Auto Dealer Arrested In $2 Million Fraud On Russian Citizens

NEWARK, N.J. – A New Jersey auto dealer was charged today for allegedly defrauding more than 140 Russian citizens who were customers of his auto sales business, U.S. Attorney Paul J. Fishman announced.

Sergey Kapustin, 47, of Warminster, Pennsylvania, was arrested today by special agents of the FBI and charged by complaint with one count of wire fraud and conspiring to commit wire fraud. He will appear this afternoon before U.S. Magistrate Judge Joseph A. Dickson in Newark federal court.

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

Kapustin was the owner and president of Global Auto Group, Effect Auto Sales and G Auto Sales, located in Elizabeth, New Jersey. Global bought and sold used cars, typically high-end vehicles that were classified as “salvaged.”

From January 2011 through December 2014, Kapustin allegedly operated business through a scheme to defraud customers, who usually lived in Russia, Ukraine or members of the former Soviet Union. Kapustin had one or more Russian language websites that offered for sale luxury vehicles, including Mercedes and Lexus that were normally priced below market value, that could be shipped to Finland for easy delivery to Russian citizens, if they agreed to pay full price upfront for the vehicle. Kapustin was Russian and his websites were geared to buyers who believed they were getting a “good deal” from a fellow countryman who could be trusted to follow through once the purchase price had been paid.

After the buyers would wire the full price to one or more bank accounts controlled by Kapustin, he would allegedly give them a litany of excuses and reasons for delay in delivery.  Unbeknownst to them, more often than not Kapustin had neither possession of nor title to the vehicles being sold. At some point, the victim would be offered a different, often inferior car, burdened with added shipping and storage costs.  The unsophisticated buyer, desperate to acquire something for money already spent, would oftentimes wire additional money to rescue the car from its storage; all to no avail. Those very few cars that did land in Finland were normally the product of salvage auctions for vehicles that had been immersed in or flooded with salt water and were inoperable. Kapustin allegedly stole approximately $2 million in this manner.

The count with which Kapustin is charged carries a maximum penalty of 20 years and $250,000 fine.

U.S. Attorney Fishman credited the special agents of the FBI, under the direction of Special Agent in Charge Timothy Gallagher in Newark, with the investigation leading to Kapustin’s arrest.

The government is represented by Senior Litigation Counsel V. Grady O’Malley of the U.S. Attorney’s Office Organized Crime/Gangs Unit.

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

Original PressReleases…

Justice Department Reaches Final Resolutions Under Swiss Bank Program

Information Received Continues to Drive Civil and Criminal Enforcement Efforts

The Department of Justice announced today that it has reached final resolutions with banks that have met the requirements of the Swiss Bank Program.  The Program provided a path for Swiss banks to resolve potential criminal liabilities in the United States, and to cooperate in the Department’s ongoing investigations of the use of foreign bank accounts to commit tax evasion.  The Program also provided a path for those Swiss banks that were not engaged in wrongful acts but nonetheless wanted a resolution of their status.  Banks already under criminal investigation related to their Swiss banking activities and all individuals were expressly excluded from the Program.

“The Swiss Bank Program has been and continues to be a vital part of the Justice Department’s efforts to aggressively pursue tax evasion,” said Attorney General Loretta E. Lynch. “This groundbreaking initiative has uncovered those who help facilitate evasion schemes and those who hide funds in secret offshore accounts; improved our ability to return tax dollars to the United States; allowed us to pursue investigations into banks and individuals.  I want to thank the Swiss government for their cooperation in this effort, and I look forward to continuing our work together to eradicate fraud and corruption.”

“Working with the Swiss government, we have made financial institutions reform the way they do business,” said Principal Deputy Associate Attorney General Bill Baer.  “We are moving toward an era of global financial transparency, and those seeking to violate our nation’s tax laws, or the laws of our treaty partners, will find that the days of hiding funds abroad are over.”

“The completion of the resolutions with the banks that participated in the Swiss Bank Program is a landmark achievement in the Department’s ongoing efforts to combat offshore tax evasion,” said Principal Deputy Assistant Attorney General Caroline D. Ciraolo.  “We are now in the legacy phase of the Program, in which the participating banks are cooperating, and will continue to cooperate, in all related civil and criminal proceedings and investigations.  The Tax Division, working closely with its colleagues throughout the Department and its partners within the Internal Revenue Service (IRS), will continue to hold financial institutions, professionals, and individual U.S. taxpayers accountable for their respective roles in concealing foreign accounts and assets, and evading U.S. tax obligations.”

“The completion of the examination of Category 3 and 4 banks in the Swiss Bank Program marks another milestone in the continued success of this valuable criminal compliance effort,” said Chief Richard Weber of IRS Criminal Investigation (CI).  “IRS–CI will continue to partner with DOJ in pursuing those who facilitate or engage in international income tax evasion.”

The Program established four categories of Swiss financial institutions. Category 1 included Swiss banks already under investigation when the Program was announced, and therefore, not eligible to participate.  Category 2 was reserved for those banks that advised the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S. related accounts.  In exchange for a non-prosecution agreement, the Category 2 banks made a complete disclosure of their cross-border activities, provided detailed information on accounts in which U.S. taxpayers have a direct or indirect interest, are cooperating in treaty requests for account information, are providing detailed information as to other banks that transferred funds into hidden accounts or that accepted funds when those secret accounts were closed, and must cooperate in any related criminal and civil proceedings for the life of those proceedings.  The banks were also required to pay appropriate penalties.

Banks eligible for Category 3 of the Program were those that established, with the assistance of an independent internal investigation of their cross-border business, that they did not commit tax or monetary transaction-related offenses and have an effective compliance program in place.  The Category 3 banks were required to provide the Department with an independent written report that identified witnesses interviewed and a summary of each witness’s statements, files reviewed, factual findings, and conclusions.  In addition, the Category 3 banks were required to appear before the Department and respond to any questions related to the report or their cross-border business, and to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations.  Upon satisfying these requirements, Category 3 banks received a non-target letter pursuant to the terms of the Program.

Category 4 of the Program was reserved for Swiss banks that were able to demonstrate that they met certain criteria for deemed-compliance under the Foreign Account Tax Compliance Act (FATCA).  Category 4 banks also were eligible for a non-target letter.

Between March 2015 and January 2016, the Department executed non-prosecution agreements with 80 Category 2 banks and collected more than $1.36 billion in penalties.  The Department also signed a non-prosecution agreement with Finacor, a Swiss asset management firm, reflecting the Department’s willingness to reach fair and appropriate resolutions with entities that come forward in a timely manner, disclose all relevant information regarding their illegal activities and cooperate fully and completely, including naming the individuals engaged in criminal conduct.

Between July and December 2016, four banks and one bank cooperative satisfied the requirements of Category 3, making them eligible for Non-Target Letters. No banks qualified under Category 4 of the Program.

“Offshore compliance remains an important area of tax administration,” said IRS Large Business & International Division (LB&I) Commissioner Douglas O’Donnell.  “We are evaluating incoming information to detect account holders who have evaded reporting overseas assets and income, and we are using this information to further untangle the web of financial institutions and intermediaries helping with this evasion.  We have expanded our investigations to other regions of the world, and we will continue to apply these techniques to help protect honest taxpayers.”

Principal Deputy Assistant Attorney General Ciraolo thanked the IRS and in particular, IRS-CI and the LB&I for their substantial assistance.  Principal Deputy Assistant Attorney General Ciraolo also thanked Tax Division Trial Attorneys Kimberle Dodd, Paul Galindo, Mark Kotila, Kathleen Lyon, and Thomas Voracek, who served as counsel on the Category 3 and 4 bank matters, as well as Senior Counsel for International Tax Matters and Coordinator of the Swiss Bank Program Thomas J. Sawyer and Senior Litigation Counsel Nanette L. Davis of the Tax Division.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

Original PressReleasess…

Leader of $242 Million Investment Fraud Scheme Sentenced to 18 Years in Federal Prison

Ponzi Scheme Involved Sale of Medical Debts

Baltimore, Maryland – U.S. District Judge James K. Bredar sentenced Richard Shusterman, age 53, of Highland Beach, Florida, today to 18 years in prison, followed by three years of supervised release, for a wire fraud conspiracy and nine counts of wire fraud in connection with a complex scheme to defraud investors and lenders of $242 million by selling fraudulent investment portfolios of debts purportedly owed by hospital patients.  Judge Bredar also entered orders requiring Shusterman to pay restitution of $171,383,834, and to forfeit $242,485,254.

On May 2, 2016, a federal jury convicted Shusterman, who is the fourth and final conspirator to be convicted in the scheme.  At today’s sentencing, Judge Bredar enhanced Shusterman’s sentence upon finding that Shusterman was the organizer of the criminal activity. Shusterman has been in custody since his conviction.

The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Gordon B. Johnson of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Andre R. Watson of U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI).

“Richard Shusterman and his co-conspirators perpetrated a brazen and complex Ponzi scheme that defrauded investors of more than $242 million,” said U.S. Attorney Rod J. Rosenstein. “The conspirators pretended that they were repaying investors with revenue earned by collecting debts, but they were really using the money of new victims to repay previous investors.”

According to evidence presented at his 22-day trial, Shusterman was a shareholder and president of International Portfolio, Inc. (IPI), located in Pennsylvania.  Co-conspirator Robert Feldman was part owner of IPI, and president of United Consulting, Inc.  Shusterman and Feldman represented that IPI had experience in the purchase, valuation, collection and resale of medical accounts receivable, comprised of past due patient accounts which the hospitals and other entities selling the accounts had been unsuccessful in collecting. Beginning on June 21, 2006, Shusterman and Feldman, through United Consulting and IPI, bought and sold consumer debt, including medical debt portfolios.  From December 2006 through June 2008, IPI paid more than $25 million to purchase over $4.1 billion in medical accounts receivable, comprising more than 3,872,514 past due patient accounts.

Jonathan Rosenberg and Douglas Kuber operated Account Receivable Services, LLC (ARS) in New York, New York.  They agreed to promote the sale of IPI debt portfolio to investors.  Pursuant to their agreement, Shusterman, through IPI, bundled the past due patient accounts from IPI’s inventory into investment portfolios, then sold the portfolios to ARS at a discounted rate.  ARS’s purchases of the medical debt portfolios from IPI came from investors who agreed to lend money to ARS in return for a high, fixed interest rate.  Shusterman and IPI agreed to manage the collection activity for each debt portfolio that IPI sold.  Investors were told that any funds collected by IPI were to be forwarded to escrow accounts opened and maintained by ARS, which, in turn, would use the funds to cover the periodic interest payments and outstanding balances owed to the investors.

Fraudulent Inflation of Purchase Prices for IPI Debt Portfolios to Pay Fees and Commissions

Rosenberg and Kuber misrepresented to investors that a loan secured by IPI debt portfolios would not be used to pay up-front fees and commissions associated with the investment offering.  In fact, however, ARS and IPI agreed to a concealed purchase price for a debt portfolio, then told the investor that the portfolio price was 5% to 10% higher than the concealed price, in order to cover their fees and commissions.  Specifically, Shusterman paid the loan proceeds in excess of the true purchase prices to Rosenberg and Kuber, characterizing these kickbacks as a refund or a rebate. From June 2007 to March 2009, Shusterman paid Kuber and Rosenberg kickbacks totaling in excess of $8 million.

In reliance on the misrepresentations of Rosenberg and Kuber, investors provided loans to ARS of approximately $145 million to purchase IPI debt portfolios, and other investors purchased approximately $122.5 million worth of IPI debt portfolios, all of which IPI managed.

Fraudulent Inflation of Collection Results to Maintain and Increase Investments

In order to induce existing investors to maintain and increase their participation in the investment scheme and to persuade new investors to join, ARS and IPI falsely represented the amount of income being generated from the collection activity for the medical debt portfolios.  According to trial testimony, it became apparent almost from the start that collections were significantly inadequate, not only in their failure to cover periodic interest payments that ARS owed its investors, but also to repay the investors’ principal.

Shusterman and Rosenberg agreed that IPI would advance ARS the money needed to make ARS’s periodic interest payments to the investors.  From July 2008 to December 2009, and without the investors’ knowledge, Shusterman and his co-conspirators wired approximately 209 advances from IPI into the bank accounts of the ARS debt portfolios, which were subsequently used to pay periodic interest payments due to an investor and/or inflate the collection history of the respective investor debt portfolios.  Misleading collection reports were also created to deceive the investors.

After their plan to subsidize ARS with monthly advances was implemented, and to ensure a continuing flow of new funding into the investment scheme, Shusterman and his co-conspirators continued to solicit existing and prospective investors to purchase or finance IPI debt portfolios.  For example, an investor was induced to fund the purchase of 12 more portfolios between July and November 2008, totaling approximately $65 million in new investments.  Another investor representative living in West River, Maryland was induced to fund the purchase of a portfolio on November 8, 2008 for $10 million, and another portfolio on May 26, 2009 for $5 million.  Shusterman and his co-conspirators then fraudulently used the new investor funds to make interest and resale payments in order to meet the investment benchmarks of prior investors.

As a result of the scheme, the loss to investors was $242 million.

New Jersey residents Robert Feldman, age 69, of Beach Haven; Jonathan E. Rosenberg, age 48, of West Orange; and Douglas A. Kuber, age 56, of Livingston, previously pleaded guilty to their participation in the conspiracy and were sentenced to 46 months, five years, and four years in prison, respectively. Judge Bredar also ordered: Feldman and Rosenberg to pay restitution of $148,251,859; and Kuber to pay restitution of $105,565,223.

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

United States Attorney Rod J. Rosenstein thanked the FBI and HSI Baltimore for their work in the investigation.  Mr. Rosenstein praised Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who prosecuted the case.

Original PressReleases…

Manhattan U.S. Attorney Charges Executive Of Axact In $140 Million Diploma Mill Scam

Preet Bharara, the United States Attorney for the Southern District of New York, Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the filing of a criminal Complaint charging UMAIR HAMID, a/k/a “Shah Khan,” a/k/a the “Shah,” with wire fraud, conspiracy to commit wire fraud, and aggravated identity theft in connection with a worldwide “diploma mill” scheme that collected at least approximately $140 million from tens of thousands of consumers.  As alleged, HAMID and his co-conspirators made false and fraudulent representations to consumers on websites and over the phone to trick them into enrolling in purported colleges and high schools, and issued fake diplomas upon receipt of upfront fees from consumers.  HAMID was arrested on December 19, 2016, and was presented yesterday in federal court in Fort Mitchell, Kentucky.

Manhattan U.S. Attorney Preet Bharara said:  “As alleged, while promising the rewards of a higher education, Umair Hamid was actually just peddling diplomas and certifications from fake schools.  Hamid allegedly took hefty upfront fees from young men and women seeking an education, leaving them with little more than useless pieces of paper.”

USPIS Inspector-in-Charge Philip R. Bartlett said:  “Mr. Hamid took advantage of the aspirations and dreams of thousands wanting a college education by devising a scheme to issue college coursework, degrees and certifications not worth the paper they were printed on. Postal Inspectors and their law enforcement partners will spare no resource to bring these scammers to justice, protecting those striving for higher education and opportunities.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said:  “Thousands of people’s hopes were crushed as this alleged diploma mill scheme came crashing down.  Victims took at face value the lies Hamid and his co-conspirators are alleged to have sold them.  Today, we’re rewriting the lesson plan.”

According to the allegations contained in the Complaint filed today in Manhattan federal court:

The Axact Scheme

HAMID, using the aliases “Shah Khan” and the “Shah,” and others operated a massive education “diploma mill” through the Pakistani company “Axact,” which has held itself out as one of the world’s leading information technology (“IT”) providers.  Working on behalf of Axact, HAMID and others made misrepresentations to individuals across the world, including throughout the United States and in the Southern District of New York, in order to dupe these individuals into enrolling in supposed high schools, colleges, and other educational institutions.  Consumers paid upfront fees to HAMID and his co-conspirators, believing that in return they would be enrolled in real educational courses and, eventually, receive legitimate degrees.  Instead, after paying the upfront fees, consumers did not receive any legitimate instruction and were provided fake and worthless diplomas.

Axact promoted and claimed to have an affiliation with approximately 350 fictitious high schools and universities, which Axact advertised online to consumers as genuine schools.  During certain time periods since 2014, Axact received approximately 5,000 phone calls per day from individuals seeking to purchase Axact products or enroll in educational institutions supposedly affiliated with Axact.  At least some of those consumers appeared to believe that they were calling phone numbers associated with the respective schools.  When consumers asked where the schools were located, sales representatives were instructed to give fictitious addresses.

Once a consumer paid for a school certificate or diploma that falsely reflected a completed course of study, Axact sales agents were trained to use sales techniques to convince the consumer that the consumer should also purchase additional “accreditation” or “certifications” for such certificates or diplomas in order to make them appear more legitimate.  Axact, through HAMID and his co-conspirators, falsely “accredited” purported colleges and other educational institutions by arranging to have diplomas from these phony educational institutions affixed with fake stamps supposedly bearing the seal and signature of the U.S. Secretary of State, as well as various states and state agencies and federal and state officials.

HAMID’s Role in the Scheme

HAMID served as Axact’s “Assistant Vice President of International Relations.”  While based in Pakistan, HAMID was involved in managing and operating online companies that falsely held themselves out to consumers over the Internet as educational institutions.  Among other things, HAMID made various false and fraudulent representations to consumers in order to sell fake diplomas.  At HAMID’s direction, the websites of purported “schools” (1) falsely represented that consumers who “enrolled” with the schools by paying tuition fees would receive online instruction and coursework, (2) sold bogus academic “accreditations” in exchange for additional fees, (3) falsely represented that the schools had been certified or accredited by various educational organizations, and (4) falsely represented that the schools’ degrees were valid and accepted by employers, including in the United States.

As a further part of the scheme, HAMID and a co-conspirator (1) opened bank accounts in the United States in the names of shell entities, effectively controlled by HAMID, which received funds transferred by consumers in exchange for fake diplomas, (2) transferred funds from those bank accounts to bank accounts associated with other entities located elsewhere in the United States, the United Arab Emirates, and Canada, at the direction of HAMID, and (3) opened and operated an account with Paypal, the online payment service provider, to collect and distribute consumer funds obtained in connection with their fraudulent scheme.

In or about May 2015, Axact was shut down by Pakistani law enforcement, and certain individuals associated with Axact were prosecuted in Pakistan.  Nevertheless, after May 2015, HAMID resumed his fraudulent business of selling fake diplomas to consumers in the United States for upfront fees based upon false and fraudulent representations.  Most recently, HAMID traveled to the United States in order to open a bank account that he has used to collect money from consumers he defrauded.

HAMID, 30, of Karachi, Pakistan, is charged with one count of conspiracy to commit wire fraud and two counts of wire fraud, each of which carries a maximum sentence of 20 years in prison; and one count of aggravated identity theft, which carries a mandatory minimum sentence of two years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the investigative work of the FBI and Postal Inspection Service.  Mr. Bharara noted that the investigation remains ongoing.

If you believe you were a victim of this crime, including a victim entitled to restitution, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact the Victim/Witness Unit at the United States Attorney’s Office for the Southern District of New York, at (866) 874-8900.  For additional information, go to http://www.usdoj.gov/usao/nys/victimwitness.html.

The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit.  Assistant United States Attorneys Edward A. Imperatore and Noah D. Solowiejczyk are in charge of the prosecution.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Original PressReleases… 

Small Business Owner Sentenced to Prison for Bankruptcy Fraud

Assistant U.S. Attorneys Joseph J.M. Orabona (619)546-7951 or Michael Heyman (619) 546-9615
NEWS RELEASE SUMMARY – December 19, 2016

SAN DIEGO – Phillip E. Southwood, Jr., a 50-year-old former owner of Southwood Industries, Inc., a holding company for Jefferson Liquor in Poway, was sentenced in federal court today to 12 months and one day in prison for multiple bankruptcy-related crimes. Southwood was also ordered to pay $119,000 in restitution.

Following a referral from the U.S. Trustee’s Office and a lengthy investigation by the Federal Bureau of Investigation, Southwood was indicted on six counts of fraud involving his personal Chapter 7 bankruptcy, including bankruptcy fraud, making false oaths in bankruptcy, and making false statements under penalty of perjury in bankruptcy. After a two-week jury trial before U.S. District Judge M. James Lorenz in January 2016, the jury deliberated for several hours and found Southwood guilty on all 6 counts.

According to the evidence proven at trial and court documents, Southwood devised a scheme to defraud his creditors by voluntarily filing a false and fraudulent bankruptcy petition. From at least December 2007 and continuing up to and including March 5, 2009, Southwood caused a number of acts to be undertaken in furtherance of his fraudulent scheme.

He drafted and executed a fraudulent Fictitious Business Name Statement for Southwood Industries, whereby he admittedly forged his father’s signature. Thereafter, Southwood caused his parents to open a bank account for the purpose of receiving and concealing proceeds from the sale of a liquor store. Southwood was not named on this account.

Then, Southwood caused to be deposited approximately $171,000 in cash from that sale into the account he directed his parents to open. Once the funds were deposited into this account, Southwood directed his parents to use the funds to pay for Southwood’s personal expenses and to give him cash at his request.  When he filed his bankruptcy on March 5, 2008, Southwood concealed the proceeds from the sale of the liquor store and the bank account opened by his parents at Southwood’s direction which was used to receive and disburse these funds.

During the bankruptcy process, Southwood testified falsely about his schedules and financial affairs, including the funds he received from the sale of the liquor store. Southwood made false statements about the amount of cash he had on hand on the date he filed his bankruptcy. Southwood also made false statements about the timing and amount of preferential payments he made to certain creditors, family members, and insiders prior to filing his bankruptcy.

“The bankruptcy system is intended to provide eligible individuals an opportunity to obtain a fresh financial start. Unfortunately, in this case, the defendant used the bankruptcy system as a means to defraud his creditors by concealing a substantial amount of money that could have been used to pay off most of his debts,” said U.S. Attorney Laura Duffy. “Individuals who are contemplating bankruptcy are reminded that if they intentionally abuse the bankruptcy process, they will be investigated and prosecuted for their crimes.”

“Criminal bankruptcy fraud threatens the integrity of the bankruptcy system, as well as public confidence in that system,” said Tiffany Carroll, Acting U.S. Trustee for Southern California, Hawaii, and Guam (Region 15). “I am grateful to U.S. Attorney Laura Duffy and our law enforcement partners for their commitment to combating bankruptcy-related crimes, as demonstrated by today’s sentencing.”

The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws. Region 15 is headquartered in San Diego, with an additional office in Honolulu.

SUMMARY OF CHARGES:

Count 1 – Bankruptcy Fraud (Title 18, United States Code, Section 157(1))

Maximum Penalties: 5 years in prison and $250,000 fine

Counts 2-3 – False Oath and Account in Bankruptcy (Title 18, United States Code, Section 152(2))

Maximum Penalties: 5 years in prison and $250,000 fine

Counts 4-6 – False Statement in Bankruptcy (Title 18, United States Code, Section 152(3))

Maximum Penalties: 5 years in prison and $250,000 fine

AGENCY

Federal Bureau of Investigation

Original PressReleases…

Three Romanian nationals indicted in cyber fraud case in which they infected 60,000 computers, sent out 11 million malicious emails and stole at least $4 million

A 21-count indictment was unsealed in which three Romanian nationals were charged for operating a cyber fraud conspiracy in which they infected 60,000 computers, sent out 11 million malicious emails and stole at least $4 million, said U.S. Attorney Carole S. Rendon and FBI Special Agent in Charge Stephen D. Anthony.

Bogdan Nicolescu, 34, Tiberiu Danet, 31, and Radu Miclaus, 34, were extradited to the United States this week after being taken into custody in their native Romania earlier this year. They are each charged with conspiracy to commit wire fraud, conspiracy to traffic in counterfeit service marks, aggravated identity theft, conspiracy to commit money laundering and 12 counts each of wire fraud.

“This case illustrates the sophistication and determination with which cyber criminals seek to harm Americans and American businesses from abroad,” said Assistant Attorney General Leslie R. Caldwell.  “But our response demonstrates that, with effective international cooperation, we can track these criminals down and make sure they face justice, no matter where or how they try to hide.”

“These defendants stole millions of dollars from people in the United States through a sophisticated fraud conspiracy they operated in Eastern Europe,” Rendon said. “Cybercrime is an ever-growing threat. We will continue to work with both our partners in law enforcement and in the private sector to evolve with the threat and protect our networks and national security.”

“This indictment and subsequent arrests reveal the dynamic landscape in which international criminals utilize sophisticated cyber methods to take advantage of and defraud, unsuspecting victims,” Anthony said. “Despite the complexity and global character of these investigations, these arrests demonstrate the commitment by the FBI and our partners to aggressively pursue these individuals and bring justice to the victims.”

According to the indictment filed in U.S. District Court in the Northern District of Ohio:

Nicolescu, Danet and Miclaus collectively operated a criminal conspiracy from Bucharest, Romania. It began in 2007 with the development of proprietary malware, which they disseminated through malicious emails purporting to be legitimate from such entities as Western Union, Norton AntiVirus and the IRS. When recipients clicked on an attached file, the malware was surreptitiously installed onto their computer.

This malware harvested email addresses from the infected computer, such as from contact lists or email accounts, and then sent malicious emails to these harvested email addresses. The defendants infected and controlled more than 60,000 individual computers, primarily in the United States.

Controlling these computers allowed the defendants to harvest personal information, such as credit card information, user names and passwords. They disabled victims’ malware protection and blocked the victims’ access to websites associated with law enforcement.

Controlling the computers also allowed the defendants group to use the processing power of the computer to solve complex algorithms for the financial benefit of the group, a process known as cryptocurrency mining.

The defendants used stolen email credentials to copy a victim’s email contacts. They also activated files that forced infected computers to register email accounts with AOL. The defendants registered more than 100,000 email accounts using this method. They then sent malicious emails from these addresses to the compromised contact lists. Through this method, they sent more than 11 million malicious emails.

When victims with infected computers visited websites such as Facebook, PayPal, eBay or others, the defendants would intercept the request and redirect the computer to a nearly identical website they had created. The defendants would then steal account credentials. They used the stolen credit card information to fund their criminal infrastructure, including renting server space, registering domain names using fictitious identities and paying for Virtual Private Networks (VPNs) which further concealed their identities.

The defendants were also able to inject fake pages into legitimate websites, such as eBay, to make victims believe they were receiving and following instructions from legitimate websites, when they were actually following the instructions of the defendants.

They placed more than 1,000 fraudulent listings for automobiles, motorcycles and other high-priced goods on eBay and similar auction sites. Photos of the items were infected with malware, which redirected computers that clicked on the image to fictitious webpages designed by the defendants to resemble legitimate eBay pages.

These fictitious webpages prompted users to pay for their goods through a nonexistent “eBay Escrow Agent” who was simply a person hired by the defendants. Users paid for the goods to the fraudulent escrow agents, who in turn wired the money to others in Eastern Europe, who in turn gave it to the defendants. The payors/victims never received the items and never got their money back.

This resulted in a loss of at least $4 million.

The Bayrob group laundered this money by hiring “money transfer agents” and created fictitious companies with fraudulent websites designed to give the impression they were actual businesses engaged in legitimate financial transactions. Money stolen from victims was wired to these fraudulent companies and then in turn wired to Western Union or Money Gram offices in Romania. European “money mules” used fake identity documents to collect the money and deliver it to the defendants, according to the indictment

This case is being prosecuted by Assistant U.S. Attorneys Duncan T. Brown and Om Kakani and Brian Levine, Senior Counsel with the Justice Department’s Computer Crime and Intellectual Property Section. The case was investigated by the FBI, with assistance from the Romanian National Police.

If convicted, the defendants’ sentences will be determined by the court after review of factors unique to this case, including the defendant’s prior criminal record, if any, the defendant’s role in the offense and the characteristics of the violations.  In all cases, the sentence will not exceed the statutory maximum and, in most cases, it will be less than the maximum.

An indictment is only a charge and is not evidence of guilt.  A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.

Original PressReleases…