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.