Southern District of New York
Press releases recorded for this federal judicial district.
Florida Man Sentenced in Manhattan Federal Court in Connection with Two Multimillion-Dollar Fraud SchemesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSEPH DEL VALLE, an owner and partner of various investment companies, was sentenced yesterday in Manhattan federal court to 98 months in prison for wire fraud and aggravated identity theft charges for operating two fraudulent schemes that resulted in more than $5 million in investor losses. DEL VALLE pled guilty on February 8, 2016, and was sentenced yesterday by United States District Judge Richard M. Berman.
Manhattan U.S. Attorney Preet Bharara stated: “Joseph Del Valle defrauded investors out of millions of dollars, taking money meant for investments and instead spending it on himself on luxury vacations, fine dining, and personal expenses. To fool investors who thought they were investing in wine, restaurant and hotel businesses, Del Valle fabricated emails purported to be from well-known chefs and business people.”
According to the allegations contained in the Superseding Indictment, the underlying criminal Complaint, and other statements made during court proceedings:
The Project Miami Scheme
Beginning in 2005, JOSEPH DEL VALLE, a co-conspirator (“CC-1”), and an employee of Vanquish Acquisition Partners LLC, began soliciting investors for a real estate development project in the Little Havana neighborhood of Miami (referred to herein as “Project Miami”). Project Miami involved two high-rise buildings in which the bottom floors would house retail shops and the top floors would be residential condominiums. Project Miami was designed to provide affordable housing to middle-income individuals and included an arrangement for financing so that purchasers of the condominiums would receive government-subsidized mortgages. From 2005 through 2007, DEL VALLE, CC-1, and the employee obtained approximately $6.4 million from investors for Project Miami.
Prior to making any investments, investors were told that the investment was solely for Project Miami. Investors were provided with various materials that specified the investments were for Project Miami, and provided that DEL VALLE and his company would take only a five percent management fee. However, almost immediately after investors transferred funds for Project Miami, almost all of which were sent to banks in Manhattan, New York, DEL VALLE and CC-1 transferred amounts far greater than five percent to other bank accounts and began using the funds for other purposes, including investments in a wine magazine and for DEL VALLE’s personal use. For example, in October 2007, DEL VALLE used $30,000 of investor money in Europe for, among other things, hotels, restaurants, a cruise, and cash withdrawals. In total, DEL VALLE and CC-1 used over $3 million for other investments or personal expenses.
When investors became suspicious and requested financial statements for their investments and a return of their money, DEL VALLE represented to investors in phone calls and email communications that the investment funds were secure when, in fact, a large portion of the investors’ money had already been misappropriated and/or diverted to other uses. DEL VALLE also falsely told investors that financial statements were in the process of being prepared and would be mailed to them shortly, but in fact, DEL VALLE and CC-1 had not provided any financial information to the accountant responsible for the preparation of financial statements of the relevant entities.
The Project WT/Bistro, Project Chateau, & Project Rioja Scheme
From in or about 2009 through in or about 2014, DEL VALLE conducted a second scheme in which he solicited investors to wire investments to various bank accounts for the purpose of investing in three purported investment projects, Project WT (later named Project Bistro), Project Rioja, and Project Chateau, all of which DEL VALLE controlled. According to DEL VALLE, Project WT/Bistro was created for the purpose of raising money to expand two restaurants, Project Chateau was created for the purpose of raising money to invest in the high-end segment of the hospitality industry, and Project Rioja was created for the purpose of raising money to invest in the high-end segment of the wine industry. DEL VALLE raised more than $2 million from investors for these projects.
Among other things, DEL VALLE falsely represented to investors that their money would be used solely to fund the specific projects in which the investors had decided to invest. However, almost immediately after investors transferred funds to bank accounts controlled by DEL VALLE, DEL VALLE withdrew money from the bank accounts (often through debit card purchases, ATM withdrawals, and wire transfers) and spent approximately all of the funds on restaurants, hotels, clothing, mortgage payments and payments to DEL VALLE’s family members and his fiancée, among other things. In addition, to induce investors to invest money in the specific projects, DEL VALLE frequently sent investors multiple fabricated emails that purported to come from well-known chefs and businesspeople.
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In addition to the prison sentence, DEL VALLE, 61, of Aventura, Florida, was sentenced to five years of supervised release. The Court further ordered that DEL VALLE forfeit $5,333,722 and pay $5,333,722 in restitution.
Mr. Bharara praised the work of the FBI.
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 Aimee Hector and Damian Williams are in charge of the prosecution.
Three Additional Defendants Charged in Manhattan Federal Court in Connection with Fraud Schemes Relating to Technology Start-Up Company Kit digitalRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced the unsealing of charges today against OMAR AMANAT, STEPHEN E. MAIDEN, and RIMA JAMEEL, a/k/a “Rima Jameel Al Fahl,” for their involvement in fraudulent schemes related to Kit digital (“KITD”), a publicly traded technology start-up company based in New York, and Prague, Czech Republic.
U.S. Attorney Preet Bharara said: “As alleged, these three defendants defrauded investors of millions of dollars through years of lies and deceit. Their fraudulent tactics allegedly included manipulating stock prices, hiding investment losses, and peddling falsehoods to investors. This type of alleged manipulation and deception undermines the fairness and integrity of our markets, and it is something that this Office and our law enforcement partners will fight to root out.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “There are multiple charges announced today against Omar Amanat for his alleged roles in schemes to hide losses from investors, and to falsely inflate the share price and volume of a publicly traded company. Ensuring that all investors have factual information and fair markets are exactly why the FBI continues to investigate and bring to justice those who perpetrate fraudulent investment schemes.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “What a tangled web Mr. Amanat tried to weave, when he allegedly conspired with others to devise a scheme to hide the significant losses and insolvency of the fund he controlled. His web of deception was broken when law enforcement put an end to his criminal activity.”
According to the Indictments[1] unsealed today in Manhattan federal court:
AMANAT – an associate of Kaleil Isaza Tuzman (“Tuzman”), the former Chairman and CEO of KITD – was charged with conspiring to manipulate the market in KITD shares with Tuzman, MAIDEN, and others, and with conspiracy, wire fraud, and aiding and abetting investment adviser fraud for participating in a scheme, along with MAIDEN, to defraud investors in MAIDEN’s hedge fund regarding investments in Enable Invest Ltd., an investment fund affiliated with AMANAT. AMANAT was arrested in New Jersey this morning and was presented today in Manhattan federal court before United States Magistrate Judge Frank Maas.
MAIDEN previously pled guilty to charges relating to his own involvement in manipulating the market in KITD shares, defrauding KITD shareholders concerning KITD’s investment in MAIDEN’s hedge fund, and defrauding MAIDEN’s investors concerning the Enable investment. MAIDEN is cooperating with the Government in this investigation.
JAMEEL, former outside counsel to KITD, was charged with conspiracy, securities fraud, and money laundering charges relating to an illegal scheme engaged in by JAMEEL, with others, including Tuzman and Robin Smyth (“Smyth”), KITD’s former CFO, to deceive KITD shareholders, members of the investing public, KITD’s independent auditors, and others concerning KITD’s true operating performance and financial results.
JAMEEL was convicted in 2002 of various federal offenses in connection with her work as an attorney. She subsequently fled the United States prior to sentencing and has remained a fugitive.
Tuzman, who was arrested in Colombia in September 2015 on market manipulation and accounting fraud charges, is being held in Colombia pending extradition proceedings.
Charges Against Amanat and Maiden
The Scheme to Defraud Maiden Capital Investors
MAIDEN was the managing member of Maiden Capital, an unregistered investment advisory firm that managed portfolios of securities. Clients empowered Maiden Capital and MAIDEN to make investment decisions on their behalf. MAIDEN, in turn, was obligated to make such decisions based on the best interests of his clients.
Nonetheless, between in or about February 2009 and in or about June 2012, AMANAT, along with MAIDEN and others, devised and carried out a scheme to hide the fact that investments by Maiden Capital clients in Enable, an investment vehicle for which AMANAT raised money (based, in part, on false and misleading representations), had been lost. To facilitate the scheme, MAIDEN, with the knowledge and approval of AMANAT, generated fictitious client account statements that failed to disclose the Enable losses. In addition, AMANAT wired hundreds of thousands of dollars to a Maiden Capital bank account to support Maiden Capital, including to allow MAIDEN to repay investors whose redemption requests could not be forestalled and thus to continue to keep secret from Maiden Capital investors the Enable losses.
AMANAT aided and abetted MAIDEN’s fraud on Maiden Capital’s investment advisory clients. Rather than disclose the Enable losses to investors in the Maiden Fund, as he was legally obligated to do, MAIDEN concealed the Enable losses, thereby acting in his own self-interest and the interests of AMANAT, his close associate, who did not want the Enable losses to be exposed. By providing MAIDEN with capital contributions to meet redemption requests, among other things, knowing that MAIDEN’s investors had been lied to by MAIDEN about the Enable losses and the status of their investments, AMANAT assisted MAIDEN in carrying out his fraudulent scheme and helped MAIDEN to succeed in covering up the losses for over three years.
The Market Manipulation Scheme
Between in or about December 2008 and in or about September 2011, AMANAT, Tuzman, MAIDEN, and others, engaged in efforts to artificially inflate the share price and trading volume of KITD shares. During this time period, during which KITD shares traded on the OTC Bulletin Board and on the NASDAQ, MAIDEN, at the behest of AMANAT and Tuzman, purchased and sold shares of KITD through the Maiden Fund, at times for the purpose of manipulating the stock price and at times for the purpose of creating the illusion of greater volume in the trading for KITD shares. To facilitate the manipulation of KITD shares, AMANAT and Tuzman agreed to compensate MAIDEN in several ways, including by making investments in, and loaning money to, Maiden Capital, which agreement AMANAT and Tuzman partially fulfilled.
AMANAT, 43, is charged with one count of conspiracy to commit wire fraud, one count of wire fraud, one count of aiding and abetting investment adviser fraud, and one count of conspiracy to commit securities fraud. Counts One and Two each carry a maximum sentence of 20 years in prison. Count Three carries a maximum sentence of five years in prison. Count Four carries a maximum sentence of five years in prison. Counts One, Two, and Four carry a maximum fine of $250,000 or twice the gross gain or loss from the offense. Count Three carries a maximum fine of $10,000 or twice the gross gain or loss from the offense.
On July 1, 2016, MAIDEN, 43, pled guilty before Judge James L. Cott to one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud. Count One carries a maximum sentence of five years in prison. Count Two carries a maximum sentence of 20 years in prison. The charges also carry 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 sentencing of the defendants will be determined by the judge.
Charges Against Rima Jameel
From at least in or about 2010 through in or about 2012, JAMEEL, with others, including Tuzman and Smyth, engaged in an illegal scheme to deceive KITD shareholders, members of the investing public, KITD’s independent auditors, and others concerning KITD’s true operating performance and financial results.
JAMEEL, working with Tuzman and Smyth, among others, devised and executed a scheme to inflate KITD’s revenue falsely. This scheme involved two principal methods: (a) the improper recognition of revenue from so-called “perpetual license” contracts for KITD software (contracts that gave the purchasing customer the right to use the licensed software indefinitely), and (b) the execution of fraudulent “round-trip” transactions which had the effect of using KITD’s own cash, rather than payments received from customers, to pay off bills, known as accounts receivable, that were due and owed to KITD, including those resulting from KITD’s improper revenue recognition practices, rather than disclose to KITD’s auditors and the investing public the fact that the bills were uncollectible or, in some cases, had resulted from fabricated contracts. These fraudulent practices caused KITD to materially overstate its reported revenue, which had the effect of materially overstating KITD’s net income and earnings on its annual and quarterly financial reports issued from the fiscal quarter ending June 30, 2010, through the fiscal quarter ending March 31, 2012.
JAMEEL was instrumental in furthering and concealing the illegal scheme. For instance, JAMEEL, with others, created Jourdian Invest Ltd. (“Jourdian Invest”), a British Virgin Islands entity, for the purpose of using KITD’s money to make purported “loans” to KITD’s customers who were either unwilling or unable to pay the bills they purportedly owed to KITD. Using Jourdian Invest in this manner allowed Tuzman, Smyth, and JAMEEL to fraudulently obscure their use of KITD’s own money to pay down these customers’ aging receivables on KITD’s books.
Furthermore, JAMEEL, at Tuzman and Smyth’s request, maintained a U.A.E.-based escrow account (the “U.A.E. Escrow Account”) that, at various times, contained millions of dollars of KITD funds. Instead of using the escrowed funds for legitimate corporate purposes, JAMEEL, at Tuzman and Smyth’s request, caused the escrowed funds to be used to pay down fictitious or uncollectible KITD receivables. JAMEEL, working with Tuzman and Smyth, among others, sought to conceal the improper usage of the escrowed funds. For instance, on or about March 13, 2012, in connection with KITD’s 2011 audit, JAMEEL emailed a balance confirmation to KITD’s independent auditors in which she falsely claimed that the U.A.E. Escrow Account contained approximately $6.1 million when, in truth and in fact, and as JAMEEL well knew, the U.A.E. Escrow Account was empty.
JAMEEL, 49, is charged in four counts. JAMEEL is charged with one count of conspiracy to commit securities fraud, make false statements in annual and quarterly SEC reports, and make false statements to auditors, one count of securities fraud, one count of conspiracy to commit money laundering, and one count of money laundering.
The conspiracy to commit securities fraud, make false statements in annual and quarterly SEC reports, and make false statements to auditors carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million or twice the gross gain or loss from the offense. The money laundering counts each carry a maximum sentence of 20 years in prison and a maximum fine of $500,000 or twice the gross gain or loss from the offense.
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Mr. Bharara praised the work of the FBI and the Postal Inspection Service, and thanked the Securities and Exchange Commission for their assistance. 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. Attorneys Damian Williams, Andrea M. Griswold, and Edward Y. Kim 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] The charges contained in the Indictments are merely accusations and the defendants are presumed innocent unless and until proven guilty.
Manhattan U.S. Attorney Settles Civil Fraud Lawsuit Against Clothing Importer and Manufacturers for Evading Customs DutiesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Angel M. Melendez, the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), and Robert E. Perez, Director of the New York Field Operations for U.S. Customs and Border Protection (“CBP”), announced a $13.375 million settlement of a civil fraud lawsuit against MOTIVES, INCORPORATED, an importer of clothing, and MOTIVES FAR EAST and MOTIVES CHINA LIMITED, foreign manufacturers of clothing (collectively “MOTIVES”), for engaging in a double invoicing scheme to defraud the United States out of millions of dollars in customs duties. In the settlement, approved yesterday in Manhattan federal court by U.S. District Judge George B. Daniels, MOTIVES admitted to and accepted responsibility for under-reporting the value of its imported merchandise and agreed to pay $13.375 million to the United States under the False Claims Act.
Manhattan U.S. Attorney Preet Bharara said: “Motives evaded millions in customs duties by presenting false invoices to U.S. Customs and Border Protection. With this lawsuit and the accompanying resolution, which involves admissions and the payment of over $13 million, Motives is being held to account for its unlawful evasion of customs duties.”
ICE HSI Special Agent-in-Charge Angel M. Melendez said: “Motives disguised the true value of goods imported into the United States to cheat the government out of millions of dollars in customs duties. This scheme backfired, now Motives will pay millions for trying to skirt America’s customs laws. Trade fraud threatens the U.S. economy and restricts competitiveness of U.S. industry in the world markets. HSI and CBP maintain a zero-tolerance policy when it comes to these types of predatory and unfair trade practices.”
CBP Director of New York Field Operations Robert E. Perez said: “CBP takes trade fraud, such as undervaluation, very seriously. We are proud to partner with HSI and the Southern District to level the playing field for legitimate traders by steadfastly enforcing US trade laws.”
The Government’s complaint, filed in Manhattan federal court, alleges that from approximately 2009 through 2013, MOTIVES, which regularly manufactured and/or imported apparel into the United States, conspired with clothing wholesalers fraudulently to underpay customs duties owed to the Government by making false representations in entry documents filed with CBP about the value of the imported merchandise. Pursuant to the scheme, MOTIVES created and/or used two sets of invoices: one that undervalued the garments and was presented to the Government for calculation of the appropriate duty, and the second that reflected the actual value of the garments. MOTIVES presented to the Government invoices with the lower value on the entry forms, thereby defrauding the Government of millions of dollars in customs duties.
As part of the settlement, MOTIVES admitted, acknowledged, and accepted responsibility for engaging in the following conduct from 2009-2013:
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repeatedly preparing and presenting to the Government commercial invoices for apparel being imported into the United States that reported less than the total value of the goods imported;
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repeatedly representing to the Government that its documentation contained, to the best of MOTIVES’ knowledge, correct and true information such as prices, values, and quantities;
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repeatedly receiving from apparel wholesalers an amount in excess of that recorded on the commercial invoices; and
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repeatedly failing to disclose to the Government the separate invoices reflecting the true value of the apparel, and instead reporting only the lesser amounts listed in the commercial invoices, which the Government then used to assess customs duties.
The allegations of fraud stated in the Complaint were first brought to the attention of federal law enforcement by a whistle-blower who filed a lawsuit under the False Claims Act.
Mr. Bharara praised the investigative work of the ICE HSI on this case. He also thanked U.S. Customs and Border Protection for their assistance.
This case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorneys Jamie L. Nawaday and Kirti Vaidya Reddy are in charge of the case.
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Owner of Debt Collection Company Convicted in Manhattan Federal Court for Massive FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JOHN TODD WILLIAMS, a/k/a “JT,” a/k/a “Joe Steele,” was convicted for conspiring to commit wire fraud in connection with a nationwide debt collection scheme that defrauded more than 6,000 victims throughout the United States out of millions of dollars. WILLIAMS was convicted following a five-day jury trial before the Honorable Richard J. Sullivan. WILLIAMS owned and operated a debt collection company based in Norcross, Georgia, called WILLIAMS, SCOTT & ASSOCIATES, a/k/a “WSA,” a/k/a “Warrant Services Association,” (“WSA”). WILLIAMS and his co-conspirators, whom he employed as debt collectors at WSA, tricked and coerced victims into making payments to WSA by making false threats and telling a host of lies. These threats included falsely stating that warrants had been issued for the victims’ arrest or that criminal charges were pending against them.
Manhattan U.S. Attorney Preet Bharara said: “For owning and operating a debt collection company that tricked, threatened, and coerced vulnerable victims into making payments, a unanimous jury convicted John Williams of conspiracy to commit wire fraud. The conviction today brings an end to Williams’s massive scam that used scare tactics and threats to coerce millions of dollars out of thousands around the country.”
According to the evidence presented at trial:
Between approximately 2009 and May 2014, employees working for WSA, led by WILLIAMS, routinely attempted to trick and coerce thousands of victims throughout the United States into paying millions of dollars in consumer debts through a variety of false statements and false threats. Employees of WSA typically used aliases, sometimes referring to themselves as “Detective” or “Investigator,” falsely advised consumers they had committed purported crimes such as “check fraud” or “depository check fraud,” and told consumers that if they failed to make immediate payments to WSA to resolve the matters, warrants would be issued for their arrest. WSA employees also falsely claimed that WSA had contracts with, or was otherwise affiliated with, certain federal or local law enforcement agencies, including the Department of Justice and the Federal Bureau of Investigation.
Among other false statements, WSA employees also claimed that WSA was a law firm or otherwise worked with lawyers, and that they would have the victims’ driver’s licenses suspended if those victims did not make payment to WSA. To falsely create an appearance of legitimacy, and further trick their victims into making payments, WSA employees routinely used legal terminology to invent legitimate-sounding, but completely bogus, explanations for the supposed imminent arrest of the victims, including for example, that the “statute of limitations” on the victims’ “civil legal rights” had expired and therefore the matter was now a criminal matter that could be resolved only by voluntary payment to WSA, or arrest. WILLIAMS and WSA employees also attempted to collect debts from victims who had already paid off their loans. When victims told WSA employees that they had already paid their debts, they were told, at WILLIAMS’s instruction, that “you can’t pay a debt with a debt instrument,” i.e., a credit card.
In total, from approximately 2009 through approximately May 2014, WSA obtained more than $4.1 million dollars from more than 6,000 victims in all 50 states.
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WILLIAMS was convicted of one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
WILLIAMS is scheduled to be sentenced on October 28, 2016, at 2:30 p.m., by the Honorable Richard J. Sullivan.
Mr. Bharara praised the outstanding investigative work of the FBI. He also thanked the Consumer Financial Protection Bureau (“CFPB”) for referring this case to this Office, and the Federal Trade Commission (“FTC”) for its assistance in this investigation. Mr. Bharara also acknowledged with appreciation the extraordinary partnership between this Office and both the FTC and CFPB in the Office’s ongoing effort to combat consumer fraud.
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
If you wish to report a crime by another debt collector, you may contact the FTC at 1-877-FTC-HELP. For guidance on coping with debt, and information about dealing with debt collection companies in particular, consider the following link to publications issued by the Federal Trade Commission:
http://www.consumer.fgc.gov/articles/0149-debt-collection
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Sarah E. Paul and Benet J. Kearney represented the Government at trial.
Manhattan U.S. Attorney Announces Arrests of Five Honduran National Police for Drug Trafficking and Related Firearms OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that five members of the Pólicia National de Honduras, i.e., the Honduran National Police, charged in a Superseding Indictment returned on June 29, 2016, have surrendered to face charges involving an alleged conspiracy to import cocaine into the United States and a related firearms offense. The five defendants, who arrived in the United States yesterday evening and will be presented and arraigned before U.S. Magistrate Judge Frank Maas later today in Manhattan federal court, are: Mario Guillermo Mejia Vargas, Juan Manuel Avila Meza, Carlos Jose Zavala Velasquez, Victor Oswaldo Lopez Flores, and Jorge Alfredo Cruz Chavez. Co-defendant LUDWIG CRISS ZELAYA ROMERO remains at large.
U.S. Attorney Preet Bharara said: “Less than two weeks after we announced charges against six Honduran National Police Officers for engaging in a massive drug conspiracy, five of those officers are now in custody in Manhattan. For allegedly conspiring to move tons of cocaine from the Honduran jungles to American cities, these Honduran police officers will now face these charges in an American court of law.”
According to the allegations contained in the Superseding Indictment[1], other court filings, and statements made during court proceedings:
Between approximately 2004 and approximately 2014, multiple drug-trafficking organizations in Honduras and elsewhere worked together, and with support from the defendants and others, to receive multihundred-kilogram loads of cocaine sent to Honduras from Venezuela and Colombia via air and maritime routes, and to transport the drugs westward in Honduras toward the border with Guatemala and eventually to the United States. For protection from official interference, and in order to facilitate the safe passage through Honduras of multihundred-kilogram loads of cocaine, drug traffickers paid bribes to public officials – including certain members of the Pólicia National de Honduras – for access to information about ongoing investigations, military and law enforcement checkpoints, and planned narcotics interdictions. The Honduran government recently declared an “emergency situation” with respect to the Pólicia National de Honduras, and established a Special Commission with authority to investigate corruption and dismiss or suspend members of the National Police, among other sanctions. As of the filing of this Superseding Indictment, the Special Commission has sanctioned several members of the Pólicia National de Honduras.
The defendants were members of the Pólicia National de Honduras who participated in and supported the drug-trafficking activities of, among others, Fabio Porfirio Lobo, the son of former Honduran president Porfirio Lobo Sosa, who pled guilty to a related drug-trafficking crime on May 16, 2016. In approximately early 2014, Lobo agreed to provide security and logistical support for the transportation through Honduras of a purported multi-ton load of cocaine that Lobo believed belonged to Mexico’s Sinaloa Cartel and would be imported into the United States. Lobo agreed to provide this assistance on the understanding that he would receive a financial stake in the cocaine worth over $1 million in profits. In or about June 2014, Lobo introduced two individuals he understood to be Mexican drug traffickers to the six defendants. During a meeting, the defendants displayed a map of Honduras and illustrated law enforcement checkpoints and a planned route for the cocaine. During the same meeting, the defendants each also agreed to accept a bribe in the amount of approximately $100,000, and to pay their subordinates a total of approximately $200,000 in additional bribes, in order to provide armed security for the cocaine as it transited Honduras before being imported into the United States.
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Mejia Vargas, 46, Avila Meza, 45, Zavala Velasquez, 44, Lopez Flores, 43, and Cruz Chavez, 39, have each been charged with: (1) conspiring to import cocaine into the United States, and (2) conspiring to use and carry firearms during and in relation to, and to possess firearms in furtherance of, the cocaine-importation conspiracy. If convicted, these defendants face a mandatory minimum sentence of 10 years in prison and a maximum term of life in prison.
Lobo, who was arrested in the Republic of Haiti on May 20, 2015, and arrived in the United States on May 21, 2015, pled guilty before Judge Schofield on May 16, 2016, to conspiring to import cocaine into the United States. Lobo is scheduled to be sentenced on September 15, 2016, and faces a mandatory minimum sentence of 10 years in prison and a maximum term of life in prison.
The potential mandatory minimum and maximum sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the Special Operations Division of the Drug Enforcement Administration (“DEA”), the DEA’s New York Division Strike Force, and the U.S. Department of Justice’s Office of International Affairs for their ongoing assistance.
This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Emil J. Bove III, Matthew J. Laroche, and Michael D. Lockard are in charge of the prosecution.
The charges in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Superseding Indictment, and the description of the Superseding Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Investment Bank Director Pleads Guilty in Manhattan Federal Court to Insider TradingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN MCCLATCHEY, a director at an investment bank in Manhattan (the “Investment Bank”), pled guilty to committing insider trading in connection with potential mergers and acquisitions (“M&A”) in which the Investment Bank was involved. MCCLATCHEY pled guilty to one count of conspiracy to commit securities and wire fraud and one count of securities fraud before U.S. District Judge Katherine Polk Failla.
U.S. Attorney Preet Bharara said: “As he has now admitted through his guilty plea, Steven McClatchey abused his position at a major investment bank, tipping his close friend Gary Pusey with material, nonpublic information about mergers and acquisitions. Pusey traded on that market-moving information and rewarded McClatchey with cash kickbacks and home renovations in return.”
According to the allegations contained in the Information filed against MCCLATCHEY and statements made in related court filings and proceedings:
MCCLATCHEY, who had served as a director at the Investment Bank since at least 2008, routinely possessed material, nonpublic information (“Inside Information”) concerning pending mergers and acquisitions in which the Investment Bank was involved. Indeed, among MCCLATCHEY’s responsibilities at the Investment Bank was the tracking of the status of all such pending transactions and the likely date on which such transactions would be publicly announced. MCCLATCHEY breached his duty of confidentiality to the Investment Bank and to its clients by providing Inside Information about pending M&A transactions to his close friend, Gary Pusey.
Specifically, from February 2014 through September 2015, MCCLATCHEY and 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.
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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MCCLATCHEY, 58, of Long Island, New York, pled guilty to one count of conspiracy to commit securities and wire fraud and one count of securities fraud. Each count carries a maximum sentence of 25 years in prison. The charges also carry 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 defendants will be determined by the judge.
Mr. Bharara praised the work of the FBI, and thanked the SEC.
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.
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Former CEO of Real Estate Investment Company Charged with Embezzling More Than $1 Million and Engaging in Tax EvasionRead 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 Shantelle P. Kitchen, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the arrest of ROCKWELL GAJWANI on charges of wire fraud, money laundering, and tax evasion. GAJWANI was arrested this morning by USPIS and IRS agents in Connecticut, and was presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Frank Maas.
U.S. Attorney Preet Bharara said: “As the chief executive officer of a Manhattan real estate company, Rockwell Gajwani was supposed to put the best interests of his company first. Instead, as alleged, he abused his position of authority to embezzle over a million dollars of company money. I thank the U.S. Postal Inspection Service and the IRS-CI for their work in this investigation.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “Mr. Gajwani exploited the trust of his employer and preyed on unsuspecting employees to allegedly steal company funds for his own personal benefit, while evading payment of income tax on those funds. Postal Inspectors and their law enforcement partners will never tolerate this egregious behavior and will vigorously pursue and bring to justice anyone who participates in this criminal activity.”
IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “Everyone is responsible for paying their fair share of taxes, whether their income is legal or illegal. IRS-Criminal Investigation is responsible for investigating allegations concerning individuals who are willfully not reporting their income and are evading the taxes they owe, and we take our roles as protectors of the tax system very seriously.”
As alleged in the Complaint unsealed today in Manhattan federal court:[1]
From October 2011 through March 2013, GAJWANI was the chief executive officer and president of a real estate investment company based in Manhattan (the “Manhattan Real Estate Company”). During this period, GAJWANI took over $1 million in company funds to which he was not entitled by, among other means, making wire transfers from the company’s bank account to his personal bank account, writing company checks to himself, and making cash withdrawals from the company’s bank account.
To accomplish this scheme, among other means, GAJWANI took steps to conceal his true salary and to conceal from the Manhattan Real Estate Company’s parent company (the “Parent Company”) the amount of money he had taken from the Manhattan Real Estate Company’s bank account.
In or about February 2012, GAJWANI asked an employee of the Manhattan Real Estate Company (“Employee-1”) to reduce GAJWANI’s salary to zero in the company’s payroll system, which Employee-1 did not do. Soon thereafter, GAJWANI asked Employee-1 to reduce his salary to $2,000 biweekly and did not provide an explanation to Employee-1 for this request. Ultimately, Employee-1 complied with this request and caused GAJWANI’s salary to be reduced in the payroll system from $26,923.07 on a biweekly basis – which reflects approximately GAJWANI’s agreed salary of $700,000 – to $2,000 on a biweekly basis.
Beginning in late 2012, the director of accounting for the Manhattan Real Estate Company (the “Director of Accounting”) asked GAJWANI for details regarding GAJWANI’s compensation on more than one occasion, and GAJWANI repeatedly said he would get such details to her, but failed to do so. On another occasion, in connection with a request from the Parent Company for financial information, GAJWANI told the Director of Accounting not to provide that information to the Parent Company. To further conceal the funds he had taken from the Manhattan Real Estate Company, GAJWANI directed employees of the Manhattan Real Estate Company to lump the compensation of all employees together in accounting materials provided to the Parent Company, so that GAJWANI’s compensation would not be listed separately from the aggregate figure. GAJWANI also directed certain employees of the Manhattan Real Estate Company not to communicate with employees of the Parent Company.
Over the course of his employment, GAJWANI wrote himself over $940,000 in checks from the Manhattan Real Estate Company’s bank account, and wired over $1,700,000 to his personal bank account. Although some of these funds were purportedly for expenses, by the end of his employment GAJWANI had taken over $1,300,000 more from the Manhattan Real Estate Company’s bank account than he was entitled to under his employment agreement.
GAJWANI also concealed his fraud on the Manhattan Real Estate Company by laundering the proceeds of his fraud. Specifically, on two occasions in May 2012, GAJWANI wrote checks to an employee of the Manhattan Real Estate Company (“Employee-2”) from the company’s bank account. GAJWANI wrote “expenses” in the memo line of each check, although neither check was meant to pay company expenses, and instructed Employee-2 to write a check in return directly to GAJWANI himself. Employee-2 did so on both occasions. In this manner, GAJWANI was able to secure over $30,000 in payments that GAJWANI appeared to receive from Employee-2 but in reality were funds GAJWANI had taken from the Manhattan Real Estate Company.
In addition to defrauding the Manhattan Real Estate Company and engaging in money laundering, GAJWANI did not file tax returns or pay taxes for his legitimate salary or for the money he had secured through fraud. Ultimately, in or about July 2015, after he learned of a criminal investigation, GAJWANI filed tax returns for calendar years 2011, 2012, and 2013. Each of those returns included false representations. For tax year 2011, the Federal Income Tax Return that GAJWANI filed understated GAJWANI’s actual income by more than $480,000, and included over $85,000 in false impermissible tax deductions. For tax year 2012, the Federal Income Tax Return that GAJWANI filed included over $260,000 in false impermissible tax deductions. For tax year 2013, the Federal Income Tax Return that GAJWANI filed underreported GAJWANI’s actual income by $270,000.
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GAJWANI, 52, of Darien, Connecticut, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison; one count of money laundering, which carries a maximum sentence of 20 years in prison; and three counts of tax evasion, each of which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by a judge.
Mr. Bharara praised the outstanding investigative efforts of law enforcement personnel at USPIS and IRS-CI.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Jonathan Cohen and Andrew D. Beaty are 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 Commissioner of Mount Vernon Water Department Sentenced to 15 Months in Prison for BriberyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ANTHONY BOVE, the former Commissioner of the Board of Water Supply of the City of Mount Vernon (the “Water Department”), was sentenced today to 15 months in prison for soliciting a $10,000 bribe from an employee of the Water Department, and lying to federal law enforcement officers when BOVE was interviewed during the investigation. BOVE pled guilty in White Plains federal court on March 22, 2016, before U.S. District Judge Vincent L. Briccetti, who imposed today’s sentence.
U.S. Attorney Preet Bharara said: “While entrusted to provide clean and safe water for the people of Mount Vernon, Anthony Bove looked out only for himself, demanding a bribe from one of his own employees for a promotion to which the employee was already entitled. For this shameful corruption, Bove has been sentenced to 15 months in prison.”
According to the Information, statements made in open court, and other documents in the public record:
BOVE was the Commissioner of the Water Department. The City of Mount Vernon (the “City”) annually receives in excess of $10,000 in federal funds from the United States government. The Water Department is responsible for serving City residents by, among other things, monitoring and treating the City’s water supply, repairing water main leaks, and reading water meters and generating water bills. In accordance with the City Charter, the Commissioner of the Water Department is appointed by the City’s Mayor, serves at the Mayor’s pleasure, and reports directly to the Mayor as the head of one of the City’s departments.
In the spring of 2015, while serving as the Water Commissioner, BOVE solicited a $10,000 bribe from a Water Department employee (“the Employee”) in exchange for approving the Employee’s promotion within the Water Department. The Employee, who was serving in a provisional capacity as the bookkeeper of the Water Department, had passed a civil service bookkeeping examination in order to become eligible for a permanent bookkeeping position at the Water Department. After receiving the test results, the Employee completed the necessary form to apply for the permanent bookkeeping position, and submitted it to BOVE for his approval and signature, which was required for the promotion to occur.
BOVE did not approve the application; instead, on April 14, 2015, BOVE told the Employee to meet him at Memorial Field in Mount Vernon. At Memorial Field, BOVE conveyed to the Employee that he would not approve the Employee’s promotion unless the Employee gave BOVE $10,000, and that the Employee could give BOVE half ($5,000) up front and pay the balance later. BOVE said that he would accept the remaining payments on installment: “So give me like, fucking like 20 dollars every fucking paycheck or whatever, you know.”
Following the April 14 meeting, BOVE called the Employee on multiple occasions to ask whether and when the Employee would pay him. The Employee did not make any payments to BOVE and the Employee’s application form seeking the permanent bookkeeping position remained unapproved for months. Ultimately, in the fall of 2015, after Mount Vernon’s incumbent mayor was defeated in the primary for the mayoral election and prior to the change in administrations (which resulted in BOVE being replaced as Water Commissioner), BOVE signed the form approving the Employee’s promotion, without having obtained any payment from the Employee.
On December 7, 2015, a Special Agent from the U.S. Department of Housing and Urban Development, Office of Inspector General (“HUD OIG”), and a Criminal Investigator from the U.S. Attorney’s Office for the Southern District of New York interviewed BOVE in connection with a federal investigation into whether BOVE had attempted to extort the Employee. During the interview, BOVE lied to the investigating agents, stating, in sum and substance, that he had never asked for money to approve a job promotion for anyone in his department.
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In sentencing BOVE, Judge Briccetti described BOVE’s conduct as “a disgrace.”
In addition to the prison sentence, Judge Briccetti ordered BOVE to pay a $10,000 fine and a $200 special assessment fee. BOVE also was sentenced to two years of supervised release.
Mr. Bharara praised HUD OIG and the Criminal Investigators of the U.S. Attorney’s Office for their outstanding work during this investigation.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorney George Turner is in charge of the prosecution.
Disbarred Orange County Attorney Indicted for Mail Fraud, Structuring Cash Transactions, Obstructing the IRS, Tax Evasion, Obstruction of Justice, and PerjuryRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Shantelle P. Kitchen, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing in White Plains federal court of a six-count Indictment of former Orange County Attorney JOSEPH G. SCALI for mail fraud, structuring cash transactions, obstructing the IRS, tax evasion, obstruction of justice, and perjury. SCALI was arrested this morning and is expected to be arraigned in federal court in White Plains this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Joseph Scali abused his position of trust as a lawyer and officer of the court, by stealing funds entrusted to him, obstructing the work of the IRS, and evading his tax obligations. We thank the IRS and Postal Inspection Service for their work in this investigation.”
IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “In the interest of ensuring that everyone pays their fair share of taxes, IRS-Criminal Investigation investigates individuals who allegedly unlawfully exploit the tax system for their own advantage. We especially take allegations of obstructing IRS officers from performing their lawful duties very seriously. Law abiding taxpayers will expect no less.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “Joseph Scali allegedly violated his ethical responsibilities and lied to the government to avoid taxes and disbarment. In all of his alleged lies, he underestimated the resolve of law enforcement to protect consumers from scammers whose only intention is to defraud for their personal gain.”
According to the Indictment[1] and other court filings related to this matter:
From January of 2011 through August 28, 2012, SCALI, who represented the seller of two tracts of land in Pennsylvania, schemed to defraud the prospective purchaser of that real estate of the $850,000 the latter had given to him to hold in escrow by misappropriating those funds from his attorney trust/escrow account. Additionally, the Indictment charges SCALI with structuring approximately $32,000 of cash deposits to that account.
The Indictment also charges that SCALI corruptly endeavored to obstruct the IRS by (a) providing materially false, incomplete, and misleading information to a Revenue Officer of the Internal Revenue Service, namely, false, misleading, and incomplete information as to the years for which he had filed tax returns in the past, the reasons why SCALI had not filed tax returns for certain years, and the amount of income received by SCALI during tax year 2012; (b) commingling client funds and personal funds in his Attorney Trust Account; (c) paying for personal items directly out of his Attorney Trust Account; (d) structuring cash deposits to his Attorney Trust Account; (e) failing to file U.S. Individual Income Tax Returns, Forms 1040, notwithstanding that he was required by law to file a return for each year (2006 through 2012); (f) failing to file U.S. Corporate Income Tax Returns, Forms 1120, for his law firm, Joseph G. Scali, P.C., notwithstanding that the law firm was required by law to file a return for each year (2006 through 2012); and (g) failing to maintain required records concerning his Attorney Trust Account. Additionally, the Indictment charges SCALI with income tax evasion for the 2012 year.
Finally, the Indictment charges that SCALI committed obstruction of justice and perjury when, in seeking to set aside his disbarment by the United States District Court for the Southern District of New York, he lied to that court about why, in 2013, he had been suspended from practicing law in New York by the Second Department of the Appellate Division of the New York State Supreme Court (“the Appellate Division”). SCALI was disbarred by the Appellate Division on July 6, 2016.
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SCALI, 67, of West Hartford, Connecticut, is charged with one count of mail fraud, which carries a maximum sentence of 20 years in prison; on count of structuring cash transactions, which carries a maximum sentence of five years in prison; one count of obstructing the IRS, which carries a maximum sentence of three years in prison; one count of tax evasion, which carries a maximum sentence of five years in prison; one count of obstruction of justice, which carries a maximum sentence of 10 years in prison; and one count of perjury, which carries a maximum sentence of five years in prison.
Mr. Bharara praised the work of the IRS and the Postal Inspection Service in this investigation.
This case is being handled out of the White Plains Division. Assistant United States Attorney Elliott B. Jacobson is 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.
[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.
- Indictment in U.S. v. Norman Seabrook and Murray Huberfeld
- Indictment in U.S. v. James Grant, Michael Harrington, Jeremy Reichberg
Andrew Caspersen Pleads Guilty in Manhattan Federal Court to Defrauding Investors of over $38 Million and Misappropriating over $8 Million from His Former EmployerRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ANDREW CASPERSEN pled guilty to defrauding investors of over $38 million and misappropriating over $8 million from his former employer. CASPERSEN pled guilty to one count of securities fraud and one count of wire fraud before U.S. District Judge Jed S. Rakoff.
Manhattan U.S. Attorney Preet Bharara stated: “Andrew Caspersen’s guilty plea today closes a sad chapter in a tale of deception and betrayal. Parlaying his privileged background, Caspersen concocted a wild fraud scheme that involved made-up private equity ventures, fake email addresses, and fictional financiers. Through a litany of lies, Caspersen took millions from unwitting investors, including some of his own family and friends.”
According to allegations contained in the Information filed against CASPERSEN and statements made in related court filings and proceedings:
The Scheme to Defraud Investors
Beginning in November 2014 and continuing until his arrest in March 2016, CASPERSEN engaged in a Ponzi-like scheme to defraud investors, including his close friends, family members, and college classmates, by falsely claiming that their funds would be used to make secured loans to private equity firms and would thereby earn an annual rate of return of 15 to 20 percent. In total, CASPERSEN attempted to defraud more than a dozen investors of nearly $150 million. As a result of the false and fraudulent representations made by CASPERSEN, investors wired a total of approximately $38.5 million to shell company bank accounts controlled by CASPERSEN. In truth and in fact, CASPERSEN never used investor funds to make the secured loans that had been promised. Instead, CASPESEN used investor funds for purposes that investors had not authorized, including to make securities trades in his own brokerage account and to make periodic interest payments to earlier investors.
In order to carry out his scheme to defraud investors, CASPERSEN incorporated entities with names closely resembling those of legitimate private equity funds (the “Legitimate Funds”). However, the entities incorporated by CASPERSEN (the “Fake Funds”) were merely shell companies created by CASPERSEN solely for the purpose of perpetrating his fraud scheme, and were in no way affiliated with or authorized by the Legitimate Funds. CASPERSEN opened and controlled bank accounts for each of the Fake Funds (the “Fake Fund Accounts”).
In soliciting investments in the Fake Funds, CASPERSEN made the following false representations to investors, among others: in recognition for his prior work with Park Hill Group, CASPERSEN had been offered a “friends and family” investment allocation in a security that was allegedly offered by a private equity firm; CASPERSEN was personally investing in the security, and offering it to his family and a limited number of friends; the investment was a credit facility secured by a portfolio of assets owned by one of the Legitimate Funds; the investor would receive quarterly interest payments, ranging from 15 to 20 percent; the investment was practically risk-free, as the loaned funds would remain in a bank account; the investor could withdraw the principal at any time with 90 days’ notice; and investor funds should be wired to one of the Fake Fund Accounts. The purported involvement of the Legitimate Funds was an attractive selling point for investors.
As the scheme evolved, CASPERSEN also made additional misrepresentations in soliciting investors in connection with a purported investment opportunity in one of the Fake Funds CASPERSEN had created (“Fake Firm-5 Fund”) to resemble one of the Legitimate Funds (“Firm-5 Fund”). CASPERSEN had been employed at a multinational firm as an investment principal from 2003 through 2012 (“Firm-1”). According to CASPERSEN’s false statements to investors, Firm-1 wanted to purchase secondary ownership interests in Firm-5 Fund. Due to uncertainty that Firm-1 could buy out all the original investors, Park Hill Group offered to make a loan to Firm-1, and Firm-1 agreed to take a loan from Park Hill Group. CASPERSEN and Park Hill Group were working on behalf of Firm-1 to solicit investors for the loan, but, at some point after Firm-1 agreed to take the loan, it transpired that Firm-1 did not need the loan in order to purchase the secondary private equity interests. However, because Firm-1 had already agreed to the loan, Firm-1 was obligated to pay interest on the loan. CASPERSEN told potential investors that the loan was risk-free, as it was collateralized by the assets of Firm-1. As with the earlier solicitations in the Fake Funds, investors were similarly misled by the purported involvement of the legitimate Firm-5 Fund in this investment.
To carry out the scheme, CASPERSEN registered a domain name and created a fake email address to make it appear that a “John Nelson” from Firm-1 was communicating with investors. CASPERSEN obtained recent quarterly and annual reports for the Legitimate Funds, and sent such reports to prospective investors to induce them into believing that their investments would be secured by the assets of the Legitimate Funds, when in fact they were not. CASPERSEN also drafted promissory notes between investors and the Fake Funds, in which CASPERSEN made one or more of the following misrepresentations, among others: the Fake Fund would pay the investor his or her principal “in immediately available funds” together with interest on the unpaid principal; the interest on the outstanding unpaid balance would accrue at an annual rate of 15 to 20 percent; interest would be paid quarterly; upon 90 days’ notice to the Fake Fund, the investor may redeem his or her principal; and the Fake Fund “shall maintain cash or cash equivalents in an amount equal to or greater than” the total of the outstanding principal and accrued but unpaid interest.
In connection with the scheme, CASPERSEN received approximately 18 payments, in a total amount of approximately $38.5 million, from more than 10 individuals and entities for investments in the Fake Funds. Notwithstanding CASPERSEN’s statements to the contrary, CASPERSEN never used any investor funds to make any loan to any entity, or otherwise invest in any fund or investment vehicle associated with any private equity fund. Rather, CASPERSEN operated a Ponzi-like scheme in which he misappropriated investor funds from the Fake Fund Accounts and converted them to his own use and use by others, including by using investor funds to meet CASPERSEN’s periodic interest payment commitments to earlier investors. CASPERSEN transferred the funds he received from investors into his personal brokerage accounts, and used the funds to execute securities trades for his own benefit. Specifically, CASPERSEN traded heavily in options, including options based on the Standard & Poor’s Depository Receipts S&P 500, an exchange-traded fund based on the S&P 500 with ticker symbol “SPY,” and options based on PowerShares QQQ, an exchange-traded fund based on the Nasdaq 100 Index. For example, CASPERSEN’s trades of SPY options with November 2015 expiration dates caused approximately $14.5 million in losses. By mid-February 2016, as a result of CASPERSEN’s trading activity, his brokerage account contained approximately $112.8 million in cash, an amount which would have been more than sufficient for CASPSERSEN to repay all of his investors. Rather than repay his investors, however, CASPERSEN continued trading in options based on the performance of the S&P 500 Index. From February 11, 2016, through March 9, 2016, CASPERSEN lost approximately $108.2 million in options trading.
The Scheme to Divert Funds from the Park Hill Group
From January 2013 through March 2016, CASPERSEN was employed in the secondary advisory group at Park Hill Group. In July 2015, CASPERSEN opened a bank account under the name “PHG Operating LLC,” which was controlled by CASPERSEN for his own benefit and was unknown to Park Hill Group (the “Fake PHG Account”).
In September 2015, following instructions provided by CASPERSEN, Firm-5 sent a wire transfer in the amount of $8,137,453, representing payment for legitimate work that Park Hill Group had done, to the Fake PHG Account, believing it to be a legitimate account used by Park Hill Group. On or about the same day, CASPERSEN transferred $8 million from the Fake PHG Account to his brokerage account, in order to execute trades in securities for his own benefit, largely in SPY options. In November 2015, CASPERSEN transferred approximately $8.1 million to an account belonging to Park Hill Group, thereby replacing the payment from Firm-5 that he had misappropriated. The $8.1 million transfer was traceable to funds that CASPERSEN had obtained by defrauding investors as described above. Also in the fall of 2015, CASPERSEN engaged in a similar fraud with respect to a $762,267 payment that he misappropriated from Park Hill Group, and later repaid using the proceeds of his securities fraud scheme.
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CASPERSEN, 39, pled guilty to one count of securities fraud and one count of wire fraud. Each count carries a maximum term of 20 years in prison. The maximum fine on these counts is $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.
CASPERSEN’s sentencing is scheduled for November 2, 2016.
Mr. Bharara praised the work of the Office’s criminal investigators, and thanked the Securities and 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 Christine I. Magdo is in charge of the prosecution.
Bronx Tax Preparer Pleads Guilty to 13 Counts of Preparing and Filing False and Fraudulent Tax ReturnsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Shantelle P. Kitchen, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), announced that CHRISTOPHER AHERN pled guilty today to a 13-count Information, charging him with preparing false and fraudulent income tax returns for his clients. According to the Information, AHERN filed tax returns that fraudulently claimed more than $4.7 million in credits and expenses. AHERN pled guilty today before United States District Judge Deborah A. Batts.
Manhattan U.S. Attorney Preet Bharara said: “By repeatedly filing fraudulent tax returns for his clients, Christopher Ahern committed federal crimes and deprived the government of close to $5 million in taxes. We remain committed to charging and convicting those who commit and facilitate tax fraud.”
IRS-CI Special Agent in Charge Shantelle P. Kitchen said: “Unscrupulous income tax return preparers hurt not only their clients, who are ultimately responsible for what is reported on their tax returns, but all law-abiding taxpayers, who have to shoulder an additional burden. Accordingly, the investigation of unscrupulous preparers remains one of the top priorities for IRS-Criminal Investigation. Today, Mr. Ahern is held accountable for his egregious practices.”
According to the allegations in the Information to which AHERN pled guilty, and statements made during his plea 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 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. AHERN received more than $1.5 million in fees from his clients for preparing and filing the fraudulent returns.
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AHERN, 40, of Little Neck, New York, pled guilty to 13 counts of making and presenting false, fictitious, and fraudulent claims to the United States, each of which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
AHERN is scheduled to be sentenced on November 1, 2016, at 11:00 a.m., before Judge Batts.
Mr. Bharara praised the investigative work of IRS-CI.
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.
Manhattan U.S. Attorney Announces Charges Against Members of the Honduran National Police for Drug Trafficking and Related Firearms OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Mark Hamlet, Special Agent in Charge of the Special Operations Division of the United States Drug Enforcement Administration (“DEA”), announced that six members of the Pólicia National de Honduras, i.e., the Honduran National Police, were charged today in Manhattan federal court in a Superseding Indictment with conspiring to import cocaine into the United States and related firearms offenses. The six defendants are Ludwig Criss Zelaya Romero, Mario Guillermo Mejia Vargas, Juan Manuel Avila Meza, Carlos Jose Zavala Velasquez, Victor Oswaldo Lopez Flores, and Jorge Alfredo Cruz Chavez. The case is pending before U.S. District Judge Lorna G. Schofield, before whom co-defendant Fabio Porfirio Lobo, the son of former Honduran president Porfirio Lobo Sosa, pled guilty to a related drug-trafficking crime on May 16, 2016.
Manhattan U.S. Attorney Preet Bharara said: “Today, we charge six officers of the Honduran National Police with participating in a massive drug trafficking conspiracy that allegedly flooded the United States with cocaine. As alleged, through bribes to public officials and leaked information about ongoing investigations and law enforcement checkpoints, these defendants agreed to ensure the safe passage of tons of cocaine through the jungles of Honduras on their way to American cities. We thank the DEA for their work in this important drug enforcement investigation.”
According to the allegations contained in the Superseding Indictment[1], other court filings, and statements made during court proceedings:
Between approximately 2004 and approximately 2014, multiple drug-trafficking organizations in Honduras and elsewhere worked together, and with support from the defendants and others, to receive multi-hundred-kilogram loads of cocaine sent to Honduras from Venezuela and Colombia via air and maritime routes, and to transport the drugs westward in Honduras toward the border with Guatemala and eventually to the United States. For protection from official interference, and in order to facilitate the safe passage through Honduras of multi-hundred-kilogram loads of cocaine, drug traffickers paid bribes to public officials – including certain members of the Pólicia National de Honduras – for access to information about ongoing investigations, military and law enforcement checkpoints, and planned narcotics interdictions. The Honduran government recently declared an “emergency situation” with respect to the Pólicia National de Honduras, and established a Special Commission with authority to investigate corruption and dismiss or suspend members of the National Police, among other sanctions. As of the filing of this Superseding Indictment, the Special Commission has sanctioned several members of the Pólicia National de Honduras.
The defendants were members of the Pólicia National de Honduras who participated in and supported the drug-trafficking activities of, among others, Lobo. In approximately early 2014, Lobo agreed to provide security and logistical support for the transportation through Honduras of a purported multi-ton load of cocaine that Lobo believed belonged to Mexico’s Sinaloa Cartel and would be imported into the United States. Lobo agreed to provide this assistance on the understanding that he would receive a financial stake in the cocaine worth over $1 million in profits. In or about June 2014, Lobo introduced two individuals that he understood to be Mexican drug traffickers to the six defendants. During a meeting, the defendants displayed a map of Honduras and illustrated law enforcement checkpoints and a planned route for the cocaine. During the same meeting, the defendants each also agreed to accept a bribe in the amount of approximately $100,000, and to pay their subordinates a total of approximately $200,000 in additional bribes, in order to provide armed security for the cocaine as it transited Honduras before being imported into the United States.
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Zelaya Romero, 39, Mejia Vargas, 46, Avila Meza, 45, Zavala Velasquez, 44, Lopez Flores, 43, and Cruz Chavez, 39, have each been charged with: (1) conspiring to import cocaine into the United States, and (2) conspiring to use and carry firearms during and in relation to, and to possess firearms in furtherance of, the cocaine-importation conspiracy. Zelaya Romero is also charged with using and carrying machine guns and destructive devices during and in relation to, and possessing machine guns and destructive devices in furtherance of, the cocaine-importation conspiracy charged in the Superseding Indictment. If convicted, Zelaya Romero faces a mandatory minimum sentence of 40 years in prison and a maximum term of life in prison, and the remaining defendants face a mandatory minimum sentence of 10 years in prison and a maximum term of life in prison. The defendants remain at large.
Lobo, who was arrested in the Republic of Haiti on May 20, 2015, and arrived in the United States on May 21, 2015, pled guilty before Judge Schofield on May 16, 2016, to conspiring to import cocaine into the United States. Lobo is scheduled to be sentenced on September 15, 2016, and faces a mandatory minimum sentence of 10 years in prison and a maximum term of life in prison.
The potential mandatory minimum and maximum sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the Special Operations Division of the DEA, and the U.S. Department of Justice’s Office of International Affairs, for their ongoing assistance.
This case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Emil J. Bove III, Matthew J. Laroche, and Michael D. Lockard are in charge of the prosecution.
The charges in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Superseding Indictment, and the description of the Superseding Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
U.S. Attorney Charges Camp Counselor with Sexual Exploitation of MinorRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Division of the Federal Bureau of Investigation (“FBI”), announced today the arrest of MICHAEL BRYANT MARIN. MARIN is charged with communicating with an underage victim online and convincing her to take and send sexually explicit photographs and videos to MARIN online. MARIN was arrested this morning and presented today before U.S. Magistrate Judge Lisa Margaret Smith in White Plains federal court.
Manhattan U.S. Attorney Preet Bharara said: “Michael Marin’s alleged crimes are the nightmare of every parent. Using an easily accessible instant messaging application, Marin allegedly terrorized a middle-school student in her home and her school with threats to humiliate her if she refused his demands for sexually explicit photographs and videos. We will continue to do everything we can, with our partners at the FBI, to investigate and prosecute those who sexually exploit children.”
FBI Assistant Director Diego Rodriguez said: “Most teenagers are excited about summer and vacation, but as alleged, the victim in this case, and others we may not know about yet, are overcoming an atrocious ordeal no young child should ever have to experience. Parents need to talk with their children about being safe online, and making sure they know the minute anyone approaches them in a deviant way, they should immediately contact a trusted adult. We are also asking anyone who may have been contacted by the subject in this case to contact the FBI.”
According to the Complaint[1] unsealed today in White Plains federal court:
In or about March 2016, MARIN communicated online via Kik and through text messages with a 13-year-old minor female (“Victim-1”) in New Mexico, and convinced Victim-1 to take and send sexually explicit photographs and videos of herself to MARIN.
During his communications with Victim-1, MARIN utilized the screen name “mike___2016,” as well as another account associated with the phone number 914-920-1974. Further, while communicating with Victim-1, MARIN posed as a minor and threatened Victim-1 that if she did not send additional photos and/or videos, he would publicly post the photos and/or videos she had already sent to MARIN on social media sites such as Facebook, Twitter, and Instagram. MARIN also demanded that Victim-1 act as his “slave,” first attempting to pay Victim-1 and then threatening to post nude photos and videos of Victim-1 if she did not send him the specific photos and/or videos MARIN requested whenever he requested them. As part of this demand, MARIN instructed Victim-1 to photograph and film herself engaging in a number of sexually explicit acts, including bestiality with a pet cat and taking nude photos of herself in her school bathroom.
According to statements made during MARIN’s presentment this afternoon, MARIN is currently employed as a camp counselor in Greenwich, Connecticut.
There may be more victims of this alleged conduct. If you have information to report, contact the Federal Bureau of Investigation’s White Plains Resident Agency at 914-989-6000.
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MARIN, 18, of Port Chester, New York, is charged with one count of sexual exploitation of a minor, which carries a minimum sentence of 15 years in prison and a maximum sentence of 30 years in prison. The statutory maximum 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.
Mr. Bharara praised the efforts of the Federal Bureau of Investigation, the Santa Fe County Sherriff’s Office, and the Santa Fe City Police Department in connection with this investigation. He added that the investigation is ongoing.
The prosecution is being handled by the Office’s White Plains Division. Assistant United States Attorney Maurene Comey is in charge of the prosecution.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Charges Three Defendants with Participating in Multimillion-Dollar Fraud on Film InvestorsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of charges against JAMES DAVID WILLIAMS, STEVEN BROWN, and GERALD SEPPALA for allegedly defrauding victims out of more than $12 million as part of an advance fee scheme in which victims were asked to invest in film projects based on false promises and misrepresentation. The Indictment charges WILLIAMS, BROWN, and SEPPALA with wire fraud and wire fraud conspiracy, and WILLIAMS and BROWN are also charged with laundering the proceeds of this fraud. WILLIAMS was arrested this morning in Los Angeles, California, and is expected to be presented and arraigned later today in the Central District of California before United States Magistrate Judge Jacqueline Chooljian. BROWN was arrested in this morning in New York City and is expected to be presented and arraigned in the Southern District of New York before United States Magistrate Judge James L. Cott. SEPPALA was arrested this morning in Wayzata, Minnesota, and was presented and arraigned this afternoon in the District of Minnesota before United States Magistrate Judge Becky R. Thorson.
Manhattan U.S. Attorney Preet Bharara said: “With lies about making feature-length films and documentaries, the defendants allegedly defrauded victims into investing over $12 million with them. Rather than making movies, the defendants perpetrated an advance fee scheme, allegedly using the investors’ money to pay themselves and pay other investors back.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “As alleged, Williams, Brown, and Seppala didn’t provide marketing expertise to feature films or invest their own millions into film projects as they promised investors. Rather, they defrauded and deceived to acquire more than $12 million of investor funds to pay back previous duped investors or fund personal expenses. Any level of fraud to honest investors is wrong, whether it’s a fraud in the hundreds of dollars or millions dollars.”
According to the Indictment unsealed in Manhattan federal court:[1]
From at least 2012 through June 2016, JAMES DAVID WILLIAMS, STEVEN BROWN, and GERALD SEPPALA participated in an advance fee scheme in which WILLIAMS and BROWN portrayed themselves as experts in the marketing of feature-length films and documentaries and, along with SEPPALA, solicited investments in these films from investors by typically promising guaranteed returns and participation in profits, which never materialized.
In order to solicit these investments, WILLIAMS, BROWN, and SEPPALA made material misrepresentations about, among other things, their own investments in the films for which they were soliciting money, as well as investments that they claimed to have received from other investors. To support their claims, WILLIAMS, BROWN, and SEPPALA frequently sent the victims falsified financial records that reflected investments that had never actually been made. For example, in an effort to secure a $2 million investment in one of the movies from one individual (“Victim-1”), WILLIAMS assured Victim-1 that WILLIAMS himself had also contributed $2 million of his own money to the project. As proof of WILLIAMS’s purported investment, WILLIAMS sent Victim-1 what appeared to be a bank statement showing a balance of just over $1.9 million in the account maintained for the movie, which represented, according to WILLIAMS, what was left of his $2 million after some initial expenditures. True and accurate records for that account, however, show that on the date WILLIAMS sent that statement to Victim-1, there was actually no money in the account and, indeed, there was never any money in that account until Victim-1 provided the solicited $2 million investment.
Similarly, in an effort to get another individual (“Victim-2”) to invest $500,000 in another movie, WILLIAMS represented that WILLIAMS had invested $3 million of his own money, while BROWN claimed to have invested an additional $500,000 of his own money as well. BROWN and WILLIAMS also told Victim-2 that the entire investment would be guaranteed by a company called “Woodlawn Holdings” (“Woodlawn”). In support of these claims, BROWN sent Victim-2’s attorney a letter from someone who claimed to be a “Managing Member” (“Individual-1”) at Woodlawn guaranteeing Vicitm-2’s investment, while WILLIAMS sent what appeared to be a bank statement for the company responsible for producing the movie, showing a balance of more than $3.5 million. Subsequent investigation, however, revealed that no one with Individual-1’s name worked at Woodlawn, nor had representatives at Woodlawn heard of WILLIAMS, BROWN, SEPPLA, or the movie they claimed to be making. In addition, true and accurate records from the relevant bank account revealed that there was only $500,200 in the account at the time that WILLIAMS sent Victim-2 the statement showing a balance of more than $3.5 million. Furthermore, the other money in that bank account was from neither WILLIAMS nor BROWN.
In total, WILLIAMS, BROWN, and SEPPALA solicited more than $12 million from their victims that was allegedly to be used for either marketing or production costs associated with the various films. In reality, however, the money that was received from these investors was used to fund other projects, pay back previously defrauded investors, or pay the personal expenses of WILLIAMS, BROWN, and SEPPALA, including, among other things, the purchase of a car and a house for WILLIAMS.
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WILLIAMS, 54, of Calabasas, California, and BROWN, 46, of Santa Monica, California, are each charged with one count of conspiring to commit wire fraud, one count of wire fraud, and one count of conspiring to commit money laundering. SEPPALA, 47, of Wayzata, Minnesota, is charged with one count of conspiring to commit wire fraud and one count of wire fraud. Conspiring to commit wire fraud and wire fraud each carry a maximum term of 20 years in prison. Conspiring to commit money laundering carries a maximum term 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 defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation.
If you believe you are a victim of the above-described fraud, please call the FBI at 212-384-1000 or email [email protected]. This email account is taking tips only on these alleged crimes.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Patrick Egan 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.
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[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 Energy Investor Pleads Guilty to Tax Fraud Schemes Involving Evasion of over $45 Million of Income and Other TaxesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MORRIS E. ZUKERMAN, a Manhattan businessman who owns companies involved in energy investments, pled guilty today to charges detailing ZUKERMAN’s involvement in multi-year tax fraud schemes pursuant to which he evaded over $45 million in income taxes and other taxes. ZUKERMAN entered his plea before U.S. District Judge Analisa Torres.
U.S. Attorney Preet Bharara said: “As his admissions today made clear, Morris Zukerman took numerous pages from the tax evader’s playbook: he illegally evaded tens of millions of dollars of corporate income taxes from the $130 million sale of an oil company; he prepared personal tax returns for himself and family members that falsely claimed millions of dollars in deductions; he evaded employment taxes for household employees; and he schemed to defraud and obstruct the IRS auditors who were examining his false tax returns. After years of finding every way to avoid his tax obligations, Zukerman has finally been forced to admit to his criminal tax evasion. I thank the New York Field Office of the Internal Revenue Service, Criminal Investigation Division, and the New York Office of the U.S. Postal Inspection Service for bringing Zukerman’s breathtaking tax fraud schemes to a just conclusion.”
According to the Indictment, today’s plea proceedings in Manhattan federal court, and other court filings related to this matter:
ZUKERMAN, the principal of M.E. Zukerman & Co. (“MEZCO”), an investment firm located in Manhattan, schemed to evade taxes based on income received from the January 2008 sale of a petroleum products company (the “Oil Company”) he co-owned (through a MEZCO subsidiary) with a public company. ZUKERMAN schemed to evade the reporting of the sale – which resulted in the receipt by the MEZCO subsidiary of $130 million in gross sales proceeds – by falsely telling his accountants in mid-2008 that he had transferred ownership of the MEZCO subsidiary to a family trust in early 2007. In support of the story he gave to the accountants, ZUKERMAN created backdated documents such as promissory notes and a board resolution purporting to show the transfer of the subsidiary to his family trust in 2007. The false documents allowed ZUKERMAN to remove the MEZCO subsidiary from the consolidated tax reporting being handled by the accountants for MEZCO and thereby evade the reporting to the IRS of the sale of the Oil Company, as well as the payment of over $35 million in corporate income taxes.
Following the sale of the Oil Company, ZUKERMAN transferred the proceeds of the sale from the MEZCO subsidiary to his family trust and various corporations he controlled, including a company called Zukerman Investments. Between 2008 and 2013, ZUKERMAN directed that over $50 million of the funds transferred to Zukerman Investments be used to purchase paintings by European artists from the 15th through the 19th centuries (the “Old Master paintings”), which ZUKERMAN used to decorate his Upper East Side apartment and the apartments of two family members – Family Member-1 and Family Member-2.
ZUKERMAN schemed to evade personal income taxes and to obstruct the IRS by (i) causing various tax return preparers to prepare U.S. Individual Income Tax Returns for ZUKERMAN and his wife, and for Family Member-1, Family Member-2, and Family Member-3, that claimed, in the aggregate, millions of dollars of false and fraudulent deductions and expenses, such as phony charitable contributions and investment interest expenses; (ii) diverting, for personal use, corporate assets from MEZCO and other corporate entities ZUKERMAN controlled by directing that hundreds of thousands of dollars of fees be paid between 2007 and 2013 to Family Member-1, Family Member-2, and Family Member-3, for which the family members performed little or no work; (iii) directing that corporate funds be used to pay compensation to, and health care insurance for, a household employee of ZUKERMAN, whom ZUKERMAN also caused to be falsely identified as a MEZCO employee to ZUKERMAN’s corporate health care provider when, in truth and in fact, the household employee worked exclusively out of ZUKERMAN’s homes in New York City and in Maine as a domestic employee; (iv) falsely under-reporting employment taxes through the payment of hundreds of thousands of dollars of cash and other wages to ZUKERMAN’s domestic employees; and (v) providing false information to the IRS during audits in an attempt to fraudulently convince IRS auditors and other IRS employees that the fraudulent claims made on his previously filed tax returns were accurate when, in truth, they were not.
The False Charitable Contribution Deductions for the 2009 & 2011 Tax Years
ZUKERMAN’s fraudulent charitable contribution deductions – totaling $1 million – arose out of a real estate transaction in 2009 and 2010, pursuant to which ZUKERMAN purchased approximately 240 acres of property on Black Island, a small island located off the coast of Maine, close to ZUKERMAN’s home on a nearby island. ZUKERMAN was enlisted to purchase the Black Island property by a Maine-based land conservation entity named the Maine Coast Heritage Trust (“MCHT”), which was seeking to orchestrate the purchase for conservation purposes. After considering making a charitable contribution to the MCHT intended to be used to purchase the property, ZUKERMAN decided instead to purchase the land as the outright owner for the benefit of himself and his family for $1 million through a newly formed limited liability company he solely owned. ZUKERMAN, however, falsely told his tax return preparer that the $1 million he paid for the property should be declared on his personal income tax returns as a charitable contribution to the MCHT during the 2008 and 2010 tax years. ZUKERMAN subsequently signed the false 2008 and 2010 tax returns and caused them to be filed with the IRS.
The False Investment Interest Expense Deductions Relating to the Corporate Loans
ZUKERMAN orchestrated the creation of hundreds of thousands of dollars of fraudulent “investment interest expense” deductions on his own tax returns and those of three family members. ZUKERMAN accomplished this by falsely telling his tax preparers that payments made from the personal bank accounts of ZUKERMAN and his family members to a California bank were made to legitimately satisfy loan interest payments owed by one of his California companies. In fact, although the interest payments were initially made from the bank accounts of ZUKERMAN and those of his family members (whose accounts ZUKERMAN controlled), ZUKERMAN secretly took funds from the bank account of the California corporation that owed the interest payments and reimbursed himself and his family members. In addition, because the corporation that owed the interest payments had claimed the interest indebtedness as an expense on its corporate tax returns, ZUKERMAN’s claiming of the same expenses on his own tax returns and those of his family members constituted fraudulent double deductions.
The Audit Fraud
In seeking to obstruct and defraud the IRS during an audit of one of ZUKERMAN’s companies, ZUKERMAN used two attorneys from a law firm in Washington, D.C., to convey a false narrative to an IRS Appeals officer, who was undertaking a review of ZUKERMAN’s challenge to an adverse determination made by an IRS auditor during the corporate audit. Pursuant to a “crime-fraud” ruling by the United States District Court for the Southern District of New York, and affirmed by the Second Circuit Court of Appeals, ZUKERMAN’s companies were required to disclose to the grand jury all of the communications between ZUKERMAN and the two attorneys that led to the submission to the IRS of the false factual narrative. ZUKERMAN’s two attorneys were also required to provide grand jury testimony about the false information provided by Zukerman, which had been provided to the IRS as part of Zukerman’s efforts to deceive the IRS.
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ZUKERMAN, 72, of New York, New York, pled guilty to one count of tax evasion, which carries a maximum sentence of five years in prison, and one count of obstructing the IRS, which carries a maximum sentence of three years in prison. Each of the charges also carries a maximum fine of $250,000, or twice the gross gain or loss from the offense.
As part of Zukerman’s plea agreement with the Government, he agreed to pay a minimum of $37 million to the IRS as a result of his corporate and individual tax fraud activities. Zukerman separately agreed to pay to New York State over $4.6 million based on a related tax fraud scheme he carried out, through his companies, that resulted in the evasion of New York State sales and use taxes owed in connection with Zukerman’s purchase of dozens of 17th and 18th century ‘Old Master’ paintings, as well as jewelry.
Judge Torres set December 5, 2016, as the date for sentencing.
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 investigative work of the IRS and the U.S. Postal Inspection Service.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Stanley J. Okula and Edward Imperatore are in charge of the prosecution.
Long Island Doctor Sentenced to 17 Years in Prison for Sexual Exploitation of A MinorRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that HASSAN KHAN, a Long Island medical doctor, was sentenced on Friday, June 24, 2016, to 17 years in prison for sexual exploitation and enticement of a minor. In January 2016, KHAN pled guilty before United States District Judge Jed S. Rakoff to one count of coercion and enticement of a minor to engage in illegal sexual activity. Judge Rakoff imposed Friday’s sentence.
U.S. Attorney Preet Bharara said: “The 17-year sentence imposed on Hassan Khan is a measure of his appalling crime. We will continue to use every resource available to investigate and prosecute those who sexually exploit children.”
According to documents filed in this case and statements made in related court proceedings:
Starting in 2007, KHAN began to communicate online with a then 11-year-old girl (the “Victim”). Between 2007 and 2013, KHAN, who was aware of the age of the Victim, coerced and enticed her to engage in illegal sexual activity. KHAN engaged in sexual acts with the minor Victim and traveled abroad to do so. KHAN further coerced and enticed the Victim to engage in sexually explicit conduct via live video chats.
At the time of his arrest, on September 3, 2015, KHAN was working as a medical doctor.
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In addition to the 17-year prison term, KHAN, 28, of Mineola, New York, was sentenced to 10 years of supervised release.
Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Alex Rossmiller is in charge of the prosecution.
Senior Auction Official at Beverly Hills Auction House Sentenced to Prison for Wildlife TraffickingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and John C. Cruden, the Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice, announced that JOSEPH CHAIT, the senior auction administrator of I.M. Chait Gallery, located in Beverly Hills, California, was sentenced today to one year and one day in prison and a $10,000 fine for conspiring to smuggle wildlife products made from rhinoceros horn, elephant ivory, and coral with a market value of at least $1 million. On March 9, 2016, CHAIT pled guilty to a two-count Information before U.S. District Judge J. Paul Oetken, who imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara stated: “By illegally trafficking in wildlife, including rhinoceros horns, Joseph Chait and his co-conspirators have fueled the illegal trade in endangered wildlife. Chait’s conduct, a federal crime for which he will now spend time in prison, threatened the already precarious existence of certain endangered species of animals.”
Assistant Attorney General John C. Cruden stated: “Conspiring in the trafficking of endangered wildlife is a serious crime, and those involved in the auction industry should take note that facilitating this trade can result in prison. The African Elephant, the rhinoceros, and coral are all deeply threatened species that have undergone dramatic losses in recent decades as the trade in them has become highly lucrative. We must stop this trade, and we will vigorously investigate and prosecute those engaged in it.”
According to allegations contained in the Information and statements made in court filings and proceedings:
CHAIT and his co-conspirators engaged in illegal trafficking of wildlife with a market value of at least $1 million. CHAIT personally falsified customs forms by stating that rhinoceros horn and elephant ivory items were made of bone, wood, or plastic. For example, during Asia Week in New York City in or about March 2011, CHAIT was approached by an undercover special agent with the U.S. Fish & Wildlife Service about the potential sale of a carving of Guanyin, an East Asian spiritual figure, made from rhinoceros horn (the “Rhino Carving”). Despite knowing that it was not a genuine antique, CHAIT and his co-conspirators accepted the Rhino Carving for consignment, advertised the sale to foreign clients in China, and put the Rhino Carving on the cover of I.M. Chait Gallery’s catalogue in connection with an auction of Asian art and antiques. After the Rhino Carving sold at auction for $230,000 to another undercover agent, CHAIT offered to make a false document for the buyer to help the buyer smuggle the item out of the country. The fake invoice falsely stated that the item cost $108.75 and was made of plastic.
CHAIT also sold rhinoceros ivory carvings to another customer, and provided those carvings to that customer’s courier, even after learning that the customer had been arrested in China for smuggling ivory purchased from CHAIT’s auction house.
In addition to falsifying customs forms by stating that rhinoceros horn and elephant ivory items were made of bone, wood, or plastic, CHAIT and his co-conspirators conducted their wildlife smuggling using a variety of methods:
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Wildlife items were shipped to or picked up by third party shippers, who then re-shipped the items out of the country without the required declaration or permits.
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Members of the conspiracy provided packing materials to foreign wildlife buyers to assist them in hand carrying the wildlife out of the country.
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Foreign wildlife buyers were sold protected wildlife items without being assessed a state sales tax if they showed a foreign passport and itinerary for an international flight as proof the item would be leaving the country.
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Protected wildlife was smuggled into the United States without declaration or permits, and then sold at auction by members of the conspiracy.
As a result of a recent Presidential Executive Order, trade in protected wildlife such as rhinoceros horn and elephant ivory has been significantly restricted in the last two years, except for those instances where sellers can prove that the item is a genuine antique that is more than 100 years old.
Rhinoceros are an herbivore species of prehistoric origin and one of the largest remaining mega-fauna on earth. They have no known predators other than humans. All species of rhinoceros are protected under U.S. and international law. Since 1976, trade in rhinoceros horn has been regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”), a treaty signed by over 170 countries around the world to protect fish, wildlife, and plants that are or may become imperiled due to the demands of international markets.
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In addition to the term of prison, CHAIT, 38, of Beverly Hills, California, was sentenced to three years of supervised release and was ordered to pay a $10,000 fine.
Mr. Bharara praised the efforts of the U.S. Fish and Wildlife Service for its outstanding work in this investigation.
This case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit and the Environmental Crimes Section of the Department of Justice. Assistant United States Attorneys Jennifer Gachiri and Elizabeth Hanft, and Senior Litigation Counsel Richard A. Udell with the Environmental Crimes Section of the Department of Justice, are in charge of the prosecution.
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New York City Pharmacy Owner Arrested for $8.5 Million Fraud as Part of Largest National Medicare Fraud Takedown in HistoryRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Scott J. Lampert, the Special Agent-in-Charge of the New York Office of the Department of Health and Human Services, announced today that SAJID JAVED was charged with participating in a health care fraud scheme that used nine pharmacies in Brooklyn and Queens, New York, through which JAVED submitted more than $8.5 million in fraudulent claims to Medicaid and Medicare. JAVED’s arrest is part of an unprecedented nationwide sweep led by the Medicare Fraud Strike Force, resulting in criminal and civil charges against 301 individuals, including 61 doctors, nurses, or other licensed medical professionals, for their alleged participation in health care fraud schemes involving approximately $900 million in false billings. Twenty-three state Medicaid Fraud Control Units also participated in today’s arrests. In addition, the HHS Centers for Medicare & Medicaid Services (“CMS”) also suspended a number of providers using its suspension authority provided in the Affordable Care Act. This coordinated takedown is the largest in the history of the Medicare Fraud Strike Force, both in terms of the number of defendants charged and loss amount.
JAVED was arrested earlier today and is expected to be presented in Manhattan federal court later this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Sajid Javed induced others to forego their prescription medications for a kickback, and then fraudulently billed Medicare and Medicaid more than $8 million for the drugs that were never actually dispensed. This alleged scheme not only put patients at risk, it also contributed to the multibillion-dollar pillaging of federally funded public health care subsidies.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “These alleged criminals arrested around the country today and here in New York City are stealing money meant to help people seeking medical assistance. It’s not a visible theft in public view, but the victims of the crime suffer greatly when they can’t get the assistance they need. We are asking anyone who sees this sort of crime and fraud taking place to be vigilant, and report it to us at 1-800-CALL-FBI.”
HHS-OIG Special Agent in Charge Scott J. Lampert said: “Prescription drug scams, such as the one alleged in this case, work to undermine our nation's health care system. Today’s arrests coordinated with our law enforcement partners serve as a stern warning to those who attempt to plunder government health programs meant to care for our most vulnerable citizens.”
As alleged in the Complaint and in other documents filed in Manhattan federal court[1]:
While owning and operating nine different pharmacies located in Brooklyn and Queens, SAJID JAVED conducted a multimillion-dollar scheme to defraud Medicare and Medicaid programs by seeking reimbursement for prescription drugs that were not distributed to customers. Specifically, from January 2013 through December 2014, JAVED obtained more than $8.5 million in reimbursements from Medicare and Medicaid for prescription drugs that his pharmacies never actually dispensed. JAVED defrauded Medicare and Medicaid into providing him with these reimbursements by obtaining prescriptions from other individuals, who were willing to forego delivery of the medications in exchange for a share of the reimbursed proceeds, in the form of kickbacks. JAVED offered to pay, and did actually pay, kickbacks in furtherance of this scheme.
Including today’s enforcement actions, nearly 1,200 individuals have been charged in national takedown operations, which have involved more than $3.4 billion in fraudulent billings. Today’s announcement marks the second time that districts outside Strike Force locations participated in a national takedown, and they accounted for 82 defendants charged in this takedown.
The Medicare Fraud Strike Force operations are part of the Health Care Fraud Prevention & Enforcement Action Team (“HEAT”), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. The Medicare Fraud Strike Force operates in nine locations and since its inception in March 2007 has charged over 2,900 defendants who collectively have falsely billed the Medicare program for over $8.9 billion.
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JAVED, 45, of Fresh Meadows, Queens, is charged with one count of health care fraud, which carries a maximum sentence of 10 years in prison, and one count of illegal remuneration in connection with a federal health care program, which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of the FBI and HHS-OIG.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Christopher DiMase and Sarah Paul are in charge of the prosecution.
The charges 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 Chief Financial Officer Sentenced in Manhattan Federal Court for Misappropriating More Than $10 Million from Two Healthcare Services CompaniesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN RAWLINS, a former Chief Financial Officer to two healthcare services companies based outside Nashville, Tennessee, was sentenced to nine years in prison and $10,110,577.09 in forfeiture for engaging in a scheme to defraud that yielded over $10 million in ill-gotten gains. On November 16, 2016, following an 11-day trial conducted before U.S. District Judge Alison J. Nathan, a jury found that RAWLINS, as the acting Chief Financial Officer for both privately-held healthcare companies, abused his authority to withdraw company funds for payment of legitimate business expenses and tax obligations by, among other things, using such funds to pay personal expenses incurred by RAWLINS, his family, and his associates.
Manhattan U.S. Attorney Preet Bharara said: “Steven Rawlins abused his trusted position as CFO with two healthcare companies to steal more than a combined $10 million from them. As was established at trial, Rawlins spent the money he stole lavishly on himself, his family, and his friends, paying for a 12,000-square-foot home, Tiffany jewelry, several sports cars, and luxury suites at sporting events.”
According to the Criminal Information filed on June 16, 2015, other court documents, and the evidence presented at trial:
In or around 2005, RAWLINS was retained as an outside consultant by a private healthcare services company, which is headquartered in Tennessee (“Company-1”), to assist with financing and accounting matters. RAWLINS’s responsibilities included securing financing for Company-1 and facilitating tax payments. During that time period, RAWLINS was retained by another private healthcare services company, which at the time had operations in Florida and New York (“Company-2”), to perform a similar role. As part of his responsibilities, RAWLINS was authorized to bill both Company-1 and Company-2 for legitimate business expenses incurred in connection with his services. By 2009, RAWLINS had been appointed as acting Chief Financial Officer for both companies.
RAWLINS abused his authority to withdraw company funds and ultimately misappropriated more than $10 million, which he used to pay personal expenses incurred by himself, his family, and his associates. For instance, as part of his responsibilities as a consultant to Company-1, RAWLINS represented that he would make the necessary tax payments owed by Company-1 to the State of Tennessee. From 2011 to 2012, RAWLINS withdrew approximately $850,000 from Company-1’s bank accounts, purportedly in order to pay Company-1’s outstanding tax liabilities to Tennessee. In reality, during that time period, Company-1 owed less than $85,000 in applicable Tennessee state taxes; RAWLINS converted the vast majority of the funds to his own use. Moreover, from 2011 to 2013, RAWLINS caused approximately $4 million to be withdrawn from a Company-1 bank account in order to pay bills associated with RAWLINS’s American Express credit card accounts. Those American Express accounts were in turn used to pay for numerous personal expenses incurred by RAWLINS, or those associated with him, including payments to a real estate development company that built RAWLINS a 12,000-square-foot home; payments for luxury suite access for the Tennessee Titans, Nashville Predators, and New York Yankees; payments for Tiffany jewelry; and payments to car dealerships including Ferrari, Porsche, Maserati, and Mercedes.
Evidence at trial established that, as part of the criminal scheme, Rawlins also defrauded or attempted to defraud additional victims, including the founders of a start-up construction firm from whom he obtained $67,000; a restaurant company owner from whom he obtained a $1.3 million loan; and the owner of a factoring company from whom he attempted to obtain a $1.3 million advance. The evidence established that Rawlins used forged and fabricated documents in order to deceive several of his victims.
* * *
RAWLINS, 59, of Brentwood, Tennessee, was sentenced to nine years in prison, $10,110,577.09 in forfeiture, and a $100 special assessment.
Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation.
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 Andrew J. DeFilippis is in charge of the prosecution.
Senior NYPD Officials and Others Charged with Federal Public Corruption OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), announced today that Deputy Chief MICHAEL HARRINGTON, Deputy Inspector JAMES GRANT, and Sergeant DAVID VILLANUEVA of the NYPD were arrested this morning, along with a Brooklyn-based man, JEREMY REICHBERG, on bribery charges. HARRINGTON, GRANT, and REICHBERG were charged in Manhattan federal court with conspiring to commit honest services wire fraud for a bribery scheme involving the receipt of tens of thousands of dollars in meals, trips, home renovations, and other benefits in exchange for an array of official NYPD actions, including private police escorts, ticket fixing, and assistance in settling private disputes. VILLANUEVA, formerly a supervisor in the NYPD’s gun licensing division, was charged in Manhattan federal court with bribery offenses in connection with his receipt of cash bribes to expedite and approve gun licenses. In addition, the guilty plea of Police Officer RICHARD OCHETAL, who formerly worked in the gun licensing division, was unsealed today. OCHETAL pled guilty to accepting bribes in exchange for the approval of gun license applications, and is cooperating with the Government in the investigation.
Manhattan U.S. Attorney Preet Bharara said: “The alleged conduct violates the basic principle that public servants are to serve the public, not help themselves to cash and benefits just for doing their jobs. Jeremy Reichberg allegedly showered senior police officials, Commanding Officers Michael Harrington and James Grant, with bribes, and in exchange, got ‘cops on call,’ a private police force for themselves and their friends. As alleged, Sergeant David Villanueva and Officer Richard Ochetal in the NYPD’s gun licensing division were also on the take, issuing gun licenses in exchange for cash, liquor, and limo rides. It is heartbreaking to see police officers who have taken the oath to serve and protect allegedly bring dishonor to an institution and profession deserving of the greatest honor. I thank the FBI for their work on this important investigation and the NYPD for its commitment and courage to police itself.”
FBI Assistant Director-in-Charge Diego Rodriquez said: “The abuses of power alleged in this case are not victimless crimes. The victims are the citizens of New York, who rely on officers to fulfill their sworn duty. The victims are the upstanding police officers who do everything in their power to uphold the law and protect the public. The victims are public trust and confidence in law enforcement, both critical to ensuring public safety. The FBI, along with our partners, will continue to root out this kind of decay at every level in order to protect our citizens from the devastating consequences of corruption that undermines safety, and erodes the trust between law enforcement and the public.”
NYPD Commissioner William J. Bratton said: “These charges and today's arrests are a culmination of the joint investigative efforts of the NYPD's Internal Affairs Bureau along with the FBI and the US Attorney’s Office for the Southern District of New York. During the past three years, NYPD Internal Affairs and FBI investigators worked diligently in pursuing leads into alleged corrupt activity involving uniformed members of this department. Two separate investigations, by the NYPD and the FBI, merged seamlessly and resulted in today’s arrests of four members of the department as well as another individual. This investigation is not over and we will continue to work together with our law enforcement partners to go where the facts of these cases lead us.”
According to the allegations in the Complaint against GRANT, HARRINGTON, and REICHBERG; the Indictment against VILLANUEVA and Brooklyn-based gun license “expeditor” ALEX LICHTENSTEIN, a/k/a “SHAYA,” who had been previously charged; and the Information to which OCHETAL pled guilty, all unsealed today in Manhattan federal court[1]:
United States v. GRANT, HARRINGTON, and REICHBERG
For several years from approximately 2012 through 2015, REICHBERG, who described himself as a “community liaison” for the NYPD, along with another individual who had pled guilty and is now cooperating with the Government (“CW-1”), engineered a scheme to provide lavish benefits to high-ranking members of the NYPD, including GRANT and HARRINGTON, so as to be able to call upon those members for police-related assistance for themselves and their communities over time. GRANT and HARRINGTON, for their part, accepted numerous benefits and, in return, took several official police actions for REICHBERG and CW-1. GRANT was, throughout this time period, a high-ranking police official and commanding officer of a precinct in Brooklyn, before becoming a Deputy Inspector and the Commanding Officer of the 19th Precinct on the Upper East Side of Manhattan. HARRINGTON was an Inspector in Brooklyn North and, beginning around November 2013, the Executive Officer in the NYPD Chief of Department’s Office, which is responsible for overseeing all of the NYPD’s uniformed operations.
As alleged in the Complaint, among the benefits accepted by GRANT were a private jet trip to Las Vegas for the Super Bowl, costing $57,000 for the plane alone; a two-night stay in a hotel in Rome, worth more than $1,000; contracting work on his home worth approximately $12,000; and jewelry. Among the benefits accepted by HARRINGTON were private security work worth tens of thousands of dollars for a company he unofficially helped manage; hotel rooms for a trip to Chicago for his family worth in excess of $6,000; and thousands of dollars in dinners.
GRANT and HARRINGTON helped REICHBERG and CW-1 with numerous police-related requests. For example, both performed and arranged for police-related escorts for REICHBERG, CW-1, and their associates, at REICHBERG and/or CW-1’s request. Both diverted police resources to investigate private, civil matters. Both assisted with VIP access to parades and other New York City events. GRANT provided cards that enabled REICHBERG, CW-1, and their associates to avoid tickets when pulled over by police. GRANT also helped REICHBERG obtain a gun license from the NYPD, and attempted to help CW-1 obtain a gun license from the NYPD. HARRINGTON sent police resources to religious sites upon request.
REICHBERG and CW-1’s influence in certain spheres of the NYPD was, at a certain point, so significant as to have people believing that they had a say in promotions. REICHBERG and CW-1, for example, advocated for GRANT to become the Commanding Officer of the 19th Precinct, which GRANT ultimately did, and which led to them being permitted to make the call informing him of the news. REICHBERG also advocated for HARRINGTON to become a senior police official in Brooklyn after HARRINGTON left the Chief of Department’s office, which was unsuccessful. A judicially authorized wiretap on REICHBERG’s phone in early 2015 revealed numerous conversations in which REICHBERG was dispensing advice on promotions to members of the NYPD and taking steps to facilitate promotions.
United States v. VILLANUEVA and LICHTENSTEIN; United States v. OCHETAL
VILLANUEVA was, for many years, a Sergeant assigned to the NYPD’s Licensing Division, which is responsible for reviewing all applications for gun licenses submitted by residents of New York City. The Licensing Division receives approximately 5,000 applications for gun licenses per year. Licensing Division personnel review those applications both for disqualifying characteristics, such as prior felony convictions, and for other characteristics that lead to discretionary denials.
From at least 2012 through 2016, VILLLANUEVA was given cash bribes and other benefits by LICHTENSTEIN, who ran a business charging clients thousands of dollars to expedite their gun license applications. LICHTENSTEIN used some of the money paid by his clients to pay VILLANUEVA for his work in expediting and approving the applications for LICHTENSTEIN’s clients. OCHETAL, a Police Officer who worked under VILLANUEVA, did first-level reviews of many of these applications and was instructed to approve them. OCHETAL was compensated in the form of some of the cash that LICHTENSTEIN gave to VILLANUEVA.
In reviewing and approving applications for LICHTENSTEIN’s clients, VILLANUEVA and OCHETAL omitted some of the required checks, such as criminal history checks, and in other instances ran checks only after they approved licenses. They also approved applications despite red flags that, had they not been bribed, may have led those applications to be rejected. For example, they approved applications of individuals with prior arrests and previous allegations of domestic violence. In addition, VILLANUEVA and OCHETAL approved applications for licenses to carry firearms, which require certain business-related justifications, in scenarios were there was no real business justification for the request. A review of the applications of LICHTENSTEIN’s clients reveals that VILLANUEVA and OCHETAL were able to secure licenses for those clients often within weeks, whereas the process normally takes months to, in some instances, over a year. VILLANUEVA and OCHETAL did this for LICHTENSTEIN’s clients because of the cash payments coming from LICHTENSTEIN, as well as other benefits, such as limousine rides, bottles of liquor, and a wine tour.
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GRANT, 43, of Staten Island, New York, HARRINGTON, 50, of the Staten Island, New York, and REICHBERG, 42, of Brooklyn, New York, have been charged with one count of conspiracy to commit honest services wire fraud, which carries a maximum term of 20 years in prison. VILLANUEVA, 42, of Valley Stream, New York, was charged with one count of bribery, which carries a maximum term of 10 years in prison, and one count of conspiracy to commit bribery, which carries a maximum term of five years in prison. LICHTENSTEIN, 44, of Pomona, New York, is charged with two counts of bribery, each of which carries a maximum term of 10 years in prison, and one count of conspiracy to commit bribery, which carries a maximum term of five years in prison. OCHETAL, 37, previously pled guilty to one count of bribery, which carries a maximum term of 10 years in prison, and one count of conspiracy to commit bribery, which carries a maximum term of five 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 FBI, the NYPD Internal Affairs Bureau, and the Internal Revenue Service’s Criminal Investigations Division, and noted that the investigation is continuing.
These cases are being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Martin Bell, Russell Capone, and Kan M. Nawaday are in charge of the prosecution.
The charges contained in the Complaint and the Indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the texts of the Complaint and the Indictment and the descriptions of the Complaint and the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Press Conference Advisory, Monday, June 20, 2016, at 12:00 p.m.Read the Press Release
There will be a press conference today at 12:00 p.m. to announce charges against several New York City Police Department officers and others for public corruption offenses. Relevant charging documents are attached.
WHO:
Preet Bharara, United States Attorney for the Southern District of New York
Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation
William J. Bratton, Commissioner of the New York City Police Department
WHEN:
Monday, June 20, 2016 at 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 arrive early to permit clearance through security. Please silence all cell phones, PDAs, and pagers before start of press conference.
Treasurer of Mahopac Volunteer Fire Department Charged with Embezzling More Than $5.7 Million and Failing to Report the Income to the IRSRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Shantelle P. Kitchen, the Special Agent in Charge of the New York Field Office of the Internal Revenue Service - Criminal Investigation (“IRS-CI”), Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Division of the Federal Bureau of Investigation (“FBI”), George Beach, Superintendent, New York State Police, and Thomas P. DiNapoli, New York State Comptroller, today announced the arrest of MICHAEL KLEIN, the former treasurer of the Mahopac Volunteer Fire Department (“MVFD”), on charges of wire fraud and subscribing to false tax returns.
Manhattan U.S. Attorney Preet Bharara stated: “Michael Klein repaid the trust his fellow volunteer firefighters placed in him by allegedly stealing $5.7 million of their money over a period of more than 13 years as their elected treasurer. As alleged, Klein lavished the embezzled money on himself, buying yachts, jewelry, and a second home in Florida, and then failed to report any of it on his tax returns. Public corruption victimizes the public generally, but here, the people of Mahopac and its volunteer firefighters have suffered specifically and directly, having lost almost $6 million that could have been used for good, but instead was allegedly squandered away by Klein. ”
IRS Special Agent in Charge Shantelle P. Kitchen said: “Criminal tax investigations are often intertwined with investigations of alleged thefts by individuals entrusted with the stewardship of an organization’s assets. Individuals who have access to an organization’s bank accounts, books and records, and financial resources should seriously consider all of the consequences if they are inclined to embezzle. In addition to charges relating to the underlying financial theft, embezzlers expose themselves to federal criminal tax charges when they willfully fail to declare the proceeds of the thefts on their tax returns.”
FBI Assistant Director in Charge Diego Rodriguez said: “The subject of this investigation spent more than a decade living life in high style, while his fellow firefighters were busy volunteering their time to save people’s homes and lives. He allegedly embezzled millions of dollars in money that could have gone to help the firefighters in his department do their jobs. The FBI and our law enforcement partners won’t allow this type of greed to overshadow the great service the men and women on this volunteer fire department do each and every day they show up for work.”
New York State Police Superintendent George Beach said: “I commend the work performed on this case by our investigators from Troop K, the State Comptroller’s Office, and our federal partners. Our investigation revealed that this individual took millions of dollars meant to support the community’s fire department, and instead used it for his own personal gain. We will have no tolerance for those who abuse their position.”
New York State Comptroller Thomas P. DiNapoli said: “Mr. Klein allegedly stole nearly six million dollars from the Mahopac Volunteer Fire Department. Rather than protecting his neighbors as he pledged, they paid the price for his alleged thievery. I thank United States Attorney Preet Bharara, the Federal Bureau of Investigation, the New York State Police, and the Internal Revenue Service for their work with my office to bring Mr. Klein to justice.”
As alleged in the Indictment unsealed today in White Plains federal court[1]:
Michael Klein was first elected treasurer of the MVFD in 2001. From in or about January 2002 to in or about September 2015, Klein embezzled MVFD funds under his control by writing checks to the two businesses he owned, Abbie Graphic Services, Ltd. (“Abbie Graphic”) and Buckshollow Emergency Equipment Corp. (“BEEC”). Klein then deposited the checks to bank accounts held by Abbie Graphics or BEEC. He entered these checks into the MVFD’s books as having been made payable to various vendors, other than Abbie Graphics or BEEC, that sold firefighting equipment or services used by fire departments.
Klein embezzled more than $5.7 million by writing more than 275 checks over a period of more than 13 years. He used the money to purchase, among other things, yachts, including a 55-foot Neptunus motor yacht named “K’Bam;” a second residence in Palm City, Florida; and jewelry. He also used the money to support Abbie Graphic and BEEC. Klein also failed to report any of this income on his personal tax returns for the period from 2009 through 2014, thereby subscribing to false tax returns for each of these years.
Following the discovery by law enforcement in the fall of 2015 of Klein’s embezzlement, Klein offered K’Bam for sale with a yacht broker in Florida for $229,000. He rejected an offer he received of $175,000 but sold K’Bam to an automobile dealer for the $136,850 he owed on a loan secured by K’Bam. The dealer is now offering K’Bam for sale for $260,000.
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KLEIN, 48, of Mahopac, New York, and Palm City, Florida, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison, and six counts of subscribing to false tax returns, each of which carries a maximum sentence of three years in prison.
Mr. Bharara praised the outstanding investigative work of the IRS, FBI, New York State Police, and New York State Comptroller. He thanked the Putnam County District Attorney’s Office for its assistance in the investigation.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorney James McMahon is 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.
[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.
Thirty-Two Charged in Manhattan Federal Court for Narcotics and Firearm OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Delano A. Reid, Special Agent in Charge of the New York Office of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), announced the unsealing this morning of two indictments, charging a total of 32 defendants with participating in conspiracies to distribute and possess with intent to distribute large quantities of crack cocaine in around the Lincoln Housing Development in East Harlem, New York (the “Lincoln Houses”). Six defendants are also charged with possessing and using firearms in connection with one of the narcotics trafficking conspiracies. Twenty-three defendants were taken into custody today and are expected to be presented in Manhattan federal court later today before U.S. Magistrate Judge James C. Francis IV. Five defendants are incarcerated in various locations in New York and are expected to be transported to the Southern District of New York within the next two weeks. Four defendants remain at large.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, these defendants blanketed the entire expanse of the Lincoln Houses with their round-the-clock drug dealing operation, using guns and violence to protect it. All New Yorkers, including the residents of NYCHA housing, are entitled to live in neighborhoods free of drugs and the inevitable violence that comes with it. Our actions today, with our partners at the ATF and NYPD, are a step toward making that a reality for the residents of the Lincoln Houses in East Harlem.”
ATF Special Agent in Charge Delano A. Reid said: “These defendants attempted to consolidate power over narcotics distribution in and around the Lincoln Houses, turning that community into an open air drug market. In the process they are alleged to have had access to firearms and to have engaged in acts of violence to protect and maintain their drug business. Today we say no more. The members of this criminal organization thought that they could use firearms and violence to shield themselves and their illicit activities. Instead, they have made themselves the targets of ATF and our law enforcement partners. Today’s arrests will help to preserve dignity and restore safety for law abiding residents of the Lincoln Houses and surrounding communities. To those that think they can use firearms and violence as tools to further their criminal ambitions, let this be a warning that we in law enforcement will be at the ready to ensure that your fate is the same as those arrested today. ATF would like to thank the NYPD and United States Attorney’s Office for their professionalism and perseverance during this long term investigation.”
NYPD Commissioner William J. Bratton said: “This long term investigation targeted key members of an East Harlem gang who, as alleged, distributed crack cocaine and engaged in rampant gun violence, willfully disregarding the safety of residents living in the Lincoln Houses. I commend both my NYPD detectives and our federal partners, whose diligence and perseverance have disrupted this criminal operation.”
As alleged in the indictments and in other documents previously filed in Manhattan federal court[1]:
The New York City Housing Authority (“NYCHA”) operates, among others, a housing development in the East Harlem neighborhood of Manhattan, New York: the Lincoln Houses, spanning an area between East 132nd Street and East 135th Street to the North and South, and Park Avenue and Fifth Avenue, to the East and West.
From at least in or about 2008, up to and including in or about 2016, in the Southern District of New York and elsewhere, RASHEED BAILEY, a/k/a “Ciroc,” WILLIAM BRYANT, a/k/a “Kenny,” KEVIN CHAVIS, JEFFREY CHILDS, a/k/a “Pap,” a/k/a “CJ,” TYRONE GLADDEN, a/k/a “Ty Boogie,” a/k/a “Ty Zooted,” TRAVIS HARRY, a/k/a “Trav Game,” RICHARD HILL, MICHAEL JOHNSON, a/k/a “Air,” KEVIN LEWIS, a/k/a “Ice,” DONTE McGILL, TORELL NIUELDER, a/k/a “Young,” a/k/a “Relli,” TUQUAN ROGERS, a/k/a “Tay,” DONALD ROSE, JAMAL RUSSEL, a/k/a “Mally,” LUKE RYANT, a/k/a “Berger,” KEVIN SAXON, a/k/a “Sax,” ANDREW SINGLETON, a/k/a “Drew,” SEON THOMAS, a/k/a “Cee,” a/k/a “Goon,” HENRY TRENTON, a/k/a “Kay,” a/k/a “Kels,” RENE VELEZ, a/k/a “White Boy,” TREVOR WATSON, a/k/a “Trev Wild,” and TYLER WILLIAMS, a/k/a “Ty Cracks,” and others known and unknown, conspired to distribute significant amounts of crack cocaine, in and around, among other places, the “West Side” of Lincoln Houses. Specifically, these defendants sold narcotics most frequently on public streets and inside public housing developments between East 132nd Street and East 135th Street, to the North and South, and between Madison Avenue and Fifth Avenue, to the East and West.
During the same time period, KAREEM ALLEN, a/k/a “Rocket,” HAROLD HILL, a/k/a “Dee Wee,” AARON JOHNSON, a/k/a “A,” ANTOINE MITCHELL, a/k/a “Red,” JEREL POOL, a/k/a “Nast,” DEREK SMITH, a/k/a “Ice,” MARK SMITH, NAJHEA SMITH, a/k/a “Boogz,” QWAME THOMAS, a/k/a “Afro,” BERNARD WALKER, a/k/a “M,” the defendants, and others known and unknown, conspired to distribute significant amounts of crack cocaine in and around, among other places, the “East Side” of Lincoln Houses. Specifically, these defendants sold narcotics most frequently on public streets and inside public housing developments between East 132nd Street and 135th Street, to the North and South, and Park Avenue to Madison Avenue, to the East and West.
The narcotics organizations operating on the West Side and the East Side of the Lincoln Houses distributed crack cocaine 24 hours each day, seven days each week.
In addition, members of the West Side organization had access to firearms and engaged in acts of violence in order to, among other reasons, protect and maintain their drug business, including JEFFREY CHILDS, a/k/a “Pap,” a/k/a “CJ,” TUQUAN ROGERS, a/k/a “Tay,” JAMAL RUSSEL, a/k/a “Mally,” LUKE RYANT, a/k/a “Berger,” SEON THOMAS, a/k/a “Cee,” and TREVOR WATSON, a/k/a “Trev Wild.”
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All of the defendants face mandatory minimum prison terms ranging from 10 years to 15 years, and maximum terms of life in prison.
The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentences imposed on the defendants will be determined by the Court.
A chart containing the names of the defendants who were arrested today, and the charges and maximum penalties they face, is attached.
Mr. Bharara praised the outstanding investigative work of the Bureau of Alcohol, Tobacco, Firearms and Explosives, and the New York City Police Department.
The prosecution is being handled by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Amanda Houle, Hadassa Waxman, and Michael Gerber 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.
CHARGE(S)
DEFENDANTS
MAXIMUM PENALTIES
Conspiracy to distribute and possess with intent to distribute 280 grams and more of crack cocaine.
RASHEED BAILEY, WILLIAM BRYANT, KEVIN CHAVIS,JEFFREY CHILDS, TYRONE GLADDEN, TRAVIS HARRY, RICHARD HILL, MICHAEL JOHNSON, KEVIN LEWIS, DONTE McGILL, TORELL NIUELDER, TUQUAN ROGERS, DONALD ROSE, JAMAL RUSSEL, LUKE RYANT, KEVIN SAXON, ANDREW SINGLETON, SEON THOMAS, HENRY TRENTON, RENE VELEZ, TREVOR WATSON, TYLER WILLIAMS, KAREEM ALLEN, HAROLD HILL, AARON JOHNSON, ANTOINE MITCHELL, JEREL POOL, DEREK SMITH, MARK SMITH, NAJHEA SMITH, QWAME THOMAS, and BERNARD WALKER.
Life in prison
Mandatory minimum: 10 years in prison
Possession of a firearm in furtherance of a narcotics trafficking offense
JEFFREY CHILDS, TUQUAN ROGERS, JAMAL RUSSEL, LUKE RYANT, SEON THOMAS, and TREVOR WATSON
Life in prison
Mandatory minimum: 5 years in prison, to be imposed consecutively to any other sentence
[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.
Manager and Two Debt Collectors Plead Guilty in $31 Million Fraudulent Debt Collection SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that HEATHER GASTA, a/k/a “Heather Brez,” a former manager of a Buffalo, New York-based debt collection company (the “Company”), pled guilty today to participating in a scheme to coerce thousands of victims across the country through false threats and representations into paying a total of more than $31 million to the Company to resolve debts these victims purportedly owed. Earlier this week, COLUMBUS SIMMONS, a/k/a “Timothy Ham,” and WILLIAM CLARK, a/k/a “John Harvey,” two former debt collectors at the Company, also pled guilty for their roles in the debt collection scheme. GASTA, SIMMONS, and CLARK each pled guilty to one count of conspiracy to commit wire fraud and one count of wire fraud before U.S. District Judge Katherine Polk Failla. To date, nine former employees of the Company have pled guilty to participating in the scheme.
U.S. Attorney Preet Bharara said: “As they admitted in court this week, these defendants were key members of a band of predatory debt collectors, or as they called themselves, ‘the elite team.’ Armed with telephones and a litany of threatening lies, they and others at the Company coerced thousands of desperate, debt-ridden victims to send them tens of millions of dollars. In a practice they called ‘juicing the balance,’ these defendants also falsely inflated the debt owed by the victims so they could collect even more.”
According to the allegations contained in the Indictment to which GASTA, SIMMONS, and CLARK pled guilty and statements made during their plea proceedings:
Between 2010 and February 2015, GASTA, SIMMONS, CLARK, and their co-defendants (collectively, the “defendants”) routinely attempted to trick and coerce thousands of victims throughout the United States into paying millions of dollars in consumer debts through a variety of false statements and false threats. The defendants, using a variety of aliases, falsely told victims, among other things, that: (1) the Company was affiliated with local government and law enforcement agencies, including the “county” and the district attorney’s office; (2) the consumers had committed criminal acts, such as “wire fraud” or “check fraud,” and if they did not pay the debt immediately, warrants or other process would be issued, at which point they would be arrested or hauled into court; (3) the victims would have their driver’s licenses suspended if they did not pay their debts immediately; (4) the Company was a law firm or mediation firm and that the Company’s employees were working with lawyers, a law firm, mediators, or arbitrators; and (5) a civil lawsuit would be filed, or was pending, against the victims for failing to pay their debts.
As a further part of the scheme, the defendants lied to victims by falsely inflating the balances of the debts so that they could collect more money from the victims than the victims actually owed, a practice known within the Company as “juicing” balances.
GASTA, SIMMONS, and CLARK were members of the Company’s so-called “elite team,” which used particularly aggressive and egregious tactics in attempting to trick consumers into paying debts. GASTA also served as a Company manager.
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GASTA, 41, SIMMONS, 46, and CLARK, 30, all of Buffalo, New York, each pled guilty to one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison and three years of supervised release. The maximum potential sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
GASTA, is scheduled to be sentenced on September 30, SIMMONS on September 23, and CLARK on September 29, 2016, respectively, before Judge Failla.
In total, nine former employees of the Company have pled guilty to defrauding consumers as part of this debt collection scheme. In addition to the pleas of GASTA, SIMMONS and CLARK, former Company mangers Mark Lavin and John Salatino and debt collectors Jessica Mann, Charles Starks, Michael Calandra, and Jennifer Sherk each pled guilty for their roles in the fraud. The other defendants who have not pled guilty are presumed innocent unless and until proven guilty.
On or about May 20, 2016, Mann was sentenced by Judge Failla to a prison term of one year and one day. The sentencing of the other defendants who have pled guilty is pending.
Mr. Bharara praised the efforts of the Office’s Criminal Investigators.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Edward A. Imperatore and Jordan L. Estes are in charge of the prosecution.
Hedge Fund Portfolio Manager Sanjay Valvani and Former Portfolio Manager Stefan Lumiere Charged in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Elton Malone, Special Agent in Charge, Special Investigations Branch, U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), announced today charges against SANJAY VALVANI and STEFAN LUMIERE, a portfolio manager and former portfolio manager, respectively, at a healthcare-focused hedge fund in New York, New York (“Investment Adviser-A”).
VALVANI was charged with participating in a scheme, from in or about 2005 through in or about January 2011, to convert United States property, to defraud the United States, and to commit securities fraud and wire fraud relating to VALVANI’s agreement with GORDON JOHNSTON, a political intelligence consultant and former senior official at the Food and Drug Administration (“FDA”), to unlawfully obtain highly confidential and material nonpublic information from the FDA about the agency’s approval of pending generic drug applications and convert it to VALVANI’s use, including by using the information to execute profitable securities transactions. VALVANI is also charged with passing certain highly confidential and material nonpublic information to CHRISTOPHER PLAFORD, a former portfolio manager at Investment Adviser-A, who also executed trades based on the information. In addition, Mr. Bharara announced today the unsealing of charges against JOHNSTON and PLAFORD, who both pled guilty and admitted to their participation in the scheme. As part of the scheme, for example, at VALVANI’s direction, JOHNSTON obtained highly confidential and material nonpublic information from a senior FDA official about the status and approval of a generic drug called enoxaparin, which information JOHNSTON passed to VALVANI. VALVANI used this information to trade in the securities of two pharmaceutical companies likely to be affected by an approval of a generic enoxaparin application, earning approximately $25 million in trading profits when the FDA announced its first such approval. VALVANI also tipped PLAFORD with this information. VALVANI surrendered to authorities this morning.
Separately, LUMIERE was charged with participating in a scheme with PLAFORD, from in or about June 2011 through in or about September 2013, to commit securities and wire fraud relating to the mismarking of securities in a fixed-income fund for which PLAFORD was the portfolio manager at the time, which inflated the net asset value (“NAV”) of the fund and overstated the fund’s liquidity. LUMIERE surrendered to authorities this morning. PLAFORD also pled guilty to his participation in this scheme, as well as an additional scheme involving another political intelligence consultant.
VALVANI will be presented and arraigned later today before United States District Judge Sidney H Stein. LUMIERE will be presented later today before U.S. Magistrate Judge James C. Francis IV. JOHNSTON’s case is assigned to U.S. District Judge Andrew L. Carter, Jr., and PLAFORD’s case is assigned to U.S. District Judge Ronnie Abrams.
In separate actions, the Securities and Exchange Commission (“SEC”) filed civil charges against VALVANI, LUMIERE, JOHNSTON, and PLAFORD.
U.S. Attorney Preet Bharara said: “As alleged, Valvani, Johnston, and Plaford conspired to extract highly confidential and tightly guarded information about pending applications for generic drug approvals from the FDA, and traded on such information, reaping millions of dollars in illegal profits. Lumiere and Plaford also allegedly conspired to mismark securities held by their fund, lying to their investors and unjustly enriching themselves in the process.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “As alleged, the defendants conspired and schemed over six years to obtain insider information from the FDA on the status of approvals for generic drugs in order to take that information and use it to make securities trades. Additionally, some of those same defendants schemed to defraud investors from an fixed-income fund by deceptively mismarking the value of certain securities. Sadly these are schemes we see time and time again, where lies and use of nonpublic information profits those conducting the crimes and everyday investors lose out.”
HHS-OIG Special Agent in Charge Elton Malone said: “Trading on confidential, non-public FDA information corrupts the carefully guarded drug approval process and simply will not be tolerated. People hoping to profit from insider data will be aggressively prosecuted for their crimes.”
According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Indictment charging VALVANI and the Complaint charging LUMIERE,[1] and statements made in court proceedings:
At all relevant times, Investment Adviser-A managed hedge funds specializing in healthcare-related investments. One such fund focused on long-short equity investments in healthcare companies (“Fund-1”). Another fund, which operated from in or about 2009 until in or about September 2013, invested primarily in debt instruments issued by healthcare companies (“Fund-2”).
VALVANI served as a partner in Investment Adviser-A and one of Fund-1’s portfolio managers, managing the specialty pharmaceuticals portfolio within Fund-1. From in or about May 2009 through in or about September 2013, PLAFORD served as a partner in Investment Adviser-A and as Fund-2’s portfolio manager. LUMIERE served under PLAFORD as the Fund-2 portfolio manager for special situations, which represented a portion of Fund-2’s portfolio.
The Scheme to Convert and Use Confidential FDA Information
The Scheme
As alleged in the Indictment, from in or about 2005 through in or about January 2011, VALVANI, JOHNSTON, PLAFORD, and others participated in a scheme to convert to their own use confidential and material nonpublic information from the FDA concerning, among other things, the FDA’s internal deliberations regarding the approval of generic drug applications for the purpose of making profitable securities transactions.
During this time period, Investment Adviser-A retained JOHNSTON as a consultant who provided “political intelligence” related to, among other things, the likelihood and timing of the FDA’s approval of generic drugs. JOHNSTON primarily consulted for VALVANI, and Investment Adviser-A paid JOHNSTON hundreds of thousands of dollars in total for his consulting work. Before becoming a consultant, JOHNSTON had served as the Deputy Director of the FDA’s Office of Generic Drugs (“OGD”), an office within the FDA charged with, among other things, approving generic drugs. In addition to serving as consultant to Investment Adviser-A, JOHNSTON worked for a trade association for manufacturers and distributors of generic drugs (the “Trade Association”). As a result of his long employment with the FDA, as well as his ongoing work with the Trade Association, JOHNSTON maintained close relationships with FDA insiders.
VALVANI tasked JOHNSTON with obtaining highly confidential and material nonpublic information from the FDA about pending generic drug ANDAs and related citizen petitions, information that FDA employees were not authorized to disclose to the public. An ANDA, or Abbreviated New Drug Application, is the process by which a pharmaceutical company can apply to the FDA for approval to sell a generic version of a brand name drug. In many cases, the brand name drug company files a citizen petition with the FDA challenging the generic drug company’s ANDA and arguing that the FDA should deny it. The FDA’s decision to approve a generic drug ANDA typically has a positive impact on the stock price of the company receiving approval, and a negative impact on the stock price of the company producing the brand name drug.
The Enoxaparin ANDA Approval
As alleged in the Indictment, at the direction of VALVANI, JOHNSTON improperly obtained confidential and material nonpublic information concerning the FDA’s approval of a generic version of an anticoagulant drug called enoxaparin and passed this information to VALVANI, which VALVANI used to make profitable securities trades. Beginning in the mid-1990s, Sanofi-Aventis S.A. (“Sanofi”) manufactured and sold enoxaparin under the brand name Lovenox. By 2005, three groups of publicly traded pharmaceutical companies had filed ANDAs with the FDA seeking approval to sell a generic version of Lovenox, including one such application filed by a publicly traded pharmaceutical company that had partnered with Momenta Pharmaceuticals, Inc. (“Momenta”) (the “Momenta ANDA”). After the first two ANDAs were filed, Sanofi filed a citizen petition with the FDA opposing the approval of a generic version of Lovenox. These three ANDAs were pending with the OGD for years, during which time it was unclear whether OGD would approve a generic version of Lovenox.
Beginning in or about 2005, VALVANI directed JOHNSTON to gather confidential and material nonpublic information from FDA employees about the FDA’s consideration of the enoxaparin ANDAs. JOHNSTON, in turn, improperly obtained such information from a senior OGD official (“Individual-1”), who was close friends with and a former colleague of JOHNSTON’s. Individual-1 participated in internal, confidential meetings regarding the Momenta ANDA. As part of the ANDA review and approval process, OGD maintained an internal document tracking the progress of ANDAs, including the Momenta ANDA, and estimating the likelihood and timing of their approval (the “Tracking Document”). The information contained in the Tracking Document was highly confidential and not intended to be disclosed to anyone outside the FDA. Nonetheless, Individual-1 disclosed confidential and material nonpublic information about the status of the approval of a generic Lovenox ANDA, including information from the highly confidential Tracking Document, to JOHNSTON. JOHNSTON breached a duty of trust to Individual-1 by passing the information to VALVANI, as JOHNSTON knew that Individual-1 expected him to keep the information confidential based on their history of sharing and keeping such confidences.
For example, in or about late December 2009 or early January 2010, JOHNSTON told VALVANI, in sum and substance, that he had learned that the Tracking Document reflected that OGD was moving toward approval of a generic Lovenox ANDA. This was information that was not known to the public and was not supposed to be known by anyone outside of the FDA. Based on his prior role at OGD, JOHNSTON understood this to mean that the ANDA approval was highly likely and could occur in a matter of months, which information JOHNSTON shared with VALVANI. VALVANI asked JOHNSTON to continue to contact his FDA sources to obtain additional updates about the agency’s internal deliberations related to the approval of a generic Lovenox ANDA.
Beginning on or about January 4, 2010, after receiving the tip from JOHNSTON, VALVANI requested that Investment Adviser-A give JOHNSTON a raise. In a January 6, 2010, email to Investment Adviser-A’s chief financial officer, VALVANI sought to justify providing a raise to JOHNSTON by stressing how important JOHNSTON was to him: “[JOHNSTON] is without question the most valuable consultant I’ve ever worked with and I’m pushing to reinforce the value of the relationship and encourage him to continue to go above and beyond for our team.”
The next day, on or about January 7, 2010, VALVANI caused Fund-1 to begin to increase its long position in Momenta by four-fold. By on or about July 23, 2010, Fund-1 held an approximately 2,962,715-share long position in Momenta stock valued at approximately $35 million. Beginning on or about January 14, 2010, VALVANI caused Fund-1 to short Sanofi securities. By on or about July 23, 2010, Fund-1 held an approximately 1,320,454-share short position in Sanofi’s European-traded stock and an approximately 509,854-share short position in Sanofi’s American Depository Receipts (“ADRs”), together valued at approximately $78 million.
VALVANI also passed to PLAFORD the information that he had obtained from JOHNSTON, so that PLAFORD could execute securities trades in Fund-2, which he did. PLAFORD understood this information to be highly confidential and material nonpublic information of the most sensitive kind that had been obtained from JOHNSTON’s source in the FDA.
On or about July 23, 2010 – approximately seven years after the first ANDA was filed – the FDA approved the Momenta ANDA (and denied Sanofi’s related citizen petition). This approval was positive news for Momenta, as Momenta was the first company to receive generic Lovenox approval, and the company’s stock price increased by nearly 100 percent in one day. The approval of the Momenta ANDA was negative news for Sanofi, which no longer had a monopoly on the drug, and the price of Sanofi’s stock and ADRs declined. Following the FDA’s announcement, VALVANI caused Fund-1 to sell the Momenta shares it held and to close out its short positions in Sanofi ADRs and stock, yielding a total profit of approximately $25 million.
In or about early January 2011, VALVANI called JOHNSTON and stated, in sum and substance, that Investment Adviser-A had decided to end its relationship with JOHNSTON in the wake of news reports of insider trading investigations.
The Scheme to Mismark Securities
As alleged in the Complaint, from in or about June 2011 through in or about September 2013, LUMIERE, PLAFORD, and others participated in a scheme to defraud Fund-2’s investors and potential investors by deceptively mismarking each month the value of certain securities held by Fund-2. The objective of the scheme was two-fold: (1) to inflate Fund-2’s NAV; and (2) to mislead investors about the liquidity of Fund-2’s holdings. Investment Adviser-A assessed performance fees to be paid by investors each year based on Fund-2’s profits and losses. LUMIERE’s mismarking was in violation of Investment Adviser-A’s internal valuation procedures and contrary to Investment Adviser-A’s representations to investors. The effect of the scheme was to overstate Fund-2’s NAV, often by tens of millions of dollars as calculated at the end of each month, which resulted in higher payments to Investment Adviser-A and higher bonuses for LUMIERE, among other benefits. The effect of the scheme was also to deceive investors into believing that certain securities were properly categorized as Level II, or securities with a quoted price but in a more inactive market, when, in fact, these securities were highly illiquid Level III investments.
As to the first form of the scheme, LUMIERE, PLAFORD, 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 Fund-2’s administrator and artificially inflate Fund-2’s NAV each month. For each month-end valuation, LUMIERE and/or PLAFORD would begin by reviewing an inventory of Fund-2’s investments and proposed valuations for each prepared by Fund-2’s administrator and Investment Adviser-A’s back office. LUMIERE and/or PLAFORD would then identify those relatively illiquid securities as to which they disagreed with or disliked the proposed price, and create a list reflecting the price 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, PLAFORD, 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 Fund-2’s pricing methodology. PLAFORD then submitted the friendly brokers’ sham quotes as purportedly independent bases for that security’s valuation to Investment Adviser-A’s accounting department, for the eventual submission to Fund-2’s administrator.
By obtaining these sham quotes, LUMIERE and PLAFORD caused a number of Fund-2’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 PLAFORD fraudulently caused Investment Adviser-A 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 Fund-2’s percentage of illiquid investments, in order to induce investors to invest in or keep their money in Fund-2.
As to the second form of the scheme, LUMIERE and PLAFORD purchased additional quantities of certain securities – in which Fund-2 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.” PLAFORD would then report that inflated price to Investment Adviser-A’s accounting department for NAV purposes. In both cases – the sham broker quotes and the inflated purchase prices – it was LUMIERE and PLAFORD’s intent to increase the price of certain securities in order to inflate Fund-2’s month-end valuation.
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VALVANI, 44, of Brooklyn, New York, is charged with five counts: one count of conspiracy to convert United States property, to commit securities fraud and to defraud the United States; two counts of securities fraud; one count of conspiracy to commit wire fraud; and one count of wire fraud. Count One carries a maximum sentence of five years in prison. Counts Two through Five each carry 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.
LUMIERE, 45, of New York, New York, is charged with three counts: one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; and one count of wire fraud. Count One carries a maximum sentence of five years in prison. Counts Two and Three each carry 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.
On June 9, 2016, PLAFORD, 38, of Bedford, New York, pled guilty before Judge Abrams to seven counts: one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; one count of conspiracy to defraud the United States and to convert United States property; one count of conversion of United States property; one count of conspiracy to convert United States property, to commit securities fraud, and to defraud the United States; one count of securities fraud; and one count of conspiracy to commit wire fraud. Counts One, Three, and Five each carry a maximum sentence of five years in prison. Counts Two, Six, and Seven each carry a maximum sentence of 20 years in prison. Count Four carries a maximum sentence of 10 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.
On June 13, 2016, JOHNSTON, 64, of Olney, Maryland, pled guilty before Magistrate Judge James C. Francis IV to four counts: one count of conspiracy to convert United States property, to commit securities fraud, and to defraud the United States; one count of securities fraud; one count of conspiracy to commit wire fraud; and one count of wire fraud. Count One carries a maximum sentence of five years in prison. Counts Two through Four each carry 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 defendants will be determined by the judge.
Mr. Bharara praised the work of the FBI and HHS-OIG, 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 Ian McGinley, Damian Williams, and Joshua A. Naftalis are in charge of the prosecution.
The allegations contained in the Indictment and 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 Indictment and the Complaint, and the description of the Indictment and the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Announces Economic Espionage Charges Against Chinese Man for Stealing Valuable Source Code from Former Employer with Intent to Benefit the Chinese GovernmentRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced a six-count superseding indictment (the “Superseding Indictment”) charging XU JIAQIANG with economic espionage and theft of trade secrets, in connection with XU’s theft of proprietary source code from XU’s former employer, with the intent to benefit the National Health and Family Planning Commission of the People’s Republic of China. XU was initially arrested by the Federal Bureau of Investigation (“FBI”) in White Plains on December 7, 2015, and had previously been charged with one count of theft of trade secrets. XU is scheduled to be arraigned on the Superseding Indictment at 12:00 p.m. on Thursday, June 16, 2016, in White Plains federal court before the Honorable Kenneth M. Karas.
U.S. Attorney Preet Bharara stated: “As alleged, Xu Jiaqiang is charged with stealing valuable, proprietary software from his former employer, an American company, that he intended to share with an agency within the Chinese government. Economic espionage not only harms victim companies that have years or even decades of work stolen, but it also crushes the spirit of innovation and fair play in the global economy. Economic espionage is a serious federal crime, for which my office, the Department of Justice’s National Security Division, and the FBI will show no tolerance.”
Assistant Attorney General John P. Carlin stated: “Xu allegedly stole proprietary information from his former employer for his own profit and the benefit of the Chinese government. Those who steal America’s trade secrets for the benefit of foreign nations pose a threat to our economic and national security interests. The National Security Division will continue to work tirelessly to identify, pursue and prosecute any individual who attempts to harm American businesses by robbing them of their valuable intellectual property.”
According to the allegations contained in the criminal Complaint on which Xu was initially arrested, the original Indictment, and the Superseding Indictment[1] filed today in Manhattan federal court:
From November 2010 to May 2014, XU worked as a developer for a particular U.S. company (the “Victim Company”). As a developer, XU enjoyed access to certain proprietary software (the “Proprietary Software”), as well as that software’s underlying source code (the “Proprietary Source Code”). The Proprietary Software is a clustered file system developed and marketed by the Victim Company in the United States and other countries. A clustered file system facilitates faster computer performance by coordinating work among multiple servers. The Victim Company takes significant precautions to protect the Proprietary Source Code as a trade secret. Among other things, the Proprietary Source Code is stored behind a company firewall and can be accessed by only a small subset of the Victim Company’s employees. Before receiving Proprietary Source Code access, Victim Company employees must first request and receive approval from a particular Victim Company official. Victim Company employees must also agree in writing at both the outset and the conclusion of their employment that they will maintain the confidentiality of any proprietary information. The Victim Company takes these and other precautions in part because the Proprietary Software and the Proprietary Source Code are economically valuable, which value depends in part on the Proprietary Source Code’s secrecy.
In May 2014, XU voluntarily resigned from the Victim Company. XU subsequently communicated with one undercover law enforcement officer (“UC-1”), who posed as a financial investor aiming to start a large-data storage technology company, and another undercover law enforcement officer (“UC-2”), who posed as a project manager, working for UC-1. In these communications, XU discussed his past experience with the Victim Company and indicated that he had experience with the Proprietary Software and the Proprietary Source Code. On March 6, 2015, XU sent UC-1 and UC-2 a code, which XU stated was a sample of XU’s prior work with the Victim Company. A Victim Company employee (“Employee-1”) later confirmed that the code sent by XU included proprietary Victim Company material that related to the Proprietary Source Code.
XU subsequently informed UC-2 that XU was willing to consider providing UC-2’s company with the Proprietary Source Code as a platform for UC-2’s company to facilitate the development of UC-2’s company’s own data storage system. XU informed UC-2 that if UC-2 set up several computers as a small network, then XU would remotely install the Proprietary Software so that UC-1 and UC-2 could test it and confirm its functionality.
In or around early August 2015, the FBI arranged for a computer network to be set up, consistent with XU’s specifications. Files were then remotely uploaded to the FBI-arranged computer network (the “Xu Upload”). Thereafter, on or about August 26, 2015, XU and UC-2 confirmed that UC-2 had received the Xu Upload. In September 2015, the FBI made the Xu Upload available to a Victim Company employee who has expertise regarding the Proprietary Software and the Proprietary Source Code (“Employee-2”). Based on Employee-2’s analysis of technical features of the Xu Upload, it appeared to Employee-2 that the Xu Upload contained a functioning copy of the Proprietary Software. It further appeared to Employee-2 that the Xu Upload had been built by someone with access to the Proprietary Source Code who was not working within the Victim Company or otherwise at the Victim Company’s direction.
On December 7, 2015, XU met with UC-2 at a hotel in White Plains, New York (the “Hotel”). XU stated, in sum and substance, that XU had used the Proprietary Source Code to make software to sell to customers, that XU knew the Proprietary Source Code to be the product of decades of work on the part of the Victim Company, and that XU had used the Proprietary Source Code to build a copy of the Proprietary Software, which XU had uploaded and installed on the UC Network (i.e., the Xu Upload). XU also indicated that XU knew that the copy of the Proprietary Software XU had installed on the UC Network contained information identifying the Proprietary Software as the Victim Company’s property, which could reveal the fact that the Proprietary Software had been built with the Proprietary Source Code without the Victim Company’s authorization. XU told UC-2 that XU could take steps to prevent detection of the Proprietary Software’s origins – i.e., that it had been built with stolen Proprietary Source Code – including writing computer scripts that would modify the Proprietary Source Code to conceal its origins.
Later on December 7, 2015, XU met with UC-1 and UC-2 at the Hotel. During that meeting, XU showed UC-2 a copy of what XU represented to be the Proprietary Source Code on XU’s laptop. XU noted to UC-2 a portion of the code that indicated it originated with the Victim Company as well as the date on which it had been copyrighted. XU also stated that XU had previously modified the Proprietary Source Code’s command interface to conceal the fact that the Proprietary Source Code originated with the Victim Company and identified multiple specific customers to whom XU had previously provided the Proprietary Software using XU’s stolen copy of the Proprietary Source Code.
In connection with the economic espionage counts charged in the Superseding Indictment, XU stole, duplicated, and possessed the Proprietary Source Code with the intent to benefit the National Health and Planning Commission of the People’s Republic of China.
* * *
The Superseding Indictment charges XU, 30, with three counts of economic espionage, in violation of Title 18, United States Code, Sections 1831 and 2, each of which carries a maximum sentence of 15 years in prison, and three counts of theft of a trade secret, in violation of Title 18, United States Code, Sections 1832 and 2, each of 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 a judge.
Mr. Bharara praised the FBI’s outstanding investigative efforts. This prosecution is the result of the close cooperative efforts of the U.S. Attorney’s Office for the Southern District of New York and the National Security Division of the U.S. Department of Justice.
The case is being prosecuted by the Office’s Terrorism and International Narcotics Unit and its White Plains Division. Assistant U.S. Attorneys Benjamin Allee and Ilan Graff are in charge of the prosecution, with assistance from Trial Attorney David Aaron of the National Security Division’s Counterintelligence and Export Control Section.
The charges in the Superseding Indictment, the original Indictment, and 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, the original Indictment, and the Superseding Indictment, and the description of those documents set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Former Owner and Operator of Purported HIV/AIDS Health Clinics Sentenced to 63 Months in Prison for $12 Million Medicare Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JORGE JUVIER, a former owner and operator of multiple HIV/AIDS clinics in New York City, was sentenced today to 63 months in prison for engaging in a scheme to defraud Medicare out of more than $12 million through the use of fraudulent HIV/AIDS clinics in New York City. As part of the Medicare fraud scheme, JUVIER and his co-conspirators paid patients cash kickbacks for coming to the clinics, coached patients on lies to tell clinic doctors to enable fraudulent billing, and billed Medicare for medications that were never administered, that were administered at incorrect dosages, or that were medically unnecessary. JUVIER previously pled guilty to conspiring to commit health care fraud before U.S. Magistrate Judge Frank Maas. U.S. District Judge Kimba M. Wood imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Jorge Juvier and his co-conspirators set up and operated health care fraud mills and billed Medicare for HIV/AIDS medications that were incorrectly provided or not provided at all. Juvier and his co-conspirators effectively stole more than $12 million from U.S. taxpayers that could have been used to pay for legitimate Medicare expenses. The sentence imposed today on Juvier reflects the seriousness of his offense.”
According to the criminal complaint, the criminal information, and other documents filed in Manhattan federal court, as well as statements made at related court proceedings:
JUVIER and his co-conspirators set up and operated multiple health care clinics in New York City that purported to provide injection and infusion treatments to Medicare-eligible HIV/AIDS patients, but that were, in reality, health care fraud mills (the “Clinics”), that routinely billed Medicare for medications that were never provided or were provided at highly diluted doses, and that were often unnecessary because the person being “treated” did not medically need the treatments.
JUVIER and his co-conspirators executed the fraudulent scheme by recruiting HIV/AIDS patients who were eligible for Medicare to come to the Clinics multiple times per week, for multiple months, to undergo expensive “treatments” that were often unnecessary. The purported treatments included drugs costing hundreds of dollars each to administer, which were typically reserved for cancer and anemia patients. JUVIER and his co-conspirators paid the patients cash kickbacks of up to $300 per week in exchange for coming to the Clinics and agreeing to undergo the treatments. Patients were also offered approximately $50 for each additional patient they referred to the Clinics. JUVIER and his co-conspirators regularly instructed patients to lie to clinic doctors by claiming they had medical conditions that they did not in fact have. JUVIER and his co-conspirators then used these patients’ status as Medicare beneficiaries to submit claims to Medicare for reimbursement for the treatments purportedly administered to the patients, often receiving tens of thousands of dollars in reimbursements per patient. However, in truth, the treatments typically were provided in highly diluted doses or not provided at all, and were often medically unnecessary. As a result of the scheme, from 2009 through 2013, JUVIER and his co-conspirators defrauded the Medicare system out of at least $12 million.
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In addition to the term of prison, JUVIER, 58, of Queens, New York, was sentenced to three years of supervised release and was ordered to pay $12,233,292.23 in forfeiture and $12,233,292.23 in restitution.
Oscar Huachillo, 56, of Manhattan, was charged separately in connection with the above-described Medicare fraud scheme. On August 25, 2015, U.S. District Judge Katherine Polk Failla sentenced Huachillo to 87 months in prison, $31,177,987.84 in forfeiture, and $3,454,244.16 in restitution. To date, the United States has recovered over $14 million in assets through forfeiture as part of this prosecution.
Mr. Bharara praised the outstanding efforts of the Department of Health and Human Services-Office of the Inspector General, IRS-Criminal Investigation Division, and the Federal Bureau of Investigation in the investigation.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Jonathan Cohen is in charge of the prosecution.
Chinese National Charged for Stealing Source Code from Former Employer with Intent to Benefit Chinese GovernmentRead the Press Release
Xu Jiaqiang, 30, was charged in a six-count superseding indictment with economic espionage and theft of trade secrets, in connection with Xu’s theft of proprietary source code from his former employer, with the intent to benefit the National Health and Family Planning Commission of the People’s Republic of China.
The superseding indictment was announced by Assistant Attorney General for National Security John P. Carlin and U.S. Attorney Preet Bharara of the Southern District of New York.
Xu was initially arrested by the FBI on Dec. 7, 2015, and was previously charged with one count of theft of trade secrets. Xu is scheduled to be arraigned on the superseding indictment at 12 p.m. EDT on June 16, 2016, before U.S. District Judge Kenneth M. Karas of the Southern District of New York.
“Xu allegedly stole proprietary information from his former employer for his own profit and the benefit of the Chinese government,” said Assistant Attorney General Carlin. “Those who steal America’s trade secrets for the benefit of foreign nations pose a threat to our economic and national security interests. The National Security Division will continue to work tirelessly to identify, pursue and prosecute any individual who attempts to harm American businesses by robbing them of their valuable intellectual property.”
“As alleged, Xu Jiaqiang is charged with stealing valuable, proprietary software from his former employer, an American company, that he intended to share with an agency within the Chinese government,” said U.S. Attorney Bharara. “Economic espionage not only harms victim companies that have years or even decades of work stolen, but it also crushes the spirit of innovation and fair play in the global economy. Economic espionage is a serious federal crime, for which my office, the Department of Justice’s National Security Division, and the FBI will show no tolerance.”
According to the allegations contained in the criminal complaint on which Xu was initially arrested, the original indictment and the superseding indictment:
From November 2010 to May 2014, Xu worked as a developer for a particular U.S. company (victim company). As a developer, Xu had access to certain proprietary software, as well as that software’s underlying source code. The proprietary software is a clustered file system developed and marketed by the victim company in the United States and other countries. A clustered file system facilitates faster computer performance by coordinating work among multiple servers. The victim company takes significant precautions to protect the proprietary source code as a trade secret because the value of the proprietary source code depends in part on its secrecy. Among other things, the proprietary source code is stored behind a company firewall and can be accessed by only a small subset of the victim company’s employees. Before receiving proprietary source code access, victim company employees must first request and receive approval from a particular victim company official. Victim company employees must also agree in writing at both the outset and the conclusion of their employment that they will maintain the confidentiality of any proprietary information.
In May 2014, Xu voluntarily resigned from the victim company. Xu subsequently communicated with one undercover law enforcement officer (UC-1), who posed as a financial investor aiming to start a large-data storage technology company, and another undercover law enforcement officer (UC-2), who posed as a project manager working for UC-1. In these communications, Xu discussed his past work with the victim company and indicated that he had experience with the proprietary software and the proprietary source code. On March 6, 2015, Xu sent UC-1 and UC-2 a code, which Xu stated was a sample of Xu’s prior work with the victim company. A victim company employee (employee-1) later confirmed that the code sent by Xu included proprietary victim company material that related to the proprietary source code.
Xu subsequently informed UC-2 that he was willing to consider providing UC-2’s company with the proprietary source code as a platform for UC-2’s company to facilitate the development of UC-2’s company’s own data storage system. Xu informed UC-2 that if UC-2 set up several computers as a small network, then Xu would remotely install the proprietary software so that UC-1 and UC-2 could test it and confirm its functionality.
In or around early August 2015, the FBI arranged for a computer network to be set up, consistent with Xu’s specifications (UC network). Files were then remotely uploaded to the FBI-arranged computer network. Thereafter, on or about Aug. 26, 2015, Xu and UC-2 confirmed that UC-2 had received the upload. In September 2015, the FBI made Xu’s upload available to a victim company employee who has expertise regarding the proprietary software and the proprietary source code (employee-2). Based on employee-2’s analysis of technical features of Xu’s upload, it appeared to employee-2 that the upload contained a functioning copy of the proprietary software. It further appeared to employee-2 that Xu’s upload had been built by someone with access to the proprietary source code that was not working within the victim company or otherwise at the victim company’s direction.
On Dec. 7, 2015, Xu met with UC-2 at a hotel in White Plains, New York. Xu stated, in sum and substance, that he had used the proprietary source code to make software to sell to customers, that he knew the proprietary source code was the product of decades of work on the part of the victim company and that he had used the proprietary source code to build a copy of the proprietary software, which he had uploaded and installed on the UC network. Xu also indicated that he knew that the copy of the proprietary software he had installed on the UC network contained information identifying the proprietary software as the victim company’s property, which could reveal the fact that the proprietary software had been built with the proprietary source code without the victim company’s authorization. Xu told UC-2 that he could take steps to prevent detection of the proprietary software’s origins, including writing computer scripts that would modify the proprietary source code to conceal its origins.
Later on Dec. 7, 2015, Xu met with UC-1 and UC-2 at the hotel. During that meeting, Xu showed UC-2 a copy of what he represented to be the proprietary source code on his laptop. Xu noted to UC-2 a portion of the code that indicated it originated with the victim company as well as the date on which it had been copyrighted. Xu also stated that he had previously modified the proprietary source code’s command interface to conceal the fact that the proprietary source code originated with the victim company and identified multiple specific customers to whom he had previously provided the proprietary software using his stolen copy of the proprietary source code.
In connection with the economic espionage counts charged in the superseding indictment, Xu stole, duplicated and possessed the proprietary source code with the intent to benefit the National Health and Planning Commission of the People’s Republic of China.
The superseding indictment charges Xu with three counts of economic espionage, which each carry a maximum sentence of 15 years in prison. He was also charged with three counts of theft of a trade secret, which each carry 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 a judge.
A superseding indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until and unless proven guilty.
The case is being investigated by the FBI, and is being prosecuted by Assistant U.S. Attorneys Benjamin Allee and Ilan Graff of the Southern District of New York, with assistance from Trial Attorney David Aaron of the National Security Division’s Counterintelligence and Export Control Section.
Xu Superseding Indictment
Founder and Portfolio Manager of Canarsie Capital, LLC, Sentenced in Manhattan Federal Court for Securities FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that OWEN LI was sentenced to probation for securities fraud and making a false statement, stemming from LI’s lies to investors and the U.S. Securities and Exchange Commission (“SEC”) regarding the performance of Canarsie Capital, LLC (“Canarsie”) – a hedge fund LI had founded and for which he acted as portfolio manager – which collapsed in January 2015. LI pled guilty on December 16, 2015, before United States Magistrate Judge Frank Maas. U.S. District Judge Robert W. Sweet imposed today’s sentence.
According to the Information, other documents filed in the case, and statements made in open court:
LI founded Canarsie in January 2013 with approximately 10 investors and $16.55 million in assets under management. By the end of 2013, Canarsie had approximately $47.75 million in assets under management, and LI earned over $2.2 million that year. Li raised another $16.8 million in 2014, and at the time of its collapse in January 2015, Canarsie had approximately 41 investors and $56.8 million in assets under management.
According to Canarsie’s offering memorandum (the “Offering Memorandum”), which was provided to investors, Canarsie’s portfolio would be balanced and risk would be managed “through limits on position sizing and market exposure.” Generally no position, whether long or short, would exceed 10% of Canarsie’s assets.
LI Reported Fictitious Trades to His Prime Broker
Canarsie reported Canarsie’s trades daily to its prime broker. At the end of each trading day, the prime broker would match Canarsie’s trade report against trade reports submitted by executing brokers who had filled Canarsie’s orders that day. Mismatches of information concerning trades reported by Canarsie and the executing brokers were considered “trade breaks.”
In March and early April 2014, LI began reporting fictitious “sell” trades to Canarsie’s prime broker at that time (“Prime Broker-1”) as if Canarsie had executed the trades, when, in fact and as LI knew, Canarsie had never actually sold the shares in question. On April 9, 2014, Prime Broker-1 discovered multiple instances from March and early April 2014 in which LI had caused Canarsie to report trades that had not in fact been executed. Specifically, Prime Broker-1 noted that LI had engaged in a pattern of reporting sell trades, particularly in shares of Facebook, Inc. (“Facebook”), to Prime Broker-1, and subsequently canceling the sell trades before the settlement date.
As LI knew, Prime Broker-1 calculated Canarsie’s margin requirement on the basis of trade date, not settlement date. LI’s pattern of booking and canceling “sell” trades temporarily created the false appearance that the long positions in Facebook and other stocks (and thus the leverage in the account) were diminishing. This allowed Canarsie to (a) avoid a margin call from Prime Broker-1, and (b) avail itself of greater leverage than Prime Broker-1 ordinarily would have extended to Canarsie. Therefore, on April 1, 2014, Canarsie’s account was levered approximately eight times, in that it was employing approximately $377 million of margin with equity of approximately $45 million. In addition, LI had accumulated a position in Facebook that exceeded 10% of Canarsie’s total portfolio, in violation of the risk-management parameters set forth in the Offering Memorandum.
In light of those trade breaks, Prime Broker-1, among other things, forbid Canarsie from using margin and insisted that Canarsie hire a second prime broker, suggesting that eventually the second prime broker would become Canarsie’s sole prime broker in lieu of Prime Broker-1. In a meeting with a prospective second prime broker (“Prime Broker-2”), LI did not inform Prime Broker-2’s representatives that (a) Prime Broker-1 had told Canarsie to find a second prime broker, (b) Prime Broker-1 had withdrawn margin, and (c) if Canarsie established a relationship with Prime Broker-2, Prime Broker-2 would be, in essence, the sole prime broker for Canarsie. In August 2014, Canarsie established a prime brokerage account with Prime Broker-2, and conducted virtually all of its trading through that account from that point on.
LI’s Misstatements to Investors About Canarsie’s Performance
At or around the end of each month, LI and others prepared and sent emails to Canarsie’s investors describing the fund’s performance. Those emails contained an estimated net asset value (“NAV”) and monthly return. Canarsie’s administrator (the “Administrator”) emailed each investor a monthly account statement showing the value of his or her investment and Canarsie’s NAV. On at least two occasions, the estimated NAV supplied by LI and emailed to investors by Canarsie differed materially from the Administrator’s NAV, which appeared in the investors’ monthly statements.
In April 2014, Canarsie suffered approximately $13.6 million in losses and was down approximately 23% from the beginning of the month. However, on or about April 30, 2014, LI falsely told at least one investor that performance was down only nine percent. LI then intentionally delayed approving the correct April NAV, as calculated by the Administrator, because it was significantly worse than the NAV he had reported to investors at the end of April, and lied to investors about the reason for the delayed monthly statement and the reason for the discrepancy.
In December 2014, LI again delayed a monthly statement, this time for November 2014. LI did not approve the preliminary November NAV because it showed losses the fund had incurred toward the end of November and trades that LI had deliberately broken and later canceled or amended. Despite repeated requests from the Administrator, LI delayed approving the November NAV until January 8, 2015, falsely telling the Administrator that he had been in the hospital for a week. LI also falsely told investors who inquired about the November statements that they were late because of staffing changes at the Administrator and the Administrator’s focus on preparing for the annual audit.
On January 9, 2015, LI instructed the Administrator to release the November 2014 statements to investors. LI forwarded the statements to others at Canarsie, informing them that the fund’s November 2014 performance had been worse than the estimate Canarsie had provided to investors. LI falsely told others at Canarsie that the discrepancy was due to a residual amount of money transferred from Canarsie’s account at Prime Broker-1 to the account at Prime Broker-2 on or about November 28, 2014, which was not credited to the account at Prime Broker-2 until December 2014.
LI Misled the SEC Examination Staff
On November 5, 2014, members of the SEC’s Office of Compliance Inspections and Examinations Staff (the “Examination Staff”) conducted a phone interview of LI and others at Canarsie. Among other things, the Examination Staff asked why Canarsie appeared to be moving away from Prime Broker-1 as its prime broker, and conducting virtually all trading activity with Prime Broker-2. LI responded that he had contacts at Prime Broker-2 from his prior employment and certain harder-to-cover stocks were easier to locate through Prime Broker-2 than through Prime Broker-1. LI concealed from the Examination Staff that Prime Broker-1 (a) had withheld margin from Canarsie in or about April and May 2014, and (b) suggested that Canarsie move its prime brokerage relationship elsewhere.
On December 3, 2014, the Examination Staff again interviewed LI, and asked about the Facebook trades canceled in or about April 2014. LI responded that he had assumed that the brokers executed those orders, and had reported those trades to Prime Broker-1 as executed trades based on that assumption. In fact, LI never placed or transmitted those orders to executing brokers. LI concealed from the Examination Staff that he had fraudulently reported those trades as executions to Prime Broker-2 in an effort to conceal the extent of leverage in the fund and the size of the position in Facebook.
LI Caused Catastrophic Losses in the Fund
In December 2014 and January 2015, LI concealed from investors and others at Canarsie the fact that he was trading the fund in violation of the investment mandates in the Offering Memorandum and that, in doing so, he had placed the fund at excessive risk of catastrophic loss.
The fund’s net account value on or about December 31, 2014, was approximately $59.7 million. Beginning in early January 2015, LI began liquidating the equity long positions in the account – resulting in approximately $18 million in losses – and eliminated all short positions in the fund. At the same time, LI bought short-dated long positions in market index options. The result was an entirely long, unhedged portfolio.
On January 16, 2015, index options prices moved against Canarsie’s positions, resulting in losses of approximately $39 million. At the end of the day on January 16, the account was left with no equity, short, or options positions. As a result of LI’s trading, the fund lost substantially all of its assets between on or about December 31, 2014, and on or about January 16, 2015.
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LI, 30, was also ordered to pay restitution, forfeit $690,000, and pay a $100 special assessment.
Mr. Bharara praised the work of the Federal Bureau of Investigation, 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’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. 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 Michael Ferrara is in charge of the prosecution.
Connecticut Man Pleads Guilty in Manhattan Federal Court to Conspiracy to Obstruct Justice and Money Laundering Charges 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 pled guilty in Manhattan federal court today to charges of 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 was arrested on August 26, 2015, and pled guilty today before United States District Judge Jesse M. Furman.
U.S. Attorney Preet Bharara said: “As he admitted today, Robert Olins carried out a scheme to deceive and hide assets from two federal courts, a court-appointed receiver, and the SEC. Olins repeatedly lied to get approval for transactions, and used the proceeds to pay for personal luxuries, rather than to satisfy court judgments, as he was required to do.”
According to the Indictment and statements made at today’s plea hearing:
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 obtain court approval for certain transactions concerning the Art and Antiques Collection. OLINS then received money 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, specifically, 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.
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OLINS, 59, of West Hartford, Connecticut, faces a maximum sentence of five years in prison, three years of supervised release, the greatest of $250,000, twice the gross pecuniary gain derived from the offense, or twice the gross pecuniary loss to persons other than the defendant resulting from the offense, and a $100 mandatory special assessment on Count One; and a maximum term of 20 years in prison, three years of supervised release, a fine of the greater of $500,000 or twice the value of the funds involved in the transfer, and a mandatory $100 special assessment on Count Five. 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 Judge Furman. OLINS is scheduled to be sentenced by Judge Furman on September 29, 2016, at 3:30 p.m.
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.
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.
Six Individuals Charged in Scheme to Defraud Merchants Out of Jewelry and DiamondsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, Assistant Director-in-Charge of Federal Bureau of Investigation, (“FBI”), Robert E. Perez, Director of the New York Field Office of U.S. Customs and Border Protection (“CBP”), William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), and Julie L. Jones, Secretary of the Florida Department of Corrections (“FDC”) announced that DAVID JENKINS, ANTHONY BROOKS, LAKEATHA COOPER, SHARON LARA, DOMINEK GRANT, and ROBERTO CONCEPCION were taken into federal custody today for participating in a scheme to defraud merchants of diamonds and jewelry in New York, New York, and around the United States. BROOKS was presented this afternoon in Fort Lauderdale, Florida. COOPER and LARA were presented this afternoon in federal court in Fort Pierce, Florida. GRANT was presented this afternoon in federal court in Charleston, South Carolina. JENKINS and CONCEPCION, who were incarcerated in a Florida state correctional institution, have been taken into federal custody and will be presented upon their arrival in the Southern District of New York. The case is assigned to the Honorable Jesse M. Furman.
Manhattan U.S. Attorney Preet Bharara said: “The six defendants allegedly tricked merchants around the country, including in New York’s Diamond District, into sending valuable jewelry in exchange for what turned out to be counterfeit checks and bogus money orders. Two of the defendants allegedly engaged in this brazen scheme while incarcerated for other crimes.”
FBI Assistant Director Diego Rodriguez said: “Using a contraband cell phone and a complex network of co-conspirators throughout the United States, an inmate in Florida allegedly defrauded jewelers in New York’s Diamond District out of thousands of dollars’ worth of jewelry pieces. By posing as legitimate jewelry companies, David Jenkins negotiated a cash-on-delivery sale of jewelry with New York jewelers that was eventually paid with counterfeit certified checks and then re-sold. This cross-country scheme was met with cross-country law enforcement efforts, with FBI New York working closely with FBI Miami. We appreciate the assistance with today’s operations by FBI Columbia, FBI Phoenix, and FBI Miami. The FBI will continue to investigate big and small organized crime groups who seek to profit from fraudulent criminal activities.”
CBP New York Director Robert E. Perez said: “U.S. Customs and Border Protection is proud of the expertise we bring to support and assist investigations that result in the takedown of criminal enterprises. It is through interagency partnerships and collaborative efforts, like the one leading to today’s arrests, that law enforcement successfully combats today’s criminal organizations.”
NYPD Commissioner William J. Bratton said: “As alleged, defrauding diamond dealers, while two of the defendants ran this racket from a jail, speaks to the audacity of the crime. Today, this scheme of swindling New York City Diamond District merchants and others is over.”
FDC Secretary Julie L. Jones said: “The apprehension and arrest of the six defendants in this case represents what can be achieved through cooperation and collaboration between law enforcement agencies, regardless of their location. The Department is proud of its investigative contribution and will continue its efforts in ensuring not only the safety of Florida’s citizens, but the freedom to safely and securely conduct business in our state.”
According to the allegations in the Indictment[1] unsealed today in Manhattan federal court:
From at least in or about June 2015 to in or about June 2016, JENKINS, BROOKS, COOPER, LARA, GRANT, and CONCEPCION defrauded jewelry merchants in New York City and elsewhere by inducing the merchants to send gemstones, precious metals, and jewelry to them in exchange for counterfeit checks or other fictitious forms of payment.
The defendants contacted jewelry and antiques merchants by telephone, electronic message, and email. In many of these communications, JENKINS masqueraded as representatives of legitimate jewelry companies and, in doing so, often appropriated the names and personal identifying information of real people in order to induce merchants to ship jewelry and precious goods interstate. In the typical scenario, JENKINS, negotiated cash-on-delivery terms of payment from merchants, ensuring both that merchants would not meet any of the defendants in person and that the defendants could pay for the goods by counterfeit and fictitious certified checks. After receiving the merchants’ goods, the defendants typically sold those goods to other jewelry stores.
Contrary to the representations made to the merchants, JENKINS never represented any legitimate jewelry business. In fact, at all relevant times, JENKINS was incarcerated at a Florida state correctional institution, where he was assisted by CONCEPCION, who was also incarcerated at the same institution. BROOKS, COOPER, LARA, and GRANT, who at all relevant times were at liberty in the community, created and delivered counterfeit checks, accepted packages from merchants, and distributed proceeds from the fraud to others in the scheme.
JENKINS, 51 of Indiantown, Florida, BROOKS, 27, of Miramar, Florida; COOPER, 36, of West Palm Beach, Florida; LARA, 41, of Port Saint Lucie, Florida; GRANT, 31, of North Charleston, South Carolina; and CONCEPCION, 46, of Indiantown, Florida, are each charged with one count of conspiring to commit mail and wire fraud, which carries a maximum penalty of 20 years in prison, one count of interstate transportation of stolen property, which carries a maximum penalty of 10 years in prison, and one count of possessing fictitious obligations, which carries a maximum penalty of 25 years in prison. JENKINS is also charged with one count of aggravated identity theft, which carries a mandatory penalty of two years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.
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Mr. Bharara praised the outstanding work of the FBI, the New York FBI’s Eurasian Joint Organized Crime Task Force, CBP, NYPD, and FDC 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 Andrew M. Thomas and Karin Portlock are in charge of the case.
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 descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Sues New York City Department of Education for Discrimination and Retaliation at Pan American International High SchoolRead 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 lawsuit against the NEW YORK CITY DEPARTMENT OF EDUCATION (the “DOE”) for engaging in a pattern and practice of discrimination and retaliation in violation of Title VII. The Government alleges that during the 2012-2013 school year, the DOE permitted Principal Minerva Zanca and Superintendent Juan Mendez to discriminate against every black teacher at Pan American International High School (“Pan American”) and retaliate against an assistant principal who spoke out against the discrimination.
Manhattan U.S. Attorney Preet Bharara said: “It is nearly unthinkable that, in this day and age, one of the largest and most diverse school districts in the United States would allow racial discrimination and retaliation to flourish. Yet that is what we allege happened at Pan American International High School. Federal civil rights laws prohibit this misconduct. This suit seeks to remedy the violations that occurred at Pan American and ensure that the New York City Department of Education protects its employees’ civil rights in the future.”
As alleged in the Complaint filed in Manhattan federal court:
In August 2012, Superintendent Mendez selected Minerva Zanca as Pan American’s new principal. During the 2012-2013 school year, Pan American employed 27 teachers, three of whom were black. Throughout that school year, Principal Zanca purposely targeted John Flanagan and Heather Hightower, two untenured black teachers, for unsatisfactory lesson ratings. According to Assistant Principal Anthony Riccardo, Principal Zanca decided to give Mr. Flanagan and Ms. Hightower unsatisfactory ratings before she had seen the lesson she was supposed to evaluate.
In connection with her reviews of Mr. Flanagan and Ms. Hightower, Principal Zanca made derogatory racial comments to Assistant Principal Riccardo. Specifically, Principal Zanca stated that Hightower “looked like a gorilla in a sweater,” asked whether Assistant Principal Riccardo had seen Flanagan’s “big lips quivering” during a meeting, complained that she could “never” have “fucking nappy hair” like Hightower, and stated that she had difficulty not laughing at Flanagan because he reminded her of a Tropicana commercial where a black man “with those same lips” danced down a supermarket aisle.
Principal Zanca also discriminated against Lisa-Erika James, a tenured black teacher, by cutting the highly successful theater program Ms. James oversaw. On multiple occasions during the 2012-2013 school year, Principal Zanca attempted to cancel student productions. First, she refused to pay for expenses associated with a production. When money for the production was obtained from other sources, Principal Zanca then claimed that the school could not pay overtime wages for more than five hours of rehearsal per week. Pan American in fact had sufficient money to pay for more rehearsal, and Principal Zanca simply reallocated that money to other projects. Ultimately, the second student production of the 2012-2013 school year was cancelled.
During the spring of 2013, when Assistant Principal Riccardo refused to give an unsatisfactory rating to a lesson taught by Ms. Hightower, Principal Zanca yelled at Assistant Principal Riccardo, accused him of “sabotaging her plan,” and called school security to have him removed from the building. Subsequently, Principal Zanca initiated two complaints against Assistant Principal Riccardo with the DOE’s internal investigatory offices. Those offices determined that Principal Zanca’s allegations did not warrant any charges against Assistant Principal Riccardo. In June of 2013, Principal Zanca gave Assistant Principal Riccardo, Mr. Flanagan, and Ms. Hightower annual performance ratings of “unsatisfactory.”
The allegations that Principal Zanca engaged in discrimination and retaliation were brought to the attention of Superintendent Mendez, but the DOE did not take any disciplinary action against Principal Zanca. Even after the United States Equal Employment Opportunity Commission found reasonable cause to believe that the DOE had discriminated and retaliated against James, Riccardo, and Hightower, Principal Zanca was allowed to remain in charge of Pan American. Neither Ms. Hightower, Mr. Flanagan, Ms. James, nor Mr. Riccardo worked at Pan American after the 2012-2013 school year.
Title VII authorizes the Department of Justice to commence an action in the United States District Court against the DOE to remedy discrimination and retaliation for opposing discrimination. The Complaint seeks declaratory and injunctive relief, as well as compensatory damages on behalf of Mr. Flanagan, Ms. James, Ms. Hightower, and Assistant Principal Riccardo.
In October of 2013, Mr. Flanagan filed a lawsuit against the DOE, Principal Zanca, Superintendent Mendez, and others. That suit was docketed as Flanagan v. N.Y.C. Dep’t of Educ. et al., No. 13 Civ. 8456. On August 21, 2015, Magistrate Judge James C. Francis IV recommended the denial of Defendants’ motion for summary judgment on Mr. Flanagan’s Title VII claims for discrimination and retaliation. The DOE has not objected to Judge Francis’s recommendation, and the deadline for doing so has expired. The United States anticipates moving to intervene in Flanagan and to consolidate that case with its own.
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorney Caleb Hayes-Deats is in charge of the case.
Manhattan U.S. Attorney Announces Extradition of Defendants Linked to Massive Network Intrusions at U.S. Financial Institutions, U.S. Brokerage Firms, A Major News Publication, and Other Companies in Furtherance of Securities Fraud Scheme and Other CrimesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, 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 today that 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,” and ZIV ORENSTEIN, a/k/a “Aviv Stein,” a/k/a “John Avery,” were extradited from Israel. SHALON and ORENSTEIN were arrested in July 2015 for charges arising out of SHALON’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 is charged with committing these crimes with JOSHUA SAMUEL AARON, a/k/a “Mike Shields,” in furtherance of securities market manipulation schemes that SHALON and AARON perpetrated with defendant ORENSTEIN. SHALON, a Georgian and Israeli citizen, and ORENSTEIN, an Israeli citizen, arrived in the Southern District of New York last night and early this morning, respectively, and will be presented today in Manhattan federal court, before U.S. Magistrate Judge Kevin Nathaniel Fox.
Manhattan U.S. Attorney Preet Bharara said: “Gery Shalon and Ziv Orenstein, two of the alleged perpetrators of the cybercrime that we described at the time of their arrests as securities fraud on cyber steroids, have been successfully extradited from Israel to the United States. For the alleged hacks into numerous U.S. companies, including the largest theft of customer data from a U.S. financial institution in history, in furtherance of their securities fraud, Sharon and Orenstein will now face prosecution in a U.S. court.”
SHALON and ORENSTEIN were arrested by Israeli authorities in July 2015, pursuant to a provisional arrest warrant that was issued on the securities fraud charges in this case. AARON, a U.S. citizen, has yet to be arrested by U.S. authorities.
* * *
The charges in the Indictment against SHALON, 31, of Savyon, Israel, AARON, 31, a U.S. citizen who is believed to reside in Moscow, Russia, and ORENSTEIN, 40, of Bat Hefer, Israel, are included in the chart below. The maximum potential sentences listed below 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 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 and the extradition proceedings. 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, the Financial Services Information Sharing and Analysis Center, which significantly aided the investigation by facilitating information-sharing among the victim institutions, and the U.S. Marshals Service, for their assistance in the extradition of the defendants.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Eun Young Choi and Sarah Lai are in charge of the prosecution. Assistant U.S. Attorney Edward Diskant 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 Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Count
Defendants
Charge
Maximum Prison Term
One
SHALON and AARON
Conspiracy to commit computer hacking
Five years
Two
SHALON and AARON
Computer hacking
Five years
Three
SHALON and AARON
Computer hacking
Five years
Four
SHALON, AARON, and ORENSTEIN
Conspiracy to commit securities fraud
Five 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
10
SHALON, AARON, and ORENSTEIN
11
SHALON, AARON, and ORENSTEIN
12
SHALON, AARON, and ORENSTEIN
13
SHALON, AARON, and ORENSTEIN
Wire fraud
20 years
14
SHALON, AARON, and ORENSTEIN
Conspiracy to commit identification document fraud
15 years
15
SHALON, AARON, and ORENSTEIN
Aggravated identity theft
Mandatory two years
16
SHALON and ORENSTEIN
Unlawful internet gambling enforcement act conspiracy
Five years
17
SHALON and ORENSTEIN
Unlawful internet gambling enforcement act
Five years
18
SHALON and ORENSTEIN
Operation of illegal gambling business
Five years
19
SHALON and ORENSTEIN
Conspiracy to commit wire fraud: unlawful payment processing
20 years
20
SHALON
Conspiracy to operate an unlicensed money transmitting business
Five years
21
SHALON
Operation of an unlicensed money transmitting business
10 years
22
SHALON, AARON, and ORENSTEIN
Conspiracy to commit money laundering: Securities Market Manipulation Scheme
20 years
23
SHALON and ORENSTEIN
Conspiracy to commit money laundering: Internet Gambling and Payment Processing Schemes
20 years
Manhattan U.S. Attorney Announces $54 Million Settlement Against Salix Pharmaceuticals for Using “Speaker Programs” as Mechanism to Pay Illegal Kickbacks to Doctors to Induce Them to Prescribe Salix ProductsRead 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 U.S. Department of Health and Human Services, Office of Inspector General’s New York Region (“HHS-OIG”), and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today a $54 million settlement in a civil fraud lawsuit against SALIX PHARMACEUTICALS, INC. (“SALIX”), a specialty pharmaceutical company based in Raleigh, North Carolina, that sells products used to treat various gastroenterology conditions. The settlement resolves claims that SALIX violated the federal Anti-Kickback Statute and False Claims Act by using its “speaker programs” as a mechanism to pay kickbacks to doctors to induce them to prescribe SALIX drugs and medical devices that were reimbursed by federal health care programs. Specifically, the United States’ Complaint-in-Intervention alleges that SALIX held sham speaker programs, frequently at high-end restaurants, where doctors were paid substantial honoraria purportedly to educate other doctors about a Salix product, but in reality spent little or no time discussing the product. The settlement will also resolve numerous state law civil fraud claims.
Today, U.S. District Court Judge Denise L. Cote approved a settlement stipulation to resolve the Government’s claims against SALIX. Under the settlement, SALIX is required to pay approximately $46.53 million to the United States and has made extensive admissions regarding its conduct. Further, as part of the settlement, SALIX will pay approximately $7.47 million to resolve the state law civil fraud claims.
Manhattan U.S. Attorney Preet Bharara said: “For years, Salix Pharmaceuticals unlawfully sought to increase prescriptions of its products by using its ‘speaker programs’ as a vehicle to pay kickbacks to doctors. Through these ‘speaker programs,’ which were frequently nothing more than social gatherings with little or no educational component, Salix found a way to pay doctors money and treated them to fancy meals to push their drugs. With today’s settlement, Salix has taken responsibility for its conduct and agreed to pay a significant financial penalty. This action and settlement is part of our continuing effort to pursue health care providers who put their profits ahead of patient safety.”
HHS-OIG Special Agent in Charge Scott J. Lampert said: “When Salix Pharmaceuticals paid doctors large sums of money to speak at programs that were primarily social events, the goal was to induce the doctors to prescribe Salix products and enhance the company’s bottom line. We will continue to investigate such illegal arrangements that undermine impartial medical judgment and place company interests above those of patients.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “Salix used high priced meals at swanky restaurants to get doctors to push its products. Whether those doctors actually prescribed those medications, the simple idea behind the pitch eats away at the faith patients have in their doctors to put their health and wellbeing above the interests of a corporation. The FBI and our partners will do all that we can to keep these practices from doing more harm than good.”
As alleged in the Complaint-in-Intervention filed in Manhattan federal court:
During the period January 2009 through December 2013 (the “Covered Period”), many of SALIX’s speaker programs for Xifaxan, Apriso, Relistor, MoviPrep, OsmoPrep, Solesta, and Deflux (the “Covered Products”) were nothing more than social events at which SALIX wined and dined doctors to induce them to write prescriptions for these products. These speaker programs included both in-person events (at which both the speaker and the attendees were present in person and the speaker was paid to provide an educational talk on a Covered Product to the attendees using a slide presentation), as well as pre-recorded events (at which a SALIX employee was supposed to use a laptop or other device to play for the attendees a pre-recorded video of a doctor delivering a slide presentation, and then call the paid speaker, who was to be available to answer any questions by telephone).
The speaker programs, which were typically held in restaurants, were supposed to be educational in nature and the cost of the meal was supposed to be modest. But in practice, SALIX held many speaker programs that were primarily social in nature, including events where it repeatedly invited the same doctors, who frequently were from the same practice or otherwise knew each other, to attend the same exact program on the same exact topic. With respect to the pre-recorded programs – which SALIX personnel internally referred to as “doc-in-the-box programs” – the pre-recorded video frequently was not played or was intentionally played in a manner so it could be ignored. SALIX also held many speaker programs at very expensive, high-end restaurants.
The doctors whom SALIX paid to be speakers and whom SALIX invited to its events were often the high prescribers of its products or were viewed as having the potential to be high prescribers. Many of these doctors increased their prescription-writing for the Covered Products after becoming speakers and/or repeatedly attending sham speaker programs. During the Covered Period, SALIX spent approximately $25 million on speaker payments and meals.
As part of the settlement, SALIX admitted, acknowledged, and accepted responsibility for the following conduct:
-
Throughout the Covered Period, speaker programs were an important part of SALIX’s strategy for increasing sales of the Covered Products.SALIX conducted approximately 10,000 speaker programs for the Covered Products, including approximately 8,000 programs alone for Xifaxan, Apriso, and Relistor.
-
Speaker honoraria payments for a program ranged from $250 (for a doctor available on call to answer questions associated with a pre-recorded program) to $4,500 (for a doctor who spoke at an in-person program and had a specified level of experience and certain credentials).During the Covered Period, SALIX paid over 500 physicians honoraria for serving as speakers on the Covered Products, with dozens of physicians earning more than $50,000, and several earning more than $100,000.
-
Throughout the Covered Period, SALIX did not have effective mechanisms in place to monitor adequately its speaker programs to ensure compliance with internal policies. For example, there were no effective mechanisms in place to audit speaker programs and insufficient efforts were made to review data and other information on speaker programs to ensure compliance with the company’s internal policies.
-
Throughout the Covered Period, numerous SALIX employees held speaker programs for the Covered Products that were primarily social in nature and/or otherwise did not comply with the company’s internal policies.For example, there were programs where:
-
the designated speaker spent little or no time discussing the Covered Product;
-
the required slide presentation was not shown in its entirety or not at all;
-
doctors attended multiple programs on the same topic (at which the same slide presentation was supposed to have been shown) within a short period of time;
-
the programs were held in the main dining rooms of restaurants or other locations that were not conducive to an educational program;
-
the programs were held at high-end restaurants (such as Nobu and Le Bernardin in New York City), with per-person costs exceeding $200 and even $300;
-
the SALIX sales representative responsible for a program reported that certain physicians had attended the event even though they had not, in order to make the per-person cost of the event appear lower than it actually was;
-
attendees included individuals other than healthcare professionals with a legitimate interest in the scheduled topic, such as a physician’s spouse; and/or
-
the programs were used as an opportunity to provide a physician’s practice (in some cases including administrative staff) with a meal or a happy hour.
-
-
Additionally, with respect to the pre-recorded speaker programs, there were numerous instances where:(1) the SALIX sales representative did not play the pre-recorded presentation; (2) the SALIX sales representative played the pre-recorded presentation but placed the laptop or other viewing device in a location where it could not readily be seen or at a volume at which it could not readily be heard; and/or (3) the designated approved speaker was not called at the end of the pre-recorded presentation but still received an honorarium payment.
In connection with the filing of the lawsuit and settlement, the Government joined two private whistleblower lawsuits that had previously been filed under seal pursuant to the False Claims Act.
* * *
Mr. Bharara thanked HHS’s Office of the Inspector General, the FBI, and the Medicaid Fraud Control Units for Ohio 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. Attorneys Jeffrey K. Powell and Christopher B. Harwood are in charge of the case.
-
Former Pharmaceutical Company Employees Arrested for Participating in Fentanyl Kickback SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Scott Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, announced that JONATHAN ROPER, a former District Manager at a pharmaceutical company (“Pharma Company-1”), and FERNANDO SERRANO, a former sales representative at Pharma Company-1, were charged today with violating the Anti-Kickback Statute in connection with their participation in a scheme to pay doctors thousands of dollars to participate in sham educational programs in order to induce the doctors to prescribe millions of dollars’ worth of a fentanyl-based sublingual spray manufactured by Pharma Company-1 (the “Fentanyl Spray”). ROPER was arrested this morning by FBI agents on Long Island, and SERRANO was arrested this morning by FBI agents in New Jersey. They will be presented before U.S. Magistrate Judge Kevin N. Fox in Manhattan this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “Fentanyl is an incredibly dangerous and highly addictive drug that is finding its way into, and destroying, too many lives in our communities. Because of its deadly power, its legitimate prescription faces significant and severe restrictions. Yet, as alleged, former drug company employees Jonathan Roper and Fernando Serrano corruptly induced doctors to prescribe millions of dollars’ worth of Fentanyl through thousands of dollars in kickbacks disguised as phony educational programs. As alleged, Roper and Serrano helped feed this devastating surge of opioid addictions by tapping into another age-old addiction, greed.”
FBI Assistant Director Diego Rodriguez said: “This case should be something the medical industry and the general public should pay close attention to because it’s one of the reasons we’re experiencing an epidemic of overdoses and deaths in this country. Not only did the defendants in this case allegedly bully sales reps into pushing this highly addictive drug, they paid doctors to prescribe it to patients. The more prescriptions written, the more money the doctors made. Instead of seeing a way to help people who are dealing with extreme pain, they allegedly saw a huge payday that potentially put people’s lives in danger.”
HHS OIG Special Agent in Charge Scott J. Lampert said: “We expect drug company representatives to be part of the prescription drug abuse solution – not part of the problem, as alleged in this case. We will continue to investigate kickback arrangements, which can undermine impartial medical decision-making and worsen the overuse of opioids in this country.”
According to allegations in the Complaints unsealed today in Manhattan federal court:[1]
Fentanyl is a synthetic opioid that is classified as a Schedule II controlled substance and is approximately 100 times more potent than morphine as an analgesic. Because of the risk of misuse, abuse, and addiction associated with prescription products like the Fentanyl Spray, only doctors who have enrolled in a mandated U.S. Food and Drug Administration (“FDA”) program and completed necessary training are permitted to prescribe the Fentanyl Spray.
Pharma Company-1’s Fentanyl Spray was approved by the FDA in or about January 2012, solely for the management of breakthrough pain in cancer patients who are already receiving and who are tolerant to opioid therapy for their underlying persistent pain. The Fentanyl Spray is the only FDA-approved product that Pharma Company-1 currently has on the market. Pharma Company-1 reported approximately $330 million in net revenue from the Fentanyl Spray in 2015.
In order to market the Fentanyl Spray, Pharma Company-1 established a program purportedly to educate healthcare professionals about the Fentanyl Spray (the “Speaker Program”). Doctors selected as speakers at these Speaker Programs by Pharma Company-1 (“Speakers”) were compensated for purportedly providing educational presentations to a peer-level audience of healthcare professionals using a preapproved PowerPoint presentation. In reality, however, many of the Speaker Programs that ROPER and SERRANO organized and attended were predominantly social gatherings at high-end restaurants in Manhattan that involved no education regarding the Fentanyl Spray and no slide presentation at all. Many of the Speaker Programs also lacked an appropriate audience of healthcare professionals. In order to make these Speaker Programs appear legitimate, sign-in sheets for these Speaker Programs – including Speaker Programs organized by ROPER and SERRANO – were frequently forged by adding the names and signatures of doctors to sign-in sheets who had not, in fact, been present at the Speaker Program. Repeat attendees were also commonplace at Speaker Programs organized by SERRANO. In numerous instances, all of the attendees at Speaker Programs organized by SERRANO had previously attended Pharma Company-1 Speaker Programs. Because all legitimate Speaker Programs required use of the same preapproved slide presentation, there was no educational purpose for healthcare professionals to attend Speaker Programs on a repeated basis.
While employed at Pharma Company-1, ROPER and SERRANO were each involved in organizing Speaker Programs for two Manhattan-based doctors (“Doctor-1” and “Doctor-2”), among other doctors. Doctor-1 and Doctor-2 were frequently the purported Speakers at sham Speaker Programs that were social in nature and lacked an educational component. Doctor-1 and Doctor-2 were highly compensated by Pharma Company-1 for acting as Speakers. In 2014 alone, Doctor-1 and Doctor-2 received over $147,000 and $112,000, respectively, in Speaker Program fees. During this same time period, Doctor-1 and Doctor-2 were also two of the largest prescribers of the Fentanyl Spray in the United States. In 2014 alone, Doctor-1 and Doctor-2 prescribed, respectively, over $3 million and over $2 million worth of the Fentanyl Spray that was reimbursed by various private insurance companies, and over $1 million worth of the Fentanyl Spray that was reimbursed by Medicare.
It was well understood among Pharma Company-1 employees that doctors were selected as Speakers in order to induce these doctors to prescribe large quantities of the Fentanyl Spray, and ROPER explicitly instructed the sales force he supervised that this was the case. For example, on or about May 6, 2014, ROPER sent an email to certain sales representatives in which he expressed displeasure that certain doctors who were Speakers were not prescribing sufficient quantities of the Fentanyl Spray:
Where is the ROI [Return on Investment]??!!! All prescribers from this team that are on this list are [Pharma Company-1] speakers. We invest a lot of time, $, blood, sweat, and tears on “our guys” and help spreading the word on treating BTCP [breakthrough cancer pain]. We hire only the best of the best to be apart [sic] of our speaker bureau and dropping script counts is what we get in return?
. . .
This is a slap in the face to all of you and is a good indication as to why NONE of you are climbing in the rankings this quarter. DO NOT be afraid to set your expectations and make them crystal clear as to what they are before, during, and after HIRING these priviliged [sic] set of docs who are fortunate enough to be a part of the best speaker bureau in the market in the world of BTCP [breakthrough cancer pain]. Please handle this immediately as funding will not be given out to anymore [sic] “let downs” in the future. Thanks. $$$$
ROPER decided which doctors would be allocated Speaker Programs in the sales territory that included New York City. ROPER instructed one sales representative that a Speaker would receive fewer Speaker Programs in the future because ROPER was not pleased with the quantity of Fentanyl Spray prescriptions this doctor was writing. ROPER informed the sales representative that he wanted to hit the doctor “in his pocket” in order to try to cause the doctor to start writing more Fentanyl Spray prescriptions. ROPER also once instructed this same sales representative to offer cash to a medical professional in order to induce this medical professional to prescribe the Fentanyl Spray.
* * *
ROPER, 37, of Commack, New York, and SERRANO, 30, of Manalapan, New Jersey, are each charged with one count of conspiracy to violate the Anti-Kickback Statute and one count of violating the Anti-Kickback Statute. Each of the two counts carries a maximum term of five 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.
The charges contained in the Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Mr. Bharara praised the investigative work of the FBI and the HHS-OIG.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Noah Solowiejczyk is in charge of the prosecution.
[1] As the introductory phrase signifies, the entirety of the text of the Complaints and the description of the Complaints set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Former Dea Supervisor and Employee Convicted of Making False Statements in National Security FormsRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, announced today that DAVID POLOS, formerly an Assistant Special Agent-in-Charge with the Drug Enforcement Administration (“DEA”), and GLEN GLOVER, a DEA Information Technology Specialist, were convicted of conspiracy and making false statements to the government in national security forms regarding, among other things, their employment at an adult entertainment establishment. POLOS and GLOVER were convicted after a two-week trial before U.S. District Judge Paul G. Gardephe.
Manhattan U.S. Attorney Bharara said: “David Polos and Glen Glover had important and sensitive law enforcement jobs that required honest answers to national security clearance forms. But as a unanimous jury found today, Polos and Glover lied on those national security forms, concealing their secret jobs owning and operating an adult entertainment club. Their actions were not just a betrayal of their oaths as DEA employees, but as the jury found, a violation of federal law.”
According to the allegations in the Complaint and evidence established at trial:
POLOS, who supervised the Organized Crime and Drug Enforcement Strike Force, and GLOVER, an expert in sensitive law enforcement techniques who assisted narco-trafficking investigations domestically and abroad, failed to disclose their employment at, and ownership interests in, an adult entertainment establishment (the “Club”) in Northern New Jersey in connection with a background check to determine their suitability as employees of a federal law enforcement agency with access to classified information. POLOS also failed to disclose his relationship with a dancer at the Club in response to a question about his relationships with foreign nationals. The national security forms POLOS and GLOVER submitted in connection with the background check required disclosure of outside employment in part due to concerns attendant to certain types of employment, including proximity to crime and persons involved in crime and the risk of employee blackmail.
GLOVER and POLOS submitted national security forms in August and September 2011, respectively, which stated, among other things, that they did not have employment other than their DEA jobs within the previous seven years, and that POLOS had not had any close, continuing contact with foreign nationals during that same period of time. In fact, GLOVER was the part owner of, and POLOS had a convertible ownership interest in, the Club. In addition, POLOS had, at the time he submitted his form, begun an intimate relationship with a foreign national from Brazil who worked as a dancer at the Club. POLOS and GLOVER had been warned by others, including Club employees, that at times drug use, drug sales, and illicit sexual activity appeared to be taking place at and outside the Club, which also operated as an all-cash business and did not pay required taxes during its first year in operation.
GLOVER and POLOS both worked regular managerial shifts at the Club in the months prior to and following their submission of the national security forms. They also hired, fired, and paid bartenders, dancers, and bouncers; supervised the Club’s renovation, advertised the Club in local periodicals; manned a back office available only to employees; remotely monitored video camera feed from the Club when not present; and generally tended to various Club-related matters. GLOVER and POLOS at times attended to Club matters during DEA work hours.
Had POLOS and GLOVER truthfully disclosed their employment at the Club, their ownership and involvement in the affairs of the Club would have been investigated as part of their background checks, and the security clearances that they were required to maintain as federal law enforcement employees likely would have been denied.
* * *
POLOS, 51, of West Nyack, New York, and GLOVER, 45, of Lyndhurst, New Jersey, were convicted of one count of conspiracy to make false statements, and were each convicted of one count of making false statements, in connection with their work at the Club. POLOS was convicted of an additional count of false statements in connection with his failure to disclose his relationship with a foreign national. Each count carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Department of Justice Office of the Inspector General. He also thanked the Internal Revenue Service-Criminal Investigation Division for its assistance.
This case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Martin S. Bell, Andrew D. Goldstein, and Paul M. Monteleoni are in charge of the prosecution.
16-160 ###
Norman Seabrook, President of Correction Officers’ Benevolent Association, Arrested for Demanding and Accepting Bribes in Exchange for Investing Union Money in New York-Based Hedge FundRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that NORMAN SEABROOK and MURRAY HUBERFELD were arrested this morning and charged in Manhattan federal court with committing honest services wire fraud, in connection with HUBERFELD’s payment of a $60,000 bribe to SEABROOK, the President of the Correction Officers’ Benevolent Association (“COBA”), and the promise of future bribe payments, in exchange for SEABROOK’s investment of $20 million of COBA money in HUBERFELD’s hedge fund. SEABROOK was arrested this morning by FBI agents in the Bronx, and HUBERFELD was arrested this morning by FBI agents in Manhattan. They will be presented before U.S. Magistrate Judge Kevin N. Fox in Manhattan this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Norman Seabrook and Murray Huberfeld engaged in a straightforward and explicit bribery scheme. For a Ferragamo bag stuffed with $60,000 in cash, Seabrook allegedly sold himself and his duty to safeguard the retirement funds of his fellow correction officers. Norman Seabrook, as COBA’s president for over two decades, allegedly made decisions about how to invest the nest egg for thousands of hard-working public servants, based not on what was good for them, but on what was good for Norman Seabrook.”
FBI Assistant Director-in-Charge Diego Rodriquez said: “When an official takes advantage of his or her position as steward of an organization’s financial resources in order to line their own pockets, it is a dereliction of duty for someone trusted to protect the financial contributions of the hard working men and women who belong to the organization. When a hedge fund manager provides bribe payments to organizations to gain their business, he or she puts the financial security of the fund’s investors at risk. This kind of criminal collusion destabilizes the system and undermines investors’ confidence in the integrity of the marketplace. The FBI, along with our partners, will continue to work to protect our citizens from the destructive consequences of corruption and deceit.”
According to the allegations in the Complaint filed yesterday in Manhattan federal court[1]:
COBA is New York City’s largest correction officers union and the largest municipal jail union in the United States. COBA represents over 9,000 correction officers in New York City, including at Riker’s Island. NORMAN SEABROOK, the defendant, is the President of COBA and has been for over 20 years. SEABROOK’s power over the affairs of COBA is rarely questioned by his Executive Board due to his ability to affect their assignments, pay, and hours. SEABROOK’s control extends to the union’s finances, including the administration of its “Annuity Fund,” a retirement benefits program funded by the City of New York that invests more than $70 million for correction officers’ retirements.
Toward the end of 2013, on a trip to the Dominican Republic with, among others, an individual who is now a cooperating witness for the Government (“CW-1”), SEABROOK told CW-1 that he worked hard to invest COBA’s money and was not getting anything out of it, and it was time that “Norman Seabrook got paid.” CW-1 was friendly with and had done business with MURRAY HUBERFELD, a founder and part owner of Platinum Partners (“Platinum”), a Manhattan-based hedge fund that principally ran two funds. CW-1 was aware that Platinum was looking to attract public and institutional investors – as opposed to its more typical investor set of high net-worth individuals – and told HUBERFELD that SEABROOK would likely invest COBA money in Platinum if HUBERFELD were willing to pay SEABROOK money. HUBERFELD agreed to the proposition, and HUBERFELD worked out a formula in which SEABROOK would be paid a kickback of a portion of the profits from COBA’s investment that HUBERFELD estimated could be between $100,000 and $150,000 per year.
SEABROOK then began investing COBA’s money, at first going through the motions of having Platinum make a pitch to COBA’s Annuity Fund board and having advisers conduct diligence. Those advisers included attorneys who expressed concern that public pensions like COBA do not typically invest in higher-risk vehicles like hedge funds. In March 2014, COBA’s Annuity Fund made a $10 million investment in one of Platinum’s funds. In June 2014 – this time without running the investment by the COBA Board or seeking any approval – SEABROOK invested $5 million, or 40 percent, of COBA’s own assets in the same fund. In August 2014, the Annuity Fund invested another $5 million in Platinum. By that point, COBA was the largest investor in that Platinum fund for all of 2014, and amounted to more than half of all incoming investments for the fund. At the same time, the fund was experiencing significant redemptions by other investors.
Toward the end of 2014, SEABROOK wanted the first of his kickback payments, and demanded it from CW-1. HUBERFELD told CW-1 that the fund had not performed as well as expected, and that he could pay SEABROOK only $60,000. CW-1 agreed to lay out the cash, and HUBERFELD agreed to reimburse CW-1 on Platinum’s behalf. HUBERFELD suggested that to paper over the reimbursement, CW-1 invoice Platinum for a number of CW-1’s tickets to the Knicks, in the amount of $60,000, and Platinum would then cut a check to CW-1.
CW-1 paid SEABROOK the first $60,000 kickback on December 11, 2014. Before meeting SEABROOK that evening, CW-1 went to one of SEABROOK’s favorite stores, Salvatore Ferragamo on Fifth Avenue in Manhattan, and bought an expensive bag for SEABROOK. CW-1 put the money in the bag, and met SEABROOK a few blocks away in SEABROOK’s COBA vehicle, where he handed SEABROOK the bag. CW-1 and SEABROOK had dinner with two other persons, then attended a Torah dedication ceremony, after which SEABROOK left Manhattan. These events have been corroborated by, among other things, phone records, e-mails, license plate reader records, and a receipt from Salvatore Ferragamo. On the same day, CW-1’s assistant prepared a $60,000 invoice to Platinum for Knicks tickets, which CW-1 forwarded by e-mail to HUBERFELD. Three days later, Platinum paid CW-1 by check.
HUBERFELD, through another co-conspirator not identified in the Complaint, continued to lobby SEABROOK for more money in 2015. However, after a lawsuit filed by a former COBA board member referred to the Platinum investments, and the U.S. Attorney’s Office grand jury investigation resulted in subpoenas to Platinum and COBA in May 2015, no further investments were made.
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SEABROOK, 56, of the Bronx, New York, and HUBERFELD, 55, of Manhattan New York, have been charged with one count of conspiracy to commit honest services wire fraud, and one count of honest services wire fraud. Each of the two counts carries a maximum term 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 FBI, the NYPD Internal Affairs Bureau, and the Internal Revenue Service’s Criminal Investigations Division, and noted that the investigation is continuing.
This case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Martin Bell, Russell Capone, and Kan M. Nawaday are in charge of the prosecution.
The charges contained in the Complaint are merely accusations and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Former NYPD Sergeant Pleads Guilty to Fraudulently Obtaining Disability BenefitsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Edward J. Ryan, the Special Agent in Charge of the United States Social Security Administration, Office of the Inspector General, announced that THOMAS SHEA, a former New York City Police Department (“NYPD”) sergeant, pled guilty today to one count of theft of public funds for fraudulently obtaining more than $600,000 in disability benefits from the Social Security Administration (“SSA”). In 1995, SHEA submitted a fraudulent application for disability benefits to the SSA that contained misrepresentations regarding his claimed disability. Then, at the same time SHEA was collecting disability benefits in the years since 1995, he was employed in a number of positions that he knowingly failed to report to the SSA. SHEA pled guilty before U.S. District Judge Jed S. Rakoff.
Manhattan U.S. Attorney Preet Bharara said: “Thomas Shea defrauded the Social Security Administration for over twenty years, fraudulently collecting more than half a million dollars of funds meant for people who are the truly disabled. I would like to thank the Social Security Administration, Office of the Inspector General, for their work in bringing an end to Shea’s fraud.”
Special Agent in Charge John F. Grasso said: “This investigation should serve as a warning to people who choose to selfishly defraud Social Security’s disability programs. The Social Security Office of the Inspector General vigorously pursues these cases and works closely on prosecution efforts with United States Attorney’s Offices across the country. We will continue to partner with the USAO in the Southern District of New York to identify and prosecute Social Security fraud perpetrators. We would also like to thank the Manhattan District Attorney’s Office for its assistance with this this investigation. I strongly encourage the public to report suspected instances of Social Security fraud to the OIG’s Fraud Hotline at 1-800-269-0271 or https://oig.ssa.gov/report.”
According to the Information filed in the case, as well as statements made during the plea proceedings:
Beginning in 1981, SHEA worked as a police officer with the NYPD. In approximately 1987, SHEA was promoted to sergeant and then retired in 1993 due to a shoulder injury.
In January 1995, at the age of approximately 35, SHEA submitted a fraudulent application for Social Security Disability Insurance (“SSDI”), a federal benefits program that provides monthly cash benefits to individuals who have worked in the past and paid into Social Security, but who can no longer work due to qualifying medical disabilities. In order to receive disability benefits, a beneficiary must certify that he or she is incapable of performing any gainful activity due to the stated disability. In addition, a beneficiary must report to the SSA all sources of income from work activity and any changes in the beneficiary’s medical condition. The application for SSDI submitted by SHEA contained misrepresentations regarding SHEA’s claimed disability.
From June 1994 through September 2015, SHEA received over $600,000 in disability benefits for himself and members of his family based on his reported disability and lack of other work or income. During this time, SHEA also provided the SSA with periodic forms concerning his status. For example, in January 1999, SHEA submitted a form to the SSA in which SHEA agreed that he would “notify the Social Security Administration if [his] medical condition improves or [he] go[es] to work.” By signing this document, SHEA acknowledged his understanding that “anyone who makes a false statement or representation of a material fact in an application or for use in determining a right to payment under the Social Security Act commits a crime under Federal Law.”
While SHEA was receiving SSDI benefits, SHEA was gainfully employed in a number of positions that he knowingly failed to report to the SSA. For example, from 1999 through 2014, SHEA worked as a commercial driver in the Bronx, New York, and elsewhere for at least three different employers.
In June 2015, the SSA issued a decision to redetermine the eligibility of SHEA for disability benefits on the basis that there was reason to believe that fraud or similar fault was involved in SHEA’s application for benefits. Specifically, the SSA found that SHEA’s application was based on tainted evidence submitted by a discredited physician, and that there was no non-tainted evidence supporting the prior finding of SHEA’s disability.
In September 2015, after the SSA scheduled a hearing regarding the eligibility of SHEA for disability benefits, SHEA requested that the SSA terminate his benefits.
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SHEA, 56, of Stony Point, New York, pled guilty to one count of theft of government funds, which carries a maximum sentence of 10 years in prison. According to the agreement with the Government to which he pled guilty, SHEA owes approximately $622,843 in restitution and forfeiture. SHEA is scheduled to be sentenced on October 7, 2016, before Judge Rakoff.
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.
Mr. Bharara praised the outstanding investigative work of the United States Social Security Administration, Office of the Inspector General.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Sagar K. Ravi is in charge of the prosecution.
Racketeering Kingpin Pleads Guilty in Manhattan Federal CourtRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today a plea of guilty by MANUEL GEOVANNY RODRIGUEZ-PEREZ, a/k/a “Shorty,” to his role as a leader of a massive and violent racketeering organization (the “Rodriguez Enterprise”) whose members sold large quantities of marijuana, murdered and attempted to murder nearly 20 people, transported and laundered millions of dollars, obstructed justice and committed perjury, and engaged in firearms offenses. RODRIGUEZ-PEREZ was previously charged in connection with “Operation Green Venom,” a coordinated multi-agency investigation that was led by Immigration and Customs Enforcement’s Homeland Security Investigations (“ICE HSI”) and first announced in October 2010. In a proceeding today before U.S. District Judge Laura T. Swain, RODRIGUEZ-PEREZ entered a plea of guilty to one count of racketeering conspiracy, and accepted responsibility for dozens of illegal acts associated with that conspiracy, including nine murders and 10 attempted murders in the United States and the Dominican Republic.
Manhattan U.S. Attorney Preet Bharara said: “As he admitted in court today, Manuel Geovanny Rodriguez-Perez was responsible for the murders of nine people, the attempted murders of 10 more, and numerous other criminal acts. Rodriguez-Perez’s years-long reign of terror ended with his arrest nearly six years ago. His public admissions to his crimes and his ultimate sentence hopefully will provide some closure to the victims of Rodgriguez-Perez’s brutal violence.”
According to the terms of his plea, RODRIGUEZ-PEREZ acknowledged his leadership role in a wide range of criminal activity, including his responsibility for the murders of the following victims:
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Francisco Perez, a/k/a “Francie,” on October 26, 1997
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Antonio Kasse, a/k/a “Toasty,” on December 13, 1998
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FNU LNU, a/k/a “Carlos Valentin,” a/k/a “Campi,” in or about 2000
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Noel Herrera, on December 29, 2001
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Kelly Perez, a/k/a “Red,” on September 16, 2002
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Marino Molina, on January 11, 2003
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Wilfredo Molina, a/k/a “Willie,” on May 3, 2004
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Manuel Rivas, a/k/a “Tony el Mono,” on October 29, 2005
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Richard Cabrera, a/k/a “Bori,” on January 16, 2006
Noel Herrera, Marino Molina, and Manuel Rivas were each murdered by or at the command of RODRIGUEZ-PEREZ in the Dominican Republic. Wilfredo Molina was murdered at the command of RODRIGUEZ-PEREZ in New Jersey, and the remaining victims were murdered in New York City.
The maximum potential sentence for Count One of the Superseding Indictment, to which RODRIGUEZ-PEREZ pled guilty today, is life 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.
Additionally, RODRIGUEZ-PEREZ agreed to pay $25 million as a forfeiture penalty, which is the approximate amount of gross proceeds received by RODRIGUEZ-PEREZ derived from racketeering activities, properties in New York, Florida, and the Dominican Republic, and cash and jewelry seized by law enforcement officers.
RODRIGUEZ-PEREZ, 43, has been in federal custody since October 15, 2010, when he was arrested during a takedown of more than 50 members of a massive marijuana trafficking ring that transported ton-quantities of marijuana from Florida and California for distribution in the greater New York area from the early 1990s to 2010. RODRIGUEZ-PEREZ is scheduled to be sentenced by Judge Swain on October 25, 2016, at 2:00 p.m.
Mr. Bharara praised the outstanding investigative work of ICE HSI, the New York City Police Department, and the U.S. Drug Enforcement Administration. He also thanked the U.S. Marshals Service, the Bergen County, New Jersey, Prosecutor’s Office, the Englewood, New Jersey, Police Department, the U.S. Department of Housing and Urban Development, and the New York City Department of Investigation for their assistance, and added that the investigation is continuing.
The investigation and prosecution of the cases arising from “Operation Green Venom” has been overseen by the Office’s Violent and Organized Crime Unit.Assistant U.S. Attorneys Andrew C. Adams and Micah W.J. Smith are responsible for the prosecution.
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Manhattan U.S. Attorney Announces Return of Thousand-Year-Old Bronze Statue to Republic of IndiaRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today the return of a stolen 11th or 12th Century bronze statue of Ganesha to the Republic of India, pursuant to an agreement between the U.S. Attorney’s Office for the Southern District of New York and the Toledo Museum of Art. The Ganesha was returned today along with several other stolen antiquities at a repatriation ceremony with Indian Prime Minister Narendra Modi and U.S. Attorney General Loretta Lynch at Blair House in Washington, D.C.
Manhattan U.S. Attorney Preet Bharara said: “A decade ago, a valued piece of India’s cultural heritage was stolen and sold in the United States. We are proud to have played a role in returning this treasure to the Indian people, and reaffirm our commitment to ensuring that the United States does not become a marketplace for stolen art and antiquities.”
The statue of Ganesha, also known in Tamil Nadu as Vinayagar, is a bronze statue dating from the Chola dynasty period (1080-1150 A.D.). The Ganesha was stolen from the Sivan temple at Sree Puranthan Village in the Ariyalur District of Tamil Nadu in 2006, and obtained by Subhash Kapoor, an antiquities dealer in Manhattan. Kapoor has been charged with various offenses by both Indian authorities and the New York County District Attorney’s Office for his alleged involvement in trafficking in stolen antiquities, and is currently awaiting trial in Tamil Nadu. Kapoor sold the Ganesha to the Toledo Museum of Art (the “Museum”) in 2006.
Working with U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (“HSI”), the Office identified the Ganesha as stolen, and contacted the Museum. Upon being presented with the evidence of the Ganesha’s illicit origin, the Museum voluntarily agreed to turn over the Ganesha to HSI for return to the Republic of India.
Mr. Bharara thanked HSI for their outstanding work in connection with this matter. He also thanked the Manhattan District Attorney’s Office for their assistance. Mr. Bharara also thanked the Toledo Museum of Art for their willingness to voluntarily return the Ganesha to the Republic of India.
The case is being handled by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant U.S. Attorney Alexander J. Wilson is in charge of the case.
Man Pleads Guilty in Manhattan Federal Court for Threatening to Blow up the Statue of LibertyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JASON PAUL SMITH pled guilty in Manhattan federal court today to communicating a hoax threat to bomb the Statue of Liberty that resulted in the evacuation of more than 3,200 people from Liberty Island in New York Harbor. SMITH pled guilty to a one-count Indictment before U.S. District Judge Vernon S. Broderick.
According to the criminal Complaint, Indictment, other documents filed in federal court, and statements made at various proceedings in this case, including today’s guilty plea:
On April 24, 2015, SMITH initiated a call to the emergency 911 system (the “911 Call”) from his iPad using a service that assists hearing-impaired individuals with making and receiving telephone calls (the “Service”). In the 911 Call, SMITH identified himself as “Abdul Yasin,” described himself as an “ISI terrorist,” and threatened that “we” are preparing to “blow up” the Statue of Liberty.
Law enforcement officers responded to the threat that SMITH conveyed in the 911 Call, and conducted a sweep of the areas in and around the Statue of Liberty and Liberty Island with the aid of canine units trained to detect explosives. Canine units alerted in the vicinity of the visitor lockers at the base of the Statue of Liberty, prompting law enforcement officers and emergency responders to evacuate the more than 3,200 people who were on Liberty Island at the time. Later, the threat conveyed by SMITH was determined to be unfounded.
The iPad registered in SMITH’s name has used the Service to make other 911 calls, including at least two calls in May 2015 from a user who identified himself as “Isis allah Bomb maker” and who threatened to attack Times Square and kill police officers at the Brooklyn Bridge.
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SMITH, 42, pled guilty to one count of conveying false and misleading information and hoaxes, which carries a maximum sentence of five years in prison. The maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. SMITH is scheduled to be sentenced on September 6, 2016, at 11:00 a.m., before Judge Broderick.
Mr. Bharara praised the work of the Federal Bureau of Investigation’s (“FBI”) New York Joint Terrorism Task Force – which principally consists of agents from the FBI and detectives from the New York City Police Department. Mr. Bharara also thanked the United States Park Police for its assistance.
The prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorney David Zhou is in charge of the prosecution.
Sullivan County Man Pleads Guilty in White Plains Federal Court to Distribution of Heroin and Fentanyl Causing the Death of an IndividualRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that TERRENCE JOHNSON, 23, of Sullivan County, pled guilty to distributing a mixture of heroin and fentanyl that resulted in the overdose death of Malcolm Perry, 35, a resident of Liberty, New York. JOHNSON also pled guilty to multiple additional counts of distributing heroin and fentanyl, distributing cocaine, conspiring to distribute at least 100 grams of heroin, and conspiring to distribute at least 280 grams of crack cocaine. The charges to which JOHNSON pled guilty are set forth in a ten-count superseding indictment (the “Indictment”), which was filed in April 2016. JOHNSON pled guilty to the Indictment today before U.S. Magistrate Judge Paul E. Davison. The case is assigned to U.S. District Judge Cathy Seibel.
U.S. Attorney Bharara stated: “As he admitted today in court, Terrence Johnson sold a deadly mixture of heroin and fentanyl in Sullivan County on multiple occasions, one of which resulted in the tragic overdose death of Malcolm Perry. Heroin abuse – on the rise along with prescription painkiller abuse – is causing too many deaths and destroying too many communities.”
According to the allegations in the Indictment and other information in the public record:
On multiple occasions between May 28, 2015, and June 6, 2015, JOHNSON sold heroin mixed with fentanyl in Sullivan County. Fentanyl is a synthetic opioid that is significantly stronger than both ordinary heroin and morphine. Several customers who purchased that dangerous mixture from JOHNSON overdosed and required emergency medical attention. On or about June 1, 2015, Malcolm Perry overdosed and died of acute fentanyl intoxication as a result of using drugs sold by JOHNSON. As a consequence of committing the offense of distributing a controlled substance that resulted in death, as charged in Count Four of the Indictment, JOHNSON faces a mandatory minimum sentence of 20 years in prison, and a maximum sentence of life in prison.
JOHNSON also pled guilty to multiple additional counts of distributing and possessing with intent to distribute heroin and fentanyl (Counts One through Three, Seven, and Eight); one count of distributing and possessing with intent to distribute heroin and fentanyl within 1,000 feet of an elementary school (Count Six); one count of distributing and possessing with intent to distribute cocaine within 1,000 feet of an elementary school (Count Five); one count of conspiring to distribute 100 grams or more of heroin (Count Nine); and one count of conspiring to distribute 280 grams or more of crack cocaine (Count Ten).
A chart summarizing the counts to which JOHNSON pled guilty and the maximum penalties for each count is set forth below. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as the sentencing of the defendant will be determined by the judge.
JOHNSON is scheduled to be sentenced on September 12, 2016, at 2:30 p.m., before Judge Seibel.
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Mr. Bharara praised the outstanding investigative work of the FBI, the Village of Liberty Police Department, the New York State Police, the Sullivan County Sheriff’s Department, and the Village of Monticello Police Department. Mr. Bharara also thanked the Sullivan County District Attorney’s Office for its assistance in the case.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Anden Chow, Michael Gerber, and George Turner are in charge of the prosecution.
CHARGE
MAXIMUM PENALTY
Counts One, Two, Three, Seven, and Eight
Distribution and possession with intent to distribute controlled substances, in violation of Title 21, United States Code, Sections 812, 841(a)(1), and 841(b)(1)(C)
20 years in prison for each count
Counts Five and Six
Distribution and possession with intent to distribute controlled substances within one thousand feet of the real property comprising a public or private elementary school, in violation of Title 21, United States Code, Sections 812, 841(a)(1), 841(b)(1)(C), and 860
40 years in prison for each count
Mandatory minimum: One year in prison for each count
Count Four
Distribution of controlled substances resulting in death, in violation of Title 21, United States Code, Sections 812, 841(a)(1), and 841(b)(1)(C)
Life in prison
Mandatory minimum: 20 years in prison
Count Nine
Conspiracy to distribute and possess with intent to distribute 100 grams or more of heroin, in violation of Title 21, United States Code, Section 846
40 years in prison
Mandatory minimum: Five years in prison
Count Ten
Conspiracy to distribute and possess with intent to distribute 280 grams or more of crack cocaine, in violation of Title 21, United States Code, Section 846
Life in prison
Mandatory minimum: Ten years in prison
New York Man Sentenced in Manhattan Federal Court to 25 Years in Prison for Trafficking of Heroin, Cocaine, and MDMARead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that ROMAN KITROSER was sentenced in Manhattan federal court to 25 years in prison for conspiring to distribute heroin, cocaine, MDMA, crack cocaine, and marijuana. KITROSER, who pled guilty to one count of narcotics conspiracy on November 2, 2015, was also found to have possessed dangerous weapons in connection with the conspiracy, including firearms and hand grenades. KITROSER pled guilty before U.S. District Judge Katherine Polk Failla, who imposed today’s sentence.
U.S. Attorney Preet Bharara stated: “In Roman Kitroser’s drug dealing operations, customers could literally pick their poison: he trafficked in heroin, cocaine, crack, MDMA, and marijuana. To protect his illicit trade, Kitroser armed himself with an arsenal of dangerous weapons, including guns, silencers and even hand grenades. Thanks to the work of the DEA, NYPD and New York State Police, Kitroser’s dangerous business is finished.”
According to the Indictment and other documents filed in federal court, statements made at various proceedings in this case, and evidence presented at the sentencing hearing:
From December 2013, to December 2014, KITROSER conspired to distribute heroin, cocaine, and marijuana as a member of a drug trafficking organization. In connection with his arrest, KITROSER was found in possession of nine firearms, two silencers, high-capacity magazines, and a large press used to form loose narcotics into kilogram-sized bricks. Law enforcement officers also seized more than $2 million, as well as two hand grenades, in connection with the investigation.
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In addition to the prison sentence, KITROSER, 39, of Brooklyn, New York, was sentenced to five years of supervised release.
United States Attorney Bharara praised the investigative work of the Drug Enforcement Administration, the New York City Police Department, and the New York State Police.
The case is being handled by the Office’s Narcotics Unit. Assistant U.S. Attorney Megan Gaffney and Alex Rossmiller are in charge of the prosecution.
Investment Adviser Charged in Manhattan Federal Court with Insider TradingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of DAVID HOBSON, who served as an investment adviser in the Providence, Rhode Island, offices of two different national broker-dealer and investment advisers (“Brokerage Firm-1” and “Brokerage Firm-2”), for engaging in a scheme to commit insider trading in connection with deals involving a pharmaceutical company (the “Pharma Company”) at which MICHAEL MACIOCIO, HOBSON’s friend and client, worked. In addition, Mr. Bharara announced the unsealing of charges against MACIOCIO, who pled guilty and admitted to his participation in the scheme in May. MACIOCIO, who had been employed by the Pharma Company, regularly possessed material, nonpublic information (“Inside Information”) concerning pending acquisitions and transactions under consideration by the Pharma Company. From at least 2008 through April 2014, MACIOCIO breached his duty of confidentiality to the Pharma Company by providing Inside Information about potential acquisitions and transactions to his friend and long-time broker, HOBSON. HOBSON, in turn, used the Inside Information to execute profitable securities trades for himself, for MACIOCIO, and for other clients of HOBSON’s.
HOBSON was arrested this morning in Providence, Rhode Island, and was presented today before a magistrate judge in Providence. The case against HOBSON and MACIOCIO is before United States District Judge Laura Taylor Swain. On Friday, May 20, 2016, MACIOCIO pled guilty before United States Magistrate Judge Barbara Moses to an Information charging him with conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud.
In a separate action, the Securities and Exchange Commission (“SEC”) filed civil charges against HOBSON and MACIOCIO.
U.S. Attorney Preet Bharara said: “As alleged, Michael Maciocio abused his position at a major pharmaceutical company to feed insider information to his friend and broker, David Hobson, who allegedly helped both benefit from trades based on that illegal edge. Unfortunately, illegal insider trading remains a blight on our securities markets and we will continue to work with the FBI to investigate and prosecute it.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “Having material, nonpublic information on public companies is a trusted privilege that should be used to carry out business matters, not used as advantage on which to trade and profit. As alleged, Michael Maciocio used his position at a pharmaceutical company to share nonpublic information with his friend and long-time broker, David Hobson. Hobson allegedly used traded on the information, for both Maciocio and other clients, profiting all parties $370,000. Keeping our markets fair for all investors remains a top priority for the FBI and we will continue to work with our law enforcement partners to bring charges against those who use illegal and unfair advantages in our securities markets.”
According to the allegations in the charging documents unsealed today in Manhattan federal court, including the Information and Indictment[1], and statements made in court proceedings:
From in or about May 2008 through in or about April 2014, MACIOCIO and HOBSON participated in a scheme to commit insider trading in advance of and in connection with acquisitions and transactions under consideration by the Pharma Company. MACIOCIO and HOBSON were childhood friends and HOBSON had served as MACIOCIO’s investment adviser and broker for many years.
MACIOCIO learned about the impending transactions through his role as a Master Planner in the Active Pharmaceutical Ingredient Supply Chain Group at the Pharma Company. In that role, MACIOCIO was tasked with evaluating manufacturing demands and capacity within the Pharma Company and was consulted about potential acquisitions to assist in determining whether the Pharma Company would be able to manufacture any new product in-house. Although MACIOCIO was not typically provided with the name of the target acquisition, he used the Inside Information he received – including the Pharma Company’s code name of the acquisition, the drug indication, the dosage, the phase of any clinical trial, and the chemical structure of the drug – to uncover the true identity of the target company. He was at times aided in this task by HOBSON.
Having learned the Inside Information about these impending transactions, MACIOCIO, in breach of fiduciary duties and other duties of trust and confidence owed to the Pharma Company, traded on his own behalf and tipped HOBSON so that HOBSON could use the information to trade for both himself and for MACIOCIO. HOBSON also used the Inside Information to trade in other of his clients’ accounts, first at Brokerage Firm-1 and later at Brokerage Firm-2.
HOBSON used the Inside Information that he received from MACIOCIO to make profitable trades in, among other securities: Medivation, Inc., Ardea Biosciences, Inc., and Furiex Pharmaceuticals, Inc. As a result of the scheme, HOBSON reaped approximately $180,000 in ill-gotten gains for himself, $40,000 for MACIOCIO, and nearly $150,000 for certain of HOBSON’s other clients.
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HOBSON, 47, is charged with one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud. Count One carries a maximum sentence of five years in prison. Counts Two through Four each carry 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.
On May 20, 2016, MACIOCIO, 46, pled guilty before Judge Moses to one count of conspiracy to commit securities fraud, one count of conspiracy to commit wire fraud, and two counts of securities fraud. Count One carries a maximum sentence of five years in prison. Counts Two through Four each carry 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 sentences for the defendants will be determined by the judge.
Mr. Bharara praised the work of the FBI, and thanked the SEC.
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 Aimee Hector and Rebecca Mermelstein are in charge of the prosecution.
The allegations contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney and FBI Announce Return of Stolen Inverted Jenny StampRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director-in-Charge New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the return of a rare “Inverted Jenny” stamp to the American Philatelic Research Library (“APRL”), the assignee of Ethel B. McCoy, the owner from whom it was stolen. The stamp, one of four stolen from McCoy in 1955, was recently recovered by the FBI. It is the third of the four McCoy Inverted Jennys to be recovered to date.
Manhattan U.S. Attorney Preet Bharara said: “The treasured Inverted Jenny stamp returned today has been missing for more than 60 years since it was stolen. We are proud to be able finally to return this Inverted Jenny to its rightful owner. We hope that someday soon we can celebrate the return of the final missing McCoy Inverted Jenny as well, and encourage anyone with information regarding its whereabouts to come forward.”
Assistant Director-in-Charge Diego Rodriguez said: “More than 60 years ago, a block of four of the most famous error stamps in philatelic history – the Inverted Jenny – was stolen from an exhibition. There were no witnesses, no suspects and little evidence to pursue. Today, the FBI is proud to assist in the return of the third Inverted Jenny stamp to the American Philatelic Research Library. This is just one example of the FBI’s commitment to restore significant arts and antiques to their rightful owners.”
According to court filings and other publically available information:
The Inverted Jenny stamp returned today (the “Stamp”) is from a sheet of 100 24-cent stamps issued by the United States Postal Service in 1918. The stamps contained the image of a Curtiss Jenny JN-4HM, a biplane specially modified for shuttling mail, to commemorate the Postal Service’s first airmail flight, which took place on May 15, 1918. Significantly, this particular sheet (the “Inverted Jenny Sheet”) was misprinted, with the airplane image upside down, or “inverted.” It was sold on or about May 14, 1918, to collector William T. Robey of Washington, D.C.
Robey eventually sold the Inverted Jenny Sheet for $15,000 to a noted Philadelphia dealer named Eugene Klein, who in turn sold it for $20,000 to collector H. R. Green. Green, on the advice and with the help of Klein, subsequently broke up the Inverted Jenny Sheet and sold many of the individual stamps to other collectors. Prior to breaking up the Inverted Jenny Sheet, Klein and Green lightly penciled a number on the back of each stamp so that each stamp’s original position on the sheet could later be identified. The Stamp returned today is position 76 from the Inverted Jenny Sheet.
Ethel B. Stewart McCoy, a philatelist and daughter of Charles Bergstresser, one of the founders of Dow Jones & Co., purchased a block of four stamps from the Inverted Jenny Sheet, specifically positions 65, 66, 75, and 76 (the “McCoy Block”), from New York City stamp dealer Spencer Anderson in 1936 for $16,000. On or about September 23, 1955, during an exhibition at a convention of the American Philatelic Society in Norfolk, Virginia, the McCoy Block, including the Stamp, was stolen by an unknown thief or thieves.
Before her death in 1980, McCoy assigned all of her right, title, and interest in the stolen McCoy Block to the APRL. The FBI recovered the stamp in position 75 from the McCoy Block in 1977, and recovered the stamp in position 65 in 1982, and both were returned to the APRL.
The Stamp remained missing until April of this year, when it was consigned to Spink USA, Inc. (“Spink”), by an individual named Keelin O’Neill. Spink sent the Stamp to the Philatelic Foundation in New York to be authenticated, and personnel of the Foundation identified it as one from the stolen McCoy block. They then alerted the FBI and the APRL. The FBI approached O’Neill, who stated that he had received the Stamp in or about October 2013 from his grandfather, who is now deceased. Once he was advised that the Stamp was stolen, O’Neill voluntarily agreed to relinquish the Stamp to the APRL.
The fourth and final Inverted Jenny from the McCoy block remains missing.
The return today to the APRL is being made pursuant to a stipulated agreement entered between the Government, the APRL, and Mr. O’Neill, and so ordered by the Honorable Jesse M. Furman, United States District Court Judge for the Southern District of New York.
Mr. Bharara thanked the FBI for their outstanding work on this matter.
The case is being handled by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant U.S. Attorney Alexander J. Wilson is in charge of the case.
16-146 ###
Commodity Pool Operator Arrested and Charged in Manhattan Federal Court with $23 Million Commodities FraudRead 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 that HAENA PARK was arrested this morning on commodities fraud and wire fraud charges stemming from her scheme to defraud more than 20 investors of more than $23 million in which 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 this morning in Manhattan, New York, and was presented today before United States Magistrate Judge Andrew J. Peck.
U.S. Attorney Preet Bharara said: “Haena Park is charged with lying to prospective investors about her remarkably high returns and trading expertise in the forex markets to lure them into investing with her. Through deceit, we’ve alleged, she raised more than $23 million from victims and lost nearly all of it. Then to cover up trading losses, she allegedly sent fictitious statements to investors and used money from new investors to pay other investors back.”
HSI Special Agent in Charge Angel M. Melendez said: “It is alleged that Haena Park defrauded investors and covered up millions of dollars in financial losses with fake documents and lies that may devastate the financial security of these victims. HSI and its El Dorado Task Force partners are committed to investigating those who seek to exploit vulnerabilities in the US Financial System.”
According to the Complaint unsealed today in Manhattan federal court[1]:
From in or about January 2010 through in or about June 2016, HAENA PARK, the defendant, raised more than $23 million from more than 20 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. In connection with the scheme, PARK made a series of false and misleading representations to investors, including that PARK was an accomplished forex trading advisor 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 in or about January 2010 through in or about 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.
* * *
PARK, 40, of Manhattan, New York, is charged with one count of commodities fraud, which carries 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; and one count of wire fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. 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 HSI and the El Dorado Task Force. He also thanked the Commodity Futures Trading Commission and the Securities and Exchange Commission, each of which filed civil charges against PARK today.
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 Christine I. Magdo 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.
16-147 ###
[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.
Owner of Real Estate Investment Firm Pleads Guilty to $17 Million Securities FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CARLTON P. CABOT, the former owner and chief executive officer of Cabot Investment Properties LLC (“CIP”), pled guilty yesterday to one count of securities fraud for participating in a scheme to defraud investors in numerous CIP-sponsored real estate investments. As part of the fraud, CABOT and his co-defendant misappropriated over $17 million of investor funds to pay for personal and business expenses, and concealed the fraud from the investors with manipulated financial statements. CABOT pled guilty before U.S. District Judge Jesse M. Furman.
U.S. Attorney Preet Bharara said: “Yesterday, Carlton Cabot, CEO of Cabot Investment Properties LLC, admitted to taking over $17 million in investor funds and spending it on himself, including for private school tuition for his family and a luxury vacation apartment. Cabot camouflaged his fraud by doctoring financial statements and lying to his investors.”
According to the allegations contained in the criminal complaint against CABOT, the indictment to which CABOT pled guilty, and statements made during CABOT’S plea proceeding:
From 2003 through 2012, CIP – which was controlled by CABOT – sponsored and oversaw approximately 18 so-called tenants-in-common (“TIC”) securities offerings to investors located all over the United States (collectively, the “TIC Investments” and the “TIC Investors”). A TIC investment is a real estate investment in which investors collectively own a piece of commercial real estate and are entitled to receive a portion of the rental income from the property.
From 2008 through 2012, CABOT engaged in a scheme to defraud the TIC Investors by misappropriating funds belonging to the TIC Investments and concealing his misappropriations by knowingly providing false and misleading financial reports and other information to the TIC Investors.
According to the representations in the offering prospectuses for the TIC Investments, CIP was only allowed to collect “excess” rental income from the TIC Investments – i.e., any additional money left over after the TIC Investments had paid the operating expenses for the properties and the disbursements due to the TIC Investors. Despite these representations, CABOT repeatedly transferred money out of bank accounts belonging to the TIC Investments and into CIP bank accounts that he controlled (the “CIP Operating Accounts”) before these funds could be used to pay for operating expenses and disbursements to the TIC Investors.
CABOT then used these funds to pay for unauthorized purposes without the knowledge or authorization of the TIC Investors, including: (1) to cover the operating expenses and investor distributions of other TIC Investments that had no available funds; (2) to pay for millions of dollars of personal expenses, including expensive cars, rental apartments, and private school tuition; and (3) to pay for CIP business expenses, including an approximately $1,125,651 civil settlement to certain TIC Investors who had sued CABOT and others.
To conceal the misappropriation of TIC Investment funds from the TIC Investors, CABOT and his co-defendant, Timothy J. Kroll, CIP’s chief operating officer, provided false and misleading financial reports to the TIC Investors that intentionally hid the fact that CIP owed large sums of money to the TIC Investments.
By in or about the end of 2012, when CIP ceased its day-to-day operations, CIP and its principals, CABOT and Kroll, owed approximately $17 million to the TIC Investments, which has never been repaid.
* * *
CABOT, 53, of Stamford, Connecticut, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison and three years of supervised release. According to the agreement with the Government to which he pled guilty, CABOT owes $17 million in restitution and forfeiture. CABOT is scheduled to be sentenced on September 15, 2016, before Judge Furman.
On October 7, 2015, Kroll pled guilty for his role in the scheme. Kroll is scheduled to be sentenced on July 19, 2016, before Judge Furman.
The maximum potential sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding efforts of the U.S. Postal Inspection Service and Internal Revenue Service’s Criminal Investigation Division.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Christian R. Everdell and Edward A. Imperatore are in charge of the prosecution.
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Nine Defendants Charged in White Plains Federal Court with Narcotics and Firearms Offenses as Part of the Yellow Tape Money Gang in NewburghRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Division of the Federal Bureau of Investigation (“FBI”), Delano Reid, the New York Special Agent in Charge of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”), Joseph A. D’Amico, the Superintendent of the New York State Police (“NYSP”), Daniel C. Cameron, the Chief of the City of Newburgh Police Department, and Bruce Campbell, the Chief of the Town of Newburgh Police Department, today announced the unsealing of an Indictment charging a total of nine defendants with committing various narcotics and firearms offenses as part of an organization known as the “Yellow Tape Money Gang” in Newburgh, New York.
Manhattan U.S. Attorney Preet Bharara stated: “These defendants allegedly sought to invoke the violence of a crime scene by calling themselves the ‘Yellow Tape Money Gang,’ and using this vivid imagery, they allegedly pumped large quantities of crack cocaine into the streets of Newburgh. Those who deal in these dangerous drugs destroy communities and fuel a cycle of drug-induced violence. Working with our partners at the FBI, ATF, the New York State police, and the Newburgh Police Department, we seek to stamp out this type of drug trade in Newburgh.”
FBI Assistant Director-in-Charge Diego Rodriguez stated: “We believe the arrests today will make a significant dent in the violent crime that has been escalating recently in the City of Newburgh. Our actions should also serve as a warning to others that the FBI Hudson Valley Safe Streets Task Force and the City of Newburgh Police Department are not going away. If gang members and drug pushers choose to fill the void left behind today, we will be there tomorrow, and the next day and the next, to protect the law abiding citizens in the City of Newburgh.”
ATF New York Special Agent in Charge Delano Reid stated: “ATF’s mission to combat gun violence in our community remains our highest priority. The crimes committed by this organization will not be tolerated by the ATF or our law enforcement partners. We will continue to work tirelessly until gangs like the Yellow Tape Money Gang, and others that would follow their destructive patterns, no longer terrorize the citizens of Newburgh.”
City of Newburgh Police Chief Daniel C. Cameron stated: “We operate under the national Group Violence Intervention model wherein we tirelessly target those individuals who cause the majority of the violence in our City. Today’s operation is an example of how our law enforcement partnership is strong and that violence will not be accepted in our community. The individuals arrested today are charged with narcotics offenses of the kind that often bring violence in our City. Those causing violence are on notice. Our collaborative efforts will continue as we move Newburgh forward.”
As alleged in the Indictment unsealed today in White Plains federal court[1]:
From at least October 2015 through May 2016, TYRIN GAYLE, a/k/a “Spazzo,” LAQUAN FALLS, a/k/a “Greedy,” GABRIEL WARREN, a/k/a “Stackz,” DAVID BROWN, a/k/a “Baby Thot,” BRENDAN GERMAINE, a/k/a “Brandan Germain,” RASHUN EVANS, LAQUAVIOUS BOYKIN, BRITTANY HALL, and CHRISTOPHER JOHNSON, conspired to sell crack cocaine in and around Newburgh, New York, referring to themselves as the “Yellow Tape Money Gang,” or “YTMG” for short. The conspiracy was led, at different times, by GAYLE, FALLS, and WARREN.
In May 2016, EVANS used, carried, and possessed a firearm in furtherance of the crack cocaine conspiracy in which he was a member.
According to statements made during bail hearings this afternoon, YTMG members advertised their affiliation with their drug trafficking organization through posts on social media websites such as Facebook. Based on these posts, law enforcement learned that the “Yellow Tape Money Gang” name referred to the yellow caution tape that law enforcement uses to cordon off dead bodies following a murder. The reference was apparently meant as a warning to rival gang members that they would need yellow tape if they crossed YTMG. These Facebook posts included photographs and videos of YTMG members with what appear to be guns, large amounts of cash, and narcotics. At least three firearms were seized during the execution of search warrants this morning in connection with the arrests.
* * *
Nine defendants were taken into federal custody this morning. These defendants were presented in White Plains federal court today before U.S. Magistrate Judge Paul E. Davison.
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 judge.
Mr. Bharara praised the outstanding investigative work of the FBI, ATF, the New York State Police, the City of Newburgh Police Department, the Town of Newburgh Police Department, and the Orange County Sheriff’s Department.
The case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Maurene Comey, Jacqueline Kelly, and Lauren Schorr 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.
United States v. Tyrin Gayle, et al., 16 Cr. 361
CHARGE(S)
DEFENDANT(S)
MAXIMUM PENALTIES
Narcotics conspiracy
(Conspiracy to distribute and possess with intent to distribute 28 grams or more of crack cocaine.)
TYRIN GAYLE,
a/k/a “Spazzo,”
LAQUAN FALLS,
a/k/a “Greedy,”
GABRIEL WARREN,
a/k/a “Stackz”
DAVID BROWN,
a/k/a “Baby Thot,”
BRENDAN GERMAINE,
a/k/a “Brandan Germain,”
RASHUN EVANS,
LAQUAVIOUS BOYKIN,
BRITTANY HALL, and
CHRISTOPHER JOHNSON
40 years in prison
Mandatory minimum:
five years in prisonPossession of a firearm in furtherance of a drug trafficking crime
RASHUN EVANS
Life in prison
Mandatory minimum:
five years in prison, to be imposed consecutively to any other sentence
[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.