Examples of Financial Fraud: FBI and Department Of Justice Investigations 2016

FBI and Department of Justice
FBI and Department of Justice

These examples of financial fraud are exposed by the FBI and Department of Justice, those cases were executed in 2016 and are the most important.

Leader of Multi-Million Dollar Bank ‘Bustout’ Scheme that used Counterfeit Checks Sentenced

On May 19, 2016, in Los Angeles, California, Jae Ho Chung was sentenced to 63 months in prison and ordered to pay nearly $2.1 million in restitution to a variety of banks. Chung pleaded guilty in October 2015 to two counts of bank fraud. According to court documents, the overall scheme involved approximately $15 million in losses, but Chung was directly involved in criminal conduct that netted him approximately $2 million. Beginning in July 2008 and continuing until October 2013, Chung conspired with Michael Yeon Cho and 13 other co-defendants to defraud banks through the bustout scheme that used counterfeit checks to inflate account balances so that withdrawals could promptly be made before the banks learned that the deposited checks were worthless. Chung created and directed others to create counterfeit checks, directed others to arrange the establishment of “shell” corporations make it appear that bank accounts were legitimate; and withdrew funds from bustout accounts and transferred the fraudulent proceeds to himself and others. Cho, who was Chung’s primary co-conspirator, previously pleaded guilty and is scheduled to be sentenced at a later date. Out of the remaining 13 defendants, the charges against 12 of them have been resolved either through pre-trial diversion or through guilty pleas. Several of those defendants have been sentenced to prison terms as long as 33 months. One remaining defendant is scheduled to go on trial.

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Resident of Puerto Rico Sentenced for Bank Fraud Scheme

On April 4, 2016, Rosa E. Castrillón-Sánchez, of Puerto Rico, was sentenced to 159 months in prison, three years of supervised release and ordered to pay $5 million in restitution to victims of her scheme. Castrillón-Sánchez pleaded guilty Dec. 13, 2013, to conspiracy to commit bank fraud and wire fraud and aggravated identity theft. According to court documents, Castrillón-Sánchez falsely represented that she was the beneficiary to a Certificate of Deposit (“CD”) or trust for a large amount of money that was frozen at a local bank in Puerto Rico. Castrillón-Sánchez would request that an individual provide her with a sum of money or take out a personal loan to assist in the releasing of the funds – with full repayment promised as soon as the CD was unfrozen. As part of the scheme, Castrillón-Sánchez and other co-conspirators used false documents to obtain some of the loans from local banks and distributed payments to individuals. From April 2005 to March 2010, Castrillón-Sánchez and her co-conspirators fraudulently induced over 90 individuals to loan her over $5,000,000 in cash. Castrillón-Sánchez’s conspired with her mother, Rosa Sanchez Mercado, Jorge Rivera Izquierdo, and others to use proceeds from the fraudulent scheme. Izquierdo was sentenced for money laundering on April 27, 2015, to 42 months in prison and was ordered to pay restitution of $201,503. Co-defendants Carmen Sosa Barreto, Luis Roriguez Barreto, Limarie Amalbert Birriell, Amarilys Pagan Estrella, and Noemi Delgado were sentenced to probation. Sanchez Mercado is scheduled to be sentenced.

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On March 24, 2016, in Springfield, Missouri, Michael R. Ussery, of Bois D’Arc, was sentenced to 24 months in prison and ordered to pay $1.3 million in restitution to the victim bank. On Oct. 30, 2015, Ussery was convicted at trial of 12 counts of bank fraud. According to court documents, in 2007, Ussery was building a $1.6 million home for himself in Bois D’Arc. A bank agreed to provide a $1.6 million construction loan to build the residence; $1.15 million was used to pay off the previous bank which had financed the construction of the residence up to that point, and the remaining $450,000 was supposed to have gone to completing the construction of the residence. When work was done on the house, Ussery was supposed to obtain an invoice and a lien waiver from the contractors and submit these documents to the bank, which would then make a disbursement of the amount owed to Ussery’s personal bank account. From May 29 to June 25, 2007, a dozen false invoices and lien waivers were submitted to the bank and, as a result, the bank deposited $315,417 into Ussery’s personal bank account. Ussery eventually stopped construction on the Bois D’Arc property and the bank had to foreclose on the loan. The bank took a $782,349 loss after the sale of the property with its partially finished house. The bank also paid a total of $103,257 to settle mechanic liens placed on the residence by the contractors that Ussery claimed he had paid in the false lien waivers. Ussery filed for bankruptcy relief in 2011.

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California Man Sentenced for Two Fraud Schemes

On March 21, 2016, in San Diego, California, Karen “Kevin” Galstian, of Chatsworth, was sentenced to 100 months in prison and was ordered to pay $17 million in restitution to Verizon and more than $200,000 in restitution to Bank of America. In January 2014, Galstian pleaded guilty to bank fraud for the Bank of America scheme and in November 2015, Galstian pleaded guilty to wire fraud for the Verizon scheme. According to court documents, Galstian used his company, Toro Ride, Inc., to induce Verizon Wireless to provide the business with more than 30,000 iPhones at a substantial discount. Galstian fraudulently convinced Verizon to provide him with iPhones worth more than $19.4 million. In less than six months, Galstian generated illegal proceeds of more than $13 million by re-selling the iPhones. Toro Ride used some of the illicit proceeds derived from iPhone sales to make required monthly payments to Verizon, which enabled Galstian to continue to order thousands of additional iPhones. In the bank fraud scheme, Galstian orchestrated a conspiracy to defraud Bank of America of approximately $689,000. As part of the scheme, members of the conspiracy opened over 90 accounts at Bank of America and engaged in a series of transactions that allowed them withdraw funds before Bank of America learned that there were not sufficient funds in the target accounts to cover the withdrawals. In yet another scheme, Galstian cashed checks drawn on accounts in which fraudulently obtained tax returns had been deposited.

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Former Florida CEO Sentenced in Scheme to Defraud Investors

On Feb. 22, 2016, in Key West, Florida, Fred Davis Clark Jr., aka Dave Clark, the former Cay Clubs Chief Executive Officer, was sentenced to 480 months in prison for his participation in a $300 million dollar vacation rental fraud scheme. In addition, forfeiture money judgments were entered against Clark that includes $303,800,000 for the bank fraud and $3,300,000 for the SEC obstruction. There is also court-ordered forfeiture of specific overseas assets of approximately $2.6 million. Clark was convicted on Dec. 11, 2015, of three counts of bank fraud and three counts of making a false statement to a financial institution. According to court records, the scheme involved sales at Cay Clubs Resorts and Marinas (Cay Clubs), to approximately 1,400 investors. Clark also was convicted of obstruction of the U.S. Securities and Exchange Commission (SEC), in connection with the SEC’s efforts to investigate his conduct related to Cay Clubs. From 2004 through 2008, Cay Clubs marketed vacation rental units for locations in Florida, Las Vegas and the Caribbean, to investors throughout the United States. Despite its promises, Cay Clubs never developed the properties but operated as a Ponzi scheme, using proceeds from sales to new investors to pay overdue obligations to earlier investors. In order to meet Cay Clubs’ financial obligations and obtain funds for himself, Clark engaged in a serious of fraudulent mortgage transactions totaling more than $20 million worth of bank loans. Clark also used proceeds from the investor sales to purchase a gold mine, a coal reclamation project and a rum distillery for his personal benefit. Clark’s co-conspirators Barry J. Graham, and Ricky Lynn Stokes, both of Ft. Myers, Florida, were both previously sentenced to 60 months in prison and ordered to pay restitution of $163,530,377 to numerous individual and financial institution victims.

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Pennsylvania Businessman Sentenced for Fraud Scheme

On Feb. 11, 2016, in Pittsburgh, Pennsylvania, Joseph Nocito, Jr. of Sewickley, was sentenced to 16 months in prison, two years of supervised release and ordered to pay restitution of $1,872,935 and a fine of $25,000. Nocito was previously convicted of conspiracy to commit bank fraud and filing a false tax return. According to court documents, on July 27, 2007, Nocito purchased a property in Florida with a $2,377,000 mortgage loan from a bank. In loan documents submitted to the bank, Nocito falsely represented that the purchase price of the property was $3,000,000 and that a $600,000 cash deposit had been made toward the sales price. As part of the conspiracy, $458,350 of the mortgage loan was paid to Nocito as kickbacks, without the knowledge or approval of the bank. Nocito also filed a false tax return for calendar year 2007 reporting his total adjusted gross income as $88,269 when, in fact, his correct total adjusted gross income was $529,619.

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Pennsylvania Man Sentenced for Fraud and Tax Charges

On Feb. 2, 2016, in Philadelphia, Pennsylvania, Chaka Fattah, Jr. was sentenced to 60 months in prison and ordered to pay $1,172,157 in restitution. On Nov. 5, 2015, Fattah, Jr. was found guilty of 22 counts of fraud and tax charges in connection with a scheme to defraud banks, the IRS and the Philadelphia School District. According to court documents, in 2005, Fattah, Jr. and an associate supplied fictitious earnings to banks to obtain numerous business lines of credit which he then used primarily for personal expenses. In 2010, Fattah, Jr. provided false information to two banks, the SBA and an SBA investigator in an attempt to settle the debts for less than what was owed. Additionally, for tax years 2005, 2006 and 2008, Fattah, Jr. filed false federal income tax returns, and in 2010, failed to pay on a timely basis federal income tax of approximately $51,141 on more than $150,000 in reported income. Finally, while Fattah, Jr. was serving as the chief operating officer of Delaware Valley High School, he submitted false expense information and inflated salary figures resulting in approximately $940,000 of fraudulently obtained payments from the school district.

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Missouri Business Owner, Son Sentenced for $5.5 Million Fraud Scheme

On Jan. 22, 2016, in Springfield, Missouri, Bruce Swisshelm, of Battlefield, and his son, Bruce Swisshelm II, of Springfield, were sentenced in separate appearances. Swisshelm was sentenced to 12 months and one day in prison and ordered to pay $5,492,853 in restitution. Swisshelm II was sentenced to four weeks in custody and five years of probation and ordered to pay $100,000 in restitution. On July 22, 2015, Swisshelm pleaded guilty to bank fraud and money laundering; Swisshelm II pleaded guilty to misprision of a felony. According to court documents, Swisshelm was the owner of Horned Frog Deli, Inc., and Swisshelm Properties, Inc. Swisshelm II was the president of Swisshelm Properties. These corporations specialized in the restaurant industry and owned and developed commercial properties. Swisshelm submitted false financial documents to a bank to receive four commercial loans, totaling $5,592,583, from February to June 25, 2011. Swisshelm submitted financial statements to the bank that claimed his businesses earned a net income of more than $780,000 in 2010. Tax documents submitted by Swisshelm to the IRS revealed those businesses had losses that exceeded $1.8 million in 2010. Swisshelm II became aware that financial statements submitted to the bank by his father were false but he failed to notify authorities.

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Michigan Residents  Sentenced for Mortgage Fraud Scheme

On Jan. 11 and 12, 2016, in Detroit, Michigan, five individuals were sentenced to prison for their roles in a multi-year mortgage fraud conspiracy.

• Jason Najor, of West Bloomfield Township – 16 months in prison, four years of supervised release and ordered to pay restitution of $705,900.
• Jeffrey Najor, of Wixom – 24 months in prison, four years of supervised release and ordered to pay restitution of $1,707,200.
• Suhail Hallak, of Oak Park – 15 months in prison, three years of supervised release and ordered to pay restitution of $759,804.
• Joey Murad, of Old Shelby Township – 33 months in prison, four years of supervised release and ordered to pay restitution of $188,904.
• Al Karana, of Old Sterling Heights – one day in prison, three years of supervised release to include one year of home confinement and ordered to pay restitution of $204,600.

According to court documents, between January 2006 and December 2008, the perpetrators of the scheme purchased single-family homes in Detroit for approximately $5,000 to $40,000 each and re-sold the homes to third party individuals, referred to as “straw buyers,” that they recruited. The co-conspirators then caused fraudulent mortgage loan applications in the names of the straw buyers to be submitted to financial institutions. Mary Ann Paschal, Shawn Alexander Reed, Wasseem Shamoun and Peter Allen were previously sentenced for their roles in the mortgage scheme with sentencing ranging from 12 to 21 months and total restitution owed of $1,112,050.

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Property Manager Sentenced for Role in Multimillion-Dollar Mortgage Fraud

On Jan. 7, 2016, in Camden, New Jersey, Paul Watterson, of Mountainside, was sentenced to 15 months in prison and three years of supervised release. Watterson, a property manager, previously pleaded guilty to wire fraud and money laundering conspiracies. According to court documents, Watterson participated in a scheme to defraud financial institutions as part of a multimillion-dollar mortgage fraud that used phony documents and “straw buyers” to make illegal profits on over-developed condominiums in the Wildwood area. Watterson and his conspirators identified homes in Wildwood and Wildwood Crest and recruited straw buyers to purchase those properties at inflated rates. Watterson created fraudulent loan applications and obtained false supporting documents for certain straw purchasers. Watterson’s conspirators took a portion of the mortgage loan proceeds then distributed portions to other members of the conspiracy. Watterson received $273,600 from five separate real estate transactions.

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Former Credit Union Manager Sentenced for Embezzlement

On Jan. 4, 2016, in Grand Rapids, Michigan, Kathryn Sue Simmerman, of Muskegon, was sentenced to 78 months in prison, two years of supervised release and ordered to pay $1.9 million in restitution. According to court documents, for more than 15 years, Simmerman embezzled $1,945,000 from her employer, a federal credit union, by removing cash from its vault and placing it in her purse. She deposited some of the cash into credit union accounts she controlled, and took the remainder of it home to spend on her own use and enjoyment. She hid her activity by manipulating the credit union’s books and records.


New York Businessman Sentenced for Making False Statements and Filing False Tax Returns

On Dec. 22, 2015, in White Plains, New York, Selim Zherka was sentenced to 37 months in prison, ordered to forfeit $5.23 million, pay restitution of $1,276,386 and pay a $1.5 million fine. On Aug. 27, 2015, Zherka pleaded guilty to charges that he conspired to make false statements to a bank and file materially false tax returns. According to court documents, starting in December 2005, Zherka conspired with others to obtain $63.5 million in loans from a bank for the purchase of apartment house complexes in Tennessee. Zherka lied on bank documents about the purchase price of the real estate acquisition and the amount of the down payments he was making toward the purchases in question. In addition, Zherka repeatedly submitted fraudulent tax returns to the IRS that overstated depreciation expenses and understated his capital gains for the real estate holding companies in which he was a partner, thereby reducing their tax liabilities.

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Ohio Man Sentenced for Credit Union Fraud

On Dec. 22, 2015, in Cleveland, Ohio, Gezim Selgjekaj, of Avon Lake, was sentenced to 300 months in prison and was ordered to pay $16 million in restitution. Previously, Selgjekaj was found guilty of one count of conspiracy, 15 counts of financial institution fraud, five counts of bribery and six counts of money laundering. According to court documents, Selgjekaj fraudulently obtained more than $10.6 million in loan proceeds from the St. Paul Croatian Federal Credit Union between 2003 and 2010. Selgjekaj obtained the loans by providing more than $200,000 in bribes to Anthony Raguz, the chief operating officer of the credit union. Selgjekaj is the latest of more than two dozen people convicted of crimes related to the collapse of St. Paul Croatian Federal Credit Union. The credit union was closed and then liquidated in 2010 after sustaining approximately $170 million in total losses, with approximately $72.5 million of those losses tied to individual criminal fraud schemes, making it the largest credit union failure in American history. Raguz is currently serving a 14 year prison sentence.

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California Woman Who Ran High-End Denim Jean Company Sentenced in $15 Million Bank Fraud Scheme

On Dec. 7, 2015, in Los Angeles, California, Carolyn Marie Jones, of Corona, was sentenced to 79 months in prison and ordered to pay $15,124,100 in restitution to individual investors and Union Bank of California. Jones pleaded guilty in February to bank fraud and concealing assets in a bankruptcy proceeding. According to court documents, Jones was the chief executive officer of a high-end jean company, DDI (sometimes known as Diamond Decisions, Inc.), which sold jeans under the labels Privacywear and PRVCY Premium. Jones filed a fraudulent loan application which resulted in Union Bank issuing an $8.5 million line of credit (later increased to $15 million) to Jones in late 2008. However, Jones had filed a fraudulent loan application that used another person’s social security number, bogus tax returns that had never been filed with the IRS and false financial statements for DDI that grossly overstated the company’s profits. Jones defaulted on the loan and filed Chapter 11 bankruptcy. Jones lied to the bankruptcy trustee, concealed DDI assets, specifically about $120,000 that she had received from DDI customers, and spent some of the money on herself.

Leader of Bank Fraud Conspiracy Sentenced

On Nov. 23, 2015, in San Diego, California, Vahag Stepanyan, of Las Vegas, Nevada, was sentenced to 33 months in prison for participating in schemes to defraud a federally insured financial institution and the IRS. According to court documents, Stepanyan was a leader of a sophisticated bank fraud scheme. Stepanyan guided other co-conspirators in the creation of fictitious business entities in Nevada that were used to set up bank accounts. Stepanyan and other co-conspirators then engaged in a series of bank transactions that allowed co-conspirators to withdraw recently deposited funds from the bank accounts before the bank learned that the accounts did not have sufficient funds to cover the withdrawals. The scheme resulted in a loss of $689,000 to the bank. In a separate scheme to defraud the IRS, Stepanyan cashed checks drawn on accounts that had received fraudulent tax refunds. This scheme resulted in millions of dollars in fraudulent claims for tax refunds.

Florida Man Sentenced for Fraudulent Short Sale of a 10-Acre Residential Property

On Nov. 18, 2015, in Miami, Florida, Jaime Olaya Marroquin, a/k/a Jaime Olaya, was sentenced to 30 months in prison and three years of supervised release for arranging a fraudulent short sale of a 10-acre residential property. A restitution hearing is scheduled. Olaya previously pleaded guilty to bank fraud and he agreed to forfeit the property involved. According to court documents, in 2005, Olaya purchased a 10-acre residential property. In 2008, he quitclaimed half of the property to AJZ Investments (AJZ), a company he controlled. To avoid having to continue making payments on the $1.6 million mortgage debt, Olaya submitted a request to the bank for a short sale on the property, while intentionally excluding the portion of the property he quitclaimed to AJZ. Based on a series of misrepresentations by Olaya, the bank approved the short sale of the property for $430,000, canceled Olaya’s remaining $1.2 million debt and released the mortgages encumbering the entire 10 acres. As a result of the fraud, Olaya was successful in preventing the bank from obtaining the benefit of the approximately $421,000 value of the property that was quitclaimed to AJZ.

Missouri Businessman Sentenced for Fraud Schemes

On Oct. 14, 2015, in Springfield, Missouri, Richard Thomas Gregg, of Springfield, was sentenced to 78 months in prison and ordered to pay $3,098,896 in restitution to the victims of his fraud schemes. On April 3, 2015, Gregg pleaded guilty to bank fraud and bankruptcy fraud. Gregg was the principal shareholder and a director of Southwest Community Bank in Springfield, which failed in May 2010. According to court documents, Gregg substantially jeopardized the soundness of that financial institution and directly contributed to the failure of the bank. Southwest Community Bank lost $679,399 on Gregg’s personal line of credit and $871,125 on a commercial real estate fraud scheme perpetrated by Gregg, for a total loss of $1,550,524. Gregg also defrauded Great Southern Bank by selling the collateral securing a $2 million loan, and keeping the proceeds. As a result of Gregg’s fraud, Great Southern Bank consolidated several of his outstanding loans in order to cover the missing collateral. In the end, Great Southern Bank “charged off” $2,316,264 on this consolidated loan. However, the actual value of the FBSI shares, $1,350,400, is the loss directly attributable to the fraud. While Gregg was already under indictment for bankruptcy fraud relating to the bankruptcy petition of his corporation, 1717 Market Place, LLC, he filed a personal bankruptcy petition that contained numerous false declarations and concealed fraudulent transfers of property. Additionally, some of Gregg’s criminal conduct occurred while he was on bond and while he was incarcerated.

Delaware Developer Sentenced in Bank Fraud Conspiracy Case

On Oct. 6, 2015, in Wilmington, Delaware, Salvatore Leone was sentenced to 12 months and one day in prison, three years of supervised release and ordered to pay $784,568 in restitution to the Wilmington Trust Company. On Oct. 7, 2013, Leone pleaded guilty to conspiracy to commit bank fraud. According to court documents, Leone was a project manager for and partner with a prominent developer in several limited liability companies formed for the purpose of developing real estate in or around Dover, Delaware. Between Sept. 24, 2007 and Feb. 27, 2009, Leone and others submitted, or caused to be submitted, false draw requests to Wilmington Trust Company totaling approximately $483,568,000. In addition, Leone misappropriated an escalated lease payment totaling $260,000.

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