Southern District of New York
Press releases recorded for this federal judicial district.
Bronx Sex Trafficker Sentenced in Manhattan Federal Court to 20 Years in PrisonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York announced that IRA RICHARDS, a/k/a “Shyne,” of the Bronx, New York, was sentenced yesterday in Manhattan federal court to 20 years in prison for conspiring to commit sex trafficking of a woman by force, fraud, and coercion (“Victim-1”), and for sex trafficking of a minor female (“Victim-2”). RICHARDS was also ordered to pay a total of $22,500 in restitution: $9,000 to Victim-1, and $13,500 to Victim-2. RICHARDS’ sentence was imposed yesterday by United States District Judge Lewis A. Kaplan. RICHARDS was arrested in October 2013 by the FBI and NYPD, after Victim-1 and Victim-2 reported RICHARDS to law enforcement, and RICHARDS has been in federal custody since his arrest.
Manhattan U.S. Attorney Preet Bharara said: “Ira Richards not only exploited vulnerable victims as part of his sex trafficking crimes, but also demeaned and brutalized them with senseless acts of violence. Now he will be held to account with a lengthy term in federal prison.”
According to the Complaint, the Superseding Indictment, other documents filed in Manhattan federal court, and statements made at various proceedings in this case:
RICHARDS was a violent pimp who exploited Victim-1 and Victim-2 by causing them to engage in prostitution for RICHARDS’ own personal financial gain, RICHARDS demeaned Victim-1 and Victim-2 by commanding them to call him “Daddy” and follow other dehumanizing rules imposed by him, and RICHARDS repeatedly brutalized them with beatings, rape, and other acts of violence for not following his mandates.
Victim-1
In or around 2012, RICHARDS convinced Victim-1, who was then in her mid-twenties, to work for him as a prostitute. RICHARDS recruited Victim-1 by promising to provide a place for Victim-1 to live with her infant, child care for her infant, and other basic necessities.
From at least in or about July through August 2012, RICHARDS managed Victim-1’s prostitution activities along with an uncharged co-conspirator (“CC-1”) who also worked for RICHARDS as a prostitute. RICHARDS and CC-1 caused Victim-1 to engage in prostitution at locations in the New York City area, including at Hunts Point in the Bronx. Almost all of the proceeds earned from Victim-1’s prostitution went to RICHARDS. RICHARDS caused advertisements to be posted on classified websites such as Backpage.com offering Victim-1 for commercial sex under her street nickname. The advertisements typically featured photographs of women (other than Victim-1) wearing little clothing, and a telephone number to call.
RICHARDS imposed a strict code of conduct on Victim-1 requiring that she call him “Daddy,” refrain from acknowledging or even looking at another pimp, and meet earnings quotas he set, among other mandates. RICHARDS punished violations of his code with brutality such as beatings and rape.
For example, on at least three or four occasions in or about July and August 2012, RICHARDS forcibly sodomized Victim-1 for displeasing him.
Similarly, in or about July or August 2012, RICHARDS assaulted Victim-1 for attempting to escape from him. At the time, Victim-1, her infant, and a 19-year-old woman who also worked as a prostitute for RICHARDS, lived in an apartment maintained by RICHARDS. In or about July or August 2012, Victim-1 tried to flee from RICHARDS to a different pimp. Shortly thereafter, RICHARDS found Victim-1 and brought her back to the apartment, where RICHARDS beat Victim-1 in the presence of her infant, among others. During the beating, RICHARDS made Victim-1 strip naked and kneel, and then RICHARDS continually hit Victim-1 in her head and body with an umbrella until the umbrella broke. After the beating, Victim-1 asked RICHARDS to take her to the hospital. RICHARDS refused, and instead forced Victim-1 to engage in prostitution with a swollen eye and other injuries he had caused.
Victim-2
In or about 2010, when Victim-2 was 17 years old, RICHARDS convinced Victim-2 to work for him as a prostitute. At the time, RICHARDS was almost ten years older than Victim-2. While Victim-2 was 17 years old, RICHARDS caused Victim-2 to engage in prostitution at locations in the Bronx and elsewhere in the New York City area. Almost all of the proceeds earned from Victim-2’s prostitution went to RICHARDS.
Victim-2 continued to work as a prostitute for RICHARDS during several periods after she had turned 18. Like Victim-1, Victim-2 was subjected to violence by RICHARDS as punishment for disobedience or for displeasing him. For example, on or about November 4, 2011, when Victim-2 was 18 years old, RICHARDS engaged in an argument with Victim-2 in an apartment in the Bronx where she was living with RICHARDS, after RICHARDS became angry that Victim-2 had made only about $100 from prostitution that day. Victim-2 decided to leave RICHARDS and called her mother to arrange to go live with her mother. After RICHARDS saw that Victim-2 had packed bags to leave, RICHARDS began to choke Victim-2 and dragged her away from the front door to a separate room in the apartment. RICHARDS turned on a stereo to play loud music, tore Victim-2’s clothing from her body, and struck her with a studded belt numerous times about her body and head. Victim-2 begged RICHARDS to stop, but he refused and did not stop beating her until the belt broke. While Victim-2 was still in pain from injuries suffered as a result of this beating, RICHARDS ordered Victim-2 to service prostitution clients. Victim-2 took prostitution clients at the apartment for the next few days because she initially had difficulty walking after the beating.
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Mr. Bharara praised the outstanding investigative work of the FBI and the NYPD in investigating this case.
The prosecution of this case is being overseen by the Office’s General Crimes Unit. Assistant United States Attorneys Samson Enzer and Rebecca Mermelstein are in charge of the prosecution.
Chief Executive Officer of Beauty Products Company Pleads Guilty in Manhattan Federal Court and Chief Financial Officer Arrested in Multimillion-Dollar Accounting Fraud SchemeRead 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 EMANUEL COHEN, the former chief executive officer of a Florida-based company that was a wholesaler and distributor of beauty products (the “Company”), pled guilty yesterday in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn to orchestrating a fraudulent scheme to obtain millions of dollars in loans by making false statements and providing false and fraudulent documents concerning the Company’s financial condition to a commercial bank based in New York (the “Bank”). JAY SOSONKO, the former chief operating officer of the Company, was arrested this morning in Boca Raton, Florida, on a criminal complaint (the “Complaint”) for his role in the scheme. SOSONKO was presented today in federal court in West Palm Beach, Florida.
Manhattan U.S. Attorney Preet Bharara said: “As he has now admitted in court, Emanuel Cohen, the CEO of a cosmetics company, defrauded a bank of nearly $5 million by lying and fabricating key financial documents he needed to get loans. Cohen’s alleged cohort, Jay Sosonko, the CFO of the company, was arrested today and will face criminal charges for his alleged involvement in the scheme. We thank the FBI for their tireless efforts to ensure that those who cheat and exploit financial institutions are held accountable.”
FBI Assistant Director in Charge Diego Rodriguez said: “The plea by Cohen for his role in the scheme and the arrest of Sosonko for his alleged role should serve as a reminder that this type of creative accounting ends with handcuffs. The FBI is committed to working with our partners to investigate and bring to justice those who seek to profit illegally from our financial systems.”
According to the allegations contained in the Information to which COHEN pled guilty, statements made during COHEN’s plea proceeding, and the Complaint against SOSONKO unsealed today[1]:
From 2012 through March 2014, COHEN and SOSONKO engaged in a scheme to fraudulently induce the Bank to lend millions of dollars to the Company. Among other things, COHEN and SOSONKO knowingly made false representations to the Bank, concealed material facts from the Bank, and submitted false and fraudulent documents to the Bank, including fabricated borrowing base certificates. Specifically, COHEN and SOSONKO falsely inflated the Company’s sales and accounts receivable on borrowing base certificates that were provided to the Bank pursuant to loan agreements between the Bank and the Company. COHEN and SOSONKO used those falsely inflated sales and accounts receivable to mislead the Bank about the Company’s true financial performance so that the Company could secure and draw down millions of dollars in loans from the Bank that the Company would not otherwise have been entitled to receive.
The Company ultimately defaulted on its loans from the Bank in about March 2014. At that time, the outstanding balance on the loans was approximately $4.8 million.
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COHEN, 71, of Boca Raton, Florida, pled guilty to one count of conspiracy to commit bank fraud and one count of bank fraud, each of which carries a maximum sentence of 30 years in prison. COHEN is scheduled to be sentenced on November 4, 2015, before U.S. District Judge Lewis A. Kaplan.
SOSONKO, 68, of Boca Raton, Florida, is charged with one count of conspiracy to commit bank fraud, one count of bank fraud, and one count of making a false statement to influence bank action, each of which carries a maximum sentence of 30 years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the FBI.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Edward A. Imperatore is in charge of the prosecution.
The charges contained in the Complaint are merely accusations, and SOSONKO 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.
West Point Cadet Convicted in White Plains Federal Court of Distributing, Receiving, and Possessing Child PornographyRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that RICKY PATRICK HESTER, 25, of Granger, Indiana, was found guilty on both counts of a two-count Indictment that charged him with receipt, distribution, and possession of child pornography. The verdict came following a five-day jury trial in White Plains federal court before U.S. District Judge Vincent L. Briccetti.
U.S. Attorney Preet Bharara said: “Ricky Patrick Hester received, distributed, and saved child pornography. In collecting and sharing these appalling videos, he contributed to the victimization of the most vulnerable members of our society, our children. Thanks to the efforts of the Department of Homeland Security, Hester’s conduct was brought to light and he will now be punished for his serious crimes.”
According to the Indictment and the evidence at trial:
From at least as early as November 2012, HESTER used a Yahoo! email account, a file-sharing account on Dropbox.com, as well as his personal cellphone, to collect and share images of children being forced into sexual activity.
On December 18, 2013, HESTER was interviewed by agents with Homeland Security Investigations (“HSI”) and he admitted that he had used his Yahoo! email account to send child pornography, that his preference was for boys as young as four years old, that he had used Dropbox to trade child pornography with others, and that he stored child pornography on his cellphone.
HESTER’s cellphone, which was seized by HSI on December 18, 2013, during a search warrant of HESTER’s dorm room at West Point, contained approximately 1,200 images and videos of children engaging in sexual activity.
Evidence at trial included approximately 100 emails sent or received by HESTER. In many of these emails, HESTER requested videos and images of “kids being forced to do stuff,” “boys being tied up and peed on,” and “man boy hardcore.” In numerous emails, he indicated a preference for boys aged four to 10 years old.
HESTER entered the United States Military Academy at West Point as a cadet in August 2009. He took a sabbatical from West Point from August 2011 through August 2012. He returned to West Point in the fall of 2012. At the time of his arrest, on December 19, 2013, HESTER was one semester away from graduation.
HESTER faces a maximum sentence of 20 years in prison on each of the two counts in the Indictment and a mandatory minimum term of five years in prison.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
HESTER lived in Granger, Indiana, from his arrest until his conviction today. Judge Briccetti remanded him following his conviction. In remanding the defendant, Judge Briccetti underscored that the videos that HESTER sought out and shared depicted children being tortured.
Mr. Bharara praised the outstanding investigative work of the Department of Homeland Security. He also thanked the Army Criminal Investigation Command for their assistance with the investigation.
This prosecution is being handled by the White Plains Division. Assistant United States Attorneys Lauren Schorr, Marcia S. Cohen, and Daniel Filor are in charge of the prosecution.
Swedish Co-Creator of “Blackshades” Malware That Enabled Users Around the World to Secretly and Remotely Control Victims’ Computers Sentenced to 57 Months in PrisonRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALEX YÜCEL, the owner of an organization known as “Blackshades” that since 2010 sold and distributed to thousands of people in more than 100 countries a sophisticated and pernicious form of malicious software, or “malware,” known as the Blackshades Remote Access Tool, or “RAT,” was sentenced today in Manhattan federal court to 57 months in prison. The sentence was imposed by U.S. District Judge P. Kevin Castel. YÜCEL pled guilty to computer hacking on February 18, 2015.
Manhattan U.S. Attorney Preet Bharara said: “Alex Yucel created, marketed, and sold software that was designed to accomplish just one thing – gain control of a computer, and with it, a victim’s identity and other important information. This malware victimized thousands of people across the globe and invaded their lives. But Yucel’s computer hacking days are now over.”
According to the allegations in documents filed in Manhattan federal court, and statements made at today’s sentencing and other court proceedings:
Beginning in 2010, the “Blackshades” organization, which YÜCEL owned and controlled, sold and distributed malware to thousands of cybercriminals throughout the world. Blackshades’ flagship product was the RAT – a sophisticated piece of malware that enabled cybercriminals secretly and remotely to gain control over a victim’s computer. After installing the RAT on a victim’s computer, a user of the RAT had free rein to, among other things, access and view documents, photographs, and other files on the victim’s computer, record all of the keystrokes entered on the victim’s keyboard, steal the passwords to the victim’s online accounts, and even activate the victim’s web camera to spy on the victim – all of which could be done without the victim’s knowledge. A Blackshades user could also exploit victims’ computers for Distributed Denial of Service (“DDoS”) attacks by commanding Blackshades-infected computers to repeatedly send requests to targeted websites in an effort to disable those websites and deny service from those websites to legitimate visitors.
The RAT was typically advertised on forums for computer hackers and marketed as a product that conveniently combined the features of several different types of hacking tools. Copies of the Blackshades RAT were available for sale, typically for $40 each, on a website maintained by Blackshades. After purchasing a copy of the RAT, a user had to install the RAT on a victim’s computer – i.e., “infect” a victim’s computer. The infection of a victim’s computer could be accomplished in several ways, including by tricking victims into clicking on malicious links or by hiring others to install the RAT on victims’ computers.
The RAT contained tools known as “spreaders” that helped users of the RAT maximize the number of infections. The spreader tools generally worked by using computers that had already been infected to help spread the RAT further to other computers. For instance, to lure additional victims to click on malicious links that would install the RAT on their computers, the RAT allowed cybercriminals to send those malicious links to others via the initial victim’s social media service, making it appear as if the message had come from the initial victim. For example, a RAT user could send an instant message, or IM, to potential victims that appeared to come from the initial victim, inviting them to click on a link that appeared to lead to a legitimate website, but would instead install the RAT on the potential victim’s computer.
YÜCEL co-created the Blackshades RAT with Michael Hogue and operated the Blackshades organization with the help of several employees whom YÜCEL paid to advertise the RAT on various Internet forums and to provide customer support. The RAT was purchased by several thousand users in more than 100 countries and used to infect more than half a million computers worldwide. Blackshades generated sales of more than $350,000 between September 2010 and April 2014.
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YÜCEL, 25, a Swedish national, was arrested in Moldova in November 2013. He was the first defendant ever to be extradited from Moldova to the United States. In addition to the prison term, YÜCEL was sentenced to three years supervised release, and forfeiture of $200,000 and the computer equipment used.
Brendan Johnston, an administrator for the Blackshades organization, pled guilty in November 2014, before U.S. District Judge Jesse M. Furman to conspiracy to commit computer hacking. On June 19, 2015, Johnston was sentenced to one year and one day in prison.
Marlen Rappa, a customer of Blackshades who purchased the RAT and used it to infect victims’ computers, spy on those victims using their web cameras, and steal personal files from their computers, pled guilty in October 2014, before U.S. District Judge Valerie E. Caproni. On April 22, 2015, Rappa was sentenced to one year and one day in prison.
Kyle Fedorek, a customer of Blackshades who purchased the RAT and used it to steal financial and other account information from more than 400 victims, pled guilty in August 2014 before U.S. Magistrate Judge Gabriel W. Gorenstein. On February 19, 2015, Fedorek was sentenced by U.S. District Judge Vernon S. Broderick to two years in prison.
Michael Hogue, the co-creator of the RAT, pled guilty before Judge Castel in January 2013, and is awaiting sentencing.
Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Daniel Noble and Sarah Lai are in charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni is in charge of the forfeiture aspects of the case.
Statements of Head of the Civil Rights Division Vanita Gupta and U.S. Attorney Preet Bharara of the Southern District of New York on the Agreement in Principle Regarding Rikers IslandRead the Press Release
Principal Deputy Assistant Attorney General Vanita Gupta, Head of the Civil Rights Division, issued the following statement today in connection with the agreement in principle in Nunez v. City of New York embodied in the attached letter filed today with the court:
“The Civil Rights Division is committed to transformative reform at Rikers Island. We are deeply encouraged by this agreement in principle. We are also grateful to have worked with the U.S. Attorney’s Office in this landmark civil rights case, a model for corrections reform throughout the country.”
U.S. Attorney Preet Bharara of the Southern District of New York issued the following statement in connection with the agreement in principle among the parties in Nunez v. City of New York:
“I have repeatedly made clear our unwavering commitment to enduring and enforceable reform at Rikers Island. Today, we have reached a groundbreaking agreement in principle with city officials, subject to ultimate approval by the court. This comprehensive framework requires the city to implement sweeping operational changes to fix a broken system and dismantle a decades-long culture of violence. Its ongoing implementation will be overseen by the court and an independent federal monitor. Federal prosecutors will remain vigilant to ensure that the Constitution protects each and every person within the walls of Rikers Island.”
Statements of Manhattan U.S. Attorney Preet Bharara and Head of the Civil Rights Division Vanita Gupta on Agreement in Principle Regarding Rikers IslandRead the Press Release
Manhattan U.S. Attorney Preet Bharara issued the following statement today in connection with the agreement in principle among the parties in Nunez v. City of New York embodied in the attached letter filed today with the court:
“I have repeatedly made clear our unwavering commitment to enduring and enforceable reform at Rikers Island. Today, we have reached a groundbreaking agreement in principle with City officials, subject to ultimate approval by the Court. This comprehensive framework requires the City to implement sweeping operational changes to fix a broken system and dismantle a decades-long culture of violence. Its ongoing implementation will be overseen by the Court and an independent federal monitor. Federal prosecutors will remain vigilant to ensure that the Constitution protects each and every person within the walls of Rikers Island.”
Principal Deputy Assistant Attorney General Vanita Gupta, Head of the Civil Rights Division, issued the following statement today:
“The Civil Rights Division is committed to transformative reform at Rikers Island. We are deeply encouraged by this agreement in principle. We are also grateful to have worked with the U.S. Attorney’s Office on this landmark civil rights case, a model for corrections reform throughout the country.”
Former President of Law Enforcement Labor Union Pleads Guilty in Manhattan Federal Court to Defrauding Union of FundsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Andriana Vamvakas, the New York District Director of the U.S. Department of Labor’s Office of Labor‑Management Standards (“DOL-OLMS”), announced today that JOHN EARVIN, the former president of the United Federation of Law Enforcement Officers (“UFLEO” or the “Union”), pled guilty to an Indictment charging him with wire fraud. The UFLEO represents Special Inspectors employed by the Metropolitan Transportation Authority of New York (“MTA”). EARVIN pled guilty before U.S. District Judge Paul A. Engelmayer.
According to the allegations in the Indictment and statements made in court:
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 pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison. The Indictment also seeks forfeiture of crime proceeds. 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.
EARVIN is scheduled to be sentenced before Judge Engelmayer on October 22 at 10 a.m.
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.
Former Deputy Mayor of the Village of Spring Valley Sentenced to Three Years in Prison for Role in Bribery SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSEPH DESMARET was sentenced yesterday in White Plains federal court to three years in prison for his participation in a scheme in which he accepted over $10,000 in cash bribes in exchange for his votes, as a member of the Spring Valley Board of Trustees, to sell Village land and steer a state-funded transportation contract to a real estate development company. DESMARET was sentenced before U.S. District Judge Kenneth M. Karas, before whom DESMARET pled guilty on January 29, 2014.
Manhattan U.S. Attorney Bharara stated: “Joseph Desmaret’s sentence is a reminder that every politician, no matter how high the office he holds, must act only in the interest of the public he serves.”
According to the Indictment and other documents filed in this case:
DESMARET accepted approximately $10,500 in cash bribes from an undercover FBI agent (“UC”) and a cooperating witness in exchange for his vote in favor of a sale of land owned by Spring Valley to a company he believed was controlled by the UC. In addition, DESMARET agreed to steer to the UC’s company New York State funding for road work associated with the project that he believed the UC’s company was developing.
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In addition to the prison term, DESMARET, 57, formerly of Monsey, New York, was also sentenced to two years of supervised release, and ordered to forfeit $10,500. Noramie Jasmin, DESMARET’s co-defendant and the then-mayor of Spring Valley, New York, was convicted for her role in the bribery scheme in April 2015 and is currently scheduled to be sentenced by Judge Colleen McMahon on August 7, 2015.
Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation and Rockland County District Attorney’s Office.
This case is being handled by the Office’s White Plains Division and Public Corruption Unit. Assistant U.S. Attorneys Douglas B. Bloom and Justin Anderson are in charge of the prosecution.
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Eleven Charged in White Plains Federal Court with Cocaine Trafficking in Orange, Rockland, and Bronx CountiesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, James J. Hunt, Special Agent in Charge, New York Division of the Drug Enforcement Administration (“DEA”), and Joseph A. D’Amico, the Superintendent of the New York State Police (“NYSP”), announced the unsealing yesterday of an indictment and two complaints charging a total of 11 defendants with allegedly engaging in the distribution of cocaine in and around Orange, Rockland, and Bronx Counties, New York. Ten defendants were taken into custody on June 17 and June 18, 2015, and were presented in White Plains federal court on June 18 and June 19, 2015, before U.S. Magistrate Judge Paul E. Davison.
U.S. Attorney Preet Bharara stated: “These arrests strike at the heart of an entrenched group of alleged drug dealers. Their alleged sales of narcotics in public locations affected communities in Orange County and surrounding areas. We thank the Drug Enforcement Administration, the New York State Police, and our many local law enforcement partners for their extraordinary efforts on this case.”
DEA Special Agent in Charge James J. Hunt stated: “Wherever this alleged drug trafficking crew went, drug addiction allegedly followed. By joining forces and using investigative resources, law enforcement has arrested those responsible for selling cocaine throughout Orange County and our neighboring towns.”
NYSP Superintendent Joseph A. D’Amico said: “The partnership between the Drug Enforcement Administration, New York State Police and U.S. Attorney's Office has resulted in the arrests of these allegedly dangerous individuals. For more than a decade, these people allegedly sold large quantities of cocaine in our New York communities – a crime that we won't tolerate. The dedication of these law enforcement agencies and our local partners, the City of Middletown and Town of Warwick Police Departments, resulted in these charges and the seizure of cocaine, crack cocaine, heroin, and cash. I applaud our partners for the hard work that brought this operation, and its supply of drugs, to an end.”
As alleged in the Indictment and the Complaint unsealed today in White Plains federal court[1]:
United States v. Cheyenne Simpson, et al., 15 Cr. 370
Between 2009 and 2015, CHEYENNE SIMPSON, MICHAEL BRANDS, LASHANTA MENDOZA, and EDWIN DELMORAL conspired to sell cocaine in Middletown, Goshen, and elsewhere. During the course of the conspiracy, law enforcement officers observed the defendants selling cocaine to multiple buyers, some of whom were confidential informants working with the police. Law enforcement officers using court-authorized wiretaps also recorded numerous conversations in which the defendants discussed trafficking in cocaine.
Similarly, between 2013 and 2015, EDWIN DELMORAL, PEDRO BARBOSA, JAMES CHRISTIANO, GENNARO COSTAGLIOLA, JASON KEATING, and ROSA BARBOSA conspired to sell cocaine in Middletown and elsewhere. During the course of the conspiracy, law enforcement also observed these defendants selling cocaine to multiple buyers, some of whom were confidential informants working with the police, and used court-authorized wiretaps to record numerous conversations in which these defendants discussed trafficking in cocaine.
United States v. Eliseo Llanos, 15 Mag. 2086
Between 2012 and 2015, ELISEO LLANOS sold over five kilograms of cocaine operating out of Mountaindale, New York. LLANOS sold as much as a quarter kilogram to a single buyer every two to four weeks. Law enforcement officers using court-authorized wiretaps also recorded conversations in which Llanos agreed to supply another cocaine trafficker who supplied street-level cocaine dealers.
United States v. Thomas Garcia, 15 Mag. ___
Since in or about 2001, THOMAS GARCIA sold over five kilograms of cocaine in Bronx and Rockland Counties. On or about June 18, 2015, DEA agents and NYSP investigators seized approximately 1.5 kilograms of cocaine, over one kilogram of heroin, and a loaded firearm from GARCIA’s car and apartment in the Bronx.
The defendants in United States v. Simpson, et al. face maximum terms of life in prison and mandatory minimum terms of 10 years in prison. The defendant in United States v. Llanos also faces a maximum term of life in prison and a mandatory minimum term of 10 years in prison. The defendant in United States v. Garcia faces a maximum term of life in prison and a mandatory minimum term of 15 years in prison.
The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the Court.
A chart containing the names of the defendants who were arrested today, and the charges and maximum penalties they face, is attached.
Mr. Bharara praised the outstanding investigative work of the Drug Enforcement Administration, the New York State Police, the City of Middletown Police Department, the New Jersey State Police, and the Town of Warwick Police Department.
This investigation was conducted by the DEA’s Westchester Task Force, the New York State Police CNET Campbell Hall, and the U.S. Marshals Service. Assistance was provided by Town of Warwick Police Department, the Vernon Police Department, the New Jersey State Police, Sussex County Drug Trask Force, City of Middletown Police Department, Sullivan County District Attorney's Office, and Fallsburgh Police Department. The DEA’s Westchester Resident Office comprises agents and officers of the DEA, Westchester Police Department, New Rochelle Police Department, Yonkers Police Department, Mount Vernon Police Department, White Plains Police Department and Port Chester Police Department..
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorneys Jessica K. Feinstein and Hagan Scotten are in charge of the prosecution.
The charges contained in the Indictment and the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
CHARGE(S)
DEFENDANTS
MAXIMUM PENALTIES
Narcotics conspiracy
(Conspiracy to distribute and possess with intent to distribute five kilograms or more of cocaine.)
CHEYENNE SIMPSON MICHAEL BRANDS
LASHANTA MENDOZA a/k/a “LA,” a/k/a “Lynn,” EDWIN DELMORAL
PEDRO BARBOSA a/k/a “Pete,” a/k/a “P,”
JAMES CHRISTIANO, a/k/a “Jimmy,”
GENNARO COSTAGLIOLA
a/k/a “Gerry,” a/k/a “Big Nose,”
JASON KEATING
ROSA BARBOSA
Life in prison
Mandatory minimum: 10 years in prison
Distribution and possession with intent to distribute over five kilograms of cocaine
ELISEO LLANOS, a/k/a “Eli,”
THOMAS GARCIA, a/k/a “Biggz”
Life in prison
Mandatory minimum: 10 years in prison
Distribution and possession with intent to distribute over one kilogram of heroin
THOMAS GARCIA, a/k/a “Biggz”
Life in prison
Mandatory minimum: 10 years in prison
Possession of a firearm in furtherance of a narcotics trafficking offense
THOMAS GARCIA, a/k/a “Biggz”
Life in prison
Mandatory minimum: five years, to be imposed consecutively to any other sentence
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the Complaints, and the description of the Indictment and the Complaints set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Peekskill Man Charged in White Plains Federal Court with Distribution of Heroin and Fentanyl Causing the Death of an IndividualRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-In-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and George N. Longworth, the Commissioner of the Westchester County Department of Public Safety, on behalf of the Westchester County Northern Narcotics Initiative, announced the filing of a Superseding Indictment charging LAKUAN RHYNE, 23, of Peekskill, New York, with distributing heroin and fentanyl, the use of which caused the overdose death of an individual. The Superseding Indictment also charges RHYNE and 11 other defendants with conspiring to distribute heroin, crack cocaine, and powder cocaine in and around Westchester County from at least 2014 up to and including January 2015.
All of the 12 defendants were charged in the original Indictment, filed in January 2015, and have previously been taken into custody. The Superseding Indictment adds the charge against RHYNE for distributing narcotics that caused the death of an individual. The case is assigned to U.S. District Judge Nelson S. Román.
U.S. Attorney Bharara stated: “Overdose deaths from heroin and fentanyl have become an epidemic in many communities north of New York City. Another young person from one of those communities died, the tragic victim of heroin and fentanyl allegedly peddled by the defendant Lakuan Rhyne. The charge brought against that defendant in the Superseding Indictment serves as a reminder that the sale of such poison cannot be tolerated, and that behind every overdose death, law enforcement is looking for the drug dealer responsible.”
FBI Assistant Director-in-Charge Rodriguez stated: “Drug distribution puts profits above life. In this case, it is alleged Lakuan Rhyne and his associates distributed or conspired to distribute heroin, crack cocaine, and powder cocaine out of cars, residences, and on the streets of Westchester County, New York. It is also alleged that Ryne’s distribution of heroin laced with fentanyl led to the death of Thomas Coogan. Although we cannot always protect people from themselves, we can hold people accountable for their actions. We will continue to work with our partners to investigate these offenses in order to protect our communities.”
Commissioner Longworth stated: “The Westchester County Department of Public Safety remains committed to working with federal and local law enforcement to combat the distribution and sale of heroin in our county. I am grateful to the FBI Violent Crimes Task Force and the U.S. Attorney’s Office for the valuable partnership they have forged with Westchester’s law enforcement community.”
According to the allegations in the Superseding Indictment and other information in the public record[1]:
The defendants were members of drug trafficking conspiracies operating in the area of Westchester County, New York. LAKUAN RHYNE, a/k/a “Rico,” was a leader of the drug distribution rings. From at least early 2014 through January 2015, RHYNE and his associates conspired to distribute significant quantities of heroin, crack cocaine, and powder cocaine in and around Westchester County. RHYNE and his associates sold their drugs out of cars, residences, and on the streets. At least some of the heroin distributed by RHYNE was laced with fentanyl, a synthetic opioid that is significantly stronger than both ordinary heroin and morphine.
On January 26, 2014, RHYNE sold some of his fentanyl-laced heroin to Thomas Coogan, a 23-year-old resident of Buchanan, New York. Later that day, after using the heroin supplied by RHYNE, Coogan died. The Westchester County Medical Examiner’s report indicates that Coogan died of “acute mixed drug intoxication (heroin, fentanyl, and alprazolam).” If convicted of the offense of distributing narcotics the use of which resulted in Coogan’s death, as charged in Count Four of the Superseding Indictment, RHYNE faces a mandatory minimum sentence of 20 years in prison, and a maximum sentence of life in prison.
The four-count Superseding Indictment also charges RHYNE and varying combinations of his associates with conspiring to distribute and possess with intent to distribute (i) one kilogram or more of heroin, in violation of Title 21, United States Code, Sections 846, 841(a)(1), and 841(b)(1)(A) (Count One); (ii) 280 grams or more of crack cocaine, in violation of Title 21, United States Code, Sections 846, 841(a)(1), and 841(b)(1)(A) (Count Two); and (iii) 500 grams or more of cocaine, in violation of Title 21, United States Code, Sections 846, 841(a)(1), and 841(b)(1)(B) (Count Three).
Charts containing the names, ages, residences, charges, and maximum penalties for the defendants are set forth below. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
* * *
Mr. Bharara praised the outstanding investigative work of the FBI, the Westchester County Northern Narcotics Initiative, which comprises officers of the Westchester County Department of Public Safety and the police departments of Peekskill, Croton-on-Hudson, Buchanan, Bedford, Yorktown, Mount Kisco, and Ossining, New York, as well as the FBI Violent Crimes Task Force. He also thanked the Westchester County District Attorney’s Office for its participation.
The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorney George Turner is in charge of the prosecution.
The charges contained in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
15-150 ###
CHARGE
DEFENDANTS
MAXIMUM PENALTIES
Count One
Narcotics conspiracy – Heroin
(Conspiracy to distribute and possess with intent to distribute 1 kilogram or more of heroin, in violation of 21 U.S.C. §§ 846, 841(a)(1) & 841(b)(1)(A))
LAKUAN RHYNE
a/k/a “Rico”
JESSE DABBS
DAIVON PRYOR
JONATHAN THORNTON a/k/a “Staxx”
JOHNSON VANIYAPURAKAL
Life in prison
Mandatory minimum: 10 years in prison
Count Two
Narcotics conspiracy – Crack
(Conspiracy to distribute and possess with intent to distribute 280 grams or more of crack cocaine, in violation of 21 U.S.C. §§ 846, 841(a)(1) & 841(b)(1)(A))
LAKUAN RHYNE
a/k/a “Rico”
JESSE DABBS
MICHAEL DOUSE
MICHAEL GRAY
KEVIN HERBIN
ROBERT MILLER
DWAYNE MOUNTAIN
JONATHAN THORNTON
a/k/a “Staxx”
Life in prison
Mandatory minimum: 10 years in prison
Count Three
Narcotics conspiracy – Cocaine
(Conspiracy to distribute and possess with intent to distribute 500 grams or more of cocaine, in violation of 21 U.S.C. §§ 846, 841(a)(1) & 841(b)(1)(B))
LAKUAN RHYNE
a/k/a “Rico”
JESSE DABBS
CURTIS DIMMIE
MICHAEL DOUSE
MICHAEL GRAY
MICHAEL HARRINGTON
ROBERT MILLER
JONATHAN THORNTON
a/k/a “Staxx”
JOHNSON VANIYAPURAKAL
40 yrs. in prison
Mandatory minimum: five years in prison
Count Four
Narcotics distribution resulting in death
(21 U.S.C. §§ 841(a)(1) & 841(b)(1)(C))
LAKUAN RHYNE
a/k/a “Rico”
Life in prison
Mandatory minimum: 20 years in prison
Defendant
Age
Residence
LAKUAN RHYNE
23
Peekskill, NY
JESSE DABBS
24
Peekskill, NY
CURTIS DIMMIE
47
Mohegan Lake, NY
MICHAEL DOUSE
39
Flushing, NY
MICHAEL GRAY
48
Ossining, NY
MICHAEL HARRINGTON
36
Mahopac, NY
KEVIN HERBIN
24
Cortlandt Manor, NY
ROBERT MILLER
36
Cortlandt Manor, NY
DWAYNE MOUNTAIN
28
Putnam Valley, NY
DAIVON PRYOR
20
Poughkeepsie, NY
JONATHAN THORNTON
29
Peekskill, NY
JOHNSON VANIYAPURAKAL
26
Mahopac, NY
[1] As the introductory phrase signifies, the entirety of the text of the Superseding Indictment and the description of the Superseding Indictment set forth herein constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Announces Return to Brazil of Two Masterpieces Linked to Bank FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Deputy Special Agent in Charge Michael Shea of U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations New England, announced today that a painting by Jean-Michel Basquiat called “Hannibal” (the “Basquiat”), as well as a Roman Togatus statue, were returned to Brazil at a repatriation ceremony at the United States Attorney’s Office in Manhattan, New York. The painting and the statue were smuggled into the United States in violation of customs law and were forfeited to the government as a result of civil forfeiture action brought by the United States.
Manhattan U.S. Attorney Preet Bharara stated: “Art and antiquities have special value and meaning that cannot readily be quantified. As a result, they have long been the subject of theft and deception, as well as a means to launder illicit proceeds. Art should serve to inspire the mind and nourish the soul, and not be allowed to become a conduit for crime.”
HSI Deputy Special Agent in Charge Michael Shea stated: "It is always a pleasure to return cultural artifacts to the people of another nation. I would like to thank our special agents and partners at INTERPOL for their diligence in this investigation. ICE will do everything in its power to help preserve and safeguard a nation's history by identifying, locating, and recovering stolen antiquities."
In related repatriation ceremonies held on September 21, 2010, and May 9, 2014, the U.S. Attorney’s Office for the Southern District of New York returned to Brazil three paintings – “Modern Painting with Yellow Interweave” by Roy Lichtenstein (the “Lichtenstein”), “Figures dans une structure” by Joaquin Torres-Garcia (the “Torres-Garcia”), and “Composition abstraite” by Serge Poliakoff (the “Poliakoff”) – that were smuggled into the United States.
The Basquiat and the Togatus once belonged to Brazilian banker Edemar Cid Ferreira. Ferreira, the founder and former president of Banco Santos, S.A. (“Banco Santos”), was convicted in Brazil of crimes against the national financial system and money laundering. In December 2006, Ferreira was sentenced in Brazil to 21 years in prison.
As part of the case, a Sao Paulo Court judge also ordered the search, seizure, and confiscation of assets that Ferreira, his associates, and members of his family had acquired with unlawfully obtained funds from Banco Santos. Those assets included the Basquiat, the Togatus, the Lichtenstein, the Torres-Garcia, the Poliakoff, and other artwork valued at $20 million to $30 million. The artwork was kept in several locations, including Ferreira’s home in the Morumbi neighborhood of Sao Paulo, the main offices of Banco Santos, and at a holding facility. When Brazilian authorities searched these locations, they found that several of the most valuable works of art were missing, including the Basquiat and the Togatus.
The Sao Paulo Court sought INTERPOL’s assistance after searching museums and institutions in Brazil for the missing artwork. In October and November 2007, INTERPOL and the Government of Brazil sought the assistance of the United States to locate and seize the missing works on behalf of the Brazilian government. The ensuing Southern District of New York and HSI investigation revealed that the Basquiat and the Togatus were shipped from the Netherlands to a secure storage facility in New York on August 21, 2007, and September 11, 2007, respectively. The invoices, however, failed to comply with U.S. customs laws in a number of respects. For example, the shipping invoices did not identify the pieces and falsely claimed that their value was $100 each. In fact, the Basquiat alone was recently appraised at $8 million.
HSI special agents based in New Haven, Connecticut, located and seized the Basquiat in November 2007, and the U.S. Attorney’s Office for the Southern District of New York filed a civil forfeiture Complaint alleging that the Basquiat had been brought into the United States illegally. Since the filing of the original Complaint in February 2008, the United States seized additional works of art and filed two amended Complaints seeking the forfeiture of the Lichtenstein, the Torres-Garcia, the Poliakoff, and the Togatus.
After extensive litigation, United States District Court Judge Richard J. Sullivan granted the government’s motion for summary judgment and entered an order forfeiting the Basquiat and the Togatus on May 10, 2013. The Second Circuit Court of Appeals affirmed Judge Sullivan’s order on September 9, 2014.
* * *
Mr. Bharara praised the investigative work of HSI in helping to locate and seize the painting. He was grateful for the assistance of the Department of Justice’s Office of International Affairs. Mr. Bharara thanked Brazilian authorities for their assistance in the case. He also acknowledged the assistance of the U.S. Department of State and the U.S. Embassy in Brazil for its assistance in the investigation.
The case is being handled by the Money Laundering and Asset Forfeiture Unit of the U.S. Attorney’s Office. Assistant U.S. Attorney Alexander Wilson is in charge of the litigation.
Man Pleads Guilty in Manhattan Federal Court in Connection with Veteran’s Day Armed Robbery of Diamond District StoreRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that LEON FENNER pled guilty yesterday to the armed robbery of a store in the Diamond District of Manhattan on November 11, 2014. FENNER pled guilty before United States District Judge William H. Pauley III.
According to the allegations contained in court documents previously filed in federal court, and statements made in Court during the plea of FENNER:
On November 11, 2014, FENNER carried out an armed commercial robbery of a jewelry store (the “Store”) on the 8th floor of a building on 47th Street in the Diamond District of Manhattan. The Store is not open to the public but is a space where clients can view and purchase jewelry. At the time of the robbery, the owner of the store (the “Owner”) and three other individuals were present inside the Store. At approximately 2:20 in the afternoon – in broad daylight as the Veteran’s Day Parade proceeded nearby – LEON FENNER, the defendant, dressed in a suit, carrying a bag, and appearing to be a messenger, came to the door of the Store. After entering, FENNER first said that he was there to serve the Owner of the Store with papers, and took two envelopes out of his bag before placing them on a desk. FENNER then took out a weapon that appeared to be a gun and pointed it at the Owner and the others present and demanded that they give him all the jewelry in the Store. As the robbery was occurring, a relative of the Owner arrived and was let into the Store. FENNER hit the Owner’s relative, using the weapon, as he entered the Store. The Owner and the others present in the Store emptied more than $600,000 worth of jewelry from a safe and other locations and placed it into FENNER’s bag, before he left the scene.
FENNER was identified based on fingerprint analysis of the envelopes left in the store and surveillance images.
FENNER, 58, of New York, New York, pled guilty to one count of Hobbs Act robbery, which carries a maximum sentence of 20 years in prison. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.
FENNER is scheduled to be sentenced October 16, 2015, before Judge Pauley.
Mr. Bharara praised the investigative work of the New York City Police Department (“NYPD”) and the Joint Robbery Task Force, consisting of members of the NYPD, Bureau of Alcohol, Tobacco, Firearms and Explosives, and the United States Marshals Service.
This case is being handled by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Russell Capone and Gina Castellano are in charge of the prosecution.
Former Rikers Island Correction Officer Sentenced to Five Years in Prison for Deliberately Ignoring Urgent Medical Needs of Inmate Who DiedRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that TERRENCE PENDERGRASS, a former correction officer and captain, was sentenced today in federal court to five years in prison for deliberately ignoring the urgent medical needs of a Rikers Island inmate who had ingested a corrosive disinfectant and later died, in violation of the inmate’s rights under the United States Constitution. The sentence was imposed by U.S. District Judge Ronnie Abrams. PENDERGRASS was convicted of one count of deprivation of rights under color of law in Manhattan federal court on December 17, 2014, after a one-week trial.
U.S. Attorney Bharara said: “Even as we seek to reform and transform Rikers Island –and ensure an environment that protects the constitutional rights of its inmates – it is important that individuals who cruelly trample on those rights be held responsible. Terrence Pendergrass was the Captain on duty, responsible for the well-being of the inmates under his charge, but he stood deaf to Jason Echevarria’s pleas for help as he was succumbing to a toxic chemical, unwilling to help or let others help Echevarria, who died painfully, alone in his cell. Today’s sentence is an important step in our sustained efforts to change the culture on Rikers Island. The sentence is an appropriate punishment for Pendergrass’s crime. Pendergrass now himself will be an inmate and will expect, and be entitled to, better treatment than what he gave Mr. Echevarria.”
According to the Complaint, Indictment, evidence presented at trial, and information presented in connection with sentencing:
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, Jason Echevarria was an inmate incarcerated on Rikers Island in the Mental Health Assessment Unit for Infracted Inmates (known as “MHAUII”), a unit housing inmates who had committed infractions while incarcerated and who were identified as needing mental health treatment.
On the afternoon of August 18, 2012, Echevarria swallowed a powerful disinfectant/detergent combination in powder form, commonly referred to as a “soap ball,” used to clean and disinfect cells. Echevarria had been given the soap ball by a new correction officer for the purpose of cleaning Echevarria’s cell following a sewage backup. The soap ball contained, among other things, ammonium chloride, a corrosive chemical that is life-threatening if ingested.
After Echevarria swallowed the soap ball, he began banging on his cell door and asking for help. Echevarria also told a correction officer that he had swallowed a soap ball and needed help. That correction officer in turn informed PENDERGRASS, the captain on duty at that time. As the captain on duty, PENDERGRASS was responsible for arranging for medical treatment for the inmates in his unit. Rather than arrange for that care, however, PENDERGRASS responded that the correction officer should only call on PENDERGRASS if he needed help with the extraction of an inmate from a cell or if there was a dead body. A short time later, the same correction officer told PENDERGRASS that he saw vomit in Echevarria’s cell, and PENDERGRASS responded that Echevarria should be told to “hold it.” Soon after, another correction officer told PENDERGRASS that Echevarria had swallowed a soap ball and that a pharmacy technician had told that officer that Echevarria needed a doctor. Despite what he had been told, and despite going to Echevarria’s cell himself after Echevarria had vomited, PENDERGRASS did not call for medical help. He also ordered an officer who was trying to call for help to hang up the phone.
* * *
PENDERGRASS, 51, of Howard Beach, New York, was convicted after trial of one count of deprivation of rights under color of law. In addition to his prison term, PENDERGRASS was sentenced to one year supervised release, and fined $5,000. He was ordered to surrender by August 18, 2015.
United States Attorney Bharara praised the work of the Federal Bureau of Investigation, and expressed his appreciation for the assistance of the New York City Department of Correction, Investigation Division, the Bronx County District Attorney’s Office, and the New York City Department of Investigation in the investigation of this matter.
This case is being prosecuted jointly by the Office’s Civil Rights Unit and Public Corruption Unit. Assistant U.S. Attorneys Lara K. Eshkenazi and Daniel C. Richenthal are in charge of the prosecution.
United States Returns Stolen Antique Books to the National Library of SwedenRead the Press Release
Richard Zabel, the Deputy 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 return of two antique books that were stolen from the National Library of Sweden in the 1990s.
Deputy U.S. Attorney Richard Zabel said: “For hundreds of years, the National Library of Sweden’s collection of books, maps, and manuscripts was treasured by the kings and queens of Sweden. In many ways, the Library contains the cultural memory of Sweden. The theft of pieces of a nation’s memory and heritage creates holes in its intellectual soul. There is no repair for such holes without the recovery of what was taken. I’m proud that this Office has been at the forefront of recovering what has been taken from many different nations’ cultural histories, including Sweden today.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “We are honored to be part of reparation ceremonies, like the one we are holding here today, because we are able to return a piece of missing history to a country. The books returned today are a significant part of Sweden’s history. The FBI will continue to work with our law enforcement partners to investigate and hopefully return stolen artifacts and cultural items to their home countries.”
The two books being returned are part of a group of at least 56 rare or one-of-a-kind books that were stolen from the National Library of Sweden’s collection by Anders Burius (“Burius”), a former employee of the Library, between 1995 and 2004. After stealing the books, Burius consigned or sold the books to Ketterer Kunst (“Ketterer”), an auction house in Germany. In 2004, Burius confessed to the book thefts and admitted to Swedish law enforcement officials that he had sold and/or consigned the books to Ketterer under the alias “Carl/Karl Fields.” Shortly after confessing to the thefts, Burius committed suicide. Swedish authorities subsequently received information that 13 of the stolen books had been sold by Ketterer to individuals and/or entities in the United States.
The books being returned today are a Christopher Scheiner book entitled “Oculus, hoc est: fundamentum opticum, in quo ex accurate oculi anatome, abstrusarum experientiarum sedula pervestigatione,” printed in 1619 by Danielem Agricolam Oeniponti (the “Scheiner book”), and a Nicolo Sabbattini book entitled “Practica di fabricar scene, e machine ne’teatri. Ristampata di nouo coll’ Aggiunta del secondo libro,” printed in 1638 by Battista Giouannelli Pietro de’Paoli e Gio (the “Sabbatini book”). The Scheiner book, which is a famous work in the history of optics, was purchased on May 28, 1999, by bookseller Jonathan A. Hill, who had no knowledge of the book’s theft. Mr. Hill subsequently sold the Scheiner book to Cornell University, which also had no knowledge of the book’s theft, and which, after being contacted by the FBI about the theft, voluntarily agreed to return the book to the Library. The Sabbatini book, an important work concerning stagecraft and theater machinery, was purchased on November 19, 2001, by Richard Lan, a gallery owner in New York. Lan had no knowledge of the Sabbatini book’s theft and, after being contacted by the FBI about the theft, voluntarily agreed to return the book to the Library.
The United States Attorney’s Office for the Southern District of New York entered into stipulations with Cornell University and the gallery owner, in which both Cornell University and Lan consented to tender their respective books to the FBI, to allow for the return of these books to the National Library of Sweden. The stipulations were so ordered by the United States District Court on June 1, 2015. The Scheiner book and the Sabbatini book were returned to representatives of the National Library of Sweden earlier today at a repatriation ceremony held at the United States Attorney’s Office in New York.
A list of missing books stolen from the National Library of Sweden between 1995 and 2004 can be found here.
Mr. Zabel praised the investigative work of the FBI in this matter, and its ongoing efforts to find and repatriate stolen property.
This matter is being handled by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant U.S. Attorneys Christine I. Magdo and Sarah E. Paul are in charge of the case.
Manhattan U.S. Attorney Settles Civil Fraud Claims Against Inspire Pharmaceuticals, Inc. for Its Misleading Marketing Designed to Cause Prescriptions of Azasite for Non-Fda Approved UsesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, announced today that the United States has settled civil fraud claims under the False Claims Act and common law against INSPIRE PHARMACEUTICALS, INC. (“INSPIRE”). According to the allegations of the complaint, although the Food and Drug Administration (“FDA”) had approved AzaSite only for the treatment of bacterial conjunctivitis, a bacterial infection of the eye more commonly known as pink eye, INSPIRE sought to generate more revenue by aggressively marketing the drug for the non-FDA-approved treatment of blepharitis, a different eye condition involving inflammation of the eyelids. The complaint alleges that INSPIRE’s marketing efforts from 2008 through May of 2011 misleadingly focused on purported anti-inflammatory properties of AzaSite that were unsupported by substantial evidence or substantial clinical experience in order to cause doctors to prescribe AzaSite for uses not covered by federal healthcare programs, which resulted in federal healthcare programs paying millions of dollars in false claims. In connection with the settlement, which was approved by U.S. District Judge Loretta A. Preska on June 15, 2015, INSPIRE agreed to pay the United States and state governments $5,960,163.28, and made admissions as to its conduct.
Manhattan U.S. Attorney Preet Bharara said: “As demonstrated by today’s settlement, we are committed to ensuring that drug companies do not undermine the FDA’s approval process by deliberately marketing drugs for uses that are unsupported by substantial evidence or clinical experience, while profiting at taxpayers’ expense.”
HHS-OIG Special Agent in Charge Scott J. Lampert said: “Marketing pharmaceuticals for other than FDA approved uses by making misleading statements can expose patients to questionable drug treatments while asking taxpayers to pick up the Medicare bill. Investigations of such misconduct will continue to be a priority for this office.”
According to the complaint-in-intervention filed in Manhattan federal court:
On April 27, 2007, the FDA approved AzaSite to treat pink eye. The FDA never approved AzaSite as safe and effective to treat blepharitis. INSPIRE initially based its advertising on treating children for pink eye by prominently displaying a child in its advertisements and emphasizing the ease of administering AzaSite with only nine drops. INSPIRE also marketed its product to pediatricians and primary care physicians likely to treat pink eye. By the beginning of 2008, INSPIRE began a promotional effort to encourage physicians to prescribe AzaSite to treat blepharitis, a condition characterized by inflammation of the eyelids, even though the FDA had not approved AzaSite to treat blepharitis. INSPIRE changed its marketing strategy by highlighting the purported anti-inflammatory characteristics of AzaSite, not including a child in its advertisements, and substantially reducing its marketing toward pediatricians and primary care physicians while instead targeting doctors likely to treat blepharitis. The FDA sent a letter to INSPIRE dated April 14, 2011, informing the company that its then-prominent advertisement improperly suggested that AzaSite had anti-inflammatory effects, even though this had not been demonstrated by substantial evidence or substantial clinical experience. FDA advised INSPIRE that its advertisement was “false or misleading because it broadens the indication, makes unsubstantiated claims, and omits and minimizes important risks associated with the use of AzaSite.”
The Government further alleged that INSPIRE trained its sales force on the purported anti-inflammatory effects of AzaSite, and advised its sales force that every call needed to emphasize, among other things, the purported anti-inflammatory properties of AzaSite. INSPIRE gave its sales force marketing material targeting blepharitis, and had a nationwide speaker program geared toward promoting AzaSite to treat blepharitis. INSPIRE did this to drive prescriptions for the non-FDA approved treatment of blepharitis.
As part of today’s settlement, INSPIRE admitted that starting in January 2008, INSPIRE commenced an advertising campaign designed to broaden the customer base for AzaSite by focusing on, among other things, AzaSite’s claimed anti-inflammatory effects, which were not approved by the FDA, and were not demonstrated by substantial evidence or substantial clinical experience. INSPIRE further admitted that AzaSite was prescribed for blepharitis, and that claims to treat blepharitis were submitted to federal healthcare programs for payment.
The case was initially brought by a whistleblower under the False Claims Act, and the Government intervened in the case. The Government alleged in its Complaint-In-Intervention that Inspire’s marketing of AzaSite for the treatment of blepharitis, a use not approved by the FDA or covered by federal healthcare programs, resulted in the submission of false claims to federal healthcare programs in violation of the False Claims Act.
* * *
Mr. Bharara praised the investigative work of HHS-OIG.
The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorney Lawrence H. Fogelman is in charge of the case.
Eleven Defendants Charged in Manhattan Federal Court with Selling Crack Cocaine and Heroin in the BronxRead 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”), and William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), today announced the unsealing of five Indictments charging a total of 11 defendants with allegedly engaging in the distribution of crack cocaine and heroin in the vicinity of the Forest Houses housing project in the 42nd Precinct, in the Bronx, New York. Seven defendants were taken into custody today and an eighth defendant is currently in state custody on another charge. The seven defendants who were arrested today will be presented and arraigned before U.S. Magistrate Judge Gabriel W. Gorenstein later today. Four defendants remain at large.
Manhattan U.S. Attorney Preet Bharara said: “Crack cocaine and heroin wreak devastation in the community. The hardworking people living in and around the Forest Houses deserve better – they deserve a safe environment to call home. Investigating and prosecuting the kind of drug trafficking conduct alleged of these defendants is a significant step toward protecting Forest Houses residents and achieving that goal.”
DEA Special Agent in Charge James J. Hunt stated, “For two years, a multi-agency operation targeted those responsible for littering the Forest Housing Development and surrounding areas with drugs. This operation was focused not only on making these arrests and dismantling a drug trafficking ring, but it was focused on reclaiming this neighborhood for the hard working residents who are exposed to drug trafficking and the perils associated.”
Police Commissioner William J. Bratton said: “The NYPD remains committed to protecting the residents of public housing as demonstrated by these arrests and indictments. I would like to thank the investigators of Narcotic Borough Bronx, the U.S. Attorney’s Office, Southern District and our law enforcement partners for their efforts to stop the sale of illegal narcotics in the Forrest Houses and to improve the quality of life of the families who live there.”
As alleged in the Indictments unsealed today in Manhattan federal court[1]:
[1] As the introductory phrase signifies, the entirety of the text of the Indictments and the description of the Indictments set forth herein constitute only allegations, and every fact described should be treated as an allegation.
United States v. Antwoine Williams, et al., 15 Cr. 356 (PAC)
Between July 2013 and September 2014, ANTWOINE WILLIAMS, ELVIS ARIAS, GEORGE MONSANTO, JESUS BENEDITH, MICHAEL CABAN, and THEODORE WILLIAMS conspired to sell crack cocaine in the vicinity of the Forest Houses in the Bronx. During the course of the conspiracy, the defendants sold crack cocaine to undercover law enforcement officers on numerous occasions. Certain defendants also sold crack cocaine to the undercover officers on behalf of their co-conspirators or worked together to complete the sales to the undercover officers.
United States v. James Jacobs and Moses Bermudez, 15 Cr. 357 (JSR)
Similarly, between July 2013 and September 2014, JAMES JACOBS and MOSES BERMUDEZ conspired to sell heroin in the vicinity of the Forest Houses in the Bronx. During the course of the conspiracy, the defendants sold heroin to undercover law enforcement officers on numerous occasions.
United States v. Percy Kearney, 15 Cr. 352 (RA)
United States v. Raheem Barber, 15 Cr. 353 (KBF)
United States v. Steven Jude, 15 Cr. 355 (JFK)
Between July 2013 and September 2014, each of the defendants charged in these three indictments sold crack cocaine to undercover officers in the vicinity of the Forest Houses in the Bronx. Each defendant sold crack cocaine to undercover officers on multiple occasions.
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The defendants in United States v. Williams, et al. face maximum terms of life in prison and mandatory minimum terms of 10 years in prison. The defendants in United States v. Jacobs and Bermudez face maximum terms of 40 years in prison and mandatory minimum terms of five years in prison. KEARNEY, BARBER, and JUDE each face a maximum term of 20 years in prison.
The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the Court.
A chart containing the names, ages, narcotics type, and residence information of the defendants who were arrested today is attached.
Mr. Bharara praised the outstanding investigative work of the DEA and the NYPD, and also thanked the Department of Homeland Security, Homeland Security Investigations, and the NYC Department of Investigation's Office of the Inspector General for NYCHA for their assistance.
These cases are being handled by the Office’s Violence and Organized Crime Unit. Assistant United States Attorneys Jessica Lonergan and Jessica Fender are in charge of the prosecutions.
The charges contained in the Indictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
United States v. Antwoine Williams, et al.
NAME
AGE
NARCOTIC
RESIDENCE
Antwoine Williams, a/k/a “Ace”
27
Crack Cocaine
Bronx
Elvis Arias, a/k/a “J,” a/k/a “Ex”
25
Crack Cocaine
Bronx
Jesus Benedith, a/k/a “Shorty,” a/k/a “Mike”
21
Crack Cocaine
Bronx
Michael Caban, a/k/a “Baretta”
27
Crack Cocaine
Bronx
United States v. James Jacobs and Moses Bermudez
NAME
AGE
NARCOTIC
RESIDENCE
Moses Bermudez, a/k/a “Moreno”
52
Heroin
Bronx
United States v. Percy Kearney
United States v. Raheem Barber
United States v. Steven Jude
NAME
AGE
NARCOTIC
RESIDENCE
Percy Kearney, a/k/a “Boogie”
32
Crack Cocaine
Bronx
Raheem Barber, a/k/a “Grey”
38
Crack Cocaine
Bronx
Steven Jude, a/k/a “Paunch”
45
Crack Cocaine
Bronx
Company Executive and Consultant Charged in Manhattan Federal Court for Scheme to Embezzle Millions from International Insurance CompanyRead 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”), unsealed today charges against JAMES J. SHEA and EUGENE FALLON on wire fraud charges stemming from a scheme to embezzle approximately $2.6 million from a large international insurance company where both worked. In perpetrating the scheme, SHEA, an executive at the company, forged the signature of his supervisor to authorize numerous payments to bogus consulting companies that FALLON controlled. FALLON then returned more than two-thirds of the proceeds of the fraud to SHEA, who used the money to purchase a multi-million dollar house and luxury automobiles. SHEA was arrested this morning and is expected to be presented today before United States Magistrate Judge Gabriel Gorenstein. FALLON remains at large.
U.S. Attorney Preet Bharara said: “Together, James Shea and Eugene Fallon allegedly developed a scheme to defraud the company for which Shea worked, and Fallon consulted. Both allegedly exploited their positions and their relationship for pecuniary gain, netting some $2.6 million in the process. Such alleged illegal siphoning of a company’s money has no place in any industry, and our office is committed to holding these individuals accountable for their alleged actions.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “As alleged, Shea and Fallon conspired to created fake contracts for payouts from a legitimate company and split the proceeds. Today, they face charges for their alleged fraudulent activities. The FBI will continue to work with our law enforcement partners to investigate and bring to justice those who seek to profit from deceptive actions.”
According to the Complaint unsealed today in Manhattan federal court[1]:
From January 2012 through December 2013, SHEA and FALLON engaged in a scheme to embezzle approximately $2.6 million from SHEA’s employer, the North American subsidiary of an international insurance company (“Company-1”). SHEA, who rose to the title of Executive Vice President at Company-1, was responsible for the integration of the information technology systems of subsidiaries of Company-1. In that capacity, SHEA oversaw the use of third-party consultants, one of whom was FALLON beginning in or about 2010. According to Company-1’s policies and practices, the CFO of Company-1 could personally authorize and approve any third-party vendor contracts up to $1.5 million.
In 2012, SHEA forged the signature of Company-1’s CFO on contracts between Company-1 and two purported consulting companies controlled by FALLON (the “Consulting Companies”). According to the contracts that outlined the sham engagement between Company-1 and the Consulting Companies, the Consulting Companies were primarily tasked with providing Company-1 with assistance in integrating the technology systems of Company-1. For a total of 17 months of work, the agreements required Company-1 to pay the Consulting Companies more than $2.6 million. In fact, the Consulting Companies did no work for Company-1.
Beginning in August 2012, and continuing through February 2013, FALLON submitted fraudulent invoices on behalf of the Consulting Companies to Company-1 for consulting work that was not performed. On behalf of Company-1, SHEA then authorized payment for the invoices in the amount of approximately $2.6 million to bank accounts that were controlled by FALLON. Of the approximately $2.6 million that SHEA and FALLON embezzled, more than $1.8 million was routed back to SHEA, while FALLON kept the remainder. SHEA used the majority of his fraudulent proceeds to purchase a multi-million dollar house and two luxury cars.
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SHEA, 49, of Paramus, New Jersey, and FALLON, 51, of Nanuet, New York, are both charged with one count of conspiracy to commit wire fraud and one count of wire fraud. Both counts carry a maximum sentence of 20 years in prison, and a maximum fine of $250,000, or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the work of the Federal Bureau of Investigation.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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 the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Daniel S. Goldman and Michael Ferrara are in charge of the prosecution, and Edward Diskant is in charge of the forfeiture aspects of the case.
The 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.
Manhattan U.S. Attorney and FBI Announce Charges Against Three Correction Officers in Beating Death of Inmate at Rikers IslandRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of criminal charges against three New York City Correction Officers in the death of Ronald Spear, a pre-trial detainee at Rikers Island. BRIAN COLL, then a correction officer on Rikers Island, was charged with repeatedly kicking Mr. Spear in the head while he was fully restrained and lying prone on the floor, in violation of his rights under the United States Constitution. The two other officers involved in the incident, BYRON TAYLOR and ANTHONY TORRES, are, together with COLL, charged with obstruction of justice related offenses for covering up COLL’s assault, which resulted in the death of Mr. Spear. COLL and TAYLOR were arrested this morning on charges contained in a Criminal Complaint and are expected to be presented in federal court later today. TORRES ultimately disclosed the attempted cover-up to federal investigators and pled guilty earlier this week to a Criminal Information charging obstruction of justice offenses, pursuant to a cooperation agreement with the Government.
Manhattan U.S. Attorney Preet Bharara said: “Today, we announce more sad news out of Rikers Island. Specifically, we unseal charges against three correction officers alleging a killing and a cover-up. Both relate to the untimely death of Ronald Spear, a Rikers Island inmate who died in the early morning hours of December 19, 2012, after receiving a brutal beating. As I have said before, Rikers inmates, although walled off from the rest of society, are not walled off from the protections of our Constitution.”
Assistant Director-in-Charge Diego Rodriguez said: “The vast majority of law enforcement officials serve their communities with honor and integrity. But when an officer’s conduct exceeds the permissible use of force and violates a person’s civil rights, the foundation of our democracy is threatened. Today, we hear the call of Spear and other victims whose constitutionally protected rights have been abused and violated. We remember their collective plea for justice. And we vow never to forget our obligation to remove from the criminal justice system those who do not uphold the tenets of the legal system.”
According to the Complaint[1] and Information unsealed today in Manhattan federal court:
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 have serious or chronic medical needs. Mr. Spear was suffering from end-stage renal disease, which required him to receive dialysis treatments. Mr. Spear wore a bracelet indicating that he was at “Risk of Fall” and typically walked with a cane.
The Assault
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. Mr. Spear was stopped outside the doctor’s office by COLL. When Mr. Spear was informed that the doctor was not available to see him at that time, an altercation 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. The autopsy revealed that Spear had three recent contusions on his head. At least two of those contusions were what the Medical Examiner described as “above the hat line,” and were thus inconsistent with being sustained as part of a fall. One of the contusions involved what the Medical Examiner described as a “brain bleed” caused by the blunt force of the impact. The Medical Examiner confirmed that the placement of Spear’s head injuries was consistent with Spear being kicked in the head while he was lying prone on the ground.
The Cover-Up
After Spear’s death, COLL, TAYLOR, TORRES, and others covered up the true cause of Mr. Spear’s death by concocting a false story that turned Mr. Spear into the aggressor. Specifically, COLL falsely claimed that Mr. Spear had attacked him with a cane, and TORRES and an additional correction officer referred to in the Complaint as CW-1 agreed to support this false version of events and not to tell investigators of evidence that COLL had repeatedly kicked Mr. Spear in the head. Additionally – at the request of TAYLOR – COLL, TORRES, and CW-1 agreed to falsely claim that TAYLOR was not present for the incident. Consistent with their agreement, the conspirators filed false use of force reports with the Department of Correction and lied repeatedly to Department of Correction investigators, to the Bronx District Attorney, and, in TAYLOR’s case, to a federal grand jury.
The conspirators propagated this false version of events after being repeatedly advised by a Rikers captain and by representatives of the correction officers’ union to be “consistent” in the use of force reports the officers were required to submit following Spear’s death. The first draft of a use of force report by CW-1 was rejected by a captain because it did not match the version of events contained in reports by COLL and TORRES, and CW-1 was required to submit a revised report that was “consistent.” Additionally, when no cane was recovered from the crime scene – potentially calling into doubt COLL’s claim that Mr. Spear had attacked him with a cane – a Rikers captain simply directed a correction officer to take a cane from the supply area and pass it off to investigators as the cane used in the incident.
In his guilty plea yesterday before the Honorable Chief Judge Loretta A. Preska to obstruction of justice offenses, TORRES admitted that he had conspired with others to cover up the facts surrounding the death of Mr. Spear. TORRES was not charged with violating the civil rights of Mr. Spear and at one point sought to shield Mr. Spear from the attack.
* * *
BRIAN COLL, 45, of Smithtown, New York, is charged with one count of deprivation of rights under color of law, which carries a maximum penalty of 10 years in prison, 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, and one count of conspiracy to file false forms, which carries a maximum sentence of five years in prison.
ANTHONY TORRES, 49, of New Rochelle, New York, pled guilty to one count of conspiracy to obstruct justice and file false reports, which carries a maximum penalty of five years in prison, and one count of filing a false report, which carries a maximum sentence of 20 years in prison.
The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Mr. Bharara praised the investigative work of the FBI 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 Complaint are merely accusations, and COLL and TAYLOR 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.
Employee of Yonkers Dollar Store Sentenced in White Plains Federal Court to Two Years in Prison for Million-Dollar Food Stamp FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that KHALIL MOUGHAWECH was sentenced yesterday in White Plains federal court to a term of 24 months in prison and ordered to pay $1 million in restitution and $1 million in forfeiture for committing food stamp fraud from September 2010 to August 2013 at the Peso Value Plus store in Yonkers, New York. MOUGHAWECH was found guilty at a jury trial in February 2015. United States District Judge Vincent L. Briccetti imposed the sentence yesterday.
According to the Superseding Indictment and the evidence presented at trial:
MOUGHAWECH was the manager of the Peso Value Plus store between 2010 and August 2013, and often operated the store’s cash register. Peso Value Plus participated in the Supplemental Nutrition Assistance Program (“SNAP”), also known as the Food Stamp Program, where food stamp recipients could redeem their SNAP benefits using an electronic benefits transfer card to purchase eligible food items. Between approximately September 2010 and August 2013, MOUGHAWECH conspired with others to exchange SNAP benefits for cash illegally. The fraud resulted in a loss of $1 million to the SNAP Program.
* * *
In addition to the prison sentence, MOUGHAWECH, 42, of the Bronx, New York, was ordered to pay $1,000,000 in restitution to the United States Department of Agriculture and to forfeit $1,000,000.
Mr. Bharara praised the outstanding investigative work of the Department of Agriculture’s Office of Inspector General and the Yonkers Police Department.
The prosecution is being handled by the Office’s White Plains Division. Assistant United States Attorneys Daniel Filor and Benjamin Allee are in charge of the prosecution.
Owner and Operator of Yonkers Construction Company Sentenced in Manhattan Federal Court for $800,000 Income and Payroll Tax FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that TARIQ TAHIR, the owner and operator of DNS Construction Corporation, was sentenced today in Manhattan federal court to a term of five years of probation and $883,730.52 in restitution for committing two counts of tax fraud by failing to pay over $800,000 in income taxes and payroll taxes from 2006 to 2008. TAHIR pled guilty in March 2015 before United States District Judge Andrew L. Carter, Jr., who imposed today’s sentence.
According to the criminal information, other documents filed in Manhattan federal court, and statements made at related court proceedings:
TAHIR owned and operated a Yonkers-based construction company named DNS Construction Corporation (“DNS”). From 2006 through 2008, TAHIR engaged in two tax fraud schemes in order to avoid paying over $800,000 in income taxes and payroll taxes that were due and owing by DNS. To execute the first scheme, TAHIR cashed checks at multiple check-cashing businesses in Manhattan and Brooklyn, rather than depositing those checks into the bank accounts of DNS, so that he could conceal DNS’s true revenues from state and federal tax authorities. To carry out the second scheme, TAHIR paid DNS’s employees primarily in cash so that he would be able to omit these salary payments from DNS’s federal tax returns without detection by tax authorities. By failing to report these payments, TAHIR underpaid the federal payroll taxes due and owing by DNS during this period.
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In addition to the term of probation, TAHIR, 67, of Yonkers, New York, was ordered to pay $771,710.32 in restitution to the IRS and $112,020.20 in restitution to the New York State Department of Taxation and Finance.
Mr. Bharara praised the work of the Internal Revenue Service, Criminal Investigation Division. Mr. Bharara also thanked the U.S. Department of Justice’s Tax Division for their assistance in the investigation.
This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Jonathan Cohen is in charge of the prosecution.
Five Lawyers in Manhattan U.S. Attorney’s Office Recognized at Annual U.S. Attorney Awards CeremonyRead the Press Release
PREET BHARARA, the United States Attorney for the Southern District of New York, announced that the Department of Justice held its 31st annual Executive Office for United States Attorneys (EOUSA) Director’s Awards Ceremony yesterday, during which 160 award recipients from 31 districts were recognized for their dedication to carrying out the mission of the Department of Justice. Among the award recipients were Assistant U.S. Attorneys Howard S. Master, Andrew D. Goldstein, Robert W. Yalen, Tara M. La Morte, and Arastu K. Chaudhury from the U.S. Attorney’s Office for the Southern District of New York. Attorney General Loretta Lynch and Executive Office for U.S. Attorneys (EOUSA) Director Monty Wilkinson presided at yesterday’s ceremony in the Great Hall at the Robert F. Kennedy Department of Justice Building in Washington, D.C.
In her prepared remarks, Attorney General Lynch told the attendees: “Our honorees include career executives and supervisors; Assistant U.S. Attorneys and Special Assistant U.S. Attorneys; appellate attorneys and law enforcement officials; administrators, paralegals, and public affairs officers. These individuals, and so many others, have faced daunting and sometimes dangerous challenges. They have dedicated their leadership and their expertise, their time and their energy, to the service of their mission. And they have remained devoted, at all times, to the high ideals and deeply-held values that animate our country and our cause.”
Manhattan U.S. Attorney Preet Bharara said: “This year’s Director’s Award winners were recognized for their commitment to justice. They spearheaded cases that recouped hundreds of millions of dollars defrauded from New York City, protected the nation’s environment by holding a major polluter financially liable, and secured legally guaranteed pension benefits for City employees who served in the nation’s armed forces. Their efforts exemplify the tradition of excellence of this Office, and I congratulate them for these well-deserved honors.”
Howard S. Master and Andrew D. Goldstein are recognized for their investigation and prosecution of the CityTime case, the largest municipal fraud and kickback scheme in history. Through a dogged investigation that involved tracing payments through more than 150 foreign and domestic accounts, poring through hundreds of thousands of emails and project documents, interviewing more than 100 witnesses, and securing cooperation from two key insiders, Mr. Master and Mr. Goldstein were able to prove that the City of New York’s project manager and an executive of one of the nation’s largest government contractors defrauded the City, collected tens of millions of dollars in kickbacks, and laundered their proceeds through an intricate web of corrupt subcontractors and shell accounts. The prosecution resulted in eight convictions, a deferred prosecution agreement with the contractor, and record forfeitures of over $550 million.
Robert W. Yalen is recognized for his outstanding work representing the United States in the bankruptcy proceeding of Tronox, Inc., which resulted in two extraordinary environmental settlement agreements, including one for $5.15 billion that constitutes the largest recovery of funds for environmental clean-up ever by the Department of Justice. Through these settlement agreements, the Kerr-McGee Corporation was compelled to pay for 85 years of environmental contamination across the nation, a legacy that Kerr-McGee had attempted to evade though a fraudulent conveyance of assets. Mr. Yalen showed extraordinary negotiation, litigation, and case management skills by overseeing the creation of five environmental clean-up trusts; serving as lead counsel for the United States in a complex fraudulent conveyance matter; coordinating with the Environment and Natural Resources Division, seven client agencies, 22 states, and the Navajo Nation; and representing the United States in negotiations with the defendants and the Tronox estate.
Tara M. La Morte and Arastu K. Chaudhury are recognized for their extraordinary performance in a class-action lawsuit against the City of New York, culminating in a settlement providing monetary and injunctive relief to all employees of the City who have served their country in the armed forces. In the wake of 9/11, thousands of City service-member employees were deployed around the world, often multiple times and for substantial duration. However, the City refused to calculate the service members’ pensionable earnings in accordance with USERRA, the law designed to protect against discrimination on account of military service. The City’s policies caused these service members to receive fewer pension benefits than they would have received but for serving their country. Beating back the defendants’ numerous aggressive attempts to avoid any liability, Ms. La Morte and Mr. Chaudhury obtained full monetary recovery for all service-member employees, as well as significant policy changes to ensure that the City acts lawfully going forward.
* * *
EOUSA provides oversight, general executive assistance, and direction to the 94 United States Attorneys’ offices around the country. For more information on EOUSA and its mission, visit http://www.justice.gov/usao.
Kentucky Businessman Sentenced in Manhattan Federal Court to 12 Years in Prison for $53 Million Tax Scheme and Massive Fraud That Involved the Bribery of Bank OfficialsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Acting Assistant Attorney General Caroline D. Ciraolo, of the Department of Justice’s Tax Division, announced that WILBUR ANTHONY HUFF, a Kentucky businessman, was sentenced today to 12 years in prison and over $108 million in restitution for committing various tax crimes that caused more than $50 million in losses to the Internal Revenue Service (“IRS”), and a massive fraud that involved the bribery of bank officials, the fraudulent purchase of an insurance company, and the defrauding of insurance regulators and an investment bank. HUFF pled guilty in December 2014 before U.S. District Judge Naomi Reice Buchwald, who imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Anthony Huff and his co-conspirators stole millions of dollars from taxpayers and engaged in extensive frauds, all in the pursuit of additional property, luxury cars, and the like. His crimes have earned him 12 years in prison. I would like to thank our law enforcement partners for their assistance on this case.”
Acting Assistant Attorney General Caroline D. Ciraolo said: “The department is committed to vigorously pursuing and prosecuting those individuals who violate the employment tax laws of the United States,” said Acting Assistant Attorney General Ciraolo. “Today’s significant prison sentence sends a loud and clear message to those engaged in such criminal conduct, including owners and operators of Professional Employer Organizations like Mr. Huff, who steal employment taxes collected from their business clients to line their own pockets, instead of paying over those funds to the IRS.”
According to the Information, plea agreement, sentencing submissions, and statements made during court proceedings:
Background
HUFF was a businessman who controlled numerous entities located throughout the United States (“HUFF-Controlled Entities”). HUFF controlled the companies and their finances, using them to orchestrate a $53 million fraud on the IRS and other schemes, spanning four states, involving tax violations, bank bribery, fraud on bank regulators, and the fraudulent purchase of an insurance company. As part of his crimes, HUFF concealed his control of the HUFF-Controlled Entities by installing other individuals to oversee the companies’ day-to-day functions and to serve as the companies’ titular owners, directors, or officers. HUFF also maintained a corrupt relationship with Park Avenue Bank and its executives, Charles J. Antonucci, Sr., the president and chief executive officer, and Matthew L. Morris, the senior vice president.
Tax Crimes
From 2008 to 2010, HUFF controlled O2HR, a professional employer organization (“PEO”) located in Tampa, Florida. Like other PEOs, O2HR was paid to manage the payroll, tax, and workers’ compensation insurance obligations of its client companies. However, instead of paying $53 million in taxes that O2HR’s clients owed the IRS, and instead of paying $5 million to Providence Property and Casualty Insurance Company (“Providence P&C”) – an Oklahoma-based insurance company – for workers’ compensation coverage expenses for O2HR clients, HUFF stole the money that his client companies had paid O2HR for those purposes. Among other things, HUFF diverted millions of dollars from O2HR to fund his investments in unrelated business ventures, and to pay his family members’ personal expenses. The expenses included mortgages on HUFF’s homes, rent payments for his children’s apartments, staff and equipment for HUFF’s farm, designer clothing, jewelry, and luxury cars.
Conspiracy to Commit Bank Bribery, Defraud Bank Regulators, and Fraudulently Purchase an Oklahoma Insurance Company
From 2007 through 2010, HUFF engaged in a massive multifaceted conspiracy, in which he schemed to (i) bribe executives of Park Avenue Bank, (ii) defraud bank regulators and the board and shareholders of a publicly traded company, and (iii) fraudulently purchase an Oklahoma insurance company. As described in more detail below, HUFF paid bribes totaling hundreds of thousands of dollars in cash and other items to Morris and Antonucci in exchange for their favorable treatment at Park Avenue Bank.
As part of the corrupt relationship between HUFF and the bank executives, HUFF, Morris, Antonucci, and others conspired to defraud various entities and regulators during the relevant time period. Specifically, Huff conspired with Morris and Antonucci to falsely bolster Park Avenue Bank’s capital by orchestrating a series of fraudulent transactions to make it appear that Park Avenue Bank had received an outside infusion of $6.5 million, and engaged in a series of further fraudulent actions to conceal from bank regulators the true source of the funds.
HUFF further conspired with Morris, Antonucci, and others to defraud Oklahoma insurance regulators and others by making material misrepresentations and omissions regarding the source of $37.5 million used to purchase Providence Property and Casualty Insurance Company, an Oklahoma insurance company that provided workers’ compensation insurance for O2HR’s clients, and to whom O2HR owed a significant debt.
Bribery of Park Avenue Bank Executives
From 2007 to 2009, HUFF paid Morris and Antonucci at least $400,000 in exchange for which they: (i) provided HUFF with fraudulent letters of credit obligating Park Avenue Bank to pay an investor in one of HUFF’s businesses $1.75 million if HUFF failed to pay the investor back himself; (ii) allowed the HUFF-Controlled Entities to accrue $9 million in overdrafts; (iii) facilitated intra-bank transfers in furtherance of HUFF’s frauds; and (iv) fraudulently caused Park Avenue Bank to issue at least $4.5 million in loans to the HUFF-Controlled Entities.
Fraud on Bank Regulators and a Publicly Traded Company
From 2008 to 2009, HUFF, Morris, and Antonucci engaged in a scheme to prevent Park Avenue Bank from being designated as “undercapitalized” by regulators – a designation that would prohibit the Bank from engaging in certain types of banking transactions, and that would subject the Bank to a range of potential enforcement actions by regulators. Specifically, they engaged in a series of deceptive, “round-trip” financial transactions to make it appear that Antonucci had infused the Bank with $6.5 million in new capital when, in actuality, the $6.5 million was part of the Bank’s pre-existing capital. HUFF, Morris, and Antonucci funneled the $6.5 million from the Bank through accounts controlled by HUFF to Antonucci. This was done to make it appear as though Antonucci was helping to stabilize the Bank’s capitalization problem, so the Bank could continue engaging in certain banking transactions that it would otherwise have been prohibited from doing, and to put the Bank in a better posture to receive $11 million from the Troubled Asset Relief Program. To conceal their unlawful financial maneuvering, HUFF created, or directed the creation of, documents falsely suggesting that Antonucci had earned the $6.5 million through a bogus transaction involving another company Antonucci owned. HUFF, Morris, and Antonucci further concealed their scheme by stealing $2.3 million from General Employment Enterprises, Inc., a publicly traded temporary staffing company, in order to pay Park Avenue Bank back for monies used in connection with the $6.5 million transaction.
Fraud on Insurance Regulators and the Investment Firm
From July 2008 to November 2009, HUFF, Morris, Antonucci, and Allen Reichman, an executive at an investment bank and financial services company headquartered in New York, New York (the “Investment Firm”), conspired to (i) defraud Oklahoma insurance regulators into allowing Antonucci to purchase the assets of Providence P&C (the Oklahoma insurance company that was owed $5 million by O2HR), and (ii) defraud the Investment firm into providing a $30 million loan to finance the purchase. Specifically, HUFF and Antonucci devised a scheme in which Antonucci would purchase Providence P&C’s assets by obtaining a $30 million loan from the Investment Firm, which used Providence P&C’s own assets as collateral for the loan. However, because Oklahoma insurance regulators had to approve any sale of Providence P&C, and because Oklahoma law forbade the use of Providence P&C’s assets as collateral for such a loan, HUFF, Morris, Antonucci, and Reichman made, and conspired to make, a number of material misstatements and material omissions to the Investment Firm and Oklahoma insurance regulators concerning the true nature of the financing for Antonucci’s purchase of Providence P&C. Among other things, Reichman directed Antonucci to sign a letter that provided false information regarding the collateral that would be used for the loan, and HUFF, Morris, and Antonucci conspired to falsely represent to Oklahoma insurance regulators that Park Avenue Bank – not the Investment Firm – was funding the purchase of Providence P&C.
After deceiving Oklahoma regulators into approving the sale of Providence P&C, HUFF took $4 million of the company’s assets, which he used to continue the scheme to defraud O2HR’s clients. Ultimately, in November 2009, the insurance company became insolvent and was placed in receivership after HUFF, Morris, and Antonucci had pilfered its remaining assets.
* * *
In addition to the prison sentence, HUFF, 53, of Caneyville and Louisville, Kentucky, was sentenced to 3 years of supervised release, and ordered to forfeit $10.8 million to the United States and pay a total of more than $108 million in restitution to victims of his crimes, including, among others, the Federal Deposit Insurance Corporation (“FDIC”) and the IRS.
In imposing today’s sentence, Judge Buchwald said Huff’s crimes were “truly staggering” and “eye popping.” Judge Buchwald described Huff’s conduct, which was preceded by a federal conviction and failure to pay millions in civil judgments, as “a living example” of “chutzpah,” which she defined as “shameless audacity and unmitigated gall.”
Matthew L. Morris and Allen Reichman pled guilty for their roles in the above-described offenses on October 17, 2013, and February 20, 2015, respectively. Reichman is scheduled to be sentenced before Judge Buchwald on July 15, 2015. Morris is scheduled to be sentenced before Judge Buchwald on August 19, 2015.
Charles Antonucci pled guilty on October 8, 2010, to his role in the crimes described above and is scheduled to be sentenced on August 20, 2015, also before Judge Buchwald.
Mr. Bharara praised the investigative work of the Special Inspector General for the Troubled Asset Relief Program, the Federal Bureau of Investigation, IRS Criminal Investigation, the New York State Department of Financial Services, Immigration and Customs Enforcement’s Homeland Security Investigations, and the Office of Inspector General of the FDIC. Mr. Bharara also thanked the Department of Justice’s Tax Division and the United States Attorney’s Office for the Southern District of Florida for their assistance.
Today’s announcement is part of efforts underway by 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.
The case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Janis Echenberg and Daniel Tehrani and Special Assistant U.S. Attorney Tino Lisella of the Tax Division are in charge of the criminal case.
15-138
Manhattan U.S. Attorney Settles Civil Rights Lawsuit Alleging Discriminatory Service Animal Policy at Largest Cooperative Development in the United StatesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Vanita Gupta, Principal Deputy Assistant Attorney General for the Civil Rights Division of the United States Department of Justice, and Gustavo Velasquez, the U.S. Department of Housing and Urban Development Assistant Secretary for Fair Housing and Equal Opportunity (“HUD”), announced today that the United States has simultaneously filed and settled a civil rights lawsuit against RIVERBAY Corporation (“RIVERBAY”), otherwise known as “Co-op City,” the largest affordable housing cooperative in the United States, alleging that RIVERBAY failed to provide reasonable accommodations to people who require service or assistance animals. Specifically, the lawsuit alleges that RIVERBAY maintains and employs an overly burdensome and intrusive policy governing waivers to its no-pets rule, which has deterred and prevented persons with disabilities from obtaining reasonable accommodations, in violation of the federal Fair Housing Act (“FHA”). The consent decree was approved yesterday by U.S. District Court Judge Caproni.
U.S. Attorney Preet Bharara said: “Housing providers must allow for reasonable accommodations to qualified individuals with disabilities, including granting requests to keep assistance or service animals. Today’s settlement benefits all those who require or may someday require a service or assistance animal, as it ensures that RiverBay will implement a reasonable accommodation policy consistent with the Fair Housing Act and that people who were unlawfully denied full use of their residences will be compensated appropriately. We thank RiverBay for its cooperation in improving housing accessibility for all of its residents and in providing for a more caring and compassionate environment for Bronx residents.”
Deputy Assistant Attorney General Gupta said: “Assistance animals provide vital support and therapeutic benefits for persons with disabilities. This significant settlement underscores the department’s commitment to ensuring that housing providers make reasonable accommodations for individuals who rely on assistance animals to use and enjoy their homes.”
Assistant Secretary Velasquez said: “Housing providers have a legal obligation to grant people with disabilities the reasonable accommodations they need. Thanks to this settlement, RiverBay residents who need assistance animals or other accommodations will now be able to fully enjoy their homes.”
According to the complaint filed in federal court:
RIVERBAY, located in the Bronx, New York, is the owner and operator of the largest affordable housing cooperative in the United States, with approximately 15,372 residential units and 60,000 residents. RIVERBAY has used an unlawful policy governing waivers to its no-pets rule to deny accommodation requests of persons with disabilities, and has engaged in a pattern or practice of discrimination toward persons with disabilities who request accommodations to its no-pets rule. Specifically, until December 2011, when RIVERBAY amended its policy and application governing reasonable accommodations, RIVERBAY’s application for requesting a reasonable accommodation to its no-pets rule consisted of five forms (including one required to be completed only in blue ink and another required to be typewritten), prohibited certain breeds of dogs, required animals to be neutered or spayed, imposed annual renewal requirements and required the applicant to provide his or her medical records. In December 2011 and again in July 2014, RIVERBAY amended its reasonable accommodation policy, but left in place many of the provisions in the first policy, including a prohibition against certain breeds of animals, a prohibition which RIVERBAY could waive based only on an applicant’s “medical need” for that particular breed.
Moreover, between 1995 and 2014, the Secretary of HUD, the New York State Division of Housing and Community Renewal and the New York City Commission on Human Rights received and investigated multiple complaints about RIVERBAY’s practices concerning reasonable accommodation requests. HUD issued three separate charges of discrimination against RIVERBAY and participated in two administrative hearings before an administrative law judge (ALJ) concerning RIVERBAY’s reasonable accommodation policy. In each proceeding, the ALJ determined that RIVERBAY had violated the FHA. In addition, between January 2005 and November 2011, RIVERBAY denied 28 out of 42 requests for reasonable accommodations to its no-pets rule; another two individuals did not complete the application process.
Under the consent decree approved today, RIVERBAY will adopt the reasonable accommodation policy regarding assistance animals that is included in the consent decree.
In addition, RIVERBAY has agreed to pay a civil penalty of up to $50,000, and to dedicate as much as $600,000 to compensate people who have been harmed by inadequate accessibility at Co-op City.
Under the settlement, a person may be entitled to receive monetary compensation if he or she was a resident of RIVERBAY, or associated with a resident of RIVERBAY, and was:
- prevented or discouraged from requesting to keep an assistance animal;
- denied a request to keep an assistance animal; or
- harassed or otherwise interfered with after requesting to keep an assistance animal.
Individuals who wish to make a claim for discrimination concerning Co-op City on the basis of disability, or with any information about persons who may have such a claim, can contact the U.S. Attorney’s Office for the Southern District of New York by phone at (212) 637-2800, by fax at (212) 637-2702, online at www.justice.gov/usao/nys/civilrights, or write to:
United States Attorney’s Office, Southern District of New York
Attn: Civil Rights Unit
86 Chambers Street
New York, New York 10007
Individuals with a disability who believe that they are being discriminated against by their housing provider, may contact the Fair Housing and Equal Opportunity Office, Department of Housing & Urban Development, 26 Federal Plaza, Room 3532, New York, New York, 10278-0068 and at (800) 496-4294.
This case is being handled by the U.S. Attorney’s Office for the Southern District of New York’s Civil Rights Unit. Assistant U.S. Attorney for the Southern District of New York Ellen Blain is in charge of the case.
15-137
Manhattan U.S. Attorney Charges Two Owners of Real Estate Investment Firm for Defrauding Investors of over $17 MillionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Philip Bartlett, the Inspector-in-Charge of the New York Division of the U.S. Postal Inspection Service, (“USPIS”), and Shantelle P. Kitchen, Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service’s Criminal Investigation Division (“IRS”), announced today that CARLTON P. CABOT and TIMOTHY J. KROLL – the former Chief Executive Officer and Chief Operating Officer of Cabot Investment Properties LLC (“CIP”), respectively – were arrested for participating in a scheme to defraud investors in numerous CIP-sponsored real estate investments by misappropriating over $17 million to pay for personal and business expenses and covering up their fraud with manipulated financial statements. CABOT and KROLL are expected to be presented and arraigned before U.S. Magistrate Judge Henry B. Pitman later this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Carlton Cabot and Timothy Kroll conspired to defraud investors out of millions of dollars by misappropriating investor funds, in part to pay for personal luxuries, and they falsified financial statements in an attempt to cover their tracks. The investigative work of the Postal Inspection Service and the IRS put an end to the alleged scheme.”
USPIS Inspector-in-Charge Philip Bartlett said: “This is a classic case of greed overcoming honest business practices. These defendants allegedly carried out a scheme to steal from their investors and investor funded properties all to fund a well-heeled lifestyle. Postal Inspectors and their law enforcement partners have no tolerance for this behavior and will spare no resource to bring these criminals to justice.”
IRS Special Agent-in-Charge Shantelle P. Kitchen said: “The investing public should take notice that the cooperation among federal law enforcement agencies, including IRS Criminal Investigation, the Postal Inspection Service and the U.S. Attorney’s Office, offers an assurance that investment fraud schemes will be uncovered and thoroughly investigated, and that the scammers will be prosecuted.”
According to the allegations contained in the criminal complaint unsealed today in Manhattan federal court[1]:
From 2003 through 2012, CIP – which was controlled by CABOT and KROLL – sponsored and oversaw approximately 18 so-called tenants-in-common (“TIC”) securities offerings to investors located all over the United States (collectively, the “TIC Investments” and the “TIC Investors”). A TIC investment is a real estate investment in which investors collectively own a piece of commercial real estate and are entitled to receive a portion of the rental income from the property.
From 2008 through 2012, CABOT and KROLL engaged in a scheme to defraud the TIC Investors by misappropriating funds belonging to the TIC Investments and concealing their misappropriations by providing false and misleading financial reports and other information to the TIC Investors.
According to the representations in the offering prospectuses for the TIC Investments, CIP was only allowed to collect “excess” rental income from the TIC Investments – i.e., any additional money left over after the TIC Investments had paid the operating expenses for the properties and the disbursements due to the TIC Investors. Despite these representations, CABOT and KROLL repeatedly transferred money out of bank accounts belonging to the TIC Investments and into CIP bank accounts that they controlled (the “CIP Operating Accounts”) before the TIC Investments could use the funds to pay for operating expenses and disbursements to the TIC Investors. CABOT and KROLL then used these funds to pay for the following three unauthorized purposes, without the knowledge or authorization of the TIC Investors:
First, CABOT and KROLL caused millions of dollars to be transferred from the CIP Operating Accounts to the bank accounts of TIC Investments that had no available funds to cover their operating expenses and investor distributions. In this way, CABOT and KROLL were able to perpetuate the fraud scheme by propping up failing TIC Investments using funds belonging to other TIC Investments.
Second, CABOT and KROLL used the funds in the CIP Operating Accounts belonging to the TIC Investments to pay for millions of dollars of personal expenses, including expensive cars and rental apartments and private school tuitions.
Third, CABOT and KROLL used the funds in the CIP Operating Accounts belonging to the TIC Investments to pay for CIP business expenses, including an approximately $1,125,651 civil settlement to certain TIC Investors who had sued CABOT, KROLL, CIP, and a CIP subsidiary.
To conceal their misappropriation of TIC Investment funds from the TIC Investors, CABOT and KROLL provided false and misleading financial reports to the TIC Investors that intentionally hid the fact that CIP owed large sums of money to the TIC Investments. KROLL also gave false and misleading information to the TIC Investors about how the TIC Investment funds were managed in order to prevent the TIC Investors from learning the true financial status of their investment.
By in or about the end of 2012, when CIP ceased its day-to-day operations, CIP and its principals, CABOT and KROLL, owed approximately $17 million to the TIC Investments, which has never been repaid.
***
For this conduct, CABOT and KROLL are each charged with the following offenses, which carry the maximum prison terms listed below:
Count
Charge
Maximum Prison Term
Count One
Conspiracy to commit securities fraud
Five years
Count Two
Conspiracy to commit wire fraud
20 years
Count Three
Conspiracy to commit money laundering
20 years
Count Four
Securities fraud
20 years
Count Five
Wire fraud
20 years
Count Six
Money laundering
20 years
Count Seven
Illegal monetary transactions
10 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.
CABOT, 52, of Stamford, Connecticut, and KROLL, 44, of New Hope, Pennsylvania, were arrested earlier this morning at their residences.
Mr. Bharara praised the investigative work of the USPIS and the IRS.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Christian R. Everdell 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.
Ross Ulbricht, A/K/A “Dread Pirate Roberts,” Sentenced in Manhattan Federal Court to Life in PrisonRead the Press Release
Convicted of Multiple Counts for Creating and Operating the “Silk Road" Website, Used by More than 100,000 Users to Buy and Sell More Than $200 Million Worth of Illegal Drugs and Other Unlawful Goods and Services
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROSS ULBRICHT, a/k/a “Dread Pirate Roberts,” was sentenced today in Manhattan federal court to life in prison in connection with his operation and ownership of Silk Road, a hidden website designed to enable its users to buy and sell illegal drugs and other unlawful goods and services anonymously and beyond the reach of law enforcement between January 2011 and October 2013. ULBRICHT was found guilty of each of the seven charges he faced on February 5, 2015, following a four-week jury trial. U.S. District Judge Katherine B. Forrest imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Make no mistake: Ulbricht was a drug dealer and criminal profiteer who exploited people’s addictions and contributed to the deaths of at least six young people. Ulbricht went from hiding his cybercrime identity to becoming the face of cybercrime and as today’s sentence proves, no one is above the law.”
According to the evidence presented at trial, statements made during other public proceedings including today’s sentencing, and other court documents:
ULBRICHT created Silk Road in January 2011, and owned and operated the underground website until it was shut down by law enforcement authorities in October 2013. Silk Road emerged as the most sophisticated and extensive criminal marketplace on the Internet, serving as a sprawling black-market bazaar where unlawful goods and services, including illegal drugs of virtually all varieties, were bought and sold regularly by the site’s users. While in operation, Silk Road was used by thousands of drug dealers and other unlawful vendors to distribute hundreds of kilograms of illegal drugs and other unlawful goods and services to more than 100,000 buyers, and to launder hundreds of millions of dollars deriving from these unlawful transactions.
ULBRICHT deliberately operated Silk Road as an online criminal marketplace intended to enable its users to buy and sell drugs and other illegal goods and services anonymously and outside the reach of law enforcement. ULBRICHT sought to anonymize transactions on Silk Road in two principal ways. First, ULBRICHT operated Silk Road on what is known as “The Onion Router,” or “Tor” network, a special network of computers on the Internet, distributed around the world, designed to conceal the true IP addresses of the computers on the network and thereby the identities of the networks’ users. Second, ULBRICHT designed Silk Road to include a Bitcoin-based payment system that served to facilitate the illegal commerce conducted on the site, including by concealing the identities and locations of the users transmitting and receiving funds through the site.
The vast majority of items for sale on Silk Road were illegal drugs, which were openly advertised as such on the site. As of September 23, 2013, the Silk Road home page displayed nearly 13,000 listings for controlled substances, listed under such categories as “Cannabis,” “Dissociatives,” “Ecstasy,” “Intoxicants,” “Opioids,” “Precursors,” “Prescription,” “Psychedelics,” and “Stimulants.” From November 2011 to September 2013, law enforcement agents made more than 60 individual undercover purchases of controlled substances from Silk Road vendors. These purchases included heroin, cocaine, ecstasy, and LSD, among other illegal drugs, and were filled by vendors believed to be located in more than ten different countries, including the United States, Germany, the Netherlands, Canada, the United Kingdom, Spain, Ireland, Italy, Austria, and France.
The narcotics distributed on Silk Road have been linked to at least six overdose deaths across the world. These overdose deaths included Jordan M., a 27-year old Microsoft employee who was found unresponsive in front of his computer, which was logged onto Silk Road at the time, and died as a result of heroin and other prescription drugs that he had ordered from Silk Road. Preston B., from Perth, Australia, and Alejandro N., from Camino, California, both 16 years old, died as a result of taking 25i-NBOMe, a powerful synthetic drug designed to mimic LSD (commonly referred to as “N-Bomb”), which was purchased from Silk Road. Additional victims included Bryan B., a 25-year old from Boston, Massachussetts, and Scott W., a 36-year old from Australia, who both died as a result of heroin purchased from Silk Road, and Jacob B., a 22-year old from Australia, who died from health complications that were aggravated by the use of drugs purchased from Silk Road.
In addition to illegal narcotics, other illicit goods and services were openly bought and sold on Silk Road. For example, as of September 23, 2013, there were: 159 listings under the category “Services,” most of which offered computer hacking services, such as a listing by a vendor offering to hack into social networking accounts of the customer’s choosing; 801 listings under the category “Digital goods,” including malicious software, hacked accounts at various online services, and pirated media content; and 169 listings under the category “Forgeries,” including offers to produce fake driver’s licenses, passports, Social Security cards, utility bills, credit card statements, car insurance records, and other forms of false identification documents.
Using the online moniker “Dread Pirate Roberts,” or “DPR,” ULBRICHT controlled and oversaw every aspect of Silk Road, and managed a staff of paid, online administrators and computer programmers who assisted with the day-to-day operation of the site. Through his ownership and operation of Silk Road, ULBRICHT reaped commissions worth more than $13 million generated from the illicit sales conducted through the site. ULBRICHT also demonstrated a willingness to use violence to protect his criminal enterprise and the anonymity of its users, soliciting six murders-for-hire in connection with operating the site, although there is no evidence that these murders were actually carried out.
* * *
ULBRICHT, 31, of San Francisco, California, was convicted of seven offenses after a four-week jury trial: distributing narcotics, distributing narcotics by means of the Internet, conspiring to distribute narcotics, engaging in a continuing criminal enterprise, conspiring to commit computer hacking, conspiring to traffic in false identity documents, and conspiring to commit money laundering.
In addition to the life sentence prison term, ULBRICHT was ordered to forfeit $183,961,921.
In imposing today’s sentence, Judge Forrest said: “There must be no doubt that lawlessness will not be tolerated. There must be no doubt that no one is above the law - no matter one’s education or privileges. All stand equal before the law. There must be no doubt that you cannot run a massive criminal enterprise and because it occurred over the Internet minimize the crime committed on that basis.”
Mr. Bharara praised the outstanding investigative work of the Federal Bureau of Investigation and its New York Special Operations and Cyber Division, as well as the outstanding investigative work of the DEA’s New York Organized Crime Drug Enforcement Strike Force, which comprises agents and officers of the DEA, the IRS, the New York City Police Department, U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), the New York State Police, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the U.S. Secret Service, the U.S. Marshals Service, Office of Foreign Assets Control, and NY Department of Taxation. Mr. Bharara also thanked the ICE-HSI Chicago-O’Hare office for its assistance and support, as well as the Department of Justice’s Computer Crime and Intellectual Property Section and Office of International Affairs. Additionally, Mr. Bharara praised the foreign law enforcement partners whose contributions to the success of the investigation and prosecution have been invaluable, namely, the Reykjavik Metropolitan Police of the Republic of Iceland, and the French Republic’s Central Office for the Fight Against Crime Linked to Information Technology and Communication.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Serrin Turner and Timothy T. Howard are in charge of the prosecution, and Assistant United States Attorney Christine Magdo is in charge of the forfeiture aspects of the case.
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Six Defendants Charged in Manhattan Federal Court in Multimillion-Dollar Text Messaging Consumer Fraud SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, William P. Offord, the Special Agent-in-Charge of the Boston Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal complaint charging LIN MIAO, YONG JASON LEE, a/k/a “Jason Lee,” MICHAEL PEARSE, YONGCHAO LIU, a/k/a “Kevin Liu,” MICHAEL PAJACZKOWSKI, a/k/a “Paj,” and CHRISTOPHER GOFF with participating in a scheme to charge mobile phone customers tens of millions of dollars in monthly fees for unsolicited, recurring text messages about topics such as horoscopes, celebrity gossip, and trivia facts, without the customers’ knowledge or consent – a practice the defendants referred to as “auto-subscribing.”
Manhattan U.S. Attorney Preet Bharara said: “As alleged, by burying relatively small hidden text message service charges in the monthly mobile phone bills of thousands of customers who did not purchase the text message service, these defendants reaped tens of millions of dollars. Stealing incrementally is stealing nonetheless, and if the allegations are proven, the defendants will have to answer for this massive consumer fraud.”
IRS Special Agent-in-Charge William Offord said: “The arrests today highlight the magnitude of this complex e-commerce fraud against unwitting consumers. Crimes like ‘auto-subscribing’ undermine the integrity of our economic system. Working closely with our law enforcement partners, IRS plays an important role in unraveling complex financial transactions where individuals attempt to conceal the true source of their criminal proceeds.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “The six defendants charged today are alleged to have profited from the unlawful billing of consumers for unsolicited services. Hundreds of thousands of customers collectively lost tens of millions of dollars in this far-reaching scheme. Behavior of this nature has a devastating impact on people, companies, and the integrity of mobile phone industry. We are putting those persons who engage in this type of fraud on notice: Your actions can result in serious charges carrying severe penalties and consequences.”
According to the allegations contained in the criminal Complaint unsealed today in Manhattan federal court[1]:
From 2011 through 2013, MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF engaged in a multimillion-dollar scheme to defraud consumers by placing unauthorized charges for premium text messaging services on consumers’ cellular phone bills, through a practice known as “auto-subscribing.”
During the relevant time period, MIAO and LEE worked for a company that offered premium text messaging services – such as monthly horoscopes, celebrity gossip, and trivia facts – to mobile phone customers (the “Texting Company”). PEARSE and LIU worked for companies that were affiliated with the Texting Company (the “Texting Company Affiliates”). PAJACZKOWSKI and GOFF worked for a mobile aggregator (the “Mobile Aggregator”), which served as a middleman between the Texting Company and mobile phone carriers, and was responsible for assembling monthly charges incurred by a particular mobile phone customer for premium text messaging services and placing those charges on that customer’s cellular phone bill.
To carry out the scheme, MIAO and others at the Texting Company purchased large volumes of mobile phone numbers from PAJACZKOWSKI and GOFF, who had access to those numbers by virtue of their employment at the Mobile Aggregator. MIAO then worked with LEE, PEARSE, and LIU to have unsolicited text messages sent to the mobile phone numbers that had been purchased, and to enroll those customers in premium text messaging services without their knowledge or consent. MIAO, LEE, PEARSE, and LIU also took steps to conceal the fraud scheme by making it appear as if the customers had, in fact, elected to purchase the text messaging services, when in truth they had not.
The consumers who received the unsolicited text messages typically ignored or deleted the messages, often believing them to be spam. Regardless, the consumers were billed for the receipt of the messages, at a rate of $9.99 per month, through charges that typically appeared on the consumers’ cellular telephone bills in an abbreviated and confusing form, e.g., with billing descriptors such as “96633IQ16CALL8668611606” and “25184USBFIQMIG.” The $9.99 charge recurred each month unless and until consumers noticed the charges and took action to unsubscribe. Even then, consumers’ attempts to dispute the charges and obtain refunds from the Texting Company or from the Texting Company Affiliates were often unsuccessful.
MIAO, PAJACZKOWSKI, and GOFF also worked together to launder the proceeds of the fraud scheme. PAJACZKOWSKI and GOFF created shell companies to receive payments from MIAO and the Texting Company for the mobile phone numbers that PAJACZKOWSKI and GOFF collected and sold. PAJACZKOWSKI and GOFF, moreover, communicated with MIAO about the fraud scheme using personal email accounts with email addresses such as “[email protected]” and “[email protected].” In this way, PAJACZKOWSKI and GOFF attempted to conceal their role in the fraud from their employer, the Mobile Aggregator.
Through their successful orchestration of this fraud scheme, which affected hundreds of thousands of consumers, MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF generated in excess of $50 million in proceeds for themselves, some of which were used to fund a lavish lifestyle of expensive parties, travel, and gambling.
* * *
MIAO, LEE, PEARSE, LIU, PAJACZKOWSKI, and GOFF are charged with one count of conspiracy to commit wire fraud and mail fraud, which carries a maximum term of 20 years in prison. MIAO, PAJACZKOWSKI, and GOFF are also charged with one count of conspiracy to commit money laundering, which carries a maximum term 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.
MIAO was arrested yesterday afternoon at Los Angeles International Airport. LEE, PAJACZKOWSKI, and GOFF were arrested this morning at their residences in California and Texas. PEARSE and LIU reside in Australia and have not yet been arrested. MIAO, LEE, and GOFF are expected to be presented later this afternoon in federal court in Los Angeles, California, before U.S. Magistrate Judge Carla M. Woehrle. PAJACZKOWSKI was presented this morning in federal court in Plano, Texas, before U.S. Magistrate Judge Don D. Bush.
Mr. Bharara praised the investigative work of the IRS-CI and the FBI, and expressed his sincere gratitude to the Federal Trade Commission for its support and assistance with the investigation. He also thanked the U.S. Attorney’s Office for the Central District of California and the U.S. Attorney’s Office for the Eastern District of Texas for their help in coordinating the arrests of the defendants.
The prosecution of this case is being overseen by the Office’s Complex Frauds and Cybercrime Unit.Assistant U.S. Attorneys Christian R. Everdell and Sarah E. Paul are in charge of the prosecution.Assistant U.S. Attorney Edward B. 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 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 Settles Civil Rights Claims Against Housing Cooperative for Failing to Reasonably Accommodate Residents with Disabilities Who Need Emotional Assistance AnimalsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Gustavo Velasquez, the U.S. Department of Housing and Urban Development Assistant Secretary for Fair Housing and Equal Opportunity, announced today that the United States has settled civil rights claims under the Fair Housing Act against EAST RIVER HOUSING CORPORATION (“EAST RIVER”) stemming from EAST RIVER’s alleged denial of reasonable accommodations to its residents by prohibiting them from keeping emotional assistance animals. The settlement agreement, which was approved on May 27, 2015, by U.S. District Judge Edgardo Ramos, provides that EAST RIVER will adopt and implement a policy for providing reasonable accommodations to residents with disabilities and will train its employees and officers to follow the new policy. In the settlement agreement, EAST RIVER also agrees to permit two of the three residents named in the suit to have emotional assistance animals in their apartments and to compensate them financially for the alleged discrimination against them.
U.S. Attorney Bharara said: “This settlement ensures that future East River residents with disabilities who are in need of assistance animals will not face the kind of discrimination alleged in the complaint. Emotional assistance animals are not pets, and they must be permitted when an individual with a disability demonstrates a need for such an animal, regardless of a building’s no-pets policy.”
Assistant Secretary Velasquez said: “Support animals provide persons with disabilities with the stability and assistance needed to maintain their independence. They are not pets. We are extremely pleased that the settlement makes this clear, and that East River residents with disabilities will now be granted the reasonable accommodations they need.”
According to the complaint filed in Manhattan federal court:
EAST RIVER is a private 1,672-unit housing cooperative on the Lower East Side of Manhattan. It has no written or established policies or procedures for making reasonable accommodations for individuals who require service or emotional support animals because of a disability. Complainants Amy Eisenberg, Steven Gilbert, and Stephanie Aaron, all EAST RIVER residents, each brought a dog into their apartments and sought to be permitted to keep those dogs as reasonable accommodations of their disabilities. EAST RIVER either denied the requests or failed to respond to them, and instead instituted eviction proceedings against each of the complainants in New York City Housing Court (“Housing Court”). The three residents then filed complaints with the U.S. Department of Housing and Urban Development and/or the New York State Division of Human Rights, which in each case found reasonable cause to believe that EAST RIVER had violated the Fair Housing Act by refusing to grant the requested accommodation, and in the case of Mr. Gilbert further found that EAST RIVER had retaliated against him for exercising his right to file a complaint. EAST RIVER elected to have the claims against it brought in federal court.
The Government’s complaint alleges that EAST RIVER violated the Fair Housing Act by refusing to make reasonable accommodations when such accommodations may be necessary to afford persons with disabilities equal opportunity to use and enjoy their dwellings, and by coercing, intimidating, threatening, and interfering with the exercise or enjoyment of a dwelling on account of a complainant’s having exercised his or her rights under the Act. The Government further alleged that EAST RIVER’s conduct constituted a pattern of resistance to the full enjoyment of rights granted by the Fair Housing Act, and a denial to a group of persons of the rights granted by the Fair Housing Act.
During the course of the litigation, EAST RIVER refused to discontinue its efforts to evict two of the three complainants, Mr. Gilbert and Ms. Aaron. Instead, it sought to enforce a Housing Court order requiring Mr. Gilbert to pay approximately $30,000 of EAST RIVER’s attorney’s fees in that proceeding on threat of eviction, and it sought to enforce a Housing Court eviction order against Ms. Aaron. After EAST RIVER insisted on moving forward with these actions, the Government sought, and obtained, temporary restraining orders and preliminary injunctions from the federal court enjoining EAST RIVER from taking steps to evict the complainants until the case could be decided at trial.
* * *
As part of today’s settlement, EAST RIVER will enact a reasonable accommodation policy that explicitly acknowledges its responsibility to provide accommodations to persons with disabilities, including permitting residents with disabilities to keep emotional assistance animals or service animals in their apartments, and streamlines the process by which residents can apply for such accommodations. EAST RIVER will further train its officers and employees about the reasonable accommodation policy and the Fair Housing Act. EAST RIVER will also inform its current and future residents of this new policy.
In addition, to settle the Government’s claim on Mr. Gilbert’s behalf, EAST RIVER will permit Mr. Gilbert to keep a dog in his apartment, pay him $30,000, and forgive the attorney’s fees judgment of approximately $30,000 it obtained against him in the Housing Court. To settle the Government’s claim on Ms. Eisenberg’s behalf, EAST RIVER will permit Ms. Eisenberg to keep her dog in her apartment, pay her $55,000, forgive eight months’ basic maintenance payments, and withdraw its eviction case against her in Housing Court. The third complainant, Ms. Aaron, reached a separate settlement with EAST RIVER in the Housing Court, and on that basis the Government dismissed its claim on her behalf.
If you are a person with a disability who believes that you are being discriminated against by your housing provider, you may contact the Fair Housing and Equal Opportunity Office, U.S. Department of Housing and Urban Development, 26 Federal Plaza, Room 3532, New York, NY 10278-0068, and at (800) 496-4294.
This case is being handled by the Office’s Civil Rights Unit. Assistant United States Attorneys Jean-David Barnea and Elizabeth Tulis are in charge of the case.
Manhattan U.S. Attorney Announces the Arrest of the Son of Former President of Honduras for Conspiring to Import Cocaine into the United StatesRead 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, today announced that FABIO PORFIRIO LOBO was arrested in the Republic of Haiti and brought to the United States on charges that he conspired to import cocaine into the United States. LOBO was presented and arraigned before U.S. Magistrate Judge Kevin Nathaniel Fox this afternoon.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, Fabio Lobo attempted to break U.S. law by conspiring to traffic in cocaine. Being the son of a former public official, though, does not mean that you are above the law.”
DEA Special Agent in Charge Mark Hamlet said: “The arrest of Fabio Porfirio Lobo proves, once again, that no one is above the law, Mr. Lobo will be prosecuted in a U.S. court thanks, in large part, to the great cooperation from our international partners, particularly the Government of the Republic of Haiti.”
LOBO’s father, Porfirio Lobo, served as president of Honduras between 2010 and 2014. According to the allegations in the Indictment,[1] which was previously unsealed in Manhattan federal court, LOBO conspired with others from 2009 to 2014 to violate U.S. narcotics laws prohibiting the importation of cocaine. Specifically, the Indictment charges LOBO 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 defendant will be determined by a judge
Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division and New York Strike Force. Mr. Bharara also thanked the DEA’s Port-au-Prince Country Office, the Government of the Republic of Haiti and its Bureau de Lutte Contre le Trafic Illicite de Stupefiants, 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, Michael D. Lockard, and Adam Fee are in charge of the prosecution.
The charges contained in the Indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.
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[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Three Men Charged in Manhattan Federal Court in Multimillion-Dollar Scheme to Deceive Homeowners into Selling Their HomesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the Federal Bureau of Investigation (“FBI”), Christy Romero, and Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) announced that MARIO ALVARENGA, RAJESH MADDIWAR, and AMIR MEIRI were arrested today for participating in a scheme to fraudulently induce distressed homeowners to sell their homes to a company associated with the defendants. ALVARENGA, MADDIWAR, and MEIRI were presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Kevin Fox.
Manhattan U.S. Attorney Preet Bharara said: “In what is alleged to be a brazen fraud, these defendants manipulated and took advantage of vulnerable people, and in some cases even tricked individuals into losing their homes. I would like to thank our partners – the FBI, SIGTARP, and DFS – for their ongoing assistance on this case.”
FBI Assistant Director Diego Rodriguez said: “The defendants took advantage of distressed home owners, mostly the poor and elderly, promising relief. In reality it was nothing more than a callous scheme that took advantage of the most desperate of victims. And in many cases, the owners were evicted from their homes after being tricked into selling their property to the defendants arrested today.”
Special Inspector General for SIGTARP said: “The three individuals taken into custody today stand charged with preying on struggling homeowners simply looking for a way to keep their homes from falling into foreclosure. These individuals are alleged to have dangled false promises of guaranteed mortgage modifications as a veil for secretly swindling homeowners out of their homes and forcing homeowners to vacate their properties. SIGTARP and our law enforcement partners will aggressively investigate allegations of fraud related to the exploitation of TARP’s housing programs and bring perpetrators to justice. SIGTARP commends U.S. Attorney Bharara, Superintendent Lawsky, and the FBI for their shared commitment to safeguarding taxpayers from TARP-related crime.”
According to the allegations in the Complaint unsealed today in Manhattan federal court[1]:
Since at least 2013, ALVARENGA, MADDIWAR, and MEIRI have defrauded distressed homeowners throughout the Bronx, Brooklyn, and Queens. ALVARENGA, MADDIWAR, and MEIRI falsely represented to these homeowners – some of whom were elderly or in poor health – that they could assist them with a loan modification or similar relief from foreclosure that would allow the homeowners to save their homes. But rather than actually assisting these homeowners, the defendants deceived them into selling their homes to Launch Development LLC (“Launch Development”), a for-profit real estate company also affiliated with the defendants.
ALVARENGA, MADDIWAR, and MEIRI lured victims through the Homeowners Assistance Service of New York (“HASNY”), which purported to provide assistance to homeowners who were seeking to avoid foreclosure of their homes. As part of the scheme, MEIRI directed employees of Launch Development, a company owned in part by MEIRI, to solicit owners of distressed properties and invite them to meet with HASNY representatives so that they could learn more about avoiding foreclosure and saving their homes.
When a homeowner arrived at the HASNY office, he or she met with ALVARENGA, who typically advised the homeowner that HASNY could assist him or her with a loan modification. In still other cases, ALVARENGA advised the homeowner that a loan modification could not be completed, but that the homeowner could engage in a type of short sale in which the homeowner would sell the property to a third party, Launch Development, and then within approximately 90 days arrange for a relative of the homeowner to repurchase the property from Launch Development. ALVARENGA typically explained that the homeowner could remain in his or her home throughout the entire process. ALVARENGA then typically scheduled a closing at which the homeowner would meet with MADDIWAR, who was described as the homeowner’s attorney for the transaction.
At the closing, a homeowner who had been led to believe that he or she was about to receive a loan modification or transfer his or her property to a trusted relative was encouraged to sign documents presented by MADDIWAR, which in some cases were blank. Unbeknownst to the homeowners, by signing the documents, they were selling to Launch Development the homes they had hoped to save. Homeowners often were then forced to vacate their homes soon thereafter.
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ALVARENGA, MADDIWAR, MEIRI are each charged with one count of conspiracy to commit wire fraud, which carries a maximum term 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.
Mr. Bharara praised the outstanding work of the FBI, SIGTARP, and the New York State Department of Financial Services for their investigative efforts and ongoing support and assistance with the case.
If you believe you were a victim of this crime, including a victim entitled to restitution, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact Wendy Olsen-Clancy, the Victim Witness Coordinator at the United States Attorney's Office for the Southern District of New York, at (866) 874-8900, or [email protected]. For additional information, go to: http://www.usdoj.gov/usao/nys/victimwitness.html.
The prosecution of this case is being overseen by the Office’s General Crimes Unit. Assistant U.S. Attorney Jaimie L. Nawaday is in charge of the case.
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.
Manhattan U.S. Attorney Announces Consent Decree Resolving Westchester County’s ViolationsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Judith Enck, Regional Administrator of the U.S. Environmental Protection Agency (“EPA”), announced today that Westchester County (“Westchester” or the “County”) has entered into a consent decree with the United States to resolve the civil lawsuit filed in August 2013, alleging that since April 2012 the County has failed to operate its Water District No. 1 in compliance with regulations designed to protect the public from Cryptosporidium, a parasite that can cause severe gastrointestinal illness. Water District No. 1 supplies water to residents of Scarsdale, White Plains, Mount Vernon, and Yonkers. Since April 2012, a significant portion of the drinking water distributed by Water District No. 1 has not been properly treated.
U.S. Attorney Preet Bharara stated: “For years, Westchester County has flouted its obligations under the Safe Drinking Water Act by failing to ensure that drinking water supplied by Westchester Water District No. 1 was properly treated for Cryptosporidium. Today’s consent decree ensures that Westchester will finally come into compliance with EPA standards, and will pay a significant civil penalty for its years of noncompliance.”
EPA Regional Administrator Enck stated: “The people of Westchester deserve high quality drinking water. These long-overdue drinking water treatment upgrades will bring Westchester into compliance with the Safe Drinking Water Act, and will protect the people of Mount Vernon, Scarsdale, White Plains and Yonkers from water-borne diseases.”
According to the allegations of the complaint:
Since April 2012, Westchester, through its Water District No. 1, has failed to comply with the Long Term 2 Enhanced Surface Water Treatment Rule (the “Enhanced Water Treatment Rule”) by failing to upgrade its water treatment facilities or capabilities to properly treat its drinking water for Cryptosporidium. Public water systems that were required to comply with the Enhanced Water Treatment Rule had more than six years from the enactment of the rule to achieve compliance. The Enhanced Water Treatment Rule specifically targets public water systems with higher potential risks of Cryptosporidium contamination; it requires such public water systems to treat unfiltered surface water for this parasite. Cryptosporidium contamination can lead to cryptosporidiosis, a potentially fatal gastrointestinal illness in humans for which there is no known treatment. The illness poses greater risks to people with weakened immune systems, such as young children, pregnant women, and the elderly.
Previously in this litigation, the U.S. District Court in White Plains ruled that Water District No. 1 is a public water system and that Water District No. 1 was subject to an April 1, 2012, deadline to comply with the treatment requirements in the Enhanced Water Treatment Rule.
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In the consent decree filed today in White Plains federal court, Westchester admits, acknowledges, and accepts responsibility for the following:
- Westchester operates Water District No. 1.
- Westchester, “as operator of Water District No. 1, failed to ensure that Water District No. 1 implemented the water treatment measures of the Enhanced Water Treatment Rule.”
- The Enhanced Water Treatment Rule “required certain public water systems to implement specific water treatment measures” by April 1, 2012.
- “Water District No. 1 did not implement the water treatment measures of the Enhanced Water Treatment Rule by April 1, 2012, and to date has not implemented the water treatment measures of the Enhanced Water Treatment Rule.”
Pursuant to the consent decree filed today, Westchester will make capital improvements within Water District No. 1 to bring it into compliance with the Enhanced Water Treatment Rule. These capital improvements will cost approximately $10 million. While the capital improvements are being completed, the consent decree requires Westchester to undertake interim measures, including to reduce the amount of noncompliant water supplied by Water District No. 1 and enhanced monitoring of source water from the Kensico Reservoir for Cryptosporidium. Westchester will make the enhanced source monitoring results available to the public on its website.
In addition to this injunctive relief, Westchester will pay a civil penalty of $1,108,771, the largest civil penalty ever imposed under the Safe Drinking Water Act on the operator of a public water system. Westchester will be subject to substantial additional penalties if it fails to adhere to the deadlines in the consent decree.
Finally, Westchester has agreed to spend an additional $691,229 on supplemental environmental projects for the benefit of the residents of Water District No. 1. Westchester has committed to expend these funds (i) to increase the number of days during which unused pharmaceuticals and hazardous household chemicals will be accepted from residents of Water District No. 1 at Westchester’s Household Materials Recovery Facility or at other designated sites and (ii) to purchase at least $100,000 worth of 55-gallon rain barrels for residential collection and storage of roof rainwater runoff, to be distributed to residents of Water District No. 1.
The consent decree will be lodged with the District Court for a period of at least 30 days, and notice of the consent decree will be published in the Federal Register before the consent decree is submitted for the Court’s approval. This will afford members of the public the opportunity to submit comments on the consent decree to the Department of Justice.
This case is being handled by the Office’s Environmental Protection Unit. Assistant United States Attorneys Andrew E. Krause and Cristine Irvin Phillips are in charge of the case.
Former DEA Supervisor and Employee Charged with False Statements Regarding Employment at Adult Entertainment EstablishmentRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and Ronald G. Gardella, Special Agent-in-Charge of the Department of Justice Office of the Inspector General (“DOJ OIG”), announced today the arrest of DAVID POLOS, until recently an Assistant Special Agent-in-Charge with the Drug Enforcement Administration (“DEA”), and GLEN GLOVER, a DEA Information Technology Specialist, for allegedly making false statements to the government regarding their employment at an adult entertainment establishment. The Complaint alleges that POLOS, who supervised the Organized Crime and Drug Enforcement Strike Force, and GLOVER failed to disclose their employment at, and ownership interests in, an adult entertainment establishment (the “Club”) in Northern New Jersey in connection with a background check to determine their suitability as employees of a federal law enforcement agency with access to classified information. The national security forms POLOS and GLOVER allegedly submitted in connection with the background check require disclosure of outside employment in part due to concerns attendant to certain types of employment, including proximity to crime and persons involved in crime and the risk of employee blackmail. POLOS and GLOVER surrendered to the FBI in Manhattan this morning, and are scheduled to appear before U.S. Magistrate Judge Kevin Nathaniel Fox in Manhattan federal court later today.
Manhattan U.S. Attorney Bharara said: “David Polos and Glen Glover had important and sensitive law enforcement jobs with the DEA. As alleged in the Complaint, they also had other secret jobs, which they concealed from DEA in order to maintain their national security clearance, betraying the oaths they had taken and creating needless risk for the agency they worked for.”
FBI Assistant Director-in-Charge Rodriguez said: “We expect those in government—and particularly those charged with enforcing the law—to tell the truth. As alleged, the defendants’ lack of candor is what finds them before a judge today in Manhattan Federal Court.”
DOJ OIG Special Agent-in-Charge Gardella said: “Federal law enforcement officers must be held to the highest standards of integrity. The alleged conduct is serious and we will do everything we can to ensure that justice is done in this case.”
According to the allegations in the Complaint unsealed today in Manhattan federal court*:
GLOVER and POLOS submitted national security forms in August and September 2011, respectively, that stated, among other things, that they did not have employment other than their DEA jobs within the previous seven years. In fact, as charged, GLOVER was the part owner of, and POLOS had a convertible ownership interest in, the Club, which featured scantily clad and sometimes topless women dancers and offered private stalls for what were supposed to be limited-contact dances between dancers and their patrons. As POLOS and GLOVER knew, many of the dancers – who at times engaged in sexual acts with club patrons and staff – were undocumented immigrants not lawfully in the United States.
GLOVER and POLOS both worked regular shifts at the Club in the months prior to and following their submission of the national security forms. They also hired, fired, and paid bartenders, dancers, and bouncers; advertised the Club in local periodicals; manned a back office available only to employees; remotely monitored video camera feed from the Club when not present; and generally tended to various Club-related matters. GLOVER and POLOS at times attended to Club matters during DEA work hours.
Had POLOS and GLOVER truthfully disclosed their employment at the Club, their ownership and involvement in the affairs of the Club would have been investigated as part of their background checks, and the security clearances that they were required to maintain as federal law enforcement employees likely would have been denied.
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POLOS, 51, of West Nyack, New York, and GLOVER, 45, of Lyndhurst, New Jersey, are each charged with one count of making false statements, which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.
Mr. Bharara praised the investigative work of the FBI and DOJ OIG. He also thanked the Internal Revenue Service-Criminal Investigation Division for its assistance.
This case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Martin S. Bell and Andrew D. Goldstein 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.
* 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.
Attorney Sentenced in White Plains Federal Court to Federal Prison for Subscribing to False Federal Income Tax ReturnsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Caroline D. Ciraolo, Acting Assistant Attorney General for the U.S. Department of Justice’s Tax Division, announced that MATTHEW LIBOUS was sentenced yesterday to six months in prison for failing to report income on his tax returns for the 2007, 2008, and 2009 tax years. LIBOUS was convicted at a bench trial in January 2015. United States District Judge Vincent L. Briccetti imposed yesterday’s sentence.
According to the Superseding Indictment and the evidence presented at trial:
LIBOUS engaged in the practice of law from 2006 through 2008. LIBOUS deposited the fees he received into his personal bank account but never reported them on his tax return. In 2008, LIBOUS became a minority partner and manager of Wireless Construction Solutions, LLC ("WCS"), a company that maintained cellular telephone towers. LIBOUS caused WCS to pay thousands of dollars in his personal expenses on his behalf from 2008 to 2011. Judge Briccetti found today that LIBOUS failed to report more than $97,000 in income, leading to a tax loss of more than $38,000.
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In addition to the prison sentence, LIBOUS, 37, of Glen Ridge, New Jersey, was sentenced to one year of supervised release, a $25,000 fine, 100 hours of community service, and costs of prosecution.
Mr. Bharara praised the outstanding investigative work of the Internal Revenue Service - Criminal Investigation and the investigators from the U.S. Attorney's Office for the Southern District of New York.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorney James McMahon and Special Assistant U.S. Attorney Andrew Kameros are in charge of the prosecution.
Pharmacist Found Guilty in Manhattan Federal Court of Misbranding and Fraud Offenses Arising from Internet Pharmacy SchemeRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, announced today that LENA LASHER, a licensed pharmacist, was found guilty in federal court of misbranding and fraud offenses arising from an Internet pharmacy scheme. LASHER was convicted on Friday, May 15, in Manhattan federal court after a two-week trial before U.S. District Judge Naomi Reice Buchwald.
According to the Indictment, and Superseding Indictment, public filings, and evidence presented at trial:
From 2008 through late November 2012, LASHER, along with others, engaged in a scheme to dispense prescription drugs, including addictive pain medications, to customers who ordered them online, without meeting or consulting with a physician. Over the course of the scheme, LASHER, a licensed pharmacist who was the Pharmacist-In-Charge at Hellertown Pharmacy in Hellertown, Pennsylvania, and who supervised a second pharmacy, Palmer Pharmacy & Much More in Easton, Pennsylvania, dispensed and caused others to dispense hundreds of thousands of pain pills without valid prescriptions.
LASHER also directed employees at the two pharmacies she supervised to ship pills in vials with false or misleading labels. At LASHER’s direction, instructions on the labels for how often a customer should take certain drugs were often altered, and the descriptions on the labels regarding the quantity of pills in the pill vial were often inaccurate. She also directed employees to take pills that had been returned by customers or delivery services, remove the labels, and then to re-dispense the pills to other customers with new labels, without informing those new customers that they were receiving pills that had previously been dispensed to others. LASHER also instructed her employees to store pills without required information, such as a lot number or expiration date.
As part of her effort to conceal the nature of the Internet pharmacy business at both pharmacies, LASHER made false representations to multiple state boards of pharmacy and to an investigator with the Commonwealth of Pennsylvania. LASHER also instructed her employees to use code when talking about the Internet pharmacy scheme, telling them to refer to prescription drugs dispensed pursuant to prescriptions obtained over the Internet as “nursing home meds” and not to use the word “Internet” in describing the pharmacies’ business to walk-in customers or the United States Post Office.
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LASHER, 47, of High Bridge, New Jersey, was convicted of one count of conspiracy to introduce misbranded prescription drugs into interstate commerce and to misbrand prescription drugs while held for sale, with intent to defraud or mislead, which carries a maximum sentence of five years; one count of introducing misbranded prescription drugs into interstate commerce, with intent to defraud or mislead, which carries a maximum sentence of three years; one count of conspiracy to commit mail fraud and wire fraud, which carries a maximum sentence of 20 years; one count of mail fraud, which carries a maximum sentence of 20 years; and one count of wire fraud, which carries a maximum sentence of 20 years. LASHER was acquitted of one count of witness tampering. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as the sentencing of the defendant will be determined by the judge.
LASHER, who is scheduled to be sentenced on September 2, 2015 at 2 p.m., was arrested on November 29, 2012, along with Peter J. Riccio, the owner of Hellertown Pharmacy and Palmer Pharmacy & Much More, multiple physicians, and others involved in the Internet pharmacy scheme. Other than defendant Gergana Chervenkova, who remains at large abroad, and who is presumed innocent unless and until proven guilty, all defendants in the case have been convicted.
United States Attorney Bharara praised the investigative work of the Drug Enforcement Administration, the Food and Drug Administration, Office of Criminal Investigations, and the United States Postal Inspection Service, and expressed his appreciation for the assistance of the Commonwealth of Pennsylvania, Department of State, and the New Jersey Department of Law & Public Safety, Division of Law, Professional Boards Prosecution Section.
The case is being handled by the Office’s Narcotics Unit. Assistant U.S. Attorneys Daniel C. Richenthal and Kristy J. Greenberg are in charge of the prosecution.15-127
Manhattan U.S. Attorney and Assistant Attorney General Announce Sentence of Life in Prison for High-Ranking Al Qaeda Terrorist Convicted of Conspiring to Kill Americans and Other Terrorism OffensesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and John P. Carlin, Assistant Attorney General for National Security, announced today that KHALID AL FAWWAZ was sentenced to life in prison for multiple terrorism offenses relating to his participation in al Qaeda’s conspiracy to kill Americans. U.S. District Judge Lewis A. Kaplan imposed sentence on FAWWAZ, 52, a citizen of Saudi Arabia, in Manhattan federal court, at a proceeding attended by victims of the 1998 bombings of the U.S. embassies in Nairobi, Kenya, and Dar es Salaam, Tanzania. FAWWAZ’s sentencing follows a six-week jury trial in January and February of this year, at which FAWWAZ was convicted of all four counts in which he was charged.
Manhattan U.S. Attorney Preet Bharara said: “Khalid al Fawwaz, who played a critical role for al Qaeda in its murderous conspiracy against America, will now spend the rest of his life in a federal prison. As one of Osama bin Laden's original and most trusted lieutenants, Fawwaz led an al Qaeda training camp in Afghanistan and a terrorist cell in Kenya before serving as bin Laden’s media adviser in London. Fawwaz was bin Laden's bridge to the West, facilitating interviews of bin Laden in Afghanistan by Western media and disseminating bin Laden's 1996 declaration of jihad against America and his 1998 fatwah directing followers to kill Americans anywhere in the world. To that end, on August 7, 1998, al Qaeda operatives bombed our embassies in Kenya and Tanzania, murdering 224 innocent people and wounding thousands more. Fawwaz conspired with a murderous regime, and the result was a horrific toll of terror and death. The price he will pay, appropriately severe as it is, cannot possibly compensate his victims and their families.”
Assistant Attorney General John P. Carlin said: “Fawwaz is a terrorist who for years served Usama bin Laden and held many positions within al Qaeda. With this sentence, he is being held accountable for his role in al-Qaeda's conspiracy to kill U.S. nationals worldwide during the 1990s. This case is a testament to our commitment to bringing to justice those who threaten the United States and our interests around in the world, no matter how long it may take.”
According to the evidence presented at trial:
During the early 1990s, FAWWAZ trained at al Qaeda’s Jawar military training camp in Afghanistan and then became the emir, or head, of al Qaeda’s al Siddiq military training camp in Afghanistan. In approximately 1993, FAWWAZ moved to Nairobi, Kenya, where he served as one of the leaders of the al Qaeda members there, during a time that al Qaeda was sending fighters through Nairobi to Somalia to fight, and to train Somalis to fight, United States and United Nations forces in Somalia. FAWWAZ was also a leader of al Qaeda in Nairobi when al Qaeda began its preparations to attack the United States Embassy there.
The evidence further showed that, in 1994, FAWWAZ began to act as Osama bin Laden’s media representative in London, England. FAWWAZ served as bin Laden’s conduit to Western media, screening requests for interviews of Bin Laden and facilitating travel to Afghanistan by journalists who were allowed to interview bin Laden. FAWWAZ also publicized bin Laden’s threats of violence against the United States. Among other things, FAWWAZ delivered bin Laden’s August 1996 Declaration of Jihad against the United States to a journalist for publication and helped arrange for the publication of a February 1998 fatwa, signed by bin Laden and others, that claimed it was the individual duty of every Muslim to kill Americans, civilian and military, in any country where it was possible to do so. In addition, FAWWAZ provided al Qaeda with advice about how best to disseminate to the West its message of terror, and helped obtain for al Qaeda items that were difficult to obtain in Afghanistan, such as generators, vehicles, and communications equipment. In addition, a list of al Qaeda members recovered in Kandahar, Afghanistan, by the United States military in late 2001 contained FAWWAZ’s alias, and had him numbered ninth on the list.
Following FAWWAZ’s arrest in England in September 1998, FAWWAZ challenged his extradition to the United States for over a decade. He arrived in the Southern District of New York in October 2012.
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FAWWAZ’s sentencing follows convictions for conspiring to kill United States nationals (Count One), conspiring to murder officers and employees of the United States (Count Three), conspiring to destroy buildings and property of the United States (Count Five), and conspiring to attack national defense utilities (Count Six). Counts One, Three, and Five each carried a maximum term of life in prison, and Count Six carried a maximum term of 10 years in prison.
Mr. Bharara praised the outstanding efforts of the FBI’s New York Joint Terrorism Task Force – which principally consists of agents from the Federal Bureau of Investigation and detectives from the New York City Police Department. Mr. Bharara also thanked the United States Marshals Service, the United States Department of Justice’s Office of International Affairs, and the National Security Division for their efforts. Mr. Bharara additionally thanked New Scotland Yard for its cooperation in the investigation and prosecution.
The case is being prosecuted by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys Sean S. Buckley, Adam Fee, Nicholas J. Lewin, and Stephen J. Ritchin are in charge of the prosecution.
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Two Men Plead Guilty in Manhattan Federal Court in Connection with Violent Daytime Robberies of Jewelry and Watch Stores Across Four StatesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that SEAN ROBINSON and KENDAL THOMPSON pled guilty in connection with a robbery conspiracy operating across New York, New Jersey, Virginia, and Connecticut in which members committed daytime robberies of high-end jewelry and watch stores, including Cartier in Manhattan, using violence, including firearms, and resulting in serious injury to victims and the theft of more than one million dollars in watches and other goods. THOMPSON pled guilty today before United States District Judge Loretta A. Preska, and ROBINSON pled guilty on May 7, 2015, before Judge Preska. To date, eight members of the crew have been apprehended and pled guilty. Two defendants, JAMAL DEHOYOS and COURTNEY HARDIN, remain wanted by the Federal Bureau of Investigation (“FBI”) and are considered armed and dangerous.
According to the allegations contained in court documents previously filed in federal court, and statements made in Court during the pleas of THOMPSON and ROBINSON:
Between approximately July 1, 2013, and January 30, 2014, a highly organized crew engaged in a series of violent robberies of high-end jewelry and watch stores located in four states. During those robberies, crew members smashed display cases with hammers while customers and employees were in the stores, and stole more than one million dollars in luxury watches.
The crew used violence as necessary to carry out the scheme. For example, in one robbery in August 2013 in Richmond, Virginia, the robbers used a handheld stun gun to subdue a female store employee before fleeing with more than a $100,000 in watches. Additionally, THOMPSON and ROBINSON both participated in a September 23, 2013, armed daytime robbery of a jewelry store in Brooklyn, New York, in which two of the robbers displayed handguns, and one of the robbers shot the store owner when he attempted to prevent members of the crew from fleeing with stolen jewelry. ROBINSON, the leader of the crew, planned the September 23, 2013, robbery, as well as a series of other robberies committed by this crew.
Among the stores robbed by the crew are: Cartier, in Manhattan; Travers Jewelers, in Manhattan; Golden Nugget Jewelry, in Manhattan; New York; the Borgata Hotel and Casino in Atlantic City, New Jersey; Schwarzschild’s Jewelers in Richmond, Virginia; Martin Jewelers in Cranford, New Jersey; Henry Reid and Sons Jewelers in New Canaan, Connecticut, and Litan Jewelers in Brooklyn, New York.
* * *
ROBINSON, 43, and THOMPSON, 31, both of Brooklyn, New York, each pled guilty to one count of Hobbs Act robbery conspiracy, which carries a maximum sentence of 20 years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.
To date, two members of this conspiracy have been sentenced. On March 18, 2015, Judge Preska sentenced ALLEN WILLIAMS to 108 months in prison. On October 23, 2014, United States District Judge Robert P. Patterson sentenced TERRELL RATLIFF to 33 months in prison.
Mr. Bharara praised the investigative work of the FBI and the New York City Police Department. He also thanked the police departments of Cranford, New Jersey; Atlantic City, New Jersey; Richmond, Virginia; and New Canaan, Connecticut, and the Manhattan and Brooklyn District Attorneys’ Offices, and the Union County, New Jersey, Prosecutor’s Office, for their assistance in the investigation, which he noted is ongoing.
The case is being prosecuted by the Office’s General Crimes Unit. Assistant United States Attorneys Andrea M. Griswold and Richard Cooper are in charge of the prosecution.
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Manhattan U.S. Attorney Settles Civil Fraud Claims Against Westchester Medical Center Arising from Its Violations of the Anti-Kickback Statute and the Stark LawRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today that the United States has settled civil fraud claims under the False Claims Act against WESTCHESTER COUNTY HEALTH CARE CORPORATION d/b/a WESTCHESTER MEDICAL CENTER (“WMC”) related to WMC’s alleged violations of the Anti-Kickback Statute and the Stark Law and submission of costs reports to Medicare seeking reimbursement for charges WMC did not incur. In connection with the settlement, which was approved by U.S. District Judge Lewis A. Kaplan on May 14, 2015, the defendant agreed to pay a total of $18,800,000 to resolve its liabilities, and made admissions as to its conduct.
Manhattan U.S. Attorney Preet Bharara said: “The conduct of Westchester Medical Center is the reason the Anti-Kickback Statute and the Stark Law are so important – they are laws that help to rid the healthcare industry of conflicts that can improperly influence medical judgment, potentially jeopardizing patient care and causing federal healthcare programs to pay for excessive or unnecessary treatments. Hospitals and medical practices have an obligation to patients, and taxpayers, to ensure their arrangements conform to the requirements of these laws.”
HHS-OIG Special Agent in Charge Scott J. Lampert said: “Westchester Medical Center’s aggressive, intricate kickbacks and other fraud schemes in this case threatened the impartiality of medical referrals, the financial integrity of Medicare, and the public’s trust in the health care system. Our agency will continue to investigate those who seek to cheat federal health care programs.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “Westchester Medical Center participated in a coordinated shakedown of Medicare and, by extension, taxpayers. Today, they agreed to pay more than $18 million to resolve their liabilities and enable this government program to serve the seniors it was designed to help.”
According to the complaint-in-intervention filed in Manhattan federal court:
WMC operates a tertiary and quaternary care hospital in Valhalla, New York, and serves as the primary clinical affiliate of New York Medical College. From approximately 2000 through 2007, WMC maintained a financial relationship with Cardiology Consultants of Westchester, P.C. (“CCW”), a cardiology practice formerly operating on WMC’s Valhalla campus, which violated the Anti-Kickback Statute and the Stark Law. In particular, the complaint-in-intervention alleges that WMC advanced monies to CCW to open a practice for the express purpose of generating referrals to the hospital. When CCW began making payments to WMC purportedly repaying the advances, WMC entered into retroactive, no-work consulting agreements under which it paid CCW tens of thousands of dollars. Further, the complaint-in-intervention alleges that around this same time, WMC also began permitting CCW to use WMC’s fellows in CCW’s private office free of charge, contrary to WMC’s historic practice. As a result, WMC’s submission of claims to the Medicare Program for services rendered to patients referred to WMC by CCW’s shareholder physicians violated the False Claims Act. Additionally, during the same time period, through cost reports filed with the Centers for Medicare and Medicaid Services (“CMS”), WMC wrongly sought and obtained reimbursement for certain costs that WMC did not incur and that were not reimbursable under the relevant cost-reporting rules.
Under the Medicare Program, CMS makes payments to hospitals for inpatient and outpatient services after the services are rendered. Hospitals, like all healthcare providers, are required to comply with the Anti-Kickback Statute and the Stark Law, and in both cases, are prohibited from submitting claims tainted by such violations to the Medicare Program.
The Anti-Kickback Statute makes it illegal for a hospital to knowingly and willfully offer or pay remuneration to any person to induce that person to purchase, order, or recommend purchasing or ordering any good or item for which payment may be made under a federal health care program. The Anti-Kickback Statute arose out of congressional concern that remuneration given to those who can influence health care decisions would result in goods and services being provided that are medically unnecessary, of poor quality, or harmful to a vulnerable patient population.
The Stark Law provides that the government will not pay for certain designated health services prescribed by physicians who have improper financial relationships with entities to whom they refer patients because such financial relationships can compromise the physicians’ professional judgment as to whether a service is medically necessary, safe, effective, and of good quality.
As part of today’s settlement, WMC admitted the following conduct:
- Kingston Practice Arrangement. In July 2001, WMC, through its practice management affiliate, Matrix Resources, L.L.C. (“Matrix”), entered into a management agreement with CCW through which WMC agreed to assist CCW in establishing and developing a medical office located in Kingston, New York, with the objective of expanding WMC’s referral base and service area to the upper reaches of the Hudson Valley.
- Pursuant to the terms of the management agreement, which had an initial term of three years, Matrix agreed to provide certain management services for CCW’s Kingston office and to advance working capital to establish and operate the office. Between 2001 and 2002, WMC, through Matrix, advanced to CCW approximately $450,000 to pay for certain costs of the practice, including payment of the monthly management fee due under the management agreement.
- The management agreement provided that CCW would repay the advances at a rate of 8.5 percent interest by the end of the three-year term, with the proviso that the management agreement could be extended for one year if full repayment had not been made.
- In July 2002, CCW and WMC began discussions regarding the termination of the management agreement. At the outset of these discussions, WMC received a memorandum from CCW requesting that WMC, among other things, postpone or eliminate certain interest payments, reduce the applicable interest rate to the then-market rate of 6.5 percent, and extend the repayment period in recognition of CCW’s efforts in developing clinical volume at the Kingston practice and the resulting referral benefit to WMC.
- As of April 25, 2003, CCW and WMC executed a promissory note and associated letter agreement providing for immediate termination of the management agreement and repayment of the then-outstanding advances over five years at an initial interest rate of 4.75 percent (subject to periodic adjustment based upon changes in the prime rate), beginning with an initial repayment of $116,936.15 on April 28, 2003.
- In addition, on April 25, 2003, three days prior to CCW’s initial repayment of the advance, WMC and CCW entered into a two-year consulting agreement, retroactive to July 2, 2002. Pursuant to this agreement, CCW was to provide various consulting services to WMC for an annual amount of $50,000. In April 2004, the contract was amended and extended.
- Between April 2003 and July 2005, WMC paid CCW approximately $190,000 under the original and amended consulting services agreement.
- WMC was not able to locate evidence that CCW performed the contracted services under this agreement.
- During the period of approximately April 2003 through July 2005, CCW referred patients for hundreds of medical procedures at WMC.
- Fellows. For certain years during the relevant period, WMC charged various physician practices for a portion of the salaries and expenses relating to residents and fellows who trained at WMC. During the relevant period, fellows in WMC’s cardiology fellowship program performed certain services within CCW’s private offices as part of their regular clinical rotation.
- Prior to 2003, CCW paid hundreds of thousands of dollars to WMC for the salaries and expenses relating to cardiology fellows.
- Beginning in 2003, CCW ceased paying the fellowship charges for which it was invoiced by WMC; after continuing to bill CCW, but failing to compel payment, WMC wrote off these amounts as uncollectible in April 2007.
- Cost Report Reimbursement. From 2000 through 2007 (“relevant cost report timeframe”), WMC submitted annual Medicare cost reports to the Health Care Financing Administration (“HCFA”), and later CMS, reflecting certain costs, referred to as Direct Graduate Medical Education (“DGME”) and Indirect Medical Education (“IME”), associated with its residency and fellowship programs.
- Pursuant to certain HCFA/CMS regulations applicable to the DGME and IME lines of Medicare cost reports in effect during the relevant cost report timeframe, hospitals were permitted to claim reimbursement for time spent by the residents or fellows at other hospitals and non-hospital settings only if the hospital incurred all or substantially all of the salary and fringe benefit expense of the residents and fellows being rotated through other hospitals or non-hospital settings and complied with other applicable regulatory requirements.
- For the relevant cost report timeframe, WMC included certain costs in its filed cost reports that corresponded to time spent by certain residents and fellows at other hospitals or at non-hospital settings, but did not incur all or substantially all of the costs associated with these fellows and residents, or otherwise did not meet applicable HCFA/CMS regulatory requirements.
WMC also agreed to pay $18,800,000 to resolve its liabilities for this conduct.
* * *
Mr. Bharara praised the investigative work of the agents at HHS-OIG and expressed appreciation for their dedication to the case. Mr. Bharara also praised the investigative work of the FBI.
The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorneys Rebecca C. Martin and Christine Schessler Poscablo are in charge of the case.
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Manhattan U.S. Attorney and FBI Announce Insider Trading Charges Against Managing Director of Investment Bank and His FatherRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal Complaint in Manhattan federal court charging SEAN STEWART, a Managing Director at an investment advisory firm headquartered in Manhattan, and his father, ROBERT STEWART, with using inside information to trade and cause another to trade in the securities of five different health care companies, the acquisitions of which were announced between 2011 and 2014. ROBERT STEWART was arrested on conspiracy and insider trading charges this morning at his home in North Merrick, Long Island. SEAN STEWART surrendered to the FBI on the same charges in Middleton, Wisconsin, and is expected to appear in Manhattan federal court on Monday.
Manhattan U.S. Attorney Preet Bharara said: “The Stewarts – father and son alike – allegedly engaged in insider trading together to the tune of more than $1 million. And, as alleged in one instance, the son’s tip to his father became a gift to himself when his father kicked back some of the proceeds of the insider trading to pay for his son’s wedding. I would like to thank our partners at the FBI for their excellent investigative work on this and so many other financial fraud cases.”
Assistant Director-in-Charge Diego Rodriguez said: “The defendants today stand charged with violations of our securities laws. The cash payments and cryptic communication, as alleged in the complaint, show the seriousness of the allegations. We will continue to police our markets to ensure they are legal, fair, and equitable.”
According to the Complaint* unsealed today in Manhattan federal court:
In early 2011, SEAN STEWART, who at the time held the position of Vice President in the Healthcare Investment Banking Group of a global bank headquartered in Manhattan (“Investment Bank A”), began tipping his father, ROBERT STEWART, with nonpublic information about upcoming mergers and acquisitions. The first of these deals involved the acquisition of Kendle International Inc. by INC Research, LLC, which was announced publicly on May 4, 2011. SEAN STEWART worked on the deal, representing Kendle. ROBERT STEWART made about $7,900 in profits on purchases of Kendle stock executed in February and March of 2011. When questioned by the Securities and Exchange Commission about his Kendle trades in May 2013, ROBERT STEWART reported that he used the proceeds of those trades to pay expenses related to SEAN STEWART’s June 2011 wedding.
The second deal about which SEAN STEWART tipped ROBERT STEWART was the acquisition of Kinetic Concepts, Inc. (“KCI”) by Apax Partners, announced on July 13, 2011. Although ROBERT STEWART purchased some stock in KCI based on SEAN STEWART’s tip, he sold that stock before the acquisition was announced, around the same time that SEAN STEWART learned the Financial Industry Regulatory Authority was conducting an inquiry into ROBERT STEWART’s Kendle trading.
Also around this time, in the spring of 2011, ROBERT STEWART expressed a concern to a co-conspirator and cooperating witness not named in the criminal Complaint (“CW-1”) that ROBERT STEWART was “too close to the source” to be trading in KCI stock his own account, and asked CW-1 to make purchases of KCI call options for ROBERT STEWART in CW-1’s brokerage account. CW-1 agreed to do so, and also mirrored for his own benefit the KCI trades that ROBERT STEWART was directing.
When the KCI/Apax Partners deal was announced, ROBERT STEWART and CW-1 reaped profits totaling approximately $107,790. At around this time, ROBERT STEWART told CW-1 that the source of the KCI tip and the earlier Kendle tip had been ROBERT’s son. Later, around the spring of 2012, ROBERT STEWART clarified for CW-1 that the son in question was SEAN STEWART, who worked on the “sell side” on Wall Street.
In October 2011, SEAN STEWART left Investment Bank A. A few months later, he joined an investment banking advisory firm headquartered in Manhattan (“Investment Bank B”) as a Managing Director.
During SEAN STEWART’s tenure with Investment Bank B, based on tips concerning nonpublic acquisition-related information supplied by SEAN STEWART, ROBERT STEWART had CW-1 conduct options trading in advance of the public announcements of three more deals: (1) the acquisition of Gen-Probe Inc. by Hologic, Inc., announced on April 30, 2012; (2) the acquisition, by tender offer, of Lincare Holdings Inc. by Linde AG, announced on July 1, 2012; and (3) the acquisition of CareFusion Corp. by Becton, Dickinson & Co. (“Becton”), announced on October 5, 2014. Investment Bank B represented Hologic in connection with its acquisition of Gen-Probe; Linde in connection with its acquisition of Lincare; and CareFusion in connection with its acquisition by Becton. The profits that ROBERT STEWART and CW-1 reaped from illegal insider trading in advance of the announcements of these three deals totaled over $1 million. In the midst of the scheme, in December 2012, ROBERT STEWART transferred at least $15,000 to SEAN STEWART.
To try to avoid detection for their crimes, ROBERT STEWART and CW-1 refrained from speaking explicitly about their trading over the phone or e-mail, sometimes using “golf”-related code. For example, shortly after the announcement of Lincare’s proposed acquisition by Linde, a German company, ROBERT STEWART wrote to CW-1 that he had seen a news story about the “high cost of golf reservations since a foreign company purchased all- even more expensive than imagined.” Other steps ROBERT STEWART and CW-1 took to avoid detection included trying to discuss their trading at face-to-face meetings and adopting a profit-splitting mechanism that had CW-1 paying ROBERT STEWART his portion of the illegal proceeds in small increments, over time, typically in cash.
In March and April of 2015, CW-1 recorded meetings he had with ROBERT STEWART. During one such meeting, ROBERT STEWART accepted a payment of $2,500 cash from CW-1, which was the balance of the proceeds owed to ROBERT STEWART for profitable trading executed in CW-1’s account in advance of the CareFusion acquisition announcement. Also during this meeting, ROBERT STEWART admitted that SEAN STEWART once chastised him for failing to make use of a tip, saying, “I can’t believe I handed you this on a silver platter and you didn’t invest in it.”
* * *
SEAN STEWART, 34, of New York, New York, and ROBERT STEWART, 60, of North Merrick, New York, have each been charged in the Complaint with one count of conspiracy to commit securities fraud and fraud in connection with a tender offer (Count One), one count of conspiracy to commit wire fraud (Count Two), six counts of securities fraud (Counts Three through Eight), and one count of fraud in connection with a tender offer (Count Nine). The securities fraud, tender offer fraud, and wire fraud conspiracy charges each carries a maximum prison term of 20 years. The charge of conspiracy to commit securities fraud and tender offer fraud carries a maximum prison term of five 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 a judge.
Mr. Bharara praised the investigative work of the FBI and also thanked the Securities and Exchange Commission, which has brought civil actions against the defendant.
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 Sarah E. McCallum and Brooke E. Cucinella 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.
*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.
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New Jersey Man Sentenced in Manhattan Federal Court to 10 Years in Prison for Multimillion-Dollar Investment FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that CHARLES HUGGINS was sentenced in Manhattan federal court to 10 years in prison for perpetrating an $8 million investment fraud against dozens of victims across the United States. HUGGINS was convicted on October 10, 2014, following a two-week jury trial before U.S. District Court Judge Sidney H. Stein, who also imposed today’s sentence.
Manhattan U.S. Attorney Preet Bharara said: “Charles Huggins took millions of dollars of his investors’ money under false pretenses and used it to pay for personal expenses, including luxuries. For his crimes, Huggins has been sentenced to 10 years in prison and ordered to relinquish his ill-gotten gains.”
According to the Complaint and other filings in Manhattan federal court, and the evidence presented at trial:
For nearly a decade, through September 2011, HUGGINS and others solicited more than $8 million from dozens of investors through various companies, including companies known as JYork Industries Inc. (“JYork”) and Urogo Inc. (“Urogo”). Huggins and his co-conspirators made false and misleading representations that, among other things, they would use the investors’ money exclusively to mine gold and diamonds from Sierra Leone and Liberia. HUGGINS falsely promised investors that their investments were risk-free and that they would receive high rates of return, which he represented were based upon the profits generated by the sale of the gold and diamonds in the United States.
HUGGINS and his co-conspirators misappropriated the investors’ funds and used those funds for their own purposes or to repay other investors. Contrary to the representations of HUGGINS and his co-conspirators, most of the investment funds were used to pay HUGGINS’s personal expenses and for purposes entirely unrelated to what was represented to investors. For example, hundreds of thousands of dollars in investor funds were diverted to Orpheus Inc., a record label owned by HUGGINS, and used to pay, among other expenses, HUGGINS’s $7,200 monthly apartment rent in the Sutton Place neighborhood of Manhattan, for upkeep of HUGGINS’s Mercedes Benz, restaurant bills, clothes from expensive boutiques, and personal credit card bills. HUGGINS personally received hundreds of thousands of dollars in cash and gave tens of thousands of dollars in cash to other members of his family and his co-conspirators. A portion of the funds was used to make payments to other investors, as in a classic Ponzi scheme.
Dozens of victims across the United States lost their money in the scheme. When certain investors complained that they had not received the investment return that they were promised, HUGGINS gave those investors small repayments from funds invested by others, or claimed that he converted their investment into restricted shares of Oraco Resources, a publicly traded company of which Huggins was a majority shareholder, that were essentially worthless.
In addition to his prison term, HUGGINS, 69, of Edgewater, New Jersey, was sentenced to three years of supervised release, and ordered to pay forfeiture and restitution of $2,383,255.26. HUGGINS was remanded following his conviction.
In sentencing HUGGINS, Judge Stein said, “This fraud was extensive, brazen, and sophisticated.” He also said that HUGGINS “lived a very luxurious lifestyle on the money of presumably hardworking individuals . . . people who were completely innocent.”
Two other defendants, Christopher Butchko and Anne Thomas, previously pled guilty for their roles in the fraudulent scheme, and await sentencing. Butchko pled guilty before Judge Stein on August 11, 2014, to conspiracy to commit wire fraud, and is scheduled to be sentenced on May 28, 2015 at 11:00 a.m. Thomas pled guilty before Judge Stein on August 18, 2014, to conspiracy to commit wire fraud, conspiracy to commit money laundering, structuring, and bank fraud, and is scheduled to be sentenced on June 24, 2015, at 3:30 p.m.
Mr. Bharara praised the work of the FBI in the investigation of this case. He added that the investigation is continuing.
The case is being handled by the General Crimes Unit of the United States Attorney's Office. Assistant United States Attorneys Edward A. Imperatore and Andrea L. Surratt are in charge of the prosecution.
Manhattan U.S. Attorney Announces Ruling in Government’s Favor in Stock-Loan Tax Trial Against Lehman Brothers HoldingsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has prevailed in a tax trial against LEHMAN BROTHERS HOLDINGS INC. (“LEHMAN”) resolving LEHMAN’s claim to approximately $67 million in foreign tax credits (“FTCs”) stemming from its cross-border stock lending. The decision, issued on May 8, 2015, by U.S. District Judge Richard M. Berman – following an October 7, 2014, bench trial – agreed with the Government that all of LEHMAN’s claimed FTCs should be disallowed. Together with, and upon application of, a previous settlement agreement between LEHMAN and the Government, LEHMAN’s claims of nearly half a billion dollars of FTCs are to be disallowed as a result of the Court’s decision.
Manhattan U.S. Attorney Preet Bharara said: “The Court’s decision rightly rejected an audacious tax-avoidance scheme that would have cost taxpayers hundreds of millions of dollars in lost revenue had it been allowed to go forward. Lehman moved millions of shares of stock around in an attempt to create tax credits available only under its questionable – and, as the Court found, erroneous – reading of a tax treaty, which it then tried to use to avoid paying taxes on its unrelated income.”
According to the evidence presented at trial:
In the transaction at issue, LEHMAN’s U.S. broker-dealer, Lehman Brothers Inc. (“LBI”), borrowed millions of shares of U.K. stock over their dividend record dates from U.S.-based lenders, and immediately lent them to its U.K. broker-dealer, Lehman Brothers International (Europe) plc (“LBIE”). LBIE, in turn, further lent the stock to a U.K. or European entity, or held the stock and used it for various purposes. Shortly after the dividend record date passed, the stock loans were unwound. Once the dividend was paid (to either LBIE or any entity to which it lent the stock), the recipient was contractually required to make a so-called “substitute payment” to the entity from which it borrowed the stock, in the amount of the dividend payment received. Thus, the ultimate holder would make a substitute payment to LBIE, LBIE would then make a substitute payment to LBI, and LBI would make a substitute payment back to the original lender. LBI, the U.S. taxpayer at issue, was accordingly just a pass-through entity between the ultimate stock lender and the ultimate stock borrower. LBI generally held the stock only for very short periods while shuttling it back and forth, and whenever it received a substitute dividend from LBIE, it paid out an equal substitute dividend to the original lender.
LEHMAN claimed that it was entitled to hundreds of millions of dollars’ worth of FTCs as a result of these transactions under its reading of a provision of the then-prevailing U.S.-U.K. tax treaty. Lehman then purported to use the majority of the FTCs it claimed to offset taxes it owed on hundreds of millions of dollars of its unrelated income.
According to the treaty, U.S. recipients of U.K. dividends were potentially entitled to a U.S. FTC in connection with those dividends, but the “aggregate of the amount or value of the dividend and the amount of the tax credit . . . shall be treated as a dividend for United States tax credit purposes.” The Government argued to the Court that the applicable U.S. tax credit rules prescribed certain conditions for when a taxpayer qualified for FTCs, among them that no credit would be given to a dividend recipient who acts as a middleman: in this case, someone who “is under an obligation . . . to make related payments with respect to positions in substantially similar or related property.” Thus, the Government argued, LEHMAN did not qualify for the tax credit because LBI’s obligation to pay out a substitute dividend was clearly “related” to its receipt of the substitute dividend from LBIE.
At the trial, the Court heard testimony from three former officials of the U.S. Department of Treasury who negotiated tax treaties, two who testified on behalf of LEHMAN, and one who testified on behalf of the Government. In the decision announced on Friday, the Court rejected LEHMAN’s argument that the Court should ignore or read out of existence the treaty language requiring that the sum of the dividend and the U.K. tax credit “shall be treated as a dividend” for U.S. tax credit purposes. It characterized LEHMAN’s arguments as impermissibly “cherry-picking” the treaty provisions that favor it – such as the one that potentially allowed it to claim FTCs – while rejecting the “shall be treated” provision that dooms LEHMAN’s claim.
Though the case tried before the Court concerned only approximately $67 million of the FTCs that LEHMAN claimed in connection with the stock-lending transactions it entered into in 1999 and 2000, the parties had previously agreed, pursuant to a March 14, 2014, settlement, that the Court’s trial ruling would be applied to LEHMAN’s claims for approximately $165 million of FTCs arising from the same types of transactions in 2001, 2002, 2003, and 2004, and also that LEHMAN would concede approximately $259 million of (additional) FTCs for the entire period. Accordingly, as a result of the trial and the settlement agreement, LEHMAN will lose all of the approximately $489 million in FTCs that it claimed in connection with the stock-lending transactions at issue.
Mr. Bharara thanked the Internal Revenue Service Office of Associate Chief Counsel (International) and its staff attorneys for their work on the case.
The case is being handled by the Office’s Tax and Bankruptcy Unit. Assistant United States Attorney Jean-David Barnea is in charge of the case.
Manhattan U.S. Attorney Settles Civil Fraud Claims Against Vascular Surgery Clinic and Surgeon for Fraudulently Billing Medicare for Nonreimbursable Vascular Surgery ProceduresRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Scott Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (“HHS-OIG”) New York Region, announced today that the United States has settled civil fraud claims under the False Claims Act against MATTOO & BHAT MEDICAL ASSOCIATES, P.C. (“MBPC”) and DR. FENG QIN (“DR. QIN”) related to MBPC’s submission of fraudulent claims for reimbursement by Medicare for vascular surgical procedures that are not covered under Medicare. In connection with the settlement, which was approved by U.S. District Judge Louis L. Stanton on May 1, 2015, the defendants agreed to pay a total of $1,150,000 to resolve their liabilities.
Manhattan U.S. Attorney Preet Bharara said: “As they admitted, Mattoo & Bhat Medical Associates, P.C., and Dr. Feng Qin performed and billed Medicare for surgery procedures in violation of Medicare’s billing rules. We will continue to work to protect the public’s money from providers who try to skirt Medicare billing rules for their own profit.”
HHS-OIG Special Agent in Charge Scott Lampert said: “Performing invasive procedures that do not qualify for Medicare reimbursement and then billing Medicare for them undermines the financial integrity of the Medicare program. This settlement is another example of OIG’s commitment to protecting our beneficiaries and taxpayers from such abusive practices.”
According to the complaint filed in Manhattan federal court:
Patients with end-stage renal disease (“ESRD”), who are covered by Medicare, regularly require and receive dialysis treatments. Vascular surgeons may provide vascular access services to these patients, such as creation and maturation of fistulas, a port in the patient’s arm to obtain access to the patient’s circulatory system, through which dialysis is done. In addition, when clinically indicated, such surgeons may provide fistulagrams, a radiological procedure in which dye is injected into the patient’s vein or artery to visualize the port and surrounding blood vessels, and angioplasties, in which wires and balloons are inserted into veins or arteries that have narrowed in order to restore the patient’s blood flow. Routine monitoring of a dialysis patient’s access site, however, is typically done by the patient’s nephrologist and the dialysis nurses and technicians, who are reimbursed by Medicare for the ongoing monitoring and surveillance.
According to Medicare billing rules in New York State, monitoring of a dialysis patient’s access site does not require vascular surgery procedures, such as fistulagrams and angioplasties, and these procedures are not reimbursable unless the patient has specific clinical problems, such as significant difficulty receiving dialysis properly. Routinely performing fistulagrams and angioplasties where there is no supporting clinical indication is not reimbursable by Medicare. The rules also state that angioplasties are reimbursed by Medicare only if, in addition to the clinical findings required to support a fistulagram, there is evidence that the patient’s blood vessel has a restriction greater than 50% of the vessel’s diameter.
MBPC operated two office-based surgical offices in Manhattan and Queens, which operated under the trade name “AV Care,” from December 2010 to April 2012, and DR. QIN worked primarily at MBPC’s Manhattan location. AV Care’s patients were ESRD patients undergoing dialysis treatment. As a regular practice, AV Care routinely scheduled patients for fistulagrams and angioplasties as many as three months in advance, and MBPC surgeons, including DR. QIN, performed these fistualgrams as a matter of routine even if the patient presented without a clinical reason. Furthermore, from time to time, DR. QIN performed angioplasties on AV Care patients where the patient information and records did not support the presence of a restriction greater than 50% of the diameter of the patient’s blood vessel. MBPC wrongly billed Medicare for these procedures, which were excluded from Medicare coverage by the applicable rules.
As part of today’s settlement, MBPC and DR. QIN admitted that they regularly performed, and billed Medicare for, vascular surgery procedures done only for surveillance purposes, in violation of the Medicare billing rules. MBPC agreed to pay $1,000,000 and Dr. QIN agreed to pay $150,000 to resolve their respective liabilities for this conduct. In addition, MBPC and DR. QIN entered into integrity agreements with HHS-OIG, through which they agreed to implement certain compliance measures and submit to monitoring by HHS-OIG.
The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorneys Rebecca C. Martin and Jean-David Barnea are in charge of the case.
AVCare relator release
Feng Qin stip and order
Mattoo+Bhat stip and order IIManhattan U.S. Attorney Files Suit Against Plastic Surgery Practice and Surgeon for Discriminating Against Patients with DisabilitiesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today the filing of a lawsuit against the SPRINGFIELD MEDICAL AESTHETIC P.C. d/b/a ADVANCED COSMETIC SURGERY OF NEW YORK (“ADVANCED COSMETIC”), and EMMANUEL O. ASARE, M.D. (“ASARE”), a plastic surgery practice and surgeon in that practice, alleging discrimination on the basis of disability in violation of Title III of the Americans with Disabilities Act of 1990 (“Title III of the ADA”). ADVANCED COSMETIC, which has offices in Manhattan and Long lsland, and ASARE are alleged to have unlawfully discriminated against a prospective patient (the “Patient”) on the basis of his disability by refusing to provide services to the Patient, without even conducting a medical assessment of his condition, because the Patient is HIV positive.
Manhattan U.S. Attorney Preet Bharara said: “Medical providers are not free under the law simply to refuse their services to a person with a serious medical condition like HIV. Individuals with disabilities are entitled to the same medical services as everyone else, and there can be no room in the medical profession for the kind of discrimination alleged in this lawsuit.”
Title III of the ADA prohibits discrimination by doctors, lawyers, hospitals, restaurants, retail stores, hotels, private transportation providers, and other private businesses and nonprofit organizations that provide services to the public. All of these entities are prohibited from excluding individuals with disabilities from their services and programs because they have a serious medical condition, such as HIV.
According to the Complaint filed in Manhattan federal court, the Patient is a cancer survivor living with HIV. In July 2014, the Patient scheduled an appointment at ADVANCED COSMETIC to have an initial consult regarding his gynecomastia, an inflation of breast tissue that is a common side effect of both cancer treatments and anti-retroviral HIV medications. On or about July 14, 2014, the Patient met with ASARE at ADVANCED COSMETIC’s Manhattan offices. Upon learning that the Patient was living with HIV, ASARE immediately told the Patient that ADVANCED COSMETIC did not provide services to those with HIV, and the Patient was asked to leave. Subsequently, ASARE and ADVANCED COSMETIC stated that it is their policy not to provide services to people living with any of a host of ailments, including HIV, cancer, and diabetes.
The Complaint filed today seeks to require ADVANCED COSMETIC and ASARE to take the necessary steps to prevent and remedy any future discrimination on the basis of disability, particularly against those with serious medical conditions such as HIV, cancer, and diabetes, and pay compensation to the victims of discrimination and a civil penalty.
This case is being handled by the Office’s Civil Rights Unit. Assistant United States Attorney Arastu K. Chaudhury is in charge of the case.
To file a complaint alleging that any place of public accommodation within the Southern District of New York is not accessible to persons with disabilities, use the Civil Rights Complaint Form available on the United States Attorney’s Office’s website, www.usdoj.gov/usao/nys. Complaints should be sent to:
U.S. Attorney’s Office, Southern District of New York
86 Chambers Street, 3rd Floor
New York, New York, 10007
Attention: Chief, Civil Rights Unit
US v. Asare Complaint with Exhibits
Contractors and Developer Charged in White Plains Federal Court with Conspiracy, Fraud, and Kickback SchemeRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Christina Scaringi, Special Agent in Charge, Department of Housing and Urban Development, Office of the Inspector General ("HUD-OIG"), Northeast Region, announced today the return of a Superseding Indictment charging MICHAEL BARNETT, ROBERT LEES, and KEVIN DICELLO with conspiracy, fraud, and false statement charges in connection with the development of Vineyard Commons, a luxury residential complex in Ulster County, New York. This case is assigned to Judge Kenneth M. Karas.
Manhattan U.S. Attorney Preet Bharara said: “Michael Barnett allegedly abused his position as the developer of Vineyard Commons to enrich himself and defraud his construction lender and, ultimately, the U.S. Department of Housing and Urban Development, which guaranteed the construction loan. As charged, Robert Lees and Kevin DiCello were all too willing to go along with Barnett's demand for an $865,000 kickback so that they could get more business from Barnett in the future.”
HUD-OIG Special Agent in Charge Christina Scaringi said: “These defendants were entrusted to use federally-insured funds to provide decent affordable housing for our senior citizens. Instead, as alleged, they lied to the lender and siphoned project funds to satisfy their greed. The HUD OIG will not tolerate this behavior and is committed to rooting out those who choose to engage in these outrageous acts.”
According to the allegations made in the Superseding Indictment*:
BARNETT, who was the developer of Vineyard Commons, sought kickbacks and investments from subcontractors and vendors on the project and made false statements to the project's lender so that he could draw down on the project's line of credit. LEES and DICELLO were a division president and vice president of operations, respectively, for a subcontractor and vendor that provided rough carpentry and lumber supplies on the project (the "Lumber Company"). The indictment charges that LEES and DICELLO agreed to have their employer pay BARNETT a
kickback of approximately $865,000 in exchange for the Vineyard Commons contract, as well as future business on other developments BARNETT was planning.
BARNETT, LEES, and DICELLO entered into an agreement by which the Lumber Company inflated its bid for labor and materials by approximately $865,000, which would be paid to BARNETT as a kickback from the Lumber Company.
The defendants intended that the kickback would be funded unwittingly by the construction lender, and ultimately by HUD through its guaranty of the construction loan, through the submission of false and inflated requests to draw down the construction loan.
In January 2010, the Lumber Company made a partial kickback payment of $200,000 to BARNETT, and the defendants disguised the transaction on the Lumber Company's books by making it appear to be a customer rebate payable to a company controlled by BARNETT that was not involved in the development of Vineyard Commons. BARNETT then used the $200,000 as a partial payment of an obligation he had to the general contractor on Vineyard Commons.
BARNETT solicited subcontractors and vendors on the Vineyard Commons project, including the Lumber Company, to provide labor and materials to build a pool house at his home. Some of these subcontractors and vendors, including the Lumber Company, agreed to do so.
BARNETT submitted false invoices to the construction lender in order to enrich himself fraudulently by drawing down the loan.
The defendants and the counts with which they are charged in the Superseding Indictment are set forth in the attached list.
Mr. Bharara thanked the HUD-OIG for its outstanding work on the investigation.
This case is being handled by the Office’s White Plains Division. Assistant United States Attorneys Michael Maimin and James McMahon are in charge of the prosecution.
*The charges contained in the Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
View Chart
US v Barnett et al Indictment
Manhattan U.S. Attorney Announces Conviction of Doctor and Owner of Bronx Clinic Involved in Illegal Distribution of More Than Five Million Oxycodone PillsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced the conviction of KEVIN LOWE, the owner of “Astramed,” a purported medical clinic with multiple locations in the Bronx, New York, and from which more than five million tablets of the prescription painkiller oxycodone were unlawfully distributed over a three-year period. LOWE was convicted yesterday following a two-week jury trial presided over by U.S. District Judge Lorna G. Schofield.
Manhattan U.S. Attorney Preet Bharara said: “As a jury unanimously found, Kevin Lowe operated a series of purported medical clinics that functioned as prescription pill drug trafficking dens where doctors wrote almost 35,000 medically unnecessary prescriptions for oxycodone, comprising oxycodone tablets with a street value of nearly $165 million. With this guilty verdict and the 24 other convictions in this case, we have made an important step toward combatting the prescription pill trafficking problems plaguing the Southern District. I would like to thank the Drug Enforcement Administration and the New York City Police Department for being our partners in this case.”
According to the allegations contained in the Indictment and the Government’s evidence during LOWE’s trial:
From approximately January 2011 until February 2014, a drug distribution ring operated out of “Astramed,” a purported medical clinic with multiple locations in the Bronx that LOWE owned and operated. At these clinics, doctors working under LOWE’s direction wrote tens of thousands of medically unnecessary prescriptions for oxycodone, a highly addictive, prescription narcotic-strength opioid used to treat severe and chronic pain conditions. Oxycodone prescriptions, once written, have enormous cash value to street-level drug dealers, who can fill prescriptions at most pharmacies and resell the resulting pills at vastly inflated rates. Indeed, a single prescription for 180 30-milligram oxycodone pills has an average resale value in New York City of more than $6,000, and far more in nearby states.
LOWE capitalized on that black market for oxycodone by employing Board-certified, state-licensed doctors who were willing to write medically unnecessary prescriptions for large quantities of oxycodone in return for cash. LOWE’s clinics, which accepted no insurance from patients seeking oxycodone prescriptions, typically charged $300 in cash for “doctor visits” that usually lasted just a minute or two, involved no actual physical examination, and consistently resulted in the issuance of a prescription for large doses of oxycodone, typically 180 30-milligram tablets, or a daily dosage of six 30-milligram tablets.
LOWE’s clinics bore little resemblance to a standard medical office. For example, on a daily basis, crowds of up to 100 people gathered outside the Astramed office on Southern Boulevard (the “Clinic”) clamoring to see one of the doctors at the clinic in order to obtain a prescription for oxycodone. Virtually none of these individuals had any medical need for oxycodone, or any legitimate medical record documenting an ailment for which oxycodone would be prescribed. Instead, most of these individuals were members of “crews” – that is, they were recruited and paid by high-level drug traffickers, oxycodone distributors (the “Crew Chiefs”), to pose as “patients” in order to receive medically unnecessary prescriptions from the Doctors. The Crew Chiefs then arranged for and oversaw the filling of the resulting prescription at various pharmacies and took possession of the oxycodone pills to be resold on the street. Crew Chiefs also paid the Clinic’s employees hundreds of dollars in cash at a time to get their Crew Members into the Clinic to see one of the Doctors.
In total, between approximately January 2011 and February 2014, Astramed Doctors issued 34,925 medically unnecessary prescriptions for oxycodone, comprising nearly 5.5 million oxycodone tablets with a street value of more than $165 million. LOWE alone collected more than $7 million in cash for these sham “doctor visits” during this time period.
LOWE, 55, of Melville, New York, was convicted of one count of conspiracy to distribute and possess with intent to distribute oxycodone, which carries a maximum sentence of 20 years in prison. LOWE is scheduled to be sentenced on August 10, 2015 at 4:30 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 a judge.
Twenty-four additional participants in the drug distribution ring – including doctors, clinic employees, and drug traffickers who oversaw crews of “patients” whom they sent into the clinics in order to obtain medically unnecessary prescriptions – have previously pled guilty to their participation in the unlawful scheme.
Mr. Bharara thanked the Drug Enforcement Administration and the New York City Police Department for their work in the 15-month investigation, which he noted is ongoing. Mr. Bharara also thanked the Town of Orangetown Police Department, the Westchester County Police Department, the United States Department of Health and Human Services, the New York State Health Department’s Bureau of Narcotic Enforcement, the Office of the Medicaid Inspector General, New York City's Human Resource Administration, the New York State Attorney General’s Office Medicaid Fraud Control Unit, the Internal Revenue Service-Criminal Investigation and the El Dorado Task Force for their assistance.
The case is being prosecuted by the Office’s Narcotics Unit. Assistant U.S. Attorneys Edward B. Diskant and Tatiana R. Martins are in charge of the prosecution.
Four Remaining Defendants Plead Guilty in Manhattan Federal Court for Their Roles in Multimillion-Dollar Corporate Accounting FraudRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LATCHMEE MAHATO, a/k/a “Robbie,” and JONATHAN WHEELER, two of the owners and principals of G3K Displays, Inc., and related entities (“G3K”) – a New Jersey-based company that provided in-store displays for retailers – ZACHARY KAITZ, an executive at G3K, and KATHLEEN SMITH, a former employee of Foot Locker, Inc., a major customer of G3K, pled guilty in Manhattan federal court for their roles in an elaborate scheme to defraud G3K’s lenders and customers out of millions of dollars. Among other things, MAHATO, WHEELER, and ZACHARY KAITZ admitted that they and others fraudulently inflated G3K’s sales and accounts receivable to secure millions of dollars in loans, and verified to G3K’s lenders and outside auditors false financial information about G3K. SMITH admitted to inflating purchase orders from Foot Locker to G3K and receiving kickbacks from MAHATO, SMITH, and co-defendant Steven Kaitz, the third owner and principal of G3K. MAHATO, WHEELER, SMITH, ZACHARY KAITZ, and Steven Kaitz were charged in January 2015. MAHATO and SMITH pled guilty yesterday, ZACHARY KAITZ pled guilty today, and WHEELER pled guilty on April 28, 2015, each before United States District Judge Jed S. Rakoff. Steven Kaitz pled guilty on April 22, 2015, before Judge Rakoff.
Manhattan U.S. Attorney Preet Bharara said: “With the guilty pleas of Latchmee Mahato, Jonathan Wheeler, Kathleen Smith, and Zachary Kaitz, all five of the defendants have now pled guilty in connection with this multimillion-dollar scheme that misled G3K’s customers, lenders, and auditors. I would like to thank our partners at the FBI for working with us on this case.”
According to the Indictment and statements made during the proceedings in this case:
Steven Kaitz, MAHATO, and WHEELER were the three owners and principals of G3K, a company that manufactured and designed displays for retailers around the world, including major retailers of sports apparel and footwear. ZACHARY KAITZ served as G3K’s Vice President of Creative Services.
From approximately 2012 to May 2014, in order to trick various lenders, including Veritas Financial Partners, LLC, and MVC Capital, into lending at least $18.6 million to G3K, Steven Kaitz, MAHATO, WHEELER and others engaged in a scheme to falsely inflate G3K’s revenue and accounts receivable, and as part of the scheme, made and caused to be made materially false and misleading statements about G3K’s financial condition. To create the false impression of sales, the defendants created phony documents, including fake and falsely inflated purchase orders purporting to reflect sales to G3K’s customers. Steven Kaitz, MAHATO, WHEELER, and SMITH also tricked certain of the company’s customers, including Foot Locker into paying falsely inflated invoices from G3K.
The defendants took elaborate steps to keep the scheme afloat and prevent G3K’s lenders and outside auditors from discovering the fraud. For example, Steven Kaitz, MAHATO, and WHEELER were involved in the creation of fake email accounts purporting to belong to fictitious employees of Foot Locker and Adidas, G3K’s two largest customers. Steven Kaitz, MAHATO, and WHEELER operated these fake email accounts themselves, pretending to be employees of those customers, and then used those fake email accounts to “verify” false information about G3K’s financial condition, including its sales and accounts receivable, to G3K’s lenders and outside auditors. To keep their scheme afloat, Steven Kaitz, MAHATO, and WHEELER also utilized shell companies to engage in “round-trip” transactions to create the false appearance that customers were paying G3K’s phony outstanding receivables. ZACHARY KAITZ, who was skilled in graphic design, helped carry out the fraud by creating fraudulent documentation, such as fake invoices, purchase orders, and bills of lading, to support the false representations to the lenders about G3K’s business.
Steven Kaitz, MAHATO, and WHEELER further misappropriated approximately $2.8 million of the loan proceeds for their own personal use, to pay for homes and luxury cars, private school tuition, and personal credit card bills, as well as kickbacks to SMITH.
As of May 2014, when G3K’s lenders terminated their lending relationships with the company after discovering the fraud, G3K had approximately $18.6 million in loans outstanding.
LATCHMEE MAHATO, a/k/a “Robbie,” 49, of Jamaica, Queens, JONATHAN WHEELER, 46, of Southport, Connecticut, and ZACHARY KAITZ, 31, of Brooklyn, New York, each pled guilty to one count of conspiracy to commit bank fraud and wire fraud, which carries a maximum sentence of 30 years in prison. As part of their respective plea agreements, MAHATO and WHEELER each agreed to pay restitution in the amount of $18,600,000, MAHATO agreed to forfeit $2,215,147, WHEELER agreed to forfeit $957,435, and ZACHARY KAITZ agreed to forfeit $100,000. KATHLEEN SMITH, 49, of South Plainfield, New Jersey, pled guilty to one count of conspiracy to commit honest services wire fraud, which carries a maximum sentence of 20 years. As part of her plea agreement, SMITH agreed to pay restitution in the amount of $348,500 and to forfeit $244,407. MAHATO, WHEELER, SMITH, and ZACHARY KAITZ are each scheduled to be sentenced by Judge Rakoff on September 9, 2015.
Steven Kaitz pled guilty on April 22, 2015, before Judge Rakoff, and he is scheduled to be sentenced on September 8, 2015.
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 Federal Bureau of Investigation.
The case is being prosecuted by the Office’s Complex Frauds & Cybercrime Unit. Assistant U.S. Attorneys Joshua A. Naftalis and Rosemary Nidiry are in charge of the prosecution. Assistant U.S. Attorney Edward B. Diskant of the Money Laundering & Asset Forfeiture Unit is responsible for the forfeiture aspects of the prosecution.
Bronx Man Pleads Guilty to Aiming A Laser Beam at Commercial Airliners Near Laguardia AirportRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ELEHECER BALAGUER pled guilty today in Manhattan federal court to aiming the beam of a laser pointer at commercial airliners in the vicinity of LaGuardia Airport on March 9, 2015. BALAGUER was arrested on March 16, 2015, and pled guilty today before United States District Judge Jed S. Rakoff to aiming a laser pointer at an aircraft.
U.S. Attorney Preet Bharara said: “Lasers, when pointed at aircraft, have the ability to incapacitate and injure pilots. Thankfully, this case did not end in tragedy, but Elehecer Balaguer’s actions were serious and posed a danger. Others should understand that they will be prosecuted criminally if they engage in this conduct.”
According to allegations made in the Complaint and the Information filed today, and statements made during court proceedings, including today’s guilty plea:
On March 9, 2015, the pilots of three commercial airliners near LaGuardia Airport in Queens were struck in the eyes with a bright green beam, causing the pilots to lose focus temporarily and, in two instances, briefly blinding the pilots. All three airliners were full of passengers and were either in the process of taking off from LaGuardia Airport or landing at LaGuardia Airport. In response, an Air Traffic Controller at LaGuardia Airport temporarily changed the runway directions used for all airplanes arriving at and departing from LaGuardia Airport that evening, so that airplanes would avoid the laser beam.
Each of the pilots struck with the green beam noticed that the beam appeared to originate from the Bronx, New York. Later in the evening on March 9, 2015, officers from the New York City Police Department (“NYPD”) Aviation Unit responded to the pilots’ complaints by flying in a helicopter (the “NYPD Helicopter”) in the vicinity of the location where the airplanes had been struck with a beam. While the NYPD Helicopter was in that area, a green beam was directed into the cockpit of the NYPD Helicopter, causing both of the NYPD pilots also to lose sight temporarily. The NYPD pilots observed that the laser beam appeared to originate from a particular second floor apartment of a building in the Bronx (the “Apartment”).
NYPD officers responded to the Apartment later in the night of March 9, 2015. BALAGUER and others were present in the Apartment. The officers recovered a laser pointer (the “Laser Pointer”) from the top of a refrigerator near the window from where the green beam that struck the NYPD Helicopter appeared to have originated. Written on the Laser Pointer is the warning: “DANGER – LASER RADIATION – AVOID DIRECT EYE EXPOSURE.” When questioned the night of March 9, 2015, BALAGUER admitted that he owned the Laser Pointer, but denied knowing who pointed the Laser Pointer at passing airplanes.
On March 13, 2015, in the presence of counsel, BALAGUER admitted to law enforcement that he shined the beam of the Laser Pointer at an airplane on March 9, 2015. BALAGUER further admitted to lying to law enforcement when he was interviewed by NYPD officers on March 9, 2015.
BALAGUER, 54, pled guilty to one count of aiming a laser pointer at an aircraft, which carries a maximum penalty of five years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
BALAGUER is scheduled to be sentenced by Judge Rakoff on September 9, 2015.
U.S. Attorney Bharara praised the investigative work of the New York FBI’s Joint Terrorism Task Force – which principally consists of agents from the FBI and detectives from the NYPD, and comprises investigators from numerous federal, state, and local law enforcement agencies. Mr. Bharara also thanked the NYPD’s Aviation Unit and the Port Authority of New York and New Jersey.
This case is being handled by the Terrorism and International Narcotics Unit of the U.S. Attorney’s Office for the Southern District of New York. Assistant U.S. Attorney Ian McGinley is in charge of the prosecution.
New York State Senate Majority Leader Dean Skelos and Son Arrested on Corruption ChargesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director-In-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that New York State Senate Majority Leader DEAN SKELOS and his son ADAM SKELOS were taken into custody this morning on charges that they extorted those with business before New York State to make payments to ADAM SKELOS, with the expectation that such payments would result in official action by DEAN SKELOS. The defendants were also charged with bribery and honest services fraud schemes. Among other things, DEAN SKELOS is accused of illegally obtaining a $20,000 payment for ADAM SKELOS from a large real estate developer dependent on DEAN SKELOS for tax breaks and a $10,000 monthly payment from an environmental technology company seeking government-funded contracts in New York State. DEAN SKELOS and ADAM SKELOS surrendered to the FBI in Manhattan, this morning, and are scheduled to appear before U.S. Magistrate Judge Henry B. Pitman in Manhattan federal court later today.
U.S. Attorney Preet Bharara said: “As the Complaint charges, in six counts, Dean Skelos unlawfully used his power and influence as Senate Majority Leader, repeatedly, to illegally enrich his son, Adam, and indirectly, himself. And, more specifically, the Complaint, in multiple places, alleges that Dean Skelos’s support for certain infrastructure projects and legislation was often based, not on what was good for his constituents or good for New York, but rather on what was good for his son’s bank account. By now, two things should be abundantly clear. First, public corruption is a deep-seated problem in New York State. It is a problem in both chambers; it is a problem on both sides of the aisle. And second, we are deadly serious about tackling that problem.”
FBI Assistant Director-In-Charge Diego Rodriguez said: “The charges announced today describe the alleged criminal activity of Dean and Adam Skelos. In particular, the defendants are alleged to have conspired to take advantage of Dean Skelos’s powerful position within state government to influence and extort those with business before the state. When all was said and done, Dean Skelos is charged with having caused more than $200,000 to be paid to Adam Skelos in exchange for backdoor bribes. We hold our elected representatives to the highest standards, and will continue to root out corruption in all forms and at all levels of government: municipal, state, and federal.”
According to the allegations contained in the Complaint* unsealed today in Manhattan federal court:
Since his re-election in 2010, DEAN SKELOS has served as Majority Leader or Co-Majority Leader of the New York State Senate, a position that gives him significant power over the operation of New York State government. DEAN SKELOS used this power to pressure companies with business before New York State to make payments to his son, ADAM SKELOS, who substantially depended on these companies for his income. DEAN SKELOS and ADAM SKELOS were able to secure these illegal payments through implicit and explicit representations that DEAN SKELOS would use his official position to benefit those making the payments, which DEAN SKELOS in fact did when it was necessary to ensure that the payments to ADAM SKELOS continued.
DEAN SKELOS, as charged, obtained over $200,000 in payments to ADAM SKELOS through persistent and repeated pressure applied to a senior executive of a major real estate developer (“Developer-1”) who is cooperating with the Government and referred to in the Complaint as CW-1. In response to this pressure, CW-1 arranged for Developer-1 to pay $20,000 to ADAM SKELOS and further arranged for an environmental technology company (the “Environmental Technology Company” or “Company”) in which Developer-1’s founding family and CW-1 owned stakes to make $10,000 monthly payments to ADAM SKELOS. CW-1 arranged for these payments to ADAM SKELOS due to Developer-1’s substantial dependence on DEAN SKELOS for real estate tax abatements and other real estate legislation favorable to Developer-1, and based in part on a statement from DEAN SKELOS that he would punish those in the real estate industry who defied him. In return for the payments to ADAM SKELOS, and to ensure that they would continue, DEAN SKELOS took numerous official actions to benefit both Developer-1 and the Environmental Technology Company, including promoting State legislation beneficial to the companies.
Dean Skelos’s Demands For Payments To Adam Skelos
Beginning in approximately 2010, DEAN SKELOS met repeatedly with CW-1 and other representatives of Developer-1 to request that Developer-1 provide sales commissions to his son, ADAM SKELOS, claiming that ADAM SKELOS was suffering financially. DEAN SKELOS met repeatedly with CW-1 to request payments for his son, including during meetings where CW-1 and others from Developer-1 were lobbying DEAN SKELOS with respect to real estate legislation. CW-1 was concerned about Developer-1 making payments to ADAM SKELOS but did not want to ignore DEAN SKELOS’s repeated requests in light of his position as Senate Majority Leader and his importance in ensuring the passage of real estate legislation beneficial to Developer-1.
Payments To Adam Skelos Arranged By CW-1
As charged, CW-1 responded to the requests from DEAN SKELOS by arranging for payments to ADAM SKELOS that would be difficult to trace to Developer-1. First, CW-1 caused a $20,000 check to be issued to ADAM SKELOS from a title insurance company dependent on Developer-1 for business, even though ADAM SKELOS did no work whatsoever in connection with the real estate transaction for which title insurance was being issued. CW-1 made this payment after ADAM SKELOS forwarded to his father, DEAN SKELOS, an e-mail that ADAM SKELOS had sent to CW-1 requesting a title insurance commission. After receiving the email, DEAN SKELOS responded “Following up, be patient” during the same time period DEAN SKELOS was contacting CW-1 and a lobbyist working for Developer-1 to renew his request for payments to his son.
In addition to the $20,000 payment CW-1 convinced the CEO of the Environmental Technology Company to hire ADAM SKELOS as a $4,000 per month “consultant” by telling the CEO that, through payments to ADAM SKELOS, DEAN SKELOS would be able to assist the Environmental Technology Company in winning government-funded contracts in New York State. For example, CW-1 e-mailed the CEO that “there is great potential for [ADAM SKELOS] to exploit his father’s contacts statewide.” Likewise, ADAM SKELOS arranged a conference call between DEAN SKELOS and a senior executive with the Environmental Technology Company who is cooperating with the Government (“CW-2”) to demonstrate that his father would assist the Company in return for payments. Later, after ADAM SKELOS had been hired by the Company on a $4,000 per month contract, CW-1 told the CEO on behalf of ADAM SKELOS and DEAN SKELOS that they would block Nassau County’s approval of a $12 million contract with the Environmental Technology Company unless payments to ADAM SKELOS were sharply increased. In addition, CW-1 e-mailed the CEO that ADAM SKELOS’s “dad called” and “I think they don’t think [the Nassau County contract is] worth pushing through” absent higher payments to ADAM SKELOS. The CEO then agreed to increase ADAM SKELOS’s payments to $10,000 per month, and CW-2 responded in an e-mail that the Environmental Technology Company was being “held hostage.”
Official Actions By Dean Skelos
As charged in the Complaint, DEAN SKELOS took official actions beneficial to Developer-1 in return for the $20,000 payment to ADAM SKELOS and Developer-1’s role in arranging for payments to ADAM SKELOS from the Environmental Technology Company. Among other things, DEAN SKELOS voted for real estate-related legislation lobbied for by Developer-1, including the renewal of tax abatement and rent regulation legislation crucial to the financial success of Developer-1 enacted in 2011, and an expansion of the tax abatement program in 2013.
With respect to the Environmental Technology Company, DEAN SKELOS and ADAM SKELOS periodically communicated to the CEO and CW-2 directly and indirectly that DEAN SKELOS would use his official position to benefit the Company so as to induce the Company to continue making payments to ADAM SKELOS. And, when the Company at times became frustrated with the limited progress in obtaining and collecting on government-funded contracts, DEAN SKELOS took official action to benefit the Company, including the following actions described in the Complaint:
- DEAN SKELOS used his official position to assist the Environmental Technology Company in applying and obtaining approvals for a $12 million contract with Nassau County, including by consulting with CW-2 on the Environmental Technology Company’s proposal and making calls to Nassau County officials to expedite the contracting process. Through these actions, ADAM SKELOS’s monthly payment from the Company more than doubled from $4,000 to $10,000.
- DEAN SKELOS pressured Nassau County officials to make payments to the Environmental Technology Company, stating at one point that his son could lose his job if payments were not expedited. For example, DEAN SKELOS was intercepted over a Court-authorized wiretap in a call with the Nassau County Executive in which he asked for an explanation for the lack of payments, complaining on behalf of ADAM SKELOS that “somebody feels like they’re getting jerked around the last two years.” Nassau County officials were concerned that if they did not pay ADAM SKELOS then DEAN SKELOS would not be responsive to the County’s legislative needs. Indeed, when Nassau County was slow in making payments to the Company, ADAM SKELOS told CW-2 on an intercepted call that Nassau County was “burning bridges left and right” and that the “State is not going to do a fucking thing for the County” because “they haven’t helped us with what we needed.”
- DEAN SKELOS used his official position to promote hydrofracking wastewater treatment regulations which would essentially require the use of a product of the type marketed by the Environmental Technology Company, and that would result in additional commission payments to ADAM SKELOS. To this end, DEAN SKELOS met privately with ADAM SKELOS and CW-2 on the Company’s fracking proposals and directed a member of his Senate Staff to arrange a meeting with a New York State government official and employees of the Environmental Technology Company. When the Governor of New York announced in December 2014 that New York State would continue to ban fracking, DEAN SKELOS repeatedly reassured ADAM SKELOS that “we’re going to totally focus on the other thing now,” referring to other legislative action that could benefit the Company.
- DEAN SKELOS used his official position in an attempt to direct a portion of a $5.4 billion sum that the State had recovered in litigation with financial services companies (the “Settlement Funds”) in a way that would benefit water projects and contracts that were being pursued by the Environmental Technology Company. For example, when ADAM SKELOS expressed concern in an intercepted call that the Governor was “pushing to spend all that money on his own” in his budget proposal, DEAN SKELOS told his son “don’t worry” and referred him to the speech that a fellow Senator would give in response to the Governor, in which DEAN SKELOS had inserted language advocating for using the Settlement Funds for “sewer and water systems.”
- DEAN SKELOS also used his official position in an attempt to enact State “design-build” legislation that Nassau county officials had explained was necessary to fully implement the $12 million contract with the Environmental Technology Company. Nassau County officials provided Dean Skelos with proposed legislation which Dean Skelos stated he would support if backed by the Governor. In a recorded call, ADAM SKELOS told CW-2 that DEAN SKELOS was “going to be sure that gets done” and that the plan involved the Nassau County executive lobbying the Governor to “[k]ind of make [the Governor] think it’s his idea and you’re supporting his agenda.” ADAM SKELOS later told CW-2 and the CEO that while design-build legislation would not be enacted as part of the budget process, DEAN SKELOS would continue to pursue it in the legislative session continuing through June 2015.
Caution Following the Arrest of the Assembly Speaker
After the Speaker of the New York State Assembly was arrested on January 22, 2015 and media outlets reported shortly thereafter that DEAN SKELOS was under investigation, the defendants became more cautious in pursuit of the Company’s legislative goals. ADAM SKELOS, for example, obtained what he referred to as his “burner phone” – a common slang term to refer to a phone that is not traceable to the user – to use for speaking to CW-2 about DEAN SKELOS’s progress in obtaining legislative benefits for the Environmental Technology Company. DEAN SKELOS is also caused the cancellation of a meeting Adam Skelos had arranged in furtherance of the scheme, commenting in an intercepted phone call “right now we are in dangerous times Adam.”
At the direction of the Government, CW-2 informed ADAM SKELOS in late March of this year that due to the limited progress on the Company’s legislative goals, the CEO of the Environmental Technology Company was considering terminating his $10,000 monthly payment. ADAM SKELOS then placed an intercepted call to DEAN SKELOS, telling his father he “lost something that I had . . . the water . . . the water thing.” In response, DEAN SKELOS told ADAM SKELOS that “we’ll try to get it back at some point.” DEAN SKELOS advised ADAM SKELOS not to “panic over this” and not to “burn bridges,” but rather to just tell the Environmental Technology Company that “hopefully we can get it all going again.” ADAM SKELOS then placed an intercepted call to the CEO of the Environmental Technology Company and stated he would draft a letter of separation “just in case I ever get questioned by anyone” but that “really nothing is going to change.”
* * *
DEAN SKELOS, 67, and ADAM SKELOS, 32, both of Rockville Centre, New York, are each charged with three counts of extortion under color of official right, two counts of soliciting bribes in connection with a federal program, and one count of conspiracy to commit honest services fraud. The extortion and honest services counts carry a maximum penalty of 20 years in prison and the soliciting bribes counts carry a maximum of 10 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 a judge.
U.S. Attorney Bharara praised the work of the FBI and the Criminal Investigators of the United States Attorney’s Office, who jointly conducted this investigation.
This case is being prosecuted by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Jason Masimore, Rahul Mukhi, Tatiana Martins, and Thomas McKay 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.
* 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.
US v. Dean and Adam Skelos Complaint
Manhattan U.S. Attorney Announces $60 Million Civil Fraud Settlement with Accredo Health Group over Kickback Scheme Involving Prescription DrugRead the Press Release
Accredo Admits to Conduct Regarding Its Distribution of Exjade
Preet Bharara, the United States Attorney for the Southern District of New York, Diego Rodriguez, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General's New York Regional Office (“HHS-OIG”) announced yesterday a $60 million settlement of a civil fraud lawsuit against ACCREDO HEALTH GROUP (“ACCREDO”) concerning a kickback scheme with NOVARTIS PHARMACEUTICALS CORP. (“NOVARTIS”) involving the prescription drug Exjade. In addition to filing a Notice of Intervention against and Stipulation and Order of Settlement and Dismissal with ACCREDO, the Government has elected to intervene against NOVARTIS over the same conduct previously filed by a whistleblower. As alleged in the lawsuit, NOVARTIS provided kickbacks, in the form of patient referrals and related benefits, to ACCREDO in exchange for ACCREDO’s recommending refills to Exjade patients. In connection with the scheme, the defendants understated the serious and potentially life-threatening side effects of Exjade when promoting the drug’s benefits to patients.
Simultaneous with the filing of the Notice of Intervention against ACCREDO, U.S. District Judge Colleen McMahon approved a settlement to resolve the United States’ claims against ACCREDO. Under that settlement, ACCREDO (i) agrees to pay $45,060,598.87 to the United States; (ii) admits numerous facts concerning its relationship with NOVARTIS; and (iii) agrees to cooperate with the United States in the prosecution of the claims against NOVARTIS. ACCREDO has also agreed in principle to pay $14,939,401.13 to a group of states to settle the states’ claims based on the same alleged conduct. In January 2014, the Government entered into a multimillion dollar settlement with another codefendant, Bioscrip Pharmacy, for similar conduct.
Manhattan U.S. Attorney Preet Bharara said: “This is the second substantial settlement with an alleged co-conspirator of Novartis in connection with a scheme that used the lure of kickbacks to co-opt a healthcare provider’s independence. As alleged in our intervention papers, Novartis used Accredo to promote refills under the guise of purported ‘counseling’ and ‘education,’ and in doing so, Novartis caused patients to receive one-sided advice that did not discuss Exjade’s serious, potentially life-threatening, side effects. This settlement with Accredo restores to the public fisc tens of millions of dollars paid out for kickback-tainted drugs.”
FBI Assistant Director-in-Charge Diego Rodriguez said: “Drug companies are required by law to provide safe and effective medications for the sole purpose of healing the ailments of their patients. Likewise, pharmaceutical companies are prohibited from employing tactics that could improperly influence a provider’s decisions. Through its relationship with Novartis, Accredo Health Group acted in its own best interest. It set aside the needs of its patients and intentionally adjusted its practices in order to conceal information from consumers. This scheme also placed a hefty price tag on our Medicare and Medicaid programs, causing more than tens of millions of dollars to be spent on Exjade shipments. Today’s settlement demonstrates the government’s commitment to protect our citizens from this type of fraud and ensure everyone receives the quality medical care they need.”
HHS-OIG Special Agent in Charge Scott J. Lampert said: “The conduct displayed by Accredo compromised patient care and undermined the integrity of our nation's health care programs. This settlement should serve as a warning to all providers that choose to let financial inducements cloud their medical judgment.”
As alleged in the Government’s second amended Complaint and in the relator’s third amended Complaint, NOVARTIS markets and manufactures Exjade, an iron chelation drug approved for use by patients who have iron overload resulting from blood transfusions. For approximately five years until 2012, NOVARTIS orchestrated a scheme whereby it offered kickbacks, in the form of patient referrals and other benefits to certain specialty pharmacies, including ACCREDO and Bioscrip, in exchange for increasing their Exjade refills through biased recommendations to patients. ACCREDO and Bioscrip were part of a NOVARTIS-created exclusive distribution network for Exjade called the Exjade Patient Assistance and Support Services (“EPASS”), and through this network NOVARTIS was able to refer Exjade patients to particular pharmacies within the network.
In particular, the Government has elected to intervene in the relator’s third amended Complaint with respect to its allegations concerning NOVARTIS and ACCREDO’s participation in an Exjade patient referral allocation scheme through which NOVARTIS gave ACCREDO additional patient referrals and related benefits in return for ACCREDO achieving the highest refill percentage for Exjade patients as compared to the refill percentages among Exjade patients at the other two pharmacies in the closed distribution network that NOVARTIS had established for Exjade.
As part of its settlement with the United States, ACCREDO made extensive factual admissions, including that:
- ACCREDO was one of three specialty pharmacies permitted to dispense Exjade as part of EPASS, NOVARTIS’s distribution network for Exjade.
- NOVARTIS controlled how many of the patient prescriptions received by EPASS were distributed among ACCREDO and the other two EPASS pharmacies.
- In June 2007, NOVARTIS began issuing monthly “Exjade Scorecards” to the EPASS pharmacies that measured, among other things, the pharmacies’ “adherence” scores. Based on discussions with NOVARTIS, ACCREDO knew that the “adherence” scores in the Exjade Scorecards were designed to show how long ACCREDO’s Exjade patients continued to order refills. ACCREDO also knew that, in calculating the adherence scores, NOVARTIS did not exclude patients who stopped ordering refills due to side effects or patients who were directed to stop therapy by their physicians.
- In late 2007 and early 2008, NOVARTIS indicated to ACCREDO that NOVARTIS was dissatisfied with ACCREDO’s performance in terms of its “adherence” scores in the Exjade Scorecards. NOVARTIS executives asked ACCREDO executives to implement an Exjade adherence improvement plan that involved additional nurse intervention. NOVARTIS executives also told ACCREDO that ACCREDO could lose undesignated patient referrals from EPASS if it continued to lag behind other EPASS pharmacies in the Exjade Scorecards.
- At a meeting in March 2008 with ACCREDO, a NOVARTIS executive made statements emphasizing the importance to NOVARTIS of ACCREDO’s adherence performance. Later that month, NOVARTIS told ACCREDO that NOVARTIS was formulating a plan to allocate undesignated patient referrals to the EPASS pharmacies based on their rankings in the Exjade Scorecards. Specifically, the EPASS pharmacy with the top adherence score in the Exjade Scorecards would receive a larger share of the undesignated patient referrals as compared to the other EPASS pharmacies. In addition, between April and June 2008, NOVARTIS managers told ACCREDO that ACCREDO’s performance in the Exjade Scorecards was below NOVARTIS’s expectation and this affected NOVARTIS’s ability to meet its sales targets for Exjade.
- In July 2008, NOVARTIS executives reiterated in statements to ACCREDO that NOVARTIS was dissatisfied with ACCREDO’s performance in relation to Exjade. Later that month, ACCREDO hired a new nurse for Exjade and assigned that nurse to make a sequence of calls to each Exjade patient.
- In making calls to Exjade patients, the nurse at ACCREDO was supposed to follow a set of call protocols that ACCREDO had developed. ACCREDO’s 2008 call protocols directed the nurse to tell patients that compliance with Exjade therapy regimen is extremely important and that, if untreated, iron overload could result in arthritis, liver or heart problems, high blood sugar, persistent abdominal pain, severe fatigue, and skin discoloration. With regard to adverse reactions, ACCREDO’s 2008 Exjade call protocols directed the nurse to advise patients about Exjade’s common adverse reactions, including diarrhea, abdominal pain, fever, and rash, but not the less common, but more severe, adverse reactions like renal or hepatic impairment.
- In October 2008, NOVARTIS informed ACCREDO about, and ACCREDO agreed to, a new patient referral allocation plan that NOVARTIS had formulated. Under that plan, NOVARTIS would allocate 60 percent of all undesignated patient referrals to the EPASS pharmacy with the top “adherence” scores in the Exjade Scorecards and allocate 20 percent of the undesignated patient referrals to each of the other two EPASS pharmacies.
- In February 2009, an Exjade executive from NOVARTIS visited ACCREDO and met with the Exjade nurse at ACCREDO. During that meeting with the NOVARTIS executive, the Exjade nurse at ACCREDO described how she handled calls with Exjade patients.
- In January 2010, the FDA required NOVARTIS to add a “black box warning” to the Exjade label to highlight that Exjade may cause renal impairment (including renal failure), hepatic impairment (including hepatic failure), and gastrointestinal hemorrhage. The FDA-mandated warning also stated that these reactions were fatal in some reported cases.
- After January 2010, no representative of NOVARTIS asked or suggested to ACCREDO that its Exjade call protocols should be revised to require the Exjade nurses to discuss the serious risks listed in Exjade’s “black box warning” when they called patients to discuss Exjade therapy.
- In February 2010, ACCREDO updated its Exjade call protocols. In terms of the adverse reactions for Exjade, the February 2010 ACCREDO Exjade call protocols continued to direct the Exjade nurses to advise patients about the common adverse reactions, such as diarrhea and rash, but not the less common, but more severe, adverse reactions discussed in the “black box warning,” such as renal or hepatic failure. As revised, the February 2010 Exjade call protocols directed the nurses to tell Exjade patients that “compliance with Exjade is very important in order to prevent the following complications that result from untreated iron overload: arthritis, high blood sugar, persistent abdominal pain, severe fatigue, skin discoloration, stroke, or death.”
- In early 2010, NOVARTIS notified ACCREDO that, under the plan they agreed on in 2008, ACCREDO would receive additional undesignated patients because ACCREDO had obtained the top adherence score in the Exjade Scorecards in the fourth quarter of 2009. Specifically, based on communications with NOVARTIS, it was ACCREDO’s understanding that it was entitled to receive 60 percent of all undesignated patients in the second, third, and fourth quarters in 2010, and for all four quarters in 2011.
- In late March 2012, NOVARTIS notified ACCREDO that, starting in April 2012, it would stop allocating additional Exjade patient referrals to the EPASS pharmacy with the highest Exjade Scorecard ranking, as NOVARTIS and ACCREDO had agreed to in October 2008.
- One month later, in April 2012, ACCREDO stopped assigning nurses to call Exjade patients to discuss their Exjade therapy.
The Government seeks treble damages and penalties under the False Claims Act for the tens of millions of dollars in reimbursements that Medicare and Medicaid paid for Exjade shipments that resulted from the kickback scheme involving NOVARTIS and ACCREDO.
The allegations of fraud stated in the Complaint were first brought to the attention of federal law enforcement by David Kester, the whistle-blower who filed a lawsuit under the False Claims Act. The False Claims Act permits the Government to recover up to three times the amount of damages incurred by the United States, plus civil penalties ranging from $5,500 to $11,000 per violation. Private parties who have knowledge of fraud committed against the Government may file suit on behalf of the Government and share in any recovery. The United States may then intervene and file its own lawsuit for treble damages and penalties, as it did in this case.
Mr. Bharara praised the investigative work of the, HHS-OIG, and the Medicaid Fraud Control Units for New York, Washington, California, and Ohio. He also thanked the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington, D.C., for its assistance in this case.
The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating healthcare and other types of frauds. Assistant U.S. Attorneys Li Yu, Rebecca C. Martin, David J. Kennedy, Jeffrey K. Powell, and Peter Aronoff are in charge of the case.
BNP Paribas Sentenced for Conspiring to Violate the International Emergency Economic Powers Act and the Trading with the Enemy ActRead the Press Release
Preet Bharara, United States Attorney for the Southern District of New York, and Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, announced that BNP Paribas S.A. (BNPP), a global financial institution headquartered in Paris, France was sentenced today for conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) by processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian and Cuban entities subject to U.S. economic sanctions. BNP Paribas was sentenced to a five-year term of probation, and ordered to forfeit $8,833,600,000 to the United States and pay a fine of $140,000,000. Today’s sentencing is the first time a financial institution has been convicted and sentenced based on its violations of U.S. economic sanctions.
BNPP’s sentencing follows its plea of guilty on July 9, 2014, to conspiring to violate U.S. sanctions laws. As part of its plea, BNPP admitted to moving more than $8.8 billion through the U.S. financial system on behalf of sanctioned entities, including more than $4.3 billion in transactions involving entities that were specifically designated by the U.S. government as being cut off from the U.S. financial system. The total financial penalty imposed on BNPP – $8,973,600,000, including the forfeiture and criminal fine – is the largest financial penalty ever imposed in a criminal case.
U.S. Attorney Preet Bharara said: “BNPP, the world's fourth largest bank, has now been sentenced to pay a record penalty of almost $9 billion for sanctions violations that unlawfully opened the U.S. financial markets to Sudan, Iran, and Cuba. BNPP provided access to billions of dollars to these sanctioned countries, and did so deliberately and secretly, in ways designed to evade detection by the U.S. authorities. The sentence imposed today is appropriate for BNPP’s years-long and wide-ranging criminal conduct.”
Assistant Attorney General Leslie R. Caldwell said: “BNP Paribas flouted U.S. sanctions laws to an unprecedented extreme, concealed its tracks, and then chose not to fully cooperate with U.S. law enforcement, leading to a criminal guilty plea and nearly $9 billion penalty. BNPP deliberately disregarded the law and provided rogue nations, and Sudan in particular, with vital access to the global financial system, helping that country’s lawless government to harbor and support terrorists and to persecute its own people. Today’s sentence demonstrates that financial institutions will be punished severely but appropriately for violating sanctions laws and risking our national security interests.”
Today’s sentencing is part of a resolution announced in July 2014 in which the New York County District Attorney’s Office also announced that BNPP pleaded guilty in New York State Supreme Court to falsifying business records and conspiring to falsify business records. In addition, the Board of Governors of the Federal Reserve System announced that BNPP agreed to a cease and desist order, to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations and to pay a civil monetary penalty of $508 million. The New York State Department of Financial Services (DFS) announced that BNPP agreed to, among other things, terminate or separate from the bank 13 employees, including the Group Chief Operating Officer and other senior executives; suspend U.S. dollar clearing operations through its New York Branch and other affiliates for one year for business lines on which the misconduct centered; extend for two years the term of a monitorship put in place in 2013 and pay a monetary penalty to DFS of $2.24 billion. In satisfying its criminal forfeiture penalty, BNPP will receive credit for payments it made in connection with its resolution of these related state and regulatory matters. The Treasury Department’s Office of Foreign Assets Control also levied a fine of $963 million, which will be satisfied by payments made to the Department of Justice.
Based on today’s sentencing proceedings and prior filings in the case, BNPP has admitted and acknowledged that from at least 2004 through 2012, it knowingly and willfully moved over $8.8 billion through the U.S. financial system on behalf of Sudanese, Iranian and Cuban sanctioned entities, in violation of U.S. economic sanctions. The majority of illegal payments were made on behalf of sanctioned entities in Sudan, which was subject to U.S. embargo based on the Sudanese government’s role in facilitating terrorism and committing human rights abuses. BNPP processed approximately $6.4 billion through the United States on behalf of Sudanese sanctioned entities from July 2006 through June 2007, including approximately $4 billion on behalf of a financial institution owned by the government of Sudan, even as internal emails showed BNPP employees expressing concern about the bank’s assisting the Sudanese government in light of its role in supporting international terrorism and committing human rights abuses during the same time period. Indeed, in March 2007, a senior compliance officer at BNPP wrote to other high-level BNPP compliance and legal employees reminding them that certain Sudanese banks with which BNPP dealt “play a pivotal part in the support of the Sudanese government which . . . has hosted Osama Bin Laden and refuses the United Nations intervention in Darfur.”
One way in which BNPP processed illegal transactions on behalf of Sudanese sanctioned entities was through a sophisticated system of “satellite banks” set up to disguise both BNPP’s and the sanctioned entities’ roles in the payments to and from financial institutions in the United States. As early as August 2005, a senior compliance officer at BNPP warned several legal, business and compliance personnel at BNPP’s subsidiary in Geneva that the satellite bank system was being used to evade U.S. sanctions: “As I understand it, we have a number of Arab Banks (nine identified) on our books that only carry out clearing transactions for Sudanese banks in dollars… This practice effectively means that we are circumventing the US embargo on transactions in USD by Sudan.”
Similarly, BNPP provided Cuban sanctioned entities with access to the U.S. financial system by hiding the Cuban sanctioned entities’ involvement in payment messages. From October 2004 through early 2010, BNPP knowingly and willfully processed approximately $1.74 billion on behalf of Cuban sanctioned entities. In the statement of facts, BNPP admitted that it continued to do U.S. dollar business with Cuba long after it was clear that such business was illegal in order to preserve BNPP’s business relationships with Cuban entities. BNPP further admitted that its conduct with regard to the Cuban embargo was both “cavalier” and “criminal.” In 2006, after certain Cuban payments were blocked when they reached the United States, the bank decided to strip the wire messages for those payments of references to Cuban entities and resubmit them as a lump sum in order to conceal from U.S. regulators the bank’s longstanding, and illicit, Cuban business.
BNPP also engaged in more than $650 million of transactions involving entities tied to Iran, and this conduct continued into 2012 – nearly two years after the bank had commenced an internal investigation into its sanctions compliance and had pledged to cooperate with the government. The illicit Iranian transactions were done on behalf of BNPP clients, including a petroleum company based in Dubai that was effectively a front for an Iranian petroleum company and an Iranian oil company.
U.S. District Judge Schofield recognized, in her acceptance of BNPP’s guilty plea, that BNPP’s actions “not only flouted U.S. foreign policy but also provided support to governments that threaten both our regional and national security and, in the case of Sudan, a government that has committed flagrant human rights abuses and has known links to terrorism.” The forfeiture of over $8 billion will “surely have a deterrent effect on others that may be tempted to engage in similar conduct, all of whom should be aware that no financial institution is immune from the rule of law.”
The Justice Department is exploring ways to use the forfeited funds to compensate individuals harmed by the sanctioned regimes of Sudan, Iran, and Cuba. In an effort to better understand who may have been harmed by these regimes, the Justice Department is inviting individuals or their representatives to provide information describing the nature and value of the harm they suffered. Beginning today (May 1, 2015), interested persons can learn more about this process and submit their information at www.usvbnpp.com, or call 888-272-5632 (within North America) or 317-324-0382 (internationally).
In addition to its federal criminal conviction, BNPP pleaded guilty in New York State Supreme Court to falsifying business records and conspiring to falsify business records. BNPP also agreed to a cease and desist order and to pay a civil monetary penalty of $508 million to the Board of Governors of the Federal Reserve System. The New York State Department of Financial Services announced that BNPP agreed to, among other things, terminate or separate from the bank 13 employees, including the Group Chief Operating Officer and other senior executives; suspend U.S. dollar clearing operations through its New York Branch and other affiliates for one year for business lines on which the misconduct centered; extend for two years a monitorship put in place in 2013; and pay a monetary penalty of $2.24 billion. In satisfying its criminal forfeiture penalty, BNPP will receive credit for payments it made in connection with its resolution of these related state and regulatory matters. The Treasury Department’s Office of Foreign Assets Control also levied a fine of $963 million, which will be satisfied by payments made to the Justice Department.
This case is being prosecuted by the Money Laundering and Asset Forfeiture Unit of the U.S. Attorney’s Office for the Southern District of New York and the Money Laundering and Bank Integrity Unit of the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS). Assistant U.S. Attorneys Andrew D. Goldstein, Martin S. Bell, Christine I. Magdo, and Micah W.J. Smith of the Southern District of New York and Deputy Chief Craig Timm and Trial Attorney Jennifer E. Ambuehl of AFMLS are in charge of the prosecution.
The New York County District Attorney’s Office also conducted its own investigation alongside the Department of Justice on this investigation. Mr. Bharara and Ms. Caldwell expressed their gratitude to the Board of Governors of the Federal Reserve, the Federal Reserve Bank of New York, the New York State Department of Financial Services and the Treasury Department’s Office of Foreign Assets Control for their assistance with this matter. They also thanked the Federal Bureau of Investigation’s New York Field Office and the Internal Revenue Service-Criminal Investigation’s Washington Field Division for their work on the investigation.
Three Senior Executives of For-Profit Schools Plead Guilty in Manhattan Federal Court to Participating in Student Visa and Financial Aid Fraud SchemesRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced that SURESH HIRANANDANEY, LALIT CHABRIA, and ANITA CHABRIA, three senior executives of privately owned for-profit schools, pled guilty yesterday in Manhattan federal court to criminal conspiracy charges for their involvement in student visa fraud and financial aid fraud schemes. Specifically, the defendants each pled guilty to one count of conspiracy to commit student visa fraud and one count of conspiracy to commit student financial aid fraud, agreed to forfeit $7,440,000 of proceeds of the student visa fraud conspiracy to the United States Government, and agreed to pay $1,000,000 in restitution to the United States Department of Education (“ED”) for losses from the student financial aid fraud conspiracy. The defendants were arrested in May 2014, along with co-defendants Samir Hiranandaney and Seema Shah, following a long-term investigation by the United States Immigration and Customs Enforcement’s Homeland Security Investigations (“ICE-HSI”), the United States Department of State’s Diplomatic Security Service (“DOS-DSS”), and ED’s Office of the Inspector General (“ED-OIG”). SURESH HIRANANDANEY, LALIT CHABRIA, and ANITA CHABRIA entered their guilty pleas yesterday before United States District Judge J. Paul Oetken.
Manhattan U.S. Attorney Bharara stated: “Suresh Hiranandaney, Lalit Chabria, and Anita Chabira turned their for-profit schools into instruments of fraud to exploit our nation’s foreign student visa and domestic student financial aid programs for their own personal financial gain. Education fraud remains a high-priority focus of ours and we will prosecute all those who make a self-serving sham out of education.”
According to the Indictment filed in this case, the Complaint previously unsealed in this case, and other statements made at public court proceedings, including yesterday’s guilty pleas:
Each of the defendants who pled guilty yesterday was associated with the Micropower Career Institute (“MCI”), a for-profit school with five campuses in New York and New Jersey, or the Institute for Health Education (“IHE”), a for-profit school located in New Jersey. SURESH HIRANANDANEY was MCI’s President; his brother-in-law, LALIT CHABRIA, was MCI’s Vice President and IHE’s President; and his sister, ANITA CHABRIA, was MCI’s Vice President.
Foreign citizens are granted F-1 student visas to remain in the United States as long as they are pursuing full courses of study at approved schools. If a student fails to attend classes as required, the school is required to inform immigration authorities so that the authorities may terminate that student’s visa. SURESH HIRANANDANEY, LALIT CHABRIA, and ANITA CHABRIA failed to report to immigration authorities that foreign citizens were not attending classes at MCI and IHE as required.
The defendants and others fraudulently portrayed MCI and IHE to immigration authorities as legitimate institutes of higher learning where foreign students carried full course loads. In reality, the majority of foreign students at MCI and IHE did not attend the required number of classes. SURESH HIRANANDANEY, LALIT CHABRIA, and ANITA CHABRIA failed to report this to immigration authorities as required, while MCI and IHE continued to collect millions of dollars in tuition from foreign students with delinquent attendance. When a campus of MCI came under regulatory scrutiny, the defendants and others transferred foreign students with delinquent attendance to affiliated schools (such as another MCI campus or IHE) that were not under scrutiny.
In another scheme, SURESH HIRANANDANEY, LALIT CHABRIA, ANITA CHABRIA, and others falsified documents in student financial aid files at MCI in order to hide MCI’s failure to timely return financial aid funds received by MCI for domestic students who had dropped out of MCI. In violation of federal laws and regulations governing the administration of financial aid payments to eligible low-income students, MCI failed to return to ED substantial sums of financial aid funds that ED had disbursed to MCI for domestic students who dropped out of MCI without an authorized leave of absence. Specifically, the defendants and others falsified student files by altering documents in the files, or in some cases creating entirely fabricated documents, to conceal MCI’s failure to return such funds to ED and ensure that ED would not terminate MCI’s eligibility for future financial aid funds.
SURESH HIRANANDANEY, 61, LALIT CHABRIA, 54, and ANITA CHABRIA 50, each pled guilty to one count of conspiracy to commit student visa fraud and one count of conspiracy to commit student financial aid fraud, agreed to pay $7,440,000 of proceeds of the student visa fraud conspiracy in forfeiture to the U.S. Government, and agreed to pay $1,000,000 in restitution to ED for losses from the student financial aid fraud conspiracy. Each count carries a maximum of five years in prison. The defendants’ sentencing date is scheduled for September 10, 2015. The penalties described here are prescribed by Congress and provided for informational purposes only, as any sentence imposed on each of these defendants will be determined by Judge Oetken.
The remaining defendants, Samir Hiranandaney, 28, and Seema Shah, 42, face pending criminal conspiracy charges that are contained in the Indictment in this case. The charges against Samir Hiranandaney and Seema Shah are merely accusations and these defendants are presumed innocent unless and until proven guilty.
Manhattan U.S. Attorney Bharara praised ICE-HSI, DOS-DSS, and ED-OIG for their work in the investigation this case.
This case is being prosecuted by the Office’s General Crimes Unit. Assistant United States Attorneys Samson Enzer and Margaret Graham are in charge of the prosecution. Assistant United States Attorney Andrew Adams is in charge of the forfeiture aspects of the case.
Former Controller of Non-Profit Organization That Funds Medical Research Pleads Guilty in Manhattan Federal Court to Embezzling over $1.8 Million and Tax EvasionRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that KAREN ALAMEDDINE, a/k/a “Karen Dean,” the former controller of a New York-based non-profit organization whose core mission is to cure genetic illnesses by supporting biomedical research (the “Non-Profit”), pled guilty in Manhattan federal court to embezzling more than $1.8 million from the Non-Profit, and to tax evasion for deliberately failing to report to the IRS as income the money she embezzled. ALAMEDDINE was initially charged in November 2014, and entered her guilty plea today before United States District Judge Gregory H. Woods.
Manhattan U.S. Attorney Preet Bharara said: “As she admitted in Court today, over the course of five years Karen Alameddine stole almost $2 million that she, as controller of an organization, was responsible for overseeing and safeguarding. To make matters worse, her victim was a non-profit organization dedicated to finding cures for serious diseases, and she compounded her embezzlement with tax crimes.”
According to the Complaint, the Indictment, and proceedings in Manhattan federal court:
From approximately late 2008 through early 2014, while working as the controller for the Non-Profit, ALAMEDDINE diverted over $1.85 million of the Non-Profit’s funds to her own bank accounts and for her own personal use. ALAMEDDINE executed the scheme principally by disguising QuickBooks entries to make transfers to her personal bank account appear as if they were transfers made to pay grant recipients of the Non-Profit. ALAMEDDINE further sought to disguise the fraud by inventing a fictitious accounting firm named “Davis & Greene,” purportedly based in Washington, D.C., which was, according to ALAMEDDINE, retained to prepare certain tax returns for the Non-Profit for the 2012 and 2013 tax years.
After ALAMEDDINE fraudulently transferred the funds from an account belonging to the Non-Profit to a personal bank account, she further transferred the funds to other accounts she controlled, and thereafter used those funds for various personal expenses, including to pay personal bills. Among the personal items ALAMEDDINE paid for with the embezzled money were utility bills, car payments, jewelry, the purchase of a recreational vehicle, her personal mortgages, and leisure travel.
In addition, for each of the calendar years 2009 through 2013, ALAMEDDINE filed tax returns with the Internal Revenue Service (“IRS”) in which she deliberately omitted reporting the income she received from the fraud. Those deliberate omissions resulted in ALAMEDDINE’s evasion of substantial amounts of income tax for each of the years between 2009 and 2013.
ALAMEDDINE, 57, of Perris, CA, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison, and one count of tax evasion, 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 sentencing of the defendant will be determined by the judge. ALAMEDDINE will be sentenced by Judge Woods on August 14, 2015, at 2:30 p.m.
Mr. Bharara praised the outstanding investigative work of the IRS and the U.S. Postal Inspection Service.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Stanley J. Okula is in charge of the prosecution.