abate the asbestos in, and demolish, the 10 Buildings. The Town initially requested bids from asbestos inspectors to conduct asbestos surveys of the 10 Buildings. PETRO, MCGOEY, and others decided asbestos surveys were unnecessary because the 10 Buildings had already been surveyed in May 2008.
From May 2015 to June 2015, PETRO, MCGOEY, and others drafted a request for proposals to demolish the 10 Buildings. This request for proposals did not disclose the presence of asbestos containing materials in the 10 Buildings but said only that the demolition materials were to be disposed of in accordance with all federal, state, and local regulations. The Town published this request for proposals on or about June 5, 2015.
In July 2015, the Town awarded the contract to demolish the 10 Buildings to Contractor-1, who had submitted the lowest bid of $262,000. Contractor-1 was not a licensed asbestos contractor and had limited experience with asbestos. Although Contractor-1 did not submit a plan to abate the asbestos in the 10 Buildings or an asbestos clearance letter to the Town, the Town gave Contractor-1 permits to demolish the 10 Buildings.
From August 11, 2015 through August 16, 2015, Contractor-1 and his crew demolished the 10 Buildings without removing the asbestos contained therein by knocking the buildings down with a backhoe, thereby releasing the asbestos to the open air. During this period, both PETRO and MCGOEY visited the site while the buildings were being knocked down. On August 19, 2015, an official with the Asbestos Control Bureau of the New York State Department of Labor suspended work on removing the debris piles resulting from the demolition of the 10 Buildings.
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PETRO, 68, of New Windsor, New York, and MCGOEY, 71, of Monticello, New York, each pled guilty to one count of negligently causing the release of asbestos into the ambient air, thereby negligently placing other persons in imminent danger of death and serious bodily injury. This offense carries a maximum sentence of one year 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 PETRO and MCGOEY will be determined by a judge. The defendants are scheduled to be sentenced by Judge McCarthy on May 27, 2021.
Ms. Strauss praised the outstanding investigative work of the U.S. Environmental Protection Agency and Special Agents of the United States Attorney’s Office for the Southern District of New York.
The prosecution of this case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Margery Feinzig and James McMahon are in charge of the prosecution.
Attorneys and Managers of Fraudulent Asylum Scheme Charged in Manhattan Federal CourtRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, William F. Sweeny Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), Patricia Menges, the New York Asylum Director of United States Citizenship and Immigration Services (“USCIS”), and Jason J. Molina, the Special Agent-in-Charge of the Newark Field Office of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (“HSI”), announced the unsealing of two indictments charging nine individuals in two respective schemes to prepare and submit fraudulent asylum applications, affidavits and other documents to USCIS, and to coach asylum seekers to lie under oath during immigration proceedings.
ILONA DZHAMGAROVA and ARTHUR ARCADIAN, two immigration attorneys based in Brooklyn, New York, and their associate, IGOR REZNK, were charged in one indictment with conspiracy to commit asylum fraud (the “Dzhamgarova Indictment”). The case has been assigned to U.S. District Court Judge Mary Kay Vyskocil. All three defendants were taken into custody today. DZHAMGAROVA and ARCADIAN are expected to be presented in the Southern District of Florida. REZNIK is expected to be presented in the District of Maryland.
In a separate indictment, YURY MOSHA, ULADZIMIR DANSKOI, JULIA GREENBERG, ALEKSEI KMIT, TYMUR SHCHERBYNA, and KATERYNA LYSYUCHENKO were charged with conspiracy to defraud the United States and conspiracy to commit asylum fraud. That case has been assigned to U.S. District Court Judge Alison J. Nathan. Five defendants were taken into custody today. MOSHA and DANSKOI are expected to be presented in the Southern District of New York today before U.S. Magistrate Judge Katharine H. Parker. GREENBERG and KMIT are expected to be presented in the Districts of Colorado and Idaho, respectively. LYSYUCHENKO was arrested in Milan, Italy, and is pending extradition.
U.S. Attorney Audrey Strauss said: “Fear of violence and persecution, be it on the basis of race, religion, or sexual orientation, is a daily reality for too many across the world. To exploit and profit from the fears of the victims of persecution is cynical; to do so through lies and for money is fraud. As alleged, these defendants engaged in a scheme to deceive asylum officers of the United States through carefully scripted lies, trading on deeply held concerns for actual victims of persecution in an effort to obtain money and illegal immigration documents. Asylum fraud was not merely a means of lining these defendants’ pockets. It is a burden on the asylum system and a hindrance to those legitimately in need of our country’s protection.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “The elaborate deceptions allegedly created by the groups of attorneys and managers in this investigation are astounding. As we allege, they told their clients to lie on asylum applications and under oath about being persecuted in their home countries, and they even created ghost-written blogs to bolster those false claims. As these defendants will learn, engaging in this kind of conduct has grave consequences. Creating false narratives to conceal the identities of people seeking asylum in the United States threatens our national security, and we will continue to address it accordingly."
USCIS New York Asylum Director Patricia Menges said: “USCIS is committed to finding and stopping those who want to cheat the immigration system, and preserving it for those who qualify for immigration benefits.”
Special Agent-in-Charge, HSI, Newark Jason J. Molina said: “Under the guise of fictitious stories of persecution to gain asylum, these individuals allegedly exploited their fellow Russians for financial gain. Their arrest should serve as a warning to others of his ilk that the cooperative efforts of law enforcement agencies will track and persecute them to the fullest extent of the law.”
According to the allegations in the Indictments[[1]]:
The charges in these two Indictment arise from an investigation into two New York City immigration firms, the “Dzhamgarova Firm” and “Russian America,” which helped their respective clients – primarily aliens from Russia and the Commonwealth of Independent States – seek visas, asylum, citizenship, and other forms of legal status in the United States. Among other things, both firms advised certain of their clients in the manner in which they were most likely to obtain asylum in this country, fully understanding that those clients did not legitimately qualify for asylum. The firms also prepared and submitted to USCIS clients’ fraudulent Form I-589 asylum applications, asylum affidavits – statements of an asylum applicant’s personal history and claimed basis for asylum, often including allegations of past persecution – and related supporting documentation. Members and associates of each firm also coached certain clients to lie under oath during interviews conducted by USCIS Asylum Officers and provided legal representation to their clients during various immigration proceedings.
The Dzhamgarova Indictment
Between November 2018 and December 2021, ILONA DZHAMGAROVA, an immigration attorney, maintained the Dzhamgarova Firm, based in Brooklyn, New York. Among other things, DZHAMGAROVA advised clients to seek asylum by falsely claiming that they were members of the Lesbian, Gay, Bisexual, Transgender and Queer (“LGBTQ”) community who suffered persecution in their native countries, when DZHAMGAROVA fully understood that these clients were not members of that community and suffered no such persecution. Additionally, DZHAMGAROVA and her husband, ARTHUR ARCADIAN, also an attorney, prepared and submitted clients’ fraudulent asylum applications and affidavits to USCIS, under penalty of perjury, fully understanding that these documents at times contained material falsehoods. DZHAMGAROVA and REZNIK also coached certain clients to lie in asylum interviews conducted by USCIS asylum officers and represented clients during immigration proceedings.
The Dhzamgarova Firm also employed writers and bloggers, including IGOR REZNIK, who knowingly concocted and drafted clients’ fraudulent asylum affidavits so that they could be submitted as part of clients’ asylum applications. These affidavits, which were designed to support clients’ persecution claims, conveyed purported aspects of clients’ personal histories that were filled with falsehoods, including events and incidents of alleged persecution that were completely manufactured by REZNIK.
The Mosha Indictment
YURY MOSHA and ULADZIMIR DANSKOI operated and maintained Russian America’s Manhattan and Brooklyn offices, respectively. Each advised and aided clients to seek asylum under fraudulent pretenses. Among other things, MOSHA encouraged certain clients to establish and maintain online blogs that were critical of the clients’ home countries, as a way to generate a claim that, based on the clients’ invented political opinions, it was unsafe for them to return to their native countries. MOSHA did so understanding that the clients’ decision to blog was prompted not by their own idea or initiative, but by MOSHA’s instruction, and that the clients’ motive for blogging was to contrive a basis for asylum, rather than to publicly express a sincerely held opinion. MOSHA also understood that, in some instances, these clients lacked the desire, topical knowledge, journalistic ability, and/or technical expertise to write blogposts and maintain these blogs. In those instances, MOSHA connected some Russian America clients with TYMUR SHCHERBYNA, a Ukraine-based purported journalist, with the understanding that, in exchange for a fee, SHCHERBYNA would and did maintain and ghost-write the clients’ blogs. MOSHA also personally prepared and submitted clients’ asylum applications and related paperwork under penalty of perjury, knowing that these documents contained material falsehoods. ALEKSEI KMIT, who worked directly under MOSHA in Russian America’s Manhattan Office, and who understood that certain clients were seeking asylum under fraudulent pretenses, served as a liaison between these clients and Russian America employees and at times advised these clients regarding their fraudulent applications.
DANSKOI performed similar functions as MOSHA, but in Russian America’s Brooklyn Office. For example, DANSKOI advised one Russian America client, a confidential FBI source (the “Source”), to seek asylum on the fraudulent basis that the client was persecuted in Ukraine for being a gay male, when in fact DANSKOI fully understood that the Source was a heterosexual male who suffered no such persecution. DANSKOI also advised the Source on how to most effectively advance this fraudulent claim.
Both MOSHA and DANSKOI referred certain clients to KATERYNA LYSYUCHENKO – an Italy-based associate, who helped certain Russian America clients draft fraudulent Asylum Affidavits by, among other things, sending them template Asylum Affidavits to model off of, and advising clients about what information to include in their affidavits, understanding these documents to be fraudulent – and JULIA GREENBERG, a New York immigration attorney, who coached clients to lie to Asylum Officers and provided legal representation to such clients during immigration proceedings. For example, GREENBERG, understanding that the Source was a heterosexual male who did not suffer persecution in his home country, prepared the Source for questioning by an Asylum Officer and advised the Source how to falsely answer certain anticipated questions from the Asylum Officer.
* * *
DZHAMGAROVA, 44, and ARCADIAN, 42, both of Brooklyn, NY; and REZNIK, 39, of New York, NY, are charged with one count of conspiracy to commit immigration fraud, which carries a maximum sentence of five years in prison.
MOSHA, 45, DANSKOI, 54, and GREENBERG, 41, each of Staten Island, New York; KMIT, 30, of Boise, Idaho; SHCHERBYNA, 35, of Ukraine, and LYSYUCHENKO, 39, of Italy, are each charged with one count of conspiracy to defraud the United States and conspiracy to commit asylum fraud.
The maximum potential sentences 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 FBI’s New York Eurasian Organized Crime Task Force, Homeland Security Investigations, USCIS New York Asylum Office and Fraud Detection and National Security unit, and thanked United States Customs and Border Protection and the New York City Police Department for their assistance.
These cases are being prosecuted by the Office’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant U.S. Attorney Jonathan E. Rebold is in charge of the prosecution.
[1] The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
Six Defendants Arrested in Multiple States for Laundering Proceeds from Fraud Schemes Targeting Victims Across the United States Perpetrated by Ghana-Based Criminal EnterpriseRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Jonathan D. Larsen, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced the arrests of FAROUK APPIEDU, FRED ASANTE, CELVIN FREEMAN, LORD ANING, SADICK EDUSEI KISSI, and FAISAL ALI, a/k/a “Clarence Graveley,” for charges in connection with their roles in a fraud and money laundering conspiracy based in the Republic of Ghana (“Ghana”) involving the theft of tens of millions of dollars. FREEMAN and ALI were arrested earlier today in New Jersey and will be presented in Manhattan federal court later today. ASANTE and ANING were arrested earlier today in Virginia and will be presented in the United States District Court for the Eastern District of Virginia in Alexandria, Virginia. APPIEDU was previously arrested in Queens, New York on October 18, 2020. KISSI was previously arrested in Fargo, North Dakota on February 5, 2020.
Manhattan U.S. Attorney Audrey Strauss said: “The fraud schemes alleged that these defendants facilitated were lucrative, diverse, and most of all, callous. As alleged, they engaged in email spoofing, duping elderly online daters into wiring them money, and applying for government-funded Coronavirus relief funds earmarked for the benefit of small businesses affected by the pandemic. Thanks to the determination of the IRS and FBI, these defendants face serious prison time, and their next online profiles could potentially appear in a place where they’ll be unable to catfish anymore – the website for the Bureau of Prisons.”
FBI Assistant Director William F. Sweeney Jr. said: “The scams we allege in this investigation include romance scams targeting the elderly, business e-mail compromise scams, and even fraudulent COVID-19 relief loans. In many of these and similar fraud cases, victims are reluctant to come forward because they fear embarrassment or reputational damage. Some may even believe the perpetrators are beyond our reach because they often live abroad. These arrests and indictments should serve as a reminder that the FBI and our law enforcement partners are here to help you and bring these bands of criminals to justice.”
IRS-CI Special Agent in Charge Jonathan D. Larsen said: “The arrests of the alleged ringleaders of this more than $50 million scheme today dealt a death blow to the vast criminal activity in which the defendants were engaged, including elderly scams, COVID-19 fraud, money laundering, among others. IRS Criminal Investigation will continue to aggressively pursue those who profit from illegal activity and ensure they are brought to justice.”
According to allegations in the indictments filed against APPIEDU, ASANTE, FREEMAN, ANING, and KISSI, a criminal complaint filed against ALI, and other court documents[1]:
From at least in or about 2013 through at least in or about 2020, the defendants were members 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 frauds perpetrated by the Enterprise have consisted of, among other frauds, business email compromises, romance scams, and fraud schemes related to the novel coronavirus/COVID-19 pandemic. First, 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 through the use of email accounts that “spoofed” or impersonated employees of a victim company or third parties engaged in business with a victim company. Second, the Enterprise conducted the romance scams by using electronic messages sent via email, text messaging, or online dating websites that deluded 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. Finally, the Enterprise submitted fraudulent loan applications through a loan program of the United States Small Business Administration (the “SBA”) designed to provide relief to small businesses during the COVID-19 pandemic, namely the Economic Injury Disaster Loan (“EIDL”) Program. The Enterprise submitted fraudulent EIDL applications in the names of actual companies to the SBA and when an EIDL loan was approved, the funds were ultimately deposited in bank accounts controlled by members of the Enterprise, including certain of the defendants.
APPIEDU, ASANTE, FREEMAN, and ANING received fraud proceeds from victims of the Enterprise in dozens of business bank accounts that they controlled in New York, New Jersey, and Virginia. The business bank accounts were opened in the names of companies formed by the defendants that were purportedly involved in, among other things, automobile sales, food imports and exports, and freight trucking and shipping. Once APPIEDU, ASANTE, FREEMAN, and ANING received fraud proceeds in bank accounts under their control, they withdrew, transported, and laundered those fraud proceeds to other members of the Enterprise abroad. The defendants primarily laundered the fraud proceeds through their businesses by using the proceeds to purchase automobiles, food products, and other goods from U.S.-based suppliers and distributors of such products and shipping those products to Ghana and elsewhere. The defendants’ transactions had the appearance of legitimate business transactions when, in fact, the products had been purchased using the proceeds of fraud schemes. This trade-based money laundering scheme was designed to obscure the origin of the fraud proceeds as well as the identity of the ultimate beneficiaries of these schemes.
Collectively, from in or about 2013 through at least in or about 2020, APPIEDU, ASANTE, FREEMAN, and ANING controlled more than 45 bank accounts that had deposits that totaled over approximately $55 million during that time period. A vast majority of the deposits consisted of large wire transfers and check or cash deposits from various U.S.-based individuals and entities that were victims of fraud schemes of the Enterprise, or payments for vehicles, food products, and other goods sold by the defendants that were purchased using fraud proceeds. As part of the investigation of APPIEDU, the Government has seized and is seeking the forfeiture of four luxury cars purchased, at least in part, with fraud proceeds, including two 2019 Rolls Royce Cullinans, a 2020 Bentley Continental GT, and one 2020 Mercedes-Benz G63 AMG.
KISSI received fraud proceeds from victims of the Enterprise in bank accounts that he controlled that were located in the Bronx, New York and elsewhere. Once he received the fraud proceeds in bank accounts under his control, KISSI withdrew, transported, and laundered those fraud proceeds to other members of the Enterprise located in Ghana.
ALI received fraud proceeds from victims of the Enterprise into a series of at least thirteen bank accounts at six different banks, which ALI controlled in the Bronx, New York. ALI used the name and identity of another person to open several of these bank accounts in order to conceal the proceeds of the fraud scheme. Once ALI received the fraud proceeds in bank accounts under his control, he withdrew, transported, and laundered those fraud proceeds to other members of the Enterprise.
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FAROUK APPIEDU, 35, of the Bronx, New York, FRED ASANTE, 35, of Fredericksburg, Virginia, CELVIN FREEMAN, 47, of East Orange, New Jersey, and LORD ANING, 28, of Woodbridge, Virginia, were each charged in Indictment No. 21 Cr. 88 with one count of conspiracy to commit wire fraud, one count of wire fraud, and one count of conspiracy to commit money laundering, which each carry a maximum sentence of 20 years in prison; one count of conspiracy to receive stolen money, which carries a maximum sentence of five years in prison; and one count of receipt of stolen money, which carries a maximum sentence of 10 years in prison. The case against APPIEDU, ASANTE, FREEMAN, and ANING is assigned to U.S. District Judge Jed S. Rakoff.
SADICK EDUSEI KISSI, 24, of Dickinson, North Dakota, was charged in Indictment No. 21 Cr. 64 with one count of conspiracy to commit wire fraud and one count of conspiracy to commit money laundering, which each carry a maximum sentence of 20 years in prison; one count of conspiracy to receive stolen money, which carries a maximum sentence of five years in prison; and one count of receipt of stolen money, which carries a maximum sentence of 10 years in prison. The case against KISSI is assigned to U.S. District Judge Paul A. Crotty.
FAISAL ALI, a/k/a “Clarence Graveley,” 34, of Orange, New Jersey, was charged in a criminal complaint with one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison; one count of making false statements to a bank, which carries a maximum sentence of 30 years in prison; one count of conspiracy to receive stolen money, which carries a maximum sentence of five years in prison; and one count of aggravated identity theft, which carries a mandatory sentence of two years in prison to be served consecutively to any other sentence imposed.
The maximum potential sentences 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 FBI and IRS-CI. Ms. Strauss also thanked U.S. Customs and Border Protection, Homeland Security investigations, the Office of the Inspector General of the U.S. Department of Justice, FBI Field Offices in Washington, D.C., Newark, New Jersey, Fredericksburg, Virginia, and Fargo, North Dakota, U.S. Attorney’s Office for the Eastern District of Virginia, the Virginia State Police, the police departments of Fredericksburg, Arlington, and Prince William County, Virginia, and the Sheriff’s Office of Stafford County, Virginia for their assistance in the investigation of this case.
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.
[1] As the introductory phrase signifies, the entirety of the Complaint and Indictment and the description of the Complaint and Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Liquor Entrepreneur Arrested for Defrauding 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 Field Office of the Federal Bureau of Investigation (“FBI”) announced that JOSEPH CIMINO, the founder of an Orange County-based tequila company, was arrested this morning and charged with securities fraud and wire fraud arising out of his fraudulent solicitation of investments for the company. CIMINO will be presented before United States Magistrate Judge Judith C. McCarthy in White Plains federal court later today.
U.S. Attorney Audrey Strauss said: “Joseph Cimino allegedly raised nearly $1 million in investor funds for his start-up tequila company by lying about the company’s finances, and then spent a significant portion of that money to finance his own lifestyle. Now Cimino faces the sobering reality of federal securities and wire fraud charges.”
FBI Assistant Director William F. Sweeney Jr. said: “Through falsely inflating capital, misleading investors, and lying about other aspects of his tequila company, Cimino, as alleged, raised nearly $1 million in furtherance of his fraudulent scheme. While his alleged illegal activity continued over a period of four years, today’s arrest has effectively shattered any hopes he may have had of continuing to scam innocent investors.”
According to the allegations contained in the Complaint[1] unsealed today in White Plains federal court:
From 2014 to 2018, CIMINO raised approximately $935,000 from at least 25 investors ostensibly to fund a tequila company that he founded (the “Tequila Company”). Throughout this period CIMINO made numerous false and misleading representations in an effort to attract and maintain investors. For example, in multiple communications with prospective investors, CIMINO falsely inflated the amount of capital that the Tequila Company had raised from other investors, and falsely represented that certain individuals were investors in the Tequila Company, when in reality they had not invested any funds. CIMINO also fabricated or falsely inflated the Tequila Company’s sales in a number of investor communications. In December 2015, CIMINO made statements in an email to a prospective investor falsely implying that the Tequila Company already had sales, when in fact, the company’s initial sales did not occur until 2017. In July 2017, CIMINO falsely represented in an investor report and quarterly profit and loss (“P&L”) statement that the Tequila Company’s year-to-date sales totaled 3,410 cases, when its actual sales totaled only 350 cases. Then, in October 2017, CIMINO falsely represented that the Tequila Company’s year-to-date sales totaled 6,035 cases, when its actual year-to-date sales totaled barely 20 percent of that number. CIMINO further claimed to investors in October 2017 that the Tequila Company would receive reimbursement for 800 cases of tequila that were supposedly destroyed at a distributor’s warehouse in Puerto Rico as a result of Hurricane Maria. That statement was a fabrication. In reality, the Tequila Company had no insurance and none of its inventory had been destroyed in the hurricane.
In addition to deceiving investors about the Tequila’s Company’s financial condition, CIMINO used investor money for personal expenses, including groceries, pet supplies, and personal entertainment. From 2014 to 2018, CIMINO transferred approximately $472,000 of investor money from the Tequila Company into his personal bank account, and used a significant portion of those deposits for personal living expenses, contrary to the operating agreements provided to investors.
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CIMINO, age 56, of Warwick, New York, is charged with one count of securities fraud and one count of wire fraud. Each charge 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 investigative work of the FBI Hudson Valley White Collar Crime Task Force and Orange County Sheriff’s Office. Ms. Strauss also thanked the Securities & Exchange Commission for its assistance in the investigation.
In a related case, the Securities & Exchange Commission brought a civil action today against CIMINO in U.S. District Court in White Plains.
The criminal case is being prosecuted by the Office’s White Plains Division. Assistant U.S. Attorneys Benjamin Gianforti and Daniel Loss are in charge of the prosecution.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth below constitute only allegations and every fact described should be treated as an allegation.
New York City Man Charged with Threatening to Kill Current and Former Elected OfficialsRead the Press Release
Audrey Strauss, U.S. Attorney for the Southern District of New York, and New York Police Department Commissioner Dermot Shea, announced that RICKEY JOHNSON, a/k/a “Nigel Dawn Defarren,” was arrested last night based on a criminal Complaint filed in Manhattan federal court charging JOHNSON with making threatening interstate communications and threatening United States officials. JOHNSON allegedly posted public videos on Instagram in which he threatened to kill a United States Senator, a member of the United States House of Representatives, other current and former elected officials, and several cable news broadcasters. JOHNSON will be presented before United States Magistrate Gabriel W. Gorenstein in Manhattan federal court today.
Manhattan U.S. Attorney Audrey Strauss said: “Rickey Johnson allegedly threatened to kill several cable news broadcasters and current and former U.S. Senators and members of the House in rage-fueled posts on Instagram and in chilling private messages. Among the many great freedoms Americans enjoy is the right to engage in political discourse, and disagreements are natural and healthy; but when invective metastasizes into threats of harm or even death, law enforcement will act swiftly to bring the person responsible to justice.”
NYPD Commissioner Dermot Shea said: “Rickey Johnson, as alleged in this federal complaint, took aim at the foundations of our shared democracy and way of life, threatening not only elected United States officials but several working journalists. From the earliest stages of this investigation, the NYPD Intelligence Bureau and our partners in the United States Attorney’s Office in the Southern District of New York worked closely to make sure this individual would be brought to justice.”
As alleged in the Complaint unsealed in Manhattan federal court[1]:
On January 30, 2021, JOHNSON sent a private message to a cable news broadcaster that threatened, “you will all be held accountable . . . you will be killed.” JOHNSON’s message threatened by name two additional broadcasters. On February 3, 2021, JOHNSON posted public messages in which he stated that he intended to “kill” two of the same broadcasters.
On February 4, 2021, JOHNSON posted public messages threatening, among others, a United States Senator, a member of the United States House of Representatives, a former Speaker of the United States House of Representatives, and a governor. For example, JOHNSON declared that the Senator was “dead” and would be “executed,” that JOHNSON was “going to kill” the Representative, and that the governor “will be executed” and “will be killed.” In a public post directed principally at the former Speaker, JOHNSON stated: “I am going to kill you. I’m gonna kill all of you.”
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RICKEY JOHNSON, 47, of New York, New York, is charged with making threatening interstate communications, which carries a maximum sentence of five years’ imprisonment, and threatening United States officials, which carries a maximum sentence of ten years’ imprisonment. The maximum potential 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.
Ms. Strauss praised the outstanding investigative work of the NYPD, the NYPD’s Intelligence Bureau, Leads Investigation Unit, and the NYPD’s 23rd Precinct Field Intelligence Team.
The case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Andrew J. DeFilippis and Patrick R. Moroney are in charge of the prosecution.
The charge contained in the Complaint is merely an allegation, 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.
Owner of Consumer Electronics Wholesale Business Pleads Guilty to Conspiracy to Operating an Unlicensed Money Transmitting BusinessRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that AMIT AGARWAL, the operator of an international wholesale consumer electronics business based in New Jersey, pled guilty to participating in a conspiracy to operate an unlicensed money transmission business that operated primarily between Colombia and the United States. AGARWAL pled guilty before United States District Judge Paul A. Engelmayer.
Miguel Cespedes, Omar Mogollon, Luis Felipe Gonzalez Arcila, Ivan Rojas Acosta, Alex Barrera Forero, and David Ortiz Villamizar were previously charged in three separate indictments for their roles in the scheme. They were arrested in Colombia, and the United States Government is seeking their extradition to the United States.
U.S. Attorney Audrey Strauss said: “As he admitted today, Amit Agarwal was a key player in a shadow financial network that allowed the movement of drug traffickers’ profits into our banking system and across our borders. Now he awaits sentencing for his crimes.”
According to the Indictments, the superseding Information, and statements made in open court:
From at least in or about June 2018 through at least in or about 2019, AMIT AGARWAL participated in a scheme to operate an unlicensed money transmitting business to move funds between the United States and Colombia, among other places. Among other things, the purpose of the scheme was to enable clients with cash located in the United States to transfer the value of that cash to other countries, principally Colombia, without the need for physically transporting United States currency across an international border or directly depositing large amounts of cash into the legitimate financial system.
To effectuate the scheme, “clients,” i.e., the owners of funds located in the United States, utilized the services of money brokers operating primarily in Colombia (the “Money Brokers”). The Money Brokers offered “contracts” typically requiring (a) the pick-up of United States currency from couriers throughout the United States and the receipt of international wires in the United States, and (b) the delivery of a corresponding amount of pesos in Colombia to the Money Brokers. In exchange for successfully delivering on a contract, the Money Brokers earned a commission, taken from the pesos received by them in Colombia. The person(s) with whom the Money Brokers contracted to arrange for the pick-up and receipt of United States currency also received a commission taken from the pesos received by the Money Brokers in Colombia. Although the payment of commissions from the funds collected pursuant to a contract meant that the clients did not receive the full value of the funds that the clients owned in the United States, this scheme enabled the clients to avoid the risks of having large quantities of cash detected at international borders and to avoid triggering financial reporting requirements.
Cespedes, Mogollon, Gonzalez, Rojas, Barrera, and Ortiz engaged in the scheme as Money Brokers. As Money Brokers, working at times independently and at times together, they offered and executed upon multiple contracts requiring the pick-up of funds throughout the United States, and the delivery of a corresponding value of pesos to them in Colombia. In exchange for their work as Money Brokers, they received a commission taken from the pesos delivered to them in Colombia, as did the individuals with whom they contracted.
AGARWAL was the chief executive officer of a consumer electronics products business based in East Hanover, New Jersey (the “Agarwal Electronics Business”). Among other things, the Agarwal Electronics Business exported consumer electronics to purchasers throughout the world, including purchasers located in Colombia. In connection with its business activities, the Agarwal Electronics Business maintained a bank account in the United States, controlled and operated by AGARWAL (the “Agarwal Bank Account”).
Typically, as part of the scheme, the funds collected in the United States pursuant to contracts offered by Cespedes, Mogollon, Gonzalez, Rojas, Barrera, and Ortiz were deposited in a bank account located in the United States (“Bank Account-1”), and then transferred to the Agarwal Bank Account. AGARWAL agreed to accept these funds into the Agarwal Bank Account, and AGARWAL also agreed to accept funds into the Agarwal Bank Account that had been wired to Bank Account-1 from foreign locations, including Mexico.
Upon receiving confirmation that funds collected pursuant to a Money Broker contract issued by Cespedes, Mogollon, Gonzalez, Rojas, Barrera, or Ortiz were available for deposit into the Agarwal Bank Account, AGARWAL arranged for the export of a roughly equivalent value of consumer electronics products to certain consumer electronic product suppliers located in Colombia (the “Colombian Electronics Suppliers”). The Colombian Electronics Suppliers, in turn, arranged to pay for the products by delivering pesos to an individual in Colombia, who then delivered those funds to the Money Brokers. In this way, funds collected in the United States were remitted to Colombia, without requiring that they be reported, declared, or smuggled over international borders.
During the execution of the scheme, federal law enforcement agents working in an undercover capacity, and persons operating at the direction of federal law enforcement agents, informed AGARWAL that the funds he agreed to receive in the Agarwal Bank Account from Bank Account-1, pursuant to the scheme, represented the proceeds of narcotics trafficking activity. AGARWAL, however, continued to accept the funds into the Agarwal Bank Account while facilitating the Money Broker contracts.
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AGARWAL, 39, a citizen of India, pled guilty to one count of conspiracy to operate an unlicensed money transmitting business, which carries a maximum sentence of five years in prison. AGARWAL will be sentenced by Judge Engelmayer on July 14, 2021, at 2:30 p.m.
Cespedes is charged in United States v. Miguel Cespedes, 19 Cr. 839, with one count of operation of an unlicensed money transmission business, which carries a maximum sentence of five years in prison, and one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison.
Barrera and Ortiz are charged in United States v. Alex Barrera Forero and David Ortiz Villamizar, 19 Cr. 840, with one count of conspiracy to operate an unlicensed money transmission business, and one count of operation of an unlicensed money transmission business, each of which carries a maximum sentence of five years in prison.
Mogollon, Gonzalez, and Rojas are charged in United States v. Omar Mogollon, et al., 19 Cr. 837, with conspiracy to operate an unlicensed money transmission business and operation of an unlicensed money transmission business, each of which carries a maximum sentence of five years in prison. Mogollon is also charged with one count of international 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 defendants will be determined by a judge.
Ms. Strauss praised the investigative work of the DEA, and thanked authorities in Colombia, and the Justice Department’s Office of International Affairs of the Department’s Criminal Division for their assistance.
This case is being handled by the Office’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant United States Attorneys Tara M. La Morte and Cecilia E. Vogel are in charge of the prosecution.
The allegations in the Indictments charging Cespedes, Mogollon, Gonzalez, Rojas, Barrera, and Ortiz are merely accusations, and they are presumed innocent unless and until proven guilty.
California Attorney Arrested for Multimillion-Dollar Investment Fraud 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 the arrest of DEREK JONES on charges of wire fraud and aggravated identity theft. As alleged in an Indictment unsealed today in Manhattan federal court, JONES, while licensed as an attorney in California, defrauded investors in businesses JONES controlled out of at least approximately $4.5 million. The case has been assigned to U.S. District Judge Loretta A. Preska. JONES, who was arrested this morning in California, will be presented later today before a magistrate judge in the Central District of California. Arraignment will be tomorrow before Judge Preska by teleconference.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Derek Jones not only failed to live up to the canons of the legal profession, he affirmatively lied to investors and defrauded them out of millions of dollars. As alleged, Jones lied about a real estate development opportunity on land he neither owned nor was developing, and he lied to investors to create the false impression that he had real businesses with real employees. Jones allegedly spent investors’ money on himself and his family, and to pay some investors in Ponzi-like fashion. Now, thanks to the FBI, Jones is in custody and facing federal charges.”
FBI Assistant Director William F. Sweeney Jr. said: “As alleged, Jones solicited investments from various clients based on false representations of BlueRidge’s and Realize’s assets. In reality, while at least one of the companies held an account balance in the negative, Jones allegedly was using money received from the fraud to fund personal expenses to include private school tuition for at least one of his children. Investment fraud schemes are unfortunately all too common. Our efforts to bring the perpetrators to justice are as well.”
As alleged in the Indictment:[1]
From at least 2012 through at least 2019, JONES solicited and obtained investments for various companies and investment funds he controlled, including the purported real estate development and investment firm BlueRidge Realty (“BlueRidge”) and the purported venture capital firm Realize Holdings (“Realize”).
JONES routinely made materially false oral and written statements to induce victims to invest, including statements that lied about BlueRidge’s and Realize’s assets. For example, JONES falsely claimed that BlueRidge was developing a “resort village” on land it controlled in Washington State, when in fact neither BlueRidge nor JONES owned or controlled the property, let alone had begun developing a resort there. Additionally, JONES sent a potential Realize investor an altered bank statement showing a balance in a Realize bank account of more than $7 million – at a time when that bank account actually had a negative balance of approximately $268.71.
JONES defrauded investors out of at least approximately $4.5 million. He misappropriated investments and used the funds to, among other things, transfer money to himself or relatives, pay tuition for a private school attended by one or more of his children, and make Ponzi-like payments to other investors. To prolong and conceal the fraud scheme, JONES regularly told lies designed to avoid meetings with or inquiries from victims. For example, in explaining his failure to respond promptly to questions or his reason for postponing an upcoming meeting, JONES falsely told different investors, on different occasions, that one of his relatives was in poor health. JONES also used the names of other individuals – without those individuals’ authorization or knowledge – to communicate via email with investors and thus foster the illusion that JONES’s businesses were viable operations with real employees.
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JONES, 46, of San Marino, California, is charged with one count of wire fraud, which carries a maximum potential prison sentence of 20 years, and two counts of aggravated identity theft, each of which carries a mandatory consecutive prison sentence of two years. The maximum potential penalties 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 investigative work of the FBI.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney David Abramowicz is in charge of the prosecution.
The allegations 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 below constitute only allegations, and every fact described should be treated as an allegation.
Mexican Drug Traffickers Charged with Conspiring to Import Large Quantities of Narcotics into the United States Based on Seizure of 2.5 Tons of Methamphetamine and 100,000 Fentanyl PillsRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Raymond P. Donovan, Special Agent in Charge of the New York Division of the U.S. Drug Enforcement Administration (“DEA”), Peter C. Fitzhugh, Special Agent in Charge of the New York Division of Homeland Security Investigations (“HSI”), and Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), announced that JOSE LORETO GASTELUM‑TORRES and FREDY ALEJANDRO GASTELUM‑VEGA were charged in a criminal complaint in Manhattan federal court with conspiring to import approximately 2.5 tons of methamphetamine and 100,000 fentanyl pills into the United States. The charge arises from a January 29, 2021, seizure of approximately 2.5 tons of methamphetamine and 100,000 fentanyl pills in Sinaloa, Mexico.
Manhattan U.S. Attorney Audrey Strauss said: “Thanks to the DEA, HSI, the NYPD, and the rest of our OCDETF New York Strike Force partners, a major shipment of potentially lethal drugs was interdicted before it could addict, poison, and potentially kill untold numbers of people in the United States.”
DEA Special Agent in Charge Raymond P. Donovan said: “There is a tidal wave of fentanyl and methamphetamine being pushed from Mexico into the United States. Case in point, these two traffickers were allegedly caught red-handed with over $90 million dollars’ worth of fentanyl and methamphetamine. Traffickers see opportunities when drug overdoses rise, and they are trying to flood American markets with these synthetic, highly addictive, and dangerous drugs. DEA and our law enforcement partners will continue to target drug networks to keep Americans safe and save lives.”
HSI Special Agent in Charge Peter C. Fitzhugh said: “Those arrested allegedly sought to traffic thousands of fentanyl pills and multiple tons of methamphetamine, which would only exacerbate the plague currently devastating our community while steadily increasing addictions and overdose deaths. The Strike Force has been a proven model for success in dismantling transnational narcotics trafficking organizations. HSI showcased our unique value at the Strike Force in this case by leveraging our border resources to not only effectively address threats and vulnerabilities but moreover promote collaboration in furthering these investigations, making timely and significant arrests, and stopping deadly drugs from flooding our streets.”
Police Commissioner Dermot Shea said: “Today’s charges demonstrate that the investigative efforts of the NYPD in coordination with our law enforcement partners are far-reaching and focused. As long as individuals, wherever they may be, are involved in illegal narcotics trafficking, the NYPD and our partners will relentlessly work to end the threat to public safety. I commend and thank the NYPD investigators, members of the Organized Crime Drug Enforcement Strike Force Initiative, agents from the New York Division of the U.S. Drug Enforcement Administration, and the attorneys at the United States Attorney’s Office, Southern District, for their dedication to this investigation.
As alleged in the Complaint unsealed in federal court[1]:
On or about January 29, 2021, Mexico’s Secretaría de Marina (the “Mexican Navy”) located and began tracking an outboard‑powered boat traveling from Las Arenitas, Sinaloa, Mexico, northwest through the Gulf of California. Approximately several hours later, the Mexican Navy interdicted the vessel in or around Topolobampo, Sinaloa, Mexico, and arrested GASTELUM‑TORRES and GASTELUM‑VEGA. Mexican Navy officers seized approximately 960 plastic containers from the boat, which contained approximately 2.5 tons of methamphetamine and 100,000 pills of fentanyl.
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GASTELUM‑TORRES, 53, and GASTELUM‑VEGA, 33, of Mexico, are each charged with conspiring to import at least 500 grams of methamphetamine and at least 400 grams of fentanyl into the United States, which carries a mandatory minimum sentence of 10 years in prison and a maximum sentence of life 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 would be determined by the judge.
This case is part of an Organized Crime Drug Enforcement Task Forces (“OCDETF”) Strike Force Initiative, which provides for the establishment of permanent multi-agency task force teams that work side-by-side in the same location. This co-located model enables agents from different agencies to collaborate on intelligence-driven, multi-jurisdictional operations to disrupt and dismantle the most significant drug traffickers, money launderers, gangs, and transnational criminal organizations.
This investigation was conducted by the OCDETF New York Strike Force in partnership with the DEA’s law enforcement partners. The OCDETF New York Strike Force comprises federal, state, and local law enforcement agencies supported by OCDETF and the New York/New Jersey High Intensity Drug Trafficking Area. The Strike Force is affiliated with the DEA’s New York Division and includes agents and officers of the DEA, NYPD, New York State Police, HSI, U.S. Internal Revenue Service Criminal Investigation Division, Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Customs and Border Protection, U.S. Secret Service, U.S. Marshals Service, New York National Guard, Clarkstown Police Department, U.S. Coast Guard, Port Washington Police Department, and New York State Department of Corrections and Community Supervision.
Ms. Strauss praised the outstanding investigative work of the OCDETF New York Strike Force.
The case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Alexander Li, Benjamin Woodside Schrier, and Kyle A. Wirshba are in charge of the prosecution.
The charge contained in the Complaint is merely an allegation, and the defendants are 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.
Head of Merchant Bank Sentenced to 24 Months in Prison in Connection with Multimillion-Dollar Securities Fraud SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that CRAIG ZABALA, the chairman, chief executive officer, and president of Concorde Group Holdings Inc. (“Holdings”), was sentenced today to 24 months in prison for participating in a scheme to defraud investors in Holdings, a purported merchant banking firm. Among other illicit activity, ZABALA fraudulently induced at least 17 investors to invest approximately $4.38 million based on false and misleading statements, by failing to use investors’ funds as promised, and by converting investors’ money to his own use. ZABALA pled guilty to conspiracy to commit securities fraud and wire fraud on October 22, 2020, before U.S. District Judge J. Paul Oetken, who also imposed today’s sentence.
U.S. Attorney Audrey Strauss said: “Craig Zabala defrauded investors out of more than $4 million through a purported financial services firm he controlled. He lied to investors about how much money had been raised, who had invested, how close the firm was to an IPO, and how he would use investors’ money. Zabala appropriated most of the money for his own use or to pay off investors in a Ponzi-like fashion. Now he has been sentenced to prison for his crimes.”
According to the allegations in the Complaint, the Information, and other proceedings in this case:
CRAIG ZABALA was the chairman, CEO, and president of various affiliated and intertwined purported financial services companies: Holdings, Concorde Group, Inc. (“Group”), Blackhawk Capital Group BDC, Inc. (“Blackhawk”), DBL Holdings, LLC, d/b/a “Drexel Burnham Lambert” (“DBL”), Concorde Investment Managers, LLC (“CIM”), and Concorde Europe, Ltd. (“Concorde Europe”). In or about August 2019, FINRA barred ZABALA from the broker-dealer industry, including because of his failure to cooperate with a FINRA investigation.
Holdings was a Delaware corporation formed in or about 2015, with an office in Jersey City, New Jersey, and a mailing address in New York, New York. Holdings purported to provide financial services, including merchant banking, investment banking, asset management, and securities brokerage services, to entrepreneurs, investors, and businesses in the middle market, meaning small to mid-sized companies with revenue and market capitalizations of less than $1 billion, in North America, Europe, and Asia. Holdings’ purported affiliates included Group, DBL, Blackhawk, CIM, and Concorde Europe. ZABALA was a majority owner of Holdings.
Group was a Delaware corporation formed in or about 1995, based in New York, New York, that purported to provide the same types of financial services as Holdings. Group’s purported affiliates included DBL, Blackhawk, CIM, and Concorde Europe. ZABALA was a majority owner of Group. Between in or about 2001 and in or about 2014, Group purportedly raised approximately $18 million from investors.
From at least in or about 2015 through in or about 2020, ZABALA and others perpetrated a scheme to defraud at least approximately 17 investors out of approximately $4.38 million in Holdings notes, warrants, and equity. Almost all of these investors invested in a private offering by Holdings of $25 million in senior secured notes with attached warrants paying 13 percent interest (the “Holdings Offering”).
ZABALA falsely represented that the proceeds from the offerings would be used to grow Holdings’ purported merchant banking business by investing in and buying other financial services companies. In truth and in fact, and as ZABALA well knew, Holdings did not make any investments in or buy other companies; it was a shell company.
ZABALA falsely represented that Holdings was successfully raising money from investors, claiming that Holdings had raised nearly all of the $25 million targeted in the Holdings Offering and that the family office of a wealthy German family had invested millions of dollars in Holdings. In truth and in fact, and as ZABALA well knew, Holdings only raised a few million dollars (the majority from one investor), and the family office never invested in, and never committed to invest in, Holdings.
ZABALA falsely represented to Holdings Investors that Holdings would soon have an initial public offering (“IPO”), which would result in large profits to Holdings investors. In truth and in fact, and as ZABALA well knew, Holdings was not close to an IPO.
ZABALA converted at least approximately 70 percent of the approximately $4.38 million in Holdings investor funds in the form of cash withdrawals and other transfers to himself, payments to his girlfriend, payments of his personal credit card bills, and repayment of Group investors in a Ponzi-like fashion.
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ZABALA, 69, of New York, New York, was also sentenced to three years of supervised release, ordered to forfeit $4,380,000, and to pay restitution of $4,380,000.
Ms. Strauss praised the outstanding work of the United States Postal Inspection Service’s New York Division, and also thanked the Securities and Exchange Commission and Financial Industry Regulatory Authority for their assistance and cooperation in this investigation.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney Joshua A. Naftalis is in charge of the prosecution.
U.S. Attorney Announces Appointment of Civil Division Deputy Chief David S. Jones to Serve as Bankruptcy Judge in ManhattanRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, today announced that David S. Jones, the Deputy Chief of the Office’s Civil Division, has been appointed to serve as a United States Bankruptcy Judge in Manhattan. Mr. Jones will officially assume his duties on February 19, 2021.
Mr. Jones has served in the Office’s Civil Division for nearly 25 years. Mr. Jones previously served as Chief of the Tax and Bankruptcy Unit from 2002 to 2007, and as Chief Civil Division Appellate Attorney from 2007 until he assumed his current role in 2009. Mr. Jones is a past recipient of the Henry L. Stimson Medal for outstanding contributions to the Office.
Prior to joining the Office in 1996, Mr. Jones was in private practice for four years and was a law clerk to U.S. District Judge Morris E. Lasker. He is a graduate of Harvard Law School and Brown University.
U.S. Attorney Audrey Strauss said: “I am pleased and proud that David Jones has been selected to serve as a Bankruptcy Judge in this District. David has been a valued mentor and friend to so many colleagues in our Office. I am confident that David will be an exemplary Bankruptcy Judge.”
Founder of $90 Million Cryptocurrency Hedge Fund Charged with Securities Fraud and Pleads Guilty in Federal CourtRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, and Peter C. Fitzhugh, Special Agent in Charge of the New York Field Office of Homeland Security Investigations (“HSI”), announced that STEFAN HE QIN, the founder of the Virgil Sigma Fund LP (“Virgil Sigma”) and the VQR Multistrategy Fund LP (“VQR”), a pair of cryptocurrency hedge funds in New York, New York, with over $100 million in investments, was charged with one count of securities fraud and pled guilty today in Manhattan federal court. For years, QIN stole investor money from Virgil Sigma and, in December 2020, QIN tried to steal investor money from VQR to pay back his investors in Virgil Sigma. QIN pled guilty today before United States District Judge Valerie Caproni.
U.S. Attorney Audrey Strauss said: “Stefan He Qin drained almost all of the assets from the $90 million cryptocurrency fund he owned, stealing investors’ money, spending it on indulgences and speculative personal investments, and lying to investors about the performance of the fund and what he had done with their money. Then, as he further admitted today, Qin attempted to steal money from another fund he controlled to meet redemption demands of the defrauded investors in the former fund. The whole house of cards has been revealed, and Qin now awaits sentencing for his brazen thievery.”
HSI Special Agent in Charge Peter C. Fitzhugh said: “Virgil Sigma and VQR, two multimillion-dollar cryptocurrency investment funds, were revealed to be slush funds for Qin to live his extravagant lifestyle. Qin orchestrated this reprehensible criminal scheme for many years, making misrepresentations and false promises that coaxed investors into pouring millions of dollars into fraudulent cryptocurrency firms, all the while stealing the hard-earned money of his investors. Furthermore, Qin mastered the art of trickery by representing these firms as profitable investment strategies so more victims fell to his tactics and were defrauded of nearly $100 million. The HSI New York El Dorado Task Force, with our incredible law enforcement partnerships, are committed to aggressively pursue fraud in all forms, regardless of how elaborate and profitable these schemes appear. In today’s technological world, there are increasingly more opportunities for fraudsters to take advantage of people, and with Qin pleading guilty to his deceitful acts, HSI and our partners remind those who attempt to defraud victims in any manner, your fraud will be uncovered and you will be brought to justice.”
According to the Information and statements made in open court:
Background
STEFAN HE QIN is a 24-year-old Australian national. Between 2017 through 2020, QIN owned and controlled two cryptocurrency investment funds, Virgil Sigma and VQR, both of which were located in New York, New York. Since its creation, Virgil Sigma purported to employ a strategy to earn profits from arbitrage opportunities in the cryptocurrency market, specifically, by using a trading algorithm to take advantage of price differences for a number of cryptocurrencies, including Bitcoin and others, in approximately 40 different exchanges around the world, including three exchanges located in the United States. This strategy was touted by QIN to the investing public as “market-neutral,” meaning the fund was not exposed to any risk from the price of cryptocurrency moving up or down and therefore provided a relatively safe and liquid investment. QIN exercised day-to-day control over Virgil Sigma and was responsible for tracking the fund’s balances at different trading exchanges, designing the algorithms to implement arbitrage trading, and preparing monthly investor statements. QIN also regularly participated in calls with Virgil Sigma investors and other forms of public communication where he touted the growth and success of Virgil Sigma. Until recently, Virgil Sigma purported to have over $90 million under management from dozens of investors, including many in the United States. According to its public marketing materials, Virgil Sigma has been profitable in every month from August 2016 to the present, with the sole exception of March 2017.
In or about February 2020, QIN founded VQR. VQR employed a variety of trading strategies and was poised to make or lose money based on the fluctuations in the value of cryptocurrency and was not market neutral. QIN was the sole owner of VQR’s general partner, but was not involved in VQR’s day-to-day operations. Instead, VQR had its own trading staff, including a head trader (the “Head Trader”) and other investment professionals. Until recently, VQR had at least approximately $24 million under management from investors.
Qin’s Scheme to Steal Assets from Virgil Sigma
Since 2017, QIN engaged in a scheme to steal assets from Virgil Sigma and defraud its investors. Rather than investing the fund’s assets in a cryptocurrency arbitrage trading strategy as advertised, QIN embezzled investor capital from Virgil Sigma and used the funds for purposes other than the purported arbitrage trading strategy, including: (a) using a substantial portion of investor capital stolen from Virgil Sigma to pay for personal expenses such as food, services, and rent for a penthouse apartment in New York, New York; (b) using a substantial portion of investor capital from Virgil Sigma to make personal, often illiquid, investments in other entities that had nothing to do with cryptocurrencies (for example, in or about October 2018, QIN invested hundreds of thousands of dollars stolen from Virgil Sigma in a real estate investment); and (c) using a substantial portion of investor capital from Virgil Sigma to invest in crypto-assets that had nothing to do with the fund’s stated arbitrage strategy (or example, in or about 2018, QIN invested funds from Virgil Sigma in certain initial coin offerings, a speculative form of investing in new issues of cryptocurrency). As a result of these and other fraudulent activities, QIN dissipated nearly all of the investor capital in Virgil Sigma.
In the course of stealing assets from Virgil Sigma, QIN regularly lied to the fund’s investors about the value, location, and status of their investment capital. These lies included an array of investor and public communications, including:
(a) QIN prepared and disseminated monthly statements to investors purporting to record the value of their holdings in Virgil Sigma. The amounts recorded in these statements did not accurately reflect the results of cryptocurrency trading. Instead, the amounts were made up by QIN and did not disclose the dissipation of assets by QIN.
(b) QIN also periodically prepared marketing materials for the investing public, including summary reports known as “tear sheets” that fraudulently reported that Virgil Sigma was earning remarkable profits, often with double-digit returns in a single month, month after month. For example, in or about February and in or about April 2017, QIN falsely reported that Virgil Sigma had earned 48.7% and 35.5% returns, respectively.
(c) On an annual basis, QIN prepared spreadsheets that purported to show Virgil Sigma’s balances at the approximately 40 exchanges where Virgil Sigma purportedly traded in order to prepare tax forms for the fund’s investors, also known as schedule K-1s. As QIN well knew, however, these spreadsheets and the resulting schedule K-1s were false and substantially overstated Virgil Sigma’s balances and trading activity on the exchanges.
As a result of QIN’s lies about the activity and success of Virgil Sigma in these and other communications, QIN was able to steadily attract new capital to Virgil Sigma thereby (a) ensuring that he was able to pay off investors’ redemption requests, and (b) projecting to the public the appearance of continued growth. For example, after QIN and the purported success of his fund were profiled in the Wall Street Journal in or about February 2018, Virgil Sigma experienced substantial growth as new investors flocked to the fund.
Qin Attempts to Steal Assets from VQR to Pay Virgil Sigma Investors
In the summer of 2020, QIN was having difficulty meeting redemption requests from investors in Virgil Sigma. In order to access funds to make those redemptions, and in order to conceal his fraudulent activities described above, QIN attempted to steal investor capital from VQR to pay redemptions to Virgil Sigma investors. After a few Virgil Sigma investors requested redemptions that Virgil Sigma could not pay, QIN convinced those investors that rather than redeem the funds outright, the investors would agree to have the funds withdrawn from Virgil Sigma and transferred into an investment in VQR. After months passed and no funds were transferred to VQR, QIN falsely told these investors that he had requested the transfer of funds from Virgil Sigma, but that the transfer was delayed because of an intermediary bank. QIN showed some of these investors wire transfer requests in order to bolster the impression that QIN was in fact trying to transfer the funds from Virgil Sigma to VQR. Virgil Sigma’s bank could not, however, effectuate these wire transfers because QIN had dissipated all of Virgil Sigma’s assets.
In or about December 2020, faced with additional redemption requests that he could not meet, QIN demanded that the Head Trader at VQR wind down all trading positions at VQR and transfer a portion of the funds to QIN so that QIN could use that money to pay off these redemptions to Virgil Sigma investors. QIN issued the demand even though the Head Trader advised QIN that closing out VQR’s then-current trading positions, rather than holding those positions in accordance with VQR’s directional trading strategy, would result in losses to VQR’s investors. In the course of those conversations, QIN threatened that if the Head Trader did not sufficiently expedite that process, QIN, as the sole owner of VQR’s general partner, would need to take over control of all of VQR’s accounts in order to access the funds. At QIN’s direction, the Head Trader accordingly closed out VQR’s positions and turned over access to VQR’s trading accounts to QIN. QIN subsequently attempted to take control of VQR’s assets in order to enable QIN to meet certain Virgil Sigma investor redemption requests.
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QIN, 24, pled guilty to one count of securities fraud. This charge carries a maximum term 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 has been scheduled for May 20, 2021.
Ms. Strauss praised the work of Homeland Security Investigations. She further thanked the Securities and Exchange Commission for its 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.
New York Hedge Fund Founder Pleads Guilty to Bankruptcy Fraud in Connection with Neiman Marcus BankruptcyRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York announced today that DANIEL KAMENSKY, the founder and manager of New York-based hedge fund Marble Ridge Capital (“Marble Ridge”), pled guilty to one count of bankruptcy fraud in connection with his scheme to pressure a rival bidder to abandon its higher bid for assets in connection with Neiman Marcus’s bankruptcy proceedings so that Marble Ridge could obtain those assets for a lower price. KAMENSKY pled guilty before United States District Judge Denise Cote.
U.S. Attorney Audrey Strauss said: “Daniel Kamensky abused his position as a committee member in the Neiman Marcus Bankruptcy to corrupt the process for distributing assets and take extra profits for himself and his hedge fund. Kamensky predicted in his own words to a colleague: ‘Do you understand…I can go to jail?’… ‘this is going to the U.S. Attorney’s Office.’ His fraud has indeed come to the U.S. Attorney’s Office and now has been revealed in open court.”
As alleged in the Complaint, the Information, and statements made in court:
DANIEL KAMENSKY was the principal of Marble Ridge, a hedge fund with assets under management of more than $1 billion that invested in securities in distressed situations, including bankruptcies. Prior to opening Marble Ridge, KAMENSKY worked for many years as a bankruptcy attorney at a well-known international law firm, and as a distressed debt investor at prominent financial institutions.
The Neiman Marcus Bankruptcy
Neiman Marcus, an American chain of luxury department stores with stores located across the United States, filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”) in May 2020. At the outset of the bankruptcy, Marble Ridge, through KAMENSKY, applied to be on the Official Committee of Unsecured Creditors (the “Committee”) and was thereafter appointed to be a member of the Committee. As a member of the Committee, KAMENSKY had a fiduciary duty to represent the interests of all unsecured creditors as a group.
During the bankruptcy process, the Committee had negotiated with the owners of Neiman Marcus to obtain certain securities, known as MyTheresa Series B Shares (the “MYT Securities”), and ultimately, the Committee was successful in coming to a settlement to obtain 140 million shares of MYT Securities for the benefit of certain unsecured creditors of the bankruptcy estate. In July 2020, KAMENSKY was negotiating with the Committee for Marble Ridge to offer twenty cents per share to purchase MYT Securities from any unsecured creditor who preferred to receive cash, rather than MYT Securities, as part of that settlement.
KAMENSKY’s Fraudulent Scheme
On July 31, 2020, KAMENSKY learned that a diversified financial services company headquartered in Manhattan, New York (the “Investment Bank”) had informed the Committee that it was interested in bidding a price between thirty and forty cents per share—substantially higher than KAMENSKY’s bid—to purchase the MYT Securities from any unsecured creditor who was interested in receiving cash.
That afternoon, KAMENSKY sent messages to a senior trader at the Investment Bank (“IB Employee-1”) telling him not to place a bid, and followed those messages up with a phone call with IB Employee-1 and a senior analyst of the Investment Bank (“IB Employee-2,” and collectively the “Employees”). During that call, KAMENSKY asserted that Marble Ridge should have the exclusive right to purchase MYT Securities, and threatened to use his official role as co-chair of the Committee to prevent the Investment Bank from acquiring the MYT Securities. KAMENSKY also stated that Marble Ridge had been a client of the Investment Bank in the past but that if the Investment Bank moved forward with its bid, then Marble Ridge would cease doing business with the Investment Bank.
The Investment Bank thereafter decided to not make a bid to purchase MYT Securities and informed the legal advisor to the Committee of its decision. The Investment Bank further told the legal advisor they made that decision because KAMENSKY—a client of the Investment Bank—had asked them not to.
Advisors to the Committee informed counsel for Marble Ridge of their call with the Employees, and after speaking with KAMENSKY, counsel for Marble Ridge falsely informed the advisors that KAMENSKY had not asked the Employees not to bid, but instead had told them to place a bid only if they were serious. Later that evening, KAMENSKY contacted IB Employee-1 and attempted to influence what IB Employee-1 would tell others, including the Committee and law enforcement, about KAMENSKY’s attempt to block the Investment Bank’s bid for the MYT Securities. KAMENSKY said at the outset of the call, in substance, “this conversation never happened.” During the call, KAMENSKY asked IB Employee-1 to falsely say that IB Employee-1 had been mistaken and KAMENSKY had actually suggested that the Investment Bank only bid if it was serious, and made comments including the following: “Do you understand…I can go to jail?” “I pray you tell them that it was a huge misunderstanding, okay, and I’m going to invite you to bid and be part of the process.” “But I’m telling you…this is going to the U.S. Attorney’s Office. This is going to go to the court.” “[I]f you’re going to continue to tell them what you just told me, I’m going to jail, okay? Because they’re going to say that I abused my position as a fiduciary, which I probably did, right? Maybe I should go to jail. But I'm asking you not to put me in jail.”
During a subsequent interview with the Office of the United States Trustee, which was conducted under oath and in the presence of counsel, KAMENSKY stated that his calls to IB Employee-1 were a “terrible mistake” and “profound errors in lapses of judgment.”
After this series of events, Marble Ridge resigned from the Committee and has advised its investors that it intended to begin winding down operations and returning investor capital.
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KAMENSKY, 48, of Roslyn, New York, pled guilty to one count of bankruptcy fraud, which carries a maximum sentence of five years in prison. Sentencing has been scheduled for May 7, 2021.
U.S. Attorney Strauss praised the work of the FBI. Ms. Strauss further thanked the Office of United States Trustee and the Securities and Exchange Commission 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. Attorneys Richard Cooper and Daniel Tracer are in charge of the prosecution.
Bronx Man Pleads Guilty to Laundering $1.5 Million in Fraud Proceeds from Business Email Compromises and Romance Scams Targeting Elderly for Ghana-Based Criminal EnterpriseRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Jonathan D. Larsen, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that ALHASSAN IDDRIS LARI, a/k/a Hassan Lari, pled guilty today to conspiring to commit money laundering and operating an unlawful money transmitting business, in connection with his involvement from at least in or about 2014 through in or about 2020 with a Ghana-based criminal enterprise that has fraudulently obtained millions of dollars through business email compromises and romance scams that targeted the elderly. The plea was entered in front of U.S. District Judge George B. Daniels. LARI is the seventh defendant to plead guilty in the case.
Manhattan U.S. Attorney Audrey Strauss said: “Alhassan Lari and his co-defendants operated an online criminal enterprise whose profile included romance schemes targeting the elderly. Navigating the anonymous world of the internet, and especially online dating, is oftentimes complicated enough without the added peril of fraudsters lurking to scam would-be daters. This case exemplifies the need to always remain alert and cautious on the internet – especially when being asked for money by a stranger, don’t hesitate to swipe left.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: "Manipulating someone's belief in finding love and then stealing their money is not only criminal, but unbelievably cruel. Mr. Lari and his band of thieves targeted the elderly population, using their age as a weapon to break the law. These fraudsters not only used romance to scam people, they employed business email compromise schemes, a fast-growing cyber threat to which everyone should pay close attention. We can hold these people accountable, even in far-away countries, if we have help from the public. If you know someone who has been scammed, or if you believe you may be a victim, contact us at IC3.gov to report it to us."
IRS-CI Special Agent in Charge Jonathan D. Larsen said: “IRS Criminal Investigation uses financial investigative expertise to pursue those individuals who engage in corruption as demonstrated in this case by Mr. Lari. Money laundering and fraud constitutes a serious threat to our communities and to the integrity of our financial system; today’s plea is an example of how the FBI and the IRS continue to work together as a formidable team to prosecute these offenders.”
According to the Indictment and other filings and statements at public court proceedings in the case:
From at least in or about 2014 through in or about February 2020, LARI was a member of a criminal enterprise (the “Enterprise”) based in the Republic of Ghana (“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. LARI, while in the Bronx, New York, received or otherwise directed the receipt of at least approximately $1.5 million in fraud proceeds of the Enterprise in cash from co-conspirators or directly from victims through bank accounts he controlled. Several of these bank accounts were opened using a shell shipping company, in order to avoid detection and hide the fraudulent nature of the transactions. Once LARI received the fraud proceeds in bank accounts under his control, he withdrew, transported, and laundered those fraud proceeds to other members of the Enterprise, including those located in Ghana.
LARI also operated an unlicensed money transmitting business located in the Bronx, New York used by co-conspirators of the Enterprise to facilitate and transfer fraud proceeds from the United States to co-conspirators in Ghana.
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LARI, 48, a citizen of both the United States and Ghana, pled guilty to one count of conspiracy to commit money laundering, which carries a maximum sentence of twenty years in prison, and one count of operation of an unlawful money transmitting business, which carries a maximum sentence of five years in prison. LARI will be sentenced by U.S. District Judge George B. Daniels on June 16, 2021.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
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; 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 and Aggrey each pled guilty to one count of conspiracy to commit wire fraud, and Traore pled guilty to one count of conspiracy to receive stolen money. Each of the defendants was sentenced by United States District Judge Denise L. Cote.
Any businesses or individuals who believe they may have been the victim of a business email compromise or a romance scam or have information regarding such crimes should file a complaint with the FBI’s Internet Crime Complaint Center (“IC3”) at https://www.ic3.gov or contact their local FBI office.
Ms. Strauss praised the outstanding investigative work of the FBI and IRS-CI. Ms. Strauss also thanked U.S. Customs and Border Protection and the FBI Legal Attaché in Accra, Ghana, for their assistance in this case.
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 S. Steiner are in charge of the prosecution.
New Windsor Tax Preparer Sentenced in White Plains Federal Court to 6 Months in Prison for Filing False Tax ReturnsRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that EVERSLEY BARRETT, a tax preparer and owner of a tax preparation business named Eversley Tax, in New Windsor, New York, was sentenced yesterday in White Plains federal court to six months in prison after previously pleading guilty to 16 counts of an 84-count Indictment. The Indictment charged him with preparing false and fraudulent individual income tax returns for his clients and himself, and tax evasion. BARRETT was sentenced by United States District Judge Vincent Briccetti.
U.S. Attorney Strauss said: “Eversley Barrett abused his position of trust as a tax preparer by filing false tax returns on behalf of his clients and himself. He caused over half a million dollars in losses to the IRS, all for his own unjust enrichment. Mr. Barrett’s sentence sends a message that dishonest practices by tax preparers will be justly punished.”
In imposing sentence, Judge Briccetti observed that a term of imprisonment was important because of the seriousness of BARRETT’s crimes and the need to promote deterrence in tax cases.
BARRETT included, among other things, tens of thousands of dollars of false and fraudulent deductions for business expenses and gifts to charity on tax returns he prepared for himself and his clients. BARRETT also failed to report on his own personal tax returns over $300,000 in receipts that he received for his tax preparation services from 2012 through 2015.
As confirmed by IRS audits as well as BARRETT’s admissions at his guilty plea hearing, BARRETT’s crimes resulted in a loss to the IRS of more than $500,000.
In addition to the prison term, BARRETT was also sentenced to three years of supervised release, including an obligation to pay the IRS over $573,000 in back taxes, interest and penalties.
Ms. Strauss praised the investigative work of the Internal Revenue Service, Criminal Investigation, and thanked the IRS for its assistance.
This matter is being handled by the Office’s White Plains Division. Assistant U.S. Attorney Margery Feinzig is in charge of the prosecution.
Managing Partner of Investment Advisory Firm Pleads Guilty to Defrauding Clients and Investors in over $100 Million Ponzi-Like Fraud SchemeRead the Press Release
Audrey Strauss, United States Attorney for the Southern District of New York, announced that DAVID HU, a managing partner and the chief investment officer of the New York-based investment advisory firm International Investment Group (“IIG”), pled guilty today before U.S. District Judge Alvin K. Hellerstein to investment adviser fraud, securities fraud, and wire fraud offenses in connection with an over $100 million scheme to defraud IIG’s investment advisory fund clients and investors. Throughout the course of more than 10 years, HU perpetrated the scheme by, among other fraudulent actions, creating fictitious investments and overvaluing investments used to generate funds to pay off earlier investors in a Ponzi-like manner. In connection with his plea agreement, HU has also agreed to forfeit more than $129 million representing proceeds traceable to the commission of the offenses.
Manhattan U.S. Attorney Audrey Strauss said: “Today, David Hu admitted to shirking his fiduciary responsibilities and defrauding IIG funds and investors for more than a decade, causing millions of dollars of losses. Hu mismarked millions of dollars of loan assets, falsified paperwork to create fake loans, sold overvalued and fake loans and used the proceeds from those sales to pay off earlier investors, and falsified paperwork to deceive auditors and avoid scrutiny. He now faces a serious term of imprisonment.”
According to the allegations contained in the Information and based on statements made in Manhattan federal court:
Background of IIG
HU and a co-conspirator (“CC-1”) founded IIG in 1994. HU was a managing partner and the chief investment officer of IIG. IIG, an SEC-registered investment adviser, provided investment management and advisory services, including for three private funds that it operated: (1) the IIG Trade Opportunities Fund N.V. (“TOF”); (2) the IIG Global Trade Finance Fund, Ltd. (“GTFF”); and (3) the IIG Structured Trade Finance Fund, Ltd. (“STFF”). IIG also advised the Venezuela Recovery Fund (“VRF”), a fund that managed the remaining assets of a failed Venezuelan bank (VRF, together with TOF, GTFF, and STFF, the “IIG Funds”). In March 2018, IIG reported to the SEC that it had approximately $373 million in assets under management.
IIG advertised itself as specializing in global trade financing, particularly in providing trade finance loans to small and medium-sized businesses. IIG’s principal investment advisory strategy, including with respect to the IIG Funds, was investing in trade finance loans that it also originated. Trade finance loans are used by small and medium-sized companies, typically exporters and importers, to facilitate international trade. IIG’s purported expertise was in trade finance loans to borrowers located in Central or South America, and in a variety of industries, with a stated focus on “soft commodities,” such as coffee, agriculture, fishing, and other food products. IIG’s trade finance loans were purportedly secured by collateral, such as the underlying traded goods, assets held by the borrowers, or expected payments by third parties.
Investments in TOF, STFF, and GTFF were marketed by IIG to institutional investors, such as pension funds, hedge funds, and insurers. In offering memoranda and communications with investors, IIG advertised strict risk controls, such as promises to use diligence to carefully select borrowers or issuers with trusted management and marketable assets, and portfolio concentration limits based on borrower, developing country, and industry.
IIG purported to value the trade finance loans in the IIG Funds on a regular basis. IIG and, in turn, HU, received a performance fee with respect to the IIG Funds, as well as a management fee, which was calculated as a percentage of the assets under management held in the Funds.
The Scheme
From approximately 2007 to 2019, HU conspired to defraud investors in IIG-managed funds by: (i) overvaluing distressed loans held by the IIG Funds, (ii) falsifying paperwork to create a series of fake loans that were classified, fraudulently, as positively performing loans, and to otherwise hide losses, (iii) selling overvalued and fake loans to a collateralized loan obligation trust and new private funds established and advised by IIG, and (iv) using the proceeds from those fraudulent sales to generate liquidity required to pay off earlier investors in a Ponzi-like manner.
The scheme HU participated in involved, among other things:
- Mismarking Defaulted Loans. HU and CC-1 caused IIG to mismark the value of multiple loans that had, in reality, defaulted (the “Defaulted Loans”). Instead of acknowledging the defaulted status of these loans, HU and CC-1 instead caused IIG to mark the Defaulted Loans at par plus accrued interest, even though HU and CC-1 knew that the borrowers’ default significantly impaired the true value of these loans. HU and CC-1 certified these false valuations and caused them to be reported to investors.
- Mismarking Distressed Loans. HU and CC-1 caused IIG to mismark multiple loans that were distressed (the “Distressed Loans”). These Distressed Loans included, for example, loans for which the borrowers had missed multiple scheduled payments. Even though HU and CC-1 knew that the non-performing status of the loans significantly impaired their true value, they nevertheless caused IIG to continue to mark the loans at par plus accrued interest.
- Creating Fictitious Loans. With respect to TOF, in order to hide the losses resulting from the Defaulted Loans, including from auditors reviewing TOF’s financials, HU and CC-1 removed the Defaulted Loans from the TOF portfolio, replacing them with tens of millions of dollars in fictitious loans to purported borrowers in foreign countries (the “Fake Loans”). HU and CC-1 also created or directed the creation of documents to keep in IIG’s files as purported documentation of the Fake Loans. To pass auditor scrutiny, HU and CC-1 also directed purported borrowers – sham foreign entities that were controlled by IIG’s business associates and that did not engage in actual business – to provide confirmations of the Fake Loans to auditors, including by arranging for TOF to pay a monthly fee to one purported borrower in exchange for providing false confirmations. In reality, these purported borrowers did not receive a loan from TOF, and were not expected to make any payments to TOF.
- Using a CLO Trust to Create Liquidity through Investments in Fraudulent Loans. In or about 2014, HU and CC-1 obtained approximately $220 million in bank financing to create a collateralized loan obligation trust (the “CLO Trust”), for which IIG served as an investment adviser. HU and CC-1 then engaged in various deceptive acts, using the CLO Trust, to hide TOF’s losses and generate liquidity for TOF, which was facing investor redemption requests and demands for repayment of loans that IIG had taken from international development banks. For example, in its capacity as investment adviser for the CLO Trust, IIG, through the efforts of HU and CC-1, caused the newly-created CLO Trust to purchase loans from the TOF portfolio, including Defaulted Loans, Distressed Loans, and Fake Loans, which generated liquidity for TOF. After the CLO Trust purchased loans in the TOF portfolio, IIG, through the efforts of HU and CC-1, generated additional liquidity by causing the CLO Trust to issue securitized debt instruments based on these loans, payable in various tranches to investors in the CLO Trust.
- Using the CLO Trust and Panamanian Shell Entities to Cover Up Losses. IIG, through the efforts of HU and CC-1, also caused the CLO Trust to create new fraudulent trade finance loans, and used those new fraudulent loans to cover up TOF’s losses. Specifically, HU caused the creation of shell entities domiciled in Panama (“Panamanian Shell Entities”) that were controlled by an IIG nominee. Then, HU caused the CLO Trust to enter into fake loan transactions with the Panamanian Shell Entities. HU caused the creation of fake promissory notes and other paperwork to conceal the fraudulent nature of the loans to the Panamanian Shell Entities. Finally, under the guise of the fake loan transactions with the Panamanian Shell Entities, the CLO Trust disbursed funds that HU and CC-1 diverted to TOF in order to pay off TOF’s various debts and obligations.
- Generating Liquidity by Selling Fraudulent Loans to a Newly-Created Funds Backed by a New Investor. In or about 2017, HU and CC-1 targeted a foreign institutional investor (“Institutional Investor-1”) to raise money for two new private IIG managed funds: GTFF and STFF. Institutional Investor-1 provided $70 million as the seed investment for GTFF, and, later, $130 million as the seed investment for STFF. HU and CC-1 caused GTFF and STFF to purchase at least approximately $100 million in fake, distressed, defaulted or otherwise fraudulent loans.
- Inducing a Retail Mutual Fund to Invest in a Fictitious $6 Million Loan. In or about December 2012, IIG became an investment adviser to an open-ended mutual fund marketed to retail investors (the “Retail Fund”). As an investment adviser to the Retail Fund, IIG made investment recommendations, including recommendations that the Retail Fund invest in trade finance loans originated by IIG. In or about February 2017, a borrower (the “Argentine Borrower”) had failed to pay the principal on an approximately $6 million loan (“Loan-1”) in which the Retail Fund had invested and which was nearing its maturity date. In or about March 2017, HU caused approximately $6 million to be transferred into an account associated with the Argentine Borrower from the account of a different borrower (“Borrower-1”), and further directed the funds from Borrower-1’s account to pay off the debt owed by the Argentine Borrower to the Retail Fund. To replace the funds from Borrower-1’s account that were used to make it appear as though the Argentine Borrower had repaid its debt to the Retail Fund, HU fraudulently induced the Retail Fund to invest in a new, fake $6 million loan to the Argentine Borrower (the “New Loan”). HU then directed that the proceeds from the fraudulently induced New Loan be transferred into Borrower-1’s account, effectively reimbursing the account for the earlier $6 million transfer to the Retail Fund. To further conceal the fraudulent nature of the New Loan, HU caused the creation of forged documents to make it appear as though the New Loan was a legitimate loan to the Argentine Borrower.
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DAVID HU, 63, of West Orange, New Jersey, pled guilty to one count of conspiracy to commit investment adviser fraud, securities fraud, and wire fraud, which carries a maximum sentence of five years in prison; 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. Sentencing before Judge Hellerstein has been scheduled for June 17, 2021, at 9:00 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 the judge.
Ms. Strauss praised the investigative work of the FBI and also thanked the SEC for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Drew Skinner, Negar Tekeei, and Alex Rossmiller are in charge of the prosecution.
- Mismarking Defaulted Loans. HU and CC-1 caused IIG to mismark the value of multiple loans that had, in reality, defaulted (the “Defaulted Loans”). Instead of acknowledging the defaulted status of these loans, HU and CC-1 instead caused IIG to mark the Defaulted Loans at par plus accrued interest, even though HU and CC-1 knew that the borrowers’ default significantly impaired the true value of these loans. HU and CC-1 certified these false valuations and caused them to be reported to investors.
Three Defendants Charged in Methamphetamine RingRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), Geraldine Hart, Commissioner of the Suffolk County Police Department (“SCPD”), and Errol D. Toulon Jr., Suffolk County Sheriff (“SCSO”), announced a criminal Complaint charging three defendants with narcotics and firearms offenses. JOSEPH SWEENEY, JASMINE TABAK, and KEVIN TURNER, a/k/a “Tex,” were arrested yesterday on Long Island, New York, and will be presented today in Manhattan federal court.
U.S. Attorney Audrey Strauss said: “As alleged in the Complaint, the defendants were responsible for trafficking large quantities of methamphetamine throughout New York City. Thanks to the extraordinary work of our partners at the FBI and the Suffolk County Police Department, the defendants now face federal charges for their alleged crimes.”
FBI Assistant Director William F. Sweeney Jr. said: “As this case demonstrates, illegal narcotics continue to plague our communities. As alleged, Sweeney, Tabak, and Turner conspired to distribute methamphetamines, and Sweeney brandished a firearm in furtherance of his crimes. Our action today should demonstrate the FBI’s Long Island Safe Streets Task Force, working together with our partners from the Suffolk County Police Department, remains committed to protecting the public from those who would seek to perpetuate the damage caused by the distribution of illegal narcotics.”
Suffolk County Police Commissioner Geraldine Hart said: “A highly addictive and dangerous stimulant, methamphetamine cannot be trafficked in our communities. This trio allegedly spent months distributing poison into the hands of the addicted, furthering the damaging impacts of narcotics in countless families’ lives. I would like to commend the Southern District of New York, the FBI, and the members of the SCPD who took these dangerous individuals off the street and held them accountable for their alleged crimes.”
Suffolk County Sheriff Errol D. Toulon Jr. said: “Over the last few years, the Sheriff’s Office has enhanced its intelligence-gathering capabilities to target dangerous drug dealers and those who earn a living from destroying other people’s lives. I want to congratulate all our partners in the U.S. Attorney’s Southern District, the FBI and the SCPD, and all the men and women who were a part of this successful investigation.”
According to the allegations contained in the Complaint:[1]
From at least 2020 up to an including the present, defendants SWEENEY, TABAK, and TURNER conspired to distribute large quantities of methamphetamine, some of which was obtained from suppliers in New York, New York. Law enforcement officers seized at least approximately 1.5 kilograms of methamphetamine from SWEENEY, TABAK, and TURNER during controlled purchases and a parcel seizure. In multiple recorded conversations with an undercover law enforcement officer and a cooperating witness, TURNER claimed that SWEENEY manufactured methamphetamine at SWEENEY’s Suffolk County residence.
On November 23, 2020, SWEENEY was arrested in Suffolk County after law enforcement officers observed SWEENEY engage in a hand-to-hand narcotics sale. In connection with the November 23, 2020, arrest, law enforcement officers seized methamphetamine and a loaded .38 caliber revolver from SWEENEY. In addition, on January 18, 2021, in connection with an undercover purchase of methamphetamine, TURNER told an undercover law enforcement officer that SWEENEY pointed a 9mm firearm at TURNER’s head because SWEENEY suspected that the undercover was a law enforcement officer.
SWEENEY, 39, TABAK, 34, and TURNER, 43, all from Bayport, New York, are each charged with one count of conspiracy to distribute, or possess with intent to distribute, methamphetamines, a charge that carries a maximum term of life in prison and a mandatory minimum term of 10 years in prison. In addition, SWEENEY, is charged with one count of possessing a firearm during and in relation to a drug trafficking offense, which carries a mandatory minimum term of five years in prison, to be served consecutively to any other sentence.
Ms. Strauss praised the outstanding investigative work of the Suffolk County Police Department, the Suffolk County Sheriff’s Office, and the FBI’s Long Island Resident Agency. She also thanked the U.S. Postal Inspection Service for their assistance in the investigation.
This case is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Benjamin Woodside Schrier and Emily A. Johnson are in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[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.
U.S. Attorney Announces Extradition of Two Defendants in Multimillion-Dollar Text Messaging Consumer Fraud SchemeRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, Ramsey E. Covington, the Acting Special Agent-in-Charge of the Boston Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that MICHAEL PEARSE, an Australian national, and YONGCHAO LIU, a/k/a “Kevin Liu,” a Chinese national, were extradited from Australia and arrived in the United States yesterday. PEARSE and LIU were extradited on charges of conspiracy to commit wire fraud, wire fraud, aggravated identity theft, and, as to PEARSE, conspiracy to commit money laundering, stemming from the defendants’ participation in a scheme to charge mobile phone customers millions of dollars in monthly fees for unsolicited, recurring text messages about topics such as horoscopes, celebrity gossip, and trivia facts, without the customers’ knowledge or consent – a practice that the defendants and their co-conspirators referred to as “auto-subscribing.” The portion of the fraudulent scheme that PEARSE, LIU, and their co-conspirators orchestrated generated more than $50 million in proceeds for themselves. PEARSE and LIU will be presented and arraigned today before U.S. Magistrate Judge Debra Freeman. The case has been assigned to U.S. District Judge Analisa Torres.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Michael Pearse and Yongchao Liu played key roles in an international consumer fraud conspiracy that victimized hundreds of thousands of mobile phone customers to the tune of more than $50 million. Thanks to IRS Criminal Investigation and the FBI, as well as our international partners, Pearse and Liu are now in the United States and facing serious charges in this District.”
IRS-CI Acting Special Agent in Charge Ramsey E. Covington said: “Through a sophisticated text messaging scam, the defendants and their co-conspirators allegedly swindled more than $50 million in proceeds from hundreds of thousands of unwitting mobile customers. Yesterday’s extraditions continue the pathway to justice for the staggering number of victims and financial losses accumulated as a result of this alleged scheme. I applaud the collective efforts of the law enforcement agencies whose collaboration and coordination made the extraditions possible.”
FBI Assistant Director William F. Sweeney Jr. said: “Pearse and Liu will finally face the consequences for the text messaging scheme they were charged with more than five years ago. Their extradition is a reminder that being out of our sight and out of our reach are two different things.”
According to allegations in the Indictment[1], evidence presented at the trial of co-conspirator Darcy Wedd, and other public filings:
From in or about 2011 through in or about 2013, PEARSE, LIU, and their co-conspirators engaged in a multimillion-dollar scheme to defraud consumers by placing unauthorized charges for premium text messaging services on consumers’ cellular phone bills, through a practice known as auto-subscribing.
During the relevant time period, Lin Miao, a co-conspirator of PEARSE and LIU, operated a company called Tatto, which offered premium text messaging services – such as monthly horoscopes, celebrity gossip, and trivia facts – to mobile phone customers. PEARSE and LIU worked for a company called Bullroarer, which was affiliated with Tatto. PEARSE was the CEO of Bullroarer and LIU was a Java development engineer for Bullroarer. Co-conspirator Darcy Wedd operated Mobile Messenger, a U.S. aggregation company in the mobile phone industry that served as a middleman between content providers such as Tatto and mobile phone carriers, and was responsible for assembling monthly charges incurred by a particular mobile phone customer for premium text messaging services and placing those charges on that customer’s cellular phone bill.
To carry out the scheme, co-conspirators at Tatto purchased large numbers of mobile phone numbers from co-conspirators at Mobile Messenger, who had access to those numbers by virtue of their employment. PEARSE, LIU, and their co-conspirators then worked to have unsolicited text messages sent to these and other mobile phone numbers and to enroll those customers in premium text messaging services without their knowledge or consent. PEARSE, LIU, and their co-conspirators also took steps to conceal the fraud scheme by making it appear as if the customers had, in fact, elected to purchase the text messaging services, when in truth they had not.
The consumers who received the unsolicited text messages typically ignored or deleted the messages, often believing them to be spam. Regardless, the consumers were billed for the receipt of the messages, at a rate of $9.99 per month, through charges that typically appeared on the consumers’ cellular telephone bills in an abbreviated and confusing form, e.g., with billing descriptors such as “96633IQ16CALL8668611606” and “25184USBFIQMIG.” The $9.99 charge recurred each month unless and until consumers noticed the charges and took action to unsubscribe. Even then, consumers’ attempts to dispute the charges and obtain refunds from Tatto, Bullroarer, or other corporate affiliates of Tatto were often unsuccessful.
After obtaining proceeds of the fraud scheme, PEARSE worked with other co-conspirators to launder the proceeds. PEARSE and his co-conspirators distributed the proceeds of the fraud scheme among themselves and others involved in the scheme by, among other things, causing funds to be transferred through the bank accounts of a series of shell companies and companies held in the names of third parties. This was done in order to conceal the nature and source of the payments and PEARSE’s and his co-conspirators’ participation in the fraud.
Through their successful orchestration of this fraud scheme, which affected hundreds of thousands of consumers, PEARSE, LIU, and their co-conspirators generated more than $50 million in fraud proceeds for themselves.
* * *
PEARSE, 52, and LIU, 33, are each charged with one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. §§ 1343 and 1349, which carries a maximum penalty of 20 years in prison; one count of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2, which also carries a maximum penalty of 20 years in prison; and one count of aggravated identity theft, in violation of 18 U.S.C. §§ 1028A and 2, which carries a mandatory sentence of two years in prison, consecutive to any other sentence imposed. In addition, PEARSE is charged with one count of conspiracy to commit money laundering, in violation of 18 U.S.C. §§ 1956(a)(1)(B)(i), 1957, and 1956(h), 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 outstanding investigative work of IRS-CI and the FBI. In addition, Ms. Strauss thanked law enforcement partners in Australia, particularly the International Crime Cooperation Central Authority, Australian Federal Police, and the New South Wales Police Force, as well as the U.S. Department of Justice’s Office of International Affairs, for their support and assistance with the defendants’ extraditions.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Jilan Kamal and Olga Zverovich are in charge of the prosecution.
The charges 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 and charges set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Cryptocurrency Trader Charged in Manhattan Federal Court with Fraudulent Scheme Involving over $5 MillionRead 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 a Complaint in Manhattan federal court charging JEREMY SPENCE, a/k/a “Coin Signals,” a cryptocurrency trader who solicited funds for various cryptocurrency funds that he operated, with commodities fraud and wire fraud offenses. As alleged, SPENCE took cryptocurrency worth over $5 million from more than 170 individual investors after making false representations in connection with these cryptocurrency funds. SPENCE was arrested this morning in Rhode Island and will be presented later today before Magistrate Judge Patricia A. Sullivan in the U.S. District Court for the District of Rhode Island.
Manhattan U.S. Attorney Audrey Strauss said: “Jeremy Spence, a/k/a, ‘Coin Signals,’ allegedly lured investors to his cryptocurrency investment scam by touting returns of up to 148%. Spence’s investments not only failed to reach his audacious claims, they consistently lost money, leaving a $5 million void in his clients’ crypto accounts. Spence’s alleged conduct should strongly signal would-be investors to thoroughly educate themselves in the cryptocurrency ecosystem before falling prey to investment scams promising huge returns for small investments that are indeed too good to be true.”
FBI Assistant Director-in-Charge Sweeney said: “As alleged, Jeremy Spence misrepresented the success of his investment platform in order to entice people to send money his way. Because his trading was less than profitable and significantly less successful than he represented to investors, he used money from new investors to pay off others in order to keep his plan moving—a typical marker of a Ponzi scheme. Whether investing with cash, shares, or virtual currency, our advice to investors always remains the same—exercise due diligence, and when something just doesn’t seem right, report suspicious activity to the authorities.”
As alleged in the Complaint unsealed today in Manhattan federal court:[1]
From November 2017 through April 2019, SPENCE solicited investors in various cryptocurrency investment pools that SPENCE had created and managed (the “Funds”). SPENCE solicited investments for several Funds, the largest and most active of which were the Coin Signals Bitmex Fund, a/k/a the “CS Mex Fund,” the Coin Signals Alternative Fund, a/k/a the “CS Alt Fund,” and the Coin Signals Long Term Fund. Investors who wanted to participate in a Fund would transfer cryptocurrency, such as Bitcoin and Ethereum, to SPENCE in order for SPENCE to invest it.
SPENCE solicited these investments through false representations, including that SPENCE’s crypto trading had been extremely profitable when, in fact, SPENCE’s trading had been consistently unprofitable. For example, on January 28, 2018, SPENCE posted a message in an online chat group falsely claiming that his trading of investor funds over the past month had generated a return of more than 148%. As a result of this misrepresentation, investors transferred additional funds to SPENCE. In fact, over that same period of approximately one month, SPENCE’s trading resulted in net losses in the accounts in which he traded investor funds.
To forestall redemptions by investors, and to continue to raise money from investors to fund his scheme, SPENCE generated fictitious account balances, which he made available to investors online. Instead of accurately reporting the trading losses SPENCE was incurring, the account balances falsely indicated to investors that they were making money by investing with SPENCE. To hide his trading losses, SPENCE used new investor funds to pay back other investors in a Ponzi-like fashion. In total, SPENCE distributed cryptocurrency worth approximately $2 million to investors substantially from funds previously deposited by other investors.
* * *
SPENCE, 24, of Bristol, Rhode Island, is charged with one count of commodities fraud, which carries a maximum sentence of 10 years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison. The maximum potential 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.
Ms. Strauss praised the investigative work of the Federal Bureau of Investigation and also thanked the Commodity Futures Trading Commission for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Christine Magdo is in charge of the prosecution.
[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.
California Man Charged with Making Threats Directed Against A New York City-Based U.S. Congressman and A Journalist, Citing Their Statements About the Results of the 2020 Presidential ElectionRead the Press Release
Audrey Strauss, U.S. Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Dermot Shea, the Commissioner of the Police Department for the City of New York (“NYPD”), announced that ROBERT LEMKE was arrested today based on a criminal Complaint filed in Manhattan federal court charging LEMKE with making threatening interstate communications. LEMKE allegedly sent threatening text messages on January 6, 2021 to family members of a New York City-based U.S. Congressman (the “Congressman”) and a New York City-based family member of a journalist (the “Journalist”). LEMKE was arrested in Bay Point, California, and will be presented tomorrow in the United States District Court for the Northern District of California.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Robert Lemke was dissatisfied with the results of the 2020 Presidential Election and subsequent statements about the election made by a U.S. Congressman and journalist. Rather than peaceably disagree, Lemke allegedly threatened to harm those individuals’ families, demanding they retract their statements. The electoral process is the essential mechanism through which our democracy functions. While in any election it is inevitable that some will be disappointed in the result, threats of violence cannot and will not be tolerated.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “Lemke’s alleged threats, aimed at the family members of a sitting U.S. Representative and a journalist, crossed a bright line. The FBI’s New York Joint Terrorism Task Force is always on watch, and we act with speed to stop violence - whether the threat comes from within our borders or from outside them. That's how we do it. As always, it is the partnership with our communities that makes us most effective. If you have any additional information that could benefit this case, or are aware of an active threat, we urge you to call 1-800-CALL-FBI.”
NYPD Commissioner Dermot Shea said: “To those individuals and groups that would seek to threaten a United States Congressman, this arrest should serve as a warning that the NYPD and its law enforcement partners, will ensure you are held accountable for your actions. I want to commend the FBI Agents, NYPD Detectives, and representatives of 54 other agencies that make up the Joint Terrorism Task Force for the investigation that led to this arrest.”
As alleged in the Complaint unsealed in Manhattan federal court[1]:
On January 6, 2021, the same day that individuals purporting to protest the 2020 Presidential Election gathered in Washington, D.C. and stormed the Capitol Building, ROBERT LEMKE sent threatening text messages to the brother of the New York City-based Congressman, citing the Congressman’s statements about the results of the 2020 Presidential Election. LEMKE’s text messages, which included a picture of a home in the same neighborhood as the home of the Congressman’s brother, stated:
Your brother is putting your entire family at risk with his lies and other words. We are armed and nearby your house. You had better have a word with him. We are not far from his either. Already spoke to [the Congressman’s son] and know where his kids are.
. . . your words have consequences. Stop telling lies; Biden did not win, he will not be president. We are not[] white supremacists. Most of us are active/retired law enforcement or military. You are putting your family at risk. We have armed members near your home . . . . . Don’t risk their safety with your words and lies.
Also on January 6, 2021, LEMKE sent threatening text messages to the Congressman’s sister-in-law, stating: “calm your husband down . . . . We saw on the hidden camera, he was quite stirred up. You need to have him talk to [the Congressman].”
In addition, also on January 6, 2021, LEMKE sent threatening text messages to a relative of the Journalist, stating: “[The Journalist’s] words are putting you and your family at risk. We are nearby armed and ready. Thousands of us are active/retired law enforcement, military, etc. That’s how we do it.”
LEMKE’s Facebook account has as its background image a photograph of Mark and Patricia McCloskey, who were charged with criminal offenses last summer after they pointed firearms at Black Lives Matter demonstrators near their home in St. Louis, Missouri. On November 7, 2020, LEMKE posted to Facebook: “Folks. Be ready for war. Trump has refused to cede. Evidence shows fraud occurred and the Supreme Court cases will be successful. We blockchained and watermarked ballots in 16 states. Trump will prevail.[] Spread this message. . . . FAITH my fellow Republicans. Do not give up. Keep an eye out for a variety of protests, and Stop The Steal Facebook groups for updates.”
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ROBERT LEMKE, 35, of Bay Point, California, is charged with making threatening interstate communications, which carries a maximum sentence of five years’ imprisonment. The maximum potential penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.
Ms. Strauss praised the outstanding investigative work of the FBI’s New York Joint Terrorism Task Force, which consists of investigators and analysts from the FBI, the NYPD, and over 50 other federal, state, and local agencies, and the FBI’s San Francisco Field Office. Ms. Strauss also thanked the U.S. Attorney’s Office for the Northern District of California for its assistance.
The case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Jacob H. Gutwillig, Matthew J. Laroche, Kimberly J. Ravener, Benjamin W. Schrier, and Kyle A. Wirshba are in charge of the prosecution.
The charge contained in the Complaint is merely an allegation, 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.
U.S. Attorney Announces Extradition of Kenyan National for Large-Scale Trafficking of Rhinoceros Horns and Elephant Ivory and Heroin DistributionRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that MANSUR MOHAMED SURUR, a/k/a “Mansour,” a Kenyan citizen, was extradited from Kenya and arrived in the United States this morning. SURUR was arrested by Kenyan authorities on July 29, 2020, in Mombasa, Kenya, on charges of conspiracy to traffic in rhinoceros horns and elephant ivory, both endangered wildlife species, which involved the illegal poaching of more than approximately 35 rhinoceros and more than 100 elephants. In addition, SURUR was charged with conspiracy to commit money laundering and conspiracy to distribute and possess with intent to distribute more than 10 kilograms of heroin. SURUR’s co-defendant, Moazu Kromah, a/k/a “Ayoub,” a/k/a “Ayuba,” a/k/a “Kampala Man,” a citizen of Liberia, was previously deported to the United States from Uganda on June 13, 2019. Co-defendant Amara Cherif, a/k/a “Bamba Issiaka,” a citizen of Guinea, was extradited to the United States from Senegal on April 3, 2020. Co-defendant Abdi Hussein Ahmed, a/k/a “Abu Khadi,” a citizen of Kenya, remains a fugitive. SURUR is expected to be arraigned later today before U.S. Magistrate Judge Debra Freeman. The case has been assigned to U.S. District Judge Gregory H. Woods.
Manhattan U.S. Attorney Audrey Strauss said: “Mansur Mohamed Surur is alleged to be a member of an international conspiracy to traffic in rhino horns, elephant ivory, and heroin. The enterprise is allegedly responsible for the illegal slaughter of dozens of rhinos and more than 100 elephants, both endangered species. The excellent work of the Fish and Wildlife Service and the DEA has put an end to this operation.”
According to allegations in the Indictment[1]:
Kromah, Cherif, SURUR, and Ahmed were members of a transnational criminal enterprise (the “Enterprise”) based in Uganda and surrounding countries that was engaged in the large-scale trafficking and smuggling of rhinoceros horns and elephant ivory, both protected wildlife species. Trade involving endangered or threatened species violates several U.S. laws, as well as international treaties implemented by certain U.S. laws.
From at least in or about December 2012 through at least in or about May 2019, Kromah, Cherif, SURUR, and Ahmed conspired to transport, distribute, sell, and smuggle at least approximately 190 kilograms of rhinoceros horns and at least approximately 10 tons of elephant ivory from or involving various countries in East Africa, including Uganda, the Democratic Republic of the Congo, Guinea, Kenya, Mozambique, Senegal, and Tanzania, to buyers located in the United States and countries in Southeast Asia. Such weights of rhinoceros horn and elephant ivory are estimated to have involved the illegal poaching of more than approximately 35 rhinoceros and more than approximately 100 elephants. In total, the estimated average retail value of the rhinoceros horn involved in the conspiracy was at least approximately $3.4 million, and the estimated average retail value of the elephant ivory involved in the conspiracy was at least approximately $4 million.
The defendants exported and agreed to export the rhinoceros horns and elephant ivory for delivery to foreign buyers, including those represented to be in Manhattan, in packaging that concealed the rhinoceros horns and elephant ivory in, among other things, pieces of art such as African masks and statues. The defendants received and deposited payments from foreign customers that were sent in the form of international wire transfers, some which were sent through U.S. financial institutions.
On a number of occasions, Kromah, SURUR, and Ahmed met with a confidential source (“CS-1”), both together and separately, concerning potential purchases of elephant ivory and rhinoceros horn. During these meetings and at other times via phone calls and electronic messages, CS-1 discussed with Kromah, SURUR, and Ahmed, in substance and in part, the terms of such sales, including the price, weight, or size of the rhinoceros horns, as well as payment, destination, and delivery options. CS-1 also discussed with Cherif via phone calls and electronic messages, in substance and in part, the terms of the sales, as well as how to send payment for rhinoceros horns from a United States bank account located in New York, New York. On or about March 16, 2018, law enforcement agents intercepted a package containing a black rhinoceros horn sold by the defendants to CS-1 that was intended for a buyer represented to be in New York, New York. From in or about March 2018 through in or about May 2018, the defendants offered to sell CS-1 additional rhinoceros horns of varying weights, including horns weighing up to approximately seven kilograms. On or about July 17, 2018, law enforcement agents intercepted a package containing two rhinoceros horns sold by the defendants to CS-1 that were intended for a buyer represented to be in New York, New York.
Separately, from at least in or about August 2018 through at least in or about May 2019, SURUR and Ahmed conspired to distribute and possess with intent to distribute more than approximately 10 kilograms of heroin to a buyer represented to be located in New York.
* * *
SURUR, 60, is charged with one count of conspiracy to commit wildlife trafficking and two counts of wildlife trafficking, which each carry a maximum sentence of five years; one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years; and one count of conspiracy to distribute and possess with intent to distribute one kilogram or more of heroin, which carries a maximum sentence of life imprisonment and a mandatory minimum sentence of 10 years in prison. The maximum potential sentences 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 U.S. Fish and Wildlife Service and the U.S. Drug Enforcement Administration. In addition, she thanked law enforcement authorities and conservation partners in Uganda as well as the Kenyan Directorate of Criminal Investigations and the Kenyan Office of the Director of Public Prosecutions for their assistance in the investigation. Ms. Strauss also thanked the U.S. Department of Justice’s Office of International Affairs for their assistance, and noted that the investigation is continuing.
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 Jarrod L. Schaeffer are in charge of the prosecution.
The charges contained in the Indictment are merely accusations. 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 its description set forth below constitute only allegations, and every fact described should be treated as an allegation.
U.S. Army Soldier Arrested for Attempting to Assist ISIS to Conduct Deadly Ambush on U.S. TroopsRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, John C. Demers, the Assistant Attorney General for National Security, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), Dermot Shea, Commissioner of the New York City Police Department (“NYPD”), and Roy T. Cochran, Director, U.S. Army Counterintelligence Coordinating Authority, announced today the arrest of COLE JAMES BRIDGES, a/k/a “Cole Gonzales,” a Private First Class in the U.S. Army, on federal terrorism charges based on BRIDGES’s alleged efforts to assist ISIS to attack and kill U.S. soldiers in the Middle East. BRIDGES was charged by Complaint with attempting to provide material support to a designated foreign terrorist organization, and attempting to murder U.S. military service members. The FBI and Army Counterintelligence arrested BRIDGES today, and he will be presented on Thursday, January 21, 2021, in the U.S. District Court for the Southern District of Georgia.
Manhattan U.S. Attorney Audrey Strauss said: “As alleged, Cole Bridges betrayed the oath he swore to defend the United States by attempting to provide ISIS with tactical military advice to ambush and kill his fellow service members. Our troops risk their lives for our country, but they should never face such peril at the hands of one of their own. Today, thanks to the efforts of the agents and detectives of the JTTF, and our partners in the Department of Defense, Bridges is in custody and facing federal terrorism charges for his alleged crimes.”
Assistant Attorney General John C. Demers said: “Bridges is charged with giving military advice and guidance on how to kill fellow soldiers to individuals he thought were part of ISIS. This alleged personal and professional betrayal of comrades and country is terrible to contemplate, but fortunately, the FBI was able to identify the threat posed by Bridges, and today’s charges are the first step in holding him accountable for his crimes. ISIS ideology continues to infect those who would threaten the nation’s security from within and without, and we will continue to fight this threat.”
FBI Assistant Director William F. Sweeney Jr. said: “As we allege today, Bridges, a private in the U.S. Army, betrayed our country and his unit when he plotted with someone he believed was an ISIS sympathizer to help ISIS attack and kill U.S. soldiers in the Middle East. Fortunately, the person with whom he communicated was an FBI employee, and we were able to prevent his evil desires from coming to fruition. Bridges could have chosen a life of honorable service, but instead he traded it for the possibility of a lengthy prison sentence. This case should serve as a reminder that the FBI’s New York JTTF will never quit in its commitment to protect our Nation from all those who seek to do it harm.”
NYPD Commissioner Dermot Shea said: “As alleged in this federal complaint, Cole Bridges violated his oath and used his position of privilege against his fellow citizens. This arrest, and the work of the FBI’s New York JTTF and all of our law enforcement partners, will ensure that this individual faces justice.”
Army Counterintelligence Coordinating Authority Director Roy T. Cochran said: “Army Counterintelligence’s top priority is protecting the force so it can remain committed to fighting and winning our Nation’s wars. The results of this investigation show the efforts of Army Counterintelligence agents working alongside our partners in the FBI. We are dedicated to protecting our Soldiers, Civilians, and Families from terrorist acts and insider threats.”
According to the criminal Complaint charging BRIDGES,[1] which was unsealed today in Manhattan federal court:
BRIDGES joined the U.S. Army in approximately September 2019, and was assigned as a cavalry scout in the 3rd Infantry Division based in Fort Stewart, Georgia. Beginning in at least 2019, BRIDGES began researching and consuming online propaganda promoting jihadists and their violent ideology. BRIDGES also expressed his support for the Islamic State of Iraq and al-Sham (“ISIS”) and jihad on social media. In or about October 2020, BRIDGES began communicating with an FBI online covert employee (the “OCE”), who was posing as an ISIS supporter in contact with ISIS fighters in the Middle East. During these communications, BRIDGES expressed his frustration with the U.S. military and his desire to aid ISIS. BRIDGES then provided training and guidance to purported ISIS fighters who were planning attacks, including advice about potential targets in New York City, such as the 9/11 Memorial. BRIDGES also provided the OCE with portions of a U.S. Army training manual and guidance about military combat tactics, for use by ISIS.
In or about December 2020, BRIDGES began to supply the OCE with instructions for the purported ISIS fighters on how to attack U.S. forces in the Middle East. Among other things, BRIDGES diagrammed specific military maneuvers intended to help ISIS fighters maximize the lethality of attacks on U.S. troops. BRIDGES further provided advice about the best way to fortify an ISIS encampment to repel an attack by U.S. Special Forces, including by wiring certain buildings with explosives to kill the U.S. troops. Then, in January 2021, BRIDGES provided the OCE with a video of himself in body armor standing before a flag often used by ISIS fighters and making a gesture symbolic of support for ISIS. Approximately a week later, BRIDGES sent a second video in which BRIDGES, using a voice manipulator, narrated a propaganda speech in support of the anticipated ambush by ISIS on U.S. troops.
* * *
BRIDGES, 20, of Stow, Ohio, is charged in the Complaint with (1) attempting to provide material support to ISIS, in violation of 18 U.S.C. § 2339B, which carries a maximum sentence of 20 years in prison; and (2) attempting to murder U.S. military service members, in violation of 18 U.S.C. § 1114, which carries a maximum sentence of 20 years in prison. The statutory 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.
Ms. Strauss praised the outstanding efforts of the FBI’s New York Joint Terrorism Task Force, which consists of investigators and analysts from the FBI, the NYPD, and over 50 other federal, state, and local agencies. Ms. Strauss also thanked U.S. Army Counterintelligence, the FBI Washington Field Office, the FBI Atlanta Field Office and its Savannah Resident Agency, the FBI Cleveland Field Office, the FBI’s Counterterrorism Division, the U.S. Attorney’s Office for the Southern District of Georgia, the Air Force Office of Special Investigations, U.S. Army Criminal Investigation Command, and the U.S. Army 3rd Infantry Division for their assistance.
This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Sam Adelsberg, Matthew Hellman, and Sidhardha Kamaraju are in charge of the prosecution, with assistance from Trial Attorneys Michael Dittoe and Lauren Goddard of the Counterterrorism Section of the Department of Justice’s National Security Division.
[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.
Manhattan U.S. Attorney Announces the Appointment of Deputy U.S. Attorney and Chief Counsel to the U.S. AttorneyRead the Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, today announced the selection of Ilan Graff as Deputy U.S. Attorney and Russell Capone as Chief Counsel to the U.S. Attorney. Graff and Capone assumed their new roles on January 16, 2021, when the Court’s appointment of Ms. Strauss as U.S. Attorney took effect.
Mr. Graff most recently served as Chief Counsel to the Acting U.S. Attorney. He has been with the Office since 2012. As an Assistant United States Attorney in the Criminal Division, he worked principally in the Terrorism & International Narcotics Unit. He later served as Co-Chief of the General Crimes Unit and Co-Chief of the Terrorism & International Narcotics Unit. Mr. Graff graduated cum laude from Harvard College in 2005 and cum laude from Harvard Law School in 2009, where he served on the Harvard Law Review. Following graduation from law school, he was a law clerk to then-Chief Judge Sandra L. Lynch on the U.S. Court of Appeals for the First Circuit and Judge Allyson K. Duncan on the U.S. Court of Appeals for the Fourth Circuit, as well as a Dean’s Fellow at Duke Law School, before joining the Office through the Attorney General’s Honors Program.
Mr. Capone most recently served as Counsel to the Acting U.S. Attorney. He has been with the Office since 2011. As an Assistant United States Attorney in the Criminal Division, he worked principally in the Public Corruption Unit and the Violent & Organized Crime Unit. He later served as Deputy Chief and then Co-Chief of the Public Corruption Unit. Mr. Capone graduated summa cum laude from Tufts University in 2002 and cum laude from Harvard Law School in 2005, where he served as managing editor of the Harvard Law Review. Following graduation from law school, he worked in 2005 and from 2007 through 2010 as an associate at the law firm of Davis Polk & Wardwell LLP. In 2006, he was a law clerk to United States District Judge Sidney H. Stein of the Southern District of New York.
Former Construction Executive Sentenced to 38 Months 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 ANTHONY GUZZONE, a former Director of Global Construction at Bloomberg, LP (“Bloomberg”), was sentenced today in Manhattan federal court to 38 months in prison for evading taxes on more than $1.45 million in bribes he received from building sub-contractors. GUZZONE previously pled guilty to those charges, and was sentenced today before U.S. District Judge Lewis J. Liman.
In related proceedings, co-conspirator 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 in the same scheme. In addition, Ronald Olson and Vito Nigro, two managers of a construction contractor that performed projects for Bloomberg, have separately pled guilty to evading taxes on more than $1.4 million and $1.8 million in bribes that they respectively received in the same scheme. Olson is scheduled to be sentenced on February 3 before U.S. District Judge P. Kevin Castel, and Nigro is scheduled to be sentenced on March 8 before U.S. District Judge Analisa Torres.[1]
U.S. Attorney Audrey Strauss said: “Bribery and tax evasion impose hidden, unfair costs on the law-abiding public. The type of criminality uncovered in this case imposes that burden widely, on customers, on employers, and on fellow taxpayers. It is intolerable in a just society.”
According to the four criminal Informations filed in these federal cases, as well as other public documents and recent court proceedings:
Between 2010 and 2017, GUZZONE was the Director of Global Construction at Bloomberg, a global financial firm that was engaged in various building projects in New York City and elsewhere, while Olson and Nigro were executives Turner Construction, a construction contractor that performed projects for Bloomberg. For most of that time, beginning in 2013, Campana was also a construction manager at Bloomberg. 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.
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 GUZZONE’s receipts of several sets of Super Bowl tickets, worth approximately $8000 per ticket, as well as Campana’s receipt of charges related to Campana’s 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.
* * *
GUZZONE, 51, of Middletown, New Jersey, pled guilty on September 29, 2020, to a single count of tax evasion for the tax years 2010 through 2017. In addition to the prison term, GUZZONE was sentenced today to three years of supervised release, and ordered to pay restitution of $574,005.33 in unpaid taxes.
Olson, 53, of Massapequa, New York, pled guilty on July 29, 2020, to a single count of tax evasion for the tax years 2011 through 2017.
Nigro, 59, of Middletown, New Jersey, pled guilty on October 28, 2020, to a single count of tax evasion for the tax years 2011 through 2017.
Campana, 34, 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 on July 24, 2020, to 24 months in prison, three years of supervised release, restitution of $155,000 in unpaid taxes (which he has repaid), and a fine of $10,000.
The charges against Olson and Nigro each carry 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. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of Olson or Nigro will be determined by the respective judges.
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.
Toyota Motor Company to Pay $180 Million in Settlement for Decade-Long Noncompliance with Clean Air Act Reporting RequirementsRead the Press Release
The U.S. Department of Justice and U.S. Environmental Protection Agency (EPA) announced today that the United States has filed and simultaneously settled a civil lawsuit against Toyota Motor Corporation, Toyota Motor North America Inc., Toyota Motor Sales U.S.A. Inc., and Toyota Motor Engineering & Manufacturing North America Inc. (Toyota) for systematic, longstanding violations of Clean Air Act emission-related defect reporting requirements, which require manufacturers to report potential defects and recalls affecting vehicle components designed to control emissions.
Along with the civil complaint, the United States has filed a consent decree, agreed to by Toyota, that resolves the government’s complaint through Toyota’s payment of a $180 million civil penalty and the imposition of injunctive relief. The $180 million penalty is the largest civil penalty for violation of EPA’s emission-reporting requirements. The injunctive provisions require Toyota to follow compliance and reporting practices designed to ensure timely investigation of emission-related defects and timely reporting to EPA, and include training, communication, and oversight requirements. The consent decree remains subject to a period of public comment and court approval.
“This settlement is yet another important milestone settlement for this Administration, and it continues our unwavering commitment to ensuring that our environmental laws as written, including EPA’s regulations, are rigorously enforced,” said Jeffrey Bossert Clark, Assistant Attorney General of the Justice Department’s Environment and Natural Resources Division.
“For a decade, Toyota systematically violated regulations that provide EPA with a critical compliance tool to ensure that vehicles on the road comply with federal emissions standards,” said Audrey Strauss, Acting U.S. Attorney for the Southern District of New York. “Toyota shut its eyes to the noncompliance, failing to provide proper training, attention, and oversight to its Clean Air Act reporting obligations. Toyota’s actions undermined EPA’s self-disclosure system and likely led to delayed or avoided emission-related recalls, resulting in financial benefit to Toyota and excess emissions of air pollutants. Today, Toyota pays the price for its misconduct with a $180 million civil penalty and agreement to injunctive relief to ensure that its violations will not be repeated.”
“For a decade Toyota failed to report mandatory information about potential defects in their cars to the EPA, keeping the agency in the dark and evading oversight,” said Susan Bodine, EPA’s Office of Enforcement and Compliance Assurance Assistant Administrator. “EPA considers this failure to be a serious violation of the Clean Air Act.”
The complaint filed in Manhattan federal court today alleges that from approximately 2005 until at least late 2015, Toyota systematically violated Clean Air Act automobile defect reporting requirements designed to protect public health and the environment from harmful air pollutants.
Clean Air Act regulations require manufacturers to notify EPA by filing an Emissions Defect Information Report (EDIR) when 25 or more vehicles or engines in a given model year have the same defect in an emission control part or an element of design installed in order to comply with emission standards and other EPA regulations. The regulations also require vehicle manufacturers to file a Voluntary Emissions Recall Report (VERR) with EPA when they perform a recall to correct defects in emission-related parts, and to update EPA on the progress of such recalls through Quarterly Reports. These mandatory reporting requirements are critical to the Clean Air Act’s purpose of protecting human health and the environment from harmful air pollutants: They encourage manufacturers to investigate and voluntarily address defects that may result in excess emissions of harmful air pollutants, and provide EPA with important information about emission-related defects for use in its oversight of manufacturers.
For 10 years, Toyota routinely failed to comply with these reporting requirements. During that time, Toyota materially delayed filing an estimated 78 EDIRs, filing many only when disclosing non-compliance to EPA in 2015, at which point some were as much as eight years late. These EDIRs related to millions of vehicles with the potential to exhibit emission-related defects. Toyota also failed to file 20 VERRs and more than 200 quarterly reports.
During the period of noncompliance, Toyota managers and staff in Japan knew that Toyota was no longer even attempting to determine whether it was aware of 25 instances of the same emission-related defect in a model year – the threshold requirement for filing an EDIR. Rather than follow this legally required standard, Toyota unilaterally decided to file EDIRs principally when Toyota was required to file distinct reports with California regulators under a less strict standard – a standard that EPA had rejected as too lenient when Toyota had previously proposed to rely on it for federal reporting. Toyota managers and staff in Japan repeatedly identified the discrepancy between Toyota’s procedures and the plain language of the federal requirements but failed to bring Toyota into compliance.
As a result of its conduct, Toyota deprived EPA of timely information regarding emission-related defects and recalls and avoided the early focus on emission defects contemplated by the regulations. Toyota’s conduct likely resulted in delayed or avoided recalls, with Toyota obtaining a significant economic benefit, pushing costs onto consumers, and lengthening the time that unrepaired vehicles with emission-related defects remained on the road.
Toyota admits, acknowledges, and accepts responsibility for what is included in the consent decree.
Between approximately 2005 and late 2015, Toyota routinely filed emission defect reports to EPA materially late and, in many cases, failed to file such reports at all until a self-disclosure of non-compliance in late 2015.
Representations to EPA
In March and May 2002, at EPA’s request, Toyota and EPA representatives met to discuss Toyota’s internal process for identifying whether 25 instances of a specific emission-related defect exist in vehicles or engines of the same model year, requiring an EDIR filing.
At a first meeting in March 2002, Toyota described its EDIR process in which Toyota would investigate whether it had 25 defects only upon receiving 25 “product reports” from its dealers, but would supplement that review by filing an EDIR upon receiving warranty claims for an emission-related part in 4 percent of Toyota’s California fleet (a threshold requiring a separate filing to state authorities under California law).
At the meeting, EPA rejected this EDIR process as not timely considering warranty claims, despite the incorporation of the 4 percent California trigger.
At a May 2002 meeting with EPA, Toyota presented its revised process. Under that process, Toyota would commence an investigation to determine whether an EDIR filing was required when it had received warranty claims for an emission-related part for 1 percent of relevant vehicles nationwide; when it received 500 such warranty claims regardless of the percentage; or when it received 25 similar early warning reports.
Toyota noted internally that EPA seemed pleased with this approach, which EPA had described as “more stringent than California.” In 2003, 2004, and 2005, as part of an annual review, Toyota submitted its May 2002 process in writing to EPA as an overview of its EDIR reporting program.
Toyota’s Conduct from Approximately 2005 to 2015
Without notifying EPA, in approximately 2005, Toyota stopped following the May 2002 EDIR process. In approximately 2005, Toyota began filing EDIRs primarily when filing the California reports triggered by the 4 percent threshold. Toyota also filed EDIRs in a small number of instances when it was otherwise filing VERRs with EPA.
From approximately 2005 to 2015, Toyota stopped making any independent determination of whether 25 defects existed requiring an EDIR filing. Multiple times during this period, Toyota staff charged with preparing EDIRs identified that the plain language of the EDIR regulations called for filing an EDIR upon the identification of 25 defects, but that Toyota was not doing so. These staff did not cause Toyota to change its practice.
As a result of this conduct, Toyota filed at least 69 EDIRs materially late. Thirty-nine of these were filed materially late in the ordinary course of Toyota’s business. In late 2015, Toyota self-disclosed another 30 that had not been filed at all. Some EDIRs were ultimately filed as many as eight years after they were due.
Beyond EDIRs, Toyota also failed during this period to file 20 VERRs required for emission-related recall campaigns that it conducted and failed to file more than two hundred Quarterly Reports related to such campaigns. Between 2005 and 2015, Toyota failed to provide its employees with adequate training, resources, or oversight to ensure that Toyota complied with its reporting obligations to EPA. As a result of Toyota’s conduct, EPA did not timely receive mandated information regarding emission-related defects and recalls.
Notice of the proposed consent decree will be published in the Federal Register and the public will have the opportunity to submit comments on the consent decree for a period of at least 30 days before it is submitted for the court’s approval.
To view the consent decree or to submit a comment, visit the Department of Justice website at: www.justice.gov/enrd/Consent_Decrees.html.
The Justice Department thanked the attorneys in EPA’s Air Enforcement Division, the program staff at EPA’s Office of Transportation and Air Quality, and the agents at EPA’s Criminal Investigative Division for their critical work on this case.
This case is being handled by the Environmental Protection Unit of the U.S. Attorney’s Office’s Civil Division. Senior Trial Attorney Keith Tashima with the Environment and Natural Resources Division’s Environmental Enforcement Section and Assistant U.S. Attorneys Robert William Yalen, Dominika Tarczynska, and Jennifer Jude of the Southern District of New York are prosecuting the case.
Brooklyn Man Indicted for Armed Robberies of Cab DriversRead the Press Release
Audrey Strauss, Acting United States Attorney for the Southern District of New York, Dermot F. Shea, the Police Commissioner of the City of New York, and John B. DeVito, the Special Agent in Charge of the New York Field Division of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), announced that KYMAHLI LYSIUS was indicted today in connection with armed robberies he carried out last summer against livery cab drivers. LYSIUS was arrested last week and presented in Manhattan federal court before United States Magistrate Judge Kevin N. Fox.
Acting U.S. Attorney Audrey Strauss stated: “Kymahli Lysius allegedly carried out a spree of brazen gunpoint robberies of livery cab drivers in Brooklyn and Manhattan. Lysius’s alleged conduct includes chillingly pointing a gun at the back of drivers’ heads and demanding their money, then fleeing on foot under the cover of night. We thank the NYPD and ATF for holding Kymahli responsible for alleged acts that put his victims in fear for their lives.”
NYPD Commissioner Dermot Shea said: “This individual allegedly targeted hard-working victims and exploited the nature of their job to lure them to a location for the purpose of a robbery. I commend the detectives and members of the U.S. Attorney’s Office, Southern District, for targeting violent crime and their hard work which resulted in this indictment.”
ATF Special Agent-in-Charge John B. DeVito said: “As alleged, defendant Lysius committed several armed robberies of honest and hard-working New Yorkers who were trying to provide for their families in the midst of a pandemic. This indictment sends a clear message that ATF and our law enforcement partners remain committed to ensuring public safety and that those who violate federal law and threaten the safety of our communities and the citizens within will be dealt with swiftly."
As alleged in the Complaint unsealed last week in Manhattan federal court[1]:
Between on or about July 28, 2020, and August 7, 2020, LYSIUS committed eight gunpoint robberies and a ninth attempted gunpoint robbery against livery cab drivers. Two of the robberies were in Manhattan; the others were in Brooklyn. The robberies followed a simple but brazen pattern: On each occasion, a livery cab was ordered for a pick up at a specific location. Upon its arrival, LYSIUS would get into the back seat of the cab. Shortly thereafter, he would pull out a firearm from a fanny pack strapped across his chest, place the firearm on the cab driver’s head or back, and demand all of the driver’s money. After taking all the cash the driver had on him and any other cash in the cab, LYSIUS would get out of the cab and flee on foot. Each robbery occurred on dark streets, late at night or in the very early morning hours.
LYSIUS, 28, of Brooklyn, is charged with two counts of Hobbs Act robbery and two counts of using a firearm in connection with the two robberies that occurred in Manhattan. The Hobbs Act robbery charges each carry a statutory maximum sentence of twenty years in prison. The charges for using, carrying, and possessing a firearm in furtherance of the Hobbs Act robberies each carry a statutory maximum sentence of life in prison and a mandatory minimum sentence of seven years in prison, which must run consecutively to any other sentence imposed.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.
Ms. Strauss praised the outstanding investigative work of the New York City Police Department, the ATF, and the Strategic Pattern Armed Robbery Technical Apprehension (“SPARTA”) Task Force.
The prosecution of this case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Sarah L. Kushner is in charge of the prosecution.
The charges contained in the Complaint and 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 Complaint and the description of the Complaint set forth below constitute only allegations, and every fact described should be treated as an allegation.
Acting Manhattan U.S. Attorney Announces $180 Million Settlement of Suit Against Toyota Motor Corporation for Decade-Long Noncompliance with Clean Air Act Reporting RequirementsRead the Press Release
Audrey Strauss, the Acting United States Attorney for the Southern District of New York, Jeffrey Bossert Clark, the Assistant Attorney General for the Environment and Natural Resources Division (“ENRD”) of the U.S. Department of Justice, and Susan Bodine, Assistant Administrator for Enforcement and Compliance Assurance of the U.S. Environmental Protection Agency (“EPA”), announced today that the United States has filed and simultaneously settled a civil lawsuit against TOYOTA MOTOR CORPORATION, TOYOTA MOTOR NORTH AMERICA, INC., TOYOTA MOTOR SALES, U.S.A., INC., and TOYOTA MOTOR ENGINEERING & MANUFACTURING NORTH AMERICA, INC. (“TOYOTA”) for systematic, longstanding violations of Clean Air Act emission-related defect reporting requirements, which require manufacturers to report potential defects and recalls affecting vehicle components designed to control emissions.
Along with the civil complaint, the United States has filed a consent decree, agreed to by TOYOTA, that resolves the government’s complaint through TOYOTA’s payment of a $180 million civil penalty and the imposition of injunctive relief. The $180 million penalty is the largest civil penalty for violation of EPA’s emission-reporting requirements. The injunctive provisions require TOYOTA to follow compliance and reporting practices designed to ensure timely investigation of emission-related defects and timely reporting to EPA, and include training, communication, and oversight requirements. The consent decree remains subject to a period of public comment and Court approval.
Acting U.S. Attorney Audrey Strauss said: “For a decade, Toyota systematically violated regulations that provide EPA with a critical compliance tool to ensure that vehicles on the road comply with federal emissions standards. Toyota shut its eyes to the noncompliance, failing to provide proper training, attention, and oversight to its Clean Air Act reporting obligations. Toyota’s actions undermined EPA’s self-disclosure system and likely led to delayed or avoided emission-related recalls, resulting in financial benefit to Toyota and excess emissions of air pollutants. Today, Toyota pays the price for its misconduct with a $180 million civil penalty and agreement to injunctive relief to ensure that its violations will not be repeated.”
Assistant Attorney General Jeffrey Bossert Clark said: “This settlement is yet another important milestone settlement for this Administration, and it continues our unwavering commitment to ensuring that our environmental laws as written, including EPA’s regulations, are rigorously enforced.
EPA Assistant Administrator Susan Bodine stated: “For a decade Toyota failed to report mandatory information about potential defects in their cars to the EPA, keeping the agency in the dark and evading oversight. EPA considers this failure to be a serious violation of the Clean Air Act.”
The complaint filed in Manhattan federal court today alleges that from approximately 2005 until at least late 2015, TOYOTA systematically violated Clean Air Act automobile defect reporting requirements designed to protect public health and the environment from harmful air pollutants.
Clean Air Act regulations require manufacturers to notify EPA by filing an Emissions Defect Information Report (“EDIR”) when 25 or more vehicles or engines in a given model year have the same defect in an emission control part or an element of design installed in order to comply with emission standards and other EPA regulations. The regulations also require vehicle manufacturers to file a Voluntary Emissions Recall Report (“VERR”) with EPA when they perform a recall to correct defects in emission-related parts, and to update EPA on the progress of such recalls through Quarterly Reports. These mandatory reporting requirements are critical to the Clean Air Act’s purpose of protecting human health and the environment from harmful air pollutants: They encourage manufacturers to investigate and voluntarily address defects that may result in excess emissions of harmful air pollutants, and provide EPA with important information about emission-related defects for use in its oversight of manufacturers.
For 10 years, TOYOTA routinely failed to comply with these reporting requirements. During that time, TOYOTA materially delayed filing an estimated 78 EDIRs, filing many only when disclosing non-compliance to EPA in 2015, at which point some were as much as eight years late. These EDIRs related to millions of vehicles with the potential to exhibit emission-related defects. TOYOTA also failed to file 20 VERRs and more than 200 Quarterly Reports.
During the period of noncompliance, TOYOTA managers and staff in Japan knew that TOYOTA was no longer even attempting to determine whether it was aware of 25 instances of the same emission-related defect in a model year – the threshold requirement for filing an EDIR. Rather than follow this legally required standard, TOYOTA unilaterally decided to file EDIRs principally when TOYOTA was required to file distinct reports with California regulators under a less strict standard – a standard that EPA had rejected as too lenient when TOYOTA had previously proposed to rely on it for federal reporting. TOYOTA managers and staff in Japan repeatedly identified the discrepancy between TOYOTA’s procedures and the plain language of the federal requirements, but failed to bring TOYOTA into compliance.
As a result of its conduct, TOYOTA deprived EPA of timely information regarding emission-related defects and recalls, and avoided the early focus on emission defects contemplated by the regulations. TOYOTA’s conduct likely resulted in delayed or avoided recalls, with TOYOTA obtaining a significant economic benefit, pushing costs onto consumers, and lengthening the time that unrepaired vehicles with emission-related defects remained on the road.
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In the consent decree lodged with the federal court today, TOYOTA admits, acknowledges, and accepts responsibility for the following:
- Between approximately 2005 and late 2015, TOYOTA routinely filed emission defect reports to EPA materially late and, in many cases, failed to file such reports at all until a self-disclosure of non-compliance in late 2015.
Representations to EPA
- In March and May 2002, at EPA’s request, TOYOTA and EPA representatives met to discuss TOYOTA’s internal process for identifying whether 25 instances of a specific emission-related defect exist in vehicles or engines of the same model year, requiring an EDIR filing.
- At a first meeting in March 2002, TOYOTA described its EDIR process in which TOYOTA would investigate whether it had 25 defects only upon receiving 25 “product reports” from its dealers, but would supplement that review by filing an EDIR upon receiving warranty claims for an emission-related part in 4% of TOYOTA’s California fleet (a threshold requiring a separate filing to state authorities under California law).
- At the meeting, EPA rejected this EDIR process as not timely considering warranty claims, despite the incorporation of the 4% California trigger.
- At a May 2002 meeting with EPA, Toyota presented its revised process. Under that process, Toyota would commence an investigation to determine whether an EDIR filing was required when it had received warranty claims for an emission-related part for 1% of relevant vehicles nationwide; when it received 500 such warranty claims regardless of the percentage; or when it received 25 similar early warning reports.
- TOYOTA noted internally that EPA seemed pleased with this approach, which EPA had described as “more stringent than California.”
- In 2003, 2004, and 2005, as part of an annual review, TOYOTA submitted its May 2002 process in writing to EPA as an overview of its EDIR reporting program.
TOYOTA’s Conduct from Approximately 2005 to 2015
- Without notifying EPA, in approximately 2005, TOYOTA stopped following the May 2002 EDIR process.
- In approximately 2005, TOYOTA began filing EDIRs primarily when filing the California reports triggered by the 4% threshold. TOYOTA also filed EDIRs in a small number of instances when it was otherwise filing VERRs with EPA.
- From approximately 2005 to 2015, TOYOTA stopped making any independent determination of whether 25 defects existed requiring an EDIR filing.
- Multiple times during this period, TOYOTA staff charged with preparing EDIRs identified that the plain language of the EDIR regulations called for filing an EDIR upon the identification of 25 defects, but that TOYOTA was not doing so. These staff did not cause TOYOTA to change its practice.
- As a result of this conduct, TOYOTA filed at least 69 EDIRs materially late. Thirty-nine of these were filed materially late in the ordinary course of TOYOTA’s business. In late 2015, TOYOTA self-disclosed another 30 that had not been filed at all. Some EDIRs were ultimately filed as many as eight years after they were due.
- Beyond EDIRs, TOYOTA also failed during this period to file 20 VERRs required for emission-related recall campaigns that it conducted and failed to file more than 200 Quarterly Reports related to such campaigns.
- Between 2005 and 2015, TOYOTA failed to provide its employees with adequate training, resources, or oversight to ensure that TOYOTA complied with its reporting obligations to EPA.
- As a result of TOYOTA’s conduct, EPA did not timely receive mandated information regarding emission-related defects and recalls.
Notice of the proposed consent decree will be published in the Federal Register and the public will have the opportunity to submit comments on the consent decree for a period of at least 30 days before it is submitted for the Court’s approval.
Acting U.S. Attorney Strauss thanked the attorneys in EPA’s Air Enforcement Division, the program staff at EPA’s Office of Transportation and Air Quality, and the agents at EPA’s Criminal Investigative Division for their critical work on this case. Acting U.S. Attorney Strauss also thanked the ENRD attorneys who assisted in the matter.
This case is being handled by the Environmental Protection Unit of the Office’s Civil Division. Assistant U.S. Attorneys Robert William Yalen, Dominika Tarczynska, and Jennifer Jude are in charge of the case.
Senior NASA Scientist Pleads Guilty to Making False Statements Related to Chinese Thousand Talents Program Participation and ProfessorshipRead the Press Release
Audrey Strauss, the Acting United States Attorney for the Southern District of New York (“USAO”), William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Mark J. Zielinski, Special Agent in Charge of the Eastern Field Office, National Aeronautics and Space Administration Office of Inspector General (“NASA OIG”), announced that MEYYA MEYYAPPAN, a senior NASA scientist, pled guilty today to making false statements to the FBI, NASA OIG, and the USAO. MEYYAPPAN pled guilty in Manhattan federal court before U.S. District Judge P. Kevin Castel.
Acting U.S. Attorney Audrey Strauss said: “Meyya Meyyappan held a trusted position at NASA, with access to valuable intellectual property. In violation of the terms of his employment and relevant laws and regulations, Meyyappan failed to disclose participation in a Chinese government recruitment program, and subsequently lied about it to NASA investigators, FBI agents, and our Office. Now, having admitted his crime, Meyyappan awaits sentencing.”
FBI Assistant Director William F. Sweeney Jr. said: “Members of U.S. government agencies are strictly prohibited from maintaining undisclosed affiliations with foreign entities, especially those that are actively seeking our intellectual property and technological advances. Meyyappan violated this sacred rule, and then lied to FBI agents about it. Actions like those carried about by Meyyappan can have security implications, and his charges should serve as a warning to others thinking about engaging in the same type of activity.”
NASA OIG Special Agent in Charge Mark J. Zielinski said: “Certain NASA employees are required to disclose affiliations with foreign entities in order to protect NASA’s intellectual property. Failure to do so could allow malicious foreign actors unauthorized access to American taxpayer funded technologies. We thank the FBI and the USAO, SDNY for their assistance throughout this investigation.”
According to the allegations in the Information filed today in Manhattan federal court and other proceedings in this case:
Since in or about 1996, MEYYAPPAN, the defendant, has been employed by NASA, an independent U.S. government agency responsible for the civilian space program, as well as aeronautics and aerospace research. Since in or about 2006, MEYYAPPAN has been Chief Scientist, Exploration Technology at the Center for Nanotechnology, at NASA’s Ames Research Center at Moffett Field in Silicon Valley, California.
In his position at NASA, MEYYAPPAN was subject to certain statutory, regulatory, and agency restrictions and reporting requirements regarding, among other things, outside employment, travel, and compensation. Notwithstanding these prohibitions, MEYYAPPAN participated in China’s Thousand Talents Program, a program established by the Chinese government to recruit individuals with access to or knowledge of foreign technology or intellectual property, and held professorships at universities in China, South Korea, and Japan, and failed to disclose these associations and positions to NASA and the U.S. Office of Government Ethics.
On or about October 27, 2020, MEYYAPPAN was interviewed by the FBI, NASA OIG, and the USAO, in New York, New York. During that interview, MEYYAPPAN falsely stated, among other things, that he was not a member of the Thousand Talents Program and that he did not hold a professorship at a Chinese university. In truth and in fact, MEYYAPPAN was a member of the Thousand Talents Program and held a professorship at a Chinese university, funded by the Chinese government.
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MEYYAPPAN, 66, of Pacifica, California was charged with one count of making false statements, which carries a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. 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. MEYYAPPAN is scheduled to be sentenced before Judge Castel on June 16, 2021, at 2:00 p.m.
Ms. Strauss praised the outstanding work of the FBI and NASA OIG.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney Joshua A. Naftalis is in charge of the prosecution.