Southern District of New York
Press releases recorded for this federal judicial district.
Former Chief Financial Officer Found Guilty in Manhattan Federal Court of Misappropriating at Least $8 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 found guilty today of engaging in a scheme to defraud that yielded over $8 million in ill-gotten gains. 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: “As a unanimous jury has found, Steven Rawlins abused his position of trust to steal from the companies whose finances he was entrusted to manage. He siphoned off more than $8 million of company money and spent it lavishly on himself, his family, and his friends, paying for a 12,000-square-foot home, Tiffany jewelry, sports cars and Yankees luxury suites. Now he stands convicted by a jury of federal crimes.”
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 $8 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.
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RAWLINS, 58, of Brentwood, Tennessee, was convicted of one count of wire fraud, the sole count in the Information. He faces a maximum sentence of 20 years in prison, a maximum term of three years of supervised release, and a fine of the greatest of $250,000, or twice the gross pecuniary gain derived from the offense or twice the gross pecuniary loss to the victim. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. RAWLINS is scheduled to be sentenced on March 18, 2016.
Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation. 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 Andrew Bauer and Andrew J. DeFilippis are in charge of the prosecution, and Margaret S. Graham is in charge of the forfeiture aspects of the case.
Manhattan U.S. Attorney Announces Charges Against Former Sec Compliance Examiner for Making False Statements Related to Prohibited Financial HoldingsRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, and Carl W. Hoecker, Inspector General of the United States Securities and Exchange Commission, Office of the Inspector General (“SEC-OIG”), announced charges against former SEC Compliance Examiner EUGENIA CANTIELLO for making false statements to the SEC regarding her and her husband’s ownership of various stocks they were prohibited from holding under SEC ethical rules. It is alleged that CANTIELLO, while a Compliance Examiner in the SEC’s New York Regional Office, made false statements to the SEC in order to conceal her ownership of stocks that she, as an SEC employee, was prohibited from holding. The Government and defendant have entered into a deferred prosecution agreement, which was approved in Manhattan Federal Court by U.S. Magistrate Judge James L. Cott today.
According to the allegations in the Criminal Complaint[1] unsealed today:
CANTIELLO was, until 2014, a Compliance Examiner in the SEC’s New York Regional Office. Among other duties, she was responsible for overseeing broker-dealers, investment advisers, investment companies, clearing agencies, and others in their compliance with the nation’s securities laws. As an SEC employee, CANTIELLO was subject to rules issued by the SEC (“SEC Ethics Rules”) designed to prevent conflicts of interest that could arise when SEC employees hold stock in entities subject to routine SEC examinations.
The SEC Ethics Rules prohibit SEC employees from owning stock in entities directly regulated by the SEC, and require employees to submit any proposed personal transactions in such securities to the SEC prior to executing them. The prohibited securities include those of several banks and broker-dealers, including banks with broker-dealer subsidiaries. Individuals who owned stock at the time the changes were implemented were directed to divest their holdings, and provided with instructions on how to do so. The SEC Ethics Rules apply, with equal force, to securities holdings in the names of spouses and immediate family members of SEC employees.
CANTIELLO and her husband held approximately $50,000 in stock in one such prohibited company. Despite warnings and reminders provided by the SEC, CANTIELLO did not divest her and her husband’s holdings as required. Instead, she held on to much of the stock past deadlines imposed by the SEC and later, when the SEC-OIG investigated her holdings, she lied about her conduct in an investigation under oath, falsely claiming – among other things – that she had not been aware that her holdings were prohibited under the SEC Rules.
CANTIELLO, 46, of New Rochelle, New York, is charged with one count of making false statements, which carries a maximum sentence of five years in prison. The statutory maximum penalty is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.
CANTIELLO has entered into a deferred prosecution agreement which provides that the charges against her will be dismissed in three months if CANTIELLO complies with certain conditions and commits no further offenses.
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Mr. Bharara praised the investigative work of the Securities and Exchange Commission, Office of the Inspector General, and the Criminal Investigators of the United States Attorney’s Office for the Southern District of New York.
The case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Martin S. Bell 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.
Former Amtrak Police Department Officer Sentenced in Manhattan Federal Court for Embezzling Union FundsRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, announced that ERIC GIVENS, a former police officer with the National Railroad Passenger Corporation (“Amtrak”), and the former treasurer of the national union for Amtrak police officers, was sentenced in Manhattan federal court late yesterday to 16 months in prison for embezzling union funds. GIVENS previously pled guilty before U.S. District Judge Analisa Torres, who imposed yesterday’s sentence.
According to the Complaint, Indictment, public filings, and statements made during the sentencing proceeding:
GIVENS was employed as a police officer with Amtrak since May 1997, and was most recently assigned to Penn Station, in New York, New York. GIVENS served as the elected treasurer of the Amtrak Police Lodge 189 Labor Committee (the “Labor Committee”), the national union for Amtrak police officers, from 2003 through January 2010. During the same period, and continuing until November 2013, GIVENS also served as the elected treasurer of Amtrak Police Lodge 189 Inc. (the “Lodge”), a fraternal organization affiliated with the Labor Committee.
Starting in 2008, GIVENS stole more than $120,000 in total from the Labor Committee and Lodge by fraudulently charging personal expenses to the Labor Committee and Lodge and by withdrawing cash for his own purposes, and took steps to hide what he had done. During this period, GIVENS used the debit card of the Labor Committee to pay for, among other things, gasoline and food, and used the debit card of the Lodge to pay for, among other things, travel, hotels in multiple cities, and entertainment in New York and New Jersey. GIVENS also withdrew thousands of dollars in cash from Labor Committee and Lodge bank accounts.
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GIVENS, 53, of East Stroudsburg, Pennsylvania, pled guilty to one count of embezzlement of union funds. In addition to the prison term, GIVENS was sentenced to three years of supervised release, and was ordered to pay approximately $127,000 in restitution, and to forfeit approximately $12,000.
Mr. Bharara praised the outstanding work of the U.S. Department of Labor’s Office of Labor-Management Standards and its Office of Inspector General’s Office of Labor Racketeering and Fraud Investigations. Mr. Bharara also thanked the Amtrak Police Department’s Office of Internal Affairs for its assistance.
The case is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorney Daniel C. Richenthal is in charge of the prosecution.
Antiques Dealer Sentenced in Manhattan Federal Court to Two Years in Prison for Smuggling Cups Made from Rhinoceros Horns to ChinaRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, John C. Cruden, the Assistant Attorney General for the Environment and Natural Resources Division of the Department of Justice, and Dan Ashe, the U.S. Fish and Wildlife Service Director, announced that LINXUN LIAO was sentenced yesterday in Manhattan federal court to two years in prison for his role in a wildlife trafficking scheme in which he purchased and smuggled 16 “libation cups” carved from rhinoceros horns and worth more than $1 million from the United States to China. LIAO previously pled guilty to two counts of illegally smuggling rhinoceros horn objects from the United States. U.S. District Judge Lorna G. Schofield imposed yesterday’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “This defendant flouted the laws established to protect endangered wildlife. Willfully failing to declare the nature of the shipments or obtain required permits, Liao broke laws that protect rhinoceros and other magnificent species threatened with extinction. He has learned the cost of his illegal conduct.”
Assistant Attorney General John C. Cruden said: “This prosecution is the result of a vigorous and ongoing investigation into traffickers profiting from endangered and precious wildlife species. We must ensure that the market for antiques and alleged antiques does not also contribute to the extinction of these iconic animals, which could disappear in our lifetimes if we do not act now to stop this illegal trade.”
U.S. Fish and Wildlife Service Director Dan Ashe said: “Each of the ceremonial cups that Liao trafficked represents one step closer to extinction for the rhinoceros, which are steadily being wiped out by poachers for the illegal rhino horn market. The seriousness of this crime and others like it and their consequences for the world’s most imperiled species are what drives our efforts to root out and shut down illegal operators like Mr. Liao. This sentence will serve as a strong warning that we are going to find, arrest and prosecute anyone engaged in this sort of activity and make sure they are no longer able to deprive our children and grandchildren of their wildlife inheritance.”
According to the Information, other documents filed in Manhattan federal court, and statements made at various proceedings in this case, including today’s sentencing:
LIAO was arrested in February 2015 as part of “Operation Crash,” a nationwide crackdown on illegal trafficking in rhinoceros horns. LIAO, a Canadian citizen, was a partner in an Asian art and antiques business located in China. LIAO’s role was to purchase items, including wildlife items, in the United States and arrange for their export to China. Between in or about March 2012 and May 2013, LIAO made online purchases of 16 rhinoceros horn products, more specifically libation cups, from auction houses in the United States, including in Manhattan, which he then smuggled to China without the required declarations and permits. In order to make these purchases, LIAO used an address of his family members in New Jersey (the “New Jersey Location”) because he knew that absent a domestic address, the auction houses would not ship him rhinoceros horn or ivory products that LIAO had purchased. Liao then used a Manhattan-based courier service to illegally export the merchandise to China. LIAO did not declare the rhinoceros exports to the U.S. Fish and Wildlife Service or obtain the required permits despite his knowledge of the need to do so. LIAO closely coordinated his efforts with co-conspirators who sold the items for a profit at their antique business in China. The market value of the rhinoceros libation cups in this case is more than $1,000,000.
The rhinoceros is 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 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. Rhinoceros are also protected under the U.S. Endangered Species Act, which further regulates trade and transport.
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In addition to his prison term, LIAO, 35, a Chinese citizen who resides in Canada, was sentenced to two years of supervised release and ordered to forfeit $1 million and 304 pieces of carved ivory found during a search of the New Jersey Location.
Operation Crash is a continuing investigation by the Department of the Interior’s Fish and Wildlife Service, in coordination with the Department of Justice. A “crash” is the term for a herd of rhinoceros. Operation Crash is an ongoing effort to detect, deter, and prosecute those engaged in the illegal killing of rhinoceros and the unlawful trafficking of rhinoceros horns.
U.S. Attorney Preet Bharara thanked 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. Assistant United States Attorney Jennifer Gachiri and Senior Litigation Counsel Richard A. Udell with the Environmental Crimes Section of the Department of Justice are in charge of the prosecution.
Manhattan U.S. Attorney Announces the Arrest of Two Venezuelan Nationals for Conspiring to ImportRead 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”), today announced that EFRAIN ANTONIO CAMPO FLORES and FRANQUI FRANCISCO FLORES DE FREITAS were arrested in the Republic of Haiti on Tuesday and brought to the United States based on a charge that they conspired to import cocaine into the United States. CAMPO FLORES and FLORES DE FREITAS will be presented before U.S. Magistrate Judge James L. Cott later today.
According to the allegations in the Indictment[1], which was unsealed today in Manhattan federal court, CAMPO FLORES, 29, and FLORES DE FREITAS, 30, conspired with others between October 2015 and the present to violate U.S. narcotics laws prohibiting the importation of cocaine. Specifically, the Indictment charges CAMPO FLORES and FLORES DE FREITAS with conspiring to (i) import five or more kilograms of cocaine into the United States from a foreign country; and (ii) distribute five or more kilograms of cocaine knowing and intending that it would be imported into the United States. The charge in the Indictment carries a maximum penalty of life in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.
Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division, Bilateral Investigations Unit, and New York Strike Force. Mr. Bharara also thanked the DEA’s Port-au-Prince Country Office, U.S. Customs and Border Patrol's National Targeting Center, DEA’s Airwing, the Government of the Republic of Haiti and the Haitian National Police, and the U.S. Department of Justice’s Office of International Affairs for their ongoing assistance.
This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Emil J. Bove III, Mathew J. Laroche, Michael D. Lockard, and Brendan F. Quigley are in charge of the prosecution.
The charge contained in the Indictment is merely an accusation and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Three Long Island Men Plead Guilty in White Plains Federal Court in Connection with Sullivan County ArsonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that NICHOLAS MOTTA and DOMINIC MOTTA pled guilty today in White Plains federal court to attempted mail fraud in connection with a scheme to obtain insurance proceeds by committing arson. Previously, on October 23, 2015, a third defendant, ANTHONY PERSO, pled guilty to attempted mail fraud in connection with the same arson and insurance fraud scheme. All defendants pled guilty before the U.S. District Judge Nelson S. Román. The MOTTAS are scheduled to be sentenced on February 11, 2016; PERSO is scheduled to be sentenced on January 29, 2016.
According to the allegations contained in the indictment and information adduced during the Court proceedings:
In the early morning hours of February 10, 2010, during an extraordinary blizzard, a shuttered bar in Swan Lake, New York, formerly known as Kilcoin’s, was set ablaze and destroyed. PERSO was among the individuals who set the fire. NICHOLAS and DOMINIC MOTTA owned the bar, and arranged the arson by having others, including PERSO, travel to Sullivan County to set the bar afire, in order to make a claim to recover proceeds from the insurance company. In pursuing the insurance claim, DOMINIC MOTTA deceived the insurance company about the fire in order to attempt to obtain more than $100,000 in insurance proceeds. The insurance company, however, detected the arson, and ultimately denied DOMINIC MOTTA’s claim when MOTTA repeatedly failed to respond to requests by the insurance company that he answer questions about the fire under oath.
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DOMINIC MOTTA, 59, and NICHOLAS MOTTA, 43, both of Islandia, New York, and PERSO, 32, of Medford, New York, each pled guilty to one count of attempted mail fraud. The offense carries a maximum penalty 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 outstanding investigative work of the Federal Bureau of Investigation, the Suffolk County District Attorney’s Office, the Suffolk County Police Department, and the Sullivan County Sheriff’s Office.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Benjamin Allee and George Turner are in charge of the prosecution.
New Jersey Child Therapist Charged with Sexual Exploitation, Enticement, and Child Pornography CrimesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriquez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that ELLIOT HALBERSTAM was arrested today and charged in a criminal complaint with three counts stemming from his sexual exploitation and enticement of a minor and his receipt of child pornography.
Manhattan U.S. Attorney Preet Bharara said: “Elliot Halberstam is charged with violating the trust of his former patient, a 16-year old boy, in the worst way imaginable - he allegedly coerced and tricked the victim into engaging in sexually explicit conduct, and captured it on video and in photographs. Together with our partners at the FBI, we are dedicated to ensuring that those who sexually exploit children are held to account.”
FBI Assistant Director-in-Charge Diego Rodriquez said: “As alleged, Halberstam violated the trust of a minor who was a former patient of his in counseling, by coercing the victim to engage in sexual activity with him and film it. The FBI will continue to investigate and bring to justice those who sexually exploit our children.”
According to the Complaint[1]:
Beginning in March 2015, HALBERSTAM, a child therapist, coerced and enticed a 16-year-old boy who was a former patient of his (“Victim-1”) to engage in sexually explicit conduct for the purpose of producing a visual depiction of such conduct, and received images and videos constituting child pornography from Victim-1. To do so, HALBERSTAM groomed Victim-1 through numerous email and text messages, including by posing as another individual to entice Victim-1 to produce and send child pornography to HALBERSTAM and to allow HALBERSTAM to photograph Victim-1.
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HALBERSTAM, 38, of Bergenfield, New Jersey, is charged with one count of coercing and enticing a minor to engage in illegal sexual activity, which carries a maximum penalty of life in prison; one count of sexual exploitation of a child, which carries a maximum sentence of 30 years in prison; and one count of receipt of child pornography, which carries a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
There may be more victims of this alleged conduct. Any individuals who believe they have information concerning ELLIOT HALBERSTAM that may be relevant to the investigation should contact the Federal Bureau of Investigation at 1-212-384-1000 or https://tips.fbi.gov/.
Mr. Bharara praised the efforts of the FBI in this investigation. He added that the investigation is continuing.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Andrew D. Beaty is in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Former President of Law Enforcement Labor Union Sentenced in Manhattan Federal Court for Defrauding Union of FundsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOHN EARVIN, the former president of the United Federation of Law Enforcement Officers (“UFLEO” or the “Union”), was sentenced by U.S. District Judge Paul A. Engelmayer to three years of probation, including six months of home confinement. EARVIN pled guilty on June 19, 2015, to one count of wire fraud.
According to the Indictment and statements made in court:
The UFLEO represents Special Inspectors employed by the Metropolitan Transportation Authority of New York (“MTA”). From February 2007 through April 2010, EARVIN was the Union’s president, supervising the affairs of the Union and managing the Union’s finances, including through sole control of the Union’s bank account (the “Account”). Through his presidency, EARVIN perpetrated a scheme to defraud the Union by diverting Union dues payments deposited into the Account for his own benefit, principally by making hundreds of ATM withdrawals at off-track betting facilities and other locations and making personal use of the funds. In perpetuating the scheme and preventing its discovery, EARVIN repeatedly lied to Union members about the Account by, for example, claiming that he could not provide an accounting of funds to Union members because an independent auditor was reviewing the Union’s finances. As a result of the scheme, EARVIN defrauded the Union and its members of approximately $28,012.
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EARVIN, 67, of New Rochelle, New York, was also sentenced to 600 hours of community service and ordered to pay restitution of $2,000 a month.
U.S. Attorney Preet Bharara thanked the DOL-OLMS for its work in the investigation.
The case is being prosecuted by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Carrie H. Cohen and Jennifer Gachiri are in charge of the prosecution.
Florida Man Pleads Guilty in Manhattan Federal Court to Concealing A Bank Account in Liechtenstein Worth More Than $1 MillionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that HARRY FALTERBAUER pled guilty today to willfully failing to file a Report of Foreign Bank and Financial Accounts (“FBAR”) with the IRS regarding a secret offshore bank account he maintained and controlled. FALTERBAUER, a United States citizen and resident of Florida, maintained the undeclared account at a bank in Liechtenstein from approximately 1988 to 2008. During that time, the account reached a high balance of more than $1.5 million. FALTERBAUER, who was arrested in July 2015, entered his guilty plea before U.S. District Judge Jesse M. Furman.
Manhattan U.S. Attorney Preet Bharara said: “As he admitted, Harry Falterbauer tried to conceal his million-dollar offshore bank account from U.S. authorities. Today’s plea is a reminder that we continue to work with the IRS to investigate and prosecute taxpayers who seek to use bank-secrecy laws abroad to avoid legal obligations in the U.S.”
According to the Indictment previously filed in Manhattan federal court and statements made in court in connection with FALTERBAUER’s guilty plea:
FALTERBAUER opened an account at Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein (“LLB-Vaduz”), in the late 1980s. Although FALTERBAUER opened the account in his own name, the bank referred to the account exclusively by its number in order to conceal the connection to FALTERBAUER. In an affidavit provided to the bank in 2003, FALTERBAUER declared that he was a U.S. citizen and that he was not authorizing LLB-Vaduz to disclose his name to U.S. tax authorities.
The account generated capital gains and losses from investments, reaching a high balance of more than $1.5 million in approximately 2007. It had a balance of more than $1.1 million before its closure in 2008.
For the calendar year 2008, FALTERBAUER willfully failed to disclose on his tax returns both his interest in the LLB-Vaduz account and the income that account generated. For the same year, FALTERBAUER also willfully failed to file an FBAR with the IRS, as the law required him to do.
Liechtenstein amended its laws in 2012 to permit banks to produce documents relating to certain U.S. taxpayers to the Department of Justice. LLB-Vaduz subsequently provided files from undeclared accounts, including FALTERBAUER’s, to this Office.
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FALTERBAUER, 60, faces a maximum sentence of five years in prison. As part of his plea agreement, FALTERBAUER has agreed to pay a civil penalty of $794,500, file amended tax returns, and pay back taxes of at least $15,013. He is scheduled to be sentenced by Judge Furman on February 24, 2016 at 4 p.m. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of IRS-CI. Mr. Bharara also thanked the U.S. Department of Justice’s Tax Division for its assistance.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Sarah Paul and David Abramowicz are in charge of the prosecution.
Attorney General and Manhattan U.S. Attorney Announce Charges Stemming from Massive Network Intrusions at U.S. Financial Institutions, U.S. Brokerage Firms, Major News Publications and Other CompaniesRead the Press Release
Breaches Included the Largest Theft of Customer Data from a U.S. Financial Institution in History
Defendants Hacked in Furtherance of Securities Market Manipulation Schemes, and Vast Gambling and Payment Processing Schemes
Attorney General Loretta E. Lynch, U.S. Attorney Preet Bharara of the Southern District of New York, Assistant Director in Charge Diego Rodriguez of the FBI’s New York Field Office and Special Agent in Charge Robert J. Sica of the U.S. Secret Service (USSS) New York Field Office announced today the unsealing of a superseding indictment charging Gery Shalon, aka “Garri Shalelashvili,” “Gabriel,” “Gabi,” “Phillipe Mousset” and “Christopher Engeham,” with orchestrating 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 (the U.S. Financial Sector Hacks). Shalon is charged with committing these crimes with Joshua Samuel Aaron, aka “Mike Shields,” in furtherance of securities market manipulation schemes that Shalon and Aaron perpetrated with defendant Ziv Orenstein, aka “Aviv Stein” and “John Avery” in the United States.
As alleged, Shalon also orchestrated computer network hacks and cyberattacks in furtherance of other major criminal schemes, including unlawful internet casinos and illicit payment processors which Shalon operated with Orenstein. Shalon also owned and controlled an illegal U.S.-based Bitcoin exchange known as Coin.mx. Shalon and Orenstein were arrested in July 2015 by the Israel Police on an indictment that charged the underlying securities fraud, and they remain in custody in Israel pending extradition on those charges. The U.S. Attorney’s Office will seek their extradition to stand trial in the United States on the additional charges announced today. Aaron remains at large. Also announced today is the unsealing of a separate indictment charging Anthony R. Murgio with operating Coin.mx in the United States, and related crimes. Murgio, who was arrested on a complaint in July 2015, will be arraigned before the Honorable Alison J. Nathan.
“As set forth in the indictment, these three defendants perpetrated one of the largest thefts of financial-related data in history – making off with the sensitive information of literally thousands of hard-working Americans,” said Attorney General Lynch. “These charges were made possible in large part because those victims came forward and worked with the Department of Justice to hold the perpetrators accountable. In an age when enormous quantities of vital information are stored in digital format on potentially vulnerable Internet-connected devices, public-private partnerships and information-sharing are more critical than ever. The Department of Justice is committed to protecting the financial data of all our citizens and the financial integrity of our institutions. I’d like to thank the prosecutors and law enforcement professionals who worked tirelessly on this case, and the victims who offered their full cooperation with law enforcement to make these criminal charges possible.”
“Today, we have exposed a cybercriminal enterprise that for years successfully and secretly hacked into the networks of a dozen companies, allegedly stealing personal information of over 100 million people, including over 80 million customers from one financial institution alone,” said U.S. Attorney Bharara. “The charged crimes showcase a brave new world of hacking for profit. It is no longer hacking merely for a quick payout, but hacking to support a diversified criminal conglomerate. This was hacking as a business model. The alleged conduct also signals the next frontier in securities fraud – sophisticated hacking to steal nonpublic information, something the defendants discussed for the next stage of their sprawling enterprise. Fueled by their hacking, the defendants’ criminal schemes allegedly generated hundreds of millions of dollars in illicit proceeds. Even the most sophisticated companies – like those victimized by the hacks in this case – have to appreciate the limits of their ability to uncover the full scope of any cyber-intrusion and to stop the perpetrators before they strike again. If they have been hacked, most likely others have been as well, and even more will be. The best bet to identify, stop and punish cybercriminals is to work closely, and early, with law enforcement. That happened here, and today’s charges are proof of that.”
“Shalon, Aaron and their co-conspirators allegedly robbed victim companies, often for months at a time, stealing the contact information of tens of millions of customers,” said Assistant Director in Charge Rodriguez. “They cloaked themselves in secrecy, but their methods rivaled those of the traditional masked robber. Today’s indictment sheds light on an increasingly complex threat. But just as criminals continue to develop relationships with one another in order to advance their objectives, the law enforcement community has developed a collaborative approach to fighting these types of crimes.”
“This investigation is indicative of the sophistication and complexity of cybercrime and the transnational criminal organizations that are responsible for it,” said Special Agent in Charge Sica. “Transnational cybercriminal organizations operate with impunity regardless of national borders as these criminal organizations seek to profit from information stolen through the unauthorized access to victims’ networks. Through the U.S. Secret Service global network of Electronic Crimes Task Forces, our field offices located overseas and the close cooperation of our foreign law enforcement partners, no cybercriminal is beyond our reach. We will remain relentless in pursuing these criminals wherever they may reside.”
According to the allegations contained in the superseding indictment[1]:
From approximately 2012 to mid-2015, Shalon, working with Aaron and others, orchestrated the U.S. Financial Sector Hacks, stealing personal information of over 100 million customers of the victim companies. Among these, their network intrusion at one bank (Victim-1) resulted in the theft of personal information of over 80 million Victim-1 customers, making it the largest theft of customer data from a U.S. financial institution in history. Shalon, Aaron and their co-conspirators engaged in these crimes in furtherance of other criminal schemes. In particular, in an effort to artificially manipulate the price of certain stocks publicly traded in the United States, Shalon and his co-conspirators sought to market the stocks, in a deceptive and misleading manner, to customers of the victim companies whose contact information they had stolen in the intrusions.
In addition to directing the U.S. Financial Sector Hacks, Shalon directed computer network hacks and cyberattacks against numerous companies outside of the financial sector. Shalon and his co-conspirators engaged in these crimes in furtherance of large-scale criminal businesses that Shalon and Orenstein operated in the United States and other countries. In particular, between approximately 2007 and July 2015, Shalon owned and operated unlawful internet gambling businesses in the United States and abroad; owned and operated multinational payment processors for illegal pharmaceutical suppliers, counterfeit and malicious software (malware) distributors, and unlawful internet casinos; and owned and controlled Coin.mx, an illegal U.S.-based Bitcoin exchange that operated in violation of federal anti-money laundering laws. Nearly all of these schemes, like Shalon’s securities market manipulation schemes, relied for their success on computer hacking and other cybercrimes committed by Shalon and his co-conspirators.
Through their criminal schemes, between in or about 2007 and in or about July 2015, Shalon and his co-conspirators earned hundreds of millions of dollars in illicit proceeds, of which Shalon concealed at least $100 million in Swiss and other bank accounts.
Shalon, Aaron, Orenstein and their co-conspirators operated their criminal schemes, and laundered their criminal proceeds, through at least 75 shell companies and bank and brokerage accounts around the world. The defendants controlled these companies and accounts using aliases, and by fraudulently using approximately 200 purported identification documents, including over 30 false passports that purported to be issued by the United States and at least 16 other countries.
The U.S. Financial Sector Hacks
Between approximately 2012 and August 2014, Shalon and a co-conspirator (CC-1), working at times with Aaron, executed the hacks of the computer networks of Victims 1 through 9. Among other things, in foreign-language electronic communications, during these hacks, Shalon bragged about the size and scope of his securities market manipulation schemes and described to CC-1 his use of the stolen data in furtherance of those schemes. Shalon and CC-1 also discussed expanding their network intrusions to encompass thefts of material non-public information from the financial institutions and other firms they were hacking.
The Securities Market Manipulation Schemes
Since 2011, Shalon, Aaron, Orenstein and their co-conspirators orchestrated multimillion-dollar stock manipulation – or “pump and dump” – schemes to manipulate the price and trading volume of dozens of publicly traded microcap stocks (penny stocks) in order to enable members of the conspiracy to sell their holdings in those stocks at artificially inflated prices. In some instances, Shalon and Aaron caused the companies to become publicly traded in furtherance of the scheme. To do so, Shalon caused privately held companies to engage in “reverse mergers” with publicly traded shell corporations Shalon controlled. Orenstein managed bank and brokerage accounts used in furtherance of the schemes under aliases that he supported with false passports and other false personal identification information.
To artificially manipulate the trading volume and prices of dozens of stocks, among other things, at pre-arranged times, Shalon and Aaron disseminated materially misleading, unsolicited messages by various means – including by email (spam) to up to millions of recipients per day – that falsely touted the stock in order to trick others into buying it. Shalon and Aaron engaged in the U.S. Financial Sector Hacks in part to acquire email and mailing addresses, phone numbers and other contact information for potential victims to whom they could send such deceptive communications. Shalon and his co-conspirators generated tens of millions of dollars in unlawful proceeds from the securities market manipulation schemes.
The Unlawful Internet Gambling Schemes, Hacks and Cyberattacks
From at least in or about 2007 up to and including in or about July 2015, Shalon, Orenstein and their co-conspirators operated unlawful internet casinos in the United States and elsewhere through hundreds of employees in multiple countries. In the United States, the defendants knowingly operated at least 12 unlawful internet casinos (the Casino Companies) which, through their websites, offered real-money casino gambling in violation of federal law and the laws of numerous states, including New York state. Through the Casino Companies, Shalon, Orenstein and their co-conspirators generated hundreds of millions of dollars in unlawful income.
In furtherance of his unlawful internet gambling schemes, Shalon and his co-conspirators engaged in massive hacks and cyberattacks against other internet gambling businesses to steal customer information, secretly review executives’ emails and cripple rival businesses. For example, Shalon orchestrated network intrusions of Victims-10 and -11, companies that provided operating software to Shalon’s internet casinos. In doing so, Shalon sought to, and did, secretly obtain access to the email accounts of senior executives at both companies to ensure that the companies’ work with Shalon’s competitors did not compromise the success of Shalon’s unlawful internet gambling businesses.
The Illicit Payment Processing Scheme and Hack
From at least in or about 2011 until in or about July 2015, Shalon, Orenstein and their co-conspirators operated IDPay and Todur, multinational payment processors for criminals who sought to receive payments by credit and debit card in furtherance of their unlawful schemes. Through these payment processors, Shalon, Orenstein and their co-conspirators knowingly processed credit and debit card payments for, at a minimum, unlawful pharmaceutical distributors, purveyors of counterfeit and malicious purported “anti-virus” computer software, their own unlawful internet casinos and Coin.mx, an illegal U.S.-based Bitcoin exchange owned by Shalon. In doing so, Shalon, Orenstein, and their co-conspirators knowingly processed hundreds of millions of dollars in transactions for criminal schemes, for which they earned a percentage of every transaction.
Beginning in or about 2012, Shalon and his co-conspirators hacked into the computer networks of Victim-12, a U.S. company which assessed merchant risk and compliance for credit card issuers and others, including by detecting merchants that accepted credit card payments for unlawful goods or services. Thereafter, on an ongoing basis, Shalon and his co-conspirators monitored Victim-12’s detection efforts, including by reading emails of Victim-12 employees, so they could take steps to evade detection by Victim-12 of their unlawful payment processing scheme.
The Unlawful Bitcoin Exchange
From in or about 2013 to in or about July 2015, Shalon knowingly owned Coin.mx, which was operated by Murgio in the United States at Shalon’s direction in violation of federal anti-money laundering (AML) registration and reporting laws and regulations. Through Coin.mx, Shalon, Murgio and their co-conspirators enabled their customers to exchange cash for Bitcoins, charging a fee for their service. In total, between approximately October 2013 and July 2015, Coin.mx exchanged millions of dollars for Bitcoins on behalf of its customers.
* * *
Shalon, 31, of Savyon, Israel; Aaron, 31, a U.S. citizen who resides in Moscow; and Tel Aviv; and Orenstein, 40, of Bat Hefer, Israel, are charged with the following offenses, which carry the maximum prison terms listed below:
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
20 years
Five
Shalon, Aaron and Orenstein
Conspiracy to Commit Wire Fraud: Securities Market Manipulation Scheme
20 years
Six to 12
Shalon, Aaron and Orenstein
Securities Fraud
20 years
13
Shalon, Aaron and Orenstein
Wire Fraud
20 years
14
Shalon, Aaron and Orenstein
Identification Document Fraud Conspiracy
20 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
five years
22
Shalon, Aaron and Orenstein
Money Laundering Conspiracy: Securities Market Manipulation Scheme
20 years
23
Shalon, Aaron and Orenstein
Money Laundering Conspiracy: Internet Gambling and Payment Processing Schemes
20 years
For his alleged conduct, Murgio, 31, of Tampa, Florida, is charged with the following offenses: conspiracy to operate an unlicensed money transmitting business, which carries a maximum prison term of five years; operation of an unlicensed money transmitting business, which carries a maximum prison term of five years; conspiracy to make corrupt payments with intent to influence an officer of a financial institution, which carries a maximum prison term of five years; making corrupt payments with intent to influence an officer of a financial institution, which carries a maximum prison term of 30 years; conspiracy to commit wire fraud, which carries a maximum prison term of 20 years; wire fraud, which carries a maximum prison term of 20 years; and money laundering, which carries a maximum prison term of 20 years.
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.
U.S. Attorney Bharara praised the investigative work of the FBI and the USSS, 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, Cyber Unit - Lahav 433, for their support and assistance with the investigation and the ongoing extradition proceedings. He also thanked the U.S. Securities and Exchange Commission, U.S. Immigration and Customs Enforcement-Homeland Security Investigations, the Financial Industry Regulatory Authority, the National Credit Union Administration, the Justice Department’s Office of International Affairs and the Financial Services Information Sharing and Analysis Center, which significantly aided the investigation by facilitating information-sharing among the victim institutions.
The prosecution of this case is being overseen by the U.S. Attorney’s Office of the Southern District of New York’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Nicole Friedlander, Eun Young Choi and Sarah Lai of the Southern District of New York are in charge of the prosecution. Assistant U.S. Attorney Edward Diskant of the Southern District of New York’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.
[1] As the introductory phrase signifies, the entirety of the text of the superseding indictment and the description of the indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Attorney General and Manhattan U.S. Attorney Announce Charges Stemming from Massive Network Intrusions at U.S. Financial Institutions, U.S. Brokerage Firms, A Major News Publication, and Other CompaniesRead the Press Release
Loretta E. Lynch, the Attorney General of the United States, 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 Robert J. Sica, Special Agent in Charge of the US Secret Service New York Field Office (“USSS”) announced today the unsealing of a superseding indictment charging 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,” with orchestrating 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 (the “U.S. Financial Sector Hacks”). 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 ZIV ORENSTEIN, a/k/a “Aviv Stein,” a/k/a “John Avery” in the United States. As alleged, SHALON also orchestrated computer network hacks and cyberattacks in furtherance of other major criminal schemes, including unlawful internet casinos and illicit payment processors which SHALON operated with ORENSTEIN. SHALON also owned and controlled an illegal U.S.-based Bitcoin exchange known as Coin.mx. SHALON and ORENSTEIN were arrested in July 2015 by the Israel Police on an indictment that charged the underlying securities fraud, and they remain in custody in Israel pending extradition on those charges. The United States Attorney’s Office will seek their extradition to stand trial in the United States on the additional charges announced today. AARON remains at large. Also announced today is the unsealing of a separate indictment charging ANTHONY R. MURGIO with operating Coin.mx in the United States, and related crimes. MURGIO, who was arrested on a Complaint in July 2015, will be arraigned before the Honorable Alison J. Nathan.
Attorney General Loretta E. Lynch said: “As set forth in the indictment, these three defendants perpetrated one of the largest thefts of financial-related data in history – making off with the sensitive information of literally thousands of hard-working Americans. These charges were made possible in large part because those victims came forward and worked with the Department of Justice to hold the perpetrators accountable. In an age when enormous quantities of vital information are stored in digital format on potentially vulnerable Internet-connected devices, public-private partnerships and information-sharing are more critical than ever. The Department of Justice is committed to protecting the financial data of all our citizens and the financial integrity of our institutions. I’d like to thank the prosecutors and law enforcement professionals who worked tirelessly on this case, and the victims who offered their full cooperation with law enforcement to make these criminal charges possible.”
Manhattan U.S. Attorney Preet Bharara said: “Today, we have exposed a cybercriminal enterprise that for years successfully and secretly hacked into the networks of a dozen companies, allegedly stealing personal information of over 100 million people, including over 80 million customers from one financial institution alone. The charged crimes showcase a brave new world of hacking for profit. It is no longer hacking merely for a quick payout, but hacking to support a diversified criminal conglomerate. This was hacking as a business model. The alleged conduct also signals the next frontier in securities fraud – sophisticated hacking to steal nonpublic information, something the defendants discussed for the next stage of their sprawling enterprise. Fueled by their hacking, the defendants’ criminal schemes allegedly generated hundreds of millions of dollars in illicit proceeds. Even the most sophisticated companies – like those victimized by the hacks in this case – have to appreciate the limits of their ability to uncover the full scope of any cyber-intrusion and to stop the perpetrators before they strike again. If they have been hacked, most likely others have been as well, and even more will be. The best bet to identify, stop and punish cybercriminals is to work closely, and early, with law enforcement. That happened here, and today’s charges are proof of that.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “Shalon, Aaron, and their co-conspirators allegedly robbed victim companies, often for months at a time, stealing the contact information of tens of millions of customers. They cloaked themselves in secrecy, but their methods rivaled those of the traditional masked robber. Today’s indictment sheds light on an increasingly complex threat. But just as criminals continue to develop relationships with one another in order to advance their objectives, the law enforcement community has developed a collaborative approach to fighting these types of crimes.”
USSS Special Agent in Charge Robert J. Sica said: “This investigation is indicative of the sophistication and complexity of cybercrime and the transnational criminal organizations that are responsible for it. Transnational cybercriminal organizations operate with impunity regardless of national borders as these criminal organizations seek to profit from information stolen through the unauthorized access to victims’ networks. Through the U.S. Secret Service global network of Electronic Crimes Task Forces, our field offices located overseas, and the close cooperation of our foreign law enforcement partners, no cybercriminal is beyond our reach. We will remain relentless in pursuing these criminals wherever they may reside.”
According to the allegations contained in the superseding indictment[1]:
From approximately 2012 to mid-2015, SHALON, working with AARON and others, orchestrated the U.S. Financial Sector Hacks, stealing personal information of over 100 million customers of the victim companies. Among these, their network intrusion at one bank (“Victim-1”) resulted in the theft of personal information of over 80 million Victim-1 customers, making it the largest theft of customer data from a U.S. financial institution in history. SHALON, AARON, and their co-conspirators engaged in these crimes in furtherance of other criminal schemes. In particular, in an effort to artificially manipulate the price of certain stocks publicly traded in the United States, SHALON and his co-conspirators sought to market the stocks, in a deceptive and misleading manner, to customers of the victim companies whose contact information they had stolen in the intrusions.
In addition to directing the U.S. Financial Sector Hacks, SHALON directed computer network hacks and cyberattacks against numerous companies outside of the financial sector. SHALON and his co-conspirators engaged in these crimes in furtherance of large-scale criminal businesses that SHALON and ORENSTEIN operated in the United States and other countries. In particular, between approximately 2007 and July 2015, SHALON owned and operated unlawful internet gambling businesses in the United States and abroad; owned and operated multinational payment processors for illegal pharmaceutical suppliers, counterfeit and malicious software (“malware”) distributors, and unlawful internet casinos; and owned and controlled Coin.mx, an illegal United States-based Bitcoin exchange that operated in violation of federal anti-money laundering laws. Nearly all of these schemes, like SHALON’s securities market manipulation schemes, relied for their success on computer hacking and other cybercrimes committed by SHALON and his co-conspirators.
Through their criminal schemes, between in or about 2007 and in or about July 2015, SHALON and his co-conspirators earned hundreds of millions of dollars in illicit proceeds, of which SHALON concealed at least $100 million in Swiss and other bank accounts.
SHALON, AARON, ORENSTEIN, and their co-conspirators operated their criminal schemes, and laundered their criminal proceeds, through at least 75 shell companies and bank and brokerage accounts around the world. The defendants controlled these companies and accounts using aliases, and by fraudulently using approximately 200 purported identification documents, including over 30 false passports that purported to be issued by the United States and at least 16 other countries.
The U.S. Financial Sector Hacks
Between approximately 2012 and August 2014, SHALON and a co-conspirator (“CC-1”), working at times with AARON, executed the hacks of the computer networks of Victims 1-9. Among other things, in foreign-language electronic communications, during these hacks, SHALON bragged about the size and scope of his securities market manipulation schemes, and described to CC-1 his use of the stolen data in furtherance of those schemes. SHALON and CC-1 also discussed expanding their network intrusions to encompass thefts of material non-public information from the financial institutions and other firms they were hacking.
The Securities Market Manipulation Schemes
Since 2011, SHALON, AARON, ORENSTEIN, and their co-conspirators orchestrated multimillion-dollar stock manipulation – or “pump and dump” – schemes to manipulate the price and trading volume of dozens of publicly traded microcap stocks (“penny stocks”) in order to enable members of the conspiracy to sell their holdings in those stocks at artificially inflated prices. In some instances, SHALON and AARON caused the companies to become publicly traded in furtherance of the scheme. To do so, SHALON caused privately held companies to engage in “reverse mergers” with publicly traded shell corporations SHALON controlled. ORENSTEIN managed bank and brokerage accounts used in furtherance of the schemes under aliases that ORENSTEIN supported with false passports and other false personal identification information.
To artificially manipulate the trading volume and prices of dozens of stocks, among other things, at pre-arranged times, SHALON and AARON disseminated materially misleading, unsolicited messages by various means – including by email (“spam”) to up to millions of recipients per day – that falsely touted the stock in order to trick others into buying it. SHALON and AARON engaged in the U.S. Financial Sector Hacks in part to acquire email and mailing addresses, phone numbers, and other contact information for potential victims to whom they could send such deceptive communications. SHALON and his co-conspirators generated tens of millions of dollars in unlawful proceeds from the securities market manipulation schemes.
The Unlawful Internet Gambling Schemes, Hacks and Cyberattacks
From at least in or about 2007 up to and including in or about July 2015, SHALON, ORENSTEIN and their co-conspirators operated unlawful internet casinos in the United States and elsewhere through hundreds of employees in multiple countries. In the United States, the defendants knowingly operated at least 12 unlawful internet casinos (the “Casino Companies”) which, through their websites, offered real-money casino gambling in violation of federal law and the laws of numerous states, including New York State. Through the Casino Companies, SHALON, ORENSTEIN, and their co-conspirators generated hundreds of millions of dollars in unlawful income.
In furtherance of his unlawful internet gambling schemes, SHALON and his co-conspirators engaged in massive hacks and cyberattacks against other internet gambling businesses to steal customer information, secretly review executives’ emails, and cripple rival businesses. For example, SHALON orchestrated network intrusions of Victims-10 and -11, companies that provided operating software to SHALON’s internet casinos. In doing so, SHALON sought to, and did, secretly obtain access to the email accounts of senior executives at both companies to ensure that the companies’ work with SHALON’s competitors did not compromise the success of SHALON’s unlawful internet gambling businesses.
The Illicit Payment Processing Scheme and Hack
From at least in or about 2011 until in or about July 2015, SHALON, ORENSTEIN, and their co-conspirators operated IDPay and Todur, multinational payment processors for criminals who sought to receive payments by credit and debit card in furtherance of their unlawful schemes. Through these payment processors, SHALON, ORENSTEIN, and their co-conspirators knowingly processed credit and debit card payments for, at a minimum, unlawful pharmaceutical distributors, purveyors of counterfeit and malicious purported “anti-virus” computer software, their own unlawful internet casinos, and Coin.mx, an illegal United States-based Bitcoin exchange owned by SHALON. In doing so, SHALON, ORENSTEIN, and their co-conspirators knowingly processed hundreds of millions of dollars in transactions for criminal schemes, for which they earned a percentage of every transaction.
Beginning in or about 2012, SHALON and his co-conspirators hacked into the computer networks of Victim-12, a U.S. company which assessed merchant risk and compliance for credit card issuers and others, including by detecting merchants that accepted credit card payments for unlawful goods or services. Thereafter, on an ongoing basis, SHALON and his co-conspirators monitored Victim-12’s detection efforts, including by reading emails of Victim-12 employees, so they could take steps to evade detection by Victim-12 of their unlawful payment processing scheme.
The Unlawful Bitcoin Exchange
From in or about 2013 to in or about July 2015, SHALON knowingly owned Coin.mx, a Bitcoin exchange service, which was operated by MURGIO in the United States at SHALON’s direction in violation of federal anti-money laundering (“AML”) registration and reporting laws and regulations. Through Coin.mx, SHALON, MURGIO, and their co-conspirators enabled their customers to exchange cash for Bitcoins, charging a fee for their service. In total, between approximately October 2013 and July 2015, Coin.mx exchanged millions of dollars for Bitcoins on behalf of its customers.
* * *
SHALON, 31, of Savyon, Israel, AARON, 31, a U.S. citizen who resides in Moscow, Russia, and Tel Aviv, Israel, and ORENSTEIN, 40, of Bat Hefer, Israel, are charged with the following offenses, which carry the maximum prison terms listed below:
Count
Defendants
Charge
Maximum Prison Term
One
SHALON and AARON
Conspiracy to Commit Computer Hacking
5 years
Two
SHALON and AARON
Computer Hacking
5 years
Three
SHALON and AARON
Computer Hacking
5 years
Four
SHALON, AARON, and ORENSTEIN
Conspiracy to Commit Securities Fraud
20 years
Five
SHALON, AARON, and ORENSTEIN
Conspiracy to Commit Wire Fraud: Securities Market Manipulation Scheme
20 years
Six to Twelve
SHALON, AARON, and ORENSTEIN
Securities Fraud
20 years
Thirteen
SHALON, AARON, and ORENSTEIN
Wire Fraud
20 years
Fourteen
SHALON, AARON, and ORENSTEIN
Identification Document Fraud Conspiracy
20 years
Fifteen
SHALON, AARON, and ORENSTEIN
Aggravated Identity Theft
Mandatory 2 years
Sixteen
SHALON and ORENSTEIN
Unlawful Internet Gambling Enforcement Act Conspiracy
5 years
Seventeen
SHALON and ORENSTEIN
Unlawful Internet Gambling Enforcement Act
5 years
Eighteen
SHALON and ORENSTEIN
Operation of Illegal Gambling Business
5 years
Nineteen
SHALON and ORENSTEIN
Conspiracy to Commit Wire Fraud: Unlawful Payment Processing
20 years
Twenty
SHALON
Conspiracy to Operate an Unlicensed Money Transmitting Business
5 years
Twenty One
SHALON
Operation of an Unlicensed Money Transmitting Business
5 years
Twenty Two
SHALON, AARON, and ORENSTEIN
Money Laundering Conspiracy: Securities Market Manipulation Scheme
20 years
Twenty-Three
SHALON, AARON, and ORENSTEIN
Money Laundering Conspiracy: Internet Gambling and Payment Processing Schemes
20 years
For his alleged conduct, MURGIO, 31, of Tampa, Florida, is charged with the following offenses: (1) conspiracy to operate an unlicensed money transmitting business, which carries a maximum prison term of 5 years; (2) operation of an unlicensed money transmitting business, which carries a maximum prison term of 5 years; (3) conspiracy to make corrupt payments with intent to influence an officer of a financial institution, which carries a maximum prison term of 5 years; (4) making corrupt payments with intent to influence an officer of a financial institution, which carries a maximum prison term of 30 years; (5) conspiracy to commit wire fraud, which carries a maximum prison term of 20 years; (6) wire fraud, which carries a maximum prison term of 20 years; and (7) money laundering, which carries a maximum prison term of 20 years.
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 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, Cyber Unit - Lahav 433, for their support and assistance with the investigation and the ongoing extradition proceedings. He also thanked the SEC, Immigration and Customs Enforcement - Homeland Security Investigations, the Financial Industry Regulatory Authority, the National Credit Union Administration, the Office of International Affairs of the U.S. Department of Justice, and the Financial Services Information Sharing and Analysis Center, which significantly aided the investigation by facilitating information-sharing among the victim institutions.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Nicole Friedlander, 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.
[1] As the introductory phrase signifies, the entirety of the text of the superseding indictment and the description of the indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Announces Charges Against Three Individuals for Participating in Large-Scale Stolen Identity Refund Fraud Tax SchemeRead 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 New York Field Office of the Internal Revenue Service, Criminal Investigation Division (“IRS-CI”), announced today the unsealing of a criminal complaint charging three defendants with participating in a large-scale tax refund scheme that used stolen identities to file fraudulent returns to obtain fraudulent tax refund checks. TRISTON PHILLIP, GREGORY MERCADO, a/k/a “George Merchant,” and JOSUE TORRES are charged in a tax fraud scheme involving millions of dollars in claimed fraudulent returns. PHILLIP, MERCADO, and TORRES were charged in a complaint unsealed today. MERCADO was arrested in Rhode Island, where he appeared in federal court, and PHILLIP and TORRES were arrested in the Bronx and will appear in Manhattan federal court today.
According to the Complaint[1]:
From at least in or about 2011 up to and including in or about November 2015, PHILLIP, MERCADO, and TORRES conspired and engaged in a scheme to steal the names, dates of birth, and social security numbers of individuals, which the defendants then used to file fraudulent income tax returns that claimed tax refunds to which the defendants were not entitled.
PHILLIP, 31, MERCADO, 28, and TORRES, 36, are each charged with one count of conspiracy to steal government funds, which carries a maximum sentence of five years in prison, theft of government funds, which carries a maximum sentence of 10 years in prison, and one count of aggravated identity theft in connection with the tax fraud scheme, which carries a mandatory sentence of two years in prison, to be served consecutively to any other sentence imposed. In addition, TORRES is also charged with one count of theft and receipt of stolen mail, which carries a maximum sentence of five years in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the Court.
Mr. Bharara praised the outstanding investigative work of IRS-CI and thanked the United States Postal Inspection Service for their assistance.
This case is being handled by the Office’s General Crimes Unit. Assistant U.S. Attorney Alex Rossmiller is in charge of the prosecutions.
The charges and allegations 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.
CEO of Broker-Dealer Pleads Guilty in Manhattan Federal Court to Obstructing Regulatory Examination by Producing False Invoices to SEC Exam TeamRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CHARLES J. MOORE, former Chief Executive Officer of broker-dealer Crucible Capital, Inc. (“Crucible”), pled guilty today before United States District Judge Colleen McMahon to obstructing a regulatory examination. MOORE was arrested on August 8, 2014, based on a criminal Complaint alleging, among other things, that he caused a Crucible employee to give falsified invoices to Securities and Exchange Commission (“SEC”) personnel who were conducting a regulatory examination of Crucible. MOORE is scheduled to be sentenced by Judge McMahon on February 18, 2016.
Manhattan U.S. Attorney Preet Bharara said: “Charles Moore, the CEO of a broker-dealer, admitted today that he obstructed the SEC’s examination of his company, concealing the truth about his firm’s finances. Moore’s deceit, which included providing falsified documents to the SEC, has criminal consequences, and he now awaits sentencing for his acknowledged wrongdoing.”
According to the agreement pursuant to which MOORE entered his plea of guilty today, the underlying criminal Complaint filed August 7, 2014, the Indictment filed on September 30, 2014, and statements made during court proceedings:
MOORE was at all relevant times the Chief Executive Officer of Crucible, an SEC-registered broker-dealer that maintained no customer securities trading accounts, but held itself out as a “boutique” investment bank helping small businesses to raise capital and financing. Crucible used its status as an SEC-registered broker-dealer to solicit business.
MOORE was also at all relevant times the CEO of an affiliated company, Angelic Holdings LLC (“Angelic”), which was not registered with the SEC and conducted “due diligence” for Crucible-related business. Crucible and Angelic shared employees and office space. They also shared expenses, under an agreement that had Crucible paying Angelic a monthly fee and Angelic paying vendors of certain specified services on behalf of both Angelic and Crucible.
As an SEC-registered broker-dealer that maintained no customer accounts, Crucible was required to maintain net capital of at least $5,000 at all times. It was also required to file monthly “FOCUS” reports with the SEC reporting its net capital.
In the fall of 2013, the SEC opened a regulatory examination of Crucible to explore, among other things, the accuracy of the net capital figures that Crucible had supplied in its FOCUS reports from in or about February 2013 through in or about September 2013. As part of that examination, the SEC requested all 2013 invoices to Angelic for Crucible-related expenses.
MOORE, responding to this request, caused a Crucible employee to create falsified invoices to deliver to the SEC. Specifically, he directed the employee to take original invoices that had been sent to Crucible personnel, and create versions of those invoices that omitted references to large, unpaid debts appearing on the originals. MOORE then caused the employee to hand the falsified invoices to the SEC. The purpose of this obstruction was to hide the true extent of Crucible’s debts from the regulatory examination team, and thus make it appear, falsely, that Crucible’s net capital figures, as reported in its 2013 FOCUS reports, were accurate.
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MOORE, 63, pled guilty to Count One of a three-count Indictment. Count One charges obstruction of a regulatory examination and carries a maximum sentence of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of the U.S. Postal Inspection Service and the Federal Bureau of Investigation and thanked the SEC, which has filed civil charges in a separate action.
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 Sarah Eddy McCallum and Andrew B. Bauer are in charge of the prosecution.
Yonkers Man Convicted in White Plains Federal Court of Kidnapping and Sex Trafficking A 19-Year-Old VictimRead 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 Charles Gardner, the Commissioner of the Yonkers Police Department, announced that, yesterday afternoon, CLYDEDORO GRAHAM was found guilty of kidnapping a 19-year-old victim (the “Victim”), conspiring to engage in sex trafficking of the Victim, and attempting to engage in sex trafficking of the Victim. CLYDEDORO GRAHAM was convicted after a seven-day jury trial before United States District Judge Nelson S. Román.
U.S. Attorney Preet Bharara stated: “Clydedoro Graham preyed on a young, vulnerable victim. Together with his accomplices, he lured a 19-year-old to his apartment, kidnapped her, and tried to force her to work as a prostitute for him. This young woman endured a nightmare at the hands of the defendant. But thanks to the outstanding work of the FBI and the Yonkers Police Department, he did not get away with it and a unanimous jury has found him guilty of all charges.”
FBI Assistant Director-in-Charge Diego Rodriguez stated: “Graham lay in wait as his co-conspirators set a trap for their victim. Unbeknownst to her, the harrowing situation would play out for days before help arrived to save her from her captors’ plans. Although there are many who become entangled in a life of prostitution, this should not serve as an excuse for others to violate them and force them into sex trafficking schemes. Today’s conviction is proof of the FBI’s efforts to stop this type of illegal activity.”
Yonkers Police Commissioner Charles Gardner stated: “I want to thank the U.S. Attorney for the Southern District of New York and the FBI for their efforts in this investigation and successful prosecution of this suspect. This case was initiated by our Patrol Officers who remained vigilant in searching for a missing person, who turned out to be the victim in this heinous crime. The verdict should be a warning to all who chose to engage in sex trafficking here in Yonkers and abroad that a substantial sentence in federal prison may be the result of your actions.”
According to the allegations in the Complaint and Superseding Indictment filed in federal court, and the evidence presented at trial:
On the evening of June 16, 2014, CLYDEDORO GRAHAM was at his apartment in Yonkers, New York (the “Apartment”), with his girlfriend and accomplice, Alisa Papp. His cousin, Kevin Graham, and his friend, Hector Garcia, were also present. As Papp, Kevin Graham, and Garcia knew, CLYDEDORO GRAHAM was a “pimp.” That night, the four co-conspirators agreed to lure a prostitute to the Apartment for the purpose of forcing her to work for them.
CLYDEDORO GRAHAM was the leader of this scheme. Using his cellphone, he went to Backpage.com, a website where prostitutes post advertisements. He trolled through the advertisements searching for a target, and eventually decided on the Victim. Kevin Graham called the Victim and led her to believe, falsely, that he wanted to hire her for a prostitution “date.”
When the Victim arrived, the co-conspirators were lying in wait. Papp served as the lookout, making sure the Victim did not arrive with anyone else. Kevin Graham met her outside and led her into the Apartment, while CLYDEDORO GRAHAM and Garcia hid inside. Once inside the Apartment – and at the direction of CLYDEDORO GRAHAM – the co-conspirators took away the Victim’s purse and phone, removed the battery from her phone, and told her that she was there to work as a prostitute for them. The Victim asked repeatedly to leave, but CLYDEDORO GRAHAM and his accomplices refused.
The co-conspirators told the Victim that she had no choice but to have sex with each of the men. She refused and asked again to go home. CLYDEDORO GRAHAM said she could give it up or they would “take it.” CLYDEDORO GRAHAM, Kevin Graham, and Hector Garcia took turns having sex with the Victim, against her will.
Later that night, Kevin Graham and Garcia left the Apartment. For the next two days and two nights, CLYDEDORO GRAHAM and Papp held the Victim captive in the Apartment. Among other coercive measures, CLYDEDORO GRAHAM removed the doorknob from the interior side of the Apartment’s front door to prevent the Victim from escaping. He then made plans to bring the Victim out onto the streets of Yonkers to prostitute her for his own benefit.
CLYDEDORO GRAHAM’s scheme unraveled on June 18, 2014, when two Yonkers police officers arrived at the Apartment after receiving a tip from individuals who had been searching for the Victim. The officers demanded to speak with the Victim, immediately determined that she was being held against her will, and brought her to safety.
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On or about December 4, 2014, CLYDEDORO GRAHAM, Alisa Papp, Kevin Graham, and Hector Garcia were charged in a three-count Superseding Indictment with sex trafficking and kidnapping offenses. Papp, Kevin Graham, and Garcia entered pleas of guilty before trial and are awaiting sentencing.
CLYDEDORO GRAHAM proceeded to trial on October 27, 2015. Yesterday, the jury found him guilty of all charges: one count of conspiracy to engage in sex trafficking, which carries a maximum sentence of life in prison; one count of attempted sex trafficking, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 15 years in prison; and one count of kidnapping, which carries a maximum sentence of life in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
CLYDEDORO GRAHAM is scheduled to be sentenced by Judge Román on April 15, 2016.
Mr. Bharara praised the outstanding investigative work of the FBI’s Westchester Violent Crimes Task Force, which comprises agents and detectives of the FBI, Homeland Security Investigations, the City of Yonkers Police Department, the Westchester County Police, and the Westchester County District Attorney’s Office. He also thanked the Westchester County District Attorney’s Office.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Kathryn Martin, Douglas Zolkind, and Daniel Filor are in charge of the prosecution.
Manhattan U.S. Attorney Files and Settles Civil Fraud Lawsuit Against Yonkers Contractor for Engaging in Fraudulent Conduct in Violation of the Disadvantaged Business Enterprise RegulationsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Douglas Shoemaker, regional Special Agent-in-Charge of the United States Department of Transportation Office of Inspector General (“DOT-OIG”), and Michael Nestor, Inspector General of The Port Authority of New York and New Jersey, announced that the United States filed on Tuesday, and simultaneously settled, a civil fraud lawsuit against a contractor, YONKERS CONTRACTING INC. (“YONKERS CONTRACTING”), for engaging in fraudulent conduct designed to exploit the Disadvantaged Business Enterprise Program in order to secure a contract on the federally-funded project for highway rehabilitation and bridge refurbishment along I-287, the Cross-Westchester Expressway (the “I-287 Project”). Specifically, as alleged in the complaint, YONKERS CONTRACTING falsely certified to the New York State Department Of Transportation (“NYS DOT”) that work being done by a disadvantaged business enterprise (“DBE”) qualified for DBE credit when YONKERS CONTRACTING knew that this was not the case and that YONKERS CONTRACTING instead paid kickbacks to the DBE for the fraudulent use of its DBE status. In the settlement, approved in White Plains federal court by U.S. District Judge Nelson S. Román, YONKERS CONTRACTING admitted and accepted responsibility for violating the DBE regulations governing the I-287 Project and agreed to pay the Government $2,600,000.
YONKERS CONTRACTING also entered into a non-prosecution agreement with the United States Attorney’s Office. Pursuant to the agreement, YONKERS CONTRACTING agreed, among other things, that it has instituted and will continue to maintain internal corporate remediation measures regarding Disadvantaged, Minority-Owned, and Women-Owned Business Enterprises (“D/M/WBEs”) for a period of two years, including: (1) creation and maintenance of a D/M/WBE Policy Manual and updated Code of Business Ethics for distribution to all employees; (2) implementation of an internal D/M/WBE training program for its employees; (3) creation and maintenance of a position focused on D/M/WBE issues; and (4) development and implementation of a checklist for D/M/WBE compliance to be used on all projects. Pursuant to the agreement, the United States Attorney’s Office agreed not to prosecute YONKERS CONTRACTING criminally in connection with credits claimed by it toward the DBE goal on a construction project on the Cross-Westchester Expressway for work purportedly done by two certified DBEs from in or about 2006 through in or about 2010.
Manhattan U.S. Attorney Preet Bharara said: “The DBE regulations at issue serve the important purpose of increasing legitimate participation by minority-owned and disadvantaged businesses. Instead of complying with the DBE regulations, Yonkers Contracting found fraudulent ways to get around them.”
DOT-OIG regional Special Agent-in-Charge Douglas Shoemaker said: “Disadvantaged Business Enterprise fraud like that committed by YONKERS CONTRACTING harms the integrity of the DBE program and law-abiding contractors, including many small businesses, by defeating efforts to ensure a level playing field in which all firms can compete fairly for contracts. Our agents will continue to work with the Secretary of Transportation, the Administrator of Federal Highways, and other Federal, State, and local law enforcement and prosecutorial colleagues to expose and shut down DBE fraud schemes that adversely affect public trust and DOT-assisted highway programs throughout New York and elsewhere.”
Port Authority Inspector General Michael Nestor said: “This investigation has demonstrated how individuals in the construction industry have manipulated and circumvented the intent of the DBE Program by utilizing firms as fronts to satisfy Program goals. This conduct deprived legitimate DBE’s from receiving their fair share of government contracts. This investigation should serve notice to all in the industry to adhere to the Program’s intent or face legal consequences. The Port Authority’s Office of Inspector General and its law enforcement partners will aggressively identify, investigate and bring to justice those who corrupt the integrity of the construction industry.”
BACKGROUND ON DBEs
In 1980, the United States Department of Transportation (“USDOT”) issued regulations in connection with a program to increase the participation of minority and disadvantaged business enterprises in federally funded public construction contracts. To become certified as a DBE, a company must, among other things, be owned and controlled by socially and economically disadvantaged individuals; be an independent business whose viability does not depend on its relationship with other firms; employ its own work force and own equipment necessary to perform its work; and be able to meet its financial obligations.
General contractors can count funds paid to DBEs toward the attainment of the DBE goals only if the DBEs performed a “commercially useful function.” A DBE subcontractor performs a commercially useful function only when it is responsible for the execution of the work of the contract; actually performs, manages, and supervises the work involved; and furnishes the supervision, labor, and equipment necessary to perform its work.
A DBE does not perform a “commercially useful function” if “its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation.”
YONKERS’S FRAUD
As set forth/described in the complaint:
Yonkers was part of a joint venture that obtained a contract from NYS DOT for the I-287 Project. This contract required adherence to DBE regulations, and as part of its bid, the joint venture submitted a DBE Utilization Packet to NYS DOT. NYS DOT agreed to a DBE participation commitment from the joint venture of 8.03%, of which over 31% was based on the purported work to be provided by a DBE called Global Marine Supply Co. (“Global Marine”). While YONKERS CONTRACTING claimed that Global Marine was going to serve as a steel supplier, YONKERS CONTRACTING in fact negotiated directly with a third-party steel supplier, which was not a DBE, to supply steel for the I-287 Project. YONKERS CONTRACTING hired Global Marine solely for its DBE status, in exchange for a 1% mark-up. The third-party steel supplier provided invoices to Global Marine, which recopied them, added the 1% mark-up, and submitted them to the joint venture. Global Marine never stored or shipped any steel, and thus, as YONKERS CONTRACTING knew, performed no commercially useful function on the project. Yet the joint venture regularly made entries into NYS DOT’s electronic-tracking system reflecting steel purchases purportedly made through Global Marine, and these records were used by NYS DOT to determine Global Marine’s contribution and whether the joint venture was meeting its DBE goal. As a result of the false reports submitted, YONKERS CONTRACTING obtained federal money to which it was not entitled.
Pursuant to the settlement agreement, YONKERS CONTRACTING admitted, acknowledged, and accepted responsibility for making and causing false statements to be made in violation of applicable regulations designed to encourage the participation of disadvantaged business enterprises in federally funded construction projects. Under the agreement, YONKERS CONTRACTING must also pay the United States $2,600,000.
Mr. Bharara praised the USDOT Office of Inspector General and the Office of the Inspector General for the Port Authority of New York and New Jersey for their invaluable work on this case, and thanked the Office of the Inspector General of the Metropolitan Transportation Authority and NYS DOT’s Investigations Bureau for their assistance with this investigation.
Assistant United States Attorney Benjamin Allee of the Office’s White Plains Division is in charge of the criminal case. Assistant United States Attorneys Ellen London and Mara Trager of the Office’s Civil Frauds Unit are in charge of the civil case.
Manhattan U.S. Attorney Announces Conviction of Michael Danilovich on Racketeering, Securities Fraud, Health Care Fraud, Mail Fraud, Wire Fraud, and Money Laundering ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL DANILOVICH was found guilty today on racketeering conspiracy, securities fraud, health care fraud, mail fraud, wire fraud, and money laundering charges following a five-week jury trial before United States District Judge Deborah A. Batts. The jury convicted DANILOVICH of racketeering arising out of his operation, from 2007 through 2012, of the largest single no fault automobile insurance fraud scheme ever charged; his operation, from 2007 to 2009, of two investment fraud schemes, Lyons Ward & Associates and the Rockford Group; and his attempted operation, from 2011 to 2012, of a third investment fraud scheme, Baron & Caplan, including after he was arrested and released on bail in this case.
U.S. Attorney Preet Bharara said: “Michael Danilovich has been convicted by a unanimous jury of committing several frauds. As the jury found, he took a lead role in scamming insurance companies of over $100 million in fraudulent medical treatments and in engaging in other investment scams that swindled investors out of another $18 million. Today's verdict ensures that Danilovich will be punished for the wide-ranging frauds he perpetrated.”
According to the Superseding Indictment and evidence admitted at trial:
From 2007 through 2012, DANILOVICH was a leader of an enterprise engaged in a pattern of racketeering that included a massive scheme to defraud automobile insurance companies under New York’s no fault insurance law, multiple securities fraud schemes, money laundering, and the operation of illegal gambling businesses.
Under New York State Law, every vehicle registered in the State is required to have no fault automobile insurance, which enables the driver and passengers of a registered and insured vehicle to obtain benefits of up to $50,000 per person for injuries sustained in an automobile accident, regardless of fault (the “No Fault Law”). The No Fault Law requires prompt payment for medical treatment, thereby obviating the need for claimants to file personal injury lawsuits in order to be reimbursed. Under the No Fault Law, patients can assign their right to reimbursement from an insurance company to others, including medical clinics that provide treatment for their injuries. New York State Law also requires that all medical clinics in the State be incorporated, owned, operated, and controlled by a licensed medical practitioner in order to be eligible for reimbursement under the No Fault Law. Insurance companies will not honor claims for medical treatments from a medical clinic that is not actually owned, operated, and controlled by a licensed medical professional.
From 2007 through 2012, DANILOVICH’s organization defrauded automobile insurance companies of more than $100 million by, among other things, creating and operating medical clinics that provided unnecessary and excessive medical treatments in order to take advantage of the No Fault Law. In addition, Danilovich’s organization fraudulently owned and controlled more than a dozen medical professional corporations (“PCs”) – including no fault clinics, MRI offices, and acupuncture and chiropractic PCs – by paying licensed medical professionals to use their licenses to incorporate the professional corporations. DANILOVICH and his co-conspirators paid kickbacks of thousands of dollars to runners to recruit patients to receive the same battery of tests and treatments, and received kickbacks from other co-conspirators for referring patients for additional unnecessary treatments. All told, Danilovich’s organization billed insurance companies for tens of millions of dollars in fraudulent medical treatments. Furthermore, DANILOVICH and his co-conspirators laundered the proceeds of the fraud through check cashing entities and shell companies, and used the money to pay for luxury cars, watches, and vacations.
In addition to the no fault insurance fraud scheme, DANILOVICH was convicted for operating two investment fraud schemes that swindled innocent victims out of nearly $18 million. Both schemes – Lyons Ward & Associates and the Rockford Group – purported to be settlement claims funding companies that invested in lawsuits in return for a portion of future settlements. DANILOVICH also attempted to operate a third scheme, Baron & Caplan, including after he was arrested and released on bail in this case. As part of these schemes, DANILOVICH and his co-conspirators created bogus documents and account statements used by cold-callers to solicit victims through false representations. In reality, there was no investment fund at all; instead, DANILOVICH and his co-conspirators simply stole the money invested by victims and laundered the proceeds by wiring them overseas to shell companies in Eastern Europe, which were then turned into cash in the United States.
DANILOVICH’s organization also operated high-stakes illegal poker games and illegal sports books.
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DANILOVICH was convicted of one count of conspiracy to commit racketeering, which carries a maximum sentence of 20 years in prison. In addition, DANILOVICH was convicted of conspiracies to commit securities fraud, health care fraud, mail fraud, wire fraud, and money laundering, as well as substantive counts of securities fraud, health care fraud, mail fraud, wire fraud, and money laundering, which, in total, carry a maximum sentence of 260 years in prison. In total, DANILOVICH faces a maximum sentence of 280 years in prison. DANILOVICH is scheduled to be sentenced on March 8, 2016, at 11:00 a.m., before Judge Batts. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
DANILOVICH, 41, of Brooklyn, New York, is the thirty-sixth defendant convicted in this case. DANILOVICH was remanded pending sentencing following his conviction.
At DANILOVICH’s first trial in the fall of 2013, a mistrial was declared after the jury failed to reach a unanimous verdict on all counts.
U.S. Attorney Preet Bharara thanked the Federal Bureau of Investigation and the New York City Police Department for their continued outstanding work in this investigation. Mr. Bharara also thanked the National Insurance Crime Bureau, the investigative units of the insurance companies, the Manhattan District Attorney’s Office, and the Alabama Securities Commission for their valuable assistance with the investigation.
The case is being prosecuted by the Office’s Violent & Organized Crime Unit. Assistant U.S. Attorneys Daniel S. Noble, Joshua A. Naftalis, and Jaimie L. Nawaday are in charge of the prosecution.
Former Investment Bank Associate Pleads Guilty in Manhattan Federal Court to Theft of Confidential Information from the Federal Reserve Bank of New YorkRead 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 the guilty plea of ROHIT BANSAL, who was formerly employed as an associate at an investment bank headquartered in New York, New York (the “Investment Bank”), to the theft of confidential information from the Federal Reserve Bank of New York (“FRBNY”). Between July and September of 2014, at the direction of BANSAL, another individual, Jason Gross, without authorization, took confidential information from the FRBNY, which related to the FRBNY’s supervision of banks, and which Gross obtained during the course of his employment with the FRBNY, and sent that information to BANSAL. BANSAL then used the confidential information in an effort to further his employment at the Investment Bank. BANSAL entered his guilty plea today before U.S. Magistrate Judge Gabriel W. Gorenstein. Gross, who was charged with the same offense as BANSAL, pled guilty yesterday before Judge Gorenstein.
According to the Information filed today in Manhattan federal court:
The Federal Reserve System (“Federal Reserve”) fulfills several roles in the nation’s economy, including managing the nation’s money supply through monetary policy, supervising and regulating banking institutions, and generally overseeing the stability of the financial system. The Board of Governors of the Federal Reserve (the “Board”) is the Federal Reserve’s main governing body, and the FRBNY is one of the banks that is part of the Federal Reserve. Among other things, the FRBNY supervises and conducts examinations of banks that are members of the Federal Reserve and bank holding companies. Federal regulations protect the disclosure of certain “confidential supervisory information” (“CSI”) related to the Board’s and the FRBNY’s supervision of banks, including reports of examination of banks and information derived from, related to, or contained in, such reports.
From in or about August 2007 up to and including in or about March 2014, BANSAL was employed as a supervisory manager at the FRBNY, where he had responsibility for supervising certain banks. Thereafter, from in or about July 2014 until in or about October 2014, BANSAL was employed as an associate at the Investment Bank, which, among other things, provided advice on regulatory issues to certain client banks, including banks supervised by the FRBNY. During the relevant time period, Jason Gross was employed by the FRBNY and, prior to April of 2014, BANSAL and Gross had worked together at the FRBNY.
From at least in or about July 2014, up to and including in or about September 2014, at the direction of BANSAL, who had left the FRBNY and had begun to work at the Investment Bank, Gross emailed documents containing CSI (the “Confidential Documents”) to BANSAL. Gross sent the Confidential Documents, which he obtained during and through his employment at the FRBNY, to BANSAL without authorization from the Board or the FRBNY. Upon receiving the Confidential Documents from Gross, BANSAL utilized certain of the Confidential Documents in an effort to further BANSAL’s employment at the Investment Bank. In particular, BANSAL disseminated certain of the Confidential Documents to other Investment Bank employees for the purpose of assisting with the Investment Bank’s work for its client banks.
For example, on or about August 10, 2014, BANSAL sent Gross a text message asking Gross to send to BANSAL particular Confidential Documents regarding two banks (“Bank-1” and “Bank-2”). BANSAL further asked Gross to send the documents to BANSAL’s personal email account. Thereafter, on or about August 19, 2014, Gross sent from his personal email account to the personal email account of BANSAL one of the Confidential Documents (“Confidential Document-1”). Gross knowingly sent Confidential Document-1, which was labeled as confidential, to BANSAL without authorization from the Board or the FRBNY. Confidential Document-1 related to the supervision of Bank-2, a bank that BANSAL had previously been responsible for supervising when he worked at the FRBNY. Notwithstanding that BANSAL knew that he was not entitled to receive or disseminate any Confidential Documents, BANSAL sent Confidential Document-1 from his email account at the Investment Bank to the email accounts of other individuals employed by the Investment Bank. In a cover email attaching Confidential Document-1, BANSAL told these employees that, with respect to certain supervisory issues, Confidential Document-1 “gives you [an] idea of what [the] Board was looking at . . . Please don’t distribute.”
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BANSAL, 30, of New York, New York, pled guilty to one count of theft of government property the value of which property did not exceed $1,000 and faces a maximum sentence of one year in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. BANSAL is scheduled to be sentenced by Judge Gorenstein on March 9, 2016, at 10:00 a.m.
Mr. Bharara praised the investigative work of the FBI and thanked the FRBNY and the Board for their support and assistance with the investigation.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Drew Johnson-Skinner and Sarah E. Paul are in charge of the prosecution.
Former Investment Adviser at Global Bank Pleads Guilty in Manhattan Federal Court to Multimillon-Dollar Scheme to Defraud ClientsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL OPPENHEIM pled guilty today to embezzlement and securities fraud for using his position as an investment adviser at a global financial institution based in New York City (the “Bank”) to defraud multiple Bank clients out of approximately $22 million over the course of a seven-year period. Among other false and misleading statements, OPPENHEIM lied to his clients by claiming to have invested their money in low-risk municipal bonds and sending them doctored account statements purportedly reflecting those investments and profits earned. In truth, OPPENHEIM used the clients’ money for his own personal benefit and, in certain circumstances, to pay back other investors. OPPENHEIM was arrested on April 16, 2015, and pled guilty today before United States District Judge Analisa Torres.
Manhattan U.S. Attorney Preet Bharara said: “Michael Oppenheim has now admitted he lied to his clients about how he would handle their money and embezzled $22 million in clients’ money to make his own personal investments and to pay his own expenses.”
According to the Complaint, the Information, and other statements made in open court:
From at least March 2008 to March 2015, OPPENHEIM, a former investment adviser at the Bank, a global financial institution based in New York City, abused his relationship of trust with his clients in converting to his own use and personal benefit more than $22 million belonging to ten clients whose investment advisory accounts at the Bank he purported to manage. OPPENHEIM did not invest these clients’ money in low-risk municipal bonds at the Bank as promised. Instead, after taking a client’s money, OPPENHEIM, without the client’s knowledge, used the client’s money to obtain cashier’s checks purporting to be remitted by the clients. OPPENHEIM then deposited the cashier’s checks in at least three online brokerage accounts OPPENHEIM controlled at financial institutions other than the Bank. OPPENHEIM used clients’ funds for his own personal use, including on-line trading in accounts he controlled, and to pay for personal expenses such as a home loan and bills.
In an effort to cover up his fraudulent scheme, OPPENHEIM provided some clients with fraudulent Bank account statements. The purported Bank account statements reflected bonds held by other clients of the Bank, but OPPENHEIM caused his clients’ names to appear on the statements in order to give the false impression that OPPENHEIM had purchased bonds on behalf of those clients, as he had promised. In a further effort to conceal his fraud, on several occasions, and without his clients’ consent or authority, OPPENHEIM withdrew funds from one client and deposited those funds into the account of another client.
OPPENHEIM continued the fraud until he was terminated by the Bank in March 2015.
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OPPENHEIM, 48, of Livingston, New Jersey, pled guilty to one count of embezzlement and one count of securities fraud. The embezzlement count carries a maximum of 30 years in prison. The securities fraud count carries a maximum sentence of 20 years in prison. The charges carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. According to the terms of the plea agreement, OPPENHEIM has agreed to forfeit $22,432,375, and to pay $27,292,856 in restitution.
OPPENHEIM is scheduled to be sentenced by Judge Torres on February 15, 2016, at 4:30 p.m.
In a separate action, the U.S. Securities and Exchange Commission (“SEC”) has pending civil charges against OPPENHEIM.
Mr. Bharara praised the work of the Federal Bureau of Investigation, and thanked the SEC and the Financial Industry Regulatory Authority (“FINRA”) for their 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 Complex Frauds and Cybercrime Unit and the Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Janis Echenberg and Brooke Cucinella are in charge of the prosecution.
Former Employee of Federal Reserve Bank of New York Pleads Guilty in Manhattan Federal Court to Theft of Confidential Information from the Federal ReserveRead 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 the guilty plea of JASON GROSS to the theft of confidential information from the Federal Reserve Bank of New York (“FRBNY”). Between July and September of 2014, without authorization, GROSS took confidential information from the FRBNY, which related to the FRBNY’s supervision of banks, and that GROSS obtained during the course of his employment with the FRBNY, and sent that information to a former supervisor at the FRBNY (“Individual-1”) who was then employed at an investment bank headquartered in New York, New York. GROSS entered his guilty plea today before U.S. Magistrate Judge Gabriel W. Gorenstein.
According to the Information filed today and other statements made in Manhattan federal court:
The Federal Reserve System (“Federal Reserve”) fulfills several roles in the nation’s economy, including managing the nation’s money supply through monetary policy, supervising and regulating banking institutions, and generally overseeing the stability of the financial system. The Board of Governors of the Federal Reserve (the “Board”) is the Federal Reserve’s main governing body, and the FRBNY is one of the banks that is part of the Federal Reserve. Among other things, the FRBNY supervises and conducts examinations of banks that are members of the Federal Reserve and bank holding companies. Federal regulations protect the disclosure of certain “confidential supervisory information” (“CSI”) related to the Board’s and the FRBNY’s supervision of banks, including reports of examination of banks and information derived from, related to, or contained in such reports.
During the relevant time period, GROSS was employed by the FRBNY. GROSS’s responsibilities at the FRBNY included assisting with the supervision of certain banks. Prior to April of 2014, GROSS and Individual-1 had worked together at the FRBNY. From at least July 2014, up to September 2014, at the direction of Individual-1, who had left the FRBNY and begun to work at an investment bank headquartered in New York, New York (the “Investment Bank”), GROSS emailed documents containing CSI (the “Confidential Documents”) to Individual-1. GROSS sent the Confidential Documents, which he obtained during and through his employment at the FRBNY, to Individual-1 without authorization from the Board or the FRBNY. Upon receiving the Confidential Documents from GROSS, Individual-1 utilized certain of the Confidential Documents in an effort to further Individual-1’s employment at the Investment Bank. In particular, Individual-1 disseminated certain of the Confidential Documents to other Investment Bank employees for the purpose of assisting with the Investment Bank’s work for its client banks.
For example, on August 10, 2014, Individual-1 sent GROSS a text message asking GROSS to send to Individual-1 particular Confidential Documents regarding two banks (“Bank-1” and “Bank-2”). Individual-1 further asked GROSS to send the documents to Individual-1’s personal email account. Thereafter, on August 19, 2014, GROSS sent one of the Confidential Documents (“Confidential Document-1”) from his personal email account to the personal email account of Individual-1. GROSS knowingly sent Confidential Document-1, which was labeled as confidential, to Individual-1 without authorization from the Board or the FRBNY. Confidential Document-1 related to the supervision of Bank-2, a bank that Individual-1 had previously been responsible for supervising when Individual-1 worked at the FRBNY. Notwithstanding that Individual-1 knew that Individual-1 was not entitled to receive or disseminate any Confidential Documents, Individual-1 sent Confidential Document-1 from Individual-1’s email account at the Investment Bank to the email accounts of other individuals employed by the Investment Bank. In a cover email attaching Confidential Document-1, Individual-1 told these employees that, with respect to certain supervisory issues, Confidential Document-1 “gives you [an] idea of what [the] Board was looking at . . . Please don’t distribute.”
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GROSS, 37, of Bellmore, New York, pled guilty to one count of theft of government property the value of which property did not exceed $1,000 and faces a maximum sentence of one year in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. GROSS is scheduled to be sentenced by U.S. Magistrate Judge Gabrielle W. Gorentstein on March 2, 2016.
Mr. Bharara praised the investigative work of the FBI and thanked the FRBNY and the Board for their support and assistance with the investigation.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Drew Johnson-Skinner and Sarah E. Paul are in charge of the prosecution.
Brooklyn Man Sentenced in Manhattan Federal Court to 15 Months in Prison for Participating in Scheme to Defraud Elderly Victims Across New York StateRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALLAH JUSTICE MCQUEEN OF Brooklyn, New York, was sentenced today by U.S. District Court Judge Shira A. Scheindlin to 15 months in prison. MCQUEEN pled guilty on July 6, 2015, to one count of conspiracy to commit wire fraud and one count of wire fraud in connection with his participation in a scheme that targeted and victimized elderly people across New York.
According to the Complaint, Superseding Indictment, and plea proceeding:
In or about August and September 2013, MCQUEEN and his co-conspirators perpetrated a scheme to defraud elderly victims around the United States by tricking them into believing their grandchildren had been imprisoned and needed immediate bail money. In particular, in each case, a member of the conspiracy contacted the victim by phone, purported to be a law enforcement official or attorney, and falsely claimed that the victim’s grandchild had been taken into custody for a narcotics offense and would not be released unless the victim paid thousands of dollars, and in some cases tens of thousands of dollars, in purported bail money. A member of the conspiracy also frequently posed on the call as the victim’s grandchild, typically crying and pleading with the elderly victim to send money to secure the grandchild’s release from jail, and asking the victim not to contact any other family members because the grandchild felt ashamed. In each case, in extreme distress, the victim sent thousands of dollars, at a minimum, as instructed, to certain individuals who, among other things, provided that money to MCQUEEN at his direction. In each case, after paying the “bail” money as directed, the victim directly contacted his or her grandchild and thereupon learned that the grandchild had not, in fact, been arrested, that the grandchild knew nothing about the claims made on the call to the victim, and that the call was fraudulent.
For example, a 79-year-old victim in New York received a phone call in August 2013 from an individual who identified himself as a police sergeant and claimed that the victim’s grandson had been arrested after drugs were discovered in a car in which the grandson was a passenger. The purported sergeant said the grandson would be released if the victim sent $6,000 in bail money as directed. The victim, who briefly heard, on the phone, an individual who sounded like the victim’s grandson, wired the money as directed. The victim subsequently spoke directly with the victim’s grandson, and learned that he had not been arrested, and knew nothing about the purported sergeant or the basis for his request for bail money. The victim never received any money back from the purported sergeant.
In fact, the victim’s money was wired to particular individuals working with and at the direction of MCQUEEN who collected the wired funds on MCQUEEN’s behalf and provided the money to MCQUEEN and his co-conspirators. As to a portion of the victim’s money, MCQUEEN appeared personally at a particular location in Brooklyn to arrange for the collection of the proceeds. MCQUEEN subsequently deposited another portion of the money sent by the victim directly into his personal bank account.
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MCQUEEN, 34, of Brooklyn, New York, was convicted of one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 and one count of wire fraud, in violation of 18 U.S.C. § 1343. In addition to the 15-month prison term, MCQUEEN was sentenced by Judge Scheindlin to three years of supervised release, and ordered to pay restitution to the victims, a $200 special assessment, and forfeiture.
Mr. Bharara praised the outstanding investigative work of the FBI. Mr. Bharara also thanked the Bronx County District Attorney’s Office for its assistance.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Elisha Kobre is in charge of the prosecution.
West African Man Charged with Fraudulently Obtaining $12 Million from the Global Fund to Fight AIDS, Tuberculosis and Malaria and the United States Agency for International DevelopmentRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced the unsealing today of an indictment charging MALAMINE OUEDRAOGO, a citizen of Burkina Faso, with wire fraud in connection with a scheme to distribute ineffective malaria nets treated with little or no insecticide instead of the World Health Organization-certified nets treated with the proper quantity of insecticide that OUEDRAOGO had promised to supply to the West African country of Burkina Faso. The malaria nets in question were to be distributed as part of an anti-malaria campaign by the Global Fund to Fight AIDS, Tuberculosis and Malaria (“Global Fund”), funding for which was provided, in part, by the United States Agency for International Development (“USAID”). Because the counterfeit malaria nets that OUEDRAOGO obtained without the knowledge or permission of the Global Fund were significantly less expensive than the certified malaria nets OUEDRAOGO had agreed to purchase and supply, OUEDRAOGO defrauded the Global Fund and USAID out of more than $12 million. OUEDRAOGO remains at large.
According to allegations contained the Indictment[1]:
USAID is an independent federal agency that provides loans, grants, and technical assistance to assist countries with, among other things, global health issues. The Global Fund is an international financing organization based in Geneva, Switzerland, that disburses resources to prevent and treat HIV and AIDS, tuberculosis, and malaria. The Global Fund regularly receives substantial funding from USAID. The Programme D’Appui Au Développement Sanitaire (“PADS”), or Program for Health Development, is an entity within the Ministry of Health of Burkina Faso that receives and distributes funds contributed by donor countries and other organizations for health-related causes within the West African country of Burkina Faso. Among these health-related causes is the prevention and treatment of malaria, which is a leading cause of morbidity and mortality in Burkina Faso.
Malaria is a mosquito-borne infectious disease. The risk of malaria can be reduced by preventing mosquito bites through, among other things, the use of mosquito nets. Mosquito nets are nets, constructed from polyester or other material, with mesh fine enough to exclude insects without unacceptably impeding visibility or the flow of air.
Mosquito nets are substantially more effective in preventing malaria if treated with an appropriate insecticide. Nets not treated with insecticide are less effective because they fail to repel or kill mosquitos and can develop small holes over time through which mosquitos can penetrate. Untreated nets therefore pose a higher risk of exposure to mosquitos, and an increased health risk for people using them. Mosquito nets treated with insecticide, also known as long-lasting insecticidal mosquito nets, or LLINs, are substantially more costly to produce than untreated mosquito nets.
The World Health Organization (“WHO”) is a specialized agency of the United Nations that is concerned with international public health. The World Health Organization Pesticide Evaluation Scheme (“WHOPES”) is a program within the WHO that promotes and coordinates the testing and evaluation of pesticides for public health. WHOPES also conducts testing and review of long-lasting insecticidal mosquito nets (“LLINs”) used for the prevention of malaria, and issues recommendations of particular LLINs that meet certain criteria and requirements set forth by the WHO.
Because of the importance of LLINs in preventing the spread of malaria, WHOPES conducts and coordinates extensive evaluation and testing of mosquito nets to ensure that the nets are as effective as possible in preventing the spread of malaria. After evaluation and testing, WHOPES issues recommendations of particular mosquito nets found to be effective in preventing the spread of malaria. As a result, Global Fund and USAID only fund the purchase of LLINs that are recommended by, and conform to the standards of, WHOPES.
MALAMINE OUEDRAOGO, a citizen of Burkina Faso, obtained more than $12 million in funding from the Global Fund (provided to him via PADS) to purchase, and provide to the people of Burkina Faso, more than 2 million WHOPES-certified mosquito nets made by a particular WHOPES-recommended manufacturer in Thailand (the “WHOPES-Recommended Manufacturer”) and appropriately treated with long-term insecticides. Contrary to the express, written promises that OUEDRAOGO made in securing that funding, however, nearly all of the mosquito nets he purchased and provided to the people of Burkina Faso were counterfeit, not manufactured by the WHOPES-Recommended Manufacturer, not certified by WHOPES, and not properly treated with insecticide.
Instead of purchasing WHOPES-recommended mosquito nets from the WHOPES-Recommended Manufacturer, as he had promised to do, OUEDRAOGO purchased counterfeit nets that were manufactured by a non-WHOPES-recommended manufacturer in China (the “Chinese Manufacturer”), but were fraudulently labeled and packaged to look like the nets produced by the WHOPES-Recommended Manufacturer. The nets OUEDAROGO purchased and then distributed in Burkina Faso contained little or no insecticide.
OUEDRAOGO purchased the counterfeit mosquito nets from the Chinese Manufacturer for a small fraction of the price OUEDRAOGO knew it would have cost to purchase properly treated nets that satisfied WHOPES standards. As a result, OUEDRAOGO fraudulently obtained over $12 million in illegal profits from the Global Fund and USAID.
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OUEDRAOGO, 33, of Burkina Faso, is charged with one count of wire fraud. He faces 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.
Mr. Bharara praised the outstanding investigative work of the USAID Office of the Inspector General. Mr. Bharara also thanked the Global Fund for its assistance in the investigation.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Elisha Kobre 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.
Manhattan U.S. Attorney, DEA New York Special Agent in Charge, New York County District Attorney, and Rockland County District Attorney Launch Prescription Drug Abuse Prevention Public Service AnnouncementsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York; James J. Hunt, Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration; Cyrus Vance, Jr., the New York County District Attorney; and Thomas Zugibe, the Rockland County District Attorney, announced today the release of two public service announcements addressing the dangers of prescription drug abuse and how parents can keep their children safe.
According to the Centers for Disease Control, 46 people die each day from an overdose of prescription painkillers in the United States. The rate of prescription painkiller overdoses has more than quadrupled since 1999 and is now the leading cause of injury death, causing more deaths than motor vehicle traffic accidents annually.
Teens and young adults, who mistakenly believe prescription drugs are safer than illicit drugs, are abusing pills at an alarming rate. One in four teens has misused or abused a prescription drug at least once in their lifetime, a 33 percent increase since 2008.
The increase in the use of prescription drugs has also led to an explosion of heroin abuse. The recent national heroin abuse rate is 19 times higher among those who reported prior use of prescription pain relievers than among those who did not report such use. And four out of every five people who try heroin for the first time admit to having abused prescription pain relievers first.
Here in New York State, young adults are seeking treatment for opioid and heroin addiction at historic rates. The number of people who sought treatment increased 136 percent from 2004 to 2013. In particular, upstate New York, with a 222 percent increase in admissions, and Long Island, with a 242 percent increase, have been hard-hit by this problem.
The PSAs released today provide tips on how parents can dispose of prescription drugs safely, since the home medicine cabinet is the number-one source of prescription pills for teens and young adults.
The PSAs can be found here: http://www.justice.gov/usao-sdny. Media requesting a high resolution version can contact the U.S. Attorney’s Office of Public Affairs.
Manhattan U.S. Attorney Announces Criminal and Civil Charges Against Pharmacist, Two Pharmacies, and Two Other Individuals for Multimillion-Dollar Oxycodone Distribution SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James J. Hunt, Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), Thomas E. Bishop, Acting Special Agent in Charge of the New York Office of Internal Revenue Service – Criminal Investigation (“IRS-CI”), and Scott J. Lampert, the Special Agent in Charge for the New York Regional Office of the Department of Health and Human Services - Office of Inspector General (“HHS-OIG”), announced the unsealing of an indictment today against three individuals and two pharmacies for a multimillion-dollar oxycodone distribution scheme that flooded New York City with illegal controlled substances through pharmacies operated in Brooklyn and Queens. Defendants LILIAN JAKACKI, a/k/a/ “Lilian Wieckowski” (“WIECKOWSKI”), MARCIN JAKACKI, a/k/a “Martin,” ROBERT CYBULSKI, EUROPEAN APOTHECARY, INC., d/b/a “Chopin Chemists,” and MW&W GLOBAL ENTERPRISES, INC., d/b/a “Chopin Chemists,” are charged with illegally distributing more than 500,000 pills of oxycodone over a five-year period with a street value between $10 million and $15 million. The defendants are also charged with money laundering and health care fraud.
The defendants were arrested yesterday and are expected to be presented before U.S. Magistrate Judge James C. Francis IV. These arrests are the product of coordinated civil and criminal investigations that also resulted in the simultaneous filing today of a civil lawsuit against WIECKOWSKI, EUROPEAN APOTHECARY, INC., and MW&W GLOBAL ENTERPRISES, INC., that seeks millions of dollars in civil penalties and damages for violations of the Controlled Substances Act (“CSA”) and the False Claims Act (“FCA”).
Manhattan U.S. Attorney Preet Bharara said: “The defendants and pharmacies charged today allegedly were part of one the largest opioid painkiller diversion schemes ever uncovered in New York. As alleged, they flooded the city with over half a million illegally diverted oxycodone pills based on obviously fake prescriptions or no prescription at all, helping fuel the growing crisis of prescription pill abuse. Whether it is the corrupt doctor writing unwarranted prescriptions; the greedy pharmacist selling pills based on fake or no prescriptions; or the street-level drug dealer peddling painkillers directly to the addicted, we must confront this escalating epidemic at every level. Our actions today show that we and our law enforcement partners are committed to doing just that.”
DEA Special Agent in Charge James Hunt said: “During the same time that nearly two million Americans either abused or were dependent on opioid painkillers, Chopin Pharmacy was making a killing off the profit of illicit oxycodone sales. This two-year investigation uncovered a massive pill mill operating under the guise of ‘mom and pop’ pharmacies in Brooklyn and Queens. Using resources from numerous law enforcement agencies, the three defendants arrested today all face drug distribution charges, two face additional money laundering charges, and Wieckowski faces further Medicare fraud charges.”
IRS Acting Special Agent in Charge Thomas Bishop said: “As the law enforcement arm of the Internal Revenue Service, IRS-Criminal Investigation is responsible for investigating criminal tax fraud and related financial crimes, including money laundering. IRS-Criminal Investigation remains committed to the investigation of those who illegally traffic in prescription drugs. Any profitable illegal drug organization depends on the laundering of illegal proceeds in order to remain successful and to operate undetected by law enforcement. We are proud of our proven track record of using financial investigations to dismantle such organizations. We also remain committed to protecting publicly funded programs, like Medicare, and we will use our investigative authority accordingly to combat healthcare fraud.”
HHS-OIG Special Agent in Charge Scott J. Lampert said: “Abuse of prescription drugs kills more people than illegal drug use and wastes millions of taxpayers’ dollars. HHS-OIG, along with our law enforcement partners, will continue to investigate those accused of contributing to America's prescription drug fraud epidemic.”
According to the allegations in the Indictment and the civil Complaint[1]:
WIECKOWSKI is the owner of EUROPEAN APOTHECARY, INC., a pharmacy that conducts business in Queens, New York, as Chopin Chemists (“Chopin Queens”). WIECKOWSKI also owns MW&W GLOBAL ENTERPRISES, INC., a pharmacy that conducted business as Chopin Chemists in Brooklyn, New York, until it was sold by WIECKOWSKI in 2014 (“Chopin Brooklyn,” and collectively the “Chopin Pharmacies”). All three individual defendants, along with the Chopin Pharmacies, are charged with conspiracy to distribute narcotics. WIECKOWSKI and JAKACKI are also charged with laundering the proceeds of their illegal narcotics business. WIECKOWSKI is also charged with a conspiracy to misbrand prescription drugs and a separate offense of defrauding Medicare out of more than $750,000 by claiming reimbursements for medicine she never actually dispensed.
As measured by the sheer quantity of pills distributed, the defendants’ oxycodone ring is one of the largest illegal diversions of oxycodone pills ever uncovered in a New York State pharmacy.
In 2013, WIECKOWSKI’S Chopin Brooklyn was the single largest purchaser of oxycodone pills in its zip code for three straight years, from 2010 to 2012. In 2011 and 2012, for example, Chopin Brooklyn exceeded the second highest purchaser’s orders in that zip code by more than 240,000 pills each year. In 2013, the DEA conducted an audit of Chopin Brooklyn that revealed more than 400,000 pills were dispensed without prescriptions. WIECKOWSKI and the Chopin Pharmacies also illegally diverted more than 160,000 additional pills by accepting 1,300 fraudulent prescriptions at both locations, including prescriptions made out in the names of famous luxury brands such as “Coach” or “Chanel.”
JAKACKI, WIECKOWSKI’s husband, helped to arrange the illegal sales of oxycodone pills. In September and October 2015, JAKACKI coordinated the illegal sale of hundreds of oxycodone pills to a DEA undercover agent at the Chopin Queens location.
CYBULSKI was one of the largest purchasers of illegal oxycodone from WIECKOWKSI at Chopin Brooklyn. While WIECOWSKI owned it, CYBULSKI regularly visited Chopin Brooklyn with multiple prescriptions in others’ names, typically obtaining 500 30-milligram oxycodone pills each time. In total, CYBULSKI illegally obtained tens of thousands of oxycodone pills from Chopin Brooklyn.
WIECKOWSKI and JAKACKI also conspired with others to launder hundreds of thousands of dollars in cash proceeds derived from the illegal oxycodone scheme. Among other things, WIECKOWSKI and JAKACKI transferred money between various bank accounts in the form of structured financial transactions. Among other things, WIECKOWSKI and JAKACKI purchased a $2 million home in Greenwich, Connecticut, using the proceeds of their illegal oxycodone distribution scheme.
WIECKOWSKI and Chopin Brooklyn also conspired to defraud the federally funded Medicare program by submitting false requests for reimbursement for expensive medications that were never dispensed by the Chopin Pharmacies. From 2010 to 2014, Medicare reimbursed Chopin Brooklyn for more than $750,000 in claims for prescription medications that were not purchased or dispensed by WIECKOWSKI or Chopin Brooklyn. WIECKOWSKI used a portion of the money from the federal Medicare program to purchase additional oxycodone pills for the illegal diversion scheme.
WIECKOWSKI is also charged with purchasing prescription medications from the black market at a deep discount from the prices legitimate suppliers typically charge, and then re-selling these drugs at Chopin Brooklyn.
WIECKOWSKI, 49, of Greenwich, Connecticut, is charged with one count of conspiracy to distribute and possess with the intent to distribute oxycodone illegally, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit health care fraud, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison; two counts of money laundering, each which carry a maximum sentence of 20 years in prison; and one count of conspiracy to misbrand prescription medication, which carries a maximum sentence of 5 years in prison.
JAKACKI, 35, of Greenwich, Connecticut, is charged with one count of conspiracy to distribute and possess with the intent to distribute oxycodone illegally, which carries a maximum sentence of 20 years in prison; one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 in prison; and one count of money laundering, which carries a maximum sentence of 20 years in prison.
CYBULSKI, 30, Staten Island, New York, is charged with one count of conspiracy to distribute and possess with the intent to distribute oxycodone illegally, which carries a maximum sentence of 20 years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge. The criminal case has been assigned to U.S. District Judge Jed S. Rakoff.
Mr. Bharara praised the outstanding investigative work of the DEA’s New York Division Diversion Group D62, the DEA Tactical Diversion Squad, the U.S. Internal Revenue Service, and the U.S. Department of Health and Human Services. The DEA’s Tactical Diversion Group includes agents and officers of the DEA, the New York City Police Department, the New York State Police, Town of Orangetown Police Department, and Westchester County Police Department.
The criminal case is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Sidhardha Kamaraju and Louis A. Pellegrino are in charge of the prosecution.
The civil case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorney Louis A. Pellegrino is 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 texts of the Indictment and Complaint and the descriptions of each set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Former Corporate Lawyer Pleads Guilty in Manhattan Federal Court in Connection with Multimillion-Dollar Ponzi SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that CHARLES A. BENNETT pled guilty in Manhattan federal court today to an Indictment charging him with securities and wire fraud in connection with a scheme to defraud over 30 investors of more than $5 million over the course of more than five years. Among other false and misleading statements, BENNETT lied to investors by claiming to have exclusive access to a highly successful privately held investment fund in which he would purportedly invest the investors’ money. BENNETT solicited millions of dollars from over 30 investors, including his close friends and family members, but never actually invested any of the money in the investment fund or any other investment vehicle. Instead, BENNETT used the investors’ money for his own personal benefit and to pay back other investors. BENNETT was arrested on December 12, 2014, and pled guilty today before United States District Judge Laura Taylor Swain.
U.S. Attorney Preet Bharara said: “As he admitted today, Charles Bennett spun an elaborate web of lies and ensnared dozens of investors, including his own friends and family. Bennett, a former corporate attorney, solicited millions of dollars from investors, issuing fake promissory notes and account statements, but actually just spent all of the money on his personal expenses. He now awaits sentencing for his fraudulent investment scheme.”
According to the Complaint, the Indictment, and other statements made in open court:
From 2008 through November 2014, BENNETT, a former corporate lawyer at a law firm based in New York City, engaged in a multimillion-dollar Ponzi scheme, during which he solicited money from investors based on materially false and misleading representations. Specifically, BENNETT told the investors that he himself had invested money in a highly successful privately held investment fund, and that, should they choose to invest, the investors’ money would be held in BENNETT’s account. BENNETT communicated by email and telephone with many of the investors in order to tell them about the purported status of their investments, including their purported returns. BENNETT also led most of the investors to believe that they were the only individuals to whom he had extended the offer to invest with him.
BENNETT created false and misleading paperwork in furtherance of the scheme, including “promissory notes” that he provided to the investors as a record of the amounts of money they had given to BENNETT to invest. BENNETT also provided certain investors with account statements that purported to show the amount that BENNETT (and the investors, through BENNETT) had invested. In fact, BENNETT never invested any of the investors’ money in the investment fund or in any other investment vehicle, but instead spent the money on his own personal expenses and to repay other investors.
During the course of the fraudulent scheme, BENNETT solicited more than $5 million from more than 30 investors.
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BENNETT, 57, formerly of Manhattan, now living in Minnesota, pled guilty to one count of securities fraud and one count of wire fraud. The securities fraud count and the wire fraud count each carry a maximum sentence of 20 years in prison; and the charges carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. BENNETT is scheduled to be sentenced by Judge Swain on March 17, 2016.
Mr. Bharara praised the work of the Federal Bureau of Investigation and thanked the Securities and Exchange Commission for their assistance with the investigation.
The case was brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Amy Lester is in charge of the prosecution.
Manhattan U.S. Attorney Charges Fifteen Defendants in $31 Million Fraudulent and Coercive Debt Collection SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today the unsealing of an indictment charging TRAVELL THOMAS, the co-owner, chief executive officer, and president of a Buffalo, New York-based debt collection company (the “Company”), MAURICE SESSUM, a co-owner and chief operating officer of the Company, ANTHONY BRZEZOWSKI, the Company’s director of operations, three Company managers – JIMMY STOKES, HEATHER GASTA, and TACOBY THOMAS – and five Company debt collectors – ANTHONY CABA, COLUMBUS SIMMONS, CHARLES STARKS, WILLIAM CLARK, and MICHAEL CALLANDRA – with wire fraud and conspiracy to commit wire fraud in connection with a nationwide debt collection scheme that took in more than $31 million from thousands of victims across the United States. As alleged, the defendants tried to trick and coerce victims into making payments to the Company by making false threats and telling a host of lies, including that the Company was a law office and that warrants would be issued for the victims’ arrests if they failed to repay debts. Each of the individual defendants was arrested this morning and will be presented later today in federal court in Buffalo.
Also unsealed today were the guilty pleas of four Company employees – MARK LAVIN JOHN SALATINO, JESSICA MANN, and JENNIFER SHERK – for their participation in the fraudulent scheme. LAVIN, SALATINO, MANN, and SHERK each pled guilty pursuant to an information before U.S. District Judge Katherine Polk Failla.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants engaged in what is believed to be the largest fraudulent debt collection scheme ever to be prosecuted, falsely threatening arrest and prosecution of countless Americans, including those who suffered from disabilities. The defendants charged today allegedly took ruthless advantage of the desperate situation in which their victims found themselves, using threats and lies to coerce payment and even trying to collect more money than the victims ever owed. Thanks to the tireless work of the criminal investigators in our office, those involved in this massive debt collection scheme will no longer be able to prey on vulnerable Americans burdened by debt.”
According to the allegations contained in the Indictment unsealed today in Manhattan federal court[1]:
Between 2010 and February 2015, 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 haled 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.
Employees of the Company at times prepared and sent correspondence to victims that made it falsely appear that the Company was affiliated with the government or courts. The defendants also routinely used legal-sounding terminology to invent legitimate-sounding but bogus explanations for the supposed criminal or legal action that had been or would be initiated against the victims for failure to repay purported debts, including that the victim had “breached a contractual agreement,” committed “theft of goods and services,” and engaged in “malicious intent to defraud a financial institution.” The defendants used these quasi-legal terms to frighten and coerce victims into paying actual or purported 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.
In total, from about January 2010 through November 2014, the Company collected more than approximately $31 million from thousands of victims across the United States. Of the money that the Company took in from victims, approximately $850,000 in cash was paid to SESSUM, approximately $750,000 in cash was paid to TRAVELL THOMAS, approximately $1.4 million was cashed from banks and ATMs, and tens of thousands of dollars was used to pay for TRAVELL THOMAS’s gambling expenses, tickets for professional sports games, TRAVELL THOMAS’s wedding reception, jewelry, and cosmetic surgery for his wife, among other expenses.
Collection Scripts
The defendants disseminated to Company employees and used collection “scripts” to solicit consumers by phone. The scripts contained various misrepresentations designed to trick victims into paying purported debts. For example, the scripts falsely stated, among other things: “In the next 48 hours we will be handing the matter over to our fraud department who will work together with your local district attorneys [sic] office in attempting to resolve the matter”; the collector was calling “from [the] law firm of Global Management Group”; the collector was a “claims associate calling on behalf of the legal processing firm” who would “file with our affiliate litigator in _____ county, to serve you to appear to plea”; and the consumers’ voice was being recorded on a “federally recorded line” for use “as admissible evidence.”
In about May 2015, following a federal criminal investigation of the Company, TRAVELL THOMAS instructed a former employee of the Company not to show Company scripts “to anyone” because they “weren’t legal.”
The Defendants’ Lies
The defendants made a variety of misrepresentations to victims across the country over the phone, and directed that those misrepresentations be made, including as follows:
- As a part of the scheme, TRAVELL THOMAS and SESSUM, the owners and officers of the Company, at times instructed employees of the Company to make misrepresentations to victims, including to “juice” balances, in order to trick them into paying debts.
- BRZEZOWSKI misrepresented to victims, including to a victim who stated that she was physically disabled and unable to work, that he was an attorney and an “associate with the firm” and was calling from an attorney’s office and would “handle their legals for free.” BRZEZOWSKI also instructed collectors on his team to falsely introduce him to victims on calls as an attorney in an effort to “close” a debt repayment.
- STOKES misrepresented to victims that he would have a bench warrant issued for their arrest, would contact the “county” to initiate legal proceedings, and was not calling from a collection agency.
- GASTA misrepresented to victims, including to a victim who stated that she was homeless, among other things, that “we are directly linked in with the court system,” her office had been “retained” regarding “bad check charges,” GASTA was working with attorneys, and the victims’ failure to repay the debt was a “federal issue.”
- TACOBY THOMAS misrepresented to victims that he was a “process server” from “U.S. Couriers” with “legal documents” to serve to victims, that victims had committed “check fraud,” and that TACOBY THOMAS was calling from an “arbitration firm.”
- CABA misrepresented to victims, including to the mother of a consumer undergoing dialysis for kidney failure, that he was a “legal investigator” calling from a law firm, the Company was not a collection agency, and victims had committed check fraud.
- SIMMONS misrepresented to victims that they had committed a felony by failing to repay debts and would face charges for “theft of services” and fraud, that their driver’s licenses would be suspended, and that SIMMONS would refer the matter to his “attorney network.”
- STARKS misrepresented to victims that they had committed a “federal offense” by failing to repay debt, that charges would be “press[ed],” victims were “under investigation for check fraud,” and that STARKS was working with attorneys.
- CLARK misrepresented to victims that he was “lead investigator” with a law office that has been retained by a particular company that issues payday loans (the “Payday Loan Company”) to bring an action for fraud and theft of goods and services, victims had committed fraud, including “social security fraud,” and victims would be served with process at their “home or place of employment” within 72 hours.
- CALLANDRA misrepresented to victims that they had committed fraud, including wire fraud under Title 18, United States Code, Section 1343, that CALLANDRA was “in contact with the magistrate,” and that “they’re en route right now . . . within 46 minutes they’ll be there to serve you.”
- CABA, SIMMONS, CLARK, and STARKS 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.
In November 2012, the Payday Loan Company advised TRAVELL THOMAS that it had learned that employees of the Company were making improper threats and misrepresentations in order to collect debts purportedly owed to the Payday Loan Company and falsely indicating to consumers that the Company was providing collection services on behalf of the Payday Loan Company. The Payday Loan Company issued a letter to TRAVELL THOMAS directing him to cease and desist using the Payday Loan Company’s name in collecting debt. TRAVELL THOMAS refused, and employees of the Company continued to attempt to collect debts purportedly on behalf of the Payday Loan Company.
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TRAVELL THOMAS, 37, of Orchard Park, New York; SESSUM, 39, of Buffalo; BRZEZOWSKI, 49, of Buffalo; STOKES, 38, of Buffalo; GASTA, 41, of Buffalo; TACOBY THOMAS, 32, of Buffalo; CABA, 25, of Buffalo; SIMMONS, 46, of Buffalo; STARKS, 32, of Buffalo; CLARK, 30, of Buffalo; and CALLANDRA, 31, of Angola, New York, are each charged with one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison. LAVIN, 45, of Buffalo; SALATINO, 34, of Amherst, New York; MANN, 30, of Dunkirk, New York; and SHERK, 27, of Buffalo, each pled guilty to one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison. The maximum potential sentences 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 Criminal Investigators at the United States Attorney’s Office. He also thanked the Federal Trade Commission (“FTC”) for referring this case to this Office and the U.S. Marshals Service, Western District Regional Fugitive Task Force for their assistance. Mr. Bharara noted that the investigation remains ongoing.
If you believe you were a victim of this crime, including a victim entitled to restitution, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact the Victim/Witness Unit at the United States Attorney’s Office for the Southern District of New York, at (866) 874-8900. For additional information, go to http://www.usdoj.gov/usao/nys/victimwitness.html.
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, go to http://www.consumer.ftc.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 Edward A. Imperatore and Jordan L. Estes are in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Former Federal Employee Labor Union President Indicted in White Plains Federal Court for Stealing Union FundsRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, Andriana Vamvakas, the New York District Director of the Department of Labor’s Office of Labor-Management Standards (“DOL-OLMS”), and Jeffrey G. Hughes, Special Agent-in-Charge of the Northeast Field Office of the U.S. Department of Veterans Affairs, Office of the Inspector General (“VA OIG”), announced the indictment of WILLIAM DAVIS, a former president of the American Federation of Government Employees (“AFGE”) Local 1119 (the “Union”), for making at least $120,000 in unauthorized debit card charges and cash withdrawals from the Local’s bank account. The Indictment charges DAVIS with one count of wire fraud and two counts of false statements in forms submitted to the DOL-OLMS. DAVIS voluntarily surrendered to federal authorities yesterday morning, and was presented yesterday afternoon in White Plains federal court before United States Magistrate Judge Lisa Margaret Smith.
According to the allegations in the Indictment[1]:
The AFGE is a national labor union that represents approximately 670,000 workers employed by the federal government across all agencies and departments. The Union is a local union chapter of AFGE that represents approximately 300 employees of the Veterans Affairs Medical Center-Montrose (the “Hospital”), and maintains offices on the Hospital’s campus in Montrose, New York. At all times relevant to the Indictment, the Union maintained a checking account (the “Union Bank Account”) for Union funds, including members’ dues payments.
From at least January 2008 through in or about October 2012, DAVIS served as the elected president of the Local. As the president, it was DAVIS’s duty to preside over the Union’s meetings and conduct the day-to-day affairs of the Union. During that time period, DAVIS used a debit card for the Union Bank Account (the “Union Debit Card”) issued to a deceased former Union officer to make hundreds of charges and cash withdrawals for non-Union expenses and without the authorization of the Union. For example, DAVIS used the Union Debit Card at stores and online retailers including Apple, Best Buy, Wal-Mart, and Radio Shack, purchasing items for his personal benefit including electronics, music downloads, video games, cellphones, men’s clothing, gasoline, and cigarettes. DAVIS purchased money orders using the Union Debit Card which totaled at least $30,000 from the United States Post Office in Montrose, New York. On several occasions, DAVIS paid for rent for his residence using the money orders he purchased with the Union Debit Card. DAVIS also used the Union Debit Card to make over 900 cash withdrawals from ATM machines in the Southern District of New York and elsewhere, in the process incurring thousands of dollars of ATM fees and fees for insufficient funds. Between January 2008 and June 2012, the unauthorized purchases and cash withdrawals that DAVIS made with the Union Debit Card totaled in excess of $120,000.
In order to conceal his misuse and theft of Union funds, DAVIS also made false statements and omissions in annual DOL-OLMS reports for the fiscal years 2008, 2009, 2010, and 2011, reporting a total of only $7,000 in allowances and disbursements to himself as president.
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DAVIS, 56, of Wappingers Falls, New York, is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison, and two counts of false statements, which each carry 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.
Mr. Bharara thanked and praised the DOL and the VA OIG for their work in this investigation.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorney Jessica K. Feinstein 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.
Statement of U.S. Attorney Preet Bharara on Dismissal of Charges Against Michael Steinberg and Six Other Insider Trading DefendantsRead the Press Release
“Today, this Office will move to dismiss charges against Michael Steinberg, who was previously convicted at trial, and six cooperating witnesses who pled guilty, all in connection with the same insider trading scheme charged in United States v. Newman and Chiasson. The decision to dismiss these charges follows the Second Circuit’s Newman decision, and also reflects determinations, after careful consideration of all of our prior insider trading prosecutions, that insisting on maintaining guilty pleas in these cases would not be in the interests of justice. These prosecutions were all undertaken in good faith reliance on what this Office and others, including able defense counsel for all those who pled guilty, understood to be the well-settled law before Newman.”
Statements of Manhattan U.S. Attorney Preet Bharara and Head of the Civil Rights Division Vanita Gupta on Court Approval of the Settlement in Nunez V. City of New YorkRead the Press Release
Manhattan U.S. Attorney Preet Bharara issued the following statement today in connection with the approval of the settlement agreement among the parties in Nunez v. City of New York:
“Today, the Court approved the landmark Rikers Island agreement. With the agreement now formally in place, the City can move quickly toward long overdue reforms at Rikers Island. This agreement establishes a detailed and comprehensive framework to reduce violence in the jails and to keep inmates and correction officers safe. For too long, a culture of violence has prevailed at Rikers Island, denying those within its walls the protections of the Constitution, rights to which all in this country, including prison inmates, are entitled. Through this agreement, we will remain vigilant in ensuring that reform at Rikers Island is enduring and enforceable.”
Principal Deputy Assistant Attorney General Vanita Gupta, Head of the Civil Rights Division, issued the following statement today:
“The Rikers Island agreement approved by the Court today should serve as a model for the country. DOJ's Civil Rights Division is committed to protecting youth from unconstitutional conditions of confinement, in both the juvenile and criminal justice systems, and this agreement furthers that commitment. Given the history of operations and the culture of excessive use of force at Rikers Island that we found, the remedies in the agreement approved today in court are not only appropriate, but essential to ensuring we can provide key protections for the complicated, and often underserved, population of youth in the criminal justice system.”
Haroon Aswat, Abu Hamza Co-Conspirator, Sentenced in Manhattan Federal Court to 20 Years in Prison for Terrorism OffensesRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for the National Security Division, announced that HAROON ASWAT was sentenced today by U.S. District Court Judge Katherine B. Forrest to 20 years in prison for terrorism offenses relating to ASWAT’s efforts to establish a terrorist training camp in the United States. ASWAT was extradited to the United States from the United Kingdom on October 21, 2014. ASWAT pled guilty on March 30, 2015, to one count of conspiring to provide material support to al Qaeda, and one count of providing material support to al Qaeda.
Manhattan U.S. Attorney Preet Bharara said: “Haroon Aswat, with his co-conspirators, sought to establish a terrorist training camp on American soil, and traveled to Afghanistan to receive training from al Qaeda. Arrested abroad in 2005, Aswat fought extradition for nearly 10 years, but faced with overwhelming evidence against him, pled guilty in Manhattan federal court to providing material support to al Qaeda shortly after arriving here. Aswat’s conviction and the sentence imposed today – along with the other recent terrorism prosecutions by this Office, including of Sulaiman Abu Ghayth, Abu Hamza, and Khaled al Fawwaz – serve as further proof that justice in international terrorism cases continues to be delivered in American civilian courts.”
Assistant Attorney General for National Security John P. Carlin said: “Haroon Aswat provided material support to al Qaeda and plotted to establish a terrorist training camp on American soil. Aswat was arrested more than 10 years ago, and his sentence is the result of the tireless and persistent efforts of law enforcement to hold accountable all those who wish to harm the United States, whether at home or abroad, no matter how long it takes.”
According to the allegations contained in the Indictment, statements made at related court proceedings including today’s sentencing, court fillings, and evidence presented at prior trials:
In late 1999, ASWAT, along with co-defendants Mustafa Kamel Mustafa, a/k/a “Abu Hamza” (“Abu Hamza”), Ouassama Kassir, and Earnest James Ujaama, attempted to establish a terrorist training camp in the United States to support al Qaeda, which has been designated by the United States Secretary of State as a foreign terrorist organization. ASWAT conspired with Abu Hamza, Kassir, and Ujaama to establish the terrorist training camp on a rural parcel of property located in Bly, Oregon. The purpose of the Bly, Oregon, camp was for Muslims to receive various types of training – including military-style jihad training – in preparation to fight jihad in Afghanistan. As used by the conspirators in this case, the term “jihad” meant defending Islam against purported enemies through violence and armed aggression, including, if necessary, by using murder to rid Muslim holy lands of non-believers in Islam.
In a letter faxed from Ujaama, in the United States, to Abu Hamza, in the United Kingdom, the property in Bly was described as a place that “looks just like Afghanistan,” and the letter noted that the men at Bly were “stock-piling weapons and ammunition.” In late 1999, after transmission of the faxed letter, Abu Hamza directed ASWAT and Kassir, both of whom resided in London, England, and attended Abu Hamza’s mosque there, to travel to Oregon to assist in establishing the camp. On November 26, 1999, ASWAT and Kassir arrived in New York, and then traveled to Bly.
ASWAT and Kassir traveled to Bly for the purpose of training men to fight jihad. Kassir told witnesses that he supported Usama bin Laden and al Qaeda, and that he had previously received jihad training in Pakistan. Kassir also possessed a compact disc that contained instructions on how to make bombs and poisons. After leaving Bly, ASWAT and Kassir traveled to Seattle, Washington, where they resided at a mosque for approximately two months. While in Seattle, Kassir, in ASWAT’s presence, provided men from the mosque with additional terrorist training lessons – including instructions on different types of weapons, how to construct a homemade silencer for a firearm, how to assemble and disassemble an AK-47, and how an AK-47 could be altered to be fully automatic and to launch a grenade. On another occasion, with ASWAT sitting by his side, Kassir announced to the men in Seattle that he had come to the United States for martyrdom and to destroy, and he informed his audience that some of them could die or get hurt.
ASWAT subsequently linked up with al Qaeda, and received training at al Qaeda’s al Faruq training camp in Afghanistan, which was al Qaeda’s primary training camp and where recruits were trained in topics that included military tactics, weapons, and explosives. ASWAT remained in Afghanistan after the terrorist attacks of September 11, 2001, and after the United States invaded Afghanistan. A ledger recovered in September 2002 from an al Qaeda safe house in Karachi, Pakistan, listed a number of individuals associated with al Qaeda, including ASWAT. The al Qaeda safe house was used by Khalid Sheikh Mohammed, al Qaeda’s chief operational planner and the alleged planner of the terrorist attacks of September 11, 2001.
At the time of ASWAT’s arrest in Zambia in 2005, he had with him a computer that contained, among other things: (1) a book on survival skills in the event of a nuclear, biological, or chemical weapon detonation; (2) the “Anarchist Cookbook,” which contained instructions on how to make bombs and hack into computers; (3) a hand-to-hand combat instruction manual, which noted that its purpose was to “teach you how you can kill another person with your own two hands;” (4) the “Close Combat Textbook;” and (5) the “Big Book of Mischief,” which also contained detailed and extensive instructions on how to make explosives.
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ASWAT, 41, was convicted of one count of conspiracy to provide material support to al Qaeda, and one count of providing material support to al Qaeda. In addition to the term of imprisonment, Judge Forrest imposed a $200 special assessment. Judge Forrest also ordered that ASWAT be removed from the United States to the United Kingdom following the completion of his sentence.
Abu Hamza and Kassir were previously convicted for their roles in attempting to establish a terrorist training camp in the United States. On May 12, 2009, after a four-week jury trial in the Southern District of New York, Kassir was found guilty of charges relating to his efforts to establish the terrorist training camp in Bly, and his operation of several terrorist websites. On September 15, 2009, U.S. District Judge John F. Keenan sentenced Kassir to life in prison.
On May 19, 2014, after a four-week jury trial in the Southern District of New York, Abu Hamza was found guilty of charges relating to his role in the conspiracy to establish the terrorist training camp in Bly, as well as his role in a hostage-taking in Yemen in 1998 that resulted in four deaths, and his support of violent jihad in Afghanistan in 2000 and 2001. On January 9, 2015, Judge Forrest sentenced Abu Hamza to life in prison.
Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation’s Manhattan-based Joint Terrorism Task Force – which principally consists of agents of the FBI and detectives of the New York City Police Department, and includes officers of numerous federal, state, and local law enforcement agencies – the United States Marshals Service, and the Metropolitan Police Department of London, England. Mr. Bharara also thanked the U.S. Department of Justice’s National Security Division and 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 John P. Cronan, Ian McGinley, Shane T. Stansbury, and Edward Y. Kim are in charge of the prosecution.
Nyack Man Arrested for Sales of Synthetic Cannabinoid That Resulted in One Known OverdoseRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and James J. Hunt, Special Agent in Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and William J. Bratton, the Commissioner of the Police Department for the City of New York (“NYPD”), announced the arrest today of the owner of a retail smoke shop called Liquid Glass in Nyack, New York, that is alleged to have sold smokeable synthetic cannabinoids (“SSC”). The owner, ANDREW GROGAN, allegedly sold or conspired to sell at least 39 packets of SSCs over a one-year period, resulting in at least one overdose. GROGAN was arrested this morning and was presented before U.S. Magistrate Judge Judith C. McCarthy this afternoon in White Plains federal court.
Manhattan U.S. Attorney Preet Bharara said: “As I emphasized when we announced New York City’s largest joint federal and local action confronting these drugs a month ago, synthetic cannabinoids are a public health crisis that is reaching epidemic proportions. Smoking it is a dangerous game of Russian Roulette that too many in our communities are playing. These drugs aggravate all manner of other societal ills: they are entering prisons, preying on the homeless; burdening our emergency rooms; fueling addiction; exacerbating mental health problems; and increasing risks to cops who have to deal with people high on it. Today’s arrest is part of our ongoing commitment to confront this serious public health problem.”
DEA Special Agent in Charge James J. Hunt said: “To make it simple, synthetic cannabinoids (K2) have become one of the most significant threats to public health because it is cheap and because it is misconceived as being safe. K2 is second only to marijuana as the most frequently used illegal drug among high school seniors, and has resulted in a dramatic increase of emergency room visits and overdose deaths. K2 is nothing more than poisonous products wrapped in candy wrappers and sold on the street as safe highs. DEA and our law enforcement partners are prioritizing efforts to identify those responsible for distributing synthetic cannabinoids throughout our communities.”
NYPD Commissioner Bratton said: “Synthetic cannabinoids, more commonly known as K2, can be incredibly dangerous and pose a significant risk to both the public and the emergency responders who come into contact with them. I want to thank the investigators involved in this case whose hard work held accountable this individual’s alleged effort to sell K2.”
The following allegations are based on the unsealed Complaint filed today in Manhattan federal court:[1]
Starting in January 2015 and continuing until his arrest, GROGAN sold SSCs, with brand names like “Green Giant” and “Geeked Up,” from his smoke shop in Nyack, New York. GROGAN mentioned to undercover law enforcement that he had a supplier of SSCs from whom he could either pick up products after store hours or receive products by mail. On at least one occasion, GROGAN traveled to New York, New York, to purchase 10 packets of SSCs from another smoke shop.
GROGAN also stated to undercover law enforcement that he was “all out” of the SSC “Green Giant” because there had been a festival in Nyack that had “kids lined up outside the door” to buy the products.
The SSCs distributed by GROGAN caused one known overdose: On January 10, 2015, an individual overdosed after consuming a mixture of four packets of SSCs labeled “Tranquility,” “Meditate,” “Karma,” and “Dream Catcher.” Medical reports concluded that the overdose resulted from cannabinoid consumption. Friends of the victim obtained the SSCs from GROGAN’s smoke shop in Nyack.
SSCs are made by mixing illegal synthetic compounds with chemical solvents, including acetone and/or flavoring additives, and spraying the resulting liquid mixture onto leafy materials, like tea leaves. The SSCs are then bundled into colorful retail packets that are sold under names such as “Green Giant” and “Geeked Up,” each containing between approximately three and six grams of product, and sometimes marked “not for human consumption” or “potpourri.”
SSCs are widely accessible because they are inexpensive and commonly sold at otherwise legitimate retail locations, like GROGAN’s Liquid Glass. The colorful logos used on the SSC retail packets and the flavors used, such as lime, strawberry, and blueberry, make SSCs attractive to teenagers and young adults. Physical effects of SSCs include agitation, rapid heart rate, confusion, dizziness, nausea and vomiting, paranoia, panic attacks, and acute kidney injury. In addition, SSCs have inconsistent potencies, often containing more than one synthetic compound, and are sometimes laced with other toxic chemicals. Nationally, calls to poison centers in the United States related to SSC use between January and May 2015 increased 229% over the same period in 2014.
Some of the brand names of SSCs sold by GROGAN, like “Geeked Up” and “Green Giant,” were also alleged to have been used by the 10-member international narcotics conspiracy charged by this office by Indictment on September 16, 2015. This Complaint marks a continuation of the major law enforcement action against SSC manufacturers and distributors announced via press release following that Indictment.
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GROGAN, 48, of Nyack, New York, is charged with one count of conspiring to distribute a controlled substance, and one count of distributing a controlled substance, each of which carries a maximum sentence of 20 years in prison. The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentence will be determined by the judge.
U.S. Attorney Preet Bharara thanked the Drug Enforcement Administration’s Tactical Diversion Squad (Group TDS-NY) comprised of agents and officers from the U.S. Drug Enforcement Administration (DEA), the New York City Police Department, the New York State Police, Town of Orangetown Police Department, and the Westchester County Police Department in conjunction with Rockland County Drug Task Force and South Nyack Police Department for their work in the year-long investigation, which he noted is ongoing.
The case is being prosecuted by the Office’s White Plains Division. Assistant U.S. Attorney Jennifer L. Beidel is in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[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.
New York Man Sentenced to More Than 12 ½ Years for Illegally Possessing Cache of Machine Guns, Rifles, and Other FirearmsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ANTONIO OLMEDA of New York, New York, was sentenced today by U.S. District Court Judge Richard M. Berman to 151 months in prison. OLMEDA pled guilty on October 14, 2014, to all six counts charged in the Indictment against him: three counts of being a convicted felon in possession of various firearms, two counts of possessing unregistered machine guns, and one count of possessing an unregistered short-barreled shotgun. OLMEDA was arrested in December 2011 on state charges in connection with his alleged attempt to shoot two police officers with the New York City Police Department (“NYPD”).
U.S. Attorney Bharara stated: “Antonio Olmeda, a one-man armory, was a convicted felon in possession of a vast cache of deadly weapons. He violated federal law by possessing guns at all, and even had he not been a convicted felon, he violated federal law by failing to register certain of the weapons. As is alleged in the pending state prosecution of Olmeda for attempted murder, he was not merely a hoarder of weapons, he used them with deadly intentions, shooting at two uniformed police officers. His sentence today reflects the seriousness of his crimes.”
According to the Indictment filed in federal court, other documents filed in federal court, statements made at various proceedings in this case, and evidence presented at a two-day sentencing hearing:
On December 2, 2011, OLMEDA, who at the time was wearing a disguise, was approached by two uniformed NYPD officers in Queens, New York. The officers asked OLMEDA to remove his hands from his pockets, which OLMEDA refused to do. When one of the officers attempted to restrain OLMEDA, OLMEDA resisted, pulled a revolver out of his pocket, and fired two shots at the officers, missing the officers. OLMEDA then fled the scene. Bullet fragments from the gun that OLMEDA fired were later found at a nearby pediatric dental office.
In the morning of December 19, 2011, law enforcement officers approached OLMEDA in Manhattan and arrested him for the shooting on December 2, 2011. At the time of this arrest, the officers recovered from OLMEDA’s person a .45 caliber handgun, and from OLMEDA’s car a .38 caliber revolver with two live rounds of ammunition and three spent .38 caliber shell casings. Subsequent ballistics testing confirmed that this .38 caliber revolver was the same firearm that OLMEDA fired on December 2, 2011. OLMEDA’s possession of the .38 caliber revolver was the subject of an evidentiary hearing before Judge Berman in connection with OLMEDA’s sentencing in this case. Judge Berman concluded that “[t]here is no doubt . . . that by firing the gun at [the two NYPD police officers] Mr. Olmeda intended to cause serious injury to those officers.”
In connection with OLMEDA’s arrest on December 19, 2011, officers also recovered from OLMEDA’s car a document containing the names of two attorneys and a federal judge. One of the attorneys had previously represented OLMEDA in a prior case, and had an office in close proximity to the location where OLMEDA, wearing a disguise and carrying the .38 caliber revolver, had been approached by officers. Another attorney on the document had previously represented one of Olmeda’s former lawyers in a civil lawsuit brought by OLMEDA. The federal judge on the document had presided over, and dismissed, the lawsuit. Also found in OLMEDA’s car was a copy of a last will and testament in OLMEDA’s name. OLMEDA previously had purchased a lot at a cemetery and commissioned the engraving of a tombstone in his name.
Later on December 19, 2011, law enforcement officers conducted a search of OLMEDA’s apartment in Manhattan. This search resulted in the recovery of a number of additional firearms, including a .223 caliber fully automatic rifle, a 9-mm fully automatic pistol, and two other pistols.
On September 6, 2012, law enforcement officers searched OLMEDA’s storage locker in Yonkers, New York. The officers found inside the storage locker, among other things, a sawed-off shotgun, two sniper rifles with scopes, two machine guns, at least eight pistols, a revolver, and numerous rounds of ammunition. Officers also found a lifelike mask that could be used to disguise one’s face and various protective gear, including bulletproof vests and gas masks.
In total, in or about 2011, OLMEDA illegally possessed the following firearms:
- Springfield Armory Ultra Compact .45-caliber semi-automatic handgun
- Taurus 85 Ultralite .38 caliber revolver
- Olympic Arms PCR03 .223 caliber fully-automatic rifle
- Smith & Wesson .40 caliber semi-automatic pistol
- Beretta 92SB Compact 9-mm Luger semi-automatic pistol
- Cobray Industries M-11 9-mm Luger fully automatic pistol
- Remington model Mohawk 600 .308 caliber rifle
- Roggio Arsenal model RA-15 rifle receiver/frame
- Interarms rifle
- Three Springfield Armory model 1911A1 .45-caliber pistols
- Sig Sauer model SP 2022 9-mm pistol
- Taurus model PT140 Millenium .40 caliber pistol
- Smith & Wesson model 4006 .40 caliber pistol
- Star Bonifacio Echeverria model Firestar 9-mm pistol
- Charter Arms model Police Undercover .32 caliber revolver
- Walther model PPK/S .380 caliber pistol
- Vulcan Arms model V15 7.62x39-mm machine gun
- Norinco AK-type 7.62x39-mm machine gun
- Mossberg model 500A 12-gauge shotgun
- A .45 caliber semi-automatic pistol of unknown make and model
OLMEDA has two prior felony convictions. First, in November 1995, OLMEDA was convicted in Bronx County Supreme Court of criminal possession of a dangerous weapon in the first degree. At the time of his arrest on that charge, OLMEDA possessed an Uzi machine gun, a sawed-off shotgun, a silencer, and several boxes of ammunition for the Uzi. A search of OLMEDA’s van on the same day uncovered a flamethrower, 18 pipe bombs, seven cans containing black powder, and 1,100 rounds of ammunition.
Second, in April 2003, OLMEDA was convicted in the United States District Court for the Eastern District of North Carolina of possessing ammunition after having previously been convicted of a felony. On June 12, 2002, OLMEDA, who was in possession of luggage, was approached by law enforcement officers outside of the Fort Bragg military installation in North Carolina after inquiring about the security at Fort Bragg. A search of OLMEDA’s luggage resulted in the recovery of 328 rounds of ammunition and receipts for ammunition purchased earlier that day.
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OLMEDA, 57, was convicted of three counts of being a convicted felon in possession of various firearms, in violation of 18 U.S.C. § 922(g)(1); two counts of possessing unregistered machine guns, in violation of 18 U.S.C. §§ 5845(b), 5861(d); and one count of possessing an unregistered short-barreled shotgun, in violation of 18 U.S.C. §§ 5845(a)(2), 5861(d). In addition to the 151-month prison term, OLMEDA was sentenced by Judge Berman to three years of supervised release and ordered to pay a $600 special assessment.
OLMEDA is separately charged by the state in Queens County, New York, with two counts of attempted murder in the first degree, two counts of attempted assault on a police officer with a deadly weapon, one count of criminal possession of a weapon in the second degree, and two counts of attempted assault in the first degree, all arising out of his alleged attempt to shoot two NYPD police officers in Queens, New York, on or about December 2, 2011. The state charges are merely accusations, and OLMEDA is presumed innocent of those state charges unless and until proven guilty.
Mr. Bharara praised the outstanding efforts of the Joint Terrorism Task Force – which principally consists of agents from the Federal Bureau of Investigation and detectives from the NYPD; the United States Bureau of Alcohol, Tobacco, Firearms and Explosives; and the United States Marshals Service. Mr. Bharara also thanked the NYPD and the Yonkers Police Department for their assistance.
The case is being handled jointly by the Office’s Terrorism and International Narcotics Unit and Violent and Organized Crime Unit. Assistant U.S. Attorneys Shane T. Stansbury, Michael D. Maimin, and John P. Cronan are in charge of the prosecution.
Member of Bronx Narcotics Organization Sentenced in Manhattan Federal Court to 45 Years for MurderRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that CATHERINE MORALES, a member of a drug trafficking organization (the “Organization”) that operated in the Bronx, was sentenced to 45 years in prison for murdering Aisha Morales (no relation) in June 2011. MORALES pled guilty in February 2015 to one count of intentionally killing an individual while engaged in a narcotics conspiracy, before United States District Judge Richard J. Sullivan, who imposed yesterday’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Catherine Morales, someone featured on ‘America’s Most Wanted,’ not only sold dangerous and potentially lethal drugs, but also committed a cold-blooded murder in broad daylight on East 163th Street in the Bronx. She has now been sentenced to the lengthy prison term those crimes merit.”
MORALES was initially charged in an Indictment with narcotics trafficking and firearms offenses, and was arrested by federal authorities in August 2013 in Philadelphia, Pennsylvania, where she was living in hiding under an assumed name. While MORALES was a fugitive, she was featured on the “America’s Most Wanted” television program. She was subsequently brought to Manhattan federal court in September 2013 to face those charges in the Southern District of New York. In January 2014, she was additionally charged with the murder of Aisha Morales in a superseding Indictment. The leader of the organization, Adony Nina, was later charged with the murder in a superseding Indictment filed in April 2014. Nina and co-defendant Candido Antomattei, another high-ranking member of the Organization, were convicted of narcotics trafficking and firearms charges following a trial in October 2013; Nina was subsequently convicted of participating in the Aisha Morales murder in a trial in May 2015. Thirteen other members of the Organization have pled guilty to various federal narcotics and firearms charges.
According to the publicly filed documents, evidence presented at the trials in this case, and statements made in court throughout the pendency of the case:
From 2008 through 2013, the Organization’s members sold crack cocaine and heroin, among other drugs, primarily in the vicinity of Longwood Avenue, and Beck, Kelly, and Simpson Streets in the Bronx. MORALES was involved primarily in the sale of heroin in the vicinity of Simpson and East 163rd Streets.
During and in relation to MORALES’s participation in the drug trafficking conspiracy, MORALES fatally shot victim Aisha Morales, who was 21 at the time of her death, in the head. The shooting took place in the vicinity of 1018 East 163rd Street, in broad daylight. Prior to the murder, MORALES and other members of the Organization threatened rival drug dealers who were selling drugs in the Organization’s territory. In one instance, MORALES threatened a rival that he needed to “get down or lay down.” The murder was the culmination of the dispute with the rival drug dealers. Aisha Morales was not involved in the drug-dealing activities that led to the dispute.
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In addition to the prison term, MORALES, 30, of the Bronx, New York, was sentenced to five years of supervised release and ordered to pay restitution. Nina is scheduled to be sentenced in January 2016.
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 Christopher DiMase, Rebecca Mermelstein, Margaret Graham, and Sarah Krissoff are in charge of the prosecution.
Husband and Wife Charged in Manhattan Federal Court with Conspiring to Traffic Millions of Dollars’ Worth of Counterfeit GoodsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Glenn Sorge, the Acting Special Agent in Charge for U.S. Immigration and Customs Enforcement’s (“ICE”), Homeland Security Investigations (“HSI”), and Robert E. Perez, the Director of New York Field Operations for U. S. Customs and Border Protection (“CBP”), announced charges today against two individuals for conspiring to traffic in millions of dollars’ worth of counterfeit goods. Defendants LE FU CHEN, a/k/a “Tom Chen,” a/k/a “Danny Chen,” and HAI FAN HUANG, a/k/a “Cindy Huang,” are charged with importing counterfeit goods from China into the United States with the intent to distribute and sell the counterfeit products to retailers in Manhattan and elsewhere. The defendants were arrested and presented before U.S. Magistrate Judge Kevin Nathaniel Fox today.
Manhattan U.S. Attorney Preet Bharara said: “I would like to thank our partners, Homeland Security Investigations, U.S. Customs and Border Protection, and the New York City Police Department, for their outstanding investigative efforts and assistance in uncovering this alleged counterfeiting conspiracy.”
ICE HSI Acting Special Agent-in-Charge Glenn Sorge said: “This couple allegedly conspired to profit from the sale of knock offs. Fake products that infringe on business owners’ intellectual property rights cost jobs and hurts the U.S. economy. Today’s arrests and seizures embody HSI and its law enforcement partners’ commitment to disrupt the importation and sale of counterfeit goods.”
CBP Director of New York Field Operations Robert E. Perez said: “This is the second example in recent weeks where an air cargo seizure by U.S. Customs and Border Protection led to a full investigation resulting in the takedown of an elaborate criminal enterprise. It is through our interagency partnerships, and collaborative approaches like the one leading to today’s arrests, that law enforcement successfully combats modern criminal organizations.”
According to the allegations in the Complaint[1]:
From at least in or about November 2014 up to and including in or about October 2015, CHEN and HUANG, who are husband and wife, imported counterfeit luxury and designer brand goods into the United States from China. CHEN and HUANG stored the imported counterfeit goods in multiple storage units and business suites across New York with the intent to transfer the goods to retailers in Manhattan and elsewhere.
On October 15, 2015, pursuant to court-authorized search warrants, federal law enforcement agents conducted searches of CHEN and HUANG’s storage units, business suites, and residence, and found over 130,000 pieces of luxury and designer brand counterfeit goods, including watches and jewelry. The estimated loss attributable to the defendants’ efforts amounts to millions of dollars.
CHEN, 40, and HUANG, 36, of Roslyn Heights, New York, are each charged with one count of conspiring to traffic in counterfeit goods, and one count of trafficking in counterfeit goods. Each defendant faces a maximum potential sentence of 20 years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the U.S. Department of Homeland Security, Homeland Security Investigations, and U.S. Customs and Border Protection. He also thanked the New York Police Department for its assistance.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Jane Kim is in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[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 Executive Officer of Marketing Agency Sentenced in Manhattan Federal Court for $2 Million Fraud and Kickback SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Caroline Ciraolo, Acting Assistant Attorney General of the Justice Department's Tax Division, announced today that MICHAEL J. MITROW, Jr. (“MITROW”), the former CEO and President of a pharmaceutical marketing company (the “Marketing Agency”), was sentenced to three-and-a-half years in prison for participating in a scheme to defraud the Marketing Agency in which MITROW obtained over $2 million in fraud and kickback proceeds, and for willfully failing to report that unlawful income to the Internal Revenue Service (“IRS”). MITROW pled guilty in January 2015 before U.S. District Judge Paul A. Engelmayer, who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Michael Mitrow defrauded the marketing agency that he led as its CEO out of over $1 million, using it to pay personal expenses including $600,000 to fly in private jets. His fraud and his failure to report the proceeds as income resulted in a federal conviction for Mitrow. At his sentencing today, he learned that the price of his crimes is not only repayment of the ill-gotten money but also the loss of his liberty.”
Acting Assistant Attorney General Caroline Ciraolo said: “Corporate officers who engage in fraud and kickback schemes and fail to report their illegal gains are defrauding their employers and cheating honest taxpayers. The sentence handed down today sends a strong message that these individuals will be held to account for committing offenses that were made possible by violating their fiduciary obligations.”
According to the Indictment and Superseding Information previously filed in Manhattan federal court, other court filings, and statements made during the proceedings in this case:
MITROW was the CEO and President of the Marketing Agency from 1998 through approximately 2009. From approximately 2008 through 2009, MITROW defrauded the Marketing Agency by submitting fraudulent invoices for consulting services that were purportedly provided to the Marketing Agency but were, in fact, never provided. Instead, Mitrow used the proceeds from those invoices to fund more than $600,000 in private jet travel. MITROW further defrauded the Marketing Company by causing it to pay $415,000 that was ultimately provided to a relative of MITROW and his co-defendant and brother, Matthew Mitrow, despite the representations made by the Mitrows to a private equity firm that acquired the company that the relative had severed all ties to the company. In addition, MITROW willfully failed to report to the IRS his income from the fraudulent consulting invoices, which exceeded $600,000; $1.4 million in kickback payments he received from Creative Press and East Coast Vending, printing and direct mail marketing companies owned by co-defendant Robert Madison and located in Phoenix, in order to help grow the business through additional printing and direct mailing contracts for Creative Press with his company; and more than $200,000 in personal purchases that Mitrow made with his corporate credit card and fraudulently coded as business expenses of the company.
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MITROW, 48, of Whitehouse Station, New Jersey, pled guilty to one count of conspiracy to commit wire fraud and one count of tax evasion. In addition to the prison term, MITROW was sentenced to three years of supervised release and 200 hours of community service in each of those years. He was also ordered to pay restitution in the amount of $83,219 to the IRS and $1,468,259.43 to the Marketing Agency.
Matthew Mitrow, 42, of Westfield, New Jersey, previously pled guilty to one count of filing a false tax return for the 2008 tax year, and was sentenced in July 2015 to three months in prison. As part of his plea agreement with the Government, Matthew Mitrow paid restitution of $30,822 to the IRS.
Robert Madison, 44, of Henderson, Nevada, pled guilty to one count of conspiracy to commit honest services fraud in the payment of undisclosed kickbacks to the Mitrow brothers, and was sentenced in May 2015 to 18 months in prison and 18 months of home confinement. As part of his plea agreement with the Government, Madison will be subject to an order of restitution in an amount to be determined by the Court.
Mr. Bharara thanked the Internal Revenue Service - Criminal Investigations and the United States Postal Inspection Service for their outstanding investigative work in this case. Mr. Bharara also thanked the U.S. Department of Justice’s Tax Division for its assistance.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Andrew Young and Department of Justice Tax Division Senior Litigation Counsel Nanette L. Davis are in charge of the prosecution.
Former CEO of Marketing Agency Sentenced to Prison for $2 Million Fraud and Kickback SchemeRead the Press Release
The former CEO and president of a pharmaceutical marketing company was sentenced to three and one half years in prison for participating in a scheme to defraud the company in which he obtained more than $2 million in fraud and kickback proceeds, and for willfully failing to report that unlawful income to the Internal Revenue Service (IRS), announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Preet Bharara of the Southern District of New York.
Michael J. Mitrow Jr., 48, of Whitehouse Station, New Jersey, was sentenced to serve 42 months in prison to be followed by three years of supervised release and 200 hours of community service in each of those years. He was also ordered to pay $83,219 in restitution to the IRS and $1,468,259.43 to Access Communications. In January 2015, Mitrow pleaded guilty to one count of conspiracy to commit wire fraud and one count of tax evasion before U.S. District Judge Paul A. Engelmayer of the Southern District of New York, who also imposed today’s sentence.
“Corporate officers who engage in fraud and kickback schemes and fail to report their illegal gains are defrauding their employers and cheating honest taxpayers,” said Acting Assistant Attorney General Ciraolo. “The sentence handed down today sends a strong message that these individuals will be held to account for committing offenses that were made possible by violating their fiduciary obligations.”
“Michael Mitrow defrauded the marketing agency that he led as its CEO out of over $1 million, using it to pay personal expenses including $600,000 to fly in private jets,” said U.S. Attorney Bharara. “His fraud and his failure to report the proceeds as income resulted in a federal conviction for Mitrow. At his sentencing today, he learned that the price of his crimes is not only repayment of the ill-gotten money but also the loss of his liberty.”
According to the indictment and superseding information previously filed in Manhattan federal court, other court filings and statements made during the proceedings in this case:
Mitrow was the CEO and president of the company from 1998 through approximately 2009. From approximately 2008 through 2009, Mitrow defrauded the company by submitting fraudulent invoices for consulting services that were purportedly provided to the company but were, in fact, never provided. Instead, Mitrow used the proceeds from those invoices to fund more than $600,000 in private jet travel. Mitrow further defrauded the company by causing it to pay $415,000 in payments by the company to a relative of Mitrow and his co-defendant and brother, Matthew Mitrow, despite the representations made by the Mitrows to a private equity firm that acquired the company that the relative had severed all ties to the company. In addition, Mitrow willfully failed to report to the IRS his income from the fraudulent consulting invoices, which exceeded $600,000; $1.4 million in kickback payments he received from Creative Press and East Coast Vending, printing and direct mail marketing companies owned by co-defendant Robert Madison and located in Phoenix, in order to help grow the business through additional printing and direct mailing contracts for Creative Press with his company; and more than $200,000 in personal purchases that Mitrow made with his corporate credit card and fraudulently coded as business expenses of the company.
Matthew Mitrow, 42, of Westfield, New Jersey, previously pleaded guilty to one count of filing a false tax return for the 2008 tax year, and was sentenced in July 2015 to serve three months in prison. As part of his plea agreement with the government, Matthew Mitrow paid $30,822 in restitution to the IRS.
Robert Madison, 44, of Henderson, Nevada, pleaded guilty to one count of conspiracy to commit honest services fraud in the payment of undisclosed kickbacks to the Mitrow brothers, and was sentenced in May 2015 to serve 18 months in prison and 18 months of home confinement. As part of his plea agreement with the government, Madison will be subject to an order of restitution in an amount to be determined by the court.
Assistant Attorney General Ciraolo and U.S. Attorney Bharara thanked the IRS-Criminal Investigation and the U.S. Postal Inspection Service, who investigated this case, and Assistant U.S. Attorney Andrew Young of the Southern District of New York and Senior Litigation Counsel Nanette L. Davis of the Tax Division, who are prosecuting this case. The U.S. Attorney’s Office of the Southern District of New York’s Complex Frauds and Cybercrime Unit is handling this case.
Founder and Managing Partner of Investment Firm Sentenced in Manhattan Federal Court for Securities and Commodities FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that RYAN TOMAZIN, the founder and managing partner of R2 Capital Group LLC (“R2 Capital”), was sentenced today in Manhattan federal court to six months in prison for crimes stemming from his defrauding investors and misappropriating investment funds. Among other things, TOMAZIN lied to investors in an R2 Capital commodity pool by disseminating, or causing others to disseminate, documents containing false representations regarding how assets in the commodity pool would be managed, and falsely informed investors that their investments were increasing when, in fact, the value was declining. Furthermore, TOMAZIN and other principals at R2 Capital caused over $850,000 of investors’ funds to be withdrawn from bank accounts associated with the commodity pool and directed to bank accounts held in their own names or those of their respective holding companies. TOMAZIN, 35, of Stamford, Connecticut, pled guilty on July 30, 2015, and was sentenced today before United States District Judge Paul A. Crotty.
According to the Indictment and other statements made in open court:
In late 2009, R2 Capital created a commodity pool, R2 Capital Partners I L.P. (the “Commercial Pool”) and began to solicit investors, eventually raising approximately $2.2 million. In early 2010, TOMAZIN solicited a potential investor in the Commercial Pool (“Investment Fund-1”) and provided Investment Fund-1 with documentation that stated, among other things, that R2 Capital would receive a management fee limited to 50% of the profits earned by the Commercial Pool. Investment Fund-1 invested over $1 million in the Commercial Pool. From June 2010 up to and including July 2011, the Commercial Pool experienced significant net losses. In July 2011, all trading activity in the Commercial Pool ceased. By August 2011, there was less than $5,000 remaining in bank accounts associated with the Commercial Pool. Nonetheless, between August 2011 and March 2013, TOMAZIN caused false “Trading Statements” to be sent to Investment Fund-1 reflecting false purported monthly trading profits and inaccurate trade balances. Furthermore, contrary to prior representations that R2 Capital’s management fee would be limited to 50% of profits earned, TOMAZIN and other principals at R2 Capital caused approximately $850,000 to be withdrawn from bank accounts associated with the Commercial Pool for their own personal benefit.
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TOMAZIN was convicted of one count of securities fraud (Count One) and one count of commodities fraud (Count Two). In addition to the prison term, TOMAZIN was sentenced to three years of supervised release and ordered to pay forfeiture and restitution to the victims of the offense in the amount of $288,000.
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 Harry A. Chernoff are in charge of the prosecution.
Former Correction Officer Sentenced to 41 Months in Prison for Involvement in Rikers Island Bribery and Narcotics RingRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that AUSTIN ROMAIN, a former New York City Correction Officer, was sentenced in Manhattan federal court today to 41 months in prison for narcotics, bribery, and honest services fraud offenses arising from a scheme to smuggle drugs and other contraband into Rikers Island for inmates. ROMAIN was convicted on December 12, 2014, following a four-day trial before the Honorable Robert W. Sweet, who imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “The sentencing of Austin Romain marks the latest step in our efforts to root out unlawful conduct at Rikers Island, by individuals and by the institution as a whole. Romain abused his position of authority as a corrections officer to become, in effect, a jailhouse drug dealer. Corruption at New York prisons, whether by individual officers like Romain or by the corrections system more broadly, is unacceptable and remains a top priority of this Office.”
As alleged in the Superseding Indictment against ROMAIN and established by the evidence admitted at trial:
ROMAIN became a Correction Officer in 2007. He was assigned to the George R. Vierno Center (GRVC) and later the Otis Bantum Correctional Center (OBCC) at Rikers Island. On multiple occasions in 2012 and 2013, ROMAIN smuggled marijuana, tobacco, and other contraband into the GRVC and provided it to inmates housed in that facility, who in turn sold it to other inmates. ROMAIN coordinated with the girlfriends of his inmate co-conspirators, who met with him to supply him with marijuana and to pay him for his smuggling activities. ROMAIN accepted thousands of dollars in bribes for the packages that he smuggled in to the GRVC and OBCC.
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ROMAIN, 33, of Brooklyn, New York, was convicted on one count of honest services fraud, one count of bribery, and one count of conspiring to distribute marijuana.
Mr. Bharara praised the outstanding investigative work of the Drug Enforcement Administration and the New York City Department of Investigation.
The prosecution is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Russell Capone and Martin S. Bell are in charge of the prosecution.
Defendant Sentenced in Manhattan Federal Court to More Than Three Years in Prison for Insider TradingRead the Press Release
PREET BHARARA, the United States Attorney for the Southern District of New York announced that ZACHARY ZWERKO was sentenced today in Manhattan federal court to 37 months in prison for his participation in an insider trading scheme. ZWERKO, who worked for a pharmaceutical company (the “Pharma Company”), passed material, nonpublic information to a co-conspirator (“CC-1”) who then made profitable securities trades based on the information and reaped more than $700,000 in profits. The information concerned potential and actual corporate transactions, including acquisitions. ZWERKO was sentenced by U.S. District Judge Alvin K. Hellerstein.
U.S. Attorney Preet Bharara said: “Zachary Zwerko’s attempts to circumvent the law and share inside information may have made him and his co-conspirator lots of money, but such criminal conduct has now come at the expense of his freedom.”
According to the allegations contained in court documents previously filed in federal court, and statements made during the plea and sentencing proceedings of ZWERKO:
From 2010 to 2014, ZWERKO engaged in an insider trading scheme involving trading around information related to the acquisitions of certain pharmaceutical companies. ZWERKO, who was a senior finance analyst in the financial evaluation and analysis group of the Pharma Company, passed material, non-public information related to potential acquisitions to CC-1. As part of his employment, ZWERKO performed work in connection with numerous potential and actual corporate transactions, including acquisitions. ZWERKO also had access to a computer directory maintained by the Pharma Company that contained material, non-public information related to potential acquisitions by the Pharma Company.
ZWERKO on multiple occasions passed to CC-1 material, non-public information related to future acquisitions by the Pharma Company, including the identities of companies that were in negotiations with the Pharma Company for potential acquisitions (the “Target Companies”). ZWERKO and CC-1 at times communicated with each other via disposable cellphone to disguise their communications. CC-1 then traded in the securities of the Target Companies. The Target Companies were subsequently acquired, in one instance by the Pharma Company, and the prices of the shares of the Target Companies increased after the acquisitions were announced publicly. CC-1 then exited CC-1’s positions in the shares of the Target Companies, thereby profiting from the movement in stock price. From this illegal trading, CC-1 reaped trading profits of at least $737,000. CC-1 gave ZWERKO approximately $57,000 in cash, from CC-1’s illegal proceeds, as part of ZWERKO’s share of the scheme’s profits.
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ZWERKO, 33, of Cambridge, Massachusetts, pled guilty on February, 19, 2015, to one count of conspiracy to commit securities fraud and three counts of securities fraud. In addition to his prison term, ZWERKO was sentenced to three years of supervised release, and was ordered to pay a fine of $50,000, a special assessment of $400, and forfeiture in the amount of $644,314.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission.
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. Attorneys Jessica Masella and Edward Kim are in charge of the prosecution.
Manhattan U.S. Attorney Files and Settles Civil Fraud Lawsuit Against UFC Aerospace and Douglas B. Davis for Engaging in Fraudulent Conduct in Violation of the Small Business ActRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Melvin F. Williams, Jr., General Counsel of the U.S. Small Business Administration (“SBA”), Peggy E. Gustafson, SBA Inspector General, and Craig W. Rupert, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service (“DCIS”), announced today that the United States has filed, and simultaneously settled, a civil fraud lawsuit against UFC AEROSPACE LLC (“UFC”) and DOUGLAS B. DAVIS, the former president of UFC, for engaging in fraudulent conduct in violation of the Small Business Act, 15 U.S.C. § 632(n), in order to secure numerous lucrative defense subcontracts with government contractors. As alleged in the amended complaint-in-intervention, UFC falsely certified to government contractors that UFC was a woman-owned small business (“WOSB”) when UFC at no point met either requirement for WOSB status under the Small Business Act. Specifically, no women were majority owners of UFC or managed or controlled UFC’s management and daily business operations. UFC made these misrepresentations, as the amended complaint-in-intervention alleges, because it believed that WOSB status provided a competitive advantage in obtaining contracts that it knew were funded by the United States government, and the government contractors in turn made representations to the government regarding its WOSB hiring. In the settlement, approved in Manhattan federal court by U.S. District Judge William H. Pauley III, UFC and DAVIS admitted and accepted responsibility for the fact that UFC never qualified for WOSB credit under the Small Business Act and will pay the Government $20,015,956.92.
Manhattan U.S. Attorney Preet Bharara said: “The Small Business Act serves the important purpose of increasing legitimate participation by woman-owned businesses, and when business owners engage in fraud that undermines this purpose, they need to be held to account. I want to thank the SBA Office of General Counsel, the SBA Office of Inspector General, the Defense Criminal Investigative Service, and the Procurement Fraud Division of the Air Force Materiel Command Law Office for their invaluable work on this case.”
SBA General Counsel Melvin F. Williams, Jr., said: “This case represents the cooperative effort of SBA’s Offices of the General Counsel and the Inspector General and the Department of Justice to uncover and remedy fraud in our procurement programs. Uncovering and pursuing fraud cases is one of SBA’s highest priorities.”
SBA Inspector General Peggy E. Gustafson said: “This settlement sends an important message that falsely certifying a company’s status as a Woman Owned Small Business is unacceptable and bears a significant consequence. We will continue to aggressively pursue parties that wrongfully obtain both prime and subcontracting opportunities for small businesses that are legitimately owned and controlled by women. I want to thank the U.S. Department of Justice for its dedication to reaching a settlement in this case.”
DCIS Special Agent in Charge Craig W. Rupert said: “This settlement is evidence of the continuing efforts of the Defense Criminal Investigative Service and our law enforcement partners to assure integrity within the Defense procurement process. The Department of Defense relies on numerous certifications from our contractors and any fraud in this process has a serious impact throughout this industry. DCIS will continue to aggressively pursue allegations of fraud and corruption harmful to U.S. taxpayers and the Department.”
The following allegations are based on the amended complaint-in-intervention filed Monday in Manhattan Federal court:
The Small Business Act, which provides that it is the policy of the United States that small businesses owned and controlled by women should have the “maximum practicable opportunity to participate in the performance of [federal] contracts,” defines a “woman owned small business” (“WOSB”) to mean that women own 51% of the company and “the management and daily business operations of the business are controlled” by women. 15 U.S.C. §§ 637(d)(1), 632(n). Prime contractors that obtain federal funds are required to negotiate with the procuring authority a subcontracting plan setting forth, among other things, what percentage of the work will be given to WOSBs, and the Comprehensive Subcontracting Plan Group of the Defense Contract Management Agency is responsible for ensuring that Government defense contractors meet all of the requirements for hiring small businesses, including WOSBs.
UFC began claiming WOSB status at least beginning in late 2001, by representing to contractors UFC knew were doing work with the federal government that it was a WOSB. UFC falsely relied on the purported ownership interest of the wives of the actual owners, John Davis and DOUGLAS DAVIS, to make these representations. UFC continued to represent that it was a WOSB at various times until 2011, and earned millions of dollars on the contracts procured with those representations. UFC did so because it understood that this status mattered both to the contractors and to the Government, and it believed that it was obtaining a competitive advantage by claiming to be a WOSB. However, at no time during the entire time period from 2001 to 2011 did UFC ever qualify under the Small Business Act as a WOSB. The only ownership interest that the wives of John and DOUGLAS DAVIS had in UFC was through trusts that were entirely controlled by John and DOUGLAS DAVIS, and under which the women were entitled to a maximum of only 5% of the trusts’ assets. Moreover, neither woman controlled or managed the company at any time. In fact, neither woman had company email accounts, attended management meetings, or spent regular time in the office during the relevant time period.
In the stipulation of settlement with the Government, defendant DOUGLAS DAVIS admitted, acknowledged, and accepted responsibility for the following: From 2001 to 2011, he was the President of UFC and controlled the management and business operations of UFC, and UFC certified that it was a WOSB to contractors UFC knew were conducting millions of dollars of business with the United States in order to obtain a competitive advantage with those contractors. At no time during the relevant period did UFC actually meet either of the statutory requirements for claiming WOSB status.
Defendant UFC admitted, acknowledged, and accepted responsibility for the fact that at various times between the years 2001 and 2011 inclusive, UFC certified that it was a WOSB to contractors that were conducting millions of dollars of business with the United States in order to obtain a competitive advantage with these contractors, even though at no point did UFC meet the statutory requirements for claiming WOSB status.
Mr. Bharara praised the SBA Office of General Counsel, the SBA Office of Inspector General, the Defense Criminal Investigative Service, and the Procurement Fraud Division of the Air Force Materiel Command Law Office for their invaluable work on this case.
The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Ellen London and Mara E. Trager are in charge of the case.
Manhattan Man Charged with Sexual Exploitation, Enticement, and Child Pornography CrimesRead 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 that MATTHEW TIVY was arrested in Manhattan today and charged in a criminal complaint with two counts stemming from his sexual exploitation and enticement of a minor and his receipt and distribution of child pornography.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Matthew Tivy took advantage of a minor for his own sexual gratification, even when he knew the minor was only in high school. He then allegedly shared the video he recorded of his encounter with others. Tivy allegedly targeted and exploited vulnerable and innocent children, and for that, he will now face the criminal consequences. I want to thank the FBI and the Manhattan District Attorney’s Office for its collaboration in this investigation.”
FBI Assistant Director-in-Charge Diego Rodriquez said: “As alleged, Tivy used a dating app to meet minors, even acknowledging their age on text messages after they met. He then allegedly shared the sexually explicit videos of the minors with others through internet sharing communities. This case would not be possible without the outstanding collaboration between the FBI and the Office of Manhattan’s District Attorney Cyrus R. Vance, Jr. The FBI will continue to investigate and bring to justice those who sexually exploit our children.”
According to the Complaint[1]:
From December 2014, TIVY initiated online communications with a fourteen- or fifteen-year-old boy (“Victim-1”), and enticed Victim-1 to engage in illegal sexual activity. The Complaint further alleges that TIVY engaged in sexual acts with Victim-1, enticed Victim-1 to engage in sexually explicit conduct for the purpose of producing a visual depiction of such conduct, and then distributed these visual depictions to others online.
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TIVY, 53, of Manhattan, New York, is charged with one count of enticing a minor to engage in sexually explicit conduct for the purpose of producing a visual depiction of such conduct, which carries a maximum penalty of 30 years in prison. TIVY is also charged with one count of receipt and distribution of child pornography, which a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
There may be more victims of this alleged conduct; if you have information report, call the FBI at 212-384-1000 or https://tips.fbi.gov/.
Mr. Bharara praised the efforts of the FBI in this investigation. He added that the investigation is continuing. He also thanked the Manhattan District Attorney’s Office for its participation and support in this ongoing investigation.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Jilan Kamal is in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Complaint and the description of the Complaint set forth below constitute only allegations, and every fact described should be treated as an allegation.
Hudson Valley ‘Breaking Bad’ Dealer Sentenced in White Plains Federal Court to 35 Years in Prison for Distributing Heroin and Fentanyl That Caused the Deaths of Three PeopleRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that DENNIS SICA was sentenced today in White Plains federal court to 35 years in prison for participating in a conspiracy to distribute heroin and fentanyl, the use of which resulted in the deaths of three individuals: Anthony Delello, Laura Brown, and Thomas Miller. SICA was sentenced by United States District Judge Cathy Seibel.
U.S. Attorney Preet Bharara stated: “Sica chose again and again, to sell lethal heroin laced with fentanyl for profit, even after realizing that his ‘Breaking Bad’ branded drugs were killing people. No sentence is going to bring back the three young people whose lives were cut short, but this prosecution hopefully brings some closure to their loved ones and causes others who peddle the poison of fentanyl-laced heroin not to make the same terrible choices Sica made.”
According to the allegations contained in the Indictment, the underlying criminal Complaint unsealed on June 19, 2014, and statements made during court proceedings:
From at least late 2013 to February 2014, SICA and others worked together in Dutchess County to sell a particularly potent form of heroin, bags of which were stamped with the brand name ‘Breaking Bad.’ At least some of the heroin distributed by SICA was laced with fentanyl, a synthetic opioid that is significantly stronger than street heroin.
On the night of December 28, 2013, SICA sold ‘Breaking Bad’ heroin to Anthony Delello, a 20-year-old resident of Beekman, New York. Delello snorted some of SICA’s heroin and was found dead by his girlfriend the following day. The Dutchess County Medical Examiner’s report concluded that he died from “acute heroin intoxication.”
Delello’s death did not stop SICA from selling ‘Breaking Bad’ heroin. Four days after Delello was found dead, SICA exchanged a series of text messages with a co-conspirator in which SICA urged the co-conspirator to delete the text message history in the phone they used to sell heroin and, if asked, to deny knowing anything about Delello or the manner of his death.
Slightly more than a month after Delello’s death, two more individuals died after overdosing on ‘Breaking Bad’ heroin. On February 1, 2014, Thomas Miller, 31, was found dead by his mother at his home in Pawling, New York. A hypodermic needle, as well as several glassine bags stamped with the words ‘Breaking Bad,’ were found near his body. Some of the glassine bags were full, others were empty. A chemical analysis of the contents of the full glassine bags showed that they contained a mixture of quinine, fentanyl, and heroin. The medical examiner’s report indicates that Miller died of “acute intoxication by the combined effects of heroin and fentanyl.”
The same day that Miller was found dead, Laura Brown, 35, was found dead of an apparent heroin overdose in New Milford, Connecticut. Brown was found with needles and glassine bags near her body. Several of the glassine bags were stamped with the words ‘Breaking Bad.’ The autopsy performed on Brown’s body showed that she died of “acute heroin and fentanyl intoxication.” According to Brown’s brother, he and Brown together bought ‘Breaking Bad’ heroin from SICA two days before Brown was found dead.
On February 2, 2014, SICA was arrested by state authorities in East Fishkill, New York, after a car in which he was riding was stopped by law enforcement. During a subsequent search of the car, law enforcement officers recovered several glassine bags stamped with a ‘Breaking Bad’ stamp identical to the one that appears on the envelopes recovered from Thomas Miller’s bedroom.
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SICA, 37, of Hopewell Junction, New York, pled guilty to one count of conspiracy to distribute heroin and fentanyl resulting in death. In addition to the sentence of 35 years in prison, SICA was also sentenced to four years supervised release.
Mr. Bharara praised the outstanding investigative work of the Drug Enforcement Administration’s (“DEA”) Tactical Diversion Squad and the Dutchess County Drug Task Force. The DEA’s Tactical Diversion Squad is comprised of agents and officers from the DEA, the New York City Police Department, the New York State Police, Town of Orangetown Police Department, and the Westchester County Police Department. The Dutchess County Drug Task Force is composed of the City of Poughkeepsie Police Department, the Town of Poughkeepsie Police Department, the East Fishkill Police Department, and the Dutchess County Sheriff’s Office. Mr. Bharara also thanked the New York State Police Forensics Unit, the Dutchess County District Attorney’s Office, the Dutchess County Sheriff’s Office, and the police department for the City of New Milford, Connecticut, for their assistance in the investigation.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Scott Hartman and Benjamin Allee are in charge of the prosecution.
Manhattan U.S. Attorney Announces Charges Against Four Prominent Honduran Businessmen for Laundering the Proceeds of Narcotics and Bribery Offenses Through Accounts Located in the United StatesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Mark Hamlet, the Special Agent in Charge of the Special Operations Division of the United States Drug Enforcement Administration (“DEA”), announced today that Honduran bankers JAIME ROLANDO ROSENTHAL OLIVA, YANI BENJAMIN ROSENTHAL HIDALGO, YANKEL ROSENTHAL COELLO, and ANDRES ACOSTA GARCIA were charged in connection with a multi-year scheme to launder the proceeds of narcotics trafficking offenses and foreign bribery offenses through accounts located in the United States. ROSENTHAL COELLO was arrested last night in Miami, Florida, and will appear this afternoon before United States Magistrate Judge Chris M. McAliley in Miami federal court. The remaining three defendants are at large.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Yankel Rosenthal Coello and his co-defendants used the banking system and their businesses to launder proceeds of narcotics trafficked to the U.S. Thanks to the outstanding investigative work of the DEA, these alleged criminals now face U.S. charges.”
In a separate action today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designated ROSENTHAL OLIVA, ROSENTHAL HIDALGO, and ROSENTHAL COELLO as Specially Designated Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (“Kingpin Act”) for playing a significant role in international narcotics trafficking. OFAC also designated several of the businesses associated with the defendants as Specially Designated Nationals under the Kingpin Act, including Inversiones Continental (Panama), S.A. de C.V., known as Grupo Continental, the parent company of a conglomerate of businesses in Honduras involved in banking, financial services, real estate, agriculture, construction, tourism, and media; Grupo Continental’s agricultural arm, Empacadora Continental S.A de C.V. (now known as Alimentos Continental); Inversiones Continental, S.A. (a.k.a. Grupo Financiero Continental); and the Honduran bank Banco Continental S.A.
According to the allegations in the Indictment,[1] which was previously unsealed in Manhattan federal court, the defendants conspired with others from 2004 through September 2015 to commit money laundering offenses in violation of Title 18, United States Code, Sections 1956 and 1957. Specifically, the Indictment charges the defendants with conspiring to conduct financial transactions occurring in whole or in part in the United States and involving the proceeds of (i) narcotics offenses and (ii) offenses against a foreign nation involving bribery of public officials and the misappropriation, theft, or embezzlement of public funds.
ROSENTHAL COELLO, 46, ROSENTHAL OLIVA, 79, ROSENTHAL HIDALGO, 50, and ACOSTA GARCIA, 40, all of Honduras, are each charged with one count of money laundering, which carries a maximum penalty of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentence will be determined by a judge.
Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division, New York Strike Force, and New York Task Force. Mr. Bharara also thanked the U.S. Department of Justice’s Office of International Affairs, OFAC, the U.S. Attorney’s Office for the Southern District of Florida, and the United States Department of the Treasury’s Financial Crimes Enforcement Network for their ongoing assistance.
This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Emil J. Bove III, Adam Fee, Michael D. Lockard, and Matthew Laroche are in charge of the prosecution.
The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney, ATF, and NYPD Announce Arrest of Three Individuals for Firearms TraffickingRead 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 Division of the United States Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), announced today the arrest of two individuals charged with firearms trafficking in the Bronx, New York, and one individual charged with firearms trafficking, narcotics distribution, and possession of a firearm during a narcotics offense. The defendants will be presented later today before the Honorable James C. Francis, IV, United States Magistrate Judge.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, these defendants brought more than 50 guns into New York so that they could sell them on the streets of the Bronx. Together with our law enforcement partners, we will continue to work to rid our neighborhoods of illegal guns.”
ATF Special Agent-in-Charge Delano A. Reid, stated: “In these especially chaotic times, with firearm related violence pervasive in our society, I am extremely pleased to see that the assigned investigators and prosecutors have remained focused in their pursuit of these alleged firearms traffickers who mistakenly thought they could wreak havoc on the streets of this great city by selling weapons for their own financial gain. Now, as defendants, they will begin to appreciate the depravity of their conduct and will know that law enforcement will leave no stone unturned in the interdiction of interstate firearms trafficking.”
Police Commissioner William J. Bratton said: “The NYPD remains committed to saving lives by stopping the distribution of illegal firearms. We continue bringing traffickers to justice who, by providing easy access to firearms, play a significant role in perpetrating gun violence. As alleged, these individuals engaged in a trafficking operation in which they sold numerous firearms in the Bronx, to the detriment of the safety and welfare of everyone. Thankfully, NYPD investigators and our law enforcement partners dismantled the operation, and this flow of firearms has been shut down.”
As alleged in the criminal Complaint unsealed today in Manhattan federal court[1]:
From at least in or about December 2014 through in or about September 2015, PAUL BARRY, ANTHONY ROMAN, and TIANA WILLIAMS, the defendants, conspired to and did purchase firearms in Ohio for the purpose of illegally reselling the firearms in the Bronx, New York. During the course of the conspiracy, law enforcement officers conducted controlled purchases of over 50 firearms, including a semi-automatic assault rifle, and over 1,000 rounds of ammunition from the defendants. In addition, in or about August and September 2015, law enforcement officers conducted controlled purchases of ethylone, commonly referred to as “Molly,” from ROMAN.
BARRY, 31, of West Carrollton, Ohio, ROMAN, 37, of the Bronx, New York, and WILLIAMS, 24, of the Bronx, New York, are each charged with one count of one count of firearms trafficking, which carries a maximum sentence of 10 years in prison, and one count of conspiracy to traffic in firearms, which carries a maximum sentence of five years in prison. ROMAN is also charged with one count of interstate transportation and receipt of firearms, which carries a maximum sentence of five years in prison; narcotics possession with intent to distribute, which carries a maximum sentence of 20 years in prison; and one count of firearm possession in furtherance of a narcotics offense, which carries a mandatory minimum sentence of five years in prison and a maximum sentence of life in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the ATF and the NYPD. He also thanked the Bronx County District Attorney’s Office for its participation and support in this ongoing investigation.
This case is being handled by the Office’s General Crimes Unit. Assistant United States Attorneys Dina McLeod and Jason Swergold are in charge of the prosecution.
The charges contained in the criminal 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.
Manhattan U.S. Attorney Announces $85 Million Settlement with Fifth Third Bancorp over Failures to Self-Report Defective Mortgage Loans to FHARead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Helen R. Kanovsky, General Counsel of the U.S. Department of Housing and Urban Development (“HUD”), and Christy Goldsmith Romero, Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), announced today an $85 million settlement with FIFTH THIRD BANCORP and its subsidiaries (“FTB” or the “Bank”) resolving civil fraud claims arising from FTB’s origination of residential mortgage loans insured by the Federal Housing Administration (“FHA”). FTB made a voluntary disclosure of approximately 1,400 mortgage loans that the Bank had certified as eligible for FHA insurance, later determined were materially defective and thus ineligible for FHA insurance, but never self-reported to HUD, resulting in millions of dollars in HUD losses. As part of the settlement approved yesterday by United States District Judge Deborah A. Batts, FTB will pay approximately $85 million to cover federal losses on approximately 500 of the loans that defaulted and for which HUD paid insurance claims, and indemnify HUD for all losses HUD may incur on approximately 900 defective loans that have not yet defaulted. FTB admitted and accepted responsibility for failing to self-report mortgage loans it knew to be defective, contrary to HUD requirements. FTB has also reformed its business practices and terminated the employment of responsible employees.
Manhattan U.S. Attorney Preet Bharara said: “Federal insurers rely on banks when they promise that the mortgage loans they originate are eligible for that insurance. When banks discover that some of the loans are lemons and that their promises of quality were false, as Fifth Third Bank did, they must come forward and report it promptly, so that taxpayers don’t get stuck with the bill. With this settlement, Fifth Third Bancorp has admitted to originating about 1,400 materially defective loans that were not eligible to be FHA insured and has taken positive steps to reform its quality control program, including terminating the employees responsible.”
HUD General Counsel Helen R. Kanovsky said: “Lenders have a responsibility to notify us when they discover material defects in the FHA-insured loans they originate. We will continue to protect FHA’s insurance fund and to ensure borrowers have access to affordable and sustainable mortgage financing.”
SIGTARP Special Inspector General Christy Goldsmith Romero said: “Before and during the time Fifth Third was bailed out in TARP, its Quality Control employees made false representations to HUD that residential mortgages the bank originated were of the quality required to be insured by HUD. The bank’s false representations cost HUD millions of dollars to pay insurance claims on 519 of the materially defective loans that later defaulted. Fifth Third’s actions to fire those employees, voluntarily disclose its violations of the False Claims Act and FIRREA to law enforcement, and make corporate changes should stand as an example for others who violated the law. SIGTARP will root out violations of the law related to TARP with our law enforcement partners such as U.S. Attorney Preet Bharara. It is always better to disclose those violations rather than wait for SIGTARP to find them.”
As set forth in the settlement agreement:
HUD offers various mortgage insurance programs through which it insures approved lenders against losses on mortgage loans made to buyers of single-family housing, including FHA’s Direct Endorsement Lender program, which authorizes private-sector mortgage lenders (“Direct Endorsement Lenders”) to underwrite mortgage loans, decide whether the borrower represents an acceptable credit risk for HUD, and certify loans for FHA mortgage insurance without prior HUD review or approval.
Because HUD relies on Direct Endorsement Lenders to determine which loans should be endorsed for FHA insurance, it requires that Direct Endorsement Lenders conduct adequate due diligence on loans before certifying them for FHA insurance. Direct Endorsement Lenders are also required to maintain an adequate quality control program, which includes self-reporting to HUD in writing within 60 days of initial discovery any loans identified during quality reviews that are affected by serious deficiencies, patterns of non-compliance, or fraud.
Direct Endorsement Lenders make a number of certifications to HUD, including annual certifications and individual loan certifications. In the annual certification, the Direct Endorsement Lender represents that it conforms to all HUD-FHA regulations necessary to maintain its HUD-FHA approval, and among the basic requirements necessary to maintain such approval is the implementation of a compliant quality control program, including timely self-reporting to HUD any loans affected by serious deficiencies, patterns of non-compliance, or fraud. In the individual loan certification, the Direct Endorsement Lender represents that each mortgage is eligible for FHA mortgage insurance.
FTB is an Ohio-chartered bank headquartered in Cincinnati, Ohio. FTB has been a Direct Endorsement Lender since at least 2003 and has submitted both annual and individual loan certifications to HUD.
In 2012, FTB made a voluntary disclosure to the Government of certain residential mortgage loans that FTB had originated and certified to HUD as eligible for FHA insurance, but had later found, through post-closing quality reviews, were in fact materially defective and not eligible for FHA insurance. In 2014, FTB made a supplemental voluntary disclosure to the Government identifying additional materially defective mortgage loans that FTB had failed to self-report to HUD. FTB voluntarily disclosed to the Government a total of 1,439 materially defective loans originated from 2003 through 2013. HUD paid insurance claims on 519 of those loans after they defaulted, and no insurance claims have been submitted to HUD for 920 of the loans.
As part of the settlement, the Bank will pay $84,911,018 to resolve liability under the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act arising from the 519 loans for which HUD paid insurance claims. FTB will indemnify HUD for all losses HUD may incur on the 914 loans that have not defaulted. The Bank will also make an administrative payment to HUD of $2,044,000 as part of a separate indemnification agreement with HUD.
FTB admitted, acknowledged, and accepted responsibility for its self-reporting violations, including that:
- FTB was required to self-report to HUD any serious deficiencies, patterns of non-compliance, or fraud within 60 days of the initial discovery;
- FTB made annual certifications to HUD that it conformed to all HUD-FHA regulations necessary to maintain its HUD-FHA approval, which included the implementation of a mandatory quality control program by which FTB reported to HUD all serious deficiencies, patterns of non-compliance, or fraud;
- From 2003 through 2013, FTB’s quality control program identified through post-closing reviews 1,436 residential mortgage loans that FTB had originated and certified to HUD as eligible for FHA insurance that were materially defective and thus ineligible for FHA insurance; and
- FTB failed timely to self-report these materially defective loans to HUD pursuant to HUD requirements.
FTB has taken steps to reform its quality control program, including terminating the employment of personnel responsible for FTB’s failure to self-report materially defective loans to HUD.
This matter arose, in part, from the filing of a whistleblower complaint under the False Claims Act.FTB made its voluntary disclosure to the Government without knowledge of the whistleblower complaint filed under seal or the Government’s investigation of that complaint.The Government intervened in the whistleblower lawsuit and entered into this settlement resolving the case.
The case has been handled by the Office's Civil Frauds Unit. Assistant U.S. Attorney Pierre G. Armand is in charge of the case.
Former UN General Assembly President and Five Others Charged in $1.3 Million Bribery 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 Thomas E. Bishop, Acting Special Agent in Charge of the New York Field Office of the Internal Revenue Service-Criminal Investigation (“IRS-CI”), announced today that former United Nations (“UN”) Ambassador for Antigua and Barbuda (“Antigua”) and President of the UN General Assembly (“UNGA”) JOHN W. ASHE, Deputy UN Ambassador for the Dominican Republic FRANCIS LORENZO, NG LAP SENG, a/k/a “David NG” (“NG”), JEFF C. YIN, a/k/a “Yin Chuan,” SHIWEI YAN, a/k/a “Sheri YAN,” and HEIDI HONG PIAO, a/k/a “Heidi Park,” were charged in connection with a multi-year scheme to pay more than $1.3 million in bribes to ASHE in exchange for official actions in his capacity as UNGA President and Antiguan government official in support of Chinese business interests. LORENZO, NG, YIN, YAN, and PIAO are charged with multiple bribery-related counts. ASHE is charged with tax fraud for failure to report or pay income taxes on the over $1 million he received in bribes in 2013 and 2014. YAN and PIAO are also charged with laundering bribery money from China. ASHE was arrested in Dobbs Ferry, New York, and LORENZO, YAN, and PIAO were arrested in New York, New York, this morning, and are scheduled to appear before U.S. Magistrate Judge James C. Francis IV in Manhattan federal court later today. NG and YIN were previously arrested on September 19, 2015, based on a separate complaint alleging that NG and YIN agreed to make false statements to Customs and Border Protection officers about the true purpose of approximately $4.5 million in cash that NG and YIN had brought into the U.S. from China since 2013.
U.S. Attorney Preet Bharara said: “If proven, today’s charges will confirm that the cancer of corruption that plagues too many local and state governments infects the United Nations as well. As alleged, for Rolexes, bespoke suits, and a private basketball court, John Ashe, the 68th President of the UN General Assembly, sold himself and the global institution he led. United in greed, the defendants allegedly formed a corrupt alliance of business and government, converting the UN into a platform for profit. We will continue to do everything we can to root out public corruption – whether we find it in a city council, in Albany, or as here, in the United Nations.”
FBI Assistant Director-In-Charge Diego Rodriguez said: “The charges announced today are sending a message to those who come to the United States from other countries with corruption plans or bags full of cash - no one is above or beyond the law. Investigating public corruption remains a top priority for the FBI.”
IRS-CI Acting Special Agent-in-Charge Bishop said: “IRS-Criminal Investigation is committed to ensuring that everyone pays their fair share of taxes, regardless of an individual’s position, wealth or prominence. Everyone is expected to report all of their income, even if the income comes from an illegal source, including bribes. We are always ready to partner with the United States Attorney’s and the FBI on investigations involving allegations of misuse of positions of public trust and their impact on tax compliance.”
According to the allegations contained in the Complaint[1] unsealed today in Manhattan federal court:
Since approximately 2011, ASHE has been soliciting and accepting bribes from various businesspeople in China seeking to influence the actions of the UN and officials in ASHE’s home country of Antigua. ASHE solicited and took the bribes at the time when he served as UN Ambassador for Antigua and as the 68th President of the UN General Assembly. The bribes were facilitated by LORENZO, NG, YIN, YAN, and PIAO, among others, who arranged for the transmission and laundering of over $1 million of bribery money from sources in China. In exchange for the bribes, ASHE agreed to and did perform official actions for businesspeople who were seeking benefits from the UN and Antigua. Among other things, ASHE accepted over $500,000 of bribes facilitated by LORENZO and YIN from NG, who was seeking to build a multibillion-dollar, UN-sponsored conference center in Macau, China (the “UN Macau Conference Center”). In exchange for these payments from NG, among other actions, ASHE submitted a UN document to the UN Secretary General, which claimed that there was a purported need to build the UN Macau Conference Center. In addition, ASHE received over $800,000 in bribes from various Chinese businessmen arranged through YAN and PIAO and, in return for these bribes, ASHE advocated for these businessmen’s interests within the UN and with senior Antiguan government officials, including the country’s then-Prime Minister (the “Prime Minister”), with whom ASHE shared a portion of the bribe payments.
During the course of the scheme, defendant ASHE solicited and received bribes in various forms, including cash and payments to third parties to cover ASHE’s personal expenses, such as a family vacation and construction of a private basketball court at his house in Dobbs Ferry, New York. ASHE also transferred the bribery money to his personal bank accounts, primarily through checks he wrote to himself for a purported “salary” (although he already collected a salary from the Government of Antigua). ASHE then used the bribe money for his personal expenses, such as paying the mortgage on his house in Dobbs Ferry, making his BMW lease payments, and buying luxury items such as Rolex watches and custom suits. During the same period of time, ASHE failed to report sufficient income to the Internal Revenue Service (“IRS”) to account for the self-described salary and other bribes he received. In total, ASHE underreported his income to the IRS by more than $1.2 million in tax years 2013 and 2014 alone.
The Scheme by LORENZO, NG, and YIN to Bribe ASHE
As alleged in the Complaint, the scheme began in or about the spring of 2011, when ASHE was approached by LORENZO, the Deputy Permanent Representative to the UN for the Dominican Republic. Since in or about 2010, in addition to being the Dominican Republic’s representative to the UN, LORENZO has also been the “Honorary President” of a New York-based nongovernmental organization created by NG (“NGO-1”), which purportedly is a “21st century media platform” whose mission is to advance the implementation of the UN’s Millennium Development Goals
In the spring of 2011, LORENZO invited ASHE to fly to Macau, China, to meet with NG. As alleged in the Complaint, NG was interested in bribing ASHE in order to acquire business interests in Antigua and to obtain UN support for his proposed UN Macau Conference Center. ASHE agreed to meet NG in Macau in exchange for LORENZO buying ASHE and his family a trip to New Orleans, including first-class airline tickets and a luxury hotel suite. After ASHE’s meeting with NG in Macau, ASHE told LORENZO that he had arranged for NG to meet with the then-Prime Minister of Antigua to discuss “concrete investment opportunities, including the immediate acquisition of hotel properties.” ASHE also then began soliciting additional payments from LORENZO to pay for the installation of a private basketball court at ASHE’s house in Westchester County. In addition to agreeing to pay for ASHE’s family vacation and basketball court, LORENZO began paying ASHE’s wife, as a “climate change consultant” for NGO-1, in the amount of $2,500 per month.
After initially focusing on paying ASHE to obtain access to the then-Prime Minister and other Antiguan officials to further NG’s effort to invest and acquire property in Antigua, LORENZO and NG then decided to use ASHE to seek to obtain UN support for NG’s proposed UN Macau Conference Center. In February 2012, LORENZO drafted a UN document in ASHE’s name for ASHE to submit to the UN Secretary General in support of the development of NG’s UN Macau Conference Center. After exchanging several drafts of the UN Document with LORENZO, on February 24, 2012, ASHE submitted the final document to the UN. LORENZO used the UN document in promotional materials for NG’s conference center with other officials and an investment banking firm, using the document to imply that the conference center NG was seeking to develop was likely to be supported in some fashion by the United Nations.
In early 2013, YIN, who serves as NG’s principal assistant, repeatedly pressed LORENZO to make progress on NG’s request and threatened to halt the payments to LORENZO unless progress was made. Following the repeated demands by YIN (on NG’s behalf), LORENZO arranged for ASHE to issue a revised UN document that specifically promoted NG’s private company – by name – as the developer of the proposed conference center.
Later, LORENZO arranged for ASHE to travel to Macau with other UN officials to meet with NG in exchange for a $200,000 payment from NG to an account that ASHE had set up in the name of the President of the General Assembly, his role at the time. Prior to agreeing to make the trip, ASHE told LORENZO, “Even though NG has made a lot of empty promises in the past, I am willing to travel to Macau to see his project, since it is important to him. But it has to [be] made absolutely clear to him that I will not go unless I see the funds - funds which are NOT for my personal use but to help run the PGA office. Period. Please let them know that I am requesting somewhere between $100K and $250K.” Although ASHE claimed the funds would not be used by him personally, as described in detail in the Complaint, ASHE transferred the vast majority of funds that were paid to ASHE to ASHE’s personal account with his wife and used them to pay for personal expenses.
The Scheme by YAN and PIAO to Bribe ASHE
In addition to soliciting bribes from LORENZO, YIN, and NG, ASHE also solicited and received payments from YAN and PIAO, who represented other Chinese businessmen seeking to invest in or obtain favors from Antiguan government officials. In particular, as alleged in the Complaint, YAN and PIAO arranged for over $800,000 of payments to ASHE in exchange for official favors by ASHE and other Antiguan officials for various Chinese businessmen.
The initial payment arranged by YAN and PIAO was a $300,000 payment on behalf of a Chinese media executive referred to as “CC-1” in the Complaint. After receiving the payment, ASHE reported that he had traveled to Antigua “to meet with all the key decision makers to discuss [CC-1’s] plans; that I had the initial resources in hand (and which have now been fully utilized), certainly served the intended purpose of focusing minds and getting the conversation started.” Financial records reflect that ASHE sent $100,000 of CC-1’s payment to the Prime Minister of Antigua, and sent more funds to other Antiguan political interests.
In August 2013, YAN and PIAO began paying ASHE approximately $20,000 per month to be the “Honorary Chairman” of a new New York-based non-governmental organization (“NGO-2”), of which YAN serves as the CEO, which purportedly was formed to promote the UN’s sustainable development goals.
The next month, after ASHE formally assumed his one-year term as UNGA President, YAN and PIAO arranged for another Chinese businessman, referred to as “CC-2” in the Complaint, to send ASHE $100,000 purportedly to pay for a UN reception in honor of ASHE’s presidency. Approximately one month later, YAN and PIAO arranged for PIAO to travel with ASHE and CC-2 to meet with Antiguan officials about a $20 million deal for CC-2’s company to install a “national internet security system” for Antigua. ASHE’s intercession on CC-2’s behalf resulted in a signed “memorandum of understanding” between CC-2’s company and the Government of Antigua to move forward with CC-2’s project. ASHE also used his position as UNGA President to promote CC-2’s company to officials with the Government of Kenya. ASHE paid a portion of these bribe payments to the Prime Minister of Antigua.
In addition, YAN and PIAO arranged for ASHE to be paid $200,000 (plus travel expenses) in exchange for attending and speaking in ASHE’s official capacity at a private conference in China hosted by a Chinese real estate developer identified as CC-3 in the Complaint. In addition to attendance at the conference, CC-3 also sought to “offer [ASHE] a permanent convention venue for the UN meetings on sustainability and climate changes . . . as well as for the 193 members of the UN to convene. . . .”
ASHE’s Tax Fraud
As alleged in the Complaint, in 2013 and 2014, while ASHE was UNGA President, he solicited and received payments from LORENZO, NG, YIN, YAN, PIAO, and others, to business accounts he personally created in the name of the President of the General Assembly. More than $1 million of the money that ASHE solicited to allegedly support his UN Presidency ASHE then transferred to himself, primarily in the form of $25,000 monthly checks written to and by him with the memo line “salary” (notwithstanding the fact that he already received a salary from the Government of Antigua). During these years, ASHE was also paid approximately $200,000 annually in “consulting” income from LORENZO, NG, PIAO, and YAN. For tax years 2013 and 2014, ASHE filed tax returns that materially failed to account for the income he was deriving from his purported salary payments and his “consulting” contracts. Specifically, for year 2013, ASHE and his wife underreported their income by approximately $462,350 and, for year 2014, they underreported his income by approximately $796,329.28.
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ASHE, 61, of Dobbs Ferry, New York, is charged with two counts of subscribing to false and fraudulent U.S. individual income tax returns. Each of these counts carries a maximum penalty of three years in prison. LORENZO, 48, of the Bronx, New York, NG, 67, YIN, 29, YAN, 57, and PIAO, 52, are each charged with bribery conspiracy and bribery. The conspiracy charge carries a maximum penalty of five years in prison and the bribery charge carries a maximum penalty of 10 years in prison. YAN and PIAO are also charged with conspiracy to commit money laundering. This charge carries a maximum penalty of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.
LORENZO, YIN, YAN, and PIAO are naturalized U.S. citizens. ASHE is a citizen of Antigua and legal permanent resident of the United States. NG is a citizen of China, Portugal, and the Dominican Republic.
U.S. Attorney Bharara praised the work of the FBI and the IRS-CI, who jointly conducted this investigation, and noted that the investigation is ongoing.
This case is being prosecuted by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Daniel C. Richenthal, Rahul Mukhi, and Janis M. Echenberg 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 below constitute only allegations, and every fact described should be treated as an allegation.
New Jersey Man Arrested and Charged in Manhattan Federal Court with Securities FraudRead 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 today that WILLIAM J. WELLS was arrested this morning on securities fraud and wire fraud charges stemming from his scheme to defraud more than 30 investors of more than $1.5 million through a fraud scheme.
Among other false and misleading statements, WELLS lied to prospective and existing investors by representing, including in fictitious account statements, that he had achieved consistently positive trading returns, when in fact, WELLS’s trading was remarkably unsuccessful and he realized trading losses every year since 2009. Of the money WELLS did not lose in securities trading, WELLS routinely converted investor funds to his own use to pay personal expenses, and he used new investor funds to pay back other investors in a Ponzi-like fashion.
WELLS is expected to be presented today in federal court in Manhattan before United States Magistrate Judge Michael H. Dolinger.
U.S. Attorney Preet Bharara said: “As alleged, William Wells repeatedly lied to his investors, falsely claiming consistently positive returns, when in fact his trading was spectacularly unsuccessful. But his alleged lies did not stop there. He also allegedly used investor money to pay personal expenses, including for private school tuition, and used new investor money to pay back old investors.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “As alleged, Wells didn’t run an investment firm, he ran a Ponzi scheme totaling more than $1.5 million from potential investors. Wells allegedly used the funds to pay some investors to hide his trading losses and to support his personal lifestyle. The FBI is committed to investigating and bringing to justice those who prey upon trusting individuals for their own personal gain.”
According to the Complaint unsealed today in Manhattan federal court[1]:
From September 2009 through the present, WELLS, through his investment firm Promitor Capital LLC (“Promitor Capital”), engaged in a fraudulent scheme to obtain investments by falsely representing that he had achieved consistently positive trading returns in the U.S. equity markets, including through the successful use of options to hedge risk. In truth, WELLS’s trading was remarkably unsuccessful. Between 2009 and the present, WELLS realized trading losses every year and, in total, trading losses in excess of $500,000. In fact, as of September 2015, Promitor Capital had less than $1,000 under management.
In connection with the scheme, WELLS made a series of false and misleading representations to investors, including: (a) that WELLS’s trading was generating consistently positive returns when, in fact, his trading was consistently unsuccessful; (b) that investors were invested in certain stocks at certain times when, in fact, none of the accounts held by Promitor or WELLS held those stocks; and (c) that WELLS had created so-called sub-accounts for clients, for which WELLS purported to execute individualized trading strategies, when, in fact, no such sub-accounts were ever funded. In addition to false and misleading representations made orally and in writing, WELLS also generated wholly fictitious account statements that he provided to his clients.
As a result of these misrepresentations, WELLS obtained more than $1.5 million in investments from more than 30 investors, many of whom were friends, colleagues, or family members. Of the money he did not lose in securities trading, WELLS routinely converted investor funds to his own use in the form of cash withdrawals and to pay personal expenses, including more than $500,000 for, among other things, credit card bills, payments for WELLS’s car, and for private school tuition. In addition, to hide his trading losses and continue to fund his personal lifestyle, WELLS used new investor funds to pay back other investors. In total, WELLS distributed less than approximately $500,000 back to investors.
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WELLS, 42, was arrested this morning in Valley Cottage, New York. He is charged with one count of securities fraud and one count of wire fraud. The securities fraud count and the wire fraud count each carry a maximum sentence of 20 years in prison and the charges carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the work of the FBI, and thanked the U.S. Securities and Exchange Commission for its 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. Attorney Andrea M. Griswold 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.
Doctor Arrested for Illegal Distribution of More Than Ten Thousand Oxycodone Pills, Resulting in One Known DeathRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James A. Hunt, Special Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and William J. Bratton, Commissioner of the New York Police Department (“NYPD”), announced the unsealing of a Complaint against a doctor and a co-conspirator who are alleged to have participated in a drug distribution conspiracy involving the prescription painkiller oxycodone. As alleged, the doctor, ALFRED RAMIREZ, sold medically unnecessary prescriptions for over 10,000 oxycodone tablets over a four-year period, resulting in at least one death.
RAMIREZ, a psychiatrist, and JAMES COONEY, a co-conspirator, were arrested this morning on the charges in the Complaint. Both defendants were presented before U.S. Magistrate Judge Paul E. Davison this afternoon in White Plains federal court.
U.S. Attorney Preet Bharara said: “Abuse of prescription pills is a national health epidemic – causing more overdose deaths than heroin and cocaine combined. Unscrupulous healthcare professionals like Doctor Alfred Ramirez, who is alleged to have prescribed over 10,000 medically unnecessary oxycodone pills over a four-year period, and his alleged distributor, James Cooney, fuel this epidemic of poison by prescription. The danger of this type of criminal distribution of prescription pills was brought home by a tragic death allegedly resulting from Dr. Ramirez’s prescriptions.”
DEA Special Agent-in-Charge James A. Hunt said: “Criminals are constantly scheming ways to make an illegal profit, and Dr. Ramirez was no different. Allegedly selling scripts for money, Dr. Ramirez supplied opioid addicts with their fix and supplied street distributors, like James Cooney, with doses of death. Today’s arrests come after a five-month investigation into the illegal practices of Dr. Ramirez and the subsequent consequences of James Cooney’s street distribution.”
NYPD Commissioner William J. Bratton said: “As alleged, this doctor traded cash for prescriptions, pushing pills into the illegal drug market, resulting in the senseless death of at least one person. I commend the work of the NYPD investigators and our law enforcement partners for holding these individuals accountable for their actions.”
The following allegations are based on the Complaint unsealed today in White Plains federal court[1]:
Starting in approximately 2012 and continuing until his arrest, RAMIREZ operated out of offices in Orange and Dutchess Counties, where RAMIREZ, a Board certified doctor and State licensed psychiatrist, wrote medically unnecessary prescriptions for more than ten thousand oxycodone pills in exchange for cash payments. On numerous occasions over the course of this four-year period, RAMIREZ charged hundreds of dollars in cash for “patient visits” that involved little, if any, actual examination and resulted in the issuance of multiple prescriptions for large quantities of 30-milligram oxycodone tablets, sometimes for patients who were not even present.
Also charged in the Complaint is COONEY, who obtained prescriptions for thousands of oxycodone tablets from RAMIREZ, including in the name of third persons. COONEY resold many of these pills for profit.
The pills distributed by RAMIREZ and COONEY caused one known death: On March 23, 2015, a school teacher was found dead in his Yonkers, New York, apartment. Medical reports concluded that the death resulted from an overdose of oxycodone and alprazolam, another drug frequently prescribed by RAMIREZ and distributed by COONEY. Records show that the victim obtained the lethal oxycodone, and likely the alprazolam as well, from COONEY, and that RAMIREZ had issued prescriptions for those drugs in COONEY’s name.
Oxycodone is a prescription-strength Schedule II narcotic used to treat severe and chronic pain conditions. Oxycodone can result in addiction similar to an addiction to codeine or morphine, and there is an illegal market for oxycodone, as a substitute for – or adjunct to – other illegal narcotics, such as heroin.
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The defendants are charged with violations of the federal narcotics laws carrying a maximum sentence of twenty years in prison. The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as the judge will determine any sentence imposed on the defendants.
Mr. Bharara praised the outstanding investigative work of the DEA’s Tactical Diversion Squad, composed of agents and officers of the DEA New York Division, the NYPD, the New York State Police, the New York Bureau of Narcotics Enforcement, the Westchester County Police Department, and the Town of Orangetown Police Department. Mr. Bharara also thanked the Town of New Windsor Police Department, the New York Bureau of Narcotics Enforcement, the U.S. Department of Health and Human Services, the Westchester County Department of Public Safety, the New York State Department of Financial Services, the Orange County Drug Task Force, the New York Office of Professional Medical Conduct, and the Town of Woodbury Police Department.
The case is being prosecuted by the Office’s White Plains Division. Assistant U.S. Attorneys Lauren Schorr and Hagan Scotten 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 Siemens Chief Financial Officer Pleads Guilty in Manhattan Federal Court to $100 Million Foreign Bribery SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ANDRES TRUPPEL, former chief financial officer for Siemens Argentina, pled guilty today in Manhattan federal court to conspiring to pay $100 million in bribes to senior Argentine government officials to secure, implement, and enforce a $1 billion contract between Siemens and the Argentine government to produce national identity cards. He is the first individual defendant to plead guilty in the massive scheme. TRUPPEL, a citizen of Argentina and Germany, pled guilty to one count of conspiring to violate the Foreign Corrupt Practices Act’s anti-bribery, internal controls, and books and records provisions, and to commit wire fraud, before U.S. District Judge Denise L. Cote.
Manhattan U.S. Attorney Preet Bharara stated: “Andres Truppel has admitted to playing a significant role in the massive Siemens bribery conspiracy that spanned over a decade. To reap the benefits of a billion dollar contract with the Argentinian government, Truppel and his co-conspirators funneled close to $100 million in bribes to government officials, including wiring more than $7 million in bribe money to a bank account in New York, and filed a fraudulent arbitration claim in the United States that included a false witness statement from Truppel. This conduct violated U.S. anti-bribery and fraud laws, and Truppel is the first individual in this criminal scheme to admit his guilt.”
According to the Indictment and statements made at today’s plea hearing:
ANDRES TRUPPEL was employed by Siemens Aktiengeselleschaft (“Siemens AG”) from 1977 until 2004.From approximately 1996 to 2002, TRUPPEL was the chief financial officer for Siemens Argentina, a subsidiary of Siemens AG.
In 1994, the government of Argentina issued a tender for bids to replace an existing system of manually created national identity booklets with state-of-the-art national identity cards (the DNI project). The value of the DNI project was $1 billion. In 1998, the Argentine government awarded the DNI project to a special-purpose subsidiary of Siemens AG.
In connection with this project, TRUPPEL and his co-conspirators caused Siemens to commit to paying nearly $100 million in bribes to sitting officials of the Argentine government, members of the opposition party, and candidates for office who were likely to come to power during the performance of the project. Members of the conspiracy worked to conceal the illicit payments through various means. For instance, they wired more than $7 million in bribes to a bank account in New York disguised as a foreign exchange hedging contract related to the DNI project.
In May 1999, the Argentine government suspended the DNI project, due in part to instability of the local economy and an impending presidential election. When a new government took power in Argentina, and in the hopes of getting the DNI project resumed, members of the conspiracy committed Siemens to paying additional bribes to the incoming officials, and to satisfying existing obligations to officials of the outgoing administration, many of whom remained in influential positions within the government. When the project was terminated in May 2001, members of the conspiracy nevertheless sought to recover the anticipated proceeds of the DNI project by causing Siemens AG to file a fraudulent arbitration claim against the Republic of Argentina in Washington, D.C. The claim alleged wrongful termination of the contract for the DNI project and demanded nearly $500 million in lost profits and expenses. Members of the conspiracy hid from the tribunal the fact that the contract for the DNI project had been secured by means of bribery and corruption by filing a claim and supporting evidence, including a witness statement from TRUPPEL, which contained material misrepresentations and omissions.
Members of the conspiracy also continued the bribe scheme, in part to prevent disclosure of the bribery in the arbitration but also to ensure Siemens’ ability to secure future government contracts in Argentina and elsewhere in the region. In four installments between 2002 and 2007, members of the conspiracy allegedly caused Siemens to pay approximately $28 million in further satisfaction of the obligations. Conspirators continued to conceal these additional payments through various means. For example, TRUPPEL and other members of the conspiracy caused Siemens to transfer approximately $9.5 million through fictitious transactions involving a Siemens business division that had no role in the DNI project. They also caused Siemens to pay an additional $8.8 million in 2007 to settle an arbitration that was brought to enforce a sham consulting contract.Siemens’s corrupt procurement of the DNI project was not exposed during the lifespan of the conspiracy, and, in February 2007, the arbitration tribunal in Washington sided with Siemens AG, awarding the company nearly $220 million on its DNI claims, plus interest. The company, however, never claimed the award money, because after Siemens reached corporate resolutions with the U.S. and German authorities, Siemens AG agreed to forego its right to receive the award.
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TRUPPEL, 60, of Buenos Aires, Argentina, faces a maximum sentence of five years in prison and three years of supervised release. 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.
Charges against the other individuals named in the indictment – Uriel Sharef, Herbert Steffen, Ulrich Bock, Eberhard Reichert, Stephan Signer, Carlos Sergi, and Miguel Czysch – are pending. The charges and allegations against the other individuals named in the Indictment are merely accusations, and these defendants are presumed innocent unless and until proven guilty.
On December 15, 2008, Siemens AG and Siemens Argentina entered guilty pleas to criminal violations of the FCPA. As part of the plea agreement, Siemens AG and Siemens Argentina agreed to pay fines of $448.5 million and $500,000, respectively.
Mr. Bharara praised the Federal Bureau of Investigation’s New York and Washington D.C. Field Offices for their work on the case. He also thanked the Department of Homeland Security for its assistance.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Niketh Velamoor and Assistant Chief Tarek J. Helou of the Criminal Division’s Fraud Section are in charge of the prosecution.
Former Chief Financial Officer of Siemens Argentina Pleads Guilty to Role in Multimillion Dollar Foreign Bribery SchemeRead the Press Release
The former chief financial officer (CFO) of Siemens S.A. – Argentina (Siemens Argentina) pleaded guilty today to conspiring to pay tens of millions of dollars in bribes to Argentine government officials to secure, implement and enforce a $1 billion contract to create national identity cards.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge Paul M. Abbate of the FBI’s Washington, D.C. Field Office made the announcement.
Andres Truppel, 61, of Argentina, pleaded guilty today in the Southern District of New York to conspiring to violate the anti-bribery, internal controls and books and records provisions of the Foreign Corrupt Practices Act (FCPA); and to commit wire fraud.
In 1998, the government of Argentina awarded to a subsidiary of Siemens Aktiengesellschaft (Siemens AG) a contract worth approximately $1 billion to create state-of-the-art national identity cards (the Documento Nacional de Identidad or DNI project). The Argentine government terminated the DNI project in 2001.
In connection with his guilty plea, Truppel admitted that he engaged in a decade-long scheme to pay tens of millions of dollars in bribes to Argentine government officials in connection with the DNI project, which was worth more than $1 billion to Siemens. Truppel admitted that he and his co-conspirators concealed the illicit payments through various means, including using shell companies associated with intermediaries to disguise and launder the funds, and by paying $7.4 million as part of a hedging contract with a foreign currency company incorporated in the Bahamas.
In addition, Truppel admitted that he and his co-conspirators paid nearly $1 million to a former official in Argentina’s Ministry of Justice that was used to bribe an Argentine government official.
Truppel also admitted that he used a $27 million contract between a Siemens entity and a company called MFast Consulting AG that purported to be for consulting services to conceal bribes to Argentine officials.
In 2008, Siemens Aktiengesellschaft (Siemens AG), a German entity, pleaded guilty to violating the books and records provisions of the FCPA; Siemens Argentina pleaded guilty to conspiracy to violate the books and records provisions of the FCPA; and Siemens Bangladesh Limited and Siemens S.A. – Venezuela each pleaded guilty to conspiracy to violate the anti-bribery and books and records provisions of the FCPA. As part of the plea agreements, the Siemens companies paid a total of $450 million in criminal fines. The U.S. Securities and Exchange Commission (SEC) also brought a civil case against Siemens AG alleging that it violated the anti-bribery, books and records and internal controls provisions of the FCPA. In resolving the SEC case, Siemens AG paid $350 million in disgorgement of wrongful profits. The Munich Public Prosecutor’s Office also resolved similar charges with Siemens AG that resulted in a fine of $800 million. In August 2009, following these corporate resolutions with U.S. and German authorities, Siemens AG withdrew its claim to the more than $200 million arbitration award.
The case is being investigated by the FBI’s Washington Field Office. The case is being prosecuted by Assistant Chief Tarek J. Helou of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Niketh Velamoor of the Southern District of New York. The Criminal Division’s Office of International Affairs, the SEC and the Munich Public Prosecutor’s Office also provided significant assistance.
Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Manhattan U.S. Attorney Announces New Civil Rights Charges in Beating Death at Rikers IslandRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today the return of a superseding indictment charging BRIAN COLL, a New York City Correction Officer, with causing the death of Ronald Spear, a pre-trial detainee at Rikers Island. COLL, then a correction officer on Rikers Island, had previously been charged with causing injury to Mr. Spear by repeatedly kicking him in the head while he was fully restrained and lying prone on the floor, in violation of his rights under the United States Constitution. Mr. Spear died shortly after the attack. Today’s Superseding Indictment newly alleges that COLL’s assault of Spear was the proximate cause of Spear’s death, and exposes COLL to a maximum prison term of life. COLL was arrested on a complaint on June 10, 2015, and has been in federal custody since that time.
Manhattan U.S. Attorney Preet Bharara said: “Ronald Spear’s death at Rikers Island in December 2012 was a tragedy that should never have happened. As alleged, his tragic death was the direct result of Correction Officer Brian Coll’s unconstitutional beating. Repeatedly kicking a downed inmate in the head and then picking up and dropping his head on the ground as he lay helpless, as Correction Officer Coll is alleged to have done, had deadly consequences for Ronald Spear.”
According to the Complaint and Superseding Indictment:
Rikers Island is a jail complex, located in the Bronx, New York, maintained by the New York City Department of Correction. At the time of his death, Ronald Spear was a pretrial detainee incarcerated on Rikers Island in the North Infirmary Command, a facility housing detainees who, like Mr. Spear, have serious or chronic medical needs. In the early morning hours of December 19, 2012, Mr. Spear left the housing area in the infirmary unit in an attempt to see the on-duty doctor but was stopped by COLL, who said that the doctor was not available to see him. In an altercation that ensued, COLL punched Mr. Spear several times in the face and stomach, and Mr. Spear was then restrained by two other correction officers, Anthony Torres and Byron Taylor. While Mr. Spear was lying prone on the ground and was still restrained, COLL repeatedly kicked Spear in the head, even after Torres attempted to shield the inmate’s head with his hand and shouted to COLL to stop. After COLL stopped kicking Mr. Spear, COLL lifted Mr. Spear’s head up, told him in substance not to forget who had done this to him, and then dropped Spear’s head to the ground. Mr. Spear was pronounced dead at the scene shortly after the assault.
Spear’s autopsy was conducted at the Bronx Office of the Chief Medical Examiner. As described in today’s Superseding Indictment, the autopsy revealed that Spear had three recent contusions on his skull, including a “brain bleed” caused by blunt force impact to the head, consistent with Spear being kicked in the head while he was lying prone on the ground. The Medical Examiner conducting the autopsy concluded that the cause of death was “hypertensive cardiovascular disease” with “physical altercation including blunt force trauma to head” and diabetes as contributing factors, and ruled the death a homicide. The assault by COLL was therefore, as alleged, a proximate cause of Spear’s death.
COLL, along with another officer involved in the incident, Byron Taylor, is also charged with obstruction of justice related offenses for covering up COLL’s assault, which resulted in the death of Mr. Spear. The third officer, Anthony Torres, previously pled guilty to obstruction of justice charges and is cooperating with the Government.
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BRIAN COLL, 45, of Smithtown, New York, is charged with one count of death resulting from deprivation of rights under color of law, which carries a maximum penalty of life in prison or death, one count of conspiracy to obstruct justice, which carries a maximum penalty of 20 years in prison, one count of obstruction of justice, which carries a maximum penalty of 20 years in prison, one count of filing false forms, which carries a maximum penalty of 20 years in prison, and one count of conspiracy to file false forms, which carries a maximum sentence of five years in prison.
Byron Taylor, 31, of Brentwood, New York, is charged with one count of obstruction of justice by lying to a federal grand jury, which carries a maximum sentence of 20 years in prison, one count of conspiracy to obstruct justice, which carries a maximum sentence of 20 years in prison, one count conspiracy to file false forms, which carries a maximum sentence of five years in prison and three counts of perjury, each of which carries a maximum penalty of five years in prison.
Anthony Torres, 59 of New Rochelle, New York, pled guilty to one count of conspiracy to obstruct justice and file false reports, which carries a maximum penalty of five years in prison, and one count of filing a false report, which carries a maximum sentence of 20 years in prison. Torres is scheduled to be sentenced before Chief U.S. District Judge Loretta A. Preska on December 9, 2015.
The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Criminal Investigators at the United States Attorney’s Office. Mr. Bharara also thanked the New York City Department of Correction, Investigative Division, and the Bronx District Attorney’s Office for their assistance in the investigation, which remains ongoing.
This case is being handled by the Office’s Civil Rights and Public Corruption Units. Assistant U.S. Attorneys Brooke E. Cucinella and Jeannette A. Vargas are in charge of the prosecution.
The charges contained in the Superseding Indictment are merely accusations, and COLL and Taylor are presumed innocent unless and until proven guilty.