Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that New York State Assemblywoman GABRIELA ROSA was charged with, and pled guilty to, two federal felony charges arising out of her efforts to obtain United States citizenship through fraud and fraudulently to conceal assets and income from a federal bankruptcy court. ROSA pled guilty in Manhattan federal court before United States District Judge Denise L. Cote to a two-count information (the “Information”) charging her with one count of making false statements to immigration authorities, and one count of making false declarations to a federal bankruptcy court. ROSA pled guilty pursuant to a plea agreement with the United States Attorney’s Office that requires her, among other things, to resign from office upon entry of her plea.

Manhattan U.S. Attorney Preet Bharara said: “Gabriela Rosa’s crimes cut to the heart of her legal qualification to serve the people of the State of New York as a New York State Assemblywoman. She gained the ability to run for that office only as a result of a years-long immigration fraud, and then she compounded her lack of fitness to serve by defrauding a federal bankruptcy court. Now she faces losing her position and prison time for her actions.”

According to the superseding information, the plea agreement, and statements made today in Court:

The Marriage and Naturalization Fraud Scheme

The New York State Constitution states that only United States citizens may serve as members of the New York State Legislature. In November 2012, ROSA was elected to the New York State Legislature as an Assemblywoman for Assembly District 72 in Manhattan, and is currently serving a two-year term in the Assembly.

ROSA is a citizen of the Dominican Republic and had no citizenship status in the United States until 2005. In December 2005, ROSA was naturalized as a United States citizen as a result of a scheme to obtain legal residency and ultimately citizenship through a sham marriage. ROSA paid a United States citizen (“Spouse-1”) approximately $8,000 to enter into a sham marriage with her while she maintained a relationship with another individual who later became her husband (“Spouse-2”). In numerous submissions and statements to immigration authorities made under penalty of perjury between in or about 1996 and in or about 2005, ROSA falsely represented to immigration authorities that she had entered into a bona fide marriage with Spouse-1, and that she had never given false or misleading information to a U.S. immigration official while applying for immigration benefits.

The Bankruptcy Fraud Scheme

In September 2009, ROSA filed a voluntary petition for bankruptcy, under Chapter 7 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the Southern District of New York (the “Petition”). Through the Petition, ROSA sought to liquidate over $30,000 in debt that she had accumulated on, among other things, credit card charges and personal loans. In the Petition, which ROSA signed under penalty of perjury, and in subsequent documents submitted in support of the Petition, which were also signed under penalty of perjury, ROSA knowingly and willfully made several false declarations and statements. Among other things, ROSA fraudulently omitted her ownership of a cooperative apartment in Manhattan (the “Apartment”) from the Petition, which required her to list all real or personal property in which she had any ownership interest. ROSA, who worked at the time as a legislative assistant in the New York State Legislature, also failed to list outside income she earned as a political consultant and income earned by Spouse-2 in the Petition and supporting documents.

In her plea allocution today before Judge Cote, ROSA admitted that she had entered into a sham marriage in an effort to obtain citizenship and had submitted a fraudulent petition to Bankruptcy Court. ROSA also agreed, pursuant to the terms of her plea agreement, to the return of a campaign contribution unlawfully received from a representative of a foreign government.

ROSA, 47, of Manhattan, faces a total statutory maximum sentence of 10 years in prison. ROSA also faces a term of up to three years’ supervised release and a fine of up to $250,000. She also must pay restitution and forfeiture arising out of her bankruptcy fraud offenses. The maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Judge Cote set a sentencing date for ROSA of October 3, 2014 at 10am.

Mr. Bharara praised the outstanding investigative work of the Criminal Investigators of the United States Attorney’s Office for the Southern District of New York.

The case is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Howard S. Master and Jason Masimore are in charge of the investigation.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that YESID RIOS SUAREZ was sentenced today in Manhattan federal court to 54 years in prison for his role in overseeing the manufacture of tens of thousands of kilograms of cocaine in clandestine laboratories in Colombia, and the distribution and importation of tons of cocaine to the United States and other countries. RIOS SUAREZ, a citizen of Colombia, pled guilty in February 2014. He was sentenced today by U.S. District Judge Katherine B. Forrest.

Manhattan U.S. Attorney Preet Bharara said: “Yesid Rios Suarez was a leader of a conspiracy to bring into the United States tons of Colombian cocaine. He used violence to further his aims, including ordering murders, and will now pay for his crimes with a lengthy prison term.”

According to documents filed in this case, statements made at related court proceedings, and witness testimony at a two-day evidentiary hearing in May 2014:

Between 1992 and his arrest in Venezuela in 2011, RIOS SUAREZ, along with his co-conspirators, oversaw the manufacture of thousands of kilograms of cocaine in clandestine laboratories that they operated in the Arauca department of Colombia and other areas of Colombia near the Venezuelan border. During that time, RIOS SUAREZ and his co-conspirators also oversaw the distribution of thousands of kilograms of cocaine from Colombia and Venezuela to the United States and other countries through various intermediate shipping points. Specifically, once the cocaine had been manufactured in laboratories in Colombia, RIOS SUAREZ worked with others to launch planes carrying multi-hundred-kilogram loads of cocaine from clandestine landing strips operated by RIOS SUAREZ and his co-conspirators in Colombia and Venezuela.

Throughout this time, RIOS SUAREZ also directed others to carry weapons and to use violence in furtherance of the charged narcotics conspiracy. On one occasion, RIOS SUAREZ caused those working at his direction to murder two men in order to maintain the secrecy of RIOS SUAREZ’s narcotics trafficking operation. During the course of the narcotics conspiracy, RIOS SUAREZ also oversaw the planning and preparation for an attack on an oil pipeline located in Colombia, which attack was intended to divert the Colombian military’s attention from RIOS SUAREZ’s narcotics trafficking activities being carried out in the same region. The planned attack – which was ultimately foiled by Colombian authorities – involved dropping explosives from an airplane onto an oil pipeline.

All told, prior to his arrest in 2011, RIOS SUAREZ worked for nearly two decades overseeing critical steps in the manufacture, distribution, and importation into the United States and other countries of thousands of kilograms of cocaine, and causing others to engage in violence in furtherance of his narcotics trafficking operation.

In addition to the prison term, Judge Forrest ordered RIOS SUAREZ, 46, to pay a $1 million fine and a $100 special assessment.

Mr. Bharara praised the outstanding efforts of the DEA’s Bogota Country Office and the DEA’s New York Organized Crime Drug Enforcement Strike Force; the Government of the Republic of Colombia; and the U.S. Department of Justice’s Office of International Affairs.

The prosecution of this case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant United States Attorneys Adam Fee and Sean S. Buckley are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that SATNARINE SEEBACHAN, formerly a program director at Bronx Shepherds Restoration Corporation (“Bronx Shepherds”), a not-for-profit corporation in the Bronx, New York, was sentenced to six months of weekend imprisonment to be served during a five year term of probation after having been found guilty by a jury of soliciting and accepting a bribe in the form of labor and materials for the renovation of his residence from a contractor who received federally funded contracts from Bronx Shepherds. SEEBACHAN was sentenced in Manhattan federal court by U.S. District Judge George B. Daniels, who also presided over the five-day jury trial.

According to the evidence introduced at trial, other proceedings in this case, and documents previously filed in Manhattan federal court:

SEEBACHAN was employed as a program director by Bronx Shepherds, a not-for-profit corporation that provides housing restoration to low-income individuals in the Bronx, New York. As program director, SEEBACHAN was responsible for administering two federally funded home improvement programs, namely, the Weatherization Assistance Program (“Weatherization Program”) and the Home Program (“Home Program”) (collectively, the “Programs”).

The Weatherization Program is a federal program funded by the U.S. Department of Energy and the U.S. Department of Health and Human Services. The Weatherization Program provides weatherization assistance, such as improved lighting and heating systems, window caulking, and wall and ceiling insulation, to buildings with low-income residents in order to make the buildings more energy efficient. The Home Program is a federal program funded by the U.S. Department of Housing and Urban Development. The Home Program provides renovation assistance to low-income individuals who reside in small family homes, such as repairs to ceilings, bathrooms, kitchens, windows, and sidewalks. As a program director for Bronx Shepherds, SEEBACHAN was in charge of the bidding process to select the construction companies to perform the necessary work on the buildings, apartments, and houses that Bronx Shepherds had selected to participate in the Programs.

Toward the end of 2005, SEEBACHAN purchased a residence in Glen Cove, New York. In 2006, 2007, and again in 2010, at the direction of SEEBACHAN, a construction company that bid for and received contracts from Bronx Shepherds to perform renovation work under the Programs (the “Contractor”) supplied materials and labor for construction and renovation work performed at SEEBACHAN’s residence. Specifically, the Contractor paid for marble that was installed in SEEBACHAN’s residence and did extensive concrete beautification renovations to the driveway, front walkway, and back patio and pool area.

At the time the Contractor paid for the marble and performed the concrete work at SEEBACHAN’s residence, SEEBACHAN promised the Contractor that he would ensure that the Contractor received lucrative contracts to perform repairs on apartment buildings Bronx Shepherds owned and managed. The total dollar value of the labor and materials that SEEBACHAN obtained from the Contractor was more than $140,000. SEEBACHAN was found guilty of one count of bribery concerning an organization that receives federal program funds.

In addition to weekend imprisonment and probation, Judge Daniels also ordered SEEBACHAN, 52, of Glen Cove, New York, to perform 500 hours of community service, and pay a $10,000 fine and a $100 special assessment.

Mr. Bharara praised the investigative work of the New York State Inspector General’s Office.

This case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Carrie H. Cohen is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEPHANIE BROWN pled guilty today to engaging in fraud in connection with federal financial aid to attend an online state college. BROWN pled guilty in Manhattan federal court before U.S. Magistrate Judge James C. Francis IV and is scheduled to be sentenced on October 8, 2014, at 10:00 a.m.

According to Information, documents filed in the case, and statements made today in court:

In 2011, BROWN forged documents, made false statements, and submitted false and fraudulent documents to the United States Department of Education (“Department of Education”) in order to obtain federal financial aid for prospective students of a State of New York online college. As a result of BROWN’s fraud, the Department of Education provided federal financial aid to individuals who otherwise would not have qualified for such aid. As part of her plea agreement with the Government, BROWN agreed to make restitution in the amount of $117,840.

BROWN, 53, of Bronx, New York, is charged with one count of federal financial aid fraud. She faces a maximum of one year in prison; one year of supervised release; and a $25 special assessment. The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge. In addition to the prison sentence, BROWN has agreed to restitution in the amount of $117,840.

Mr. Bharara praised the investigative work of the Department of Education’s Office of the Inspector General.

This case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorney Carrie H. Cohen is in charge of the prosecution.

U.S. v. Stephanie Brown Information

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), today announced conspiracy and securities fraud charges against BENJAMIN DURANT and DARYL PAYTON, two former stock brokers at a securities trading firm (“Securities Trading Firm-1”), for their alleged involvement in an insider trading scheme. Specifically, DURANT, PAYTON, and their co-conspirators allegedly traded on the basis of material, non-public information (“Inside Information”) concerning IBM’s acquisition of a software company, SPSS, Inc., in 2009, earning hundreds of thousands of dollars in profits. DURANT and PAYTON were arrested this morning at their homes in Manhattan, New York, and will be presented in Manhattan federal court before U.S. Magistrate Judge Michael H. Dolinger this afternoon.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Benjamin Durant and Daryl Payton not only acquired inside information about a corporate acquisition and made illegal profits from it, but they colluded with others to conceal their crime, even holding a secret meeting at a hotel the night the acquisition was announced to devise their cover-up plan. This kind of dishonesty is profitable only in the short run, ultimately leading to arrest and prosecution.”

FBI Assistant Director-in-Charge George Venizelos said: “The defendants bought SPSS stock and options before a leaked acquisition by IBM, violating the law and breaching their duty, as alleged. When Durant and Payton were asked about their trades in an internal investigation, they doubled down and lied. Today they find themselves under arrest. The integrity and fairness of our financial markets are paramount. It’s a matter of national security. We will police this type of illegal behavior and make as many arrests as necessary until people stop cheating and ripping off others to get ahead.”

In a separate action, the U.S. Securities and Exchange Commission (“SEC”) announced civil charges against DURANT and PAYTON.

The following allegations are based on the Indictment unsealed today in Manhattan federal court:

The Inside Information concerning IBM’s acquisition of SPSS originated from a corporate lawyer who was part of the legal team that represented IBM in the transaction (“Attorney-1”) in 2009. On May 31, 2009, Attorney-1 shared Inside Information concerning the transaction, including the names of the parties and the fact that IBM was going to acquire SPSS for a significant premium over its market price, with his close friend, Trent Martin, a former research analyst at an international financial services firm. The information was shared in confidence and, based on their longstanding history of sharing confidences, Attorney-1 expected that Martin would not share the information or use it to trade.

However, in June and July 2009, Martin bought SPSS common stock and call option contracts based on the Inside Information he was given by Attorney-1 and, in turn, shared the tip with his roommate, Thomas Conradt, who worked as a stock broker at Securities Trading

Firm-1. In July 2009, Conradt passed along the tip to DURANT and PAYTON, his co-workers at Securities Trading Firm-1, who then bought SPSS call options based on the Inside Information. When IBM announced its acquisition of SPSS on July 28, 2009, the share price of SPSS common stock rose by 41% in one day. Thereafter, DURANT, PAYTON, Martin, Conradt and David Weishaus, whom Conradt also tipped, sold their SPSS positions, yielding total profits worth hundreds of thousands of dollars.

After IBM announced its acquisition of SPSS, DURANT and PAYTON took steps to conceal their illegal insider trading activity. On the evening the IBM/SPSS transaction was announced, DURANT and PAYTON met Conradt, Weishaus, and another co-conspirator at a hotel in Manhattan. At that meeting, DURANT, PAYTON, and the others discussed their trading in SPSS securities and how much money they made. When they were all together, DURANT suggested that if anyone asked why they had traded in SPSS securities, they should simply say that they liked technology stocks. Thereafter, prior to the sale of his call options, PAYTON transferred his options from securities accounts at Securities Trading Firm-1 to two securities accounts that he opened at a different brokerage firm. In doing so, PAYTON falsely informed the new brokerage firm during a recorded telephone call that he was a “self-employed real estate consultant,” rather than a stock broker at Securities Trading Firm-1. In that call, a representative from the new brokerage firm specifically informed PAYTON that if he worked at a broker/dealer, duplicate account statements might have to be sent to his employer. Nevertheless, PAYTON did not inform the new brokerage firm that he worked at Securities Trading Firm-1. Later, in November 2009, when Securities Trading Firm-1 conducted an investigation into the trading activity of DURANT and PAYTON in SPSS, both of them offered cover stories for their SPPS trading and neither indicated that he had heard about SPSS from, or spoken about the company with, Conradt, Weishaus, or another co-conspirator.

DURANT, 37, of New York, New York, has been charged with one count of conspiracy to commit securities fraud and two counts of securities fraud (Count Two and Three). PAYTON, 38, also of New York, New York, has been charged with one count of conspiracy to commit securities fraud and three counts of securities fraud (Count Four through Six). Count One, the conspiracy charge, carries a maximum potential penalty of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. Counts Two through Six each carry a maximum potential penalty of 20 years in prison and a maximum fine of $5 million. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.

Martin, Conradt, and Weishaus have previously pled guilty.

Mr. Bharara praised the investigative work of the FBI. He also thanked SEC for its assistance in the case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Telemachus P. Kasulis and John T. Zach are in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

U.S. v. Benjamin Durant and Daryl Payton Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that BORIS LISYANSKY was sentenced today to 20 years in prison for his role in hiring a hitman to kill two Queens businessmen, which resulted in a non-fatal shooting in May 2010. LISYANSKY was convicted of one count of murder for hire and one count of conspiracy to commit murder for hire on April 29, 2013, after a six-day trial before Judge George B. Daniels in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara stated: “Boris Lisyansky ordered the cold-blooded murder of two innocent men. Thankfully, his intended victims survived the attempt. Today’s sentence makes clear that even when you send others to do your dirty work, you will be found and held accountable for your crimes.”

According to the Indictment filed in Manhattan federal court and the evidence at trial and sentencing:

In May 2010, LISYANSKY hired an associate, Jesus Rosa, to kill the father and son owners of a catering hall (the “Catering Hall”) in Queens. Torrance Crayton, a/k/a “King Blood,” another associate of LISYANSKY’s, provided Rosa with a gun to use in the murders. LISYANSKY arranged a meeting with the intended victims at their Catering Hall under the ruse that LISYANSKY was considering booking the Catering Hall for his wedding. LISYANSKY met with the victims in the Catering Hall on a weekday during normal business hours. Acting at LISYANSKY’s direction, Rosa entered the Catering Hall during that meeting and brandished his firearm. LISYANSKY, pretending to be a victim, covertly signaled to Rosa the two intended victims of the murder. Rosa pointed the gun at the head of one of the two victims, but decided he could not go through with the murder and instead shot the victim in the leg, and fled the Catering Hall. Rosa jumped into a waiting getaway car driven by Jayson Vasquez-Soto. Vasquez-Soto and Rosa drove back to LISYANSKY’s apartment where they proceeded, at the direction of LISYANSKY, to destroy evidence from the murder plot, including wiping the car down to destroy fingerprint evidence. The police arrived at the Catering Hall soon after the shooting and LISYANSKY, still posing as a victim of the hold-up, gave false details about the shooter to the police.

In addition to the prison term, Judge Daniels sentenced LISYANSKY, 39, of Queens, New York, to three years of supervised release and ordered him to pay a special assessment of $200.

Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation and the New York City Police Department in connection with this investigation.

A number of co-conspirators and accomplices were also prosecuted in connection with this case. Jesus Rosa pleaded guilty to murder for hire, conspiracy to commit murder for hire, and other offenses, and is awaiting sentencing. Torrance Crayton, a/k/a “King Blood,” pleaded guilty to firearms possession and was sentenced by United States District Judge Richard Sullivan to 5 years in prison. Jayson Vazquez-Soto was convicted at trial of obstruction of justice and sentenced by United States District Judge George B. Daniels to 24 months in prison.

The prosecution is being handled by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Alexander Wilson and Harris Fischman are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that BORIS LISYANKSY was sentenced today to 20 years in prison for his role in hiring a hitman to kill two Queens businessmen, which resulted in a non-fatal shooting in May 2010. LISYANKSY was convicted of one count of murder for hire and one count of conspiracy to commit murder for hire on April 29, 2013, after a six-day trial before Judge George B. Daniels in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara stated: “Boris Lisyansky ordered the cold-blooded murder of two innocent men. Thankfully, his intended victims survived the attempt. Today’s sentence makes clear that even when you send others to do your dirty work, you will be found and held accountable for your crimes.”

According to the Indictment filed in Manhattan federal court and the evidence at trial and sentencing:

In May 2010, LISYANKSY hired an associate, Jesus Rosa, to kill the father and son owners of a catering hall (the “Catering Hall”) in Queens. Torrance Crayton, a/k/a “King Blood,” another associate of LISYANKSY’s, provided Rosa with a gun to use in the murders. LISYANKSY arranged a meeting with the intended victims at their Catering Hall under the ruse that LISYANKSY was considering booking the Catering Hall for his wedding. LISYANKSY met with the victims in the Catering Hall on a weekday during normal business hours. Acting at LISYANKSY’s direction, Rosa entered the Catering Hall during that meeting and brandished his firearm. LISYANKSY, pretending to be a victim, covertly signaled to Rosa the two intended victims of the murder. Rosa pointed the gun at the head of one of the two victims, but decided he could not go through with the murder and instead shot the victim in the leg, and fled the Catering Hall. Rosa jumped into a waiting getaway car driven by Jayson Vasquez-Soto. Vasquez-Soto and Rosa drove back to LISYANKSY’s apartment where they proceeded, at the direction of LISYANKSY, to destroy evidence from the murder plot, including wiping the car down to destroy fingerprint evidence. The police arrived at the Catering Hall soon after the shooting and LISYANKSY, still posing as a victim of the hold-up, gave false details about the shooter to the police.

In addition to the prison term, Judge Daniels sentenced LISYANSKY, 39, of Queens, New York, to three years of supervised release and ordered him to pay a special assessment of $200.

Mr. Bharara praised the outstanding efforts of the Federal Bureau of Investigation and the New York City Police Department in connection with this investigation.

A number of co-conspirators and accomplices were also prosecuted in connection with this case. Jesus Rosa pleaded guilty to murder for hire, conspiracy to commit murder for hire, and other offenses, and is awaiting sentencing. Torrance Crayton, a/k/a “King Blood,” pleaded guilty to firearms possession and was sentenced by United States District Judge Richard Sullivan to 5 years in prison. Jayson Vazquez-Soto was convicted at trial of obstruction of justice and sentenced by United States District Judge George B. Daniels to 24 months in prison.

The prosecution is being handled by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Alexander Wilson and Harris Fischman are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN WESSEL, a/k/a “Wes Wessels,” was arrested this morning on securities fraud and wire fraud charges. WESSEL is expected to be presented today in Manhattan federal court before United States Magistrate Judge Michael H. Dolinger.

Manhattan U.S. Attorney Preet Bharara said: “As charged, Steven Wessel was much less an investment adviser than a serial liar. He allegedly lied in telling one investor that his funds would be invested in securities, and then lied in soliciting money from a second investor to pay back the first.”

According to the two-count Complaint unsealed in Manhattan federal court:

From at least June 2013 through April 2014, WESSEL ran a fraudulent investment scheme. WESSEL, who claimed to be the Chairman and Executive Managing Member of Steeplechase USA, LLC (“Steeplechase USA”), located in New York, New York, represented to an investor (“Investor A”) that Steeplechase USA was in the business of trading securities. WESSEL personally solicited $200,000 from Investor A on the understanding that the funds would be solely invested in securities.

Contrary to WESSEL’s promise to invest Investor A’s funds in securities, WESSEL used substantially all of Investor A’s money for his own personal benefit, including for cash withdrawals and personal expenses, including making a payment of $25,000 toward a restitution obligation from a prior judgment of conviction. WESSEL did not tell Investor A about this misappropriation. Instead, WESSEL falsely represented to Investor A that his $200,000 investment had gained tens of thousands of dollars and that Steeplechase USA’s portfolio had gained approximately 167% in 2013.

When Investor A requested to withdraw his funds from Steeplechase USA, WESSEL solicited a $550,000 loan from a second investor (“Investor B”). WESSEL falsely represented that he would use Investor B’s money to provide financing for a commercial real estate project. To induce Investor B to lend him money, WESSEL, among other things, created and sent a fabricated email to Investor B. The fabricated email purported to be from a bank and made it appear as if the real estate project was legitimate.

Contrary to WESSEL’s promise to Investor B, WESSEL used substantially all of Investor B’s money for his own benefit, including to pay $251,000 to Investor A – money that, according to WESSEL, represented Investor A’s initial $200,000 investment and $51,000 in trading profits.

WESSEL is charged with one count of securities fraud and one count of wire fraud. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5,000,000. The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

Mr. Bharara praised the work of the Criminal Investigators of the United States Attorney’s Office, who investigated this case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Damian Williams is in charge of the prosecution.

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

U.S. v. Steven Wessel Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, and Ronald A. Cimino, Deputy Assistant Attorney General for the Tax Division of the Department of Justice, announced that PAUL M. DAUGERDAS, a tax attorney and certified public accountant, was sentenced today in Manhattan federal court to 15 years in prison for orchestrating a massive fraudulent tax shelter scheme in which he and his co-conspirators designed, marketed, and implemented fraudulent tax shelters used by wealthy individuals to evade over $1.6 billion in taxes owed to the IRS. The 20-year scheme, which DAUGERDAS hatched while working at the Arthur Andersen accounting firm and then continued while a partner at two law firms - Altheimer & Gray and then Jenkens & Gilchrist - generated over $7 billion of fraudulent tax losses and yielded approximately $95 million in fees to DAUGERDAS personally. DAUGERDAS was convicted in October 2013 following an eight-week jury trial, presided over by U.S. District Judge William H. Pauley III, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Paul Daugerdas used his legal and accounting expertise to cheat the system and unlawfully deprive the government of over $1.6 billion of tax revenue. With today’s sentence, Daugerdas’s giant tax fraud scheme has reached its just conclusion under the law, with a sentence of 15 years in prison.”

Deputy Assistant Attorney General Ronald A. Cimino said: “Dishonest professionals who market tax fraud schemes to their clients need to sit up and take note of today’s sentence. The Justice Department and IRS are committed to holding responsible those who would misuse their skills and expertise to help others to evade their lawful tax obligations.”

According to the evidence at trial and other documents filed in the case:

From 1994 through 2004, DAUGERDAS, a lawyer, certified public accountant, and the former head of the Chicago office of the Jenkens & Gilchrist law firm (“J&G”) and its tax practice, participated in a scheme to defraud the IRS by designing, marketing, implementing, and defending fraudulent tax shelters.

As part of the scheme, DAUGERDAS and others schemed to defraud the IRS by, among other things, corruptly endeavoring to prevent the IRS from: (i) detecting their clients’ use of these shelters; (ii) understanding how the transactions operated to produce the tax results reported by the clients; (iii) learning that, rather than serving as legitimate investment transactions, the tax shelters lacked “economic substance” in that they were designed and marketed as cookie-cutter products intended exclusively to eliminate or reduce large tax liabilities; (iv) learning that the clients were not seeking profit-making investment opportunities, but were instead seeking huge tax benefits; and (v) learning that, from the outset, all the clients intended to complete a pre-planned series of steps that had been designed to lead to the specific tax benefits sought by the clients. DAUGERDAS and others created, and assisted in creating, transactional documents and other materials that falsely and fraudulently described their clients’ motivations for entering into the tax shelters and for taking various steps in order to yield the tax benefits.

As part of the scheme to defraud the IRS, DAUGERDAS and his co-conspirators also fraudulently backdated some of the tax shelter transactions. In particular, DAUGERDAS and his co-defendants learned that certain tax shelter transactions had been implemented incorrectly during the year of the transactions, in that they failed to produce the amount or type of tax losses requested by the clients. Rather than reporting those tax shelter results as they occurred - as required by the Internal Revenue Code - DAUGERDAS and others engaged in corrupt “correcting” transactions after the close of the pertinent tax years, and then backdated the tax shelter documents to make it appear as if the amount and type of tax losses sought by the clients had in fact been generated during the pertinent tax years. DAUGERDAS also authored fraudulent tax opinion letters that falsely described when certain aspects of the transactions had actually occurred. As a result of the fraudulent backdating, DAUGERDAS and others caused tax shelter clients to file tax returns that falsely and fraudulently claimed tens of millions of dollars of tax losses to which the clients were not entitled.

As a result of the scheme, DAUGERDAS and his co-conspirators made millions of dollars in fees and bonuses. Specifically, DAUGERDAS made $95 million in profits, but used tax shelters to reduce the taxes he paid to less than $8,000; without the shelters, he would have owed over $32 million in taxes.

DAUGERDAS, 63, of Wilmette, Illinois, was convicted of conspiring to defraud the IRS, to evade taxes, and to commit mail and wire fraud, and of corruptly endeavoring to obstruct and impede the internal revenue laws. He was also convicted of four counts of tax evasion relating to the use of various tax shelters for specified clients, and of mail fraud.

In addition to the prison term, Judge Pauley ordered DAUGERDAS to forfeit $164,737,500 in proceeds of the offenses, which included certain assets of DAUGERDAS’ that had been seized and frozen at the time DAUGERDAS was indicted. The forfeited proceeds include a lakefront home on Lake Geneva in Wisconsin, and over $20 million in various securities and financial accounts. Judge Pauley also ordered DAUGERDAS to pay restitution to the IRS of $371,006,397. At sentencing, Judge Pauley said that DAUGERDAS “was at the apex of tax shelter racketeers who tapped into the greed of the super-wealthy who did not want to pay taxes.”

In connection with this same scheme, David Parse, a former broker at Deutsche Bank, was convicted of various tax fraud charges in May 2011 after an 11-week jury trial, and was sentenced in March 2013 to 46 months in prison. Donna Guerin, a former lawyer at J&G’s Chicago tax practice, pled guilty for her role in the scheme to various tax fraud charges in September 2012. She was sentenced in March 2013 to eight years in prison.

Former J&G partner Erwin Mayer, former BDO Seidman Vice Chairman and board member Charles W. Bee, Jr., former BDO principal and former member of BDO Seidman’s TSG and Tax Opinion Committee Michael Kerekes, former BDO Seidman Vice Chairman and TSG member Adrian Dicker, BDO Seidman partner Robert Greisman, and BDO Seidman partner Mark Bloom have all previously been convicted in connection with the scheme.

Mr. Bharara thanked the IRS and the Tax Division of the Department of Justice for their work on this case.

This case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Stanley J. Okula, Jr. and Niketh Velamoor, and DOJ Tax Division Assistant Chief Nanette L. Davis are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), announced today criminal charges against CARLOS PANIAGUA, a/k/a “Carlos,” a/k/a “Carlito,” a/k/a “Cee-lo” (“CARLOS PANIAGUA”), JOSE OSVALDO PANIAGUA JR., a/k/a “Osvaldo,” a/k/a “Calvo” (“OSVALDO PANIAGUA JR.”), JOSE RAFAEL PANIAGUA, a/k/a “Rafaelito” (“RAFAEL PANIAGUA”), JOSE OSVALDO PANIAGUA SR., a/k/a “Nano,” a/k/a “Viejo” (“OSVALDO PANIAGUA SR.”), JOAN TORRES, a/k/a “Ronco,” and JOSE BORGEN-REYES, a/k/a “Benny,” a/k/a “Benny Blanco,” a/k/a “Scar,” for operating a massive prescription drug diversion ring, including the trafficking of both oxycodone and expensive HIV medication, out of Joaquin Grocery & Deli, a grocery store in the Bronx. CARLOS PANIAGUA, JOSE OSVALDO PANIAGUA JR., and TORRES were arrested yesterday and were presented in Manhattan federal court before Magistrate Judge James C. Francis IV. JOSE OSVALDO PANIAGUA SR. surrendered to authorities last night and will appear in Manhattan federal court before Magistrate Judge Michael H. Dolinger later today. BORGEN-REYES was previously in custody in Burlington County, New Jersey, and will be transferred to federal custody at a later date. JOSE RAFAEL PANIAGUA remains at large. Concurrently with the arrests of the defendants yesterday, and with the assistance of the New York City Law Department, the doors to the Joaquin Grocery were padlocked pursuant to a judicial order from Bronx Supreme Court.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, instead of earning an honest living at their grocery store, the defendants turned it into a drug market that took advantage of impoverished Medicaid beneficiaries, spawned violence in its neighborhood, and endangered public health and safety. Today the defendants face prison time for their actions, and the Joaquin Grocery is thankfully closed for business.”

FBI Assistant Director-in-Charge George Venizelos said: “As alleged, the defendants placed their own financial gain over the public’s health and safety. They defrauded Medicaid and the U.S. taxpayers while threatening the health of patients whose prescriptions were filled with diverted, mishandled and repackaged medications. We will continue to work with our law enforcement partners, including the NYPD, to prevent the illegal sale and misbranding of pharmaceuticals.”

Police Commissioner William J. Bratton said: “These individuals illegally amassed large quantities of prescription narcotics for resale and endangered the health of potential recipients using dangerous methods of repackaging and storage. Thanks to the efforts of our investigators, our federal law enforcement partners, and the prosecutors involved in this case, this illegal prescription drug ring has been shut down.”

According to the Complaint unsealed yesterday in Manhattan federal court, and statements made yesterday in court, it is alleged that:

All of the defendants except BORGEN-REYES currently operate Joaquin Grocery & Deli (the “Joaquin Grocery”), a grocery store at 598 Morris Avenue in the Bronx, New York. In addition to selling grocery products, the Joaquin Grocery has operated for years as a marketplace for Medicaid Beneficiaries to sell their Medicaid-reimbursed prescription medication, including Oxycontin, Percocet, and expensive HIV medications. The successful drug trade at the Joaquin Grocery has led to numerous acts of violence both inside the store and in its immediate vicinity. For example, in October 2010, a former competitor of the Joaquin Grocery was shot twice, including once in the head, while attempting to steal customers from the Joaquin Grocery just a few stores down. In March 2014, OSVALDO PANIAGUA SR. and RAFAEL PANIAGUA were held up at gunpoint inside the Joaquin Grocery in an apparent drug robbery.

The drug transactions at the Joaquin Grocery typically took place in a small room behind a door at the back of the store, where Medicaid Beneficiaries provided their pill bottles to the defendants for cash. With respect to non-controlled medication such as HIV medication, the defendants removed the patient labels from the medication bottles with lighter fluid, which contains toxic substances, so that the bottles appeared brand new and could eventually be re-sold to pharmacies. With respect to controlled medication such as Oxycontin, the defendants amassed large quantities of pills and re-sold them on the street.

Search warrants were executed at the Joaquin Grocery and at 532 Tinton Avenue, Apt. 1C, which is a stash-house used by the Paniaguas. Search warrants were also executed on two cars that the Paniaguas used. Approximately 1,000 bottles of prescription medication and hundreds of loose pills (both controlled and non-controlled substances) were seized in the store and the stash location. Agents also seized a machete at the store, and, from the stash location, lighter fluid and cotton balls (which are typically used to remove patient labels from the medication so it can be re-sold). Agents also seized thousands of dollars in cash.

CARLOS PANIAGUA, JOSE OSVALDO PANIAGUA JR., and RAFAEL PANIAGUA are brothers who were in charge of the drug business at the Joaquin Grocery. JOSE OSVALDO PANIAGUA SR. is their father, who assisted in the purchase of prescription drugs at the Joaquin Grocery. TORRES provided armed security, operated as a lookout, and also engaged in the purchase of prescription drugs at the Joaquin Grocery. BORGEN-REYES previously played the same role as TORRES until 2012.

CARLOS PANIAGUA, OSVALDO PANIAGUA JR., RAFAEL PANIAGUA, OSVALDO PANIAGUA SR., and TORRES, of the Bronx, New York, and BORGEN-REYES, of Paterson, New Jersey, are each charged with one count of engaging in a conspiracy to distribute and possess with the intent to distribute a controlled substance and one count of engaging in a conspiracy to commit the unlawful misbranding, adulteration and wholesale distribution of prescription drugs. They each face a maximum of 25 years in prison (20 years on Count One and 5 years on Count Two). The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the investigative work of the FBI and NYPD, and thanked the New York City Law Department for its assistance.

Mr. Bharara also thanked the the FBI’s Health Care Fraud Task Force for their work in this investigation, which he noted is ongoing. The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force comprises agents, officers, and investigators from the FBI, NYPD, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, New York State Attorney General’s Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.

This case is being handled by the Office’s Violent and Organized Crime Unit and Narcotics Unit. Assistant U.S. Attorney Russell Capone is in charge of the prosecution.

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

U.S. v. Jose Carlos Paniagua et al Complaint (signed)

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that PAUL J. KONIGSBERG – a lawyer and accountant who provided services to numerous clients of Bernard L. Madoff Investment Securities (“Madoff Securities”), and who was a personal tax and business adviser to Madoff – pleaded guilty in Manhattan federal court before United States District Judge Laura Taylor Swain. KONIGBSERG pleaded guilty to a three-count superseding information charging him with one count of conspiracy to falsify the books and records of Madoff Securities and to obstruct the administration of the tax laws, as well as two substantive books and records counts. In addition to pleading guilty, KONIGSBERG has agreed to cooperate with the Government in its ongoing investigation of the fraud at Madoff Securities.

According to the superseding information, the plea agreement, and other documents filed in connection with the case:

KONIGSBERG, a lawyer and Certified Public Accountant, was the senior tax partner of Konigsberg Wolf & Co., P.C. (“Konigsberg Wolf”) and a minority shareholder of Madoff Securities International Limited, Madoff’s London-based affiliate, making KONIGSBERG the only person outside of the Madoff family to hold an ownership interest in either Madoff Securities or Madoff International.

Beginning in at least the early 1990s, Madoff began to steer several of his investors towards KONIGSBERG’s accounting practice, particularly certain long-time investors in whose accounts Madoff executed the most glaringly fraudulent transactions. By December 2008, when the scheme collapsed, Konigsberg Wolf was providing accounting services for Madoff Securities clients who aggregately held over 300 investment advisory accounts.

For example, after the death of one long-time Madoff client – who had recruited investors and so had been promised by Madoff corresponding annual commission payments in the form of guaranteed returns and fictitious, back-dated trades – Madoff encouraged the client’s widow to use KONIGSBERG as her accountant. Madoff and Frank DiPascali, Jr. – who has previously pleaded guilty for his role in the fraud and is cooperating with the Government – devised an investment “strategy” for the widow’s account: her money would be “invested” in United States Treasury bonds and cash equivalents for the first 11 months of each year, and in December, DiPascali would fabricate back-dated options trades in order to generate the promised returns. So, for instance, one of the widow’s accounts was invested in Treasuries and money market funds in January through November of 2003, resulting in net equity at the end of November 2003 of approximately $860,000. In January 2004, however, DiPascali back-dated fake options trades purportedly executed in December 2003 to generate an additional approximately $825,000, nearly doubling the value of the account. Each December, over the course of several years, KONIGSBERG called DiPascali to ensure that the widow’s accounts reflected the promised returns.

From time to time, moreover, Madoff and certain of his employees “amended” the holdings of some of his oldest clients, replacing statements reflecting one set of securities with revised statements, for the exact same time period, reflecting entirely different holdings and values. Because the existence of multiple, vastly different account statements for the same time risked exposing the fraud, Madoff could only ask certain trusted clients to return their statements in favor of the “amended” ones. Because KONIGSBERG serviced certain of Madoff’s most important accounts, however, he frequently returned statements in favor of the “amended” ones.

For example, in early 2003, Annette Bongiorno – one of the five defendants recently convicted of participating in Madoff’s massive fraud after a nearly six-month trial – created a year’s worth of profitable, back-dated trades in the account of another Madoff Securities client, who was also a client of KONIGSBERG’s. That client had suffered losses in a number of different investments in 2002, causing the client’s net worth to decline dramatically. In order to restore the client’s wealth, KONIGSBERG and the client went to Bongiorno’s office at Madoff Securities, and sat with her as she created and back-dated an entire year’s worth of profitable securities transactions and corresponding account statements for the client’s investment advisory account at Madoff Securities. Bongiorno then instructed KONIGSBERG and his client to return the original statements before receiving the new, “amended” statements. KONIGSBERG later used these back-dated, “amended” statements to prepare his client’s tax returns. Likewise, in 2008, KONIGSBERG sent back several months’ worth of statements for a different client, in favor of new ones reflecting millions of dollars in new transactions.

In addition to being paid for his accounting services by the dozens of clients referred to him by Madoff, KONIGSBERG also received payments directly from Madoff Securities of approximately $15,000 to $25,000 per month for over a decade. In addition, beginning in approximately 1992, KONIGSBERG arranged for a relative to be put on Madoff Securities’ payroll, receiving salary and employee benefits, despite not working at the firm. KONIGSBERG arranged for the relative to be paid by Madoff in lieu of accepting payments himself, despite the fact that the payments were on account of customers that KONIGSBERG recruited to invest with Madoff.

KONIGSBERG also provided tax and business advice to Madoff personally. For example, Madoff consulted KONIGSBERG about establishing Madoff Securities, which had for years been a sole proprietorship, as a Limited Liability Company. Madoff also consulted KONIGSBERG concerning accounting and bookkeeping issues in connection with Madoff International, the firm’s London affiliate.

In or about the early 1990s, Madoff consulted KONIGSBERG about the tax consequences of transferring funds to two other employees of Madoff Securities (“CC-1” and “CC-2”). KONIGSBERG advised Madoff that if the transfers were structured as loans and if CC-1 and CC-2 paid interest on those loans and paid back the principal of the loans, no taxes would be due and owing by either Madoff or by CC-1 or CC-2. Thereafter, KONIGSBERG arranged for a lawyer he worked with to draft promissory notes documenting the loans, and KONIGSBERG provided some of the financial terms of the loans, such as the applicable interest rate. The promissory notes therefore appeared to conform to the tax law, as Madoff, CC-1, and CC-2 desired. On December 10, 2008 – the day before Madoff was arrested – Madoff called KONIGSBERG to ask whether the loans had been converted into gifts, which would have created a substantial tax liability for Madoff. In fact, Madoff and KONIGSBERG had never discussed the possibility of reclassifying the loans into gifts, and KONIGSBERG told Madoff so.

KONIGSBERG, 78, faces a total statutory maximum sentence of 30 years in prison. A chart identifying the maximum penalties for each of the charged offenses is attached to this release. The maximum penalties are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

KONIGSBERG is also subject to mandatory restitution and criminal forfeiture and faces criminal fines up to twice the gross gain or loss derived from the offense. Pursuant to the agreement entered into with the Government, KONIGSBERG has agreed to forfeit $4.4 million. To the extent not already paid to the ongoing Securities Investor Protection Act liquidation proceedings of Madoff Securities, the forfeited funds will be used to compensate victims of the fraud through the Madoff Victim Fund, which is the victim remission fund established by the Manhattan U.S. Attorney to compensate victims of the fraud at Madoff Securities, and which has collected approximately $4 billion to date.

Judge Swain set a sentencing date for KONIGSBERG of September 19, 2014, at 2:00 p.m.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation, the Internal Revenue Service-Criminal Investigations, and the United States Department of Labor. He also thanked the U.S. Securities and Exchange Commission.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Matthew L. Schwartz, John T. Zach, Randall W. Jackson, and Christopher D. Frey are in charge of the prosecution.

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Preet Bharara, United States Attorney for the Southern District of New York, announced today the arrest of ERIC GIVENS, a police officer with the National Railroad Passenger Corporation (“Amtrak”), and the former treasurer of the national union for Amtrak police officers, on charges of wire fraud, embezzlement of union funds, and making a false statement to a federal investigator. GIVENS was arrested this morning in East Stroudsburg, Pennsylvania, and is expected to be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Michael H. Dolinger.

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

GIVENS has been employed as a police officer with Amtrak since May 1997, and was most recently assigned to Penn Station, in New York, New York. GIVENS served as the elected treasurer of the Amtrak Police Lodge 189 Labor Committee (the “Labor Committee”), the national union for Amtrak police officers, from 2003 through January 2010. During the same period, and continuing until November 2013, GIVENS also served as the elected treasurer of Amtrak Police Lodge 189 Inc. (the “Lodge”), a fraternal organization affiliated with the Labor Committee.

Starting by at least 2008, GIVENS improperly took at least $100,000 in total from the Labor Committee and Lodge by fraudulently charging personal expenses to the Labor Committee and Lodge and by withdrawing cash for his own purposes, and took steps to hide what he had done. During this period, GIVENS used the debit card of the Labor Committee to pay for, among other things, gasoline and food, and used the debit card of the Lodge to pay for, among other things, travel, hotels in multiple cities, and entertainment in New York and New Jersey. GIVENS also withdrew thousands of dollars in cash from Labor Committee and Lodge bank accounts.

GIVENS, 52, of East Stroudsburg, Pennsylvania, is charged with one count of wire fraud, one count of embezzlement of union funds, and one count of making a false statement to a federal investigator. He faces a total maximum sentence of thirty years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding work of the U.S. Department of Labor’s Office of Labor-Management Standards and its Office of Inspector General’s Office of Labor Racketeering and Fraud Investigations. Mr. Bharara also thanked the Amtrak Police Department’s Office of Internal Affairs for its assistance.

The case is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorney Daniel C. Richenthal is in charge of the prosecution.

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

U.S. v. Eric Givens Complaint 14 Mag 1299

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DAVID HIGGS, a former Managing Director in the Investment Banking Division of Credit Suisse Group (“Credit Suisse”), was sentenced today to time served in connection with a scheme to hide more than $100 million in losses in a mortgage-backed securities trading book at Credit Suisse. On February 1, 2012, HIGGS pled guilty, pursuant to a cooperation agreement, to the offense of conspiracy to falsify the books and records of the bank.

The bonds at issue were composed of subprime residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). Once discovered, the manipulation of these bond prices contributed to Credit Suisse taking a $2.65 billion write-down of its 2007 year-end financial result. Higgs was sentenced by U.S. District Judge Alison J. Nathan.

According to the Information to which Higgs pled guilty, and statements made during court proceedings:

HIGGS was employed at Credit Suisse as a Managing Director in the bank’s London office. He reported to Kareem Serageldin, the Global Head of the Structured Credit Group in the Securities Department of Credit Suisse’s Investment Banking Division. The Structured Credit Group held and traded ABS (“Asset Backed Security”) cash bonds, which included RMBS and CMBS. HIGGS oversaw and managed a trading book known as “ABN1.” The ABN1 book was composed primarily of several thousand individual long and short subprime-related positions, and also included other securities. The long positions consisted of, among other things, various types of cash securities, including AAA-rated and non-AAA-rated cash bonds. Until March 2008, ABN1 had a net asset value of approximately $5.35 billion, approximately $3.71 billion of which consisted of ABS cash bonds, including RMBS and CMBS positions.

Pricing of Mortgage-Backed Securities

Credit Suisse traders were required at all relevant times to price securities they held at their fair value, that is, on a “mark-to-market” basis, which was determined by reference to either the current market price of the asset or liability, or the current price for a similar asset or liability. In the absence of a liquid market, Credit Suisse traders were required to look to other indicia in order to determine the fair value of the assets on their books. During this time, the ABX Index served as a benchmark for certain securities backed by home loans. It was widely understood within Credit Suisse that traders were to consult the corresponding ABX indices when pricing RMBS bonds and related products.

The Bond Pricing Scheme

The deterioration throughout 2007 of the real estate market in the United States, including the subprime housing market, led to significant reductions in valuations of mortgage-backed securities. As mortgage delinquencies increased across the country, the value of the securities backed by these mortgages decreased and the market for them became increasingly illiquid.

By late November 2007, HIGGS, Serageldin, and their co-conspirators were aware that the market for mortgage-backed securities had declined enormously. On November 28, 2007, Serageldin told HIGGS, a co-conspirator named Salmaan Siddiqui, and another co-conspirator that “the housing market [was] going down the tubes” and that they had to “find a way to sell these bonds,” i.e., mortgage-backed bonds in ABN1. As they recognized, “[t]hose bonds are going to start trading worse than the [ABX] Index.” Serageldin, Higgs, and their co-conspirators did not sell the bonds because the market prices for the bonds were substantially below the inflated value at which they marked the bonds.

From August 2007 through February 2008, Serageldin, HIGGS, Siddiqui, and their co-conspirators artificially increased the price of bonds in order to create the false appearance of profitability in the ABN1 trading book. Specifically, Serageldin directed HIGGS on numerous occasions to reach specific Profit & Loss (“P&L”) targets on a daily and month-end basis. HIGGS, in turn, instructed Siddiqui and another co-conspirator to mark the books so as to achieve the particular P&L targets specified by Serageldin, rather than to reflect the fair value of the bonds.

Credit Suisse’s ABN1 Trading Book Was Falsely Inflated as a Result of the Scheme

As a result of the scheme, there was a growing disparity between the values ascribed to the marks in the ABN1 book and the available external benchmarks, such as the ABX Index. From August 2007 through the end of that year, as ABX Index prices fell, bond prices in ABN1 that were supposed to reflect the ABX Index remained effectively stable, thereby giving the false impression to Credit Suisse senior management that the ABN1 book was profitable. On one occasion in January 2008, Serageldin expressed concern to HIGGS that the overpriced bonds were at risk of being discovered: “We should mark these down because someone is going to spot this,” he said.

The February 2008 Mark-Down

On March 20, 2008, Credit Suisse issued a press release which announced completion of its internal review and stated that the fair value reduction, or write-down, of the ABS positions – which included but was not limited to the ABNl book – was approximately $2.65 billion. Approximately $540 million of this write-down was attributable to the ABN1 trading book and included ABS cash bonds for the fourth quarter 2007 that Serageldin, HIGGS, and their co-conspirators manipulated and inflated in connection with his scheme.

Judge Nathan also sentenced HIGGS, a citizen of the United Kingdom, to no supervised release. HIGGS also was ordered to pay forfeiture in the amount of $900,000, a $50,000 fine, and a $100 special assessment.

Mr. Bharara praised the work of the Federal Bureau of Investigation and thanked the Securities and Exchange Commission for its assistance in the investigation of this case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney Eugene Ingoglia is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL BALBOA, formerly a portfolio manager for Millennium Global Emerging Credit Fund (“MGEC” or the “Hedge Fund”), was sentenced to four years in prison today in Manhattan federal court for carrying out a fraudulent scheme to undermine the independent valuation process relating to the Hedge Fund, and to overvalue the assets of the Hedge Fund. BALBOA was previously found guilty by a jury on December 18, 2013, following a two-and-a-half-week trial, of conspiring to commit securities fraud, conspiring to commit wire fraud, and with committing securities fraud, wire fraud, and investor adviser fraud. He was sentenced today by U.S. District Judge Paul A. Crotty.

Manhattan U.S. Attorney Preet Bharara stated: “Michael Balboa has been held to account for his blatant fraud, inflating the valuation of securities in the hedge fund and falsely representing them as independent valuations. When his employer and regulators became suspicious and began to inquire, Balboa told more lies to cover his tracks.”

According to the Superseding Indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:

From December 2006 to October 2008, BALBOA served as the portfolio manager for the Hedge Fund. The Hedge Fund’s strategy was to invest in a portfolio of corporate and sovereign debt instruments in emerging countries. The Hedge Fund utilized an independent valuation agent (the “IVA”) to determine the Hedge Fund’s “net asset value” (“NAV”), which is the value of the Hedge Fund’s assets, less liabilities and estimated costs of sale/liquidation. The Hedge Fund’s manager, the entity that employed Balboa, represented to investors that sources independent from Balboa would provide prices to the IVA for each security held in the Hedge Fund for purposes of determining the NAV on a monthly basis. For example, in one due diligence questionnaire sent on March 7, 2008, to a potential investor, the Hedge Fund noted that “[t]here are no assets valued in house” and that the “fund has appointed an independent valuation agent” to calculate the NAV of the Hedge Fund.

The proof at trial demonstrated that, contrary to representations made to investors about the independent valuation process, BALBOA provided inflated prices for a security referred to as the Nigerian Oil Warrant. These prices were used for the Hedge Fund’s monthly valuation. BALBOA accomplished this by instructing Gilles DeCharsonville (“DeCharsonville”) and Samuel Pratt (“Pratt”), two co-conspirators with whom BALBOA worked, to provide the IVA with those values while falsely representing that the values were generated independently by DeCharsonville and Pratt. For example, in 2008, although the Nigerian Oil Warrant traded at a price no higher than $239, BALBOA directed DeCharsonville and Pratt to provide the IVA with marks ranging from approximately $525 to $3,500. The IVA then used these falsely inflated marks to compute the Hedge Fund’s monthly NAV, which, in turn, as of August 2008, caused the NAV to be overstated by approximately $80 million. These false values were then sent to investors by means of monthly newsletters, among other types of communications.

The evidence at trial also showed that after Balboa’s employer, the Hedge Fund’s Bermudian court-appointed liquidator, and U.S. and foreign securities regulators all began to investigate the scheme, BALBOA took steps to conceal his involvement in this scheme. For example, BALBOA sent DeCharsonville false justifications to support the inflated valuations so that they would be conveyed to BALBOA’s employer, and later, to U.S. and foreign securities regulators.

In addition to the prison term, Judge Crotty sentenced BALBOA, 45, who currently resides in Melville, New York, and formerly resided in the United Kingdom, to three years of supervised release. BALBOA was also ordered to forfeit $2.23 million and to pay a $500 special assessment fee and restitution in excess of $390 million.

Mr. Bharara praised the work of USPIS, which investigated this case. He also thanked the U.S. Securities and Exchange Commission for its assistance in the investigation.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jason H. Cowley and David I. Miller, and Special Assistant United States Attorney William T. Conway are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that NARENDRA TULSIRAM was sentenced today in Manhattan federal court to 25 years in prison for sexually exploiting a child, as well as transporting and possessing images of child pornography. TULSIRAM pled guilty in April 2013. He was sentenced today by U.S. District Judge J. Paul Oetken.

Manhattan U.S. Attorney Preet Bharara said: “For five years, Narendra Tulsiram preyed on his minor victim – sexually abusing and extorting her. Today’s sentence ensures Tulsiram will pay for the innocence he stole and be prevented from harming others.”

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

From 2006 through September 2011, TULSIRAM sexually abused a minor (the “Victim”). The abuse began when the Victim was 13 years old. From 2008 through September 2011, TULSIRAM took sexually explicit photographs of his abuse of the Victim. In November 2011, after the Victim resisted TULSIRAM’s requests for additional sexual encounters, he used his e-mail account to send sexually explicit photographs of the Victim to the Victim’s e-mail account. In those e-mails, TULSIRAM threatened to send the sexually explicit photographs of the Victim to others, including her family, in an effort to get her to accede to his demands.

Following TULSIRAM=s arrest, search warrants were executed for TULSIRAM’s cell phone and e-mail account. Forensic analysis of TULSIRAM’s cell phone recovered photographs depicting the Victim, and in some instances, the Victim and TULSIRAM, engaging in sexually explicit conduct. Forensic analysis also recovered from TULSIRAM’s cell phone the threatening e-mails sent from TULSIRAM=s e-mail account to the Victim attaching the sexually explicit photographs of the Victim.

In addition to the prison term, Judge Oetken sentenced TULSIRAM, 50, to a lifetime of supervised release. He must also register as a sex offender.

Mr. Bharara praised the investigative work of Immigration and Customs Enforcement’s Homeland Security Investigations and the New York City Police Department.

This case is being handled by the Office=s General Crimes Unit. Assistant United States Attorneys Kristy J. Greenberg, Rahul Mukhi, and Adam Fee are in charge of the prosecution.

Suspected child sexual exploitation or missing children may be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com.

Preet Bharara, the United States Attorney for the Southern District of New York, William V. Grady, the Dutchess County District Attorney, James J. Hunt, the Acting Special Agent-in-Charge of the New York Field Division of the United States Drug Enforcement Administration, and Adrian H. Anderson, the Dutchess County Sheriff, announced the unsealing this morning of a federal criminal complaint charging DENNIS SICA, 36, and JOHN ROHLMAN, 25, both of Dutchess County, with distributing heroin, the use of which caused the overdose deaths of three individuals. SICA and ROHLMAN are expected to be presented later today in White Plains federal court before the Honorable Lisa Margaret Smith, United States Magistrate Judge for the Southern District of New York.

U.S. Attorney Preet Bharara stated: “Three young people from our community are dead, the tragic victims of heroin peddled by the defendants under the label ‘Breaking Bad.’ Heroin and opioid abuse hurts all of our communities. It affects everyday people, people with jobs, people with families. Although the heroin and prescription painkiller epidemic may be breaking bad, we must aggressively make good on our collective obligation to stamp out this affliction. No more half-measures. The lives of our children and the vitality of our communities depend on it.”

Dutchess County District Attorney William V. Grady stated: “From the beginning stages of this investigation my office, along with the Dutchess County Drug Task Force and the DEA worked together with the ultimate goal of developing a case that could be prosecuted under Federal Law. This was done because presently, under New York Law an offender convicted of such a sale could be sentenced to a drug diversion program, the county jail or even probation. Such sentences, under these facts, are simply outrageous and unacceptable. We must send the strongest message possible to those individuals who engage in this conduct. A sentencing range of 20 years to life, from both a punitive as well as a deterrent perspective, is such a message. When similar circumstances are encountered in the future my office will not hesitate in involving Federal law enforcement. I sincerely appreciate U.S. Atty Bharara for undertaking this prosecution.”

DEA Acting Special Agent-in-Charge James J. Hunt stated: “This year DEA New York has seized 110% more heroin than in 2009. The Mexican drug trafficking organizations are flooding the Northeast market with heroin, leaving tragic overdose deaths in the cartel’s wakes. Case in point - the tragic deaths of three victims who allegedly bought heroin from two local drug dealers; Dennis Sica and John Rohlman. I applaud the prosecutors and investigators who arrested the defendants. These arrests are a message to dealers alike that behind every overdose, law enforcement is looking for the drug dealer responsible.”

Dutchess County Sheriff Adrian H. Anderson stated: “Today’s arrests are the direct result of the hard work, dedication, and cooperation between law enforcement agencies, and it’s good to see that effort pay off in the form of some justice for the victims and their families. There’s more work to be done and the battle is far from over. Let this be a warning to all of those people who sell drugs in Dutchess County and elsewhere—we’re going to do everything in our power to put a stop to their business and prosecute them to the fullest extent of the law.”

According to the allegations in the Complaint:

From at least late 2013 to February 2014, SICA and ROHLMAN worked together in Dutchess County to sell a particularly potent form of heroin, bags of which were stamped with the brand name “Breaking Bad.” At least some of the heroin distributed by SICA and ROHLMAN was laced with fentanyl, a synthetic opioid that is significantly stronger than street heroin.

On the night of December 28, 2013, SICA sold “Breaking Bad” heroin to Anthony Delello, a 20-year-old resident of Beekman, New York. Delello snorted some of SICA’s heroin and was found dead by his girlfriend the following day. The Dutchess County Medical Examiner’s report concluded that he died from “acute heroin intoxication.”

Delello’s death did not stop SICA and ROHLMAN from selling “Breaking Bad” heroin. Four days after Delello was found dead, SICA and ROHLMAN exchanged a series of text messages in which SICA urged ROHLMAN to delete the text message history in the phone they used to sell heroin and, if asked, to deny knowing anything about Delello or the manner of his death. According to one witness, during the month that followed, SICA and ROHLMAN were responsible for distributing approximately 250 grams of “Breaking Bad” heroin per day.

Slightly more than a month after Delello’s death, two more individuals died after overdosing on “Breaking Bad” heroin. On February 1, 2014, Thomas Miller, 31, was found dead by his mother at his home in Pawling, New York. A hypodermic needle, as well as several glassine bags stamped with the words “Breaking Bad” were found near his body. Some of the glassine bags were full, others were empty. A chemical analysis of the contents of the full glassine bags showed that they contained a mixture of quinine, fentanyl, and heroin. The medical examiner’s report indicates that Miller died of “acute intoxication by the combined effects of heroin and fentanyl.” Text messages between Miller and ROHLMAN on the night before Miller was found dead show that ROHLMAN arranged for Miller to purchase “Breaking Bad” heroin from SICA that night.

The same day that Miller was found dead, Laura Brown, 35, was found dead of an apparent heroin overdose in New Milford, Connecticut. Brown was found with needles and glassine bags near her body. Several of the glassine bags were stamped with the words “Breaking Bad.” The autopsy performed on Brown’s body showed that she died of “acute heroin and fentanyl intoxication.” According to Brown’s brother, he and Brown together bought “Breaking Bad” heroin from SICA two days before Brown was found dead.

On February 2, 2014, SICA was arrested in East Fishkill, New York after a car in which he was riding was stopped by law enforcement. During the stop, an East Fishkill police officer noticed several glassine envelopes lying on the car’s floorboard. Upon further inspection, the officer observed that the glassine bags were stamped with a “Breaking Bad” stamp identical to the one that appears on the envelopes recovered from Thomas Miller’s bedroom.

If convicted of the offense charged in the Complaint, SICA and ROHLMAN each face a mandatory minimum penalty of 20 years in prison, a maximum penalty of life in prison, and a maximum fine of $1 million or twice the gain or loss resulting from the crime. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the DEA Tactical Diversion Squad and the Dutchess County Drug Task Force. The DEA Tactical Diversion Squad is composed of agents and officers of the DEA, the NYPD, the Westchester County Police Department, and the Town of Orangetown Police Department. The Dutchess County Drug Task Force is composed of the City of Poughkeepsie Police Department, the Town of Poughkeepsie Police Department, the East Fishkill Police Department, and the Dutchess County Sheriff’s Office. Mr. Bharara also thanked the New York State Police Forensics Unit and the police department for the City of New Milford, Connecticut, for their assistance in the investigation.

The prosecution is being handled by the Office’s White Plains Division. Assistant U.S. Attorney Scott A. Hartman is in charge of the prosecution.

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

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U.S. v. Dennis Sica and John Rohlman Complaint

U.S. v. Dennis Sica and John Rohlman Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LILIANA TRAFFICANTE was sentenced this morning in Manhattan federal court by U.S. District Judge Deborah A. Batts to 41 months in prison for her leadership role in a five-year scheme to obtain money from investors by claiming that the money would be used for a project intended to help foster children, when in fact TRAFFICANTE spent much of the money on personal expenses and other purposes. TRAFFICANTE pled guilty to charges of conspiracy to commit wire fraud in September 2010, and agreed to pay restitution to the victims of her offense, pursuant to a plan to be set by the Court.

Manhattan U.S. Attorney Preet Bharara said: “Instead of developing water parks for foster children as she said she would, Liliana Trafficante used the money to support her own lifestyle. In doing so, she exploited a worthy cause for personal gain, cheating foster kids out of an opportunity to truly benefit from the investors’ contributions.”

According to the charging documents in the case and statements made in open court today at the sentencing proceeding:

LILIANA TRAFFICANTE held herself out as the founder and Chief Executive Officer of International Dreams, a Manhattan-based entity. In addition, she is the principal of, or otherwise affiliated with, a number of entities that appear to be related to International Dreams, including GoOcean Park and Resort LLC, Bouchville Manors, The Little Water Park That Could, and Signature A (collectively, the “Trafficante Entities”). TRAFFICANTE claimed to be raising money for the purchase of land and completion of a water park for foster children (the “Water Park Project”). Among other methods, TRAFFICANTE raised money through postings on the Craigslist website. TRAFFICANTE made numerous false statements to individuals in order to induce them to make loans to and/or investments in the Trafficante Entities.

For example, according to the Complaint, TRAFFICANTE told one individual that land had been located for the Water Park Project. TRAFFICANTE claimed that the land was rich with natural resources, the exploration of which prior to construction could help fund the Water Park Project. Based on these representations, the individual loaned $100,000 to one of the Trafficante Entities. In connection with this loan, TRAFFICANTE and this individual executed a promissory note that stated that the “purpose” of the $100,000 loan was to help “GoOcean Water Park & Resort purchase excavating equipment.” In fact, no land had been purchased by TRAFFICANTE for a water park, or for any other purpose, and the money was not used for equipment of any kind. Rather, among other non-equipment payments, TRAFFICANTE made $40,000 in rent payments on behalf of family members the same day that the $100,000 was wired to an account she controlled.

In addition to the prison term, Judge Batts sentenced TRAFFICANTE to three years of supervised release. TRAFFICANTE also was ordered to pay restitution of $750,000, as well as a $100 special assessment fee.

Mr. Bharara praised the work of the FBI, which investigated this case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Eugene Ingoglia is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York announced today the filing of federal charges against STEPHEN P. BROWN. The Complaint charges that BROWN communicated with an individual he believed to be an 11-year-old boy via emails and instant messages, and made plans to meet the boy at a hotel in Peekskill to engage in sexual activity and take sexually explicit photographs. In March 2014, BROWN was arrested in Peekskill, New York, by New York State law enforcement authorities when he arrived at the designated meeting-place to meet the boy. The federal charges filed today follow state charges against BROWN in Manhattan, Westchester County, Sullivan County and Albany County. BROWN, who is currently in jail in Albany County, is scheduled to be presented in federal court on Wednesday, June 18.

According to the allegations of the Complaint:

Between January 14, 2014 and March 4, 2014, STEPHEN P. BROWN, using email addresses “spbrown21@ic.cloud” and “spbrown21@yahoo.com,” engaged in sexually explicit online communications with a New York State Police Investigator who was acting in an undercover capacity and posing as an 11-year old boy. During these communications, BROWN discussed various sexual acts he wished to perform on the boy, requested that the boy provide BROWN with sexually explicit photographs of the boy, and made a plan to meet the boy at a hotel in Peekskill, New York for the purpose of engaging in sexual activity. On March 4, 2014, BROWN was arrested at the Peekskill hotel after as he went to meet with whom he thought was the 11-year old boy.

BROWN, 62, of Manhattan is charged with one count of attempted sexual exploitation and one count of attempted enticement. With respect to the attempted sexual exploitation, he faces a minimum sentence of 15 years’ imprisonment and a maximum sentence of 30 years’ imprisonment. With respect to the attempted enticement, he faces a minimum sentence of 10 years’ imprisonment and a maximum sentence of life. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge

Mr. Bharara praised the efforts of the Federal Bureau of Investigation, the New York County District Attorney’s Office, the Sullivan County District Attorney’s Office, the Westchester County District Attorney’s Office, the Albany County District Attorney’s Office, the City of New York Police Department, the New York State Police, and the Rockland County Computer Crimes Task Force in connection with this investigation.

Mr. Bharara stated that the investigation is ongoing. Mr. Bharara requests that any individuals who believe they may have information concerning STEPHEN P. BROWN that may be relevant to the investigation contact the Federal Bureau of Investigation in Goshen, New York at 1-845-615-1700.

The prosecution is being handled by the Office’s White Plains Division. Assistant United States Attorney Marcia S. Cohen is in charge of the prosecution.

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

Preet Bharara, United States Attorney for the Southern District of New York, and Jeffrey Hughes, the Special Agent-in-Charge of the Northeast Field Office of the Department of Veterans Affairs, Office of Inspector General, Criminal Investigations Division (“VA-OIG”), announced today the unsealing of a Complaint charging KENNETH CZUMAK, an Information Technology Specialist with the Northport Veterans Affairs Medical Center (the “VAMC Northport”), with accepting more than $40,000 in benefits, including meals, golf outings, and car services, from a telecommunications firm that did business with the VAMC Northport. CZUMAK surrendered to the U.S. Marshals Service this morning. He was presented today in Manhattan federal court before U.S. Magistrate Judge Ronald L. Ellis.

According to the Complaint unsealed today in Manhattan federal court:

The VAMC Northport is a medical center that provides healthcare services to veterans in Long Island and surrounding areas. Throughout the relevant time period, a telecommunications firm had a subcontract for approximately $6 million to provide voice and data infrastructure and related services to the VAMC Northport (the “Telecommunications Firm”). During this same time period, CZUMAK served as an Information Technology Specialist at the VAMC Northport, and was the primary point of contact for the Telecommunications Firm at the VAMC Northport.

As alleged in the Complaint, between January 2008 and June 2013, CZUMAK accepted a total of more than $40,000 in goods and services paid for by the Telecommunications Firm. Among other things, CZUMAK received meals, golf outings, hotel rooms, car services, and other benefits. According to an account executive at the Telecommunications Firm (“Account Executive-1”), Account Executive-1 spent approximately 20% of an annual $35,000 expense budget on CZUMAK, which was more than Account Executive-1 spent on any other customer of the Telecommunications Firm.

During the same time period, CZUMAK served as a reference for other potential clients of the Telecommunications Firm. For example, in approximately 2011, another account executive from the Telecommunications Firm (“Account Executive-2”) was attempting to win a new client, and referred that potential client to CZUMAK. Subsequently, CZUMAK stated to Account Executive-1 that CZUMAK had heard that the Telecommunications Firm had won that contract with Account Executive-2’s new client, and thought that he, CZUMAK, now had a nice dinner coming his way

In an interview with law enforcement agents in March of this year, CZUMAK acknowledged that he was aware from training he had received from VAMC Northport that, as a government employee, he could not accept gifts worth more than $15 from an outside source.

CZUMAK is charged with one count of illegal salary supplementation and faces a statutory maximum sentence of five years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the work of the VA-OIG and the criminal investigators of the U.S. Attorney’s Office in the investigation of this case.

This prosecution is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorney Brian A. Jacobs is in charge of the prosecution.

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

U.S. v. Kenneth Czumak complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that AYMAN RABADI, of Yonkers, New York, was sentenced to 37 months in prison after having pleaded guilty last May to a charge of wire fraud relating to his impersonation of a Special Agent of the Federal Bureau of Investigation (“FBI”).

U.S. Attorney Preet Bharara said: “Rabadi’s actions were both criminal and heartless, as he used the authority and prestige of the FBI to lure victims into his greedy scheme. Today he learned the price of his behavior.”

According to the Complaint and Information, and statements made in prior proceedings in this matter in White Plains federal court:

From November 2010 until his arrest on April 18, 2013, RABADI impersonated an FBI agent, and in doing so, obtained at least $180,000 and other things of value from individuals he promised that he could provide various forms of federal assistance. RABADI was arrested shortly after he accepted $10,000 in cash from an undercover agent of the FBI who was posing as the niece of one of his victims. The money was purportedly a down payment toward the $300,000 RABADI requested in exchange for obtaining the release of the victim’s relatives from jail. He was arrested immediately after leaving the Yonkers restaurant where the payment was made, and was in possession of the $10,000.

RABADI, 52, has an extensive criminal history that includes a 2008 conviction in the state of New Jersey for the felony of theft by deception. In that case, he created the false impression that there were criminal charges pending against a victim, that RABADI was connected to law enforcement, and that he could resolve the charges favorably for $75,000.

In addition to the 37-month prison sentence, Judge Kenneth M. Karas ordered RABADI to forfeit $190,000 in ill-gotten gains and to make restitution to a victim of his fraud in the amount of $180,000.

Mr. Bharara praised the work of the FBI in this investigation.

The case is being handled by the Office’s White Plains Division. Assistant United States Attorney Elliott B. Jacobson is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment in Manhattan federal court charging KEITH ANTHONY, the former President and owner of a company that purported to provide financing for home purchases to people with poor credit, and a former employee of the company, ANTHONY PODIAS, for their alleged participation in a scheme that victimized more than 100 financially struggling people across the country. ANTHONY PODIAS was arrested earlier today and will be presented in Manhattan federal court this afternoon before U.S. Magistrate Judge Gabriel W. Gorenstein. KEITH ANTHONY has not yet been apprehended. The case is assigned to U.S. District Judge Paul A. Engelmayer.

According to the allegations contained in the Indictment unsealed today:

From at least November 2011, up to at least March 2013, the defendants perpetrated a scheme to defraud aspiring home owners who had poor credit and who therefore could not qualify for traditional mortgages. Through a company called CIG REALTY, which was located in Long Island, New York, the defendants promised to help financially struggling individuals purchase homes by providing private financing for the purchase in exchange for small deposits or down payments. The customers were then supposed to repay CIG REALTY until the customers’ credit had improved to the point where they could obtain mortgages from a bank. Despite the defendants’ claims, however, CIG REALTY did not purchase homes for customers and instead diverted most of the customers’ deposits into the personal accounts of KEITH ANTHONY. Through their scheme, CIG REALTY obtained at least approximately $800,000 from more than 100 potential home buyers throughout the United States.

When customers contacted CIG REALTY, they were told that they could either pick a specific house for purchase or have the company help them find one. Once a house was selected, CIG told customers that they needed to send a deposit and then CIG would purchase the house using money obtained from private investors. Once the house was purchased, the customer was to repay CIG at a 10% interest rate until their credit improved and they could obtain financing through a bank. In practice, however, after the customer sent his or her deposit, CIG either did not place a bid or placed a bid that was so low, it would not be accepted. In those instances where CIG’s bid was accepted, CIG would fail to follow through and the deal would fall apart. Customers seeking refunds were typically directed to different people at CIG, who gave different explanations for the delay, before CIG stopped calling them back. Of the more than $800,000 taken in from customers by CIG, only about $44,000 was paid out in refunds.

ANTHONY was the President and owner of CIG REALTY, which closed in late 2012. PODIAS was a supervisor. Both dealt directly with the customers, telling them where to send money, updating them on the progress of negotiations, and explaining why they could not get refunds. ANTHONY also diverted more than approximately $500,000 from CIG’s accounts into his personal accounts and into the accounts of another business that he controlled.

ANTHONY, 46, of Elmont, New York, and PODIAS, 39, of Levittown, New York, are each charged with one count of conspiracy to commit wire fraud, which carries a maximum sentence of 20 years in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants would be determined by the judge.

Mr. Bharara praised the FBI for its outstanding work in the investigation. Mr. Bharara also thanked the New York State Department of Financial Services for its assistance.

This matter is being handled by the Office’s General Crimes Unit. Assistant U.S. Attorney Patrick Egan is charge of the case.

The charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.

U.S. v. Keith Anthony and Anthony Podias Indictment

Preet Bharara, United States Attorney for the Southern District of New York, announced today that the United States Attorney’s Office settled a federal civil rights lawsuit brought on behalf of United States Army Reserve member William J. Pfunk (“Pfunk”), against COHERE COMMUNICATIONS, LLC (“COHERE”) and its president, STEVEN T. FRANCESCO (“FRANCESCO”). The lawsuit, which was filed in Manhattan federal court in December 2012, alleges that COHERE and FRANCESCO willfully violated the Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”) by terminating Pfunk’s employment because of his military service obligations and refusing to reemploy Pfunk upon his return from military service. The settlement, which was approved yesterday by United States District Judge Paul A. Engelmayer, requires COHERE and FRANCESCO to pay Pfunk $35,000 in lost wages and other damages and to implement a policy for military leaves of absence.

Manhattan U.S. Attorney Preet Bharara said: “Our soldiers should not have to be concerned that answering a call to serve their country means sacrificing their civilian jobs. This Settlement Agreement demonstrates that when employers disregard their legal obligations under USERRA, our Office will use all the legal tools available to us to hold them responsible for their violations and ensure compliance with the law in the future.”

According to the Complaint and other documents filed in Manhattan federal court:

Pfunk began working at COHERE, a telecommunications company located in Manhattan, in November 2011. Pfunk has been a member of the United States Army Reserves since 2006 and currently holds the rank of staff sergeant. In early April 2012, Pfunk received military orders requiring him to report to a four-day training event on April 9, 2012. Pfunk notified FRANCESCO that – due to his military obligations – he would be absent from work during the week of April 9, 2012. In response, FRANCESCO referred to Pfunk’s military obligations as “elective activities” and terminated Pfunk’s employment effective immediately. Pfunk requested an opportunity to discuss the situation with FRANCESCO upon his return from military service, but FRANCESCO declined to meet with him. Thereafter, a representative of Employer Support for the Guard and Reserve, an agency of the Department of Defense, contacted FRANCESCO in an effort to restore Pfunk’s employment, but FRANCESCO refused to reemploy Pfunk. When Pfunk informed FRANCESCO that he believed his rights under USERRA had been violated and that he would be seeking legal counsel if FRANCESCO was not willing to resolve the matter, FRANCESCO responded, “If you want a war, I can impact your life more than you can screw with mine” and advised Pfunk that he was “not to stop by for any reason.”

On May 28, 2014, Judge Engelmayer entered an Opinion and Order granting in part Pfunk’s motion for summary judgment and rejecting the contention by COHERE and FRANCESCO that Pfunk was an intern not entitled to the protections of USERRA. The Court held that no reasonable jury could conclude on the facts presented that Pfunk was an intern, and that, as a matter of law, Pfunk was an employee of COHERE for purposes of USERRA.

In the Settlement Agreement, COHERE and FRANCESCO admit and acknowledge that, within one day of FRANCESCO receiving an e-mail from Pfunk notifying him that Pfunk was going to be absent from work due to a military obligation, FRANCESCO terminated Pfunk’s employment with COHERE. COHERE and FRANCESCO also agree to compensate Pfunk for lost wages and other damages, implement a Military Leaves of Absence Policy that explicitly states that COHERE and FRANCESCO will take no adverse action against any employee or applicant for employment because he or she has taken, or expects to take, USERRA protected leave during the course of his or her employment, and to review the policy, in person, with all COHERE employees.

This case is being handled by the Office’s Civil Rights Unit. Assistant United States Attorneys Christine Schessler Poscablo and Lara K. Eshkenazi are in charge of the case.

William Pfunk v. Cohere Communications, LLC and Steven T. Francesco Opinion and Order
William Pfunk v. Cohere Communications, LLC and Steven T. Francesco Settlement Agreement

Preet Bharara, the United States Attorney for the Southern District of New York, and Thomas O’Donnell, the Special Agent-in-Charge of the New York Field Office of the United States Department of Health and Human Services Office of the Inspector General (“HHS-OIG”), announced the unsealing of a criminal Complaint against STEVEN JORDAN, a/k/a “Stevie Jordan,” a/k/a “Stevie J,” a cast member on a reality television show, for failing to pay over $1 million in child support obligations with respect to two children. JORDAN was arrested last night at his residence in Atlanta and is expected to be presented today in federal court in the Northern District of Georgia.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Steven Jordan failed to pay over $1 million in child support even while earning substantial income from his participation in a reality television show. By choosing to use the money for himself, rather than to pay his child support obligations, Jordan not only violated court orders, but committed a federal crime for which he will now be held responsible.”

HHS-OIG Special Agent-in-Charge Thomas O’Donnell said: “When individuals conduct themselves the way Steven Jordan is alleged to have done, it is an insult to those parents who struggle each day to fulfill their financial responsibilities to their children. The investigation of such offenses will continue by this office not only to hold accountable those parents who refuse to pay child support obligations, but to deter parents who may consider dodging their obligations in the future.”

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

Beginning in or about 1999, pursuant to an order of the New York County Family Court, STEVEN JORDAN was required to pay a minimum of $6,608 per month in child support for his two children. JORDAN’s child support obligation was increased in 2011 to a total of $8,557 per month. JORDAN has failed to pay over $1,107,412 in child support.

During the period in which JORDAN failed to satisfy his child support obligations, JORDAN was generating substantial income. Beginning in or about October 2012, for example, JORDAN became employed as a cast member on a reality television show for which he was paid approximately $27,000 per month. From January 2013 through August 2013, JORDAN received at least $193,000 for his work on the reality television show. Yet, during that same period, JORDAN did not make a single voluntary child support payment, and had a total of just $18,566 garnished and applied towards his child support obligations. From 2003 through 2013, JORDAN also received approximately $105,000 in royalties from a company that pays royalties to musicians.

JORDAN, 40, of Atlanta, Georgia, is charged with one count of failing to pay child support, which carries a maximum sentence of two years in prison. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as any sentencing of the defendant would be determined by the judge.

Mr. Bharara praised the work of HHS-OIG for their assistance in the investigation.

This case is being handled by the Office’s General Crimes Unit and Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Andrew DeFilippis is in charge of the prosecution.

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

U.S. v. Steven Jordan Complaint 14 Mag 1209

Preet Bharara, United States Attorney for the Southern District of New York, announced today that JOSEPH LOMBARDO, the founder and former chief executive officer of Prim Capital Corporation (“Prim”), was sentenced today to 18 months in prison for mail fraud and conspiracy to obstruct justice, arising from his scheme to defraud the National Basketball Players Association (“NBPA”) through the use of a fraudulent contract worth more than $2 million to Prim. LOMBARDO also attempted to obstruct a grand jury investigation of that fraudulent contract, including by testifying falsely and asking others to testify falsely in the grand jury. LOMBARDO, who was arrested in April 2013, along with Carolyn Kaufman, the then-chief compliance officer of Prim, pled guilty in November 2013 before U.S. District Judge Jesse M. Furman, who imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Not only did Joseph Lombardo attempt to steal millions of dollars from the National Basketball Players Association, he then tried to cover it up by creating an entirely fake agreement and asking others to lie for him under oath. Today’s sentence closes out Lombardo’s season of scam.”

According to the Complaint, Indictment, previously filed documents, and evidence presented at the trial of Kaufman:

Prim was founded by LOMBARDO. From 2001 until 2013, Prim was the primary outside investment advisory firm entrusted with the NBPA’s investments and finances. In that capacity, Prim performed various services for the NBPA, including assisting with the management of up to $250 million of the NBPA’s assets, reviewing the investments of individual NBA players, and conducting financial seminars for NBA players.

In the spring of 2012, as part of a U.S. Department of Labor (“DOL”) investigation, Prim was served with a grand jury subpoena requesting, among other things, copies of all agreements between Prim and the NBPA. In response, Prim produced a copy of a 2005 contract between the NBPA and Prim, under which Prim’s fee was $350,000 per year. That was the only contract that Prim produced at the time.

Several months later, in January 2013, after Prim learned that a law firm’s review of the NBPA was going to be made public in the near future, Prim produced to the DOL a previously undisclosed contract with the NBPA (the “Purported 2011 Contract”). Prim’s fee under this contract was $602,000 per year for a five-year term, for a total of $3,010,000. The Purported 2011 Contract also contained a provision indicating that it could not be cancelled for any reason by the NBPA. The Purported 2011 Contract was supposedly signed in March 2011 by LOMBARDO, Gary Hall, who was the former NBPA General Counsel, and another NBPA employee.

An investigation revealed that Hall’s signature was not authentic, and that the Purported 2011 Contract was actually created at Prim months after the death of Gary Hall. LOMBARDO had arranged for the creation of a signature stamp capable of stamping the signature “Gary A. Hall,” and used the stamp to falsify Hall’s signature months after his death.

In addition, the investigation revealed that LOMBARDO and Kaufman had agreed and attempted to obstruct a grand jury investigation. During the course of the investigation, both LOMBARDO and Kaufman appeared before the grand jury and provided false and misleading testimony. Kaufman testified, among other things, that she had not spoken with anyone regarding her testimony prior to testifying. However, in a recorded conversation prior to appearing before the grand jury, LOMBARDO gave her specific instructions on how to answer questions before the grand jury, and said that his “life is in [her] hands.” Kaufman also testified that she learned in March 2011 that the Purported 2011 Contract had been executed that same month. But the Purported 2011 Contract had not been fraudulently created until at least nine months later. In another recorded conversation, LOMBARDO instructed another individual that, if he provided certain false information to the grand jury about the creation of the fraudulent contract, “[w]e’re home free.” In a third recorded conversation, LOMBARDO instructed another individual to provide false information and said, “It’s important that we didn’t doctor this document up, okay?”

In addition to the prison term, LOMBARDO, 73, of Gates Mills, Ohio, was sentenced to three years of supervised release. He was also ordered to pay a $10,000 fine and a $200 special assessment.

LOMBARDO’s co-defendant Carolyn Kaufman was convicted of all counts against her—conspiracy to obstruct justice, obstruction of justice, and perjury—after an approximately two-week trial in December 2013. On May 21, 2014, Kaufman was sentenced by Judge Furman to three years’ probation with a special condition of six months’ home confinement, and was ordered to pay a $25,000 fine and a $300 special assessment, and to perform 500 hours of community service.

Mr. Bharara praised the outstanding work of the U.S. Department of Labor, Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, and the U.S. Department of Labor, Office of Labor-Management Standards.

This case is being handled by the Public Corruption Unit of the U.S. Attorney’s Office. Assistant United States Attorneys Daniel C. Richenthal and Paul M. Krieger are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States settled a federal civil rights lawsuit against the architects of 2 Gold Street, a rental apartment building in Lower Manhattan. The lawsuit, which was filed in Manhattan federal court in 2013, alleges that the architect AVINASH K. MALHOTRA and his business, AVINASH K. MALHOTRA ARCHITECTS, designed 2 Gold Street in violation of the accessible design and construction provisions of the federal Fair Housing Act, which require that new multi-family housing complexes include certain features accessible to persons with disabilities. The settlement, which was approved today by U.S. Chief District Judge Loretta A. Preska, requires MALHOTRA and his firm to retain an accessibility expert to review all their ongoing architectural designs for buildings subject to the Fair Housing Act, dedicate $45,000 to compensate people harmed by the inaccessible conditions at 2 Gold Street, and pay a $35,000 civil penalty. Previously, the United States settled with the developers of 2 Gold Street, who agreed to make extensive retrofits at the building, dedicate up to $300,000 to compensate people harmed by the inaccessible conditions at 2 Gold Street, and pay a $35,000 civil penalty.

Manhattan U.S. Attorney Preet Bharara said: “As design professionals, architects have a clear obligation under the Fair Housing Act to ensure that residential buildings are accessible to people with disabilities. When architects disregard that obligation, our Office will use all the legal tools available to us to hold them responsible for such failures and craft remedies to ensure that their designs will be accessible in the future.”

According to the allegations contained in the Complaint and the factual admissions made by MALHOTRA in the consent decree entered by the Court:

2 Gold Street is a 650-unit rental building located in Lower Manhattan. MALHOTRA, the architect of record for 2 Gold Street, provided the architectural drawings and design specifications used by the construction contractors to construct the building. As built, 2 Gold Street had multiple inaccessible features, including insufficient space in bathrooms and kitchens for people in wheelchairs; high thresholds interfering with accessible routes; sinks, ranges, outlets, and mailboxes not fully usable by people in wheelchairs; and protruding objects not detectable by canes used by people with visual impairments.

Inaccessible features at 2 Gold Street were first brought to the attention of the United States by testing performed by the Fair Housing Justice Center. The U.S. Attorney’s Office frequently relies on testers to determine whether property owners are engaging in discrimination on the basis of race, disability, or other protected characteristics, and frequently files lawsuits based on the results of testing.

The consent decree approved today requires AVINASH K. MALHOTRA and AVINASH K. MALHOTRA ARCHITECTS to retain an accessibility expert to review and advise them on each of their new design projects that is subject to the Fair Housing Act, train employees on the requirements of the Fair Housing Act, dedicate $45,000 to compensate people who have been harmed by Fair Housing Act violations at 2 Gold Street, and pay a $35,000 civil penalty to the United States.

Under the consent decree, a person may be entitled to receive monetary compensation if he or she was:

• Discouraged from living at 2 Gold Street because of a lack of accessible features;
• Limited in the full use or enjoyment of an apartment or amenity at 2 Gold Street due to a lack of accessible features;
• Financially affected by having an apartment at 2 Gold Street made more accessible to persons with disabilities;
• Prevented from having visitors because of a lack of accessible features at 2 Gold Street; or
• Otherwise injured by the lack of accessible features or discriminated against on the basis of disability at 2 Gold Street.

People who may be entitled to compensation should file a claim by contacting the Civil Rights Complaint Line at (212) 637-2987 (a TDD line is available at (212) 637-0039), using the Civil Rights Complaint Form available on the U.S. Attorney’s Office’s website, www.usdoj.gov/usao/nys, or sending a written claim to:

U.S. Attorney’s Office, Southern District of New York

Attn: Chief, Civil Rights Unit

86 Chambers Street, 3rd Floor

New York, New York, 10007

This case is being handled by the Office’s Civil Rights Unit. Assistant U.S. Attorneys Carina H. Schoenberger, Li Yu, Emily E. Daughtry, and Jessica J. Hu are in charge of the case.

U.S. v. 2 Gold LLC, et al. Consent Decree.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that SETH BEOKU BETTS, a principal of Betts and Gambles Global Equities, LLC (“Betts and Gambles”), was sentenced today to 51 months in prison by the Honorable Shira A. Scheindlin in connection with his role in a scheme to defraud a public university (the “University”) in the Midwest of more than $8 million. BETTS solicited money from the University for the purposes of trading in collateralized mortgage obligations (“CMOs”). He then misappropriated the funds, including at least $2 million to purchase luxury automobiles and a personal residence in Florida. BETTS previously pled guilty to committing securities fraud before Magistrate Judge Gabriel W. Gorenstein on February 18, 2014.

Manhattan U.S. Attorney Preet Bharara said: “Seth Betts purported to invest more than $8 million of a public university’s money in mortgage-backed securities. Instead he invested the university’s money in his own extravagant lifestyle, including luxury Italian automobiles and a beachfront Florida residence. With today’s sentence, Betts will trade in his life of luxury for life in a federal prison.”

According to a Complaint filed in Manhattan federal court, the defendant’s guilty plea, and sentencing:

Between July 2008 and December 2008, BETTS presented himself to the University as a principal of Betts and Gambles. In that capacity, he solicited the University’s investment in CMOs, which he claimed he would then sell to third-party buyers in short order at predicted profits. CMOs are fixed income mortgage-backed securities, in which Betts claimed he had expertise. As a result of his solicitation, the University invested approximately $8.165 million dollars of the University’s money with BETTS. BETTS never delivered any CMOs to the University or returned any funds prior to his arrest. Instead, he converted millions of dollars to his own use to purchase beachfront property, pay personal expenses, and buy multiple high-end automobiles, including a Ferrari and a Maserati.

In addition the prison term BETTS, 38, of Boynton Beach, Florida, was sentenced to three years of supervised release. He was also ordered to pay $8,165,000 in forfeiture and restitution, and a $100 special assessment fee.

Mr. Bharara praised the work of the Criminal Investigators of the United States Attorney's Office and the Federal Bureau of Investigation, which jointly investigated this case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Michael A. Levy and Telemachus P. Kasulis are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and John Dalrymple, Deputy Commissioner for Services and Enforcement for the Internal Revenue Service (IRS), announced today that the United States filed a civil injunction complaint in Manhattan federal court alleging that HAROLD LEVINE, an attorney in New York, has promoted abusive tax shelters while serving as a partner and head of the tax practice group in the New York office of the law firm Herrick Feinstein LLP. LEVINE currently is a partner and chair of the tax practice group in the New York office of the law firm Moritt Hock & Hamroff LLP.

The Complaint asserts that LEVINE promoted, implemented and/or participated in at least 90 unlawful tax schemes designed to cheat the Government out of hundreds of millions of dollars in tax liability. According to the Complaint, LEVINE, operating together with other known tax-shelter promoters, used companies with phony losses on their books to shield millions of dollars of income garnered by other companies disposing of their assets. The Complaint alleges that, in an attempt to disguise the illegitimacy of these transactions, LEVINE knowingly told lies or caused the corporations involved in these unlawful transactions to tell lies concerning the supposed tax benefits of the transactions. As set forth in the Complaint, LEVINE received more than $5 million in fees as a result of his participation in these unlawful tax avoidance schemes. The Complaint seeks to bar LEVINE from organizing, promoting or selling any tax shelters that allegedly use an intermediary-type transaction or state tax credits designed to reduce or eliminate tax liabilities in the future, as well as any other plans or arrangements intended to secure tax benefits or unlawfully evade tax liabilities in exchange for fees. LEVINE may be subject to penalties in the future based on the fraudulent tax shelter conduct alleged in the Complaint.

Manhattan U.S. Attorney Preet Bharara said: “Those who promote illegal tax avoidance schemes are not simply committing a fraud on the United States Government. They are taking advantage of the hard-working, honest Americans who pay their share in taxes when the bill comes due. This Office will not tolerate those who unlawfully seek to game the system in order to evade their tax obligations.”

IRS Deputy Commissioner for Services and Enforcement, John Dalrymple, said: "This action demonstrates that the IRS will pursue those who cheat the tax system no matter how sophisticated or intricate the transactions may be. The vast majority of U.S. taxpayers pay their fair share. We owe it to them to stop tax cheating in whatever form it takes."

According to the allegations contained in the Complaint:

The abusive tax shelter transactions promoted by Levine include “intermediary transactions,” in which the corporate income taxes on the gains received from the sale of corporate assets are illegally avoided for the benefit of shareholders, and “state tax credit transactions,” in which a real estate project owner avoids paying taxes on the gains from the sale of the transferable state tax credits it earns or receives. Levine formed and/or used five corporations – termed “promoter entities” – to carry out these schemes. These promoter entities would acquire the asset-selling corporations and eliminate their capital gains tax using the promoter entities’ phony losses. With respect to the 90 unlawful transactions charged in the complaint, the promoter entities improperly deducted over $515 million in bad debt losses on their tax returns. The government estimates that the tax loss resulting from their promotion of the tax schemes at issue in this case exceeds $129 million, not including penalties and interest, virtually all of which may now be uncollectible due to the lack of assets remaining in the tax-avoiding corporations.

In particular, LEVINE promoted, implemented, and/or participated in over a dozen intermediary transactions, notwithstanding public IRS notices and regulations warning that the IRS considers such transactions “tax avoidance transactions,” and may challenge the tax results of any such transaction and assert penalties on those who promote or participate in them. LEVINE therefore attempted to disguise the true nature of the transactions to avoid IRS enforcement efforts. In addition, LEVINE also promoted, implemented, and/or participated in about 75 abusive state tax credit transactions which, similar to the intermediary transactions, were structured to permit real estate project owners to evade substantial tax liability while allowing LEVINE and others to profit from a portion of the tax savings.

This case is being handled by the Office’s Tax and Bankruptcy Unit. Assistant U.S. Attorneys Alicia M. Simmons and Tara M. La Morte are in charge of the case.

U.S. v. Harold Levine

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that GREGG PIERLEONI pleaded guilty to fraud and tax evasion charges arising from his embezzlement of more than $5.7 million from his employer. PIERLEONI pleaded guilty to one count of mail fraud and one count of tax evasion today in White Plains federal court before U.S. District Judge Vincent L. Briccetti, who set a sentencing date for September 18, 2014.

U.S. Attorney Preet Bharara stated: “Gregg Pierleoni indulged in an opulent lifestyle, at the expense of his employer and the American taxpayer. With his guilty plea today, he will now have to pay for that decision.”

According to the allegations in court documents filed in White Plains federal court:

PIERLEONI was the Chief Financial Officer (“CFO”) of a privately held moving and storage company that maintained its headquarters in Westchester County. As CFO, Pierleoni was authorized to write checks drawn on, and transfer funds from, bank accounts held by the moving company and a related entity. From about October 2006 to about April 2013, PIERLEONI paid more than $5.7 million in personal expenses with the moving company's funds. These personal expenses included collectible items, sports memorabilia, airline tickets and other travel expenses, artwork, tickets to sporting events, and meals in restaurants.

PIERLEONI also failed to report the $5.7 million he embezzled from the moving company as income on his personal tax returns for 2007 through 2011 and failed to file a U.S. Individual Income Tax Return Form 1040 for 2012. The resulting loss to the Internal Revenue Service was more than $1.4 million.

PIERLEONI, 59, of New Fairfield, CT, faces sentences of 25 years’ imprisonment on the mail fraud and wire fraud counts. The maximum statutory sentences are prescribed by Congress and provided here for informational purposes, as any sentencing of the defendant would be determined by the judge.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and the Internal Revenue Service - Criminal Investigation.

This case is being handled by the Office’s White Plains Division. Assistant U.S. Attorney James McMahon is in charge of the criminal prosecution.

U.S. v. Gregg Pierleoni Superseding Information

Preet Bharara, the United States Attorney for the Southern District of New York, and Brian A. Swain, the Acting Special Agent-in-Charge of the New York Office of the United States Secret Service, announced criminal charges against five New York City residents for their participation in a large-scale counterfeit credit card scheme involving over 150 stolen credit card numbers and over half a million dollars in losses to victims. The defendants – LUIS GUSTAVO TAVAREZ, ANTHONY REYNOSO, PLINIO PINEDA LOPEZ, VINCENT D. ESPINAL, and WARNER ALVAREZ ALMANZAR – obtained victims’ credit card numbers from illicit “carding” websites in which cybercriminals sell stolen credit card numbers and other information. TAVAREZ, REYNOSO, and LOPEZ were arrested this morning and will be presented later today in Manhattan federal court before U.S. Magistrate Judge Debra Freeman. ESPINAL and ALMANZAR remain at large.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, these defendants bought stolen credit card information from cybercriminals to go on a year-long shopping spree with other people’s money. We commend the U.S. Secret Service for their work in putting an end to the shopping spree.”

U.S. Secret Service Acting Special Agent-in-Charge Brian A. Swain said: "As today’s technology continues to evolve, cybercriminals use these advances and enhancements to perpetrate an expanding range of crimes. The Secret Service is committed to deploying cutting edge investigative practices and technology in order to bring these offenders to justice."

According to the allegations in the Criminal Complaint unsealed today:

From at least April 2013 through April 2014, the defendants and their co-conspirators obtained stolen credit card information from “carding” websites, which are Internet-based forums in which users sell and exchange stolen credit card numbers, and/or directly from computer hackers. The defendants encoded that stolen account information onto counterfeit credit cards, which they subsequently used to make hundreds of unauthorized purchases of store gift cards and merchandise at national retail chains in New York, New Jersey, Pennsylvania, Connecticut, Rhode Island, and Massachusetts. The gift cards and retail items were then sold to others or returned to the stores for a cash refund.

As part of the scheme, the defendants and their co-conspirators obtained stolen account information for more than 150 credit card accounts and used that stolen information to make more than $500,000 in unauthorized purchases.

TAVAREZ, 34, REYNOSO, 25, LOPEZ, 24, and ESPINAL, 25, of Bronx, New York, and ALMANZAR, 20, of New York, New York, are each charged with one count of conspiracy to commit access device fraud, which carries a maximum penalty of seven-and-a-half years in prison, and one count of aggravated identity theft, which carries a mandatory sentence of two years in prison. The maximum statutory sentences are prescribed by Congress and are provided here for informational purposes, as any sentencing of the defendants would be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the Secret Service. He also thanked the Office of Homeland Security Investigations for their assistance with this case.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Alexander Wilson is in charge of the prosecution.

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

U.S. v. Tavarez, Luis Gustavo, et al. complaint 14 mag 1160

Preet Bharara, the United States Attorney for the Southern District of New York, announced that BONIFACIO FLORES-MENDEZ, 34, of Queens, New York, was sentenced today in Manhattan federal court to life in prison in connection with his co-leadership, along with his brother Isaias Flores-Mendez, of a long-running sex trafficking conspiracy that employed force, fraud, and coercion to make young women work as prostitutes against their will. FLORES-MENDEZ was also ordered to forfeit approximately $1.7 million, and to pay $84,000 in restitution to a victim of his crime. He was sentenced by U.S. District Judge Katherine B. Forrest.

Manhattan U.S. Attorney Preet Bharara said: “Bonifacio Flores-Mendez waged a decade-long campaign of terrorizing women, coercing them into prostitution, assaulting them, even attempting to run a victim over in his car and threatening the health of her infant child. He has no doubt caused his victims grave physical and psychological harm. The long prison sentence he has received today cannot undo that harm, but it will ensure that Bonifacio Flores-Mendez does not prey on more women or children.”

In sentencing BONIFACIO FLORES-MENDEZ, Judge Forrest said: “We have to refuse to be a people who will allow such conduct to go unpunished, and the punishment must be severe. On those mornings when the victims woke up – perhaps under a table, perhaps in a windowless room, perhaps in a basement – they may have wondered whether one day the nightmare would end and that somehow justice would be done. Today, in holding you responsible for your crimes, some justice is done.”

According to the Indictment, other documents filed in Manhattan federal court, and statements made at various proceedings in this case, including today’s sentencing:

Since at least 2001, when he was first arrested for promoting prostitution, BONIFACIO FLORES-MENDEZ, a Mexican national, has been engaged in the business of sexually exploiting vulnerable women for his own financial gain.

BONIFACIO FLORES-MENDEZ played an active role in the trafficking of at least one young woman (“Victim-1”), who was forced to engage in prostitution against her will by Isaias Flores-Mendez. At the age of 17, Victim-1 was romanced by Isaias Flores-Mendez and lured to the U.S. with the promise of a better life for her and her baby. BONIFACIO FLORES-MENDEZ and Isaias Flores-Mendez arranged for Victim-1 to travel to New York, where she was met by BONIFACIO FLORES-MENDEZ. Once in New York, BONIFACIO FLORES-MENDEZ made Victim-1 sleep on a floor with her child without any blankets. BONIFACIO FLORES-MENDEZ later locked Victim-1 in a windowless basement and deprived her and her child of sufficient food. Victim-1 was then forced to work as a prostitute against her will. When Victim-1 attempted to resist, Isaias Flores-Mendez repeatedly beat and verbally abused her. After she escaped, BONIFACIO FLORES-MENDEZ and his brother continued to torment Victim-1, on one occasion trying to run her over with their car.

BONIFACIO FLORES-MENDEZ also caused at least one other woman (“Victim-A”) to work for him as a prostitute, and on at least one occasion, BONIFACIO FLORES-MENDEZ beat Victim-A.

In addition to his role in the direct sex trafficking of women by force, fraud, and coercion, BONIFACIO FLORES-MENDEZ, together with his brother Isaias Flores-Mendez, also owned and operated a sprawling network of brothels in and around New York City that sexually exploited at least five women per day, each of whom saw up to 20 customers per day. Many of the victims of this sex trafficking-prostitution enterprise were forced to engage in prostitution against their will under abhorrent conditions.

The Indictment filed on May 23, 2013 charged 17 defendants. Sixteen of those defendants, including BONIFACIO FLORES-MENDEZ, have pled guilty, and one has entered into a deferred prosecution agreement. The defendants who have pled to date have agreed to forfeit, in total, more than $1.7 million. The following defendants have pled guilty, and have been sentenced as described below:

• Carlos Garcia-De La Rosa pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise and possession of child pornography on January 9, 2014, and was sentenced on May 29, 2014, to 48 months in prison.
• Pedro Degante-Galeno pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on November 13, 2013, and was sentenced on May 16, 2014, to the statutory maximum term of 60 months in prison to be followed by two years of supervised release.
• Isaias Flores-Mendez pled guilty to conspiring to engage in sex trafficking by force, fraud, and coercion on January 7, 2014, and was sentenced on May 14, 2014, to life in prison.
• Sergio Degante-Ortiz pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on January 6, 2014, and was sentenced on May 8, 2014, to time served and one year of supervised release.
• Valentin Jiamez-Dolores pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on December 10, 2013, and was sentenced on April 25, 2014, to the statutory maximum term of 60 months in prison to be followed by two years of supervised release.
• Mario Pedro Martinez-Barrera pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on December 12, 2013, and was sentenced on April 25, 2014, to 33 months in prison to be followed by two years of supervised release.
• Javier Leon-Chavez pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on December 18, 2013, and was sentenced on April 11, 2014, to 48 months in prison to be followed by two years of supervised release.
• Alberto Jesus Martinez-Miranda pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on October 29, 2013, and was sentenced on April 9, 2014, to the statutory maximum term of 60 months in prison and two years of supervised release.
• Miguel Angel Che-Veliz pled guilty to obstructing justice on January 22, 2014, and was sentenced on April 4, 2014, to time served.
• Isidro Degante-Galeno pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on December 3, 2013, and was sentenced on April 1, 2014, to the statutory maximum term of 60 months in prison followed by three years of supervised release.
• Alejandro Degante-Galeno pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on October 24, 2013, and was sentenced on March 6, 2014, to the statutory maximum term of 60 months in prison followed by two years of supervised release.
• Manuel Gomez-Batana pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on September 25, 2013, and was sentenced on February 20, 2014, to the statutory maximum term of 60 months in prison to be followed by two years of supervised release.
• Margarito Degante pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on October 29, 2013, and was sentenced on February 14, 2014, to the statutory maximum term of 60 months in prison followed by two years of supervised release.
• Marcos Mendez Perez pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on October 10, 2013, and was sentenced on January 31, 2014, to the statutory maximum term of 60 months in prison to be followed by three years of supervised release.
• Francisco Mendez Ramirez pled guilty to conspiring to engage in a sex trafficking-prostitution enterprise on October 21, 2013, and was sentenced on January 31, 2014, to the statutory maximum term of 60 months in prison to be followed by three years of supervised release.

Mr. Bharara praised the outstanding investigative work of the Department of Homeland Security, Homeland Security Investigations.

This prosecution of this case is being overseen by the Office’s Violent and Organized Crime Unit. Assistant United States Attorneys Amanda Kramer and Rebecca Mermelstein are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), Brian M. Hickey, the Special Agent-in-Charge of the U.S. Department of Education Office of Inspector General’s Eastern Regional Office (“ED-OIG”), and David J. Schnorbus, the Special Agent-in-Charge of the New York Field Office of the U.S. Department of State’s Diplomatic Security Service (“DSS”), announced charges today against five individuals for their participation in a scheme to fraudulently represent that their for-profit schools were complying with immigration and financial aid regulations. Defendants SURESH HIRANANDANEY, a/k/a “Sam Hiranandaney,” LALIT CHABRIA, ANITA CHABRIA, and SEEMA SHAH are charged with student visa fraud and wire fraud, and defendants SURESH HIRANANDANEY, LALIT CHABRIA, ANITA CHABRIA, and SAMIR HIRANANDANEY are charged with student financial aid fraud. All of the defendants were arrested today and presented before U.S. Magistrate Judge Gabriel W. Gorenstein in Manhattan federal court this afternoon.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, through their for-profit schools, the defendants defrauded the government and exploited their students. For their personal financial gain, the defendants allegedly made false certifications about the schools’ compliance with visa and financial aid regulations when, in fact, they were not. I want to thank our law enforcement partners at ICE-HIS, the State Department and the Department of Education for their excellent work in investigating this case.”

ICE HSI Special Agent-in-Charge James T. Hayes, Jr., said: "The defendants arrested today allegedly orchestrated a wide ranging fraud scheme, which included the falsification of student and financial aid files and failure to report to the government students who were non-compliant with the terms of their student visas, that victimized American taxpayers. HSI leads the Document Benefit Task Force to protect the interests of legitimate educational institutions seeking to enrich our culture through the education of foreign students and to close vulnerabilities in the visa approval and school certification processes.”

ED-OIG Special Agent-in-Charge Brian Hickey said: “Federal student aid exists so that individuals can make their dream of a higher education a reality, it’s not a personal slush fund for corrupt school owners. Ensuring that anyone who steals student aid or games the system for their own selfish purposes, as today’s actions allege these individuals did, are stopped and held accountable for their criminal actions is a big part of our mission.”

DSS Special Agent-in-Charge David J. Schnorbus said: “The United States Department of State supports international education and welcomes foreign students. In situations where foreign students do not fulfill their responsibilities of properly maintaining their non-immigrant status or purposefully ignore their visa status regulations, and school owners place financial greed above education by exploiting the student exchange and visitor visa system, our national security becomes compromised. The Diplomatic Security Service works tirelessly, both domestically and overseas, to strengthen our national security and play a vital role in securing our nation’s borders through combatting this and other types of visa fraud.”

As alleged in the Complaint unsealed today in Manhattan federal court:

Each of the defendants was associated with the Micropower Career Institute (“MCI”), a for-profit school with five campuses in New York and New Jersey, or the Institute for Health Education (“IHE”), a for-profit school located in New Jersey. SURESH HIRANANDANEY, a/k/a “Sam Hiranandaney,” was MCI’s President; his sister, ANITA CHABRIA, was MCI’s Vice President; and his brother-in-law, LALIT CHABRIA, was MCI’s Vice President and IHE’s President. SURESH HIRANANDANEY’s son, SAMIR HIRANANDANEY, was the director of MCI’s Hauppauge campus. SEEMA SHAH was a high-level employee at MCI’s Manhattan campus.

Student Visa Fraud Conspiracy

(SURESH HIRANANDANEY, LALIT CHABRIA, ANITA CHABRIA, and SAMIR HIRANANDANEY)

(SURESH HIRANANDANEY, LALIT CHABRIA, ANITA CHABRIA, and SEEMA SHAH)

The named defendants are charged with failing to report to immigration authorities that foreign citizens were not attending classes at MCI and IHE, as required. Foreign citizens are granted F-1 student visas to remain in the United States as long as they are pursuing full courses of study at approved schools. If a student fails to attend classes as required, the school is required to inform immigration authorities, so that the authorities may terminate that student’s visa.

The defendants represented to immigration authorities that MCI and IHE were legitimate institutes of higher learning where foreign students carried full course loads. In reality, the majority of foreign students at MCI and IHE did not attend the required number of classes. Rather than reporting this to authorities, as required, the defendants remained silent and continued to collect approximately $10,000 in annual tuition from each of these students. When a campus of MCI came under regulatory scrutiny, the defendants would simply transfer students with delinquent attendance to an affiliated school (such as another MCI campus or IHE) that was not under scrutiny.

Wire Fraud Conspiracy

(SURESH HIRANANDANEY, LALIT CHABRIA, ANITA CHABRIA, and SEEMA SHAH)

The defendants named above are charged with using wire communications to commit the student visa fraud described above.

Student Financial Aid Fraud Conspiracy

(SURESH HIRANANDANEY, LALIT CHABRIA, ANITA CHABRIA, and SAMIR HIRANANDANEY)

The defendants named above are charged with fabricating and manipulating documents in student financial aid files at MCI to hide MCI’s widespread non-compliance with ED regulations. ED provides financial aid to eligible low-income post-high school students to assist them in affording higher education. MCI did not comply with federal laws and regulations governing the administration of such financial aid. When ED reviewed MCI’s administration of financial aid in 2011, rather than admit its non-compliance, the defendants instead “fixed” student files by altering documents in the files, or in some cases creating entirely fabricated documents. The defendants engaged in this manipulation so that ED would not terminate MCI’s eligibility for financial aid funds.

Attached are charts containing the charges against the defendants and the maximum penalties they face, as well as the defendants’ ages and residences. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.

Mr. Bharara praised the investigative work of ICE HSI, ED-OIG, and DSS.

Assistant United States Attorneys Samson Enzer and Margaret Graham of the Office’s General Crimes Unit are in charge of the prosecution. Assistant United States Attorneys Andrew Adams and Christine Magdo of the Office’s Money Laundering and Asset Forfeiture Unit are handling the asset forfeiture portion of the case.

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

Click here to view chart(s)

U.S. v. Suresh Hiranandaney, et al., Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, and Michele M. Leonhart, the Administrator of the United States Drug Enforcement Administration (“DEA”), announced today that 21 citizens of the Dominican Republic have been charged with conspiring to impersonate United States law enforcement officers, extortion, and wire fraud. Beginning two weeks ago, authorities in the Dominican Republic, acting on requests from the United States, located and arrested 17 of the defendants in the Dominican Republic, who are now awaiting extradition proceedings in that country. Four defendants remain at-large.

The defendants are alleged to have engaged in a scheme to extort money from individuals located in the United States by posing as DEA Agents or other representatives of the United States Government. The defendants targeted individuals who they believed had illicitly purchased prescription pharmaceuticals through call centers located in the Dominican Republic. As part of the defendants’ scheme, a member of the conspiracy would call a victim located in the United States and identify him- or herself as a DEA agent or representative of another United States agency. The victim would then be told that he or she was under investigation for illegally purchasing prescription drugs, and that the only way to avoid arrest and jail would be to pay a “fine” or some other fee to the DEA. In total, the defendants and others who participated in this scheme and copy-cat schemes demanded at least $3.5 million, and received at least $880,000, in extortionate payments from victims in the United States.

United States Attorney Preet Bharara said: “These defendants generated untold millions of dollars in illicit profits by posing as DEA Agents or other U.S. law enforcement officers. They carried out the internet or telephone equivalent of displaying phony badges to rip off their victims. In the process, the defendants assaulted the good name of the DEA. We commend the DEA for putting a stop to this criminal charade.”

DEA Administrator Michele M. Leonhart said: “These alleged criminals not only bilked thousands of dollars from unsuspecting Americans but they also called into question the integrity and honor of the DEA and all law enforcement. The DEA, with the assistance of our Dominican Republic counterparts, have worked diligently to identify, target and, ultimately, dismantle this group of alleged scam artists. We urge anyone who receives a similar threatening phone call to hang up and contact local or federal law enforcement immediately.”

According to the Indictment, which was unsealed today in Manhattan federal court:

From at least 2008, up to and including March 2013, JULIO SANTANA JOSEPH, FRANCISCO RUBIO MONTALVO, ANGEL PEREZ AVILES, a/k/a “Mike,” DEIVY BURGOS FELIX, CHENGY PADILLA GARO, GEURY GUZMAN ROSA, DANTE CAMINERO VASQUEZ, SAUL HERNANDEZ BATISTA, MOISES DE LA CRUZ DECENA, CELSO MIGUEL SARITA, EDWARD CUEVAS ESCANO, SANTIAGO GUZMAN GONZALEZ, JOSE ARISMENDY CUESTA ABREU, CARLOS PERDOMO ROSARIO, a/k/a “El Depo,” ELINSON REYES ALMONTE, YEURY AMARANTE ROSARIO, MARIO ANTONIO PLACIDO, YGNACIO ESTEVEZ MESSON, BORIS GIL GUERRERO, VICTOR VELASQUEZ ROCHTTIS, a/k/a “Vitico,” and RAFAELA MEDINA, a/k/a “Carolina,” the defendants, and others known and unknown, engaged in a scheme to extort money from individuals located in the United States by posing as DEA Agents or other representatives of the United States Government (the “Impersonation and Extortion Scheme”). Each of the defendants made extortionate calls and/or received money from victims who had been extorted. The Impersonation and Extortion Scheme targeted individuals who the defendants believed had purchased prescription drugs unlawfully over the internet or through call centers. The illicit websites and call centers at issue sold pills to customers that would typically require a doctor’s prescription to purchase. The illicit websites and call centers did not require consumers to obtain the required prescriptions before purchase (hereinafter, the pills sold in this manner are referred to as the “Prescription Drugs”).

The DEA Impersonation and Extortion Scheme typically operated as follows: First, certain of the defendants and other individuals not named as defendants who engaged in the Impersonation and Extortion Scheme (the “Extorters”) purchased, or otherwise obtained, lists of individuals who the Extorters believed had previously purchased Prescription Drugs over the internet on illicit websites or through illicit call centers located in the Dominican Republic (“Customer Lists”). The Customer Lists generally contained the names, addresses, credit card numbers and other information for individuals located in the United States.

Second, an Extorter contacted a customer from the Customer Lists (the “victim”) and identified him- or herself as a DEA agent or representative of another United States agency. Often, the Extorter provided the name of an actual DEA supervisor from a DEA office located in the United States. The Extorters attempted to extort money from victims throughout the United States, including victims in Manhattan and the Bronx, New York.

During a call with a victim, an Extorter falsely informed the victim that authorities in the Dominican Republic or elsewhere were investigating or criminally charging the victim as a result of his or her illegal purchase of Prescription Drugs that were sent to the victim from the Dominican Republic. In a single call or series of calls and emails, the Extorter detailed the purported criminal charges and potential penalties facing the victim, including imprisonment, and the likelihood that the victim would be arrested and extradited to a foreign country for prosecution.

During a call with the victim, an Extorter also generally informed the victim that he or she could dispose of, or avoid, the criminal charges by making a cash payment. In order to do so, the Extorter had the victim transfer between several hundred and several thousand dollars either (i) through a money remitting service to a particular individual in the Dominican Republic, or (ii) via wire transfer to a particular bank account located in the Dominican Republic.

Following receipt of a payment from a victim, an Extorter typically contacted the victim again. During the follow-up conversations, the Extorter demanded additional payments and threatened to have criminal charges re-filed against the victim. If the victim refused to make, or to continue to make, extortion payments to the Extorter, the Extorter threatened the victim with his or her imminent arrest, with searches of the victim’s home in the United States by federal law enforcement officers, or with public disclosure of the victim’s prior purchases of Prescription Drugs.

The Extorters typically made extortion calls from illicit call centers located in the Dominican Republic (the “Call Centers”). In these Call Centers, the Extorters gathered together and used multiple computers equipped with Voice Over Internet Protocol (“VOIP”) technology to make extortion calls to victims listed on a Customer List. VOIP is a means of transmitting digital voice communications over the internet via a high-speed internet connection. The VOIP technology allowed the Extorters to contact their victims by using VOIP lines that made it appear as though the Extorters were calling from telephone numbers with area codes from within the United States. For example, the Extorters used VOIP lines that made it appear as though the Extorters were calling from, among other places, Washington, D.C., and New York, New York, when, in truth, the Extorters were located in the Dominican Republic. The Extorters often made hundreds of extortion calls a day from these Call Centers to victims in the United States.

Once a particular victim made an extortion payment to one of the Extorters, the Extorter who received that payment often shared that victim’s contact information with other Extorters, who then besieged the victim with additional, repeated extortion attempts via telephone. While using these lines to further the Impersonation and Extortion Scheme, the Extorters often traded tips with other Extorters in the same Call Center on the best techniques to use to extort victims.

Beginning in June 2010, the DEA established a telephone hotline (the “Hotline”), to allow victims to report extortion attempts and other contacts with the defendants and other individuals who engaged in the Impersonation and Extortion Scheme and who posed as DEA and other federal agents. Since the Hotline was established in June 2010, through January 2013, the DEA received approximately 6,500 reports from victims of extortion attempts, nearly all of which followed substantially the same pattern described above. In sum, through the Hotline, the DEA has learned of the Extorters’ efforts to obtain over $3.5 million in extortion payments from victims, and of actual extortion payments from victims to the Extorters of over $880,000. These attempted extortions and actual extortion payment amounts reflect only what was reported to the DEA through the Hotline, and thus represent only a portion of the extortion payments that the Extorters have attempted to obtain, or actually obtained, from their victims.

Each of the defendants has been charged with one count of conspiracy to commit wire fraud, and one count of conspiracy to commit extortion, each of which carries a maximum potential penalty of 20 years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. Each of the defendants has also been charged with one count of conspiracy to impersonate a United States law enforcement officer, which carries a maximum potential penalty of 5 years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the DEA’s Special Operations Division, the New York Field Office of the DEA, the DEA’s Dominican Republic Country Office, the U.S. Department of Justice's Office of International Affairs, the Department of Homeland Security’s Homeland Security Investigations, and the Dominican National Directorate for Drug Control for their work in this investigation.

This prosecution is being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Ian McGinley and Adam Fee are in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

U.S. v. Julio Joseph 13 Cr 213 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MATTHEW TEEPLE, a former analyst for a hedge fund investment adviser located in San Francisco, California (“Investment Adviser A”), pled guilty today to participating in an insider trading scheme that resulted in at least $27 million in ill-gotten gains and losses avoided. Specifically, TEEPLE admitted that in 2008 he received and passed on to Investment Adviser A illegally obtained inside information about Foundry Networks, Inc. (“Foundry”), a technology company located in Santa Clara, California. This inside information included the fact – before it became public on July 21, 2008 – that Brocade Communications, Inc. (“Brocade”) was planning to acquire Foundry. TEEPLE pled guilty today before the Honorable James C. Francis, IV, United States Magistrate Judge.

Manhattan U.S. Attorney Preet Bharara said: “Matthew Teeple admitted that he received inside information from a tech company insider and passed it on to others, who reaped a windfall of at least $27 million. Teeple, the 85th defendant to be convicted of insider trading by plea or trial in this District since 2009, has earned himself a likely prison term.”

According to the agreement pursuant to which TEEPLE entered his plea of guilty today, the underlying criminal Complaint filed March 26, 2013, the Superseding Indictment filed February 20, 2014, and statements made during court proceedings:

TEEPLE obtained material, non-public information relating to Foundry, including information relating to monthly and quarterly financial reporting, well before such information became public. More specifically, the inside information that TEEPLE received from an insider at Foundry included quarterly financial performance numbers during the first quarter of 2008, information regarding Brocade’s intended acquisition of Foundry in July 2008, and information about developments regarding the Brocade-Foundry transaction in October 2008.

TEEPLE passed the inside information to others, including another analyst at Investment Adviser A. Using the inside information TEEPLE provided about Foundry, Investment Adviser A reaped gains and avoided losses of at least $27 million in 2008.

Others TEEPLE tipped with the inside information included two acquaintances of his, John Johnson and Karl Motey. Regarding Brocade’s 2008 acquisition of Foundry, TEEPLE told both Johnson and Motey not only that Foundry was going to be acquired by Brocade, but also the approximate acquisition price, which turned out to be substantially accurate. Johnson traded on this information and profited in excess of $136,000. On March 18, 2013, he pled guilty to conspiracy and securities fraud charges before United States District Judge John F. Keenan.

TEEPLE, 42, of San Clemente, California, pled guilty to Count One of a four-count Superseding Indictment. Count One charges a conspiracy to commit insider trading and carries a maximum term of five years in prison. As part of his guilty plea, TEEPLE agreed to forfeit $553,890, and further agreed not to seek a term of imprisonment other than the statutory maximum term of five years. TEEPLE is scheduled to be sentenced by the Honorable Robert P. Patterson on September 26, 2014, at 10:00 a.m. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

TEEPLE’s co-defendant, David Riley, is scheduled to proceed to trial before Judge Patterson on July 7, 2014.

Mr. Bharara praised the investigative work of the FBI and thanked the Securities and Exchange Commission, which has filed civil charges in a separate action.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Telemachus P. Kasulis and Sarah E. McCallum, and Special Assistant U.S. Attorney Michael P. Holland, are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the conviction of KHALIF PHILLIPS, a former New York City Correction Officer, in connection with his smuggling of marijuana into Riker’s Island for inmates to redistribute. Following a one-week trial, the jury convicted PHILLIPS on the second day of deliberations of each of the three counts that he faced. PHILLIPS is scheduled to be sentenced on September 25, 2014, before U.S. District Judge Richard J. Sullivan, who presided over the trial.

As alleged in the Indictment against PHILLIPS and established by the evidence admitted at trial:

PHILLIPS worked as a Correction Officer from February 2006 until his arrest in June 2013. He was assigned to the George R. Vierno Center (GRVC) on Riker’s Island. On multiple occasions in 2012, PHILLIPS smuggled marijuana into the GRVC and provided it to inmates housed in that facility, who in turn sold it to other inmates. PHILLIPS coordinated with the wives and girlfriends of his inmate co-conspirators, who met with him to supply him with marijuana and to pay him for his smuggling activities. Among the occasions where PHILLIPS brought packages of marijuana into Riker’s Island were October 8, 2012, and December 23, 2012. Typically, Phillips charged $1,000 per package that he smuggled into the GRVC.

PHILLIPS, 31, of Brooklyn, New York, was convicted of one count of conspiring to distribute and possess with intent to distribute marijuana, and two counts of distributing and possessing with intent to distribute marijuana. Each of the three counts carries a maximum term of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding investigative work of the Drug Enforcement Administration and the New York City Department of Investigation.

The prosecution is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Russell Capone, Rahul Mukhi, and Carrie Cohen are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the indictment of JUVENCIO MARTINEZ-MARTINEZ on hostage taking and alien smuggling charges. MARTINEZ-MARTINEZ was previously arrested in the Southern District of Texas and ordered removed to White Plains, New York.

U.S. Attorney Preet Bharara stated: “As alleged, Juvencio Martinez-Martinez preyed on and held hostage an individual desperate to enter the United States from Mexico to join her family, threatening dire consequences if ransom was not paid. The woman he smuggled and held is safe, and Martinez-Martinez is now in federal custody facing federal charges.”

Assistant Director-in-Charge George Venizelos stated: “As alleged, Martinez-Martinez valued currency over human life when he abducted the victim who was attempting to enter the United States from Mexico. While he may have viewed this as an opportunity to make easy money, Martinez-Martinez did not anticipate the swift, coordinated law enforcement response committed to seeing the victim safely rescued. The FBI, along with its law enforcement partners, will continue to investigate and bring to justice those who seek to turn a profit by victimizing the innocent.”

According to allegations made in the Indictment and other publicly filed documents:

Martinez-Martinez and others held an individual hostage in Weslaco, Texas, after they smuggled her across the border. While waiting for the victim’s mother, who lives in Fallsburg, Sullivan County, New York, to send them money in order to secure her release, they threatened to continue to hold the victim hostage and harm her. During one conversation with the victim’s mother, the hostage takers threatened to cut the victim into pieces and send the pieces to the victim’s mother in Fallsburg, New York. Martinez-Martinez was apprehended at a business in Weslaco, Texas, shortly after he obtained an additional $1,500 from the victim’s mother. Law enforcement officers then discovered additional individuals at a building Martinez-Martinez controlled.

MARTINEZ-MARTINEZ, 20, of Weslaco, Texas, is charged with one count of conspiracy to commit hostage taking, which carries a maximum sentence of life in prison and one count of conspiracy to commit alien smuggling which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding efforts of the FBI, Fallsburg (N.Y.) Police Department, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, and United States Customs and Border Protection.

This case is being handled by the Office’s White Plains Division. Assistant U.S. Attorney John P. Collins, Jr. is in charge of the prosecution.

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

US v Martinez_Redacted

Preet Bharara, United States Attorney for the Southern District of New York, Robert T. Johnson, the District Attorney for Bronx County, George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, Commissioner of the New York City Police Department (“NYPD”), announced today the arrest of JOHN L. MONTANEZ, a police officer with the NYPD, on charges of access device fraud, mail fraud, and identity theft. MONTANEZ was arrested this morning at his residence in the Bronx, New York, and presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Police Officer John Montanez not only violated his oath to uphold the law, but actively broke it when he himself engaged in fraud and identity theft. Corruption undermines the public’s confidence in law enforcement, particularly so when a police officer, out of greed, allegedly uses his position of authority not to stop crime, but to help commit more crime. I want to thank our partners at the Bronx District Attorney’s Office, the FBI, and the NYPD for their work in this important case.”

Bronx County District Attorney Robert T. Johnson said: “Police officers are sworn to uphold the laws, and it is most disturbing when those whose purpose is to combat crime instead engage in identity theft that not only victimizes the public, but also their fellow officers. This office will continue to work to prosecute these crimes with all due diligence.”

FBI Assistant Director-in-Charge George Venizelos said: “As a police officer Mr. Montanez was charged with enforcing the law. He was also rightfully expected to abide by the very laws he enforced. Today’s complaint tells a different story. We’ll continue to work with the New York City Police Department to investigate corruption wherever we find it.”

NYPD Commissioner William J. Bratton said: “These charges evidence not only a significant breach of trust and abuse of authority but also serious criminal conduct on the part of a public servant. I commend the well-coordinated efforts of the federal and state prosecutors, the FBI and our Internal Affairs Bureau in developing this case.”

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

In 2011, an individual, who subsequently agreed to cooperate with law enforcement, and who is referred to in the Complaint as the “CW,” informed MONTANEZ that the CW had a suspended and/or revoked driver’s license. In response, MONTANEZ offered to provide the CW with the name and driver’s license number of a real person – so that if the CW were stopped by law enforcement, the CW could pretend to be someone else – in return for electronic items that the CW would purchase for MONTANEZ with fraudulently obtained or stolen credit cards. After that, in return for the CW purchasing merchandise for MONTANEZ, and providing to MONTANEZ credit card/debit card numbers that MONTANEZ understood were stolen or fraudulently obtained, MONTANEZ provided to the CW multiple names, dates of birth, and driver’s license identification numbers of other people. One such person, referred to in the Complaint as “Victim-1,” was a fellow police officer with the NYPD, serving in the same precinct as MONTANEZ.

The CW was arrested in June of 2013 and later began recording meetings with MONTANEZ in connection with the CW’s cooperation with law enforcement. During these meetings, MONTANEZ offered to provide additional identities to the CW in return for merchandise purchased with credit cards that MONTANEZ believed that the CW had stolen or fraudulently obtained. In one recorded meeting between the CW and MONTANEZ, MONTANEZ explained to the CW that the CW should feel comfortable pretending to be Victim-1, stating, “It’s the best, cleanest, guaranteed name you can ever have.” In another consensually-recorded meeting between the CW and MONTANEZ, in connection with discussing the CW looking to obtain from MONTANEZ additional names and/or personal identification information of other persons, MONTANEZ stated, “I can go into the precinct in plain clothes. It’s going to take me a couple of minutes. I can go inside, and do whatever.” During one consensually-recorded meeting, MONTANEZ also stated: “I’m not the cop you think I am. I am a piece of s***.”

MONTANEZ, 28, is charged with one count of access device fraud, one count of mail fraud, and one count of aggravated identity theft. He faces a maximum sentence of 32 years in prison, with a mandatory minimum term of two years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the investigative work of the Bronx County District Attorney’s Office, the FBI, and the NYPD Internal Affairs Bureau. Mr. Bharara noted that the investigation is ongoing.

The case is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorney Daniel C. Richenthal is in charge of the prosecution.

The charges contained in the Complaint is merely an accusation and the defendant is presumed innocent unless and until proven guilty.

U.S. v. John L. Montanez Complaint 14 Mag 1140

Preet Bharara, the United States Attorney for the Southern District of New York, and Shantelle P. Kitchen, the Acting Special Agent-in-Charge of the New York Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that VIKTOR KORDASH pled guilty today to willfully failing to file Reports of Foreign Bank and Financial Accounts (“FBARs”) with the IRS regarding a secret Swiss bank account that he maintained and controlled at Wegelin & Co. (“Wegelin”), a Swiss bank formerly headquartered in St. Gallen, Switzerland, which separately pled guilty in January 2013 to assisting U.S. taxpayers in maintaining undeclared accounts. During the time that KORDASH maintained his undeclared account at Wegelin, KORDASH received tens of thousands of dollars in cash distributions from his undeclared account. KORDASH entered his guilty plea before U.S. District Judge Ronnie Abrams.

Manhattan U.S. Attorney Preet Bharara said: “For over a decade Viktor Kordash lived in this country, shirking his legal obligation to pay his fair share of taxes from over a million dollars he kept in a Swiss bank account. With his guilty plea today, Kordash has been held to account for his crime, as was Wegelin, the Swiss bank where he kept his money, which in January 2013, became the first Swiss financial institution to plead guilty to its role in assisting U.S. taxpayers cheat on their taxes.”

IRS Acting Special Agent-in-Charge Shantelle P. Kitchen said: “Individuals who chose to hide income outside of the United States are again warned that they expose themselves to a variety of criminal charges and severe penalties when they fail to notify the government about their foreign bank accounts or report the income from them. Offshore tax enforcement remains a top priority for the Internal Revenue Service and we continue to gain access to more and more information about individuals involved in offshore tax evasion.”

According to the Information filed today in Manhattan federal court:

In the early 1980s, KORDASH opened an account at Wegelin. At that time, KORDASH was living in Russia and was a Russian citizen. In 1984, however, KORDASH emigrated to the United States, and in 1986, KORDASH applied for and was granted citizenship in the United States. After emigrating to the United States, and after becoming a United States citizen, KORDASH continued to maintain his account at Wegelin, and failed to declare it to the IRS, up until approximately November 2010. KORDASH used the undeclared account as an operating and investment account for his antique reproductions business, which he operated out of New York, New York.

During the time period that KORDASH maintained his undeclared account at Wegelin, capital gains and losses were generated in the account from KORDASH’s investments in foreign securities. Between 2007 and 2010, the high value of KORDASH’s undeclared account was over $1.5 million. Further, between at least April 2008 and June 2010, KORDASH received a series of cash distributions from the undeclared account from Wegelin’s correspondent account in Stamford, Connecticut, which totaled over $168,000. In November 2010, KORDASH closed the undeclared account and transferred the balance to his wife. The balance of the undeclared account at the time of its closure and transfer was nearly $1 million.

For each of the calendar years from at least 1986 through 2010, Kordash was required to, but failed to, file an FBAR with the IRS disclosing his signatory or other authority over his undeclared account at Wegelin. He was required to identify the financial institution with which his account was held, the type of account, the account number, and the maximum value of the account during the calendar year for which the FBAR was being filed. He willfully failed to do so.

KORDASH, 64, of Cliffside Park, New Jersey, faces a maximum sentence of five years in prison. As part of his plea, KORDASH has agreed to pay back taxes of over $268,000, and to pay a civil penalty of over $750,000. He is scheduled to be sentenced by U.S. District Judge Ronnie Abrams on September 12, 2014, at 12:30 p.m. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the outstanding efforts of IRS-CI in the investigation. Mr. Bharara also thanked U.S. Department of Justice’s Tax Division for their assistance in the investigation.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Sarah E. Paul and Jason H. Cowley are in charge of the prosecution.

U.S. v. Viktor Kordash Information

Preet Bharara, the United States Attorney for the Southern District of New York, announced that HECTOR MONSEGUR, a/k/a “Sabu,” formerly a leading member of a group of sophisticated computer hackers known as “LulzSec,” was sentenced today in Manhattan federal court to time served and one year of supervised release for his participation in computer hacking activity that victimized media outlets, government agencies and contractors, and private corporations around the world by hacking into, disabling, and at times exfiltrating data from the victims’ computer systems. MONSEGUR pled guilty in August 2011 to computer hacking conspiracy, computer hacking, computer hacking in furtherance of fraud, conspiracy to commit access device fraud, conspiracy to commit bank fraud, and aggravated identity theft pursuant to a cooperation agreement with the Government. U.S. District Judge Loretta A. Preska imposed today’s sentence.

According to the criminal Information and related filings in Manhattan federal court, and statements made at MONSEGUR’s guilty plea:

Hacks by Anonymous, Internet Feds, and LulzSec

Since at least 2008, Anonymous has been a loose confederation of computer hackers and others. MONSEGUR and other members of Anonymous, including Jeremy Hammond, took responsibility for a number of cyber attacks between December 2010 and June 2011, including distributed denial of service (“DDoS”) attacks against the websites of Visa, MasterCard, and PayPal, as retaliation for the refusal of these companies to process donations to Wikileaks, as well as hacks or DDoS attacks on foreign government computer systems.

Between December 2010 and May 2011, members of the Internet Feds computer hacking collective similarly waged a deliberate campaign of online destruction, intimidation, and criminality. Members of Internet Feds engaged in a series of cyber attacks that included breaking into computer systems, stealing confidential information, publicly disclosing stolen confidential information, hijacking victims’ email and Twitter accounts, and defacing victims’ Internet websites. Specifically, MONSEGUR and other members of Internet Feds, including Ryan Ackroyd, a/k/a “kayla,” a/k/a “lol,” a/k/a “lolspoon,” Jake Davis, a/k/a “topiary,” a/k/a “atopiary,” Darren Martyn, a/k/a “pwnsauce,” a/k/a “raepsauce,” a/k/a “networkkitten,” and Donncha O’Cearrbhail, a/k/a “palladium,” conspired to commit computer hacks including the hack of the website of Fine Gael, a political party in Ireland; the hack of computer systems used by security firms HBGary, Inc., and its affiliate HBGary Federal, LLC, from which Internet Feds stole confidential data pertaining to 80,000 user accounts; and the hack of computer systems used by Fox Broadcasting Company, from which Internet Feds stole confidential data relating to more than 70,000 potential contestants on “X-Factor,” a Fox television show.

In May 2011, following the publicity that they had generated as a result of their hacks, including those of Fine Gael and HBGary, MONSEGUR, along with Ackroyd, Davis, and Martyn, formed and became the principal members of a new hacking group called “Lulz Security” or “LulzSec.” Like Internet Feds, LulzSec undertook a campaign of malicious cyber assaults on the websites and computer systems of business and governmental entities in the United States and throughout the world. Specifically, MONSEGUR and his co-conspirators, as members of LulzSec, conspired to commit computer hacks including the hacks of computer systems used by the Public Broadcasting System, in retaliation for what LulzSec perceived to be unfavorable news coverage in an episode of the news program “Frontline”; Sony Pictures Entertainment (“Sony”), in which LulzSec stole confidential data concerning approximately 100,000 users of Sony’s website; and Bethesda Softworks (“Bethesda”), a video game company based in Maryland, in which LulzSec stole confidential information for approximately 200,000 users of Bethesda’s website.

Among other things, at law enforcement direction, Monsegur engaged in proactive cooperation that enabled the Government to identify, locate, and arrest eight of his co-conspirators, including Hammond. In addition, as a direct result of Monsegur's cooperation, the Government was able to prevent or mitigate over 300 cyberattacks that were being planned or carried out by others, including on the computer servers of U.S. and foreign governments, international intergovernmental organizations, and private corporations. Monsegur also provided information on vulnerabilities in certain critical infrastructure, including at a U.S. water utility, that enabled law enforcement to secure that infrastructure.

In pronouncing the sentence, Judge Preska said Monsegur’s cooperation was “truly extraordinary.” She also said, “The fact that Monsegur immediately chose to cooperate and went back online . . . allowed the extraordinary cooperation.”

In addition, at today’s proceeding, Judge Preska ordered MONSEGUR, 30, of New York, New York, to pay a $1,200 special assessment fee. MONSEGUR previously served seven months in prison in connection with the crimes to which he pled guilty.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.

The investigation was initiated and led by the FBI, and its New York Cyber Crime Task Force, which is a federal, state, and local law enforcement task force combating cybercrime; with assistance from the PCeU, a unit of New Scotland Yard's Specialist Crime Directorate, SCD6; the Garda; and the U.S. Attorneys’ Offices for the Eastern District of California, the Central District of California, the Northern District of Georgia, and the Eastern District of Virginia; as well as the Department of Justice Criminal Division’s Office of International Affairs and its Computer Crime and Intellectual Property Section.

The case is being handled by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney James Pastore is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that LOUIS MCINTOSH, 32, was sentenced today to 60 years in prison by United States District Judge Sidney H. Stein in Manhattan federal court for his role in an armed robbery conspiracy. MCINTOSH was convicted on August 22, 2013, after a nine-day trial before Judge Stein.

Manhattan U.S. Attorney Preet Bharara stated: “Louis McIntosh led a violent armed robbery crew that victimized New York area communities for years. Not satisfied to rob at gunpoint, McIntosh even pistol-whipped and tortured his victims. Today’s 60-year sentence provides a fitting end to McIntosh’s criminal career.”

According to the Indictment filed in Manhattan federal court, the evidence at trial, and sentencing:

On September 26, 2010, MCINTOSH and other co-conspirators robbed an individual business owner in his home in Lynbrook, New York, during which robbery MCINTOSH held the victim at gunpoint, tied him up, and assaulted him repeatedly with a stun gun. On October 28, 2010, MCINTOSH and other co-conspirators robbed a card game at a men’s club in Poughkeepsie, New York, during which MCINTOSH pistol-whipped two victims and discharged a firearm.

MCINTOSH, 32, of the Bronx, New York, was convicted of the following nine counts at trial: (1) participating in a conspiracy to commit robberies from in or about 2009 through 2012: (2) using, carrying, and possessing firearms in connection with the robbery conspiracy; (3) committing a robbery on September 26, 2010, in Lynbrook; (4) using, carrying, possessing, and brandishing firearms in connection with the September 26, 2010 robbery; (5) committing a robbery on October 28, 2010, in Poughkeepsie; (6) using, carrying, possessing, and discharging firearms in connection with the October 28, 2010 robbery; (7) possessing a Cugir .223 caliber auto-loading rifle after having been previously convicted of a felony; (8) possessing a Ruger 9 millimeter handgun after having been previously convicted of a felony; and (9) possessing a Bushmaster .223 caliber rifle after having been previously convicted of a felony.

In imposing sentence, Judge Stein remarked that MCINTOSH engaged in “serious” and “vicious” conduct during the course of the charged robberies and robbery conspiracy, including the “torture” of the victim of the Lynbrook robbery.

Mr. Bharara praised the outstanding investigative work of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), and the Westchester County Department of Public Safety, and thanked the Westchester County District Attorney’s Office for its assistance in the investigation.

A number of co-conspirators were also prosecuted in connection with this case. Among other individuals, Turhan Jessamy previously pleaded guilty to using, carrying, possessing, and discharging firearms, and was sentenced by United States District Judge Kenneth M. Karas to 10 years in prison. Tyrell Rock previously pleaded guilty to using, carrying, possessing, and discharging firearms, and was sentenced by Judge Karas to 10 years in prison. Neil Morgan previously pleaded guilty to using, carrying, possessing, and discharging firearms, and was sentenced by Judge Karas to 10 years in prison. Quincy Williams previously pleaded guilty to using, carrying, possessing, and brandishing firearms, and was sentenced by Judge Karas to 7 years in prison.

The prosecution is being handled by the Office’s Violent and Organized Crime Unit. Assistant U.S. Attorneys Sarah Krissoff and Jessica Masella are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Rafael A. Medina, Special Agent in Charge of the United States Postal Service, Office of Inspector General, Northeast Area Field Office, announced the arrest of a United States Postal Service supervisor for possessing and selling professional sports cards in Westchester County that had been stolen from the mail. Defendant JOHN BU was arrested today and presented in White Plains federal court before United States Magistrate Judge Judith C. McCarthy, who ordered that BU be released on bail.

According to the allegations in the criminal Complaint unsealed today in White Plains federal court:

From at least November 2, 2013, and up to and including November 9, 2013, BU unlawfully and knowingly possessed and sold baseball cards and professional sports cards in Westchester County that had been stolen from the United States mail. BU is alleged to have received thousands of dollars from selling the professional sports cards, including cards of greats like Larry Bird, Mickey Mantle, and Thurman Munson.

BU, 38, has been charged with one count of possessing stolen mail, in violation of 18 U.S.C. § 1708. The offense, upon conviction, carries a maximum prison sentence of five years. The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the judge.

Mr. Bharara praised the United States Postal Service, Office of the Inspector General, for its work in this investigation.

The prosecution is being overseen by the Office’s White Plains Unit. Assistant United States Attorney Daniel Filor is in charge of the prosecution.

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

U.S. v. John Bu Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALFONSO PORTILLO, the former President of Guatemala, was sentenced today in Manhattan federal court to 70 months in prison for laundering millions of dollars through bank accounts located in the United States. PORTILLO, who served as the President of Guatemala from January 14, 2000, to January 14, 2004, arrived in the Southern District of New York on May 24, 2013, after being extradited to the United States by the Government of Guatemala. On March 18, 2014, Portillo pled guilty to the sole charge in the Indictment before United States District Judge Robert P. Patterson, who imposed today’s sentence.

United States Attorney Preet Bharara said: “Alfonso Portillo, the former head of state in Guatemala, used his office as a siphon to extract millions of dollars in bribes from Taiwan. Today he has been sentenced to a lengthy prison term for laundering the proceeds of his influence-peddling. The U.S. banking system is not open for business to those seeking to hide illegal funds.”

According to the Indictment, PORTILLO’s plea allocution, and the evidence at sentencing:

From December 1999 through August 2002, while serving as President of Guatemala, PORTILLO received $2.5 million in bribery payments from the Government of Taiwan. In his plea allocution, PORTILLO stated, “I understood that, in exchange for these payments, I would use my influence to have Guatemala continue to recognize Taiwan diplomatically.” Knowing that the $2.5 million was the proceeds of illegal payments from Taiwan, PORTILLO conspired with others to launder the $2.5 million through bank accounts located in the United States. PORTILLO also stated that he and others had the illegally obtained funds “carried from Guatemala to the United States” and then deposited into the U.S. accounts. The $2.5 million in payments consisted of five checks provided by the Government of Taiwan’s Embassy in Guatemala. Three of the checks, totaling $1.5 million, were issued in 2000, and were endorsed personally by PORTILLO. PORTILLO then caused the checks to be deposited in a bank account in Miami, Florida. Two additional checks totaling $1 million were issued in 2002 and were made payable to a company known as Oxxy Financial Corp. (“Oxxy Financial”). These two checks were deposited at the International Bank of Miami, in an account held by Oxxy Financial. As PORTILLO stated in his guilty plea allocution, these and other transactions were “designed, in part, to conceal and disguise the source and ownership of the money.” More than $1.5 million of the Taiwanese payments received by PORTILLO were ultimately deposited into bank accounts in the name of PORTILLO’s former wife and daughter at Banco Bilbao Vizcaya Argentaria (“BBVA”) in Paris, France. Money transferred into the BBVA accounts was further laundered through financial institutions in Luxembourg and Switzerland, among other places.

In addition to the prison term, PORTILLO, 62, was ordered to pay $2.5 million in forfeiture and a $100 special assessment fee.

Mr. Bharara praised the outstanding investigative work of the New York Field Office of the Internal Revenue Service, Criminal Investigation ("IRS-CI"), DEA’s New York Organized Crime Drug Enforcement Strike Force – which comprises agents and officers of the DEA, the New York City Police Department, Immigration and Customs Enforcement’s Homeland Security Investigations, the New York State Police, the U. S. Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Secret Service, and the U.S. Marshals Service – the DEA’s Guatemala Country Office, the Department of State, and the U.S. Department of Justice's Office of International Affairs for their work in this investigation. Mr. Bharara also recognized and thanked the United Nations Commission Against Impunity in Guatemala ("CICIG"), the Guatemalan Special Prosecutor's Office for the CICIG, and the Ministerio Público in Guatemala for their assistance in the investigation.

This prosecution is being handled by the Office's Terrorism and International Narcotics Unit. Assistant United States Attorneys Adam Fee and Shane T. Stansbury are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, and Robert T. Johnson, the District Attorney for Bronx County, announced that former Assemblyman ERIC STEVENSON was sentenced today in Manhattan federal court to three years in prison, for taking more than $20,000 in bribes from four businessmen in exchange for STEVENSON’s official acts, including drafting, proposing, and agreeing to enact legislation that favored the bribers’ business interests. Specifically, the four businessmen, who sought to operate and construct adult day care centers in the Bronx, paid STEVENSON to sponsor and introduce legislation that would declare a three-year moratorium on the construction of adult day care centers in New York City, but from which their current centers would be exempted, in effect giving the businessmen a monopoly in adult day care centers in the area. In connection with one of the defendants’ adult day care centers on Jerome Avenue in the Bronx (the “Jerome Avenue Center”), in exchange for bribes by the businessmen, STEVENSON, in his official capacity as an Assemblyman, contacted Con Edison and the New York City Department of Buildings at their request. In addition, in exchange for bribes, STEVENSON held public events paid for by the businessmen to recruit senior citizens to attend a second center on Westchester Avenue in the Bronx (the “Westchester Avenue Center”). STEVENSON was convicted in January 2014 after a six-day jury trial before U.S. District Judge Loretta A. Preska, who imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “In shameless pursuit of profit, Eric Stevenson took bribes and put his own personal interests before those of his constituents. Now instead of serving the public he will be serving time behind prison walls. I’d like to thank our partners at the Bronx County District Attorney’s Office for their collaborative efforts in exposing this corruption and successfully prosecuting this case.”

Bronx County District Attorney Robert T. Johnson said: “The betrayal of public trust is one of the most serious matters this office must confront. Stevenson’s crimes were not only that, but he also sought to deny services to a vulnerable population, the elderly. We thank the U.S. Attorney’s office for its diligent work in bringing a measure of justice. Together we will continue to trumpet the message that there is no place in New York for dishonest public officials.”

According to the Complaint and the Indictment filed in Manhattan federal court, the evidence at trial and sentencing:

STEVENSON has served as a member of the New York State Assembly since 2011 representing District 79, which includes various neighborhoods in the Bronx. The four businessmen – Igor Belyansky, Rostislav Belyansky, a/k/a “Slava,” Igor Tsimerman, and David Binman – are individuals who, during 2012 and 2013, were seeking to open and manage adult day care centers in the Bronx, New York, including the Westchester Avenue Center, within STEVENSON’s Assembly District, and the Jerome Avenue Center, within another Assemblyman’s District. During that time period, they paid multiple bribes to STEVENSON in connection with efforts to open and operate both centers.

For example, at a meeting on July 23, 2012, STEVENSON, Belyansky, and Tsimerman discussed the opening of the Westchester Avenue Center. During this meeting, STEVENSON said that on the following Thursday, July 26, 2012, he was “having a night [event]” for “my reelection” and that he needed “support and help like everyone else.” Subsequently, on July 25, 2012, Rostislav Belyansky provided a cooperating witness (the “CW”) with a check for $2,000 made out to STEVENSON’s political action committee, which the CW provided to STEVENSON. STEVENSON did not disclose this check as a campaign contribution as required by New York State Law.

At a September 7, 2012, meeting at a steakhouse in the Bronx, Igor and Rotislav Belyansky offered to pay STEVENSON $10,000 in exchange for calling Con Edison to expedite the installation of a gas line and assisting with obtaining a Certificate of Occupancy from the New York City Buildings Department at the Jerome Avenue Center, and for assistance recruiting senior citizens to attend the Westchester Avenue Center. STEVENSON agreed, but when Igor Belyansky attempted to hand him the $10,000 in an envelope, STEVENSON indicated that he was concerned that there might be surveillance cameras in the restaurant, so he waited until he was outside of the restaurant to take the cash bribe. On September 18, 2012, STEVENSON gave the CW a $1,500 cut of the $10,000 bribe in exchange for the CW’s assistance, and promised to pay the CW an additional $500.

On December 27, 2012, the CW met with STEVENSON and showed STEVENSON a copy of an email dated December 26, 2012, sent from the contractor for the Jerome Avenue Center to Rostislav Belyansky and Tsimerman. In the email, the contractor stated that “[i]t is urgent . . . that we call the State Senator Eric Stevenson so that he can call the building department at once and ask them to have this application reviewed” in connection with getting “a permit to install the gas lines into the building.” After reviewing this email, STEVENSON stated, “he’s not a smart guy . . . he’s not too bright, this guy” because “he put this in writing . . . why he got to put my name in it? . . . He shouldn’t have said that.” STEVENSON said they needed to avoid creating a “paper trail.”

During that meeting, the CW and STEVENSON also discussed the possibility of STEVENSON introducing legislation that would establish a temporary moratorium on the construction and/or opening of new adult day care centers (the “Moratorium Legislation”), which would have the effect of eliminating competition with the Jerome Avenue Center and the Westchester Avenue Center, thereby substantially increasing the profits earned by those two centers. Subsequently, the CW met with Tsimerman and Igor Belyansky. Tsimerman said that as a result of the Moratorium Legislation, the value of their adult day care centers was “gonna skyrocket. . . . As long as [there’s a] moratorium, I can guarantee you at least a triple [in profits].”

On January 1, 2013, the CW and STEVENSON spoke on the telephone and STEVENSON referred to “Igor” [Belyansky] as “Santa,” in reference to the money he expected to receive. In a subsequent meeting on the same day in the CW’s car, STEVENSON sought assurances that “Igor” [Belyansky] was going to “bless everything,” meaning pay STEVENSON. He added that: “I got the inauguration, I want a blessing [payment] in place, man.” Two days later, the CW gave Belyansky and Rostislav Belyansky a copy of a document titled “Proposed Adult Day Care Center Bill,” which contained a proposal for the Moratorium Legislation. On January 7, 2013, the CW provided the same proposal to STEVENSON. Later that day, Tsimerman provided STEVENSON with another copy of the proposal containing Tsimerman’s notes. On January 9, 2013, the CW told Igor Belyansky that STEVENSON wanted $10,000 for the Moratorium Legislation, with $5,000 paid up front. Two days later, on January 11, 2013, at the Westchester Avenue Center, Igor Belyansky, Rostislav Belyansky, Tsimerman, and Binman gave the CW $5,000 cash. The CW then left the Westchester Avenue Center with the envelope of money and got in his car where STEVENSON joined him, at which time the CW gave the envelope of money to STEVENSON, after taking out his $500 cut.

On January 27, 2013, STEVENSON met with the CW and told the CW that he was concerned that Tsimerman might be cooperating with law enforcement officials and recording their conversations. STEVENSON said a concern that if “they bring me down… somebody’s going to the cemetery.”

STEVENSON had a draft of the Moratorium Legislation prepared by January 31, 2013, which he showed the CW at a meeting in his office and which was consistent with the bullet points prepared by the CW and Igor Belyansky, Rostislav Belyansky, Tsimerman, and Binman. On February 11, 2013, STEVENSON told the CW: “We got the bill [the Moratorium Legislation] back today . . . [t]he bill is done now, it’s going out to the members . . . to the committee and . . . we’re gonna . . . try to push it to get it to the floor.” On February 16, in a hotel room in Albany, Rostislav Belyansky gave $5,000 in cash to the CW, which the CW gave to STEVENSON after taking a $500 cut. While the CW took out his $500 cut, STEVENSON walked into the bathroom of the CW’s room and left the door open so that he could receive the $4,500 cash in the bathroom.

STEVENSON introduced and sponsored Bill Number A05139, which places a temporary moratorium on the construction and/or opening of new adult day care centers within New York City on February 20, 2013. The bill was not enacted.

Two days later, in a meeting between the CW and Igor Belyansky, Tsimerman, and Binman, Belyansky said that the legislation would double the value of his share in the Jerome Avenue and Westchester Avenue Centers from approximately $350,000 to $700,000.

In the course of recorded conversations between STEVENSON and the CW, STEVENSON repeatedly referenced the convictions and sentences of other New York officials for crimes of public corruption, even as STEVENSON himself requested bribes. For example, during one meeting between STEVENSON and the CW on December 27, 2012, STEVENSON observed, “if half of the people up here in Albany was ever caught for what they do . . . they . . . would probably be in [jail] . . . so who are they bullsh**ing?” During another meeting, on January 1, 2013, after discussing the convictions of former New York State Senator Carl Kruger, former New York State Senator Pedro Espada, Jr., and former New York State Comptroller Alan Hevesi, STEVENSON commented on being “careful” about “the recorders and all those things” that informants wear in order to be careful not to “put yourself in jail.”

In addition to the prison term, STEVENSON, 47, of the Bronx, New York, was sentenced to two years of supervised release. He was also ordered to pay $22,000 in forfeiture and a $400 special assessment fee.

During the sentencing proceeding, Judge Preska said that STEVENSON’s conduct amounted to a “betrayal of the responsibility bestowed on a public official by his constituents” because he engaged in “selling the core function of a legislator for his own self-aggrandizement.”

Igor Belyansky, Rostislav Belyansky, Tsimerman, and Binman all pled guilty in September 2013 to conspiring to commit honest services wire fraud in connection with their payment of bribes to Stevenson before the Honorable William H. Pauley III. On January 24, 2014, Judge Pauley sentenced Tsimerman to two years in prison and Rostislav Belyansky to 18 months in prison. On February 6, 2014, Judge Pauley sentenced Igor Belyansky to 20 months in prison and Binman to nine months in prison.

Mr. Bharara praised the work of the investigators from the United States Attorney’s Office for the Southern District of New York and the District Attorney’s Office for Bronx County.

This prosecution is being handled by the Office’s Public Corruption Unit. Assistant U.S. Attorneys Paul M. Krieger and Brian A. Jacobs and Special Assistant U.S. Attorney Pishoy Yacoub of the Bronx County District Attorney’s Office are in charge of the prosecution.

Preet Bharara, United States Attorney for the Southern District of New York, announced today that a federal grand jury returned an Indictment against TERRENCE PENDERGRASS, a correction officer and former captain, on a civil rights charge arising out of his deliberately ignoring the urgent medical needs of a Rikers Island inmate who had ingested a corrosive disinfectant and later died, in violation of the inmate’s rights under the United States Constitution. PENDERGRASS was arrested on March 24, 2014, on a Complaint alleging the same charge.

According to the allegations contained in the Complaint and the Indictment:

Rikers Island is a jail complex, located in the Bronx, New York, maintained by the New York City Department of Correction. At the time of his death, Jason Echevarria was an inmate incarcerated on Rikers Island in the Mental Health Assessment Unit for Infracted Inmates, a unit housing inmates who have committed infractions while incarcerated and who have been identified as needing mental health treatment.

On the afternoon of August 18, 2012, Echevarria swallowed a powerful disinfectant/detergent combination in powder form, commonly referred to as a “soap ball,” sometimes provided to inmates to assist in the cleaning and disinfecting of cells. The soap ball contained, among other things, ammonium chloride, a corrosive chemical that is life threatening if ingested.

After Echevarria swallowed the soap ball, Echevarria told a correction officer what had occurred and that he needed medical attention. That correction officer in turn informed PENDERGRASS, the captain – a supervisory correction officer – on duty at that time. PENDERGRASS responded that the correction officer should only call on PENDERGRASS if he needed help with the extraction of an inmate from a cell or if there was a dead body. A second correction officer similarly informed PENDERGRASS that Echevarria needed medical help. Notwithstanding these reports, PENDERGRASS failed to contact any medical personnel about Echevarria’s condition. The next morning, Echevarria was found dead in his cell.

PENDERGRASS, 49, of Howard Beach, New York, is charged in the Indictment with one count of deprivation of rights under color of law. He faces a maximum sentence of ten years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

PENDERGRASS is scheduled to appear before District Judge Ronnie Abrams, to whom the Indictment has been assigned, on May 29, 2014, at 3:00 p.m.

The case is being handled jointly by the Office’s Civil Rights Unit and Public Corruption Unit. Assistant U.S. Attorneys Lara K. Eshkenazi and Daniel C. Richenthal are in charge of the prosecution.

The charge contained in the Indictment is merely an accusation and the defendant is presumed innocent unless and until proven guilty.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the guilty plea of DINESH D’SOUZA to violating the federal election campaign law by making illegal contributions to a United States Senate campaign in the names of others. D’SOUZA, whose trial was scheduled to start today, pled guilty this morning in Manhattan federal court before U.S. District Judge Richard M. Berman.

Manhattan U.S. Attorney Preet Bharara stated: “Following the Court's ruling denying Dinesh D'Souza's baseless claim of selective prosecution, D'Souza now has admitted, through his guilty plea, what we have asserted all along – that he knowingly and intentionally violated federal election laws. As our Office's record reflects, we will investigate and prosecute violations of federal law, particularly those that undermine the integrity of the democratic electoral process, without regard to the defendant's political persuasion or party affiliation. That is what we did in this case and what we will continue to do.”

According to the Indictment, prior court filings, and statements made in court:

The Federal Election Campaign Act (the “Election Act”) is designed to limit financial influence in the election of candidates for federal office, including the Office of United States Senator, and provides for the public disclosure of the financing of federal election campaigns. In particular, the Election Act limits the amount and source of money that may be contributed to a federal candidate or that candidate’s authorized campaign committee. The Election Act specifically prohibits any person from making any contribution in the name of another, including reimbursing a third person, before or after that third person’s contribution, as inducement to make that contribution.

In 2012, the Election Act limited campaign contributions to $5,000 from any individual to any one candidate. In March 2012, D’SOUZA contributed $10,000 to the Senate campaign of Wendy Long on behalf of himself and his wife, agreeing in writing to attribute that contribution as $5,000 from his wife and $5,000 from him. In August 2012, D’SOUZA directed other individuals with whom he was associated, namely his assistant and a woman with whom he was romantically involved (the “Straw Donors”), to make contributions to Wendy Long’s campaign for the United States Senate (the “Long Campaign”) on behalf of themselves and their spouses that totaled $20,000 with the promise that he would reimburse them for the contributions. Later that same day or the next day, D’SOUZA, as promised, reimbursed the Straw Donors $10,000 each in cash for the contributions. When confronted by Ms. Long, D’SOUZA initially misled the candidate before admitting what he had done.

During the plea proceeding today, D’SOUZA admitted before the Court that he caused two close associates to contribute $10,000 each to the Long Campaign with the understanding that he would reimburse them for their contributions and that he did reimburse them. D’SOUZA also admitted that he knew that what he was doing was wrong and something the law forbids. The Court then accepted the guilty plea.

Last week, Judge Berman denied a pretrial motion by D’SOUZA to dismiss the indictment for selective prosecution, ruling that there was “no evidence” to support D’SOUZA’s allegation.

D’SOUZA, 53, of San Diego, California, faces a maximum sentence of two years in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as the defendant’s sentence will be determined by the Court. He is scheduled to be sentenced by Judge Berman on September 23, 2014, at 11:00 a.m.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.

This case is being prosecuted by the Office's Public Corruption Unit. Assistant United States Attorneys Carrie H. Cohen and Paul M. Krieger are in charge of the prosecution.

“Once again the men and women of this office and the FBI have brought a notorious terrorist before the bar of American justice and once again the men and women of an American jury, having weighed the evidence, have found him guilty beyond a reasonable doubt. We are gratified that the jury has returned a unanimous verdict of guilt against Mustafa Kamel Mustafa, also known as “Abu Hamza.” The defendant stands convicted, not for what he said, but for what he did. Abu Hamza was not just a preacher of faith, but a trainer of terrorists. Once again our civilian system of justice has proven itself up to the task of trying an accused terrorist and arriving at a fair and just and swift result. As we have seen in the Manhattan federal courthouse in trial after trial – of Ahmed Ghailani, of Suleiman Abu Ghayth, and now of Abu Hamza – these trials have been difficult, but they have been fair and open and prompt. These trials demonstrate that in an American civilian courtroom, the American people and all the victims of terrorism can be vindicated without sacrificing our principles. And that is one reason our civilian court system is admired the world over.”

Charges Based on Participation in Hostage-Taking in Yemen, Support for the Establishment of a Terrorist Training Camp in the United States, and the Facilitation of Violent Jihad in Afghanistan

Preet Bharara, the United States Attorney for the Southern District of New York, today announced the conviction of MUSTAFA KAMEL MUSTAFA, a/k/a “Abu Hamza,” a/k/a “Abu Hamza al Masri,” (“ABU HAMZA”) for his participation in a hostage-taking in Yemen in 1998 that resulted in four deaths, a conspiracy to establish a terrorist training camp in Bly, Oregon, in 1999, and supporting violent jihad in Afghanistan in 2000 and 2001. Following a four-week trial and two days of deliberations, the jury convicted ABU HAMZA of each of the 11 charges that he faced. ABU HAMZA is scheduled to be sentenced on September 9, 2014 before U.S. District Judge Katherine B. Forrest, who presided over the trial.

Attorney General Eric Holder said: “In both word and deed, Abu Hamza supported the cause of violent extremism. His conviction is as just as it was swift. This case is all the more noteworthy since it continues a trend of successful prosecutions of top terrorism suspects in our federal court system. With each efficiently delivered guilty verdict against a top al Qaeda-linked figure, the debate over how to best seek justice in these cases is quietly being put to rest.”

Manhattan U.S. Attorney Preet Bharara said: “Once again the men and women of this office and the FBI have brought a notorious terrorist before the bar of American justice and once again the men and women of an American jury, having weighed the evidence, have found him guilty beyond a reasonable doubt. We are gratified that the jury has returned a unanimous verdict of guilt against Mustafa Kamel Mustafa, also known as ‘Abu Hamza.’ The defendant stands convicted, not for what he said, but for what he did. Abu Hamza was not just a preacher of faith, but a trainer of terrorists. Once again our civilian system of justice has proven itself up to the task of trying an accused terrorist and arriving at a fair and just and swift result. As we have seen in the Manhattan federal courthouse in trial after trial – of Ahmed Ghailani, of Suleiman Abu Ghayth, and now of Abu Hamza – these trials have been difficult, but they have been fair and open and prompt. These trials demonstrate that in an American civilian courtroom, the American people and all the victims of terrorism can be vindicated without sacrificing our principles. And that is one reason our civilian court system is admired the world over.”

As alleged in the Indictment against ABU HAMZA and established by the evidence admitted at trial:

Hostage-Taking in Yemen in December 1998

On December 28, 1998, in Yemen, hostage-takers stormed a caravan of sport utility vehicles carrying 16 tourists, including two United States citizens, and took the tourists hostage by force. Prior to the hostage-taking, ABU HAMZA issued a public warning to “infidels” not to travel to Yemen. In addition, five days prior to the hostage-taking, ABU HAMZA’s stepson and other associates of ABU HAMZA were arrested in Yemen. During the hostage-taking, the hostages told their victims that they were taken prisoner to free the hostage-takers’ “friends”.

Prior to the hostage-taking, ABU HAMZA provided the leader of the hostage-takers with a satellite telephone, and subsequently spoke with him on that satellite telephone the night before the hostage-taking and during the hostage-taking. During the call on the day of the hostage-taking, ABU HAMZA agreed to act as an intermediary on behalf of the hostage-takers. ABU HAMZA also provided advice to the leader of the hostage-takers over the telephone.

On December 29, 1998, the Yemeni military launched a rescue operation to free the hostages. The hostage-takers fought the Yemeni military, using the hostages as human shields. During the rescue operation, four of the hostages were killed and several others were wounded.

Subsequently, in a recorded interview with one of the surviving hostages conducted at his mosque, ABU HAMZA described the hostage-taking as “a good thing.”

Efforts To Create a Terrorist Training Camp in Bly, Oregon in 1999

In late 1999, ABU HAMZA and several co-conspirators, including Oussama Abdullah Kassir, Haroon Rashid Aswat, and others, attempted to create a terrorist training camp to support al Qaeda on property located in Bly, Oregon. The primary purpose of the Bly, Oregon, camp was to provide various types of terrorist training, including weapons training. In late November 1999, at ABU HAMZA’s direction, Kassir and Aswat traveled from London, England, to Bly to assist in setting up the camp. Kassir brought with him to the camp a manual on the use of sarin nerve gas and letters of appreciation to Usama bin Laden and ABU HAMZA. Aswat subsequently was present at an al Qaeda guest house in Pakistan.

On May 12, 2009, after a four-week jury trial in this District, Kassir was convicted of various criminal offenses, including conspiring to provide material support to terrorists and to al Qaeda, and conspiracy to kill persons overseas, as a result of Kassir’s participation in the efforts to establish the Bly terrorist training camp. On September 15, 2009, United States District Judge John F. Keenan sentenced Kassir to multiple terms of life in prison. The conviction was subsequently affirmed by the Court of Appeals.

Aswat was arrested in Zambia in July 2005 and then deported to England, where he was arrested at the request of the United States, pursuant to a warrant issued in this District. The extradition proceedings against Aswat are currently pending.

Facilitating Violent Jihad in Afghanistan 2000 and 2001

In November 2000, ABU HAMZA requested that Ernest James Ujaama, a London-based follower of Abu Hamza, escort another one of ABU HAMZA’s followers, Feroz Abassi, to Ibn Sheikh al-Libi, a commander at a terrorist training camp in Afghanistan. Thereafter, Ujaama and Abassi traveled from London to Pakistan. Ujaama and Abassi then separately entered Afghanistan. ABU HAMZA subsequently conveyed instructions for Abassi to contact Ibn Sheikh al-Libi, who was expecting Abassi. Thereafter, Abassi passed through an al Qaeda safe house in Afghanistan, attended al Qaeda’s al Faruq training camp, and met with senior al Qaeda leaders. In December 2001, United States forces took Abassi into custody in Afghanistan.

In addition, from the spring of 2000 through late 2001, ABU HAMZA provided goods and services to the Taliban by, among other things, directing Ujaama to deliver money to Taliban-controlled parts of Afghanistan.

Ujaama was arrested in 2002 and testified against ABU HAMZA as a cooperating witness for the Government.

ABU HAMZA, 56, a naturalized citizen of the United Kingdom, was extradited from the United Kingdom to the Southern District of New York in October 2012. The 11 offenses of conviction carry the following maximum penalties:

Click here to view chart(s)

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

The arrest, extradition and conviction of ABU HAMZA was the result of the close cooperative efforts of the United States Attorney’s Office for the Southern District of New York, the FBI, the NYPD, the United States Marshals Service, and New Scotland Yard in the United Kingdom.

Mr. Bharara expressed particular appreciation to the U.S. Department of Justice Office of International Affairs for its extraordinary assistance with the extradition in this case. Mr. Bharara also thanked the FBI’s Seattle Field Office, the Home Office of the United Kingdom, the U.S. Department of Justice National Security Division, and the United States Department of State for their assistance.

The case is being handled by the Office’s Terrorism and International Narcotics Unit. Assistant U.S. Attorneys John P. Cronan, Edward Y. Kim and Ian McGinley are in charge of the prosecution.

The Charges Are Part of the Largest-Ever Global Cyber Law Enforcement Operation, Involving More than 90 Arrests and Other Law Enforcement Actions in 19 Countries

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an indictment charging ALEX YÜCEL, the owner of an organization known as “Blackshades,” that since 2010, has sold and distributed to thousands of people in more than 100 countries a sophisticated and pernicious form of malicious software, or “malware,” known as the Blackshades Remote Access Tool, or “RAT.” The RAT was co-created by YÜCEL and has been used to infect computers throughout the world to spy on victims through their web cameras, steal files and account information, and log victims’ key strokes. Also unsealed today were criminal complaints against BRENDAN JOHNSTON, who was paid by Blackshades to help market and sell malware, including the RAT, and provide technical assistance to its users; KYLE FEDOREK, who purchased the RAT and used it to steal online account information from hundreds of victims; and MARLEN RAPPA, who purchased the RAT and used it to spy on dozens of victims and steal online account information. YÜCEL was arrested in Moldova in November 2013 and is pending extradition to the United States. JOHNSTON was arrested yesterday in Thousand Oaks, California, and will be presented today in the Central District of California. FEDOREK and RAPPA were arrested at their residences this morning and will be presented later today before United States Magistrate Judge James L. Cott in Manhattan federal court.

MICHAEL HOGUE, the co-creator of the RAT, was arrested in June 2012 as part of the Government’s investigation known as “Operation Cardshop” and subsequently pled guilty before U.S. District Judge Kevin Castel in January 2013. A transcript of his guilty plea was unsealed this morning.

In addition to the criminal charges, a domain name associated with the Blackshades website was seized pursuant to a seizure warrant obtained in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara said: “Blackshades’ flagship product was a sophisticated program known as the Remote Access Tool, or “RAT” for short. The RAT is inexpensive and simple to use, but its capabilities are sophisticated and its invasiveness breathtaking. As today’s case makes clear, we now live in a world where, for just $40, a cybercriminal halfway across the globe can – with just a click of a mouse – unleash a RAT that can spread a computer plague not only on someone’s property, but also on their privacy and most personal spaces.”

Assistant Director-in-Charge of the FBI George Venizelos said: “Armed with $40 and a computer, an individual could easily get the Blackshades Remote Access Tool and become a perpetrator. It required no sophisticated hacking experience or expensive equipment. This tool was purchased by thousands of people in more than 100 countries. The charges unsealed today showcase the top to bottom approach the FBI takes to its cases. We tackled this malware starting with those that put it in the hands of the users- the creators and those who helped make it readily available- the administrators. We will continue to work with our law enforcement partners to bring to justice anyone who used Blackshades maliciously.”

According to the allegations contained in the indictment and criminal complaints unsealed today in Manhattan federal court:

Overview

Since at least 2010, an organization known as “Blackshades” has sold and distributed malicious software to thousands of cybercriminals throughout the world. Blackshades’ flagship product was the Blackshades Remote Access Tool, or R.A.T. (the “RAT”), a sophisticated piece of malware that enabled cybercriminals to secretly and remotely gain control over a victim’s computer. After installing the RAT on a victim’s computer, a user of the RAT had free rein to, among other things, access and view documents, photographs and other files on the victim’s computer, record all of the keystrokes entered on the victim’s keyboard, steal the passwords to the victim’s online accounts, and even activate the victim’s web camera to spy on the victim – all of which could be done without the victim’s knowledge. The FBI’s investigation has shown that the RAT was purchased by at least several thousand users in more than 100 countries and used to infect more than half a million computers worldwide.

Purchasing and Installing the Blackshades RAT

The RAT was typically advertised on forums for computer hackers and marketed as a product that conveniently combined the features of several different types of hacking tools. Copies of the Blackshades RAT were available for sale, typically for $40 each, on a website maintained by Blackshades.

After purchasing a copy of the RAT, a user had to install the RAT on a victim’s computer – i.e., “infect” a victim’s computer. The infection of a victim’s computer could be accomplished in several ways, including by tricking victims into clicking on malicious links or by hiring others to install the RAT on victims’ computers.

The RAT contained tools known as “spreaders” that helped users of the RAT maximize the number of infections. The spreader tools generally worked by using computers that had already been infected to help spread the RAT further to other computers. For instance, in order to lure additional victims to click on malicious links that would install the RAT on their computers, the RAT allowed cybercriminals to send those malicious links to others via the initial victim’s social media service, making it appear as if the message had come from the initial victim. For example, a RAT user could send an instant message, or IM, to potential victims that appeared to come from the initial victim, inviting them to click on a link that appeared to lead to a legitimate website, but that in reality would install the RAT on the potential victim’s computer.

The Capabilities of the RAT

The RAT featured a graphical user interface, which allowed its users to easily view and navigate all of the victim computers that they had infected. Among other things, the user interface listed IP address information for each infected computer, the computer’s name, the computer’s operating system, the country in which the computer was located, and whether the computer had a web camera.

Once a computer was infected with the RAT, the user of the RAT had complete control over the computer. The user could, among other things, remotely activate the victim’s web camera. In this way, the user could spy on anyone within view of the victim’s webcam inside the victim’s home or in any other private spaces where the victim’s computer was used.

The RAT also contained a “keylogger” feature that allowed users to record each key that victims typed on their computer keyboards. To help users steal a victim’s passwords and other log-in credentials, the RAT also had a “form grabber” feature. The “form grabber” automatically captured log-in information that victims entered into “forms” on their infected computers (e.g., log-in screens or order purchase screens for online accounts).

The RAT also provided its users with complete access to all of the files contained on a victim’s computer. A RAT user could use such access to view or download photographs, documents, or other files on a victim’s computer. Further, using a tool known as “file hijacker,” the RAT enabled users to encrypt, or lock, a victim’s files and demand a “ransom” payment to unlock them. The RAT even came with a prepared script demanding such a ransom.

The RAT also allowed users to exploit victims’ computers to launch other cyber attacks. Infected computers could be gathered into a network and used to launch Distributed Denial of Service (“DDoS”) attacks against particular websites by repeatedly sending requests to the website in an effort to disable the website and deny service to legitimate customers.

YÜCEL and the Blackshades Organization

YÜCEL was the co-creator of the RAT, and owned and operated the Blackshades organization. YÜCEL employed several paid administrators, including a director of marketing, website developer, customer service manager, and a team of customer service representatives; he hired and fired employees, paid employees’ salaries, and updated the malicious software in response to customers’ comments and requests. Blackshades generated sales of more than $350,000 between September 2010 and April 2014.

The Other Defendants

JOHNSTON used Blackshades malware and was a paid employee of the Blackshades organization who, among other things, marketed and sold the RAT, and provided technical assistance to users of the RAT to assist them in infecting and remotely controlling victims’ computers with the RAT. In certain online postings, JOHNSTON described himself as an “authorized seller” and “admin,” or administrator, of Blackshades.

FEDOREK was a customer of Blackshades who purchased the RAT and used it to steal financial and other account information from more than 400 victims. A search of FEDOREK’s computer conducted by the FBI showed that FEDOREK was also deploying a variety of other types of malicious software against his victims.

RAPPA was a customer of Blackshades who purchased the RAT and used it to infect victims’ computers, spy on those victims using their web cameras, and steal personal files from their computers. A search of RAPPA’s computer by the FBI showed that RAPPA was also deploying a variety of other types of malicious software against his victims.

YÜCEL, 24, of Sweden, is charged with two counts of computer hacking, each of which carries a maximum sentence of 10 years in prison, one count of conspiring to commit access device fraud, which carries a maximum sentence of seven and a half years in prison, one count of access device fraud, which carries a maximum sentence of 15 years in prison, and one count of aggravated identity theft, which carries a mandatory term of two years in prison consecutive to any other sentence that is imposed.

JOHNSTON, 23, of Thousand Oaks, California, is charged with two counts of computer hacking, each of which carries a maximum sentence of 10 years in prison.

FEDOREK, 26, of Stony Point, New York, is charged with two counts of computer hacking, each of which carries a maximum sentence of 10 years in prison, and one count of access device fraud, which carries a maximum sentence of 10 years in prison.

RAPPA, 41, of Middletown Township, New Jersey, is charged with two counts of computer hacking, each of which carries a maximum sentence of 10 years in prison.

HOGUE, 23, of Maricopa, Arizona, pled guilty in January 2013 to two counts of computer hacking, each of which carries a maximum sentence of 10 years in prison. He is awaiting sentencing before the Honorable P. Kevin Castel.

The maximum potential sentences are prescribed by Congress, and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.

The charges unsealed today are part of an unprecedented global law enforcement operation involving the participation of 19 countries. As part of the operation, more than 90 arrests have been made and more than 300 searches have been conducted worldwide. Mr. Bharara noted that the investigation is ongoing.

Mr. Bharara praised the extraordinary investigative work of the FBI. Additionally, Mr. Bharara specially thanked all the international law enforcement agencies that assisted this investigation, including the Moldova National Investigation Inspectorate of General Police Inspectorate of Ministry of Interior; the International Relations Department of Prosecutor’s General Office of the Republic of Moldova; Eurojust; the U.S. Department of State’s Diplomatic Security Service and United States Embassy personnel in Chisinau, Moldova; the FBI's Office of the Legal Attaché to Romania and Moldova; the FBI’s Office of the Legal Attaché to the Netherlands. He also thanked the Department of Justice’s Office of International Affairs and Computer Crime and Intellectual Property Section for their support.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys James Pastore and Sarah Lai are charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni with the Money Laundering and Asset Forfeiture Unit is in charge of forfeiture aspects of the case.

The charges contained in the Indictment and Complaints are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

U.S. v. Alex Yucel Indictment S1 13 Cr 834
U.S. v. Kyle Fedorek Complaint 14 Mag. 1064
U.S. v. Michael Hogue Information 13 Cr. 12
U.S. v. Brendan Johnston Complaint 14 Mag 1086
U.S. v. Marlen Rappa Complaint 14 Mag. 1065

U.S. v. Alex Yucel Indictment S1 13 Cr 834
U.S. v. Michael Hogue Information 13 Cr. 12
U.S. v. Kyle Fedorek Complaint 14 Mag. 1064
U.S. v. Marlen Rappa Complaint 14 Mag. 1065
U.S. v. Brendan Johnston Complaint 14 Mag 1086

Preet Bharara, the United States Attorney for the Southern District of New York, announced that MICHAEL STEINBERG, a portfolio manager of Sigma Capital Management, LLC (“Sigma”), a division of the Connecticut based hedge fund S.A.C. Capital, was sentenced today in Manhattan federal court to 42 months in prison for crimes stemming from his involvement in an insider trading scheme. STEINBERG was convicted of various securities fraud charges on December 18, 2013. He was sentenced today by United States District Judge Richard J. Sullivan, who presided over the trial.

Manhattan U.S. Attorney Preet Bharara said: “Michael Steinberg traded on information from company insiders at Dell and NVIDIA to reap nearly $2 million in illegal profits. Today he has learned the steep cost of those transactions.”

According to the Superseding Indictment filed in Manhattan federal court, other court documents, and the evidence presented at trial:

STEINBERG traded in the securities of two publicly traded technology companies, Dell, Inc. (“Dell”), and NVIDIA Corporation (“NVIDIA”), based on inside information that his research analyst Jon Horvath obtained from a circle of analyst friends at different investment firms. Horvath previously pled guilty to insider trading, as did analysts Jesse Tortora, formerly of Diamondback Capital, Spyridon “Sam” Adondakis, formerly of Level Global, Danny Kuo, formerly of Whittier Trust, and Sandeep Goyal, formerly of Neuberger Berman. STEINBERG’s trading in Dell and NVIDIA resulted in approximately $1.8 million in illegal profits for his hedge fund.

In particular, Tortora provided Horvath and others with Inside Information related to Dell’s quarterly earnings (the “Dell Inside Information”), which Tortora obtained from Goyal who, in turn, had obtained the information from an employee at Dell (the “Dell Insider”). For example, for Dell’s quarter which was announced by Dell on August 28, 2008 (the “Dell Announcement”), the Dell Inside Information indicated that Dell would report gross margins that were materially lower than market expectations. In advance of the Dell Announcement, Horvath reported this negative inside information to STEINBERG.

On August 18, 2008, after a series of calls from the Dell Insider to Goyal and from Goyal to Tortora and Horvath, Horvath then called STEINBERG. Within a minute of the telephone call between STEINBERG and Horvath, STEINBERG’s portfolio began shorting shares of Dell. One minute later, Horvath wrote an email to STEINBERG stating: “Pls keep the DELL stuff especially on the down low . . . just mentioning that because JT [Jesse Tortora] asked me specifically to be extra sensitive with the info.” By the end of the day on August 18, 2008, STEINBERG had accumulated a net short position of over 167,000 shares of Dell. On August 26, 2008, Horvath confirmed in an email to STEINBERG and another portfolio manager at Sigma that Horvath’s Dell information had been based on a “2nd hand read from someone at the company.” STEINBERG responded: “Yes normally we would never divulge data like this, so please be discreet.” And on August 27, 2008, STEINBERG sent an email to Horvath with the subject line, “Dell action,” in which he asked, “Have u double checked [with] JT this week?” Horvath responded, “Yes he [Tortora] checked in [a] couple days ago, same read no change.” The following day, STEINBERG executed additional short trades based on the Dell Inside Information.

On August 28, 2008, before Dell’s Announcement, STEINBERG executed or caused to be executed additional short trades. STEINBERG also executed or caused to be executed options trades in Dell in advance of the Dell Announcement.

After the close of the market on August 28, 2008, Dell publicly announced gross margins that were substantially below market expectations. At the end of the next trading day following Dell’s Announcement, its stock price dropped by nearly 14%. Shortly thereafter, STEINBERG covered his short position, and closed out his position in Dell option contracts, resulting in an illegal profit for Sigma of approximately $1 million.

In addition, in 2009, Kuo obtained inside information regarding NVIDIA’s financial results (the “NVIDIA Inside Information”) in advance of NVIDIA’s quarterly earnings announcements. The NVIDIA Inside Information indicated, among other things, that NVIDIA’s gross margins would be lower than market expectations. Kuo obtained the NVIDIA Inside Information from a friend, Hyung Lim, who received it from an employee at NVIDIA (the “NVIDIA Insider”). In advance of NVIDIA’s May 7, 2009, quarterly earnings announcement (the “NVIDIA Announcement”), Kuo provided the NVIDIA Inside Information, which he had obtained from Lim, to Tortora, Horvath, and others. Horvath, in turn, provided the NVIDIA Inside Information to STEINBERG, who executed or caused to be executed transactions in NVIDIA in advance of the NVIDIA Announcement.

On May 7, 2009, NVIDIA publicly announced gross margins that were substantially lower than the market expected. At the end of the trading day following the NVIDIA Announcement, NVIDIA’s stock price dropped by more than 13%. Shortly thereafter, STEINBERG caused Sigma to liquidate its position in NVIDIA, resulting in an illegal profit for Sigma of approximately $350,000.

At trial, STEINBERG, 42, of New York, New York, was convicted of conspiracy to commit securities fraud and four counts of securities fraud.

In addition to the prison term, STEINBERG was sentenced to three years of supervised release. STEINBERG was also ordered to pay $365,142.30 in forfeiture and a $2 million fine.

Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since the inception of FFETF in November 2009, the Justice Department has filed more than 12,841 financial fraud cases against nearly 18,737 defendants including nearly 3,500 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Antonia M. Apps and Harry A. Chernoff are in charge of the prosecution.