Northern District of Illinois

CHICAGO – Assistant Attorney General for National Security John P. Carlin; U.S. Attorney Zachary T. Fardon of the Northern District of Illinois; Special Agent in Charge Robert J. Holley of the FBI’s Chicago Office; Special Agent in Charge Gary Hartwig of U.S. Immigration and Customs Enforcement, Homeland Security Investigations (ICE-HSI) in Chicago; and Acting Special Agent in Charge David Nardella of the U.S. Department of Commerce’s Bureau of Industry and Security, Office of Export Enforcement of the Chicago Field Office announced today that a former resident of Taiwan, who the United States has linked to the supply of weapons manufacturing machinery to North Korea, was sentenced today to serve 24 months in federal prison by U.S. District Court Judge Charles R. Norgle of the Northern District of Illinois.  The defendant, Hsien Tai Tsai, 69, pleaded guilty in October 2014, admitting that he conspired with others to interfere with and obstruct U.S. regulations that seek to disrupt the proliferation of weapons of mass destruction.  When imposing sentence, Judge Norgle credited Tsai for the substantial assistance he provided, and would continue to provide, to the government in its investigation of weapons of mass destruction proliferators.  Tsai, also known as Alex Tsai, was arrested in May 2013 in Tallinn, Estonia, and was later extradited to the United States, where he remains in federal custody.

“Aggressive enforcement of U.S. laws targeting those who supply goods, services, or other support to proliferators of weapons of mass destruction is vital to ensuring global safety,” stated Zachary T. Fardon, United States Attorney, after the sentence was announced.  “As this case demonstrates, companies and individuals who seek to evade these laws will confront an international law enforcement community working cooperatively and effectively to stem these threats,” said U.S. Attorney Fardon. 

“Hsien Tai Tsai violated a critical sanctions regime and undermined and interfered with U.S. efforts to disrupt North Korea's weapons of mass destruction and advanced weapons programs,” said Assistant Attorney General Carlin.  “These sanctions are meant to raise the cost for WMD proliferators to do business and deter others from proliferating by denying them access to our financial and commercial systems.  This prosecution makes clear that we will use all of our tools to identify and arrest WMD proliferators and to disrupt their efforts to undermine our country's security.  I’d like to thank all who helped with this investigation and prosecution.”

According to court documents, Tsai was associated with at least three companies based in Taiwan – Global Interface Company Inc., Trans Merits Co. Ltd., and Trans Multi Mechanics Co. Ltd. – that purchased and then exported, and attempted to purchase and then export, from the United States and other countries machinery used to fabricate metals and other materials with a high degree of precision.

In January 2009, under Executive Order 13382, which sanctions proliferators of weapons of mass destruction and their supporters, the Treasury Department’s Office of Foreign Assets Control (OFAC) designated Tsai, Global Interface and Trans Merits as proliferators of weapons of mass destruction, isolating them from the U.S. financial and commercial systems and prohibiting any person or company in the United States from knowingly engaging in any transaction or dealing with them.  At that time, the Treasury Department said that Tsai was designated because he provided, or attempted to provide, financial, technological, or other support for, or goods or services in support of, the Korea Mining Development Trading Corporation, which the Treasury Department has stated is North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.  Additionally, Tsai had been involved in shipping items to North Korea that could be used to support North Korea’s advanced weapons program.  After the OFAC designations, Tsai and others continued to conduct business together, but attempted to hide Tsai’s and Trans Merit’s involvement in those transactions by conducting business under different company names, including Trans Multi Mechanics.  Later, in 2013, Trans Multi Mechanics was also designated by OFAC.

In pleading guilty, Tsai admitted that he was involved in multiple commercial and financial transactions to undermine the sanctions against WMD proliferations, including the purchase of a Bryant center hole grinder from a U.S. company based in suburban Chicago, and exported it to Taiwan in 2009 using the company Trans Multi Mechanics.  A Bryant center hole grinder is a machine tool used to grind a center hole, with precisely smooth sides, through the length of a material.  Tsai also admitted having a role in Trans Merits’ transactions involving LED road lights and an oil pump, and using third parties to wire transfer funds to the United States.

The case was investigated by the FBI, ICE-HSI and the U.S. Department of Commerce’s Bureau of Industry and Security, Office of Export Enforcement, with assistance provided by the Justice Department’s Office of International Affairs.  The Estonian Internal Security Service and the Estonian Prosecutor’s Office cooperated with the United States.  The case was prosecuted by Assistant U.S. Attorney Brian Hayes of the Northern District of Illinois and Trial Attorney Brandon L. Van Grack of the Justice Department’s National Security Division.

CHICAGO ― Dmitry Firtash, 48, a Ukrainian businessman, was arrested Wednesday by Austrian authorities in Vienna on a provisional arrest request based on charges filed in the Northern District of Illinois, announced Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division.

The charges result from an investigation, which the FBI has conducted for several years, of an alleged international corruption conspiracy. Firtash’s arrest is not related to recent events in Ukraine.

Firtash, who controls Group DF, an international conglomerate of companies, remains in Austrian custody unless he meets the bail condition of posting a €125 million bond, which was set today in a Vienna court. The U.S. government will seek his extradition.

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

The department has worked closely with and has received significant assistance from its law enforcement counterparts in Austria and greatly appreciates their assistance in this matter. Significant assistance was also provided by the Criminal Division’s Office of International Affairs. The Chicago Office of the FBI conducted the investigation.

ROCKFORD — An Illinois physician was arrested this morning on a charge of illegal remunerations. NEIL SHARMA, 34, of Lemont, Illinois, a licensed Illinois physician and the medical director of an Illinois healthcare company, is charged with receiving a kickback in the amount of $2,500 in cash, from an individual in return for his referring Medicaid and Medicare patients to the individual's company for medical treatment.

According to the complaint and supporting affidavit, Sharma is employed by Company A, which is contracted with both Medicare and Illinois Medicaid to provide health care benefits to Medicare and Medicaid beneficiaries. Company A is a managed care organization contracted with the State of Illinois to provide services under Illinois’ Integrated Care Program. Company A gets paid Medicaid funds based on the number of Medicaid patients enrolled with the company. As the medical director of Company A, SHARMA is involved in all major clinical patient care programs including review of medical care provided and medical professional aspects of provider contracts.

Also described in the complaint and supporting affidavit, Company B is contracted with Company A to provide services for Medicaid beneficiaries. In February 2015, SHARMA offered an individual who owns Company B an additional 500 patients at an increased rate. SHARMA also offered to refer to Company B Medicaid and Medicare patients in two new programs Company A planned to implement. In exchange, SHARMA wanted a cash payment immediately and additional cash payments every month after for an unidentified length of time. SHARMA planned to conceal the payments received from the individual by being named the medical director for the individual’s other health care companies not contracted with Company A.

According to the complaint and supporting affidavit, on February 27, 2015, in Rockford, the individual provided SHARMA $2,500 in United States currency. After SHARMA received the $2,500, on March 9, 2015, Company B started seeing new Medicaid and Medicare patients referred by SHARMA that are part of one of Company A’s new programs.

The charge of illegal remunerations carries a maximum potential penalty of up to 5 years in prison, a fine of up to $25,000, and full restitution. If convicted, the court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines. Sharma is scheduled to appear today in Federal Court in Rockford before U.S. Magistrate Iain D. Johnston at 11:00 a.m. for arraignment.

The public is reminded that a complaint contains only a charge and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The arrest was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation.

The government is represented by Assistant U.S. Attorney Scott R. Paccagnini.

Complaint

CHICAGO — A former managing director of Panorama Global Partners, LLC, a company that falsely purported to trade in certain financial instruments, was sentenced today to 40 months in federal prison for fraudulently obtaining approximately $4.2 million in investor funds and for misappropriating approximately $3.9 million of those funds.

The defendant, RICHARD DEMARIA, 45, of Glenview, was also ordered to pay $3.9 million in restitution by U.S. District Judge Robert W. Gettleman. DeMaria, who pleaded guilty in December 2013, was ordered to surrender to begin serving his sentence on May 19.

Before imposing the sentence, Judge Gettleman stated that the sentence he imposed sent a message that “there will be a price to pay for” investor fraud.

DeMaria admitted that between approximately August 2008 and January 2009, he and a business associate fraudulently obtained approximately $4.2 million from victim investors, by falsely telling victim investors that their money would be used to lease and trade certain financial instruments DeMaria did not plan to, and did not use most of the investor money for the promised purpose, but rather misappropriated the money. In addition, as DeMaria soon learned, neither he nor his business associate had the ability to lease or trade these instruments. DeMaria used at least $3.9 million of investor money for other purposes, including $90,000 on an Aston Martin for a business associate and $600,000 on an Indiana home for another business associate. DeMaria also used approximately $70,000 of investor funds for construction on his ex-wife’s Evanston home and almost $2 million on business expenses related to DeMaria’s struggling real estate development business.

DeMaria entered into so-called “Subscription Agreements” with victim investors, on behalf of Panorama Global Partners, LLC, in which he promised to use their funds to purchase financial instruments. When victim investors asked for a return of their investment, DeMaria lied to them, saying that he had invested the money, when in fact he had misappropriated it.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Federal Bureau of Investigation in Chicago. The government was assisted by the Securities and Exchange Commission.

The government was represented by Assistant United States Attorney Shoshana Gillers.

CHICAGO — A registered nurse was arrested today on a federal health care fraud charges. The nurse defendant, JAMES ADEMIJU, who operates two nursing agencies, Adonis Inc. and BestMed-Care Services Ltd., was arrested this morning and charged with health care fraud in a criminal complaint. The complaint alleges a scheme to defraud Medicare by billing for unnecessary nursing services that were provided to patients who were not confined to the home and who were obtained via illegal payments for patient referrals. For over three years, beginning in 2011, a total of approximately $5 million was paid to the two agencies by Medicare for services rendered to patients deemed to be homebound.

Ademiju, 41, of Matteson, a licensed registered nurse in Illinois since 2006, is scheduled to appear at 3:00 p.m. today before U.S. Magistrate Judge Mary M. Rowland in U.S. District Court.

Simultaneous with Ademiju’s arrest, agents from the FBI, the U.S. Department of Health and Human Services Office of Inspector General, and other law enforcement agencies executed search warrants at the offices of Adonis Inc., and BestMed-Care Services Ltd., both located in Dolton. Warrants were also executed to seize alleged fraud proceeds maintained in bank accounts maintained by Adonis Inc. and BestMed-Care Services Ltd.

The arrests and charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Lamont Pugh III, Special Agent-in-Charge of the Chicago Regional Office of the HHS-OIG. The Railroad Retirement Board Office of Inspector General is also participating in the investigation.

According to a 56-page affidavit in support of the arrest, search and seizure warrants, the charge against Ademiju arises from the investigation of Suburban Home Physicians, a Schaumburg company that did business as Doctor At Home. In a related case, an indictment was returned last month against a doctor, Alan Newman, and a nurse, Diana Jocelyn, at Suburban Home Physicians. According to the affidavit unsealed today, Ademiju works at two nursing agencies, Adonis, as the office manager, and BestMed-Care Services, as the administrator. Between February 2011 and December 2014, Medicare paid Adonis approximately $1.9 million and BestMed-Care Services approximately $3.1 million for skilled-nursing services.

Adonis and BestMed-Care Services allegedly obtained many patients from a marketing company which claimed to offer "free" nursing services to Medicare beneficiaries. Adonis and BestMed-Care Services paid hundreds of dollars per patient to a marketing company which would refer patients to Adonis and BestMed-Care Services.

According to the affidavit, Adonis and BestMed-Care Services referred many patients to physicians at Suburban Home Physicians, even when patients had primary-care physicians and continued to see those primary-care physicians. Physicians at Suburban Home Physicians then certified the patients for skilled-nursing services, even when patients did not qualify for skilled-nursing services that were covered by Medicare.

Also described in the complaint, nursing assessments signed by Ademiju contained false information about patients. For example, Ademiju signed nursing assessments that falsely stated that patients were homebound and that falsely stated that patients needed assistance with activities of daily living such as dressing and bathing themselves. Adonis and BestMed-Care Services then billed Medicare for long periods in part by periodically discharging patients, claiming the patients no longer needed services, and then re-admitting the same patients a short time later without telling the patients that they had been discharged or re-admitted. In some instances, a patient was discharged from one agency and then admitted at the other agency in less than a week, and sometimes even on the same day.

One patient, Patient LD, who received nursing services from Adonis and BestMed-Care Services and was certified for such services by a physician at Suburban Home Physicians, told law enforcement that she began receiving nursing services after getting a call out of the blue and being told that a physician and nurse would come visit her. Patient LD said that she was not confined to the home during the time that she received nursing services, and said that the nursing visits were "worthless." Medicare paid Adonis and BestMed-Care Services more than $11,000 for the nursing services provided to Patient LD.

Another patient described in the complaint, Patient JS, who received services from Adonis and BestMed-Care Services and was certified for such services by a physician at Suburban Home Physicians, told law enforcement that he realized that the nursing visits were unnecessary and eventually stopped them. Patient JS told law enforcement that he felt bad for having allowed the visits to go on as long as he had even when he knew they were unnecessary. Medicare paid Adonis and BestMed-Care Services more than $13,000 for the nursing services provided to Patient JS.

The government is being represented by Assistant U.S. Attorney Stephen Chahn Lee.

Ademiju was charged with one count of health care fraud and faces a maximum penalty of 10 years in prison and a $250,000 fine or a fine totaling twice the gain or loss, whichever is greater, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The public is reminded that a complaint and an indictment are not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The Medicare Fraud Strike Force began operating in Chicago in February 2011, and consists of agents from the FBI and HHS-OIG, working together with prosecutors from the U.S. Attorney’s Office and the Justice Department’s Fraud Section. The strike force is part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. Scores of defendants have been charged locally in health care fraud cases since the strike force began operating in Chicago.

To report health care fraud to learn more about the Health Care Fraud Prevention & Enforcement Action Team (HEAT), go to: www.stopmedicarefraud.gov.

Complaint

CHICAGO — Owners of a green tech startup company that installed and maintained charging stations for plug-in electric vehicles were indicted yesterday for allegedly engaging in a scheme to fraudulently obtain federal and state grant funds, from the City of Chicago, the State of Pennsylvania Department of Environmental Protection, and two California entities: the Bay Area Air Quality Management District, and the Association of Bay Area Governments.

Defendants Mariana Gerzanych, 36, and Timothy Mason, 58, both of California, were co-owners of 350Green LLC of Los Angeles, California, which purported to install and maintain charging stations for plug in electric vehicles.  Between 2010 and 2012, 350Green obtained over $2.9 million in grants from the City of Chicago, the Pennsylvania Department of Environmental Protection, the Association of Bay Area Governments, and the Bay Area Air Quality Management District, to install and maintain public electric vehicle charging stations.

Gerzanych and Mason were each charged with five counts of wire fraud in an indictment returned by a federal grand jury yesterday and announced today.  They will appear before U.S. District Court for arraignment at a later date. According to the indictment, between August 2010 and September 2012, as principals of 350Green, Mason and Gerzanych applied for and received over $2.9 million in grants from the City of Chicago, the Pennsylvania Department of Environmental Protection, the Association of Bay Area Governments, and the Bay Area Air Quality Management District.  The grant funds were intended to support installation and operation of charging stations for electric vehicles.  In particular, the indictment alleges that, in order to obtain grant funds, Mason and Gerzanych falsely claimed that a company called Actium Power had supplied Level 3 DC fast chargers to 350Green and that 350Green had paid Actium Power for those chargers, when in fact Actium Power did not supply the chargers, and the actual manufacturer of the chargers was never paid.  Further, the indictment alleges that, in order to obtain the grant funds, 350Green submitted claims to the City of Chicago falsely representing that subcontractors and vendors had been paid when in fact, they had not.

As a result of Mason and Gerzanych’s false claims, the City of Chicago and the State of Pennsylvania Department of Environmental Protection paid 350Green.  In order to cover up the scheme, the indictment further alleges that Mason and Gerzanych made false statements to 350Green’s governmental partners regarding 350Green’s financial status and reasons for 350Green’s financial difficulties.

Each count of the indictment carries a maximum penalty of 20 years in prison and a $250,000 fine.  If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.  The indictment also seeks forfeiture of approximately $1.9 million.

“These grant funds were intended to help communities live in a more eco-friendly way.  The Department of Justice will not tolerate fraud at the expense of such an important mission,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois. 

“There will always be those who see innovation as just another mark for fraud and deception, so we are gratified by the continuing collaboration with our federal partners in stopping old school exploitation of new programs directed at tomorrow's challenges,” said Inspector General Joseph Ferguson.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; Joseph Ferguson, Inspector General for the City of Chicago; and John R. Hartman, Deputy Inspector General for Investigations of the U.S. Department of Energy Office of Inspector General.  Also participating in the investigation was the Harrisburg, Pennsylvania Office of the Federal Bureau of Investigation.

The government is being represented by Assistant United States Attorney Maureen E. Merin.

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

Indictment

ROCKFORD — A Rockford man was sentenced today in federal court to a total of 124 months in federal prison for committing firearms and drug trafficking offenses.  JARIMNE FREEMAN, 30, was sentenced by U.S. District Judge Frederick J. Kapala to serve 64 months’ imprisonment for possessing with intent to distribute heroin and marijuana.  In addition, the court sentenced Freeman to serve a consecutive term of 60 months’ imprisonment for possessing a firearm in furtherance of his drug trafficking crime.  After serving his sentence in federal prison, Freeman will be placed on 3 years of supervised release. Freeman was also ordered to pay a special assessment of $200.

Freeman pleaded guilty on October 21, 2014.  According to the written plea agreement, on October 10, 2013, Freeman agreed to meet with an individual who was cooperating with the Winnebago County Sheriff’s Department (“WCSD”) at a location in Rockford and sell the cooperating individual 10 grams of heroin.  The plea agreement noted that Freeman was arrested by WCSD deputies when Freeman arrived at the agreed upon location.  The plea agreement further noted that at the time Freeman was arrested by WCSD deputies and Freeman’s vehicle was searched, Freeman possessed approximately 8.9 grams of heroin and approximately 57.2 grams of marijuana in plastic bags in the center console, approximately 267 grams of marijuana in two plastic bags in the back seat, and a loaded FEG 9mm pistol under the driver’s side floor mat of Freeman’s vehicle.  Freeman also possessed approximately 9.6 grams of heroin in a plastic bag and $1,691 in his front right pants pocket.  Freeman admitted that he intended to sell the heroin and marijuana he possessed on October 10, 2013 to other individuals.  Freeman further admitted in the plea agreement that he possessed the FEG 9mm pistol on October 10, 2013 to protect his heroin and marijuana and his drug trafficking proceeds.   The plea agreement further noted that in the eight months prior to October 10, 2013, Freeman sold approximately 50 grams of heroin per month to his customers for a total of approximately 400 grams of heroin. 

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Carl J. Vasilko, Special Agent-in-Charge of the Chicago Field Division of the Bureau of Alcohol, Tobacco, Firearms & Explosives; and Gary Caruana, Winnebago County Sheriff.

The government is represented by Assistant U.S. Attorney Joseph C. Pedersen.

CHICAGO — A suburban physician whose medical license was suspended was sentenced today to 18 months in prison for health care fraud and illegally prescribing controlled substance medications.  The defendant, SATHISH NARAYANAPPA BABU, who owned Anik Life Sciences Medical Corp., pled guilty in September 2014 to illegally prescribing oxycodone and other controlled substances, and fraudulently billing Medicare approximately $500,000, and fraudulently collecting approximately $216,000, for services he did not provide.  Babu, 48 of Bolingbrook, operated Anik Life Sciences, a home-visiting physician’s office, in Darien and, previously, in Arlington Heights. 

U.S. District Court Judge John J. Tharp also imposed a term of three years of supervised release and a restitution amount of $221,012.  Babu agreed to forfeit the approximately $126,000, which was seized at the time of his arrest and will be credited toward the restitution ordered.  Also forfeited were three automobiles ― a 2013 BMW, a 2001 BMW, and a 2010 Lexus.  Babu was ordered to begin serving his sentence on May 13, 2015.

“This crime wasn’t an isolated act, it was a calculated, systematic effort to milk Medicare,” commented Judge Tharp while imposing sentence, “The defendant was stealing money from those in need….putting many in need at risk.” Babu admitted that he engaged in a scheme to defraud Medicare from approximately November 2011 through February 2014.  In addition, Babu admitted that between November 2012 and December 2013, he issued multiple prescriptions for controlled substances to a patient, who was actually an undercover agent, despite never having seen or examined the patient.  Babu also permitted unlicensed personnel associated with Anik Life Sciences to issue prescriptions to the patient.  During the same period, Babu submitted false claims to Medicare for services provided to the patient that were not rendered by Babu or another licensed medical professional.

According to court documents, the undercover agent posed as a healthy individual covered by Medicare and seeking physician services to obtain prescription medication, including oxycodone.  The agent claimed to have shoulder pain from a previous injury and to be on disability.  On approximately 10 occasions, representatives from Anik Life Sciences, none of whom were licensed as physicians, nurses, or other medical professionals, visited the undercover agent in his purported apartment.

Babu caused unlicensed personnel from Anik Life Sciences to provide medical care ― including prescriptions issued under Babu’s name and DEA registration number for controlled substances ― to the undercover agent and then billed Medicare for that care.  Medicare and its contractor paid about $4,000 to cover the costs of the prescriptions that Babu issued to the undercover agent.

In addition to the undercover agent, Babu had other patients, whom he certified and re-certified as eligible for home health services under Medicare, and submitted claims for care he provided, including home visits and diagnostic testing and review, without regard to whether the claimed services were medically necessary.  Babu hired three foreign medical school graduates who were not licensed physicians in the United States to conduct home visits and advertised these individuals as “MDs” or doctors.  Babu submitted Medicare claims indicating that he personally conducted the patient visits and provided comprehensive medical evaluations that he did not actually perform.

Babu also maintained an office staff that he directed to order certain diagnostic tests for every patient, including ultrasound and autonomic nervous system testing, without regard to medical necessity.  He further prescribed controlled substances to patients who he had never seen or examined and permitted his unlicensed staff to fill out prescriptions and order refills for patients.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Dennis A. Wichern, Special Agent-in-Charge of the Chicago Field Division of the Drug Enforcement Administration; Lamont Pugh III, Special Agent-in-Charge of the Chicago Regional Office of the HHS-OIG; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.  The government was represented by Assistant U.S. Attorney Sarah Streicker. 

Chicago −   Bryce Woods, 37, an employee of Take Action, Inc., and Inner Arts, Inc., which claimed to provide psychotherapy services to Medicare beneficiaries residing in skilled nursing homes in the Chicago area, was sentenced today by U.S. District Court Judge Virginia M. Kendall to 70 months in federal prison for submitting false claims totaling more than $1.5 million to Medicare for psychotherapy services.  Codefendant Keenan R. Ferrell, 55, who was the owner and operator of Take Action, Inc., and Inner Arts, Inc., as well as a licensed psychologist in Illinois, was sentenced to 88 months in federal prison back in August 2014.

“This is an abuse of a program designed for people who need it,” remarked U.S. District Judge Kendall in imposing the sentence today. “This was an egregious fraud.”  Judge Kendall also ordered both Woods and Ferrell to serve two-year terms of supervised release and to pay $1,525,496 in restitution.

Ferrell and Woods, both of Chicago, were each convicted of six counts of health care fraud at a jury trial in June 2013.  The defendants were convicted of submitting false claims to Medicare for over five years. In each fraudulent claim, Ferrell and Woods represented that Ferrell had provided 45-50 minutes of one-on-one psychotherapy to patients living in skilled nursing homes, when in fact, the sessions were conducted by Woods, psychology graduate students recruited by Ferrell, or others with limited or no supervision.

Knowing that psychotherapy services were reimbursable by Medicare only when performed by an enrolled provider or when “incident to” the services of an enrolled provider, Ferrell and Woods arranged for Ferrell, who was an enrolled Medicare provider and licensed medical doctor, to authorize Inner Arts and Take Action to accept assignment of his claims to Medicare.   Ferrell and Woods arranged with psychology graduate students and others to see patients at various skilled nursing facilities.  Ferrell himself did not attend or otherwise participate in or supervise any therapy sessions conducted in the nursing homes.  As a result, Ferrell was not physically present and immediately available when Take Action and Inner Arts therapists were in nursing homes to visit with patients.  As part of the scheme, Ferrell and Woods billed Medicare for more patient visits than had actually been conducted. The defendants also billed Medicare for psychotherapy sessions that Ferrell purportedly provided to patients who in fact were deceased at the time of the purported sessions.  In his sentencing arguemnt, Assistant U.S. Attorney Paul Tzur said, “Defendant Woods filed over 31,000 separate claims to Medicare, which was an out and out lie.”

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge for the Chicago Office of the Federal Bureau of Investigation; and Lamont Pugh, Special Agent-in-Charge of the Health and Human Services, Office of Inspector General. 

The government is represented by Assistant U.S. Attorney Paul Tzur.  The case was investigated by the FBI and the Health and Human Services, Office of Inspector General.

CHICAGO — An Arlington Heights company, its president, and a former employee were indicted on federal charges for unlawfully exporting and importing military articles, including components used in night vision systems and on the M1A1 Abrams tank, which is the main battle tank used by the U.S. Armed Forces.  The defendants were charged in an indictment returned by a federal grand jury in January and made public this week.

VIBGYOR OPTICAL SYSTEMS, INC., a company located in Arlington Heights, purported to manufacture optics and optical systems, including items that were to be supplied to the U.S. Department of Defense (DOD). Instead of manufacturing the items domestically, as it claimed, VIBGYOR illegally sent the technical data for, and samples of, the military articles to manufacturers in China, then imported the items from China to sell to its customers—including DOD prime contractors. BHARAT “Victor” VERMA, 74, of Arlington Heights, VIBGYOR’s president, and URVASHI “Sonia” VERMA, 40, of Chicago, a former VIBGYOR employee and owner of a now-defunct company that operated as a subcontractor for VIBGYOR, were also charged in the indictment.

According to the indictment, between November 2006 and March 2014, the defendants conspired to defraud the United States and violate both the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR). The Arms Export Control Act prohibits the export or import of defense articles and defense services without first obtaining a license from the U.S. Department of State and is one of the principal export control laws in the United States.  Under the International Traffic in Arms Regulations, any person seeking to import items designated as defense articles on the United States Munitions Import List is required to obtain a permit to do so from the Bureau of Alcohol, Tobacco, Firearms and Explosives. VIBGYOR won subcontracts to supply optical components and systems to DOD prime contractors by misrepresenting the location of manufacture of the items it supplied. BHARAT VERMA falsely claimed that the items VIBGYOR supplied were manufactured domestically, when they actually had been manufactured in China, based on information illegally exported to Chinese manufacturers. In addition to illegally providing technical data for a military item to China, URVASHI VERMA attempted to ship an example of one of the military items to the Chinese manufacturer.

“The Arms Export Control Act and the International Traffic in Arms Regulations are vital to preventing embargoed countries from gaining access to our sensitive military technology, and to ensuring that our armed forces are not issued substandard equipment,” stated Zachary T. Fardon, United States Attorney, after the charges were announced.  “Where companies and individuals seek to violate AECA and the ITAR, we will not hesitate to act.”

VIBGYOR, BHARAT VERMA, and URVASHI VERMA are charged with one count of conspiracy to violate both the Arms Export Control Act and the International Traffic in Arms Regulations; one count of conspiracy to defraud the United States—each offense punishable by up to five years’ imprisonment—and one count of violating the Arms Export Control Act, with a maximum possible penalty of 20 years in prison and a fine up to $1,000,000. VIBGYOR and BHARAT VERMA were also charged with international money laundering, an offense with a maximum possible sentence of 20 years’ imprisonment and a fine up to $500,000. The defendants are scheduled to be arraigned Friday, February 20, at 1:00 p.m. before U.S. Magistrate Judge Susan E. Cox at the Everett McKinley Dirksen United States Courthouse in Chicago.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, Gary Hartwig, Special Agent-in-Charge of Homeland Security Investigations Chicago, James C. Lee, Special Agent-in-Charge of the Chicago Office of the Internal Revenue Service, and Brian Reihms, Special Agent-in-Charge of the Department of Defense Criminal Investigative Service in Chicago.

The government is being represented by Assistant United States Attorneys Diane MacArthur, Bolling W. Haxall, and Shoba Pillay and Trial Attorney Casey Arrowood of the Justice Department’s National Security Division.

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

Indictment

CHICAGO — A River Forest man was sentenced today to 12 ½ years in federal prison for mailing and emailing threatening communications to kill Chicago area politicians and River Forest police officers, as well as oil executives in Texas and California.  A jury found the defendant, RONALD HADDAD, Jr., 39, guilty in April 2014 of all 30 counts against him ― 28 counts of mailing threats and two counts of emailing threats.  U.S. District Judge Virginia Kendall imposed the sentence today in Federal Court.

“This is a very serious case, with very real victims,” said Judge Kendall in imposing the sentence, “the response was a tremendous drain on the City.”  The judge also ordered Haddad to serve three years of supervised release following his sentence.  Haddad is in federal custody, and since he was arrested and charged in 2009, he underwent several mental competency evaluations.

“From December 2007 through January 2009, [Haddad] carried out an unrelenting campaign to terrorize public officials and private citizens in Chicago and across the country.  [His] threat letters promised death to anyone who failed to obey him . . . .  Terror is what [he] sought, and that is what he achieved,” the government argued in a sentencing memo.

The evidence at trial showed that Haddad sent multiple threatening communications in three waves starting in Dec. 2007, again in June and July 2008, and again in January 2009.  The first group of letters, addressed to individuals such as former Chicago Mayor Richard M. Daley and former Chicago Ald. Bernard Stone, contained white powder.  The letters in June and July 2008 contained a brown substance, and the letters and packages in January 2009 contained an oily substance or shotgun shells that appeared to be rigged to explode.  None of the substances or shells proved to be harmful but witnesses who opened the letters and packages testified that they were fearful when they opened them.     

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Chicago Police Superintendent Garry F. McCarthy.    The government was represented by Assistant U.S. Attorney William Ridgway.

CHICAGO − A man who allegedly sex trafficked an underage girl by force was charged in a criminal complaint in U.S. District Court in Chicago.  The defendant, ALLEN C. IROEGBULEM, 24, of Roselle, Illinois, was charged with sex trafficking of a minor.  The charges were announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois and Robert J. Holley, Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation.

Iroegbulem appeared today before U.S. District Court Judge Daniel Martin at the Dirksen Federal Courthouse, was will remain in custody pending a detention hearing.  The defendant was charged in a criminal complaint filed on February 4, 2015.

According to the complaint, beginning in December 2013, and continuing through February 2014, the defendant transported “Minor A” from the Chicagoland area to Rockford, Illinois, where he arranged for the minor to perform commercial sex acts with at least four men in exchange for money, all in the same night.  The minor continued to perform sex acts at the direction of the defendant in hotel rooms throughout the Chicagoland area, at a house on the west-side of Chicago and in Wisconsin, where the minor was continually ordered to perform sex acts with several men at one time, over the course of three months.   In addition, Iroegbulem physically assaulted the minor.

The complaint also states that the defendant provided another minor, “Minor C,” with drugs in a hotel room, causing her to pass out.   He then arranged for two men to perform sex acts on Minor C while she was in a drugged state. 

The investigation was conducted jointly by the FBI and the Carol Stream Police Department and assisted by the McHenry County State’s Attorney’s Office, the McHenry County Sheriff’s Department, the Woodstock Police Department, the DuPage County Sheriff’s Office, and the Schaumburg Police Department.

If convicted, the defendant faces a maximum penalty of life in prison.

The public is reminded that a complaint is not evidence of guilt and that all defendants in a criminal case are presumed innocent until proven guilty in a court of law.

The government is being represented by Assistant United States Attorney Bethany Biesenthal.

Complaint

CHICAGO — A long-time Chicago psychiatrist pleaded guilty today to a federal crime for receiving illegal kickbacks and benefits totaling nearly $600,000 from pharmaceutical companies in exchange for regularly prescribing the anti-psychotic drug clozapine to his patients.  The defendant, Dr. MICHAEL J. REINSTEIN, also agreed to pay the United States and the State of Illinois $3.79 million to settle a parallel civil lawsuit alleging that, by prescribing clozapine in exchange for kickbacks, Reinstein caused the submission of at least 140,000 false claims to Medicare and Medicaid for the clozapine he prescribed for thousands of elderly and indigent mentally ill patients in at least 30 area nursing homes and other facilities, federal and state law enforcement officials announced today.

Reinstein, 71, of Skokie, pleaded guilty to one count of violating the federal Medicare and Medicaid Anti-Kickback Statute at his arraignment in U.S. District Court after he was charged on February 3.  His cooperation plea agreement calls for the government to recommend a sentence of 18.5 months in prison when he is sentenced on a date to be determined  by U.S. District Judge Sharon Johnson Coleman.

Both the criminal and civil cases involve the promotion of generic clozapine, a rarely prescribed anti-psychotic drug that has serious potential side effects and is generally considered a drug of last resort, particularly for elderly patients.  While clozapine has been shown to be effective for treatment-resistant forms of schizophrenia, it is also known to cause numerous side effects, including a potentially deadly decrease in white blood cells, seizures, inflammation of the heart muscle, and increased mortality in elderly patients.

Reinstein, a psychiatrist in the Chicago area since 1973 with an office in Chicago’s Uptown neighborhood since at least 1999, quickly became one of the largest prescribers of generic clozapine in the country after obtaining a consulting agreement worth $50,000 per year, plus other compensation, from the manufacturer of the drug.

Under the civil settlement, Reinstein will pay the United States $1,837,968 and the State of Illinois $1,956,741 within 10 days.  The settlement resolves a civil lawsuit that the United States filed in November 2012, and the State of Illinois joined in March 2013, on behalf of the U.S. Department of Health and Human Services and the Illinois Department of Healthcare and Family Services.  United States v. Reinstein, 12 C 9167 (NDIL).

“Physicians must prescribe medications for their patients solely on the basis of the patient’s best medical interests and not because those decisions were improperly influenced by kickbacks and other financial favors,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois.

“The Department of Justice is committed to ensuring that physicians who accept payments from pharmaceutical manufacturers to influence prescribing decisions are held accountable,” said Acting Assistant Attorney General for the Justice Department’s Civil Division Joyce R. Branda.  “Schemes such as this one undermine the health care system and take advantage of elderly patients who are among the most vulnerable health care recipients.”

“The defendant put his patients at great risk of serious health problems to benefit his personal interests at taxpayer expense,” said Attorney General Lisa Madigan, whose office handled the civil litigation.

In March 2014, Teva Pharmaceuticals USA, Inc., and IVAX Pharmaceuticals LLC, paid the United States and the State of Illinois $27.6 million to settle allegations that they violated state and federal False Claims Acts by making payments to Reinstein in return for his prescriptions of  clozapine to his patients.

The civil lawsuit against Reinstein alleged that he solicited and accepted kickbacks from IVAX and Teva in exchange for prescribing clozapine to Medicare and Medicaid patients between August 2003 and July 2011.  Reinstein violated the federal and state False Claims Acts by causing the submission of prescription drug claims to the Medicare and Medicaid programs for clozapine prescriptions generated by the kickbacks IVAX and Teva paid Reinstein, the suit alleged.

Reinstein also submitted and/or caused to be submitted to both Medicaid and Medicare claims for his professional services involving “pharmacologic management” of those patients for whom he prescribed clozapine.  However, Reinstein allegedly did not engage in meaningful pharmacological management, because his prescribing decisions for his clozapine patients were based on the kickbacks he received rather than his independent medical judgment or the individual needs of his patients.

Apart from the admissions Reinstein made in his guilty plea to criminal conduct, the civil settlement is neither an admission of liability by Reinstein nor a concession by the United States or the State of Illinois that their claims were not well-founded.

In pleading guilty in the criminal case, Reinstein admitted that until 2003, he prescribed Clozaril, the brand name version of the clozapine molecule, even though less expensive, generic versions of the drug were available after 1997, because the manufacturer of Clozaril paid Reinstein thousands of dollars annually for speaking engagements to promote the drug.  After the patent for Clozaril expired, Reinstein resisted pharmacy and drug company efforts to switch his patients to generic clozapine and he continued to be the largest prescriber of Clozaril to Medicaid recipients in the United States.  In July 2003, the manufacturer of Clozaril stopped paying Reinstein for speaking engagements and he agreed to meet with IVAX representatives about switching his patients to generic clozapine.

Shortly later in 2003, Reinstein agreed to switch his patients to IVAX’s generic clozapine after IVAX agreed to pay him $50,000 per year under a consulting agreement and to fund a clozapine research study by a Reinstein-affiliated entity.  IVAX renewed its annual consulting agreement with Reinstein and Teva continued paying Reinstein consulting and speaker fees realted to clozapine after acquiring IVAX in January 2006. Teva and IVAX employees renewed consulting and speaking agreements with Reinstein for $50,000 each year between 2004 and 2007, $40,000 for 2008, and $24,000 for 2009.  Between 2004 and 2009, Teva and IVAX paid Reinstein a total of approximately $234,000 for consulting and speaking related to clozapine.

Between 2004 and 2009, the manufacturer of an orally disintegrating form of the clozapine molecule also paid Reinstein for speaking engagements, totaling approximately $135,000.  In addition, this same manufacturer paid Reinstein’s research company at least $20,000 for a study related to orally disintegrating clozapine, with Reinstein acting as the principal investigator and using his patients.  In part because of these payments, between January 2005 and March 2006, Reinstein switched more than half of his patients from generic clozapine to the orally disintegrating clozapine.

Further, employees of Teva and IVAX caused the pharmaceutical companies to pay entertainment expenses for Reinstein and his associates, including expensive meals, tickets to sporting events, and all-expense-paid trips to Miami, all as part of an effort to induce him to prescribe IVAX/Teva clozapine.  These entertainment expenses totaled approximately $30,000.

In March 2006, during an all-expense-paid trip to Miami, Teva and IVAX employees asked Reinstein what they could do to get him to prescribe more clozapine and less of the orally disintegrating clozapine to his patients.  Reinstein told them that Teva should hire Individual A, whom he described as an important source of patient referrals for him.  In May 2006, Teva hired Individual A to a part-time position entering white blood cell count data for some of Reinstein’s patients into the national clozapine registry at a rate of $20 per hour for a maximum of 30 hours per week.  Over the next several months, Reinstein switched hundreds of his patients from the orally disintegrating clozapine to generic clozapine, knowing that Teva’s hiring of and payments to Individual A were illegal because they were at least partly in return for his prescriptions of clozapine.  Between July 2006 and July 2011, Teva paid Individual A approximately $112,000.  

In July 2006, Teva paid a research company affiliated with Reinstein for another clozapine study.  The payments to the research company by IVAX in 2004 and Teva in 2006 totaled approximately $61,000.  During this time period, the research company made monthly payments to Reinstein for rent and medical director fees.  Overall, Reinstein admitted receiving payments totaling approximately $592,000 through various forms of illegal remuneration.  In each scenario, Reinstein knew that the compensation was illegal because the payments were at least partly in exchange for his prescriptions of clozapine.

The civil settlement resulted from of a coordinated effort by the U.S. Attorney’s Office for the Northern District of Illinois, the Civil Fraud Section of the Commercial Litigation Branch of the Justice Department’s Civil Division, the Department of Health and Human Services Office of Inspector General, the Chicago Office of the Federal Bureau of Investigation, and the Illinois Attorney General’s Office.

In the civil case, the United States was represented by Assistant U.S. Attorney Eric S. Pruitt, and the State of Illinois was represented by Assistant Illinois Attorney General Robert Barba.  Assistant U.S. Attorney Ryan S. Hedges is representing the government in the criminal case.

Plea Agreement

CHICAGO — Thirty-one defendants face federal money laundering charges for their roles in a conspiracy that allegedly laundered more than $100 million in drug proceeds for the Mexico-based Sinaloa Cartel by purchasing gold, reselling it to companies in Florida and California, then transmitting the money from the United States to Mexico.  One additional defendant faces state money laundering charges in DuPage County.  The federal charges, contained in a criminal complaint, stem from a multi-year investigation of money laundering and drug trafficking led by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI); the Internal Revenue Service’s Criminal Investigation Division; and the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), together with other federal, state, and local law enforcement agencies.

Agents this week seized 12 firearms while arresting 12 of the federal defendants.  Ten of those defendants were arrested in the Chicago area, and two werearrested in Kentucky and Georgia.  Four federal defendants, including two of the alleged conspiracy leaders, were already in state or federal custody.  Fifteen defendants are fugitives, several of whom are believed to be in Mexico.  Agents also arrested the defendant facing state charges.  Prior to this week’s arrests, in the course of the three-and-a-half-year investigation, agents seized more than $2.8 million in U.S. currency, 28 firearms, 42 kilograms of cocaine (92 pounds), and over two tons of marijuana, as well as large amounts of heroin and methamphetamine.

Thirty-one of the defendants were charged with conspiring to launder narcotics proceeds for the Sinaloa Cartel in a 311-page criminal complaint that was filed Monday in U.S. District Court and unsealed following the arrests Tuesday morning.  The federal defendants arrested yesterday in the Chicago area appeared before Magistrate Judge Daniel Martin in U.S. District Court yesterday and eight remain in federal custody pending detention hearings scheduled for later this week.

Alleged conspiracy leaders DIEGO PIENDA-SANCHEZ, 30, and CARLOS PARRA-PEDROZA, 31, were arrested on related money laundering charges in late-September 2014, while visiting the United States from their native Guadalajara, Mexico.  A federal grand jury charged both men by indictment in December 2014, with multiple counts of money laundering based on four of the 49 separate instances of money laundering noted in the complaint filed on Monday.  That case is currently before Judge Harry D. Leinenweber in U.S. District Court.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, with Gary Hartwig, Special Agent-in-Charge of HSI in Chicago; James C. Lee, Special Agent-in-Charge of IRS’s Criminal Investigation Division; and Carl J. Vasilko, Special Agent-in-Charge of ATF in Chicago.  The following agencies also provided significant assistance in the investigation: the Drug Enforcement Administration; Cook County Sheriff’s Office; DuPage County Sheriff’s Office; Chicago Police Department; Buffalo Grove Police Department; the Joliet Metropolitan Area Narcotics Squad, and the United States Marshals Service.  The investigation was conducted under the umbrella of the United States Organized Crime Drug Enforcement Task Force (OCDETF).

“The drug trade is driven by money earned at the expense of countless devastated lives and ravaged communities,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois.  “These charges reflect the tireless work of federal, state, and local authorities to stop not only those individuals who make that destructive business possible, but profitable.”

 “Chicago is a hub for narcotics money laundering, with dirty money changing hands all too often in public parking lots throughout the city and suburbs,” said Special Agent-in-Charge Hartwig.  “Criminals are turning to sophisticated trade-based schemes to launder their money and cover their tracks, but these arrests should serve as a stern warning to those doing business with drug traffickers – you will ultimately pay the price.”

 Special Agent in Charge James C. Lee of the Internal Revenue Service Criminal Investigation Division (IRS CI) in Chicago added, “IRS Criminal Investigation is committed to fighting the war on drugs.  IRS CI brings, and will continue to bring, its financial expertise to disrupt and dismantle the Sinaloa Cartel’s drug trafficking organization.”

The complaint alleges that Pineda-Sanchez, Parra-Pedroza, and 29 associates laundered more than $100 million in drug proceeds since 2011 for the Sinaloa Cartel.  The defendants’ money laundering activities on behalf of the Sinaloa Cartel spanned throughout the Unites States, including; Illinois, Wisconsin, Indiana, Ohio, Kentucky, Georgia, California, Texas, and North Carolina.  Pineda-Sanchez and Parra-Pedroza are high ranking Mexico-based money brokers who allegedly used a network of individuals in Chicago, Fort Lauderdale, and Los Angeles to launder illicit drug proceeds through a gold-based scheme.  According to the complaint, Pineda-Sanchez, Parra-Pedroza, and others routinely directed United States based members of their organization to collect narcotics proceeds, to use the money to purchase scrap and fine gold from local businesses, and to ship that gold to refineries based in Florida and California.  The refineries in turn transmitted the cash value of the gold to Parra-Pedroza and other co-conspirators in Mexico.

As part of the undercover law enforcement operation, HSI Chicago collected more than $4.5 million in drug proceeds from 38 different money couriers on 49 occasions between June 2013 and August 2014.

The complaint details several instances in which Parra-Pedroza warned a confidential informant, who was working with law enforcement, of the dangers of losing drug money entrusted to the organization.  In one such instance, Parra-Pedroza told the informant about unidentified Mexican associates who had coerced a man to accept responsibility for losing their drugs or money by “cut[ting] his fingers off.”

The money laundering complaint charges Pineda-Sanchez, Parra-Pedroza, and the following co-defendants with one count each of conspiring to commit money laundering:  Jose Abel Mendoza-Parra, 22, of Mexico; Maria Loera-Alvarado, 36, of Mexico; Ernesto Ruiz-Ramirez, 25, of Joliet, Illinois; Mario Herrera, of Chicago; Anthony Leiva, 53, of Northlake, Illinois; Teodocio Caro, 54, of Mexico; Luis Reyna-Tellez, 19, of Cicero, Illinois; Hector Chavez-Cuevas, 36, of Cicero, Illinois; Juan Carlos Nunez-Galvez, of Berwyn, Illinois; Jose Sanantonio, 28, of Berwyn; Pedro Saucedo-Palominos, 42, of Chicago; Omar Lopez-Cabrera, 32, of Chicago; Virgil Durbin, 47, of Kentucky; Valentin Rodriguez, 37, of Markham, Illinois; Alma Lorena Ortiz de Rosas Vera, 38, of Mexico; Casmiro Isias-Padilla, 37, of Chicago; Efren Mota, 48, of Chicago; Felix Lemus-Guevara, 29, of Georgia; Pedro Urquiza-Osorio, 53, of Texas; Luis Armando Acosta-Vizcarra, 43, of Mexico; Joel Estrada, 27, of Chicago; Harranah Samori, 42, of Matteson, Illinois; Gabriel Salcedo, 53, of Berwyn; Tomas Salgado-Reyna, 30, Chicago; Oscar Acosta, 36, Melrose Park, Illinois; Federico Barrera-Perez, 45, of Chicago; Emmanuel Diaz, 28, of Naperville, Illinois; Jose Hernandez-Ochoa, 28, of Berwyn; Alfonso Nevarez, 40, of Northlake; and Oscar Montes-Lamas (deceased).  Jaime Cabadas-Barajas, 30, of Chicago, faces one count of state money laundering charges in DuPage County.

If convicted, the defendants charged with federal money laundering face a maximum of 20 years’ imprisonment and a fine of $500,000 or twice the gross gain or loss resulting from the charged offense.

The government is represented by Assistant United States Attorneys Peter M. Flanagan and Ryan P. Fayhee, and by Special Assistant United States Attorney Minnie D. Yuen.

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

Complaint

CHICAGO - A former federal prison chaplain who ministered to convicted killer Frank Calabrese, Sr., pleaded guilty today to passing messages from Calabrese concerning the recovery of a hidden violin from a residence Calabrese once owned in Williams Bay, Wis., federal law enforcement officials announced today.  The defendant, Eugene Klein, 66, was charged in June, 2011, and pled guilty today in front of U.S. District Court Judge John W. Darrah to one count of conspiracy to defraud the United States.  Judge Darrah set sentencing for June 23, 2015, in Federal Court.  Klein faces a maximum sentence of five years in prison and a $250,000 fine.

According to court documents, Klein obstructed enforcement of Special Administrative Measures (“SAMs”), first imposed on Calabrese in November 2008, to prevent him from further participating in illegal activities while incarcerated by restricting Calabrese’s contacts with others.  Calabrese told Klein that he had hidden a valuable Stradivarius violin in his Wisconsin residence.  In an effort to prevent the government from seizing the instrument and applying the proceeds toward a $4.4 million restitution judgment that Calabrese owed to his victims, Calabrese formulated a plan and enlisted Klein and two individuals to remove the violin from the Wisconsin residence.

Klein, of Springfield, Mo., a Roman Catholic priest, was employed as a chaplain at the U.S. Bureau of Prisons Medical Center for Federal Prisoners in Springfield, Mo., where Calabrese served a life sentence prior to his death in 2013.  As chaplain, Klein was permitted to meet with Calabrese on a regular basis to provide religious ministry, such as the sacrament of Holy Communion.  Because of the position of trust he occupied, Klein was able to have close and frequent communication with Calabrese.

Klein knew that prison rules prohibited him from taking letters and messages into and out of the prison.  He was also informed of the SAMs and understood they prohibited the passing of any information or messages to or from Calabrese.  The SAMs, which have been renewed annually and remained in effect in 2011, restricted Calabrese?s privileges in prison, including his access to the mail, media, telephone and visitors.  Under the SAMs, Calabrese was prohibited from having contact with anyone outside the prison, except his attorney and certain immediate family members.  Except for communications with his attorney, all oral and written communications with immediate family members, including mail and visits, were subject to review and/or observation to ensure that Calabrese did not pass any messages to anyone that could be used to further criminal activity.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and John F. Oleskowicz, Special Agent-in-Charge of the U.S. Department of Justice Office of the Inspector General, Chicago Field Office.

The government is being represented by Assistant U.S. Attorneys Amarjeet Bhachu and Jennie Levin.

Plea Agreement

Chicago --- A suburban real estate attorney and radio talk show host was sentenced today to 70 months imprisonment for stealing approximately $2.34 million from her clients.  The defendant, KATHLEEN NIEW, 59, of Burr Ridge, was also ordered to pay restitution of $2.34 million to the victims of her fraud and forfeit assets related to the crime.  “The sentence must promote respect for the law . . . something has to be done when a case like this comes up.”  U.S. District Court Judge Harry Leinenweber said in imposing the sentence.  Judge Leinenweber also ordered three years of supervised release, and Niew is to report to the Federal Bureau of Prisons on April 14, 2015.

 Niew operated Niew Legal Partners, LLC, in Oak Brook.  She was charged with 10 counts of wire fraud by a federal grand jury in August 2013 and pled in June 2014 to all counts of the indictment.   She was disbarred in 2013. 

According to court records, the victims, a husband and wife, who were Niew’s clients, transferred approximately $2.34 million into Niew’s attorney escrow account to be used for closings on commercial real estate transactions.  Niew used the funds for her own benefit, contrary to the false representations she made to the couple.  Without the victims’ knowledge, Niew used their funds to finance the purchases of various gold mining operations and not to purchase any commercial property for the victims as originally intended.  Further, as part of the fraud scheme, Niew arranged to receive a 20 percent finder’s fee for herself from mining operation investments in exchange for providing approximately $1.5 million in funds that belonged to her clients.

At the sentencing hearing today, Judge Leinenweber also found Niew responsible for defrauding another client out of $500,000.  Niew falsely told that victim that she needed to borrow $500,000 to help buy assets in her upcoming divorce proceeding.  Niew, however, was not divorcing her husband, and she sent the victim’s funds to one of the same investment operations where she had sent previous victims’ money.

“Niew blatantly stole $2.8 million of her clients’ money, and then lied to cover up the scam.  When confronted and caught, Niew undertook acts that can only be described as shocking for an attorney licensed by the bar – creating false cover-up documents, lying to her clients, and lying under oath (once again) to the ARDC,” argued Assistant United States Attorney Sunil Harjani in the government’s sentencing memorandum. 

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation.  The case was prosecuted by Assistant United States Attorneys Sunil Harjani and Andrew Boutros.

ROCKFORD — A Rockford, Ill. man pleaded guilty today before U.S. District Judge Frederick J. Kapala for producing a fictitious financial instrument that appeared to be issued under the authority of the U.S. Treasury.  In pleading guilty, BRADLEY SHERMAN HAMPTON, 55, admitted that on Aug. 31, 2009, he created a fictitious $48,780 money order in an attempt to defraud Regions Bank and the U.S. Treasury.

According to the written plea agreement, Hampton also admitted that in 2009 he produced eight other fictitious money orders in an attempt to defraud.  The nine fictitious money orders totaled $547,578.47 and purported to be issued under the authority of a Federal Reserve Bank, the Department of the Treasury, or the United States Treasury.  The fictitious money orders were made payable to Chase Home Finance, Chase National Payment Service, Holcomb State Bank, Regency Worldwide Development, Inc., Harley Davidson Credit, and the Faith Center in Rockford, Ill.

Producing a fictitious financial instrument carries a penalty of up to 25 years in prison, up to 5 years of supervised release following imprisonment, and a maximum fine of either $250,000, or twice the gross gain or gross loss resulting from that offense, whichever is greater.  The Court must impose a reasonable sentence under the advisory United States Sentencing Guidelines, as well as restitution.  Sentencing for Hampton is set for June 1, 2015, at 9:00 a.m.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation; and Frank Benedetto, Special Agent-in-Charge of the Secret Service’s Chicago Field Office.

The government is being represented by Assistant U.S. Attorney Michael D. Love.

Plea Agreement

ROCKFORD — A Rockford man was sentenced today in federal court for bank robbery.  PEDRO J. CORDERO, 52, of Rockford, Ill., was sentenced by U.S. District Judge Frederick J. Kapala to 62 months in federal prison, to be followed by 3 years of supervised release, for the robbery of BMO Harris Bank, N.A., 2510 S. Alpine Rd., Rockford, Ill., on July 12, 2014.  Cordero was also ordered to pay restitution to the bank.  

Cordero pleaded guilty to the charge on Oct. 3, 2014.  According to the written plea agreement, on July 12, 2014, Cordero, wearing an inside out San Antonio Spurs baseball cap and carrying a white and blue Kane County Cougars umbrella, robbed BMO Harris Bank.  The next day, Cordero was stopped by the Rockford Police for a traffic violation.  In his car, Cordero possessed the San Antonio Spurs baseball hat he had worn and the blue and white Kane County Cougars umbrella that he had carried the previous day during the BMO Harris Bank robbery, as well as $10,000 in U.S. currency from the bank robbery.

In addition, Cordero admitted in the plea agreement to robbing the U.S. Bank located at 1107 East State St., Rockford, Ill., on May 8, 2014, and the Associated Bank located at 4400 Center Terrace, Rockford, Ill., on June 2, 2014.  The court ordered that Cordero pay full restitution to those banks as well.

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation; and Chet Epperson, Chief of the Rockford Police Department.

The government was represented by Assistant U.S. Attorney Scott R. Paccagnini.

CHICAGO — The former chief executive officer of the bankrupt Sentinel Management Group, Inc., was sentenced today to 14 years, and the firm’s former head trader was sentenced to eight years, in federal prison for defrauding hundreds of victims, including customers of Sentinel’s own clients, of more than $665 million before the firm collapsed in August 2007.  The former CEO, ERIC A. BLOOM, misappropriated securities belonging to scores of customers by using them as collateral for a loan that Sentinel obtained from Bank of New York Mellon Corp.  The bank loan was used, in part, to purchase millions of dollars’ worth of high-risk, illiquid securities not for customers, but for a trading portfolio maintained for the benefit of Sentinel’s officers, including Bloom, members of his family, and corporations controlled by the Bloom family.

Bloom, 49, of Northbrook was convicted in March 2014 of 18 counts of wire fraud and one count of investment adviser fraud after a four-week trial in U.S. District Court.  The case is the largest financial fraud case ever prosecuted in Federal Court in Chicago.

U.S. District Court Judge Ronald Guzman said Bloom lied, cheated, and stole from Sentinel’s clients.  “I don’t know how he [Bloom] could have expected anything short of horrific losses in any market downturn,” the judge said in imposing the sentence, which he ordered Bloom to start serving on April 30.

Sentinel was located in suburban Northbrook and managed short-term cash investments of futures commission merchants, commodity pools, hedge funds, and other customers.  Sentinel’s former head trader, CHARLES K. MOSLEY, 51 of Vernon Hills, pleaded guilty in October 2013 to two counts of investment adviser fraud.  He was sentenced after Bloom to eight years in prison, and was ordered to surrender on July 29.

Judge Guzman also ordered both defendants to pay restitution totaling $665,923,451.

“The magnitude of Bloom’s crimes is enormous, and the impact on his victims devastating, with victims around the world suffering losses . . . The Financial crisis did not cause Sentinel’s implosion; it merely tore away the façade of Sentinel’s legitimacy,” Assistant U.S. Attorney Clifford C. Histed argued in a sentencing memo.  “The Sentinel case has had an enormous effect on the business and legal community in Chicago for years, and will continue to do so for years to come, and has become an infamous risk management case study,” he added.

Robert B. Wasserman, the Commodity Futures Trading Commission’s chief counsel for its Division of Clearing and Risk, testified at today’s hearing and said in a previous declaration said that Bloom’s fraud scheme “posed the threat of a massive liquidity crisis in the futures market and subjected over a dozen FCMs to immediate risk of insolvency.”

According to court records and the evidence at trial, Bloom was responsible for Sentinel’s day-to-day operations, misled customers four days before Sentinel declared bankruptcy by blaming Sentinel’s financial problems on the “liquidity crisis” and “investor fear and panic” when he knew that the actual reasons for Sentinel’s financial problems were its purchase of high-risk, illiquid securities, excessive use of leverage, and the resulting indebtedness on the Bank of New York loan, which had a balance exceeding $415 million on Aug. 13, 2007.  Sentinel declared bankruptcy on Aug. 17, 2007.

Between January 2003 and August 2007, Bloom fraudulently obtained and retained under management more than $1 billion of customers’ funds by falsely representing the risks associated with investing with Sentinel, the use of customers’ funds and securities, the value of customers’ investments, and the profitability of investing with Sentinel.  Bloom used customers’ securities invested in Sentinel’s “125 Portfolio” and its “Prime Portfolio” as collateral for its loan with Bank of New York to purchase millions of dollars’ worth of high-risk, illiquid collateralized debt obligations (CDOs).

Bloom lied about customers’ investments and engaged in an undisclosed trading strategy with Sentinel’s own “House Portfolio,” which they traded for the benefit of themselves and Bloom family members.  The undisclosed trading strategy included extensive borrowing and a high concentration of CDOs that were inconsistent with the representations Bloom made to customers regarding separate investment portfolios.  The undisclosed strategy affected all customers, regardless of the trading portfolio in which they were invested, because Bloom directed employees to use customers’ securities as collateral when Sentinel borrowed money from the Bank of New York and so-called “repo” lenders, and then used the borrowed money to carry out the undisclosed trading strategy.  (Under a repurchase agreement, known as a “repo,” a party such as Sentinel, effectively a borrower, sold securities to a counterparty, effectively a lender, with an agreement to repurchase the securities at a later date.)

As part of the fraud scheme, Bloom falsely represented the returns generated by the securities in each Sentinel portfolio to customers.  Rather than giving customers the actual returns generated by a particular portfolio, Bloom directed employees on a daily basis to pool the trading results for all of Sentinel’s portfolios and then allocated the returns to the various portfolios as they saw fit.  To conceal the scheme, to encourage customers to invest additional funds, and to otherwise lull customers, Bloom on a daily basis caused false and misleading account statements to be created and distributed to customers, including via email.  These account statements reported returns earned by customers without disclosing that the returns actually were allocated by Bloom and his employees and were not the result of the market performance of the customers’ particular portfolios.  The account statements also listed the purported value of securities being held by each portfolio without disclosing that the securities were being used as collateral for Sentinel’s loan from Bank of New York.

In July and August 2007, Bloom knew that Sentinel was approaching insolvency and that defaulting on the Bank of New York loan was a real possibility, yet he caused Sentinel to take in more than $100 million in customers’ money and continued to conceal Sentinel’s true financial condition from customers.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and James Vanderberg, Special Agent-in-Charge of the U.S. Department of Labor Office of Inspector General in Chicago.  Also assisting in the investigation were the Labor Department’s Employee Benefits Security Administration, the Commodity Futures Trading Commission, and the Securities and Exchange Commission.  The CFTC and the SEC filed separate civil enforcement lawsuits following the collapse of Sentinel, which remains in bankruptcy proceedings.

The government was represented by Assistant U.S. Attorneys Clifford C. Histed and Patrick M. Otlewski.

CHICAGO ― A northwest suburban man was sentenced today for engaging in a lengthy investment fraud scheme in which he and a co-defendant swindled approximately $105 million from 455 investors who invested in funds they purported to operate.  The defendant, DANIEL SPITZER, pleaded guilty to 10 counts of mail fraud last July on the day his trial was scheduled to begin in Federal Court.  Spitzer misused the money he raised from investors for his own benefit and to make Ponzi-type payments to investors, resulting in a loss of $33.98 million to at least 279 victims, many of them elderly.

Spitzer, 55, of North Barrington and formerly of the U.S. Virgin Islands, caused “very substantial damage,” U.S. District Judge James Zagel said in imposing the sentence today, a day after he ordered Spitzer into federal custody.  The judge also ordered restitution of $33.98 million.

Spitzer engaged in an “extended act of greed,” between late 2004 and early 2010, Assistant U.S. Attorney Madeleine Murphy argued at today’s hearing. 

According to court records, Spitzer was the principal officer and sole shareholder of Kenzie Financial Management; the sole manager and member of Kenzie Services, LLC; the president of Draseena Funds Group, Corp.; the manager of DN Management Company, LLC; and the manager of Nerium Management Company.

Co-defendant ALFRED GEREBIZZA, 59, formerly of Crystal Lake and Palm Beach Gardens, Fla., was the secretary and a director of Draseena and a sales agent for the Kenzie Funds, who also held himself out as a trader.  Gerebizza was convicted at trial last July of 10 counts of mail fraud and six counts of federal income tax fraud.  He is in federal custody awaiting sentencing.

Through these entities, Spitzer controlled 12 investment funds collectively known as the “Kenzie Funds.”  Spitzer and Gerebizza offered and sold to the public investments in the various Kenzie Funds in the form of membership interests and limited partnerships.  Through sales agents and various marketing materials, they informed investors and potential investors that their investments would be used primarily in foreign currency trading, that the Kenzie Funds had never lost money, and that they had achieved profitable historical returns.  The defendants had to continually raise funds through the solicitation of new investors in the Kenzie Funds to make payments on investments made by earlier investors, all of which they concealed and intentionally failed to disclose to both new and earlier investors.  Although Spitzer and Gerebizza falsely represented to prospective investors and current investors that different Kenzie Funds had different levels of risk and different investment strategies, they commingled the money invested in all 12 Kenzie Funds, then misappropriated a significant portion, and only invested less than one-third of the approximately $105 million raised from investors.

The defendants represented to investors that the Kenzie Funds had rates of returns ranging from 4.52 percent to 13.54 percent over the prior five years, although the bank accounts for the Kenzie Funds reflected that the total net return during that period was less than one percent.  As of June 30, 2009, they represented that the Kenzie Funds were worth approximately $250 million when, in fact, the Funds collectively had only approximately $4 million in their bank accounts. 

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; Tony Gómez, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago; and James C. Lee, Special Agent-in-Charge of the Chicago Office of the Internal Revenue Service Criminal Investigation Division.  The Chicago Regional Office of the Securities and Exchange Commission assisted the investigation.

The government was represented by Assistant U.S. Attorneys Madeleine Murphy, Jason Yonan, and Jessica Romero. 

CHICAGO — A Chicago woman pleaded guilty today to a federal crime for making a false report two years ago that a person had fallen into Lake Michigan and was in distress, causing the United States Coast Guard and other first responders to launch a dangerous search and rescue operation that cost the Coast Guard $13,613.

LEONA CHEWNING, 24, was charged earlier this month with one count of communicating a false distress message to the Coast Guard.  She pleaded guilty today at her arraignment before U.S. District Judge Charles Norgle in Federal Court in Chicago.

In pleading guilty, Chewning admitted that she knowingly and willfully communicated a false distress message to the Coast Guard resulting in a life-saving attempt when no help was needed.

“Hoax rescue calls are costly and risky for the responding agencies and personnel who put their own lives on the line in an effort to save others,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois.  “We will prosecute those who needlessly make false rescue reports and hold them accountable for their crime,” Mr. Fardon said.

“False distress calls like this one tie up valuable assets and put our crews at risk since we take every distress call seriously,” said Capt. Nicholas Bartolotta, chief of response for the Ninth Coast Guard District.  “They impede the ability of first responders like the Coast Guard and our partners to respond to real distress where lives may be on the line.  We want to make sure people know the dangers and consequences of knowingly making a hoax call.”

According to Chewning’s plea agreement, about 9:10 p.m. on Feb. 4, 2013, she made an emergency 911 call and reported a person was in distress in the lake near Roger’s Park Beach.  The 911 call center transferred the call to the Coast Guard at Calumet Harbor.  Chewning related her claim and provided a description of the person whom she reported fell into Lake Michigan.  Chewning admitted that at the time she made the call, she knew her report was false.

In response to her call, the Coast Guard and federal and state law enforcement officers responded to Roger’s Park Beach.  The Coast Guard initiated a search and rescue team, including launching a government vehicle with an ice and rescue team from the Wilmette Harbor station and a helicopter from the Traverse City, Mich., air station.  A diver with the Chicago Fire Department entered the water, near where Chewning claimed a person fell in, to locate the alleged victim, but did not locate any person in the water.

Chewning is free on her own recognizance while awaiting sentencing, which was scheduled for 11:30 a.m. on April 22.  She faces a maximum sentence of six years in prison and a $250,000 fine, as well as a civil penalty of $5,000 and mandatory restitution of $13,613.  Her plea agreement anticipates an advisory United States Sentencing Guidelines range of 4 to 10 months’ incarceration, and the Court must impose a reasonable sentence.

The government is being represented by Assistant U.S. Attorney Timothy J. Storino.

Plea Agreement

ROCKFORD — A former Sycamore, Ill. resident pleaded guilty today before U.S. District Judge Frederick J. Kapala to possessing child pornography.  MICHAEL PODOLSKY, 27, now of Elkader, Iowa, admitted in the written plea agreement that on and prior to July 12, 2013, he owned and was in possession of a computer at his home in Sycamore that contained more than 600 images of children engaged in sexually explicit conduct.

Podolsky faces a maximum of 10 years in prison for possessing child pornography, a term of supervised release following imprisonment of at least 5 years and up to life, and a fine of up to $250,000.  The actual sentence will be determined by a United States District Court Judge, guided by the United States Sentencing Guidelines.  Sentencing for Podolsky is set for April 29, 2015, at 2:30 p.m.

The guilty plea was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent‑in‑Charge of the Chicago Office of the Federal Bureau of Investigation; and Glenn Theriault, Chief of the Sycamore Police Department.

The government is represented by Assistant United States Attorney Michael D. Love.

Plea Agreement

CHICAGO — Twin brothers PEDRO and MARGARITO FLORES, regarded as Chicago’s most significant drug traffickers who rose from street level dealers to the highest echelons of the Mexico-based Sinaloa Cartel and a rival cartel before they began providing unparalleled cooperation to the Drug Enforcement Administration, were each sentenced today to 14 years in federal prison.  The sentencing marked the Flores brothers’ first public court appearance since they entered protective federal custody in 2008.  Their August 2012 guilty pleas to a narcotics distribution conspiracy were unsealed in November 2014.

Also today, federal law enforcement officials announced the unsealing of an expanded eighth superseding indictment in the case in which the Flores brothers and leaders of the Sinaloa Cartel were initially indicted here in 2009.  The eighth superseding indictment and three separate new indictments announced today, add significant new defendants, including two alleged cartel money laundering associates who were arrested in the United States, and extend the government’s efforts in Chicago and elsewhere to dismantle the Sinaloa Cartel under JOAQUIN GUZMAN LOERA, 60, also known as “Chapo,” and ISMAEL ZAMBADA GARCIA, 67, aka “Mayo.”

“The persistent determination of DEA special agents and leadership in Chicago, coupled with the efforts of those in DEA offices worldwide, is having a significant impact on the global operations of the Sinaloa Cartel,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois.  “This case put an end to the Flores brothers’ Chicago hub for transshipment of cartel narcotics nationwide.  Our investigation and prosecution of cartel members is continuing,” Mr. Fardon said.

“The extraordinary work in this investigation continues,” said Dennis A. Wichern, Special Agent-in-Charge of the Chicago Field Division of the Drug Enforcement Administration.  “Agents, investigators, prosecutors and our worldwide law enforcement partners continue to expand this investigation against members of the Sinaloa Cartel ― working to bring them to justice and in doing so ― helping to make the great city of Chicago a safer place.”

 James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago, said, “IRS Criminal Investigation is committed to working together with the DEA and the United States Attorney’s Office to fight the war on drugs.  IRS CI brings, and will continue to bring, its financial expertise to disrupt and dismantle the Sinaloa Cartel’s drug trafficking organization.”

Flores Brothers Sentencing

In sentencing the 33-year-old Flores brothers, U.S. District Chief Judge Ruben Castillo said that but for the Flores brothers’ cooperation, he would have imposed a life sentence, and noted that because of the peril their ongoing cooperation poses to them and their families, they effectively “are going to leave here with a life sentence.”  If the City of Chicago had walls, Judge Castillo said, the brothers’ operation “devastated the walls of this city,” adding that their operation “became just a highway of drugs into this city.”

But, Judge Castillo added, “It is never too late to cooperate,” which is what earned the Flores brothers a significant discount in their sentences.

Judge Castillo ordered the Flores brothers to forfeit more than $3.66 million that was seized from them and a sport utility vehicle.  In addition, more than $400,000 worth of assorted jewelry, several luxury automobiles, smaller amounts of cash, and electronics equipment were seized and forfeited in administrative proceedings by the DEA.  The brothers left behind millions of dollars in additional assets in Mexico after they began cooperating.

The judge also placed each of the brothers on court supervision for five years when they are released from prison after serving at least 85 percent of their sentences.

Between 2005 and 2008, the Flores brothers and their crew operated a Chicago-based wholesale distribution cell for the Sinaloa Cartel and a rival drug trafficking organization controlled by Arturo Beltran Leyva, receiving on average 1,500 to 2,000 kilograms of cocaine per month.  Approximately half of this cocaine was distributed to the Flores’ customers in the Chicago area, while the other half was distributed to customers in Columbus, Cincinnati, Detroit, Milwaukee, New York, Philadelphia, Washington, D.C., and Vancouver, among other cities.  In total, the brothers admitted to facilitating the transfer of approximately $1.8 billion of drug proceeds from the United States to Mexico, primarily through bulk cash smuggling. 

At great personal risk to themselves and their families, the Flores brothers began cooperating with the government in October 2008 and recorded conversations, including two directly with Chapo Guzman.  Their cooperation resulted in indictments against leaders of the Sinaloa Cartel and the Beltran Leyva organization, as well as the complete dismantling of the brothers’ own Chicago-based criminal enterprise.  In late 2008 alone, their cooperation facilitated approximately a dozen seizures in the Chicago area totaling hundreds of kilograms of cocaine and heroin and more than $15 million in cash, as well as the seizure of more than 1,600 kilograms of cocaine in the Los Angeles area that was bound for Chicago.

Further cooperation by the Flores brothers and members of their dismantled crew resulted in the convictions of more than a dozen of their high-level customers who received on average 50 to 100 kilos of cocaine per month.  “While not as high-profile as the cartel figures, the successful prosecution of these defendants made a very real difference in combating the scourge of drug trafficking that fuels so much violence and the destruction of communities in Chicago,” prosecutors said in recommending a sentence at or near the low end of the agreed 10- to 16-year sentencing range.

“The Flores brothers (and their families) will live the rest of their lives in danger of being killed in retribution,” prosecutors stated in a sentencing memo.  “The barbarism of the cartels is legend, with a special place reserved for those who cooperate.”  In 2009, the brothers’ father was kidnapped and presumed killed when he reentered Mexico despite the U.S. government warning him not to do so.

The Primary ― Eighth Superseding ― Indictment

The eighth superseding indictment unsealed today charges a total of nine defendants, including Chapo Guzman, Mayo Zambada, and Guzman’s son, JESUS ALFREDO GUZMAN SALAZAR, 31, aka “Alfredillo” and “JAGS,” each of whom was among the initial group of co-defendants in the original indictment in 2009.  Mayo Zambada and Guzman Salazar are fugitives, while Chapo Guzman remains in Mexican custody following his arrest last February.

Co-defendant, JESUS RAUL BELTRAN LEON, 31, aka “Trevol” and “Chuy Raul,” was arrested in Mexico this past November and remains in Mexican custody.  The remaining co-defendants, all fugitives, are: HERIBERTO ZAZUETA GODOY, 54, aka “Capi Beto;” VICTOR MANUEL FELIX BELTRAN, 27, aka, “Lic Vicc;” HECTOR MIGUEL VALENCIA ORTEGA, 33, aka “MV;” JORGE MARIO VALENZUELA VERDUGO, 32, aka “Choclos;” and GUADALUPE FERNANDEZ VALENCIA, 54, aka “Don Julio” and “Julia.”

This indictment alleges that all nine defendants conspired between May 2005 and December 2014, when the indictment was returned under seal, to import and distribute narcotics and to commit money laundering.  They allegedly conspired to smuggle large quantities of cocaine from Central and South America, as well as heroin, methamphetamine, and marijuana from Mexico to the United States and through Chicago for distribution nationwide.  The indictment seeks forfeiture of $2 billion.    

The U.S. Treasury Department’s Office of Foreign Asset Control today announced the designation of Felix Beltran, who is Guzman Salazar’s brother-in-law, pursuant to the Foreign Narcotics Kingpin Designation Act, freezing all of his assets in the U.S. or in the control of U.S. persons, and generally prohibiting any U.S. persons from engaging in transactions with him.  A second designation was announced today against Alfonso Limon Sanchez, an alleged Sinaloa Cartel associate under federal indictment with Mayo Zambada and others in San Diego.  Other alleged cartel leaders, including Chicago defendants Chapo Guzman, Mayo Zambada, Guzman Salazar, and Zazueta Godoy, were previously designated drug kingpins.

Charges brought in earlier versions of this primary indictment remain pending against three additional co-defendants: FELIPE CABRERA SARABIA, 44, who is in custody in Mexico; GERMAN OLIVARES, age unknown and a fugitive; and EDGAR MANUEL VALENCIA ORTEGA, 27, aka “Fox,” and Hector Miguel Valencia Ortega’s brother, who was arrested last year in the United States and is in federal custody in Chicago.  His next court date is Feb. 19 for a status hearing.

In addition to the Flores brothers, ALFREDO VASQUEZ HERNANDEZ, 59, pleaded guilty and was sentenced last November to 22 years in prison.  Two other co-defendants, Mayo Zambada’s son, VICENTE ZAMBADA NIEBLA, 39, and TOMAS AREVALO RENTERIA, 45, have pleaded guilty and are awaiting sentencing in Chicago.  Altogether, 18 defendants have been charged in the primary case in Chicago.

Three New Indictments

Those 18 are among a total of 62 defendants, most of whom have been convicted and sentenced, who were indicted in nearly two dozen related cases in Chicago since 2009.  Two new defendants, ALVARO ANGUIANO HERNANDEZ, 38, aka “Panda,” and JORGE MARTIN TORRES, 38, were arrested separately in the U.S. in November and are facing separate indictments here alleging they were high-level money laundering associates of the Sinaloa Cartel and participated in money laundering conspiracies.  Anguiano Hernandez’s indictment seeks forfeiture of $950,000.

Torres allegedly conspired to launder in excess of $300,000 of drug proceeds from Mexico to the United States to purchase, refurbish, and transfer from Ohio to Mexico, a 1982 Cessna Turbo 210 to promote the cartel’s alleged narcotics conspiracy.  His indictment seeks forfeiture of $1 million.

A third separate indictment announced today charges VENANCIO COVARRUBIAS, 26, aka “Benny,” of Elgin, who was arrested last October, with being a high-level cartel customer in the Chicago area.  In September 2013, law enforcement, including U.S. Customs and Border Protection officers in Laredo, Tex., seized 159 kilograms of cocaine that was allegedly destined for a warehouse in Elgin leased by Covarrubias.  The cocaine, wrapped in 118 brick-shaped packages, was hidden in a tractor-trailer containing a shipment of fresh tomatoes from a fictitious Mexican business called Tadeo Produce.  The charges allege that during the prior year, Covarrubias wire transferred drug proceeds to Tadeo Produce while receiving narcotics disguised as tomato shipments.  His indictment seeks forfeiture of $2.89 million.

The money laundering conspiracy charges against Anguiano Hernandez, Torres and Covarrubias carry a maximum sentence of 20 years in prison, a $500,000 fine, or an alternate fine totaling twice the amount of the funds involved in illegal activity.  The narcotics importation and distribution conspiracy charges against Covarrubias and each defendant in the primary indictment carry a mandatory minimum sentence of 10 years to a maximum of life in prison and a $10 million fine.  If convicted, the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.  The defendants against whom charges are pending are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Total Seizures Since 2008

Overall, the Chicago-based investigation of the Sinaloa Cartel has resulted in seizures of approximately $30.8 million, approximately 11 tons of cocaine, 265 kilograms of methamphetamine, and 78 kilograms of heroin.  Law Enforcement in Chicago has worked closely with federal agents and prosecutors in San Diego to target the senior leadership of the Sinaloa Cartel.  This partnership yielded the prosecutions here as well as 14 indictments announced this month in San Diego against 60 alleged Sinaloa leaders, lieutenants, and associates, including Mayo Zambada, two of his four sons, and another of Chapo Guzman’s sons. 

The investigation in Chicago has been led by the DEA, joined by the IRS Criminal Investigation Division and the Chicago Police Department.  Also assisting were DEA offices worldwide, including in Los Angeles, San Diego, and Mexico City, and its El Paso Intelligence Center; the Organized Crime Drug Enforcement Task Force (OCDETF); the Chicago High-Intensity Drug Trafficking Area (HIDTA) task force, the U.S. Attorney’s Offices in San Diego, Springfield, Ill., and Milwaukee and the Milwaukee Police Department; the Chicago and Peoria offices of the Federal Bureau of Investigation; the Chicago office of the Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, the U.S. Marshals Service; the U.S. State Department’s Diplomatic Security Service; the Cook County Sheriff’s Department; suburban police departments in Calumet City, Evergreen Park, Oak Park, and Palos Heights; and the Beverly Hills, Calif., Police Department.  The investigation was assisted by agents and analysts of the Justice Department Criminal Division’s Special Operations Division (SOD), and attorneys from the Criminal Division’s Narcotic and Dangerous Drug Section, and Office of International Affairs.

The government is being represented by Assistant U.S. Attorneys Michael J. Ferrara, Erika Csicsila, Naana Frimpong, Georgia Alexakis, Kathryn Malizia, and Thomas D. Shakeshaft.

"Chapo" Guzman Loera et al Indictment

Hernandez Indictment

Covarrubias Indictment

Torres Indicment

Twin brothers Pedro and Margarito Flores, regarded as Chicago’s most significant drug traffickers who rose from street level dealers to the highest echelons of the Mexico-based Sinaloa Cartel and a rival cartel before they began providing unparalleled cooperation to the Drug Enforcement Administration (DEA), were each sentenced today to 14 years in federal prison.  The sentencing marked the Flores brothers’ first public court appearance since they entered protective federal custody in 2008.  Their August 2012 guilty pleas to a narcotics distribution conspiracy were unsealed in November 2014.

Also today, federal law enforcement officials announced the unsealing of an expanded eighth superseding indictment in the case in which the Flores brothers and leaders of the Sinaloa Cartel were initially indicted here in 2009.  The eighth superseding indictment and three separate new indictments announced today, add significant new defendants, including two alleged cartel money laundering associates who were arrested in the United States and extend the government’s efforts in Chicago and elsewhere to dismantle the Sinaloa Cartel under Joaquin Guzman Loera, 60, also known as “Chapo,” and Ismael Zambada Garcia, 67, aka “Mayo.”

“The persistent determination of DEA special agents and leadership in Chicago, coupled with the efforts of those in DEA offices worldwide, is having a significant impact on the global operations of the Sinaloa Cartel,” said U.S. Attorney Zachary T. Fardon of the Northern District of Illinois.  “This case put an end to the Flores brothers’ Chicago hub for transshipment of cartel narcotics nationwide.  Our investigation and prosecution of cartel members is continuing,”

“The extraordinary work in this investigation continues,” said Special Agent in Charge Dennis A. Wichern of the Chicago Field Division of the DEA.  “Agents, investigators, prosecutors and our worldwide law enforcement partners continue to expand this investigation against members of the Sinaloa Cartel ― working to bring them to justice and in doing so ― helping to make the great city of Chicago a safer place.” 

“IRS Criminal Investigation is committed to working together with the DEA and the United States Attorney’s Office to fight the war on drugs,” said Special Agent in Charge James C. Lee of the Internal Revenue Service Criminal Investigation Division (IRS CI) in Chicago.  “IRS CI brings, and will continue to bring, its financial expertise to disrupt and dismantle the Sinaloa Cartel’s drug trafficking organization.”

Flores Brothers Sentencing

In sentencing of the 33-year-old Flores brothers, U.S. District Chief Judge Ruben Castillo said that but for the Flores brothers’ cooperation, he would have imposed a life sentence and noted that because of the peril their ongoing cooperation poses to them and their families, they effectively “are going to leave here with a life sentence.”  If the city of Chicago had walls, Judge Castillo said the brothers’ operation “devastated the walls of this city,” adding that their operation “became just a highway of drugs into this city.” 

But, Judge Castillo added, “it is never too late to cooperate,” which is what earned the Flores brothers a significant discount in their sentences. 

Judge Castillo ordered the Flores brothers to forfeit more than $3.66 million that was seized from them and a sport utility vehicle.  In addition, more than $400,000 worth of assorted jewelry, several luxury automobiles and smaller amounts of cash and electronics equipment were seized and forfeited in administrative proceedings by the DEA.  The brothers left behind millions of dollars in additional assets in Mexico after they began cooperating.

The judge also placed each of the brothers on court supervision for five years when they are released from prison after serving at least 85 percent of their sentences.

Between 2005 and 2008, the Flores brothers and their crew operated a Chicago-based wholesale distribution cell for the Sinaloa Cartel and a rival drug trafficking organization controlled by Arturo Beltran Leyva, receiving on average 1,500 to 2,000 kilograms of cocaine per month.  Approximately half of this cocaine was distributed to the Flores’ customers in the Chicago area, while the other half was distributed to customers in Columbus, Cincinnati, Detroit, Milwaukee, New York, Philadelphia, Washington, D.C. and Vancouver, among other cities.  In total, the brothers admitted to facilitating the transfer of approximately $1.8 billion of drug proceeds from the United States to Mexico, primarily through bulk cash smuggling. 

At great personal risk to themselves and their families, the Flores brothers began cooperating with the government in October 2008 and recorded conversations, including two directly with Chapo Guzman.  Their cooperation resulted in indictments against leaders of the Sinaloa Cartel and the Beltran Leyva organization, as well as the complete dismantling of the brothers’ own Chicago-based criminal enterprise.  In late 2008 alone, their cooperation facilitated approximately a dozen seizures in the Chicago area totaling hundreds of kilograms of cocaine and heroin and more than $15 million in cash, as well as the seizure of more than 1,600 kilograms of cocaine in the Los Angeles area that was bound for Chicago.

Further cooperation by the Flores brothers and members of their dismantled crew resulted in the convictions of more than a dozen of their high-level customers who received on average 50 to 100 kilos of cocaine per month. 

“While not as high-profile as the cartel figures, the successful prosecution of these defendants made a very real difference in combating the scourge of drug trafficking that fuels so much violence and the destruction of communities in Chicago,” said the prosecutors in recommending a sentence at or near the low end of the agreed 10- to 16-year sentencing range.

“The Flores brothers (and their families) will live the rest of their lives in danger of being killed in retribution,” prosecutors stated in a sentencing memo.  “The barbarism of the cartels is legend, with a special place reserved for those who cooperate.” 

In 2009, the brothers’ father was kidnapped and presumed killed when he reentered Mexico despite the U.S. government warning him not to do so.

The Primary ― Eighth Superseding ― Indictment

The eighth superseding indictment unsealed today charges a total of nine defendants, including Chapo Guzman, Mayo Zambada and Guzman’s son, Jesus Alfredo Guzman Salazar, 31, aka “Alfredillo” and “Jags,” each of whom was among the initial group of co-defendants in the original indictment in 2009.  Zambada and Salazar are fugitives, while Guzman remains in Mexican custody following his arrest last February.

Co-defendant, Jesus Raul Beltran Leon, 31, aka “Trevol” and “Chuy Raul,” was arrested in Mexico this past November and remains in Mexican custody.  The remaining co-defendants, all fugitives, Heriberto Zazueta Godoy, 54, aka “Capi Beto,” Victor Manuel Felix Beltran, 27, aka “Lic Vicc,” Hector Miguel Valencia Ortega, 33, aka “Mv,” Jorge Mario Valenzuela Verdugo, 32, aka “Choclos” and Guadalupe Fernandez Valencia, 54, aka “Don Julio” and “Julia.”

This indictment alleges that all nine defendants conspired between May 2005 and December 2014, when the indictment was returned under seal, to import and distribute narcotics and to commit money laundering.  They allegedly conspired to smuggle large quantities of cocaine from Central and South America, as well as heroin, methamphetamine and marijuana from Mexico to the United States and through Chicago for distribution nationwide.  The indictment seeks forfeiture of $2 billion.      

The U.S. Treasury Department’s Office of Foreign Asset Control today announced the designation of Felix Beltran, who is Salazar’s brother-in-law, pursuant to the Foreign Narcotics Kingpin Designation Act, freezing all of his assets in the U.S. or in the control of U.S. persons and generally prohibiting any U.S. persons from engaging in transactions with him.  A second designation was announced today against Alfonso Limon Sanchez, an alleged Sinaloa Cartel associate under federal indictment with Zambada and others in San Diego.  Other alleged cartel leaders, including Chicago defendants Guzman, Zambada, Salazar and Godoy, were previously designated drug kingpins.

Charges brought in earlier versions of this primary indictment remain pending against three additional co-defendants: Felipe Cabrera Sarabia, 44, who is in custody in Mexico; German Olivares, age unknown and a fugitive; and Edgar Manuel Valencia Ortega, 27, aka “Fox,” and Hector Miguel Valencia Ortega’s brother, who was arrested last year in the United States and is in federal custody in Chicago.  His next court date is Feb. 19, 2015 for a status hearing. 

In addition to the Flores brothers, Alfredo Vasquez Hernandez, 59, pleaded guilty and was sentenced last November to 22 years in prison.  Two other co-defendants, Mayo Zambada’s son, Vicente Zambada Niebla, 39, and Tomas Arevalo Renteria, 45, have pleaded guilty and are awaiting sentencing in Chicago.  Altogether, 18 defendants have been charged in the primary case in Chicago.

Three New Indictments

Those 18 are among a total of 62 defendants, most of whom have been convicted and sentenced, who were indicted in nearly two dozen related cases in Chicago since 2009.  Two new defendants, Alvaro Anguiano Hernandez, 38, aka “Panda,” and Jorge Martin Torres, 38, were arrested separately in the U.S. in November and are facing separate indictments here alleging they were high-level money laundering associates of the Sinaloa Cartel and participated in money laundering conspiracies.  Anguiano Hernandez’s indictment seeks forfeiture of $950,000. 

Torres allegedly conspired to launder in excess of $300,000 of drug proceeds from Mexico to the United States to purchase, refurbish, and transfer from Ohio to Mexico, a 1982 Cessna Turbo 210 to promote the cartel’s alleged narcotics conspiracy.  His indictment seeks forfeiture of $1 million.

A third separate indictment announced today charges Venancio Covarrubias, 26, aka “Benny,” of Elgin, who was arrested last October, with being a high-level cartel customer in the Chicago area.  In September 2013, law enforcement, including U.S. Customs and Border Protection officers in Laredo, Texas, seized 159 kilograms of cocaine that was allegedly destined for a warehouse in Elgin leased by Covarrubias.  The cocaine, wrapped in 118 brick-shaped packages, was hidden in a tractor-trailer containing a shipment of fresh tomatoes from a fictitious Mexican business called Tadeo Produce.  The charges allege that during the prior year, Covarrubias wire transferred drug proceeds to Tadeo Produce while receiving narcotics disguised as tomato shipments.  His indictment seeks forfeiture of $2.89 million.

The money laundering conspiracy charges against Anguiano Hernandez, Torres and Covarrubias carry a maximum sentence of 20 years in prison, a $500,000 fine, or an alternate fine totaling twice the amount of the funds involved in illegal activity.  The narcotics importation and distribution conspiracy charges against Covarrubias and each defendant in the primary indictment carry a mandatory minimum sentence of 10 years to a maximum of life in prison and a $10 million fine.  If convicted, the court must impose a reasonable sentence under federal statutes and the advisory United States sentencing guidelines.  The defendants against whom charges are pending are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Total Seizures Since 2008

Overall, the Chicago-based investigation of the Sinaloa Cartel has resulted in seizures of approximately $30.8 million, approximately 11 tons of cocaine, 265 kilograms of methamphetamine and 78 kilograms of heroin.  Law Enforcement in Chicago has worked closely with federal agents and prosecutors in San Diego to target the senior leadership of the Sinaloa Cartel.  This partnership yielded the prosecutions here as well as 14 indictments announced this month in San Diego against 60 alleged Sinaloa leaders, lieutenants and associates, including Zambada, two of his four sons and another of Guzman’s sons.   

The investigation in Chicago has been led by the DEA, joined by the IRS Criminal Investigation Division and the Chicago Police Department.  Also assisting were DEA offices worldwide, including in Los Angeles, San Diego, Mexico City and its El Paso Intelligence Center, the Organized Crime Drug Enforcement Task Force the Chicago High-Intensity Drug Trafficking Area task force, the U.S. Attorney’s Offices in San Diego, Springfield, Illinois and Milwaukee and the Milwaukee Police Department, the Chicago and Peoria offices of the Federal Bureau of Investigation, the Chicago office of the Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, the U.S. Marshals Service, the U.S. State Department’s Diplomatic Security Service, the Cook County Sheriff’s Department, suburban police departments in Calumet City, Evergreen Park, Oak Park, Palos Heights and the Beverly Hills Police Department.  The investigation was assisted by agents and analysts of the Justice Department Criminal Division’s Special Operations Division, the attorneys from the Criminal Division’s Narcotic and Dangerous Drug Section and Office of International Affairs.

The government is being represented by Assistant U.S. Attorneys Michael J. Ferrara, Erika Csicsila, Naana Frimpong, Georgia Alexakis, Kathryn Malizia and Thomas D. Shakeshaft.  

CHICAGO " Two defendants were sentenced today to federal prison terms for an investment fraud scheme in which they swindled more than $30 million from more than 100 investors in a purported voice-over-internet telecommunications business.  One defendant, GAIL HOWARD, was sentenced to seven years in prison, while her co-defendant, JAMES JEDYNAK, was sentenced to 6½ years in prison.  Together, Howard and Jedynak misappropriated more than $6 million of investors’ funds for their own benefit.

Howard, 64, of Springdale, Ark., and formerly of California, pleaded guilty to wire fraud, while Jedynak, 49, of Hemlock, Mich., and formerly of north suburban Northfield, was convicted of wire fraud at a trial in June 2013.

Both defendants were ordered to pay $30.27 million in restitution by U.S. District Judge Robert M. Dow, Jr., who imposed the sentences today in Federal Court in Chicago.  Jedynak and Howard were each ordered to start serving their sentences on April 28.

According to court records, Howard was president and chief executive officer, and Jedynak was in charge of recruiting investors, at Unified Worldwide Transport, LLC (UWT), a Santa Monica, Calif., company that purported to be in the business of routing voice-over-internet protocol (VOIP) telecommunications traffic.  UWT sold equity shares to investors through private placement offerings, and Jedynak was responsible for recruiting individuals and entities, including some from the Chicago area, to invest in the business.

Between 2003 and 2007, Howard and Jedynak raised more than $30 million through the fraudulent offer and sale of investment interests and loans to UWT.  They falsely represented that investments and loans would be used to acquire telecommunications routes, build network infrastructure, provide working capital, repay debt, and purchase licenses and equipment.  Instead, they misappropriated approximately $6.2 million to purchase luxury goods and services, such as a swimming pool, a boat, jewelry, and plastic surgery, to pay for home improvements, to make payments to friends and relatives, to make personal investments, to purchase real estate, and to fund outside business interests.

To facilitate the fraud scheme, the defendants falsely represented that UWT had a contract with Illinois-based Caterpillar Corp., which they claimed owed UWT a lot of money, when in fact there was no contract and no money owed.

Jedynak falsely represented to investors that he would receive no compensation from UWT until investors received all of their principal back.  Howard told investors that she had a law degree and a master"s degree in business administration and had worked as a state prosecutor in Arkansas, none of which was true.

The sentences were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.  The Illinois Department of Securities assisted the investigation conducted by the FBI.

The government was represented by Assistant U.S. Attorneys Rachel Cannon, Ryan Hedges, and Derek Owens. 

ROCKFORD — The owner of a McHenry, Ill., tax preparation business, together with  three employees and four clients, were arrested today after being indicted on federal charges alleging they participated in a  $600,000 mail fraud scheme by  preparing and filing  over 200 false  personal federal income tax returns for tax years 2006-2011.  The defendants were also charged with conspiring with each other between March 2009 and May 2012 to defraud the United States by making false claims for tax refunds and obtaining payment.

A seven-count indictment  returned by a federal grand jury last week  was unsealed today following the arrests of PATTY CORDOBA, 42, of Crystal Lake, the owner of Patty’s Tax Service (PTS); three of its employees including Patty Cordoba’s husband, MARIO CORDOBA, 47, of Crystal Lake; LUISA CARBAJAL, 52, of Marengo; and ALICIA ARVALO, 48, of Poplar Grove; and four clients, OLGA LIDIA DIAZ-HERNANDEZ, 45, of McHenry; VICTOR HERNANDEZ, 41, of McHenry; VERONICA SANCHEZ-BARRADAS, 39, of McHenry; and CESAR BESICHE, 48, of McHenry.

All of the defendants pleaded not guilty at their arraignments today before U.S. Magistrate Judge Iain D. Johnston in Federal Court in Rockford.  The defendants were ordered to remain in custody pending detention hearings before Magistrate Johnston on Friday for Patty Cordoba, Mario Cordoba and Carbajal, next Tuesday for Hernandez, and next Wednesday for Arevalo, Diaz-Hernandez, Sanchez-Barradas, and Besiche.

All eight defendants were each charged with one count of conspiracy to defraud the United States by obtaining the payment of false claims for tax refunds and at least one count, or more, of mail fraud.  The indictment also seeks forfeiture of $642,514 from Patty and Mario Cordoba, Carbajal, Arevalo, Hernandez, and Sanchez-Barradas.

According to the indictment, Patty Cordoba, and her employees, Mario Cordoba, Carbajal and Arevalo, prepared more than 200 fraudulent personal federal income tax returns for Diaz-Hernandez, Hernandez, Sanchez-Barradas, Besiche and others, claiming materially false amounts of income and credits for tax years 2006-2011.  The fraudulent tax returns were filed with the IRS and falsely claimed over $600,000 in tax refunds.  As part of the scheme, Patty and Mario Cordoba, Carbajal and Arevalo allegedly prepared fraudulent returns for other filers using information provided by Diaz-Hernandez, Hernandez, Sanchez-Barradas, Besiche and others.

It was further part of the scheme that the defendants created and caused others to create fraudulent Individual Taxpayer Identification Number applications for taxpayers and dependents to accompany the fraudulent tax returns in order to increase the number of dependents listed on particular taxpayers’ return, thus increasing the amount of fraudulent tax refunds claimed on those returns.  As part of the scheme, Patty and Mario Cordoba, Carbajal and Arevalo falsely represented that Diaz-Hernandez’s, Hernandez’s, Sanchez-Barradas’, Besiche’s, and others filers’ dependents were not residing in Mexico and fraudulently claimed that those dependents were qualifying children for the Child Tax Credit and Additional Child Tax Credit in order to fraudulently increase the amounts of the refunds claimed in those returns, the indictment alleges.

Patty and Mario Cordoba, Carbajal and Arevalo allegedly prepared returns for themselves and Diaz-Hernandez, Hernandez, Sanchez-Barradas, Besiche, and other filers, using false information to make it appear that they were entitled to substantial tax refunds.  Further, Patty and Mario Cordoba, Carbajal and Arevalo allegedly prepared letters to the IRS on behalf of Diaz-Hernandez, Hernandez, Sanchez-Barradas, Besiche, and others, when the IRS requested additional information regarding  income claimed on the returns that they had prepared, that falsely stated that Diaz-Hernandez, , Sanchez-Barradas, Besiche, and others  had earned wages from an employer.  PTS’s fees for preparing tax returns reporting cash wages were more than three times its fee for preparing returns reporting wages on a Form W-2, according to the indictment.

Each count of mail fraud carries a maximum penalty of 20 years in prison, a maximum fine of $250,000 fine, or an alternate fine totaling twice the loss or twice the gain derived from the offense, whichever is greater.   Conspiracy to defraud the United States by obtaining payment of false claims carries a maximum penalty of 10 years in prison and a maximum fine of $250,000.  If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines, and restitution is mandatory.

The indictment was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, James C. Lee, Special Agent-In-Charge of the Chicago Field Office of Internal Revenue Service Criminal Investigation Division; Tony Gómez, Inspector in Charge of the Chicago Division of the United States Postal Inspection Service; and  Gary Hartwig, Special Agent-In-Charge of the Chicago Field Office of Homeland Security Investigations.

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

The government is represented by Assistant U.S. Attorney Joseph C. Pedersen.

Indictment

CHICAGO — A Chicago man was sentenced today to 15 months in federal prison for his role in a conspiracy to violate U.S. sanctions by agreeing to assist Zimbabwe President Robert Mugabe and others in an effort to lift economic sanctions against Zimbabwe. Between late 2008 and early 2010, the defendant, C. GREGORY TURNER, met multiple times in Africa with Zimbabwean government officials, including President Mugabe and Gideon Gono, governor of the Reserve Bank of Zimbabwe, who were individually subject to U.S. sanctions.

A November 2008 “consulting agreement” provided for total payment of $3.4 million in fees for Turner and his co-defendant, PRINCE ASIEL BEN ISRAEL, to engage in public relations, political consulting, and lobbying efforts to have sanctions removed by meeting with and attempting to persuade federal and state government officials, including Illinois members of Congress and state legislators, to oppose the sanctions.

Turner, 72, also known as “Greg Turner,” of Chicago and Israel, acted out of greed, U.S. District Judge Elaine Bucklo said in imposing the sentence in Federal Court in Chicago. The judge also said she did not believe Turner’s claim that his conduct was in the name of humanitarianism and helping the people of Zimbabwe. Turner was ordered to begin serving his sentence on March 13, and he was placed on court supervision for a year after he is released from custody.

Turner was found guilty last October of violating the International Emergency Economic Powers Act (IEEPA), following a jury trial in U.S. District Court. Turner was acquitted of one count each of conspiracy and acting as an agent in the United States of a foreign government without providing prior notification to the Attorney General.

“[Turner’s] motivation was his own financial enrichment. He sought to parlay his close relationships with well-connected government officials to score a big payday,” the government argued in a sentencing memo.

Ben Israel, 73, of Chicago, was sentenced last August to seven months in prison after pleading guilty to violating the Foreign Agents Registration Act (FARA).

The sanctions against President Mugabe and other specially designated individuals in Zimbabwe ― for human rights abuses ― were initially imposed in 2003 by President George W. Bush and have been continued annually by President Obama, starting in March 2009. President Mugabe and his ruling ZANU-PF party have governed Zimbabwe since its independence in 1980. The sanctions neither bar travel to Zimbabwe nor prohibit public officials from meeting with specially designated nationals to discuss removing the sanctions, but individuals may not provide services on behalf of or for the benefit of specially designated nationals.

According to the evidence at trial, in early November 2008, Turner and Ben Israel began having discussions with Mugabe, Gono, and other ZANU-PF leaders regarding the influence Turner and Ben Israel could wield to have the sanctions removed. The defendants discussed with Mugabe, Gono, and others their association with many public officials who purportedly had close connections with then President-Elect Obama. Turner violated IEEPA by conspiring to engage in public relations, political consulting, and lobbying efforts on behalf of President Mugabe and other Zimbabwe officials. In early December 2008, Ben Israel’s U.S. bank blocked a wire transfer of $89,970 into his account from a Zimbabwe official affiliated with ZANU-PF, and Ben Israel later traveled to Africa and personally withdrew $90,000 from the bank account of that same Zimbabwe official.

Turner and Ben Israel arranged for trips by federal and state government officials to meet with President Mugabe and other Zimbabwean officials, including in November and December 2008, and January and December 2009; attempted to have Gono and other Zimbabwean officials speak at an issues forum in Washington, D.C., sponsored by a then U.S. Representative from California, and to assist those officials in obtaining visas to travel to the U.S. to attend the event; arranged for President Mugabe to meet with federal and state government officials in New York; lobbied a caucus of state legislators on behalf of Zimbabwean officials; and failed to apply to the Treasury Department for a license to engage in transactions and services on behalf of specially designated nationals.

In early December 2008, Turner and Ben Israel arranged for a delegation to travel to Zimbabwe. After members of the delegation returned, President-Elect Obama’s transition team forwarded information about contact from a member of the delegation to the FBI based on its concerns that sanctions may have been violated.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; John Carlin, Assistant Attorney General for the National Security Division; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago. The Justice Department’s Counterespionage Section assisted in the investigation.

The government was represented by Assistant U.S. Attorneys Barry Jonas and Georgia Alexakis, and David Recker, a trial attorney with the Justice Department’s Counterespionage Section.

CHICAGO — A highly-skilled computer science engineer, YIHAO PU, who a prosecutor said “meticulously planned and brazenly executed” stealing sensitive trade secrets from two former employers ― a trading firm in New Jersey and later Citadel, LLC, a Chicago-based financial firm ― was sentenced today to three years in federal prison.  Later today, Pu’s colleague, SAHIL UPPAL, who worked with and aided Pu at both firms, was sentenced to three years’ probation for obstruction of justice. 

Pu, 27, currently of Waltham, Mass., and also known as “Ben Pu,” was ordered to begin serving his sentence on May 1, and was placed on three years of court supervision following his release from custody.  Uppal, 27, of Colts Neck, N.J., and also known as “Sonny Uppal,” was placed on three years’ probation.  U.S. District Judge Charles Norgle, who imposed the sentences, also ordered Pu and Uppal each to pay restitution totaling $759,649 to Citadel to cover the cost of its investigation.  Both defendants pleaded guilty last August in Federal Court in Chicago.

“Pu committed theft on a grand scale from not one, but two, employers.  What Pu stole was a proven money-making system from Company A and valuable trade secrets from Citadel.  He stole extremely valuable intellectual property consisting of HFT [high frequency trading] computer code and alpha outputs that generated millions of dollars each year, cost millions of dollars to build, and took teams of professionals years to develop and refine ― all of which generated millions of dollars in profits per year,” Assistant U.S. Attorney Patrick M. Otlewski argued in a sentencing memo.

According to their guilty pleas and court documents, Pu graduated from Cornell University and Uppal graduated from Carnegie Mellon University, and they worked together at Company A in Red Bank, N.J., in 2009 and 2010.  By late 2009, they planned to develop trading strategies for themselves and not for the benefit of their employers.  In March 2010, the day before Pu resigned from Company A, he accessed the firm’s secure internal computer servers and downloaded thousands of files containing Company A’s trade secrets and copied them onto a personal hard drive.

Pu began working at Citadel in May 2010 as a quantitative financial engineer and his responsibilities included working with analysts and researchers to develop and enhance Citadel’s high frequency trading strategies.  As part of his duties, Pu was permitted to use his office computer to access a folder stored on Citadel?s servers that contained information and data related to predictions signals commonly referred to as “alphas,” which are the building blocks of Citadel’s automated electronic trading algorithms and strategies.  The alphas use incoming market data and other information to predict the movement of investment instruments and relevant market activity.

Pu bypassed Citadel’s security measures and stole thousands of files that contained Citadels’ alpha outputs.  Pu then used those alphas in his own high frequency trading strategy for his own personal investment account in an effort to replicate Citadel’s trading for his own benefit.  When Uppal joined Pu at Citadel, they continued their scheme to benefit themselves during the summer of 2011.  Uppal transferred to Pu three computer files containing Citadel trade secrets without Citadel’s authorization. 

On Aug. 26, 2011, Citadel confronted Pu about suspicious activity on his work computer, and Pu returned home and began destroying evidence.  With Uppal’s help, Pu took a half dozen hard drives to a friend’s apartment, and a few days later Pu instructed his friend to get rid of them.  The friend discarded six of the hard drives in a sanitary canal in Wilmette, while keeping another one at his apartment.  Uppal obstructed justice by helping Pu conceal evidence and Uppal lied when he too was confronted and questioned by Citadel. 

Judge Norgle found that the crimes caused a total intended loss of approximately $12.2 million.  Citadel brought their investigation to the attention of federal authorities and fully cooperated with the government’s investigation.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.  The government was represented by Assistant U.S. Attorneys Patrick M. Otlewski and Lindsay C. Jenkins. 

ROCKFORD — A former Machesney Park, Ill. man pleaded guilty today before U.S. District Judge Frederick J. Kapala to the concealment of assets from a Bankruptcy Trustee.  ROBERT J. YONKEE, JR., 55, now of Lake Geneva, Wis., filed a Chapter 7 Bankruptcy Petition on Sept. 15, 2008, and by signing a Declaration verified his Petition, all his Schedules, and a Statement of Financial Affairs under penalty of perjury.  According to the written plea agreement, from Sept. 15, 2008 through at least May 8, 2009, Yonkee fraudulently concealed property from the bankruptcy trustee, including his ownership interest in: a business that sold auto parts, automobiles, and motorcycles; the United States Super Truck Racing Series; Bobby Yonkee Racing; as well as other inventory, merchandise, capital, vehicles, and motorcycles.

Yonkee faces a maximum penalty of 5 years’ imprisonment, and a fine of up to $250,000, or twice the gross gain or gross loss resulting from that offense, whichever is greater.  The judge may also impose a sentence of probation of one to five years, and a term of supervised release of up to three years.  The actual sentence will be determined by the United States District Court, guided by the Sentencing Guidelines.  Sentencing for Yonkee is set for April 2, 2015, at 2:30 p.m.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-In-Charge of the Chicago Office of Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorney Michael D. Love.

Plea Agreement

CHICAGO — A Naperville man who worked for a U.S. military contractor pleaded guilty today to stealing U.S. military computer and communications equipment worth more than $332,000 from a military air base in Afghanistan and later selling and shipping almost half of the high-end equipment to vendors in the United States for re-sale.

TIMOTHY L. MAURER, 51, a former systems administrator for Raytheon Corp., a U.S. Department of Defense contractor, was charged last month with one count of theft of government property.  He pleaded guilty today at his arraignment before U.S. District Judge Robert M. Dow, Jr., in Federal Court in Chicago.

 “Stealing from the U.S. government undermines our mission in Afghanistan and anyone seeking to defraud the American taxpayer will be brought to justice,” said John F. Sopko, Special Inspector General for Afghanistan Reconstruction (SIGAR).

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division; and Special Inspector General Sopko.  The Air Force Office of Special Investigations (AFOSI), the Defense Criminal Investigative Service (DCIS), the Army Criminal Investigative Division/Major Procurement Fraud Unit (CID/MPFU), and SIGAR conducted the investigation.

In pleading guilty, Maurer admitted that between Dec. 23, 2013, and Feb. 2, 2014, he stole more than 150 items of computer and communications equipment, including laptop computers, cellular telephones, computer switches, adaptors, batteries, power cables, and electronic storage devices worth approximately $332,702.  The equipment was stolen from storage containers and other areas belonging to the 445th Air Expeditionary Advisory Squadron, a U.S. Air Force unit, stationed at Shindand Air Base in Afghanistan.  On at least one occasion, Maurer forced open a lock to gain entry to a storage container, and he also stole equipment from other locations where the equipment was being stored or used.

In January 2014, Maurer communicated with multiple vendors in the United States to arrange sales of the equipment that he stole.  The vendors re-sold stolen equipment valued at approximately $152,697, while equipment worth approximately $180,005 was recovered from Maurer’s quarters, from vendors, or was intercepted after it was shipped but before it reached vendors.  Maurer received payment from vendors via online transactions or wire transfer of funds.

Maurer is free on his own recognizance while awaiting sentencing, which was scheduled for April 7.  He faces a maximum sentence of 10 years in prison and a $250,000 fine, while his plea agreement anticipates an advisory United States Sentencing Guidelines range of 24 to 30 months incarceration, and the Court must impose a reasonable sentence.

The government is being represented by Assistant U.S. Attorney Kartik K. Raman and DOJ Trial Attorney Wade Weems on detail to the Criminal Division’s Fraud Section from SIGAR.

Plea Agreement

ROCKFORD — A former Sandwich, Ill. business owner pleaded guilty today before U.S. District Judge Frederick J. Kapala to a charge of making a false statement to a financial institution.  The defendant, STEVEN J. MOORHOUSE, 62, was President and majority owner of Jefsco Manufacturing Co., Inc., a manufacturing business.

According to the plea agreement, during July 2009, Moorhouse sought a lender to make business loans to Jefsco and began to provide Jefsco’s financial information to Old Second National Bank (OSNB).  The plea agreement further states that on Dec. 4, 2009, Moorhouse provided OSNB with a document that falsely inflated the value of the accounts receivable owed to Jefsco by hundreds of thousands of dollars.  Moorhouse admitted he was aware that the amount of loan proceeds that OSNB would disburse would be, in part, determined by the amount of receivables.

Moorhouse faces a penalty of up to 30 years in prison, a term of supervised release of up to five years following imprisonment, a fine of up to $1 million, or twice the gross gain or gross loss resulting from that offense, whichever is greater.  The Court must impose a reasonable sentence under the advisory United States Sentencing Guidelines, as well as restitution.  Sentencing for Moorhouse is set for April 16, 2015, at 2:30 p.m.

The guilty plea was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Christy Romero, Special Inspector General for the Troubled Asset Relief Program; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The investigation was conducted jointly by the Office of the Special Inspector General for the Troubled Asset Relief Program and the Federal Bureau of Investigation.

The government is represented by Assistant U.S. Attorney Michael D. Love.

Plea Agreement

CHICAGO — A southwest suburban Bolingbrook man who was arrested in October, was indicted by a federal grand jury for allegedly attempting to travel overseas to join a foreign terrorist organization operating inside Iraq and Syria, federal law enforcement officials announced today.  The defendant, MOHAMMED HAMZAH KHAN, 19, a U.S. citizen, was charged with attempting to provide material support to the Islamic State of Iraq and the Levant (ISIL) in a single-count indictment returned late yesterday.

A date for Khan to be arraigned in U.S. District Court in Chicago has not yet been determined.  Khan has been detained in federal custody since he was arrested on Oct. 4, 2014, at O’Hare International Airport by members of the Chicago FBI’s Joint Terrorism Task Force before he attempted to fly to Vienna, Austria, on his way to Istanbul, Turkey.

Khan was initially charged in a criminal complaint with attempting to provide material support to a foreign terrorist organization, and the indictment formalizes that same charge.  According to the indictment, between February and Oct. 4, 2014, Khan attempted to provide material support and resources, specifically, personnel, to ISIL.

Attempting to provide material support to a foreign terrorist organization carries a maximum penalty of 15 years in prison and a $250,000 fine.  If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; John P. Carlin, Assistant Attorney General for National Security; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.  The investigation is continuing, they said. 

The Chicago JTTF is comprised of Special Agents of the FBI, officers of the Chicago Police Department, and representatives from an additional 20 federal, state and local law enforcement agencies.  U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement (ICE) Homeland Security Investigations (HSI), and the Illinois State Police also provided significant assistance in the investigation.

The government is being represented by Assistant U.S. Attorneys Matthew Hiller, Angel Krull, and Sean Driscoll, and DOJ Trial Attorney Michael Dittoe of the National Security Division.

The public is reminded that an indictment contains only charges and is not evidence of guilt.  The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — A Cicero man was sentenced today to 40 years in federal prison for setting fire in January 2012 to his estranged girlfriend’s southwest side apartment that resulted in killing a man sleeping in the apartment next door. The defendant, JUAN ADAME, was convicted of federal arson in October 2013 after a week-long trial in U.S. District Court.

Adame, 41, who has been in federal custody since he was arrested in March 2012, must serve at least 85 percent of his sentence. He is subject to two years of court supervision and deportation after any release.

Citing Adame’s history of domestic violence, U.S. District Judge Harry Leinenweber said the “tragic consequences” of the case called for Adame to be incapacitated to prevent him from committing future crimes. Adame was also ordered to pay restitution totaling $306,006.

According to court records and the evidence at trial, at approximately 4:30 a.m. on Jan. 14, 2012, Adame used gasoline to start a fire in the second-floor rear apartment of a building at 4246 West 63rd St., which contained two one-bedroom apartments on the second floor and commercial space on the ground floor. Adame had an ongoing domestic dispute with a woman who occasionally occupied the apartment where the fire began but who was not there at the time of the fire. The victim, James “Jimmy” Maca, 60, the sole occupant of the front apartment unit, died as a result of carbon monoxide intoxication and inhalation of smoke and soot.

“Jimmy Maca left behind friends and loving family members, including two siblings and a niece who attended every day of [Adame’s] trial. The lifelong impact of [his] crime on Jimmy Maca’s friends and family is indescribable,” Assistant U.S. Attorneys Michelle Nasser and Bethany Biesenthal argued in seeking a sentence of at least 40 years in prison. Maca’s brother, sister, and landlord each provided victim impact statements at today’s sentencing hearing.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Carl J. Vasilko, Special Agent-in-Charge of the Chicago Office of the Bureau of Alcohol, Tobacco, Firearms and Explosives; and Garry F. McCarthy, Superintendent of the Chicago Police Department. The Chicago Fire Department’s Office of Fire Investigation and the Illinois State Fire Marshal’s Division of Arson Investigation assisted the Chicago Police Department’s Bomb and Arson Section and ATF in the investigation.

CHICAGO — A Joliet area tax preparer pleaded guilty today to filing hundreds of false federal income tax returns for clients, causing the Internal Revenue Service to lose more than $5.3 million. The defendant, JEFFREY SHELBY, JR., 31, of Joliet, pleaded guilty at his arraignment after being charged last week in U.S. District Court.

With the 2014 tax season just getting underway, IRS officials said the case serves as a reminder to tax preparers and taxpayers alike to comply with their tax obligations. “While most return preparers are honest and provide excellent service, others file false returns to defraud their clients and the United States government,” said James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago.

The guilty plea was announced by Mr. Lee and Zachary T. Fardon, United States

Shelby pleaded guilty to two counts of aiding and assisting in the preparation of false federal income tax returns. He faces a maximum sentence of three years in prison and a fine of $250,000 on each count. U.S. District Judge Sara L. Ellis scheduled a status hearing for March 24 to set a sentencing date.

Between at least 2009 and 2012, Shelby owned Shelby Investment LLC, which had two locations, one in Crest Hill and the other in Joliet, and he worked primarily in the Crest Hill office. Shelby admitted that for tax years 2009 through 2012, he filed hundreds of individual income tax returns for clients, each of which fraudulently and intentionally reduced the tax liabilities and increased the tax refunds for those taxpayers. Among other ways, Shelby overstated and misrepresented taxpayers’ eligibility to claim tax credits, including education credits and the Earned Income Credit; misrepresented taxpayers’ business income and expenses; and overstated and misrepresented his clients’ gifts to charity. As a result, he caused the IRS to lose approximately $5,350,243 in tax revenue.

Shelby is subject to an order to pay full restitution. The Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The government is being represented by Assistant U.S. Attorney Sarah Streicker.

Plea Agreement

CHICAGO — A former Cook County sheriff’s deputy was sentenced today to one year in federal prison for violating the civil rights of a man who was being held in the county’s detention lockup facility in Maywood in 2010.  The defendant, RAFAEL MUNOZ, pleaded guilty in September to using unreasonable force.

“What happened here was extremely serious,” U.S. Magistrate Judge Maria Valdez said in imposing the sentence in U.S. District Court.  Munoz was ordered to begin serving his sentence on Feb. 6 and was placed on supervised release for one year following his prison term.

In pleading guilty, Munoz, 39, of Chicago, admitted that he grabbed and forcibly pulled the chain that connected a pretrial detainee’s ankle shackles to each other, causing the victim to flip forward and hit his head and face on the concrete floor.  As a result of using excessive force, the victim suffered injuries, including a broken nose, a broken tooth, swelling, bruising, and bleeding from cuts to his lip and nose.

Munoz became a sheriff’s deputy in August 2006 and resigned in 2013.  As part of his plea agreement, Munoz agreed not to seek or accept any future law enforcement employment or any position that would require or permit him to supervise or care for detainees or prisoners.

According to court records, the victim, identified as M.O., was arrested on July 8, 2010, and transported to the Maywood lockup, where he was detained in a holding cell.  In that cell, M.O. was restrained with his hands handcuffed behind his back and his legs in ankle shackles.  Shortly after 2 a.m. on July 8, 2010, Munoz entered the cell in response to M.O.’s request to loosen his handcuffs.  Munoz ordered M.O. to turn around and face the wall and M.O. complied with Munoz’s instructions such that M.O.’s back and handcuffs faced Munoz while M.O. faced the rear of the cell.  Throughout Munoz’s interaction with M.O., the victim complied with Munoz’s orders and did not pose a threat to Munoz, any other person, or himself. 

After forcing the victim to fall by pulling his ankle chain, Munoz admitted that he attempted to cover up his use of excessive force by completing three false law enforcement reports.  In each of those documents, Munoz reported that he entered the cell and “grabbed [M.O.’s] handcuffs to loosen at which time [M.O.] rolled onto the cell floor,” which Munoz knew was false.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Acting Assistant Attorney General Vanita Gupta of the Justice Department’s Civil Rights Division; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. 

The government is being represented by Assistant U.S. Attorneys Andrianna Kastanek and Nathalina Hudson and DOJ Trial Attorney Ali Ahmad.

ROCKFORD — A Rockford, Ill. woman was sentenced today in federal court by U.S. District Judge Frederick J. Kapala on a federal drug trafficking charge. The defendant, DENISE LAMBERT, 56, was sentenced to 80 months in federal prison, to be followed by 3 years of supervised release.

Lambert pleaded guilty to the charge on April 11, 2014. According to the written plea agreement, from Oct. 1, 2010 to Jan. 5, 2012, Lambert was part of a heroin trafficking organization in Rockford and conspired with her co-defendants, Michael J. Craig, Michael W. Charles, Elbert Charles Dixon, Melvin Bradley, Devon Zachary and Jose Melendez, to distribute heroin. The plea agreement noted that while working for Craig taking care of Craig's children, Lambert performed tasks at the request and direction of Craig to assist Craig in distributing heroin in Rockford, Illinois including renting an apartment and vehicles in Lambert’s relatives’ names for Craig to use to store and transport heroin and heroin trafficking proceeds, delivering heroin mixtures packaged in plastic baggies to Charles, Dixon, Zachery and Bradley for them to sell to others, and collecting money from Charles, Dixon, Zachery and Bradley after they sold the heroin and delivering the money to Craig.

Co-defendants Craig, Charles, Dixon, Bradley Lambert, Zachary and Melendez all previously pleaded guilty to conspiring to distribute heroin. On May 28, 2014, Charles was sentenced to 151 months’ imprisonment. On May 23, 2014, Dixon was sentenced to 70 months’ imprisonment. On May 9, 2014, Bradley was sentenced to 18 months’ imprisonment. On May 6, 2014, Zachery was sentenced to 124 months’ imprisonment. On Nov. 13, 2014, Melendez was sentenced to 135 months’ imprisonment. On Nov. 17, 2014, Craig was sentenced to 169 months’ imprisonment.

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; Carl Vasilko, Special Agent-in-Charge of the Chicago Office of the Bureau of Alcohol, Tobacco, Firearms, & Explosives; Gary Caruana, Winnebago County Sheriff; Chet Epperson, Chief of the Rockford Police Department; and Hiram Grau, Director of the Illinois State Police.

The government was represented by Assistant U.S. Attorney Joseph C. Pedersen.

CHICAGO ― The U.S. Attorney’s Office for the Northern District of Illinois collected $118.9 million in fiscal year (FY) 2014, Zachary T. Fardon, United States Attorney for the Northern District of Illinois, announced today.  These collections included more than $29.8 million in criminal debts, more than $80.4 million in civil actions, and more than $8.7 million collected through asset forfeiture proceedings, resulting in the office’s total collections exceeding more than four times its budget of approximately $28.1 million in FY 2014.  Over approximately the last 11 fiscal years combined, the office has collected more than $1 billion on behalf of the United States.

Additionally, the Northern District of Illinois worked with other U.S. Attorney’s Offices and components of the Department of Justice to collect an additional $62.79 million, primarily in civil cases pursued jointly with these offices.

Attorney General Eric Holder announced last month that the Justice Department collected $24.7 billion in civil and criminal actions in the fiscal year ending Sept. 30, 2014.  The more than $24 billion in collections in FY 2014 represents nearly eight and a half times the appropriated $2.91 billion budget for the 94 U.S. Attorney’s offices and the main litigating divisions in that same period.

“Every day, the Justice Department’s federal prosecutors and trial attorneys work hard to protect our citizens, to safeguard precious taxpayer resources, and to provide a valuable return on investment to the American people,” said Attorney General Holder.  “Their diligent efforts are enabling us to achieve justice and recoup losses in virtually every sector of the U.S. economy.  And it shows the fruits of the Justice Department’s tireless work in enforcing federal laws; in protecting the American people from violent crimes, national security threats, discrimination, exploitation, and abuse; and in holding financial institutions accountable for their roles in causing the 2008 financial crisis.”

“Collecting more than four times what we cost is nothing short of remarkable considering that we are still recovering from serious financial challenges,” Mr. Fardon said.  “Our attorneys and staff, especially in our Civil Division, Financial Litigation Unit, and Asset Forfeiture Section, continue to expand our commitment to protecting the public and recovering funds for the federal treasury and for victims of federal crime.  We need to be constantly vigilant to ensure that crime does not pay, and in doing so, we have provided a substantial net financial benefit to the citizens of our district,” Mr. Fardon added. 

During FY 2014, the U.S. Attorney’s Financial Litigation Unit in Chicago collected $29,831,085.20 in criminal actions, including more than $2.5 million in criminal fines; more than $6.5 million in restitution owed to the federal government; and more than $10.6 million in non-federal restitution owed to victims, including the victims of numerous financial fraud and Ponzi-type schemes.  More than $9.4 million was restored to crime victims from assets that were forfeited in previous years, including approximately $9.2 million in net liquidated proceeds from the forfeited assets of Rita Crundwell, the former comptroller of Dixon, Ill., who is serving a sentence of nearly 20 years in prison for embezzling $53 million from the town over two decades.  Some of the largest criminal fines and restitution in FY 2014 came from defendants who were prosecuted in a series of cases involving illegal importations of honey from China to avoid antidumping duties.  

In civil actions, the office collected $80,406,164.97, including a $53 million civil penalty on behalf of the Internal Revenue Service from a businessman, H. Ty Warner, who pleaded guilty to failing to report income from a secret foreign bank account.  Other significant civil collections included $15.5 million from a pharmaceutical manufacturer to settle Medicare false billing claims, and $7.2 million from a Chicago construction company to settle claims of fraud on government programs to benefit minority and women-owned businesses on public works contracts.

Civil collections typically stem from affirmative civil enforcement cases, in which the United States recovered government money lost to fraud or other misconduct or collected fines imposed on individuals and/or corporations for violations of federal health, safety, civil rights or environmental laws.  Civil debts were also collected on behalf of federal agencies, such as the U.S. Department of Housing and Urban Development, Health and Human Services, IRS, Small Business Administration, and Department of Education.

The U.S. Attorney’s Offices, along with the Justice Department’s litigating divisions, are responsible for enforcing and collecting civil and criminal debts owed to the United States and criminal debts owed to federal crime victims.  When defendants are convicted and sentenced in criminal cases, judges must impose restitution to victims of certain federal crimes who have suffered a physical injury or financial loss.  The U.S. Attorney’s Offices are authorized to make efforts to collect criminal debts for 20 years after defendants are released from custody.

While restitution is paid by Courts directly to the victim, criminal fines and felony assessments are paid to the Justice Department’s Crime Victims’ Fund, which distributes the funds to state victim compensation and victim assistance programs.  Liquidated assets obtained through criminal and civil forfeiture proceedings are deposited into either the Department of Justice Asset Forfeiture Fund or the Department of Treasury Forfeiture Fund and are used to restore funds to crime victims and for a variety of law enforcement purposes.

CHICAGO — A Canadian man who cooperated with U.S. law enforcement and voluntarily traveled from the Philippines to face federal prosecution was sentenced to seven years in prison for swindling 168 elderly victims nationwide of approximately $8 million in a telemarketing fraud scheme, federal law enforcement officials announced today.

The defendant, AUSTIN ETCHES, 56, “was up to his eyeballs” in the “heinous” crime, U.S. District Judge Thomas Durkin said in imposing the sentence on Friday in Federal Court. Etches, who has remained in federal custody since he voluntarily traveled to the United States in June 2013, was also ordered to pay restitution totaling approximately $8 million.

Etches, who last resided in Toronto before Manila, pleaded guilty to mail fraud in June of this year and cooperated in the investigation, which has resulted in pending charges against two alleged co-schemers, who are believed to be outside the United States.

Citing letters to the judge from widows and retirees who were among the victims, Assistant U.S. Attorney Rachel Cannon argued in a sentencing memo, “Many of the victims were at the most vulnerable point of their lives, between their advanced ages, the death of their spouses, and their or their spouse’s health issues, not to mention their need for income.”

According to court documents, Etches and two co-schemers operated a series of companies through telemarketing call centers located in and around Manila. Between 2008 and 2012, they raised more than $8 million by fraudulently selling phony certificates of deposit and non-existent real estate investments to American senior citizens. They made false statements about the risks of the investments, the expected and actual rates of return, and the ways in which investors’ funds would be used. They provided investors with fraudulent account statements purporting to show that investments had increased in value, knowing that they had misappropriated the funds and the investments were worthless.

One elderly victim attended Etches’ sentencing with her son, who spoke on her behalf. He noted that his mother was an emigrant from Yugoslavia, and his parents had worked their entire lives in factory jobs. They managed to save $161,000, all of which Etches and others stole. The son described how the schemers hounded his mother with repeated phone calls, and they stopped calling her only when her son intervened.

In late 2013, related federal fraud charges were filed in Chicago against JONATHAN PAPA, 42, who is believed to be in the Philippines, and METHSIRI PALLIYAGURU, 56, who was formerly in the Philippines and is now believed to be in Canada. The charges are not evidence of guilt and they are presumed innocent.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Tony Gómez, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago. The FBI’s Los Angeles office and the U.S. Securities and Exchange Commission assisted in the investigation.

ROCKFORD — A former shipping manager for American Extrusion International (“AEI”), of South Beloit, Ill., was sentenced today by U.S. District Judge Frederick J. Kapala for mail fraud. REVA K. VERA, 58, of Beloit, Wis., who pled guilty to the charge on Sept. 11, 2014, was sentenced to 29 months in federal prison, to be followed by 3 years of supervised release. In addition, Judge Kapala ordered Vera to pay $352,803.23 in restitution to AEI.

According to the plea agreement, Vera, as the shipping manager, was responsible for authorizing payments to vendors who provided shipping services to AEI. As stated in the plea agreement, Vera created two fraudulent companies, Total Quality Logistics (“TQL”) and Val Tech, Inc., and from May 4, 2012 to Oct. 9, 2013, defrauded AEI out of at least $352,803.23. During that time period, Vera created fictitious invoices from Val Tech, Inc. and TQL for shipping services that those companies had purportedly performed for AEI when in fact, Val Tech, Inc. and TQL provided no such shipping services for AEI. According to the plea agreement, Vera submitted the fictitious invoices to AEI’s accounts payable department causing checks to be issued by AEI payable to Val Tech, Inc. or TQL in the amount of the invoice. The plea agreement further states that after AEI’s accounts payable department generated the checks for the fictitious invoices submitted by Vera, AEI mailed the checks payable to Val Tech, Inc. to an address of Vera’s relative in Beloit, Wis., and the checks payable to TQL to a post office box in Loves Park, Ill. belonging to Vera. According to the plea agreement, as part of the scheme to defraud AEI, Vera obtained $85,993 in checks from AEI payable to Val Tech, Inc., and $266,810.23 in checks from AEI payable to TQL that she either cashed or deposited into her personal bank account. Vera used the money for her personal benefit.

The sentencing was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The South Beloit Police Department assisted in the investigation.

The government was represented by Assistant U.S. Attorney Joseph C. Pedersen.

CHICAGO — A Chicago travel agent was arrested today on a federal fraud charge for allegedly cheating at least 50 customers of approximately $525,000 by misrepresenting his ability to sell travel packages for the Hajj that included the visa required to enter Saudi Arabia.

The defendant, RASHID MINHAS, 42, of Chicago, was charged with mail fraud in a criminal complaint that was filed yesterday in U.S. District Court and unsealed this morning following his arrest.  He was scheduled to appear at 1:30 p.m. today before U.S. Magistrate Judge Sheila Finnegan in Federal Court.

Minhas was arrested without incident by FBI agents at his residence on the north side of Chicago.  Agents also executed a federal search warrant at his business, Light Star Hajj Group, located at 5801 Northwest Hwy., Chicago.  Minhas previously operated a travel agency in Chicago called City Travel & Tours.

According to the complaint affidavit, between March and November 2014, Minhas falsely represented that Hajj travel packages for September and October of this year included required Saudi Arabia entry visas.  Minhas allegedly knew that Light Star Hajj was not authorized by Saudi Arabia to obtain visas and that he did not intend to obtain the required Hajj visas.  He sold travel deals to at least 50 customers and deposited approximately $525,000 he collected into Light Star’s bank accounts, and then commingled those funds with other deposits and used the money to make partial refunds to customers, to transfer funds to Pakistan, and to pay personal expenses, the complaint alleges.

The affidavit describes the Hajj as an annual Islamic pilgrimage to Mecca, Saudi Arabia.  The Hajj is a mandatory religious duty for Muslims, and must be carried out at least once in a lifetime by all adult Muslims who are physically and financially capable of undertaking the journey.  This year, the Hajj pilgrimage was from Oct. 2-7, and each year, approximately two million pilgrims attend the Hajj.

The complaint states that agents reviewed Light Star’s bank records and determined that approximately $525,000 was deposited this year from the sale of Hajj travel packages.  An additional $586,000 was deposited from other sources, including the sale of Umrah travel packages, cash deposits and transfers.  Agents determined that approximately $745,000 was spent on expenditures that were not related to Hajj travel packages, including $159,000 in checks to cash, $339,000 in transfers to individuals in Pakistan, approximately $49,000 in checks to Minhas’ former wife, and other expenses.

The arrest and charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

Mail fraud carries a maximum sentence of 20 years in prison and a $250,000 fine.  If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The government is being represented by Assistant United States Attorneys Kenneth E. Yeadon and Kathryn Malizia.

A complaint contains only charges and is not evidence of guilt.  The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Complaint

CHICAGO — A northwest suburban man was sentenced today to life in prison for plotting in 2012 to kidnap, torture, extort and murder an innocent victim and then take control of the victim’s real estate holdings.  STEVEN MANDELL, 64, formerly known as “Steven Manning,” of Buffalo Grove, was tried in February of this year and convicted of conspiracy to commit kidnapping, extortion conspiracy, attempted extortion, possessing a firearm during a violent crime, being a felon-in-possession of a firearm, and obstruction of justice.

“This was an extremely serious and disturbing offense,” U.S. District Judge Amy J. St. Eve said in imposing the life term following a hearing in Federal Court.  “Your actions in this case, Mr. Mandell, were evil . . . and showed a complete disregard for human life.”

The judge also imposed a mandatory consecutive five-year sentence for use of a firearm and a $5,000 fine.  Mandell has been in custody since he was arrested in October 2012 and there is no parole in the federal prison system.

“Mr. Mandell was the mastermind of a truly barbaric crime,” Assistant U.S. Attorney Amerjeet Bhachu said in court today.  Mandell “was the principal author of an exceptionally sadistic and depraved plan to kidnap, torture, extort and murder,” Mr. Bhachu and Assistant U.S. Attorney Diane MacArthur argued in a sentencing memo.

Mandell, a Chicago police officer for approximately 10 years until 1983, served more than a decade on Illinois’ death-row for a murder conviction that was later overturned on legal grounds involving the admissibility of evidence at his trial, not because of innocence.   

A co-defendant in the 2012 murder plot, Gary Engel, who was 61 at the time, of Homer Glen and a former police officer in Willow Springs, committed suicide shortly after he was arrested with Mandell.

The evidence at trial showed that Mandell rented a location in the 5300 block of West Devon Avenue, known to him as “Club Med,” not knowing at the time that the FBI had installed a hidden camera and recording equipment after a cooperating witness reported Mandell’s plan.  Mandell and Engel outfitted the rental location to restrain, torture and kill the victim.  They developed a plan to lure him from his residence; stocked “Club Med” with all the tools they needed to carry out the crimes; and obtained all the trappings they needed to pose as police officers in connection with the victim’s abduction.

The sentence was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. 

CHICAGO — A former area motorcycle and recreational vehicle dealer and his accountant were sentenced to 13½ and 2½ years, respectively, in federal prison for a $75.9 million fraudulent financing scheme that resulted in 18 lenders losing more than $58.8 million, federal law enforcement officials announced today.

RUSSELL S. OTT, 51, of Oswego, who pleaded guilty to bank fraud and tax evasion, was sentenced on Dec. 3 to 13½ years in prison, beginning Jan. 20, 2015, and ordered to pay approximately $61.16 million in restitution to the victim financial institutions and the United States Treasury.  Ott was the owner of Emily, Inc., which did business as Pro Source Motorsports and was located last in Morris, Ill.  Between 1995 and October 2008, Pro Source, the dealership at the center of the scheme, sold new and used motorcycles, luxury motor homes, recreational vehicles, all-terrain vehicles, boats and jet skis.  In 2007 and 2008, Ott also had ownership interests in Liberty Cycle in Libertyville, and Huntley Chevrolet in Libertyville.

BRIAN McMAHON, 55, of Naperville, who pleaded guilty to two counts of aiding and assisting the filing of Ott’s false tax returns, was sentenced today to 2½ years in prison, beginning Jan. 21, 2015, and ordered to pay $396,829 restitution to the U.S. Treasury.  McMahon was Ott and Emily, Inc.’s certified public accountant, and he also owned Triumph Suzuki in Naperville between 2001 and 2004 when he sold it to Ott.

The sentences were imposed by U.S. District Judge Edmond E. Chang in Federal Court in Chicago.

Eight other co-defendants who acted as straw buyers in sham vehicle sales were charged with Ott and McMahon in August 2013.  All eight have pleaded guilty and have been sentenced or are awaiting sentencing.

According to court documents, Ott’s bank fraud scheme involved two prongs:  in one, Pro Source Motorsports fraudulently obtained more than $31.3 million in direct financing through five lines of credit from Fifth Third Bank, which lost more than $27.1 million; and, in the second, individual straw borrowers obtained just under 200 fraudulent loans totaling more than $44.58 million, which resulted in 18 financial institutions losing more than $31.66 million.

Ott and the straw buyers fraudulently obtained money for their personal use and benefit, enabling them to maintain lavish lifestyles, operate various businesses, and/or make investments.  The money they obtained created the false appearance of personal wealth and helped induce the lenders to advance funds more readily due to their misplaced confidence that the defendants had sufficient personal wealth to repay the loans.

Ott and McMahon fabricated false personal and business tax documents and financial statements and provided them to Fifth Third Bank, which funded traditional “floor plan loans.”  Ott faxed false flooring requests with fictitious vehicle identification numbers for non-existent recreational vehicles, or real VINs for actual RVs but with dramatically inflated values.  Ott sometimes “double floored” vehicles by obtaining separate financing from Fifth Third and a different lender for the same vehicle. 

Ott enlisted the eight straw borrowers to obtain fraudulent loan proceeds to share with him even though they did not actually purchase the vehicles ― usually very expensive RVs ― for which the loans were made and the vehicles generally did not exist.  The lenders generally deposited the loan funds into Emily, Inc.’s bank account, and then Ott periodically disbursed the proceeds to straw borrowers to operate and support their own businesses and lifestyles, make investments, and make monthly payments on some of the loans to perpetuate the scheme.

Ott used fraudulently obtained funds to operate Pro Source, which lost money from approximately 2001 through 2008; and to make lavish purchases, including a house in Elburn for approximately $679,491 and subsequent improvements that increased the home’s cost to more than $1.1 million; a $258,000 vacation home in Butternut, Wis.; a $350,000 rental home in South Elgin; a Sky Hawk 172 Cessna airplane and hanger for approximately $200,000;  and pick-up trucks and other vehicles for family members and employees of Pro Source.  He also used the money to invest in and purchase other vehicle dealerships, including more than $3.6 million in Huntley Chevrolet, and more than $1 million in Liberty Cycle.

The sentences were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and James C. Lee, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago.

The government is being represented by Assistant U.S. Attorney William Hogan.

CHICAGO — An Aurora man who allegedly led the Chicago area cell of the Guerrero Unidos Mexican drug trafficking cartel is among eight defendants who are facing federal narcotics charges here for their alleged roles in distributing kilogram quantities of heroin, federal law enforcement officials announced today.  The investigation, led by the Chicago DEA, resulted in the seizure of approximately 68 kilograms of heroin, nine kilograms of cocaine, and more than $500,000 in cash since August 2013.

The alleged cell leader, PABLO VEGA CUEVAS, 40, and his brother-in-law, ALEXANDER FIGUEROA, 37, both of Aurora, were arrested yesterday morning in southeast Oklahoma, and three other defendants were arrested in the Chicago area.  Arrest warrants were issued for three additional defendants, including one who is believed to be in Mexico.  Also yesterday, DEA agents and local police seized several automobiles and executed four federal search warrants at residences in Aurora, Chicago, and Rockford, as well as at a business tied to Vega, Salude Bienstar, in Aurora.

According to a 131-page complaint affidavit unsealed yesterday, Vega worked with various narcotics sources in Mexico to import wholesale amounts of heroin and cocaine from Mexico to Illinois, often concealing the narcotics in commercial passenger buses that traveled from Mexico to Chicago.  Vega’s organization stored drugs at warehouses in Aurora and Batavia, distributed drugs to wholesale customers, and collected cash proceeds on behalf of the Guerrero Unidos, the charges allege.

“This operation strikes at a major Mexican drug trafficking organization that is alleged to have routinely distributed large quantities of heroin and cocaine throughout the Midwest,” said Dennis Wichern, Special Agent-in-Charge of the Chicago Field Division of the Drug Enforcement Administration.  “These arrests will have a significant impact on the supply and distribution of heroin and cocaine in the Chicago area,” he said.

Vega and Figueroa appeared yesterday in Federal Court in Oklahoma and were ordered transferred to Chicago in custody.  Arrested in the Chicago area yesterday were: ELISEO BETANCOURT PEREIRA, 50, of Aurora; ROBERTO SANCHEZ, 39, of Chicago; and ISAIAS MANDUJANO, 29, of Rockford.  Those three appeared before U.S. Magistrate Judge Sidney I. Schenkier and remain in federal custody pending detention hearings that were scheduled for Thursday and Friday.

Arrest warrants remain outstanding for: WILFREDO FLORES-SANTOS, 43, of North Aurora; JOSE RODRIGUEZ, 31, of Chicago; and ARTURO MARTINEZ, 33 or 34, who is believed to be in Mexico.

According to the complaint affidavit, on Aug. 21, 2013, law enforcement officers discovered and seized approximately $200,000 in cash during a traffic stop of an individual in Chicago.  A subsequent search of the individual’s residence yielded 12 kilograms of heroin and nine kilograms of cocaine, as well as an additional $231,000, all of which the individual had delivered and picked up on behalf of a courier for Vega’s organization.  On June 7 of this year, approximately 25 kilograms of heroin and 60 grams of cocaine were seized from Rodriguez after Figueroa and Betancourt allegedly distributed the heroin to him.  Three days later, approximately 31 kilograms of heroin were seized from another individual allegedly supplied by Figueroa and Betancourt.

All of the defendants except Mandujano were charged with conspiring between August 2013 and November of this year to possess and distribute a kilogram or more of heroin.  The charge carries a mandatory minimum sentence of 10 years and a maximum of life in prison and a $10 million fine.  Mandujano was charged with possession with intent to distribute 100 grams of more of heroin in April of this year, which carries a mandatory minimum sentence of five years and a maximum of 40 years in prison and $5 million fine.  If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The arrests and charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Mr. Wichern, of the DEA.  Police departments in Aurora, North Aurora, Addison, Arlington Heights, Chicago, Oak Lawn, Oswego, and Prospect Heights assisted in the investigation, as well as the Cook County Sheriff’s Police and the Internal Revenue Service Criminal Investigation Division.  The investigation was conducted under the umbrella of the Organized Crime Drug Enforcement Task Force (OCDETF).

The government is being represented by Assistant United States Attorneys Nicole Kim and Georgia Alexakis.

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

Complaint

CHICAGO — A Chicago company dealing in scrap metal has agreed to plead guilty to federal tax and currency transaction charges alleging that it engaged in cash transactions that resulted in underreporting its corporate income and underpaying its payroll taxes.  The defendant, TRI STATE METAL COMPANY, INC., was charged in a criminal information filed today in U.S. District Court in Chicago.  The case is the first prosecution resulting from an ongoing investigation of cash transactions in the local scrap metal industry being conducted by the Internal Revenue Service Criminal Investigation Division.

Tri State Metal, located at 1745 West Fulton St., in Chicago, was charged with one count of corruptly obstructing and endeavoring to obstruct and impede the IRS, and one count of structuring cash transactions in amounts less than $10,000.  Through its attorneys, Tri State authorized the government to disclose that it will plead guilty to the charges.  The company will be arraigned on a date to be determined in Federal Court.

The charges also include a forfeiture allegation claiming that $1.85 million in cash that was seized from a bank account and $118,420 in cash that was seized from Tri State’s offices, both in October 2012, are subject to criminal forfeiture.

According to the charges, between September 2008 and September 2012, Tri State obtained cash by negotiating checks made payable to fictitious individuals and used that cash to pay vendors and cash wages to employees, as well as to provide cash for the personal benefit of the deceased owner and president of Tri State, who was not named and was identified in the charges as Individual A.  The cash transactions were designed to assist the vendors, employees and Individual A in understating their income on federal tax returns, the charges allege.

As part of the corrupt endeavor, Tri State sold scrap to another scrap metal dealer, identified as Business A and, in return, allegedly received approximately 769 checks from Business A, all made payable to fictitious individuals in amounts less than $10,000.  Tri State allegedly failed to record these sales or the receipt of funds from Business A and failed to report the income on its corporate tax returns.

Individual A allegedly directed Tri State employees to issue checks payable to fictitious persons to obtain cash to pay vendors and employee wages.  Tri State paid certain vendors with both cash and checks, with vendors indicating how much they wanted to be paid in cash, and Tri State employees allegedly manipulated documents to conceal the cash payments.  During the four-year period, Tri State paid approximately 15 scrap metal vendors more than $6.17 million in cash, the charges allege.

The company also paid employees a portion of their wages with both cash and checks.  Tri State issued tax forms to its employees and filed quarterly returns with the IRS that allegedly falsely underreported the amount of wages paid by failing to include the amount of cash.  In total, Tri State allegedly paid its employees cash wages totaling more than $1.47 million and failed to collect and pay the IRS federal income tax withholdings, FICA taxes, and Medicare withholdings on the cash wages.

The charges further allege that Tri State cashed more than $6.41 million in checks drawn on its bank account and payable to fictitious payees at an unnamed currency exchange in Chicago.  Tri State also allegedly cashed at the currency exchange more than $2.92 million in checks issued by Business A to Tri State in the name of fictitious payees.

Tri State allegedly filed false federal corporate income tax returns for 2009, 2010, and 2011, that understated its gross receipts or sales by more than $2.92 million.  In addition, Tri State failed to report or otherwise account for approximately $840,720 in cash expenditures for the benefit of deceased Individual A, the charges allege.

The tax offense carries a maximum penalty of five years’ probation and a $500,000 fine, and the structuring offense carries a maximum penalty of five years’ probation and a $1 million fine, and each count carries an alternate maximum fine totaling twice the loss or twice the gain, whichever is greater.  If convicted, the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The charges were announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and James C. Lee, Special Agent-in-Charge of the IRS Criminal Investigation Division in Chicago.  The government is being represented by Assistant U.S. Attorney Patrick King.

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

Information

CHICAGO — A former officer and a former director of a bank in Will County have pleaded guilty to federal charges for fraudulently creating false reports that made it appear that the bank’s loan portfolio was in better shape than it actually was.  The defendants together concealed delinquent loan payments on behalf of two customers whose multiple loans totaled approximately $2.8 million, and together caused the bank to lose more than $1.1 million, according to their guilty pleas that were announced today by federal law enforcement officials.

One defendant, MARTIN E. SCHMIDT, JR., was senior vice president for lending and a member of the board of directors of First Community Bank and Trust, which operates in Beecher and Peotone in Will County. Co-defendant, DONNA M. BARBER, was vice president for mortgage lending.  First Community Bank and Trust cooperated with the federal investigation.

Schmidt, 57, of Beecher, pleaded guilty on Nov. 13 to making false bank reports and is free on his own recognizance pending sentencing on Feb. 26, 2015.  Barber, 53, of Beecher, pleaded guilty to the same charge last Thursday and is free on her own recognizance pending sentencing on March 17, 2015.  Both will be sentenced by U.S. District Judge Charles Kocoras in Federal Court in Chicago.  They were charged together in a criminal information that was filed in late October.

Making false bank reports carries a maximum penalty of 30 years in prison and a $1 million fine.  Schmidt’s plea agreement anticipates an advisory United States Sentencing Guidelines range of 41 to 51 months in prison.  Barber’s plea agreement anticipates an advisory guidelines range of 33 to 41 months in prison, with the government recommending a sentencing of approximately 22 months provided she continues to fully cooperate. 

In addition, Schmidt and Barber each face a 10-year prohibition on directly or indirectly participating in the affairs of any federally insured credit union or financial institution.

In pleading guilty, Schmidt and Barber admitted that they caused and made false entries in the bank’s past due accounts report for September 2009 by intentionally omitting to disclose as past due nine of Customer K’s loans and advances in the total principal amount of approximately $367,000, and 39 of Customer M’s loans in the total principal amount of approximately $2.5 million.

According to court documents, Schmidt was the point of contact for Customer K, and Barber was the point of contact for Customer M, and their compensation was based, in part, on the performance of the loans for which they were each responsible.  By September 2008, Schmidt and Barber each knew that Customers K and M were unable to make payments to the bank on their various loans.  They agreed that they needed to take action to prevent the delinquent accounts from appearing on the bank’s reports and began concealing their past due nature.  The false entries extended from September 2008 until October 2009.

Barber, with Schmidt’s knowledge and approval, and Schmidt made and caused false entries in loan records allowing Customer M to skip payments without paying the interest due and extending notes without interest payments being current.  Some false entries were made on a retroactive basis so the actual condition of the loans would not appear on the bank’s current monthly records.

Schmidt alone caused an unauthorized, undocumented advance of approximately $105,562 to be disbursed to Customer K to make payments on other delinquent loans.  He also approved approximately $269,038 in loans to Customer K at a time when he knew that Customer K was unable to repay these loans.  Schmidt also caused Barber to make entries in Customer K’s account records that allowed Schmidt to make unauthorized disbursements to Customer K. 

Schmidt deceived the bank’s board of directors by leading them to believe that he and Barber were properly managing the bank’s loans, when they were actually fraudulently creating reports that made it appear that the loan portfolio was in better shape than it was.

Schmidt caused the bank to lose more than $1.18 million resulting from both customers’ delinquent loans, which would not have been extended and would have been called in default at an earlier time, as well as by issuing an authorized $80,000 letter of credit and improperly guaranteeing $22,500 in insufficient funds checks for Customer K.  Schmidt and Barber were responsible for causing the bank to lose approximately $708,274 relating to Customer M’s loans, while Schmidt alone was responsible for the bank’s loss of approximately $475,100 resulting from Customer K’s loans.

The government is being represented by Assistant U.S. Attorney Brian Netols.

The guilty pleas were announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

Schmidt Plea Agreement

Barber Plea Agreement

CHICAGO — A former futures trader at an unnamed trading firm in Chicago was indicted on federal charges for allegedly stealing trade secrets from the firm, including computer code for electronic trading and strategies and other intellectual property.  The defendant, DAVID JACOB NEWMAN, was charged with three counts of theft of trade secrets in an indictment returned by a federal grand jury yesterday and made public today.

Newman, 32, of Chicago, began working at the trading firm as a clerk in 2004 and later as a trader until he left in March of this year, less than a week after he collected his 2013 bonus.  Newman will be ordered to appear for arraignment on a date to be determined in U.S. District Court in Chicago.

According to the indictment, the trading firm’s trade secrets included custom-made software for pricing financial products, communicating and executing trades on public exchanges, and analyzing trading risk.  They also included trading algorithms, trading profit and loss analysis, and the firm’s options modeling system.  Most of the computer code the firm used for trading was custom-made by its employees or consultants, and the firm invested considerable time and money in developing its computer code and intellectual property.  In 2011, Newman signed a document acknowledging that he understood the firm’s policies regarding protection of its trade secrets and proprietary information, and at no time was he authorized to copy or possess the firm’s trade secrets.

On Oct. 31, 2013, Newman allegedly accessed and copied computer files from a firm directory, containing trading algorithms, strategies, and analysis, onto a personal thumb drive.  On Nov. 5, 2013, Newman accessed and copied additional files containing such information from four firm directories used by four specific traders onto a personal thumb drive, the indictment alleges.  A week later, Newman established NTF LLC and was the sole owner and only member of the limited liability company.

On Feb. 24 of this year, Newman allegedly accessed and copied more than 400,000 computer files from the trading firm’s source code repositories onto a personal thumb drive.  Three days later, Newman signed an agreement with the CME Group to allow NTF LLC to establish its own interface with CME online trading platforms.

A day after Newman resigned from the trading firm in March, he established an account enabling NTF LLC to trade speculatively in the futures markets, the indictment states.

Each count of theft of trade secrets carries a maximum penalty of 10 years in prison and a $250,000 million fine.  If convicted, restitution is mandatory and the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorney Clifford C. Histed, deputy chief of the Securities and Commodities Fraud Section of the U.S. Attorney’s Office.

The public is reminded that an indictment contains only charges and is not evidence of guilt.  The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Indictment

CHICAGO — Former Illinois State Rep. KEITH FARNHAM pleaded guilty today to a federal charge of transporting child pornography via computers in his office and residence in Elgin last year.  Farnham resigned his seat in the Illinois General Assembly in March of this year, less than a week after federal agents seized computers from his home and office.

Farnham, 67, of Elgin, remains on restrictive conditions of bond, including home incarceration with electronic monitoring, while awaiting sentencing, which U.S. District Judge Edmond E. Chang scheduled for March 19, 2015, in Federal Court.

Farnham, who must register as a convicted sex offender, faces a mandatory minimum sentence of five years and a maximum of 20 years in prison and a maximum fine of $250,000.  His plea agreement states that the government anticipates a United States Sentencing Guidelines range of at least 151 to 188 months in prison.  Federal inmates must serve at least 85 percent of their sentence and there is no parole in the federal prison system. 

In pleading guilty, Farnham admitted that on Nov. 25, 2013, he sent an email from a computer in his Elgin office with the following message: “do you trade.  This is what I lik.”  Farnham attached two files to the email that he knew contained child pornography.  In addition, he possessed images and videos depicting child pornography on computers and electronic storage devices in his residence, car and offices.

On March 13 of this year, agents with U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) executed federal search warrants at Farnham’s state office and residence in Elgin and seized computers and electronic storage devices.  On that day, Farnham possessed no fewer than 2,765 images of real minors engaged in sexually explicit acts, including sexual intercourse, with prepubescent children.  Some of the images involved sadistic or masochistic conduct and depictions of violence, according to Farnham’s guilty plea.

According to the court documents, HSI agents were investigating information received from the HSI Cyber Crimes Center that an email address, later linked to Farnham, was being used to trade child pornography on the Internet.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Gary Hartwig, Special Agent-in-Charge of HSI in Chicago.

The government is being represented by Assistant U.S. Attorneys Timothy Storino and Michelle Petersen.

Plea Agreement

CHICAGO — Two principals of a defunct suburban company that purported to have billions of dollars to finance small businesses were indicted on federal fraud charges for allegedly swindling about $2 million in advance fees from approximately 125 business owners nationwide.  With no such assets and no history of funding small businesses, the defendants instead allegedly used the money they collected for personal purposes, including more than $1.1 million in so-called “loans” to themselves and others.

One defendant, ALBERTO B. COLÓN, was the chairman of the board and chief executive officer, while the other defendant, ARTEMIO RIVERA, was the treasurer and chief corporate counsel of the Commercial or Residential Development Group, Inc., also known as COR, which had a mailing address in Hoffman Estates.

Colón, 46, of West Dundee and formerly of Elgin, and Rivera, 56, of Falls Church, Va., who is a licensed attorney in Maryland, were each indicted on four counts of wire fraud and one count of mail fraud in a five-count indictment returned yesterday by a federal grand jury in Chicago.  The indictment also seeks forfeiture of approximately $2 million from both defendants, who will be ordered to appear for arraignment on a date to be determined in U.S. District Court in Chicago.

According to the indictment, Colón and Rivera defrauded business owners between September 2008 and December 2011 by making false representations that COR had billions of dollars in assets and would provide business owners with billions of dollars in funding; provide the funding within a specific time period; use the advance fees they collected for specific purposes related to the business owners’ requests; and refund the fees if COR failed to provide funding.  Both defendants knew that COR had no such assets and no history of funding businesses, the indictment alleges.

The defendants allegedly solicited business owners themselves and also used individuals they sometimes referred to as “rangers” to solicit business owners to apply for funding.  They fraudulently represented that COR had approved requests for funding in amounts ranging from $100 million to $1.2 billion, knowing that they had not secured funding for those projects, the charges allege.

Colón and Rivera also allegedly promised business applicants who signed so-called “Project Partner Agreements” and paid an advance fee of $20,000 that COR would apply the advance fee toward the creation of a new corporation, trust, and foundation to accept funding from COR.  Further, the charges allege that they falsely promised COR would contribute an additional $80,000 to the funding entities in exchange for signing project agreements.

As part of the scheme, Colón and Rivera allegedly made false statements in proceedings before the Illinois Department of Securities.

Each count of wire and mail fraud carries a maximum penalty of 20 years in prison and a $250,000 million fine, or, alternatively, a fine totaling twice the loss or twice the gain, whichever is greater.  If convicted, restitution is mandatory and the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.  The Illinois Department of Securities cooperated with the investigation. 

The government is being represented by Assistant U.S. Attorney Cristopher McFadden.

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

Indictment

CHICAGO — A former chief of staff for an unnamed Chicago alderman pleaded guilty today to accepting a $7,500 cash bribe in exchange for obtaining the alderman’s letters of support for a license to sell alcohol in the alderman’s ward.  The defendant, CURTIS V. THOMPSON, JR., accepted the bribe from an individual who claimed he wanted to open a convenience store but was actually a cooperating witness in an FBI undercover investigation.

Thompson, 63, of Chicago, pleaded guilty to federal program bribery.  According to court documents, Thompson accepted 75 $100 bills in a Christmas card that the cooperating witness gave him at the alderman’s holiday party on Dec. 19, 2013.  Thompson admitted today that he used the money he received to pay personal expenses.

Thompson faces a maximum sentence of 10 years in prison and a $250,000 fine.  A written plea agreement states that the government anticipates a United States Sentencing Guidelines range of 12 to 18 months in prison.  Thompson was arrested in February of this year and is free on bond while awaiting sentencing, which U.S. District Judge Samuel Der-Yeghiayan scheduled for March 17, 2015, in Federal Court.

Thompson’s plea agreement and court documents describe a series of telephone conversations and in-person meetings between the cooperating witness and other individuals, including a meeting with Thompson on Oct. 7, 2013, in the alderman’s ward office.  During the meeting, the cooperating witness showed Thompson a note, which stated, “$7,500 to Ald for L.O.S.”  Thompson understood the note to mean payment of $7,500 in exchange for a letter of support from the alderman for a liquor license for a store to be opened in the ward.  After seeing the note, Thompson nodded his head and said “Okay.  I understand.”

At a meeting with Thompson, the alderman, and another individual in the ward office on Oct. 29, 2013, the cooperating witness handed the alderman a note, which stated, “$12k to you for letter of support[.]”  Thompson admitted that he was passed that note and that he understood that the cooperating witness was offering to pay money for a letter of support from the alderman for a liquor license.  A third meeting was held on Nov. 19, 2013, at which the cooperating witness explained he was going through the process of becoming a convenience store franchisee.

Over the next few weeks, Thompson prepared two letters of support on the alderman’s letterhead and signed the alderman’s name, after seeking and obtaining the alderman’s approval to write the letters.  Thompson knew that the cooperating witness had picked up the letters of support from the alderman’s ward office and understood they would be used to obtain a liquor license for the proposed store.  The bribe payment was exchanged a short time later.

The guilty plea was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorneys Megan Church and Bethany Biesenthal.

Plea Agreement

CHICAGO — A former west suburban home builder was sentenced to 2½ years in federal prison for failing to pay more than $1.27 million in federal income taxes and concealing certain business interests in his personal bankruptcy case.  The defendant, DENNIS WEISS, was sentenced after pleading guilty last year to one count each of filing a false federal income tax return and making false statements in a bankruptcy petition.

Weiss, 64, of South Elgin and formerly of St. Charles, owned Custom Homes by D. R. Weiss, Inc., and Reliable Home Solutions, Inc., both formerly located in St. Charles.  He was sentenced to 30 months in prison and was ordered to begin serving his sentence in January.  He was also ordered to pay $296,643 in restitution to the Internal Revenue Service by U.S. District Judge John Z. Lee, who imposed the sentence yesterday in Federal Court.

According to court documents, Weiss filed false individual federal income tax returns for 2005 through 2009, and he failed to file corporate tax returns for both of his companies.  Although he filed corporate tax returns on behalf of Custom for 1999 through 2004, he filed none starting in 2005.  Reliable was formed in 2006 and dissolved in 2008, and Weiss never filed a corporate return on its behalf and concealed the company’s existence from his tax preparer.

Between 2005 and 2009, Weiss paid personal expenses from Custom’s business bank account, accepted cash payments from Custom and Reliable customers, and failed to record the receipt of these funds on the books and records of the corporations, resulting in a total federal tax loss of $1,271,280.

On March 10, 2009, Weiss filed a personal bankruptcy petition and intentionally concealed the existence of Melrose Currency Exchange, Inc., which he had owned for several years.  In fact, Weiss had reported income from the currency exchange on his individual tax returns for 2005-2009.  Court documents also state that Weiss also falsely declared that he had no interest in any partnerships or joint ventures when, in fact, he held interests in three family held entities: Royal Fox Country Club LP, Royal Fox Country Club LP II, and Weiss Private Equity LP.  His false bankruptcy petition resulted in the discharge of his debts to approximately 43 trade creditors. (In re Dennis R. Weiss, 09 B 08028.)

The sentence was announced today by Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and James C. Lee, Special Agent-in-Charge of the IRS Criminal Investigation Division in Chicago.  The government was represented by Assistant U.S. Attorney Patrick King.

In addition to criminal penalties, defendants convicted of tax offenses remain responsible for any taxes and interest due, as well as civil penalties of up to 75 percent of the tax owed.