Financial Fraud: Eric Lemoyne Willis Indicted On Theft of Government Property, Aggravated Identity Theft, and Wire Fraud

December 22, 2018 FraudsWatch Leave a comment

Former Social Security Employee of West Sacramento and North Carolina Man Indicted on Conspiracy and Fraud Charges

Conspiracy Involved Theft of Government Property, Aggravated Identity Theft, and Wire Fraud

SACRAMENTO, Calif. — On Thursday, a federal grand jury returned a 13-count indictment against Eric Lemoyne Willis, 42, of West Sacramento, and Darron Dimitri Ross, 33, of Charlotte, North Carolina, charging them with conspiracy to defraud and commit crimes against the United States, theft of government property, aggravated identity theft, and wire fraud, U.S. Attorney McGregor W. Scott announced.

According to court documents, Willis and Ross allegedly conspired to steal public money from the Social Security Administration (SSA). Willis worked as an SSA Operation Supervisor in Sacramento and Lodi from 2015 until his departure in January 2018. During this timeframe, Willis used his authority as an SSA employee to access the confidential Social Security records of numerous Social Security beneficiaries. These records contained personally identifiable information (PII) including names, addresses, social security numbers, dates of birth, account numbers, family information, and benefit payment amounts. Willis would seek out PII for beneficiaries who used direct deposit for payment of large benefits. Willis then gave this PII to Ross who resided in North Carolina.

Ross’s role in these crimes included calling numerous SSA field offices across the country and using the stolen PII to impersonate the beneficiaries. Ross also opened at least 44 online bank accounts under fraudulent identities to receive diverted SSA benefit payments. If Ross succeeded in convincing an SSA representative that he was the beneficiary, he would request that the beneficiary’s direct deposit account be changed to one of Ross’s fraudulent accounts. The SSA then proceeded to deposit benefit payments into Ross’s account until the fraud was detected. Ross was then free to withdraw the funds at ATMs and spend the money using debit cards. Ross also transferred a portion of the stolen proceeds to Willis for his participation in these crimes.

SSA has identified at least 148 beneficiaries targeted by these crimes, and the total fraud loss suffered by SSA has exceeded $450,000. Willis and Ross spent the proceeds of their crimes on, among other things, trips to Las Vegas and luxury items including Rolex watches.

This case is the product of an investigation by the Social Security Administration – Office of the Inspector General and the Federal Bureau of Investigation. Special Assistant U.S. Attorney Robert J. Artuz is prosecuting the case.

Federal agents arrested Willis and Ross last week based on a criminal complaint. Willis was released on bond in Sacramento, and Ross was detained pending his appearance in the Eastern District of California.

If convicted of wire fraud, Willis and Ross face a maximum statutory penalty of 20 years in prison and a $250,000 fine. If convicted of aggravated identity theft, they each face a mandatory sentence of two years in prison consecutive to any other sentence imposed. The maximum sentence for theft of government property is 10 years in prison and a $250,000 fine. The maximum sentence for conspiracy is five years in prison and a $250,000 fine. 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 defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

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Intellectual Property: Hongjin Tan Was Arrestedand charged with theft of trade secrets

December 22, 2018 FraudsWatch Leave a comment

Chinese National Charged With Committing Theft Of Trade Secrets

TULSA, Okla. – Hongjin Tan, a 35 year old Chinese national and U.S. legal permanent resident, was arrested on Dec. 20 and charged with theft of trade secrets. Tan is alleged to have stolen the trade secrets from his employer, a U.S. petroleum company.

The announcement was made by Assistant Attorney General for National Security John C. Demers, U.S. Attorney Trent Shores for the Northern District of Oklahoma, and Special Agent in Charge Kathryn Peterson of the FBI Oklahoma City Field Office.

“The United States filed a criminal complaint against a Chinese national alleging the theft of intellectual property from a company with significant operations in Oklahoma,” said U.S. Attorney Shores. “The value of the trade secrets in this case is estimated to be more than $1 billion dollars. Theft of critical research, development, and other intellectual property harms the economic prosperity and security of the United States. My office and the Federal Bureau of Investigation will utilize all tools available to respond to these types of threats. We will protect Oklahomans and Oklahoma businesses by prosecuting those who violate the law.”

“Hongjin Tan allegedly stole trade secrets related to a product worth more than $1 billion from his U.S.-based petroleum company employer, to use for the benefit of a Chinese company where he was offered employment,” said Assistant Attorney General Demers. “The theft of intellectual property harms American companies and American workers. As our recent cases show, all too often these thefts involve the Chinese government or Chinese companies. The Department recently launched an initiative to protect our economy from such illegal practices emanating from China, and we continue to make this a top priority.”

Tan made an initial appearance Thursday before U.S. Magistrate Judge Jodi F. Jayne. A preliminary and detention hearing has been set for Dec. 26.

According to the criminal complaint, Tan allegedly stole trade secrets from a U.S.-based petroleum company regarding the manufacture of a “research and development downstream energy market product.” The company’s methods of developing the product are of great value, both economically and to competitors. Until recently, Tan worked for the petroleum company and allegedly downloaded hundreds of files, including files related to the manufacture of the product. Investigators allege that Tan was offered a job at a company in China where he planned to use these files to benefit his new employer. Tan has been residing in the United States for the past 12 years.

A criminal complaint is merely an allegation, and the defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The FBI conducted this investigation.

Assistant U.S. Attorney Joel-lyn A. McCormick of the Northern District of Oklahoma is prosecuting the case, with assistance from Trial Attorneys Matthew R. Walczewski and Matthew J. McKenzie of the National Security Division’s Counterintelligence and Export Control Section (CES) and Assistant Deputy Chief Brian J. Resler of the Criminal Division’s Computer Crimes and Intellectual Property Section (CCIPS).

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Financial Fraud: ZHU HUA And ZHANG SHILONG Indicted For Thefts From Managed Service Providers

December 20, 2018 FraudsWatch Leave a comment

Two Chinese Hackers Associated With The Ministry Of State Security Charged With Global Computer Intrusion Campaigns Targeting Intellectual Property And Confidential Business Information

Defendants Were Members of the APT 10 Hacking Group Who Acted in Association with the Tianjin State Security Bureau and Engaged in Global Computer Intrusions for More Than a Decade, Continuing into 2018, Including Thefts from Managed Service Providers

Rod J. Rosenstein, the Deputy Attorney General of the United States, Geoffrey S. Berman, the United States Attorney for the Southern District of New York, Christopher A. Wray, the Director of the Federal Bureau of Investigation (“FBI”), Dermot F. O’Reilly, Director of the Defense Criminal Investigative Service (“DCIS”) of the U.S. Department of Defense, and John C. Demers, the Assistant Attorney General for National Security, announced today the unsealing of an indictment charging ZHU HUA (朱华), a/k/a “Afwar,” a/k/a “CVNX,” a/k/a “Alayos,” a/k/a “Godkiller,” and ZHANG SHILONG (张士龙), a/k/a “Baobeilong,” a/k/a “Zhang Jianguo,” a/k/a “Atreexp,” both nationals of the People’s Republic of China (“China”), with conspiracy to commit computer intrusions, conspiracy to commit wire fraud, and aggravated identity theft.

ZHU and ZHANG were members of a hacking group operating in China known within the cyber security community as Advanced Persistent Threat 10 (the “APT10 Group”). The defendants worked for a company in China called Huaying Haitai Science and Technology Development Company (“Huaying Haitai”) and acted in association with the Chinese Ministry of State Security’s Tianjin State Security Bureau.

Through their involvement with the APT10 Group, from at least in or about 2006 up to and including in or about 2018, ZHU and ZHANG conducted global campaigns of computer intrusions targeting, among other data, intellectual property and confidential business and technological information at managed service providers (“MSPs”), which are companies that remotely manage the information technology infrastructure of businesses and governments around the world, more than 45 technology companies in at least a dozen U.S. states, and U.S. government agencies. The APT10 Group targeted a diverse array of commercial activity, industries, and technologies, including aviation, satellite, and maritime technology, industrial factory automation, automotive supplies, laboratory instruments, banking and finance, telecommunications and consumer electronics, computer processor technology, information technology services, packaging, consulting, medical equipment, healthcare, biotechnology, pharmaceutical manufacturing, mining, and oil and gas exploration and production. Among other things, ZHU and ZHANG registered IT infrastructure that the APT10 Group used for its intrusions and engaged in illegal hacking operations.

Rod J. Rosenstein, the Deputy Attorney General of the United States said: “The indictment alleges that the defendants were part of a group that hacked computers in at least a dozen countries and gave China’s intelligence service access to sensitive business information. This is outright cheating and theft, and it gives China an unfair advantage at the expense of law-abiding businesses and countries that follow the international rules in return for the privilege of participating in the global economic system.”

Manhattan U.S. Attorney Geoffrey S. Berman said: “It is galling that American companies and government agencies spent years of research and countless dollars to develop their intellectual property, while the defendants simply stole it and got it for free. As a nation, we cannot, and will not, allow such brazen thievery to go unchecked.”

FBI Director Christopher A. Wray said: “Healthy competition is good for the global economy, but criminal conduct is not. This is conduct that hurts American businesses, American jobs, and American consumers. No country should be able to flout the rule of law – so we’re going to keep calling out this behavior for what it is: illegal, unethical, and unfair. It’s going to take all of us working together to protect our economic security and our way of life, because the American people deserve no less.”

DCIS Director Dermot F. O’Reilly said: “The theft of sensitive defense technology and cyber intrusions are major national security concerns and top investigative priorities for the DCIS. The indictments unsealed today are the direct result of a joint investigative effort between DCIS and its law enforcement partners to vigorously investigate individuals and groups who illegally access information technology systems of the U.S. Department of Defense and the Defense Industrial Base. DCIS remains vigilant in our efforts to safeguard the integrity of the Department of Defense and its enterprise of information technology systems.”

According to the allegations in the Indictment unsealed today in Manhattan federal court:

Overview

ZHU HUA (朱华), a/k/a “Afwar,” a/k/a “CVNX,” a/k/a “Alayos,” a/k/a “Godkiller,” and ZHANG SHILONG (张士龙), a/k/a “Baobeilong,” a/k/a “Zhang Jianguo,” a/k/a “Atreexp,” the defendants, both nationals of China, were members of a hacking group operating in China known within the cyber security community as the APT10 Group, or alternatively as “Red Apollo,” “CVNX,” “Stone Panda,” “MenuPass,” and “POTASSIUM.” The defendants worked for Huaying Haitai in Tianjin, China, and acted in association with the Chinese Ministry of State Security’s Tianjin State Security Bureau. From at least in or about 2006 up to and including in or about 2018, members of the APT10 Group, including ZHU and ZHANG, conducted extensive campaigns of intrusions into computer systems around the world. The APT10 Group used some of the same online facilities to initiate, facilitate, and execute its campaigns during the conspiracy.

Most recently, beginning at least in or about 2014, members of the APT10 Group, including ZHU and ZHANG, engaged in an intrusion campaign to obtain unauthorized access to the computers and computer networks of MSPs for businesses and governments around the world (the “MSP Theft Campaign”). The APT10 Group targeted MSPs in order to leverage the MSPs’ networks to gain unauthorized access to the computers and computer networks of the MSPs’ clients and to steal, among other data, intellectual property and confidential business data on a global scale. For example, through the MSP Theft Campaign, the APT10 Group obtained unauthorized access to the computers of an MSP that had offices in the Southern District of New York and compromised the data of that MSP and certain of its clients involved in banking and finance, telecommunications and consumer electronics, medical equipment, packaging, manufacturing, consulting, healthcare, biotechnology, automotive, oil and gas exploration, and mining.

Earlier, beginning in or about 2006, members of the APT10 Group, including ZHU and ZHANG, engaged in an intrusion campaign to obtain unauthorized access to the computers and computer networks of more than 45 technology companies and U.S. government agencies, in order to steal information and data concerning a number of technologies (the “Technology Theft Campaign”). Through the Technology Theft Campaign, the APT10 Group stole hundreds of gigabytes of sensitive data and targeted the computers of victim companies involved in aviation, space and satellite technology, manufacturing technology, pharmaceutical technology, oil and gas exploration and production technology, communications technology, computer processor technology, and maritime technology.

In furtherance of the APT10 Group’s intrusion campaigns, ZHU and ZHANG, among other things, worked for Huaying Haitai and registered malicious domains and infrastructure. In addition, ZHU, a penetration tester, engaged in hacking operations on behalf of the APT10 Group and recruited other individuals to the APT10 Group, and ZHANG developed and tested malware for the APT10 Group.

The MSP Theft Campaign

In furtherance of the MSP Theft Campaign, ZHU, ZHANG, and their coconspirators in the APT10 Group engaged in the following criminal conduct:

First, after the APT10 Group gained unauthorized access into the computers of an MSP, the APT10 Group installed multiple variants of malware on MSP computers around the world. To avoid antivirus detection, the malware was installed using malicious files that masqueraded as legitimate files associated with the victim computer’s operating system. Such malware enabled members of the APT10 Group to monitor victims’ computers remotely and steal user credentials.
Second, after stealing administrative credentials from computers of an MSP, the APT10 Group used those stolen credentials to connect to other systems within an MSP and its clients’ networks. This enabled the APT10 Group to move laterally through an MSP’s network and its clients’ networks and to compromise victim computers that were not yet infected with malware.
Third, after identifying data of interest on a compromised computer and packaging it for exfiltration using encrypted archives, the APT10 Group used stolen credentials to move the data of an MSP client to one or more other compromised computers of the MSP or its other clients’ networks before exfiltrating the data to other computers controlled by the APT10 Group.

Over the course of the MSP Theft Campaign, ZHU, ZHANG, and their coconspirators in the APT10 Group successfully obtained unauthorized access to computers providing services to or belonging to victim companies located in at least 12 countries, including Brazil, Canada, Finland, France, Germany, India, Japan, Sweden, Switzerland, the United Arab Emirates, the United Kingdom, and the United States. The victim companies included at least the following: a global financial institution, three telecommunications and/or consumer electronics companies; three companies involved in commercial or industrial manufacturing; two consulting companies; a healthcare company; a biotechnology company; a mining company; an automotive supplier company; and a drilling company.

The Technology Theft Campaign

Over the course of the Technology Theft Campaign, which began in or about 2006, ZHU, ZHANG, and their coconspirators in the APT10 Group successfully obtained unauthorized access to the computers of more than 45 technology companies and U.S. Government agencies based in at least 12 states, including Arizona, California, Connecticut, Florida, Maryland, New York, Ohio, Pennsylvania, Texas, Utah, Virginia, and Wisconsin. The APT10 Group stole hundreds of gigabytes of sensitive data and information from the victims’ computer systems, including from at least the following victims: seven companies involved in aviation, space and/or satellite technology; three companies involved in communications technology; three companies involved in manufacturing advanced electronic systems and/or laboratory analytical instruments; a company involved in maritime technology; a company involved in oil and gas drilling, production, and processing; and the NASA Goddard Space Center and Jet Propulsion Laboratory. In addition to those victims who had information stolen, ZHU, ZHANG, and their coconspirators successfully obtained unauthorized access to computers belonging to more than 25 other technology-related companies involved in, among other things, industrial factory automation, radar technology, oil exploration, information technology services, pharmaceutical manufacturing, and computer processor technology, as well as the U.S. Department of Energy’s Lawrence Berkeley National Laboratory.

Finally, the APT10 Group compromised more than 40 computers in order to steal sensitive data belonging to the Navy, including the names, Social Security numbers, dates of birth, salary information, personal phone numbers, and email addresses of more than 100,000 Navy personnel.

ZHU HUA (朱华), a/k/a “Afwar,” a/k/a “CVNX,” a/k/a “Alayos,” a/k/a “Godkiller,” and ZHANG SHILONG (张士龙), a/k/a “Baobeilong,” a/k/a “Zhang Jianguo,” a/k/a “Atreexp,” the defendants, are citizens and residents of China. ZHU and ZHANG are each charged with one count of conspiracy to commit computer intrusions, which carries a maximum sentence of five years in prison; one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison; and one count of aggravated identity theft, which carries a mandatory sentence of two years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the assigned judge.

The case was investigated by the FBI, including the New Orleans, New Haven, Houston, New York, Sacramento, and San Antonio Field Offices; DCIS; and the U.S. Naval Criminal Investigative Service (“NCIS”). Mr. Berman praised the outstanding investigative work of, and collaboration among, the FBI, DCIS, and NCIS. He also thanked the United States Attorney’s Office for the District of Connecticut and the Department of Defense’s Computer Forensic Laboratory for their assistance in the investigation.

The case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorney Sagar K. Ravi is in charge of the prosecution, with assistance provided by Trial Attorney Matthew Chang of the National Security Division’s Counterintelligence and Export Control Section.

The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.

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Financial Fraud: Robin Ann Bertelli Sentenced For One Count of Bank Fraud And One Count Of Aggravated Identity Theft

December 20, 2018 FraudsWatch Leave a comment

Woman Sentenced to Seven Years in Federal Prison After Stealing from an Elderly Widow and Her Deceased Son, a Former Navy SEAL

Stole Nearly $200,000, Including an Inheritance the Navy SEAL Received After He Reportedly Drowned in Puerto Rico

A woman who stole the identities of an elderly woman and her deceased son, a former Navy SEAL, in order to withdraw nearly $200,000 from their bank accounts, was sentenced December 18, 2018, to seven years in federal prison.

Robin Ann Bertelli, age 61, from Cedar Rapids, Iowa, received the prison term after a May 17, 2018 guilty plea to one count of bank fraud and one count of aggravated identity theft.

In a plea agreement, and at her plea hearing, Bertelli admitted that, in 2013 she began a romantic relationship a former Navy SEAL, who resided with his elderly and widowed mother in rural Central City, Iowa. Bertelli soon moved into the home the widow and her son shared. The widow was unable to walk to her mailbox to get her mail, and Bertelli stole mail, including mail from the widow’s financial institution, Collins Community Credit Union (“CCCU”).

In December 2015, the former Navy SEAL received an inheritance of approximately $18,000 from a relative and deposited this inheritance into his checking account at CCCU. In February 2016, defendant and the former Navy SEAL travelled together to Puerto Rico for a vacation. On that trip, the former Navy SEAL unexpectedly died. Bertelli reported to others that the former Navy SEAL went swimming, hit his head on a rock, and accidentally drowned.

Family members of the former Navy SEAL ultimately discovered that Bertelli had stolen blank CCCU checks from the former Navy SEAL and his mother. From July 2013 through September 2016, Bertelli fraudulently made over 60 checks payable to herself, inserted a dollar amount, and forged their signatures. Bertelli deposited these forged checks into her own account at NXT Bank, causing transfers of funds from the CCCU accounts of the former Navy SEAL and his mother into Bertelli’s account at NXT Bank. The three transfers from the former Navy SEAL’s CCCU account all occurred after the date of his death. In total, Bertelli stole a total of $192,500 from the CCCU accounts of the former Navy SEAL and his mother. Bertelli used the stolen funds for her own purposes, including to purchase a luxury car and purses.

Bertelli was sentenced in Cedar Rapids by United States District Court Judge Linda R. Reade. Bertelli was sentenced to 84 months’ imprisonment. She was ordered to make $192,500 in restitution to her victims. She must also serve a five-year term of supervised release after the prison term. There is no parole in the federal system.

At the sentencing, Judge Reade found Bertelli had an “extremely high risk to recidivate” and pointed out that Bertelli had a number of prior state court theft convictions for which she had received no time in jail—including a six-figure embezzlement from a prior employer. Judge Reade characterized Bertelli as an “opportunist” whose acts were “shameful.” Judge Reade found that, if not confined or under court-ordered supervision, Bertelli “will steal again.” Judge Reade also noted Bertelli had two prior drunk driving convictions, limited legal employment, and violated the court’s orders by using alcohol while on pretrial release.

The prosecution of Bertelli is part of the Department of Justice’s Elder Abuse Initiative. In March 2016, the United States Attorney’s Office for the Northern District of Iowa was selected as one of ten districts nationwide to launch regional Elder Justice Task Forces. The Elder Justice Task Forces reflect the department’s larger strategy and commitment to protecting our nation’s seniors, spearheaded by the department’s Elder Justice Initiative. The Elder Justice Initiative coordinates and supports the Department’s law enforcement efforts and policy activities on elder justice issues. It plays an integral role in the department’s investigative and enforcement efforts against nursing homes and other long-term care entities that deliver grossly substandard care to Medicare and Medicaid beneficiaries. The United States Attorney’s Office for the Northern District of Iowa has rededicated its efforts and resources to investigate and hold accountable those who have been involved in activities incompatible with ensuring that the state’s more vulnerable citizens are treated with dignity and respect.

The charges also were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.

Bertelli is being held in the United States Marshal’s custody until she can be transported to a federal prison.

The case was prosecuted by Assistant United States Attorney Timothy L. Vavricek and investigated by the Linn County Sheriff’s Office and the United States Postal Inspection Service.

Court file information at https://ecf.iand.uscourts.gov/cgi-bin/login.pl.

The case file number is 18-CR-30-LRR.

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Financial Fraud: Group Of 9 Individuals Charged In Romance Scams And Mystery Shopper Schemes

December 20, 2018 FraudsWatch Leave a comment

9 Defendants Charged in Chicago in International Investigation Targeting “Romance Scams” and “Mystery Shopper” Schemes

CHICAGO — Seven Chicago-area residents are among nine individuals arrested in the United States and Nigeria as part of an international investigation into online “romance scams” and “mystery shopper” schemes.

During the Chicago-based investigation, dubbed “Operation Gold Phish,” law enforcement identified a variety of cyber-enabled fraud schemes allegedly carried out by conspirators in the U.S. and Nigeria. One of the alleged schemes involved “romance scams,” in which a conspirator builds trust with a victim through a purported online romance before convincing the victim to send money to a predetermined recipient. The conspirators initially contacted victims online via applications and websites, including Match.com, Facebook, and Instagram, the complaint states. Another alleged cyber-enabled fraud involved a “mystery shopper” scheme, in which conspirators fraudulently offered victims opportunities to work as a mystery shopper and receive commissions for evaluating retailers. The victim received a check through the U.S. mail with instructions to deposit it in a personal bank account, withdraw the money in cash, and wire it to a third party. The check turned out to be fake, and the victims were defrauded of the wired money, the charges allege.

A criminal complaint filed Dec. 4, 2018, in U.S. District Court in Chicago charged nine defendants with conspiracy to commit wire fraud. Arrests were recently carried out in Illinois, Texas, and Nigeria, and all of the defendants are now in law enforcement custody. The Nigerian Economic and Financial Crimes Commission is conducting a related investigation of other individuals in Nigeria.

The U.S. charges were announced by John R. Lausch, Jr., United States Attorney for the Northern District of Illinois; Jeffrey S. Sallet, Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation; and Craig Goldberg, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago. Valuable assistance was provided by the Nigerian Economic and Financial Crimes Commission. Assistant U.S. Attorneys Peter S. Salib and Charles W. Mulaney represent the government.

Arrested on the U.S. charges in Illinois were DANIEL SAMUEL ETA, also known as “Captain” and “Etaoko,” 35, of Skokie; BABATUNDE LADEHINDE LABIYI, also known as “Junior,” 20, of Chicago; BARNABAS OGHENERUKEVWE EDJIEH, 29, of Chicago; SULTAN OMOGBADEBO ANIFOWOSHE, also known as “Ayinde,” 26, of Chicago; BABATUNDE IBRAHEEM AKARIGIDI, also known as “AK,” 39, of Chicago; MIRACLE AYOKUNLE OKUNOLA, 21, of Chicago; and OLUROTIMI AKITUNDE IDOWU, also known as “Idol,” 55, of Chicago. Arrested in Texas was ADEWALE ANTHONY ADEWUMI, 27, of Richardson, Texas. Arrested in Nigeria was OLANIYI ADELEYE OGUNGBAIYE, also known as “DonChiChi,” 26, of Lagos, Nigeria.

In addition to the romance and mystery shopper schemes, the complaint accuses the conspirators of engaging in various other cyber-enabled scams, including investment and employment frauds. The conspirators also defrauded victims by targeting corporate email accounts, the complaint states. In the email scam, known as a business email compromise, the conspirators fraudulently obtained usernames and passwords or sent “spoofing” email messages that claimed to be from a company employee, instructing the victim to change the wire instructions for bank payments. Per the instructions given in the fraudulent emails, the victims unknowingly wired funds to bank accounts controlled by the conspirators that had been opened in fictitious names utilizing fake passports, the complaint states.

The charge in the complaint carries a maximum sentence of 20 years in prison. If convicted, the Court must impose reasonable sentences under federal sentencing statutes and the advisory U.S. Sentencing Guidelines.

The public is reminded that charges contain only accusations and are not evidence of guilt. The defendants are presumed innocent and entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

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Financial Fraud: IAV GmbH (IAV) Plead Guilty To One Criminal Felony Count And His Role In a Long-Running Scheme For Volkswagen AG (VW)

December 18, 2018 FraudsWatch 1 Comment

IAV GmbH to Pay $35 Million Criminal Fine in Guilty Plea for Its Role in Volkswagen AG Emissions Fraud

IAV GmbH (IAV), a German company that engineers and designs automotive systems, has agreed to plead guilty to one criminal felony count and pay a $35 million criminal fine as a result of the company’s role in a long-running scheme for Volkswagen AG (VW) to sell diesel vehicles in the United States by using a defeat device to cheat on U.S. vehicle emissions tests required by federal law.

Principal Deputy Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Matthew J. Schneider of the Eastern District of Michigan, Deputy Assistant Attorney General Jean E. Williams of the Justice Department’s Environment and Natural Resources Division, Assistant Administrator Susan Bodine of the EPA’s Office of Enforcement and Compliance Assurance and Special Agent in Charge Timothy R. Slater of FBI’s Detroit Division made the announcement.

IAV is charged with and has agreed to plead guilty to one count of conspiracy to defraud the United States and VW’s U.S. customers and to violate the Clean Air Act by misleading the EPA and U.S. customers about whether certain VW- and Audi-branded diesel vehicles complied with U.S. vehicle emissions standards. IAV and its co-conspirators knew the vehicles did not meet U.S. emissions standards, worked collaboratively to design, test, and implement cheating software to cheat the U.S. testing process, and IAV was aware the VW concealed material facts about its cheating from federal and state regulators and U.S. customers. Under the terms of the plea agreement, which must be accepted by the court, IAV will plead guilty to this crime, will serve probation for two years, will be under an independent corporate compliance monitor who will oversee the company for two years, and will fully cooperate in the Justice Department’s ongoing investigation and prosecution of individuals responsible for these crimes. Pursuant to the U.S. Sentencing Guidelines, IAV’s $35 million fine was set according to the company’s inability to pay a higher fine amount without jeopardizing its continued viability. IAV is scheduled to appear for a change of plea hearing before the Honorable Sean F. Cox of the U.S. District Court for the Eastern District of Michigan on Jan. 18, 2019 at 9:30 a.m.

“Today’s guilty plea shows that this scheme to evade automotive emissions tests and cheat the American public and the U.S. government extended well beyond Volkswagen,” said Principal Deputy Assistant Attorney General Cronan. “Our investigation into emissions cheating is ongoing and we will follow the evidence wherever it leads.”

“By helping VW cheat on U.S. emissions tests in violation of the Clean Air Act, IAV put its corporate success over public health and unfairly disadvantaged its competitors,” said Deputy Assistant Attorney General Williams. “The Department of Justice will continue to work with its law enforcement partners to ensure that companies like IAV play fair and that all Americans can enjoy the protections of our nation’s environmental laws.”

“IAV participated in Volkswagen’s deception of American regulators and fraud on American consumers,” said U.S. Attorney Matthew Schneider. “As this guilty plea demonstrates, our office will continue to aggressively prosecute corporate criminals, even when they work at some of the world’s largest, most prominent companies.”

“IAV designed the software that allowed VW to cheat U.S. air emissions standards,” said EPA Office of Enforcement and Compliance Assurance Assistant Administrator Susan Bodine. “EPA and its law enforcement partners will not tolerate actions like this that put profit above public health and environmental protection.”

“Americans rightly expect corporations to operate honestly,” said FBI Special Agent in Charge Slater. “This case sends a clear message that the FBI and its partners will hold corporations accountable when they defraud consumers and violate federal laws.”

The guilty plea of IAV represents the most recent charges in an ongoing investigation by U.S. criminal authorities into unprecedented emissions cheating by VW. In March 2017, VW pleaded guilty to criminal charges that it deceived U.S. regulatory agencies, including the EPA and the California Air Resources Board, by installing defeat devices in diesel vehicles emissions control systems that were designed to cheat emissions tests. As part of its plea agreement with the Department, VW paid a criminal fine of $2.8 billion and agreed to an independent corporate compliance monitor for three years. Eight individuals were previously indicted in connection with this matter, two of whom have pleaded guilty and been sentenced. The other six charged defendants are believed to reside in Germany.

According to the statement of facts that will be filed with the court in IAV’s case, in 2006, VW engineers began to design a new diesel engine to meet stricter U.S. emissions standards that would take effect by model year 2007. This new engine would be the cornerstone of a new project to sell diesel vehicles in the United States that would be marketed to buyers as “clean diesel.” When the co-conspirators realized that they could not design a diesel engine that would both meet the stricter standards for nitrogen oxides (Nox) and attract sufficient customer demand in the U.S. market, they decided they would use a software function to cheat the U.S. emissions tests.

VW delegated certain tasks associated with designing its new “Gen 1” diesel engine to IAV, including parts of software development, diesel development and exhaust after-treatment. In November 2006, a VW employee requested that an IAV employee assist in the design of defeat device software for use in the diesel engine. The IAV employee agreed to do so and prepared documentation for a software design change to recognize whether a vehicle was undergoing standard U.S. emissions testing on a dynamometer or it was being driven on the road under normal driving conditions. If the software detected that the vehicle was not being tested, the vehicle’s emissions control systems were reduced substantially, causing the vehicle to emit substantially higher NOx, sometimes 35 times higher than U.S. standards.

By at least 2008, an IAV manager knew the purpose of the defeat device software, instructed IAV employees to continue working on the project and directed IAV employees to route VW’s requests regarding the defeat device software through him; the manager was involved in coordinating IAV’s continued work on it.

Starting with the first model year (2009) of VW’s new “clean diesel” Gen 1 engine, through model year 2014, IAV and its co-conspirators caused defeat device software to be installed on all of the approximately 335,000 Gen 1 vehicles that VW sold in the United States.

This case was investigated by the FBI and EPA-Criminal Investigation Division. The prosecution and corporate investigation are being handled by Trial Attorneys Philip Trout, Mark Cipolletti and Gary Winters of the Criminal Division’s Fraud Section; Senior Trial Attorney Jennifer Blackwell of the Environment and Natural Resources Division’s Environmental Crimes Section; and White Collar Crime Unit Chief John K. Neal of the Eastern District of Michigan. The Criminal Division’s Office of International Affairs also assisted in the case. The Justice Department also extends its thanks to the Office of the Public Prosecutor in Braunschweig, Germany.

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Financial Fraud: Thomas Michael White Convicted In Connection With a Scheme To Fraudulently Raise From Over a Dozen Elderly Victims

December 18, 2018 FraudsWatch Leave a comment

Broward County Resident Convicted by Trial Jury of Participating in a Two Million Dollar Securities Fraud Conspiracy Scheme that Targeted the Elderly

On December 13, 2018, a Broward County resident was convicted by a federal jury of one count of conspiracy to commit mail and wire fraud and four counts of mail fraud, in connection with a scheme to fraudulently raise $2 million from over a dozen elderly victims throughout the United States.

Ariana Fajardo Orshan, U.S. Attorney for the Southern District of Florida, George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, and Pamela Epting, Interim Commissioner, Florida Office of Financial Regulation (OFR), made the announcement.

Thomas Michael White, 60, of Parkland, Florida, was convicted by a federal jury after a two week trial before U.S. District Judge Beth Bloom in Miami (Case No. 18-60174-CR-Bloom). White faces a maximum statutory sentence of twenty years in prison for the mail and wire fraud conspiracy count, twenty years in prison for each mail fraud count, and a fine up to $250,000 or double the proceeds as to each count of conviction. White is scheduled to be sentenced by Judge Bloom on February 26, 2019.

According to the court record, including evidence introduced at trial, White was President and CEO of First Call Ventures, LLC, the parent company of First Call Movers & Transport of Florida, LLC, a moving company that also brokered customer moves for other companies. From November 2011 through mid-2014, White ran the Broward-based moving business’ call center that booked moves throughout the Southeast. He also oversaw a “phone room” out of his corporate offices to raise money from investors. During telephone calls, White and his co-conspirators used false statements, manipulation, and high-pressure tactics to target elderly investors (victims) and their retirement money. The victims included retired teachers, farmers, small business owners, and homemakers, from across the United States. When his targets did not have available funds to invest, White tricked them into converting their Individual Retirement Account (“IRA”) money and transferring the funds to his corporate bank account. White promised his investors that their money was safe and secure, would be returned after a year, and yield high-value interest payments to be paid on a monthly basis. White and his co-conspirators provided written and oral “Investor Reports” that falsely conveyed security and profitability of the First Call Ventures moving business. As a result, White and his conspirators were given a total of more than $2 million from over a dozen senior citizens.

In truth and fact, White and his partners used the investors’ money for themselves, including millions in cash and bank check payments. Bank records also demonstrated that over the course of the fraud scheme, White withdrew over $130,000 in investor proceeds at the Seminole Coconut Creek casino. White and his partners siphoned all profits and victim money to their own personal accounts, declared a $1.8 million “loss,” and shuttered the business. As a result of the fraudulent scheme, some of the senior citizens are now living on food stamps, lost their homes, or were forced to take on odd jobs for income.

Four other individuals tied to this case and a related indictment previously pled guilty. White’s co-defendants, John Kevin Reech, 56, of Delray Beach, Florida, and Joseph Mario Genzone, 53, of Boca Raton, Florida, previously pled guilty. Genzone and Reech were also recently charged by Information for operating a separate offering fraud (Case No. 18-80193-CR-Bloom). Reech pled guilty in both matters and was sentenced to a concurrent term of 51 months in prison. Genzone also pled guilty and is scheduled to be sentenced by Judge Bloom on December 21, 2018, in both cases. Daniel Joseph Touizer, 44, of Aventura, Florida was sentenced to 68 month in prison for leading a similar fraud scheme linked to White and Reech’s criminal conduct (Case No. 17-60286-CR-Bloom). Saul Daniel Suster, 66, of Sunny Isles Beach, Florida, a phone room worker of Touizer’s, was sentenced to 30 months in prison.

U.S. Attorney Fajardo Orshan commended the investigative efforts of the FBI and Florida Office of Financial Regulation in this matter. This case is being prosecuted by Assistant U.S. Attorney Roger Cruz.

Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or at http://pacer.flsd.uscourts.gov.

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Tax Fraud: Clifford Keith Gwinn Sentenced For Embezzling From The Teays Valley Volunteer Fire Department, As Well As a Related Tax Crime

December 18, 2018 FraudsWatch Leave a comment

Former West Virginia Cabinet Secretary Sentenced to Federal Prison for Embezzling Fire Department Funds

HUNTINGTON, W.Va. – A Hurricane man and former West Virginia Cabinet Secretary was sentenced today to 37 months in federal prison for embezzling $178,790 from the Teays Valley Volunteer Fire Department, as well as a related tax crime, announced United States Attorney Mike Stuart. Clifford Keith Gwinn, 64, formerly the Cabinet Secretary of the West Virginia Department of Veterans Assistance, previously pled guilty in June 2018 to theft from a program receiving federal funds and failure to report and pay over payroll taxes. As part of Gwinn’s sentence, he was also ordered to pay restitution to the Fire Department, and it’s insurer, in the amount of $178,790 and to the Internal Revenue Service in the amount of $68,281. Stuart commended the investigative efforts of the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation Division, the Office of Inspector General for the U.S. Department of Homeland Security, and the West Virginia Commission on Special Investigations.

“Unimaginable that anyone, much less a former leader in state government, would steal from a Fire Department that is dependent upon funding to provide vital public safety services,” said United States Attorney Mike Stuart. “We will aggressively prosecute and seek restitution for victim organizations in cases like this one.”

Gwinn admitted that as Vice President and fiscal officer of the Fire Department, he was in charge of the financial affairs of the Fire Department and exercised significant control over the Fire Department’s finances. He admitted that his duties included reporting income and expenditures to the Fire Department, preparing and submitting taxes for the Fire Department, and assisting with applications and reimbursements for federal grants, among other duties. He further admitted that he, without authorization from the Fire Department, opened a Fire Department bank account where only he had signature authority, transferred funds into that account without the knowledge or authorization from the Fire Department, ensured certain health care insurance company reimbursements were deposited into that account, and wrote himself checks and checks to cash out of that account, which he then typically cashed. He admitted that he further instructed the Fire Department’s Treasurer to write him checks from other Fire Department bank accounts and further misrepresented the amount of bank account balances to the Fire Department officers and board members. He also admitted that he structured withdrawals out of the Fire Department’s accounts in a series of transactions below $10,000, to prevent the banks from filing Currency Transaction Reports. While he admitted that he systematically deposited cash into Fire Department bank accounts, his overall withdrawals and payments received significantly overwhelmed the amount of any deposits. He also admitted that he had no authorization to write himself checks or receive and cash checks from the Fire Department, and was not entitled to any compensation.

During the period from 2013 through 2016 that Gwinn embezzled $178,790 in Fire Department funds, the Teays Valley Volunteer Fire Department received grants from the Federal Emergency Management Agency (FEMA), an agency of the United States Department of Homeland Security. These grants allowed the Fire Department to pay firefighters and to purchase and maintain equipment.

Furthermore, Gwinn admitted that that while he was Vice President and fiscal officer for the Fire Department, the Fire Department withheld taxes from its employees’ paychecks, including federal income taxes, Medicare, and social security taxes, together known as payroll taxes. He admitted that he knew that he had the corporate responsibility to collect, truthfully account for, and pay over the Fire Department’s payroll taxes. Gwinn admitted that from October 31, 2015 through April 30, 2017, while Gwinn was a responsible person for payroll taxes, Fire Department failed to account for and pay over approximately $61,421.31 in payroll taxes.

Gwinn further admitted that when he filed his personal income tax returns with the IRS, those returns were false because they failed to account for the funds he had embezzled from the Fire Department. Assistant United States Attorney Meredith George Thomas handled the prosecution. United States District Judge Robert C. Chambers imposed the sentence.

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Financial Fraud: JOHN ARNOLD SHELLEY Sentenced For Making a False Statement To The Federal Deposit Insurance Corporation

December 17, 2018 FraudsWatch Leave a comment

Former Bank President Sentenced to Prison and Ordered to Pay $137 Million

OKLAHOMA CITY – JOHN ARNOLD SHELLEY, 68, of Oklahoma City, has been sentenced to four years in federal prison for making a false statement to the Federal Deposit Insurance Corporation, announced Robert J. Troester of the U.S. Attorney’s Office. He has also been ordered to pay over $137 million in restitution.

Shelley was the President, Chief Executive Officer, Chairman of the Board, and a loan officer at The Bank of Union (“BOU”) in El Reno, Oklahoma, from the late 1990s until his resignation on November 30, 2013. In January 2014, state banking regulators closed BOU because of the bank’s loan losses, and the FDIC was appointed as receiver.

On December 13, 2016, a federal grand jury returned a 23-count indictment against Shelley in connection with the failure of the Bank of Union. The counts included bank fraud, money laundering, making false statements to a bank, misapplication of bank funds, false bank entries, wire fraud, and making false statements to the FDIC. According to the indictment, Shelley defrauded BOU in several ways: (1) by issuing loans with insufficient collateral and falsifying financial statements for several high-dollar bank borrowers; (2) by originating nominee loans to circumvent the bank’s legal lending limit; (3) by concealing the bank’s true financial condition from the Board of Directors; (4) by soliciting a fraudulent investment; and (5) by falsely representing the bank’s true status to the FDIC.

According to the indictment, Shelley conspired with certain BOU borrowers from approximately 2009 through November 2013 to defraud BOU by issuing them millions of dollars in BOU loan proceeds secured by collateral that they did not have. Although these borrowers had already accumulated significant debt that they could not repay, Shelley continued to issue them new loans and capitalized accrued interest. At monthly BOU Board meetings, he failed to disclose the true status of these delinquent loan accounts; instead, he advised the Board that the borrowers were continuing to pay down their loans. Shelley also allegedly issued new loans to these borrowers in order to keep them off of BOU’s monthly overdraft reports.

Further, the indictment charged that Shelley executed a scheme to defraud a partial owner and investor in BOU in 2012. According to the indictment, Shelley persuaded the investor to wire $40 million by falsely representing that BOU was growing rapidly and performing well. The indictment alleged that, although Shelley knew that the bank was on the brink of failure and needed an immediate capital infusion to ensure its solvency, he advised the partial owner that his money would not be at risk.

Finally, Shelley was charged with falsely representing the bank’s loan status to the FDIC. Between September 2012 and September 2013, Shelley continued to renew certain unpaid borrower loans by capitalizing unpaid interest. Pursuant to an October 2013 FDIC safety and soundness examination, he allegedly falsely represented that he had not renewed or extended any loans without full collection of the interest due between September 2012 and September 2013.

On September 18, 2017, Shelley pleaded guilty to making a false statement to the FDIC on July 30, 2013, when he falsely represented in writing that the bank had total equity capital of $36,290,000, when he knew the bank’s equity capital was significantly less. This offense carries a penalty of up to 30 years in prison and a fine of up to $1,000,000.

On December 14, 2018, after two days of testimony about Shelley’s conduct, U.S. District Judge Timothy D. DeGiusti sentenced Shelley to four years in prison. He found that Shelley’s crime involved more than $85 million in losses for purposes of federal sentencing law. He imposed a sentence well below the advisory imprisonment range applicable under the U.S. Sentencing Guidelines because of Shelley’s health, personal history, and other factors. After release from prison, Shelley will serve two years on supervised release.

The sentence requires Shelley to pay $137,384,291 in restitution. The partial owner who wired money for the bank’s benefit in late 2012 is due $40 million of the restitution amount. Shelley owes the remaining $97,384,291 to the FDIC, which lost money when it assumed the bank’s liabilities in January 2014.

This case is the result of an investigation by the Federal Deposit Insurance Corporation–Office of Inspector General and the Federal Bureau of Investigation’s Oklahoma City Division. It was prosecuted by Assistant U.S. Attorneys Julia E. Barry, William E. Farrior, and Scott E. Williams.

Reference is made to public filings for further information.

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Health Care Fraud: Jonas Knopf Was Charged With Conspiring To Defraud Several Blue Cross Blue Shield Health Care Insurance

December 17, 2018 FraudsWatch Leave a comment

Lakewood Man Charged In $10 Million Health Care Fraud Against Blue Cross Blue Shield

NEWARK, N.J. – A Lakewood, New Jersey, insurance producer was charged today with conspiring to defraud several Blue Cross Blue Shield health care insurance affiliates of more than $10 million, U.S. Attorney Craig Carpenito announced today.

Jonas Knopf, 63, of Lakewood, was charged by complaint with one count of conspiring to defraud three health care Blue Cross Blue Shield (BCBS) affiliates in Pennsylvania and the Washington, D.C., area. He is scheduled to appear today before U.S. Magistrate Judge Steven C. Mannion in Newark federal court.

According to documents filed in this case and statements made in court:

From 2009 to 2017, Knopf was the chief executive officer of Madison Financial Services (MFS) and a licensed insurance producer – a person who is licensed to sell insurance products. MFS was the parent company of 11 sham companies created by Knopf and others solely for the purpose of marketing health insurance coverage to people who were not, in fact, his employees. These companies purported to be located and doing business in Pennsylvania and/or Virginia, and created the appearance of employment status for hundreds of individuals, largely Lakewood residents who were seeking health care coverage through BCBS benefit plans. The conspiracy began in Pennsylvania, and lasted until 2013, when an internal BCBS investigation uncovered irregularities in the information submitted by Knopf and others through his sham companies. Ultimately, the Pennsylvania Department of Insurance initiated an investigation and Knopf surrendered his Pennsylvania insurance producer’s license and ceased operation in the state. The conspiracy, however, continued in Virginia.

Knopf’s clients or purported employees paid him inflated insurance premiums as well as providing him with monies for payroll; Knopf, in turn, issued fake payroll checks, giving the false impression that they were actually employees being paid for services rendered. The conspiracy continued until January 2017. The conspiracy caused the health care insurers to pay out more than $10 million in fraudulent claims.

The count of conspiracy to commit health care fraud carries a maximum penalty of 10 years in prison and a $250,000 fine.

U.S. Attorney Carpenito credited special agents of the FBI, under the direction of Special Agent In Charge Gregory W. Ehrie; special agents of the U.S. Department of Labor, Office of Inspector General, Office of Investigations, New York Region, under the direction of Special Agent in Charge Michael Mikulka; and investigators of the U.S. Department of Labor, Employee Benefit Security Administration (EBSA), under the direction of Regional Director Darren Cohen, with the investigation leading to today’s charge.
The government is represented by Senior Litigation Counsel V. Grady O’Malley of the U.S. Attorney’s Office’s Organized Crime/Gangs Unit and Assistant U.S. Attorney Tracey Agnew of the Violent Crime Unit.

The charge and allegations contained in the complaint, are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Defense counsel: Michael Gilbert Esq., New York

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Financial Fraud: Mark E. Fisher And Joseph F. Capuozzo pled guilty In Dump Securities Fraud Scheme Involving The Shares Of Valentine Beauty, Inc.

December 13, 2018 FraudsWatch Leave a comment

Former South Florida Attorney and Stock Promoter Plead Guilty to Conspiracy to Commit Securities Fraud in Relation to Pump and Dump Stock Manipulation Scheme

A former South Florida attorney and a stock promoter pled guilty today in connection with a $1 million pump and dump securities fraud scheme involving the shares of Valentine Beauty, Inc. (“VLBI”).

Ariana Fajardo Orshan, United States Attorney, Southern District of Florida, and George L. Piro, Special Agent in Charge, FBI Miami Field Office made the announcement.

Mark E. Fisher, 53, of Boca Raton, Florida, and Joseph F. Capuozzo, 57, of Davie, Florida, pled guilty before U.S. District Judge Kathleen M. Williams, in Miami, to one count of conspiracy to commit securities fraud, in violation of Title 18, United States Code, Section 371, in Case No. 18-CR-20823. Judge Williams is scheduled to sentence Capuozzo on February 21, 2019 and Fisher on March 25, 2019. Each defendant faces a maximum statutory sentence of up to five years in prison and a fine up to $250,000 or double the gross proceeds of the offense.

Previously, Eddy Ubaldo Marin, 56, of Ft. Lauderdale, Florida, and Shane R. Spierdowis, 27, formerly of Boca Raton, were charged with securities fraud offenses in connection with the same VLBI scheme. Marin pled guilty and was sentenced on September 5, 2018, to 210 months in prison by U.S. District Judge Darrin P. Gayles (Case No. 18-CR-20354-DPG). Spierdowis also pled guilty and was sentenced by U.S. District Judge Ursala Ungaro to 5 years on probation. (Case No. 18-CR-20355-UU).

According to court documents, VLBI was a beauty products supply company with operations in Sunrise, Florida, that marketed its products on television infomercials and elsewhere. Shares of VLBI stock were publicly traded and quoted over the counter on OTC Link. In approximately November 2013, Marin and other accomplices arranged to secretly obtain a controlling interest in VLBI stock by issuing shares to certain third parties, including Green Tree Capital, Inc., a company controlled by Marin and Capuozzo, based in Ft. Lauderdale, Florida.

Fisher, formerly a practicing lawyer licensed to practice in Florida and New York, was a securities lawyer based in Boca Raton who allegedly became involved with the manipulation of VLBI shares at the invitation of Marin. Fisher allegedly executed various false and fraudulent documents to facilitate the scheme, including certain legal opinion letters that falsely indicated that shares controlled by Marin and other conspirators, were not in fact owned or controlled by “affiliates” of the companies. Such letters allowed shares of VLBI to be falsely classified as “free trading” and thus sold to the public, when in reality that were restricted. In March and April, 2014, Marin, Fisher, Capuozzo, Spierdowis, and other conspirators arranged to transfer a substantial number of shares into brokerage accounts in the name of fictitious entities, but in reality controlled by the conspirators. In addition, according to court documents, Fisher, Capuozzo and other conspirators knew that Marin was a convicted felon and attempted to conceal his role in the scheme by keeping his name off of corporate documents. To facilitate the concealment of Marin’s role, Capuozzo became the listed owner of an entity that held Marin’s VLBI shares and traded the shares at the direction of Marin. Capuozzo also served as the nominee Chief Executive Officer of VLBI, while acting at the direction of Marin and the conspirators.

Thereafter, beginning in approximately May 2014 and continuing through in or around September 2014, Marin, Fisher, Capuozzo, Spierdowis, and others arranged for VLBI to issue rosy press releases, while also using internet marketing and penny stock newsletters to tout VLBI stock. These efforts were intended to artificially increase the trading volume and price of VLBI shares, so that Marin, Fisher, Capuozzo, Spierdowis and their co-conspirators could secretly sell shares at a profit. During the conspiracy period, the conspirators sold approximately $1 million worth of VLBI shares to the investing public.

In approximately June 2014, Marin began a term of federal imprisonment due to a different federal offense, and was ultimately incarcerated at FCI Miami. While Marin was at FCI Miami, Fisher, Capuozzo, Spierdowis, and others continued the stock manipulation scheme, while keeping a larger portion of the trading profits for themselves. The conspirators continued to sell shares of VLBI, while continuing the same pattern of issuing press releases and engaging in coordinated sales of shares, until approximately April 26, 2016, when trading in VLBI shares was suspended by the U.S. Securities and Exchange Commission (SEC).

Previously, the SEC filed parallel civil enforcement actions against Fisher, Capuozzo, Marin and Spierdowis.

U.S. Attorney Fajardo Orshan commended the investigative efforts of the FBI’s Miami Field Office. She also thanked the SEC’s Miami Regional Office for their assistance. This case is being prosecuted by Assistant U.S. Attorney Jerrob Duffy, and Assistant U.S. Attorney Alison Lehr is handling asset forfeiture related to the matter.

Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or at http://pacer.flsd.uscourts.gov.

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Financial Fraud: Scott Charles Maddox And Janice Paige Carter-Smith Have Been Indicted In a Forty-Four Count Indictment For Conspiring To Operate a Racketeering Enterprise

December 12, 2018 FraudsWatch Leave a comment

Tallahassee City Commissioner and Political Consultant Charged in Racketeering Conspiracy

TALLAHASSEE, FLORIDA – Tallahassee City Commissioner Scott Charles Maddox, 50, and Tallahassee political consultant Janice Paige Carter-Smith, 53, both of Tallahassee, have been indicted in a forty-four count indictment for conspiring to operate a racketeering enterprise that engaged in acts of bank fraud, extortion, honest services fraud, and bribery. Maddox and Carter-Smith are also charged with substantive counts of bank fraud, false statements to financial institutions, extortion, honest services fraud, use of interstate facilities in furtherance of bribery, false statements to federal officers, conspiracy to interfere with the lawful function of the Internal Revenue Service (“IRS”), and filing false tax returns.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, Attorney for the United States Karen Rhew-Miller of the Northern District of Florida Acting Under Authority Conferred by 28 U.S.C. § 515, Special Agent in Charge Charles Spencer of the FBI’s Jacksonville Field Office, and Special Agent in Charge Mary Hammond of the IRS – Criminal Investigation Tampa Field Office made the announcement.

The initial appearance is scheduled for today, Wednesday, December 12, 2018, at 3:00 p.m. EST at the United States Courthouse in Tallahassee in the Magistrate Judge’s Courtroom on the main floor. The trial date will be determined at this hearing.

Maddox and Carter-Smith allegedly conspired to operate two companies, Governance, Inc., and Governance Services, LLC, as one entity they referred to as “Governance.” Per the indictment, Governance was part of a racketeering enterprise that extorted money and accepted bribes from Governance clients under color of Maddox’s office and through fear of the economic harm that Maddox could inflict in his position as an influential City Commissioner. The indictment alleges that Maddox voted on matters and exerted influence on City employees to take actions that benefitted the businesses that paid Maddox and Carter-Smith through Governance.

According to the charges, Maddox and Carter-Smith made false statements to the FBI concerning Maddox’s affiliation with, and management of Governance and Governance Services. The indictment alleges that during the course of the conspiracy, Maddox made false statements under oath to a Florida Commission on Ethics investigator and in a sworn deposition about his affiliation with Governance. He also concealed from the Tallahassee City Attorney and the City Commission the fact that he was being paid by companies doing business with the City.

The indictment further alleges that Maddox and Carter-Smith also defrauded a bank of more than $250,000 through two fraudulent short sales of real property, lied to federal agents about Governance and other matters, and violated federal tax laws by conspiring to interfere with the IRS and filing false tax returns.

The investigation was conducted by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation. The case is being prosecuted by Assistant U.S. Attorney Stephen M. Kunz of the Northern District of Florida and Trial Attorneys Simon J. Cataldo and Peter M. Nothstein of the Department of Justice Criminal Division’s Public Integrity Section.

The maximum terms of imprisonment for the offenses are as follows:

30 years: Bank Fraud, False Statements to a Financial Institution
20 years: Racketeering Conspiracy, Extortion and Honest Services Fraud
5 years: Use of Interstate Facilities in Furtherance of Bribery, Making False Statements to a Federal Officer, Conspiracy to Defraud the United States
3 years: False Statement on a Tax Return

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.

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 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.

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Financial Fraud: Group Of Persons Pleads Guilty To Conspiracy To Commit Wire Fraud And Filing a False Tax Return

December 12, 2018 FraudsWatch Leave a comment

4TH Florida Man Pleads Guilty In Connection To Multi-Million Dollar Fraud Against Xerox Corporation

ROCHESTER, N.Y. – U.S. Attorney James P. Kennedy, Jr. announced that Jason Haynes, of Florida, pleaded guilty before U.S. District Judge Elizabeth A. Wolford to conspiracy to commit wire fraud and filing a false tax return in connection with a scheme to defraud the Xerox Corporation of more than $20,000,000. The charges carry a maximum penalty of 20 years in prison and a $250,000 fine.

Assistant U.S. Attorney Richard A. Resnick, who is handling the case, stated that the defendant, along with Kyle Haynes, David Haynes and Bryan Day, owns Haynes Brother Furniture in Daytona Beach, Florida, where defendant resides. Co-conspirator Robert Fisher’s company, RBM Imaging, was an authorized reseller of Xerox office equipment.

Xerox, which has a location in Webster, NY, sells and leases office equipment, including printers. Xerox sells or leases the office equipment directly to end-user customers or to authorized resellers, like Fisher, who then resell or lease the office equipment to end-user customers, like the defendants. The office equipment requires toner and other products to operate. End-user customers order the toner for their printers from Xerox. Rather than pay Xerox upfront for the toner, the end-user customers pay Xerox based on the number of prints made with the toner. However, at all times, the toner belongs to Xerox until consumed by the end-user customers. At no time may the end-user customers sell the toner.

The Haynes’ set up a sham company, HDH Graphics, to obtain approximately 63 Xerox printers from Fisher. Although HDH Graphics made few, if any, prints with the printers, the defendants fraudulently represented to Xerox that HDH Graphics was making prints using much more toner than the industry average, which deceived Xerox into shipping approximately $25,000,000 worth of toner to HDH Graphics. The Haynes’ then sold the fraudulently obtained toner for approximately $11,000,000 to an individual in Miami, Florida. The Haynes’ and Fisher shared the profits from the fraudulent sale of the Xerox toner.

In executing the scheme, the Haynes’ repeatedly misrepresented to Xerox that they were making millions of prints with the toner, even though they never took most of the printers out of their boxes. The Haynes’ provided Xerox with false usage profiles from the printers and false print samples that made it appear that the defendants were making the millions of prints and using much more toner than the industry average for each print.

Jason Haynes also filed false personal income tax returns with the Internal Revenue Service for the years 2008 through 2013. His personal tax returns failed to report net income HDH Graphics earned from the fraudulent sale of the Xerox toner. Because HDH Graphics was a partnership, all of its net income flowed through to the Haynes’ personal tax returns. Therefore, the underreporting of the net income on HDH Graphics tax returns resulted in the underreporting of the income on the defendant’s personal tax returns.

The Haynes’ underreported the net income earned by HDH Graphics by falsely claiming that they had personally paid and incurred travel and shipping expenses on behalf of HDH Graphics. They then had HDH Graphics reimburse them for the falsely claimed expenses and falsely reported such expenses as deductions on HDH Graphics tax returns. The falsely reported deductions on HDH Graphics tax returns were approximately $265,154, resulting in approximately $265,154 less in net income being reported on the corporate returns. As a result, approximately $66,288.50 should have flowed through as income to the defendant’s personal tax returns.

The defendant also agreed to forfeiture of assets that were previously seized by the government.

Kyle Haynes, David Haynes, and Bryan Day were previously convicted and are awaiting sentencing. Charges remain pending against Robert Fisher. The fact that a defendant has been charged with a crime is merely an accusation and the defendant is presumed innocent until and unless proven guilty.

The plea is the result of an investigation by Immigration and Customs Enforcement, Homeland Security Investigation, Buffalo Office, under the direction of Special Agent-in-Charge Kevin Kelly, and the Internal Revenue Service, Criminal Investigation Division, under the direction of James Robnett, Special Agent-in-Charge, New York Field Office.

Sentencing is scheduled for March 13, 2019, at 2:00 p.m. before Judge Wolford.

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Financial Fraud: Alain Kaloyeros Sentenced To Prison For Fraud In Connection With The Rigging Of Bids

December 12, 2018 FraudsWatch Leave a comment

Former State University President, Alain Kaloyeros, And Three Corporate Executives Sentenced To Prison For Fraud In Connection With Buffalo Billion Bid-Rigging

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced today that ALAIN KALOYEROS, the former President of the State University of New York Polytechnic Institute; STEVEN AIELLO, a founder and partner of COR Development (“COR”), a real estate development company based in the Syracuse, New York, area; JOSEPH GERARDI, also a founder and partner of COR; and LOUIS CIMINELLI, the former Chairman and CEO of LPCiminelli, a construction company based in Buffalo, New York, were sentenced to prison for fraud in connection with the rigging of bids for hundreds of millions of dollars of State-funded contracts under New York State’s “Buffalo Billion” economic development program. KALOYEROS was sentenced today by U.S. District Judge Valerie E. Caproni, and AIELLO, GERARDI, and CIMINELLI were all sentenced last week by Judge Caproni. The defendants received the following sentences:

ALAIN KALOYEROS – 42 months in prison

STEVEN AIELLO – 36 months in prison

JOSEPH GERARDI – 30 months in prison

LOUIS CIMINELLI – 28 months in prison

On July 12, 2018, KALOYEROS, AIELLO, GERARDI, and CIMINELLI were each convicted of wire fraud and wire fraud conspiracy, following a three-week trial before Judge Caproni, who imposed sentence on each of the defendants. GERARDI was also convicted of making false statements to federal officers. In addition to the bid-rigging offense, AIELLO’s sentence also reflected his conviction for paying bribes to Joseph Percoco, a former executive aide and campaign manager to the Governor of New York.

U.S. Attorney Geoffrey Berman said: “The Buffalo Billion program is an economic initiative intended to stimulate economic growth, and ultimately benefit the people of New York. But a well-connected group of Albany insiders exploited the project to benefit themselves instead. By manipulating the application process for awarding bids, these men effectively corrupted the bidding process to ensure that companies with which they had financial interests would be awarded the lucrative work. Public corruption – especially at such a disconcertingly high level in Albany – contributes to the frustration and eroding faith of the people of New York in the integrity of their government. We will continue to do everything within our power to ensure that funds intended for the greater good of New Yorkers will be used for just that – and not to line the pockets of influence-peddlers with high-level access.”

Judge Caproni said during AIELLO’s sentencing: “I want this sentence to be heard around the state. . . . This prosecution . . . should serve as a warning to others who interact with the government everywhere . . . when competing for projects from an entity like Fort Schuyler, you are playing with state money. That means you have to be purer than Caesar’s wife, because the money you were trying to get comes from the hardworking men and women of New York State. If you can’t live with that standard, then stick with private sector work, because if you remain at the public trough and you engage in corrupt means to get to public money, even if you did a good job for the public, the Court will show you no mercy. . . .”

According to the evidence introduced at trial, other proceedings in this case, and documents previously filed in Manhattan federal court:

KALOYEROS, AIELLO, GERARDI, and CIMINELLI conspired to deceive Fort Schuyler Management Corporation (“Fort Schuyler”), a State-funded entity charged with awarding State contracts worth hundreds of millions of dollars, by secretly rigging the bidding process so that the contracts offered in connection with the Buffalo Billion program would be awarded to COR and LPCiminelli. KALOYEROS, who oversaw the application process for many of the State grants awarded under the Buffalo Billion and similar programs, retained Todd Howe to lobby the New York Governor’s office in order to maintain and expand KALOYEROS’s position. KALOYEROS and Howe, who also worked for both COR and LPCiminelli, then conspired with AIELLO, GERARDI, and CIMINELLI to defraud Fort Schuyler by secretly tailoring the required qualifications for development deals in Syracuse and Buffalo so that COR and LPCiminelli would be awarded significant projects without any meaningful competition. All the while, the defendants falsely represented to Fort Schuyler that the bidding process was fair, open, and competitive.

More specifically, in or about October 2013, Fort Schuyler issued requests for proposals (“RFPs”) to solicit bids from interested and qualified developers for the Syracuse and Buffalo projects. KALOYEROS oversaw the drafting of the RFPs and, unbeknownst to Fort Schuyler, KALOYEROS and Howe secretly solicited from AIELLO, GERARDI, CIMINELLI, and others at LPCiminelli: (1) qualifications of COR and LPCiminelli to put in the RFPs, so that the RFPs would request qualifications specifically held by those companies, and (2) feedback on the RFPs, before they were released publicly. For example, the Syracuse RFP requested the use of specific project management software used by COR. After Howe emailed GERARDI and AIELLO a draft of the Syracuse RFP approximately two weeks before its public issuance, GERARDI sent back to Howe and AIELLO a handwritten mark-up of the draft RFP, on which GERARDI had, among other things, underlined the software names and wrote “too telegraphed?? I would leave out these specific programs.” For its part, the Buffalo RFP, as initially issued, required 50 years of experience by a local developer – a qualification touted by LPCiminelli in promotional materials provided to KALOYEROS.

Additionally, after the Government’s investigation became public, both KALOYEROS and CIMINELLI deleted incriminating evidence from their personal email accounts. GERARDI voluntarily met with government agents and lied about his criminal conduct.

In addition to his convictions for fraud in connection with the Buffalo Billion program, AIELLO was convicted in connection with a bribery conspiracy involving Percoco, who was also convicted and sentenced by Judge Caproni to 72 months in prison. Beginning in early 2014, Percoco was paid bribes totaling approximately $35,000 from COR. These bribe payments were orchestrated by AIELLO, who arranged them in exchange for Percoco’s official assistance for COR on an as-needed basis.

Specifically, Percoco agreed with AIELLO to, and did, take official action for the benefit of COR to (a) reverse an adverse decision by the Empire State Development Corporation, which is the State’s main economic development agency, that would have required COR to enter into a costly labor peace agreement in connection with a development project in Syracuse, (b) free up a backlog of more than $14 million in State funds that had already been awarded to COR but were delayed in payment, and (c) secure a substantial pay raise for AIELLO’s son, who worked in the Governor’s office. To disguise the nature and source of the bribe payments, COR’s bribes to Percoco were funneled through bank accounts and a shell company set up by Howe.

In addition to the prison term, KALOYEROS, 62, of Slingerlands, New York, was sentenced to 2 years of supervised release. Judge Caproni also ordered KALOYEROS to pay a fine of $100,000.

In addition to the prison terms, AIELLO, 60, of Fayetteville, New York, GERARDI, 59, of Fayetteville, New York, and CIMINELLI, 63, of Buffalo, New York, were each sentenced to two years of supervised release. Judge Caproni also ordered AIELLO, GERARDI, and CIMINELLI each to pay a fine of $500,000 and to forfeit ill-gotten gains.

Mr. Berman praised the outstanding work of the Buffalo Field Office of the Federal Bureau of Investigation and the New York Office of the Internal Revenue Service-Criminal Investigation, which jointly conducted this investigation with Special Agents from the U.S. Attorney’s Office.

This case is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Janis Echenberg, Robert Boone, David Zhou, and Matthew Podolsky are in charge of the prosecution.

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Financial Fraud: Emil DiIorio Agreed To Settle Allegations Under The False Claims Act That They Submitted False Claims To Medicare

December 11, 2018 FraudsWatch Leave a comment

Coordinated Health and CEO Pay $12.5 Million to Resolve False Claims Act Liability for Fraudulent Billing

PHILADELPHIA, PA – United States Attorney William M. McSwain announced today that Coordinated Health Holding Company, LLC (“Coordinated Health”) and its founder, principal owner, and Chief Executive Officer, Emil DiIorio, M.D., agreed to settle allegations under the False Claims Act that they submitted false claims to Medicare and other federal health care programs for orthopedic surgeries. Coordinated Health agreed to pay $11.25 million and DiIorio agreed personally to pay $1.25 million, for total settlement of $12.5 million. Coordinated Health has also entered into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services that will require regular monitoring of its billing practices for five years.

Coordinated Health is a for-profit hospital and health system based in the Lehigh Valley region of Pennsylvania. It employs approximately 100 physicians, approximately 30 of whom are board-certified orthopedic surgeons. Dr. DiIorio is a board-certified orthopedic surgeon.

The government alleges that Coordinated Health and Dr. DiIorio engaged in a scheme to improperly unbundle claims for reimbursement for orthopedic surgeries in order to artificially inflate reimbursements from federal healthcare payers. Medicare and other public healthcare insurers reimburse physicians and hospitals a global fee for many types of orthopedic surgeries. The global fee is a single payment for all parts of a surgery. Although electronic safeguards automatically block separate reimbursements for parts of the same surgery when the global fee is paid, those safeguards can sometimes be circumvented when billing codes are misused. For example, a medical provider can circumvent the system by affixing a billing code, Modifier 59, to its request for payment. That billing code informs the payer that a separately billed service was not part of the original surgery and is appropriate to separately pay. It is improper “unbundling” when a provider submits a claim for a global reimbursement for a surgery and misuses Modifier 59 to separately bill for parts of the same surgery.

The government alleges that from 2007 through mid-2014, Coordinated Health routinely exploited Modifier 59 to improperly unbundle orthopedic surgery claims, including for many total joint replacement and arthroscopic surgeries. As a consequence, federal healthcare payers, including Medicare and Medicaid, overpaid Coordinated Health by millions of dollars.

The government further alleges that Dr. DiIorio should have stopped the illegal unbundling. Instead, beginning in April of 2009, Dr. DiIorio changed how he wrote operative reports so that Coordinated Health billers could maximize improperly unbundled reimbursements for his knee, hip and shoulder surgeries using Modifier 59.

For example, in his total knee replacement operative reports prior to April 2009, Dr. DiIorio rarely diagnosed any patient with poor patellar tracking and stated in almost every report that an incision sometimes necessary to improve patellar tracking, called a “lateral retinacular release,” was unnecessary. A lateral retinacular release performed during a total knee replacement is part of the global surgery reimbursement for a knee replacement. However, in almost every knee replacement operative report after April 1, 2009, Dr. DiIorio diagnosed the patient with poor patellar tracking and stated he performed a lateral retinacular release. Each time, Coordinated Health used Modifier 59 to improperly bill for a lateral retinacular release as if one was performed separate from the knee replacement.

Top Coordinated Health executives were directly informed at least twice that Coordinated Health improperly unbundled many orthopedic surgeries by misusing Modifier 59. Two separate outside coding consultants hired by Coordinated Health, one in 2011 and one in 2013, identified the improper unbundling during coding audits and warned Coordinated Health to stop. The 2013 consultant specifically advised Coordinated Health to self-report and repay Medicare and other federal payers; the consultant also provided on-site training on the proper use of Modifier 59 to Coordinated Health coders in November 2013. Motivated by its bottom line, Coordinated Health simply ignored the consultants’ recommendations and continued abusing Modifier 59 to improperly unbundle orthopedic surgery claims until mid-2014.

“The alleged corporate culture and leadership that promoted this conduct and allowed it to continue despite crystal clear warnings is shameful,” said U.S. Attorney William M. McSwain. “If true, it amounts to theft of public funds and a fraud on Medicare, Medicaid, and federal employee health insurers. We are unaware of any unbundling scheme that has had a bigger impact on federal funds. My Office will continue to hold businesses and individuals accountable for this type of wrongdoing.”

“We expect providers to play by the rules and to act responsibly,” said Maureen R. Dixon, Special Agent in Charge for U.S. Department of Health and Human Services’ Office of Inspector General (HHS-OIG) in Philadelphia. “Providers who fail to follow the rules should expect to be investigated by HHS-OIG and our fellow law enforcement partners.”

“I would like to express my gratitude for the dedication and professionalism exhibited by our staff, their law enforcement partners, and the U.S. Attorney’s Office in the investigation and prosecution of this matter,” said Thomas W. South, Deputy Assistant Inspector General for Investigations, U.S. Office of Personnel Management. “Their efforts protect the Federal Employee Health Benefits Program from those who would seek to defraud the program through unscrupulous and illegal billing practices.”

Kenneth Cleevely, U.S. Postal Service Office of Inspector General Special Agent in Charge, Eastern Area Field Office, stated the following: “Benjamin Franklin stated ‘There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government.’ I believe that quote rings true in this case. When health care providers choose to take advantage of the federal workers compensation program, Special Agents with the U.S. Postal Service Office of Inspector General will work with our law enforcement partners to see that they are held accountable. To report health care fraud relating to the Postal Service, contact special agents at www.uspsoig.gov or 888-USPS-OIG.”

“Coordinated Health and Dr. Dilorio fraudulently billed federal health care programs, including the U.S. Department of Labor’s Office of Workers’ Compensation Programs (OWCP), for the reimbursement of false claims submitted for orthopedic surgery procedures. We will continue to work with OWCP and our law enforcement partners to protect the integrity of the Federal Employees’ Compensation Act,” said Richard Deer, Special Agent-in-Charge, Philadelphia Region, U.S. Department of Labor Office of Inspector General.

The claims resolved by the settlement are allegations only; there has been no determination of liability.

This case was investigated by the U.S. Department of Health and Human Services Office of the Inspector General, U.S. Office of Personnel Management Office of the Inspector General, the United States Postal Service Office of Inspector General, and the Department of Labor Office of Inspector General. For the U.S. Attorney’s Office, the investigation and settlement were handled by Assistant U.S. Attorney John T. Crutchlow and Auditor George Niedzwicki.

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Investment Fraud: RYAN RANDALL GILBERTSON Sentenced Of Multiple Counts Of Wire Fraud And Securities Fraud

December 11, 2018 FraudsWatch Leave a comment

Former Oil Company President Sentenced To 12 Years In Prison For Stock Manipulation Scheme

United States Attorney Erica H. MacDonald today announced the sentencing of RYAN RANDALL GILBERTSON, 42, founder of Dakota Plains Holdings, Inc., to 144 months in federal prison, a $2 million fine, and over $15 million in restitution. GILBERTSON was sentenced today by Judge Patrick J. Schiltz in U.S. District Court in Minneapolis, Minnesota. A federal jury convicted GILBERTSON and co-defendant DOUGLAS VAUGHN HOSKINS, 50, of multiple counts of wire fraud, securities fraud, and conspiracy to commit securities fraud, on June 26, 2018, following an 11-day jury trial before Judge Schiltz.

HOSKINS is scheduled to be sentenced on December 21, 2018, by Judge Patrick J. Schiltz in U.S. District Court in Minneapolis, Minnesota.

As proven in court, in November 2008, GILBERTSON and his business partner founded Dakota Plains, Inc. (“Dakota Plains”), a privately held company based in Wayzata, Minnesota that owned and operated a transloading facility in New Town, North Dakota. From the outset, GILBERTSON and his partner concealed their involvement in the company by installing their fathers as the company’s executives and two-person board of directors. Rather than capitalize the company at the outset, GILBERTSON caused the company to issue $9 million in promissory notes to himself and other corporate insiders. The notes paid 12% annual interest and included a provision that paid GILBERTSON and the other noteholders a bonus payment based on the average trading price of Dakota Plains stock during the first 20 days of public trading. The bonus payment provision operated as an “embedded derivative” in which the value of the bonus payment would be based on the average price of Dakota Plains stock during the first 20 days of public trading.

GILBERTSON then caused the company to go public via a reverse merger with a company called Malibu Club Tan, which was a publicly traded shell company that operated a single defunct tanning salon in suburban Salt Lake City, Utah. GILBERTSON made it a secret condition of the reverse merger that DOUG HOSKINS, his friend and polo coach, be able to purchase the majority of the “float” of freely trading shares, which were the only shares that could trade publicly following the reverse merger. GILBERTSON then gave $30,000 to HOSKINS, who was deeply in debt and owed money to the IRS and other creditors, in order to purchase 50,000 shares of Dakota Plains stock at a price of $0.50 per share on March 23, 2012, the morning of the reverse merger. That same day, again at the direction of GILBERTSON, HOSKINS began selling his shares at the fraudulently inflated price of $12 per share.

On the first day of public trading, HOSKINS began selling his newly acquired shares for an inflated price of $12 per share at GILBERTSON’S direction, and continued to do so throughout the first 20 days of public trading following the reverse merger. At the same time, GILBERTSON directed a local stockbroker at a Minneapolis-based securities brokerage firm to purchase shares of Dakota Plains stock on behalf of both himself and his clients at inflated prices. GILBERTSON also instructed a Salt Lake City-based business consultant to manipulate the price of the stock by ensuring that none of the shell company shareholders sold their stock for less than the $12 per share price offered by his friend and polo coach, HOSKINS. Indeed, on April 4, 2012, GILBERTSON sent a text message to the consultant in Utah bragging that the shell company shareholders “would be participating on sales at 7 bucks [a share] not 12 were it not for my involvement.”

Throughout the 20-day period following the reverse merger, GILBERTSON, with the help of HOSKINS and others, manipulated the price of Dakota Plains stock to increase the average trading price to $11.30 per share. This inflated share price triggered a $32.8 million bonus payment to GILBERTSON and the other noteholders. When the cash-strapped company was unable to pay the bonus, GILBERTSON instructed its CEO to raise money for use in paying GILBERTSON’s fraudulently inflated bonus payment.

Ultimately, GILBERTSON made millions as a result of his stock manipulation scheme. HOSKINS made less money, but still pocketed more than $125,000 from his stock sales, much of which he used to purchase an Argentine polo pony.

In the wake of the fraud scheme, HOSKINS was interviewed by the Securities and Exchange Commission (SEC) about his involvement in these stock sales. HOSKINS repeatedly lied under oath during the deposition, covering up both his and GILBERTSON’S involvement in the stock manipulation scheme. Among other things, HOSKINS claimed that he did not discuss the stock trades with any other individuals. At trial, GILBERTSON falsely denied his role in the stock manipulation scheme, but conceded that he had arranged for HOSKINS to purchase Dakota Plains stock prior to the reverse merger and had provided HOSKINS with the money with which he purchased the stock.

“Mr. Gilbertson orchestrated an extraordinarily complex stock manipulation scheme in order to obtain millions of dollars from a publicly traded company. He executed his scheme over many years at the detriment of the company, which is now bankrupt, its shareholders and the trading public,” said United States Attorney Erica H. MacDonald. “He did not care about how his actions may impact others; he only cared about lining his own pockets. Despite the complexity of his scheme, and how much of a game he tried to play, he lost, thanks to the diligent and thorough work of investigators, prosecutors, a federal jury, and the Court.”

“Mr. Gilbertson created a complex and complicated scheme that was unraveled thanks to the diligence of highly trained agents who don’t give up,” said Jill Sanborn, Special Agent in Charge of the Minneapolis Division of the FBI. “The heavy sentence imposed today on Mr. Gilbertson underscores that market rigging and self-dealing for one’s own financial gain are nefarious activities that will be discovered and that those who engage in them will be dealt with accordingly.

“Today’s sentence sends a clear message regarding the critical role the U.S. Postal Inspection Service and its law enforcement partners play in protecting the investing public from these types of fraudulent schemes, “ said Acting Postal Inspector in Charge Lesley Allison. “We will continue to protect and ensure the nation’s mail stream is not used by criminals to prey upon our citizens.”

This case is the result of an investigation conducted by the FBI and the United States Postal Inspection Service.

This case was prosecuted by Assistant United States Attorneys Joseph H. Thompson, Kimberly A. Svendsen, and Melinda A. Williams.

The Criminal Docket Number for this case is: 17-cr-00066

Defendant Information:

RYAN RANDALL GILBERTSON, 42

Delano, Minn.

Convicted:

Wire fraud, 14 counts
Conspiracy to commit securities fraud, 1 count
Securities fraud, 6 counts

Sentenced:

144 months imprisonment
2 years supervised release
$2 million fine
$15,135,360 in restitution

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Health Care Fraud: Three Individuals Indicted To Conspiring To Commit Health Care Fraud And Violating Federal Anti-Kickback Laws

December 11, 2018 FraudsWatch Leave a comment

Three Charged with Violating Federal Anti-Kickback Laws and Committing More Than $4.7 Million in Health Care Fraud

TULSA, Okla.— A grand jury returned an indictment today charging three men, including two physicians, with violations of the federal anti-kickback statute as well as conspiring to commit health care fraud, announced U.S. Attorney Trent Shores.

“Health care fraud is not a victimless crime. It has a costly effect on the taxpayer and beneficiaries enrolled in Medicare, TRICARE, and workers compensation coverage under the Federal Employees Compensation Act,” said U.S. Attorney Trent Shores. “The Justice Department will not stand idly by while physicians exploit federal programs designed to help American families. I encourage the public to report suspicious health care practices and billing to federal authorities. We will investigate and bring to justice those defrauding our system for their personal benefit.”

The criminal indictment alleges that since November 2012, Christopher Parks, 57, and Dr. Gary Lee, 58, both of Tulsa, engaged in a conspiracy to unlawfully pay kickbacks and bribes to physicians in order to induce the physicians to write compounding prescriptions to pharmacies with whom the two were affiliated, including OK Compounding LLC in Skiatook, One Stop RX LLC in Tulsa and NBJ Pharmacy LLC and Airport McKay Pharmacy, both in Houston. The defendants then allegedly submitted large claims for payment to federal health care programs and private insurers and divided the profits.

Dr. Jerry Keepers, 65, of Kingwood, Texas, is also named as a defendant in the indictment. He is charged with soliciting and receiving over $860,000 in illegal bribe and kickback payments from Parks and Lee and also conspiring with the two men to commit healthcare fraud.

Compounding prescriptions is a practice in which a pharmacist or physician combines, mixes or alters ingredients of a drug or multiple drugs to create a medication that is tailored to the specific needs of a patient. These medications are prescribed when standard Food and Drug Administration (FDA) approved drugs are unsuitable for the patient. They are also more expensive and reimbursed at a far higher rate by federal and private insurance companies. Compounded drugs are not to be mixed or marketed in bulk.

The indictment alleges physicians were provided pre-printed prescription pads that listed compounding formula choices. Participating physicians allegedly checked a box with their preferred selection and then faxed it directly to the associated pharmacies, rather than writing a prescription tailored to the patient who could then take it to a pharmacy of their choice.

Payments to physicians were disguised through various sham business arrangements, according to the indictment. For example, physicians would allegedly enter into agreements with a pharmacy to serve as “medical directors.” However, the physicians would provide no actual services as medical directors, according to the charges. Instead, physicians were allegedly paid kickbacks for writing prescriptions for medications whether or not their patients needed them and sending the prescriptions to pharmacies affiliated with Parks and Lee. As a result of Parks and Lee’s scheme, federal health care programs suffered a total estimated loss of at least $4.7 million.

Conspiracy to violate the anti-kickback statute carries a possible maximum sentence of five years in prison and a $250,000 fine, while violating the anti-kickback statute carries up to 10 years in prison and a $100,000 possible fine. A conviction of health care fraud without injury or death carries also carries a possible maximum of 10 years in prison, but if resulting in injury or death, the maximum penalty climbs to 20 years or life in prison, respectively.

Assistant U.S. Attorneys Melody N. Nelson and Richard M. Cella are prosecuting the case. The Defense Criminal Investigative Service, Department of Labor-Office of Inspector General (OIG), IRS – Criminal Investigation, U.S. Postal Service-OIG, FBI and the Department of Health and Human Services-OIG conducted the investigation.

An indictment is a formal accusation of criminal conduct, not evidence.

A defendant is presumed innocent unless convicted through due process of law.

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Financial Fraud: Four Persons Arrested Credit Card Bust-Out Scheme

December 10, 2018 FraudsWatch Leave a comment

Fourth Defendant Arrested in Credit Card ‘Bust-Out’ Scheme that Spent $2 Million on Luxury Watches, Liquor, Cars and Cemetery Plots

LOS ANGELES – With the surrender this morning of the final defendant, federal authorities have taken into custody four people named in a grand jury indictment that alleges a “bust-out” scheme in which the defendants fraudulently charged nearly $2 million in less than a year to credit cards often opened with “synthetic identities.”

Gayane Hakobyan, 69, of Hollywood Hills, was taken into custody this morning and is expected to be arraigned on the indictment this afternoon in United States District Court.

Previously in this case, Mikayel Hovhannisyan, 36, of North Hollywood, surrendered on December 3. The other two defendants in the case – Mikayel Hmayakyan, 41, of Glendale; and Vahan Aloyan, 43, also of Glendale – were arrested on November 20. During their arraignments, all three of these defendants entered not guilty pleas and were freed on bond.

The defendants allegedly conspired to carry out a wide-ranging credit card fraud scheme, using the fraudulently obtained cards to purchase hundreds of thousands of dollars’ worth of liquor and luxury watches. The 22-count indictment alleges a bust-out scheme in which the defendants obtained credit cards – sometimes under their real names, but often with synthetic identities created with a combination of real and fictitious information – that were run up to the credit limit. Members of the scheme then allegedly “paid down” by submitting payments from accounts with insufficient funds or through fake accounts to restore the credit line, which allowed them to make additional purchases.

All four defendants allegedly used the fraudulently-obtained credit cards to purchase hundreds of thousands of dollars in alcoholic beverages on behalf of the now-closed Liquor Spot in Glendale, where Aloyan was a manager.

The indictment also charges Hmayakyan with bank fraud for using fraudulent credit cards in the names of various aliases – including “Liam Sarcozzy” – to purchase plots at Forest Lawn Cemetery in Glendale, which he then sold at a profit. Hmayakyan is also accused of conspiring with others to fraudulently apply for loans under an alias to obtain a Kia Optima and in a real person’s name for a 2016 Lexus GX460. The indictment alleges that Hmayakyan never intended to pay any credit card bills nor made any payments on the loans.

During the execution of a search warrant in 2016, law enforcement seized more than 37,000 bottles of alcoholic beverages, worth approximately $300,000, from the Liquor Spot. They also seized nearly $13,000 in U.S. currency from the store, as well as nearly $13,000 and 37 watches and other jewelry items from Aloyan’s residence.

All four defendants are charged with one count of conspiracy to commit bank fraud and 10 counts of bank fraud. Hmayakyan is charged separately with six additional counts of bank fraud. Hmayakyan and Aloyan also are charged with possessing “unauthorized access devices,” which included credit cards, debit cards, bank account information and Social Security numbers belonging to other people. Hmayakyan is also charged with two counts of aggravated identity theft.

Each count of bank fraud and conspiracy to commit bank fraud carries a statutory maximum penalty of 30 years in federal prison. The charge of possession of unauthorized access devices carries a statutory maximum penalty of 10 years. The aggravated identity theft charges carry a mandatory consecutive sentence of two years.

United States District Judge George H. Wu has scheduled a trial in this case for early January.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.

This case was investigated by the United States Secret Service and the Glendale Police Department.

This case is being prosecuted by Assistant United States Attorney Poonam G. Kumar of the Major Fraud Section.

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Financial Fraud: Emily Moerdermo Fu Sentenced For Mail Fraud And Defrauded Clients

December 10, 2018 FraudsWatch Leave a comment

Realtor Sentenced For Stealing Millions From Clients

ATLANTA – Emily Moerdermo Fu, a metro Atlanta realtor and businesswoman who defrauded clients out of over $22 million dollars over a two-year period, has been sentenced to seven years, three months for mail fraud.

“While Fu was a well-respected real estate and financial professional, she took advantage of her reputation and clients’ trust to defraud them,” said U.S. Attorney Byung J. “BJay” Pak. “In some cases she created fictitious closings and then pocketed the money. In other instances, she went through with the closing and used the property as collateral for unauthorized loans for her own benefit, meanwhile embezzling hundreds of thousands of dollars in managing such properties.”

“This announcement serves as a reminder to scam artists who blatantly commit fraud that they will be held accountable through the judicial system,” said Scott D. Fix, Acting U.S. Postal Inspector in Charge of the Charlotte Division. “Postal Inspectors are committed to pursuing those individuals who violate the public’s trust and encourage customers to keep a watchful eye on their investments.”

According to U.S. Attorney Pak, the charges and other information presented in court: Fu operated Capital Management in Suwanee, Georgia, which offered a wide range of services to investors in commercial properties around metropolitan Atlanta, including investment recommendations, property financing and acquisition, and management services. From 2004 to 2017, Fu established several investment companies for a group of clients for the supposed purchase of commercial real estate in Forsyth, Gwinnett, Fulton, and other metro counties.

In November 2017, the investors discovered irregularities in the books of some of the investment companies and confronted Fu, who admitted to having embezzled around $930,000. Through queries of county property databases and other investigations, it was determined that Fu had never followed through on several commercial real estate purchases, each valued in the millions of dollars. The properties included medical and shopping centers in Atlanta and across the northern metro area. Fu represented to her victims that she had completed the closings and was managing the properties, when in fact she had diverted the loans and investment funds for these “ghost purchases” to her own purposes. Fu had been a prominent real estate professional before she committed the fraud.

Emily Moerdermo Fu, 58, of Atlanta, Georgia, has been sentenced by U.S. District Judge Richard W. Story to seven years, three months in prison to be followed by three years of supervised release, and ordered to pay restitution in the amount of $22,043,640.67. Fu pleaded guilty to mail fraud on July 12, 2018.

This case was investigated by the U.S. Postal Inspection Service.

Assistant U.S. Attorney Brian Pearce prosecuted the case.

For further information please contact the U.S. Attorney’s Public Affairs Office at USAGAN.PressEmails@usdoj.gov or (404) 581-6016. The Internet address for the U.S. Attorney’s Office for the Northern District of Georgia is http://www.justice.gov/usao-ndga.

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Financial Fraud: Pavandeep Bakhshi Charged For Allegedly Participating In A Widespread Scheme To Defraud Investors

December 10, 2018 FraudsWatch Leave a comment

Former Director Of Healthcare Services Company Charged In Alleged $300 Million Investment Fraud Scheme

The Defendant And His Conspirators Allegedly Inflated Company’s Value and Revenue to Defraud Investors

NEWARK, N.J. – A former member of the board of directors of a publicly traded healthcare services company was arrested at John F. Kennedy (JFK) International Airport over the weekend for allegedly participating in a widespread scheme to defraud investors and others out of hundreds of millions of dollars in connection with a merger transaction designed to convert the company into a private entity, U.S. Attorney Craig Carpenito for the District of New Jersey and Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division announced.

Pavandeep Bakhshi, 41, of the United Kingdom, is charged by complaint with one count of conspiracy to commit securities fraud and one count of securities fraud. Bakhshi was arrested Saturday evening at JFK Airport after arriving on a flight from London. He is scheduled to appear today before U.S. Magistrate Judge Leda Dunn Wettre in Newark federal court.

According to the complaint unsealed this weekend:

From May 2015 through September 2017, Bakhshi and co-conspirators Parmjit Parmar, aka “Paul Parmar,” Sotirios Zaharis, aka “Sam Zaharis,” and Ravi Chivukula allegedly orchestrated an elaborate scheme to defraud a private investment firm and others out of hundreds of millions of dollars in connection with the funding of a transaction to take private a healthcare services company (Company A) traded publicly on the London Stock Exchange’s Alternative Investment Market. To fund the transaction, the private investment firm put up $82 million and a consortium of financial institutions put up another $130 million. The scheme allegedly utilized fraudulent methods to grossly inflate the value of Company A and trick others into believing that Company A was worth substantially more than its actual value.

The complaint alleges that to present a positive picture of the company’s financial wealth, the conspirators allegedly sought to raise tens of millions of dollars in the public markets, purportedly to fund Company A’s acquisitions of various operating subsidiaries. In reality, the complaint alleges, a number of those entities either did not exist or had only a fraction of the operating income attributed to them. The conspirators allegedly funneled the proceeds of these secondary offerings through bank accounts they controlled and used the money for a variety of purposes that had nothing to do with acquiring the purported targets. The money from one of the offerings was instead used to make it appear as if the operating subsidiary had substantial customer revenue when, in fact, the funds were simply transfers of the money that had been raised in the secondary offering, the complaint alleges. The conspirators allegedly went to great lengths to make it appear that these funds were revenue, concocting phony customers and altering bank statements to make it appear as if the funds were coming from customers.

The conspirators allegedly:

• Created fictitious operating companies that Company A purportedly acquired in sham acquisitions;
• Falsified and fabricated bank records of subsidiary entities in order to generate a phony picture of Company A’s revenue streams;
• Generated fake income streams and phony customers of Company A and its subsidiaries; and
• Made material misrepresentations and omissions to the private investment firm and others.

The defendants’ alleged actions caused the private investment firm and others to value Company A at more than $300 million for purposes of financing the transaction to take the company private.

The alleged scheme was uncovered around September 2017, when the conspirators resigned from their positions with Company A or were terminated. On March 16, Company A and numerous of its affiliated entities filed for bankruptcy, attributing the company’s financial demise, in large part, to the fraud scheme.

The United States filed a criminal complaint against Parmar, Zaharis and Chivukula on May 16 for their alleged roles in the scheme. Zaharis and Chivukula currently are fugitives. The United States also filed a separate civil complaint on the same date seeking forfeiture of four properties that Parmar owns or controls, including a house in Colt’s Neck and three apartments in New York City. Separately, the U.S. Securities and Exchange Commission filed a civil complaint on May 16 against Parmar, Zaharis and Chivukula.

The investigation was conducted by the FBI. The U.S. Securities and Exchange Commission’s New York Regional Office provided assistance in the investigation.

The case is being prosecuted by Chief Paul A. Murphy of the U.S. Attorney’s Office’s Economic Crimes Unit, Assistant U.S. Attorney Nicholas P. Grippo of the Economic Crimes Unit and Assistant U.S. Attorney Sarah Devlin of the U.S. Attorney’s Office’s Asset Recovery Money Laundering Unit and Trial Attorney Leslie Lehnert of the Criminal Division’s Money Laundering and Asset Recovery Section.

The charges and allegations contained in the complaint are merely accusations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Defense counsel: Alex Spiro Esq., New York

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