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27 December 2016
Third Jefferson City Man Pleads Guilty to Distributing MethRead the Press Release
JEFFERSON CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Jefferson City, Mo., man who led police in a pursuit that resulted in the seizure of a large quantity of methamphetamine pleaded guilty in federal court today to his role in a drug-trafficking conspiracy.
Michael Pearson, 33, of Jefferson City, pleaded guilty before U.S. Magistrate Judge Matt J. Whitworth to the charge contained in a July 15, 2015, federal indictment. Co-defendants David Eugene Rodebaugh, 41, and Hernan Hurtado, 25, both of Jefferson City, have also pleaded guilty to participating in a conspiracy to distribute methamphetamine.
By pleading guilty today, Pearson admitted that on Feb. 13, 2015, he was driving a black Acura, in which Rodebaugh was a passenger, which was under surveillance by the Drug Enforcement Administration and MUSTANG (the Mid-Missouri Unified Strike Team and Narcotics Group). Officers followed Pearson to the parking lot of the Capital Mall in Jefferson City, where they met Hurtado. After speaking with Hurtado for about 30 minutes, Pearson reached into the cab of Hurtado’s pickup truck and retrieved a plastic bag (later determined to contain methamphetamine), which he placed in the back seat of the Acura.
As the group left the parking lot, law enforcement officers attempted to stop Pearson. However, Pearson failed to stop and a pursuit ensued. The Acura left the roadway, drove down an embankment and was rendered inoperable. Pearson jumped from the Acura and fled. Rodebaugh was arrested at the scene. Pearson was later located and arrested.
Officers found a plastic bag, which contained two bundles that each contained 1,968 grams of pure methamphetamine, approximately 75 yards from where the Acura stopped. Rodebaugh admitted he threw the bag out of the vehicle’s window during the pursuit.
Later that same afternoon, Hurtado called the Jefferson City Police Department to report he had been robbed at his home in Jefferson City. Hurtado voluntarily came to the police station, where he was questioned and arrested.
Hurtado admitted that an unidentified source from Kansas City, Mo., had delivered the approximately five pounds of methamphetamine to him the evening prior to his meeting with Pearson and Rodebaugh.
Under federal statutes, Pearson, Rodebaugh and Hurtado are each subject to a mandatory minimum sentence of 10 years in federal prison without parole, up to a sentence of life in federal prison without parole. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory sentencing guidelines and other statutory factors. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.
This case is being prosecuted by Assistant U.S. Attorney Jim Lynn. It was investigated by the Drug Enforcement Administration, MUSTANG (the Mid-Missouri Unified Strike Team and Narcotics Group) and the Jefferson City, Mo., Police Department.
Statement by Attorney General Loretta E. Lynch on the Departure of John P. Fishwick Jr. from the U.S. Attorney's Office for the Western District of VirginiaRead the Press Release
Attorney General Loretta E. Lynch released the following statement on the planned departure of U.S. Attorney John P. Fishwick Jr. of the Western District of Virginia:
“Since 2015, U.S. Attorney John P. Fishwick Jr. has served the people of the Western District of Virginia, and the people of this nation, with integrity and distinction. During John’s tenure as U.S. Attorney, his office made significant progress on many of the difficult challenges facing law enforcement today. Under his leadership, the Western District successfully prosecuted the gang responsible for the murder of a police captain, collaborated with local and state law enforcement officials to fight the scourge of gun violence and tirelessly combated the heroin epidemic. And John personally promoted strong relationships between law enforcement and the community. Among other initiatives, John educated youth about gun violence and drug addiction, and introduced a mentoring program that links law enforcement mentors – such as John – with the young people of Roanoke. I want to thank John for his service, and I wish him the very best in the next phase of his career.”
Redflex Traffic Systems Enters into Non-Prosecution Agreement with United StatesRead the Press Release
CHICAGO — The Department of Justice and the United States Attorney’s Offices for the Northern District of Illinois and the Southern District of Ohio (collectively, “DOJ”) have entered into a Non-Prosecution Agreement with Redflex Traffic Systems Inc., a Phoenix-based automated safety company.
The agreement was announced by Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division; Zachary T. Fardon, United States Attorney for the Northern District of Illinois; and Benjamin C. Glassman, United States Attorney for the Southern District of Ohio.
The agreement was reached in part due to Redflex’s extensive and thorough cooperation over recent years, which is detailed in the agreement. It included cooperation with the successful prosecutions of several individuals, including a high-ranking city of Chicago official and Redflex’s prior Chief Executive Officer.
Among the company’s obligations under the agreement, which shall continue for two years, Redflex will pay restitution and compensatory damages to the City of Chicago, the amount of which will be determined either by a final judgment or a settlement agreement in Chicago’s pending civil lawsuit against Redflex. Redflex will also pay restitution of $100,000 to the City of Columbus, Ohio.
Further, Redflex agreed to cooperate fully with DOJ and any other law enforcement agency designated by DOJ, including the Australian Federal Police and other Australian law enforcement authorities. As part of that obligation, Redflex must, among other things, provide DOJ, the Australian Federal Police, and other Australian law enforcement authorities, upon request, all non-privileged information, documents, records, or other tangible evidence. Notwithstanding the two-year time period of the agreement, Redflex agreed to cooperate with DOJ, the Australian Federal Police, and other Australian law enforcement authorities until all of their investigations or prosecutions are concluded.
In exchange for Redflex’s fulfillment of its obligations under the agreement, DOJ agreed that it will not criminally prosecute Redflex for any of the conduct arising out of investigations in Chicago and Columbus. The agreement does not relate to any potential tax charges.
Redflex Traffic Systems is wholly owned by Redflex Holdings Group of Melbourne, Australia, which owns and operates a network of digital speed and red-light cameras worldwide. The company installs cameras that automatically record and ticket drivers who run red lights. As part of the Non-Prosecution Agreement, Redflex accepted responsibility for its conduct related to the illegal activities of its employees in recent U.S. investigations.
Its former CEO was convicted as part of the probes into bribes paid to elected officials to procure or expand Redflex’s contracts with Chicago and Columbus. The investigations also resulted in the convictions of a Chicago official and a Columbus lobbyist. John Bills, a former Chicago assistant transportation commissioner, was convicted of accepting cash and benefits from Redflex in exchange for expanding the company’s business with Chicago. The lobbyist, John Raphael, pleaded guilty to extorting cash from Redflex to pass on to elected officials in Ohio in an effort to obtain red-light camera contracts.
Since the inception of the U.S. investigations, Redflex has initiated substantial additions and changes to its compliance program, policies and procedures. The company agreed in the Non-Prosecution Agreement to revise and address any deficiencies in its compliance code, policies and procedures regarding compliance with applicable anti-bribery and anti-corruption laws. Redflex agreed to adopt new policies to ensure that it maintains a rigorous anti-bribery and anti-corruption compliance code, and to install procedures designed to detect and deter violations of such laws.
During the term of the agreement, Redflex must prepare at least four follow-up reports and periodically submit them to DOJ. If DOJ determines that Redflex has violated any provision of the Non-Prosecution Agreement, Redflex shall be subject to prosecution for any applicable violation of U.S. law, including perjury and obstruction of justice.
The government was represented in the Chicago case by Mr. Fardon and Assistant U.S. Attorneys Laurie Barsella and Timothy Storino of the Northern District of Illinois. The Chicago case was investigated by the FBI’s Chicago Field Office, the IRS Criminal Investigation Division, and the City of Chicago’s Inspector General’s Office.
The government in the Columbus case was represented by Trial Attorney Edward P. Sullivan of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney J. Michael Marous of the Southern District of Ohio. The Columbus case was investigated by the FBI’s Cincinnati Field Office, Columbus Resident Agency, the IRS Criminal Investigation Division, and the Ohio Bureau of Criminal Investigation.
Redflex Traffic Systems Enters into Non-Prosecution Agreement with United StatesRead the Press Release
The Department of Justice and the United States Attorney’s Offices for the Northern District of Illinois and the Southern District of Ohio (collectively, “DOJ”) have entered into a non-prosecution agreement with Redflex Traffic Systems Inc., a Phoenix-based automated safety company.
The agreement was announced by Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division; Zachary T. Fardon, United States Attorney for the Northern District of Illinois; and Benjamin C. Glassman, United States Attorney for the Southern District of Ohio.
The agreement was reached in part due to Redflex’s extensive and thorough cooperation over recent years, which is detailed in the agreement. It included cooperation with the successful prosecutions of several individuals, including a high-ranking city of Chicago official and Redflex’s prior Chief Executive Officer.
Among the company’s obligations under the agreement, which shall continue for two years, Redflex will pay restitution and compensatory damages to the City of Chicago, the amount of which will be determined either by a final judgment or a settlement agreement in Chicago’s pending civil lawsuit against Redflex. Redflex will also pay restitution of $100,000 to the City of Columbus, Ohio.
Further, Redflex agreed to cooperate fully with DOJ and any other law enforcement agency designated by DOJ, including the Australian Federal Police and other Australian law enforcement authorities. As part of that obligation, Redflex must, among other things, provide DOJ, the Australian Federal Police, and other Australian law enforcement authorities, upon request, all non-privileged information, documents, records, or other tangible evidence. Notwithstanding the two-year time period of the agreement, Redflex agreed to cooperate with DOJ, the Australian Federal Police, and other Australian law enforcement authorities until all of their investigations or prosecutions are concluded.
In exchange for Redflex’s fulfillment of its obligations under the agreement, DOJ agreed that it will not criminally prosecute Redflex for any of the conduct arising out of investigations in Chicago and Columbus. The agreement does not relate to any potential tax charges.
Redflex Traffic Systems is wholly owned by Redflex Holdings Group of Melbourne, Australia, which owns and operates a network of digital speed and red-light cameras worldwide. The company installs cameras that automatically record and ticket drivers who run red lights. As part of the non-prosecution agreement, Redflex accepted responsibility for its conduct related to the illegal activities of its employees in recent U.S. investigations.
Its former CEO was convicted as part of the probes into bribes paid to elected officials to procure or expand Redflex’s contracts with Chicago and Columbus. The investigations also resulted in the convictions of a Chicago official and a Columbus lobbyist. John Bills, a former Chicago assistant transportation commissioner, was convicted of accepting cash and benefits from Redflex in exchange for expanding the company’s business with Chicago. The lobbyist, John Raphael, pleaded guilty to extorting cash from Redflex to pass on to elected officials in Ohio in an effort to obtain red-light camera contracts.
Since the inception of the U.S. investigations, Redflex has initiated substantial additions and changes to its compliance program, policies and procedures. The company agreed in the non-prosecution agreement to revise and address any deficiencies in its compliance code, policies and procedures regarding compliance with applicable anti-bribery and anti-corruption laws. Redflex agreed to adopt new policies to ensure that it maintains a rigorous anti-bribery and anti-corruption compliance code, and to install procedures designed to detect and deter violations of such laws.
During the term of the agreement, Redflex must prepare at least four follow-up reports and periodically submit them to DOJ. If DOJ determines that Redflex has violated any provision of the non-prosecution agreement, Redflex shall be subject to prosecution for any applicable violation of U.S. law, including perjury and obstruction of justice.
The government was represented in the Chicago case by Mr. Fardon and Assistant U.S. Attorneys Laurie Barsella and Timothy Storino of the Northern District of Illinois. The Chicago case was investigated by the FBI’s Chicago Field Office, the IRS Criminal Investigation Division, and the City of Chicago’s Inspector General’s Office.
The government in the Columbus case was represented by Trial Attorney Edward P. Sullivan of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney J. Michael Marous of the Southern District of Ohio. The Columbus case was investigated by the FBI’s Cincinnati Field Office, Columbus Resident Agency, the IRS Criminal Investigation Division, and the Ohio Bureau of Criminal Investigation.
Redflex Traffic Systems Enters into Non-Prosecution Agreement with United StatesRead the Press Release
COLUMBUS, Ohio — The Department of Justice and the United States Attorney’s Offices for the Southern District of Ohio and the Northern District of Illinois have entered into a Non-Prosecution Agreement with Redflex Traffic Systems Inc., a Phoenix-based automated safety company.
The agreement was announced by Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division; Benjamin C. Glassman, United States Attorney for the Southern District of Ohio; and Zachary T. Fardon, United States Attorney for the Northern District of Illinois.
The agreement was reached in part due to Redflex’s extensive and thorough cooperation over recent years, which is detailed in the agreement. It included cooperation with the successful prosecutions of several individuals, including a Columbus lobbyist, a high-ranking city of Chicago official and Redflex’s prior Chief Executive Officer.
Among the company’s obligations under the two-year agreement, Redflex will pay restitution of $100,000 to the City of Columbus. The company will also pay restitution and compensatory damages to the City of Chicago, the amount of which will be determined either by a final judgment or a settlement agreement in Chicago’s pending civil lawsuit against Redflex.
Further, Redflex agreed to cooperate fully with DOJ and any other law enforcement agency designated by DOJ, including the Australian Federal Police and other Australian law enforcement authorities. As part of that obligation, Redflex must, among other things, provide DOJ, the Australian Federal Police, and other Australian law enforcement authorities, upon request, all non-privileged information, documents, records, or other tangible evidence. Notwithstanding the two-year time period of the agreement, Redflex agreed to cooperate with DOJ, the Australian Federal Police, and other Australian law enforcement authorities until all of their investigations or prosecutions are concluded.
In exchange for Redflex’s fulfillment of its obligations under the agreement, DOJ agreed that it will not criminally prosecute Redflex for any of the conduct arising out of investigations in Chicago and Columbus. The agreement does not relate to any potential tax charges.
Redflex Traffic Systems is wholly owned by Redflex Holdings Group of Melbourne, Australia, which owns and operates a network of digital speed and red-light cameras worldwide. The company installs cameras that automatically record and ticket drivers who run red lights. As part of the Non-Prosecution Agreement, Redflex accepted responsibility for its conduct related to the illegal activities of its employees in recent U.S. investigations.
Its former CEO was convicted as part of the probes into bribes paid to elected officials to procure or expand Redflex’s contracts with Chicago and Columbus. The investigations also resulted in the convictions of a Chicago official and a Columbus lobbyist. John Bills, a former Chicago assistant transportation commissioner, was convicted of accepting cash and benefits from Redflex in exchange for expanding the company’s business with Chicago. The lobbyist, John Raphael, pleaded guilty to extorting cash from Redflex to pass on to elected officials in Ohio in an effort to obtain red-light camera contracts.
Since the inception of the U.S. investigations, Redflex has initiated substantial additions and changes to its compliance program, policies and procedures. The company agreed in the Non-Prosecution Agreement to revise and address any deficiencies in its compliance code, policies and procedures regarding compliance with applicable anti-bribery and anti-corruption laws. Redflex agreed to adopt new policies to ensure that it maintains a rigorous anti-bribery and anti-corruption compliance code, and to install procedures designed to detect and deter violations of such laws.
During the term of the agreement, Redflex must prepare at least four follow-up reports and periodically submit them to DOJ. If DOJ determines that Redflex has violated any provision of the Non-Prosecution Agreement, Redflex would be subject to prosecution for any applicable violation of U.S. law, including perjury and obstruction of justice.
The government in the Columbus case was represented by Trial Attorney Edward P. Sullivan of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney J. Michael Marous of the Southern District of Ohio. The Columbus case was investigated by the FBI’s Cincinnati Field Office, Columbus Resident Agency, the IRS Criminal Investigation Division, and the Ohio Bureau of Criminal Investigation.
The government was represented in the Chicago case by Mr. Fardon and Assistant U.S. Attorneys Laurie Barsella and Timothy Storino of the Northern District of Illinois. The Chicago case was investigated by the FBI’s Chicago Field Office, the IRS Criminal Investigation Division, and the City of Chicago’s Inspector General’s Office.
Providence Nurse Charged in Connection with Tampering with OxycodoneRead the Press Release
BOSTON – A licensed nurse was charged today in U.S. District Court in Boston in connection with stealing oxycodone pills from a nursing home where she worked, and then attempting to conceal the theft by replacing the medication with another medication.
Charlotte Demers, 35, of Providence, R.I., was charged with tampering with a consumer product, specifically the Schedule II controlled substance oxycodone which is used for pain relief. Demers was released on conditions following an appearance before U.S. District Court Magistrate Judge Marianne B. Bowler.
The complaint alleges that between Sept. 12, 2016 and Oct. 8, 2016, while working as a Licensed Practical Nurse at Countryside Health Care in Milford, Mass., Demers tampered with blisterpacks of oxycodone that had been prescribed for residents of the nursing facility, by removing the oxycodone pills from the blisterpacks, replacing them with another medication, and then re-sealing the package.
The charging statute provides for a sentenced of no greater than 10 years in prison, three years of supervised release and a fine of $250,000. Actual sentences for federal crimes are typically less than the maximum penalties. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
United States Attorney Carmen M. Ortiz; Jeffrey Ebersole, Special Agent in Charge of the U.S. Food and Drug Administration, Office of Criminal Investigations, New York Field Office; and Commissioner Monica Bharel, MD, MPH, of the Massachusetts Department of Public Health, Division of Food and Drugs, Drug Control Program, made the announcement today. Assistant U.S. Attorney Michelle L. Dineen Jerrett of Ortiz’s Worcester Branch Office is prosecuting the case.
The details contained in the complaint are allegations. The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
Manhattan U.S. Attorney Announces Arrest of Macau Resident and Unsealing of Charges Against Three Individuals for Insider Trading Based on Information Hacked from Prominent U.S. Law FirmsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of IAT HONG and the unsealing today of a 13-count superseding indictment charging HONG, BO ZHENG, and CHIN HUNG (the “Defendants”). The Defendants are charged with devising and carrying out a scheme to enrich themselves by obtaining and trading on material, nonpublic information (“Inside Information”), exfiltrated from the networks and servers of multiple prominent U.S.-based international law firms with offices in New York, New York (the “Victim Law Firms”), which provided advisory services to companies engaged in corporate mergers and acquisitions (“M&A transactions”). The defendants targeted at least seven law firms as well as other entities in an effort to unlawfully obtain valuable confidential and proprietary information. HONG, a resident of Macau, was arrested on these charges on December 25, 2016, in Hong Kong and is now pending extradition proceedings. HONG was presented for an initial appearance on December 26, 2016, before a Judge in Hong Kong and is expected to have his next court appearance on January 16, 2017.
As alleged, from April 2014 through late 2015, the Defendants successfully obtained Inside Information from at least two of the Victim Law Firms (the “Infiltrated Law Firms”) by causing the networks and servers of these firms to be hacked. Once the Defendants obtained access to the law firms’ networks, the Defendants targeted email accounts of law firm partners who worked on high-profile M&A transactions. After obtaining emails containing Inside Information, the Defendants purchased stock in the target companies of certain transactions, which were expected to, and typically did, increase in value once the transactions were announced. The Defendants purchased shares of at least five publicly-traded companies before public announcements that those companies would be acquired, and sold them after the acquisitions were publicly announced, resulting in profits of over $4 million. In each case, one of the two Infiltrated Law Firms represented either the target or a contemplated or actual acquirer in the transaction.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants – including Iat Hong, who was arrested in Hong Kong on Christmas Day – targeted several major New York law firms, specifically looking for inside information about pending mergers and acquisitions. They allegedly hacked into two prominent law firms, stole the emails of their M&A partners, and made over $4 million in illegal profits. This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “The subjects charged in this case allegedly stole nonpublic information through unauthorized access to law firms’ computers, and used the information for their own personal gain. The FBI works around the clock to keep these types of alleged securities fraudsters and cyber criminals from trading on stolen information, potentially manipulating the market at the cost of legitimate investors, and harm to corporations.”
According to the allegations contained in the superseding indictment (the “Indictment”)1:
The Law Firm-1 Hack and Insider Trading
At all times relevant to the Indictment, Law Firm-1 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.
The Contemplated Intermune Transaction
In June 2014, Law Firm-1 was retained by a company not named in the Indictment (the “Company”) in connection with a contemplated acquisition of Intermune, a publicly traded U.S.-based drug maker (the “Contemplated Intermune Transaction”). A partner in the M&A group at Law Firm-1 (“Partner-1”) was an attorney working on the Contemplated Intermune Transaction.
Beginning on July 21, 2014, the Defendants began exchanging emails concerning, among other things, particular M&A partners at Law Firm-1. In addition, on or about July 29, 2014, HONG emailed HUNG a list of eleven partners at Law Firm-1, including Partner-1.
Also beginning about July 2014, the Defendants, without authorization, caused one of Law Firm-1’s web servers (the “Law Firm-1 Web Server”) to be accessed by using the unlawfully obtained credentials of a Law Firm-1 employee. The Defendants then caused malware to be installed on the Law Firm-1 Web Server. The access to the Law Firm-1 Web Server allowed unauthorized access to at least one of Law Firm-1’s email servers (the “Law Firm-1 Email Server”), which contained the emails of Law Firm-1 employees, including Partner-1.
Between about August 1 and August 15, 2014, Partner-1 was privy to Inside Information about the Contemplated Intermune Transaction. For example, on more than one occasion between August 7 and August 15, 2014, Partner-1 obtained information, including via email, about details of the proposed transaction, including the price per share the Company was considering offering to acquire Intermune.
Between about August 1 and August 9, 2014, the Defendants caused more than 40 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server over the course of at least eight days.
On August 13, 2014, during the time Law Firm-1 was advising the Company on the Contemplated Intermune Transaction and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, HONG used the Inside Information to purchase 7,500 shares of Intermune stock for certain trading accounts (the “Trading Accounts”). Prior to that date, none of the Trading Accounts had purchased any shares of Intermune. Later that day, HONG purchased an additional 1,000 shares of Intermune stock in the Trading Accounts.
On August 16 and 17, 2014, the Defendants exploited their continued unauthorized access to email data belonging to Law Firm-1 by exfiltrating approximately 10 gigabytes of confidential data from the Law Firm-1 Email Server. Between about August 18 and August 21, 2014, HONG and ZHENG used the Inside Information to purchase additional Intermune shares in the Trading Accounts on at least five occasions, totaling an additional 9,500 shares of Intermune stock.
The Contemplated Intermune Transaction was never consummated. Instead, before the market opened on Monday, August 25, 2014, Intermune announced that it had reached an agreement to be acquired by Roche AG, a German company. On that day, Intermune’s share price increased by approximately $19 per share, or approximately 40 percent from the closing price on Friday, August 22, 2014, the last prior trading day. That same day, August 25, 2014, the Defendants sold the 18,000 shares that they had begun acquiring twelve days earlier for profits of approximately $380,000.
The Intel-Altera Transaction
In January 2015, Law Firm-1 was retained by Intel Corporation (“Intel”), a publicly traded multinational technology company, in connection with a contemplated acquisition of Altera Corporation (“Altera”), a publicly traded integrated circuit manufacturer (the “Intel-Altera Transaction”). As with the Contemplated Intermune Transaction, Partner-1 was an attorney working on the Intel-Altera Transaction.
Between January and about March 27, 2015, Partner-1 was privy to Inside Information about the Intel-Altera Transaction. On several occasions during this time period, Partner-1 obtained confidential information about the contemplated transaction via email. For example, on January 29, 2015, Partner-1 received an email with deal terms, including the proposed price per share to purchase Altera.
Between January 13, 2015, in the same month that Law Firm-1 was retained by Intel to advise on the Intel-Altera Transaction, and about February 10, 2015, the Defendants caused approximately 2.8 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server.
Beginning February 17, 2015, during the time Law Firm-1 was advising Intel and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, the Defendants used the Inside Information to purchase shares of Altera stock in the Trading Accounts. Prior to that date, none of the Trading Accounts had purchased any shares of Altera.
To further effectuate their insider trading scheme, between February 17 and March 27, 2015, one or more of the Defendants used the Inside Information to purchase additional shares of Altera stock in the Trading Accounts on at least 26 occasions, ultimately purchasing more than 210,000 shares.
On March 27, 2015, a financial newspaper published an article reporting on confidential merger discussions between Intel and Altera (the “March 27 Newspaper Article”). Following the publication of the article, on March 27, 2015, Altera’s share price increased $9 per share, or approximately 26 percent, from Altera’s share price on March 27, 2015, just prior to the March 27 Newspaper Article. On April 10 and April 13, 2015, the Defendants sold all of their shares of Altera stock for a profit of approximately $1.4 million.
The Law Firm-2 Hack and Insider Trading
At all times relevant to this Indictment, Law Firm-2 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.
The Pitney Bowes-Borderfree Transaction
In December 2014, Law Firm-2 was retained by Pitney Bowes Inc., a publicly traded international business services company, in connection with a contemplated acquisition of Borderfree, Inc., a publicly traded e-commerce company headquartered in New York, New York (the “Pitney Bowes-Borderfree Transaction”). A partner in the M&A group at Law Firm-2 (“Partner-2”) was an attorney who worked on the Pitney Bowes-Borderfree Transaction.
Beginning about April 7, 2015, after Law Firm-2 had been retained to advise Pitney Bowes, the Defendants, without authorization, caused one of Law Firm-2’s web servers (the “Law Firm-2 Web Server”), located in New York, New York, to be accessed by using the unlawfully obtained credentials of a Law Firm-2 employee. The Defendants then caused malware to be installed on the Law Firm-2 Web Server. The malware on the Law Firm-2 Web Server allowed unauthorized access to at least one of Law Firm-2’s email servers, also located in New York, New York (the “Law Firm-2 Email Server”), which contained the emails of Law Firm-2 attorneys, including Partner-2.
Between about April 8 and July 31, 2015, the Defendants then caused approximately seven gigabytes of confidential data to be exfiltrated from the Law Firm-2 Email Server over the course of at least six days.
Beginning April 29, 2015, hours after the Defendants had caused data from the Law Firm-2 Email Server to be exfiltrated, HONG and HUNG used the Inside Information to purchase shares of Borderfree stock for the Trading Accounts. Prior to that date, none of the Trading Accounts had purchased any shares of Borderfree stock. To further effectuate their insider trading scheme, between April 29 and May 5, 2015, HONG and HUNG used the Inside Information to purchase additional shares of Borderfree in the Trading Accounts on at least five occasions. In total, HONG and HUNG used the Inside Information to purchase 113,000 shares of Borderfree.
On May 6, 2015, the Pitney Bowes-Borderfree Transaction became public. On that day, Borderfree’s stock price increased by approximately $7 per share, or 105 percent, from the previous day’s closing price. On May 18, 2015, HONG and HUNG sold their Borderfree shares, earning a profit of approximately $841,000.
Additional Insider Trading and Attempted Insider Trading Based on Inside Information Hacked from the Infiltrated Law Firms
In addition to trading on Inside Information in connection with the Contemplated Intermune Transaction, the Intel-Altera Transaction, and the Pitney Bowes-Borderfree Transaction, detailed above, the Defendants carried out their scheme to enrich themselves by obtaining and trading on the basis of Inside Information exfiltrated from the networks and servers of the Infiltrated Law Firms concerning at least 10 additional M&A transactions, including certain M&A transactions that were contemplated but never consummated. Several of these M&A transactions involved Partner-1 or Partner-2. In total, as a result of trading on Inside Information, the Defendants enriched themselves by at least $4 million.
Attempts to Hack Other Victim Law Firms
In addition to obtaining and trading on Inside Information concerning M&A transactions exfiltrated from the networks and servers of the Infiltrated Law Firms, the Defendants repeatedly attempted to cause unauthorized access to the networks and servers of five other Victim Law Firms using means and methods similar to those used to successfully access the Infiltrated Law Firms. For example, between March and September 2015, the Defendants attempted to cause unauthorized access to the networks and servers of these law firms on more than 100,000 occasions.
The Robotics Company Intrusions
At certain relevant times, the Defendants were also involved in a start-up robotics company (the “Robotics Company”), started by ZHENG, the defendant, which was engaged in the business of developing robot controller chips and providing control system solutions. HONG and HUNG were also involved in running the Robotics Company.
Between April 2014 and late 2015, in addition to their efforts to hack the Victim Law Firms’ networks and servers during this period, the Defendants also caused confidential information to be exfiltrated from the networks and servers of two robotics companies (the “Robotics Company Victims”) using substantially similar means and methods of exfiltration as were used to access and attempt to access and exfiltrate information from the Victim Law Firms. Specifically, certain of the same servers that were used to carry out the hacks and attempted hacks of the Victim Law Firms were used to carry out hacks of the Robotics Company Victims. Among other confidential information, the Defendants obtained confidential and proprietary information concerning the technology and design of consumer robotic products, including detailed and confidential proprietary design schematics. Following these exfiltrations from the Robotics Company Victims, the Defendants exchanged emails containing certain of the confidential information they had caused to be exfiltrated from the Robotics Company Victims, including the proprietary schematics.
Defendants and Charges
HONG, 26, and HUNG, 50, are residents of Macau. ZHENG, 30, is a resident of Changsha, China. HONG was arrested on December 25, 2016, in Hong Kong and is now pending extradition proceedings. The defendants are charged with the following offenses, which carry the maximum prison terms listed below. The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Count
Defendants
Charge
Maximum Prison Term
One
HONG, ZHENG, HUNG
Conspiracy to Commit Securities Fraud: Insider Trading
5 years
Two
HONG
Securities Fraud: Insider Trading – Intermune
20 years
Three
ZHENG
Securities Fraud: Insider Trading – Intermune
20 years
Four
HONG
Securities Fraud: Insider Trading – Altera
20 years
Five
HUNG
Securities Fraud: Insider Trading – Altera
20 years
Six
ZHENG
Securities Fraud: Insider Trading - Altera
20 years
Seven
HONG
Securities Fraud: Insider Trading - Borderfree
20 years
Eight
HUNG
Securities Fraud: Insider Trading - Borderfree
20 years
Nine
HONG, ZHENG, HUNG
Conspiracy to Commit Wire Fraud
20 years
Ten
HONG, ZHENG, HUNG
Wire Fraud
20 years
Eleven
HONG, ZHENG, HUNG
Conspiracy to Commit Computer Intrusion
5 years
Twelve
HONG, ZHENG, HUNG
Computer Intrusion – Unlawful Access – Law Firm-2
10 years
Thirteen
HONG, ZHENG, HUNG
Computer Intrusion – Intentional Damage – Law Firm-2
10 years
* * *
Mr. Bharara praised the investigative work of the FBI, and thanked the Securities and Exchange Commission for their assistance. Mr. Bharara also thanked the Office of International Affairs and Hong Kong law enforcement for their assistance in the arrest and apprehension of HONG. He added that the investigation is continuing.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and the Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Andrea M. Griswold, Daniel B. Tehrani, and Kristy J. Greenberg are in charge of the prosecution.
The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
NOTE: 1- As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Manhattan U.S. Attorney Announces Arrest of Macau Resident and Unsealing of Charges Against Three Individuals for Insider Trading Based on Information Hacked from Prominent U.S. Law FirmsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the arrest of IAT HONG and the unsealing today of a 13-count superseding indictment charging HONG, BO ZHENG, and CHIN HUNG (the “Defendants”). The Defendants are charged with devising and carrying out a scheme to enrich themselves by obtaining and trading on material, nonpublic information (“Inside Information”), exfiltrated from the networks and servers of multiple prominent U.S.-based international law firms with offices in New York, New York (the “Victim Law Firms”), which provided advisory services to companies engaged in corporate mergers and acquisitions (“M&A transactions”). The defendants targeted at least seven law firms as well as other entities in an effort to unlawfully obtain valuable confidential and proprietary information. HONG, a resident of Macau, was arrested on these charges on December 25, 2016, in Hong Kong and is now pending extradition proceedings. HONG was presented for an initial appearance on December 26, 2016, before a Judge in Hong Kong and is expected to have his next court appearance on January 16, 2017.
As alleged, from April 2014 through late 2015, the Defendants successfully obtained Inside Information from at least two of the Victim Law Firms (the “Infiltrated Law Firms”) by causing the networks and servers of these firms to be hacked. Once the Defendants obtained access to the law firms’ networks, the Defendants targeted email accounts of law firm partners who worked on high-profile M&A transactions. After obtaining emails containing Inside Information, the Defendants purchased stock in the target companies of certain transactions, which were expected to, and typically did, increase in value once the transactions were announced. The Defendants purchased shares of at least five publicly-traded companies before public announcements that those companies would be acquired, and sold them after the acquisitions were publicly announced, resulting in profits of over $4 million. In each case, one of the two Infiltrated Law Firms represented either the target or a contemplated or actual acquirer in the transaction.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, the defendants – including Iat Hong, who was arrested in Hong Kong on Christmas Day – targeted several major New York law firms, specifically looking for inside information about pending mergers and acquisitions. They allegedly hacked into two prominent law firms, stole the emails of their M&A partners, and made over $4 million in illegal profits. This case of cyber meets securities fraud should serve as a wake-up call for law firms around the world: you are and will be targets of cyber hacking, because you have information valuable to would-be criminals.”
FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “The subjects charged in this case allegedly stole nonpublic information through unauthorized access to law firms’ computers, and used the information for their own personal gain. The FBI works around the clock to keep these types of alleged securities fraudsters and cyber criminals from trading on stolen information, potentially manipulating the market at the cost of legitimate investors, and harm to corporations.”
According to the allegations contained in the superseding indictment (the “Indictment”)[1]:
The Law Firm-1 Hack and Insider Trading
At all times relevant to the Indictment, Law Firm-1 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.
The Contemplated Intermune Transaction
In June 2014, Law Firm-1 was retained by a company not named in the Indictment (the “Company”) in connection with a contemplated acquisition of Intermune, a publicly traded U.S.-based drug maker (the “Contemplated Intermune Transaction”). A partner in the M&A group at Law Firm-1 (“Partner-1”) was an attorney working on the Contemplated Intermune Transaction.
Beginning on July 21, 2014, the Defendants began exchanging emails concerning, among other things, particular M&A partners at Law Firm-1. In addition, on or about July 29, 2014, HONG emailed HUNG a list of eleven partners at Law Firm-1, including Partner-1.
Also beginning about July 2014, the Defendants, without authorization, caused one of Law Firm-1’s web servers (the “Law Firm-1 Web Server”) to be accessed by using the unlawfully obtained credentials of a Law Firm-1 employee. The Defendants then caused malware to be installed on the Law Firm-1 Web Server. The access to the Law Firm-1 Web Server allowed unauthorized access to at least one of Law Firm-1’s email servers (the “Law Firm-1 Email Server”), which contained the emails of Law Firm-1 employees, including Partner-1.
Between about August 1 and August 15, 2014, Partner-1 was privy to Inside Information about the Contemplated Intermune Transaction. For example, on more than one occasion between August 7 and August 15, 2014, Partner-1 obtained information, including via email, about details of the proposed transaction, including the price per share the Company was considering offering to acquire Intermune.
Between about August 1 and August 9, 2014, the Defendants caused more than 40 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server over the course of at least eight days.
On August 13, 2014, during the time Law Firm-1 was advising the Company on the Contemplated Intermune Transaction and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, HONG used the Inside Information to purchase 7,500 shares of Intermune stock for certain trading accounts (the “Trading Accounts”). Prior to that date, none of the Trading Accounts had purchased any shares of Intermune. Later that day, HONG purchased an additional 1,000 shares of Intermune stock in the Trading Accounts.
On August 16 and 17, 2014, the Defendants exploited their continued unauthorized access to email data belonging to Law Firm-1 by exfiltrating approximately 10 gigabytes of confidential data from the Law Firm-1 Email Server. Between about August 18 and August 21, 2014, HONG and ZHENG used the Inside Information to purchase additional Intermune shares in the Trading Accounts on at least five occasions, totaling an additional 9,500 shares of Intermune stock.
The Contemplated Intermune Transaction was never consummated. Instead, before the market opened on Monday, August 25, 2014, Intermune announced that it had reached an agreement to be acquired by Roche AG, a German company. On that day, Intermune’s share price increased by approximately $19 per share, or approximately 40 percent from the closing price on Friday, August 22, 2014, the last prior trading day. That same day, August 25, 2014, the Defendants sold the 18,000 shares that they had begun acquiring twelve days earlier for profits of approximately $380,000.
The Intel-Altera Transaction
In January 2015, Law Firm-1 was retained by Intel Corporation (“Intel”), a publicly traded multinational technology company, in connection with a contemplated acquisition of Altera Corporation (“Altera”), a publicly traded integrated circuit manufacturer (the “Intel-Altera Transaction”). As with the Contemplated Intermune Transaction, Partner-1 was an attorney working on the Intel-Altera Transaction.
Between January and about March 27, 2015, Partner-1 was privy to Inside Information about the Intel-Altera Transaction. On several occasions during this time period, Partner-1 obtained confidential information about the contemplated transaction via email. For example, on January 29, 2015, Partner-1 received an email with deal terms, including the proposed price per share to purchase Altera.
Between January 13, 2015, in the same month that Law Firm-1 was retained by Intel to advise on the Intel-Altera Transaction, and about February 10, 2015, the Defendants caused approximately 2.8 gigabytes of confidential data to be exfiltrated from the Law Firm-1 Email Server.
Beginning February 17, 2015, during the time Law Firm-1 was advising Intel and after the Defendants had obtained access to confidential email data maintained at Law Firm-1, the Defendants used the Inside Information to purchase shares of Altera stock in the Trading Accounts. Prior to that date, none of the Trading Accounts had purchased any shares of Altera.
To further effectuate their insider trading scheme, between February 17 and March 27, 2015, one or more of the Defendants used the Inside Information to purchase additional shares of Altera stock in the Trading Accounts on at least 26 occasions, ultimately purchasing more than 210,000 shares.
On March 27, 2015, a financial newspaper published an article reporting on confidential merger discussions between Intel and Altera (the “March 27 Newspaper Article”). Following the publication of the article, on March 27, 2015, Altera’s share price increased $9 per share, or approximately 26 percent, from Altera’s share price on March 27, 2015, just prior to the March 27 Newspaper Article. On April 10 and April 13, 2015, the Defendants sold all of their shares of Altera stock for a profit of approximately $1.4 million.
The Law Firm-2 Hack and Insider Trading
At all times relevant to this Indictment, Law Firm-2 was a U.S.-based international law firm with offices in New York, New York, which, among other services, provided advisory services to companies engaged in M&A transactions.
The Pitney Bowes-Borderfree Transaction
In December 2014, Law Firm-2 was retained by Pitney Bowes Inc., a publicly traded international business services company, in connection with a contemplated acquisition of Borderfree, Inc., a publicly traded e-commerce company headquartered in New York, New York (the “Pitney Bowes-Borderfree Transaction”). A partner in the M&A group at Law Firm-2 (“Partner-2”) was an attorney who worked on the Pitney Bowes-Borderfree Transaction.
Beginning about April 7, 2015, after Law Firm-2 had been retained to advise Pitney Bowes, the Defendants, without authorization, caused one of Law Firm-2’s web servers (the “Law Firm-2 Web Server”), located in New York, New York, to be accessed by using the unlawfully obtained credentials of a Law Firm-2 employee. The Defendants then caused malware to be installed on the Law Firm-2 Web Server. The malware on the Law Firm-2 Web Server allowed unauthorized access to at least one of Law Firm-2’s email servers, also located in New York, New York (the “Law Firm-2 Email Server”), which contained the emails of Law Firm-2 attorneys, including Partner-2.
Between about April 8 and July 31, 2015, the Defendants then caused approximately seven gigabytes of confidential data to be exfiltrated from the Law Firm-2 Email Server over the course of at least six days.
Beginning April 29, 2015, hours after the Defendants had caused data from the Law Firm-2 Email Server to be exfiltrated, HONG and HUNG used the Inside Information to purchase shares of Borderfree stock for the Trading Accounts. Prior to that date, none of the Trading Accounts had purchased any shares of Borderfree stock. To further effectuate their insider trading scheme, between April 29 and May 5, 2015, HONG and HUNG used the Inside Information to purchase additional shares of Borderfree in the Trading Accounts on at least five occasions. In total, HONG and HUNG used the Inside Information to purchase 113,000 shares of Borderfree.
On May 6, 2015, the Pitney Bowes-Borderfree Transaction became public. On that day, Borderfree’s stock price increased by approximately $7 per share, or 105 percent, from the previous day’s closing price. On May 18, 2015, HONG and HUNG sold their Borderfree shares, earning a profit of approximately $841,000.
Additional Insider Trading and Attempted Insider Trading Based on Inside Information Hacked from the Infiltrated Law Firms
In addition to trading on Inside Information in connection with the Contemplated Intermune Transaction, the Intel-Altera Transaction, and the Pitney Bowes-Borderfree Transaction, detailed above, the Defendants carried out their scheme to enrich themselves by obtaining and trading on the basis of Inside Information exfiltrated from the networks and servers of the Infiltrated Law Firms concerning at least 10 additional M&A transactions, including certain M&A transactions that were contemplated but never consummated. Several of these M&A transactions involved Partner-1 or Partner-2. In total, as a result of trading on Inside Information, the Defendants enriched themselves by at least $4 million.
Attempts to Hack Other Victim Law Firms
In addition to obtaining and trading on Inside Information concerning M&A transactions exfiltrated from the networks and servers of the Infiltrated Law Firms, the Defendants repeatedly attempted to cause unauthorized access to the networks and servers of five other Victim Law Firms using means and methods similar to those used to successfully access the Infiltrated Law Firms. For example, between March and September 2015, the Defendants attempted to cause unauthorized access to the networks and servers of these law firms on more than 100,000 occasions.
The Robotics Company Intrusions
At certain relevant times, the Defendants were also involved in a start-up robotics company (the “Robotics Company”), started by ZHENG, the defendant, which was engaged in the business of developing robot controller chips and providing control system solutions. HONG and HUNG were also involved in running the Robotics Company.
Between April 2014 and late 2015, in addition to their efforts to hack the Victim Law Firms’ networks and servers during this period, the Defendants also caused confidential information to be exfiltrated from the networks and servers of two robotics companies (the “Robotics Company Victims”) using substantially similar means and methods of exfiltration as were used to access and attempt to access and exfiltrate information from the Victim Law Firms. Specifically, certain of the same servers that were used to carry out the hacks and attempted hacks of the Victim Law Firms were used to carry out hacks of the Robotics Company Victims. Among other confidential information, the Defendants obtained confidential and proprietary information concerning the technology and design of consumer robotic products, including detailed and confidential proprietary design schematics. Following these exfiltrations from the Robotics Company Victims, the Defendants exchanged emails containing certain of the confidential information they had caused to be exfiltrated from the Robotics Company Victims, including the proprietary schematics.
Defendants and Charges
HONG, 26, and HUNG, 50, are residents of Macau. ZHENG, 30, is a resident of Changsha, China. HONG was arrested on December 25, 2016, in Hong Kong and is now pending extradition proceedings. The defendants are charged with the following offenses, which carry the maximum prison terms listed below. The statutory maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.
Count
Defendants
Charge
Maximum Prison Term
One
HONG, ZHENG, HUNG
Conspiracy to Commit Securities Fraud: Insider Trading
5 years
Two
HONG
Securities Fraud: Insider Trading – Intermune
20 years
Three
ZHENG
Securities Fraud: Insider Trading – Intermune
20 years
Four
HONG
Securities Fraud: Insider Trading – Altera
20 years
Five
HUNG
Securities Fraud: Insider Trading – Altera
20 years
Six
ZHENG
Securities Fraud: Insider Trading - Altera
20 years
Seven
HONG
Securities Fraud: Insider Trading - Borderfree
20 years
Eight
HUNG
Securities Fraud: Insider Trading - Borderfree
20 years
Nine
HONG, ZHENG, HUNG
Conspiracy to Commit Wire Fraud
20 years
Ten
HONG, ZHENG, HUNG
Wire Fraud
20 years
Eleven
HONG, ZHENG, HUNG
Conspiracy to Commit Computer Intrusion
5 years
Twelve
HONG, ZHENG, HUNG
Computer Intrusion – Unlawful Access – Law Firm-2
10 years
Thirteen
HONG, ZHENG, HUNG
Computer Intrusion – Intentional Damage – Law Firm-2
10 years
* * *
Mr. Bharara praised the investigative work of the FBI, and thanked the Securities and Exchange Commission for their assistance. Mr. Bharara also thanked the Office of International Affairs and Hong Kong law enforcement for their assistance in the arrest and apprehension of HONG. He added that the investigation is continuing.
The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force and the Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Andrea M. Griswold, Daniel B. Tehrani, and Kristy J. Greenberg are in charge of the prosecution.
The allegations contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment set forth below constitute only allegations, and every fact described should be treated as an allegation.
Lincoln County Man Sentenced to More Than Seven Years for Illegally Possessing FirearmRead the Press Release
Contact: Darcie N. McElwee
Assistant United States Attorney
Tel: (207) 780-3257Portland, Maine: United States Attorney Thomas E. Delahanty II announced that Daniel Colby, Jr., 34, formerly of Wiscasset, Maine, was sentenced today in U.S. District Court by Judge George Z. Singal to more than seven years in prison for being a felon in possession of a firearm. Following a two-day jury trial, he was found guilty of that offense on June 2, 2016.
According to court records and trial evidence, on March 17, 2015, Colby, who had previously been convicted of multiple felonies, broke into the home of a neighbor armed with a stolen .38 caliber revolver and threatened the neighbor. The revolver was later recovered from Colby’s property in Wiscasset.
The investigation was conducted by the Wiscasset and Augusta Police Departments, the Sagadahoc and Lincoln County Sheriff’s Offices and the Bureau of Alcohol, Tobacco, Firearms, and Explosives.
Four Fulton Men Plead Guilty to $6.6 Million K2 ConspiracyRead the Press Release
JEFFERSON CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced today that four Fulton, Mo., men have pleaded guilty in federal court to their roles in drug-trafficking and money-laundering conspiracies related to the distribution of more than $6.6 million of synthetic cannabinoids, also known as K2, at Callaway County, Mo., businesses.
Shawn Michael Browning, 26, Timothy Christopher Sandfort, 30, and Brandon Derek Rader, 32, all of Fulton, pleaded guilty today in an appearance before U.S. Magistrate Judge Matt J. Whitworth. Joshua Adam Sheets, 30, of Fulton, pleaded guilty on Tuesday, Dec. 20, 2016.
Browning, Sandfort, Sheets and Rader each pleaded guilty to participating in a mail fraud conspiracy from Dec. 18, 2012, to July 16, 2015, and to participating in a money-laundering conspiracy during that time; both conspiracies were related to the distribution of synthetic cannabinoids.
Browning, Sandfort, Sheets, and Rader are among seven co-defendants who have pleaded guilty in this case. Dara Leanne Shirley, 30, of Fulton, pleaded guilty to participating in the money-laundering conspiracy. Casey Dewayne Miller, 32, of Columbia, and Billie L. Bruce, 36, of Jefferson City, each pleaded guilty to distributing synthetic cannabinoids.
According to court documents, the drug-trafficking conspiracy generated $6,656,843 in gross proceeds. Rader and Sandfort each acknowledged that his conduct directly contributed to the generation of approximately $4,544,700 of that total; under the terms of today’s plea agreements, they must forfeit a money judgment of that amount to the government. Browning and Sheets each acknowledged that his conduct directly contributed to the generation of approximately $2,112,142 of that total; under the terms of today’s plea agreement, they must forfeit a money judgment of that amount to the government.
Sandfort, Rader, Shirley, Miller and others operated First Stop Last Stop Pawn & Aromatherapy, Inscentives Resale and Inscentives Auto. First Stop Last Stop Pawn & Aromatherapy represented itself as a “pawn shop” and “potpourri store.” Inscentives Resale was represented to be a “buy, sell, and trade business.” Inscentives Auto held a Missouri motor vehicle dealer’s license. Browning, Sheets, Bruce and others operated Esscentials Resale and S&J Tobacco.
These businesses purchased synthetic cannabinoids from co-conspirators in California and Nevada. At least 251 shipments of synthetic cannabinoids were made via FedEx and UPS. Inscentives Resale sold synthetic cannabinoids from locations in Auxvasse, Mo., and Fulton. Esscentials Resale and S&J Tobacco sold synthetic cannabinoids from locations in Holts Summit, Mo.
Browning, Sandfort, Sheets, Rader and others obtained packages of synthetic cannabinoids from co-conspirators and periodically supplied each other with packages of synthetic cannabinoids for resale.
The packages of synthetic cannabinoids bore misbranded labels that misidentified the contents as “incense,” “aroma therapy” or “potpourri” that were “not for human consumption.” In fact, these products were drugs intended for human consumption as a drug. Conspirators mislabeled packages of synthetic cannabinoids for the purpose of avoiding government regulation over these drugs, and to protect the continued sale of these drugs.
This case is being prosecuted by Supervisory Assistant U.S. Attorney Michael S. Oliver. It was investigated by the DEA Task Force – Jefferson City, DEA Sacramento, Calif., DEA Reno, Nev., IRS-Criminal Investigation, the Missouri State Highway Patrol, the MUSTANG Drug Task Force, the Callaway County, Mo., Sheriff’s Department, the Cole County, Mo., Sheriff’s Department, the Jefferson City, Mo., Police Department, the Fulton, Mo., Police Department and the Holts Summit, Mo., Police Department.
Four Businessmen and Two Foreign Officials Plead Guilty in Connection with Bribes Paid to Mexican Aviation OfficialsRead the Press Release
Charges were unsealed against six individuals, all of whom have pleaded guilty for their involvement in schemes to bribe Mexican officials in order to secure aircraft maintenance and repair contracts with government-owned and controlled entities, and two for conspiring to launder the proceeds of the schemes.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Kenneth Magidson of the Southern District of Texas, Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) in Houston, Special Agent in Charge Shane Folden of ICE-HSI in San Antonio and Special Agent in Charge Rick Goss of Internal Revenue Service-Criminal Investigation’s (IRS-CI) Houston Field Office made the announcement.
“The six convictions announced today demonstrate the department’s commitment to holding accountable those who further official corruption through bribery,” said Assistant Attorney General Caldwell. “These convictions are the result of a coordinated effort by prosecutors and agents who built the cases brick by brick using traditional law enforcement techniques.”
“HSI special agents and our law enforcement partners will continue to aggressively investigate financial crimes committed by corrupt foreign officials,” said Special Agent in Charge Folden. “This case serves as a reminder that HSI will use all its resources to identify, investigate and dismantle these criminal networks wherever they operate.”
“The individuals involved in this scheme paid millions of dollars in bribes to foreign officials in exchange for aviation contracts that placed legitimate businesses at a significant competitive disadvantage,” said Special Agent in Charge Goss. “IRS-CI’s role in unraveling this scheme assisted in facilitating the guilty pleas that were announced today.”
Douglas Ray, 55, of Magnolia, Texas, and Victor Hugo Valdez Pinon, 54, a citizen of Mexico, pleaded guilty on Oct. 28 and Oct. 26, 2016, respectively, before U.S. District Judge Alfred H. Bennett of the Southern District of Texas to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and conspiracy to commit wire fraud. Kamta Ramnarine, 69, and Daniel Perez, 69, both of Brownsville, Texas, both pleaded guilty on Nov. 2, 2016, before U.S. District Judge Ricardo H. Hinojosa of the Southern District of Texas to one count of conspiring to violate the FCPA. Ramnarine and Perez are scheduled to be sentenced on Jan. 30, 2017. Ray and Valdez Pinon are scheduled to be sentenced Feb. 23, 2016.
Ernesto Hernandez Montemayor, 55, and Ramiro Ascencio Nevarez, 58, both of whom are citizens of Mexico and were previous officials of Mexican state government entities, each pleaded guilty to one count of conspiracy to commit money laundering. Hernandez Montemayor pleaded guilty before Judge Bennett on Dec. 9, 2015, and is scheduled to be sentenced on Jan. 12, 2017. Nevarez pleaded guilty before Judge Hinojosa on March 4, 2016, and was sentenced to 15 months in prison on May 27, 2016.
According to the defendants’ plea agreements, between 2006 and 2016, Ray conspired with Valdez and others to bribe Mexican officials. The defendants and their co-conspirators, who owned or were associated with companies in the United States that provided aircraft maintenance, repair, overhaul and related services to customers from the United States and Mexico, paid the bribes in order to secure parts and servicing contracts with Mexican government-owned customers. Ray agreed to pay bribes to at least seven different foreign officials, including Hernandez Montemayor, sometimes paying the bribes via wire transfer and checks to accounts in the United States controlled by the officials. As part of his guilty plea, Hernandez Montemayor admitted that while employed by a Mexican state government, he accepted bribes from Ray, Ramnarine, Perez and others in exchange for taking certain actions to assist companies they owned in winning business with Hernandez Montemayor’s state government employer. Hernandez Montemayor also admitted that he conspired with Ray, Ramnarine, Perez and others to launder the proceeds of the bribery scheme.
Ramnarine and Perez admitted that, in addition to bribing Hernandez Montemayor, they also conspired to pay bribes to several other foreign officials between 2007 and 2015 to ensure that their Brownsville-based company won aircraft parts and services contracts with Mexican government-owned customers. As part of his guilty plea, Nevarez admitted that while employed by a Mexican public university, he accepted bribes from Ramnarine and Perez in exchange for taking certain actions to assist their company in winning business with the university. Nevarez also admitted that he conspired with Ramnarine, Perez and others to launder the proceeds of the bribery scheme.
In total, Ray, Valdez Pinon, Ramnarine, Perez and their co-conspirators paid more than $2 million in bribes to Mexican officials, including Hernandez Montemayor and Nevarez, in order to secure aviation maintenance, repair and overhaul contracts.
ICE-HSI and IRS-CI are investigating the case. Trial Attorneys Christopher Cestaro and Kevin R. Gingras of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Jesse Salazar and Arthur Jones of the Southern District of Texas are prosecuting the case. The Criminal Division’s Office of International Affairs also provided significant assistance.
The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Four Businessman and Two Foreign Officials Plead Guilty in Connection with Bribes Paid to Mexican Aviation OfficialsRead the Press Release
HOUSTON - Charges have been unsealed against six individuals, all of whom have pleaded guilty for their involvement in schemes to bribe Mexican officials in order to secure aircraft maintenance and repair contracts with government-owned and controlled entities, and two for conspiring to launder the proceeds of the schemes.
U.S. Attorney Kenneth Magidson, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) in Houston, Special Agent in Charge Shane Folden of ICE-HSI in San Antonio and Special Agent in Charge Rick Goss of Internal Revenue Service-Criminal Investigation’s (IRS-CI) Houston Field Office made the announcement.
“The six convictions announced today demonstrate the department’s commitment to holding accountable those who further official corruption through bribery,” said Caldwell. “These convictions are the result of a coordinated effort by prosecutors and agents who built the cases brick by brick using traditional law enforcement techniques.”
“HSI special agents and our law enforcement partners will continue to aggressively investigate financial crimes committed by corrupt foreign officials,” said Folden. “This case serves as a reminder that HSI will use all its resources to identify, investigate and dismantle these criminal networks wherever they operate.”
“The individuals involved in this scheme paid millions of dollars in bribes to foreign officials in exchange for aviation contracts that placed legitimate businesses at a significant competitive disadvantage,” said Goss. “IRS-CI’s role in unraveling this scheme assisted in facilitating the guilty pleas that were announced today.”
Douglas Ray, 55, of Magnolia, and Victor Hugo Valdez Pinon, 54, a citizen of Mexico, pleaded guilty on Oct. 28 and Oct. 26, 2016, respectively, before U.S. District Judge Alfred H. Bennett of the Southern District of Texas to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and conspiracy to commit wire fraud. Kamta Ramnarine, 69, and Daniel Perez, 69, both of Brownsville, pleaded guilty on Nov. 2, 2016, before U.S. District Judge Ricardo H. Hinojosa of the Southern District of Texas to one count of conspiring to violate the FCPA. Ramnarine and Perez are scheduled to be sentenced on Jan. 30, 2017. Ray and Valdez Pinon are scheduled to be sentenced Feb. 23, 2016.
Ernesto Hernandez Montemayor, 55, and Ramiro Ascencio Nevarez, 58, both of whom are citizens of Mexico and were previous officials of Mexican state government entities, each pleaded guilty to one count of conspiracy to commit money laundering. Hernandez Montemayor pleaded guilty before Judge Bennett on Dec. 9, 2015, and is scheduled to be sentenced on Jan. 12, 2017. Nevarez pleaded guilty before Judge Hinojosa on March 4, 2016, and was sentenced to 15 months in prison on May 27, 2016.
According to the defendants’ plea agreements, between 2006 and 2016, Ray conspired with Valdez and others to bribe Mexican officials. The defendants and their co-conspirators, who owned or were associated with companies in the United States that provided aircraft maintenance, repair, overhaul and related services to customers from the United States and Mexico, paid the bribes in order to secure parts and servicing contracts with Mexican government-owned customers. Ray agreed to pay bribes to at least seven different foreign officials, including Hernandez Montemayor, sometimes paying the bribes via wire transfer and checks to accounts in the United States controlled by the officials. As part of his guilty plea, Hernandez Montemayor admitted that while employed by a Mexican state government, he accepted bribes from Ray, Ramnarine, Perez and others in exchange for taking certain actions to assist companies they owned in winning business with Hernandez Montemayor’s state government employer. Hernandez Montemayor also admitted that he conspired with Ray, Ramnarine, Perez and others to launder the proceeds of the bribery scheme.
Ramnarine and Perez admitted that, in addition to bribing Hernandez Montemayor, they also conspired to pay bribes to several other foreign officials between 2007 and 2015 to ensure that their Brownsville-based company won aircraft parts and services contracts with Mexican government-owned customers. As part of his guilty plea, Nevarez admitted that while employed by a Mexican public university, he accepted bribes from Ramnarine and Perez in exchange for taking certain actions to assist their company in winning business with the university. Nevarez also admitted he conspired with Ramnarine, Perez and others to launder the proceeds of the bribery scheme.
In total, Ray, Valdez Pinon, Ramnarine, Perez and their co-conspirators paid more than $2 million in bribes to Mexican officials, including Hernandez Montemayor and Nevarez, in order to secure aviation maintenance, repair and overhaul contracts.
ICE-HSI and IRS-CI are investigating the case. Assistant U.S. Attorneys Jesse Salazar and Arthur Jones are prosecuting the case along with Trial Attorneys Christopher Cestaro and Kevin R. Gingras of the Criminal Division’s Fraud Section. The Criminal Division’s Office of International Affairs also provided significant assistance.
The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Former Ballard County Treasurer Guilty of Bank and Wire FraudRead the Press Release
Admitted to obtaining $450,000 in unauthorized loans for the county and then concealing the proceeds from the Fiscal Court; also personally received at least $27,000 in fraudulent medical reimbursement payments.
PADUCAH, Ky. – United States Attorney John E. Kuhn, Jr., announced today a guilty plea by the former Treasurer of Ballard County, Kentucky, for participating in a scheme that involved obtaining approximately $450,000 in bank loans using a $500,000 Ballard County Certificate of Deposit as collateral, all without authorization from the Ballard County Fiscal Court; guilty pleas were also entered due to her theft of at least $27,000 in fraudulent medical reimbursement payments while employed as the County’s treasurer.
Belinda Janean Foster, 50, pled guilty today in United States District Court, before Senior U.S. District Judge Thomas B. Russell, to all five of her charges stemming from a November 15, 2016, grand jury indictment that included a single count of bank fraud and four counts of wire fraud.
According to the plea agreement, Foster admitted that she intended to deceive the Ballard County Fiscal Court about the loans by intentionally not making it aware of the loans and concealing the proceeds of the loans.
Beginning sometime in April of 2014, Foster, then employed as Ballard County Treasurer, told her supervisor, Ballard County Judge Executive Vickie Viniard, that Ballard County needed funds in the county operating account in order to cover expenses and payroll. According to Foster, Viniard stated that she would obtain a loan until the county road funds were received.
In April 2014, Viniard subsequently secured a $300,000 loan from First Community Bank in Wickliffe, Kentucky, using a Ballard County Certificate of Deposit valued at approximately $500,000 as collateral. In June 2014, Viniard and Foster obtained another loan, as co-signers, again from First Community Bank in the amount of $150,000 and again used the same CD as collateral.
After receiving the funds from the two loans, Foster was required, by Kentucky Statute, to account for this income on the Ballard County financial and accounting records and report these loans to the Kentucky Department for Local Government. However, Foster, in order to conceal the loans, and at the direction of Viniard, never reported these loans to the state government and intentionally labeled $350,000 from the loans as “payroll tax” instead of accounting for the income as loan proceeds while wiring the remaining $100,000 across interstate lines from First Community Bank in Wickliffe, Kentucky to Huntington National Bank in Columbus, Ohio – not accounting for that amount at all.
Prior to obtaining the two loans, neither Viniard or Foster ever made the Ballard County Fiscal Court aware of these loans nor did Viniard or Foster make the Ballard County Fiscal Court aware that a $500,000 CD was pledged as collateral for the loans. Furthermore, neither Viniard or Foster informed First Community Bank that Viniard had not requested or obtained authority from the Ballard County Fiscal Court to apply for the loans.
In addition to the fraudulent loans listed above, Foster admitted to regularly writing herself checks for fraudulent medical reimbursement payments to which she knew she was not entitled. These fraudulent medical reimbursement payments totaled at least $27,000.
If convicted at trial, Foster could have been sentenced to a combined maximum prison term of 110 years, ordered to pay a fine of $2,000,000 and serve a five-year term of supervised release. Foster is scheduled for sentencing before Senior Judge Russell in Paducah, on April 21, 2017.
This case is being prosecuted by Assistant United States Attorney Nute Bonner and is being investigated by the Kentucky Attorney General’s Office and the Federal Bureau of Investigation (FBI).
23 December 2016
United States Reaches $34 Million Settlement with Cardinal Health for Civil Penalties under the Controlled Substances ActRead the Press Release
Seattle -- Cardinal Health has agreed to pay $34 million in civil penalties to resolve allegations that the Lakeland, Florida-based distributor failed to report to the DEA suspicious orders of Class II controlled substances by pharmacies located in central Florida and Maryland. The settlement also resolves a civil investigation in the Western District of Washington into Cardinal Health’s failure to maintain adequate records concerning Class II controlled substances in that district.
Separately, the United States Attorney for the Southern District of New York announced that Cardinal Health has agreed to pay an additional $10 million to resolve allegations that its subsidiary, Kinray, Inc., failed to report suspicious orders by pharmacies operating in the Kinray service area. In the settlement resolving the Florida and Maryland investigations, Cardinal Health acknowledged that, from January 1, 2009, to May 14, 2012, it failed to comply with regulations requiring reports of pharmacies’ suspicious orders of certain narcotic medications. Cardinal did not admit to the recordkeeping allegations in the Western District of Washington, but chose to resolve the case along with the other investigations.
“I am pleased to join with the U.S. Attorneys from Maryland, New York and the Middle District of Florida to hold Cardinal Health accountable for improperly securing the drug distribution chain,” said U.S. Attorney Annette L. Hayes. “Our investigation, which uncovered recordkeeping violations, is resolved along with more wide-ranging violations identified in the other districts.”
The Controlled Substances Act imposes civil penalties when DEA registrants fail to report suspicious pharmacy orders for Class II narcotic medications. The settlement announced today imposes a civil monetary sanction for the conduct addressed in Cardinal Health’s administrative settlement executed with the DEA in 2012, which suspended Cardinal’s registration to distribute Class II narcotic medications for a period of two years. The DEA returned Cardinal’s registration in May 2014 while the civil penalty negotiations that led to today’s announcement were pending.
The Western District of Washington investigation was conducted by the Drug Enforcement Administration’s Diversion Group, with negotiations handled by Assistant U.S. Attorney David East.
United States Reaches $34 Million Settlement with Cardinal Health for Civil Penalties Under the Controlled Substances ActRead the Press Release
The Recovery Is Part of a $44 Million Nationwide Civil Penalty Settlement with Payment to Be Made to the United States by Cardinal Health, Inc. and its Subsidiary, Kinray, LLC
Orlando, FL – United States Attorney A. Lee Bentley, III and Adolphus P. Wright, Special Agent in Charge, Drug Enforcement Administration (DEA) - Miami Field Division announce that Cardinal Health has agreed to pay $34 million in civil penalties to resolve allegations that the Lakeland, Florida-based distributor failed to report to the DEA suspicious orders of Class II by pharmacies located in central Florida and Maryland. The settlement also resolves a civil investigation in the Western District of Washington into Cardinal Health’s failure to maintain adequate records concerning Class II controlled substances in that district.
Separately, the United States Attorney for the Southern District of New York announced that Cardinal Health has agreed to pay an additional $10 million to resolve allegations that its subsidiary, Kinray, Inc., failed to report suspicious orders by pharmacies operating in the Kinray service area. In the settlement resolving the Florida and Maryland investigations, Cardinal Health acknowledged that, from January 1, 2009, to May 14, 2012, it failed to comply with regulations requiring reports of pharmacies’ suspicious orders of certain narcotic medications.
The Controlled Substances Act imposes civil penalties when DEA registrants fail to report suspicious pharmacy orders for Class II narcotic medications. The settlement announced today imposes a civil monetary sanction for the conduct addressed in Cardinal Health’s administrative settlement executed with the DEA in 2012, which suspended Cardinal’s registration to distribute Class II narcotic medications for a period of two years. The DEA returned Cardinal’s registration in May 2014 while the civil penalty negotiations that led to today’s announcement were pending.
“Today’s settlement with Cardinal Health, along with last year’s $22 million settlement with CVS, illustrates the coordinated response we have taken to Florida’s pill mill crisis,” stated U.S. Attorney Bentley. “Those who play a significant role in supplying Class II medications in our district must meet regulatory requirements or be held accountable.”
U.S. Attorney Bentley also thanked his colleagues U.S. Attorney Rod Rosenstein (District of Maryland), U.S. Attorney Preet Bharara (Southern District of New York), Deputy Civil Chief Tom Corcoran, Assistant U.S. Attorney Tony Pellegrino, and U.S. Attorney Annette Hayes (Western District of Washington) for their collaborative work and assistance with this investigation and settlement. In addition, the investigative work of the DEA - Orlando Field Office, under the supervision of Assistant Special Agent in Charge Jeff Walsh, played a major role in the Florida investigation.
“National pharmaceutical drug companies are not exempt from following the law,” stated Adolphus P. Wright, Special Agent in Charge for the DEA Miami Field Division. “This settlement sends out a clear message that all drug companies will be held accountable when they violate the law and threaten public health and safety. The DEA will continue its efforts to work with our registrants and our law enforcement partners to combat pharmaceutical drug abuse and diversion in Florida.”
The Middle District of Florida investigation was conducted by the Drug Enforcement Administration’s Diversion Group, with negotiations handled by Assistant U.S. Attorneys Randy Harwell and Katherine M. Ho.
U.S. Attorney General’s Smart on Crime Initiative Successfully Implemented in the Eastern District of TennesseeRead the Press Release
KNOXVILLE, Tenn.- At the direction of the U.S. Attorney General, in early 2013 the U.S. Department of Justice (Department) launched a comprehensive review of the criminal justice system in order to identify reforms that would ensure federal laws are enforced more fairly and—in an era of reduced budgets—more efficiently. Five goals were identified as a part of this review:
- To ensure finite resources are devoted to the most important law enforcement priorities;
- To promote fairer enforcement of the laws and alleviate disparate impacts of the criminal justice system;
- To ensure just punishments for low-level, nonviolent offenders;
- To bolster prevention and reentry efforts to deter crime and reduce recidivism; and,
- To strengthen protections for vulnerable populations.
This initiative, which the Department named “Smart on Crime” (SOCI), was implemented locally by the U.S. Attorney’s Office for the Eastern District of Tennessee, partnering with the Chief of the U.S. Probation and Pretrial Services Office, Tony Anderson, and his staff. The local program focused on ways to make the district safer by providing federal ex-offenders with the resources necessary to successfully re-enter the community and reduce recidivism.
Over the past year, stakeholders and others have assisted ex-offenders participating in the SOCI program by connecting them with much needed resources such as: educational programs at community colleges and universities; relationship building skills; furniture to aid with independent living; and a welcoming church to facilitate faith-based healing.
Stakeholders who contributed to the Chattanooga effort included: the Bureau of Alcohol, Tobacco, Firearms and Explosives; Bureau of Prisons Half-Way House; United Way 2-1-1; Tennessee Department of Human Services, Pastor Ternae Jordan and Mt. Canaan Baptist Church; Career Center; Chattanooga State Community College; BlueCross BlueShield; the Marion County Chaplain; Labor and Workforce Development; and Johnson Mental Health. Stakeholders contributing to the Knoxville reentry effort included: Knoxville Leadership Foundation; Tennessee Department of Safety; Knoxville Area Rescue Ministries; Knox County Health Department; Knoxville Police Department; Federal Bureau of Investigation; Susannah House; Helen Ross McNabb; Cokesbury Church; the office of Knoxville Mayor Madeline Rogero; and Pastor James Davis and Eternal Life Harvest Center. Finally, stakeholders who contributed to the Johnson City reentry effort included: Grace Fellowship Church; Summit Leadership Foundation; Frontier Health; Families Free; East Tennessee State University; First Christian Church; Grace Fellowship Church; Christ The Savior Greek Orthodox Church; Tri-Cities Baptist Church; St. Mary’s Catholic Church; Calvary Church; Boone’s Creek Christian Church; Faith Miracle Sanctuary; Dr. Tim Dunn and Spine and Sports Chiropractic; Carrabba’s Italian Grill; Drug Enforcement Administration, and the Johnson City Police Department. This impressive group of stakeholders represented only a select sample of the community leaders who dedicated time and resources to this effort.
Between January and December 2016, participants in the SOCI program substantively engaged the stakeholders and used provided resources to facilitate their successful re-entry. In addition to completing the program through attendance and stakeholder use and engagement, participants stayed in substantial compliance with their supervised release conditions imposed by the courts.
U.S. Attorney Nancy Stallard Harr is pleased to announce that approximately 31 ex-offenders successfully completed the SOCI program in 2016. “As a result, these ex-offenders are in a better positon to become productive members of our communities, making east Tennessee a safer and better place to live. Our efforts in this area will continue into 2017 with a special emphasis on juvenile offenders,” said U.S. Attorney Harr. “I would further like to commend Assistant U.S. Attorney Brooklyn Sawyers for her leadership, dedication, and coordination of the SOCI program for the district,” added U.S. Attorney Harr.
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U.S. Attorney Files Civil Rights Suit Against Bronx Developer to Remedy Pattern and Practice of Inaccessible Design and Construction of Apartment BuildingsRead the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed a federal civil rights lawsuit against ABRAHAM STRULOVITCH to require him to remedy conditions at two rental complexes in the Bronx and in Orange County to make them accessible to people with disabilities and to ensure that two rental complexes currently under construction by STRULOVITCH in the Bronx will be accessible.
Manhattan U.S. Attorney Preet Bharara said: “The Fair Housing Act’s accessibility provisions were enacted to ensure that people with disabilities have the same access to housing as everyone else. With today’s lawsuit, we seek to ensure that Strulovitch fixes the current inaccessible conditions at Riverdale Parc and Bluestone Commons as well as at his ongoing construction projects. This Office will continue to use all available tools to enforce the FHA’s promise of accessibility for people with disabilities.”
The Fair Housing Act’s (“FHA”) accessible design and construction provisions require multifamily housing complexes constructed after January 1993 to have basic features accessible to persons with disabilities. According to the allegations in the Complaint, STRULOVITCH has engaged in a pattern and practice of discriminatory conduct, as evidenced by the numerous inaccessible conditions at Riverdale Parc, a 54-unit rental complex in the Riverdale section of the Bronx designed and constructed in 2014, and Bluestone Commons, a 70-unit rental complex for senior residents in Maybrook, New York, designed and constructed in 2015. The inaccessible conditions alleged include, for example, an excessively high threshold at the main entrance to Riverdale Parc, as well as insufficiently wide doorways within the rental units at both Riverdale Parc and Bluestone Commons. Other inaccessible conditions include excessively high thresholds to balconies within the rental units at Bluestone Commons and inaccessible locations of thermostats or other environmental controls in the rental units at Riverdale Parc and Bluestone Commons.
The Complaint further alleges that STRULOVITCH currently is actively involved in designing and constructing two other rental complexes in the Bronx – 640 West 238th Street and 3707 Blackstone Avenue – that will contain a total of more than 90 rental units. In the Complaint, the United States also seeks a court order requiring STRULOVITCH to take steps necessary to ensure that both 640 West 238th Street and 3707 Blackstone Avenue will be constructed in compliance with the Fair Housing Act’s accessibility requirements.
The case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Li Yu, Jacob Lillywhite, Jessica Jean Hu, and Natasha Teleanu are in charge of the case.
Two Key Figures of Illegal Prescription Drug Distribution Operation Found GuiltyRead the Press Release
Philadelphia - Following a three-week jury trial, a federal jury convicted two key players in a prescription drug conspiracy that illegally distributed more than 380,000 Oxycodone pills, as well as Alprazolam, into communities in the Eastern District of Pennsylvania. Leon Little, the head of the “Little Drug Operation” (LDO), was convicted yesterday in federal court of 50 counts, including 1 count of conspiracy to distribute controlled substances, 24 counts of distribution of oxycodone, 9 counts of acquiring a controlled substance by fraud, and 16 counts of money laundering, announced United States Attorney Zane David Memeger. Additionally, one of Little’s accomplices, Colise Harmon, was convicted of 34 counts, including 1 count of conspiracy to distribute controlled substances, 15 counts of distribution of oxycodone, and 4 counts of acquiring a controlled substance by fraud. Little faces up to 846 years’ imprisonment and Harmon faces up to 336 years’ imprisonment.
“Like the rest of the nation, the Eastern District of Pennsylvania has been greatly impacted by the prescription drug abuse epidemic,” said United States Attorney Zane David Memeger. “Heroin and opiate-based prescription medication – such as oxycodone – are two of the most abused drugs in this area. And just like street drugs, prescription drug abuse produces the same problems: addiction, crime, and broken families. Today’s convictions reflect the great work of our law enforcement partners to use the criminal justice system, one of the many weapons available, to curb this epidemic.”
“The illegal diversion and sale of prescription opioids such as oxycodone has caused considerable damage to communities and the loss of numerous lives across our region,” said Gary Tuggle, Special Agent in Charge of the Drug Enforcement Administration’s (DEA) Philadelphia Field Division. “Leon Little and Colise Harmon have been convicted of running a pill distribution network responsible for distributing over 380,000 dosage units of oxycodone. For that, the penalties are severe.”
"All financial transactions leave a trail and we have the unique expertise to follow those leads" said Akeia Conner, Special Agent in Charge, IRS Criminal Investigation. "The special agents of IRS Criminal Investigation are committed to taking the profit away from drug traffickers and putting those individuals in jail. The convictions of Leon Little and Colise Harmon should serve as a warning to those who are considering similar conduct."
Between July 2010 and August 2012, the LDO recruited and paid 55 individuals to pose as patients in order to acquire prescription drugs, such as oxycodone and alprazolam (otherwise known as Xanax), from a physician in Bala Cynwyd, Pennsylvania. Many of these “pseudo-patients” were recruited from the Raymond Rosen Projects, a government-assisted housing development located in north Philadelphia. The pseudo-patients primarily received prescriptions for 10 milligram and 30 milligram tablets of oxycodone in exchange for money. The LDO also paid for the doctor’s visit and the costs for filling the prescriptions. Little also collected and stored the filled prescriptions, packaged the drugs for re-distribution, and distributed them to his customers in Philadelphia.
Harmon served as a driver for the LDO who facilitated the coordination of pseudo-patients. Little paid Harmon, along with two others to drive pseudo-patients to the doctor and to specific pharmacies in Philadelphia, PA to have the prescriptions filled, as well as to serve as pseudo-patients.
Little orchestrated the entire scheme by paying the doctor’s receptionist and sole employee to schedule the pseudo-patients’ appointments, write prescriptions for oxycodone using the doctor’s prescription pad and without the doctor’s consent, and distribute the forged prescriptions to the LDO. She also falsely verified with pharmacies that the forged prescriptions received from LDO pseudo-patients were legitimate. Little and Harmon also distributed the oxycodone pills to customers and resellers.
Based on the average retail sale price of the oxycodone tablets on the street, the LDO took in more than $3.3 million dollars. Little used the proceeds from the illegal pill scheme to purchase jewelry, designer clothes, and vehicles, including a Can-Am Spyder valued at over $17,000 and to gamble approximately $1.9 million at various casinos. Little also facilitated the laundering of $85,000 in drug proceeds in an attempt to conceal the proceeds of his drug trafficking.
The case was investigated by the Drug Enforcement Administration, Internal Revenue Service Criminal Investigation Division, Federal Bureau of Investigation Health Care Fraud Task Force, Philadelphia Police Department, and North Coventry Police Department. It was prosecuted by Assistant United States Attorney Tomika N.S. Patterson.
Two Individuals Indicted on Securities and Wire FraudRead the Press Release
HAMMOND- United States Attorney David A. Capp announced today Richard E. Gearhart, 66, of Lowell, Indiana and George R. McKown, 65, of Indianapolis, Indiana, were recently charged with conspiracy to commit securities fraud, securities fraud, and wire fraud
According to documents filed in this case, it is alleged that the defendants sold securities to individuals who transferred their traditional IRSs, pensions, annuities, 401ks, and cash to invest with Gearhart and McKown, through Asset Preservation Specialists, Inc., after being guaranteed that their original investment was safe and sound and promising a guaranteed rate of return. Gearhart and McKown were not registered with the SEC or the State of Indiana to sell securities.
“Gearhart had all the warning signs of a typical Ponzi scheme; he took advantage of people he knew and wasn’t registered with my office to sell securities,” said Secretary of State Connie Lawson. Secretary Lawson also reminded all potential investors that no matter how well you think you know someone or how successful they look, always check with the Secretary of State to make sure the professional and the product are registered.
The United States Attorney's Office emphasized that an Indictment is merely an allegation and that all persons charged are presumed innocent until, and unless, proven guilty in court.
If convicted in court, any specific sentence to be imposed will be determined by the judge after a consideration of federal sentencing statutes and the Federal Sentencing Guidelines.
This case was the result of a joint investigation by the United States Postal Inspection Service, the Federal Bureau of Investigation and the Indiana Secretary of State Securities Division. The case is being prosecuted by Assistant United States Attorney Toi Denise Houston.
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Tracy Resident Indicted for over 30 Counts of “H-1B” Visa Fraud and 2 Counts of Aggravated Identity TheftRead the Press Release
SACRAMENTO, Calif. — A federal grand jury returned an indictment Thursday against Abhijit Prasad, 49, of Tracy, charging him with 31 counts of visa fraud and two counts of aggravated identity theft, U.S. Attorney Phillip A. Talbert announced.
According to the indictment, Prasad filed 31 petitions for H-1B nonimmigrant visas containing false statements, made under penalty of perjury, as to purported work projects to be performed at various locations in California. The indictment further alleges that Prasad obtained two H-1B visas procured by fraud and false statements, and used the means of identification of a real person to effectuate his visa fraud scheme.
The case is the product of an investigation by the U.S. Department of State, Diplomatic Security Service’s representative to the Document and Benefit Fraud Task Force (DBFTF), overseen by the Department of Homeland Security’s Homeland Security Investigations. The DBFTF is a multi-agency task force that coordinates investigations into fraudulent immigration documents. U.S. Citizenship and Immigration Service’s Office of Fraud Detection and National Security also assisted with the investigation. Assistant U.S. Attorney Nirav Desai is prosecuting the case.
If convicted, Prasad faces a maximum statutory penalty of 10 years in prison and a $250,000 fine for the visa fraud. He faces a two-year mandatory, consecutive prison sentence a $250,000 fine for the aggravated identity theft counts. Any sentence, however, would be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables. The charges are only allegations; the defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.
Three Okaloosa County Residents Charged with Federal Firearms OffensesRead the Press Release
PENSACOLA, FLORIDA – Darrell W. Hopkins, 21, of Mary Esther, Florida, and Anthony M. Fannin and Katelin N. Kestner, both 20, of Fort Walton Beach, were arraigned this week in federal court after a grand jury returned an indictment charging them with federal firearms offenses. Hopkins was charged with unlawfully possessing a firearm as a convicted felon and possessing an unregistered short-barreled weapon made from a shotgun. Fannin and Kestner were charged with making a false statement. The indictment was announced by Christopher P. Canova, United States Attorney for the Northern District of Florida.
The indictment alleges that Hopkins, as a convicted felon, possessed a firearm, which was also unregistered, and that Fannin and Kestner falsely stated that this firearm belonged to Kestner’s grandfather. The National Firearms Act (NFA) requires particular firearms, including machineguns, short barrel rifles, short barrel shotguns, and weapons made from rifles and shotguns, to be registered in the National Firearms Registration and Transfer Record. In this case, the firearm is classified as a “weapon made from a shotgun” because it has a barrel length of less than 18 inches, an overall length of less than 26 inches, and is modified with a pistol grip, meaning it is no longer designed to be fired from the shoulder.
These cases resulted from investigations by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and the Okaloosa County Sheriff’s Office. Assistant United States Attorney Alicia H. Kim is prosecuting the case.
The trial is scheduled for February 6, 2017, at the United States Courthouse in Pensacola.
An indictment is merely an allegation by a grand jury that a defendant has committed a violation of federal criminal law and is not evidence of guilt. All defendants are presumed innocent and entitled to a fair trial, during which it will be the government’s burden to prove guilt beyond a reasonable doubt at trial.
The United States Attorney's Office for the Northern District of Florida is one of 94 offices that serve as the nation’s principal litigators under the direction of the Attorney General. To access available public court documents online, please visit the U.S. District Court for the Northern District of Florida website. For more information about the United States Attorney’s Office, Northern District of Florida, visit http://www.justice.gov/usao/fln/index.html.
For more information, contact: Amy Alexander, Public Information Officer
(850) 216-3854, [email protected]Springfield Man Pleads Guilty to Firearm ChargeRead the Press Release
BOSTON – A Springfield man pleaded guilty yesterday in U.S. District Court in Springfield to unlawfully possessing a firearm.
Mark Alexander, 26, pleaded guilty to one count of possession of a firearm and ammunition by a felon. U.S. District Court Judge Timothy S. Hillman scheduled sentencing for March 16, 2017.
On Sept.2, 2015, Alexander possessed a .22 caliber pistol. As a result of a prior felony offense, Alexander was prohibited from possessing a firearm and ammunition. Alexander and his co-defendant, Hector Nieves, worked together to sell the pistol and ammunition to a cooperating witness.
In July 2016, Nieves was sentenced to five years in prison for the same charge.
The charging statute provides for a sentence of no greater than 10 years in prison, three years of supervised release, a fine of $250,000. Actual sentences for federal crimes are typically less than the maximum penalties. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
United States Attorney Carmen M. Ortiz; Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division; and Mickey D. Leadingham, Special Agent in Charge of the Bureau of Alcohol, Tobacco, Firearms and Explosives, Boston Field Division, made the announcement today. The case was investigated by the Federal Bureau of Investigation’s Western Massachusetts Gang Task Force and the ATF. Assistant U.S. Attorney Alex J. Grant of Ortiz’s Springfield Branch Office is prosecuting the case.
Rome Man Pleads Guilty to Possessing Ammunition as a Convicted FelonRead the Press Release
SYRACUSE, NEW YORK – Alfred Laquan Thomas, 31, of Rome, New York, pled guilty today to possession of ammunition by a convicted felon, announced United States Attorney Richard S. Hartunian.
As part of his guilty plea today, Alfred Laquan Thomas admitted that he possessed two (2) 12-gauge Remington shotgun shells in his pants pocket on August 16, 2012 when encountered by Syracuse Police minutes after a shooting incident that involved several shotgun rounds fired from his car at the front of an occupied residence on West Bissell Street in Syracuse. In pleading guilty today, Alfred Laquan Thomas also admitted that he was previously convicted of Aggravated Burglary in Kansas in 2003, and was therefore prohibited from possessing ammunition under federal law.
The charge to which Alfred Laquan Thomas pled guilty today carries a maximum sentence of 10 years in prison, a fine of up to $250,000, and a term of supervised release of up to three (3) years. A defendant’s sentence is imposed by a judge based on the particular statute the defendant is charged with violating, the U.S. Sentencing Guidelines and other factors.
Alfred Laquan Thomas was ordered held without bail pending sentencing, which is scheduled for April 24, 2017 in Syracuse.
This case is being investigated by The Federal Bureau of Investigation (FBI), The United States Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF) and the Syracuse Police Department, and is being prosecuted by Assistant U.S. Attorney Richard R. Southwick.
Riverside Man Sentenced to 20 Years in Federal Prison for Possession of Child PornographyRead the Press Release
LOS ANGELES – A Riverside man was sentenced yesterday to 20 years in federal prison for possession of child pornography, the latest Inland Empire man to receive a substantial sentence for a child pornography offense.
Walter Klink, 42, was sentenced by United States District Judge Virginia A. Phillips to spend 240 months in prison. Following his release from custody, Klink will be on lifetime supervised release.
Klink had previously been convicted by the United States Attorney’s Office for possession of child pornography. In 2007 he was sentenced by Judge Phillips to eight years in prison. After commencing his supervised release, law enforcement received evidence that Klink once again possessed child pornography, including pornographic images of a minor relative.
“This defendant’s criminal conduct paused only while he was in federal prison,” said United States Attorney Eileen M. Decker. “Therefore, the sentence in this case will help protect the children of our community for the next two decades and will ensure the defendant is under court supervision for the rest of his life.”
This case against Klink was the result of a joint investigation by the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) and the Riverside County District Attorney’s Sexual Assault Felony Enforcement (SAFE) team. The case was prosecuted by Assistant United States Attorney Tritia Yuen of the Riverside branch office.
Klink is the latest man from the Inland Empire who has been convicted recently or currently face federal charges related to child pornography. In the other cases:
- Jeremy Matthew Meyerett, 41, of San Bernardino, was sentenced December 12 to 20 years in federal prison for producing child pornography, including a sexually explicit pictures of a 5-year-old girl.
- James Gregory O’Neill, 58, of Riverside, was sentenced on May 2 to 10 years in federal prison for his third conviction of possessing child pornography. When authorities discovered the pictures on O’Neill’s phone, he was on parole after being convicted in Riverside Superior Court of possessing matter depicting a minor in a sexual act, a crime that led to a two-year sentence. O’Neill had also been convicted in federal court in 2003 of distributing child pornography, a conviction that brought a 40-month prison sentence.
- Andrew Harrison Fowler, 26, of Perris, a convicted sex offender who was convicted of having sex with minors in San Diego Superior Court, pleaded guilty on April 18 to possession of child pornography, with some of the images depicting victims younger than 10. Fowler came to the attention of law enforcement after his employer discovered that he was distributing and possessing child pornography while using a computer at his job in Corona. Fowler was sentenced by Judge Phillips on June 27 to 12 years in federal prison and a lifetime of supervised release. Fowler was on parole in the San Diego case when he committed the offense in the federal case. This case was investigated by the Riverside County District Attorney’s Office Sexual Assault and Felony Enforcement/Internet Crimes Against Children Unit, which includes special agents with HSI.
- Anthony Michael Scotti, 22, of Murrieta, pleaded guilty on April 4 to possession of child pornography. Scotti, who was previously convicted in Riverside Superior court of distributing lewd material to a minor, admitted that he had images on an iPod that was seized by law enforcement last August, and that he used the Kik messaging app to distribute images of children engaged in sex acts with adults. In a plea agreement, Scotti also admitted that he used text messages to convince a 15-year-old girl in another state to take sexually explicit pictures and send them to him. United States District Judge Philip S. Gutierrez is scheduled to sentence Scotti on January 23, at which time the defendant faces a mandatory minimum sentence of 10 years in federal prison, and prosecutors have recommended a sentence of 14 years. This case was investigated by HSI.
- Angelo Harper Jr., 21, of Moreno Valley, was found guilty after a two-day bench trial on charges of advertising, distributing and possessing child pornography. Trial evidence included an explicit six-minute video depicting a man with a pre-pubescent boy, as well as evidence showing that Harper used the Messenger to access a chatroom for those interested in nepiophilia, which is a sexual interest in infants and toddlers. Harper “possessed 8,260 images and 520 videos of child pornography,” according to court documents. “This collection included violent depictions of the rape and assault of babies and toddlers.” Harper was sentenced in October by United States District Judge R. Gary Klausner to 235 months in federal prison. This case was investigated by HSI and the Riverside Sexual Assault Felony Enforcement Task Force.
- Nathan Charles Longino Barba, 21, of Rancho Cucamonga, pleaded guilty in August to possessing child pornography. Barba received images and videos depicting child pornography over the Internet. “Some of the images depicted children under two years old being used for sexual acts,” prosecutors said in court papers. “Other images of child pornography portrayed sadistic or masochistic sexual conduct involving the minor children.” Barba is scheduled to be sentenced by United States District Judge Virginia A. Phillips on January 30. Prosecutors have recommended a sentence of three years in federal prison. This case was investigated by FBI.
Manhattan U.S. Attorney Announces $10 Million Civil Penalty Recovery Against New York Pharmaceutical Distributor Kinray, Llc.Read the Press Release
Preet Bharara, the United States Attorney for the Southern District of New York, and James Hunt, Special Agent in Charge for the Drug Enforcement Administration (“DEA”), announced the filing and settlement of a civil lawsuit involving Controlled Substances Act (“CSA”) claims brought by the United States against Kinray, LLC. (“Kinray”), a New York-based pharmaceutical subsidiary of Cardinal Health, Inc. (“Cardinal”). The suit was filed on December 19, 2016. In the consent decree approved yesterday by U.S. District Judge Ronnie Abrams, Kinray agreed to pay $10 million to the United States, and admitted and accepted responsibility for failing to inform the DEA, as required by CSA regulations, of Kinray’s receipt of suspicious orders for certain controlled substances during the time period between January 1, 2011 and May 14, 2012.
Under CSA regulations, pharmaceutical distributors (like Kinray) have a responsibility to report suspicious orders of unusual size, orders that deviate substantially from a normal pattern, or orders of unusual frequency. The DEA relies on this requirement, and on pharmaceutical distributors in particular, as the first line of defense against dishonest medical professionals who fuel the illegal market for opioids. Pharmaceutical companies, as the makers and distributors of dangerous opioids, have a particular obligation not to fulfill shipments to medical professionals, pharmacies, or other entities that place unusual orders, oversized orders, or orders of unusual frequency. As alleged in the Complaint filed by this Office, and as admitted in the settlement agreement (the “Consent Decree”), Kinray violated this requirement.
Manhattan U.S. Attorney Preet Bharara said: “With the opioid crisis reaching epidemic proportions, pharmaceutical companies must be part of the solution, not part of the problem. When distributors like Kinray fail to alert the DEA to suspicious order activity, they end up facilitating the illegal sale and distribution of highly addictive opioids. Today’s settlement is part of our ongoing efforts to use all the tools at our disposal to combat opioid abuse.”
DEA Acting Special Agent in Charge James Hunt said: “While over 33,000 opioid-related deaths last year have drawn the attention of families and friends wanting to know more about opioid addiction; law enforcement has been red flagging pharmaceutical diversion. DEA Diversion Investigators conduct regulatory visits in order to confirm companies adhere to strict security measures and reporting responsibilities in a timely matter to deter prescription medication from being illegally distributed. This settlement is a clear message that law enforcement is looking at pharmaceutical suppliers responsible for safeguarding and distributing prescription medication as well as targeting those responsible for its diversion.”
According to the allegations in the Complaint and the terms of the Consent Decree:
Kinray, a subsidiary of Cardinal, is a pharmaceutical distributor located in Whitestone, Queens, New York. Among other things, Kinray distributes controlled substances, including Schedule II narcotics (such as oxycodone and its derivatives), to pharmacies, doctors, and medical facilities with a legitimate medical need.
Under regulations promulgated by the DEA, distributors of controlled substances must design and operate a system to disclose suspicious orders of controlled substances, and report any discovered suspicious orders to the DEA. These reporting requirements are an integral part of the DEA’s efforts to track the illicit distribution of oxycodone and other highly addictive opioids.
As alleged, during the period from January 1, 2011 to May 14, 2012, the DEA investigated pharmacies in New York City and elsewhere that had placed orders for shipments of oxycodone or hydrocodone (both Schedule II controlled substances) from Kinray that were of unusual size and/or unusual frequency. For example, the DEA’s internal tracking system revealed that during the relevant period, Kinray had shipped oxycodone or hydrocodone to more than 20 New York-area pharmacy locations that placed orders for a quantity of controlled substances many times greater than Kinray’s average sales of controlled substances to all of its customers. Such orders should have triggered “red flags” in Kinray’s ordering system, and Kinray should have reported the suspicious orders to the DEA. But for most of this time period, Kinray did not report a single suspicious order to the DEA.
In the Consent Decree entered yesterday by Judge Abrams, Kinray admitted that during the period January 1, 2011 to May 14, 2012, it failed to inform the DEA, as required, that certain orders for controlled substances it received from customers were suspicious. Kinray also agreed to pay the United States a $10 million civil penalty, and agreed to voluntarily submit to DEA inspections of its Whitestone, New York, facility at any time without condition and without advance notice.
In addition, in a separate administrative action, on December 16, 2016, Kinray signed a Memorandum of Agreement with the DEA in which Kinray agreed to revise its standard operating procedures to improve the processes that govern its handling and delivery of controlled substances to its customers.
This settlement is part of a $44 million global resolution announced today by the Department of Justice with Kinray’s parent company, Cardinal, in which Cardinal agreed to pay an additional $34 million to the United States to resolve failure to report suspicious order claims brought by the U.S. Attorney’s Offices for the Middle District of Florida, the District of Maryland, and the Western District of Washington.
Mr. Bharara praised the outstanding investigative work of the DEA and thanked the New York City Police Department for its assistance.
The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorney Louis A. Pellegrino is in charge of the case.
Leader of $242 Million Investment Fraud Scheme Sentenced to 18 Years in Federal PrisonRead the Press Release
Baltimore, Maryland – U.S. District Judge James K. Bredar sentenced Richard Shusterman, age 53, of Highland Beach, Florida, today to 18 years in prison, followed by three years of supervised release, for a wire fraud conspiracy and nine counts of wire fraud in connection with a complex scheme to defraud investors and lenders of $242 million by selling fraudulent investment portfolios of debts purportedly owed by hospital patients. Judge Bredar also entered orders requiring Shusterman to pay restitution of $171,383,834, and to forfeit $242,485,254.
On May 2, 2016, a federal jury convicted Shusterman, who is the fourth and final conspirator to be convicted in the scheme. At today’s sentencing, Judge Bredar enhanced Shusterman’s sentence upon finding that Shusterman was the organizer of the criminal activity. Shusterman has been in custody since his conviction.
The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Gordon B. Johnson of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Andre R. Watson of U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI).
“Richard Shusterman and his co-conspirators perpetrated a brazen and complex Ponzi scheme that defrauded investors of more than $242 million,” said U.S. Attorney Rod J. Rosenstein. “The conspirators pretended that they were repaying investors with revenue earned by collecting debts, but they were really using the money of new victims to repay previous investors.”
According to evidence presented at his 22-day trial, Shusterman was a shareholder and president of International Portfolio, Inc. (IPI), located in Pennsylvania. Co-conspirator Robert Feldman was part owner of IPI, and president of United Consulting, Inc. Shusterman and Feldman represented that IPI had experience in the purchase, valuation, collection and resale of medical accounts receivable, comprised of past due patient accounts which the hospitals and other entities selling the accounts had been unsuccessful in collecting. Beginning on June 21, 2006, Shusterman and Feldman, through United Consulting and IPI, bought and sold consumer debt, including medical debt portfolios. From December 2006 through June 2008, IPI paid more than $25 million to purchase over $4.1 billion in medical accounts receivable, comprising more than 3,872,514 past due patient accounts.
Jonathan Rosenberg and Douglas Kuber operated Account Receivable Services, LLC (ARS) in New York, New York. They agreed to promote the sale of IPI debt portfolio to investors. Pursuant to their agreement, Shusterman, through IPI, bundled the past due patient accounts from IPI’s inventory into investment portfolios, then sold the portfolios to ARS at a discounted rate. ARS’s purchases of the medical debt portfolios from IPI came from investors who agreed to lend money to ARS in return for a high, fixed interest rate. Shusterman and IPI agreed to manage the collection activity for each debt portfolio that IPI sold. Investors were told that any funds collected by IPI were to be forwarded to escrow accounts opened and maintained by ARS, which, in turn, would use the funds to cover the periodic interest payments and outstanding balances owed to the investors.
Fraudulent Inflation of Purchase Prices for IPI Debt Portfolios to Pay Fees and Commissions
Rosenberg and Kuber misrepresented to investors that a loan secured by IPI debt portfolios would not be used to pay up-front fees and commissions associated with the investment offering. In fact, however, ARS and IPI agreed to a concealed purchase price for a debt portfolio, then told the investor that the portfolio price was 5% to 10% higher than the concealed price, in order to cover their fees and commissions. Specifically, Shusterman paid the loan proceeds in excess of the true purchase prices to Rosenberg and Kuber, characterizing these kickbacks as a refund or a rebate. From June 2007 to March 2009, Shusterman paid Kuber and Rosenberg kickbacks totaling in excess of $8 million.
In reliance on the misrepresentations of Rosenberg and Kuber, investors provided loans to ARS of approximately $145 million to purchase IPI debt portfolios, and other investors purchased approximately $122.5 million worth of IPI debt portfolios, all of which IPI managed.
Fraudulent Inflation of Collection Results to Maintain and Increase Investments
In order to induce existing investors to maintain and increase their participation in the investment scheme and to persuade new investors to join, ARS and IPI falsely represented the amount of income being generated from the collection activity for the medical debt portfolios. According to trial testimony, it became apparent almost from the start that collections were significantly inadequate, not only in their failure to cover periodic interest payments that ARS owed its investors, but also to repay the investors’ principal.
Shusterman and Rosenberg agreed that IPI would advance ARS the money needed to make ARS’s periodic interest payments to the investors. From July 2008 to December 2009, and without the investors’ knowledge, Shusterman and his co-conspirators wired approximately 209 advances from IPI into the bank accounts of the ARS debt portfolios, which were subsequently used to pay periodic interest payments due to an investor and/or inflate the collection history of the respective investor debt portfolios. Misleading collection reports were also created to deceive the investors.
After their plan to subsidize ARS with monthly advances was implemented, and to ensure a continuing flow of new funding into the investment scheme, Shusterman and his co-conspirators continued to solicit existing and prospective investors to purchase or finance IPI debt portfolios. For example, an investor was induced to fund the purchase of 12 more portfolios between July and November 2008, totaling approximately $65 million in new investments. Another investor representative living in West River, Maryland was induced to fund the purchase of a portfolio on November 8, 2008 for $10 million, and another portfolio on May 26, 2009 for $5 million. Shusterman and his co-conspirators then fraudulently used the new investor funds to make interest and resale payments in order to meet the investment benchmarks of prior investors.
As a result of the scheme, the loss to investors was $242 million.
New Jersey residents Robert Feldman, age 69, of Beach Haven; Jonathan E. Rosenberg, age 48, of West Orange; and Douglas A. Kuber, age 56, of Livingston, previously pleaded guilty to their participation in the conspiracy and were sentenced to 46 months, five years, and four years in prison, respectively. Judge Bredar also ordered: Feldman and Rosenberg to pay restitution of $148,251,859; and Kuber to pay restitution of $105,565,223.
Today’s announcement is part of the efforts undertaken 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.
United States Attorney Rod J. Rosenstein thanked the FBI and HSI Baltimore for their work in the investigation. Mr. Rosenstein praised Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who prosecuted the case.
Last Defendant in $48 Million Dollar Cigarette Tax Fraud Scheme SentencedRead the Press Release
The last defendant in a domestic and international, multimillion-dollar cigarette tax fraud scheme has been sentenced, the Department of Justice announced today.
On Thursday, U.S. District Judge David L. Bunning sentenced Anthony Cosica, 54, of Pinetop, Ariz., to 24 months in federal prison. Eight other defendants, including three from eastern Kentucky and two from Russia, have already been sentenced, for charges including conspiracy to commit mail fraud, wire fraud and money laundering and violations of the PACT Act.
This case marks the first prosecution in the nation for violations of the PACT Act, which is a 2010 federal law enacted to prevent trafficking in untaxed cigarettes.
According to court documents and evidence presented at trial, from 2008 to 2013, the defendants devised a scheme that defrauded federal, state and local governments across the country, out of cigarette excise taxes totaling approximately $48 million. Specifically, the defendants operated mail order and internet businesses engaged in the delivery sales of untaxed cigarettes to customers in all 50 states.
“This case represents a milestone in enforcement of the PACT Act,” said Kerry B. Harvey, U.S. Attorney for the Eastern District of Kentucky. “Mr. Cosica and his co-conspirators devised a complex criminal enterprise of international proportions which cost public treasuries millions of dollars. Congratulations to the law enforcement agencies and our trial team for their superb work in unwinding this criminal scheme.”
The leader of the conspiracy, John Maddux Jr., 56, formerly of Russell, Ky., operated mail order/online businesses that sold the cigarettes at discount prices. Maddux executed the scheme by forming a business with two Russian nationals, Alexander Sergeev and Mikhail Serov. Sergeev and Serov shipped cigarettes from Russia directly to customers of Maddux and his co-conspirators. Evidence at trial further established that Maddux also fulfilled cigarette orders for other co-conspirators, who were also operating similar mail/online businesses. To get the cigarettes through U.S. Mail, the defendants disguised and marked the cigarettes as gift items, which is a violation of the PACT Act.
Under the PACT Act, businesses are required to register and report cigarette and tobacco sales to state tax administrators, allowing States to properly collect required excise taxes from the businesses. The defendants intentionally avoided these requirements and millions of dollars in taxes during the scheme.
The defendants received the following prison sentences: John Maddux 10 years; Christina Carmen, formerly of Russell, Ky., 60 months; David H. White, formerly of Ashland, Ky., 24 months; Julie Coscia, of Pinetop, Ariz., 36 months; Michael E. Smith, of Escondido, Calif., 42 months; Alexander Sergeev, 46 months; Mikhail Serov, 46 months; and Barbara Routh, of Prospect, Ky., two years’ probation. Under federal law, all defendants must serve at least 85 percent of their prison sentence.
Domestic and International trafficking in untaxed cigarettes via mail order or the Internet defrauds the federal and state governments of hundreds of millions of dollars in tobacco taxes and frequently funds other criminal activity.
U.S. Attorney Harvey; Stewart Lowrey, Special Agent in Charge, Louisville Field Division, Alcohol Tobacco Firearms and Explosives; Tracey Montano, Special Agent in Charge, Nashville Field Office, Internal Revenue Service-Criminal Investigations; Richard Deer, Acting Special Agent in Charge, Philadelphia Regional Office of the U.S. Department of Labor, Office of Inspector General, Office of Labor Racketeering and Fraud Investigations; and Mark McCormack, Special Agent in Charge, Metro Washington Field Office, U.S. Food and Drug Administration, jointly announced the sentence.
The investigation was conducted by the Bureau of Alcohol Tobacco Firearms and Explosives, the Internal Revenue Service-Criminal Investigations, the United States Department of Labor, Office of Inspector General, and U.S. Food and Drug Administration. Assistant United States Attorneys Laura K. Voorhees and Wade T. Napier, and ATF Associate Chief Counsel, Jeffery A. Cohen, prosecuted this case on behalf of the federal government.
Last Defendant in $48 Million Dollar Cigarette Tax Fraud Scheme SentencedRead the Press Release
COVINGTON, Ky. — The last defendant in a domestic and international, multimillion-dollar cigarette tax fraud scheme has been sentenced.
On Thursday, U.S. District Judge David L. Bunning sentenced Anthony Cosica, 54, of Pinetop, Ariz., to 24 months in federal prison. Eight other defendants, including three from eastern Kentucky and two from Russia, have already been sentenced, for charges including conspiracy to commit mail fraud, wire fraud and money laundering and violations of the PACT Act.
This case marks the first prosecution in the nation for violations of the PACT Act, which is a 2010 federal law enacted to prevent trafficking in untaxed cigarettes.
According to court documents and evidence presented at trial, from 2008 to 2013, the defendants devised a scheme that defrauded federal, state and local governments across the country, out of cigarette excise taxes totaling approximately $48 million. Specifically, the defendants operated mail order and internet businesses engaged in the delivery sales of untaxed cigarettes to customers in all 50 states.
“This case represents a milestone in enforcement of the PACT Act,” said Kerry B. Harvey, U.S. Attorney for the Eastern District of Kentucky. “Mr. Cosica and his co-conspirators devised a complex criminal enterprise of international proportions which cost public treasuries millions of dollars. Congratulations to the law enforcement agencies and our trial team for their superb work in unwinding this criminal scheme.”
The leader of the conspiracy, John Maddux Jr., 56, formerly of Russell, Ky., operated mail order/online businesses that sold the cigarettes at discount prices. Maddux executed the scheme by forming a business with two Russian nationals, Alexander Sergeev and Mikhail Serov. Sergeev and Serov shipped cigarettes from Russia directly to customers of Maddux and his co-conspirators. Evidence at trial further established that Maddux also fulfilled cigarette orders for other co-conspirators, who were also operating similar mail/online businesses. To get the cigarettes through U.S. Mail, the defendants disguised and marked the cigarettes as gift items, which is a violation of the PACT Act.
Under the PACT Act, businesses are required to register and report cigarette and tobacco sales to state tax administrators, allowing States to properly collect required excise taxes from the businesses. The defendants intentionally avoided these requirements and millions of dollars in taxes during the scheme.
The defendants received the following prison sentences: John Maddux 10 years; Christina Carmen, formerly of Russell, Ky., 60 months; David H. White, formerly of Ashland, Ky., 24 months; Julie Coscia, of Pinetop, Ariz., 36 months; Michael E. Smith, of Escondido, Calif., 42 months; Alexander Sergeev, 46 months; Mikhail Serov, 46 months; and Barbara Routh, of Prospect, Ky., two years’ probation. Under federal law, all defendants must serve at least 85 percent of their prison sentence.
Domestic and International trafficking in untaxed cigarettes via mail order or the Internet defrauds the federal and state governments of hundreds of millions of dollars in tobacco taxes and frequently funds other criminal activity.
U.S. Attorney Harvey; Stuart Lowrey, Special Agent in Charge, Louisville Field Division, Alcohol Tobacco Firearms and Explosives; Tracey Montano, Special Agent in Charge, Nashville Field Office, Internal Revenue Service-Criminal Investigations; Richard Deer, Acting Special Agent in Charge, Philadelphia Regional Office of the U.S. Department of Labor, Office of Inspector General, Office of Labor Racketeering and Fraud Investigations; and Mark McCormack, Special Agent in Charge, Metro Washington Field Office, U.S. Food and Drug Administration, jointly announced the sentence.
The investigation was conducted by the Bureau of Alcohol Tobacco Firearms and Explosives, the Internal Revenue Service-Criminal Investigations, the United States Department of Labor, Office of Inspector General, and U.S. Food and Drug Administration. Assistant United States Attorneys Laura K. Voorhees and Wade T. Napier, and ATF Associate Chief Counsel, Jeffery A. Cohen, prosecuted this case on behalf of the federal government.
Garland Man Sentenced to 30 Months in Federal Prison and Fined $3,000 on Firearms ConvictionRead the Press Release
DALLAS — Melvin Yip, 31, of Garland, Texas, was sentenced today by U.S. District Judge Sam A. Lindsay to 30 months in federal prison and fined $3,000, following his guilty plea in April 2016 to one count of engaging in the business of firearms without a license. The announcement was made today by U.S. Attorney John Parker of the Northern District of Texas.
Judge Lindsay ordered that Yip surrender to the Bureau of Prisons on January 24, 2017.
According to documents filed in the case, Yip admitted that in September 2015, he was not a licensed dealer of firearms, but he did engage in the business of dealing firearms.
The Bureau of Alcohol, Tobacco, Firearms and Explosives investigated the case. Assistant U.S. Attorney Andrew Wirmani was in charge of the prosecution.
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Florida Man Sentenced to 48 Months in Prison for Sophisticated International Cellphone Fraud SchemeRead the Press Release
A Miami Gardens, Florida, resident was sentenced to 48 months in prison in connection with a sophisticated global cell phone fraud scheme that involved compromising cellphone customers’ accounts and “cloning” their phones to make fraudulent international calls.
U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Special Agent in Charge George L. Piro of the FBI’s Miami Field Office made the announcement.
Edwin Fana, 37, was sentenced yesterday by U.S. District Judge Daniel T.K. Hurley of the Southern District of Florida. He pleaded guilty on Aug. 29 to one count of conspiracy to commit wire fraud, access device fraud, the use, production or possession of modified telecommunications instruments and the use or possession of hardware or software configured to obtain telecommunications services; one count of wire fraud and one count of aggravated identity theft.
According to the plea agreement, Fana and his co-conspirators participated in a scheme to steal access to and fraudulently open new cellphone accounts using the personal information of individuals around the United States. Fana admitted that the conspirators then trafficked in the cellphone customers’ telecommunication identifying information, using that data as well as other software and hardware to reprogram cellphones that they controlled to transmit thousands of international calls to Cuba, Jamaica, the Dominican Republic and other countries with high calling rates. The calls were billed to the victims’ compromised accounts, he admitted.
In addition, Fana admitted that his role in the scheme included operating a “call site” in his residence in Miami Gardens. He would receive telecommunication identifying information associated with victims’ accounts from his co-conspirators and use that data to re-program cellphones that he controlled. Fana’s co-conspirators would then transmit international calls over the internet to Fana’s residence, where he would route them through the re-programmed cellphones. In October 2012, the FBI executed a search warrant on Fana’s residence and discovered approximately 88 cellphones connected to networking equipment and actively routing calls.
Law enforcement seized nearly 11,000 telecommunications identifying numbers from Fana and he admitted that the scheme caused at least $1 million in losses.
Fana is the first defendant to be sentenced in the case. Jose Santana and Farintong Calderon have also pleaded guilty in connection with the scheme; Santana is scheduled to be sentenced on Jan. 4, 2017, and Calderon is scheduled to be sentenced on Feb. 21, 2017.
The FBI investigated the case, dubbed Operation Toll Free, which is part of the FBI’s ongoing effort to combat large-scale telecommunications fraud. Senior Counsel Matthew A. Lamberti of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorney Jared M. Strauss of the Southern District of Florida are prosecuting the case.
Florida Man Sentenced to 48 Months in Prison for Sophisticated International Cellphone Fraud SchemeRead the Press Release
A Miami Gardens, Florida, resident was sentenced to 48 months in prison in connection with a sophisticated global cell phone fraud scheme that involved compromising cellphone customers’ accounts and “cloning” their phones to make fraudulent international calls.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida and Special Agent in Charge George L. Piro of the FBI’s Miami Field Office made the announcement.
Edwin Fana, 37, was sentenced yesterday by U.S. District Judge Daniel T.K. Hurley of the Southern District of Florida. He pleaded guilty on Aug. 29 to one count of conspiracy to commit wire fraud, access device fraud, the use, production or possession of modified telecommunications instruments and the use or possession of hardware or software configured to obtain telecommunications services; one count of wire fraud and one count of aggravated identity theft. Fana received a reduced prison sentence due to his cooperation in the government’s investigation.
According to the plea agreement, Fana and his co-conspirators participated in a scheme to steal access to and fraudulently open new cellphone accounts using the personal information of individuals around the United States. Fana admitted that the conspirators then trafficked in the cellphone customers’ telecommunication identifying information, using that data as well as other software and hardware to reprogram cellphones that they controlled to transmit thousands of international calls to Cuba, Jamaica, the Dominican Republic and other countries with high calling rates. The calls were billed to the victims’ compromised accounts, he admitted.
In addition, Fana admitted that his role in the scheme included operating a “call site” in his residence in Miami Gardens. He would receive telecommunication identifying information associated with victims’ accounts from his co-conspirators and use that data to re-program cellphones that he controlled. Fana’s co-conspirators would then transmit international calls over the internet to Fana’s residence, where he would route them through the re-programmed cellphones. In October 2012, the FBI executed a search warrant on Fana’s residence and discovered approximately 88 cellphones connected to networking equipment and actively routing calls.
Law enforcement seized nearly 11,000 telecommunications identifying numbers from Fana and he admitted that the scheme caused at least $1 million in losses.
Fana is the first defendant to be sentenced in the case. Jose Santana and Farintong Calderon have also pleaded guilty in connection with the scheme; Santana is scheduled to be sentenced on Jan. 4, 2017, and Calderon is scheduled to be sentenced on Feb. 21, 2017.
The FBI investigated the case, dubbed Operation Toll Free, which is part of the FBI’s ongoing effort to combat large-scale telecommunications fraud. Senior Counsel Matthew A. Lamberti of the Criminal Division’s Computer Crime and Intellectual Property Section and Assistant U.S. Attorney Jared M. Strauss of the Southern District of Florida are prosecuting the case.
Federal Jury Convicts Indialantic Man of Armed Bank Robbery and Other OffensesRead the Press Release
Orlando, Florida – United States Attorney A. Lee Bentley, III announces that a federal jury yesterday found Skyler Christian Awad (27, Indialantic) guilty of bank robbery, carrying a firearm during and in relation to a crime of violence, attempted robbery affecting interstate commerce, possession of a firearm by a convicted felon, and other related firearm offenses. He faces a maximum penalty of 20 years, followed by a mandatory consecutive sentence of at least 5 years, in federal prison. A sentencing hearing is scheduled for March 13, 2017.
Awad was indicted on September 15, 2016.
According to testimony and evidence presented at trial, between May 12, 2016, and May 16, 2016, Awad went on a crime spree in Brevard County, when he stole a loaded .22 caliber revolver from a residence in West Melbourne. Four days later, he entered a Subway restaurant in Melbourne and attempted to rob the establishment while armed with a knife. Later that same day, he entered and robbed a TD Bank by threatening to shoot a bank teller. Law enforcement subsequently located Awad, where he then led them on a high-speed chase through residential areas and across busy intersections until he was stopped. Upon apprehension, officers recovered the stolen .22 caliber revolver and the bank money from Awad’s vehicle. As a convicted felon, Awad was prohibited from possessing a firearm or ammunition under federal law.
This case was investigated by the Federal Bureau of Investigation, with assistance from the Melbourne Police Department, the Brevard County Sheriff’s Office, the Palm Bay Police Department, and the Bureau of Alcohol, Tobacco, Firearms, and Explosives. It is being prosecuted by Assistant United States Attorneys Andrew C. Searle and Chauncey A. Bratt.
East St. Louis Man Sentenced for Heroin and Firearms OffensesRead the Press Release
Donald S. Boyce, United States Attorney for the Southern District of Illinois, announced that Brandy C. Anderson, age 33, of East St. Louis, Illinois, was sentenced today to 100 months’ imprisonment for Possession With Intent to Distribute Heroin, and Felon In Possession of a Firearm.
Anderson pled guilty to the two federal charges on June 17, 2016. At his change of plea hearing in June, Anderson admitted that on November 24, 2015, he was arrested in a car in East St. Louis with six grams of heroin (1/4 ounce), and a loaded .45 caliber Colt pistol. Anderson also admitted that he had been convicted of a felony prior to his arrest on November 24, 2016.
The investigation which resulted in Anderson’s arrest and conviction was conducted by the East St. Louis Police Department and by the Bureau of Alcohol, Tobacco, and Firearms.
The case was prosecuted by Assistant United States Attorney Robert L. Garrison.
Cedar Rapids Man Pleads Guilty to Sexual Exploitation of a Child and Possession of Child PornographyRead the Press Release
A man who produced and possessed child pornography pled guilty on December 22, 2016, in federal court in Cedar Rapids.
Michael Bordman, age 23, from Cedar Rapids, Iowa, was convicted of one count of sexual exploitation of a child and one count of possession of child pornography. At the plea hearing, Bordman admitted that, between 2015 and 2016, he knowingly used a child to produce child pornography. He also admitted that he possessed child pornography on a cell phone.
Sentencing before United States District Court Chief Judge Linda R. Reade will be set after a presentence report is prepared. Bordman remains in custody of the United States Marshal pending sentencing. Bordman faces a mandatory minimum sentence of 15 years’ imprisonment and a possible maximum sentence of 50 years’ imprisonment, $500,000 in fines, $10,200 in special assessments, and supervised release for 5 years to life following any imprisonment.
This case is being prosecuted by Assistant United States Attorney Mark Tremmel and is being investigated by the Cedar Rapids Police Department, the Iowa Division of Criminal Investigation, and Homeland Security Investigations.
This case was brought as part of Project Safe Childhood, a nationwide initiative launched in May 2006 by the Department of Justice to combat the growing epidemic of child sexual exploitation and abuse. Led by the United States Attorneys’ Offices and the Criminal Division’s Child Exploitation and Obscenity Section, Project Safe Childhood marshals federal, state, and local resources to locate, apprehend, and prosecute individuals who sexually exploit children, and to identify and rescue victims. For more information about Project Safe Childhood, please visit www.usdoj.gov/psc. For more information about Internet safety education, please visit www.usdoj.gov/psc and click on the tab “resources.”
Court file information is available at https://ecf.iand.uscourts.gov/cgi-bin/login.pl. The case file number is CR 16-81.
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Cardinal Health Agrees to $44 Million Settlement for Alleged Violations of Controlled Substances ActRead the Press Release
Baltimore, Maryland – Cardinal Health, Inc. agreed to pay $44,000,000 to the United States to resolve allegations that it violated the Controlled Substances Act (CSA) in Maryland, Florida and New York by failing to report suspicious orders of controlled substances to pharmacies located in those states. The settlement also resolves a civil investigation in the Western District of Washington concerning alleged violations of CSA record keeping requirements. Contemporaneously, the Southern District of New York has entered into a separate settlement agreement with Cardinal in which Cardinal agreed to resolve allegations that Kinray, Inc., a subsidiary distributor, failed to report suspicious orders by pharmacies in the Kinray service area.
The settlement agreement was announced today by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Karl C. Colder of the Drug Enforcement Administration - Washington Field Division.
“Pharmaceutical suppliers violate the law when they fill unusually large or frequent orders for controlled substances without notifying the DEA,” said U.S. Attorney for the District of Maryland Rod J. Rosenstein. “Abuse of pharmaceutical drugs is one of the top federal law enforcement priorities. Cases such as this one, as well as our $8 million settlement with CVS in February 2016, reflect the federal commitment to prevent the diversion of pharmaceutical drugs for illegal purposes.”
“DEA is responsible for ensuring that all controlled substance transactions take place within DEA’s regulatory closed system. All legitimate handlers of controlled substances must maintain strict accounting for all distributions and Cardinal failed to adhere to this policy,” stated Special Agent-in-Charge Karl C. Colder of the Drug Enforcement Administration’s Washington Division. “Oxycodone is a very addictive drug and failure to report suspicious orders of oxycodone is a serious matter. The civil penalty levied against Cardinal should send a strong message that all handlers of controlled substances must perform due diligence to ensure the public safety,” stated Colder.
The CSA requires distributors of pharmaceuticals, such as Cardinal, to identify and report suspicious orders of controlled substances, such as orders of unusual size, unusual frequency or those that substantially deviate from a normal pattern. If the distributor fails to report suspicious orders to the DEA, civil penalties can be imposed against the distributor.
The settlement resolves allegations arising from an investigation in Maryland as well as an administrative proceeding related to conduct in Florida. According to the settlement agreement, Cardinal admitted that from January 1, 2009 to May 14, 2012, it failed to report suspicious orders to the DEA as required by the CSA. The settlement also resolves allegations that Cardinal failed to maintain effective controls against diversion.
U.S. Attorney Rod J. Rosenstein commended the DEA’s Office of Diversion Control, Washington Division, Baltimore District Office for its work in the investigation. U.S. Attorney Rosenstein also thanked U.S. Attorney for the Middle District of Florida A. Lee Bentley, III and Division Chief, Katherine Ho and Civil Chief, Randy Harwell; as well as U.S. Attorney for the Southern District of New York Preet Bharara, and Assistant United States Attorney Tony Pellegrino for their collaborative work. Mr. Rosenstein thanked Assistant United States Attorney Thomas F. Corcoran, who handled the case for the District of Maryland.
Albany Man Pleads Guilty to Oxycodone ConspiracyRead the Press Release
ALBANY, NEW YORK – Nicholas M. Signore, age 26, of Albany, New York, pled guilty today to conspiring to distribute oxycodone.
The announcement was made by U.S. Attorney Richard S. Hartunian and Special Agent in Charge James J. Hunt, New York Division, U.S. Drug Enforcement Administration (DEA).
Signore faces up to 20 years in prison and 3 years of post-imprisonment supervised release when he is sentenced on April 20, 2017 by U.S. District Judge Mae A. D’Agostino. A defendant’s sentence is imposed by a judge based on the particular statute the defendant is charged with violating, the U.S. Sentencing Guidelines, and other factors.
As part of his plea, Signore admitted that in 2015, he obtained approximately 896 oxycodone tablets from a co-conspirator, for resale in the Northern District of New York.
This case was investigated by the DEA and is being prosecuted by Assistant U.S. Attorney Jeffrey C. Coffman.
22 December 2016
West Haven Man Admits to Falsely Certifying Asbestos Abatement Supervisor Course CompletionRead the Press Release
Deirdre M. Daly, United States Attorney for the District of Connecticut, and Tyler C. Amon, Special Agent in Charge of EPA’s Criminal Investigation Division in New England, Patricia Ferrick, Special Agent in Charge of the Federal Bureau of Investigation in Connecticut, Thomas Muskett, Special Agent in Charge of EPA’s Office of Inspector General for the Washington Field Office, and Matthew J. Etre, Special Agent in Charge of Homeland Security Investigations for the Boston Division, today announced that GUIDO A. CORTES-RODRIGUEZ, 64, of West Haven, pleaded guilty yesterday in Hartford federal court to one count of making a false statement to the federal government.
According to court documents and statements made in court, CORTES was a training instructor at North Star Center For Human Development (“North Star”), an organization that offered a variety of training courses and certification to individuals working with lead paint and asbestos. CORTES was the training manager and a primary instructor for those courses.
North Star’s lead and asbestos training courses were subject to regulation under the training provider accreditation requirements of the federal Toxic Substances Control Act (TSCA). TSCA allowed states to obtain U.S. Environmental Protection Agency (EPA) authorization to administer and enforce the standards, regulations and other requirements of the TSCA’s lead and asbestos programs, including the approval of training courses. The State of Connecticut received such authorization for asbestos and lead programs. Individuals in Connecticut who perform or supervise asbestos abatement activities must be certified by the Connecticut Department of Public Health (CT DPH). To obtain certification, an individual must successfully complete an approved 40-hour asbestos abatement supervisor initial training course. North Star applied for and received approval from CT DPH to offer a wide range of lead and asbestos training courses, including asbestos abatement supervisor initial and refresher courses.
On December 16, 2015, CORTES sent notice to the CT DPH that an asbestos abatement supervisor initial training course would be conducted at North Star’s facility in Hartford from December 27, 2015 to January 2, 2016. Further, he advised that a 32-hour lead abatement worker initial course would be conducted from January 3 to January 6, 2016 at the same location. CORTES was identified as the training manager and primary course instructor for both courses.
An undercover FBI agent attempted to attend the second course under a fictitious identity, seeking a lead abatement worker initial course completion certificate. The agent skipped the first three days of the course, and attempted to attend on January 6, 2016. Upon arrival at the facility, the agent learned that no course was being conducted at North Star that day, and further, that no classes had been conducted for weeks.
The agent called the instructor, CORTES, who agreed to meet him at the North Star facility the following day. When the agent met with CORTES on January 7, 2016, the agent indicated he was interested in trying to get work as soon as possible. CORTES provided him with a list of items he would need from the agent, including his name, mailing address, Social Security number, passport-type photos and $1,260.
Later that day, the agent returned to CORTES’s office with the listed items and CORTES met with him in a cubicle. CORTES asked various biographical questions of the agent, filled out paperwork, and provided the agent with three certificates issued to A.R.: a 40-Hour Asbestos Abatement Supervisor Initial Certification, a 32-Hour Lead Abatement Worker Initial Certification, and an OSHA 10-Hour Construction Safety Training Course. CORTES accepted $1,260 cash in payment from the agent. The agent attended no classes conducted by CORTES at North Star, received no training from CORTES in these subject areas, and did not take any examinations. The false certificates issued by CORTES to the agent were signed by CORTES, bore an individual certificate number, and otherwise appeared to meet the requirements of Connecticut’s approved lead and asbestos accreditation programs, and therefore, the federal accreditation requirements. Subsequent investigation determined that CORTES provided fraudulent training certificates on multiple occasions.
“Government regulations related to asbestos and lead abatement exist for a very important reason: To ensure that this work is done properly and safely without endangering the public health,” said U.S. Attorney Daly. “Individuals who game the system, especially those who illegally profit from it, will be prosecuted.”
“Asbestos and lead removal training providers are entrusted with keeping safe the supervisors, workers and the public that hire them,” said Special Agent in Charge Amon. “Trainers who cheat and provide false certificates will continue to be a focus for EPA enforcement since they pose too great a risk to the public health.”
CORTES is scheduled to be sentenced by U.S. District Judge Robert N. Chatigny on April 18, 2016, at which time CORTES faces a maximum term of imprisonment of five years and a fine of up to $250,000.
This matter has been investigated by the U.S. Environmental Protection Agency, Criminal Investigation Division and Office of Inspector General, Federal Bureau of Investigation, and Homeland Security Investigations. The case is being prosecuted by Assistant U.S. Attorney Anastasia E. King and Special Assistant U.S. Attorney Peter Kenyon.
W. Warwick Resident Facing Child Pornography ChargesRead the Press Release
PROVIDENCE – Joseph Seymour, 38, of West Warwick, made an initial appearance in federal court in Providence on Wednesday charged with possessing and distributing child pornography. It is alleged that Seymour stored more than 8,000 images of child pornography on a digital storage device which he mailed via a commercial courier.
Seymour, charged by way of a federal criminal complaint with possession of child pornography and distribution of child pornography, was released on $10,000 unsecured bond following an appearance before U.S. District Court Magistrate Judge Patricia A. Sullivan.
Seymour’s arrest and the federal charges brought in this matter are announced by United States Attorney Peter F. Neronha; Shelly A. Binkowski, Inspector in Charge of the U.S. Postal Inspection Service, Boston Division; and Colonel Ann C. Assumpico, Superintendent of the Rhode Island State Police.
According to information presented to the court, it is alleged that in July 2016, a Tempe, Arizona computer repair service notified the Tempe, Arizona Police Department that they discovered images on a digital hard drive that appeared to be child pornography. The hard drive had been sent to the Tempe, Arizona repair service via a Rhode Island-based manufacturer of electronic products. The Arizona company is often used by the Rhode Island-based manufacturer as a sub-contractor for computer repair services. It is alleged that the digital storage device owned by Seymour, and which allegedly contained images of child pornography, was mailed via a commercial courier.
According to court documents, the Tempe Police Department reviewed some of the material on the hard drive, and, after determining that some of the contents they reviewed allegedly depicted child pornography, they contacted that Rhode Island State Police Internet Crimes Against Children (ICAC) Task Force. The hard drive was transferred to the ICAC Task Force and then to the U.S. Postal Inspection Service (USPIS) for further examination.
It is alleged that in addition to numerous documents and other files allegedly containing identifying information belonging to Joseph Seymour, a forensic examination by a USPIS Digital Evidence Unit revealed over 8,000 images of alleged child pornography stored in more than 160 subfolders.
On Wednesday, USPIS agents and members of the ICAC Task Force executed a court authorized search of Seymour’s residence and seized numerous computers and digital storage devices.
A criminal complaint is merely an allegation and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.
The case is being prosecuted by Assistant U.S. Attorney Ronald R. Gendron.
###
Contact:
Jim Martin (401) 709-5357
email: [email protected]
on Twitter @USAO_RI
Virginia Man Charged with Attempting to Provide Material Support to ISILRead the Press Release
Lionel Nelson Williams, 26, of Suffolk, Virginia was charged today with attempting to provide material support to the Islamic State of Iraq and the Levant (ISIL), a designated foreign terrorist organization. Williams was arrested yesterday in Suffolk.
Acting Assistant Attorney General for National Security Mary B. McCord, U.S. Attorney Dana J. Boente for the Eastern District of Virginia and Special Agent in Charge Martin W. Culbreth of the FBI’s Norfolk, Virginia Field Office made the announcement.
According to the affidavit in support of the criminal complaint, in October and November 2016, Williams sent money to a person he believed was collecting money for ISIL to purchase weapons and ammunition for ISIL fighters. Williams also posted content on social media indicating his support for ISIL and attacks targeting police officers, military and armed civilians. In addition, the investigation revealed that Williams ordered an AK-47 assault rifle the day after the terror attack in San Bernardino, California, in December 2015. Two firearms, including a semi-automatic rifle consistent with the appearance of an AK-47, were recovered in a post-arrest search of Williams’ residence.
Williams faces a maximum penalty of 20 years in prison if convicted. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.
This case was investigated by the Norfolk Joint Terrorism Task Force and the Suffolk Police Department.
Assistant U.S. Attorneys Joseph E. DePadilla and Andrew C. Bosse for the Eastern District of Virginia and Trial Attorney Alicia Cook of the National Security Division’s Counterterrorism Section are prosecuting the case.
Williams AffidavitUnited States Sues Barclays Bank to Recover Civil Penalties for Fraud in the Sale of Residential Mortgage-Backed SecuritiesRead the Press Release
The United States Department of Justice today filed a civil complaint in the Eastern District of New York against Barclays Bank PLC and several of its United States affiliates (together, Barclays), alleging that Barclays engaged in a fraudulent scheme to sell residential mortgage-backed securities (RMBS) supported by defective and misrepresented mortgage loans. As alleged in the complaint, from 2005 to 2007, Barclays personnel repeatedly misrepresented the characteristics of the loans backing securities they sold to investors throughout the world, who incurred billions of dollars in losses as a result of the fraudulent scheme. The suit also names as defendants two former Barclays executives: Paul K. Menefee, of Austin, Texas, who served as Barclays’ head banker on its subprime RMBS securitizations, and John T. Carroll, of Port Washington, New York, who served as Barclays’ head trader for subprime loan acquisitions.
The detailed allegations in the complaint describe Barclays’, Menefee’s, and Carroll’s misconduct in connection with RMBS securitizations Barclays underwrote between 2005 and 2007. The complaint alleges violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), based on mail fraud, wire fraud, bank fraud, and other misconduct. FIRREA authorizes the Attorney General to seek civil penalties up to the amount of the gain to the violator or the losses suffered by persons other than the violator.
“Financial institutions like Barclays occupy a position of vital public trust,” said Attorney General Loretta E. Lynch. “Ordinary Americans depend on their assurances of transparency and legitimacy, and entrust these banks with their valuable savings. As alleged in this complaint, Barclays jeopardized billions of dollars of wealth through practices that were plainly irresponsible and dishonest. With this filing, we are sending a clear message that the Department of Justice will not tolerate the defrauding of investors and the American people.”
“The widespread fraud that investment banks like Barclays committed in the packaging and sale of residential mortgage-backed securities injured tens of thousands of investors and significantly contributed to the Financial Crisis of 2008,” said Principal Deputy Associate Attorney General Bill Baer. “Millions of homeowners were left with homes they could not afford, leaving entire neighborhoods devastated. The government’s complaint alleges that Barclays fraudulently sold investors RMBS full of mortgages it knew were likely to fail, all while telling investors that the mortgages backing the securities were sound. Today’s complaint makes clear that the Department of Justice will continue to hold financial institutions, and the individuals who work for them, fully accountable for harming investors and the American public.”
“What is now often referred to as the ‘Great Recession’ started with the bursting of the housing bubble, followed by an enormous drop in U.S. home values, hundreds of bank failures, significant turbulence in financial markets, trillions of dollars of losses to investors, and, most devastatingly, a huge wave of home foreclosures,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, the head of the Justice Department’s Civil Division. “All of these injuries, and more, were caused at least in part by the type of misconduct alleged in this lawsuit. We will continue holding both banks and their executives responsible for their role in contributing to this unfortunate period in our history.”
“Investors who bought RMBS from Barclays, and who suffered catastrophic losses as a result, included individuals and institutions that form the backbone of our community,” said Robert L. Capers, United States Attorney for the Eastern District of New York. “Credit unions, pension plans, charitable and religious organizations, university endowments, and financial institutions, among others, including many in this District, invested tens of billions of dollars in securities that Barclays repeatedly assured them were safe investments. Instead of ensuring that their representations to investors were accurate and transparent, so that investors could make properly informed investment decisions, Barclays and its employees repeatedly misled investors and kept to themselves critical information about the loans in the deals. Time and again, they knowingly chose to put investors at risk of harm in pursuit of additional profits. Barclays must be held accountable for its rampant fraud in marketing and selling these RMBS, and so must the individuals at the heart of the fraudulent scheme.”
“As the complaint alleges, Barclays knowingly sold investors RMBS backed by loans it knew were made to borrowers who were not creditworthy and which were supported by house appraisals it knew were inflated,” said Steven Perez, Special Agent in Charge at the Federal Housing Finance Agency Office of the Inspector General (FHFA-OIG). “The massive losses caused by the fraudulent behavior alleged in the complaint deeply affected not only banks and other financial institutions, including Federal Home Loan Banks, Fannie Mae, and Freddie Mac, but also the American taxpayer. We will continue to work with our law enforcement partners to hold those who have engaged in misconduct fully accountable for their actions.”
As alleged in the complaint, from 2005 through 2007, Barclays, through Menefee and Carroll among others, fraudulently sold tens of billions of dollars of RMBS, and repeatedly misled investors about the quality of the mortgages backing those deals. The alleged scheme involved no fewer than 36 RMBS deals, securitizing over $31 billion worth of subprime and Alt-A mortgage loans. The complaint alleges that in publicly-filed offering documents and in direct communications with investors and rating agencies, Barclays systematically and intentionally misrepresented key characteristics of the loans it included in these RMBS deals.
The United States alleges that in selling certificates in these deals, Barclays assured investors that it had excluded “unacceptable” loans and that the loans in the deals had been underwritten under loan origination guidelines intended to ensure the borrowers’ ability to pay. The complaint alleges Barclays represented to investors that property appraisals were reliable and that the properties were worth enough to avoid loss in the event of default. Barclays told investors that it conducted “robust,” “thorough,” and “comprehensive” due diligence on the loan pools it securitized, and that it did not securitize non-compliant, delinquent, or “scratch and dent” loans.
As alleged in the complaint, these statements were false. In reality, the complaint alleges, Barclays’ due diligence on these RMBS deals was a sham. When it did not skip due diligence altogether, Barclays routinely ignored or kept to itself due diligence results that showed the bank that a considerable percentage of the loans in the deals did not conform to the representations it made to investors. According to the complaint, Barclays sought to maximize the number of loans it securitized, regardless of how poor the quality of the loans.
The United States alleges that Barclays securitized thousands of loans (worth billions of dollars) that its due diligence vendors graded as materially defective, as well as hundreds more that were delinquent or in default at the time of securitization. Its vendors told it that large percentages of the loans they reviewed violated the lenders’ underwriting guidelines or the relevant law, or involved borrowers who lacked the ability to repay. Its vendors also told Barclays that the appraised values of significant percentages of the mortgaged properties were overstated and that thousands of those properties were underwater when they were securitized – meaning the properties were worth less than the loans on the properties. The complaint alleges that Barclays employees, including Menefee and Carroll, ignored or knowingly overrode these findings, waiving thousands of bad loans into the deals. On a number of occasions, Barclays even recycled into its deals defective loans it had kicked out of previous deals, without conducting any additional due diligence on the loans.
In general, the borrowers whose loans backed these deals were significantly less creditworthy than Barclays represented, and these loans defaulted at exceptionally high rates early in the life of the deals. In addition, as alleged in the complaint, mortgaged properties were systematically worth less than what Barclays represented to investors. The deals were dismal failures, as more than half of the underlying residential mortgages defaulted, resulting in billions of dollars in losses to investors. Even investors in AAA-rated tranches of these securities, which were rated as safe as investments in U.S. Treasury bonds, suffered or will suffer significant losses.
Menefee and Carroll were central to Barclays’ allegedly fraudulent scheme. Menefee was the head banker in charge of due diligence and securitization on all of Barclays’ subprime deals, and he decided which loans would be subject to due diligence, as well as which loans would be removed from loan pool purchases. Carroll was the head trader on all of Barclays’ principal subprime deals, and he determined which subprime loan pools Barclays would bid on, at what price, and on what terms. As alleged in the complaint, both men made representations about the characteristics of the loans backing the securities that they knew were false when they made them.
In charge of the case for the government are F. Franklin Amanat, Senior Counsel at the United States Attorney’s Office for the Eastern District of New York, along with Katharine E.G. Brooker, Evan P. Lestelle, and Josephine M. Vella, all Assistant United States Attorneys in Brooklyn.
To report RMBS fraud, go to: http://www.stopfraud.gov/rmbs.html.
United States Sues Barclays Bank to Recover Civil Penalties for Fraud in the Sale of Residential Mortgage-Backed SecuritiesRead the Press Release
BROOKLYN, NY – Earlier today, this Office filed a civil complaint against Barclays Bank plc and several of its United States affiliates (together, Barclays), alleging that Barclays caused billions of dollars of losses to investors by engaging in a fraudulent scheme to sell residential mortgage-backed securities (RMBS) supported by defective and misrepresented mortgage loans. As alleged in the complaint, from 2005 to 2007, Barclays personnel repeatedly misrepresented the characteristics of the loans backing securities they sold to investors throughout the world, who incurred billions of dollars in losses as a result of the fraudulent scheme. The suit also names as defendants two former Barclays executives: Paul K. Menefee, of Austin, Texas, who served as Barclays’ head banker on its subprime RMBS securitizations, and John T. Carroll, of Port Washington, New York, who served as Barclays’ head trader for subprime loan acquisitions.
The filing was announced by Attorney General Loretta E. Lynch, Robert L. Capers, United States Attorney for the Eastern District of New York, Bill Baer, Principal Deputy Associate Attorney General, Benjamin C. Mizer, Principal Deputy Assistant Attorney General for the Department of Justice’s Civil Division, and Steven Perez, Special Agent in Charge at the Federal Housing Finance Agency Office of the Inspector General (FHFA-OIG).
The detailed allegations in the complaint describe Barclays’, Menefee’s, and Carroll’s misconduct in connection with RMBS securitizations Barclays underwrote between 2005 and 2007. The complaint alleges violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), based on mail fraud, wire fraud, bank fraud, and other misconduct. FIRREA authorizes the Attorney General to seek civil penalties up to the amount of the gain to the violator or the losses suffered by persons other than the violator.
“Financial institutions like Barclays occupy a position of vital public trust,” said Attorney General Lynch. “Ordinary Americans depend on their assurances of transparency and legitimacy, and entrust these banks with their very livelihood. As alleged in this complaint, Barclays jeopardized billions of dollars of wealth through practices that were plainly irresponsible and dishonest. With this filing, we are sending a clear message that the Department of Justice will not tolerate the defrauding of investors and the American people.”
“Investors who bought RMBS from Barclays, and who suffered catastrophic losses as a result, included individuals and institutions that form the backbone of our communities,” said United States Attorney Capers. “Credit unions, pension plans, charitable and religious organizations, university endowments, and financial institutions, among others, including many in this district, invested tens of billions of dollars in securities that Barclays repeatedly assured them were safe investments. Instead of ensuring that their representations to investors were accurate and transparent, so that investors could make properly informed investment decisions, Barclays and its employees repeatedly misled investors and kept to themselves critical information about the loans in the deals. Time and again, they knowingly chose to put investors at risk of harm in pursuit of additional profits. Barclays must be held accountable for its rampant fraud in marketing and selling these RMBS, and so must the individuals at the heart of the fraudulent scheme.”
“The widespread fraud that investment banks like Barclays committed in the packaging and sale of residential mortgage-backed securities injured tens of thousands of investors and significantly contributed to the Financial Crisis of 2008,” said Principal Deputy Associate Attorney General Baer. “Millions of homeowners were left with homes they could not afford, leaving entire neighborhoods devastated. The government’s complaint alleges that Barclays fraudulently sold investors RMBS full of mortgages it knew were likely to fail, all while telling investors that the mortgages backing the securities were sound. Today’s complaint makes clear that the Department of Justice will continue to hold financial institutions, and the individuals who work for them, fully accountable for harming investors and the American public.”
“What is now often referred to as the ‘Great Recession’ started with the bursting of the housing bubble, followed by an enormous drop in U.S. home values, hundreds of bank failures, significant turbulence in financial markets, trillions of dollars of losses to investors, and, most devastatingly, a huge wave of home foreclosures,” said Principal Deputy Assistant Attorney General Mizer, the head of the Justice Department’s Civil Division. “All of these injuries, and more, were caused at least in part by the type of misconduct alleged in this lawsuit. We will continue holding both banks and their executives responsible for their role in contributing to this unfortunate period in our history.”
“As the complaint alleges, Barclays knowingly sold investors RMBS backed by loans it knew were made to borrowers who were not creditworthy and which were supported by house appraisals it knew were inflated,” said Special Agent in Charge Perez of FHFA-OIG. “The massive losses caused by the fraudulent behavior alleged in the complaint deeply affected not only banks and other financial institutions, including Federal Home Loan Banks, Fannie Mae, and Freddie Mac, but also the American taxpayer. We will continue to work with our law enforcement partners to hold those who have engaged in misconduct fully accountable for their actions.”
As alleged in the complaint, from 2005 through 2007, Barclays, through Menefee and Carroll among others, fraudulently sold tens of billions of dollars of RMBS, and repeatedly misled investors about the quality of the mortgages backing those deals. The alleged scheme involved no fewer than 36 RMBS deals, securitizing over $31 billion worth of subprime and Alt-A mortgage loans. The complaint alleges that in publicly-filed offering documents and in direct communications with investors and rating agencies, Barclays systematically and intentionally misrepresented key characteristics of the loans it included in these RMBS deals.
The United States alleges that in selling certificates in these deals, Barclays assured investors that it had excluded “unacceptable” loans and that the loans in the deals had been underwritten under loan origination guidelines intended to ensure the borrowers’ ability to pay. The complaint alleges Barclays represented to investors that property appraisals were reliable and that the properties were worth enough to avoid loss in the event of default. Barclays told investors that it conducted “robust,” “thorough,” and “comprehensive” due diligence on the loan pools it securitized, and that it did not securitize non-compliant, delinquent, or “scratch and dent” loans.
As alleged in the complaint, these statements were false. In reality, the complaint alleges, Barclays’ due diligence on these RMBS deals was a sham. When it did not skip due diligence altogether, Barclays routinely ignored or kept to itself due diligence results that showed the bank that a considerable percentage of the loans in the deals did not conform to the representations it made to investors. According to the complaint, Barclays sought to maximize the number of loans it securitized, regardless of how poor the quality of the loans.
The United States alleges that Barclays securitized thousands of loans (worth billions of dollars) that its due diligence vendors graded as materially defective, as well as hundreds more that were delinquent or in default at the time of securitization. Its vendors told it that large percentages of the loans they reviewed violated the lenders’ underwriting guidelines or the relevant law, or involved borrowers who lacked the ability to repay. Its vendors also told Barclays that the appraised values of significant percentages of the mortgaged properties were overstated and that thousands of those properties were underwater when they were securitized – meaning the properties were worth less than the loans on the properties. The complaint alleges that Barclays employees, including Menefee and Carroll, ignored or knowingly overrode these findings, waiving thousands of bad loans into the deals. On a number of occasions, Barclays even recycled into its deals defective loans it had kicked out of previous deals, without conducting any additional due diligence on the loans.
In general, the borrowers whose loans backed these deals were significantly less creditworthy than Barclays represented, and these loans defaulted at exceptionally high rates early in the life of the deals. In addition, as alleged in the complaint, mortgaged properties were systematically worth less than what Barclays represented to investors. The deals were dismal failures, as more than half of the underlying residential mortgages defaulted, resulting in billions of dollars in losses to investors. Even investors in AAA-rated tranches of these securities, which were rated as safe as investments in U.S. Treasury bonds, suffered or will suffer significant losses.
Menefee and Carroll were central to Barclays’ allegedly fraudulent scheme. Menefee was the head banker in charge of due diligence and securitization on all of Barclays’ subprime deals, and he decided which loans would be subject to due diligence, as well as which loans would be removed from loan pool purchases. Carroll was the head trader on all of Barclays’ principal subprime deals, and he determined which subprime loan pools Barclays would bid on, at what price, and on what terms. As alleged in the complaint, both men made representations about the characteristics of the loans backing the securities that they knew were false when they made them.
The government’s case is being handled by this Office’s Civil Division. Senior Counsel F. Franklin Amanat, and Assistant United States Attorneys Katharine E.G. Brooker, Evan P. Lestelle, and Josephine M. Vella are in charge of the prosecution. They are assisted by the Fraud Section of the Commercial Litigation Branch of the Justice Department’s Civil Division, as well as attorneys, analysts, and other individuals assigned to the Department of Justice’s RMBS Working Group, which also includes special agents from the FHFA-OIG. Mr. Capers thanks the FHFA-OIG for its assistance in conducting the investigation in this matter.
The complaint was filed under the auspices of the President’s Financial Fraud Enforcement Task Force, which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. Since its formation, the Task Force has made great strides in facilitating investigation and prosecution of financial crimes; in enhancing coordination and cooperation among federal, state, and local authorities; in addressing discrimination in the lending and financial markets; and in conducting outreach to the public, to victims, to financial institutions, and to other organizations.
The RMBS Working Group, part of the Task Force, was established by the Attorney General in late January 2012. The Working Group has been dedicated to initiating, organizing, and advancing new and existing investigations by federal and state authorities into fraud and abuse in the RMBS market that helped precipitate the 2008 Financial Crisis. The Working Group has to date recovered tens of billions of dollars in civil penalty settlements and consumer relief from banks and other entities that are alleged to have committed fraud in connection with the issuance of RMBS. To report RMBS fraud, go to: http://www.stopfraud.gov/rmbs.html.
The Individual Defendants:
PAUL K. MENEFEE
Age: 47
Residence: Austin, TexasJOHN T. CARROLL
Age: 49
Residence: Port Washington, New YorkE.D.N.Y. Docket No. 16-CV-7057 (KAM/RLM)
U.S. Attorney Reaches Settlements for Violations of the Federal Disadvantaged Business Enterprise RegulationsRead the Press Release
PHILADELPHIA – Louis D. Lappen, First Assistant United States Attorney for the Eastern District of Pennsylvania, announced today that the United States had reached a civil settlement with Ernest Bock and Sons, Inc. (“EBS”) resolving civil claims concerning EBS’ improper use of United States Department of Transportation (“DOT”) funds for two Southeastern Pennsylvania Transportation Authority (“SEPTA”) construction projects. In addition, he announced that the United States filed a civil lawsuit and entered into a consent judgment with Atrium International (“Atrium”), the DBE who improperly received USDOT funds in connection with the two SEPTA construction projects. To resolve the government’s civil claims against it, EBS has paid the United States $450,000 pursuant to the settlement agreement; Atrium has agreed to pay $45,000 pursuant to the consent judgment.
First Assistant Lappen stated: “EBS and Atrium subverted the aims of the U.S. Department of Transportation’s Disadvantaged Business Enterprise program and thus denied qualified DBEs the opportunity to participate in the program and to do the work that SEPTA commissioned. These civil resolutions demonstrate the Department of Justice’s commitment to ensure that contractors who receive federal funds will follow the law.”
“As evidenced by this settlement agreement entered into by EBS and the consent judgement with Atrium, we remain steadfast in our commitment to maintaining the integrity of the DOT’s DBE program,” said Douglas Shoemaker, regional Special Agent-in-Charge of DOT’s Office of Inspector General. “DBE fraud harms the integrity of the DBE program and law-abiding contractors, including many small businesses, by defeating efforts to ensure a level playing field in which all firms can compete fairly for contracts. Working with the Secretary of Transportation and other DOT leaders, and our law enforcement and prosecutorial colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse and violations of law.”
Background for the DOT’s DBE Programs
Beginning in 1980, the U.S. Department of Transportation issued regulations to increase the participation of minority and disadvantaged business enterprises in federally-funded construction contracts. To become certified as a DBE, a company must be owned and controlled by socially and economically disadvantaged individuals. Recipients of DOT construction grants, such as SEPTA, must establish a DBE program that sets goals for the percentage of a project’s work that should be awarded to DBEs (“DBE goals”).
General contractors may only count funds paid to DBEs toward the attainment of DBE goals if the DBEs performed a “commercially useful function.” A DBE does not perform a “commercially useful function” if its “role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation.” A DBE subcontractor performs a “commercially useful function” when it is responsible for the execution of the work of the contract; it actually performs, manages, and supervised the work involved; and it furnishes the supervision, labor and equipment necessary to perform its work.
EBS’ and Atrium’s Fraud
EBS and Atrium served as the general contractor and DBE contractor, respectively, on two projects commissioned by SEPTA that were funded by DOT: 1) the renovation of the Folcroft, Clifton-Alden and Morton rail stations (S788407) and 2) the R5 signage project (S781109). The DBE goals for the two projects were 13 percent and 7 percent, respectively.
Although Atrium was listed as the DBE on these two SEPTA projects, it never performed any useful commercial functions on the projects between 2010 and 2011. Instead, EBS selected and used a non-DBE subcontractor to complete the duties that Atrium was supposed to perform. Atrium was aware of this arrangement and accepted a commission for improperly lending its DBE status and acting as a “pass-through” on these projects. EBS falsely certified to SEPTA that Atrium was performing the delegated DBE tasks on the projects. Furthermore, Atrium submitted certified payrolls to the Department of Labor that falsely claimed that the individuals performing the work were its employees and acting under its supervision when that was not true. Atrium and EBS pursued that false reporting after they had been criticized in a 2010 Philadelphia Office of Comptroller’s Report for violating Philadelphia Minority Business Enterprise during a construction project at the Philadelphia Airport.
As part of its settlement, EBS has paid the government $450,000. Atrium International has agreed to pay the government $45,000 in connection with a stipulated consent judgment entered on December 21, 2016 by Judge O’Neill.
For the United States Attorney’s Office for the Eastern District of Pennsylvania, this investigation and settlement was handled by Assistant United States Attorney Eric D. Gill.
The claims settled by this settlement agreement and consent judgment are allegations only, and there has been no determination of liability.
Two Men Charged with Illegal Firearm Following Police Chase, CollisionRead the Press Release
KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that two men were charged in federal court today with illegally possessing a firearm following a head-on collision with a police vehicle in a Quik Trip parking lot while attempting to flee from officers.
Curlie Pruitt, III, 36, and Roy L. House, 38, addresses unknown, were charged in a criminal complaint filed in the U.S. District Court in Kansas City, Mo. Pruitt and House remain in federal custody pending a detention hearing, which has not yet been scheduled.
Today’s federal criminal complaint charges Pruitt and House with being felons in possession of a firearm.
According to an affidavit filed in support of the criminal complaint, Independence police officers were contacted by an employee at the Super 8 Hotel, 4031 S. Lynn Court Drive, Independence, at approximately 8:36 p.m. on Tuesday, Dec. 20, 2016, in regard to two men – later identified as Pruitt and House – who were acting suspiciously. The employee feared the men were going to rob the hotel, the affidavit says. They left the hotel but returned at approximately 9:05 p.m.
When officers arrived at the hotel, the affidavit says, Pruitt and House were in a blue Ford 500 and were leaving the area, with Pruitt driving. A police officer activated the emergency equipment on his patrol vehicle to initiate a traffic stop, however, Pruitt allegedly accelerated the vehicle and drove through the parking lot of the Quik Trip at 4024 S. Noland Road, Independence. As Pruitt’s vehicle continued at a high rate of speed through the parking lot, traveling toward S. Noland Road, it collided head-on with the patrol vehicle of another officer who was responding to assist. The collision was severe enough to disable both vehicles.
Pruitt immediately attempted to exit his vehicle and flee, the affidavit says, but was trapped by a third police vehicle that pinned the driver’s side door closed. Pruitt and House were placed under arrest. Officers found a loaded American Tactical .45-caliber semi-automatic handgun on the floor board of the front passenger seat area.
According to the affidavit, Pruitt and House are suspected of the armed robberies of the Road Star Gas Station, 11100 E. US 40 Hwy., Independence, on Dec. 11, 2016; Beeline Mini-Mart, 1005 Isley Blvd., Excelsior Springs, Mo., on Dec. 15, 2016; and Discount Smoke Shop, 4718 N.E. Vivion Rd., Kansas City, Mo., on Dec. 18, 2016.
Under federal law, it is illegal for anyone who has been convicted of a felony to be in possession of any firearm or ammunition. Pruitt has prior felony convictions for assault and robbery, as well as a prior federal conviction for being a felon in possession of a firearm for which he was sentenced to three years and one month in federal prison. House has prior convictions for assault and robbery as well as a federal conviction for carjacking for which he was sentenced to 11 years and five months in federal prison. House is currently serving a term of supervised release for that federal conviction.
Dickinson cautioned that the charge contained in this complaint is simply an accusation, and not evidence of guilt. Evidence supporting the charge must be presented to a federal trial jury, whose duty is to determine guilt or innocence.
This case is being prosecuted by Assistant U.S. Attorney Bruce Rhoades. It was investigated by the Independence, Mo., Police Department and the Bureau of Alcohol, Tobacco, Firearms and Explosives.
Two Indicted for Conspiracy to Commit Public Assistance FraudRead the Press Release
United States Attorney Andrew M. Luger announced an indictment charging KYLE LEWIS KIRSCHMAN, 52, and HOLLY KAY BLOOM, 37, with conspiring to commit public assistance fraud. The indictment was filed in U.S. District Court in Minneapolis on December 21, 2016.
According to the indictment, KIRSCHMAN owned a house in Mankato, Minn. The house was divided into two apartments. KIRSCHMAN occupied apartment 1. On June 13, 2006, KIRSCHMAN and BLOOM entered into a lease for BLOOM and her family to reside in apartment 2. KIRSCHMAN filed an application to have the apartment designated as Section 8 housing under the US Department of Housing and Urban Development (HUD) Section 8 program. Among the requirements for Section 8 approval were that no member of BLOOM and KIRSCHMAN’s immediate families were related and that apartment 2 was the BLOOM family’s only residence. Around the same time, BLOOM applied for the Supplemental Nutrition Assistance Program (SNAP) and Medical Assistance (MA) benefits. She did not list KIRSCHMAN as a member of her household.
According to the indictment, BLOOM claimed for at least six years that she lived in apartment 2. However, from at least June 2007 through February 2014, KIRSCHMAN and the BLOOM family lived together in Apartment 1 and 2. During this time, KIRSCHMAN was an immediate family member of a member of the BLOOM family and the BLOOM family lived in both apartments 1 and 2, so KIRSCHMAN unlawfully received Section 8 rental subsidies. Additionally, BLOOM unlawfully received SNAP and MA benefits during this time because KIRSCHMAN was a member of her household, was continuously employed, and earned an income that disqualified the household for any such benefits.
During the relevant time period, KIRSCHMAN and BLOOM received Section 8 rental subsidies for apartment 2 in the amount of $35,221. BLOOM received SNAP benefits totaling $25,216 and MA benefits totaling $14,624.
This case is the result of an investigation conducted by the Blue Earth County Sheriff’s Office Welfare Fraud Investigator and US Department of Housing and Urban Development OIG.
This case is being prosecuted by Assistant U.S. Attorney Manda Sertich.
Defendant Information:KYLE LEWIS KIRSCHMAN, 52
Mankato, Minn.Charges: • Conspiracy to commit public assistance fraud, 1 count
HOLLY KAY BLOOM, 37
Mankato, Minn.Charges: • Conspiracy to commit public assistance fraud, 1 count
The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
Troy Man Charged with Receiving and Possessing Child PornographyRead the Press Release
ALBANY, NEW YORK – Joshua C. Lozo, age 35, of Troy, New York, was ordered detained yesterday following his arrest on December 15 on charges of receiving and possessing child pornography.
The announcement was made by United States Attorney Richard S. Hartunian and Special Agent in Charge Andrew W. Vale of the Albany Division of the Federal Bureau of Investigation (FBI).
A criminal complaint alleges that between December 15, 2011 and December 15, 2016, Lozo used a peer-to-peer file-sharing program and the Internet to download multiple child pornography movies. The charges in the complaint are merely accusations. The defendant is presumed innocent until proven guilty.
On December 21, 2016, Lozo appeared in federal court in Albany before United States Magistrate Judge Christian F. Hummel, who ordered Lozo detained pending trial.
If convicted of receiving child pornography, Lozo faces at least 5 years and up to 20 years in prison. If convicted of possessing child pornography, Lozo faces up to 10 years in prison. Conviction on either charge carries a fine of up to $250,000, a term of post-imprisonment supervised release of at least 5 years and up to life, and mandatory registration as a sex offender. Sentences are imposed by a judge based on the particular statute the defendant is charged with violating, the United States Sentencing Guidelines and other factors.
This case is being investigated by the FBI and the New York State Police, and is being prosecuted by Assistant U.S. Attorney Rick Belliss.
Three People Indicted in Illegal Gambling OperationRead the Press Release
St. Louis, MO – Three individuals were indicted today in an indictment alleging that they organized and ran an illegal high-stakes sports betting operation, in part by utilizing a website on the internet.
The three individuals are also accused of engaging in money laundering and unlawful monetary transactions, including the purchase of a house and a vehicle using the proceeds of their crimes.
The indictment alleges that two of these individuals filed false tax returns trying to conceal their crimes, and a third committed perjury by filing a false declaration before the United States District Court for the Eastern District of Missouri.
Samuel Douglas Hazer, Florence, Alabama; Carol Jean Hazer, Farmington, Missouri; and Joseph Mahfood, St. Louis, Missouri; were indicted on multiple charges including illegal gambling business, interstate activity in furtherance of gambling, money laundering, unlawful monetary transactions, perjury and filing false tax returns.
If convicted, these charges carry maximum penalties up to 20 years in prison and/or fines up to $250,000. In determining the actual sentences, a judge is required to consider the U.S. Sentencing Guidelines, which provide recommended sentencing ranges.
This case was investigated by the Federal Bureau of Investigation and Internal Revenue Service Criminal Investigation. Assistant United States Attorney Richard Finneran is handling the case for the U.S. Attorney’s Office.
As is always the case, charges set forth in an indictment are merely accusations and do not constitute proof of guilt. Every defendant is presumed to be innocent unless and until proven guilty.
Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act ChargesRead the Press Release
Companies Agree to Pay Nearly $520 Million to U.S. Criminal and Regulatory Authorities, Representing the Largest Criminal Fine Imposed Against a Pharmaceutical Company for Violations of the FCPA
WASHINGTON – Teva Pharmaceutical Industries Ltd. (Teva), the world’s largest manufacturer of generic pharmaceutical products, and its wholly-owned Russian subsidiary, Teva LLC (Teva Russia), agreed to resolve criminal charges and to pay a criminal penalty of more than $283 million in connection with schemes involving the bribery of government officials in Russia, Ukraine and Mexico in violation of the Foreign Corrupt Practices Act (FCPA).
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Assistant Special Agent in Charge George L. Piro of the FBI’s Miami Field Office made the announcement.
“Teva and its subsidiaries paid millions of dollars in bribes to government officials in various countries, and intentionally failed to implement a system of internal controls that would prevent bribery,” said Assistant Attorney General Caldwell. “Companies that compete fairly, ethically and honestly deserve a level playing field, and we will continue to prosecute those who undermine that goal.”
“No matter where corruption occurs, the FBI and our global partners are committed to diligently rooting out the corruption that betrays the public trust and threatens a fair economy for all,” said Special Agent in Charge Piro.
According to the companies’ admissions, Teva executives and Teva Russia employees paid bribes to a high-ranking Russian government official intending to influence the official to use his authority to increase sales of Teva’s multiple sclerosis drug, Copaxone, in annual drug purchase auctions held by the Russian Ministry of Health. The corrupt arrangement occurred at the same time that the Russian government was seeking to reduce the amount spent on costly foreign pharmaceutical products, such as Copaxone. Between 2010 and at least 2012, pursuant to an agreement with a repackaging and distribution company owned by the Russian government official, Teva earned more than $200 million in profits on Copaxone sales to the Russian government. Moreover, the Russian official earned approximately $65 million in corrupt profits through inflated profit margins granted to the official’s company.
Teva also admitted to paying bribes to a senior government official within the Ukrainian Ministry of Health to influence the Ukrainian government’s approval of Teva drug registrations, which were necessary for the company to market and sell its products in the country. Between 2001 and 2011, Teva engaged the official as the company’s “registration consultant,” paid him a monthly fee and provided him with travel and other things of value totaling approximately $200,000. In exchange, the official used his official position and influence within the Ukrainian government to influence the registration in Ukraine of Teva pharmaceutical products, including Copaxone and insulins.
In addition, Teva admitted that it failed to implement an adequate system of internal accounting controls and failed to enforce the controls it had in place at its Mexican subsidiary, which allowed bribes to be paid by the subsidiary to doctors employed by the Mexican government. Teva admitted that its Mexican subsidiary had been bribing these doctors to prescribe Copaxone since at least 2005. Teva executives in Israel responsible for the development of the company’s anti-corruption compliance program in 2009 had been aware of the bribes paid to government doctors in Mexico. Nevertheless, Teva executives approved policies and procedures that they knew were not sufficient to meet the risks posed by Teva’s business and were not adequate to prevent or detect payments to foreign officials. Teva also admitted that its executives put in place managers to oversee the compliance function who were unable or unwilling to enforce the anti-corruption policies that had been put in place.
Teva entered into a deferred prosecution agreement (DPA) in connection with a criminal information, filed today in the Southern District of Florida, charging the company with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of failing to implement adequate internal controls. Pursuant to its agreement with the department, Teva will pay a total criminal penalty of $283,177,348. Teva also agreed to continue to cooperate with the department’s investigation, enhance its compliance program, implement rigorous internal controls and retain an independent corporate compliance monitor for a term of three years.
Teva Russia has signed a plea agreement in which it has agreed to plead guilty to a one-count criminal information, also filed today in the Southern District of Florida, charging the company with conspiring to violate the anti-bribery provisions of the FCPA. The plea agreement is subject to court approval. The case was assigned to U.S. District Judge Kathleen M. Williams of the Southern District of Florida and Teva Russia's initial court appearance has been scheduled for January 12, 2017.
In related proceedings, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against Teva, whereby the company agreed to pay approximately $236 million in disgorgement to the SEC, including prejudgment interest. Thus, the combined total amount of U.S. criminal and regulatory penalties to be paid by Teva is nearly $520 million.
The Criminal Division’s Fraud Section reached this resolution based on a number of factors, including the fact that Teva did not timely voluntarily self-disclose the conduct, but did cooperate with the department’s investigation after the SEC served it with a subpoena. Teva received a 20 percent discount off the low end of the U.S. Sentencing Guidelines fine range because of its substantial cooperation and remediation. The company, however, did not receive full cooperation credit because of issues that resulted in delays to the early stages of the Fraud Section’s investigation, including vastly overbroad assertions of attorney-client privilege and not producing documents on a timely basis in response to certain Fraud Section document requests. Because many of the company’s compliance enhancements were more recent, and therefore have not been tested, the DPA imposes an independent compliance monitor for a term of three years.
The FBI’s International Corruption Unit and Miami Field Office investigated the case. Fraud Section Trial Attorneys Rohan A. Virginkar and John-Alex Romano prosecuted the case. The Fraud Section appreciates the significant cooperation and assistance provided by the SEC in this matter. The Criminal Division’s Office of International Affairs and the Mexican Attorney General’s Office (Procuradura General de la República or PGR) also provided assistance in this matter.
The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act ChargesRead the Press Release
Teva Pharmaceutical Industries Ltd. (Teva), the world’s largest manufacturer of generic pharmaceutical products, and its wholly-owned Russian subsidiary, Teva LLC (Teva Russia), agreed to resolve criminal charges and to pay a criminal penalty of more than $283 million in connection with schemes involving the bribery of government officials in Russia, Ukraine and Mexico in violation of the Foreign Corrupt Practices Act (FCPA).
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Director Stephen Richardson of the FBI’s Criminal Investigative Division, and Assistant Special Agent in Charge William J. Maddalena of the FBI’s Miami Field Office made the announcement.
“Teva and its subsidiaries paid millions of dollars in bribes to government officials in various countries, and intentionally failed to implement a system of internal controls that would prevent bribery,” said Assistant Attorney General Caldwell. “Companies that compete fairly, ethically and honestly deserve a level playing field, and we will continue to prosecute those who undermine that goal.”
“No matter where corruption occurs, the FBI and our global partners are committed to diligently rooting out the corruption that betrays the public trust and threatens a fair economy for all,” said FBI Assistant Director Stephen Richardson.
“As demonstrated by this case, the Foreign Corrupt Practices Act has a long reach,” said William J. Maddalena, Assistant Special Agent in Charge, FBI Miami. “Teva’s egregious attempt to enrich themselves failed and they will now pay a tough penalty.”
According to the companies’ admissions, Teva executives and Teva Russia employees paid bribes to a high-ranking Russian government official intending to influence the official to use his authority to increase sales of Teva’s multiple sclerosis drug, Copaxone, in annual drug purchase auctions held by the Russian Ministry of Health. The corrupt arrangement occurred at the same time that the Russian government was seeking to reduce the amount spent on costly foreign pharmaceutical products, such as Copaxone. Between 2010 and at least 2012, pursuant to an agreement with a repackaging and distribution company owned by the Russian government official, Teva earned more than $200 million in profits on Copaxone sales to the Russian government. Moreover, the Russian official earned approximately $65 million in corrupt profits through inflated profit margins granted to the official’s company.
Teva also admitted to paying bribes to a senior government official within the Ukrainian Ministry of Health to influence the Ukrainian government’s approval of Teva drug registrations, which were necessary for the company to market and sell its products in the country. Between 2001 and 2011, Teva engaged the official as the company’s “registration consultant,” paid him a monthly fee and provided him with travel and other things of value totaling approximately $200,000. In exchange, the official used his official position and influence within the Ukrainian government to influence the registration in Ukraine of Teva pharmaceutical products, including Copaxone and insulins.
In addition, Teva admitted that it failed to implement an adequate system of internal accounting controls and failed to enforce the controls it had in place at its Mexican subsidiary, which allowed bribes to be paid by the subsidiary to doctors employed by the Mexican government. Teva admitted that its Mexican subsidiary had been bribing these doctors to prescribe Copaxone since at least 2005. Teva executives in Israel responsible for the development of the company’s anti-corruption compliance program in 2009 had been aware of the bribes paid to government doctors in Mexico. Nevertheless, Teva executives approved policies and procedures that they knew were not sufficient to meet the risks posed by Teva’s business and were not adequate to prevent or detect payments to foreign officials. Teva also admitted that its executives put in place managers to oversee the compliance function who were unable or unwilling to enforce the anti-corruption policies that had been put in place.
Teva entered into a deferred prosecution agreement (DPA) in connection with a criminal information, filed today in the Southern District of Florida, charging the company with one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of failing to implement adequate internal controls. Pursuant to its agreement with the department, Teva will pay a total criminal penalty of $283,177,348. Teva also agreed to continue to cooperate with the department’s investigation, enhance its compliance program, implement rigorous internal controls and retain an independent corporate compliance monitor for a term of three years.
Teva Russia has signed a plea agreement in which it has agreed to plead guilty to a one-count criminal information, also filed today in the Southern District of Florida, charging the company with conspiring to violate the anti-bribery provisions of the FCPA. The plea agreement is subject to court approval. The case was assigned to U.S. District Judge Kathleen M. Williams of the Southern District of Florida and Teva Russia's initial court appearance has been scheduled for January 12, 2017.
In related proceedings, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against Teva, whereby the company agreed to pay approximately $236 million in disgorgement to the SEC, including prejudgment interest. Thus, the combined total amount of U.S. criminal and regulatory penalties to be paid by Teva is nearly $520 million.
The Criminal Division’s Fraud Section reached this resolution based on a number of factors, including the fact that Teva did not timely voluntarily self-disclose the conduct, but did cooperate with the department’s investigation after the SEC served it with a subpoena. Teva received a 20 percent discount off the low end of the U.S. Sentencing Guidelines fine range because of its substantial cooperation and remediation. The company, however, did not receive full cooperation credit because of issues that resulted in delays to the early stages of the Fraud Section’s investigation, including vastly overbroad assertions of attorney-client privilege and not producing documents on a timely basis in response to certain Fraud Section document requests. Because many of the company’s compliance enhancements were more recent, and therefore have not been tested, the DPA imposes an independent compliance monitor for a term of three years.
The FBI’s International Corruption Unit and Miami Field Office investigated the case. Fraud Section Trial Attorneys Rohan A. Virginkar and John-Alex Romano prosecuted the case. The Fraud Section appreciates the significant cooperation and assistance provided by the SEC in this matter. The Criminal Division’s Office of International Affairs and the Mexican Attorney General’s Office (Procuradura General de la República or PGR) also provided assistance in this matter.
The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.
Suffolk Man Charged with Attempting to Provide Material Support to ISILRead the Press Release
NORFOLK, Va. – Lionel Nelson Williams, 26, of Suffolk, was charged today with attempting to provide material support to the Islamic State of Iraq and the Levant (ISIL), a designated foreign terrorist organization. Williams was arrested yesterday in Suffolk and will have his detention and preliminary hearings on Tuesday morning at the federal courthouse in Norfolk.
According to the affidavit in support of the criminal complaint, in October and November 2016, Williams sent money to a person he believed was collecting money for ISIL to purchase weapons and ammunition for ISIL fighters. Williams also posted content on social media indicating his support for ISIL and attacks targeting police officers, military, and armed civilians, according to the complaint affidavit. In addition, the investigation revealed that Williams ordered an AK-47 assault rifle the day after the terror attack in San Bernardino, California, in December 2015, and two firearms, including an AK-47 and a semi-automatic handgun, were recovered in a post-arrest search of Williams’ residence.
Williams faces a maximum penalty of 20 years in prison if convicted. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.
Dana J. Boente, U.S. Attorney for the Eastern District of Virginia; Mary B. McCord, Acting Assistant Attorney General for National Security; and Martin W. Culbreth, Special Agent in Charge of the FBI’s Norfolk Field Office, made the announcement. Assistant U.S. Attorneys Joseph E. DePadilla and Andrew C. Bosse and Trial Attorney Alicia Cook of the National Security Division’s Counterterrorism Section are prosecuting the case.
This case was investigated by the Norfolk Joint Terrorism Task Force and the Suffolk Police Department.
A copy of this press release may be found on the website of the U.S. Attorney’s Office for the Eastern District of Virginia. Related court documents and information may be found on the website of the District Court for the Eastern District of Virginia or on PACER by searching for Case No. 2:16-mj-524.
Southern Illinois Residents Sentenced for Methamphetamine OffenseRead the Press Release
Troy A. Smith, 45, of Jonesboro, and Jeremiah Lee Jae Sadler, a/k/a "Jeremiah L. Sadler," 37, of Marion, were recently sentenced to federal prison on methamphetamine charges, Donald S. Boyce, United States Attorney for the Southern District of Illinois, announced today.
Smith and Sadler had previously pled guilty to a one-count indictment charging them with conspiracy to distribute methamphetamine. On December 20, 2016, Smith was sentenced to 135 months imprisonment, 3 years supervised release, and was fined $200.00. On December 21, 2016, Sadler was sentenced to 121 months imprisonment, 3 years supervised release, and was fined $200.00. At sentencing, the District Court found Smith was responsible for the distribution of 1.24 kilograms of "ice" and that Sadler was responsible for the distribution of 389 grams of "ice." Ice is methamphetamine which has a purity level of at least 80%. The offense occurred between 2015 and February 2016, in Union and Williamson Counties.
The investigation was conducted by the Southern Illinois Enforcement Group, Southern Illinois Drug Task Force, and Drug Enforcement Administration. The Union and Williamson County States Attorney’s Offices also assisted in the investigation.
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