Southern District of New York
Press releases recorded for this federal judicial district.
Three Individuals Arrested and Charged for Drug-Related Murder in the BronxRead the Press Release
Preet Bharara, 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 James P. O’Neill, the Commissioner of the New York City Police Department (“NYPD”), announced today charges against three individuals, SEAN PETER, a/k/a “Huggie,” JASON CAMPBELL, a/k/a “Holiday,” a/k/a “Fish,” and STEVEN SYDER, a/k/a “Esteban,” in connection with the drug-related murder of 19-year-old Brian Gray in the Bronx on October 2, 2012. PETER, CAMPBELL, and SYDER were arrested today and will be presented before Magistrate Judge James C. Francis IV. The case has been assigned to United States District Judge Naomi Reice Buchwald.
Manhattan U.S. Attorney Preet Bharara stated: “The defendants are charged with shooting and killing a young man on the streets of the Bronx to further their alleged narcotics business. Drug-related violence threatens the safety and security of all New Yorkers, and we will continue to make our streets and neighborhoods safe. We commend our partners at the FBI and NYPD for the exemplary work that led to the charges brought today.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. stated: “Drug dealers use violence and intimidation to assert their dominance over others they see as potential rivals in their territory. That violence often results in someone being shot and killed, and the community more fearful that the violence won’t stop. The FBI/NYPD Violent Crimes Task Force works day after day to prevent these criminals from returning to the streets, and to stop the cycle of crime.”
NYPD Commissioner James P. O’Neill stated: “I commend the efforts of the detectives and prosecutors whose hard work resulted in the arrest of three defendants, charged in this homicide. The NYPD will continue to target those who mar our communities with drugs and violence, ensuring that those responsible are brought to justice.”
As alleged in the Indictment unsealed today in Manhattan federal court[1]:
In 2012, PETER, CAMPBELL, and SYDER conspired to distribute and possess with intent to distribute marijuana. On October 2, 2012, PETER, CAMPBELL, and SYDER participated in the killing of Brian Gray by shooting him in furtherance of that marijuana distribution conspiracy. The murder took place in the vicinity of 3309 Barker Avenue in the Bronx, New York.
Count One charges PETER, CAMPBELL, and SYDER with conspiring to distribute and possess with intent to distribute marijuana, which carries a maximum sentence of five years in prison.
Count Two charges PETER, CAMPBELL, and SYDER with using a firearm to murder Gray in connection with the marijuana distribution conspiracy, which carries a maximum sentence of death, or life in prison.
Count Three charges PETER, CAMPBELL, and SYDER with brandishing and discharging a firearm in connection with the marijuana distribution conspiracy, which carries a maximum sentence of life 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 Court.
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PETER, 33, CAMPBELL, 30, and SYDER, 33, are all of the Bronx, New York.
Mr. Bharara praised the outstanding investigative work of the FBI-NYPD Joint Bank Robbery/Violent Crimes Task Force. He also thanked the Teaneck, New Jersey, Police Department for all of their assistance and support in the ongoing investigation.
The case is being handled by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Sagar K. Ravi, Michael Gerber, and Hadassa Waxman are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Charges Two Individuals in $17 Million Real Estate ScamRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Patricia Tarasca, the Special Agent-in-Charge of the New York Region for the Federal Deposit Insurance Corporation Office of Inspector General (“FDIC-OIG”), announced the unsealing today of an indictment charging ISSAK ALMALEH, a/k/a “Issak Izrael,” and ANTOANETA IOTOVA with conspiracy to commit bank fraud, bank fraud, wire fraud, and making false statements to the FDIC, in connection with a wide-ranging scheme to falsely claim ownership of more than $17 million worth of property in New York and Florida. As alleged, ALMALEH and IOTOVA used forged documents to claim ownership of real estate in New York and Florida, and then used those real estate documents to victimize individuals and tenants. ALMALEH and IOTOVA were arrested today in Hollywood, Florida, and will be presented later today in federal court in Fort Lauderdale, Florida. The case is assigned to Chief U.S. District Judge Colleen McMahon.
Manhattan U.S. Attorney Preet Bharara said: “Issak Almaleh and Antoaneta Iotova allegedly forged documents to falsely claim ownership over $17 million of property in New York and Florida. As alleged, the defendants’ brazen scheme led to at least one victim being wrongfully evicted from the victim’s own home and others signing leases and paying deposits to the defendants for homes the defendants did not actually own. Thanks to the work of the FDIC Office of Inspector General, the defendants’ alleged frauds have now been foreclosed.”
FDIC Special Agent-in-Charge Patricia Tarasca said: “The FDIC Office of Inspector General is committed to investigating allegations of fraudulent activity that threatens to harm FDIC-insured financial institutions. Our office worked vigorously to uncover the details of this alleged real estate foreclosure scam to ensure integrity in the banking industry and hold guilty parties accountable.”
According to the allegations contained in the Indictment unsealed today in Manhattan federal court[1]:
The Scheme to Defraud Banks
From at least 2012, ALMALEH and IOTOVA have filed fraudulent and forged property deeds purporting to transfer ownership of more than 40 real properties located in New York City and the greater Miami, Florida, area, with a combined estimated market value in excess of $17 million, to entities controlled by ALMALEH and IOTOVA, specifically, New York Sport Foundation, New York Mortgage Corporation, and Women in International Relations, Inc.
ALMALEH and IOTOVA identified properties that had been subject to foreclosure, and were owned by financial institutions insured by the FDIC. ALMALEH and IOTOVA then filed fraudulent and forged warranty deeds that supposedly reflected the transfer of these properties from the financial institutions to entities controlled by ALMALEH and IOTOVA for a nominal sum. ALMALEH, who was a commissioned notary, would notarize the documents as genuinely signed by representatives of the financial institutions. IOTOVA would sign the documents on behalf of the entities controlled by the defendants.
In furtherance of their scheme, in 2015, ALMALEH and IOTOVA also submitted a false application for FDIC insurance and certification, seeking to have the FDIC certification of an FDIC-insured bank (“Bank-1”) transferred to their control.
The Scheme to Defraud Individuals
After ALMALEH and IOTOVA filed deeds purporting to transfer ownership of the properties, ALMALEH and IOTOVA used the deeds to victimize other individuals. On at least one occasion, in 2015, ALMALEH and IOTOVA evicted a bona fide purchaser (“Victim-1”) from a property in Hollywood, Florida (“Property-1”), that had been falsely claimed by ALMALEH and IOTOVA. Using a fraudulent deed indicating that Victim-1’s property belonged to New York Mortgage Corporation, ALMALEH, using the name “Issak Izrael,” and IOTOVA obtained the assistance of the local police in temporarily evicting Victim-1 from Victim-1’s residence. ALMALEH and IOTOVA proceeded to change the locks to the doors on Property-1, until an emergency court hearing permitted Victim-1 to remain in residence at Property-1.
On another occasion, in 2016, ALMALEH and IOTOVA used documents falsely claiming ownership of a property in Hallandale Beach, Florida (“Property-2”), in order to defraud consumers into falsely entering into lease agreements for Property-2. Two victims (“Victim-2” and “Victim-3”) separately responded to an online advertisement indicating that the units in Property-2 were available for rent. Victim-2 and Victim-3 met with IOTOVA and entered into lease agreements for the units in Property-2. The lease agreements were signed by ALMALEH. In addition to signing a lease agreement, Victim-2 provided IOTOVA with $2,000 in cash, and Victim-3 provided IOTOVA with $900 in cash. A few days later, however, the locks on the doors at Property-2 were changed, and Victim-2 and Victim-3 were notified by the financial institution that was the true owner of Property-2 (“Bank-2”) that their lease agreements were invalid and that they would have to vacate Property-2.
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ALMALEH, 63, and IOTOVA, 51, of Hollywood, Florida, are each charged with one count of conspiracy to commit bank fraud, one count of bank fraud, and one count of making false statements to the FDIC, each of which carries a maximum sentence of 30 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 defendants will be determined by the judge.
Mr. Bharara praised the investigative work of the FDIC Office of Inspector General. Mr. Bharara also thanked the New York City Sheriff’s Office, the Hollywood, Florida, Police Department, the Broward County Sheriff’s Department, and the Broward County Property Appraiser’s Office for their assistance in the investigation. Mr. Bharara noted that the investigation remains ongoing.
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 the Victim/Witness Unit at the United States Attorney’s Office for the Southern District of New York, at (866) 874-8900. For additional information, go to http://www.usdoj.gov/usao/nys/victimwitness.html.
The prosecution of this case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys David W. Denton Jr. and Robert Sobelman are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Eleven Defendants Charged in White Plains Federal Court with Narcotics Offenses in Sullivan CountyRead the Press Release
Preet Bharara, 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 Division of the Federal Bureau of Investigation (“FBI”); James R. Farrell, the Sullivan County District Attorney; George Beach, the Superintendent of the New York State Police (“NYSP”); Michael A. Schiff, the Sullivan County Sheriff; Scott Kinne, the Chief of the Village of Liberty Police; and Robert Mir, the Chief of the Village of Monticello Police Department, today announced the unsealing of three Indictments charging 11 members of three separate drug trafficking organizations based in Sullivan County, New York, with conspiracy to distribute heroin and crack cocaine. In a coordinated operation earlier today, federal, state, and local law enforcement officers arrested seven defendants in Sullivan County. One of the charged defendants had already been arrested. Three defendants remain at large. Most of the defendants are expected to be presented in White Plains federal court today before U.S. Magistrate Judge Judith C. McCarthy.
Manhattan U.S. Attorney Preet Bharara stated: “Every day, in communities around the country, we witness the devastating effects of the heroin trade. With today’s charges, made possible by the work of the FBI and our local law enforcement partners, we seek to help stem the flow of heroin and crack cocaine in Sullivan County.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. stated: “This case is part of our continuing effort in the Hudson Valley area to eradicate the tragic loss of life that is so closely associated with those involved in the drug trade. Heroin is killing more people in this country than ever before, and the FBI Hudson Valley Safe Streets Task Force is doing everything we can to stop these dealers from using this potentially lethal drug so they can make money.”
Sullivan County District Attorney James R. Farrell stated: “Today’s arrests mark our sustained and continued joint law enforcement effort - federal, state and local - to disrupt, dismantle, and destroy heroin trafficking organizations in Sullivan County. Our joint commitment, with our federal law enforcement partners, will continue apace so that those who engage in this deadly trade are held accountable and responsible in a court of law. I want to thank U.S. Attorney Preet Bharara for his continued support of these efforts in Sullivan County, and all of the local police agencies in Sullivan County that have multiplied our impact in disrupting heroin trafficking by successfully partnering with the FBI Safe Streets Task Force.”
NYSP Superintendent George P. Beach II said: “Thanks to the hard work and partnership of law enforcement at the state, federal, and local level, we have arrested and charged these 11 individuals, who are allegedly responsible for trafficking heroin and cocaine throughout Sullivan County. These narcotics are dangerous for users, and threaten the safety and security of our neighborhoods. We will continue to work with our partners to aggressively pursue the criminals who profit at the expense of our communities.”
Sullivan County Sheriff Michael A. Schiff stated: “This is another significant step forward in our initiative to curtail gangs and drug sales in Sullivan County. I would like to thank all of the agencies involved in these arrests. We are much more effective working together than separately.”
Village of Liberty Police Chief Scott Kinne stated: “Heroin is poisoning our communities and our citizens, especially our youth. Targeting and arresting the dealers who choose to distribute heroin and cocaine into our communities will make our communities a safer place to work and raise our children.”
Village of Monticello Police Chief Robert Mir stated: “The Monticello Police Department, the United States Attorney for the Southern District of New York, the FBI, the Sullivan County District Attorney and our other partners in law enforcement have been investigating these drug organizations for a long time and today’s arrests were a culmination of that investigation. These arrests stem from a series of ongoing joint investigations that have been progressing for years. The unsealing of three federal indictments, and arrests, underscore our commitment to combat the ongoing drug trade in our community, which has so severely affected the youth of Sullivan County. We hope that these arrests will go a long way toward curbing the opiate epidemic in Sullivan County and thereby improving the quality of life. At the conclusion of our past operations, we warned drug dealers. Today we issue another warning: We have other ongoing investigations, we know who you are, where to find you and we will get you. We will not stop.”
As alleged in the Indictments unsealed today in White Plains federal court[1]:
ROSHEEN HILLIARD, a/k/a “Nyce,” a/k/a “Ghost,” a/k/a “Cutt,” a/k/a “Daddy,” 37, JERMAINE DRAYTON, a/k/a “Jerm,” 40, JESENIA FIELDS, 29, and LEON FOUNTAIN, a/k/a “Tiger,” 35, are charged in an indictment with conspiring to distribute and possess with intent to distribute one kilogram or more of heroin from at least 2013 through December 2016. This drug trafficking organization was led by HILLIARD and primarily operated in and around Sullivan County, New York.
AVERY AUBAIN, a/k/a “Dog,” 23, KATRINA BRIDGES, a/k/a “Trina,” 36, PAUL HERSHEWSKY, a/k/a “Hersh,” 38, TYRELL IVORY, a/k/a “Rell,” 23, JESSE KREBS, 27, and WILLIAM SOMERS, a/k/a “Billy,” 43, are charged in an indictment with conspiring to distribute and possess with intent to distribute one kilogram or more of heroin from at least 2013 through May 2016. AUBAIN and his alleged coconspirators distributed heroin in and around the Village of Liberty, New York, and other locations in Sullivan County, New York.
TERRY COVINGTON, 37, is charged in an indictment with conspiracy to distribute and possess with intent to distribute 28 grams or more of crack cocaine in and around Sullivan County, New York.
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Charts containing the names of the defendants who were charged today, and the charges and maximum penalties they face, are attached. The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the respective judges.
Mr. Bharara praised the outstanding investigative work of the FBI, the New York State Police, the Sullivan County Sheriff’s Department, the Village of Monticello Police Department, and the Village of Liberty Police Department. Mr. Bharara also thanked the Sullivan County District Attorney’s Office for its ongoing assistance in the case.
These cases are being handled by the Office’s White Plains Division. Assistant United States Attorneys Maurene Comey and Gillian Grossman are in charge of the prosecutions.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
CHARGE(S)
DEFENDANT(S)
MAXIMUM PENALTIES
Narcotics conspiracy
(Conspiracy to distribute and possess with intent to distribute one kilogram or more of heroin.)
ROSHEEN HILLIARD,
a/k/a “Nyce,”
a/k/a “Ghost,”
a/k/a “Cutt,”
a/k/a “Daddy,”
JERMAINE DRAYTON,
a/k/a “Jerm,”
JESENIA FIELDS, and
LEON FOUNTAIN,
a/k/a “Tiger”
Life in prison
Mandatory minimum:
10 years in prisonNarcotics conspiracy
(Conspiracy to distribute and possess with intent to distribute one kilogram or more of heroin.)
AVERY AUBAIN,
a/k/a “Dog,”
KATRINA BRIDGES,
a/k/a “Trina,”
PAUL HERSHEWSKY,
a/k/a “Hersh,”
TYRELL IVORY,
a/k/a “Rell,”
JESSE KREBS, and
WILLIAM SOMERS,
a/k/a “Billy”
Life in prison
Mandatory minimum:
10 years in prisonNarcotics conspiracy
(Conspiracy to distribute and possess with intent to distribute 28 grams or more of crack cocaine.)
TERRY COVINGTON
40 years in prison
Mandatory minimum:
five years in prison
[1] As the introductory phrase signifies, the entirety of the text of the Indictments and the descriptions of the Indictments set forth below constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Settles Lending Discrimination Suit Against JPMorgan Chase for $53 MillionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed and settled a federal civil rights lawsuit against JPMORGAN CHASE BANK, N.A. (“CHASE”) alleging discrimination on the basis of race and national origin in the conduct of its wholesale lending business, in violation of the Fair Housing Act (“FHA”) and the Equal Credit Opportunity Act (“ECOA”). The Consent Order between the parties was approved today by the Honorable Alison J. Nathan.
Manhattan U.S. Attorney Preet Bharara said: “Today’s settlement will compensate thousands of African-American and Hispanic borrowers who paid higher rates and fees on Chase mortgages than similarly situated white borrowers. In the settlement announced today, Chase admits the Government found that the bank’s wholesale lending brokers charged minority borrowers more than white borrowers in the same position. Such unequal treatment is not only unfair, but a violation of the Fair Housing Act.”
According to the stipulation of fact agreed to by the parties in the Consent Order, filed in federal court in Manhattan:
• Prior to January 2006 and continuing until early 2009, Chase originated and funded residential mortgage loans through a wholesale channel. Applications for these loans were brought to Chase by thousands of independent mortgage brokers throughout the United States who had entered into contracts with Chase for the purpose of bringing mortgage loan applications to it for origination and funding.
• From 2006 to 2009, approximately 360,000 wholesale mortgage loans were sourced by these independent brokers and brought to Chase. Of these, Chase reported that approximately 40,000 wholesale loans were made to African-American borrowers and that approximately 66,000 wholesale loans were made to Hispanic borrowers. Chase closed its wholesale channel in 2009.
• The government’s data model projects that, from at least 2006 through late 2009, certain of the approximately 106,000 African-American and Hispanic borrowers who obtained loans through independent mortgage brokers participating in Chase’s wholesale channel paid higher rates and fees on “wholesale” home mortgage loans compared to the rates and fees paid by similarly situated white borrowers who obtained loans through independent mortgage brokers participating in Chase’s wholesale channel. It projects that in thousands of instances, an African-American borrower entering into the same type of Chase wholesale mortgage as a white borrower paid higher loan rates and larger fees than such white borrower. Similarly, it projects that in thousands of instances, a Hispanic borrower entering into the same type of Chase wholesale mortgage as a white borrower paid higher loan rates and larger fees than such white borrower.
To compensate the estimated 50,000 African-American and Hispanic borrowers who paid higher rates and fees than similarly situated white borrowers, CHASE has agreed to create a settlement fund in the amount of approximately $53 million. CHASE has further agreed to retain an administrator to manage the settlement fund and to locate borrowers who may qualify for compensation. Borrowers who are African American and/or Hispanic and who obtained a mortgage through CHASE’s wholesale channel from 2006 through 2009 should be contacted by the administrator in the next several months, or can contact the United States Attorney’s Office directly, by contacting the Civil Rights Complaint Line at (212) 637-0840, using the Civil Rights Complaint Form available on the United States Attorney’s Office’s website http://www.justice.gov/usao/nys/civilrights.html, or by sending a written claim to:
U.S. Attorney’s Office, Southern District of New York
86 Chambers Street, 3rd Floor
New York, New York 10007
Attention: Chief, Civil Rights Unit
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Jean-David Barnea and David J. Kennedy are in charge of the case.
Former FBI Employee Sentenced in Manhattan Federal Court to 24 Months in Prison for Acting as an Agent of ChinaRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Mary B. McCord, Acting Assistant Attorney General for National Security, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that Kun Shan Chun, a/k/a “Joey Chun,” was sentenced to serve 24 months in prison and pay a $10,000 fine based on his conviction for acting in the United States as an agent of the People’s Republic of China (“China”), without providing prior notice to the Attorney General. CHUN pled guilty on August 1, 2016. U.S. District Judge Victor Marrero imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Kun Shan Chun, an FBI employee, was supposed to work to protect and serve the American people. But instead, he acted as a secret agent of China. For that betrayal, Chun has now been sentenced to federal prison.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “The FBI continues to be vigilant in an effort to warn American industries, businesses and institutions of the dangers posed by the insider threat. This investigation validates that we at the FBI are not immune to the threat of an insider. The FBI will continue to diligently protect its equities, and those of both our U.S. intelligence community partners and those in the private sector, from insiders looking to steal our information and use it against us.”
According to the Information filed against CHUN, other documents publicly filed in this case, and statements made during court proceedings, including today’s sentencing:
CHUN, a native of China and a naturalized citizen of the United States, began working at the FBI’s New York Field Office in approximately 1997 as an electronics technician assigned to the Computerized Central Monitoring Facility of the FBI’s Technical Branch. In approximately 1998, and in connection with his employment, the FBI granted CHUN a Top Secret security clearance, and his duties included accessing sensitive and, in some instances, classified information. As discussed in more detail below, in connection with a progressive recruitment process, CHUN received and responded to requests from Chinese nationals and at least one Chinese government official (“Chinese Official-1”), at least some of whom were aware that CHUN worked at the FBI.
On multiple occasions prior to his arrest in March 2016, while engaging in a prolonged and concerted effort to conceal from the FBI his illicit relationships with these individuals, CHUN disclosed to Chinese Official-1 – at minimum – information regarding the FBI’s personnel, structure, technological capabilities, general information regarding the FBI’s surveillance strategies, and certain categories of surveillance targets.
CHUN’s Purported Consulting for Zhuhai Kolion Technology Company Ltd.
Beginning in at least 2005, CHUN and certain of his relatives maintained relationships with Chinese nationals purporting to be affiliated with a company in China named Zhuhai Kolion Technology Company Ltd. (“Kolion”). CHUN maintained an indirect financial interest in Kolion, including through a previous investment by one of his relatives. In connection with these relationships, Chinese nationals asked CHUN to perform research and consulting tasks in the United States, purportedly for the benefit of Kolion, in exchange for financial benefits, including partial compensation for international trips as well as cash payments made to CHUN’s relative.
Between 2006 and 2010, CHUN’s communications and other evidence reflect inquiries to CHUN from purported employees of Kolion while CHUN was in the United States, as well as efforts by CHUN to collect, among other things, information regarding solid-state hard drives and printer cartridges.
CHUN’s Relationship with Chinese Official-1
CHUN was introduced to Chinese Official-1 in approximately 2007 and subsequently provided Chinese Official-1 with sensitive information from the FBI. During a trip to Italy and France in 2011, CHUN met with Chinese Official-1. Chinese Official-1 indicated that he worked for the Chinese government, and that he knew CHUN worked for the FBI. During subsequent private meetings conducted abroad between CHUN and Chinese Official-1, Chinese Official-1 asked questions about sensitive, nonpublic FBI information. During those meetings, CHUN disclosed, among other things, the identity and potential travel patterns of an FBI Special Agent.
In approximately 2012, the FBI conducted a routine investigation relating to CHUN’s Top Secret security clearance. In an effort to conceal his relationships with Chinese Official-1 and the other Chinese nationals purporting to be affiliated with Kolion, CHUN repeatedly lied on a standardized form related to the security clearance investigation. During the period between 2000 and CHUN’s termination, CHUN also reported to the FBI that he had traveled to the areas of Hong Kong and China approximately nine times, as well as additional trips to Canada, Thailand, Europe, Australia, and New Zealand. CHUN was required by FBI policy to disclose anticipated and actual contact with foreign nationals during his international travel, but he lied on numerous pre- and post-trip FBI debriefing forms by omitting his contacts with Chinese Official-1, other Chinese nationals, and Kolion.
Examples of CHUN’s Actions in the United States in Response to Requests from Chinese Official-1
Chinese Official-1 asked CHUN on multiple occasions for information regarding the internal structure of the FBI. In response to those requests, in approximately March 2013, CHUN downloaded an FBI organizational chart from his FBI computer in Manhattan. CHUN later admitted to the FBI that, after editing the chart to remove the names of FBI personnel, he saved the document on a piece of digital media and caused it to be transported to Chinese Official-1 in China.
Chinese Official-1 also asked CHUN for information regarding technology used by the FBI. In approximately January 2015, CHUN took photographs of documents displayed in a restricted area of the FBI’s New York Field Office, which summarized sensitive details regarding multiple surveillance technologies used by the FBI. CHUN sent the photographs to his personal cell phone, and later admitted to the FBI that he caused the photographs to be transported to Chinese Official-1 in China.
CHUN’s Admissions to an FBI Undercover Employee
In about February 2015, the FBI caused an undercover employee (the “UCE”) to be introduced to CHUN. The UCE purported to be employed by an independent contractor.
During a March 2015 recorded meeting, CHUN told the UCE about his relationship with Kolion and Chinese nationals. In a subsequent recorded meeting in March 2015, CHUN explained to the UCE that Kolion had “government backing,” and that approximately five years earlier a relative met a “section chief” who CHUN believed was associated with the Chinese government.
In June 2015, during a recorded meeting, CHUN told the UCE that he had informed his Chinese associates that the UCE may be in a position to assist them. CHUN said that he wished to act as a “sub-consultant” to the UCE and wanted the UCE to “pay” him “a little bit.” In July 2015, after coordinating travel in an effort to introduce the UCE to CHUN’s Chinese associates, CHUN met with the UCE twice. During one of the meetings, CHUN stated that he knew “firsthand” that the Chinese government was actively recruiting individuals who could provide assistance, and that the Chinese government was willing to provide immigration benefits and other compensation in exchange for such assistance. The UCE told CHUN that he had access to sensitive information from the United States government. CHUN responded that his Chinese associates would be interested in that type of information, but that CHUN expected a “cut” of any payment that the UCE received for providing information to the Chinese government.
CHUN’s Arrest by the FBI and Confession
CHUN was arrested by the FBI on March 16, 2016. He subsequently confessed to most of the foregoing activities, including having taken steps to collect sensitive FBI information in the United States in response to taskings from Chinese Official-1. CHUN explained that he was motivated in part by the financial benefits that he and others derived from these relationships, but also admitted that he understood that he had provided assistance to the Chinese government.
The Seizure of Additional Sensitive FBI Information from CHUN’s Residence
The FBI searched CHUN’s residence pursuant to a search warrant around the time of his arrest. Agents found a .40 caliber handgun and an AR-15 rifle in CHUN’s basement, neither of which was registered in New York. The FBI also seized from CHUN’s residence a thumb drive that contained three files with sensitive FBI information dating back to approximately 2006 and 2007. CHUN’s job at the FBI did not require him to work from home, and there is no legitimate reason for him to have possessed these files at his residence. One file – which had a “date modified” of January 19, 2007 – was marked with a security header that read “FBI sensitive information for official use only.” The document described technical details of FBI surveillance infrastructure, including specific information about networks used to store highly sensitive, classified data. The second file contained information relating to ways in which FBI employees could access raw intelligence information, and it included network details and unique usernames for ten FBI employees. The third file – which had a “date modified” of July 20, 2007 – contained a spreadsheet dated June 2, 2006, that included names and telephone numbers of FBI personnel with jobs similar to CHUN’s position, as well as telephone numbers for lines that Electronics Technicians such as CHUN would have used to configure or troubleshoot network issues with the FBI’s New York Office.
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In addition to the prison sentence and fine, Judge Marrero also sentenced CHUN, 47, to one year of supervised release and to pay a $100 special assessment.
Mr. Bharara praised the outstanding investigative work of the FBI’s Counterintelligence Division. Mr. Bharara also thanked the Counterintelligence and Export Control Section of the Department of Justice’s National Security Division.
The prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Emil J. Bove III and Andrea L. Surratt are in charge of the prosecution, with assistance from Trial Attorneys Thea D. R. Kendler and David C. Recker of the Counterintelligence and Export Control Section.
Manhattan U.S. Attorney Announces $50 Million Settlement with Walgreens for Paying Kickbacks to Induce Beneficiaries of Government Healthcare Programs to Fill Their Prescriptions at Walgreens’ PharmaciesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Scott J. Lampert, Special Agent in Charge of the New York Office of the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), and Craig Rupert, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service, Department of Defense, Office of Inspector General (“DoD-OIG”), announced today a $50 million settlement in a civil fraud lawsuit against WALGREEN CO. (“WALGREENS”), a nationwide retail pharmacy chain that owns and operates thousands of retail pharmacies throughout the United States. The settlement resolves claims that WALGREENS violated the federal Anti-Kickback Statute (“AKS”) and False Claims Act (“FCA”) by enrolling hundreds of thousands of beneficiaries of government healthcare programs (“government beneficiaries”) in its Prescription Savings Club program (“PSC program”). Specifically, the Government’s Complaint alleges that Walgreens violated the AKS and FCA by providing government beneficiaries with discounts and other monetary incentives under the PSC program, in order to induce them to patronize WALGREENS’ pharmacies for all of their prescription drug needs. The Complaint further alleges that WALGREENS understood that allowing government beneficiaries to participate in the PSC program was a violation of the AKS, but that it nevertheless marketed the program to government beneficiaries and paid its employees bonuses for each customer they enrolled in the program, without verifying whether the customers were government beneficiaries. The settlement will also resolve numerous state law civil fraud claims.
U.S. District Court Judge J. Paul Oetken has approved a settlement agreement to resolve the Government’s claims against WALGREENS. Under the settlement, WALGREENS is required to pay approximately $46.21 million to the United States and has admitted and accepted responsibility for conduct alleged in the Government’s Complaint. Further, as part of the settlement, WALGREENS will pay approximately $3.79 million to resolve the state law civil fraud claims.
Manhattan U.S. Attorney Preet Bharara said: “Recognizing that it was a violation of the Anti-Kickback Statute to enroll government beneficiaries in its discount program, Walgreens nonetheless marketed the program to government beneficiaries and incentivized its employees to enroll customers in the program, regardless of whether they were government beneficiaries. As a result, Walgreens ended up unlawfully enrolling hundreds of thousands of government beneficiaries. With today’s settlement, Walgreens is being made to pay $50 million and has admitted to its conduct.”
HHS-OIG Special Agent in Charge Scott J. Lampert said: “The sheer scope of this nationwide kickback scheme is shocking. Walgreens admits to having paid bonuses to employees for enrolling customers in its prescriptions savings program without verifying whether the customers were Medicare or Medicaid beneficiaries, despite stated company policy against enrolling such beneficiaries based on federal statutes. Today’s settlement is a message to other retailers that there will be consequences for such conduct.”
DoD-OIG Special Agent in Charge Craig Rupert said: “This settlement is evidence of the continuing efforts of the Defense Criminal Investigative Service and our law enforcement partners to identify, investigate, and prosecute significant threats to the DoD health care system. DCIS will continue to aggressively investigate allegations of fraud and abuse harmful to U.S. taxpayers and the Department of Defense.”
As alleged in the Complaint and set forth in the parties’ Settlement Agreement, both of which have been filed in Manhattan federal court:
WALGREENS launched the PSC program in 2007. Throughout the period January 2007 through December 2010, the PSC program provided members with discounts on thousands of brand-name and generic drugs, as well as a 10 percent rebate on all WALGREENS’ branded products, including household products, baby-care products, most grocery items, and non-prescription medications. WALGREENS intended these lower drug prices and other monetary benefits to be an inducement to its existing and potential customers to cause them to patronize WALGREENS for all of their pharmacy needs. WALGREENS hoped that by offering these significant benefits to its customers, it would prevent them from taking their pharmacy business to WALGREENS’ competitors.
WALGREENS recognized that allowing government beneficiaries to participate in the PSC program would violate the AKS. Specifically, WALGREENS recognized that the features of the PSC program that made it attractive to its customers generally would constitute an illegal kickback when provided to government beneficiaries, as such features would induce government beneficiaries to patronize WALGREENS for all of their prescription medication needs, including those paid for in whole or in part by government healthcare programs. Accordingly, WALGREENS consistently maintained in its published materials regarding the PSC program that government beneficiaries were ineligible to participate in the program.
Notwithstanding WALGREENS’ understanding that allowing government beneficiaries to participate in the PSC program would violate the AKS, WALGREENS consistently marketed the PSC program to government beneficiaries. WALGREENS also incentivized its employees to enroll customers in the PSC program, regardless of whether they were government beneficiaries. For example, from May 2008 through August 2010, WALGREENS paid its employees from $1 to $5 for each customer they enrolled in the PSC program. In making these incentive payments, WALGREENS did not check whether the customers who had been enrolled were government beneficiaries.
Consequently, during the period January 2007 through December 2010, WALGREENS enrolled hundreds of thousands of government beneficiaries in the PSC program. These government beneficiaries included beneficiaries of the Medicare, Medicaid and TRICARE programs. Thereafter, from January 2011 through December 2015, while WALGREENS’ internal company policy continued to preclude the enrollment of government beneficiaries in the PSC program, WALGREENS continued to enroll such beneficiaries in the program.
As part of the settlement, WALGREENS admitted, acknowledged, and accepted responsibility for the following conduct:
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During the period January 1, 2007 through December 31, 2010, WALGREENS’ published materials regarding the PSC program stated that persons receiving benefits from the Medicare and Medicaid programs were not eligible to participate in the PSC program.
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In October 2007, WALGREENS identified approximately 13,000 PSC program members who it had determined were beneficiaries of the Medicare and Medicaid programs, and it removed those individuals from the PSC program. In an internal news release informing its employees of this removal, WALGREENS stated that “any customer who ha[d] any type of 3rd party coverage with a Medicare or Medicaid plan was removed from the [Prescription] Savings Club database,” and that “th[is] removal was necessary to comply with State/Federal regulations.”
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Subsequent to October 2007 and continuing through December 31, 2010, internal WALGREENS documents reflect that its stated policy to exclude Medicare and Medicaid beneficiaries from the PSC program was based on, among other things, the prohibition on offering inducements to beneficiaries of government healthcare programs reflected in the federal AKS and corresponding state anti-kickback laws.
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Notwithstanding its stated policy to exclude Medicare and Medicaid beneficiaries from the PSC program, subsequent to October 2007 and continuing through December 31, 2010, WALGREENS enrolled hundreds of thousands of Medicare and Medicaid beneficiaries in the PSC program.
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Between November 2007 and December 31, 2010, WALGREENS also enrolled more than 10,000 TRICARE beneficiaries in the PSC program.
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Prior to December 31, 2010, pharmacists at WALGREENS’ stores nationwide made tens of thousands of notations in WALGREENS’ internal customer database reflecting that specific Medicare, Medicaid, and TRICARE beneficiaries had been enrolled in the PSC program and were using the PSC program to purchase some of their prescription drugs.
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At various times between November 2007 and December 31, 2010, WALGREENS paid its employees a bonus of between $1 and $5 for each customer they enrolled in the PSC program. When paying these bonuses, WALGREENS did not verify that the customers its employees had enrolled in the PSC program were not government beneficiaries.
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Prior to December 31, 2010, WALGREENS did not have effective mechanisms in place to block government beneficiaries from enrolling in the PSC program or to monitor adequately whether government beneficiaries had been allowed to enroll in the PSC program, to ensure compliance with its stated policy to exclude such beneficiaries from the PSC program. As a result, hundreds of thousands of government beneficiaries were enrolled in the PSC program.
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Subsequent to December 31, 2010, and continuing through December 31, 2015, WALGREENS’ internal company policy continued to preclude the enrollment of government beneficiaries in the PSC program, and WALGREENS continued to enroll such beneficiaries in the program.
In connection with the filing of the lawsuit and settlement, the Government joined a private whistleblower lawsuit that had previously been filed under seal pursuant to the False Claims Act.
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Mr. Bharara thanked HHS’s Office of the Inspector General, DOD’s Office of the Inspector General, and the Medicaid Fraud Control Units for Illinois and New York for their investigative efforts and assistance with the case.
The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorney Christopher B. Harwood is in charge of the case.
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Information Technology Chief and Consultant Charged with Multimillion-Dollar False Invoicing SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the filing of a criminal complaint charging ENRICO RUBANO, a/k/a “Rick Rubano,” and SHIVANAND MAHARAJ with two counts of conspiracy to commit wire fraud in connection with a false invoicing scheme that defrauded health and retirement funds (the “Funds”) of millions of dollars. As alleged, over a period of six years, RUBANO, MAHARAJ, and their co-conspirators generated hundreds of invoices for work they had not performed, which RUBANO, in his role as co-head of information technology for the Funds, approved for payment. RUBANO and MAHARAJ were arrested this morning, and will be presented before U.S. Magistrate Judge Andrew J. Peck.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Enrico Rubano used his position as the co-head of IT for a health and retirement benefit fund to perpetrate a scheme to falsely invoice millions of dollars from the fund for consulting work never actually performed. Rubano allegedly had the fund make payments based on hundreds of fake invoices to Shivanand Maharaj’s company, not for IT work actually done by that company, but really in exchange for alleged kickback payments to Rubano. Money that should have gone to help pay retirement and health care benefits were instead allegedly diverted to Rubano and Maharaj.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “These defendants devised a scheme to falsely bill their client for work that was never performed by allegedly using an ‘inside’ employee to approve bogus invoices. They went one step too far when they decided to use the US Mail to facilitate their criminal misdeeds. Postal Inspectors will resolutely pursue fraudsters who use the U.S. mail to facilitate fraud schemes.”
According to the Complaint[1]:
From 2008 through October 2015, RUBANO was the co-head of information technology for the Funds and had the authority to approve the payment of invoices from third-party vendors. Beginning in 2009, and continuing through 2015, RUBANO, MAHARAJ, and others devised a scheme in which companies they owned or controlled submitted to the Funds invoices for millions of dollars in information technology services that were never performed or that had, in fact, been performed by employees of the Funds or other vendors. RUBANO, in his position as co-head of information technology, approved these fraudulent invoices, and received kickbacks from MAHARAJ and other co-conspirators. Between 2009 and 2015, RUBANO, MAHARAJ, and their co-conspirators falsely billed and fraudulently received from the Funds at least approximately $3.4 million.
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RUBANO, 48, of Tappan, New York, and MAHARAJ, 36, of Cresskill, New Jersey, were arrested this morning in Tappan, New York, and Cresskill, New Jersey, respectively. RUBANO and MAHARAJ are each charged with two counts of conspiracy to commit wire fraud, each of which carries a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the efforts of the USPIS in this investigation. He added that the investigation is continuing.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys Matthew Podolsky and Jacob Warren 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 forth herein constitute only allegations, and every fact described should be treated as an allegation.
Former Portfolio Manager Stefan Lumiere Convicted on All Counts in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEFAN LUMIERE, a former portfolio manager at Visium Asset Management, was convicted of conspiracy to commit securities and wire fraud, securities fraud, and wire fraud in connection with a scheme to mismark securities held in a particular fund from 2011 to 2013 in order to overstate the net asset value (“NAV”) of the fund that was reported to investors on a monthly basis. LUMIERE was convicted following a six-day jury trial presided over by U.S. District Judge Jed S. Rakoff.
U.S. Attorney Preet Bharara said: “In a swift verdict, a federal jury convicted Stefan Lumiere, a former portfolio manager at Visium, of securities and wire fraud. For years, Lumiere mismarked securities in his portfolio, using sham broker quotes and fake purchase prices to vastly overstate the value of his fund. The securities Lumiere traded may have been complex, but his criminal scheme was simple: lie and make up numbers to make more money. As the verdict reflects, the jury quickly saw Lumiere’s conduct for what it was, criminal fraud.”
According to the allegations in the charging documents and statements made in court proceedings:
Visium Asset Management
At all relevant times, Visium Asset Management (“Visium”) managed hedge funds specializing in healthcare-related investments. Visium managed a credit fund (the “Credit Fund”), which operated from in or about 2009 until in or about September 2013, and invested primarily in debt instruments issued by healthcare companies.
The Scheme to Mismark Securities
From June 2011 through September 2013, LUMIERE and others participated in a scheme to defraud the Credit Fund’s investors and potential investors by deceptively mismarking each month the value of certain securities held by the Credit Fund. The objective of the scheme was two-fold: (1) to inflate the Credit Fund’s NAV; and (2) to mislead investors about the liquidity of the Credit Fund’s holdings. Visium assessed performance fees to be paid by investors each year based on the Credit Fund’s profits and losses. LUMIERE’s mismarking was in violation of Visium’s internal valuation procedures and contrary to Visium’s representations to investors. The effect of the scheme was to overstate the Credit Fund’s NAV, often by tens of millions of dollars as calculated at the end of each month to investors.
In order to carry out the scheme, LUMIERE and others solicited, obtained, and relied on false and fraudulent price quotes from employees of broker-dealers in order to improperly override prices calculated by the Credit Fund’s administrator and artificially inflate the Credit Fund’s NAV each month. For each month-end valuation, LUMIERE and others would begin by reviewing an inventory of the Credit Fund’s investments and proposed valuations for each prepared by the Credit Fund’s administrator and Visium’s back office. LUMIERE and others would then identify those relatively illiquid securities as to which they disagreed with or disliked the proposed price, and create a list reflecting the prices at which they wanted each security to be marked for month-end valuation purposes. That price was often significantly higher or lower than the price available from public price data. LUMIERE and others would then contact one or two “friendly” brokers and dictate to the friendly brokers the price quotes that they needed. The brokers would then parrot back the price quotes from their Bloomberg email account, giving the price quotes the appearance that they had come from an independent broker, and thus were in compliance with the Credit Fund’s pricing methodology. The friendly brokers’ sham quotes were then submitted to Visium’s accounting department as purportedly independent bases for that security’s valuation, for the eventual submission to the Credit Fund’s administrator.
By obtaining these sham quotes, LUMIERE and others caused a number of the Credit Fund’s securities to be misclassified in order to mislead investors about the liquidity of the securities (i.e., how actively traded the securities were). Specifically, for a number of illiquid bonds, LUMIERE and others fraudulently caused Visium to assign a classification that led investors to believe that the bonds were relatively liquid, when in fact they were entirely illiquid. This was done contrary to disclosures to investors about the Credit Fund’s percentage of illiquid investments, in order to induce investors to invest in or keep their money in the Credit Fund.
As another method to carry out the scheme, LUMIERE purchased additional quantities of certain securities – in which the Credit Fund had an established position – at a deceptively inflated price, markedly higher than the prevailing market was offering that security, in a practice known as “painting the tape.” The inflated price was then reported to Visium’s accounting department for NAV purposes. In both cases – the sham broker quotes and the inflated purchase prices – it was LUMIERE’s intent to increase the price of certain securities in order to inflate the Credit Fund’s month-end valuation.
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LUMIERE, 46, of New York, New York, was convicted of one count of conspiracy to commit 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 also carries a maximum sentence of 20 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.
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.
Mr. Bharara praised the work of the FBI, and thanked the SEC for its assistance.
This case was brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Ian McGinley, Damian Williams, and Joshua A. Naftalis are in charge of the prosecution.
California Man Pleads Guilty in Manhattan Federal Court to Defrauding A Native American Tribe and Investors of over $60 MillionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JASON GALANIS pled guilty today to defrauding a Native American tribal entity and the investing public of tens of millions of dollars in connection with the issuance of bonds by the tribal entity. GALANIS pled guilty to conspiracy to commit securities fraud, securities fraud, and conspiracy to commit investment adviser fraud before U.S. District Judge Ronnie Abrams.
U.S. Attorney Preet Bharara said: “As Jason Galanis admitted today in his guilty plea, he and his co-conspirators cheated their tribal clients by urging them to issue bonds, and then siphoning off the proceeds for their own personal use. The defendants then sold these bonds to unwitting investors, resulting in tens of millions of dollars in losses.”
According to the allegations contained in the Indictment filed against JASON GALANIS and his co-conspirators and statements made in related court filings and proceedings[1]:
From March 2014 through April 2016, JASON GALANIS, along with his co-conspirators Gary Hirst, John Galanis, a/k/a “Yanni,” Hugh Dunkerley, Michelle Morton, Devon Archer, and Bevan Cooney, engaged in a fraudulent scheme to misappropriate the proceeds of bonds issued by the Wakpamni Lake Community Corporation (“WLCC”), a Native American tribal entity (the “Tribal Bonds”), and to use funds in the accounts of clients of asset management firms controlled by JASON GALANIS and his co-defendants to purchase the Tribal Bonds, which the clients were then unable to redeem or sell because the bonds were illiquid and lacked a ready secondary market.
Documents governing the Tribal Bonds specified that an investment manager would invest the proceeds of the Tribal Bonds in investments that would generate annuity payments sufficient to pay interest on the Tribal Bonds and provide funds to the WLCC to be used for tribal economic development purposes. In fact, none of the proceeds of the Tribal Bonds were turned over to the investment manager specified in the closing documents. Instead, significant portions of the proceeds were misappropriated by JASON GALANIS and his co-defendants for their own personal use.
Specifically, the proceeds of the Tribal Bonds were deposited into a bank account in the name of Wealth Assurance Private Client Corporation (“WAPCC”), an entity controlled by Dunkerley and Hirst. Dunkerley transferred more than $38 million from the WAPCC account to an account controlled by JASON GALANIS, who then misappropriated more than $8.5 million of the proceeds for his personal use, including for expenses associated with his home, jewelry and clothing purchases, travel and entertainment, and restaurant meals.
There was no ready secondary market for the Tribal Bonds. Nonetheless, without prior notice to their clients, Morton and Hirst, acting at the direction of JASON GALANIS, used funds belonging to clients of two related investment advisers, Hughes Capital Management, Inc. (“Hughes”) and Atlantic Asset Management, LLC (“Atlantic”) to purchase the Tribal Bonds, even though JASON GALANIS, Hirst, and Morton were well aware that material facts about the Tribal Bonds had been withheld from clients in whose accounts they were placed, including the fact that the Tribal Bond purchases fell outside the investment parameters set forth in the investment advisory contracts of certain Hughes clients and of the Atlantic pooled investment vehicle in which the Tribal Bonds were purchased. When Hughes and Atlantic clients learned about the purchase of the Tribal Bonds in their accounts, several of them demanded that the Tribal Bonds be sold. However, because there was no ready secondary market for the Tribal Bonds, no Tribal Bonds have been sold from any Hughes or Atlantic client accounts. In addition, JASON GALANIS and his co-defendants failed to apprise clients of Hughes and Atlantic regarding substantial conflicts of interest with respect to the issuance and placement of the Tribal Bonds before the Tribal Bonds were purchased on these clients’ behalf.
In addition, a portion of the misappropriated proceeds was recycled and provided by JASON GALANIS to entities affiliated with Archer and Cooney in order to enable Archer and Cooney to purchase subsequent Tribal Bonds issued by the WLCC. As a result of the use of recycled proceeds to purchase additional issuances of Tribal Bonds, the face amount of Tribal Bonds outstanding increased and the amount of interest payable by the WLCC increased, but the actual bond proceeds available for investment on behalf of the WLCC did not increase.
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JASON GALANIS, 46, of Los Angeles, California, pled guilty to one count of conspiracy to commit securities fraud, 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; one count of securities fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000 or twice the gross gain or loss from the offense; and one count of conspiracy to commit investment advisor fraud, 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. Sentencing before Judge Abrams has been scheduled for May 5, 2017.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentence for the defendant will be determined by the judge.
The guilty pleas in this matter represent JASON GALANIS’s second conviction in this District in the past year. On July 21, 2016, JASON GALANIS pled guilty before the Honorable P. Kevin Castel to manipulating the market for Gerova Financial Group, Ltd. (“Gerova”), a publicly traded company listed on the New York Stock Exchange, and to defrauding the shareholders of that company. JASON GALANIS is scheduled to be sentenced on February 15, 2017, in connection with his guilty plea in the Gerova matter.
Mr. Bharara praised the work of the U.S. Postal Inspection Service and the Federal Bureau of Investigation, and thanked the SEC.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Brian Blais, Aimee Hector, and Rebecca Mermelstein are in charge of the prosecution.
[1] As for the defendants who have not pled guilty (Gary Hirst, John Galanis, Hugh Dunkerley, Michelle Morton, Devon Archer, and Bevan Cooney) the description of the charges set forth herein constitute only allegations.
U.S. Attorney Files Civil Rights Suit Against National Developer to Remedy Pattern and Practice of Inaccessible Construction of Rental BuildingsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed a federal civil rights lawsuit against EQUITY RESIDENTIAL and its affiliate ERP OPERATING L.P. (together, “EQUITY RESIDENTIAL”) to require them to remedy conditions at 170 Amsterdam Avenue, a large rental complex in Manhattan that was completed in 2015, to make the building accessible to people with disabilities and to ensure that EQUITY RESIDENTIAL will take steps to make accessible the multiple rental complexes that it is currently developing.
Manhattan U.S. Attorney Preet Bharara said: “With today’s lawsuit, we seek to ensure that a national developer, Equity Residential, not only will fix the inaccessible conditions at 170 Amsterdam Avenue, but also do what is necessary to ensure accessibility at its ongoing construction projects. This is one of more than a dozen suits this Office has brought in recent years to fulfill the Fair Housing Act’s promise of accessibility for people with disabilities.”
The Fair Housing Act’s (“FHA”) accessible design and construction provisions require multifamily housing complexes constructed after January 1991 to have basic features accessible to persons with disabilities. According to the allegations in the Complaint, EQUITY RESIDENTIAL has engaged in a pattern and practice of FHA violations by designing and constructing numerous rental buildings that contain inaccessible conditions, including 170 Amsterdam Avenue as well as earlier constructions like the 1210 Mass Apartments in Washington, D.C., and The Veridian in Silver Spring, Maryland.
According to the Complaint filed today in Manhattan, in 2015, EQUITY RESIDENTIAL designed and constructed 170 Amsterdam Avenue, a 236-unit rental complex on the upper west side of Manhattan, with inaccessible conditions similar to those present at the 1210 Mass Apartments and The Veridian. As alleged, the inaccessible conditions at 170 Amsterdam Avenue include excessively high thresholds from individual apartments to private gardens, insufficiently wide doorways within individual apartments, and insufficient clear width at the entrance to the on-site fitness center. The Complaint also alleges that EQUITY RESIDENTIAL currently is actively involved in designing and constructing several other rental buildings, including in San Francisco, Washington, D.C., and Seattle.
In the Complaint, the United States seeks a court order requiring EQUITY RESIDENTIAL to make appropriate retrofits at 170 Amsterdam Avenue and to take steps necessary to ensure that the rental buildings EQUITY RESIDENTIAL is currently developing will be designed and constructed in compliance with the FHA’s accessibility requirements.
EQUITY RESIDENTIAL was previously sued in 2006, in Maryland, for not complying with the FHA in constructing rental buildings like the 1210 Mass Apartments and The Veridian. In March 2016, the court presiding over the Maryland lawsuit issued a decision finding that EQUITY RESIDENTIAL had violated the FHA’s accessibility requirements in constructing seven rental buildings, including the 1210 Mass Apartments and The Veridian. In December 2016, EQUITY RESIDENTIAL settled the Maryland lawsuit and agreed to remedy inaccessible conditions at the 1210 Mass Apartments and The Veridian and the other five rental buildings. However, the settlement of the Maryland lawsuit did not address the lack of accessible features at 170 Amsterdam Avenue, which was designed and constructed even while the Maryland suit was pending.
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Li Yu, Jacob Lillywhite, Jessica Jean Hu, and Natasha Teleanu are in charge of the case.
Manhattan Woman Pleads Guilty in Manhattan Federal Court to Commodities Fraud in Connection with Scheme to Defraud Investors of More Than $23 MillionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that HAENA PARK pled guilty in Manhattan federal court today to commodities fraud. The charge relates to PARK’s scheme to defraud more than 40 individual investors out of more than $23 million. PARK solicited investments for the purpose of trading in a variety of securities and commodities, including off-exchange foreign currency contracts, through the use of false and misleading statements about, among other things, her historical trading performance. PARK was arrested on June 2, 2016, in Manhattan, New York, and pled guilty today before United States District Judge Ronnie Abrams.
U.S. Attorney Preet Bharara said: “Through her guilty plea today, Haena Park has admitted to commodities fraud, lying about her rates of return and trading expertise to lure prospective investors to her fund and then losing almost all of the $23 million she raised through her lies. To keep her fraud scheme alive, Park sent fake account statements to her investors and used new investor money to pay back old ones.”
According to the Indictment and statements made at today’s plea hearing:
From September 2009 through June 2016, PARK raised more than $23 million from more than 40 individual investors, purportedly for the purpose of trading in a variety of securities and commodities, including equities, futures, and off-exchange foreign currency (“forex”) transactions, through the use of her firms, Phaetra Capital Management LP and Argenta Group, LLC. In connection with the scheme, PARK made a series of false and misleading representations to investors, including that PARK was an accomplished forex trading adviser earning annualized returns as high as 48.9 percent for her investors. In truth and in fact, PARK was not an accomplished forex trader, her trading was consistently unsuccessful, and the trading results emailed to investors by PARK were false and did not reflect the trading losses actually incurred by PARK. Rather, from September 2009 through June 2016, PARK lost approximately $19.5 million of the $20 million that she traded, including in commissions and fees, principally in highly leveraged futures and forex transactions.
To prevent or forestall redemptions by investors, and to continue to raise money from investors to fund her scheme, PARK generated fictitious account statements, which she sent to investors on a monthly basis. Instead of accurately reporting the trading losses PARK was suffering, the account statements indicated that the investors were making money nearly every month. To hide her trading losses, PARK used new investor funds to pay back other investors in a Ponzi-like fashion. In total, PARK distributed approximately $3 million back to investors from funds deposited by new investors.
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PARK, 41, of Manhattan, New York, faces a maximum sentence of 10 years in prison and a maximum fine of $1 million, or twice the gross gain or loss from the offense. 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. PARK is scheduled to be sentenced by Judge Abrams on April 28, 2017, at 2:30 p.m.
Mr. Bharara praised the work of the Department of Homeland Security, Homeland Security Investigations and the El Dorado Task Force. He also thanked the Commodity Futures Trading Commission and the Securities and Exchange Commission for their assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Christine I. Magdo is in charge of the prosecution.
Manhattan U.S. Attorney Files Civil Rights Suit and Enters Settlement with Real Estate Developer to Enhance Accessibility at Three Buildings with More Than 2,400 Rental ApartmentsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has settled a federal civil rights lawsuit against SILVERSTEIN PROPERTIES, INC. (“SILVERSTEIN PROPERTIES”) and two of its affiliates, River Place I, LLC and River Place II Holding, LLC, by consent decree. Under the settlement, SILVERSTEIN PROPERTIES has agreed to make retrofits at two large rental complexes in Manhattan – One River Place and Silver Towers – to make them more accessible to individuals with disabilities. SILVERSTEIN PROPERTIES also has agreed to inspect a third rental complex in Manhattan, One Freedom Place, and, where necessary, make retrofits at that building as well. Additionally, SILVERSTEIN PROPERTIES must establish procedures to ensure that its ongoing and future development projects will comply with the accessibility requirements of the federal Fair Housing Act (“FHA”). Finally, SILVERSTEIN PROPERTIES has agreed to provide up to $960,000 to compensate aggrieved persons and pay a civil penalty of $50,000. The consent decree was approved yesterday by U.S. District Judge Vernon Broderick.
Manhattan U.S. Attorney Preet Bharara said: “This lawsuit demonstrates our commitment to fulfilling for all New Yorkers the promise of the Fair Housing Act — that people with disabilities have the same access to housing as everyone else. Today’s settlement requires Silverstein Properties to adopt procedures to ensure accessibility at its current and future development projects, making retrofits at buildings that it has already developed, and compensating aggrieved parties.”
The FHA’s accessible design and construction provisions require new multifamily housing complexes constructed after January 1993 to have basic features accessible to persons with disabilities. According to the allegations in the Complaint, One River Place and Silver Towers, two rental complexes located in Manhattan that together contain more than 2,200 rental units, were designed and constructed with numerous inaccessible features, including excessively high thresholds interfering with accessible routes in the public and common areas as well as into and within individual units, insufficient spaces in bathrooms and kitchens for people in wheelchairs, and bathroom configurations preventing installation of grab bars. The inaccessible conditions at One River Place were first brought to the attention of the United States Attorney’s Office by testing performed by the Fair Housing Justice Center.
Under the settlement, SILVERSTEIN PROPERTIES agrees to make extensive retrofits at One River Place and Silver Towers to make them accessible. SILVERSTEIN PROPERTIES also agrees to arrange for inspection of a third rental complex in Manhattan, One Freedom Place, and, where necessary, to make retrofits at that property as well. Together, the three properties contain more than 2,400 rental apartments.
The settlement also requires SILVERSTEIN PROPERTIES to establish procedures to ensure FHA compliance at its ongoing and future development projects. These include retaining an FHA compliance consultant to ensure that each residential building developed by SILVERSTEIN PROPERTIES will, as constructed, comply with the FHA’s accessibility requirements. The FHA consultant also will conduct a site visit to identify non-compliant conditions and recommend appropriate solutions prior to the completion of construction. In addition, SILVERSTEIN PROPERTIES agrees to institute policies and training to ensure that its employees and agents will comply with the FHA’s accessibility requirements.
Finally, the settlement requires SILVERSTEIN PROPERTIES to provide up to $960,000 to compensate aggrieved persons. SILVERSTEIN PROPERTIES also agrees to pay a civil penalty of $50,000.
The government’s lawsuit also asserts claims against the architect of One River Place and Silver Towers, COSTAS KONDYLIS & PARTNERS, LLP. Those claims remain pending.
Aggrieved individuals may be entitled to monetary compensation from the fund created through today’s settlement. Aggrieved individuals may include those who were:
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Injured by a lack of accessible features at One River Place, Silver Towers, or One Freedom Place;
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Discouraged from living at One River Place, Silver Towers, or One Freedom Place because of the lack of accessible features;
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Required to pay to have an apartment at One River Place, Silver Towers, or One Freedom Place made accessible;
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Prevented from having visitors because of a lack of accessible features at One River Place, Silver Towers, or One Freedom Place; or
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Otherwise injured or discriminated against on the basis of disability due to the design or construction of One River Place, Silver Towers, or One Freedom Place.
People who may be entitled to compensation should file a claim by contacting the Civil Rights Complaint Line at (212) 637-0840, using the Civil Rights Complaint Form available on the United States Attorney’s Office’s website http://www.justice.gov/usao/nys/civilrights.html, or by sending a written claim to:
U.S. Attorney’s Office, Southern District of New York
86 Chambers Street, 3rd Floor
New York, New York 10007
Attention: Chief, Civil Rights Unit
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Li Yu, Jacob Lillywhite, Jessica Jean Hu, and Natasha W. Teleanu are in charge of the case.
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Three Doctors and Three Executives Charged in $33 Million Medicare and Medicaid Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Dennis Rosen, Inspector General of the New York State Office of the Medicaid Inspector General (“OMIG”), announced the unsealing today of a superseding indictment charging physicians MUSTAK Y. VAID, PAUL J. MATHIEU, and EWALD J. ANTOINE, as well as health-care executives MARINA BURMAN, ASHER OLEG KATAEV, a/k/a “Oleg Kataev,” and ALLA TSIRLIN with operating a $33 million health care fraud scheme through the operation of eight fraudulent medical clinics in Brooklyn, as well as the operation of related suppliers of medical equipment, tests, and services. As part of the fraud scheme, the defendants’ co-conspirators paid cash kickbacks to elderly and financially disadvantaged patients (the “Paid Patients”) who were insured by Medicare and/or Medicaid, and the defendants and their co-conspirators then billed Medicare and Medicaid for unnecessary medical services, tests, and supplies related to the Paid Patients.
VAID was previously indicted and arrested on these charges in November 2016. MATHIEU, ANTOINE, BURMAN, KATAEVE, and TSIRLIN were arrested earlier today and presented and arraigned this afternoon before U.S. Magistrate Judge Kevin Nathaniel Fox. The case is assigned to U.S. District Judge Lorna G. Schofield.
U.S. Attorney Preet Bharara said: “These defendants allegedly operated fraudulent medical clinics and suppliers in a scheme that bilked Medicare and Medicaid out of more than $30 million. As alleged, three of the defendants were doctors who, in violation of their Hippocratic oath, signed medical charts for patients they never treated and prescribed unnecessary medications, procedures, and supplies. Medicare and Medicaid were established to assist the elderly and economically disadvantaged, not to serve as cash cows for allegedly corrupt professionals.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “In this case, as alleged, Medicare and Medicaid programs suffered millions of dollars in losses when a group of physicians and health-care executives created, operated, or became associated with eight fraudulent medical clinics. As charged, their litany of crimes included paying a series of kickbacks, writing scripts for unnecessary medical tests, and arranging transportation services for patients who didn’t need a ride. Today’s charges certainly won’t prove to be a cure for all ills, but they are a step in the right direction when it comes to confronting the threats faced by the health care system.”
Medicaid Inspector General Dennis Rosen said: “This joint investigation and today's arrests send an unmistakable message. Those who seek personal gain by preying upon vulnerable New Yorkers and exploiting the Medicaid program will be held fully accountable. My office will continue to work closely with our partners in the U.S. Attorney’s Office, FBI and other state and federal agencies to root out fraud, waste and abuse in the Medicaid program.”
As alleged in the Indictment unsealed today and according to statements made in Court today: [1]
Aleksandr Burman, an individual with no medical license, established eight medical clinics in Brooklyn (the “Related Clinics”), which operated between 2007 and 2013. For each clinic, Aleksandr Burman hired one of three doctors – VAID, MATHIEU, or ANTOINE – to pose as the nominal owner of the clinic, since New York State law requires that a professional services corporation providing medical care must be owned by a medical professional. In fact, however, VAID, MATHIEU, and ANTOINE were each simply hired by Aleksandr Burman to pose as the owner of one or more of the clinics, and to come to the clinic periodically, in order to sign medical charts falsely stating that the doctor had examined a number of Paid Patients. VAID posed as the owner of one such clinic, while MATHIEU posed as the owner of four others, and ANTOINE posed as the owner of the remaining three. The three doctors were also paid to provide a large number of prescriptions and referrals for medically unnecessary supplies. Such unnecessary prescriptions included referrals for more than $3.5 million worth of durable medical equipment (“DME”), consisting mostly of incontinence supplies such as adult diaper sets ordered from a DME supply company (“USD”) owned jointly by BURMAN and Aleksandr Burman of the Related Clinics.
Many of the Paid Patients who received such prescriptions and referrals did not need or receive the diapers and other supplies. Instead, BURMAN and USD arranged for the Paid Patients to exchange their diaper prescriptions for valuable merchandise, such as bed linens, tablecloths, dishes, kitchen appliances, and other housewares. BURMAN and USD nonetheless filed Medicaid claims for such DME, seeking more than $3.5 million in reimbursement. BURMAN also transported cash to the Related Clinics to be used to pay kickbacks to the Paid Patients.
VAID, MATHIEU, ANTOINE, and their co-conspirators also provided medical referrals for transportation services to hundreds of Paid Patients, even though such transportation was not medically necessary. This practice generated more than $4 million in losses to Medicaid. In addition, VAID, MATHIEU, and ANTOINE provided referrals and prescriptions for medically unnecessary diagnostic tests, including MRIs, as well as prescriptions for medications such as expensive ointment compounds. The defendants and their co-conspirators then sent such medical referrals to specific medical testing companies, which in turn provided kickbacks to Aleksandr Burman.
In 2012, KATAEV and TSIRLIN became business partners of Aleksandr Burman, and operated as the managers of two of the Related Clinics. Their activity as managers included paying cash kickbacks directly to Paid Patients, and employing MATHIEU and ANTIONE to pose as the owners of the two clinics.
In or about March 2016, Aleksandr Burman pled guilty for his role in these offenses. He is scheduled to be sentenced on February 15, 2017, before the Honorable Paul G. Gardephe.
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VAID, 43, of Brownstown Township, Michigan, MATHIEU, 51, of Morristown, New Jersey, ANTOINE, 66, of Valley Stream, New York, BURMAN, 54, of Manhattan, KATAEV, 48, of Staten Island, and TSIRLIN, 46, of Brooklyn, are all charged with: (1) conspiring to commit health care fraud, mail fraud, and wire fraud, which carries a maximum sentence of 20 years in prison; (2) the substantive offenses of mail fraud and wire fraud, each of which carries a maximum sentence of 20 years in prison; (3) the substantive offense of health care fraud, which carries a maximum sentence of 10 years in prison; and (4) conspiring to make false statements relating to a federal health care program, which carries a maximum penalty of five years in prison. BURMAN, KATAEV, and TSIRLIN are also charged with conspiring to violate the Anti-Kickback Statute, which has a maximum penalty of five years in prison.
The statutory maximum sentences are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants would be determined by the judge.
Mr. Bharara praised the investigative work of the New York FBI’s Health Care Fraud Task Force.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney David Raymond Lewis is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Investment Bank Director Sentenced for Insider TradingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEVEN MCCLATCHEY, a director at an investment bank in Manhattan (the “Investment Bank”), was sentenced today to five months in prison on securities fraud and wire fraud charges in connection with his provision of inside information used to trade in the stock of several companies. MCCLATCHEY pled guilty on July 12, 2016, and was sentenced today by United States District Judge Katherine Polk Failla.
According to the Complaint, Information, and statements made during court proceedings:
From in or about February 2014 through in or about September 2015, MCCLATCHEY and Gary Pusey participated in a scheme to commit insider trading in advance of and in connection with more than 10 separate mergers and acquisitions. MCCLATCHEY and Pusey were close friends who owned boats docked in a Long Island marina and who spent most Saturdays on their boats, at the marina, or playing pool and watching sports in MCCLATCHEY’s garage.
MCCLATCHEY learned about the deals as part of his employment with the Investment Bank, which generally advised either (i) the company to be acquired in the transaction; (ii) the acquiring company; or (iii) a company that ultimately lost a bid to acquire the company involved in the transaction.
Having learned the inside information about these impending transactions, MCCLATCHEY, in breach of fiduciary duties and other duties of trust and confidence owed to the Investment Bank and its clients, tipped Pusey so that Pusey could use the information to trade and with the expectation that Pusey would confer a benefit upon MCCLATCHEY. Among the benefits that MCCLATCHEY received as part of the insider trading scheme were thousands of dollars of cash payments by Pusey and the provision of home renovation services.
Pusey used the Inside Information that he received from MCCLATCHEY to make profitable trades in, among other securities: Forest Oil Corporation, Questcor Pharmaceuticals, Inc., Zygo Corporation, Pepco Holdings, Inc., Measurement Specialties, Inc., Entropic Communications, Inc., PetSmart, Inc., Emulex Corporation, Omnicare, Inc., and TECO Energy, Inc. Pusey reaped approximately $76,000 in ill-gotten gains from this scheme.
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In addition to the prison sentence, MCCLATCHEY, 58, was sentenced to two years of supervised release. The Court further ordered that MCCLATCHEY forfeit $76,000 and pay a fine of $10,000.
Mr. Bharara praised the work of the Federal Bureau of Investigation, and thanked the U.S. Securities Exchange Commission for its assistance.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Rebecca Mermelstein is in charge of the prosecution.
Bronx Tax Preparer Sentenced to More Than 7 Years in Prison for Stealing Millions of Dollars from the U.S. Treasury Using Fraudulent Tax ReturnsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Kathy A. Enstrom, Acting Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigations (“IRS-CI”), announced that FLOR SOTO, an associate of K&S Tax Solution, Inc. (“K&S”), was sentenced today to 87 months in prison by the United States District Judge Kimba M. Wood. Soto had previously pled guilty to theft of public funds in connection with her participation in a lucrative scheme to file fraudulent and false tax returns, so as to receive tax refunds in the form of checks and wire transfers. Together with others at K&S, SOTO successfully stole over $24 million in tax refunds by submitting false tax returns using stolen identities, most of which had been stolen from residents of Puerto Rico. To date, 14 employees and associates of K&S, in addition to SOTO, have been convicted in connection with this scheme.
Manhattan U.S. Attorney Preet Bharara said: “Flor Soto and her co-defendants stole an astounding $24 million in tax refunds from the U.S. Treasury, using stolen identities to file false tax returns. Thanks to the hard work of the investigators at the IRS-CI and the prosecutors in this Office, 14 defendants charged with this audacious scheme have been held to account.”
IRS-CI Acting Special Agent in Charge Kathy A. Enstrom said: “Stealing identities and filing false tax returns is a serious crime that hurts innocent taxpayers as well as defrauding the government and the American taxpayers. Individuals like Flor Soto who commit identity theft and refund fraud of this magnitude will be held accountable and deserve to be punished to the fullest extent of the law.”
According to the Superseding Indictment, other documents filed in Manhattan federal court, statements made at sentencing and related court proceedings, and as established at the trial of SOTO’s co-conspirator Eliana Sarmiento, who was convicted on September 23, 2016:
Between 2008 and February 2013, SOTO and others at K&S perpetuated a large-scale fraud upon the IRS and the United States Treasury, through the filing of fraudulent and false tax returns, so as to receive tax refunds in the form of checks and wire transfers. Certain employees and associates of K&S obtained electronic filing identification numbers, or EFINs, for the purpose of filing hundreds of electronic tax returns. Those EFINs were obtained under the names and Social Security Numbers (“SSNs”) of the victims of the defendants’ identity theft scheme. SOTO and her co-conspirators used those EFINs to file tax returns bearing the names and SSNs of still more victims of identity theft. Finally, SOTO and employees of K&S used the stolen identities of children as false “dependents” on the tax returns of certain clients of K&S. SOTO acted as a recruiter of other scheme participants and a primary source of stolen identities.In these ways, SOTO and others at K&S obtained millions of dollars from the U.S. Treasury. To date, and based on a subset of EFINs associated with SOTO and her co-conspirators at K&S, the IRS has identified $281,348,627 in attempted fraudulent returns.
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In addition to the prison sentence, SOTO, 53, of Brooklyn, New York, was sentenced to three years of supervised release. Judge Wood also ordered SOTO to forfeit $24,719,724 in ill-gotten gains.
Mr. Bharara praised the IRS-CI for its work in the investigation. Mr. Bharara also expressed his appreciation to the United States Secret Service for its assistance in the investigation.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys Eun Young Choi and Andrew C. Adams are in charge of the prosecution.
Four Individuals Charged for Alleged Involvement in Foreign Bribery Scheme Involving $800 Million International Real Estate DealRead the Press Release
Court documents were unsealed today charging four individuals for their roles in a scheme to pay $2.5 million in bribes to facilitate the $800 million sale of a commercial building in Vietnam to a Middle Eastern sovereign wealth fund.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office made the announcement.
“This alleged conduct proves the adage that there is truly no honor among thieves,” said Assistant Attorney General Caldwell. “The indictment alleges that two defendants wanted to bribe a government official; instead they were defrauded by their co-defendant. Today’s charges are another example of the Criminal Division’s commitment to rooting out all manner of corruption.”
“The father-son defendants, Ban Ki Sang and Joo Hyun Bahn, allegedly conspired to bribe a foreign official to close an $800 million deal for a 72-story skyscraper in Vietnam, a deal that would have led to a multimillion-dollar commission for the Manhattan real estate broker son and much needed capital for the father’s construction company in Korea,” said U.S. Attorney Bharara. “But these alleged schemers were themselves double-crossed, as the man who purportedly set up the bribery scheme, Malcolm Harris, took the bribe money and pocketed it. This alleged bribery and fraud scheme offends all who believe in honest and transparent business, and it stands as a reminder that those who bring international corruption to New York City, as alleged here, will face the scrutiny of American law enforcement.”
“When Ban, a senior executive at Landmark 72, realized the debts owed to his company’s creditors were mounting, he sought the support of his son Bahn, a broker for a real estate firm in Manhattan,” said Assistant Director in Charge Sweeney. “The plan was for Bahn to secure an investor for Landmark 72, and the brokerage agreement they entered into would ultimately secure Bahn a lucrative profit. But instead of lawfully obtaining financing for the deal, they allegedly entered into an illegal agreement with Harris to bribe a foreign official into purchasing the property. In the end, they were hoodwinked by their very own criminal activity.”
Joo Hyun Bahn, aka Dennis Bahn, 38, of Tenafly, New Jersey, and his father, Ban Ki Sang (Ban), 69, of Seoul, South Korea, are each charged with one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), three counts of violating the FCPA, one count of conspiracy to commit money laundering and one count of money laundering. In addition, Bahn and Malcolm Harris, 52, of New York City, are each charged with one count of wire fraud, one count of conducting monetary transactions in illegal funds and aggravated identity theft. San Woo, aka John Woo, 35, of Edgewater, New Jersey, was charged separately by complaint with one count of conspiracy to violate the FCPA. Bahn was arrested in Tenafly earlier this morning, and Woo was arrested at JFK Airport. Bahn and Woo are expected to be presented later today before U.S. Magistrate Judge Kevin Nathaniel Fox of the Southern District of New York. Ban and Harris remain at large.
According to the indictment and the complaint, from in or about March 2013 through in or about May 2015, Ban was a senior executive at Keangnam Enterprises Co. Ltd. (Keangnam), a South Korean construction company that built and owned Landmark 72, a building complex in Hanoi, Vietnam. In early 2013, Keangnam was experiencing a liquidity crisis; the debts owed to the company’s creditors were maturing and Keangnam needed to raise capital. Ban allegedly convinced Keangnam to hire his son Bahn to secure an investor for Landmark 72. Thereafter, Keangnam entered into an exclusive brokerage agreement with Bahn, who worked as a broker at a commercial real estate firm in New York City, and his firm. Pursuant to the agreement, Bahn stood to earn a multimillion-dollar commission from Keangnam if he was successful in securing an investor.
Instead of obtaining financing through legitimate channels, Bahn and Ban allegedly conspired to pay bribes to a foreign official of a Middle Eastern country, in order to induce the official to use his influence to convince his country’s sovereign wealth fund to acquire Landmark 72 for approximately $800 million. Harris, who held himself out as an agent of the foreign official despite not actually having such a relationship, allegedly deceived Bahn and Ban by sending numerous emails that were purportedly sent by the foreign official. According to the indictment, in or about April 2014, Bahn and Ban agreed to pay, through Harris, $2.5 million in bribes to the official, including $500,000 upfront and $2 million upon the close of the sale of Landmark 72. Woo helped Bahn and Ban obtain the $500,000 that was used as the upfront bribe payment. Bahn and Ban arranged the transfer of the $500,000 to Harris for him to pay to the foreign official, unaware that Harris did not have the relationship he claimed with the foreign official. Instead, Harris stole the $500,000, spending the money on lavish personal expenses, including rent for a luxury penthouse apartment in Williamsburg, Brooklyn.
According to the indictment, over the course of 2014 and 2015, Keangnam’s liquidity crisis worsened. Believing that the planned bribery would result in the sale of Landmark 72, and not wanting to lose his commission, Bahn allegedly engaged in a fraudulent scheme to trick Keangnam and its creditors into believing the sovereign wealth fund was close to acquiring Landmark 72. In furtherance of the fraudulent scheme, Bahn repeatedly lied to Keangnam and its creditors about the status of the Landmark 72 deal, knowing that Keangnam and its creditors would rely upon the misrepresentations. In addition, Bahn forged emails from the foreign official and other documents to make the sale of Landmark 72 to the sovereign wealth fund appear imminent to Keangnam and its creditors. Ultimately, when the sale of Landmark 72 to the sovereign wealth fund failed to materialize, Keangnam was forced to enter court receivership in South Korea. Bahn is also alleged to have stolen approximately $225,000 of the $500,000 that Keangnam had advanced Bahn’s firm to cover brokerage expenses.
The charges contained in the indictment and the complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
FBI’s New York Field Office International Corruption Squad investigated the case. The Department of Justice’s Office of International Affairs is providing assistance in this investigation. Trial Attorney Dennis R. Kihm of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Daniel Noble of the Southern District of New York’s Complex Frauds and Cybercrime Unit are prosecuting the case.
The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Four Individuals Charged in Foreign Bribery and Fraud Scheme Involving Potential $800 Million International Real Estate Deal for South Korean CompanyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Leslie R. Caldwell, Assistant Attorney General of the Criminal Division of the U.S. Department of Justice, Stephen Richardson, Assistant Director of the Criminal Investigative Division of the Federal Bureau of Investigation (“FBI”), and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the FBI, announced the unsealing of an Indictment charging JOO HYUN BAHN, a/k/a “Dennis Bahn” (“BAHN”), BAN KI SANG (“BAN”), and MALCOLM HARRIS (“HARRIS”) with violations of the Foreign Corrupt Practices Act (“FCPA”), money laundering, wire fraud, and aggravated identity theft, and the filing of a Complaint charging SANG WOO, a/k/a “John Woo,” with conspiracy to violate the FCPA. The defendants are charged with federal crimes arising out of a corrupt scheme to pay $2.5 million in bribes to a foreign official (“Foreign Official-1”) of a country in the Middle East (“Country-1”) in order to facilitate the sale by South Korean construction company Keangnam Enterprises Co., Ltd. (“Keangnam”) of a 72-story commercial building known as Landmark 72 in Hanoi, Vietnam, to Country-1’s sovereign wealth fund (the “Fund”) for $800 million.
Manhattan U.S. Attorney Preet Bharara said: “The father-son defendants, Ban Ki Sang and Joo Hyun Bahn, allegedly conspired to bribe a foreign official to close an $800 million deal for a 72-story skyscraper in Vietnam, a deal that would have led to a multimillion-dollar commission for the Manhattan real estate broker son and much needed capital for the father’s construction company in Korea. But these alleged schemers were themselves double-crossed, as the man who purportedly set up the bribery scheme, Malcolm Harris, took the bribe money and pocketed it. This alleged bribery and fraud scheme offends all who believe in honest and transparent business, and it stands as a reminder that those who bring international corruption to New York City, as alleged here, will face the scrutiny of American law enforcement.”
Assistant Attorney General Leslie R. Caldwell said: “This alleged conduct proves the adage that there is truly no honor among thieves. The indictment alleges that two defendants wanted to bribe a government official; instead they were defrauded by their co-defendant. Today’s charges are another example of the Criminal Division’s commitment to rooting out all manner of corruption.”
FBI Assistant Director Stephen Richardson said: “Accepting and offering bribes seriously threatens the integrity of a fair and competitive economic system here in the United States and abroad. This case is a testament to the commitment by the FBI and our dedicated International Corruption Squads to combatting foreign corruption that reaches our shores, and these arrests send a strong message that we will not relent in our efforts to uphold the law and hold everyone accountable to play by the same, fair rules.”
FBI Assistant Director William F. Sweeney Jr. said: “When Ban, a senior executive at Keangnam, realized the debts owed to his company’s creditors were mounting, he sought the support of his son Bahn, a broker for a real estate firm in Manhattan. The plan was for Bahn to secure an investor for Landmark 72, and the brokerage agreement they entered into would ultimately secure Bahn a lucrative profit. But instead of lawfully obtaining financing for the deal, they allegedly entered into an illegal agreement with Harris to bribe a foreign official into purchasing the property. In the end, they were hoodwinked by their very own criminal activity.”
According to the allegations contained in the Indictment and the Complaint[1]:
From in or about March 2013 through in or about May 2015, BAHN and his father BAN engaged in an international conspiracy to bribe Foreign Official-1 in connection with the attempted $800 million sale of a building complex in Hanoi, Vietnam, known as Landmark 72. During this time, BAN was a senior executive at Keangnam, a South Korean construction company that built and owned Landmark 72. In early 2013, Keangnam was experiencing a liquidity crisis. The debts owed to Keangnam’s creditors were maturing and the company needed to raise capital. BAN convinced Keangnam to hire his son BAHN, who worked as a broker at a commercial real estate firm in Manhattan, to secure an investor for Landmark 72. Thereafter, Keangnam entered into an exclusive brokerage agreement with BAHN and his firm. If BAHN were successful, he stood to earn a multimillion-dollar commission from Keangnam.
Instead of obtaining financing through legitimate channels, BAHN and BAN engaged in a corrupt scheme to pay bribes to Foreign Official-1, through HARRIS, who held himself out as an agent of Foreign Official-1, to induce Foreign Official-1 to use his influence to convince the Fund to acquire Landmark 72 for approximately $800 million. HARRIS sent BAHN numerous emails purportedly sent by Foreign Official-1 and bearing Foreign Official-1’s name. In or about April 2014, following communications with HARRIS, BAHN and BAN agreed to pay, through HARRIS, a $500,000 upfront bribe and a $2,000,000 bribe upon the close of the sale of Landmark 72 to Foreign Official-1 on behalf of Keangnam. WOO helped BAHN and BAN obtain the $500,000 that was ultimately used to pay the attempted upfront bribe. Unbeknownst to BAHN or BAN, however, HARRIS did not have the claimed relationship with Foreign Official-1 and did not intend to pay the bribe money to Foreign Official-1. Instead, HARRIS simply stole the $500,000 upfront bribe arranged by BAHN and BAN, which HARRIS then spent on lavish personal expenses, including rent for a luxury penthouse apartment in Williamsburg, Brooklyn.
Over approximately the next year, as the Landmark 72 deal showed no signs of actual progress, Keangnam’s liquidity crisis worsened. Believing that the upfront bribe that BAHN and BAN had arranged would eventually bear fruit, and not wanting to lose a potential multimillion-dollar commission, BAHN engaged in a fraudulent scheme to trick Keangnam and its creditors into believing the Fund was close to acquiring Landmark 72. BAHN also stole approximately $225,000 of the $500,000 that Keangnam had advanced BAHN’s firm to cover brokerage expenses. In furtherance of the fraudulent scheme, BAHN repeatedly lied to Keangnam and its creditors about the status of the Landmark 72 deal with the Fund, knowing that Keangnam and its creditors would rely upon the misrepresentations. In addition, BAHN forged emails from Foreign Official-1 and other documents to make the sale of Landmark 72 to the Fund appear imminent to Keangnam and its creditors. Ultimately, when the sale of Landmark 72 to the Fund failed to materialize, Keangnam was forced to enter court receivership in South Korea.
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BAHN was arrested in Tenafly, New Jersey, and WOO was arrested at John F. Kennedy Airport earlier this morning. BAHN and WOO are expected to be presented before U.S. Magistrate Judge Kevin Nathaniel Fox in federal court in Manhattan later today. BAN and HARRIS are currently at large.
The case against BAHN, BAN, and HARRIS is assigned to U.S. District Judge Edgardo Ramos.
BAHN, 38, of Tenafly, New Jersey, and BAN, 69, of Seoul, South Korea, are each charged with one count of conspiracy to violate the FCPA, which carries a maximum sentence of five years in prison; three counts of violating the FCPA, each of which carries a maximum sentence of five years in prison; and one count of conspiracy to commit money laundering and one count of money laundering, each of which carries a maximum sentence of 20 years in prison. In addition, BAHN and HARRIS, 52, of New York, New York, are each charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison; one count of conducting monetary transactions in illegal funds, which carries a maximum sentence of 10 years in prison; and aggravated identity theft, which carries a mandatory consecutive sentence of two years in prison. WOO, 35, of Edgewater, New Jersey, is charged with one count of conspiracy to violate the FCPA, which carries a maximum sentence of five years in prison.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the International Corruption Squad of the FBI’s New York Field Office. Mr. Bharara also thanked the Department of Justice’s Office of International Affairs for its ongoing assistance in this investigation.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Daniel S. Noble and Trial Attorney Dennis R. Kihm of the Fraud Section of the Justice Department’s Criminal Division are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phase signifies, the entirety of the text of the Indictment and Complaint, and the description of the Indictment and Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Operator of Unlawful Bitcoin Exchange Pleads Guilty in Multimillion-Dollar Money Laundering and Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ANTHONY R. MURGIO pled guilty today before U.S. District Judge Alison J. Nathan to charges associated with operating Coin.mx, an internet-based Bitcoin exchange, through which MURGIO processed more than $10 million in illegal Bitcoin transactions. MURGIO also pled guilty to conspiring to obstruct an examination of the Helping Other People Excel Federal Credit Union (“HOPE FCU”) by the National Credit Union Administration (“NCUA”) in furtherance of the illegal Coin.mx scheme. To date, three individuals involved in the Coin.mx schemes have pled guilty. MURGIO is scheduled to be sentenced by Judge Nathan on June 16, 2017.
U.S. Attorney Preet Bharara said: “Anthony Murgio took a new age approach to an age-old crime of fraud. As he admitted in his guilty plea today, Murgio used Coin.mx, an internet-based Bitcoin exchange, to process over $10 million in Bitcoin transactions in violation of federal anti-money laundering laws, and then obstructed a regulatory examination to hide his scheme.”
According to the allegations contained in the Superseding Indictment to which MURGIO pled guilty and statements made during the plea proceeding and other court proceedings:
The Unlawful Bitcoin Exchange
Between 2013 and July 2015, MURGIO knowingly operated Coin.mx, an unlawful internet-based Bitcoin exchange, in violation of federal anti-money laundering laws and regulations, including those requiring money services businesses like Coin.mx to meet state licensing and federal registration requirements set forth by the United States Treasury Department. MURGIO and his co-conspirators engaged in substantial efforts to evade detection of their unlawful Bitcoin exchange by operating through a phony front company called “Collectables Club.” MURGIO used Collectables Club to open bank accounts, through which Coin.mx operated, in order to trick financial institutions into believing the unlawful Bitcoin exchange was simply a members-only association of individuals who discussed, bought, and sold collectible items and memorabilia.
In addition to lying to banks to open accounts, MURGIO and his co-conspirators deceived financial institutions by deliberately misidentifying and miscoding Coin.mx customers’ credit and debit card transactions, in violation of bank and credit card company rules and regulations. MURGIO and his co-conspirators also instructed Coin.mx customers to mislead banks about the nature of the credit and debit card transactions the customers executed through Coin.mx. For example, MURGIO and his co-conspirators caused customers to falsely tell the banks that the transactions in which they engaged with Coin.mx were for collectibles items, when in reality they were for Bitcoins. Through the illegal Coin.mx scheme, MURGIO and his co-conspirators caused more than $10 million in Bitcoin-related transactions to be processed illegally through financial institutions.
The Federal Credit Union Scheme
In 2014, in an effort further to evade scrutiny from financial institutions about the nature of the business engaged in by Coin.mx, MURGIO and his co-conspirators gained control of HOPE FCU, a federal credit union in New Jersey with primarily low-income members. After making more than $150,000 in illegal bribes, MURGIO and his co-conspirators took control of HOPE FCU. MURGIO installed various co-conspirators on HOPE FCU’s Board of Directors and transferred Coin.mx’s banking operations to HOPE FCU.
In late 2014, MURGIO and his co-conspirators attempted to obstruct an examination of HOPE FCU by the NCUA in order to perpetuate MURGIO’s control of the credit union. In furtherance of this scheme, MURGIO and others caused numerous misrepresentations to be made to the NCUA, including misrepresentations about the headquarters of the Collectables Club, in an effort to convince the NCUA that the Coin.mx-affiliated board members were eligible to serve on HOPE FCU’s Board of Directors. HOPE FCU was operated as a captive bank by MURGIO and his co-conspirators until the end of 2014.
In October 2015, the NCUA placed HOPE FCU into conservatorship, and subsequently liquidation.
* * *
MURGIO, 33, of Tampa, Florida, pled guilty to one count of conspiracy to operate an unlicensed money transmitting business, which carries a maximum sentence of five years in prison; one count of conspiracy to commit bank fraud, which carries a maximum sentence of 30 years in prison; and one count of conspiracy to obstruct an examination of a financial institution, which carries a maximum sentence of five years in prison.
Two of MURGIO’s co-defendants have been convicted and are awaiting sentence. Jose M. Freundt pled guilty on October 13, 2016, to one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business, and one count of conspiracy to corruptly make payments to an officer of a financial institution, each of which carries a maximum sentence of five years in prison; and one count of corruptly making payments to an officer of a financial institution, one count of conspiracy to commit wire fraud, and one count of wire fraud, each of which carries a maximum sentence of 30 years in prison. Freundt is scheduled to be sentenced by Judge Nathan on April 13, 2017. Michael J. Murgio pled guilty on October 27, 2016, to one count of conspiracy to obstruct an examination of a financial institution, which carries a maximum sentence of five years in prison, and is scheduled to be sentenced by Judge Nathan on January 27, 2017.
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.
Trial for two additional co-defendants, Trevon Gross and Yuri Lebedev, is scheduled to begin on February 6, 2017. The description of the offense set forth in this release are merely allegations and Gross and Lebedev are innocent until proven guilty.
Mr. Bharara praised the outstanding investigative work of the FBI and the Secret Service. He also thanked the NCUA for its assistance with the investigation and prosecution.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Eun Young Choi, Daniel S. Noble, and Won S. Shin are in charge of the prosecution.
Owner of Utah-Based Pharmaceutical Distributer Pleads Guilty to $100 Million Health Care Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that RANDY CROWELL, a/k/a “Roger,” pled guilty today before United States District Judge Edgardo Ramos to fraudulently distributing more than $100 million worth of prescription drugs obtained on a nationwide black market. CROWELL used a Utah-based wholesale distribution company to sell illicitly procured drugs to pharmacies, which in turn dispensed them to unsuspecting customers. As part of his guilty plea, CROWELL agreed to forfeit more than $13 million in personal profits from the scheme.
Manhattan U.S. Attorney Preet Bharara said: “Randy Crowell perverted for profit a health care system designed to get safe and effective medications to patients who need them. He exposed people with life-threatening illnesses to medicines they had no idea had been diverted from the normal stream of commerce, all the while defrauding healthcare companies and government benefit programs like Medicaid. Crowell has now pled guilty to a federal crime and has agreed to forfeit more than $13 million he made from his criminal scheme.”
According to the allegations contained in the Indictment and other documents filed in the case, as well as statements made during the plea proceedings:
From early 2010 until at least July 2012, CROWELL, who was the owner and operator of a licensed wholesale distributor of prescription medications based in St. George, Utah (“Wholesaler-1”), participated in a sophisticated scheme to defraud health insurance companies and government programs such as Medicaid out of hundreds of millions of dollars by trafficking prescriptions through a nationwide black market. CROWELL, through Wholesaler-1, purchased more than $100 million worth of prescription medications from this black market at a fraction of the legitimate prices for these drugs, before selling the same as new, legitimate bottles of medication to pharmacies all over the country.
To maximize their profits, CROWELL and his co-conspirators focused on some of the most expensive medications on the market, including those used to treat HIV/AIDS. The profitable scheme was potentially dangerous to the tens of thousands of patients ultimately receiving and taking these prescription drugs. As detailed below, many of the bottles purchased through the underground market and then distributed as safe, legitimate medications by CROWELL and Wholesaler-1 had in fact been previously dispensed to others, including individuals based in the Southern District of New York. To conceal the fact that they had been previously dispensed, the bottles were typically “cleaned” with hazardous chemicals such as lighter fluid before being transported and stored in conditions that were frequently insanitary and insufficient to ensure the safety and efficacy of the medication.
THE SCHEME TO DEFRAUD
The fraudulent scheme charged in the Indictment operated by distorting the legitimate flow of medications from manufacturer to pharmacy. Rather than purchasing medications from manufacturers or legitimate authorized distributors at full price, scheme participants, including CROWELL, created and exploited an underground market for these same prescription drugs. Scheme participants targeted the cheapest possible source of supply for these drugs – Medicaid patients and other individuals who received these prescription drugs on a monthly basis for little or no cost, and who were then willing to sell their medicines rather than taking them as prescribed (the “Insurance Beneficiaries”).
Insurance Beneficiaries had prescriptions filled for medications each month at pharmacies across the country, including in Manhattan and the Bronx, and then sold their medications to low-level participants (“Collectors”) in the scheme who worked on street corners and bodegas and would pay cash – typically as little as $40 or $50 per bottle. Every major health care benefit program, including Medicaid, expressly prohibits a beneficiary from seeking care under such circumstances, and health care benefit programs would not have paid for the medications issued by pharmacies to the Insurance Beneficiaries had these health care benefit programs known that the Insurance Beneficiaries were selling their drugs to others, rather than taking them as prescribed.
Because the ultimate goal of the scheme was to resell these medications as new at full price, Collectors and other scheme participants used lighter fluid and other potentially hazardous chemicals to remove the patient labels affixed when the bottles were initially dispensed to the Insurance Beneficiaries. This process, referred to as “cleaning” the bottles, was dangerous, as these hazardous chemicals could infiltrate the bottles, rendering the medication unfit for human consumption.
Collectors then sold these second-hand drugs to higher-level scheme participants (“Aggregators”) who bought dozens, and sometimes hundreds, of bottles at a time from multiple collectors before selling them to higher-level scheme participants with direct access to legitimate distribution channels, including corrupt wholesale companies like Wholesaler-1. The corrupt wholesale companies, including Wholesaler-1, then resold the bottles as new, at full price, to pharmacies, including potentially the very same pharmacies that initially dispensed these medications. In so doing, and as described below, CROWELL and other corrupt wholesale companies intentionally misrepresented where these medications were coming from and, in particular, concealed the fact that these prescription drugs had been obtained from an illegal and illegitimate black market.
CROWELL AND WHOLESALER-1
Central to the scheme’s success was the participation of corrupt, licensed wholesale distributors willing to buy the “second-hand” medications at a fraction of their legitimate price and then resell them as new to pharmacies that would in turn dispense these medications to unsuspecting patients. CROWELL and Wholesaler-1 were among the largest of these corrupt wholesalers.
Between 2010, when Wholesaler-1 was created by CROWELL, and July 2012, Wholesaler-1 had no legitimate sources of supply. Instead, CROWELL caused Wholesaler-1 to purchase exclusively from illegitimate sources – including the so-called “Aggregators” – who sold to CROWELL at substantially reduced rates, sometimes as much as 50 percent less than the price of acquiring these medications from legitimate sources. Consistent with their illegitimate origins, inbound shipments of prescription drugs frequently arrived at Wholesaler-1 improperly packaged in unsealed, unsecure cardboard boxes. On some occasions, bottles of medication arrived at Wholesaler-1 with the initial patient labels still affixed to them. On other occasions, bottles arrived having already been opened, or containing what appeared to be the wrong medication. At the direction of CROWELL, employees of Wholesaler-1 then inventoried these bottles, attempted to remove any bottles that still had patient labels affixed to them or were otherwise visibly used or damaged, and then arranged for the medications to be shipped out to Wholesaler-1’s customers – i.e., pharmacies all over the country, including pharmacies in Manhattan and the Bronx.
To effectuate the scheme – and, in particular, to convince pharmacies to buy these medications, and health care benefit programs to pay for them, CROWELL and others made false and fraudulent representations about the origins of these medications. Specifically, CROWELL and others acting at his direction created false and fraudulent documents known as “pedigrees” for these medications, which purported to document the legitimate movement of these medications bought and sold by Wholesaler-1 from a manufacturer to the pharmacy. In truth, none of the medications purchased or distributed by Wholesaler-1 had come from legitimate sources of supply, and the pedigrees created by Wholesaler-1 and signed by CROWELL were intentionally fabricated so that the medications could be sold, as new, to pharmacies and so that health care benefit programs would be duped into paying for these illegitimate second-hand drugs.
In order to evade detection, CROWELL took additional steps to conceal the unlawful nature of his activities, including using the name “Roger,” frequently changing or “dropping” the phones he used to communicate with co-conspirators, and paying co-conspirators through front or “sham” companies.
* * *
CROWELL pled guilty to one count of conspiracy to commit health care fraud, which carries a maximum term of 10 years in prison. As a part of the plea, CROWELL also consented to the forfeiture of more than $13 million in scheme proceeds, including the full contents of Wholesaler-1’s primary operating account. CROWELL will be sentenced by Judge Ramos on May 11, 2017, at 12:30.
Mr. Bharara praised the investigative work of the New York FBI’s Health Care Fraud Task Force, which comprises agents, officers, and investigators from the Federal Bureau of Investigation, the New York City Police Department, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management’s Inspector General, U.S. Food and Drug Administration, U.S. Health and Human Services Office of Inspector General, New York State Office of Medicaid Inspector General, New York Health and Hospitals Corporation Inspector General, and the National Insurance Crime Bureau.
The prosecution of this case is being overseen by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant U.S. Attorneys Edward B. Diskant and Matthew Podolsky are in charge of the prosecution.
Thirteen Members and Associates of the Blood Hound Brims Gang Charged in Federal Court with Racketeering, Narcotics and Firearms OffensesRead the Press Release
Preet Bharara, 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 James O’Neill, the Commissioner of the New York City Police Department (“NYPD”), announced today the unsealing of an Indictment charging a total of 13 members and associates of the Blood Hound Brims gang (“BHB” or the “Gang”), a subset of the national Bloods street gang, with various racketeering, narcotics, and firearms offenses, including three attempted murders.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the Blood Hound Brims gang was built for crime, with a leadership structure, subgroups known as ‘pedigrees,’ a system to impose discipline, and dues paid to cover prison guns, drugs, commissary funds, and lawyer fees. The Blood Hound Brims’ brand of havoc that allegedly included drugs, guns, and violence affected several neighborhoods in New York City and Westchester and reached as far as Pennsylvania. Thanks to the work of the FBI and NYPD, today we arrest and put federal charges on thirteen of this violent gang’s alleged members and associates, including its founder and leader.”
FBI Assistant Director-in-Charge William F. Sweeney stated: “The violence that accompanies the drug trade doesn’t just impact the gang members who make the choice to pick up a firearm and aim it at their rivals, or allegedly in this case, at their fellow gang members. Many times innocent people get caught in the crossfire during turf wars. The FBI NY Metro Safe Streets Task Force works day in and day out to track these violent offenders and get them out of the communities they terrorize.”
As alleged in the Indictment unsealed today in Manhattan federal court[1]:
The BHB was a criminal enterprise that operated principally in the greater New York area, from at least 2005 up to and including 2016. The BHB was a faction of the Bloods street gang, which operates nationwide, and is under the New York Blood Brim Army (“NYBBA”). The BHB operated within and around various locations in New York, including New York City, Westchester County, Elmira, and in Pennsylvania, as well as within and outside federal and state penal systems.
The BHB used a hierarchical structure that was organized, in part, by New York City borough, and that was maintained, in part, through the payment of dues. The founder and leader of the Gang was LATIQUE JOHNSON, and other members and associates of the BHB referred to JOHNSON as the “Godfather.” The Gang was divided into several “pedigrees,” each of which had its own leadership structure which was approved by JOHNSON. Leadership positions within the pedigrees included, among others, treasurers who collected dues from members of a particular pedigree, and individuals who performed security and disciplinary functions for the pedigree. In addition to JOHNSON, GREEN, SANCHEZ, MURRAY, MORTON, CHERRY, KAID, GRAYSON, ROSATIO and EVANS all held leadership positions within the Gang at different times.
Members of the BHB had regular meetings, sometimes called “pow wows” or “9-11s,” at which members were required to pay dues. Some of the meetings were among members of a particular pedigree, and other meetings were for all members of the Enterprise. Word of the meetings was disseminated via text message, word-of-mouth, and flyers. The BHB’s business, including rivalries with other gangs, shootings, the arrest of gang members, guns, and drugs, was regularly discussed at these meetings. “Kitty dues” – money that paid for commissary funds, lawyers, guns, and drugs, and that served as tribute to JOHNSON – were collected at these meetings. The BHB maintained its own rules and constitution that new members were required to learn. Members of the BHB also used code words and secret phrases to communicate with each other both while in prison and on the street in order to avoid detection by law enforcement.
One of the BHB’s principal objectives was to sell cocaine base, commonly known as “crack cocaine,” powder cocaine, and heroin, which members and associates of the BHB sold throughout the greater New York area and in Pennsylvania.
Members and associates of the BHB engaged in multiple acts of violence against rival gangs. These acts of violence included assaults and attempted murders, and were committed to protect the Gang’s drug territory, to retaliate against members of rival gangs who had encroached on the territory controlled by the BHB, and to otherwise promote the standing and reputation of the Gang vis-à-vis rival gangs. These acts of violence also included assaults and attempted murders against members and associates of the BHB itself, as part of internal power struggles within the Gang.
For example, on or about April 3, 2009 in Greenburgh, New York, CHERRY and MORTON attempted to murder KAID during a power struggle within the BHB, during which MORTON shot and injured KAID, who survived the shooting. Then, on or about January 28, 2012 in the Bronx, New York, JOHNSON and MURRAY attempted to murder two members of a rival gang when JOHNSON fired into a fried chicken restaurant, injuring two individuals who survived the shooting. The violence continued, and on or about September 26, 2012 in the Bronx, New York, JOHNSON, KAID and CANNON attempted to kill two other members of a rival gang at whom KAID fired gunshots.
Count One of the Indictment charges LATIQUE JOHNSON, BRANDON GREEN, INES SANCHEZ, DONNELL MURRAY, THOMAS MORTON, DAVID CHERRY, SAEED KAID, ERIC GRAYSON, MARQUES CANNON, MANUEL ROSARIO, MICHAEL EVANS, and TERRELL PINKNEY with participating in a racketeering conspiracy.
Count Two charges JOHNSON and MURRAY with assault and attempted murder and conspiracy to commit murder in aid of racketeering in connection with the January 28, 2012 shooting at members of a rival gang.
Count Three charges JOHNSON, KAID and CANNON with assault and attempted murder and conspiracy to commit murder in aid of racketeering in connection with the September 26, 2012 shooting at members of a rival gang.
Count Four of the Indictment charges JOHNSON, GREEN, MURRAY, MORTON, CHERRY, KAID, GRAYSON, CANNON, ROSARIO, EVANS, and PATRICK DALY with participating in a narcotics conspiracy to distribute crack cocaine, powder cocaine and heroin.
Count Five of the Indictment charges GREEN, MURRAY, MORTON, CHERRY, KAID, GRAYSON, CANNON, ROSARIO, EVANS and PINKNEY, with firearms offenses in connection with the racketeering and narcotics conspiracies charged in Counts One and Four, respectively.
Counts Six and Seven of the Indictment charge JOHNSON with firearms offenses in connection with the racketeering and narcotics conspiracies charged in Counts One and Four, respectively, and with use of a firearm in connection with assault and attempted murder in aid of racketeering in connection with Count Two.
* * *
Nine of the 13 defendants, INES SANCHEZ, THOMAS MORTON, DAVID CHERRY, ERIC GRAYSON, MANUEL ROSARIO, MICHAEL EVANS, and TERRELL PINKNEY were taken into federal custody yesterday or this morning and will be presented before United States Magistrate Judge Henry Pittman later today. MARQUES CANNON was arrested in the Northern District of New York and was presented before a magistrate judge. PATRICK DALY was arrested in the Western District of New York and was presented before a magistrate judge. SAID KAID is currently incarcerated in state custody on other charges, and will be presented at a later date. LATIQUE JOHNSON is already in federal custody on prior charges and will be presented on the new charges at a later date. BRANDON GREEN and DONNELL MURRAY remain fugitives. The case of United States v. Latique Johnson, et al, S1 16 Cr. 281 (PGG) has been assigned to U.S. District Judge Paul G. Gardephe.
Charts containing the names, ages, residences, charges, and maximum penalties for the defendants are 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.
Mr. Bharara thanked the FBI and the NYPD, as well as the Criminal Investigators at the United States Attorney’s Office, for their work on the investigation.
This case is being prosecuted by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Abigail S. Kurland, Jared Lenow and Max Nicholas are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
17-003 ###
COUNT
CHARGE
DEFENDANTS
MAX. PENALTIES
1
Racketeering conspiracy
18 U.S.C. § 1962(d)
LATIQUE JOHNSON
BRANDON GREEN
INES SANCHEZ
DONNELL MURRAY
THOMAS MORTON
DAVID CHERRY
SAEED KAID
ERIC GRAYSON
MARQUES CANNON
MANUEL ROSARIO
MICHAEL EVANS
TERRELL PINKNEY
20 years in prison
2
Assault and attempted murder and Conspiracy to commit murder in aid of racketeering activity
18 U.S.C. §§ 1959 & 2
LATIQUE JOHNSON
DONNELL MURRAY
10 years in prison
3
Assault and attempted murder and Conspiracy to commit murder in aid of racketeering activity
18 U.S.C. §§ 1959 & 2
LATIQUE JOHNSON
SAEED KAID
MARQUES CANNON
10 years in prison
4
Narcotics conspiracy
21 U.S.C. § 846
LATIQUE JOHNSON
BRANDON GREEN
DONNELL MURRAY
THOMAS MORTON
DAVID CHERRY
SAEED KAID
ERIC GRAYSON
MARQUES CANNON
MANUEL ROSARIO
MICHAEL EVANS
PATRICK DALY
Life in prison
Mandatory minimum of 10 years in prison
5
Using or carrying a firearm during and in relation to, or possessing a firearm in furtherance of, a crime of violence or drug trafficking crime
18 U.S.C. § 924(c)
BRANDON GREEN
DONNELL MURRAY
THOMAS MORTON
DAVID CHERRY
SAEED KAID
ERIC GRAYSON
MARQUES CANNON
MANUEL ROSARIO
MICHAEL EVANS
TERRELL PINKNEY
Life in prison
Mandatory minimum of 10 years in prison
6
Using or carrying a firearm during and in relation to, or possessing a firearm in furtherance of, a crime of violence or drug trafficking crime
18 U.S.C. § 924(c)
LATIQUE JOHNSON
Life in prison
Mandatory minimum of 10 years in prison
7
Using or carrying a firearm during and in relation to, or possessing a firearm in furtherance of, a crime of violence
18 U.S.C. § 924(c)
LATIQUE JOHNSON
Life in prison
Mandatory minimum of 10 years in prison
DEFENDANT
AGE
RESIDENCE
LATIQUE JOHNSON
a/k/a “La Brim”
a/k/a “Straight 2 Business”
a/k/a “Breezy”
a/k/a “Boss Dog”
36
In Custody
BRANDON GREEN
a/k/a “Light”
a/k/a “Moneywell”
33
Bronx, NY
INES SANCHEZ
a/k/a “Meth”
36
Bronx, NY
DONNELL MURRAY
a/k/a “Don P”
37
Bronx, NY
THOMAS MORTON
a/k/a “10 Stacks”
40
Elmhurst, NY
DAVID CHERRY
a/k/a “Showtime”
35
Queens, NY
SAEED KAID
a/k/a “O-Dog”
36
In Custody
ERIC GRAYSON
a/k/a “Gistol”
33
Bronx, NY
MARQUES CANNON
a/k/a “Paper Boy”
31
Syracuse, NY
MANUEL ROSARIO
a/k/a “Top Dolla”
37
New York, New York
MICHAEL EVANS
a/k/a “Puff”
36
Bronx, New York
TERRELL PINKNEY
a/k/a “BX”
37
Bronx, New York
PATRICK DALY
54
Middleport, New York
[1] As the introductory phrase signifies, the entirety of the text of the Indictments, and the description of the Indictments set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Announces $95 Million Recovery from Deutsche Bank in Fraudulent Conveyance Case Related to Federal Income Tax AvoidanceRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced a settlement between the United States of America and DEUTSCHE BANK, A.G., DB U.S. FINANCIAL MARKETS HOLDING CORP., and DEUTSCHE BANK SECURITIES, INC. (“DEUTSCHE BANK”), resolving a civil lawsuit in which the United States alleges that DEUTSCHE BANK participated in a series of transactions that amounted to fraudulent conveyances carried out with the purpose and effect of evading tens of millions of dollars in federal tax liability.
Manhattan U.S. Attorney Preet Bharara said: “Using a web of shell companies and series of calculated transactions, Deutsche Bank sought to escape liability for tens of millions of dollars in taxes. The Government, through this action and settlement, has made Deutsche Bank admit to its actions designed to avoid taxes and pay $95 million to the United States to account for this conduct.”
According to the allegations of the Complaint previously filed by this Office against DEUTSCHE BANK in Manhattan federal court:
In 2000, DEUTSCHE BANK acquired a corporation that held stock with a very low cost basis, meaning that when this stock was subsequently sold, significant taxable income would be incurred. In order to dispose of the stock without paying the taxes that would be due on this transaction, DEUTSCHE BANK entered into a fraudulent plan with a tax shelter promoter. Pursuant to this plan, DEUTSCHE BANK transferred the shares of the acquired corporation to a shell company (“BMY”) created by the promoter, which then transferred the stock back to DEUTSCHE BANK in such a way as to cause the shell company to get stuck with the tax bill. DEUTSCHE BANK and the promoter structured this transaction (the “May 2000 Transaction”) so that the shell company would have little or no assets and would be unable to pay the taxes due. The net result: DEUTSCHE BANK would be able to cleanse the stock of its low cost basis and purport to leave the tax liability with a “taxpayer” – the shell company – that would be unable to pay the tax. Ultimately, this transaction left the shell company BMY with a liability of more than $52 million in taxes, plus interest and penalties.
* * *
Pursuant to the Settlement Agreement approved today by the United States District Court for the Southern District of New York, DEUTSCHE BANK agrees to pay the United States $95 million to resolve the claims in the Complaint.
In the Settlement Agreement, DEUTSCHE BANK also “admits, acknowledges, and accepts responsibility for” certain key facts related to the Government’s allegations in the complaint, including the following:
- “DEUTSCHE BANK engaged in the May 2000 Transaction in order to avoid having to pay the built-in tax liability associated with” the stock.
- “Each aspect of the May 2000 Transaction was pre-planned” and “[a]s a result of the May 2000 Transaction, BMY realized substantial taxable gain.”
- “Deutsche Bank knew or, had it made reasonable inquiries, would have known that BMY did not have legitimate tax losses to offset this gain.”
- BMY nonetheless “claimed [to the IRS] that no tax was due because the income was offset by unrelated foreign currency transaction losses” that “were attributable to a tax shelter known as a Currency Option Investment Strategy (‘COINS’) tax shelter.”
- DEUTSCHE BANK itself had “participated in this COINS tax shelter,” and, “[a]s Deutsche Bank admitted in 2010” in a statement of facts accompanying a non-prosecution agreement entered into by this Office’s Criminal Division, “the COINS shelter, in which it participated willfully and knowingly, was a fraudulent tax shelter, and it was unlawful for Deutsche Bank to have participated in the COINS tax shelter.”
- “IRS disallowed [these] claimed foreign currency transaction losses and assessed BMY tens of millions of dollars of tax (plus interest and penalties) resulting from the sale of” the stock.
- “Deutsche Bank knew that BMY had no material assets and no operating business,” and “Deutsche Bank knew or should have known that as a result of the May 2000 Transaction, BMY lacked the funds necessary to pay the substantial taxes resulting from the sale of” the stock.
Mr. Bharara thanked Frederick C. Mutter of the Office of Chief Counsel, Internal Revenue Service, for his extraordinary assistance on this matter.
The case has been handled by this Office’s Tax and Bankruptcy Unit. Assistant U.S. Attorneys Robert William Yalen, Christine S. Poscablo, Natasha Waglow Teleanu, Anthony J. Sun, and Ellen M. London have handled this matter.
- “DEUTSCHE BANK engaged in the May 2000 Transaction in order to avoid having to pay the built-in tax liability associated with” the stock.
Former New York City Human Resources Administration Employee Pleads Guilty to Fraud and Cocaine TraffickingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that PETRONILA PERALTA, a/k/a “Petra,” a former employee with the New York City Human Resources Administration (“HRA”), pled guilty to defrauding a public assistance program that she had administered during the time when she worked for HRA, resulting in the theft of more than $600,000 in public funds, and to trafficking more than 50 kilograms of cocaine following her separation from HRA. PERALTA, who was arrested in December 2015, entered her pleas today before U.S. District Judge Gregory H. Woods, and was ordered remanded. She is scheduled to be sentenced by Judge Woods on April 4, 2017.
U.S. Attorney Bharara stated: “As she admitted today, in addition to cocaine trafficking, Petronila Peralta defrauded the public by stealing more than $600,000. This money was intended to aid the neediest New Yorkers, including children, by helping to defray the costs of basic nutrition and housing.”
According to the Complaint, Indictment, plea agreement, other information in the public record, and today’s proceeding:
HRA is an agency of the City of New York responsible for administering various public assistance programs. Among other things, HRA provides temporary help to individuals and families with social service and economic needs to assist them in reaching self-sufficiency. Its services include, among others, administering the federally funded Supplemental Nutrition Assistance Program (more commonly known as “food stamps”), administering the federally funded Temporary Aid to Needy Families Program, and providing rental assistance to low-income families and individuals.
Between 2005 and August 2014, PERALTA worked at HRA, most recently as a Job Opportunity Specialist in a job center in Queens, New York. In that capacity, PERALTA was supposed to provide economic support and employment-related services to persons in need. Starting by approximately 2009, PERALTA abused her position by fraudulently issuing more than approximately 800 supplemental issuances to individuals who were not entitled to such payments. A “supplemental issuance” is a supplemental transmission of funds to a public assistance beneficiary who did not receive the amount of funds he or she was due previously. Between approximately 2009 and May 2011, PERALTA repeatedly issued such funds not to individuals who were entitled to them, but to co-conspirators, and took steps to conceal her conduct, including by using the computer system log-in information of a former employee of HRA, rather than her own. The scheme led by PERALTA resulted in the loss of more than approximately $600,000 in public funds.
Following her separation from HRA, between approximately January 2013 and March 2015, PERALTA agreed to and did receive, and help others to receive, through the mail more than 50 kilograms of cocaine meant for re-distribution.
* * *
PERALTA, 52, of the Bronx, New York, pled guilty to one count of conspiracy to commit wire fraud, which carries a statutory maximum of 20 years in prison, and one count of conspiracy to distribute and possess cocaine, which carries a statutory maximum of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
U.S. Attorney Bharara praised the work of the New York City Department of Investigation, the Drug Enforcement Administration, and the United States Postal Inspection Service.
The case is being prosecuted by the Office’s Public Corruption and Narcotics Units. Assistant U.S. Attorneys Daniel C. Richenthal and Shawn G. Crowley are in charge of the prosecution.
Alleged Confidence Man Charged with Luring Victims Through Matchmaking and Networking Sites to Commit Fraud and Identity TheftRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York and Timothy Gallagher, Special Agent-in-Charge of the Newark Field Office of the Federal Bureau of Investigation (“FBI”), announced that JOHN EDWARD TAYLOR, a/k/a “Jay Taylor,” a/k/a “Josie Reeser,” was charged in a five-count indictment today. TAYLOR had previously been charged by complaint, and first appeared in this district on December 21, 2016. The case has been assigned to U.S. District Judge Laura Taylor Swain. TAYLOR is expected to be arraigned later this week before Judge Swain.
Manhattan U.S. Attorney Preet Bharara said: “John Edward Taylor allegedly trolled dating websites to find unsuspecting women for his ‘romance’ scam, designed to steal their money. While masquerading as a millionaire businessman with romantic and professional interest in his victims, Taylor was in reality an alleged con artist. When confronted by some of his victims for looting their bank accounts, Taylor took his insidious crime another step further, allegedly threatening to release sexually explicit photos of them.”
FBI Special Agent-in-Charge Timothy Gallagher said: “Today’s charges illustrate the FBI’s commitment to combating the growing threat of online dating scams and financial fraud. Our job is to protect victims and ensure those who commit these egregious crimes are held accountable.”
According to the allegations in the Complaint and Indictment filed in federal court:[1]
JOHN EDWARD TAYLOR, a/k/a “Jay Taylor,” a/k/a “Josie Reeser,” stole, or attempted to steal, money, credit, and personal information from more than a dozen women (the “Victims”) in cities across the country, including New York City, Chicago, Atlanta, and Philadelphia.
TAYLOR contacted Victims using online matchmaking and networking websites, such as Match.com, eHarmony, Craigslist, and Seeking Arrangement. TAYLOR typically introduced himself as “Jay” and often falsely described himself as a wealthy businessman with oil and land interests in North Dakota. To some Victims, TAYLOR feigned interest in hiring the Victims to work on a new business TAYLOR purported to be creating. To other Victims, TAYLOR expressed an interest in a romantic and personal relationship. To most Victims, TAYLOR purported to be interested in both a personal and a professional relationship.
Using a variety of false pretenses, TAYLOR obtained the Victims’ personal identifying information, often including birthdates, addresses, and bank and credit account numbers. TAYLOR used the Victims’ personal identifying information to purchase goods, transfer funds, and open new accounts – all without authorization. In certain circumstances, TAYLOR opened accounts without the Victims’ knowledge. In other circumstances, TAYLOR opened accounts that he assured Victims were business accounts, but were, in fact, personal accounts in the Victims’ names, over which TAYLOR maintained exclusive control.
Often within a matter of months, Victims would discover thousands of dollars in unauthorized charges and transfers in their existing accounts, receive bills for accounts they had never created, or learn their existing accounts had been closed due to delinquency.
Independent of each other, multiple Victims confronted TAYLOR about his activities. To some, TAYLOR responded with insults. To others, TAYLOR responded with promises to repay the losses – and on at least one occasion attempted to repay one Victim with funds unlawfully obtained from another Victim. On multiple occasions, TAYLOR threatened to transmit sexually explicit images of the Victims – which he had obtained as part of his purported romantic relationships with them – to the Victims’ employers if the Victims tried to collect their debts.
TAYLOR’s fraud and attempted fraud totaled hundreds of thousands of dollars in losses.
* * *
TAYLOR, 47, has been charged with one count of wire fraud, which carries a maximum sentence of 30 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of bank fraud, which carries a maximum sentence of 30 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense; one count of aggravated identity theft, which carries a mandatory sentence of two years in prison; and two counts of threatening communications, each of which carries a maximum sentence of two years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentences for the defendant will be determined by the judge.
Mr. Bharara praised the outstanding work of the FBI for their investigative efforts and ongoing support and assistance with the case.
The prosecution of this case is being overseen by the Office’s General Crimes Unit. Assistant U.S. Attorneys Jonathan Rebold and Andrew Thomas are in charge of the case.
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 Indictment and the descriptions of the Complaint and Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
“Bmb” Gang Member Pleads Guilty to Bronx Murder in Connection with Racketeering ConspiracyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MARTIN MITCHELL, a/k/a “Tyliek,” pled guilty today to involvement in a racketeering conspiracy in connection with his membership in the “Big Money Bosses” (“BMB”), a violent street gang that operated primarily on White Plains Road from 215th Street to 233rd Street in the Bronx. As part of his guilty plea, MITCHELL admitted that he committed the murder of Keshon Potterfield, on or about June 22, 2014, in the vicinity of East 232nd Street in the Bronx. MITCHELL’s guilty plea was presided over by Magistrate Judge Barbara Moses.
U.S. Attorney Preet Bharara said: “Martin Mitchell, as a member of the violent Bronx street gang Big Money Bosses, admitted to shooting and killing a 17-year-old boy at a birthday party. This type of senseless gang violence threatens the safety and security of all New Yorkers, and we will continue to work with our law enforcement partners to confront it aggressively.”
According to the Indictment and other documents filed in the case, as well as statements made during the plea proceedings:
BMB is a subset of the “Young Bosses,” or “YBz” street gang, which operates throughout New York City. Between 2007 and 2016, members and associates of BMB committed numerous acts of violence against rival gang members in the Bronx – including murders, attempted murders, and armed robberies – and sold crack cocaine and marijuana.
MITCHELL was a member of BMB. On June 22, 2014, MITCHELL and other members of BMB attended a birthday party in the backyard of a residence in the vicinity of 232nd Street in the Bronx. Potterfield was one of the guests at the party and was shot by MITCHELL in connection with BMB’s rivalry with another street gang. Potterfield was 17 years old.
MITCHELL was arrested in this case as a result of a multi-year investigation by the New York City Police Department’s Bronx Gang Squad (the “Bronx Gang Squad”), U.S. Immigration and Customs Enforcement’s Homeland Security Investigations Violent Gang Unit (“HSI”), the New York Field Division of the Drug Enforcement Administration (“DEA”), and the Joint Firearms Task Force of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”) into gang violence in the Northern Bronx. The Indictment, which was unsealed on April 27, 2016, charged 63 members and associates of BMB with racketeering conspiracy, narcotics conspiracy, narcotics distribution, and firearms charges. To date, 30 of these defendants have pled guilty.
* * *
MITCHELL, 22, of the Bronx, New York, was arrested on April 27, 2016, in the Bronx, New York, and has been in federal custody since. MITCHELL pled guilty today to one count of racketeering conspiracy, which carries a maximum sentence of life in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as the defendant’s sentence will be determined by the judge. MITCHELL is scheduled to be sentenced by United States District Judge Alison J. Nathan on April 6, 2017, at 3:30 p.m.
Mr. Bharara praised the outstanding work of the NYPD’s Bronx Homicide Task Force, the NYPD’s 47th Precinct Detective Squad, the NYPD’s Bronx Gang Squad, HSI, DEA, and ATF.
This case is being handled by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Rachel Maimin, Micah W.J. Smith, Hagan Scotten, Jessica Feinstein, and Drew Johnson-Skinner are in charge of the prosecution.
Manhattan U.S. Attorney Announces Arrest of Georgia Man for Kidnapping, Heroin Trafficking, and Firearms OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James J. Hunt, Special Agent in Charge of the U.S. Drug Enforcement Administration’s New York Division (“DEA”), George P. Beach II, Superintendent of the New York State Police (“NYSP”), and James P. O’Neill, Commissioner of the New York City Police Department (“NYPD”), announced the arrest of EDWIN CABRAL MORA, a/k/a “Sosa.” CABRAL MORA was arrested yesterday in Gwinnett County, Georgia, and was presented today before a U.S. Magistrate Judge in the Northern District of Georgia and detained on consent.
CABRAL MORA is charged in four counts with conspiring to possess and distribute one kilogram and more of heroin, kidnapping, conspiracy to commit kidnapping, and brandishing a firearm in connection with these offenses. In relation to the kidnapping counts, CABRAL MORA is charged with luring an individual (“Victim-1”) from New York to Georgia, where Victim-1 was transported by car to an apartment in which CABRAL MORA and others blindfolded, bound, beat, and tortured Victim-1 by burning Victim-1’s skin.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Edwin Cabral Mora not only trafficked in large quantities of heroin, but turned to violence, including participating in a vicious kidnapping. In April of this year, Mora allegedly lured a victim from the Bronx to Georgia, ultimately blindfolding, beating, and torturing the victim. Thanks to the remarkable efforts of the DEA, this allegedly dangerous man is now off the streets and will face criminal charges in New York federal court.”
DEA Special Agent in Charge James J. Hunt said: “DEA’s REDRUM Group specializes in tracking down drug traffickers that cross the line into kidnapping, torture and at times, murder. This investigation took the team on the road to Atlanta to arrest Edwin Cabral Mora for his alleged crimes.”
State Police Superintendent George P. Beach II said: “Thanks to the hard work and partnership of law enforcement at the federal, state and local level, we are taking out a violent drug operation. This arrest should send the message that we will continue to aggressively pursue criminals who profit from illegal drugs at the expense of the safety and security of our neighborhoods.”
NYPD Commissioner James P. O’Neill said: “The defendant in this case is an alleged drug trafficker who blindfolded, burned, beat and finally tortured a kidnapping victim in a particularly heinous crime. I am thankful to the NYPD detectives, DEA agents, and others whose work resulted in these charges in the Southern District.”
As alleged in the Indictment[1]:
Heroin Trafficking
CABRAL MORA conspired with others to distribute substantial quantities of heroin from at least January 2016 through May 2016, in the Southern District of New York and elsewhere.
Kidnapping and Kidnapping Conspiracy
CABRAL MORA conspired with others to kidnap Victim-1, and did kidnap Victim-1 in April 2016. CABRAL MORA called Victim-1 by phone, when Victim-1 was in the Bronx, New York, to lure Victim-1 to Georgia. Once in Georgia, Victim-1 was transported by car to an apartment in which CABRAL MORA and others blindfolded, bound, beat, and tortured Victim-1 by burning Victim-1’s skin.
Firearms Possession
CABRAL MORA used, possessed, carried, and brandished firearms in relation to his heroin trafficking and kidnapping offenses.
* * *
CABRAL MORA, 38, of Gwinnett County, Georgia, is charged with conspiring to possess and distribute one kilogram and more of heroin, which carries a maximum sentence of life in prison, kidnapping, which carries a maximum sentence of life in prison, conspiracy to commit kidnapping, which carries a maximum sentence of life in prison, and brandishing a firearm in connection with the foregoing offenses, which carries a maximum sentence of life 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 Court.
Mr. Bharara praised the outstanding investigative work of the DEA, and also thanked the Georgia State Police, the Georgia Bureau of Investigation, and Atlanta HIDTA Groups 1 and 2 for their assistance.
The prosecution is being handled by the Office’s Narcotics Unit. Assistant U.S. Attorneys Sagar K. Ravi and Amanda L. Houle are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Announces Arrest of Macau Resident and Unsealing of Charges Against Three Individuals for Insider Trading Based on Information Hacked from Prominent U.S. Law FirmsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of IAT HONG and the unsealing today of a 13-count superseding indictment charging HONG, BO ZHENG, and CHIN HUNG (the “Defendants”). The Defendants are charged with devising and carrying out a scheme to enrich themselves by obtaining and trading on material, nonpublic information (“Inside Information”), exfiltrated from the networks and servers of multiple prominent U.S.-based international law firms with offices in New York, New York (the “Victim Law Firms”), which provided advisory services to companies engaged in corporate mergers and acquisitions (“M&A transactions”). The defendants targeted at least seven law firms as well as other entities in an effort to unlawfully obtain valuable confidential and proprietary information. HONG, a resident of Macau, was arrested on these charges on December 25, 2016, in Hong Kong and is now pending extradition proceedings. HONG was presented for an initial appearance on December 26, 2016, before a Judge in Hong Kong and is expected to have his next court appearance on January 16, 2017.
As alleged, from April 2014 through late 2015, the Defendants successfully obtained Inside Information from at least two of the Victim Law Firms (the “Infiltrated Law Firms”) by causing the networks and servers of these firms to be hacked. Once the Defendants obtained access to the law firms’ networks, the Defendants targeted email accounts of law firm partners who worked on high-profile M&A transactions. After obtaining emails containing Inside Information, the Defendants purchased stock in the target companies of certain transactions, which were expected to, and typically did, increase in value once the transactions were announced. The Defendants purchased shares of at least five publicly-traded companies before public announcements that those companies would be acquired, and sold them after the acquisitions were publicly announced, resulting in profits of over $4 million. In each case, one of the two Infiltrated Law Firms represented either the target or a contemplated or actual acquirer in the transaction.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants – including Iat Hong, who was arrested in Hong Kong on Christmas Day – targeted several major New York law firms, specifically looking for inside information about pending mergers and acquisitions. They allegedly hacked into two prominent law firms, stole the emails of their M&A partners, and made over $4 million in illegal profits. This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “The subjects charged in this case allegedly stole nonpublic information through unauthorized access to law firms’ computers, and used the information for their own personal gain. The FBI works around the clock to keep these types of alleged securities fraudsters and cyber criminals from trading on stolen information, potentially manipulating the market at the cost of legitimate investors, and harm to corporations.”
According to the allegations contained in the superseding indictment (the “Indictment”)1:
The Law Firm-1 Hack and Insider Trading
At all times relevant to the Indictment, Law Firm-1 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.
The Contemplated Intermune Transaction
In June 2014, Law Firm-1 was retained by a company not named in the Indictment (the “Company”) in connection with a contemplated acquisition of Intermune, a publicly traded U.S.-based drug maker (the “Contemplated Intermune Transaction”). A partner in the M&A group at Law Firm-1 (“Partner-1”) was an attorney working on the Contemplated Intermune Transaction.
Beginning on July 21, 2014, the Defendants began exchanging emails concerning, among other things, particular M&A partners at Law Firm-1. In addition, on or about July 29, 2014, HONG emailed HUNG a list of eleven partners at Law Firm-1, including Partner-1.
Also beginning about July 2014, the Defendants, without authorization, caused one of Law Firm-1’s web servers (the “Law Firm-1 Web Server”) to be accessed by using the unlawfully obtained credentials of a Law Firm-1 employee. The Defendants then caused malware to be installed on the Law Firm-1 Web Server. The access to the Law Firm-1 Web Server allowed unauthorized access to at least one of Law Firm-1’s email servers (the “Law Firm-1 Email Server”), which contained the emails of Law Firm-1 employees, including Partner-1.
Between about August 1 and August 15, 2014, Partner-1 was privy to Inside Information about the Contemplated Intermune Transaction. For example, on more than one occasion between August 7 and August 15, 2014, Partner-1 obtained information, including via email, about details of the proposed transaction, including the price per share the Company was considering offering to acquire Intermune.
Between about August 1 and August 9, 2014, the Defendants caused more than 40 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server over the course of at least eight days.
On August 13, 2014, during the time Law Firm-1 was advising the Company on the Contemplated Intermune Transaction and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, HONG used the Inside Information to purchase 7,500 shares of Intermune stock for certain trading accounts (the “Trading Accounts”). Prior to that date, none of the Trading Accounts had purchased any shares of Intermune. Later that day, HONG purchased an additional 1,000 shares of Intermune stock in the Trading Accounts.
On August 16 and 17, 2014, the Defendants exploited their continued unauthorized access to email data belonging to Law Firm-1 by exfiltrating approximately 10 gigabytes of confidential data from the Law Firm-1 Email Server. Between about August 18 and August 21, 2014, HONG and ZHENG used the Inside Information to purchase additional Intermune shares in the Trading Accounts on at least five occasions, totaling an additional 9,500 shares of Intermune stock.
The Contemplated Intermune Transaction was never consummated. Instead, before the market opened on Monday, August 25, 2014, Intermune announced that it had reached an agreement to be acquired by Roche AG, a German company. On that day, Intermune’s share price increased by approximately $19 per share, or approximately 40 percent from the closing price on Friday, August 22, 2014, the last prior trading day. That same day, August 25, 2014, the Defendants sold the 18,000 shares that they had begun acquiring twelve days earlier for profits of approximately $380,000.
The Intel-Altera Transaction
In January 2015, Law Firm-1 was retained by Intel Corporation (“Intel”), a publicly traded multinational technology company, in connection with a contemplated acquisition of Altera Corporation (“Altera”), a publicly traded integrated circuit manufacturer (the “Intel-Altera Transaction”). As with the Contemplated Intermune Transaction, Partner-1 was an attorney working on the Intel-Altera Transaction.
Between January and about March 27, 2015, Partner-1 was privy to Inside Information about the Intel-Altera Transaction. On several occasions during this time period, Partner-1 obtained confidential information about the contemplated transaction via email. For example, on January 29, 2015, Partner-1 received an email with deal terms, including the proposed price per share to purchase Altera.
Between January 13, 2015, in the same month that Law Firm-1 was retained by Intel to advise on the Intel-Altera Transaction, and about February 10, 2015, the Defendants caused approximately 2.8 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server.
Beginning February 17, 2015, during the time Law Firm-1 was advising Intel and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, the Defendants used the Inside Information to purchase shares of Altera stock in the Trading Accounts. Prior to that date, none of the Trading Accounts had purchased any shares of Altera.
To further effectuate their insider trading scheme, between February 17 and March 27, 2015, one or more of the Defendants used the Inside Information to purchase additional shares of Altera stock in the Trading Accounts on at least 26 occasions, ultimately purchasing more than 210,000 shares.
On March 27, 2015, a financial newspaper published an article reporting on confidential merger discussions between Intel and Altera (the “March 27 Newspaper Article”). Following the publication of the article, on March 27, 2015, Altera’s share price increased $9 per share, or approximately 26 percent, from Altera’s share price on March 27, 2015, just prior to the March 27 Newspaper Article. On April 10 and April 13, 2015, the Defendants sold all of their shares of Altera stock for a profit of approximately $1.4 million.
The Law Firm-2 Hack and Insider Trading
At all times relevant to this Indictment, Law Firm-2 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.
The Pitney Bowes-Borderfree Transaction
In December 2014, Law Firm-2 was retained by Pitney Bowes Inc., a publicly traded international business services company, in connection with a contemplated acquisition of Borderfree, Inc., a publicly traded e-commerce company headquartered in New York, New York (the “Pitney Bowes-Borderfree Transaction”). A partner in the M&A group at Law Firm-2 (“Partner-2”) was an attorney who worked on the Pitney Bowes-Borderfree Transaction.
Beginning about April 7, 2015, after Law Firm-2 had been retained to advise Pitney Bowes, the Defendants, without authorization, caused one of Law Firm-2’s web servers (the “Law Firm-2 Web Server”), located in New York, New York, to be accessed by using the unlawfully obtained credentials of a Law Firm-2 employee. The Defendants then caused malware to be installed on the Law Firm-2 Web Server. The malware on the Law Firm-2 Web Server allowed unauthorized access to at least one of Law Firm-2’s email servers, also located in New York, New York (the “Law Firm-2 Email Server”), which contained the emails of Law Firm-2 attorneys, including Partner-2.
Between about April 8 and July 31, 2015, the Defendants then caused approximately seven gigabytes of confidential data to be exfiltrated from the Law Firm-2 Email Server over the course of at least six days.
Beginning April 29, 2015, hours after the Defendants had caused data from the Law Firm-2 Email Server to be exfiltrated, HONG and HUNG used the Inside Information to purchase shares of Borderfree stock for the Trading Accounts. Prior to that date, none of the Trading Accounts had purchased any shares of Borderfree stock. To further effectuate their insider trading scheme, between April 29 and May 5, 2015, HONG and HUNG used the Inside Information to purchase additional shares of Borderfree in the Trading Accounts on at least five occasions. In total, HONG and HUNG used the Inside Information to purchase 113,000 shares of Borderfree.
On May 6, 2015, the Pitney Bowes-Borderfree Transaction became public. On that day, Borderfree’s stock price increased by approximately $7 per share, or 105 percent, from the previous day’s closing price. On May 18, 2015, HONG and HUNG sold their Borderfree shares, earning a profit of approximately $841,000.
Additional Insider Trading and Attempted Insider Trading Based on Inside Information Hacked from the Infiltrated Law Firms
In addition to trading on Inside Information in connection with the Contemplated Intermune Transaction, the Intel-Altera Transaction, and the Pitney Bowes-Borderfree Transaction, detailed above, the Defendants carried out their scheme to enrich themselves by obtaining and trading on the basis of Inside Information exfiltrated from the networks and servers of the Infiltrated Law Firms concerning at least 10 additional M&A transactions, including certain M&A transactions that were contemplated but never consummated. Several of these M&A transactions involved Partner-1 or Partner-2. In total, as a result of trading on Inside Information, the Defendants enriched themselves by at least $4 million.
Attempts to Hack Other Victim Law Firms
In addition to obtaining and trading on Inside Information concerning M&A transactions exfiltrated from the networks and servers of the Infiltrated Law Firms, the Defendants repeatedly attempted to cause unauthorized access to the networks and servers of five other Victim Law Firms using means and methods similar to those used to successfully access the Infiltrated Law Firms. For example, between March and September 2015, the Defendants attempted to cause unauthorized access to the networks and servers of these law firms on more than 100,000 occasions.
The Robotics Company Intrusions
At certain relevant times, the Defendants were also involved in a start-up robotics company (the “Robotics Company”), started by ZHENG, the defendant, which was engaged in the business of developing robot controller chips and providing control system solutions. HONG and HUNG were also involved in running the Robotics Company.
Between April 2014 and late 2015, in addition to their efforts to hack the Victim Law Firms’ networks and servers during this period, the Defendants also caused confidential information to be exfiltrated from the networks and servers of two robotics companies (the “Robotics Company Victims”) using substantially similar means and methods of exfiltration as were used to access and attempt to access and exfiltrate information from the Victim Law Firms. Specifically, certain of the same servers that were used to carry out the hacks and attempted hacks of the Victim Law Firms were used to carry out hacks of the Robotics Company Victims. Among other confidential information, the Defendants obtained confidential and proprietary information concerning the technology and design of consumer robotic products, including detailed and confidential proprietary design schematics. Following these exfiltrations from the Robotics Company Victims, the Defendants exchanged emails containing certain of the confidential information they had caused to be exfiltrated from the Robotics Company Victims, including the proprietary schematics.
Defendants and Charges
HONG, 26, and HUNG, 50, are residents of Macau. ZHENG, 30, is a resident of Changsha, China. HONG was arrested on December 25, 2016, in Hong Kong and is now pending extradition proceedings. The defendants are charged with the following offenses, which carry the maximum prison terms listed below. The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Count
Defendants
Charge
Maximum Prison Term
One
HONG, ZHENG, HUNG
Conspiracy to Commit Securities Fraud: Insider Trading
5 years
Two
HONG
Securities Fraud: Insider Trading – Intermune
20 years
Three
ZHENG
Securities Fraud: Insider Trading – Intermune
20 years
Four
HONG
Securities Fraud: Insider Trading – Altera
20 years
Five
HUNG
Securities Fraud: Insider Trading – Altera
20 years
Six
ZHENG
Securities Fraud: Insider Trading - Altera
20 years
Seven
HONG
Securities Fraud: Insider Trading - Borderfree
20 years
Eight
HUNG
Securities Fraud: Insider Trading - Borderfree
20 years
Nine
HONG, ZHENG, HUNG
Conspiracy to Commit Wire Fraud
20 years
Ten
HONG, ZHENG, HUNG
Wire Fraud
20 years
Eleven
HONG, ZHENG, HUNG
Conspiracy to Commit Computer Intrusion
5 years
Twelve
HONG, ZHENG, HUNG
Computer Intrusion – Unlawful Access – Law Firm-2
10 years
Thirteen
HONG, ZHENG, HUNG
Computer Intrusion – Intentional Damage – Law Firm-2
10 years
* * *
Mr. Bharara praised the investigative work of the FBI, and thanked the Securities and Exchange Commission for their assistance. Mr. Bharara also thanked the Office of International Affairs and Hong Kong law enforcement for their assistance in the arrest and apprehension of HONG. He added that the investigation is continuing.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and the Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Andrea M. Griswold, Daniel B. Tehrani, and Kristy J. Greenberg are in charge of the prosecution.
The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
NOTE: 1- As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Announces Arrest of Macau Resident and Unsealing of Charges Against Three Individuals for Insider Trading Based on Information Hacked from Prominent U.S. Law FirmsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of IAT HONG and the unsealing today of a 13-count superseding indictment charging HONG, BO ZHENG, and CHIN HUNG (the “Defendants”). The Defendants are charged with devising and carrying out a scheme to enrich themselves by obtaining and trading on material, nonpublic information (“Inside Information”), exfiltrated from the networks and servers of multiple prominent U.S.-based international law firms with offices in New York, New York (the “Victim Law Firms”), which provided advisory services to companies engaged in corporate mergers and acquisitions (“M&A transactions”). The defendants targeted at least seven law firms as well as other entities in an effort to unlawfully obtain valuable confidential and proprietary information. HONG, a resident of Macau, was arrested on these charges on December 25, 2016, in Hong Kong and is now pending extradition proceedings. HONG was presented for an initial appearance on December 26, 2016, before a Judge in Hong Kong and is expected to have his next court appearance on January 16, 2017.
As alleged, from April 2014 through late 2015, the Defendants successfully obtained Inside Information from at least two of the Victim Law Firms (the “Infiltrated Law Firms”) by causing the networks and servers of these firms to be hacked. Once the Defendants obtained access to the law firms’ networks, the Defendants targeted email accounts of law firm partners who worked on high-profile M&A transactions. After obtaining emails containing Inside Information, the Defendants purchased stock in the target companies of certain transactions, which were expected to, and typically did, increase in value once the transactions were announced. The Defendants purchased shares of at least five publicly-traded companies before public announcements that those companies would be acquired, and sold them after the acquisitions were publicly announced, resulting in profits of over $4 million. In each case, one of the two Infiltrated Law Firms represented either the target or a contemplated or actual acquirer in the transaction.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants – including Iat Hong, who was arrested in Hong Kong on Christmas Day – targeted several major New York law firms, specifically looking for inside information about pending mergers and acquisitions. They allegedly hacked into two prominent law firms, stole the emails of their M&A partners, and made over $4 million in illegal profits. This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “The subjects charged in this case allegedly stole nonpublic information through unauthorized access to law firms’ computers, and used the information for their own personal gain. The FBI works around the clock to keep these types of alleged securities fraudsters and cyber criminals from trading on stolen information, potentially manipulating the market at the cost of legitimate investors, and harm to corporations.”
According to the allegations contained in the superseding indictment (the “Indictment”)[1]:
The Law Firm-1 Hack and Insider Trading
At all times relevant to the Indictment, Law Firm-1 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.
The Contemplated Intermune Transaction
In June 2014, Law Firm-1 was retained by a company not named in the Indictment (the “Company”) in connection with a contemplated acquisition of Intermune, a publicly traded U.S.-based drug maker (the “Contemplated Intermune Transaction”). A partner in the M&A group at Law Firm-1 (“Partner-1”) was an attorney working on the Contemplated Intermune Transaction.
Beginning on July 21, 2014, the Defendants began exchanging emails concerning, among other things, particular M&A partners at Law Firm-1. In addition, on or about July 29, 2014, HONG emailed HUNG a list of eleven partners at Law Firm-1, including Partner-1.
Also beginning about July 2014, the Defendants, without authorization, caused one of Law Firm-1’s web servers (the “Law Firm-1 Web Server”) to be accessed by using the unlawfully obtained credentials of a Law Firm-1 employee. The Defendants then caused malware to be installed on the Law Firm-1 Web Server. The access to the Law Firm-1 Web Server allowed unauthorized access to at least one of Law Firm-1’s email servers (the “Law Firm-1 Email Server”), which contained the emails of Law Firm-1 employees, including Partner-1.
Between about August 1 and August 15, 2014, Partner-1 was privy to Inside Information about the Contemplated Intermune Transaction. For example, on more than one occasion between August 7 and August 15, 2014, Partner-1 obtained information, including via email, about details of the proposed transaction, including the price per share the Company was considering offering to acquire Intermune.
Between about August 1 and August 9, 2014, the Defendants caused more than 40 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server over the course of at least eight days.
On August 13, 2014, during the time Law Firm-1 was advising the Company on the Contemplated Intermune Transaction and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, HONG used the Inside Information to purchase 7,500 shares of Intermune stock for certain trading accounts (the “Trading Accounts”). Prior to that date, none of the Trading Accounts had purchased any shares of Intermune. Later that day, HONG purchased an additional 1,000 shares of Intermune stock in the Trading Accounts.
On August 16 and 17, 2014, the Defendants exploited their continued unauthorized access to email data belonging to Law Firm-1 by exfiltrating approximately 10 gigabytes of confidential data from the Law Firm-1 Email Server. Between about August 18 and August 21, 2014, HONG and ZHENG used the Inside Information to purchase additional Intermune shares in the Trading Accounts on at least five occasions, totaling an additional 9,500 shares of Intermune stock.
The Contemplated Intermune Transaction was never consummated. Instead, before the market opened on Monday, August 25, 2014, Intermune announced that it had reached an agreement to be acquired by Roche AG, a German company. On that day, Intermune’s share price increased by approximately $19 per share, or approximately 40 percent from the closing price on Friday, August 22, 2014, the last prior trading day. That same day, August 25, 2014, the Defendants sold the 18,000 shares that they had begun acquiring twelve days earlier for profits of approximately $380,000.
The Intel-Altera Transaction
In January 2015, Law Firm-1 was retained by Intel Corporation (“Intel”), a publicly traded multinational technology company, in connection with a contemplated acquisition of Altera Corporation (“Altera”), a publicly traded integrated circuit manufacturer (the “Intel-Altera Transaction”). As with the Contemplated Intermune Transaction, Partner-1 was an attorney working on the Intel-Altera Transaction.
Between January and about March 27, 2015, Partner-1 was privy to Inside Information about the Intel-Altera Transaction. On several occasions during this time period, Partner-1 obtained confidential information about the contemplated transaction via email. For example, on January 29, 2015, Partner-1 received an email with deal terms, including the proposed price per share to purchase Altera.
Between January 13, 2015, in the same month that Law Firm-1 was retained by Intel to advise on the Intel-Altera Transaction, and about February 10, 2015, the Defendants caused approximately 2.8 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server.
Beginning February 17, 2015, during the time Law Firm-1 was advising Intel and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, the Defendants used the Inside Information to purchase shares of Altera stock in the Trading Accounts. Prior to that date, none of the Trading Accounts had purchased any shares of Altera.
To further effectuate their insider trading scheme, between February 17 and March 27, 2015, one or more of the Defendants used the Inside Information to purchase additional shares of Altera stock in the Trading Accounts on at least 26 occasions, ultimately purchasing more than 210,000 shares.
On March 27, 2015, a financial newspaper published an article reporting on confidential merger discussions between Intel and Altera (the “March 27 Newspaper Article”). Following the publication of the article, on March 27, 2015, Altera’s share price increased $9 per share, or approximately 26 percent, from Altera’s share price on March 27, 2015, just prior to the March 27 Newspaper Article. On April 10 and April 13, 2015, the Defendants sold all of their shares of Altera stock for a profit of approximately $1.4 million.
The Law Firm-2 Hack and Insider Trading
At all times relevant to this Indictment, Law Firm-2 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.
The Pitney Bowes-Borderfree Transaction
In December 2014, Law Firm-2 was retained by Pitney Bowes Inc., a publicly traded international business services company, in connection with a contemplated acquisition of Borderfree, Inc., a publicly traded e-commerce company headquartered in New York, New York (the “Pitney Bowes-Borderfree Transaction”). A partner in the M&A group at Law Firm-2 (“Partner-2”) was an attorney who worked on the Pitney Bowes-Borderfree Transaction.
Beginning about April 7, 2015, after Law Firm-2 had been retained to advise Pitney Bowes, the Defendants, without authorization, caused one of Law Firm-2’s web servers (the “Law Firm-2 Web Server”), located in New York, New York, to be accessed by using the unlawfully obtained credentials of a Law Firm-2 employee. The Defendants then caused malware to be installed on the Law Firm-2 Web Server. The malware on the Law Firm-2 Web Server allowed unauthorized access to at least one of Law Firm-2’s email servers, also located in New York, New York (the “Law Firm-2 Email Server”), which contained the emails of Law Firm-2 attorneys, including Partner-2.
Between about April 8 and July 31, 2015, the Defendants then caused approximately seven gigabytes of confidential data to be exfiltrated from the Law Firm-2 Email Server over the course of at least six days.
Beginning April 29, 2015, hours after the Defendants had caused data from the Law Firm-2 Email Server to be exfiltrated, HONG and HUNG used the Inside Information to purchase shares of Borderfree stock for the Trading Accounts. Prior to that date, none of the Trading Accounts had purchased any shares of Borderfree stock. To further effectuate their insider trading scheme, between April 29 and May 5, 2015, HONG and HUNG used the Inside Information to purchase additional shares of Borderfree in the Trading Accounts on at least five occasions. In total, HONG and HUNG used the Inside Information to purchase 113,000 shares of Borderfree.
On May 6, 2015, the Pitney Bowes-Borderfree Transaction became public. On that day, Borderfree’s stock price increased by approximately $7 per share, or 105 percent, from the previous day’s closing price. On May 18, 2015, HONG and HUNG sold their Borderfree shares, earning a profit of approximately $841,000.
Additional Insider Trading and Attempted Insider Trading Based on Inside Information Hacked from the Infiltrated Law Firms
In addition to trading on Inside Information in connection with the Contemplated Intermune Transaction, the Intel-Altera Transaction, and the Pitney Bowes-Borderfree Transaction, detailed above, the Defendants carried out their scheme to enrich themselves by obtaining and trading on the basis of Inside Information exfiltrated from the networks and servers of the Infiltrated Law Firms concerning at least 10 additional M&A transactions, including certain M&A transactions that were contemplated but never consummated. Several of these M&A transactions involved Partner-1 or Partner-2. In total, as a result of trading on Inside Information, the Defendants enriched themselves by at least $4 million.
Attempts to Hack Other Victim Law Firms
In addition to obtaining and trading on Inside Information concerning M&A transactions exfiltrated from the networks and servers of the Infiltrated Law Firms, the Defendants repeatedly attempted to cause unauthorized access to the networks and servers of five other Victim Law Firms using means and methods similar to those used to successfully access the Infiltrated Law Firms. For example, between March and September 2015, the Defendants attempted to cause unauthorized access to the networks and servers of these law firms on more than 100,000 occasions.
The Robotics Company Intrusions
At certain relevant times, the Defendants were also involved in a start-up robotics company (the “Robotics Company”), started by ZHENG, the defendant, which was engaged in the business of developing robot controller chips and providing control system solutions. HONG and HUNG were also involved in running the Robotics Company.
Between April 2014 and late 2015, in addition to their efforts to hack the Victim Law Firms’ networks and servers during this period, the Defendants also caused confidential information to be exfiltrated from the networks and servers of two robotics companies (the “Robotics Company Victims”) using substantially similar means and methods of exfiltration as were used to access and attempt to access and exfiltrate information from the Victim Law Firms. Specifically, certain of the same servers that were used to carry out the hacks and attempted hacks of the Victim Law Firms were used to carry out hacks of the Robotics Company Victims. Among other confidential information, the Defendants obtained confidential and proprietary information concerning the technology and design of consumer robotic products, including detailed and confidential proprietary design schematics. Following these exfiltrations from the Robotics Company Victims, the Defendants exchanged emails containing certain of the confidential information they had caused to be exfiltrated from the Robotics Company Victims, including the proprietary schematics.
Defendants and Charges
HONG, 26, and HUNG, 50, are residents of Macau. ZHENG, 30, is a resident of Changsha, China. HONG was arrested on December 25, 2016, in Hong Kong and is now pending extradition proceedings. The defendants are charged with the following offenses, which carry the maximum prison terms listed below. The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Count
Defendants
Charge
Maximum Prison Term
One
HONG, ZHENG, HUNG
Conspiracy to Commit Securities Fraud: Insider Trading
5 years
Two
HONG
Securities Fraud: Insider Trading – Intermune
20 years
Three
ZHENG
Securities Fraud: Insider Trading – Intermune
20 years
Four
HONG
Securities Fraud: Insider Trading – Altera
20 years
Five
HUNG
Securities Fraud: Insider Trading – Altera
20 years
Six
ZHENG
Securities Fraud: Insider Trading - Altera
20 years
Seven
HONG
Securities Fraud: Insider Trading - Borderfree
20 years
Eight
HUNG
Securities Fraud: Insider Trading - Borderfree
20 years
Nine
HONG, ZHENG, HUNG
Conspiracy to Commit Wire Fraud
20 years
Ten
HONG, ZHENG, HUNG
Wire Fraud
20 years
Eleven
HONG, ZHENG, HUNG
Conspiracy to Commit Computer Intrusion
5 years
Twelve
HONG, ZHENG, HUNG
Computer Intrusion – Unlawful Access – Law Firm-2
10 years
Thirteen
HONG, ZHENG, HUNG
Computer Intrusion – Intentional Damage – Law Firm-2
10 years
* * *
Mr. Bharara praised the investigative work of the FBI, and thanked the Securities and Exchange Commission for their assistance. Mr. Bharara also thanked the Office of International Affairs and Hong Kong law enforcement for their assistance in the arrest and apprehension of HONG. He added that the investigation is continuing.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and the Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Andrea M. Griswold, Daniel B. Tehrani, and Kristy J. Greenberg are in charge of the prosecution.
The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
U.S. Attorney Files Civil Rights Suit Against Bronx Developer to Remedy Pattern and Practice of Inaccessible Design and Construction of Apartment BuildingsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed a federal civil rights lawsuit against ABRAHAM STRULOVITCH to require him to remedy conditions at two rental complexes in the Bronx and in Orange County to make them accessible to people with disabilities and to ensure that two rental complexes currently under construction by STRULOVITCH in the Bronx will be accessible.
Manhattan U.S. Attorney Preet Bharara said: “The Fair Housing Act’s accessibility provisions were enacted to ensure that people with disabilities have the same access to housing as everyone else. With today’s lawsuit, we seek to ensure that Strulovitch fixes the current inaccessible conditions at Riverdale Parc and Bluestone Commons as well as at his ongoing construction projects. This Office will continue to use all available tools to enforce the FHA’s promise of accessibility for people with disabilities.”
The Fair Housing Act’s (“FHA”) accessible design and construction provisions require multifamily housing complexes constructed after January 1993 to have basic features accessible to persons with disabilities. According to the allegations in the Complaint, STRULOVITCH has engaged in a pattern and practice of discriminatory conduct, as evidenced by the numerous inaccessible conditions at Riverdale Parc, a 54-unit rental complex in the Riverdale section of the Bronx designed and constructed in 2014, and Bluestone Commons, a 70-unit rental complex for senior residents in Maybrook, New York, designed and constructed in 2015. The inaccessible conditions alleged include, for example, an excessively high threshold at the main entrance to Riverdale Parc, as well as insufficiently wide doorways within the rental units at both Riverdale Parc and Bluestone Commons. Other inaccessible conditions include excessively high thresholds to balconies within the rental units at Bluestone Commons and inaccessible locations of thermostats or other environmental controls in the rental units at Riverdale Parc and Bluestone Commons.
The Complaint further alleges that STRULOVITCH currently is actively involved in designing and constructing two other rental complexes in the Bronx – 640 West 238th Street and 3707 Blackstone Avenue – that will contain a total of more than 90 rental units. In the Complaint, the United States also seeks a court order requiring STRULOVITCH to take steps necessary to ensure that both 640 West 238th Street and 3707 Blackstone Avenue will be constructed in compliance with the Fair Housing Act’s accessibility requirements.
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Li Yu, Jacob Lillywhite, Jessica Jean Hu, and Natasha Teleanu are in charge of the case.
Manhattan U.S. Attorney Announces $10 Million Civil Penalty Recovery Against New York Pharmaceutical Distributor Kinray, Llc.Read the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and James Hunt, Special Agent in Charge for the Drug Enforcement Administration (“DEA”), announced the filing and settlement of a civil lawsuit involving Controlled Substances Act (“CSA”) claims brought by the United States against Kinray, LLC. (“Kinray”), a New York-based pharmaceutical subsidiary of Cardinal Health, Inc. (“Cardinal”). The suit was filed on December 19, 2016. In the consent decree approved yesterday by U.S. District Judge Ronnie Abrams, Kinray agreed to pay $10 million to the United States, and admitted and accepted responsibility for failing to inform the DEA, as required by CSA regulations, of Kinray’s receipt of suspicious orders for certain controlled substances during the time period between January 1, 2011 and May 14, 2012.
Under CSA regulations, pharmaceutical distributors (like Kinray) have a responsibility to report suspicious orders of unusual size, orders that deviate substantially from a normal pattern, or orders of unusual frequency. The DEA relies on this requirement, and on pharmaceutical distributors in particular, as the first line of defense against dishonest medical professionals who fuel the illegal market for opioids. Pharmaceutical companies, as the makers and distributors of dangerous opioids, have a particular obligation not to fulfill shipments to medical professionals, pharmacies, or other entities that place unusual orders, oversized orders, or orders of unusual frequency. As alleged in the Complaint filed by this Office, and as admitted in the settlement agreement (the “Consent Decree”), Kinray violated this requirement.
Manhattan U.S. Attorney Preet Bharara said: “With the opioid crisis reaching epidemic proportions, pharmaceutical companies must be part of the solution, not part of the problem. When distributors like Kinray fail to alert the DEA to suspicious order activity, they end up facilitating the illegal sale and distribution of highly addictive opioids. Today’s settlement is part of our ongoing efforts to use all the tools at our disposal to combat opioid abuse.”
DEA Acting Special Agent in Charge James Hunt said: “While over 33,000 opioid-related deaths last year have drawn the attention of families and friends wanting to know more about opioid addiction; law enforcement has been red flagging pharmaceutical diversion. DEA Diversion Investigators conduct regulatory visits in order to confirm companies adhere to strict security measures and reporting responsibilities in a timely matter to deter prescription medication from being illegally distributed. This settlement is a clear message that law enforcement is looking at pharmaceutical suppliers responsible for safeguarding and distributing prescription medication as well as targeting those responsible for its diversion.”
According to the allegations in the Complaint and the terms of the Consent Decree:
Kinray, a subsidiary of Cardinal, is a pharmaceutical distributor located in Whitestone, Queens, New York. Among other things, Kinray distributes controlled substances, including Schedule II narcotics (such as oxycodone and its derivatives), to pharmacies, doctors, and medical facilities with a legitimate medical need.
Under regulations promulgated by the DEA, distributors of controlled substances must design and operate a system to disclose suspicious orders of controlled substances, and report any discovered suspicious orders to the DEA. These reporting requirements are an integral part of the DEA’s efforts to track the illicit distribution of oxycodone and other highly addictive opioids.
As alleged, during the period from January 1, 2011 to May 14, 2012, the DEA investigated pharmacies in New York City and elsewhere that had placed orders for shipments of oxycodone or hydrocodone (both Schedule II controlled substances) from Kinray that were of unusual size and/or unusual frequency. For example, the DEA’s internal tracking system revealed that during the relevant period, Kinray had shipped oxycodone or hydrocodone to more than 20 New York-area pharmacy locations that placed orders for a quantity of controlled substances many times greater than Kinray’s average sales of controlled substances to all of its customers. Such orders should have triggered “red flags” in Kinray’s ordering system, and Kinray should have reported the suspicious orders to the DEA. But for most of this time period, Kinray did not report a single suspicious order to the DEA.
In the Consent Decree entered yesterday by Judge Abrams, Kinray admitted that during the period January 1, 2011 to May 14, 2012, it failed to inform the DEA, as required, that certain orders for controlled substances it received from customers were suspicious. Kinray also agreed to pay the United States a $10 million civil penalty, and agreed to voluntarily submit to DEA inspections of its Whitestone, New York, facility at any time without condition and without advance notice.
In addition, in a separate administrative action, on December 16, 2016, Kinray signed a Memorandum of Agreement with the DEA in which Kinray agreed to revise its standard operating procedures to improve the processes that govern its handling and delivery of controlled substances to its customers.
This settlement is part of a $44 million global resolution announced today by the Department of Justice with Kinray’s parent company, Cardinal, in which Cardinal agreed to pay an additional $34 million to the United States to resolve failure to report suspicious order claims brought by the U.S. Attorney’s Offices for the Middle District of Florida, the District of Maryland, and the Western District of Washington.
Mr. Bharara praised the outstanding investigative work of the DEA and thanked the New York City Police Department for its assistance.
The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorney Louis A. Pellegrino is in charge of the case.
Manhattan U.S. Attorney Announces $30 Million Settlement with Total Call Mobile for Defrauding Government Program Offering Discounted Mobile Phone Services to Low-Income ConsumersRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Travis LeBlanc, Federal Communications Commission (“FCC”) Enforcement Bureau Chief, announced today a $30 million settlement of a civil fraud lawsuit against TOTAL CALL MOBILE, LLC (“TOTAL CALL”), for defrauding the Lifeline Program, a federal government subsidy program that offers discounted mobile phone services to eligible low-income consumers. TOTAL CALL, based in Gardena, California, has enrolled Lifeline subscribers in 19 states and territories. The United States’ Complaint alleges that Total Call, with the knowledge and involvement of its affiliate, co-defendant LOCUS TELECOMMUNICATIONS, LLC, and their shared corporate parent, co-defendant KDDI AMERICA, INC., knowingly submitted false claims for federal payments by seeking reimbursement for consumers who did not meet Lifeline eligibility requirements. As part of the settlement, TOTAL CALL admitted and accepted responsibility for conduct alleged in the Complaint, including seeking reimbursement for tens of thousands of ineligible consumers, and agreed to no longer participate in the Lifeline Program. The payment also resolves an administrative investigation conducted by the FCC, and the FCC has entered into a separate administrative agreement with TOTAL CALL as part of this global settlement.
Manhattan U.S. Attorney Preet Bharara said: “By routinely looking the other way while its sales agents repeatedly engaged in obvious fraud, Total Call Mobile undermined the goals and depleted the resources of a federal subsidy program designed to provide discounted phone services to low-income individuals. While it certified its compliance with FCC rules, Total Call enrolled and claimed federal payments for tens of thousands of consumers who did not qualify for the program.”
FCC Enforcement Bureau Chief Travis LeBlanc said: “We have no toleration for fraud. This unprecedented $30 million settlement along with a permanent ban from the Lifeline Program affirms our commitment to pursue the strongest sanctions for those who defraud or abuse the Universal Service program. We thank our partners at the Department of Justice for working with us to make sure that companies that commit fraud are held accountable to the fullest extent of the law.”
To be eligible for the Lifeline Program, a consumer must have income that is at or below 135% of the Federal Poverty Guidelines or participate in one of a number of specified federal, state, or Tribal assistance programs. Eligible Telecommunications Carriers (“ETCs”), such as TOTAL CALL, receive monthly federal payments for providing discounted phone services to qualified consumers. As a condition of receiving these payments, an ETC must comply with regulations established by the FCC, which, among other things, require the implementation of policies and procedures for ensuring that enrolled subscribers are eligible for the program and that households do not receive more than one Lifeline phone. ETCs must certify their compliance with Lifeline rules as part of an annual reporting requirement and with each monthly request for payment.
As alleged in the Complaint filed in Manhattan federal court:
TOTAL CALL relied primarily on in-person sales events to enroll consumers in the Lifeline Program. The company contracted with “master agents,” who in turn hired “field agents” to engage in face-to-face marketing at public events and spaces. These field agents were expected to enter electronically a consumer’s demographic information and capture images of the consumer’s proof of identification and proof of eligibility for the Lifeline Program (e.g., Medicaid card, food stamp card). TOTAL CALL had access to the information entered by the field agents.
TOTAL CALL, with the knowledge and involvement of the other defendants, engaged in a widespread practice of seeking federal reimbursement for consumers who did not meet Lifeline’s eligibility requirements. TOTAL CALL field agents employed a range of fraudulent enrollment practices, including repeatedly using the same eligibility proof to enroll multiple consumers, tampering with identification or eligibility proof documentation, intentionally altering the way consumer information was input so as to avoid the detection of duplicate subscriber enrollments, and submitting false consumer addresses and social security numbers. Although TOTAL CALL’s managers were notified that high volume field agents were engaging in blatantly fraudulent enrollment practices, TOTAL CALL continued to approve and seek federal reimbursement for consumers enrolled by these agents.
In addition, defendants failed to implement effective procedures and systems for preventing the enrollment of duplicate or otherwise ineligible Lifeline subscribers. In many instances, even a cursory review of the submitted information and documentation or a straightforward search of the existing customer database would have shown that an application was faulty and should be denied. However, to maximize enrollments and meet its aggressive sales targets, TOTAL CALL approved applications with little or no scrutiny, and then submitted grossly inflated reimbursement requests with false certifications of compliance with Lifeline rules.
Today, U.S. District Court Judge Jed S. Rakoff approved a settlement stipulation to resolve the Government’s claims against the defendants. Under the settlement, defendants are required to pay approximately $22.54 million to the United States, and to forego payment of approximately $7.46 million in Lifeline reimbursements claimed by TOTAL CALL but held by the Government pursuant to a prior FCC Order. Further, TOTAL CALL has agreed to cease providing Lifeline services by December 31, 2016, and not to participate in the Lifeline Program in the future.
As part of the settlement, TOTAL CALL admits, acknowledges, and accepts responsibility for the following conduct:
- TOTAL CALL failed to implement effective policies and procedures to ensure the eligibility of the subscribers for whom TOTAL CALL requested reimbursement for Lifeline discounts, as required by Lifeline rules.
- For much of the period from September 2012 to May 2016, defendants allocated insufficient staff and resources to verifying the eligibility of Lifeline subscribers, and failed to adequately screen and train the field agents.
- Hundreds of TOTAL CALL field agents engaged in fraudulent practices to enroll consumers who were duplicate subscribers or who were otherwise not eligible for the Lifeline Program. TOTAL CALL failed to put in place effective mechanisms to oversee the conduct of field agents and detect and prevent field agent abuses.
- Certain field agents repeatedly used the same benefit program eligibility proof to enroll multiple consumers. Agents frequently enrolled several different individuals by submitting an image of the same improperly obtained program eligibility card or, in some instances, a fake program eligibility card.
- Certain field agents slightly altered the way in which a subscriber’s demographic information was input to avoid having TOTAL CALL identify the application as a duplicate.
- Certain field agents tampered with identification or program eligibility cards, and intentionally transmitted blurry or partial images of the documentation, to try to conceal the fact that the information on the documentation did not match the subscriber’s actual name or the other information on the Lifeline application.
- Certain field agents provided their own signature, printed their own name, or wrote a straight or curvy line where the prospective subscriber’s signature was supposed to appear on Lifeline applications.
- Certain field agents submitted false consumer addresses and social security numbers to enroll duplicate or otherwise ineligible subscribers.
- At the time that TOTAL CALL submitted many of its monthly remittance requests, TOTAL CALL knew that its policies and procedures for reviewing Lifeline applications, verifying consumer eligibility, conducting duplicate checks, and detecting duplicate subscribers were deficient.
- TOTAL CALL sought and received reimbursement for tens of thousands of consumers who did not meet the Lifeline eligibility requirements.
In connection with the filing of the lawsuit and settlement, the Government joined a private whistleblower lawsuit that had previously been filed under seal pursuant to the False Claims Act.
Mr. Bharara thanks the FCC’s Office of Inspector General and the FCC’s Enforcement Bureau for their investigative efforts and assistance with the case.
The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Jeffrey K. Powell and Jessica Jean Hu are in charge of the case.
- TOTAL CALL failed to implement effective policies and procedures to ensure the eligibility of the subscribers for whom TOTAL CALL requested reimbursement for Lifeline discounts, as required by Lifeline rules.
Connecticut Man Sentenced to Two Years in Prison for Conspiracy to Obstruct Justice and Money Laundering in Connection with Scheme to Hide Assets from Two Federal Courts and the SECRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROBERT A. OLINS was sentenced yesterday to two years in prison for conspiracy to obstruct justice and money laundering. The charges relate to OLINS’s scheme to hide his assets – including his multimillion-dollar art and antiques collection (the “Art and Antiques Collection”), which was subject to liquidation to satisfy a $3.3 million disgorgement judgment entered by a federal court in California – from federal courts in New York and California, in connection with an enforcement proceeding brought by the Securities and Exchange Commission (the “SEC”), and to launder the money derived from the scheme. OLINS pled guilty on June 10, 2016, and was sentenced yesterday by United States District Judge Jesse M. Furman.
U.S. Attorney Preet Bharara said: “Robert Olins deceived and hid assets from two federal courts, a court-appointed receiver, and the SEC. He repeatedly lied to the court, and, rather than satisfy court judgments as required, he used the proceeds to pay for personal luxuries.”
According to the Indictment and statements made during yesterday’s court proceedings:
On February 25, 2011, a federal district court in California (the “California Court”) entered a judgment against OLINS, ordering him to pay disgorgement to the SEC in the amount of $3.3 million (the “Disgorgement Order”). On July 27, 2011, the SEC filed an action in federal court in the Southern District of New York (the “New York Court”) registering the Disgorgement Order and requesting the appointment of a receiver to liquidate the Art and Antiques Collection and to apply the proceeds of such liquidation toward the Disgorgement Order. On May 29, 2012, the New York Court issued an order (the “Receiver Order”) appointing American Bank and Trust Company (“AB&T”) as Receiver, as AB&T had a first and prior security interest in the Art and Antiques Collection. The Receiver Order prohibited OLINS, as well as any other person or entity with “possession, custody, or control” of any item from the Art and Antiques Collection, from engaging in any form of side deal, self-help, set-off, or transaction not approved by the New York Court.
From August 2011 through August 2015, OLINS engaged in a conspiracy to obstruct the administration of justice in the New York Court and the California Court, by, among other misrepresentations, making false statements in order to mislead those courts concerning OLINS’s financial condition, and to fraudulently obtain court approval for certain transactions concerning the Art and Antiques Collection. OLINS then received approximately $657,000 from the sale of items in the Art & Antiques Collection that should have gone to the SEC and AB&T, and instead used the proceeds for his own purposes, including to make payments toward the purchase of additional antiques, including a $695,000 set of antique wall brackets. In June 2012, OLINS directed that certain monies he derived from the scheme be wired to a bank account in the Isle of Man, for the purpose of promoting his unlawful conduct of hiding his assets from the Courts, the SEC, and AB&T. Once the money was received in the Isle of Man, OLINS then directed that the money be transferred back into the United States and used it to pay personal expenses. OLINS then purposely concealed his receipt of the $657,000 from the California Court, by not including it on a financial affidavit he was required to file with that court.
* * *
In addition to the prison sentence, OLINS, 60, was sentenced to two years of supervised release. The Court further ordered that OLINS forfeit $160,000 and his interest in the antique wall brackets, and pay $657,000 in restitution to the Receiver.
Mr. Bharara praised the work of the Federal Bureau of Investigation and the United States Postal Inspection Service, and thanked the SEC for its assistance.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Christine I. Magdo and Andrea M. Griswold are in charge of the prosecution.
Press Conference AdvisoryRead the Press Release
There will be a press conference today to announce charges against Navnoor Kang, a former portfolio manager at the New York State Common Retirement Fund, and two broker-dealers, Deborah Kelley and Gregg Schonhorn, for participating in a “pay-for-play” scheme involving the Fund. Relevant charging documents are attached.
The event will be livestreamed via Facebook at: www.facebook.com/usaosdny
WHO: Preet Bharara, United States Attorney for the Southern District of New York
William F. Sweeney, Special Agent-in-Charge of the New York Field Office of the Federal Bureau of Investigation
Andrew Ceresney, Director of the Division of Enforcement for the Securities and Exchange Commission
WHAT: Press Conference
WHEN: Wednesday, December 21, 2016
12:00 p.m.
WHERE: U.S. Attorney’s Office, Southern District of New York
1 St. Andrew’s Plaza
New York, NY 10007
CONTACT: James Margolin, Dawn Dearden, Nicholas Biase
(212) 637-2600
NOTE: Please silence all cell phones, PDAs, and pagers before start of press conference.
Follow us on Twitter: @SDNYnews
DO NOT REPLY TO THIS MESSAGE. IF YOU HAVE QUESTIONS, PLEASE CALL THE PRESS OFFICE AT (212) 637-2600Manhattan U.S. Attorney Charges Executive of Axact in $140 Million Diploma Mill ScamRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), 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 filing of a criminal Complaint charging UMAIR HAMID, a/k/a “Shah Khan,” a/k/a the “Shah,” with wire fraud, conspiracy to commit wire fraud, and aggravated identity theft in connection with a worldwide “diploma mill” scheme that collected at least approximately $140 million from tens of thousands of consumers. As alleged, HAMID and his co-conspirators made false and fraudulent representations to consumers on websites and over the phone to trick them into enrolling in purported colleges and high schools, and issued fake diplomas upon receipt of upfront fees from consumers. HAMID was arrested on December 19, 2016, and was presented yesterday in federal court in Fort Mitchell, Kentucky.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, while promising the rewards of a higher education, Umair Hamid was actually just peddling diplomas and certifications from fake schools. Hamid allegedly took hefty upfront fees from young men and women seeking an education, leaving them with little more than useless pieces of paper.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “Mr. Hamid took advantage of the aspirations and dreams of thousands wanting a college education by devising a scheme to issue college coursework, degrees and certifications not worth the paper they were printed on. Postal Inspectors and their law enforcement partners will spare no resource to bring these scammers to justice, protecting those striving for higher education and opportunities.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “Thousands of people’s hopes were crushed as this alleged diploma mill scheme came crashing down. Victims took at face value the lies Hamid and his co-conspirators are alleged to have sold them. Today, we’re rewriting the lesson plan.”
According to the allegations contained in the Complaint filed today in Manhattan federal court[1]:
The Axact Scheme
HAMID, using the aliases “Shah Khan” and the “Shah,” and others operated a massive education “diploma mill” through the Pakistani company “Axact,” which has held itself out as one of the world’s leading information technology (“IT”) providers. Working on behalf of Axact, HAMID and others made misrepresentations to individuals across the world, including throughout the United States and in the Southern District of New York, in order to dupe these individuals into enrolling in supposed high schools, colleges, and other educational institutions. Consumers paid upfront fees to HAMID and his co-conspirators, believing that in return they would be enrolled in real educational courses and, eventually, receive legitimate degrees. Instead, after paying the upfront fees, consumers did not receive any legitimate instruction and were provided fake and worthless diplomas.
Axact promoted and claimed to have an affiliation with approximately 350 fictitious high schools and universities, which Axact advertised online to consumers as genuine schools. During certain time periods since 2014, Axact received approximately 5,000 phone calls per day from individuals seeking to purchase Axact products or enroll in educational institutions supposedly affiliated with Axact. At least some of those consumers appeared to believe that they were calling phone numbers associated with the respective schools. When consumers asked where the schools were located, sales representatives were instructed to give fictitious addresses.
Once a consumer paid for a school certificate or diploma that falsely reflected a completed course of study, Axact sales agents were trained to use sales techniques to convince the consumer that the consumer should also purchase additional “accreditation” or “certifications” for such certificates or diplomas in order to make them appear more legitimate. Axact, through HAMID and his co-conspirators, falsely “accredited” purported colleges and other educational institutions by arranging to have diplomas from these phony educational institutions affixed with fake stamps supposedly bearing the seal and signature of the U.S. Secretary of State, as well as various states and state agencies and federal and state officials.
HAMID’s Role in the Scheme
HAMID served as Axact’s “Assistant Vice President of International Relations.” While based in Pakistan, HAMID was involved in managing and operating online companies that falsely held themselves out to consumers over the Internet as educational institutions. Among other things, HAMID made various false and fraudulent representations to consumers in order to sell fake diplomas. At HAMID’s direction, the websites of purported “schools” (1) falsely represented that consumers who “enrolled” with the schools by paying tuition fees would receive online instruction and coursework, (2) sold bogus academic “accreditations” in exchange for additional fees, (3) falsely represented that the schools had been certified or accredited by various educational organizations, and (4) falsely represented that the schools’ degrees were valid and accepted by employers, including in the United States.
As a further part of the scheme, HAMID and a co-conspirator (1) opened bank accounts in the United States in the names of shell entities, effectively controlled by HAMID, which received funds transferred by consumers in exchange for fake diplomas, (2) transferred funds from those bank accounts to bank accounts associated with other entities located elsewhere in the United States, the United Arab Emirates, and Canada, at the direction of HAMID, and (3) opened and operated an account with Paypal, the online payment service provider, to collect and distribute consumer funds obtained in connection with their fraudulent scheme.
In or about May 2015, Axact was shut down by Pakistani law enforcement, and certain individuals associated with Axact were prosecuted in Pakistan. Nevertheless, after May 2015, HAMID resumed his fraudulent business of selling fake diplomas to consumers in the United States for upfront fees based upon false and fraudulent representations. Most recently, HAMID traveled to the United States in order to open a bank account that he has used to collect money from consumers he defrauded.
* * *
HAMID, 30, of Karachi, Pakistan, is charged with one count of conspiracy to commit wire fraud and two counts of wire fraud, each of which carries a maximum sentence of 20 years in prison; and one count of aggravated identity theft, which carries a mandatory minimum sentence 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 will be determined by the judge.
Mr. Bharara praised the investigative work of the FBI and Postal Inspection Service. Mr. Bharara noted that the investigation remains ongoing.
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 the Victim/Witness Unit at the United States Attorney’s Office for the Southern District of New York, at (866) 874-8900. For additional information, go to http://www.usdoj.gov/usao/nys/victimwitness.html.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Edward A. Imperatore and Noah D. Solowiejczyk are in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[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 Charges Against Two Florida Men for Operating Business That Illegally Transferred More Than $100 Million into and Through the United StatesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Angel M. Melendez, Special Agent In Charge of the New York Field Office of the Department of Homeland Security, Homeland Security Investigations (“HSI”) announced today the unsealing of a complaint charging LUIS DIAZ JR. and LUIS JAVIER DIAZ with operating an unlicensed money transmission business and international money laundering in connection with their transfer of over $100 million from foreign businesses into and through the United States financial system. In addition to netting the defendants millions of dollars in profits, this illegal scheme allowed foreign businesses to send money into and around the United States while avoiding anti-money laundering safeguards and obligations imposed upon legal money service businesses. LUIS DIAZ JR. and LUIS JAVIER DIAZ were arrested this morning in Miami, Florida, and will be presented before Magistrate Judge Jonathan Goodman this afternoon in the United States District Court for the Southern District of Florida.
Manhattan U.S. Attorney Preet Bharara said: “Luis Diaz Jr. and Luis Javier Diaz allegedly operated a shadow bank outside the normal financial system to move more than $100 million into and through the United States. The use of unlicensed money transmission businesses, ones that do not maintain the anti-money laundering safeguards required of licensed institutions, provides a dangerous and unregulated channel for money laundering and other financial crime. Prosecutions like this one seek to close that underground network that helps move criminal money around the world.”
HSI Special Agent in Charge Angel M. Melendez said: “This criminal team gives new meaning to ‘family business’ with their alleged role in laundering more than $100 million through U.S. borders. Their scheme allowed off-shore businesses to move cash into and around the U.S. while sidestepping regulations placed on legitimate businesses. Moving money for corporations with zero regard for safeguards hurts our financial infrastructure and threatens our national security. As part of these joint investigations, HSI continues to search out those leaching profits at the risk of the American economy.”
According to the allegations contained in the Complaint unsealed today in Manhattan federal court[1]:
THE ILLEGAL MONEY TRANSMITTING SCHEME
Between 2010 and 2016, LUIS DIAZ JR. and LUIS JAVIER DIAZ used a company they owned in Doral, Florida, (the “Company”) to effect the transmission of at least $100 million from entities outside the United States, mostly located in Venezuela, to bank accounts in the United States and elsewhere, in exchange for a fee. During this time, the Company was not registered with the state of Florida or the Financial Crimes Enforcement Network (FinCEN), a component of the United States Department of the Treasury, as required by both state and federal laws applicable to money transmitting businesses like the Company.
Unlicensed money transmitting businesses like the Company enables entities and individuals to move money into and through the U.S. financial system while avoiding licensed U.S. financial institutions that monitor for suspicious activity and report it to U.S. authorities, including through suspicious activity reports, or SARs. Instead, by going through unlicensed entities like the Company, foreign businesses ensure that suspicious patterns of transmissions will not be detected and reported as potential money laundering activity or other financial crime.
THE DEFENDANTS ILLEGALY TRANSMITTED MONEY
ON BEHALF OF NUMEROUS FOREIGN ENTITIES
Through their unlicensed money transmitting business, LUIS DIAZ JR. and LUIS JAVIER DIAZ enabled a number of foreign businesses to move money into and around the United States. For instance, the defendants used the Company to transmit over $100 million into the United States on behalf of a large Venezuelan consortium of construction companies (the “Venezuelan Company”). After they received this money from the Venezuelan Company, the defendants received instructions about where to send the money. In this manner, the defendants sent money on behalf of the Venezuelan Company to U.S. and foreign bank accounts of Venezuelan government officials, employees of the Venezuelan Company, and other beneficiaries that had no relationship with the Company. Tens of millions of dollars of these payments were made to shell companies located in banking safe havens such as the British Virgin Islands. For all of these transmitting activities, the Company received a fee of approximately 2 percent of the funds they transmitted. In addition to the Venezuelan Company, LUIS DIAZ JR. and LUIS JAVIER DIAZ used the Company to effect transfers into and around the United States on behalf of other companies, mainly located in Venezuela and other South American countries.
In connection with these transfers, LUIS DIAZ JR. and LUIS JAVIER DIAZ were often provided with false invoices purporting to be from the recipients of the funds to make it appear as if the payments were for actual goods or services rendered to the Company when, in truth, the money was intended for beneficiaries in the United States and abroad with no business relationship to the Company. The invoices had the effect of insulating the transmissions from scrutiny by providing an explanation for the many millions of dollars’ worth of payments. Through this conduct, the defendants and the Company have functioned as an unregulated financial institution allowing foreign entities to move funds into and through the U.S. without any scrutiny, including being subject to the filing of SARs that licensed transmitting businesses are required to file.
* * *
LUIS DIAZ JR., 74, of Miami, Florida, and LUIS JAVIER DIAZ, 49, of Miami, Florida, are each charged with one count of conspiracy to operate an unlicensed money transmitting business, which carries a maximum sentence of five years in prison; one count of operating an unlicensed money transmitting business, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit money laundering, which carries a maximum sentence of five years in prison; and one count of international money laundering, which carries a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the work of HSI, DEA, the Englewood, New Jersey, Police Department, and the Border Enforcement Security Task Force.
The prosecution of this case is being overseen by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant U.S. Attorneys Edward B. Diskant, Daniel M. Tracer, and Jennifer L. Gachiri 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 phase 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 Portfolio Manager at the New York State Common Retirement Fund Charged in “Pay-For-Play” Bribery SchemeRead the Press Release
Preet Bharara, 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 NAVNOOR KANG, the former Director of Fixed Income and Head of Portfolio Strategy at the New York State Common Retirement Fund (“NYSCRF”), and DEBORAH KELLEY, a managing director of institutional fixed income sales at a New York-based broker-dealer (“Broker-Dealer-1”), with participating in a “pay-for-play” bribery scheme involving the NYSCRF. KANG was arrested today in Portland, Oregon, and will be presented later today before a U.S. Magistrate Judge in Portland. KELLEY is expected to surrender today to authorities in San Francisco, California. The case is assigned to U.S. District Judge J. Paul Oetken.
Mr. Bharara also announced today the unsealing of charges against GREGG SCHONHORN, a vice president of fixed income sales at a New York-based broker-dealer (“Broker-Dealer-2”), who pled guilty and admitted to his participation in the scheme.
U.S. Attorney Preet Bharara said: “Today, we allege a classic, quid-pro-quo bribery scheme at the New York State Common Retirement Fund, the third largest pension fund in the country. Navnoor Kang, a former portfolio manager at the fund, allegedly steered billions of dollars of business to broker-dealers who bribed him with luxury vacations, high-priced watches, drugs, cash, and more. The hard-earned pension savings of New Yorkers should never serve as a vehicle for corrupt, personal enrichment. The intersection of public corruption and securities fraud appears to be a busy one, but it's one that we are committed to policing.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “Instead of upholding his fiduciary duty, Kang was allegedly paid in bribes for diverting business to two separate brokerage firms. When it comes to retirement funds, fixed-income investments are often thought of as a reliable choice. Members of the New York State Common Retirement Fund likely also relied on the belief that the man directing their investments was an honest public servant. Unfortunately, as alleged, that is not the case here today.”
According to the allegations in the Indictment[1] and Information, which were unsealed today in Manhattan federal court:
The NYSCRF
The NYSCRF was a pension fund administered for the benefit of public employees of the State of New York. The third largest pension fund in the United States, the NYSCRF held approximately $184 billion in assets in trust for a total of more than one million retirees and other beneficiaries.
From January 2014 through February 2016, KANG served as Director of Fixed Income and Head of Portfolio Strategy for the NYSCRF. In that capacity, KANG was responsible for investing more than $53 billion in fixed-income securities and was entrusted with discretion to manage those investments on behalf of the NYSCRF. KANG owed a fiduciary duty to the NYSCRF and its members and beneficiaries, and was required to make investment decisions in their best interests and free of any conflict of interest. New York State law and NYSCRF policies prohibited KANG and other NYSCRF employees from receiving any bribes, gifts, benefits, or consideration of any kind.
The Scheme to Steer NYSCRF Fixed-Income Business in Exchange for Secret Bribes
From 2014 through 2016, KANG, KELLEY, and SCHONHORN participated in a scheme to defraud the NYSCRF and its members and beneficiaries, and to deprive the NYSCRF of its intangible right to KANG’s honest services. The scheme involved, among other things, an agreement among KANG, KELLEY, SCHONHORN, and others to pay KANG bribes – in the form of entertainment, travel, lavish meals, prostitutes, nightclub bottle service, narcotics, tickets to sports games and other events, luxury gifts, and cash payments for strippers and KANG’s personal expenses – in exchange for fixed-income business from the NYSCRF. Such bribes – which totaled more than $100,000 – were strictly forbidden by the NYSCRF, and were paid secretly and without any disclosure to the NYSCRF and its members and beneficiaries concerning the conflicts of interests inherent therein.
In exchange for the bribes paid by KELLEY, SCHONHORN, and others, KANG used his position as Director of Fixed Income and Head of Portfolio Strategy at the NYSCRF to promote the interests of KELLEY, SCHONHORN, and their respective brokerage firms. KANG, in exchange for the bribes he received, agreed to steer fixed-income business to Broker-Dealer-1 and Broker-Dealer-2. In fact, KANG steered more than $2 billion in fixed-income business to Broker-Dealer-1 and Broker-Dealer-2, from which KELLEY, SCHONHORN, and their respective employers earned millions of dollars in commissions from the NYSCRF. In so doing, KANG, with the knowledge and approval of KELLEY and SCHONHORN, breached his fiduciary duty to make investment decisions in the best interest of the NYSCRF and its members and beneficiaries, and free of conflict, and deprived the NYSCRF of its intangible right to KANG’s honest services.
As the bribes paid by SCHONHORN to KANG increased, so too did Broker-Dealer-2’s fixed-income business with the NYSCRF. The value of the NYSCRF’s domestic bond transactions with Broker-Dealer-2 skyrocketed from zero in the fiscal year ending March 31, 2013, to approximately $1.5 million in the fiscal year ending March 31, 2014, to approximately $858 million in the fiscal year ending March 31, 2015, and to approximately $2.378 billion in the fiscal year ending March 31, 2016. Broker-Dealer-2 became the third largest broker-dealer with which the NYSRCF executed domestic bonds transactions for the fiscal year ending March 31, 2016, having not even been on the approved list in the fiscal year ending March 31, 2013. As the NYSCRF’s third largest broker-dealer in this asset class, Broker-Dealer-2 brokered approximately eight percent of the total value of the NYSCRF’s domestic bond transactions – a figure greater than that of all but two of the major international banks and brokerage houses on the list. Similarly, the value of NYSCRF’s domestic bond transactions with Broker-Dealer-1 increased from zero in the fiscal year ending March 1, 2014 to approximately $156 million in the fiscal year ending March 1, 2015, and to approximately $179 million in the fiscal year ending March 1, 2016.
KANG’s trades resulted in the payment of millions of dollars in commissions to Broker-Dealer-1 and Broker-Dealer-2, of which KELLEY and SCHONHORN personally earned approximately 35 to 40 percent.
The Obstruction of Justice
In late 2015, the Securities and Exchange Commission (“SEC”) opened an investigation into the entertainment and benefits that KELLEY had provided KANG, and the SEC subpoenaed both KANG and KELLEY for their testimony. In advance of their testimony, KANG and KELLEY agreed to align their stories and testify falsely before the SEC in order to conceal their scheme. In late 2015 and early 2016, KANG and KELLEY each falsely testified under oath before the SEC about expenses KELLEY had paid for KANG. Moreover, after a federal grand jury investigation was opened, KANG instructed SCHONHORN to testify falsely before the grand jury, and KANG admitted that he had hidden relevant evidence.
* * *
KANG, 38, of Portland, Oregon, and KELLEY, 58, of Piedmont, California, are charged with the offenses set forth in the chart attached to this release.
On December 15, 2016, SCHONHORN, 45, of Short Hills, New Jersey, pled guilty in Manhattan federal court before Judge Paul G. Gardephe to six counts: conspiracy to commit securities fraud; securities fraud; conspiracy to commit honest services wire fraud; honest services wire fraud; bank fraud; and conspiracy to obstruct justice in the SEC investigation. Count One carries a maximum sentence of five years in prison. Counts Two, Three, Four, and Six each carry a maximum sentence of 20 years in prison. Count Five carries a maximum sentence of 30 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.
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.
Mr. Bharara praised the investigative work of the FBI and noted that the investigation is continuing. He also thanked the SEC, which filed civil charges against KANG, KELLEY, and SCHONHORN in a separate civil action today, and the Office of Inspector General for the Office of the New York State Comptroller.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Edward A. Imperatore and Joshua A. Naftalis are in charge of the prosecution.
The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Count
Charge
Defendant
Maximum Penalties
1
Conspiracy to Commit Securities Fraud (18 U.S.C. § 371)
NAVNOOR KANG
DEBORAH KELLEY
5 years in prison and a $250,000 fine or twice the gross gain or loss from the offense
2
Securities Fraud (15 U.S.C. §§ 78j(b) & 78ff; 17 C.F.R. § 240.10b-5; 18 U.S.C. § 2)
NAVNOOR KANG
DEBORAH KELLEY
20 years in prison and a $5,000,000 fine or twice the gross gain or loss from the offense
3
Conspiracy to Commit Honest Services Wire Fraud (18 U.S.C. § 1349)
NAVNOOR KANG
DEBORAH KELELY
20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense
4
Honest Services Wire Fraud (18 U.S.C. §§ 1343 and 1346)
NAVNOOR KANG
DEBORAH KELLEY
20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense
5
Conspiracy to Obstruct Justice in the SEC Investigation (18 U.S.C. § 1512(k)
NAVNOOR KANG
DEBORAH KELLY
20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense
6
Obstruction of Justice in the Grand Jury Investigation (18 U.S.C. § 1512(c)(2))
NAVNOOR KANG
20 years in prison and a $250,000 fine or twice the gross gain or loss from the offense
[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
“Ygz” Gang Members Plead Guilty in Manhattan Federal Court to Murders and Other Crimes in Connection with Racketeering ConspiracyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that TERRANCE WILLIAMS, a/k/a “TA,” and WENDELL BELLE, a/k/a “Delly Dell,” pled guilty in Manhattan federal court to racketeering and firearms charges involving multiple acts of violence. WILLIAMS pled guilty yesterday and BELLE pled guilty this morning before United States District Judge Valerie E..Caproni. Through their guilty pleas, WILLIAMS admitted his murder of Curtis Smith on July 3, 2011, and BELLE admitted his murder of Moises “Noah” Lora on April 16, 2012. Both of these murders were committed in the South Bronx within the confines of the New York City Police Department’s 40th Precinct, and both were committed in connection with WILLIAMS and BELLE’s membership in the violent “Young Gunnaz” street gang (“YGz”).
As part of his guilty plea, WILLIAMS admitted to shooting and killing Curtis Smith, a 23-year-old, on Park Avenue near the Jackson Houses in the South Bronx, and to shooting and injuring a rival gang member in front of the Sweet Corner convenience store at Park Avenue and 158th Street in the South Bronx. On August 31, 2016, WILLIAMS pled guilty under a prior plea agreement with this Office before Judge Caproni to racketeering conspiracy based on his commission of certain acts of violence and drug crimes for the YGz gang. As a result of law enforcement’s continuing investigation in this case, at yesterday’s plea proceeding before Judge Caproni, WILLIAMS withdrew his previously entered guilty plea and pled guilty under a new plea agreement with the Office to racketeering conspiracy based on the murder of Curtis Smith and the separate attempted murder described above, and based also on his commission of the acts of violence and drug crimes that he had previously admitted on August 31, 2016. In light of WILLIAMS’s guilty plea in federal court yesterday, WILLIAMS faces a maximum term of life in prison.
As part of his guilty plea, BELLE admitted to the brutal assault of Moises “Noah” Lora, during which BELLE and others stomped Lora to death in the courtyard of a residential housing complex located at 700 Morris Avenue in the South Bronx. BELLE also admitted to the attempted murder of another rival gang member on November 16, 2013, immediately in front of the Bronx Criminal Courthouse, during which BELLE fired multiple shots at his rival. WILLIAMS was previously arrested for murdering Curtis Smith based on state charges filed by the Bronx District Attorney’s Office, but the charges were later dismissed. In light of BELLE’s guilty plea today, BELL faces a maximum term of life in prison and mandatory term of 30 years in prison. Both WILLIAMS and BELLE are scheduled to be sentenced later this year before Judge Caproni.
Manhattan U.S. Attorney Preet Bharara said: “For far too long, members of the YGz gang and their rival gangs have terrorized communities in the Bronx by engaging in all manner of mayhem – including murder, attempted murder, and other racketeering activities. Terrance Williams and Wendell Belle almost got away with murder, but thanks to the tireless efforts of law enforcement, they have both pled guilty to murders they committed as members of the Ygz gang.”
According to the charging and other documents filed in the case, as well as statements made during the plea proceedings:
WILLIAMS was a member of the Bronx-based street gang known as the YGz, a leading member of a set of the YGz based in Maria Lopez Plaza in the Bronx, and committed acts of violence with other YGz gang members to further the goals of the gang. BELLE was a leading member of the YGz set based in the River Park Towers in the Bronx, and also committed multiple acts of violence with other YGz gang members. From at least 2005 to 2016, members and associates of the YGz enriched themselves by committing robberies and by selling drugs, such as crack cocaine, heroin, and marijuana, and committed acts of violence, including murder and attempted murder, against various people, including rival gang members, rival drug traffickers, and innocent bystanders. As part of this enterprise, members and associates of the YGz killed and attempted to kill other individuals.
As part of their involvement in the YGz gang, WILLIAMS and BELLE each participated in acts of violence, as well as narcotics trafficking, with other YGz members.
For example, on July 3, 2011, WILLIAMS and several other YGz members rode on bicycles from YGz territory on Morris Avenue near 151st Street northbound to the territory of a rival gang on Park Avenue near 158th Street in the South Bronx. Upon arriving in the rival gang’s territory, WILLIAMS saw a rival gang member standing at the corner of Park Avenue and 158th Street in front of the Sweet Corner convenience store. From his bicycle, WILLIAMS pulled out a gun and fired gunshots at this rival gang member, two of which hit and injured the rival, who survived the shooting.
On the same date, after that shooting was complete, WILLIAMS decided to ride his bicycle southbound on Park Avenue with the goal of returning to YGz territory. While WILLIAMS was riding south on Park Avenue, he saw a group of people who appeared to be running at him from an apartment building in the rival gang’s territory. WILLIAMS fired gunshots at this group of people, and hit one of them – 23-year-old Curtis Smith – in the head. Smith died several days later.
Meanwhile, on November 16, 2013, only days before his attempted murder in the shadow of the Bronx County Criminal Court, BELLE and other YGz members and associates approached members of a rival gang based on Courtlandt Avenue in the Bronx and fired several shots in the hope of killing those rivals. In the chaos of that shooting, one of BELLE’s fellow gang members struck and injured an innocent bystander.
WILLIAMS, BELLE, and multiple other YGz members were included in a December 2015 federal racketeering prosecution captioned United States v. Ramel Matthews, et al., now before Judge Caproni, in which all of the defendants were charged with racketeering conspiracy for participation in the YGz gang, and various of the defendants were also charged with participation in several murders, attempted murders, narcotics trafficking, and firearms offenses.
WILLIAMS was the third defendant and BELLE was the fourth defendant in a racketeering prosecution by this Office of multiple YGz members to admit participation in YGz gang-related murders. Earlier this year, as part of guilty plea proceedings before Judge Caproni in that case, co-defendant Anthony Scott, a/k/a “Tyson,” admitted to shooting and killing Darrel Ledgister on June 27, 2009, in the South Bronx within the 40th Precinct, during an attempted robbery, and Paul Gilbert, a/k/a “2Fly Tay,” admitted to participating in the murder of Cody Dubose on September 27, 2014, near the Taft Houses in Manhattan during an attempted robbery.
WILLIAMS was previously arrested for murdering Curtis Smith based on state charges filed by the Bronx District Attorney’s Office, but the charges were later dismissed. Through the subsequent federal investigation of the YGz gang, this Office and its law enforcement partners further developed the evidence of WILLIAMS’s guilt, culminating in his plea yesterday.
* * *
Mr. Bharara praised the work of the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Drug Enforcement Administration, and the New York City Police Department in the investigation of this case. He also thanked the Bronx District Attorney’s Office for their support in this case.
This case is being handled by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Samson Enzer, Andrew C. Adams, Gina Castellano, and James McDonald are in charge of the prosecution.
Peruvian National Arrested and Charged in Manhattan Federal Court with Commodities, Wire Fraud, and Money Laundering for Running Million-Dollar Ponzi SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that PEDRO JARAMILLO, a/k/a “Enrique Jaramillo,” was arrested this morning on commodities fraud, wire fraud, and money laundering charges stemming from his scheme to defraud more than two dozen investors, mostly retirees and professionals from Peru and countries in Latin America, of more than $1.2 million. JARAMILLO solicited investments largely for the purported purpose of short-term commodity futures contracts but instead diverted the funds for his own use. Among other false and misleading statements, JARAMILLO represented to clients that he was an accomplished Wall Street commodities trader who partnered with a certain well-known international investment bank (the “Global Investment Bank”) to earn returns of 25 percent every 90 days for his investors. In fact, JARAMILLO utterly failed to invest monies as promised, had no partnership with the Global Investment Bank, and instead diverted the majority of investor funds to his own use through cash withdrawals, debit purchases, and by wiring funds offshore. The investor funds not diverted offshore or directly to JARAMILLO were used to repay earlier investors whose redemption requests could not be forestalled, in a Ponzi-like fashion.
JARAMILLO was presented today in Magistrate Court before the Honorable Ronald L. Ellis and detained.
U.S. Attorney Preet Bharara said: “Pedro Jaramillo allegedly lured customers through slick promotional material, selling them investment accounts with guaranteed returns. But as alleged, what he sold them was a false bill of goods. Jaramillo allegedly used his investors’ money for his own personal use and to pay back other duped investors. Thanks to the dedicated work of the FBI, Jaramillo will now have to answer for his crimes.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “As alleged, Jaramillo more than breached the trust of his would-be victims by engaging in activity that caused them to lose their life savings, retirement funds, and more. When he took money from his clients, he led them to believe it would be invested for their benefit. In the end, their rate of return was nothing short of heartache. Financial crimes have a negative impact on the economy and individuals alike. We will continue to investigate those who engage in these illegal acts to help prevent future fraudulent activity in the financial markets.”
According to the Complaint unsealed today in Manhattan federal court[1]:
Beginning in at least January 2014 through December 2016, JARAMILLO solicited more than $1.2 million in investments from more than two dozen investors, primarily for the purported purpose of investing in commodity futures contracts, by falsely representing, orally and in writing, that investor monies would be invested in short-term commodities contracts with a guaranteed rate of return.
To help attract investors, JARAMILLO maintained an office on Wall Street (the “Wall Street Office”) where he met with prospective investors to tout his prior success and relationship with the Global Investment Bank. JARAMILLO also starred in a youtube.com video (the “Video”) set to the soundtrack of Frank Sinatra’s “New York, New York.” The Video featured a series of images of Wall Street, the New York Stock Exchange, and JARAMILLO in front of the Wall Street Office. In the video, JARAMILLO told prospective investors that he was a “proven winner” and “trusted partner” who would maintain individually managed and federally insured accounts for each client. JARAMILLO told prospective investors that these safeguards would ensure that prospective investors would “be protected against fraud and brokerage failure.”
In truth and in fact, JARAMILLO not only failed to create individual investment accounts, he failed to use investor funds to make any legitimate investments, instead diverting the majority of funds to his own use, out of the country, or to repay earlier investors whose redemption requests could not be forestalled. In total, JARAMILLO diverted more than $700,000 to his own use in the form of cash withdrawals and debit card purchases used to fund his lifestyle, including thousands of dollars on three vacations to Disney World for JARAMILLO, family, and guests.
To hide his misappropriations and continue to fund his personal lifestyle, JARAMILLO also used new investor funds to pay back other investors in a Ponzi-like fashion. In total, since January 2014, JARAMILLO distributed more than $200,000 back to investors from funds deposited by new investors. During that time, JARAMILLO also diverted more than $100,000 of investor funds out of bank accounts he controlled in the United States to foreign bank accounts, including in Peru, where JARAMILLO is a citizen.
As a result of their investments with JARAMILLO, investors have lost their life savings, retirement funds, and/or their homes.
* * *
JARAMILLO, 47, was arrested this morning in Queens, New York. He is charged with one count of commodities fraud, which carries a maximum sentence of 10 years in prison; one count of wire fraud, which carries a maximum sentence of 20 years in prison; and one count of money laundering, which carries a maximum sentence of 10 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the work of the FBI. He added that the investigation is continuing.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Andrea M. Griswold is in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Former Police Officer Charged in White Plains Federal Court with Quadruple HomicideRead the Press Release
Preet Bharara, 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”), George P. Beach II, the Superintendent of the New York State Police (“NYSP”), and Peter J. Graziano, Jr., Chief of the Village of Chester Police Department (“Chester PD”), announced charges against NICHOLAS TARTAGLIONE, a retired police officer, for a quadruple murder committed in Chester, New York, in April 2016. TARTAGLIONE was arrested yesterday and charged in a five-count Indictment for his participation in a conspiracy to distribute 5 kilograms and more of cocaine and for the murders of Martin Luna, Urbano Santiago, Miguel Luna, and Hector Gutierrez in furtherance of that conspiracy. He was presented in White Plains federal court yesterday before U.S. Magistrate Judge Paul E. Davison
Manhattan U.S. Attorney Preet Bharara stated: “While all murders tear at the fabric of our communities, when the alleged perpetrator of a gangland-style, quadruple homicide is a former police officer, that strikes at the heart of civilized society. As alleged, Nicholas Tartaglione, a former Briarcliff Manor police officer, participated in the senseless murder of four people in a bar in Chester, New York. These four men had not been seen or heard from since the day of their alleged murder. We hope that today’s arrest brings some measure of comfort to the victims’ families and loved ones.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. stated: “The despicable acts of murder are more egregious in this case because the alleged murderer, a former police officer, once swore to serve and protect people from harm. The FBI Hudson Valley Safe Streets Task Force works day after day to battle the crimes that accompany the drug trade to keep criminals and their illegal actions from impacting innocent people. We hope the victims’ families and community find some solace in an arrest being made.”
NYSP Superintendent George P. Beach II said: “Once again the work of a strong law enforcement partnership has resulted in an alleged dangerous man being taken off the streets. These brutal murders are prime examples of the dangerous crimes that are associated with drug distribution. Narcotics destroy communities and put lives at risk. State Police and our partners will continue to work together to rid our communities of these dangerous substances, and the violence that comes with them.”
Chester PD Chief Peter Graziano, Jr. stated: “I am grateful for the hard work everyone put into this case and the cooperation of the agencies involved. This unspeakable crime shows how destructive the drug trade is and why we must all endeavor to continue the fight. This scourge is not limited to large urban areas, but small rural ones as well. I hope the victims’ families can find some peace and closure as a result of this arrest.”
As alleged in the Indictment filed today in White Plains federal court[1]:
From June 2015 up to April 2016, TARTAGLIONE and others conspired to sell five kilograms or more of cocaine. In April 2016, TARTAGLIONE participated in the killing of Martin Luna, Urbano Santiago, Miguel Luna, and Hector Gutierrez in furtherance of that cocaine distribution conspiracy, some of whom were just in the wrong place at the wrong time. The murders all took place in and around a bar called the Likquid Lounge in Chester, New York.
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A chart containing the charges and maximum penalties faced by TARTAGLIONE, 49, of Otisville, New York, is attached. The statutory maximum 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.
Mr. Bharara praised the outstanding investigative work of the FBI, the New York State Police, and the Village of Chester Police Department. Mr. Bharara also thanked the City of Middletown Police Department for its assistance in the case.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Maurene Comey and Michael Gerber are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
United States v. Nicholas Tartaglione, S1 16 Cr. 832 (KMK)
CHARGES
MAXIMUM PENALTIES
Conspiracy to distribute and possess with intent to distribute 5 kilograms or more of cocaine.
Life in prison
Mandatory minimum:
10 years in prisonMurder of Martin Luna in furtherance of a conspiracy to distribute 5 kilograms or more of cocaine.
Life in prison or death
Mandatory minimum:
20 years in prisonMurder of Urbano Santiago in furtherance of a conspiracy to distribute 5 kilograms or more of cocaine.
Life in prison or death
Mandatory minimum:
20 years in prison
Murder of Miguel Luna in furtherance of a conspiracy to distribute 5 kilograms or more of cocaine.
Life in prison or death
Mandatory minimum:
20 years in prison
Murder of Hector Gutierrez in furtherance of a conspiracy to distribute 5 kilograms or more of cocaine.
Life in prison or death
Mandatory minimum:
20 years in prison
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Oilpro.Com Founder Pleads Guilty in Manhattan Federal Court to Hacking into Competitor’s Computer SystemRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that DAVID W. KENT, the founder of professional networking website Oilpro.com (“Oilpro”), pled guilty this morning before U.S. District Judge Denise L. Cote in Manhattan federal court to a superseding Information, which charged him with one count of intentionally accessing a protected computer without authorization. The charge stemmed from KENT’s role in repeatedly hacking into a competitor’s database to steal customer information and attempting to sell Oilpro to the same company whose database KENT had hacked.
Manhattan U.S. Attorney Preet Bharara said: “David Kent has admitted to his role in hacking into a competitor’s network and stealing client data in order to boost the value of Oilpro, a company he founded. Kent then attempted to sell Oilpro to the very company he hacked. Using cyber hacking to gain advantage over a competitor is not only an unfair business practice, but is a federal crime for which Kent has now pled guilty.”
FBI Assistant Director William F. Sweeney said: "Today, David Kent pled guilty to intentionally accessing a protected computer without authorization. This is a stern reminder to others that unauthorized access to a computer is a federal crime with severe penalties; even just a quick look at the data on the computer can lead to a prison sentence and that never leads to a leg up in business.”
According to the superseding Information, the previously filed Complaint, and statements made at public court proceedings:
In or about March 2000, KENT founded a website (“Website-1”) that provides, among other things, networking services to professionals working in the oil and gas industry. Website-1 allows its members to create profiles, which includes personal and professional information. As part of their profiles, members can also upload their resumes. The profiles are contained in a database maintained by Website-1 (the “Members Database”). Members are assigned login credentials (i.e., usernames and passwords) when they create their profiles. Members use these login credentials to access their profiles.
In or around August 2010, KENT sold Website-1 for approximately $51 million to a publicly traded company headquartered in New York, NY (“Company-1”). KENT entered into an employment agreement with Company-1 and agreed to continue to serve as the president of Website-1 after the acquisition. However, KENT left Website-1 in September 2011 and launched Oilpro in October 2013. Like Website-1, Oilpro provides networking services to professionals working in the oil and gas industry. Oilpro is headquartered in Houston, Texas.
Between October 2013 and February 2016, KENT conspired to access information belonging to Website-1 without authorization and to defraud Company-1. KENT accessed the Website-1 Members Database without authorization and stole customer information, including information from over 700,000 customer accounts. KENT then exploited this information by inviting Website-1’s members to join Oilpro. Similarly, one of Kent’s employees at Oilpro who previously worked for Website-1 (“CC-1”) accessed information in Website-1’s Google Analytics account without authorization and forwarded the information to KENT. In the meantime, KENT attempted to defraud Company-1 by misrepresenting during discussions about a potential acquisition of Oilpro by Company-1 that Oilpro had increased its membership through standard marketing methods.
* * *
KENT, 41, of Spring, Texas, was arrested on March 30, 2016. KENT pled guilty today to one count of intentionally accessing a protected computer without authorization, which carries a maximum penalty of five 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 will be determined by the judge.
KENT is scheduled to be sentenced by Judge Cote on March 17, 2017, at 2:00 p.m.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. Mr. Bharara also thanked the Office of International Affairs and the United Kingdom’s National Cyber Crime Unit (NCCU), and noted that the investigation is continuing.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys Sidhardha Kamaraju and Andrew K. Chan are in charge of the prosecution.
Three Real Estate Developers Charged in White Plains Federal Court with Conspiracy to Corrupt the Electoral Process in Bloomingburg, New YorkRead the Press Release
Preet Bharara, 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”), today announced the unsealing of an Indictment charging SHALOM LAMM, KENNETH NAKDIMEN, and VOLVY SMILOWITZ, a/k/a “Zev Smilowitz,” with conspiracy to corrupt the electoral process, in connection with an election in Bloomingburg, New York. Bharara also today announced the guilty plea of HAROLD BAIRD, a former Town Supervisor of Mamakating, New York, to conspiracy to submit false voter registrations, charged in a one-count Information unsealed today.
Manhattan U.S. Attorney Preet Bharara stated: “In pursuit of millions of dollars in profits from a real estate development project, the defendants allegedly hatched a cynical ploy to corrupt the electoral process in Bloomingburg. As alleged, to get public officials supportive of their development project elected to local government, the defendants concocted a scheme to falsely register voters who did not live in Bloomingburg, including some who had never even set foot there. And to cover up their voter fraud scheme, the defendants allegedly back-dated fake leases and even placed toothpaste and toothbrushes in empty apartments to make them appear occupied by the falsely registered voters. Profit-driven corruption of democracy cannot be allowed to stand no matter who does it or where it happens.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. stated: “Today’s charges allege the defendants corruptly advanced their own personal real estate projects in Bloomingburg, New York, at the expense of honest citizens who expect and deserve a fair election system. In their scheme to promote their own real estate development projects, the defendants violated federal law as they schemed to put themselves first. This type of behavior simply won’t be tolerated.”
As alleged in the Indictment unsealed today in White Plains federal court[1]:
SHALOM LAMM, KENNETH NAKDIMEN, and VOLVY SMILOWITZ, a/k/a “Zev Smilowitz,” the defendants, were real estate developers who, starting in or about 2006, sought to build and sell real estate in Bloomingburg, New York. From these real estate development projects, the defendants hoped for and anticipated making hundreds of millions of dollars. But by late 2013, the first of their real estate developments had met local opposition, and still remained under construction and uninhabitable. When met with resistance, rather than seek to advance their real estate development project through legitimate means, the defendants instead decided to corrupt the democratic electoral process in Bloomingburg by falsely registering voters and paying bribes for voters who would help elect public officials favorable to their project.
Specifically, in advance of an election in March 2014 for Mayor of Bloomingburg and other local officials, LAMM, NAKDIMEN, and SMILOWITZ, the defendants, and others working on their behalf, developed and worked on a plan to falsely register numerous people who were not entitled to register and vote in Bloomingburg, because they actually lived elsewhere. People the defendants falsely sought to register to vote in Bloomingburg included those who never intended to live in Bloomingburg, those who had never kept a home in Bloomingburg, and indeed, some who had never even set foot in Bloomingburg in their lives. The defendants took steps to cover up their scheme to register voters who did not actually live in Bloomingburg by, among other things, creating and back-dating false leases and placing items like toothbrushes and toothpaste in unoccupied apartments to make it seem as if the falsely registered voters lived there.
LAMM, NAKDIMEN, and SMILOWITZ, the defendants, also bribed potential voters by offering payments, subsidies, and other items of value to get non-residents of Bloomingburg to unlawfully register and vote there. LAMM, for example, agreed to pay an individual $500 for every voter that the individual procured, and LAMM and NAKDIMEN’s real estate company ultimately paid the individual more than $30,000 per month for his efforts.
As alleged in a separate Information unsealed today in White Plains federal court:
From in or about January 2014 through in or about March 2014, BAIRD conspired with others to submit false voter registrations so that he could run for political office and vote in Bloomingburg. In fact, however, BAIRD did not live in Bloomingburg, and his voter registrations were false.
* * *
LAMM, NAKDIMEN, and SMILOWITZ were arrested this morning and will be arraigned today on the charges in the Indictment before United States Magistrate Judge Judith C. McCarthy in the White Plains federal courthouse.
LAMM, 57, of Bloomingburg, NAKDIMEN, 64, of Monsey, New York, and SMILOWITZ, 28, of Monroe, New York, are each charged with one count of conspiracy to commit an offense against the United States, in particular to corrupt the electoral process by submitting false voter registrations, buying voter registrations, and offering bribes for voter registrations and votes. The offense carries a maximum penalty of five years in prison and a $250,000 fine.
BAIRD, 60, of Sullivan County, New York, pled guilty to one count of conspiracy to submit false voter registrations, which carries a maximum sentence of five years in prison and a $250,000 fine. The defendant will be sentenced at a future date. The case is assigned to United States District Judge Cathy Seibel.
The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the FBI-Hudson Valley White Collar Crime Task Force, the Sullivan County District Attorney’s Office, the Sullivan County Sherriff’s Office, the Orange County Sheriff’s Office, the Orange County District Attorney’s Office, the Internal Revenue Service, and the United States Postal Inspection Service. Mr. Bharara also thanked the Department of Justice’s Public Integrity Section, Election Crimes Branch, for its assistance in the case.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Kathryn Martin, Benjamin Allee, and Perry Carbone are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
16-338
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Statement of U.S. Attorney Preet Bharara on the Conviction of Former Rikers Island Correction Officer Brian CollRead the Press Release
“Today, a unanimous jury in Manhattan federal court affirmed that the protections of the U.S. Constitution extend into the walls of our prisons, including Rikers Island. For his brutal and heartless beating of 52-year-old Ronald Spear, a sickly Rikers inmate, and his lies to cover it up, Brian Coll now stands convicted of serious federal crimes. As the evidence at trial established, Coll killed Spear by repeatedly kicking him in the head as he lay restrained on the ground, telling him before he died not to forget who did this to him. The FBI investigators and career prosecutors on this case did not forget. And today, neither did the jury.”
Former Senior Executive from Universal Forest Products Sentenced in White Plains Federal Court to 50 Months in Prison for Fraudulent Kickback SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ROBERT LEES, a former senior executive of Universal Forest Products, Inc. (“UFP”), was sentenced today by U.S. District Judge Kenneth M. Karas to 50 months in prison for conspiracy, mail fraud, money laundering, and making false statements in a loan application. LEES was found guilty by a jury on May 20, 2016, after a seven-day trial before Judge Karas.
Manhattan U.S. Attorney Preet Bharara said: “Robert Lees, a senior executive at Universal Forest Products, defrauded both HUD and a mortgage lender, causing millions of dollars in losses. With the jury verdict earlier this year and today’s sentence, Lees has been held accountable for his crimes.”
The evidence at trial proved that, in 2009, Michael Barnett, a real-estate developer, hired JK Scanlan Company, Inc. (“Scanlan”), to be the general contractor on Vineyard Commons, a senior housing community in Ulster County. In 2009, Scanlan entered into falsely inflated contracts with Shawnlee Construction, LLC (“Shawnlee”), a subsidiary of UFP for which LEES had responsibility, to be the subcontractor on Vineyard Commons responsible for framing and rough carpentry.
In 2009, a private lender (the “Mortgagor”), agreed to provide financing to Vineyard Commons, which financing would be insured by HUD. The Mortgagor and the borrower agreed that the proceeds would be disbursed incrementally after the borrower submitted draw requests based upon its completion of phases of the project.
On January 19, 2009, Shawnlee provided Scanlan a final bid to supply labor and materials for Vineyard Commons. In March and April 2009, representatives of UFP – including LEES – Shawnlee, and Scanlan entered into an agreement by which UFP and Shawnlee agreed to provide labor and materials in an amount approximately $865,000 greater than the final bid. LEES and others intended for the approximately $865,000 difference between the final bid and the inflated contract price to be returned to Barnett as a kickback, and further intended that the Mortgagor would unwittingly finance the kickback by disbursing HUD-insured funds on the basis of inflated draw requests.
In early 2009, Scanlan’s owner agreed to provide Barnett and Vineyard Commons with a million-dollar loan. In order to obtain this loan, Barnett informally pledged the anticipated $865,000 kickback to Scanlan’s owner as collateral.
In June 2009, Barnett needed additional funds in order to secure HUD-insured financing from the Mortgagor. UFP provided a $650,000 letter of credit to the Mortgagor. Barnett informally pledged the anticipated approximately $865,000 kickback to UFP as collateral, even though it was already pledged to Scanlan’s owner.
On July 2, 2009, Barnett and others provided HUD with a written estimate of the cost of Shawnlee’s work (the “Final Framing Price”) that exceeded Shawnlee and UFP’s actual price for labor and materials by approximately $865,000.
Beginning in July 2009, and continuing until January 2012, Barnett and Scanlan submitted contractor’s requisitions (the “Contractor Requisitions”) on forms provided by HUD to the Mortgagor, which the Mortgagor then sent to HUD. These Contractor Requisitions included a certification by a representative of Scanlan that “all the information stated herein, as well as any information provided in the accompaniment herewith, is true and accurate.” Each of these forms set forth the Final Framing Price as the actual cost of rough carpentry. Each month, the Mortgagor disbursed HUD-insured funds on the basis of the Contractor Requisitions. UFP set aside the “extra” from the Shawnlee/Scanlan contract in an accrual account falsely labeled as a rebate accrual.
In January 2010, LEES agreed with Barnett to pay Scanlan’s owner $200,000, which payment they understood would be guaranteed by part of Barnett’s interest in the approximately $865,000 difference between the contract price and the actual price for labor and materials provided by Shawnlee and UFP. Barnett sought this payment, and LEES agreed to make this payment, as a partial payment of Barnett’s obligation to Scanlan’s owner. LEES arranged for UFP to send a $200,000 check to a company controlled by Barnett that was not involved in the development of Vineyard Commons – which would then pass the money on to Scanlan’s owner. On January 15, 2010, UFP issued a check for $200,000 to Barnett’s company and mailed it from Michigan to Barnett in Dutchess County, New York.
On January 20, 2010, Barnett sent to Scanlan’s owner in Massachusetts a $200,000 check that he drew on the account into which Barnett had deposited the check he received from UFP.
Later in 2010, Barnett sought a $5 million loan from UFP. Among other incentives, Barnett offered to surrender the remainder of his kickback to UFP, allowing UFP to take that money into its own profit. With LEES’S encouragement, UFP issued the loan to Barnett.
The developer of Vineyard Commons defaulted on the loan after the project failed. HUD assumed the loan and sold the project, losing $28 million.
* * *
In addition to the prison sentence, LEES, 62, of Lititz, Pennsylvania, was sentenced to three years of supervised release. Judge Karas also ordered LEES to forfeit $865,000 in ill-gotten gains and to pay $865,000 in restitution.
LEES’s co-defendants have been convicted. Barnett pled guilty on January 19, 2016, to conspiracy, and was sentenced by Judge Karas on October 26, 2016, to 37 months in prison. DiCello pled guilty on April 20, 2016, to conspiracy, mail fraud, money laundering, and making false statements in a loan application, and is scheduled to be sentenced by Judge Karas on January 19, 2017.
Mr. Bharara praised the outstanding efforts of HUD-Office of Inspector General.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Michael D. Maimin, James McMahon, and Won S. Shin are in charge of the prosecution.
Brian Coll, Former Correction Officer at Rikers Island, Convicted in Beating Death of Inmate Ronald SpearRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that BRIAN COLL, a former New York City Correction Officer, was convicted of causing the death of Ronald Spear, a pre-trial detainee at Rikers Island. COLL, then a correction officer on Rikers Island, had been charged in a superseding indictment returned on November 17, 2016, with causing Mr. Spear’s death by repeatedly kicking him in the head while he was restrained and lying prone on the floor, in violation of his rights under the United States Constitution. Mr. Spear died shortly after the attack. COLL was arrested on a complaint on June 10, 2015, and has been in federal custody since that time. COLL was convicted after a 10-day trial before U.S. District Judge Loretta A. Preska.
Manhattan U.S. Attorney Preet Bharara said: “Today, a unanimous jury in Manhattan federal court affirmed that the protections of the U.S. Constitution extend into the walls of our prisons, including Rikers Island. For his brutal and heartless beating of 52-year-old Ronald Spear, a sickly Rikers inmate, and his lies to cover it up, Brian Coll now stands convicted of serious federal crimes. As the evidence at trial established, Coll killed Spear by repeatedly kicking him in the head as he lay restrained on the ground, telling him before he died not to forget who did this to him. The FBI investigators and career prosecutors on this case did not forget. And today, neither did the jury.”
According to the evidence introduced at trial:
Rikers Island is a jail complex, located in the Bronx, New York, maintained by the New York City Department of Correction. At the time of his death, Ronald Spear was a pretrial detainee incarcerated on Rikers Island in the North Infirmary Command, a facility housing detainees who, like Mr. Spear, have serious or chronic medical needs. In the early morning hours of December 19, 2012, Mr. Spear left the housing area in the infirmary unit in an attempt to see the on-duty doctor but was stopped by COLL, who said that the doctor was not available to see him. In an altercation that ensued, COLL punched Mr. Spear several times in the face and stomach, and Mr. Spear was then restrained by two other correction officers, Anthony Torres and Byron Taylor. While Mr. Spear was lying prone on the ground and was still restrained, COLL repeatedly kicked Spear in the head, even after Torres attempted to shield the inmate’s head with his hand and shouted to COLL to stop. After COLL stopped kicking Mr. Spear, COLL lifted Mr. Spear’s head up, told him to remember who had done this to him, and then dropped Spear’s head to the ground. Mr. Spear was pronounced dead at the scene shortly after the assault.
Spear’s autopsy was conducted at the Bronx Office of the Chief Medical Examiner. The autopsy revealed that Spear had at least three recent contusions on his skull, and that he had suffered a “brain bleed” caused by blunt force trauma to the head, consistent with Spear being kicked in the head while he was lying prone on the ground. Mr. Spear suffered a cardiac arrhythmia as a result of the head trauma. The assault by COLL was therefore, as the jury found, the cause of Spear’s death.
After Spear’s death, COLL, Taylor, Torres and others, covered up the true cause of Spear’s death by concocting a false story that turned Spear into the aggressor, falsely claiming that Spear had attacked COLL with a cane. Specifically, COLL falsely claimed that Spear had attacked him with a cane, and Torres agreed to support this false version of events and further agreed not to not relay that COLL had repeatedly kicked Spear in the head. Additionally, at the request of TAYLOR, COLL, TORRES, and an additional correction officer agreed to falsely claim that TAYLOR was not present for the incident. Consistent with their agreement, the conspirators filed false use of force reports with the Department of Correction and lied repeatedly to Department of Correction supervisors, investigators, and to the Bronx District Attorney’s Office.
The conspirators propagated this false version of events after being advised by a Rikers captain to be consistent in the use of force reports the officers were required to submit following Spear’s death. Additionally, when no cane was recovered from the crime scene – potentially calling into doubt COLL’s claim that Spear had attacked him with a cane – a Rikers captain simply directed a correction officer to take a cane from a supply area and to pass it off to investigators as the cane used in the incident.
* * *
BRIAN COLL, 47, of Smithtown, New York, was convicted of one count of death resulting from deprivation of rights under color of law, which carries a maximum penalty of life in prison or death, one count of conspiracy to obstruct justice, which carries a maximum penalty of 20 years in prison, one count of obstruction of justice, which carries a maximum penalty of 20 years in prison, one count of filing false forms, which carries a maximum penalty of 20 years in prison, and one count of conspiracy to file false forms, which carries a maximum sentence of five years in prison. COLL is scheduled to be sentenced by Judge Preska on April 24, 2017.
Byron Taylor, 32, of Brentwood, New York, has pled guilty to one count of perjury for lying to a federal grand jury, which carries a maximum sentence of 5 years in prison, and one count of conspiracy to obstruct justice, which carries a maximum sentence of 20 years in prison.
Anthony Torres, 50 of New Rochelle, New York, pled guilty to one count of conspiracy to obstruct justice and file false reports, which carries a maximum penalty of five years in prison, and one count of filing a false report, which carries a maximum sentence of 20 years in prison.
The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Criminal Investigators at the United States Attorney’s Office. Mr. Bharara also thanked the New York City Department of Correction, Investigative Division, and the Bronx District Attorney’s Office for their assistance in the investigation.
This case is being handled by the Office’s Civil Rights and Public Corruption Units. Assistant U.S. Attorneys Brooke E. Cucinella, Jeannette A. Vargas, and Martin S. Bell are in charge of the prosecution.
Manhattan U.S. Attorney Announces Arrest of Defendant Charged with Participation in Massive Hacks into U.S. Financial InstitutionsRead the Press Release
Preet Bharara, 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 David E. Beach, Special Agent in Charge of the U.S. Secret Service New York Field Office (“USSS”), announced that JOSHUA SAMUEL AARON, a/k/a “Mike Shields,” was arrested earlier today at John F. Kennedy International Airport. AARON, along with defendant Gery Shalon, a/k/a “Garri Shalelashvili,” a/k/a “Gabriel,” a/k/a “Gabi,” a/k/a “Phillipe Mousset,” a/k/a “Christopher Engeham,” is charged with crimes arising out of Shalon’s and AARON’s orchestration of massive computer hacking crimes against U.S. financial institutions, brokerage firms, and financial news publishers, including the largest theft of customer data from a U.S. financial institution in history. Shalon and AARON are charged with committing these crimes in furtherance of securities market manipulation schemes that Shalon and AARON perpetrated with defendant Ziv Orenstein, a/k/a “Aviv Stein,” a/k/a “John Avery.” AARON will be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge James C. Francis IV. AARON is expected to appear before United States District Judge Laura Taylor Swain tomorrow at 10:30 a.m. The charges against AARON, Shalon, and Orenstein were made public on November 10, 2015. (To read the November 10, 2015, press release, click here.)
Manhattan U.S. Attorney Preet Bharara said: “Joshua Samuel Aaron allegedly worked to hack into the networks of dozens of American companies, ultimately leading to the largest theft of personal information from U.S. financial institutions ever. For pursuing what we have called ‘hacking as a business model,’ and thanks to the efforts of the FBI and the U.S. Secret Service, Aaron will now join his co-defendants to face justice in a Manhattan federal courtroom.”
FBI Assistant Director William F. Sweeney Jr. said: “Today, Josh Aaron was taken into the custody of the FBI to face charges filed against him more than a year and a half ago for his alleged role orchestrating a massive computer hack into U.S. financial institutions, brokerage firms, and financial news publishers and for his role in a multimillion-dollar stock manipulation scheme.”
U.S. Secret Service Special Agent in Charge David E. Beach said: “The arrest of this alleged transnational cybercriminal illustrates the dedication of the Secret Service and reach of the U.S. Government in the disruption and dismantling of global criminal networks. The precedent set by this successful United States deportation should serve as a warning to criminals that the Secret Service will relentlessly investigate, detect, and defend the Nation’s financial infrastructure both domestically and internationally.”
Shalon and Orenstein were arrested by Israeli authorities in July 2015, and were extradited from Israel in June 2016.
* * *
AARON, 32, a U.S. citizen who had been residing in Moscow, Russia, is charged in a Superseding Indictment, S1 15 Cr. 333 (LTS), along with his co-defendants with the following offenses, which carry the maximum prison terms listed below. The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Count
Defendants
Charge
Maximum Prison Term
One
SHALON and AARON
Conspiracy to commit computer hacking
5 years
Two
SHALON and AARON
Computer hacking
5 years
Three
SHALON and AARON
Computer hacking
5 years
Four
SHALON, AARON, and ORENSTEIN
Conspiracy to commit securities fraud
5 years
Five
SHALON, AARON, and ORENSTEIN
Conspiracy to commit wire fraud: Securities Market Manipulation Scheme
20 years
Six
SHALON, AARON, and ORENSTEIN
Securities fraud
20 years
Seven
SHALON, AARON, and ORENSTEIN
Eight
SHALON, AARON, and ORENSTEIN
Nine
SHALON, AARON, and ORENSTEIN
Ten
SHALON, AARON, and ORENSTEIN
Eleven
SHALON, AARON, and ORENSTEIN
Twelve
SHALON, AARON, and ORENSTEIN
Thirteen
SHALON, AARON, and ORENSTEIN
Wire fraud
20 years
Fourteen
SHALON, AARON, and ORENSTEIN
Conspiracy to commit identification document fraud
15 years
Fifteen
SHALON, AARON, and ORENSTEIN
Aggravated identity theft
Mandatory 2 years
Twenty-Two
SHALON, AARON, and ORENSTEIN
Conspiracy to commit money laundering: Securities Market Manipulation Scheme
20 years
Mr. Bharara praised the investigative work of the FBI and the United States Secret Service, and expressed his sincere gratitude to the Office of the State Attorney of the Israel Ministry of Justice’s Department of International Affairs and the Israel National Police, including its Cyber Unit - Lahav 433, for their support and assistance with the investigation. He also thanked the Securities and Exchange Commission, Immigration and Customs Enforcement - Homeland Security Investigations, the Financial Industry Regulatory Authority, the National Credit Union Administration, the Office of International Affairs of the U.S. Department of Justice, and the Financial Services Information Sharing and Analysis Center, which significantly aided the investigation by facilitating information-sharing among the victim institutions.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Eun Young Choi, Noah Solowiejczyk, and Sarah Lai are in charge of the prosecution. Assistant U.S. Attorney Daniel Tracer of the Office’s Money Laundering and Asset Forfeiture Unit is in charge of the forfeiture aspects of the case.
The charges contained in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Former Minister of Mines for the Republic of Guinea Charged with Receiving and Laundering $8.5 Million in Bribes from Chinese CompaniesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Leslie R. Caldwell, the Assistant Attorney General of the Department of Justice’s Criminal Division, 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 MAHMOUD THIAM was arrested in Manhattan this morning on money laundering charges stemming from his scheme to launder $8.5 million in bribes that THIAM received from senior representatives of a Chinese conglomerate. The charges allege that THIAM used his official position as Minister of Mines for the Republic of Guinea to facilitate the award to the Chinese conglomerate of exclusive and highly valuable investment rights in various sectors of the Guinean economy. THIAM was presented today in Manhattan federal court before Magistrate Judge James C. Francis.
Manhattan U.S. Attorney Preet Bharara said: “Mahmoud Thiam, a former high-ranking official of Guinea, allegedly used his position to accept millions in bribes from a Chinese conglomerate and laundered the money through New York. Thiam, a U.S. citizen, will now face justice.”
Assistant Attorney General Leslie R. Caldwell said: “Former Minister Thiam is accused of enriching himself at the expense of the people of the Republic of Guinea. We cannot allow the United States to be a safe haven for the spoils of official corruption. The department is committed to pursuing both those who pay bribes, and also the corrupt officials who receive them.”
FBI Assistant Director-in-Charge William Sweeney, Jr. said: “Today’s action shows that the FBI, along with our partners, is committed to investigating all levels of corruption. The United States will be relentless in its efforts to uphold fair, equal and competitive markets. The actions of a few who use corruption for personal gain will not be tolerated.”
According to the Complaint[1] unsealed today in Manhattan federal court:
MAHMOUD THIAM, a United States citizen who was Minister of Mines and Geology of the Republic of Guinea in 2009 and 2010, engaged in a scheme to accept bribes from senior representatives of a Chinese conglomerate and to launder that money into the United States and elsewhere. In exchange for these multimillion-dollar bribe payments, THIAM used his position as Minister of Mines to facilitate the award to the Chinese conglomerate of exclusive and highly valuable investment rights in a wide range of sectors of the Guinean economy, including near total control of Guinea’s significant mining sector.
In order to receive the bribes covertly, THIAM opened a bank account in Hong Kong (the “Hong Kong Account”) and misreported his occupation to the Hong Kong bank to conceal his status as a public official in Guinea. Upon receiving the bribes, THIAM transferred millions of dollars in bribe proceeds from the Hong Kong Account to, among other things, THIAM’s bank accounts in the United States; a Malaysian company that facilitated and concealed THIAM’s purchase of a $3,750,000 estate in Dutchess County, New York; private preparatory schools in Manhattan attended by THIAM’s children; and at least one other West African public official.
To further conceal the unlawful source of the bribery proceeds that THIAM transferred from the Hong Kong Account to banks in the United States, THIAM lied to two banks based in Manhattan and on tax returns filed with the Internal Revenue Service regarding the bribe payments, his position as a foreign public official, and the source of the funds in the Hong Kong Account. In total, THIAM received approximately $8.5 million in bribes from the Chinese conglomerate.
* * *
THIAM, 50, of Manhattan, is charged with two counts of money laundering, each of which carries a maximum sentence of 15 years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the FBI.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Elisha J. Kobre and Assistant Chief Tarek Helou, Senior Trial Attorney Jason Linder and Trial Attorney Sarah Edwards of the Fraud Section of the Justice Department’s Criminal Division are in charge of the prosecution.
[1] As the introductory phase 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 Charges Against Six Individuals in International High-Yield Investment Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Angel M. Melendez, Special Agent In Charge of the New York Field Office of the Department of Homeland Security, Homeland Security Investigations (“HSI”), and Deirdre L. Fike, Assistant Director in Charge of the Los Angeles Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment charging six defendants with conspiracy, wire fraud, impersonation of Federal Reserve Bank of New York (“New York Fed”) officials, money laundering, and other crimes in connection with a fraudulent high-yield investment scheme that resulted in the theft of over $50 million from investors in the United States and around the world.
Manhattan U.S. Attorney Preet Bharara said: “Edwards and his co-defendants allegedly concocted and carried out an audacious scam, promising investors exponential returns on investments they claimed were overseen by the New York Federal Reserve and backed by the U.S. government. In reality, it was all a lie; there was no government-backed program and no plan to invest, only an alleged plan to steal the investors’ money.”
HSI Special Agent in Charge Angel M. Melendez said: “Using forged and counterfeit Federal Reserve documents, these individuals allegedly orchestrated a complex international scheme that cost unwitting investors both here and abroad over $50 million dollars. This indictment shows the great length that criminals will go to steal the money of hard working individuals. HSI is up to the challenge to uncover these schemes and bring the participants to justice.”
FBI Assistant Director Deirdre L. Fike said: “The defendants in this case allegedly used complicated terminology and claimed to have international sophistication as they swindled their victims. Skilled investigators with the FBI and with the HSI will continue our joint efforts to mitigate the threat to capital markets around the world.”
According to the allegations contained in the Indictment[1]:
From at least June 2013 through August 2016, RIENZI EDWARDS, MICHAEL JACOBS, RUBY HANDLER-JACOBS, F.K. HO, LAWRENCE LESTER, and RACHEL GENDREAU orchestrated and executed a fraudulent high-yield investment program known as the “Cities Upliftment Program,” or CUP, which the defendants falsely told investors was operated by the New York Fed. The scheme was principally designed and operated by EDWARDS, with the assistance of JACOBS and HANDLER-JACOBS, and was marketed to investors around the world through brokers, including HO, LESTER, and GENDREAU.
The defendants pitched the CUP to investors as a highly exclusive, invitation-only, public-private investment partnership designed to raise capital and generate large returns through a purported “trading program” run by the New York Fed. The defendants promised investors that the CUP would generate extremely high returns on their investments, in some cases as much as $150 million for every $1 million invested. The defendants claimed that half of the returns would be used to help revitalize American cities recovering from the 2008 financial crisis, and that the other half would be returned to the investors at the rate of $1 million per day for 75 banking days. The defendants told numerous other lies to victims to convince them to invest, including that their funds would be held in a trust account established by the New York Fed and that CUP investments were risk-free because they were “guaranteed” by the United States government. In truth, and as the defendants well knew, the CUP was a complete scam.
One of the primary ways in which the defendants tricked victims into investing millions of dollars in the CUP scheme was the use of forged and counterfeit New York Fed documents. On numerous occasions, the defendants sent, or caused to be sent, investment contracts, guarantees, correspondence, and other CUP-related documents printed on what appeared to be New York Fed letterhead and bearing the names and purported signatures of New York Fed officials, including the president, certain board members, and other senior officials of the New York Fed. In addition, EDWARDS, JACOBS, and HO, with the assistance of HANDLER-JACOBS, pretended to be New York Fed officials during in-person meetings and phone calls with investors to convince them to invest in the CUP.
Instead of holding investors’ funds in the purported trust accounts as promised, the defendants simply stole the money. EDWARDS, JACOBS, and HANDLER-JACOBS caused the bulk of the funds to be laundered through various domestic and overseas bank accounts in Hong Kong, Barbados, the United Kingdom, and Sri Lanka held in the names of shell companies that they controlled. A portion of the proceeds was then kicked back to the brokers who had recruited the investors. Altogether, the defendants stole over $50 million from investors in the United States and several foreign countries.
* * *
JACOBS was arrested at Los Angeles International Airport in California on December 11, 2016, and was presented in federal court before a U.S. Magistrate Judge in Santa Ana, California, on December 12. HANDLER-JACOBS was arrested in Albuquerque, New Mexico, on December 11, 2016, and was presented in federal court before a U.S. Magistrate Judge in Albuquerque on December 12. LESTER was arrested in Mount Vernon, Washington, on December 12, 2016, and presented the same day in federal court before a U.S. Magistrate Judge in Seattle, Washington. GENDREAU was arrested on December 12, 2016, in Savanna, Illinois, and was presented in federal court before a U.S. Magistrate Judge in Rockford, Illinois, earlier today. EDWARDS and HO are currently at large.
The case is assigned to U.S. District Judge Paul G. Gardephe. Arraignment is scheduled for December 20, 2016, in federal court in Manhattan.
EDWARDS, 55, of Sri Lanka, JACOBS, 64, of Albuquerque, New Mexico, and HANDLER-JACOBS, 64, of Albuquerque, New Mexico are each charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 10 years in prison; one count of conspiracy to commit money laundering and two counts of money laundering, each of which carries a maximum sentence of 20 years in prison; one count of conducting monetary transactions in unlawful funds, which carries a maximum sentence of 10 years in prison; one count of conspiracy to impersonate employees of the United States, which carries a maximum sentence of five years; one count of impersonating employees of the United States, which carries a maximum sentence of three years; and aggravated identity theft, which carries a maximum sentence of two years in prison.
HO, 80, of Singapore, LESTER, 71, of Mount Vernon, Washington, and GENDREAU, 46, of Savanna, Illinois, are each charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 10 years in prison; and one count of aggravated identity theft, which carries a maximum sentence of two years in prison. In addition, HO is charged with one count of conspiracy to impersonate employees of the United States, which carries a maximum sentence of five years; and one count of impersonating employees of the United States, which carries a maximum sentence of three years.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.
Mr. Bharara praised the investigative work of HSI and the FBI. Mr. Bharara also thanked the Federal Reserve Bank of New York for its ongoing cooperation in this investigation.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Daniel S. Noble is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
US v. Rienzi Edwards indictment.pdf
[1] As the introductory phase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Announces Charges Against Six Individuals in International High-Yield Investment Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Angel M. Melendez, Special Agent In Charge of the New York Field Office of the Department of Homeland Security, Homeland Security Investigations (“HSI”), and Deirdre L. Fike, Assistant Director in Charge of the Los Angeles Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment charging six defendants with conspiracy, wire fraud, impersonation of Federal Reserve Bank of New York (“New York Fed”) officials, money laundering, and other crimes in connection with a fraudulent high-yield investment scheme that resulted in the theft of over $50 million from investors in the United States and around the world.
Manhattan U.S. Attorney Preet Bharara said: “Edwards and his co-defendants allegedly concocted and carried out an audacious scam, promising investors exponential returns on investments they claimed were overseen by the New York Federal Reserve and backed by the U.S. government. In reality, it was all a lie; there was no government-backed program and no plan to invest, only an alleged plan to steal the investors’ money.”
HSI Special Agent in Charge Angel M. Melendez said: “Using forged and counterfeit Federal Reserve documents, these individuals allegedly orchestrated a complex international scheme that cost unwitting investors both here and abroad over $50 million dollars. This indictment shows the great length that criminals will go to steal the money of hard working individuals. HSI is up to the challenge to uncover these schemes and bring the participants to justice.”
FBI Assistant Director Deirdre L. Fike said: “The defendants in this case allegedly used complicated terminology and claimed to have international sophistication as they swindled their victims. Skilled investigators with the FBI and with the HSI will continue our joint efforts to mitigate the threat to capital markets around the world.”
According to the allegations contained in the Indictment[1]:
From at least June 2013 through August 2016, RIENZI EDWARDS, MICHAEL JACOBS, RUBY HANDLER-JACOBS, F.K. HO, LAWRENCE LESTER, and RACHEL GENDREAU orchestrated and executed a fraudulent high-yield investment program known as the “Cities Upliftment Program,” or CUP, which the defendants falsely told investors was operated by the New York Fed. The scheme was principally designed and operated by EDWARDS, with the assistance of JACOBS and HANDLER-JACOBS, and was marketed to investors around the world through brokers, including HO, LESTER, and GENDREAU.
The defendants pitched the CUP to investors as a highly exclusive, invitation-only, public-private investment partnership designed to raise capital and generate large returns through a purported “trading program” run by the New York Fed. The defendants promised investors that the CUP would generate extremely high returns on their investments, in some cases as much as $150 million for every $1 million invested. The defendants claimed that half of the returns would be used to help revitalize American cities recovering from the 2008 financial crisis, and that the other half would be returned to the investors at the rate of $1 million per day for 75 banking days. The defendants told numerous other lies to victims to convince them to invest, including that their funds would be held in a trust account established by the New York Fed and that CUP investments were risk-free because they were “guaranteed” by the United States government. In truth, and as the defendants well knew, the CUP was a complete scam.
One of the primary ways in which the defendants tricked victims into investing millions of dollars in the CUP scheme was the use of forged and counterfeit New York Fed documents. On numerous occasions, the defendants sent, or caused to be sent, investment contracts, guarantees, correspondence, and other CUP-related documents printed on what appeared to be New York Fed letterhead and bearing the names and purported signatures of New York Fed officials, including the president, certain board members, and other senior officials of the New York Fed. In addition, EDWARDS, JACOBS, and HO, with the assistance of HANDLER-JACOBS, pretended to be New York Fed officials during in-person meetings and phone calls with investors to convince them to invest in the CUP.
Instead of holding investors’ funds in the purported trust accounts as promised, the defendants simply stole the money. EDWARDS, JACOBS, and HANDLER-JACOBS caused the bulk of the funds to be laundered through various domestic and overseas bank accounts in Hong Kong, Barbados, the United Kingdom, and Sri Lanka held in the names of shell companies that they controlled. A portion of the proceeds was then kicked back to the brokers who had recruited the investors. Altogether, the defendants stole over $50 million from investors in the United States and several foreign countries.
* * *
JACOBS was arrested at Los Angeles International Airport in California on December 11, 2016, and was presented in federal court before a U.S. Magistrate Judge in Santa Ana, California, on December 12. HANDLER-JACOBS was arrested in Albuquerque, New Mexico, on December 11, 2016, and was presented in federal court before a U.S. Magistrate Judge in Albuquerque on December 12. LESTER was arrested in Mount Vernon, Washington, on December 12, 2016, and presented the same day in federal court before a U.S. Magistrate Judge in Seattle, Washington. GENDREAU was arrested on December 12, 2016, in Savanna, Illinois, and was presented in federal court before a U.S. Magistrate Judge in Rockford, Illinois, earlier today. EDWARDS and HO are currently at large.
The case is assigned to U.S. District Judge Paul G. Gardephe. Arraignment is scheduled for December 20, 2016, in federal court in Manhattan.
EDWARDS, 55, of Sri Lanka, JACOBS, 64, of Albuquerque, New Mexico, and HANDLER-JACOBS, 64, of Albuquerque, New Mexico are each charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 10 years in prison; one count of conspiracy to commit money laundering and two counts of money laundering, each of which carries a maximum sentence of 20 years in prison; one count of conducting monetary transactions in unlawful funds, which carries a maximum sentence of 10 years in prison; one count of conspiracy to impersonate employees of the United States, which carries a maximum sentence of five years; one count of impersonating employees of the United States, which carries a maximum sentence of three years; and aggravated identity theft, which carries a maximum sentence of two years in prison.
HO, 80, of Singapore, LESTER, 71, of Mount Vernon, Washington, and GENDREAU, 46, of Savanna, Illinois, are each charged with one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 10 years in prison; and one count of aggravated identity theft, which carries a maximum sentence of two years in prison. In addition, HO is charged with one count of conspiracy to impersonate employees of the United States, which carries a maximum sentence of five years; and one count of impersonating employees of the United States, which carries a maximum sentence of three years.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.
Mr. Bharara praised the investigative work of HSI and the FBI. Mr. Bharara also thanked the Federal Reserve Bank of New York for its ongoing cooperation in this investigation.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Daniel S. Noble is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Bronx Tax Preparer Sentenced for Preparing and Filing False and Fraudulent Tax ReturnsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CHRISTOPHER AHERN was sentenced today to 30 months in prison for preparing and filing false and fraudulent tax returns that claimed more than $4.7 million in credits and expenses. AHERN pled guilty on July 5, 2016, before United States District Judge Deborah A. Batts, who imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Christopher Ahern used his clients’ tax returns to bilk the IRS of more than $3 million in fraudulent credits, pocketing more than a million dollars in fees. But because of the investigative efforts of the IRS, Ahern’s dishonest business is closed.”
According to the allegations in the Information to which AHERN pled guilty, other documents filed in Manhattan federal court, and statements made in court proceedings:
AHERN, owned and operated a tax preparation business called Get My Refund Fast, located in the Bronx, New York. From 2012 through 2013, AHERN’s business prepared and submitted to the Internal Revenue Service (“IRS”) nearly 5,000 tax returns. These tax returns were false and fraudulent in that they claimed education credits to which the clients were not entitled. The IRS issued approximately $3 million pursuant to the false and fraudulent returns AHERN filed. AHERN received more than $1.5 million in fees from his clients for preparing and filing the fraudulent returns.
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In addition to his prison term, AHERN, 40, of Little Neck, New York, was sentenced to three years of supervised release and ordered to pay $3 million in restitution.
Mr. Bharara praised the investigative work of the IRS, Criminal Investigations.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Shawn G. Crowley is in charge of prosecution.
Queens Man Charged in Manhattan Federal Court with Sale of Artwork Stolen from Prominent New York CollectionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today a complaint charging LEON ZINDER with the interstate sale of stolen property in connection with his theft and attempted sale of more than a dozen works of art. ZINDER was arrested this morning at his home in Forest Hills, Queens, and will be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Katherine H. Parker.
U.S. Attorney Preet Bharara said: “As alleged, Leon Zinder stole works of art worth more than $600,000 from his employer and then sought to sell them through a flea market in Manhattan. This Office, working with our law enforcement partners at the FBI, have helped recover and return countless works of stolen art and artifacts to their rightful owners. And today, we do so again, as well as seeking to hold the alleged thief accountable.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “As we allege in our case, Leon Zinder stole African tribal and Native American art from his employer over a two year period then fabricated stories of the pieces coming from a storage-unit close-out sale or from an elderly widow in Arizona to establish a consignment sale relationship with an unsuspecting art dealer. This case was brought forward to the FBI by an art dealer who started to realize these stories were too good to be true.”
According to the allegations in the Complaint[1]:
From approximately July 2010 through April 2012, LEON ZINDER was employed as an art handler by a New York-based company (the “Company”) that manages an extensive art collection consisting of thousands of individual artworks, including an extensive collection of Native-American and African ethnographic artwork. During that time, ZINDER stole at least 13 works of art from facilities maintained by the Company.
Beginning in approximately September of 2015 through October 2016, ZINDER sold, or attempted to sell, the stolen artwork through a consignment relationship with an art dealer who conducted his business through an outdoor flea market in lower Manhattan (the “Dealer”). As part of his efforts to sell the stolen artwork, ZINDER falsely claimed he had obtained the works from both the elderly widow of a sheriff in Phoenix, Arizona, and from a storage-unit close-out sale.
In total, ZINDER attempted to sell at least 13 works of art through the Dealer, worth more than $600,000. This included at least three items that ZINDER had stolen from the Company’s Greenwich, Connecticut, facility and transported to Manhattan: a Fang Reliquary Guardian Head statue valued at approximately $85,000; a Native American mask valued at approximately $75,000; and a Pende mask valued at approximately $5,000.
Eventually, the Dealer became aware that several of the artworks he had helped ZINDER to sell had been reported stolen by the Company. At that point, the Dealer contacted the FBI and began assisting in the subsequent investigation, including turning over the majority of the stolen works to the FBI.
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ZINDER, 48, of Forest Hills, Queens, is charged with one count of interstate sale of stolen property, which carries a maximum penalty of 10 years in prison and a maximum fine of $250,000, or twice the defendant’s gross gain or twice the victim’s gross loss resulting from the defendant’s conduct, whichever is greater. The statutory maximum 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.
Mr. Bharara thanked the FBI’s Art Crime Team for its outstanding work on this matter.
Anyone with information relevant to this investigation is asked to contact the FBI’s Art Crime Team at (212) 384-1000 or https://tips.fbi.gov/.
The case is being handled by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant U.S. Attorney Noah Falk is in charge of the case.
[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.
Chief Financial Officer of Furniture Company Sentenced to Two Years in Prison for Accounting Fraud Against Bank, and Gas City, IndianaRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that NORMAN D’SOUZA, the former chief financial officer and vice president of finance of a New Jersey-based furniture wholesaler and retailer (“Company-1”) and an Indiana-based furniture manufacturer affiliated with Company-1 (“Company-2”) (collectively, the “Companies”), was sentenced yesterday to two years in prison for orchestrating a fraudulent scheme to obtain $17 million in loans from a commercial bank based in New York, New York (the “Bank”), and $1 million in municipal loans from Gas City, Indiana (the “City”). D’SOUZA and his co-conspirators obtained this financing by making false statements and providing false and fraudulent documents concerning the Companies’ financial condition. D’SOUZA pled guilty on April 1, 2016, before U.S. District Judge Ronnie Abrams, who imposed yesterday’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Norman D’Souza repeatedly misrepresented the financial condition of two companies to deceive a bank and a municipality into lending the companies millions of dollars. He will now spend time in a federal prison for his crimes.”
According to the allegations contained in the criminal information to which D’SOUZA pled guilty, other documents filed in Manhattan federal court, and statements made in court proceedings:
From 2011 until September 2014, Company-1, through D’SOUZA and others, fraudulently induced the Bank into lending Company-1 millions of dollars by repeatedly making false and misleading statements about Company-1’s financial condition. D’SOUZA falsely inflated Company-1’s sales and accounts receivable on “borrowing base certificates” and in financial statements that D’SOUZA provided to the Bank pursuant to loan agreements. D’SOUZA used those falsely inflated sales and accounts receivable to mislead the Bank about Company-1’s true financial performance, which enabled Company-1 to secure and draw down a $17 million revolving credit facility from the Bank. Company-1 ultimately defaulted on the loans issued by the Bank in September 2014. At that time, the outstanding balance of the loans was approximately $16.99 million.
Separately, in 2012, the City offered loans and other financial incentives to Company-2 in return for Company-2’s agreement to operate a furniture factory in the City and employ local residents. To secure this arrangement, among other things, D’SOUZA falsely inflated Company-2’s sales figures in financial statements provided to the City. The false financial statements misled the City about Company-2’s true financial performance and enabled Company-2 to secure and draw down more than $1 million in loans from the City. Company-2 ultimately defaulted on the loans issued by the City in September 2014, causing approximately 60 City residents to lose their jobs. At that time, the outstanding balance of the loans was $1 million.
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In addition to his prison term, D’SOUZA, 50, of Monmouth Junction, New Jersey, was sentenced to two years of supervised release, and ordered to pay forfeiture and restitution, both in the amount of $12,256,871.48.
Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Edward A. Imperatore is in charge of the prosecution.