Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, Kathryn Keneally, the Assistant Attorney General for the Tax Division of the Department of Justice, and Richard Weber, Chief, Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced that NICK A. JODHA, a/k/a “Nick Persaud,” the owner of a contracting business that provided heating, ventilation, and air conditioning (“HVAC”) services throughout the New York City metropolitan area, pled guilty today for his role in a tax evasion scheme. JODHA pled guilty before U.S. District Court Judge Richard J. Sullivan.

Manhattan U.S. Attorney Preet Bharara said: “Nick Jodha has admitted to hiding income and to filing false corporate and personal tax returns, not once but for four consecutive years. His dishonesty cost the government more than $200,000 in tax revenue, and it now will likely cost him his liberty.”

Assistant Attorney General Kathy Keneally said: “Taxpayers who own businesses and seek to evade paying their fair share of taxes, whether through failing to report all of their business’s proceeds or falsely treating personal expenses as business deductions, will be held accountable. The Department of Justice remains committed to investigating and prosecuting those who choose to violate the tax laws.”

IRS-CI Chief Richard Weber said: "Jodha's attempt to evade tax by hiding income and filing false returns was a theft from the American public. It is a felony offense that carries severe consequences. The overarching principle of IRS's enforcement strategy is simply this: We protect the integrity of the tax system by ensuring everyone pays the right amount of tax."

According to the allegations contained in the Information and statements made at the plea proceeding:

JODHA operated and was a 50% owner of United HVAC Services, Inc. (“United HVAC”), an HVAC contracting firm based in South Ozone Park, New York, with operations throughout New York City. From 2007 through 2010, JODHA cashed more than $2.3 million in checks made payable to United HVAC at a check cashing service in Manhattan, rather than depositing the business checks into the business’s corporate bank account. JODHA used the proceeds from the cashed checks for business and personal purposes.

During the same time period, in order to prepare both personal and corporate income tax returns, JODHA provided his accountant with the statements from the business bank account of United HVAC. However, JODHA failed to inform his accountant of the checks he cashed at the check cashing service, which were not reflected in the statements of United HVAC’s business bank account. Moreover, JODHA failed to advise his accountant that he used a portion of the cashed checks for business and personal expenses.

JODHA admitted to filing false S-Corporation income tax returns on behalf United HVAC for the tax years 2007 through 2010, which omitted any business activity and flow-through income concerning the cashed business checks, and to filing false individual income tax returns for the tax years 2007 through 2010, which understated his true taxable income and the taxes due on that income. As a result of his conduct, JODHA admitted to causing the government a tax loss of approximately $214,529.

JODHA, 43, of South Ozone Park, New York, and Kissimmee, Florida, pled guilty to one count of tax evasion and faces a maximum sentence of 5 years in prison. As part of the plea agreement, JODHA has agreed to pay the IRS restitution in the amount of $214,529. JODHA is scheduled to be sentenced by Judge Richard J. Sullivan on July 24, 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.

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

This case is being handled by the Office’s Complex Frauds Unit. Special Assistant U.S. Attorney Jorge Almonte of the Department of Justice’s Tax Division is in charge of the prosecution.

U.S. v. Nick A. Jodha Information

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 the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), and Robert E. Perez, Director of New York Field Operations for U. S. Customs and Border Protection (CBP), announced today that the United States has settled a civil customs fraud lawsuit against DANA KAY, INC. and SIOUNI & ZAR CORPORATION (d/b/a DANNY & NICOLE), two importers of women’s apparel, for cheating the United States out of millions of dollars in customs duties over the course of a decade through the use of false invoices. In the settlement, approved today in Manhattan federal court by U.S. District Judge Colleen McMahon, the defendants accepted responsibility for under-reporting the value of their imported merchandise and agreed to pay $10 million to the United States as damages and penalties under the False Claims Act.

Manhattan U.S. Attorney Preet Bharara said: “Our Office is committed to pursuing those who defraud the public for private gain. Here, as our complaint alleges, a whistleblower exposed a decade-long scheme to defraud the Government out of millions of dollars in customs duties. Through the settlement announced today, the companies responsible for this fraud will be held to account, by having to admit to their misconduct and pay $10 million in damages and penalties.”

ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “Companies that circumvent our nation’s customs laws through the use of elaborate frauds cheat the American taxpayers and their law-abiding competitors simultaneously. These two importers should serve as an example that HSI is committed to ensuring a level playing field for all who work in the international trade industry.”

CBP Director of New York Field Operations Robert E. Perez said: “Working in partnership with HSI, our CBP officers, auditors, and import specialists demonstrated the highest level of professionalism, dedication to duty and vigilance in detecting the undervaluation of these imported goods into the United States.”

According to the Government=s Complaint filed in Manhattan federal court:

From approximately 2003 through 2012, DANA KAY, INC. and SIOUNI & ZAR CORPORATION engaged in a fraudulent scheme to avoid the payment of customs duties by presenting the Government with invoices that significantly understated the value of the imported apparel. The defendants paid their overseas manufacturers the full value of the apparel, but deducted a flat fee per garment set before calculating the duty on the apparel. The defendants then recorded only the lower value on the entry forms presented to the Government. Through this fraud, the defendants avoided paying millions of dollars in customs duties.

As part of the settlement, DANA KAY, INC. and SIOUNI & ZAR CORPORATION have admitted, acknowledged, and accepted responsibility for:

• presenting to the Government commercial invoices for women’s apparel being imported into the United States that reported less than the total value of the goods imported;
• paying apparel manufacturers an amount in excess of that recorded on the commercial invoice;
• paying the excess amount pursuant to a second invoice referred to as a “debit note”; and
• failing to disclose to the Government the amounts paid pursuant to the second invoices, instead reporting only the lesser amounts listed in the commercial invoices, which the Government then used to assess customs duties.

The allegations of fraud stated in the Complaint and admitted in the settlement agreement were first brought to the attention of the Government by a whistleblower, who filed a

lawsuit under the qui tam provisions of the False Claims Act. Those provisions allow private parties who have knowledge of fraud committed against the Government to file suit on behalf of the Government and share in any recovery. The United States may then intervene and file a complaint, as it did here.

Mr. Bharara thanked ICE HSI for its work on the case. He also thanked U.S. Customs and Border Protection for its assistance.

The case is being handled by the Office’s Civil Frauds Unit. Assistant United States Attorney Jaimie L. Nawaday is in charge of the case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOVER NARANJO, the owner and president of Enviro & Demo Masters, Inc. (“Enviro”), and LUPERIO NARANJO, SR., a foreman for Enviro, were sentenced today in Manhattan federal court to six and four years in prison, respectively, for perpetrating a scheme to underpay employees in violation of the federal prevailing wage law and for tampering with witnesses and using other people’s identities to further this scheme. Both defendants were convicted in November 2013 after a two-week trial before U.S. District Judge Jed S. Rakoff, who imposed today’s sentences.

Manhattan U.S. Attorney Preet Bharara said: “Today’s sentences ensure Jover Naranjo and Luperio Naranjo, Sr., will pay a steep price for underpaying their staff, abusing federal funds, and then lying to cover it all up – loss of their liberty.”

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

In August 2009, Enviro was awarded a sub-contract by the general contractor on a New York City project (the “Project”) to demolish five buildings in Upper Manhattan (the “Contract”) that was funded in part with federal stimulus money. From August 2009 through February 2010, JOVER NARANJO and LUPERIO NARANJO, SR., participated in a scheme to submit fraudulent certified payrolls to the New York City Department of Housing Preservation and Development (“HPD”) and the U.S. Department of Labor in connection with the Contract. These certified payrolls were fraudulent in at least three respects. First, they listed relatives as the demolition workers on the Project, when in fact, these relatives did no work. Second, the certified payrolls did not list the actual individuals who worked on the Project. Third, the certified payrolls misrepresented the wages being paid to Enviro’s workers.

In this regard, the fraudulent certified payrolls indicated that Enviro was paying its employees the federal prevailing wage, as required by federal law, but in reality, they were being paid far less. Although the applicable federal prevailing wages for Enviro employees working on the Contract were approximately $49 and $33 per hour for demolition laborers, depending on their specific job responsibilities JOVER NARANJO and LUPERIO NARANJO, SR., paid their demolition workers as little as $13 per hour. The total amount of salary underpaid by the defendants to Enviro employees working on the Contract was in excess of approximately $650,000.

JOVER NARANJO and NARANJO, SR., also employed a number of measures to conceal their fraud. For example, they submitted supporting documentation with the certified payrolls that included time sheets on which they forged workers’ signatures and canceled checks that they had doctored to make it appear that workers were earning the prevailing wage. In addition, they hid their workers from investigators and told some to lie about their identities, work schedules, and/or pay rates if they were questioned by investigators. When an employee truthfully told investigators that the employee was paid below the prevailing wage, JOVER NARANJO and LUPERIO NARANJO, SR., fired the employee and the employee’s relative.

JOVER NARANJO, 37, of Queens, New York, was also sentenced to three years of supervised release, and ordered to pay a $600 special assessment fee. LUPERIO NARANJO, SR., 65, of Queens, New York, was also sentenced to three years of supervised release, and ordered to pay a $500 special assessment fee. Forfeiture and restitution for both defendants will be determined at a later date

Mr. Bharara praised the outstanding investigative work of the New York Field Office of the U.S. Department of Labor’s Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, New York City Department of Investigation, and the United States Environmental Protection Agency Criminal Investigation Division.

This case is being handled by the Office’s Public Corruption Unit. Assistant United States Attorneys Brian A. Jacobs and Brent S. Wible are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MISSION SETTLEMENT AGENCY (“MISSION”) and its owner, MICHAEL LEVITIS, pled guilty in Manhattan federal court to fraud charges in connection with a multimillion-dollar scheme that victimized more than 1,200 financially struggling people across the country. LEVITIS and MISSION were charged in May 2013, and both pled guilty today before U.S. District Judge Paul G. Gardephe. Four other defendants previously pled guilty for their roles in the scheme.

Manhattan U.S. Attorney Preet Bharara said: “Michael Levitis and his company, Mission Settlement Agency, preyed on the desperation of financially struggling people across the country. Today’s guilty pleas ensure that the defendants who falsely offer debt relief, telling their victims a pack of lies in order to line their own pockets, will be held to account.”

According to the allegations contained in the Indictment and Superseding Information, other documents filed in Manhattan federal court, and statements made at today’s plea proceeding:

Beginning in 2009, MISSION offered “debt settlement” services to financially disadvantaged people who were struggling or unable to pay their credit card debts. Like other purported debt settlement providers, MISSION held itself out as a company that could successfully negotiate to lower the overall debt its customers owed to credit card companies and banks. MISSION solicited prospective customers through telemarketing and mail solicitations. Thereafter, MISSION’s sales representatives typically spoke to the prospective customers on the phone, describing MISSION’s work and its supposed ability to renegotiate debt.

LEVITIS was MISSION’s beneficial owner, and was responsible for managing MISSION’s day-to-day operations, its finances, its hiring and termination of employees, and its advertising and solicitation of customers.

From 2009 through May 2013, at LEVITIS’s direction, the defendants systematically exploited and defrauded over 1,200 customers, who were financially disadvantaged people across the country struggling to pay their credit card debts. They tricked people into paying MISSION for purported debt settlement services by lying to prospective customers about MISSION’s ability to help settle their debts, the fees that MISSION charged, and MISSION’s purported affiliation with the federal government. Among other things, the defendants: (1) lied about and/or concealed MISSION’s fees, falsely assuring customers that MISSION would charge a mere $49 per month when, in truth, MISSION took thousands of dollars in fees from funds that its customers believed would be used to pay creditors, (2) deceived customers by fraudulently and falsely promising that MISSION could slash their debts – typically, by 45% -- when, in fact, for the majority of its customers, MISSION did little or no work and failed to achieve any reduction in debt, and (3) sent prospective customers solicitation letters that falsely suggested that the agency was acting on behalf of or in connection with a federal governmental program, which letters included an image of the Great Seal of the United States and indicated that they were coming from the “Reduction Plan Administrator” of the purported “Office of Disbursement.” As a result of the defendants’ scheme, in addition to losing money, most of MISSION’s customers failed to achieve the reduction in debt that the defendants had promised them, and some of them suffered further declines in their credit ratings, were sued by their creditors, and/or fell into bankruptcy.

In connection with the scheme, MISSION received over $6.6 million in fees. For more than 1,200 of its customers, MISSION took fees totaling nearly $2.2 million but never paid a penny to the customers’ creditors. LEVITIS used the money that MISSION took from its customers to pay for, among other things, the operating expenses of a restaurant/nightclub he controlled, lease payments for two different luxury Mercedes cars, and credit card bills for his mother.

LEVITIS, 37, of Brooklyn, New York, pled guilty to one count of conspiracy to commit mail and wire fraud, and one count of conspiracy to commit wire fraud, and faces a maximum sentence of 10 years in prison. MISSION pled guilty to one count of conspiracy to commit mail and wire fraud, and faces a fine of up to twice the gross pecuniary gain derived from the offense, and up to five years' probation. The defendants are scheduled to be sentenced by Judge Gardephe on August 21, 2014. 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.

In addition to entering their guilty pleas, LEVITIS and MISSION entered into a stipulation of settlement of the civil forfeiture action filed by the United States Attorney’s Office for the Southern District of New York entitled United States v. All Right, Title, and Interest in Rasputin Restaurant, 13 Civ. 3069 (GHW). As part of that stipulation of settlement, LEVITIS and MISSION consented to the entry of a permanent injunction barring them from providing, directly or indirectly, any debt relief or mortgage relief services in the future.

Four other defendants, Denis Kurlyand, Boris Shulman, Felix Lemberskiy, and Zakhir Shirinov, previously pled guilty for their roles in the fraudulent scheme. The charges against Manuel Cruz remain pending and he is presumed innocent unless and until he is proven guilty.

Mr. Bharara praised the investigative work of the United State Postal Inspection Service. He also thanked the Consumer Financial Protection Bureau for referring this case to this Office and for their assistance in this matter.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorneys Nicole W. Friedlander and Edward A. Imperatore are in charge of the prosecution. Assistant United States Attorney Carolina A. Fornos of the Office’s Asset Forfeiture Unit is responsible for the forfeiture aspects of the case.

U.S. v. Michael Levitis Superseding Information

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JOSE CRUZ, a/k/a “Chili,” a member of the violent Yonkers street gang known as the “Strip Boyz,” was sentenced yesterday in Manhattan federal court to 188 months of imprisonment by United States District Judge Edgardo Ramos.

In May 2013, CRUZ pled guilty to participating in the Strip Boyz narcotics conspiracy. One month later, in June 2013, CRUZ testified at the trial of Steven Knowles, the leader of a rival gang known as the “Elm Street Wolves.” At that trial, which was held before United States District Judge Kenneth M. Karas, CRUZ denied conducting crack sales with the Strip Boyz. He also retracted prior statements he had made to Yonkers Police Department officers after he was shot multiple times in April 2010 – statements that supported the Government’s evidence that Knowles was his shooter.

Although the jury convicted Knowles of the majority of counts against him, including the murder of another Strip Boyz member, Knowles was found not guilty of the attempted murder of CRUZ. At yesterday’s sentencing, Judge Ramos found that CRUZ’s testimony about his crack sales at Knowles’s trial was false and an obstruction of justice. In summary, Judge Ramos stated: “Make no mistake, Mr. Cruz. You substantially increased the amount of time you will spend in prison by your decision to testify falsely” at Knowles’s trial.

Manhattan U.S. Attorney Preet Bharara stated: “If there was ever any doubt that lying under oath was a foolish and costly decision, then Jose Cruz joins the long list of incarcerated defendants who should dispel that doubt. It may be a peculiar badge of honor among gangs to perjure yourself, but in the end you will lie your way into being locked up.”

According to the statements made at sentencing and documents filed in the case:

The case arises out of an investigation, which began in 2010 by the United States Attorney’s Office, the Federal Bureau of Investigation, and the Yonkers Police Department, of narcotics trafficking and gang violence in a part of southwest Yonkers known as Nodine Hill. The Strip Boyz, in particular, was a street gang operating in and around Yonkers between 2000 and June 2012. The Strip Boyz and their affiliates sold crack cocaine and marijuana in and around the Schlobohm Housing Project on Schroeder Street—a major hub of Yonkers crack distribution.

They would, among other things, prohibit outsiders from selling drugs in their territory, share crack sales so that multiple members of the Organization could profit from a particular sale, package and store drugs together in common spaces, use shared suppliers as the source for their narcotics, and alert each other to the presence of nearby law enforcement. During that same time period, members and associates of the Strip Boyz – including JOSE CRUZ – sold thousands of grams of crack cocaine and marijuana. Certain members of the Strip Boyz – again, including CRUZ – also maintained firearms for use by members and associates of the Strip Boyz. Members of the Strip Boyz would often pool their money to purchase firearms, which would then be stored in hidden but easily accessible locations known only to members. When a firearm was needed to protect the Strip Boyz’s territory from encroachment by a rival gang, such as the Elm Street Wolves, one member of the Strip Boyz could utilize the firearms maintained by other members of the gang.

In August 2011, 66 Yonkers gang members – including 47 members and associates of the Elm Street Wolves – were arrested and charged with narcotics, firearm, robbery and murder offenses. The Elm Street Wolves were a violent street gang that operated on and around Elm Street and Oak Street, just minutes from the Scholobohm Housing Project, and a chief rival to the Strip Boyz. To date, all defendants in that case have been convicted, and the majority has been sentenced to between 10 and 17 years of imprisonment. This includes Knowles, the leader of the Elm Street Wolves, who was convicted in July 2013 of various racketeering charges, murder, conspiracy to murder, attempted murder, narcotics conspiracy, and firearms offenses following a four-week jury trial before Judge Karas in White Plains. Knowles, who faces a mandatory sentence of life in prison plus 35 years, is set to be sentenced on May 29, 2014.

In June 2012, 23 Yonkers gang members – including 20 members and associates of the Strip Boyz – were arrested and charged with narcotics trafficking and firearm offenses. To date, all defendants in that case have also been convicted, most of whom await sentencing. This includes CRUZ, who pled guilty on May 7, 2013, before Judge Ramos to conspiring to sell crack cocaine in violation of Title 21, United States Code, Section 846. During his plea, CRUZ admitted, among other things, to conspiring to distribute crack cocaine with others in the Schlobohm Housing Project. Based on his original plea agreement with the Government, which included both an enhancement for CRUZ’s usage of firearms in furtherance of his crack sales and a reduction for his timely acceptance of responsibility, CRUZ faced an advisory United States Sentencing Guidelines (the “Guidelines”) range of 108 to 135 months of imprisonment. 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.

At yesterday’s sentencing, Judge Ramos found that CRUZ willfully and knowingly committed perjury by lying, under oath, at Knowles’s trial by denying that he sold crack cocaine with the Strip Boyz. As such, Judge Ramos applied a Guidelines enhancement for CRUZ’s obstruction of justice. Judge Ramos also found that CRUZ was not entitled to a Guidelines reduction for acceptance of responsibility, holding that his testimony demonstrated that he did not satisfactorily accept responsibility for the crime – conspiracy to distribute crack cocaine with others – which he was convicted of. Judge Ramos calculated CRUZ’s advisory Guidelines range, as modified after his false testimony, as 188 to 235 months of imprisonment. Judge Ramos then imposed a sentence of 188 months of imprisonment, at the low-end of the Guidelines range. In so doing, Judge Ramos made clear that CRUZ’s sentenced was significantly increased because of his decision to lie on the witness stand on behalf of Knowles.

This case is being prosecuted by the White Plains Office and the Violent Crimes Unit. Assistant United States Attorneys Ilan Graff and Andrew Bauer are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that STEPHEN COLANGELO, Jr., was sentenced yesterday to 87 months in prison in connection with two separate schemes that defrauded investors out of more than $3.5 million. COLANGELO’s first scheme involved a hedge fund he controlled called the Brickell Fund, LLC (the “Brickell Fund”), and his second scheme involved three companies he created and controlled called “Hedge Community,” “Start A Hedge Fund,” and “Under the Radar SEO” (collectively, the “Business Ventures”). COLANGELO misled investors in the course of both of these schemes by making numerous misrepresentations, which included issuing fraudulent performance statements, private placement memoranda, and other business documents. In addition to his prison sentence, COLANGELO was ordered to pay restitution to the victims of his schemes, which totals approximately $3.5 million. COLANGELO pled guilty on December 19, 2013, to two counts of securities fraud and two counts of wire fraud, and was sentenced today by U.S. District Judge Robert W. Sweet in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara said: “Stephen Colangelo solicited investor money under false pretenses, and issued fraudulent materials to prop up his phony investment vehicles. Despite lofty promises to investors about their expected returns, the only one guaranteed to make money under his schemes was Colangelo. Now he has learned the true cost of doing business that way.”

According to the Indictment and related court documents and proceedings:

From March 2009 to February 2011, COLANGELO represented that he was an investment manager and solicited funds from private investors for the Brickell Fund, a purported hedge fund he operated. In the course of soliciting funds from investors, COLANGELO made numerous misrepresentations. Specifically, he told potential investors that his compensation for managing their investments in the Brickell Fund would be a nominal management fee and a certain percentage of trading profits, thus ensuring his compensation would be dependent on his trading success. In reality, COLANGELO regularly misappropriated large amounts of investor money for his own personal benefit and to support unrelated business ventures. He also regularly made false claims to investors about investment strategy and alleged profits.

From August 2009 to October 2011, COLANGELO also solicited investments in the Business Ventures. In doing so, COLANGELO represented that investment money would be used for legitimate business expenses, when in reality, he misappropriated a large amount of the investments for his own personal benefit.

Both schemes combined led to net losses to investors of approximately $3.5 million.

COLANGELO, 46, of Congers, New York, was also sentenced to 3 years of supervised release and was ordered to pay a mandatory $400 special assessment.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and also thanked the Securities and Exchange Commission for its assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive,

coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20

federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition

of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. For

more information on the task force, please visit www.StopFraud.gov.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that MARIE BARAN, a former employee of the United States Railroad Retirement Board (“RRB”), was sentenced today in Manhattan federal court to five years in prison for her role in the massive fraud scheme in which Long Island Railroad (“LIRR”) workers claimed to be disabled upon early retirement so that they could receive disability benefits to which they were not entitled. Between approximately 2007 and 2011, BARAN completed fraudulent disability applications on behalf of at least 188 LIRR clients in exchange for cash payments. Following a three-week jury trial in August 2013, BARAN was convicted of two counts of conspiracy to commit mail fraud, wire fraud, and health care fraud, two counts of conspiracy to defraud the RRB, two counts of health care fraud, two counts of mail fraud, and two counts of wire fraud. She was sentenced today before U.S. District Judge Victor Marrero.

Manhattan U.S. Attorney Preet Bharara stated: “Marie Baran manipulated a safety net for the disabled and took advantage of the federal agency that employed her for decades. In exchange for cash, she helped nearly 200 LIRR employees obtain more than $75 million based on lies. Today’s sentence ensures that she will now pay for her crimes.”

According to the Complaint, the Superseding Indictments, the evidence at trial, and statements made in court:

The RRB is an independent U.S. agency that administers benefit programs, including disability benefits, for the nation’s railroad workers and their families. A unique LIRR contract allowed employees to retire at the relatively young age of 50 – the age of eligibility has since changed to 55 – if they had been employed by the LIRR for at least 20 years. Eligible employees are entitled to receive an LIRR pension, which is a portion of the full retirement payment for which they are eligible at 65. In addition, at full retirement age (between age 60 and age 65 depending on years of service) they are eligible to receive an RRB retirement pension. For LIRR workers who retired at 50 with only an LIRR pension, they would receive less than their prior salary and substantially lower pension payments than those to which they would be entitled at full retirement age. However, LIRR employees who retired and claimed disability could receive a disability payment from the RRB on top of their LIRR pension, regardless of age. A retiree’s LIRR pension, in combination with RRB disability payments, can be roughly equivalent to the base salary earned during his or her career.

Hundreds of LIRR employees have allegedly exploited the overlap between the LIRR pension and the RRB disability program by pre-planning the date on which they would falsely declare themselves disabled so that it would coincide with their projected retirement date. These false statements, made under penalty of prosecution in disability applications, allowed LIRR employees to retire as early as age 50 with an LIRR pension, supplemented by the fraudulently obtained RRB disability annuity. From 1995 through 2011, more than 75% of LIRR employees stopped working and began receiving RRB disability benefits, whereas during this same period, only 25% of retiring Metro-North employees stopped working and began receiving RRB disability benefits.

BARAN is a former employee of the RRB who, following her retirement from the agency in 2006, began accepting cash payments from LIRR workers to complete fraudulent disability applications on their behalf. Between approximately 2007 and 2011, BARAN helped at least 188 LIRR employees obtain disability benefits to which they were not entitled. In exchange for payments of over $1000 per employee, BARAN completed fraudulent disability applications on the employees’ behalf, fabricating claims of serious physical suffering and decline, and grossly exaggerating the physical demands of the employees’ jobs. As a result of this fraud, BARAN’s LIRR customers have received approximately $30 million in RRB disability benefit payments, and the intended losses from her fraud amount to over $77 million.

In addition to her prison term, BARAN, 66, of East Meadow, New York, was also sentenced to three years of supervised release. She was also ordered to pay approximately $31 million in restitution, to forfeit approximately $31 million, and to pay a $1000 special assessment.

Thirty-three people have been charged in connection with the LIRR disability fraud scheme, 28 of whom have pled guilty and five of whom were convicted after trial.

Mr. Bharara praised the RRB Office of Inspector General, the Federal Bureau of Investigation, and the Metropolitan Transit Authority - Office of Inspector General for their outstanding work in the investigation, which he noted is ongoing. He also acknowledged the previous investigation conducted by the New York State Attorney General’s Office into these pension fraud issues.

The Office’s Complex Frauds Unit is handling the case. Assistant U.S. Attorneys Justin Weddle, Daniel Tehrani, and Nicole Friedlander are in charge of the prosecution.

Largest Payment for the Clean-Up of Environmental Contamination in History

James Cole, Deputy Attorney General of the United States, Preet Bharara, the United States Attorney for the Southern District of New York (“SDNY”), Robert G. Dreher, the Acting Assistant Attorney General for the Justice Department’s Environment and Natural Resource Division (“ENRD”), and Cynthia Giles, Assistant Administrator of the U.S. Environmental Protection Agency, announced today that the United States has entered into a settlement agreement with the Kerr-McGee Corporation and certain of its affiliates (“New Kerr-McGee”), and their parent Andarko Petroleum Corporation, in a fraudulent conveyance case brought by the United States and co-plaintiff Anadarko Litigation Trust (the “Trust”) in the bankruptcy of Tronox Inc. and its subsidiaries (“Tronox”). The bankruptcy court had previously found, in December 2013, that the historic Kerr-McGee Corporation (“Old Kerr-McGee”) fraudulently conveyed assets to New Kerr-McGee to evade its debts, including its liability for environmental clean-up at contaminated sites around the country. Pursuant to the settlement agreement, the defendants agree to pay $5.15 billion to settle the case, of which approximately $4.4 billion will be paid to fund environmental clean-up and for environmental claims. This is the largest payment ever for the clean-up of environmental contamination.

Deputy Attorney General James Cole said: “Kerr-McGee’s businesses all over this country left significant, lasting environmental damage in their wake. It tried to shed its responsibility for this environmental damage and stick the United States taxpayers with the huge cleanup bill. Through a lot of hard work, we uncovered this fraud and recovered over $5 billion dollars for the American people. This settlement demonstrates the Justice Department’s firm commitment to preventing and combating all forms of fraud and to securing environmental justice.”

Manhattan U.S. Attorney Preet Bharara said: “If you are responsible for 85 years of poisoning the earth, then you are responsible for cleaning it up. That’s why this case was brought. And that’s why the defendants are paying a record $5.15 billion -- to fund that colossal cleanup and to make things right. The company tried to keep its rewards and shed its responsibilities by playing a corporate shell game, putting its profitable oil-and-gas business in a new entity and leaving behind a bankrupt shell holding the environmental liabilities of the defunct, polluting lines of business. The company tried to cleanse its valuable business from its toxic legacy liabilities. Now the defendants will pay to cleanse the land and water.”

Acting Assistant Attorney General Robert G. Dreher said: “Today’s settlement is a just resolution of an historic injustice to the American people and our environment. The money recovered will result in clean-ups of a toxic history the Old Kerr-McGee unsuccessfully tried to walk away from.”

EPA Assistant Administrator Cynthia Giles said: “EPA’s vigorous pursuit of this case will have a big return for communities across the country. Companies that pollute can’t escape their responsibility to pay for the cleanup. EPA will continue to fight for those affected by pollution.”

The Fraudulent Conveyance

According to the complaints of the Government and the Trust and the December 12, 2013, written opinion of U.S. Bankruptcy Judge Allan L. Gropper:

Old Kerr-McGee operated numerous businesses, which included uranium mining, the processing of radioactive thorium, creosote wood treating, and manufacture of perchlorate, a component of rocket fuel. These operations left contamination across the nation, including radioactive uranium waste across the Navajo Nation; radioactive thorium in Chicago and West Chicago, Illinois; creosote waste in the Northeast, the Midwest, and the South; and perchlorate waste in Nevada.

In the years prior to 2005, Old Kerr-McGee concluded that the liabilities associated with this environmental contamination were a drag on its “crown jewel” business, the exploration and production of oil and gas. With the intent of evading these and other liabilities, Old Kerr-McGee created a new corporate entity – defendant New Kerr-McGee – and, through a scheme executed in 2002 and 2005, transferred its valuable oil and gas exploration assets to the new company. The legacy environmental liabilities were left behind in the old company, which was re-named Tronox, and spun off as a separate company in 2006. As a result of these transactions, Tronox was rendered insolvent and unable to address its environmental and other liabilities. In 2009, Tronox went into bankruptcy.

The United States and the bankruptcy estate (now represented by the Trust) brought this lawsuit to hold the defendants accountable and require them to repay the value of the assets fraudulently conveyed from Old Kerr-McGee.

In its decision, the Court found that Old Kerr-McGee transferred assets with the intent to hinder or delay creditors, including particularly environmental creditors, and also transferred those assets for less than their fair value, which left Tronox insolvent, unable to pay its debts when they came due, and undercapitalized. Among other things, the Court concluded that:

• “[T]here can be no dispute that Kerr-McGee acted to free substantially all its assets – certainly its most valuable assets – from 85 years of environmental and tort liabilities.”
• “[O]verhelming” evidence demonstrated that “Defendants devised, carried out and had complete knowledge that [the transfer of Old Kerr-McGee’s oil and gas exploration and production assets was] part of ‘a single integrated scheme’ to create a ‘pure play’ E&P business [referring to the ‘crown jewel’ oil and gas exploration and production business] free and clear of the legacy liabilities.”
• “[T]here is no credibility to the uniform testimony of the inner circle [of Old Kerr-McGee management] that isolation of the oil and gas assets from the chemical business had nothing to do with an effort to cleanse the E&P assets from the legacy liabilities.”
• “The record is replete with evidence that Kerr-McGee misapplied [the] standard [for setting reserves for environmental claims under Generally Accepted Accounting Principles] and thereby understated its liabilities for GAAP purposes.”
• Statements by former Old Kerr-McGee employees that the cost of this environmental pollution would decline after the spin-off were “not rooted in reality.”
• Kerr-McGee had failed to conduct any “contemporaneous analysis of the effect of [its] transactions on the legacy liability creditors,” including the effect it would have on the United States’ environmental claims.

The Settlement

Under today’s settlement agreement, the defendants will pay $5.15 billion to the Trust to settle the fraudulent conveyance case. Pursuant to a 2011 settlement between the United States, certain state, local, and tribal governments, and the bankruptcy estate, approximately 88% of the net proceeds of this litigation will be distributed by the trust to the United States, certain state governments, the Navajo Nation, and environmental trusts created to clean up Tronox’s contaminated sites. The 2011 settlement agreement provides specific percentages of this funding that will be made available to each site.

As a result of these agreements, some of the key recoveries for environmental claims and for clean-up of environmental sites are estimated to be the following:

• $1.1 billion will be paid to a trust charged with cleaning up two dozen other contaminated sites around the country, including the Kerr-McGee Superfund Site in Columbus, Mississippi.
• $1.1 billion will be paid to a trust responsible for cleaning up a former chemical manufacturing site in Nevada that has led to contamination in Lake Mead. Lake Mead feeds into the Colorado River, a major source of drinking water in the Southwest.
• Approximately $985 million will be paid to U.S. EPA to fund the clean-up of abandoned uranium mines on land of the Navajo Nation, where radioactive waste remains from Kerr-McGee mining operations.
• Approximately $224 million will be paid to U.S. EPA for clean-up of thorium contamination at the Welsbach Superfund Site in Gloucester, New Jersey.
• Approximately $217 million will be paid to the federal Superfund in repayment of costs previously incurred by EPA cleaning up the Federal Creosote Superfund Site in Manville, New Jersey.

Additional amounts will be paid to the United States, states, the Navajo Nation, and environmental trusts for other environmental claims and contaminated sites at issue in this case.

The settlement agreement will be lodged with the United States Bankruptcy Court for the Southern District of New York for a period of at least 30 days before it is submitted for the Court’s approval, in order to provide public notice and to afford members of the public the opportunity to comment on the settlement agreement.

Mr. Bharara thanked the Trust, its trustee John C. Hueston, and its counsel, Kirkland & Ellis LLP, for their critical work on this case. Mr. Bharara also thanked the many federal, state, and tribal officials who worked tirelessly on this matter. The litigation of this case was assisted by EPA personnel from around the country; the U.S. Fish & Wildlife Service and Bureau of Land Management of the U.S. Department of the Interior; the National Oceanic and Atmospheric Administration of the U.S. Department of Commerce; the U.S. Nuclear Regulatory Commission; the U.S. Forest Service of the U.S. Department of Agriculture; and the U.S. Department of Defense, as well as numerous state governments and the Navajo Nation.

This case was handled by the Environmental Protection Unit and the Tax and Bankruptcy Unit of the SDNY’s Civil Division. Assistant U.S. Attorneys Robert William Yalen and Joseph Pantoja, along with Alan S. Tenenbaum, Katherine Kane, Frederick S. Phillips, Marcello Mollo, and Erica Pencak of ENRD, are in charge of this case.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROGER KEY, a/k/a “Luchie,” a violent and large-scale drug trafficker who operated in Manhattan and the Bronx, New York, was found guilty yesterday in Manhattan federal court of two murder-for-hire conspiracies, attempted murder, and narcotics and firearms offenses. KEY was convicted following a three-week jury trial before U.S. District Judge Sidney H. Stein.

Manhattan U.S. Attorney Preet Bharara said: “With this verdict, the jury has done a great service to the citizens of New York City, convicting Roger Key of numerous violent offenses, including murder-for-hire, and orchestrating a sprawling drug trafficking network. I want to again thank New York County District Attorney, Cyrus Vance and his office, who began the investigation into this alleged narcotics crew and shared the fruits of their investigation with our Office, enabling us to build this case and bring this defendant to justice.”

According to court documents and the evidence presented at trial:

From 2009 through September 2012, KEY was one of the most significant narcotics distributors operating in New York City. KEY supplied powder cocaine and crack cocaine to various drug organizations operating in Manhattan and the Bronx. KEY also used, carried, and possessed firearms during the narcotics conspiracy.

In September 2010, KEY conspired to commit the murder-for-hire of Terry Harrison, who was shot and killed on September 10, 2010, at 681 Courtlandt Avenue in the Bronx. KEY paid another co-conspirator for committing the murder of Harrison, who was the leader of a rival drug-trafficking crew with whom KEY and his co-conspirators were engaged in a violent conflict over drug-trafficking territory in the Bronx.

From October 2011 through December 2011, KEY conspired to commit the murder-for-hire, and aided and abetted the attempted murder-for-hire of Matthew Allen on November 16, 2011, which resulted in the non-fatal shooting of another victim, at 302 Brooklyn Avenue, Brooklyn, New York.

KEY was convicted of narcotics conspiracy, conspiracy to commit the murder-for-hire of Matthew Allen, the attempted murder-for-hire of Matthew Allen, conspiracy to commit the murder-for-hire of Terry Harrison, and firearms possession and use in connection with both the narcotics conspiracy and the Matthew Allen murder plot. KEY was acquitted of the murder-for-hire of Terry Harrison, murder in connection with a drug crime, and a firearms possession charge in connection with that murder.

KEY faces two mandatory sentences of life in prison without the possibility of parole, plus a mandatory consecutive term of 30 years in prison, and he will be sentenced by Judge Stein on August 19, 2014. 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.

KEY is the last of 18 defendants originally charged in this case to be convicted in proceedings before Judge Stein. KEY is also the last of a total of four individuals who have been convicted of offenses relating to the conspiracy to commit the murder-for-hire and the attempted murder-for-hire of Matthew Allen.

Mr. Bharara praised the outstanding work of the Federal Bureau of the Investigation, Westchester County Violent Crimes Task Force, and the New York City Police Department, including the 40th Precinct Detective Squad and the Manhattan North Narcotics Major Case Unit, who conducted the investigation of the case. Mr. Bharara also thanked the New York County District Attorney’s Office, who provided critical assistance in the investigation and prosecution of the case.

This case is being overseen by the Office’s Violent Crimes Unit. Assistant United States Attorneys Santosh Aravind, Abigail S. Kurland, and Adam Fee are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that FRANK PERKINS HIXON, JR., a former Senior Managing Director of Evercore Group, LLC, a subsidiary of Evercore Partners Inc. (“Evercore”), pled guilty yesterday in Manhattan federal court to insider trading and false statement offenses. Specifically, HIXON admitted to using inside information to trade and cause others to trade in the securities of Evercore, Westway Group Inc. (“Westway”), and Titanium Metals Corporation (“Titanium”). HIXON also admitted making false statements to agents of the Federal Bureau of Investigation (“FBI”) during the course of the investigation into his insider trading. The defendant was arrested on these charges in February 2014, and pled guilty yesterday afternoon to a six-count Information before U.S. District Court Judge Ronnie Abrams.

Manhattan U.S. Attorney Preet Bharara said: “With his guilty plea, Frank Perkins Hixon becomes the 80th defendant we have charged since August 2009 who has been convicted of insider trading offenses. This Office will continue to investigate and prosecute the widespread insider trading that has been shown to infect our markets, especially when those individuals try to evade detection by lying about their conduct.”

According to the allegations contained in the Information filed today in Manhattan federal court, the underlying criminal Complaint filed on February 20, 2014, and statements made during court proceedings:

Between April 2010 and January 2014, HIXON was a Senior Managing Director with the Mining and Metals Group of Evercore. HIXON used material non-public information that he acquired as part of his employment with Evercore to trade and cause trades in brokerage accounts belonging to the mother of his young child (“Individual A”), who lived in Austin, Texas, and to HIXON’s close relative (“Individual B”), who lived in Johns Creek, Georgia.

In 2011, HIXON led an Evercore team in advising Westway about a non-public offer from another company (“Company A”) to purchase some of its business components and, more generally, in connection with potential transactions concerning Westway’s other business components. Company A’s offer was made in early September 2011, and a Special Committee was formed around that time to consider the offer and other strategic alternatives. Those developments were not announced publicly until December 15, 2011. Meanwhile, between October 21 and December 15, 2011, HIXON purchased, and caused to be purchased, 229,000 shares of Westway for Individual A’s brokerage account by logging into Individual A’s account from various locations, including Evercore’s Manhattan office. As the negotiations for the contemplated Westway transactions became protracted, HIXON sold and caused to be sold about 140,000 of the Westway shares that had accumulated in Individual A’s account, for a profit of approximately $260,000. Later, in 2012, HIXON made additional purchases of Westway shares for Individual A’s account, in advance of a tender offer for Westway’s outstanding equity securities that was announced on December 20, 2012. Profits reaped from sales of those shares amounted to approximately $104,000.

In October 2012, HIXON was invited, along with other Evercore personnel, to meet with a Special Committee of Titanium’s board of directors to discuss a potential engagement in connection with an unspecified $3 billion transaction. At the October 23, 2012, pitch meeting, which HIXON attended by teleconference from London, England, HIXON and the rest of the Evercore team learned that the transaction being considered was an acquisition of Titanium by Precision Castparts Corp. (“PCP”), a manufacturer of complex metal components and products. HIXON also learned the approximate offer price, and that the transaction was likely to close before year’s end.

Within approximately one hour of the meeting with the Special Committee, HIXON began buying 20,000 Titanium shares for Individual A’s account from a mobile device traced back to London, England. Eight days later, after HIXON had returned from England, 20,000 more shares of Titanium were purchased for Individual A’s account, mostly through logins from Evercore’s Manhattan office. That same day, HIXON caused Individual B to buy 15,000 shares of Titanium. After market close on November 9, 2012, Titanium announced PCP’s tender offer for its shares. The next trading day, November 12, 2012, all 40,000 of Individual A’s shares of Titanium were sold for a profit of approximately $180,000. Later that month, Individual B’s Titanium shares were sold for a profit of approximately $70,000.

On January 14, 2013, HIXON attended an Evercore partnership meeting at which he learned that Evercore would be announcing record financial results for the fourth quarter of 2012. During the two days preceding the bank’s announcement on January 30, 2013, HIXON, logging into Individual A’s account from Evercore’s Manhattan offices and from his home in Manhattan, bought 27,000 shares of Evercore for the account. At the same time, HIXON caused Individual B to purchase 10,000 shares of Evercore for Individual B’s account. After Evercore’s earnings release, Individual A and Individual B sold all of their Evercore shares, and reaped a combined profit of approximately $96,000.

In February 2013, Evercore asked HIXON to respond to a request from the Financial Industry Regulatory Authority (“FINRA”) and to identify any known names from a list of people and entities that had traded in Titanium stock prior to PCP’s tender offer. Although Individual A and B were both on the FINRA list, HIXON responded by email: “No known relationships.”

When Evercore confronted HIXON about his failure to identify Individual A – who, as noted above, is the mother of his young child – HIXON claimed not to know Individual A by her legal name, which was what appeared on the FINRA list, and to know her only by a different name she uses. Documents produced by Evercore, including text messages and emails between HIXON and Individual A, make clear that HIXON had, in fact, long been aware of Individual A’s legal name. And bank records show that he wrote numerous large checks to Individual A, in her legal name, from 2009 to 2010. On January 28, 2014, HIXON met with two FBI agents and told them, among other things, that he did not have access to and had never traded in Individual A’s brokerage account.

When Evercore confronted HIXON about his failure to identify Individual B, his close relative, HIXON responded that the associated location given for Individual B on the FINRA list – Duluth, Georgia – was inaccurate, because Individual B lives in Johns Creek, Georgia. Johns Creek shares a zip code with portions of Duluth, and was only incorporated as its own city in December 2006. The city reflected on the brokerage account statements for Individual B’s account is Duluth.

HIXON, 55, of New York, New York, pled guilty to three counts of securities fraud, two counts of securities fraud in connection with a tender offer, and one count of making a false statement. Each of the securities fraud charges carries a maximum term of 20 years in prison, and the false statement charge carries a maximum term of five years in prison. HIXON is scheduled to be sentenced by Judge Abrams on August 1, 2014, at 11:00 a.m. As part of his guilty plea, HIXON also agreed to forfeit $710,000 to the United States. 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 thanked the Securities and Exchange Commission, which has filed civil charges in a separate action. Mr. Bharara also thanked Evercore for its cooperation in this matter.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. For more information on the task force, please visit www.stopfraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Sarah E. McCallum is 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”), James J. Hunt, the Acting Special Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), William J. Bratton, the Commissioner of the Police Department for the City of New York (“NYPD”), and Thomas J. Cannon, the Special Agent-in-Charge of the New York Field Division of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), announced charges against 24 members of a criminal organization, known as “Murda Moore Gangstas” (“MMG”), who controlled the area in and around the Moore Housing Projects, near East 149th Street and Jackson Avenue, in the Bronx, New York. The MMG gang members are charged with racketeering, narcotics, and firearm offenses.

Twenty-one of the defendants, including those taken into custody today and five of the defendants who were in state or federal custody on other charges, will be presented in Manhattan federal court this afternoon.

Manhattan U.S. Attorney Preet Bharara said: “Keeping our neighborhoods safe and secure from gang violence remains one of this Office’s highest priorities. Cases like this one, where we worked closely with our local and federal law enforcement partners to charge 24 leaders and members of a violent gang that allegedly terrorized the Moore Housing Projects in the Bronx, can make a big difference. All New Yorkers have the right to the peaceful enjoyment of their neighborhoods, whether they live in Mott Haven or Riverdale. That requires the combined efforts of law enforcement to make and prosecute cases like this one.”

ICE HSI Special Agent-in-Charge James T. Hayes said: “This organization’s alleged illicit activities of narcotics and weapons trafficking created a nightmare of crime and violence in the neighborhoods where they operated,” said James T. Hayes Jr., special agent in charge of HSI New York. “Only through continuous law enforcement cooperation can these criminals be taken off the streets and allow law-abiding citizens to reclaim their communities.”

DEA Acting Special Agent in Charge James J. Hunt stated, “Law enforcement’s collaboration and resources over the past two years led to the indictments of 24 members of the Murda Moore Gangsta crew on charges ranging from racketeering, narcotics and firearms felonies. Law abiding residents in surrounding areas of the Moore Housing Projects had been caught in the crossfire of violence associated with drug trafficking. Today’s arrests are the second wave of an investigation focused on reclaiming the Mott Haven community from the carnage, crime and fear that are linked to the MMG drug operations.”

NYPD Commissioner William J. Bratton said: “The NYPD will continue to work with our law enforcement partners to track down street crews that commit violent crimes amongst law abiding citizens. The Mott Haven community and residents in the Moore and Saint Mary Park Houses will hopefully feel safer knowing that their children can now play in the area that these crew members once used as their own personal battle ground, and that these crews have been removed from their midst. I want to thank the members of the NYPD's Bronx Gang Squad, 40th Precinct, the Drug Enforcement Administration, and the United States Attorney’s Office, Southern District of New York, for their efforts in bringing these criminals to justice.”

ATF Special Agent-in-Charge Thomas J. Cannon said: “Today’s arrests are convincing indicators that this investigation is far from over. We are pleased to be working with our fellow agencies to ensure that all of our respective resources are being utilized as efficiently as possible. In this way, this organization will be swiftly eradicated. The people of New York deserve nothing less.”

According to the Indictment unsealed today in Manhattan federal court:

From 2006 through 2014, MMG has been a criminal enterprise consisting of over 20 gang members who were involved in street robberies, assaults, and sales of crack cocaine, marijuana, and other drugs. MMG was started by five individuals – including TEVIN MIZELL, a/k/a “Tev Gunz,” KEVIN MIZELL, a/k/a “Kev Gunz,” EDWIN SMITH, a/k/a “Ed Black,” and JOSHUA FLADGER, a/k/a “Millz,” the defendants – who are known, within MMG, as the “Top Five.” Later, other individuals, including RICHARD SHACKLEFORD, a/k/a “Sha,” and AMAR TAYLOR, a/k/a “Capo MMG,” the defendants, also grew into leadership roles within the enterprise. MMG members protected and controlled its territory in and around the Moore Housing Projects through violence, and committed various crimes within and around that territory, like shootings, robberies, assaults, and narcotics trafficking.

In particular, MMG members have been embroiled in a continuing violent feud with several rival crews and gangs located nearby in the Bronx, such as gangs from the following areas: (1) the Betances Houses (the “Lookin’ Real Good,” or “LRG,” gang); (2) the Riverpark Towers Houses (the “RPT” gang); (3) Millbrook Housing Project (the “Killbrook Up” and “Killbrook Down” gangs); and (4) Highbridge Gardens Houses (the “Young Flybridge” gang).

In addition, as stated, certain MMG members also sold narcotics in the Moore Houses, and prohibited and prevented outsiders and rival gang members from doing so in their territory. Similarly, many members of MMG committed street-level robberies, either of drug dealers or law-abiding citizens, in and around the Moore Houses. In furtherance of the gang’s activities – namely, the violence, the narcotics distribution and the robberies – members and associates of MMG obtained, possessed, and used firearms.

TEVIN MIZELL, a/k/a “Tev Gunz,” KEVIN MIZELL, a/k/a “Kev Gunz,” EDWIN SMITH, a/k/a “Ed Black,” JOSHUA FLADGER, a/k/a “Millz,” RICHARD SHACKLEFORD, a/k/a “Sha,” AMAR TAYLOR, a/k/a “Capo MMG,” RONATHAN FLADGER, a/k/a “Jeezy,” NOEL BIDO, a/k/a “Bigga,” HENNISON CURRY, a/k/a “Henny,” JOSEPH OTERO, a/k/a “Triple-H,” SHAWN ARNOLD MCFADDEN, a/k/a “Weezy,” DEQUAN BROWN, a/k/a “Dada,” TYRE DAVIS, a/k/a “Tye,” KAYMAR FRANCIS, a/k/a “Kayo,” JOSEPH HUNTLEY, a/k/a “Goonie,” ODANIS OZUNA, a/k/a “Jose Ozoria,” a/k/a “O,” JAMES ANDERSON, MARK GRAYSON, a/k/a “Biscuit,” MICHAEL JAMES, MALIK MCCOLLUM, a/k/a “Dot,” ROBERT WANNAMAKER, EDWARD BINYARD, a/k/a “E,” a/k/a “E-Wreck,” TAYVON KILPATRICK, a/k/a “Trayvon Wilson,” NICHOLAS ROSARIO, a/k/a “Nico Gunz,” the defendants, are all charged with conspiring to participate in a racketeering enterprise, the Murda Moora Gangstas street gang. In addition, 11 of these defendants are charged with one count of conspiring to distribute crack cocaine, marijuana, and MDMA, and 19 of these defendants are charged with using, carrying, possessing, and discharging firearms during the racketeering and narcotics conspiracies.

A chart containing the names, ages, residences, charges, and maximum penalties for the defendants is attached to this release. 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.

The case is assigned to U.S. District Judge Richard J. Sullivan.

Mr. Bharara praised the outstanding investigative work of the HSI New York El Dorado Task Force DEA group, the NYPD Bronx Gang Squad, the ATF, and DOCCS. He added that the investigation is continuing.

The Office’s Violent Crimes Unit is overseeing the case. Assistant U.S. Attorneys Ryan P. Poscablo, Santosh Aravind, and Andrew Bauer 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.

Click here to view chart(s)

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that JONATHAN DELAURA, 39, was sentenced to 35 years in prison by United States District Judge Kenneth M. Karas for receiving and distributing child pornography over the Internet, possessing child pornography, and sending obscene material to a 15-year-old boy.

U.S. Attorney Preet Bharara stated: “This case underscores the need for law enforcement to remain vigilant in protecting children from those who might prey on them over the Internet. As today’s sentencing demonstrates, we will use every tool available to law enforcement to find, prosecute and punish those who possess and distribute child pornography.”

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

On October 7, 2009, DELAURA, of Jefferson Valley, Westchester County, New York, pled guilty in Bronx County Court to sexual misconduct. His victim was a 12-year-old boy. He was sentenced on December 16, 2009, to six years of probation and registered with the New York State Sex Offender Registry.

On December 14, 2010, after Westchester Probation Department discovered that DELAURA was teaching tennis to children in Putnam County, New York, under an alias “Jon Dulak,” his probation was revoked and he was sentenced to a one-year term of imprisonment.

DELAURA was released from prison in April 2011. From May 5, 2011, through May 10, 2011, DELAURA distributed files containing images and videos of child pornography over the Internet via a Peer-to-Peer networking program.

In November 2011, DELAURA contacted a 15-year-old boy (the “Victim”) in an Internet chat room using the screen name “sillyrabbit” and claimed to be a 17-year-old girl. After an exchange of messages, DELAURA sent obscene photographs to the Victim. Thereafter, DELAURA sexually abused the Victim. On February 2, 2012, DELAURA was arrested by officers from the Putnam County Sheriff’s Department (“PCSD”). After DELAURA was arrested, PCSD officers executed a search warrant at his residence and recovered an iPod, which contained approximately 162 videos containing images of child pornography and approximately 5 still photos of images containing child pornography. The iPod also contained the obscene photographs that were sent to the Victim.

On December 12, 2012, DELAURA pled guilty in Putnam County Superior Court to two counts of Criminal Sexual Act in the 3rd Degree. Those charges related to DELAURA’s abuse of the Victim. On April 2, 2013, DELAURA entered a guilty plea in Federal Court to (1) receiving and distributing child pornography in May 2011, (2) possessing child pornography in February 2012, (3) transferring obscene material to the Victim in November 2011 and (4) doing so while registered as a sex offender.

Following DELAURA’s arrest in February 2012, an additional victim disclosed repeated sexual abuse by DELAURA in 2010 that began when the victim was 14 years old and DELAURA was the victim’s tennis instructor.

In sentencing DELAURA, Judge Karas stated that the defendant caused “indescribable pain” to the victims and their parents.

DELAURA has not yet been sentenced in Putnam County. Pursuant to his agreement with the Putnam County District Attorney’s Office, Putnam County will recommend consecutive sentences of one-and-a-third to four years on each of the counts to run concurrent with the federal sentence.

Mr. Bharara praised the efforts of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations in New York, the Putnam County Sheriff’s Department, the Yorktown Police Department, the Putnam County District Attorney’s Office, and the Westchester County District Attorney’s Office in connection with this investigation.

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

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States has filed and simultaneously settled a civil fraud lawsuit against a broker and a distributor of dairy products, alleging that defendants used false statements to buy federally subsidized dairy products. Specifically, the lawsuit alleges that HUGH HENLEY (“HENLEY”); two companies that Henley owns and operates, PRESTIGE PROTEINS and PRESTIGE MILK PROTEINS, LLC (collectively, “PRESTIGE”); and AGRI-DAIRY PRODUCTS, INC. (“AGRI-DAIRY”), defrauded the United States by conspiring to submit, and submitting, two false bids to the United States Department of Agriculture (the “USDA”) for the purchase of federally subsidized goods in 2009. As alleged in the Complaint, through those false bids, defendants fraudulently bought more than two million pounds of dairy products at federally-subsidized discount prices and unlawfully resold those products at market prices for substantial profits. The settlement requires defendants to admit to the false bidding, and collectively pay damages of $1,265,055. The settlement was approved Friday, March 28, 2014, by U.S. District Judge William H. Pauley.

Manhattan U.S. Attorney Preet Bharara said: “The federal government set up a program to help domestic manufacturing in the dairy industry by selling dairy products at federally subsidized low prices. The defendants engaged in lies and other deceptive conduct to skim product from this program so they could illegally sell it, rather than manufacture the intended product. Those who want to abuse federal programs should understand that such conduct will not be tolerated by this Office.”

According to the allegations contained in the Complaint filed Monday, March 24, 2014, in Manhattan federal court:

PRESTIGE, which is owned and operated by HENLEY, brokers the importation and distribution of dairy products in the United States. AGRI-DAIRY distributes dairy products in the United States. In 2009, the USDA invited qualified dairy product companies to submit bids for the purchase of discounted nonfat dry milk (“NDM”) through a federal program, the Dairy Product Price Support Program. The bidders were required to certify that they could and would domestically manufacture the product into casein, a common protein product. In particular, each bidder was required to certify that it had the facilities to manufacture casein domestically and that the bidder would use the NDM solely for domestic conversion into casein within 90 days. The purpose of the certification was to ensure that the federally subsidized NDM would be used to benefit the domestic manufacturing industry.

The defendants conspired to exploit this federal program by obtaining the federally discounted NDM and re-selling it on the open market, contrary to the program requirements and certifications. Specifically, defendants agreed that HENLEY, in the name of PRESTIGE, would submit two bids to the USDA falsely certifying that he had the facilities to manufacture the NDM into casein and would do so within 90 days. They did so knowing that PRESTIGE lacked the ability to manufacture the NDM into casein domestically. HENLEY and AGRI-DAIRY further agreed that AGRI-DAIRY would advance PRESTIGE the funds to pay the USDA for the dairy products, that AGRI-DAIRY would then sell the NDM at market prices, and that PRESTIGE and AGRI-DAIRY would split the net profits from the resale.

HENLEY, in the name of PRESTIGE, then submitted two false bids to the USDA and won the contracts each time. AGRI-DAIRY wired HENLEY the funds to allow PRESTIGE to pay the USDA, as an advance against profits from the resale of the NDM. Then, instead of converting the NDM into casein, defendants resold the NDM to AGRI-DAIRY’S customers at market prices after each purchase. Further, because the USDA required a certification of conversion to casein within 15 days of conversion as a condition of the sales, HENLEY twice falsely certified that PRESTIGE had, in fact, converted the NDM to casein, when it had not.

As a result of their conspiracy to submit false bids to the USDA, defendants collectively made a total of more than $630,000 from their resale of the discounted NDM they unlawfully acquired from the USDA.

In connection with the settlement, HENLEY and PRESTIGE will pay the United States $632,527 in damages, and AGRI-DAIRY also will pay $632,527 in damages, for a total settlement amount of $1,265,055.

As part of the settlement, HENLEY, PRESTIGE, and AGRI-DAIRY admitted, acknowledged, and accepted responsibility for the following facts:

• On or about June 1, 2009, and November 25, 2009, Henley presented two bids to the USDA to purchase discounted NDM;
• In those bids to purchase NDM, Henley falsely certified that the NDM would be used solely for domestic conversion into casein or caseinate, one of USDA’s requirements for purchasing the NDM;
• The two false bids were made pursuant to an agreement between Agri-Dairy and Henley, by which the NDM would not be used for the purpose of domestic conversion into casein or caseinate, but instead would be sold by Agri-Dairy to third parties, with the net profits from the sales split between Henley and the Prestige entities, on the one hand, and Agri-Dairy, on the other;
• Pursuant to that agreement, the NDM that Henley acquired from the USDA in connection with the June and November 2009 bids was not converted to casein, but was resold by Agri-Dairy; the net profits from those sales were split between Henley and the Prestige entities, on the one hand, and Agri-Dairy, on the other; and
• On or about October 5, 2009, and March 9, 2010, Henley falsely certified that the NDM purchased from the USDA in connection with the June and November 2009 bids had been converted to casein or caseinate, when in fact that had not occurred.

Mr. Bharara thanked the USDA, Office of the Inspector General, for its assistance in this case.

The case is being handled by the Office’s Civil Frauds Unit.

U.S. v. Henley Prestige AgriDairy Complaint
U.S. v. Henley Stipulation and Order of Settlement
U.S. v. Agridairy Stipulation and Order of Settlement

Preet Bharara, the United States Attorney for the Southern District of New York, announced that SCOT ZARKIEWICZ, the co-founder and former President, Chief Executive Officer, Treasurer, and principal owner of SingleClick Systems Corp. (“SingleClick”), a Delaware-incorporated, New Jersey-based software company, was sentenced today in Manhattan federal court to 63 months in prison for perpetrating a scheme to defraud SingleClick investors. From mid-2009 through June 2013, ZARKIEWICZ solicited several investors to purchase millions of dollars of privately-held SingleClick stock based on fraudulent misrepresentations about the company’s operations and financial performance. As a result of his fraudulent scheme, ZARKIEWICZ collected, and maintained in SingleClick, approximately $6.3 million from 35 victims. ZARKIEWICZ pled guilty in November 2013 before U.S. District Judge Denise L. Cote., who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence, Scot Zarkiewicz is being held to account for misleading investors and betraying their trust with his multimillion-dollar fraud scheme.”

According to the Information to which ZARKIEWICZ pled guilty, statements made in open court, and other court documents:

SingleClick is a privately-held software company that was engaged in the business of providing individuals and businesses with network software products that facilitate content access and network and systems management from any internet-connected device. From mid-2009 through June 2013, ZARKIEWICZ solicited investor contributions to, and caused investors to maintain their investments in, SingleClick based on fraudulent misrepresentations.

Specifically, during the relevant period, ZARKIEWICZ told SingleClick investors, in both oral and written communications, that SingleClick had several large corporate clients, millions of dollars in annual revenue, and millions of dollars in cash in bank and brokerage accounts, when, in truth and in fact, and as ZARKIEWICZ well knew, SingleClick conducted minimal business operations, collected significantly less than a million dollars in annual revenue, and did not have more than approximately $513,000 in cash on hand. ZARKIEWICZ made these misrepresentations to induce potential investors to purchase SingleClick shares, and to induce existing investors to purchase additional shares and/or refrain from requesting redemptions of their investments. ZARKIEWICZ made these misrepresentations by, among other means, distributing fabricated bank, brokerage, financial, and tax statements to investors.

In May and June 2013, investors learned that SingleClick had very little cash available and confronted ZARKIEWICZ. ZARKIEWICZ admitted to investors that he lied about SingleClick’s business performance, fabricated records, and misled investors about the number of investors in, and operation of, SingleClick. Notwithstanding representations made in preceding years by ZARKIEWICZ that SingleClick had millions of dollars in revenue – including representations that SingleClick had generated $48 million in revenue in 2012 – since mid-2009, SingleClick has actually been generating thousands of dollars in revenue, not millions, and SingleClick’s total aggregate bank account balances have not exceeded approximately $513,000. In August 2013, after admitting his fraudulent conduct, ZARKIEWICZ resigned as CEO of SingleClick.

ZARKIEWICZ, 41, of Toms River, New Jersey, was also sentenced to three years of supervised release, ordered to forfeit $5.5 million as well as any remaining proceeds in SingleClick bank accounts, and pay over $6.3 million in restitution.

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

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney David I. Miller is in charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni is in charge of the asset forfeiture related to the prosecution.

“A jury unanimously found that Sulaiman Abu Ghayth not only conspired to provide, and actually provided, material support to al Qaeda, but also conspired to kill Americans. He was more than just Usama bin Laden's propaganda minister. Within hours after the devastating 9/11 attacks, Abu Ghayth was using his position in al Qaeda's homicidal hierarchy to persuade others to pledge themselves to al Qaeda in the cause of murdering more Americans. Like the others who have faced terrorism charges in Manhattan's federal courthouse before him, Abu Ghayth received a fair trial, after which a unanimous jury rendered its verdict, justly holding him accountable for his crimes. We hope this verdict brings some small measure of comfort to the families of the victims of al Qaeda’s murderous designs.”

Preet Bharara, the United States Attorney for the Southern District of New York, and Mark Dragonetti, Special Agent in Charge of the New York Field Office of the United States Food and Drug Administration (“FDA”) Office of Criminal Investigations (“OCI”), announced that BALANCED HEALTH PRODUCTS (“BHP”), the United States distributor of “StarCaps” weight-loss pills, and its sole owner, NIKKI HASKELL, pled guilty today to distributing misbranded pills which failed to list Bumetanide, a prescription drug, as an ingredient. BHP and HASKELL pled guilty before United States Magistrate Court Judge Sarah Netburn.

Manhattan U.S. Attorney Preet Bharara said: “For years, Nikki Haskell and Balanced Health Products distributed weight-loss pills throughout the United States that they sold as ‘all-natural’ when in fact the pills contained a prescription drug banned by the National Football League and other major sports organizations. Consumers are entitled to know, when they buy a product, what they are putting in their bodies. With today’s pleas, the defendants begin to face the consequences of their unlawful conduct.”

FDA-OCI Special Agent in Charge Mark Dragonetti said: “The FDA Office of Criminal Investigations is fully committed to investigating and supporting the prosecution of those who may endanger the public’s health and safety by manufacturing and selling unsafe products. We will continue to aggressively pursue manufacturers, distributors and other responsible persons who fail to protect consumers from harmful products and we commend the United States Attorney’s Office for their prosecution of this matter.”

According to the Information filed today, and statements made in Court:

The FDA is a federal agency responsible for enforcing the provisions of the Federal Food, Drug, and Cosmetic Act, Title 21, United States Code, Section 301, et seq. The FDA’s responsibilities include, among other things, ensuring the safety, efficacy, and accurate labeling of prescription and non-prescription drugs shipped, delivered, and received in interstate commerce.

From at least in or about November 2006 through December 2008, BHP was a Delaware corporation headquartered in New York, New York. BHP’s primary business was the distribution across the United States of a purportedly all-natural weight-loss pill known as Nikki Haskell’s StarCaps (“StarCaps”). At all times, HASKELL was the President and Chief Executive Officer of BHP and resided in New York, New York.

As alleged, according to its product label, StarCaps contained only all-natural ingredients including, for example, papaya extract. In truth and fact, however, while not reflected on its label, from at least approximately November 2006 through approximately December 2008, StarCaps also contained a prescription drug, Bumetanide, a diuretic drug used clinically to treat heart failure, acute renal failure, high blood pressure, and edema, and available in the United States only by prescription issued by a licensed physician.

In addition to being available only by prescription, Bumetanide was banned by certain professional sports organizations including the National Football League (“NFL”). Among other things, Bumetanide was banned by the NFL because it can be used to mask the presence in the human body of steroids and other banned doping agents.

HASKELL, 72, of New York, New York, pled guilty to one count of misbranding, a misdemeanor which carries a maximum term of one year in prison, a maximum term of supervised release of one year, and a maximum fine of $100,000. BHP pled guilty to one count of misbranding, a misdemeanor which carries a maximum fine of $200,000 or twice the gross pecuniary gain derived from the offense. Both defendants are scheduled to be sentenced before U.S. Magistrate Court Judge Netburn on June 30, 2014. 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 FDA.

The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Robin W. Morey is in charge of the prosecution.

U.S. v. Nikki Haskell and Balanced Health Products Information

Eric Holder, the Attorney General of the United States, Preet Bharara, the United States Attorney for the Southern District of New York, John P. Carlin, the Acting Assistant Attorney General for National Security, George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, the Police Commissioner of the City of New York (“NYPD”), announced today that SULAIMAN ABU GHAYTH, a/k/a “Salman Abu Gayth,” Usama Bin Laden’s son-in-law and spokesman for al Qaeda, was found guilty today in Manhattan federal court of conspiracy to kill U.S. nationals, conspiracy to provide material support to terrorists, and providing material support to terrorists. GHAYTH is scheduled to be sentenced on September 8, 2014, at 2:30 p.m., before U.S. District Judge Lewis A. Kaplan, who presided over the three-week trial.

Attorney General Eric Holder said: “This verdict is a major milestone in the government’s unrelenting efforts to pursue justice against those involved with the September 11 attacks. I can imagine no more fitting outcome, and no stronger message to those who would harm our nation and its people: that no amount of distance or time can weaken America’s resolve to pursue, capture, and hold them accountable to the fullest extent of the law. I want to especially note that this verdict has proven that proceedings such as these can safely occur in the city I am proud to call home, as in other locations across our great nation. It was appropriate that this defendant, who publicly rejoiced over the attacks on the World Trade Center, faced trial in the shadow of where those buildings once stood. We never doubted the ability of our Article III court system to administer justice swiftly in this case, as it has in hundreds of other cases involving terrorism defendants. It would be a good thing for the country if this case has the result of putting that political debate to rest. This outcome vindicates the government’s approach to securing convictions against not only this particular defendant, but also other senior leaders of al Qaeda. I want to personally congratulate U.S. Attorney Bharara, his team in the Southern District of New York, and those who assisted in our National Security Division, for successfully prosecuting this case with the utmost integrity and professionalism. I also wish to thank the Federal Bureau of Investigation, the New York City Police Department, the U.S. Marshals Service, and Mayor de Blasio and the City of New York. This was truly a team effort.”

Manhattan U.S. Attorney Preet Bharara said: “Sulaiman Abu Ghayth arrived in the United States to face American justice on March 1, 2013, and in barely over a year he has been tried and convicted, and faces a possible life sentence. A jury unanimously found that Abu Ghayth not only conspired to provide, and actually provided, material support to al Qaeda, but also conspired to kill Americans. He was more than just Usama bin Laden’s propaganda minister. Within hours after the devastating 9/11 attacks, Abu Ghayth was using his position in al Qaeda's homicidal hierarchy to persuade others to pledge themselves to al Qaeda in the cause of murdering more Americans. Like the others who have faced terrorism charges in Manhattan’s federal courthouse before him, Abu Ghayth received a fair trial, after which a unanimous jury rendered its verdict, justly holding him accountable for his crimes. We hope this verdict brings some small measure of comfort to the families of the victims of al Qaeda’s murderous designs.”

Acting Assistant Attorney General John Carlin said: “This case highlights our resolve to find and bring to justice those who plot to attack our citizens and our interests around the world. As the face and voice of al Qaeda in the days and weeks after the 9/11 attacks, Abu Ghayth conspired with Usama Bin Laden and al Qaeda and announced to the world al Qaeda’s deadly intentions to continue to attack America. Today, he stands convicted and he will face justice for his role in al Qaeda’s lethal plot to kill Americans. I want to thank all of the agents, analysts, and prosecutors who are responsible for this result.”

FBI Assistant Director-in-Charge George Venizelos said: “A Manhattan jury found Abu Ghayth guilty for not only supporting a terrorist organization, but conspiring to kill Americans. Like a consigliere for the mob or the chief of staff to a corrupt foreign leader, Abu Ghayth was the spokesman, confidant, and senior adviser to Bin Laden's organization. Abu Ghayth looked to better al Qaeda's reputation at every turn –even just minutes after the 9/11 attacks - offering advice and counsel to the organization’s senior leadership. He encouraged others to abandon the true tenets of their faith, swearing bayat to the twisted ideology. The FBI's Joint Terrorism Task Force will relentlessly pursue anyone who supports this radical, violent terrorist agenda.”

NYPD Commissioner William Bratton said: “I applaud the members of the jury who wasted no time when coming to a decision to convict this preacher of hate for his involvement in attacks to kill Americans. I hope this verdict will bring some comfort to the families of the victims of September 11th, 2001.”

According to the evidence presented at trial, and other public proceedings in Manhattan federal court:

Since around 1989, al Qaeda has been an international terrorist organization, dedicated to opposing non-Islamic governments with force and violence. Usama Bin Laden served as the leader or “emir” of al Qaeda until his death on or about May 2, 2011. Members of al Qaeda typically have pledged an oath of allegiance, called bayat, to Bin Laden and to al Qaeda.

The core purpose of al Qaeda, as stated by Bin Laden and other leaders, is to support violent attacks against property and nationals, both military and civilian, of the United States and other countries. Between 1989 and 2001, al Qaeda established training camps, guest houses, and business operations in Afghanistan, Pakistan, and other countries for the purpose of training and supporting its agenda of violence and murder. Members and associates of al Qaeda have executed a number of terrorist attacks, all in furtherance of the organization’s stated conspiracy to kill Americans, including the attacks on the United States on September 11, 2001 in New York, Virginia, and Pennsylvania, which killed approximately 2,976 people.

From at least May 2001 up to around 2002, GHAYTH served alongside Usama Bin Laden, appearing with Bin Laden and his then-deputy Ayman al-Zawahiri, speaking on behalf of the terrorist organization and in support of its mission, and warning that attacks similar to those of September 11, 2001 would continue.

In particular, around May 2001, GHAYTH urged individuals at a guest house in Kandahar, Afghanistan, to swear bayat to Bin Laden. On the evening of September 11, 2001, immediately after the terrorist attacks on the United States, Bin Laden summoned GHAYTH and asked for his assistance, which he agreed to provide. On the morning of September 12, 2001, GHAYTH, appeared with Bin Laden and Zawahiri, and spoke on behalf of al Qaeda, warning the United States and its allies that “[a] great army is gathering against you” and called upon “the nation of Islam” to do battle against “the Jews, the Christians and the Americans.” Also, after the September 11, 2001, terrorist attacks, GHAYTH delivered a speech in which he addressed the then-U.S. Secretary of State and warned that “the storms shall not stop, especially the Airplanes Storm,” and advised Muslims, children, and opponents of the United States “not to board any aircraft and not to live in high rises.” At this time, in Afghanistan, Bin Laden and others within al Qaeda were plotting to detonate shoe bombs aboard flights within or en route to the United States.

Thereafter, GHAYTH arranged to be, and was, successfully smuggled from Afghanistan into Iran in 2002.

GHAYTH, 48, was convicted of one count of conspiring to kill United States nationals, in violation of Title 18, United States Code, Section 2332(b); one count of conspiring to provide material support to terrorists, in violation of Title 18, United States Code, Section 2339A; and one count of providing material support to terrorists, in violation of Title 18, United States Code, Section 2339A. The offenses carry a maximum term of life in prison. The maximum potential sentence is prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

The convictions of Abu Ghayth are the result of the close cooperative efforts of the U.S. Attorney’s Office for the Southern District of New York, the FBI’s Joint Terrorism Task Force – which principally consists of agents and detectives of the FBI and the NYPD – the United States Marshals Service and the National Security Division of the U.S. Department of Justice. The Justice Department’s Office of International Affairs and the U.S. Department of State also provided assistance.

The prosecution is being handled by Assistant United States Attorneys John P. Cronan, Nicholas J. Lewin, and Michael Ferrara of the Terrorism and International Narcotics Unit of the U.S. Attorney’s Office for the Southern District of New York, with assistance from Trial Attorney Jolie Zimmerman of the National Security Division’s Counterterrorism Section, Tara M. LaMorte of the Civil Division of the U.S. Attorney’s Office for the Southern District of New York, and Diane Gujarati, Deputy Chief of the Criminal Division of the U.S. Attorney’s Office for the Southern District of New York.

U.S. v. Sulaiman Abu Ghayth S14 Indictment

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 the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), and William J. Bratton, the Police Commissioner of the City of New York (“NYPD”), today announced the return of a 48-count superseding Indictment charging MANUEL GEOVANNY RODRIGUEZ-PEREZ, a/k/a “Shorty,” with controlling a massive racketeering organization (the “Rodriguez Enterprise”) whose members sold large quantities of marijuana, murdered and attempted to murder 20 people, transported and laundered millions of dollars, obstructed justice and committed perjury, and engaged in firearms offenses. This Indictment was filed yesterday in connection with “Operation Green Venom,” a coordinated multi-agency investigation that was led by ICE HSI and first announced in October 2010. RODRIGUEZ-PEREZ will be arraigned before U.S. District Judge Laura T. Swain on Thursday at 4:30 p.m.

Manhattan U.S. Attorney Preet Bharara said: “Today we announce the addition of no fewer than 10 murders and attempted murders to the already numerous alleged egregious acts of violence, drug trafficking, and other criminal conduct with which Manuel Rodriguez-Perez is charged. This Office will continue to work with our law enforcement partners until everyone involved in this enterprise is brought to justice.”

ICE HSI Special Agent-in-Charge James T. Hayes, Jr., said: “As alleged, the Rodriguez Drug Trafficking Organization sought to maintain its vise grip on the drug trade throughout New York City by using murder and assaults on its competitors and workers alike. HSI and its law enforcement are committed to taking down drug organizations that wreak havoc on our neighborhoods.”

NYPD Commissioner William J. Bratton said: “Individuals who traffic illegal drugs and give orders to take someone’s life have no place in our city. Thanks to the efforts of the investigators and prosecutors involved in this extensive case, these criminals will be prosecuted to the fullest extent of the law.”

According to the allegations contained in the superseding Indictment unsealed yesterday in Manhattan federal court:

RODRIGUEZ-PEREZ, the leader of the Rodriguez Enterprise, is charged with ten murders and ten attempted murders, including the murders of the following victims:

• Francisco Perez, a/k/a “Francie,” on October 26, 1997;
• Antonio Kasse, a/k/a “Toasty,” on December 13, 1998;
• FNU LNU, a/k/a “Carlos Valentin,” a/k/a “Campi,” in or about 2000;
• Noel Herrera, on December 29, 2001;
• Kelly Perez, a/k/a “Red” on September 16, 2002;
• Marino Molina, on January 11, 2003;
• Wilfredo Molina, a/k/a “Willie,” on May 3, 2004;
• Manuel Rivas, a/k/a “Tony el Mono,” on October 29, 2005;
• Richard Cabrera, a/k/a “Bori,” on January 16, 2006; and
• Saturnino Delgado-Garcia, on May 1, 2011

Noel Herrera, Marino Molina, Manuel Rivas, and Saturnino Delgado-Garcia were each murdered in the Dominican Republic. Wilfredo Molina was murdered in New Jersey, and the remaining victims were murdered in New York City. RODRIGUEZ-PEREZ solicited the murder of Delgado-Garcia from prison.

A chart containing the charges in the Superseding Indictment, and the corresponding maximum potential sentences for each count, is attached. 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. The charges contained in the Indictment against RODRIGUEZ-PEREZ are merely accusations, and he is presumed innocent unless and until proven guilty.

The Indictment seeks forfeiture of $25 million, which is the approximate amount of gross proceeds received by RODRIGUEZ-PEREZ derived from racketeering activities, properties in New York, Florida, and the Dominican Republic, and cash and jewelry seized by law enforcement officers.

RODRIGUEZ-PEREZ, 41, has been in federal custody since October 15, 2010, when he was arrested during a takedown of more than 50 members of a massive marijuana trafficking ring that transported ton-quantities of marijuana from Florida and California for distribution in the greater New York area from the early 1990’s to 2010.

RODRIGUEZ-PEREZ and eight other defendants were charged in July 2012, in S31 10 Cr. 905 (LTS) with, among other things, five murders and five attempted murders. Since that time, five of the defendants charged in that indictment have pled guilty to, among other things, multiple murders, marijuana trafficking, money laundering, and firearms offenses. The charges against the remaining defendants, Oscar Rodriguez, Theodore Jones, and Jose Espinal, are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

Mr. Bharara praised the outstanding investigative work of ICE HSI, the NYPD, and the U.S. Drug Enforcement Administration. He also thanked the Federal Bureau of Investigation, U.S. Marshals Service, the Bergen County, New Jersey, Prosecutor’s Office, the Englewood, New Jersey, Police Department, the U.S. Department of Housing and Urban Development, and the New York City Department of Investigation for their assistance, and added that the investigation is continuing.

The prosecution of the cases arising from “Operation Green Venom” is being overseen by the Office’s Violent Crimes Unit. Assistant U.S. Attorney Amie N. Ely is in charge of the prosecution. Assistant U.S. Attorney Andrew Adams is responsible for the forfeiture proceedings.

Click here to view chart(s)

U.S. v. Manuel Geovanny Rodriguez-Perez Indictment S38 10 Cr 905

“As the jury unanimously found, these five defendants played crucial roles in constructing and maintaining the house of cards that was the Madoff investment fraud. These convictions, along with the prior guilty pleas of nine other defendants, demonstrate what we have believed from the earliest stages of the investigation: this largest-ever Ponzi scheme could not have been the work of one person. The trial established that the Madoff fraud began at least as far back as the early 1970s, decades before it came to light. These defendants each played an important role in carrying out the charade, propping it up, and concealing it from regulators, auditors, taxing authorities, lenders, and investors. The scheme these defendants helped perpetrate cost innumerable investors their life savings. Now it likely will cost the defendants their freedom.”

Preet Bharara, 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 arrest of TERRENCE PENDERGRASS, a correction officer and former captain, for 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 taken into custody this morning, and is expected to be presented this afternoon in Manhattan federal court before U.S. Magistrate Judge Sarah Netburn.

Manhattan U.S. Attorney Preet Bharara said: “Jason Echevarria should not have died. As alleged, Terrence Pendergrass abused his power as a Rikers Island captain in charge of a vulnerable population of inmates with mental health issues by denying Echevarria access to medical care despite his obvious and urgent medical need for it. The Constitution protects the civil rights of everyone, including prison inmates at Rikers. The kind of conduct alleged today cannot be tolerated in our criminal justice system.”

FBI Assistant Director-in-Charge George Venizelos said: “The public’s trust in law enforcement officers to enforce the law and ensure justice should never be abused. Sadly, as alleged, Mr. Pendergrass took his authority as a supervisory correction officer to the extreme and violated the rights of an inmate in his charge to the point that it resulted in death. The FBI is the lead federal agency to investigate such abuses of power and it remains one of our top priorities.”

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

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. Echevarria had been given the soap ball by a new correction officer for the purpose of cleaning Echevarria’s cell following a sewage backup. The soap ball contained, among other things, ammonium chloride, a corrosive chemical that is life threatening if ingested.

After Echevarria swallowed the soap ball, other inmates heard Echevarria banging on his cell door and asking for medical help. Echevarria also told a correction officer that he had swallowed a soap ball and 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 short time later, the same correction officer told PENDERGRASS that he saw vomit in Echevarria’s cell, and PENDERGRASS responded that Echevarria should “hold it.”

Later the same day, a pharmacy technician assigned to distribute inmate medication saw that there was vomit in Echevarria’s cell, and that Echevarria’s skin appeared discolored. The pharmacy technician learned from a second correction officer, who was serving as an escort, that Echevarria had swallowed a soap ball, and Echevarria told both the pharmacy technician and the second correction officer that he needed medical help. The pharmacy technician informed the second correction officer that Echevarria could die if he did not receive medical attention. The second correction officer then informed PENDERGRASS that Echevarria had swallowed a soap ball and needed medical help. Notwithstanding this report, PENDERGRASS failed to contact any medical personnel about Echevarria’s condition. In fact, PENDEGRASS told the second correction officer that perhaps the officer had simply misheard Echevarria’s request for medical help, which the second correction officer responded was not the case.

The next morning, Echevarria was found dead in his cell. An autopsy revealed that Echevarria died as a result of injuries caused by the ingestion of a caustic substance, consistent with the ingestion of a soap ball. Echevarria had internal burns and scarring along his esophagus and into his trachea, indicating that he suffered aspiration of vomit into his lungs. At no point prior to his death was Echevarria provided with any medical assistance to treat his ingestion of the substances contained in the soap ball.

PENDERGRASS, 49, of Howard Beach, New York, is charged 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.

Mr. Bharara praised the investigative work of the FBI. Mr. Bharara also thanked the New York City Department of Correction, Investigation Division, and the Bronx County District Attorney’s Office for their assistance in the ongoing investigation.

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 Complaint is merely an accusation and the defendant is presumed innocent unless and until proven guilty.

U.S. v. Terrence Pendergrass Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that CARLOS JOSE LUIS (“JOSE LUIS”), also known as Jose Quilestorres, was sentenced on Friday, March 24, 2014, in Manhattan federal court to nine years in prison for his role as the leader of a scheme to fraudulently generate and then steal more than $10 million in federal tax refund checks. JOSE LUIS pleaded guilty before U.S. District Judge Richard J. Sullivan in May 2013 to one count of each of: conspiracy to steal government funds, stealing government funds, aggravated identity theft, conspiracy to submit false claims to the United States, and submitting false claims to the United States. JOSE LUIS also pleaded guilty to similar charges in the District of New Jersey in November 2013, and that case was transferred to the Southern District of New York for sentencing. Judge Sullivan imposed the nine-year sentence based on JOSE LUIS’s guilty plea in both cases.

Manhattan U.S. Attorney Preet Bharara said: “Jose Luis stole people’s identities and used a corrupted Postal employee to perpetrate a multimillion-dollar tax fraud scheme. As the judge in this case correctly noted, stealing from the government may seem impersonal but everyone who is deprived of the good the government can do by that money being taken is a victim. This Office will not tolerate the wholesale thievery from the Treasury that this scheme was.”

According to the Indictment filed in Manhattan federal court, other court documents, and statements made during court proceedings:

JOSE LUIS operated a tax refund fraud mill from an apartment in the Bronx. Between January 2011 and September 2012, JOSE LUIS fraudulently claimed more than $10 million in IRS tax refund checks.

To fraudulently obtain the refund checks, JOSE LUIS would unlawfully obtain identifying information, including names, dates of birth, and social security numbers, of Puerto Rican citizens. Their stolen identities would then be used to claim large refunds from the federal government. Many of the checks in this particular scheme were sent to addresses in Shirley, New York, where a Postal Service employee was stealing United States mail containing tax refund checks. The checks generated by the fraudulent returns filed by JOSE LUIS were then cashed by other individuals, including four individuals charged in the Indictment filed in Manhattan federal court: Miguel Caceres, Felipe Duran Martinez, Ana Pimentel, and Emil Mejia.

In sentencing JOSE LUIS, Judge Sullivan remarked that “this is a crime that went on for a long time, the entire purpose of which was to steal from the government of the United States. On the one hand, that's . . . a very impersonal victim. . . . But it is a government that is designed to serve people and serve communities. And so the staggering amount of loss here . . . more than $10 million, if you think about what the government could do with that money . . . $10 million can do . . . an awful lot of good. . . . So there are victims to this crime. . . .”

Caceres pleaded guilty in April 2013 to conspiracy to steal government funds and to stealing government funds and was sentenced in November 2013 to 14 months in prison. Martinez pleaded guilty in April 2013 to similar charges and is awaiting sentence. Another individual linked to this organization and charged in the Indictment, Jairo Polanco, also pleaded guilty, in March 2013, and was sentenced in July 2013 to one year and one day in prison. Pimentel and Mejia remain at large. The charges against Pimentel and Mejia are merely accusations, and they are presumed innocent unless and until proven guilty.

Mr. Bharara praised the Internal Revenue Service and the United States Postal Inspection Service for their work on this case.

This case is being prosecuted by the Office’s General Crimes Unit. Assistant U.S. Attorneys Rahul Mukhi and Micah Smith are in charge of this prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that a Manhattan jury today found DANIEL BONVENTRE, ANNETTE BONGIORNO, JOANN CRUPI, a/k/a “Jodi,” JEROME O’HARA, and GEORGE PEREZ guilty of all 31 counts in connection with their long-time employment at Bernard L. Madoff Investment Securities LLC (“Madoff Securities”). The verdict was announced this afternoon after a more than five-month trial before Judge Laura Taylor Swain in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara said: “As the jury unanimously found, these five defendants played crucial roles in constructing and maintaining the house of cards that was the Madoff investment fraud. These convictions, along with the prior guilty pleas of nine other defendants, demonstrate what we have believed from the earliest stages of the investigation: this largest-ever Ponzi scheme could not have been the work of one person. The trial established that the Madoff fraud began at least as far back as the early 1970s, decades before it came to light. These defendants each played an important role in carrying out the charade, propping it up, and concealing it from regulators, auditors, taxing authorities, lenders, and investors. The scheme these defendants helped perpetrate cost innumerable investors their life savings. Now it likely will cost the defendants their freedom.”

According to the evidence presented during the trial:

BONGIORNO, an employee in the investment advisory business for 40 years, managed hundreds of investment advisory accounts purportedly having a cumulative balance of approximately $8.5 billion dollars as of November 30, 2008. BONGIORNO also supervised employees who worked for the investment advisory business.

CRUPI, an employee in the investment advisory business for 25 years, managed several Madoff Securities investment advisory accounts purportedly having a cumulative balance of approximately $900 million as of November 30, 2008. She also tracked the daily activity of the bank account into which billions of dollars of investment advisory client money was deposited, and from which investment advisory client redemptions were paid.

During the course of managing investment advisory accounts, BONGIORNO and CRUPI “executed” trades in the investment advisory clients’ accounts only on paper, based on historically reported prices of securities that they researched in the Wall Street Journal and Bloomberg. Those trades achieved annual rates of return that had been pre-determined by Madoff. BONGIORNO and CRUPI also backdated the purchase dates of purported trades so that they could control the amount of gains reflected in the investment advisory accounts. Further, BONGIORNO processed exceptional gains in the investment advisory accounts that purportedly occurred months before the investment advisory accounts had been established. BONGIORNO also asked certain investment advisory clients to return previously issued Madoff Securities account statements so that she could alter them, and often include additional backdated trades.

CRUPI handled the receipt of funds sent to Madoff Securities by its clients for investment; transferred clients’ funds between and among various Madoff Securities bank accounts; handled client requests for redemptions sent to Madoff Securities by clients; monitored, on a daily basis, funds transferred into and out of the Madoff Securities bank account that was principally used to perpetrate the fraud; and prepared and assisted in the preparation of fabricated documents designed to deceive regulators and outside auditors. Further, CRUPI provided banks with false information in connection with mortgage loans for other Madoff Securities employees.

BONVENTRE was employed at Madoff Securities for 40 years and served as its Director of Operations. BONVENTRE was responsible for maintaining and supervising the production of the principal internal accounting documents for Madoff Securities, including its general ledger, financial statements, and stock record. BONVENTRE directed that false entries be made in the general ledger that concealed the scope of the investment advisory operations and understated Madoff Securities’s liabilities by billions of dollars. For example, from 1997 to 2008, more than $750 million of investment advisory investor funds were used to support Madoff Securities’s Market Making and Proprietary Trading operations, but were not accounted for on Madoff Securities’s books and records, including the general ledger, so as to conceal the true source of the funds. Moreover, as BONVENTRE knew, the general ledger did not accurately reflect the assets contained in the bank and brokerage accounts into which investment advisory investor funds were deposited, and likewise did not reflect the liability of Madoff Securities to its investment advisory clients that arose from the custody of investment advisory client funds in those accounts. The assets and associated liabilities of Madoff Securities’s investment advisory operations, which were omitted from the general ledger, ranged from millions to billions of dollars.

Madoff Securities was required to file Financial and Operational Combined Uniform Single Reports (“FOCUS Reports”) with the United States Securities and Exchange Commission (“SEC”). Those FOCUS Reports require the production of basic information that amounts to a condensed version of a broker-dealer’s general ledger. Because the general ledger was inaccurate, as BONVENTRE well knew, the FOCUS Reports were likewise false because they failed to accurately reflect Madoff Securities’s assets and liabilities. For example, one such report, for the month of April 2006, in the midst of a liquidity crisis, failed to reflect at least $299 million in Madoff Securities liabilities related to $154 million of an investment advisory client’s bonds and the $145 million that Madoff Securities had borrowed using those bonds as collateral. BONVENTRE also provided false FOCUS Reports and other financial documents to banks in connection with Madoff Securities’s bank loans.

In addition, between 2004 and 2007, in connection with audits of Bernard L. Madoff’s U.S. Individual Income Tax Returns, Forms 1040s, BONVENTRE created false, backdated Madoff Securities records to show the tax auditors. Because Madoff had under-reported his income by tens of millions of dollars each year, BONVENTRE created false documents that appeared consistent with Madoff’s tax returns for the purposes of maintaining the falsity of Madoff’s tax returns and deceiving the auditors.

Further, between 2004 and 2008, Madoff Securities was subject to at least five reviews by the SEC and a European accounting firm which was conducting a review of Madoff Securities’s operations on behalf of investment advisory clients. As part of a concerted effort overseen by Madoff to deceive both the SEC and the European accounting firm, BONVENTRE, CRUPI, O’HARA and PEREZ participated in creating numerous false and fraudulent books and records.

O’HARA and PEREZ were employed as computer programmers at Madoff Securities beginning in 1990 and 1991, respectively. They were responsible for developing and maintaining computer programs that supported the operation of the Madoff Securities investment advisory business. For example, O’HARA and PEREZ created special programs that, among other things: created books and records for a small subset of Madoff Securities investment advisory clients to help hide the scope and nature of the investment advisory business; changed the names of account holders to help explain why the SEC would not find investment advisory client securities at the Depository Trust Company (“DTC”); altered details about the number of shares, execution times, and transaction numbers for trades reported on Madoff Securities trade blotters, by employing algorithms that produced false and random results; created false and fraudulent order entry and execution reports that included fictitious times at which orders for equities transactions purportedly were placed; generated fraudulent commission reports; and created fraudulent investment advisory client account statements in a format different from those sent to clients. O’HARA and PEREZ knew that the special programs they developed contained fraudulent information and that they were used in connection with the SEC and European accounting firm reviews.

In addition to convicting the defendants of their participation in securities fraud and related conduct in connection with the Madoff Securities Ponzi scheme, the defendants were convicted on a total of 31 counts – every count that was submitted to the jury – some of which relate to allegations of separate misconduct, including bank fraud and tax fraud offenses. BONVENTRE, for example, was convicted for his participation in an accounting fraud conspiracy that, among other things, included using falsified financial statements and other documents to obtain hundreds of millions of dollars in loans and lines of credit from federally-insured financial institutions. BONVENTRE was separately convicted in connection with creating fraudulent financial records to tax auditors, in an attempt to deceive the Internal Revenue Service and maintain the falsity of Bernard L. Madoff’s own (fraudulent) personal income tax returns.

CRUPI was convicted of a separate bank fraud conspiracy to assist David Kugel – a former supervisory trader in Madoff Securities’s market-making and proprietary trading operation, who pled guilty and agreed to cooperate with the Government in November 2011 – by creating and submitting to federally insured financial institutions falsified documents in support of personal bank loans for Kugel and members of his family.

Finally, BONVENTRE, BONGIORNO, and CRUPI were each convicted in connection with filing false income tax returns on their own behalf, in which each of the three defendants failed to report cash and other benefits they received from Madoff Securities. BONVENTRE was convicted of failing to report millions of dollars in cash and other benefits, including payments on his behalf for his membership in a country club and his son’s private high school tuition. BONGIORNO was convicted of failing to report more than a million dollars in cash payments she received from two “Bernard L. Madoff Special” accounts. And CRUPI was convicted for failing to report tens of thousands of dollars in personal expenses she charged on a corporate credit card.

In total, the jury convicted BONVENTRE, 67, of 20 counts; BONGIORNO, 66, of 10 counts; CRUPI, 53, of 13 counts; and O’HARA, 51, and PEREZ, 48, of eight counts each. A chart containing a description of the counts of conviction and their maximum penalties is attached. 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.

The defendants will be sentenced in July by U.S. District Court Judge Laura Taylor Swain in Manhattan federal court. BONVENTRE and BONGIORNO will be sentenced on July 28, 2014. CRUPI and O’HARA will be sentenced on July 29, 2014. And PEREZ will be sentenced on July 30, 2014. Judge Swain ordered each of the defendants subject to electronic monitoring pending sentencing and limited home confinement.

Mr. Bharara praised the investigative work of the Federal Bureau of Investigation. He also thanked the U.S. Securities and Exchange Commission, the Internal Revenue Service – Criminal Investigations, the New York Regional Office of the U.S. Department of Labor’s Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, and the New York Regional Office of the U.S. Department of Labor, Employee Benefits Security Administration for their assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

Assistant United States Attorneys Matthew L. Schwartz, John T. Zach, and Randall W. Jackson are in charge of the prosecution.

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U.S. v. Daniel Bonventre, et al. S10 Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ISAAK KHAFIZOV, a former owner of American Home Recovery (“AHR”), a mortgage loan modification business, was sentenced yesterday in Manhattan federal court to nine years in prison in connection with a scheme to defraud distressed homeowners and lenders. KHAFIZOV was convicted in May 2012 of one count of conspiracy to commit mail and wire fraud, one count of mail fraud, and two counts of wire fraud, after a ten-day jury trial presided over by U.S. District Judge George B. Daniels, who also imposed the sentence.

Manhattan U.S. Attorney Preet Bharara said: “Isaak Khafizov victimized desperate homeowners who were struggling to make their mortgage payments. He preyed on their fears of losing their homes by lying about miracle cures for their financial problems. Khafizov pretended it was all made possible by government programs that did not exist, by special, powerful relationships with banks that he did not have, and by expertise and experience that he never possessed.”

According to the Superseding Indictment filed in Manhattan federal court, other court documents, and statements made during court proceedings:

In the spring of 2008, ISAAK KHAFIZOV, Jaime Cassuto, and David Cassuto founded American Home Recovery (“AHR”), a mortgage modification business that operated in Manhattan. From the spring of 2008 through the summer of 2009, KHAFIZOV used AHR to commit a systematic fraud that preyed on distressed homeowners. KHAFIZOV and AHR’s salespeople fraudulently induced distressed homeowners all over the United States to pay AHR thousands of dollars in up-front fees, by falsely promising the homeowners that: (1) AHR could get them better interest rates and lower monthly fees, all within a short timeframe; (2) AHR would return the up-front fees if it did not succeed in getting the homeowners the mortgage modifications they desired; (3) the homeowners had been “pre-approved” for mortgage modifications by their lenders; (4) AHR was affiliated with government agencies and programs established by the Economic Stimulus Act of 2008; (5) AHR possessed special expertise in mortgage modifications, and (6) AHR had special relationships with lenders. After receiving up-front fees from the distressed homeowners, KHAFIZOV and AHR did little or no work to try to renegotiate the homeowners’ mortgages. And on those rare occasions when KHAFIZOV succeeded in getting a homeowner a mortgage modification, he typically did so by coaching the homeowner to lie about his or her income and assets on forms submitted to the mortgage lender.

All told, KHAFIZOV and AHR defrauded financially struggling customers across the country out of over half a million dollars in fees. Furthermore, because KHAFIZOV and AHR did not do the work they had promised, and because KHAFIZOV specifically directed the distressed homeowners to stop paying their mortgages and to pay AHR its fees instead, many of AHR’s customers wound up in foreclosure as a result of the scheme.

In addition to his prison term, KHAFIZOV, 27, of Queens, New York, was sentenced to three years of supervised release.

In sentencing KHAFIZOV, Judge Daniels remarked that victims who feared “being thrown out of their homes” were “desperately seeking help” from Khafizov because he “promised to solve what, for most of these people, was the most serious problem that they had ever encountered in their lives.” But Khafizov “took advantage of every one” of them, and “… showed a callous disregard for the consequences of his criminal conduct on the victims he swindled.”

Jaime Cassuto and David Cassuto each pled guilty to multiple counts of fraud in April 2012. They await sentencing.

Mr. Bharara praised the Federal Bureau of Investigation and the Special Inspector General of the Troubled Asset Relief Program for their work on this case.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. For more information on the task force, please visit www.StopFraud.gov.

This case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys Niketh Velamoor and Nicole Friedlander are in charge of this prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ANTHONY BOYKIN and JUSTIN SIMMONS were sentenced Tuesday in Manhattan federal court for various racketeering, murder, attempted murder, narcotics conspiracy, and firearms offenses. BOYKIN was sentenced to life plus 32 years in prison, and SIMMONS was sentenced to 50 years in prison. In June 2013, after a four-week jury trial before United States District Judge Colleen McMahon, the jury convicted BOYKIN and SIMMONS of charges arising out of their involvement, from 2006 through 2013, in the criminal activities of the Bloods gang (the “Newburgh Bloods”) – a violent street gang that was involved in drug trafficking and multiple acts of violence, including murders and attempted murders, in Newburgh, New York. In particular, BOYKIN was found guilty of participating in a racketeering enterprise, participating in a racketeering conspiracy, participating in various racketeering offenses, including murder, participating in a crack-cocaine distribution conspiracy, and possessing, using, and carrying firearms, and SIMMONS was found guilty of participating in a racketeering conspiracy, participating in a crack-cocaine distribution conspiracy, and possessing, using, and carrying firearms. They were both sentenced in Manhattan federal court by Judge McMahon.

Manhattan U.S. Attorney Preet Bharara said: “The Newburgh Bloods have made victims not only of those they shot, stabbed, and killed, but also of every Newburgh resident who has had to live with the terror wrought by the gang’s legacy of drugs and violence. Anthony Boykin and Justin Simmons perpetuated the plague of violence. The sentences handed down show that if you choose to engage in drug-dealing and gang violence, you will be held accountable for your actions and deprived of your liberty.”

According to the Superseding Indictment and evidence admitted at trial:

From 2006 through 2013, BOYKIN was a member, and then leader, of a racketeering enterprise – the Newburgh Bloods. As part of his participation in that enterprise, BOYKIN conspired to murder Lamont Young, a local marijuana dealer, which culminated in Young’s murder on March 4, 2009. He participated in two additional conspiracies to commit murder, which culminated in the vicious attacks of Ishmael Gillian and David Freeman on August 24, 2008 and September 20, 2008, respectively. BOYKIN also robbed a suspected narcotics dealer in August 2009.

From 2007 through 2011, BOYKIN and SIMMONS, a soldier in the Newburgh Bloods, participated in a conspiracy to distribute crack cocaine on Landers Street in Newburgh, New York, and throughout the city. They also possessed firearms in connection with their drug trafficking and racketeering activities with the Newburgh Bloods gang.

In addition to the prison terms, Judge McMahon sentenced BOYKIN to five years of supervised release and a $25,000 fine and ordered him to pay a special assessment of $1,100, and SIMMONS to ten years of supervised release and a $10,000 fine and ordered him to pay a special assessment of $400.

Mr. Bharara praised the outstanding efforts of the Hudson Valley Safe Streets Task Force, including the FBI, the City of Newburgh Police Department, the Orange County Sheriff’s Office, and the New York State Police, in connection with this investigation.

Assistant United States Attorneys Michael D. Maimin, Amie N. Ely, and Emil J. Bove III 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 unsealing of charges against ANTOINE BURROUGHS and LEON WHITFIELD. WHITFIELD was arrested and presented yesterday in Manhattan federal court before U.S. Magistrate Judge Frank Maas, and ordered detained. BURROUGHS is still at large.

Manhattan U.S. Attorney Preet Bharara said: “Antoine Burroughs and Leon Whitfield allegedly targeted and robbed a Queens pizza owner, and then brutally murdered his son as he tried to protect his father. This Office and our law enforcement partners stand fully committed to eradicating this type of violence from our neighborhoods.”

FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Burroughs and Whitfield had no regard for life, especially the life of Gerardo Antoniello. They illegally entered Antoniello’s father’s home with the intention of robbing him of any cash on hand from Antoniello’s pizza shop. The FBI stands with our law enforcement partners to announce these charges and to reiterate that this case will not be done until all those involved face justice.”

According to the allegations in the Superseding Indictment unsealed yesterday in Manhattan federal court and on other documents in the public record:

On September 9, 2009, BURROUGHS and WHITFIELD attempted to rob an individual named Bartolomeo Antoniello at his home in Queens, New York. BURROUGHS and WHITFIELD were targeting the cash proceeds of Antoniello’s pizza shop. Antoniello’s son, Gerardo Antoniello, was home at the time, and attempted to protect his father. During the struggle, Gerardo Antoniello was shot in the head and died later of his injuries. He was 29 years old.

BURROUGHS, 25, and WHITFIELD, 23, both of New York, New York, are each charged with one count of robbery conspiracy and one count of attempted robbery, which each carry a maximum sentence of 20 years in prison; one count of discharging a firearm, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 10 years in prison; and one count of murder, which carries a maximum sentence of life in prison or death. 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. This case has been assigned to U.S. District Judge Gregory H. Woods.

Mr. Bharara praised the investigative work of the FBI, the New York City Police Department, and the Queens District Attorney’s Office, and stated that the investigation is ongoing.

The case is being prosecuted by the Organized Crime Unit. Assistant United States Attorneys Peter Skinner and Rachel Maimin 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. Antione Burroughs and Leon Whitfield S1 Indictment

Independent Monitor to Be Appointed to Oversee Toyota’s Public Statements and Reporting of Safety Issues

Eric Holder, the Attorney General of the United States, Anthony Foxx, the United States Secretary of Transportation, Preet Bharara, the United States Attorney for the Southern District of New York, Calvin L. Scovel, III, Inspector General of the United States Department of Transportation (“DOT”), and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced a criminal wire fraud charge against Toyota Motor Corporation (“TOYOTA” or the “Company”), an automotive company headquartered in Toyota City, Japan, that designs, manufactures, assembles, and sells Toyota and Lexus brand vehicles. The charge is that TOYOTA defrauded consumers in the fall of 2009 and early 2010 by issuing misleading statements about safety issues in Toyota and Lexus vehicles.

Also today, Mr. Bharara announced a deferred prosecution agreement with TOYOTA (the “Agreement”) under which the Company admits that it misled U.S. consumers by concealing and making deceptive statements about two safety issues affecting its vehicles, each of which caused a type of unintended acceleration. The admissions are contained in a detailed Statement of Facts attached to the Agreement. The Agreement, which is subject to judicial review, requires TOYOTA to pay a $1.2 billion financial penalty – the largest penalty of its kind ever imposed on an automotive company, and imposes on TOYOTA an independent monitor to review and assess policies, practices and procedures relating to TOYOTA’s safety-related public statements and reporting obligations. TOYOTA agrees to pay the penalty under a Final Order of Forfeiture in a parallel civil action also filed today in the Southern District of New York.

The criminal charge is contained in an Information (the “Information”) alleging one

count of wire fraud. If TOYOTA abides by all of the terms of the Agreement, the Government will defer prosecution on the Information for three years and then seek to dismiss the charge.

Attorney General Eric Holder said: “Rather than promptly disclosing and correcting safety issues about which they were aware, Toyota made misleading public statements to consumers and gave inaccurate facts to Members of Congress. When car owners get behind the wheel, they have a right to expect that their vehicle is safe. If any part of the automobile turns out to have safety issues, the car company has a duty to be upfront about them, to fix them quickly, and to immediately tell the truth about the problem and its scope. Toyota violated that basic compact. Other car companies should not repeat Toyota’s mistake: a recall may damage a company’s reputation, but deceiving your customers makes that damage far more lasting.”

Transportation Secretary Anthony Foxx said: “Safety is our top priority. Throughout this recall process, NHTSA investigators worked tirelessly to make sure that Toyota recalled vehicles with defects causing unintended acceleration, and to determine when they learned of it, and as we learned today, they succeeded in this effort in spite of extraordinary challenges. Today’s penalties follow NHTSA’s own record civil penalties of more than $66 million – together, they send a powerful message to all manufacturers to follow our recall requirements or they will face serious consequences.”

Manhattan U.S. Attorney Preet Bharara said: “Toyota stands charged with a criminal offense because it cared more about savings than safety and more about its own brand and bottom line than the truth. In its zeal to stanch bad publicity in 2009 and 2010, Toyota misled regulators, misled customers, and even misstated the facts to Congress. The tens of millions of drivers in America have an absolute right to expect that the companies manufacturing their cars are not lying about serious safety issues; are not slow-walking safety fixes; and are not playing games with their lives. Companies that make inherently dangerous products must be maximally transparent, not two-faced. That is why we have undertaken this landmark enforcement action. And the entire auto industry should take notice.”

DOT Inspector General Calvin L. Scovel, III, said: “To the families and friends of those who died or were injured as a result of these incidents, I offer my deepest sympathies for your loss and my highest admiration for the strength you demonstrate every day. As is true for Secretary Foxx and DOT, safety is and will remain the highest priority of my office. The OIG is committed to working with our law enforcement and prosecutorial partners in pursuing those who commit criminal violations of the Department of Transportation’s or related laws. The efforts of this dedicated multi-agency team and the agreement reached with Toyota must serve as a clarion call to all auto manufacturers of the need to always be as vigilant and forthcoming as possible to keep the public safe.”

FBI Assistant Director-in-Charge George Venizelos said: “Toyota put sales over safety and profit over principle. The disregard Toyota had for the safety of the public was outrageous. Not only did Toyota fail to recall cars with problem parts, they continued to manufacture new cars with the same parts they knew were deadly. When media reports arose of Toyota hiding defects, they emphatically denied what they knew was true, assuring consumers that their cars were safe and reliable. Today's announcement could have been prevented if Toyota had done the right thing, told the truth, and disclosed the rampant safety problems. Instead, they denied and doubled-down. More than speeding cars or a major fine, the ultimate tragedy has been the unwitting consumers who died behind the wheel of Toyota vehicles.”

According to the allegations in the Information, as well as other documents filed today in Manhattan federal court, including the Statement of Facts:

In the fall of 2009, TOYOTA deceived consumers and its U.S. regulator, the National Highway Traffic Safety Administration (“NHTSA”), by claiming that it had “addressed” the “root cause” of unintended acceleration in its vehicles through a limited safety recall of eight models for floor-mat entrapment, a dangerous condition in which an improperly secured or incompatible all-weather floor mat can “trap” a depressed gas pedal causing the car to accelerate to a high speed. Such public assurances deceived customers and NHTSA in two ways: First, at the time the statements were made, TOYOTA knew that it had not recalled some cars with design features that made them just as susceptible to floor-mat entrapment as some of the recalled cars. Second, only weeks before these statements were made, TOYOTA had taken steps to hide from NHTSA another type of unintended acceleration in its vehicles, separate and apart from floor-mat entrapment: a problem with accelerators getting stuck at partially depressed levels, known as “sticky pedal.”

Floor-Mat Entrapment: A Fatal Problem

TOYOTA issued its misleading statements, and undertook its acts of concealment, against the backdrop of intense public concern and scrutiny over the safety of its vehicles following a widely publicized August 28, 2009 accident in San Diego, California that killed a family of four. A Lexus dealer had improperly installed an incompatible all-weather floor mat into the Lexus ES350 in which the family was traveling, and that mat entrapped the accelerator at full throttle. A 911 emergency call made from the out-of-control vehicle, which was speeding at over 100 miles per hour, reported, “We’re in a Lexus . . . and we’re going north on 125 and our accelerator is stuck . . . there’s no brakes . . . we’re approaching the intersection . . . Hold on . . . hold on and pray . . . pray.” The call ended with the sound of the crash that killed everyone in the vehicle.

The San Diego accident was not the first time that TOYOTA had faced a problem with floor-mat entrapment. In 2007, following a series of reports alleging unintended acceleration in Toyota and Lexus vehicles, NHTSA opened a defect investigation into the Lexus ES350 model (the vehicle involved in the 2009 San Diego accident), and identified several other Toyota and Lexus models it believed might likewise be defective. TOYOTA, while denying to NHTSA the need to recall any of its vehicles, conducted an internal investigation in 2007 which revealed that certain Toyota and Lexus models, including most of the ones that NHTSA had identified as potentially problematic, had design features rendering entrapment of the gas pedal by an all-weather floor mat more likely. TOYOTA did not share these results with NHTSA. In the end, the Company negotiated a limited recall of 55,000 mats (no vehicles) – a result that TOYOTA employees touted internally as a major victory: “had the agency . . . pushed for recall of the throttle pedal assembly (for instance), we would be looking at upwards of $100 million + in unnecessary costs.”

Shortly after TOYOTA announced its 2007 mat recall, Company engineers revised internal design guidelines to provide for, among other things, a minimum clearance of 10 millimeters between a fully depressed gas pedal and the floor. But TOYOTA decided those revised guidelines would only apply where a model was receiving a “full model redesign” – something each Toyota and Lexus model underwent only about once every three to five years. As a result, even after the revised guidelines had been adopted internally, many new vehicles produced and sold by TOYOTA – including the Lexus ES350 involved in the 2009 San Diego accident – did not comply with TOYOTA’s 2007 guidelines.

After the fatal and highly publicized San Diego accident, TOYOTA agreed to recall eight of its models, including the ES350, for floor-mat entrapment susceptibility. Thereafter, as part of an effort to defend its brand image, TOYOTA began issuing public statements assuring customers that this limited recall had “addressed the root cause of unintended acceleration” in its U.S.-sold vehicles.

As TOYOTA knew from internal testing it had completed by the time these statements were made, the eight-model recall had not in fact “addressed the root cause” of even the floor-mat entrapment problem. Models not recalled – and therefore still on the road – bore design features rendering them just as susceptible to floor-mat entrapment as those within the recall population. One engineer working at a TOYOTA facility in California had concluded that the Corolla, a top-selling car that had not been recalled, was among the three “worse” vehicles for floor-mat entrapment. In October 2009, TOYOTA engineers in Japan circulated a chart showing that the Corolla had the lowest rating for floor-mat entrapment under their analysis. None of these findings or this data were shared with NHTSA at the time.

The Sticky Pedal Problem

What is more, at the same time it was assuring the public that the “root cause” of unintended acceleration had been “addressed” by the 2009 eight-model floor-mat entrapment recall, TOYOTA was hiding from NHTSA a second cause of unintended acceleration in its vehicles: the sticky pedal. Sticky pedal, a phenomenon affecting pedals manufactured by a U.S. company (“A-Pedal Company”) and installed in many Toyota brand vehicles in North America as well as Europe, resulted from the use of a plastic material inside the pedals that could cause the accelerator pedal to become mechanically stuck in a partially depressed position. The pedals incorporating this plastic were installed in, among other models, the Camry, the Matrix, the Corolla, and the Avalon sold in the United States.

The sticky pedal problem surfaced in Europe in 2008. There, reports reflected instances of “uncontrolled acceleration” and unintended acceleration to “maximum RPM,” and customer concern that the condition was “extremely dangerous.”

In early 2009, TOYOTA circulated to European Toyota distributors information about the sticky pedal problem and instructions for addressing the problem if it presented itself in a customer’s vehicle. These instructions identified the issue as “Sudden RPM increase/vehicle acceleration due to accelerator pedal sticking,” and stated that should a customer complain of pedal sticking, the pedal should be replaced with pedals manufactured by a company other than A-Pedal Company. Contemporaneous internal TOYOTA documents described the sticky pedal problem as a “defect” that was “[i]mportant in terms of safety because of the possibility of accidents.”

TOYOTA did not then inform its U.S. regulators of the sticky pedal problem or conduct a recall. Instead, beginning in the spring of 2009, TOYOTA quietly directed A-Pedal Company to change the pedals in new productions of affected models in Europe, and to plan for the same design changes to be rolled out in the United States (where the same problematic pedals were being used) beginning in the fall of 2009. The design change was to substitute the plastic used in the affected pedal models with another material and to change the length of the friction lever in the pedal.

Meanwhile, the sticky pedal problem was manifesting itself in U.S. vehicles. On or about the same day the San Diego floor-mat entrapment accident occurred, staff at a U.S. TOYOTA subsidiary in California sent a memorandum to staff at TOYOTA in Japan identifying as “critical” an “unintended acceleration” issue separate and apart from floor-mat entrapment that had been identified in an accelerator pedal of a Toyota Matrix vehicle in Arizona. The problem identified, and then reproduced during testing of the pedal on September 17, 2009, was the sticky pedal problem. Also in August, the sticky pedal problem cropped up in a U.S. Camry.

On September 9, 2009, an employee of a U.S. TOYOTA subsidiary who was concerned about the sticky pedal problem in the United States and believed that TOYOTA should address the problem prepared a “Market Impact Summary” listing (in addition to the August 2009 Matrix and Camry) 39 warranty cases that he believed involved potential manifestations of the sticky pedal problem. This document, which was circulated to TOYOTA engineers and, later, to staff in charge of recall decisions in Japan, designated the sticky pedal problem as priority level “A,” the highest level.

By no later than September 2009, TOYOTA recognized internally that the sticky pedal problem posed a risk of a type of unintended acceleration – or “overrun,” as Toyota sometimes called it – in many of its U.S. vehicles. A September 2009 presentation made by a manager at a U.S. TOYOTA subsidiary to TOYOTA executives gave a “current summary of O/R [overrun] types in NA [North American] market” that listed the three confirmed types as: “mat interference” (i.e., floor-mat entrapment), “material issue” (described as “pedal stuck and . . . pedal slow return/deformed”), and “simultaneous pedal press” by the consumer. The presentation further listed the models affected by the “material issue” as including “Camry, Corolla, Matrix, Avalon.”

Hiding Sticky Pedal from NHTSA and the Public

As noted, TOYOTA had by this time developed internal plans to implement design changes for all A-Pedal-Company-manufactured pedals in U.S. Toyota models to address, on a going-forward basis, the still-undisclosed sticky pedal problem that had already been resolved for new vehicles in Europe. On October 5, 2009, TOYOTA engineers issued to A-Pedal Company the first of the design change instructions intended to prevent sticky pedal in the U.S. market. This was described internally as an “urgent” measure to be implemented on an “express” basis, as a “major” change – meaning that the part number of the subject pedal was to change, and that all inventory units with the old pedal number should be scrapped.

On October 21, 2009, however, in the wake of the San Diego floor-mat entrapment accident, and in the midst of TOYOTA’s discussions with NHTSA about its eight-model entrapment recall, engineers at TOYOTA and the leadership of TOYOTA’s recall decision group decided to cancel the design change instruction that had already been issued and to suspend all remaining design changes planned for A-Pedal Company pedals in U.S. models. U.S. TOYOTA subsidiary employees who had been preparing for implementation of the changes were instructed, orally, to alert the manufacturing plants of the cancellation. They were also instructed not to put anything about the cancellation in writing. A-Pedal Company itself would receive no written cancellation at this time; instead, contrary to TOYOTA’s own standard procedures, the cancellation was to be effected without a paper trail.

TOYOTA decided to suspend the pedal design changes in the United States, and to avoid memorializing that suspension, in order to prevent NHTSA from learning about the sticky pedal problem.

In early November 2009, TOYOTA and the leadership of a U.S. TOYOTA subsidiary became aware of three instances of sticky pedal in U.S. Corollas. Shortly thereafter, the leadership of the recall decision group within TOYOTA discussed a plan to finally disclose the sticky pedal problem to NHTSA. The recall decision group was aware at this time not only of the problems in the three Corollas in the United States but also of the problems that had surfaced in a Matrix and a Camry in August 2009 and been reproduced through testing in September 2009. The group was also familiar with the sticky pedal problem in Europe, the design changes that had been implemented there, and the cancellation and suspension of similar planned design changes in the United States. Knowing all of this, the group’s leadership decided that (a) it would not disclose the September 2009 Market Impact Summary to NHTSA; (b) if any disclosure were to be made to NHTSA, it would be limited to a disclosure that there were some reports of unintended acceleration apparently unrelated to floor-mat entrapment; and (c) NHTSA should be told that TOYOTA had made no findings with respect to the sticky pedal problem reflected in the reports concerning the three U.S. Corollas, and that the investigation of the problem had just begun.

On November 17, 2009, before TOYOTA had negotiated with NHTSA a final set of remedies for the eight models encompassed by the floor-mat entrapment recall, TOYOTA informed NHTSA of the three Corolla reports and several other reports of unintended acceleration in Toyota model vehicles equipped with pedals manufactured by A Pedal Company. In TOYOTA’s disclosure to NHTSA, TOYOTA did not reveal its understanding of the sticky pedal problem as a type of unintended acceleration, nor did it reveal the problem’s manifestation and the subsequent design changes in Europe, the planned, cancelled, and suspended design changes in the United States, the August 2009 Camry and Matrix vehicles that had suffered sticky pedal, or the September 2009 Market Impact Summary.

TOYOTA’s Misleading Statements

After the August 2009 fatal floor-mat entrapment accident in San Diego, several articles critical of TOYOTA appeared in U.S. newspapers. The articles reported instances of TOYOTA customers allegedly experiencing unintended acceleration and the authors accused TOYOTA of, among other things, hiding defects related to unintended acceleration.

On November 25, 2009, TOYOTA, through a U.S. subsidiary, announced its floor-mat entrapment resolution with NHTSA. In a press release that had been approved by TOYOTA, the U.S. subsidiary assured customers: “The safety of our owners and the public is our utmost concern and Toyota has and will continue to thoroughly investigate and take appropriate measures to address any defect trends that are identified.” A spokesperson for the subsidiary stated during a press conference the same day, “We’re very, very confident that we have addressed this issue.”

In truth, the issue of unintended acceleration had not been “addressed” by the remedies announced. A-Pedal Company pedals which could experience stickiness were still on the road and still, in fact, being installed in newly-produced vehicles. And the best-selling Corolla, the Highlander, and the Venza – which had design features similar to models that had been included in the earlier floor-mat entrapment recall – were not being “addressed” at all.

Again, on December 23, 2009, TOYOTA responded to media accusations that it was continuing to hide defects in its vehicles by authorizing a U.S. TOYOTA subsidiary to publish the following misleading statements on the subsidiary’s website: “Toyota has absolutely not minimized public awareness of any defect or issue with respect to its vehicles. Any suggestion to the contrary is wrong and borders on irresponsibility. We are confident that the measures we are taking address the root cause and will reduce the risk of pedal entrapment.” In fact, TOYOTA had “minimized public awareness of” both sticky pedal and floor-mat entrapment. Further, the measures TOYOTA had taken did not “address the root cause” of unintended acceleration, because TOYOTA had not yet issued a sticky pedal recall and had not yet recalled the Corolla, the Venza, or the Highlander for floor-mat entrapment.

TOYOTA’s False Timeline

When, in early 2010, TOYOTA finally conducted safety recalls to address the unintended acceleration issues it had concealed throughout the fall of 2009, TOYOTA provided to the American public, NHTSA, and the United States Congress an inaccurate timeline of events that made it appear as if TOYOTA had learned of the sticky pedal in the United States in “October 2009,” and then acted promptly to remedy the problem within 90 days of discovering it. In fact, TOYOTA had begun its investigation of sticky pedal in the United States no later than August 2009, had already reproduced the problem in a U.S. pedal by no later than September 2009, and had taken active steps in the months following that testing to hide the problem from NHTSA and the public.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Bonnie Jonas, Deputy Chief of the Criminal Division, and Assistant U.S. Attorney Sarah E. McCallum are in charge of the prosecution, and Assistant U.S. Attorney Sharon Cohen Levin, Chief of the Money Laundering and Asset Forfeiture Unit, is responsible for the forfeiture aspects of the case.

U.S. v. Toyota Corportation DPA, Statement of Facts, and Information
U.S. v. $1200000000 Civil Compliant

Agrees to Redress Violations and Pay $125,000 Penalty

Preet Bharara, the United States Attorney for the Southern District of New York, and Colonel Paul E. Owen, Commander of the New York District of the United States Army Corps of Engineers (“Corps of Engineers”), announced today that the United States has filed and simultaneously entered into a consent decree settling a civil lawsuit against the TOWN OF RAMAPO, NEW YORK (“RAMAPO”), for violations of the Clean Water Act (“CWA”).

U.S. Attorney Preet Bharara stated: “The Town of Ramapo repeatedly violated the laws protecting our Nation’s wetlands. Municipalities will be held accountable if they violate our environmental laws. Today’s consent decree will require Ramapo to pay a penalty for its repeated violations and create new wetlands to offset the damage it caused.”

Corps of Engineers Commander Colonel Paul Owen stated: “As one of the key regulatory agencies with regard to the Clean Water Act, the U.S. Army Corps of Engineers is committed to protecting the environment and the communities it benefits. This will continue to be of the utmost importance.”

According to the Complaint filed in White Plains federal court, in 2010 RAMAPO illegally discharged fill material into wetlands that are waters of the United States, as part of its construction of a minor league baseball stadium. Only after filling these wetlands did RAMAPO apply for and receive a permit from the Corps of Engineers relating to these wetlands. The permit required RAMAPO to mitigate the effects of its prior illegal discharge by creating additional wetlands and securing a conservation easement to preserve those wetlands indefinitely. To the present, RAMAPO has failed to comply with these permit requirements. In fact, after applying for the permit, RAMAPO illegally discharged even more unpermitted fill material in violation of the CWA.

In the consent decree filed today, RAMAPO admits and accepts responsibility for the violations, including the following:

• “[T]he Town’s unpermitted discharge of fill material” in 2010 led to a “loss of wetlands that are waters of the United States.”
• “The Town has failed to comply with” the permit issued to it by the Corps of Engineers after its initial violation.
• After applying for the permit, RAMAPO again “illegally discharged fill material” into “wetlands that are waters of the United States.”
• “As a result, the Town is, and since at least June 14, 2011, has been, in violation of the Permit and the CWA.”

Pursuant to the consent decree filed today in the United States District Court in White Plains, RAMAPO will pay a civil penalty of $125,000 and will establish approximately 2.2 acres of new wetlands to compensate for the wetlands that were improperly filled during the construction of the stadium. In addition, RAMAPO will ensure that a conservation easement is placed on the property to preserve the newly-established wetlands in perpetuity as a purely natural area. RAMAPO will be subject to substantial additional penalties if it fails to adhere to any of the deadlines in the consent decree.

The consent decree will be lodged with the District Court for a period of at least 30 days before it is submitted for the Court’s approval, to provide public notice and to afford members of the public the opportunity to comment on the consent decree.

This case is being handled by the Office’s Environmental Protection Unit. Assistant United States Attorney Andrew E. Krause is in charge of the case.

U.S. v. Town of Ramapo, NY Complaint
U.S. v. Town of Ramapo, NY Notice of Lodging of Consent Decree

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ALFONSO PORTILLO, the former President of Guatemala, pled guilty today in Manhattan federal court to 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. Portillo pled guilty to the sole charge in the Indictment before United States District Judge Robert P. Patterson.

Manhattan U.S. Attorney Preet Bharara said: “Former President Alfonso Portillo may have thought his position of power prevented him from having to answer for accepting multi-million dollar bribes to shape his country’s foreign policy, for embezzling money intended to benefit the Guatemalan people, and for using U.S. banks to launder the ill-gotten funds. But he was wrong. With his guilty plea today, Portillo now stands convicted in an American court for his criminal conduct. This Office will aggressively pursue and prosecute individuals, irrespective of their position or title, if they engage in violations of U.S. laws.”

According to the Indictment and PORTILLO’s guilty plea allocution today:

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 them 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. According to PORTILLO, 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.

PORTILLO, 62, pled guilty to one count of conspiracy to commit money laundering. He faces a maximum term of 20 years in prison and a maximum fine of the greater of $500,000, or twice the value of the monetary instruments or funds involved in the money laundering transactions. PORTILLO will be sentenced by Judge Patterson on June 23, 2014, at 4:00 p.m. The maximum potential sentence 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 investigative work of the New York Field Office of the Internal Revenue Service, Criminal Investigation, the Drug Enforcement Administration’s (“DEA”) New York Organized Crime Drug Enforcement Strike Force – which is comprised of 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 this 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.

U.S. v. Alfonso Portillo Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that the United States filed a federal civil rights lawsuit in Manhattan federal court alleging that RELATED COMPANIES, INC. (“RELATED”), a major real estate developer based in New York City, has engaged in a pattern and practice of developing rental apartment buildings that are inaccessible to persons with disabilities. The suit alleges that RELATED, along with its affiliates TRIBECA GREEN LLC and BPC GREEN LLC, and two architecture firms, ROBERT A. M. STERN ARCHITECTS, LLP, (the “STERN FIRM”) and ISMAEL LEVYA ARCHITECTS, P.C. (the “LEVYA FIRM”), designed and constructed One Carnegie Hill and Tribeca Green, two rental complexes in Manhattan with more than 750 units in total, in violation of the design and construction provisions of the federal Fair Housing Act. These provisions of the Fair Housing Act have been in effect since March 1991. The suit further alleges that the inaccessible conditions at One Carnegie Hill and Tribeca Green demonstrate a pattern and practice of discriminatory conduct by RELATED, which may result in inaccessible conditions at RELATED’s numerous other rental properties in New York City and elsewhere, and that, unless RELATED’s discriminatory practices are enjoined, the inaccessible conditions at One Carnegie Hill and Tribeca Green will likely be repeated in current projects, including the Hudson Yards luxury rental complex development.

Manhattan U.S. Attorney Preet Bharara said: “We will not allow developers and architects who deprive people with disabilities of accessible housing to evade the consequences of their failure to comply with clear, long-standing federal civil rights laws. When developers demonstrate an unwillingness to design and construct accessible housing in accordance with federal law, this Office will not hesitate to use its enforcement tools to compel the developers to make both their preexisting and future constructions accessible.”

According to the allegations contained in the Complaint and public information:

RELATED is one of the largest developers of rental housing in New York City. In addition to One Carnegie Hill and Tribeca Green, RELATED has developed numerous other high-profile rental complexes in New York City, including MiMA, 1 MiMA Tower, The Caledonia, and The Tate. Since 2010, Related also has been a co-developer for the Hudson Yards complex in Manhattan, which is expected to include a mixed rental-condominium tower at 15 Hudson Yards.

RELATED has engaged in a pattern and practice of developing its rental properties without regard to their accessibility to people with disabilities. For example, at One Carnegie Hill, which is located on Manhattan’s Upper East Side, RELATED designed and constructed a 475-unit rental complex with scores of inaccessible conditions, which include steps and excessively high thresholds that interfere with accessible routes in the common areas and within individual units; kitchens that lack sufficient width for maneuvering by people in wheelchairs; electrical outlets and mailboxes that are not fully usable by people in wheelchairs; and bathrooms that lack sufficient clear floor space for people in wheelchairs to maneuver. One Carnegie Hill was completed in 2006, 15 years after the accessible design and construction requirements in the Fair Housing Act came into effect.

Similarly, RELATED caused scores of inaccessible conditions at Tribeca Green, a 278-unit rental complex that RELATED designed and constructed in lower Manhattan. Those conditions include excessively high thresholds that interfere with accessible routes in the common areas and within individual units; bathroom fixtures that prevent installation of grab bars; doorways in the common areas that lack sufficient clearance; kitchens that lack sufficient width for maneuvering by people in wheelchairs; trash rooms that lack accessible hardware; electrical outlets and mailboxes that are not fully usable by people in wheelchairs; and bathrooms that lack sufficient clear floor space for people in wheelchairs to maneuver. Tribeca Green was completed in 2005, 14 years after the accessible design and construction requirements in the Fair Housing Act came into effect.

To ensure that RELATED’s current and future residential housing developments are accessible to people with disabilities and to redress its history of non-compliance with the Fair Housing Act, the United States seeks a court order enjoining RELATED from designing and constructing multi-family housing, such as 15 Hudson Yards, without the accessibility features required by federal law and requiring RELATED to retrofit the inaccessible conditions at all the rental properties it has developed to make them accessible. The United States also seeks damages for persons harmed by RELATED’s unlawful practices, and a civil penalty to vindicate the public interest.

In addition, the United States asserts claims against the STERN and LEVYA FIRMS based on their inaccessible designs for One Carnegie Hill and Tribeca Green, respectively. Specifically, the United States seeks to enjoin these architectural firms from designing multi-family housing without the accessibility features required by federal law, as well as damages for persons harmed by their inaccessible designs and civil penalties.

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

U.S. v. Related Companies, Inc. Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that SONG LUO, ZEYUAN WANG, and YONG ZHANG were sentenced in Manhattan federal court in connection with their roles in a scheme to commit immigration fraud by creating and submitting applications for political asylum on behalf of Chinese nationals that contained false stories of persecution purportedly suffered by these applicants. LUO, WANG, and ZHANG were each sentenced to three months in prison. The defendants each previously pled guilty to one count of conspiring to commit immigration fraud, and were sentenced today by U.S. District Judge John G. Koeltl.

Manhattan U.S. Attorney Preet Bharara said: “As part of the immigration fraud scheme, Song Luo, Zeyuan Wang, and Yong Zhang aided others in exploiting this country’s asylum laws by coaching and assisting them to lie on their applications. The sentences imposed on the defendants today ensure that they will be punished for their crimes.”

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

LUO, WANG, and ZHANG worked as paralegals at a law firm located at 305 Broadway, New York, New York, and also did work for other law firms. As part of the scheme, LUO and ZHANG coached applicants on how best to portray their false persecution stories to asylum officers interviewing each applicant for political asylum. WANG assisted in the creation and submission of applications containing the false persecution stories.

In addition to the prison terms, LUO, 35, of Ridgewood, New York, WANG, 33, of Brooklyn, New York, and ZHANG, 50, of Flushing, New York, were also each ordered to pay $1,000 fines.

LUO, WANG, and ZHANG were charged as part of a large investigation led by the United States Attorney’s Office for the Southern District of New York, the Federal Bureau of Investigation (“FBI”), and the United States Citizenship and Immigration Services (“USCIS”). To date, 30 defendants have been charged with participating in nine separate but overlapping immigration fraud schemes in New York City, including eight lawyers. Twenty-five of these defendants have been convicted for their roles in these schemes.

Mr. Bharara praised the investigative work of the FBI and USCIS.

The prosecution is being handled by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Brian Blais and Robert Boone are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that S. GEORGE MILTER was sentenced today in Manhattan federal court to 61 months in prison for participating in an investment scheme that defrauded foreign investors out of nearly $1 million. As part of the scheme, investors were lured with false promises that their funds would be safely invested in the U.S. financial markets through a legitimate broker-dealer. Instead, the money was misappropriated, used to pay certain expenses, and transferred to other entities and individuals, including MILTER and his family. MILTER pled guilty in November 2013 to one count of conspiracy to commit wire fraud and was sentenced by U.S. District Judge Katherine B. Forrest.

Manhattan United States Attorney Preet Bharara said: “Mr. Milter deliberately deceived investors, diverted their funds to members of his family and himself, and then lied when questions were asked. The sentence Judge Forrest imposed today ensures that Milter will spend substantial time behind bars paying for his fraud.”

According to the court filings and statements made in court:

MILTER held himself out as a President and Chief Executive Officer of Lempert Capital Management, Ltd., a corporation purportedly incorporated in the Cayman Islands, and Chief Executive Officer of Lempert Brothers, which was a registered broker-dealer. Starting in approximately 2005, foreign investors were lured into sending nearly $1 million to Lempert Capital’s purported management company Lempert Brothers under the pretense that those funds would be invested in the U.S. financial markets by Lempert Brothers To induce investors into wiring funds, among other false promises, MILTER told investors that the funds would be safeguarded, and that if the value of the funds dropped more than 20%, the money would be frozen and all remaining funds available for return to investors. In fact, the nearly $1 million of investor funds were misappropriated and diverted to, among other things, MILTER’s family and himself.

To keep the scheme going, MILTER sent fraudulent monthly account statements to the investors. These statements falsely reflected that the investors’ funds were invested and earning substantial income. When investors attempted to withdraw funds from their accounts, MILTER made additional false and fraudulent representations as to why the funds could not be returned when requested. For example, investors falsely were told that their money was illiquid because it had been invested in various companies that had not yet gone public.

In addition to the prison sentence of 61 months, Judge Forrest sentenced MILTER, 35, of New York, New York, to three years of supervised release and ordered him to pay a special assessment of $100. Judge Forrest also ordered restitution in the amount of $946,509, and forfeiture of the same amount, which amount represents the crime proceeds.

MILTER’s co-defendant Cliffe R. Bodden, 50, previously pled guilty and currently is serving his sentence of 74 months in prison.

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

This case is being handled by the Office’s Complex Frauds 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 today that ROBERT OKAMURA, 46, was sentenced to 19 years and 7 months’ imprisonment by United States District Judge Edgardo Ramos for his attempted enticement of a minor to engage in sexual activity. Judge RAMOS also imposed a 10-year term of supervised release to follow the imprisonment.

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

On November 27, 2011, OKAMURA, a registered sex offender on supervised release from an offense involving the repeated sexual abuse of a child, responded to an online advertisement placed by law enforcement and designed to appeal to pedophiles. At the time he was living in a shelter in Valhalla, Westchester County. Following a series of chats with an undercover agent posing as a pedophile, the undercover agent “introduced” OKAMURA to “Allison,” who purported to be a 15-year old girl but was, in fact, the same undercover agent. Following a series of explicit chats in which OKAMURA described the sexual acts he wanted to perform on the girl, OKAMURA made a plan to meet the girl at a hotel so that he could engage in sexual activities with her. On December 14, 2011, OKAMURA went to the hotel to meet the girl and was arrested.

OKAMURA pleaded guilty on July 18, 2013. At his guilty plea proceeding, OKAMURA admitted that he communicated via the internet with a person he believed was a 15-year-old girl and persuaded her to meet him for the purpose of engaging in sexual activity.

In imposing the sentence, Judge RAMOS underscored the seriousness of the offense. Judge RAMOS stated, “This shocking and flagrant course of conduct speaks to either a basic lack of respect for authority or an uncontrollable compulsion or both.”

Mr. Bharara praised the efforts and assistance of the Westchester County District Attorney’s Office and U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”).

This case is being handled by the White Plains Division. Assistant United States Attorney Marcia S. Cohen is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that JAY SEITZ, a psychologist licensed to practice in the State of New York, was found guilty yesterday in Manhattan federal court of one count of conspiracy to commit mail fraud and health care fraud, one count of mail fraud, and one count of health care fraud in connection with his participation in a multi-year, no-fault automobile insurance fraud scheme. SEITZ was convicted after a six-day jury trial presided over by U.S. District Judge Sidney H. Stein.

Manhattan U.S. Attorney Preet Bharara said: “Jay Seitz was found by a unanimous jury not only to have betrayed the ethical obligations of his profession but to have committed fraud. His scheme reaped millions of dollars in unjust compensation. Now he may pay for that with the loss of his liberty.”

According to the Indictment filed in Manhattan federal court, other court documents, and statements made during related court proceedings:

Between 2006 and 2008, SEITZ purported to provide psychological services to patients at medical clinics located in the Bronx and Brooklyn, New York. SEITZ signed treatment notes that described the diagnoses he purportedly made and the services he purportedly provided to patients treated at these clinics. These treatment notes were used to generate claims that were submitted to no-fault insurance companies for reimbursement. These claims reflected that the psychological services for which reimbursement was sought were provided by SEITZ. In fact, SEITZ did not diagnose or treat the patients on whose behalf claims were submitted to no-fault insurance providers. Although the patients at the clinics with which SEITZ was associated sometimes received psychological screening and treatment, this treatment was provided by individuals who were not licensed psychologists or licensed social workers. In addition, the treatment duration reflected on the claims forms often exceeded the actual duration of services provided. No-fault insurance providers reimbursed over $3 million of claims submitted on behalf of two professional corporations associated with SEITZ, for patients purportedly treated by SEITZ.

SEITZ, 62, of New York, New York, faces a maximum sentence of 20 years in prison for each of the three counts on which he was convicted, and is scheduled to be sentenced by Judge Stein on June 18, 2014. The maximum potential sentence 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 Federal Bureau of Investigation.

The case is being handled by the Office=s Organized Crime Unit. Assistant U.S. Attorneys Brian Blais and Kristy Greenberg are in charge of the prosecution.

U.S. v. Margaret Kinder and Jay Seitz Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, and Judith A. Enck, Regional Administrator of the U.S. Environmental Protection Agency, announced today that the United States has entered into settlement agreements with EASTMAN KODAK COMPANY (“KODAK”) that resolve environmental claims and liabilities asserted by the United States against Kodak. After Kodak filed for Chapter 11 bankruptcy protection on January 19, 2012, the United States filed a proof of claim asserting Kodak’s responsibility for significant environmental claims and clean-up obligations. The first settlement resolves environmental liabilities at the Eastman Business Park in Rochester, New York, which is a hazardous waste site regulated under the Resource Conservation and Recovery Act (“RCRA”). The second settlement resolves liabilities under the Comprehensive Environmental Response, Compensation and Liability Act (also known as the Superfund law) at the Mercury Refining Superfund site in Colonie and Guilderland, New York, and the Fair Lawn Well Field Superfund site in Fair Lawn, New Jersey.

U.S. Attorney Preet Bharara said: “Today’s settlements will lead to the clean-up of more than a century of pollution by Kodak at the Eastman Business Park and Rochester’s Genesee River, while clearing the way for economic development at the Eastman Business Park. Kodak will also pay for contamination it caused at Superfund sites in New York and New Jersey. These resolutions demonstrate the commitment of the United States to prevent even bankrupt companies from escaping responsibility for environmental contamination.”

EPA Regional Administrator Judith A. Enck said: “The proposed legal agreements will provide funding to clean up the toxic legacy that Kodak has left in Rochester. They are designed to protect public health and the environment, including cleaning up the Genesee River, while supporting the creation of scores of much needed new jobs in Rochester. I encourage the public to comment on the agreement.”

Three agreements were filed in bankruptcy court today. Two of them – a settlement agreement between the United States and Kodak and a related funding agreement between the United States and the New York State Department of Environmental Conservation (“DEC”) – relate to environmental clean-up at the Eastman Business Park and the Genesee River. Pursuant to these agreements, Kodak commits to fund a trust with $49 million for clean-up at the Eastman Business Park site and the Genesee River; DEC agrees to fund any additional costs of clean-up between $49 million and $99 million; and Kodak and DEC each agree to pay half of any costs above $99 million. As described in the settlement agreement, EPA and DEC have also entered a publicly available agreement that sets forth a plan for the investigation of contamination in the Genesee River and the selection and implementation of a clean-up remedy. These arrangements build upon and strengthen an agreement that Kodak and DEC originally proposed to the bankruptcy court in June 2013. The Eastman Business Park settlement agreement also provides that Kodak will pay the United States more than $4 million, and an additional amount pursuant to the terms of Kodak’s plan of reorganization, to satisfy environmental liabilities for damages to natural resources in the Genesee River.

Since 1891, the Eastman Business Park has been Kodak’s primary photographic product manufacturing facility. In the course of Kodak’s operations, releases of hazardous waste occurred at the business park and into the nearby Genesee River. Kodak is responsible under federal environmental law for the management of this hazardous waste and clean-up of historic contamination at the site, and it is also responsible for damages for injury to natural resources in the Genesee River. Today’s agreements relating to the Eastman Business Park ensure that Kodak’s legacy of contamination will be addressed. In addition, these agreements will promote economic development at the Eastman Business Park by providing opportunities for new businesses to move to the park without bearing the burden of Kodak’s historic contamination.

The third agreement that the United States filed today is a settlement agreement between the United States and Kodak relating to Kodak’s environmental liabilities at the Fair Lawn Well Field Superfund Site and the Mercury Refining Superfund Site. Under this agreement, Kodak will provide the United States with $2,000,000 for the Fair Lawn site and approximately $750,000 for the Mercury Refining site, plus additional amounts for each site pursuant to the terms of Kodak’s plan of reorganization.

The settlement agreements will be filed with the Bankruptcy Court for a period of at least 30 days before their entry to provide public notice and to afford members of the public the opportunity to comment on the settlement agreements. Written comments must be submitted within 30 days of the publication of notice of the settlement agreements in the Federal Register and be emailed to pubcomment-ees.enrd@usdoj.gov or mailed to Assistant Attorney General, U.S. DOJ – ENRD, P.O. Box 7611, Washington, D.C. 20044-7611.

Mr. Bharara praised the efforts of EPA and the Environment and Natural Resources Division of the U.S. Department of Justice in this case.

Assistant United States Attorneys Robert William Yalen and Christine S. Poscablo are in charge of the case, which has been handled by the Office’s Environmental Protection Unit and Tax and Bankruptcy Unit.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that CRAIG B. HABER, a former partner of a global accounting firm, was sentenced today in Manhattan federal court to 54 months in prison for stealing nearly $4 million in client payments intended for the accounting firm. HABER pled guilty in August 2013 to one count of mail fraud before U.S. District Judge P. Kevin Castel, who also imposed today’s sentence.

Manhattan U.S. Attorney Preet Bharara said: “Craig Haber abused his position as partner of an accounting firm, stealing millions of dollars in client payments to fund his own personal expenses, including the mortgage on his Manhattan apartment. Haber’s efforts to conceal his fraud failed and, with today’s sentence, he will pay for his fraud with time in a federal prison and the forfeiture of his ill-gotten gains, including his apartment.”

According to the documents filed in Manhattan federal court and statements made in related court proceedings:

From 1993 through July 2012, HABER was a partner at a global accounting firm headquartered in Chicago, Illinois, (the “Accounting Firm”) that provided a variety of auditing, accounting, and tax preparation services to businesses and individuals in the U.S. and abroad. HABER worked at the Accounting Firm’s office in New York, New York, and provided tax preparation and advisory services to clients of the Accounting Firm.

The Accounting Firm’s bills to clients ordinarily included payment instructions directing clients to pay the firm by wire transfer or by sending checks to its headquarters in Chicago. However, on multiple occasions from 2004 through July 2012, HABER sent bills to clients containing payment instructions directing them to send checks to him at the Accounting Firm’s New York, New York, office instead of the Chicago headquarters.

Upon receiving those checks, HABER deposited a number of them into a bank account that he had opened in the name of a sham business that was very similar to the name of the Accounting Firm. HABER opened the bank account specifically to receive checks from clients that were intended for the Accounting Firm. After depositing the clients’ checks into that account, HABER then transferred the money from that account to two personal bank accounts which he used to pay various personal expenses, including mortgage payments for his residence in New York, New York. In total, HABER stole nearly $4 million in client payments.

In addition to his prison term, HABER, 60, of New York, New York, was sentenced to two years of supervised release, and ordered to forfeit $3,970,000 in cash, his Manhattan apartment, and his brokerage account.

Mr. Bharara praised the outstanding investigative work of the United States Postal Inspection Service.

The prosecution of this case is being handled by the Office’s Complex Frauds Unit. Assistant United States Attorney Joseph Facciponti is in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROBERT KELLY, the Chief Executive Officer of Wwebnet, Inc. (“Wwebnet”), a software development company, pled guilty today in Manhattan federal court to securities and wire fraud charges. KELLY diverted for his own personal use over $2 million in investor proceeds that was intended for the development of a software program capable of transmitting music, videos, and movies over the Internet. He used the money to trade options, to pay his personal income taxes, and for other purposes unrelated to software development or other legitimate business expenses. KELLY was originally charged in September 2012, and he pled guilty today before United States District Judge Paul A. Crotty.

Manhattan U.S. Attorney Preet Bharara stated: “Robert Kelly took more than $2 million of investor money, obtained through promises that it would be invested in his company’s new technology and in growing the business, and instead, used it to make unsuccessful options trades and to pay for his own personal income taxes. With today’s plea, Kelly has admitted to stealing and spending innocent investors’ money.”

According to the charging documents and related court proceedings:

From 2004 through November 2008, KELLY solicited investors to send money to Wwebnet, Inc., and related companies by misrepresenting that the funds would be used to develop software for transmitting music, videos, and movies over the Internet. Instead of using the millions of dollars in investor proceeds that he obtained for legitimate business purposes, KELLY diverted a substantial portion of the money that he raised for his own financial benefit. For example, KELLY transferred at least $2 million in investor funds into his personal trading account in the Cayman Islands, which he used to make a series of unsuccessful options trades. KELLY also used nearly $100,000 that he received from investors to pay his federal and state personal income taxes. At the same time that he was using investors’ money for his own personal benefit, KELLY falsely told his software development team that he was unable to allocate adequate resources for software development and could do so only when he was able to raise money from investors. As a result, Wwebnet lacked the necessary funds to develop its core product and the company ultimately failed.

KELLY, 57, formerly of New York, New York, resides in Raleigh, North Carolina. He pled guilty to one count of securities fraud and one count of wire fraud, which together carry a total maximum term of 40 years in prison. KELLY also agreed to forfeit $2,111,600 and, separately, pay $2,111,600 in restitution. The sentencing before U.S. District Judge Paul A. Crotty is scheduled for July 17, 2014, at 3:00 p.m. The maximum potential sentence 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 Federal Bureau of Investigation and also thanked the Securities and Exchange Commission for its assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.

The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Benjamin Naftalis and Zachary Feingold are in charge of the prosecution.

U.S. v. Robert Kelly Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, and Mythili Raman, the Acting Assistant Attorney General for the Criminal Division, announced today the guilty plea of FREDERIC CILINS, a French citizen, for obstructing a federal criminal investigation into allegations of bribes paid to secure certain valuable mining rights in the Republic of Guinea. CILINS was arrested in April 2013 and pled guilty today before United States District Judge William H. Pauley, III.

According to the allegations contained in the superseding information and other documents filed in Manhattan federal court:

CILINS sought to obstruct an investigation being conducted by a federal grand jury sitting in the Southern District of New York into potential violations of the Foreign Corrupt Practices Act (“FCPA”) and money laundering. The investigation related to allegations that a mining company with which CILINS was affiliated paid bribes to officials of a former governmental regime of the Republic of Guinea to win valuable mining concessions in the Simandou region of Guinea. During monitored and recorded phone calls and face-to-face meetings, CILINS agreed to pay substantial sums of money to induce a witness to, among other things, destroy documents and turn over documents to Cilins for destruction, knowing that such documents were being sought by the Federal Bureau of Investigation (“FBI”) and were to be produced before a federal grand jury. Cilins sought to induce the witness to sign an affidavit containing false statements regarding matters under investigation by the grand jury.

Cilins pled guilty to a one-count superseding information filed today, which alleges that Cilins sought to induce the witness to give him documents so that he could destroy them. According to the superseding information, those documents related to allegations concerning the payment of bribes to obtain mining concessions in the Simandou region of the Republic of Guinea and were sought by FBI agents. Cilins admitted as part of his guilty plea that he tried to induce the witness to leave the United States to avoid being questioned by the FBI about these allegations.

CILINS, 51, a resident of France, pled guilty to one count of obstructing a criminal investigation. He faces a 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. CILINS is scheduled to be sentenced by Judge Pauley on June 27, 2014, at 2:00 p.m.

Mr. Bharara praised the outstanding efforts of FBI in the investigation, which he noted is ongoing. He also thanked the Justice Department’s Office of International Affairs and Office of Enforcement Operations for their assistance in the investigation

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Elisha J. Kobre and Trial Attorney Tarek Helou of the Fraud Section of the Criminal Division are in charge of the prosecution.

US v. Frederic Cilins Superseding Info S2 13 Cr 315 (WHP)

“We are gratified that the jury reached a unanimous verdict finding Rodney Johnson guilty of narcotics distribution and possession of firearms in connection with a drug conspiracy. As for the charges on which the jury was not able to reach a unanimous verdict, the Government’s contention remains that James Rosemond and Rodney Johnson are responsible for the murder of Lowell Fletcher. We are currently considering our options with respect to a retrial.”

Preet Bharara, the United States Attorney for the Southern District of New York, announced that CHEON PARK, owner and executive director of Bilingual SEIT, a government-funded provider of special education services and preschool programs to New York City preschool children, pled guilty today for his role in defrauding the federal, New York State, and New York City governments of millions of dollars. PARK pled guilty in Manhattan federal court before the U.S. District Judge J. Paul Oetken.

Manhattan U.S. Attorney Preet Bharara said: “Cheon Park has admitted his role in a criminal scheme to enrich himself by taking federal, state, and city funds intended for special needs children and diverting them for his own personal use. With today’s guilty plea, he now stands convicted of a federal crime and faces the prospect of a substantial prison term.”

According to the Information, an earlier Criminal Complaint, and statements made at court proceedings:

Between 2005 and 2012, PARK deliberately inflated both the amount of compensation Bilingual SEIT paid certain of its employees and contractors, and the type of work performed by certain employees on annual certified consolidated fiscal reports (“CFRs”) and financial statements submitted to the New York State Education Department (“NYSED”) and the New York City Department of Education (“NYCDOE”).

PARK owned and operated Bilingual SEIT from at least 2005 to 2012. During that time, Bilingual SEIT had a contract with the NYCDOE to provide publicly funded special education services and preschool programs to New York City schoolchildren aged three to five with physical, emotional, and/or developmental disabilities. Specifically, Bilingual SEIT received funding to provide: (1) special education itinerant teacher, commonly referred to as SEIT, services; (2) special education classes in a center-based setting for preschool students with special needs; (3) individual evaluations for preschool students with disabilities; and (4) physical, occupational, and/or speech therapy for preschool students who qualified for such services. As of September 2012, Bilingual SEIT operated out of five locations in Manhattan, Queens, and Brooklyn.

During the seven-year period that Bilingual SEIT was under contract with the NYCDOE, it claimed reimbursement for and received approximately $94.5 million in federal, New York State, and New York City funding to provide the services described above. In order to receive such money, on behalf of Bilingual SEIT, PARK was required to file a CFR supported by audited financial statements with the NYSED. The CFR and audited financial statements represented the costs that Bilingual SEIT had incurred the previous year and the justification for those costs, and included compensation Bilingual SEIT purported to pay its employees and contractors. Each year, PARK signed the certification pages for the CFRs filed with the NYSED, which relied on the CFR and audited financial statements in determining the amount of public funds to pay Bilingual SEIT per student for the services Bilingual SEIT provided to New York City preschool students.

Beginning in approximately June 2011, the New York State Comptroller’s office (the “Comptroller”) conducted an audit of Bilingual SEIT to determine whether the costs reported by Bilingual SEIT on the CFRs for the years July 2007 through 2009 were properly calculated, justified, and allowable under guidance issued by the NYSED. In July 2012, the Comptroller issued a report that concluded that nearly $1.5 million of the costs that PARK certified for the two-year audit period should have been disallowed, including money paid to 26 employees whose time and attendance could not be substantiated. As a result of the Comptroller’s report, the NYCDOE cancelled Bilingual SEIT’s classes and declined to renew its contract with Bilingual SEIT.

In fact, PARK engaged in several schemes designed to inflate the costs Bilingual SEIT represented it incurred, resulting in more public money for Bilingual SEIT, much of which, as set forth below, was kicked back to PARK. PARK fraudulently received funds from New York State and New York City to pay multiple individuals who performed little or no work for Bilingual SEIT. At PARK’s request and direction, these individuals then kicked back as much as 50% of the salary they fraudulently received from Bilingual SEIT to PARK. PARK also fraudulently received funds from New York State and New York City to deliberately overpay other individuals who worked for Bilingual SEIT. At PARK’s request and direction, these individuals also kicked back a portion of the overpayment to PARK on a regular basis.

Further, in addition to receiving kickbacks, PARK used Bilingual SEIT funds for his personal benefit in other ways. PARK arranged for Bilingual SEIT to pay his ex-wife and ex-sister-in-law for work they did not perform, and also arranged for Bilingual SEIT to pay for tutoring for PARK’s children and for a Bilingual SEIT employee to clean PARK’s home twice a week.

PARK, 46, of Manhasset, New York, pled guilty to one count of mail fraud, which carries a maximum term of 20 years in prison. He is scheduled to be sentenced by Judge Oetken on July 29, 2014, at 2:00 p.m. The maximum potential sentence 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 Office of the State Comptroller, the Special Commissioner of Investigation for New York City’s Department of Education, the Office of Inspector General for the United States Department of Education. He also thanked the Queens County District Attorney’s Office for its assistance.

This case is being prosecuted by the Office’s Public Corruption Unit. Assistant United States Attorneys Paul Krieger, Rebecca Ricigliano, and Martin Bell are in charge of the prosecution.

U.S. v. Cheon Park Information

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 Office of the United States Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), today announced charges against ALEXANDER KNOBEL, an employee of the United States Postal Service the (“Postal Service”), and his spouse, YANA MALKINA, for Medicaid fraud. The Complaint alleges that KNOBEL and MALKINA repeatedly submitted fraudulent documents to obtain and continue to receive Medicaid for themselves and their family, defrauding the Medicaid Program of nearly $100,000, and causing resources designed for low-income individuals to be diverted to themselves. The defendants were arrested this morning and are expected to be presented today before U.S. Magistrate Judge James L. Cott.

Manhattan U.S. Attorney Preet Bharara said: “Defendants like Alexander Knobel, a U.S. Postal Service employee, and his wife, Yana Malkina, who allegedly manipulate and exploit the Medicaid system, divert valuable resources from those who truly need the assistance. Such allegedly criminal conduct is particularly troubling when committed by an employee of the federal government.”

HHS-OIG Special Agent in Charge Thomas O’Donnell said: “Scammers who corruptly take advantage of the Medicaid system and deprive poor and vulnerable beneficiaries of the care and support they need, take note: the Office of Inspector General, New York Regional Office will continue to work aggressively to eliminate such schemes - and those who perpetrate them - from our health care system.”

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

Medicaid is a largely federally-funded program in the United States designed to provide low-income families with affordable health care. In New York State, the Department of Health administers the Medicaid Program, and the New York City Human Resources Administration oversees the program and processes applications in New York City.

In late 2008, KNOBEL, who had been employed by the Postal Service since the spring of 2006, and MALKINA, his wife, who had been employed as a home attendant for several years, submitted an application for Medicaid on behalf of themselves and their children in which they falsely stated that no adult in the household was employed. Based on this fraudulent application, KNOBEL, MALKINA, and their children were approved to receive Medicaid. Each year thereafter, KNOBEL and/or MALKINA submitted renewals to continue to receive Medicaid for themselves and their family. Each annual renewal form, signed by KNOBEL and/or MALINKA, contained multiple false statements, including with respect to KNOBEL’s employment, MALKINA’s employment and income, and whether KNOBEL and MALKINA were able to obtain health insurance through their employers. Further, in summer 2010, KNOBEL and MALKINA purchased a home for $445,000, but in multiple subsequent renewals, KNOBEL and MALKINA falsely stated that they did not own their home.

KNOBEL, 37, and MALKINA, 37, both of Brooklyn, New York, are each charged with one count of conspiracy to commit mail fraud and health care fraud, one count of mail fraud, and one count of health care fraud, which carry maximum sentences of 20 years, 20 years, and 10 years in prison, respectively. 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 investigative work of HHS-OIG, and thanked the United States Postal Service, Office of the Inspector General, and the New York City Human Resources Administration for their assistance in this investigation, which he noted is ongoing.

This 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 defendants are presumed innocent unless and until proven guilty.

U.S. v. Alexander Knobel and Yana Malkina Complaint

Preet Bharara, the United States Attorney for the Southern District of New York, announced that KRISTIN DAVIS, a former candidate for New York City Comptroller, pled guilty today in Manhattan federal court to illegally distributing prescription pills. DAVIS, who was arrested in August 2013, entered her plea today before U.S. District Judge Edgardo Ramos.

Manhattan U.S. Attorney Preet Bharara said: “Kristin Davis now stands convicted of illegally selling hundreds of highly-addictive and dangerous prescription pills in exchange for cash. Abuse of illegally distributed prescription pills is the fastest-growing drug problem in the country, and this Office will do everything in its power to help combat this public health epidemic.”

According to the Complaint, Superseding Information, other information in the public record, and today’s plea proceeding:

On multiple occasions from January 2013 to March 2013, DAVIS sold hundreds of prescription pills containing amphetamine, alprazolam, zolpidem, and carisoprodol to a person she knew from prior purchases and sales to be a drug dealer. Unbeknownst to DAVIS, the person was a cooperating witness (the “CW”) with the Federal Bureau of Investigation (“FBI”) and was equipped with a recording device. During these sales, DAVIS was recorded saying that the pills she was selling were “Ambien,” “Soma,” and “Xanax.” On a fourth occasion, in April 2013, DAVIS arranged for another individual to sell approximately 180 oxycodone pills to the CW.

There is an illegal market for all of the drugs DAVIS sold and assisted another to sell. Oxycodone is a powerful painkiller with a high potential for addiction and abuse, and it is often used as a substitute for, or adjunct to, other illegal drugs, such as heroin. Amphetamine is a psycho-stimulant, often referred to as “speed,” and it often used as a substitute for, or adjunct to, other illegal drugs, including methamphetamine and cocaine. Alprazolam is a psychoactive drug often used as a substitute for, or adjunct to, other illegal drugs, such as LSD, heroin or opiates. Zolpidem is a sedative/hypnotic drug often used as a substitute for, or adjunct to, other illegal drugs, including amphetamine, methamphetamine, cocaine, and MDMA (commonly known as ecstasy). Carisoprodol is a skeletal muscle relaxant often used in conjunction with painkillers and so-called “date rape” drugs.

DAVIS, 38, of New York City, pled guilty to one count of distributing and possessing with intent to distribute controlled substances, specifically alprazolam, zolpidem, and carisoprodol. She faces a 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. DAVIS is scheduled to be sentenced by Judge Ramos on July 25, 2014.

DAVIS was one of several people arrested as part of an ongoing joint investigation conducted by the FBI, the New York City Police Department ("NYPD"), and the U.S. Attorney’s Office into the unlawful distribution of prescription drugs containing controlled substances in and around New York City:

• Thomas Rock was arrested on July 10, 2013, for distributing and conspiring to distribute oxycodone and alprazolam. He pled guilty on February 24, 2014, before U.S. District Judge Paul A. Engelmayer to distributing oxycodone and alprazolam, and is scheduled to be sentenced by Judge Engelmayer on June 6, 2014.
• Eugene Kurochkin was arrested on July 11, 2013, for distribution of oxycodone, alprazolam, amphetamine, and zolpidem. He pled guilty on November 1, 2013, to distributing oxycodone, alprazolam, amphetamine, and zolpidem, and was sentenced by U.S. District Judge Robert W. Sweet on February 10, 2014, to 12 months in prison.
• Raoul Goldberger and Rebecca Teman were arrested on July 29, 2013, for distributing and conspiring to distribute amphetamine, oxycodone, and vicodin. Goldberger pleaded guilty on August 21, 2013, to distributing amphetamine and oxycodone, and is scheduled to be sentenced by U.S. District Judge Colleen McMahon on March 12, 2014. Teman pleaded guilty on November 12, 2013, before U.S. Magistrate Judge Henry B. Pitman to misbranding a prescription drug, and is scheduled to be sentenced by Judge Pitman on March 11, 2014.
• Erik Pichardo, who was referred to as “Individual-1” in the Complaint against DAVIS, was arrested in August 2013 for distributing oxycodone. He pled guilty on December 12, 2013, before U.S. District Judge Harold Baer to conspiracy to distribute oxycodone, and is scheduled to be sentenced by Judge Baer on April 10, 2014.
• David J. Wright was arrested on October 3, 2013, in connection with this investigation on charges of distributing oxycodone, amphetamine, and carisoprodol, which charges are pending. The charges against Wright are merely accusations, and he is presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the FBI. He also thanked the United States Department of Health and Human Services, Office of Inspector General, and the NYPD for their assistance in the ongoing investigation.

The cases are being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Daniel C. Richenthal, Kristy J. Greenberg, and Edward A. Imperatore are in charge of the prosecutions.

U.S. v. Kristin Davis Superseding Information

Preet Bharara, the United States Attorney for the Southern District of New York, announced that DR. SPYROS PANOS, an orthopedic surgeon, was sentenced today in White Plains federal court before U.S. District Judge Nelson S. Roman to serve 54 months in prison for operating a long-running health care fraud scheme in which PANOS defrauded Medicare, the New York State Insurance Fund, and numerous private health insurance providers (the “Health Insurance Providers”) out of over $2.5 million by systematically lying about the nature and scope of the surgical procedures that he performed. In addition, PANOS was ordered to forfeit $5 million. He was ordered to surrender to start serving his prison term in 30 days.

Manhattan U.S. Attorney Preet Bharara said: “Dr. Panos’s fraud was extensive, costing millions of dollars to federal, state, and private health insurance providers when he billed for thousands of surgical procedures that he falsely described or did not perform at all.”

According to the Information and other documents filed in this case:

PANOS was a board certified orthopedic surgeon licensed to practice medicine in the State of New York who was part a medical group with offices in Dutchess County, New York, (the “Medical Group”) and performed orthopedic surgical procedures (“Surgical Procedures”) at hospitals in Poughkeepsie, New York. From at least 2006 through July 2011, PANOS maintained a high-volume orthopedic practice, which enabled him to carry out his fraud scheme on a large scale. Panos performed thousands of Surgical Procedures, and often as many as 20 or more in a single day, for which he and the Medical Group submitted claims in excess of $35 million to Health Insurance Providers. Health Insurance Providers paid the Medical Group in excess of $13 million on these claims.

To receive payments for Surgical Procedures from the Health Insurance Providers, PANOS was required to submit, and caused the Medical Group to submit, information to the Health Insurance Providers regarding the nature and details of the Surgical Procedures. With respect to many of the Surgical Procedures he performed, PANOS furnished, and caused the Medical Group to furnish, false information to Health Insurance Providers that resulted in the Health Insurance Providers paying the Medical Group at least $2.5 million more than PANOS and the Medical Group were entitled to receive based on the true nature and details of the Surgical Procedures PANOS performed. Among PANOS’s false representations were the following:

a. PANOS claimed he performed open surgeries, when in fact PANOS performed the surgeries arthroscopically;

b. PANOS claimed he used certain techniques and procedures during the course of the Surgical Procedures, when in fact PANOS did not, either because they were not medically necessary or because PANOS used other techniques and procedures that would have resulted in lower payments, if any, from the Health Insurance Providers; and

c. PANOS removed body tissue, known in the medical field as loose bodies, in excess of certain size criteria, when in fact PANOS either removed no loose bodies or removed loose bodies that were smaller than the thresholds set by the Health Insurance Providers for payment.

PANOS, was compensated handsomely -- during the years 2007 through 2011, he was paid over $7.5 million by the Medical Group, a number that was inflated as a result of his fraud scheme.

Beginning in or about December 2010, PANOS attempted to conceal his scheme by, among other things, falsely representing to the Medical Group that the Fraudulent Claims were the result of clerical errors.

PANOS, 45, of Hopewell Junction, New York, also agreed to the entry of a $5 million order of forfeiture against him As a result of his conviction, PANOS is subject to mandatory exclusion from participation in any federal health care program, including Medicare and Medicaid. Following the uncovering of the scheme, Panos surrendered his New York State medical license. Judge Roman ordered PANOS to serve two years of supervised release upon completion of his prison term.

Mr. Bharara praised the work of the United States Postal Inspection Service, the United States Department of Health and Human Services – Office of Inspector General, and the Federal Bureau of Investigation, and thanked the United States Department of Health and Human Services, Office of Counsel to the Inspector General, the New York State Insurance Fund, the New York Workers’ Compensation Board Office of the Fraud Inspector General, and the National Insurance Crime Bureau for their extraordinary assistance in the investigation.

This case is being handled by the White Plains Division. Assistant United States Attorneys Lee Renzin and Daniel Filor 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 that PETER STRAIN, a talent agent for film, television, and Broadway actors, pled guilty today in Manhattan federal court to stealing more than half a million dollars from his clients, which he used to purchase personal luxury retail goods and artwork, among other things. STRAIN was originally charged in November 2013, and he pled guilty today before United States District Judge George B. Daniels.

Manhattan U.S. Attorney Preet Bharara said: “Peter Strain repeatedly lied to his clients about the payments for their acting work so that he could use the money for himself, as it suited his needs – including for personal luxury retail items. With today’s plea, Strain has admitted to his fraud, and he will be punished for his conduct.”

New York FBI Assistant Director-in-Charge George Venizelos said: “Peter Strain was making the old saying of robbing one person to pay someone else come to life. In this case he was robbing his clients and then paying himself, lying all along the way to try to cover his tracks. Embezzling more than a half a million dollars from clients is a serious offense. FBI will continue to investigate and bring those to justice who seek to do business in such a deceitful way.”

According to the allegations contained in a Superseding Information filed in Manhattan federal court and statements made in public court proceedings:

Through his talent agency Peter Strain & Associates (“PSA”), STRAIN represented television, film, and stage actors. As a talent agent, STRAIN received funds in trust for his clients for their acting work, and was required to remit those funds to his clients, less his commission, which was typically 10%. However, between approximately 2011 and 2013, STRAIN diverted money he received on behalf of three clients, and used it to, among other things, pay for personal luxury retail goods and artwork. In order to conceal his theft and ensure that his clients allowed him to continue receiving money on their behalf, STRAIN repeatedly lied to his clients about why he had failed to timely remit their money.

Between July 2011 and December 2011, STRAIN received more than $1.4 million in his trust account on behalf of a particular client (“Client-1”), an actor who earned that money for work on a currently broadcast television series. However, STRAIN failed to remit approximately $500,000 of this money to Client-1, and diverted it for his own use. In order to conceal his theft from Client-1, when STRAIN and Client-1 discussed the missing payments by telephone, STRAIN asked Client-1 if he could delay making the payments because, according to STRAIN, he was short on funds as a result of his partners at PSA embezzling money from the firm. STRAIN further claimed that he had recently won a lawsuit against his partners related to the supposed embezzlement, and that he was waiting to receive settlement payments from his partners.

As STRAIN knew, his statements to Client-1 regarding the lawsuit were false. In truth, STRAIN’s partners had filed a lawsuit accusing STRAIN of embezzling funds from PSA, and STRAIN agreed to settle the lawsuit by paying his partners more than $250,000 for their shares in PSA. Moreover, in order to make a payment required under the settlement, and rather than use his own money, STRAIN withdrew $30,000 from an account held in trust for his clients (“the Trust Account”).

Ultimately, during 2012, STRAIN repaid Client-1 by stealing money from a different client, Client-2, an actor who has appeared in several television shows, including a currently broadcast television series. STRAIN then lied to Client-2 in order to conceal his theft. Among other things, STRAIN falsely told Client-2 that STRAIN had recently hired a new business management team and that the new team must have misplaced Client-2’s money. In truth and in fact, STRAIN had used Client-2’s money to repay the money he had stolen from Client-1. STRAIN never fully repaid the money he took from Client-2, and still owes Client-2 in excess of $350,000.

In July 2012, STRAIN failed to timely remit over $200,000 in additional payments to Client-1 for Client-1’s television acting work. In an email to Client-1 asking for additional time to remit the money, STRAIN repeated his false claim that he had “won” the lawsuit with his partners and was waiting for his partners to pay him. STRAIN further falsely claimed that he had Client-1’s money in his possession, but that he was restricted from accessing the money due to court orders. Contrary to his representations to Client-1, and as STRAIN well knew, STRAIN had not “won” the lawsuit, was not restricted from accessing the funds owed to Client-1, and did not have sufficient funds in the Trust Account to pay Client-1. In fact, in the same month that STRAIN claimed he was unable to access Client-1’s money, STRAIN withdrew more than $80,000 from the Trust Account, leaving the account overdrawn by more than $9,000.

Between November 2012 and February 2013, STRAIN also stole tens of thousands of dollars from another client (“Client-3”), an actor who has appeared in several television shows, including a currently broadcast television series. To cover up his theft, STRAIN offered several false excuses to Client-3 for why he had failed to remit Client-3’s money. For example, in November 2012, STRAIN falsely claimed that Client-3’s payments had been lost in the mail. STRAIN also later falsely told Client-3 that the delays in remitting Client-3’s money were caused by a lawsuit, but that a confidentiality clause prevented STRAIN from discussing the details.

STRAIN used the money he stole from his clients to, among other things, pay operating expenses of PSA and to pay for personal luxury retail goods and artwork, some of which he purchased in New York using client money from California bank accounts. Between July 2011 and August 2012, using his clients’ money, STRAIN bought more than $161,000 in jewelry, more than $310,000 in artwork, and more than $57,000 at luxury goods retailers.

STRAIN, 64, of Studio City, California, pled guilty to one count of interstate transportation of stolen property, which carries a maximum term of 10 years in prison. He is scheduled to be sentenced before U.S. District Judge George B. Daniels on April 30, 2014, at 10:00 a.m. The maximum potential sentence 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 investigative work of the FBI.

The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys James Pastore, Jr., and Jason Hernandez are in charge of the prosecution.

Preet Bharara, the United States Attorney for the Southern District of New York, announced today the appointments of Brendan McGuire as Co-Chief of the Terrorism & International Narcotics Unit and Arlo Devlin-Brown as Chief of the Public Corruption Unit.

Mr. McGuire joined the U.S. Attorney’s Office in 2005. Prior to being named Co-Chief of the Terrorism & International Narcotics Unit, he served as Chief of the Public Corruption Unit and oversaw the successful prosecutions of former New York State Senator Carl Kruger, former New York City Council Member Larry Seabrook, former New York State Assemblyman Eric Stevenson, and the prosecution of individuals and entities involved in the CityTime fraud scheme. Previously, Mr. McGuire was a leading prosecutor in the Terrorism and International Narcotics Unit where he was part of the Southern District teams that successfully prosecuted Times Square bomber Faisal Shahzad and Somali pirate Abduwali Muse. Mr. McGuire was also a member of the trial teams that tried and convicted Russian arms trafficker Viktor Bout and Syrian arms dealer Monzer al Kassar for conspiring to kill Americans.

Prior to joining the U.S. Attorney’s Office, Mr. McGuire, 37, clerked for the Honorable Peter K. Leisure of the Southern District of New York and worked as an associate at Paul, Weiss, Rifkind, Wharton & Garrison and Stillman & Friedman PC in New York. He is a graduate of Williams College and New York University Law School.

Mr. Devlin-Brown joined the U.S. Attorney’s Office in 2005. Prior to being named Chief of the Public Corruption Unit, he served as Deputy Chief of the Unit. Mr. Devlin-Brown has also served as a member of the Securities & Commodities Fraud Unit, the Complex Frauds Unit, and the Organized Crime Unit. During his tenure, Mr. Devlin-Brown was part of the Southern District teams that prosecuted and convicted former portfolio manager Mathew Martoma and indicted four SAC Capital Management Companies for insider trading; he played a key role in the investigation and charging of JPMorgan Chase for Bank Secrecy Act violations in connection with Bernard L. Madoff’s multibillion-dollar Ponzi scheme that resulted in a $1.7 billion forfeiture to be used to compensate Madoff’s victims. Mr. Devlin-Brown successfully prosecuted one of the largest Medicare fraud schemes – approximately $100 million – perpetrated by a single criminal organization. He also handled the prosecution of 12 senior executives and others from three leading illegal Internet gambling companies, which resulted in the termination of U.S. operations of these companies and over $1.5 billion in forfeiture.

Prior to joining the U.S. Attorney’s Office, Mr. Devlin-Brown, 40, clerked for the Honorable Kermit V. Lipez, United States Court of Appeals for the First Circuit, and worked as an associate at WilmerHale in New York. He is a graduate of Columbia University and Harvard Law School.

In making these appointments, Mr. Bharara said: “Brendan McGuire and Arlo Devlin-Brown are talented and dedicated public servants who have already made significant and valuable contributions and served the residents of the Southern District in the highest traditions of this Office. I am confident they will continue to do the same in their new positions, and I am grateful for their service.”

Preet Bharara, the United States Attorney for the Southern District of New York, and James T. Hayes, Jr., the Special Agent-in-Charge of the New York Field Office of the U.S. Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations (“HSI”), announced today the arrest of SAMUEL WALDMAN for distributing child pornography. WALDMAN, 52, a rabbi and a teacher at a girl’s seminary, was arrested by HSI agents this morning at his residence in Brooklyn, New York. He was presented today before U.S. Magistrate Judge James L. Cott in Manhattan federal court.

Manhattan U.S. Attorney Preet Bharara said: “Samuel Waldman’s position of trust in the community, as both a rabbi and a teacher, makes his alleged distribution of child pornography all the more disturbing. As we have said repeatedly, we have zero tolerance for the exploitation of children and we will prosecute and punish those who engage in this conduct.”

ICE HSI Special Agent-in-Charge James T. Hayes, Jr. said: “Distributing child pornography is a serious crime made all the more disturbing when committed by an individual who has been implicitly entrusted as an educator. Through Operation Caireen, HSI New York and our partners will target individuals who abuse their positions of trust in our communities by committing crimes of sexual exploitation against children.”

According to the allegations in the criminal Complaint filed today in Manhattan federal court, in or about November 2013, WALDMAN distributed child pornography over the Internet by making available for downloading through file-sharing software multiple videos depicting minors engaged in sexual acts.

WALDMAN is charged with one count of transporting or distributing child pornography, which carries a mandatory minimum sentence of five years in prison, 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 maximum potential sentence in this case is 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 ICE HSI. He added that the investigation is continuing.

The prosecution is being handled by the Office’s General Crimes Unit. Assistant United States Attorney Patrick Egan is in charge of the prosecution.

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

ICE HSI encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline at 1-866-347-2423. This hotline is staffed around the clock by investigators.

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.

U.S. v. Samuel Waldman Complaint

Part of Broader U.S. Attorney’s Office and EPA Effort to Ensure Safe Drinking Water Act Compliance

Preet Bharara, the United States Attorney for the Southern District of New York, and Judith A. Enck, the Regional Administrator of the U.S. Environmental Protection Agency (“EPA”), announced the filing and settlement of a case in which the United States sued defendants EDWARD A. EHERTS (“Eherts”) and the PAINTED APRON WATER COMPANY, INC. (“Painted Apron”), for violations of the Safe Drinking Water Act (“SDWA”). The Court approved the settlement today.

Manhattan U.S. Attorney Preet Bharara stated: “Those in the business of providing drinking water to the public have a special responsibility to comply with water safety laws. Through this settlement, defendants have been called to account for longstanding violations of the Safe Drinking Water Act. This settlement also caps the efforts of our Office and EPA to ensure that the residents of the Painted Apron community in Orange County have access to water that complies with the law.”

EPA Regional Administrator Judith A. Enck stated: “Everyone has the right to clean drinking water, including customers of private water companies. This legal case will protect people’s health and remind all operators of private water companies that they must comply with the Safe Drinking Water Act.”

Defendant Painted Apron owned, and defendant Eherts operated, a public water system serving the Painted Apron development in the town of Deerpark in Orange County. As part of the settlement of this case, defendants “admit that they violated the SDWA, its implementing regulations and an administrative order issued by the EPA, by failing to monitor and treat water, make reports, take corrective action, and maintain a certified operator as required by applicable requirements of the SDWA and the administrative order.”

As alleged in the complaint, Eherts ignored repeated efforts by the EPA and state and local regulators to require him to bring this drinking water system into compliance. Rather than address the many violations, Eherts ultimately attempted to abandon the facility. “Defendants admit that “[a]s a result of” their “violations of the law, Defendants’ customers have been subjected to boil-water notices for multiple years.” These “boil-water” notices advised Painted Apron’s residents to boil their water before using it for human consumption or for food preparation. In addition to subjecting members of the community to these boil-water notices, Eherts’ violations also forced members of the community to spend their own time and money trying to keep the water system running as safely as possible.

In addition to admitting liability for these violations, the defendants have agreed to provide the Government with a lien on property in the amount of $50,000; to turn over all records relating to the water utility to new operators; and never again to serve as owners or operators of any public water system.

Beyond this settlement with the defendants, the U.S. Attorney’s Office and EPA have worked directly with the residents of the Painted Apron community to bring their drinking water into compliance with the SDWA. Through those efforts, a committee of residents was identified to replace Eherts as operator of the public water system and to bring the system into compliance. On July 22, 2013, the New York State Public Service Commission appointed this committee as the system’s temporary operator. As temporary operator, the committee is providing safe drinking water compliant with law, and the boil-water notices issued to these the residents have been lifted. Today’s settlement with Eherts and Painted Apron completes our Office’s efforts regarding the Painted Apron water system.

This Safe Drinking Water Act lawsuit follows a case brought by this Office and EPA in federal court against Westchester County earlier this year for Safe Drinking Water Act violations.

Mr. Bharara thanked EPA Region 2’s tireless efforts to work with this Office to restore safe drinking water to the Painted Apron community. Mr. Bharara also thanked the New York State Public Service Commission for its efforts to remedy the effects of defendants’ failure to comply with the law.

The case has been handled by the Office’s Environmental Protection Unit. Assistant U.S. Attorney Ellen London is in charge of the case.

U.S. v. Edward A. Eherts et al Stipulation of Settlement and Judgment
U.S. v. Edward A. Eherts et al Complaint

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 charging LAURI LOVE, a citizen of the United Kingdom, with computer hacking and aggravated identity theft. The charges stem from LOVE’s efforts in late 2012 and early 2013 to secretly infiltrate computer servers belonging to the Federal Reserve Bank (the “Federal Reserve”), remove non-public information from those servers, and publicly disclose that information by posting it on certain websites.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Lauri Love is a sophisticated hacker who broke into Federal Reserve computers, stole sensitive personal information, and made it widely available, leaving people vulnerable to malicious use of that information. We place a high priority on the investigation and prosecution of hackers who intrude into our infrastructure and threaten the personal security of our citizens.”

Assistant Director-in-Charge George Venizelos said: “As alleged in the indictment, Love was part of a sophisticated network of criminals involved in computer intrusions. Fortunately, Love underestimated the level of sophistication and dedication maintained by the FBI Cyber Division to vigorously investigate and identify Love’s criminal hacking and identity theft. Cyber crime knows no boundaries and justice will not stop at international borders. The FBI is committed to working with private and public entities to stop computer intrusions and prevent hackers from harming victim companies and individuals. We thank the Federal Reserve Bank of New York for its assistance in this investigation.”

According to the allegations in the Indictment unsealed today in Manhattan federal court:

LOVE is a sophisticated computer hacker who resides in the United Kingdom. From October 2012 through February 2013, LOVE worked with other computer hackers around the world to secretly gain access to the Federal Reserve’s computer servers in order to steal and then publicly disseminate confidential information found on those servers, including personal identification information of people using the Federal Reserve network.

LOVE and the other computer hackers communicated with each other by logging onto a restricted online “chat room” (the “Chat Room”) and sending messages to each other. As reflected in the Chat Room messages, in the months prior to the hack of the Federal Reserve servers, LOVE and the other hackers in the Chat Room were searching the Internet for computer servers that were running a particular software program (the “Program”). LOVE and the other hackers were aware that the Program contained a vulnerability that they could use to gain unauthorized access to those servers.

In October 2012, LOVE determined that certain of the servers that were running the Program belonged to the Federal Reserve. Thereafter, LOVE used a particular hacking method called a sequel injection to exploit the vulnerability in the Program and gain unauthorized access to certain Federal Reserve servers, including servers associated with the Federal Reserve Bank of New York. LOVE used his unauthorized access to locate and steal certain confidential information residing on the Federal Reserve servers, including the names, e-mail addresses, and phone numbers of users of the Federal Reserve computer system. LOVE then disseminated that information publicly by posting the information to a website that previously had been hacked and that he controlled.

LOVE, of Suffolk, England, has been charged with one count of computer hacking, which carries a maximum term of 10 years in prison, and one count of aggravated identity theft, which carries an additional sentence of two 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 investigative efforts of the FBI. He also thanked the Federal Reserve Bank of New York for its assistance in this investigation.

The case is being handled by the Office’s Complex Frauds Unit.

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

U.S. v. Lauri Love Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LLOYD BARRIGER, former president and principal shareholder of the Gaffken & Barriger Fund LLC (the “Fund”), which was a hedge fund based in Monticello, Sullivan County, New York, was sentenced today in White Plains federal court by U.S. District Judge Cathy Seibel to serve five and a half years in prison for committing securities fraud, conspiracy to commit securities fraud, mail fraud, and conspiracy to commit mail fraud in connection with a $12 million investment fraud scheme. In addition, BARRIGER was ordered to forfeit $12,387,494.01 and make restitution of $9,370,416.08 to his victims. He was also ordered to surrender to start serving his prison term on April 28, 2014.

U.S. Attorney Preet Bharara stated: “The trust put in Lloyd Barriger, a Sullivan County hedge fund manager, by hopeful investors proved to be sadly misplaced. Barriger took in $12 million of investments by lying to investors about the hedge fund’s performance. We hope that the sentence imposed today will serve as deterrence for other fund operators who may be tempted to lie.”

According to the Superseding Indictment and other documents previously filed in White Plains federal court:

From July 2006 through March 2008, when he froze the Fund, BARRIGER solicited over $12 million dollars from approximately 70 investors by deceiving them about the Fund’s performance. During this time period, the Fund invested primarily in real estate collateralized commercial mortgage loans. BARRIGER described the Fund to prospective investors as a safe and liquid investment that paid a minimum return of 8% per year, which BARRIGER referred to as the “Preferred Return.” He then reported this Preferred Return to investors as income on periodic account statements produced by the Fund. In reality, the Preferred Return reported to the investors greatly exceeded the funds actual performance.

BARRIGER tricked investors into investing their money by concealing material information from them, including that (1) the Fund had incurred a loss of $600,000 in 2005; (2) the Fund lacked sufficient income to support the promised 8% Preferred Return; (3) the Fund only continued to pay the Preferred Return -- when it actually paid the return rather than simply credit it to investors’ accounts -- by funding payments with investor capital, rather than income; (4) the Fund disguised the lack of income by creating a large and growing deficit in BARRIGER’s capital account with the Fund; (5) as a result of the failure of its borrowers to repay their loans, the Fund experienced a severe liquidity crunch and could not meet a substantial amount of withdrawal requests; (6) the Fund had defaulted on its $20 million line of credit with a third party lender in March 2007 and remained in default for much of the period thereafter, which entitled the lender to prohibit distributions to investors and to seize the Fund’s assets; and (7) delinquencies on the Fund’s loan portfolio spiked to over approximately 25% in July 2007 and increased to approximately 34% in November 2007.

In a letter dated May 30, 2008, BARRIGER told the investors that the Fund wrote down the value of the portfolio by approximately 40% and that there was a total reduction in investors ‘capital accounts from $25,538,530 to $15,003,208.

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

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being handled by the White Plains Division. Assistant United States Attorney John P. Collins, Jr. is in charge of the prosecution.

U.S. v. Lloyd Barriger S1 Indictment

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 that ANTHONIE R. SPARROW pled guilty for his role in perpetrating a $16 million investment scheme that victimized hundreds of investors around the world. SPARROW, who was charged in December 2009 and extradited from Spain in August 2013, pled guilty today in Manhattan federal court before U.S. Magistrate Judge Debra Freeman.

Manhattan U.S. Attorney Preet Bharara said: “Anthonie Sparrow engaged in a flagrant fraud, stealing millions of dollars from hundreds of innocent victims around the world, and then fled to Spain to try to avoid the consequences of his crime. His prosecution, possible only through an extradition from Spain, shows this Office’s resolve in holding accountable those who victimize innocent investors.”

Assistant Director-in-Charge George Venizelos said: “Sparrow minted his own destiny by lying to investors and cheating them out of millions of dollars. When the game was up, Sparrow fled to Spain where he thought he was beyond the reach of the FBI. Today, Sparrow finds himself guilty as charged, agreeing to forfeit all 16 million dollars made in his illicit scheme.”

According to the allegations contained in the Indictment and statements made at court proceedings:

From 2002 to January 2005, SPARROW and co-defendant Masroor A. Khan (“Khan”) orchestrated and carried out an extensive fraudulent coin investment scheme. The defendants solicited victims to invest in rare, collectible coins through Lloyd’s & Associates Asset Management Ltd. (“LAM”), a purported collectible coin and precious metal business run by SPARROW. The victims were directed to wire funds – purportedly for investments in rare coins – to LAM bank accounts in New York that SPARROW controlled. Khan and SPARROW told the victims that these funds would be used to purchase coins and that the coins would then be held at Pinnacle Depository Service (“Pinnacle”), a purported coin depository and secure storage area, which was also run by SPARROW.

However, rather than purchase coins with the victims’ funds as the defendants had promised, SPARROW simply diverted the vast majority of the money, totaling approximately $16 million, to a bank account in Cyprus controlled by LAM. To prevent the victims from discovering the theft of their investments, SPARROW maintained a website where victims were given false information about the value of the coins they supposedly owned. SPARROW deliberately discouraged victims from coming to view their coins in person and, when certain victims insisted on doing so, he staged elaborate ruses to prevent them from seeing more than a few coins.

Beginning in late 2004, victims began to demand the return of their funds. In response, in January 2005, SPARROW closed the New York office of LAM and fled to Spain.

SPARROW, 53, of Estepona, Spain, pled guilty to one count of conspiracy to commit wire fraud and one count of wire fraud. He faces a maximum sentence of 20 years in prison on each count. SPARROW is scheduled to be sentenced by Judge Robert W. Sweet on June 2, 2014, at 4:00 p.m. As part of his guilty plea, SPARROW also agreed to forfeit $16 million to the United States. 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.

Khan remains a fugitive from the charges contained in the Indictment.

Mr. Bharara praised the outstanding investigative work of the FBI. He also thanked the Spanish National Police for their assistance in the arrest and extradition of SPARROW.

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

The pending charges against Khan are merely accusations, and he is presumed innocent unless and until proven guilty.

U.S. v. Anthonie Sparrow and Masroor Khan Indictment

Preet Bharara, the United States Attorney for the Southern District of New York, announced that LIYING LIN, a/k/a “the Deacon,” was found guilty yesterday in Manhattan federal court of one count of conspiracy to commit immigration fraud and two counts of immigration fraud. LIN was convicted after a seven-day jury trial presided over by U.S. District Judge Robert P. Patterson, Jr. She was acquitted of one count of immigration fraud.

Manhattan U.S. Attorney Preet Bharara said: “As a unanimous jury decided, Liying Lin fraudulently exploited a program designed to provide a safe haven for actual victims of persecution. She coached asylum seekers on how to lie on their applications and in immigration proceedings, even signaling applicants when they deviated from her fraudulent script.”

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

LIN, a deacon at the Full Gospel Global Mission Church in Flushing, New York, trained applicants for political asylum on what questions about religious belief would be asked during these applicants’ asylum interviews and then coached the clients on how to answer. She conducted individual training sessions with certain applicants where she supplied the applicants with false details in support of their fraudulent asylum claims.

LIN also served as a translator during asylum interviews. LIN advised certain clients before their asylum interview that if they gave a wrong answer, she would kick them to alert them of their wrong answer.

LIN, 30, of Flushing, New York, faces a maximum sentence of five years in prison for the conspiracy count and a maximum sentence of 10 years in prison for each of the substantive immigration fraud counts; she is scheduled to be sentenced by Judge Patterson on June 2, 2014. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as the defendant’s sentence will be determined by the judge.

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

The case is being handled by the Office=s Organized Crime Unit. Assistant U.S. Attorneys Brian Blais and Rahul Mukhi are in charge of the prosecution.

U.S. v. Liying Lin Indictment