Central District of California

Indictment Alleges that Millions Were Diverted from Leading Payroll Company

LOS ANGELES – The former CEO of Axium International, Inc., which was a leading Hollywood payroll services company until its collapse in 2008, has been arrested on federal tax charges that allege he took millions of dollars of company funds and failed to report the income to the IRS.

John Visconti, 71, of Beverly Hills, was arrested Monday without incident by special agents with IRS - Criminal Investigation at a Los Angeles Superior Court facility where he had gone to appear on an unrelated matter.

Visconti was arraigned and the three-count indictment against him was unsealed during a hearing late Monday afternoon in United States District Court. Visconti entered a not guilty plea to the charges, and a trial was scheduled for July 29.

Axium was one of the largest payroll services companies serving the entertainment industry, at its height processing hundreds of millions of dollars in payroll for its clients. As the payroll services provider and employer of record for its clients, Axium regularly submitted payroll tax returns to the IRS and the tax authorities of several states. The filing of the tax returns regularly generated tax refunds. Axium collapsed in 2008, after revelations that it owed tens of millions of dollars in payroll taxes, which led to Axium’s lender foreclosing on its bank accounts. A Chapter 11 bankruptcy case for Axium, filed in January 2008, remains an active case.

According to the indictment, which was returned by a federal grand jury on May 28, Visconti and another Axium officer used a variety of mechanisms to divert millions from Axium. In some cases, Visconti and his co-conspirator allegedly pocketed tax refunds that should have gone to to Axium and its subsidiaries. The indictment alleges that Visconti and his co-conspirator opened secret bank accounts in the names of Axium and its subsidiaries in which to deposit the purloined refund checks.

The indictment further alleges that, for more than two years, Visconti and his co-conspirator took weekly cash payments from Axium that averaged $8,000. Furthermore, Visconti and his co-conspirator allegedly formed a construction consulting company that billed Axium for $570,000 worth of services and they concealed from Axium that they were profiting from the arrangement. And, Visconti arranged for about half of the net salary paid to a purported Axium employee – approximately $82,000 – to be cycled back to a bank account controlled by Visconti.

Despite diverting millions of dollars from Axium, Visconti reported none of the diverted funds on his federal income tax returns, the indictment alleges.

The indictment charges Visconti with conspiracy, tax evasion and filing a false tax return. If convicted of the three counts, Visconti would face a statutory maximum sentence of 13 years in federal prison.

During Monday’s hearing, a United States Magistrate Judge ordered Visconti freed on a $100,000 bond, but he will be subject to electronic monitoring during his pre-trial release.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until proven guilty in court.

The investigation into Visconti was conducted by IRS - Criminal Investigation.

Release No. 14-069

SANTA ANA, California – The former controller of a company that provides supervision services, including electronic monitoring programs, to courts and probation departments pleaded guilty today to federal charges of embezzling well over $3 million from the company over the course of two years.

Steven A. Hagstrom, 37, of Anaheim, who was an accountant and then controller of the Irvine-based Sentinel Offender Services, LLC, pleaded guilty this afternoon to one count of embezzlement before United States District Judge David O. Carter.

As controller of Sentinel, Hagstrom had access to Sentinel’s bank accounts where fines, court fees and restitution payments from criminal defendants were held in trust. The accounts also held money paid to Sentinel for services provided to state and federal court systems. Beginning in early 2012 and continuing until April 2013, Hagstrom transferred approximately $3,338,197 from Sentinel’s bank accounts to bank accounts he controlled, where they could be used for his own benefit.

Judge Carter is scheduled to sentence Hagstrom on September 29. The embezzlement count carries a statutory maximum sentence of 10 years in federal prison. About half of the embezzled money has already been returned to Sentinel, and Hagstrom has agreed to make full restitution to his former employer.

The investigation into Hagstrom was conducted by the Federal Bureau of Investigation and IRS - Criminal Investigation.

Release No. 14-070

RIVERSIDE, California – An Upland attorney was sentenced today to one year and one day in federal prison for stealing $129,795 from the Social Security Administration (SSA) after her grandmother died in 2000.

Audrey Owens, 61, who until she retired in September was a deputy public defender for Riverside County, was sentenced today by United States District Judge Virginia A. Phillips.

Owens pleaded guilty on March 3 to two counts of theft of government property, admitting that she bilked the government for 12 years.

According to court documents, from June 2000 through August 2012, Owens fraudulently obtained social security benefits intended for her grandmother, who died in May 2000. After her grandmother’s death, Owens changed the address of a joint account she shared with her grandmother and continued to receive the dead woman’s social security payments.

Owens “devised and executed a plan to illicitly obtain significant amounts of SSA benefits intended for her deceased grandmother,” prosecutors wrote in a sentencing memo filed with the court. “Indeed, within just one week of her grandmother’s death, [Owens] sprang her plan into action by immediately removing her father’s name off of the [grandmother’s] Kansas City account and changing the address of record to her own address in Upland. This allowed her to continue to receive SSA benefits, undetected, for over 12 years, totaling over $129,000. She was only stopped when SSA began to suspect fraud – otherwise, the theft would have likely continued indefinitely and resulted in even greater losses.”

The investigation in this case was conducted by the Social Security Administration, Office of the Inspector General, Office of Investigations.

Release No. 14-068

RIVERSIDE, California – A former officer with the San Bernardino Police Department was convicted today of federal civil rights charges for forcing two prostitutes to perform sex acts while he was in uniform.

Jose Jesus Perez, 46, of Menifee, was found guilty this morning of two felony counts of deprivation of rights under color of law for sexually assaulting two victims in 2011. The jury determined that both offenses involved aggravated sexual abuse, and that one attack involved a kidnapping and bodily injury.

Perez is scheduled to be sentenced by United States District Judge Virginia A. Phillips on August 18, at which time he faces a potential sentence of life in federal prison.

Perez has been in custody since he was arrested last September in Texas. The arrest was the result of a federal grand jury indictment that alleged Perez forcibly had sex with two women who told investigators that they engaged in the sex acts demanded by Perez out of fear because he was a police officer.

The evidence presented during a week-long trial showed that Perez groped a woman and caused her to perform oral sex by using force against her on April 25, 2011.

The jury also found that Perez had unlawful sexual intercourse with another woman on two occasions in August 2011.

The two victims testified about Perez forcing them to have sex in vehicles and hotel rooms. A third woman testified that Perez had aggressively solicited sex from her while he was in uniform. The three women each testified that they feared repercussions if they did not comply with Perez’s demands.

The jury in the case also convicted Perez of one misdemeanor civil rights offense related to the second time he demanded sex from the second victim in August 2011. Additionally, Perez was acquitted of one misdemeanor offense related to allegations that he forced the second woman to have sex in September 2011.

Perez became a police officer in 1997, when he was hired by the Los Angeles Police Department. Perez worked for the LAPD until 2008, when he went to work for the San Bernardino Police Department. Perez was released from employment by SBPD in December 2012.

The investigation into Perez was conducted by the San Bernardino Police Department and the FBI.

Release No. 14-067

LOS ANGELES – The third man involved in an illegal campfire above Glendora that erupted out of control to become the destructive Colby Fire was found guilty this afternoon of federal criminal charges.

Jonathan Carl Jarrell, 24, was found guilty of a felony offense of unlawfully setting timber afire. After a three-day trial, a jury also convicted Jarrell of a misdemeanor offense of illegally starting a fire. (The jury was unable to reach a unanimous verdict on two other misdemeanor fire-related charges.)

Two other defendants – Clifford Eugene Henry Jr, 22, of Glendora, and Steven Robert Aguirre, 21 – were each found guilty last Friday of four charges (one felony and three misdemeanors) related to the fire.

The Colby Fire started on the morning of January 16. By that evening, the fire had consumed more than 1,700 acres of federal, state, local and private lands. The fire had also destroyed five residences, damaged 17 additional structures, and resulted in injuries to one civilian and two firefighters.

Henry, Aguirre and Jarrell were detained by Glendora Police Officers after they were seen escaping the fire. During interviews with Glendora Police and personnel with the Los Angeles County Fire Department’s Arson Investigations Unit – interviews that the jury heard during the two trials – all three defendants admitted playing a role in the starting of a campfire that started the Colby Fire after wind blew burning paper into the brush in the hills above Glendora.

A United States Forest Service fire investigator determined that the origin of the Colby Fire was at a point near a fire ring built by the three men at a location on federal lands within the Angeles National Forest.

As a result of today’s guilty verdicts, Jarrell faces up to 5½ year in federal prison when he is sentenced by United States District Judge George H. Wu on July 31.

Henry and Aguirre are scheduled to be sentenced by Judge Wu on August 4. They each face a statutory maximum penalty of 6½ years in prison.

The investigation in this case was conducted by the United States Forest Service, the Glendora Police Department and the Los Angeles County Fire Department.

Release No. 14-065

LOS ANGELES – An Antelope Valley man pleaded guilty this morning to a federal charge of producing child pornography, admitted that he used his camera phone to make videos while he molested a 3-month-old relative.

Robert Dale Schrader, 33, of Littlerock, pleaded guilty to charge before United States District Judge Gary A. Feess, who scheduled a sentencing hearing for August 18.

At sentencing, Schrader faces a mandatory minimum sentence of 15 years in federal prison, and he could be ordered to serve up to 30 years in custody.

According to court documents, authorities began investigating Schrader in January after he communicated via email with an undercover law enforcement officer based in England. In those emails, Schrader sent sexually explicit images of an infant , and data embedded in those images led authorities to Schrader’s Littlerock home.

On January 29, investigators executed a federal search warrant at Schrader’s residence, where they rescued the infant who had been molested. Authorities discovered approximately 200 child pornography images and videos depicting the baby.

The case against Schrader is the result of an investigation by the Child Exploitation Investigations Group, a task force based in Long Beach and spearheaded by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI). Other agencies actively involved in the group include the Los Angeles Police Department, the FBI and the Los Angeles County Department of Children and Family Services (DCFS).

Release No. 14-064

LOS ANGELES – A former teacher and athletic coach at Royal Oak Middle School in Covina, who pleaded guilty to producing child pornography and using the Internet to entice a minor to engage in sex, was sentenced today to 282 months in federal prison.

John David Boyle, 52, of Glendora, received the 23½-year sentence from United States District Judge Stephen V. Wilson.

At today's hearing, Judge Wilson said Boyle’s crimes were “horrendous” and that “the damage done to the victims is incalculable.”

Boyle, who in addition to teaching was also an athletic coach, pleaded guilty in March to enticement of a minor to engage in criminal sexual activity, admitting that he molested a 14-year-old boy who he met online. Boyle also pleaded guilty to production of child pornography, distribution of child pornography, and possession of child pornography.

Boyle “spent years collecting child pornography from the Internet, traded child pornography over e-mail, participated in sexually explicit conversations in Internet chat rooms in which he enticed underage boys to engage in sexually explicit conduct, and personally molested multiple underage boys,” prosecutors wrote in a sentencing brief filed with the court.

During the course of the investigation, Boyle engaged in online chats with an undercover agent, believing that the undercover agent shared his sexual interest in young boys, according to court documents. Boyle set up an in-person meeting with the undercover agent in his classroom at the school on a Sunday, believing that the purpose of the meeting was to engage in sexual activity while watching child pornography together.

After being confronted by authorities in June 2013, Boyle allowed them to access several of his online accounts. Investigators then discovered that Boyle had used one of his accounts to distribute child pornography. Following Boyle’s arrest, further investigation by agents revealed that Boyle had abused at least one other underage victim in the late 1980s.

“Simply put, defendant is a sexual predator, who has avoided detection by law enforcement for many years and poses an extreme danger not just to the community, but also to the most vulnerable in it – namely, young children,” prosecutors stated in their sentencing brief.

The investigation into Boyle was conducted by U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) and the Internet Crimes Against Children Task Force (ICAC).

Release No. 14-063

LOS ANGELES – A real estate developer who formerly resided in Atascadero pleaded guilty today to federal fraud and money laundering charges for bilking investors who put money into Central Coast real estate projects.

Kelly Gearhart, 53, who currently resides in Wadsworth, Ohio, pleaded guilty this morning to two counts of wire fraud and one count of money laundering. Gearhart pleaded guilty before United States District Judge Otis D. Wright II.

In a plea agreement filed late yesterday, Gearhart admitted that he knowingly and intentionally made misrepresentations and omissions relating to the Vista Del Hombre real estate development project to induce victims to part with their money.

Gearhart was initially charged in a 16-count indictment returned by a federal grand jury in 2012. The indictment alleged that Gearhart told investors that their investments – which he called loans and promised would be paid back with interest – were secured by specific lots. However, Gearhart admitted in court today that he sold lots associated with the Vista Del Hombre real estate development project, even though those lots were being used to secure others’ loans. Gearhart further admitted that he used those same lots to obtain bank financing. The plea agreement allows prosecutors to prove at sentencing that Gearhart made additional misrepresentations as part of the scheme.

Gearhart is scheduled to be sentenced by Judge Wright on December 29. The wire fraud charges each carry a statutory maximum penalty of 20 years in federal prison. The money laundering count carries a statutory maximum penalty of 10 years in federal prison. During this morning’s court hearing, prosecutors said they intend to seek a sentence of 135 months in federal prison, while Gearhart’s attorney said he will not seek a sentence below 57 months. However, Judge Wright is free to sentence Gearhart up to the statutory maximum of 50 years in federal prison.

The plea agreement permits prosecutors to seek restitution for victims of the Vista Del Hombre real estate development project, as well as any other project in which there was fraud, a figure that may be as high as $20 million. It is unclear if there is any money available to repay victims.

The case against Gearhart is related to a case against James Hurst Miller Jr., the former president of the Atascadero-based Hurst Financial Corporation. Miller, who previously pleaded guilty to fraud and money laundering charges, is scheduled to be sentenced by Judge Wright on September 8. 

The cases against Gearhart and Miller are the result of an investigation by the Federal Bureau of Investigation and IRS - Criminal Investigation.

Release No. 14-061

LOS ANGELES – Authorities this morning arrested 12 people and are seeking the whereabouts of three others who are charged in a large-scale, bank account “bustout” scheme that victimized major financial institutions across Southern California, costing banks at least $15 million.

This morning’s arrests are the result of “Operation Check Kkang,” a multi-agency investigation into a bustout scheme that victimized financial institutions such as Bank of America, JPMorgan Chase, U.S. Bank and Wells Fargo Bank. Check Kkang refers to a Korean term that describes check kiting.

The investigation was jointly conducted by special agents with the Federal Bureau of Investigation and IRS - Criminal Investigation, and officers with the Pomona Police Department. Other law enforcement agencies provided substantial assistance.

Those arrested this morning are among 15 defendants named in a 26-count indictment that describes a bustout scheme in which the members of the conspiracy deposited bogus checks and immediately withdrew funds from the account. Once the financial institution realized that the check is fraudulent and dishonored the deposit, the account was “busted.”

The indictment, which was returned by a federal grand jury on May 7 and unsealed this morning, describes a scheme that allegedly started in February 2010 and continued until last October 2013. Those named in the indictment are:

Jae Ho Chung, 44, of Los Angeles (Westwood);

Michael Yeon Cho, 30, of Pacific Palisades;

Roger Lee, 48, of Cerritos;

Kun Young Lee, 51, of Los Angeles (Koreatown);

Jeong Gu Kim, 53, of Los Angeles;

Hak Soo Shim, 40, of Newport Beach;

Renling “Mark Ling” Chao, 50, of Los Angeles (Brentwood);

Il Hwan Jae, 60, of Los Angeles (Koreatown);

Erick Palafox, 28, of ; of Lynwood

Jae Kwon An, 42, of Riverside;

Joonie Yeon Cho, 42, of Los Angeles (Koreatown);

Eun Ah Kim, aka Eun Ae Kim, 39, of Los Angeles;

Hye Ran Lee, 30, of Irvine;

Hee Jung Lee, 41, of Riverside; and

Woo Chang Lim, 36, of Ventura.
Twelve of the defendants were arrested today. Jae Ho Chung, Roger Lee, and Hye Ran Lee are considered fugitives. Those taken into custody are expected to be arraigned on the indictment this afternoon. The arraignments will take place in federal courthouses in Los Angeles, Riverside and Santa Ana, with locations for specific hearings to be determined by where an individual defendant was arrested.

According to the indictment, Chung and Cho were “processors” who fabricated or hired others to make fictitious checks for the purpose of conducting bustouts. The bogus checks ranged in amounts from $2,300 to more than $28,000.

Defendants R. Lee, K.Y. Lee, J.G. Kim, and Shim were “brokers,” according to the indictment that accuses them of soliciting people with legitimate bank accounts who would lend their accounts to be busted-out in exchange for a fee. The brokers allegedly found bank customers by placing advertisements in Korean-language newspapers,

Defendants Chao, Jae, Palafox, An, J.Y. Cho, E.A. Kim, H.R. Lee, H.J, Lee, and Lim were “runners” or “washers” who allegedly deposited fictitious checks into, and then withdraw funds from, the account to be busted-out. Runners and washers used funds from the bustouts to purchase goods, services and gift cards, according to the indictment.

All 15 defendants are charged with conspiracy to commit bank fraud and bank fraud. The indictment also contains an asset forfeiture allegation in which the government will seek to forfeit any property derived from the proceeds of the scheme in the event of any defendant’s conviction. If convicted of the two counts in the indictment, each defendant would face a statutory maximum penalty of 60 years in federal prison.

The Check Kkang investigation was conducted jointly by the FBI; IRS - Criminal Investigation, and the Pomona Police Department.

The following agencies provided assistance: U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, the United States Secret Service, the Los Angeles Police Department, the United States Postal Inspection Service, the Social Security Administration, the Los Angeles County Sheriff’s Department, the Ventura County Sheriff’s Department, the Riverside County Sheriff’s Department, the Glendale Police Department, the Burbank Police Department, the Beverly Hills Police Department, the Santa Ana Police Department, and the Los Angeles County Department of Child and Family Services.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until proven guilty in court.

Release No. 14-062

LOS ANGELES – Two Mexican nationals who were found guilty of federal charges stemming from an incident in which a Coast Guard officer was killed when his vessel was rammed by a “panga” boat were sentenced today.

The operator of the panga boat was ordered to spend the rest of his life in federal custody after a jury earlier this year convicted him of second-degree murder in the death of Senior Chief Petty Officer Terrell Horne III, who died in late 2012 while his boat was attempting to interdict the panga boat near Santa Cruz Island in the Channel Islands National Park.

The two men sentenced today are:

Jose Mejia-Leyva, 42, of Ensenada, who was sentenced to life without parole for his murder conviction, as well as two counts of failure to heave to and four counts of assaulting federal officers with a deadly and dangerous weapon; and

Manuel Beltran-Higuera, 44, of Ensenada, who was sentenced to 10 years in federal prison after a jury found him guilty of two counts of failure to heave to (as an accessory after the fact in one count and as an aider and abettor in the second count) and in the four counts of assault (as an accessory after the fact).

Both defendants were sentenced by United States District Judge Gary A. Feess. Senior Chief Petty Officer Horne, a 34-year-old Redondo Beach resident, was the first Coast Guard officer murdered while in the line of duty by smugglers since 1927.

Senior Chief Petty Officer Horne was killed during a law enforcement operation that began late on December 1, 2012 when a Coast Guard airplane identified a suspicious boat about one mile off Santa Cruz Island. After Coast Guard personnel on the Coast Guard cutter Halibut boarded the boat, the airplane identified another suspicious vessel nearby in Smuggler’s Cove on Santa Cruz Island. The airplane reported that the suspicious vessel in Smuggler’s Cove was an approximately 30-foot-long open bowed fishing vessel, commonly referred to as a panga boat.

Coast Guard officers aboard the Halibut launched the Halibut’s small, inflatable boat with four officers aboard. The Coast Guard small boat crew located the panga boat approximately 200 yards from the eastern shore of Santa Cruz Island at approximately 1:20 a.m. on December 2. As the Coast Guard’s small boat approached the panga boat, the officers activated the boat’s police lights and identified themselves as law enforcement. The driver of the panga boat then throttled the engines and steered the panga boat toward the small boat. As the panga boat rapidly approached the Coast Guard’s small boat, the officer at the helm attempted to avoid a collision by steering the small boat out of the path of the panga boat.
Despite these efforts, the panga boat rammed into the Coast Guard’s small boat, ejecting Senior Chief Petty Officer Horne and another officer into the water. Senior Chief Petty Officer Horne was struck by a propeller in the head and sustained a fatal injury. The other officer sustained a laceration to his knee.

After striking the Coast Guard’s small boat, the panga boat crew fled the scene. Coast Guard aircraft followed the panga boat until it was intercepted by a Coast Guard vessel about four hours later as it approached the Mexico-United States border. Mejia-Leyva and Beltran-Higuera were arrested at this point.

Prosecutors argued for the life sentence for Mejia-Leyva, noting in court papers that he was previously convicted in the United States of smuggling aliens and was twice convicted in Mexico of narcotics offenses. “The seriousness of defendant’s conduct and his criminal history demonstrates that he is an established recidivist whose pattern of smuggling and narcotics trafficking only aggravates the seriousness of the crime of murder,” prosecutors wrote of Mejia-Leyva.

The investigation in this case was conducted by the Coast Guard Investigative Service (CGIS) with the assistance of the Los Angeles Border Enforcement Security Task Force (LA BEST) in San Pedro.

Release No. 14-060

SANTA ANA, California – A man previously convicted and sentenced to 14 years in federal prison for transporting minors to work as prostitutes today received what is effectively another 14-year sentence for engaging in the same conduct involving a 19-year-old victim almost immediately after he was released from custody in the first case.

William Earl Flavors, aka “Andre,” 40, who most recently resided in Long Beach, was sentenced this morning to 10 years in federal prison. United States District Judge Josephine L. Staton ordered that this sentence run consecutive to a four-year prison term he received last year based on related conduct for violating his supervised release on his prior federal conviction, meaning that Flavors has been ordered to serve 14 years in prison for acting as a pimp for girls in 2012.

At today’s sentencing hearing, Judge Staton discussed a letter that Flavors wrote to the Court in which he blamed the judicial system and the probation department for his current “predicament” and that he “not given a fair chance.” Judge Staton noted “beating women and forcing them into prostitution is not a ‘predicament,’ but a choice – a choice that defendant made.”

Flavors pleaded guilty in December to transportation in interstate commerce for purposes of prostitution. Flavors specifically admitted that he transported his victims between Long Beach to Las Vegas, forced or coerced them to work as prostitutes in Las Vegas, and used physical abuse and threats of additional physical abuse to make one of his victims work for him as a prostitute.

“In order to coerce and force [the victim] into continuing to engage in prostitution, defendant physically abused her, threatened her with additional physical abuse, and did not allow her to leave him,” according to a sentencing memo filed by prosecutors. The sentencing memo also details the physical abuse defendant carried out on his victim, including “beating her with his fists and on one occasion burning her legs with a lit cigarette.”

Today’s sentencing concludes the second case in which Flavors has been convicted in federal court of trafficking women across state lines and forcing them to work as prostitutes. In December 1999, he pleaded guilty to transportation of a
15-year-old girl and a 17-year-old girl in interstate commerce for prostitution. In addition to transporting these minors from Washington to California, Flavors beat, raped and forced these girls into prostitution on his behalf, according to court documents.

In the 1999 case, Flavors’ “depravity towards his victims included, among other acts: breaking one victim’s nose from beating her; and beating another victim with clothes hangers, burning her with curling irons, and forcing her to drink cups of urine and cigarette butts,” prosecutors wrote in a sentencing memo.

The case against Flavors was investigated by Federal Bureau of Investigation.

Release No. 14-059

LOS ANGELES – A San Gabriel Valley businessman who coordinated the importation of 11 containers of counterfeit apparel – including Nike, Gucci and Coach products worth more than $2.3 million – was sentenced today to 31 months in federal prison.

Today’s sentencing is the second in the past two weeks in which a smuggling operation resulted in a federal prison term. Last week, a Glendale man who brought bogus AMG wheels into the country received a one-year prison sentence.

Both defendants previously pleaded guilty to trafficking in counterfeit goods.

In today’s sentencing, Kevin “Peter” Wang, 54, of Rosemead, was sentenced to 31 months by United States District Judge John A. Kronstadt. In addition to the prison term, Judge Kronstadt ordered Wang to serve an additional six months of home detention and to pay a $10,000 fine and $50,000 in restitution.

Wang helped Chinese exporters bring counterfeit goods – including fake Nike shoes (labeled as “garment hangers”); counterfeit Coach, Gucci, and Louis Vuitton handbags (labeled as “toilet paper”); and bogus NFL, NBA, and NHL jerseys – into the United States. According to court documents, from 2008 to 2012, the counterfeit goods were smuggled in shipping containers through the ports of Los Angeles and Long Beach.

In the second case that led to a prison term, Hamlet Ayvazyan, 37, of Glendale, was sentenced on Monday, April 28, to one year and one day in federal prison. Ayvazyan was sentenced by United States District Judge Margaret M. Morrow, who also ordered the defendant to pay a $4,000 fine.

Ayvazyan, the owner of Speedvision Motorsport in Glendale, imported wheel rims from a Chinese business known as "Shandong Chiping Xinfa Aluminous Product Co., Ltd.," which had offered wheels for brands that purported to be “Audi,” “BMW,” “Mercedes Benz,” “Land Rover,” “Porsche” and “Cadillac."

U.S. Customs and Border Protection officials discovered Ayvazyan's imports in January 2012 when they inspected an ocean container that contained 430 wheels that bore counterfeit Mercedes Benz “AMG” logos, with Ayvazyan and Speedvision as consignee. Undercover agents with Homeland Security Investigations posed as customers and met with Ayvazyan at Speedvision, where Ayvazyan sold to the agents a wheel with an “AMG” logo and placed a center cap “Mercedes” decal on the wheel.

In February 2012, agents executed a search warrant at Speedvision and found 189 additional wheels bearing counterfeit “AMG” marks. Although Ayvazyan claimed that the goods were “replicas,” the marks on the wheels were unauthorized copies of the registered “AMG” trademark. Ayvazyan also kept 2,100 adhesive logos and wheel center caps that bore marks such as “Mercedes Benz” and “BMW.”

Ayvazyan paid approximately $100 for each wheel and sold them for $200, which was substantially less than the manufacturer’s price for legitimate wheels, which was as much as $2,000.

The cases against Wang and Ayvazyan were investigated by U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI).

“Trafficking in counterfeit merchandise is a multi-billion dollar global business that robs governments of vital revenues and the industry of its due profits,” said Claude Arnold, special agent in charge of HSI Los Angeles. “HSI is committed to dismantling these schemes because the profits from such illegal ventures often go to fund more criminal enterprises.”

Release No. 14-058

LOS ANGELES – The “shotcaller” of a South Los Angeles street gang pleaded guilty today to federal racketeering and drug trafficking charges for his role in orchestrating the day-to-day activities of the gang that is controlled by an incarcerated member of the Mexican Mafia.

Today’s guilty pleas by Manuel Valencia come one week after the daughter of the Mexican Mafia member admitted to acting as her father’s voice to convey orders to the Harpys street gang.

The Harpys gang, which claims territory southwest of downtown Los Angeles and north of the University of Southern California, is one of more than a dozen Latino gangs across a wide swath of South Los Angeles controlled by Mexican Mafia member Danny Roman, who is serving a life-without-parole sentence at Pelican Bay State Prison and was not charged in the federal RICO case.

Roman’s daughter, Vianna Roman, 37, of Los Angeles, pleaded guilty on May 1 to racketeering, narcotics and weapons offenses pursuant to a plea agreement that contemplates a sentence of approximately 20 years in federal prison but could lead to a life prison term if the sentencing judge determines this is appropriate. When she pleaded guilty, Vianna Roman admitted that she acted as a conduit for her father’s orders as he exercised control over the Harpys gang.

The shotcaller of the Harpys gang – the man who imposed the orders from Danny Roman – pleaded guilty today to violating the federal RICO statute and to engaging in a continuing criminal enterprise connected to drug trafficking. Manuel Valencia, 38, of Walnut, admitted that he oversaw and participated in gang activities, which included collecting “taxes” from drug dealers who were allowed to operate in gang territory, retaliating against people who ran afoul of the gang, and engaging in drug trafficking.  Valencia, who as a result of his guilty pleas also faces a maximum of life in federal prison, agreed in his plea agreement to serve a 27-year prison term.

According to court documents, Vianna Roman and Valencia orchestrated a scheme that allowed Danny Roman to continue to continue to control the activities of the South Los Angeles street gangs from the Special Housing Unit of Pelican Bay State Prison. Vianna Roman used coded language to pass information to and received orders from her father during trips to the Pelican Bay prison in Northern California. Vianna Roman pass the orders to Valencia and other high-ranking members of Harpys, who oversaw violent conduct and drug trafficking within both Harpys territory and the broader area controlled by Danny Roman. Valencia controlled and enforced the collection of tax payments from Latino gangs under Danny Roman’s control and issued orders to other gangs regarding drug sales and the use of violence.

Vianna Roman and Valencia pleaded guilty before United States District Judge R. Gary Klausner, who is scheduled to sentence Roman on July 28 and Valencia on September 8.

With the guilty pleas of Vianna Roman and Valencia – and two others that were entered on Monday – a total of 24 defendants charged two years ago in a federal racketeering indictment have now pleaded guilty. Out of the 29 defendants named in the indictment, one is still pending trial, three are fugitives, and charges against one were dismissed following his conviction of first-degree murder in Los Angeles Superior Court.

According to court documents, Danny Roman oversaw gang activity by giving orders that directed gang members to engage in criminal conduct, including the murder of rival gang and Mexican Mafia members, and the extortion of businesses and gangs to generate income that was funneled back to Danny Roman in state prison. The Harpys gang collected taxes and other extortionate payments through threats of violence, including murder. Acting under Danny Roman’s authority, Vianna Roman and Valencia orchestrated the extortion of vendors at the Alameda Swap Meet, which is outside of Harpys territory but within the area controlled by Danny Roman. The Alameda Swap Meet was in territory controlled by the 38th Street gang, another gang under the control of Danny Roman.

In addition to outlining Danny Roman’s control of the Harpys and of other gangs in South Los Angeles, the indictment charged specific criminal acts, including the distribution of methamphetamine, cocaine, crack cocaine and heroin; the murder of a gang member over a drug debt; robberies against residents and rival gang members; and conspiracies to commit murder, including a plot to kill a witness in a state court case against a member of another gang.

Two other defendants, who were scheduled to go on trial in two weeks, pleaded guilty on Monday.

Jaime Montano, 34, of Los Angeles, who is linked to the East Side Trece gang, pleaded guilty to two racketeering offenses that could send him to prison for as long as 30 years. In his plea agreement, Montano admitted leading a conspiracy to murder a man who testified at trial against another gang member.

Edgar Gonzalez, 30, also linked to the East Side Trece gang, pleaded guilty engaging in a racketeering conspiracy, admitting that he conducted Harpys business and represented Danny Roman while incarcerated in an Arizona state prison. Gonzalez faces up to 20 years in federal prison.

Montano and Gonzalez are scheduled to be sentenced by Judge Klausner, respectively, on July 28 and August 4.

The investigation into members of the Harpys and the other street gangs was called Operation “Roman Empire” and was conducted by the Los Angeles High Intensity Drug Trafficking Area (HIDTA) Task Force, which is comprised of officers with the Los Angeles Police Department and agents with the Drug Enforcement Administration.

Release No. 14-055

SANTA ANA, California – The owner of a San Gabriel immigration consulting business and one of his employees have been sentenced to federal prison for participating in a long-running scheme to prepare and file fraudulent asylum applications that made phony claims of religious persecution on behalf of hundreds of Chinese nationals.

Haoren Ma, 50, of San Gabriel, the owner of New Arrival Immigration Service, was sentenced April 28 to 4½ years in federal prison after pleading guilty to conspiracy, immigration document fraud and aggravated identity theft. Ma’s employee, Minghan Dong, 49, of San Gabriel, was sentenced on Monday, May 5 to one year and one day in prison for conspiracy to commit immigration document fraud. Both men were sentenced by United States District Judge Cormac J. Carney.

According to court documents, Ma and Dong charged as much as $6,500 to prepare and file fraudulent asylum applications on behalf of Chinese nationals. Ma and Dong falsely claimed that their clients fled China after being persecuted for their Christian beliefs, even in situations where the clients said they were Buddhists.

Federal authorities founds that many of the asylum applications prepared by the defendants contained nearly identical accounts of purported persecution, including descriptions of underground church meetings that led to arrests and torture by Chinese authorities. As part of the scheme, Ma and Dong provided their clients with detailed written materials and audio tapes on Christianity to help them prepare for their asylum interviews.

Suspicions about New Arrival Immigration Service first arose in January 2009 when U.S. Customs and Border Protection officers intercepted a package containing a stuffed animal that contained five fraudulent Chinese passports. The package was being shipped to an address used as a mail drop by New Arrival Immigration Service.

            During a search of New Arrival Immigration Service and related offices, investigators seized stacks of partially completed asylum applications, counterfeit Chinese consular and embassy embossing seals, financial records and counterfeit identity documents. Ma and Dong were arrested in September 2011 by special agents with U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) following the execution of the federal search warrants.

“As this sentence makes clear, those who corrupt the integrity of our nation’s legal immigration system by exploiting our country’s generous asylum laws must understand there are serious consequences for those actions,” said Claude Arnold, special agent in charge for HSI Los Angeles. “As a country, we’re committed to providing refuge for those fleeing persecution, but there will be no such protections for people who manipulate this system for profit and put our nation’s security at risk in the process.”

As the investigation unfolded, HSI worked closely with U.S. Citizenship and Immigration Service’s (USCIS) Los Angeles Asylum Office in Anaheim to identify potentially fraudulent asylum applications submitted by the defendants.

“We are very pleased with this outcome,” said David Radel, Acting L.A. Asylum Office Director with USCIS. “It is an excellent example of federal agencies working together to combat fraud and maintain the integrity of our immigration system. USCIS is committed to identifying those who may have illegally obtained asylum through this fraudulent scheme and providing this information to our investigative colleagues.”

Based upon queries of databases maintained by the immigration courts, HSI investigators linked the defendants to more than 800 asylum applications filed since 2000, making it one of the largest asylum fraud cases uncovered in the Los Angeles area in recent years.

Release No. 14-057

RIVERSIDE, California – Two Inland Empire residents have pleaded guilty to federal sex trafficking charging, admitting that they forced a 14-year-old girl to work as a prostitute in 2012.

Kawaum Marquez Scott, 24, of Quail Valley, and Nekeyia Necole Weatherspoon, who also used the name “Keey Bee,” 22, of Perris, pleaded guilty yesterday in United States District Court.

Scott pleaded guilty to two counts of sex trafficking of a child, and Weatherspoon pleaded guilty to one count of conspiracy to engage in child sex trafficking

According to court documents, Scott and Weatherspoon forced the 14-year-old victim into prostitution. The defendants, who took photos of the victims and used the pictures to advertise services on the Internet, drove the victim to destinations in Hemet to engage in prostitution, made her use an alias, and advised her to tell male customers that she was 18 years old. Scott and Weatherspoon took all the money paid to the girl for the sex acts.

According to an affidavit filed in this case, on one occasion in October 2012, Scott and Weatherspoon brought the victim to a motel in Hemet, where she engaged in sex with multiple men over a two-day period, and received approximately $2,500 in payment, all of which went to the defendants.

In plea agreements filed in court, prosecutors and the defense agreed that Scott should receive a sentence of 210 months and Weatherspoon should be sentenced to between 84 and 168 months in federal prison

United States District Judge Virginia A. Phillips will review a presentence report prior to accepting the agreed-upon sentences in this case. A sentencing hearing is scheduled for July 21.

The investigation in this case was conducted by the Riverside County Sheriff’s Department and the Federal Bureau of Investigation, which are members of the Inland Child Exploitation Task Force (ICEP), a multi-agency effort that investigates matters of child exploitation, primarily the sexual trafficking of minors.

Release No. 14-056

SANTA ANA, California – The owner of a Huntington Beach-based military contractor has pleaded guilty to federal tax charges for failing to report to the Internal Revenue Service millions of dollars his company received for providing services to the military at Baghdad International Airport.

Nadim “Nick” Saifan Jr., 48, who resides in Huntington Beach, pleaded guilty late yesterday to two counts of attempted tax evasion. Saifan pleaded guilty to two of the five counts contained in an indictment returned by a federal grand jury in 2011.

Saifan specifically pleaded guilty to substantially underreporting income on his company’s 2005 corporate tax return and his personal tax return for 2006.

Saifan was the owner and operator of Defense Logistical Support & Services Corporation (DLSS), which provided services to the military and some civilian companies in Iraq. From August 2004 through October 2007, DLSS received nearly $16 million from the United States military alone for services in Iraq, according to court documents that state Saifan reported only a small fraction of this income on DLSS’s corporate tax returns filed with the IRS.

In addition to failing to report millions of dollars of corporate income, Saifan also used DLSS funds to pay for personal expenses without reporting this money as personal income. Federal prosecutors alleged in court papers that defendant used corporate money to make approximately $880,000 in down payments on real estate and approximately $292,000 in payments towards vehicles that included a Ferrari and a Rolls-Royce.

Prosecutors preparing for trial wrote that Saifan owes at least $4.5 million in unpaid corporate and personal taxes for the several years charged in the indictment, and that he caused a total tax loss to the government of at least $7 million.

Saifan pleaded guilty before United States District Judge Cormac J. Carney, who is scheduled to sentence the defendant on August 18. At sentencing, Saifan will face a statutory maximum sentence of 10 years in federal prison.

After Saifan pleaded guilty yesterday, Judge Carney revoked Saifan’s bond and remanded him into federal custody pending his sentencing.

The case against Saifan was investigated by the Defense Criminal Investigative Service and IRS – Criminal Investigation.

Release No. 14-054

RIVERSIDE, California – A man who left pipe bombs in a residential neighborhood in Palm Springs near the residence of an ex-girlfriend – and who became a fugitive after escaping from custody in a related case – pleaded guilty today to a federal charge of possession of an unregistered destructive device.

Edward Allen Costa, 49, who resided in Desert Hot Springs but was a fugitive for a time last year, pleaded guilty to the felony charge before United States District Judge Virginia A. Phillips.

Costa pleaded guilty in 2012 to being a felon in possession of a firearm. He was sentenced to a year in prison and was finishing his sentence at a halfway house in Rubidoux when he walked away from the facility in August 2013. The fugitive was taken into custody in November by the Banning Police Department and the FBI.

While a fugitive last year, Costa was indicted for possessing six pipes bombs that were left in a Palm Springs neighborhood from May 8 through May 12 of 2012. Prior to being indicted for the pipe bombs, Costa was charged with being a convicted felon in possession of a .357-magnum revolver, as well as 106 rounds of ammunition.

The Federal Bureau of Investigation and the Bureau of Alcohol, Tobacco, Firearms, and Explosives investigated the case involving the pipe bombs. The Palm Springs Police Department and the Riverside County Sheriff’s Department provided substantial assistance.

As a result of today’s guilty plea, Costa faces a statutory maximum penalty of 10 years in federal prison. Judge Phillips is scheduled to sentence Costa on July 14.

Release No. 14-053a

LOS ANGELES – A Moorpark man accused of using social networking websites to trick and extort more than a dozen girls and boys into sending him naked photos and videos was arrested today on federal child pornography charges.

Jeremy Brendan Sears, 23, was arrested this morning without incident by the Ventura Sexual Assault Felony Enforcement Task Force (the Ventura S.A.F.E. Team), which is made up of agents and officers with the FBI and Ventura County Sheriff's Office.

Sears, who was named in a two-count criminal complaint filed yesterday, made his initial appearance this afternoon in United States District Court.

According to the affidavit in support of the complaint, Sears approached many of his victims after finding them active in social-networking groups for fans of music acts popular with young teenagers, such as Justin Bieber or One Direction. Sears set up fake profiles on Facebook, Meetme, and other social networking websites that appeared to be from teenage boys and girls. Sears allegedly used the bogus profiles to communicate with real-life teenagers, sometimes beginning online romantic relationships with the real-life teens and then encouraging them to send him sexually explicit videos and photos of themselves.

On other occasions, Sears threatened to harm the real-life teens or their loved-ones unless they sent him naked images. In some cases, after receiving the images of the underage victims, Sears would distribute those images, along with the victims’ names and personal information, to other members of his online social networking groups or to publicly accessible websites. In one case, Sears gained access to a victim’s Facebook account and posted naked photos of her on her own profile page, where they could be seen by her friends and schoolmates. Once Sears had photos of a victim, he commonly used the threat of further harassment and distribution to extort more images.

The federal criminal complaint unsealed at Sears’ court appearance this afternoon charges him with two counts of producing child pornography. During today’s hearing, United States Magistrate Judge Alka Sagar ordered Sears detained (held without bond) and scheduled an arraignment for May 20. Sears was not asked to enter a plea.

According to the affidavit, Sears is also the subject of an ongoing investigation by the Ventura County Sheriff’s Office. The Ventura County District Attorney’s Office last year charged Sears for targeting a Ventura County teenage boy by claiming to be a teenage girl, encouraging the boy to send him naked images, and then insisting that they meet in a park so that he could take the boy to a non-existent girl. Sears was arrested and released on bail in that case in August, but investigators recently determined that he continued to solicit and receive naked images from at least one teenager after that time, according to the affidavit.

Investigators believe that Sears victimized several dozen teenagers — many in Southern California, and some are believed to be overseas — but authorities have not identified all of the victims. Anyone who believes they may have been a victim in this case should contact the FBI in Ventura at (805) 642-3995 or the Ventura County Sheriff's Department at (805) 654-9511.

A criminal complaint contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until and unless proven guilty in court.

The charge of producing child pornography carries a mandatory minimum sentence of 15 years in federal prison and a statutory maximum penalty of 30 years.

The investigation was conducted by the Federal Bureau of Investigation and the Ventura County Sheriff’s Office.

Release No. 14-053

LOS ANGELES – A German company has been sentenced to pay a $1 million fine and another $250,000 to support environmental causes after pleading guilty to two felony environmental charges related to a cargo ship that entered the Port of Long Beach last year with an open crack in its hull that may have caused oil to leak into the port.

The company – Herm. Dauelsberg GmbH & Co. KG – pleaded guilty yesterday morning and was sentenced immediately by United States District Judge George H. Wu. The company pleaded guilty to a felony count of failing to maintain accurate records relating to the overboard disposal of fuel oil and to a felony count of failing to report a hazardous condition aboard the M/V Bellavia to the United States Coast Guard.

This case was initiated after four members of the M/V Bellavia crew provided significant information to the United States Coast Guard, including pictures and videos of discharges from a fuel tank into the ocean. Using a federal law that allows a federal judge to award up to half of any criminal fine to “whistleblowers” who provide information concerning certain environmental crimes aboard vessels, Judge Wu ordered that the four crewmembers receive a total of $500,000 from the fine amount.

The M/V Bellavia is a 960-foot-long, Panamax-size ship that normally transports cargo between European, Central American and North American ports. In 2011, the M/V Bellavia sustained cracks in the ship’s hull while transiting through the Panama Canal. On an unknown number of occasions over the past three years, the hull cracks opened to such an extent that seawater could enter one of the ship’s fuel tanks. As a result of the damage, bunker fuel – a heavy, thick fuel oil – could have been released from the fuel tank into the sea.

Herm. Dauelsberg admitted that the M/V Bellavia hit the side of the Panama Canal again last September and sustained a crack that passed through the ship’s hull into a fuel tank. The company also admitted that, after sustaining the crack, the ship’s crew used one of the ship’s pumps to discharge nearly 120,000 gallons of oil-contaminated seawater from the ship’s fuel tank directly into the ocean. That discharge was not done using the ship’s oil-water separator, which is supposed to be used to filter oil out of water that is pumped overboard. The ship’s crew then failed to properly record the discharge in the ship’s records and did not disclose it to the Coast Guard, both of which are required by federal law, when the ship arrived in the Port of Long Beach in October 2013. In addition, the company admitted that it failed to notify the Coast Guard about the hazardous condition aboard the M/V Bellavia, namely, the crack that passed through the ship’s hull into the fuel tank.

After accepting the guilty pleas, Judge Wu sentenced the company to the statutory maximum fine of $1 million and ordered the company to make an additional community service payment of $250,000 to the Channel Islands Natural Resources Protection Fund, which is administered by the National Park Foundation. The community service payment will be used to fund environmental projects, enforcement efforts, and initiatives designed for the enforcement of environmental and public safety regulations.

This case is the result of an investigation by the United States Coast Guard’s Marine Safety Office, the Coast Guard Investigative Service, and the United States Environmental Protection Agency’s Criminal Investigation Division.

Release No. 14-052

LOS ANGELES – Two men and the South El Monte import-export company they used to move millions of dollars linked to illegal activity from the United States to Mexico were sentenced today for operating an unlicensed money transmitting business. The three defendants received large sums of cash – often hidden in duffel bags – and they worked with “peso brokers” in Mexico to illegally convert the dollars to pesos.

The three defendants sentenced today by United States District Judge John A. Kronstadt are:

Peace & Rich Import, Inc., a wholesale distributor of silk flowers and other goods, which was sentenced to pay a $75,000 fine and to be on probation for four years with stringent conditions;

Chaur Hwan “Kenny” Lin, 67, of Temple City, the president and co-owner of Peace & Rich, who was sentenced to one year in federal prison and ordered to pay a $6,000 fine; and

Antonio Pareja, 54, of San Gabriel, the manager of Peace & Rich, who was sentenced to one year and one day in prison.

Judge Kronstadt also ordered Peace & Rich and Lin to forfeit more than $2 million of funds related to the crime.

Lin and Pareja ran Peace & Rich as an informal money transfer system that was involved in the transfer of money outside of the conventional financial institutions system. An investigation by the Drug Enforcement Administration in Los Angeles determined that Lin and Pareja used Peace & Rich to receive large amounts of cash derived from illegal activity. The cash – as much as hundreds of thousands of dollars – was typically delivered by couriers working in conjunction with a peso broker in Mexico.

In a Black Market Peso Exchange scheme, a peso broker works with an individual engaged in illegal activity, such as a drug trafficker, who has United States currency in the United States that he needs to bring to Mexico and convert to pesos. The peso broker finds business owners in Mexico who buy goods from vendors in the United States, such as Peace & Rich, and need dollars to pay for those goods. The peso broker arranges for the illegally obtained dollars in the United States to be delivered to the United States-based vendors, such as Peace & Rich, where they are used to pay for the goods purchased by the Mexico based customers. Once the goods are shipped to Mexico and sold by the Mexico based business owner for pesos, the pesos are turned over to the peso broker, who then pays the drug trafficker in Mexico.

Peace & Rich took in large amounts of cash and conducted transactions without being registered as a money transmitting business and without filing Currency Transaction Reports (CTRs), which are required when a business accepts cash payments of more than $10,000. Lin and Pareja disbursed cash as directed by a peso broker in Mexico to couriers for delivery to other United States based businesses on behalf of their Mexico based customers. Additionally, Lin “structured” cash deposits – or, made a series of deposits that were less than $10,000 – to avoid the filing of CTRs by the financial institutions where the deposits were made.

Release No. 14-050

LOS ANGELES – A long-time street gang member and associate of the Armenian Power has been convicted at trial for his role in supplying firearms to a leader of the organized crime group.

Miguel Ramirez, 38, of Los Angeles, was found guilty yesterday afternoon of possession of a firearm by a convicted felon.

According to the evidence presented during a brief trial, Ramirez sold and distributed at least three firearms, including a loaded Intratec model Tec-22 semi-automatic with a threaded barrel, a large-capacity magazine and a laser sight.  These firearms were discovered by officers on November 23, 2009.

Ramirez sold and distributed these firearms to Mher “Capone” Darbinyan, a powerful Armenian Power gang leader, who was himself convicted at trial last week for crimes including racketeering conspiracy, extortion, bank fraud and firearms offenses (see:  http://www.justice.gov/usao/cac/Pressroom/2014/047.html). The evidence showed that Ramirez had repeatedly offered Darbinyan other firearms and ammunition, including expanding ammunition designed for use on human targets

Ramirez is scheduled to be sentenced by United States District Judge R. Gary Klausner on July 14, at which time he faces a statutory maximum sentence of 10 years in federal prison.

Out of the 90 defendants charged in the two indictments targeting Armenian Power, 86 have now been convicted. One defendant is scheduled to go on trial on July 15, two defendants are fugitives and prosecutors dismissed charges against one defendant.

The case was investigated by the Eurasian Organized Crime Task Force, which is composed of the FBI, the Glendale Police Department, the Los Angeles Police Department, the Burbank Police Department, the Los Angeles Sheriff’s Department, IRS – Criminal Investigation, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations and the U.S. Secret Service. The Huntington Beach Police Department and the Beverly Hills Police Department provided assistance.

Release No. 14-051

LOS ANGELES -- A former senior partner at the accounting firm KPMG LLP was sentenced today to 14 months in federal prison for his involvement in an insider trading scheme in which he provided confidential information about publicly traded clients to a man who paid him with cash bribes and luxury items.

Scott London, 51, of Agoura Hills, who oversaw KPMG’s audit practice for the Pacific Southwest until he was terminated last year after 29 years at the firm, was sentenced by United States District Judge George H. Wu.

In addition to the prison term, which London was ordered to begin serving on July 18, Judge Wu ordered him to pay a $100,000 fine.

London pleaded guilty last July to one count of securities fraud through insider trading.

According to court documents, London provided confidential information about KPMG clients to Bryan Shaw, a close friend of his, over a period of several years. Shaw then used this information to make highly profitable securities trades that allowed Shaw to realize more than $1.27 million in illegal proceeds.

London was a senior partner at KPMG who supervised more than 500 accounting professionals at the firm and personally handled audits for major KPMG clients, including Herbalife Ltd. and Skechers USA, Inc. As a result of his position, London had access to confidential information about KPMGs clients before that information was disclosed to the public. In his plea agreement, London admitted that he disclosed inside information to Shaw regarding at least 14 separate earnings announcements or acquisitions for KPMG clients.

Shaw admitted that he gave London approximately $70,000 in cash and luxury items in exchange for the inside information about KPMG’s clients. According to court documents, Shaw also said that he typically arranged to meet London on a side street near Shaws business so that he could give London bags containing $100 bills wrapped in $10,000 bundles. Shaw also said that he gave London a $12,000 Rolex watch, as well as jewelry and concert tickets, in exchange for the confidential information.

On two occasions in early 2013, acting at the direction of the Federal Bureau of Investigation, Shaw met with London and gave him cash as supposed payment for confidential information about KPMG clients, according to court documents. In the first instance, London met with Shaw on a street corner in Encino and accepted a bag with $5,000 in cash as payment for confidential information about Herbalife’s earnings announcement in February 2013. London later met with Shaw in a parking lot in Woodland Hills and accepted another bag with $5,000 in cash, which was supposedly London’s share of the illegal profits from trades based on confidential information about Decker’s February 2013 earnings announcement.

Shaw pleaded guilty to a conspiracy charge in May 2013. Judge Wu is scheduled to sentence Shaw on May 19.

The criminal investigation into the insider trading scheme was conducted by the Federal Bureau of Investigation.

In a separate action filed last year, the U.S. Securities and Exchange Commission filed a civil lawsuit against London and Shaw (see:  http://www.sec.gov/litigation/litreleases/2013/lr22670.htm).

Release No. 14-048

LOS ANGELES – A San Francisco man who made approximately $192,000 in profits by purchasing Marvel Entertainment, Inc. stock options immediately prior to its acquisition by The Walt Disney Company in August 2009 pleaded guilty this morning to a federal securities fraud charge. 

Toby G. Scammell, 29, pleaded guilty today to one count of securities fraud before United States District Judge S. James Otero.

According to a plea agreement filed in federal court, Scammell learned that Disney planned to acquire another company “that people would recognize right away” from his then-girlfriend, who was an extern at Disney in the summer of 2009 and who worked on the deal to acquire Marvel. Scammell later learned from a supervisor at his then-employer -- which had periodically provided corporate consulting services to Disney and had confidentiality obligations to Disney -- that Disney had previously been interested in acquiring Marvel. Scammell admitted that he learned the planned acquisition by Disney was estimated to close by Labor Day 2009, based on his observations of his girlfriend’s work schedule at Disney and their own travel plans at the time.

Scammell used the information that he learned from his girlfriend to acquire 659 call options to purchase Marvel stock for $5,465. He purchased more than half of the options in his brother's account. Scammell did not tell his girlfriend or his brother about the purchases of the Marvel call options.

Marvel’s stock rose approximately 25 percent after the deal with Disney was announced on August 31, 2009. After the acquisition was publicly disclosed by Disney, Scammell immediately sold his options, realizing more than $192,000 in profits. Scammell transferred $100,000 of the profits out of his brother's account to conceal the trading and profits from his brother.    

As a result of the guilty plea, Scammell faces a maximum statutory sentence of 25 years in federal prison when he is sentenced by Judge Otero on July 28, 2014.

Today's guilty plea resolves a case filed in October 2013 when a federal grand jury returned an indictment that named Scammell.

Scammell was previously charged with securities fraud by the Securities and Exchange Commission in a civil lawsuit filed in August 2011. He was later ordered to disgorge his trading profits and pay civil penalties and interest totaling $800,985 in that case. 

This case was investigated by the Federal Bureau of Investigation, which received assistance from the Securities and Exchange Commission.

Release No. 14-048

SANTA ANA, California – The former treasurer of the Fullerton-based International Brotherhood of Teamsters, Graphic Communications Conference, District Council Number 2, has pleaded guilty to embezzlement from the union and filing a false tax return.

Fred W. Correll, 79, of Fullerton, who was the secretary-treasurer of the union since 1970, pleaded guilty to the two felony counts on Tuesday afternoon.

When he pleaded guilty, Correll admitted that during 2009 he embezzled $10,000 from the union for his personal use. Correll also admitted that he filed a false tax return for himself in 2009 when he failed to report that income on the 2009 tax return that he filed with the Internal Revenue Service.

Correll resigned from the union three years ago.

Correll is scheduled to be sentenced on August 4 by United States District Judge James V. Selna. At sentencing, Correll faces a statutory maximum penalty of eight years in federal prison and a fine of up to $500,000.

Correll’s son-in-law, Ryan W. Sherard, the former President of the union, is scheduled to plead guilty to filing a false Labor form on Wednesday, April 23. Sherard, 43, of Fullerton, has agreed to plead guilty to making a false statement in a financial report of a labor union, a misdemeanor offense that carries up to one year in prison. In his plea agreement, Sherard admits he failed to report money – approximately $9,600 – that he received from the union.

This case was investigated by the Department of Labor – Office of the Inspector General and IRS – Criminal Investigation. 

Release No. 14-046

LOS ANGELES – A federal jury has convicted the former CEO of the Simi Valley-based battery distributor Powerline Inc. of defrauding the government by selling more than $2.6 million in cheap, knock-off batteries to the U.S. Department of Defense.

Didier De Nier, 63, who lived in Simi Valley until he fled the United States nearly two years ago, was found guilty yesterday of five counts of wire fraud and one count of conspiracy to defraud the United States.

From 2004 to 2011, Powerline, which also did business as Birdman Distribution Corp, sold more than 80,000 batteries and battery assemblies that the Navy used for emergency back-up power aboard nuclear aircraft carriers, minesweepers and ballistic submarines. The batteries were installed on numerous Naval vessels. 

According to the evidence presented during a six-day trial, De Nier and his employees disguised the bogus nature of the batteries by affixing counterfeit labels that falsely identified the batteries as originating from approved manufacturers. Powerline employees also used chemicals to remove “Made in China” markings from the knock-off batteries.

De Nier’s ex-wife Lisa De Nier, who had served for decades as Powerline’s vice president of sales, previously pleaded guilty in this case to conspiracy to defraud the government.

De Nier is scheduled to be sentenced by United States District Judge Dolly M. Gee on August 18. At sentencing, De Nier faces a statutory maximum sentence of 110 years in federal prison.

Lisa De Nier faces up to 10 in prison. She is expected to be sentenced by Judge Gee later this year.

Shortly after federal agents searched Powerline’s offices in July 2012, De Nier fled the Los Angeles area to live aboard his yacht near the Caribbean island of St. Martin, a French territory. In October 2013, federal agents arrested De Nier, a dual French-U.S. citizen, after he had sailed on his yacht to the U.S. Virgin Islands.

The investigation in this case was conducted by the Defense Criminal Investigative Service and U.S. Immigration and Customs Enforcement’s Homeland Security Investigations. The Defense Logistics Agency and the Defense Contract Audit Agency provided significant support to this investigation.

Release No. 14-045

LOS ANGELES – Two leaders of the Armenian Power gang were convicted today of participating in a racketeering conspiracy that included extortion, firearms offenses, bank fraud and identity theft targeting elderly bank customers, as well as a sophisticated credit and debit card skimming scheme that stole account numbers and personal identification numbers (PINs) from thousands of people who used their cards at 99 Cents Only Stores across Southern California.

Concluding a four-week trial, a federal jury returned guilty verdicts against Armenian Power leaders Mher “Capone” Darbinyan and Arman “Horse” Sharopetrosian.  Rafael Parsadanyan, an associate of the gang, was also convicted for his role in the 99 Cents Only Stores skimming scheme.

The convictions today in United States District Court in Los Angeles were announced by United States Attorney André Birotte Jr., Acting Assistant Attorney General David O’Neil of the Justice Department’s Criminal Division, and Assistant Director in Charge Bill L. Lewis of the FBI’s Los Angeles Field Office.

Darbinyan, 38, of Valencia, was found guilty of 57 criminal counts, including racketeering conspiracy, extortion conspiracy, extortion, bank fraud, access device fraud conspiracy, aggravated identity theft, and possession of a firearm by a convicted felon. According to the evidence presented at trial, Darbinyan was a leader of Armenian Power who participated in extortions, firearms offenses, frauds, and identity theft, and repeatedly engaged in criminal activities with members of the Mexican Mafia prison gang. Among other things, Darbinyan operated a sophisticated bank fraud scheme that used middlemen and runners to deposit and cash hundreds of thousands of dollars in fraudulent checks drawn on the accounts of elderly bank customers and businesses.  Separately, Darbinyan also organized and operated a sophisticated debit card skimming operation targeting customers of the discount chain 99 Cents Only Stores. This expansive scheme involved installation of skimmers in stores that were used to steal customers’ debit card numbers and PIN codes. The scheme targeted stores across Southern California, and involved the bank accounts of thousands of customers of the discount store. Darbinyan also conspired to extort and extorted funds from a member of the Armenian community using threats of violence against the victim and his family members. Darbinyan, on two separate occasions, possessed firearms and ammunition after having previously been convicted of felony grand theft for his role in a 2004 debit card fraud scheme. At sentencing, Darbinyan will face a statutory maximum penalty of 973½ years in federal prison.

Sharopetrosian, 35, was convicted of three counts – racketeering conspiracy, extortion conspiracy, and extortion. The evidence at trial showed that while Sharopetrosian was incarcerated in Avenal State Prison in 2009, he used smuggled cell phones to direct the extortion of a member of the Armenian community. Sharopetrosian worked together with Darbinyan and others to carry out the extortion over a period of six months, at one point even arranging the kidnapping at gunpoint of the victim in order to hasten the extortion payments. Sharopetrosian, at different times, threatened to kill and kidnap the victim in order to coerce the victim into paying him more than $100,000. As a result of today’s guilty verdicts, Sharopetrosian faces a statutory maximum sentence of 60 years in federal prison.

Parsadanyan, 29, of Los Angeles, was convicted of 14 counts of bank fraud for his role in the 99 Cents Only Store scheme. The evidence at trial showed that Parsadanyan assisted Darbinyan by, among other things, collecting and storing proceeds of the fraud scheme, including delivering approximately $34,000 in criminal proceeds to a co-schemer. Each count of bank fraud carries a statutory maximum sentence of 30 years in federal prison.

Darbinyan, Sharopetrosian, and Parsadanyan were convicted after a jury trial before United States District Judge R. Gary Klausner. Darbinyan is scheduled to be sentenced on July 21. Sharopetrosian is scheduled to be sentenced on September 15. Parsadanyan is scheduled to be sentenced on July 14. 

Darbinyan, Sharopetrosian, and Parsadanyan were among 90 individuals charged in 2011 in two indictments targeting Armenian Power. One indictment accused 29 defendants, including Darbinyan and Sharopetrosian, of participating in the Armenian Power racketeering conspiracy that involved a host of illegal activities such as sophisticated bank fraud schemes, identity theft, debit card skimming, manufacturing counterfeit checks. Some defendants in the case were charged with participating in a variety of violent crimes, such as kidnapping, extortion and firearms offenses.

According to court documents, the Armenian Power street gang formed in the East Hollywood area of Los Angeles in the 1980s. The gang’s membership consisted primarily of individuals of Armenian descent, as well as of other countries within the former Soviet bloc. Armenian Power has more than 250 documented members, as well as hundreds of associates. According to court documents, Armenian Power members and associates regularly carry out violent criminal acts, including murders, attempted murders, kidnappings, robberies, extortions, and witness intimidation to enrich its members and associates and preserve and enhance the power of the criminal enterprise. 

The evidence also showed that Armenian Power leaders worked closely with powerful organized crime figures in Russia and Armenia, known as “thieves-in-law,” to commit criminal activities in the Los Angeles area and elsewhere.

Out of the 90 defendants charged in the two indictments, 85 have now been been convicted. Two of the defendants are still pending trial, two defendants are fugitives, and prosecutors dismissed charges against one defendant. The charges contained in the indictments are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The case was investigated by the Eurasian Organized Crime Task Force, which is comprised of the FBI, the Glendale Police Department, the Los Angeles Police Department, the Burbank Police Department, the Los Angeles Sheriff’s Department, IRS – Criminal Investigation, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, and the U.S. Secret Service. The Huntington Beach Police Department and the Beverly Hills Police Department provided assistance.

The case is being prosecuted by Assistant United States Attorneys E. Martin Estrada and Elizabeth Yang of the Central District of California and Trial Attorney Andrew Creighton of the Criminal Division’s Organized Crime and Gang Section. 

Release No. 14-047

LOS ANGELES – A North Hollywood woman who worked in the health care industry was sentenced this afternoon to 76 months in federal prison for orchestrating a scheme that submitted nearly $25 million in fraudulent bills to Medicare for services and supplies that were medically unnecessary and sometimes were never provided.

Susanna Artsruni, 46, who formerly owned a durable medical equipment (DME) company and worked at a number of medical clinics in Los Angeles, was sentenced by United States District Judge Margaret M. Morrow.

Artsruni, who often used the names “Mary” and “Rose,” was sentenced after pleading guilty earlier this year to one count of health care fraud and one count of money laundering. In addition to the prison term, Judge Morrow ordered Artsruni to pay $9,624,556 in restitution to the Medicare program.

In a plea agreement filed in United States District Court, Artsruni admitted that she defrauded Medicare in a number of ways. In one part of the scheme, Artsruni had physician’s assistants at three Los Angeles medical clinics sign prescriptions and orders for medically unnecessary DME and diagnostic tests that were later referred to other Medicare providers that billed for the equipment and tests. Artsruni also caused the three clinics to bill Medicare for medically unnecessary services.

Artsruni fraudulently billed Medicare on behalf of her own DME supply company, Midvalley Medical Supply in Van Nuys, for medically unnecessary DME based on referrals from one of the three medical clinics.

In total, Artsruni caused more than $24.8 million in fraudulent claims to be submitted to Medicare, which paid more than $9.6 million on the bogus bills.

Artsruni also admitted that she wrote checks totaling more than $35,000 from the Midvalley bank account to three corporations that had no connection to the medical industry and apparently had not provided any legitimate business services to Midvalley.  Artsruni admitted that she wrote these checks to conceal the nature of the funds as the proceeds of health care fraud and used the three corporations to launder these funds.

At the time that she worked at two of the clinics and wrote one of the checks to launder the proceeds of her fraud, Artsruni was free on bond in another health care fraud case. Although the terms of her pre-trial release in the 2008 case dictated that she not commit crimes and forbid her from working at medical facilities, Artsruni concealed her activities from her Pre-Trial Services Officer and engaged in the fraudulent conduct that led to most of the losses suffered by Medicare in the second case.

A second defendant in the case, Erasmus Kotey, a physician's assistant who worked with Artsruni in a medical clinic on North Vermont Avenue in Los Angeles, has pleaded guilty (see: http://www.justice.gov/usao/cac/Pressroom/2014/038.html) and is scheduled to be sentenced by Judge Morrow on September 8.

Charges also have been filed against three others associated with the money laundering and health care fraud schemes (see: http://www.justice.gov/usao/cac/Pressroom/2014/040.html). The three defendants in this case have pleaded not guilty and are scheduled to go on trial in early 2015.

All of these cases are the products of an investigation by the Federal Bureau of Investigation; the U.S. Department of Health and Human Services, Office of Inspector General; and IRS - Criminal Investigation.

The cases were brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Central District of California.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,700 defendants who have collectively billed the Medicare program for more than $5.5 billion.

Release No. 14-043

LOS ANGELES – Robert A. Rizzo, the former top administrator in the City of Bell who has admitted his role in a widespread municipal corruption scandal, was sentenced today to 33 months in federal prison in a tax fraud scheme designed to hide part of the massive income he was bilking from the small Los Angeles County city.

Rizzo was sentenced today by United States District Judge George H. King, who said Rizzo’s activities demonstrated “greed in cheating the taxpayers of the United States after cheating the citizens of Bell.” In issuing the 33-month prison term, Judge King ordered that it run consecutive to a prison term Rizzo is expected to receive Wednesday when he is sentenced in Los Angeles Superior Court in his corruption case.

Rizzo, 60, of Torrance, pleaded guilty in January to federal charges – conspiracy and filing a false federal income tax return with the Internal Revenue Service – in a scheme that resulted in hundreds of thousands of dollars in unpaid federal income tax. At today’s sentencing hearing, Judge King ordered Rizzo to pay $255,984 in restitution, a figure that equals the amount of unpaid taxes directly attributable to the defendant.

In his plea agreement, Rizzo admitted that he created a corporation to fraudulently claim losses on his income tax return, which served to illegally reduce his tax liability on the significant income he was receiving from the City of Bell. Rizzo also admitted claiming personal expenses as business deductions.

Rizzo’s “conduct can only be described as corrupt,” prosecutors wrote in a sentencing memo filed with the court. Not only did Rizzo fleece the City of Bell and its residents, he also bilked the Internal Revenue Service “in an extraordinary display of greed.”

According to court documents, Rizzo, sometime in 2002, created an S Corporation that he called R.A. Rizzo Incorporated (RARI). Rizzo was assisted in the scheme by co-conspirators that included his tax preparer, Robert J. Melcher, who has pleaded guilty to aiding and abetting the filing of a false tax return.

Rizzo used RARI to claim bogus losses in relation to a purported rental property in Auburn, Washington. RARI’s corporate tax return fraudulently deducted more than $571,530 in losses for the years 2006 through 2009.

Rizzo also admitted in his plea agreement that he used a RARI account to pay for more than $80,000 in personal expenses in 2009 and $120,000 in construction work on his residence in Huntington Beach in 2010. RARI’s tax returns falsely claimed that these expenses were related to rental property.

Rizzo “abused his position to fleece the City of Bell of hundreds of thousands of dollars that he paid to himself in excessive salary – monies that could have been spent for the benefit of the people he served,” according to the government’s sentencing memorandum. “But not satisfied with betraying the trust place in him by the city and its residents, in an extraordinary display of greed, [Rizzo] also found it necessary to cheat the IRS.”

Melcher, who as a result of his guilty plea faces a sentence of up to three years in prison, is scheduled to be sentenced on May 12 by Judge King.

The cases against Rizzo and Melcher are part of an ongoing investigation being conducted by special agents with IRS - Criminal Investigation and the Federal Bureau of Investigation.

Release No. 14-042a

LOS ANGELES – A Los Angeles-area doctor surrendered this morning to federal authorities after being indicted on federal drug trafficking charges for allegedly illegally distributing drugs, including powerful and addictive painkillers.

Dr. Andrew Sun, 78, of La Mirada, surrendered this morning at the United States Courthouse, where he is expected to be arraigned this afternoon.

Sun, who operated medical clinics in San Gabriel and East Los Angeles, is named in an indictment that was returned by a federal grand jury on March 18. The indictment specifically charges Sun with 24 counts of illegally prescribing controlled substances including hydrocodone (a powerful narcotic painkiller commonly known by the brand names Vicodin and Norco), alprazolam (commonly known by the brand name Xanax), carisoprodol (best known as Soma), diazepam (the generic form of the brand name product Valium), and promethazine with codeine (a Schedule V cough syrup). The indictment also charges Sun with four counts of laundering the proceeds generated by his illegal prescriptions.

Sun issued nearly 5,000 prescriptions for controlled substances in a one-year period that ended in July 2010, according to an affidavit in support of a search warrant executed at Sun’s residence and two medical offices on July 11, 2012. During the investigation detailed in the affidavit, Sun prescribed drugs, including hydrocodone, to undercover agents on 13 separate occasions, each time in exchange for $150 cash.

The affidavit quotes Sun telling one undercover agent: “So if you want to insist on getting such a strong medicine, I’ll give it to you. I’m just a doctor, I’m not God, okay, so I cannot say no to something that you want to do… I only advise you not to, but, if you want to do it I can’t do, I can’t say no.”

The affidavit details another instance in which Sun encouraged an undercover agent to provide a fraudulent justification for the “maximum” allowable number of extra-strength Vicodin pills.

Based on review of the undercover recordings and other materials from the investigation, Dr. Rick Chavez, an expert in pain treatment, concluded that Sun’s interactions with each of the undercover agents “was insufficient, inappropriate, and inadequate,” according to the affidavit. Chavez concluded: “there is not only strong, but irrefutable evidence for inappropriate prescribing of controlled medications” by Sun.

An investigation by IRS - Criminal Investigation showed that Sun and his wife controlled 44 bank accounts, and that Sun deposited more than $1.1 million in cash into his accounts between 2008 and July 2012. The indictment charges Sun with laundering cash on four specific occasions when he deposited thousands of dollars in cash on dates that undercover agents met with him and received prescriptions.

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

If convicted of the 28 counts in the indictment, Sun would face a statutory maximum sentence of 248 years in federal prison.

The investigation into Sun was conducted by the Drug Enforcement Administration, IRS - Criminal Investigation, the California Medical Board, the California Department of Health Care Services and the Monterey Park Police Department.

Release No. 14-042

LOS ANGELES – A Central California man who was hired to advise the Twenty-Nine Palms Band of Mission Indians has become the third person to plead guilty to participating in a kickback scheme that defrauded the Coachella Valley tribe.

David Alan Heslop, 76, of Templeton, who was hired by the tribe to oversee some tribal business, pleaded guilty yesterday to conspiracy to commit bribery. Heslop admitted that he paid hundreds of thousands of dollars to bribe Gary Edward Kovall, an attorney acting as general counsel for the tribe. 

Kovall, 67, of Ely, Minnesota, pleaded guilty last month to conspiracy to commit bribery.

A third defendant in the case – Paul Phillip Bardos, 58, a general contractor from Rancho Cucamonga – pleaded guilty last month to tax evasion.

As outlined in a 20-page factual basis filed in relation to Heslop’s plea agreement, Kovall and Heslop formed companies, and Kovall convinced the tribe to award construction and consulting work to those companies. To disguise Kovall’s interest in those companies, Heslop paid Kovall’s share to Peggy Anne Shambaugh, who at the time was Kovall’s girlfriend (and is now his wife). Over of period of about 18 months that ended in mid-2008, the tribe paid these companies approximately $2.8 million. Heslop, in turn, paid Shambaugh approximately $300,000 to influence and reward Kovall.

Bardos performed and subcontracted much of the work awarded by the tribe. He admitted to depositing income he earned into his personal checking account, concealing this money from his accountant, and not reporting it on his tax returns.  

Heslop is scheduled to be sentenced on June 30 by United States District Judge Michael W. Fitzgerald. At sentencing, Heslop faces up to five years in federal prison.

Kovall and Bardos both are scheduled to be sentenced by Judge Fitzgerald on September 29, at which time each defendant faces up to five years in prison.

Shambaugh, who was also indicted in this case, is being evaluated for pretrial diversion. If found suitable for the diversion program, Shambaugh will be supervised by a court officer for a specific period of time. If she complies with the program, the charges against her will be dismissed.

This case was investigated by IRS - Criminal Investigation and the Federal Bureau of Investigation.

Release No. 14-041

LOS ANGELES – Three people who were recently named in a superseding indictment that adds health care fraud charges to money laundering and tax fraud schemes were arrested this morning by federal authorities.

Edgar Hakobyan, 30, of Glendale; Karen Sarkissian, 43, of Glendale; and L’Tanya Smith, 57, of Ladera Park, were taken into custody without incident and are scheduled to be arraigned on the indictment this afternoon in United States District Court. These three defendants were named in a superseding indictment returned by a federal grand jury on March 27.

Previously in this case, two defendants were named in the original indictment that alleged a conspiracy to launder the proceeds of health care fraud through five sham corporations they owned and operated. Glendale residents Khachatour Hakobyan, 46, and Aram Aramyan, 59, have pleaded not guilty to charges that allege they deposited millions in fraudulent proceeds into bank accounts for the bogus companies and then wrote checks from these corporations to themselves and their relatives, including Edgar Hakobyan. Khachatour Hakobyan and Aramyan have each been charged with five counts of filing false tax returns based on their failure to report all of their income from those corporations between 2007 and 2011. Khachatour Hakobyan and Aramyan are scheduled to go on trial on January 27, 2015, before United States District Judge Margaret M. Morrow.

Two of the defendants arrested today are charged with health care fraud related to a clinic on Sunset Boulevard in Echo Park. The clinic was operated by Sarkissian and employed Smith, a physician’s assistant. Between July 2009 and March 2010, Smith allegedly prescribed or ordered medically unnecessary tests and services, some of which were never provided to the patients. Those prescriptions and orders led to more than $11 million in fraudulent claims to Medicare. Sarkissian is also charged as a part of the money laundering conspiracy based on his involvement in laundering the fraudulent proceeds generated through the Sunset Clinic through the corporations set up by Khachatour Hakobyan and Aramyan.

Edgar Hakobyan is charged with conspiracy to commit money laundering and money laundering based on his involvement in receiving checks from the sham corporations, which he either cashed or deposited in his own bank accounts.

Special Agent in Charge Erick Martinez of IRS Criminal Investigation's Los Angeles Field Office stated, “The defendants have allegedly laundered millions of dollars of fraudulently obtained Medicare funds through their businesses, failing to report it as income. IRS Criminal Investigation will not stand still while criminals line their pockets with illicit proceeds obtained from publically funded health care programs.”

If they are convicted of the charges in the superseding indictment, the five defendants would face sentences of as much as 395 years in federal prison.

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

As part of this investigation, charges have previously been filed against others associated with the money laundering and health care fraud schemes. Susanna Artsruni, of North Hollywood, has pleaded guilty and admitted she caused $25 million in fraudulent claims to be submitted to Medicare through three medical clinics and her own durable medical equipment company (see: http://www.justice.gov/usao/cac/Pressroom/2014/002.html). Earlier this week, Erasmus Kotey, 77, of Montebello, pleaded guilty to health care fraud in relation to one of the clinics operated by Artsruni and a second unrelated clinic (see:  http://www.justice.gov/usao/cac/Pressroom/2014/038.html).

All of these cases are the products of an investigation by the Federal Bureau of Investigation; the U.S. Department of Health and Human Services, Office of Inspector General; and IRS - Criminal Investigation.

The cases were brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Central District of California.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,700 defendants who have collectively billed the Medicare program for more than $5.5 billion.

Release No. 14-040

RIVERSIDE,             California – A Tijuana municipal police officer is expected to appear in United States District Court this afternoon to be arraigned on federal indictment that accuses him of illegally transporting more than 13 pounds of heroin and over six pounds of methamphetamine.

Noe Raygoza-Garcia, 33, a Mexican national, was indicted on March 27 on one count of possession with intent to distribute heroin and methamphetamine.

Raygoza was arrested on March 13 after federal officials saw him driving erratically on Interstate 15 near the Border Patrol checkpoint north of Temecula. After he was stopped by authorities and gave answers that aroused suspicion, a drug-detecting canine alerted to the vehicle, where Border Patrol agents found narcotics hidden in the rear seat, according to court documents.

If he is convicted of the one count in the indictment, Raygoza would face a mandatory minimum sentence of 10 years in federal prison and a maximum possible penalty of life.

Raygoza is currently being held without bond.

The case against Raygoza was investigated by the United States Border Patrol.

Release No. 14-039

LOS ANGELES – The owner of a Temecula art gallery who stalked, harassed and attempted to extort as much as $300,000 from art world professionals pleaded guilty today to two federal stalking charges.

Jason White, 43, of Temecula, pleaded guilty today in the cyberstalking case before United States District Judge Stephen V. Wilson.

As a result of today’s guilty pleas, White faces a maximum statutory sentence of 10 years in federal prison when he is sentenced on June 9.

White was arrested by the FBI on February 12 after engaging in a six-month stalking and extortion scheme that targeted art world professionals with whom he had had business relationships. When those business relationships ended, White posted derogatory information about his former associates on websites he had created, and then used threatening emails to demand hundreds of thousands of dollars in exchange for taking the websites down. White repeatedly made extortionate demands through harassing text messages and emails, and when his demands were not met, he threatened violence against the victim families.

In one part of the scheme, White targeted his former employer, an art publisher, as well as his supervisor at the art publisher’s company. After creating derogatory websites in the art publisher’s name, White allegedly sent threatening text messages to the art publisher, the publisher’s son, and his former supervisor, according to court documents. In a text message to his former supervisor, he threatened to find her family and make her pay with “fear, anguish, and pain.” On several occasions, White obtained pictures of her child and sent pictures of the child to the victim with comments such as “it will be very unfortunate if something was to happen to him.”

The case against White was investigated by the Federal Bureau of Investigation, Art Crime Team.

Release No. 14-037

RIVERSIDE, California – A Lynwood gang member who pleaded guilty to federal sex trafficking charges – admitting that he used force, fraud and coercion to cause teen-age girls to work as prostitutes across Southern California – was sentenced this morning to 360 months in federal prison.

Paul Edward Bell, 30, a member of the Rolling 60s Crips street gang, was sentenced by United States District Judge Virginia A. Phillips.

Bell “not only used his fists, a cane, a shoe, and other objects against the females, he also pepper sprayed one of the victims in her face,” prosecutors wrote in a sentencing brief filed with the court. “He also threatened the victims with physical abuse, put a gun to the head of one of the victims, and locked at least two of the victims in his apartment. The physical and mental abuse and anguish suffered by the victims at the hands of defendant has and will continue to deeply affect the victims and their families.”

The sentencing brief notes that Bell was previously convicted in two prior state court cases with crimes related to sex trafficking.

Bell is among eight defendants convicted in the case stemming from a federal grand jury indictment filed in August 2012.
Bell and his co-defendants used minors as prostitutes for their own financial gain. Bell was the leader of the organization that preyed on vulnerable victims, convinced them to become prostitutes, and verbally and physically abused them when they did not perform as required. Bell specifically admitted that in 2011 he forced at least four minor victims – aged 15 to 17 – to work as prostitutes in Lynwood and Compton.

The other seven defendants in this case who previously pleaded guilty are:

Samuel Rogers, also known as Bone, 24, of Moreno Valley, another alleged member of the Rolling 60s, who pleaded guilty to sex trafficking of a minor and is currently scheduled to be sentenced on April 14;

Gary Rogers, who used monikers such as G Man, 25, of Moreno Valley, another alleged member of the street gang and Samuel Rogers’ brother, who pleaded guilty to conspiracy to engage in sex trafficking and is scheduled to be sentenced on April 11;

Christopher Weldon, Bell’s half-brother, who is also known by several names, including Chris Roc, of Compton, who pleaded guilty to one count of conspiracy to engage in sex trafficking and received a six-year prison sentence;

Javiya Brooks, who is also known by several permutations of Shady Blue, 21, of Lynwood, who was the lead prostitute for Bell, who pleaded guilty to one count of conspiracy to engage in sex trafficking and is scheduled to be sentenced on April 21;

Kimberly Alberti, 21, of Riverside, who was the lead prostitute for Samuel Rogers, who pleaded guilty to one count of conspiracy to engage in sex trafficking and received a two-year sentence;

Kristy Harrell, 22, of Riverside, who was Gary Rogers’ lead prostitute, who pleaded guilty to interstate transportation in the aid of racketeering and is scheduled to be sentenced on April 28; and

Su Yan, 32, of Rosemead, a Chinese national who allegedly assisted Bell with his prostitution business, who pleaded guilty to interstate transportation in the aid of racketeering and was sentenced to 18 months in prison.

This case resulted from an investigation by the Inland Child Exploitation/Prostitution Task Force, which is comprised of agents, deputies and officers with the Federal Bureau of Investigation, the Riverside County Sheriff’s Department, the Riverside Police Department, the San Bernardino Police Department, the Pomona Police Department, and the Ontario Police Department.

The investigation in this case began in January of 2011, when the Riverside County Sheriff’s Department learned that teen-age girls attending schools in the Inland Empire were being recruited to work as prostitutes. The investigation later revealed that Alberti attended one of the schools and recruited underage females by “grooming them” – or gaining their trust and telling them that they could make large sums of money by working as prostitutes for Alberti's pimp. The girls who were successfully recruited to work as prostitutes were brought to the Los Angeles area, where they were housed at hotels or at the pimps’ apartments. Some of the victims were housed at Bell's apartment. The Rogers brothers and Bell also often housed the victim prostitutes at motels located in the Los Angeles area.

The United States Attorney’s Office is working with the Justice Department’s Child Exploitation and Obscenity Section to prosecute this case.

Release No. 14-036

LOS ANGELES – A physician assistant pleaded guilty today to defrauding Medicare by signing fraudulent prescriptions for durable medical equipment while working at two Los Angeles-area medical clinics.

Erasmus Kotey, 77, of Montebello, pleaded guilty before United States District Judge Margaret M. Morrow to one count of health care fraud and one count of conspiracy to commit health care fraud.

Judge Morrow is scheduled to sentence Kotey on September 8, at which time he faces a statutory maximum sentence of 20 years in federal prison.

According to court documents, Kotey was a physician assistant who worked at Los Angeles County medical clinics. From approximately November 2007 through February 2008, Kotey engaged in a scheme to commit health care fraud through his work at a clinic located at 866 North Vermont Avenue in Los Angeles.

(The scheme involving the clinic on North Vermont Avenue also involved Susanna Artsruni, a North Hollywood woman who has pleaded guilty and admitted she caused $25 million in fraudulent claims to be submitted to Medicare, see: http://www.justice.gov/usao/cac/Pressroom/2014/002.html.)

In addition, Kotey engaged in a conspiracy to commit health care fraud from approximately April 2008 through December 2008, through his work at a clinic at 943 South Atlantic Boulevard in Monterey Park.

At both clinics, Kotey signed prescriptions and other medical documents for medically unnecessary diagnostic tests, power wheelchairs and other durable medical equipment (DME). Co-conspirators then sold the prescriptions, knowing that the prescriptions were fraudulent. Based on these fraudulent prescriptions, the testing facilities and DME supply companies then submitted false and fraudulent claims to Medicare. 

In the two cases combined, fraudulent prescriptions from Kotey were responsible for approximately $7 million in false and fraudulent claims to Medicare, and Medicare paid approximately $3.5 million on those claims.

The cases against Kotey are the product of an investigation by the Federal Bureau of Investigation; the U.S. Department of Health and Human Services, Office of Inspector General; and IRS - Criminal Investigation.

The cases were brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Central District of California.

Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,700 defendants who have collectively billed the Medicare program for more than $5.5 billion.

To learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to Health Care Fraud Unit.

Release No. 14-038

 

LOS ANGELES – Prosthetics supplier Ossur Americas, Inc. today paid the United States $500,000 to resolve allegations that the Orange County company supplied the Army with hundreds of foreign-made prosthetic, bracing and support products –while falsely certifying that all of its products were manufactured in the United States as required by federal law and its contracts with the military.

Ossur, which is headquartered in Foothill Ranch, paid the money today pursuant to a settlement agreement that resolves allegations that it had violated the federal False Claims Act by falsely certifying compliance with the Buy American Act. The alleged conduct took place in 2005 and 2006 and involved prosthetic components for wounded soldiers.

The Buy American Act generally prohibits federal government agencies from purchasing foreign-made products, and Ossur’s compliance with the Act was expressly required by its contracts with the Army.

Ossur became aware that it had made the prohibited sales in early 2006, and entered the Department of Defense’s Voluntary Disclosure Program in December 2006.  The government subsequently investigated Ossur’s disclosure. In conjunction with Ossur’s voluntary disclosure, the company instituted a series of compliance measures, including distribution of instruction sheets to sales representatives and training for management officials, to ensure future compliance with the Buy American Act.

This matter was investigated by the Defense Criminal Investigative Service.

Release No. 14-033a

LOS ANGELES – The publicly traded Stryker Corporation and the privately held Alliant Enterprises have paid the United States a total of $1.05 million to resolve a “whistleblower” lawsuit that alleged a failure to disclose complete information about projected government sales, allowing them to avoid heightened scrutiny of a government contract.

The case was resolved when a federal judge dismissed and unsealed the case on March 13.

The lawsuit alleged that Stryker and Alliant failed to disclose to government negotiators complete pricing information, which resulted in higher costs to government agencies that purchased medical products from the Federal Supply Schedule contract awarded by the Department of Veterans Affairs to Alliant. As a result of the conduct by Stryker and Alliant, the VA and other government agencies allegedly purchased products at inflated prices.

The two companies paid the settlement in December. Stryker paid the United States $911,219, and Alliant paid $151,215.

Stryker Corporation is a Fortune 500 medical technology and equipment company with several divisions, including Stryker Medical, which manufactures medical equipment. Stryker sold certain medical equipment – including critical care hospital beds, medical-surgical hospital beds and stretchers – to government purchasers through the Federal Supply Schedule pursuant to modifications to a contract that the VA had previously awarded to Alliant. The lawsuit alleged that because Alliant was used to sell the Stryker-manufactured products, the defendants provided none of Stryker’s commercial pricing history to the VA for price comparison purposes, and that Alliant understated expected sales of the products, which allegedly allowed the defendants to avoid scrutiny and overcharge the VA.

The lawsuit was filed in United States District Court in Los Angeles in 2008 by a former Stryker employee under the qui tam – or “whistleblower” – provisions of the federal False Claims Act, which allow individuals to bring lawsuits on behalf of the United States and to receive a portion of the proceeds of a settlement or judgment awarded against a defendant.

Stryker and Alliant have resolved this action without admitting any wrongdoing. 

This settlement was reached by the U.S. Attorney’s Office for the Central District of California and the Department of Justice Civil Division’s Commercial Litigation Branch. The matter was investigated by the Department of Veterans Affairs’ Office of Inspector General.

Release No. 14-032a

LOS ANGELES – A former inspector with the Los Angeles Department of Building and Safety (LADBS) was sentenced today to 30 months in federal prison for taking more than $30,000 in bribes in relation to at least a dozen properties in and around the Koreatown District of Los Angeles.

Samuel In, 66, of Glendale, a 37-year veteran of LADBS, pleaded guilty just over one year ago to one count of bribery. According to court documents, In took bribe payments – which he described to some victims as “fees” – from 2007 through the end of 2010. In admitted that he solicited and accepted bribery payments totaling more than $30,000 in connection with his official duties in relation to at least a dozen Koreatown properties.

Federal prosecutors asked United States District Judge Dean D. Pregerson to impose a 30-month prison term, reasoning that In took bribes as part of a “deliberate, long-running pattern of corruption.”

In a sentencing memo filed with the court, prosecutor wrote: “This recommended sentence appropriately accounts for the serious nature of defendant’s illegal course of conduct — abusing his position as a senior building inspector over a number of years to solicit and take bribes in return for approving numerous building projects that may or may not have been safe.”

The case against In is the result of an investigation by the Federal Bureau of Investigation.

The FBI urges anyone with information about building inspectors or other officials accepting bribes to contact the FBI by calling its Los Angeles Field Office at its toll-free corruption hotline – 855-5-BRIBES (855-527-4237) – or sending an e mail to the ReportBribes@ic.fbi.gov.

Release No. 14-033

SANTA ANA, California – A Temecula college student who hacked into as many as 150 online accounts to extort young females into sending him nude photos and video – or submitting to Skype sessions in which he convinced two teens to undress – was sentenced today to 18 months in federal prison, concluding the latest in a series of federal “sextortion” cases in Southern California.

Jared James Abrahams, 20, was sentenced this morning by United States District Judge James V. Selna.

After being arrested last year by special agents with the FBI, Abrahams pleaded guilty on November 12 to one count of computer hacking and three counts of extortion.

Abrahams targeted young women he knew, and he identified other victims after hacking into Facebook pages. Using hacking software, Abrahams took control of victims’ email accounts, social media accounts and even their computers – which allowed him to remotely turn on web cameras and occasionally take pictures of naked victims.

Abrahams used the nude photos to extort victims by threatening to publicly post the compromising photos or videos to the victims’ social media accounts – unless the victim either sent more nude photos or videos, or engaged in a Skype session with him and did what he said for five minutes.

Several teens and women in their early 20s were victimized when Abrahams posted nude photos to their social media accounts. At least two victims consented to the Skype sessions proposed by Abrahams to keep their photos off the Internet.

“As digital devices, email accounts, and social media accounts now contain the most intimate details of the public’s daily lives, the impact of this type of hacking and extortion becomes more pronounced, troubling, and far-reaching,” prosecutors wrote in a sentencing memo filed with the court. “In some cases, this type of criminal behavior can be life-changing for the victims – especially for vulnerable victims who may feel it is impossible to rebuild their tarnished reputations. Stated differently, individuals like defendant have the ability to affect a person’s life in frightening ways by using the broad reach of the Internet.”

To avoid become a victim of sextortion, everyone should be prudent when posting images online or to any wireless communication (computer, phone, tablet), especially if the images have private or compromising content. Victims who receive extortionate threats or whose personal accounts have been compromised are urged to contact a parent, trusted adult, or law enforcement, since the situation will only worsen. The FBI was able to quickly identify Abrahams after a victim quickly reported his extortion attempts. As always, computer users are warned to ensure their passwords are difficult for others to guess, avoid opening unverified attachments, and use reliable anti-virus software with updated definitions. Lastly, computer users should cover their webcams when they are not in use.

In previous sextortion cases investigated by the FBI and prosecuted by the United States Attorney's Office, a Glendale man was sentenced in December to five years in prison (see: http://www.justice.gov/usao/cac/Pressroom/2013/142.html), and an Orange County man received a six-year prison term in 2011 (see: http://www.justice.gov/usao/cac/Pressroom/2011/123.html).

Release No. 14-031

LOS ANGELES – The former assistant manager of a Bank of America branch in East Los Angeles and her onetime boyfriend were convicted today of plotting a heist in which the woman wore a fake bomb to simulate a kidnapping to steal approximately $565,000 from the bank.

Following a one-week trial in United States District Court, the couple was found guilty today of conspiracy to commit bank robbery and bank robbery in the September 5, 2012 heist.

Reyes “Ray” Vega, 34, of Bell, and Aurora Barrera, 33, who now resides in Downey, each face up to 30 years in federal prison when they are sentenced on May 19 by United States District Judge Manuel Real.

During the robbery, Barrera walked into the bank with what appeared to be an explosive device taped to her body, convinced a co-worker that she had been kidnapped that morning by two black men, told the co-worker that they had to open the vault and place money outside the bank or else the kidnappers would harm them.

Barrera and her co-worker placed $565,500 of the bank’s money into bags and then threw the bags out the bank’s side door. One of Vega’s longtime friends, Richard Menchaca, picked up the money and drove it away from the bank. Menchaca met up with another accomplice, Bryan Perez, and they moved the money to a safe location.  The device attached to Barrera’s body turned out to be a hoax when the Los Angeles Sheriff’s Department Bomb Squad arrived and disabled it using a robot.

Menchaca and Perez were also charged in this case, but they pleaded guilty and testified at the trial of Vega and Barrera.

 According to testimony, Vega and Barrera were dating at the time of the robbery. Barrera testified at trial that she planned to marry Vega and move to Dubai, where Vega claimed to have employment opportunities. However, Barrera said she ended the relationship after learning that Vega was dating several other women at the time and that he had been charged with orchestrating the robbery. Several of Vega’s former friends also testified at trial about how he asked for help in planning the robbery and how he bragged about it afterwards.

Although a small portion of the money has been recovered, the majority remains outstanding. The FBI, which led the investigation, continues to pursue leads to recover the remainder of the stolen money.

The investigation in this case was conducted by the Federal Bureau of Investigation and the Huntington Park Police Department.

Release No. 14-032

SANTA ANA, California – An Irvine woman was sentenced today to 37 months in federal prison for defrauding a group of Roman Catholic Sisters out of $285,000, which she misappropriated and spent for her own use after promising to use the money to help the nuns purchase a retirement home.

Linda Rose Gagnon, 59, was sentenced by United States District Judge Andrew J. Guilford, who presided over Gagnon’s trial last year.

Gagnon was found guilty of three counts of wire fraud in November for defrauding the U.S. Province of the Religious of Jesus & Mary (RJM), an order of nuns devoted to educational and charitable work. The evidence presented at trial showed that Gagnon promised to use RJM funds to purchase a retirement home for the Sisters. Instead, Gagnon used the funds to pay for her personal expenses and to fund the unprofitable operations of her real estate finance company – burning through the entire $285,000 in only 64 days. Gagnon used the funds to pay for personal expenses, including travel, lingerie, groceries, manicures, hair dressing, restaurants, lease payments for an Audi TT sports car, and valet pet-sitting services for her dog.

In addition to the prison term, which Gagnon was ordered to begin serving by June 13, Judge Guilford said he would order the defendant to pay full restitution to the victim nuns. The amount of restitution will include at least the $285,000 that Gagnon stole from RJM, but the court may order her to pay RJM for other related losses.

This case was investigated by the FBI.

Release No. 14-030

LOS ANGELES – A former San Luis Obispo real estate broker pleaded guilty today to orchestrating a property “flipping” scheme in which he purchased houses in short sales at artificially low prices and immediately resold the properties at their true market value.

Timothy William Barnes, 37, who now resides in San Francisco, pleaded guilty to one count of bank fraud, a federal offense that carries a statutory maximum penalty of 30 years in federal prison.

Barnes owned and operated Apex Properties Real Estate Brokerage, Inc. in San Luis Obispo. Between January 2010 and September 2012, Barnes purchased properties after banks gave approval for short sales. In short sales, banks agree to accept less money than the outstanding balance on a mortgage, usually because the property is “under water,” meaning that the value of the property has fallen below the amount remaining on the mortgage. The lenders authorized the short sales after Barnes minimized the value of the houses and concealed higher offers he had already received. To carry out his scheme, Barnes made false statements about the fair market value of the properties in the documents he submitted to the banks.

Barnes admitted that, in many cases, he had already negotiated the resale at the higher price while he was simultaneously negotiating the short sale of the property at the lower price.

Barnes used this scheme to flip properties in San Luis Obispo, Paso Robles, Pismo Beach and other cities on the Central Coast, earning profits of more than $500,000.

Barnes is scheduled to be sentenced by United States District Judge Stephen V. Wilson on June 16.

This case was investigated by the Federal Bureau of Investigation and the Federal Housing Finance Agency, Office of Inspector General.

Release No. 14-029

RIVERSIDE, California – A deputy public defender for Riverside County pleaded guilty today to two felony counts of stealing social security benefits.

Audrey Owens, 60, of Upland, pleaded guilty to two counts of theft of government property before United States District Judge Virginia A. Phillips.

Owens pleaded guilty one week before she was scheduled to go on trial to two of the five counts contained in an indictment returned by a federal grand jury in July. There was no plea agreement in this case.

According to documents filed in United States District Court, Owens diverted social security benefits intended for her deceased grandmother, who died in May 2000. The scheme started soon after Owens’ grandmother died and continued until
August 2012.

After her grandmother’s death, Owens changed the address of a joint account she shared with her grandmother and continued to receive social security payments intended for her grandmother. She transferred some of the social security payments into her own personal account to pay bills. She also used some of the social security payments to directly pay for her personal expenses, including contributions to the Riverside County Employee Campaign.

Owens illegally received more than $129,000 during the course of the scheme.

Judge Phillips scheduled a sentencing hearing for June 2. At that time, Owens will face a statutory maximum sentence of 20 years in federal prison.

The case against Owens was investigated by the Social Security Administration – Office of Inspector General.

Release No. 14-028

LOS ANGELES – A retired Marine Corps captain who was convicted of drugging and sexually abusing girls in Cambodia was sentenced today to 210 years in federal prison.

Michael Joseph Pepe, 60, of Oxnard, was convicted by a jury in May 2008 of seven felony counts for traveling to Cambodia to engage in illicit sexual conduct with minors.

Pepe was sentenced by United States District Judge Dale S. Fischer, who also ordered the defendant to pay $247,000 in restitution to his victims.

At today’s sentencing hearing, Judge Fischer said what is essentially a life sentence is appropriate for a defendant who has shown no remorse for his crime. “Monstrous does not begin to capture the horror of the crime or the impact on the victims,” Judge Fischer said.

During the trial, prosecutors presented testimony from six of the seven girls Pepe sexually abused. The girls, who were between the ages of 9 and 13 at the time of the abuse, testified that Pepe drugged, bound, beat and raped them. Several victims testified that Pepe required them to give him sexual massages and perform oral sex on him on a daily basis.

“Predators cannot hide in foreign nations to conceal their deviant sexual desires,” said United States Attorney André Birotte Jr. “Our efforts to coordinate with law enforcement around the world have resulted in the identification and prosecution of Americans who are exploiting the children in other countries. This lengthy sentence should serve as a stern warning to other pedophiles.”

In addition to the victims’ testimony, prosecutors presented corroborating evidence seized by the Cambodian National Police from Pepe’s Phnom Penh residence, including rope and cloth strips used to restrain the victims, Rohypnol and other sedatives, and homemade child pornography. The investigation was led by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI).

“This sentence should serve as a sobering warning to every sexual predator who thinks they can hide from the law by violating the innocence of children overseas,” said Claude Arnold, special agent in charge of HSI Los Angeles. “This defendant abused and exploited young people in a distant land who had no means to escape and no way to fight back. It’s entirely fitting that Mr. Pepe will spend the rest of his life behind bars, since his victims will likely bear the emotional scars of his abuse for the remainder of theirs.”

The prostitute who acted as Pepe’s broker testified on videotape about bringing young victims to his residence. Pepe paid the broker and the victims’ families for unlimited access to the girls.

“This sentence clearly demonstrates to the Cambodian people that the United States will not tolerate this type of abuse,” said William E. Todd, the United States Ambassador to Cambodia. “This sentence not only signals to the Cambodian victims our commitment to justice, but it will also act as a powerful deterrent for those individuals who are contemplating traveling to Cambodia to engage in illegal sexual activity with minors.”

HSI received substantial assistance in the investigation from the Department of State’s Diplomatic Security Service and the Cambodian National Police.

Pepe was prosecuted under the provisions of the PROTECT Act, which took effect in 2003. The act substantially strengthened federal laws against predatory crimes involving children outside the United States by adding new crimes and increasing sentences.

Release No. 14-027

Santa Ana, California – The former owner of Pacific Hospital in Long Beach was charged today in a long-running health care fraud scheme that involved tens of millions of dollars in illegal kickbacks in exchange for referrals of thousands of patients who received spinal surgeries. The referrals to the hospital led to more than $500 million in bills being fraudulently submitted during last five years of the scheme, much of which was paid by the California worker’s compensation system.

Michael D. Drobot, 69, of Corona Del Mar, was charged this morning in a criminal information with orchestrating a wide-ranging conspiracy and with paying illegal kickbacks.

In a plea agreement also filed this morning, Drobot agreed to plead guilty to the two counts which could send him to federal prison for as long as 10 years.

From 1997 to 2013, Drobot, who owned Pacific Hospital until late last year, ran a scheme in which he billed workers’ compensation insurers hundreds of millions of dollars for spinal surgeries performed on patients who had been referred by dozens of doctors, chiropractors and others who were paid illegal kickbacks. For referrals for spinal surgeries, Drobot typically paid a kickback of $15,000 per lumbar fusion surgery and $10,000 per cervical fusion surgery. Some of the patients lived as much as hundreds of miles away from Pacific Hospital, and closer to other qualified medical facilities. The patients were not informed that the medical professionals had been offered kickbacks to induce them to refer the surgeries to Pacific Hospital.

Drobot and his co-conspirators concealed the kickback payments by entering into bogus contracts with the doctors, chiropractors, and others who received kickbacks. In reality, the contracts merely provided a cover story for the kickback payments.

The kickbacks were financed largely by money generated from inflated prices for medical devices implanted into state workers’ comp patients during spinal surgeries. Drobot set up a scheme that exploited a now-repealed California law known as the spinal “pass-through” legislation, which permitted hospitals to pass on to workers’ comp insurers the full cost of medical devices implanted in spinal surgery patients.  Specifically, Drobot used shell companies to inflate the costs of those devices and then billed the insurers at the inflated rates.

 “The spinal pass-through, the provision of California law that allowed Pacific Hospital to fraudulently inflate the cost of the medical hardware used during spinal surgeries, was a vital component of defendant Drobot’s ability to pay kickbacks to the doctors, chiropractors, marketers, and others who had referred patients to Pacific Hospital for surgeries and other medical services,” according to the charging document filed today.

As part of the health care fraud scheme, Drobot admitted in his plea agreement that he paid bribes to California State Senator Ronald Calderon in exchange for Calderon performing official acts to keep the spinal pass-through law on the books. Calderon was indicted on federal charges yesterday for allegedly accepting bribes from Drobot, as well as undercover FBI agents seeking official acts in relation to other matters.

As part of his plea agreement, Drobot has agreed to cooperate in the government’s ongoing investigation of the health care fraud scheme, which has been dubbed Operation “Spinal Cap.” Drobot has also agreed to cooperate in the government’s prosecution of Ronald Calderon and his brother, who was also indicted yesterday.

“Drobot has agreed to plead guilty in the health care fraud scheme, and as part of this agreement, he admits paying bribes to Ron Calderon in exchange for the senator’s help in keeping alive a law that brought massive profits to Drobot’s companies,” said United States Attorney André Birotte Jr. “Drobot also paid kickbacks, which are illegal under both California and federal law because they corrupt the doctor-patient relationship and may encourage medical professionals to recommend procedures that are not necessary, not in the patients’ best interest or actually harmful to the patient.”

Drobot has agreed to surrender and be arraigned in this case in United States District Court in Santa Ana on March 31.

“The charges allege that the defendant used kickbacks and other tactics to ensure the system worked to his advantage,” said Bill Lewis, the Assistant Director in Charge of the FBI’s Los Angeles Field Office. “The insurance scheme victimized multiple sectors of society, including insurance companies, the taxpayers and spinal patients.”

California Insurance Commissioner Dave Jones said: “Insurance fraud is a multi-billion dollar drain on California’s economy, which results in higher insurance premiums for California businesses and consumers. The co-conspirators lined their pockets by ripping off insurance companies to the tune of hundreds of millions of dollars. This is one of the largest workers’ compensation fraud cases in the history of the Department of Insurance – our successful investigation of this complex criminal scheme underscores our commitment to bring law breakers to justice regardless of who they are.”

Tom Frost, Special Agent in Charge with the Postal Service Office of Inspector General, stated: “We are committed to preserving Postal Service resources by vigorously investigating allegations of fraud and corruption. We are grateful for the efforts of the U.S. Attorney’s Office and our State and Federal partners in this investigation.”

The ongoing investigation into abuses involving the spinal pass-through law and kickbacks paid for spinal surgery patients is being conducted by the Federal Bureau of Investigation; IRS – Criminal Investigation; the California Department of Insurance; and the United States Postal Service, Office of Inspector General.

Release No. 14-025

LOS ANGELES – Ronald Calderon, a member of the California State Senate, has agreed to surrendered to federal authorities on Monday after being named in a federal grand jury indictment that accuses him of taking tens of thousands of dollars in bribes from a businessman and from people who were associated with a Hollywood film studio, but who were in actuality undercover FBI agents.

Ronald S. Calderon, 56, of Montebello, is charged in a 24-count indictment that was returned late yesterday by a federal grand jury with mail fraud, wire fraud, honest services fraud, bribery, conspiracy to commit money laundering, money laundering and aiding in the filing of false tax returns.

The indictment also charges Thomas M. Calderon, 59, also of Montebello, who is Ronald’s brother and a former member of the California State Assembly. Along with his brother, Thomas Calderon is charged in the money laundering conspiracy and with seven substantive counts of money laundering.

Tom Calderon self-surrendered this morning after being informed of the indictment and is expected to be arraigned this afternoon in United States District Court.

Ron Calderon is travelling and has agreed to surrender Monday morning. Ron Calderon’s arraignment will be Monday afternoon.

The indictment describes a scheme in which Ron Calderon allegedly solicited and accepted approximately $100,000 in cash bribes – as well as plane trips, gourmet dinners and trips to golf resorts – in exchange for official acts, such as supporting legislation that would be favorable to those who paid the bribes and opposing legislation that would be harmful to them. The indictment further alleges that Ron Calderon attempted to convince other public officials to support and oppose legislation.

“Public corruption is a betrayal of the public trust that threatens the integrity of our democratic institutions,” said United States Attorney André Birotte Jr. “Senator Calderon is accused of accepting tens of thousands of dollars in bribes and using the powers of his elected office to enrich himself and his brother Tom, rather than for the benefit of the public he was sworn to serve.”

Bill Lewis, the Assistant Director in Charge of the FBI’s Los Angeles Field Office, stated: “Corruption victimizes each and every one of us. The indictment alleges Mr. Calderon traded influence for cash in the 30th District and beyond. In addition to robbing us of taxpayer money, corrupt practices rob us of trust in government.”  

In the first part of the bribery scheme, Ron Calderon allegedly took bribes from Michael Drobot, the former owner of Pacific Hospital in Long Beach, a major provider of spinal surgeries that were often paid by workers’ compensation programs. California law allowed the hospital to pass on to insurance companies the full cost it had paid for medical hardware it used during spinal surgeries. In another case filed this morning, Drobot admitted that his hospital exploited this law, which was often called the “spinal pass-through,” by using hardware that had been purchased at highly inflated prices from companies that Drobot controlled and passing this cost along to insurance providers. Drobot allegedly bribed Ron Calderon so that he would use his public office to preserve this law that helped Drobot maintain a long-running and lucrative health care fraud scheme.

While the corruption indictment does not implicate Ron Calderon in the health care fraud scheme, Ron Calderon is charged with taking bribes from Drobot to preserve the spinal pass-through law. The indictment specifically alleges that Drobot bribed Ron Calderon by hiring Calderon’s college-age son to work as a file clerk at his company and paying him approximately $30,000 over the course of three summers. Ron Calderon’s son showed up for only about 15 days of work each summer, according to the indictment, which also accused Ron Calderon of accepting plane trips, golf outings and expensive dinners from Drobot. Ron Calderon allegedly arranged meetings between Drobot and other public officials and helped Drobot attempt to persuade the other legislators to keep the spinal pass-through law in effect.

In another case filed this morning in United States District Court, Drobot has agreed to plead guilty to charges of conspiracy and paying illegal kickbacks. In his plea agreement, Drobot admits paying bribes to Ron Calderon.

In another part of the bribery scheme, Ron Calderon allegedly solicited and accepted bribes from people he thought were associated with an independent film studio, but who were in fact undercover FBI agents. Ron Calderon solicited and accepted bribes in exchange for supporting an expansion of a state law that gave tax credits to studios that produced independent films in California. The Film Tax Credit applied to productions of at least $1 million, but, in exchange for bribes, Ron Calderon agreed to support new legislation to reduce this threshold to $750,000, according to the indictment. The indictment specifically alleges that Ron Calderon agreed to support the new Film Tax Credit legislation in exchange for his daughter being paid $3,000 a month for a job he knew she simply did not perform.

According to the indictment, Ron Calderon took several official actions with respect to reducing the threshold for the Film Tax Credit. Ron Calderon signed an official letter indicating that he supported a lower threshold, he met with other state senators to discuss the benefits of lowering the threshold, and he “caused legislation to be introduced in the Senate, which he intended to use as a vehicle to create a separate tax credit,” according to the indictment.

In addition to the nearly $40,000 paid to his daughter, Ron Calderon allegedly solicited from the undercover FBI agents payments that included $5,000 for his son’s college tuition and $25,000 to Californians for Diversity, a non-profit political organization operated by Tom Calderon. 

Both Calderons face money laundering charges for allegedly funneling bribe money through Californians for Diversity and Tom Calderon’s consulting firm, some of which went to Ron Calderon and his daughter.

Ron Calderon faces two tax fraud charges for allegedly helping in the preparation of false tax returns that fraudulently claimed business expense deductions in relation to the money his son received from Drobot.

Joel P. Garland, the Acting Special Agent in Charge for IRS Criminal Investigation’s Los Angeles Field Office, commented: “Ronald and Thomas Calderon were granted the privilege of political office to better the lives of the citizens they represented, but instead Ronald Calderon used his office to commit bribery, tax and other crimes for their own selfish benefit. Today’s actions reaffirm our commitment to this joint agency task force and our pursuit of justice. Public officials hold a position of trust and those who commit bribery, tax fraud and other crimes, take note.” 

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

If Ron Calderon were to be convicted of the 24 charges in the indictment, he would face a statutory maximum sentence of 396 years in federal prison.

If Tom Calderon is convicted of the money laundering charges alleged in the indictment, he would face a statutory maximum sentence of 160 years in prison.

The investigation into the Calderons was conducted by the Federal Bureau of Investigation and IRS-Criminal Investigation.

Release No. 14-026

LOS ANGELES – Four people were arrested today on federal fraud charges stemming from telemarketing operations that allegedly solicited investments in movies with false promises of high returns with little risk.

Today’s arrests are the result of two federal grand jury indictments unsealed this morning. The indictments charge a total of six defendants who allegedly participated in separate fundraising schemes related to bogus film projects. While one movie script was written, no movies were ever actually produced. The indictments allege that the defendants executed the schemes to defraud victims around the nation and collectively caused losses of several million dollars.

The first case is contained in a 29-count indictment relating to two companies -- Mutual Entertainment LLC and Film Shoot LLC. Four defendants related to this scheme are charged with mail fraud, wire fraud, attempted wire fraud and making false statements.

The defendants are:

Samuel Braslau, 53, of Mar Vista, an attorney and co-founder of the companies, who was arrested this morning;

Rand Jay Chortkoff, 64, of Encino, a co-founder of the companies, who was arrested this morning;

Stuart Rawitt, 47, of West Hollywood, a salesperson, who was arrested this morning;

Robert Matias, 50, of Granada Hills, a salesperson who is a fugitive.
The three arrested this morning are expected to be arraigned this afternoon in United States District Court in Los Angeles.

Also today, the Securities and Exchange Commission filed a civil lawsuit that alleges Braslau, Chortkoff and Rawiit defrauded investors (see: http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540815507)

In the second case, the operators of another company – C22 in the San Fernando Valley -- were named in a 19-count indictment that accuses them of mail fraud, wire fraud, and attempted wire fraud. The two named in an indictment focusing on a company known under several permutations of C22 are:

Mack Machen, 70, of Sunland, the president of C22, who has agreed to self-surrender and be arraigned this afternoon; and

Anthony David Millan, 37, of Chula Vista, the CEO of C22, who was arrested this morning and is expected to make his first court appearance this afternoon in United States District Court in Santa Ana.

The first indictment focuses on the activities of a company called Mutual Entertainment LLC and later renamed Film Shoot LLC, which allegedly bilked investors in a motion picture called “Marcel” and later renamed “The Smuggler.”

The indictment alleges that the defendants raised money for the film through boiler room telemarketing operations. The telemarketers allegedly made fraudulent pitches to investors after first representing themselves to be independent “surveyors” from a national research firm. Victims were falsely told that 64 percent of investor money would be used to produce the film, and that investors would be first in line to receive any revenue generated by the movie, according to the indictment, which states that the defendants also falsely claimed to have contracted with well-known actors to appear in “The Smuggler.”

During the course of the Mutual Entertainment/Film Shoot scheme, the defendants allegedly persuaded more than 60 investors across the nation to invest a total of $1.8 million in the movie that was never produced.

In 2011, the Alabama Securities Commission filed an administrative order against the company and one of the defendants, concluding that the defendants in that action had failed to comply with many provisions of the Code of Alabama 1975 pertaining to the offer and sale of investments.  As alleged in the indictment, following the issuance of this order, two other defendants changed the name of the company from Mutual Entertainment to Film Shoot, and the name of the movie from “Marcel” to “The Smuggler,” in an attempt to hide the Alabama Order from potential investors.

The second indictment unsealed today focuses on C22 Capital, Inc. and C22 LLC, Inc. This indictment alleges that telemarketers for C22 fraudulently induced investments to fund a movie titled “Beyond the Mat.”

According to the indictment, the C22 defendants and their telemarketers made cold-calls to potential investors and told the victims that their money would be used to provide short-term “bridge loans.” Later, the defendants began soliciting money for investment in “Beyond the Mat.” The indictment alleges that the defendants issued promissory notes and promised returns of up to 13 percent per year.

Approximately 80 victims were fraudulently induced to invest in C22, and during the course of the scheme they lost more than $3 million, according to the indictment.

In late 2011, the California Department of Corporations issued a Desist and Refrain order the directed C22 LLC, Inc. to stop doing business due to its fraudulent practices. The indictment alleges that the defendants continued to conduct their business under a different name.

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

The wire fraud and mail charges each carry a statutory maximum penalty of 20 years in federal prison.

The criminal investigation is being investigated by the Federal Bureau of Investigation.

Release No. 14-024

LOS ANGELES – Three people linked to a Glendale medical clinic – including a doctor who took money to let his name be used thousands times on bogus prescriptions – were found guilty today of federal fraud charges related to a $20 million scheme to defraud Medicare and Medi-Cal by, among other things, fraudulently prescribing expensive anti-psychotic medications and then re-billing the government for those drugs over and over.

Today’s convictions stem from the first case in the nation alleging an organized scheme to defraud government health care programs through fraudulent claims for anti-psychotic medications. The evidence presented at trial showed how the operators of Manor Medical Imaging in Glendale operated a clinic authorized to make claims to Medicare and Medi-Cal, employed an unlicensed medical practitioner to write bogus prescriptions using an American doctor’s name and license number, and had close relationships with pharmacies and a fraudulent drug wholesale company that were used to funnel prescription drugs back to the pharmacies participating in the scheme.

In the largest case of its kind in Southern California brought against defendants who bilked Medicare Part D, prosecutors showed a federal jury how employees of Manor Medical generated thousands of prescriptions for identify theft victims – such as elderly Vietnamese beneficiaries of Medicare or Medi-Cal, military veterans who were recruited from drug rehab programs, and denizens of Skid Row. Members of the conspiracy created or doctored patient files to make it falsely appear the drugs were necessary and the patients were legitimately treated. After the prescriptions were filled at pharmacies and paid for by Medicare and Medi-Cal, they were sold on the black market and redistributed to pharmacies, where the drugs would be subject to new claims made to Medicare and Medi-Cal as though they were new bottles of drugs.

The scheme generated fraudulent billings of more than $20 million dollars, of which Medi-Cal and Medicare actually paid more than $8 million.

“The defendants took advantage of this nation’s most vulnerable citizens and took millions of dollars from public health care programs that are designed to help the disadvantaged,” said United States Attorney André Birotte Jr. “Members of this scheme caused thousands of bottles of dangerous prescription drugs to be diverted to the black market. This case is an example of how operators of health care fraud schemes will be brought to justice, whether they be doctors who enable the fraud or those on the street who recruit patients and divert prescription drugs to the black market.”

The three defendants convicted today are:

Dr. Kenneth Johnson, 47, of Ladera Heights, who served as the face of Manor with pharmacists and auditors from Medicare and Medi-Cal, and who pre-signed thousands of blank prescriptions that were filled out by co-conspirators;

Nuritsa Grigoryan, 49, of Glendale, who holds an Armenian medical license and who pretended to be an American doctor when she saw homeless “patients” at the clinic and filled out the bogus prescriptions pre-signed by Dr. Johnson; and

Artak Ovsepian, 32, of Tujunga, one of the leaders of the conspiracy who oversaw the acquisition of drugs at pharmacies using the bogus prescriptions.

The three defendants were convicted of health care fraud conspiracy, aggravated identity theft, conspiracy to misbrand pharmaceutical drugs, false statements to the federal government, and conspiracy to use other persons’ identification documents in furtherance of fraud.

Following the reading of the verdicts, United States District Judge S. James Otero, who presided over the three-week trial, said, “The scope of the fraud was breathtaking.” Judge Otero said the defendants “preyed upon the poor [and] used them as pawns.”

Judge Otero is scheduled to sentence Grigoryan and Ovsepian on June 9.  Johnson is scheduled to be sentenced on June 30. At sentencing, all three defendants will face a mandatory sentence of two years in federal prison for committing aggravated identity theft. In addition to the two-year terms, Johnson and Grigoryan statutory maximum sentences of 30 years in federal prison, while Ovsepian will face an additional sentence of up to 35 years.

A fourth defendant who went to trial – Artyom Yeghiazaryan, a driver who took beneficiaries to pharmacies – was acquitted by the jury.

With today’s verdicts, a total of 16 defendants charged in 2011 (see: http://www.justice.gov/archive/usao/cac/Pressroom/2011/157.html) have now been convicted of various charges related to the health care fraud scheme. A total of 18 defendants were indicted in relation to the scheme centering on Manor Medical, but also involving pharmacies in and around the San Gabriel Valley. The conspiracy was essentially a  “prescription harvesting” scheme in which Medicare and Medi-Cal beneficiaries were recruited or had their identities stolen, the beneficiary information was used to bill Medicare and Medi-Cal for millions of dollars of illegitimate medical services and prescriptions, and the drugs that were dispensed by the pharmacies were diverted to black market wholesalers and back to the pharmacies so the drugs could be used to submit new bills to Medicare and/or Medi-Cal as though the drugs had never been dispensed.

“This scheme to defraud federal and state governments endangered the public’s health by putting adulterated medicines onto the U.S. market,” said John Roth, Director, FDA’s Office of Criminal Investigations. “We will continue to bring to justice those who put profits above health and safety.”

IRS Criminal Investigation Special Agent in Charge Joel P. Garland said, “Using the identities of the most vulnerable members of society to defraud government health care programs is a despicable crime. It depletes scarce taxpayer dollars and will not be tolerated. Law enforcement officers will respond to it using every legal resource at our disposal. Let this conviction serve as a warning to those who are considering similar conduct.”

The primary pharmacy involved in the case, Huntington Pharmacy in San Marino, was operated by a Pasadena couple whose business grew dramatically due its affiliation with Manor Medical, including Medi-Cal claims that jumped from $50,000 in 2009 to approximately $1.5 million in 2010. One of the owners of the pharmacy, Phic Lim, is scheduled for trial on August 19. His wife, Theana Khou, previously pleaded guilty as part of a joint resolution with another case filed against her and her husband.

“As today's verdicts make clear, federal and state law enforcement will crack down hard on these organized Medicare and Medi-Cal drug benefit fraud schemes,” said Glenn R. Ferry, Special Agent in Charge of the U.S. Department of Health and Human Services Office of Inspector General Los Angeles region. “This case, involving very expensive brand name anti-psychotic drugs, is the largest of its kind here in Southern California.”

The investigation in this case, which was called Operation “Psyched Out,” was conducted by the San Marino Police Department; the California Department of Justice, Bureau of Medi-Cal Fraud and Elder Abuse; the United States Food and Drug Administration, Office of Criminal Investigations; IRS-Criminal Investigation; the United States Department of Health and Human Services, Office of the Inspector General; U.S. Immigration and Customs Enforcement; the Glendale Police Department, Organized Crime Team; and the California Department of Health Care Services, Audits and Investigations Branch.

Release No. 14-023

LOS ANGELES – Federal, state and local authorities this morning arrested 20 individuals who are named in two federal indictments that target manufacturers and distributors of Phencyclidine – commonly known as PCP or “angel dust” – a dangerous narcotic with deep ties to the violent Grape Street Crips and other South Los Angeles street gangs.

Following this morning’s takedown, federal prosecutors unsealed two indictments that charge a total of 40 defendants linked to laboratories where PCP is manufactured and the networks that distribute the drug across the nation. In addition to the 20 people arrested this morning, three defendants were already in custody, and 17 are fugitives or have not yet been fully identified.

Thirty-eight of the defendants are named in a 29-count indictment that outlines how precursor chemicals are obtained and used in the manufacturing process, which poses serious risks to public health and the environment. The indictment discusses how the prepared PCP is then stored and distributed around the nation.

“Historically, the principal location in the United States where PCP is manufactured is the Southern California area,” according to the indictment. “After PCP is manufactured, PCP traffickers typically distribute and transport PCP both within the Southern California area and to other regions in the United States, where PCP can be sold at higher prices and for greater profit.”

The indictment details the seizure of several PCP laboratories and how members of the narcotics-trafficking conspiracy distributed upwards of several thousand gallons of PCP. During the course of this investigation, authorities seized approximately 100 gallons of the drug and precursor chemicals that could have been used to manufacture thousands of gallons of the drug. A gallon of PCP contains approximately 76,800 doses of the highly addictive narcotic.

“PCP producers and suppliers deal a toxic poison that destroys minds and contaminates our neighborhoods,” said United States Attorney André Birotte Jr. “Today’s operation breaks the grip that these drug makers and dealers have held on the neighborhoods of Watts and South Los Angeles by targeting the highest levels of PCP traffickers and those responsible for manufacture and distribution of this deadly drug.”

In conjunction with this morning’s multi-agency effort against the Grape Street Crips, Los Angeles City Attorney Mike Feuer today announced his office will seek injunctions to curb gang activity at three properties, two of which are located on the same block of an early education center and an elementary school. The properties are known for gang-related narcotics dealing, PCP manufacturing, possession of firearms and other criminal activity, according to the City Attorney’s office.

The indictments unsealed today follow an investigation that concluded nearly six years ago after targeting PCP trafficking in South Los Angeles and illuminating the links between the drug and the Grape Street Crips. That earlier investigation resulted in federal charges against 12 defendants, two of whom received life sentences for their roles in manufacturing and distributing PCP.

The present investigation, which was conducted by the HIDTA and L.A. IMPACT task forces and the DEA, revealed a wide network of PCP manufacturers and distributors connected to the Grape Street and other South Los Angeles gangs. Investigators discovered that this network routinely delivered PCP, via couriers and mail, to other parts of the country, including Texas, Maryland, North Carolina, Oklahoma and New York.

The narcotics trafficking conspiracy allegedly was led by Anthony Dwight Bracken, a San Bernardino County-based PCP manufacturer, with strong ties to South Los Angeles. Other key players charged in the conspiracy include distributors Andre Brown, Anthony Wilson and Eligin Gary Hawkins, all of South Los Angeles.

All 38 defendants in the indictment are charged with conspiracy to manufacture, distribute and possess with the intent to distribute PCP, and to illegally possess a listed chemical. Because of the quantity of narcotics and precursor chemicals involved in this case, all of the defendants potentially face sentences of life without parole in federal prison.

The indictment further charges various defendants with distribution and possession with intent to distribute PCP, illegal possession of a listed chemical, maintaining drug-involved premises, possession of a firearm in furtherance of a drug trafficking crime, and being a felon in possession of a firearm/ammunition.

A second indictment unsealed this morning charges two additional defendants in a conspiracy to distribute PCP.

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

The investigation into the PCP manufacturing and distribution network was conducted by the L.A. IMPACT Task Force (Los Angeles Interagency Metropolitan Police Apprehension Crime Task Force), the HIDTA Task Force (High-Intensity Drug Trafficking Area Task Force) and the Drug Enforcement Administration. The Los Angeles City Attorney’s Office is partnering to take file civil “abatement” lawsuits at properties linked to criminal activity uncovered during this investigation. Los Angeles County Child Protective Services assisted during this morning’s takedown.

Release No. 14-021

LOS ANGELES – The owner of a Temecula art gallery who allegedly stalked, harassed and attempted to extort several art world professionals was arrested today on federal cyberstalking charges.

Jason White, 43, of Temecula, was arrested this morning without incident by special agents with the FBI.

White’s arrest comes after federal prosecutors yesterday filed a criminal complaint that charges White with stalking, a crime that carries a potential penalty of five years in federal prison. White is expected to make his initial appearance this afternoon in United States District Court in downtown Los Angeles.

According to the complaint, White engaged in a stalking and extortion scheme that targeted several art world professionals with whom he had had business relationships. When those business relationships ended, White posted derogatory information about his former associates on websites he had created, and then used threatening emails to demand hundreds of thousands of dollars in exchange for taking the websites down. According to the complaint, White repeatedly made extortionate demands through harassing text messages and emails, and when his demands were not met, he threatened violence.

In one part of the scheme, White targeted his former employer, an art publisher, as well as his supervisor at the art publisher’s company. After creating derogatory websites in the art publisher’s name, White allegedly sent threatening text messages to the art publisher, the publisher’s son, and his former supervisor. According to the complaint, in a text message to his former supervisor, he threatened to find her family and make her pay with “fear, anguish, and pain.” On several occasions, according to the complaint, White obtained pictures of her child and sent pictures of the child to the victim with comments such as “it will be very unfortunate if something was to happen to him.” During this time, according to the complaint, White continued to demand payment in exchange for taking down the websites he had created, and made it known to these victims that their business reputation would be ruined and that his websites would forever show up anytime anyone searched for their name on the internet.

Late last month, White allegedly went to the Facebook page of a well-known artist represented by the art publisher and posted a picture of himself, along with a statement that he was focusing on the artist’s wife and child. White allegedly wrote that he would be waiting in the bushes to “knee cap a child.” Through the Facebook message, White told the artist, “your children are my end game.”

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

The case against White is being investigated by the Federal Bureau of Investigation, Art Crime Team.

Release No. 14-022